Income

Tax
(A.Y. 2011-12 &
2012-13)
T.VENKATARAMANAN.FCMA.FCS
Define tax 2

Tax is a payment made to

the government of a
country with out “ quid pro
quo”i.e. nothing in return.

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From where government get
authority to tax? WHAT DOES IT 3

SAY?

The authority to tax is derived by the government from

the constitu tion of the country.-i.e. article 265 of the
INDIAN CONSTITUTION.
It states that no tax shall be levied or collected by the
government without the authority of law.

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What are the objective of 4

taxation ?
The objective of taxation
may be expressed as 4 Rs
1)Revenue to the
government(2)redistribution
of wealth
(3)Reprising
(4)representation

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 Briefly describe Indian tax system

India has a well developed tax structure with a three-tier federal

structure, comprising the Union Government, the State Governments
and the Urban/Rural Local Bodies. The power to levy taxes and duties is
distributed among the three tiers of Governments, in accordance with the
provisions of the Indian Constitution(article 246)& vii schedules.
The main taxes/duties that the Union Government is empowered to levy
are Income Tax (except tax on agricultural income, which the State
Governments can levy), Customs duties, Central Excise and Sales Tax and
Service Tax. The principal taxes levied by the State Governments are Sales
Tax (tax on intra-State sale of goods),
Stamp Duty (duty on transfer of property), State Excise (duty on manufacture
of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural
purposes), Duty on Entertainment and Tax on Professions & Callings. The
Local Bodies are empowered to levy tax on properties (buildings, etc.),
Octroi (tax on entry of goods for use/consumption within areas of
the Local Bodies), Tax on Markets and Tax/User Charges for utilities
like water supply, drainage, etc.
5
Match the following:
1 Entry no 82
a Any other item

2 83 b Income tax other than

agrl.
c Customs including
3 84 export
d Excise excluding
4 85 liquor/norcotics
e Inter state –sales &
services
5 92 A,B,C
f Corporate tax

6 97

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What are the two types of taxes ? 7
Distinguish between them.

The two types of taxes are (1)DIRECT (2)INDIRECT

NO DIRECT INDIRECT
1 ON PERSONS ON GOODS &services
2 Collected from assessee Collected by dealers
direct &remitted to govt.
3 Burden not shiftable Cannot be shifted
4 On income On sale/purchase

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Direct tax
Income tax
 INDEX
1. Introduction
2. Residential Status
3. Tax Rates
4. Income from Salary
5. Income from House Property
6. Income from Business & Profession
7. Capital Gains
8. Income from Other Sources
9. Clubbing of Income
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9
 Contd…
10.Set-offCarry Forward
11.Deductions from Gross Total Income
12.Agricultural Income

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10
 Introduction

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11
 Charge of Income Tax

 Income tax is charged in assessment year at

rates specified by the Finance Act applicable
on 1st April of the relevant assessment year.
 It is charged on the total income of every
person for the previous year.
 Total Income is to be computed as per the
provisions of the Act.
 Income tax is to be deducted at
source or paid in advance
wherever required under the
provision of the Act.
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12
 Important Definitions
1. Person u/s 2(31) includes,
a. An Individual,
b. Hindu Undivided Family (HUF),
c. A Company,
d. A Firm,
e. An Association of Persons(AOP) or Body of
Individuals (BOI),
f. A Local Authority,
g. Every other Artificial Juridical Person

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13
 AOP & BOI
SEC 2(31) WHICH DEFINES A PERSON ALSO INCLUDES “AOP & BOI”
The supreme court in CIT Vs Indra balakrishna 39 ITR 546defines AOP to mean
Two or more persons joining in a common purpose or common action with a view
To produce income .however conclusion can be drawn in this regard only on the basis
of facts & circumstances

It may noted that the provisions relating to AOP & BOI ARE ONE & THE SAME
As regards computation & taxability of income

The main difference between the two is that , in the case of association of persons
Even body corporates & firms can be members where as in BOI ONLY
INDIVIDUALS canbe members.

14
DIVERSION & APPLICATION OF INCOME
15

X inherits a property subject to the right of residence in favour

of his mother , a part of the sale consideration paid to his
mother to forego her right of residence is diversion of
income.such diversion of income is at source by over riding title
then such income cannot be taxed in the assessee’s hands

Application of income
an aSSESSEE either on his own volition or otherwise foregoes
his income for any reason it amounts to application of income &
cannot be excluded from his total income
 Contd…

2. Assessment Year u/s 2(9) means, the period

of 12 months commencing on the 1st April
every year. It is the year (just after previous
year) in which income is earned is charged to
tax. The current Assessment is 2011-2012.
3. Previous Year u/s 2(34) means, the year in
which income is earned.

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16
 Contd…
4. Gross Total Income (G.T.I) :- The aggregate
income under the 5 heads of income (viz.
Salary, House Property, Business or
Profession, Capital Gains & Other Sources) is
termed as “Gross Total Income”.
5. Total Income (T.I) :- Total Income of assessee
is gross total income as reduced by the
amount permissible as deduction under
sections 80C to 80U.

Index
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17
 Residential Status

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18
 Types of Residential Status
The different types of residential status
are:-
Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

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19
 Residential Status of
The
Individual
residential status of individual will be determined as
under-
Assessee Basic Condition Additional Condition

He must satisfy at one of the basic

Resident Not required.
conditions.

He must satisfy either one or both

He must satisfy at least one of the
Not Ordinarily Resident the additional conditions given u/s
basic conditions.
6(6).

Should not satisfy any of the basic

Non-Resident Not required.
conditions.

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20
 Contd…
Basic Conditions u/s 6(1):
i. He must be in India for a period of 182 days or more
during the previous year; or
ii. He must be in India for a period of 60 days or more
during the previous year and 365 days or more during
the four years immediately preceding the previous year.
Additional Conditions u/s 6(6):
iii.He must be a non-resident in India in nine out of the ten
previous years preceding that year; or
iv. He must be in India during 7
preceding previous years for
aggregate period of 729 days or less.

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21
 Residential Status of HUF
The residential status of HUF depends upon the control
and management of its affairs.
› Resident HUF: If the control and management of the
affairs of HUF is situated wholly or partly in India then
HUF is said to be Resident in India.
› Non- Resident HUF: If the control and management of
the affairs of HUF is situated wholly outside India then
HUF is said to be Non- Resident in India.
› Not Ordinarily Resident HUF: A resident HUF is said to
be ‘Not Ordinarily Resident’ in India if Karta or
manager thereof, satisfies any of the
additional conditions u/s 6(6).

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22
 Residential Status
According to section 6(3) an Indian Company is always
Resident in India. A foreign Company will be resident in
India if Control or Management of its affairs is wholly
situated in India.
Residential Status of a firm or AOP or other person depends
upon control and management of its affairs.
 Resident: If the control and management of the affairs of a firm
or AOP or other person is situated wholly or partly in India then
such a firm or AOP or other person is said to be resident in India.
 Non-Resident: If the control and
management of the affairs of a firm or AOP or
other person is situated outside India then such a
firm or AOP or other person is said to be non-
resident in India.

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23
 Residential status -
Mr,A a British citizen, comes to India for the first time during 2004-5 .his stay in
India for 2005-6, 2006-7 .2007-8, 2008- 9,& 2009 -10 are as follows
a)55 days; 60 days ;80 days ,160 days & 70 days respectively .
Determine his residential status for AY 2010-11

ANS :HIS STAY IN INDIA

For 2009-10 is 70 days ; (b) stay in the
preceeding 4 years355. days.he fails in both conditionsd
therefore he is a NONRESIDENT

24
 Residential Status continued 25

Mr. B a Malaysian , leaves India after a period of 10 years stay on

01/06/2007.During FY 2008-9 HE COMES TO INDIA FOR 46
DAYS .Later he returns to India for good on 10/10/2009.Determine
his residential status for the AY 2010-11.Will your answer be
different if his date of departure was15/05/2007?

B stays from 10/10/2009 for 173.days.he

does not satisfy the 1st condition.but he has
stayed for more than 365 days in the
preceding 4 yrs. Hence he is resident.he
was resident in 9 out of 10 yrs & has been
in India for more than 729 days in the
preceding 7 yrs Therfore BisR.O.R.
Ans:1)yes may be legal or illegal(2)yes
26
3)no (4)yes (5) no. (6) no.

State with reasons whether the following receipts are

income u/s 2(24) of the IT.ACT
1)INCOME EARNED BY SMUGGLING GOLD INTO INDIA
2)Gift received by a doctor from a patient
3)Gift received by son from father on his marriage
4)Award received by a sports person
5)Award received by a nonprofessional sport person
6)Reimbursement of travelling expenses by a sales person
Determine the legal status of the following persons:

1)Chaitali coop H.S.ltd(6)XYZ & CO unregd firm

2)Mr.janakinandan (7)Jt.family of Rajesh,his wife &children
3)Mukund Iron Ltd. (8)Shramik sena
4)Mr.Badri prasad (9)mumbai municipal corporation
5)Union Bank of Allahabad (10)mumbai university

Ans :1)AOP (2)An Individual (3) co. (4 )individual

(5) Co (6) AOP/BOI (7)HUF (8)boi (9)local authority
(10)Artificial judicial person

27
 Incidence of Tax
Tax Incidence
Particulars
R NOR NR

Income received in India by or on behalf of assessee Yes Yes Yes

Income deemed to received in India by or on behalf of assessee Yes Yes Yes

Income accruing or arising in India Yes Yes Yes

Income deemed to accrue or arise in India Yes Yes Yes

Income which accrues or arise outside India Yes No No

28
From the following details calculate total income of Mr. S for the financial year
2012 -13 (a) as resident (b) not ordinarily resident ( c ) non resident

No Details of income Rs
1 Income from property remitted 210,000
from lanka to the assessee in
india
2 Profit from business in india 100,000
3 Loss from business in lanka 80,000
,managed from india
4 Dividend from foreign cos recd. 60,000
o/s India
5 Interest on deposits from 120,000
Indian cos
6 Total 5,17,000

29
Total income of Mr. S for the financial year 2012 -13
(a) as resident (b) not ordinarily resident ( c ) non resident

N Details of income R NoR Non R

o
1 Income from 210,00 210,00 210,00
property remitted 0 0 0
from lanka to the
assessee in india
2 Profit from business 100,00 100,00 100,00
in india 0 0 0
3 Loss from business (80000 NT
in lanka ,managed (80000 )
from india )
4 Dividend from Not Not
foreign cos recd. o/s 60,000 taxabl taxable
India e
5 Interest on deposits 120,00 120,00 120,00
from Indian cos 0 0 0
6 Total 410,00 350,00 430,00
0 0 0 30
 TAX RATES

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31
 RATES OF INCOME TAX (Assessment Year 2009-10)

1. In case of every Individual/

S.No HUF/ AOP/BOI artificial
INCOME TAX RATEjuridical
Person.

1 Up to 200,000 NIL

2 200,010-500000 10%

3 500010-1000000 20%

4 Above1000000 30%

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32
 Contd…
2. In case of resident women below 65 years of age.

S.No INCOME TAX RATE

1 Up to 200000 NIL

2 200010-500000 10%

3 500010-1000000 20%

4 Above 1000000 30%

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33
 Contd…
3. In case of resident senior citizen i.e. age of 65 years or above

S.No INCOME TAX RATE

(A.Y. 2010-11)

1 Up to 250000 NIL

2 250010-500000 10%

3 500010-1000000 20%

4 Above 1000000 30%

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34
 Contd…
PERSONS TAX RATE

FIRMS 30%

DOMESTIC COMPANY 30%

FOREIGN COMPANY 40%

LOCAL AUTHORITIES 30%

CO-OPERATIVE SOCIETIES
Up to 10000 10%
10000-20000 20%
Above 20000 30%

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35
 Surcharge & Cess
PERSON RATE OF SURCHARGE

Individual / AOP / BOI / HUF /

10% of tax liability if Income Exceeds Rs 10 Lacs
Artificial Juridical Person

Firm 10% of tax liability, if Income exceeds Rs. 1 Crore

Domestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore

Foreign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore

Co-operative Society N.A.

Local Authority N.A.

Education Cess and Secondary & Higher Education Cess is

applicable on every person @ 2% & 1% respectively on tax
liability and surcharge applicable, if any.
Note: surcharge on personal income-tax will be
eliminated from A.Y. 2010-11
10/23/19 Index
36
Income not Included in total income

1)Agricultural income u/s 10(1)

2)Receipt from HUF U/S 10 (2)
3)Share of profits from firm10(2A)
4)Interest to NON RESIDENT
5)Interest from govt sec to NRI
6)LTC
(7)Remuneration of foreign diplomat
(8)Foreign allowance
(9)Income consultant u/s10(8A)
(10)gratuity

37
Income from Salary

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38
 Meaning
Salary includes [section17(1)] :-
i. Wages
ii. Any annuity on pension
iii. Any gratuity
iv. Any fees, commission, bonus, perquisite on profits
in lieu of or in addition to any salary on wages
v. Any advance of salary
vi. Any earned leave
vii. Employers contribution (taxable) towards
recognized provident fund.

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39
 BASIS OF CHARGE
Income is taxable under head “Salaries”, only if there exists
Employer - Employee Relationship between the payer and the
payee. The following incomes shall be chargeable to
income-tax under the head “Salaries”:-
1.Salary Due
2.Advance Salary [u/s 17(1)(v)]
3.Arrears of Salary
Note:
(i)Salary is chargeable on due basis or receipt
basis, whichever is earlier.
(ii)Advance salary and Arrears of salary are
chargeable to tax on receipt basis only.

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40
 Allowances
Allowance is generally defined as a fixed
quantity of money or other substance given
regularly in addition to salary for the purpose of
meeting some particular requirement connected
with the services rendered by the employee or
as compensation for unusual conditions of that
service.
1.Dearness Allowance - It is Always Taxable.
2.City Compensatory Allowance - It is Always
Taxable.

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41
 Contd…
3. House Rent Allowance
Exemption In Respect Of House Rent allowance is
regulated by rule 2A. The least of the three given below is
Exempt from Tax.

An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay,

1 Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential
House is situated at any Other Place.

House Rent Allowance Received by The Employee in Respect of The Period during which
2
Rental Accommodation is Occupied by the Employee during the Previous Year.

3 The Excess of Rent Paid over 10 % of Salary.

10/23/19
42
 Contd…
4. Entertainment allowance [sec.169(ii)]-
Entertainment allowance is first included in salary in come
under the head “salaries” and thereafter a deduction is
given on the basis enumerated below:

Status of Employee

Non- Government Government

Least of the Following is

deductible :
Nothing is deductible
1. Rs. 5000
2. 20 % of basic salary
3. Amount of entertainment
allowance grated during the
10/23/19 previous year 43
 Contd…

5. Special allowances prescribed as exempt

under section 10(14) – In the cases given
below the amount of exemption under
section 10(14) is :–
i. The amount of the allowance ; or
ii. The amount utilized for the specific
purpose for which allowance is given.
Whichever is lower.

10/23/19
44
 Contd…
Exemption is available on the aforesaid basis in the case of following allowances :-

NAME OF ALLOWANCE NATURE OF ALLOWANCE

Travelling Allowance/ Transfer Any allowance granted to meet the cost of travel on tour or on transfer
Allowance (including sum paid in connection with transfer, packing and transportation
of personal effects on such transfer).

Conveyance Allowance Conveyance allowance granted to meet the expenditure on conveyance in

performance of duties of an office (expenditure for covering the journey
between office and residence is not to be included).

Daily Allowance Any allowance whether granted on tour or for the period of journey in
connection with transfer, to meet the ordinary daily charges incurred by an
employee on account of absence from this normal place of duty.

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 Contd…

6. When exemption does not depend upon

expenditure - In the cases given below, the
amount of exemption does not depend upon
expenditure incurred by the employee.
Regardless of the amount of expenditure, the
allowances given below are exempt to the
extent of –
i. the amount of allowance ; or
ii. the amount specified in rule
2BB,
Whichever is lower.
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46
 Contd…
Name of allowance
Special Compensatory
(Hill Areas) Allowance
Border area allowance
Tribal areas/ scheduled areas
allowance
Allowance for transport
employees
Children education allowance
Hostel expenditure allowance
Compensatory field area
allowance
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Exemption as specifiedin rule 2BB
Amount exempt from tax varies from Rs. 300 per mount to Rs. 7,000 per
month
The amount of exemption varies from Rs. 200 Per month to Rs. 1,300 per
month
Rs. 200 Per Month
The amount of exemption is-
a.70 per cent of such allowance; or
b.Rs. 6,000 per month, whichever is lower.
The amount exempt is limited to Rs. 100 per month per child up to a
maximum of two children.
It is exempt from tax to the extent of Rs. 300 per month per child up to a
maximum of two children.
Exemption is limited to Rs. 2,600 per month in some cases.
47
 Contd…
Name of Allowance Exemption as Specified in Rule 2BB

Compensatory modified area

Exemption is limited to Rs.1,000 per month in some cases.
allowance

Counter insurgency allowance Exemption is limited to Rs.3,900 per month in some cases.

It is exempt up to Rs. 800 per month (Rs. 1,600 per month in the case of
Transport allowance
an employee who is blind or orthopedically handicapped)

Underground allowance Exemption is limited to Rs. 800 per month.

It is exempt from tax up to Rs. 1,060 per month (for altitude of 9,000 to
High altitude allowance
15,000 feet) or Rs. 1,600 per month (for altitude above 15,000 feet).

Highly active field area

It is exempt from tax up to Rs. 4,200 per month.
allowance

Island duty allowance It is exempt up to Rs. 3,250 per month.

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48
 Contd…
7. Allowance to Government employees
outside India [Sec. 10( 7)] - Any allowance
paid or allowed outside India by the
Government to an Indian citizen for
rendering service outside India is wholly
exempt from tax.
8. Tiffin allowance - It is taxable.
9. Fixed medical allowance – It is taxable.
10. Servant allowance - It is
taxable.
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49
 Contd…
11. Allowance to High Court and Supreme Court
Judges - Any allowance paid to High Court
Judges under section & 22C of the High
Court Judges (Conditions of Service) Act,
1954 is not chargeable to tax.
12. Allowance received from a United Nations
Organization - Allowance paid by a United
Nations Organization to its employees is not
taxable by virtue of section 2 of the UN
(Privileges and Immunities) Act, 1974.

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50
 PERQUISITES
Perquisite may be defined as any Casual
Emolument or Benefit attached to an office or
position in Addition to Salary or Wages. It also
denotes something that benefits a man by going
in to his own pocket. Perquisites may be
provided in cash or in kind. Perquisites are
included in salary income only if they are
received by an employee from his employer.

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51
 “Perquisites” as defined u/s
17 (2)
The term “perquisites” is defined by section
17 (2) as including the following items:
1.The value of Rent-free Accommodation
provided to the assessee by his employer
2.The value of any concession in the matter of
rent respecting any accommodation provided to
the assessee by his employer

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52
 Contd…
3. The value of any benefit or amenity granted or
provided free of cost or at concessional rate in
any of the following cases :
i. By a company to an employee who is a director
thereof ;
ii. By a company to an employee, being a person who
has substantial interest in the company ;
iii. By any employer (including a company) to an
employee to whom provisions of (i) and (ii) above do
not apply and whose income under the head “salaries”
exclusive of the value of all benefits or amenities not
provided for by way of monetary benefits, exceeds
Rs. 50,000
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53
 Contd…
4. Any sum paid by the employer in respect of any
obligation which but for such payment would have
been payable by the assessee. Obligation of Employee
met by Employer.
5. Any sum payable by the employer, whether directly or
through a fund other than a recognized provident fund
or approved superannuation fund or a deposit-linked
insurance fund, to effect an assurance on the life of
the assessee or to effect a contract for an annuity
6. The value of any other fringe benefits
or amenity as may be prescribed

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54
 TERMINAL BENEFITS
1. Gratuity [Sec.10(10)] – Gratuity is a retirement benefit. It is
generally payable at the time of cessation of employment
and on the basis of duration of service. Tax treatment of
gratuity is given below:

Status of Employee

Government Non-government Non-government

Employee employee covered by employee not covered by
the payment of the payment of Gratuity
Gratuity Act, 1972 Act, 1972
It is fully exempt
from tax under
section 10(10)(i)
section 10(10)(i Least of following is exempt: Least of following is exempt:
1) “15 days’ salary” x “Length of 1) “½ month avg. salary” x
service” “Length of service”
2)
2) Rs.
Rs. 3,
3, 50,
50, 000
000 2)
2) Rs.
Rs. 3,
3, 50,
50, 000
000
3) Gratuity actually received. 3) Gratuity actually received.

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 Contd…
2. PENSION [SEC. 17(1)(ii)] - Pension is chargeable tax as
follows :-
PENSION

COMMUTED UNCOMMUTED

Non-
Government
Employee Government
Employee Taxable for
Government as
If Gratuity If Gratuity not well as Non-
Entire
Entire Commuted
Commuted Received Received Government
Pension is exempt employees
whether or not
1/3
1/3 of
of 1/2
1/2 of
of
Gratuity received.
commuted commuted
pension is pension is
exempt exempt

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 Contd…
3. Annuity [Sec. 17(1)(ii)] – An annuity payable by a present
employer is taxable as salary even if it is paid voluntarily
without any contractual obligation of the employer. An
annuity received from an ex-employer is taxed as profit in
lieu of salary.
4. Retrenchment compensation [Sec. 10(10B)] – Compensation
received by a workman at the time of retrenchment is
exempt from tax to the extent of the lower of the following:
a. an amount calculated in accordance with the provisions of sec.
25F(b) of the Industrial Disputes Act, 1947; or
b. such amount as notified by the Government (i.e.,
Rs, 5, 00, 000); or
c. the amount received.

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57
 Contd…

5. Compensation received at the time of

Voluntary Retirement [sec.10 (10C)] -
Compensation received at the time of
voluntary retirement is exempt from
tax, subject to certain conditions.
Maximum amount of exemption is Rs.
500000.

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58
 Provident Fund
Provident Fund Scheme is a welfare
scheme for the benefit of employees. The
employee contributes certain sum to this
fund every month and the employer also
contributes certain sum to the provident
fund in employees A/c. the employers
contribution to the extent of 12% is not
chargeable to tax.

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59
TAX TREATMENT OF PROVIDENT FUNDS

SL.N PART St.P RPF UNR PPF

O Icula F ECO
rs G PF
EMPL WHO EXEM EXE NO
OYER LLY PT 12 MPT cont
EXEM % ribut
1 PT ion
by
empl
oyer
2 8.5%

60
 LEAVE SALARY
Encashment of leave by surrendering leave standing to one’s
credit is known as “leave salary”.

LEAVE ENCASHMENT

Retirement / Leaving the Job

During Employment

Government Non-Government
Chargeable to Employee Employee
Tax

Least of following is exempt :-

1) Earned Leave on the basis of
Fully Exempt Average Salary
2) 10 x Average monthly salary
3) Rs. 500000
4) Leave Salary Received

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 Computation of income from salaries

Salary Allowance Perks Profit in lieu

of salary
basic DA Rent free EPF &
accommodatio INTEREST
n
fees HRA Concession in Puja bonus &
rent incentives
commission Conveyance Amenities free Key man
of cost insurance
policy
Pension CCA Obligation of
employee paid
by employer
gratuity Lunch allce LIP
EMPLOYEE/ann
uity
Leave salry Medical allce Fringe benefit
Annuity Servant allce
62
 Deductions Admissible in Computing
Income under head ‘SALARIES’
1. Entertainment allowance granted by
employer [Sec.16(ii)]: This deduction is
available in case of Government employees
only.
2. Employment Tax / Professional Tax
[Sec.16(iii)]: Any sum paid by assessee on
account of a tax on employment within the
meaning of Article 276(2). Under the said
article employment tax cannot exceed Rs.
2500 p.a.

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63
 Relief in respect of
Advance or Arrears of Salary u/s 89

When an assessee is in receipt of a sum in the

nature of salary, being paid in arrears or in
advance, due to which his total income is
assessed at a rate higher than that at which it
would otherwise have been assessed, Relief is
granted on an application made by the
assessee to the assessing officer.
10/23/19 Index
64
Compute the income of Sri Avinash
working in central railway from the
following particulars for the PY 2012-3:

1) Monthly basic salary Rs 58,000p.m

2) DA rs 5000.pm.
3)Spl allce Rs 3000/ pm
4) Bonus Rs 25,000
5) Car perk value Rs 13,500
6) Entertainment allce since 1/4/94/Rs 2000.pm
Of which he has already spent Rs 8000/=
7)Books Rs 1500 & professiontax paid Rs 2500

Ans:696,000+ 60,000+36000+25000+13500+24000=854,000
Less EA 5000/=+P.TAX 2500= 7500
=847,500

10/23/19 65
 Income from
House Property
SECTIONS -22, 23, 24, 25, 26, &27

10/23/19
66
 Basis of Charge
The basis of charge of income under the head
‘income from house property’ is the Annual
Value of the property. Annual Value is inherent
capacity of the property to earn an income. It is
the amount for which the property might
reasonably be expected to let from year to
year.
Income from house property is charged to tax
on Notional Basis, as generally tax is not on
receipt of income but on the inherent potential
of the house property to generate income.

10/23/19
67
 Conditions to be Satisfied
1. The property must consist of buildings or
lands appurtenant to such buildings.
2. The assessee must be the owner of such
house property.
3. The property should not be used by the
owner thereof for the purpose of any
business or profession carried on by him, the
profits of which are chargeable to tax.

10/23/19
68
 Computation of Gross Annual Value (GAV)

Step 1 : Calculate Expected Rent as follows:-

Particulars Amount Amount

(a) Fair Rent of the House xxx

(b) Municipal Value of House xxx

(c) Whichever is more of (a) and (b) XXX

(d) Standard Rent xxx

Expected Rent [whichever is less of (c) XXX

and (d)]

10/23/19
69
 Contd…
Step 2 : Compare Expected Rent & Actual Rent
Receivable (ARR).
Where the property or any part thereof is let out,
 If ARR is more than ER referred to in Step 1, then,
GAV = ARR
 If ARR is less than ER and it is due the vacancy of
property then, GAV = ARR
 If ARR is less than ER not owing to vacancy GAV =
ER

Note: ARR = Rent Received / Receivable less

Unrealized Rent

10/23/19
70
 Net Annual Value (NAV)

Net Annual Value is the sum computed

after deducting from Gross Annual Value,
the taxes levied by any local authority in
respect of the property.
NAV = GAV – Municipal Taxes Paid

10/23/19
71
 Meaning
1. Municipal Valuation :- For collecting municipal
taxes, local authorities make a periodical survey of
all building in their jurisdiction. Such valuation may
be taken as strong evidence representing the
earning capacity of a building.
2. Fair Rent of the Property :- Fair rent of the property
can be determined on the basis of a rent fetched
by a similar property in the same or similar locality.
3. Standard Rent :- Standard rent is
the maximum rent which a person
can legally recover from his tenant
under a Rent Control Act.

10/23/19
72
 Self-occupied Property [Sec.
23(2)]
Property is considered to be self – occupied
where,
 the property consisting of house or part
thereof is in the occupation of the owner for
the purposes of his own residence; or
 such property cannot actually be occupied by
the owner by reason of the fact that owing to
his employment, business or profession
carried on at any other place, he has to reside
at that other place in a building not
belonging to him.
10/23/19
73
 Contd…

In case of Self-occupied House Property

Net Annual Value is always Zero.
Since NAV is zero, the municipal taxes
paid by the owner of the house are not
deductible.

10/23/19
74
 Deduction Admissible u/s 24

i. Statutory deduction :- 30% of Annual Value

(i.e. 30% of NAV)
ii. Interest payable on capital borrowed for
acquisition, construction, repair, renewal or
reconstruction of house property :- Actual
amount of interest for the year on accrual
basis plus 1/5th of the interest, if any,
pertaining to the pre- acquisition or
pre-construction period.

10/23/19
75
 Deduction for Interest on
Capital Borrowed in case of SOP
Maximum limit of deduction in respect of interest
on capital borrowed in case of a Self-occupied
property whose annual value is assessed at NIL, is
Rs. 1,50,000 MAXIMUM
CASE DEDUCTION

Interest on capital borrowed on or after 1-

4-1999 for acquisition or construction of 1,50,000
house

In any other case 30,000

10/23/19
76
 Recovery of Unrealized Rent
[Section 25AA]

Any amount of rent realized by the assessee

during the previous year, which he could not
realize from a property let to a tenant, shall
be deemed to be income chargeable under
the head “Income from house property”.
100% of the amount actually received is
taxable in the previous year in which it is
realized.

10/23/19
77
 Arrears of Rent [Section 25B]

Arrears of rent shall be deemed to be

income chargeable under the head
“Income from house property”. It shall be
charged to income tax as income of
previous year in which it is received.
Taxable amount is computed as under
PARTICULARS AMOUNT
:-
The amount received as arrears of rent XXX
Less: 30% of such amount xxx
Amount taxable as arrears of rent XXX

10/23/19 Index
78
INCOME EXEMPT FROM TAX 79

U/S 10
INCOME FROM HP is
exempted in the following
cases:1)any one palace of
ex ruler (2)local
authority(3)scientific
research assn.
See sec 10 (19) to (27) p/78

10/23/19
Paramveer is the owner of a residential house
occupied by tenants X.Y.&Z the particulars of the
houses are given below
Partic Ist unit Ii unit III UNIT
ulars
GROSS 12,000 14,000 15,000
RATEABLE
VALUE
FAIR RENT 9,000 15,000 16,000
ACTUAL 11,400 10,800 18,000
RENT
Municipal 3240 3780 4050
tax
Expenses 1000 Nil nil
on repair
Expenses Nil 500 nil
on
collection

Municipal taxes for I unit borne by owner II & III are borne by tenants
10/23/19 80
Computation of Income from residential house
occupied by tenants X.Y.&Z
Partic Ist unit Ii unit III UNIT
ulars
GROSS 12,000 14,000 15,000
RATEABLE
VALUE
FAIR RENT 9,000 15,000 16,000
ACTUAL 11,400 10,800 18,000
RENT
Annual 12,000 15,000 18,000
value
Municipal 3240 3780* 4050*
tax
Net AV 8760 15,000 18,000
DEDUCTIO 2628 4500 5400
NS U/S 24
30 % OF AV
Municipal taxes for I unit borne by owner II & III are borne by tenants
10/23/19 81
 Income from
Business & Profession
SECTION 28 -44

10/23/19
82
 Basis of Charge [sec. 28]
The following income is chargeable to tax under the
head “Profits and gains of business or profession”:
1.Profits and gains of any business or profession;
2.Any compensation or other payments due to or
received by any person specified in section 28(ii);
3.Income derived by a trade, professional or similar
association from specific services performed for its
members;
4. The value of any benefit or
perquisite, whether convertible into
money or not, arising from business
or the exercise of a profession;

10/23/19
83
 Contd…
5. any profit on transfer of the Duty Entitlement
Pass Book Scheme.
6. Any profit on the transfer of the duty free
replenishment certificate;
7. Export incentive available to exporters;
8. Any interest, salary, bonus, commission or
remuneration received by a partner from firm;
Any sum received for not carrying out any
activity in relation to any business or not to
share any know-how, patent, copyright,
trademark, etc.

10/23/19
84
 Contd…
9. Any sum received under a Keyman insurance
policy including bonus;
10. Profits and gains of managing agency; and
11. Income from speculative transaction.
 
Income from the aforesaid activities is computed
in accordance with the provisions laid down in
section 29 to 44D.

10/23/19
85
 Expenses Expressly Allowed
1. Rent, rates, taxes, repairs and insurance for building
[Sec. 30]
2. Repairs and insurance of machinery, plant and
furniture [Sec. 31]
3. Depreciation allowance [Sec. 32]
4. Tea/coffee/rubber development account [Sec. 33AB]
5. Expenditure on acquisition of patent rights and
copyrights [Sec. 35A]
6. Insurance premium [Sec. 36 (1) (i)]
7. Premier for insurance on health of
employees [Sec. 36(1) (ib)]

10/23/19
86
 Contd…
8. Bonus or commission to employees [Sec. 36(1)(ii)]
9. Interest on borrowed capital [Sec. 36(1)(iii)]
10. Employer’s contribution to recognized provident fund
and approved superannuation fund [Sec. 36(1)(iv)]
11. Contribution towards approved gratuity fund [Sec.
36(1)(v)]
12. Employee’s contribution towards staff welfare
schemes
13. Bad debts [Sec. 36(1)(vii)]
14. Family planning expenditure [Sec.
36(1) (ix)]

10/23/19
87
 Contd…

15. Banking cash transaction tax, securities

transaction tax and commodities
transaction tax.
16. Advertisement expenses [Sec. 37(2B)].
17. General Deduction [Sec. 37(1)].

10/23/19
88
 EXPENSES NOT DEDUCTIBLE [Section 37(1)]

1. Damages and penalty paid for transgressing

the terms of agreement with the State.
2. Penalty and damages paid in connection with
infringement of law.
3. Litigation expenditure incurred for curing any
defect in the title of assets or completing
that title.
4. Litigation expenses for registration of shares.
5. Fees paid for increase of authorized capital.

10/23/19
89
 Contd…
6. Expenditure on raising equity share capital and
preference share capital. However, expenditure on
issue of bonus shares id deductible.
7. Amount paid for acquiring technical know-how which
is to be utilized for the purpose of manufacturing any
new article and such know-how is to become the
property of the assessee at the end of the stipulated
period.
8. Amount expended for acquiring a business or a right
of permanent character or an asset which
generates income or for avoiding compensation in
business.

10/23/19
90
 Contd…
9. Payments made for acquisition of good will.
10. Expenditure incurred for acquiring right over
or in land to win minerals.
11. Fees paid to obtain license to investigate and
search minerals.
12. Payment made in consideration of acquiring
a monopoly right to manufacturer a producer
(royalty payable on the basis of goods
produced under the same arrangement is,
however, deductible).

10/23/19
91
 Contd…
13. Tax paid by the assessee (who is defaulter by not
deducting tax at source under section 195) on behalf of
non-resident.
14. Compensation paid to contracting party with the object
of avoiding an unnecessary investment in capital assets.
15. Expenditure on shifting of registered office.
16. Insurance premia paid by a firm on life insurance
policies of its partners.
17. Amount paid by liquor contractor to
police staff and other officer to enable
it to make unauthorized purchases and
sales of liquor.

10/23/19
92
 Contd…

18. Amount paid by a company to the Registrar

of Companies as filing fee for enhancement
of capital base of the company.
19. Payment made by assessee company which
was partner in a firm, to outgoing partners of
firm on account of their agreeing to restrain
from carrying on similar business for a period
of 15 years.

10/23/19
93
 Specific Disallowances
1. Interest, Royalty, fees for Technical Services payable
outside India,if on such amount tax is deductible but
tax has not been deducted or deposited with
Government. [Sec. 40(a)(i)]
2. Fringe Benefit Tax [Sec. 40(a)(ic)]
3. Income-Tax [Sec. 40(a)(ii)]
4. Salary Payable Outside India without Tax Deduction
[sec. 40(a)(iii)]
5. Provident Fund Payment without tax
Deduction at Source [Sec. 40(a)(iv)]
6. Certain specified expenses in case of
Partnership Firm

10/23/19
94
 Contd…
7. Interest paid by an AOP/ BOI to its members is not
allowed as deduction by virtue of sec. 40(ba)
8. Payment to relatives in excess of fair value – not
deductible [Section 40A(2)]
9. Expenditure in excess of Rs. 20,000 in aggregate
in a day paid otherwise than by account payee
cheque drawn on a bank or account payee bank
draft – Not allowable [Section 40A(3))]
10. Amount not deductible in respect
of certain unpaid liabilities
[Sec.43B]

10/23/19
95
 Books of Accounts to be maintained [Section 44AA]

The persons carrying on specified professions are required

to maintain specified books of account only if the gross
receipts of their profession have exceeded Rs. 1,50,000
Every other person carrying on business or profession
shall keep and maintain such books of account and other
documents as may enable the Assessing Officer to
compute his total income in accordance with the
provisions of this Act.
a) If his income from business or profession
exceeds Rs. 1,20,000;
b) Total sales/turnover/gross receipts thereof
exceeds Rs.10,00,000
c) the assessee has claimed his income lower than
deemed profits

10/23/19
96
 Tax Audit u/s 44AB
This section applies to following :-
Person carrying on - Accounts are to be audited for previous year in which
-

Business Total sales, turnover or gross receipts exceed Rs.

40,00,000

Profession Gross receipts exceed Rs. 10,00,000

Business covered u/s He has claimed his income to be lower than the
44AB, 44AE, 44AF, 4BB profits or gains so deemed under the respective
and 44BBB section.

The assessee is required to get his accounts of such

previous year audited by a Chartered
Accountant before 30th September of the
assessment year.

10/23/19
97
 Special Provisions for Computing Income
on Estimated Basis 44AD, 44AE & 44AF
Not withstanding anything contained in Sections 28
to 43C, the following provisions will apply.
Sec. 44 AD Sec. 44 AE Sec. 44AF

Business of Civil construction or Plying, hiring or leasing Retail trade in any

Assessee supply of labour for it. goods carriages owned by goods or
him. merchandise.

This Section Gross receipts of such Goods carriages owned by Total business
applies if business during the assessee at any time turnover in that
previous year do not during previous year previous year
exceed Rs. 40 lacs. doesn’t exceed 10 lacs doesn’t exceed
Rs. 40 lacs.

Deemed 8% of Gross receipts (No. of heavy goods 5% of Gross

Profits vehicle x Rs. 3500 x NM) + receipts or such
(No. of other vehicles x Rs. higher sum as
3150 x NM) declared by him in
NM = No. of months his Return of
Income.

98
 DEPRICIATION [Sec. 32]
Depreciation allowance [Sec. 32] - Depreciation shall
be determined according to the provisions of section
32.
Conditions for claiming Depreciation - In order to avail
depreciation, one should satisfy the following
conditions:
› Asset must be owned by the assessee.
› It must be used for the purpose of business or
profession.
› It should be used during the relevant previous year.
› Depreciation is available on tangible as well as
intangible assets.

10/23/19
99
 Contd…
Block of Assets [Sec. 2(11)] - The term “block of
assets” means a group of assets falling within a
class of assets comprising –
› tangible assets, being buildings, machinery,
plant or furniture;
› intangible assets, being know-how, patents,
copyrights, trade marks, licenses, franchises or
any other business or commercial rights of
similar nature.
› In respect of which the same
percentage of depreciation is
prescribed.

10/23/19
100
Kamal started business with the following
assets you are required to form block of assets 101

& compute depreciation for the ay 2011-12

SL. PARTICULARS RATE OF DEP RS

NO %
1 OFFICE building 10 23,00,000
2 Factory building 10 18,00,000
3 Residential for workers 5 900,000
4 officefurniture 15 200,000
5 Residential furniture 15 100,000
6 Copy rights trade marks 25 600,000
7 Plant & m/c normal 20 900,000
8 Do- computer 60 100,000
9 Do- delivery van 20 100,000
10/23/19
 Contd…

Written Down Value [Sec. 43(6)] - Written down

value for the assessment year 2009-10 will be
determined
Find out as
the under:
depreciated value of the block on the April 1,
Step 1 2008.

To this value, add “actual cost” of the asset (falling in the

block) acquired during the previous year 2008-09.
Step 2

From the resultant figure, deduct money received/receivable

(together with scrap value) in respect of that asset (falling
within the block of assets) which is sold, discarded demolished
or destroyed during the previous year 2008-09.
Step 3

10/23/19
102
 Contd…
Meaning of “Actual Cost” [Sec. 43(1)] - It means the
actual cost to the assessee as reduced by the
proportion of the cost thereof, if any, as has been
met, directly or indirectly, by any other person or
authority.
If written down value of the block of asset is reduced
to zero, though the block is not empty - No
depreciation is admissible.
If the block of assets is empty or ceases to exist on
the last day of the previous year though the written
down value is not zero - No
depreciation is admissible.

10/23/19
103
 Contd…
Additional depreciation @ 20% is available on new plant or
machinery acquired & installed after 31.03.05, if used in
production or manufacturing.
If asset is used for less than 180 days during the previous
year, in which its purchased, then deprecation & additional
depreciation is restricted to 50% of actual depreciation.
However in subsequent year full depreciation is allowed
irrespective of use.
When a depreciable asset(on which depreciation is claimed
on straight line basis) of a power generating unit is
disposed in a previous year, then terminal depreciation
(loss) is deductible or balancing charge (gain) is taxable.

10/23/19
104
 Partnership
Deductibility of interest paid to partners by firm
depends upon following :-
› Payment of interest should be authorized by the
partnership deed
› Payment of interest should pertain to the period after the
partnership deed.
› Rate of interest should not exceed 12 percent
Deduction of Remuneration to Partners can be
claimed if paid :-
› to a Working Partner
› According to the Partnership Deed
› Does not exceed the Permissible Limits.

10/23/19
105
 Contd…
The maximum amount of salary paid to all the
partners during the previous year should not exceed
the limits given below :-
In case of a firm carrying of a profession referred to in section 44AA

On the first Rs. 1,00,000 of the book profit Rs. 50,000 or at the rate of 90 percent of
or in case of a loss the book profit, whichever is more

On the next Rs. 1,00,000 of the book profit At the rate of 60 percent

On the balance of the book profit At the rate of 40 percent

In the case of any other firm

On the first Rs. 75,000 of the book profit or Rs. 50,000 or at the rate of 90 percent of
in case of a loss the book profit, whichever is more

On the next Rs. 75,000 of the book profit At the rate of 60 percent

On the balance of the book profit At the rate of 40 percent

106
 Minimum Alternate Tax
Applicability of Minimum(MAT)
alternate tax (MAT) sec. 115JB :-
 Minimum alternate tax (MAT) sec. 115 JB MAT is
applicable in case of companies only.
 If tax liability of a company under normal provision is
lower than 10% of book profit.
 In such case, book profit shall be deemed as total
income & 10% of book profits should be deemed as
tax liability.
 Up to assessment year 2001-02 these
provisions were covered by sec. 115
JA.

10/23/19
107
 Contd…

 A company is allowed credit of tax paid

u/s 115-JB for the assessment year 2006-
07 and onwards in accordance with the
provisions of section 115-JAA.
 MAT credit can be carried forward for a
period of seven years.

Index
10/23/19
108
Income from Capital
Gains

10/23/19
109
 Basis of Charge

Capital Gain’s tax liability arises only when the

following conditions are satisfied:
1.There should be a capital asset.
2.The capital asset is transferred by the
assessee
3.Such transfer takes place during the previous
year.
4.Any profit or gains arises as a result of
transfer.
5.Such profit or gains is not exempt from tax
under
10/23/19 section 54, 54B, 54D, 54EC,11054F,
 Capital Assets
“Capital asset” is defined to include property of any kind,
whether fixed or circulating, movable or immovable,
tangible or intangible. However, following are excluded
from the definition of “capital assets”:
1.Any stock-in-trade, consumable stores or raw material
held for the purposes of business or profession.
2.Personal effects of the assessee, that is to say, movable
property including wearing apparel and furniture held for
his personal use or for the use of any member of his family
dependent upon him. However, Jewellery, Archaeological
Collections, Drawings, Paintings, Sculptures, or Art Work
will not be considered as “personal effects”.

10/23/19
111
 Contd…
3. Agricultural land in India provided it is not situated
–
› in any area within the territorial jurisdiction of a
municipality or cantonment board, having a
population of 10,000 or more; or
› in any notified area.
4. 6½ percent Gold Bonds, 1977 or 7 percent Gold
Bonds, 1980 or National Defense Gold Bonds, 1980
issued by the Central Government.
5. Special Bearer Bonds, 1991.
6. Gold Deposit Bonds issued under
Gold Deposit Scheme, 1999.
10/23/19
112
 Short-term / Long-term
Capital Assets

“Short term capital asset” means a capital asset held by

an assessee for not more than 36 months, immediately
prior to its date of transfer. In other words, if a capital
asset is held by an assessee for more than 36 months,
then it is known as “long term capital asset.”
However in following cases 36 months will be replaced
by 12 months :-
 Equity or preference shares in a company
 Listed Securities
 Units of UTI
 Units of a mutual fund specified
under section 10(23D)
 Zero coupon bonds

10/23/19
113
 Illustration
1)Discuss the liability to taxation of capital gains ,in the following cases.give
reasons for your answer.
a)Mr.kantilal ,a manager of a public ltd co , Receiving remuneration had a
personal car,which he had bought For Rs 70,000/=in 1992.He sold it for the
previous year95-96 for Rs 65,000/=&claimed the difference as an allowable loss
b)Mrs. Asha purchased a diamond necklace , in 1990,for Rs 1.lakh. She sold
it for Rs 450,000 in the year 94-95

a) u/s 2(14) personal car owned by Mr.Kanthilal falls within personnel effect.
Therefore car is not a capital asset.
b)In this case jewellery is specifically excluded from personal effects therefore
Sale of diamond necklace is chargeable to tax as capital gain

10/23/19 114
Determine whether short term 115

or long term?
1)Mr.R had purchased a house
property on 31/01/2009 & sold
it to sham in 23/01/2012.
2)Mr Vinit purchased shares of
m/s Bongaigaon refinery on
10/01/2010.
&sold the same on 09/07/2011.

1)For nonfinancial assets ,holding period is not more than 36, months it is
short term, in this case it is only 35 months &24 days.Therefore this is STCG.
2) FOR FINANCIAL ASSETS it is one year .therefore this is LTCG.

10/23/19
 Important Terms
1. Transfer of Capital Asset :- Transfer, in relation to
capital asset, includes sale, exchange or
relinquishment of the asset or the extinguishment of
any rights therein or the compulsory acquisition
thereof under any law [sec. 2(47)].
2. Full Value of Consideration :- The expression “full
value” means the whole price without any deduction
whatsoever.
3. Expenditure on Transfer :- The
expression “expenditure on transfer”
means expenditure incurred which is
necessary to effect the transfer.

10/23/19
116
 Contd…
4. Cost of Acquisition :- Cost of acquisition of an
asset is the value for which it was acquired
by the assessee. In case of Depreciable Asset
COA is the WDV of asset in the beginning of
the year. In case of Slump Sale COA is the
Net Worth of the undertaking.
5. Cost of improvement :- Cost of improvement
is capital expenditure incurred by an
assessee in making any additions/
improvement to the capital asset.

10/23/19
117
 Contd…
6. Indexed Cost of Acquisition :- the amount which
bears to the COA, the same proportion as CII for
the year in which the asset is transferred bears
to the CII for the first year in which the asset
was held by the assessee or on 01.04.1981,
whichever is later.
7. Indexed Cost of Improvement :- an amount
which bears to the COI, the same proportion as
CII for the year in which the asset is transferred
bears to the CII for the year of improvement.

10/23/19
118
 Capital Gain Exemption
1. Profit on sale of property used for residence [S.
54]:- Available to Individual & HUF on transfer of
Long-term Residential Property and new
residential House property is purchased or
constructed.
2. Capital gains on transfer of agricultural land
[S.54B]:- Available to Individual on transfer of
Agricultural land used by individual or his parent
for agricultural purposes during 2 year
preceding date of transfer and Agricultural
land (urban or rural) is purchased.

10/23/19
119
 Contd…

3. Investment in certain bonds [S.54EC] :-

Available to all assesses on transfer of
any long-term capital asset for purchase
of Bonds, redeemable after 3 years issued
by
(a) National Highway authority of India; or
(b) Rural Electrification Corporation,

10/23/19
120
 Contd…

4. Capital gain on transfer of certain capital

assets not to be charged in case of
investment in residential house [S. 54F]:-
Available to Individual & HUF on transfer
of Long-term Asset other than Residential
house Property and residential House
property is purchased or constructed.

10/23/19
121
 Contd…

5. Compulsory acquisition of land & building

[S.54D]:- Available to all assesses on
Compulsory acquisition of land or building
which was used in the business of
industrial undertaking during 2 years
prior to date of transfer, if New land or
building for the industrial undertaking is
purchased or constructed.

10/23/19
122
 Contd…

6. Shifting of undertaking to rural area

[Sec.54G]:- Available to all assesses on
Transfer of plant, machinery or land or
building for shifting industrial undertaking
from under area to rural area, if (a)
Purchase/ Construction of plant, machinery,
land or building in such rural area or, (b)
Shifting original assets to that area or, (c)
Incurring notified expenses.

10/23/19
123
 Contd…
7. Shifting of undertaking to SEZ
[Sec.54GA]:- Available to all assesses on
Transfer of plant, machinery or land or
building for shifting industrial undertaking
from urban area to special Economic
Zone, if (a) Purchase/ Construction of
plant, machinery, land or building in such
SEZ or (b) Shifting the original asset to
SEZ or, (c) Incurring notified expenses.

10/23/19
124
 Computation of Short-term
Capital Gains
Particulars Amount

Full Value of Consideration XXX

Less: Expenses incurred wholly and exclusively for xxx

such transfer
Net Consideration XXX

Less: Cost of Acquisition xxx

Less: Cost of Improvement xxx

Less: Exemption u/s 54B, 54D, 54G, 54GA xxx

Taxable Short -term Capital gains XXX

10/23/19
125
 Computation of Long-term
Capital Gains
Particulars Amount

Full Value of Consideration XXX

Less: Expenses incurred wholly and exclusively for xxx

such transfer
Net Consideration XXX

Less: Indexed Cost of Acquisition xxx

Less: Indexed Cost of Improvement xxx

Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA xxx

Taxable Long- term Capital gains XXX

10/23/19
126
 Indexed Cost

Cost Inflation Index

Cost of (CII) for the first
Indexed acquisition / year in which the
Cost of improvemen asset was held by
Acquisition t x Cost the assessee or for
/ inflation the year beginning
Improveme Index of the on 1.4.1981,
nt year of whichever is later /
transfer the year of
improvement

10/23/19 Index
127
Mr.Rohan purchased a residential house in july
1989 for Rs 400,000.sold it on 1 st may 2011
128
for Rs 25 lakhs .He paid brokerage 2%
.Determine CG in the following cases:

1)Purchased residential house for Rs 470,000/=constructs I

floor by jan 2012 @ cost of Rs 100,000/=deposits Rs
253488/=under CG scheme.by 30/09/2012 being the due date
for filing the return.
2) None of the above
3)He constructs a house for Rs 15lakhs by the end of sep due
date for filing the return.m

10/23/19
Solution

No Details I II III
1 SALE PRICE Rs 25,00,00 25,00,00 25,00,00
0 0 0
2 Brokerage 50,000
50,000 50,000
3 Indexed cost 18,25,58 18,25,58
1 1 18,25,58
1
4 1)InLong ternno
this case CGtax will624 ,419 624,419
be payable 624,419
gets exemptions u/s 54
2)In this case he has not availed any .Therefore full amount is taxed .
3)Tax -nil

10/23/19 129
Mr. Kasad purchases one bangalow for Rs
51,000/= in the year 63-4.constructed 2 130
additional roomsin 72-3.by spending 1
lakhHe dies on 1/10/79.& as per his will
the house is transferredto his son
Firdosh, who sells it for Rs 25 lakhs in the
AY 2012-13.COMPUTE CG( the fair mkt
value on 81 Rs 2 lakhs). .

SALE Rs 25,00,000
Cost 15,70,000+
236 ,090+ 11,001 = 18,17,091= 682, 909.

10/23/19
 Income from
Other Sources

10/23/19
131
 General [Section 56(1)]
Income of every kind, which is not to be
excluded from the total income and not
chargeable to tax under any other head,
shall be chargeable under the head
“Income from Other Sources”.

10/23/19
132
 Specific Income [Section
1. Dividends. 56(2)]
2. Lottery winnings etc.: Winnings from lotteries,
crossword puzzles, races including horse races, card
games and other games of any sort or from gambling
or betting of any form or nature whatsoever.
3. Any sum received by an employer-assessee from his
employees as contributions to any welfare fund, if the
same is not chargeable under the head ‘Profits and
Gains of Business or Profession.’
4. Income by way of interest on
securities if not chargeable as Profits
and Gains of Business or Profession

10/23/19
133
 Contd…
5. Income from letting on hire of Plant, machinery or
furniture belonging to the assessee, if not
chargeable to under the head ‘Profits and Gains of
Business or Profession’.
6. Income from letting on hire of machinery, plant or
furniture and also buildings, and the letting of
buildings is inseparable from letting of such
machinery, plant or furniture, if the same is not
chargeable to income tax under the head ‘Profits
and Gains of Business or Profession.’
7. Interest on bank deposits and
loans

10/23/19
134
 Contd…
8. Any sum received under a Keyman insurance policy
including the sum allocated by way of bonus on such
policy, if the same is not chargeable to income-tax
under the head ‘Profits and Gains of Business or
Profession’ or under the head “Salaries.”
9. Cash Gifts exceeding Rs. 50,000
10. Interest on foreign government securities
11. Agricultural income received from outside India
12. Income from sub-letting
13. Director’s fee
14. Income of race establishment

10/23/19 Index
135
Clubbing of Income

10/23/19
136
 Cases where Clubbing
1.
Applies
Transfer of income without transfer of asset [Sec.
60] :– The income from the asset would be
taxable in the hands of the transferor.
2. Revocable transfer of assets :- Income from such
asset is taxable in the hands of the transferor.
3. An individual is assessable in respect of
remuneration of spouse [Sec. 64(1)(ii)] :- When
Spouse is employed in the concern without any
technical or professional knowledge or
experience or when he/ she has substantial
interest in that concern.

10/23/19
137
 Contd…
4. An individual is assessable in respect of
income from assets transferred to spouse:-
When the asset is transferred otherwise than
(a) for adequate consideration, or (b) in
connection with an agreement to live apart.
5. An individual is assessable in respect of
income from assets transferred to son’s wife
[Sec. 64(1)(vi)]:- When the asset is
transferred otherwise than (a) for
adequate consideration

10/23/19
138
 Contd…
6. An individual is assessable in respect of income
from assets transferred to a person for the
benefit of spouse [Sec. 64(1)(vii)] :- It is
transferred for the immediate or deferred
benefit of his/her spouse. The transfer is
without adequate consideration.
7. An individual is assessable in respect of income
from assets transferred to a person for the
benefit of son’s wife [Sec. 64(1)(viii)] :- It is
transferred for the immediate or
deferred benefit of his/her son’s wife.
The transfer is without adequate
consideration.
10/23/19
139
 Contd…

8. An individual is assessable in respect of

income of his minor child [Sec. 64(1A)] :- The
income of minor will be included in the
income of that parent whose total income
[excluding the income includible under
section 64(1A)] is greater.
9. Clubbing in case of transfer of property to
HUF [Section 64(2)] :- When Income from
asset transferred to HUF for inadequate
consideration.
10/23/19
140
 Undisclosed Income /
Investments
1. Cash credit [Sec. 68] - Where any sum is
found credited in the books of an
assessee maintained for any previous
year and the assessee offers no
explanation about the nature and source
thereof, the sum so credited may be
charged to income-tax as the income of
the assessee of that previous year.

10/23/19
141
 Contd…
2. Unexplained investments [Sec.69] –
Where in the financial year immediately
preceding the assessment year, the
assessee has made investments which
are not recorded in the books of account
maintained by him and the assessee
offers no explanation about the nature
and source of the investments, the value
of the investments may be deemed to be
the income of the assessee of such
financial year.
10/23/19
142
 Contd…
3. Unexplained money, etc [sec. 69A] -
Where in any financial year the assessee
is found to be the owner of any money,
bullion, jewellery, or other valuable article
which are not recorded in the books of
account maintained by him and the
assessee offers no explanation about the
nature and source of acquisition then
value of such things may be deemed to
the income of the assessee for such
financial year.
10/23/19
143
 Contd…
4. Amount of investments, etc., not fully disclosed
in books of account [Sec.69B] – Where in any
financial year the assessee has made
investments or is found to be the owner of any
bullion, jewellery or other valuable article, and
the A.O. finds that the amount expended on
making such investments or in acquiring such
things exceeds the amount recorded in the
books of account maintained by the assessee,
and he offers no explanation about such
excess amount, the excess amount
may be deemed to be the income of
the
10/23/19
assessee, for such financial year.
144
 Contd…
5. Unexplained expenditure, etc. [Sec. 69C] – Where in
any financial year an assessee has incurred any
expenditure & he offers no explanation about the
source of such expenditure, the amount covered by
such expenditure, may deemed to be the income of
the assessee for such financial year.
6. Amount borrowed or repaid on hundi [Sec. 69D] –
Where any amount is borrowed on a hundi, or any
amount due thereon is repaid otherwise than through
an account payee cheque, the amount so borrowed or
repaid shall be deemed to be the income of
the person borrowing or repaying for the
previous year in which the amount was
10/23/19 Index
borrowed or repaid. 145
 Set-off &
Carry Forward

10/23/19
146
 Process of Set-off & Carry
The process of setting offForward
of losses and their carry forward may
be covered in the following steps:

Step 1 Inter-source adjustment under the same head of income

Inter-head adjustment in the same assessment year. Step 2

Step 2
is applied only if a loss cannot be set off under Step 1.

Carry forward of loss. Step 3 is applied only if a loss cannot

Step 3
be set off under Steps 1 and 2.

10/23/19
147
 Unabsorbed Depreciation
While dealing with unabsorbed depreciation one should keep in
mind the following points:
Depreciation allowance of the previous year is first deductible
from the income chargeable under the head “Profits and gains
of business or profession”.
Step 1

If depreciation allowance is not fully deductible under the head

“Profits and gains of business or profession” because of absence
or inadequacy of profits, it is deductible from income chargeable
Step 2 under other heads of income [except income under the head
“Salaries”] for the same assessment year.

If depreciation allowance is still unabsorbed, it can be carried

forward to the subsequent assessment year(s) by the same
Step 3 assessee.

10/23/19 148
 Inter-Source Set Off [Section
70]
Loss arising from one source of income under a head
can be set off against income arising from any other
source under the same head, except in the following
cases –
Loss Set-off allowed against

Long-term capital Loss Long-term Capital Gain

Speculation business loss Speculation business gain

Loss from business of owning and Income from business of owning and
maintaining race horse maintaining race horse

Loss from lottery, card games, Income from lottery, card games,
gambling betting etc. gambling betting etc.

10/23/19
149
 Inter-Head Set-off [Section
71]
Loss arising under one head of income can be set off
against income under any other head, except in the
following cases –
1.Loss arising under the head capital gain cannot be
setoff from income under any other head
2.Losses under the head “Profits and gains of business
or profession” cannot be set off against income under
the head “Salaries”.
Note: Unabsorbed depreciation of past year(s) is carried
forward u/s 32(2); therefore, the same can be set-off
against income under the head ‘Salaries’.

10/23/19
150
 Provisions relating to carry forward and setoff of losses

No. of years for which

Income against which
Sec. Loss to be carried forward it can be carried
the loss can be setoff
forward
71B Loss from house property Income from house 8 years from the end of
property the relevant A.Y.

72 Losses under ‘Profits & Gains Profits of any 8 years from the end of
of Business or Profession’, Business/Profession the relevant A.Y.
except speculation business (including speculation
loss. business profits also)

73 Losses in speculation Income from speculation 4 years from the end of

business. business the relevant A.Y.

74 Losses under the head Capital Gains 8 years from the end of
Capital gains. the relevant A.Y.

74A Loss incurred in activity of Income from owning and 4 years from the end of
owning and maintaining race maintaining race horses the relevant A.Y.
horses.

10/23/19
Index151
 Revision questions

1)For the assessment year 2013-14 ,dividend distribution tax is payable

at __% plus surcharge of __ %by a domestic co if it distributes dividend after ___
2)A person residing in Ahmedabad has salary of Rs 30,000/= pm gets HRA of
Rs 6000/= Rent paid by him Rs 7,000/=calculate exempted HRA
3)State whether the following perks are taxable in the PY 2012 -13
a)Gift of wrist watch costing Rs 51,000/=(b) free meal costing Rs 80/=
C )School fees directly paid by employer Rs 4000/=
D )reimbursement of medical expenses Rs 22,000/= during the year

Ans (1) 15% 5% ,1/04/2003 (2)Rs 48,000/=

(3) yes.; 80- 50= 30 taxable, (4) fully taxable
(5) Medical expenses in excess of Rs 15,000/=

152
Agricultural Income

10/23/19
153
 Meaning
“Agricultural Income” means:
1. Any rent or revenue derived from land which is
situated in India and used for agricultural purposes
[sec. 2(1A) (a)].
2. Any income derived from such land by agricultural
operations including processing of the agricultural
produce, raised or received as rent-in-kind so as to
render it fit for the market or sale of such produce
[sec. 2(1A)(b)].
3. Income attributable to a farm house subject to certain
conditions.
4. With effect from the assessment
year 2009-10, any income derived
from saplings or seedlings grown in
10/23/19
a nursery shall be deemed 154to be
 Partially Agricultural & Partially Business Income [Rules 7, 7a,
7b And 8]

BUSINESS AGRICULTURAL
INCOME
INCOME INCOME

Growing and manufacturing tea in India 40% 60%

Sale of centrifuged latex or cenex or latex

based creps (such as pale latex crepe) or 35% 65%
brown crepes (such as estate brown crepe,
remilled crepe, smoked blanket crepe or
flat bark crepe) or technically specified
block rubbers manufactured or processed
from field latex or coagulum obtained from
rubber plants grown by the seller in India

Sale of coffee grow and cured by seller 25% 75%

Sale of coffee grown, cured, roasted and 40% 60%

grounded by seller in India with or without
mixing chicory or other flavoring
ingredients

10/23/19 155
 The Scheme of Partial Integration of
Non-Agricultural Income with Agricultural Income

The scheme of partial integration of non-

agricultural income with agricultural income is
applicable if the following conditions are satisfied –
The taxpayer is an individual, a Hindu undivided family, a body
of individual, an association of persons or an artificial juridical
Condition 1 person.

The taxpayer has non-agricultural income exceeding the

amount of exemption limit [i.e., Rs. 1,80,000(in case a resident
woman below 65 years), Rs. 2,25,000 (in case of a resident
senior citizen 65 years or more) and Rs. 1,50,000 (in case of
Condition 2
any other individual or every HUF for the assessment year
2009-10]

The agricultural income of the taxpayer exceeds Rs. 5,000.

Condition 3

10/23/19
156
 Contd…
Income-tax will be computed for the assessment
year 2009-10 in the following manner:
Step 1 Net agricultural income is to be computed as if it were income chargeable to income-
tax.
Step 2 Agricultural & non-agricultural income of the assessee will then be aggregated &
income-tax is calculated on the aggregate income.

Step 3 The net agricultural income will then be increased by the amount of exemption limit
and income-tax is calculated on net agricultural income, so increased, as if such
income was the total income of the assessee.

Step 4 The amount of income-tax determined at Step two will be reduced by the amount of
income-tax determined under Step three.

Step 5 Find out the balance. Add surcharge; education cess & SHEC.

Step 6 The amount so arrived will be the total income-tax payable by the assessee.

Index
10/23/19
157
 Deductions under
Chapter VI - A

10/23/19
158
 Introduction
Deductions to be made [Section 80A] :
The total income of an assessee is to be
computed after making deductions permissible
u/s 80C to 80U. However, the aggregate
amount of deductions cannot exceed the Gross
Total Income.
No deduction from certain (following) Incomes :
Long term Capital Gains referred u/s 112, and Short
Term Capital gains referred u/s 111A.
Winnings from lotteries, races, etc. as
referred to in section 115BB.
Incomes referred to in section 115A (1)
(a), 115AC, 115ACA, 115AD, 115BBA
10/23/19
and 115D. 159
 Deduction for Payment of
Life Insurance Premia, etc., [Section 80C]

Deduction under this section is allowed as

follows –
 Deduction is available only in respect of
‘specified sums’ actually paid or deposited
during the previous year (sum not actually
paid and outstanding is not allowed)
 Specified sums must have been
paid/deposited by an Individual or HUF; and
 The total amount of deduction under this
section is subject to a maximum limit
of Rs.1,00,000.

10/23/19
160
 Contribution To Certain Pension Funds [Section 80CCC]

 Amount paid or deposited by individual in the

previous year –
› out of his income chargeable to tax
› to effect or keep in force a contract for any annuity
plan of LIC or any other insurer
› for receiving pension from the fund referred to in
section 10(23AAB).
 Quantum of Deduction: Deduction shall be
allowed to the extent of lower of the following –
› Amount so paid or deposited; or
› Rs. 1,00,000

10/23/19
161
 Contribution to Pension Scheme of Central Government or any
Other Employer [Sec. 80CCD]

 Deduction in respect of: Deduction is

available in respect of both of the following –
› Sum deposited by assessee in his account in notified
pension scheme; and
› Contribution made by Central Govt. or any other
employer to assesse’s A/c.
 Quantum of Deduction: Deduction shall be
allowed to the extent of aggregate of the following
- paid/deposited by assessee to the credit of his a/c or 10% of
Sum
salary, whichever is lower

Sum contributed by the employer in assesse’s A/c or 10% of salary,

whichever is lower

10/23/19
162
 Aggregate Limit u/s 80C, 80CCC &
80CCD
The aggregate amount of
deductions under section 80C,
section 80CCC and section
80CCD shall not, in any case,
exceed Rs.1,00,000.

10/23/19
163
 Deduction In Respect Of
Health Insurance Premia [Sec. 80D]

 Deduction is available in respect of the amount

paid to effect or to keep in force health insurance
under a scheme –
› made by General Insurance Corporation of India (GIC)
and approved by Central Government; or
› made by any other insurer and approved by Insurance
Regulatory and Development Authority.
 Deduction shall be to the extent of lower of –
› Health insurance premia paid in respect of health of any
member of that HUF; or
› Rs. 15,000 (Rs. 20,000 in case the
insured is a senior citizen).

10/23/19
164
 Maintenance of A Dependant Being Person With Disability
[Section 80DD]

 Deduction is available in respect of –

› expenditure incurred for medical / treatment / nursing /
training/ rehabilitation, or
› amount paid under scheme LIC / UTI other insurer
approved by CBDT for maintenance, of a “dependant”,
being a person with disability.
 Deduction shall be allowed to the extent of –
› Rs. 50,000 (Rs. 75,000 in case of dependant suffering
with severe disability), irrespective of expenditure
incurred or sum paid.

10/23/19
165
 Deduction in respect of
Medical Treatment, etc. [Sec. 80DDB]

 Deduction is available in respect of sum actually

paid during previous year for medical treatment of
prescribed disease or ailment for the following –
› In case of individual: himself or his spouse, children,
parents, brothers and sisters,
› In case of HUF: its member(s),
› dependant mainly on such individual or HUF for his
support and maintenance.
 Deduction shall be available to the extent of lower
of the following –
› sum actually paid; or
› Rs. 40,000 (Rs. 60,000 in case of a
senior citizen).
10/23/19
166
 Deduction in respect of Interest on Loan taken for Higher
Education [Sec.80E]

 Deduction in available in respect of

sum paid by the assessee in the
previous year, out of his income
chargeable to tax, by way of interest on
loan taken –
› for his higher education, or
› for the higher education of his
relative.
 100% of the amount of interest on such
loan Deduction will be admissible.
10/23/19
167
 Deduction in respect of Donations [Section 80G]

 Deduction is allowed under this section to all

assesses in respect of donations of sum of
money in the following manner –
› 100% deduction will be allowed if donations are given
to any of the 19 specified funds.
› 50% deduction will be allowed if donations made to
any of the 5 specified funds.
› 100% deduction shall be allowed subject to the
qualifying amount if donations are made for
promoting family planning.
› 50% deduction shall be allowed
subject to the qualifying amount if
donations are made towards any of
the 5 specified purposes.
10/23/19
168
 Deductions in respect of Rents Paid [Sec.80GG]

 Rent actually paid for any furnished or

unfurnished residential accommodation
occupied by the Individual, who is not in
receipt of any House Rent Allowance
(HRA).
 The deduction shall be allowed to the
extent of least of the following –
› Rs. 2,000 per month;
› 25% of adjusted total income;
› Rent paid less 10% of adjusted Total
Income.
10/23/19
169
 Deduction in respect of person with Disability [Section 80U]

 Eligible Assessee: Individual resident in

India, who, at any time during the
previous year, is certified by the
medical authority to be a person with
disability
 Deduction: Rs. 50,000 (Rs. 75,000 for
severe disability). Severe disability
means 80% or more of disability.

10/23/19
170
 Other Deductions
Deduction in respect of certain Donations for
Scientific Research or Rural Development
[Sec.80GGA]
Deduction in respect of Contribution to Political
Parties [Sec. 80GGB & 80GGC]
Profits & Gains from Industrial Undertaking
engaged in Infrastructure Development [Sec. 80
IA]
Profits & Gains from Undertaking engaged in
Development of SEZs [Sec. 80IAB]
Profits & Gains from Industrial
Undertaking engaged in other
10/23/19 than in Infrastructure
171
 Contd…
Deduction available to certain Undertakings in
certain Special category States [Sec.80IC]
Profits & Gains from business of Hotels &
Convention Centre in Specified Areas [Sec.
80ID]
Special provisions in respect of certain
Undertakings in North-Eastern States [Sec.
80IE]
Deduction available to assessee in the business
of Collecting & Processing Bio-Degradable
Waste [Sec.80JJA]
Deduction in respect of
10/23/19 Employment of New Workmen172
 Contd…
Deduction from incomes of Off-shore Banking
Units & International Financial Services
Centre [Sec.80LA]
Deduction in respect of income of Co-
operative Society [Sec. 80P]
Deduction in respect of Royalty Income, etc.
of Author of certain Books other than Text
Books [Sec.80QQB]
Deduction in respect of Royalty Income of
Patents [Sec. 80 RRB]
Index
10/23/19
173
 Advance Tax

10/23/19
174
 Liability to pay Advance Tax
Every person is liable to pay tax on
income in advance i.e. from completion of
the previous year (advance tax) if tax
payable is Rs. 5,000 or more. All items of
income are liable for payment of advance
tax.
However, from Assessment 2010-2011
liability to pay advance tax arises, if the
tax payable is Rs. 10,000 or more

10/23/19
175
 Due Dates
Amount payble by Amount payble by Non-
Due Date
Corporate Assessee Corporate Assessee

On or before June 15 of Up to 15 percent of

-
the previous year advance tax payable

On or before September Up to 45 percent of Up to 30 percent of

15 of the previous year advance tax payable advance tax payable

On or before December Up to 75 percent of Up to 60 percent of

15 of the previous year advance tax payable advance tax payable

On or before March 15 of Up to 100 percent of Up to 100 percent of

the previous year advance tax payable advance tax payable

10/23/19
176
 Default in payment of Advance Tax [Sec. 234B]

Under section 234B(1), interest is payable as

follows:
When interest is
payable
Interest is
payable on
Rate of interest Period for which interest is payable

An assessee who is Interest is Simple interest @ 1 From April 1 of the assessment

liable to pay payable on percent for every year to the date of determination of
advance tax, has accessed tax month or part of income under section 143(1) or
failed to pay such month where regular assessment is made
tax to the date of regular assessment

An assessee who Assessed tax Simple interest @ 1 From April 1 of the assessment
has paid advance minus advance percent for every year to the date of determination of
tax but the amount tax month or part of income under section 143(1) or
of advance tax paid month where regular assessment is made
by him is less than to the date of regular assessment
90 percent of
assessed tax.

10/23/19 177
 Deferment of Advance Tax
[Sec. 234C]

Interest is payable under section 234C if an

assessee has not paid advance tax or
underestimated installments of advance tax.
Simple Interest at the rate of 1% per month
is payable for period 3 months for each
installment due.

Index
10/23/19
178
Assessment Procedures

10/23/19
179
 Time for filing Return of Income [Sec. 139(1)]

Different Situations Due Date for filing Return

1. Where the assessee is a company September 30

2. Where the assessee is person other than a

company –
a)In case where accounts of the assessee are
September 30
required to be audited under any law
b)Where the assessee is “working partner” in
a firm whose accounts are required to be
September 30
audited under any law

c)In any other case

July 31

10/23/19
180
 Filing of Return in Electronic Form [Sec. 139D]

Section 139D has been inserted from June 1, 2006. It

provides that the Board may make rules providing for
the class or classes of persons who shall be required
to furnish the return of income in electronic form; the
form and the manner in which the return of income in
electronic form may be furnished; the documents,
statements, receipts, certificates or audited reports
which may not be furnished along with the return of
income in electronic form but shall be produced
before the Assessing Officer on demand; the
computer resource or the electronic
record to which the return of income in
electronic form may be transmitted.
10/23/19
181
 Filing of Return after Due Date [Sec. 139(4)]

If the return is not furnished within the time

allowed under section 139(1) or within the
time allowed under section 142(1), the
person may (before the assessment is
made), furnish the return of any previous
year at any time before the end of one year
from the end of relevant assessment year.

10/23/19
182
 Consequences of Late
If
Submission
return is submitted after the due date of
submission of return of income, the following
consequences will be applicable. These rules are
applicable even if a belated return is submitted
within the time-limit given above –
› The assessee will be liable for penal interest u/s 234A.
› A penalty of Rs. 5,000 may be imposed u/s 271F if
belated return is submitted after the end of assessment
year.
› If return of loss is submitted after the due date, a few
losses cannot be carried forward.
› If return is submitted belated,
deduction under section 10A, 10B, 80-
IA, 80-IB, 80IC, 80-ID and 80-IE will
10/23/19
not be available. 183
 Interest for defaults in furnishing Return of Income [Section
234A]

If any person fails to furnish his return of income u/s

139 for any assessment year or furnishes such
return after due date specified in section 139(1),
then, he will liable to pay interest at the rate of 1%
per month for the period beginning from the date
immediately following the due date of furnishing
return of income and ending on the Date of
furnishing the return or completion of assessment,
whichever is earlier, calculated on the amount
of self-assessment tax payable.

Index
10/23/19
184