Income Tax

(A.Y. 2010-11)
 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. 08/07/2009
Clubbing of Income 2
 Contd…
10.Set-off Carry Forward
11.Deductions from Gross Total Income
12.Agricultural Income
13. Advance Tax
14.Assessment Procedures

08/07/2009 3
08/07/2009 4
 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.
08/07/2009 5
 Important Definitions
1. Person u/s 2(31) includes,
i. An Individual,
ii. Hindu Undivided Family (HUF),
iii.A Company,
iv. A Firm,
v. An Association of Persons(AOP) or Body of
Individuals (BOI),
vi. A Local Authority,
vii. Every other Artificial Juridical
Person

08/07/2009 6
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
2010-2011.
3. Previous Year u/s 2(34) means, the year in
which income is earned.

08/07/2009 7
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
08/07/2009 8
08/07/2009 9
 Types of Residential Status

The different types of residential status are:-

Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

08/07/2009 10
 Residential Status of Individual
The residential status of individual will be determined
as under-
Assessee Basic Condition Additional Condition
He must satisfy at one
Resident Not required.
of the basic conditions.
He must satisfy either
He must satisfy at least
one or both the
Not Ordinarily Resident one of the basic
additional conditions
conditions.
given u/s 6(6).
Should not satisfy any
Non-Resident Not required.
of the basic conditions.

08/07/2009 11
 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):
i. He must be a non-resident in India in nine out of the ten
previous years preceding that year; or
ii. He must be in India during 7 preceding
previous years for aggregate period of
729 days or less.
08/07/2009 12
 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).

08/07/2009 13
 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.
08/07/2009 14
 Incidence of Tax

Tax Incidence
Particulars
R NOR NR
Income received in India by or on behalf of
Yes Yes Yes
assessee
Income deemed to received in India by or
Yes Yes Yes
on behalf of assessee
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
Yes No No
India

Index
08/07/2009 15
08/07/2009 16
 RATES OF INCOME TAX
(Assessment Year 2010-11)
1. In case of every Individual/ HUF/ AOP/BOI
artificial juridical Person.
INCOME INCOME TAX RATE
(A.Y. 2010-11) (A.Y. 20010-11)
Up to 150000 Up to 160000 NIL
Next 150000 Next 140000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%

08/07/2009 17
Contd…

2. In case of resident women below 65 years of

age.
INCOME INCOME TAX RATE
(A.Y. 2010-11) (A.Y. 2010-11)
Up to 180000 Up to 190000 NIL
Next 120000 Next 110000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%

08/07/2009 18
Contd…

3. In case of resident senior citizen i.e. age of 65

years or above
INCOME INCOME TAX RATE
(A.Y. 2010-11) (A.Y. 2010-11)
Up to 225000 Up to 240000 NIL
Next 75000 Next 60000 10%
Next 200000 Next 200000 20%
Above 500000 Above 500000 30%

08/07/2009 19
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%

08/07/2009 20
 Surcharge & Cess
PERSON RATE OF SURCHARGE
Individual / AOP / BOI /
HUF / Artificial Juridical 10% of tax liability if Income Exceeds Rs 10 Lacs
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
Index
08/07/2009 21
08/07/2009 22
 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.

08/07/2009 23
 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.

08/07/2009 24
 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.

08/07/2009 25
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, Calcutta, Delhi or Madras and An
1
Amount Equal to 40 % of Salary where Residential House is
situated at any Other Place.
House Rent Allowance Received by The Employee in Respect
2 of The Period during which Rental Accommodation is
Occupied by the Employee during the Previous Year.
3 The Excess of Rent Paid over 10 % of Salary.
08/07/2009 26
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
previous year
08/07/2009 27
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.

08/07/2009 28
 Contd…
Exemption is available on the aforesaid basis in the case
of following allowances :-
NAME OF ALLOWANCE NATURE OF ALLOWANCE
Travelling Allowance/ Any allowance granted to meet the cost of travel on tour or
Transfer Allowance on transfer (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.
08/07/2009 kamal maghani 29
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.
08/07/2009 30
 Contd…
Name of allowance Exemption as specifiedin rule 2BB
Special Compensatory Amount exempt from tax varies from Rs. 300 per mount to
(Hill Areas) Allowance Rs. 7,000 per month
The amount of exemption varies from Rs. 200 Per month
Border area allowance
to Rs. 1,300 per month
Tribal areas/ scheduled
Rs. 200 Per Month
areas allowance
The amount of exemption is-
Allowance for transport
a.70 per cent of such allowance; or
employees
b.Rs. 6,000 per month, whichever is lower.
Children education The amount exempt is limited to Rs. 100 per month per
allowance child up to a maximum of two children.
Hostel expenditure It is exempt from tax to the extent of Rs. 300 per month
allowance per child up to a maximum of two children.
Compensatory field area Exemption is limited to Rs. 2,600 per month in some
allowance cases.
08/07/2009 31
 Contd…
Name of Allowance Exemption as Specified in Rule 2BB
Compensatory modified Exemption is limited to Rs.1,000 per month in some
area allowance cases.
Counter insurgency Exemption is limited to Rs.3,900 per month in some
allowance cases.
It is exempt up to Rs. 800 per month (Rs. 1,600 per
Transport allowance month in the case of 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
High altitude allowance altitude of 9,000 to 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.
08/07/2009 32
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.

08/07/2009 33
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.
08/07/2009 34
 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.

08/07/2009 35
“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

08/07/2009 36
 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

08/07/2009 37
 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
08/07/2009 38
 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
the payment of
It is fully exempt Gratuity Act, 1972
from tax under
section 10(10)(i) Least of following is exempt:
1) “15 days‟ salary” x “Length
of service”
2) Rs. 3, 50, 000
3) Gratuity actually received.
08/07/2009
employee not covered
by the payment of
Gratuity Act, 1972
Least of following is exempt:
1) “½ month avg. salary” x
“Length of service”
2) Rs. 3, 50, 000
3) Gratuity actually received.
39
 Contd…

2. PENSION [SEC. 17(1)(ii)] - Pension is chargeable

tax as follows :-
PENSION

COMMUTED UNCOMMUTED

Government Non-Government
Employee Employee Taxable for
Government as
If Gratuity If Gratuity
Entire Commuted well as Non-
Received not Received
Pension is exempt Government
whether or not 1/3 of 1/2 of employees
Gratuity received. commuted commuted
pension is pension is
exempt exempt
08/07/2009 40
 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.

08/07/2009 41
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.

08/07/2009 42
 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.

08/07/2009 43
 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 Employee Employee
to Tax
Least of following is exempt :-
1) Earned Leave on the basis
Fully of Average Salary
Exempt 2) 10 x Average monthly salary
3) Rs. 300000
4) Leave Salary Received
08/07/2009 44
 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.

08/07/2009 45
 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.

08/07/2009 Index 46
08/07/2009 47
 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.

08/07/2009 48
 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.

08/07/2009 49
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) and (d)] XXX

08/07/2009 50
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

08/07/2009 51
 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

08/07/2009 52
 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.
08/07/2009 53
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.
08/07/2009 54
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.

08/07/2009 55
 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.

08/07/2009 56
 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 1,50,000
of house
In any other case 30,000

08/07/2009 57
 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.

08/07/2009 58
 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

08/07/2009 Index 59
08/07/2009 60
 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;
08/07/2009 61
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.

08/07/2009 62
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.

08/07/2009 63
 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)]
08/07/2009 64
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)]
08/07/2009 65
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)].

08/07/2009 66
 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.

08/07/2009 67
 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.

08/07/2009 68
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).

08/07/2009 69
 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.
08/07/2009 70
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.

08/07/2009 71
 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
08/07/2009 72
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]
08/07/2009 73
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
08/07/2009 74
 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, profits or gains so deemed under the respective
4BB 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.
08/07/2009 75
 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
Assessee supply of labour for it. goods carriages owned any goods or
by him. merchandise.
This Gross receipts of such Goods carriages owned Total business
Section business during the by assessee at any time turnover in that
applies if 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 receipts or such
NM) + (No. of other higher sum as
vehicles x Rs. 3150 declared by him
x NM) in his Return of
kamalNM = No. of months
maghani Income. 76
 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.

08/07/2009 77
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.

08/07/2009 78
Contd…

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

value for the assessment year 2010-11 will be
determined as under:
Find out the depreciated value of the block on the
Step 1
April 1, 2009.
To this value, add “actual cost” of the asset (falling
Step 2 in the block) acquired during the previous year
2009-10.
From the resultant figure, deduct money
received/receivable (together with scrap value) in
Step 3 respect of that asset (falling within the block of
assets) which is sold, discarded demolished or
destroyed during the previous year 2009-10.
08/07/2009 79
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.

08/07/2009 80
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.
08/07/2009 81
 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.
08/07/2009 82
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 Rs. 50,000 or at the rate of 90 percent
profit or in case of a loss of the book profit, whichever is more
On the next Rs. 1,00,000 of the book
At the rate of 60 percent
profit
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 Rs. 50,000 or at the rate of 90 percent
profit or in case of a loss of the book profit, whichever is more
On the next Rs. 75,000 of the book
At the rate of 60 percent
profit
On the balance of the book profit At the
kamal maghani rate of 40 percent 83
 Minimum Alternate Tax (MAT)
Applicability of Minimum 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.
08/07/2009 84
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
08/07/2009 85
08/07/2009 86
 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
section 54, 54B, 54D, 54EC, 54F,
54G, and 54GA

08/07/2009 87
 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”.
08/07/2009 88
 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.

08/07/2009 89
 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
08/07/2009 90
 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.
08/07/2009 91
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.

08/07/2009 92
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.

08/07/2009 93
 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.

08/07/2009 94
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,

08/07/2009 95
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.

08/07/2009 96
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.

08/07/2009 97
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.

08/07/2009 98
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.

08/07/2009 99
 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

08/07/2009 100
 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

08/07/2009 101
 Indexed Cost
Cost Inflation
Index (CII) for the
Cost of first year in which
acquisition / the asset was held
Indexed Cost improvement
of
by the assessee or
x Cost
Acquisition / for the year
inflation
Improvement Index of the beginning on
year of 1.4.1981,
transfer whichever is later /
the year of
improvement

08/07/2009 Index 102

08/07/2009 103
 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”.

08/07/2009 104
 Specific Income [Section 56(2)]
1. Dividends.
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
08/07/2009
Profession 105
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
08/07/2009 106
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
08/07/2009 Index 107
08/07/2009 108
 Cases where Clubbing Applies
1. 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.

08/07/2009 109
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

08/07/2009 110
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.

08/07/2009 111
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.

08/07/2009 112
 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.

08/07/2009 113
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.

08/07/2009 114
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.

08/07/2009 115
 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 assessee, for such
financial year.
08/07/2009 116
 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 borrowed or repaid.
08/07/2009 Index 117
08/07/2009 118
 Process of Set-off & Carry Forward
The process of setting off of losses and their carry
forward may be covered in the following steps:
Inter-source adjustment under the same head of
Step 1
income
Inter-head adjustment in the same assessment
Step 2 year. 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
Step 3
loss cannot be set off under Steps 1 and 2.

08/07/2009 119
 Unabsorbed Depreciation
While dealing with unabsorbed depreciation one
should keep in mind the following points:
Depreciation allowance of the previous year is first
Step 1 deductible from the income chargeable under the
head “Profits and gains of business or profession”.
If depreciation allowance is not fully deductible under
the head “Profits and gains of business or
profession” because of absence or inadequacy of
Step 2
profits, it is deductible from income chargeable 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
Step 3 carried forward to the subsequent assessment year(s)
by the same assessee.
08/07/2009 120
 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
maintaining race horse and maintaining race horse
Loss from lottery, card games, Income from lottery, card games,
gambling betting etc. gambling betting etc.

08/07/2009 121
 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‟.

08/07/2009 122
 Provisions relating to carry forward
and setoff of losses
No. of years for
Loss to be carried Income against which
Sec. which it can be
forward the loss can be setoff
carried forward
71B Loss from house property Income from house 8 years from the end
property of the relevant A.Y.
72 Losses under „Profits & Profits of any 8 years from the end
Gains of Business or Business/Profession of the relevant A.Y.
Profession‟, except (including speculation
speculation business loss. business profits also)
73 Losses in speculation Income from 4 years from the end
business. speculation business of the relevant A.Y.
74 Losses under the head Capital Gains 8 years from the end
Capital gains. of the relevant A.Y.
74A Loss incurred in activity of Income from owning 4 years from the end
owning and maintaining and maintaining race of the relevant A.Y.
race horses. horses
08/07/2009
Index
123
08/07/2009 124
 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
2010-11, any income derived from
saplings or seedlings grown in a nursery
shall be deemed to be agricultural
income.
08/07/2009 125
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 35% 65%
crepe) or 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 40% 60%
and grounded by seller in India with or
without mixing chicory or other
flavoring ingredients
08/07/2009 126
 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
Condition 1 body of individual, an association of persons or an
artificial juridical 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
Condition 2
resident senior citizen 65 years or more) and Rs. 1,50,000
(in case of any other individual or every HUF for the
assessment year 2010-11]
Condition 3 The agricultural income of the taxpayer exceeds Rs. 5,000.

08/07/2009 127
 Contd…
Income-tax will be computed for the assessment year
2010-11 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
08/07/2009 128
08/07/2009 129
 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 and
115D.
08/07/2009 130
 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.

08/07/2009 131
 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

08/07/2009 132
 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 -
Sum paid/deposited by assessee to the credit of his a/c or
10% of salary, whichever is lower
Sum contributed by the employer in assesse’s A/c or 10% of
salary, whichever is lower
08/07/2009 133
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.

08/07/2009 134
 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).

08/07/2009 135
 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.

08/07/2009 136
 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).
08/07/2009 137
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.

08/07/2009 138
 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.

08/07/2009 139
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.

08/07/2009 140
 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.

08/07/2009 141
 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 than in
Infrastructure Development [Sec.80IB]

08/07/2009 142
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
Employment of New Workmen
[Sec. 80JJAA]
08/07/2009 143
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
08/07/2009 144
08/07/2009 145
 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

08/07/2009 146
 Due Dates

Amount payble by
Amount payble by
Due Date Non-Corporate
Corporate Assessee
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 Up to 100 percent of Up to 100 percent of

of the previous year advance tax payable advance tax payable

08/07/2009 147
 Default in payment of Advance Tax
[Sec. 234B]
Under section 234B(1), interest is payable as follows:
When interest is Interest is Rate of interest Period for which interest is
payable payable on payable
An assessee who Interest is Simple interest @ 1
From April 1 of the assessment
is liable to pay payable on percent for every year to the date of
advance tax, has accessed tax month or part of determination of income under
failed to pay such month section 143(1) or where regular
tax assessment is made to the date
of regular assessment
An assessee who Assessed tax Simple interest @ 1 From April 1 of the assessment
has paid advance minus percent for every year to the date of
tax but the advance tax month or part of determination of income under
amount of month section 143(1) or where regular
advance tax paid assessment is made to the date
by him is less of regular assessment
than 90 percent of
assessed tax.
08/07/2009 148
 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
08/07/2009 149
08/07/2009 150
 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 required to be audited September 30
under any law
b)Where the assessee is “working
partner” in a firm whose accounts September 30
are required to be audited under any
law
c)In any other case July 31

08/07/2009 151
 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.

08/07/2009 152
 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.

08/07/2009 153
 Consequences of Late Submission
If 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 not be available.

08/07/2009 154
 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
08/07/2009 155