Q.1 . A brief history of income tax in India….

In India, the introduction of this tax can be traced back to 1860. It was introduced for
the first time in 1860 by Sir James Wilson in order to meet the losses sustained by the
British Government on account of the Sepoy Mutiny of 1857. In 1918, a new Income
tax Act was passed and again it was replaced by another Act which was passed in
1922. This Act remained in force up to the assessment year 1961-62 with numerous
amendments
The Income Tax Act of 1922 had become very complicated on account of
innumerable amendments. With a view to simplify the tax laws and in a bid to
prevent the evasion of tax, the Government of India referred it to the Law
Commission in 1956. The Law Commission submitted its report in September 1958,
but in the meantime the Government of India had appointed the Direct Taxes
Administration Enquiry Committee to suggest measures to minimize inconveniences
to assess the income and to prevent evasion of tax. This Committee submitted its
report in 1959. In consultation with the Ministry of Law, finally the Income Tax Act,
1961 was passed
The Income Tax Act, 1961 has been brought into force with effect from 1s April
1962 It applies to the whole of India and Sikking (including Jammu and Kashmir
As a matter of fact, the Income Tax Act, 1961, which came into force on 1st
April, 1962, has been amended and re-amended a number of times making the law
very complicated both for the administering authorities and also for the tax-payers.
Q2…Meaning of Income tax :Income tax is an annual tax levied in every assessment
year at the prescribed rates, on every person, in respect of his/her total income for
the relevant previous year .The total income is determined with reference to the
person's residential status and the place of accrual or receipt of income.
Scope of the Income Tax Act :
The Income-tax Act contains provisions for determination of taxable income,
determination of tax liability, procedure for assessment, appeals, penalties and
prosecutions, tax authorities etc. It also lays down the powers and duties of various
income-tax authorities
Advantages of Income Tax :
(i) Income tax is levied according to the principle of ability to pay.
(ii) Incidence of Income Tax is difficult to shift forward and backward. It means that it
is easy to locate the burden of Income Tax.
(iii) Income tax fulfils the canons of equity and justice in the distribution of tax burden
over the people.
(iv) It is a powerful tool for maintaining economic stability with growth,
(v) It satisfies other canons of taxation such as certainty, economy, productivity and
elasticity.
[Link]: According to Section 2(7) of the Income Tax Act, 1961, an assessee
means a person by whom any tax or any other sum of money is payable under this
Act and includes(i) every person who is deemed to be an assessee under any
provision of this Act, or(ii) every person who is deemed to be an assessee in default
under any provision of this Act.
Who is liable to pay income tax:
Every person, whose taxable income for the previous year exceeds the taxable limit is
liable to pay income tax to the Central Government. Income tax liability for a
particular assessment year is computed on the total income of the previous financial
year of an assessee at the rates in force for the respective category of persons during
the previous financial year.
Who is regarded as 'Persons' under the Income-tax Act:
In ordinary sense, the term 'person' means an individual. But the term 'persons' has a
technical meaning under the Income Tax Act. According to Section 2(31), the term
'persons' include the following:
(i) An Individual; (ii) A Hindu Undivided Family (HUF) (ii) A Company (iv) A Firm;
(v) An Association of Persons (AOP) or a Body of Individuals (BOI), whether
incorporated or not; (vi) A Local Authority;
(vii) Every Artificial Juridical Person not falling within any of the preceding sub-clauses
[Link] YEAR: According to Section 3 of the Income Tax Act, "previous year"
means the financial year immediately preceding the assessment year.
The term previous year is very important because it is the income earned during
the particular year which is to be assessed to tax in the next financial year.
ASSESSMENT YEAR [Section 2(9)] : According to Section 2(9),The 'Assessment Year'
means the period of twelve months commencing on the first day of April every year
and ending on 31st March of the next year following the previous year.

BASIS PREVIOUS YEAR ASSESSMENT YEAR

[Link] Defined under section 3 of the Defined under section 2(9) of the
section income tax act income tax act
[Link] Previous year means the Assessment year means the
financial year immediately financial year in which tax is paid
preceding the relevant A.Y
[Link] Previous year may be less or Assessment year always consist of
duration equal to 12 months a period of 12 months
4. Income During the previous year we In assessment year we evaluate
calculation earn and calculate our income and report our income to the text
authorities
[Link] Previous year is important to The assessment year is important
collect data for analyzing data and calculation
of income tax
Q.5. Agricultural income: Section 2(1A) of the Income Tax Act defines agricultural
income as : (a) any rent or revenue derived from land which is situated in India and is
used for agricultural purposes;
(b) any income derived from such land by -(i) agricultural operations; or
(ii) the performance of any process ordinarily employed by a cultivator or receiver of
rent-in-kind to render the produce fit to be taken to the market.
(c) any income derived from any building owned and occupied by the receiver of rent
Examples of Agricultural Income:
(i) Income from use of land for grazing of cattle required for agricultural pursuits.
(ii) Income from lease of land for grazing of cattle required for agricultural pursuits.
(iii) Salary received by a partner or share of profit of a farm engaged inagricultural
operation.
(iv) Interest on capital received by a partner of a farm engaged in agricultural
operation.
(v) Income received from the sale of trees which were replanted and subsequent
operations were carried out.
(vi) Conversion of Timber into planking
(vii) Income from growing flowers and creepers.
Incomes which are treated as Non-agricultural incomes:
(1) Income from sale of trees of spontaneous growth.(2) Income from sale of wild
grass. (3) Income from Sale of ginned cotton. (4) Income from stone quarries.
(5) Income from mining royalties.(6) Income from market.(7) Income from supply of
water for irrigation purposes.(8) Income from fisheries(9) Income from poultry
farming.(10) Income from brick making.
Heads of income [Section 14]:
A. Salaries [Sec. 15 to 17]
B. Income from House Property [Sec. 22 to 27]
C. Profits and Gains of Business or Profession [Sec. 28 to 44D]
D. Capital Gains [Sec. 45 to 55A]
E. Income from Other Sources [Sec. 56 to 59]
Income from House Property' means the income which is derived from the house
[Link] income is derived e income is derived in the form of rent by letting out
the house property.
Essential conditions:Under Section 22 of the Income Tax Act, an assessee is
chargeable to Income-tax on the annual value of the property under the head
'Income from House Property' only when certain conditions are fulfilled. The
conditions to be fulfilled are as follows:
(i) The Property must consist of building or lands appurtenant thereto.
( ii) Ownership of the property must be in the hands of the assessee.
(iii) The house property should not be used by the assessee for his own business or
profession, the profits of which are chargeable to tax.
Meaning of Annual Value: According to Section 23(1), the annual value of a property
shall be deemed to be the sum for which the property might reasonably be expected
to be let out from year to year i.e., the reasonable expected rent of the property.
However, if the property is let out and the actual rent received or receivable is
more than the reasonable expected rent, the rent so received or receivable will be
the annual value of the property.
Gross Annual Value:The annual value of a property determined in the above manner
under section 23(1) and 23(2) of the Income tax Act is called the gross annual value.
The gross annual value of the property may be in respect of:
(A) the house property let out; or
(B) the house property self-occupied by the assessee.
Determination of the Gross Annual Value of a Property (Let Out) :The gross annual
value of a let out house property is, generally, determined after taking into account:
(i) Annual Rent/ Actual Rent: Annual rent of the property is the actual rent received
or receivable for the property during the previous year where the house property is
let out,
(ii) Fair Rent: Fair rent means rent of a similar type of house in the same locality or
similar locality,
(iii) Municipal Value: Municipal Value is the value of the house property that is
calculated by the municipal authorities for imposing municipal taxes, and
(iv) Standard Rent: Standard rent is the rent determined under Rent Control Act. The
property owner cannot charge a rent higher than the standard, rent fixed under Rent
Control Act where this Act is in operation.
First Step:First, the municipal value or fair rent (i.e., rent which a similar property in
the same or similar locality would fetch), whichever is higher, should be taken as the
reasonable expected rent.
However, if standard rent is fixed for the property, then, the reasonable expected
rent, as determined above, or the standard rent, whichever is less, should be taken as
the reasonable expected rent.
Second Step:Secondly, the reasonable expected rent as determined in the first step
or the actual rent received or receivable for the property during the previous year,
whichever is higher, should be taken as the gross annual value of the property.
Tax Benefits on Home Loan :
(a) Tax Deduction on Home Loan Interest: Under section 24 of the Income Tax Act,
1961, any interest paid on home loan can be claimed as a deduction but restricted
upto 2 lakhs for self occupied properties. The interest is sub categorised to pre-
construction period and post-construction period.
(b) Tax Deduction on Principal Repayment: Section 80C provides for deduction on
principal repayment of the home loan upto ₹1,50,000 in every F.Y. till the full
repayment of principal amount.
(c) Additional tax deduction under Section 80EEA: In the Budget 2019, new section
80EEA has been inserted to provide additional tax benefits to the home buyers
having house property upto 45 lakhs on the interest paid on home loan upto 1.5
lakhs. This deduction is over and above the deduction under section 24.
Determination of Net Annual Value of the property:
From the gross annual value, the municipal taxes or property taxes of the house
property paid, if any, by the owner during the year should be deducted. The resulting
balance is called Net Annual Value of the property. Hence, the Net Annual Value
(often called Annual Value) of a house property is its gross annual value minus the
municipal taxes of the house property paid by the owner.
Deduction of Municipal taxes from the gross annual value of the property is
permissible only if the following conditions are satisfied:
(i) The municipal taxes should be borne by the assessee. In case the municipal taxes
are paid by the tenant, they should not be deducted from the gross annual value of
the property.
(ii) The municipal taxes should be actually paid by the owner (i.e., the assessee)
during the previous year
Perquisites (Perks): Extra profit
In simple words, perquisites are the benefits or amenities provided in cash or in kind
in addition to normal salary to which the employee has a right by virtue of his
employment. In other words, perquisites are incidental benefits attached to
employment.
Examples of Perquisites :
(a) Provision of interest-free or concessional loan(b) Provision of holiday tours.
(c) Provision of free meals.(d) Provision of club facilities.(e) Use of employer's
movable assets.(f) Transfer of employer's movable assets.(g) Provision of credit cards,
Gratuity:Gratuity means the lump sum amount received from the employer on
retirement or death in consideration of service rendered by the recipient. Gratuity is
ordinarily taxable as salary. However, the Act provides for certain exemption from
taxes
Amount of exemption in respect of Gratuity:The exemption limits for gratuity
received depends upon the category under which the gratuity has been paid. From
the point of view of the source, the categories are divided into the following:
(a) Gratuity received from Govt. or Local Authorities
(b) Gratuity received under Payment of Gratuity Act, 1972.
(c) Gratuity received by Private Sector employees not covered under the Payment of
Gratuity Act
Solution: Calculation of the taxable amount of gratuity received by Mr. Sumit
Agarwalla from the employer:
Step - I= Completed year of service or part thereof in excess of 6 months = 25 years
Step II = a) (89,000+15,000)=1,04,000 x 15/26 x 25 = 15,00,000
b) = 20,00,000 = 20,00,000
c) Gratuity received = 16,50,000
Exempted Gratuity = 15,00,000
[Being the least of (a), (b) and (c)]
So, the amount of Gratuity taxable (16,50,000-15,00,000)=1,50,000
Calculation of Total Income (TI):In order to calculate Total Income (TI), the following
deductions under Section 80 of Chapter VI of the Income Tax Act are subtracted
from the GTI: (i) 80C: Allows specific investments and expenses to be deducted from
the GTI up to 1.5 lakh. (ii) 80CCD: NPS (National Pension System) contribution up to
50,000 is allowed as deduction. (iii) 80D: Health insurance premiums, up to 60,000,
paid for self and for parents qualify under this section.
(iv) 80TTA: Interest earned from the savings account, up to 10,000, is tax-free.
(v) 80TTB (Applicable for Senior Citizens): Interest earned from the savings account,
Fixed Deposits etc. up to 50,000, is tax-free. (vi) 80E: Interest paid on education loan.
(vii) 80GG: Deduction for Rent paid. This can be claimed by any salaried person who
is not in receipt of any House Rent Allowance from his employer or by a self
employed person. However, they must not own any residential house in their place
of work. (viii) 80DDB: Expenses incurred on specific illnesses are deducted up to
40,000 or 60,000, depending on the age of the patient.(ix) 80U: This gives a fixed
deduction if the assessee has a physical disability. The deduction is the severity of the
disability. 75,000 or 1.25 lakh, depending on (x) 80G: Charitable donations made to
recognised institutes are allowed as deduction.
What are the deductions which are expressly allowed under computation of total
income of business and profession?
(a) Rent: (b) Repairs(c) Land revenue, local rates, or municipal taxes: (d) Insurance
premium: (e) Repairs and insurance of machinery, plant and furniture[Sec. 31] (f)
Expenditure for obtaining licence to operate telecommunication services [Sec. 35abb]
(g) Expenditure on eligible projects or schemes [Sec. 35AC] (h) Capital expenditure
incurred on specified business [Sec. 35AD] (i) CONTRIBUTIONS for carrying out rural
development programme[Sec. 35CCA] (j) Amortisation of certain preliminary
expenses [Sec. 35D]: (K) Depreciation [Section 32] :
Meaning of Cost of Inflation Index (CII):
Cost of Inflation Index (CII) is a measure of inflation index which is used for
computing Long Term Capital Gains (LTCG) on the sale of capital assets as per Section
48 of the Income Tax Act.
CII is announced for each Financial Year but not based on Assessment Year. Hence,
the applicable rate of CII will be for that particular financial year.
Calculation of Indexed cost of acquisition:
The indexed cost of acquisition of the long-term capital asset is to be arrived at as
under:
Cost inflation index for the year of sale of the capital asset
Cost of acquisition of the capital asset X
Cost inflation index of the year in which the capital asset was acquired or the cost
inflation index for 2001-02, whichever is late
The term "Capital gains" means any profits or gains arising from the transfer of a
capital asset or fixed asset. For instance, if a capital asset is transferred, say, sold, for
a price which is higher than its cost of acquisition, the difference between the
transfer price (i.e., sale price) and the cost of acquisition will be the capital gains from
that asset. The provisions relating to taxation of capital gains are covered under
Sections 45 to 55A of the Income Tax Act, 1961.
Procedure for Computation of long-term capital gains (LTCG) :
(a) Full value of consideration received or accruing as a result of the transfer of long-
term capital asset or the fair market value of the long- term capital asset.
Note: In case of sale of house property, if the actual sale consideration is less than
the Stamp Duty Value (SDV) of the property, then Stamp Duty Value (SDV) will be
taken as the sale consideration.
(b) Indexed cost of acquisition of the long-term capital asset.
(c) Indexed cost of improvements to the long-term capital asset.
(d) Expenditure incurred wholly and exclusively in connection with the transfer of
long-term capital asset.

Meaning of Capital Assets (Sec 2(14):

As per section 2(14) of the Income tax Act, 1961; Capital Assets means:
(a) property of any kind held by an assessee, whether or not connected with his
business or profession;
(b) any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under the Securities and
Exchange Board of India Act, 1992 (15 of 1992).
Exclusions from Capital Assets: Under section 2(14) of the Income Tax Act, following
have been specifically excluded from the definition of capital assets:
(i) any stock-in-trade [other than the securities referred to in sub-clause (b)].
consumable stores or raw materials held for the purposes of his business or
profession
(ii) personal effects, that is to say, movable property (including wearing apparel and
furniture) held for personal use by the assessee or any member of his family
dependent on him, but excludes-(a) jewellery, (b) archaeological collections; (c)
drawings, (d) paintings; (e) sculptures; or (f) any work of art. (Tranfer of these
movable assets are taxable under the head Capital Gains)
(iii) agricultural land in India, not being land situate -(a) in any area which is
comprised within the jurisdiction of a municipality (whether known as a municipality,
municipal corporation, notified area committee, town area committee, town
committee, or by any other name) or a cantonment board and which has a
population of not less than ten thousand,
(A) Online mode of e-Filing ITR:
Step 1: Click the link:
[Link] or [Link]
You will be taken to e-Filing portal 2.0 (New Income Tax Portal)
Step 2: Click 'Register button located at right side of the Home Page, if not regis-
tered earlier and then register and log-in.
If already registered, click 'Login' button located at right side of the Home Page.
Once logged-in, a page with PAN will appear as under:
Secure Access Message
Please confirm your secure access message
Enter your Password Then click
Continue
Continue
Step 3: Select Assessment Year as 2021-22 and click Continue.
Step 4: Choose if you want to file ITR as an Individual, HUF or others. Choose the
applicable one.
Step 5: Select mode of filing as Online and click Proceed.
Step 6: Select Status as applicable to you and click Continue to proceed further.
Step7: Choose the ITR you are eligible to file. There are different conditions attached
to the ITR one can file
Step 8: Next, you will be asked the reason for filing ITR-income above the basic
exempted limit or because of the seventh provision under Section 139(1). Under this
Section if a person has deposited an aggregate amount of more than 1 crore in one
or more current accounts during the year, incurred more than 2 lakh on a foreign trip
or paid more than 1 lakh electricity bill, he or she is liable to file ITR. You are required
to select the right option.
Step 9: You will be asked to fill in all the details related to the bank account in which
you want to get the refunds, if you have not done it already. You will need to pre-
validate your bank account if you have not done so already.
Step 10: Once you have selected the ITR applicable to you, note the list of documents
needed and click Let's Get Started.
Step 11: Select the checkboxes applicable to you and click Continue.
Step 12: Review your pre-filled data and edit, if necessary. Enter the remaining/addi-
tional data (if required). Click Confirm at the end of each section.
Step 13: View/Download 26AS. Steps are as follows -e-file>Income Tax Return>View
Form 26AS>Confirm the Disclaimer Agree the 'Attention Tax Payers' and
Proceed>Click on 'View Tax Credit (form26AS)'>Select A. Y. and View As
'HTML'>View/Download>Export as PDF.
Meaning of Business: According to Section 2(13) of the Income-tax Act, the term
'Business' means any trade, commerce or manufacture or any adventure 15 or
concern in the nature of trade, commerce or manufacture. In simple language,
business means any economic activity carried on with the objective of making profits.
Meaning of Profession: Profession is an occupation for earning a livelihood or for
gains, requiring either purely intellectual skill or manual skill controlled by intellectual
skill. In other words, profession refers to all such human activities which require
intellectual skill and technical expertise. Activities of chartered accountants, lawyers,
doctors, architects, engineers, tax consultants, etc. are some of the examples of
profession.
Basis Business Profession
[Link] business means any economic profession refers to all such human
activity carried on with the activities which require intellectual
objective of making profits skill and technical expertise
[Link] earning profits Earning income in the form of
salary
[Link] No minimum requirements Prescribed qualification and
training
[Link] high little
[Link] of possible Not possible
interest
6. reward profit fees
[Link] Profit earning is the motive Service of society and earning of
income or fees is the motive

7. a) Discuss the various types of Deemed Income as per the Income Tax Act.
b) What are the conditions for intra-head and inter head set off of losses?
Deemed Income Types as per Income Tax:
[Link] Dividend: This is income treated as dividends even if not officially declared
as such by a company. It applies to certain shareholder benefits, loans, or advances
extended by a closely-held company to its shareholders.
[Link] Rental Income: If an individual owns a property that is not rented out but
has the potential to be leased, the income that could have been earned from such
property is considered as deemed rental income.
[Link] Gift: In cases where a person receives a gift or asset for less than its fair
market value or without consideration, the difference between the fair market value
and the actual consideration can be considered as deemed income.
[Link] Capital Gains: Certain transactions, like transferring assets for an amount
less than their fair market value, might trigger the application of deemed capital
gains, leading to taxation based on the market value.
[Link] Income from Undisclosed Sources: Income derived from sources not
disclosed by the taxpayer might be deemed as income and taxed accordingly under
the Income Tax Act.
Conditions for Intra-head and Inter-head Set Off of Losses:
Intra-head Set Off of Losses:
Conditions: Losses incurred under a particular head of income (like business or house
property) can be set off against income earned under the same head in the same
assessment [Link]: Business losses can be set off against business income
within the same financial year.
Inter-head Set Off of Losses:
Conditions: Losses from one head of income can be set off against income from
another head of income within the same assessment year.

Q..Intra-head set off refers to the process where a debtor's obligations to a

creditor are reduced by the amount owed by the creditor to the same debtor within
the same account or accounts held by the same person or entity.
Exceptions to intra-head set off can occur due to various reasons:
[Link] Nature of Losses: Losses from different activities within the same head
of income might not be allowed for set off if they are of a dissimilar nature (e.g.,
speculative losses vs. non-speculative losses).
[Link] Forward Restrictions: Some jurisdictions limit the carry forward of losses
within the same head of income to a certain number of years or impose restrictions
on the amount that can be carried forward.
[Link] Expenditure Restrictions: Certain expenses or losses might not be eligible
for set off within the same head due to specific regulations or limitations.
[Link] of Certain Incomes: Income earned from exempt sources within the
same head may not be eligible for set off against other taxable incomes within that
head.
[Link] or Amortization Rules: Depreciation or amortization expenses might
have restrictions on their set off against other income within the same head due to
specific rules governing these deductions.
[Link] under Special Provisions: Specific losses covered under special provisions or
regulations might have limitations on their set off against other incomes within the
same head.
[Link] from Tax-Exempt Investments: Income from certain tax-exempt
investments within the same head might not be allowed to offset other taxable
incomes within that head.
[Link] Losses and Gains: Capital losses might have limitations or restrictions on
their set off against other capital gains within the same head due to capital gains tax
regulations.