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BEFORE WE BEGIN …

Direct Tax Laws and International Taxation: Dynamic Subject Area

Direct Tax Laws and International Taxation is one of the dynamic subjects of the chartered
accountancy course. The direct tax laws of the country undergo significant changes every year with
the passing of the annual Finance Act. Apart from these significant amendments ushered in every
year through the Finance Act, notifications and circulars are also issued from time to time by the
Central Board of Direct Taxes (CBDT), the statutory authority in charge with the administration of
direct taxes, to implement the provisions of the Act and clarify issues regarding the meaning and
scope of certain provisions. Further, decisions are pronounced by various Courts interpreting the
provisions of tax laws.
With increased cross border transactions and the whole world virtually becoming one market, there
is a need for chartered accountants to enhance their knowledge base in international taxation.
Countries across the globe are entering into tax treaties to avoid double taxation of a single
transaction. In a highly advanced IT enabled business scenario where an entity operates from many
establishments spread throughout the globe, chartered accountants have to be well versed with the
nuances of international taxation to be able to give an informed and correct advice and ensure
compliance with tax laws. Accordingly, international taxation has been included as an integral part
of this paper.

The contents of the syllabi of this paper is divided into three parts –
1. Chapters based on substantive law of direct taxes including tax planning and tax avoidance;
2. Chapters based on the compliance and procedural law of direct taxes; and

3. Chapters based on international taxation.

The relevant Finance Act and Assessment Year

This Study Material is based on the provisions of direct tax laws, as amended by the Finance Act,
2023 and the significant notifications, circulars issued and other legislative amendments made upto
31st July, 2023. The computational problems have been solved on the basis of the provisions of
direct tax laws applicable for A.Y.2024-25. The Study Material is, therefore, relevant for May 2024
and November, 2024 examinations. In this Study Material, the amendments made by the Finance
Act, 2023 and latest notifications and circulars issued have been indicated in italics/bold italics.

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The significant circulars and notifications issued and other legislative amendments, if any, made
thereafter upto 31st October, 2023, relevant for May, 2024 Examination, would be webhosted as
Statutory Update for May, 2024 examination in the BoS Knowledge Portal. Likewise, the significant
circulars and notifications issued and other legislative amendments, if any, made thereafter upto 30 th
April, 2024, relevant for November, 2024 Examination, would be webhosted as Statutory Update for
November, 2024 examination. The Judicial Update containing latest significant court rulings relevant
for May, 2024 and November, 2024 examination, not covered in this Study Material, would also be
webhosted at the BOS Knowledge Portal.
Read the Bare Act & Rules along with Study Material

At the Final level, along with the Study Material, students are also advised to read the Income-tax
Act, 1961 and Income-tax Rules, 1962, available at the website of the income-tax department
[Link]. This will help understand the language of law and sequence of sections
and rules. The circulars and notifications issued by CBDT, the income-tax return forms, important
provisions relating to firms, companies, trusts, FAQs etc. are also available at this website. Students
are advised to visit the income-tax department’s website and enhance their knowledge.
Framework of Chapters: Uniform Structure comprising of specific components

Efforts have been made to present the complex direct tax laws in a lucid manner. Care has been
taken to present the chapters in a logical sequence to facilitate easy understanding by the students.
The Study Material has been divided into four modules for ease of handling by students. The first
three modules are on direct tax laws and the fourth module is on international taxation.
Use of gamification will make learning more interesting. In order to make learning of direct tax laws
more engaging and enjoyable, Crossword puzzles have been included at the end of each Module,
which you have to solve after reading the Chapters in the Module. Answers to the Crossword puzzles
are webhosted at the BoS Knowledge Portal.
Each chapter of the Study Material has been structured uniformly and comprises of the following
components:
Components of About the component
each Chapter
1 Learning Learning outcomes which you need to demonstrate after learning each
Outcomes topic have been detailed in the first page of each chapter. Demonstration
of these learning outcomes would help you achieve the desired level of
technical competence
2 Content The concepts and provisions of direct tax laws and international taxation
are explained in a student-friendly manner with the aid of

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examples/illustrations/diagrams/flow charts. Diagrams and Flow charts

would help you understand and retain the concept/ provision learnt in a
better manner. Examples and illustrations would help you understand
the application of concepts/provisions. These value additions would,
thus, help you develop conceptual clarity and get a good grasp of the
topic.
3 Significant The summary of recent significant select Supreme Court and High Court
Select Cases rulings have been tabulated at the end of each chapter capturing the gist
of the Court decisions interpreting the provisions of tax laws.
In addition, case laws (including recent case laws) also form part of the
discussion of topics in the content as well as in the questions and
answers in “Test Your Knowledge” component.
Questions on “Significant Select Cases” in direct tax laws have been
given at the end of Module 3 to enable you to apply the rationale of court
rulings in addressing issues.
4 Test Your The questions and answers at the end of each chapter would help you to
Knowledge analyse the provisions of direct tax laws and international taxation and
apply the same in problem solving, thus, sharpening your application
skills. In effect, these questions would test your ability to analyse and
apply the concepts/provisions learnt in solving problems and addressing
issues.

We hope that these student-friendly features in the Study Material improves your learning curve and
sharpens your analytical and interpretational skills.

Happy Reading and Best Wishes!

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PAPER – 4 : DIRECT TAX LAWS AND INTERNATIONAL TAXATION

(One paper ─ Three hours –100 Marks)

Objective:

(a) To acquire the ability to analyse and interpret the provisions of direct tax laws and recommend
optimal solutions to practical problems in a tax efficient manner; and

(b) To apply the provisions of direct tax laws and the concepts, principles and provisions of
international taxation to recommend solutions to issues involved in cross border transactions.
Contents:

1. (i) Comprehensive computation of income-tax liabilities of companies and other entities

under the alternative tax regimes under the Income-tax Act, 1961 to optimise tax
liability

- General provisions under the Act for computation of total income and tax liability
for companies and other entities

- Special tax regimes under the Act for companies and other entities

- Optimisation of tax liability of companies and other entities through tax planning

(ii) Special Provisions relating to charitable and religious trust and institutions, political
parties and electoral trusts, business trusts, securitisation trusts, investment funds and
other funds/trusts

(iii) Anti-avoidance provisions under the Act

(iv) Provisions to address tax challenges on digitalization

2. Tax Administration and Appellate Mechanism

Deduction, Collection and Recovery of Tax

Income-tax Authorities

Assessment Procedures

Appeals and Revision; and Dispute Resolution

Provisions to counteract unethical tax practices

- Taxation of undisclosed income under the Income-tax Act, 1961

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- Taxation of undisclosed foreign income and assets

- Penalties and offences and prosecution

Miscellaneous Provisions

Tax Audit

3. International Taxation

(i) Taxation of cross border transactions and Non-resident taxation under the Income-tax
Act, 1961, including

- Transfer Pricing

- Non-resident Taxation

- Double Taxation Relief

- Advance Ruling

(ii) Other Aspects of International Taxation, namely,

- Significant articles of OECD and UN Model Tax Conventions

- Fundamentals of BEPS

- Application and Interpretation of Tax Treaties

- Latest developments in international taxation

Note: If any new legislation(s) are enacted in place of an existing legislation(s), the syllabus will
accordingly include the corresponding provisions of such new legislation(s) in the place of the
existing legislation(s) with effect from the date to be notified by the Institute. Similarly, if any existing
legislation(s) on direct tax laws ceases to be in force, the syllabus will accordingly exclude such
legislation(s) with effect from the date to be notified by the Institute.

Further, the specific inclusions/exclusions in any topic covered in the syllabus will be effected by
way of Study Guidelines every year, if required. Specific inclusions/exclusions in a topic may also
arise due to additions/deletions made every year by the Annual Finance Act.

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CONTENTS

MODULE – 1
Chapter 1 : Basic Concepts
Chapter 2 : Incomes which do not form part of Total Income
Chapter 3 : Profits and Gains of Business or Profession
Chapter 4 : Capital Gains
Chapter 5 : Income from Other Sources
Chapter 6 : Income of Other Persons included in assessee’s Total Income
Chapter 7 : Aggregation of income, set-off or carry forward of Losses
Chapter 8 : Deductions from Gross Total Income

MODULE – 2
Chapter 9 : Assessment of Various Entities
Chapter 10: Assessment of Trusts and Institutions, Political Parties and Other Special Entities
Chapter 11 : Tax Planning, Tax Avoidance & Tax Evasion
Chapter 12 : Taxation of Digital Transactions
MODULE – 3
Chapter 13 : Deduction, Collection and Recovery of tax
Chapter 14 : Income-tax Authorities
Chapter 15 : Assessment Procedure
Chapter 16 : Appeals and Revision
Chapter 17 : Dispute Resolution
Chapter 18 : Miscellaneous Provisions
Chapter 19 : Provisions to Counteract Unethical Tax Practices
Chapter 20 : Tax Audit and Ethical Compliances

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MODULE – 4
Chapter 21 : Non-resident Taxation
Chapter 22 : Double Taxation Relief
Chapter 23 : Advance Rulings

Chapter 24 : Transfer Pricing

Chapter 25 : Fundamentals of BEPS
Chapter 26 : Application and Interpretation of Tax Treaties
Chapter 27 : Overview of Model Tax Conventions
Chapter 28 : Latest Developments in International Taxation

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DETAILED CONTENTS: MODULE - 1

CHAPTER 1 – BASIC CONCEPTS

Learning Outcomes ............................................................................................................................ 1.1

Contents:
1.1 Overview of Income-tax law in India ....................................................................................... 1.2
1.2 Important definitions ............................................................................................................. 1.11

1.3 Previous year and Assessment year .................................................................................... 1.30

1.4 Charge of Income-tax ........................................................................................................... 1.36
1.5 Rates of Tax, Surcharge & Cess ......................................................................................... 1.36

1.6 Rebate for resident individuals [Section 87A] ....................................................................... 1.61

Significant Select Cases ....................................................................................................... 1.64
Test Your Knowledge ............................................................................................................ 1.65

CHAPTER 2 - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Learning Outcomes................................................................................................................. 2.1

Contents:

2.1 Introduction ................................................................................................................. 2.2

2.2 Incomes not included in total income [Section 10] ......................................................... 2.5
2.3 Restrictions on allowability of expenditure [Section 14A] ............................................. 2.40
Significant Select Cases ....................................................................................................... 2.42
Test Your Knowledge ............................................................................................................ 2.43

CHAPTER 3 – PROFITS AND GAINS OF BUSINESS OR PROFESSION

Learning Outcomes................................................................................................................. 3.1

Contents:
3.1 Meaning of ‘Business’ and ‘Profession’ ........................................................................ 3.3

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3.2 Income chargeable under this head [Section 28] ........................................................... 3.5
3.3 Speculation business ................................................................................................... 3.9

3.4 Method of Accounting ............................................................................................... 3.11

3.5 Computation of Profits and Gains from business

or profession [Section 29] .......................................................................................... 3.26
3.6 Admissible deductions ............................................................................................... 3.27
3.7 Inadmissible deductions [Section 40] ........................................................................ 3.132

3.8 Expenses or payments not deductible

in certain circumstances [Section 40A] ..................................................................... 3.144
3.9 Profits chargeable to tax [Section 41] ....................................................................... 3.151
3.10 Other provisions ...................................................................................................... 3.153
3.11 Compulsory maintenance of accounts [Section 44AA] ............................................... 3.166
3.12 Audit of accounts of certain persons
carrying on business or profession [Section 44AB].................................................... 3.170

3.13 Special provisions for computing profits and gains

of business on presumptive basis [Section 44AD/44ADA/44AE] ................................ 3.174
3.14 Method of computing deduction in the case of business
re-organization of Co-operative Banks [Section 44DB] .............................................. 3.181
3.15 Computation of business income in cases where income
is partly agricultural and partly business in nature ..................................................... 3.186

Significant Select Cases ..................................................................................................... 3.190

Test Your Knowledge .......................................................................................................... 3.199

CHAPTER 4- CAPITAL GAINS

Learning Outcomes................................................................................................................. 4.1

Contents:
4.1 Introduction ................................................................................................................. 4.2

4.2 Capital Asset ............................................................................................................... 4.2

4.3 Short-term and long-term capital assets ....................................................................... 4.7

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4.4 Transfer: What its means? [Section 2(47)] .................................................................. 4.14

4.5 Scope and year of chargeability [Section 45] .............................................................. 4.15

4.6 Capital gains on distribution of assets by companies in liquidation [Section 46] ........... 4.33
4.7 Capital gains on buyback of shares or other securities [Section 46A] .......................... 4.34
4.8 Important definitions .................................................................................................. 4.35

4.9 Transactions not regarded as transfer [Section 47] ..................................................... 4.39

4.10 Withdrawal of exemption in certain cases ................................................................... 4.58
4.11 Mode of computation of capital gains [Section 48] ...................................................... 4.59

4.12 Ascertainment of cost in specified circumstances [Section 49] .................................... 4.63

4.13 Cost of acquisition [Section 55(2)] .............................................................................. 4.75
4.14 Cost of improvement [Section 55(1)]........................................................................... 4.87
4.15 Computation of capital gains in case of depreciable assets [Sections 50 & 50A] .......... 4.90
4.16 Computation of capital gains in case of market linked debentures [Section 50AA] ....... 4.93
4.17 Capital gains in respect of slump sale [Section 50B] ................................................... 4.94
4.18 Deemed full value of consideration for computing capital
gains [Section 50C, 50CA & 50D] ............................................................................. 4.101
4.19 Advance money received [Section 51] ...................................................................... 4.105
4.20 Exemption of capital gains ....................................................................................... 4.108
4.21 Reference to Valuation Officer [Section 55A] ............................................................ 4.127

4.22 Tax on short term capital gains in respect of equity

share/units of an equity oriented fund /unit of a business Trust [Section 111A] ......... 4.127
4.23 Tax on long term capital gains [Section 112] ............................................................. 4.128
4.24 Tax on long term capital gains on certain assets [Section 112A] ............................... 4.130
4.25 Surplus on sale of shares and securities - whether taxable as capital gains
or business income? [Circular No. 06/2016, dated 29-2-2016] ................................... 4.139
Significant Select Cases ..................................................................................................... 4.142
Test Your Knowledge .......................................................................................................... 4.149

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CHAPTER 5-INCOME FROM OTHER SOURCES

Learning Outcomes................................................................................................................. 5.1

Contents:

5.1 Introduction ................................................................................................................. 5.2

5.2 Method of Accounting [Section 145] ............................................................................. 5.2

5.3 Incomes chargeable under this head [Section 56] ......................................................... 5.2

5.4 Applicable rate of tax in respect of casual income [Section 115BB] ............................. 5.56

5.5 Applicable rate of tax in respect of winning from online games [Section 115BBJ] ......... 5.56

5.6 Deductions allowable [Section 57] .............................................................................. 5.57

5.7 Deductions not allowable [Section 58] ........................................................................ 5.59

5.8 Deemed income chargeable to tax [Section 59] .......................................................... 5.61

Significant Select Cases ....................................................................................................... 5.62

Test Your Knowledge ............................................................................................................ 5.66

CHAPTER 6 - INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME

Learning Outcomes................................................................................................................. 6.1

Contents:
6.1 Clubbing of Income - An introduction ........................................................................... 6.3
6.2 Income of other persons includible in assessee’s total income ..................................... 6.3
6.3 Income of other persons includible in an individual’s total income ................................. 6.4
6.4 Cross transfers .......................................................................................................... 6.13

6.5 Conversion of self-acquired property into the property of a HUF[Section 64(2)] ........... 6.14
6.6 Income includes loss .................................................................................................. 6.15
6.7 Distinction between section 61 and section 64 ............................................................ 6.15

6.8 Liability of person in respect of income included in the income of another person ........ 6.15
Test Your Knowledge ............................................................................................................ 6.17

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CHAPTER 7 - AGGREGATION OF INCOME, SET OFF OR CARRY FORWARD OF LOSSES

Learning Outcomes................................................................................................................. 7.1

Contents:
7.1 Aggregation of Income ................................................................................................. 7.3
7.2 Concept of set-off and carry forward of losses .............................................................. 7.4
7.3 Inter-source adjustments [Section 70]........................................................................... 7.4
7.4 Inter-head adjustments [Section 71] ............................................................................. 7.5
7.5 Carry forward and set off of loss from house property [Section 71B] .............................. 7.6
7.6 Carry forward and set-off of business losses [Section 72] ............................................. 7.9

7.7 Carry forward and set-off of accumulated business losses

and unabsorbed depreciation in certain cases of amalgamation/
demerger, etc. [Section 72A] ...................................................................................... 7.12

7.8 Carry forward and set off of accumulated business losses

and unabsorbed depreciation in a scheme of amalgamation
in certain cases [Section 72AA] .................................................................................. 7.16
7.9 Carry forward and set off of accumulated loss and unabsorbed
depreciation in business reorganisation of Co-operative Banks [Section 72AB] ........... 7.18
7.10 Losses in speculation business [Section 73] ............................................................... 7.20
7.11 Carry forward & set-off of losses by specified businesses [Section 73A] ...................... 7.22
7.12 Losses under head ‘Capital Gains’ [Section 74] .......................................................... 7.23
7.13 Losses from the activity of owning and maintaining race horses [Section 74A(3)] ........ 7.24
7.14 Carry forward and set-off of losses in case of change in
constitution of firm or succession [Section 78] ............................................................ 7.26

7.15 Carry forward and set-off of losses in case of closely

held companies [Section 79] ...................................................................................... 7.26

7.16 No set off of losses against undisclosed income brought to tax

Consequent to search, requisition and survey [Section 79A] ....................................... 7.29

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7.17 Order of set-off of losses ............................................................................................ 7.30

7.18 Submission of Return of Losses [Section 80] .............................................................. 7.32
Significant Select Cases ....................................................................................................... 7.34
Test Your Knowledge ............................................................................................................ 7.35

CHAPTER 8 – DEDUCTIONS FROM GROSS TOTAL INCOME

Learning Outcomes ............................................................................................................................ 8.1

Contents:
8.1 General provisions ....................................................................................................... 8.2
8.2 Deductions in respect of payments ............................................................................... 8.6
8.3 Deductions in respect of certain incomes ................................................................... 8.56
8.4 Deductions in respect of other income ........................................................................ 8.92

8.5 Other Deductions ....................................................................................................... 8.94

8.6 Deduction under section 10AA ................................................................................... 8.95
Significant Select Cases ..................................................................................................... 8.105

Test Your Knowledge .......................................................................................................... 8.112

CROSSWORD PUZZLE - MODULE-1

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