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Account holder name: Singar Educational and Charitable Trust
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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
Income from Salaries 3
(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
1 Yes
Income from Salaries 5
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}
1 (a)
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
{CA inter N05, 4 marks}
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]
Income from Salaries 7
(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
ship.
(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
{CMA inter J14, 1 mark}
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’?
{CMA inter D09, 2 marks}
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
Net Income Range Income - Tax rates
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%
Net Income Range Income - Tax rates
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]
Net Income Range Income - Tax rates
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
Income from House Property 11
(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
0
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:
Mr. A
(age 45)
Mr. B
(age 62)
Mr. C
(age 81)
Mr. D
(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
Income from House Property 13
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:
Mr. A
(age 45)
Mr. B
(age 62)
Mr. C
(age 81)
Mr. D
(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
Nil
Tax on LTCA u/s 112 112A
Exempt
CG ≤ 1 lakh
Exempt
Being rural
Agri land
Nil
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
Net Income Range Income - Tax rates
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.
30%
115BBE Unexplained money, investments, etc… [u/s 68, 69A, 69B, 69C and 69D]
plus Surcharge 25% + Health and Education cess 4%
60%
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.
Note:
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,
1958)
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
Profits and Gains from Business or Profession 17
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
{CA inter N06, 2 marks}
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
{CA inter M05, 6 marks}
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
business or profession
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
Profits and Gains from Business or Profession 19
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
India
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
{CA inter N05, 4 marks}
(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
India
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;
or
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.
{RTP}
Profits and Gains from Business or Profession 21
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-
2021:
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.
{CMA inter D13, 6 marks}
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
Income from Other Sources 27
(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
{CMA inter J14, 3 marks}
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
{CMA inter D13, 6 marks}
State taxability: Salary received by ambassador of Russia who is posted in New Delhi.2
{CMA inter D13, 6 marks}
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
{CMA inter J15, 1 mark}
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
{CMA inter J14, 1 mark}
Question: Amount received from superannuation fund on resignation before specified age is exempt
from income tax. Comment5
{CMA inter D09, 2 marks}
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
{CA inter N08, 2 marks}
Decide the taxability: Educational scholarship of ₹10,000 received from a charitable trust by a college
student.2
{CMA inter J13, 1 mark}
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
{CMA inter J12, 2 marks}
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
{CMA inter J13, 1 mark}
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)].
Income from Other Sources 29
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.
{CA inter N10, 4 marks}
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
{CMA inter J12, 4 marks}
State the taxability: Co-operatives formed for promoting the interest of scheduled tribes.2
{CMA inter J13, 1 mark}
Section 10(48): The exemption in respect of income received by certain foreign companies from sale of
crude oil.
{CA inter N13, 4 marks}
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
{CMA inter D13, 1 mark}
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?
{CMA inter D13, 5 marks}
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
S N
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
S N
Total profit derived from Units S & N 13 4
Less: Exemption under section 10AA1 12
1 4
Less: Brought Forward Business Loss 2
1 2
1 𝑃𝑟𝑜𝑓𝑖𝑡 𝑜𝑓 𝑈𝑛𝑖𝑡 𝑆 ×
𝐸𝑥𝑝𝑜𝑟𝑡 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑆
𝑇𝑜𝑡𝑎𝑙 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑜𝑓 𝑢𝑛𝑖𝑡 𝑆= 13 ×
120
130
Income from Other Sources 31
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
12
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
Income from Other Sources 33
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
Note:
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.
Note:
• 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.
{CA inter M07, 4 marks}
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}
Income from Other Sources 35
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
{CA inter M08, 2 marks}
Question: State the exception to the applicability of clubbing provisions even in the case of revocable
transfers.2
{CMA inter J14, 3 marks}
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
{CMA inter D10, 5 marks}
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
{CMA inter D14, 4 marks}
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
×××
{CMA inter J14, 4 marks}
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
{CA inter M06, 2 marks}
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?
{CMA inter J09, 11 marks}
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.
{CMA inter J11, 6 marks}
1 Taxable in the hands of Mr.Y is ₹1,10,000. Clubbing is not applicable as the minor is physically disabled
Income from Other Sources 37
Answer:
Particular Rajiv’s
Capital
Contribution
Capital
contribution
out of gift
from wife
Total
(₹)
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.
{CMA inter D12, 5 marks}
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
{CMA inter D08, 7 marks}
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.
Income from Other Sources 39
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.
{CA inter M12, 8 marks}
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)
Note
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
Income from Other Sources 41
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
Note:
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.
{CMA inter D12, 1 mark}
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)
Income from Other Sources 43
(c) Any long-term capital gain only (d) Any income under other heads of income
{CMA inter D13, 1 mark}
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
{CMA inter D14, 3 marks}
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
{CMA inter J16, 5 marks}
Question: Ameet furnishes the following particulars of income / loss pertaining to previous year 2020-
21:
(₹ 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.
{CMA inter D13, 5 marks}
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
{CMA inter D09, 5 marks}
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
Total Income 4,60,000
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
Income from Other Sources 45
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.
{CMA inter J10, 7 marks}
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
Intra
head
Inter
head
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)
Income from Other Sources 47
(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
0
Total Income 0
Income from Other Sources 49
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
{CMA inter D13, 1 mark}
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.
Income from Other Sources 51
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.
{CMA inter J10, 7 marks}
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
Nil
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
{CMA inter D13, 3 marks}
Income from Other Sources 53
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
Income from Other Sources 55
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.
{CMA inter D12, 4 marks}
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
not
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
Income from Other Sources 57
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
{CA inter M15, 4 marks}
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
Note:
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
{CMA inter J09, 6 marks}
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,
{CMA inter J14, 4 marks}
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.
Income from Other Sources 59
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
{CMA inter D14, 5 marks}
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
1. Eligible Assessee: Individual
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
Income from Other Sources 61
Section 80EEB: Deduction for interest on loan for purchase of electric vehicle
1. Eligible Assessee: Individual
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
NBFC
Deposit
taking NBFC
Public sector
bank
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)
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% ×
11
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%
No
ceil
ing
National / Central Govt.
PM / CM / Natural Calamity
Africa / Approved university
Zila Saksharta Samiti
State Govt Medical Relief
Nehru / Indira / Rajiv
PM drought
Cei
lin
g
10%
adj
ust
ed
GT
I
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)
Income from Other Sources 63
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)
Income from Other Sources 65
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
Total Income 5,12,500
#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
{CA inter M07, 6 marks}
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.
{CMA inter J14, 3 marks}
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
Gross Total Income 3,20,000
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
Total Income 2,08,000
W.N.
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.
Income from Other Sources 67
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
{CA inter M03, 6 marks}
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
{CMA inter J10, 2 marks}
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.
{CMA inter J14, 3 marks}
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
Income from Other Sources 69
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
etc.
×××
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
{CA inter M07, 6 marks}
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.
{CMA inter J14, 4 marks}
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
Income from Other Sources 71
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
Note:
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
Income from Other Sources 73
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.
Note:
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
{CMA inter J14, 1 Mark}
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 from Other Sources 75
income is ₹5.2 lacs)? Will your answer be different if he opts for presumptive taxation? He has no other
income.1
{CMA inter J15, 3 Mark}
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
Due
Date
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
2,000
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
rate
(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
PAN)
(1) TDS applicable only if it is taxable in
hands of employee.
(2) No TDS if amount less than ₹50,000
Income from Other Sources 77
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
P.Y.
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
work)
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
194C.
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
Or NR
Entertainer
(who is not a
citizen of India)
20%
+ cess
+ SC
Payment for
a. Participation in any game in India i.e.
IPL
b. Advertisement
c. Contribution of any article in
newspaper etc.
d. Performance in India.
Income from Other Sources 79
or NR Sports
Association
194EE Payment of
deposit under
NSC
10% ≥ ₹2,500 in a FY
194F Repurchase of
Units
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
P.Y.
Any Resident
person
a) P&M - 2%
b) Land,
Building &
Furniture –
10%
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
rent.
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
land)
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
194I)
Any
Resident
Person
5%
[20% if no
pan]
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)
Any
Resident
Person
10%
[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
gains
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
NR or
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
Income from Other Sources 81
If no ROI for 3 years [2%
₹20 lakhs to
1 crore] & 5% > ₹1
core]
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
co.
Any person NR or
foreign co.
a) DTAA rate
or
b) Rate in
force
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,
194E
Note:
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
Income from Other Sources 83
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.
Sl.
No
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
Income from Other Sources 85
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
to
13.05.2020
From
14.05.2020
to
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)
Income from Other Sources 87
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
tax.
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
2) 1%
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
Income from Other Sources 89
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
business or profession
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
Income from Other Sources 91
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
Income from Other Sources 93
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
1 HUF
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
Income from Other Sources 95
Section 171: Assessment after partition of a Hindu Undivided Family:
1. Inquiry by AO: upon partion
2.
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
{CA inter M07, 2 marks}
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.
{RTP}
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
Note:
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)
Income from Other Sources 97
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
{CMA inter J10, 5 marks}
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.
{CMA inter J19, 6 marks}
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
Income from letting of godown for storage of commodities 20,000
Gross Total Income 3,30,000
- Deduction u/s 80P
Income from letting of godown for storage of commodities 20,000
Income from other specified activity (consumer co-op) 1,00,000
Total Income 2,10,000
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 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 (Exempt u/s 10(34)) Nil
Income from processing of agricultural produce of its member with aid of power 50,000
Gross Total Income 1,23,000
- Deduction u/s 80P
Income from collective disposal of labour 25,000
Income from marketing of the agricultural produce grown by its member 30,000
Dividend from another co-operative society 15,000
Income from activity other than specified activity 50,000
Total Income 3,000
Income from Other Sources 99
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
Total Income 5,82,400
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
Income from other sources
Income from Other Sources 101
- 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
Computation of total income of A & Mrs. B AY 2020-21
Particulars A Ltd Mrs. B
Share of AOP income (exempt) Nil Nil
Income from other sources
- 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
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%
Computation of total income of A & Mrs. B AY 2020-21
Particulars A Mrs. B
Share of AOP income (exempt) Nil Nil
Income from other sources
- 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
Income from AOP 5,82,400
Tax payable on above @ 42.744% 2,48,940
Income from Other Sources 103
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)
{CMA inter D13, 2 marks}
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
{CMA inter D13, 1 mark}
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.
{CMA inter D14, 5 marks}
Answer: Computation of AMT for India Makes LLP for the A.Y. 2020-21.
Particulars ₹
Total Income 60,00,000
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
NIL
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
Income from Other Sources 105
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-
21.
{CMA inter J16, 6 marks}
Answer:
Particulars ₹
Total income 10,40,000
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.
{CMA inter D14, 7 marks}
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
Total income 7,50,000
A Regular income tax [(5 lakhs – 2.5 lakhs) × 5%] + [(7.5 lakhs – 5 lakhs) ×
20%]
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.
Income from Other Sources 107
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.
{CMA inter J18, 10 marks}
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
Gross Total Income 56,34,000
Less Deduction under section 80-IC (100% PGBP) 50,10,000
Total Income 6,24,000
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
Income from Other Sources 109
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
DD
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
made
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
Income from Other Sources 111
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
10(23C): Institution | Fund | Trust | University | Educational Institution Hospital | Medical
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)
Income from Other Sources 113
15. INCOME COMPUTATION AND DISCLOSURE STANDARDS
ICDS
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
(NRV)
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
Income from Other Sources 115
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
from
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
acts
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
Income from Other Sources 117
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
basis
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
Income from Other Sources 119
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
lease
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
event
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