income tax overview

Income Tax

(A.Y. 2009-10 & 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. Clubbing of Income 204/10/23

Contd…

10.Set-off Carry Forward

11.Deductions from Gross Total Income

12.Agricultural Income

13. Advance Tax

14.Assessment Procedures

304/10/23

404/10/23

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.

504/10/23

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

604/10/23

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 2009-2010.

3. Previous Year u/s 2(34) means, the year in which income is earned.

704/10/23

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.

8

Index

04/10/23

904/10/23

Types of Residential Status

The different types of residential status are:-

10

Resident(R)

Not Ordinarily Resident (NOR)

Non-Resident (NR)

04/10/23

Residential Status of Individual

The residential status of individual will be determined as under-

11

Assessee Basic Condition Additional Condition

ResidentHe must satisfy at one of the basic conditions.

Not required.

Not Ordinarily ResidentHe must satisfy at least one of the basic conditions.

He must satisfy either one or both the additional conditions given u/s 6(6).

Non-ResidentShould not satisfy any of the basic conditions.

Not required.

04/10/23

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.

1204/10/23

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).

1304/10/23

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.

1404/10/23

Incidence of Tax

ParticularsParticularsTax IncidenceTax Incidence

RR NORNOR NRNR

Income received in India by or on behalf of Income received in India by or on behalf of assesseeassessee

YesYes YesYes YesYes

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

YesYes YesYes YesYes

Income accruing or arising in IndiaIncome accruing or arising in India YesYes YesYes YesYesIncome deemed to accrue or arise in IndiaIncome deemed to accrue or arise in India YesYes YesYes YesYesIncome which accrues or arise outside Income which accrues or arise outside IndiaIndia

YesYes NoNo NoNo

15Index

04/10/23

1604/10/23

RATES OF INCOME TAX (Assessment Year 2009-10)

1. In case of every Individual/ HUF/ AOP/BOI artificial juridical Person.

17

INCOME INCOME (A.Y. 2009-10)(A.Y. 2009-10)


TAX RATETAX RATE

Up to 150000 Up to 160000 NIL

Next 150000 Next 140000 10%

Next 200000 Next 200000 20%

Above 500000 Above 500000 30%

04/10/23

Contd…

2. In case of resident women below 65 years of age.

18



TAX RATETAX RATE

Up to 180000 Up to 190000 NIL

Next 120000 Next 110000 10%

Next 200000 Next 200000 20%

Above 500000 Above 500000 30%

04/10/23

Contd…

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

19



TAX RATETAX RATE

Up to 225000 Up to 240000 NIL

Next 75000 Next 60000 10%

Next 200000 Next 200000 20%

Above 500000 Above 500000 30%

04/10/23

Contd…

PERSONS TAX RATE

FIRMSFIRMS 30%30%

DOMESTIC COMPANYDOMESTIC COMPANY 30%30%

FOREIGN COMPANYFOREIGN COMPANY 40%40%

LOCAL AUTHORITIESLOCAL AUTHORITIES 30%30%

CO-OPERATIVE SOCIETIESCO-OPERATIVE SOCIETIESUp to 10000Up to 1000010000-2000010000-20000Above 20000Above 20000

10%10%20%20%30%30%

2004/10/23

Surcharge & Cess

PERSON RATE OF SURCHARGE

Individual / AOP / BOI / Individual / AOP / BOI / HUF / Artificial Juridical HUF / Artificial Juridical PersonPerson

10% of tax liability if Income Exceeds Rs 10 Lacs10% of tax liability if Income Exceeds Rs 10 Lacs

FirmFirm 10% of tax liability, if Income exceeds Rs. 1 Crore10% of tax liability, if Income exceeds Rs. 1 Crore

Domestic CompanyDomestic Company 10% of tax liability, if Income exceeds Rs. 1 Crore10% of tax liability, if Income exceeds Rs. 1 Crore

Foreign companyForeign company 2.5% of tax liability, if Income exceeds Rs. 1 Crore2.5% of tax liability, if Income exceeds Rs. 1 Crore

Co-operative SocietyCo-operative Society N.A.N.A.

Local AuthorityLocal Authority N.A.N.A.

Education Cess and Secondary & Higher Education Cess is applicable on Education Cess and Secondary & Higher Education Cess is applicable on every person @ 2% & 1% respectively on tax liability and surcharge applicable, every person @ 2% & 1% respectively on tax liability and surcharge applicable, if any.if any.

21Index

Note: surcharge on personal income-tax will be eliminated from A.Y. 2010-11

04/10/23

2204/10/23

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.

2304/10/23

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 SalaryNote:

(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.

2404/10/23

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.

2504/10/23

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.

26

1

An Amount Equal to 50 % of Salary. Where Residential House in situated at Bombay, Calcutta, Delhi or Madras and An Amount Equal to 40 % of Salary where Residential House is situated at any Other Place.

2House Rent Allowance Received by The Employee in Respect 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.04/10/23

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:

27

GovernmentGovernmentNon-Non- GovernmentGovernment

Least of the Following is deductible :Least of the Following is deductible :1. 1. Rs. 5000Rs. 50002. 2. 20 % of basic salary 20 % of basic salary 3. 3. Amount of entertainment Amount of entertainment allowance grated during the previous allowance grated during the previous yearyear

Nothing is deductibleNothing is deductible

Status of EmployeeStatus of Employee

04/10/23

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.

2804/10/23

Contd…

Exemption is available on the aforesaid basis in the case of following allowances :-

29

NAME OF ALLOWANCE NAME OF ALLOWANCE NATURE OF ALLOWANCENATURE OF ALLOWANCETravelling Allowance/ Travelling Allowance/ Transfer AllowanceTransfer Allowance

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

Conveyance AllowanceConveyance Allowance Conveyance allowance granted to meet the Conveyance allowance granted to meet the expenditure on conveyance in performance of duties expenditure on conveyance in performance of duties of an office (expenditure for covering the journey of an office (expenditure for covering the journey between office and residence is not to be included).between office and residence is not to be included).

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

04/10/23

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.3004/10/23

Contd…

Name of allowanceName of allowance Exemption as specifiedin rule 2BBExemption as specifiedin rule 2BB

Special CompensatorySpecial Compensatory

(Hill Areas) Allowance(Hill Areas) AllowanceAmount exempt from tax varies from Rs. 300 per mount to Amount exempt from tax varies from Rs. 300 per mount to

Rs. 7,000 per monthRs. 7,000 per month

Border area allowanceBorder area allowanceThe amount of exemption varies from Rs. 200 Per month The amount of exemption varies from Rs. 200 Per month

to Rs. 1,300 per monthto Rs. 1,300 per month

Tribal areas/ scheduled Tribal areas/ scheduled

areas allowanceareas allowanceRs. 200 Per MonthRs. 200 Per Month

Allowance for transport Allowance for transport

employeesemployees

The amount of exemption is-The amount of exemption is-

a.a.70 per cent of such allowance; or 70 per cent of such allowance; or

b.b.Rs. 6,000 per month, whichever is lower.Rs. 6,000 per month, whichever is lower.

Children education Children education

allowance allowance The amount exempt is limited to Rs. 100 per month per The amount exempt is limited to Rs. 100 per month per

child up to a maximum of two children.child up to a maximum of two children.

Hostel expenditure Hostel expenditure

allowanceallowanceIt is exempt from tax to the extent of Rs. 300 per month It is exempt from tax to the extent of Rs. 300 per month

per child up to a maximum of two children.per child up to a maximum of two children.

Compensatory field area Compensatory field area

allowanceallowanceExemption is limited to Rs. 2,600 per month in some Exemption is limited to Rs. 2,600 per month in some

cases.cases.3104/10/23

Contd…

32

Name of AllowanceName of Allowance Exemption as Specified in Rule 2BBExemption as Specified in Rule 2BB

Compensatory modified Compensatory modified

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

cases.cases.

Counter insurgency Counter insurgency

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

cases.cases.

Transport allowance Transport allowance It is exempt up to Rs. 800 per month (Rs. 1,600 per It is exempt up to Rs. 800 per month (Rs. 1,600 per

month in the case of an employee who is blind or month in the case of an employee who is blind or

orthopedically handicapped)orthopedically handicapped)

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

High altitude allowance High altitude allowance It is exempt from tax up to Rs. 1,060 per month (for It is exempt from tax up to Rs. 1,060 per month (for

altitude of 9,000 to 15,000 feet) or Rs. 1,600 per month altitude of 9,000 to 15,000 feet) or Rs. 1,600 per month

(for altitude above 15,000 feet).(for altitude above 15,000 feet).

Highly active field area Highly active field area

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

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

04/10/23

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.

3304/10/23

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.

3404/10/23

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.

3504/10/23

“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

3604/10/23

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

3704/10/23

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

3804/10/23

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:

39

Status of EmployeeStatus of EmployeeStatus of EmployeeStatus of Employee

Government Employee

Government Employee

Non-government employee covered by

the payment of Gratuity Act, 1972

Non-government employee covered by

the payment of Gratuity Act, 1972

Non-government employee not covered

by the payment of Gratuity Act, 1972

Non-government employee not covered

by the payment of Gratuity Act, 1972It is fully exempt

from tax under section 10(10)(i) Least of following is exempt:

1)“15 days’ salary” x “Length of service”2)Rs. 3, 50, 0003)Gratuity actually received.

Least of following is exempt:1)“½ month avg. salary” x “Length of service”2)Rs. 3, 50, 0003)Gratuity actually received.

04/10/23

Contd…

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

40

PENSIONPENSION

Taxable for Government as

well as Non-Government employees

Entire Commuted Pension is exempt

whether or not Gratuity received.

UNCOMMUTEDCOMMUTED

Government Employee

Non-Government Employee

1/3 of commuted pension is

exempt

If Gratuity Received

If Gratuity not Received

1/2 of commuted pension is

exempt04/10/23

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.

4104/10/23

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.

4204/10/23

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.

4304/10/23

LEAVE SALARY

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

44

LEAVE ENCASHMENT

During EmploymentRetirement / Leaving the Job

Chargeable to Tax

Non-Government Employee

Government Employee

Fully Exempt

Least of following is exempt :-1)Earned Leave on the basis of Average Salary2)10 x Average monthly salary3)Rs. 3000004)Leave Salary Received

04/10/23

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.

4504/10/23

Relief in respect ofAdvance 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.

46Index04/10/23

4704/10/23

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.

4804/10/23

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.

4904/10/23

Computation of Gross Annual Value (GAV)

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 Expected Rent [whichever is less of (c) and (d)][whichever is less of (c) and (d)] XXXXXX

50

Step 1 : Calculate Expected Rent as follows:-

04/10/23

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

5104/10/23

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

5204/10/23

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.

5304/10/23

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.

5404/10/23

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.

5504/10/23

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.

5604/10/23

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

57

CASECASE MAXIMUM MAXIMUM DEDUCTIONDEDUCTION

Interest on capital borrowed on or after Interest on capital borrowed on or after 1-4-1999 for acquisition or construction 1-4-1999 for acquisition or construction of houseof house

1,50,0001,50,000

In any other caseIn any other case 30,00030,000

04/10/23

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.

5804/10/23

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 :-

59

PARTICULARSPARTICULARS AMOUNTAMOUNT

The amount received as arrears of rentThe amount received as arrears of rent XXXXXX

Less:Less: 30% of such amount 30% of such amount xxxxxx

Amount taxable as arrears of rentAmount taxable as arrears of rent XXXXXX

Index04/10/23

6004/10/23

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;

6104/10/23

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.

6204/10/23

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.

6304/10/23

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)]

6404/10/23

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)]

6504/10/23

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)].

6604/10/23

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.

6704/10/23

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.

6804/10/23

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).

6904/10/23

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.

7004/10/23

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.

7104/10/23

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

7204/10/23

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]

7304/10/23

74

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

04/10/23

Tax Audit u/s 44AB

This section applies to following :-

The assessee is required to get his accounts of such previous year audited by a Chartered Accountant before 30th September of the assessment year.

75

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 44AB, 44AE, 44AF, 4BB and 44BBB

He has claimed his income to be lower than the profits or gains so deemed under the respective section.

04/10/23

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.

76

Sec. 44 ADSec. 44 AD Sec. 44 AESec. 44 AE Sec. 44AFSec. 44AF

Business of Business of AssesseeAssessee

Civil construction or Civil construction or supply of labour for it.supply of labour for it.

Plying, hiring or leasing Plying, hiring or leasing goods carriages owned goods carriages owned by him. by him.

Retail trade in Retail trade in any goods or any goods or merchandise.merchandise.

This This Section Section applies ifapplies if

Gross receipts of such Gross receipts of such business during the business during the previous year do not previous year do not exceed Rs. 40 lacs.exceed Rs. 40 lacs.

Goods carriages owned Goods carriages owned by assessee at any time by assessee at any time during previous year during previous year doesn’t exceed 10 lacsdoesn’t exceed 10 lacs

Total business Total business turnover in that turnover in that previous year previous year doesn’t exceed doesn’t exceed Rs. 40 lacs.Rs. 40 lacs.

Deemed Deemed ProfitsProfits

8% of Gross receipts 8% of Gross receipts (No. of heavy goods(No. of heavy goodsvehicle x Rs. 3500 x vehicle x Rs. 3500 x

NM) + (No. of other NM) + (No. of other vehicles x Rs. 3150 vehicles x Rs. 3150 x NM)x NM)

NM = No. of monthsNM = No. of months

5% of Gross 5% of Gross receipts or such receipts or such higher sum as higher sum as declared by him declared by him in his Return of in his Return of Income.Income.04/10/23

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.

7704/10/23

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.

7804/10/23

Contd…

Written Down Value [Sec. 43(6)] - Written down value for the assessment year 2009-10 will be determined as under:

79

Step 1Step 1 Find out the depreciated value of the block on the Find out the depreciated value of the block on the

April 1, 2008.April 1, 2008.

Step 2Step 2To this value, add “actual cost” of the asset (falling To this value, add “actual cost” of the asset (falling

in the block) acquired during the previous year in the block) acquired during the previous year

2008-09.2008-09.

Step 3Step 3

From the resultant figure, deduct money From the resultant figure, deduct money

received/receivable (together with scrap value) in received/receivable (together with scrap value) in

respect of that asset (falling within the block of respect of that asset (falling within the block of

assets) which is sold, discarded demolished or assets) which is sold, discarded demolished or

destroyed during the previous year 2008-09.destroyed during the previous year 2008-09.04/10/23

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.

8004/10/23

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.

8104/10/23

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.

8204/10/23

Contd…

The maximum amount of salary paid to all the partners during the previous year should not exceed the limits given below :-

83

In case of a firm carrying of a profession referred to in section 44AAIn case of a firm carrying of a profession referred to in section 44AA

On the first Rs. 1,00,000 of the book profit or in case of a loss

Rs. 50,000 or at the rate of 90 percent of 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 firmIn the case of any other firm

On the first Rs. 75,000 of the book profit or in case of a loss

Rs. 50,000 or at the rate of 90 percent of 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 percent04/10/23

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.

8404/10/23

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.

85

Index

04/10/23

8604/10/23

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

8704/10/23

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”.

8804/10/23

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.

8904/10/23

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

9004/10/23

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.

9104/10/23

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.

9204/10/23

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.

9304/10/23

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.

9404/10/23

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,

9504/10/23

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.

9604/10/23

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.

9704/10/23

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.

9804/10/23

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.

9904/10/23

Computation of Short-term Capital Gains

ParticularsParticulars AmountAmount

Full Value of ConsiderationFull Value of Consideration XXXXXX

Less: Expenses incurred wholly and exclusively for Less: Expenses incurred wholly and exclusively for

such transfer such transferxxxxxx

Net ConsiderationNet Consideration XXXXXX

Less: Cost of Acquisition Less: Cost of Acquisition xxxxxx

Less: Cost of ImprovementLess: Cost of Improvement xxxxxx

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

Taxable Short -term Capital gainsTaxable Short -term Capital gains XXXXXX

10004/10/23

Computation of Long-term Capital Gains

101

ParticularsParticulars AmountAmount

Full Value of ConsiderationFull Value of Consideration XXXXXX

Less: Expenses incurred wholly and exclusively for Less: Expenses incurred wholly and exclusively for

such transfer such transferxxxxxx

Net ConsiderationNet Consideration XXXXXX

Less: Indexed Cost of Acquisition Less: Indexed Cost of Acquisition xxxxxx

Less: Indexed Cost of ImprovementLess: Indexed Cost of Improvement xxxxxx

Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA54GA

xxxxxx

Taxable Long- term Capital gainsTaxable Long- term Capital gains XXXXXX

04/10/23

Indexed Cost

102

Indexed Cost Indexed Cost of of

Acquisition / Acquisition / ImprovementImprovement

Cost of Cost of acquisition / acquisition / improvementimprovement

x Cost x Cost inflation inflation

Index of the Index of the year of year of transfertransfer

Cost Inflation Index (CII) for the first year in which

the asset was held by the assessee or

for the year beginning on

1.4.1981, whichever is later /

the year of improvement

Index04/10/23

10304/10/23

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”.

10404/10/23

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 Profession

10504/10/23

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

10604/10/23

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

107Index04/10/23

10804/10/23

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.

10904/10/23

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

11004/10/23

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.

11104/10/23

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.

11204/10/23

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.

11304/10/23

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.

11404/10/23

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.

11504/10/23

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.

11604/10/23

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.

117Index04/10/23

11804/10/23

Process of Set-off & Carry Forward

The process of setting off of losses and their carry forward may be covered in the following steps:

119

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

income income

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

year. Step 2 is applied only if a loss cannot be set year. Step 2 is applied only if a loss cannot be set

off under Step 1.off under Step 1.

Step 3Step 3 Carry forward of loss. Step 3 is applied only if a Carry forward of loss. Step 3 is applied only if a

loss cannot be set off under Steps 1 and 2.loss cannot be set off under Steps 1 and 2.

04/10/23

Unabsorbed Depreciation

While dealing with unabsorbed depreciation one should keep in mind the following points:

120

Step 1Step 1Depreciation allowance of the previous year is first Depreciation allowance of the previous year is first

deductible from the income chargeable under the deductible from the income chargeable under the

head “Profits and gains of business or profession”.head “Profits and gains of business or profession”.

Step 2Step 2

If depreciation allowance is not fully deductible under If depreciation allowance is not fully deductible under

the head “Profits and gains of business or the head “Profits and gains of business or

profession” because of absence or inadequacy of profession” because of absence or inadequacy of

profits, it is deductible from income chargeable under profits, it is deductible from income chargeable under

other heads of income [except income under the head other heads of income [except income under the head

“Salaries”] for the same assessment year.“Salaries”] for the same assessment year.

Step 3Step 3If depreciation allowance is still unabsorbed, it can be If depreciation allowance is still unabsorbed, it can be

carried forward to the subsequent assessment year(s) carried forward to the subsequent assessment year(s)

by the same assessee.by the same assessee.

04/10/23

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 –

121

LossLoss Set-off allowed againstSet-off allowed against

Long-term capital LossLong-term capital Loss Long-term Capital GainLong-term Capital Gain

Speculation business loss Speculation business loss Speculation business gainSpeculation business gain

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

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

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

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

04/10/23

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’.

12204/10/23

Provisions relating to carry forward and setoff of losses

Sec.Sec. Loss to be carried Loss to be carried

forwardforwardIncome against which Income against which

the loss can be setoffthe loss can be setoff

No. of years for No. of years for

which it can be which it can be

carried forwardcarried forward

71B71B Loss from house propertyLoss from house property Income from house Income from house propertyproperty

8 years from the end 8 years from the end of the relevant A.Y.of the relevant A.Y.

7272 Losses under ‘Profits & Losses under ‘Profits &

Gains of Business or Gains of Business or

Profession’, except Profession’, except

speculation business loss.speculation business loss.

Profits of any Profits of any Business/Profession Business/Profession (including speculation (including speculation business profits also)business profits also)


7373 Losses in speculation Losses in speculation business.business.

Income from Income from

speculation businessspeculation business4 years from the end 4 years from the end of the relevant A.Y.of the relevant A.Y.

7474 Losses under the head Losses under the head Capital gains.Capital gains.

Capital GainsCapital Gains 8 years from the end 8 years from the end of the relevant A.Y.of the relevant A.Y.

74A74A Loss incurred in activity of Loss incurred in activity of owning and maintaining owning and maintaining race horses.race horses.

Income from owning Income from owning

and maintaining race and maintaining race

horseshorses


123Index

04/10/23

12404/10/23

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 a nursery shall be deemed to be agricultural income.

12504/10/23

Partially Agricultural & Partially Business Income [Rules 7, 7a, 7b And 8]

INCOMEINCOME BUSINESS BUSINESS INCOMEINCOME

AGRICULTURAL AGRICULTURAL INCOMEINCOME

Growing and manufacturing tea in IndiaGrowing and manufacturing tea in India 40%40% 60%60%

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

35%35% 65%65%

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

Sale of coffee grown, cured, roasted Sale of coffee grown, cured, roasted and grounded by seller in India with or and grounded by seller in India with or without mixing chicory or other without mixing chicory or other flavoring ingredients flavoring ingredients

40%40% 60%60%

12604/10/23

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 –

127

Condition 1Condition 1The taxpayer is an individual, a Hindu undivided family, a The taxpayer is an individual, a Hindu undivided family, a

body of individual, an association of persons or an body of individual, an association of persons or an

artificial juridical person.artificial juridical person.

Condition 2Condition 2

The taxpayer has non-agricultural income exceeding the The taxpayer has non-agricultural income exceeding the

amount of exemption limit [i.e., Rs. 1,80,000(in case a 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 woman below 65 years), Rs. 2,25,000 (in case of a

resident senior citizen 65 years or more) and Rs. 1,50,000 resident senior citizen 65 years or more) and Rs. 1,50,000

(in case of any other individual or every HUF for the (in case of any other individual or every HUF for the

assessment year 2009-10]assessment year 2009-10]

Condition 3Condition 3 The agricultural income of the taxpayer exceeds Rs. 5,000.The agricultural income of the taxpayer exceeds Rs. 5,000.

04/10/23

Contd…

Income-tax will be computed for the assessment year 2009-10 in the following manner:

128

Step 1Step 1 Net agricultural income is to be computed as if it were income chargeable to Net agricultural income is to be computed as if it were income chargeable to income-tax.income-tax.

Step 2 Step 2 Agricultural & non-agricultural income of the assessee will then be Agricultural & non-agricultural income of the assessee will then be aggregated & income-tax is calculated on the aggregate income.aggregated & income-tax is calculated on the aggregate income.

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

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

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

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

Index04/10/23

12904/10/23

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.

13004/10/23

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; andThe total amount of deduction under this section is

subject to a maximum limit of Rs.1,00,000.

13104/10/23

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

13204/10/23

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 -

133

Sum paid/deposited by assessee to the credit of his a/c or Sum paid/deposited by assessee to the credit of his a/c or

10% of salary, whichever is lower10% of salary, whichever is lower

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

salary, whichever is lowersalary, whichever is lower

04/10/23

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.

13404/10/23

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).

13504/10/23

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.

13604/10/23

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).

13704/10/23

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.

13804/10/23

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.

13904/10/23

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.

14004/10/23

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.

14104/10/23

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]

14204/10/23

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]

14304/10/23

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]

144

Index

04/10/23

14504/10/23

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

14604/10/23

Due Dates

Due DateDue Date Amount payble by Amount payble by Corporate AssesseeCorporate Assessee

Amount payble by Amount payble by Non-Corporate Non-Corporate

AssesseeAssessee

On or before June 15 of On or before June 15 of

the previous yearthe previous yearUp to 15 percent of Up to 15 percent of

advance tax payableadvance tax payable--

On or before September On or before September

15 of the previous year15 of the previous yearUp to 45 percent of Up to 45 percent of

advance tax payableadvance tax payableUp to 30 percent of Up to 30 percent of

advance tax payableadvance tax payable

On or before December On or before December

15 of the previous year15 of the previous yearUp to 75 percent of Up to 75 percent of



On or before March 15 On or before March 15

of the previous yearof the previous yearUp to 100 percent of Up to 100 percent of



14704/10/23

Default in payment of Advance Tax [Sec. 234B]

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

148

When interest is When interest is

payablepayableInterest is Interest is

payable onpayable onRate of interestRate of interest Period for which interest is Period for which interest is

payablepayableAn assessee who An assessee who

is liable to pay is liable to pay

advance tax, has advance tax, has

failed to pay such failed to pay such

taxtax

Interest is Interest is

payable on payable on

accessed taxaccessed tax

Simple interest @ 1 Simple interest @ 1

percent for every percent for every

month or part of month or part of

monthmonth

From April 1 of the assessment From April 1 of the assessment

year to the date of year to the date of

determination of income under determination of income under

section 143(1) or where regular section 143(1) or where regular

assessment is made to the date assessment is made to the date

of regular assessmentof regular assessment

An assessee who An assessee who

has paid advance has paid advance

tax but the tax but the

amount of amount of

advance tax paid advance tax paid

by him is less by him is less

than 90 percent of than 90 percent of

assessed tax.assessed tax.

Assessed tax Assessed tax

minus minus

advance taxadvance tax

Simple interest @ 1 Simple interest @ 1

percent for every percent for every

month or part of month or part of

monthmonth

From April 1 of the assessment From April 1 of the assessment

year to the date of year to the date of

determination of income under determination of income under

section 143(1) or where regular section 143(1) or where regular

assessment is made to the date assessment is made to the date

of regular assessmentof regular assessment

04/10/23

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.

149

Index

04/10/23

15004/10/23

Time for filing Return of Income [Sec. 139(1)]

Different SituationsDifferent Situations Due Date for filing ReturnDue Date for filing Return

1. Where the assessee is a company1. Where the assessee is a company September 30September 30

2. Where the assessee is person 2. Where the assessee is person

other than a company –other than a company –

a)a)In case where accounts of the In case where accounts of the

assessee are required to be audited assessee are required to be audited

under any lawunder any law

b)b)Where the assessee is “working Where the assessee is “working

partner” in a firm whose accounts partner” in a firm whose accounts

are required to be audited under any are required to be audited under any

lawlaw

c)c)In any other caseIn any other case

September 30September 30

September 30September 30

July 31July 31

15104/10/23

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.

15204/10/23

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.

15304/10/23

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.

15404/10/23

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.

155

Index

04/10/23

DISCLAIMER

Our views expressed herein are based on the facts and assumptions indicated above. The views cannot be considered as an authorized representation, warranty or guarantee that the revenue authorities or the courts will concur with the same. The views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. The views contained may not be used or reproduced in whole or in part or otherwise referred to in any document or delivered to any one without our prior

written consent.

15604/10/23

04/10/23 157

income tax overview

Education

nr income

heads of income

aggregate income

income taxa

clubbing of income

total income of assessee

total income t

outside india