Income Tax Assignment

Q1. What do you mean by Agricultural Income? What are its kinds? State any
ten incomes which are related to land but not agricultural income.

Meaning:
Agricultural income refers to the revenue or earnings derived from land situated in India
that is used for agricultural purposes. As per Section 10(1) of the Income Tax Act, 1961,
such income is fully exempt from income tax. The reason behind this exemption is that
agriculture is a State subject under the Constitution of India, and hence the Central
Government does not levy income tax on it.

To qualify as agricultural income, the following conditions must be satisfied:

1. The land must be situated in India.
2. The land must be used for agricultural operations.
3. Income must be derived from the cultivation of crops or from rent or revenue of such
land.

1. Kinds of Agricultural Income:

 1. Income from rent or revenue of land used for agricultural purposes – If an owner
receives rent from his agricultural land used for growing crops, it is agricultural income.
 2. Income from agricultural operations – Income earned by performing basic
agricultural activities such as sowing, planting, cultivation, and harvesting of crops is
agricultural income.
 3. Income from farm buildings – Any rent or revenue derived from buildings required
for agricultural operations, such as storage or cattle sheds, is agricultural income.
 4. Income from processing of agricultural produce – If processing is done to make
produce marketable (e.g., cleaning, drying, grading), such income is considered
agricultural.

2. Ten incomes related to land but not agricultural income:

 Income from mining or extraction of minerals from land.

 Rent from land used for non-agricultural activities such as film shooting.
 Income from the manufacture of bricks or tiles on land.
 Rent from land used for poultry or dairy farming.
 Income from sale of timber trees or forest produce not cultivated.
 Rent from land used for storing non-agricultural goods.
 Income from nursery where plants are grown using artificial methods.
 Income from leasing land for commercial buildings.
 Profit from sale of land (capital gain).
 Income from land used for sporting or entertainment events.

Q2. Explain any 15 items in detail which are not included in total income.

Certain incomes are exempt from tax under Section 10 of the Income Tax Act. These
incomes are not included in the computation of total taxable income of an assessee. Below
are 15 such items explained in detail:

1. Agricultural Income (Section 10(1)) – Entire agricultural income earned in India is

exempt.

2. Share of profit from partnership firm (Section 10(2A)) – Since the firm is already taxed,
partner’s share of profit is not taxed again.

3. Receipts from HUF (Section 10(2)) – A member’s share of income from a Hindu
Undivided Family is exempt.

4. Leave Travel Concession (Section 10(5)) – Travel expenses within India reimbursed by
the employer are exempt subject to conditions.

5. Gratuity (Section 10(10)) – Fully exempt for government employees; up to ₹20 lakhs for
others.

6. Commuted Pension (Section 10(10A)) – Pension received in lump sum by government

employees is fully exempt.

7. Leave Encashment (Section 10(10AA)) – Leave salary received at retirement is exempt up

to limits prescribed.

8. Retrenchment Compensation (Section 10(10B)) – Compensation to employees on

retrenchment exempt up to notified limit.

9. House Rent Allowance (Section 10(13A)) – Exemption is available as per rule 2A based on
salary and rent paid.

10. Scholarship (Section 10(16)) – Any educational scholarship received by a student is fully
exempt.

11. Dividend Income (Section 10(34)) – Dividend from domestic companies is exempt up to
₹10 lakh in some cases.

12. Interest on PPF (Section 10(11)) – Interest received on Public Provident Fund account is
exempt.

13. Income of minor child up to ₹1,500 (Section 10(32)) – Limited exemption available for
income clubbed with parent.
14. Voluntary Retirement (Section 10(10C)) – Amount received under VRS exempt up to ₹5
lakh.

15. Income of Charitable Trusts (Section 10(23C)) – Income utilized for charitable or
religious purposes is exempt.

Q3. Discuss the provision of income tax regarding set off and carry forward of
losses.

The Income Tax Act allows an assessee to adjust or carry forward losses to reduce future
tax liabilities. The mechanism is divided into two parts – set-off and carry-forward.

3. A. Set-off of Losses (within the same year):

 1. Intra-head set off (Section 70): Loss from one source can be adjusted against income
from another source under the same head of income.
 2. Inter-head set off (Section 71): After intra-head adjustment, any remaining loss can
be set off against income from another head, except income from salary.

4. B. Carry Forward of Losses (to future years):

1. Business loss (Section 72): Can be carried forward for 8 years and set off only against
business income.

2. Speculative business loss (Section 73): Can be carried forward for 4 years and set off only
against speculative profits.

3. Capital loss (Section 74): Short-term and long-term capital losses can be carried forward
for 8 years.

4. Loss from house property (Section 71B): Carried forward for 8 years and can be set off
only against house property income.

5. Loss from race horses (Section 74A): Carried forward for 4 years and adjusted only
against income from same activity.

Conditions for carry forward of losses:

1. Return of loss must be filed within the due date under Section 139(3).
2. Loss can be carried forward only by the same assessee.
3. Continuity of business is necessary in some cases.
Q4. How is the residence of assessee determined for income tax purpose?
Explain the incidence of residence on taxable liability.

As per Section 6 of the Income Tax Act, the tax liability of an individual depends upon their
residential status in India during the previous year.

5. Residential Status for Individuals:

 1. Resident – If the individual stays in India for 182 days or more during the relevant
year OR stays for 60 days or more during the year and 365 days or more in the
preceding 4 years.
 2. Non-Resident – If none of the above conditions are satisfied.
 3. Resident and Ordinarily Resident (ROR) – Resident for 2 out of 10 preceding years
and has been in India for 730 days or more in preceding 7 years.
 4. Resident but Not Ordinarily Resident (RNOR) – Resident but not fulfilling both
conditions of ROR.

6. Incidence of Tax (Taxable Liability):

 1. Resident and Ordinarily Resident (ROR): Taxed on global income (income earned in
India and abroad).
 2. Resident but Not Ordinarily Resident (RNOR): Taxed only on income received or
accrued in India.
 3. Non-Resident (NR): Taxed only on income received or deemed to be received in India.

Q5. Clubbing of income or deemed income - explain in brief.

Clubbing of income means inclusion of another person's income into the income of the
assessee for computing total taxable income. The main objective is to prevent tax evasion
through transfers to family members or others.

7. Provisions relating to clubbing (Sections 60 to 64):

1. Section 60 – Transfer of income without transfer of asset: Income remains taxable in the
hands of the transferor.

2. Section 61 – Revocable transfer of assets: Income from such asset is clubbed with
transferor’s income.

3. Section 64(1)(ii) – Income of spouse: If spouse receives salary from a firm where assessee
has substantial interest, it is clubbed with assessee.

4. Section 64(1A) – Income of minor child: Clubbed with parent’s income whose total
income is higher.
5. Section 64(1)(iv) – Transfer of asset to spouse without adequate consideration: Income
from such asset is clubbed.

6. Section 64(1)(vi) – Transfer of asset to son's wife: Income is clubbed with transferor.

Q6. What do you mean by G.T.I.? Explain any two deductions related with
payment and two related with income.

Meaning:
Gross Total Income (GTI) is the total income computed under all five heads of income
before making any deductions under Chapter VI-A (Sections 80C to 80U). It represents the
total earnings of an assessee after adjusting for set-off and carry forward of losses.

8. Two deductions related with payment:

 1. Section 80C – Deduction for investments such as LIC premium, Public Provident Fund
(PPF), National Savings Certificate (NSC), and tuition fees. Maximum limit ₹1,50,000.
 2. Section 80G – Deduction for donations to approved charitable institutions, relief
funds, and NGOs. Deduction can be 50% or 100% depending on the institution.

9. Two deductions related with income:

 1. Section 80TTA – Deduction up to ₹10,000 on interest income from savings bank

accounts.
 2. Section 80QQB / 80RRB – Deduction for royalty income received by authors of books
or patent holders.

Conclusion:
The computation of taxable income involves identifying exempt incomes, adjusting losses,
and claiming eligible deductions. Understanding these concepts ensures accurate
calculation of tax liability and lawful tax planning.