Income Tax

CMA Inter

Income Tax OTHER THAN HEADS OF INCOME

Part 2

Dr CMA T K Sridhar

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INCOME TAX

CONTENT

Part 2: Other than Heads of Income Page

1 Income Tax Law: An Introduction 1

2 Basis of Charge and Rates of Tax 8

3 Residential Status & Scope of Total Income 15

4 Agricultural Income 22

5 Income Which Do Not Form Part of Total Income 24

6 Income of Other Persons Include in Assessee’s Total Income 32

7 Set-off and Carry Forward of Losses 40

8 Deductions from Gross Total Income 49

9 Advance Payment of Tax | Interest 72

10 Provisions Concerning Tax Deducted at Source 76

11 Provisions for Filing of Return of Income 89

12 Assessment of Various Persons 95

13 Alternate Minimum Tax

14 Assessment Procedure

15 Income Computation and Disclosure Standards

Income from Salaries 1

1. INCOME TAX LAW: AN INTRODUCTION

Section 2(43): Tax is a fee charged by a government on a product, income or activity for meeting the

expenses of government like defence, provision of education, health-care, infrastructure facilities like

roads, dams etc.

There are two types of taxes – Direct taxes and indirect taxes.

Direct Taxes - Impact and incidence is on the same person. e.g., income tax, tax on undisclosed foreign

income and assets

Indirect Taxes - Impact and incidence are on different persons. e.g., GST & custom duty

Power to levy taxes: Article 265 – no tax shall be levied or collected except by authority of law.

Power to levy Income Tax: Entry 82 of the Union List i.e., List I of seventh schedule to Article 246 of

the constitution of India other than agricultural income.

Laws relating to Income Tax

Income-tax Act, 1961 [w.e.f 1.4.62] contains 298 sections and XIV schedules.

Governs the levy of income tax in India

o Structure of Income Tax Act

▪ Sections | Sub sections | Clause | Sub Clause

▪ Provided clause [Exceptions]

▪ Explanation clause [Clarifications]

The Finance Act – Amendments in the IT Act (every year)

Income-tax Rules – formulated for proper administration of the Act

Circulars by CBDT: u/s 119 of the Income Tax Act issues from time to time Circulars, clarifications,

and instruction for the proper administration of this Act. These circulars are binding on Income tax

department and not on assessee.

Notifications by Government: through official gazette brings out changes in law.

Case Laws by Tribunal, HC, SC

Section 4: Charge of Income-Tax [Levy]

Total income is computed as per IT Act

Tax is levied at the rates prescribed by the Finance Act.

Tax is charged on every person

Income Tax is charged in the AY for income in the PY after TDS / TCS / AT

{CA inter M99, 6 marks}

Section 2(9): Assessment Year means the period of twelve months commencing on the first day of

April every year and ending on March 31 of the next year. Income earned by a person during the

previous year 2018-19 will be taxable in the assessment year 2019-2020 at the rates applicable for

assessment year 2019-2020 from Finance Act 2018

Income Tax 2

Section 3: Previous Year means the financial year immediately preceeding the assessment year. The

year in which income is earned is known as previous year.

Previous year in the case of newly set up business / profession

First previous year for a business / profession newly set up during the financial year or for a new

source of income comes in to existence during the financial year, the period beginning form the date

of setting up of the business or from the date the new source come into existence, and ending on the

last date of the previous year i.e. March 31 shall be the first previous year for that business or source of

income.

Section 2(31): The term "Person" includes:

1. An individual

2. A Hindu Undivided Family (HUF)

3. A Company

4. A firm

5. An association of person (AOP) or a Body of Individuals (BOI)

6. A local authority: and

7. Every Artificial Judicial Person, not falling with in any preceding categories.

Individual: means only a natural person. It also includes a minor or a person of unsound mind but the

assessment in such a case may be made on guardian or manager who is entitled to receive his income.

In the case of deceased person, assessment would be made on the legal representative.

Hindu Undivided Family (HUF): under Hindu Law is a family, which consists of all persons lineally

descended from a common ancestor and includes their wives and unmarried daughters.

Kartha: head of family

Coparceners:

1. members of HUF (up to four degrees including kartha)

2. acquire an interest in the HUF property by birth / right in partition

3. HUF should have at least two male members or two coparceners

Schools of Hindu Law Applicable Right in HUF property to members

1 Dayabhaga West Bengal & Assam Only to head until alive

2 Mithakshara Rest of India By birth

A Jain or Sikh undivided family would also be assessed as a HUF.

Once a family is assessed as HUF, it will continue to be assessed as such till its partition

Section 2(17): Company means

(i) any Indian company; or

(ii) body corporate incorporated outside India under the laws of a foreign country; or

(iii) any institution, association or a body which is assessed or was assessable / assessed as a company

for any AY commencing on or before 1.4.1970; or

(iv) any institution, association or body whether incorporated or not and whether Indian or non-

Indian which is declared by general or special order of the CBDT to be a company.

Section 2(22A): A ‘Domestic Company’ means —

(i) an Indian company; or

(ii) in case of foreign company, who has made the prescribed arrangements for the declaration and

payment of dividends within India

Section 2(26): Indian Company

A company formed and registered under the Companies Act or

Registered under any law of state or UT.

Corporation under Government

Any institution, association or body which is declared by the Board to be a company

Section 2(23A): ‘Foreign Company’ – a company which is not Indian Company

Section 2(23): The terms ‘firm’, ‘partner’ and ‘partnership’ are as per Indian Partnership Act and

applicable in LLP. However, for income-tax purposes a minor admitted to the benefits of an existing

partnership would also be treated as partner.

Association of Persons (AOP) and Body of Individuals (BOI) [Group of persons]

Group Consist Purpose Common Purpose Become

AOP Any persons Income earning Must be Not BOI

BOI Only Individuals Income earning / Co-heirs May be AOP

{CA inter N98, 5 marks}

Local Authority: means a municipal committee, district board, body of port commissioners or other

authority legally entitled to or entrusted by the Government with the control or management of a

municipal or local fund.

Taxable: income from business from supply of commodity or service to jurisdiction other than its own

Exempt: Income arising from the supply of water and electricity anywhere

Artificial Juridical Person – Separate entity in the eyes of law

Sued in court through person managing them

Example: An idol, deity, university, bar council etc.

Income Tax 4

Section 2(7): Assessee means a person by whom any tax or any other sum of money is payable under

the act, and includes

(a) every person in respect of whom any proceeding under this Act has been taken for the assessment

of his income or assessment of fringe benefits or of the income of any other person in respect of

which he is assessable, or of the loss sustained by him or by such other person, or of the amount of

refund due to him or to such other person;

(b) every person who is deemed to be an assessee under any provision of this Act;

(c) every person who is deemed to be an assessee in default under any provision of this Act;

Deemed to be an assessee: the following persons are deemed to be assesse

1. Legal hire

2. Representatives: representatives of foreigner, a lunatic, a minor or an incompetent person is liable

to pay tax on their income.

Deemed to be an assessee in default:

A person who does not fulfill the legal obligations as per IT Act

Due to which a loss of revenue is caused to the income-tax department,

The person is entitled to compensate the department for such loss.

For this purpose he is deemed to be assessee in default.

1. Any assessee if fails to pay off whole or part of the demand raised by the Income Tax Authorities

u/s 156 within 30 days of its receipt, is usually termed as assessee in default

2. Fails to comply with the provision of TDS

3. Fails to pay advance tax

Question: A single letter of enquiry was issued by the Income Tax department to Mr. Shoumik of Pune.

In this letter there was no specific mention of any provision of the Income Tax Act. Can Mr. Shoumik

be treated as an assessee under the Income Tax Act?1

{CA inter N98 & N13, 6 & 4 marks}

Section 2(24): "income" includes—

Regular receipts and casual receipts (such as winning from lotteries etc.) are also taxable

Income may be cash or kind

Income normally refers to revenue receipts. [Except Capital gains]

Income means net receipts (including loss) [revenue – expenses] and not gross receipts

Income is taxable either on due basis or receipt basis [except PGBP and IFOS (regularly followed)]

Income earned in a previous year is chargeable to tax in the assessment year.

Legal and illegal income is taxable

Money embezzled – income

Not taxable: reimbursement | pin money | contingent income | income from mutual activity

A person cannot make profit out of transaction with himself

Criteria for determining whether a receipt or revenue in nature

Fixed capital (capital receipt) or circulating capital (revenue receipt)

Income from transfer of capital asset (capital receipt) or trading asset (revenue receipt)

Capital receipts vis-à-vis revenue receipts: test to be applied

1. Transaction entered into the regular course of business – (revenue receipt)

2. Profit arising from sale of shares and securities (revenue receipt if trading motive)

3. A single transaction may also be revenue receipt in certain circumstances

4. Liquidated damages linked with delayed supply of capital asset is capital receipt

5. Compensation on termination of agency

Number of agencies Type of Receipt Taxable under

1 Only one and sold Capital Receipt PGBP u/s 28(ii)(c)

2 Many but sold / modified one of them PGBP

If employee – employer relationship exits Revenue Receipt Salary u/s 17(3)

If not Revenue Receipt IFOS u/s 56(2)(xi)

6. Gifts: capital receipts and chargeable u/h IFOS (under capital gains in case transfer of asset for

inadequate consideration)

Section 14A: Expenditure incurred for exempted income

(i) Not deductible

(ii) However, the Assessing Officer is not empowered to reassess under section 147 or to pass an order

increasing the liability of the assessee by way of enhancing the assessment or reducing a refund

already made or otherwise increasing the liability of the assessee under section 154, for any

assessment year beginning on or before 1.4.2001 i.e. for any assessment year prior to A.Y. 2002-03.

(iii) The Assessing Officer is empowered to determine the expenditure incurred in relation to such

income which does not form prescribed by the CBDT in this regard.

(iv) Such method should be adopted by the Assessing Officer if he is not satisfied with the correctness

of the claim of the assessee, having regard to the accounts of the assessee.

(v) Further, the Assessing Officer is empowered to adopt such method, even where an assessee claims

that no expenditure has been incurred by him in relation to income which does not form part of

total income.

(CA inter M07, 4 marks)

Choose the best: Disallowance for expenditure incurred in relation to exempt income is made u/s1

(a) 14A (b) 14 (c) 80A (d) 10(33)

{CMA inter J14, 1 mark}

Income Tax 6

Total Income and Tax Payable

Step 1 Determination of residential status [Sec. 6] ×××

Step 2 Scope of Total Income [Sec. 5] ×××

Step 3 Exemption of income not chargeable to tax (Sec. 10 – Sec. 13A) ×××

Step 4 Classification of heads of income (Sec. 14) and computation ×××

Salaries (Sec. 15 to Sec. 17)

Income from House Property (Sec. 22 to Sec 27)

Profits or Gains from Business or Profession (Sec. 28 to Sec. 44)

Capital Gains (Sec. 45 to Sec. 55)

Income from Other Sources (Sec. 56 to 59)

Step 6 Clubbing of income of spouse, minor child etc. (S.60-65) ×××

Step 7 Special Income (S.68 and S.69D)

Step 8 Set-off or carry forward and set-off of losses (S.70-80) ×××

Step 9 Gross Total Income u/s 80B ×××

Step 10 Deductions from Gross Total Income (S.80C to 80U) ×××

Step 11 Total income u/s 2(45) [(S. 288A) round off to the nearest multiple of ₹10]

{CMA inter D12, 2 marks}

×××

Step 12 Application of the rates of tax on the total income ×××

Step 13 + Surcharge / - Rebate u/s 87A ×××

Step 14 Health and education cess (4%) on income-tax ×××

Step 15 Advance tax and tax deducted at source ×××

Step 16 Relief u/s 89(1)

Step 17 Net Tax Liability [(S. 288B) round off to the nearest multiple of ₹10] ×××

Question: In computing income under certain heads of income method of accounting is irrelevant,

while in some it is relevant – Comment

Exception: Income of a previous year is assessed in the previous year itself

{CA inter M98, M01 & N06, 6, 3 & 5 marks | CMA inter D13, 3 mars}

1. Shipping Business of Non–Resident [Section 172]:

(a) Assessee should be a non-resident.

(b) He should either be the owner of the ship or has chartered the ship.

(c) The ship carries passengers, goods, livestock, mail or goods shipped at a port in India.

(d) The non-resident assesee may or may not have an agent in India.

(e) 7.5% of amount of such carriage including demurrage and handling charges shall be deemed

as income of the assessee. [u/s 44B]

(f) The Master of the Ship should file the return and pay tax on such income before departure or

must make necessary arrangements for payment of such tax within 30 days of departure of the

(g) If the above conditions are fulfilled, the Collector or Customs shall grant the port clearance.

(h) This assessment is mandatory. The Assessing Officer may call for such accounts as to determine

the tax liability.

2. Persons leaving India [Section 174]:

(a) The assessee leaves India either during the current previous year or immediately thereafter.

(b) He does not have any intention to return to India immediately.

(c) His total income from the date of commencement of previous year up to the date of departure

shall be assessed as income of the same previous year.

(d) This assessment is mandatory.

3. AOP or BOI or Artificial Juridical Person formed for a particular event or purpose [Sec. 174A]:

(a) AOP or BOl established or incorporated for a particular event or purpose.

(b) It is likely to be dissolved in the assessment year in which it was established or incorporated or

immediately after such assessment year.

(c) The total income of the period from the expiry of the previous year for that assessment year up

to the date of dissolution shall be chargeable to tax in that assessment year.

4. Persons likely to transfer property to avoid tax [Section 175] :

(a) The assessee is likely to charge, sell or transfer or dispose of his asset.

(b) The asset may be movable or immovable property.

(c) The intention of transfer is to avoid payment of any tax liability under Income Tax Act.

(d) The total income from the commencement of previous year up to the date of proceedings u/s

175 is taxable in that year itself.

(e) This assessment is mandatory.

5. Discontinued business [Section 176]:

(a) Business or profession carried on by the assessee is discontinued during the previous year.

(b) The income from the first day of the previous year up to the date of discontinuation may be

assessed in the previous year itself.

(c) The assessee discontinuing the business/profession shall give within 15 days of such

discontinuance a notice about the discontinuance to the Assessing Officer.

(d) This assessment is discretionary.

Fill up the blank: There are two schools of Hindu Law, one is Mitakshara and the other is ___1

Question: A single letter of enquiry was issued by the Income Tax Department to X of Mumbai. In this

letter there was no specific mention of any provision of the Income Tax Act, Can X be treated as an

‘Assessee’?

1 Dayabhaga

Income Tax 8

2. BASIS OF CHARGE AND RATES OF TAX

Finance Act

Part I: Tax rate for the Assessment Year

Part II: Rate of TDS for current Financial Year

Part III: Rate of TDS for Salary

Part IV: Rules for computing net agricultural income

TAX RATES FOR THE ASSESSMENT YEAR 2020-21

Resident senior citizen (60 years to 80 years) [born before 02.04.1960]

Net Income Range Income - Tax rates

Up to ₹3,00,000 Nil

₹3,00,000–₹5,00,000 5%

₹5,00,001 – ₹10,00,000 20%

₹10,00,001 and above 30%

Resident super senior citizen (80 years or more) [born before 02.04.1940]

Other Individual, HUF, AOP, BOI, artificial juridical person

Up to ₹2,50,000 Nil

₹2,50,000 – ₹5,00,000 5%

₹5,00,000 –₹10,00,000 20%

₹10,00,000 and above 30%

Surcharge:

If total income ₹50 lacs – 1 crore 10%

If total income ₹1 crore – ₹2 crore 15%

If total income ₹2 crore – ₹5 crore 25%

} Excluding income u/s 111A, 112A &

Dividend and surcharge on it ≤ 15% If total income ₹5 crore and above 37%

Up to ₹5,00,000 Nil

₹5,00,001 - ₹10,00,000 20%

₹10,00,001 and above 30%

Income from House Property 9

115BAC: Concessional slab rates to individual and HUF [optional]

Up to ₹2,50,000 Nil

₹2,50,001 – ₹5,00,000 5%

₹5,00,001 –₹7,50,000 10%

₹7,50,001 –₹10,00,000 15%

₹10,00,001 –₹12,50,000 20%

₹12,50,001 –₹15,00,000 25%

₹15,00,001 and above 30%

Firm / LLP / Local authority

Tax rate: 30%

Surcharge: 12% if TI > ₹1 crore

Cooperative Society:

Total Income Income - Tax rates

Up to ₹10,000 10%

₹10,000 – ₹20,000 20%

₹20,001 and above 30%

Surcharge: 12% if TI > ₹1 crore

Section 115BAD:

1. Concessional rate of tax to resident co-operative society

2. Rate = 25.168% [Tax 22% + SC 10% + HEC 4%]

3. No deduction u/s 10AA, 32AD, 35AD, 35CCC and Additional depreciation u/s 32(1)(iia)

4. AMT u/s 11%JC is not applicable.

For Company

Assessee Tax rate

Domestic company (if total income < ₹400 crores in the PY 2018-19) 25%

Domestic company (other cases) 30%

Foreign company 40%

Note: [optional for domestic company]

115BAA: Tax rate @ 22% for domestic company

115BAB: Tax rate @ 15% for domestic manufacturing company [01.10.2019-31.3.2023]

No deduction: u/s 10AA, 32AD, 33AB, 33ABA, 35AD, 35CCC, 35CCD, 80-IA to 80RRB except 80JJAA

or 80M), additional depreciation u/s 32(1)(iia)

Income Tax 10

Assessee Condition Surcharge – rate

Domestic company: if net income ₹1 crore – ₹10 crore 7%

if net income ₹10 crore and above 12%

Foreign company: if net income ₹1 crore – ₹10 crore 2%

if net income ₹1 crore – ₹10 crore 5%

In all the above cases, Health and Education Cess is applicable @ 4% on tax

Rebate u/s. 87A: up to ₹12,500 before cess for resident individuals | Total income < ₹5,00,000

No rebate for tax payable @ 10% on LTCG u/s 112A

Marginal Relief: The additional amount of income-tax payable (together with surcharge) on the excess

of income over ₹1 crore should not be more than the amount of income exceeding ₹1 crore.

Applicability: All assessee where surcharge is applicable

• Marginal Relief = Increase in Tax – Increase in Income [If it is Nil or Negative, No relief is allowed]

• Health and Education Cess shall be applied only after permitting Marginal Relief

{CA inter N08, 4 marks | CMA inter J10, 3 marks}

Example: Compute the tax liability of X Ltd., a domestic company, its total income is ₹1,01,00,000.

₹ ₹ Incremental

Total income / base income where surcharge is applicable 1,01,00,000 1,00,00,000 1,00,000

Tax on above @ 30% 30,30,000 30,00,000

Surcharge @ 7% on the above 2,12,100 Nil

Total Tax 32,42,100 30,00,000 2,42,100

Less: Marginal Relief (increase in tax – increase in income) 1,24,100 ← 1,24,100

Tax after marginal relief 31,00,000

Add: Health and Education Cess @ 4% on tax 1,24,000

Tax payable 32,24,000

Note: Attaining prescribed age of 60 years / 80 years on 31st March itself, in case of senior / very senior

citizen whose date of birth falls on 1st April

Special tax rates for capital gain

For tax on STCG / LTCG, unused basic exemption if any can be utilised except NR

Section 111A: tax rate for STCG is 15% [+ SC +HEC & SC ≤15%] on transfer of

(i) equity share or

(ii) a unit of an equity-oriented fund or

(iii) a unit of a business trust

Condition: STT levied [STCG arising from transaction undertaken in foreign currency on a recognized

stock exchange located in an International Financial Services Centre would be taxable at this rate even

though STT is not levied.]

No deduction u/c VIA is allowed

Question: Short term capital gain on transfer of shares on which STT is paid ₹1,30,000 and other income

₹1,66,000. Calculate tax of Mr. X aged 45 years?

Answer:

Other STCG

Income 1,66,000 1,30,000

Exemption limit (₹2,50,000) 1,66,000 84,000

Taxable income 46,000

Tax on STCG @ 15% u/s 111A 6,900

Rebate u/s 87A as total income < ₹5,00,000 6,900

HEC @ 4% 0

Tax liability (rounded off) 0

Section 112: Tax rate on LTCG (other than LTCG taxable as per section 112A) is 20%

Exceptions: for the following the tax rate if 10% only

1. LTCG on transfer of unlisted securities by NR (Not a company)

Applicable for First Proviso of Section 48

2. LTCG on transfer of ZCB (No indexation)

Question: Mr. Janardan, a resident aged 52 years, has other income of ₹1,70,000 and LTCG ₹90,000.

Calculate tax.

Answer:

Other LTCG

Income 1,70,000 90,000

Exemption limit (₹2,50,000) 1,70,000 80,000

Taxable income 10,000

Tax on LTCG @ 20% u/s 112 2,000

Rebate up to ₹12,500 u/s 87A as total income < ₹5,00,000 2,000

Tax liability 0

Question: Mr. Joseph, a non-resident, has LTCG of ₹1,00,000. Compute tax.

Answer: Tax is ₹20,000 + surcharge + HEC (20% on ₹1,00,000: exemption limit is NOT applicable)

Income Tax 12

Proviso to Section 112: Option available on capital gains in respect of shares, securities and units

Option 1: tax on LTCG is 20% where indexation benefits availed

Option 2: tax on LTCG is 10% where indexation benefits NOT availed

Assessee can opt better of two options

Applicability: LTCA being security listed in any recognized stock exchange in India are transferred

Securities include:

(i) Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities.

(ii) Government securities.

(iii) Rights or interest in securities

Section 112A: Tax rate on LTCG > ₹1,00,000 is 10%

(i) Applicable: Equity share in a company | Unit of an equity-oriented fund | unit of business trust

(ii) STT paid on acquisition and transfer for equity share

STT on acquisition is not applicable for the below:

Purchased before 1.10.2004 | IPO | ESOP etc.

(iii) STT paid on transfer for a unit of an equity-oriented fund or a unit of a business trust

Note: no indexation and no rebate u/s 87A

Tax on LTCG on transfer of ZCB (without indexation) is 10%

Question: Mr. Janardan, a resident aged 52 years, has other income of ₹70,000 and LTCG u/s 112A

₹3,65,000. Calculate tax.

Answer:

Other LTCG

Income 70,000 3,65,000

Exemption limit (₹2,50,000) 70,000 1,80,000

Taxable income 1,85,000

Tax on LTCG @ 10% on LTCG over ₹1,00,000 u/s 112A 8,500

Rebate for LTCG u/s 112A not eligible 0

Tax liability 8,500

Question: Calculate the income – tax liability for the assessment year 2021-22 in the following cases:

(age 45)

(age 62)

(age 81)

(age 82)

Status Resident Non – resident Resident Non – resident

Total income other than LTCG 2,40,000 2,80,000 5,90,000 4,80,000

LTCG 15,000 10,000 60,000 Nil

LTCA Vacant site Listed shares

STT paid on

purchase & sale

Agri land

in rural area

Note: Assume that Mr. A, Mrs. B, Mr. C and Mr. D do not opt for section 115BAC.

Answer: Calculate the income – tax liability for the assessment year 2021-22 in the following cases:

(age 45)

(age 62)

(age 81)

(age 82)

Status Resident Non – resident Resident Non – resident

Basic exemption 2,50,000 2,50,000 5,00,000 2,50,000

Total income other than LTCG 2,40,000 2,80,000 5,90,000 4,80,000

LTCG 15,000 10,000 60,000 Nil

LTCA Vacant site Listed shares

STT paid on

purchase & sale

Agri land

in rural area

Tax on LTCA u/s 112 112A

Exempt

CG ≤ 1 lakh

Exempt

Being rural

Agri land

1,000 1,500 18,000 11,500

(-) Rebate u/s 87A 1,000 Nil Nil Nil

0 1,500 18,000 11,500

(+) HEC @ 4% 0 60 720 460

Total Tax Liability Nil 1,560 18,720 11,960

For co-operative society

Up to ₹10,000 10% of Total Income

₹10,001 - ₹20,000 ₹1,000 + 20% of Total Income minus ₹10,000

₹20,001 – and above ₹3,000 + 30% (Total income minus ₹20,000)

Special Rate of Taxes

Section Income Tax-rate

115BB Winning from (i) any lottery; or (ii) crossword puzzle; or (iii) race including

horse race; or (iv) card game and other game of any sort; or (v) gambling or

betting of any form.

115BBE Unexplained money, investments, etc… [u/s 68, 69A, 69B, 69C and 69D]

plus Surcharge 25% + Health and Education cess 4%

Section 2(10): Average rate of tax [𝑇𝑎𝑥 𝑜𝑛 𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒

𝑇𝑜𝑡𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒]

Section 2(26C): Maximum Marginal Tax Rate =

𝐵𝑎𝑠𝑖𝑐 𝑡𝑎𝑥 + 𝑠𝑢𝑟𝑐ℎ𝑎𝑟𝑔𝑒 𝑜𝑛 𝑡𝑎𝑥 + 𝐻𝐸𝐶 𝑜𝑛 𝑡𝑎𝑥 & 𝑎𝑛𝑑 𝑠𝑢𝑟𝑐ℎ𝑎𝑟𝑔𝑒

Income Tax 14

𝐈𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥, 𝐀𝐎𝐏 & 𝐁𝐎𝐈 = 30% × 115% × 104% = 35.88%)

𝐒𝐞𝐜𝐭𝐢𝐨𝐧 𝟏𝟏𝟓𝐁𝐁𝐄 = 60% × 125% × 104% = 78%)

Profits and Gains from Business or Profession 15

3. RESIDENTIAL STATUS & SCOPE OF TOTAL INCOME

Section 6(1): Basic Conditions for Resident [individual]

1. Stay in India in the PY ≥ 182 days or

2. Stay in India in the PY ≥ 60 days and Stay in India 4 PPY ≥ 365 days

Exceptions: the second condition is not applicable for

1 Indian citizen → Foreign Member of the crew of an Indian ship# /

Employment outside India

2 Indian citizen or Person of Indian Origin1 → India Engaged outside India in employment

/ business / profession / vocation

Section 6(1A): Deemed resident: if Total Income other than foreign income > ₹15 lakhs

And if he is not liable to pay tax in any other country

Period of stay: 120 days or more but less than 182 days in India in the PY

[not applicable for an individual who is resident India in the PY as per S.6(1).]

# Determination of period of stay in India for and Indian citizen, being a crew member:

Period to be excluded:

Period commencing from the date entered into the Continuous Discharge Certificate in respect of

joining the ship by the said individual for the eligible voyage and

Period ending on the date entered in to the Continuous Discharge Certificate in respect of signing off

by that individual from the ship in respect of such voyage.

a. Continuous Discharge Certificate: as per the Merchant Shipping (Continuous Discharge

Certificate-cum Seafarer’s Identity Document) Rules, 2001 made under the Merchant Shipping Act,

b. Eligible voyage: a voyage undertaken by a ship engaged in the carriage of passengers or freight in

international traffic where-

i. For the voyage having originated from any port in India, has as its destination any port outside

India; and

ii. For the voyage having originated from any port outside India, has as its destination any port

in India

Question: Mr. Anand is an Indian citizen and a member of the crew of a Singapore bound Indian ship

engaged in carriage of passengers in international traffic departing from Chennai port on 6th June, 2020.

From the following details for the PY 2020-21, determine the residential status of Mr. Anand for AY

2021-22, assuming that his stay in India in the last 4 PPY is 400 days.

1 Explanation to section 115C(e): to a person is said to be of Indian origin if he or either of his parents or either

of his grandparents were born in undivided India.

Income Tax 16

Particulars Date

Date entered into the Continuous Discharge Certificate

in respect of joining the ship by Mr. Anand

6th June, 2020

Date entered into the Continuous Discharge Certificate

in respect of signing off the ship by Mr. Anand1

9th December, 2020

Section 6(6): Not Ordinarily Resident one who satisfies any one of the conditions mentioned below.

Applicable: Individual

1. Non-Resident in India: 9 out of 10 PPYs. and

2. Stay in India in the 7 PPY ≤ 729

3. If such individual is an Indian citizen or person of Indian origin

his stay 120 days or more but less than 182 days in India in the PY and

Total income other than foreign income < ₹15 lakhs

4. Deemed resident u/s 6(1A) [Deemed resident will always be resident but not ordinarily resident]

Question: Brett Lee, an Australian cricket player visits for 100 days in every financial year. This has

been his practice for the past 10 FYs.

a. Find out his residential status for the AY 2021-222

b. Would your answer change if the above facts relate to Srinath, an Indian citizen who resides in

Australia and represents the Australian cricket team?3

c. What would be your answer if Srinath had visited India for 120 days instead of 100 days every year,

including PY 2020-21?4

Question: Mr. B, a Canadian citizen, comes to India for the first time during the PY 2016-17. During the

financial years 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21, he was in India for 55 days, 60 days, 90

days, 150 days and 70 days respectively. Determine his residential status for the AY 2021-22.5

Section 6(2): Basic Conditions for Resident [HUF / Firm / AOP]

Section 6(4): Basic Conditions for Resident [every other person (BOI, LA, AJP)]

Place of control Status

1 wholly or partly situated in India Resident

2 wholly situated in outside India Non-resident

Additional Conditions u/s. 6(6) for ROR / RNOR – is applicable only for HUF (Karta’s stay)

1 NR: 178 days stayed in India in the PY < 182 days | 365 – [06.06.2020 to 09.12.2020] 2 RNOR: as stay in the PY > 60 days + stay in 4 PPYs > 365 days & stays ≤ 729 days in 7 PPYs [non citizen] 3 NR: as he is being Indian citizen 4 RNOR: if his income other than foreign income > ₹15 lakhs 5 NR: Stay in the PY > 60 days but stay in 4 PPYs < 365 days

Section 6(6): Additional Conditions for Resident and Ordinarily Resident / Not [ROR / RNOR]

Applicable: HUF

1. Resident in India: at least 2 times out of 10 PPYs. and

2. Stay in India in the 7 PPY ≥ 730

ROR: Satisfies ONE of the basic conditions and BOTH the additional condition.

RNOR: Satisfies ONE of the basic conditions but does NOT satisfy BOTH the additional conditions.

Non-Resident: does not satisfy any of the basic conditions

{CA inter J09, 6 marks}

Question: The business of a HUF is transacted from Australia and all the policy decisions are taken

there. Mr. E, the Karta of the HUF, who was born in Kolkata, visits India during the PY 2020-21 after 15

years. He comes to India on 1.4.2020 and leaves for Australia on 1.12.2020. Determine the residential

status of Mr. E and the HUF for AY 2021-22.1

Section 6(3): Condition for residential status of company

Situation Status

1 Indian Company Resident

2 Foreign Company

Place of control wholly situated in India

[Place of Effective Management (POEM)]

Resident

Place of control wholly or partly situated outside India Non-resident

Note: Control and Management means de-facto control and management and not merely the right to

control or manage. Control and Management are usually situated at a place where the head and brain

of the directing power are situated.

In the case of a company, the control and management are presumed to be situated

Where head and brain of the company is situated.

Where the meeting of the board of directors are held.

True or false with reasons: A non-Indian company is treated as resident, only if the control and

management of its affairs is situated wholly in India during the previous year.2

Section 6(5): Residential status determined for PY is common for all source of income in that PY

Section 5: Residence and Scope of Total Income S.5 [T – Taxable & NT – Not Taxable]

ROR RNOR NR

1 Mr.E is RNOR as his stay in the PY > 180 days | HUF is NR as the control is from Australia 2 True

Income Tax 18

Indian Income T T T

Foreign Income

1. If it is business income and the business is controlled

wholly or partly from India /

If it is income from profession which is set up in India

T T NT

2. Others T NT NT

Income received / deemed to be received / accrued / deemed to accrue [ALL / ANY] in India

then Indian Income else Foreign income

Question: Write a note on “Income accruing” and “Income due”. Can an income which has been taxed

on accrual basis be assessed again on receipt basis?1

Section 7: The following incomes shall be deemed to be received in the previous year:

1. Employer’s RPF contribution > 12% of salary / interest credited in RPF a/c > 9.5% p.a.

2. Unrecognized PF to recognized provident fund (employer’s contribution and interest thereon)

3. Central Government or other employer’s contribution to employee’s pension scheme u/s 80CCD

4. tax deducted at source

Section 9(1): Income deemed to accrue or arise in India

(i) Income from connection in India through or from

1. any business connection in India, or

2. any property in India, or

3. any asset or source of income in India, or

4. the transfer of a capital asset situated in India.

{CA inter N01, N04 & M08, 4, 6 & 6 marks}

(ii) Salary earned in India (services rendered in India)

(iii) Salary by Government to an Indian Citizen for services rendered outside India

(iv) Dividend paid by an Indian company to outside India

(v) Interest / royalty / fee for technical services payable by

1. Government

2. Resident person provided borrowing is not used outside India for

business or profession

earning any income from any source

3. Non resident person provided borrowing is used in India for

earning any income from any source

(vi) Deemed Receipts of Gift: When

1. A non-resident or foreign company receives any gift referred u/h IFOS

2. From a resident person

1 Income accruing – right to receive | income due – right to enforce | taxable once

3. Outside India

Section 9(2): Pensions payable outside India to certain categories of Government employees and judges

who permanently reside outside India, shall not be deemed to arise or accrue in India.

Explanation 2 to section 9(1): Examples for business connections

1. Maintaining a branch office in India

2. Appointing an agent in India

3. Erecting a factory in India where the raw material purchased locally is worked into form suitable

for export abroad;

4. Forming a local subsidiary company

5. Having financial association between a resident and non-resident company, etc.

Explanation 2A to section 9(1): Significant economic presence (business connection)

Nature of transaction Condition

(a) In respect of any goods, services or property

carried out of a non-resident in India including

provision of download of data or software in

Aggregate of payments arising from such

transaction or transactions during the

previous year exceeds such amount as may be

prescribed

(b) Systematic and continuous soliciting of

business activities or engaging in interaction

with users in India through digital means

The users should be of such numbers as may

be prescribed

The threshold of “revenue” and “users” in India would be prescribed. Further, the above transactions

or activities shall constitute significant economic presence in India, whether or not, -

a. The agreement for such transactions or activities is entered in India;

b. The non-resident has a residence or place of business in India; or

c. The non-resident renders services in India

However, where a business connection is established by reason of significant economic presence in

India, only so much of income as is attributable to the transactions or activities referred to in (a) or (b)

above shall be deemed to accrue or arise in India

Explanation 1 to section 9(1)(i): Income which shall not be deemed to accrue or arise in India

(a) In the case of a business, in respect of which all the operations are not carried out in India:

In the case of a business of which all the operations are not carried out in India, the income of

the business deemed to accrue or arise in India shall be only such part of income as is

reasonably attributable to the operations carried out in India. Therefore, it follows that such

part of income which cannot be reasonably attributed to the operations in India, is not deemed

to accrue or arise in India.

Income attributable to the operations carried out in India includes

Income Tax 20

i. Income from advertisement, targeting customers residing in India or accessing advt. thro

[Internet Protocol Address] IPA located in India

ii. Income from sale of data collected from persons residing in India or using IPS located in

iii. Income from sale of goods and services using data collected from persons residing in India

or using IPA located in India

(b) Purchase of goods by NR in India for export

(c) Collection of news and views in India by NR for transmission out of India

(d) Shooting of cinematograph films in India: In the case of a non-resident, no income shall be

deemed to accrue or arise in India through or from operations which are confined to the

shooting of any cinematograph film in India, if such non-resident is –

a) an individual, who is not a citizen of India or

b) a firm which does not have any partner who is a citizen of India or who is resident in India;

c) a company which does not have any shareholder who is a citizen of India or who is resident

in India.

(e) Activities confined to display of rough diamonds in Special Notified Zone (SNZ): in the case

of a foreign company engaged in the business of mining of diamonds, no income shall be

deemed to accrue or arise in India to it through or from the activities which are confined to

display of uncut and un-assorted diamonds in any SNZ.

[Sec. 9A] Fund management activity: In the case of an “eligible investment fund”, the fund

management activity carried out through an “eligible fund manager” acting on behalf of such fund

shall not constitute business connection in India of the said fund.

Question 1: Mr. X furnishes the particulars of his income earned during previous year 2020-21:

1. Income from agriculture in Bangladesh, received there ₹2,00,000, subsequently remitted to India,

2. Interest on Asian Development Bonds, ₹90,000, one-third of which received outside India,

3. Gift of ₹50,000 received in foreign currency from a relative in India,

4. Arrears of salary ₹50,000 received in India from a former employer in Pakistan.

5. Income from property received outside India ₹3,00,000 (₹1,00,000 is used in Bahrain for the

educational expenses of his son in Bahrain, and ₹2,00,000 later on remitted to India).

6. Income from business in Iran which is controlled from India (₹90,000 being received in India)

₹2,00,000.

7. Dividends received on 30.06.2020 outside India from an Indian company, ₹2,50,000.

8. Untaxed profit of the FY 2018-19 brought to India in July 2019, ₹2,50,000.

9. Profit (computed) on sale of building in India received in Pakistan ₹2,00,000.

10. Profit from business outside India managed from India ₹90,000, received outside India.

Find out gross total income of Mr. X for AY 2021-22, if Mr. X is (a) resident and ordinarily resident; (b)

resident but not ordinarily resident; (c) non-resident.

Answer: Computation of Gross Total Income for Assessment Year 2021-22

Particulars ROR RNOR NR

₹ ₹ ₹

1 Income from agriculture in Bangladesh,

received there but later on remitted to India

200 — —

2 Interest on Pakistan Development Bonds:

- 1/3rd of ₹90 received outside India 30 — —

- 2/3rd of ₹90 being received in India 60 60 60

3 Gift received from a relative in India: Exempt [Sec. 57(v)] — — —

4 Salary arrears received in India from a former employer in Pakistan 50 50 50

5 Income from property received outside India

but later on remitted to India

300 — —

6 Profit from Iran business controlled from India:

Profits received in India 90 90 90

Profits received outside India 110 110 —

7 Dividends received from an Indian company, outside India,

deemed to accrue or arise in India

250 250 250

8 Untaxed foreign profit of PY 2018-2019 brought to India — — —

9 Profit on sale of building in India, received outside India

deemed to accrue or arise in India

200 200 200

10 Profit from business outside India, managed from India 90 90 ----

Gross Total Income 1,380 850 650

Income Tax 22

4. AGRICULTURAL INCOME

EXEMPTION [S. 10(1)]: AGRICULTURAL INCOME

1. Agricultural Income and non-agricultural income

2. Complete exemption of agricultural income

3. Apportionment of income between business income and agricultural income

4. Partial integration of agricultural income with non-agricultural income and tax calculation

Section 2(1A): Agricultural Income

1. any rent or revenue derived from land / building

which is situated in India and

is used for agricultural purposes;

in case of building: should be immediate vicinity of the land | dwelling house | store building |

out building (in connection with land)

2. Agricultural purpose means

a. Performance by a cultivator

b. Receiver of rent in kind

i. Any process ordinarily employed by a cultivator

ii. To render the produce fit to be taken to market

c. Sale of agricultural produce in the market

d. Income derived from saplings or seedlings grown in a nursery {deemed agricultural income}

3. NOT agricultural income: Letting of land for residential purpose | business or profession

Non-agricultural income: Income from

1. self-grown grass, trees or bamboos

2. fisheries

3. brick making

4. company engaged in agriculture as dividend

5. dairy farm, poultry farming etc.

6. interest on arrears of rent of agricultural land.

7. land used for storing agricultural produce.

8. agricultural farm for manager remuneration

9. harvest crop on purchased land

10. mining royalties

11. markets

12. stone quarries.

Scheme of partial integration of agricultural income

Nature of Business Agricultural

Income

Non-Agricultural

Income

1 Income from growing and manufacturing tea (Rule 8) 60% 40%

Capital Gains 23

2 Income from growing and manufacturing rubber (Rule 7A) 65% 35%

3 Income from growing and manufacturing coffee (Rule 7B)

Only Cured 75% 25%

Cured, roasted & grounded 60% 40%

Steps for computation of tax where agricultural income exist with non-agricultural

1. Tax on non-agricultural income plus agricultural income

2. Tax on agricultural income plus basic exemption limit

3. Tax payable by the assessee = Step 1 – Step 2

4. Add surcharge / deduct rebate u/s 87A, if applicable

5. Add health and education cess @ 4%

Note: Completely exempt, if the net agricultural income ≤ ₹5,000 p.a.

Question: Miss Vivitha, a resident and ordinarily resident in India, has derived the following income

from various operations (relating to plantations and estates owned by her) during the year ended 31-3-

Particulars ₹

1 Income from sale of centrifuged latex processed from

rubber plants grown in Darjeeling.

3,00,000

2 Income from sale of coffee grown and cured in Yercaud, Tamil Nadu. 1,00,000

3 Income from sale of coffee grown, cured, roasted and grounded, in Colombo.

Sale consideration was received at Chennai.

2,50,000

4 Income from sale of tea grown and manufactured in Simla. 4,00,000

5 Income from sapling and seedling grown in a nursery at Cochin.

Basic operations were not carried out by her on land.

80,000

You are required to compute the business income and agricultural income of Miss Vivitha for the

assessment year 2021-22.

{CA inter J09, 6 marks}

Answer: Computation of business income and agricultural income of Ms.Vivitha

Source of Income Non-agri Agri

₹ ₹

1 Sale of latex from rubber plants grown in India. (35% : 65%) 1,05,000 1,95,000

2 Sale of coffee grown and cured in India. 25,000 75,000

3 Sale of coffee grown, cured, roasted and grounded outside India 2,50,000 -

4 Sale of tea grown and manufactured in India (40% : 60%) 1,60,000 2,40,000

5 Saplings and seedlings grown in nursery in India - 80,000

Total 5,40,000 5,90,000

Question: Manmohan owns a tea estate in Assam. He also owns a nursery wherein he grows plants

and sells them. He furnishes the following particulars:

Particulars ₹

Profit from sale of green tea leaves 1,75,000

Profit from manufacturing of tea grown in the garden owned by him 7,00,000

Income Tax 24

Profit from sale of plants from nursery 1,00,000

Compute tax payable by Manmohan for the Assessment Year 2021-22.

Answer: Computation of Taxable Income for the Assessment Year 2021-22

Nature of Business Agri Non-Agri

Profit from sale of green leaves is agricultural income and exempt 1,75,000

Profit from growing and manufacturing of tea (60% : 40%) 4,20,000 2,80,000

Profit from sale of plants from nursery (agricultural income) 1,00,000

Total Income 6,95,000 2,80,000

Computation of Tax Liability: ₹

(a) Total Income (Agricultural Income + Non-agricultural Income) [6,95,000 + 2,80,000] 9,75,000

(b) Tax on (a) above 1,07,500

(c) Total of (Agricultural Income + Basic Exemption Limit) [6,95,000 + 2,50,000] 9,45,000

(d) Tax on (c) above 1,01,500

(e) Tax Payable (b) - (d) 6,000

Add Health and Education Cess @ 4% 240

Total Tax Liability 6,240

Question: Mrs. Vasudha is running a cotton ginning factory. Raw cotton is grown in the lands owned

by her and the same is used for ginning in her factory. The ginned cotton is sold subsequently for

₹12,00,000. The following data are also available;

Particulars ₹

Cost of cultivation 4,00,000

Selling price of raw cotton when sent to the ginning factory 6,00,000

Expenses of ginning factory 3,40,000

{CMA inter J09, 5 marks}

Answer:

Particulars ₹ ₹

Sale price of cotton when sent for ginning (FMV) 6,00,000

Less Cost of cultivation 4,00,000

Agricultural income 2,00,000

Sale price of ginned cotton (finished product) 12,00,000

Less Cost of raw material (input) 6,00,000

Manufacturing expenses (cost of ginning) 3,40,000 9,40,000

Profits and gains of business or profession 2,60,000

Income from Other Sources 25

5. INCOME WHICH DO NOT FORM PART OF TOTAL INCOME

Section 10: Exemptions

(1) agricultural income (refer: agricultural income)

(2) HUF → Member

(2A) Firm assessed as such → Partner

(4) (ii) Interest on Non-Resident (External) A/c (RBI permitted A/c) → NR Individual

(5) Leave Travel Concession (Refer: salaries)

(6) For whom: Individual not a citizen of India

Exemption:

1. Remuneration received by official of embassy, high commission, legation,

commission, consulate or representative of a foreign state (but should not engage in

any other business). Similar remuneration of Indian Official should be exempt of that

country

2. Remuneration received from foreign enterprise for services rendered during his stay

in India: Provided

(1) The foreign enterprise not engaged in any trade or business in India

(2) His aggregate stay in India does not exceed 90 days

(3) such remuneration should not deductible from taxable income of that enterprise

3. Salary received by crew member of foreign ship.

Provided (he is non-citizen & non-resident and his aggregate stay ≤ 90 days)

4. Remuneration of employee of foreign, state for training. Provided training should be

in any enterprise owned by the Government or 100% Government Company or its

subsidiary or statutory corporation or a registered society wholly financed by the

Government.

(6C) Royalty or fees (security of India) by Government or an Indian Concern → Foreign

Company

(6D) Royalty | fees for technical services received from National Technical Research

Organisation by non-corporate non-residents and foreign companies

(7) Allowances / perquisites by Government for services outside India → Indian Citizen

(8) Remuneration from Foreign Government → (All) individual performs duty in India

(8A) (8B) & (9): Remuneration → NR consultant or employee

(10) Death-cum-retirement gratuity (Refer: Salary chapter)

(10A) Commutation of pension (Refer: Salary chapter)

(10AA) Leave Encashment (Refer: Salary chapter)

(10B) Retrenchment compensation (Refer: Salary chapter)

(10BB) Compensation received by victims of Bhopal gas leak disaster

(10BC) Compensation from the Central Government or a State Government or a local authority

received by an individual or his legal heir on account of any disaster

(10C) Voluntary retirement (refer: salary chapter)

(10CC) Tax on perquisite paid by employer

(10D) Any sum including bonus on life insurance policy [not being a Keyman insurance

policy]

(11) SPF / PPF (refer: salary chapter)

(11A) Any payment from an account, opened as per the Sukanya Samriddhi A/c Rules, 2014

(12) RPF (refer: salary chapter)

Income Tax 26

(12A) 60% withdrawal from NPS (refer: deduction chapter)

(12B) 25% on partial withdrawal from NPS (refer: deduction chapter)

(13) Amount from an approved superannuation fund to legal heirs of the employee

(13A) HRA (refer: salary chapter)

(14) Special Allowance to an employee for official duties (refer: salary chapter)

(15) Interest from certain exempted securities (Post Office: saving bank max ₹3,500,

cumulative time deposit, cash certificate and fixed deposit)

(15A) Payment made by an Indian company, engaged in the business of operation of an

aircraft, to acquire an aircraft on lease from a foreign Government or foreign enterprise

if a few conditions are satisfied

(16) Scholarship granted to meet the cost of education

(17) Daily allowance, constituency allowance of MLAs and MPs (refer: salary chapter)

(17A) Rewards in the public interest given by government or body approved

(18) Pension / Family pension received by winner of Gallantry Award or his family

members (refer: salary chapter)

(19) Family pension received by family members of armed forces (refer: salary chapter)

(19A) The annual value of any one palace in the occupation of a ruler (refer: IFHP chapter)

(20) the income of a local authority which is chargeable under the head "Income from house

property", "Capital gains" or "Income from other sources" or from a trade or business

carried on by it which accrues or arises from the supply of a commodity or service (not

being water or electricity) within its own jurisdictional area or from the supply of water

or electricity within or outside its own jurisdictional area.

(21) any income of a research association for the time being approved for the purpose of

section 35(1)(ii) or (iii) and section 11

(22B) any income of such news agency set up in India solely for collection and distribution of

news as the Central Government may, by notification in the Official Gazette

(23A) any income (other than income chargeable under the head "Income from house property"

or any income received for rendering any specific services or income by way of interest

or dividends derived from its investments) of an association or institution established

in India having as its object the control, supervision, regulation or encouragement of the

profession of law, medicine, accountancy, engineering or architecture or such other

profession as the Central Government may specify in this behalf, from time to time, by

notification in the Official Gazette

(23AA) any income received by any person on behalf of any Regimental Fund or Non-Public

Fund established by the armed forces of the Union for the welfare of the past and present

members of such forces or their dependents;

(23AAA) any income received by any person on behalf of a fund established, for such purposes

as may be notified by the Board in the Official Gazette, for the welfare of employees or

their dependents and of which fund such employees are members if such fund fulfils the

conditions mentioned

(26) Income from any source in the specified areas or states in which member of a scheduled

tribe is residing or income by way of dividend or interest on securities is exempt in the

hands of member of the scheduled tribe

(26AAA) Income from any source in the state of Sikkim

(30) The amount of any subsidy received by any assessee engaged in the business of growing

and manufacturing tea in India through or from the Tea Board will be wholly exempt

from tax

(31) Coffee board, Rubber board, Spices board

(35) Any income received in respect of units from the administrator of the specified

undertaking / specified company / mutual fund shall be exempt. However, income

arising from transfer of such units would not be exempt.

(45) Chairman / Member of UPSC (refer: salary chapter)

Difference between exemption and deduction

Exemption u/s 10 Deduction u/c VIA

1 Total income Not form part Forms part

2 Expenditure Not deductible Deductible

3 Basis Conditions Payment or conditions

State taxability: Sum received by individual as member of HUF out of the income of the family.

However it is not an amount received out of partition.1

State taxability: Salary received by ambassador of Russia who is posted in New Delhi.2

Choose the Best: Subject to fulfillment of other conditions, remuneration received by a foreign national

as an employee of a foreign enterprise for services rendered by him during his stay in India is exempted

from Income tax, if his stay in India does not exceed a period of 3

(a) 30 days (b) 60 days (c) 90 days (d) 120 days

Choose the Best: Commuted pension received by a State Government employee is exempt up to ₹____4

(a) 3 lakhs (b) 5 lakhs (c) 10 lakhs (d) Fully exempt

Question: Amount received from superannuation fund on resignation before specified age is exempt

from income tax. Comment5

1 Exempt U/s 10(2) 2 Exempt U/s 10(6) since he would not be a citizen of India 3 (c) 90 days 4 (d) Fully exempt 5 Exempt refer section 10(13)

Income Tax 28

True or false: Compensation on account of disaster received from local authority by an individual or

his / her legal heir is taxable.1

Decide the taxability: Educational scholarship of ₹10,000 received from a charitable trust by a college

student.2

Section 10(21): conditions for exemption of income of Scientific Association

Approval: The Association / Institution should be approved u/s 35(1)(ii). (Form 3CF)

Application of Income: For its objects only. In case of accumulation, Notice is given

Investments: It should deposit its funds in the modes specified u/s 11(5)

Business Income: Exemption is not available for income under "Profits and Gains of

a. Such business is incidental to the attainment of Association's object and

b. Separate books of accounts are kept for such business.

Withdrawal of Approval - The approval u/s 35(1)(ii) can be withdrawn by an order, after giving a

reasonable opportunity of being heard, if the approving authority is satisfied that-

The association has not applied its income wholly and exclusively for its objects, or

The association has not invested or deposited its funds as per Section 11(5), or

The activities of the association are not genuine, or

The activities of the association are not being carried out in accordance with all or any of the

condition subject to which such association was approved.

Section 10(23BB): Exempted income of khadi and Village Industries Board exempt from tax

Income is exempt if

Any income by Khadi Village Industries Board

Established under a State or Provincial Act

For the development of khadi or village industries

Choose the Best: Income of securitization trust form the activity of securitization is3

(a) Exempt (b) Taxable of 20% (c) Taxable of 5% (d) Taxable at the regular rate

{CMA inter D14, 1 mark}

State taxability: Rental income earned by a registered trade union.4

Section 10(26AAA): Exempted incomes of Sikkimese individual are

1. any income source in the State of Sikkim or

1 False. Refer S. 10(10BC)

2 Exempt: S. 10(16) 3 (a) Exempt [S.10 (23DA)] 4 Rental income of registered trade union is exempt from tax. [Section 10(24)].

2. by way of dividend or interest on securities

Note: Exemption is not available if Sikkimess woman who, on or after 01.04.2009, marries a non

Sikkimese individual.

Question: Ms. Monisha, a Sikkimess woman, married Mr. Atul of Surat in June, 2008. She has income

from let out property at Sikkim being ₹10,000 per month. She is employed in a bank at Surat and her

salary income for the year ended 31.03.2020 was computed at ₹3,12,000. Determine her total income.

What would be your answer if she got married on 30th June, 2014?1

State the taxability: Co-operatives formed for promoting the interest of scheduled tribes.2

Section 10(48): The exemption in respect of income received by certain foreign companies from sale of

crude oil.

Any Income received in India, in Indian Currency by a Foreign Company on account of sale of Crude

Oil, or any other goods or rendering of services, as notified by Central Government in this behalf, to

any person is exempt, based on following conditions:

1. Income is received as per approval of Central Government.

2. Having regard to the national interest, the Foreign Company and the agreement or arrangement

are notified by the Central Government in this behalf.

3. The Foreign Company is not engaged in any activity in India, other than the receipt of such income.

State the taxability: Giant Oil Inc, sold crude oil to HPCL a company in India. The sale was made within

India. Is the income arising from such sale liable to tax?3

Section 10AA: Exemption of income of Special Economic Zone (SEZ)

1. PGBP is exempted for newly established in SEZ

2. New establishment does not include the unit formed by splitting from existing unit

3. It can be formed by transfer of old plant and machinery to the extent of 20%.

4. Quantum of exemption: [15 years]

For first 5 AYs 100% of export profit

For next 5 AYs 50% of export profit

For next 5 AYs 50% of export profit (provided invested in SEZ Re-investment Reserve A/c)

Export profits = Profits of Business × Export Turnover

Total Turnover

5. Need to audit and file ROI with audit report

6. If a unit was located in any free trade zone or export processing zone which was converted to

special economic zone, the period of 10 years shall be considered from the assessment year relevant

to the previous year in which the unit began to manufacture, or produce or process such articles or

things in that free trade zone or export processing unit.

1 Married in June, 2008: salary income only is taxable. If married in June 2014: salary and IFHP are taxable. 2 is exempt [S.10(27)]. 3 Exempt (S. 10(48))

Income Tax 30

7. If a unit has already completed the period of 10 consecutive assessment years, no deduction is

allowed under this section.

8. In case of amalgamation or demerger, the deduction is availed by amalgamated company or

resulting company.

9. No deduction shall be allowed under section 80-I, 80-IA or 80-IB.

Section 10AA: What is the impact of availing deduction u/s 10AA of the income-tax Act, 1961?

Impact of availing deduction u/s 10AA:

1. Unabsorbed depreciation allowance or unabsorbed capital expenditure on Scientific research or

unabsorbed family planning expenditure or unabsorbed Loss under the head capital gains are not

allowed to be carried forward and set off against the income of Assessment years following the

period of deduction. However, this restriction is not applicable to losses in respect of other business.

2. Depreciation will be deemed to have been allowed and the WDV of the assets after exemption

period will be computed accordingly.

3. Deduction u/s 80IA and 80IB shall not be allowed.

4. Provisions of sec. 80IA(8) relating to inter unit transfer and provisions of sec. 80IA(10) relating to

showing excess profit from such unit apply to this undertaking.

Question: Nathan Aviation Ltd. is running two industrial undertakings, one in a SEZ (Unit S) and

another in a normal area (Unit N). The brief summarized details for the year ended 31.3.2021 are as

under:

₹ in lacs ₹ in lacs

Domestic turnover 10 100

Export turnover 120 Nil

Gross profit 20 10

Less: Expenses and depreciation 7 6

Profits derived from the unit 13 4

The brought forward business loss pertaining to Unit N is ₹2 lacs. Briefly compute the business income

of the assessee.

{CA inter M11 & N13, 5 marks | CMA inter D11, 7 marks (modified)}

Answer: Computation of Business Income of Nathan Aviation Ltd.

Particulars ₹ in lakhs ₹ in lakhs

Total profit derived from Units S & N 13 4

Less: Exemption under section 10AA1 12

Less: Brought Forward Business Loss 2

1 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑓 𝑈𝑛𝑖𝑡 𝑆 ×

𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑆

𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑆= 13 ×

Note 1:

Computation of exemption u/s 10AA in respect of Unit S located in a SEZ ₹ in lakhs

Domestic turnover of Unit S 10

Export turnover of Unit S 120

Total turnover of Unit S 130

Profit derived from Unit S 13

Exemption under section 10AA

Section 2(15): Charitable purpose means

1. Relief to poor

2. Education

3. Yoga

4. Medical relief

5. Preservation of environment (including watersheds, forests & wildlife)

6. Preservation of monuments or places or objects of artistic or historic interest

7. Advancement of any other object of general public utility (provided PGBP ≤ 20%)

Income Tax 32

6. INCOME OF OTHER PERSONS INCLUDE IN ASSESSEE'S TOTAL INCOME

S Description Clubbed

60 Transfer of income without transfer of assets. Transferor

61 Revocable transfer of assets.

Exception: If transfer is revocable only after the death of transferee

Transferor

62 Transfer irrevocable for a specified period

Exception: until transferor reassume the power

Transferee

63 "Transfer" and "revocable transfer" defined.

A transfer shall be deemed to be revocable if

(i) it contains any provision for the retransfer the income or asset

(ii) right to re-assume power over the income or asset

Transfer includes any settlement, trust, agreement

64 Income of individual to include income of spouse, minor child, etc.

64(1)(ii) spouse and substantial interest Individual

64(1)(iv) Spouse & income from asset transferred without adequate consideration Individual

64(1)(vi) To the son’s wife Individual

64(1)(vii) To any person or AOP for benefit of spouse Individual

64(1)(viii) To any person or AOP for benefit of son’s wife Individual

64(1A) Minor child Parent

64(2) Member to HUF

After partition

If asset given to transferor’s spouse – Individual

If asset given to other members – No clubbing

Individual

65 Clubbing of Liability Transferor

Section 64(1)(ii): Income of spouse from a concern where assessee has substantial interest.

Income of spouse is taxable in the hands of assessee if following conditions are satisfied

1. Income should be in the nature of salary, commission, bonus (remuneration).

2. Such remuneration should be received from a concern where assessee has substantial interest

3. Substantial interest is held by assessee himself or with relative (relative includes spouse, father,

mother, brother, sister and lineal ascendant and lineal descendant)

Exception:

1. The remuneration received by the spouse where the spouse possesses technical or professional

qualifications and the income is solely attributable to the application of his or her technical or

professional knowledge and experience then clubbing is not applicable

2. Where both husband and wife have a substantial interest in the concern and both are in receipt of

remuneration from the concern, the remuneration will be included in the total income of husband

or wife whose total income, excluding such remuneration is greater. Where such income is included

in the total income of either spouse, any such income arises in the subsequent year will not be

included in the total income of the other spouse unless the Assessing Officer is satisfied, after giving

that spouse an opportunity of being heard, that is necessary to do so.

{CMA inter N07, 6 marks}

Section 64(1)(iv): Asset transferred to spouse: If any individual transfers any asset to his or her spouse

without consideration or for inadequate consideration then income from such asset is clubbed in the

hands of transferor.

Exception: Above provision will not be applicable if:

• Transfer is under an agreement to live apart.

• if relationship of husband and wife does not exist either at the time of transfer as well at the time

of accrual of income

• If a house property is transferred by an individual to his spouse or minor child (not being a minor

daughter) for without / inadequate consideration then such individual is treated as deemed owner

as per section 27 and clubbing u/s 64 is not applicable

Section 64(1)(vi): Asset transferred to son’s wife: If an individual transfer any assets to daughter-in-

law, without adequate consideration, income from the assets will be clubbed in the income of the

transferor.

Condition: Above provision will be applicable only if:

The relationship of father-in-law / mother-in-law and daughter-in-law should subsist both at the time

of transfer and at the time of accrual of income.

Section 64(1)(vii)/(viii) Asset transferred to any person for the benefit of spouse or son’s wife, shall

be clubbed in the income of the transferor.

Clubbing of income of minor children in the hands of parent u/s 64(1A)

Income earned by a minor child would be clubbed in the hands of the parent whose income is more

before clubbing minor’s income.

Exception: Under the following situations the income of the minor child would not be clubbed:

Income earned by

• minor child through manual work done by him.

• Income from activity by application of his skill, talent or specialised knowledge and experience.

• Minor child suffering from disability

1. If the relationship of husband and wife does not subsist between the parents, the income of the

minor child would be clubbed in the hands of the parent who maintains the child during the

previous year.

2. The parent is entitled to claim an exemption up to ₹1,500 u/s 10(32) per minor child if the income

of the minor child is included in his total income.

Income Tax 34

3. Once clubbing of minor’s income is done with a parent, it will continue to be clubbed with that

parent only.

4. The clubbing provisions are attracted even in respect of income of minor married daughter.

5. Child includes a step child and an adopted child

{CMA inter M03, 5 marks}

Conversion of a self-acquired property into the property of a HUF without adequate consideration

then income from such asset is clubbed in hands of transferor.

Clubbing after partition: If the converted property is subsequently transferred to the spouse of the

transferor then the income derived from such converted property is clubbed in the income of the

transferor.

• Income includes loss, therefore, clubbing is applicable for loss also

• The clubbing is applicable even if the transferred assets is converted in to some other form.

• If the transferee sells the transferred assets, the capital gains shall also be clubbed with the income

of the transferor.

• Clubbed income shall be retained under the same head in which it is earned. Income shall be

clubbed after allowing deduction under the same head but after clubbing deduction under VI-A

shall be allowed.

• Clubbing is applicable even if the assets are indirectly transferred or transferred through cross

transfer for evading tax.

• If the transferred asset (without adequate consideration) is invested by spouse / son's wife in any

business (includes any asset), following amount will be clubbed.

𝑃𝑟𝑜𝑓𝑖𝑡 𝑒𝑎𝑟𝑛𝑒𝑑 ×𝐴𝑚𝑜𝑢𝑛𝑡 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑎𝑠 𝑜𝑛 1 𝐴𝑝𝑟𝑖𝑙 𝑜𝑓 𝑡ℎ𝑒 𝑃𝑌

𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑒𝑑 𝑎𝑠 𝑜𝑛 1 𝐴𝑝𝑟𝑖𝑡𝑙 𝑜𝑓 𝑡ℎ𝑒 𝑃𝑌

• No clubbing in case of income earned using income of the transferred asset.

Cross transfers: In the case of transfer of asset by a person (donor) to another person (donee) in return

for transfer of asset by another person (donee) or his relative to the original donor or his relative is

known as ‘cross transfers’.

Example: Mr. A making gift of ₹50,000 to the wife of his brother B for purchase of a house by her and

simultaneous gift by B to A's minor son of shares in a foreign company worth ₹50,000 owned by him.

Thus, in the instant case, the transfers have been made by A and B to persons who are not their spouse

or minor child so as to evade the clubbing provisions. Hence the income arising to Mrs. B from the

house property should be included in the total income of B and the dividend from shares transferred

to A's minor son would be taxable in the hands of A.

{CMA inter M08, 6 marks}

Practical Problems

Question: Mr. Vatsan has transferred through a duly registered document the income arising from a

godown, to his son, without transferring the godown. In whose hands will the rental income from

godown be charged?1

Question: State the exception to the applicability of clubbing provisions even in the case of revocable

transfers.2

Question: Mrs. Sukanya is a qualified cost accountant. She is a salaried employee in a firm of cost

accountants in which Mr. Ashok (her husband) is a partner. Mr. Ashok’s share in the firm is 10%. His

younger brother holds 10% share in this firm. Mrs. Sukanya draws a salary of ₹18,000 per month from

the firm. This is however paid in kind and not in cash. Mr. Ashok’s income by way of sitting fees from

the various boards of the companies in which he is an independent director is ₹3,50,000. Will Mrs.

Sukanya’s income be clubbed with that of Mr. Ashok u/s 64 of the Income-tax Act, 1961?3

Question: Mr. Vishal gifted a sum of ₹3 lacs to Miss Mrinal on 01.04.2020. Miss. Mrinal got married to

Mr. Vishal’s son on 01.06.2020. Mrinal earned an interest of ₹22,000 from this gifted amount, for the

year ended 31.03.2021. Can the interest income of ₹22,000 be clubbed in the hands of Mr. Vishal?4

Question: Agricultural income in India earned by Master Soham (aged 15 years). Discuss taxability.5

Question: Rishi aged 12 years earned ₹10 lakhs during previous year 2020-21 for acting in feature films.

The said sum was kept in fixed deposit in his name. Interest earned on fixed deposit amounted to

₹50,000. In whose hands shall the above two incomes be included? Give reasons for your answer.

Answer:

No ₹

1 Child’s income for acting – taxable in the hands of the Child.

(No clubbing, as income earned using child’s skill and talent)

10,00,000

2 Parent’s Income (Other than child’s income) ×××

Add Interest income of Child 50,000

Less Exemption u/s 64(1A) (1500) 48,500

×××

1 In the hands of transferor (Mr. Vatsan) as per section 60 2 If transfer is revocable only after the death of transferee as per section 61 3 Not clubbed: [S. 64(1)(ii)] 4 Not clubbed in the hands of Vishal as father in law and daughter-in-law relation does not exist on transfer 5 Clubbed in the hands of parent [Suresh Chand Talera vs. Union of India]

Income Tax 36

State True or False, with reasons: Mr. Y, who is a physically handicapped minor (suffering from a

disability of the nature specified in section 80U), earns bank interest of ₹50,000 and ₹60,000 from

marking bags manually by himself. The total income of Mr. Y shall be computed in his hands

separately.1

Question: The following details of income of Mr. X and his wife, for the assessment year 2020-21 are

made available to you;

Particulars Mr. X (₹) Mrs. X (₹)

Income from own business / profession 1,20,000 90,000

Income from other sources 2,10,000 1,10,000

Interest received from Z & Co. 20,000 4,10,000

Salary received from Z & Co. 96,000 84,000

Mr. X and Mrs. X are partners in Z & Co. each having 10% share in profits of Z & Co?

Answer: Clubbing where husband and wife received salary from company in which they have

substantial interest.

Particulars Mr. X (₹) Mrs. X (₹)

Income from own business / profession 1,20,000 90,000

Income from other sources 2,10,000 1,10,000

Interest received from Z & Co. 20,000 4,10,000

Total excluding salary 3,50,000 6,10,000

Salary received from Z & Co. is clubbed in Mrs. X’s hand

as her income is more than the income of Mr. X before clubbing

Mr. X 96,000

Mrs. X 84,000

Gross total Income / Total Income 3,50,000 7,90,000

Question: Mr. Rajiv commenced business with a capital of ₹2 lakhs in the financial year 2013-14. His

capital as on 1.4.2019 was ₹5 lakhs. His wife gifted ₹1 lakh on 10.04.2019, which was also invested in

the business.

His Net profit for the year 2019-20 = ₹2 lakhs

His Net profit for the year 2020-21 = ₹4 lakhs

Compute the income from business to be clubbed in the hands of Mrs. Rajiv and the income from

business taxable in the hands of Mr. Rajiv for the assessment year 2021-22.

Mr. Rajiv did not withdraw any money from the business from 01.04.2020 to 31.03.2021.

1 Taxable in the hands of Mr.Y is ₹1,10,000. Clubbing is not applicable as the minor is physically disabled

Answer:

Particular Rajiv’s

Capital

Contribution

Capital

contribution

out of gift

from wife

Capital as on 01.04.2019 5,00,000 Nil 5,00,000 Investment as on 10.04.2019 out of gift from his wife Nil 1,00,000 1,00,000 Total capital invested till 31.03.2020 5,00,000 1,00,000 6,00,000 Profit for the F.Y. 2019-20 2,00,000 Nil 2,00,000 Capital employed on 1.04.2020 7,00,000 1,00,000 8,00,000 Profit for the F.Y. 2020-21 to be apportioned on the basis

of capital employed on 01.04.2020 (i.e. 7:1 ratio) 3,50,000 50,000 4,00,000

Hence, the income assessable in the hands of Mr. Rajiv for AY 2021-22 is ₹3,50,000 and the income

assessable in the hands of Mrs. Rajiv for A.Y. 2021-22 would be ₹50,000.

Question: Mr. Ashwin started a proprietary business on 20.04.2019 with a capital of ₹5,50,000. His wife

Smt. Padma gifted ₹2,00,000 on the occasion of his birthday on 28.07.2019, out of which he introduced

₹1,00,000 into his proprietary business.

Details of his income from business are given below;

Financial year (Loss) Income 2019-20 ₹(1,50,000) 2020-21 ₹4,00,000

He did not withdraw any amount from the business for his personal use.

Determine the amount chargeable to tax in the hands of Ashwin and the amount liable for clubbing in

the hands of his wife Smt. Padma.

Answer:

Particular Mr Aswhin’s

Capital

Contribution

Capital

contribution

out of gift

from wife

Total (₹)

Capital introduced on 20.04.2019 5,50,000 Nil 5,50,000 Investment as on 28.07.2019 out of gift from his wife Nil 1,00,000 1,00,000 Total capital invested till 31.03.2020 5,50,000 1,00,000 6,50,000 Profit / (Loss) for the F.Y. 2019-20 (1,50,000) Nil (1,50,000) Capital employed on 1.04.2020 4,00,000 1,00,000 5,00,000 Profit for the F.Y. 2020-21 to be apportioned on the basis

of capital employed on 01.04.2020 (i.e. 4:1 ratio) 3,20,000 80,000 4,00,000

Question: Mr. Daga is a trader. Particulars of his income and those of the members of his family are

given below (These incomes relate to the year ended 31st March, 2021);

No Particulars ₹

1 Income from Mr. Daga’s business 90,000

2 Salary derived from an educational institution by Mrs. Daga; she is the principal of the

institution

50,000

Income Tax 38

3 Interest on company deposits derived Master Deep Daga (Minor son). These deposits

were made in the name of Deep Daga by his father’s father about 6 years ago

12,000

4 Receipts from sale of paintings and drawings made by minor Dipali Daga (Minor

Daughter of Mr. and Mrs. Daga and a noted child artist)

60,000

5 Income by way of lottery earning by Master Dipendar Daga (Minor son of Mr. and

Mrs. Daga)

26,000

Answer:

• Mr. Daga’s income from business is assessable in his individual hands.

• Mrs. Daga’s salary is assessable in her individual hands.

• The income of minor sons Deep and Dipender will be clubbed with income of the parent whose

total income before clubbing is greater. Mr. Daga’s income (₹90,000) is greater than the total

income of Mrs. Daga (₹50,000). Hence the income of minor children will be clubbed in the hands

of Mr. Daga u/s 64(1A)

• The income by activity involving skill, talent of minor daughter Depali from painting is

chargeable in her individual hands.

Computation of Total Income of Mr. Daga For the year 2020 -21

Particulars ₹ ₹ ₹

Profits and gains of business or Profession 90,000

Income from other sources:

Interest on company deposit derived by Master Deep

Daga clubbed under Section 64(1A) 12,000

Less Exemption under Section 10(32) 1,500 10,500

Lottery earning of Master Dipender 26,000

Less Exemption under Section 10(32) 1,500 24,500 35,000

Gross Total Income/Total Income 1,25,000

Question: During the previous year 2020-21 the following transactions occurred in respect of Mr. A.

• Mr. A had a fixed deposit of ₹5,00,000 in Bank of India. He instructed the bank of credit the interest

on the deposit @ 9% from 1-4-2020 to 31-3-2021 to the savings bank account of Mr. B, son of his

brother, to help him in his education.

• Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of ₹25,000 from the

firm for promoting the sales of the firm. Mrs. A possesses no technical or professional qualification.

• Mr. A gifted a flat to Mrs. A on April 1, 2020. During the previous year the flat generated a net

income of ₹52,000 to Mrs. A.

• Mr. A gifted ₹2,00,000 to his minor son who invested the same in a business and he got a share

income of ₹20,000 from the investment.

• Mr. A’s minor son derived an income of ₹20,000 through a business activity involving application

of his skill and talent.

During the year Mr. A got a monthly pension of ₹10,000. He had no other income. Mrs. A received

salary of ₹20,000 per month from a part time job.

Discuss the tax implementations of each transaction and compute the total income of Mr. A, Mrs. A

and their minor child.

Answer: Computation of Total Income of Mr. A, Mrs. A and this minor son for the A.Y. 2021-22.

Particulars Mr. A

Mrs. A (₹) Minor

Son (₹)

Salary income (of Mrs. A) 2,40,000

Pension income (of Mr. A) (₹10,000×12) 1,20,000

Income from House Property (Note 3) 52,000

Income from other sources

Interest on Mr. A’s fixed deposit with Bank of India (₹5,00,000 × 9%)1 45,000

Commission received by Mrs. A from a partnership firm,

in which Mr. A has substantial interest.2

25,000

Income before including income of minor son under section 64(1A) 2,42,000 2,40,000

Income of the minor son from the investment made in the business

out of the amount gifted by Mr. A (20,000 – Exemption ₹1,500),

is clubbed in the hands of parent who has more income

before clubbing minor’s income (hence clubbed in the hands of Mr. A)

18,500

Income of the minor son through a business activity

involving application of his skill and talent

20,000

Total Income 2,60,500 2,40,000 20,000

1 transfer of income without transfer of asset is clubbed in the hands of transferor as per section 60 2 As per section 64(1)(ii), in case the spouse of the individual receives any amount by way of income from any

concern in which the individual has substantial interest, then such income shall be included in the total income

of the individual. (No clubbing if the spouse used her skill for earning the income)

Income Tax 40

7. SET-OFF AND CARRY FORWARD OF LOSSES

S Description

70 Setoff of loss within same head [inter source adjustment]

71 Setoff of loss allowed in another head

71B Carry forward and setoff of loss from house property

72 Carry forward and setoff of loss from business

72A Provisions relating to carry forward and set off of accumulated loss and unabsorbed

depreciation allowance in amalgamation or demerger, etc.

73 Carry forward and setoff of loss from speculative business

73A Carry forward and set off of losses by specified business u/s 35AD

74 Carry forward and setoff of loss from capital gain

74A Carry forward and setoff of loss from specific income from other sources

78 Carry forward and set off of losses in case of change in constitution of firm or on succession

79 Carry forward and set off of losses by closely held companies

80 Submission of return of loss

Section 70: Intra-head adjustments: Loss in respect of any source of income shall be set-off against

income from any other source under the same head.

Exceptions:

Loss source Setoff source / same head – Income

1 Speculation business Speculation business only

2 Specified business u/s 35AD Specified business u/s 35AD

3 Owning and maintaining race horses Owning and maintaining race horses

4 Long term capital loss Long term capital gain (Not short term)

1 Short term capital loss Long term and short-term capital gain

2 Winning from lotteries, crossword puzzles… Nil (no setoff / carry forward)

3 Loss from exempt source Nil (no setoff / carry forward)

Section 71: Inter-head adjustment: the loss under one head is set-off against income under any other

head in the same PY.

Loss source Setoff other head – Income

1 Loss from house property Up to ₹2,00,000

2 Non-specified & non-speculation business Except salary

3 Income from other sources other than

(i) Winning from lotteries, crossword puzzles…

(ii) Owning and maintaining race horses

Except salary

Note 1: Other than the loss listed above including capital loss cannot be setoff in other head

Note 2: Nothing cannot be set off in winning from lotteries / crossword puzzles…

Carry forward and setoff

Where all losses could not be set-off during the same assessment year in which they occurred, that

losses can be carried forward for next assessment year.

S Carried forwarded loss Set off in income Years S.80

Return

I 71B Income of House Property [Max ₹2,00,000] Income from HP 8 No

II Profit and Gains from Business or Profession

72 Non-speculation business [Even discontinued] Business income 8 Yes

73 Speculation Business Speculation Business 4 Yes

73A Specified Business Specified business NL Yes

III 74 Capital Gains

Short Term Short / Long term 8 Yes

Long Term Long term 8 Yes

IV Income from Other Sources

74A Loss from owing and maintaining race horses same source 4 Yes

Depreciation u/s 32(2): can be carried forward & setoff without any time limit in any head except salary

Business Loss [S.72(2)]: in case of business loss carried forward and setoff only by the same assessee

except in case of succession by inheritance. The order of setoff is as follows

1. Current year depreciation [32(1)]

2. Current year capital expenditure on scientific research and current year expenditure on family

planning, to the extent allowed.

3. Brought forward unabsorbed business loss [72(1)]

4. Brought forward unabsorbed depreciation [S.32(2)]

5. Unabsorbed scientific research expenditure [S.35(4)]

6. Unabsorbed expenditure on family planning [S.36(1)(ix)]

Section 78: Carry forward and set off in case of change in constitution of firm or on succession

Situation Carry forward and setoff

1 Partner retired / deceased Not available – to the extent of loss of retired / deceased partner

Excluding depreciation

2 Inheritance Available

Income Tax 42

Section 79: Carry forward and set off of losses by closely held companies.

Condition: Shareholders having at-least 51% of voting rights in the previous year of loss should

continue to be the shareholders as on the last day of the previous year in which the loss is sought to be

set off.

Exception:

1. if transfer of share by death or gift by shareholder to his relative

2. there is a change in the shareholding of an Indian company which is a subsidiary of a foreign

company as a result of amalgamation or demerger of a foreign company, provided 51% of the

shareholders of the amalgamating or demerged foreign company continue to be shareholders of

the amalgamated or the resulting foreign company.

{CA inter M04 | CMA inter J10, D13 & J15, 3~6 marks}

Practical Problems

Fill up the blanks: Time limit for carry forward and set off the losses from speculation business is

______ years.1

{CA inter N07 | CMA inter J14, 1 mark}

Fill in the blanks: Business loss is _____ (eligible / not eligible) for set off against income from salaries.2

{CA inter N07, 1 mark}

Fill in the blanks: The first item in the order of priority of set off as between current year capital

expenditure on scientific research, current year depreciation and brought forward business loss is

_____3

{CA inter N07, 1 mark}

Question: Explain the order of priority amongst business loss, current depreciation and brought

forward unabsorbed depreciation.4

{CA inter}

Question: Unabsorbed loss under the head ‘Capital gains’ shall be carried forward for a period of

______ assessment years immediately following the assessment year in which such loss was incurred5.

Question: A short-term capital loss in the current year can be set-off only against:6

(a) Any capital gain in the current year (b) Any short-term capital gain only

1 4 years 2 Not eligible 3 Current year capital expenditure on scientific research, current year depreciation and brought forward business

loss 4 business loss, current depreciation and brought forward unabsorbed depreciation. 5 Answer: 8 years 6 Answer: (a)

(c) Any long-term capital gain only (d) Any income under other heads of income

Question: Is a firm allowed to carry forward share of accumulated loss of a retired / deceased partner?1

Question: X Co. Ltd. filed is return for the assessment year 2021-22 on 10.12.2021, declaring a business

loss of ₹12,00,000 and unabsorbed depreciation of ₹6,00,000. How much of loss and / or depreciation is

eligible for carry forward?2

Question: Mr. Anurag, an individual engaged in the business, having turnover of ₹1.50 crores and no

international transaction or specified domestic transaction incurred loss from business during the

previous year 2020-21. Such business loss could not be set off against any other income during the year.

He filed return of loss for Assessment Year 2021-22 on 31st March, 2022.

(i) Can Mr. Anurag carry forward such loss for set off against income form business of the assessment

year 2021-2022?3

(ii) Is there any difference if Mr. Anurag has unabsorbed depreciation instead of loss from business in

the previous year 2020-21 for carry forward to assessment year 2021-22 for set off?4

Question: Ameet furnishes the following particulars of income / loss pertaining to previous year 2020-

(₹ in lacs)

Profit from trading business 6

Loss from manufacturing business 1.5

Loss from profession 2.5

Profit from speculation in shares 2.5

Loss from speculation in commodities 3

He has no other income during the year. Determine total income of Ameet for the Assessment Year

2021-22. Also state the loss to be carried forward. The manner of set off must be clearly shown in your

answer.

Answer: Computation of Total Income of Ameet for Assessement Year 2021-22

Profit and Gains from Business or Profession ₹ ₹

1 No [section 78] 2 For carry forward of business loss filing within due date is required {S.80} but not for depreciation. Hence

business ₹12 lakhs loss cannot be setoff but depreciation of ₹6 lakhs can be set off. 3 No, as the filing of return is after the due date 4 Yes, depreciation can be set off without any time limit even filing of return is not made within due date

Income Tax 44

I Non-speculation business

1 Profit from trading business 6,00,000

2 Loss from manufacturing business (1,50,000)

3 Loss from profession (2,50,000) 2,00,000

II Speculation Business

1 Profit from speculation in shares 2,50,000

2 Loss from speculation in commodities (3,00,000)

Speculation business loss cannot be setoff in non-speculation business

but can be carried forward up to 4 AYs for setoff

(50,000)

Total Income 2,00,000

Question: From the following information compute the total income of Mr. Ramesh for the assessment

year 2021-22;

Particulars ₹

Income from salary 2,60,000

Income from House Property 1,00,000

Business loss (non-speculative) 3,20,000

Short-term capital gain 1,40,000

Long-term capital gain 2,80,000

Answer: Computation of Total Income of Mr. Ramesh for Assessment year 2021-22

Profit and Gains from Business or Profession ₹ ₹ ₹

I Income from salary 2,60,000

II Income from house property 1,00,000

III Non-speculation business loss

(can be setoff in other heads except salary)

(3,20,000) (3,20,000)

IV Capital gains

1 Short term capital gain 1,40,000

2 Long term capital gain 2,80,000 4,20,000

II + III + IV 2,00,000

Question: During the year ended 31.03.2021, Mr. Subramani has following income and the brought

forward losses

Particulars ₹

Short-term capital gain on sale of shares 2,60,000

Long-term capital loss of A.Y 2019-20 90,000

Short-term capital loss of A.Y 2020-21 80,000

Long-term capital gain 78,000

Income from lotteries 3,10,000

Cost of lottery tickets purchased 2,000

Loss from betting 1,20,000

Income from card games 80,000

Briefly compute the gross total income and loss eligible for carry forward in the hands of Mr. Subramani

for A.Y.2021-22.

Answer:

Profit and Gains from Business or Profession ₹ ₹ ₹

I Capital gains

1 Short-term capital gain on sale of shares 2,60,000

Brought forward short-term capital loss [AY 2020-21] (80,000)

Short term capital gain 1,80,000

2 Long-term capital gain 78,000

Brought forward long-term capital loss [AY 2019-20] (90,000)

Long term capital gain cannot be setoff in STCG

But carried forwarded for next year

(12,000)

Capital gains [1+2] 1,80,000 1,80,000

II Income from other sources

Income from lotteries

(no expenses or loss in other head

or other source can be setoff under this source)

3,10,000 3,10,000

Loss from betting

(cannot be setoff or carried forward)

(1,20,000)

Income from card games 80,000 80,000 3,90,000

Total Income [I+II] 5,70,000

Question: Following are the particulars of the income of Mr. Siddharth for the PY 2020-2021

1. Income from house property ₹

(i) Property R (+) 12,000

(ii) Property J (-) 20,000

2. Profits and gains from business:

(A) Non-speculation:

(i) Business X 40,000

(ii) Business Y (-) 50,000

(B) Speculation:

(i) Silver 40,000

Income Tax 46

(ii) Bullion (-) 10,000

3. Capital gains:

(i) Long-term capital gains (+) 30,000

(ii) Short-term loss (-) 10,000

4. Income from other sources:

(i) Card games-loss 10,000

(ii) From the activity of owing and maintaining race horses:

(a) Loss at Mumbai (-) 50,000

(b) Profit at Kolkata (+) 40,000

(iii) Dividend from Indian companies 10,000

(iv) Income by letting out plant and machinery 1,11,000

5. The following losses have been carried forward:

(i) Long-term capital loss from the assessment year 2018-2019: 18,000

(ii) Loss from silver speculation from the AY 2018-2019

and which was discontinued in the AY 2019-2020

25,000

Compute the gross total income for the assessment year 2021-2022

Answer:

Computation of Gross Total Income for the Assessment Year 2022-2022

Particulars Intra

source

I Income from house property

1 Property R 12,000

2 Property J (20,000) (8,000) (8,000)

II Profit or gains from business or profession

1 Profits from speculation:

(a) Profit from Silver Business 40,000

(b) Current year loss from bullion (can be setoff in same source) (10,000)

Carried forward silver speculative loss

(can be setoff in same source)

(25,000) 5,000

2 Profits from non-speculation business:

(non-speculation business loss can be adjusted

in speculation business profit)

(a) Business profit from X business 40,000

(b) Business loss from Y business (50,000) (10,000) (5,000)

III Capital gains:

1 Long-term capital gains 30,000 30,000

2 Short-term capital loss (10,000) (10,000)

(can be adjusted in long-term capital gain)

Brought forward long-term capital loss (18,000) 2,000

IV Income from other sources:

1 Card game loss

(Neither it can be set-off nor it can be carried forward)

(10,000) Nil

2 Profit / (loss) from race horses (intra-source setoff only)

(a) Kolkata 40,000

(b) Mumbai (50,000) Nil

to be carried forward for next four assessment year (10,000)

3 Income by letting out plant and machinery 1,11,000 1,11,000

4 Dividend from Indian companies 10,000 10,000 1,21,000

Gross total income 1,10,000

Question: Mr. Dey furnishes the following particulars of his income for the previous year 2020-2021:

Particulars ₹

Unit A: Business loss (-) 4,00,000

Unit A: Unabsorbed depreciation (-) 2,00,000

Unit B: Business profit 10,00,000

Income from house property 2,00,000

Carried forward unabsorbed losses and depreciation;

Unit “C” business was discontinued on 31-12-2016

1. Business loss (-) 3,00,000

2. Depreciation (-) 2,00,000

Unit “D” business was discontinued on 1-3-2018

1. Business loss (-) 3,00,000

2. Depreciation (-) 1,00,000

Compute his total income for the assessment year 2021-22.

Answer:

Profit and Gains from Business or Profession ₹ ₹

I Income from house property 2,00,000

II Non-speculation business

Unit B: Business profit 10,00,000

Order Setoff losses as follows

1 Unit A: Current year business loss

(can be adjusted in other head except salary)

(2,00,000) (2,00,000)

2 Unit A: Current year unabsorbed depreciation (2,00,000)

3 Unit C: Brought forwarded business loss (3,00,000)

Income Tax 48

3 Unit D: Brought forwarded business loss (3,00,000)

4 Unit C: Brought forwarded depreciation (2,00,000)

4 Unit D: Brought forwarded depreciation (1,00,000)

As the business profit is shortage for adjusting the losses,

The losses as per the order adjusted in the profit and balance

Unabsorbed

Unit C: Brought forwarded depreciation (2,00,000)

Unit D: Brought forwarded depreciation (1,00,000)

Can be carried forwarded

Total Income 0

8. DEDUCTIONS FROM GROSS TOTAL INCOME

DEDUCTION UNDER CHAPTER VI-A

S Description

80A Deduction not to exceed gross total income

80AB Deduction w.r.t certain income not to exceed such income

80AC Deduction w.r.t certain income allowed on filing of ROI within the due date

80C Deduction for certain Investments / Payments, etc.

80CCC Contribution to certain pensions

80CCD Contribution to approved pension plan

80CCE Maximum deduction u/s 80C, 80CCC and 80CCD

80D Mediclaim Policy

80DD Expenditure on disabled dependents

80DDB Expenditure on specified diseases

80E Interest on repayment of educational loan

80EE Interest on loan for acquisition of residential house property

80EEA Interest on loan for acquisition of residential house property

80EEB Interest on loan for purchasing electric vehicle

80G Donations

80GG Rent payment in case of non-receipt of HRA

80GGA Donations for scientific and rural development

80GGB Donations to political party or an electoral trust by Indian company

80GGC Donations to political party or an electoral trust by non-corporate

80JJA Income from business of conservation of natural resources

80JJAA Deduction for additional employment by Indian companies

80LA Deduction on income from off-shore banking units (including financial institutions)

80P Deduction from specified activities for cooperative society

80PA Deduction in respect of income of producer companies

80QQB Deduction from royalty income from books

80RRB Deduction from royalty income from patents

80TTA Deduction in respect of interest from savings bank a/c for other than resident senior citizen

80TTB Deduction in respect of interest from savings bank a/c for resident senior citizen

80U Deduction for disable individuals

Income Tax 50

Section 80A: Deductions not to exceed Gross Total Income

1. Deduction u/c VI-A is restricted to Gross Total Income

2. No deduction for members of AOP / BOI: If deduction is allowed for AOP / BOI

3. No deduction if not claimed

4. No double deduction

5. No carry forward

6. Deduction under Chapter VIA is not available in respect of ---

(a) Long Term Capital Gains – Section 112 / 112A

(b) Short Term Capital Gains subject to Securities Transaction Tax – Section 111A

(c) Non-Resident presumptive taxation u/s 115A to 115AD

Question: Chapter VI–A deduction _______ (shall / shall not) be allowed in respect of income from

short term capital gain.1

Section 80AB & 80AC: Deduction w.r.t certain income [80IA, IAB, IB, IBA, IC, ID, IE, JJA, JJAA, LA, P, PA, QQB & RRB]

1. Should not exceed such income

2. Allowed only if ROI is filed within the due date

Section 80B: Gross Total Income

Section 80C: Deduction w.r.t. specified investments

1. Applicability: Individual & Hindu Undivided Family.

2. Deduction: ₹1,50,000 [Maximum Limit]

3. Deduction is allowed whether amount invested out of income chargeable to tax or not.

4. Eligible for investment are:

UN4IT2S3 LR P3M

U Contribution of ULIP of UTI or LIC. (continuous for minimum period of 5 years)

For Individual: self, spouse and children

For HUF: any member

N Subscription to National Saving Certificates and interest accrued thereon,

which is deemed to be reinvested

N Subscription to any notified bonds of NABARD

N Subscription in deposit scheme or contribution to pension fund set up

by the National Housing Bank.

N NPS additional account (other than 80CCD)

1 shall. However, in case it is STCG in equity shares in a company chargeable to STT (u/s 111A) deduction u/c

VIA shall not be allowed. As the question does not mention this answers would be possible.

I Shares and debentures of infrastructure companies [lock in period 3 years]

T Tuition fees (except donation & donation fee etc.) at the time of admission or thereafter.

for full time education

for any two children of such individual

to any university / college / educational institution in India.

T Amount deposited in 5 year Time Deposit Scheme in a Post Office

S Amount deposited under Senior Citizens Saving Scheme

S Stamp duty paid on acquisition of residential house property

S Sukanya Samruti Account

For individual: self, girl child (even being legal guardian)

L Life Insurance (LIC) premium on life

For Individual: self, spouse and children (dependent or independent)

For HUF: any member

Period Premium paid should be maximum deduction of

1 Upto 31.03.2012 20% of sum assured

2 From 01.04.2012 onwards 10% of sum assured

3 From 01.04.2013 onwards 15% of sum assured for person covered under 80U & 80DDB

Taxable on claim: 80DD | on receipt of KMIP

R Repayment of loan taken from Central / State Government / any other Bank / LIC / National

Housing Bank / employer, where employer is statutory corporation or public company or

University or College or local authority or a co-operative society for purchase or construction of

a residential house property

P Contribution by an employee towards statutory / recognized / public provident fund.

For individual: self, spouse and children

For HUF: any member

P Contribution by a government employee towards an approved superannuation fund.

For spouse and children (not exceeding 1/5th salary)

P Payment for annuity plan of LIC (i.e., Jeevan Dhara, Jeevan Akshy, New Jeevan Dhara. etc)

or any other insurer

M Contribution to notified pension fund set up by Mutual Fund

Question: Mr. Srinivasan, aged 66 years, furnishes the following particulars for the year ending

31.03.2021.

1. Life Insurance premium paid ₹40,000, actual capital sum of the policy assured for ₹1,50,000. Policy

was taken in year 2018.

2. Contribution to Public Provident fund ₹50,000 in the name of father;

3. Tuition fees payment ₹5,000 each for 3 sons pursuing full time graduation course in Mumbai;

Tuition fee paid for daughter pursuing Ph.D. in Melbourne University, Australia ₹3.50 lakhs;

Income Tax 52

4. Housing loan principal repayment ₹30,000 to HDFC Bank. This property is under construction at

Bangalore as on 31.03.2021.

5. Principal repayment of housing loan taken from a relative ₹60,000. The property is self-occupied

and situated at Chennai;

6. Deposit under Senior Citizens Savings Scheme ₹15,000;

7. Five-year deposits in an account under Post Office Time Deposit Scheme ₹20,000;

8. Investment in National Saving Certificate ₹25,000;

9. Subscription to bonds issued by NABARD ₹80,000.

Compute the quantum of eligible deduction u/s 80C of the Income Tax Act, 1961 for A.Y.2021-22.

Answer: Computation of deduction under Section 80C for A.Y. 2021-22

Particulars ₹

Life Insurance premium (maximum 10% of sum assured) 15,000

Contribution to Public Provident Fund (in the name of father not allowed) Nil

Tuition fee of 2 children for graduation course (5,000×2) 10,000

Housing Loan Principal Repayment: not deductible

1. house in construction and chargeable under income from HP

2. loan from friend

Senior Citizen saving scheme deposit 15,000

Post Office Time Deposit Scheme 20,000

Investment in National Saving Certificate 25,000

Subscription to Bond issued by NABARD 80,000

(a) Amount Eligible u/s 80C 1,65,000

(b) Maximum amount deductible 1,50,000

Gross amount eligible for deduction u/s 80C [maximum of (a) or (b)] 1,50,000

Question: Compute the quantum of deduction under section 80C for Mr. Niraj for the assessment year

2021-22.

Particulars ₹

1 Life Insurance premium

Own – capital sum assured 2,00,000 (being the first premium paid) 25,000

Brother’s life-dependent on Niraj 10,000

Major son – doing business 5,000

2 Contribution to recognized provident fund 15,000

3 Repayment of bank loan for purchase of residential apartment let-out 60,000

4 Tuition fees for M.Com (part-time) pursued by wife 12,000

Answer: Computation of deduction U/s 80C

Particulars ₹

1 Life Insurance premium

Own – capital sum assured ₹2,00,000 ((being the first premium paid) limited to 10%) 20,000

Brother’s life-dependent on Niraj Nil

Major son – doing business 5,000

2 Contribution to recognized provident fund 15,000

3 Repayment of bank loan for purchase of residential apartment let-out 60,000

4 Tuition fees for M.com (part-time) pursued by wife Nil

Deduction u/s 80C [subject to a maximum of ₹1,50,000] 1,00,000

Question: Mr. N is employed at a gross salary of ₹8,00,000. He gets ₹15,000 interest on bank deposit.

He has made the following investment / deposit during the year 2020-2021:

1 Contribution to ULIP 5,000

2 Repayment of loan to SB1 to purchase a residential house:

50% repayment is towards interest.

1,20,000

3 Infrastructure bonds of an Indian public company under Sec. 80C(2)(xix) 90,000

Besides, interest of ₹1,632 on NSC-VIII, (purchased during the year 2017-2018) has been credited on

them during the year 2020-2021. Compute deduction u/s 80C for the assessment year 2021-2022.

Answer: Computation of Deduction u/s 80C of Mr. N for the AY 2021-2022

Deduction in respect of contribution to approved savings ₹

1 Contribution to ULIP 5,000

2 Repayment of housing loan to SBI (principal only) 60,000

3 Infrastructure bonds of Indian public company [Sec. 80C(xix)] 90,000

4 Accrued interest on NSC-VIII issue 1,632

(a) Amount Eligible u/s 80C 1,56,632

(b) Maximum amount deductible 1,50,000

Gross amount eligible for deduction under Section 80C

[maximum of (a) or (b)]

1,50,000

Section 80CCC: Deduction for contributions made to annuity plans in LIC or other insurer

1. Applicability: All Individuals

2. Maximum Deduction: ₹1,50,000

3. Conditions:

(a) Payment shall be made out of income chargeable to tax.

(b) In the hands of the nominee or the Assessee-

• Surrender before maturity shall be taxable in the previous year of receipt.

• Pension received shall be taxable in the year of receipt.

(c) Such investment will not be eligible for deduction u/s 80C.

Income Tax 54

Section 80CCD: Deduction for contributions in national pension scheme / Atal pension Yojna

1. Applicability: Individual

2. Amount of deduction u/s 80CCD:

80CCD(1B): self-employed and salaried

Deduction: whichever is lower

Assessee’s contribution ×××

Ceiling 50,000

×××

80CCD(1)

Self-employed Salaried

Deduction: whichever is lower Deduction: whichever is lower

1 Actual contribution

Less deduction u/s 80CCD(1B)

××× 1 Employee’s contribution

Less deduction u/s 80CCD(1B)

×××

2 20% of Gross Total Income ××× 2 10% Salary + DA(FPS) ×××

××× ×××

80CCD(2)

Whichever is lower of

1 Employer’s contribution ×××

2 10% of Salary + DA(FPS)

14% in case of CG

×××

Note: employer’s contribution

First included in salary

3. Conditions:

(a) As per sec 10(12A) any payment received by Assessee on closure of his account is exempt to

the extent of 60% (40% is taxable) of total amount payable to him at the time of closure. In case

of employee or non-employee, any amount received from NPS by the nominee illegal heir on

death of an assessee is fully exempt.

(b) The subscribers from recognised provident funds and super annuation funds would be able

to transfer their corpus from these funds to National Pension System without any tax

implication

(c) To provide relief to an employee subscriber of NPS, section 10(12B) provides that any payment

from National Pension System Trust to an employee under the pension scheme referred to in

section 80CCD, on partial withdrawn made out of his account in accordance with the terms

and conditions specified under the Pension Fund Regulatory and Development Authority

Act, 2013 and the regulations made there under, shall be exempt from tax to the extent it does

not exceed 25% of amount of contributions made by him

Question: X is employed (since 2014) by the Central Government. His particulars are as follows

Particulars ₹

1 Basic salary 40,000 p.m.

2 Dearness Allowance [50% forming part of salary] 20,000 p.m.

3 Employer’s contribution towards NPS 6,000 p.m.

4 Employee’s contribution towards NPS 7,000 p.m.

5 Deposits in public provident fund [80C] 70,000 p.a.

6 Eligible deduction u/s 80CCC 10,000 p.a.

Calculate his income.

Answer:

Particulars ₹ ₹

Basic salary 4,80,000

Add Dearness Allowance [50% forming part of salary] 2,40,000

Add Employer’s contribution towards NPS 72,000

Salary Income 7,92,000

Less Deduction [80CCD(1B)][WEL of I and II]

I Employee’s contribution 84,000

II Ceiling u/s 80CCD(1B) 50,000 50,000

Less Deductions [80C, 80CCC & 80CCD(1)][WEL (1) and (2)]

(1) Deposits in public provident fund [80C] 70,000

Eligible deduction u/s 80CCC 10,000

Employee’s contribution towards NPS not allowed

u/s 80CCD(1B) is allowed u/s 80CCD(1)

24,000

[80C + 80CCC + 80CCD(1)] 1,04,000

(2) Ceiling u/s [80CCE] 1,50,000 1,04,000

Less Deductions [80CCD(2)]

Actual Employer’s contribution 72,000

10% of salary [4,80,000+1,20,000] 60,000 60,000

Net Income 5,78,000

Section 80CCE: Aggregate deduction [80𝐶 + 80𝐶𝐶𝐶 + 80𝐶𝐶𝐷(1)] is restricted up to ₹1,50,000 on

payment basis.

Income Tax 56

Question: Determine the eligibility and quantum of deduction in the following case:

Contribution to notified pension scheme (referred to Section 80CCD) by the employer ₹40,000 for an

employee whose basic salary plus dearness allowance was ₹3,00,000 for the year.

Answer: write the provision and

Whichever is lower is deductible u/s 80CCD(2) ₹ ₹

1. Actual Amount Paid 40,000

2. 10% of Salary 3,00,000×10% 30,000 30,000

Section 80D: Deduction for medical insurance premium, central Government health scheme and

preventive health checkup and medical treatment

Applicability: An individual (spouse, parents & dependent children), or HUF (member)

Nature of Payment: Medical insurance premium for

1. Self, spouse, parents, whether dependent or not, dependent children

2. Any member of HUF

Conditions:

1. Payment of premium can be made by any mode other than Cash.

2. But payment for preventive health checkup can be made in cash.

3. Payment shall be made out of the Income Chargeable to Tax.

4. Payment as per the scheme of General Insurance Corporation of India or any other insurer as

approved by Insurance Regulatory and Development Authority

5. Deduction where premium for health insurance is paid in lump sum (premium / total years)

Amount Deductible:

Individual HUF

Self, spouse

and dependent

children

Parents of individual,

whether dependent or

Any Member

of the Family

A (i) Medical insurance premium Yes Yes Yes

(ii) Central Government

scheme

Yes No No

(iii) Preventive Health check up

(Maximum ₹5,000 for self,

spouse, parent and

children put together)

Yes Yes No

Maximum amount deductible

((i)+(ii)+(iii))

₹25,000 ₹25,000 ₹25,000

Additional amount deductible,

for policy on

resident senior Citizen

₹25,000 ₹25,000 ₹25,000

B Medical expenditure of senior

citizen and mediclaim premium

not paid

₹50,000 ₹50,000 ₹50,000

Maximum deduction (A+B) ₹50,000 ₹50,000 ₹50,000

Note: Deduction in case of lumpsum premium = Premium / period of insurance in force

Question: Compute the eligible deduction under Chapter VI-A for the Assessment year 2021-22 of Ms.

Roma, who has a gross total income of ₹15,00,000 for the assessment year 2021-22 and provide the

following information about his investments / payments during the year 2020-21.

Particulars ₹

1. Life Insurance premium paid (Policy taken on 01-01-2012 and sum assured is ₹1,50,000) 35,000

2. Public Provident Fund contribution 90,000

3. Repayment of Housing loan to Bhartiya Mahila Bank, Banglore. 20,000

4. Payment to L.I.C. Pension Fund 25,000

5. Mediclaim Policy taken for self, wife and dependent children, premium paid 30,000

6. Medical Insurance premium paid for parents (Senior Citizen) 35,000

Answer: Deduction under Chapter VI-A

Sec Investment ₹ ₹

80C LIC (1,50,000 x 20%) 30,000

PPF 90,000

Repayment of Housing loan 20,000

80CCC LIC Pension Fund 25,000

1,65,000

Subject to maximum of 1,50,000 1,50,000

80D Mediclaim Self, Spouse & Children restricted up to ₹25,000 25,000

Mediclaim Parents (Senior Citizen) restricted up to ₹50,000 35,000 60,000

2,10,000

Section 80DD: Deduction for medical treatment of dependent relative

1. Applicability: Resident individual or HUF

2. Quantum of FIXED Deduction:

a. For disability (40% to 80%): ₹75,000

b. For severe disability (80% and above): ₹1,25,000

3. Expenditure: medical treatment or deposit for the benefit of disabled dependent relative

1. Payment shall be made out of the Income chargeable to Tax.

2. DEPENDENT Relative means:

Income Tax 58

a. Individual: spouse, children, parents, brothers & sisters

b. HUF: member

3. The disability must be certified by the Government physician or specialist

4. Disability means blindness, low vision, leprosy, hearing impairment, locomotor disability, mental

retardation, mental illness.

5. Furnished the return of Income u/139

Section 80DDB: Deduction for medical treatment of specified disease

1. Applicability: RESIDENT individual or HUF

2. Amount of Deduction:

Whichever is lower

(a) Amount paid ×××

(b) Ceiling (₹1,00,000 in case of RESIDENT senior citizen) ₹40,000

×××

Less Insurance claim received or any reimbursement ×××

×××

3. Expenditure: Expenses on medical treatment of specified disease

4. DEPENDENT Relative means:

a. Individual: spouse, children, parents, brothers & sisters

b. HUF: member

5. Specified Disease: Neurologist dieses, cancer, AIDS, Chronic renal failure, Hemophilia,

Question: Mr. Jamal resident in India has paid ₹1,20,000 for medical expenses during the previous year

2020- 2021 for his wife suffering from cancer. Mrs. Jamal is also resident in India and turns 60 years of

age on 1st April 2021. The full treatment cost has been reimbursed by the General Insurance Corporation

of India. Please determine if Mr. Jamal is entitled to any deduction under Sec. 80DDB and if the answer

is yes, determine the quantum of deduction. Also, please work but the quantum of deduction in the

following circumstances:

1. Mrs. Jamal turns 60 years of age on 2nd April 2021 and the amount reimbursed by the insurer is

₹25,000. Payment of medical treatment was made out of exempted income.

2. Jamal turns 60 years of age on 2nd April 2021 and the insurer has not reimbursed any expenditure.

3. Mrs. Jamal is 61 years of age, a non-resident in India and the insurer has reimbursed ₹35,000

4. Mr. Jamal, though having assessable income in India, is actually resident in Sri Lanka and is

getting his wife treated in India for sake of better and more advanced medical facilities Mrs. Jamal

is resident in India and the insurer has reimbursed ₹20,000.

5. The expenditure is incurred by the assessee on cancer treatment of his 25-year-old grandson who

is dependent on him and is resident in India. The insurer has not reimbursed the claim.

6. Mr. Jamal is able to produce the receipt of the medical expenditure only to the extent of ₹10,000 as

he misplaced other receipts and the certificate in Form 10-I regarding the treatment of his wife does

not mention the total amount incurred by him during the previous year. The insurer has

reimbursed only ₹5,000.

Answer: Amount of deduction u/s 80DDB

PY 2020-2021 / AY 2021-2022

Particulars Existing I II III IV V VI

Gross deduction u/s 80DDB

(dependent wife)

1,00,000 40,000 40,000 40,000 Nil Nil 10,000

Less Insurance claim received 1,00,000 25,000 Nil 35,000 Nil Nil 5,000

Net deduction allowable u/s 80DDB Nil 15,000 40,000 5,000 Nil Nil 5,000

Question: State the quantum of deduction available in the following cases:

1. Health Insurance premium paid by cash ₹10,000 for self and ₹7,000 by credit card to other members

of family.1

2. Cash payment towards preventive health checkup ₹6,0002

3. Deposited ₹10,000 in a scheme framed by LIC of India towards maintenance of son suffering from

permanent physical disability.3

4. Doctor fee of ₹2,00,000 towards treatment of Chronic Renal failure to dependent father.4

5. Tuition fee paid ₹3,50,000 for son studying Cambridge university, United Kingdom.5

Section 80E: Deduction for interest on loan taken for higher education

Condition:

(i) Assessee be an individual.

(ii) The individual must have taken a loan from:

(a) Any financial institution or

(b) Any approved charitable institution

(iii) Loan must be taken for pursuing any studies after passing 10th including Vocational Studies. (for

an individual, spouse or children)

(iv) Deduction shall be allowed only in respect of interest paid during previous year.

(v) Amount shall be paid out of income chargeable to tax.

Period of deduction: Deduction shall be allowed for eight assessment years starting from the

assessment year in which assessee starts to pay interest or loan, or until the interest thereon paid in full,

whichever is earlier.

{CA inter M04 & N06 | CMA inter D09, 5~6 marks}

1 for self is ineligible as payment by cash, for other members is eligible as payment by other than cash mode 2 Cash payment for preventive health checkup is allowed subject to maximum of ₹5,000 3 Deduction ₹75,000 is eligible u/s 80DD 4 Deduction ₹40,000 (ceiling) is eligible u/s 80DDB 5 No deduction u/s 80C is available for tuition fee as it is paid for education outside India

Income Tax 60

Question: Mr. B has taken three education loans on April 1, 2020, the details of which are given below:

Loan 1 Loan 2 Loan 3

For whose education, loan was taken B Son of B Daughter of B

Purpose of loan MBA B.Sc. B.A.

Amount of loan [₹] 5,00,000 2,00,000 4,00,000

Annual repayment of loan [₹] 1,00,000 40,000 80,000

Annual repayment of interest [₹] 20,000 10,000 18,000

Compute the amount deductible u/s 80E for the AY 2021-221

Section 80EE: Deduction for interest on housing loan

1. Eligible Assessee: Individual

2. Amount of Deduction: Maximum ₹50,000

3. Condition:

a. Loan should be taken from bank or financial institution for acquisition of residential property

b. Value of house ≤ ₹50 lakhs

c. Loan should be sanctioned between 01.04.2016 to 31.03.2017

d. Loan ≤ ₹35 lakhs

e. Assessee does not own any residential house on the date of sanction of loan

f. First deduction should be claimed u/s 24(b) of house property (up to ₹2 lacs) and remaining

deductible u/s 80EE

Question: Mr. A purchased a RHP for self-occupation at a cost of ₹45 lakh on 1.4.2017, in respect of

which he took a housing loan of ₹35 lakh from Bank of India @ 11% p.a. on the same date. The loan was

sanctioned on 28th March, 2017. Compute the eligible deduction in respect of interest on housing loan

for AY 2021-22, assuming that the entire loan was outstanding as on 31.3.2021 and he does not own any

other house property.2

Section 80EEA: Deduction for interest on acquisition of residential house property

2. Amount of Deduction: Maximum ₹1,50,000

3. Condition:

a. Stamp Duty Value of house ≤ ₹45 lakhs

b. Loan should be sanctioned by financial institution between 01.04.2019 and 31.03.2021

c. Assessee does not own any residential house on the date of sanction of loan

d. First deduction should be claimed u/s 24(b) of house property (up to ₹2 lacs) and remaining

deductible u/s 80EEA

e. Not deductible u/s 80EE

1 Interest can be deductible [20 + 10 + 18 = ₹48,000] 2 Interest paid [35 lakhs × 11% = 3,85,000]. Interest deductible - ₹2 lakh u/s 24(b) & ₹50,000 u/s 80EE

Section 80EEB: Deduction for interest on loan for purchase of electric vehicle

2. Loan sanctioned: by financial institution [bank or specified NBFCs]

Specified FI: Non-deposit taking NBFC | Total assets ≥ ₹500 crore as last per audited B/S

3. Period of Loan sanctioned: between 1.4.2019 – 31.3.2023

4. Quantum of deduction: ₹1,50,000 [interest from loan disbursement]

5. No double deduction

Question: The following are the particulars of salaried individuals

Particulars Mr. A1 Mr. B2 Mr. C3 Mr. D4

Amount of loan taken ₹43 lakhs ₹45 lakhs ₹20 lakhs ₹15 lakhs

Loan taken from Housing Finance

Corporation (HFC)

Deposit taking

Deposit

taking NBFC

Public sector

Date of sanction of loan 1.4.2020 1.4.2019 1.4.2019 30.3.2019

Date of disbursement of loan 1.5.2020 1.5.2019 1.5.2019 1.5.2019

Purpose of loan [Purchase of] RHP

(Self-occupied)

Electric vehicle

(personal use)

Electric vehicle

(personal use)

Cost of electric vehicle - - ₹22 lakhs ₹18 lakhs

Rate of interest 9% p.a. 9% p.a. 10% p.a. 10% p.a.

Compute the amount of deduction, if any, allowable assuming that there is no repayment of principal.

Section 80G: Deduction for donation

1. Applicability: All assessees (except: donation by company for promotion of family planning)

2. Nature of Expenditure: Donation during the P.Y. in money, not in kind.

3. Deduction not available if donation in cash more than ₹2,000

4. Amount of Deduction: Donation are classified in various categories

1 Interest = ₹3,54,750 (₹43 lakhs @ 9% ×

12). Deductible interest: ₹2 lakh u/s 24 & ₹1.5 lakh u/s 80EEA

2 80EEA is not available since the SDV > ₹45 lakhs but interest deductible u/s 24(b) – ₹2 lakhs 3 Interest deductible u/s 80EEB: ₹1.5 lakh [₹20 lakhs ×10% but restricted up to ₹1.5 lakhs] 4 Not eligible u/s 80EEB as loan sanctioned before 1.4.2019

Income Tax 62

100% 50%

National / Central Govt.

PM / CM / Natural Calamity

Africa / Approved university

Zila Saksharta Samiti

State Govt Medical Relief

Nehru / Indira / Rajiv

PM drought

Govt or LA – family planning

Olympic (corporate assess only)

Approved institution / fund

Govt or LA for charitable

Housing / city development

Interest of minority interest

Renovation or repair temple…

Deduction: 100% of donation without ceiling

1 National: Defence Fund

2 National Foundation for Communal Harmony

3 National Children’s Fund

4 National Blood Transfusion Council and State Council for Blood Transfusion

5 National Illness Assistance Fund

6 National Sports Fund or National Cultural Fund

7 National Trust for Welfare of Persons with notified disease or disabilities

8 National Fund for Control of Drug Abuse

9 Central Welfare Fund: the Army, Air Force and the Naval

10 Prime Minister’s National Relief Fund

11 Prime Minister’s Armenia Earthquake Relief Fund

12 The Maharashtra Chief Minister’s Relief Fund (Earthquake Relief Fund)

13 Andhra Pradesh Chief Minister’s Cyclone Relief Fund

14 Government Fund for Relief to victims of earthquake in Gujarat

15 Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund

16 Any trust, institution or fund: relief for victims of earthquake in Gujarat

17 Africa Fund

18 An approved university / educational institution

19 Zila Saksharta Samiti

20 Swach Bharat Kosh

21 Clean Ganga Fund (amount donated by residents only)

22 State Government fund for the medical relief to the poor

23 The National fund for Control of Drug Abuse

24 Prime Minister’s Citizen Assistance and Relief in Emergency Situation Fund (PM Cares Fund)

Deduction: 50% of donation without ceiling

1 Jawaharlal Nehru Memorial Fund

2 Indira Gandhi Memorial Trust

3 Rajiv Gandhi Foundation

4 Prime Minister’s Drought Relief Fund

Deduction: 100% of donation with ceiling of 10% adjusted GTI

1 Government or any approved local authority, institution or association

for promoting family planning

2 Donations by company to the Indian Olympic Association or to a notified

institute for the development of infrastructure for sports in India

Deduction: 50% of donation with ceiling of 10% adjusted GTI

1 Approved fund / trust / institution: for charitable purpose

2 Housing development authority for housing accommodation or improvement of cities

3 for promoting interest of minority community

4 Any notified temple, mosque, gurdwara, church or other place of historic,

archaeological or artistic importance

(for renovation or repair)

Note: Calculation of Adjusted Total Income

₹ ₹

Goss Total Income ×××

Less Share of profit in AOP entitled to rebate u/s 86. ×××

Deduction u/c VI-A except 80G ×××

Short-term capital gain u/s 111A ×××

Long-term capital gain u/s 112 / 112A

Any payment to a NRI from dividend and interest etc. ××× ×××

Adjusted Gross Total Income ×××

Income Tax 64

Note: Calculation of Adjusted Total Income

Calculation of deduction u/s 80G ₹ ₹ ₹

(a) (b) (a) × (b)

1 100% of donation without ceiling ××× 100% ×××

2 50% of donation without ceiling ××× 50% ×××

3 100% of donation with ceiling of 10% adjusted GTI ×××

4 50% of donation with ceiling of 10% adjusted GTI ×××

5 3+4 ×××

6 10% adjusted GTI ×××

Maximum deduction is

(Whichever is lower of 5 and 6) as follows

×××

First 100% of donation with ceiling of 10% adjusted GTI ××× 100% ×××

Next 50% of donation with ceiling of 10% adjusted GTI ××× 50% ×××

Deduction u/s 80G ×××

Question: Thilagam has given donation of ₹30,000 in cash and cement bags worth ₹20,000 to an

approved charitable institution. What is the deduction u/s 80G of the Income-tax Act, 1961 available to

the assessee whose gross total income is ₹6,00,000?1

{CMA final D08, 3 marks}

Question: Mr. Shiva aged 58 years, has GTI of ₹7,75,000 comprising of income from salary and house

property. He has made the following payments and investments:

1. Premium paid to insure the life of her major daughter (policy taken on 1.4.2017) (Assured value

₹1,80,000) – ₹20,000

2. Medical Insurance premium for self – ₹12,000; spouse – ₹14,000

3. Donation to a public charitable institution registered under 80G ₹50,000 by cheque.

4. LIC pension fund – ₹60,000

5. Donation to National Children’s Fund – ₹25,000 by cheque

6. Donation to Jawaharlal Nehru Memorial Fund – ₹25,000 by cheque

7. Donation to approved institution for promotion of family planning – ₹40,000 by cheque

8. Deposit in PPF ₹1,00,000

Answer: Computation of Total Income of Mr. Shiva for AY 2021-22

Particulars ₹ ₹

Gross Total Income 7,75,000

Less Deduction u/s 80C

Deposit in PPF 1,00,000

LIC premium [restricted to 10% of SA] 18,000

1 Donation in kind (cement bag) is not allowed. Deduction in excess of ₹2,000 in cash is NOT allowed

Calculation: 50% of (WEL of 30,000 or 10% of 6 lakhs)

Deduction u/s 80CCC for LIC pension fund 60,000

1,78,000

As per section 80CCE, deduction restricted to 1,50,000 1,50,000

Deduction u/s 80D: Medical insurance [& restricted] 26,000 25,000

Deduction u/s 80G# 87,500

#Computation of deduction u/s 80G

Donation ₹ % of deduction Deduction

1 National Children’s Fund 25,000 100% 25,000

2 Jawaharlal Nehru Memorial Fund 25,000 50% 12,500

3 Approved institution for promotion of family planning 40,000 100%* 40,000

4 Public Charitable Trust 50,000 50%* 10,000

* Subject to qualifying amount i.e. 10% of Adjusted Total Income [GTI – deductions excpt 80G]

10% of [7,75,000 – 1,50,000 – 25,000] = ₹60,000. [40,000 used for 100% & 20,000 used for 50%]

Section 80GG: Deduction from Gross Total Income

1. Applicability: All individual

2. Nature of Expenditure: Rent paid in specified cities

3. Quantum of Deduction: Least of following

a. Rent paid less 10% of Adjusted Gross Total Income

b. 25% of his Adjusted Gross Total Income

c. ₹5,000 p.m.

Conditions:

1. The assessee is a self-employed person / salaried employee, who has not received any HRA.

2. He or his spouse or minor children or the HUF, of which he is a member, does not own any

residential accommodation at the work place.

3. Adjusted GTI = GTI – income taxable at special rate – deduction u/c VI-A except 80GG

Question: Raman engaged in business, has total income of ₹3,10,000. He paid rent of ₹8,000 per month

for the residential accommodation occupied by him at Cochin. Compute the amount eligible for

deduction under section 80GG.

Answer: Deduction Under section80GG will be computed as under:

Least of the below is eligible for deduction

(i) Actual rent less 10% of total income (₹96,000 less ₹31,000) 65,000

(ii) 25% of total income 77,500

Income Tax 66

(iii) Monetary limit of ₹5,000 per month 60,000 ₹60,000

Question: Mr. Jamal, a resident assessee, runs a manufacturing business in Delhi. For the previous year

2020-2021, he disclosed his taxable income as below: Business profits 2,80,000 Long-term capital gains

25,000 Short-term capital gain 15,000. He has hired furnished accommodation for his own use and pays

₹4,000 p.m. He has paid donation amounting to ₹10,000 to National Defence Fund. He has deposited

₹50,000 under a scheme framed by the Life Insurance Corporation for maintenance of his dependent

brother with a disability. The disability is certified by the medical authority. Compute his total income

for the assessment year 2021-2022.

Answer:

Computation of Total Income of Mr. Jamal — Assessment Year 2021-2022

Particulars ₹ ₹

Income from business (computed) 2,80,000

Long-term capital gain (computed) 25,000

Short-term capital gain (computed) 15,000

Deductions from gross total income:

Deposit for maintenance of a dependent with disability [Sec. 80DD] 75,000

Charitable donations to National Defence Fund [Sec. 80G]

Amount of Deduction @ 100% of ₹10,000

10,000

Expenditure incurred on rent [Sec. 80GG] [ W.N.] 27,000 1,12,000

Particulars ₹ ₹

Expenditure incurred on rent [S. 80GG]: WEL, is to be deducted

1 [Rent paid – 10% of ATI] (48,000 – 21,000) 27,000

2 25% of AGTI (25% of 2,10,000) 52,500

3 ₹5,000 p.m. 60,000 27,000

Aggregate of Gross total income 3,20,000

Less All permissible deduction from GTI except for deduction for u/s 80GG 85,000

Any long-term capital gain 25,000 1,10,000

Adjusted Gross Total Income [AGTI] for Sec. 80GG 2,10,000

Section 80GGA: Deduction for donation for scientific research or rural development

1. Applicability: All Assessee (provided assessee should not have income from PGBP)

2. Donation more than 2,000 should be paid in the mode other than by way of cash.

3. Deduction: 100% of donation to

Donee Purpose

(i) Approved association, university, college or other institution Scientific research

(ii) University, college, other institution Social and statistical research

(iii) Association (for approved program) For rural development

(iv) Public sector company / Local authority Eligible project

Section 80GGB: Contribution (NOT IN CASH) by a company to an electoral trust or political party

1. Applicability – Indian Company

2. Contribution includes advertisement in political party’s magazine

3. Quantum of Deduction: 100% of donation if paid not by cash

{CA inter M05 | CMA inter D13, 2~3 marks}

Section 80GGC: Contribution (not in cash) to electoral trust on his taxable income

1. Applicability – Any person other than an Indian Company

(except local authority and artificial judicial person wholly or partly funded by Government)

2. Quantum of Deduction: 100% of donation if paid not by cash

Section 80JJA: Deduction from profit of collection and processing of waste

1. Applicability: All Assessee

2. Eligible Income: Profits or gains derived from the business of collecting and processing or treating

of bio-degradable waste for

a. generating power

b. production bio-fertilizers, bio-pesticides or other biological agents

c. producing bio-gas

d. making pellets or briquettes for fuel

e. organic manure

3. Quantum of Deduction: 100% of profit for 5 consecutive AYs, starting from first AY (in which

business is commenced.).

Question: Who are not “Regular Workmen” u/s 80JJAA of the Income Tax Act 1961?

Answer: Those who are not in condition 4 below

Section 80JJAA: Deduction for employment of new employees

1. Eligible Assessee: Any assessee engaged in business and to whom section 44AB applies

2. Amount of deduction: 30% additional employee cost (deduction allowed for 3 consecutive years)

Income Tax 68

3. Additional employee cost: Total employment paid or payable to additional employees employed

during the PY

(a) In case of existing business, additional employee cost shall be NIL, if

i. There is no increase in the total number of employees

ii. Emoluments paid in cash

(b) In case of new business – additional employee cost shall be emoluments paid

4. Additional employees do not include

(a) Employee whose emoluments is higher than ₹25,000 p.m.

(b) Employee employed for less than 240 days in PY (in case of manufacture of apparel or footwear or leather

products then 150 days). (These employees shall be deemed to have employed in the succeeding

year and eligible for deduction in the succeeding year)

(c) Employee does not participate in RPF

(d) Employee for whom the entire contribution is paid by Government under Employees’ Pension

Scheme notified in accordance with the provision of the Employees’ Provident Funds &

Miscellaneous Provision Act, 1952.

Question: Mekon Ltd., an Indian company, starts an industrial undertaking on 1st April 2020. During

the previous year, it earns profits of ₹800 lakh before allowing any deduction for wages. Compute its

total income for the previous year 2020-2021 taking into account the following employment schedules

of workers:

Date of employment Number of workers Rate of wages

1-5-2020 40 Regular 30,000 p.m.

1-6-2020 20 Regular 20,000 p.m.

1-7-2020 10 Casual 10,000 p.m.

1-9-2020 10 Regular 20,000 p.m.

Answer:

Computation of total income for the AY 2021-2022

Particulars ₹ ₹

Profits before allowing deduction for wages 8,00,00,000

Less Wages paid to workers [Sec. 37(1)]:

(i) 40 × ₹30,000 × 11 1,32,00,000

(ii) 20 × ₹20,000 × 10 40,00,000

(iii) 10 × ₹10,000 × 9 9,00,000

(iv) 10 × ₹20,000 × 7 14,00,000 (1,95,00,000)

Business Profits and Gross Total Income 6,05,00,000

Less: Deduction in respect of employment of new workmen

[Sec. 80 JJAA] 30% (₹20,000 × 20 × 10)

(12,00,000)

Total Income 5,93,00,000

Section 80P: Deduction for Co-operative Societies

100% deduction allowed on profit from following specified activities

1 Purchase for supply of agricultural implements, seeds, livestock etc. to members ×××

2 Collective disposal of labour to members ×××

3 Processing, without aid of power, the agricultural produce of its members ×××

4 Credit facility for carrying business to its members (except co-operative bank) ×××

5 A Cottage industry: or ×××

6 Fishing or allied activities i.e. fishing, curing, processing, storing or marketing

of fish

×××

7 Supply of milk, oil seeds, fruits or vegetables by primary society to

a. Federal co-operative society

b. Government or local authority

c. Government company or statutory corporation engaged in supplying milk, fruits

×××

8 Income from letting out of godowns or warehouse ×××

9 Marketing of the agricultural produce grown by its member; or ×××

10 Dividends or interest from investment in another co-operative society ×××

11 General deductions for other income:

Co-operative society engaged in other activities Deduction

1 Consumer Co-operative society ₹1,00,000

2 Co-operative society ₹50,000

×××

Section 80PA: Deduction in respect of income of producer companies

Applicable to: producer-company defined in Companies Act

1. Condition 1: Turnover < ₹100 crore

2. Condition 2: Profit from eligible business should include:

a. Marketing of agricultural produce grown by the members

b. Purchase of agricultural implements, seeds, livestock etc. for supply to members

c. Processing of the agricultural produce of the members

3. Quantum of deduction: 100%

4. Other points: No double deduction | no deduction from AY 2025-26

Section 80QQB: Conditions for availing deduction

1. Applicability: Individual resident in India, who is author / joint author of a book.

2. Sources of Income: Royalty or copyright fee

3. Quantum of Deduction: Lower of these two:

i. Royalty income

a. In case of lump sum royalty - amount received

Income Tax 70

b. Not lump sum royalty – maximum @ 15% of the value of such books sold

ii. ₹3,00,000

4. In case of royalty income earned outside India, deduction will be available only for such income

which is brought in to India in convertible foreign exchange, within 6 months from the end for the

previous year or such extended time as permitted by RBI

80RRB: Deduction for Royalty on patents

1. Applicability: Individual resident in India

2. Sources of Income: Royalty income in respect of patent.

3. Quantum of Deduction: Lower of these two

i. Royalty income

ii. ₹3,00,000

4. In case of royalty income earned outside India, deduction will be available only for such income

which is brought in to India in convertible foreign exchange, within 6 months from the end of the

previous year or such extended time as permitted by RBI.

{CA inter M08 | CMA inter J10, 5~6 marks}

Section 80TTA: Deduction for receipt of the interest on savings bank account

1. Eligible Assessee: Individual other than resident senior citizen and HUF

2. Amount of Deduction: Maximum is ₹10,000

3. Eligible: Interest on saving account with Scheduled Bank, or Co-operative Bank or Post Office

Note: Interest from savings bank account in post office is exempt u/s 10(15) up to ₹3,500 and in case

of joint account ₹7,000

4. Limitation: In respect of any interest from any deposit held by or on behalf of a firm, on AOP or

BOI no deduction will be allowed for such interest in computing the total income of any partner of

the firm, any member of the association or any individual of the body.

Section 80TTB: Deduction for receipt of the interest on deposits in case of senior citizens.

1. Eligible Assessee: Resident senior citizen

2. Eligible interest: on deposit [SB & FD] with bank, co-operative bank or post office

3. Amount of deduction: Maximum ₹50,000

4. Limitation: In respect of any interest from any deposit held by or on behalf of a firm, on AOP or

BOI no deduction will be allowed for such interest in computing the total income of any partner of

the firm, any member of the association or any individual of the body.

Question: Mr. A a resident individual aged 61 years, has earned business income (computed) of

₹1,35,000, lottery income of ₹1,20,000 (gross) during the PY 2020-21. He also has interest on FD of

₹30,000 with banks. He invested an amount of ₹1,50,000 in Public Provident Fund Account. What is the

total income of Mr.A for the AY 2021-22?1

1 TI = PGBP+IFOS (Int + Lottery) [135 + 30 + 120] = 285 – 150 for 80C – 30 for 80TTB = 120

Section 80U: Deduction available on permanent physical disability

1. Applicability: Resident disable Individual

2. Quantum of FIXED Deduction:

a. For disability (40% to 80%): ₹75,000

b. For severe disability (80% and above): ₹1,25,000

Notes:

1. Disability means blindness, low vision, leprosy, hearing impairment, locomotor disability, mental

retardation, mental illness.

2. Furnish medical certificate with ROI

Income Tax 72

9. ADVANCE PAYMENT OF TAX | INTEREST

Question: Who are the persons not liable to pay advance tax u/s 207?

{CMA inter D14, 2 Marks}

Question: Write the conditions for exemptions of senior citizens from payment of advance tax.

Section 208: Liability for payment of advance Tax

Advance tax is the tax paid for PY in PY itself

Every person is liable to pay advance tax if advances tax payable is ₹10,000 or more.

Exceptions: resident senior citizen hot having income under the head PGBP

{CMA inter J13, 4 Marks}

Calculation of Advance tax liability

1. Estimate the income

2. Calculate tax due after considering surcharge, cess and relief

3. Adjust for TDS / TCS and MAT credit

Instalments of Advance Tax (AT) and due dates (DD)

Due Date on or before % Advance Tax Interest on short payment of AT u/s 234C

June 15 15% 𝐴𝑇 𝑆ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚.× 3 𝑚𝑜𝑛𝑡ℎ𝑠

Sept 15 45% 𝐴𝑇 𝑆ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚.× 3 𝑚𝑜𝑛𝑡ℎ𝑠

Dec 15 75% 𝐴𝑇 𝑆ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚.× 3 𝑚𝑜𝑛𝑡ℎ𝑠

March 15 100% 𝐴𝑇 𝑆ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚.× 1 𝑚𝑜𝑛𝑡ℎ

1. If assessee opts for S. 44AD / 44ADA (presumptive income) then due date of advance tax is 15 th

March of PY (one installment)

2. Interest u/s 234C always calculated on tax as per ROI

3. No interest u/s 234C shall be levied if assessee paid advance tax up to 12% in first installment, up

to 36% in 2nd installment

Section 234A: Interest for delay in return filing

= 𝑇𝑎𝑥 𝑠ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚. 𝑜𝑟 𝑝𝑎𝑟𝑡 𝑜𝑓 𝑎 𝑚𝑜𝑛𝑡ℎ × 𝑝𝑒𝑟𝑖𝑜𝑑 𝑎𝑓𝑡𝑒𝑟 𝑑𝑢𝑒 𝑑𝑎𝑡𝑒 𝑢𝑝 𝑡𝑜 𝑓𝑖𝑙𝑖𝑛𝑔 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛

Section 234B: Interest for non-payment of advance tax

= 𝐴𝑇 𝑠ℎ𝑜𝑟𝑡 𝑝𝑎𝑖𝑑 × 1% 𝑝. 𝑚. 𝑜𝑟 𝑝𝑎𝑟𝑡 𝑜𝑓 𝑎 𝑚𝑜𝑛𝑡ℎ × 𝑝𝑒𝑟𝑖𝑜𝑑: 1𝑠𝑡𝐴𝑝𝑟𝑖𝑙 𝑡𝑜 𝑑𝑢𝑒 𝑑𝑎𝑡𝑒 𝑢𝑝 𝑡𝑜 𝑓𝑖𝑙𝑖𝑛𝑔 𝑜𝑓 𝑟𝑒𝑡𝑢𝑟𝑛

Section 234B is not applicable if assessee paid 90% or more of advance tax payable

Note: if there is change in income due to processing of return u/s 143(1) or assessment, then tax as per

143(1) / assessed tax shall be taken instead of tax as per ROI (this is applicable only for interest u/s 234A

& 234B)

Question: Briefly discuss about the interest chargeable under Section 234A for delay or default in

furnishing return of income.

{CA inter M08, 4 Marks}

Payment of advance tax in case of capital gains and casual income.

Advance tax payable on capital gain and casual income (winning from lotteries)

Assessee cannot estimate advance tax payable on capital gain or casual income (like winning from

lotteries, etc.) hence AT is payable on receipt of such income immediately next due date for AT and in

case of receipt of income after 15th March then the AT is payable by 31st March

{CA inter M13, 4 Marks}

Section 234D: Interest on excess refund granted @ 0.5%

Section 244A: Interest payable by the department on refund.

Simple interest @ 0.5% per month or part of the month

Period of interest

1. Refund out of TDS / TCS / Advance tax:

a. Return filed within due date u/s 139(1): from 01.04.XX to date of granting refund

b. Return filed after the due date: from the date of filing return to date of granting refund

2. Refund out of self-assessment tax u/s 140A, etc.

From whichever is later of date of filling of return or payment of tax till date of granting refund.

1. No interest under A & B, if refund is less than 10% of the tax determined u/s 143(1) or on a regular

assessment

2. Interest on refund is taxable under IFOS

3. Department can set off refund against tax dues after intimating assessee

4. If tax deductor deposited excess tax then he is entitled for refund and he is eligible for interest @

0.5% per month or part of a month from the date of claim till the date of grant of refund

5. If refund is due to any other reason (tax, penalty, etc.), then interest is calculated from the date of

payment to the date of grant of refund

{CMA inter J09, 5 Marks}

Income Tax 74

Section 234E: Fee for default in furnishing TDS / TCS statements

For delayed filing quarterly statement, assessee shall be liable to a mandatory fee of ₹200 per day during

which default continues. The fees cannot exceed the amount of TDS deductible. The fees shall be paid

before filling of quarterly statement

Section 234F: Fee for default in furnishing return of income

Where a person, who is required to furnish a return of income u/s 139 fails to do so within the prescribed

time limit u/s 139(1), he shall pay, by way of fee a sum of

If Return furnished up to 31st December of the AY – ₹5,000 and after 31st December – ₹10,000

However, if total income of the person of the person does not exceeds ₹5 lakhs, the fees payable shall

not exceed ₹1,000

PRACTICAL PROBLEMS

Choose the best: An assessee who has no income from business of profession will not be required to

pay any advance tax if the said assessee is a / an1

(a) Firm (b) AOP (c) Senior citizen (d) Indian Company

{CMA inter D13, 1 Mark}

Fill up the blank: Mr. A, a senior citizen, has total income of ₹8 lacs, earned by way of interest from

secured debentures. The advance tax payable by him is ₹_____2

{CMA inter J14, 1 Mark}

Fill in the blank: Interest u/s 234B of the Income Tax Act, 1961 will not apply if an assessee pays more

than_____ % of the assessed tax by way of advance tax.3

Question: Is a representative assessee exempt from liability to pay advance income-tax?4

{CMA inter D08, 2 Mark}

Question: Vijay, a resident individual aged 59, is running a wholesale business in fertilizers, whose

turnover for the year ended 31.03.2021 is ₹70 lacs. Is he liable to pay advance tax, if he maintains books

of accounts and gets his accounts audited under section 44AB of the Income-tax Act, 1961 (business

1 (c) 2 Nil 3 90% 4 Yes (all assesse is liable as per the provision)

income is ₹5.2 lacs)? Will your answer be different if he opts for presumptive taxation? He has no other

income.1

Question: In the case of Ms. Laxmi, you are required to compute the interest u/s 234A, 234B & 234C

from the following details: Tax on total income ₹2,00,000; Due date for filing the return 30.09.2021;

Actual date of filing the return 1.10.2021 and tax paid on 01.10.2022 ₹2,00,000.

Answer: Computation of Interest

Particulars Interest

𝑺. 𝟐𝟑𝟒𝑪: (𝐴𝑇 𝑝𝑎𝑦𝑎𝑏𝑙𝑒 − 𝑝𝑎𝑖𝑑) × 𝑖% × 𝑚𝑜𝑛𝑡ℎ ₹

15.06.20 (15% × ₹2,00,000 − 0) × 1% × 3 900

15.09.20 (45% × ₹2,00,000 − 0) × 1% × 3 2,700

15.12.20 (75% × ₹2,00,000 − 0) × 1% × 3 4,500

15.03.21 (100% × ₹2,00,000 − 0) × 1% × 1 2,000

S.234C Interest 10,800

S.234B Interest on tax short paid

After 01.04.20 to 31.10.209 due date for filing

2,00,000 × 1% × 7 𝑚𝑜𝑛𝑡ℎ𝑠

14,000

S.234A Interest on tax short paid

After due date for filing up to the date of filing

2,00,000 × 1% × 1 𝑚𝑜𝑛𝑡ℎ

Total Interest 26,800

1 Yes, as his tax liability is more than ₹10,000. In case of presumptive taxation AT is payable in single

instalment before 31.03.20

Income Tax 76

10. PROVISIONS CONCERNING TAX DEDUCTED AT SOURCE

1. Tax is deducted only if amount is taxable in the hands of receiver

2. Time of TDS: WEE (at the time of payment or at the time of crediting payee’s a/c)

But in the following cases TDS deducted only at the time of payment:

a) Salary

b) EPF payment

c) Winnings

d) Maturity of life insurance policy

e) Compensation on compulsory acquisition of property

3. Flat TDS rates except NR / Foreign Co / payment of salary where SC & HEC is applicable

4. TDS is applicable where payment for commercial / personal purpose except u/s 194C & 194J where

payments for personal purposes by individuals and HUFs

5. Section 206AA: If payee does not furnish his PAN, the TDS rate is: WEH

(a) Rate as per respective section or (b) Rate @ 20%

Section 190: TDS | TCS | Advance tax | 192(1A): Tax on non-monetary perquisites

Section 191: Direct payment by assessee if S.190 is not available

If payer (assessee in default if payee not paid tax) Tax payable by

1 TDS not deducted Payee

2 TDS deducted but not paid Payer

S PAYMENT PAYER PAYEE RATE ADDITIONAL NOTE

192 Salary Any person Employee

(R or NR)

Average

(1) Employer shall consider details of other

income & Deduction of employee if

furnished by Employee.

(2) Employer shall not consider any loss

except loss under the head income from

house property.

(3) employee should intimate if he wants

pay tax u/s 115BAC else normal tax rate will

be applicable.

Notes 1. ITC Ltd. (2016)(SC): If tips for waiters collected by employer and paid is not salary hence no TDS.

2. Manipal Health Systems (2015): Payment made to doctors by the hospital for number of patients treated is subject to TDS

u/s. 194J not salary as it is “contract for service”.

3. Section 192(1A): If Tax on Non-Monetary Perquisites is borne by employer (or paid by employer) then Tax shall not be

deducted from salary to that extent.

192A Premature

withdrawal of EPF

Any person Employee 10% or

MMR (if no

(1) TDS applicable only if it is taxable in

hands of employee.

(2) No TDS if amount less than ₹50,000

193 Interest on

Securities

Any person Any Resident

person

10% > ₹10,000 in a FY in case of interest on

8% Savings (Taxable) Bonds, 2003, or

7.75% Savings (Taxable) Bonds, 2018,

> ₹5,000 in a FY in case of interest on

debentures issued by a company in

which the public are substantially

interested, paid to individual or HUF by

A/c payee cheque

No threshold specified in any other case

194 Dividend the domestic

company

Resident SH 10% > ₹5,000 in a FY to an individual SH

No TDS if payable to LIC, GIC or insurer

No threshold for other cases

194A Interest (other

than securities)

Any person other

than individual /

HUF not liable for

Tax Audit in PPY

Resident

person

10% No TDS if

a. Interest paid by Banks / Co-op Bank /

Post office up to ₹40,000 (& ₹50,000,

if payee being a resident senior citizen)

Note: Bank opting core banking

solutions (CBS) then, the limit of

₹40,000 [NOT per Branch basis but

Bank / Co-op society basis]

b. Other cases up to ₹5,000

194B Winning from

lotteries, cross-

word, puzzles,

card games etc.

Any person Any person 30% > ₹10,000.

194BB Winning from

Horse Race

Any person Any person 30% > ₹10,000

194C Contract Any person other

than Individual /

HUF not liable to

tax audit in last

Any Resident

person

If contractor

individual /

HUF – 1%

others – 2%

1. No TDS if –

a. Single payment up to ₹30,000 OR

b. Aggregate of payment in P.Y. up to

₹1,00,000

2. No TDS if contract is for personal

purpose of individual / HUF

3. For the purpose of contract, work

includes –

Advertisement, Broadcast, Telecast

Catering

Carriage of goods, Passenger other

than Railway.

No TDS if payment made to

transporter & he does not own more

than 10 vehicles at any time during the

P.Y. & he furnishes a declaration.

Manufacturing / Supplying of any

product as per specification of

customer out of material purchased

Income Tax 78

/ supplied by such customer (Job

4. In case of Job work, the TDS shall be

deducted –

On the invoice excluding the value

of material, if material mentioned

separately in invoice.

On the whole of the invoice value,

if value of material is not

mentioned separately in the

invoice.

5. Contract also include sub contract.

6. Payment by client to Advt agency it is

work contract & TDS u/s 194C

applicable.

Payment by Advt agency to TV channel

/ Newspaper Company – No TDS u/s

7. Payment made by TV channel /

Newspaper co. to Advt. agency for

booking procuring / canvassing for

Advt. – Payment is treated as discount

& Not Commission so TDS u/s 194H not

applicable.

8. Payment made by TV channel / broad

casters to production house for

production of content program

if program is as per

specifications of

telecaster &

Broadcaster &

copyright of content

or also transfer to

telecaster /

Broadcaster.

if right of

content already

produced by

production

house is

acquired by

telecaster

broadcaster

It is works contract

TDS u/s applicable

No TDS

194D Insurance

Commission

Insurance

Company

Resident agent 5% > ₹15,000 p.a.

194DA Maturity amount

of a life

insurance policy

Any person Any Resident

person

5% > ₹1,00,000 in aggregate

194E Payment to NR

sportsmen /

Association /

Entertainer

Any person NR Sportsmen

Entertainer

(who is not a

citizen of India)

+ cess

Payment for

a. Participation in any game in India i.e.

b. Advertisement

c. Contribution of any article in

newspaper etc.

d. Performance in India.

or NR Sports

Association

194EE Payment of

deposit under

10% ≥ ₹2,500 in a FY

194F Repurchase of

MF / UTI Any person 20%

194G TDS on

commission on

sale of lottery

ticket

Any person Any person 5% > ₹15,000 p.a.

19H TDS on

Commission &

Brokerage

Any person

(other than

individual / HUF

not liable to tax

audit in last P.Y.)

Any Resident

Person

5% > ₹15,000 p.a.

No TDS if commission / Brokerage is

relating securities like commission to

underwriters, Brokerage on public

issue, Brokerage on stock exchange

transaction etc.

194I TDS on Rent Any person other

than individual /

HUF not liable to

Tax Audit in last

Any Resident

person

a) P&M - 2%

b) Land,

Building &

Furniture –

a. No TDS if rent up to ₹2,40,000 p.a. (if

property is owned by more than one

then limit of ₹2,40,000 applied to each

co-owner)

b. Non-refundable deposit, arrears of

rent received, advance rent also

eligible for TDS.

c. If rent is paid to business trust (REIT)

in respect of rent of real estate assets

as it is exempt u/s 10(23FCA) then TDS

not applicable.

d. Landing & parking charges paid by

airlines co. to airport authority – TDS

u/s 194C – Yes 194I – NO

e. No TDS on municipal taxes included in

f. The recipient of rent can give

declaration u/s 197A in form 15G / 15H

194IA TDS on transfer

(purchase) of

immovable

Property (other

than rural agri

Any person Any

Resident

person

1% - No TDS if consideration is less than

₹50 lakhs (Actual consideration & not

the SDV) (includes car parking, lift

charges etc.,)

- If consideration is ₹50 lakhs or more

& only part payment is made then TDS is

applicable on every part payment of

consideration.

194IB TDS on Rent of

immovable

Property w.e.f.

1st June 17

Individual & HUF

(other than

Covered u/s

Resident

Person

[20% if no

No TDS if –

- Rent is up to ₹50,000 per month or

part of the month

Time of deduction:

Income Tax 80

If vacated: last month of tenancy else:

last month of the PY

Note: TDS ≤ rent for last month

194IC TDS Payment

Under Joint

Development

Agreement

Any person Any

Resident

Person

10% Consideration under specified

agreement u/s.

45(5A) (not being consideration in kind).

194J TDS on

professional

services

Any person

(Other than

Individual / HUF

not liable to tax

audit in last PY)

Resident

Person

[2% in case

of call

center]

No TDS if –

1. fees for professional services is up to

₹30,000 p.a.

2. Fees for technical services up to

₹30,000 p.a.

3. Royalty is up to ₹30,000 p.a.

4. Non compete fees is up to ₹30,000 p.a.

5. In case of Director fees – No limit.

Note: Limit ₹30,000 applied separately

on professional fees, Royalty, etc.

(except director fees).

No TDS u/s 194J by on Individual / HUF

(even if covered by sec.44AB in the last

PY) if the payment is being made for-

Royalty, OR

Non-compete Fees, OR

Payment to Director of a Company

No TDS u/s 194J by an Individual / HUF,

if the payment for Professional

Services is made for personal

purposes.

194K Income on units

other than in the

nature of capital

Any person Any resident 10% > ₹5,000

194LA compensation for

compulsory

acquisition of

immovable

property

Any Person Any

Resident

Person

10% No TDS if consideration is up to

₹2,50,000 p.a.

NO TDS if compulsory acquisition of

rural agricultural land.

194LB interest on

Infrastructure

debt fund

Infrastructure

debt fund

foreign co

5% Infrastructure debt fund referred in

Sec 10(47).

194M Contract,

Professional fees, Brokerage or

Commission

Individual / HUF

(not falling other sections)

Any resident

person

5% > ₹50 lakhs

194N Cash withdrawal Bank / PO / Co-op bank

Any person 2% Cash withdrawal > ₹1 crore

If no ROI for 3 years [2%

₹20 lakhs to

1 crore] & 5% > ₹1

TDS on excess of ₹1 crore

Not applicable:

Bank / Post Office / ATM

Cooperative society

Government

Money changer

194O Gross amount of supply

E-Com operator E-Com participant

1% (5% if no pan)

> ₹5 lakhs

195 Any sum payable

to NR or foreign

Any person NR or

foreign co.

a) DTAA rate

b) Rate in

Nature of payment

a) interest or

b) Any other sum which is chargeable to

tax in India. (except salary u/s 192,

194B, 194BB, 194E, 194LB)

Note: 75% of TDS rate is applicable from 14.5.2020 to 31.3.2021 except TDS u/s 192, 192A, 194B, 194BB,

1. GST is excluded for TDS computation.

2. Section 196: No TDS if payee is Central Govt., State Govt., RBI, statutory corp, any mutual fund

3. Section 197: for lower TDS rate if payee’s income is not taxable by applying to AO

[CA inter N07, 4 marks]

4. Section 197A: Where income of assessee is less than Basic Exemption, then in case of sec 192A / 193

/ 194A / 194DA / 194I, assessee can give a self-declaration in form no 15G / H to payer for non-

deduction of TDS. If income (192A / 193 / 194A / 194DA / 194I) is more than Basic exemption but

total Income is less than Basic exemption then sec 197A not applicable (except Senior Citizen),

Example: Rent received by Mr.Kunal is ₹3,50,000 & he invested ₹1,20,000 u/s 80C. Now his TI is less

than basic exemption, Tax payable is NIL, now in this case, kunal cannot furnish declaration u/s 15G.

Due dates of Payment of TDS

TDS during Apr – Feb by 7th of the next month

TDS for March month by 30th April

Due date of TDS / TCS return

Quarter ended TDS return TCS return

30th June 31st July 15th July

30th September 31st Oct 15th October

31st Dec 31st Jan 15th January

31st Mar 31st May 15th May

Section 200A: processing of TDS return (Intimation)

1. TDS return shall be processed u/s 200A & following adjustment to be made in

Income Tax 82

a) Arithmetical errors

b) incorrect claim in return.

2. Intimation shall be sent to deductor specifying the amount of demand or refund.

3. Intimation shall be issued within 1 year from end of financial year in which quarterly return was

filed.

Section 201: If assessee fails to deduct TDS or after deduction fails to pay TDS to Govt. then assessee

is treated as deemed to be assessee in default. He is liable to pay interest u/s 220 & penalty u/s 221.

Section 201(1A): Late deduction / late payment of TDS.

1. Late deduction: Interest @ 1% per month or part of a month on amount of TDS from the date of tax

was deductible till the date of tax actually deducted.

2. Late payment: Interest @ 1.5% per month or part of a month on amount of TDS from the date on

which tax was deducted till date on which such tax is actually paid.

3. Section 234E: Fees for default in furnishing TDS / TCS return.

Fees is payable @ ₹200 per day for every day during which the failure continues,

Fees cannot be more than amount of TDS / TCS.

Practical Questions

Question: Examine the TDS implications u/s 194A in the cases mentioned hereunder

1. On 1.10.2020, Mr.Harish made a six-month fixed deposit of ₹10 lakh @ 9% p.a. with ABC Co-

operative Bank. The FD matures on 31.3.20211

2. On 1.6.2020, Mr.Ganesh made three nine months FDs of ₹3 lakh each, carrying interest @ 9% with

Dwarka Branch, Janakpuri Branch and Rohini Branch of XYZ Bank, a bank which has adopted CBS.

The FDs mature on 28.2.20212

3. On 1.10.2020, Mr.Rajesh Started a six months recurring deposit of ₹2,00,000 p.m. @ 8% p.a. with PQR

Bank. The recurring deposit matures on 31.3.20213

Question: ABC Ltd. makes the following payments to Mr.X, a contractor, for contract work during the

PY 2020-21: ₹20,000 on 1.5.2020, ₹25,000 on 1.8.2020 & ₹28,000 on 1.12.2020. On 1.3.2021, a payment of

₹30,000 is due to Mr. X on account of a contract work.

Discuss whether ABC Ltd. is liable to deduct tax at source u/s 194C from payments made to Mr.X.4

Question: Examine the applicability of the provisions for tax deduction at source u/s 194DA in the

following cases:

1. Mr. X, a resident, is due to receive ₹4.50 lakhs on 31.3.2021, towards maturity proceeds of LIC policy

taken on 1.4.2018, for which the sum assured is ₹4 lakhs and the annual premium if ₹1,25,000.5

1 TDS = 7.5% of 9% on ₹10 lakhs for 6 months = ₹3,375 2 TDS = 7.5% of 9% on ₹3 lakhs of 3 FDs for 9 months = ₹4,556 3 No TDS as interest ≤ ₹40,000 4 TDS payable on crossing ₹1,00,000. TDS @ 7.5% on 1,03,000 = ₹29,227 is deductible in the last payment 5 TDS [as premium p.a. ≥ 10% of SA] = 3.75% on ₹75,000 (4,50,000 – (1,25,000 × 3 premium)) = ₹2,813

2. Mr. Y, a resident, is due to receive ₹3.25 lakhs on 31.3.2021 on LIC policy taken on 31.3.2012, for which the

sum assured is ₹3 lakhs and the annual premium is ₹30,100.1

3. Mr. Z, a resident, is due to receive ₹95,000 on 1.8.2020 towards maturity proceeds of LIC policy taken on

1.8.2014 for which the sum assured is ₹90,000 and the annual premium was ₹10,0002

Question: Calculate the amount of tax to be deducted at source (TDS) on payment made to Ricky

Ponting, an Australian cricketer non-resident in India, by a newspaper for contribution of articles

₹25,000.3

Question: Moon TV, a television channel, made payment of ₹50 lakhs to a production house for

production of programme for telecasting as per the specifications given by the channel. The copyright

of the programme is also transferred to Moon TV. Would such payment be liable for tax deduction at

source u/s 194C? Discuss.

Also, examine whether the provisions of tax deduction at source under section 194C would be attracted

if the payment was made by Moon TV for acquisition of telecasting rights of the content already

produced by the production house.4

Question: Mr. X sold his house property in Bangalore as well as his rural agricultural land for a

consideration of ₹ 60 lakh and ₹ 15 lakh, respectively, to Mr. Y on 01.08.2020. He has purchased the

house property and the land in the year 2019 for ₹ 40 lakh and ₹10lakh, respectively. The stamp duty

value on the date of transfer, i.e., 01.08.2020, is ₹ 85 lakh and ₹ 20lakh for the house property and rural

agricultural land, respectively. Examine the tax implications in the hands of Mr. X and Mr. Y and the

TDS implications, if any, in the hands of Mr. Y, assuming that both Mr. X and Mr. Y are resident

Indians.5

Question: Mr. X, a salaried individual, pays rent of ₹ 55,000 per month to Mr. Y from June, 2020. Is he

required to deduct tax at source? If so, when is he required to deduct tax? Also, compute the amount

of tax to be deducted at source.

Would your answer change if Mr. X vacated the premises on 31st December, 2020?

Also, what would be your answer if Mr. Y does not provide his PAN to Mr. X?6

Question: XYZ Ltd. makes a payment of ₹ 28,000 to Mr. Ganesh on 02.08.2020 towards fees for

professional services and another payment of ₹ 25,000 to him on the same date towards fees for

technical services. Discuss whether TDS provisions under section 194J are attracted.7

1 No TDS [As premium p.a. < 20% of sum assured] 2 No TDS as maturity amount < ₹1 lakh 3 TDS = 25,000 × 20.8% including HEC = ₹5,200 4 TDS is applicable in the first case not in the second case 5 For Mr. X: STCG for HP ₹85 lakhs – ₹40 lakhs | CG for agricultural land is exempt

For Y: IFOS for RHP = ₹85 lakhs – ₹60 lakhs = ₹25 lakhs & Nil for agricultural land

For Y: TDS = ₹45,000 [0.75% of ₹60 lakhs] 6 TDS in first case = ₹20,625 [55,000×3.75%×10] | if no Pan = ₹55,000 [WEL of [55,000×20%×10 or ₹55,000]

TDS in first case = ₹14,438 [55,000×3.75%×7] | if no Pan = ₹55,000 [WEL of [55,000×20%×7 or ₹55,000] 7 No TDS as the charge ≤ 30,000 individually.

Income Tax 84

Question: Examine whether TDS provisions would be attracted in the following cases, and if so, under

which section. Also specify the rate of TDS applicable in each case. Assume that all payments are made

to residents.

Particulars of the payer Nature of payment Aggregate of payments made

in the F.Y. 2020 – 21

1 Mr. Ganesh, an individual

carrying on retail business with

turnover of ₹2.5 crores in the

P.Y. 2019-20

Contract payment for repair of

residential house

₹5 lakhs1

Payment of commission to

Mr. Vallish for business purposes

₹80,0002

2 Mr. Rajesh, a wholesale trader

whose turnover was ₹95 lakhs in

P.Y. 2019-20.

Contract Payment for

reconstruction of residential house

(made during the period January –

March, 2021)

₹20 lakhs in January, 2021,

₹15 lakhs in Feb 2021 and

₹20 lakhs in March 20213.

3 Mr. Satish, a salaried individual Payment of brokerage for buying a

residential house in March, 2021

₹51 lakhs4

4 Mr. Dheeraj, a pensioner Contract payment made during

October-November 2020 for

reconstruction residential house

₹48 lakhs5

Test Your Knowledge

Question 1: Ashwin doing manufacture and wholesale trade furnishes you the following information:

Total turnover for the financial year

Particulars ₹

2019 – 20 1,05,00,000

2020 – 21 95,00,000

Examine whether the provisions of TDS are attracted for the below said expenses incurred during the

financial year 2020-21:

Particulars ₹

Interest paid to UCO Bank on 15.08.2020 41,000

Contract payment to Raj (2 contracts of ₹12,000 each) on 12.12.2020 24,000

Shop rent paid (one payee) on 21.01.2021 2,50,000

Commission paid to Balu on 15.03.2021 7,000

1 No TDS u/s 194C [as used for person purpose] & No TDS u/s 194M [as the amount ≤ ₹50 lakhs] 2 Yes, u/s 194H [as the payment > ₹15,000 & falls u/s 44AB] 3 Yes, u/s 194M [as the aggregate payment > ₹50 lakhs] | S 194C not applicable as 44AB not applicable 4 Yes, u/s 194M [as the aggregate payment > ₹50 lakhs] | S 194H not applicable as 44AB not applicable 5 No TDS u/s 194M as the payment ≤ ₹50 lakhs & being the pensioner

Question 2: Compute the amount of tax deduction at source on the following payments made by

M/s. S Ltd. during the financial year 2020 -21 as per the provisions of the Income – tax Act, 1961.

Date Nature of Payment

1 01.10.2020 Payment of ₹ 2,00,000 to Mr. “R” a transporter who owns 8 goods carriages

throughout the previous year and furnishes a declaration to this effect along with

his PAN.

2 01.11.2020 Payment of fee for technical services of ₹ 25,000 and Royalty of ₹ 20,000 to Mr.

Shiyam who is having PAN.

3 30.06.2020 Payment of ₹ 25,000 to M/s X Ltd. for repair of building.

4 01.01.2021 Payment of ₹ 2,00,000 made to Mr. A for purchase of diaries made according to

specifications of M/s S Ltd. However, no material was supplied for such diaries to

Mr. A by M/s S Ltd or its associates.

5 01.01.2021 Payment made ₹1,80,000 to Mr. Bharat for compulsory acquisition of his house as

per law of the State Government.

6 01.02.2021 Payment of commission of ₹ 14,000 to Mr. Y

Question 3: Examine the applicability of TDS provisions and TDS amount in the following cases;

a. Rent paid for hire of machinery by B Ltd. to Mr. Raman ₹2,60,000 on 27.09.2020.

b. Fee paid on 01.12.2020 to Dr. Srivatsan by Sundar (HUF) ₹ 35,000 for surgery performed on a

member of the family.

c. ABC and Co. Ltd. paid ₹19,000 to one of its Directors as sitting fees on 01.01.2021.

Question 4: Examine the applicability of tax deduciton at source provisions, the rate and amount of

tax deduction in the following cases for the financial year 2020 – 21:

1. Payment of ₹ 27,000 made to Jacques Kallis, a South African cricketer, by an Indian newspaper

agency on 02.07.2020 for contribution of articles in relation to the sport of cricket.

2. Payment made by a company to Mr. Ram, sub-contractor, ₹ 3,00,000 with outstanding balance of

₹1,20,000 shown in the books as on 31.03.2021.

3. Winning from horse race ₹1,50,000 paid to Mr. Shyam, an Indian resident.

4. ₹2,00,000 paid to Mr. A, a resident individual, on 22.02.2021 by the State of Uttar Pradesh on

compulsory acquisition of his urban land.

Section 206C: Tax collected at Source

a. Sellers of certain goods are required to collect tax from the buyers at the specified rates. The

specified percentage for collection of tax at source is as follows;

Percentage

Nature of Goods From

01.04.2020

13.05.2020

14.05.2020

31.03.2021

Income Tax 86

1 Alcoholic liquor for human consumption 1% 1%

2 Tendu leaves 5% 1%

3 Timber obtained under a forest lease 2.5% 1.875%

4 Timber obtained by any mode other than(iii) 2.5% 1.875%

5 Any other forest produce not being timber or tendu leaves 2.5% 1.875%

6 Scrap 1% 0.75%

7 Minerals, being coal or lignite or iron ore 1% 0.75%

However, no collection of tax shall be made in the case of a resident buyer, if such buyer furnishes

a declaration in writing in duplicate to the effect that goods are to be utilised for the purpose of

manufacturing, processing or producing articles or things or for the purposes of generation of

power and not for trading purposes.

b. Every person who grants a lease or a licence or enters into a contract or otherwise transfers any

right or interest in any

→ Parking lot or

→ toll plaza or

→ a mine or a quarry

to another person (other than a public sector company) for the use of such parking lot or toll plaza

or mine or quarry for the purposes of business. The tax shall be collected as provided, from the

licensee or lessee of any such licence, contract or lease of the specified nature, at the rate of 2% (1.5%

during the period between 14.05.2020 to 31.03.2021), at the time of debiting of the amount payable

by the licensee or lessee to his account or at the time of receipt of such amount from the licensee or

lessee in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier.

c. Every person, being a seller, who receives any amount as consideration for sale of a motor vehicle

of the value exceeding ₹10 lakhs, shall, at the time of receipt of such amount, collect tax from the

buyer @1% (0.75% during the period between 14.05.2020 to 31.03.2021) of the sale consideration.

d. Ever person,

→ being an authorized dealer, who receives amount under the Liberalised Remittance Scheme

of the RBI for overseas remittance from a buyer, being a person remitting such amount out of

India,

→ being seller of an overseas tour programmed package who receives any amount from the

buyer who purchases the package

has to collect tax at the rate of 5% of such amount at the time of debiting of the amount payable

by the buyer or at the time of receipt of such amount from the said buyer by any mode,

whichever is earlier.

Rate of TCS in case of collection by an authorized dealer

Amount and purpose of remittance Rate of TCS

1 a. where the amount is remitted for a purpose other than

puchase of overseas tour programmed package; and

b. the amount or aggregate of the amounts being remitted

by a buyer is less than ₹7 lakhs in a financial year

Nil (No tax to be collected at

source)

2 a. where the amount is remitted for a purpose other than

purchase of overseas tour programmed package; and

b. the amount of aggregate of the amounts in excess of ₹7

lakhs is remitted by the buyer in a financial year

5% of the amount of

aggregate of amounts in

excess of ₹7 lakh

3 a. where the amount being remitted out is a loan obtained

from any financial institution, for the purpose of

pursuing any education; and

b. the amount or aggregate of the amounts in excess of ₹7

lakhs is remitted by the buyer in a financial year

0.5% of the amount or

aggregate of amounts in

excess of ₹7 lakh

Cases where no tax is to be collected

1 No TCS by the authorized dealer on an amount in respect of which the sum has been collected

by the seller

2 No TCS, if the buyer is liable to deduct tax at source under any other provision of the Act

and has deducted such tax

3 No TCS, if the buyer is the Central Government, a State Government, an embassy, a High

Commission, a legation, a commission, a consulate, the trade representation of a foreign

State, a local authority or any other person notified by the Central Government, subject to

fulfillment of conditions stipulated thereunder.

e. Every person, being a seller, who receives any amount as consideration for sale of goods of the

value exceeding ₹50 lakhs in a previous year, other than exported goods or goods covered in (a)/(c)/

(d)], is required to collect tax at source, at the time of receipt of such amount, @0.1% (0.075% during

the period between 14.05.2020 to 31.03.2021) of the sale consideration exceeding ₹50 lakhs.

However, tax is not required to be collected if the buyer is liable to deduct tax at source under any

other provision of the Act on the goods purchased by him from the seller and has deducted such

In case of non-furnishing of PAN or Aadhar number by the buyer to the seller, tax is required to

be collected at the higher of-

1) twice the rate specified in this sub-section; and

Income Tax 88

11. PROVISIONS FOR FILING OF RETURN OF INCOME

S Description

139(1) Compulsory filing of return of income

139(1A) Option to furnish return of income to employer

139(1B) Return of income through computer readable media

139(3) Return of Loss

139(4) Belated Return

139(5) Revised Return

139(6) Particulars to be furnished with the return

139(6A) Particulars to be furnished with the return in case of assessee

engaged in business or profession

139(9) Defective Return

139A Permanent Account Number

139AA Quoting of Aadhar Number

139B Submission of Returns through Tax Return Preparers

140 Persons authorised to verify return of income

140A Self-Assessment

Section 139(1): Filling the return of income (ROI)

Compulsory filing of ROI

1. Companies, firms & LLP

2. Other assessee: if GTI > basic exemption limit [before S.54, 54B, 54D, 54Ec or 54F]

3. RNOR, who is not required to file ROI u/s 139(1), is required to file ROI if such person at any time

during the previous year holds, as a beneficial owner / beneficiary, any asset (including any

financial interest in any entity) located outside India or has signing authority in any account located

outside India.

Beneficiary is not required to file ROI, where any income from such asset is clubbed in the hands

of beneficial owner.

4. Any person who during the PY

Deposit in current a/c of bank or cooperative bank > ₹1 crore

Expended for travel to foreign country > ₹2,00,000

Electricity consumption expenses > ₹1,00,000

Fulfills other conditions as prescribed

Due date of filling ROI

Different Situations Due date

1. A company October 31

Other assessee required audit u/s 44AB

Assessee being “working partner” in a firm

whose accounts are required to be audited

2. Assesses required to file Transfer Pricing Report u/s 92E November 30

3. Others July 31

{CMA inter, J10 & J12, 4 & 3 M}

Section 139(1A): Bulk return by employer for employee up to the due date

Section 139(1C): Central Government may exempt class of person to file ROI

Section 139(3): Loss return

As per section 80, Return of loss should be filed within time for carried forward:

❖ Business Loss [non-speculation | speculation| specified]

❖ Capital Loss

❖ Loss from the activity of owing and maintaining race horses.

Exceptions:

Loss from house property

Unabsorbed depreciation

Delay in case of genuine hardship can be condoned by:

Authority Return losses

CIT / PCIT up to ₹10 lakhs

CCIT / PCCIT ₹10 lakhs to ₹50 lakhs

CBDT more than ₹50 lakhs

{CA inter, N14 & M15, 4 & 4 marks | CMA inter J14, 5 marks}

Section 139(4): Belated Return

If assessee failed to file ROI within due date then he can file belated return within

1. Before the end of the relevant assessment year; or

2. Before the completion of the assessment, whichever is earlier

{CMA RTP}

ROI is compulsory for

Section 139(4A): Trust – If TI > exemption limit [before u/s 11 & 12]

Section 139(4B): Political party – if TI > exemption limit [before u/s 13A]

Section 139(4C): if TI > exemption limit [before u/s 10] for

Hospitals, Medical Institutions, Infrastructure debt fund, MF, Securitisation trust, etc…

Section 139(4D): College, university, or educational institution approved u/s 35

Section 139(4E): Business Trust

Section 139(4F): investment fund referred

Income Tax 90

Section 139(5): Revised return

If an assessee, after furnishing the return of Income u/s 139(1) or 139(3) or 139(4) discover any omission

or any wrong statement in the return filed, he may furnish a revised return within

i. Within the end of the relevant assessment year, or

ii. Before the completion of assessment whichever is earlier.

Revised return can be submitted any number of time (revised return u/s 139(5) can also be revised)

{CA inter, M04, 5 marks}

Section 139(6): Particulars required to be furnished with ROI

(i) income – exempt from tax

(ii) assets held with its nature and value.

(iii) detail of bank account & credit card

(iv) expenditure exceeding the prescribed limits

(v) other prescribed outgoings

{CA inter, M10, 4 marks}

Section 139(6A): Particulars required to be furnished with ROI in the case of assessee engaged in

1. the report of any audit referred in section 44AB

2. particulars of the location of business including its branch

3. the names and addresses of his partners

4. if he is a member of an association or BOI

a. the names of the other members in AOP or BOI

b. the extent of the share of the assessee and other members / partners in the PGBP

Section 139(9): Defective return

ROI is defective if

1. return not properly filed

2. proof of tax computation & payment not attached with return

3. audit report u/s 44AB not submitted

4. attach copies of books of account if maintained

if return treated as defective, the AO will intimate the assessee and give time limit for rectify. The

assessee failed rectify within the time limit then the ROI is treated as invalid return (void-ab-initio)

{CA inter, N02 & M08, 6 & 6 marks}

Section 139A: Permanent Account Number:

Following person apply to the AO if the person has no PAN within -

1. Every person whose total income or the total income of any other person in respect of which he is

assessable exceeded the basic exemption limit; [on or before 31st May of the AY] or

2. Every person carrying on any business or profession whose total sales, turnover or gross receipts

exceeds ₹5 lakhs; [Before the end of that PY] or

3. Every person, being a resident, other than an individual, which enters into a financial transaction

of an amount aggregating to ₹2,50,000 or more in a financial year. [on or before 31st May of the AY]

4. Every person who is the managing director, director, partner, trustee, author, founder, karta, chief

executive officer, principal officer or office bearer of the person mentioned in (c) above or any

person competent to act on behalf of such person. [on or before 31st May of the AY]

Transactions for which quoting of PAN is mandatory.

1. Sale or purchase of a motor vehicle or vehicle other than two wheeler

2. Opening an account with a banking company or cooperative bank

3. Making an application to any bank for issue of a credit or debit card

4. Opening a demat account

5. The following payment in excess of ₹50,000 at any one time to

a. hotels and restaurants bills (by cash)

b. travel to any foreign country [except travel to pilgrimage place neighboring country][by cash]

c. purchase of MF units

d. a company or an institution for acquiring debentures or bonds issued by it;

e. to RBI for acquiring bonds issued by it;

f. with a banking company or a cooperative bank or post office savings bank (by cash)

g. bank for purchase of bank drafts or pay orders or banker’s cheques

h. a bank / post office / NBFC / Nidhi for time deposit (₹5,00,000 or more in a year)

i. bank for purchase of one or more pre-paid payment instruments (draft, pay order, etc.)

j. LIC premium (excess over ₹50,000 in aggregate for a year)

6. A contract of a value exceeding ₹1,00,000 for sale or purchase of securities;

7. Sale or purchase, by any person, of unlisted shares

8. Sale or purchase of any immovable property valued at ₹10,00,000 or more;

9. Sale or purchase of goods or services exceeding ₹2,00,000 other than those specified above

Note: minor who entering above transaction should quote PAN of parent or guardian

In case of NRI, need to furnish photocopy of passport

[CA inter N06, N07 & J09, 6, 4 & 6 marks | CMA inter D12, 5 marks]

Section 139AA: Quoting Aadhar number

1. Mandatory quoting of Aadhar number

a. for applying for allotment of PAN and

b. submission of return of income

2. Mandatory quoting of enrolment ID, where person does not have Aadhar number

3. PAN number allotted deemed to be cancelled in case of failure to intimate Aadhar number

4. This provision does not apply

a. to persons residing in the states of Assam, Jammu & Kashmir and Meghalaya

b. a non-resident

c. age of 80 years or more at any time during the previous year

d. not a citizen of India

Income Tax 92

Section 139B: Tax Return Preparers

1. The CBDT may notify specified person to file ROI through TRPs

2. The Tax Return Preparer shall assist the persons furnishing the return in a manner that will be

specified in the Scheme, and shall also affix his signature on such return.

3. A Tax Return Preparer can be an individual, other than-

(i) Any officer of a scheduled bank with which the assessee maintains an account

(ii) Any legal practitioner.

(iii) A chartered accountant.

(iv) An employee of the specified class

4. “specified class of persons” means the person who is required to file ROI other than a company or

a person, whose accounts are required to be audited u/s 44AB

5. The Scheme provides the following —

i. the manner / period of TRPs are authorised or withdrawal of authorisation

ii. the educational and other qualifications of TRPs

iii. the code of conduct and duties for TRP

{CA inter, M07 4 marks | CMA inter D07, 8 marks}

Section 139C & 139D: Annexure less return / Furnish ROI in electronic form

CBDT to make rules providing for a class or classes of persons who shall not be required to furnish any

certificate, audit report, any document or a receipt etc., along with their ROI. Empowers CBDT to make

rules for the followings:

1. A class person or classes of person who shall be required to furnish their ROI compulsorily a

computer readable media (i.e. e-filing of ROI)

2. The terms and the manner and the form in which such ROIs can be filed electronically

3. CBDT may require the persons who are not required to attach any documents along with ROI, to

furnish such documents whenever required by an AO (139D)

Section 140: Signatory to return

Particulars Signing Authority

1. Individual Himself | Authorized person (if outside India) |Guardian (incapacitated)

2. HUF Karta or Any adult members (if Karta not in India or incapacitated)

3. Company MD, if not available by any director, In case of NR Company by a person

holding a valid POA. In case of company being wound up by liquidator.

4. Firm Managing Partner, if not available by any partner.

5. Local Authority Principal Officer

6. Political Party Chief Executive Officer

7. Any other case By any member.

8. LLP Designated Partner. In case he is not able to sign, then any partner.

9. AOP Any member or the principal officer

Return not signed as per section 140 of the ACT is treated as void-ab-initio

{CA inter M05 & N12, 6 & 4 Marks}

Section 140A: Self-assessment

Assessee is required to pay taxes before due date of filling of return (After considering advance tax,

TDS, TCS) along with interest and fees. If there is short payment then the amount so paid is first

adjusted towards fees, thereafter towards interest and balance towards taxes

{CA inter N03 & N07, 6 & 6 Marks}

Different forms for furnishing ROI:

Form Applicability

ITR-1 Individuals having salary and interest income only

ITR-2 Individuals and HUFs having income except PGBP

ITR-3 Individuals and HUFs being partners in Firms and not having Proprietary PGBP

ITR-4 Individuals and HUFs having Proprietary PGBP

ITR-5 Firms / AOP / BOI.

ITR-6 Companies

ITR-7 Charitable / Religious Trusts, Political parties and other NPOs

ITR-8 file Return of Fringe-Benefits

ITR-V Transmitted electronically without digital signatures

Income Tax 94

12. ASSESSMENT OF VARIOUS PERSONS

2 Political Party

3 Electoral Trust

4 Cooperative Society

5 AOP & BOI

Hindu Undivided Family (HUF): under Hindu Law is a family, which consists of all persons lineally

descended from a common ancestor and includes their wives and unmarried daughters.

Kartha: head of family

Coparceners:

4. members of HUF (up to four degrees including kartha)

5. acquire an interest in the HUF property by birth / right in partition

Schools of Hindu Law Applicable Right in HUF property to members

1 Dayabhaga West Bengal & Assam Only to head until alive

2 Mithakshara Rest of India By birth

A Jain or Sikh NOT Muslim undivided family would also be assessed as a HUF.

Once a family is assessed as HUF, it will continue to be assessed as such till its partition

Essential requirements of An HUF:

Joint family property: ancestral property or property acquired using ancestral property

Ancestral property:

a. property inherited from 3 immediate male ancestors

b. includes: family of widow mother and sons | family of husband and wife having no child

c. excludes: property inherited from any other person (e.g. father in law, uncle, etc..)

Computation of total income and tax liability of HUF:

1. all tax provision is applicable as applicable as for individual

2. No salary income

3. Remuneration to member of HUF (other than member’s personal capacity) due to investment of

HUF fund – income of HUF

4. Income from ancestral property may not be taxed in the hands of HUF for Dayabhaga school

5. Remuneration to Karta: allowed in case of genuine reason

6. Personal income of the members: NOT income if HUF (Stridhan is not income of HUF)

7. Income from impartible estate: taxable in the hands of holder of estate

Section 171: Assessment after partition of a Hindu Undivided Family:

1. Inquiry by AO: upon partion

Section 13A: Income for political party [registered u/s 29A of Representation of the People Act]

Following incomes are exemption on satisfaction of some condition

1. Income from House Property

2. Income under head Capital Gains

3. Income from other sources (including donation)

Condition

(a) Maintain books of accounts and other documents

(b) Get its books audited and file ROI

(c) Maintain a record of name and address of donor who contributes more than ₹20,000

(d) Political party must receive donation > ₹2,000 by the mode other than cash

{CA inter N10, 4 marks | CMA inter D08, J11 & D14, 3, 3 & 4 marks}

Income Tax 96

True or false: In respect of voluntary contributions in excess of ₹20,000 received by a political party,

exemption u/s 13A is available where proper details about the donations are maintained; there is no

need to maintain books of account.1

Question: The books of account maintained by a National Political Party registered under the

Representation of the People Act, 1951 for the year ended on 31-3-2020 disclose the following receipts:

a) Rent of property let out to a departmental store at Chennai. 10,00,000

b) Interest on deposits other than banks 2,00,000

c) Contribution from 100 persons (who have secreted their names) of ₹33,000 each 33,00,000

d) Contribution @ ₹22 each from 1,00,000 members in cash 22,00,000

e) Net profit of cafeteria run in the premises at Delhi 3,00,000

Compute the total income of the political party for the assessment year 2020-2021, with reason for

inclusion or otherwise.

Answer:

Computation of Income of National Political Party: AY 2020-21

Particulars ₹

(a) Rent from property: Exempt u/s 13A —

(b) Income from business profits of cafeteria 3,00,000

Income other sources:

(c) Interest on deposit other than banks: Exempt —

(d) Contributions from 100 persons exceeding ₹33,000 each

(taxable, as donor’s name is secreted)

33,00,000

(e) Contributions from 1,00,000 members @ ₹22 each: Exempt u/s 13A . —

Total income 36,00,000

Section 13B: Taxation of Electoral Trust

Condition for exemption for voluntary contributions received by electoral trusts

a. At least 95% or more of aggregate donation of the current year along with surplus brought forward

from the earlier year is distributed to any political party

b. Function in accordance with rules made by Central Government

1. Only donation income is exempt and other income is fully taxable

2. The electoral trust may receive voluntary contributions from

a. An individual who is a citizen of India

b. A company which is registered in India; and

c. A fire or HUF or an AOP / BOI, resident in India

3. The electoral trust shall not accept contributions;

1 False: (need to maintain books of a/c)

a. From an individual who is not a citizen of India or from any foreign entity whether

incorporated or not;

b. From any other electoral trust

c. From a foreign source

4. The electoral trust shall accept contributions only by way of an account payee cheque drawn on a

bank or account payee bank draft or by electronic transfer to its bank account and shall not accept

any contribution in cash

Question: Brindavan & Co. is a partnership firm consisting of 4 partners viz., Ram, Rahim, Robert and

Rakesh. The firm made turnover exceeding ₹100 lakhs and the net profit of firm was ₹9,50,000 before

considering the following items:

1. Shop rent paid for premises to partner Ram ₹22,500 per month. No tax was deducted at source.

2. Depreciation as per Income-tax Rules ₹1,50,000.

3. Interest on capital to partners @ 15% ₹1,50,000, as authorized by the deed of partnership.

4. Working partner salary to each partner ₹15,000 per month, as per partnership deed.

You are required to compute the income of the firm for the assessment year 2020-21.

Answer: Computation of Total income of Brindavan & Co for the Asst. Year 2020-21:

Particulars ₹

Net profit before adjustments 9,50,000

+ Rent paid to partner ₹2,70,000. 30% disallowed as no TDS 81,000

- Depreciation as per Income-tax Rules 1,50,000

- Interest on capital @ 12% is allowed [₹ 1,50,000 × 12/15] 1,20,000

Book Profit 7,61,000

Working partner salary

On first ₹ 3 lakhs @ 90% 2,70,000

On the balance ₹4,61,000 @ 60% 2,76,600 5,46,600

Income of the firm 2,14,400

Question: What is the due date of filling of return of income in case of a non-working partner of a firm

whose accounts are not liable to be audited?1

Cooperative Society

Question: X Consumer Co-operative Society furnished the following particulars of its income in respect

of financial year ended on 31.3.2020, find tax liability of the co-operative society –

Income from business 2,50,000

1 31st July

Income Tax 98

Interest received on company deposits 50,000

Interest on deposit with banks 10,000

Income from letting of godown for storage of commodities 20,000

Answer:

Income from business 2,50,000

Interest received on company deposits 50,000

Interest on deposit with banks 10,000

- Deduction u/s 80P

Income from other specified activity (consumer co-op) 1,00,000

Tax on total income + HEC 62,400

Question: P Cooperative Society furnishes details of income, compute taxable income for the purpose

of AY 2020-21:

Income from collective disposal of labour 25,000

Income from marketing of the agricultural produce grown by its member 30,000

Income from marketing of the agricultural produce grown by outsider 3,000

Dividend from another co-operative society 15,000

Dividend from X Ltd 3,000

Income from processing of agricultural produce of its member with aid of power 50,000

Answer:

Computation of total income of P Co-op Society for the AY 2020-21 ₹

Income from marketing of the agricultural produce grown by outsider 3,000

Dividend from X Ltd (Exempt u/s 10(34)) Nil

Income from processing of agricultural produce of its member with aid of power 50,000

- Deduction u/s 80P

Income from activity other than specified activity 50,000

Total Income 3,000

Association of Persons (AOP) and Body of Individuals (BOI)

Section 40(ba): Exceptions:

1. Interest (on capital or loan) to members: disallowed

Interest to members Interest from members Net interest Disallowed

5,000 3,000 2,000 2,000

3,000 5,000 (2,000) Nil

2. Interest to members or vice a versa on behalf of others – allowed

3. Where interest is paid by the AOP / BOI to any member (who is member in a representative

capacity) or vice versa, then such interest shall be allowed.

Interest to Source Capacity

A (member of AOP) A’s loan A (representative of HUF) Allowed

A (member AOP) HUF’s loan A (representative of HUF) Disallowed

4. Remuneration (salary, bonus, etc..): Disallowed

5. Computation of tax liability of AOP

a. When share of members are known [Section: 167B(2)]

Case Tax Rate

1 Long term capital gains 10% / 20%

2 Short term capital gains u/s 111A 15%

3 Income from lotteries, crossword, puzzles. Etc. 30%

4 Other income

(a) Income of ALL members – income of AOP / BOI ≤ Tax limit Individual rate

(b) Income of ANY member – income of AOP / BOI > Tax limit MMR (42.744%)

(c) If tax rate of ANY member > MMR Higher Rate + MMR

b. When share of members are unknown [Section: 167B(1)]

Case Tax Rate

1 Long term capital gains 10% / 20%

2 Short term capital gains u/s 111A 15%

3 Income from lotteries, crossword, puzzles. Etc. 30%

4 Other income

(a) Income of ALL / ANY member – income of AOP / BOI ≤ Tax limit MMR (42.744%)

(b) Income of ANY member – income of AOP / BOI > Tax limit MMR (42.744%)

(c) If tax rate of ANY member > MMR Higher rate

Question: A and Mrs. B, being members of an AOP with equal share, furnishes the following details,

compute tax liability of AOP and members:

Profit and Loss A/c for the year ended 31.03.2020

Particulars ₹ Particulars ₹

Bonus to employee 50,00 Gross Profit 6,96,000

Bonus to A 10,000 Interest on drawings a/c

Income Tax 100

Bonus to Mrs. B 5,000 - A 16,000

Other expenses 40,000 - Mrs. B 8,000

A’s Salary 44,000

Mrs. B’s Salary 88,000

15% Interest on capital

- A 15,000

- Mrs. B 20,000

Depreciation 30,000

Donation to National Relief Fund 10,000

Net Profit 4,08,000

7,20,000 7,20,000

Additional information:

1. Depreciation for the year u/s 32 ₹20,000

2. Other expenses include expenditure of ₹5,400, which is disallowed u/s 40A(2)

3. Other personal income of A & Mrs. B

A Mrs. B

Dividend received ₹5,000 ₹20,000

Interest on loan ₹2,45,000 ₹2,22,000

Answer:

Computation of total income of AOP for the AY 2020-21

Particulars ₹

NP as per books 4,08,000

+ Salary to members – disallowed (44,000+88,000) 1,32,000

+ Bonus to members – disallowed (10,000+5,000) 15,000

+ Disallowed: Excess interest for A [15,000 – 16,000] Nil

+ Disallowed: Excess interest for Mrs. B [20,000 – 8,000] 12,000

+ Disallowed: other expenses u/s 40A(2) 5,400

+ Disallowed: Excess depreciation then u/s 32 10,000

+ Disallowed: Donation to National Relief Fund 10,000

5,92,400

- Deduction u/s 80G: Donation to National Relief Fund 10,000

Tax on total income at individual tax rate 30,140

Computation of total income of A & Mrs. B AY 2020-21

Particulars A Mrs. B

- Dividend (exempt u/s 10(34)) Nil Nil

- Interest on loan 2,45,000 2,22,000

Total income excluding income form AOP 2,45,000 2,22,000

+ Share from AOP

Salary from AOP 44,000 88,000

Salary form AOP 10,000 5,000

Interest on capital Nil 12,000

Balance income1 shared as per P/L ratio 2,11,700 2,11,700

2,65,700 3,16,700

Total income 5,10,700 5,38,700

Tax on above 14,640 20,240

- Rebate u/s 87 Nil Nil

14,640 20,240

+ HEC @ 4% 586 810

15,226 21,050

- Rebate u/s 86 (𝑇𝑎𝑥 ×𝐼𝑛𝑐𝑜𝑚𝑒 𝑓𝑟𝑜𝑚 𝐴𝑂𝑃

𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒) 7,922 12,375

Tax payable 7,300 8,680

Question: how will your answer differ if members are A Ltd (a foreign company) & Mrs. B in the

previous question?

Answer: tax rate for A Ltd is 41.60% (40% + 4% HEC) which is < MMR 42.744% hence AOP is taxable

Particulars A Ltd Mrs. B

Share of AOP income (exempt) Nil Nil

- Interest on loan 2,45,000 2,22,000

Tax on above for A Ltd (40% + 4% HEC) 1,01,920 Nil

Income from AOP 2,65,700 3,16,700

Tax on above @ 42.744% 1,13,571 1,35,370

Total tax payable by AOP 2,48,940

Question: how will your answer differ if members are A & Mrs. B in the previous question if sharing

ratio is not given?

1 AOP’s profit – salary – bonus – interest disallowed (5,82,400 – 1,32,000 – 15,000 − 12,000)

Income Tax 102

Answer: as incomes of ALL members are not taxable, the AOP is taxable at MMR 42.744%

Particulars A Mrs. B

Share of AOP income (exempt) Nil Nil

- Interest on loan 2,45,000 2,22,000

Income from AOP 5,82,400

Tax payable on above @ 42.744% 2,48,940

13. ALTERNATE MINIMUM TAX [115JC]

Section 115JC: Alternate Minimum Tax (AMT)

Applicable: Any assessee other than company who has claimed any deduction under:

Section 80H to Section 80RRB other than section 80P

Section 10AA

Section 35AD

AMT rate: 18.5% on adjusted total income (ATI = GTI – Deductions 10AA | 35AD | 80H to 80RRB)

(9% in case of unit located in an International Financial Services Centre and derives its income solely

in convertible foreign exchange)

Provisions: for advance tax, interest, etc. are applicable as usual

Not Applicable:

Individual | HUF | AOP | BOI | AJP provided if Adjusted Total Income ≤ ₹20 lakhs

Any assessee having NO income u/s 10AA | 35AD | 80H to 80RRB except 80P

Income Tax Liability:

A Regular income tax liability before cess ×××

B Compute AMT @ 18.5% on the ATI ×××

WEH of A and B ×××

HEC @ 4% ×××

Tax Liability ×××

Tax credit for AMT (if AMT > Regular Tax): AMT tax – regular tax

Setoff of AMT tax credit: 15 succeeding AY out of (regular tax – AMT tax) if positive

Fill up the blanks: Alternative minimum tax u/s. 115JC is applicable for assesses other than ________1

Question: Compute tax of the following assessee:

Particulars Mr. W Mr. X Mr. Y A LLP B LLP

Gross total income being business income 15,00,000 25,00,000 27,00,000 32,00,000 8,00,000

Deduction u/s 80C 1,00,000 1,00,000 1,00,000 Nil Nil

Deduction u/s 80G 25,000 1,00,000 Nil 1,00,000 1,00,000

Deduction u/s 80IE 7,75,000 Nil 8,00,000 Nil 2,00,000

Total Income (TI) 6,00,000 23,00,000 18,00,000 31,00,000 5,00,000

1 Companies & Individual | HUF | AOP | BOI | AJP provided if Adjusted Total Income ≤ ₹20 lakhs

Income Tax 104

Answer:

Particulars Mr. W Mr. X Mr. Y A LLP B LLP

A Regular Tax on Total Income 32,500 5,02,500 3,52,500 9,30,000 1,50,000

Adjusted Total Income (TI + 80IE) 13,75,000 23,00,000 26,00,000 31,00,000 7,00,000

Applicability of Section 115JC No1 No2 Yes No85 Yes

B AMT u/s 115JC @ 18.5% NA NA 4,81,000 NA 1,50,000

C Tax WEH of A or B 32,500 5,02,500 4,81,000 9,30,000 1,50,000

+ HEC @ 4% on tax (C) 1,300 20,100 19,240 37,200 6,000

Total Income 33,800 5,22,600 5,00,240 9,67,200 1,56,000

Question: India makes LLP reports a total income of ₹60,00,000 for the year ended 31.03.2020 after

taking into account the following details / deductions:

1. Deduction of ₹9,00,000 under section 80JJAA.

2. It manufactures toothpaste in a factory located in the State of Sikkim. Eligible deduction under

section 80-IE is computed at ₹8,00,000.

3. Gave a donation of ₹5,00,000 to Prime Minister National Relief Fund towards Uttarakhand disaster,

eligible for deduction under section 80G.

4. Debited ₹15,00,000 being 40% on cost of water pollution control equipment to profit and loss

account. These items are eligible for 40% depreciation.

Compute the Alternative Minimum Tax (AMT) applicable to the LLP for the assessment year 2020-21,

as per the provisions of the Income Tax Act, 1961.

Answer: Computation of AMT for India Makes LLP for the A.Y. 2020-21.

Particulars ₹

Add Deduction under section 80JJAA to be added back 9,00,000

Deduction under section 80-IE to be added back 8,00,000

Depreciation for Water Pollution Equipment is eligible – no adjustment is

required

Adjusted total income for AMT 77,00,000

Question: ABC & Co., a partnership firm informs you that its total income for the financial

year 2019-20 after deducting interest on capital and working partners’ salary is ₹10,40,000.

It has adjusted the following items while arriving at its total income under normal

provisions:

1. Aggregate cash payment in excess of ₹20,000 paid to suppliers of raw materials

₹3,30,000 (not recovered by Rule 6DD).

1 As ATI ≤ 20 lakhs 2 As no deduction is claimed u/s 10AA | 35AD | 80H to 80RRB except 80P

2. Deduction under section 10AA for the unit established in Special Economic Zone

₹17,00,000.

3. Interest on term loan to bank relating to the financial year 2018-19 paid during the

financial year 2019-20 ₹1,20,000.

4. Deduction under section 35AD in respect of a two star hotel operated in Shillong

₹14,50,000.

5. Salary paid to partner’s son ₹3,60,000 of which ₹1,00,000 is found to be excessive to

the market rate.

Compute the alternate minimum tax under section 115 JC for the assessment year 2020-

Answer:

Particulars ₹

Cash payments disallowed u/s 40A(3) already adjusted hence no adjustment Nil

Deduction under section 10AA to be added back 17,00,000

Deduction for term loan interest u/s 43D already adjusted hence no adjustment Nil

Deduction under section 35AD to be added back 14,50,000

Salary paid to partner’s son excessively ₹1,00,000 is already adjusted Nil

Adjusted total income 41,90,000

A Regular tax on total income @ 30% 3,12,000

B AMT on ATI @18.5% 7,75,150

C Applicable Tax: WEH of A or B 7,75,150

+ HEC @ 4% on C 31,006

Total tax payable (rounded off) 8,06,160

Question: Arghya, a resident individual and a software engineer, set up one unit in a special economic

zone in the year 2018-19 for development of the software. All the conditions of section 10AA of the

Income-tax Act stand fulfilled.

The other details are as follows for year 2019-20:

(i) Export turnover ₹75 lakhs

(ii) Domestic turnover ₹25 lakhs

The PGBP is ₹25 lakhs. Debit side of the Profit & Loss Account includes corporation tax of ₹5 lakhs for

office premises, which was not paid due to certain dispute.

Compute tax payable by Arghya for the Assessment Year 2020-21.

Income Tax 106

Answer: Computation of tax payable by Arghya for Assessment Year 2016-17.

Particulars ₹

PGBP: Net profit as per profit & loss account 25,00,000

Add Unpaid corporation tax disallowed under section 43B 5,00,000

30,00,000

Less Deduction u/s 10AA for export of SEZ unit (𝑃𝐺𝐵𝑃 ×𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟

𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟) 22,50,000

A Regular income tax [(5 lakhs – 2.5 lakhs) × 5%] + [(7.5 lakhs – 5 lakhs) ×

62,500

B Alternate Minimum Tax (AMT) @ 18.5% (being ATI > 20 lakhs) 5,55,000

On ATI = TI + Deduction u/s 10AA [7.5 lakhs + 22.5 lakhs]

Tax WEH of (A or B) 5,55,000

+ HEC @ 4% on tax 22,200

Tax liability 5,77,200

Question: The Profit & Loss Account of ABC & Associates, a partnership firm for the

previous year 2019-20 is given below:

Particulars ₹ Particulars ₹

Establishment and other

expenses

96,00,000 Gross Profit 1,56,40,000

Interest to partners @ 15% Profit on sale of equity shares

(Sold after 2 years

through recognized stock

exchange)

2,80,000

- A 1,80,000

- B 2,40,000

- C 1,20,000 Rent from house property 1,20,000

Salary to working partners Interest on bank deposit 20,000

- A 4,80,000 Profit on sale of equity shares

(after 10 months

through recognized stock

exchange)

2,40,000

- B 3,60,000

Net Profit 53,20,000

1,63,00,000 1,63,00,000

Additional information:

1. Establishment expenses include bonus ₹ 2,40,000 which was paid on 30-12-2020.

2. The firm is eligible for deduction under section 80-IC.

3. Establishment expenses also included securities transaction tax of ₹2,000.

Compute the tax liability of the firm for the assessment year 2020-21. Assume that no

extension of time has been granted u/s 139(1) for filing the return of income.

Answer:

Computation of total income of ABC & Associates for the Assessment Year 2020-21

Particulars ₹ ₹

Income from house property less 30% deduction 84,000

PGBP: Net profit as per Profit & Loss Account 53,20,000

Add Expenses disallowed

Bonus as per section 43B 2,40,000

Securities Transaction Tax 2,000

Interest to partner in excess of 12% 1,08,000

Salary to partners 8,40,000

65,10,000

Less Rent 1,20,000

Profit on sale of shares sold after 2 years 2,80,000

Interest on bank deposit 20,000

Profit on sale of shares sold after 10 moths 2,40,000

Book Profit 58,50,000

Less Partners' Remuneration: WEL of (A and B)

A 90% of first ₹ 3,00,000 + 60% of balance 55,50,000 36,00,000

B Restricted to remuneration as per partnership deed 8,40,000 50,10,000

Short-term capital gain 2,40,000

Long-term capital gain 2,80,000

Income from other sources 20,000

Less Deduction under section 80-IC (100% PGBP) 50,10,000

A Regular income tax ₹ ₹

On STCG of ₹2,40,000 @ 15% 36,000

On LTCG of (₹2,80,000 – ₹1,00,000) @ 10% 18,000

On balance income of ₹1,04,000 @ 30% 31,200 85,200

Income Tax 108

B Alternate Minimum Tax (AMT) @ 18.5% 10,42,290

On ATI = TI + Deduction u/s 80IC [6,24,000+50,10,000]

Tax WEH of (A or B) 10,42,290

+ HEC @ 4% on tax 41692

Tax liability 10,83,980

14. ASSESSMENT PROCEDURE

140A Self-Assessment

Intimation of assessment by income tax department

142(1) Inquiry before assessment

143(1) Intimation / assessment by assessing officer

143(2) Scrutiny Assessment

143(3) Special procedure in case of research association

143(3A)-(3C) New scheme for scrutiny

144 Best Judgment Assessment

144A Power of Joint Commissioner to issue directions in certain cases

147 Income Escaping Assessment

154 Rectification of mistake

156 Demand Notice

Assessment: assessing the income by assessing officer (AO) based on income declared in ROI by self-

assessment

Section 140A: Self-Assessment: by assessee to determine taxable income

1. ROI is filed with appropriate tax and interest for any delay | else defective return

2. Amount payable = TDS + TCS +AT < aggregate tax + interest

3. After assessment, any amount paid is deemed to be paid for such assessment

4. Assessee in default: if assessee fails to pay tax / interest

Intimation or Assessment by Income Tax Department:

AO can assess in the following manner after submission of ROI or non submission of ROI

1. Section 143(1): intimation

2. Section 143(3): Scrutiny Assessment

3. Section 144: Best Judgement Assessment

4. Section 147: Income Escaping Assessment

Inquiry before assessment

1. Section 142(1): Issue of notice to the assessee by AO

a. To submit a return, if ROI not submitted | not required if planned for best judgement

assessment

b. To produce accounts, documents etc. [exception: accounts of 3 PPY]

c. To furnish information of accounts / assets / liabilities with the approval of Joint Commissioner

Income Tax 110

2. Section 142(2): Making inquiry by AO from assessee however AO collects information from any

source

3. Section 142(2A)-(2D): Directing to get books of account audited even audited u/s 44AB already

a. if account is complex or loss of revenue

b. such direction is issued with prior approval of the level of Commissioner or above

c. Auditor is nominated and audit fee is fixed by the directing officer

d. Such direction cannot be issued after the completion of assessment of reassessment

e. Time limit for audit report: fixed by AO and extendable but not beyond more than 180 days

f. Form of audit report: 6B

g. Failure of audit (not by auditor) attracts Best Judgment Assessment u/s 144 + penalty

4. Section 142(3): Opportunity of being heard [not applicable for assessment u/s 144]

5. Section 142A: Estimate by valuation officer in certain cases

a. AO (for assessment) refers to VO for value (including FMV) of assets, property or investment

b. AO may refer to VO even if he is satisfied with accounts of assessee

c. VO, on reference by AO, values the assets as per the powers of u/s 38A of Wealth Tax Act

i. Based on evidence or

ii. Best of his judgment (if assessee does not cooperate)

d. VO send the report of the estimate to the AO and assessee within a period 6 months

e. Based on VO’s report, AO takes the action after giving assessee an opportunity of being heard

Section 143(1): Intimation / Assessment by Assessing Officer: based on ROI filed or

Section 143(3): Scrutiny Assessment: On the basis of further evidence gathered by him

Section 144: Best Judgement Assessment: on the basis of best of his judgement

Intimation: Processing the return made u/s 139 in response to a notice u/s 142(1)

1. The total income shall be computed after making adjustment

Arithmetic error in the return & Incorrect claim

Disallowance: loss claimed | expenditure | deduction u/s 10AA, 80IA… if ROI filed after the

2. The tax, interest and fee if any shall be computed on the total income

3. Sum payable / refund = (Tax + Interest + Fee) – (TDS + TCS + Advance Tax + Relief)

4. Intimation of sum payable or refund is sent to assessee

5. Time limit for intimation: within the expiry of 1 year from the end of FY in which the return is

Notes:

a. Incorrect claim: inconsistent item | not furnishing required particulars | exceeds the limit in IT

b. Acknowledgement of ROI: deemed to be an intimation that no sum payable / refundable

c. In case of refund u/s 143(1), AO issue notice u/s 143(2) by withholding the refund with reason in

writing (with previous approval of the Principal Commissioner or Commissioner) if the refund

adversely affect the revenue

Section 143(2): Scrutiny Assessment:

AO, based on evidence

(collected in the case of understated income | excessive loss | under paid tax),

pass order for scrutiny assessment

Conditions: return furnished u/s 139 in response to notice u/s 142(1) | AO’s consideration

Procedure

Notice for scrutiny [Section 143(2)]: to produce any evidence required within prescribed time

Time limit of notice: not more than 6 months from end of FY in which ROI is filed

Order: Based on the evidence collected, AO pass an order in writing for assessment and

computation

Time limit for completion of scrutiny assessment: 12 months from the end of AY

Section 143(3): Special procedure in case of research association filing ROI u/s 139(C)/(D)

Applicable to

10(21): Research association

10(22B): News agency

10(23A): Association or Institution

10(23B): Institution

Institution

35(1): University or College

Assessment Order: made by AO to the effect of Section 10.

Section 143(3A) to (3C): New scheme for scrutiny

Central Government may make scheme for assessment being efficient, transparent and

accountable

Eliminate interface between AO and Assessee

Optimising utilisation of resources through economies of scale and functional specialization

Introducing team based assessment with dynamic jurisdiction

For the above, Central Government may modify or amend any provisions of this Act

Section 144: Best Judgment Assessment: by AO after considering relevant materials

AO cannot reduce tax liability | refund cannot be granted

Income Tax 112

Applicable (mandatory) situation: if the person fails to

1. File ROI u/s 139(1), (4) & (5)

2. Comply with the terms of notice u/s 142(1)

3. Comply with the directions u/s 142(2A) requiring to get accounts audited

4. Comply with the terms of notice u/s 143(2) requiring his presence or evidence

Opportunity of being heard: SCN for why not assessment u/s 144 | except if notice u/s 142(2) is

served

Time limit of completion of assessment (Section 153(1)): 12 months from the end of relevant AY

Note: Assessment u/s 144 is made, if proper books of accounts not maintained [145(2)] or not satisfied

with correctness of accounts [145(3)]

Section 144A: Power of Joint Commissioner to Issue Directions in his motion or direction of AO on:

1. Call for and examine the record of any proceeding in which an assessment is pending and

2. Issue the guidance of the AO to complete the assessment based the amount involved

Section 154: Rectification of Mistake: IT authority is empowered to order in writing (suo moto or on

application by assessee) to rectify / amend

1. Any mistake apparent in an order passed by him

2. Any intimation issued u/s 143(1) or deemed intimation

3. Any intimation issued u/s 200A(1)

Time limit for rectification (S. 154(7)):

1. Within 4 years from the end of FY in which the order was passed

2. Within 6 months from the end of the month in which the application is received (TDS or TCS)

Opportunity of being heard (S.154(3)): is given, if such rectification order is prejudicial

Note 1: AO make refund if any reduction in liability happens

Note 2: Issue notice for demand (S.156), if amount payable by assessee because of rectification

Section 156: Demand Notice: for additional demand raised in the assessment

Time limit for payment of tax: within 30 days of service of notice (S.220(1)) or days notified by AO

with the approval of JC

Interest on delay in payment: 1% interest for every month or part thereof after the time limit (220(2))

Penalty u/s 221(1): is payable not exceeding the tax in arrear if assessee in default

Deemed demand notice (S.156): = notice u/s 143(1) | 200A(1)|206CB(1)

15. INCOME COMPUTATION AND DISCLOSURE STANDARDS

ICDS I: Accounting Polices

ICDS II: Valuation of Inventories

ICDS III: Construction Contracts

ICDS IV: Revenue Recognition

ICDS V: Tangible Fixed Assets

ICDS VI: Effects of Changes in Foreign Exchange Rates

ICDS VII: Government Grants

ICDS VIII: Securities

ICDS IX: Borrowing Costs

ICDS X: Provisions, Contingent Liabilities and Contingent Assets

ICDS: Applicability:

All assessee other than individual or HUF not required for tax audit u/s 44AB

Who follows the mercantile system of accounting

For the computation of income u/h PGBP & IFOS

Not for maintenance of books of accounts but for computation of income for taxation

Follow income tax provision if ICDS conflicts

ICDS I: Accounting Policies

True and fair view: the state of affairs and PGBP

Substance over form: for presentation of transactions and event

Marked to market loss: not to recognise unless in accordance with the provisions of other ICDS

Fundamental Accounting Assumptions: Going concern | Consistency | Accrual

Disclosure: required if fundamental accounting assumptions followed else required

Change in accounting policies: should not be without reasonable cause

Disclosure:

Not required if significant accounting policies followed

Change in accounting polices disclosed with effect and reason if effect is not ascertained

Disclosure is not a remedy of a wrong treatment of item

Income Tax 114

ICDS II: Valuation of Inventories

Scope: Valuation of inventories

Non applicability:

WIP of construction contract

WIP dealt in other standards

Shares, debentures, financial instruments

Producers’ inventories: livestock | agricultural & forest products | mineral oils, ores and gases

Machinery spares (irregular use)

Measurement: WEL of (Cost or NRV) | NRV = SP – estimated cost for sales

Cost of Inventories:

Cost of Purchase

+ Purchase price ××

+ Duties ××

+ Freight on Purchase ××

+ Directly attributable expenses (direct expenses)

- Rebate ××

- Trade discount ××

+ Cost of Services

Labour (supervisors) costs + attributable OH ××

+ Conversion Cost

Variable overhead (Actual production) ××

Fixed overhead (Normal Production) ××

Exclude

- Holding & storage cost ××

Interest and penalties ××

Administration cost ××

Selling & Distribution Cost ××

Abnormal loss ××

Cost formula:

1. Specific identification method

2. First in first out method

3. Weighted average method

Change of method of valuation of inventory: only with reasonable cause

Disclosure:

1. Policy for measuring inventories | cost formula

2. Carrying amount of inventories | classification

ICDS III: Construction Contracts

Scope:

1. for determination of income from construction contracts

Contracts for construction of an asset: includes

a. contract rendering services for construction of the asset

b. contract for destruction of an asses | restoration of environment after demolition of asset

2. Classification of contract

a. Fixed price contract

b. Cost plus contract

Calculation of Profit / Loss

Contract Revenue (reasonable certainty under ultimate collection)

+ As per the agreement (including retention) ××

+ Variation in contract work: (result in revenue + reliably measured ) ××

- Penalty ××

A ××

Contract Cost Incurred

+ Specific cost (direct cost) ××

+ Cost attributable to contract ××

+ Specifically chargeable to customer ××

+ Allocated borrowing costs as per ICDS on borrowing cost

- Incidental income (Not interest | dividends | capital gain) ××

- Cost cannot be allocated ××

B ××

Profit / Loss up to the date [A-B] ××

- Profit / Loss of Previous Year ××

Profit / Loss of Current Year ××

Recongnition of Contract Revenue and Expenses

By reference to the stage of completion of the contract at the reporting date

Stage of completion = percentage completion method

Changes in estimates: is used for revenue determination

Disclosure:

Revenue recognised | method used for stage of completion of contract

Income Tax 116

For contracts in progress at the repoting date:

Recognised P/L and cost Advance received Retention amount

ICDS IV: Revenue Recognition

Scope: Applicable if revenue (gross inflow except agency) arises in the course of ordinary activities

1. Sale of goods

2. Rendering of service

3. Using person’s resource: interest | royalty | dividends

Non-applicable: if covered in other ICDS

Sale of Goods: condition for recognition of sales revenue

1. Significant risk and reward of ownership is transferred

2. Seller retains no effective control of the goods transferred

3. Reasonable certainty of ultimate collection

Rendering of services:

1. Revenue recognised by the percentage completion method

2. Profit = Revenue – Cost (to the extent of proportion of work completed)

3. Income recognised under straight line basis: if services are provided by number of indeterminate

4. Contract duration < 90 days: revenue recognised on completion or substantially completed

Interest: recognition of income

1. Time basis | accrual basis | applicable rate

2. Interest on refund of any tax, duty or cess: receipt basis

3. Discount or premium on debt securities: over the period

Royalty: recognise as per the terms of agreement

Dividend: as per the provisions of the Act

Disclosure:

1. Sale not recognised due to lack of reasonable certainty of ultimate collection

2. Revenue from service recognised

3. Method used to determine the stage of completion of service

4. For service transaction:

Recognised P/L and cost Advance received Retention amount

ICDS V: Tangible Fixed Assets:

Scope: treatment of tangible fixed assets

Tangible fixed asset: land, building, plant, machinery & furniture (held for producing goods /

service)

Stand by equipment and servicing equipment – capitalised | Spares – charged to revenue

Components of Actual Cost:

Actual Cost of Acquisition

+ Purchase price ××

+ Import duties / taxes (non-refundable) ××

+ Directly attributable expenses (direct expenses)

- Rebate ××

- Trade discount ××

+/- Price adjustment: Changes in duties & FOREX etc. ××

+ Startup & commission expenses | trial run expenses ××

- Holding & storage cost ××

Self-condtructed tangible fixed assets: Actual Cost + direct cost + allocated cost – income

Non-monetary consideration: [exchange of asset | issue of shares or securities]

Cost = Fair value of asset acquired

Improvements and Repairs: added to actual cost if it increases future economic benefits

Intergral Part – used with existing asset | Separate identity – used separately

Valuation of Tangible Fixed Assets in Special Cases:

Joint holding of assets: propotionately included

Several Assets purchased for consolidated price: apportion the cost to various assets on a fair

ICDS VI: Effects of Changes in Foreign Exchange Rates

Scope – Applicability:

1. Transaction in FOREX [buying | selling | lending | borrowing]

2. Translation (financial statement of foreign branch)

3. Forward exchange contract [agreement to exchange at a future date @ future rate]

Foreign operation: subsidiary | associate | joint venture | foreign branch

Recording

Income Tax 118

1. Initial recognition: Spot rate | weekly or monthly Weighted Average Rate

2. On B/S date

a. Monetary item (AR | AP | Loans): B/S date rate | Exchange difference – P/L A/c

b. Non-monetary item (Fixed Asset): Historical Rate

c. Non-monetary item (Current Asset): rate on date of Fair value or NRV

3. Forward exchange contract:

a. Hedging: premium or discount is amortised over the tenure

b. Trading or speculation: P/L of marked to market on B/S date & P/L on contract are recognised

ICDS VII: Government Grants:

Scope: Applicable: Government Grants: subsidies, cash incentives, duty drawback, etc.. [cash | kind]

Not Applicable:

1. Government assistant having no value

2. Government participation in the ownership of enterprise

Recognition:

Only on reasonable assurance of receipt of grants | fulfillment of conditions attached with it

Should not be postponed beyond the date of actual receipt

Treatment of Government Grants

1. Depreciable assets: WDV of block of asset or Cost – Grants

2. Non-depreciable assets + Conditions: Grant is credited to income proportionately to cost of

meeting conditions

3. Not directly relatable to the asset acquired: WDV of block of asset or Cost – Proportionate Grants

4. Compensation for expenses / losses: recognised as income on receivable

5. Other cases: recognised as income to match with related cost

Grants for non-monetary assets with concessional rate – accounted at acquisition cost

Refund of Government Grants:

1. 1st deferred credit | next debit to P/L A/c

2. For depreciable asset: Add to WDV of the block or Cost

Disclosure:

1. Nature and extent of grants recognised and treatment

2. Grants recognised during the PY

3. Nature and extent of grants NOT recognised and treatment

4. Reason for non recognition of grants

ICDS VIII: Securities

Scope: Deals with securities held as stock in trade

Non-applicability:

1. Recognition of interest and dividends on securities

2. Securities held by insurance company | mutual funds | venture capital fund | Public FI

Securities: includes shares of a company (public are not substantially interest (excludes derivatives)

Recognition and Initial Measurement of Securities:

1. On acquisition: Actual Cost (purchase price + brokerage, fees, taxes etc)

2. Acquisition by exchange of securities or other asset: fair value of acquired

Fair Value = arm’s length price (between willing and knowledgeable buyer and seller)

Pre-acquisition interest: deduct from actual cost (if included)

Subsequent Measurement of Securities: End of PY:

1. Listed shares: WEL of (Cost or NRV) [securities wise]

2. Not listed securities (listed but not quoted): Actual cost on acquisition

ICDS IX: Borrowing Costs

Scope: treatment of borrowing costs

Non-applicability: actual or imputed cost on share capital

Borrowing cost: Interest | commitment charges | discount & premium | finance charge in finance

Recognition: if directly attributable for acquisition, construction or production of qualifying asset

Qualifying asset:

Tangible assets: Land, building, machinery, plant or furniture

Intangible assets: know-how, patents, copyrights, trademarks, licences, franchises etc.

Inventories: requires holding period > 12 months

Borrowing Costs Eligible for Capitalisation

Specific Borrowing:

Other Borrowing:

𝑂𝑡ℎ𝑒𝑟 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔 𝑐𝑜𝑠𝑡 ×0.5(𝑜𝑝𝑒𝑛𝑖𝑛𝑔 𝑞𝑢𝑎𝑙𝑖𝑓𝑦𝑖𝑛𝑔 𝑎𝑠𝑠𝑒𝑡+𝑐𝑙𝑜𝑠𝑖𝑛𝑔 𝑞𝑢𝑎𝑙𝑖𝑓𝑦𝑖𝑛𝑔 𝑎𝑠𝑠𝑒𝑡)

0.5(𝑜𝑝𝑒𝑛𝑖𝑛𝑔 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡+𝑐𝑙𝑜𝑠𝑖𝑛𝑔 𝑡𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡)|𝑒𝑥𝑐𝑙𝑢𝑑𝑖𝑛𝑔 𝑎𝑠𝑠𝑒𝑡 𝑤𝑖𝑡ℎ 𝑠𝑝𝑒𝑐𝑖𝑓𝑖𝑐 𝑏𝑜𝑟𝑟𝑜𝑤𝑖𝑛𝑔

Commencement of Capitalisation:

For specific borrowing: from the date of borrowings

For other borrowing: from the date of utilisation

Cessation of Capitalisation:

Income Tax 120

Except inventory: on put to use

Inventory: substantially all the activities over for intended sale

Disclosure:

1. Accounting policy adopted for borrowing costs

2. Amount capitalised during the PY

ICDS X: Provisions, Contingent Liabilities and Contingent Assets:

Scope: Non-applicable:

Resulting from financial instruments

Resulting from executory contracts

Arising in insurance business from contracts with policy holders and

Covered by other ICDS

Provision: liability which can be estimated

Liability: present obligation from past events

Obligating event: event creating an obligation

Contingent Liability:

a. Possible obligation arise from past events but confirmed from occurrence of future event

b. Not recognised as Not reasonably certain of outflow | No reliable estimate

Contingent Asset: Possible asset arise from past events but confirmed from occurrence of future

Executory Contracts: both parties of the contract not performed or partially performed to equal extent

Present Obligation: obligation with evidence exists on the end of PY

Recognition:

Provisions:

Recognise: present obligation as a result of past event | reasonably certain | reliably

measured

Not recognise:

Contingent Liabilities: Not recognise

Contingent Assets: Recognised only on reasonably certain

Measurement: best estimate [not present value]

Reimbursements: Provision – reimbursement (if reasonably certain)

Review: review at the end of every PY and adjust the provision

Disclosure: for each class of provision

Nature of obligation

Carrying amount

Provision created / reversed during the end of PY

Expected reimbursement during the end of PY

Income Tax - nebula.wsimg.com

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