1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 1
Basic Definitions & Computation of
Tax Liability
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Basics & Computation

In India, Income Tax is payable by every Person on his Total Income (Calculated depending
upon his Residential Status) which is earned during Previous Year at the rate of tax applicable
for the relevant Assessment Year.
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Income: Section 2 (24) : Income includes:

I. Profits and gains of any business and profession
II. Dividend
III. Voluntary contributions received by a trust
IV. Value of any perquisites or profits in lieu of salary received by an employee
V. Any allowance or benefit granted to an employee to meet official expenses.
VI. Any capital gains chargeable under Section 45
VII. Any winning from lotteries, crossword puzzles, races including horse races, card games
and other games.
VIII. Any sum of money or value of property referred to in Section 56 (2)
IX. Any consideration received by the company in which the public is not substantially
interested, for the issue of shares as exceeds the fair market value of shares.
X. Any sum of money received as an advance or otherwise in the course of negotiations for
the transfer of capital asset if such sum is forfeited and negotiations do not result in a
transfer of such capital asset. [wef AY 2015-2016]

⮚ Gross Total Income: Section 14: Gross total income means the aggregate of income under
all the five heads of income.
⮚ Total Income: Section 2 (45): Total Income means the total amount of income computed
by deduction/deductions from gross total income. In other words, from the gross total
income, certain deductions under Section 80C to 80U are allowed and the balance income,
after the deductions, is known as Total Income.

⮚ PREVIOUS YEAR AND ASSESSMENT YEAR

♣ Previous year: Section 2 (34): Previous Year means the year as defined in Section 3
Section 3: Previous year means the financial year immediately preceding the assessment year.

♣ Assessment Year: Section 2 (9): Assessment Year (AY) means the period of 12
months commencing on the 1st date of April every year.

NOTES

(a) A financial year is the period of 12 months starting from 1st April till 31st March of the
following year
(b) The Income earned in one financial year is taxable in the next financial year.
(c) The year in which income is earned is called Previous Year.
(e) And the year in which tax is computed is called Assessment Year.
(f) One financial year plays a dual role. It can be a previous year as well as the assessment
year. In one year, it is assessment year, and then, it will become the previous year in the
next year.

⮚ PREVIOUS YEAR CAN BE A PERIOD OF LESS THAN 12 MONTHS: PROVISO

TO SECTION 3.
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✔ Income earned in a financial year is not assessed in that financial year but in the
following financial year. TO this general rule, the following are the exceptions:

1. SHIPPING BUSINESS OF NON-RESIDENTS: SECTION 172

2. ASSESSMENT OF PERSONS LEAVING INDIA: SECTION 174

3. ASSESSMENT OF AOP/BOI FORMED FOR A PARTICULAR EVENT:

SECTION 174A.

4. ASSESSMENT OF PERSONS LIKELY TO TRANSFER PROPERTY TO AVOID

TAX: SECTION 175.

5. DISCONTINUED BUSINESS: SECTION 176.

COMPUTATION OF TOTAL INCOME

Income shall be computed under each head, i.e. expenses incurred shall be deducted from the
gross receipt as per the provisions of the relevant head.
Income computed under each head shall be added up to compute the gross total income.
Certain concessions are allowed from the gross total income, which is called deduction from
gross total income under section 80C to 80U.
After permitting the deductions, the remaining income is called total income.
Computation of total income can be shown mathematically in the manner given below:
Total income of an assessee shall be computed in the following steps:
Computation of Total Income & Tax Liability

Income under the head 'Salary' XXX

Income under the head 'House Property' XXX
Income under the head ‘Business and Profession’ XXX
Income under the head ‘ Capital Gains’ XXX
Income under the head ‘ Other sources’ XXX
Gross Total Income XXX

Less: Deductions of Chapter VI-A under Section 80C to (XX

80U X)
Total Income XXX
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Tax Liability as per Slab Rate / @ Flat 30% / @ Flat 40%

/ @20% (If LTCG Only) XXX
Less:- Rebate u/s 87A if Total Income ≤
Rs,500,000. XXX
Add:- Surcharge, if applicable XXX
Add:- HEC @ 4% XXX
Total Tax Liability XXX

Total income Shall be rounded off u/s 288A in the multiples of 10, and for this purpose, any
paisa shall be ignored, and if the last digit is 5 or more, it will be rounded off to the higher multiple
otherwise it will be rounded off to the lower multiple.

COMPUTATION OF TAX LIABILITY

Tax liability of an individual shall be computed at the slab rates given in the relevant Finance
Act, i.e., Finance Act, 2019 and the rates are as given below:

⮚ TAX RATES BASED ON TYPE OF ASSESSEE

TAX RATES FOR INDIVIDUAL, HUF, AOP, BOI AND AJP: In India, we follow
Progressive Taxation for Individuals and HUFs. To achieve this goal, the Finance Act provides
slab rates for the taxation of income.
Upto 2,50,000 – NIL
(a) This slab applies to: On Next 2,50,000 –
✔ Every resident Male/Female whose age is less than 60 years. 5%
✔ Every Non-resident Male/Female irrespective of their age. On Next 5,00,000 –
20 %
✔ Every HUF, AOP/ BOI and AJP
On Balance
(whether resident or non-resident, of India)
Amount – 30%
Upto 3,00,000 – NIL
On Next 2,00,000 – 5%
On Next 5,00,000 – 20 %
(b) This slab is used for every male and every On Balance Amount – 30%
female who is resident in India and who is
of the age of 60 years or more but is of less
than 80 years of age.

Upto 5,00,00 – NIL

(c) This slab is used for every male and female On Next 5,00,000 – 20 %
who is resident in India and who is of the On Balance Amount – 30%
age of 80 years or more.
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The amount of tax calculated is further increased by the amount of Surcharge, if applicable,
and education cess
The surcharge shall be applicable in case of Individual.

⮚ @10% provided if total income exceeds rupees 50 Lakhs but it is upto Rs 100 lakhs.
⮚ @15% provided if total income exceeds rupees 100 Lakhs but it is upto Rs 200 lakhs
⮚ @25% provided if total income exceeds rupees 200 Lakhs but it is upto Rs 500 lakhs
⮚ @37% provided if total income exceeding rupees 500 Lakhs

Rebate in case of resident individual Section 87A

Rebate is allowed only to a resident individual if total income is not exceeding rupees 500000.
Rebate shall be allowed subject to the maximum of rupees 12500. Health and education cess shall
be applicable after permitting rebate under section 87A.

Assesse is having an Option to compute income tax under section 115BAC at the rates given
below:

New slab rates Existing slab rates

Income from Rs 3 lakh to Rs 6 lakh 5% Income from Rs 2.5 lakh to Rs 5 5%
lakh
Income from Rs 6 lakh to Rs 9 lakh 10% Income from Rs 5 lakh to Rs 10 20%
lakh
Income from Rs 9 lakh to Rs 12 lakh 15% Income above Rs 10 lakh 30%
Income from Rs 10 lakh to Rs 12.5 lakh 20%

Income from Rs 12 lakh to Rs 15 lakh 25%

Income above Rs 15 lakh 30%
The highest surcharge rate of 37% has been reduced to 25% under the new tax regime.

Exemptions and deductions not claimable under the new tax regime

✔ Professional tax and entertainment allowance on salaries

✔ Leave Travel Allowance (LTA)
✔ House Rent Allowance (HRA)
✔ Minor child income allowance
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✔ Helper allowance
✔ Children education allowance
✔ Other special allowances [Section 10(14)]
✔ Interest on housing loan on the self-occupied property or vacant property (Section 24)
✔ Chapter VI-A deduction (80C,80D, 80E and so on) (Except Section 80CCD(2) and
80JJAA)
✔ Without exemption or deduction for any other perquisites or allowances
✔ Deduction from family pension income

Deductions and exemptions not allowed for business income:

✔ Additional depreciation under section 32.

✔ Investment allowance under section 32AD
✔ Sector-specific business deductions under section 33AB and 33ABA
✔ Expenditure on scientific research under section 35
✔ Capital expenditure under section 35AD
✔ Exemption under section 10AA for SEZ units

However, the following exemption & deductions can be claimed.

● Transport allowances in case of employee who is blind or deaf and dumb or orthopedically
handicapped.
● Conveyance allowance received to meet the conveyance expenditure incurred as part of
the employment.
● Any compensation received to meet the cost of travel on tour or transfer.
● Daily allowance received to meet the ordinary regular charges or expenditure you incur on
account of absence from his regular place of duty.
⮚ TAX RATES FOR PARTNERSHIP FIRMS, COMPANIES AND LOCAL
AUTHORITY

In India, we follow flat taxation for firms, companies and local authorities. Flat taxation
means that income tax at a fixed rate will be calculated irrespective of the level of
Income of such Person.

Tax Slab Rate for Domestic Company:

A domestic company is taxable at 30%. However, the tax rate is 25% if turnover or gross receipt
of the company does not exceed Rs. 400 crore in the previous year.
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Particulars Tax Rate(%)

If turnover or gross receipt of the company does not
25%
exceed Rs. 400 crore in the previous year 2018-19
If company opted section 115BA (Note A) 25%
If company opted for section 115BAA (Note B) 22%
If company opted for section 115BAB (Note C) 15%
Any other domestic company 30%

Note A: Section 115BA - A domestic company which is registered on or after March 1, 2016 and
engaged in the business of manufacture or production of any article or thing and research in
relation to (or distribution of) such article or thing manufactured or produced by it and also It is
not claiming any deduction u/s 10AA, 32AC, 32AD, 33AB, 33ABA, 35(1)(ii) /(iia) / (iii ) / 35
(2AA) / (2AB), 35AC, 35AD, 35CCC, 35CCD, section 80H to 80TT (Other than 80JJAA) or
additional depreciation, can opt section 115BA on or before the due date of return by filing Form
10-IB online.
Company cannot claim any brought forwarded losses (if such loss is related to the deductions
specified in above point).
Note B: Section 115BAA - Total income of a company is taxable at the rate of 22% (from
A.Y 2020-21), if the following conditions are satisfied:
✔ Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or
33ABA or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section
80H to 80TT (Other than 80JJAA).
✔ Company is not claiming any brought forwarded losses (if such loss is related to the
deductions specified in above point).
Note C: Section 115BAB - Total income of a company is taxable at the rate of 15% (from A.Y
2020-21), if the following conditions are satisfied:
✔ Company (not covered in section 115BA and 115BAA) is registered on or after October
1, 2019 and commenced manufacturing on or before 31st March, 2023.
✔ Company is not formed by splitting up or reconstruction of a business already in existence.
✔ Company does not use any machinery or plant previously used for any purpose
✔ Company does not use any building previously used as a hotel or a convention center, as
the case may be.
✔ Company is not engaged in any business other than the business of manufacture or
production of any article or thing and research in relation to (or distribution of) such article
or thing manufactured or produced by it.
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Business of manufacture or production shall not includes business of -

✔ Development of computer software;
✔ Mining;
✔ Conversion of marble blocks or similar items into slabs;
✔ Bottling of gas into cylinder;
✔ Printing of books or production of cinematographic film; or
✔ Any other notified by Central Govt.
Company is not claiming any deduction u/s 10AA or 32(1)(iia) or 32AD or 33AB or 33ABA
or 35(1)(ii)/(iia)/(iii)/35(2AA)/(2AB) or 35AD or 35CCC or 35CCD or section 80H to 80TT
(Other than 80JJAA and 80M).
Company is not claiming any brought forwarded losses (if such loss is related to the
deductions specified in above point).

TAX SLAB
Tax Education
Assessee Rate Surcharge Cess
Partnership
Firm/LLP 30% 12% (if TI > 1Cr) HEC @ 4%
Local Authority 30% Same as given above HEC @ 4%
7% (if T.I >100 Lakhs≤ 1000
Domestic Lakhs
Company 30% 12% if T.I > 1000 Lakhs HEC @ 4%
2% (if T.I >100 Lakhs≤ 1000
Lakhs
Foreign Company 40% 5% if T.I > 1000 Lakhs HEC @ 4%

⮚ Above tax rates are for all incomes other than capital gains u/s 112 & u/s 111A &
Casual income u/s 115 BB

⮚ LTCG @ 20%, STCG u/s 111A @15%, LTCG u/s 112A @ 10% in excess of 1,00,000,
Casual Income @ 30%.

♣ Meaning of Person Section 2 (31)

“Person” includes –
a. An individual,
b. A Hindu undivided family,
c. A company
d. A firm, an association of persons or a body of individuals, whether incorporated or not,
e. A local authority
f. Every artificial juridical Person, not covered above and income is taxable as slab rate.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 2
Residential Status
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RESIDENTAL STATUS
For any income to be taxable in India, there must be a relation of a person with the country or
relation of income earned with the country.

In residential status, we are concerned with the relation of a person with the country.

Whether a particular income shall be taxes or not shall depend on the residential status and the
type of income. Residential status, in fact, explains the connection of the person with the
country and types of income explains the connection of the income with the country. If the
person does not have any connection and also the incomes do not have any connection, and
also the income does not have any connection with the country, the income shall not be taxable,
but if either the person or the income has any connection, the income is taxable.
For this purpose, taxpayers are classified into three broad categories on the basis of their
residential status.
1. Resident and ordinarily resident
2. Resident but not ordinarily resident
3. Non-resident

Residential status of Individual 6 (1)

Under section 6 (1), an individual is said to be If none of the condition has been satisfied, then
resident in India in any previous year, if he the individual shall be considered to be NR.
satisfied any one of the following conditions:
(i) A person stays in India in the relevant
previous year for 182 Days or more
or,
(ii) Stay in India during the relevant Previous
Year should be 60 Days or more & Stay in
Preceding 4 year relevant to Previous year
should be 365 Days or more.
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An individual who is resident of India shall be An individual who is resident of India shall be
considered to be ROR if he has complied with considered to be NOR if he has complied with
both of the conditions given below: at least one of the conditions given below:
(i) He is Resident in at least 2 Previous Year (i) He is Resident in only 1 Previous Year out
out of 10 Preceding Previous Year. of 10 Preceding Previous Year.
AND OR
(ii) Stay in the Preceding seven-year relevant (ii) Stay in the Preceding seven-year relevant
to Previous year should be 730 Days or more. to Previous year should be 729 Days or less.

♣ Determination of residential status of Individual covered in a special category

As per section 6 (1), Certain individuals are covered in the special category, and they will be
considered to be resident only if they stay in India for 182 days or more, i.e. the second
condition of 60 plus 365 days shall not be applicable and such individuals are:
1. Any individual who is a citizen of India has left India for taking up any business or
profession or employment outside India.
2. Any individual who is a citizen of India or is a person of India origin and is having
business/profession/employment outside India and has come to India on a visit shall
also be covered in the special category, e.g. Mr X is a citizen of India and is settled
as a doctor in the USA and has come to India on a visit for 181 days, he will be
covered in the special category, and his status shall be non-resident.
A person is said to be of Indian origin if he or either of his parents or either of his
grandparents (including parents of a mother) were born in undivided India. e.g. Mr X
has taken birth in the UK and is a citizen of UK, but his grandfather took birth in India
in 1940, in this case, Mr X will be considered to be a person of India origin
3. Any individual who is a citizen of India and has left India as a member of the crew
of an Indian ship shall also be covered in a special category.
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Que1. Mr X came to India for 100 Days Every Year, Determine his residential Status for the
Previous Year 2023-24.
Answer:- NOR

Points to Remember: -
1. If the days of the person are to calculated for 2023 – 24 then please remember for
2023 – 24 February is of 29 Days in 2024.
2. For the purpose of calculation of the number of days, the day of arrival and the
day of Departure shall be considered to be the day of stay in INDIA.
Residential Status (Special Category)
Under section 6(1), an individual, being a person of Indian origin and who comes on
a visit to India during the previous year will be considered as a resident in India, if:
· He stayed in India for a total period of 120 days or more during the previous year
AND for 365 days or more during the 4 years immediately preceding the relevant previous
year; AND
● His total income other than income from foreign sources exceeds Rs. 15,00,000.
● However, if the total income does not exceed Rs. 15,00,000, the said individual
would be a resident in India, only if he stayed in India for a total period of 182
days or more during the previous year.

♣ Residential status of HUF

As per section 6 (2), a HUF would be resident in India if the control and management of its
affairs is situated wholly or partly in India. If the control and management of the affairs is
situated wholly outside India, it will be considered to be non-resident. Since control and
management of HUF is in the hands of its Karta hence place of stay of Karta shall be taken
into consideration, i.e. if Karta is out of India throughout the year, HUF shall be Non-resident,
but if Karta has come to India for a few days, HUF shall be resident.

♣ Meaning of Not-ordinarily resident & ROR

Its depend on the Residential Status of KARTA of HUF.
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 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 3
Scope of Total Income
 2

TAX INCIDENCE / SCOPE OF TOTAL INCOME

As per section 5, the scope of total income or tax incidence in various status shall be as
given below:
1. Resident and ordinarily resident – In case of ROR, the following incomes shall be
taxable.
a. Income accruing/arising in India.
b. Income received or deemed to be received in India even if accruing/arising abroad.
c. Income accruing/arising aboard and received aboard.

In simpler terms, ROR has to pay tax on his world income in India.

2. Resident but not ordinarily resident – The following incomes shall be taxable.
a. Income accruing/arising in India.
b. Income received or deemed to be received in India even if accruing/arising
abroad.
c. Income accruing/arising aboard and received aboard but from a business
controlled from India or from a profession which was set up in India.
3. Non-resident – The following incomes shall be taxable.
a. Income accruing/arising in India.
b. Income received or deemed to be received in India even if accruing/arising
abroad.

Note:-
1. Any income if specifically exempt in the act then it shall not be taxable for any of the
category.
2. Past Untaxed Profits are exempt for all categories of persons.

Particular Amounts
(Rs.)
1. Interest on UK Development Bonds, 50% of interest received in India 10,000
2. Income from a business in Chennai (50% is received in India) 20,000
3. Profits on sale of shares on an Indian company received in London 20,000
4. Dividend from British company received in London 5,000
5. Profits on sale of plant at Germany 50% of profits are received in India 40,000
6. Income earned from business in Germany which is controlled from Delhi (Rs. 70,000
40,000 is received in India)
7. Profits from a business in Delhi but Managed entirely from London 15,000
8. Income from property in London deposited in a India Bank at London, brought 50,000
to India
9. Interest for debentures in an India company received in London. 12,000
10. Fees for technical services rendered in India but received in London 8,000
11. Profits form a business in Bombay managed from London 26,000
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12. Pension for services rendered in India but received in Burma 4,000
13. Income from property situated in Pakistan received there 16,000
14. Past foreign untaxed income brought to India during the previous year 5,000
15. Income from agricultural land in Nepal received there are then brought to India 18,000
16. Income from profession in Kenya which was set up in India, received there but 5,000
spent in India
17. Gift received on the occasion of his wedding. 20,000
18. Interest on saving bank deposit in State Bank of India 10,000
19. Income from a business in Russia, controlled from Russia 20,000
20. Dividend from Reliance Petroleum Limited, an Indian Company 5,000
21. Agricultural income from a land in Rajasthan 15,000

Solution:-
COMPUTATION OF GROSS TOTAL INCOME FOR THE A.Y. 2018-19
S. No. Resident and Resident but not Non resident
ordinarily resident ordinarily Rs.
Rs. resident
Rs.
1. 10,000 5,000 5,000
2. 20,000 20,000 20,000
3. 20,000 20,000 20,000
4. 5,000 ---- ---
5. 40,000 20,000 20,000
6. 70,000 70,000 40,000
7. 15,000 15,000 15,000
8. 50,000 --- ---
9. 12,000 12,000 12,000
10. 8,000 8,000 8,000
11. 26,000 26,000 26,000
12. 4,000 4,000 4,000
13. 16,000 --- ---
14. --- --- ---
15. 18,000 --- ---
16. 5,000 5,000 ---
17. --- --- ---
18. 10,000 10,000 10,000
19. 20,000 --- ---
20. --- --- ---
21. --- --- ---
Grand Total Incomer 3,49,000 2,15,000 1,80,000
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UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 4
Basic Component of Salary &
Taxability
 2

INCOME UNDER THE HEAD SALARY

COMPONENTS OF SALARY

Part-A
(i) Basic pay:- It is the main part of the salary. It is given by employer to employee for his
basic qualities like experience qualification or specialization in a particular field, and it is given
in the form of the pay scale. For Example:-
5000 - 1000 - 7000 - 2000 - 9000 - 4000 - 17000 - 6000 - 35000.

The amount of basic pay is fully taxable.

For Example-
Mr X join ABC Ltd on 01.10.2018 on the above Pay scale. Calculate his total Basic Pay for
the Year 2022 – 23 if he resigns on 01.03.2023.
Answer:- .
(ii) Dearness allowance:- it is given by the employer to employee for increase in the price,
and it is allowed as a percentage of basic pay and linked to consumer price index. It is Fully
taxable.
(iii) Bonus:- It is given by employer to employee after measuring the performance of the
employee during the year. It is fully taxable.
(iv) Commission/Fees etc.:- Extra payment for extra effort is called as Commission or by
whatever name called. It is fully taxable.
Part - B
Allowances:-Allowance means a fixed sum paid to an employee for a specific purpose without
confirming the end utilization.
Personal allowance
It is given by employer to employee for the personal purpose of employee. It is of following
types:-
1. House Rent Allowance: - (Section 10 (13 A) Rule – 2 A)
It is given by employer to employee for the accommodation of the employer. it is exempt
to the least of the following: -
● Allowance received
● Rent paid in excess of 10% of salary
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● 50% of salary or 40% of salary depending upon the Metropolitan city respectively as the
case may be.

2. Children education allowance

It is given by employer to employee for the Education of children of employee. It is exempt

up to Rupees 100 per month per child for the maximum of two child.

3. Hostel Allowance
It is given by employer to employee for the hostel accommodation of the children of
employee. It is exempt up to rupees 300 per month per child for the maximum of two child.

4. Transport Allowance
It is given by employer to employee to meet the expenditure for competition between the
place of Residence and the place of Duty. It is fully taxable, but if it is given to disabled
employee then it is exempt up to rupees 3200 per month.

5. Underground allowance
It is given by employer to employee who are working in the mines, and it is exempt up to
rupees 800 per month.

6. Outstation allowance
It is given by employer to employee who are working in any transport system to meet his
personal expenditure during the duty which is to be performed. It is to be given in lieu of
daily allowance. It is exempt to the extent of 70% of the allowance for rupees 10000 per
month, whichever is lower.

Allowance for official Duty:

The allowance given by the employer to an employee for official purpose is called as official
allowances and are fully exempt. However, if any amount has been saved by the employee
then it is fully chargeable to tax. It is of following types:

1. Travelling Allowance:- It is given by the employer to an employee to meet the cost of

travelling when the employee is on an official tour.

2. Conveyance allowance:- It is given by the employer to an employee to meet the

expenditure incurred on the conveyance for the visiting of one location of the factory or
workplace to another location.
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3. Helper allowance:- It is given by the employer to employee help for the performance of
his official duties.

4. Academic Allowance:- It is given by the employer to employee for his academic research
and training.

5. Uniform Allowance:- It is given by the employer to an employee to meet the expenditure

incurred on the maintenance for purchase of the uniform, which is to be wear during the
office or employment.

6. Daily Allowance:- It is given by employer to employee to meet the cost of boarding &
lodging when the employee is on official tour.

Foreign Allowance

Any allowance or perquisite paid or allowed outside India by the government to a citizen
of India for rendering service outside India are exempt from tax.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 5
Taxability of Perquisite
 2

Valuation of Perquisites
Any non-monetary benefit provided by the employer to employee is called as perquisites. The
taxable value shall be the perquisite value. In all of the perquisites, the Perquisite value is to be
reduced by the amount if any recovered by employer from employer.

Valuation of residential accommodation provided by the employer:-

(a) Union or State Government Employees- The value of perquisite is the license fee as
determined by the Govt. as reduced by the rent actually paid by the employee.
(b) Non-Govt. Employees- The value of perquisite is an amount equal to 15% of the salary in
cities having population more than 25 lakh, (10% of salary in cities where population as per 2001
census is exceeding 10 lakh but not exceeding 25 lakh and 7.5% of salary in areas where
population as per 2001 census is 10 lakh or below).
In case the accommodation provided is not owned by the employer, but is taken on lease or rent,
then the value of the perquisite would be the actual amount of lease rent paid/payable by the
employer or 15% of salary, whichever is lower.

Value of Furnished Accommodation- The value would be the value of unfurnished

accommodation as computed above, increased by 10% per annum of the cost of furniture
(including TV/radio/ refrigerator/AC/other gadgets).
In case such furniture is hired from a third party, the value of unfurnished accommodation would
be increased by the hire charges paid/payable by the employer.

Value of hotel accommodation provided by the employer- The value of perquisite arising out
of the above would be 24% of salary or the actual charges paid or payable to the hotel,
whichever is lower.
No perquisite would arise, if the employee is provided such accommodation on transfer from one
place to another for a period of 15 days or less.

Perquisite of motor car provided by the employer

If an employer providing such facility to his employee is not liable to pay fringe benefit tax, the
value of such perquisite shall be:
1. If motor car is owned or leased by the employer
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a) Used exclusively for official purpose If the car is used for only official purpose, it will not be
taxable in the hands of employee irrespective of cubic capacity of engine.
b) Used for both official and personal purpose
i) If running and maintenance cost is reimbursed by the employer Cubic Capacity within 1.6 litre
– Rs 1,800 p.m. + Rs 900 p.m. (If driver is provided) Cubic Capacity exceeding 1.6 litre – Rs
2,400 p.m. + Rs 900 p.m. (If driver is provided)
ii) If running and maintenance cost is reimbursed by the employee Cubic Capacity within 1.6 litre
– Rs 600 p.m. + Rs 900 p.m. (If driver is provided) Cubic Capacity exceeding 1.6 litre – Rs 900
p.m. + Rs 900 p.m. (If driver is provided)
c) Used exclusively for personal purpose If the car is used for only personal purpose, it will be
fully taxable in the hands of employee irrespective of cubic capacity of engine. The taxable value
is as under:
Actual cost of Running and Maintenance of motor car
ADD: Driver’s salary
AD: Normal wear and tear @10% per annum of the actual cost of motor car
Less: Any charges recovered from the employee
If motor car is owned by the employee but running and maintenance and driver’s salary
reimbursed by employer:
a) Used exclusively for official purpose:- If the car is used for only official purpose, it will not
be taxable in the hands of employee irrespective of cubic capacity of engine.
b) Used for both official and personal purpose If running and maintenance cost is reimbursed
by the employer
Cubic Capacity within 1.6 litre – Actual expenses less Rs 2,700 p.m.
Cubic Capacity exceeding 1.6 litre - Actual expenses less Rs 3,300 p.m.
Perquisite arising out of supply of gas, electric energy or water:
This shall be determined as the amount paid by the employer to the agency supplying the same.
If the supply is from the employer’s own resources, the value of the perquisite would be the
manufacturing cost per unit incurred by the employer.
Free/Concessional Educational Facility: Value of the perquisite would be the expenditure
incurred by the employer. If the education institution is maintained & owned by the employer, the
value would be nil if the value of the benefit per child is below Rs 1000/- P.M. or else the
reasonable cost of such education in a similar institution in or near the locality.
 4

Interest free/concessional loans– The value of the perquisite shall be the excess of interest
payable at the prescribed interest rate over, interest, if any, actually paid by the employee or any
member of his household.
The prescribed interest rate would be the rate charged by State Bank of India as on the 1st Day of
the relevant Previous Year in respect of loans of the same type and for same purpose advanced by
it to general public.
Perquisite to be calculated on the basis of the maximum outstanding monthly balance
method.
However, loans upto Rs 20,000/-, loans for medical treatment are exempt
Value of free meals- The perquisite value in respect of free food and non-alcoholic beverages
provided by the employer, not liable to pay fringe benefit tax, to an employee shall be the
expenditure incurred by the employer as reduced by the amount paid or recovered from the
employee for such benefit or amenity. However, no perquisite value will be taken if food and non-
alcoholic beverages are provided during working hours
Value of gift or voucher or token– The perquisite value in respect of any gift, or voucher, or
taken in lieu of which such gift may be received by the employee or member of his household
from the employer is exempt upto Rs. 5000- in the aggregate during the previous years.
Credit card provided by the employer– The perquisite value in respect of expenses incurred by
the employee or any of his household members, which are charged to a credit card provided by
the employer shall be fully chargeable to tax. However, no perquisite value will be taken if the
expenses are incurred wholly and exclusively for official purposes or Club membership provided
by the employer
Perquisites Exempt From Income Tax

✔ Perquisites allowed outside India by the Government to a citizen of India for rendering
services outside India (Sec. 10(7)).
✔ Rent free official residence provided to a Judge of High Court or Supreme Court or an
Official of Parliament, Union Minister or Leader of Opposition in Parliament.
✔ No perquisite shall arise if interest free/concessional loans are made available for medical
treatment of specified diseases in Rule 3A or where the loan is petty not exceeding in the
aggregate Rs.20,000/-
✔ No perquisite shall arise in relation to expenses on telephones including a mobile phone
incurred on behalf of the employee by the employer.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 6
Superannuation Benefits
 2

Taxability of Superannuation Benefits (Salary)

Superannuation Benefits
a) Gratuity: - Section 10 (10)

b) Pension: - Section 10 (10A)

c) Leave Salary: - Section 10 (10AA)

d) Provident Fund: - Section 10 (11)

e) Retrenchment Compensation: - Section 10 (10 B)

f) Voluntary Retirement Scheme: - Section 10 (10 C)

Gratuity is a monetary benefit given by the employer, but not paid as part of the regular
monthly salary. The provisions of gratuity are governed by the Payment of Gratuity Act,
1972, and it is given on the occurrence of any of the following events.
✔ On superannuation (means an employee who attains the age of retirement is said
to be in superannuation)
✔ On retirement or resignation
✔ On death or disablement due to accident or disease (the time limit of 5 years shall
not apply in the case of death or disablement of the employee) It is mandatory
for the employee to have completed a minimum of five years in service to be able
to receive gratuity. It is not available for interns or temporary employees.

The employer will pay gratuity when the employee satisfies the following conditions:
1. The employee should be drawing wages as a full-time employee of an
organisation. An apprentice is not eligible to receive gratuity.
2. The employee should be in continuous service for a minimum of 5 years.
3. The employee can also get gratuity upon resignation, superannuation,
disablement due to accident or disease, or death. The condition of 5 years is not
applicable in the case of disablement or death.

Employees Covered Under the Payment of Gratuity Act

Every individual – working in a factory, mine, oil field, port, railways, plantation, shops
& establishments, or educational institution having 10 or more employees on any day in
 3

the preceding 12 months – is entitled to gratuity.

Once the Act becomes applicable to an employer, even if the number of employees goes
below 10, gratuity is still applicable.
The least of the following is exempt from tax:
⮚ Last salary (basic + DA)* number of years of employment* 15/26;
⮚ Rs. 20 lakhs (which has been hiked from Rs. 10 Lakh as per the amendment);
⮚ Gratuity Actually received

Employees Not Covered Under the Payment of Gratuity Act

The least of the following are exempt from tax:
✔ Last 10 month’s average salary (basic + DA)* number of years of employment*
1/2;
✔ Rs. 10 lakhs (the hike to Rs 20 lakhs is not applicable for employees not covered
under the Payment of Gratuity Act)
✔ Gratuity actually received

♣ Pension:-
 4

♣ LEAVE ENCASHMENT:- Amount received by employee from employer for

the Leaves which has not been availed or taken by employee.

Calculation of Leave credit:-

Total Leave Allowed XXX
Less:- Leave availed during the service XXX
Less:- Leave encashment during the service XXX
Total Leave balance XXX

The maximum leaves which are allowed shall be 30 days for each completed
year of service. Ignore part of the Year.

Retrenchment Compensation:-
Retrenchment in general means termination of employees because the
employer is closing down his business or profession or there is substantial
decline in business of employer and in such cases the employer has to pay
compensation to the employees and it is called retrenchment compensation
and least of the following shall be exempt:-
 5

1. Amount Received.
2. 5,00,000
3. Amount calculates as per Industrial Dispute Act 1947.

Voluntary Retirement Scheme: -

Sometimes the employer may offer some amount to the employee so that
the employee himself submits his resignation and it is called voluntary
retirement and is such cases amount paid by employer shall be exempt from
income tax to the extent of the least of the following:-
1. Amount Received
2. 5,00,000
3. Three Month’s Salary for each completed year of Service.
4. Salary at the time of Retirement X No. of Months left for actual retirement.

Provident Fund:- Amount contributed by employee to its PF account and

employer is also liable to deposit the same amount.

Interest Credited to P.F:- Interest credited to the Provident Fund account is

exempt upto 9.5% P.A.
 6

Deduction u/s 16 From Gross Salary:-

1. Section 16(ia):- Deduction of Rs 50,000 or the amount of salary whichever
is less.

2. Entertainment Allowance - Section 16 (ii):- It is the allowance which is

given by the employer to an employee for the entertainment of the customers
of the employer. This entire amount is to be added to the gross salary of the
employee and deduction shall only be available only to the Government
employees to the extent of least of the following:-
a) Allowance received
b) 20% of basic pay
c) Rupees 5000

3. Professional tax or Employment tax - Section 16 (iii)

The states government is empowered to levy a tax on profession, business or

profession and this tax is known as employment tax or professional tax. If it is
paid by the person having business or profession, then it is allowed to be debited
in profit and loss account but if it is paid by the person who is receiving the salary
then deduction is allowed under section 16 (iii).
However, if it is paid by employer on behalf of employee then the amount first to
be added in the gross salary and after that deduction is allowed.

Salary for Different Purpose

When gratuity Act,1972 is applicable Basic salary + D.A

House rent allowance

Employer’s contributation in R.P.F Basic salary + D.A ( as per as service
Earned leave / Encashment of condition) + fixed percentage on sale
earned leave of commission.
Compensations received on
voluntary retirement
 7

When gratuity Act, 1972 NOT

applicable
Basic salary + D.A ( as per as service
condition) + bonus + fixed percentage
on sale of commission. + all taxable
Value of furnished and unfurnished allowance + Encashment of earned
house :- leave:-
Salary for the provision of this
provision means all remuneration (
cash and value of perquisites) which
can be expressed in term of money
but this does not include any bonus,
gratuity and any contribution to fund
compensations received on established under any act for the
retrenchment welfare of the employee.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 7
Income under the Head House
Property: Part 1
 2

INCOME U/H HOUSE PROPERTY

Charging section – 22:- Any Income from letting out of any house property whether commercial
or residential shall be taxable under the head house property.
Exception to the case where any income is from letting out but shall not be taxable under the head
house property:-

1. Income from subletting of any house property

2. If any person is holding house property as Stock-in-Trade then income shall be taxable
under the head P/G/B/P.
3. Income from letting out any vacant land/Farm house
4. Income from letting out any agriculture land

Computation of Income
To calculate the income under any head of Income-tax, we require two things one is Revenue,
and another is Expenses.
The revenue under the Head house property is the Rent Received, and it can be computed by
calculating the Gross Annual Value (G.A.V.)
Now we will consider the steps to calculate the G.A.V.

Computation of G.A.V. (Gross Annual Value)

Step 1:-Consider Fair Rent or Municipal Rent of the property & select whichever is HIGHER.
Step 2:- The Higher value so selected is to be compared with the Standard Rent & select
whichever is Lower.
NOTE:- The value so selected in Step 2 is called as Expected Rent that is the minimum possible
rent & no further deductions shall be allowed from such value.
Step:3 The Expected Rent is to be compared with the Actual Rent & HIGHER VALUE from the
above two shall be called as Gross Annual Value Value (G.A.V.).

❑ Fair Rent is the rent of similar type of properties in the same area.

❑ Municipal Valuation is the rental value determined by the municipality to charge municipal
tax.
 3

❑ Standard Rent is the highest possible rent as per Rent Control Act.

Format for the calculation of Income Under the Head House Property
Gross Annual Value XXX
Less:- Municipal Taxes PAID by OWNER XXX
NET Annual Value (NAV) XXX
Less:- Deductions u/s:-
24 (a) 30 % of Net Annual Value XX
24 (b)) Interest payable on Loan taken for Purchase /Construction /
Renewal/Repair of House property XX
Income u/h House Property XX

Note- 1. Municipal taxes shall be allowed on Actual Payment basis.

2. Interest on borrowed capital shall be allowed on Accrual Basis that is it shall be allowed even
if not paid in the given relevant previous year.

TREATMENT OF VACANCY
If the house is partly let out and partly vacant, in such cases expected rent shall be computed for
12 months but while computing rent received / receivable, rent for the period for which the house
was vacant shall be excluded from the Actual Rent if Actual Rent is higher than Expected Rent
otherwise no deduction for the vacancy shall be allowed.

TREATMENT OF UNREALISED RENT

Unrealised rent means such rent which is irrecoverable and is considered to be loss, i.e. bad debt
and in such cases, expected rent shall be computed for full year and while computing rent received
or receivable, such unrealised rent shall be excluded, and G.A.V. shall be higher of expected rent
and rent received / receivable (no special treatment like vacancy).
4
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 8
Income under the Head House
Property: Part 2
 2

♣ SECTION 24 (b)
Interest on borrowed capital taken for purchase, construction, repair, renewal.

❖ If any assessee has taken a loan or advance for Purchase Construction Repair, Renovation
of the house property, interest on such loan shall be allowed to be deducted under section
24b from net annual value. The assessee can take any number of loan.

❖ Interest for the year for which income is to be calculated shall be allowed in the same year
and called as current period interest.

❖ Interest for the period prior to the year in which house was constructed shall be called as
prior period interest

❖ Interest on borrowed capital shall be allowed on the accrual basis.

❖ Interest for pre-construction period shall also be allowed in five equal instalments starting
from the year in which the construction has been completed. Reconstruction period means
the period starting from the date of taking the loan and ending with preceding to the
previous year in which construction has been completed.

❖ Interest paid on fresh loan after the repayment of original loan shall also be allowed as
deduction.

❖ Interest on interest shall not be allowed as deduction.

For example, Mr Raman has taken of Rupees 20 lakh on 1st October 2019 @ 15% Per Annum
for Construction of a house which was completed on 31st March 2023.
Calculate the amount of interest which is allowed as a deduction under section 24b for the previous
year 2020-21.
Answer:- 450000.

♣ More than Two house which are self – occupied (deemed to be let out property)
Section 23 (4)
If any assessee has more than Two house which are self – occupied, in such cases only one of
these houses shall be considered to be self – occupied and income shall be computed under section
23 (2), and all other houses shall be deemed to be let out, and income shall be computed in the
similar manner as in case of let out house. Expected rent shall be considered to be G.A.V. of the
house.
 3

In case the tax payer has more than two self-owned houses as self-occupied, he has to select any
two of the house as self-occupied and treat the other house/s as deemed to have been let out.

HOUSE WHICH IS SELF OCCUPIED

⮚ GAV shall be NIL.

⮚ [Link] shall not be allowed.

⮚ NAV shall be NIL

Unrealised Rent : It is the rent of the property pertaining to the previous year, which the owner
of the property could not recover from the tenant. If following conditions are satisfied, then
unrealised rent pertaining to the previous year is to be deducted from actual rent of the previous
year if the following conditions get satisfied:-
 4

1. The tenancy is bona fide.

2. The defaulting tenant has vacated the property, or steps have been taken to compel him to
vacate the property.
3. The defaulting tenant is not in occupation of any other property of the assessee.
4. The assessee has taken all steps to recover such amount, including legal proceedings or he
satisfies the Assessing Officer that legal proceedings would be useless.

Tax treatment of composite rent

(I) Renting of building and provisions of other services

In such a case composite rent includes rent of building and charges for different services.

In this situation, composite rent is to be split up and the sum attributable to the use of property is
to be assessed under the head “Income from house property” and charges for various services will
be taxed under the head “Profits and gains of business or profession” or “Income from other
sources”

Renting of building and other assets:

(a) Letting out of building and letting out of other assets are non-separable . In this situation, entire
rent is taxed under the head “Profits and gains of business or profession” or “Income from other
sources”. This rule is applicable even if rent of both lettings is fixed separately.

(b) Letting out of building and letting out of other assets are separable In this situation rent of
building is taxed under the head “Income from house property” and rent of other asset is taxed
under the head “Profits and gains of business or profession” or “Income from other sources”
 5

Recovery of unrealised rent Section 25A –

If any assessee has recovered unrealized rent in subsequent years, rent so recovered shall be
[Link] be income of the assesse assesse under the head house property and it do not matter
whether the assessee has any house property in his name in that year or not.

If assessee has received any interest, it will be considered to be income of the assessee under the
head other sources. If assessee has incurred any expense on legal proceedings then it shall not be
allowed to be deducted.

A sum equal to thirty per cent of the unrealised rent shall be allowed as deduction.

Arrears of Rent

Any amount received as arrears of rent, not charged to income-tax for any PY (earlier years), then
amounts so received after allowing deduction of 30% of such amount, will be taxable under the
head “Income from House Property”. Further, arrears of rent shall be chargeable to tax in the
previous year in which it is received, even if the property is not owned by the assessee.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 9
Income Under the Head Capital Gains- Part 1
 2

Income Under the Head Capital Gains

Chargeability of capital Gains Section 45 (1)

Any profits or gains arising from the transfer of a capital asset effected' in the previous year shall be deemed to be
the income of the previous year in which the transfer took place, e.g. Mr X has transferred a Residential House on
25.03.2021 for ₹ 700000, but payment was received on 10.04.2022, in this case, capital gains shall be taxable in
the previous year 2020-21, i.e. capital gains are taxable on due basis.

Meaning of Capital Asset

Capital asset" includes all assets, but the following shall not be considered to be a capital asset.
1. Any stock – in – trade: Consumable stores or raw materials held by an assessee for the purposes of his
business or profession shall not be considered to be a capital asset.
2. Personal movable effects: i.e., movable items of personal use like household furniture, utensils, TV,
fridge, sofa, personal motor car etc. shall not be considered to be Capital Assets, and no gain or loss shall
be computed on their sale except:-
a. Jewellery;
b. Archaeological collections
c. Drawings
d. Paintings
e. Sculptures; or
f. Any work of art
If any person has movable items in his business or profession, these items shall be considered to be capital
assets and gain on sale of such assets will always be STCG.
3. Agricultural land
Agricultural land in India in rural area shall not be considered to be capital asset. If the land is in the urban
area, it will be considered to be a capital asset.
Land in rural area shall be considered to be urban land in the following cases:
1. If the rural area is within the distance of 2 kms from the limits of an urban area having population
more than 10000 but not exceeding 100000
2. If the rural area is within the distance of 6kms from the limits of an urban area having population
more than 100000 but not exceeding 1000000
3. If the rural area is within the distance of 8 kms from the limits of the urban area having a population
more than 1000000.
❑ If the agricultural land is in a rural area outside India, it will be considered to be a capital asset, i.e., in
other words, agricultural land situated outside India is a capital asset in all cases.
4. Gold deposit bonds
Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the
Gold Monetization Scheme 2015 notified by the Central Government.
 3

Short Term Capital Assets and Long Term Capital Asset.

CAPITAL ASSETS

Short Term Long Term

↓ ↓
Holding less than 36 Months Holding more than 36 Months
Exception:- In the following cases, the period shall be twelve months instead of thirty-six months.

a. Shares Listed in Recognised Stock Exchange shall be considered to be long term after one year, but non-
listed shares shall be long term after two years. E.g. Mr X purchased unlisted equity shares on 01.07.2018
and sold the shares on 01.08.2019, In this case, shares are short term, but if shares are listed, shares shall be
long term.
b. A unit of the Unit Trust of India
c. A unit of an equity oriented mutual fund.
d. A zero coupon bond. As per Section 2 (48), "Zero coupon bond" means a bond issued by notified company
and in respect of which no benefit is received before maturity or redemption and which is notified by the
Central Government such bonds are issued for a minimum period of ten years and maximum period of 20
years.
e. Residential House

Computation of Capital Gains

Full Value of Consideration XXX
Less:- Cost of Acquisition XXX
Less:- Cost of Improvement XXX
Less:- Expenses on Transfer XXX
Capital Gain XXX

Long term capital gain

In case of long term capital gains, instead of cost of acquisition and cost of improvement, indexed cost of
acquisition and indexed cost of improvement shall be taken into consideration.

"Indexed cost or' acquisition" means the cost adjusted as per cost inflation index & can be calculated as follows:-
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛
= × 𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑎𝑠𝑠𝑒𝑡 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑.
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑎𝑠𝑠𝑒𝑡𝑠 𝑤𝑎𝑠 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑

"Indexed cost of any improvement" means the cost adjusted as per cost inflation index
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐼𝑚𝑝𝑟𝑜𝑣𝑒𝑚𝑒𝑛𝑡
= × 𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑎𝑠𝑠𝑒𝑡 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑.
𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 𝑖𝑛 𝑤ℎ𝑖𝑐ℎ 𝑎𝑠𝑠𝑒𝑡𝑠 𝑤𝑎𝑠 𝐼𝑚𝑝𝑟𝑜𝑣𝑒𝑑
 4

❑ Computations of capital gains on compulsory acquisition of a capital asset Section 45 (5)

If any capital asset has been acquired compulsorily by the Government or other similar agency, capital
gains shall be computed in the year in which the asset was acquired but capital gains so computed shall be
taxable in the year in which the compensation or the part of compensation is first received.

❑ Transactions not regarded as transfer Section 47.

The following transactions will not be considered as transfer, and therefore, no capital gains will arise:

1. No capital gain shall be computed in case of transfer of any capital asset through gift or will or inheritance
etc. however if gifts is given w.e.f 01.10.2009 onwards, it will be taxable under the head other sources as
per section 56.
2. Any distribution of capital assets on the partition of a Hindu Undivided Family.
3. Transfer of capital asset by holding company to subsidiary company or by subsidiary company to holding
company provided company received capital asset is in Indian company and also 100% share capital of
subsidiary company is held by holding company or its nominees.
4. Transfer of any capital asset by the amalgamating company to the amalgamated company if the
amalgamated company is an Indian company.
5. Transfer of a capital asset by the demerged company to the resulting company, if the resulting company is
an Indian company.
6. Receiving of shares from an amalgamated company in lieu of shares held in amalgamating company
provided the amalgamated company is an Indian company.
7. Transfer or issue of shares by a resulting company in case of demerger.
8. In case of Conversion of bonds or debentures etc. of a company into shares of that company, no capital
gains shall be computed.
 5

9. Redemption by an individual of Sovereign Gold Bonds issued by RBI under the Sovereign Gold Bond
Scheme, 2015
10. Any transfer by way of conversion of preference shares of a company into equity shares of that company.
11. Any transfer of a capital asset in a transaction of reverse mortgage.

❑ Special provision for full value of consideration in certain cases

If any person has transferred land or building and Stamp duty value is up to 110% of the full value of
consideration claimed by the assessee in such cases full value of consideration Shall be the consideration
claimed by the assessee but if stamp duty value is more than 110% of the consideration claimed by assessee
in that case full value of consideration shall be the stamp duty value.
If the assessee has disputed such amount, assessing officer may refer the matter to the Valuation Officer
and value determined by Valuation Officer shall be taken into consideration, but if the value determined by
Valuation Officer is more than the stamp duty value, in that case, stamp duty value shall be considered to
be FVC and capital gains shall be computed accordingly. Valuation Officer means an expert employed by
Income Tax Department to determine the value.

Summary
Meaning of Capital Assets
Short Term & Long Term Capital Assets
Capital Gain in compulsory acquisition and Insurance Compensation
Section – 47.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 10
Income under the Head Capital
Gains: Part 2
 2

EXEMPTION UNDER SECTION 54

Secti Exemption Sale Purchas Time Quantum Consequences CGAS

on to of e of Period of of if new asset Scheme 1988
Purchase Deduction sold within
prescribed
time
54 Individual Resi New If Amt STCA on Sale Yes
or HUF dent Residen Purchased Invested of New Asset
Only ial tial One years or LTCG (While
Hou House before or which Calculating
se for 3 2 years ever is Cost, Capital
(Lo years After Or less Gain exempt
ng atleast If earlier will be
Ter (Only 1 Construct reduced from
m) Residen ed, Within COA
tial 3 years
House
now
allowed
and that
too in
India)
Individual Any New If Capital STCA On Yes
or HUF LT Residen Purchased Gains x Sale of New
Only CA tial One years Amt Asset +
exce House before or Invested/n LTCG which
pt (Only 1 2 years et was exempt
Resi Residen After OR Considera earlier also
dent tial If tion taxable
ial House Construct received.
hou now ed, Within Deduction
se allowed 3 years cant be
and that more than
too in amount of
India) capital
gains
 3

54 Individual Agricultural Purchase Within Amt Rural Land No Yes

B or HUF Land used for 2 of New 2 years Invested STCA Urban
Only years for agricultur or LTCG Land STCA on
agriculture by al Land which Sale of New
assessee/parent. for 3 ever is Asset (While
In case of HUF, years less Calculating Cost,
by member of atleast Capital Gain
HUF (Both (Urban or exempt earlier
Long Term and Rural) will be reduced
Short Term from COA
Covered)

Any Land,Building New Land Within Amt STCA on Sale of Yes

industrial used for 2 years or 3 Invested New Asset
Undertakin for business of Building years or LTCG (While
g (Any industrial for atleast from the which Calculating
factory) undertaking three date of ever is Cost,Capital
Compulsor years payment less Gain exempt
y Acquired by earlier will be
govern reduced from
ment COA

Any industrial Building or New Land Within 1 Amt STCA on Sale Yes
Undertaking Plant or year Invested or of New Asset
(Any factory) Machinery Building, before LTCG (While
shifting from land used for 2 plant or OR 3 which ever Calculating
Urban Area to years for machine YEARS is less. Cost,Capital
Non Urban business of AFTER (Amt Gain exempt
Ares industrial Invested is earlier will be
undertaking Cost of reduced from
Assets + COA
Cost of
Shifting)
Any industrial Building or New Land Within 1 Amt STCA on Sale Yes
Undertaking Plant or year Invested or of New Asset
(Any factory) Machinery Building, before LTCG (While
shifting from land used for 2 plant or OR 3 which ever Calculating
Urban Area to years for machine YEARS is Cost, Capital
Special business of AFTER less. (Amt Gain exempt
Economic Zone industrial Invested is earlier will be
(SEZ) undertaking Cost of reduced from
Assets+ COA
Cost of
Shifting)
 4

54E Any Any Specified Bonds of Withi Lower of . On sale of No

C assessee LTCA NHAI/ n6 Amt securities or
RECL/PFCL/IRFCL(T mont Invested loan taken on
hese hs 2.50 lacs securities within
bonds have maturity of 5 years, LTCA
5 years or more) exempt earlier
will be taxable.

54G Individu Residenti Purchase of Shares of befor Capital If sold within 5 Ye

B al or al House Eligible Company e the Gains* years,then Amt s
HUF or Plot (Eligible Co. means due Amt of LTCG
Only (Long New Indian Private date Invested/ne exempt earlier
Term limited or limited of t will be
Capital company established in ITR Considerati taxable+Capital
Asset 3 year of claiming on gain on sale of
years or exemption Individual received. shares in hands
more) or HUF should holds Deduction of
50% or more cant be shareholder+cap
shares/voting power more than ital gain in
amount of hands of
capital company on
gains sale of assets

54EE Any Any Units of Within 6 Lower of 1. On sale of securities or N0

assessee LTCA Mutual months Amt Invested loan taken on securities
Fund 2.50 lacs within 3 years, LTCA
exempt earlier will be
taxable.

Note:- Exemption of Two houses in case of section 54 shall be allowed provided capital gain gain
is upto Rs 2 Crores , and that option is allowed only once and in subsequent period benefit of only
one house shall be allowed.
5
6
 7

Note:- Exemption of Two houses in case of section 54 shall be allowed provided capital gain gain
is upto Rs 2 Crores , and that option is allowed only once and in subsequent period benefit of only
one house shall be allowed.
EXEMPTION UNDER SECTION 54

Sectio Exemptio Sale of Purchase Time Quantum of Consequence CGAS

n n to of Period of Deduction s if new asset Schem
Purchase sold within e 1988
prescribed
time

54 Individual Residentia New If Amt STCA on Yes

or HUF l House Residentia Purchased Invested or Sale of New
Only (Long l House One years LTCG which Asset (While
Term) for 3 before or 2 ever is less Calculating
years years Cost, Capital
atleast After Or If Gain exempt
(Only 1 Constructe earlier will
Residentia d, Within 3 be reduced
l House years from COA
now
allowed
and that
too in
India)

Individual Any New If Capital STCA On Yes

or HUF LTCA Residentia Purchased Gains x Amt Sale of New
Only except l House One years Invested/net Asset +
Residentia (Only 1 before or 2 Consideratio LTCG which
l house Residentia years n received. was exempt
l House After OR If Deduction earlier also
now Constructe cant be more taxable
allowed d, Within 3 than amount
and that years of capital
too in gains
India)
 8

54B Individual Agricultural Purchase of Within 2 Amt Rural Land Yes

or HUF Land used for 2 New years Invested No STCA
Only years for agricultural or Urban Land
agriculture by Land for 3 LTCG STCA on
assessee/parent. years which Sale of New
In case of HUF, atleast ever is Asset (While
by member of (Urban or less Calculating
HUF (Both Long Rural) Cost, Capital
Term and Short Gain exempt
Term Covered) earlier will
be reduced
from COA
Any Land,Building New Land Within 3 Amt STCA on Yes
industrial used for 2 years or Building years from Invested Sale of New
Undertaking for business of for atleast the date of or Asset (While
(Any industrial three years payment by LTCG Calculating
factory) undertaking government which Cost,Capital
Compulsory ever is Gain exempt
Acquired less earlier will
be reduced
from COA

Any industrial Building or New Land Within 1 Amt STCA on Sale Yes
Undertaking Plant or year Invested or of New Asset
(Any factory) Machinery Building, before LTCG (While
shifting from land used for 2 plant or OR 3 which ever Calculating
Urban Area to years for machine YEARS is less. Cost,Capital
Non Urban business of AFTER (Amt Gain exempt
Ares industrial Invested is earlier will be
undertaking Cost of reduced from
Assets + COA
Cost of
Shifting)
Any industrial Building or New Land Within 1 Amt STCA on Sale Yes
Undertaking Plant or year Invested or of New Asset
(Any factory) Machinery Building, before LTCG (While
shifting from land used for 2 plant or OR 3 which ever Calculating
Urban Area to years for machine YEARS is Cost, Capital
Special business of AFTER less. (Amt Gain exempt
Economic Zone industrial Invested is earlier will be
(SEZ) undertaking Cost of reduced from
Assets+ COA
Cost of
Shifting)
 9

54E Any Any Specified Bonds of Withi Lower of . On sale of No

C assessee LTCA NHAI/ n6 Amt securities or
RECL/PFCL/IRFCL(T mont Invested loan taken on
hese hs 2.50 lacs securities within
bonds have maturity of 5 years, LTCA
5 years or more) exempt earlier
will be taxable.

54G Individu Residenti Purchase of Shares of befor Capital If sold within 5 Ye

B al or al House Eligible Company e the Gains* years,then Amt s
HUF or Plot (Eligible Co. means due Amt of LTCG
Only (Long New Indian Private date Invested/ne exempt earlier
Term limited or limited of t will be
Capital company established in ITR Considerati taxable+Capital
Asset 3 year of claiming on gain on sale of
years or exemption Individual received. shares in hands
more) or HUF should holds Deduction of
50% or more cant be shareholder+cap
shares/voting power more than ital gain in
amount of hands of
capital company on
gains sale of assets

54EE Any Any Units of Within 6 Lower of 1. On sale of securities or N0

assessee LTCA Mutual months Amt Invested loan taken on securities
Fund 2.50 lacs within 3 years, LTCA
exempt earlier will be
taxable.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 11
Exemptions under Section 54
 2

Exemptions under Section 54

CG EXEMPTION
EXEMPTION UNDER SECTION 54
Consequenc
es if new
Time Quantum CGAS
Sectio Exemptio asset sold
Sale of Purchase of Period of of Schem
n n to within
Purchase Deduction e 1988
prescribed
time
54 Individual Residential New Residential If Amt STCA on Yes
or HUF House (Long House for 3 years Purchased Invested or Sale of New
Only Term) atleast (Only 1 One years LTCG Asset (While
Residential House before or 2 which ever Calculating
now allowed and years After is less Cost, Capital
that too in India) Or If Gain exempt
Constructe earlier will
d, Within 3 be reduced
years from COA
54F Individual Any LTCA New Residential If Capital STCA On Yes
or HUF except House (Only 1 Purchased Gains × Sale of New
Only Residential Residential House One years Amt Asset +
house now allowed and before or 2 Invested/net LTCG which
that too in India) years After Considerati was exempt
OR IF on received. earlier also
Constructe Deduction taxable
d, Within 3 can’t be
years more than
amount of
capital gains
54B Individual Agricultural Purchase of New Within 2 Amt Rural Land Yes
or HUF Land used for agricultural Land years Invested or No STCA
Only 2 years for for 3 years at least LTCG Urban Land
agriculture by (Urban or Rural) which ever STCA on
assessee/pare is less Sale of New
nt. In case of Asset (While
HUF, by Calculating
member of Cost, Capital
HUF (Both Gain exempt
Long Term earlier will
and Short be reduced
Term from COA
 3

Covered)
54D Any Land, New Land or Within 3 Amt. STCA on Yes
industrial Building used Building for at years from Invested or Sale of New
Undertakin for 2 years for least three years the date of LTCG Asset (While
g (Any business of payment which ever Calculating
factory) industrial by is less Cost, Capital
Compulsor undertaking governmen Gain exempt
y Acquired t earlier will
be reduced
from COA
54G Any Building or New Land or Within 1 Amt. STCA on Yes
industrial Plant Building, plant or year before Invested or Sale of New
Undertakin Machinery machine OR 3 LTCG Asset (While
g (Any land used for YEARS which ever Calculating
factory) 2 years for AFTER is less. (Amt Cost, Capital
shifting business of Invested is Gain exempt
from industrial Cost of earlier will
Urban undertaking Assets+ be reduced
Area to Cost of from COA
Non Urban Shifting)
Ares
54GA Any Building or New Land or Within 1 Amt STCA on Yes
industrial Plant Building, plant or year before Invested or Sale of New
Undertakin Machinery machine OR 3 LTCG Asset (While
g (Any land used for YEARS which ever Calculating
factory) 2 years for AFTER is less. (Amt Cost, Capital
shifting business of Invested is Gain exempt
from industrial Cost of earlier will
Urban undertaking Assets+ be reduced
Area to Cost of from COA)
Special Shifting)
Economic
Zone(SEZ)
54EC Any Any LTCA Specified Bonds Within 6 Lower of 1 On sale of No
assessee of NHAI/ months Amt securities or
RECL/PFCL/IRF Invested loan taken on
CL (These bonds 2.50 lacs securities
have maturity of 5 within 5
years or more) years, LTCA
exempt
earlier will
be taxable.
54GB Individual Residential Purchase of before the Capital If sold within Yes
 4

or HUF House or Plot Shares of Eligible due date of Gains* Amt 5 years, then
Only (Long Term Company ITR Invested/net Amt of
Capital Asset (Eligible Co. Considerati LTCG
3 years or means New Indian on received. exempt
more) Private limited or Deduction earlier will
limited company cant be be taxable +
esablished in year more than Capital gain
of claiming amount of on sale of
exemption capital gains shares in
Individual or HUF hands of
should holds 50% shareholder
or more + capital gain
shares/voting in hands of
power company on
sale of assets
54EE Any Any LTCA Units of Mutual Within 6 Lower of 1. On sale of NO
assessee Fund months Amt securities or
Invested loan taken on
2.50 lacs securities
within 3
years, LTCA
exempt
earlier will
be taxable.
Note:- Exemption of Two houses in case of section 54 shall be allowed provided capital gain gain is upto Rs 2
Crores and that option is allowed only once and in subsequent period benefit of only one house shall be allowed.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 12
Profits and Gains of Business & Profession: Part 1
 2

⮚ Computation of Depreciation under P/G/B/P (Section – 32)

♣ Depreciation under income tax act shall be allowed as per the WDV Method based on
Block of Assets.
♣ Block of Assets means the assets have a similar nature and on which the same rate of
depreciation is applicable.
♣ Depreciation shall only be allowed if the asset has been put to use. Put to use means
making an asset ready to use, and actual use is not relevant.
♣ If any particular asset is purchased during the year and it has been put to use for less than
180 days during the year, in that case, depreciation is allowed at half the normal rate.

♣ If it is purchased during the year and is not at all put to use, depreciation shall not be
allowed & in the subsequent year whenever the asset is put to use, full depreciation shall
be allowed irrespective of the period of use, i.e. concept of 180 Days shall not be
applicable if assets have been purchased in the earlier year & put to use in the subsequent
year then depreciation shall be allowed at the full rate.
♣ Profit or Loss on any asset is to be calculated only when all the assets of the block has
been sold and shall be treated as follows:-
♣ If there is a negative balance at the end of the year, it will be considered to be short term
capital gain as per section 50, and no depreciation is allowed.

♣ If there is a positive balance at the end of the year, it will be considered to be short term
capital gain as per section 50, and no depreciation is allowed.

♣ Rate of depreciation under the income tax act is as follows:-

Rat
Assets
e
Residential Building 5%

Commercial building 10%

Furniture and fittings 10%
Motor cars 15%
Computers including software 40%
Intangible Assets 25%
Pollution control equipment 40%
 3

Computation of depreciation can be understood as follows:-

Written down value of the plant P1, P2 & P3 as on 01st April 2019 50,00,000
Add:- Purchased Plant P4 on 01st June 2019 10,00,000
Value of the Plant as on P1/P2/P3/P4 on 31st March 2020 6000000
Less:- Depreciation for the year 19-20 @ 15% 900000
Written down value of the plant P1, P2, P3 & P4 as on 01st April 2020 5100000
Less:- P1 sold on 31st December 2020 6,00,000
Add:- Purchased Plant P5 on 01st January 2021 5,00,000
Less:- Depreciation for the year 20-21 @ 15% 712500
Written down value of the plant P2, P3, P4 & P5 as on 01st April 2020 4287500
Add:- P6 Purchased on 01st March 2022 & no put to use in the same
8,00,000
year
Less:- Depreciation for the year 21-22 @ 15% 643125
Written down value of the plant P2, P3, P4, P5 & P6 as on 01st April
4444375
2022
On 01st August 2022, all the Plants have been sold for 40,00,000

⮚ Additional Depreciation Section 32

Additional depreciation shall be allowed @ 20% to all the assessee in connection with plant
and machinery for the purpose of manufacturing and also to the assessee engaged in
generation, transmission or distribution of electricity & they should have purchased new
plant/machinery in INDIA. Additional depreciation shall be allowed only in the year in
which asset has been put to use. It is allowed only once. i.e. it is not allowed every year.
Concept of 180 days shall also be applicable.
Additional depreciation is not allowed in the following cases:
a. Second hand plant and machinery, i.e. plant and machinery should be brand new
b. Any machinery or plant installed in any office premises or any residential
accommodation, including accommodation in the nature of a guest-house or
c. Any office appliances or road transport vehicles or ships and aircraft
d. Any machinery or plant, the actual cost of which has been debited to profit and loss
account.
 4

If the asset is purchased and put to use for less than 180 days, additional depreciation shall
be allowed at 10% and remaining additional depreciation shall be allowed in the subsequent
year.

♣ Deprecation in case of Power Generating Units

A power generating unit shall have the option to claim depreciation either on the basis of
SLM or WDV, and any option taken cannot be changed subsequently.

Provision relating to payment in excess of Rs. 10,000

Payment in excess of Rs. 10,000 Section 40A (3) Rule 6DD
If an assessee has incurred any revenue expenditure or capital expenditure and the payment
or the aggregate of the payments made to a person with regard to such expenditure on any
single day exceeds Rs. 10,000 and payment was made otherwise than through account payee
cheque or account payee bank draft or use of electronic clearing system through a bank
account, in such cases entire expenditure is disallowed.
In case of payment made for plying, hiring or leasing goods carriages, the ceiling of ten
thousand rupees shall be enhanced to 35000.
Exceptions under rule 6DD
As per rule 6DD the above provisions are not applicable with regard to following payments:
1. Payment made to Reserve Bank of India, State Bank of India or other banking
institution, LIC, UTI / Central / State Government etc.
2. If the payment is made in a village or town and there is no bank at such place on the
date of making the payment and payment is being given to any person who ordinarily
resides at that place or has his business or profession at that place.
3. Where the payment is made for the purchase of
a. Agricultural or forest produce; or
b. The produce of animal husbandry or dairy or poultry farming; or
c. Fish or fish products; or
d. The products of horticulture or apiculture.

To the cultivator, grower or producer of such articles, produce or products.

4. Where the payment is made for the purchase of the products manufactured in a
cottage industry, to the producer of such products.
5. Where the payment is made by transferring funds from one bank account to the other
or payment is being made by any credit card/a debit card/letter of credit, etc., payment
is allowed.
 5

6. If payment is being made to an employee after retirement or to his family member

after the death of the employee and payment is in connection with gratuity and
payment is not exceeding Rs. 50,000.
7. If payment is to be made on a particular day, but banks are closed on that day because
of holding or strike.
8. Any other situation given under Rule 6DD.

Certain deductions to be only on actual payment Section 43B

If any assessee has maintained books of accounts on the basis of mercantile system of
accounting, all the expenditures are allowed on due basis. But the expenditures listed under
section 43B are allowed only on actual payment basis.
These expenditures are:-
a. Any sum payable by the asessee by way of tax, duty, cess or fee, by whatever name
called, under any law like Municipal Tax, Professional Tax, Composition Tax etc.
b. Employer’s contribution to any provident fund or superannuation fund or gratuity
fund, Employees State Insurance (ESI) or any other fund for the welfare of employee.
c. Bonus or commission or leave salary to the employee.
d. Interest on any loan or borrowing from any Public financial Institution or a State
Financial Corporation or a State Industrial Investment Corporation or scheduled bank.

♣ Special provision for profits and gains of business on presumptive basis. Section
44AD

1. If any assessee has turnover of his business upto Rs. 300 lakhs, such assessee is
allowed to compute income on presumptive basis, and income under the head
business/profession shall be presumed to be 8% of the turnover, and no further
deduction is allowed under section 30 to 38.
2. Section 44AD is applicable only to business and not to specified profession, and also
it is not applicable for the persons having earning as commission or brokerage.

Rate of 6% shall be applied instead of 8% if the amount of total turnover or gross receipts
which is received by an account payee cheque or an account payee bank draft or use of
electronic clearing system.

♣ Special provision for profits and gains of profession on presumptive basis

Section 44ADA

An Assessee having specified profession shall be allowed to have option to compute income on
presumptive basis provided gross receipt is not exceeding Rs. 75 lakh during that year and
 6

income under the head Business/Profession shall be presumed to be 50% of gross receipt, and
no further deduction shall be allowed under the head Business/Profession.

♣ Special provision business of plying, hiring or leasing goods carriages Section

44AE

If any person is engaged in the business of playing, hiring or leasing goods carriages, he will
have the option to compute income under the head business/profession on presumption basis,
and it will be Rs. 7,500 per month or part of the month per goods carriage. Assessee should not
have more than 10 goods carriages at any time during the year; otherwise, such option is not
allowed.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 13
Profits and Gains of Business & Profession: Part 2
 2

Compulsory Maintenance of Accounts (Section 44AA)

Person having Person having Business or

Specified Profession Non - Specified Profession

If the Gross Receipts exceeds Rs Income from Business or Profession

150000 in all the three years exceeds one lakh twenty thousand rupees
immediately preceding the or their sales, or gross receipts exceeds Rs
previous year. 10,00,000 in any one of the three years
immediately preceding the previous year.

Note:- For Individual / HUF the limit of 2,50,000 instead of 120000 & limit of
Rs 25,00,000 instead of Rs 10,00,000 shall be applicable.
1. Persons whose business income is to be computed on presumptive
basis under section 44AD/44ADA/44AE but he rejected for the same
then Books of Accounts are required to be maintained.
2. The books of accounts are to be kept and maintained for the period of at
least 6 years from the end of the relevant assessment year.

♣ Audit of accounts of certain persons carrying on business or

profession (Section 44AB)

Person involves in Person involved in

Business Profession

If total Gross Receipts

If total sales exceeds
exceeds Rs 50 Lakh
Rs 100 Lakh during
during the previous year.
the previous year.
 3

Note:- Persons whose business income is to be computed on presumptive basis

under section 44AD/44ADA/44AE, but he rejected for the same then Audit is
compulsory.

♣ Expenditure on Scientific Research Section 35

If any person has incurred expenditure, whether revenue or capital in

connection with scientific research relating to business, such expenditure is
allowed to be debited without any restriction; however expenditure incurred on
land is not allowed. If the assessee has incurred expenditure on
purchase/construction of building, expenditure is allowed, excluding the value
of the land.
Example
If a building has been purchased for Rs. 40,00,000 and cost of land is Rs.
25,00,000, expenditure allowed shall be Rs. 15,00,000.
♣ Donation/contribution to research association

If any assessee has given donation to the notified research association,

assessee shall be allowed to debit the amount to the profit and loss account in
the manner given below:
a. An amount equal to 1.50 times of donation given to an approved scientific
research association like National Laboratory, Indian Institute of
Technology or approved university, college etc. shall be allowed to be
debited to profit and loss account. E.g. ABC Ltd. has donated Rs.
10,00,000 to an approved research association for scientific research,
company is allowed to debit Rs. 15,00,000 to profit and loss account.

b. If donation is given to an Indian Company approved by prescribed authority

for the purpose of scientific research, deduction allowed shall be equal to
the donation.

c. Deduction allowed shall be equal to the donation if donation is given to any

approved institution for the purpose of research in social science or
statistical research.
 4

Further, there is no condition that the research should be related to the

business or profession of the assessee.
♣ Transfer of asset to the normal business

If any asset was used or scientific research and subsequently it was

transferred to the normal business, in such cases, it will be entered in the
respective block of assets, and its w.d.v shall be taken to be nil.
♣ Deduction in respect of expenditure on Specified Business
Section 35AD

In case of a certain business, the assessee shall be allowed to debit even the
capital expenditure to the profit and loss account and such business shall be
called specified business and further amount allowed to be debited shall be
equal to the capital expenditure incurred and such business are as given
below:
1. Cold chain facility for storing agricultural produce, meat and meat
products, poultry and diary products etc.
2. Warehousing facility for storage of agriculture produce.
3. Hospital with at least one hundred beds for patients.
4. Housing project under a scheme for affordable housing.
5. Production of fertilizer including increase in installed capacity of an
existing plant.
6. Pipeline network for distribution of natural gas or petroleum products.
7. Pipeline network for the transportation of iron ore.
8. Hotel of two star or above category.
9. Housing project for slum development
10. Inland container depot or a container freight station
11. Bee – Keeping and production of honey
12. Warehousing facility for storage of sugar
13. Semi – conductor wafer fabrication manufacturing unit.
14. Developing or maintaining or operating a new infrastructure facility.

The capital expenditure incurred before the commencement of business shall

also be allowed to be debited in the year in which the business has
commenced.
The following capital expenditure shall not be allowed
 5

⮚ Acquisition or any land; or

⮚ Goodwill; or
⮚ Financial instrument

♣ Amortization of certain Preliminary Expenses Section 35D

Expenditure incurred before commencement of business shall be called

preliminary expenses and shall be allowed to be debited in 5 annual equal
installment after commencement of business and such expenses are allowed
to an Indian company, and also to resident assessee, i.e. it is not allowed to
non – residents and to foreign company.
Only the notified expenditure incurred before commencement of business
shall be allowed, and such expenses may be
1. Expenditure in connection with –
a. Preparation of feasibility report
b. Preparation of project report
c. Conducting market survey or any other survey necessary for the
business of the assessee

Provided that the work is connection with the above is carried out by the
assessee himself or by a concern which is approved by the Central Board
of Direct Taxes
2. Legal changes for drafting any agreement between the assessee and any
other person for purpose of the business of the assessee.
3. Where the assessee is a company, also expenditure –
a. By way of legal charges for drafting the Memorandum and Articles of
Association of the company.
b. On printing of the Memorandum and Articles of Association.
c. By way of fees for registering the company under the provisions of the
Company Act.
d. In connection with the issue of shares or debentures of the company,
being underwriting commission, brokerage and charges for drafting,
typing, printing and advertisement of the prospectus.
 6

Maximum expenditure allowed shall be upto 5% of the project cost, but an

Indian company has the option to take 5% of the capital employed.
♣ Cost of the Project

In a case of new business, the actual cost of the fixed assets, being land,
buildings, plant, machinery, furniture, fitting etc. as on the last day of the year
in which the assessee has commenced the business.
♣ Capital Employed

In a case of new business, the aggregate of the issued share capital,

debentures and long – term borrowings as on the last day of the previous year
in which the business of the company commences.
♣ Expenditure in connection with assets which are partly in business
use and partly in personal us Section 38

If any person has any asset in business or profession as well as in personal

use, expenditure is allowed only to the extent toe asset is in the use of the
business or profession.

Provision relating to payment in excess of Rs. 10,000

Payment in excess of Rs. 10,000 Section 40A (3) Rule 6DD
If an assessee has incurred any revenue expenditure or capital expenditure
and the payment or the aggregate of the payments made to a person with
regard to such expenditure on any single day exceeds Rs. 10,000 and
payment was made otherwise than through account payee cheque or account
payee bank draft or use of electronic clearing system through a bank account,
in such cases entire expenditure is disallowed.
In case of payment made for plying, hiring or leasing goods carriages, the
ceiling of ten thousand rupees shall be enhanced to 35000.
Exceptions under rule 6DD
As per rule 6DD the above provisions are not applicable with regard to
following payments:
1. Payment made to Reserve Bank of India, State Bank of India or other
banking institution, LIC, UTI / Central / State Government etc.
 7

2. If the payment is made in a village or town and there is no bank at such

place on the date of making the payment and payment is being given to
any person who ordinarily resides at that place or has his business or
profession at that place.
3. Where the payment is made for the purchase of
a. Agricultural or forest produce; or
b. The produce of animal husbandry or dairy or poultry farming; or
c. Fish or fish products; or
d. The products of horticulture or apiculture.

To the cultivator, grower or producer of such articles, produce or

products.
4. Where the payment is made for the purchase of the products
manufactured in a cottage industry, to the producer of such products.
5. Where the payment is made by transferring funds from one bank
account to the other or payment is being made by any credit card/a debit
card/letter of credit, etc., payment is allowed.
6. If payment is being made to an employee after retirement or to his family
member after the death of the employee and payment is in connection
with gratuity and payment is not exceeding Rs. 50,000.
7. If payment is to be made on a particular day, but banks are closed on
that day because of holding or strike.
8. Any other situation given under Rule 6DD.

Certain deductions to be only on actual payment Section 43B

If any assessee has maintained books of accounts on the basis of mercantile
system of accounting, all the expenditures are allowed on due basis. But the
expenditures listed under section 43B are allowed only on actual payment
basis.
These expenditures are:-
a. Any sum payable by the asessee by way of tax, duty, cess or fee, by
whatever name called, under any law like Municipal Tax, Professional
Tax, Composition Tax etc.
 8

b. Employer’s contribution to any provident fund or superannuation fund or

gratuity fund, Employees State Insurance (ESI) or any other fund for the
welfare of employee.
c. Bonus or commission or leave salary to the employee.
d. Interest on any loan or borrowing from any Public financial Institution or
a State Financial Corporation or a State Industrial Investment
Corporation or scheduled bank.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 14
Profits and Gains of Business & Profession: Part 3
 2

PGBP Part-3

Compulsory Maintenance of Accounts (Section 44AA)

Person having Specified Person having Business or Non -

Profession Specified Profession

Income from Business or Profession exceeds

If the Gross Receipts exceeds Rs 150000 in one lakh twenty thousand rupees or their
all the three years immediately preceding sales, or gross receipts exceeds Rs 10,00,000
the previous year. in any one of the three years immediately
preceding the previous year.

Note:- For Individual / HUF the limit of 2,50,000 instead of 120000 & limit of Rs 25,00,000 instead of Rs
10,00,000 shall be applicable.

1. Persons whose business income is to be computed on presumptive basis under section 44AD/44ADA/44AE
but he rejected for the same then Books of Accounts are required to be maintained.
2. The books of accounts are to be kept and maintained for the period of at least 6 years from the end of the
relevant assessment year.

Audit of accounts of certain persons carrying on business or profession (Section 44AB)

Person involves in Business Person involved in Profession

If total sales exceeds Rs 100 Lakh during If total Gross Receipts exceeds Rs 50 Lakh
the previous year. during the previous year.

Note:- Persons whose business income is to be computed on presumptive basis under section
44AD/44ADA/44AE, but he rejected for the same then Audit is compulsory.
 3

● Expenditure on Scientific Research Section 35

If any person has incurred expenditure, whether revenue or capital in connection with scientific research
relating to business, such expenditure is allowed to be debited without any restriction; however expenditure
incurred on land is not allowed. If the assessee has incurred expenditure on purchase/construction of
building, expenditure is allowed, excluding the value of the land.
Example
If a building has been purchased for Rs. 40,00,000 and cost of land is Rs. 25,00,000, expenditure allowed
shall be Rs. 15,00,000.

● Donation/contribution to research association

If any assessee has given donation to the notified research association, assessee shall be allowed to debit
the amount to the profit and loss account in the manner given below:
a. An amount equal to 1.50 times of donation given to an approved scientific research association like
National Laboratory, Indian Institute of Technology or approved university, college etc. shall be
allowed to be debited to profit and loss account. E.g. ABC Ltd. has donated Rs. 10,00,000 to an
approved research association for scientific research, company is allowed to debit Rs. 15,00,000 to
profit and loss account.
b. If donation is given to an Indian Company approved by prescribed authority for the purpose of
scientific research, deduction allowed shall be equal to the donation.
c. Deduction allowed shall be equal to the donation if donation is given to any approved institution for
the purpose of research in social science or statistical research.
Further, there is no condition that the research should be related to the business or profession of the
assessee.

● Transfer of asset to the normal business

If any asset was used or scientific research and subsequently it was transferred to the normal business, in
such cases, it will be entered in the respective block of assets, and its w.d.v shall be taken to be nil.

● Deduction in respect of expenditure on Specified Business Section 35AD

In case of a certain business, the assessee shall be allowed to debit even the capital expenditure to the profit
and loss account and such business shall be called specified business and further amount allowed to be
debited shall be equal to the capital expenditure incurred and such business are as given below:
1. Cold chain facility for storing agricultural produce, meat and meat products, poultry and diary products etc.
2. Warehousing facility for storage of agriculture produce.
3. Hospital with at least one hundred beds for patients.
4. Housing project under a scheme for affordable housing.
5. Production of fertilizer including increase in installed capacity of an existing plant.
6. Pipeline network for distribution of natural gas or petroleum products.
7. Pipeline network for the transportation of iron ore.
8. Hotel of two star or above category.
9. Housing project for slum development
 4

10. Inland container depot or a container freight station

11. Bee – Keeping and production of honey
12. Warehousing facility for storage of sugar
13. Semi – conductor wafer fabrication manufacturing unit.
14. Developing or maintaining or operating a new infrastructure facility.

The capital expenditure incurred before the commencement of business shall also be allowed to be debited in the
year in which the business has commenced.

The following capital expenditure shall not be allowed

⮚ Acquisition or any land; or
⮚ Goodwill; or
⮚ Financial instrument

Payment of salary or interest to the partners

As per section 40 (b), interest to the partner is allowed but maximum @ 12% p.a. simple interest.
Payment of salary, bonus, commission or any other remuneration is allowed but only to the working partner.
Maximum amount of salary, bonus, commission etc. allowed to a partner shall be computed in the manner given
below:
Maximum amount of remuneration allowed shall be as given below:

* First Rs 3,00,000 of book profit, 90% of book profit or Rs 1,50,000 whichever is higher
* On the balance of book profit 60% of book profit

Example:
A partnership firm has book profits of Rs 5 lakhs, in this case maximum amount of salary etc. allowed to all the
partners shall be
Up to Rs 3,00,000 90% of 3,00,000 or Rs 1,50,000 whichever is more therefore 2,70,000
Next Rs 2,00,00 60% of 2,00,000 1,20,000
= 3,90,000

Share received by a partner from income of Partnership Firm - Section 10 (2A)

If any partner has received share out of the profits of the partnership firm, such share shall be exempt from
income tax.

As per section 28, interest or salary received by a partner shall be taxable under the head business/profession.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 15
Income under the Head Other Sources
 2

Income under the Head Other Sources

♣ Taxability of Gift

Gift received by any person shall be taxable, and the gifts shall be divided into 3 parts.
1. Gift of sum money
2. Gift of immovable property
3. Gift of any property other than immovable property

Gift of sum of money

If any person has received any sum of money from one or more persons without
consideration and the aggregate value of all such gifts received during the year exceed fifty
thousand rupees, the whole of the aggregate value of such sum shall be taxable under the
head Other Sources but if the aggregate value is upto Rs 50,000 nothing shall be taxable.

♣ Gift of any property other than immovable property

If any person has received gift of any property other than immovable property without
consideration and the aggregate fair market value of such properties received during a
particular year exceeds Rs 50,000. It will be taxable under the head other sources, but if
aggregate value of all such property is upto Rs 50,000 it will be exempt from income tax.

♣ Gift of immovable property

If any person has received any immovable property without any consideration, it will be
exempt if the stamp duty value is up to Rs. 50,000 If the stamp duty value is more than fifty
thousand rupees then entire stamp duty value shall be taxable under the head other sources.
Value of individual immovable property shall be taken into consideration instead of
aggregate value of all such properties.
If an immovable property has been received for a consideration which is less than the stamp
duty value of the property by an amount exceeding 50000 and also stamp duty value is exceeded
by more than 5% of the actual consideration in such cases taxable amount shall be the stamp
duty value of the property as exceeds the consideration.

♣ The gift is exempt in the following cases

a. If any individual has received any gift from any of his relative, it will be exempt from
income tax. The term relative shall include.
 3

(a) Spouse of the individual

(b) Brother or sister of the individual
(c) Brother or sister of the spouse of the individual
(d) Brother or sister of either of the parents of the individual
(e) Any lineal ascendant or descendant of the individual
(f) Any linear ascendant or descendant of the spouse of the individual;
(g) Spouse of the person referred to in items (b) and (f)

b. If any individual has received any gift from any person of any amount on the occasion of
his/her marriage. If gift is received by the parents of such individual, in that case, it will
be taxable. If any individual has received gift on the occasion of anniversary, it will be
taxable.

c. If any person has received any gift under a will/inheritance, it will be exempt from
income tax.
d. In contemplation of death of the payer of donor (Contemplation of Death means the
apprehensions of an individual that his life will end in the immediate future by a
particular illness etc.
e. From any local authority or charitable hospital or charitable educational institution or
charitable trust or other similar organization.

♣ PROPERTY

“Property” means the following capital asset of the assessee, namely:-

a. Immovable property being land or building or both;
b. Shares and securities
c. Jewellery
d. Archaeological collections (relating to past / ancient)
e. Drawing (a picture or diagram made with a pencil, pen, or crayon without paint.)
f. Paintings
g. Sculptures
h. Any work of art; or
i. Bullion (Gold and silver that is officially recognized as being at least 99.5% pure and is
in the form of biscuit/bricks/bars)

♣ Gifts or Perquisites from Clients

The value of any benefit or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession.
 4

If any person has received any gift or perquisite or benefit either in cash or in kind from any
of his clients, it will be considered to be business receipt and shall be taken into
consideration while computing income under the head business/profession.

♣ Scholarship

Any scholarship received by a person for meeting the cost of education shall be exempt from
income tax.

♣ Award / Reward
Any award or reward, whether in cash or in kind instituted by the Central Government or the
State Government shall be exempt from income tax. Similarly any private award or reward
shall be exempt from income tax is approved by the Central Government.

INCOME UNDER THE HEAD OTHER SOURCES

♣ Incomes taxable under the head Other Sources

If any income cannot be taxed under first heads, such income shall be taxable under the head
other sources, and such income may be
1. Interest income
2. Dividend income
3. Casual income
4. Gift
5. Family pension
6. Payment received under keyman insurance policy to a person who is not an employee
7. Income from owning and maintaining of race horses
8. Forfeiture of advance money
9. Income from undisclosed sources.
10. Any other income which is not taxable under first four heads.

♣ Family Pension

Regular payments given by the employer to the employee after retirement is called pension,
and it is taxable under the head Salary. After the death of the employee, employer may pay
some pension to the family member of the employee, and it is called family pension. It is
taxable under the head Other Source.

♣ Income received for late payment of compensation: from the Government or other
similar agency in connection with compulsory acquisition of land or building shall be
taxable in the year in which it has been received, and it will be taxable under the head
 5

other sources; however, deduction shall be allowed @50% of such interest. e.g.
Government has acquired one land of Mr X in Noida in 2011 and payment was given
by the Government in the year 2017-18 and has also paid interest of Rs 1,00,000, in
this case, taxable amount shall be Rs 1,00,000 – Rs 50,000 = Rs 50,000.

♣ Dividend chargeable to tax

If any person has received any dividend from a foreign company such dividend shall be
chargeable to tax in the hands of the shareholder.

⮚ Section 2 (22) (a)

If any company has distributed any amount to its shareholders either in cash or in
kind, it will be considered to be dividend but only to the extent of accumulated
profits.

⮚ Section 2 (22) (b)

If any company has issued bonus shares to the equity shareholders, it will not be
considered to be dividend but if the bonus shares have been issued to the preference
shareholders.

⮚ Section 2 (22) (c)

If any company has distributed any amount to its shareholders in connection with its
liquidation,

⮚ Section 2 (22) (d)

Any distribution to its shareholders by a company on the reduction of its capital.

⮚ Section 2 (22) (e)

If any closely held company (also called company in which public are not
substantially interested) has given any loan or advance to an equity shareholder who
is holding not less than 10% of the voting power of the company.
 6

♣ Taxability of Casual Income

Casual Income shall include card games, crossword puzzles, betting, races including horse
races, any game show on electronic media or any other gambling.

♣ Income from Owing and Maintaining of Race Horses

If any person has income from owing and maintaining of race horses, such income shall be
taxable under the head other sources are income shall be computed in the normal manner and
will be taxed at the normal rates.

♣ Income from owning and maintaining of any other animal

♣ Taxability of Interest Income

Any Interest income shall be taxable under the head Other Sources. However, some of the
interest incomes shall be exempt from income tax under section 10 (15) and are as given
below:
1. Interest on capital investment bonds issued by the Government.
2. Interest on Relief Bonds issued by RBI
3. Interest on Post Office Savings Bank Account to the extent of Rs 3,500 per year and
in the case of joint account, exemption shall be allowed upto Rs 7,000 per year.

♣ Income from letting out of building alongwith furniture, fixtures etc.

If any person has let out any building along with plant and machinery and furniture, fixtures
etc. and it is not a case of composite rent, and also income is not taxable under the head
business/profession, in such cases income shall be taxable under the head Other sources and
while computing income all expenses incurred shall be allowed to be deducted.

♣ Forfeiture of Advance Money

If any person has entered into an agreement to sell any capital asset and some advance
money was received, but the buyer refused to purchase the capital asset, and advance money
was forfeited, in such cases, the amount so forfeited shall be considered to be income under
the head Other Sources. E.g. Mr X has entered into agreement to sell a house property of Rs.
50 lakh to Mr Y and advance money of Rs. 5,00,000 was received, but Mr Y refused to
purchase the property, and advance money was forfeited, in this case Rs. 5,00,000 shall be
considered to be income of Mr X under the head Other Sources.
 7

♣ Taxability of Dividend from F.Y 2020-21

From F.Y 2020-21, Section 10(34) has been withdrawn-Exempting dividend Income from
taxation.

♣ Taxation of Dividend in hands of shareholders- Dividend can be taxable under head-

Income from other sources or Business Income…It means if shares are held for trading
purposes then business income and if shares are held as an investment then taxable as
Income from other sources.

♣ Deduction from Dividend Income- Depending upon nature of income- Assessee can
claim deductions of all expenditures which have been incurred to earn that dividend
income such as interest on loan, collection charges etc in case taxable as business
income.

Also Assessee can claim deduction to extent of 20% of total dividend income but deduction
related to interest expenditure only. No deduction shall be allowed for any other
expenditure.
Any person can engage in securities either as a trader or as an investor. We all are aware
that any income derived from trading activities is taxable under the head “Income from
Business or Profession”.
Therefore, if any person holds shares for trading purposes, then the dividend income
thereon shall be liable to tax as ‘Business Income’ under the head “Income from Business
or Profession”. But if the shares are hold as an investment, the dividend income shall be
taxable under the head “Income from other sources”.
Dividend income shall be chargeable to tax at the normal tax rates as applicable to
an assessee.
Mr. X has taken a loan of ₹8,00,000 and paid interest 80,000 and invested the amount in
shares and received dividend of ₹1,60,000, in this case interest allowed to be deducted
shall be ₹32,000 and balance ₹1,28,000 shall be taxable.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 16
Clubbing of Income & Tax Deducted at
Source
 2

CLUBBING OF INCOME
(INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL INCOME)

In general a person has to pay tax only on his own income but sometimes of other persons
are added to his income to charge tax from him, it is called ‘clubbing of income’. Clubbing
provision are applicable to check tax evasion.

Transfer of income without transferring the asset

If any person has transferred any income without transferring the asset, in such cases
clubbing provision shall be applicable.

Transfer of asset through revocable transfer (Section 61)

If any person has transferred any asset through revocable transfer, income from that asset
shall be clubbed in the income of transferor.

Transfer of an asset through irrevocable transfer (Section 60)

If any person has transferred any asset through irrevocable transfer, in this case clubbing
provision shall not apply. However, if the transferor has any right to interfere with the asset
in any manner or has any right to derive any benefit from the asset, clubbing provision shall
be applicable.

If any person has transferred any asset through a transfer which is not revocable during the
life time of the beneficiary, in this case clubbing provision shall not apply.

TRANSFER OF ASSETS TO SPOUSE {SECTION – 64(1)}

1. If any person has transferred any asset, other than a house property to his or her
spouse directly or indirectly without adequate consideration, in such cases, income of
the asset shall be clubbed in the income of transferor.
2. If the asset is transferred for adequate consideration, clubbing provisions are not
applicable. Similarly if the asset is transferred under an agreement to live apart,
clubbing provision shall not apply.
 3

Example, Mr. X has transferred one deposit to his wife Mrs. X by charging full
consideration of Rs. 5,00,000. In this case, interest income shall not be clubbed in the
income of Mr. X.
3. If there is inadequate consideration, clubbing provisions shall be applicable only with
regard to the income relating to that part of the consideration which is considered to
be inadequate.

Example, Mr. X has transferred one deposit of Rs. 5,00,000 for a consideration of Rs.
3,00,000 and there is interest income of Rs. 1,00,000 from the said deposit, in this
case income of Rs. 40,000 shall be clubbed.

4. In order to apply clubbing provision relationship of husband and wife must exist on
the date of transfer of the asset and also on the date of accrual of income otherwise
clubbing provision shall not be apply.

5. Clubbing Provision shall also be applicable if any assets has been transferred to son’s
wife or indirect transfer.

6. If the spouse receives any remuneration irrespective of its nomenclature such as

Salary, commission, fees or any other form and by any mode i.e., cash or in kind from
any concern in which the person have substantial interest and spouse does not hold
any Qualification or Experience in that case clubbing provisions shall be applicable.

Substantial Interest means the person hold 20% or more equity share or 20% or
more share in Profits as the case may be.

Exceptions to clubbing No clubbing of income in following cases:

a. Where assets are received as part of divorce settlement.

b. If assets are transferred before marriage.

c. No husband and wife relationship subsists on the date of accrual of income.

d. Asset is acquired by the spouse out of pin money. (i.e. an allowance given to the
wife by her husband for her personal and usual household expenses)
 4

Asset held by Minor Child Section 64(1A)

1. If any income accrues or arises to a minor child, such income shall be clubbed in the
income of mother or father whose ever has higher income before taking into
consideration the income to be clubbed.
2. If the marriage of mother, father doesn’t subsist, in that case, income shall be clubbed
in the income of mother or father whosever maintains the minor child.
3. Minor child for this purpose shall include even an adopted child and also step child,
however, it will not include the minor child suffering from a disability mentioned
under section 80U. e.g. Minor son of Mr. X has interest income of Rs. 2,00,000 and
the minor child is suffering from a disability, in this case, clubbing provisions shall
not be applicable.
4. If any minor child has income through
a. Manual labour or
b. Has income through activity involving application of his skill, talent or
specialized knowledge and experience.
In this case, clubbing provisions shall not apply, rather it will be considered to be the
income of minor child and his tax liability shall be computed separately but the
returns shall be filed by his father as his guardian.
5. If the income of minor child is to be clubbed, exemption shall be allowed under
section 10(32) upto Rs. 1,500 per annum per child.

TAX DEDUCTED AT SOURCE

Tax Deducted at Source (TDS) is one of the modes of collecting income tax in India at the
very source of income, governed under the Indian Income Tax Act of 1961. It is controlled
by the Central Board for Direct Taxes (CBDT) and is part of the Department of Revenue in-
charge of Indian Revenue Service (IRS).
TDS Rate on Payment of Salary and Wages:

Section 192 Payment of Salary and Wages

Criterion of Deduction TDS is deducted if the estimated income of the employee

is taxable. The estimated tax shall be deducted in 12
monthly equal installments. Deductible investments under
sections like 80C, 80CC, 80D, 80DD, 80DDB, 80E,
80GG and 80U.

TDS Rate As per Income Tax, Surcharge and Health & Education
Cess rates applicable on the estimated income of
employee for the year.
 5

Note:- If any person is working with 2 or more employer then the information of the same
is to be given in Form 12B to one of the employer who will deduct the tax at source on all
income.
If the employee wants to opt for 115BAC then the information of the same shall also be
given and later on that cannot be modified.

Tax on ESOPs Deferred for Start-Ups: AMENDMENT MADE IN BUDGET 2020

In order to ease the burden of payment of taxes by the employees of the eligible start-ups or
TDS by the start-up employer, Government deferred the payment of income tax on ESOPs from
the time of exercise of ESOPs.
Now, the tax liability arises within 14 days from any of the following events, whichever is
the earliest:
1. After the expiry of 48 months from the end of the relevant assessment year; or
2. From the date of the sale of such ESOP shares by the assessee; or
3. From the date of the taxpayer ceases to be an employee of the ESOP allotting employer.
Liability for deducting tax at source (TDS) on the start-up also stands deferred.
Eligible Startups (under Section 80-IAC) which satisfy these criteria cumulatively will be
eligible for the deferred ESOP tax payment benefit.

The eligibility criteria are:

1. It is incorporated on or after the April 1st, 2016 but before April 1st, 2021
2. The total turnover of its business does not exceed twenty-five crore rupees in any of the
previous years beginning on or after the April 1st, 2016 and ending on the March 31st, 2021
3. It holds a certificate of eligible business from the Inter-Ministerial Board of certification as
notified in the Official Gazette by the Central Government.
 6

TDS Rates on Payments other than Salary and Wages to Residents (including domestic
companies)

Section For On Payments Rate TDS not be Deducted if :-

Payment of Exceeding

192A Recognized 50000 or more 10% ● Served for 5 Years or More , or

Provident ● Service discontinued due to ill-
Fund health or discontinue of the
employer business , or
● Case of transfer of the PF.

193 Interest on 5000 10% ● Security of C.G or S.G

Securities ● Interest Paid to Bank/LIC or
Financial Institution
● Interest payable by a company on
Security held in dematerialized
form.

194 Dividends 5000 10% ● Payment other than cash and not
exceeding 5000 payable to
individual.

194A Interest other 5,000 10% Limit of Rs 40000 in case if

than Interest Payment made by Bank or Post
on Securities Office or
Co-operative society and Rs 50000
if Payee is Senior Citizen.

Individual /HUF will deduct if

Turnover is exceeding Rs 1 Crore or
50 Lakhs in case of Profession in the
preceding financial year.

194B Winnings 10,000 30%

from N.A
Lotteries /
Puzzle /
Game
 7

194 BB Winnings 10,000 30%

from Horse N.A
Race

194 C Payment to 30,000 or 2% for ● Individual /HUF will deduct if

Contractors 1,00,000 Company & Turnover is exceeding Rs 1 Crore
in Total 1 % for or 50 Lakhs in case of Profession
during the Individual / in the preceding financial year.
whole HUF. ● Amount is Paid for Personal
Year Purpose
● Transportation of Goods and
the Contractor do not own more
than 10 goods carriages..

194 D Payment 15000 5% N.A

of Insurance
Commission

194DA Payment on 100000 or 5% N.A

Maturity of more.
Life
insurance
Policy

194E Non N.A 20% + HEC N.A

Resident
Sportsman or
Sports
Association

194 G Commission 15000 5% ● Individual /HUF will deduct if

on Sale Turnover is exceeding Rs 1 Crore
of Lottery or 50 Lakhs in case of Profession
tickets in the preceding financial year.
 8

194 H Commission 15000 5% ● Individual /HUF will deduct if

or Brokerage Turnover is exceeding Rs 1 Crore
or 50 Lakhs in case of Profession
in the preceding financial year.

194 I Rent of 240000 2% if Rent ● Individual /HUF will deduct if

Land, is for Plant Turnover is exceeding Rs 1 Crore
Building or & or 50 Lakhs in case of Profession
Furniture machinery in the preceding financial year.
& 10 % in
case of
Land or
Building or
Furniture or
Fixtures.

194 IA Transfer of 50,00,000 1% (No

Immovable or more T.D.S for
Property Agriculture
Land if
Situated in
Rural Area.)

194K Income on 5000 10% ● No TDS if Income is of Capital

Units of Gains.
Mutual Fund

194 LA Compensatio 2,50,000 10% (No N.A

n on TDS in case
acquisition of
of certain Agriculture
immovable Land)
property
 9

Section 194J – Fees for professional or Technical Services

❖ The type of payments to residents covered under this section:-

✔ Professional fees
✔ Fees for technical services
✔ Remuneration paid to directors excluding salary (For e.g., sitting fees to attend board
meetings)
✔ Royalty
✔ Payments in the nature of non-compete fees (i.e., fees paid to not carry on any business
or profession for a specified time and within certain geographical boundaries) or fees
paid to not share any technical knowledge or know-how.

❖ Tax has to be deducted in case the payment is greater than Rs. 30,000 during the year.
However, there is no such limit for payments made to a director.

❖ Every person, who is making a payment in the nature of fees for professional or technical
services is liable to deduct tax at source with the following exceptions:

✔ In case of an individual or HUF carrying on business: Where his turnover does not
exceed Rs. 1 crore during the previous financial year..
✔ In case of an individual or HUF carrying on profession: Where his turnover does not
exceed Rs. 50 lakh during the previous financial year.

❖ Rate of Deduction of Tax Under Section 194J

✔ Any payment covered under this section shall be subject to TDS at the rate of 10%.
✔ From 1 April 2020, the payment of fees for technical service shall be subject to TDS at
the rate of 2%.
✔ With effect from 01.04.2017, the tax on payments made to operators of call centres shall
be deducted at a reduced rate of 2%.
✔ In case the payee does not furnish his PAN then the rate of deduction would be 20%.

Section 194N – TDS on cash withdrawal in excess of Rs 1 crore

The budget 2020 has reduced the threshold limit for TDS to Rs 20 lakh for taxpayers who have
not filed their income tax returns for the past three years. Such taxpayers withdrawing cash in
excess of Rs 20 lakh have to pay 2% as TDS.
 10

Section 194N is applicable in case of cash withdrawals of more than Rs 1 crore during a
financial year. This section will apply to all the sum of money or an aggregate of sums
withdrawn from a particular payer in a financial year. The section will apply to withdrawals
made by any taxpayer including:

✔ An Individual
✔ A Hindu Undivided Family (HUF)
✔ A Company
✔ A partnership firm or an LLP
✔ A local authority
✔ An Association of Person (AOPs) or Body of Individuals (BOIs)
✔ Any bank (private or public sector)
✔ A co-operative bank
✔ A post office

Rate of TDS under Section 194N

The payer will have to deduct TDS at the rate of 2% on the cash payments/withdrawals of more
than Rs 1 crore in a financial year under Section 194N. Thus, in the above example, TDS would
be on Rs 150,000 at 2% i.e. Rs 3,000.
In case the individual receiving the money has not filed income tax return for three years
immediately preceding the year, then the limit of tax deduction is Rs 20 lakh. The TDS is 2% on
the cash payments/withdrawals of more than Rs 20 lakh and up to Rs 1 crore, and 5% for
withdrawal exceeding Rs 1 crore.
Section 194N has been revised w.e.f 01/07/2020. Earlier TDS was only if cash withdrawal
has exceeded ₹100 lakh and tax was to be deducted at a rate of 2% only on the amount
exceeding ₹ 100 lakh but now there are two categories:
1. General Category: TDS will be 2% if cash withdrawal has exceeded ₹ 100 lakh
and TDS shall be on entire amount e.g. if cash withdrawal is ₹ 150 lakh, TDS
shall be ₹ 3 lakh.
2. Special Category : The persons who have not filed return of income for 3
previous years and time limit under section 139(1) has expired in the immediately
preceding year, e.g. Mr. X has not filed his return of income for previous year
2016-17, 2017-18, 2018-19 and time period for filing return has expired in
previous year 2019-20. In this case if cash withdrawal is exceeding ₹ 20 lakh,
TDS shall be 2% on the entire amount and if it is exceeding ₹ 100 lakh, TDS shall
be 5% on the amount exceeding ₹ 100 lakh
 11

Section 194O – TDS on Payments Made to e-commerce Participants

✔ Section 194O has been introduced in the Union Budget 2020. applicable from 1 October
2020.
✔ According to Section 194O, an e-Commerce operator is required to deduct TDS for
facilitating any sale of goods or providing services through an e-Commerce
participant.
✔ E-Commerce Operator
An e-Commerce operator is a person who owns, operates, or manages a digital/electronic
facility for the sale of goods and services who is responsible for making payments to the
e-Commerce participant on such sales.
✔ E-Commerce Participant
An e-Commerce participant is a person who sells goods, services, or both through an
electronic facility provided by an e-Commerce operator & He must be a resident of
India.
✔ E-Commerce operators should deduct TDS @1% at the time of credit of the amount of
sale of goods, services, or both to the account of an e-commerce participant or at the time
of making payment to an e-Commerce participant by any other mode, whichever is
earlier.
✔ E-commerce participant being a resident individual or HUF
No TDS, if the gross amount of sale of goods, services, or both during the previous year
does not exceed Rs 5 lakh and if the e-Commerce participant has furnished his PAN or
Aadhaar.
✔ If the e-Commerce participant does not furnish his PAN or Aadhaar, TDS must be
deducted at the rate of 5%, as per provisions of Section 206AA.

Due Dates for submitting Quarterly Statements of Tax Deducted at Source (Rule 31A)

Date of ending of the quarter Due dates to file Quarterly Statement.

of the financial year

30th June 31st July of the financial year

30th September 31st October of the financial year

31st December 31st January of the financial year

31st March 31 May of the financial year immediately following the

financial year in which deduction is made
 12

Section – 206AA
A recipient of taxable income should furnish PAN to comply with the provisions of TDS under
the Income Tax Act. Upon furnishing of the PAN, payments made to the recipient would be
taxed at the rate of TDS specified under the various TDS provisions of the Income Tax Act. A
recipient who does not furnish PAN would suffer TDS at the higher rates specified in Section
206AA.

If the PAN has not been provided then TDS shall be at the higher of the rates

✔ At the rate specified in the relevant provision of the Act

✔ At the rate or rates in force, i.e., the rate prescribed in the Finance Act (Finance Act 2019
for FY 2019-20)
✔ At the rate of 20% (5% in case of 194-O)

TDS Certificate:-
Form 16 (Annual – To be provided by 31st May of the Succeeding year) is the certificate of
deduction of tax at source and issued on deduction of tax by the employer on behalf of the
employees and 16 A (Quarterly – To be provided within 15 Days from the last day of
submitting the quarterly statement) in any other case. These certificates provide details of
TDS / TCS for various transactions between deductor and deductee.

Tax collection at source (TCS)

Tax collection at source (TCS) is an additional amount collected as tax by a seller of specified
goods from the buyer at the time of sale over and above the sale amount and is remitted to the
government account. As per Income Tax Act 1961 certain persons, being
the sellers must collect a specified percentage of tax at the time of receipt of amount from
their buyers or at the time of debiting of the account of the buyer whichever is earlier.

The rate of TCS is different for goods specified under different categories :

Nature of Goods Rate of TCS

Liquor of alcoholic nature, made for consumption by humans 1%

Timber obtained under a forest lease 2.5%

 13

Tendu leaves 5%

Timber obtained by any other mode than forest leased 2.5%

A forest produce other than Tendu leaves and timber 2.5%

Scrap 1%

Minerals like lignite, coal and iron ore 1%

Purchase of Motor vehicle exceeding Rs. 10 Lakhs 1%

Parking lot, Toll Plaza and Mining and Quarrying 2%

Remittance out of India from a Buyer under Liberlized Remittance 5% of the

scheme of RBI amount in
excess of 7
Lakhs.

Overseas Tour package Program 5%

Every seller whose total turnover in the business carried on exceed 0.1% of sale
Rs 10 Crores in the preceding financial year consideration
exceeding
50Lakh.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 17
Advance tax/Set off of Losses Return of
Income
 2

Advance tax/Set off of Losses Return of Income

SET OFF OR CARRIED FORWARD AND SET OFF OF LOSSES

Profits & Gains from

Capital Gains
Business or Profession

Non Owning &

House Speculative
Incomes Salary Speculative LTCG STCG maintenance Others
Property Business
Business of race horses
Loss under the head
Yes Yes Yes Yes Yes Yes Yes Yes
House Property
Speculative
No No No Yes No No No No
business loss
Other business or
No Yes Yes Yes Yes Yes Yes Yes
professional loss
Long term capital
No No No No Yes No No No
loss
Short term capital
No No No No Yes Yes No No
loss
Loss from owning
and maintenance of No No No No No No Yes No
race horses

Note:-
1. The total loss from house property can be adjusted with any other sources of income such as salary etc. The
limit for the same is at Rs 2 lakh. In case assesse is not able to set-off the interest of Rs 2 lakh against any
of income header, such surplus interest can be carried forward for eight assessment years.
2. Loss from Agriculture Income can only be set off from Agriculture Income Only carried forward is allowed
for the 8 years & in the subsequent years it can only be set off on from the agricultural income.
3. The sequence of claiming losses & depreciation under the head business / profession shall be as given
below:-
a. Current Year Expenses
b. Current Year Depreciation
c. Brought Forward Business Loss
d. Brought Forward Unabsorbed Depreciation.
4. Unabsorbed depreciation is allowed to be carried forward for the Indefinite period.
5. As per section 80, if the return of loss has been filed after the due date then the carried forward of losses
shall not be allowed. (Exception is Loss under the head House Property and Unabsorbed depreciation)
 3

Carry forward and Set-off of brought forward losses

If a loss cannot be set off either under the same head or under the different heads because of absence or
inadequacy of the income of the same year, it may be carried forward and set off against the income of the
subsequent year.
However, the loss so carried forward can be set-off only against same head of income, i.e. the benefit of
“intersource' adjustment is lost.

Carried Forward & Set Off of Losses Maximum permissible

period [from the end of the
Nature of loss to be carried Income against which the brought forward relevant assessment year]
forward loss can be set off in subsequent years. for carry forward of losses
Unabsorbed loss from house
Income from House Property 8 assessment years
property
Unabsorbed business loss (non- Profit and gains from business or profession
8 assessment years
speculative) (non- speculative)
Loss from speculation business Income from speculation business 4 assessment years
Loss from specified business Profit from specified business under section
Indefinite period
under section 35AD 35AD
Long-term capital loss Long-term capital gains 8 assessment years
Short-term capital loss Short/Long-term capital gains 8 assessment years
Loss from the activity of owning Income from the activity of owing and
4 assessment years
and maintaining race horses maintaining race horses.
Past year losses can be set-off against income from that respective head of income (Inter head adjustment is not
possible)

ADVANCE TAX
As per section 207, Advance Tax is liable to be paid by all assesses like Salaried, Self Employed, Businessman
etc. before the filing of Income Tax Return. An Income Tax Return cannot be filed till the income tax is fully
paid.
Senior Citizens not having any Business Income are also exempted from the payment of Advance Tax
As per section 208, Advance Tax is to be payable during a financial year if the amount of tax payable by the
assess during the year is 10,000 or more.
For all taxpayers earning income from any source other than salary, Advance Tax is payable in installments as
explained below:-
Due date for Payment of Advance Tax
Due Date of Installment Amount Payable
On or before 15th June 15% of the Advance Tax
On or before 15th Sep 45% of the Advance Tax
On or before 15th Dec 75% of the Advance Tax
On or before 15th Mar 100% of the Advance Tax
 4

Interest on late payment of Advance Tax is applicable as follows:-

1. Interest under section 234C – Interest @ 1% per month is payable for the period of 3 months on the
amount of default in each installment but for the last installment, interest shall be charged only for one
month.
2. Interest under section 234B – Interest @ 1% is payable if 90% of the tax is not paid before the end of the
financial year i.e. for Default in Payment of Advance Tax. No Interest if Advance Tax which is paid is 90%
of the actual tax liability.
3. Interest under section 234A – The taxpayer is liable to pay simple interest at 1% per month or part of a
month for delay in filing the return of income that is if any person has paid income tax after the last date of
filing of ROI.
4. For computing Interest u/s 234A/B/C and any other Interest, Income Tax shall be rounded off to nearest
hundred and fraction of hundred shall be ignored.
5. If the advance tax paid up to 15 June is 12% and of the tax payable and upto 15 September is 36% of the
tax payable, in such cases no interest shall be levied.

PROVISIONS FOR FILING OF RETURN OF INCOME

PARTICULARS SECTIONS
Submission of return of income 139(1)
Return of loss 139(3)
Belated Return 139(4)
Revised return 139(5)
Certain information required in the return of income 139(6)
Defective return 139(9)
Permanent account number 139A
Scheme for submission of returns through Tax 139B
Return Preparers 140

Filling of return of income / filing of voluntary return of income

Under section 139(1), a return of income is to be filed by the following persons:
a. Every company assessee or partnership firm irrespective of their income or loss shall be required to file
return of income.
b. Any other person like Individual, HUF, etc. shall be required to file return income if Gross total income,
before claiming the exmption under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA, 54GB is exceeding
exemption limit.
c. Every person who is assessable on behalf of any other person and the person on whose behalf he is
assessable has gross total income before claiming the exmption under section 54, 54B, 54D, 54EC, 54F,
54G, 54GA, 54GB more than the exempt from tax, in such cases also, the person is required to file a return
of income on behalf of such person.
 5

d. If any person is resident and ordinarily resident in India and has any asset outside India including a
financial interest in any entity or has signing authority in account outside India, such person shall also be
required to file his return of income.
e. Following persons are also required to furnish the ROI
i. Individual has deposited a sum of more than Rs 1 crore in a financial year in any current account held
with a bank or a co-operative bank.
ii. Individual has made an expenditure on foreign travel of more than Rs 2 lakh in a financial year.
iii. Individual has incurred electricity expenses of Rs 1 lakh or more in a financial year.
iv. Income-tax return filing may also be required while availing any tax treaty relief, claiming refund of
excess withheld taxes or while applying for a personal loan etc.

♣ Due date for filing the return of income

Return in to be filed in general upto 31st July of the assessment year, however, in the following cases, the
last date shall be 31st October of the assessment year.
a. For company Assessee
b. If the person is having the requirement to get his accounts audited under the Income Tax Act or any other
Act.
c. Partner of the Partnership firm whose accounts are required to be audited.

♣ Return of Loss Section 139(3)

If any person has sustained any loss under the head Business/profession or under the head capital gains or
the loss is from owning and maintaining of race horses and such person claims that the loss is to be carried
forward, such person has to file a return of loss and such return shall be examined by the Assession Officer
and the loss computed by the assessee shall be confirmed by the Assessing Officer by sending an
intimation.
Under section 80, if returns of loss has been filed after the last date of filing of return of income, In that
case carry forward of losses is not allowed. E.g. For previous year 2020-21 ABC Ltd. has incurred business
loss of Rs. 90 lakhs. In this case, the company must file return of loss under section 139(3) maximum upto
31.10.2021., otherwise carry forward of the loss is not allowed.
The above provisions are not applicable with regard to loss under the head house property.
If any return is filed under section 139(3), it will be considered to be a return under section 139(1).

♣ Belated Return of Income Section 139(4)

Every person is required to file a return of income within the time allowed under section 139(1) however
return of income can be filed even after the due date but maximum upto the end of relevant assessment year
or before the completion of the assessment whichever is earlier. E.g. For previous year 2020-21 ABC Ltd.
has to file its return of income upto 31.10.2021. however, belated return is allowed under section 139(4)
but maximum upto 31.3.2022.
 6

♣ Revised Return of Income Section 139(5)

If any person has furnished a return under section 139(1) or under section 139(4), discovers any omission
or any wrong statement, he may furnish a revised return at any time before the end of the relevant
assessment year e.g. If Ram Ltd. has filed its return of income on 31.10.2021 for previous year 2020-21
and subsequently the company has detected any bonafide error, in this case, the company is allowed to
revise its return of income under section 139(5) but maximum upto 31.3.2022.

♣ Defective Return of Income Section 139(9)

If return filed by an assessee is found to be defective, assessing office may intimate the direct to the
assessee and give him an opportunity to rectify the defect within a period of Fifteen days from the date of
such intimation or within such further period which, the Assessing Officer may, allow and if the defect is
not rectified within the said period, then the return shall be treated as an invalid return i.e. it wil be
presumed that the assessee has not field any return of income.
A Return of income shall be regarded as defective unless all the annexures, statements and columns in the
return of income relating to computation of income chargeable under each head of income, computation of
gross total income have been duly filled in.

♣ Scheme for submission of returns through Tax Return Preparers Section 139B
In order to help the persons having low income or tax liability, department has started scheme of Tax
Return Preparer who will file return for such persons. For this purpose department shall select and appoint
TRPs. The tax return preparer shall hold a graduation degree from a recognised Indian university or other
specified qualifications but such persons should not be a Charted Accountant or other specified persons.
A person may approach a TRP or filing the return of income but any person who is required to get his
accounts audited shall not be allowed to file the return through the Tax Return Preparer.
Similarly any non-resident shall not be allowed to file return through Tax Return Preparer.
The department shall pay a commission of 3% of the tax paid on the income declared in the return or Rs
1000 whichever is less. TRP shall be entitled to minimum commission of Rs 250 of if it is less than Rs 250
the he can receive the difference amount from the assessee.

♣ Income Tax Return by whom to be verified (Section – 140)

In the case of an individual
By the individual himself
Person verifying If he is absent from India, By the individual himself or by some person duly
the return authorized by him in this behalf
should holds a
If he is mentally incapacitated By his guardian or any other person competent to
valid power of
from attending to his affairs, act on his behalf
attorney
Any other reason, By any person duly authorized by him in this
behalf
 7

Hindu undivided family

Karta
If the Karta is absent from India By any other adult member of such family
If he is mentally incapacitated from attending to his affairs

Company
Managing Director (M.D)
If no M.D or M.D not able Any Director or Person
If the company is being wound up By the liquidator
If the management of the company has been taken over by By the principal officer
the Central Government or any State Government
In case of corporate insolvency By the insolvency professional

Firm
Managing partner
If managing partner is not able to verify the return Any Partner
Limited Liability Partnership
Designated partner
If Designated partner is not able to verify the return Any Partner
Local authority
Principal officer
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 18
Which Deductions are allowed in 80 C - 80 U ?
 2

Deductions (80C – 80U)

Chapter VI-A contains deductions from gross total income. The important point to be noted here
is that if there is no gross total income, then no deductions will be permissible. This Chapter
contains deductions in respect of certain payments, deductions in respect of certain incomes,
deductions in respect of other income and other deductions.

These Deductions shall not be allowed from:-

✔ Long Term Capital Gains

✔ Short Term Capital Gains u/s 111A
✔ Casual Income

The deductions are only allowed from the normal income.

❖ Deduction in respect of investment in specified assets [Section 80C]

Section 80C provides for a deduction from the Gross Total Income, of savings in specified
modes of investments. The deduction under section 80C is available only to an individual or
HUF. The maximum permissible deduction under section 80C is Rs 1,50,000. The following are
the investments/contributions eligible for deduction –
● Premium paid in respect of Life Insurance policy
● Premium paid in respect of a contract for deferred annuity
● Contribution to SPF/PPF/RPF
● Contribution to approved superannuation Fund

● Any sum paid or deposited in Sukanya Samridhi Account:- Subscription to any such
security of the Central Government or any such deposit scheme as the Central
Government as may notify in the Official Gazette. Accordingly, Sukanya Samriddhi
Scheme has been notified to provide that any sum paid or deposited during the previous
year in the said Scheme, by an individual in the name of –
▪ any girl child of the individual; or
▪ any girl child for whom such individual is the legal guardian would be
eligible for deduction under section 80C.
● Subscription to National Savings Certificates VIII
● Contribution in Unit-linked Insurance Plan 1971
● Contribution in Unit-linked Insurance Plan of LIC Mutual Fund
 3

● Contribution to approved annuity plan of LIC

● Contributions to approved annuity plans of LIC
● (New Jeevan Dhara and New Jeevan Akshay, New Jeevan Dhara I and New Jeevan
Akshay I, II and III) or any other insurer (Tata AIG Easy Retire Annuity Plan of Tata
AIG Life Insurance Company Ltd.)
● Subscription towards notified units of mutual fund or UTI
● Contribution to notified pension fund set up by mutual fund or UTI
● Contribution to National Housing Bank (Tax Saving) Term Deposit Scheme, 2008
● Payment of tuition fees to any university, college, school or other educational institution
within India for full-time education for maximum 2 children within India
● Repayment of housing loan including stamp duty, registration fee and other expenses
● Subscription to certain equity shares or debentures:- A lock-in period of three years
is provided in respect of such equity shares or debentures.
● Investment in five year term deposit
● Subscription to notified bonds issued by NABARD
● Investment in five year Post Office time deposit
● Deposit in Senior Citizens Savings Scheme Rules, 2004
● Contribution to additional account under NPS

❖ Deduction in respect of medical insurance premium [Section 80D]

In case of an Individual
Deduction in respect of insurance premium paid for family: A deduction to the extent of Rs.
25,000 is allowed in respect of the following payments –
1. premium paid to effect or to keep in force an insurance on the health of self, spouse and
dependent children or
2. any contribution made to the Central Government Health Scheme or
3. such other health scheme as may be notified by the Central Government. Contributory
Health Service Scheme of the Department of Space has been notified by the Central
Government.

Deduction in respect of insurance premium for parents: A further deduction up to Rs.

25,000 is allowable to effect or to keep in force an insurance on the health of parents of the
assessee. Rs 50000 in case of Senior Citizen.
 4

Deduction in respect of payment towards preventive health check-up: - Section 80D

provides that deduction to the extent of Rs. 5,000 shall be allowed in respect payment made on
account of preventive health check-up of self, spouse, dependent children or parents during the
previous year. However, the said deduction of Rs. 5,000 is within the overall limit.

Mode of payment: For claiming deduction under section 80D, the payment can
be made:
(1) by any mode, including cash, in respect of any sum paid
on account of preventive health check-up;
(2) by any mode other than cash, in all other cases.

❖ Deduction in respect of maintenance including medical treatment of a dependant

disabled [Section 80DD]

Eligible assessee: Section 80DD provides deduction to an assessee, who is a resident in India,
being an individual or Hindu undivided family.
Any amount incurred for the medical treatment or maintenance (including nursing), training and
rehabilitation of a dependant, being a person with disability.
Quantum of deduction: The quantum of deduction is Rs 5000 and in case of severe disability
(i.e. person with 80% or more disability) the deduction shall be Rs. 1,25,000.
Meaning of “Dependant”:
The spouse, children, parents, brother or sister of the individual who is wholly or mainly
dependant on such individual and not claimed deduction under section 80U in the computation
of his income.

❖ Deduction in respect of medical treatment etc. [Section 80DDB]

Eligible assessee: This section provides deduction to an assessee, who is resident in India, being
an individual and Hindu undivided family. Deduction is available to an individual for medical
expenditure incurred on himself or a dependant. It is also available to a Hindu undivided family
(HUF) for such expenditure incurred on any of its members.
Meaning of “Dependant”:
The spouse, children, parents, brother or sister of the individual who is wholly or mainly
dependant on such individual and not claimed deduction under section 80U in the computation
of his income.
 5

Quantum of deduction: The amount of deduction under this section shall be equal to the
amount actually paid or Rs. 40,000, whichever is less, in respect of that previous year in which
such amount was actually paid.
In case the amount is paid in respect of a senior citizen, i.e., a resident individual of the age of
60 years or more at any time during the relevant previous year, then the deduction would be the
amount actually paid or Rs. 1,00,000, whichever is less.

Deduction in respect of interest on loan taken for higher education [Section 80E]
Eligible assessee: Section 80E provides deduction to an individual-assessee in respect of any
interest on loan paid by him.

Conditions: The loan must have been taken for the purpose of pursuing his higher education or
for the purpose of higher education of his or her relative from any financial institution or
approved charitable institution.

Meaning of Relative: Spouse and children of the individual or the student for whom the
individual is the legal guardian.

Meaning of “Higher education”: It means any course of study (including vocational studies)
pursued after passing the Senior Secondary .
Period of deduction: The deduction is allowed in computing the total income in respect of the
initial assessment year (i.e. the assessment year relevant to the previous year, in which the
assessee starts paying the interest on the loan) and seven assessment years immediately
succeeding the initial assessment year or until the interest is paid in full by the assessee,
whichever is earlier.

❖ Deduction for interest on loan borrowed for acquisition of house property by an

individual [Section 80EE]

Eligible assessee: An individual who has taken a loan for acquisition of residential house
property from any financial institution.
 6

Conditions:-

Value of house ≤

Rs 50 lakhs
The assessee should
not own any residential ValueValue
of house
of house
≤ ≤
house on the date of Loan should be
Conditions
sanction of loan Rs. 50
Rs.
lakhs
50 lakhs sanctioned during the
The
Theassessee
assesseeshould
should P.Y.2016-17
not own
not own
any residential
any
residential
house on the
house
dateonof Condition Loan should
Condit
Loan sanctioned
Loanbeshould be
the sanction
date of sanction
of loan sanctioned
sanctioned
during the
during the
ions
s P.Y.2016-17
P.Y.2016-17
of loan ≤ Rs. 35 lakhs

Loan Loan
sanctioned
sanctioned

≤ Rs.≤35
[Link]
35 lakhs

Quantum of deduction: The maximum deduction allowable is Rs. 50,000. The deduction of
upto Rs. 50,000 under section 80EE is over and above the deduction of upto Rs. 2,00,000
available under section 24 for interest paid in respect of loan borrowed for acquisition of a self-
occupied property.

❖ Deduction in respect of interest payable on loan taken for acquisition of residential

house property [Section 80EEA]

Eligible Assessee: An individual who has taken a loan for purchase of an electric vehicle from

Loan should be
taken for purchase
of an electric
vehicle

Loan should be
The assessee sanctioned during the
should be an Conditions period between 1.4.2019
individual.
and
31.3.2023
Loan should be
sanctioned by a FI
(bank or specified
NBFCs)
any financial institution.
 7

Period of benefit: The benefit of deduction under this section would be available from A.Y.
2020-21 and subsequent assessment years till the repayment of loan continues.
Quantum of deduction: Interest payable, subject to a maximum of Rs. 1,50,000.

❖ Deduction in respect of donations to certain funds, charitable institutions etc.

[Section 80G]

Eligible assessee: An assessee who pays any sum as donation to eligible funds or institutions, is
entitled to a deduction, subject to certain limitations, from the gross total income.
Quantum of deduction:
There are four categories of deductions.

I Donation qualifying for 100% deduction, without

any qualifying limit
(1) The National Defence Fund set up by the Central Government
(2) Prime Minister’s National Relief Fund.
(3) Prime Minister’s Armenia Earthquake Relief Fund
(4) The Africa (Public Contributions-India) Fund
(5) The National Children’s Fund
(6) The National Foundation for Communal Harmony
(7) Approved University or educational institution of
national eminence
(8) Chief Minister’s Earthquake Relief Fund, Maharashtra
(9) Any fund set up by the State Government of Gujarat
exclusively for providing relief to the victims of the Gujarat
earthquake
(10) Any Zila Saksharta Samiti constituted in any district for
improvement of primary education in villages and towns and
for literacy and post-literacy activities
(11) National Blood Transfusion Council or any State Blood
Transfusion Council whose sole objective is the control,
supervision, regulation or encouragement in India of the
services related to operation and requirements of blood banks

(12) Any State Government Fund set up to provide medical relief

to the poor
 8

(13) The Army Central Welfare Fund or Indian Naval Benevolent

Fund or Air Force Central Welfare Fund established by the
armed forces of the Union for the welfare of past and present
members of such forces or their dependents.
(14) The Andhra Pradesh Chief Minister’s Cyclone Relief Fund,
1996
(15) The National Illness Assistance Fund
(16) The Chief Minister’s Relief Fund or Lieutenant Governor’s
Relief Fund in respect of any State or Union Territory
(17) The National Sports Fund set up by the Central Government
(18) The National Cultural Fund set up by the Central Government
(19) The Fund for Technology Development and Application set
up by the Central Government
(20) National Trust for welfare of persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities
(21) The Swachh Bharat Kosh, set up by the Central Government,
other than the sum spent by the assessee in pursuance of CSR
u/s 135(5) of the Companies Act, 2013
(22) The Clean Ganga Fund, set up by the Central Government,
where such assessee is a resident, other than the sum spent in
pursuance of CSR u/s 135(5) of the Companies Act, 2013
(23) The National Fund for Control of Drug Abuse
(24) Prime Minister's Citizen Assistance and Relief in
Emergency Situations Fund (PM Cares Fund)

II Donation qualifying for 50% deduction, without any

qualifying limit
(1) The Jawaharlal Nehru Memorial Fund
(2) Prime Minister’s Drought Relief Fund
(3) Indira Gandhi Memorial Trust
(4) Rajiv Gandhi Foundation
 9

III Donation qualifying for 100% deduction, subject to

qualifying limit
(1) The Government or to any approved local authority, institution
or association for promotion of family planning
(2) Sum paid by a company as donation to the Indian Olympic
Association or any other association/institution established in
India, as may be notified by the Government for the
development of infrastructure for sports or games, or the
sponsorship of sports and games in India
IV Donation qualifying for 50% deduction, subject to
qualifying limit
(1) Any Institution or Fund established in India for charitable
purposes fulfilling prescribed conditions
(2) The Government or any local authority for utilisation for any
charitable purpose other than the purpose of promoting family
planning
(3) An authority constituted in India by or under any other law
enacted either for dealing with and satisfying the need for
housing accommodation
or for the purpose of planning, development or improvement of
cities, towns and villages, or both
(4) Any Corporation established by the Central Government or any
State Government for promoting the interests of the members of
a minority community
(5) for renovation or repair of Notified temple, mosque, gurdwara,
church or other place of historic, archaeological or artistic
importance or which is a place of public worship of renown
throughout any State or States

Qualifying limit: The eligible donations referred to in III and IV should be aggregated and the
sum total should be limited to 10% of the adjusted gross total income. This would be the
maximum permissible deduction.

Step 1: Compute adjusted total income i.e., the GTI as reduced by

the following:
(i) Deductions under Chapter VI-A, except under section
80G
(ii) Short-term capital gain taxable under section 111A
(iii) Long-term capital gains taxable under sections 112 &
112A
 10

(iv) Any income on which income-tax is not payable

Step 2: Calculate 10% of adjusted total income

No deduction shall be allowed in respect of donation of any sum exceeding Rs 2000 unless
such sum is paid by any mode other than cash
Deduction in respect of rent paid [Section 80GG]
Eligible assessee: Assessee, who is not in receipt of HRA qualifying for exemption under
section 10(13A) from employer and who pays rent for accommodation occupied by him for
residential purposes.
Conditions: The following conditions have to be satisfied for claiming deduction under section
80GG -
● The assessee should not be receiving any house rent allowance exempt under section
10(13A).
● The accommodation should be occupied by the assessee for the purposes of his own
residence.
● The assessee or his spouse or his minor child or a HUF of which he is a member should
not own any accommodation at the place where he ordinarily resides or perform duties of
his office or employment or carries on his business or profession.

Quantum of deduction:
a) Actual rent paid minus 10% of the total income of the assessee before allowing the
deduction, or
b) 25% of such total income (arrived at after making all deductions under Chapter VI A but
before making any deduction under this section), or
c) Amount calculated at Rs. 5,000 p.m.

❖ Deduction in respect of donations for scientific research and rural development

[Section 80GGA]
 11

Eligible assessee: Any assessee not having income chargeable under the head “Profits and gains
of business or profession”, who makes donations for scientific research or rural development.
Quantum of deduction:
Amount Donated but if in cash then should not exceed Rs 2000.

❖ Deduction in respect of Contribution by companies to Political Parties (80GGB)

This section provides for deduction of any sum contributed in the previous year by an Indian
company to any political party or an electoral trust. However, no deduction shall be allowed in
respect of any sum contributed by way of cash.

❖ Deduction in respect of Contribution by companies to Political Parties (80GGC)

This section provides for deduction of any sum contributed in the previous year by any person
to any political party or an electoral trust. However, no deduction shall be allowed in respect of
any sum contributed by way of cash.

❖ Deduction in respect of royalty income, etc., of authors of certain books other than
text books [Section 80QQB]

Eligible assessee & Quantum of deduction: Under section 80QQB, deduction of up to a

maximum Rs. 3,00,000 is allowed to an individual resident in India in respect of income derived
as author i.e., the deduction shall be the income derived as author or Rs. 3,00,000, whichever is
less.

❖ Deduction in respect of royalty on patents [Section 80RRB]

Eligible assessee: A resident individual who is registered as the true and first inventor in respect
of an invention under the Patents Act, 1970, including the co-owner of the patent and earning
income by way of royalty of a patent registered on or after 1.4.2003.
Quantum of deduction: Income by way of royalty of a patent registered on or after 1.4.2003,
subject to a maximum of Rs. 3 lakhs.

❖ Deduction in respect of interest on deposits in savings accounts [Section 80TTA]

Eligible assessee and Quantum of deduction: Section 80TTA provides that in case the gross
total income of an assessee, being an individual or a Hindu Undivided Family, includes any
income by way of an interest on deposits in a saving account (not being time deposits, which are
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deposits repayable on expiry of fixed periods), deduction up to Rs 10000 in aggregate shall be

allowed.

❖ Deduction in respect of interest on deposits in case of senior citizens [Section

80TTB]

Eligible assessee: A senior citizen (a resident individual who is of the age of 60 years or more
at any time during the relevant previous year), whose gross total income includes income by
way of interest on deposits (both fixed deposits and saving accounts).
Quantum of deduction: Actual amount of interest on deposits or Rs 50,000, whichever is
lower.

❖ Deduction in the case of a person with disability [Section 80U]

Eligible assessee: This section is applicable to a resident individual, who, at any time during the
previous year, is certified by the medical authority to be a person with disability.
Quantum of deduction: A deduction of Rs 75,000 in respect of a person with disability and Rs.
1,25,000 in respect of a person with severe disability (having disability over 80%).
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UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 19
Transfer Pricing & DTAA
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Transfer Pricing & DTAA

Double Taxation Avoidance Agreement

• Double Taxation Avoidance Agreements is a treaty signed between two countries, which, through the
elimination of international double taxation, promotes the exchange of goods, services, and investment of
capital between the two countries.
• This implies that there are consented tax rates and jurisdiction on specified kinds of incomes arising in one
country to a tax resident of another nation. The taxpayers in these 88 countries can avoid being taxed twice
for the same income.
• Double taxation is an issue related to the taxation of income that crosses boundaries. DTAA can either
cover all types of income or can target a specific type of income depending upon the types of
businesses/holdings of citizens of one country in another. The following categories are covered under the
Double Taxation Avoidance Agreements (DTAA):
✔ services
✔ salary
✔ property
✔ capital gains
✔ savings/fixed deposit accounts

Sections 90 and 91 under the Income Tax Act 1961 offers specific relief to taxpayers to avoid double taxation.
Section 90 deals with those provisions involving taxpayers who have paid tax to another country with which India
has a DTAA. Section 91 is for those countries with which India does not have a DTAA.

Rules for Tax

• The source rule is when the income is taxed in the country of origin whether you are a resident of the
country or not.
• The resident rule specifies that the income would be taxed in the country where the individual reside,
irrespective of the income's origin.
• In India, the residence rule is followed. If individual is an Indian resident, then international income would
be taxed in India.

Unilateral Relief Under Section 91 of the Income Tax Act 1961

Unilateral tax relief if there is no DTAA treaty between India and the country in which the income originates. To
avail unilateral relief, the following conditions would have to be fulfilled.
✔ Person should be an Indian resident in the year the income is earned
✔ The income should be earned outside India
✔ The income should be taxable in a foreign country, and such tax should have been paid
 3

Transfer Pricing
Transfer pricing determines the price of goods and services exchanged between related parties, such as
subsidiaries of the same parent company. Transfer pricing is important for tax purposes, as it affects the allocation
of income and expenses among different jurisdictions. In India, transfer pricing rules are based on the arm's length
principle, which means that the price of a transaction between related parties should be comparable to the price of
a similar transaction between independent parties.

Methods of transfer pricing

Section 92C(1) prescribed the methods of arm’s length, which are the followings:
• CUP (Comparable Uncontrolled Price Method): This method compares the price charged in a controlled
transaction (between related parties) with the price charged in a comparable uncontrolled transaction
(between independent parties) under similar circumstances. It is price for identical or nearly identical
property traded between the two independent parties under the same or similar circumstance. This method
is favored when there is a high degree of comparability between the transactions and the markets.
• Resale Price Method: This method compares the gross margin obtained by a reseller in a controlled
transaction (between related parties) with the gross margin earned by a comparable reseller in an
uncontrolled transaction (between independent parties) under similar circumstances. This method is
suitable when the reseller/distributor does not add much value to the product and acts as an intermediary.
In this method the price at which the product or services are resold or provided to an unrelated party is
identified. After adjusting gross profit margin and other expenses from resale value, the resulting amount is
considered as arm length price.
• Cost Plus Method: This method compares the mark-up on costs obtained by a supplier in a controlled
transaction (between related parties) with the mark-up on costs earned by a comparable supplier in an
uncontrolled transaction (between independent parties) under similar circumstances. This method is
appropriate when the supplier provides goods or services that are not highly customized or complex and
does not assume significant risks.
 1

UGC NET

DAILY
CLASS NOTES
Commerce

Income Tax
Lecture – 20
Tax Planning, Management, Evasion, Avoidance and
MAT
 2

Tax Planning / Tax Management / Tax Avoidance / Tax Evasion

Tax planning
It means reducing the tax liability by taking the benefits or deductions which are specifically mentioned by the
Income Tax Act. These are mentioned in the law and therefore this is legal in nature. This is optional in nature as
a person may or may not take the benefits.

For example:-
1. Deductions Mentioned under section 80c to 80u
2. Exemption mentioned under section 54
3. Allowances / Rebates

Tax evasion
It is an act of avoiding the payment of tax through illegal means or by adopting unfair practices which are not
allowed under the Income Tax Act. It is a kind of fraud under the law, and a person is also liable for the
punishment that may include Penalty Interest etc.

For example
1. Concealment of any fact through which the tax liability can be reduced.

THE DIFFERENCE BETWEEN “TAX AVOIDANCE” AND “TAX EVASION”

TAX Planning TAX Evasion
(i) It is Legal in nature It is illegal in nature
(ii) The planning would be done today to avail the It is concerned with the past & applied after the tax
benefits in Future. liability has arisen.
(iii) The benefits of Tax Planning will arise in the Generally, no benefits will arise, but it comes under
short run & long run the Penalty & Prosecution
(iv) It is also called as Tax Saving It is also called as Tax concealment.

Tax Avoidance & Tax Management

Tax avoidance
It is also an act of reducing the liability of tax but by taking the benefit of loopholes mentioned in the law that is
where the intention of the law has been defeated for the purpose of avoiding the payment of tax. It is not illegal in
nature as the assessee has taken the benefit of loophole. The lawmakers, later on, amend the law accordingly so
that no person would be able to further misuse the law.

For example:-
An assessee has sold the agriculture land in urban area & to save the tax assessee purchased the agriculture land
in rural area to claim exemption under section 54 B, But after the particular period the assessee sold the
 3

agriculture land in rural area & agriculture land in rural area is not a capital asset & therefore liability for the
payment of tax will arise.

Tax management
It has nothing to do with the amount of tax. It is simply to follow all rules and regulations mentioned in the
particular law. The objective is to avoid any kind of interest penalty or any action which is against the person. It is
compulsory to be followed by each person, and it is related to past present or future.

For example
1. Dealing with all the conditions mentioned in any notice given by law.
2. Filing of income tax returns payment of advance tax deduction of tax.

THE DIFFERENCE BETWEEN “TAX PLANNING” AND “TAX MANAGEMENT”

Tax Planning Tax Management
(i) The motive of is to minimize the The motive is to comply with the provisions of Income Tax
tax liability Law and its rules.
(ii) Tax Planning also includes Tax Tax Management deals with filing of Return in time, getting
Management the accounts audited, deducting tax at source etc.
(iii) Tax Planning relates to future. For any action done in the past an assessee has to face
Assessment Proceedings, Appeals, Revisions etc.
Complying with all the rules upto due date that is the present
action – Filing of Return, payment of advance tax etc.
To avoid any notice from the department we plan accordingly
– related to future.
(iv) Tax Planning helps in minimizing Tax Management helps in avoiding payment of interest,
Tax Liability in Short-Term and penalty, prosecution etc.
in Long Term.
(v) Tax Planning is an optional for Tax Management is essential for every assessee.
assessee

AGRICULTURAL INCOME
● Meaning of Agricultural Income
The term Agricultural Income is defined in three parts under Income Tax Act under section 2(1A) (a),
2(1A) (b), 2(1A) (c) as given below:

● Income from leasing out of agricultural land

If any person has given any agricultural land on rent, rent so received shall be considered to be agricultural
income and shall be exempt from income tax, e.g. Mr X has ten acres of agricultural land in India which is
given on lease at a rent of Rs. 2,00,000. It will be considered to be agricultural income.
 4

If rent is received in kind, still it will be considered to be agricultural income, e.g. Mr X has leased out ten
acres of agricultural land and has received wheat crop worth Rs. 2,00,000. In this case, Rs. 2,00,000 shall
be considered to be his agricultural income.
If the agricultural land is situated outside India, income from agricultural land is taxable as income from
other sources.

● Income from Agricultural Operations

If any person is engaged in agricultural activities, income derived from such agricultural operations shall be
considered to be agricultural income.

● Payment received by a partner from the partnership firm.

If any partnership firm has agricultural income, it will be exempt from income tax, and if partnership firm
has paid any salary or interest to the partners, it will be considered to be agricultural income to the partner.
If any partner has received any share out of profits of partnership firm, it will be exempt under section
10(2A).

● Meaning of Agricultural:
The term agricultural and agricultural purposes has not been defined under Income Tax Act, accordingly its
meaning has been explained in Raja Benoy Kumar Sahas Roy v CIT (SC). If any person has performed the
following two operations, it will be called agriculture.

➢ Basic Operations:
In order to constitute agriculture, there must be basic operations like ploughing of land, sowing of seeds,
planting and similar kinds of operations on the land.

➢ Subsequent Operations:
After carrying out basic operations, there must be subsequent operations like weeding, digging the soil
around the growth, watering of the plant at regular intervals, using pesticides and insecticides to protect the
crop and it will also include pruning, cutting, harvesting etc.
(pruning means to trim (a tree, shrub, or bush) by cutting away dead or overgrown branches or stems,
especially to encourage growth).
If there are basic and subsequent operations, it will be considered to be agricultural income even if
what is produced is not food grains.

● Income which is partially agricultural and partially from business - Rule 7

If any person is engaged in growing as well as manufacturing activity, in such cases, it will be presumed
that he has transferred his agricultural produce to his industrial undertaking at the market price and
expenses on agricultural shall be deducted from such amount and balance shall be agricultural income.
While computing income of business, such market price is allowed to be deducted as cost of raw material.
E.g. Mr X is engaged in growing of sugarcane and also has a sugar factory. He has incurred expenses of Rs.
3,00,000 in connection with growing of sugarcane crop. Entire sugarcane crop was transferred to the
industrial unit when market price of sugarcane was Rs. 10,00,000. In this case, agricultural income of Mr X
 5

shall be Rs. 7,00,000. While computing income of sugar factory, Rs. 10,00,000 shall be debited to profit
and loss account as the cost of raw material.

● Income in case of growing and manufacturing of Rubber - Rule 7A

If any person is engaged in growing and manufacturing of rubber, income shall be computed combined for
agriculture as well as business and 35% of such income shall be business income and balance shall be
agricultural income.

● Income from the growing and manufacturing of Coffee - Rule 7B

If any person is engaged in growing and manufacturing of coffee, income shall be computed combined for
agriculture as well as business and 40% of such income shall be business income and balance shall be
agricultural income.
If any person is engaged in growing and curing of coffee, 25% of such income shall be business income,
and balance shall be agricultural income.

● Income in case of persons Growing and Manufacturing Tea – Rule 8

If any person is engaged in growing and manufacturing of tea, income shall be computed combined for
agriculture as well as business and 40% of such income shall be business income and balance shall be
agricultural income.