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Tax Practical

Practical No.1: The Basic Concepts of the

Income Tax Act, 1961
O1: To Understand the Basic Concept and Definition
of Direct Taxation
Meaning Tax: The act of levying taxes is called taxation.
Tax is a compulsory payment made by individuals and entities to the

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Government of a country as per the tax law and rules made thereunder.
Non-payment of taxes would attract penal action. Governments impose
tax on incomes, transactions for sale of goods and services- national and
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international, on properties like land and buildings, etc. The various taxes
include income tax, professional tax, entertainment tax, securities
transaction tax, dividend distribution tax, property tax, etc

Direct Tax is a tax wherein the levy of tax is made on a person and the
responsibility of paying such tax is fixed on that person.
● Direct tax is levied on a person
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● The purpose of direct tax is to redistribute the wealth of a nation.

● Examples are Income Tax, Wealth Tax, and Gift Tax.
● Nature of Direct tax is considered a progressive tax
● A regular payment, usually made monthly by an employer under a
contract of employment, to an employee is called a salary. It is a
consideration received by a person for the services rendered to
another person (called employer). It includes all cash amounts
received by an employee and the monetary value of benefits provided
by an employer free of cost or at concessional rates.
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History

In India, the tax act was introduced for the first time in 1860, by Sir
James Wilson in order to meet the losses sustained by the Government on
account of the Military Mutiny of 1857. This act was meant for 5 years
and hence was replaced by a license tax on professionals and trades. Many
changes were made from time to time in the Act, to suit the requirements
of

The Income Tax Act, of 1886 levied a tax on residents as well as on

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non-residents. The act exempted agricultural income from tax. The HUF
was considered as a separate entity for tax purposes

In 1918. a new income tax act was passed and it was replaced by another
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new act which was passed in 1922. The Income Tax Act 1918 brought
about changes in the taxation of income from business and profession. It
allowed certain items as deductions from the income

The Income Tax Act of 1922, laid down the basis, for the mechanism of
administering the tax and that the rates at which the tax was to be levied
would be laid down in annual finance acts
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This Act remained in force up to the assessment year 1961-62 with

numerous amendments. In consultation with the Ministry of Law finally,
the Income Tax Act, 1961 was passed. The Income Tax Act 1961 has been
brought into force from 1st April 1962. It applies to the whole of India
and Sikkim (including Jammu and Kashmir).

Since 1962 several amendments of a far-reaching nature have been made to

the Income Tax Act by the Union Budget every year

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Importance of Income Tax Payment for the Development of a

Country

• The importance of income tax payment for the development of the

country stems from the following reasons:
1. Governments exempt certain amounts of income ensuring minimum
amounts are earned and used by people from the lower rungs of the
society.
2. Progressive taxation ensures that those who can bear more tax are made
to do so, resulting in the use of tax revenue for the public good. It aims to

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reduce the gap between the rich and poor.
3. Cess is charged to direct the revenue towards a specific cause. For
example, a higher education cess is imposed to provide facilities of higher
education to those who cannot afford it
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4. Exemptions from taxes are given to provide direction to the
expenditure and investments by persons towards the development of the
economy.
5. Industries are encouraged to set up their business in certain regions
called SEZs, to facilitate the development of the region.
6. Duties or tax rates on goods that do not help the well-being of the
economy are higher.
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7. Tax benefits in the form of depreciation are given to entities investing

in certain technologies to encourage the use of new technology.
8. To encourage R&D, special deductions are given.
9. The revenue generated from the tax payment is used for the common
good like the development of infrastructure, railways, law and order,
protection of the country from external aggression, etc.

Scope of income tax

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O2: To Understand terms related to direct taxation

1. Assessment Year (Α.Υ.) [Section 2 (9)]
An assessment year is the period of 12 months commencing on the 1st day
of April every year. It is the year which immediately succeeds the relevant
previous year. The income earned in the previous year is charged to tax in
the assessment year.
For example, A. Y. 2022-23 commences on 1st April 2022 and ends on
31st March 2023. Income earned in the previous year i.e.; 2021-2022 is
assessed for tax in the A. Y. 2022-23.

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2. Previous Year (P.Υ.) [Section (3)]
Section 3 of the Income Tax Act defines the previous year (P.Y.) as the
financial year immediately preceding the A. Y. The income earned in this
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year is assessed for tax in the A. Y. In the case of a newly set-up business or
profession, P.Y. shall be the period beginning with the date of setting up
of the business or profession and ending with 31st March of the said
financial year.
Thus, for AΥ 2022-23, 2021-22 is the Previous Year (P.Y.).

3. Deemed Assessee
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A deemed Assessee is an individual who is required by the income

tax authorities to pay taxes for some other person. The following
individuals are treated as Deemed Assesses:
1. The executors or the legal heir of the property of a deceased person,
who in writing has passed on his property to the executor, is treated as a
Deemed Assessee.
2. The eldest son or any other legal heir of a deceased individual (who has
expired without writing his will) is treated as a Deemed Assessee.
3. The guardian of a minor, a lunatic, or an idiot is treated as a Deemed
Assessee.

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4. The agent of a Non-Resident Indian (having Income Sources in India) is

treated as a Deemed Assessee.

4. Assessee
"Assessee" means a person by whom any tax or any other sum of money is
payable under this Act and includes-
1. Every person in respect of whom any proceeding under this Act has
been taken for the assessment of his income or of the income of any other
person in respect of which he is assessable, or of the loss sustained by him
or by such other person, or of the amount of refund due to him or to such

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other person.
2. Every person who is deemed to be an assessee under any provision of
this Act.
3. Every person who is deemed to be an assessee in default under any
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provision of this Act.

5. A Person
as defined under Section 2(31) includes:
1. An Individual: Individual means a natural person, i.e., a human being.
It includes minors and persons of unsound mind.
2. A Hindu Undivided Family: It includes only Hindu families, if they are
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undivided including their wives and unmarried daughters.

3. A Company: It includes Indian companies, foreign companies, and the
companies in which the public is substantially interested like Government
companies, finance companies, etc.
4. A Firm: A firm means a partnership firm. Although a firm does not
have a separate legal existence, it is treated as a person under the Income
Tax Act
5. An Association of Persons (AOP) or a Body of Individuals (BOI),
whether incorporated or not: AOP means a group of persons

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(individuals, HUFS, companies, firms, etc.) who join together for common
purposes. On the other hand, BOI means a group of individuals who join
together for a common purpose which may be to earn income or
otherwise.
6. A Local Authority: A local authority means a municipal committee,
district board, Panchayat, Cantonment Board, etc., that has been
entrusted with the control and management of a municipal or local fund.
7. Artificial Juridical Person: Each Artificial Juridical Person does not fall
within any of the preceding sub-clauses. Artificial juridical persons are
entities that are not natural persons but have a separate existence in the

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eyes of the law. For example, deities, idols, universities, etc.

6. Gross Total Income (GTI) [Section 10 (44)]

Gross Total Income is the sum total of all the incomes chargeable to tax
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during the A.Y. This is arrived at after providing the exemptions and
deductions that are applicable to individual income.
For example, standard deduction when applicable to Salary or Income
from House property, is applied to the income and the net income
becomes part of GTL A

7. Total Taxable Income (TTI)

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The tax law provides certain deductions from the GTI on certain
expenditures and investments. These are deducted as per the rules to
arrive at the total taxable income. The total taxable income tax is
calculated. Wherever different rates are applicable, those are applied and
on the balance of total taxable income slab rate becomes applicable.

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8. PAN (Permanent Account Number)

(a) The Income-tax Department identifies the assesses/persons with a
Permanent Account Number (PAN), which is a unique 10-digit
alpha-numeric number.
(b) PAN is to be obtained only once.
(c) Obtaining PAN is compulsory not only for income-tax purposes but
also for certain other transactions.
(d) Every person who has not been allotted a permanent account number
shall, within such time as may be prescribed apply in Form No. 49 A to
the Assessing Officer for the allotment of a permanent account number in

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the following cases:
(i) If his total income or the total income of any other person in respect of
which he is assessable under this act during any previous year exceeded the
maximum amount that is not chargeable to income tax or
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(ii) If he is carrying on any business or profession whose total sales,
turnover, or gross receipts are or is likely to exceed 5,00,000 in any
previous year, or
(i) He is required to furnish a return of income under Section 139(A), i.e.,
returns of trusts and charitable institutions.
(iv) If he, being an employer, is required to furnish a return of fringe
benefits under Section 115WD.
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(e) The Assessing Officer may also allot to any other person by whom tax
is payable, a permanent account number.

Penalty for Failure to Apply for PAN

Failure to apply for PAN No or to quote the PAN in specified documents
or transactions attracts a penalty from the assesses [Section 272 (8)]

Pan Cards

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The Income-tax Department is issuing multi-purpose laminated PAN

cards displaying the PAN No. of the assessee.

Declaration of PAN in Case of Minors

In case of a minor who does not have any taxable income and who wants
to open a bank account with a time deposit exceeding 50.000, the PAN of
his father or guardian may be quoted [Rule 114 8 first Proviso]

9. TAN
The obligation to deduct tax at source is upon the person responsible for

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paying the income/amount which is subject to TDS. Therefore, such a
person, i.e., the payer has to follow the procedure for deducting the tax.
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10. Income
He book madhun lihi
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Practical No.2: Income from salary

( form no. 16 )
O1: To Understand the provision of salary income.
Introduction
A regular payment, usually made monthly by an employer under a
contract of employment, to an employee is called a salary. It is a
consideration received by a person for the services rendered to another
person (called employer). It includes all cash amounts received by an
employee and the monetary value of benefits provided by an employer free

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of cost or at concessional rates

According to Section 17 (1) of the Income Tax Act, 1961, Salary includes
1. Wages
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2. Any annuity or pension
3. Any gratuity
4. Any fees, commissions, perquisites, or profits instead of or in
addition to any salary or wages
5. Any advance salary
6. Leave encashment
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Meaning and Definition

Key points regarding salary income
1. Basic Salary: This is the fixed amount paid by an employer to an
employee on a regular basis, usually monthly. It is a key component
of salary income and is agreed upon in the employment contract.
2. Allowances: Apart from the basic salary, employees may receive
various allowances as part of their total salary package. These can
include house rent allowance (HRA), travel allowance, medical
allowance, etc.

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3. Bonuses: Employers may provide bonuses to employees as a reward

for good performance or during special occasions. Bonuses can be a
significant part of salary income.
4. Overtime Pay: If an employee works beyond the regular working
hours, they may receive additional compensation for overtime. This
is also considered part of salary income.
5. Benefits and Perquisites: Certain benefits and perquisites provided
by employers, such as the use of a company car, accommodation, or
other facilities, may be included in the calculation of salary income.

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Important Term
1. Allowances
Allowances refer to the amount paid to an employee to meet certain
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expenses. For example, a medical allowance is given by an employer to
enable the employee to meet his medical expenses. A House Rent
allowance is given by an employer to enable the employee to meet his
rental expenses.

2. Perquisites (Perks)
Informally they are called Perks. Perquisites refer to the benefits arising as
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a result of employment in addition to regular remuneration. For example,

the facility of the motor car, accommodation services of a gardener, cook,
servants, etc. Perquisites are valued as per the Income-tax rule and are
added with other cash receipts under the head salaries.

3. Computation of Income from Salary.

1. All cash receipts i.e. basic salary, fees, commission, and bonus are
combined.
2. All allowances are added to the above after deducting the exempt
amount, if any, under allowance. Tax-free allowances are not added.

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3. Perquisites are valued as per the rules of the Income Tax Act and added
to the rest of the salary.
4. Employer's contribution to RPF to the extent taxable is computed
along with the taxable amount of interest added to the salary.
5. Profit instead of salary obtained from past and present employers as per
service agreement is added.

4. Taxability of Different Amounts under the Head 'Salary'

a) Basic salary, fees, commission, bonus, advance salary, and arrears of
salary are fully taxable.

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(b) Allowances
• For tax, allowances are grouped as:
(i) Tax-free allowances.
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(ii) Fully taxable allowances;
(iii) Partially exempt allowances:
These are further divided into two categories:
(1) Where the exemption amount depends on the amount spent by the
employee, and
(2) Where the limit of exemption is stated in the Income Tax Act, 1961 or
Rules.
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(i) Tax-Free Allowance

• These allowances are exempted from tax and hence are not included in
the salary. Students may note that these allowances are given for the
discharge of official duties.

• The below-given allowances are tax-free

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(1) Allowance to Government Employees outside India: Any allowance or

perquisite allowed outside India by the Government to an Indian citizen
for rendering services outside India is wholly exempt from tax.
(2) Basic salary or allowance paid by UNO to its employees is not taxable.
(3) Compensatory allowance to meet expenses, wholly and exclusively
incurred by the employer in the performance of duties or to meet expenses
at the place of employment or at a place where he resides, is wholly exempt
if mentioned under Article 222 (2) of the Constitution.
[9:57 PM, 1/2/2024] Dad VI: 4) Allowances to Judge of the High Court
and Supreme Court

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(ii) Fully Taxable Allowances
(1) Dearness allowance
(2) City Compensatory Allowance
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(3) Non-practice Allowance
(4) Over-time Allowance
(5) Tiffin Allowance
(6) Deputation Allowance
(7) Servant Allowance
(8) Subsistence Allowance
(9) Project Allowance
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(10) Fixed Medical Allowance

( iii) Partially Exempt Allowances

To the extent of Actual Expenditure Incurred
(1) Uniform Allowance
(2) Travelling Allowance or Tour/Transfer
(3) Washing Allowance
(4) Conveyance Allowance for performance of official duties
(5) Helper Allowance for official duties
(6) Daily allowance on tour or on transfer

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(7) Academic research and training allowance or books for professional

development books for professional development

To the extent of Amount stated in the Act

(1) Transport Allowance:
It is exempt up to 1,600p.m. and in the case of disabled persons 3,200 p.m.

(2) Tribal Area Allowance:

It is exempt up to 200 p.m.

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(3) Children's Education Allowance:
Exempt up to 100 p.m. per child, up to a maximum of two children.

(4) Hostel Expenditure Allowance:

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It is exempt from up to 300p.m. per child, up to a maximum of two
children.

(5) Underground Allowance: It is exempt up to 800 p.m. Others

• Hour Rent Allowance (H.R.A.): It is exempt up to the least of the
following:
(1) Actual HRA received.
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(2) Rent paid - 10% of salary.

(3) 40% of salary (50% of salary for metro.)
'Salary' for the purpose is → Basic salary + D. A. (if part of retirement
benefits) + Turnover based Commission.
[Note: It is mandatory for employee to report the PAN of the landlord to
the employer if rent paid is more than ₹ 1,00,000]

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6. Taxability of Perquisites
The prerequisite is the value of the benefit received by an employee in
addition to the monetary compensation in the form of salary, allowance,
etc. But for the facility by the employer, the employee would have spent
money.

7. Employees Provident Fund

(a) Statutory Provident Fund (SPF)
Employer's contribution in SPF of the employee, the interest on SPF, and
any withdrawal out of the fund is tax-free. Employees' own contribution

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to SPF is deductible u/s 80 1.

(b) Recognised Provident Fund (RPF)

Employer's contribution to RPF is taxable to the extent that it is more
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than 12% of the salary of the employee. Interest on RPF in excess of 9.5 %
is taxable. Lump Sum withdrawn from the fund is not taxable. Employees'
own contribution to RPF is deductible u/s 801.
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8. Retirement Benefits
(a) Pension
• Monthly pension is fully taxable.
• Commuted pension is exempt up to ½ of the full value of pension if the
employee doesn't receive Gratuity (1/3rd in case the employee receives
gratuity). Commutation received from the Jeevan Suraksha Policy of LIC
is fully tax-free.

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(b) Gratuity
(i) Gratuity received by government employees is fully exempt.
(ii) In the case of non-government employees covered by the 'Payment of
Gratuity Act, 1972', the least of the following is exempt:
(1) 15 days salary for each of service:
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26 x monthly salary x completed year of service
(period beyond 6 months shall be treated as one year)
(2) ₹20,00,000, or
(3) Gratuity received.

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Salary for the purpose = Basic + D.A + D.P ( If part of retirement benefit )
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9. Deductions From Salary Income

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Under Section 16 of the Act, the following deductions are available:

1. Standard Deduction 16(a)
50,000 or the amount of salary, whichever is lower

2. Entertainment received Allowance by the Government employees

(Fully-taxable in case of other employees)16 (ii)
Least of the following is deductible:
(a) 5,000
(b) 1/5th of salary (excluding any allowance, benefits, or other
prerequisite)

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(c) Actual entertainment allowance received

3. Employment Tax/Professional Tax. 16(iii)

The amount actually paid during the year is deductible. However, if
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professional tax is paid by the employer on behalf of its employee then it is
first included in the salary of the employee as a prerequisite, and then the
same amount is allowed as a deduction.
O2: To Solve the practical problems with its Tax
liability
In The Book Of College both old regime and New regime problem
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Practical No.3: Computation of total income

(ITR 2)
O1: To Know the five heads of income
INTRODUCTION
Every money receipt by a person is not chargeable to tax. Section 14 of the
Act specifies five heads of income on which tax can be imposed under the
Income Tax Act. To be chargeable, an income has to be brought under one
of these five heads.

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The heads are:
1. Income from Salary
2. Income of House Property
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3. Profits and Gains of Business and Professions
4. Capital Gains
5. Income from Other Sources

1. Income from Salary

A regular payment, usually made monthly by an employer under a
contract of employment, to an employee is called a salary. It is a
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consideration received by a person for the services rendered to another

person (called employer). It includes all cash amounts received by an
employee and the monetary value of benefits provided by an employer free
of cost or at concessional rates

According to Section 17 (1) of the Income Tax Act, 1961, Salary includes:
1. Wages
2. Any annuity or pension
3. Any gratuity

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4. Any fees, commissions, perquisites, or profits instead of or in addition

to any salary or wages
5. Any advance salary
6. Leave encashment
Important Term
I. Allowances
Allowances refer to the amount paid to an employee to meet certain
expenses. For example, a medical allowance is given by an employer to
enable the employee to meet his medical expenses. A House Rent
allowance is given by an employer to enable the employee to meet his

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rental expenses.
II. Perquisites (Perks)
Informally they are called Perks. Perquisites refer to the benefits arising as
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a result of employment in addition to regular remuneration. For example,
the facility of the motor car, accommodation services of a gardener, cook,
servants, etc. Perquisites are valued as per the Income-tax rule and are
added with other cash receipts under the head salaries.

2. Income From House Property

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Intro: “As per Section 22 of the Income Tax Act, the annual value of a
property consisting of any building or land appurtenant thereto of which,
the assessee is the owner, other than such portion of such property as he
may occupy for any business or profession carried on by him shall be
chargeable to Income Tax under the head "Income from House Property".

Taxability under the head, "Income from house property", arises if the
following conditions are satisfied:

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1. The Property Consists of Building or Land Appurtenant

Thereto:
The term house property is not defined in the Act. But various judicial
interpretations confirm the meaning of house property as any land
surrounded by walls whether having a roof or not and any land
appurtenant to a building

The following points need to be noted :

(a) The building includes a tiled house with cement or mud walls.

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(b) RCC buildings, and palaces.
(c) Apartments / Flats (each flat is a house property).
(d) Bungalows, Row Houses, Beach Houses and Penthouses.
(e) Auditoriums.
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(f) Godowns, Warehouses.
(g) Offices, Commercial shops, Theatres.
(h) Farmhouses, College buildings, Library buildings.

Conditions
(a) The buildings should be permanent structures. Thus, temporary
structures such as circus tents, exhibition structures, etc. are not house
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property.
(b) It may be located in India or in a foreign country: Foreign property is
taxable in case of being ordinarily resident. If house property income is
received in India, then even the non-ordinary residents and non-residents
have to pay tax on it.
(c) Lawns, gardens, parking places, backyards, approach roads, etc.
attached to a building are also taxable under the head Income from House
Property.
(d) The building includes commercial as well as residential house property.

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(e) Vacant land which is not attached to a building is not a house property.
(f) An incomplete structure and buildings that are in a dilapidated
condition are not considered to be house property, e.g., if the substantial
structure of a house property is destroyed due to an earthquake.

2. Assessee is the Owner

The annual value of a property is assessed to tax only in the hands of the
owner, even if he is not in receipt of any income. A person, who is not the
owner of the property, is not assessed even if he is in receipt of income

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from the property.
The term owner includes
(a) Legal owner,
(b) Beneficial owner,
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(c) Deemed owner.

(a) Legal Owner

The legal owner has the ownership title to the property.

(b) Beneficial Owner

A beneficial owner is one who enjoys the property as the owner but is not
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the legal owner.

(c) Deemed Owner

Transferer of property to spouse or minor child holder of impartible
estate (not divisible), property held by a member of a corporate body, in
whose favour a house property, has been allotted or leased under the
House Building Scheme of the company, or association, etc. are considered
to be deemed owner of the said property

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3. Property is not used by the Assessee for the purposes of his

Own Business or Profession
If the owner of property carries on his own business or profession, in the
property, the annual value thereof is not taxable, provided, the income of
such business or profession is chargeable to tax.

4. Annual Value
It is interesting to note that it is the annual value or the earning capacity
of the house property that is taxable and not the actual income. Actual
income is one of the considerations in determining the annual value of the

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property.

5. Exempted Properties
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Income from the following properties are exempted from tax:
(a) Any one place or part thereof an ex-ruler, provided it is not let out.
(b) House property of a local authority.
(c) House property of an approved scientific research association.
(d) House property of an educational institution.
(e) House property of a Hospital.
(f) House property of a person who is a resident of Ladakh.
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(g) House property of a political party.

(h) House property of a trade union.
(i) A farmhouse.
(j) House property held for charitable purposes.
(k) House property used for one's own business or profession.

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3. Profits and Gains of Business and Professions

Meaning of Business and Profession

(a) Business
"As per Section 2 (13) of the Income Tax Act, Business includes any type
of trade, commerce and manufacture or any adventure or concern in the
nature of trade, commerce or manufacture."

Generally, business means a recurring economic activity, but, for income

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tax purposes, an isolated activity may be termed as a business. The most
important thing is that the activity should indicate trade, either after
manufacturing or after buying the commodity. The purpose should be to
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earn profit.

(b) Profession
"Profession means the activity for earning a livelihood that requires
intellectual skill or manual skill, e.g., the work of a lawyer, doctor, auditor,
engineer, and so on. The profession includes vocation i.e. activities
performed in order to earn a livelihood e.g., brokerage, insurance agency,
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etc.

Computation of Profits and Gains of Business and Profession

Important facts relating to Business or Profession
(a) Chargeability
Tax is chargeable from the person who carries out the business or
profession. The essential requirement is that he should be entitled to carry
out the business. It is immaterial if the assessee carries on the business
through a manager/servant/ agent etc.

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(b) Legality of Business

Whether the business is legal or illegal, the profits will be calculated under
this head only. For example, profits due to betting, smuggling, etc.

(c) Negative Income

Profits include losses also. Losses are also considered in the head of
business or profession and are adjusted against income from other sources.
If it cannot be adjusted in the P.Y. concerned, then it can be carried
forward and adjusted in the income of the next financial year.

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(d) Anticipated Profit/Loss
Estimated or anticipated profits as not considered.

(e) Notional Profit

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Profit made by business to one's own self is not considered. For example, if
the proprietor uses goods of sale price 1,00,000 for personal use and the
cost of goods is 90,000, then ₹ 10,000 cannot be considered as profit from
the business.

(f) Compilation of Income of all Business or Profession

If an assessee carries on several businesses or professions, then income
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from all businesses or professions shall be merged together.

(g) Business or Profession should be carried on during the P.Y.

The business must be carried on during the P.Y. It is not necessary that it
should continue throughout the year or till the end of the P.Y.
• In the following cases, income will be treated as business income,
although the business is not carried out during the P.Y.:
(i) Recovery of any amount earlier allowed as a deduction.
(ii) Sale of assets used for scientific research.
(iii) Bad debt recovery, earlier allowed as a deduction.

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(iv) Amount withdrawn from a reserve created earlier.

Methods of Computation of Business Income

(a) Direct Method
In this method, a new profit or loss statement is prepared considering the
provisions of the Income Tax Act, ignoring the Profit and Loss account as
per the books of accounts.

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(b) Indirect Method
In this method, the net profit or loss as per the book of accounts is
adjusted considering the allowed and disallowed expenses and incomes as
per the provisions of the Act.
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4. Capital Gains
• As per Section 45 (1), profits or gains arising on the transfer of a capital
asset shall be chargeable under the head "Capital Gains.".
• Capital gain is taxable in the P.Y. in which the asset is transferred. In
some cases, capital gain is taxable in the P.Y. in which consideration is
received rather than the P.Y. in which the transfer took place. E.g.,
G.

compulsory acquisition by the Government.

Definitions and Meanings

1. Capital Asset
• "As per Section 2 (14) of the Act, Capital Asset means property of any
kind movable or immovable, tangible or intangible, held by an assessee
including the property of his business or profession, but excludes certain
specified assets i.e. non-capital asset."

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• Any securities held by a FII (Foreign Institutional Investors) which has

invested in such securities by the regulations made under the SEBI Act,
1992.
• Thus, capital asset means any kind of property held by an assessee -
(a) Whether held in connection with his business or profession or not.
(b) Whether movable or immovable.
(c) Whether tangible like furniture or intangible like

2. Non-capital Assets
Non-capital assets include the following:

.V.
(a) Stock-in-hands, consumable stores, or raw materials held for the
purpose of business or profession.
(b) Personal Effect viz.; wearing apparel, furniture, motor vehicles, held
for personal use of assessee or his family. However, certain personal effects
S.M
are treated as capital assets. These are (i) jewelry, (ii) archaeological
collections, (iii) drawings, (iv) paintings, (v) sculptures, or (vi) any work of
art.
(c) Agricultural Land in India, in rural areas. The following types of
agricultural land are considered as capital assets:
(i) Land situated within any Municipality or Cantonment Board having a
population of 10,000 or more.
G.

(ii) Land situated within 8 kilometres from the local limits of such
Municipality or Cantonment Board.
(d) Special Bearer Bonds issued by the Central Government.
(e) 6.5% Gold Bond or 7% Gold Bonds or National Defence Bonds, 1991,
issued by the Central Government.
(f ) Special Bearer Bonds.
(g) Gold Deposit Bonds issued under the Gold Deposit Scheme.
(h) Deposit certificates issued under the Gold Monetisation Scheme, 2015

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Types of Capital Asset

Capital assets may be:

(a) Short-term Capital Asset
A capital asset held by an assessee for not more than 36 months
immediately before the transfer is called a short-term capital asset.
However, in the case of the following assets, the assets are short-term
assets, if these are held for more than 12 months immediately before the
date of transfer.
(i) Equity or preference shares in a company listed in a recognized stock

.V.
exchange.
(ii) Listed securities like debenture, government securities, etc.
(iii) Units of UTL
(iv) Zero Coupon Bonds.
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(v) Equity-oriented mutual fund units.
In the case of unlisted shares of a company, the period of holding to be
considered is 24 months instead of 36 months,

(b) Long-term Capital Asset

A capital asset, held for more than 36 months before sale/transfer is
known as a long-term capital asset
G.

In the case of securities, shares listed in recognized stock exchanges in

India, units of equity-oriented mutual fund units, listed securities like
debentures and Government securities, units of UTI and Zero coupon
bonds, the period of holding is 12 months instead of 36 months. If these
assets are held for more than 12 months, they are treated as long-term
capital assets.

• In the case of unlisted shares in a company, the period of holding is 24

months instead of 36 months.

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• With effect from A.Y. 2018-19, the period of holding of immovable

property (being land or building or both) is 24 months instead of 36
months

The distinction between short-term and long-term is important due to

the following reasons
(a) Tax rates are different for the two.
(b) In the case of long-term assets, indexation is done to make the sale
price and acquisition price comparable.

.V.
● Tax exemptions are available, for long-term capital gain, if some
conditions are fulfilled.

5. Income from other Sources

S.M
• Income which is not to be excluded from the total income under the
Income Tax Act but does not fall under any of the specified heads of
income, is chargeable to tax under the head "Income from other sources".

• The following incomes are chargeable to income tax under the head:
1. Dividends from domestic companies covered by Section 2(22) (e).
2. Interest on securities if the income is not chargeable to income tax
G.

under the head 'Profits and gains of business or profession'.

3. Any pension received by the legal heirs of an employee.
4. Any winnings from lotteries, crossword puzzles, races including horse
races, card games, or any other game, gambling, or betting.
5. Any contribution to a fund for the welfare of employees received by the
employer.
6. Interest on bank deposits.
7. Interest on income tax refund.

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8. Income in the form of hire from machinery, plant, or furniture

belonging to the assessee by letting the assets, if not chargeable to 'Profits
and gains of Business and Profession'. If a building is also let out along
with these assets and the letting of a building is inseparable from the
machinery, plant, or furniture, the income from such letting, if not
chargeable under the head "Profits and gains of business and profession".
9. Gift
(a) Any sum of money exceeding 50,000 received without consideration,
the whole amount.
(b) Any immovable property received without consideration and if the

.V.
stamp duty value of such property exceeds 50,000, the stamp duty value of
the property.
(c) Any immovable property received for a consideration which is less than
the stamp duty value of the property by an amount exceeding 50,000, the
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amount exceeding the stamp duty value.
(d) Any property, other than immovable property, received without
consideration, the aggregate fair market value of which exceeds 50,000,
the fair market value.
(e) Any property other than immovable property, received for partial
consideration, the amount exceeding the fair market value.
G.

• The amount or property received without consideration or for partial

consideration is not taxable if received:
(a) from any relative;
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of the death of the payer or donor, as the case may be;
or
(e) from any local authority as defined in the Explanation to clause (20) of
Section 10; or

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(f) from any fund or foundation university or other educational

institution hospitals other medical institution or any trust or institution
referred to in clause (23C) of Section 10; or (g) from any trust or
institution registered under Section 12aa; or
(h) by way of transaction not regarded as transfer under clause (vcib)
clause (vid) or clause (vii) of Section 47.
from an individual by a trust created or established solely for the benefit
of a relative of the individual.
(i)by any fund or trust or institution or any university or other
educational institution or any hospital or other medical institution

.V.
specified for the purpose.

"Property" means the following capital asset of the assessee, namely:

S.M
(a) immovable property being land or building or both;
(b) shares and securities;
(c) jewellery:
(d) archaeological collections:
(e) drawings;
(f) paintings,
(g) sculptures;
G.

(h) any work of art:

(i) bullion.

Meaning of 'Relative'
(a) In the case of an individual:
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;

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(v) any lineal ascendant or descendant of the individual;

(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in items (ii) to (vi);

The meaning of "Stamp Duty Value

• It means the value adopted or assessed or assessable by any authority of
the Central Government or a State Government for the purpose of
payment of stamp duty in respect of an immovable property;
• Where a company, not being a company in which the public is
substantially interested, receives, in any previous year, from any person

.V.
being a resident, any consideration for the issue of shares that exceeds the
face value of such shares, the aggregate consideration received for such
shares as exceeds the fair market value of the shares.
• This clause shall not apply where the consideration for the issue of shares
S.M
is received:
(a) by a venture capital undertaking from a venture capital company a
venture capital fund; or
(b) by a company from a class or classes of persons as may be notified by
the Central Government on this behalf.

Meaning of 'Fair Market Value'

G.

● 'Fair market value' of the shares means the value:

(a) as may be determined in accordance with such method as may be
prescribed; or
(b) as may be substantiated by the company to the satisfaction of the
Assessing Officer, based on the value, on the date of issue of shares, of its
assets, including intangible assets being goodwill, know-how, patents,
copyrights, trademarks, licences, franchises or any other business or
commercial rights of similar nature, whichever is higher,

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Meaning of 'Venture Capital Company'

● "Venture Capital Company", "venture capital fund" and "venture
capital undertaking" means the meanings respectively assigned to
them in clause (a), clause (b), and clause (c) of Explanation to clause
(23FB) of Section 10;
● Interest received on compensation or on enhanced compensation in
the year in which the amount is received, after deducting 50% of
such income,
● Any amount received as an advance otherwise in the course of
negotiation for the transfer of a capital asset if such sum is forfeited

.V.
and the negotiations do not result in a transfer of such capital asset.
● Any compensation or other payment due to or received by any
person in connection with the termination of his employment or
the modification of the terms and conditions of the employment.
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Deductions Allowable

The following deductions are available to the assessee in obtaining the

taxable amount under this head:
1. In the case of taxable dividend income and interest from securities, any
reasonable sum paid by way of remuneration or commission to realise such
G.

income including interest on borrowed capital if such borrowed capital is

used for making investments in shares or securities.
2. In case of income from plant, machinery, or furniture given out on hire,
the following expenses will be allowed as deduction:
(a) Current repairs to the building.
(b) Current repairs to machinery, plant, or furniture.
(c) Insurance premium paid for insuring the plant, machinery, building,
or furniture.
(d) Depreciation on building, machinery, plant or furniture.

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3. In case of any expenditure other than capital expenditure or personal

expenditure which has been incurred wholly, necessarily, and exclusively
for earning income like revenue expenditure, such expenditure will also be
allowed as a deduction.

4. In case of family pension received by legal heirs of an employee, a

standard deduction of 1/3rd of such amount or 15,000 whichever is less
will be allowed by way of deduction.

.V.
Amounts not Deductible
The following amounts are not deductible while computing the taxable
amount under this head:
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(1) Personal expenses of the assessee.
(2) Any sum paid on account of wealth tax in India or abroad.
(3) Any amount not allowable by virtue of it being reasonable.
(4) Any expenditure in connection with income from winnings from
lotteries, crosswords, cross puzzles, races including horses, car races, and
other games of races, gambling, or betting of any form.
However, expenses are allowed as a deduction in computing the income of
G.

an assessee who earns income from maintaining as well as holding

racehorses

O2: To Understand the deduction under sections 80c

to 80u
Certainly! Sections 80C to 80U of the Income Tax Act, 1961 in India
provide various deductions that individuals can claim to reduce their

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taxable income. These deductions cover a wide range of investments,

expenses, and contributions. Here's a brief overview:
O3: To Solve the practical problem of total income
with the old tax regime and new tax regime with tax
slab
H in the book

.V.
S.M
G.

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