——— UNIT 1 — DETAILED

EXPANSION ———
1.0 Overview and study approach
Unit 1 lays the foundation: terminology, timing (previous/assessment year), who is taxed and
on what (residential status & scope), the special treatment of agricultural income, the exempt
incomes you must know, and the philosophical background (Kautilya). For exams, memorise
section numbers, formulas and the stepwise computational procedures; for practice, solve
small numerical illustrations after each concept.

1.1 Income: meaning, sources and classification

Definition & practical meaning

Income for tax covers all receipts — from recurring receipts (salary, rent, interest) to one-
time receipts (capital gains, insurance maturity), and even gains from unlawful sources unless
specifically exempted. The Income Tax Act categorises income into five heads so that
specific rules, allowances and set-offs can be applied for each head.

Why classification matters

Each head has unique computation rules (e.g., house property uses annual value concept;
capital gains allows indexation and specific exemptions; business allows depreciation and
expenses). Losses from one head may/ may not be set off against another — so identifying
the head correctly is crucial.

1.2 “Person” and “Assessee” — legal scope

Person (Sec 2(31))

A legal concept—individuals, HUFs, companies, firms, AOP/BOI, local authorities, body

corporate, and juridical persons are persons. This determination affects filing obligations,
audit, applicable sections and treatment (e.g., company tax differs from individual slabs).

Assessee (Sec 2(7))

A person who is liable to pay tax or any other sum under the Act, or against whom any
proceedings are initiated. Includes representatives in case of deceased, legal heirs, etc.
1.3 Previous Year (PY) & Assessment Year (AY) — timing
rules
Practical rule

• PY = year in which income accrues/earned (generally FY 1 Apr–31 Mar).

• AY = next year when the income of PY is assessed.

Example: Income earned 1 Apr 2024–31 Mar 2025 → PY 2024–25 → assessed in AY

2025–26.

Why important

All computations (deductions, exemptions, TDS credits, tax payments) are mapped to the
relevant PY/AY. For arrears and advances, Section 89 and other rules define reliefs.

1.4 Gross Total Income vs Total Income

• Gross Total Income (GTI): Sum of incomes under five heads after permitted head-
specific deductions (e.g., 30% standard deduction on house property) but before
Chapter VI-A deductions.
• Total Income: GTI less deductions under Chapter VI-A (80C–80U). This is the
figure on which tax slabs apply.

Exam tip: Always list computation: Income per head → head adjustments → set-off → GTI
→ Chapter VI-A → Total Income → tax.

1.5 PAN — practical importance

Permanent Account Number: mandatory for filing returns, high value transactions, opening
accounts, and as identity for TDS/TCS. Failure to quote PAN in some transactions leads to
higher TDS/TCS.

1.6 Agricultural Income — in depth plus worked example

What exactly is agricultural income (detailed)

Agricultural income comprises:

1. Rent or Revenue from agricultural land in India: cash or kind receipts from letting
land for agriculture.
 2. Income from agricultural operations: e.g., tilling, sowing, planting and harvesting.
For the income to be agricultural, the essential agricultural operations should be
carried out on the land.
3. Processing of produce: Only those operations necessary to make produce fit for
market (cleaning, drying, decorticating — ordinary processes). Manufacturing that
changes the nature of produce into new products might transform it into business
activity and then could be non-agricultural.
4. Buildings on agricultural land: If a farmhouse/store used for agriculture, income
from that building may be agricultural.

Exemption status

Agricultural income is exempt under Section 10(1). However, for rate purposes, it is
considered under simple integration when both agricultural and non-agricultural incomes are
present.

Simple Integration — worked numeric example (step by step)

Facts:

• Agricultural income (AI) = ₹60,000

• Salary (non-agri) = ₹6,40,000
• Basic exemption limit (for illustration) = ₹2,50,000

Step 1: Tax on (AI + Non-agri) = Tax on ₹7,00,000 (Compute using old regime slabs —
suppose tax = T1).
Step 2: Tax on (AI + basic exemption) = Tax on ₹3,10,000 = T2.
Step 3: Integrated tax on non-agri income = T1 − T2.
Step 4: Add cess/surcharge. Agricultural income itself is not taxed; only affects rate through
integration.

Note: For exam, you must show calculation values for T1 and T2 using the slab rates in force
for the AY in question.

1.7 Residential Status — deep treatment & examples

Tests for Individual (simplified)

1. Basic test: stay in India ≥182 days in PY → resident.

2. Alternate test: stay in India ≥60 days in PY AND ≥365 days in 4 previous years →
resident.
3. If neither, non-resident. (Remember certain exceptions for Indian citizens leaving
India / PIO; for exams, state general rule.)

Resident categories
 • Resident and Ordinarily Resident (ROR): Satisfies residence tests and has been
resident for 2 of preceding 10 years and stayed ≥730 days in preceding 7 years —
taxed on global income.
• Resident but Not Ordinarily Resident (RNOR): Taxed on Indian incomes and
certain foreign incomes; favorable compared to ROR.
• Non-Resident: Taxed only on Indian sourced income.

Section 9(1)(viii) emphasized (practical insight)

Government pays salary to its citizen for services rendered outside India — the salary is
deemed to accrue in India under Sec 9(1)(viii). This avoids tax avoidance when government
employees serve abroad (diplomats, defence staff, etc.).

Example: An Indian diplomat is posted in Tokyo and receives salary from Govt of India —
even though services are abroad, salary taxable in India.

1.8 Scope of Total Income — practical rules & checklists

Taxable if any of the following apply:

• Income is received in India by the assessee.

• Income is deemed to be received in India (e.g., broker fees credited to Indian bank).
• Income accrued or arisen in India (e.g., business profits from operations in India).
• Income is deemed to accrue or arise in India by statutory provisions (like section 9
clauses).

Checklist for students: For any receipt, ask:

1. Who received it? (Assessee identity)

2. When was it received/earned? (PY mapping)
3. Where was it received/earned? (India/abroad)
4. Is any section deeming it to be Indian income? (e.g., 9(1)(viii))
5. Is it exempt under Section 10?
6. Which head does it fall under?

1.9 Exempted Incomes — detailed explanations with

examples
Below are the syllabus-specified exemptions. For each: brief rule, condition(s), and one short
example.

Section 10(1): Agricultural income

• Rule: Fully exempt (see 1.6 for details).

 • Example: Farmer receives ₹1,20,000 from crop sale — agricultural income if
connected to land → exempt from income tax (but counts for integration if non-agri
income present).

Section 10(2): Share of income from HUF

• Rule: A member’s share of HUF income is not taxed in hands of member; HUF is
assessed separately.
• Example: HUF pays ₹50,000 share to coparcener — coparcener not taxed again on
that share.

Section 10(5): Leave Travel Concession (LTC)

• Rule: Travel fare for travel within India for employee + family exempt subject to
employer’s rules/proofs.
• Example: Employer pays ₹30,000 for employee and family’s train fare for vacation
— exempt up to actual travel cost.

Section 10(7): Allowances/perquisites to Govt employees posted abroad

• Rule: Allowances/perks for official foreign services often exempt (as per rules).
• Example: Allowance paid to Indian diplomat in London for foreign posting may be
exempt.

Section 10(10): Gratuity

• Rule: For govt employees — fully exempt. For non-govt employees — lowest of:
actual gratuity, 15 days’ salary × years of service, ₹20 lakh (statutory) (figures for
example; use current value in exam).
• Example: Non-govt employee retires after 20 years; calculations as per rule to
determine exempt portion.

Section 10(10A): Commuted pension

• Rule: Commutation of pension (lump sum conversion of pension) partially/fully

exempt depending on govt/private employer status and whether gratuity received.

Section 10(10AA): Leave encashment

• Rule: On retirement, govt employees fully exempt; non-govt employees have limited
exemption (e.g., up to ₹3 lakh historically).

Section 10(10D): Life insurance maturity proceeds

• Rule: Maturity proceeds (including bonus) exempt subject to policy premium to sum
assured ratio conditions and other limits.

Section 10(11): Statutory Provident Fund & Section 10(12): Recognised

Provident Fund
 • Rule: Withdrawals and interest allowable as exempt subject to continuous service
conditions and fund recognition.

Section 10(11A): Sukanya Samriddhi

• Rule: Contributions, interest and withdrawals exempt (EEE).

Section 10(12C): NPS withdrawal

• Rule: At retirement, 60% of corpus exempt; balance taxable unless invested as

annuity — note that earlier rules allowed different treatments; for exam, use the
syllabus rule.

Section 10(13): Approved Superannuation Fund

• Rule: Payments from approved funds exempt subject to condition.

Section 10(13A): House Rent Allowance (HRA)

• Rule: Least of: actual HRA received; rent paid − 10% of salary; 50%/40% of salary
(metro/non-metro).
• Example: Salary = Basic ₹40,000 p.m., DA forming part ₹5,000; rent paid ₹10,000
p.m.; HRA received ₹9,000 p.m. Compute exemption per rule.

Section 10(14)(i): Official allowances (six allowances)

• Travelling allowance: reimburse travel for official duties — exempt to extent spent.
• Conveyance allowance: to meet travelling expenses between office/other places —
exempt to extent spent (some allowances fully taxable if not spent on official
purpose).
• Daily allowance: meets daily tour expenses.
• Helper allowance: for personal assistant/helpers deployed for official duties.
• Uniform allowance: allowance for purchase/maintenance of uniforms.
• Academic allowance: for training/education on employer’s direction.

Note: Under 10(14)(i) allowances are generally job–related and non-personal; many require
proof of expenditure.

Section 10(14)(ii): Special allowances (only education/hostel/transport)

• Children Education Allowance: Exempt subject to limits per child (small fixed
amount).
• Hostel Expenditure Allowance: Exempt up to set limit.
• Transport Allowance: Exempt up to set limit — note transport allowance for transport
employees excluded per guideline.

Section 10(15): Interest exemptions

 • Interest on certain notified securities may be exempt. Check list of notified
instruments (govt bonds, some rural bonds etc.).

Section 10(16): Scholarships

• Scholarships for educational purpose are fully exempt.

Section 10(32): Minor child exemption

• When income of minor is clubbed in parent’s hands under Sec 64, parent can claim
exemption ₹1,500 per minor child.

Section 10(36): Exemption for long term gains on certain equity transactions

• Historical provision; for exam, know that certain LTCG exemptions existed for listed
shares under conditions.

Section 10(37): Compulsory acquisition of agricultural land

• Exemption circumstances depend on whether land was used for agriculture, period of
holding and nature of acquisition.

1.10 Kautilya’s Taxation Policy — practical learning

points
Kautilya (Chanakya, Arthashastra) advocated:

• Taxes should be moderate — over-taxation reduces economic activity & compliance.

• Certainty & uniformity — tax rules predictable.
• Equity — tax according to ability to pay.
• Anti-corruption — enforce rules and accountability for revenue officials.
• Use taxation for public good — fund defense, public works.
• “Bee and nectar” analogy: collect revenue without crippling producers.

Exam tip: Write a short paragraph linking Kautilya to modern tax policy (e.g., moderate &
progressive tax, certainty, emphasis on administration).

1.11 Quick checklist & short-answer bank (for revision)

1. Define “AGRICULTURAL INCOME” and give 3 examples.
2. Explain the two tests for residency.
3. What is Sec 9(1)(viii)? Give an example.
4. What is GTI and Total Income? Write computation sequence.
5. Explain three exemptions under Sec 10 with examples (10(10), 10(13A), 10(15)).
 6. Simple integration: compute tax for salary ₹6,40,000 and agri ₹60,000 (use current
slab).
7. List six allowances under Sec 10(14)(i).

——— END OF EXPANDED UNIT 1 ——

—
I will now continue with UNIT 2 (detailed) and then UNIT 3 in the same thorough style as
you requested.

——— UNIT 2 — SALARIES & HOUSE

PROPERTY — DETAILED ———
2.0 Overview & study approach
Salary and House Property are the two most frequently tested heads in exams. Salary
computations include basic pay + allowances + perquisites + retirement benefits. House
property uses the annual value concept and has distinct treatment for self-occupied vs let-out
property, and special rules for interest on borrowed capital.

2.1 Income from Salaries — components & method of

computation
Components of salary (explain & examples)

1. Basic pay: Fixed, taxable.

2. Dearness Allowance (DA): Taxable if forming part of salary for retirement benefits
(for many computations DA is included in ‘salary’ for perquisite valuation/ HRA).
3. Commission, Bonus & Overtime: Taxable when due/received as per the timing rule.
4. Allowances: HRA, transport allowance (subject to limits), children education
allowance (small exempt amount), house rent allowance (special exemption
computation).
5. Perquisites: Non-cash perks (RFA, company car, interest-free loans) — specific
valuation rules apply.
6. Employer contributions: to provident funds, superannuation — some portions
exempt, others taxable beyond limits.
7. Retirement benefits: Gratuity, commutation, leave encashment — certain amounts
exempt (see Unit 1 exemptions).
Timing of salary taxation

• Salary is generally taxed under due/receivable concept — different clauses apply for
arrears, advance salary, salary in foreign service etc.
• Arrears: Received in current PY though earned earlier — Sec 89 relief may reduce
tax burden.

2.2 Perquisites — types, valuation & examples

Categories of perquisites

1. Monetary perquisites: e.g., allowances that are not wholly exempt.

2. Non-monetary perquisites: e.g., rent free accommodation, free staff car,
concessional loans, gift vouchers, club memberships.

General valuation principles

• Perquisite valuation often determined by rules in the Income Tax rules (e.g., value of
car per month based on engine capacity and use). For RFA there's a separate valuation
method.

Example (car perquisite): Employer provides car for private use—value computed as per
set rules depending on engine capacity and whether driver paid by employer.

2.3 Rent-Free Accommodation (RFA) — full computation

examples
When employer provides accommodation

Case A — Employer-owned accommodation (not leased):

• Value of perquisite = (Percentage of salary) depending on city category; if

accommodation is furnished, add furniture value.

Percentages (typical syllabus figures — confirm current AY):

• City population > 25 Lakh (metro): 15% of salary

• City 10–25 Lakh: 10%
• City < 10 Lakh: 7.5%

Example 1 — Employer-owned, metro city

• Salary (for perquisite calc) = Basic + DA (if forming part) + Commission = ₹9,00,000
p.a.
 • Perquisite = 15% × 9,00,000 = ₹1,35,000 taxable.

Case B — Employer-leased accommodation:

• Value of perquisite = Actual rent paid by employer (if employer pays lease) — entire
rent is taxable perquisite in employee’s hands.

Case C — Employer provides accommodation in hotel — excluded per your guideline.

Note: There are special rules when employer provides accommodation and pays tax on
employee’s behalf — taxability differs.

2.4 HRA — detailed computation & worked example

HRA Exemption = least of:

1. Actual HRA received.

2. Rent paid − 10% of salary.
3. 50% of salary (metro) or 40% of salary (non-metro).

Salary definition for HRA: Basic + DA (if forming part of salary) + Commission (where
salary is subject to commission) — check syllabus for exact components to include.

Worked Example:

• Basic salary = ₹30,000 p.m.

• DA forming part = ₹2,000 p.m.
• HRA received = ₹10,000 p.m.
• Rent paid = ₹12,000 p.m.
• City = Metro (50% rule).

Compute:

• Annual salary = (30,000 + 2,000) ×12 = ₹3,84,000

• 50% of salary = ₹1,92,000
• Rent paid − 10% salary = (12,000 ×12) − (10% of 3,84,000) = ₹1,44,000 − ₹38,400 =
₹1,05,600
• Actual HRA received = ₹10,000 ×12 = ₹1,20,000

Least = ₹1,05,600 → HRA exempt.

2.5 ESOP & Sweat Equity — concept notes and tax

pointers
ESOP (Employee Stock Option Plan)

• ESOP gives option to employee to buy company shares at pre-determined price after
vesting.
• Tax events:
1. At exercise — the perquisite (FMV − exercise price) may be taxable under
salary. (Valuation not required per your syllabus but know the conceptual
taxation point.)
2. At sale — capital gains tax arises (STCG or LTCG depending on holding
period).
• Practical tip: Keep exercise date and sale date records to determine holding period
for capital gains.

Sweat Equity

• Shares issued to employees for value addition, know-how or intellectual property at

discount.
• Concept only: valuation/comp detailed not required.

2.6 Allowances — taxable vs exempt (detailed list)

Exempt allowances (examples covered in syllabus):

• HRA (partial) — see 2.4

• Children education allowance — exempt up to specified limit per child (small
amount)
• Hostel allowance — small exemption
• Transport allowance — small exemption up to statutory limit (note transport
employees excluded)

Fully taxable allowances: Dearness allowance (if not forming part of salary for retirement),
city compensatory allowance (unless specified), special allowances without condition.

Exam tip: Categorise allowances while answering: exempt (show computation), partially
exempt, fully taxable.

2.7 Perquisites — additional specific perquisite rules

relevant to syllabus
Employer’s contribution to PF

• Employer contribution to recognized PF up to specified limits exempt; employer

contribution exceeding limit may be taxable.
Employer paying tax on behalf of employee

• If employer pays tax on employee’s behalf, amount may be treated as perquisite and
taxed in employee’s hands (depending on specific cases).

Interest-free / concessional loans

• Perquisite value computed as difference between interest at prescribed rate and

interest actually paid, if any.

2.8 Salary arrears & Sec 89 relief — brief computation

method
When arrears are received (e.g., pay revision, arrears due to back wages), they are taxed in
year of receipt, but Sec 89 provides relief so taxpayer is not taxed at higher slab for arrears.

Computation under Sec 89 (summarised)

1. Compute tax on total income including arrears (Tax A).

2. Compute tax on total income excluding arrears (Tax B).
3. Compute tax on (total income excluding arrears − arrears corresponding to earlier
years) = Tax C (adjusted stepwise using previous years’ marginal rates).
4. Relief = Tax A − (Tax B + sum of incremental taxes attributable to arrears when
spread across corresponding earlier years).
(Exact formula includes details; for exam know the concept and be able to compute
simple arrear relief problems.)

2.9 Income from House Property — deep coverage with

multiple examples
Head concept

• Taxed on annual value (Sec 22–27). Income = Annual Value − deductions (standard
deduction 30% and interest).

Terms:

• Gross Annual Value (GAV): Higher of actual rent received/receivable and

reasonable expected rent (market rent), subject to vacancy allowance.
• Municipal taxes: Deduct actual municipal taxes paid from GAV to get Net Annual
Value (NAV).
• Standard deduction: 30% of NAV to cover repair/maintenance (flat, irrespective of
actual expenses).
 • Interest on borrowed capital: Deductible if loan incurred for
acquisition/construction/repair of property, subject to limits.

Self-occupied vs Let-out

• Self-occupied property (single self-occupied): Annual value = NIL, but interest on

borrowed capital deduction upto ₹2,00,000 allowed (limit depends on law; historically
₹2 lakh). If interest > limit, balance carried forward as loss for 8 years under house
property subject to set off rules.
• Let-out property: Compute GAV as rent; deduct municipal taxes → NAV; minus
30% standard deduction; minus interest on loan (no ₹2 lakh cap typically unless
specified). Net is taxable.

Pre-construction interest

• If loan taken to construct property, interest during construction period (pre-

construction interest) can be claimed in 5 equal instalments starting FY of completion
(subject to limits). Know procedure and ceiling if applicable.

Example 1 — Let out house:

• Annual rent received = ₹2,40,000

• Municipal taxes paid = ₹12,000
• Interest on loan = ₹80,000

GAV = ₹2,40,000
NAV = 2,40,000 − 12,000 = 2,28,000
Less 30% std = 68,400
Less interest = 80,000
Taxable = 2,28,000 − 68,400 − 80,000 = ₹79,600

Example 2 — Self occupied with interest

• Self-occupied house, interest on loan = ₹2,50,000; limit for deduction = ₹2,00,000

Taxable (loss) = NIL; loss from house property = ₹50,000 carried forward to
subsequent years (up to 8 years) to set off against house property income only.

2.10 Documentation and practical tips (salary & house

property)
• Salary proof: Form 16 (employer), payslips, perquisite details (TDS records).
• RFA evidence: Employer letters, salary breakup, city classification proof.
• House property proofs: Rent agreement, rent receipts, municipal tax receipts, home
loan interest certificate from bank, possession/registry documents for pre-construction
interest claims.
2.11 Short exercise problems (practice)
1. Compute HRA exemption for given basic, DA, HRA received and rent paid (provide
numbers).
2. Compute taxable value of RFA for employer-owned accommodation in non-metro.
3. Compute taxable income from a let-out house with given rent, municipal taxes and
interest.
4. Explain ESOP taxation conceptually with dates of exercise and sale.

(If you want, I can produce 10 detailed solved problems next.)

——— UNIT 3 —
BUSINESS/PROFESSION & CAPITAL
GAINS — DETAILED ———
I’ll subdivide Unit 3 into Business/Profession (including Sections 28–43B, 40/40A specifics
and presumptive taxation) and Capital Gains (including Sec 50C and exemptions 54, 54B,
54EC, 54F).

3.0 Approach & practicalities

Business/profession and capital gains are calculation-heavy. For business profits understand
allowed deductions vs disallowed items; depreciation and 43B timing rules are crucial;
capital gains require indexation computations and careful application of exemptions.

3.1 Section 28 to 37 — core business rules explained with

examples
Section 28 — Chargeability

All profits & gains of business or profession derived from a business/profession are taxable
here. This includes profits from business as properly computed.

Section 29 — Method of computation

Income under this head computed per Sections 30 to 43D. So read Sections 30–43D in
sequence for allowable deductions and computation methodology.
Section 30 — Rent, rates & taxes

Deductible if incurred wholly and exclusively for business. Municipal taxes on premises may
be deductible.

Example: Rent paid for factory premises is deductible under Sec 30.

Section 31 — Repairs & insurance

Revenue repairs allowed (e.g., repainting). Major capital improvements are capitalised and
not deductible.

Section 32 — Depreciation (practical)

• Depreciation is allowed on block of assets using prescribed rates.

• Opening WDV + additions during year − deletions = base for depreciation at given %.
• Example: Opening WDV = ₹1,00,000, Addition = ₹50,000, Depreciation rate = 15%
→ WDV for CDT = (1,50,000 × 15% = 22,500). Closing WDV = 1,50,000 − 22,500
= 1,27,500.

Note: Depreciation rules for power units/amalgamation excluded per your syllabus.

Section 35 — Scientific research expenditure

Deductions for revenue expenditure on scientific research allowed (capital expenditure may
have special treatment). Enterprises engaged in R&D get incentives; keep receipts and
certificates.

Section 35D — Preliminary expenses amortisation

Preliminary expenses (e.g., legal fees for business setup) may be amortised over a defined
period (example 5 years). For exam, show amortisation schedule.

Section 36 — Specific deductions

Items like employer’s PF contribution, bad debts written off (subject to conditions), premium
for keyman insurance etc. are deductible.

Example: Bad debt of ₹10,000 written off in books; if genuine & cannot be recovered, claim
under Sec 36.

Section 37 — General deduction

Expenses not covered specifically elsewhere may be claimed under Sec 37 if:

• wholly/ exclusively for business

• not capital in nature
• not personal
Illustration: Legal expenses for defending business suits may be allowed under Sec 37.

3.2 Section 40 & 40(a) — disallowed items (detailed with

examples)
Disallowances in Section 40 arise typically due to failure to comply with TDS or prohibited
expenses.

40(a)(i) — Payments to non-resident without TDS

If payment (interest/royalty/fees for technical services) is payable to NR and tax is not

deducted at source as required, deduction of that amount from business income is disallowed
until TDS is deducted and deposited (or until the tax liability is regularised as per rules). This
prevents tax leakage.

Example: Company pays royalty to foreign consultant ₹5,00,000 but fails to deduct TDS →
₹5,00,000 disallowed under Sec 40(a)(i) until TDS is complied with.

40(a)(ia) — Amount payable to resident without TDS

If payer fails to deduct TDS on payments to resident (where required), a portion (30% or
defined %) may be disallowed until TDS payable is deposited.

Exam task: Show computations: gross payment, TDS due, disallowed portion (30% of
gross), and how it is restored when TDS paid.

40(a)(iii) — Salary payable outside India without tax deduction

If salary paid abroad and employer fails to deduct tax as required, deduction disallowed.

40(a)(v) — Tax on non-monetary perquisite

If employer pays tax on perquisites of employee, that tax may be disallowed as business
expense in certain circumstances.

3.3 Section 40A — special disallowances (detailed with

mini examples)
40A(2) — Payment to relatives

Excessive payments to relatives for services/goods (not at arm’s length) will be scrutinised;
excess taxable in hands of payer.
Mini example: Business pays ₹200,000 to relative for consultancy; market rate ₹50,000.
Excess ₹150,000 may be disallowed.

40A(3) — Cash payments > ₹10,000

No deduction for cash payments exceeding ₹10,000 per transaction (or per day per person)
for certain specified transactions. Meant to encourage traceable transactions.

Example: Payment of ₹12,000 as cash to a supplier — excess ₹2,000 disallowed.

40A(7) & 40A(9) — unapproved funds & non-statutory funds

Provisions/contributions to unapproved or non-statutory funds are disallowed.

3.4 Section 41 — recovery of earlier allowed expenditure

If an expenditure allowed in previous year is recovered later (e.g., bad debt recovered or grant
refunded), it becomes taxable in year of recovery. The credit should be shown under business
income.

Example: Bad debt written off in 2019 allowed; ₹5,000 recovered in 2021 → ₹5,000 taxable
in 2021 under Sec 41.

3.5 Section 43B — payment vs accrual timing (important

practical area)
Certain expenses are allowable only on actual payment (cash basis), even if accrual
accounting records them earlier. Common items:

• Employer’s contribution to PF/ESI/specified funds (allowed on actual deposit)

• Income-tax, wealth-tax, excise duty (allowed when paid)
• Interest on loans to banks (only when actually paid)

Example: Company shows contribution to PF on accrual basis in March but deposits PF in

next FY — Section 43B may allow deduction only when actually paid (in subsequent year).

Practical significance: Timing of payment impacts taxable income; taxpayers must plan
cash flows and compliance.

3.6 Presumptive taxation (Sections 44AA, 44AB, 44AD,

44ADA, 44AE) — thorough
44AA — Maintenance of books

Specifies the class of persons who must maintain books (professionals, certain business
thresholds). Failing to maintain books may attract penalties and limit deductions.

44AB — Tax audit

• If gross receipts/turnover exceed prescribed limits, tax audit required.

• Forms 3CA/3CB/3CD must be filed with details.
• Non-compliance affects carry forward and deduction claims.

44AD — For small businesses

• Eligible taxpayers (residents; turnover limit ₹2 crore) can opt for presumptive
taxation: deemed profit at 8% of turnover (6% in certain cash receipt cases).
• If opted, taxpayer not required to maintain full books (but must meet conditions and
file returns accordingly).

Example: Turnover ₹1,00,00,000; deemed profits = 8% = ₹8,00,000 (taxable). Expenses not

separately allowed.

44ADA — For professionals

• Professionals with receipts ≤ ₹50 lakh can declare income @50% of gross receipts.
• Simpler compliance—no detailed books required though some documentation
advisable.

Example: Consultant receipts ₹30,00,000 → deemed income ₹15,00,000 taxed (no separate
business expenses deductible).

44AE — Goods carriage

• Income computed on per vehicle per month basis; specifics depend on vehicle type
and prescribed amounts. Useful for transport business small owners.

Exam tip: Understand eligibility, computation method and consequences (e.g., cannot claim
other expenses beyond presumptive income unless opting out rules apply).

3.7 Capital Gains — detailed mechanics and Sec 50C

Capital asset & its transfer

Capital asset includes property, shares, securities, goodwill, patents etc. Transfer includes
sale, exchange, relinquishment, extinction of rights.

Short-term vs Long-term
 • Immovable property: if held > 24 months (rule historically changed; for example 24
months or 36 months depending on asset class) → LTCG, else STCG.
• Shares/SEBI notified assets: different holding period (12 months for shares under
older rules).

Indexation

• For LTCG indexation adjusts cost to inflation using Cost Inflation Index (CII).
• Indexed cost = Actual cost × (CII of year of transfer / CII of year of purchase). Helps
reduce taxable gain.

Section 50C — Deemed sale consideration

• If sale consideration declared in agreement < stamp duty value (value at which stamp
duty payable), tax authorities may treat stamp duty value as deemed consideration.
This aims to curtail undervaluation.

Worked example for 50C:

• Agreed sale price = ₹40,00,000

• Stamp duty value (SOA) = ₹50,00,000
• Cost of acquisition = ₹10,00,000 (purchase)
Using Sec 50C, full value taken as ₹50,00,000 → Capital gain computed on ₹50L −
indexed cost.

Rebuttable? The taxpayer may furnish evidence to show transaction value is correct in
certain circumstances; exam problems may ask to compute using sec 50C.

3.8 Capital gains exemptions: Sections 54, 54B, 54EC, 54F

— expanded with examples
Section 54 — House to house (residential property)

Eligibility: Sale of long-term capital asset being a residential house.

Requirement: Reinvestment in a new residential house (purchase within 1 year before or 2
years after transfer; construction within 3 years).
Exemption: Amount of capital gain exempt to extent of amount invested in new property.

Example: Sale proceeds ₹80L, indexed cost ₹50L → LTCG ₹30L. If taxpayer invests ₹30L
in new house within specified period → entire ₹30L exempt under Sec 54.

Section 54B — Agricultural land

Eligibility: An individual/HUF sells agricultural land used for agriculture for at least 2 years
and reinvests in another agricultural land. Exemption proportionate to reinvestment.
Section 54EC — Investment in specified bonds

Eligible securities: NHAI, REC bonds etc.

Limit: Investment up to ₹50 lakh (historic) within 6 months of transfer. Bond has a lock-in
(e.g., 5 years historically). Exemption equals amount invested in bonds (subject to limit).
Example: LTCG ₹40L; invest ₹40L in 54EC bonds → LTCG exempt (subject to limit).

Section 54F — Sale of any long-term asset (other than house) & purchase of
residential house

Eligibility: If net consideration (sale proceeds of asset other than house) is invested in a
residential house.
Exemption: Whole or proportionate depending on amount reinvested. Simple problems only
— compute proportionate exemption where partial reinvestment occurs.

Example (simple): Sale of shares (long-term) for ₹10L; net consideration invested ₹6L in
residential house → exemption = (6/10) × LTCG = proportionate.

3.9 Capital gains computation — stepwise example (full

computation)
Facts:

• Purchase of house in 2005 for ₹20,00,000 (FY 2005–06).

• Sale in 2025 for ₹70,00,000.
• Cost of improvement in 2010 = ₹1,00,000.
• CII (2005–06) = 117; CII (2024–25) = 348 (hypothetical values).
• Transfer expenses (brokerage) ₹50,000.
• Stamp duty value (Sec 50C) ₹72,00,000 (higher than sale).
• Taxpayer reinvests ₹50,00,000 in new house under Sec 54.

Step 1: Full value of consideration = higher of actual sale or stamp duty = ₹72,00,000 (50C
applies).
Step 2: Indexed cost of acquisition = 20,00,000 × (348/117) = 20,00,000 × 2.974 ≈
₹59,48,000.
Step 3: Indexed cost of improvement = 1,00,000 × (CII of 2010 / 117) etc. (compute if CII
known).
Step 4: LTCG = Full value − indexed cost − transfer expenses. Suppose LTCG ≈ 72,00,000 −
59,48,000 − 50,000 = ₹11,99,500 approx.
Step 5: Reinvestment ₹50,00,000 > LTCG → exemption under Sec 54 = LTCG i.e.,
₹11,99,500 → Nil taxable capital gain.

Note: Use exact CII values per AY.

3.10 Practical compliance notes for Business & Capital
Gains
• Maintain invoices, asset register (for depreciation), repayment schedules (for interest
deduction), and TDS documents.
• For capital gains, maintain sale deed, purchase deed for new house, bond investment
receipts (54EC), and computation working papers.
• To resist Sec 50C deemed valuation, save documentary proof of actual consideration
(bank transfer, sale deed with defined consideration and reasons for valuation
differences).

3.11 Quick practice problems (business & capital gains)

1. Compute taxable income for business with given revenue, cost of goods sold,
depreciation, disallowed payments under 40A & 40(a).
2. Depreciation calculation for asset additions and disposals.
3. Capital gains computation with indexation and Sec 50C; apply Sec 54 if reinvested.
4. Presumptive taxation example for 44AD: compute taxable amount from turnover &
determine tax.

(If you want, I will produce 10 fully worked numerical problems next — tell me and I’ll
include stepwise solutions.)

——— UNIT 4 — INCOME FROM

OTHER SOURCES, CLUBBING, SET-
OFF & CARRY FORWARD —
DETAILED ———
4.0 UNIT OVERVIEW
Unit 4 is split into three parts:

1. Income from Other Sources — residual head for receipts not covered elsewhere.
2. Clubbing of Income (Sec 60–64(1)) — anti-avoidance to prevent income shifting.
3. Set-off & Carry Forward of Losses (Sec 70–74) — treatment of losses, their order of
set-off and carry forward rules.

This unit is practically important for exam calculations (other income, interest, clubbing
consequences) and for tax planning (loss utilisation).
4.1 INCOME FROM OTHER SOURCES — THEORY &
PRACTICALS
4.1.1 Nature & Scope

This is the residual head to tax incomes not covered by the other four heads (Salary, House
Property, Business/Profession, Capital Gains). It includes:

• Interest on bank deposits (savings and fixed deposits)

• Dividends (domestic & foreign — note tax treatment has changed over years; treat per
syllabus)
• Winning from lotteries, crossword puzzles (taxed at special rates)
• Gifts received (subject to thresholds & conditions) — but note certain sub-sections are
excluded per syllabus (56(2)(viia), (viib), (viii), (xii))
• Family pension (taxable under this head)
• Rental income from assets not considered under house property (rare)
• Miscellaneous receipts like compensation, certain profits on sale of assets not held as
capital assets, etc.

4.1.2 General principles of computation

• Income under this head is computed on an accrual or receipt basis as per provisions.
• Deduction of expenses is allowed if the expense is incurred wholly and exclusively to
earn such income and is not disallowed under other provisions.

Examples:

• Interest from savings account: taxable under other sources (but 80TTA/80TTB
deduction applies — see Unit 5).
• Lottery winning ₹5,00,000: taxed usually at flat withholding rates; no deductions
allowed except cost related if specified (check syllabus; typically taxed at special
rate).

4.1.3 Gifts & Section 56 (brief)

• Gifts received by an individual are taxable under Section 56 if they exceed specified
threshold and are not covered by exemptions (like gifts from specified relatives).
• For your syllabus, certain complex subsections of 56 are excluded. Understand the
general rule: gifts from relatives are exempt; gifts above threshold from non-relatives
may be taxable.

4.1.4 Family Pension

• Pension paid to family members on death of employee is taxable under other sources
in the hands of the recipient. Deduction under Section 57 allows a standard deduction
(a certain % or fixed limit) — know standard rules.

4.1.5 Special rates and no-setoff items

 • Some incomes under other sources have special tax rules (lottery, horse race earnings,
etc.) — often taxed at flat rates without allowing deductions (except cost of
acquisition if specified).
• For exam, compute these incomes separately and add to GTI.

4.2 CLUBBING OF INCOME — SECTIONS 60 TO 64(1)

(THEORY ONLY)
4.2.1 Purpose

Clubbing provisions prevent taxpayers from shifting income-producing assets to others

(spouse, minor child) to reduce tax.

4.2.2 Key Sections (theory only)

• Sec 60: Transfer of income without transfer of asset — income remains of transferor.
Example: Father authorizes son to receive rental receipts but retains ownership —
income may still be taxed to father.
• Sec 61: Revocable transfer — if transfer is revocable, income is taxed in hands of
transferor.
Example: Transfer to spouse but with power to revoke — income taxed to transferor.
• Sec 62: Exceptions where even if transfer is revocable/income arises, the transferee
may be taxed if certain conditions met (complicated; keep theory-level
understanding).
• Sec 63: Explanations/definitions for revocable and irrevocable.
• Sec 64(1): Clubbing of income arising from transfers to spouse, son’s wife, minor
child and certain converted properties.
Important list under Sec 64(1):
o Income arising to spouse from assets transferred by the assessee without
adequate consideration (in order to reduce tax) is clubbed in transferor’s
hands.
o Income of son’s wife from assets transferred by husband to such wife without
adequate consideration (anti-tax avoidance).
o Income of a minor child (except for income arising from manual work or
through a specific exception) is clubbed with parent — the parent gets an
exemption (₹1,500 per child) under Section 10(32).
o Income from converted self-acquired property transferred to HUF may be
clubbed in certain cases.

Exam tip: Be prepared to explain rationale, give examples of clubbing, and calculate tax
impact (e.g., compute taxable income including clubbed income and adjust for exemptions
like ₹1,500 per minor child).
4.3 SET-OFF & CARRY FORWARD OF LOSSES —
SECTIONS 70–74 (DETAILED)
4.3.1 Why set-off & carry-forward rules matter

Losses are common in business and investments. Tax law specifies how a loss in one
head/sub-head can be set off against income from other heads, and under what conditions
unabsorbed losses can be carried forward to future years. These rules are crucial in tax
planning and in exam problems.

4.3.2 Section 70 — Intra-head set off

Loss within the same head (e.g., one house property) is set off against other income or sub-
head incomes of the same head first. For example, loss from one house property may be set
off against income of another house property.

4.3.3 Section 71 — Inter-head set off

If loss still remains after intra-head set-off, it may be set off against other heads of income
(subject to restrictions: e.g., loss under salary cannot be set off against other head
automatically, and certain losses like capital losses have specific rules).

Order of set-off (typical sequence students follow):

1. Intra-head adjustments.
2. Inter-head adjustments (subject to restrictions).
3. Carry forward of unabsorbed losses per statutory periods.

4.3.4 Section 72 — Carry forward & set-off of business loss

• Business losses can be carried forward for 8 assessment years immediately following
the AY in which the loss was incurred, provided return was filed on time.
• Conditions: Return must be filed by due date (Sec 139(1)).
• Treatment: Carried forward losses can be set off only against business income (or as
specified). Continuity conditions apply for certain companies (change in shareholding
affecting carry forward for deduction under some circumstances) — not required
deeply in your syllabus.

Example: Business loss ₹2,00,000 in AY 2024–25; if return timely filed, carry forward for 8
AYs (till AY 2032–33).

4.3.5 Section 73 — Speculation loss

• Loss from speculative transactions (betting, gambling or intra-day trading treated as

speculative) can be carried forward for 4 years and set off only against speculation
profits.

4.3.6 Section 74 — Capital loss rules

 • Short-term capital loss (STCL): Set off against STCG & LTCG in same year; can
be carried forward for 8 years to set off against future capital gains.
• Long-term capital loss (LTCL): Can be set off only against LTCG; carried forward
for 8 years.

Example: STCL ₹30,000 in current year; STCG ₹10,000 and LTCG ₹25,000 — set off
STCL first against STCG (10,000) and then against LTCG (20,000) — residual STCL carried
forward.

4.3.7 Special rules & priorities

• Loss from house property: Set off against other heads up to certain limits (e.g., loss
under house property up to ₹2,00,000 allowed to be set off against other heads;
remaining carried forward). (Use syllabus figure if specified.)
• Losses arising under heads like business vs capital have different priorities of set-off.
Always follow intra-head — inter-head — carry forward sequence.

4.4 PRACTICAL EXAMPLES & COMPUTATIONS

FOR UNIT 4
Example 1 — Clubbing (minor child)

Facts: Parent A has income ₹8,00,000. Minor child's interest income ₹10,000 from gifted
deposit. Parent’s GTI includes minor’s income after clubbing; parent gets exemption ₹1,500
(per child).
Computation: Parent’s taxable income = 8,00,000 + 10,000 − 1,500 = ₹8,08,500 (then apply
deductions 80C etc.)

Example 2 — Set-off & carry forward (business & capital)

Facts: PY current:

• Business loss = ₹1,50,000 (non-speculative)

• House property loss = ₹2,20,000 (loss from self-occupied interest)
• STCG = ₹40,000
• Other income (salary) = ₹6,00,000

Steps:

1. Set-off house property loss: up to ₹2,00,000 can be set off against other income →
deduct ₹2,00,000 from salary → salary taxable reduces to ₹4,00,000. Balance house
property loss ₹20,000 carried forward for 8 years.
2. Business loss ₹1,50,000 set off against remaining other incomes (e.g., STCG, salary)
per rules: after house property set-off, remaining income ₹4,40,000 (salary + STCG)
→ business loss set off → reduces taxable income. Balance business loss handled per
72 carry forward rules if unabsorbed.
Example 3 — Capital loss

Facts: STCL ₹50,000; STCG ₹30,000; LTCG ₹10,000.

Set-off: STCL first set off against STCG = 30,000 → remaining STCL 20,000 set off against
LTCG if rules allow (STCL can be set off against LTCG) → remaining STCL 0 since 20,000
reduces LTCG to −10,000 (but check order and legal limits). Remaining unabsorbed capital
losses carried forward.

4.5 PRACTICAL TIPS, RECORDS & EXAM

CHECKLIST (UNIT 4)
• Documentation: Keep proofs for gifts, loans, transfer deeds, legal agreements, bank
transfer records for demonstrating actual consideration & nature of transfer. For
clubbing, maintain transfer deeds and declarations showing adequacy of
consideration.
• Timely filing: To carry forward losses under Sections 72/74, file return within due
date; otherwise carry forward claim lost.
• Set-off order: Memorise sequence — intra-head → inter-head → carry forward.
• Special care for speculative trades: Treat them separately; keep ledger of
speculative profit & loss.
• Practice computation: Solve questions combining house property loss, business loss,
STCG & STCL to build skill.

4.6 PRACTICE PROBLEMS (UNIT 4)

1. Parent P has salary ₹6,00,000 and minor child receives gift interest ₹12,000 (clubbed).
Compute total taxable income after applying minor exemption ₹1,500.
2. A taxpayer has business loss ₹1,00,000 and house property loss ₹2,50,000. Compute
set-offs if salary income is ₹8,00,000 (assume ₹2,00,000 of house property loss
allowable against other heads per year) and state carry forward balances.
3. An investor has STCL ₹60,000 and STCG ₹20,000, LTCG ₹10,000 for the year.
Show set-off and carry-forward position.
4. Explain with example how Sec 61 revocable transfer causes income to be taxed to
transferor.

(Provide answers on request — I can fully solve these step-by-step.)

——— UNIT 5 — DEDUCTIONS,
REBATES & COMPUTATION OF TOTAL
INCOME — DETAILED ———
5.0 UNIT OVERVIEW
Unit 5 covers Chapter VI-A deductions (80A to 80U per your syllabus), rebates, computation
of total income, tax calculation (old regime), practical ITR-2 filing guidance, and exam-
oriented computation examples. This unit is very scoring in exams as it combines theory with
computation.

5.1 GENERAL PRINCIPLES FOR CHAPTER VI-A

(80A, 80AB, 80AC)
Section 80A — General rules

• Deductions under Chapter VI-A are allowed after computing GTI. They cannot
exceed GTI.
• Deductions must relate to GTI and are not allowed against excluded incomes.

Section 80AB — Deduction treated only if income included in GTI

• Deductions only allowed on income included in GTI. Avoid claiming deductions on

income that is exempt or excluded.

Section 80AC — Return-filing precondition

• Certain deductions are conditional upon filing the return within time under Sec
139(1). That is, late filing may disallow deductions (important for carry forward and
certain claims).

5.2 DETAILED EXPLANATION OF SELECTED

DEDUCTIONS (AS PER GUIDELINES)
Note: I cover each deduction you specified with limits, conditions and examples. Figures
(like monetary limits) are historical exam numbers — use syllabus/test date figures if
different.

Section 80C — Principal deduction (Most important)

Aggregate limit: ₹1,50,000 (historical exam number).

Eligible investments/expenses:

• Life Insurance Premium (self/spouse/children) — premium limit rules (e.g., not

exceed 10% of sum assured for new policies).
• Employee’s Contribution to PF, Voluntary PF, Recognised PF.
• Public Provident Fund (PPF) contributions.
• ELSS (Equity Linked Savings Scheme).
• Principal repayment of housing loan.
• Tuition fees for up to two dependent children.
• National Savings Certificates, 5-year tax-saving FDs.
• Sukanya Samriddhi deposits.

Practical example: S invests ₹1,00,000 in PPF; repays ₹50,000 principal on home loan; total
₹1,50,000 → claim full 80C.

Key exam points: Keep receipts, PPF passbook, ELSS certificates, home loan principal
statement, tuition fee receipts.

Section 80CCC — Pension premium

• Premium towards pension funds (e.g., certain LIC pension plans) — deduction within
overall ₹1.5 lakh 80C limit.

Section 80CCD — NPS (detailed)

• 80CCD(1): Employee’s own contribution — deductible up to 10% of salary (for

employees) or 20% of gross total income (self-employed) — but included in 80C
cap historically.
• 80CCD(1B): Additional deduction ₹50,000 for NPS (exclusive of 80C cap) —
extremely useful to enhance deduction beyond ₹1.5 lakh.
• 80CCD(2): Employer’s contribution — deductible in employer’s hands as business
expense and available to employee in computing total income (up to 10% of salary)
and not part of 80C cap.

Example: Employee contributes ₹1,00,000 to NPS and ₹50,000 to PPF. Deduction:

₹1,50,000 (within 80C) + ₹50,000 (80CCD(1B)) = ₹2,00,000.

Documentation: Contribution receipts and NPS statement showing date & amount.

Section 80CCH — Agniveer corpus fund

 • Deduction for eligible Agniveer contributions. For exam, understand who Agniveers
are and that corpus contributions may be deductible per rules (treat as a special
deduction).

Section 80D — Medical insurance (expanded)

Who: Individuals & HUFs.

Deduction limits (historic figures for examples):

• Self & family (non-senior): up to ₹25,000.

• Parents (non-senior): up to ₹25,000.
• If parents are senior citizens: up to ₹50,000.
• If taxpayer is senior citizen: own limit ₹50,000.
Preventive health check-up: Allowed up to ₹5,000 within above limits.
Payment mode: Prefer non-cash.

Example: Taxpayer (non-senior) pays ₹20,000 for self & family; parents (senior) pay
premium ₹40,000 — allowed: ₹20,000 + ₹40,000 = ₹60,000.

Section 80DD — Medical care & maintenance of dependants with disability

Deduction amounts (historic exam figures):

• Disability (≥40%): ₹75,000

• Severe disability (≥80%): ₹1,25,000
Required: Disability certificate from specified medical authority. Deduction covers
medical treatment costs and maintenance.

Note: Deduction allowed irrespective of actual expenditure (fixed amounts).

Section 80DDB — Treatment of specified diseases

For specified serious diseases: Allowed to the extent of actual expenditure incurred for
treatment (subject to prescribed cap):

• Non-senior: up to ₹40,000 (historic)

• Senior: up to ₹1,00,000
Required: Certificate from prescribed specialist/doctor. If reimbursement from
insurance occurs, deduction reduced accordingly.

Example: Actual expenditure ₹90,000; senior citizen — deduction allowed up to ₹90,000

(subject to ₹1,00,000 ceiling).
Section 80E — Interest on Education Loan

• Deduction: Entire interest paid on education loan for higher education for self,
spouse, children or student for whom taxpayer is legal guardian.
• Duration: Up to 8 years or until interest paid (whichever earlier).
• Principal: Not deductible under 80E; principal may fall under 80C only in rare cases
(depending on the scheme).

Practical tip: Keep loan sanction letter & interest certificate from bank.

Section 80G — Donations (expanded practical guidance)

• Classification: Donations to various funds/charities attract either 100% or 50%

deduction, sometimes subject to 10% of adjusted gross total income limit.
• Documentation: Receipt with name, address, PAN of donee and donor. For donations
above certain limits, PAN of donor is required on receipt for claiming deduction.
• Examples:
o 100% deduction without limit for PMNRF.
o 50% deduction with 10% cap for many charitable organizations.
• Special note: Some donations must be made via non-cash mode for tax deduction.

Exam tip: Provide sample computations with different donation types and caps.

Section 80GG — House rent (for non-HRA receivers)

Eligibility: Persons not receiving HRA from employer and not owning residential
accommodation at place of posting/residence.
Deduction = least of:

1. ₹5,000 per month (₹60,000)

2. 25% of total income (before deduction under 80GG)
3. Rent paid − 10% of total income

Form 10BA: Self-declaration required.

Example: Income ₹6,00,000; rent paid ₹1,20,000 → rent − 10% = 1,20,000 − 60,000 =
60,000; 25% of income = 1,50,000; ₹5,000×12 = 60,000. Least = 60,000 → deduction =
₹60,000.

Section 80GGA — Donations for scientific research & rural development

 • Applicable to: Individuals (no business income restriction in many instances; check
current rules).
• Deduction: Typically 100% for contributions to certain funds/institutions engaged in
scientific research or rural development.
• Documentation: Receipt & institution’s registration.

Section 80GGC — Political donations

• Deduction for donations to political parties / electoral trusts — 100% allowed.

• Cash donations generally disallowed (government prescribes no cash donations) —
confirm per exam year.
• Example: Donation ₹20,000 to registered political party → deduction ₹20,000.

Section 80TTA / 80TTB — Interest deductions

Section 80TTA

• Deduction: Up to ₹10,000 for interest from savings bank accounts (individuals &
HUFs) — not for senior citizens — only savings interest (FD interest excluded).

Section 80TTB

• For senior citizens: broader deduction up to ₹50,000 for interest income (savings +
fixed deposits + recurring deposits). Replaced 80TTA for senior citizens in many
regimes.

Example: Senior citizen earns ₹70,000 interest from FDs + ₹5,000 from savings; 80TTB
allows ₹50,000 deduction; remaining ₹25,000 taxable.

Section 80U — Deduction for person with disability (self)

Deduction amounts (historical):

• Disability ≥40%: ₹75,000

• Severe disability ≥80%: ₹1,25,000
Requirement: Disability certificate from medical authority.

Comparison with 80DD: 80U is personal deduction for assessee; 80DD is for maintenance
of dependent with disability.
5.3 DEDUCTION COMBINATION EXAMPLE —
COMPREHENSIVE NUMERICAL
Facts (example):

• Salary (gross) = ₹12,00,000

• House property (let-out taxable) income = ₹1,20,000
• Interest income (savings) = ₹15,000
• Deductions: 80C investments (PPF + ELSS) = ₹1,50,000; NPS 80CCD(1B) =
₹50,000; Mediclaim 80D = ₹25,000; Donation 80G (50% deduction) = ₹20,000
(assume 50% eligible = ₹10,000).

Stepwise computation:

1. GTI = Salary + House property + Other sources = 12,00,000 + 1,20,000 + 15,000 =

₹13,35,000
2. Chapter VI-A deductions:
o 80C = ₹1,50,000
o 80CCD(1B) = ₹50,000
o 80D = ₹25,000
o 80G (eligible) = ₹10,000
Total deductions = ₹2,35,000
3. Total Income = 13,35,000 − 2,35,000 = ₹11,00,000
4. Compute tax using applicable old regime slab rates (apply basic exemption, slab
rates) → compute tax, add cess & surcharge as applicable → subtract TDS/advance
tax to get net tax payable/refundable.

Exam tip: Show each deduction heading separately; emphasise that 80CCD(1B) is over &
above 80C limit.

5.4 REBATES — SECTION 87A & OTHERS (BRIEF)

Section 87A — Rebate for low-income individuals

• Historically, residents with total income up to ₹5,00,000 (after deductions) were

eligible for rebate (amount capped). For exam, know the threshold and rebate limit
(use current AY figures if required).

Relief under Double Taxation Avoidance Agreements (DTAA)

• If foreign tax paid on foreign-sourced income, Indian resident may claim relief
(credit/exemption) under DTAA provisions. For exam, know concept and
computation of foreign tax credit.
5.5 COMPUTATION OF TOTAL INCOME — STEP BY
STEP (DETAILED)
Step 1: Compute income under each head:

• Salary (after exempt allowances & perquisites taxed)

• House Property (GAV – municipal taxes – 30% std deduction – interest)
• Business/Profession (net profit after allowable & disallowed adjustments)
• Capital Gains (compute STCG/LTCG, indexation & exemptions)
• Other Sources (interest, dividends, lotteries, etc.)

Step 2: Set-off intra-head losses, inter-head losses as per Sec 70–74. Determine GTI.

Step 3: Deduct Chapter VI-A deductions (80C etc.) from GTI → Total Income.

Step 4: Compute tax as per old regime slab rates on Total Income. Apply surcharge (if
applicable) and cess (health & education cess). Apply rebate if eligible.

Step 5: Subtract TDS & advance tax paid from tax liability to get tax due/refund.

Important: Apply rounding rules and slab thresholds carefully. For exam, practise full
computations end-to-end.

5.6 ITR-2 & E-FILING (PRACTICAL LAB GUIDE)

Who uses ITR-2?

• Individuals & HUFs not having income from profits & gains of business/profession
(i.e., business income). Includes those with income from salary, house property,
capital gains, and other sources.

Practical steps for ITR-2 (Excel Utility Workflow)

1. Download Excel Utility for ITR-2 from income tax web portal.
2. Fill Personal Details: PAN, name, AO code, address, bank details.
3. Report Incomes by Head: Salary (Form 16 details), house property schedule, capital
gains schedule (with computation), other sources (interest) and exempt incomes
(Section 10) as applicable.
4. Claim Deductions: Fill section for Chapter VI-A (80C, 80D, 80CCD etc.) with exact
amounts and particulars.
5. TDS/Advance Tax Details: Enter TDS amounts as per Form 26AS (ensure
reconciliation). Add advance tax/ self-assessment tax paid.
6. Validation: Use utility’s validation button to correct errors.
7. Generate XML: Once validated, generate XML file from Excel utility.
8. Upload & E-Verify: Upload XML to Income Tax e-filing portal and e-verify via
Aadhaar OTP/Netbanking/EVC.
 9. Acknowledgement: Save ITR-V / acknowledgement for records.

Practical Exam Tip: Practice filling one full ITR-2 from a problem set; be comfortable with
schedules (salary, HRA computations, perquisites, house property interest, capital gains, and
deductions).

5.7 PRACTICAL CHECKLIST & RECORDS (UNIT 5)

• Investment proofs (80C): PPF passbook, ELSS statements, LIC premium receipts,
tuition receipts.
• Medical insurance & treatment: premium receipts, health certificates for
80D/80DDB.
• Donation receipts (80G): with PAN of donee (esp. for >₹2,000 donations).
• Home loan documents: principal & interest certificates from bank, registration &
possession documents.
• Capital gains: purchase & sale deeds, transfer expenses receipts, proof of investment
in 54EC bonds/house purchase.
• TDS & Form 26AS: reconcile TDS with Form 26AS.
• ITR submission details: XML, acknowledgement, e-verification evidence.

5.8 PRACTICE PROBLEMS (UNIT 5)

Problem 1: Compute total income and tax liability (old regime) for an individual with:

• Salary (gross) ₹9,60,000; HRA received ₹1,20,000; rent paid ₹1,80,000; Basic + DA
(for HRA) = ₹6,00,000;
• One self-occupied house with interest on home loan ₹1,40,000;
• Savings bank interest ₹12,000;
• Investments made under 80C ₹1,50,000; NPS 80CCD(1B) ₹50,000; 80D premium
₹20,000; Donation eligible under 80G ₹10,000 (50% eligible).
Compute GTI, total income, tax and net payable after TDS ₹80,000 (show stepwise).

Problem 2: A taxpayer sold a residential property (long-term) with sale consideration

₹60,00,000; indexed cost ₹35,00,000; transfer expenses ₹50,000. The taxpayer invested
₹25,00,000 in a new residential house within the specified time and ₹25,00,000 in 54EC
bonds. Compute capital gain taxable after exemptions.

Problem 3: Prepare a filled ITR-2 worksheet in Excel utility style for a given income profile:
salary, one let-out house, short-term capital gain on shares, savings interest, and 80C
investments. (I can create an Excel sample if requested.)

(Ask and I will provide step-by-step solutions for each.)