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Edition 1 – Nov 2022

Edition 2 – Nov 2023

 CA INTER PAPER 4A - INCOME TAX (60M)
CHAPTER WISE WEIGHTAGE - BASED ON PAST EXAM ANALYSIS
S. No. CHAPTER NAME Paper excl. MCQs - 42 marks Avg. of category ICAI Weightage
May-23 Nov-22 May-22 Dec-21 Jul-21 Jan-21 Nov-20 Nov-19 May-19 (excl. MCQs) (incl. MCQs)
I
1 Basic Concepts - - - - - - - - - 6.78 marks 9 - 12 marks
2 Residential Status & Scope of Income 7 12 4 7 6 6* 5 7 7
TOTAL 7 12 4 7 6 6 5 7 7

II
3 Incomes which do not form part of total income 4 - - - - 6* - - - 11.89 marks 15 - 21 marks
4 Heads of Income - - - - - - - - -
(i) Salaries 7 8 - - - - - - -
(ii) House Property - - - 6 6 - - - 8
(iii) PGBP - - 4 - - 6 5 4 -
(iv) Capital Gains - - - 7 8 - - 6 6
(V) Income from other sources - - 8 - - - 4* 4 -
TOTAL 11 8 12 13 14 12 9 14 14
III
5 Income of other persons (Clubbing) 6 4 4 4 5 - 6 5 - 6.55 marks 9 - 12 marks
6 Aggregation, Set off & Carry forward - - 6 - 5 - - 5 -
7 Deductions from gross total income 4 - - - - 5 - -
TOTAL 10 4 10 4 10 0 11 10 0
IV
8 Computation of total income & tax liability - Individuals # 17 18 20 20 14 29 22 14 24 19.78marks 2

V
9 Advance tax, TDS & TCS 7 6 6 8 8 8 9* 11* 7 11.78 marks 9 - 12 marks
10 Provisions for filing return or self assessment 4 8 4 4 4 4 4 4* 4
TOTAL 11 14 10 12 12 12 13 11* 11
* Questions having internal choice; # question sometimes includes provisions across different chapters
NOTE:
1: Weightage of Optional questions has been taken in calculations; 2: MCQs are not considered in calculation. Only theory paper weightage has been taken.
 CA INTER PAPER 4A - INCOME TAX
QUESTION WISE TOPICS BASED ON PAST EXAM PATTERN
May-23 Nov-22 May-22 Dec-21 Jul-21 Jan-21 Nov-20 Nov-19 May-19
Question No.
Topic M Topic M Topic M Topic M Topic M Topic M Topic M Topic M Topic M
COMPULSORY
1 Computation of total 14 14 Computation of 14 Computation of Total 14 Computation of 14 Computation of Total 14 Computation of Total 14 Computation of Total 14 Computation of 14
income without S. Computation of Total Total Income Income Total Income Income Income Income Total Income
115BAC Income & tax payable
of Individual without
S115BAC. Will 44AD
be more beneficial
OPTIONAL (2 of 3)
2 (a) Residential Status and 7 6 Tax Deduction at Residential Status 7 Residential Status 6 Tax Deduction at Source 8 Deductions from GTI 5 Residential Status and 7 Residential Status 7
Scope of total income Source and Scope of Income Provisions for filing 4 Scope of Total Income and Scope of
6
Residential Status and returns Total Income
Scope of Income
2 (b) Tax Deduction at Source 7 Income from Salary - 8 Aggregation, Set Income from Capital 7 Tax Deduction at 8 PGBP 6 Tax Deduction at 5 Tax Deduction at 7 Tax Deduction at 7
with & without Sec off & Carry 4 Gains Source Source Source Source
115BAC Forward
2 (c) Clubbing of
4
Income
3 (a) AMT applicability 7 6 Income from Tax deduction at 4 Income from House 6 Computation of Total 7 Computation of Total 8 PGBP 4 Income from 8
including 10AA and 35AD Applicability & Other Sources 8 source Property Income Income House Property
amount of TDS
3 (b) Income from Salaries 7 Compute gross total 4 Residential Status Tax collection at 4 Income from Capital 4 Provisions for filing 4 Income of Other 6 Income from Capital 6 Income from 6
income & losses and Scope of 4 source Gains return persons(Clubbing) Gains Capital Gains
carried forward Income
3 (c) Sec 139AA - PAN & 4 Aggregation, Set Income from House 6 Income from Capital 4 Residential Status and 3 Income from Other 4
Aadhar linking off & Carry 2 Property Gains Scope of Income Sources
Forward

4 (a) Clubbing of Income and 6 Scope of Income 6 Computation of Clubbing of Income 4 Clubbing of Income 5 Computation of total 8 Residential Status and 5 Income of Other 5 Computation of Total10Income
Computation of total Total Income 6 income Scope of Income persons (Clubbing)
income
4 (b) Deductions under 4 Self-assessment tax 4 PGBP Computation of total 6 Aggregation, Set off 5 Income which do not 3 PGBP 5 Aggregation, Set off & 5 Provisions for 4
Chapter VIA and interest u/s 234A, income & Carry Forward form part of total Carry Forward Filing Return
234B & 234C income** 3
4 Scope of Income** 3
Income which do not
form part of total
income**
4 (c) Updated return concept 4 Assessing officer right 4 Provisions for Provisions for filing 4 Provisions for filing 4 Tax Deduction at 4 Tax Collection at 4
(or) cases where return of to give notice OR filing return return return Source* 4 Source* 4
4
income is mandatory Clubbing of Income Income from Other Provisions for filing
Sources* Return*
** Student have to answer any 2 out of 3 questions
* Student have to answer only 1
INDEX
Chapter 1 – Basic Concepts………………………………………………………………1.1 – 1.32
Chapter 2 – Residential status and scope of total income………………..2.1 – 2.26
Chapter 3 –Agricultural Income…………………………………………….…………3.1 – 3.10
Chapter 4 – Income from Salaries……………………………………………….…..4.1 – 4.59
Chapter 5 – Income from House Property……………………………….……….5.1 – 5.21
Chapter 6 – Profit and Gains from Business or Profession…… ……………6.1 -6.69
Chapter 7 – Capital Gains……………………………………………….……………….7.1 – 7.38
Chapter 8 – Income from Other Sources…………………………………….……8.1 – 8.20
Chapter 9 – Clubbing of Income…………………………………………….………..9.1 – 9.15
Chapter 10 – Setoff and Carry forward of Losses……………..…………..10.1 – 10.12
Chapter 11 – Deductions……………………………………………………………..11.1 – 11.32
Chapter 12 – Advance Payment of Tax…………………………………………..12.1 – 12.5
Chapter 13 – TDS & TCS…………………………………………………….…………13.1 – 13.39
Chapter 14 – Return of Income………………………………….…………………14.1 – 14.17
Chapter 15 – Levy of Interest……………………………………………………..….15.1 – 15.3
Chapter 16 – Income Exempt from Tax…………………………………………16.1 – 16.15
Chapter 17 – Total Income……………………………………………………………..17.1 – 17.5
 Chapter 1

Basic Concepts
Before we Begin,

This chapter lays down the Foundation of the Understanding behind the learning
of the entire Direct taxation at Intermediate Level

You will learn about the following

• meaning and types of taxes,

• the difference between direct and indirect taxes,
• income-tax law components, and
• the computation of total income for income-tax purposes.
• Insights into the Income-tax Act, 1961,
• Income under the purview of Income Tax Act
• Who is a person?
• Recognize previous year and assessment year for tax computation.
• Explore default and new tax regimes for determining tax liabilities.

Empower yourself with tax knowledge for informed decision-making.

Happy learning!

1FIN BY INDIGOLEARN 1.1

 Basic Concepts

Steps for Computation

Components of Basis of Charge and
of Total Income and Important Definitions
Income Tax Law Rates of tax
Income Tax Liability

Income Tax Act, 1961 Residential status Assessee Charge of Income Tax

Classification of
Annual Finance Act Income under Assessment Rates of Income Tax
different Heads

Computation of
Income Tax Rules Income under each Person
Head

Circulars and
Clubbing of Income Income
Notifications

Sett off and Carry

Legal Decisions India
forward of losses

Gross Total Income Assessment Year

Deductions Previous Year

Total Income

Tax Liability

1FIN BY INDIGOLEARN 1.2

1. INTRODUCTION:
1.1. WHAT IS TAX?
➢ Tax is a compulsory fee charged by the Government on a product, service, income,
wealth or activity.
o Example: Goods and Services Tax, wealth tax, Customs duty etc.

1.2. WHY Taxes are Levied?

➢ These taxes are the basic sources of revenue to the Government.
➢ The revenue so raised is utilized for meeting the expenses of Government in
relation to defence, provision of education, health care, infrastructure facilities
like roads, dams etc.

1.3. Power to Levy Taxes:

➢ The Constitution of India empowers Central Government to levy tax on income.
With the aid of Article 265 of the Indian Constitution.
➢ Article 265 of the Constitution of India provides that 'no tax shall be levied or
collected except by authority of law’. The Constitution includes three lists in
the Seventh Schedule providing authority to the Central Government (CG) and
the State Governments (SG) to levy and collect taxes on subjects stated in the
lists.

List I List II List III

(Union list) (State List) (Concurrent List)
• Parliament has • Any state has • The Parliament or
the exclusive exclusive power the legislature of
power to make to make law for a state has power
law in respect of such state or any to make laws
any entry of List part thereof with with respect to
respect to any any entry of List -
entry of List - II III

1.4. How Tax is Levied?

➢ Taxes are levied by the Governments via special acts for such specific taxes that
it is going to levy and collect.
➢ Such acts have to be passed in the Parliament as a bill initially and later becomes
an act after it getting signed by the President of India as his assent
➢ Such approved Act will be published in the Official Gazette of India from which
it will be enforced or from the date specified as the case may be.
1.5. TYPES OF TAXES:

1FIN BY INDIGOLEARN 1.3

 ➢ The taxes are classified on the basis of the Concept of IMPACT & INCIDENCE
➢ IMPACT – on whom the tax is levied
➢ INCIDENCE – on whom the burden of tax is falling on
➢ Based on the above concepts the taxes are divided as the following

Types of Taxes

Direct Taxes Indirect Taxes

Goods and Services Tax

Income Tax (GST) Customs Duty

➢ DIRECT TAXES: It is a tax where the IMPACT AND INCIDENCE lies on the
same person. Direct taxes are those, which the taxpayer pays directly from his
income / wealth etc [E.g. Income Tax / Wealth Tax, etc.] i.e., they will be
paid by the persons on whom they are charged / imposed and hence there is no
shifting of the tax burden.
➢ INDIRECT TAXES: It is a tax where the IMPACT AND INCIDENCE lies on
different persons. It is a tax on goods and services, the incidence of which is
borne by the consumers who ultimately consume the goods and services, i.e., in
the case of indirect taxes, there will be shifting of burden of tax from the
person on whom they are levied to the person who has actually consumed the
same. [E.g. Goods and Services (GST), Customs Duty]
1.6. How Direct taxes are levied?
➢ Direct Taxes are levied by the enactment of Income Tax Act, 1961 by the Central
Govt. of India.
➢ The main Act was enacted in the year 1961. It came into force from 1 April 1962.
➢ The Indian taxation structure is a mix of number of provisions either governed
by income tax law and at some stages by number of mercantile and corporate
laws.
➢ The Act is amended by the finance Act from year to year based on the Budget
presented by Finance Minister in the parliament.

1FIN BY INDIGOLEARN 1.4

2. STRUCTURE OF INDIAN INCOME TAX:
The Central Government has been empowered by Entry 82 of the Union List of
Schedule VII of the Constitution of India to levy tax on all income other than
agricultural income.

Indian Income Tax

Income Annual Income

Circulars and Legal
Tax Act, Finance Tax Rules,
Notifications Decisions
1961 Act 1962

The structure or sources of Income Tax Law are as under:

2.1. THE INCOME TAX ACT, 1961:

➢ Income tax in India is governed by the Income Tax Act, 1961
➢ It came into force w.e.f. 1.4.1962
➢ Income Tax Act applies to whole of India (including Jammu & Kashmir)
➢ The Finance Act shall bring amendment to this Act.
➢ The Law provides for determination of taxable income, tax liability and procedure
for assessment, appeal, penalties and prosecutions.

2.2. ANNUAL FINANCE ACT:

➢ Finance Minister presents this as Finance Bill
in both the Houses of Parliament on first
working day of February of every year.
➢ Part A of the Budget contains proposed
policies of the Government in fiscal areas.
➢ Part B contains the detailed tax proposals.
➢ Once the Finance Bill is approved by the
Parliament and gets the assent of the
President, it becomes the Finance Act.
➢ The Finance Act brings amendments to both
the Direct Tax Laws and Indirect Laws.

1FIN BY INDIGOLEARN 1.5

 ➢ First Schedule to the Finance Act contains four parts which specify the rates of
tax –

Part What is specifies?

I The rates of tax applicable for the current Assessment Year
II The rates at which tax is deductible at source for the current
Financial Year
III The rates for calculating income-tax for deducting tax from income
chargeable under the head “Salaries” and computation of advance
tax for F.Y. 2023-24
IV The rules for computing net agricultural income.

2.3. THE INCOME TAX RULES, 1962:

➢ The administration of Direct Taxes is vested with Central Board of Direct Taxes
(CBDT).
➢ Under Section 295 of IT Act, CBDT is empowered to frame rules from time to
time to carry out the Purpose and proper administration of the Act.
➢ All forms, procedures and principles of valuation of perquisites prescribed under
the Act are provided in the Rules framed by CBDT.

2.4. CIRCULARS & NOTIFICATION:

➢ In exercise of the powers u/s 119, CBDT issues circulars and notifications from
time to time.
➢ These circulars clarify doubts regarding the scope and meaning of the various
provisions of the Act.
➢ These circulars act as guidance for officers and assesses.
➢ These circulars are binding on Assessing Officers but not on assesses and
Courts.
➢ The circulars issued by the CBDT shall not be in contrary to the provisions of
the Act.
➢ The rules and regulations enacted by CBDT i.e. Income Tax Rules, the
Notifications and circulars issued by CBDT is called Subordinate Legislation.

1FIN BY INDIGOLEARN 1.6

 2.5. JUDICIAL PRONOUNCEMENTS OF HIGH COURT / SUPREME
COURT:
➢ It is not possible for Parliament to conceive and provide for all possible issues
that may arise in the implementation of any Act. Hence the judiciary will hear
the disputes between the assessees and the department and give decisions on
various issues such decisions are known as Judicial Pronouncements.
➢ The Supreme Court and the High Court can give judgment only on the question of
law.
➢ The Law laid down by the Supreme Court is the law of the land.
➢ The decision of High Court will apply in the respective States, within its
jurisdiction.
KEY POINTS:
➢ Income tax act is applicable to whole of India. (including the state of J & K )
➢ IT act came into force on 1st April, 1962.
➢ We say Income tax act 1961 & Income tax rules 1962.
➢ Tax rates for Income are given in Finance act as well as IT act 1961.
❖ In IT act, rates are given for causal income (Winning for lotteries, Betting,
Card game etc.), rates u/s 111A (STCG), 112 (LTCG) etc.
❖ In finance act, Individual tax rates, firms, BOI etc. are given.
➢ For charging tax on income, Residential status of an "Person" is taken into
consideration & not Citizenship
➢ A finance bill, if gets assent of President of India & approved by Parliament, then
it becomes Finance act. Hence it is not mandatory that whatever there in finance
bill should be there in Finance act.
➢ In the parliament, relevant Finance act gets approved. All the changes relating
to rules, notification etc., are delegated by parliament to CBDT. This is called
"Subordinate Legislation".
➢ CBDT (Central Board for Direct taxes)
❖ Can issue notifications & circulars,
❖ Also prepare IT rules from time to time for carrying out the purpose of IT
act.
➢ CBDT circulars are clarificatory in nature i.e., Intention of letter of law is
clarified by circulars.
➢ Whenever there is ambiguity in law, intention of legislation is cleared by CBDT
circulars. These Circulars can never override the provisions of IT act.

1FIN BY INDIGOLEARN 1.7

3. DEFINITIONS AND BASIC CONCEPTS OF INCOME TAX:

Definitions

Terms Defined in the Act Terms not defined in the Act

Section 2 of IncomeTax Act, General Clauses Act or

1961 Dictionary

• Where the terms defined in the act are mentioned under Section 2 or
under any other provision of the Income Tax act as various Clauses.
• Where there is a term that has not defined in the Section 2 of the Income
Tax Act, 1961, they shall be interpreted as per the provisions of the
General Clauses Act, 1897 or as per the dictionary meaning.

Some of the Definitions defined U/s 2

3.1. ASSESSMENT YEAR:
As per Sec 2 (9) of Income tax Act, 1961, Assessment Year means the period of
12 months commencing on the 1st April of every year.
In short: The year in which tax is paid for the income earned in previous year.
E.g.: - A.Y. 2024-25 commences on 1st April 2024 and ends on 31st March 2025.

3.2. PREVIOUS YEAR [Section 2(34) and Section 3]:

As per Sec 3 of Income tax Act, 1961, Previous Year means financial year
immediately preceding the assessment year.
Proviso: It need not be always 12 months if such assessee is a newly set up
business, previous year shall be the period commencing from the date of setting
up of business and ending on 31st march of the said financial year.
Eg:- If business commenced on 15th July, 2023, the previous year for this
business starts from 15th July, 2023 and ends on 31st march, 2024.
In simple words, the year in which income is earned is known as previous year
and the next year in which income is taxable is known as assessment year.

1FIN BY INDIGOLEARN 1.8

 3.3. ASSESSMENT:
This is the procedure by which the income of an assessee is determined.
It may be by way of a normal assessment or by way of reassessment of an income
previously assessed.

3.4. INDIA
As per Section 2(25A), India covers territory, territorial waters, sea bed and subsoil
underlying such waters, continental shelf and exclusive economic zone and air space
above territory and territorial waters.

1FIN BY INDIGOLEARN 1.9

 3.5. ASSESSEE:
Assessee is any person for whom we calculate the total income and ascertain the
tax liability in terms of Income Tax

In other words, Assessee is a person whose income and Tax Liability is assessed.

Assessee Defined under Section 2 clause 7 is as follows

Assessee
( Sec 2 (7))

Deemed Assessee in
Any person in Assessee default
Any person by
whom tax or any respect of whom
other sum of any proceeding
money is payable under the Act is
under the Act. taken Person who fails
Person who Person who
to deduct (make) does not pay
TDS after
deducting advance tax/
tax fails to Tax etc.
Proceedings may relate pay such tax
to assesssement of

Income / Income or loss of

Loss earned Refund Refund due to
any other person due to any other
/sustained by in respect of
him him person in
whom he is respect of
assessable whom he is
assessable

3.6. PERSON
As per Sec 2(31) of Income tax Act, 1961, Person includes
➢ Individual (Natural person, i.e., Human being, including minor or unsound person),
➢ Hindu Undivided Family (HUF)
➢ Company
➢ Partnership Firm (including a "Limited Liability Partnership" firm)

1FIN BY INDIGOLEARN 1.10

 ➢ An Association of persons (AOP) or Body of Individuals (BOI) (e.g., Trusts, Co-
operative societies, social clubs etc.)
➢ Local Authority (e.g., Municipalities)
➢ Every artificial Juridical Person not following with in any of above categories,
(e.g., Universities, Bar councils, ICAI, ICSI etc.)
Note:
1. HUF
• "Hindu undivided family" is defined under the Hindu Law as a family, which
consists of all males lineally descended from a common ancestor and
includes their wives and daughters.
• A Hindu Coparcenary includes those persons (Sons and daughters) who
acquire an interest in joint family property by birth (Wife or daughter-
in-law of a coparcener are not eligible for such coparcenary rights).
• The relation of a HUF does not arise from a contract but arises from
status.
• Under the Income-tax Act, 1961, Jain undivided families and Sikh
undivided families would also be assessed as a HUF.
• Schools of Hindu Law:

2. Meaning of partition of HUF:

• Where the property admits of a physical division, then if a physical division
is made, it shall be regarded as partition.
• A physical division of income without a physical division of property producing
income shall not be deemed to be a partition.

3. Company [Sec 2(17)]

Dayabaga Mitakshara

Prevalent in West Prevalent in rest of

Bengal and Assam India

Cannot acquire the

right, share in the Acquires the right,
property by birth as share in the property by
long as the head of birth
family is living.

1FIN BY INDIGOLEARN 1.11

 Company means
1) Any Indian Company (Registered under companies Act + registered/principal office
in India)
2) Any body corporate under the laws of a country outside India, i.e., a foreign
company.
3) Any institution, association or Body which was company on or before 01.04.1970.
4) Any institution, association or body declared by CBDT to be a company.
Classification of Companies
4. Firm (Including LLP) – Same meaning as in Indian Partnership Act, 1932
(+)Limited Liability Partnership Act, 2008.
5. An association of persons means two or more persons voluntarily join together
in a common purpose or common action with an object to earn income. Every
combination of persons will not constitute an AOP, there must be common desire,
common will and meeting minds on common objective to constitute an AOP. Any
person can be a member in AOP i.e., company, firm etc. The Supreme Court in
the case of ITO Vs Ch. Atchaiah has held that the income of AOP has to be
taxed in the hands of AOP only and the members of AOP cannot be taxed
individually.

Company

Domestic Company Sec Foreign Company Sec 2(23A)

2(22A)

Indian Company Means a company which is

Company which has made arrangement for
declaring and paying dividend within India not a domestic company
out of the income chargeable to tax in India.

6. Body of Individual means a conglomeration of Individuals who carry on some

activity with an object of earning some income. In case of BOI, only the
individuals can be members and it is formed by operation of Law.

1FIN BY INDIGOLEARN 1.12

 7. Local Authority

Local Authority

Other authorities
Body of port entrusted by govt. with
Municipal committee District board the control and
commissioners
management of
municipal fund

Points to be noted:

1) A local authority is taxable in respect of that part of its income which arises
from any business carried on by it.
2) But the income arising from supply of a commodity or service within its own
jurisdictional area is not taxable.
3) However, the income arising from supply of water and electricity even outside
its jurisdictional area is exempt from tax.
8. Artificial Juridical Person
▪ This is a residue category.
▪ Deities are to be regarded as artificial juridical person.
▪ Bar council and Universities are also regarded as artificial juridical person.

1FIN BY INDIGOLEARN 1.13

SECTION 4: CHARGEABILITY SECTION:
The income earned by a person who is "Assessee"- which is earned in the previous
year ( P.Y) is chargeable to Income tax in the immediately following " Assessment
year" (A.Y) as per sec.4 of the IT act 1961 - @ the rate specified in the Annual
Finance Act for that year.
Hence Section 4 talks about following concepts:
➢ Income - Sec 2 (24)
➢ Person - Sec 2 (31)
➢ Assessee - Sec 2(7)
➢ Previous Year - Sec 3
➢ Assessment Year - Sec 2 (9)
SEC 2(24) - INCOME: -
Broad principles clarifying the concept of income

1) Regular and definite source

2) Different forms of income
3) Receipt Vs accrual
4) Illegal income
5) Income should be real and not
fictional
6) Disputed title
7) Relief or reimbursement of expenses- not treated as income
8) Diversion of income by over-riding title v application of income
9) Surplus from mutual activity
10) Lump sum receipt
11) Personal gifts
12) Tax free income
13) Same income cannot be taxed twice
14) Dharmada- not taxable
15) Surplus from devaluation of currency
16) Income includes loss- CIT V. Karamchand Premchand Ltd.
17) Pin money
However, income includes any assistance in the form of a subsidy or grant or cash
incentive or duty drawback or waiver or concession or reimbursement, by whatever
name called, received from the Central Government or a State Government or any
authority or body or agency in cash or kind to the assesse.

1FIN BY INDIGOLEARN 1.14

 However, subsidy or grant or reimbursement which has been taken into account
for determination of the actual cost of the depreciable asset in accordance with
Explanation 10 to section 43(1) shall not be included in the definition of income.
In general, the word income covers receipts in the form of money or money worth
which arise with certain regularity or expected regularity from a definite source.
The source need not necessarily be tangible as the return for human effort is also
income. Further, the causal incomes arise without any regularity will also be taxed.
Eg:- Winning from lotteries, cross word puzzles, races etc...

3.1. OTHER POINTS:

➢ Application of Income: The concept of application of income arises only after
the receipt of income in the hands of the assessee. An assessee may on his own
option or otherwise forego his income. This would amount to an application of
income, and this would result in taxation of such income in the hands of the
assessee.
➢ Diversion of Income: Whereby an obligation income is diverted before it reaches
the assessee, it is “diversion of income” & not taxable in the hand of the assessee.
➢ Difference between Diversion of Income and Application of Income:

Diversion of Income Application of Income

(a) By virtue of an obligation the income The discharge of obligation takes place
is diverted at source before it after the income reaches the
reaches the assessee. assessee.

(b) Obligation is on the source of income. Obligation is on the receipt of income.

(c) Diversion of income takes place by There is no over riding title in this
overriding title. case.

(d) The income is not included in the Such income is included in the income
income of the assessee. of the assessee.

(e) Income cannot be said to have Income is said to have accrued or

accrued or arisen. arisen and therefore is taxable in the
hands of assessee.

1FIN BY INDIGOLEARN 1.15

 REVENUE RECEIPTS AND CAPITAL RECEIPTS

Capital Receipts Revenue Receipts

Capital receipt is generally referable to fixed Revenue receipt is referred to

capital. E.g., Sale of assets, which the circulating capital or stock in trade.
assessee uses as a fixed capital to enable him E.g., Sale of stock-in-trade or any
to carry on his business, is capital receipt. trading asset results in revenue
receipts.

Payment received towards compensation for Payment made to compensate a person

extinguishing wholly or partly of a profit towards loss of profits or earnings is a
earning source is a capital receipt. revenue receipt.

A receipt in lieu of source of income is a A receipt in lieu of income is revenue

capital receipt. E.g., Compensation for loss of receipt.
employment is a capital receipt.

Capital receipts are exempt from tax unless Revenue receipts are taxable unless
they are expressly taxable like in case of expressly exempt from tax like in case
capital gains. of income exempt u/s 10 to 13 A.

Compensation received for relinquishing Compensation received for

interest, whether wholly or partly, in a capital relinquishing interest in stock-in-trade
asset of the business is a capital receipt. of the business is a revenue receipt.

1FIN BY INDIGOLEARN 1.16

4. SECTION 4: - CHARGE OF INCOME TAX (BASIC RULE):
Income of the previous year of every person shall be charged in the relevant
assessment year.
However, in some cases, the income of a previous year is chargeable to tax in the
SAME year. These exceptions have been provided to safeguard the collection of
taxes. The exceptions are as follows: -

4.1. EXECPTIONS TO BASIC RULE:

1. Shipping business of the NON- RESIDENT (Sec 172):-

➢ The assessee should be a "NON- RESIDENT "

➢ He should be EITHER the owner of the ship
(or) he has chartered the ship.
➢ The ship is carrying passengers, goods,
livestock, mail etc. shipped at ANY PORT in
India.
➢ Then non-resident has to pay income tax
before the ship is allowed to leave the Indian
port.
➢ Such income of the Assessee shall be deemed
to be equal to 7.5% of the freight paid or
payable to the owner or the charterer or to
any person on his behalf, whether in India or
outside India on account of such carriage.

2. Persons leaving India (Sec 174):-

➢ If it appears to the Assessing officer

that any individual may leave India during
the current assessment year or shortly
after its expiry,
➢ He has no present intention of returning
to India,
The total income of such individual, from
the expiry of previous year for that
assessment year (i.e from 1st April of the
A.Y) up to the probable date of his
departure from India shall be chargeable to
tax in the same assessment year itself.

1FIN BY INDIGOLEARN 1.17

 3. Assessment of AOP or BOI or Artificial juridical person formed for a
particular event or purpose (Sec 174 A): -
➢ In the case of dissolution of AOP or BOI, the income earned for the
period beginning with the previous year in which it is dissolved till the
actual date of dissolution is chargeable to tax in the same previous year.

4. Persons likely to transfer property to avoid tax (Sec 175): -

➢ It appears to the Assessing officer

that during the current assessment
year any person is likely to charge, sell,
transfer, dispose off or otherwise part
with any of his assets with a view to
avoiding any payment of his tax
liability,
➢ Then the total income of such person
for the period from the first day of
that financial year to the date when
proceeding is started u/s 175 is taxable
in that financial year.

5. Discontinued Business (Sec 176): -

➢ If any business or profession is discontinued in any assessment year,
➢ Income of the business / profession from 1st April of the financial year
to the date of discontinuation may be taxable in the same financial year,
➢ In the first 4 exception dealt above, tax shall be charged in the previous
year itself (i.e., it is mandatory on the A.O). However, in the case of
discontinued business or profession, it is at the discretion of the
assessing officer.

1FIN BY INDIGOLEARN 1.18

 6. Undisclosed Sources of Income: -
i. Cash Credits [Section 68]
- any sum is found credited in the books of the assesse
ii. Unexplained Investments [Section 69]
- Investments made and not recorded in PY
iii. Unexplained Money etc [Section 69A]
- found to be the owner of any money, bullion, jewellery or other
valuable article
- the same is not recorded in the books of account
iv. Amount of investments etc., not fully disclosed in the books of
account [Section 69B]
- Made investments/ found to be the owner of any money, bullion,
jewellery or other valuable article &
- The amount is recorded at a lower value than the actual value
v. Unexplained Expenditure [Section 69C]
- Incurred expenditure
vi. Amount borrowed or repaid on hundi [Section 69D]
- Is repaid otherwise through an account payee cheque

In all the above case, if no explanation/no satisfactory explanation is provided by the

assessee about the nature and source of such credits/income/investments etc., such
amount shall be deemed to be income of the PY.
If total income includes any income referred under above sections:
1. Tax payable shall be 78% [Tax@60%+ Surcharge@25% + cess@4%]
2. No basic exemption and no deduction shall be allowed in respect of any
expenditure/ allowance under any provision of the Act.
3. No set-off of loss against such income

1FIN BY INDIGOLEARN 1.19

5. SECTION 14: GROSS TOTAL INCOME:
Steps for computation of Total and Tax Liability:

Clubbing of
Determination of Deductions from
income of spouse,
residential status GTI
minor child etc

Classification of Set off or carry

income under forward & set off Computation of TI
different heads of losses

Computation of Computation of
Computation of
income under Gross Total
tax liability
each head Income (GTI)

For the purpose of charge of Income-tax and computation of total income, all incomes
shall be classified under the following heads of income:

Head Chapter Section Charging section

Salaries IV-A 15-17 15

Income from the house property IV-C 22-27 22

Profits and gains of business or IV-D 28-44DB 28

profession

Capital gains IV-E 45-55A 45&46(2)

Income from other sources IV-F 56-59 56

If a particular non-exempted income is not covered by the first four heads, it

automatically falls under the head ‘Income from other Sources’.

Gross Total Income is the aggregate of the income computed under the above heads
after giving effect to the provisions for clubbing of income and set off and carry
forward of losses.

1FIN BY INDIGOLEARN 1.20

 5.1. EXEMPTIONS:
There are certain incomes which are either totally exempt from tax or exempt
upto a certain amount. Hence those incomes, which are exempt u/s 10, will not
form part of total income of assesse. In case of partial exemptions, the balance
income over and above the exemption limits will be included in total income.

5.2. DEDUCTIONS:
There are certain deductions prescribed in the Chapter VI-A of the Income-tax
Act i.e., deduction under sections 80C to 80 U. These deductions are of following
three types:
➢ Deduction in respect of certain payments :
E.g. L.I.C. Premium paid, Medical Insurance Premium paid, etc.
➢ Deductions in respect of Incomes :
E.g. Certain incomes of Co-Operative Societies, royalty on patents
➢ Other deductions: Deduction available in case of a person with disability u/s 80U.
These deductions etc. have to be considered before arriving at the net income
chargeable under each head.

5.3. TOTAL INCOME:

The total income of an assessee is computed by deducting all permissible
deductions under Chapter VI-A (Sec 80C to 80U) of the Income-tax Act from
the gross total income. It is also called the Taxable Income. It should be rounded
off to the nearest multiple of ₹ 10 as per section 288A.
As per the Act, total income means the total amount of income referred to
in section 5 computed in the manner laid down in this Act – Section 2(45).

1FIN BY INDIGOLEARN 1.21

6. RATES OF INCOME TAX:
INDIVIDUAL/ HUF/ AOP/ BOI/ AJP (Optional tax regime)
6.1. Individual (Man or Woman), resident in India and below the age of 60 years
at any time during the previous year and HUF / AOP/BOI & every artificial
judicial person:

Income Rate of
Tax
Upto ₹ 2,50,000 Nil
₹ 2,50,001 To ₹ 5,00,000 5%
₹ 5,00,001 To ₹ 10,00,000 20%
Above ₹ 10,00,000 30%

6.2. An individual (man or woman), resident of India who is of the age of 60 years or
more but less than 80 years at any time during the previous year. [Senior
Citizen]
Income Rate of Tax

Upto ₹ 3,00,000 Nil

₹ 3,00,001 To ₹ 5,00,000 5%
₹ 5,00,001 To ₹ 10,00,000 20%
Above ₹ 10,00,000 30%

6.3. A Resident individual (man or woman), who is of the age 80 years or more at
any time during the previous year [Super senior citizen]
Income Rate of Tax

Upto ₹ 5,00,000 Nil

₹ 5,00,001 To ₹ 10,00,000 20%
Above ₹ 10,00,000 30%

1FIN BY INDIGOLEARN 1.22

INDIVIDUAL/ HUF/ AOP/ BOI and AJP (Default tax regime):
As per section 115BAC, individuals and HUFs have an option to pay tax in respect of
their total income at concessional rates:

6.4.
Income Rate of
Tax
Upto ₹ 3,00,000 Nil
₹ 3,00,000 To ₹ 6,00,000 5%
₹ 6,00,001 To ₹ 9,00,000 10%
₹ 9,00,001 To ₹ 12,00,000 15%
₹ 12,00,001 To ₹ 15,00,000 20%
Above ₹ 15,00,000 30%

Option to opt out of this scheme of tax shall be exercised by:

Individuals or HUF having income from business or profession, on or before the due date
specified u/s 139(1) for furnishing ROI and option once exercised shall apply for
subsequent AYs. However, he can only once withdraw such option and pay tax under
default tax regime and thereafter he shall never be able to exercise option of opting out
except when he ceases to have business income

Individuals or HUF, having income other than the Income referred above, along with the
return of Income to be furnished u/s 139(1) for a PY relevant to the AY i.e., he may
choose to pay tax under default tax regime in one year and exercise the option to shift
out in another year.

Conditions: The total income is computed without the following exemption /deduction:

➢ Leave travel concession as contained in Sec. 10 (5)

➢ Interest u/s 24 in respect of self—occupied property referred in Sec.
23(2).
➢ House Rent Allowance as contained in Sec.10(13A)
➢ Additional depreciation in Sec. 32(1)(iia)
➢ Some of the allowance as contained in Sec.10(14)
➢ Various deduction for donation for or expenditure on scientific research
contained in section 35 (1)(ii)/(iia)/(iii)/(2AA)
➢ Allowances to MPs/MLAs as contained in section 10(17)
➢ Deduction under section 35AD
➢ Allowance for income of minor as contained in Sec. 10(32)
➢ Any deduction under chapter VIA except Sec. 80CCD(2), CG contribution
towards Agnipath Scheme under Section 80CCH(2) and Sec. 80JJAA (for
new employment)

1FIN BY INDIGOLEARN 1.23

➢ Exemption for SEZ. unit contained in section 10AA
➢ Section 16(ii) and Section 16(iii)

Note:

While computing total income, any exemption or deduction for allowances or perquisites
by whatever name called, provided under any other law for time being in force in India
would not be allowed.

While computing total income, set off of any loss

➢ Carried forward or depreciation from any earlier AY if such loss or depreciation

is attributable to any of the deductions referred above
➢ Under the head House Property with any other head of income;
would not be allowed.

NOTE:

• A person born on 1st April would be considered to have attained a particular

age on 31st March, the day preceding the anniversary of his birthday.
Therefore, a resident individual whose 60th birthday falls on 1st April 2024,
would be treated as having attained the age of 60 years in the P.Y.2023-24
and would be eligible for higher basic exemption limit of 3 lakh in computing
his tax liability for A.Y.2024-25. Likewise, a resident individual whose 80th
birthday falls on 1st April 2024, would be treated as having attained the age
of 80 years in the P.Y.2023-24, and would be eligible for higher basic
exemption limit of Rs. 5 lakh in computing his tax liability for A.Y.2024-25.

• Rebate of up to 12,500 for resident individuals having total income of up to

5 lakh for those paying tax under optional tax regime.

• Rebate of up to ₹ 25,000 for resident individuals having total income of up

to ₹ 7 lakh [Section 87A] for those who are paying tax under default tax
regime.
o Section 87A has been inserted to provide a rebate from the tax
payable by an assessee, being an individual resident in India, whose
total income does not exceed ₹ 7,00,000.

1FIN BY INDIGOLEARN 1.24

 o The rebate shall be equal to the amount of income-tax payable on
the total income for any assessment year or an amount of 25,000,
whichever is less.

6.5. Firm / LLP / Local authority: On the whole of the total income - 30%

6.6. Co-Operative Society:

Income Rate of Tax

Upto ₹ 10,000 10%

₹ 10,001 To ₹20,000 20%
Above ₹ 20,000 30%
Note - Co-operative society, resident in India, can opt for concessional rate of
tax @25.168% (i.e., tax@22% plus surcharge@10% plus health and education cess
@4%) under section 115BAD if certain conditions are satisfied (Dealt in CA Final)

1FIN BY INDIGOLEARN 1.25

 6.7. Company:

If the total turnover or

gross receipt in the
25%
P.Y.2021-22 ≤₹ 400
crore
Domestic Company

Any Other Case 30%

Company

*Royalties and fees for

rendering technical
50%
services (FTS) received
from GOI
Other than Domestic
Company

Other Income 40%

Note:
• Domestic manufacturing company (set up and registered on or after 1.10.2019 and
commences manufacture of article or thing before 31.3.2024) exercising option u/s
115BAB – 15% of income derived from or incidental to manufacturing or production
of an article or thing
• In case of a domestic company exercising option u/s 115BAA: 22% on TI.
• *Agreement must be entered between –
i. 1.4.1961 and 31.3.1976 - in case of royalties
ii. 1.3.1964 and 31.3.1976 - in case of FTS

6.8. Marginal Relief

The purpose of marginal relief is to ensure that the increase in amount of tax payable
(including surcharge) due to increase in total income of an assessee beyond the
prescribed limit should not exceed the amount of increase in total income.

1FIN BY INDIGOLEARN 1.26

 6.9. Surcharge
% of
% of Surcharge
Surcharge
Type of Person Total Income (Optional
(Default
Regime)
Regime)
Individual / HUF / AOP > ₹ 50L but is ≤ ₹ 1 Crore 10% 10%
/ BOI/ Artificial
> ₹ 1 Crore but is ≤ ₹ 2
judicial person 15% 15%
Crore
> ₹ 2 crore but ≤ ₹ 5
crore * 25%
25%
> ₹ 5 crore * 37%

An AOP consisting of > ₹ 50 lakhs but is ≤ ₹ 1

10% 10%
only companies as crore
members > ₹ 1 crore 15% 15%
Local authority / Firms > ₹ 1 crore
12% 12%
/ LLPs
Co-operative societies > ₹1 Crore but is ≤ ₹10
7% 7%
Crore
> ₹10 Crore 12% 12%
No limit (Opting for Sec
10% 10%
115BAD)
Domestic Company > ₹1 Crore but is ≤ ₹10
7% 7%
Crore
> ₹10 Crore 12% 12%
No limit (Opting for Sec
10% 10%
115BAA/115BAB)
Foreign Company > ₹1 Crore but is ≤ ₹10
2% 2%
Crore
> ₹10 Crore 5% 5%
* Where the total income includes dividend, any income chargeable u/s 111A and 112A,
the surcharge on the amount of income-tax computed on that part of income shall not
exceed 15%. In other words, surcharge higher than 15% is applicable only on tax on
income other than dividend, income covered u/s 111A and 112A.
➢ Health and Education Cess: 4% on income tax and surcharge.

1FIN BY INDIGOLEARN 1.27

 6.10. Alternative Tax Regime (ATR):
The table given below highlights alternative tax regime presently available to different assessees-
Section 115BA Section 115BAA Section 115BAB Section 115BAC Section 115BAD
Existing domestic New domestic Resident co-
Eligible Assessee Domestic company Individual & HUF
company manufacturing company operative society
From which AY 2017-18 2020-21 2020-21 2021-22 2021-22
Refer previous
Tax Rate 25% 22% 15% discussion above in 22%
the module
Surcharge Applicable 10% 10% 10%/15%/25%/37% 10%
Marginal Relief Yes No No Yes No
HEC 4% 4% 4% 4% 4%
Any specific activity Manufacture/Production Manufacture/Production
No No No
required to avail ATR of goods of goods
Date of set-up and On or after March 1, On or after October 1,
- - -
registration 2016 2019
Date of commencement of On or before March 31,
Not specified - - -
manufacture 2024
A few are not A few are not A few are not
Incentive available A few are not available A few are not available
available available available
Deductions u/s 10AA,
32(1)(iia), 32AD, 32AB,
Not available (Deduction
33ABA, 35(1)(ii)/(iia)/(iii),
u/s 32AC & 35AC also Not available Not available Not available Not available
35(2AA)/)2AB), 35AD,
not available)
35CCC, 3CCD whether
available
Deductions Deductions available Deductions
Deductions available u/s
Deductions under chapter available u/s Deductions available u/s u/s available u/s
80G, 80GGA, 80GGB
VI-A whether available 80JJAA and 80JJAA & 80M only. 80CCD(2),80JJAA 80JJAA and
and 80JJAA only.
80LA(1A), only. and 80LA(1A), only. 80LA(1A), only.

1FIN BY INDIGOLEARN 1.28

 Section 115BA Section 115BAA Section 115BAB Section 115BAC Section 115BAD
Deductions/ exemption - Only deduction u/s
under sections 24(b) pertaining to
10(5)/(13A)/(14)/(17)/(32), - - let out property/ -
16, 24(b) and 57(iia) deemed to be let out
whether available property is available
Whether brought forward
loss pertaining to above
deductions/ exemptions can No No No No No
be set off and carried
forward
On or before due On or before due On or before due
date of furnishing date of furnishing date of furnishing
On or before due date ROI in the year in On or before due date ROI in the year in ROI in the year in
Due date to exercise
of furnishing ROI (Form which assesse of furnishing ROI (Form which assesse wants which assesse
option
No 10-IB) wants to opt for No 10-ID) to opt for new tax wants to opt for
new tax regime regime (Form No 10- new tax regime
(Form No 10-IC) IE) (Form No 10-IF)
Assessee not having
any
After obtaining the option
No (however, one can business/profession
is it possible to withdraw No No No
shift to 115BAA) income – Fresh option
from the same
is require every year
(See note)
Whether provisions of MAT
Yes No No No No
& AMT applicable?

1FIN BY INDIGOLEARN 1.29

 Computation of Total Income & Tax Liability for the Assessment Year
2024-2025

HEADS SECTIONS AMOUNT

1. Salaries. (Sec 15 to 17) 15 to 17 xxx

2. Income from House Property. (Sec 22 to 27) 22 to 27 xxx

3. Profits and gains of Business or Profession. (Sec 28 28 to 44DB xxx

to 44DB)

4. Capital gains. (Sec 45 to 55A) 45 to 55A xxx

5. Income from Other Sources. (Sec 56 to 59) 56 to 59 xxx

GROSS TOTAL INCOME xxxxx

Less: deductions under chapter VIA 80C to 80U xx

TOTAL INCOME OR NET INCOME xxxxx

(Rounded off as per Sec.288A)

Tax on Total Income xxx

Less: Rebate u/s 87A

Add: 4% Health and Education Cess on Tax xx

Total Tax Liability xxx

Less: (i) TDS/TCS xx

ii) Advance Tax
iii) Self-Assessment Tax

Net Tax Liability (Rounded off as per Sec.288B) xxx

6.11. SPECIFIC RATES / SPECIAL RATES:

The following are the specific tax rates prescribed in the Income Tax Act:
➢ Sec 112: Long term capital gains are taxed at a flat rate of 20% (other than
112A)
➢ Sec 112A: Long term capital gains on transfer of equity share in a company, unit
of an equity oriented fund/business trust taxed @ 10% (on amount exceeding 1L,
if STT is paid)
➢ Sec 111A: Short term capital gains on transfer of Listed Securities
transferred on or after 2004 & has suffered STT taxable at 15%

1FIN BY INDIGOLEARN 1.30

 ➢ Sec 115BB: The flat rate of 30% on winnings from any lotteries, crossword
puzzles, races including horse races, cards game and other games of any sort or
gambling or betting of any form.
➢ Section 115BBJ: Flat rate of 30% on net winnings from any online game.
➢ Sec 115BBE: Unexplained money, investments etc. to attract tax@60%

6.12. ROUNDING OFF OF TOTAL INCOME - SEC. 288A:

The total income computed under this act shall be rounded off to nearest
multiples of rupees ten.

6.13. ROUNDING OFF OF TAX LIABILITY - SEC. 288B.

It may be noted that, the aggregate of tax, surcharge and education-cess

(including secondary and higher education cess) payable shall be rounded
off to nearest multiples of rupees ten.

1FIN BY INDIGOLEARN 1.31

 PROBLEMS

1. X starts a new business on March 29, 2023. He closes down first set of books of
accounts on March 31, 2024. He wants that income generated during should be
chargeable to tax for the assessment year 2024-25. Is he legally correct?

2. The gross total income of Mr. X, a resident aged 30 years, for the P.Y.2023-24
comprises of salary (₹ 5,05,000) and interest on savings bank (₹ 8,000). Compute
his tax liability for the A.Y.2024-25, assuming that he has deposited ₹ 50,000 in
public provident fund and he is paying tax under optional tax regime.

3. Mrs. X is resident in India for the assessment year 2024-25. For the previous year
2023-24, her income chargeable to tax in India is ₹ 15,54,810. Find out tax liability
in old and new schemes, if the age of Mrs. X is (a) 59 (b) 60.

4. Compute the tax liability of X Ltd., assuming that the total income of X Ltd., is
₹ 1,01,00,000.

5. Write short note on “Income accruing” and “Income due”. Can an income which has
been taxed on accrual basis be assessed again on receipt basis?

6. Describe average rate of tax and maximum marginal rate under section 2(10) and
2(29C) of the Income-tax Act, 1961.

7. Who is an Assessee? Who is a Deemed Assessee? Who is an Assessee in Default?

8. Explain the concept of marginal relief under Income-tax Act, 1961?

1FIN BY INDIGOLEARN 1.32

 Chapter 2

Residential Status &

Scope of Total Income
Before we Begin,

It has become a human tendency to travel across the boundaries, as they travel,
people settled down and started to make their living giving rise to income which
at last needs to be taxed in these dynamic times.

Various lands have their own Laws w.r.t taxation, our Indian Tax Laws prescribe
to determine the residential Status of the person to for applicable tax
Treatment and the Scope of their income(s) based on the place at which it is
earned/receivable.

This Chapter clarifies on the aspects of:

• Determining the Residential Status of Various Persons

• Certain situations where they become Deemed to be residents
• Concepts of Accrual and Receipt
• Disseminating the income of a person as Indian Income or Foreign Income

Happy learning!

1FIN BY INDIGOLEARN 2.1

1. INTRODUCTION:
The tax incidence of a person depends on two factors:
1. The residential Status of the assessee
2. The time and place of accrual or receipt of income

2. SECTION 6:- RESIDENTIAL STATUS:

a) The incidence of taxation of any assessee depends upon his residential status
under the IT act. The taxability of a particular receipt would thus depend upon
not only on the nature of income and place of its accrual or receipt but also upon
the assesses residential status.
b) The residential status of an assessee is to be determined for each previous year.
In one year, the assessee may be resident while in another year he may be a non-
resident or vice-versa.
2.1. Residential status for individuals:
The residential status for an individual is classified into 3 categories:
1. Resident & ordinarily resident (R & OR)
2. Resident but not Ordinarily resident (R & NOR)
3. Non - Resident.

Residential Status
of an Individual

Non-Resident
Resident
(NR)

Resident and Ordinarily Resident

(ROR)

Resident and Not Ordinarily Resident (RNOR)

1FIN BY INDIGOLEARN 2.2

 DETERMINATION OF RESIDENTIAL STATUS

Basic •182 days or more stay in India (OR)

Condition 1

Basic
Condition 2 •60/more days in PY + 365/more days in 4 PPY

If any one of the above conditions are met, such INDIVIDUAL will be considered as
Resident and Ordinarily Resident (ROR)

Furthermore, he shall be considered as Resident and Ordinarily Resident if he satisfies

BOTH of the Additional Conditions,

Furthermore, he shall be considered as Resident and Not Ordinarily Resident if he

satisfies Any one of the Additional Conditions,

Additional •182 days stay in India (OR)

Condition 1

Additional
Condition 2 •60/more days in PY + 365/more days in 4 PPY

If None of the above Basic conditions and Additional conditions are satisfied, then such
individual will be considered as Non-Resident

1FIN BY INDIGOLEARN 2.3

 ➢ RESIDENT
❖ Basic conditions: [Sec - 6(1)]
An individual is said to be resident in India in any previous year, if he
satisfies at least one of the following conditions: -
▪ He is in India in the previous year for a period of 182 days or more [OR]
▪ He has been in India during the 4 years immediately preceding the
previous
year for a total period of 365 days or more [AND]
has been in India for at least 60 days in the relevant previous year.
NOTE:
1. The term "stay in India" includes stay in the territorial waters of India
(i.e. 12 nautical miles into the sea from the Indian coastline). Including
the stay in a ship or boat moored in the territorial waters of India.
2. It is not necessary that the period of stay must be continuous.
3. For the purpose of counting the number of days stayed in India, both
the date of departure as well as the date of arrival are considered to be
in India.
4. The residence of an individual for income-tax purpose has nothing to do
with citizenship, place of birth or domicile.

BASIC CONDITIONS

182 Days in Previous Year

365 days in 4 Preceeding PY'S

AND
60 Days in Previous Year

1FIN BY INDIGOLEARN 2.4

 ➢ NON-RESIDENT:
If an individual does not satisfy any of the basic conditions, he shall be
considered as non-resident.
❖ Exceptions:
The above said period of 60 days is extend to 182 days in the following cases
▪ An Indian citizen who leaves India during the previous year for the
purpose of employment outside India.
▪ Indian citizen who leaves India during the previous year as a member
of crew of an Indian ship or foreign ship.
The period or periods of stay in India shall, in respect of an eligible
voyage, not include the following period:
Period commencing from:
The date entered into the Continuous Discharge Certificate in respect
of joining the ship by the said individual for the eligible voyage and
Period ending on:
The date entered into the Continuous Discharge Certificate in respect
of signing off by that individual from the ship in respect of that
voyage.
NOTE:
▪ Continuous Discharge Certificate means the meaning assigned
to it in the Merchant Shipping (Continuous Discharge
Certificate- cum Seafarer’s Identity Document) Rules, 2001
made under the Merchant Shipping Act, 1958.
▪ Eligible Voyage means:
A voyage undertaken by a ship engaged in the carriage of
passengers or freight in international traffic where –
(i) for the voyage having originated from any port in India, has
as its destination any port outside India; and
(ii) for the voyage having originated from any port outside
India, has as its destination any port in India.
▪ An Indian citizen or person of Indian origin who comes on a visit to
India during the previous year.
However, such person having total income, other than the income from
foreign sources, exceeding 15 lakhs during the previous year will be
treated as resident in India if –

1FIN BY INDIGOLEARN 2.5

 - he has been in India during the 4 years immediately preceding the
previous year for a total period of 365 days or more and has been in
India for at least 120 days in the previous year.

➢ DEEMED RESIDENT {Section 6(1A)}

An individual shall be treated as a deemed resident if the following conditions are
satisfied:
1. Citizen of India
2. Total Income other than income from foreign sources > Rs. 15 lakhs during
the P.Y
3. Not liable to pay tax in any other country

For the purposes of this section, the expression "income from foreign
sources" means
• Income which accrues or arises outside India (except income derived
from a business controlled in or a profession set up in India) and
• Which is not deemed to accrue or arise in India.

Liable to tax means that there is an income-tax liability on such person under the law of
that country for the time being in force. It also includes a person who has subsequently
been exempted from such liability under the law of that country.

NOTE:
The said provision will not apply in case of an individual who is a resident of India in
the previous year as per section 6(1).
NOTE:
A person is deemed to be of Indian origin if he or she, or either of his parents or any
of his grandparents, was born in undivided India. It may be noted that grandparents
include both maternal and paternal grandparents.
❖ Additional conditions: {Section 6(6)}
▪ He has been resident in India in at least 2 out of 10 previous years
immediately preceding the relevant previous year; and
▪ He has been in India for a period of 730 days or more during 7 years
immediately preceding the relevant previous year

➢ RESIDENT AND ORDINARILY RESIDENT (R& OR):

An individual is said to be R & OR if he satisfies any one of the basic conditions
& both the additional conditions.
❖ NOTES:

1FIN BY INDIGOLEARN 2.6

 ▪ The place in India, purpose and continuity of stay is not relevant for
determining the residential status.
▪ If an individual is in India for part of a day calculation of physical
presence should be made on hourly basis.
▪ If the data is not available to calculate the period of stay in terms of
hours, then the day on which he enters India as well as the day on
which he leaves India shall be taken in to account as a stay of individual
in India.
▪ A stay by an individual on a yacht moored in the territorial waters of
India would be treated as presence in India for the purpose of this
section.

➢ RESIDENT BUT NOT ORDINARILY RESIDENT

• An individual is said to be R & NOR if he satisfies any one of the basic
conditions & fails to fulfill any one or both the additional conditions, or
• If an individual is an Indian citizen or person of Indian origin (who, being
outside India, comes on a visit to India in any previous year) having total
income, other than the income from foreign sources, exceeding 15 lakhs
during the previous year, who has been in India for 120 days or more but
less than 182 days during that previous year, or
• If such individual is an Indian citizen who is deemed to be resident in
India under section 6(1A)
Summary of residential status of an individual:

CATEGORY BASIC CONDITIONS ADDITIONAL

CONDITIONS

Resident Any one or both N/A

Resident & ordinary resident Any one or both Both

Resident but not ordinary Any one or both Any one or none
resident

Non resident None None

2.2. RESIDENTIAL STATUS OF HUF {Section 6(2) and Section 6(6)}

The residential status of HUF is classified into 3 Categories:
➢ Resident & Ordinarily resident (R & OR)
➢ Resident but not Ordinarily resident (R & NOR)

1FIN BY INDIGOLEARN 2.7

 ➢ Non - Resident.

➢ Resident
A HUF is said to be resident in India in any previous year if control and management
of its affairs is wholly or partly situated in India. (BASIC CONDITION)
➢ Non resident
A HUF is non-resident in India if control and management of its affairs is wholly
situated outside India.
➢ Resident and Ordinarily Resident
The HUF shall be said to be resident and ordinarily resident in India if control
and management of its affairs is wholly or partly situated in India and KARTA of
the HUF satisfies both the following conditions (ADDITIONAL CONDITIONS)
:-
❖ He has been resident in India in at least 2 out of 10 previous years
immediately preceding the relevant previous year.
❖ He has been in India for a period of 730 days or more during 7 years
immediately preceding the relevant previous year.
(In short, R & OR - Fulfills Basic condition of HUF & both additional
conditions of Individual)
➢ Resident but not ordinarily resident
The HUF shall be said to be resident but not ordinarily resident in India if control
and management of its affairs is wholly or partly situated in India And
KARTA of the HUF does not satisfy both of the Additional conditions.

2.3. RESIDENTIAL STATUS OF FIRM, AOP, BOI & OF OTHER PERSONS

(EXCEPT COMPANIES) {Section 6(2) and Section 6(4)}:
There are only 2 residential statuses, i.e., Resident & Non- Resident.
❖ A firm, AOP, BOI etc. is said to be resident in India if the control and
management is wholly or partly situated in India.
❖ If the control and management is wholly situated outside India then they
said to be non-resident.
NOTE:
Control and Management means-
• The central control and management and not the carrying on of day-to-
day business by servants, employees or agents.

• The business may be done from outside India and yet its control and

1FIN BY INDIGOLEARN 2.8

 management may be wholly within India.
• The place of control may be different from the usual place of running
the business and sometimes even the registered office of the assessee.
• But control and management do imply the functioning of the controlling
and directing power at a particular place with some degree of
permanence.

2.4. RESIDENTIAL STATUS OF COMPANY {Section 6(3)}

➢ Resident:
❖ Indian company [OR]
❖ Its place of effective management [POEM], in that year, is in India.
➢ Non – resident:
In any other case, the company shall be considered as non-resident.
Points to be noted:
❖ For determining whether HUF is resident or not, the Place of stay in India
of Karta has no relevance.

❖ There are two types of control: Dejure control & De Facto control.

❖ Dejure controller means the person who is supposed to have control. De

Facto controller means the person who actually controls.

❖ For determination of residential status the situs of Defacto control is only

relevant.

The term "Control and Management" refers to the central controlling power and
not the day-to-day affairs of the company. (i.e., HEAD & BRAIN)

“Place of effective management” means a place where key management and

commercial decisions that are necessary for the conduct of the business of an
entity as a whole are, in substance made.

SECTION 5: SCOPE OF TOTAL INCOME:

➢ "TAX INCIDENCE (or) Scope of TI": means who has to pay Indian income tax on
Income Accrued (or) Received "IN INDIA" (or) "OUTSIDE" India.

1FIN BY INDIGOLEARN 2.9

 ➢ "RECEIVE": When the money actually 'reaches" the assessee. (or his
Representative)

➢ "ACCRUE" (or) "ARISE": When the "right to receive" vests in the hands of the
assessee.
o Accrue means to arise or spring as a natural growth or to come by way of
increase.
o Arise means coming into existence. .

➢ Determining the nature of Income:

Whether income is Whether income accrues Nature of the Income

received (or deemed to (or arises or is deemed
be received) in India to accrue or arise) in
during the previous year India during the previous
year

Yes Yes Indian income

Yes No Indian income

No Yes Indian income

No No Foreign income

Thus tax incidence depends on 3 things:

❖ Assessee residential status.
❖ The place of Accrual of income.
❖ The place of receipt of income.
R &
Particulars R& OR NR
NOR

1) Income Received or Deemed to be received in Taxable Taxable Taxable

India

2) Income accruing or arising or deemed to accrue Taxable Taxable Taxable

or arise in India

1FIN BY INDIGOLEARN 2.10

 3) Income accruing or arising outside India (i.e.,
foreign Income) from: -

a) Business controlled in India or Profession Taxable Taxable No tax

set up in India

b) Any Other Source Taxable Not Not

taxable taxable

4) Past untaxed profits brought to India Not Not Not

taxable taxable taxable

NOTE: - Only an individual and HUF can be "Resident but not ordinarily
Resident”.

Observation:

➢ R & OR is taxable on Global income. (For him receipt / remittance makes no

difference).
➢ Non- resident is not taxable in respect of foreign income.

NOTE:

➢ Income received or deemed to be received in India is taxable in all cases

irrespective of its place of accrual. Even if the income accrue or arise outside
India, if it is received for the first time in India it is taxable in India.

➢ If income accrue or arise outside India and also received there it-self,
subsequently remitted to India is not taxable in the hands of R & NOR and NR.
(Receipt  remittance)

1FIN BY INDIGOLEARN 2.11

3. SECTION 7:- INCOMES DEEMED TO BE RECEIVED IN INDIA:
The following incomes shall be deemed to be received in India in the previous year even
in the absence of actual receipt
➢ Employer's contribution to recognized provident fund in excess of 12% of salary.
➢ Interest credit to the recognized provident fund balance at the credit of the
assessee in excess of 9.5%.
➢ Transfer balance from the unrecognized provident fund to recognized provident
fund (ONLY employers’ contribution Plus interest there on)
➢ The contribution by Central Government or any employer in the previous year
under a pension scheme referred to in sec. 80CCD.

4. SECTION - 9 INCOME DEEMED TO ACCRUE OR ARISE IN INDIA

1. Income from a business connection in India
Any income which arises, directly or indirectly, from any activity or a business
connection in India is deemed to be earned in India.
"Business Connection" shall include any business activity carried out through a
person who, acting on behalf of the non-resident:
➢ has an authority to conclude contracts and habitually exercises such
authority in India, or
habitually concludes contracts or habitually plays the principal role leading
to conclusion of contracts by that non-resident and such contracts should
be
- in the name of the non-resident; or
- for the transfer of the ownership of, or for the granting of the
right to use, property owned by that non-resident or that non-resident
has the right to use; or
- for the provision of services by that non-resident,
➢ has no such authority, but habitually maintains in India a stock of goods or
merchandise from which he regularly delivers goods or merchandise on
behalf of the non-resident, or
➢ habitually secures orders in India mainly or wholly for the non-resident or
for that non- resident along with other non-residents who are subjected to
the same common control as that non -resident.
Further, there may be situations when the person acting on behalf of the
non-resident secures order for other non-residents. In such situation,
business connection for other non-residents is established if,
(a) such other non-resident controls the non-resident or

1FIN BY INDIGOLEARN 2.12

 (b) such other non-resident is controlled by the non-resident or
(c) such other non-resident is subject to same control as that of non-
resident.
In all the three situations, business connection is established, where a
person habitually secures orders in India, mainly or wholly for such non-
residents and only so much of income as is attributable to the operations
carried out in India shall be deemed to accrue or arise in India.

Agents having independent status are not included in Business Connection:

There shall be NO BUSINESS CONNECTION where the non-resident carries

on business activity through a broker, general commission agent or any other
agent having an independent status, if such a person is acting in the
ordinary course of his business.

• The agent is said to have independent status where he does not work
mainly or wholly for the non- resident
• No independent status in the three situations (a,b,c) explained above
Significant economic presence [Explanation 2A to section 9(1)(i)]
Significant economic presence of a non-resident in India shall also constitute
business connection in India.

Significant economic presence means-

Nature of transaction Condition

in respect of any goods, services or property Aggregate of payments arising from

(a) carried out by a non-resident with any person such transaction or transactions
in India including provision of download of data during the previous year should
or software in India exceed ₹ 2 crores.

(b) systematic and continuous soliciting of The number of users should be

business activities or engaging in interaction atleast 3 lakhs.
with users in India

Further, the above transactions or activities shall constitute significant economic

presence in India, whether or not, —
(i) the agreement for such transactions or activities is entered in India;
(ii) the non-resident has a residence or place of business in India; or
(iii) the non-resident renders services in India:

1FIN BY INDIGOLEARN 2.13

 However, where a business connection is established by reason of significant
economic presence in India, only so much of income as is attributable to the
transactions or activities referred to in (a) or (b) above shall be deemed to accrue
or arise in India.
Business connections may be in "several forms." They may be in the form of
branch office or agent or organization or subsidiary company in India of a non
resident and carrying business of non resident in India. However the following
shall not be treated as business connection in India:
➢ The income which cannot be reasonably attributed to the operations in
India, is not deemed to accrue or arise in India (For business, other than
the business having business connection in India on account of significant

income attributable to the

operations carried out in
India includes:

Income from sale of goods

Income from advt. targeting Income from sale of data and services using data
customers residing in India collected from persons collected from persons
or accessing advt. through residing in India or using residing in India or using
IPA located in India IPA located in India IPA located in India

economic presence).
➢ Purchase of goods in India for the purpose of exports.
➢ Collection of news and views for transmission outside India by or on behalf
of non-resident who is engaged in the business of running news agency or of
publishing newspapers, magazines or journals.
➢ Shooting of cinematograph film in India if such non – resident is:
❖ An Individual: He should not be a citizen of India.
❖ A Firm: The firm should not have any partner who is a citizen of India
or who is resident in India.
❖ A Company: The Company does not have any share holder who is a
citizen of India or who is resident in India.
➢ In the case of a foreign company engaged in the business of mining of
diamonds, no income shall be deemed to accrue or arise in India to it through

1FIN BY INDIGOLEARN 2.14

 or from the activities which are confined to display of uncut and unassorted
diamonds in any Special Notified Zone (SNZ).
Only such part profit/income of non-resident, which can be reasonably attributable to
operations carried in India through business connection in India, are deemed to be accrued
or arised in India.

2. Income from any property, asset, or source of income situated in India.

Income arises from any property movable or immovable, tangible, intangible which
is situated in India is deemed to accrue or arise in India.

3. Income from transfer of capital asset situated in India.

Any capital gain earned by a person by transfer of any capital asset situated in
India, is deemed to accrue or arise in India.
Any asset or a capital asset being any share or interest in a company or entity
registered or incorporated outside India shall be deemed to be and shall always
be deemed to have been situated in India, if the share or interest derives,
directly or indirectly, its value substantially from the assets located in India.
However, the dividends declared and paid by a foreign company outside India
in respect of shares which derive their value substantially from assets situated
in India would NOT be deemed to be income accruing or arising in India

4. Income under the head salaries.

Any income payable for services rendered in India shall be regarded as income
EARNED in India though it may be paid in India or outside. It will also include
salary of the rest period or leave period which is preceded and succeeded by
service rendered in India.

5. Salary payable by the Government to an Indian citizen /national for services

rendered outside India.
This income is treated as deemed to accrue or arise in India if the following
conditions are satisfied: -
➢ Income should be chargeable under the head "salaries" and the recipient
(resident or non resident) should be Indian citizen.
➢ The services should be rendered outside India and the payer should be
government of India.
➢ However, all the allowances and perquisites paid abroad are exempt u/s
10(7).

1FIN BY INDIGOLEARN 2.15

 6. Dividend paid by an Indian company outside India.
➢ Dividend paid by the Indian company outside India is deemed to accrue or
arise in India.
7. Income by way of interest, Royalty and fees for technical services.

Type of Income Payable by Payable by Resident Payable by Non-

Government Resident

Interest Deemed to Deemed to accrue or Deemed to accrue or

accrue or arise arise in India except arise in India only when
in India. when used for the used for the purpose of
purpose of business or business or profession
profession carried on carried on in India.
outside India or earning
any income from any
source outside India.

Royalty is payable Deemed to accrue or

in respect of any arise in India only when
right / used for the purpose of
information/ -do- -do- business or profession
property used carried on in India or
earning any income from
any source in India.

Fees for technical

-do- -do- -do-
services

The following said payments are not taxable

➢ ANY AMOUNT [INTERST, ROYALTY, TECHNICAL FEE] PAID BY RESIDENT TO
NON RESIDENT FOR CARRING BUSINESS OR PROFESSION OUTSIDE INDIA
➢ ANY AMOUNT [INTERST, ROYALTY, TECHNICAL FEE] PAID BY NON RESIDENT
TO NON RESIDENT FOR CARRING BUSINESS OR PROFESSION OUTSIDE
INDIA
IMPORTANT POINTS:

(1) Lumpsum royalty not deemed to accrue arise in India: Lumpsum royalty
payments made by a resident for the transfer of all or any rights (including the
granting of a licence) in respect of computer software supplied by a non-resident
manufacturer along with computer hardware under any scheme approved by the
Government under the Policy on Computer Software Export, Software
Development and Training, 1986 shall not be deemed to accrue or arise in India.

1FIN BY INDIGOLEARN 2.16

 (2) Meaning of Royalty: The term ‘royalty’ means consideration (including any
lumpsum consideration but excluding any consideration which would be the income
of the recipient chargeable under the head ‘Capital gains’) for:
(i) the transfer of all or any rights (including the granting of licence) in respect
of a patent, invention, model, design, secret formula or process or trade
mark or similar property;
(ii) the imparting of any information concerning the working of, or the use of, a
patent, invention, model, design, secret formula or process or trade mark or
similar property;
(iii) the use of any patent, invention, model, design, secret formula or process
or trade mark or similar property;
(iv) the imparting of any information concerning technical, industrial,
commercial or scientific knowledge, experience or skill;
(v) the use or right to use any industrial, commercial or scientific equipment2;
(vi) the transfer of all or any rights (including the granting of licence) in respect
of any copyright, literary, artistic or scientific work including films or video
tapes for use in connection with television or tapes for use in connection
with radio broadcasting.
Note: Consideration for sale, distribution or exhibition of cinematographic films is
covered within the scope of royalty.

(vii) the rendering of any service in connection with the activities listed above.
The definition of ‘royalty’ for this purpose is wide enough to cover both industrial
royalties as well as copyright royalties. The definition specially excludes income
which should be chargeable to tax under the head ‘capital gains’.
(3) Consideration for use or right to use of computer software is royalty within
the meaning of section 9(1)(vi)
The consideration for use or right to use of computer software is royalty by
clarifying that, transfer of all or any rights in respect of any right, property or
information includes and has always included transfer of all or any right for use
or right to use a computer software (including granting of a license) irrespective
of the medium through which such right is transferred.
(4) Consideration in respect of any right, property or information – Is it royalty?
Royalty includes and has always included consideration in respect of any right,
property or information, whether or not,
(a) the possession or control of such right, property or information is with the
payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.

1FIN BY INDIGOLEARN 2.17

 Meaning of Process: The term “process” includes and shall be deemed to have always
included transmission by satellite (including up-linking, amplification, conversion for
downlinking of any signal), cable, optic fiber or by any other similar technology, whether
or not such process is secret.

PROBLEMS

1. An individual, who is an Indian resident, is allowed to hold two different citizenships

simultaneously. Is citizenship a determining factor for residential status of an
individual?

2. Brett Lee, an Australian cricket player visits India for 100 days in every financial year.
This has been his practice for the past 10 financial years.
a) Find out his residential status for the assessment year 2024-25.
b) Would your answer change if the above facts relate to Srinath, an Indian
citizen
who resides in Australia and represents the Australian cricket team?
c) What would be your answer if Srinath had visited India for 120 days instead
of 100
days every year, including P.Y.2023-24?
Solution:
(a) Determination of Residential Status of Mr. Brett Lee for the A.Y.
2024-25:-
Period of stay during previous year 2022-23 = 100 days
Calculation of period of stay during 4 preceding previous years (100 x 4 = 400 days)

2022-23 100 days

2021-22 100 days
2020-21 100 days
2019-20 100 days
Total 400 days

Mr. Brett Lee has been in India for a period more than 60 days during previous year
2023-24 and for a period of more than 365 days during the 4 immediately preceding
previous years.

Therefore, since he satisfies one of the basic conditions under section 6(1), he is a
resident for the assessment year 2024-25.

1FIN BY INDIGOLEARN 2.18

 Computation of period of stay during 7 preceding previous years = 100 x 7
= 700 days
2022-23 100 days
2021-22 100 days
2021-22 100 days
2020-21 100 days
2019-20 100 days
2018-19 100 days
2017-18 100 days
Total 700 days

Since his period of stay in India during the past 7 previous years is less than 730
days, he is a not-ordinarily resident during the A.Y. 2024-25. (See Note below)

Therefore, Mr. Brett Lee is a resident but not ordinarily resident during the previous
year 2023-24 relevant to the assessment year 2024-25.

Note:

An individual, not being an Indian citizen, would be not-ordinarily resident person if

he satisfies any one of the conditions specified under section 6(6), i.e.,

(i) If such individual has been non-resident in India in any 9 out of the 10 previous
years preceding the relevant previous year, or

(ii) If such individual has during the 7 previous years preceding the relevant
previous year been in India for a period of 729 days or less.

In this case, since Mr. Brett Lee satisfies condition (ii), he is a not-ordinarily
resident for the A.Y. 2024-25.

(b) If the above facts relate to Mr. Srinath, an Indian citizen, who residing
in Australia, comes on a visit to India, he would be treated as non-
resident in India, irrespective of his total income (excluding income
from foreign sources), since his stay in India in the current financial
year is, in any case, less than 120 days.
(c) In this case, if Srinath’s total income (excluding income from foreign
sources) exceeds 15 lakh, he would be treated as resident but not
ordinarily resident in India for P.Y.2023-24, since his stay in India is
120 days in the P.Y.2023-24 and 480 days (i.e., 120 days x 4 years) in
the immediately four preceding previous years.

1FIN BY INDIGOLEARN 2.19

If his total income (excluding income from foreign sources) does not exceed 15 lakh, he
would be treated as non-resident in India for the P.Y.2023-24, since his stay in India is less
than 182 days in the P.Y.2023-24.

3. During the previous year 2023-24, X, a foreign national (not being a person of Indian
origin), visits India for 100 days. Determine his residential status for the assessment
year 2024-25 on the basis of the following information:
❖ During 2022-23, X is present in India for 350 days.
❖ During 2021-22 and 2020-21, X is in India for 15 and 366 days respectively.

4. X was born in Pune in 1980. Later on, he migrated to Australia in December 2022 and
took the citizenship of that country with effect from January 1, 2023. His parents were
born in Nasik in 1950 but his grandparents were born in Sydney. He comes to India on
February 15, 2024, for a visit of 190 days. Find out the residential status of X for the
assessment year 2024-25 on the assumption that before 2023, he was present in India
for at least 275 days every year.

5. X is a foreign citizen. He, his parents and grandparents were not born in undivided India.
However, his relatives (like brothers of his father, sisters of his mother and brothers
and sisters of his grandfather and grandmother) were born in undivided India. He is in
India as follows-

Previous year Presence in India

2023-24 147 days
2022-23 140 days
2021-22 300 days
2020-21 25 days
2019-20 32 days
Before 2019-20 Nil

Find out the residential status of X for the assessment year 2024-25.

6. X (44years) is a citizen of India. He leaves India for the first time on September 20,
2022 for the purpose of working on an overseas project of his employer-company: ABC
ltd., an Indian company. He will come back on October 10, 2023. Find out his residential
status for the assessment years 2023-24 and 2024-25.

1FIN BY INDIGOLEARN 2.20

7. X is a citizen of Pakistan. His maternal grandfather was in a village near Karachi in 1933.
He comes to India on April 7, 2023 to complete a foreign assignment of his employer-
company. He goes back on June 4, 2023.

Mrs. X is a resident in India for the previous year 2023-24. Prior to April 7, 2023, X
was in India as follows

Number of days when X was in

Previous year
India
2022-23 179
2021-22 182
2020-21 180
2019-20 72
2018-19 175
2017-18
Nil
(and before 2017-18)

Income of X for the previous year 2023-24 is as follows—

Salary from a Pakistani company (received in Pakistan) 14,34,000
(for rendering service in Pakistan)
Salary from a Pakistani company (received in Pakistan) 6,63,000
(for rendering service in India)
Business income 9,95,000
(Business is situated in UAE, it is partly controlled from Pakistan and
partly from India and entire income is received in UAE)
Rental income from a property situated in Mumbai 2,10,000
(income is received in Pakistan)
Business income (business is situated in UK and it is partly controlled 10,72,000
from UK and partly from Pakistan)
(income is received in UK and later on ₹ 50,000 is remitted to India)
Birthday gift, received cash gifts in India from his friends, 74,000
(some of them have sent gift cheques from Pakistan)
Find out residential status and taxable income of X for the assessment year 2024-25.

8. X is a citizen of South Africa. He comes to India for the first time for a visit of 250
days on December 10, 2023. During the previous year ending 2023-24, he gets the
following fees for technical services

1FIN BY INDIGOLEARN 2.21

 Technical fees from the Government of South Africa (received in 8,00,000
UK)

Technical fees from the Government of South Africa (received in 9,00,000

Chennai)

Technical fees from the Government of India (received in UK) 10,00,000

Technical fees from the government of India (received in Chennai) 11,00,000

Technical fees from Y (a resident in India) (this fees is paid to him 2,00,000
outside India for providing technical service outside India,
however, the benefit of technical service is utilized by Y for
carrying on a business in India)

Technical fees from Z (a resident in India) (this fees is paid to him 3,00,000
outside India for providing technical service outside India,
however, the benefit of technical service is utilized by Z for
carrying on a business in Bhutan)

Technical fees from A (a resident in India) (this fees is paid to him 2,10,000
outside India for providing technical service outside India,
however, the benefit of technical service is utilized by A for
carrying on a business in India)

Technical fees from B (a resident in India) (this fees is paid to him 3,10,000
outside India for providing technical service outside India,
however , the benefit of technical service is utilized by B for
carrying on a business in Bhutan)

Determine the amount of net income chargeable to tax in the hands of X for the
assessment year 2024-25.

9. Mrs. Geetha and Mrs. Leena are sisters and they earned the following income during the
F.Y. 2023-24. Mrs. Geetha is settled in Malaysia since 1985 and visits India for a month
every year. Mrs. Leena is settled in Indore since her marriage in 1994. Compute the
total income of Mrs. Geetha and Mrs. Leena for the assessment year 2024-25.
Mrs. Geetha Mrs. Leena
Particulars
(₹) (₹)
Income from profession in Malaysia
1. 15,000 -
(set up in India), received there
Profit from business in Delhi, but managed directly
2. 40,000
from Malaysia
3. Rent (computed) from property in Malaysia deposited 1,20,000 -

1FIN BY INDIGOLEARN 2.22

 in a Bank at Malaysia, and later on remitted to India
through approved banking channels.
4. Dividend from PQR Ltd, an Indian company 5,000 9,000
Dividend from a Malaysian company received in
5. 15,000 8,000
Malaysia
Cash gift received from a friend on Mrs. Leena’s
6. - 51,000
birthday
7. Agricultural income from land in Maharashtra 7,500 4,000
8. Past foreign untaxed income brought to India 5,000 -
Fees for technical services rendered in India received
9. 25,000 -
in Malaysia
Income from a business in Pune (Mrs. Geetha receives
10. 12,000 15,000
50% of the income in India)
Interest on debentures in an Indian company (Mrs.
11. 18,500 14,000
Geetha received the same in Malaysia)
Short-term capital gain on sale of shares of an Indian
12. 15,000 25,500
company
13. Interest on savings account with SBI 12,000 8,000
14. Life insurance premium paid to LIC 30,000

10. Determine the taxability for the AY 2024-25 of the following incomes in the hands
of an individual whose residential status is

❖ Resident and ordinarily resident,

❖ Resident but not ordinarily resident and

❖ Non-resident

[Link] Particulars Amount (in ₹)

1 Salary received in Canada for rendering service in Bangalore 50,000
Capital gain on sale of house situated in Surat (sale consideration
2 2,00,000
received in Canada)
3 Dividend from foreign company received in Canada 8,000
Income earned from business in London which is controlled from
4 4,00,000
Mumbai (₹ 1,00,000 is received in India)
5 Profits from business in Indore but managed entirely from Canada 1,25,000
Rental income (computed) from house property situated in Canada
6 1,20,000
(rent is deposited in a bank at Canada and later on remitted to

1FIN BY INDIGOLEARN 2.23

 India)
Interest received in London from the Government of India for
7 35,000
project situated in London
Royalty from a non-resident company received in London in
8 5,00,000
connection with business situated outside India
Past foreign untaxed income of 2021-22 earned and received there
9 25,000
and brought to India during the previous year
10 Interest on savings bank deposit in Bank of India, Bhopal 10,000
Share of income received in India from a partnership firm situated
11 80,000
in Dubai

11. From the following particulars of income furnished by Mr. Anand pertaining to the
year ended 31.3.2024, compute his total income for the assessment year 2024-25, if he
is:
(i) Resident and ordinarily resident;
(ii) Resident but not ordinarily resident;
(iii) Non-resident

Particulars ₹
Short term capital gain on sale of shares in Indian Company received in
(a) 25,000
Japan
(b) Dividend from a South African company received in South Africa 20,000
Rent from property in UK deposited in a bank in UK, later on remitted to
(c) 1,50,000
India through approved banking channels
(d) Dividend from SK Ltd., an Indian Company 12,000
(e) Agricultural income from land in Madhya Pradesh 56,000

12. (a) The business of a HUF is transacted from India and all the policy decisions are
taken here. Mr. Aryan, the karta of the HUF, who was born in Mumbai, settled in
London, since 1999. He visits India every year for 95 days. Determine the residential
status of Mr. Aryan and the HUF for A.Y. 2024-25.

(b) Mr. Sachin settled in Australia in the year 1990, earned the following incomes during
the financial year 2023-24. Compute his total income for the assessment year 2024-
25.

Sr. Amount
Particulars
No. (₹)

1FIN BY INDIGOLEARN 2.24

 Fees for technical services rendered in India, but received
1. 75,000
in Australia
2. Interest on Savings Bank Deposit in Indian Bank 12,000
Interest on Australia Development Bonds (only 50% of
3. 55,000
interest received in India)
4. Dividend from Indian company received in Australia 28,000
Profit from a business in Nagpur, but managed directly from
5. 95,000
Australia
Short term capital gain on sale of shares of an Indian
6. 90,000
company received in India
7. Agricultural income from a land situated in Punjab 55,000
8. Rent received in respect of house property at Bhopal 1,25,000

13. Mr. Anand is an Indian citizen and a member of the crew of a Singapore
bound Indian ship engaged in carriage of passengers in international traffic
departing from Chennai port on 6th June, 2023. From the following details for the
P.Y. 2023-24, determine the residential status of Mr. Anand for A.Y. 2024-25,
assuming that his stay in India in the last 4 previous years (preceding P.Y. 2023-24)
is 400 days:

Particulars Date
Date entered into the Continuous Discharge Certificate in respect
6th June, 2023
of joining the ship by Mr. Anand
Date entered into the Continuous Discharge Certificate in respect 9th December,
of signing off the ship by Mr. Anand 2023

Solution:

In this case, since Mr. Anand is an Indian citizen and leaving India during P.Y. 2023-
24 as a member of the crew of the Indian ship, he would be resident in India if he
stayed in India for 182 days or more.

The voyage is undertaken by an Indian ship engaged in the carriage of passengers in

international traffic, originating from a port in India (i.e., the Chennai port) and
having its destination at a port outside India (i.e., the Singapore port). Hence, the
voyage is an eligible voyage for the purposes of section 6(1).

Therefore, the period beginning from 6th June, 2023 and ending on 9th
December, 2023, being the dates entered into the Continuous Discharge Certificate
in respect of joining the ship and signing off from the ship by Mr. Anand, an Indian
citizen who is a member of the crew of the ship, has to be excluded for computing
the period of his stay in India.

1FIN BY INDIGOLEARN 2.25

 Accordingly, 187 days [25+31+31+30+31+30+9] have to be excluded from the period
of his stay in India. Consequently, Mr. Anand’s period of stay in India during the P.Y.
2023-24 would be 178 days [i.e., 365 days – 187 days].

Since his period of stay in India during the P.Y. 2023-24 is less than 182 days, he is
a non- resident for A.Y. 2024-25.

14. Miss Vivitha paid a sum of 5000 USD to Mr. Kulasekhara, a management
consultant practising in Colombo, specializing in project financing. The payment was
made in Colombo. Mr. Kulasekhara is a non-resident. The consultancy is related to a
project in India with possible Ceylonese collaboration. Is this payment chargeable to
tax in India in the hands of Mr. Kulasekhara, since the services were used in India?

Solution:

A non-resident is chargeable to tax in respect of income received outside India only

if such income accrues or arises or is deemed to accrue or arise to him in India.

The income deemed to accrue or arise in India under section 9 comprises, inter alia,
income by way of fees for technical services, which includes any consideration for
rendering of any managerial, technical or consultancy services. Therefore, payment
to a management consultant relating to project financing is covered within the scope
of “fees for technical services”.

The Explanation below section 9(2) clarifies that income by way of, inter alia, fees
for technical services, from services utilized in India would be deemed to accrue or
arise in India in case of a non-resident and be included in his total income, whether
or not such services were rendered in India or whether or not the non- resident has
a residence or place of business or business connection in India.

In the instant case, since the services were utilized in India, the payment received
by Mr. Kulasekhara, a non-resident, in Colombo is chargeable to tax in his hands in
India, as it is deemed to accrue or arise in India.

1FIN BY INDIGOLEARN 2.26

 Chapter 3

Agricultural Income
Before we Begin,

Indian Economy has major proportion for Agricultural Sector, most of the rural
India is engaged in Agricultural Activities. Such Agricultural activities give rise
to Income to the persons engaged with it.

This Chapter further more clarifies on the aspects of:

• Definition of Agricultural income

• Determination of Agricultural Land
• Disseminating Agricultural and Non-Agricultural Incomes
• Computation of Tax on Agricultural Income

Happy learning!

1FIN BY INDIGOLEARN 3.1

1. DEFINITION OF AGRICULTURAL INCOME [SECTION 2(1A)]:
This definition is very wide and covers the income of not only the cultivators but also
the land holders who might have rented out the lands. Agricultural income may be
received in cash or in kind.

➢ "AGRICULTURAL INCOME” MEANS: (EXHAUSTIVELY DEFINED)

❖ Any rent or revenue derived from agricultural land which is situated in India
and is used for agricultural purpose.
❖ It may be income derived from such Land through
▪ agriculture (or)
▪ the performance of a process ordinarily employed by a cultivator (or)
▪ receiver of rent in kind to render the produce fit to be taken to the
market (or) through the sale of such agricultural produce in the market.
❖ Therefore, as per section 2, if following three conditions are satisfied, income
derived
from land 'can be termed as income "agriculture income".
▪ Rent or revenue should be derived from agricultural land (may be in cash
or in kind):
▪ The land is one which is in India; and
▪ The land is used for agricultural purpose.
Note:
• The rent can either be received by the owner of the land or by the
original tenant from the sub-tenant. It implies that ownership of
land is not necessary.
❖ Agricultural income may be derived from any farm building required for
agricultural operations.
➢ As per clause (c) of section 2(1A), income derived from any building which is on
or in the immediate vicinity of land in India, used for agricultural purposes, and is
occupied as a dwelling house, store house or other outbuilding by -

(1) the receiver of rent or revenue of any such land or

(2) the cultivator or receiver of rent-in-kind

Would be treated as agricultural income.

1FIN BY INDIGOLEARN 3.2

 ➢ The following points are to be noted:

Basic Operations Subsequent Operations

•Operations which are absolutely •Operations performed after produce
necessary for raising the produce. sprouts from land. Can be done only in
conjunction/continuation of basic
operations. Eg: Digging

❖ Land has to be situated in India. So, if agricultural land is situated in a foreign

state, the entire income would be taxable.

❖ "Agriculture" and "Agricultural purposes":

These terms have not been defined in the Act. However, if any income derived
after basic operations of agriculture, which involve expenditure of human skill
and labour on the land & requires subsequent operations, then it forms part
of agricultural income.

❖ The income from the ordinary process employed to render the produce fit to
be taken to the market would be agricultural income and the produce must
retain its original character even after the processing.

Eg: Procedure of obtaining rice from paddy

If process is performed on a produce which can be sold in its raw form, income
derived therefrom is partly agricultural income and partly business income.

1FIN BY INDIGOLEARN 3.3

SL. AGRICULTURAL-INCOME SL. NON - AGRICULTURAL-INCOME
No No
1. Rent for agricultural land received from 1. Income from supply of water for
tenant or sub- tenant. irrigation process.
2. Income from sale of replanted trees. 2. Income from mining royalties.
3. Share or profit or salary received by 3. Income from breeding of livestock,
partner from partnership firm engaged in poultry farming, fisheries, dairy
agricultural operations. farming.
4. Rent received from land used for grazing of 4. Income from sale of earth for brick
cattle required for agricultural activities making
5. Income derived from the sale of seeds, 5. Income from sale of forest trees of
growing of flowers and creepers & bamboo. spontaneous growth of wood bark,
leaves, fruits etc.
6. Any income derived from saplings or 6. Income from stone quarries.
seedlings grown in a nursery though basic
operations are not performed.
7. Income from growing mulberry leaves 7. Dividend/Any commissions paid by
company out of its agricultural income.
8. Compensation received from insurance 8. Income from sale of salt produced by
company due to damage of tea garden from flooding of land with sea water.
hailstorm.
9. Income from sale of rural agricultural land. 9. Interest on arrears of rent payable in
respect of agricultural land.

1FIN BY INDIGOLEARN 3.4

2. INCOME FROM FARM BUILDING:

Income from farm 2 Basic Conditions

Agricultural Income
building (+) 1 Addnl condition

Basic Conditions:
a) The building should be on or in the immediate vicinity of the land; [AND]

b) The receiver of the rent or revenue or the cultivator or the receiver

of rent in kind should, by reason of his connection with such land require
it as a dwelling house or as a store house
Additional Conditions:
a) The land should either be assessed to land revenue in India or be
subject to a local rate assessed.

b) If land is not so assessed to land revenue in India or is not subject to

local rate it should not be an Urban Land.

Urban Land:

➢ The land situated in any area which is comprised within the jurisdiction of a
municipality (whether known as a municipality, municipal corporation, notified
area committee, town area committee, town committee, or by any other name)
or a cantonment board and which has a population of not less than 10,000
according to last preceding census of which the relevant figures have been
published before the first day of previous year.

➢ Further, the following also would be considered as urban agricultural land:

Shortest aerial
distance
from the local limits of
Population according to the last
a
preceding census of which the relevant
municipality or
figures have been published before the
cantonment
first day of the previous year.
board referred to in
item (a)
(i) ≤2 kilometers > 10,000
(ii) ≤6 kilometers > 1,00,000
(iii) ≤8 kilometers > 10,00,000

1FIN BY INDIGOLEARN 3.5

3. AGGREGATION PROVISIONS:
➢ Entry 82 to List I of VII schedule to the constitution gives power to the Union
Government to levy tax only on income other than agricultural income. The power
to levy tax only on agricultural income is vested only with the State Government.
➢ Section 10(1) of the Income Tax Act exempts agricultural income from income
tax.
➢ Even though agricultural income is fully exempt, net agricultural income is added
to the total non-agricultural income computed as per the Income tax act, for the
purpose of determining the income tax on non-agricultural income.
➢ This concept is known as partial integration of taxes. It is applicable to
individuals, HUF, AOP, BOI and artificial judicial persons.
➢ The aggregation provisions do not apply to company; firm assessed as such
(FAS), co-operative society and local authority. The object of aggregating the
net agricultural income with non-agricultural income is to tax the non-agricultural
income at higher rates.

The integration (Clubbing) is applicable if the following two conditions are satisfied:
-
❖ The net agricultural income should exceed ₹ 5,000 p.a., and
❖ Non- agricultural income should exceed the maximum amount not chargeable
to tax.

4. COMPUTATION PROCESS:

Step 1: Tax on [Agricultural Income (AI) + Non - agricultural income (NAI)]

Step 2: Tax on [Agricultural Income (AI) + Basic exemption limit]

Step 3: Tax on NAI = Step 1-Step 2

Step 4: Add surcharge, if applicable, to the amount obtained in Step 3

above/ reduce rebate u/s 87A if applicable.

Step 5: The sum so arrived-at step 4 shall be increased by health and

education cess @4%.

1FIN BY INDIGOLEARN 3.6

5. APPORTIONMENT OF INCOME:

Where the agricultural produce like tea, cotton, tobacco, sugarcane etc. are
subjected to a manufacturing process and the manufactured product is sold, the
profit on such sales will consist of agricultural income as well as business income.

That portion of the profit representing agricultural income will be exempted. For
this purpose, rules 7, 7A, 7B & 8 of Income Tax Rules, 1962 provides the basis of
apportionment.

% of
% of Agricultural
Activity Rule Business
Income (Exempt)
Income

Rubber Plantations (latex, cenex 35% of Total

7A 65% of Total income
etc) income

Coffee grown , cured , grounded & 40% of Total

7B 60% of Total income
roasted income

25% of Total
Coffee grown & cured 7B 75% of Total income
income

Growing, manufacturing and 40% of Total

8 60% of Total income
trading of TEA income

❖ Salary and interest received by a partner from a firm (growing leaves and
manufacturing tea or any other activity) is taxable only to the extent of 40
or 35 or 25 percent and the balance is treated as agricultural income.

1FIN BY INDIGOLEARN 3.7

6. RULE 7: INCOME FROM GROWING AND MANUFACTURING OF ANY PRODUCT
OTHER THAN COFEE, TEA, RUBBER:
Where income is partially agricultural income and partially income chargeable to
income tax under the head 'profits and gains of business', the market value of any
agricultural produce which has been raised by the assessee or received by him as
rent in kind and which has been utilized as raw material in such business shall be
deducted.

No further deduction shall be made in respect of any expenditure incurred by the

assessee as a cultivator or receiver of rent in kind.

Determination of Market Value:

Whether agricultural produce can

be sold in its raw stage/after
operation ?

Yes No

MV = Cultivation expenses + Rent

Average Price at which it was sold paid for area + Any amt
determined by A.O

1FIN BY INDIGOLEARN 3.8

 Problems

1. From the following information, find out whether X (Age: 56 years) is liable
to pay income tax for the assessment year 2024-25:

Particulars ₹
Non-agricultural income for the year ending March 31,
2,00,000
2024
Agricultural income for the previous year ending March 31,
52,00,000
2024
Non-agricultural income for the year ending March 31,
2,00,000
2024

2. For the assessment year 2024-25, net agricultural income of Mrs. X is ₹

13,79,000.

Her non-agricultural income is ₹ 7,40,000.

Determine her tax liability. None of the parent of Mrs. X is a senior citizen.

3. For the assessment year 2024-25, Mrs. X (Date of birth: September 6, 1962),
furnishes the following information:

Particulars ₹
Gross agricultural income 18,00,000
Expenditure on earning agricultural income 2,10,000
Non-agricultural income 26,57,000

Determine the tax liability of Mrs. X for the assessment year 2024-25.

1FIN BY INDIGOLEARN 3.9

4. Mr. B grows sugarcane and uses the same for the purpose of manufacturing
sugar in his factory. 30% of sugarcane produce is sold for ₹ 10 lakhs, and the
cost of cultivation of such sugarcane is ₹ 5 lakhs. The cost of cultivation of
the balance sugarcane (70%) is ₹ 14 lakhs and the market value of the same
is ₹ 22 lakhs. After incurring ₹ 1.5 lakhs in the manufacturing process on the
balance sugarcane, the sugar was sold for ₹ 25 lakhs.

Compute B’s business income and agricultural income.

Solution:

Computation of Business Income and Agriculture Income of Mr. B

Particulars Business Agricultural Income

Income
Amount Amount Amount
Sale of Sugar
Business income
Sale Proceeds of sugar 25,00,000
Less: Market value of sugar (70%) 22,00,000
Less: Manufacturing exp. 1,50,000
1,50,000
Agricultural income
Market value of sugar (70%) 22,00,000
Less: Cost of cultivation 14,00,000
Sale of sugarcane 8,00,000
Agricultural Income
Sale proceeds of sugarcane (30%) 10,00,000
Less: Cost of cultivation 5,00,000 5,00,000
13,00,000

1FIN BY INDIGOLEARN 3.10

 Chapter 4

Income from Salaries

Before we Begin,

This chapter serves as a detailed exploration of the intricacies involved in

computing income from salaries for tax purposes.

Throughout this chapter, we will navigate through

 ascertaining the point of time when salary income is chargeable to tax;

 comprehending the meaning of salary, profits in lieu of salary, allowances,
perquisite and various retirement benefits;
 identifying the allowances which are exempt and perquisites which are tax
free under default tax regime under section 115BAC and under the optional
tax regime (i.e., the normal provisions of the Act);
 determining the taxable portion of retirement benefits, allowances and other
benefits which form part of salary;
 determining the value of perquisite chargeable to tax under the head
“Salaries”;
 identifying the admissible deductions from salary under the default tax
regime under section 115BAC;
 identifying the admissible deductions from salary under the optional tax
regime (i.e., the normal provisions of the Act)
 computing the income chargeable to tax under the head “Salaries” under both
the default tax regime and the optional tax regime.
This Chapter further more clarifies on the aspects of:

Happy learning!

1FIN BY INDIGOLEARN 4.1

INTRODUCTION

The provisions pertaining to Income under the head “Salaries” are contained in

Deduction (Section 16)

•-Standard deduction
•-Entertainment
allowance
•-Professional tax
Chargeability (Section
15) Meaning (Section 17)
•-Salary due •-Salary
•-Salary paid or allowed, •-Perquisite
though not due •-Profits in lieu of salary
•-Arrears of salary

Income under the

head "Salaries”

section 15, 16 and 17 in the following manner.

1. SEC 15: CHARGEABILITY OF SALARY INCOME

➢ Any amount due to or received by an employee from an employer and falling within
the definition of 'Salary' is chargeable to tax under the head "Salaries".
➢ The term Salary is not exhaustively defined, but it is defined in an inclusive
manner u/s 17(1).
➢ For the purpose of chargeability, “Salary" consists of:
❖ Any salary due from an employer or a former employer to an assessee in the
previous year, whether paid or not.
❖ Any salary paid or allowed to him in the PY by or on behalf of an employer or
a former employer, whether due or not.
❖ Any arrears of Salary paid or allowed to him by an employer or former
employer if not charged to income tax in any PY.
Points:
➢ Salary is taxable on due basis or on receipt basis whichever is earlier.
➢ It was held by the SC in CIT Vs Sardar Arjun Singh Ahluwalia (deed.) (1999) 240
ITR 693 that arrears of salary are chargeable to tax on receipt basis only.

1FIN BY INDIGOLEARN 4.2

 ➢ Where any salary paid in advance is included in the total income of the any person
in any PY it shall not be included again in total income when the salary becomes
due.
➢ If the salary paid in arrears is included in the total income of the any person in
any PY it shall not be included again in the total income when the salary becomes
paid.
➢ Advance Salary:
❖ The employee can claim relief u/s 89(i)
❖ Loan taken by the employee from employer is not treated as Advance Salary.
However notional interest on such advance is taxed as perquisites.
❖ Similarly, advance against salary is different from advance salary. It is an
advance taken by the employee from his employer. This advance is generally
adjusted with his salary over a specified time period. It cannot be taxed as
salary.
➢ Arrears of Salary:
❖ It is taxable on receipt basis if not taxed earlier on accrual basis.
❖ The employee can claim relief u/s 89(i)
➢ Surrender of salary:
❖ Any amount of salary surrendered by the employee (whether Private sector
or Govt. Sector employee) to Central Govt, under the voluntary surrender of
Salaries (exemption from taxation) Act 1961, is not taxable.
➢ Foregoing of salary:
❖ The salary foregone/voluntary waiver by employee is fully taxable in the hands
of employee because it amounts to application of income.
❖ However, if the employee foregoes his salary before it accrues is not taxable.
➢ Employer-Employee relationship:
❖ Any income can be taxed under the head “Salaries” only if there is employer
and employee relationship between the payer and the payee. The relationship
of employer and employee should be of master and servant.
❖ Salary to a partner of a firm is taxed under PGBP.
❖ Guarantee commission to Director is taxed under other sources.

Payer Payment Payee

Employer- Present/ Employee

Past/ Prospective

1FIN BY INDIGOLEARN 4.3

 Yes Payment chargeable to
Payer =
tax under the head
Employer?
“salaries”

No

Payment chargeable to tax under

the head “Profit + gains of
business” Or “Income from other
sources”

➢ Full-time or part-time employment:

❖ Once the relationship of employer and employee exists, the income is to be
charged under the head “salaries”. It does not matter whether the employee
is a full-time employee or a part- time one.
❖ If, for example, an employee works with more than one employer, salaries
received from all the employers should be clubbed and brought to charge for
the relevant previous years.

➢ Salary paid tax-free:

❖ The employer bears the burden of the tax on the salary of the employee. In
such a case, the income from salaries in the hands of the employee will consist
of his salary income and also the tax on this salary paid by the employer.
❖ However, as per section 10(10CC), the income-tax paid by the employer on non-
monetary perquisites on behalf of the employee would be exempt in the hands
of the employee.

➢ Place of accrual of salary:

❖ Under section 9(1)(ii), salary earned in India is deemed to accrue or arise in
India even if it is paid outside India or it is paid or payable after the contract
of employment in India comes to an end.
❖ If an employee is paid pension abroad in respect of services rendered in India,
the same will be deemed to accrue in India. Similarly, leave salary paid abroad
in respect of leave earned in India is deemed to accrue or arise in India.

➢ Remuneration received by MPs and MLAs: MPs and MLAs are not treated as
employees of government. Hence the amounts received by them will be taxable as
income from other sources.

1FIN BY INDIGOLEARN 4.4

 ➢ Is MD an employee?
Yes. MD of a company is an employee and accordingly whatever remuneration he
gets from the company is assessable under the head ‘salaries’. (Ram Prasad Vs.
CIT).

➢ Are Judges Employees?

Though judges have no employer, they are constitutional functionaries and their
income is taxable under the head salaries as the salary of any other citizen.
(Justice Deoki Nandan Agarwal Vs. UOI).

➢ Principal and Agent: Any income received by a person in the capacity of an agent
from his principal is not taxable under the head income from salaries.
➢ Income by way of interest, bonus, commission or any remuneration from a firm to
its member is not taxable under the head salaries. However, it is taxable under
the head business or profession under section 28.
➢ Unless specifically provided, the Directors of a company are not employees of the
company. Hence Commission, share in profit, sitting fees etc. received by
directors from company is taxable under the head income from other sources and
not under the head salaries.

➢ Contract of service and contract for service:

❖ In the case of Contract of service, payer can direct the work to be done and
employer and employee relationship is brought into existence. Hence, the
amount received in pursuance of a contract of service is taxable under head
income from salaries.
❖ If an amount is received in pursuance of a contract for service, then the
amount is taxable as either PGBP or income from other sources.

1FIN BY INDIGOLEARN 4.5

 Pictorial representation of tax incidence on salary income

Services rendered in

India Outside India

Taxable for all

employees Payments made outside Payments made in India

India
Taxable for all

Indian Government is the employer Employer any other person

Employee is an Employee is not

Indian Citizen an Indian
Citizen

Payment
Employee is Employee is
ROR RNOR

Taxable Not
Taxable

Salary Allowances / Perks Employee is Employee is

ROR RNOR & NR

Taxable Not Taxable

Sec. 10(7) Taxable Not Taxable

1FIN BY INDIGOLEARN 4.6

2. DEFINITIONS (SECTION 17):

Profit in lieu
of salary
[Section
17(3)]

SECTION-
17
Perquisite Salary
[Section [Section
17(2)] 17(1)]

Salary - Section 17(1)

Salary includes: -

Fees
Wages
Annual accretion in any PY to the
Commissio
credit balance of an employee
n
Annuity / participating in a RPF to the extent Perks
Pension
it is taxable.
Profit in
Lieu of
Gratuity
Salary
SALARY
Wages

Advance of
Salary Balance
Contribution by CG or any other transferred
employer in the PY to the account from
Leave Salary of employee under a pension URPF to
scheme u/s 80CCD. RPF

1FIN BY INDIGOLEARN 4.7

FORMS OF SALARY:

2.1. SEC 10(10AA): LEAVE SALARY OR LEAVE ENCASHMENT

➢ Leave salary received during the course of employment is fully taxable in the
hands of Government employees as well as Non-Government employees.

➢ The payment received on account of encashment of unavailed leave would form

part of salary.

➢ Leave salary received at the time of retirement, whether on superannuation or

otherwise is exempt as follows: -

The least of the following is exempt Leave salary received at the time of
from tax: - retirement by Government
•The actual leave salary received. Employees {Central/ State Govt,
only) is fully exempt from tax.
•25,00,000
•10 months Average salary
Non-Government Employees

Government Employees
•(1 month leave for every completed
year of service Less leave availed in
no. of months) * Average salary.

➢ Other Points: -

❖ Leave salary received during the period of service is fully taxable.

❖ Where leave salary is received from more than one employer in the same
P.Y the aggregate maximum amount of leave salary exempt cannot exceed
₹ 25,00,000.

❖ Where an employee has received leave salary in earlier year from his
former employer and also receives leave salary from his present employer
in a later year, the maximum exemption limit of ₹ 25,00,000 shall be
reduced by the amount of exemption already claimed.

❖ Salary for this purpose means basic salary and dearness allowance, if
provided in the terms of employment for retirement benefits and
commission which is expressed as a fixed percentage of turnover.

1FIN BY INDIGOLEARN 4.8

 SUMMARY OF LEAVE SALARY OR LEAVE ENCASHMENT

Leave Encashment

Received during the Received on retirement,

period of service whether on
Superannuation or
otherwise

Fully Taxable

By a Government By any other

employee employee

Fully exempt u/s

10(10AA)(i)

Least of the following is exempt u/s 10(10AA)(ii)

1. Actual leave salary received
2. Rs.25,00,000
[Link] salary X 10
Average salary X leaves at the credit of an employee
taking 30 days in a year for every completed year of
service (fraction of the year is ignored)

1FIN BY INDIGOLEARN 4.9

 2.2. SEC 10(10): GRATUITY
➢ Gratuity received by an employee on his retirement is taxable under the head
“Salary”.
➢ Gratuity received by a legal heir of the deceased employee is taxable under the
head Income from Other Sources.
➢ In the above two cases gratuity is exempt subject to the provisions of section
10(10)
A. In the case of government employees: -
❖ Retirement gratuity received under the Pension Code or Regulations
applicable to members of the Defence Service is fully exempt from tax.
❖ Any Death cum Retirement Gratuity received by the Government
Employees (Central Govt., state Govt or Members of Civil Services or
employees of local authority but not employees of Statutory Corporation)
is fully exempt from tax u/s 10(10)(i)

B. Employees covered by the payment of Gratuity Act, 1972: -

In case of any gratuity received by Employees covered by the payment of
Gratuity Act, Least of the following is exempt from tax: -
i. Actual gratuity received
ii. ₹ 20,00,000
iii. (15 Days * last drawn salary per month) * No. of completed years of
service or part thereof in excess of Six months.
In case of piece rated employee, daily wages (other than overtime wages) shall
be computed on the average of total wages received by him for a period of
3 months ending on the date of retirement. Salary = Basic + DA (Whether or
not terms of employment so provide)
In case of seasonal establishment, 7 days' salary will be considered instead
of 15 Days'.

C. Other employees: -
In this case, the least of the following is exempted.
i. Actual gratuity received
ii. ₹ 20,00,000
iii. 1/2 month's average salary for each completed year of service.
Average salary =10 months average salary preceding the month of retirement
or death.
Salary = Basic + D.A (if the terms of employment so provide) + forming part
of salary and commission which is expressed as a fixed percentage of turnover

1FIN BY INDIGOLEARN 4.10

Other Points: -

❖ Gratuity received during the course of employment is fully taxable.

❖ Where gratuities are received from more than one employer in the same
P.Y the aggregate maximum amount of gratuity exempt cannot exceed ₹
20,00,000/-
❖ Where an employee has received gratuity in earlier previous year from his
former employer and also receives gratuity from another employer in a
later previous year, the maximum exemption limit of ₹20,00,000/- shall be
reduced by the amount of exemption already claimed.
SUMMARY OF GRATUITY
2.3. SEC 10(10A): ANNUITY OR PENSION

Gratuity

Received
during Received at the
service time of
retirement/Death

Fully
Taxable
Employees of Central Other Employees
Government/ Members
of Civil Services/ local
authority employees etc.

Fully Exempt
u/s 10(10)(i)

Covered under the Payment

Not covered under the Payment of Gratuity
of Gratuity Act, 1972
Act, 1972

Least of the following would be

exempt u/s 10(10)(ii): Least of the following would be
exempt u/s 10(10)(iii):
- ₹ 20 lakh
- ₹ 20 lakh
- Actual gratuity received
- Actual gratuity received
- 15 days' salary (based on last
drawn salary) for every completed Half month salary (based on avg of last
year of service or part in excess of 10 months salary) for every completed
6 months (No. of days in a month year of service
to be taken as 26)

1FIN BY INDIGOLEARN 4.11

➢ Pension is a periodical amount received from the employer after retirement.
➢ Annuity received by a present employer is to be taxed as salary. It does not matter
whether it is paid in pursuance of a contractual obligation or voluntarily.
➢ Annuity received from a past employer is taxable as profit in lieu of salary.
➢ Annuity received from person other than an employer is taxable as “Income from
other sources”.
➢ Un-commuted Pension: It refers to pension received periodically, and it is fully
taxable in hands of all employees (Both government & other employees).
➢ Commuted pension: It means a lump sum amount taken by commuting the whole or
part of the pension. Its tax treatment is as follows:

A. Government Employees: The Commuted pension is fully exempt from tax in

the hands of Govt, employees (Central Government/ Local authority/
statutory corporations/ members of the Civil Services/ Defence Services).

B. Non-Government Employees:
i. If the employee does not receive gratuity: 1/2 of the total value
of commuted pension is exempt from tax.
ii. If the employee received gratuity: 1/3 of the total value of
commuted pension is exempt from tax.

C. Other Points:

❖ Pension received from UNO by the employee, or his family members is not
taxable.

❖ Judges of the Supreme Court and High Court will be entitled to exemption
of the entire commuted portion.

❖ Any commuted pension received by an individual out of annuity plan of the

Life Insurance Corporation of India (LIC) from a fund set up by that
Corporation will be exempted.

❖ Family pension received by the family members after the death of

employee is taxable U/S 56 under the head Income from Other Sources
in the hands of recipient. However, 1/3 of such family pension or ₹ 15000/-
whichever is lower is allowed as standard deduction u/s 57.

1FIN BY INDIGOLEARN 4.12

 SUMMARY OF ANNUITY OR PENSION

Pension

Commuted Uncommuted Family Pension

Pension Pension
( Taxed under
'Other Sources')

Government Non-govt Fully

Employee Employee Taxable
Family of Others
Armed
Forces
Fully Exempt u/s Employee not
10(10A)(i) Employee recieves gratuity
recieves gratuity
Fully 1/3rd of
Exempt pension or
15000/-
whichever
1/2 x (commuted is less is
pension received ÷ exempt
1/3 x (commuted commutation %) x
pension received ÷ 100, would be
commutation %) x exempt u/s
100, would be 10(10A)(ii)(b)
exempt u/s
10(10A)(ii)(a)

2.4. SEC 10(5): LEAVE TRAVEL ASSISTANCE (LTA)

➢ This clause exempts the leave travel concession (LTC) received by

employees from their employers for proceeding to any place in
India,
• either on leave or
• after retirement from service or
• after termination of his service

1FIN BY INDIGOLEARN 4.13

 ➢ Family includes spouse and children of the individual and parents, brothers and
sisters of the individual or any of them wholly or mainly dependent on the
individual.
➢ The value of travel concession or assistance received by an individual from his
employer or former employer for himself and his family can be claimed as an
exemption.
➢ The least of the following is exempt from tax: -

o The amount received from the employer.

o The actual expenditure incurred by the employee on traveling.
o The expenses computed as per the Income tax rules.

➢ This exemption is available only for 2 journeys in a block of 4 years. The blocks
are taken on the basis of calendar year. They are as follows: -
2018-21 and 2022-25 etc.
➢ If the assessee has not availed the travel concession during, one year or two
years in a block of 4 years and performs journey in the first year of the next
block, then such journey will be treated as journey performed in the previous
block and eligible for exemption. In the next block, the assessee can claim two
times exemption in the remaining 3 years. This is called carry over concession.
➢ The exemption can be obtained only when the assessee performs journey. The
traveling Expenses in respect of the assessee and his family only will qualify.
Other Expenses like local conveyance, pasturage, lodging & boarding expenses
will not qualify.
➢ Children for the purpose of computing expenses on children, two surviving
children of individual who were born after October 1st, 1998, will qualify.
However, this restriction does not apply in respect of children born before 1-10-
1998 and multiple births after one child. That means: -
❖ All surviving children born before 1-10-1998
❖ Two children born on or after 1-10-1998.
Note: - while considering the limit of two children, children born out of multiple
births after the first child will be treated as one child only.

➢ Computation of expenses as per the Income tax rules: -

Journey Performed by Exemption

1. Air Air economy fare {National carrier}.
2. Rail First class AC Rail fare
3. Where rail service is not available

1FIN BY INDIGOLEARN 4.14

 (i) a recognised public transport First class or deluxe class fair on such
system. transport (Dealer charge per K.M)
(ii) no recognised public transport
First class AC Rail fare
system.
Note: - For all the above journeys, the shortest route to place of destination
will be considered.
➢ Important Points:

❖ Only 2 journeys in 4 years block are exempted: 2018-2021 (Jan to Dec),

2022-2025.
❖ If any employee does not avail LTC (either one or both), then exemption
can be carried in first year of next block (only for one journey). It is
called Carry over Concession.
❖ Exemption in all cases is restricted to actual expenditure incurred.
❖ Exemption is restricted to only fare. No other expenditure is eligible
for exemption.
❖ Exemption is available for shortest route possible. If different places
of journey are covered, exemption is restricted to shortest route from
originating point to farthest destination point.
❖ Exemption is restricted for only 2 children born on or after 01.10.98.
❖ Fixed Allowance is not exempted.

2.5. SEC 10(7): ALLOWANCES OR PERQUISITES PAID OR ALLOWED BY

THE GOVERNMENT

➢ The allowances or perquisites paid or allowed by the Government of India to its

employees who are citizens of India, for rendering services outside India is
exempt from tax.

1FIN BY INDIGOLEARN 4.15

 2.6. SEC 10(10B): RETRENCHMENT COMPENSATION
➢ Compensation paid under Industrial Disputes Act, 1947 or under any Act, Rule,
Order or Notification issued under any law.
➢ Amount exempted u/s 10(10B) - Least of the following: -
i. The retrenchment compensation actually received.
ii. ₹ 5,00,000
iii. The amount calculated as per the provisions of the industrial disputes Act.
➢ Calculation of amount as per the industrial disputes Act: 15 days' salary
(based on average salary of last 3 months) for every completed year of service
or any part thereof in excess of 6 months.
➢ The above limits will not be applicable to cases where the compensation is paid
under any scheme approved by the Central Government for giving special
protection to workmen under certain circumstances.
➢ Notice pay is fully taxable.
➢ Average Pay:
Average pay means average of the wages* payable to a workman
In the case of monthly paid workman, In 3 complete calendar months
In the case of weekly paid workman In the 4 calendar weeks
In the case of daily paid workman, In the 12 full working weeks
If he has not worked for the above Average of the wages payable during
period the period he actually worked

➢ Wages:

• All remuneration capable of being expressed in terms of

money,
Wages includes • Any value of non-monetary benefits like the value of any
house accommodation, or of supply of light, water, medical
attendance or other amenity etc.,

• Any bonus.
Wages excludes • Contribution to a retirement benefit scheme
• Any gratuity payable on the termination of his service

1FIN BY INDIGOLEARN 4.16

 2.7. SEC 10(10C): VOLUNTARY RETIREMENT
➢ The exemption is allowed only once in the lifetime of the employee.
➢ The exemption is the least of the following 3 points: -
i. Actual compensation received
ii. ₹ 5,00,000
iii. Last drawn salary x 3 x No. of years of completed service.
iv. Last drawn salary x Balance no. of months of service left.

➢ Salary = Basic salary + DA (if the terms of employment so provide) + Fixed % of

commission on turnover achieved by employee.

➢ Conditions to satisfy
• Such compensation should be at the time of his voluntary retirement or
termination of his service, in accordance with any scheme of voluntary
retirement.
• Rule 2BA prescribes the following guidelines for the purposes of the scheme
1. It applies to an employee who has completed 10 years of
service or completed 40 years of age.
However, this requirement is not applicable in case of an employee of a
public sector company under the scheme of voluntary separation framed
by the company.
2. It applies to all employees by whatever name called, except directors of
a company or a cooperative society.
3. The scheme of voluntary retirement or separation must have been drawn
to result in overall reduction in the existing strength of the employees.
4. The vacancy caused by the voluntary retirement or separation must not
be filled up.
5. The retiring employee of a company shall not be employed in another
company or concern belonging to the same management.
6. The amount receivable on account of voluntary retirement or separation
of the employee must not exceed
- the amount equivalent to three months’ salary for each completed
year of service or
- salary at the time of retirement multiplied by the balance months
of service left before the date of his retirement or superannuation
➢ No exemption u/s 10(10C) if the employee has already taken relief u/s 89
➢ Exemption will be available even if such compensation is received in instalments.

2.8. SEC 10(10CC): Tax paid by the employer on behalf of the employee on
perquisites in kind is exempt from tax.

1FIN BY INDIGOLEARN 4.17

3. ALLOWANCE

3.1. SEC 10(13A): HOUSE RENT ALLOWANCE (HRA)

➢ An employee who receives House rent allowance from the employer can claim
exemption from tax subject to provisions of Sec 10(13A).
➢ If the employee receives HRA and resides in a house, for which he pays rent,
then only he can get exemption i.e. this exemption is not available to an assessee
who lives in his house own house, or in a house for which he pays no rent.
➢ The least of the following is exempt from tax:
i. HRA received in respect of the period during which the
accommodation is occupied by the employee during the PY
ii. Actual rent paid less 10% of salary.
iii. 50% of salary where residential house is situated at Bombay,
Calcutta, Delhi, or Madras; 40% of salary where residential house is
situated at any other place.
➢ Salary shall be determined on due basis only.
➢ Salary = Basic + DA (if forms part of retirement benefit) + Turnover based
Commission.
➢ It is mandatory for employee to report PAN of the landlord to the employer if
rent paid is more than Rs. 1,00,000.
➢ If employee opts for 115BAC, exemption of HRA cannot be claimed.
➢ The amount of exemption depends on the basis of salary, HRA, rent paid and the
place where house is taken on rent. If there is no change throughout the PY,
then the exemption shall be calculated on "Annual Basis" else monthly basis.

1FIN BY INDIGOLEARN 4.18

 Pictorial representation of Tax incidence in relation to HRA Received

Employee lives in Yes HRA- Not

his own house? exempted

No

Employee pays
No
rent for the
house?

Yes

HRA- exempted

3.2. SEC 10(14): SPECIFIC OR NOTIFIED ALLOWANCES

Section 10(14): Specific or Notified Allowances:

A. Allowances granted to meet B. Allowances granted to meet

expenses for discharging personal expenses

Amount received, or amount spent Amount received, or limit specified

whichever is lower whichever is lower.

1FIN BY INDIGOLEARN 4.19

 A. Allowances granted to meet expenses for discharging official duties: The
amount of exemption is, the least of amount received or amount spent.

Nature of
Amount of Exemption
Allowance
Allowance granted to meet the cost of travel on transfer, and it
Traveling
includes any sum paid in connection with transfer, packing and
allowance
transportation of personal effects on such transfer.
Any daily allowance, granted on tour or for the period of journey in
connection with transfer, to meet the ordinary daily expenses
Daily allowance
incurred by an employee on account of absence from his normal place
of duty.
Any conveyance granted to meet the expenditure incurred on
Conveyance conveyance in performance of duties of an office or employment of
allowance profit, provided that free conveyance is not provided by the
employer.
Any allowance granted to meet the expenditure incurred on a helper
Helper
where such helper is engaged for the performance of the duties of
allowance
an office or employment of profit.
Research Any allow, granted for encouraging academic, research & training
allowance pursuits in educational and research institutions.
Any allowance granted to meet the expenditure incurred on the
Uniform
purchase or maintenance of uniform for wear during the
allowance
performance of the duties of an office or employment of profit.

B. Allowances granted to meet personal expenses:

The amount exemption is, the least of amount received or Limit specified. In
this case, actual expenditure spent/incurred is no relevance.

Nature of Allowance Amount of Exemption

Children Education Actual amount received per child or ₹ 100 p.m per child upto
Allowance a maximum of 2 children.
Hostel expenditure Actual amount received per child or ₹ 300 p.m per child upto
Allowance a maximum of two children.
To meet his expenditure between the place of his
residences and the place of his duty is fully taxable. In case
Transport allowance
of blind/ deaf and dumb or orthopedically handicapped with
disability of lower extremities, ₹3200 per month.
Underground allowance Exempt to the extent of ₹ 800 p.m
If any fixed allowance is given by the employer to the
employee who is working in any transport system, to meet
Allowance allowed to
his personal expenditure during his duty performed in
transport employees
course of running such transport from one place to another,
the amount of exemption shall be 70% of such allowance or

1FIN BY INDIGOLEARN 4.20

 ₹ 10,000 p.m, whichever is less. Exemption will be allowed to
the transport employees only when they are not receipt of
daily allowance.
S. No Nature Taxable /
Remarks
Exempted
1. City
Compensatory Taxable Always taxable regardless of the purpose.
Allowance
2. House Rent 1. Least of the following is exempted
Allowance u/s 10(13A)
(HRA)
(a) Amount received
(b) 40% of Salary (50% is situated at
Bombay / Kolkata / Delhi/Chennai)
Partly
(c) Actual Rent paid - 10% of salary
2. Salary [On due basis]
Basic, DA, Commission (% of turnover)
No exemption if employee leaves in his own
house.
3. Entertainment 1. Least of the following is deducted
Allowance
(a) Received
Govt: Partly (b) ₹ 5000/-
Taxable (c) 20% of salary
Non Govt: 2. Salary = Basic (Allowances /
Fully Taxable perquisites excluded)
3. First EA is included in salary head and
then deduction u/s 16(ii) is allowed.
4. Special/Other
Place Maximum amount exempted from tax
Allowances
(i) Tribal Area
Limited ₹ 200/- per month
Allowance
(ii) Compensatory
Field Area Limited ₹ 2600/- per month
Allowance
(iii) Compensatory
modified field
Limited ₹ 1000/- per month
Area
Allowance
(iv) Special
allowance to
armed forces Any ₹ 3900/- per month
as counter
insurgency

1FIN BY INDIGOLEARN 4.21

 (v) Underground
Any ₹ 800/- per month
allowance
(vi) High Altitude
₹ 1060/- per month: 9000 to 15000 ft
Allowance to Limited
armed forces ₹ 1600/- per month: Above 15000ft
(vii) Special
Allowance to
armed forces Any ₹ 4200/- per month
(highly active
field)
(viii) Island
Allowance to Limited ₹ 3250/- per month
armed forces
5. Government
employees Exempted For rendering services outside India [10(7)]
outside India
6. Tiffin
Taxable
Allowance
7. Fixed Medical
Taxable
Allowance
8. Servant
Taxable
Allowance
9. Allowance to
Exempted
Judges
10. Allowances
received from Exempted
UNO

Notes:
1. An employee, being an assessee, paying tax under default tax regime as per
section 115BAC would be entitled for exemption only in respect of transport
allowance granted to an employee who is blind or deaf and dumb or
orthopedically handicapped with disability of the lower extremities of the
body to the extent of ₹ 3,200 p.m.

3.3. PROFITS IN LIEU OF SALARY [SEC. 17(3)]

It includes the following:
➢ The amount of any compensation due to or received by an assessee from his
employer or former employer at or in connection with the
(a) termination of employment, or
(b) modification of terms and conditions of his employment.
(c) Payment from provident fund or other fund

1FIN BY INDIGOLEARN 4.22

 ➢ Any payment due to or received by an assessee from his employer or former
employer except the following:
❖ Gratuity exempted u/s 10(10).
❖ House rent allowance exempted u/s 10(13A).
❖ Commuted pension exempted u/s 10(10A).
❖ Retrenchment compensation exempted u/s 10(10B).
❖ Payment from an approved Superannuation Fund u/s 10(13).
❖ Payment from statutory provident fund or public provident fund u/s
10(11).
❖ Payment from recognised provident fund to the extent it is exempt
u/s 10(12).

➢ Any payment from unrecognized provident fund or such other fund to the extent
it consists of employer's contribution or interest on such contribution.
➢ Any sum received under a key man insurance policy including the sum allocated
by way of bonus, on such policy.
➢ Any amount received (in lump sum or otherwise) prior to employment or after
cessation of employment.

1FIN BY INDIGOLEARN 4.23

4. DEDUCTIONS FROM SALARY INCOME
4.1. Sec 16(ia): Standard deduction
A standard deduction of 50,000/- or the amount of salary, whichever is lower, is
to be provided to the employees.

4.2. Sec 16(ii): Entertainment allowance- deduction:

If entertainment allowance is given to the employee, then the amount so received
is to be included in the gross salary of employee.
This deduction is available only for Govt, employees (i.e. Central & State Govt,
employees).
The least of the following is allowed as deduction:
i. Actual entertainment allowance granted during the PY.
ii. ₹5000
iii. 20% of Basic salary means only basic salary.

4.3. Sec 16(iii): Professional tax:

Status of Employee

Non- Government Government

Nothing is deductible Least of the Following is deductible:

1. Rs. 5000
2. 20 % of basic salary
3. Amount of entertainment allowance granted
during the previous year

Professional tax is a tax which is levied on employment. It is a state subject.

Professional tax levied by Govt, will be allowed as deduction to the assessee only
on payment basis.
➢ If it is paid by employer on behalf of the employee: It will first be included in
the gross salary of employee as a perquisite and then, allowed as deduction u/s
16(iii).
➢ If it is paid by employee himself: It is allowed as deduction u/s 16(iii).
➢ It shall not exceed 2500/- p.a.

1FIN BY INDIGOLEARN 4.24

PERQUISITES

➢ Perquisite includes any benefit or amenity due to or received by the employee

from the employer which is usually attached to a position by virtue of
employment.

1) According to Sec 17 (2), perquisite includes:

❖ The value of rent-free accommodation provided by the employer.
❖ The value of accommodation provided by employer at concessional
rate.
❖ The value of any benefit or amenity granted or provided free of cost
or at concessional rate in the case of specified employees.
❖ Any sum paid by employer in respect of any obligation which but for
such payments would have been payable by assessee.
❖ Any sum payable by an employer to effect assurance on the life of the
assessee or to affect a contract for an annuity.
❖ The value of specified securities or sweat equity shares allotted or
transferred to employees by an employer or former employer free of
cost or at concessional rate.
❖ Any contribution to an approved superannuation fund by the employer
in respect of an employee to the extent it exceeds ₹ 7.5 lakh.
❖ Value of any other Fringe benefits or Amenities as may be prescribed.

2) Other Points:
❖ Perquisite may be in cash/kind and in lump sum or otherwise.
❖ It results in personal advantage/benefit to the employee.
❖ The perquisite may be a regular one or casual.
❖ If perquisite is not provided by the employer but it is availed by
employee without proper authorization, it is not a perquisite under
Act.
❖ Income tax paid by the employer on behalf of employee is a perquisite
in the hands of employee.
❖ Perquisite will become taxable only if it has a legal origin. An
unauthorised advantage taken by an employee without his employer’s
sanction cannot be considered as a perquisite under the Act.

1FIN BY INDIGOLEARN 4.25

 3) Taxability of Perquisites:
❖ Perquisites taxable in the hands of all employees.
❖ Perquisites taxable in the hands of Specified employees.
❖ Perquisites not taxable in the hands of all employees.

4) Specified employee:
As per sec 17(2) (iii) specified employee means:
❖ Director employee: An employee who is, a whole-time director or part
time director, nominee director, alternate director, representative
director etc.

Such Director need not be a director of the company throughout the PY.

❖ A person having Substantial interest in the company: A person is

said to be having Substantial interest in the company, if he is a
beneficial owner of equity shares carrying 20% or more of the voting
power in the employer company.

❖ Employee drawing Cash salary exceeding ₹50,000: An employee who

is drawing cash salary exceeding ₹50,000/-. While calculating Cash
Salary the following are to be excluded: -
▪ All Non-Monetary benefits
▪ Monetary benefits which are exempt U/s 10.
▪ Deductions under sections 16(ia), 16 (ii) and 16(iii).

Note: If an employee is employed with more than one employer, the aggregate
of the salary received from all employers is to be taken for calculating the cash
salary.

1FIN BY INDIGOLEARN 4.26

 4.4. VALUATION OF RENT-FREE ACCOMMODATION (Sec 17(2)(i))
Rent free accommodation is regarded as a perquisite. It could be rent free or
concessional rent accommodation. Value of perquisite is based on whether
accommodation is owned or hired.
Even though accommodation is provided by one employer, Salary from all
employers in respect of the period during which the accommodation is provided
will be taken in to consideration. Salary is taken on accrual basis. Any advance
salary or arrears of salary shall not be considered.
❖ Definition of salary
Includes all allowances, bonus and commission and Excludes
(a) Dearness allowance if it does not form part of retirement benefit (only DA*
is included)
(b) Employer’s contribution to the provident fund account of the employee.
(c) Allowances which are exempted u/s 10
(d) The value of perquisites u/s 17(2)
(e) Any payment or expenditure specifically excluded under proviso 17(2)
However, the term monetary benefit includes other cash payments by employer
to employee which are not covered by perquisites. E.g. leave encashment for the
year.

4.4.1. Value of Furnished Rent-Free Accommodation and accommodation provided

by employer at concessional rate: (Sec 17(2)(ii))
➢ If furniture is also provided by the employer, the value of rent-free furnished
accommodation is computed as below.
Value of rent-free unfurnished accommodation (As per above xxxx
valuation)
Add: If furniture is owned by the employer: -
10% pa of the cost of the furniture xxx
(or)
If the furniture is hired by the employer: -
Actual hire charges paid by employer xxx
Value of rent-free furnished accommodation xxxx
Less: Any amount paid by the employee to the employer (xxxx)
Value of rent-free concessional accommodation xxxx

4.4.2. Accommodation provided in a Hotel:

➢ If accommodation is provided in a hotel, least of the following is taxable:
i. 24% of Salary paid or payable for the period for which such
accommodation is provided in the PY (or)

1FIN BY INDIGOLEARN 4.27

 ii. Actual hire charges paid by employer to such hotel
Accommodation.
➢ However, in the following two cases nothing is chargeable to tax in the hands
of the employee:
❖ The total accommodation is provided for a total period not
exceeding in aggregate 15 days in a previous year and
❖ Such accommodation is provided on the employees transfer from one
place to another place.
➢ Salary definition is same as per RFA. If any rent paid by employee, then such
amount is to be reduced from value so determined as above.
➢ Other points:
❖ "Accommodation" includes a house, flat, farmhouse or part thereof,
or accommodation in a hotel, motel, service apartment, guest house,
caravan, mobile home, ship or other floating structure;
❖ The term "Hotel" includes licensed accommodation in the nature of
motel, service apartment or guest house.
❖ If the hotel accommodation is provided for more than 15 days, then
the perquisite is not taxable for the first 15 days. After that it is
chargeable to tax.
❖ If the accommodation is located in a "Remote Area' is provided to
an employee working at a mining site or an onshore oil exploration
site, or a project execution site or an accommodation provided in
offshore site of similar nature, then nothing is taxable in respect of
such accommodation.
❖ "Remote area", means an area that is located at least 40 kilometers
away from a town having a population not exceeding 20,000 based on
latest published all India census.
❖ If temporary accommodation having plinth area not exceeding 800
[Link] located at 8 Kms away from the local limits of municipality or
contentment board is provided to an employee working at mining site
or an onshore oil exploration site, or a project execution site or a
dam site or a power generation site or an accommodation provided in
offshore site, then nothing is taxable in respect of such
accommodation.
4.4.3. Accommodation provided at the time of Transfer:
Where on account of transfer of an employee from one place to another, the
employee is provided with accommodation both at existing place of working
and in the new place of posting, the value of perquisite lower of accommodation
for 90 days and after that both shall be taxable.

1FIN BY INDIGOLEARN 4.28

 Rent Free Accommodation

Rent free accomodation

Unfurnished Hotel
Furnished house
house

Value =
Government Actual
Others Value of cost or
employer
unfurnished 24% of
house salary
License fee (-) whichever
+ is lower
any charges
paid by value of (-)
employee amenity
Leased Rent paid
by by
Owned by employe employee
employer r
Value of
Lower of amenity
Lease rent
OR 15% of
>10 Lacs salary (-) any
Population Population charges paid
Population
> 25 Lacs <10 Lacs by the
<=25 Lacs employee

Amenity
owned by Lease by
employer Employer
Value = 15% Value = Value =
of salary 10% of 7.5% of
salary salary

Value = 10% Actual Lease

of original charges (-)
cost Charges paid
by the
employee

1FIN BY INDIGOLEARN 4.29

Note: With effect from 1st September 2023

As per 2011 census

10% of salary in cities having a population > 40 lakh

7.5% of salary in cities having a population > 15 lakh but not exceeding 40 lakh

5% of salary in cities having a population < 15 lakh

1FIN BY INDIGOLEARN 4.30

 4.5. VALUE OF PERQUISITE IN RESPECT OF GAS, ELECTRICITY AND
WATER SUPPLY (Rule 3(4))

Circumstances Value of benefit

If payment is made to agency supplying sum equal to the amount paid on that
of gas, electricity etc. account by the employer to the agency
supplying the gas, electric energy or water
If supply is made from resources owned manufacturing cost per unit incurred by
by the employer the employer
➢ Any payment made by employee in respect of such service shall be
deducted from the above value so arrived

4.6. VALUE OF PERQUISITE IN RESPECT OF FREE EDUCATION (Rule 3(5))

➢ If the employer incurs any expenditure on the training of employees, then it is
not taxable in the hands of employees.
➢ Payment/reimbursement of school fees of children of employees is taxable in
the hands of all employees
➢ The value of benefit to the employee resulting from the provision of free or
concessional educational facility for any member of his household shall be
determined as follow:

Circumstances Value of benefit

If the educational institution is cost of such education in a similar
maintained and owned by the employer institution in or near the locality. However,
If free educational facilities are allowed there would be no perquisite if the cost of
in any other educational institution by such education or the value of such benefit
reason of his being in employment of per child does not exceed ₹ 1,000 p.m.
that employer
Others amount of expenditure incurred by the
employer in that behalf

Note: The exemption of Rs.1,000 p.m is allowed only in case of education facility
provided to the children of the employee not to other household members.
➢ Where any amount is paid or recovered from the employee on that account, the
value of benefit shall be reduced by the amount so paid or recovered.
➢ Child includes Step child as well as the adopted child of the employee.
➢ Household member shall include spouse, children and their spouses, parents,
servants, and dependents.

1FIN BY INDIGOLEARN 4.31

 Different Forms

Training of Fixed Payment of Reimbursement Education

employees Education school fees of of school fees facility in
allowance employee’s of employee’s employer’s

Amount Fixed children children. own institute.

spent on Allowance
School fees of Reimbursement
providing ₹100 p.m. per
family members of expenses
free child (restricted
of employee incurred for
education to 2 children)
paid by the education of
facilities to exempt from tax
employer family member is
and Hostel
directly to the taxable as a perk
training of Expenses
school is in case of all
employee ₹300/p.m. per
taxable (in the employees.
is not child (restricted
hands of the
taxable. to 2 children)
specified as
exempt from
well as non-
tax. (Balance
specified)
taxable).
employees)

Education facility is Education facility is

provided for employee’s provided to member
children. of his household.

Cost of Education greater

Cost of Education less
than 1000 p.m. per child. Taxable Perks =
than or equal to 1000
Cost of Education
p.m. per child (no
in a similar
restriction on number Taxable Perks =
institution
of children). Cost of Education in a
Less: Amount
similar institution
recovered from
Less: Amount recovered
employee
Nothing is taxable. from employee Rs.1000
Less: Amount
p.m. per child
recovered from the
Amount recovered
employee
from the employee

1FIN BY INDIGOLEARN 4.32

PERQUISITE IN RESPECT OF DOMESTIC SERVANTS: (Rule3(3))

(i.e., sweeper, watchman, gardener or personal attendant)

➢ If the domestic servant is appointed by the employee and salary of that servant
is paid or reimbursed by the employer, then the salary paid by employer less
amount collected from employee is taxable in the hands of all employees.

➢ If domestic servant is provided by employer, then the salary paid by employer

less amount collected from employee is taxable only in the hands of Specified
employees

➢ If rent free accommodation which is owned by employer, is provided to his

employee, expenses (inclusive of salary of a gardener) incurred by the employer
on maintenance of garden and ground attached to the house, is not taxable
separately.

Domestic Servant

Engaged by the employee and salary is Engaged by the employer and salary
paid/reimbursed by the employer is paid by the employer.

Taxable - In the hands of all employees Taxable - In the hands of all employees
Taxable Perks= Taxable Perks=
Actual amount incurred by the employer Actual amount incurred by the employer
Less: Amount recovered from employee Less: Amount recovered from employee

4.7. VALUATION OF MEDICAL FACILITIES

➢ Fixed medical allowance given by the employer to the employee is fully taxable.
➢ The following medical facilities will not amount to a perquisite
1. Value of medical treatment in any hospital maintained by the employer
2. Reimbursement of expenditure actually incurred on medical treatment in
• any hospital maintained by the Government/Local Authority and
• in respect of the prescribed disease or ailments in any hospital
approved by the Principal Chief Commissioner
• in respect of any illness relating to COVID-19 subject to conditions

1FIN BY INDIGOLEARN 4.33

 notified by the Central Government (with effect from the AY
2020-2021) (Amended by Finance Bill,2022)
(The exemption shall be allowed without any limit for the amount
received from the employer and the exemption shall be limited to
Rs.10 Lakh in aggregate for the amount received from any other
person.)-Press Statement.
The employee shall attach with his return of income a certificate from the
hospital specifying the disease
3. Premium paid to affect an insurance on the health of employee under
a scheme approved by the Central Government or IRDA for the
purposes of section 36(1)
4. Payment of premium on personal accident insurance policies –
because it is taken in their business interest only
5. Reimbursement of premium paid to affect an insurance on the health
of employee or for the family of an employee under a scheme approved
by the Central Government or the IRDA for the purposes of section
80D
6. Amount paid towards expenditure incurred outside India on medical treatment

Medical treatment of the employee or Exempt only to the extent

any member of the family permitted by the RBI
Travel and stay abroad for such Exempt only to the extent
treatment permitted by the RBI
Travel and stay abroad of one Exempt if the employee’s gross
attendant who accompanies the patient total income as computed before
including the said expenditure does
not exceed Rs. 2 lakhs

➢ Family = Spouse + children + Parents & siblings if wholly dependent on the

assessee.
➢ Hospital includes a dispensary or a clinic or a nursing home.

1FIN BY INDIGOLEARN 4.34

 4.8. PERQUISITE IN RESPECT OF INTEREST FREE LOAN OR LOAN AT
CONCESSIONAL RATE
(Rule 3(7)(i))
➢ Interest on loans is calculated as under:
Step 1: Calculate maximum monthly o/s balance (aggregate of all loans at
the end of each month)
Step 2: Calculate SBI rate of interest on the first day of the previous year.
Step 3: Calculate interest for each month (Step 1 x Step 2)
Step 4: Deduct amount recovered from employees if any from Step 3
Step 5: Balance amount is treated as perquisite.

➢ Other Points
❖ No perquisite if loan is given for medical treatment of specified disease. No
exemption is available if reimbursed to employee under any medical insurance
scheme
❖ If original loan amount does not exceed ₹ 20,000/-: Nil Perquisite
❖ If a loan is given by an employer to the employee (or any member of his
household) and charged interest rate equal to or higher than SBI Rates, it
is not a taxable perquisite.
However, if he charges lower than SBI rates, then it is chargeable to tax as
follows:
(MOMB on the last day of each month x Lending rate of SBI on the first
day of relevant PY for similar purpose) less interest paid to employer
❖ Maximum Outstanding Monthly Balance (MOMB): means the aggregate
outstanding balance for each loan as on the last day of each month.
❖ If a loan is made available for medical treatment in respect of diseases
specified in Rule 3A, then it is not taxable.
This exemption is, however, not applicable to so much of the loan as has been
reimbursed to the employee under any medical insurance scheme.

1FIN BY INDIGOLEARN 4.35

 4.9. PERQUISITE IN RESPECT OF USEAGE OR TRANSFER OF MOVABLE
ASSETS (Rule 3(7)(vii) & (viii))

Movable asset

Usage Transfer

Laptops Other Computers and Motor Cars Any other

and Assets Electronic items assets
Computers

10% of Actual Depriciated

actual Depriciated
Nil hire value Depriciated
cost if value
charges [depreciation value
asset is [depreciation is
if asset is is computed [depreciation
owned computed
hired @20% on is computed
@50% on WDV
for each WDV for @10% on
completed year each SLM for each
of usage completed completed
year of usage year of usage

Notes:
❖ Any payment made by employee in respect of such perquisites shall be
deducted from the above respective values so arrived.
❖ The depreciation is to be computed for EACH completed years during which
the asset was put to use by the employer for his business purposes, i.e each
completed year of usage but not financial year or calendar year.
❖ Household member shall include spouse, children and their spouses, parents,
servants and dependents.

1FIN BY INDIGOLEARN 4.36

 4.10. TAXABLE VALUE OF PERQUISITE - MOTOR CAR (RULE 3(2)(A):

Maintenance & running expenses are met or reimbursed by

employer.

If car is wholly If car is wholly If car is used partly for Maintenance &
used for official used for private official & partly private running expenses are
purpose purpose purpose met or reimbursed by
employee
Nothing is taxable Actual expenses on running &
if the following maintenance by employer
Taxable perks for specified
condition are Add: Drivers Salary
employees
satisfied. Add: Normal wear & tear
₹ 1800 p.m. (If the cubic
(10% of actual cost of the car)
capacity < = 1.6 litres)
Employer (If owned by the employer)
₹ 2400 p.m. (If the cubic
maintains Add: Hire charges
capacity > 1.6 litres)
complete details (If car is taken on hire)
+
of journey Less: Amt. recovered from
₹ 900 p.m. (If driver is
undertaken for employee
provided)
official purpose Taxable perks for specified
such as date of employees
journey,
destination,
mileage, amount If car is wholly If car is wholly used If car is used partly
of expenses. used for official for private purpose used for official purpose
purpose and partly for private
The employer purpose
Taxable perks for specified
gives a certificate Taxable perks for
persons
to the effect that specified
Normal wear & tear
the expenses Not a perk employees
(10% p.a. of actual cost)
was incurred ₹ 600 p.m. (if the
hence, not (If car is owned by
wholly & cubic capacity < =
taxable employer)
exclusively for 1.6 liters)
OR
official purpose. ₹ 900 p.m. (if the
Hire charges borne by
cubic capacity > 1.6
employer (If car was taken
litres)
on rent)
+
+
₹ 900 p.m. (if driver
Salary of Driver (If provided
is provided)
by employer)
Less: Amount recovered
1FIN BY INDIGOLEARN 4.37
 Situation 2: - Motor car is owned by the employee

Employee

Maintenance and running expenses Maintenance and running expenses

are met / reimbursed by the are met by the employee
employer

Not a perk – hence not

taxable

Nothing is taxable if the If Car is used wholly for If car is partly used for
private purpose official purpose and partly
following conditions are
for private purpose
satisfied

Actual exp by
1. Employer maintains employer Actual exp by employer
complete details of
journey undertaken for Less: Less:
official purpose such Recovered from the Amount used for official
as date of journey, employee purpose
destination, mileage,
amount of expenditure. Taxable perks Less:
2. The employer gives a Amount recovered from
certificate to the effect (For all employee
that the expenditure employees) Taxable perks
was incurred wholly
and exclusively for
official purpose.
Amount used for official
purpose cubic capacity of
engine.

= < 1.6 litres - ₹1800 p.m.

> 1.6 litres - ₹2400 p.m.
If driver is provided ₹900p.m.
addition).

1FIN BY INDIGOLEARN 4.38

Situation 3: - Employee owns any automotive other than motor car:
Exp. on running &
maintenance Usage or purpose of the Taxable value of
met/reimbursed motor car perquisite
by
(a) Employer Wholly and exclusively Not Taxable, provided the
official purpose documents specified in rule
3(2)(A) are maintained by
employer.
(b) Employer Partly for official and Actual Exp. incurred by
partly for personal purpose employer less 900 p.m,
of the employee or any subject to maintenance of
member of his household documents specified in Rule
3(2)(A)

Other Points: -
➢ The following Documents to be maintained as per Rule 3(2)(A):
❖ Employer should maintain complete details of journey undertaken for official
purpose, which includes date of journey, destination, mileage, and amount of
expenditure incurred thereon.
❖ Certificate of supervising authority of the employee, wherever applicable, to
the effect that the expenditure was incurred for wholly and exclusively for
performance of official duties, should be provided.
o The word "month" means completed month according to the English
calendar and part of the month is left out of consideration.
o Conveyance facility to judges of High court u/s 22B of the High Court
judges (condition of service) Act and to judges of Supreme Court
u/s23A of the Supreme Court judges (condition of service) Act is not
taxable.
➢ The car facility provided by employer between office and residence of employee
is not chargeable to tax.

4.11. ISSUE OF RIGHT SHARES TO EMPLOYEE SHARE HOLDER

➢ If Employer Company issues right shares to employee shareholder at

concessional rate, and not at FMV, then such discount is treated as perquisite in
the hands of the employee

1FIN BY INDIGOLEARN 4.39

 4.12. VALUATION OF SPECIFIED SECURITY OR SWEAT EQUITY
SHARE (Sec 17(2)(vi))

➢ The fair market value of any specified security or sweat equity share, being an
equity share in a company, on the date on which the option is exercised by the
employee, shall be determined in the following manner:

➢ If shares are listed in only one stock exchange

❖ Average of opening and closing value of stock exchange if shares are traded
in the stock exchange as on the date of exercising the option by the
employee.
❖ If there is no trading on the date of exercise of option in stock exchange,
then above average will be taken of immediately preceding day.

➢ If shares are listed in more than one stock exchange

❖ In above situation (i) or (ii) as the case may be, will be taken of that stock
exchange which has recorded the transaction in highest volume as on the
particular date.

➢ If shares of the company are not listed

❖ Value on specified date as determined by a category I Merchant banker
registered with SEBI.
❖ Specified date means: The date of exercise of option or any date earlier
than the date of exercise of option not being a date which is more than 180
days earlier than the date of exercise of option.
Note: Where any amount has been recovered from the employee, the same shall be
deducted to arrive at the value of perquisites.

4.13. CONTRIBUTION TO SUPERANNUATION FUND

➢ If employer contributes to superannuation fund of an employee, amount in excess

of ₹ 7.5 lakh is taxable as perquisite.

4.14. CERTAIN PERQUISITES

➢ Club Facility except one-time payment and provided at the premises of the
employer. (Rule 3(7)(vi)),
➢ Facility of providing lunch / dinner in excess of ₹ 50/- per meal.
➢ Gifts / vouchers etc. in excess of ₹ 5000/-. (Rule 3(7)(iv))

1FIN BY INDIGOLEARN 4.40

 ➢ Travelling, Tour (if no LTC is given)
➢ Credit Card to the extent utilized for personal purpose. (Rule 3(7)(v))
➢ Free Transport (value will be amount charged from general public)
➢ All other perquisites provided by employer except for telephone expenses.
➢ Notes:
❖ Where employee is on official tour and the expenses are incurred in respect
of any member of his household accompanying him, the amount of
expenditure so incurred shall also be a fringe benefit or amenity.
❖ Where any official tour is extended as vacation, the value of such fringe
benefit will be limited to the expenses incurred in relation to such extended
period of stay on vacation
➢ Free meals during the office hours: Actual cost to employer in excess of ₹ 50
per meal is the taxable perquisite. However, the following are not chargeable to
tax:
❖ Tea or similar non-alcoholic beverages and snacks during the work hours.
❖ Free meals in remote area or offshore installation area.
➢ Value of any gift or voucher or token other than gifts made in cash on
convertible into money (like gift cheques) on ceremonial occasion: value of
such gift (during the PY in aggregate) in excess of ₹ 5000 per annum is taxable
perquisite.
➢ Expenditure incurred on credit card or add on card including membership
fees and annual fees: The actual expenditure incurred by the employer is
taxable perquisite.
However, it is incurred for official purpose and supported by necessary
documents then it is not taxable.
➢ Expenditure incurred on club other than health club or sports club, or similar
facilities provided uniformly to all employees: The actual expenditure incurred
by the employer is taxable perquisite. However, it is incurred for official purpose
and supported by necessary documents then it is not taxable. Initial fee of
corporate membership of a club is not taxable.
➢ Any other benefit or amenities or service or right or privilege provided by
the employer other than telephone/mobile phone: The actual cost to employer
is taxable perquisite.
Note: If any amount is recovered from employee in respect of the above
perquisites, then the taxable perquisite will be the value so determined as above
less the amount recovered from employee.

1FIN BY INDIGOLEARN 4.41

 4.15. OTHER PERQUISITES:

➢ If Transportation of goods/passengers at free or concessional rate provided by

the employer engaged in that business (other than railways / airways), then the
value offered to other public is the taxable perquisite.
➢ If travelling, touring, accommodation and other expenses met by employer (only
for the period of vacation) other than LTA u/s 10(5), then the amount incurred,
or value offered to other public is the taxable perquisite.

4.16. EMPLOYEE'S OBLIGATION MET BY EMPLOYER

➢ Amount paid by employer is chargeable as perquisite.

4.17. LIFE INSURANCE PREMIUM OF EMPLOYEE (Sec 17(2)(v))

➢ Any amount paid towards life insurance of employee is chargeable.

➢ No perquisite in case of employer's contribution to recognized provident fund,
superannuation fund.
➢ No perquisite if premium paid under different schemes (Group Gratuity, ESI
etc.)

4.18. LIST OF PERQUISITES EXEMPT IN THE HANDS OF ALL

EMPLOYEES

➢ Amount spent on training of employees.

➢ Goods manufactured by the employer and sold by the employer to his employees
at concessional rate.
➢ Employers' contribution to group accident insurance schemes.
➢ Free residential telephone or Mobile telephone.
➢ Payment of annual premium by employer on personal accident policy affected by
him on his employees.
➢ Privilege passes and privilege ticket orders granted by Indian railway to its
employees.
➢ Travelling facility to employees of railways or airlines
➢ Sum payable by an employer to a RPF or an approved superannuation fund or
deposit linked insurance fund established under the coal mines provident fund or
the employee's provident fund Act.
➢ Subsidized lunch or dinner provided to an employee.

1FIN BY INDIGOLEARN 4.42

 ➢ Recreational facilities, including club facilities, extended to all employees.
➢ Rent-free official residence provided to a Judge of a High Court or the Supreme
Court.
➢ Rent-free furnished residence including maintenance provided to an Officer of
Parliament, Union Minister and a Leader of Opposition in Parliament.
➢ Conveyance facility provided to High Court Judges.
➢ Periodical and journals required for discharging of work.

5. TREATMENT OF PROVIDENT FUNDS

Types of
Provident Funds

Statutory Recognised Unrecognised

Public Provident
Provident Provident Fund Provident Fund
Fund (PPF)
Fund (SPF) (RPF) (URPF)

1) Statutory Provident Fund

It applies to employees of government, railways, semi- government
institutions, local bodies, universities and all recognised educational
institutions.

2) Recognized Provident Fund

Recognised provident fund means a provident fund recognised by the
Commissioner of Income-tax

3) Unrecognised Provident Fund

If any Provident Fund is not recognized / approved by Commissioner, it is
Unrecognised Provident Fund.

4) Public Provident Fund

Governed by Provident fund Act 1968 Membership of the fund is open to
every individual though it is ideally suited to self-employed people
In this fund, any person can deposit the amount.

5) Approved Superannuation Fund

Annuation Fund approved by Commissioner.

1FIN BY INDIGOLEARN 4.43

 6) Approved Gratuity Fund
Gratuity Fund approved by Government.

Note:
➢ Salary for the purpose of Recognized provident fund means, Basic salary
+ DA (if the terms of employment so provide) + Fixed % of commission
on turnover achieved by employee.
➢ Any transfer from an unrecognised PF to Recognised PF is also taxable
in the year of transfer.
➢ Exemption in respect of payment received by employee from
Superannuation fund [Sec 10(13)]
➢ Employee’s share from lumpsum payment received on maturity
Unrecognised provident fund:
• Not taxable
• Interest on such = Taxable as Income from other sources
➢ PPF => For deduction u/s 80C, a member is required to contribute a min
of Rs. 500 in a year. Max Rs. 1,50,000 is qualified for such deduction as
per PPF rules.

1FIN BY INDIGOLEARN 4.44

Exemption and Taxability Provisions of Provident Funds

Particulars Recognized Unrecognized PF Statutory PF Public PF

PF
Employer’s Amount in Not taxable yearly Fully exempt Not applicable as
Contribution excess of 12% there is only
of salary is assessee’s own
taxable contribution
Employee’s Eligible for Not eligible for Eligible for Eligible for
Contribution deduction u/s deduction deduction u/s deduction u/s 80C
80C 80C
Interest Amount in Not taxable at the Fully exempt N.A.
Credited on excess of time of credit of
Employer’s 9.5% p.a. is interest
Contribution taxable as
“salary” u/s
17(1)
Interest Amount in Not taxable at the Exempt upto Fully exempt
Credited on excess of time of credit of certain limit
Employee’s 9.5% p.a. is interest of
Contribution taxable as contribution
“salary”
u/s 17(1)
Amount Exempt •Employee’s Exempt u/s Exempt u/s 10(11)
withdrawn u/s contribution is not 10(11)
on 10(12) subject taxable.
retirement/ to certain •Interest on
termination conditions Employee’s
contribution is taxable
under ‘Income from
Other Sources’
•Employer’s
contribution and
interest thereon is
taxable as “Profit in
lieu of salary” u/s
17(3).

1FIN BY INDIGOLEARN 4.45

 Exemption of Accumulated balance of RPF, payable to an employee

Has the employee rendered continuous service of at least 5 years with

the employer?

Yes No

Exempt
Are his services terminated due to
(i) his ill-health or (ii) contraction or discontinuance
of employer’s business or
(iii) any other cause beyond the control of the
employee?

Yes No

Exempt

Is the entire balance

standing to the credit Is the entire balance
of the employee standing to the credit of
transferred to his the employee transferred
individual account in to his NPS account
any RPF maintained referred to in section
with his new 80CCD and notified by
employer? the Central Government?

No Yes No Yes

Taxable* Exempt Taxable* Exempt

* Where the accumulated balance in Recognised Provident Fund becomes

taxable, the tax payable in each of the years would be computed as if
the fund had been an Unrecognised Provident Fund and the difference
in tax would be payable by the employee.

1FIN BY INDIGOLEARN 4.46

 ➢ If, after termination of his employment with one employer, the employee
obtains employment under another employer, then, only so much of the
accumulated balance in his provident fund account will be exempt which
is transferred to his individual account in a recognised provident fund
maintained by the new employer. In such a case, for exemption of
payment of accumulated balance by the new employer, the period of
service with the former employer shall also be taken into account for
computing the period of five years’ continuous service
➢ The exemption under section 10(11) or 10(12) would not be available in
respect of income by way of interest accrued during P.Y. to the extent
it relates to aggregate amounts of contribution made by that person is
> Rs. 2,50,000 in any P.Y on or after 01-04-2021
➢ If there is no employer’s contribution, higher limit of Rs. 5,00,000 would
be applicable for such contribution and interest accrued in any P.Y. on or
after 01-04-2021 would be exempt
➢ It may be noted that interest accrued on contribution to such funds
upto 31/03/21 would be exempt without any limit, even if the accrual of
income is after that date.

6. RELIEF U/S 89 - IF SALARY RECEIVED IN ARREARS OR ADVANCE

➢ When an assessee is charged for –
• Arrear or Advance salary; or
• Gratuity, Commuted pension, etc.
then he may fall under higher rate of tax (of progressive tax-slab) e.g. instead
of 20% he may have to pay tax @ 30%. To compensate aggrieved assessee from
such higher rate, sec. 89(1) provides for ‘Relief’.
➢ Applicable to: An assessee, who is in receipt of –
• Arrear salary or Advance salary or in any other way is in receipt, in
any one financial year of salary for more than 12 months; or
• Profit in lieu of salary u/s 17(3) e.g. gratuity, commuted pension, etc.; or
• Family pension, being paid in arrears.
Note: An assessee, who receives leave encashment during continuation of his
service, can also claim relief u/s 89.
➢ Assessee has made an application in this behalf to the Assessing Officer.
➢ Quantum of Relief: As computed by method provided in Rule 21A
➢ No relief at the time of Voluntary retirement or Termination of service-

1FIN BY INDIGOLEARN 4.47

 Steps Calculation
1 Calculate tax on total income of the current year including salary
received in arrear or advance
2 Calculate tax on total income of current year excluding salary received
in arrears
3 Determine difference of 1-2
4 Calculate tax on total income of all the previous year to which the
arrear relates including arrear of respective year to that year's total
income
5 Calculate tax on total income of all the previous year to which the
arrear relates excluding arrear of respective year to that year's total
income
6 Determine difference of 4-5
7 Relief = Value at Step 3 - Value at Step 6 (if positive), Otherwise no
relief

Problems
1. Mr. Mohit is employed with XY Ltd. on a basic salary of ₹ 10,000 p.m. He is also
entitled to dearness allowance @ 100% of basic salary, 50% of which is included in
salary as per terms of employment. The company gives him house rent allowance of ₹
6,000 p.m. which was increased to ₹ 7,000 p.m. with effect from 1.01.2024. He also
got an increment of ₹ 1,000 p.m. in his basic salary with effect from 1.02.2024. Rent
paid by him during the previous year 2023-24 is as under:
April and May, 2023 - Nil, as he stayed with his parents
June to October, 2023 - ₹ 6,000 p.m. for an accommodation in
Ghaziabad
November, 2023 to March, 2024 - ₹ 8,000 p.m. for an accommodation in
Delhi.
Compute his gross salary for assessment year 2024-25.

2. How is exemption granted by section 10(10CC) in respect of income –tax paid by

employer? [PCC – Nov 07]

3. How is advance salary taxed in the hands of an employee? Is the tax treatment same
for loan or advance against salary? [PCC – May 09]

4. From the following, find out the amount chargeable to tax for the assessment year
2024-25.
Date of retirement of X from a private job November 15, 2023

1FIN BY INDIGOLEARN 4.48

 Basic salary from January 1, 2023 to April 30, 2023 ₹ 20000 per month
Basic salary from May 1, 2023 onwards ₹ 22000 per month
Dearness allowance Nil
Commission Nil
Leave standing to the credit at the time of 600 days
retirement
Rate of leave entitlement according to the service 45 days leave for each
rule year of service
Duration of service 18 years
Amount of leave encashment given at the retirement ₹ 440000
(leave encashment was not given earlier)
(i.e., ₹ 22000 x 600/30)

5. X (age: 24 years) is offered an employment by PQR Ltd. at basic salary of ₹ 32000

per month. Besides, he is entitled for dearness allowance, forming part of salary, @
₹ 6000 per month, bonus (2 month’s basic pay) and city compensatory allowance @ ₹
1600 per month. The company gives X an option to take a rent-free unfurnished house
in Chennai for which the company would directly bear rent of ₹ 10000 per month, or
to accept house rent allowance of ₹ 10000 per month and find out own
accommodation. X decides to accept the house rent allowance and takes a house at
Chennai at a rent of ₹ 10000, per month. Examine from the income tax point of view
whether X has made a wise choice?

6. X is employed by A Ltd. since May 1, 2012. The company adopted new pay scale on
January 1, 2021. At that time, he was placed in the grade of ₹ 20,000 - ₹ 1,000 - ₹
60,000 and his basic salary was fixed at ₹ 24,000. Besides, he is entitled for 10
percent of salary as dearness allowance which (according to service rules) will be
treated as part of salary for calculation of gratuity but not for calculation of pension
and provident fund.
Before joining A Ltd. in 2012, X was employed with B Ltd. he retired from B Ltd. in
April 2012 after rendering service of 15 years and at that time he took an exemption
under section 10(10)(iii) of ₹ 2,81,000 from gratuity received from B Ltd. X retires
from service of A Ltd. on February 14, 2024 and gets a sum of ₹ 6,00,000 as gratuity.

Find out the gratuity chargeable to tax for the assessment year 2024-25 in the
following two situations—

1. Situation 1- The Payment of Gratuity Act, 1972 is applicable.

2. Situation 2- The above Act is not applicable.

7. Determine the amount of taxable pension for the assessment year 2024-25 in the
following cases on the assumption that pension becomes due on the last day of month:

1FIN BY INDIGOLEARN 4.49

 1. X retires from the Indian Economic Service on July 31, 2023 and receives
₹ 32000 per month as pension.
2. X retires from the Indian Administrative Service on May 31, 2022. He gets
pension of ₹ 29000 per month up to June 30, 2023. With effect from July
1, 2023, he gets 42 per cent of his pension commuted for ₹ 400000.
3. X retires from PQR Pvt Ltd. in December 2018 and receives ₹ 11000 per
month up to February 28, 2024, when he dies.
4. X retires from PQR (P.) Ltd. pays ₹ 24000 per month as pension but does
not pay any gratuity. On the request of X, PQR (P.) Ltd. pays ₹ 600000 in
lieu of commuted pension at 40% of pension with effect from February 1,
2024.
5. What will be the amount of taxable pension if X, under the circumstances
mentioned at (4), receives ₹ 90000 as gratuity at the time of retirement?

8. X and Y are employed by A Ltd. (salary being ₹ 48,000 per month). As per the
company’s policy, an employee is entitled for a car (1600 CC) and a driver. The car
can be used for official and personal purposes. A car owned by the company can be
provided along with driver and the company will bear running the maintenance
expenditure up to a minimum of ₹ 72,000 per annum and actual salary of the driver
(up to ₹ 60,000 per annum). An employee, at his option, can use his own car for official
and personal purposes per annum and company will reimburse actual expenditure on
maintenance of the car but up to a maximum of ₹ 72,000 per annum and salary of
driver up to ₹ 60,000 per annum.
X has taken a car and driver from the company for official and personal purposes
(actual maintenance expenditure is approximately ₹ 72,000 per annum for car and ₹
60,000 per annum for driver). However, Y has used his own car and driver for official
and personal purposes (amount of actual expenditure reimbursed on this account is
approximately ₹ 72,000 for car and ₹ 60,000 per annum for driver).

Log book of the cars is not maintained. It is not possible to determine expenditure
attributable for private use of cars. Find out the taxable value of the perquisite in
the hands of X and Y for the assessment year 2024-25. A nominal amount of ₹ 1,000
per annum is recovered from X and Y for providing this perquisite.

9. Mr. Rishi, employed in CD Ltd at Chennai, furnishes you the following information for
the year ended 31.03.2024:
i. Basic salary ₹ 50,000 per month.
ii. Dearness allowance @ 40% of basic salary (eligible for retirement benefits).
iii. Motor car (engine cubic capacity above 1.6 litres) owned by CD Ltd. was given to
Mr. Rishi for both official and personal use, for the whole year. Running
expenses for personal use was fully met by Mr. Rishi. Actual expenses ₹ 32,400.
The car was self-driven by Mr. Rishi.

1FIN BY INDIGOLEARN 4.50

 iv. Cost of laptop ₹ 40,000 acquired by CD Ltd. in August, 2023 given to Mr. Rishi
for ₹ 5,000 immediately.
v. Accommodation taken on lease by CD Ltd. given to Mr. Rishi from 01.04.2023 at
a concessional monthly rent of ₹ 5,000. The annual lease rent paid to the
landlord by the company is ₹ 3,00,000.
vi. Leave travel concession given to employee, his wife and three children (one
daughter aged 7 and twin sons aged 3). Cost of air tickets (economy class)
reimbursed by the employer ₹ 30,000 for adults and ₹ 45,000 for three
children. Rishi is eligible for availing exemption this year to the extent it is
permissible in law.
vii. Contribution of employer to PF was 15% of the basic salary. Equal amount was
contributed by Mr. Rishi.
viii. Professional tax paid is ₹ 2,500, of which ₹ 2,000 was paid by the employer.
Compute the total income of Mr. Rishi for the assessment year 2024-25. [RTP Nov-
2013]

10. Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the following
information for the year ended 31.03.2024:
i. Basic salary upto 31.10.2023 ₹ 50,000p.m.
Basic salary from 01.11.2023 ₹ 60,000 p.m.
Note: Salary is due and paid on the last day of every month.
ii. Dearness allowance @ 40% of basic salary.
iii. Bonus equal to one month salary. Paid in October 2023 on basic salary plus
dearness allowance applicable for that month.
iv. Contribution of employer to recognized provident fund account of the employee
@ 16% of basic salary.
v. Profession tax paid ₹ 2,500 of which ₹ 2,000 was paid by the employer.
vi. Facility of laptop and computer was provided to Balaji for both official and
personal use. Cost of laptop ₹ 45,000 and computer ₹ 35,000 were acquired by
the company on 01.12.2023.
vii. Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres)
provided to the employee from 01.11.2023 meant for both official and personal
use. Repair and running expenses of ₹ 45,000 from 01.11.2023 to 31.03.2024,
were fully met by the employer. The motor car was self-driven by the employee.
viii. Leave travel concession given to employee, his wife and three children (one
daughter aged 7 and twin sons aged 3). Cost of air tickets (economy class)
reimbursed by the employer ₹ 30,000 for adults and ₹ 45,000 for three
children. Balaji is eligible for availing exemption this year to the extent it is
permissible in law.
Compute the salary income chargeable to tax in the hands of Mr. Balaji for the
assessment year 2024-25. [Nov 11]

1FIN BY INDIGOLEARN 4.51

11. Mrs. X is a tax consultant in A Ltd. (salary being ₹ 192000 per annum). A Ltd. makes
the following expenses for medical treatment of her husband outside India during
the previous year 2023-24:
Amount incurred by Out of which
Particulars
A Ltd. (₹) permitted by RBI (₹)
Cost of medical treatment of
35,60,000 35,55,000
X outside India
Cost of stay abroad of X and
Mrs. X in connection with 8,41,000 8,40,000
medical treatment of X
Cost of travel of X and Mrs.
X in connection with medical 3,70,000 3,75,000
treatment of X
Find out the taxable value of the medical facility chargeable to tax in the hand of
Mrs. X for the assessment year 2024-25 in the following two different situations—

Situation 1— Mrs. X does not have any other source of income.

Situation 2—Mrs. X is an author. Her royalty income is ₹ 2,40,000. However, it is

fully deductible under section 80QQB.

12. From the following details, find out the salary chargeable to tax for the assessment
year 2024-25
Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 1.1.2023
in the scale of 20,000 - 1,000 - 30,000. He is paid 10% D.A. & Bonus equivalent to one
month pay based on salary of March every year. He contributes 15% of his pay and
D.A. towards his recognized provident fund and the company contributes the same
amount.
He is provided free housing facility which has been taken on rent by the company at
₹ 10,000 per month. He is also provided with following facilities:
i. Facility of laptop costing ₹ 50,000.
ii. Company reimbursed the medical treatment bill of his brother of ₹ 25,000, who
is dependent on him.
i. The monthly salary of ₹ 1,000 of a house keeper is reimbursed by the company.
ii. A gift voucher of ₹ 10,000 on the occasion of his marriage anniversary.
iii. Conveyance allowance of ₹ 1,000 per month is given by the company towards
actual reimbursement.
iv. He is provided personal accident policy for which premium of ₹ 5,000 is paid by
the company.
v. He is getting telephone allowance @ ₹ 500 per month.
vi. Company pays medical insurance premium of his family of ₹ 10,000. [Nov 10]

1FIN BY INDIGOLEARN 4.52

13. AB Co. Ltd. allotted 1000 sweat equity shares to Sri Chand in June 2023. The shares
were allotted at ₹ 200 per share as against the fair market value of ₹ 300 per share
on the date of exercise of option by the allottee viz. Sri Chand. The fair market value
was computed in accordance with the method prescribed under the Act.
i. What is the perquisite value of sweat equity shares allotted to Sri Chand?
ii. In the case of subsequent sale of those shares by Sri Chand, what would be the
cost of acquisition of those sweat equity shares?

14. Following benefits have been granted by Ved Software Ltd. to one of its employees
Mr. Badri:
i. Housing loan @ 6% per annum. Amount outstanding on 1.4.2023 is ₹ 6,00,000.
Mr. Badri pays ₹ 12,000 per month towards principal, on 5th of each month.
Compute the chargeable perquisite in the hands of Mr. Badri for the A. Y. 2024-25.
The lending rate of State Bank of India as on 1.4.2023 for housing loan may be taken
as 10%. [PCC – May 08]

15. Mr. Harish, aged 52 years, is the Production Manager of XYZ Ltd. From the following
details, compute the taxable income for the assessment year 2024-25.
Particulars ₹
Basic salary ₹ 50,000 per
Dearness allowance month
Transport allowance (for commuting between place of residence 40% of basic
and office) salary
Motor car running and maintenance charges fully paid by employer ₹ 3,000 per
(The motor car is owned by the company and driven by the month
employee. The engine cubic capacity is above 1.60 litres. The motor
car is used for both official and personal purpose by the employee.)
Expenditure on accommodation in hotels while touring on official
duties met by the employer ₹ 60,000
Loan from recognized provident fund (maintained by the employer)
₹ 80,000
Lunch provided by the employer during office hours.
₹ 60,000
Cost to the employer
₹ 24,000
Computer (cost ₹ 35,000) kept by the employer in the residence
of Mr. Harish from 1.06.2023
Mr. Harish made the following payments:
Medical insurance premium: Paid in Cash
Paid by account payee crossed cheque ₹ 4,800
₹ 15,200

16. Mr. Jatin, employed as General Manager in Beta Ltd., furnishes you the following
information for the year ended 31.3.2024:

1FIN BY INDIGOLEARN 4.53

 Particulars Amount (in ₹)
Basic salary 25,000 per month
Dearness allowance 60% of basic
(forming part of salary for retirement benefits) salary
Conveyance allowance (reimbursement of actual expenditure 1,000 per month
incurred on conveyance in performance of duties of an
office)
Transport allowance 1,600 per month
(for commuting between place of residence and office)
Employer’s contribution to recognized provident fund 15% of basic
salary and D.A
Interest credited to recognized provident fund @ 12% 24,000
Rent free unfurnished accommodation provided to Mr. Jatin
in Delhi which is owned by Company
Motor car running and maintenance expenses fully paid by 50,000
employer (The motor car is owned and driven by the
employee. The engine cubic capacity is above 1.60 litres. The
motor car is used for both official and personal purposes by
the employee)
Gift voucher given on the occasion of his birthday 4,500
Value of medical facility in a hospital maintained by the 18,000
company
Reimbursement of salary of domestic servant by the 2,500 per month
company which was engaged by Mr. Jatin at his residence
Free education was provided to his three children in a school maintained and
owned by the company. The cost of such education is computed at ₹ 800 per
child per month
Housing loan of ₹ 10,00,000 given on 1.1.2024 at the interest rate of 8% p.a. (No
repayment was made during the year). The rate of interest charged by SBI as on
1.4.2023 in respect of housing loan was 10%
You are required to compute his taxable salary for the AY 2024- 25 [RTP – May 2013]

17. X (60 years), an employee of A Ltd., Mumbai, furnishes following information for the
period ending March 31, 2024—
Basic salary 52,000 per month
(increased to ₹ 53000 per month from November 1,
2023)
Dearness allowance (43 percent of which is part of 10,000 per month
salary for computing different retirement benefits)

1FIN BY INDIGOLEARN 4.54

 House rent allowance (the resides in his own house, 17,000 per month
interest liability in respect of that house is ₹ 28,000
per annum)
Leave travel concession (for the block ending 42,000
December 31, 2024, he has availed LTC from the
company during November 2023, economy class air fare
of Air India for the distance covered is ₹ 39,000. He
has, however, travelled by Jet Airways and company
has reimbursed the entire economy class fair).

He retires (at the age of 60 years) from service on January 1, 2024 (after
rendering service of 16 years and 8 months). At the time of retirement, he
gets ₹ 10,16,885 as gratuity under the Payment of Gratuity Act. In addition,
he gets leave encashment of ₹ 48,000 (he has already availed exemption of ₹
3,00,000 in respect of earn leave in 2000 at the time of retirement from
earlier employer). After retirement he gets pension of ₹ 10000 per month.25
percent of the pension has been commuted with effect from March 1, 2024,
for ₹ 3,25,000.
At the time of retirement, he gets ₹ 25,40,000 on account of provident fund
balance (approximately 35 percent is employer’s contribution and 40 percent
is contribution made by X and the balance is interest on provident fund
contribution). After retirement, he starts a business from which an income of
₹ 9,20,000 is generated during the financial year ending March 31, 2024.

Every year he contribution 12 percent of his salary towards recognized

provident fund and ₹ 30000 towards public provident fund.

Determine the amount of net income and tax liability of X for the assessment
year 2024-25. Salary becomes due on the last day of each month.

18. X (33 years) is the head of HR department of A Ltd. He furnishes the following
information of his income/investments pertaining to the previous year 2023-24—
He gets ₹ 55000 per month as salary,
₹ 12500 per month as dearness allowance (10 per cent is part of salary for
computing entitlement of taking loan from company),
Domestic servant allowance: ₹ 4000 per month,
Hard duty allowance: ₹ 1000 per month,
Over time allowance: ₹ 2500 per month and
Education allowance for grand children: ₹ 6000 per month.
Over time allowance has been withdrawn with effect from December 15, 2023.

1FIN BY INDIGOLEARN 4.55

 With effect from September 1, 2023, the employee company has provided
furnished accommodation in a guest house for X and his family members.
Before September 1, 2023, he resides in a rented accommodation, but house
rent allowance is not paid to him. Guest house tariff paid by A Ltd. is ₹ 135000
for the period ending March 31, 2024.
On November 1, 2023, A Ltd. has given an option to X to get 2000 equity
shares in A Ltd. at a pre-determined price of ₹ 70 per share. This option he
can exercise at any time during December 1, 2023, and December 1, 2024. He
exercises the option of purchasing 1700 equity shares in A Ltd. on February
25, 2024. Shares are allocated on March 25, 2024, and transferred in his D-
mat on April 1, 2024.
Taking into consideration the following information, find out net income and
tax liability of X for the assessment year 2024-25—
1. X contributes 15 per cent of his salary [i.e., 15 percent (₹ 55000+ ₹ 12500)
per month] towards unrecognized provident fund. It comes to ₹ 121500 for
the previous year 2023-25. A matching contribution is made by the
employer.
2. Provident fund interest is credited at the rate of 11 per cent which comes
to ₹ 1,11,500.
3. Market value of shares in A Ltd. as follows- on November 1, 2023: ₹ 700,
December 1, 2023: ₹ 760, February 25, 2024: ₹ 810 and April 1, 2024: ₹
900.
4. A Ltd. wants to bear the income-tax liability of X for the assessment year
2024-25. If it is possible, then what are tax consequences in the hands of
X and A Ltd?
5. Income of X from other sources is ₹ 70000.
6. On March 13, 2024, X deposited ₹ 72000 in a fixed deposit with State
Bank of Hyderabad for the purpose of claiming deduction under section
80C.

19. X is a foreign citizen. He comes to India for the first time on June 1, 2023 for the
purpose of completing a project of an Argentina company in India. On this project,
he works up to October 31, 2023 and leaves India for his home town along with his
family on November 2, 2023. He gets in India the following salary/allowances/
perquisites from the employer- foreign company—
US $
Basic salary per month 18500
Education allowance for X’s son and daughter (children are studying in
350
USA) (US $ 175 per month for two children)
Entertainment allowance per month 1000

1FIN BY INDIGOLEARN 4.56

 Car (2400cc) with driver for official and private purposes (per month
750
expenditure)
Besides the above, the employer-company provides an accommodation in a guest house
for which the company pays ₹ 3,00,000 per month. Entertainment allowance is used
by X for official purposes. Car is used for personal purposes only on a few occasions
(out of the total expenditure not more than 3 percent is attributable for private
purposes). He pays an insurance premium of ₹ 25,750 (sum assured: ₹ 5,00,000).

Find out the net income and tax liability of X in India for the assessment year 2024-
25. Salary for the month of October is deposited by the employer in his bank account
in Argentina. Salary for remaining months is paid to him in India. For conversion of
salary into Indian currency, the following telegraphic transfer buying/selling rates
of US $ adopted by SBI are given—

Buying (1 US $) Selling (1 US $)
On June 30, 2023 44 48
On July 31, 2023 43 49
On August 31, 2023 45 50
On September 30, 2023 46 49
October 31, 2023 44 47

20. X (29 years) is in the marketing department of A Ltd. he gets ₹ 65000 per month
salary and ₹ 8000 per month as dearness allowance (only 10 percent is considered as
part of salary for calculating gratuity/ provident fund, etc). He gets a fixed
commission at the rate of ₹ 9000 per month. He has been given an option to purchase
sweat equity share in the employer-company. This option was granted in 2021-22 and
he has a right to purchase 2700 equity shares in A Ltd. at any time during January 1,
2024 and March 31, 2024 at a predetermined price of ₹ 20 per share. He exercises
his right to purchase 2700 shares on April 17, 2023. Shares are, however, allotted
on April 28, 2023.
He has been provided a rent-free unfurnished house in Mumbai. The house is taken
on lease by A Ltd. and lease rent is ₹ 2000 per month. However, on January 1, 2024,
the house is acquired by A Ltd. for a consideration of ₹ 2500000.

X has transferred 1200 equity shares in A Ltd. in National Stock Exchange on March
25,2024 for ₹2800 per share (securities transaction tax is applicable). X
contribution 15 per cent of basic salary towards recognized provident fund. A Ltd.
makes a matching contribution. Taking into consideration the market value of shares
in A Ltd. given below, find out the net income and tax liability of X for the assessment
year 2024-25—

Bombay Stock National Stock

Exchange Exchange

1FIN BY INDIGOLEARN 4.57

 Opening price on April 17,
₹ 2000 per share ₹ 1900 per share
2023
₹ 2400 per share ₹ 2200 per share
Closing price on April 17, 2023
200000 80000
Number of shares traded
Opening price on April 28,
₹ 2800 per share ₹ 2700 per share
2023
₹ 2300 per share ₹ 2350 per share
Closing price on April 28, 2023
90000 120000
Number of shares traded

21. X (43 years) is the finance officer of A Ltd. A Ltd. is a company in which public are
substantially interested and it is engaged in the business of housing finance. During
the previous year, X gets ₹ 50000 per month as salary and ₹ 10000 per month as
dearness allowance (which is taken into consideration for calculating pension but not
gratuity). Besides, he gets following allowances—
1. Transport allowance: ₹ 1000 per month (for commuting between office and
residence).
2. Travelling allowance: ₹ 3000 per month (approximately 75 per cent is used
for official purposes).
3. Research allowance: ₹ 2000 per month (nothing is spent).
4. Helper allowance: ₹ 9000 per month (approximately 80 per cent is issued
for engaging a domestic helper and remaining amount is not used).
5. House rent allowance: ₹ 17000 per month (till May, he resides in a rented
house for which he pays rent of ₹ 5500 per month).
On May 1, 2023, X takes an interest-free housing loan of ₹ 5500000 from A
Ltd. SBI lending rate on April 1, 2023, and May 1, 2023 is 8.75 per cent and
9.5 per cent respectively. ₹ 5,00,000 out of the housing loan is repaid on
January 31, 2024. He purchases a house for his own residence on May 15,
2023, and it is used for his own residential purposes since June 2023. For the
year ending March 31, 2024, X pays municipal tax of ₹ 60000.
Find out net income and tax liability of X for the assessment year 2024-25
on the assumption that A Ltd. does not maintain provident fund account but
annually deposits ₹ 70000 in public provident fund account of X.

22. Mr. Ashok, an employee of a PSU, furnishes the following particulars for the previous
year ending 31.03.2024. [June 09]
Particulars ₹
i. Salary income for the year 7,25,000
ii. Salary for financial year 2019-20 received during the year 80,000
iii. Assessed income for the financial year 2019 – 20 2,40,000

1FIN BY INDIGOLEARN 4.58

 You are requested by the assessee to compute relief under section 89 of the
Income-tax Act, 1961 in terms of tax payable for assessment year 2024-25.
The rates of income tax for the assessment year 2020-21 are:
Particulars ₹
On first ₹ 1,80,000 Nil
On ₹ 1,80,000 – ₹ 5,00,000 10
On ₹ 5,00,000 – ₹ 8,00,000 20
Above ₹ 8,00,000 30
Education cess 3

23. Mr. Mayur is a production manager of M/s Iron & Ore Co. Ltd. During the financial
year 2023-24, he gets the following emoluments from his employer:

Basic Salary
Up to 31.7.2023 ₹ 22,000 p.m.
From 01.8.2023 ₹ 26,000 p.m.
Transport allowance ₹ 1,800 p.m.
Contribution to recognised provident fund 15% of basic salary
Children education allowance ₹ 400 p.m. per child for two children
City compensatory allowance ₹ 500 p.m.
Hostel expenses allowance ₹ 420 p.m. per child for two children
Tiffin allowance (actual expenses ₹ 4,300) ₹ 6,000 p.a.
Tax on employment paid by the employer ₹ 2,200

Compute taxable salary of Mr. Mayur for the Assessment year 2024-25.

1FIN BY INDIGOLEARN 4.59

 Chapter 5
Income from House
Property
Before we Begin,

Taxation on income from house property is an essential aspect of any country's tax
system. As individuals and businesses invest in residential and commercial properties, the
income generated from such properties becomes subject to taxation. This chapter delves
into the fundamental concepts of taxing income from house property, providing readers
with a comprehensive understanding of the taxation rules, exemptions, and deductions
applicable to this particular stream of income.
The Scope of this Chapter further more clarifies on the aspects of:
• When Income from House Property is Charged to Tax?
• What is Composite Rent and its tax treatment
• Tax treatment on recovery of unrealized rent and arears of rent received
• Computation of Income from Co-Owned Property

Happy learning!

1FIN BY INDIGOLEARN 5.1

1. BASIS OF CHARGE {SEC-22}:

➢The Annual value of property consisting of any building or lands appurtenant thereto
of which the assessee is the owner is chargeable to tax under the head "Income from
House Property".

➢Where the property is occupied by the assessee for the purpose of any business or
profession carried on by him or engaged in the business of letting out of properties,
the profits of which is chargeable to tax, shall not be taxable under the head
"Income from house property”.

No
Property= Building/ Income from such property is not taxable
Appurtenant land? under this head

Yes

No
Assessee= owner
of such property?

Yes

Such property used No

Income from such property is taxable
for assessee’s
under this head
business/profession?

Yes

Profits from such business/

profession chargeable to
tax? No

Yes

Income from such property is not

taxable under this head

1FIN BY INDIGOLEARN 5.2

2. CONDITIONS FOR TAXING THE INCOME UNDER THIS HEAD:
➢ The basis of chargeability under the head income from house property is Annual
Value.
➢ The property must consist of Building or Land Appurtenant thereto.
➢ The assessee must be the owner of such property.
➢ The property may be used for any purpose other than the assessee business or
profession.

Annual Value

Conditions for
Other than Building/
taxing income
business/ Land
under this
profession Appurtenant
head

Assessee must
be the owner

Analysis of Conditions for Chargeability:

➢ Property should consist of any building or land appurtenant thereto:

❖ The word building is wide enough to include residential house (whether let out
or self-occupied), building let out for office use or for use as factory, music
halls, dance halls, lecture halls, public auditorium used for cinema and stage
shows.
❖ Existence of roof is not a pre-requisite to term storage a property as building.
❖ A large stadium or an open-air swimming pool would also be treated only as
building, since the structure is permanent.
❖ Building need not be constructed of stone or bricks. They may be wood also.
❖ Even structures erected for a temporary purpose may be regarded as building.
❖ An incomplete house or house in ruins which is not inhabitable cannot be called
as building.

1FIN BY INDIGOLEARN 5.3

 ➢ What do we mean by land appurtenant to building?

Appurtenant land

W.r.t Residential building W.r.t Non-residential building

Approach road from or to street

Compounds
Court yards Car-parking
Back yard Play-ground for benefit of
employees
Play ground
Road-connecting one
Kitchen garden department with another
Motor garage
Stable
Coach-home
Cattle shed

Income from vacant plot of land

Vacant plot of land cannot be regarded as land appurtenant to building. Hence, any
income from such land shall be chargeable to tax U/H Income from other sources or
Profits and gains from business or profession, as the case may be.

➢ Assessee must be the owner of the property:

❖ Owner is the person who is entitled to receive income from the property in his
own right.
❖ The requirement of registration of the sale deed is not warranted.
❖ Ownership includes both free-hold and lease-hold rights.
❖ Ownership includes deemed ownership.
❖ Ownership need not extend to site
❖ The person who owns the building need not also be the owner of the land upon
which it stands.
❖ The assessee must be the owner of the house property during the PY. It is not
material whether he is the owner in the assessment year.
❖ If the title of the ownership of the property is under dispute in a court of law,
the Income-tax Department is authorized to take decision as to who will be the

1FIN BY INDIGOLEARN 5.4

 owner chargeable to income-tax u/s 22, till the court gives its decision to the
suit filed in respect of such property.

➢Use of Property:

The property may be used for any purpose, but it should not be used by the
owner for the purpose of any business or profession carried on by him, the
profits of which are chargeable to tax.
The income earned by an assessee engaged in the business of letting out of
properties on rent would be taxable as business income

➢ Property held as stock-in-trade etc.

Annual value of house property will be charged under the head “Income from
house property”, where it is held by the assessee as stock-in-trade of a business
also.
However, the annual value of property being held as stock in trade would be
treated as NIL for a period of TWO years from the end of the financial year
in which certificate of completion of construction of the property is obtained
from the competent authority, if such property is not let-out during such period
[Section 23(5)].

3. EXCEPTIONS:
➢ Letting out is supplementary to the main business:

❖ Where the property is let out with the object of carrying on the business of
the assessee in an efficient manner, then the rental income is taxable as
business income, provided letting is not the main business but it is
subservient/incidental/supplementary to the main business.

❖ In such a case, the letting out of the property is supplementary to the main
business of the assessee and deductions/allowances have to be calculated as
relating to profits/gains of business and not relating to house property.

❖ Where the premises of the assessee are given to any Government agency for
locating a branch of a bank, police station, etc., for the purpose of running the
business of the assessee more efficiently, then the rental income in such a case
would be taxable as business income.

Note:
➢ Owner of the H.P should have nexus with business which is carried in the H.P. Then
only it is not taxable under this head.
➢ If the rent is only for letting out the roof and use of the space for erecting the
hoarding, it is not a building, nor is it land appurtenant thereto. The rent will be

1FIN BY INDIGOLEARN 5.5

 taxable under the head, Income from Other Sources. - Mukherjee Estate (P. )Ltd. v.
CIT (2000) 244 ITR 1 (Cal).
➢ Property owned by the partner and used by the firm for the purpose of its business,
is not assessable to tax u/s 22.
➢ Property owned by HUF and used by the firm in which members are partner, shall not
be assessed to tax.
➢ Income in foreign currency is to be converted into Indian rupee using the telegraphic
buying rate of such currency on the last day of previous year (Rule 115).

4. LOCATION OF PROPERTY VIS A VIS CHARGEABILITY:

House property

In India Outside India

Income deemed to accrue Rent received outside

Rent received in India
/arise in India u/s 9(1) (i) India

Indian Income Foreign Income

Taxable only for

Taxable for all Resident and ordinarily
resident

5. DEEMED OWNER {SECTION 27}:

It is legal owner of a house property who is chargeable to tax in respect of property
income. However, sometimes taxability casts on a person other than registered owner
i.e., beneficial owner. These circumstances are stated in Sec. 27. They are deemed to be
the owners even though the property is not registered in their name.
For the purpose of sections 22 to 26, the following persons shall be deemed to be
the owner of House property:

➢ Transfer to spouse or Minor child {Sec 27(i}):

An individual, who transfers house property to the spouse without adequate
consideration or without an agreement to live apart or to a minor child other than a
minor married daughter, is deemed as owner of such transferred property;
In short, conditions are:
❖ The taxpayer is an individual.

1FIN BY INDIGOLEARN 5.6

 ❖ He or she transfers a house property.
❖ The property is transferred to his/ her spouse (not being a transfer in
connection with an arrangement to live apart) or to his / her minor child
(not being a minor married daughter)
❖ The property is transferred without adequate monetary consideration.

➢ Holder of impartible estate {Sec27(ii)}:

The holder of impartible estate is deemed to be the owner of all the properties
comprised in the estate;
After enactment of the Hindu Succession Act, 1956, all the properties
comprised in an impartible estate by custom is to be assessed in the status of
a HUF. However, section 27(ii) will continue to be applicable in relation to
impartible estates by grant or covenant.
➢ Property held by a member of Co-operative society / Company / AOP
{Sec27(iii)}:
At the time of becoming a member in a co-operative society, company, AOP, firm
or BOI, any building or part thereof is allotted to a person, then such person
shall be deemed as owner of the building;

➢ A Person who has acquired a property under a Power of attorney transaction

{sec 27(iiia)}:
If a person has acquired a property under a 'power of attorney transaction' by
satisfying the conditions of section 53A of Transfer of property Act, he is
deemed as owner of the property, although he may not be the registered owner
of the property.

➢ Section 53A of the Transfer of Property Act requires the following conditions:
❖ There is an agreement in writing b/w the purchaser & seller though sale
deed is
not executed.
❖ The purchaser has paid the consideration, or he has promised to pay the
consideration.
❖ The purchaser has taken the possession of the property.

➢ A Person who has acquired a right in a building u/s 269UA(f) {Sec 27(iiib)}:
❖ Where the property is given on lease and the lease period is atleast 12
years, then the lessee shall be deemed to be the owner of such property.
❖ The position will be the same, even if the original lease period is less than
12
years but along with the period of extension is not less than 12 years.
❖ In the following cases only, the lessor will be regarded as owner:
i. Month to month lease

1FIN BY INDIGOLEARN 5.7

 ii. Lease for a period of less than one year

6. COMPOSITE RENT:
➢ Meaning of composite rent: The owner of a property may sometimes receive
rent in respect of building as well as:
➢ other assets like say, furniture, plant and machinery;
➢ For different services provided in the building, for e.g.
▪ Lifts;
▪ Security and
▪ Power backup etc
➢ The amount so received is known as composite rent.

1FIN BY INDIGOLEARN 5.8

Composite rent tax treatment at a glance

Composite Rent

Composite Rent= Rent of a Composite Rent= rent of letting out

building and charges of of building and rent of letting out of
different services other assets

Amount of Letting out of

Rent of
rendering building and other
building
services assets

Charged to Charged to Are not

Are separable
tax u/s 22 tax u/s 28/56 seperable

Income is
Income from Income from taxable u/s
letting out of letting out of 28/56
building other assets
charged to charged to
tax u/s 22 tax either u/s
28/56

Example:
Furnished guest
accomodation,
well equiped
theatre, Air
conditions,
furnished
lecture hall

Section 22 - Income from House Property

Section 28 – Profits and Gains from Business and Profession
Section 56 – Income from other sources

1FIN BY INDIGOLEARN 5.9

7. DETERMINATION OF ANNUAL VALUE:

➢Meaning of Annual value: [Section 23(1)]:

The annual value of the property is deemed to be the sum for which the property
might reasonably be expected to be let out from year to year.
For determining the annual value, the following factors are necessary:
➢ Actual rent: The actual rent received in respect of an accommodation is an
important factor to arrive at the annual value.
➢ Fair rent (FR): This is the rent that can be realized from a similar property in
the same locality.
➢ Municipal value (MV):
❖ It is the value determined by the municipal authorities for levying municipal
taxes on house property.
❖ For the purpose of determination of the annual value we have to consider the
gross municipal value.
❖ If in the problem the net municipal value is given i.e. after deducting the
municipal taxes, we have to add the municipal taxes to the net municipal value
and thus the gross municipal value is arrived.
➢ Standard rent (SR): It is the maximum rent which a person can recover from the
tenant under the Rent Control Act.
➢ Annual rent: This is the rent received or receivable by the owner from the
property for the year.
➢ Expected rent (ER): Expected Rent is:
Step 1: Higher of –
a) Fair rent [AND]
b) Municipal value,
Step 2: Lower of -
a) Step 1 [AND]
b) Standard Rent,
Note:
➢ A non-refundable deposit- will be included in rent received on pro rata basis.
➢ A refundable deposit cannot, be included in rent received
➢ Commission paid by the owner of property to a broker for rental income is not
deductible.

Computation of Income from a let-out house property:

Particulars ₹
Gross Annual value xxx
Less: Municipal taxes paid by the assessee during the previous year (xxx)

1FIN BY INDIGOLEARN 5.10

 Net annual value xxx
Less: Deductions u/s 24 - Standard deduction (xxx)
(30% of net annual value)
Interest on borrowed capital (xxx)
Income or loss from house property xxx

➢Treatment of Unrealised rent (UR):

It is the rent which the owner could not realize i.e., the tenant has not paid rent
to the owner, i.e., the actual rent received / receivable shall not include the amount of
rent which the owner cannot realize.
➢ The UR shall be excluded from the actual rent received or receivable by the
owner if the following conditions are to be satisfied: {Rule 4 of the Income-tax rules,
1962}
❖ Tenancy is bonafide.
❖ The defaulting tenant has vacated, or steps have been taken to compel
him to vacate the property.
❖ The default tenant is not in occupation of any other property of the
assessee.
❖ The assessee has taken all reasonable steps to institute legal
proceedings for the recovery of the unpaid rent or satisfies the
Assessing Officer that legal proceedings would be useless.

➢Loss due to vacancy: In this case the property is not let-out. The property remained
vacant throughout the year or a part of the year.
➢
➢Municipal taxes: Municipal taxes (including service taxes) levied by the Local
Authority in respect of the house property are deductible only if:
i. these taxes are borne by the owner, and
ii. are actually paid by him during the previous year (the tax may be for the
same year or any other year), i.e., deduction is allowed in the year which it
is paid and not for the year which it is paid.
iii. If the property is situated in a foreign country, municipal taxes levied by
foreign local authority are deductible (if such taxes are paid by the owner).
➢Deductions u/s 24:

➢ (a) Standard deduction: 30% of net annual value is deductible irrespective of

any expenditure incurred by the taxpayer. Deduction is not allowed in the following
cases:
(i) In case of self-occupied properties or

1FIN BY INDIGOLEARN 5.11

 (ii) In case of property held as stock-in-trade and the whole or any part
of the property is not let out during the whole or any part of the previous year, upto
2 years from the end of the financial year in which certificate of completion of
construction of the property is obtained

(b) Interest on borrowed capital: Interest on borrowed capital (of

the current years and preconstruction period) is deductible on accrual basis, if capital
is borrowed for the purpose of purchase, construction, repair, renewal or
reconstruction of the house property.
* Interest payable on a fresh loan taken to repay the original loan
raised earlier for the aforesaid purposes is also admissible as a
deduction. *

1FIN BY INDIGOLEARN 5.12

Interest of pre-construction period:

Interest on borrowing

Relating to pre-construction Relating to post construction

period period

Discussed below Deductible on Accrual basis

Pre-construction period:

•Date of repayment
Date of (DOR)
Borrowing •Date of completion of Whichever is
(DOB) construction/ Date of earlier
Acquisition / purchase

31st of March

Pre construction period interest deductible in five equal installments commencing from
the year in which acquisition or construction is completed.

1FIN BY INDIGOLEARN 5.13

Case I: When the house property is let out:

Gross Annual
Value (GAV

Where there Where there

was no was vacancy
vacancy period period

Expected Rent Rent Received Expected Rent Rent Received

Compare

When rent When rent

received is < received is
Expected Rent >Expected Rent

Due to Vacancy Due to other

Rent Received
Period only reasons

Whichever
is Higher Rent Received Expected Rent

GROSS ANNUAL VALUE

1FIN BY INDIGOLEARN 5.14

Notes:
1. Rent received (when there is no vacancy period) = Annual rent – unrealised rent (if
all required conditions for its deduction are satisfied).
2. Rent received (when there is vacancy period) = Annual rent – unrealised rent (if all
required conditions for its deduction are satisfied) – vacancy period rent.
3. If rent received is less than expected rent due to other reasons then GAV = ER
4. Apart from vacancy period, the other reasons due to which rent received can be
lower than notional rent, are:
a) Annual rent being less than expected rent.
b) Annual rent – unrealised rent, being less than expected rent.

➢ Interest of pre- construction period is deductible in 5 equal annual installments

commencing from the year of acquisition or completion of construction.
➢ For this purpose, "pre-construction period" means the interest from the date of
borrowal of the loan' up to the end of the financial year immediately preceding the
financial year in which acquisition was made or construction was completed.
➢ For e.g., Where an Individual has taken loan on 1/6/2007 & completed construction
on 1/6/2009. Then the interest for the period commencing from 1/6/2007 to
31/3/2009 shall be treated as "Prior period Interest"- & shall be allowed in 5 equal
annual installments. Whereas Interest expense from 1/4/2009 till financial year end
date is allowed as full.

Case II: When the house property is self-occupied or unoccupied property: -

➢ If the assessee has more than one house and occupies them for self-residential
purposes, then such houses are called self-occupied house properties.
* “Unoccupied property” refers to a property which cannot be occupied by the
owner by reason of his employment, business or profession at a different place
and he resides at such other place in a building not belonging to him. *
➢ At the option of the assessee out of those self-occupied house properties, TWO
houses are treated as self-occupied house property and the remaining houses are
deemed to be let out.
➢ Benefit of self-occupancy of TWO HOUSES shall be given only to Individual/HUF.
In case of self-occupied property, NAV shall be considered as nil.
Notes:
➢ In the case of property referred to in Sec. 23(2) [self-occupied or unoccupied
property] deduction in respect on interest on borrowed capital shall not exceed
30,000 in aggregate for one or two self-occupied properties.
➢ Interest on borrowed capital [in respect of the property referred to in Sec. 23(2)]
is deductible upto 2,00,000 in aggregate for one or two self-occupied properties
subject to the fulfillment of the following conditions:

1FIN BY INDIGOLEARN 5.15

 i. Capital is borrowed on or after 1st April, 1999 for acquiring or constructing a
property.
ii. The acquisition or construction should be completed within 5 years from the end
of FY in which the capital was borrowed.
➢ Where capital is borrowed for repairs, renewals or reconstruction of the property
30,000 in aggregate for one or two self-occupied properties is deductible.
➢ The total interest deduction under the above 3 cases CANNOT EXCEED
Rs.2,00,000.
➢ If any loan is taken from provident fund which is used for purchase or construction
etc of house property, the interest foregone attributable assessee's contribution
will be allowed as deduction.
➢ Interest payable outside India is not allowed to be deducted under Section 24 unless
tax is -deducted at source before making such payments. (Sec.25)
➢ If any brokerage or commission is paid for arrangement of loan, it will not be allowed
as deduction.
➢ Interest on interest is not allowable.

Case III: When House Property is partly self-occupied and partly let out:
If the house is having independent residential units, one of which is self-occupied for own
residential purposes and the remaining are let out:
➢ For the unit which is self-occupied: Same as Point II (Self occupied case), For the
other units which are let out: Same as Point I (Let out case)
➢ Municipal valuation/fair rent/standard rent - can be apportioned based on plinth area
or built-up floor space or on such other reasonable basis.
➢ Property taxes - can be bifurcated as attributable to each portion or floor.

Case IV: When property is self-occupied for a part of the year and let out for
remaining part of the year:
➢ In this case, income will be computed as IF PROPERTY IS LET OUT.
➢ For the purpose of annual value computation, the annual rent will be considered to
the extent of the let out period only.

1FIN BY INDIGOLEARN 5.16

Case V: In case of deemed to be let out property
➢ Where the assessee owns more than TWO properties for self- occupation, then the
income from any TWO properties, at the option of the assessee, shall be computed
under the self- occupied property category and their annual value will be nil and the
other properties shall be deemed to be let-out.
➢ Option can be changed year after year.
➢ In case of deemed let-out property income will be computed in the same way how it is
computed when the property is let out.

8. CO-OWNERSHIP {SEC 26}:

➢ If a house property is owned by two or
more persons, then such persons are known
as co-owners.
➢ If respective shares of co-owners are
definite and ascertainable, such persons
shall not, in respect of such property be
assessed as an AOP, but the share of each such person in the income from the
property as computed in accordance with Sec.22 to 25 shall be included in his
total income.
➢ Where the house property owned by co-owners is self-occupied by each of the
co-owners, each co-owner shall be entitled to a deduction of 30,000 / 2,00,000,
as the case may be, under section 24(b) on account of interest on borrowed
capital. (Co-owned property + Any other self – occupied property)

9. INADMISSIBLE DEDUCTIONS {SEC 25}

Interest chargeable under this Act which is payable outside India shall not be
deducted if –
(a) tax has not been paid or deducted from such interest and
(b) in respect of which there is no person in India who may be treated as an agent

10. PROVISION FOR ARREARS OF RENT AND UNREALIZED RENT RECEIVED

SUBSEQUENTLY [SECTION 25A]
(i) As per section 25A(1), the amount of rent received in arrears from a tenant or
the amount of unrealised rent realised subsequently from a tenant by an assessee
shall be deemed to be income from house property in the financial year in which
such rent is received or realised, and shall be included in the total income of the
assessee under the head “Income from house property”, whether the assessee is
the owner of the property or not in that financial year after reducing standard
deduction @30%.

1FIN BY INDIGOLEARN 5.17

 PROBLEMS

1. Mr. Shivang owns one residential house in Pune. The house is having two identical units.
First unit of the house is self-occupied by Mr. Shivang and the other unit is rented for
₹ 8,000 p.m. The rented unit was vacant for 3 months during the year. The particulars
of the house for the previous year 2023-24 are as under:
Standard rent ₹ 1,60,000 p.a.
Municipal valuation ₹ 1,80,000 p.a.
Fair rent ₹ 1,72,000 p. a
Municipal tax (Paid by Mr. Shivang) 5% of municipal valuation
Light and water charges ₹ 500 p.m.
Interest on borrowed capital ₹ 1,200 p.m.
Insurance charges ₹ 5,500 p.a.
Repairs ₹ 15,000 p.a.

2. X (66 years) is the owner of a residential house whose construction was completed on
July 31, 2022. It has been let out for residential purposes from October 1, 2022. The
following information is available from the records supplied by X—

Particulars ₹
Municipal tax (levied by Pune Municipal Corporation @ Rs. 17.5 per
1,70,000
cent)
Market rent of a similar property in Mumbai 26,00,000

Market rent of a similar property in Pune 8,00,000

Annual rent (if there is no vacancy or unrealized rent) 11,75,000

Standard rent under the Pune Rent Control Act 10,50,000

Unrealized rent due from the new tenant (the defaulting new
tenant has still occupied the property and no action has been taken 1,00,000
to compel him to vacate the property)

Loss due to vacancy (the old tenant has vacated the property on
February 1, 2023, and the current tenant has occupied it with
effect from April 11,2022)--
31,507
-loss for 2023-24
10,00,000
-loss for 2022-23

Municipal taxes paid during 2023-24 (including ₹ 70,000 paid by

the tenant and ₹20,000 paid by X as penalty for giving incorrect 1,90,000
information pertaining to municipal tax to municipal authorities)
Interest on loan taken for the construction of the house. Interest
is paid to B Ltd., an Indian company, without deducting tax at 4,00,000
source

1FIN BY INDIGOLEARN 5.18

 Arrears of rent pertaining to 2019-20 recovered on May 10, 2023 80,000

Legal expenditure for recovering arrears of rent 32,000

Taking into consideration the following information, find out net income and tax
liability of X for the assessment year 2024-25—
1. The tenant has deducted a sum of ₹ 25,000 from the rent payable to X for the
year 2023-24 on account of poor maintenance of building.
2. For the previous year 2022-23, X has not claimed deduction of ₹ 50,000 paid by
him on March 31, 2023 on account of municipal tax. He wants to claim deduction
of the same from the income of 2023-24.
3. During the previous year 2023-24, X has paid arrears of interest of ₹ 30,000.
This interest pertains to housing loan which he has taken from B Ltd.

3. Two brothers Arun and Bimal are co-owners of a house property with equal share. The
property was constructed during the financial year 2008-09. The property consists of
eight identical units and is situated at Cochin.
During the financial year 2023-24, each co-owner occupied one unit for residence and
the balance of six units were let out at a rent of ₹ 12,000 per month per unit. The
municipal value of the house property is ₹ 9,00,000 and the municipal taxes are 20%
of municipal value, which were paid during the year. The other expenses were as
follows:
₹ ₹
i. Repairs 40,000
ii. Insurance premium (paid) 15,000
iii. Interest payable on loan taken for construction of house3,00,000
One of the let-out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He
does not own any other house.
Compute the income under the head Income from House Property of two brothers for
the assessment year 2024-25.

1FIN BY INDIGOLEARN 5.19

4. Mrs. Rohini Ravi, a citizen of the U.S.A., is a resident and ordinarily resident in India
during the financial year 2022-23. She owns a house property at Los Angeles, U.S.A.,
which is used as her residence. The annual value of the house is $ 20,000. The value of
one USD ($) may be taken as ₹ 75.

She took ownership and possession of a flat in Chennai on 1.7.2023, which is used for
self-occupation, while she is in India. The flat was used by her for 7 months only during
the year ended 31.3.2024. The municipal valuation is ₹ 3,84,000 p.a. and the fair rent
is ₹ 4,20,000 p.a. She paid the following to Corporation of Chennai:

Property Tax ₹ 16,200

Sewerage Tax ₹ 1,800

She had taken a loan from Standard Chartered Bank in June, 2022 for purchasing
this flat. Interest on loan was as under:
Particulars Amount
Period prior to 1.4.2023 49,200
1.4.2023 to 30.6.2023 50,800
1.7.2023 to 31.3.2024 1,31,300
She had a house property in Bangalore, which was sold in March, 2020. In respect of
this house, she received arrears of rent of ₹ 60,000 in March, 2024. This amount
has not been charged to tax earlier.
Compute the income chargeable from house property of Mrs. Rohini Ravi for the
assessment year 2024-25.

5. Mr. A and B constructed their houses on a piece of land purchased by them at New
Delhi. The built up area of each house was 1,000 [Link] ground floor and an equal area in
the first floor. A started construction on 01-04-2022 and completed on 01-04-2023.
B started the construction on 01-04-2022 and completed the construction on 30-06-
2023. A occupied the entire house on 01-04-2023. B occupied the ground floor on 01-
07-2023 and let out the first floor for a rent of ₹ 15,000 per month. However, the
tenant vacated the house on 31-12-2023 and B occupied the entire house during the
period 01-01-2024 to 31-03-2024.

1FIN BY INDIGOLEARN 5.20

Following is the other information
(i) Fair rental value of each unit
(Ground floor/First floor) ₹ 1,00,000 per annum

(ii) Municipal value of each unit

(Ground floor/First floor) ₹ 72,000 per annum

A – ₹ 8,000
(iii) Municipal taxes paid by
B – ₹ 8,000
A – ₹ 28,000
(iv) Repair and maintenance charges paid by
B – ₹ 30,000

A has availed a housing loan of ₹ 20 lakhs @ 12% p.a. on 01-04-2022. B has availed a
housing loan of ₹ 12 lakhs @ 10% p.a. on 01-07-2022. No repayment was made by either
of them till 31-03-2024. Compute income from house property for A and B for the
previous year 2023-24 (A.Y. 2024-25).

6. Mr. Vikul acquired a residential house in Delhi at a cost of ₹ 42,00,000 on 01.04.2022,

in respect of which he took a housing loan of ₹ 24,00,000 from Canara Bank @12% p.a
on the same date. There has been no principal repayment upto 31.03.2024.
The house is having two identical units. First unit (area 1200 sq. Ft) of the house is
self- occupied by Mr. Vikul and another unit (area 400 [Link]) is rented for ₹ 6,000 p.m.
from 1st April, 2023. The rented unit was vacant for four months during the year. The
particulars of the house for the previous year 2023-24 are as under:

Standard Rent ₹ 2,30,000 p.a

Municipal Valuation ₹ 2,67,000 p.a

Fair Rent ₹ 2,48,000 p.a.

Municipal tax paid by Mr. Vikul - 12% of the Municipal Valuation

Light and Water charges ₹ 8,000 p.a.
Insurance charges ₹ 7,500 p.a.
Painting expenses ₹ 50,000 p.a.
Compute income from house property of Mr. Vikul for the A.Y.2024-25.

1FIN BY INDIGOLEARN 5.21

 PGBP
Profits and Gains from Business or Profession

Basis of
Charge Basic
Principles for
Presumptive
arriving at
Taxation
Business
income

Relevant
Compulsory
method of
Audit
Accounting

Compulsory
PGBP Scheme of
maintainance
business
of Books of
Deductions
Accounts

Undisclosed
Specific
Incomes/Inve
Deductions
stments

Deemed Specific
Profit Disallowances

1FIN BY INDIGOLEARN 6.1

List of Sections:
Sections Particulars
28 Chargeability/Scope of income under this head
29 Computation of Income from Profits and Gains of Business or Profession
30 Rent, Rates, Taxes, Repairs and Insurance for buildings
31 Repairs and Insurance of Machinery, Plant and Furniture
32 Depreciation
32 AC Investment allowance@15%
33AB Tea Development Account/Coffee Development Account and Rubber Development Account
33ABA Site Restoration Fund
33AC Reserves for Shipping Business
35 Expenditure on Scientific Research
35ABB Expenditure for obtaining license to operate telecommunication services
35AD Special deduction for special business
35AC Expenditure on eligible projects or schemes
35CCA Expenditure by way of payment to association and institutions for rural development
programmes
35D Amortization of certain preliminary expenses
35DD Amortization in case of amalgamation or demerger
35DDA Amortization of expenditure income under voluntary retirement scheme
35E Deduction for expenditure on prospecting etc., for certain minerals
36 Other deductions
37(1) General deductions
37(2B) Advertisement to political parties
38 Building, etc., partly used for business, etc., or not exclusively so used
40 Amounts not deductible
40A Expenses or payments not deductible in certain circumstances
40A(2) Payments to relatives
40A(3) Disallowance of 100% of expenditure if payment is made by any mode other than account
payee cheque or draft
40A(7) Disallowance in respect of provision for gratuity
40A(9) Disallowance in respect of contribution to Non-statutory Funds
41 Deemed profits chargeable to tax
43CA Stamp duty value of land and building to be taken as the full value of consideration in
respect of transfer, even if the same are held by the transferor as stock-in-trade
43(5) Trading in commodity derivatives not a speculative transaction
44AA Maintenance of accounts by certain persons carrying on business or profession
44AB Compulsory audit of accounts
44AD Presumptive Income of specific business or profession.
44AE Special provisions for computing profits and gains of business of plying, hiring or leasing
goods carriages
44B Special provisions for computing profits and gains of shipping business in the case of non-
residents
44BB Special provisions for computing profits and gains in connection with the business of
exploration, etc., of mineral oils

1FIN BY INDIGOLEARN 6.2

44BBA Special provisions for computing profits and gains of business of operation of aircraft in
the case of non-residents
44BBB Special provisions for computing profits and gains of foreign companies engaged in the
business of civil construction, etc., in certain turnkey power projects
44C Deduction of head office expenditure in the case of non-residents
44D Royalty or technical fee derived by a foreign company from Government or Indian concern.
44DA Dividend or technical fee derived by a foreign company from Government or Indian concern
in pursuance of an approved agreement.
145 Method of accounting
145A Method of accounting in certain cases

COMPUTATION OF INCOME UNDER THE HEAD PROFITS AND GAINS OF

BUSINESS AND PROFESSION [SECTION 29]

Section P&L Item Conditions / Restrictions

Net Profit as per Profit and Loss Account
Less : Allowable Expenditure not Debited to Profit & Loss Account
30 Rent, Rates, Taxes, Repairs and Current Repairs of Capital Nature not allowed
Insurance for Building as Deduction
31 Repairs & Insurance for Current Repairs of Capital Nature not allowed
Machinery, Plant & Furniture as Deduction
32 Depreciation 1. Conditions for Claim: (a) Ownership, (b)
Use, (c) Block of Assets, (d) Mandatory.
2. Method: (a) SLM Optional for Tangible
Assets of Power Sector Units, (b) WDV
Method in all other cases.
3. Newly acquired assets during current PY
put into use for less than 180 days,
entitled for depreciation at 50% of
Normal Rate.
4. Balance Additional Depreciation
allowable in next PY: If Additional
Depreciation is restricted to 50% of
allowable amount since used for < 180
days, the balance 50% shall be allowed
u/s 32 in the immediately succeeding
previous year in respect of such asset.
[w.e.f. 01.04.2016]
5. Additional Depreciation: 20% of Actual
Cost of Machinery or Plant (10% if used
for < 180 days).
6. Days Ratio apportionment for
Succession/Business Re-organisation.
7. STCG/STCL on Sale of Depreciable
Assets u/s 50

1FIN BY INDIGOLEARN 6.3

 8. Unabsorbed Depreciation carried
forward for any number of years & set
off against any Income.

35 Expenditure on Scientific
Research
(A) In-House Research Revenue (or) Capital Expenditure and Prior
Period Expenditure of 3 years Fully allowed
as Deduction in the year of Commencement of
Business
(B) Deduction on In-House > 100% of Revenue or Capital Expenditure
Research by Company engaged incurred (except land and Building) is allowed.
in Bio-Technology or of Building is 100% allowed, prior period
Manufacture or Production of Expenditure is 100% allowed
any article or thing (not > The prescribed authority shall submit its
specified in XI Schedule) report in relation to the approval of the said
facility to PCCIT/CCIT/PDGCIT/DGCIT
(C) Deductions for Payment made to the following, deduction is
contributions 100% allowed
• Any research Association (or) University
/ College, etc for scientific research
• Company approved by prescribed
authority for Scientific R&D
• Any research Association (or) University
/ College, etc for social science and
statistical research
• National Laboratory, University, IIT,
Specified Person
35AD Expenditure for Specified • General: 100% of Capital Expenditure
Business - incurred, except on Land, Goodwill or
a) Cross Country Natural Gas Financial Instrument.
Pipe Line Network • Prior Period Expenditure: 100% allowed,
b) Cold Chain Facility, Ware if capitalized in Books.
Housing Facility for • No other deduction allowed for same
Storage of Agricultural expenditure. Provisions of 80A and 80-
Produce. IA shall apply for goods in specified
c) Building 2 Star Hotel, business.
Hospital with atleast 100 • No Double Deduction: For Assessee
beds, Housing Project for claiming deduction u/s 35AD, no
Slum Redevelopment deduction shall be allowed u/s 10AA or
d) Developing & Building a Chapter VI-A "C Deductions in respect
Housing Project under a of Certain Incomes".
scheme framed by CG/SG • Usage: Any asset in respect of which a
e) Production of Fertilizer in deduction is claimed and allowed u/s
India 35AD shall be used only for the
f) Setting up and Operating Specified Business, for 8 years beginning
Inland Container Depot or

1FIN BY INDIGOLEARN 6.4

 Freight Station, Bee- with the previous year in which such
keeping, Warehousing asset is acquired or constructed.
Facility for Storage of • No Deduction in case of cash payments
Sugar exceeding 10,000: Capital Expenditure
g) Laying and operating a in respect of which, payment or
Slurry Pipeline for the aggregate of payments made to a person
transportation of Iron Ore in a day, exceeding 10,000 is made
h) Setting-up and operating a otherwise than by an A/c Payee. Cheque
Semi-Conductor Wafer drawn on a Bank or an A/c Payee Bank
Fabrication Manufacturing Draft or use of ECS, through a Bank
Unit, and which is notified account or such other electronic mode as
by CBDT may be prescribed is disallowed.
(i) w.e.f. 01.04.2018 • Taxable for non-usage of Asset:
Business of developing or a. Situation: Asset used for other
maintaining and operating purpose during the 8-year period
or developing, maintaining except demolished / discarded /
and operating a New destroyed / transferred as referred
Infrastructure Facility u/s 28(vii).
b) Taxable Amount: Total Amount of
deduction claimed and allowed in one
or more previous years, as reduced by
the amount of Depreciation Allowable
u/s 32, shall be deemed to be the
Income of the Assessee, as if no
deduction u/s 35AD was allowed.
c) Manner of Charge: It is chargeable as
"PGBP" of the previous year in which
the asset is so used.
d) Exception: The above shall not apply
to a Company which has become a Sick
Industrial Company u/s 17(1) of the
Sick Industrial Companies (Special
Provisions) Act, 1985, during the 8-
year period.
35D / Amortisation of preliminary • For Indian Companies: 5% of Cost of
Rule 6 AB Expenses incurred for setting Project, or 5% of Capital Employed.
up or extension undertaking or • Resident Non-Corporates: 5% of Cost of
business unit Project.
• Time Period: Amortised in 5 equal
instalments.
35DDA Amortisation of Expenditure • Allowed in 5 installments after the
incurred under VRS Payment was made
• Deduction to resulting business entity in
case of business Re-organisation
36(1)(i) Insurance Premium of Stocks Allowed on Payment basis.
36(1)(ia) Insurance Premium on Life of Allowed on Payment basis - for Federal Milk
Cattle Co-operative Society.

1FIN BY INDIGOLEARN 6.5

 36(1)(ib) Insurance on Health of Allowed on Payment basis. Payment in any
Employees mode other than Cash.
36(1)(ii) Bonus or Commission to Allowed when paid before due date of filing
Employees Return [Sec.43B]
36(1)(iii) Interest on Borrowed Capital Allowed when paid before due date of filing
Return in respect of Loans from Financial
Institutions / Banks.
36(1)(iiia) Discount on Zero Coupon Bonds • Applicable for Infrastructure Capital Co.
/ Fund, Public Sector Co & Scheduled
Bank.
• Written off over the period of the Bond.
36(1)(iv) Employer's Contribution to a Allowed when paid on or before due date of
RPF / Approved Superannuation filing Return of Income [Sec.43B]
Fund
36(1)(iva) Contribution towards Pension Contribution should not exceed 10% of the
Scheme u/s 80CCD Salary.
Salary includes DA if the terms of
employment so provide, but excludes all other
Allowances and Perquisites.
36(1)(v) Employer's Contribution an Allowed when paid before due date of filing
Approved Gratuity Fund Return [Sec.43B]
36(1)(va) Recoveries from Employees Paid before the prescribed due date
towards Welfare Funds (including grace days) under the respective
Act [ESI / EPF, etc.]
36(1)(v) Allowance in respect of dead or Cost of Animal Less Insurance Claim or any
permanently useless animals other receipt. No amortization of cost is
allowed.
36(1)(vii) Bad Debts Revenue Bad Debts subject to write-off in
the books of accounts.
36(1)(ix) Expenditure on promoting • Allowable only for Companies.
Family Planning amongst the • Revenue Expenditure is fully allowed.
Employees • Capital Expenditure is allowed in five
equal installments.
36(1)(xiii) Banking Cash Transaction Tax Allowed as a deduction
paid
36(1)(xv) Securities Transaction Tax Fully allowed as deduction only when paid if
Paid Income from such
transaction is included as PGBP.
36(1)(xvi) Commodities Transaction Tax • Taxable Commodities Transactions should
Paid be entered into in the course of the
Assessee's business during the previous
year
• Income arising from such transactions is
included as PGBP.

1FIN BY INDIGOLEARN 6.6

 36(1)(xviii) Deduction in respect of Deduction in respect of any Marked to
Marked to Market Loss or market loss or other expected loss shall be
other Expected Loss allowed, if the same is computed in
accordance with the Income Computation and
Disclosure Standards notified u/s 145(2).
37(1) General Deductions Revenue Expenses, wholly and exclusively non-
personal, related to Business and not
contrary to provision of law, fully allowed.
CSR expenditure u/s 135 of the Companies
Act, 2013 is not allowed.
Add: Inadmissible Expenditures debited in Profit and Loss Account
37(2B) Advertisement in Political Fully disallowed
Parties'
Souvenir, Brochure, Pamphlet,
etc.
38 Building, etc. partly used for Proportionate Depreciation and Expenses
business used for non-business purpose disallowed.
40(a)(i) Payments of Interest, Royalty, a) Payable outside India or (b) In India to a
Fees for Technical Services or Non-Resident (not being a Company) or
other sum (c) to a Foreign Company without TDS,
entire expenditure is not allowed.
b) W.e.f. AY 2020-2021, Where an
Assessee fails to deduct tax at source
but is not deemed to be an Assessee in
Default u/s 201(1), then it shall be
deemed that the Assessee has deducted
and paid the tax on such sum, on the date
of furnishing of Return of Income by the
Payee.
40(a)(ia) Any Payment made to a 1. 30% of the Expense will not be allowed.
Resident, 2. Allowable in the year of remittance of
on which Tax is deductible, but TDS.
tax Note: If Payer fails to deduct TDS but is
has not been deducted / after not deemed to be an assessee in default u/s
deduction, tax has not been 201(1), it is deemed that TDS is deducted
paid before the due date of and paid on the date of furnishing Return of
furnishing Return u/s 139(1). Income by the Resident Payee.
40 (a) (ii) Rates or Taxes levied on Not allowed as deduction. (Including tax paid
Profits or Gains of any business abroad, eligible for relief / deduction u/s
or profession 90/90A/91)
40(a)(iib) Royalty, License Fee, Service Fully disallowed
Fee, Privilege Fee, Service
Charge or any other Fee or
Charge levied on, or
appropriated either directly or
indirectly from, State
Government

1FIN BY INDIGOLEARN 6.7

 Undertakings by the State
Govt.

40(a)(iii) Salary paid outside India or to Payment without TDS not allowed
Non-Resident
40(a)(iv) Contribution to Welfare Fund Not allowed
of Employees if no
arrangements for TDS
40(a)(v) Tax on Perquisites paid by Not allowed
Employer
40(b) For Partnership Firm Interest Least of: 12% or as specified in Partnership
Allowable = Deed.
40(b) For Partnership Firm, Book profit---------------Max. Remuneration
Remuneration allowable = Least up to 3 Lakhs------------1,50,000 or 90% of
of: following or as per book profit
Partnership Deed or paid on balance---------------60% of book profit
40A(2) Payments to Relatives as Payment considered as excessive or
specified unreasonable shall not be allowed. No
disallowance, if transaction is at Arm's
Length Price as per Sec.92F.
40A(3) & Single or Aggregate Payments Whole of the payment shall be disallowed.
Rule 6DD in Expenditure allowed on due basis but
respect of allowable aggregate payments made in subsequent P.Y.s
expenditure in excess of ₹ in excess of ₹ 10,000/35,000 shall be
10,000, (₹ 35,000 if Payment is disallowed.
made for Plying, Hiring or Exceptions given in Rule 6DD
Leasing Goods Carriages) other
than by way of A/c Payee
Cheque or A/c Payee DD/ use
of electronic
clearing system through a Bank
Account or such other
electronic mode as may be
prescribed to a single person
on a single day.
40A(7) Provision for Gratuity. Disallowed, except in case of provision for
contribution to Recognised Gratuity Fund or
actual liability incurred.
40A(9) Contribution to Non Recognised Payment to any Unrecognised / Non-
Funds Statutory Employer Welfare Fund is
disallowed.
Contribution u/s 36(1) (iv) / (iva) / (v) or
under any law, is allowable.

1FIN BY INDIGOLEARN 6.8

 40A(13) Marked to Market Loss or 1. No deduction or allowance shall be allowed
other in respect of any
Expected Loss marked to market loss or other expected loss
except as allowable u/s 36(1) (xviii). Loss can
be allowed only if it is computed accordance
with the provisions of ICDS.
43B Deductions only on actual A. Items covered:
payment. 1. Employers' Contribution to RPF or other
Employee Welfare Funds,
2. Tax, Duty, Cess, etc,
3. Bonus or Commission to Employees,
4. Interest payable to Public Financial
Institution or Scheduled Bank, Co-operative
Bank, Rural Development Bank, NBFC's
5. Leave Salary.
6. Any sum payable by Assessee to the Indian
Railways for use of Railway Assets.
B. Allowability:
•Allowed if paid on or before the due date
for furnishing the Return of Income u/s
139(1).
•Otherwise, it is allowed only in the year of
payment.
Add: Sec.41- Deemed Business Income
Less: Incomes credited in Profit and Loss Account not chargeable to tax under
this head.
• Agricultural Income
• Exempt Income u/s 10
• Income chargeable under the heads Salary, House Property, Capital Gains
or Other Sources
• Any Reserve Withdrawn
• Dividend Income
• Bad Debts Recovered not allowed as deduction in the earlier years
Add: Expenditure debited to Profit and Loss Account not deductible under his
head
• Expenditure on Agricultural Income
• Expenditure incurred in relation to Exempt Income
• Expenditure incurred in relation to other Heads of Income like Salary, HP,
Capital Gains or Other Sources
• Any Reserve created other than allowable Statutory Reserve
• Debits in P&L A/c allowable as Deduction under Chapter VIA
• Capital Expenditure
• Personal expenditure Charities and Donations
• Depreciation as per Books
• Preliminary Expenses in excess of permissible limit
Income chargeable under the head PROFITS AND GAINS OF BUSINESS
OR PROFESSION

1FIN BY INDIGOLEARN 6.9

ADJUSTMENTS FOR SOLVING P&L APPROACH PROBLEMS

S. Accounting Income Tax Treatment

No.
Adjustment for Incomes:
1 It is an income as per Not an Income Such disallowed income has to
Accounting be disallowed from the
accounting profit
2 Not an income as per Income as per Income Such amount has to be added
Accounting Tax to the accounting profit
3 Income as per Accounting Income as per Income No Adjustments
Tax
Adjustment for Expenses:
1 Expense debited to P&L as Expense disallowed Amount to the extent is
per Accounting wholly or partially disallowed has to be added to
the Accounting Profit
2 Expense not debited to P&LAmount has to be Amount to the extent not
as per Accounting ortreated as an expense as considered as expense in
Expense debited to Profit per Income Tax (or) accounting has to be
and Loss less than that ofamount more than that subtracted from Accounting
Income Tax Amount actual has to be treated profit
as an expense in Income
Tax
3 Expense Debited to Profit Same Amount allowed as No Adjustment
and Loss Deduction

1FIN BY INDIGOLEARN 6.10

1. BUSINESS - Sec 2 (13): It includes any trade, commerce, manufacture and any adventure or
concern in the nature of trade, commerce or manufacture.

Business

Any adventure or concern in the

Any trade*, commerce,
nature of trade*, commerce or
manufacture*
manufacture*

Note: Element of profit motive is necessary Note: Element of regularity is not necessary

*Trade: Exchanging Goods for Goods or Money

Note:

Trade

Exchanging goods for Exchanging goods for

goods money

I. It is usually repetitive in nature.

II. Profit motive is essential

* Manufacture:
2. PROFESSION - Sec 2(36): "Profession" includes "Vocation". Thus, the Act does not give exact
definition of the term profession. In common parlance, profession means attainment of academic/
professional qualification and exercise of that qualification so as to earn income. It may, however,
be noted that the income earned by using ability or knowledge acquired because of inborn talent or
skill also be considered as income from profession because as per section 2(36), vocation shall also
be included in the profession.

3. PROFIT
3.1. It can be in cash or kind

1FIN BY INDIGOLEARN 6.11

 3.2. Capital Receipts are not taken into account generally while calculating profits
3.3. Illegality of business/profession does not exempt its profit from Tax
3.4. Profits from distinct business has to be computed separately

4. Sec 28: CHARGING SECTION

S.28 Income under the head "Profits and Gains of Business or Profession"
(i) Profits and Gains of Business or Profession carried on by the Assessee at any time
during the PY.
(ii) Compensation taxable as Business Income: Compensation or other payment for -
(a) Termination or modification of Managing Agent's agreement in relation to an Indian
Company.
(b) Termination or modification of Managing Agent's agreement in relation to any other
Company in India.
(c) Termination or modification of contract relating to an agency in India.
(d) Vesting of management of property or business with Government / Corporation.
(e) at or in connection with the termination or the modification of the terms and
conditions, of any contract relating to business.
(iii) Income received by a Trade or Professional Association, from services rendered to its
members.
Export Incentives taxable as Business Income:
(iii a) Profit on Sale of Import License.
(iii b) Cash Assistance against exports.
(iii c) Duty Drawback.
(iii d) Profit on Transfer of Duty Entitlement Passbook (DEPB) Scheme.
(iii e) Profit on Transfer of Duty-Free Replenishment Certificate (DFRC).
(iv) Value of Benefit or Perquisite arising from Business I Profession, whether convertible
into money or not.

(v) Interest, Salary, Bonus, Commission or Remuneration receivable or received by a Partner

of a Firm, from the Firm in which he is a Partner.

(va) Sum received or receivable in cash or in kind under an agreement for non-competency.
(See Point 6.1.2)
(vi) Sum received under Keyman Insurance Policy, including sum allocated by way of Bonus on
such policy.

(via) Taxability of conversion of Stock-in-trade into Capital Asset:

(a) Nature of Income: Any profit or gains arising from conversion of inventory
into capital asset or its treatment as capital asset shall be charged to tax
as business income.
(b) Value of Consideration: FMV of the inventory on the date of conversion)
treatment determined in the prescribed manner, shall be deemed to be
the full value of the consideration received or accruing as a result of such
conversion or treatment.

1FIN BY INDIGOLEARN 6.12

(vii) Sum received or receivable (in cash or kind) on account of any Capital Asset (other than
Land or Goodwill or Financial Instrument) allowed as deduction u/s 35AD, being
demolished, destroyed, discarded or transferred.

5. BUSINESS INCOME NOT TAXABLE UNDER THE HEAD “PGBP”

Business income not taxable under the head "PGBP"

Rental income in the Dividends on shares in

Winnigs from lotteries,
case of dealer in the case of a dealer in
races etc.
property shares

Assessable under the Assessable under the Assessable under the

head "IFHP" head "other sources" head "other sources"

1FIN BY INDIGOLEARN 6.13

6. METHOD OF ACCOUNTING [S. 145]
Income under the head “Business” is calculated as per regular method of accounting adopted by the
assessee.
Two methods of accounting are prescribed:

7. METHOD OF ACCOUNTING IN CERTAIN CASES: [SEC. 145A]

(a) Applicability: For determining the income chargeable under the head "Profits and gains of

Mercantile

Cash

Method of accounting
business or profession.

(b) Valuation as prescribed under ICDS notified u/s 145(2):

Valuation of Treatment
Inventory Lower of Actual Cost or NRV,
computed as per ICDS

Inventory being- Actual Cost initially recognisedas per

• Unlisted Securities, or ICDS
• Listed Securities, but not quoted on
a recognised stock exchange with
regularity from time to time

Inventory being Securities other than Lower of Actual Cost or NRV,

those referred above computed as per ICDS

(c) Valuation - Inclusive of Taxes: Valuation of Purchase and Sale of Goods or Services, and of
Inventory, shall be adjusted to include the amount of any tax, duty, cess or fee (by
whatever name called) actually paid or incurred by the assessee to bring the goods or
services to the place of its location and condition as on the date of valuation.

1FIN BY INDIGOLEARN 6.14

 (d) Sec. 145B - Taxability of certain income
Nature of Income Deemed to be income in -
Interest received on any Compensation or on the PY in which it is received.
Enhanced compensation

Claim for escalation of price in a contract the PY in which reasonable certainty of

or Export Incentives . its realisation is achieved.
Income being Subsidy or grant or Cash the PY in which it is received, if not
Incentive or Duty Drawback or waiver or charged to income-tax in any earlier PY.
concession or reimbursement as referred
u/s 2(24) (xviii)

Maintainance of Books of Accounts U/s 44AA

1. Books or Books of Account include Ledgers, Daybooks, Cash Books, Account Books and
Other Books, whether kept in written form or as printouts of data stored in a Floppy, Disc,
Tape or any other form of electro-magnetic data storage device. [Sec. 2(12A)]
2. Document includes an Electronic Record as defined u/s 2(1)(t) of the Information
Technology Act, 2000.
3. Maintenance of Books of Accounts is compulsory in the following cases -

Assessees carrying on profession of - (a) Income under the head Business or

Others
Specified Professionals

(a)Law, Profession exceed Rs. 1,20,000, in any of

the prior 3 years or likely to exceed Rs.
(b)Medicine, 1,20,000 during current previous year in
(c)Accountancy, which business is commenced. [For
Individuals and HUF, the limit is
(d)Engineering/ Architecture, Rs.2,50,000]
(e)Technical Consultancy, (b) Where the Turnover or Sales or Gross
(f)Interior Decoration, Receipts exceeds Rs. 10,00,000 in any of
(g)Authorised Representative, the 3 preceding previous years or likely to
exceed Rs 10,00,000 during current
(h)Film Artist, previous year in which business is
(i)Information Technology commenced. [For Individuals and HUF,
the limit is Rs 25,00,000]
Professionals whose Gross Receipts
exceed Rs 1,50,000, in all the prior three (c) When the Assessee has declared
years or during current previous year in lower income than as prescribed u/s
which business is commenced. 44AE, 44BB, 44BBB,
(d) Eligible Assessee to whom provisions
of Sec.44AD(4) applies, and whose
Income exceeds the maximum amount
which is not chargeable to tax in any
previous year.

1FIN BY INDIGOLEARN 6.15

 4. Books to be maintained: u/r 6F
Nature of Books Who has to Maintain Period for
• Cash Book which to be
kept
• Journal
• Ledger All Professional Assessees.
For a period
• Bills and Vouchers
of 6 years.
• Copies of Bills exceeding ₹ 25
• Daily Case Register (Form 3C) Doctor Only.
Person carrying on medical
• Medicine Inventory Register
profession
5. Consequence of non-maintenance [Sec. 271A]: Failure to keep / maintain / retain books of
accounts, documents, etc. in accordance with Sec. 44AA will attract a penalty of ₹ 25,000.
6. Time Period where assessment has been re-opened: In cases where the assessment in relation
to any assessment year has been re-opened u/s 147, within the period u/s 149, all books of account
and other documents which were kept and maintained at the time of re-opening of the assessment
shall continue to be so kept and maintained till the completion of such assessment.
Tax Audit U/s 44AB
Applicability:
Tax Audit is applicable in the case of Assessee carrying on any Business
(i) Assessee carrying on any Business where Total Turnover or Gross Receipts exceeds ₹1
Crore.
Note - The requirement of audit u/s 44AB does not apply to a person who declares profits and
gains on presumptive basis u/s 44AD and his total sales, turnover, or gross receipts does not
exceed ₹ 2 crore.
Proviso-
No Tax Audit for following category of Assessee Carrying on business where Turnover or Gross
Receipts up to ₹10 Crores [W.e.f 01.04.2021):
A person whose-
a. Receipts - Aggregate of all amounts received including amount received for sales, turnover or
gross receipts during the previous year, in cash, does not exceed 5% of the said amount, and
b. Payments- Aggregate of all payments made including amount incurred for expenditure, in
cash, during the previous year does not exceed 5% of the said payment.
(ii) Assessee carrying on Business referred to u/s 44AE, 44BB, 44BBB and declaring lower
income than prescribed under those Sections.

(iii) Assessee carrying on Business for whom provisions of Sec.44AD(4) are applicable and his
Income exceeds the Basic Exemption Limit in any previous year.
Tax Audit is applicable in the case of Assessee carrying on Profession
(i) Assessee carrying on Profession, where Gross Receipts exceeds ₹50 Lakhs,
(ii) Assessee carrying on Profession, having Income exceeding Basic Exemption Limit, and
declaring income lower than prescribed u/s 44ADA, in any PY

1FIN BY INDIGOLEARN 6.16

2. Audit: Tax Audit shall be conducted by an "Accountant" as explained u/s 288 of the Income
Tax Act.

3. Due Date for Filing of Report: Due date shall be 1 Month prior to the due date of filing
Return of Income.

4. Forms of Report:

5. Other Points:

Nature of Person- In case of a person who

Nature of Person- In case of a person who
carries on business or profession and whose
carries on business or profession but not
books are required to be audited by or
being a person referred to above.
under any law.

Audit Report: Form 3CA Audit Report: Form 3CB

Statement of Particulars: Form 3CD Statement of Particulars: Form 3CD

(a) Turnover: Turnover I Receipts considered for declaration of Presumptive Income u/s 44AD
/ 44AE shall not be considered for determining the prescribed turnover limit u/s 44AB.
(b) Agents: In case of Agents, this Section is applicable only if the Gross Commission exceeds 1
Crore.
(c) Shipping Business and Operating Aircrafts: This Section does not apply to persons who
derive Income referred u/s 44B and 44BBA.
6. Consequence of non - compliance:
(a) Defective Return: If the Audit Report obtained u/s 44AB is not filed on or before the Due
date of filing Tax Audit Report, then the Assessing Officer may treat the return as
Defective Return. Presently, Tax Audit Report should be e-filed, along with the Return of
Income.

(b) Penalty u/s 271B: Failure

Assessee is liable to pay a penalty
• To get accounts audited, at 0.5% of Gross Turnover /
• To obtain an Audit Report required u/s 44AB, or Receipts or Rs 1,50,000 whichever
• To furnish the said report before the due date, is less, subject to Sec.273B.

(c) No penalty shall be leviable, if he proves that there was a reasonable cause of such failure.
[Sec.273B]

1FIN BY INDIGOLEARN 6.17

 Situations considered as "reasonable cause" for Non-Filing of Audit Report:
(a) Resignation of Tax Auditor,
(b) Bonafide interpretation of the term 'Turnover' based on expert advice,
(c) Death or physical inability of the Partner in-charge of the accounts,
(d) Labour problems such as Strike, Lock-Out, for a long period,
(e) Loss of books of accounts by theft, fire, etc. beyond the control of the Assessee,
(f) Non-availability of accounts on account of seizure,
(g) Natural calamities, commotion, etc. "

Rent/Repairs/Insurance/Taxes for buildings

Rent Repairs Others

Revenue Repairs Capital Repairs

Building Given on Allowed as
Sublease Deduction
Deduction allowable If building is used for
as Not allowed as business or
Deduction profession
Actual Rent (-) Rent 1. Assessee must be
Received on Sub owner
Lease (or)
2. Rental Agreement
should specify tenant has
to bear repair cost

Building used for Partly

business and Partly will be allowed as
Personal purpose deduction
Deduction allowable as
Rent in proportionate to
the business allowed as
deduction

Notional Rent
Charged
Not allowed as
deduction (Except for
partnership firm)

1FIN BY INDIGOLEARN 6.18

8. Sec 30: EXPENSES RELATING TO BUILDING USED FOR BUSINESS:
Note: Capital repairs are not allowed. However, depreciation can be claimed on the capital repairs
incurred by the Assessee.
The term ‘paid’ means actually paid/ incurred according to the method of accounting followed by
assessee for computing income U/H PGBP (Sec 43(2)).

9. Sec 31: REPAIRS AND INSURANCE OF PLANT / MACHINERY / FURNITURE

.

Usage

Active Usage Passive Usage

Which is already into which is ready for use

usage but it is unknown
when the need arise

Repairs & Insurance of plant and machinery and Furniture: Should be USED for the purpose of
Business and Profession

10. Sec 32: DEPRECIATION

The claiming of depreciation is mandatory, and depreciation shall be allowed by the AO even if the
assessee does not claim.
Depreciation is allowed not only in respect of assets "wholly" owned by the assessee but also in
respect of assets "partly" owned by him and used for the purposes of his business or profession.
10.1. Conditions for claiming the depreciation:
In order to claim depreciation, the Assessee has to fulfill the following conditions -
a) Ownership: The asset shall be wholly or partly owned by the Assessee.
b) Use: The Assets should be wholly or partly used for the purpose of business
during the previous year.
c) Block of Assets: It shall fall within the classification of Block of Assets.

1FIN BY INDIGOLEARN 6.19

 10.2. Depreciation is allowable on:
➢ TANGIBLE ASSETS:
➢Building
▪ Includes residential quarters occupied by employees of Building includes
assessee if letting of quarters to employees is
subservient and incidental to the business •Roads
•Bridges
▪ Excludes cost of site •Culverts
▪ Clarification on Buildings: •Wells and tube wells

In the light of various court decisions following items shall be

treated as buildings-
o Overhead Water Tank unless it is a part of plant.

Assets

Tangible Intangible

Building Machinery Plant Furniture

Know how, Patents, Copy
rights, Trade marks, License,
Franchise, Similar other
commercial rights

o Cinema building or Hotel Building [CIT Vs Anand Theaters (SC)].

1FIN BY INDIGOLEARN 6.20

Concept of deemed building- Explanation 1 to Sec 32(1)

Building

Not owned by assessee

Taken on lease

Used for the purpose of Business or Profession

Capital Expenditure incurred on account of

Construction
Extension Renovation Improvement
of a structure

Depreciation allowed on this capital expenditure

NOTE:
1. This is an exception to the rule that the depreciation is allowed only with respect to the assets
owned by the assessee.
2. This is called the concept of deemed building, since the capital expenditure incurred in
construction etc. of a structure in a building taken on lease is regarded as separate building in
itself and is eligible for depreciation.
3. Depreciation on residential quarters by the assessee’s employees is subservient to and necessary
for the business, the properly is considered as occupied by owner for the purpose of his business,
depreciation is allowed.

➢Furniture
▪ Includes fans, air-conditioners, refrigerators provided at the quarters of employees, where
letting of quarters is incidental to the business
➢Plant
▪ Includes ships, Books, Vehicles, Scientific equipment, surgical equipment
▪ Excludes tea bushes and livestock, building, furniture, and fittings.

➢Machinery
❖ Partly used for business purpose (Sec 38(2)):

1FIN BY INDIGOLEARN 6.21

 ❖ Where the building, machinery, plant or furniture is not exclusively used for the purpose
of business or profession, the assessee will not get deduction with respect to the full
depreciation allowance.

Assets partly used

For business purpose For personal purpose
•Proportionate part of depreciation •Proportionate part of depreciation not
determined by AO allowed as deduction allowed as deduction

1FIN BY INDIGOLEARN 6.22

Deduction with respect to Depreciation:

➢ INTANGIBLE ASSETS: Such as knowhow, patents, copyrights, trademarks, licenses, any

other business or commercial rights of similar nature, being acquired after 31.3.1998 (But not
fictitious assets).

NOTE:

Extent of deduction with respect to depreciation

Previous year of
Year of transfer Intermittent years
acquisition

Asset put to use Asset put to use No depreciation Full depreciation

for 180 days or for less than allowance is allowed
more 180 days irrespective of the
period of use

50% of the
Full depreciation is
depreciation is allowed
allowed as deduction
as deduction

1. To get depreciation, physical and value in the block should exist.

2. Asset must fall under eligible block of assets. Depreciation shall be computed block wise
and not asset wise.
3. The block system is not applicable in case of SLM. In such case, depreciation shall be
computed on individual asset basis.
Computation:
The Income-Tax Act permits normally WDV method. In such a case depreciation is to be
computed on WDV of the Block of Assets.
To understand method of computation of depreciation, one must know the meaning of the
following terms:
1. Block of assets
2. Written down value
3. Actual cost

10.3. Block of Assets [ sec 2(11) ]:

Block of Assets means -
a) Same Class of Assets: Group of Assets falling within the same class of assets, and

1FIN BY INDIGOLEARN 6.23

 b) Same Rate of Depreciation: In respect of which same rate of depreciation shall be
charged under WDV Method as per Income Tax Rules.

Block of Assets: [Rule 5 of IT Rules, 1962]

The Income Tax Rules specify the rates at which is depreciation is allowable on various
categories of assets –

Block of Assets

Exists at the end of Doesn't exist at the

previous year end of previous year

WDV for the

WDV for the
purpose of No depreciation is
purpose of
depreciation is not admissible
Depreciation is zero
zero

Depreciation is
admissible

1FIN BY INDIGOLEARN 6.24

TABLE OF RATES AT WHICH DEPRECIATION IS ADMISSIBLE UNDER WDV METHOD

ASSET Depreciation
Rate %
PART A - TANGIBLE ASSETS
I. Building
(1) Buildings which are used mainly for residential purposes, except Hotels & 5
Boarding Houses.
(2) Buildings other than those used mainly for residential purposes and not 10
covered by sub-items (1) above and (3) below.
(3) Buildings acquired on or after 1st September 2002, for installing Machinery and 40
Plant forming part of Water Supply Project or Water Treatment System, and which
is put to use for the purpose of business of providing infrastructure facilities u/s
80-IA (4) Clause (I).
(4) Purely temporary erections such as wooden structures. 40
II. Furniture and Fittings
Furniture and fittings including electrical fittings [“Electrical fittings” include 10
electrical wiring, switches, sockets, other fittings, and fans, etc.]
III. Machinery and Plant
(1)
(i) Motor cars other than those used in a business of running them on hire, 30
acquired during the period from 23.8.2019 to 31.03.2020 and put to use on
or before 31.03.2020

(ii) Motor cars other than those used in a business of running them on hire, 15
acquired or put to use on or after 1-4-1990 [Other than motor cars
mentioned in (i) above]
(2)
(i) Motors buses, motor lorries, motor taxis used in a business of running them 45
on hire, acquired during the period from 23.8.2019 to 31.03.2020 and put to
use on or before 31.03.2020

(ii) Motors buses, motor lorries, motor taxis used in the business of running 30
them on hire [Other than mentioned in (i) above]
(3) Moulds used in rubber and plastic goods factories 30
(4) Aeroplanes, Aeroengines 40
(5) Specified air pollution control equipments, water pollution control equipments, 40
solid waste control equipment and solid waste recycling and resource recovery
systems
(6) Plant & Machinery used in semi-conductor industry covering all Integrated 30
Circuits (ICs) medical equipment
(7) Lifesaving 40
(8) Machinery and plant, acquired and installed on or after the 1st day of 40
September, 2002 in a water supply project or a water treatment system and which
is put to use for the purpose of business of providing infrastructure facility
(9) Oil wells 15
(10) Renewable Energy Saving Devices (as specified) 40

1FIN BY INDIGOLEARN 6.25

 (i) Windmills and any specially designed devices which run on windmills installed 40
on or after 1.4.2014
(ii) Any special devices including electric generators and pumps running on wind 40
energy installed on or after 1.4.2014 would be eligible for depreciation
(iii)Windmills and any specially designed devices running on windmills installed 15
on or before 31.3.2014 and any special devices including electric
generators and pumps running on wind energy installed on or before
31.3.2014
(11) Computers including computer software 40
(12) Books (annual publications or other than annual publications) owned by 40
assessees carrying on a profession
(13) Books owned by assessees carrying on business in running lending libraries 40
(14) Plant & machinery (General rate) 15
IV. Ships and other Water Vessels
(1) Ocean-going ships 20 20
(2) Vessels ordinarily operating on inland waters not covered by Block (3) below 20
(3) Speed boats operating on inland water 20
PART B - INTANGIBLE ASSETS
Know-how, Patents, Copyrights, Trademarks, Licenses, Franchises or any other 25
business or commercial rights of similar nature.
Note: [W.e.f. 01.04.2021] Intangible Assets exclude Goodwill of a Business or
Profession

1.1. Written down value:

Opening WDV of the block xxx
Add: Actual cost of assets acquired during the year*.
xxx

Less: Money payable in respect of assets sold, destroyed etc.

xxx

Closing WDV xxx

Less: depreciation on closing WDV xxx
Closing Balance (Depreciated value) xxx
*Actual cost:
Cost price xxx
Add: Expense like freight insurance, loading and unloading,
xxx
Traveling expenses, erection cost
Add: Interest up to the date Asset was put to use xxx
Less: subsidy/grant received; Cenvat credit xxx
Actual cost xxx

1FIN BY INDIGOLEARN 6.26

 1.2. Expln. To Sec. 43(1): (Determination of actual cost under different circumstances)
Expln. Mode of acquisition Actual cost
8,9 &10 Acquisition of Asset: Purchase price
Where assessee himself acquired the Add: (a) Interest on loan for the
asset Period up to the date of
Usage of the asset.
(b) Freight and insurance
(c) Loading, Unloading Charges
(d) Installation and erection charges
Less: (a) Any amount met by any Other
person
by way of Subsidy or grant,
(b) GST credit.
1 Assets used in Scientific Research Nil
subsequently put into use for [Since Asset Cost wholly deductible u/s
business. 35(l)(iv)]
1A w.e.f AY 19-20 Capital Asset FMV which has been taken into account for
referred u/s 28(via) used for the
Business or Profession purpose of Sec.28(via)
2 Asset received under Gift, Will or
WDV to the Previous Owner.
Inheritance.
2C Unlisted Public Company or Private
Company To LLP: Transfer
WDV of the Block of Assets on the date of
By An Unlisted Public
conversion from Company to LLP
Company Or Private Company To
Limited Liability Partnership.
3 Acquisition of asset to claim Cost as determined by the Assessing
depreciation on enhanced cost to Officer,
reduce tax liability, in the opinion having regard to all circumstances of the
of A.O. case,
with the prior approval of Joint
Commissioner of
Income Tax.
4 Transfer and Re-acquisition:
WDV at the time of Original Transfer or re-
Transfer of an asset and re-
purchase price, whichever is less.
acquisition of the same.
4A Sale and Lease Back: Sale of an
asset to the Lessor and taking them WDV to the Transferor.
back on lease.
5 Building previously used for private Cost of Acquisition or Construction, as
purpose: Building used for private reduced by the Notional/Deemed
purpose and subsequently put into use Depreciation for the period of personal
for the purpose of business. use.
Notional/Deemed Depreciation: Total
Depreciation that would have been

1FIN BY INDIGOLEARN 6.27

 allowable had the building been used for
Business since its acquisition.
Succession of Business WDV to the Previous Owner.
7 Amalgamation WDV to the Amalgamating Company.
6 Parent to Subsidiary:
Transfer by Holding WDV to Holding Company.
Company to Subsidiary Company.
6 Subsidiary to Parent: Transfer by
Subsidiary Company to Holding WDV to Subsidiary Company.
Company.
7A Demerger: In the hands of WDV of Demerged Company before
Demerged Company after Demerger Less: WDV of Assets
demerger. transferred to Resulting Co. Note: The
Actual Cost shall not exceed the WDV of
the Asset.
7A Demerger: In the hands of WDV to Demerged Company (Before
Resulting Company. Demerger as if the Company continues to
hold the Asset)
11 Assets brought into India by a Actual Cost of Acquisition
Non-Resident. Less: Notional Depreciation for the period
held outside India
12 Asset acquired by a Company under
Actual Cost, as if there is no such
a scheme of Corporatisation of
corporatisation.
Recognised Stock Exchange.
13 Asset used in Business u/s 35 AD
subsequently
transferred by gift, will, irrevocable
trust, Holding
to Subsidiary Company & vice
Actual Cost is Nil.
versa,
Amalgamation,Demerger,Firm /
Proprietary
Concern to Company or Company to
LLP.
Proviso Where any Capital Asset for which
Actual Cost of the asset = Actual Cost to the
deduction or part of deduction
Assessee (-) Amount of Depreciation that
allowed u/s 35AD is deemed to be the
would, have been allowable from the date
income of the assessee u/s
of its acquisition.
35AD(7B), then,
14 Receipt of Subsidy / Grant /
Actual Cost shall be reduced by cost as
Reimbursement for the acquisition of
related
asset from Central Government or
with such Subsidy/ Grant / Reimbursement
State Government

1FIN BY INDIGOLEARN 6.28

11. UNABSORBED DEPRECIATION:
➢ It shall be allowed to be carried forward u/s 32(2) and treated as part of current year
depreciation. Even if there is no depreciation claim in the current years, unabsorbed
depreciation brought forward shall be deemed as the current year's depreciation.
As a result of this, such unabsorbed depreciation can be set off not only against income under
PGBP but also against income under any other head.
➢ It can be carried forward to the subsequent years indefinitely for set off.
➢ Continuity of business is not a mandatory requirement in order to get the benefit of carry
forward of unabsorbed depreciation.
➢ Even if no valid return is filed for the PY; set off and carry forward is available provided ROI
is to be filed u/s 139(4).

12. ADDITIONAL / ENHANCED DEPRECIATION

12.1. Conditions:
➢ The assessee should be engaged in the manufacture or production of any article or thing.
➢ Additional depreciation is available in respect of new P&M acquired and installed after 31-
3-2005.
➢ However, this additional depreciation is not available in respect of the following assets:

❖ Ships, aircrafts and road transport

vehicles;
❖ Any office appliances in India or
outside India by any person;
❖ Any P&M installed in office or
residence including guest house;
❖ P&M whose total cost is allowed as a
deduction (whether by way of
depreciation or otherwise) in computing
taxable income under the head "PGBP"
of any one previous year.

12.2. Rate of Additional depreciation:

➢ 20% actual cost of machinery or plant.
➢ If the asset is put to use for less than 180 days during the PY, then rate of depreciation is
10% actual cost (i.e. 50% of normal depreciation).
Note: Additional depreciation is available even if there is no balance in the block.

1FIN BY INDIGOLEARN 6.29

 ➢ If the asset is put to use for less than 180 days in the year of acquisition, then additional
depreciation would be 10% of the cost of acquisition in the first year and the balance 10%
would be available in the immediately succeeding previous year.

12.3. Other Points:

➢ Proportionate depreciation: Where in any previous year there is a,
❖ Succession of a business as per section 170, or
❖ Succession of a partnership firm by a company as per section 47 (xiii) or
❖ Succession of a proprietary concern by a company as per section 47 (xiv) or
❖ Amalgamation of companies as per section 2 (IB) or
❖ Demerger of a company
The deduction of depreciation shall be allowed as follows:
➢ The aggregate depreciation allowable to the transferor and transferee shall not exceed
the deprecation calculated at the prescribed rate as if no such succession, amalgamation or
demerger has taken place (i.e. depreciation shall be computed ignoring the change of
ownership) and
➢ The amount of depreciation shall be apportioned between the transferor and the
transferee in the ratio of the number of days for which the assets were used by them.
➢ No Depreciation: No Depreciation is allowed on following asset -
❖ Wasting assets - such as oil well, mines etc.,
❖ Livestock
❖ Land [CIT Vs Alps Theater 65 ITR 377 (SC)]
❖ Where any deduction is allowed under any other section of the act e.g. if capital
expenditure is claimed u/s 35.
➢ Spare / Standby Equipments: Depreciation is allowable on an asset when it is kept as spare
/ standby to the needs of business, as it is required for smooth conduct of business.

1FIN BY INDIGOLEARN 6.30

13. SEC 35: EXPENDITURE ON SCIENTIFIC RESEARCH
Scientific Research means any activity for the extension of knowledge in the fields of natural
science, applied science agriculture, animal husbandry or fisheries.
➢ If scientific research relates to his business and carried on by assessee himself, then the
deduction is as follows:

Scientific research
Expenditure

Expenditure incurred
Contribution to
on research carried
outsiders
on by the assessee

Other
Expenditure Expenditure Contribution to
on an Payment to
an approved national
approved Scientific
in-house laboratory
research u/s 35(2AA)
research u/s Association or a
35(2AB) Revenue Capital university,
Expenditure Expenditure college or other
institution u/s
Sec 35(1)(i) Sec 35(1)(iv)
35(1)(ii)
35(1)(iii)

❖ Revenue Expenditure - 100%

❖ Capital expenditure (excluding cost of land) - 100%
❖ Prior period expenditure being salary (Other than expenditure on providing perquisites)
to research staff, Material used (to the extent certified by the prescribed authority) and
Capital expenditure (excluding cost of land) incurred within 3 years immediately preceding
the commencement of business, is deductible in the previous year in which business is
commenced.
➢ Contributions are made to any Laboratory owned or financed by Govt, or approved
university, college, IIT. National Laboratory or other institution, then the amount of
deduction is 100% of amount paid by the assessee.
Donations to approved research associations/ institutions/ college engaged in scientific
research – deduction is equal to 100% of amount paid by assessee {Sec 35(1)(ii)}
Contribution to approved university/ college/ institution/ association for social science/
statistical research – Deduction @ 100% of the amount paid by assessee {Sec 35(1)(iii)}

1FIN BY INDIGOLEARN 6.31

 ➢ Tax Treatment of Revenue expenditure

Scientific
Does scientific research No research
connected to the business expenditur
carried on by the assessees e not
deductible

Yes

Revenue (Scientific research) expenditure

Attributable to pre commencement period Attributable to post commencement period

Expenditure = No
Salary to employees Deductible in
Not deductible
or on the purchase the year in
of materials? which it’s
incurred

Yes

Deductible in the previous year in

which business in commenced

Deduction – Limited to the extent

certified by the prescribed authority

1FIN BY INDIGOLEARN 6.32

 ➢ Tax treatment of capital expenditure during pre-commencement and post-
commencement:
Scientific
Does scientific research No research
connected to the business expenditure
carried on by the assessees not
deductible
Yes

Capital Yes
expenditure = Expenditure in Not
acquisition of land? Deductible

No

Capital Scientific Research

Expenditure

Attributable to pre Attributable to post

commencement period commencement period

Deductible in the previous Deductible in the year in

year in which business is which it is incurred.
commenced

13.1. Sec 35(1)(iia): An amount equal to 100% of any sum paid to a company registered in
India which has as its main object the scientific research and development and which is
approved for this purpose.

13.2. Sec 35(2AB):- Expenditure (not being in nature of cost of any land or buildings) incurred
on or before 31-3-2017 on in-house research and development facility incurred by a
company engaged in the business of bio-technology, or, any business of manufacture or
production of any article or thing, not being an article or thing specified in' the list of the
Eleventh Schedule [Amendment by the Finance (No.2) Act, 2009 w.e.f. 1 -4-2010].
Expenditure on scientific research in relation to drugs and pharmaceuticals includes
expenditure on clinical drug trial, obtaining approval from any regulatory authority and filing
an application for patent. In case of above Expenditure, 100% of actual amount of
expenditure shall be allowed as deduction, if the following conditions are satisfied:

1FIN BY INDIGOLEARN 6.33

 13.2.1. Conditions:
❖ This section is applicable to companies only.
❖ The assessee must be engaged in the business of manufacture or production of
drugs, pharmaceuticals, electronic equipments computers, telecommunication
equipments, chemicals or any other article or thing notified by CBDT (The CBDT has
notified manufacture of helicopter or aircraft, and computer software.)
❖ The assessee incurs any expenditure on in-house-scientific research and
development facility approved by the prescribed authority.
❖ The assessee must enter into an agreement with the prescribed authority for
cooperation in such research and development facility and for audit of accounts
maintained for this facility.
This section does not allow deduction in relation to the cost of any land or building
acquired by the assessee for the purpose of in-house scientific research. Hence, the cost
of building can be claimed under normal provision of section 35 i.e. 100% deduction. Cost
of land does not qualify for any deduction.

➢ In order to have a better and meaningful monitoring mechanism for weighted deduction
allowed under section 35(2AB) the following amendments have been made with effect from
the AY 2016-17-
1. Deduction under section 35(2AB) shall be allowed only if the company enters into an
agreement with the prescribed authority for co-operation in such research and
development facility and fulfills prescribed conditions with regard to maintenance and
audit of accounts and also furnish prescribed reports.
2. Reference to the Principal Chief Commissioner has been inserted in the section 35(2AA)
and section 35(2AB) so that the report referred to therein may be sent to the principal
Chief Commissioner and Chief Commissioner having jurisdiction over the company
claiming the weighted deduction under the said section.
With effect from 1st April, 2016 (Amendment by Finance Act 2015)

13.3. Other points:

➢ Where deduction is allowed u/s 35 in respect of any asset, no depreciation shall be allowed
u/s 32 in respect of the same asset.
➢ Unabsorbed capital expenditure on scientific research can be carried forward and claimed.
1 Where in a previous year, owning to there being no profit chargeable to
tax U/H PGBP or owning to profit being less than the capital expenditure
incurred in relation to scientific research, such expenditure or part of
expenditure could not be claimed as deduction, it shall be known as
unabsorbed capital expenditure on scientific research.

2 It can be carried forward to the subsequent years and be set off against
income under any head other than salary. If it still remains unabsorbed it

1FIN BY INDIGOLEARN 6.34

 could be carried forward for set off for any number of years. In nutshell,
it shall be treated on par with unabsorbed depreciation.

➢ Priority for set off {Section 72(2)}

➢ In the case of an amalgamation of companies, provisions of this section shall continue to

apply to the amalgamated company in the same manner, as they would have been applicable
to the amalgamating company.

1
•Current year depreciation
•Current year scientific research capital expenditure
•Current year family planning capital expenditure

2
•Brought forward business loss

3
•Brought forward depreciation
•brought forward scientific research
•Brought forward family planning capital expenditure

1FIN BY INDIGOLEARN 6.35

 ➢ Tax implications of transfer of scientific research asset after it ceases to be used
for scientific research.

Scientific research asset sold

Without using it for business purpose After using it for business purpose

Sec 41(3) shall apply. lesser of sale price

or deduction allowed u/s 35(1)(iv) shall As per explanation 1 to Sec 43(1) the
be taxable U/H PGBP in the year in which actual cost shall be taken as nil.
sale took place. Sec 43(6) & 50 shall apply to the sale of
In the year of sale, whether the business asset, for the purpose of computation of
of assessee is in existence or not has no capital gain
relevance

14. SEC 35AD: DEDUCTION OF CAPITAL EXPENDITURE OF SPECIFIED BUSINESS

Sec 35AD has been inserted w.e.f A.Y 2010-11, to provide 100% deduction in respect of any
capital expenditure incurred by an assessee during the previous year for specified business
subject to the fulfillment of certain conditions.

14.1. 100% of Deduction available to assessees carrying on specified business

➢ Setting up and operating cold chain facilities for specified products
➢ Setting up and operating warehousing facility for storage of agricultural produce
➢ Laying and operating a cross-country: (i) natural gas; or (ii) crude; or (iii) petroleum oil
pipeline network distribution, including storage facilities being an integral part of such
network
➢ Building and operating a new hotel of two star or above category as classified by the Central
Government
➢ Building and operating a hospital, anywhere in India, with atleast 100 beds for patients
➢ Developing and building a housing project under a notified scheme for slum redevelopment
or rehabilitation framed by the Central Government or State Government
➢ Developing and building a housing project under a notified scheme for affordable housing
framed by the Central Government or State Government.
➢ Setting up and operating an inland container depot or a container freight station notified
or approved under the customs Act, 1962. Such business should commence its operations on
or after 01-04-2012.
➢ Bee-keeping and production of honey and beeswax. Such business should commence its
operations on or after 01-04-2012.

1FIN BY INDIGOLEARN 6.36

 ➢ Setting up and operating a warehousing facility for storage of sugar. Such business should
commence its operations on or after 01-04-2012.
➢ Laying and operating a slurry pipeline for the transportation of iron ore
➢ Setting-up and operating a semi-conductors wafer fabrication manufacturing unit, if
such unit is notified by the board in accordance with the prescribed guidelines
➢ Developing or maintaining and operating or developing, maintaining and operating a new
infrastructure facility
➢ Production of fertilizer in India

14.2. Deduction Amount

➢ 100% of capital expenditure incurred wholly & exclusively for the above specified business
will be allowed as a deduction in the year in which incurred.
➢ Expenses on acquisition of land, goodwill or any financial instrument will not be allowed as a
deduction.
➢ If expenditure is exceeding INR 10,000 in a day then it must be paid by A/c payee cheque
or account payee draft or ECS.
➢ Expenditure incurred prior to commencement of business will be allowed as a deduction in
the year in which business is commenced if the expenditure is capitalized in the books of
assessee as on the date of commencement.
➢ Entity should not be formed by splitting up or reconstruction of business already in
existence.
➢ Entity should not be set up by transfer of plant and machinery previously used for any
purpose. However, 20% of the total P&M can be old plant and machinery
➢ Imported second hand machine is treated as new machine for the purpose of Section 35AD
provided it was never used in India and no person has claimed any depreciation on such
machine.
➢ Loss from specified business can be set off against profits from any other specified
business even if the latter is not eligible for deduction.
➢ Deduction shall be allowed only if the accounts have been audited by a Chartered
Accountant.
➢ Section 35AD(7A) provides that any asset in respect of which a deduction is claimed and
allowed under section 35AD shall be used only for the specified business for a period of
eight years beginning with the previous year in which such asset is acquired or constructed
➢ If any asset on which a deduction u/s 35AD has been claimed and allowed, is demolished,
destroyed, discarded or transferred, the sum received or receivable for the same is
chargeable to tax under clause (vii) of section 28
➢ As per section 35AD(7B), if asset is used for any purpose other than the specified business
during 8 years beginning with the previous year in which such asset is acquired, the total
amount of deduction so claimed and allowed in any previous year(s) in respect of such asset,
as reduced by the amount of depreciation allowable in accordance with the provisions of
section 32 as if no deduction had been allowed u/s 35AD, shall be deemed to be income of

1FIN BY INDIGOLEARN 6.37

 the assessee chargeable under the head “Profits and gains of business or profession” of
the previous year in which the asset is so used. However, the deeming provision u/s
35AD(7B) shall not be applicable to a company which has become a sick industrial company
u/s 17(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, during the
intervening period of eight years specified in section 35AD(7A)

15. SEC 35D: AMORTIZATION OF CERTAIN PRELIMINARY EXPENSES

15.1. Eligible assessee:
➢ Indian companies or a resident non-corporate assessee
➢ The benefit u/s 35D is also available to non-industrial undertakings incurring expenditure
with extension of its business after its commencement.

Assessee

Corporate Non-corporate
Assessee Assessee

Indian Company Others Resident Non-Resident

Eligible Not eligible Eligible Not eligible

15.2. Time and purpose of expenditure:

Time of expenses Purpose of expenses
Before commencement of business For setting up of any undertaking or
business
After commencement of business For setting up of a new industrial unit
or for extension of an industrial
undertaking.

Qualifying expenditure:
➢ Expenses incurred for preparation of feasibility report, preparation of project report,
Conducting market survey or any other survey necessary for business and engineering
services relating to the business of assessee.
➢ Legal charges for drafting any agreement between the assessee and any other person for
setting up or conduct of the business.
➢ the case of a company, the following additional expenses are also eligible:
❖ Legal Charges for drafting of MOA, AOA - Printing Expenses of MOA and AOA

1FIN BY INDIGOLEARN 6.38

 ❖ Company registration fee under companies Act
❖ Underwriting commission, brokerage & charges for drafting typing, printing and
advertisement of prospectus for public issue of shares or debentures.

15.3. Maximum permissible expenditure:

➢ In case of companies: 5% of cost of projects OR 5% capital employed, at the option of the
company.
➢ In case of any other assessee: 5% of cost of projects

Assessee

Corporate Assessee Non-corporate Assessee

Qualifying Amount = 5% of cost of projects

OR 5% capital employed at the option of Qualifying Amount = 5% of cost of projects
the company.

No. of years: Deduction is allowed over a period of 5 years in equal installments.

15.4. Cost of project: Cost of fixed assets, viz. land, building, leaseholds, plant, machinery,
furniture fittings, railway sidings, development of land/building (Shown in the books as on
the last day of the year in which the assessee commences business / extension of the
undertaking is completed / new industrial unit commences production).

15.5. Capital employed:

Issued share capital + Debentures + Long-term borrowings repayable after 7 years, as on
the last day of the year in which business is commenced.

15.6. Audit Report:

In the case of a person (other than a company / co-operative society), deduction is available
only if a report of audit is obtained from a CA in Form No. 3AE.

15.7. Amalgamation / demerger of companies: In case of amalgamation of demerger,

amalgamated or resultant company can get deduction u/s 35D for balance period.

1FIN BY INDIGOLEARN 6.39

16. SEC 35DD: AMORTIZATION OF EXPENDITURE IN CASE OF AMALGAMATION /
DEMERGER:
➢ Where an assessee, being an Indian Company incurs any expenditure, wholly and exclusively
for the purpose of amalgamation / demerger of an undertaking, the entire expenditure is
allowed as deduction in 5 equal installments over a period of 5 successive years starting
from the year in which amalgamation / demerger takes place.
➢ No deduction shall be allowed in respect of the above expenditure under any other provision
of the Act.

17. SEC 35DDA: AMORTIZATION OF EXPENDITURE UNDER VOLUNTARY RETIREMENT

SCHEME
➢ It applies to all assessees.
➢ Conditions:
❖ The retirement should be in accordance with the scheme of Voluntary Retirement
❖ The payment can be made in any year, each such payment independently being admissible
for amortization over a period of five years.
➢ Amount of deduction:
The amount of expenditure so paid to employees at the time of VR is deductible over a
period of 5 years in equal installments commencing from the PY in which such payment /
part payment was made.
➢ In case of amalgamation, demerger, succession of firm or proprietary concern by company;
the amalgamated company, resulting company and Successor Company will get deduction for
the balance of years.
➢ No deduction shall be allowed to the amalgamating company, demerged company or the firm
or proprietary concern in the year of amalgamation, demerger or conversion.

Note: It may be noted that the payment made to an employee for retrenchment / compulsory
termination (i.e. otherwise than by way of VRS) from services is fully deductible u/s 37(1).

18. SEC 36: OTHER DEDUCTIONS:

36(1) Nature of Expenditure Applicability Amount of Deduction / Conditions
Insurance premium on risk
of damage or destruction Deduction allowable only in the
(i) All assesses
of stocks/stores used in year of payment
business
Insurance Premium on life
Federal milk
of cattle owned by a Deduction will be allowed only in
(ia) co-operative
member of a primary co- the year of payment
societies
operative society
Insurance premium paid on Payment should be made by any
(ib) All employers
health of employees mode other than cash under an

1FIN BY INDIGOLEARN 6.40

 approved scheme of General
Insurance Corporation of India or
scheme framed by any insurer and
approved by IRDA
1. Allowable as deduction only if
such sum is not payable as
Bonus or Commission paid profit or dividend.
(ii) All employers
to employees 2. Payment shall be made before
due date of filling return,
[subject to Sec.43B]
1. Money should be borrowed for
purpose of business. Interest
on borrowed capital not used
for the purpose of business
shall not be allowed as
deduction.
Interest on borrowed
2. In case of amount borrowed
capital Interest will be
from financial institutions or
deductible irrespective of
any loan or advance from
the fact that it is
(iii) All assesses banks, interest should be paid
borrowed for working
on or before due date of filling
capital or for acquiring
return. [subject to Sec 43B]
capital asset.
3. The interest on the capital
borrowed for the purchase of
asset, paid from the date on
which the capital was borrowed
upto the date such asset was
first put to use shall not be
allowed as a deduction.
1. Discount can be written off on
a pro- data basis over the
Companies period of the bond.
Discount on Zero Coupon
(iiia) issuing Zero 2. Discount is the difference
Bonds
Coupon Bonds between Maturity /
redemption Value and the issue
price.
The payment should be made
Contribution to Recognised
before the due date of filling ROI.
(iv) PF or approved All employers
Payment directly to LIC towards
Superannuation Fund
group gratuity fund is deductible.
There is a ceiling on the annual
contribution which an employer can
Employer’s contribution
(iva) All employers make to pension fund. It is 10% of
towards pension fund
the salary of the employee in the
PY.
Employer’s contribution to 8.33% of salary of each employee
(v) All employers
an approved Gratuity Fund is allowed as deduction.

1FIN BY INDIGOLEARN 6.41

 Contribution from The remittances must be made
(va) employees towards welfare All employers before the due date under the
fund accounts relevant Act for the relevant fund.
1. Animals should not be held as
Allowance in respect of
stock-in- trade.
dead or permanently
2. Amount of deduction = Actual
(vi) useless animals which were All assesses
cost of animals Less Amount
used for the purpose of
realised on sale of the animal
business
or their carcasses.
1. The debt must be incidental to
the business.
2. Such debt should be revenue in
nature.
3. It must have been taken into
account in computing the
income of the assessee.
4. The debt may be money lent in
Bad debts (Excluding
the ordinary course of banking
provision for bad debts)
or money lending business.
The successor of the
(vii) All assesses 5. The Bad debt must have been
business is entitled to
written off in the books of the
write off predecessor's
assessee.
debt. [NOTE 1]
6. The business in which such
debt is incurred should be
continued during the previous
year.
7. Amount written off in P&L
account, as bad debts are
allowable as deduction on
fulfillment of above conditions.
Scheduled or
Non-Scheduled
Bank
incorporated in
India. Co- 8.5% of Gross Total Income + 10%
operative Bank of aggregate of Average Rural
other than advances. Rural branch means
primary branch situated in a place which
(viia) Provision for bad debts
Agricultural has a population of not more than
Credit Society 10,000 as per the latest census on
or Primary Co- the first day of the relevant
operative previous year.
Agricultural
and Rural
Development
Bank.

1FIN BY INDIGOLEARN 6.42

 Bank
incorporated
outside India &
Public
Provision as per RBI Financial
(viib) 5% of Gross Total income.
guidelines Institution,
SFCs & State
Industrial
Investment
Corporation.
1. Revenue Expenditure is fully
allowed as deduction
2. Capital expenditure incurred
will be allowed in 5 years in
equal installments commencing
from the previous year in
which it was incurred.
3. Unabsorbed family planning
Promoting family planning
(ix) Companies expenditure shall be carried
amongst employees
forward in the same manner as
unabsorbed depreciation
4. In case of amalgamation, the
amalgamated Company will be
allowed to write off the
balance amount un-allowed in
the hands of the amalgamating
Company.
1. Taxable Securities
transactions should be entered
into in the course of his
business during the previous
Securities Transaction Tax
(xv) All Assessees year.
paid [w.e.f. AY 2009-10]
2. Income arising from such
transactions is included under
the head profits & Gains of
business or profession.
1. Taxable Commodities
transaction should be entered
into in the course of his
Commodities Transaction business during the previous
(xvi) Tax paid [w.e.f. AY 2014- All Assessees year
15] [NOTE 3] 2. Income arising from such
transactions is included under
the head profits & Gains of
business or profession.

1FIN BY INDIGOLEARN 6.43

 18.1. Notes:
1. ‘Taxable commodities transaction’ means a transaction of sale of commodity derivatives
in respect of commodities, other than agricultural commodities, traded in recognised
associations.
➢ A “commodity derivative” means –
1. A contract for delivery of goods which is not a ready delivery contract
2. A contract for differences which derives its value from prices or indices of prices-
(i) of such underlying goods; or
(ii) of related services and rights, such as warehousing and freight; or
(iii) with reference to weather and similar events and activities having a bearing
on the commodity sector.

19. SEC 37 (1) - GENERAL DEDUCTIONS:

The assessee can claim deduction u/s 37(1) if following conditions are satisfied.
➢ The expenditure is not capital expenditure.
➢ The expenditure is not personal expenditure.
➢ The expenditure is not of the nature described in section 30 to 36.
➢ The expenditure should have been incurred in the previous year wholly and exclusively for
the purpose of the business/profession.
➢ The expenditure is not incurred for any purpose which is an offence or is prohibited by any
law.
➢ A new explanation has been inserted in section 37(1) so as to clarify that for the purposes
of section 37(1), any expenditure incurred by an assessee on the activities relating to
corporate social responsibility refered to in section 135 of the companies Act, 2013 shall
not be deemed to be an expenditure incurred by the assessee for the purposes of the
business or profession from the assessment year 2015-16. However, deduction may be
claimed under any other section (if otherwise possible).

Note:
There is no specific deduction covered under Section 37. It is like general deduction
where deduction is allowed if all conditions are satisfied. Ex: Pooja expense at office,
staff welfare expenses, travelling expenses, business promotion expenses etc.

1FIN BY INDIGOLEARN 6.44

 Expenditure = Personal
Expenditure?

Yes
No

Expenditure =
Yes
Capital Expenditure?

No

Yes
Expenditure =
Not deductible u/s 37
Expenditure u/s 30-36?

Yes

Is it incurred wholly and

exclusively for the No

purpose of business?

Yes

Is it incurred for a purpose

which is an offence, or which Yes
is prohibited by law?

No

Deductible u/s 37

➢ Expenditure incurred by an assessee may be classified into:

a) Revenue expenditure
b) Capital expenditure

1FIN BY INDIGOLEARN 6.45

 Assessee incurred Expenditure

Whether any asset is Yes

Capital Expenditure –
acquired by the
Not Deductible u/s
assessee?
37

No

Whether there is any Yes

Revenue Expenditure
enduring benefit? – Deductible u/s 37

Yes

Yes
Is such a benefit in Capital Expenditure –
the capital nature? Not Deductible u/s
37

No

Is there any continuing

Yes
obligation b/w two parties & Revenue expenditure

benefit therefrom accrues – Deduction to be

during that specified period? spread over specified

no. of years

Yes

Revenue Expenditure –
Deduction allowed in One
Year

Dr. T. A. Quereshi v. CIT [2006] 287 ITR 547 (SC): Illegal business loss is different from illegal
expenditure covered by section 37(1). In computing income from illegal business, the losses
sustained are allowable as deduction. Therefore, in case of doctor engaged in heroin business,
the value of seized heroin, which formed part of his stock-in-trade, is allowable as deduction as
business loss.

1FIN BY INDIGOLEARN 6.46

 Circular No. 5/2012 dated 1-8-2012
Inadmissibility of expenses incurred in providing freebees to medical practitioner by
pharmaceutical and allied health sector industry
The Central Board of Direct Taxes, has clarified that considering the fact that the claim of any
expense incurred in providing freebees to medical practitioner is in violation of the provisions
of Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, the
expenditure so incurred shall be inadmissible under section 37(1) of the Income- tax Act, 1961,
being an expense prohibited by the law. The disallowance shall be made in the hands of such
pharmaceutical or allied health sector industry or other assessee which has provided aforesaid
freebees and claimed it as a deductible expense in its accounts against income.
This circular has also clarified that a sum equivalent to value of freebees enjoyed by the
aforesaid medical practitioner or professional associations is also taxable as business income or
income from other sources, as the case may be, depending on the facts of each case.

20. SEC 37 (2B): ADVERTISEMENT EXPENDITURE:

➢ Capital expenditure is not allowed.
➢ Revenue expenditure:
❖ Expenditure incurred on advertisement in any souvenir, brochure, pamphlet or the like
published by a political party is not allowed. However, the assessee can claim deduction
u/s 80GGB.
❖ Any other revenue expenditure is deductible u/s 37(1).

21. SEC 38: BUILDING ETC. PARTLY-USED FOR BUSINESS:

This section provides that where a building, plant, machinery or furniture is not exclusively used
for business purpose (i.e. partly for personal and partly for business purposes), then deductions
allowable u/s 30, 31 and 32 shall be allowed proportionately for business use. In other words, no
deduction shall be allowed in relation to personal use.
22. SECTION 40 (a): DISALLOWANCES IN THE CASE OF ALL ASSESSEES:
Section Nature of expenditure Amount Inadmissible /
condition
40(a)(i) Interest, royalty, fees for technical services Disallowance provisions will not
or other similar sum payable outside India or be applicable if TDS is deposited
in India to Non-resident not being a company upto the due date of submission
or Foreign Company on which tax has not of return of income under section
been paid or deducted at source or after 139(1). if TDS is deposited after
deduction, tax has not been paid before the this date, expenditure will be
prescribed time u/s. 139(1). {FA 2014} deductible in the year in which
TDS is deposited
40(a)(ia) Any amount payable to a resident on which 1. Amount paid without deduction
Tax is deductible, but tax has not been of Tax or Where tax has been

1FIN BY INDIGOLEARN 6.47

 deducted or after deduction, tax has not deducted, amount not
been paid before the prescribed time u/s. remitted to the Government.
139(1). (Amendment by Finance Act 2014) 2. Will be allowed as a deduction
in computing the income of the
previous year in which such tax
has been paid.
3. Only 30% expenditure to be
disallowed – In case of TDS
default, 30% of expenditure
(Not 100%) will be disallowed.
{FA 2014}
40(a)(ii) Rates or taxes levied on profits or gains of Amount paid including tax paid
any business or profession abroad eligible for relief u/s
90/90A or deduction from
income tax payable u/s 91.
40(a)(iib)] Disallowance of royalty, licence fee, service Amount paid or any amount
fee etc. levied exclusively on State appropriated, directly or
Government Undertakings by the State indirectly from a SGU by the SG.
Government
40(a)(iii) Salaries payable outside India or to a non- Amount paid
resident without deduction of tax at source
40(a)(iv) Payment to provident Funds / Other Funds Amount paid
established for the benefit of the employees
for which no effective arrangements are
made to secure or deduct tax at source.
40(a)(v) Any tax of the employee paid by the Amount paid
employer u/s 10(10CC).

Note:
In case, assessee fails to deduct the whole or any part of tax on any such sum but is not deemed as

assessee in default under the first proviso to section 201(1) by reason that such payee –

(i) has furnished his return of income under section 139;

(ii) has taken into account such sum for computing income in such return of income; and

(iii) has paid the tax due on the income declared by him in such return of income, and the payer

furnishes a certificate to this effect from an accountant in such form as may be prescribed,

it would be deemed that the assessee has deducted and paid the tax on such sum. The date of

deduction and payment of taxes by the payer shall be deemed to be the date on which return of

income has been furnished by the payee. Since the date of furnishing the return of income by the

payee is taken to be the date on which the payer has deducted tax at source and paid the same, 30%

1FIN BY INDIGOLEARN 6.48

of such expenditure/payment in respect of which the payer has failed to deduct tax at source shall

be disallowed under section 40(a)(ia) in the year in which the said expenditure is incurred.

However, 30% of such expenditure will be allowed as deduction in the subsequent year in which the

return of income is furnished by the payee, since tax is deemed to have been deducted and paid by

the payer in that year.

23. SEC 40(b): DISALLOWANCE IN THE CASE OF PARTNERSHIP FIRMS

Payment of interest to the partners:
23.1. Conditions:
➢ It should be authorised by and in accordance with the partnership deed.
➢ It should relate to a period falling after the date of the Partnership deed.
➢ Rate of interest should not exceed 12% p.a. (simple rate of interest)

23.2. Exception: The above condition does not apply in the following situations -
➢ Where an individual is a partner on behalf of or for the benefit of any other person (Karta
of HUF, Director of a Company), and interest is paid by the Firm to the individual otherwise
than as partner in a representative capacity.
➢ Where an individual is a partner in his individual capacity and interest is received by such
individual from the Firm on behalf of or for the benefit of any other person (Karta of HUF,
Director of a Company).
Note: Interest on current account of a partner will not be allowed as deduction.

23.3. Payment of remuneration to the partners:

Conditions: Any salary or bonus or commission or remuneration paid by a Firm to a Partner
is allowable as deduction subject to the following conditions:
➢ It should be authorised by and in accordance with the partnership deed.
➢ It should relate to a period falling after the date of the Partnership deed.
➢ It should be paid to a working Partner.
➢ It should not exceed the permissible limits and is as follows:

BOOK PROFITS REMUNERATION

On the first ₹ 3 lakhs of Book profits ₹ 1,50,000 or 90% of Book profits
(or) in case of loss whichever is HIGHER.

On the balance of Book Profits 60% Of Book Profits.

Book Profits:
Net profit as per P&L a/c xxx
Adjustments (+/-): as provided by Sec. 28 to 44D xxx
xxx

1FIN BY INDIGOLEARN 6.49

 Add: Inadmissible Interest and Remuneration to partners which are
xxx
already debited to the P & L a/c.
Book profit xxx

24. SEC. 40(ba): DISALLOWANCE IN THE CASE OF AOP AND BOI:

Any payment by way of interest, salary, bonus, commission paid by AOP or BOI to any of its
members shall be disallowed.
25. SEC 40A (2): EXCESSIVE AND UNREASONABLE EXPENDITURE
25.1. Conditions:
➢ The assessee incurs any expenditure, in respect of which payment has been made or is to
be made.
➢ The payee is a "specified person" and
➢ The amount of expenditure is unreasonable or excessive and shall be determined having
regarded to-
*The fair market value of goods, facilities or services or
*The legitimate needs of the business or
*The benefit accruing or arising from such expenditure.
25.2. Disallowance: The excessive / unreasonable portion shall be disallowed.

25.3. Meaning of “Specified persons”

Assessee (payer) Specified person (payee)
Individual Any relative
Any person in whose business
The assessee or his relative is substantially interested
HUF / AOP/ Firm / Any (M) of a HUF
Company (Non- member
individual) Any (M) of an AOP
member
Partner (P) of a firm

Director (D) of a Company

Or any relative of such MMPD

Any person in whose business-

The assessee / any MMPD of assessee / any relative of such MMPD,
is substantially interested
Any person who is substantially interested in the assessee's
business-
a. if such person is an Individual- Such person/his relative
b. If such person is a HUF / AOP / Firm / Company-
Such person / any MMPD of such person / any relative of such
MMPD.

1FIN BY INDIGOLEARN 6.50

 An HUF / AOP / Firm / Company whose MMPD is substantially
interested in the business of assessee OR any other MMPD of such
HUF / AOP / Firm / Company OR any relative of such other MMPD.

26. SEC 40A(3): PAYMENTS OTHERWISE THAN BY WAY OF AN ACCOUNT PAYEE CHEQUE:

The assessee incurs expenditure which is otherwise deductible in computing the business income.
If the assessee makes payment of an expenditure in a day to a person otherwise than by way or
an account payee cheque or account payee demand draft, and aggregate of such payment exceeds
₹ 10,000/-(₹35000/- in case of goods transport agencies), then no deduction shall be allowed in
respect of such expenditure.

Note: This section does not apply where the payment is

made towards any capital asset, for example, purchase of
land, building or equipment. If however, any asset is
purchased for which deduction is to be claimed u/s. 35/36
(1) (ix) etc., the section shall apply. If the asset is
purchased in cash, depreciation shall not be allowed.
The assessee incurs expenditure which is otherwise
deductible in computing the business income.
26.1. Exceptions (Rule 6DD):
In following exceptional situations, no disallowance shall be made-
1. Payment to banking or other credit institutions such as RBI, Commercial banks, Co-operative
bank, public financial Institutions, State Financial Corporations, State Industrial
Investment Corporations etc.,
2. Payment to State / Central Government if under the rules framed by Govt, the payment is
required made in legal tender. (E.g. Sales Tax, custom/Excise duty, Railway freight).
3. Payment through banking system (e.g. TF, MT, LC, debit card, credit card, bill of exchange
made payable to a bank).
4. Payment to a cultivator / grower / producer towards purchase of agricultural produce, fore
produce, produce of animal husbandry including hides and skins, produce of dairy or poultry
farming, fish or fish products, or the products of horticulture or apiculture.
5. Salary payment, after deduction of tax at source u/s 192, made to an employee who
temporarily posted for a continuous period of 15 days or more at a place other than his
normal place of duty or on a ship and such employee doesn't maintain any bank account at
such place on ship.
6. Payment required to be made on a day on which banks are closed due to holiday or strike.
7. Payment made by any person to his agent who is required to make payment in cash for goods
on services on behalf of such person.
8. Payment made by an authorised dealer or a money changer against purchase of foreign
currency or travelers cheques in the normal course of his business.

1FIN BY INDIGOLEARN 6.51

 The assessee incurs an expenditure
exceeding ₹ 10,000

Payment for No
expenditure >
20,000?

Yes

Whether the payment is Yes Disallowance u/s 40A(3) – not

by an account payee applicable
cheque / DD?

No

Is it an
No
expenditure
deductible
u/s 30 to 37?

Yes

Is it an expenditure
Yes
for acquisition of a
capital asset
(not meant for sale)?

No

Is this payment Yes

exempted under rule
6DD?

No

Disallowance = 100% of
expenditure

1FIN BY INDIGOLEARN 6.52

27. SEC 40A (7): PROVISION FOR UNAPPROVED GRATUITY FUND

Allowance in respect of provision for gratuity – S 40A(7):

Employer

Creates provision for Does not create provision

gratuity for gratuity

Gratuity paid or payable in the previous

Deductibility discussed
year is allowed as a deduction.
below

For meeting the future liability, a provision for

gratuity is made by contribution to

Unapproved
Approved gratuity fund
gratuity fund

Deductible – in the year of making Not –

provision (Subject to S. 43B deductible.

28. SEC 40A (9) / (10) / (11): CONTRIBUTION TO NON-STATUTORY/UNRECOGNIZED

WELFARE FUND
Any contribution made by the assessee (as an employer) to non-statutory/unrecognized welfare
fund accounts is not deductible.

Unrecognised or non
Employer makes
statutory welfare Not Deductible
contribution to
fund

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29. SEC 41: DEEMED PROFITS CHARGEABLE TO TAX:
Sec. Deduction Applicability Nature of Receipt-Deemed Year in
41 already Income which
allowed u/s taxable
(1) 30-38 All Assessees Recovery of loss or expenditure Year in which
including or trading liability, which was recovered or
successor of already allowed, including written off
business remission or cessation of liability by the
effected by unilateral act assessee by
remission or
cessation
(2) 32(l)(i) Undertaking Balancing charge on assets in Taxable in
engaged in respect of which depreciation is the year in
generation and /or claimed, is sold / discarded / which the
distribution of demolished/ destroyed amount
power becomes due
(3) 35(2)/ All Assessees Amount realised on sale of capital Year in which
35(1)(iv) assets used for scientific transfer
research takes place
(4) 36(1)(vii) All Assessees Bad debts earlier allowed Year in which
excluding subsequently recovered by the it is received
successor of Assessee. Predecessor debt
business recovered by the successor shall
not be treated as income of the
successor.

30. SEC. 43B: DEDUCTION BASED ON ACTUAL PAYMENT

➢ Deduction is allowed only on payment basis even if books of account are maintained on the
basis of mercantile system.
➢ If the payment in respect of the following expenses is actually made on or before the due
date of furnishing of ROI and the evidence of such payment is furnished along with the
ROI, then the expenditure is deductible on accrual basis in case the assessee follows
mercantile system of accounting.
➢ Any tax, duty, cess or fee payable under any law in force;
❖ Bonus or commission or leave salary to employees;
❖ Interest on any loan or borrowing from any Public Financial Institution (PFI), State
Financial Corporation (SFC), or State Industrial Investment Corporation;
❖ Interest on loan/advance taken from a scheduled bank or a co-operative bank;
❖ License fee payable to Government;
❖ Any sum payable by the assessee as an employer in lieu of any leave at the credit of his
employee;

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 ❖ Contribution of employer towards staff welfare scheme, for example provident Fund,
Superannuation fund, Gratuity fund or any other fund for the welfare of employees.
❖ Any sum payable to Indian railways for use of railway assets

Expenditure incurred in
the previous year

Payment

Beyond previous year Not made

Within previous but within the due Beyond the due date
year date of submission of of submission of ROI
ROI

Not deductible
Deductible in the Deductible in the Deductible in the
previous year in previous year in previous year in
which the payment which the liability is which it is made
is made incurred

Payment basis Accrual basis Payment basis

➢ If the payment is not made on or before the due of furnishing of ROI [u/s 139(1)], even
then deduction can be claimed but in the year of payment.

31. STAMP DUTY VALUE OF LAND AND BUILDING TO BE TAKEN AS THE FULL VALUE OF
CONSIDERATION IN RESPECT OF TRANSFER, EVEN IF THE SAME ARE HELD BY THE
TRANSFEROR AS STOCK-IN-TRADE (SEC 43CA)
➢ where the consideration for the transfer of an asset (other than capital asset), being land
or building or both, is less than the stamp duty value, the value so adopted or assessed or
assessable (i.e., the stamp duty value) shall be deemed to be the full value of the
consideration for the purposes of computing income under the head “Profits and gains of
business of profession”.
➢ Further, where the date of an agreement fixing the value of consideration for the transfer
of the asset and the date of registration of the transfer of the asset are not same, the
stamp duty value may be taken as on the date of the agreement for transfer instead of on
the date of registration for such transfer, provided a t least a part of the consideration
has been received by any mode other than cash on or before the date of the agreement.
➢ The Assessing Officer may refer the valuation of the asset to a valuation officer as defined
in section 2(r) of the Wealth-tax Act, 1957 in the following cases -
(1) Where the assessee claims before any Assessing Officer that the value adopted or
assessed or assessable by the authority for payment of stamp duty exceeds the fair

1FIN BY INDIGOLEARN 6.55

 market value of the property as on the date of transfer and
(2) the value so adopted or assessed or assessable by such authority has not been
disputed in any appeal or revision or no reference has been made before any other
authority, court or High Court.
➢ Where the value ascertained by the Valuation Officer exceeds the value adopted or
assessed or assessable by the Stamp Valuation Authority, the value adopted or assessed or
assessable shall be taken as the full value of the consideration received or accruing as a
result of the transfer.
32. TRADING IN COMMODITY DERIVATIVES NOT A SPECULATIVE TRANSACTION
[SECTION 43(5)]
➢ Section 43(5) defines a “speculative transaction” to mean a transaction in which a contract
for the purchase or sale of any commodity, including stocks and shares, is periodically or
ultimately settled otherwise than by the actual delivery or transfer of the commodity or
scrips.
➢ The proviso to section 43(5) specifies the contracts and transactions which shall not be
deemed to be a speculative transaction.
➢ An “eligible transaction” in relation to commodity derivatives has been defined as a
transaction -
a) carried out electronically on screen based systems;
b) supported by a time stamped contract note issued by such member or intermediary to
every client.

The contract note should indicate the –

a. unique client identity number allotted under FCRA, 1952 and related rules,
regulations etc.,
b. unique trade number; and
c. permanent account number (PAN) allotted under the Income tax Act, 1961.

➢ Eligible transaction in respect of trading in commodity derivatives carried out in a

recognized association and chargeable to commodities transaction tax under shall not be
considered to be a speculative transaction. (Amendment by Finance Act 2014)

Presumptive income in case of specific business or profession:

Particulars Sec 44AD Sec 44AE
Applicability Any business except the Persons carrying on business of plying,
business of plying, hiring or hiring, and leasing goods carriages and
leasing goods carriages not owing more than 10 goods carriages
specified u/s 44AE, and whose at any time during the previous year.
turnover does not exceed ₹
2,00,00,000
Amount of 8% or more of gross turnover or For each heavy goods vehicle, INR 1,000
Presumptive gross receipts or more. per ton of gross vehicle weight or unladen
income weight, as the case may be, for every

1FIN BY INDIGOLEARN 6.56

 month or part of a month during which
the vehicle is owned by the assessee
Others-
₹ 7,500* Per month or part of a month;
or more
Income shall be considered from the
date of ownership.
Ownership includes possession.
*Amendment by Finance Act 2014

COMMON ISSUES:
Allowability of deduction u/s 30 to 38 Deemed to be allowed
Allowability of deduction in case of WDV of the assets shall be computed as if
subsequent previous year depreciation had been allowed in earlier years.
Consideration of turnover for Compulsory Shall not be considered if the assessee opts for
audit u/s 44AB section 44AD/AE.
When assessee declares lower Income Books of accounts to be maintained u/s 44AA and
audit u/s 44AB have to be fulfilled.
Computation of presumptive income in case Compute presumptive income as above Less
the assessee is a Firm. interest, salary and remuneration to partners. The
balance is chargeable to tax.
Benefit of Chapter VIA Deduction u/s 80C to 80U shall be available to the
assessee.

Note:
Heavy goods vehicle means any goods carriage, the gross vehicle weight of which exceeds 12,000
kg

33. OTHER IMPORTANT CONSIDERATIONS:

33.1. Sec 44AD:
➢ Provisions of Sec 44AD shall not apply to
❖ Person carrying on profession as referred to in sub section (1) of section 44AA;
❖ Person earning income in the nature of commission or brokerage; or
❖ Person carrying on agency business.
33.2. Sec 44AE:
➢ An assessee who is in possession of a goods carriage, whether taken on hire purchase or on
installments and for which whole or part of the amount payable is still due, is deemed to be
owner of such goods or carriage
➢ Income from vehicles is to be computed for every month or part of the month during which
these were owned by the assessee even though these are not actually used for business.

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 The presumptive income u/s 44 AD, 44AE or a higher sum declared by the assessee will be
deemed to be the profits and Gains of Business or Profession.
33.3. Common points for 44AD/AE.
➢ In all cases for the purpose of WDV of assets, depreciation will be deemed to be claimed
and value of assets will be reduced accordingly.
➢ Turnover of such business is excluded for the purpose of limit of turnover for tax audit
u/s 44AB.
➢ No disallowance can be made for any expenditure if profits are in conformity with the above
sections.
➢ Only remuneration & interest to partners is allowed after calculating the assumed income.
➢ Set off & carry forward of losses will be applicable. Since 44AD & AE covers all deductions
allowed u/s 32 to 44, therefore B/F unabsorbed depreciation will not be allowed as a set
off from income computed under Section 44AD / AE. However, brought forward business
losses are allowed as a set off since it is covered by the provisions of Section 72.
➢ Deduction under Chapter VIA is available.
➢ Though the assessee is not required to maintain any books of accounts if profits are
declared u/s 44AD/AE but the income tax department during assessment proceedings may
enquire the following items:
❖ Sundry Debtors
❖ Sundry Creditors
❖ Stock
❖ Cash

Problems
1. State with reasons the allowability or otherwise of the following items under the Income-tax
Act, 1961 while computing income under the head “Profits and gains of business or profession”
for the Assessment Year 2024-25;
1) Payment made in cash ₹ 30,000 to a transporter in a day for carriage of goods
2) Expenses incurred in providing freebies to medical practitioner by Medical enterprises, a
pharmaceutical organization
3) Municipal tax relating to office premises ₹ 20,000 not paid till 31.10.2024 by Mr. Arun having
turnover of ₹ 108 lacs during financial year 2023-24
4) Capital expenditure of ₹ 15,00,000 on scientific research incurred by ABC Ltd. Engaged in
manufacturing of tires, which includes cost of land ₹ 5,00,000
5) Tax deducted at source on salary paid to employees in India not remitted till the due date
for filing the return prescribed in section 139
6) An electric generator has been purchased for ₹ 50 lacs by an assessee engaged in the
business of generation of power, on 1.04.2023 and installed on the same day.

1FIN BY INDIGOLEARN 6.58

2. State with reasons, whether the following expenses are allowable as deduction while computing
income from business or profession for the Assessment Year 2024-25, and if so, the amount
allowable as deduction:
a. ₹ 15 lakh and ₹ 5 lakh, respectively, incurred on purchase of land and building by Z Ltd.,
being expenditure incurred on in-house research and development facility approved by the
prescribed authority.
b. ₹ 20 lakh incurred by B Ltd. in March, 2023 for purchase of building for setting up and
operating a warehousing facility for storage of sugar. B Ltd. commenced operations on
1.04.2023
c. Expenditure of ₹ 20 lakh incurred by Y Ltd. during the previous year 2023-24 on payment
to its employees in accordance with a scheme of voluntary retirement.

3. State any four of the specified business eligible for deduction under section 35AD?

4. M/s. Dollar Ltd., a manufacturing concern, furnishes the following particulars:

Amount
[Link]. Particulars
(₹)
1. Opening writing down value under Income-tax of block plant and 5,00,000
machinery
2. Purchase of plant and machinery (put to use before 01.10.2023) 2,00,000
3. Sale proceeds of plant and machinery which became obsolete- the 5,000
plant and machinery was purchased on 01-04-2022 for ₹ 5,00,000.
Further, out of purchase of plant and machinery:
a. Plant and machinery of ₹ 20,000 has been installed in office.
b. Plant and machinery of ₹ 20,000 was used previously for the purpose of business by the
seller.
Compute depreciation and additional depreciation as per Income-tax Act, 1961 for the
Assessment Year 2024-25.

5. Vivitha Bio-medicals Ltd. is engaged in the business of manufacture of bio-medical items. The
following expenses were incurred in respect of activities connected with scientific research:

Year ended Item Amount (₹)

31.03.2022 Land 10,00,000

(Incurred after Building 25,00,000

1.9.2022)

31.03.2023 Plant and machinery 5,00,000

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 31.03.2024 Raw materials 2,20,000

31.03.2024 Raw materials and 1,80,000

salaries

The business was commenced on 01-09-2023.

In view of availability of better model of plant and machinery, the existing plant and machinery
were sold for ₹ 8,00,000 on 1.03.2024.
Discuss the implications of the above for the assessment year 2024-25 along with brief
computation of deduction permissible under section 35 assuming that necessary conditions have
been fulfilled.

6. Mr. Praveen Kumar has furnished the following particulars relating to payments made towards
scientific research for the year ended 31.3.2024:
₹ (in lacs)
Payments made to K Research Ltd. 20
Payment made to LMN College 15
Payment made to OPQ College 10

Note: K Research Ltd. and LMN College are approved research

institutions and these payments are to be used for the purposes of
scientific research.
Payment made to National Laboratory 8
Machinery purchased for in-house scientific research 25
Salaries to research staff engaged in in-house scientific research 12
Compute the amount of deduction available under section 35 of the Income-tax Act, 1961 while
arriving at the business income of the assessee.

7. Mr. Anirudh commenced operations of the business of setting up a warehousing facility for
storage of pulses and edible oil on 1.4.2023. He incurred capital expenditure of ₹ 50 lacs and 70
lacs respectively, on purchase of land and building during February 2023 and March 2023
exclusively for the above businesses, and capitalized the same in the books of accounts as on 1st
April, 2023. The cost of land included in the above figures is ₹ 30 lacs and ₹ 20 lacs, respectively.
Further, during the P.Y. 2023-24, it incurred capital expenditure of ₹ 20 lacs and ₹ 10 lacs,
respectively, for extension of the building purchased and used exclusively for the above
businesses. Compute the income under the head “Profits and gains of business or profession” for
the A.Y. 2024-25 and the loss to be carried forward, assuming that Mr. Anirudh has fulfilled all
the conditions specified for claim of deduction under section 35AD and has not claimed any
deduction under Chapter VI-A. The profits from the business of setting up a warehousing facility

1FIN BY INDIGOLEARN 6.60

 for storage of pulses and edible oil (before claiming deduction under section 35AD and section
32) for the A.Y. 2024-25 is ₹ 14 lacs and ₹ 25 lacs, respectively. [RTP Nov 2013]

8. Sai Ltd. has a block of assets carrying 15% rate of depreciation, whose written down value on
01.04.2023 was ₹ 40 lacs. It purchased another asset (second-hand plant and machinery) of the
same block on 01.11.2023 for ₹ 14.40 lacs and put to use on the same day. Sai Ltd. was
amalgamated with Shirdi Ltd. with effect from 01.01.2024
You are required to compute the depreciation allowable to Sai Ltd. & Shirdi Ltd. for the previous
year ended on 31.03.2024 assuming that the assets were transferred to Shirdi Ltd. at ₹ 60 lacs.
[Nov 10]

9. M/s Arora Ltd., submits the following details of expenditure pertaining to the financial year
2023-24:
i. Payment of professional fees to Mr. Mani ₹ 50,000. Tax was not deducted at source.
ii. Interior works done by Mr. Hari for ₹ 2,00,000 on a contract basis. Payment made in the
month of March 2024. Tax deducted in March 2024 was paid on 30.06.2024.
iii. Factory Rent paid to Mr. Rao ₹ 15,00,000. Tax deducted at source and paid on 01.10.2023
iv. Interest paid on Fixed Deposits ₹2,00,000. Tax deducted on 31.12.2023 and paid on
28.09.2024.
Examine the above with reference to allowability of the same in the assessment year 2024-25
under the Income-tax Act, 1961. You answer must be with reference to section 40(a) read with
relevant tax deduction at source provisions.

10. The following are the particulars in respect of a scheduled bank incorporated in India –
Particulars ₹ in lakh
Provision for bad and doubtful debts under section
(i) 100
36(1)(viia) upto A.Y.2023-24
Gross Total Income of A.Y.2024-25 [before deduction
(ii) 800
under section 36(1)(viia)]
Aggregate average advances made by rural branches of the
(iii) 300
bank
Bad debts written off (for the first time) in the books of
(iv) account (in respect of urban advances only) during the 210
previous year 2022-23
Compute the deduction allowable under section 36(1)(vii) for the A.Y.2024-25.

11. During the financial year 2023-24, the following payments / expenditure were made/incurred by
Mr. Yuvan Raja, a resident individual (whose turnover during the year ended 31.3.2023 was ₹59
lacs):

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 i. Interest of ₹ 42,000 was paid to Rehman & Co., a resident partnership firm, without
deduction of tax at source;
ii. Interest of ₹ 84,000 was paid as interest to Mr. R.D. Burman, a non-resident, without
deduction of tax at source;
iii. ₹ 8,00,000 was paid as salary to a resident individual without deduction of tax at source;
iv. Commission of ₹ 25,000 was paid to Mr. Vidyasagar on 2.7.2023 without deduction of tax
at source.
Briefly discuss whether any disallowance arises under the provisions of section
40(a)(i)/40(a)(ia) of the Income-tax Act, 1961.

12. Rao & Jain, a partnership firm consisting of two partners, reports a net profit of ₹ 7,00,000
before deduction of the following items:
ii. Salary of ₹ 20,000 each per month payable to two working partners of the firm (as
authorized by the deed of partnership).
iii. Depreciation on plant and machinery under section 32 (computed) ₹ 1,50,000.
iv. Interest on capital at 15% per annum (as per the deed of partnership). The amount of capital
eligible for interest ₹ 5,00,000.
Compute:
a. Book-profit of the firm under section 40(b) of the Income-tax Act, 1961.
b. Allowable working partner salary for the assessment year 2024-25 as per section 40(b) of
the Income-tax Act, 1961. [Nov 11]

13. Mr. Sivam, a retail trader of Cochin gives the following Trading and Profit and Loss Account for
the year ended 31st March, 2024:
Trading and Profit and Loss Account for the year ended 31.03.2024
Amount Amount
Particulars Particulars
(₹) (₹)
To Opening stock 90,000 By Sales 12,11,500
To Purchases 10,04,000 By Income from UTI 2,400
To Gross Profit 3,06,000 By Closing stock 1,86,100
Total 14,00,000 Total 14,00,000
To Salary 60,000 By Gross Profit b/d 3,06,000
To Rent and rates 36,000
To Interest on loan 15,000
To Depreciation 1,05,000
To Printing & stationery 23,200
To Postage & telegram 1,640
To Loss on sale of shares 8,100

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 (Short term)
To Other general expenses 7,060
To Net Profit 50,000
Total 3,06,000 Total 3,06,000

Additional Information:
i. It was found that some stocks were omitted to be included in both the Opening and Closing
Stock, the values of which were:
Opening stock ₹ 9,000
Closing stock ₹ 18,000
ii. Salary includes ₹ 10,000 paid to his brother, which is unreasonable to the extent of ₹ 2,000.
iii. The whole amount of printing and stationery was paid in cash by way of onetime payment.
iv. The depreciation provided in the Profit and Loss Account ₹ 1,05,000 was based on the
following information:
The written down value of plant and machinery is ₹ 4,20,000 as on 01.04.2023. A new plant
falling under the same block of depreciation was bought on 1.7.2023 for ₹ 70,000. Two old
plants were sold on 1.10.2023 for ₹ 50,000.
v. Rent and rates includes sales tax liability of ₹ 3,400 paid on 7.4.2024.
vi. Other general expenses include ₹ 2,000 paid as donation to a Public Charitable Trust.
You are required to advise Mr. Sivam whether he can offer his business income under section
44AD i.e. presumptive taxation.

14. Mr. Raju, a manufacturer at Chennai, gives the following Manufacturing, Trading and Profit &
Loss Account for the year ended 31.03.2024.
Manufacturing, Trading and Profit & Loss Account for the year ended 31.03.2024
Amount Amount
Particulars Particulars
(₹) (₹)
To Opening Stock 71,000 By Sales 32,00,000
To Purchase of Raw Materials 16,99,000 By Closing stock 2,00,000
To Manufacturing Wages & 5,70,000
Expenses 10,60,000
To Gross Profit
Total 34,00,000 Total 34,00,000
To Administrative charges 3,26,000 By Gross Profit 10,60,000
To State VAT penalty 5,000 By Dividend from domestic 15,000
To State VAT paid 1,10,000 companies 1,80,000
To General Expenses 54,000 By Income from agriculture
To Interest to Bank (net)

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 (On machinery term loan) 60,000
To Depreciation 2,00,000
To Net Profit 5,00,000
Total 12,55,000 Total 12,55,000

Following are the further information relating to the financial year 2023-24:
i. Administrative charges include ₹ 46,000 paid as commission to brother of the assessee.
The commission amount at the market rate is ₹ 36,000.
ii. The assessee paid ₹ 33,000 in cash to a transport carrier on 29.12.2023. This amount is
included in manufacturing expenses (Assume that the provisions relating to TDS are not
applicable to this payment.)
iii. A sum of ₹ 4,000 per month was paid as salary to a staff throughout the year and this has
not been recorded in the books of account.
iv. Bank term loan interest actually paid upto 31.03.2024 was ₹ 20,000 and the balance was
paid in November 2024.
v. Housing loan principal repaid during the year was ₹ 50,000 and it relates to residential
property occupied by him. Interest on housing loan was ₹ 23,000. Housing loan was taken
from Canara Bank. These amounts were not dealt with in the profit and loss account given
above.
vi. Depreciation allowable under the Act is to be computed on the basis of following
information:
Plant & Machinery (Depreciation rate @ 15%) ₹
Opening WDV (as on 01.04.2023) 12,00,000
Additions during the year (used for more than 180 days)2,00,000
Total additions during the year 4,00,000
Note: Ignore additional depreciation under section 32(1)(iia)
Compute the total income of Mr. Raju for the assessment year 2024-25.
Note: Ignore application of section 14A for disallowance of expenditures in respect of any
exempt income.

15. On June 17, 2023, X purchases a new machine for ₹ 18,00,000. The following expenses incurred
by him in respect of the machine- freight and insurance: ₹ 20,000, loading/unloading charges: ₹
40,000, installation: ₹ 17,500 (it includes GST), clearing agent commission: ₹ 8,000. Besides, x
incurs an expenditure of ₹ 80,000 on repairing a broken part of the machinery before its
operation and ₹ 24,000 on training of an employee to operate the new machine. The machine is
put to use on September 17, 2023, for trail run. Commercial production is, however, stated with
effect from December 1, 2023.

1FIN BY INDIGOLEARN 6.64

 The above machine is qualified for depreciation at the rate of 15 percent. On April 1, 2023, X
owns two plants –a and b in the block of assets which is qualified for 15 per cent depreciation
(opening balance of the block being ₹ 4,80,000). On March 10, 2024, x transfer plant A for ₹
3,00,000 and plant B for ₹ 4,80,000.
Net profit as per profit and loss account for the year ending March 31, 2024 is ₹ 17,75,000
after debiting depreciation of ₹ 75,000. Find out income under the head “profits and gains of
business or profession” for the assessment year 2024-25.

16. Profit and loss account of X ltd. for the year ending March 31, 2024 is given below-
₹ ₹
Office expense 16,56,000 Gross profit 95,00,000
Salary to employees 28,90,000 Other receipts 3,50,000
Employer’s contribution
to recognized provident 2,10,000
fund
Interest 9,55,000
Taxes 11,27,000
Road construction
90,000
expenses
Entertainment
1,92,000
expenditure
Reserve for bad debts 1,55,000
Penalty levied by excise
90,000
department
Depreciation 10,80,000
Miscellaneous
3,67,000
expenditure
Net profit 10,38,000
Total 98,50,000 98,50,000

Additional information-
1. Office expenses include payments of ₹ 45,000 to a relative of managing director. Market
value service provided by him is ₹ 48,000. Payment is, however, made by an account payee
cheque.
2. Office expenses also include a bogus bill of ₹ 10,000.
3. Salary to employees includes commission of ₹ 70,000 payable on purchase to the employees
of purchase department. The payment is, however, made on November 20, 2024. Return of
income for the assessment year 2024-25 will be submitted in December 2024.
4. Salary to employees also includes employee’s contribution towards recognized provident
fund. Contribution for March 2024 of ₹ 40,000 is paid after the due date of making

1FIN BY INDIGOLEARN 6.65

 payment under provident fund regulation but before the due date of submission of return
of income
5. Out of the employer’s contribution to provident fund, a payment of ₹ 44,000(pertaining to
March 2024) is paid after the due date of making payment under provident fund regulations
but before the due date of submission of return of income
6. Interest includes the following-
a. ₹ 30,000 for late payment of sales tax;
b. ₹ 40,000 for late payment of income-tax;
c. ₹ 10,000 on loan taken to purchase shares in Indian companies;
d. ₹15,000 on loan taken to purchase shares in foreign companies;
e. ₹ 8,000 on loan taken to pay income-tax.
7. Taxes debited to profit and loss account include income-tax of ₹ 50,000 for the
assessment year 2023-24.
8. Entertainment expenditure include expenditure of ₹ 10,000 for arranging new year party
for employees.
9. Other receipts credited to profit and loss account include-
a. Dividend from foreign companies: ₹ 80,000,
b. Dividend from Indian companies: ₹ 6,000,
c. UTI interest: ₹ 14,000,
d. Sales tax refund (earlier not allowed as deduction): ₹ 20,000,
e. Income tax refund: ₹ 24,000,
f. Interest of ₹ 11,500 received from government on refund of income tax.
10. Road construction expenditure is incurred during January 2024 for repairing the road
connecting office and canteen in the factory of the company. The entire amount is paid by
an account payee cheque to the contractor and tax is deducted at source.
11. Depreciation given in profit and loss account is depreciation of building and machinery. It is
calculated as per section 32. However, depreciation on road newly constructed between
office and canteen is not included as the entire amount is debited to profit and loss
account.
12. X ltd. gives a contribution of ₹ 11,500 to a political party. But is not debited to profit and
loss account.
Determine the net income and tax liability of X ltd for the assessment year 2024-25.

17. X owns the following assets on April 1, 2023:

Written down value on
Assets Rate of depreciation
April 1, 2023
PLANT A 70,000 40%
PLANT B 6,90,000 15%
PLANT C 17,000 15%
PLANT D 18,000 40%

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 FURNITURE 44,000 10%
BUILDING A 5,90,000 10%
BUILDING B 4,10,000 10%
BUILDING C 86,000 5%

He acquires the following second-hand assets during the previous year 2023-24:
Date when the
Cost price Rate of
Assets Date of purchase asset is put to
₹ depreciation
use
PLANT E 55,000 April 10, 2023 May 1, 2023 15%
PLANT F 70,000 April 30, 2023 May 15, 2023 15%
PLANT G 4,90,000 May 17, 2023 June 1, 2023 40%
PLANT H 14,70,000 June 15, 2023 June 15, 2023 15%
BUILDING November 30,
1,90,000 July 18, 2023 10%
D 2023
BUILDING September 7, September 8,
4,36,000 5%
E 2023 2023

He sells the following assets during 2023-24:

Assets Sale consideration(₹)
PLANT B 12,90,000
PLANT D 4,000
PLANT C 76,000
BUILDING A 3,80,000
BUILDING C 15,91,000
Determine the amount of depreciation for the assessment year 2024-25. Ignore additional
depreciation.

18. X ltd. Is engaged in the business of manufacture of telecommunication equipments. During the
previous year 2023-24, it incurs the following expenditure on in-house research and development
facility-
₹
Purchase of land 26,00,000
Construction of building 12,90,000
Purchase of plant and equipment 7,80,000
Research material 2,10,000
Find out the amount of deduction under section 35 if the research and development facility is
approved by the prescribed authority for the purpose of section 35.

1FIN BY INDIGOLEARN 6.67

19. X (32 years), a resident individual, furnishes the following particulars for the assessment year
2024-25:
Profit and loss account for the year ending March 31, 2024
₹ ₹
Office expenses 2,84,000 Gross profit 31,42,500
Salary to staff 9,20,000 Sundry receipts 52,000
Depreciation 85,000
Travelling expenses for
44,000
business
Loss of cash by an employee
1,000
through embezzlement
Transfer to special reserve
2,000
account
Expenditure on festival 2,400
Interest and legal expenses 12,000
Sundry expenses 2,100
Deposit under tatkal
6,000
telephone scheme
Net profit 18,36,000
Total 31,94,500 31,94,500
Other information:
1. Salary to staff includes payment of ₹46,000 out of India on which tax has not been
deducted at source nor paid to the government.
2. Depreciated value of plant and machinery on April 1, 2023 is ₹ 3,20,000 (rate of
depreciation : 15 per cent).
➢ An air-conditioner (cost price: ₹ 22,000) whose written down value on April 1, 2023, is ₹
6,000, is disposed of for ₹ 1500.
➢ A typewriter whose written down value on April 1, 2023 is ₹ 2,000 is sold for ₹ 80.
➢ X purchases a telephone set for ₹ 30,000 on November 1, 2023 which is eligible for
depreciation at the rate of 15 per cent.
3. Travelling expenses include ₹ 6000 being hotel expenditure of an employee in respect of an
official visit to madras for 3 days.
4. Amount debited as expenditure on festival is cost of a gift presented to a relative.
5. Sundry expenses include expenditure of ₹ 2,000 on maintenance of a guest house at Bombay.
6. Legal expenses include cash payment of ₹ 8,000 to an advocate (who is not an employee of x)
for giving income-tax advice.

Determine the taxable income and tax liability of x for the assessment year 2024-25, assuming
that sundry receipts include ₹ 40,000, being amount of a loan taken from public provident fund
account to which x annually contributes ₹ 20,000.

1FIN BY INDIGOLEARN 6.68

20. State with reasons, the deductibility or otherwise of the following expenses/payments under
the Income-tax Act, 1961, while computing income under the head “Profits and gains of business
or profession” for the Assessment Year 2024-25:
(i) MNO Ltd. paid ₹ 2,50,000 as technical fees to a non-resident on which tax is deducted
during the previous year 2023-24 but deposited on 31.8.2024
(ii) Bus & Train Pvt. Ltd. incurred ₹ 1,80,000 towards CSR Expenditure during the previous year
2023-24.
(iii) XYZ Ltd. has not deducted tax at source on the amount of ₹ 7,50,000 paid as annual salary
to Mr. Raghav, an employee of the company during the previous year 2023-24. Mr. Raghav
has not furnished any declaration to his employer regarding any investment made by him or
any other income earned, or loss incurred by him for the previous year 2023-24.
(iv) Rise & Co. has set up a warehousing facility for storage of sugar. It commenced operations
on 01.04.2021. In July 2023, Rise & Co. incurred capital expenditure of ₹ 72 lakhs on
purchase of building.

21. Mr. Xavier commenced the business of operating goods vehicles on 1.4.2023. He purchased the
following vehicles during the P.Y. 23-24 .
Compute his income under section 44AE for A.Y.2024-25. (RTP May-15)

Type of Vehicle Number Date of purchase

(1) Light Goods 1 10.4.2023
Vehicles
3 15.3.2024
(2) Medium goods 2 16.7.2023
vehicle
1 2.1.2024 (11 tonnes)
(3) Heavy goods 1 29.8.2023 (13 tonnes)
vehicle
2 23.2.2024 (14 tonnes)

1FIN BY INDIGOLEARN 6.69

 Chapter 7

Capital Gains
Before we Begin,

Income also arises out of sale proceeds received when we sell our assets, and here
the tax treatment is different and very important as this is one time taxation at
special rates.

You will learn about the following

• What is a Capital Asset?

• What is Transfer
• How the period of holding is determined
• Dissemination of Long-term and Short-term capital Gains
• Capital gains arising on specific situations
• Exceptions of transfer
• Concept of Indexation
• Deductions from Capital Gains Tax implications

A professional can play a very vital role in terms of Asset handling of his clients by
possessing in depth tax knowledge in this chapter for informed decision-making of
his clients/assessees.

Happy learning!

1FIN BY INDIGOLEARN 7.1

SEC 45 (1): BASIS OF CHARGE
Any profit or gain arising from the transfer of a capital asset, effected in the PY, in
which transfer took place, is chargeable to tax under the head capital gains.
Thus, in order to attract the capital gains tax-
➢ There should be capital asset,
➢ Such asset is transferred during the P.Y by assessee; and
➢ There arises gain or loss from such transfer.

Capital Gains

Transfer Capital asset Gain/Loss

Section 2 (14): Definition of Capital Asset

• Property of any kind held by assessee, whether or not connected

with business or profession
• Any other securities held by foreign institutional investor (FII)
• Unit Linked Insurance Policy (ULIP) issued on or after 01-02-2021,
Capital Asset to which exemption u/s 10(10D) does not apply on account of –
1. Premium payable exceeding Rs. 2,50,000 /- for any of the
means -
previous years during the term of insurance policy
2. The aggregate amount of premium exceeding Rs. 2,50,000 in any
of the previous years during the term of any such ULIP(s), in a
case where premium is payable by a person for more than one
ULIP issued on or after 01-02-2021.
1. Stock in trade (RM/ WIP/FG)
2. Movable personal property used by assessee or his dependent
Capital Asset family member for personal purpose. (Personal Effects)
does not But Excludes: Jewellery, Drawings, Painting, Sculpture,
include Archaeological Collection or Any other work of Art.
(excludes) 3. Rural Agricultural Land in India
4. Gold Deposit Bonds, 1999 or Deposit Certificates issued under the
Gold Monetisation Scheme, 2015,
Note: Interest on such bonds & deposit certificates also exempt u/s
10(15)

Determination of Rural and Urban Agricultural Land

➢ The following points determine the Urban Area

1FIN BY INDIGOLEARN 7.2

 (a) Any area (municipality) which has a population of 10000 or more.
(b) In the following area within the distance, measured aerially

Shortest distance from area referred in Population according to last

point (a) census
Upto 2 kms >10,000 up to 1,00,000
Upto 6 kms > 1,00,000 to 10,00,000
Upto 8 kms > 10,00,000
➢ Rural area means area which is not Urban area
Municipality or Cantonment board

Population
Agro Land not treated as Capital
Upto 10,000
Asset
Within 10,001 to 1,00,000 Agro Land treated as Capital Asset

Within 1,00,001 to 10,00,000 Agro Land treated as Capital Asset

More than 10,00,000 Agro Land treated as Capital Asset

Beyond 8
Area Local limit 2 Km 6 Km 8 Km Km

Some Important Points regarding Personal Effects

1. Assets used for personal purpose of assessee

2. T.V., car, Mobile etc. -Not a Capital - CG not
Asset Applicable
3. Jewellery, Drawings, Paintings -Capital Asset - CG Applicable
4. Gold Utensils, Silver Bard, Silver Coins were held - CG Applicable
not to be Consider as Personal Effect (Maharaja Rana
Hemanth Singh)
5. Silver Utensils held to be Personal Effect - CG Applicable
(Benarshilal Kataruka)
6. Car used in the business -Capital Asset - CG Applicable
7. Jewellery means:
a) Ornament made of gold, silver, platinum or any other precious metals or any alloy containing
such metals
b) Precious stones whether or not set in any furniture, utensil or other article

1FIN BY INDIGOLEARN 7.3

 Personal Effects

What are What are not

Meaning Meaning of jewellery
Personal Effects personal Effects

Movable Foreign stamp Ornaments (with / Precious / Semi

Property Furniture collection Precious Gemstones
without stones sewn
Car, Scooter not)
Clothes (though
occasionally used)
Intimate Utensils (though Securities Embeded or not
Connection occasionally used by the
assessee) Gold

Held for personal use Loose diamonds Sewn or not

of assessee /
Silver
dependent family Car, Scooter
member

Clothes (though Platinum

occasionally used)

Any Other Precious

Utensils (though Metal
occasionally used by
the assessee)

Transfer: What it Means [Section 2(47)]

The Act contains an inclusive definition of the term 'transfer. Accordingly, transfer in
relation to a capital asset includes the following types of transactions:

(1) The sale, exchange or relinquishment of the asset: or

(2) The extinguishment of any rights therein; or
(3) The compulsory acquisition thereof under any law: or
(4) The owner of a capital asset may convert the same into the stock-in-trade of a
business carried on by him. Such conversion is treated as transfer: or
(5) The maturity or redemption of a zero-coupon bond; or
(6) Part-performance of the contract: sometimes, possession of an immovable property is
given in consideration of part-performance of a contract (Sec 53A of transfer of
property Act)

1FIN BY INDIGOLEARN 7.4

 Sale

Past -
Performance Exchange
of Contract

Transfer
u/s 2(47)

Zero Coupon Compulsory

Bond Acquisition

Capital asset
convert to
stock in trade

(7) Lastly, there are certain types of transactions which have the effect of transferring
or enabling the enjoyment of an immovable property.

Difference between Relinquishment and Extinguishment

➢ Relinquishment means to withdraw, abandon or give up something. In other
words, the owner withdraws himself from the property and abandons his rights
thereto.
➢ It covers every possible transaction which result in the destruction, annihilation,
extinction, termination, cessation or cancellation etc. Ex: Reduction of share
capital

1FIN BY INDIGOLEARN 7.5

Types of Capital Asset

Capital Asset

Short Term Long Term

Capital Asset Capital Asset
(2(42A)) (2(29A))

Other Assets Capital Asset

which is not a
1. A security (other than a unit) Short-term
listed in a recognized exchange in 1. Unlisted shares Capital Asset is
India stock 2. Land or building a Long Term
2. A unit of UTI or a unit of an or both Capital Asset
equity oriented fund Capital Asset held by an
Will be treated as short term
3. A zero coupon bond Will be capital asset if it is held for assessee for not more
treated as short term capital asset not more than 24 months than 36 months
if it is held for not more than 12 immediately preceding the immediately
months immediately preceding date of its transfer. preceeding the date of
the date of its transfer. its transfer os a short
term capital asset

Period of Holding

While computing the period of holding of any capital asset, the following points are to be considered
to decide the nature of asset, whether short term or long term –
(a) Period after liquidation: In case of shares, if company goes into liquidation, the period after
the date of commencement of liquidation is to be excluded.
(b) Date of transfer: For calculating the period of holding of a capital asset, the date on which
the asset is transferred is to be excluded.
(c) Conversion of preference shares into equity shares: In such case, period of holding includes
the period for which the preference shares were held by the assessee. Similarly, period of
holdings of units in the consolidated plan of the scheme of the mutual fund includes the period
for which units in a consolidating plan of a mutual fund scheme were held by the assessee.

1FIN BY INDIGOLEARN 7.6

 SEC 47: THE FOLLOWING TRANSACTIONS ARE NOT REGARDED AS TRANSFER:

If subsequent
Conditions to be Cost in
transfer by
Nature of transaction fulfilled not to be the hands
transferee,
Sec not regarded as regarded as Transfer of
holding period
Transfer between transferor and Transfere
in the hands of
transferee (Sec 47) e
Transferee
Distribution of capital Previous owner's Cost to
47(i) asset in total or partial - holding period previous
partition of HUF shall be included owner
Capital assets other
Transfer of a capital than shares, debentures Previous owner's Cost to
47(iii) asset under a gift or will or warrants allotted holding period previous
or irrevocable trust directly or indirectly shall be included owner
under ESOP
➢Holding co., or its
Transfer of capital assets nominees hold 100% Previous owner's Cost to
shares in subsidiary
47(iv) by Holding company to holding period previous
company
its subsidiary shall be included owner
➢Subsidiary is an
Indian company
➢Whole of the share
capital of the
Transfer of capital asset subsidiary company Previous owner's Cost to
47(v) by Subsidiary company to held by holding holding period previous
its Holding Company company shall be included owner
➢Holding Company is an
Indian Company
Transfer in a scheme of
amalgamation, of a capital Previous owner's Cost to
Amalgamated Company
47(vi) asset by the amalgamating holding period previous
is an Indian Company
company to amalgamated shall be included owner
company
Transfer of capital asset Cost to
47 Resulting company is an
by a Demerged Company - previous
(vib) Indian Company
to the Resulting Company owner
The issue is made in
Transfer of issue of The Holding
consideration of
47(vid) shares by a resulting period in
demerger of the
company to the Demerged
undertaking.

1FIN BY INDIGOLEARN 7.7

 shareholders of Company shall
demerged Company. be included
The amalgamated
company is an Indian
Transfer of shares by a Company
shareholder in Note: If the Period of
amalgamating co., to consideration consists holding of Cost of
47(vii) amalgamated co., under a of something more than amalgamating previous
scheme of amalgamation the share/shares in the company shares asset
in consideration of shares amalgamated company shall be included
of amalgamated company then the assessee is not
entitled to exemption
u/s 47
• Any transfer made
outside India, of a
Capital asset being
Rupee Denominated
Bond of an Indian
47 Transfer of Rupee Company Not
Not Applicable
(viiaa) Denominated Bond • Issued outside India, Applicable
• By a Non-Resident to
another Non-
Resident shall not
be regarded as
Transfer.
Any transfer of a capital asset, being a Government security carrying a periodic payment
47 of interest, Payment made outside India through an intermediary dealing in settlement
(viib) of securities, by a non-resident to another non-resident shall not be considered as
transfer for the purpose of charging capital gains.
Transfer of Sovereign
Gold Bond issued by the
47 Transfer of Sovereign RBI under the Sovereign Not
Gold Bond Scheme, 2015 Not Applicable
(viic) Gold Bond issued by RBI Applicable
by way of redemption, by
an assessee being an
Individual
Transfer of the following: The transfer is made
Work of Art, to: Government,
Not
47(ix) Archaeological, scientific University, National Not Applicable
Applicable
or art Collections, Books, Museum, National Art
Manuscripts, Drawings, Gallery, National

1FIN BY INDIGOLEARN 7.8

 Paintings, photographs, Archives, any institution
printings. notified by Central
Government to be of
national importance.
Transfer by way of Cost of
conversion of Bonds, new asset
Holding period
Debenture Stock and = portion
of earlier asset
47(x) Deposit Certificates in - of cost of
cannot be taken
any form into shares or old asset
into account
Debentures of that that is
Company. converted
Capital Asset, being
Equity Share of a
Company, became the
Conversion of Preference
47(xb) property of the
Shares to Equity Shares
Assessee in
consideration of a
transfer u/s 47(xb)
Transfer of a Capital The scheme shall be
Not
47(xvi) Asset in a transaction of notified by the Central Not applicable
applicable
Reverse Mortgage Government

1FIN BY INDIGOLEARN 7.9

Note:

1. Cost of Acquisition of Specific Securities or Sweat Equity Shares [Sec.49(2AA)] = Fair Market
Value which has been taken into account for the purpose of valuation of perquisites on which tax
were paid under the head “Salaries”. Holding Period shall be reckoned from Date of Allotment or
Transfer of such Shares.

2. In case of reverse mortgage, amount received by the Senior Citizen as loan either in lumpsum or
in installments would be exempt under Section 10(43).

3. Cost of Acquisition of Gifts: Cost of Acquisition of property received as gift shall be the Market
Value of the Gifts on which Income Tax was paid under the head Income from Other Sources.

4. Cost of Acquisition of Resulting Company's Shares on Demerger [Sec.49(2C)] =

𝐶𝑜𝑠𝑡 𝑜𝑓 𝐴𝑐𝑞𝑢𝑖𝑠𝑖𝑡𝑖𝑜𝑛 𝑜𝑓 𝐷𝑒𝑚𝑒𝑟𝑔𝑒𝑑 𝐶𝑜′𝑠 𝑆ℎ𝑎𝑟𝑒𝑠 𝑋 𝑁𝑒𝑡 𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐴𝑠𝑠𝑒𝑡𝑠 𝑡𝑟𝑎𝑛𝑠𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑜 𝑅𝑒𝑠𝑢𝑙𝑡𝑖𝑛𝑔 𝐶𝑜
𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ 𝑜𝑓 𝑡ℎ𝑒 𝐷𝑒𝑚𝑒𝑟𝑔𝑒𝑟 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 𝐵𝑒𝑓𝑜𝑟𝑒 𝐷𝑒𝑚𝑒𝑟𝑔𝑒𝑟
Net Worth of Demerged Company Paid up Share Capital and General Reserve as per books,
before demerger.

5. Cost of Acquisition of Demerged Company's Shares after Demerger [Sec.49(2D)]

Original Cost of Acquisition of Shares in Demerged Company
Less: Cost of acquisition of Resulting Company's Shares as above

1FIN BY INDIGOLEARN 7.10

COMPUTATION OF CAPITAL GAINS (SEC.48)
Short-term Capital Gain means the gain arising on transfer of short-term capital asset
[Sec. 2(42B)].
Long-term Capital Gain means the gain arising on transfer of long-term capital asset
[Sec. 2(29B)].

Computation of Short-Term Capital Gain (STCG)

At a glance, computation of capital gain of for the Assessment Year ……..

Particulars Details Amount
Sale consideration (Full value of consideration) ****
Less: Expenses on transfer ****
Net sale consideration ****
Less: i) Cost of acquisition ****
ii) Cost of improvement **** ****
Short Term Capital Gain ****
Less: Exemption u/s 54B, 54D, 54G, etc. (****
)
Taxable Short Term Capital Gain ****
*
Note: No deduction shall be allowed in computing the income chargeable under the head
“Capital gains” in respect of any sum paid on account of securities transaction tax.

Computation of Long-Term Capital Gain (LTCG)

At a glance, computation of capital gain of for the Assessment Year ………….

Particulars Details Amount
Sale consideration (Full value of consideration) ****
Less: Expenses on transfer ****
Net sale consideration ****
Less: i) Indexed cost of acquisition ****
ii) Indexed cost of improvement **** ****
Long Term Capital Gain ****
Less: Exemption u/s 54, 54B, 54D, 54EC, 54F, etc. ****
Taxable Long Term Capital Gain ****
Note: No deduction shall be allowed in computing the income chargeable under the head
“Capital gains” in respect of any sum paid on account of securities transaction tax.

1FIN BY INDIGOLEARN 7.11

The meaning of terms used in the computation:

What is called Cost of Acquisition?

• In layman language, cost of acquisition means the purchase price and it shall include
all the expenses incurred in relation to purchase.

• While going into the chapter we will discuss cost of acquisition under different
circumstances.
Cost of Acquisition

Purchase price + Related expenses +

Improvements made before 1/04/2001
Acquired before 01/04/2001
(or) Fair Market value as on 01/04/2001
which ever is Higher

Acquired on or after 01/04/2001 Purchase price + Related expenses

Cost of Improvement:

• Cost of improvement means all expenditure of a capital nature incurred in making

any addition or alteration to the capital asset on or after the said date by the
previous owner or the assessee.

• Cost of improvement made before 01/04/2001 shall be ignored.

• Cost of improvement for intangible assets (Goodwill, business right, etc.) shall be
taken to be nil.

1FIN BY INDIGOLEARN 7.12

What is called Indexation?
• Indexation means Adjusting the price to Inflation
• Formulae for Computation if Indexed Cost of Acquisition

Index of the year of transfer

Indexed cost of acquisition = Cost of
Index of the year of acquisition
acquisition ×

• Formulae for Computation if Indexed Cost of Improvement

Index of the year of transfer

Indexed cost of improvement =Cost of
Index of the year of improvement
improvement ×
• Indexation benefit cannot be availed on the following capital assets or Transactions
o Short term Capital Assets
o Listed Equity Shares/ Units of equity-oriented Fund on which STT paid
o Depreciable Assets
o Slump Sale Transactions
o Capital Indexed bonds and Sovereign gold bonds

Cost Inflation Index for different financial years is as follows:

Financial Index Financial Index Financial Index

Year Year Year
2001-02 100 2011-12 184 2021-22 317
2002-03 105 2012-13 200 2022-23 331
2003-04 109 2013-14 220 2023-24 348
2004-05 113 2014-15 240
2005-06 117 2015-16 254
2006-07 122 2016-17 264
2007-08 129 2017-18 272
2008-09 137 2018-19 280
2009-10 148 2019-20 289
2010-11 167 2020-21 301
Note: Indexed cost of acquisition has to be ascertained with reference to the date of
acquisition and not with reference to the date when such asset became a capital asset.
• Cost of improvement incurred before 01.04.2001 is ignored
• Site and Building are separate assets for the purposes of capital gain. If site
acquired before 2 years and building constructed within 2 years then we have to
calculate separate capital gain for both the assets, Capital gain on land is treated as
LTCG and on building treated as STCG.
• Where such capital asset became the property of the assessee before 01.04.2001:
Cost of the asset to the assessee, or FMV as on 01.04.2001, at the option of the
assessee. However, in case of capital asset being land or building, FMV as on
01.04.2001 shall not exceed stamp duty value as on 01.04.2001

1FIN BY INDIGOLEARN 7.13

Chargeability of Capital Gains (Sec 45)

• Any profits or gains arising from the transfer of a capital asset effected in the
previous year shall be chargeable to Income-tax under this head in the previous
year in which the transfer took place.

Exceptions to the charging section:

1. Insurance receipts 45(1A):

• Where any person receives any money or other assets under any insurance from an
insurer on account of damage or destruction to capital asset on account of any
accident, riot etc., shall be chargeable to income-tax under the head "Capital gains"
and shall be deemed to be the income of such person for the previous year in which
such money or other asset was received.
• In simple chargeability is postponed to the year of receipt of asset or money from
insurance company
• Sale consideration = FMV of asset received or money received
• Chargeability alone is postponed to the year of receipt of insurance claim whereas
indexation can be availed only till the date of transfer. (Date of accident)

2. Conversion or treatment of capital asset into stock-in-trade 45(2):

• Conversion of capital asset into stock-in-trade is a transfer. However, conversion

made before 01/04/1984 are not regarded as transfer.
• Whereas the chargeability of capital gains is postponed to the year of sale of stock-
in trade.
• If the stock-in-trade is not sold in a single year, then the capital gains are
chargeable to tax in proportionate to the stock-in-trade sold
• Chargeability alone is postponed till the year of sale of Stock-in-trade, whereas
indexation can be availed only till the date of transfer.
• On sale of stock-in trade, both computation of capital gains and business income will
arise, hence the computations will be as follows:

1FIN BY INDIGOLEARN 7.14

 Capital Gains Business Income
FMV as on date of Sale Price of Stock in
Conversion Trade
(Less) Indexed Cost of (Less) FMV as on the
Acquisition/ date of acquisition
Improvement

3. Transfer of Beneficial Interest in Securities 45(2A)

• Transfer made by the Depository or participant of such beneficial interest in

respect of securities shall be chargeable to tax as the income of the beneficial
owner not the depository
• Chargeability is in the year of transfer.
• Where the securities are purchased in demat form, cost of acquisition shall be
determined on the basis of FIFO method.

4. Compensation on compulsory acquisition 45(5):

• A building or some other capital asset belonging to a person may be taken over by
the Central Government by way of compulsory acquisition. In that case, the
consideration for the transfer is determined by the Central Government of RBI.
• Capital gains chargeability is postponed to the year of receipt of compensation,
whereas indexation of COA/COI shall be only till the date of transfer.
• If Court awards a compensation which is higher than the original compensation, the
difference thereof will be chargeable to capital gains in the year in which the same
is received from the government which is called as enhanced compensation.
• Cost of acquisition and cost of improvement in case of enhanced compensation shall
be taken to be nil.
• Where the enhanced compensation is reduced then the capital gain of that year
shall be recomputed.
• In certain cases, the court may award even interest on compensation or enhanced
compensation which is chargeable to tax under the head income from other source
However, 50% interest deduction can be claimed on it.

1FIN BY INDIGOLEARN 7.15

Capital gains on Distribution of Assets by companies in Liquidation:

In the Hands of Company

• Assets directly Distributed to Shareholders

No Capital Gains

• Liquidator Sells the Assets and Distributes the

Capital Gains Chargable Fund

In the Hands of Shareholder:

Deemed
Capital Gains
Dividend
Sale Consideration =

FMV of Assets or
Money Received To the extent of
accumulated profits
any capital assets or
(-) Indexed Cost of money received on
Acquisition, Indexed account of liquidation
cost of improvement (-)
Amount taxable as
deemed dividend
has to be treated as
deemed dividend and
chargeable to tax under
the head IFOS at
general rates

1FIN BY INDIGOLEARN 7.16

Seventh proviso to Section 48: Security Transactions Tax (STT) not Allowed

STT paid on sale/purchase of shares/unit shall not be allowed under capital gain

not treated as
If it is paid at the
transfer
time of Sale
expense

not added to
If it is paid at the
the cost of
time of Purchase
acquisition

CONVERSION OF COST OF ACQUISITION INTO INDEXED COST OF

ACQUISITION

Treatment 1 Treatment 2
The previous owner holding period is to be The previous owner holding period is to be
ignored for computing indexed cost of considered for computing indexed cost of
acquisition acquisition.

Cost of Acquisition of Bonus Shares:

Issued Prior to COA = FMV as on

01/04/2001 01/04/2001
Bonus Shares
Issued on or
COA = Nill
after 01/04/2001

1FIN BY INDIGOLEARN 7.17

Cost of Acquisition of Right Shares:

COA for right shares

acquired = amount
actually paid
In the hands of Orginal
share holder
COA for rights
renounced Nil
Right Shares

In the hands of 3rd COA = Amount paid to

Party (whose favour company Amount paid
rights renounced) to share holder.

Cost of Acquisition for LTCA referred in Sec 112A:

Acquired on or after
COA = Purchase Pricel
01/02/2018

Sec 112A assets

COA of such Asset

Acquired prior to
01/02/2018
Lower of fair market
value as on 31/01/2018
and full value of
consideration received

Cost of Acquisition of Intangible Asset:

COA = Purchase
Acquired
Price

COA of Intangible
Asset
Business COA = Nill

Self Generated
COA not
Profession ascertainable - Not
Capital Gains

1FIN BY INDIGOLEARN 7.18

Determination of period of holding

Situations Period of holding

1) Shares held in a company in liquidation Period subsequent to the date of liquidation
should be excluded
2) Capital asset which becomes property Period of holding by previous owner should
of assessee U/s 49(1) be included
3) Shares became property in a scheme Period of holding in the amalgamating
of amalgamation [Also see 47(vii)] company should be included
4) Rights shares: Period shall be reckoned from the date of
(i) If subscribed by original shareholder allotment of Rights shares
(ii) If subscribed by others to whom Period shall be reckoned from the date of
rights are renounced allotment of Rights shares.
(iii) If Rights are renounced Period shall he reckoned from the date of
offer to the date of renouncement
(Normally it will be short term)
5) Bonus shares. Period will reckoned from the date of
allotment of bonus shares
6) Shares held by assessee in the Period of holding in the demerged company
resulting company shall be included
7) Sweat Equity shares allotted by The period of holding shall be counted from
Employer the date of allotment of such share
8) Flat in a cooperative society The period of holding shall be counted from
the date of possession.
9) Transfer of a security by a The period of holding shall be determined on
depository (i.e., demat account) the basis of FIFO Method.
First proviso to section 48: Capital Gain in case of Non-Resident
In case of
• Assessee who is a Non-Resident (includes foreign company)
• Asset should be shares or debentures of Indian company, &
• Such asset was acquired in foreign currency by way of purchase or re-investment then
capital gain shall be calculated in foreign currency & after that it shall be reconverted
into Indian currency

Rule 115A: Method of conversion

COA Avg of TTBR & TTSR On the date of acquisition
Transfer expenditure Avg of TTBR & TTSR On the date of transfer
Sale consideration Avg of TTBR&TTSR On the date of transfer
CG into Indian currency TTBR On the date of transfer

1FIN BY INDIGOLEARN 7.19

Notes:
1. Assessee should be NR in the year of sale
2. Index benefit not available where first proviso applies

Fifth proviso to section 48:

Foreign Exchange Fluctuation gain on RDB in case of NR assessee
Any gain arising on rupee appreciation against foreign currency at the time of redemption of
RDB (Rupee denominated bonds) of Indian company, shall be ignored for the purpose of
computation of full value of consideration
Note:
1. For computation of capital gain First Proviso to Sec. 48 applies.
2. If there is a loss due to rupee depreciation, then it shall be allowed as capital loss and can
be set-off and C/F
3. Exemption is not available if RDB is transferred before maturity.
4. Exemption is available to any person who holds the bonds, that is, even a secondary holder
also

Section 50: Computation of Capital Gain in Case of Depreciable Assets

• For the purpose of computing capital gains (sec 50) depreciable assets has to be
considered as Short-term capital assets irrespective of period of holding.
• On transfer of depreciable assets, capital gains computation will be made only when the
block ceases to exist
• Block ceases to exist under two circumstances:
o Where all the assets in the block are transferred (or)
o When a single or multiple assets transferred and the sale proceeds exceed
total block value
Format:

Full value of Sale consideration on sale of Depreciable XXXXX

Asset
(-) Transfer related Expenses XXXXX
(-) WDV of block at the beginning of Previous Year XXXXX

Conditions for Claiming Depreciation:

Depreciation u/s 32 can be claimed provided as the last day of the previous year, the
following two requirements are fulfilled-
1. There must be at least one asset in the block and;
2. There must be some value for the block on which prescribed percentage can be applied.
Sec 50 come into picture:

1FIN BY INDIGOLEARN 7.20

 i. Where any one or both of above requirements not satisfied, section 32 not
applicable and automatically the provisions of section 50 become applicable
resulting STCG OR STCL.
ii. Sec. 50 gets attracted under the following circumstances.
▪ When one or some of the assets in the block were sold for a
consideration which is more than value of block (STCG).
▪ When all the assets are transferred for consideration which is more
than (STCG) or less then the value of the block (STCL).

Capital Asset transferred

Falls within a block of Doesn’t fall within a block

assets

Situation – 1 Situation – 2 Depreciation Sec. 50 will

Depreciation has been has not been allowed with not apply
allowed with respect to respect to this block.
this block.

Possibility – 2 Possibility – 1

Block exists at the

Block doesn’t exist at the
end of the year of
end of the year of transfer
transfer

Positive Negative
Positive Negative

Depreciation STCG; No
STCL; No STCG; No
allowed depreciation.
depreciation. depreciation.

1FIN BY INDIGOLEARN 7.21

Section 50AA: Capital gain on transfer of unit of specified mutual fund or Market
Linked Debentures

➢ Section 50AA provided for computation of capital gains in case of transfer of unit of

specified mutual fund acquired on or after 1.4.2023 or units of market linked

debenture

➢ Capital gain arising on the above would be deemed to be short term capital gains and

would be chargeable at normal rate of tax.

➢ Market linked debenture means “A security which has an underlying principal

component in the form of debt security; and where the returns are linked to market

returns on other underlying securities or indices”. It includes any security classified

or regulated as a market linked debenture by SEBI.

➢ Specified Mutual Fund means “A mutual fund where not more than 35% of its total

proceeds are invested in equity shares of domestic companies.” However, the

percentage of equity shareholding held in respect of specified mutual fund shall be

computed with reference to annual average of the daily closing figures.

1FIN BY INDIGOLEARN 7.22

Capital gains in respect of Slump sale Sec 50B:

• Where a unit, branch, division, or undertaking has been sold as a whole aggregately
including all the assets and liabilities then it is called as slump sale.
• If the undertaking is held for more than 36 months, then the resulting gains or
losses arising are called as Long-term capital gains or losses.
• Full value of consideration shall be higher of “FMV of the capital assets transferred
by way of slump sale” or “FMV of the consideration (monetary and non monetary)
received or accruing as a result of transfer by way of slump sale.
• The net worth of the undertaking or the division shall be deemed to be the cost of
acquisition and the cost of improvement.
• Net-worth: Aggregate value of Total Assets - Value of liabilities of such
undertaking.
• Revaluation adjustment has to be ignored while calculating value of total assets.

Aggregate value of Total

Assets

In case of Depreciable Capital Asset on which 100%

For all other Assets
Assets Deduction is Claimed
Book Value
The WDV of block of assets Nil

Deemed full value of consideration: Sec 50C

• Where the sale consideration on account of transfer is less than that of STAMP
DUTY value (SDV), then SDV shall be considered as deemed sale consideration.
• However, SDV should be 110% more than that of the actual sale consideration.
• If assessee is aggrieved with taking SDV as sale consideration, then assessing
officer can refer the case to Valuation officer.
• Where there is a change in SDV from date of agreement to date of registration
then SDV as on date of agreement has to be considered only if
• Consideration is paid either wholly or partly through
• Account payee cheque.
• Account payee draft
• Electronic clearing system

1FIN BY INDIGOLEARN 7.23

 Valuation by Valuation officer > SDV
Then Sale consideration = SDV

Value Determined by
Valuation Officer If Valuation determined by valuation officer is < SDV
but greater than actual sale consideration, then
Sale consideration = Value determined by valuation
officer.

Sec 51: Advance Money forfeited.

• It is possible for an assessee to receive some advance in regard to the transfer of

capital asset. Due to the break-down of the negotiation, the assessee may have
retained the advance that is called as advance money forfeited.

Advance money
Person transferring the
forfeited has to be
property and the person
Tax treatment of advance money forfeited

reduced from cost of

forfeiting the advance or
acquisition before
same
Tax treatment of indexation.
advance money
forfeited.
Person transferring the
property and the person Ignore advance money
forfeiting the advance forfeited.
are different

if advance was received Chargeable to tax U/H

and forfeited on cr after IFOS in the year of
1/04/2004 forfeiture

1FIN BY INDIGOLEARN 7.24

Exemption of capital gain on compulsory acquisition of Agricultural land situated within
urban limits: Section 10(37)

Eligible Assessee: Ind and HUF

Capital Asset transferred: Urban agricultural land and should be used by Individual or HUF
or his family members for agriculture in preceding 2 years to date of transfer.

Exemption: Capital gains arising on compulsory acquisition are exempted.

1FIN BY INDIGOLEARN 7.25

 EXEMPTIONS FROM CAPITAL GAINS
Sec 54 54B 54D 54EC 54F
Long term capital Assets
Asset L&B for industrial Any Asset other than
Residential house Agricultural Land being Land & Building or
Transferred undertaking Residential House
both

Who is Entitled Individual or HUF Individual or HUF Any Assessee Any Assessee Individual or HUF

Used for agriculture

Should be LTCA. Should
by him or his parents
Use or Holding not own more than 1
Exceeding 24 Months or HUF for 2 years Used for 2 years LTCA
Period house on date of
immediately prior to
transfer
the date of transfer
Capital Gains (Investment
Amount to be in the year of transfer or
Capital Gains Capital Gains Capital Gains Net consideration
Invested next financial year = max
₹ 50 Lakhs)
Two Residential House
Specified bonds
in India
redeemable after 5 years
L&B for industrial One Residential House in
New Asset (Note: Investment in 2 Agricultural Land in NHAI or RECL or any
undertaking India
RP is eligible for LTCG other bond notified by the
up to ₹ 2 crores) central Govt.

Capital gains or asset (Amount Invested/ Net

Exemption invest whichever is As Above As Above As Above consideration) x Capital
less Gain

1FIN BY INDIGOLEARN 7.26

 Sec 54 54B 54D 54EC 54F

within 1 year before or

2 years after the date Within 1 year before or
of transfer in case of 2 years after transfer in
Prescribe Period within 2 years after within 3 years after Within 6 months of
purchase, or within 3 case of purchase or 3
for Investment transfer transfer transfer of original asset
years after the date years after transfer in
of transfer, in case of case of construction
new construction

deposit as CGAS
before due date of
Treatment of
furnishing return
Unutilised As Above As Above Same as Sec.54
u/s139(1) if it is not
Amount
utilised within the
time limit u/s 139(1)

If sold within 3 years

from date of
If sold within 5 years,
purchase/construction, Same as for Sec.54,
exempted CG will be
Sale of New for computing STCA 54B,54D except that
As Above As Above deemed to be LTCG of the
Asset on new asset, cost of under Sec.54F it will be
assessee in the year of
new asset shall be taxed as LTCG
sale of new asset
reduced by amount of
CG exempt

Note: In Section 54, Maximum exemption is capital gains or cost of new house (subject to maximum 10 crore) whichever is lower is exempt.

Note: In Section 54F, if the cost of new residential house or the amount invested in new residential house exceeds 10 crore, then the amount
exceeding 10 crore would not be taken into account for exemption.

1FIN BY INDIGOLEARN 7.27

 RATES OF TAXES ON CAPITAL GAINS
LTCG on listed Securities STCG
No STT
Not Any other or STCG
Particulars Suffered Listed securities
Suffered LTCG on any
STT Suffered STT
STT other
assets
Normal
Section 112A 112 112 111A
Rate
Rate of Tax [LTCG - 20% with 20% 15% Normal
1,00,000]x10% ICA or 10% Rate
of LTCG
without ICA
whichever is
lower
Residents 10% (Total 10% or 20% 20% of 15% of (Total Normal
whose total Income less of (Total (Total Income less Rate
income unveiled Basic Income less Income less unveiled Basic
excluding exemption unveiled unveiled exemption limit)
LTCG is limit) Basic Basic
below basic exemption exemption
exemption limit) limit)
limit
Non-Resident NIL LTCG LTCG STCG Taxable Normal
Individual or Taxable Taxable (Basic exemption Rate
HUF (Basic not available)
exemption
not
available)
Chapter VI-A Not Applicable Available
Deduction

Rebate u/s Not Applicable Applicable Applicable Applicable

87A Applicable

1FIN BY INDIGOLEARN 7.28

 COMPUTATION OF CAPITAL GAINS-Special Cases

Nature of Transaction Year of Taxability Computation of Capital Gains

General Computation of short term and CG= consideration of transfer

Year of Transfer
long-term Capital Gains less CA or ICA
Insurance Claim received on loss of asset CG= Insurance Claim Received
Year of Receipt
[Sec.45(1A)] less CA or ICA
Conversion of capital Asset into Stock-in- CG= FMV of capital asset on conversion Less CA or ICA
Year of Transfer
Trade [Sec.45(2)] (Note: Indexation BI= sale consideration less FMV considered as above
of Converted
based on year of conversion, not on year of
Stock
sale)
Sale of Shares held as Depositary CG= consideration of transfer
[Sec.45(2A)] (FIFO methos shall be Year of Transfer less CA or ICA
adopted)
Compulsory Acquisition of Capital Asset by
Government Approved authority
[Sec.45(5)]
CG=Whole of Normal Compensation Received or Receivable
a) Normal Compensation (Indexation Based Year of First
Less whole CA or ICA
on year of compulsory acquisition) Receipt

CG=Enhanced Compensation
Year of actual
b) Enhanced Compensation Less expenses incurred on receipt of enhanced compensation
receipt

CG=FMV of Assets Received

Receipt of Assets/ Cash from Company on
Add Amount received in cash
Liquidation in the hands of Shareholders Year of Receipt
Less deemed Dividend u/s 2(22)
[Sec.46]
Less CA/ICA of shares
Repurchase/Buy Back of Shares Year of CG= consideration of transfer
/Specified Securities Repurchase less CA or ICA

1FIN BY INDIGOLEARN 7.29

 Nature of Transaction Year of Taxability Computation of Capital Gains

CG= Consideration for transfer

Less: Expenses on transfer
Opening WDV
Additions During the Year
Transfer of Depreciable assets [Sec.50] Year of Transfer [W.e.f 01.04.2021 Where Goodwill of a business or Profession
forms part of block of assets for period beginning on 01.04.2020
and depreciation thereon has been obtained by the assessee, WDV
of that block and STCG, if any, shall be determined in prescribed
manner]
CG= Lump sum Consideration Less Net worth (No indexation for
LTCG)
Sale or Undertaking as a Going Concern or
Year of Transfer [WDV= In case of Capital Asset being Goodwill of a Business or
Slump Sale [Sec.50B]
profession which has not been acquired by the assessee by purchase
from a previous Owner=NIL
Transfer of Land or Building or both at CG=Value as per Stamp Duty Authority Less CA or ICA.
Year of Transfer
less than Stamp Duty Value [Sec.50C]

1FIN BY INDIGOLEARN 7.30

 Problems
1. Rahul converts his plot of land purchased in March, 2007 for ₹ 1,50,000 into stock in
trade on 23rd October, 2022. The fair market value as on 23.10.2022 was ₹ 4,00,000.
The stock-in-trade was sold for ₹ 5,00,000 in the month of September, 2023.
Examine the tax implications of such transaction.

2. Harshit sold his house for a consideration of ₹ 200 lacs on 1st January 2024. However,
stamp valuation authorities registered it at ₹ 220 lacs, being the sub registrar
approved value. He paid 5% of sale value as commission. The house purchased by
Harshit on 1.3.2001 for ₹ 10 lacs. He made some improvements by way of additional
construction to the house, incurring expenditure of ₹ 2 lacs in January 2007. The
market value of the house on 1.4.2002 was ₹ 12 lacs. He invested ₹ 30 lacs in eligible
bonds issued by Rural Electrification Corporation Ltd. (RECL) on 13.03.2024 and ₹ 20
lacs in eligible bonds issued by National Highways Authority of India (NHAI) on
15.07.2024 (Assume that the NHAI capital gains bonds issue were open for
subscription during the period from 02.04.2024 to 31.03.2025). Besides, he purchased
a small dwelling house on 01.04.2023 for ₹ 20 lacs.
Compute the capital gain chargeable to tax in the hands of Harshit for the assessment
year 2024-25.

3. X ltd. owns two plants- plant A and plant B (depreciation rate 15 per cent). The
depreciated value of the block on April 1, 2023 is ₹ 14,30,000. Till June 30, 2023,
plant B is installed in a foreign branch of the company. When plant B is in transit to
India on a ship in Indian Ocean, the ship drowns on July 7, 2023 due to engine failure
and plant b is completely destroyed. X ltd. gets ₹ 30,00,000 by way of insurance
compensation. Out of insurance compensation, the company purchases plant C (new)
for ₹ 5,00,000 on October 10, 2023 and remaining amount of compensation is
transferred to profit and loss account. Find out tax consequences.

4. Ms. Chhaya transferred a vacant site to Ms. Dayama for ₹ 4,25,000. The stamp
valuation authority fixed the value of vacant site for stamp duty purpose at 6,00,000.
The total income of Chhaya and Dayama before considering the transfer of vacant
site are ₹ 50,000 and ₹ 2,05,000, respectively. The indexed cost of acquisition for
Ms. Chhaya in respect of vacant site is ₹ 4,00,000 (computed).
Determine the total income of both Ms. Chhaya and Ms. Dayama taking into account
the above said transaction.

1FIN BY INDIGOLEARN 7.31

5. Mr. Chandru transferred a vacant site on 28.10.2023 for ₹ 100 lakhs. The site was
acquired for ₹ 9,99,300 on 30.6.2004. He invested ₹ 50 lakhs in eligible bonds issued
by Rural Electrification Corporation Ltd. (RECL) on 20.12.2023.
Again, he invested ₹ 20 lakhs in eligible bonds issued by National Highways Authority
of India (NHAI) on 16.4.2023.
Compute the chargeable capital gain in the hands of Chandru for the A.Y.2024-25.

6. Mr. Amit furnishes the following data for the previous year ending 31.3.2024:
a. Unlisted Equity Shares of Paras Ltd., 9,500 in number were sold on 31.5.2023, at
₹ 500 for each share.
b. The above shares of 9,500 were acquired by Mr. Amit in the following manner:
i. Received as gift from his father on 27.9.1990 (3,500 shares), the fair market
value of which on 1.4.2001 was ₹ 40 per share.
ii. Bonus shares received from Paras Ltd. on 27.8.1993 (3,500 shares).
iii. Purchased on 2.2.1998 at the price of ₹ 120 per share (2,500 shares).
c. Purchased one residential house at ₹ 20 lakhs, on 14.4.2024 from the sale proceeds
of shares.
d. Mr. Amit owns a residential house, even before the purchase of above house.
Compute the capital gain chargeable to tax in the hands of Mr. Amit for A.Y.2024-
25.

7. Mr. Mithun purchased 100 shares of M/s Goodmoney Co. Ltd. on 01-04-2008 at rate
of ₹ 1,000 per share, in public issue of the company.
Company allotted bonus shares in the ratio of 1:1 on 01.12.2021. He has also received
dividend of ₹ 10 per share on 01.05.2023.
He has sold all the shares on 01.10.2023 at the rate of ₹ 5,000 per share through a
recognized stock exchange and paid brokerage of 1% and securities transaction tax
of 0.02% to celebrate his 75th birthday. Compute his total income and tax liability
for Assessment Year 2024-25 assuming that he is having no income other than given
above.

8. Mr. Selvan, acquired a residential house in January, 2002 for ₹ 10,00,000 and made
some improvements by way of additional construction to the house, incurring
expenditure of ₹ 2,00,000 in October, 2007. He sold the house property in October,
2023 for ₹ 75,00,000. The value of property was adopted as ₹ 80,00,000 by the State
stamp valuation authority for registration purpose. He acquired a residential house in
January, 2023 for ₹ 25,00,000. He deposited ₹ 20,00,000 in capital gains bonds
issued by National Highways Authority of India (NHAI) in June, 2024.
Compute the capital gain chargeable to tax for the assessment year 2024-25.

1FIN BY INDIGOLEARN 7.32

 What would be the tax consequence and in which assessment year it would be taxable,
if the house property acquired in January, 2023 is sold for ₹ 40,00,000 in Dec, 2024?

9. Mukesh (aged 55 years) owned a residential house at Nagpur. It was acquired by

Mukesh on 10.10.1987 for ₹ 4,00,000. It was sold for ₹ 55,00,000 on 04.11.2023. The
State stamp valuation authority fixed the value of the property at ₹ 60,00,000. The
assessee paid 2% of the sale consideration as brokerage for the sale of said property.
Mukesh acquired a residential house at Chennai on 10.12.2023 for ₹ 15,00,000 and
deposited ₹ 10,00,000 on 10.4.2024 in the capital gain bond of Rural Electrification
Corporation Ltd. (RECL). He deposited ₹ 5,00,000 on 6.07.2024 in the Capital Gain
Deposit Scheme in a nationalized bank for construction of additional floor on the
residential house property acquired at Chennai.
Compute the capital gain chargeable to tax in the hands of Mr. Mukesh for the
assessment year 2024-25. Calculate the income-tax payable on the assumption that
he has no other income chargeable to tax.

10. Mr. Raj Kumar sold a house to his friend Mr. Dhruv on 1st November, 2023 for a
consideration of ₹ 25,00,000. The Sub-Registrar refused to register the document
for the said value, as according to him, stamp duty had to be paid on ₹ 45,00,000,
which was the Government guideline value. Mr. Raj Kumar preferred an appeal to the
Revenue Divisional Officer, who fixed the value of the house as ₹ 32,00,000 (₹
22,00,000 for land and the balance for building portion). The differential stamp duty
was paid, accepting the said value determined. Assuming that the fair market value is
₹ 32,00,000, what are the tax implications in the hands of Mr. Raj Kumar and Mr.
Dhruv for the assessment year 2024-25? Mr. Raj Kumar had purchased the land on
1st June, 2020 for ₹ 5,19,000 and completed the construction of house on 1st October,
2021 for ₹ 14,00,000.

1FIN BY INDIGOLEARN 7.33

11. Mr. A is an individual carrying on business. His stock and machinery were damaged and
destroyed in a fire accident.
The value of stock lost (total damaged) was ₹ 6,50,000. Certain portion of the
machinery could be salvaged.
The opening WDV of the block as on 1-4-2023 was ₹ 10,80,000.
During the process of safeguarding machinery and in the firefighting operations, Mr.
A lost his gold chain and a diamond ring, which he had purchased in April, 2006 for ₹
1,20,000. The market value of these two items as on the date of fire accident was ₹
1,80,000.
Mr. A received the following amounts from the insurance company:
i) Towards loss of stock ₹ 4,80,000
ii) Towards damage of machinery ₹ 6,00,000
iii) Towards gold chain and diamond ring ₹ 1,80,000
You are requested to briefly comment on the tax treatment of the above three items
under the provisions of the Income-tax Act, 1961.

12. Mr. A who transfers land and building on 20.12.2023, furnishes the following
information:
a. Net consideration received ₹ 12 lakhs.
b. Value adopted by stamp valuation authority, which was not contested by Mr. ₹ 18
lakhs.
c. Value ascertained by Valuation Officer on reference by the Assessing Officer ₹
20 lakhs.
d. This land was distributed to Mr. A on the partial partition of his HUF on 1.4.2001.
Fair market value of the land as on 01.04.2001 was ₹ 1,10,000.
e. A residential building was constructed on the above land by Mr. A at a cost of ₹
3,20,000 (construction completed on 1.12.2005) during the financial year 2005-
06.
f. Brought forward unabsorbed short-term capital loss (incurred on sale of shares
during the financial year 2017-18) ₹5,05,000.
Mr. A seeks your advice as to the amount to be invested in NHAI/RECL bonds so as
to be exempt from clutches of capital gain tax.

13. Mr. 'X' furnishes the following data for the previous year ending 31.3.2024:
a. Unlisted Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2023, at ₹
350 for each share.
b. The above shares of 10,000 were acquired by X in the following manner:

1FIN BY INDIGOLEARN 7.34

 i. Received as gift from his father on 1.6.1998 (5,000 shares) the market price
on 1.4.01 ₹ 50 per share.
ii. Bonus shares received from AB Ltd. on 21.7.1999 (2,000 shares).
iii. Purchased on 1.2.1995 at the price of ₹ 125 per share (3,000 shares).
c. Purchased one residential house at ₹ 25 lakhs, on 1.5.2024 from the sale proceeds
of shares.
d. 'X' is already owning a residential house, even before the purchase of above house.
You are required to compute the taxable capital gain. He has no other source of income
chargeable to tax.

14. Ms. Vasumathi purchased 10,000 equity shares of ABC Co. Pvt. Ltd. on 28.2.2006 for
₹ 1,20,000. The company was wound up on 31.7.2023. The following is the summarized
financial position of the company as on 31.7.2023:

Liabilities ₹ Assets ₹

60,000 Equity shares 6,00,000 Agricultural lands 42,00,000

General reserve 40,00,000 Cash at bank 6,50,000

Provision for taxation 2,50,000

48,50,000 48,50,000

The tax liability (towards dividend distribution tax) was ascertained at ₹ 3,00,000,
after considering refund due to the company. The remaining assets were distributed
to the shareholders in the proportion of their shareholding. The market value of 6
acres of agricultural land (In an urban area) as on 31.7.2023 is ₹ 10,00,000 per acre.
The agricultural land received above was sold by Ms. Vasumathi on 28.2.2024 for ₹
15,00,000.
Discuss the tax consequences in the hands of the company and Ms. Vasumathi.

1FIN BY INDIGOLEARN 7.35

15. X (63 years), a resident individual, transfers the following long-term capital assets
during the previous year 2023-24—
Agricultural
land in urban Silver Debentures Gold
area
Date of
April 12, 2023 Oct 7, 2023 Jan 3, 2024 Feb 26, 2024
transfer
Sale
consideration (in 22,75,000 68,86,000 15,76,000 23,10,000
₹)
Indexed cost of
19,32,000 56,10,000 8,11,878 11,78,000
acquisition (in ₹)
Expenditure on
5,000 6,000 1,000 10,000
transfer (in ₹)

Debentures were purchased in 2012-13. Other assets were purchased before April 1,
2012. Indexed cost of acquisition is calculated by applying cost inflation index notified
by the government. On April 1, 2023, x owns only one residential house property which
is used for his own residence. For acquiring this property, a loan was taken from a
friend in 2022 and interest on loan for the year 2023-24 is ₹ 1,46,000.
X makes following investments—
1. A residential house property of ₹ 18,00,000 is acquired on April 14, 2022.
2. NHAI bonds of ₹ 4,10,000 are purchased on October 5, 2023.
3. REC bonds of ₹ 9,00,000 are purchased on June 1, 2024.
Determine the amount capital gain chargeable to tax for the assessment year
2024-25.

1FIN BY INDIGOLEARN 7.36

16. Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on
01.04.2023 his Unit 1 by way of slump sale for a total consideration of ₹ 25 lacs. Unit
1 was started in the year 2004-05. The expenses incurred for this transfer were ₹
28,000. His Balance Sheet as on 31.3.2023 is as under:

Liabilities Total (₹) Assets Unit 1 (₹) Unit 2(₹) Total (₹)
Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000
Revaluation
Reserve
3,00,000 Machinery 3,00,000 1,00,000 4,00,000
(For building of
unit1)
Bank loan (70% 1,40,000
2,00,000 Debtors 1,00,000 40,000
for unit 1)
Trade creditors Other
1,50,000 1,50,000 60,000 2,10,000
(25% for unit 1) assets
Total 21,50,000 Total 17,50,000 4,00,000 21,50,000
i. Revaluation reserve is created by revising upward the value of the building of Unit
1.
ii. No individual value of any asset is considered in the transfer deed.
iii. Other assets of Unit 1 include patents acquired on 1.7.2021 for ₹ 50,000 on which
no depreciation has been charged.
Compute the capital gain for the assessment year 2024-25.

17. X owned 5 acres of agricultural land within the city limits of madras which he had
purchased on October 1, 2004 for ₹ 5,00,000. On October 1, 2023, he sold the
agricultural land for ₹ 50,00,000. On January 1, 2023, he purchased a coffee estate
for ₹ 10,00,000. The coffee estate was in a remote village and the nearest town was
about 20 kilometers away from the state. On February 28, 2025, he sold the coffee
estate for ₹ 35,00,000. You are required to compute the income chargeable under the
head “capital gains” for the assessment years 2024-25 and 2025-26.
What would be your answer if the coffee estate was situated within the city limits of
Ooty?

18. X ltd., a manufacturing company, owns the following assets on April 1, 2023:
Assets Rate of Written down value on April 1,
depreciation 2023
Plant A 30% 4,00,000
Plant B 15% 8,50,000
Plant C 15% 28,00,000
Plant D 30% 38,000

1FIN BY INDIGOLEARN 7.37

 X ltd. Purchases the following assets on March 10, 2024:
Assets Rate of depreciation Cost price (₹)
Plant E 30% 13,80,000
Plant F 15% 8,10,000
X ltd. sells the following plants during the previous year 2023-24:

Expenses on
Sale
Rate of transfer
Assets consideration
depreciation ₹
₹

Plant C 15% 48,20,000 32,000

Plant A 30% 16,90,000 415

Determine the amount of depreciation and capital gain for the assessment year
2024-25. The company is not eligible for additional depreciation.

1FIN BY INDIGOLEARN 7.38

 Chapter 8

Income from Other

Sources
Before we Begin,

All the possibilities which were not forming part of the previous heads of
income covered in the syllabus are included here in this chapter called Income
from Other Sources

You will learn about the following

• Chargeability section of income from other sources

• What includes in the other sources?
• Different treatments of various incomes
•

Empower yourself with tax knowledge for informed decision-making.

Happy learning!

1FIN BY INDIGOLEARN 8.1

1. CHARGEABILITY - SEC.56
It is a last and residual head of income in the income tax Act 1961. Generally, the
incomes which are not covered under other four heads of incomes are covered under
this head of income. However, Sec 56(2) specifies incomes which are always taxable
under this head of Income from Other Sources.

1.1. The following incomes are generally taxable U/S 56(1) since they are outside
the scope of the preceding heads:
➢ Income from sub letting
➢ Interest on bank deposits and loans, Interest on foreign government securities,
Interest on income tax refunds
➢ Income from royalty (if not chargeable under PGBP)
➢ Director's fees, Director's commission for standing as a guarantor to bankers.
Director's commission for underwriting shares of a new company
➢ Ground Rent, rent of plot of land [i.e rent from a vacant piece of plot of land]
➢ Agricultural income received from outside India
➢ Insurance commission
➢ Remuneration received by a person from a person other than his employer, eg:
examination remuneration received by a teacher
➢ Mining rent and royalties
➢ Casual income
➢ Annuity payable under a will, contract, trust, deed (does not cover annuity
payable by employer which is chargeable under the head "salaries")
➢ Salaries payable to a Member of Parliament.
[However, U/S 10(17), the daily allowances, constituency allowances received by
MLAs / MPs are exempt and all other allowances are taxable].
➢ Family pension received by family members of a deceased employee
➢ In the case of retirement, interest on employee's contribution if provident fund
is unrecognized.
➢ Income from undisclosed sources
➢ Gratuities paid to director who is not employee of the company
➢ Compensation received for use of business assets

1FIN BY INDIGOLEARN 8.2

 1.2. Incomes always chargeable under the head "IOS":

Income from other sources

Dividends

Any winnings from lotteries, crossword puzzles, races, races including horse-races, card
games and other games of any sort or form, gambling or betting of any form or nature
whatsoever [Referred to in Sec 2(24)(ix)

Any sum received from employees as contribution to a fund for the welfare of employees
if such income is not chargeable to tax under the head "PGBP"[Sec 2(24)(x)]

Interest income on securities or income from machinery, plant or furniture let on hire if
the income is not chargeable to tax under the head "PGBP"

Income from letting of plant, machinery or furniture along with building and letting of
building is inseparable from the letting of plant, machinery or furniture if it is not
chargeable to tax under the head "PGBP"

Advance forfeited due to failure of negotiations for transfer of a capital asset

Any sum received under a Key man insurance policy including bonus (if not taxable U/S 15
or U/S 28) [Sec 2(24)(xi)]

Where any sums of money or immovable property or specified Movable property are
received by an Individual / HUF without consideration or for an inadequate consideration
of a sum exceeding Rs.50.000/- [W.E.F 1st Oct 2009 onwards].

Where a firm or closely held company receives share of a closely held company from any
person without consideration or for inadequate consideration of a sum exceeding
Rs.50.000/-

Interest received on compensation or enhanced compensation shall be assessed under the

head "Income From Other Sources" in the year in which it is received.)]

As per Sec 56(2), the following incomes are always chargeable to tax under the
head "Income from other sources''.

1FIN BY INDIGOLEARN 8.3

 1) Dividend:
➢ Dividend is to be taxed in the year in which it is distributed, declared or
paid whichever is earlier. Normal dividend declared at the annual general
meeting is deemed to be the income of the previous year of shareholder
in which it is declared
➢ In the case of interim dividend it will be taxed in the year in which it is
unconditionally made available to the investors.
DEEMED DIVIDEND – SEC 22(2):
Clause Particulars Points to be Noted
(a) Distribution of Deemed as dividend
accumulated - whether capitalised or not
profits, entailing - should entail the release of all or any part of the
the release of company’s assets.
company’s assets Such amount is
In Cash deemed as
Distribution of dividend
accumulated
profits MV of shares is
In Kind deemed as
dividend

(b) Distribution of - to the extent of accumulated profits

debentures, (whether capitalized or not)
deposit - MV of bonus shares = Deemed Dividend
certificates to - MV of bonus shares = Deemed Dividend
shareholders and (if no MV – valuation as per accepted principles)
bonus shares to
preference
shareholders
(c) Distribution on - to the extent of accumulated profits before
liquidation liquidation (whether capitalized or not)
- distribution after liquidation in not dividend
(d) Distribution on - to the extent of accumulated profits (whether
reduction of capitalized or not)
capital

1FIN BY INDIGOLEARN 8.4

 (e) Advance or loan
Payment by company in
by a closely held which public are not
company to substantially interested
-its shareholders
-specific concern

As advance/loan

(A) To shareholder with >= (B)To a concern in which

10 % equity of the shreholder in (A):
company
Is a member/partner
(AND)
has substantial interest

Also, any payments by such a closely held company on

behalf of, or for the individual benefit of any such
shareholder will also be deemed to be dividend.
However, in both cases the ceiling limit of dividend is to
the extent of accumulated profits.
Exceptions (Not deemed as dividend):
1. Loan granted in the ordinary course of business
2. Dividend paid is set off against the deemed dividend

Other Exceptions:
➢ Distribution in respect of non-participating shares issued for full cash
consideration - Any distribution made in accordance with (c) or (d) in
respect of any share issued for full cash consideration and the holder
of such share is not entitled to participate in the surplus asset in the
event of liquidation.
➢ Payment on buy back of shares
➢ Distribution of shares to the shareholders on demerger by the resulting
company

1FIN BY INDIGOLEARN 8.5

 Notes:
➢ Trade advances, which are in the nature of commercial transactions,
would not fall within the ambit of the word 'advance' in section 2(22)(e)
and therefore, the same would not to be treated as deemed dividend –
CBDT Circular
2) Taxability of Winnings from Lottery etc. - Sec. 115BB
➢ Where the total income of an assessee includes any income by way of
winnings from any lottery or crossword puzzle or race including horse
race or card game and other game of any sort of from gambling or betting
of any form, tax shall be calculated at the rate of 30% on such income
plus surcharge and education cess as applicable.

Lottery income shall be grossed up as under:

(Net Income) x 100
Lottery Income = ---------------------------------
(100% - TDS rate)
➢ The taxability of income in the nature of winnings from any lotteries,
crossword puzzles, race etc. is subject to the following:
• No expenditure or allowance can be allowed against such income;
• No deduction under Chapter VI-A shall be allowed;
• No benefit of carry forward and set off of loss / unabsorbed
depreciation allowance is available against such income; and
➢ No basic exemption limit is available.
➢ This provision does not apply to income derived from owning and
maintaining race horses as a business activity in respect of which normal
rates of tax shall apply. Loss suffered from this source shall be governed
by the provisions of Sec.74A.
➢ Obligation to deduct Tax at Source with respect to winnings from
lotteries, cross word puzzles or card game or any other game (Sec
194B): The person responsible for paying to any person any income by
way of winnings from lotteries, cross word puzzles or card game or any
other game of any sort shall, at the time of payment thereof, deduct
income-tax thereon at the rate of 30%.
➢ Obligation to deduct tax at source with respect to winnings from
Horse race (Sec 194BB): Any person who is responsible for paying to
any person any income by way of winnings from Horse race shall, at the
time of payment thereof, deduct income-tax thereon at the rate of 30%.
3) Section 115BBJ: Winnings from Online Games
Net winnings from any online games would be taxed at a flat rate of
30 percent. Online games means a game that is offered on the internet

1FIN BY INDIGOLEARN 8.6

 and is accessible by a user through a computer resource including any
telecommunication device.

4) Interest on securities:
Income by way of interest on securities is taxable under the head "IOS" if
the same is not taxable as business income U/S 28.

Interest on securities

Interest
on any Interest on debentures or other
security securities for money used by
of CG/SG Local Authority
Company
Corporation established under
Central/ State/ Provisional Act

➢ For the purpose of this section the word security does not include shares
and stock in a company
➢ Interest on securities mean: -
• Interest on any security of the Central government or State
government
• Interest on debentures or other securities for money issued by
or on behalf of a local authority or a company or a corporation
established by a central, state or provincial Act.
➢ Basis of charge:
• Interest on securities may be taxed on receipt or due basis,
depending upon the method of accounting regularly employed by
the assessee.
• If no system of accounting is followed, it will be taxed on due
basis.

1FIN BY INDIGOLEARN 8.7

 Method of Accounting

Accrual Basis Receipt Basis

Taxable on Due basis Taxable on receipt basis

Interest income exempt U/S 10(15):

➢ Interest from notified bonds
➢ Post office savings bank account to an extent of ₹3,500 for an individual
account and ₹7,000 for a joint account.
➢ Interest on bonds, issued by –
(a) a local authority; or
(b) a State Pooled Finance Entity
and specified by the Central Government by notification in the Official
Gazette.
5) Income from machinery, plant or furniture let on hire:
Income from machinery, plant or furniture belonging to the assessee and let
on hire is taxable as income from other sources if the same is not taxable
under the head "PGBP".
6) Taxability of immovable property acquired by way of gift- Sec 56
If an individual or HUF receives on or after October 1, 2009 a gift
(Sums of money or immovable property or Movable property being
shares and securities, jewellery, bullion (w.e.f 1st June 2010),
archaeological collections, drawings, paintings, sculpture or any work
of art), it is chargeable to tax in the hands of the recipients under
the head "Income from Other Sources".
a) Valuation
➢ In case of immovable property
The value of property shall be stamp duty value of the property.
➢ In case of jewellery
The FMV of jewellery shall be estimated to be the price which such
jewellery would fetch if sold in open market on the valuation date.
If jewellery is received by way of purchase on the valuation date,
from a registered dealer, the invoice value of jewellery shall be the
FMV. In case these items are received by any other mode and the
value exceeds Rs. 50000, then the assessee may obtain the report

1FIN BY INDIGOLEARN 8.8

 of registered valuer in respect of the price it would fetch if sold
in open market on the valuation date.
➢ In case of quoted shares and securities (received by way of
transactions carried out through a recognized stock exchange)
The FMV of such shares and securities shall be the transaction
value as recorded in such stock exchange.
➢ In case of quoted shares and securities (not being received by way
of transactions carried out through a recognized stock exchange).
The FMV of such shares and securities shall be the lowest price of such
shares and securities quoted on any stock exchange on the valuation date.
If, however, on the valuation date such shares and securities are not
traded on any recognized stock exchange, the lower price of such shares
and securities on a date immediately preceding the valuation date shall
be the FMV.
➢ In case of unquoted equity shares
❖ The fair market value of unquoted equity shares shall be-
(a) (Assets-Liabilities) * Paid-up value of equity shares/ paid up
equity share capital
➢ In case of other unquoted shares and securities
The fair market value shall be estimated to be price it would
fetch if sold in the open market on the valuation date and the
assessee may obtain a report from a Category -I merchant banker
(registered with SEBI) or a chartered accountant in respect of
such valuation.
b) Receipt of property in kind (movable and immovable) is taxable
only if it is a capital asset in the hands of the recipient.
Thus, Sec 56(2)(x) has five categories of gifts received:
➢ Sums of money [Aggregate During the previous year]
➢ Movable property being shares and securities, jewellery, bullion,
archaeological collections, drawings, paintings, sculpture or any work of
art [Aggregate During the previous year] [Bullion is inserted w.e.f 1st
June 2010] without consideration
➢ Movable property for inadequate consideration
➢ Immovable property [Each single transaction] without consideration
➢ Immovable property received by an individual or HUF for inadequate
consideration to attract the taxability provisions under section 56(2)(x),
if the difference between the stamp duty value and actual consideration
is more than the higher of:

1FIN BY INDIGOLEARN 8.9

 a.50,000 and

b.10% of
consideration

*However, the above 10% would be considered as 20% in case of a

residential unit received from a person holding such property as stock-
in trade subject to following conditions: *
(i) The residential unit is transferred during the period between
12.11.2020 and 30.6.2021;
(ii) Such transfer is by way of first-time allotment of the
residential unit and
(iii) The consideration paid or payable as a result of such transfer ≤
₹ 2 crores.
The taxability provisions under section 56(2)(x) are summarised hereunder -
Nature
Particulars Taxable value
of asset
Without The whole amount if the same exceeds
1 Money
consideration ₹50,000 in aggregate.

Movable Without The aggregate fair market value of the

2
property consideration property, if it exceeds ₹ 50,000.
The difference between the aggregate
Movable Inadequate
3 fair market value and the consideration, if
property consideration
such difference exceeds ₹ 50,000
Immovabl
Without The stamp value of the property, if it
4 e
consideration exceeds ₹ 50,000.
property
The difference between the stamp duty
Immovabl
5 e Inadequate value and the consideration, if such
consideration difference exceeds ₹ 50,000 or 10/20% of
property the consideration.

In case where the date of agreement and date of registration are not same,
stamp duty value may be taken as on the date of agreement instead of the
date of registration. However, this would apply only in a case where the
amount of consideration or part thereof has been paid by any mode other
than cash on or before the date of agreement for transfer of such
immovable property.
If the stamp duty value of immovable property is disputed by the assessee,
the Assessing Officer may refer the valuation of such property to a
Valuation Officer.

1FIN BY INDIGOLEARN 8.10

c) Exempted categories (Non-applicability of Sec 56(2)(x)):
➢ Gifts received from a relative; or
➢ On the occasion of marriage of the individual; or
➢ Under a Will or by way of inheritance; or
➢ In contemplation of the death of the payer or donor as the case may be; or
➢ From a local authority; or
➢ From a Trust / Institution registered U/S 12AA; or
➢ From fund / foundation, University or other Educational Institution, hospital
or other medical institution, or any trust / other Institution referred to in
Sec 10(23C)
➢ Any transfer which is not regarded as transfer under section
47(i)/(iv)/(v)/(vi)/(vib)/(vid)/(vii).
➢ From an individual by a trust created or established solely for the benefit of
relative of the individual.
➢ From such class of persons and subject to such conditions, as may be
prescribed.
➢ by an individual, from any person, in respect of any expenditure actually
incurred by him on his medical treatment or treatment of any member of his
family, for any illness related to COVID-19 subject to conditions notified by
the Central Government (Amended by Finance Act, 2022)
➢ by a member of the family of a deceased person -
(A) from the employer of the deceased person (without any limit); or
(B) from any other person or persons to the extent that such sum or
aggregate of such sums ≤ ₹ 10 lakhs,
where the cause of death of such person is illness related to COVID-19 and the
payment is—
(i) received within 12 months from the date of death of such person; and
(ii) subject to such other conditions notified by the Central Government.

In the above 2 cases family in relation to an individual means

(i) the spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly
or mainly dependent on the individual.
(Amended by Finance Act, 2022)
➢ “Relative” means:
❖ Spouse of the individual;
❖ Brothers and sisters of the individual;
❖ Brothers and sisters of either of the parents of the individual;
❖ Any lineal ascendant or descendent of the individual;
❖ Any lineal ascendant or descendent of the spouse of the
individual;
❖ spouse of any of the persons referred above

1FIN BY INDIGOLEARN 8.11

 ❖ In case of Hindu Undivided Family, any member.

7) Advance forfeited due to failure of negotiations for transfer of a capital

asset to be taxable as "Income from other sources" [Section
56(2)(ix)]
➢ This section provides for the taxability under IFOS of any sum of money,
received as an advance or otherwise which was forfeited in the course of
negotiations for transfer of a capital asset, since the negotiations did not
materialize.

Advance
received and
forfeited

Upto AY After
2015-16 AY 2014-15

To be reduced
Taxable as IFOS
from COA while
u/s 56(2)(ix)
computing CG

8) Proceeds from key man insurance policy [Sec 56(2)(iv):

➢Keyman Insurance policy is a policy taken on the life of one person (keyman) by
another person (businessman) in whose organization the first mentioned persons
plays a key role.
➢The relationship between the two persons could be that of a principal and agent or
a contractor and contractee.
➢ The premium paid on such policy qualifies for deduction as business
expenditure in the hands of the payer (businessman), if it can be established
that the policy has been taken on the life of key person in the interest of
the business.

➢ Tax treatment of maturity proceeds:

Policy matures in the hands of businessman It is taxable in his hands u/s 28 as
“PGBP”
Policy is assigned to the Keyman (being employee It is taxable in his hands u/s 17(3)
of the businessman) as “salaries”
Policy is assigned to the keyman (being agent or It is taxable in his hands u/s 56 as
contractee of the businessman) “IFOS”

1FIN BY INDIGOLEARN 8.12

2. SHARE PREMIUM IN EXCESS OF FAIR MARKET VALUE {Section 56(2)(viib)}:
If a company in which public are not substantially interested, receives from any
resident person any consideration for issue of shares in excess of face value of
shares, then the aggregate consideration for which shares exceed the FMV of such
shares shall be chargeable to tax in the hands of Recipient Company under “IFOS”.
The FMV will be higher of the following:
➢ As determined as per the prescribed method
➢ As may be substantiated by the company to the satisfaction of I.T. Department
based on the value of its assets.
NOTE: If after issue of shares, the company becomes a public substantially interested
company but before 31st March of the financial year, then above provisions will not be
applicable since it will become a company in which public is interested as per section 2(18)
for the whole financial year.
Example:
Co. No. of Face FMV Issue
shares value of price
of share of
Applicability of section 56(2)(viib)
share s (₹) share
s (₹) s (₹)
Example 1:
A (P) 10,000 100 120 130 The provisions of section 56(2)(viib) are
Ltd. attracted in this case since the shares are
issued at a premium (i.e., issue price exceeds the
face value of shares). The excess of the issue
price of the shares over the FMV would be
taxable under section 56(2)(viib).
₹ 1,00,000 [10,000 × ₹ 10 (₹ 130 - ₹ 120)]
shall be treated as income in the hands of A (P)
Ltd.
Example 2:
B (P) 20,000 100 120 110 The provisions of section 56(2)(viib) are
Ltd. attracted since the shares are issued at a
premium. However, no sum shall be chargeable
to tax in the hands of B (P) Ltd. under the said
section as the shares are issued at a price less
than the FMV of shares.
Example 3:
C (P) 30,000 100 90 98 Section 56(2)(viib) is not attracted since the
Ltd. shares are issued at a discount, though the issue
price is greater than the FMV.
Example 4:

1FIN BY INDIGOLEARN 8.13

 D (P) 40,000 100 90 110 The provisions of section 56(2)(viib) are
Ltd. attracted in this case since the shares are
issued at a premium. The excess of the issue
price of the shares over the FMV would be
taxable under section 56(2)(viib). Therefore, ₹
8,00,000 [40,000 × ₹ 20 (₹ 110 - ₹ 90)] shall be
treated as income in the hands of D (P) Ltd.

3. INTEREST ON COMPENSATION OR ENHANCED COMPENSATION- SEC

56(2)(VIII)+ SEC 57(IV)
Interest received by an assessee on compensation/ enhanced compensation, as the
case may be, shall be deemed to be the income of the year in which it is received.
It is assessable U/H IFOS. 50% of Interest is allowed as deduction U/s 57(iv).

4. DEDUCTIBLE EXPENSES - SEC.57

Type of Income Deduction Allowed

Dividend or income in respect of units of a Interest expenditure to earn such income
mutual funds /unit of a specified company (maximum of 20% of such income included in
the total income, without deduction under
this section)
Interest on securities Any reasonable sum paid by way of
commission or remuneration, for the purpose
of realizing Interest on Securities.

Recovery from employees as contribution to Contribution remitted before the due date
any provident fund etc. in terms of section under the respective Acts
2(24)(x)
Income from letting on hire of machinery, Repairs, Insurance premium paid,
plant and furniture, with or without building depreciation
Family pension Lower of-
i. 33.33% of the Family pension or
ii. ₹ 15,000
In case of income u/s 56(2)(viii) 50% of such income (No deduction u/s 57)

➢ Any other expenditure incurred by the assessee not being capital expenditure
but laid out or expended wholly or exclusively for the purpose of marking or
earning any income chargeable under this head of income can be claimed.

1FIN BY INDIGOLEARN 8.14

5. INADMISSIBLE EXPENSES - SEC.58
➢ Personal expenses;
➢ Interest and salary payable outside India, if tax has not been paid or deducted at
source;
➢ Income tax & Wealth-tax paid;
➢ Expenses of the nature described in Sec.40A;
➢ Any expenditure in respect of which a payment is made to a related person and
the Assessing Officer considers it to be unreasonable having regard to the FMV.
➢ No deduction shall be allowed in respect of winnings from lotteries, cross word
puzzles, card games, races including horse race, gambling, betting, etc.
However, in respect of the activity of owning and maintaining racehorses,
expenses incurred shall be allowed even in the absence of any stake money earned.
Such loss shall be allowed to be carried forward in accordance with the provisions
of sec.74A.
➢ 30% disallowance of expenditure if TDS has been deducted/ deducted and not

paid before due date of return filing as in section 139(1).

6. DEEMED INCOME - SEC.59

Any amount received or benefit derived in respect of expenditure incurred or loss or
trading liability allowed as deduction shall be deemed as income in the year in which
the amount is received or the benefit is accrued. This provision is similar to that of
sec. 41(1) under the head 'Profits and gains of business or profession"'

Section 56(2)(xiii):
As per section 56(2)(xiii), any sum received under a life insurance policy is computed as
taxable income however, the same is exempt if the following condition is satisfied:

➢ If the same is exempt under section 10(10D)

➢ Where the premium payable should not exceed 10% or 15% (in case of
severe disability or suffering from specified diseases) of the actual capital
sum assured, for any of the years (during the term of the policy); or
➢ the sum is received on the death of a person; or
➢ if the amount of premium payable for LIP for any previous year during the
term of policy does not exceed 5 Lakhs (where the policy is issued on or
after 1 April 2023)

1FIN BY INDIGOLEARN 8.15

 Problems
1. State whether the following are chargeable to tax under the head “Income
from other sources” and if so, what is the amount liable to tax
a) Mr. X received a cash gift of ₹ 75,000 from PS charitable trust (Registered under
section 12AA) in January 2024 for meeting his medical expenses
b) Mr. Y & sons (HUF) received ₹ 60,000 in cash from elder son of Y. Y is the Karta
of the HUF
c) Interest on enhanced compensation of ₹ 1,00,000 was received as per court
decree in March, 2024 by Mr. Atul. Out of the said amount, a sum of ₹ 70,000
related to preceeding financial year
d) Anil took a loan of ₹ 18,00,000 from Reliance Power Ltd., in which he is holding
15% of equity shares. On the date of granting the loan, the Company had
accumulated profit of ₹ 75,00,000
e) Interest of ₹ 5,000 on bank FDRs received by minor son of Sneha (Widow). These
FDRs were made by the minor son out of his earnings from application of his
painting skills.

2. On 10.10.2023, Mr. Govind (a bank employee) received ₹ 5,00,000 towards

interest on enhanced compensation from State Government in respect of
compulsory acquisition of his land effected during the financial year 2011-12.
Out of this interest, ₹1,50,000 relates to the financial year 2020-21; ₹ 1,65,000 to
the financial year 2021-22; and ₹1,85,000 to the financial year 2023-24. He
incurred ₹50,000 by way of legal expenses to receive the interest on such enhanced
compensation.

How much of interest on enhanced compensation would be chargeable to tax for the
assessment year 2024-25?

3. The following details have been furnished by Mrs. Hemali pertaining to the
year ended 31.3.2024:
a. Cash gift of ₹ 51,000 received from her friend on the occasion of her
"Shastiaptha Poorthi", a wedding function celebrated on her husband completing
60 years of age. This was also her 25th wedding anniversary.
b. On the above occasion, a diamond necklace worth ₹ 2 lacs were presented by her
sister living in Dubai.
c. When she celebrated her daughter's wedding on 21.2.2024, her friend assigned
in Mrs. Hemali's favour, a fixed deposit held by the said friend in a scheduled
bank; the value of the fixed deposit and the accrued interest on the said date was
₹ 51,000.

1FIN BY INDIGOLEARN 8.16

 Compute the income, if any, assessable as income from other sources.

4. Rahul holding 28% of equity shares in a company took a loan of ₹5,00,000 from
the same company. On the date of granting the loan, the company had
accumulated profit of ₹4,00,000. The company is engaged in some
manufacturing activity.
a. Is the amount of loan taxable as deemed dividend in the hands of Rahul, if the
company is a company in which the public are substantially interested?
b. What would be your answer, if the lending company is a private limited company
(i.e., a company in which the public are not substantially interested)?

5. From the following particulars of Pankaj for the previous year ended 31st
March, 2024, compute the income chargeable under the head "Income from
other sources":
Particulars ₹
Directors fee from a company 10,000
Interest on bank deposits 3,000
Income from undisclosed source 12,000
Winnings from lotteries (Net) 35,000
Royalty on a book written by him 9,000
Lectures in seminars 5,000
Interest on loan given to a relative 7,000
Interest on debentures of a company (listed in a recognised stock exchange) net 3,600
of taxes
Interest on Post Office Savings Bank Account 500
Interest on Government Securities 2,200
Interest on Monthly Income Scheme of Post Office 33,000

He paid ₹ 1,000 for typing the manuscript of book written by him.

1FIN BY INDIGOLEARN 8.17

6. Discuss the taxability or otherwise of the following in the hands of the
recipient under section 56(2)(x) the Income-tax Act, 1961 -
i. Shivam HUF gifted a car to daughter of Karta for winning the first prize in all
India music competition.
ii. Mrs. Parth received 200 shares of ABC Ltd. from her friend as a gift on occasion
of her 50th marriage anniversary. The fair market value on that date was ₹ 150
per share. She also received jewellery worth ₹ 35,000 (FMV) from her niece on
the same day.
iii. Manish HUF received ₹ 55,000 in cash from nephew of Manish (i.e., son of Manish’s
sister). Manish is the Karta of Manish HUF.
iv. Shivang, a member of his father’s HUF, transferred a house property to the HUF
without consideration. The stamp duty value of the house property is ₹ 12,00,000.

7. X ltd. Is a manufacturing Indian company. For the previous year ending March
31, 2024, net profit as per profit and loss account is ₹ 17,80,000. It is
calculated after including compensation and interest of ₹ 4,05,000 as given
below—
a) X ltd. was the marketing agent of A inc. (a foreign company). The agency was
terminated by the foreign company during April 2023. A compensation of ₹
4,00,000 is received during January 2024 and it is credited to the profit and
loss account of the year ending March 31, 2024.
b) From the foreign company, X ltd. has collected an interest of ₹ 78,000. After
deducting expenditure for collecting interest of ₹ 73,000, ₹ 5,000 is credited
to the profit and loss account ₹ 73,000 is paid to a law firm for collecting this
account.
During the year 2006-07, Government of Punjab has acquired the land of X ltd and
for which a compensation of ₹ 55,00,000 was paid in 2021-22. On appeal filed by X
ltd., the Punjab high court increased the compensation to ₹ 80,00,000. Punjab
government paid ₹ 25,00,000 on June 13, 2023. Along with enhanced compensation of
₹ 25,00,000, X ltd. has received interest of ₹ 3,00,000. It pertains to previous years
2006-07 to 2023-24. Interest and compensation are not credited to profit and loss
account.
Determine the net income and tax liability of x ltd. For the assessment year 2024-
25 taking into consideration the following additional information—
1. For realizing enhanced compensation and interest thereon, legal expenditure of
the company is ₹ 1,40,000. It is not debited to current year’s profit and loss
account.
2. X ltd. has contributed ₹ 61,500 towards national defense fund on August 15,
2023.
3. X ltd. maintains books of accounts on mercantile basis.

1FIN BY INDIGOLEARN 8.18

8. State whether the following are chargeable to tax and the amount liable to
tax:
➢ A sum of ₹1,20,000 was received as gift from non-relatives by Raj on the
occasion of the marriage of his son Pravin.
➢ Interest on enhanced compensation of ₹50,000 was received as per court
decree in December 2023 by Mr. Yogesh. Out of the said amount, a sum
of ₹35,000 relates to preceding financial years.

9. X (42 years) gives following information for the previous year 2023-24—
₹
On December 1, 2023, he gets gift of house a from his friend B (stamp
6,00,000
duty value is determined at ₹6,00,000)
On December 3, 2023, he gets gift of house B from C (who is father-in-law
of his elder brother) (stamp duty value is ₹40,000; however, current 40,000
market value is ₹65,000)
On December 7, 2023, X purchases a second-hand car for ₹70,000 from D
70,000
(market value is, however, ₹3,00,000)
On December 14, 2023, X purchases a work of art for ₹5,00,000 from E
5,00,000
(fair market value is ₹5,30,000)
On December 20, 2023, X purchases jewellery for ₹7,00,000 from F (FMV
7,00,000
is ₹7,25,000)
On December 21, 2023, X purchases a painting for ₹4,00,000 from G (who
4,00,000
is brother of Mrs. X) (FMV is ₹7,00,000)
On December 24, 2023, X purchases a commercial property for
20,00,000
₹20,00,000 from G (who is brother of Mrs. X) (FMV is ₹90,00,000)
On December 25, 2023, X gets a gift of 100 preference shares in A ltd.
from J on December 25, 2023, stock exchanges are closed, and the lowest
quotation on the immediately preceding working day in national stock
exchange is ₹450
On December 27, 2023, X gets a gift of government security from K (K is
husband of X father’s sister) (FMV on the date of gift is ₹4,00,000)
On January 25, 2024, X gets a gift cheque of ₹1,00,000 from his friend L
1,00,000
on his birthday.
On January 28, 2024, minor son of X gets the gift of ₹55000 from his
elder brother of X’s grandfather).
Income of X from business 4,00,000
X contributes in public provident fund account of his minor son 30,000
X contributes in public provident fund account of his dependent mother 10,000
Determine the amount of net income of X for the assessment year 2024-25.

10. Discuss the taxability or otherwise of the following in the hands of the
recipient under section 56(2)(x) the Income Act, 1961—

1FIN BY INDIGOLEARN 8.19

 a) Akhil HUF received ₹ 75,000 in cash from niece of Akhil (i.e., daughter
of Akhil’s sister). Akhil is the karta of the HUF.
b) Nitisha, a member of her father’s HUF, transferred a house property to
the HUF without consideration. The stamp duty value of the house
property is ₹ 9,00,000.
c) Mr. Akshat received 100 shares of A Ltd. from his friend as a gift on
occasion of his 25th marriage anniversary. The fair market value on that
date was Rs.100 per share. He also received jewellery worth ₹ 45,000
(FMV) from his nephew on the same day.
d) Kishan HUF gifted a car to son of karta for achieving good marks in XII
board examination. The fair market value of the car is ₹ 5,25,000.
e) Ms. Kratika purchased a land from PMC co. a partnership concern for ₹
7,15,000. The stamp duty value of the same was ₹ 12,00,000.

1FIN BY INDIGOLEARN 8.20

 Chapter 9

Clubbing of Income
Before we Begin,

Humans are evolved with responsibilities and duties of various things in every
stage of life and in this context, it is a responsibility to pay taxes for the
society in which you live in which can neither be neglected nor escaped.

There are several loopholes in the Tax laws through which income of the
individual can be diverted or averted to reduce the tax liability. This chapter
eliminates such loopholes by clubbing such income received in the hands of the
other persons in the hands of such persons in whose hands it should actually be
taxed.

You will learn about the following

• Various transfers made to escape income tax liability

• Various clubbing provisions
• Clubbing of relatives (Spouse/minor child) income
• Exceptions and Deductions in various cases as such

Happy learning!

1FIN BY INDIGOLEARN 9.1

1. INTRODUCTION

Generally, an assessee is taxed in respect of his own income. However, there are certain
cases where an assessee has to pay tax in respect of income of another person under
certain sections of the Act. Such provisions are discussed in this chapter.

In case of individuals the income tax on the income is earned is payable based on the
rate of tax applicable at different slab rates. Therefore, since there is possibility of
tax avoidance by way of diverting the income of an individual to avoid paying tax at a
higher rate these provisions are brought into force.

Income of other persons included in assessee's total income

Income arising Income of Son's

Transfer of total Spouse Income Minnor's income
from revocable Wife
income without
transfer of asset transfer of assets
[Section 60] [Section 61]

2. Sec 60: TRANSFER OF INCOME WITHOUT TRANSFER OF ASSETS

➢ If the income is transferred, without transferring asset from which such income
was generated, then such income is to be included/ clubbed to the income of
transferor.
➢ In the following cases, Clubbing is attracted u/s 60, even if: -
❖ Transfer is revocable or irrevocable
❖ Transfer is made before or after commencement of Act.
❖ Transfer is made to a closely connected person or not
❖ Transferor is individual, firm, company or any other person.

1FIN BY INDIGOLEARN 9.2

3. Sec 61: REVOCABLE TRANSFER OF ASSETS

Clubbing is attracted u/s 61, if there is a transfer of asset, and such transfer is
revocable.

3.1. Meaning of Revocable Transfer [Sec 63(a)]: The following transfers are
deemed to be revocable if: -

. .
•It contains any provision for the re-transfer •It gives the transferor a right to re-assume
(directly or indirectly) of the whole or part power (directly or indirectly) over the
of the income or assets to the transferor, whole or any part of the income of assets.
OR

“This clubbing provision will operate even if only part of income of the transferred
asset had been applied for the benefit of the transferor. Once the transfer is
revocable, the entire income from the transferred asset is includible in the total
income of the transferor.”

3.2. Exceptions:

➢ Clubbing u/s 61 is not attracted in following situations:

❖ a transfer by way of trust which is not revocable during the lifetime of the
beneficiary; and,
❖ any other transfer, which is not revocable during the lifetime of the
transferee.

3.3. Points regarding Exceptions: -

➢ The exceptions stated above are allowed only if the transferor doesn't derive any
direct or indirect benefit from income of the transferred asset.
➢ In these exceptions, the income shall become taxable in the hands of transferor
as and when the power to revoke arises.

1FIN BY INDIGOLEARN 9.3

4. Sec 63(b): MEANING OF TRANSFER

Transfer includes any settlement, trust, covenant, agreement or arrangement.

Transfer

Revocable Irrevocable

Transfer of Transfer of Transfer of Transfer of

Income asset Income asset

Taxable in the Taxable in the Taxable in the Taxable in the

hands of hands of hands of hands of
transferor transferor transferor transferee
(Sec 60) (Sec 61) (Sec 60) (Sec 62)

5. Sec 64(1)(ii): REMUNERATION OF SPOUSE FROM A CONCERN IIN WHICH THE

OTHER SPOUSE HAS SUBSTANTIAL INTEREST

➢ Sec.64(1) is applicable if the following conditions are satisfied:

1. The taxpayer is an individual and he has substantial interest in the concern.
2. Spouse of the individual is in receipt of income from such concern by way of
salary, commission, fees or other form of remuneration.
3. Such income is not solely attributable to the application of spouse’s technical
or professional knowledge and experience.
➢ Salary, commission, fee or any other remuneration received by one spouse from a
concern in which other spouse is substantially interested, then remuneration will be
clubbed with the total income of that spouse who is substantially interested.

1FIN BY INDIGOLEARN 9.4

 5.1. Exceptions:
➢ Where such remuneration is attributable to application of technical or
professional knowledge and experience of spouse. Any income other than
remuneration- e.g., interest, dividend.

Does the Remuneration

Individual have substantial No assessed in the
interest in the concern? hands of Individual’s
spouse

Yes
Yes

Does the spouse have any

technical or professional
knowledge and experience?

No

Remuneration assessed in
the hands of Individual

5.2. Both husband and wife have substantial interest in a concern, and
both are in receipt of income by way of salary etc. from the said concern,
such income will be includible in the hands of that spouse, whose total
income, excluding such income is higher.

However, in the succeeding year such income shall not be included in the TI of the
other spouse unless the AO is satisfied.
5.3. Meaning of Substantial Interest:
An Individual shall be treated as substantially interested-
1. In a Company:
If such individual or such individual and his relatives are beneficial holders of
at least 20% shares (in terms of voting power) of the company at any time during
the previous year.

1FIN BY INDIGOLEARN 9.5

 2. In any other concern:
If such individual or such individual and his relatives are entitled to at least
20% share in profits of the concern at any time during the year.

6. Sec 64(1) (IV): TRANSFER OF ASSET TO SPOUSE

Subject to the provisions of section 27(i), Transfer of an asset, directly or indirectly,

by one spouse to other spouse without adequate consideration, then income from such
asset is to be clubbed to the income of transferor spouse.

6.1. Exceptions:

Provisions of clubbing are not applicable in following cases: -

➢ Where the transfer is made for adequate consideration.
➢ Where the transfer is made under an agreement to live apart.
➢ Where the transfer is made before marriage (i.e Pre-nuptial transfer).
➢ Income of the property acquired by spouse out of pin money
➢ Where the transferred asset is a house-property, rental income is not
clubbable under this section, since section 27(i) shall become applicable in
such a case.
However, if the transferee sells the house-property and earns capital gain, such
capital gain shall be clubbed in the assessment of transferor.

6.2. Points:
Where the transferred asset is invested by the transferee in a business, the
income shall be clubbed as follows-
1. If the investment is made in a partnership firm:
Income to be clubbed is:
(Interest from firm/ Total investment in the firm as on 1st day of PY) *
(Investment out of transferred asset as on 1st day of PY)
Note: Share in profit of firm, being exempted u/s 10(2A), is not clubbable.
Similarly, remuneration received from firm shall be due to person skill and hence
not clubbable
2. If the investment is made in a proprietary business:
Income to be clubbed is:
(Business Income/ Total investment in the business as on 1st day of PY) *
(Investment out of transferred asset as on 1st day of PY)
Husband and wife relationship should subsist both on the date of transfer of asset
and on the date of accrual of income. Then only the provision of Sec 64(1)(iv) can
be invoked.

1FIN BY INDIGOLEARN 9.6

 However, it is to be noted that any income from the accretion of the transferred
asset is not to be clubbed with the income of the transferor. i.e., income earned
by investing such income (arising from transferred asset) cannot be clubbed.
Eg: The assessee gifted units to his spouse. The spouse received bonus units.
Subsequently, she received interest on bonus units. Held that such interest cannot
be clubbed since the Act makes provision for clubbing of income of transferred
asset only and not of income of transferred asset.

7. Sec: 64(1)(vi): TRANSFER OF ASSET TO SON'S WIFE

➢ Sec.64(1)(vi) is applicable if the following conditions are satisfied:

1. The taxpayer is an individual.
2. He/she has transferred the asset after May 31, 1973.
3. The asset is transferred to his/ her son’s wife.
4. The transfer may be direct or indirect.
5. The asset is transferred otherwise than for adequate consideration.

7.1. Exceptions:

➢ Clubbing is not applicable in the following cases: -

❖ Where the transfer is made for adequate consideration.
❖ Where transfer is made before marriage.
➢ Where the transferred asset is invested by the transferee in a business, the
income shall be clubbed in the same manner as discussed above in Section 64(1)(iv).
➢ The relationship of father-in-law or mother-in-law and daughter-in-law should
subsist both at the time of transfer and at the time of accrual of income.
8. Sec: 64(1)(VII): TRANSFER FOR THE BENEFIT OF SPOUSE

If Income of an asset is transferred, directly or indirectly, by an individual to any

person or AOP, for the immediate or deferred benefit of spouse, then such income is
to be clubbed to the income of transferor.

8.1. Exception:
Clubbing is not applicable, if transfer is made for adequate consideration.

9. Sec: 64(1)(VIII): TRANSFER FOR THE BENEFIT OF SON'S WIFE

➢ Sec.64(1)(viii) is applicable if the following conditions are satisfied:

1. The taxpayer is an individual.

2. The asset is transferred to any person or AOP.
3. The asset is transferred for the immediate or deferred benefit of his/ her
son’s wife.
4. The transfer may be direct or indirect.

1FIN BY INDIGOLEARN 9.7

 5. The asset is transferred otherwise than for adequate consideration.

10. Sec: 64(1A): INCOME OF MINOR CHILD

➢ If Minor child suffers from any disability prescribed in u/s 80U, clubbing is not
applicable.
➢ If Minor child does not suffer from any disability prescribed in u/s 80U, then
clubbing is as follows: -

❖ Income attributable to use of talent, skill or manual work of such child - No

clubbing,
❖ Other income of child - Clubbing Provisions applicable as follows: -

10.1. If both parents are live:

There can be two situations in this case-

If the marriage relationship of parents subsists:

Income shall be clubbed with income of that parent who has higher total income (before
inclusion of child’s income).

If the marriage relationship doesn't subsist:

Income shall be clubbed with the income of that parent who maintains such minor child
during the previous year.

10.2. If only one parent is alive and no parent is alive:

In such a case, income shall be clubbed in the assessment of that parent. However,
if no parent is alive then clubbing provisions shall not apply. {No clubbing in the
assessment of guardian}

➢ 'Child' includes a stepchild and an adopted child. Further, it means son as well as
daughter.

➢ Even if the minor child is married, clubbing of income shall be in the hands of
parents.

➢ The assessee shall be entitled to claim exemption u/s 10(32). The amount of
exemption is-amount of income required to be clubbed or ₹ 1500/-, whichever is

1FIN BY INDIGOLEARN 9.8

 less. This calculation shall be made separately for each child. {Exemption is allowed
only if the person is paying tax under optional tax regime}

➢ Deductions under chapter VI-A in relation to the income of minor child shall be
allowed in the assessment of parent. Although income earned because of person
skill, physical work etc, shall not be clubbed, yet the income earned by investment
made out of such income shall be clubbed.

Parent to be deemed owner u/s Exemption u/s

A Minor child 27(i) and income taxed in the 10(32) cannot be
hands of parent. availed

Transfer of HP by
parent to
Income shall be clubbed in the
Exemption u/s
A minor married hands of that parent whose TI
10(32) can be
daughter before including the minor's
availed
income, is higher

1FIN BY INDIGOLEARN 9.9

 Which income of the minor could be clubbed?

Child No Income not

=
clubbed with the
Minor

Yes

If,
MINOR

Suffering from disability Any other minor child

specified u/s 80U

Income
Income of such Minor child
(from all sources) – NOT
subject to Clubbing provisions

On account of On account of Other

any manual any activity Income

work involving
Subject to
Not subject to application of
Clubbing
Clubbing his skill, talent
Provisions
Provisions or specialized
knowledge and
experience

Not subject to
Clubbing
Provisions

1FIN BY INDIGOLEARN 9.10

11. Sec: 64(2): INCOME OF ASSETS TRANSFERRED TO HUF

Income of assets transferred, directly or indirectly, by an individual to his HUF (means

such HUF in which the transferor is a member) then such income is to be clubbed to
the income of transferor.

11.1. Exception:
Clubbing is not applicable, if transfer is made for adequate consideration.
Note:
➢ If there has been no partition of HUF:
Entire income of the transferred assets is clubbed with the income of
transferor.
➢ If there has been a partition of HUF:
Income of the property allotted to the transferor and his spouse shall be
clubbed with the income of transferor. [Note: Income of the property allotted
to a minor child, if any, shall be subject to clubbing provision of section 64(1 A)].
12. CROSS TRANSFERS

In the case of cross transfers, the income from the assets transferred would be
assessed in the hands of the deemed transferor if the transfers are so intimately
connected as to form part of a single transaction, and each transfer constitutes
consideration for the other by being mutual or otherwise.

Eg: A making gift of ₹ 50,000 to the wife of his brother B for the purchase of a house
by her and a simultaneous gift by B to A’s minor son of shares in a foreign company
worth ₹ 50,000 owned by him

Thus, in the instant case, the transfers have been made by A and B to persons who are
not their spouse or minor child so as to evade tax the implication of clubbing provisions
would be attracted.

Accordingly, the income arising to Mrs. B from the house property will be included in
the total income of B and the dividend from shares transferred to A’s minor son would
be taxable in the hands of A.

1FIN BY INDIGOLEARN 9.11

13. Sec: 65: RECOVERY OF TAX

Under sections 60 to 64 and section 27 of the Act, income is taxed in the hands of a
person other than actual earner. In such a case, normally tax is recovered from the
person in whose hands the relevant income is taxed /clubbed. However, section 65 gives
an additional power to the Assessing Officer. It empowers him to recover tax from
actual earner. For this purpose, the Assessing Officer will have to serve a notice of
demand upon the actual earner.

However, the Assessing Officer can recover only that portion of tax as is attributable
to the income clubbed where the transferred asset is held by more than one person,
all such person shall be jointly and severally liable to pay the tax which is attributable
to the income included in the assessee's taxable income.

14. OTHER POINTS:

➢ The income sought be clubbed retains its own character and head. Hence, the
income shall be clubbed under respective heads.
➢ Clubbing provisions shall also be applicable for Negative Income.
➢ Income which is exempted under Income-tax act cannot be clubbed.

1FIN BY INDIGOLEARN 9.12

 Problems
1. Mrs. Kasturi transferred her immovable property to ABC Co. Ltd. subject to a condition
that out of the rental income, a sum of ₹ 36,000 per annum shall be utilized for the
benefit of her son’s wife.
Mrs. Kasturi claims that the amount of ₹ 36,000 (utilized by her son’s wife) should not
be included in her total income as she no longer owned the property.
State with reasons whether the contention of Mrs. Kasturi is valid in law.

2. Compute the gross total income of Mr. & Mrs. A from the following information:

Particulars ₹
(a) Salary income (computed) of Mrs.A 2,30,000
(b) Income from profession of Mr.A 3,90,000
(c) Income of minor son B from company deposit 15,000
(d) Income of minor daughter C from special talent 32,000
(e) Interest from bank received by C on deposit made out 3,000
of her special talent
(f) Gift received by C on 30.09.2022 from friend of Mrs. A 2,500

Brief working is sufficient. Detailed computation under various heads of income is NOT
required.

3. Mr. Vatsan has transferred, through a duly registered document, the income arising
from a godown to his son, without transferring the godown. In whose hands will the
rental income from godown be charged?

4. Mr. Sharma has four children consisting of 2 daughters and 2 sons. The annual income
of 2 daughters were ₹ 9,000 and ₹ 4,500 and of sons were ₹ 6,200 and ₹ 4,300,
respectively. The daughter who has income of ₹ 4,500 was suffering from a disability
specified under section 80U.
Compute the amount of income earned by minor children to be clubbed in hands of Mr.
Sharma.

1FIN BY INDIGOLEARN 9.13

5. During the previous year 2023-24, the following transactions occurred in respect of
Mr. A.
a) Mr. A had a fixed deposit of ₹ 5,00,000 in Bank of India. He instructed the bank
to credit the interest on the deposit @ 9% from 1-4-2023 to 31-3-2024 to the
savings bank account of Mr. B, son of his brother, to help him in his education.
b) Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of ₹
25,000 from the firm for promoting the sales of the firm. Mrs. A possesses no
technical or professional qualification.
c) Mr. A gifted a flat to Mrs. A on April 1, 2023. During the previous year, the flat
generated
a net income of ₹ 52,000 to Mrs. A.
d) Mr. A gifted ₹ 2,00,000 to his minor son who invested the same in a business and
he
derived income of ₹ 20,000 from the investment.
e) Mr. A’s minor son derived an income of ₹ 20,000 through a business activity
involving
application of his skill and talent.
During the year, Mr. A got a monthly pension of ₹ 10,000. He had no other income. Mrs.
A
received salary of ₹ 20,000 per month from a part time job.
Discuss the tax implications of each transaction and compute the total income of Mr.
A, Mrs. A and their minor child.

6. Mr. Vaibhav started a proprietary business on 01.04.2022 with a capital of ₹ 5,00,000.

He incurred a loss of ₹ 2,00,000 during the year 2022-23. To overcome the financial
position, his wife Mrs. Vaishali, a software Engineer, gave a gift of ₹ 5,00,000 on
01.04.2023, which was immediately invested in the business by Mr. Vaibhav. He earned
a profit of ₹ 4,00,000 during the year 2023-24.
Compute the amount to be clubbed in the hands of Mrs. Vaishali for the Assessment
Year 2024-25. If Mrs. Vaishali gave the said amount as loan, what would be the amount
to be clubbed?

7. X is a salaried employee. For the year ending March 31, 2024, he submits the following
information—
a) On May 3, 2023, X purchases 2000 shares in A Ltd. at the rate of ₹ 60 per share.
On May 5, 2023, these shares are gifted to Mrs. X. A Ltd. allots 1000 bonus shares
to Mrs. X on January 30, 2024. On March 1, 2024, Mrs. X transfers 3000 shares

1FIN BY INDIGOLEARN 9.14

 in A Ltd. for ₹ 400 per share to B outside stock exchange. On March 1, 2024, the
lowest quotation of shares in A Ltd. at Bombay stock exchange is ₹ 700 per share.
b) On June 1, 2023, X purchases a house property for ₹ 18,00,000 (however, he pays
stamp duty at the rate of 10 percent on ₹ 30,00,000). The house property is gifted
to Mrs. X on February 1, 2024. Mrs. X transfers this property to C on March 31,
2024, for ₹ 40,00,000. Stamp duty value is ₹ 50,00,000.
Discuss the tax consequences of these transactions and calculate income from these
transactions in the hands of X, Mrs. B and C.

8. Mr. Dhaval and his wife Mrs. Hetal furnish the following information:

Sl.
Particulars ₹
No.
(i) Salary income (computed) of Mrs. Hetal 4,60,000
Income of minor son ‘B’ who suffers from disability
(ii) 1,08,000
specified in Section 80U
(iii) Income of minor daughter ‘C' from singing 86,000
(iv) Income from profession of Mr. Dhaval 7,50,000
Cash gift received by 'C' on 2.10.2023 from friend of
(v) 48,000
Mrs. Hetal on winning of singing competition
Income of minor married daughter ‘A’ from company
(vi) 30,000
deposit
Compute the total income of Mr. Dhaval and Mrs. Hetal for the Assessment Year 2024-
25.

9. The following are the particulars of income earned by Mr. Chandrapal and his family
members:
Particulars ₹
(i) Income from Chandrapal' s profession 2,50,000
(ii) Mrs. Chandrapal' s salary as primary teacher 1,06,000
Minor son Arav (interest on fixed deposits with a bank which
(iii) 12,000
were gifted to him by his uncle)
(iv) Arav also has income by way winnings from lottery (gross) 2,20,000
(v) Minor daughter Pallavi’s earnings from sports 1,05,000
Cash gift received by minor married daughter Garima from
(vi) 55,000
friend of Mrs. Chandrapal
Income of minor son Arvind, who suffers from disability
(vii) 1,20,000
specified in section 80U.
Discuss the tax implications in the hands of Mr. Chandrapal and Mrs. Chandrapal.

1FIN BY INDIGOLEARN 9.15

 Chapter 10

Set off and

Carry forward of losses
Before we Begin,

One of the major relaxations in income tax is the concept of setting off and
carrying forward of losses against the income of the year which is taxable.

These provisions will be majorly helpful and beneficial to the assesses (all types)
to reduce their tax liability by decreasing their taxable income in a prescribed
manner.

You will learn about the following

• The concept of set off of losses

• The concept of carrying forward of losses
• Intra-head and Inter-head set off of losses
• Conditions to set off and carry forward losses
• Period of carrying forward of losses

Happy learning!

Set off and Carry Forward of

Losses

SET OFF OF LOSSES CARRY FORWARD OF

LOSSES

Intra Head Inter Head Intra Head

Adjustment adjustment Adjustment

1FIN BY INDIGOLEARN 10.1

1. INTRA HEAD ADJUSTMENT - Sec.70:
Where the net result of computation for any assessment year in respect of any source
of income falling under any head of income is a loss, the assessee shall be entitled to
have the amount of such loss set off against his income from any other source under
the same head. However, the following are the exceptions to the above rule;
➢ Loss from speculative business;
➢ Loss from the activity of owning and maintaining race horses; winnings from
lotteries etc.
➢ Long term capital loss can be set off against L.T.C.G only;
➢ Loss in a business specified u/s 35AD
NOTE:
Loss from an exempt source cannot be set-off against profits from a taxable source
of income.

2. INTER HEAD ADJUSTMENT – Sec 71:

Where the net result of the computation under any head of income in respect of any
assessment year is a loss, the assessee shall be entitled to have such amount of loss
set off against his income assessable for that assessment year under any other head
of income. This rule of inter head adjustment is subject to the following exceptions;
➢ Loss under Profits & Gains of Business or Profession against salary income
➢ Loss under capital gains;
➢ The maximum loss from house property which can be set-off against income from any
other head is 2 lakhs. {Provided person is paying tax under optional tax regime}
➢ Loss from speculative business;
➢ Loss from activity of owning & maintaining race horses, winnings from lotteries etc.
➢ Loss in a business specified u/s 35AD

1FIN BY INDIGOLEARN 10.2

3. SET OFF OF LOSSES:
Set off of loss within the same AY.
Inter head adjustment
(excluding winning from
Types of Losses
Inter source Adjustment lotteries, cross word
puzzles, card games
etc)
Available up to a
maximum of Rs. 2 Lakhs
(1) Loss from House property Available {if person is paying tax
under optional tax
regime}
(2) Business Losses:
Can be set off against
(a) Loss from non-speculation Available other than with
income from speculation or
Business salary income
non-speculation business
Can be set off against profit
(b) Loss from speculation
from speculation business Not available
Business
only
Can be set off against profit
(c) Loss from the business
from any other specified
referred to in Sec. 35 AD Not available
business referred to in Sec.
(Refer Note 1)
35 AD only
(3) Loss from sale of capital asset:
STCL Available Not available
Can be set off against only
LTCL Not available
LTCG.
(4) Loss under the head income from other sources:
Can be set off against
(a) Loss from the activity of
income from such business
owning and maintaining
only. (Excluding winning from Not available
racehorses. (Refer Note
lotteries, cross word puzzles
2)
etc.)
(b) Loss from any other
Available Available
activity

1FIN BY INDIGOLEARN 10.3

NOTE:
1. The loss of an assessee claiming deduction under section 35AD in respect of a
specified business can be set-off against the profit of another specified business
under section 73A, irrespective of whether the latter is eligible for deduction
under section 35AD.
2. Meaning of certain terms:

Amount of loss •(i) In case assessee has no income by way of stake money –
incurred by the amount of revenue expenditure incurred by the assessee wholly
assessee in the & exclusively for the purpose of maintaining race horses.
activity of owning and •(ii) In case assessee has income by way of stake money - Loss =
maintaining Stake money – revenue expenditure for the purpose of
racehorses maintaining race horses.

•A horse race upon which wagering, or betting maybe lawfully

Horse race
made.

Income by way of •The gross amount of prize money received in a horse race by the
stake money owner.

1FIN BY INDIGOLEARN 10.4

4. CARRY FORWARD OF LOSSES:
Types of Losses Carry forward of losses
(1) Loss from House Can be carried forward and set off against income from House
property {Section property for 8 years only.
71B}
Business Loss:
(a) Loss from non- (a) Can be carried forward and setoff against the profits of
speculation any Business/profession.
Business {Section (b) The loss cannot be carried forward for more than 8 years
72} (c) A loss cannot be carried forward unless loss return is filed
within the time allowed U/S- 139(1) - 139(3)
(d) For unabsorbed depreciation, capital expenditure on
scientific research and family planning, the same can be
carried forward for indefinite period and set off against
any head of income other than salary.
(e) Continuity of that business or profession is not necessary.
(b) Loss from (a) Can be carried forward for 4 years
speculation (b) Can be set-off against profits from speculation business
business {Section only.
73} (c) Shall not be applicable to a company the principal
business of which is the business of trading in shares.
(d) Continuity of that speculation business is not necessary
(e) Loss return should be submitted in time.
(c) Loss from the (a) Brought forward loss can be set off only against income
business from the business referred to in Sec. 35AD.
referred to in (b) Losses can be carried forward for indefinite period.
Sec 35 AD (c) Loss return should be submitted in time.
{Section 73A}
(2) Loss under the head (a) Can be carried forward for 8 assessment years
"Capital Gains" (b) STCL can be set off against any income under the head
{Section 74} "Capital Gains" only.
(c) LTCL can be set off against LTCG only.
(d) Return of loss should be submitted in time.
Loss under the head "Income from other sources":
(a) Loss from the (a) Can be carried forward for 4 years only
activity of owning (b) Can be set off against income from such activity only.
and maintaining (c) The activity of owning and maintaining race horses should
race horses continue in the year in which the brought forward loss is
sought to be set off
{Section 74A}
(d) Return of loss should be submitted in time.
(b) Loss from any Cannot be carried forward.
other activity

1FIN BY INDIGOLEARN 10.5

Priority of Set off {Sec 72(2)}

Current year depreciation,

capital expenditure on
scientific research
expenditure and family
planning to the extent
allowed.

Brought forward business

loss.

Unabsorbed depreciation,
capital expenditure on
scientific research
expenditure and family
planning.

5. SPECULATION BUSINESS LOSS – Sec 73:

➢ When is a person deemed to carry on speculation business?
If the following conditions are satisfied, then the person is deemed to carry on
speculation business:
1. The assessee is a company.
2. It is not a company whose gross total income consists mainly of income which is
chargeable under the head Interest on securities, Income from house property,
capital gains and Income from other sources.
3. It is not a company the principal business of which is trading in shares, business
of Banking or granting of loans and advances.
4. The business of the company consists of purchase or sale of shares of other
companies.
If the above conditions are satisfied, such company shall be deemed to be carrying
on speculation business to the extent to which the business consists of purchase or
sale of shares of other companies.

1FIN BY INDIGOLEARN 10.6

6. CHANGE IN CONSTITUTION AND SUCCESSION – Sec 78:
Where any person carrying on any business or profession has been succeeded in such
capacity by another person otherwise than by way of inheritance, then the other
person cannot have the loss of predecessor carried forward and set off against him
income {Section 78(2)}

Problems
1. Mr. Sanjay furnishes the following particulars of his income relating to the
assessment year 2024-25:

Particulars ₹
Income from salaries 2,40,000
Business loss (non-speculation) 1,00,000
Brought forward business loss relating to A.Y.2021-22 40,000
Loss from specified business (covered by section 35AD) 60,000
Long-term capital gain on sale of land 2,00,000
Short-term capital loss on sale of shares 40,000
Loss from betting 40,000
Winnings from lottery 60,000
Compute the gross total income of Mr. Sanjay for the assessment year 2024-25
and the loss to be carried forward.

2. X submits the following information for the year ending March 31,2024 –
a) Income of Business A (non-speculative) ₹ (-) 5,00,000.
b) Income of Business B (speculative): ₹ 6,00,000.
c) Income from house property: ₹ 5,10,000.
d) Winnings from lottery: ₹ 4,30,000.
Determine the net income and tax liability of X for the assessment year 2024-
25 taking into consideration the following additional information—
1) Brought forward loss of Business B (speculative) is ₹ 5,80,000. This loss
pertains to the assessment year 2020-21.
2) Brought forward house property loss of the assessment year 2023-24 is ₹
75,000.
3) X wants to set off loss of Business A of the current year against winnings
from lotteries and the remaining loss against house property income. This
strategy X wants to adopt to avail set off of brought forward speculative
loss against speculative income of the current year.

1FIN BY INDIGOLEARN 10.7

3. The following data is given by X (64 years)—

Particulars Amount
(₹)
Business loss of the current year (before depreciation) 15,00,000
Depreciation of the current year 6,00,000
House property loss 60,000
Salary income 10,00,000
Short-term capital gain (house property) 50,000
Long-term capital gain (gold) 38,00,000
Long-term capital loss (shares, securities transaction tax is 14,00,000
applicable)
X wants to set off the following losses pertaining to earlier
years—
Short-term capital loss of the assessment year 2017-18 60,000
Long-term capital loss of the assessment year 2016-17 28,00,000
Unabsorbed depreciation of the assessment year 2022-23. 2,00,000
Unabsorbed business loss of the assessment year 2022-23. 3,00,000

Taking into consideration the following additional, determine the net income
and tax liability of X for the assessment year 2024-25—
1. Long-term capital loss of 2016-17 can be carried forward only up to the
assessment year 2024-25. This loss cannot be carried forward in the next
year. X wants to set off the entire loss of ₹ 28,00,000 against current
year’s long-term capital gain. However, the Assessing officer wants to set
off entire current year business loss against long-term capital gain.
2. X wants to set off long-term capital loss (shares) against salary income.

1FIN BY INDIGOLEARN 10.8

4. X, a resident individual, submits the following information, relevant for the previous
year ending March 31, 2024:
Particulars Amount (in₹)
Income from salary 8,00,000
Income from house property
House 1 70,000
House 2 (-)52,000
House 3 (self-occupied) (-)25000
Profits and gains of business or profession
Business 1 2,00,000
Business 2 (-)75,000
Business 3 (speculative) (-)1,60,000
Business 4 (speculative) 72,000
Capital gains
Short-term capital loss (-)83,000
Long-term capital gains on transfer of preference 70,000
shares
Income from other sources
Income from card games 80,000
Income from betting 70,000
Loss on maintenance of race horses (-)1,20,000
Income from owning and maintaining race camels 2,00,000
Determine the net income for the assessment year 2024-25.

5. Mr. Batra furnishes the following details for year ended 31.03.2024:
Particulars ₹
Short term capital gain 1,40,000
Loss from speculative business 60,000
Long term capital gain on sale of land 30,000
Long term capital loss on sale of shares (securities transaction 1,00,000
tax not paid)
Income from business of textile (after allowing current year 50,000
depreciation)
Income from activity of owning and maintaining race horses 15,000
Income from salary 1,00,000
Loss from house property 40,000

Following are the brought forward losses:

(i) Losses from activity of owning and maintaining race horses-pertaining to A.Y.
2021-22 ₹25,000.

1FIN BY INDIGOLEARN 10.9

 (ii) Brought forward loss from business of textile ₹ 60,000 - Loss pertains to A.Y.
2016-17
Compute gross total income of Mr. Batra for the Assessment Year 2024-25. Also
state the eligible carry forward losses for the Assessment Year 2025-26.

6. The following are the details relating to Mr. Srivatsan, a resident Indian, aged 57,
relating to the year ended 31.3.2024:
Particulars ₹
Income from salaries 2,20,000
Loss from house property 1,90,000
Loss from cloth business 2,40,000
Income from speculation business 30,000
Loss from specified business covered by section 35AD 20,000
Long-term capital gains from sale of urban land 2,50,000
Loss from card games 32,000
Income from betting 45,000
Life Insurance Premium paid 1,20,000

Compute the total income and show the items eligible for carry forward.

7. Mr. P, a resident individual, furnishes the following particulars of his income and
other details for the previous year 2023-24:
Sl. Particulars ₹
No.
(i) Income from salary 18,000
(ii) Net annual value of house property 70,000
(iii) Income from business 80,000
(iv) Income from speculative business 12,000
(v) Long term capital gain on sale of land 15,800
(vi) Loss on maintenance of race horse 9,000
(vii) Loss on gambling 8,000

Depreciation allowable under the Income-tax Act, 1961, comes to ₹ 8,000, for which
no treatment is given above.
The other details of unabsorbed depreciation and brought forward losses (pertaining
to A.Y. 2023-24) are:
Sl. Particulars ₹
No.
(i) Unabsorbed depreciation 9,000
(ii) Loss from speculative business 16,000
(iii) Short term capital loss 7,800
Compute the gross total income of Mr. P for the Assessment year 2024-25, and the

1FIN BY INDIGOLEARN 10.10

 amount of loss that can or cannot be carried forward.

8. Mr. Alok furnishes the following details for year ended 31.03.2024:
Particulars ₹
Short term capital gain 1,65,000
Loss from speculative business 58,000
Long term capital gain on sale of land 27,000
Long term capital loss on sale of shares (securities transaction 1,06,000
tax not paid)
Income from business of textile (after allowing current year 73,000
depreciation)
Income from activity of owning and maintaining race horses 21,000
Income from salary 1,38,000
Loss from house property 66,000

Following are the brought forward losses:

(i) Losses from activity of owning and maintaining race horses - pertaining to A.Y.2021-
22 ₹ 37,000.
(ii) Brought forward loss from business of textile ₹ 82,000 - Loss pertains to
A.Y.2016-17.
Compute gross total income of Mr. Alok for the Assessment Year 2024-25. Also
state the losses which are eligible for carry forward to the Assessment Year 2025-
26.

9. Mr. A (aged 35 years) submits the following particulars pertaining to the A.Y.2024-
25:

Particulars Amount
Income from salary (computed) 4,00,000
Loss from self-occupied property (-)70,000
(-)
Loss from let-out property
1,50,000
Business loss (-)1,00,000
Bank interest (FD) received 80,000

Compute the total income of Mr. A for the A.Y.2024-25, assuming that he does not
opt for the provisions of section 115BAC.

Solution:

1FIN BY INDIGOLEARN 10.11

 Computation of total income of Mr. A for the A.Y.2024-25

Amount Amount
Particulars
(₹) (₹)
Income from salary 4,00,000
Less: Loss from house property of 2,20,000 to be
restricted to 2 lakhs by virtue of section 71(3A) (-) 2,00,000
2,00,000
Balance loss of 20,000 from house property to
be carried forward to next assessment year
Income from other sources 80,000
(Interest on fixed deposit with bank)
Business loss of 1,00,000 set-off to the extent of (-) 80,000 -
80,000
Business loss of 20,000 to be carried forward
for set-off against business income of the next
assessment year
Gross total income [See Note below] 2,00,00
0
Less: Deduction under Chapter VI-A Nil
Total income 2,00,00
0

Notes:
(i) Gross Total Income includes salary income of 2,00,000 after adjusting loss of
2,00,000 from house property. The balance loss of 20,000 from house property to be
carried forward to next assessment year for set-off against income from house
property of that year.
(ii) Business loss of 1,00,000 is set off against bank interest of ₹ 80,000 and
remaining business loss of 20,000 will be carried forward as it cannot be set off
against salary income.

1FIN BY INDIGOLEARN 10.12

 Chapter 11

Deductions
Before we Begin,

Income Tax Deductions are the government’s way to encourage certain savings
and payments towards certain savings schemes like life insurance, health
insurance etc.

You will learn about the following

• Various Deductions and their calculations

• Deductions w.r.t certain payments
• Deductions w.r.t certain incomes
• Other Deductions

Happy learning!

1FIN BY INDIGOLEARN 11.1

 80 C
Deductions
in respect of 80 CCC
certain
Deduction payments 80 CCD
s under
Chapter VI 80 CCH
-A
80 D

80 DD

80 DDB
Deductions in
respect of 80 E
Deductions certain incomes
from Gross 80 EE/80 EEA
Total Income 80 JJAA
under the 80 EEB
optional tax 80 RRB
regime (i.e., 80 G
80 QQB
normal
provisions of 80 GG
the Act) Deductions in
respect of other 80 GGA
income
80 TTA 80 GGB
Deduction 80 TTB 80 GGC
under
section
10AA

Other 80 U
Deductions

1FIN BY INDIGOLEARN 11.2

1. INTRODUCTION
➢ Chapter VI A runs from Sec 80C to 80U.
➢ These sections provide certain deductions from Gross total Income.
➢ Such sections are classified into two categories:
A. Deduction on account of certain payments and investments (covered u/s 80C
to 80GGC).
B. Deductions on account of certain income which are already included under
gross total income (covered u/s 80 I-A to 80U).
➢ No excess deduction [Section: 80A]: The total amount of deductions under
Chapter VI-A shall not exceed the Gross Total Income of an assessee during a
particular financial year.
➢ Profits and gains allowed as deductions u/s 10AA or under Chapter VI-A under
the heading “C - Deductions in respect of certain incomes” shall not be allowed as
deduction under any other provision of the Act.
➢ No chapter VI-A deductions in certain cases:
Deductions under Chapter VIA are not available in respect of:
❖ LTCG – Sec 112
❖ STCG - subject to STT - Sec 111A
❖ Non- resident presumptive taxation u/s 115A to 115AD.
❖ Income of Non- residents.
➢ However, there are certain items of income referred to in section 10 which are
not exempted if the assessee pays concessional rates of tax under the default
tax regime u/s 115BAC, namely,
10(5) Leave travel concession
10(13A) House Rent Allowance
10(14) Special Allowances except -
(a) Travelling allowance
(b) Daily allowance
(c) Conveyance allowance
(d) Transport allowance to blind/deaf and dumb/orthopedically
handicapped employee
10(17) Daily allowance/Constituency allowance received by any Member of
Parliament or of State Legislatures
10(32) Exemption in respect of income of minor child included in
assessee’s total income

1FIN BY INDIGOLEARN 11.3

 The tax liability is calculated on the “total income” which is arrived after reducing
permissible deductions from gross total income.

Students should note this very important difference between exemption under section 10
and the deduction under Chapter VI-A/10AA.

Difference between Deduction under Chapter VI-A & section 10AA and
Exemption under section 10
Particular Deduction Exemption
s (in relation to Chapter VI-A (contained in section 10)
and section 10AA)
Meaning Investments/ contributions in The incomes which are exempt
certain instruments (as prescribed under section 10 will not be
under the Income-tax Act). included in computing gross
Payments made for certain total income.
purposes.
Relevant Sections 80C to 80U in Chapter VI- Section 10 of the Income-
Sections A and section 10AA of the Income- tax Act.
tax Act.
Manner of First included in the Gross Total Not included in the Gross
treatment Income and then deductions will be Total Income.
allowed 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 deduction under Chapter VI-A which
includes deductions in respect of certain payments, deductions in respect of certain
incomes, deductions in respect of other income and other deductions. It also includes
deduction under section 10AA.

1FIN BY INDIGOLEARN 11.4

Section 80AC: Furnishing return of income on or before due date
mandatory for claiming deduction under Chapter VI-A under the
heading “C. – Deductions in respect of certain incomes"

(i) Section 80AC stipulates compulsory filing of return of income on or

before the due date specified under section 139(1), as a pre-condition
for availing benefit of deductions under any provision of Chapter VI-A
under the heading “C. – Deductions in respect of certain incomes”.

(ii) The effect of this provision is that, in case of failure to file return of income
on or before the stipulated due date, the undertakings would lose the benefit
of deduction under these sections.

Table showing the deductions contained in Chapter VI-A under the heading “C. –
Deductions in respect of certain income”

Section Deduction
80JJAA Deduction in respect of employment of new employees

80QQB Deduction in respect of royalty income, etc., of authors of certain books

other than text books

80RRB Deduction in respect of royalty on patents

DEDUCTION IN RESPECT OF CERTAIN PAYMENTS

2. DEDUCTION IN RESPECT OF LIFE INSURANCE PREMIA, DEFERRED
ANNUITY, CONTRIBUTION TO PROVIDENT FUND ETC.-SEC.80C
➢ Eligible assesses: Individual and Hindu undivided family
➢ Eligible investments/contributions
[Link] Insurance/Annuities
1) Actual amount paid towards Life Insurance policy premium in the name of
individual, his/her spouse or any child of the individual or in the name of any
member in case of HUF; However, in respect of premium on life insurance
policy referred above, deduction shall be available only to so much of premium
or any other sum not exceeding 10% of actual capital sum assured of an
insurance policy other than contract for a deferred annuity. In calculating the
actual sum assured, the value of any premium agreed to be returned and the
benefit by way of bonus shall not be taken into account.
2) Payment in respect of non-commutable deferred annuity* in the name of the
individual, his/her spouse or any child of the individual provided that such

1FIN BY INDIGOLEARN 11.5

 contract does not contain a provision for the exercise by the insured of an
option to receive a cash payment in lieu of payment of the annuity;
*Non-Commutable Deferred Annuity: It is a non-transferable contract with
an insurance company that promises to pay the owner a regular income, or a
lump-sum amount at some future date.
3) Amount of deduction from the salary payable by or on behalf of the
Government to any individual in accordance with the conditions of his service,
for the purpose of securing a deferred annuity or making provision for his
spouse or children not exceeding one-fifth of the salary;
4) Contribution to Unit Linked Insurance Plan, 1971;
5) Contribution to notified annuity plan of the LIC of India or any other insurer;
6) Contribution to Unit Linked Insurance Plan of the LIC, Mutual fund notified
u/s. 10(23D);

B. Employee Welfare funds

7) Any contributions by an individual to any provident fund to which Provident
Funds Act. 1925 applies;
8) Contribution towards statutory provident fund and recognized provident
fund;
9) Contribution towards 15 years public provident fund;
10) Contribution by an employee to an approved superannuation fund;
C. Central Government / Post Office savings / other notified schemes
11) Subscription to any notified security of the Central Government;
12) Investments in National Saving Certificates or any other saving certificates
under the Government Savings Certificates Act, 1959 notified by the Central
Government;
13) Subscription to any notified saving certificate;
14) Term Deposit for a period of not less than 5 years with a scheduled bank in
accordance with a scheme framed by the Central Government.
15) Subscription to bonds issued by National Bank for Agriculture and Rural
Development (NABARD).
16) 5-year time deposit in an account under Post Office Time Deposit scheme;
17) Deposit in an account under the Senior Citizens Savings Scheme.
[Link]
18) Repayment of any loan borrowed for the purpose of purchase or construction
of residential house from Government approved institution or specified
employer* or any Board or a Corporation or any other body established under
Central or State Act or a notified institution
Any expenditure incurred towards stamp duty, registration charges for
purchase of the house is also eligible;
*Specified employer- An employer who is an authority or a board or a
corporation or any other body established or constituted under a Central or
State Act; or a public company or public sector company or a university

1FIN BY INDIGOLEARN 11.6

 established by law or a college affiliated to such university or a local authority
or a co- operative society.
19) Payment in part / installment under any self-financing or similar scheme of
any housing board, development authority engaged in construction and sale of
houses;
20) Payment in part / installment towards cost of the house allotted, due to any
company or co-operative society of which assessee is a shareholder or
member;
However, Deduction under this clause is not eligible in respect of payment
made towards:
a) The admission fee, cost of share and initial deposit which a shareholder
of a company or a member of a co-operative society has to pay for
becoming such shareholder or member; or
b) The cost of any addition, alternation, renovation or repair of, the house
property which is carried out after the issue of the completion
certificate by the authority competent after the house property or any
part thereof has been occupied; or
21) Subscription to any approved equity shares or debentures forming part of any
eligible issue of capital by a public company or public financial institution which
is engaged in infrastructure development;
E. Others
22) Payment made as tuition fees to any university, college or school or other
educational institution situated in India for the purpose of full-time education
in respect of any two children of the assessee.
However, deduction is not eligible in respect of payment towards any
development fees or donation or payment of similar nature and payment made
for education to any institution situated outside India.
23) Subscription to any deposit scheme or as a contribution to any pension fund
setup by the National Housing Bank.
24) Subscription to any such Deposit scheme of a public sector company engaged
in providing long term finance for construction or purchase of houses in India
for residential purposes or any such deposit scheme of any authority
constituted in India for the purpose of dealing with and satisfying the need
for housing accommodation for the purpose of planning, development or
improvement of cities, towns and villages or for both; provided such scheme
shall be notified by the Central Government.
25) Sum paid or deposited during the year in the Sukanya Samriddhi Account
Scheme as a subscription in the name of any girl child of the individual or in
the name of any girl child for whom such individual is the legal guardian, would
be eligible for deduction under section 80C, if the scheme so specifies.
26) Contribution by a Central Government employee to additional account (Tier-II
Account) under NPS (specified account) referred to in section 80CCD for a
fixed period of not less than 3 years and which is in accordance with the
scheme notified by the Central Government for this purpose.

1FIN BY INDIGOLEARN 11.7

 ➢ Deduction Limit
The aggregate of the eligible contributions mentioned above shall be allowed as
deduction to the extent of ₹1,50,000/-
➢ Special Points
o Exemption is not available under section 10(10D), in respect of
amount received from an insurance policy taken for disabled person
under section 80DD.
Accordingly, if the dependent disabled, in respect of whom an
individual or the member of the HUF has paid or deposited any amount
in any scheme of LIC or any other insurer, predeceases the individual
or the member of the HUF, the amount so paid or deposited shall be
deemed to be the income of the assessee of the previous year in which
such amount is received. Such amount would not be exempt under
10(10D).

Exemption is not available in respect of the sum received under a

Keyman insurance policy u/s under section 10(10D).

Deduction u/s 80C

In respect of policies Premium paid to the extent of 20% of “actual capitalsum
issued before assured”.
31.3.2012

In respect of policies Premium paid to the extent of 10% of “actual capital sumassured” i.e.,
issued on or after minimum amount assured under the policyon happening of the insured
1.4.2012 but before event at any time during the term of the policy, not taking into
1.4.2013 account –
(i) the value of any premium agreed to be returned;or
(ii) any benefit by way of bonus or otherwise over and above the sum
actually assured, which is to be or may be received under the
policy by any person.

In respect of policies Where the insurance is on the life of a person with

issued on or after disability or severe disability as referred to in section 80U
1.4.2013 or a person suffering from disease or ailment as specified
(a) under section 80DDB.

Premium paid to the extent of 15% of “actualcapital sum

assured” [has the same meaning as described above].
Where the insurance is on the life of any person, other
than mentioned in (a) above

(b)
Premium paid to the extent of 10% of “actualcapital sum
assured” [has the same meaning as described above].

1FIN BY INDIGOLEARN 11.8

3. CONTRIBUTION TO CERTAIN PENSION FUNDS - SEC.80CCC

[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible assessee - All Individuals
➢ The following contributions qualify only if the payments are made from out of the
income chargeable to tax;
i. Contribution made to annuity plan (excluding bonus or interest credited to the
account) issued by -
a) LIC of India; or
b) Any other insurer approved by the Insurance Regulatory and
Development Authority. For receiving pension from a fund is deductible
up to a maximum of ₹ 1,50,000/-
ii. If the assessee or his nominee surrenders the annuity before its maturity,
the surrender value including bonus / interest shall be taxable in the year-of
receipt in the hands of the assessee or his nominee.
iii. The pension amount received by the assessee or his nominee from this fund is
taxable in the hands of the assessee of his nominee, in the year of receipt.
iv. Amount qualifying for deduction under this section will not be eligible for
deduction u/s.80c.
➢ Quantum of Deduction: Amount deposited or ₹ 1,50,000 whichever is less.

4. DEDUCTION IN RESPECT OF CONTRIBUTION TO PENSION SCHEME OF

CENTRAL GOVERNMENT - SEC.80CCD
➢ Eligible Assessee - Any employee
➢ Conditions -
i) Deduction is available in respect of contribution to pension scheme notified
by the Central Government.
ii) He should have been employed by CG or any other employer on or after
01.01.2004.
Condition of the date of joining the service on or after 1.1.2004 is not
applicable to private sector employees for the purposes of deduction under
the said section.
iii) Where an individual employed by the Central Government or any other
employee has paid or deposited any amount in his account under a pension
scheme notified by the Central Government, he shall be allowed a deduction
in the computation of his total income the amount so paid or deposited subject
to a limit of 10% of his salary for the relevant previous year. Any contribution
made by the Employer to such an account shall also be allowed as deduction

1FIN BY INDIGOLEARN 11.9

 subject to the limit of 10% of salary. Individual is deriving other than salary-
income - 10% of gross total income or ₹ 1,50,000 whichever is less.

Amount paid or An additional Contribution made by the

80CCD(1)

80CCD(2)
80CCD(1B)
Central Government or State
deposited by deduction of up to Government or any other
An individual employed ₹50,000 in respect of employer in the previous year
the whole of the to the said account of an
by CG on or after employee restricted to 14% of
01.04.2004 or an amount paid or salary, in case of contribution
Individual employed by deposited by an made by the CG or SG, and to
individual assessee 10% of salary, in case of
any other employer - contribution made by any
10% of salary under NPS in the other employer. (Amended by
previous year, whether Finance Act, 2022)
Any other individual - or not any deduction is
20% of GTI allowed under section
80CCD(1)

*Salary for this purpose: Salary = Basic salary + D.A (if terms of employment so provide).
(It excludes allowances and perquisites.)
➢ Deemed Income: The amount standing to the credit of the assessee in the pension
account (for which deduction has already been claimed by him under this section) and
accretions to such account, shall be taxed as income in the year in which such amounts
are received by the assessee or his nominee on –

(a) closure of the account or

(b) his opting out of the said scheme or
(c) receipt of pension from the annuity plan purchased or taken on such
closure or opting out.

However, the amount received by the nominee on the death of the assessee under the
circumstances
referred to in (a) and (b) above, shall not be deemed to be the income of the nominee.
Further, the assessee shall be deemed not to have received any amount in the previous
year if such amount is used for purchasing an annuity plan in the same previous year.
➢ Exemptions-
i. Section 10(12A) provides that any payment from National Pension System Trust to
an assessee on account of closure or his opting out of the pension scheme referred
to in section 80CCD, to the extent it does not exceed of the total amount
payable to him at the time of closure or his opting out of the scheme, shall be
exempt from tax.
ii. Section 10(12B) provides that any payment from National Pension System Trust to
an employee under the pension scheme referred to in section 80CCD, on partial
withdrawn made out of his account in accordance with the terms and conditions
specified under the Pension Fund Regulatory and Development Authority Act, 2013

1FIN BY INDIGOLEARN 11.10

 and the regulations made there under, shall be exempt from tax to the extent it
does not exceed 25% of amount of contributions made by him.
Limit on deductions under sections 80C, 80CCC & 80CCD(1)
[Section 80CCE]
This section restricts the aggregate amount of deduction under section 80C, 80CCC and
80CCD(1) to Rs. 1,50,000. It may be noted that the deduction of upto Rs. 50,000 under
section 80CCD(1B) and employer’s contribution to pension scheme, allowable as deduction
under section 80CCD(2) in the hands of the employee, would be outside the overall limit
of Rs. 1,50,000 stipulated under section 80CCE.

The following table summarizes the ceiling limit under these sections –
Section Particulars Ceiling limit (Rs.)
80C Investment in LIP, Deposit in PPF/SPF/RPF etc. 1,50,000
80CCC Contribution to certain pension funds 1,50,000
10% of salary
or 20% of
80CCD (1) Contribution to NPS of Government
GTI, as the
case may be.
Aggregate deduction under sections 80C, 80CCC &
80CCE 1,50,000
80CCD(1)

Contribution to NPS notified by the Central Government

80CCD(1B) 50,000
(outside the limit of Rs. 1,50,000 under section 80CCE)

Contribution by the Central Government or State

Government to NPS A/c of its employees (outside the 14% of salary
limit of Rs. 1,50,000 under section 80CCE)
80CCD (2)
Contribution by any other employer to NPS A/c of its
employees (outside the limit of 10% of salary
Rs. 1,50,000 under section 80CCE)

5. Deduction in respect of contribution to Agnipath Scheme

[Section 80CCH]

i. Meaning of Agnipath scheme: Agnipath scheme is a Central Government

scheme launched in 2022 for enrolment of Indian youth in the Indian Armed
Forces.

ii. Meaning of Agniveer Corpus Fund: The Agniveer Corpus Fund means a fund in
which consolidated contributions of all the Agniveers and matching
contributions of the Central Government along with interest on both these
contributions are held.

1FIN BY INDIGOLEARN 11.11

iii. Features of the Agnipath Scheme: Each Agniveer is to contribute 30% of his
monthly customized Agniveer Package to the individual’s Agniveer Corpus Fund.
Further, the Government will also contribute a matching amount to the
‘Agniveer Corpus Fund’. The Government will also pay to the subscriber interest
as approved from time to time on the contributions standing in his account.

iv. Deduction: Section 80CCH provides deduction in respect of contribution made

in the Agniveer Corpus Fund by the individual enrolled in the Agnipath Scheme
and the Central Government.

v. Quantum of deduction:

a. Section 80CCH(1) provides a deduction for the amount paid or deposited

by an assessee, being an individual enrolled in the Agnipath Scheme and
subscribing to the Agniveer Corpus Fund on or after 1.11.2022, in his
account in the Agniveer Corpus Fund.

b. Under section 80CCH(2), the whole amount of contribution made by the

Central Government to the said account of an assessee in the Agniveer
Corpus Fund, is allowed as a deduction in computation of the total income
of the assessee.

c. The entire Central Government’s contribution to the Agniveer Corpus Fund

would be included in the salary of the assessee. However, deduction under
section 80CCH(2) would be available for the same.

6. MEDICAL INSURANCE PREMIUM - SEC.80D

➢ Eligible assessee - Individual and HUF
➢ Premium paid by any mode other than cash under:
a) Medical Insurance Scheme of the General Insurance Corporation approved by
the Central Government;
or
b) Any other insurer approved by the Insurance Regulatory and
Development Authority
is deductible up to ₹25,000/-. Where the insurance is on the health of a senior
citizen, ₹50,000/- shall be the limit for deduction.
➢ The Age for qualifying as a senior citizen is 60 years being a resident.
➢ Individual: Insurance can be made on the health of the assessee, spouse, and
Dependent children and parents (Parents need not be dependant);
➢ HUF: Insurance on the health of any family member.

1FIN BY INDIGOLEARN 11.12

 ➢ From AY 13-14: Deduction can be claimed for preventive health checkup also
maximum of ₹ 5000/-within existing overall limits. It can be paid in cash also.
Note: Hence forth, amount paid through credit cards are also accepted.
➢ In case of individual, in addition to the above deduction, a separate limit of
₹25000/- is allowable as deduction in respect of Mediclaim premium paid on the
health of parents.
➢ For senior citizen who do not qualify for health insurance, ₹ 50,000 in medical
expense will qualify for deduction.

➢ Deduction where premium for health insurance is paid in lump sum [Section
80D(4A)]

In a case where mediclaim premium is

paid in lumpsum for more than one year Appropriate fraction - 1 ÷
then, the deduction allowable under Total number of relevant
this section for each of the relevant
previous years
previous year would be equal to the
appropriate fraction of such lump sum
payment.

1FIN BY INDIGOLEARN 11.13

 Limit - Rs. 25,000
For Family (i.e.,
Self,Spouse and
Dependent Children)
Mode of Payment - any mode
other than Cash

Insurance Premium
Senior Citizens - Rs. 50,000
Other than Senior Citizens - Rs.
For Parents (in 25,000
Preventive Health
addition to the limit
Check up - Rs. 5,000
specified above)
Individual Mode of Payment - any mode
other than Cash

Self/Spouse/Parents No Payment should have made

Deduction u/s 80 D Medical Expenditure of age above 60 to keep in force of an insurance
Years on the health of such person

Insurance Premium Same as above

HUF

Preventive Health
Check up - Rs. 5,000

1FIN BY INDIGOLEARN 11.14

7. MAINTENANCE INCLUDING MEDICAL TREATMENT OF A DEPENDENT WITH
DISABILITY – SEC.80DD
➢ Eligible assessee - Individual or HUF, resident in India.
➢ Deduction is allowable in respect of-

An amount paid or deposited by the assessee under any scheme of LIC of any other
insurer or the administrator if the specified company and approved by the Board for the
maintenance of dependent with disability.

Any expenditure incurred for the medical treatment, training and rehabilitation of a
dependent with disability; or

➢ Amount of Deduction: Deduction of a flat amount of ₹ 75,000/- shall be allowed

irrespective of the quantum of expenditure incurred or deposit made. Besides,
where the dependent is a person with severe disability (i.e., person with 80% or
more disability), the deduction shall be ₹ 1,25,000/-
➢ The benefit of deduction under this section is also available to assessees incurring
expenditure on maintenance including medical treatment of persons suffering
from autism, cerebral palsy and multiple disabilities.
➢ The deduction is subject to the following conditions:
a) The scheme of LIC or any other insurer or the administrator or the specified
company provides for payment of annuity or lumpsum amount for the benefit
of a dependent with disability,
i. in the event of death of the individual or the member of the HUF in
whose name subscription to the scheme has been made; or
ii. on attaining the age of 60 years or more by such individual or the
member of the HUF, and the payment or deposit to such scheme has
been discontinued (Amended by Finance Act, 2022)
b) The assessee nominates either dependent with disability or a trust or any
other person to receive the payment on his behalf, for the benefit of the
Dependent with disability.
c) The assessee claiming a deduction shall furnish a copy of the certificate
issued by the medical authority along with the return of income u/s.139 (1)
d) Where the condition of disability requires reassessment, a fresh certificate
from the medical authority shall have to be obtained after the expiry of the
period mentioned in the original certificate in order to continue to claim the
deduction.

➢ Deemed income: If the dependent, being a person with disability, predeceases

the individual or the member of HUF, in whose name subscription was made,
then, the amount paid or deposited under the said scheme would be chargeable
to tax in the hands of the assessee (individual or member of HUF) in the
previous year in which such amount is received by him.
However, such deeming provisions would not apply, to the amount received by
the dependent, being a person with disability, before his death, by way of
annuity or lump sum under the scheme mentioned in II of (b) above i.e., when

1FIN BY INDIGOLEARN 11.15

 the individual or member of HUF attains the age of 60 years or more, and the
payment or deposit to such scheme has been discontinued (Amended by Finance
Act, 2022).

➢ For the purpose of this section -

a) "Dependent" means -
i) in the case of an individual, the spouse, children, parents, brothers and
sisters of the individual or any of them;
ii) in the case of a Hindu Undivided Family, a member of the Hindu
Undivided Family, Dependent wholly or mainly on such individual or HUF
for his support and maintenance and who has not claimed any deduction
u/s.80U in computing his total income.
b) "Disability'" means blindness; low vision leprosy-cured; hearing impairment;
locomotor disability; mental retardation; mental illness, autism, cerebral palsy
and multiple disability.

8. MEDICAL TREATMENT FOR CERTAIN SPECIFIED DISEASE OR AILMENT -

SEC.80DDB
➢ Eligible assesses - Individual and HUF, resident in India.
➢ Deduction under this section can be claimed by the assessee towards medical
treatments of specified diseases and ailments -
i) for himself or a Dependent - in case of individual assesses:
ii) for any member of HUF - in case of HUF assesses.
➢ Deduction shall be the amount actually paid or ₹40,000, whichever is less, in
respect of that previous year in which such amount was actually paid. In the case
of senior citizen, the deduction shall be the amount actually paid or ₹1,00,000,
whichever is less.
➢ Deduction shall be allowed only if the medical certificate is furnished along with
the return of income from a neurologist, oncologist, a urologist, a hematologist,
an immunologist, or such other specialist as may be prescribed and working in a
Government hospital.

9. DEDUCTION FOR INTEREST ON LOAN TAKEN FOR HIGHER EDUCATION -

SEC.80E:
[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible assessee – Individual
➢ Any amount paid towards interest on loan borrowed from any financial institution
or any approved charitable institution for the purpose of pursuing higher
education is deductible.
➢ The Higher Education shall be pursued by the assessee himself or by any of the
relative of the assessee. The term "Relative" in relation to an individual means
the spouse and children of the individual or the student for whom the individual
is the legal guardian.
➢ The amount shall be actually paid out of the income of the assessee chargeable
to tax during the previous year.

1FIN BY INDIGOLEARN 11.16

 ➢ This deduction is allowed for the initial year (year of commencement of repayment
of interest) and immediately succeeding 7 assessment years or until the interest
is repaid by the assessee in full, whichever is earlier.
➢ 'Higher Education' means
i) after passing the Senior Secondary Examinations of its equivalent from any
school;
ii) board or university recognized by the central government or state government
or local authority or by any other authority authorized by the central
government or state government or local authority.

10. DEDUCTION FOR INTEREST ON LOAN BORROWED FOR ACQUISITION OF

HOUSE PROPERTY BY AN INDIVIDUAL [SECTION 80EE]
[Available only if the individual exercises the option of shifting out of the
default tax regime provided under section 115BAC(1A)]
➢ Deduction is available only if the loan is taken from any financial
institution
➢ Loan is sanctioned during the PY 2016-17
➢ Loan amount does not exceed 35 lakhs
➢ Property value does not exceed 50 Lakhs
➢ Assessee should not own any residential house on the date of sanction
of loan.
➢ Maximum deduction allowed is INR 50,000.

11. DEDUCTION FOR INTEREST ON LOAN BORROWED FOR ACQUISITION OF

HOUSE PROPERTY BY AN INDIVIDUAL [SECTION 80EEA]
[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible assessee – Individual
➢ Any amount paid towards interest on loan borrowed from any financial institution
or any approved charitable institution for the purpose of acquisition of residential
house property is deductible.
➢ Amount of Deduction- The maximum deduction allowable is ₹ 1,50,000. The
deduction of upto ₹ 1,50,000 under section 80EEA is over and above the deduction
available under section 24(b) in respect of interest payable on loan borrowed for
acquisition of a residential house property.

1FIN BY INDIGOLEARN 11.17

 ➢ Conditions-

Loan should be sanctioned

by a Financial Institution
Stamp Duty Value of
during the period between
house ≤ 45 lakhs
1st April, 2019 and 31st
March 2022

The assessee should

not own any The individual should
residential house on not be eligible to claim
the date of sanction of deduction u/s 80EE
loan
CONDITIONS

1FIN BY INDIGOLEARN 11.18

In case the assessee pays tax under default tax regime under section 115BAC

Deduction in respect of interest payable in loan borrowed for acquisition

of a residential house property

In case of Self-Occupied house in case of let out or deemed to be let

property out property

No interest No limit u/s 24(b). Entire interest payable is

deduction u/s 24(b) allowable as deduction. However, loss from
house property cannot be set off against
income under any other head.

No Deduction u/s
80EEA
No Deduction u/s
80EEA

In case the assessee has exercised the option of shifting out of the default tax
regime provided under section 115BAC(1A)

Deduction in respect of interest payable in loan borrowed for acquisition of

a residential house property

In case of Self-Occupied house in case of let out or deemed to be let

property out property

Restricted to Rs. No limit u/s 24(b). Entire interest payable is

2,00,000 u/s 24(b) allowable as deduction. However, section
71(3A) restricts set off of loss from house
property against income under any other
head to Rs. 2,00,000.

Deduction for interest upto

Rs. 1,50,000 can be claimed
u/s 80EEA over and above If there is a loss from house property and it is
deduction u/s 24(b) more than Rs. 2,00,000, interest of Rs.
2,00,000 can be claimed as deduction u/s
24(b) and balance interest upto Rs. 1,50,000
can be claimed u/s 80EEA.

1FIN BY INDIGOLEARN 11.19

DEDUCTION IN RESPECT OF INTEREST PAYABLE ON LOAN TAKEN FOR
PURCHASE OF ELECTRIC VEHICLE [SECTION 80EEB]

[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible assessee – Individual
➢ Any amount paid towards interest on loan borrowed from any financial institution
or any approved charitable institution for purchase of an electric vehicle is
deductible.
➢ Amount of Deduction- The maximum deduction allowable is ₹ 1,50,000.
➢ Conditions-

Loan should be
Loan should be taken sanctioned during the
for purchase of an period between 1st
electric vehicle April, 2019 and 31st
March 2023

Loan should be
The assessee should sanctioned by a FI
be an individual (bank or specified
NBFCs)

CONDITIONS

➢ 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.

12. SEC 80G: DEDUCTION IN RESPECT OF DONATIONS TO CERTAIN FUNDS;

CHARITABLE INSTITUTIONS ETC.
➢ Conditions for claiming deduction under this section:
i) Deduction under this section is allowed to all assessees, whether company or
non-company, whether having income under the head 'profit and gains of
business or profession' or not.
ii) The donation should be of a sum of money.
iii) Donations in kind do not quality for deduction.
iv) The donation should be made only to specified funds/institutions.
v) For availing deduction under this section, it is obligatory on the part of the
assessee to produce proper proof of payment. Where the payment is not
proved by production of proper receipt, etc., the deduction under section 80G
is not available.

1FIN BY INDIGOLEARN 11.20

 With effect from
Donee Institute Status of the Donor
Assessment Year
Resident/ Non-
Swachh Bharat Kosh 2015-16
Resident
Clean Ganga Fund Resident 2015-16
National Fund for Control of Drug Resident/ Non-
2016-17
Abuse Resident
➢ In some cases, deduction is available after applying a qualifying limit while in
other, it is allowed without applying any qualifying limit.

Donation U/S 80G

Donations- to be
Other Donations restricted to 10%
of GTI

Donations Donations Donations Donations

qualifying for qualifying for 50% qualifying for qualifying for 50%
100% deduction deduction 100% deduction deduction

See List- A See List- B See List- C See List- D

➢ Again, in some cases, deduction is allowed to the extent of 100% of the donation
and in some cases, it is allowed to the extent of 50% of the donation. The quantum
of deduction is respect of various kinds of donations is given as under:
A. Donations made to following are eligible for 100% deduction without any
qualifying limit:
i) National Defense Fund set up by the Central Government.
ii) Prime Minister's National Relief Fund;
iii) Prime Minister's Armenia Earthquake Relief Fund;
iv) Africa (Public Contributions India) Fund;
v) National Foundation for Communal Harmony;
vi) University/Educational Institution of National Eminence approved by the
prescribed authority;
vii) Maharashtra Chief Minister's Earthquake Relief Fund;
viii) Any fund set up by the State Government of Gujarat, exclusively for
providing relief to the victims of earthquake in Gujarat;
ix) Zilla Saksharta Samiti constituted in any district;
x) The National Blood Transfusion Council or any State Blood Transfusion
Council;
xi) Any fund set up by a State Government to provide medical relief to the poor;

1FIN BY INDIGOLEARN 11.21

 xii) The Army Central Welfare Fund or the Indian Naval Benevolent fund or the
Air Force Central Welfare Fund;
xiii) The Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996;
xiv) National Illness Assistance Fund;
xv) The Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund
in respect of any state or union Territory, as the case may be;
xvi) National Sports Fund set up by the Central Government;
xvii) National Cultural Fund set up by the Central Government;
xviii) Fund for Technology Development and Application, set up by the Central
Government;
xix) National Trust for Welfare of persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities;
xx) National Children's Fund;
xxi) 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;
xxii) Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund
(PM Cares Fund);
xxiii) 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;
xxiv) The National Fund for Control of Drug Abuse
*Note- As per Circular No.2/2005 dated 12.1.2005, in cases where employees
make donations to the Prime Minister’s National Relief Fund, the Chief Minister’s
Relief Fund or the Lieutenant Governor’s Relief Fund through their respective
employers, it is not possible for such funds to issue separate certificate to every
such employee in respect of donations made to such funds as contributions made
to these funds are in the form of a consolidated cheque. An employee who makes
donations towards these funds is eligible to claim deduction under section 80G.
It is, hereby, clarified that the claim in respect of such donations as indicated
above will be admissible under section 80G on the basis of the certificate issued
by the Drawing and Disbursing Officer (DDO)/Employer in this behalf.
B. Donations made to the following are eligible for 50% deduction without
any qualifying limit:
i) Prime Minister's Drought Relief Fund;
C. Donations to the following are eligible for 100% deduction subject to
qualifying limit:
i) Donation to Government or any approved local authority, institution or
association to be utilised for promoting family planning.
ii) Any sums paid by the assessee, being a company, in the previous year as
donations to Indian Olympic Association or to any other association or
institution established in India and notified by the central Government for—
a) the development of infrastructure for sports and games; or
b) the sponsorship of sports and games in India.
D. Donations to the following are eligible for 50% deduction subject to
qualifying limit:

1FIN BY INDIGOLEARN 11.22

 i) Donation to Government or any approved local authority, institution or
association to be utilised for any charitable purpose other than promoting
family planning.
ii) Any other fund or institution which satisfies the conditions of section
80G(5)
iii) To any authority constituted in India by or under any law for satisfying the
need for housing accommodation or for the purpose of planning development
or improvement of cities, towns and villages or for both.
iv) To any corporation established by the Central or any State Government
specified under section 10(26BB) for promoting interests of the members
of a minority community.
v) Any notified temple, mosque, gurdwara, church or other place notified by
the Central Government to be of historic, archaeological or artistic
importance, for renovation or repair of such place.

1FIN BY INDIGOLEARN 11.23

 ➢ Computation of Qualifying Limit: For applying qualifying limit, all donations made
to funds/institutions covered under (C) and (D) above shall be aggregated and the
aggregate amount shall be limited to 10% of Adjusted Gross Total Income.

•Compute adjusted gross total income*

Step-1

•Calculate 10% of adjusted gross total income

Step 2

•Calculate the actual donation, which is subject to qualifying limit (Total of Category III
Step 3 and IV donations listed above)

•Lower of Step 2 or Step 3 is the maximum permissible deduction.

Step 4

•The said deduction is adjusted first against donations qualifying for 100% deduction
(i.e., Category III donations). Thereafter, 50% of balance qualifies for deduction under
Step 5 section 80G.

*Adjusted Gross Total Income-

Adjusted Gross Total Income for this purpose means the "Gross total Income"
as reduced by -
i) long-term capital gains, if any, which have been included in the "Gross Total
Income" taxable under Section 112/ 112A.
ii) short-term capital gains of the nature referred to in section 111A (i.e. short-
term capital gain on transfer of shares through a recognized stock exchange
which are taxable at the rate of 15%);
iii) all deductions permissible u/s 80C to 80U except deduction under this
section i.e. section 80G;

➢ Quantum of deduction: The quantum of deduction shall be the aggregate of the

deductions permissible under clauses (A), (B), (C) and (D).
➢ Any payment in excess of ₹2,000/- will be allowed as deduction only if it is paid
by any mode except cash.
➢ Proof of Payment:
o In order to avail deduction under this section, the assessee must produce
proper proof of payment. Payment in kind is not allowed as deduction.

13. RENT PAID - SEC.80GG:

➢ Eligible Assessee - Individual
➢ Conditions:
a) The assessee should not be in receipt of house rent allowance.

1FIN BY INDIGOLEARN 11.24

 b) The assessee, his spouse, or minor child or the HUF in which he is a member
should not own any residential accommodation at that place.
c) No claim for self-occupied property should be made in respect of any
accommodation.
d) The assessee should fulfill such other conditions or limitations as may be
prescribed, having regard to the area or place in which such accommodation is
situated and other relevant considerations.
e) Assessee must file declaration in Form No. 10BA wherein he confirms the
details of rent paid and fulfillment of the other conditions. (Rule 11B)
➢ Deduction:
Rent paid is allowable as deduction to the extent of the least of the following:
i) Excess of rent paid over 10% of total income
ii) 25% of total income*
iii) ₹5,000 p.m.
*Total income for this purpose means, gross total income as reduced by
deductions under chapter VI-A except 80GG.

14. DONATIONS FOR SCIENTIFIC RESEARCH, RURAL DEVELOPMENT ETC. -

SEC. 80GGA
➢ Eligible assessee: - All assesses not having any income chargeable under the
head "Profits and gains of business or profession".
➢ Any sum paid by the assessee in the previous year to
o A Research association which has, as its object, the undertaking of scientific
research or to a University, college or other institution to be used for
scientific research
o A Research Association which has as its object the undertaking of research
in social science or statistical research, University, College or other
institution to be used for research in social science or statistical research.
o An association or institution which has as its object the undertaking of any
programme of rural development, to be used for carrying out any programme
of rural development approved by the prescribed authority for purposes of
section 35CCA or to an institution or association which has as its object the
training of persons for implementing programmes of rural development.
o A Public sector company or a local authority or to an association or institution
approved by the National Committee for carrying out any eligible project or
scheme.
o A Rural development fund set up and notified under section
35CCA.
o National Urban Poverty Eradication Fund (NUPEF).
➢ Where a deduction is claimed and allowed under this section in respect of any
payment, no deduction shall be allowed under any other provision.
➢ Any payment in excess of ₹ 2,000/- will be allowed as deduction only if it is paid
by any mode except cash.

1FIN BY INDIGOLEARN 11.25

15. CONTRIBUTIONS BY PERSON TO POLITICAL PARTIES- SEC.80GGB:
➢ Deduction shall be allowed in respect of any contribution, as referred to in Sec.
182 of the Companies Act, 2013, made by an Indian company to any political party
or an electoral trust while computing its total income in a way other than cash.

16. CONTRIBUTIONS BY PERSON TO POLITICAL PARTIES- SEC.80GGC:

➢ Deduction shall be allowed in respect of contribution made by any person to a political
party or an electoral trust while computing the total income in a way other than cash.
However, no such deduction shall be allowed to a local Authority and every artificial
juridical person wholly or partly funded by the Government.
➢ No deduction shall be allowed under section 80 GGB and 80GGC in respect of any
sum contributed by way of cash.

1FIN BY INDIGOLEARN 11.26

DEDUCTION IN RESPECT OF CERTAIN INCOMES
17. DEDUCTION IN RESPECT OF EMPLOYMENT OF NEW EMPLOYEES – SEC.
80JJAA
➢ Eligible Assessee: Assessee to whom section 44AB applies
➢ A Deduction of an amount equal to 30% of additional employee cost incurred in
the course of such business in the previous year, would be allowed for three
assessment years including the assessment year relevant to the previous year in
which such employment is provided.
➢ Conditions:

•The business should •The business is not •The report of the

not be formed by acquired by the accountant, giving
splitting up, or the assessee by way of the prescribed
reconstruction, of transfer from any particulars, has to
an existing business other person or as a be furnished before
result of any 30th September of
business the A.Y., being the
reorganisation specified date
referred to in
Section 44AB i.e.,
the date one month
prior to due date
for filing ROI u/s
139(1)

➢ Meaning of certain terms-

Term Meaning
(a) Additional Total emoluments paid or payable to additional employees employed
employee during the previous year.
cost The additional employee cost shall be Nil, if—
(a) there is no increase in the number of employees
from the total number of employees employed as on the
last day of the preceding year;
(b) emoluments are paid otherwise than by an account
In the
payee cheque or account payee bank draft or by use of
case of an
electronic clearing system through a bank account or
existing
through any other prescribed electronic mode [credit
business
card, debit card, net banking, IMPS (Immediate
Payment Services), UPI (Unified Payment Interface),
RTGS (Real Time Gross Settlement), NEFT (National
Electronic Fund Transfer), BHIM (Bharat Interface
for Money), Aadhaar Pay].

1FIN BY INDIGOLEARN 11.27

 The emoluments paid or payable to employees employed
during that previous year shall be deemed to be the
In the first
additional employee cost.
year of a
Note: Such amount paid shall not include emoluments
new
paid otherwise than by way of account payee
business
cheque/bank draft/ECS through a bank account and
prescribed electronic mode
(b) Additional An employee who has been employed during the previous year and
employee whose employment has the effect of increasing the total number of
employees employed by the employer as on the last day of the
preceding year.
Exclusions from the definition:
(a) an employee whose total emoluments are more than ₹ 25,000 per
month; or
(b) an employee for whom the entire contribution is paid by the
Government under the Employees’ Pension Scheme notified in
accordance with the provisions of the Employees’ Provident Funds
and Miscellaneous Provisions Act, 1952; or
(c) an employee who does not participate in the recognised provident
fund.
(d) an employee employed for a period of less than 240 days during
the previous year. In case of an assessee engaged in the business of
manufacturing of apparel or footwear or leather products, an
employee employed for a period of less than 150 days during the
previous year; or
Note – If an employee is employed during the previous year for less
than 240 days or 150 days, as the case may be, but is employed for a
period of 240 days or 150 days, as the case may be, in the immediately
succeeding year, he shall be deemed to have been employed in the
succeeding year.
Accordingly, the employer would be entitled to deduction of 30% of
additional employee cost of such employees for three years from the
succeeding year.
(c) Emoluments Any sum paid or payable to an employee in lieu of his employment by
whatever name called.
Exclusions from the definition:
a) Any contribution paid or payable by the employer to any
pension fund or provident fund or any other fund for the
benefit of the employee under any law for the time being in
force; and
b) Any lump-sum payment paid or payable to an employee at
the time of termination of his service or superannuation or
voluntary retirement, such as gratuity, severance pay, leave
encashment, voluntary retrenchment benefits,
commutation of pension and the like.

1FIN BY INDIGOLEARN 11.28

18. ROYALTY INCOME OF AUTHORS OF CERTAIN BOOKS- SEC. 80QQB
[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible Assessee: Resident individual
➢ Deduction shall be allowed under this section for any income derived as author or
joint author
➢ This deduction shall not be available in respect of royalty income from textbook
for schools, guides, commentaries, brochures, diaries, magazines, newspapers,
journals, pamphlets, tracts, and other publications of similar nature.
➢ Determination of eligible income
Eligible income for the purpose of this section shall be computed as follows:
Nature of Royalty Quantum eligible Amount
In case of Lump sum royalty Amount received or XXX
receivable
In case of royalty otherwise than Maximum 15% shall be XXX
by way of lump sum (i.e., as a allowed
percentage of sales)
Eligible Income XXX
➢ Deduction allowed: Amount of eligible income computed as above or ₹3,00,000,
whichever is lower.
Note:
i. The assessee shall have to furnish a certificate in the prescribed
manner which shall be duly verified by the person making the payment.
ii. Also, if the assessee earns any income from any source outside India,
he should bring such income into India in convertible foreign exchange
within a period of six months from the end of the previous year in which
such income is earned or within such further period as the competent
authority (RBI or any other authority authorized by law) may allow for
the purpose of claiming deduction under this section.

19. DEDUCTION FOR ROYALTY ON PATENTS - SEC. 80 RRB

[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
➢ Eligible assesses: Resident individuals
➢ Deduction shall be allowed in respect of any income by way of royalty in respect
of a registered patent to the extent of
o the whole of such income or
o ₹3 lakhs,
whichever is less.
➢ If any such income is earned from any sources outside India, the amount of income
to be considered for deduction under this provision shall be restricted to the
amount of such income brought into India by convertible foreign exchange by the
assessee within a period of 6 months from the end of the previous year in which
such income is earned of within such further period allowed by the RBI.
➢ A certificate in the prescribed from duly signed by the Prescribed Authority
should be furnished along with the return of income for availing the deduction.

1FIN BY INDIGOLEARN 11.29

20. DEDUCTION IN CASE INTEREST-ON DEPOSIT IN SAVINGS A/C - SEC.
80TTA
[Available only if the individual/HUF exercises the option of shifting out of the
default tax regime provided under section 115BAC(1A)]
Conditions /
Sec Nature Assessee Amount
Remarks
• Interest is received on Interest received
savings account (Not or ₹10,000/-
Interest on (whichever is
Individual time deposits)
80TTA deposit in
& HUF • Interest is received lower)
savings a/c
from bank, post office,
co-op society
Note - Deduction under this section would, however, not be available to a senior citizen
eligible for deduction under section 80TTB.

21. DEDUCTION IN RESPECT OF INTEREST ON DEPOSITS IN CASE OF SENIOR

CITIZENS - SECTION 80TTB
[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
Sec Nature Assessee Conditions / Remarks Amount
Interest • Interest received on savings
on Interest received
account Including time
deposit Individual or ₹50,000/-
80TTB deposits.
in case of & HUF (whichever is
senior
• Interest received from bank, lower)
citizens post office, co-op society.

22. DEDUCTION IN CASE OF A PERSON WITH DISABILITY- SEC-. 80U

[Available only if the individual exercises the option of shifting out of the default
tax regime provided under section 115BAC(1A)]
An individual who is a resident and who is certified by a Medical Authority to be a person
with disability at any time during the previous year shall be entitled to deduction of
₹75,000. If it is a case of severe disability, deduction shall be ₹1,25,000. A copy of the
certificate issued by the Medical Authority is required to be furnished in respect of the
assessment year for which the deduction is claimed along with the return of income.

1FIN BY INDIGOLEARN 11.30

 Problems

1. The gross total income of Mr. Nepal for the Assessment Year 2024-25 was ₹
12,00,000. He has made the following investment/payments during the year 2023-24-
Particulars ₹
1. L.I.C. premium paid (Policy value ₹ 1,00,000) (taken on 25,000
1.04.2008)
2 P.P.F. amount paid 25,000
.
3 Repayment of housing loan to Indian Bank 50,000
.
4 Payment made to L.I.C. pension fund 20,000
.
5 Medical insurance premium for self, wife and dependent 18,000
. children.
6 Mediclaim premium for parents (aged over 80 years) 30,000
.
Compute eligible deduction under Chapter VI-A for the Assessment Year 2024-25

2. Mr. Chaturvedi having gross total income of ₹ 6,35,000 for the financial year 2023-24
furnishes you the following information:
(i) Deposited ₹ 50,000 in tax saver deposit in the name of major son in a nationalized
bank.
(ii) Paid ₹ 25,000 towards premium on life insurance policy of his married daughter.
(iii) Contributed ₹ 10,000 to Prime Minister's National Relief Fund.
(iv) Donated ₹ 20,000 to a government recognized institution for scientific research
by a cheque.
Discuss allowability of deductions and compute net income.

3. State with proper reasons whether the following statements are True/False with
regard to the provisions of the Income-tax Act, 1961:
(a) During the financial year 2023-24, Mr. Amit paid interest on loan availed by him
for his son's higher education. His son is already employed in a firm. Mr. Amit will
get the deduction under section 80E.
(b) Subscription to notified bonds of NABARD would qualify for deduction under
section 80C.

(c) In order to be eligible to claim deduction under section 80C,

investment/contribution/ subscription etc. in eligible or approved modes, should be
made from out of income chargeable to tax.
(d) Where an individual repays a sum of ₹ 30,000 towards principal and ₹14,000 as

1FIN BY INDIGOLEARN 11.31

 interest in respect of loan taken from a bank for pursuing eligible higher studies,
the deduction allowable under section 80E is ₹ 44,000.

4. Mr. Gurpreet, aged 61 years, earned professional income (computed) of ₹ 7,75,000

during the year ended 31.03.2024 He has earned interest of ₹ 16,000 on the savings
bank account with State Bank of India during the year.
Compute the total income of Mr. Gurpreet for the assessment year 2024-25 from the
following particulars:
i. Life insurance premium paid to Insurance Company in cash amounting to ₹ 55,000 for
life insurance of his dependent parents. The insurance policy was taken on
30.08.2022 and the sum assured on life of his dependent parents is ₹ 1,75,000.
ii. Life insurance premium of ₹ 40,000 paid for the insurance of life of his major son
who is not dependent on him. The sum assured on life of his son is ₹ 2,50,000 and the
life insurance policy was taken on 28.01.2023.
iii. Life insurance premium paid by cheque of ₹ 35,000 for insurance of his life. The
insurance policy was taken on 22.11.2023 and the sum assured is ₹ 3,00,000.
iv. Investment in PPF ₹ 50,000.
v. Premium of ₹ 17,500 paid by cheque for health insurance of self and his wife.
vi. ₹ 1,850 paid in cash for his health check-up and ₹ 6,500 paid in cheque for health
check-up for his parents.
vii. Paid interest of ₹ 7,500 on loan taken from bank for MBA course pursued by his son.
viii. A sum of ₹ 20,000 donated in cash to an institution approved under section 80G for
promoting family planning.

1FIN BY INDIGOLEARN 11.32

 Chapter 12

Advance Payment of Tax

Before we Begin,

Advance tax is when you pay some of your income tax before the year is over.
Usually, you pay taxes after you've earned your money. But with advance tax,
you try to guess how much money you'll make for the whole year. Then, you pay a
part of your tax in smaller amounts throughout the year based on your guess.
This helps you figure out how much tax you really need to pay ahead of time.
It's like making sure you save enough money to cover your taxes.

You will learn about the following

• Various Provisions that govern the mandate of Advance Tax

• Computation of Advance Tax liability
• Manner of Payment of Advance Tax
• Payment Schedule of Advance Tax Liability

Happy learning!

1FIN BY INDIGOLEARN 12.1

1. LIABILITY FOR PAYMENT OF ADVANCE TAX (Sec 207):
➢ Tax shall be payable in advance during any financial year, in respect of an assessee's
current income i.e., the total income of the assessee which would be chargeable to
tax for the assessment year immediately following that financial year.
➢ Advance tax can be paid on SUOMOTO basis or upon the Order of the AO.
➢ Under section 208, obligation to pay advance tax arises in every case where the
advance tax payable is ₹10,000 or more.
Exception: Resident Senior citizen is exempted from payment of advance tax if not
having income under "Business & profession" head.
➢ Scheme of advance payment of tax is also known as "PAY AS YOU EARN SCHEME"

2. Computation of advance tax payable:

A. On assessee’s own motion
1. Make an estimate of current year’s income (excluding income covered u/s 44AD or
44ADA), considering brought-forward losses, after deducting all allowable
deductions under chapter VIA.
(The estimate is not required to be filed with the tax authorities.)
2. Compute the tax liability on above estimated income at the rates in force during the
financial year and reduce rebate, If any.
3. Add surcharge (if applicable). And Health and Education cess.
4. Deduct tax deducted or collected at source.
(Only if tax has actually been deducted at source, the same can be reduced for
computing advance tax liability of the payee. Tax deductible but not so deducted
cannot be reduced for computing advance tax liability of the payee)

5. The amount so derived is the advance tax payable.

6. For subsequent instalment, check if estimate of income made earlier requires
revision.
7. If so, revise the estimation and recompute tax liability.
8. From the advance tax payable for that instalment deduct the amount already paid.
9. Pay the remaining amount.

1FIN BY INDIGOLEARN 12.2

B. On receipt of order from the Assessing Officer

➢ Conditions to be satisfied for issuing such order

1. The assessee has already been assessed by way of a regular assessment in any
previous year.
2. The Assessing Officer is of opinion that such person is liable to pay advance tax.
3. Such order can be passed at any time during the financial year but not after last day
of February.
4. Such order must be made in writing.
5. Such order also specifies the amount of advance tax and the instalments thereof to
be paid by the assessee.
Note: Such order can be issued even if assessee has paid any instalment of advance
tax during the year, which is, in the opinion of the Assessing Officer, not as per
provision of sec. 211. The above order can be served by the Assessing Officer at any
time during the financial year but not later than the last date of February.

➢ Determination of advance tax by the Assessing Officer

The amount determined by the Assessing Officer shall be the higher of the following
–
1. Tax on latest assessed income as per regular assessment; or
2. Tax on income declared by the assessee in the return relating to the
previous year subsequent to the previous year for which regular assessment has been
made.

➢ Procedure to be followed by assessee on receipt of such order

Case Advance tax to be paid Whether intimation to
by the assessee AO is required
On the basis of the
Where income estimated by the
order of the Assessing No
Assessing Officer is correct
Officer
Where assessee estimates his
current income to be higher than On the basis of his own
No
that estimated by the Assessing estimate
Officer
Yes, Assessee shall
Where assessee estimates his submit his own
current income to be lower than On the basis of his own
estimate to the
that estimated by the Assessing estimate
Officer Assessing Officer (in
Form 28A)

1FIN BY INDIGOLEARN 12.3

 ➢ Due dates of Advance tax for all assessee

Due dates Amount of Advance Tax

On or before 15th June of P.Y. Up to 15% of Advance tax liability

On or before 15th September of Up to 45% of Advance tax liability

P.Y.
On or before 15th December of Up to 75% of Advance tax liability
P.Y.
On or before 15th March of P.Y. Up to 100% of Advance tax liability

Note - Any amount paid by way of advance tax on or before 31st March shall also be treated
as advance tax paid during each financial year ending on 31st March.

➢ If assesses computing profits on presumptive basis under section 44AD (1) or section
44ADA(1) then the due date of Advance tax is 15th March of P.Y.(Only one
installment).

OTHER POINTS
➢ Any amount paid by way of advance tax on or before 31st March of the relevant
previous year shall also be treated as advance tax paid during the financial year
ending on that day.
➢ If the due date of payment of advance tax is a banking holiday, the Assessee can
make the payment on the next immediately following working day. In such cases, no
interest shall be leviable u/s 234B or 234C.
➢ Payment by cheque: Date of payment of amount by cheque would be the date of
presentation of cheque if it were not dishonoured.
➢ Where advance tax is payable by virtue of the notice of demand issued by the
Assessing officer, the whole or the appropriate part of the advance tax specified in
such notice shall be payable on or before each of such due dates as fall after the
date of service of notice of demand.
➢ Where the assessee does not pay any installment by the due date, he shall be deemed
to be an assessee in default in respect of such installment.

1FIN BY INDIGOLEARN 12.4

3. PAYMENT OF ADVANCE TAX IN CASE OF CAPITAL GAINS/ CASUAL
INCOME:
➢ Advance tax is payable by an assessee on his/its total income, which includes capital
gains and casual income like income from lotteries, crossword puzzles etc.
➢ Since it is not possible for the assessee to estimate his capital gains, income from
lotteries, etc., it has been provided that if any such income arises after the due date
for any installment, then, the entire amount of tax payable (after considering tax
deducted at source) on such capital gains or casual income should be paid in the
remaining installments of advance tax which are due.
➢ Where no such installment is due, the entire tax should be paid by 31st March of the
relevant financial year.
➢ No interest liability would arise if the entire tax liability is so paid.
➢ NOTE:
❖ If the Due date for payment of installment of advance tax is a bank holiday,
then the assessee can make the payment on the next immediately following
working day.

4. CREDIT OF ADVANCE TAX (Sec 219):

Any sum, other than interest or penalty, paid by or recovered from an assessee
as advance tax, is treated as a payment of tax in respect of the income of the
previous year and credit thereof shall be given in the regular assessment.

1FIN BY INDIGOLEARN 12.5

 Chapter 13
TDS and TCS
Before we Begin,

To make sure the collection of taxes is not once in a year thing, government has made sure
that certain transactions which arise income to certain persons from certain persons at
certain limits as specified could be taxed at the point of its source, in other words it’s the
method of government that ensures the prevention of tax evasion by taxing every
transaction by increasing compliance.

You will learn about the following

• Various Tax Deducted at Source Sections
• Thresholds of various TDS transactions
• Provisions that enable Tax Collection at Source

TDS and TCS is a regular compliance in the monthly calendar of a Chartered Accountant in
the fields of Tax compliances or Audit services. A strong hold in these provisions would
make a Chartered Accountant be watchful and informed about each transaction’s Tax
Compliance.

Happy learning!

1FIN BY INDIGOLEARN 13.1

 Tax Deduction at Source Tax Collected at Source

Deduction of Tax at Source Collection of Tax at Source

[Section 192 to 196] [Section 139A]

TCS for non-filers of ITR and

Certificate of deduction of tax at non-furnishers of PAN
lower rate [Section 197]
[Section 206AA & 206CC]

Difference between TDS and

No TDS Cases [Section 197A]
TCS

Common Number for TDS and

Miscellaneoud Provisions TCS
[Section 198 to 206AB]
[Section 203A]

1FIN BY INDIGOLEARN 13.2

1. INTRODUCTION:
The total income of an assessee for the previous year is taxable in the relevant assessment year.
For example, the total income for the P.Y. 2022-23 is taxable in the A.Y. 2023-24. However,
income-tax is recovered from the assessee in the previous year itself through –
(1) Tax deduction at source (TDS)
(2) Tax collection at source (TCS)
(3) Payment of advance tax

2. SEC 190: Deduction of tax at source and advance payment

➢ Applicability -
• All assessee

➢ Explanation -
• Income tax is recovered through TDS, TCS, and Advance tax and for non-monetary
perquisites as per section 192(1A).
• Amount of tax to be paid after adjusting TDS, TCS, tax relief as per Section 89, tax
credit to claimed as per section 115JD, any tax or interest payable according to the
provisions of Section 191(2) and advance tax.

3. SEC 191: Direct payment of tax

➢ Section 191(1): In the following cases, tax is payable by the assessee directly –
(i) in the case of income in respect of which tax is not required to be deducted at source; and
(ii) income in respect of which tax is liable to be deducted but is not actually deducted.
(iii) The proceedings for recovery of tax necessarily had to be taken against the assessee whose
tax was liable to be deducted, but not deducted.
➢ If any person, including the principal officer of the company –
(i) who is required to deduct tax at source; or
(ii) an employer paying tax on non-monetary perquisites under section 192(1A), does not deduct
the whole or part of the tax, or after deducting fails to pay such tax deducted, then, such
person shall be deemed to be an assessee-in-default.
➢ However, if the assessee himself has paid the tax, this provision will not apply.
➢ Section 191(2): If Income of assessee, includes value of specified security or sweat equity
shares allotted or transferred free of cost/ concessional rate by his employer being eligible
start-up then income-tax on such has to be paid by assessee within 14 days from the earliest
of
− After expiry of 48 months from the end of relevant A.Y; or
− From the date of the sale of such by the assessee; or
− From the date of assessee ceasing to be employee of such employer

4. SEC 192: SALARY:

Section Nature of Payer Payee Rate
Payment
Employee
192 Salary Any Person Slab Rate
(R/NR)

1FIN BY INDIGOLEARN 13.3

 Additional Points:

➢ This section casts an obligation on every person responsible for paying any income chargeable
to tax under the head "Salaries" to deduct income-tax on the amount payable.
➢ Such income-tax has to be calculated at the average rate of income-tax computed on the
basis of the rates in force for the relevant financial year in which the payment is made, on
the estimated total income of the assessee. Therefore, the liability to deduct tax at source
in the case of salaries arises only at the time of payment.
For computation of total income in case employee intents to opt for concessional rate
of tax u/s 115BAC and intimates his deductor (employer) => Deduct tax as per provisions
of Section 115BAC
Do not intimate his deductor (employer) => Deduct tax without considering provisions
of Section 115BAC
➢ In cases where an assessee is simultaneously employed under more than one employer or the
assessee takes up a job with another employer during the financial year, he may furnish the
details of the income under the head “Salaries” due or received by him from the other
employer, the tax deducted therefrom and such other particulars to his current employer.
Thereupon, the subsequent employer should take such information into consideration and then
deduct the tax remaining payable in respect of the employee’s remuneration from both the
employers put together for the relevant financial year.
➢ Deduction of tax at source should be made after allowing relief under section 89(1), where
eligible.
➢ A taxpayer can declare the following additions information for allowing to the employer to
compute TDS:
− particulars of such other income;
− particulars of any tax deducted under any other provision;
− loss, if any, under the head ‘Income from house property’. (Only loss from house
property is considered and not losses under other head)
➢ The employer shall furnish to the employee (whose salary exceeds ₹ 150,000), a statement
in Form No. 12BA giving correct and complete particulars of perquisites or profits in lieu of
salary provided to him and the value thereof.
➢ It is the responsibility of the employer to obtain from the assessee, the following evidence
or proof or particulars of prescribed claims.
House Rent Allowance Name, address and PAN of the landlord(s)
where the aggregate rent paid during the
previous year exceeds ₹ 1 lakh.
Leave Travel Concession or Assistance Evidence of expenditure
Deduction of interest under the head Name, address and PAN of the lender
“Income from house property”
Deduction under Chapter VI-A Evidence of investment or expenditure.

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5. Section 192A: Premature withdrawal from employee’s provident fund

Section Nature of Payment Payer Payee Rate

Accumulated balance of Any
192A Employee(R/NR) 10%
PF Person

Additional Points:
1. Income Tax shall be deducted at source (TDS) at the following rates, if at the time of
payment of the accumulated PF balance is more than or equal to Rs. 50000/-
a) TDS will be deducted @ 10%, provided PAN is submitted

2. No need to deduct TDS if aggregate amount of such payment to the payee is less than
Rs.50000/-
3. However premature withdrawal, before continuous service of five years (other than the cases
of termination due to ill health, contraction or discontinuance of business, cessation of
employment etc.) is subject to tax.
4. If PAN of the recipient is not available, Tax will be Deducted @ 20%
[Amended as per Finance Act, 2023]

6. SEC 193: INTEREST ON SECURITIES: -

Section Nature of Payment Payer Payee Rate

Any Resident
193 Interest on Securities 10%
Person Person

Additional Points:
1. Any person paying to a resident interest on securities is liable to deduct tax at source at the
time of payment or credit whichever is earlier. However, in case where the following
cumulative conditions are fulfilled, tax deduction at source is not warranted:
❖ Interest on any debentures (whether listed or not listed on a recognized stock exchange)
issued by a company in which public are substantially interested to a resident Individual
or HUF
❖ The payment is made by an account payee cheque or draft; and
❖ The amount of interest does not exceed Rs. 5000/-
It needs mention that in order to fall outside the purview of tax deduction under this section,
payer should fulfill all the 3 conditions cumulatively.

2. No tax deduction is to be made from any interest payable:

❖ on National Development Bonds
❖ on 7-year National Savings Certificates (IV Issue)
❖ on 4¼% National Defence Bonds 1972, held by resident.

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 ❖ on 4¼% National Defence Loan, 1968 or 4¾% National Defence Loan, 1972.
❖ on debentures issued by any institution or authority or any public sector company or any co-
operative society as notified by the Central Govt.
Notified - 54EC Capital Gains Bond issued by Power Finance Corporation Limited and Indian
Railway Finance Corporation Limited
❖ on securities to LIC, GIC, subsidiaries of GIC or any other insurer in which they have full
beneficial interest.
❖ On any security of central government and state government.
o Exception- 8% Savings (taxable) Bonds, 2003 or 7.75% Savings (Taxable) Bonds, 2018 issued
to a resident -interest payable thereon does not exceeds Rs. 10,000/- during the financial
year.
3. Rate of TDS: 10% for all the assesses,

7. SEC 194: DIVIDENDS

Section Nature of Payer Payee Rate

Payment
Domestic
194 Dividend Resident Person 10%
Company

Additional Points:
1. Payer is a domestic company, and the recipient is Resident person.
2. Tax to be deducted at the time of payment.
3. Rate of TDS: 10%
4. Non-Applicability:
− The dividend is paid by any mode other than cash; and
− The amount of such dividend or aggregate of dividend distributed or paid or likely to be
distributed or paid during the financial year by the company to such shareholder does not
exceed Rs. 5,000.
− Dividend credited or paid to LIC, GIC, subsidiaries of GIS or any insurer provided, the
shares are owned by them/them have full beneficial interest in such shares, business trust
or any other person as may be notified by the CG in the Official Gazette.

8. SEC 194A: INTEREST OTHER THAN INTEREST ON SECURITIES

Section Nature of Payer Payee Rate

Payment

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 Any person (other than
an individual or HUF
whose total sales, gross
receipts or turnover
from
Interest other
Business or profession Resident
194A than interest on 10%
do not exceed the Person
securities
limits Rs. 1 crore and
Rs.
50 lakhs respectively
during the immediately
preceding F.Y.)
Additional Points:
1. No TDS in following cases:
❖ If the aggregate amount of interest paid or credited during the financial year does not
exceed Rs.5,000/-
This limit is Rs.40,000/- where the payer is a –
(i) banking company;
(ii) a co-operative society engaged in banking business; and
(iii) post office and interest is credited or paid in respect of any deposit under notified
schemes.
(Rs.50,000/- in case of a Senior citizen.)
❖ Interest paid or credited by a firm to any of its partners.
❖ Income paid or credited by a co-operative society (other than a co- operative bank) to a
member thereof or to any other co-operative society.
❖ Interest paid or credited in respect of deposits under any scheme framed by the Central
Government and notified by it in this behalf.
❖ Interest income credited or paid in respect of deposits (other than time deposits made
after 1.7.1995) with a bank for which the Banking Regulation Act, 1949 applies.
❖ Interest credited or paid in respect of deposits with primary agricultural credit society
or a primary credit society or a co-operative land mortgage bank or a co- operative land
development bank.
❖ Interest income credited or paid by the Central Government under any provisions of the
Income-tax Act, 1961, the Wealth- tax Act, 1957, the Gift-tax Act or the Interest Tax
Act.
❖ Interest paid or credited to the following entities:
•banking companies, or co-operative societies engaged in the business of banking, including
co-operative land mortgage’ banks
•Financial corporations established under any Central, State or Provincial Act.
•Life Insurance Corporation of India.
•Companies and co-operative societies carrying on the business of insurance.
•the Unit Trust of India; and

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 • notified institution, association, body or class of institutions, associations or bodies
(National Skill Development Fund has been notified by the Central Government for this
purpose)
❖ Income paid or payable by an infrastructure capital company or infrastructure capital
fund or infrastructure debt fund or public sector company or scheduled bank in relation
to a zero-coupon bond issued on or after 1.6.2005.
❖ Income paid by way of interest on the compensation amount awarded by the Motor
Accidents Claims Tribunal where the amount of such income or, as the case may be, the
aggregate of the amounts of such income paid during the financial year does not exceed
Rs.50,000/-
2. A Co-operative society under this section is liable to deduct tax if: -
• Total sales, Gross receipts or Turnover exceed Rs. 50 Crores during the F.Y immediately
preceding the F.Y in which interest is credited and
• The amount of interest is credited or paid or likely to be credited or paid, during the
F.Y is more than Rs. 50,000 (being senior citizen) or Rs. 40,000 (other cases)
3. Interest credited or paid of Co-operative society:
• To its members or any other co-operative societies
• In respect of deposits with a primary agricultural credit society or a primary
credit society or a co-operative land mortgage bank or a co-operative land
development bank.
• In respect of deposits with a co-operative bank other than co-operative
society or bank engaged in carrying on business of banking.
4. The expression "time deposits' means the deposits, including recurring deposits, repayable
on the expiry of fixed periods
5. Central Government is entitled to issue notification for non-deduction of tax at source or at
lower rate from such payment to such class of persons specified in such notification.
6. Interest income accrued to minor child, where both the parents have deceased:
TDS is required to be deducted and reported against PAN of the minor child unless a
declaration is filed under Rule 37BA(2) that credit for tax deducted has to be given to
another person.
7. Interest on deposits made under Capital Gains Accounts Scheme, 1988 where depositor has
deceased: [N/N.08/201
(i) TDS on the interest income accrued for and upto the period of death of the depositor is
required to be deducted and reported against PAN of the depositor, and
(ii) TDS on the interest income accrued for the period after death of the depositor is
required to be deducted and reported against PAN of the legal heir, unless a declaration is
filed that credit for tax deducted has to be given to another person.

1FIN BY INDIGOLEARN 13.8

9. SECTIONS 194B AND 194BB: WINNINGS FROM LOTTERIES, CROSSWORD PUZZLES
AND HORSERACES

Section Nature of Payment Payer Payee Rate

Winnings from lottery
194B or crossword puzzles Any Person Any Person 30%
etc.,
Winnings from horse
194BB Any Person Any Person 30%
races

1. According to the provisions of section 194B, every person responsible for paying to any
person, whether resident or non-resident, any income by way of winnings from lottery or
crossword puzzle or card came and other game of any sort, is required to deduct income-tax
there from at the rate of 30%, if the amount of payment exceeds Rs. 10,000.

2. Further, in a case where the winnings are wholly in kind or partly in cash and partly in kind
but the part in cash is not sufficient to meet the liability of deduction of tax in respect of
whole of the winnings, the person responsible for paying, shall, before releasing the winnings,
ensure that tax has been paid in respect of the winnings.

3. The obligation to deduct tax at source under section 194BB arises when the above-mentioned
persons make payment of any income by way of winnings from any horse race in excess of
₹10,000. The rate applicable for deduction of tax at source is 30% [Amended as per Finance
Act, 2023]

4. In the context of the provisions of section 194BB, winnings by way of jack pot would also fall
within the scope of section 194BB.

Note: In case of winnings from online games, Section 194BA would apply and TDS would be
computed on the net winnings at 30%. TDS is done at the end of the FY or at the time of
withdrawal from the user account.

1FIN BY INDIGOLEARN 13.9

10. SEC.194C: PAYMENTS TO CONTRACTORS

Section Nature of Payer Payee Rate

Payment
1% of sum paid
Any person (other than
or credited, if
Payments to an individual or HUF
the payee is an
contractors and whose total sales, gross
Individual or
Sub- contractors receipts or turnover Resident
HUF
[carrying out any from Business or Person
194C
work (including profession do not exceed
2% of sum paid
supply of labour) the limits Rs. 1 crore and
or credited, if
in pursuance of a Rs. 50 lakhs respectively
the payee is
contract] during the immediately
any other
preceding F.Y.)
person.

1. Any person responsible for paying any sum to a resident contractor for carrying out any work,
in connection with a contract, including sub- contract shall deduct tax at source under this
section. It may be noted that the contract under this section includes a contract for supply
of labour for carrying out work.
2. The tax deduction at source under this section shall be made either on payment or credit
whichever is earlier.
3. Meaning of "Work" u/s 194C:
❖ According to Section 194C, any payment for carrying out any work shall be subject to tax
deduction at source. For the purpose of this section, work shall include:
▪ Advertising
▪ Broadcasting and telecasting including production of programmes for such
broadcasting or telecasting;
▪ Carriage of goods and passengers by any mode of transport other than by railways;
▪ Catering;
▪ Manufacturing or supplying of product according to the requirement or specification
of the customer by using material purchased from such customer.
▪ If goods are purchased from some other supplier, then it would become sale

4. Deduction will be required in the following situations:

❖ The amount of any single sum credited or paid to the contractor exceeds ₹30,000;
❖ The aggregate amount of such sums credited or paid to the contractor during the financial
year exceeds ₹1,00, 000.
5. Non-Applicability of TDS
❖ No TDS if contract is for personal purpose of Individual/HUF

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 ❖ No deduction shall be made from any sum credited or paid or likely to be credited or paid
during the previous year to the account of a contractor during the course of business of
plying, hiring or leasing goods carriages, where such contractor
a) Owns ten or less than ten goods carriages at any time during the previous year;
b) Furnishes a declaration to that effect along with his Permanent Account Number, to
the person paying or crediting such sum.
6. payment of gas transportation charges by the purchaser of natural gas to the seller of gas
[Circular 9/2012] :
If Seller sells as well as transports the gas to the purchaser till the point of delivery, nature
of such contract which remains essentially a ‘contract for sale’ and not a ‘works contract’
irrespective of fact whether the transportation charges are included in the cost of gas or
shown separately.
However, if transportation charges paid to a third party transporter, then TDS shall be made
u/s 194C

7. Payments by broadcasters or Television Channels to production houses for production of

content for telecasting

Where the content is produced as per the Where telecaster/broadcaster, acquires

specifications of broadcaster/ telecaster only the broadcasting/ telecasting rights
and the copyright of the content is also of the content already produced by the
transferred to them production house

Such contract is covered by the definition there is no contract for carrying out any
of the term ‘work’ u/s 194C and work, as required u/s 194C

Subject to TDS u/s 194C No TDS u/s 194C

1FIN BY INDIGOLEARN 13.11

11. SEC 194D: INSURANCE COMMISSION

Section Nature of Payment Payer Payee Rate

Insurance Any Resident
194D Any Person 5%
Commission Person

Additional Points:
1. The deduction is to be made at the time of the credit of the income to the account of the
payee or at the time of making the payment [by whatever mode] to the payee, whichever is
earlier.

2. No TDS if commission is up to Rs.15000/- in FY.

12. SEC 194DA: PAYMENT IN RESPECT OF LIFE INSURANCE POLICY

Section Nature of Payment Payer Payee Rate

Maturity of Life Any Resident
194DA Any Person 5%
Insurance Policy Person

Additional Points:
1. Tax is deductible at the time of payment.

2. TDS is not required if the amount payable during the financial year is less than 1,00,000.

3. No TDS if maturity amount exempted u/s 10(10D).

4. In this section TDS applicable on income component i.e. maturity amount (-) premium paid.

13. SEC 194G: COMMISSION ON THE SALE OF LOTTERY TICKETS

Section Nature of Payer Payee Rate

Payment
Commission on
194G the sale of Any Person Any Person 5%
lottery tickets

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Additional points:
1. No TDS where amount does not exceed Rs.15000/- during a FY.

2. Time of deduction: At the time of credit or payment, whichever is earlier.

14. SEC 194H: COMMISSION OR BROKERAGE: -

Section Nature of Payer Payee Rate

Payment
Any person (other than an
individual or HUF whose
total sales, gross receipts
or turnover from Business
Commission or or profession do not Resident
194H 5%
Brokerage exceed the limits Rs.1 Person
crore and Rs.50 lakhs
respectively during the
immediately preceding
F.Y.)

Additional Points:
1. The deduction shall be made at the time such income is credited to the account of the payee
or at the time of payment in cash or by issue of cheque or draft or by any other mode,
whichever is earlier.
2. Even where income is credited to some other account, whether called 'Suspense account' or
by any other name, in the books of account of the person liable to pay such income, such
crediting shall be deemed to be credit to the account of the payee for the purposes of this
section.
3. No deduction is required if the amount of such income or the aggregate of such amount does
not exceed ₹15,000 during the financial year.
4. No TDS on payments by BSNL or MTNL to their public call office (PCO) franchisees.
5. No TDS if commission or brokerage related to security like commission to underwriter,
brokerage on public issue etc..

1FIN BY INDIGOLEARN 13.13

15. SEC 194-I: RENT

Section Nature of Payer Payee Rate

Payment
Any person (other than an
individual or HUF whose
P&M,
total sales, gross receipts
Equipment -
Rent of P&M, or turnover from Business
2%
Equipment’s, or profession do not Resident
194I Land,
Land, Building, exceed the limits Rs.1 Person
Building,
Furniture crore and Rs.50 lakhs
Furniture -
respectively during the
10%
immediately preceding
F.Y.)

Additional Points:
1. “Rent” means any payment, by whatever name called, under any lease, sub- lease, tenancy or
any other agreement or arrangement for the use of (either separately or together) of P&M
/ L&B / F&F whether or not they are owned by the payee.

2. No deduction need be made where the amount of such income or the aggregate of the amounts
of such income credited or paid or likely to be credited or paid during the financial year to
the account of the payee does not exceed Rs.2,40,000/-

3. This deduction is to be made at the time of credit of such income to the account of the payee
or at the time of payment thereof in cash or by issue of cheque or draft or by any other
mode, whichever is earlier.
4. Passenger Service Fees (PSF) paid by an Airline to an Airport Operator is NOT treated as
rent so TDS not applicable u/s 194I [Circular No.21/2017]

5. Lumpsum lease premium or one-time upfront lease charges which are not adjustable against
periodic rent, paid or payable for acquisition of long-term leasehold rights - are not payments
in the nature of rent within the meaning of section 194-I. Therefore, NO TDS. [Circular
No.35/2016]

6. No TDS on Cooling charges paid by the customers of the cold storage. However, 194C would
apply to such case.

1FIN BY INDIGOLEARN 13.14

 7. 194-I would be required to be made on the amount of rent paid/payable without including the
GST component.

16. SEC 194-IA: PAYMENT ON TRANSFER OF CERTAIN IMMOVABLE PROPERTY OTHER

THAN AGRICULTURAL LAND

Section Nature of Payment Payer Payee Rate

1% of Consideration
Transfer of immovable Any Resident
or stamp duty
194-IA property other than Person Person
value, whichever is
agricultural land (Buyer) (Seller)
higher

Additional Points:
1. The deduction is to be made at the time of credit of such sum to the account of the resident
transferor or at the time of payment of such sum to a resident transferor, whichever is
earlier.

2. However, tax is not required to be deducted at source where the total amount of
consideration for the transfer of immovable property and the stamp duty value of such
property, are both, less than ₹50 lakh. [Finance Bill, 2022]

3. Further, since tax deduction at source for compulsory acquisition of immovable property is
covered under section 194LA, the provisions of section 194-IA do not get attracted in the
hands of the transferee in such cases.
4. The provisions of section 203A containing the requirement of obtaining Tax deduction
account number (TAN) shall not apply to the person required to deduct tax in accordance
with the provisions of section 194-IA.

17. SEC 194-IB: PAYMENT OF RENT BY CERTAIN INDIVIDUALS OR HINDU UNDIVIDED

FAMILY

Section Nature of Payment Payer Payee Rate

Individual/ HUF
Rent of Immovable Resident
194-IB (Not covered u/s 5%
Property Person
194-I)

Additional Points:

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 1. tax has to be deducted at source only if the amount of such rent exceeds Rs.50,000 per
month or part of a month during the PY.

2. This deduction is to be made at the time of credit of such rent, for the last month of the
previous year or the last month of tenancy, if the property is vacated during the year, as the
case may be, to the account of the payee or at the time of payment thereof in cash or by
issue of cheque or draft or by any other mode, whichever is earlier.

3. However, in any case, such deduction shall not exceed the amount of rent payable for the last
month of the previous year.

18. SEC 194J: FEES FOR PROFESSIONAL OR TECHNICAL SERVICES:-

Section Nature of Payment Payer Payee Rate

- Fees for
Any person (other than an
professional
individual or HUF whose
services
total sales, gross receipts
- Fees for technical or turnover from Business
services or profession do not Resident
194J 10%
- Remuneration to exceed the limits Rs.1 Person
director of a crore and Rs.50 lakhs
company respectively during the
- Royalty immediately preceding
F.Y.)
- Non-compete fees

Additional Points:

1. Every person other than an individual or a HUF shall deduct tax at source at the rate of:
- 2% in case of fees for technical services (not being professional services) or royalty
in the nature of consideration for sale, distribution or exhibition of cinematographic films;
- 2% in case of a payee, engaged only in the business of operation of call centre.
2. 10% in other cases.
3. The deduction is to be made at the time of credit of such sum to the account of the payee
or at the time of payment thereof in cash or by issue of a cheque or draft or by any other
mode, whichever is earlier.
4. No tax deduction is required if the amount of fees or the aggregate of the amounts of fees
credited or paid or likely to be credited or paid during a financial year does not exceed ₹
30,000 in the case of fees for professional services, ₹30,000 in the case of fees for technical
services, ₹30,000 in the case of royalty and ₹30,000 in the case of non-compete fees.

1FIN BY INDIGOLEARN 13.16

 However, there is no such exemption limit for deduction of tax on any remuneration or fees
or commission payable to director of a company.
5. However, an individual or Hindu Undivided family, shall not be liable deduct income-tax on the
sum payable by way of fees for professional services, in case such sum is credited or paid
exclusively for personal purposes.
6. The following persons have been included as professionals in this section by notification
88/2008: Sports person, Umpires &referees, coaches & Trainers, Team physicians
&Physiotherapists, event managers, commentators, Anchors and sports Columnists.
7. Individual or HUF, whose total sales, gross receipts or turnover from business or profession
carried by him exceeds ₹ 1 crore in case of business or ₹ 50 lakhs in case of profession in the
financial year immediately preceding the financial year in which the fees for professional
services or fees for technical services is credited or paid is required to deduct tax on such
fees.
8. Third Party Administrators who are making payment on behalf of insurance companies to
hospitals for settlement of medical/insurance claims etc. under various schemes including
cashless schemes are liable to deduct tax at source under section 194J. [Circular No.8/2009]
9. The consideration for use or right to use of computer software is royalty. Hence, 194J would
be attracted in respect of consideration for use or right to use computer software. However,
no TDS would be attracted if:
- the software is acquired in a subsequent transfer without any modification by the
transferor
- tax has been deducted under section 194J on payment for any previous transfer of such
software and
- the transferee obtains a declaration from the transferor that tax has been so deducted
along with the PAN of the transferor.

19. SEC 194K: INCOME IN RESPECT OF UNITS

Section Nature of Payment Payer Payee Rate

Income in respect Any Resident
194K 10%
of units Person(MF/UTI) Person

Additional Points:
1. The deduction is to be made at the time of credit of such sum to the account of the payee or
at the time of payment by any mode, whichever is earlier.

2. No tax is required to be deducted if –

i. the amount of such income or the aggregate of the amounts of such income credited or paid
or likely to be credited or paid during a financial year does not exceed Rs.5000/-

1FIN BY INDIGOLEARN 13.17

 ii. the income is of the nature of capital gains.

20. SEC 194LA: PAYMENT OF COMPENSATION ON ACQUISITION OF CERTAIN

IMMOVABLE PROPERTY

Section Nature of Payment Payer Payee Rate

Compensation on
Any Resident
194LA acquisition of certain 10%
Person Person
immovable property

Additional Points:
1. Section 194LA provides for deduction of tax at source by a person responsible for paying to a
resident any sum in the nature of –
[Link] or the enhanced compensation or
[Link] consideration or the enhanced consideration
on account of compulsory acquisition of any immovable property (other than agricultural
land).
“Agricultural land” for the purpose of this section means any land situated in India including
urban agricultural land.

2. The tax should be deducted at the time of payment of such sum in cash or by issue of a cheque
or draft or by any other mode, whichever is earlier.

3. No tax is required to be deducted where the aggregate amount of such payments to a resident
during the FY does not exceed Rs.2,50,000/-

21. SEC 194M: PAYMENT MADE BY AN INDIVIDUAL OR A HUF FOR CONTRACT WORK OR
BY WAY OF COMMISSION OR BROKERAGE OR FEES FOR PROFESSIONAL SERVICES

Section Nature of Payment Payer Payee Rate

Contract work or
Individuals and HUFs
by way of
(other than those who
commission or Resident
194M are required to 5%
brokerage or fees Person
deduct TDS u/s
for professional
194C,194H,194J)
services

Additional Work:
1. The tax should be deducted at the time of credit of such sum or at the time of payment of
such sum, whichever is earlier.

1FIN BY INDIGOLEARN 13.18

2. No tax is required to be deducted where aggregate amount of such sums credited or paid to a
resident during the financial year does not exceed Rs.50,00,000/-

3. An individual or a Hindu undivided family is not liable to deduct tax at source u/s 194M if –
a. They are required to deduct tax at source u/s 194C and 194H in case an individual or
a HUF whose total sales, gross receipts or turnover from the business or profession
carried on by him exceeds ₹ 1 crore in case of business and ₹ 50 lakhs in case of
profession during the immediately preceding financial year and such amount is not
exclusively credited or paid for personal purposes of such individual or HUF.
b. They are required to deduct tax at source u/s 194J on fees for professional services
i.e., an individual or a HUF whose total sales, gross receipts or turnover from the
business or profession carried on by him exceeds ₹ 1 crore in case of business and ₹
50 lakhs in case of profession during the immediately preceding financial year and such
amount is not exclusively credited or paid for personal purposes of such individual or
HUF

4. Section 194-IA, 194-IB and 194M: In these sections payer not required to opt TAV
numbers and TDS required to deposit online to Govt. along with TDS return in Form
26Q,26QC,26Q within 30 days from the end of the month in which TDS was deducted.

1FIN BY INDIGOLEARN 13.19

SEC 194N: TDS ON CASH WITHDRAWAL

Section Nature of Payment Payer Payee Rate

Cash withdrawal
Bank, co-operative
from Bank, co-
194N society, post Any Person 2%
operative society,
office
post office

Additional Points:
1. This deduction is to be made at the time of payment of such sum.
2. If the recipient has not furnished the returns of income for all the 3 AY relevant to the 3 PY,
for which the time limit of file return of income under section 139(1) has expired, immediately
preceding the PY then TDS shall be deducted at the rate of:
- 2% of the sum, where the amount or aggregate of amounts, as the case may be, being paid
in cash > 20 Lakhs but <= 1 crore
- 5% of the sum, where the amount or aggregate of amounts, as the case may be, being paid
in cash > 1crore
3. Non-applicability:
Liability to deduct tax at source under section 194N shall not be applicable to any payment
made to –
i) the Government
ii) any banking company or co-operative society
iii) any business correspondent of a banking company or co-operative society
iv) any white label ATM operator of a banking company or co-operative society
v) Cash Replenishment Agencies (CRA’s) and franchise agents of White Label Automated Teller
Machine Operators (WLATMO’s) maintaining a separate bank account from which
withdrawal is made only for the purposes of replenishing cash in the ATM’s
vi) Commission agent or trader, operating under Agriculture Produce Market Committee
(APMC), and registered under any Law relating to Agriculture Produce Market of the
concerned State, who has intimated to the banking company or co-operative society or post
office his account number through which he wishes to withdraw cash in excess of ₹ 1 crore
in the previous year along with his Permanent Account Number (PAN) and the details of the
previous year and has certified to the banking company or co-operative society or post
office that the withdrawal of cash from the account in excess of ₹ 1 crore during the
previous year is for the purpose of making payments to the farmers on account of purchase
of agriculture produce and the banking company or co-operative society or post office has
ensured that the PAN quoted is correct and the commission agent or trader is registered
with the APMC, and for this purpose necessary evidences have been collected and placed on
record.
vii) Authorised dealer, Full-Fledged Money Changer (FFMC) their franchise agent and sub-agent
in respect of withdrawal is made for purchase of foreign currency from foreign tourists or
non- residents visiting India or from resident Indians on their return to India or

1FIN BY INDIGOLEARN 13.20

 disbursement of inward remittances to the recipient beneficiaries in India in cash under
Money Transfer Service Scheme (MTSS) of the RBI.
viii) Proviso inserted as per Finance Act, 2023
When recipient accountholder is a person
When recipient accountholder is a co-
other TDS
operative society
than co-operative society

Case 1 - If recipient is a non-filer of income- Case 1 - If recipient is a non-filer of income-

tax return - tax return -
(a) Cash Payment exceeding Rs. 20 Lakh but (a) Cash Payment exceeding Rs. 20 Lakh but
2%
not exceeding Rs. 1 Crore not exceeding Rs. 3 Crore
(b) Cash Payment exceeding Rs. 1 Crore (b) Cash Payment exceeding Rs. 1 Crore 5%

Case 2 – If the recipient is not covered by Case 2 – If the recipient is not covered by
Case 1 Case 1 2%
(Cash Payment Exceeding Rs. 1 Crore) (Cash Payment Exceeding Rs. 3 Crore)

22. SEC 194P: DEDUCTION OF TAX BY A SPECIFIED BANK IN CASE OF SPECIFIED

SENIOR CITIZEN

Section Nature of Payment Payer Payee Rate

Tax by a specified Individual, being a
bank in case of Specified resident who is of the
194P Slab Rate
specified senior Bank age of 75 years or
citizen more

Additional Points:
1. The specified senior citizen is exempted from filing his return of income for the assessment
year relevant to the previous year in which the tax has been deducted under this section.

2. Specified senior citizen:

An individual, being a resident in India, who
• is of the age of 75 years or more at any time during the previous year
• is having pension income and no other income except interest income received or
receivable from any account maintained by such individual in the same specified bank in
which he is receiving his pension income and
• has furnished a declaration to the specified bank containing such particulars, in the
prescribed form and verified in the prescribed manner.

3. The CBDT has, vide Notification No. 99/2021 dated 2.9.2021, provided that on furnishing of
such declaration in the prescribed form by the specified senior citizen, the specified bank
has to compute the total income of such specified senior citizen for the relevant assessment
year and deduct income-tax on such total income on the basis of the rates in force, after

1FIN BY INDIGOLEARN 13.21

 giving effect to the deduction allowable under Chapter VI-A and rebate allowable under
section 87A. The effect to the deduction allowable under Chapter VI-A has to be given based
on the evidence furnished by the specified senior citizen during the previous year.

23. SEC 194Q: DEDUCTION OF TAX AT SOURCE ON PURCHASE OF GOODS

Section Nature of Payment Payer Payee Rate

Purchase of goods Any Resident 0.1% of such sum

194Q exceeding 50 lakhs in a Person Person exceeding 50
previous year (Buyer) (Seller) lakhs

Additional Points:
1. The deduction is to be made at the time of credit of such sum to the account of the resident-
seller or at the time of payment thereof by any mode, whichever is earlier.
2. Tax is not required to be deducted under this section in respect of a transaction on which-
a. tax is deductible under any of the provisions of this Act; and
b. tax is collectible under the provisions of section 206C, other than section 206C(1H)
3. Buyer means a person whose total sales, gross receipts or turnover from the business
carried on by him exceed 10 crores during the financial year immediately preceding the
financial year in which the purchase of goods is carried out.

Guidelines:
1. Adjustment for GST:
TDS u/s 194Q, when tax is deducted at the time of credit of amount in the account of seller
and in terms of the agreement or contract between the buyer and the seller, the component
of GST comprised in the amount payable to the seller is indicated separately, tax shall be
deducted u/s 194Q on the amount credited without including such GST. However, if the tax
is deducted on payment basis because the payment is earlier than the credit, the tax would
be deducted on the whole amount as it is not possible to identify that payment with GST
component of the amount to be invoiced in future.
Further, with respect to purchase return relating to GST products or non GST products, tax
is required to be deducted at the time of payment or credit, whichever is earlier. Thus,
before purchase return happens, the tax must have already been deducted u/s 194Q on that
purchase. If that is the case and against this purchase return, the money is refunded by the
seller, then, this tax deducted may be adjusted against the next purchase against the same
seller. No adjustment is required if the purchase return is replaced by the goods by the seller
as in that case the purchase on which tax was deducted under section 194Q has been
completed with goods replaced.

1FIN BY INDIGOLEARN 13.22

 2. Can non-resident be a buyer?
The provisions of section 194Q shall not apply to a non-resident whose purchase of goods
from seller resident in India is not effectively connected with the permanent establishment
of such non-resident in India.
3. Should tax be deducted when the seller is a person whose income is exempt?
The provisions of section 194Q would not apply on purchase of goods from a person, being a
seller, who as a person is exempt from income tax under the Act.
Similarly, with respect to section 206C(1H), it is clarified that the provisions thereof would
not apply to sale of goods to a person, being a buyer, who as a person is exempt from income-
tax under the Act.
4. Would provisions of section 194Q apply to buyer in the year of incorporation?
Under section 194Q, a buyer is required to have total sales or gross receipts or turnover
from the business carried on by him exceeding ₹ 10 crore during the financial year
immediately preceding the financial year in which the purchase of goods is carried out. Since
this condition would not be satisfied in the year of incorporation, the provisions of section
194Q shall not apply in the year of incorporation.
5. Would provisions of section 194Q apply to buyer if the turnover from business is 10
crore or less?
Section 194Q would apply to a buyer who has turnover or gross receipts exceeding ₹ 10 crore
but total sales or gross receipts or turnover from business is ₹ 10 crore or less, it is clarified
that, for the purposes of section 194Q, a buyer is required to have total sales or gross
receipts or turnover from the business carried on by him exceeding ₹ 10 crore during the
financial year immediately preceding the financial year in which the purchase of goods is
carried out. Hence the sales or gross receipts or turnover from business carried on by him
must exceed 10 crore. Non-business activity is not to be counted for this purpose.
6. Applicability of section 194Q in cases where exemption has been provided under section
206C(1A)
Section 194Q does not apply in respect to those transactions where tax is collectible under
section 206C [except sub-section (1H) thereof]. Since by virtue of section 206C(1A), the tax
is not required to be collected for goods covered under section 206C(1), in such cases, the
provisions of section 194Q will apply and the buyer shall be liable to deduct tax under the
said section if the conditions specified therein are fulfilled.
7. Should tax be deducted on advance payment?
Since the provisions apply on payment or credit whichever is earlier, the provisions of section
194Q shall apply to advance payment made by the buyer to the seller.
8. In case of a transaction to which both section 206C(1H) and 194Q applies, TDS to be
deducted u/s 194Q.
9. The provisions of section 194Q & 206C(1H) shall not apply in relation to transactions in
securities, and commodities which are traded through recog. stock exchanges or cleared and

1FIN BY INDIGOLEARN 13.23

 settled by the recog. clearing corp., including RSE or transactions in electricity, renewable
energy certificates and energy saving certificates traded through power exchanges.

24. SEC 194R: DEDUCTION OF TAX AT SOURCE ON BENEFIT OR PERQUISITE IN

RESPECT OF BUSINESS OR PROFESSION [w.e.f. 1.7.2022] [Added in Finance Act,2022]

Section Nature of Payer Payee Rate

Payment
Benefit or
Any Person 10% of the value
perquisite in
(Providing such Resident or aggregate of
194R respect of
benefit or Person value of such
business or
perquisite) benefit
profession

Additional Points:
1. where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and
partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax
in respect of whole of such benefit or perquisite, the person responsible for providing such
benefit or perquisite shall, before releasing the benefit or perquisite, ensure that tax
required to be deducted has been paid in respect of the benefit or perquisite.
2. No tax is required to be deducted under section 194R in the following cases-
- In case of a resident where the value or aggregate of value of the benefit or perquisite
provided or likely to be provided to such resident during the financial year does not exceed
₹ 20,000; or
- In case of an individual or HUF, whose total sales, gross receipts or turnover from business
or profession does not exceed ₹ 1 crore in case of business or ₹ 50 lakhs in case of
profession, during the financial year immediately preceding the financial year in which such
benefit or perquisite, as the case may be, is provided by such person.

25. SEC 195A: INCOME PAYABLE NET OF TAX

• Where, under an agreement or other arrangement, the tax chargeable on any income referred
to in the foregoing provisions of this Chapter is to be borne by the person by whom the income
is payable, then, for the purposes of deduction of tax under those provisions such income
shall be increased to such amount as would, after deduction of tax thereon, be equal to the
net amount payable under such agreement or arrangement.
• However, no grossing up is required in the case of tax paid under section 192(1A) by an
employer on the non-monetary perquisites provided to the employee.

26. SEC 196: INTEREST OR DIVIDEND OR OTHER SUMS PAYABLE TO GOVERNMENT,

RESERVE BANK OR CERTAIN CORPORATIONS

• No deduction of tax shall be made by any person from any sums payable to
i. the Government
ii. the Reserve Bank of India

1FIN BY INDIGOLEARN 13.24

 iii. a corporation established by or under a Central Act which is, under any law for the time
being in force, exempt from income-tax on its income
iv. a Mutual Fund
• This provision for non-deduction is applicable when such sum is payable to the above entities
by way of –
i. interest or dividend in respect of securities or shares –
a. owned by the above entities; or
b. in which they have full beneficial interest
ii. any income accruing or arising to them.

27. SEC 197; CERTIFICATE FOR DEDUCTION OF TAX AT A LOWER RATE

1. This section applies where, in the case of any income of any person or sum payable to any
person, income-tax is required to be deducted at the time of credit or payment, as the case
may be at the rates in force as per the provisions of sections 192, 193, 194, 194A, 194C,
194D, 194G, 194H, 194-I, 194J, 194K, 194LA and 194M.
2. In such cases, the assessee can make an application to the Assessing Officer for deduction
of tax at a lower rate or for non-deduction of tax.

28. SEC 197A: NO DEDUCTION TO BE MADE IN CERTAIN CASES

• No deduction of tax shall be made u/s 194 (Dividend) and 194EE (NSS), u/s 192A(payment of
accumulated balance of provident fund) or 193 (interest on securities) or 194A (other
interest) or 194D (insurance commission) or 194DA (payment in respect of life insurance
policy) or 194-I (rent) or 194-K(Units), if
1. The payee is a resident individual.
2. The aggregate amount of income paid or credited does not exceed basic exemption limit.
3. Such individual furnishes to the payer, a declaration in writing in duplicate in the Form 15G
(Form 15H in case of senior citizen).
4. Such declaration states that the tax on his estimated total income of the previous year in
which such income is to be included in computing his total income will be nil.
5. On receipt of the declaration, the person responsible for making payment should deliver
one copy to Chief Commissioner or Commissioner on or before 7th of the month following
the month in which the declaration is furnished.
• No tax will be deducted from interest payments by an offshore banking unit to a non-resident
or not ordinarily resident in India.
• No deduction shall be made from such specified payment to notified institution, association
or body as notified by Central government.
• No deduction shall be made under any section from any payment made to New Pension System
Trust referred to in sec. 10(44).
• The person responsible for making the payment will be required to deliver or cause to be
delivered to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner
or Commissioner, one copy of the declaration on or before the 7th of the month following
the month in which the declaration is furnished to him.

1FIN BY INDIGOLEARN 13.25

29. SEC 198: TAX DEDUCTED IS INCOME RECEIVED

• All sums deducted under this chapter shall be deemed as income for the purpose of computing
the assessee’s total income.
• However, the following tax paid or deducted would not be deemed to be income received by
the assessee for the purpose of computing the total income –
• the tax paid by an employer under section 192(1A) on non-monetary perquisites provided
to the employees
• tax deducted under section 194N

30. SEC 199: CREDIT FOR TAX DEDUCTED AT SOURCE

TDS credit available to a person from whose income deduction is made except :
• In case of clubbing credit available to a person in whose hands the income is ultimately
taxable.
• In case of tax paid by employer from own pocket on Non-monetary perquisite employee
can take credit.

31. SEC 200: DUTY OF PERSON DEDUCTING TAX

1. The persons responsible for deducting the tax at source should deposit the sum so deducted
to the credit of the Central Government.

Time limit for paying TDS to the credit of Central government

Tax deducted
Deductor - An office Special cases -
Deductor - Others u/s 194IA and
of Government where AO with
194IB and 194M
prior approval of
JCIT permits
quarterly
within 30 days payment of TDS
Without With On or before 7
from the end of u/s 192, 194A,
production of production of days from the 194D and 194H
IT challan end of the month month of
IT challan
in which deduction
deduction is
made
On or before
On the same 7 days from
On or before
day A challan cum the end of the
7 days from
the end of the statement in Quarter for
month in On or before 30th form 26QB and first 3
which April where 26QC and 26QD quarters
deduction is income/amount is has to be
made credited /paid in furnished
the month of
March On or before 30th
April in respect of
quarter ending
31st March

1FIN BY INDIGOLEARN 13.26

 ➢ TDS returns have to be furnished by the due dates specified below

For the quarter ending 30th June 31st July

For the quarter ending 30th September 31st October
For the quarter ending 31st December 31st January
For the quarter ending 31st June 31st May of the AY

➢ TDS return forms

For TDS on salaries Form 24Q

For TDS on all payments other than salaries Form 26Q
For TDS on interest, dividends to non- Form 27Q
residents
For TCS Form 27EQ

Notes:
• Fees of ₹200 per day of default u/s 234E applicable if TDS/TCS return after due dates.
• If TDS/TCS return filed after 1 year of prescribed date the penalty u/s 271H ranging from
a min. of ₹10,000 to a max. of ₹1,00,000 shall also applicable

32. SEC 200A: CORRECTION OF ARITHMETIC MISTAKES AND ADJUSTMENT OF

INCORRECT CLAIM DURING COMPUTERIZED PROCESSING OF TDS STATEMENTS

➢ All statements and returns in respect of TDS and TCS is made in electronic mode.
➢ During computerised processing, a correction of any arithmetic error or adjustment to an
incorrect claim can be made.
➢ The sum payable by, or the amount of refund due to, the deductor has to be determined after
adjustment of interest and fee against the amount paid under section 200 or section 201 or
section 234E and any amount paid otherwise by way of tax or interest or fee.
➢ An intimation will be prepared and generated and sent to the deductor, specifying his tax
liability or the refund due, within one year from the end of the financial year in which the
statement is filed. The refund due shall be granted to the deductor.

1FIN BY INDIGOLEARN 13.27

33. SEC 201: CONSEQUENCES OF FAILURE TO DEDUCT OR PAY

1. According to Sec.201(1), any person or the principal officer in the case of a company, who is
responsible to deduct tax at source shall be deemed to be an assessee in default in the
following situations:

Responsibility Violation
•To deduct tax in respect of all payments •Fails to deduct or after deducting fails to
covered under TDS provisions pay the whole or any part of the tax as per
•Employer to pay tax on the non-monetary law.
perquisites provided to the employee. •Employer fails to pay, whole or any part of
tax on such non-monetary benefit.

Where an assessee is deemed to be in default, the assessing officer may levy penalty to the
extent of tax and interest in arrears. However, in a case where the Assessing Officer is
satisfied that there exists good and sufficient reason for the assessee to breach the
provisions of this section, penalty shall not be levied.

2. However, such person shall not be deemed to be an assessee-in-default in respect of such

tax if such payee –
• has furnished his return of income under section 139;
• has taken into account such sum for computing income in such return of income; and
• has paid the tax due on the income declared by him in such return of income,
• and the payer furnishes a certificate to this effect from an accountant in such form as
may be prescribed
3. Once an assessee is deemed to be in default u/s. 201, interest shall be leviable u/s.201(lA) at
the rate of:
a) 1% per month or part thereof for delay in deduction of tax; and
b) 1.5% per month or part thereof for delay in remittance of tax so deducted.
For example, where tax of Rs.10,000/- was deductible in the month of April 11 was actually
deducted only in the month of January'12, interest @1% pm shall be levied for 9 months from
May 11 to January'12 on Rs. 10,000/-; if such tax is deposited in the month of April'12, then
interest @ 1.5% pm shall be levied for 3 months from February'12 to April'12.

Such interest shall be paid before furnishing the statement u/s. 200(3).

1FIN BY INDIGOLEARN 13.28

34. SEC 203: CERTIFICATE FOR TAX DEDUCTED

➢ Every person deducting tax at source shall issue a certificate to the effect that tax has been
deducted and specify the amount so deducted, the rate at which tax has been deducted and
such other particulars as may be prescribed.

In case of Salaries
15th June of the AY
(Form 16)

In case of 194IA,
within 15 days from the
194IB or 194M
Due date for furnishing date of payment in Form
TDS certificates to the (form 16B, 16C or 16D No. 26QB, 26QC or 26 QD
deductees respectively)

For Q1 - 15th August

In all other cases For Q2 - 15th November
(form 16A) For Q3 - 15th February
For Q4 - 15th June of AY

35. SEC 206A: FURNISHING OF STATEMENTS IN RESPECT OF PAYMENT OF ANY

INCOME TO RESIDENTS WITHOUT DEDUCTION OF TAX

➢ on every banking company or co-operative society or public company referred to in

the proviso to section 194A(3)(i) to prepare such statement, for such period as may
be prescribed –
− if they are responsible for paying to a resident,
− the payment should be of any income not exceeding Rs. 40,000, where the payer
is a banking company or a co-operative society, and Rs. 5,000 in any other case.
− such income should be by way of interest (other than interest on securities)
➢ CBDT may cast responsibility on any person other than a person mentioned above,
who is responsible for paying to a resident any income liable for deduction of tax at
source.
➢ A statement has to be delivered or caused to be delivered to the prescribed income-
tax authority correction statement –
a. for rectification of any mistake; or
b. to add, delete or update the information furnished in the statement delivered.

36. SEC 206AA: REQUIREMENT TO FURNISH PERMANENT ACCOUNT NUMBER

➢ Any person whose receipts are subject to TDS shall mandatorily furnish his PAN to the
deductor.
➢ If deductee fails to furnish PAN, deductor shall deduct TDS at higher of the following

1FIN BY INDIGOLEARN 13.29

 rates
• The rate prescribed under the Act
• The rate in force
• At 20% [ 5% in case tax is required to be deducted at source u/s 194-O and 194Q]
➢ Tax is deductible at higher rates even when taxpayer files declaration in Form 15G or 15H
u/s 197A but does not provide PAN
➢ Where the Permanent Account Number provided to the deductor is invalid or does not
belong to the deductee, it shall be deemed that the deductee has not furnished his
Permanent Account Number to the deductor
➢ The deductor and deductee have to compulsorily quote the PAN of the deductee in all
correspondence, bills, vouchers and other documents exchanged between them.

37. SEC 206AB: HIGHER RATE OF TDS FOR NON-FILERS OF INCOME-TAX RETURN

➢ Section 206AB requires tax to be deducted at source under the provisions of this Chapter on
any sum or income or amount paid, or payable or credited, by a person (deductee) to a specified
person, at higher of the following rates.
i. at twice the rate prescribed in the relevant provisions of the Act
ii. at twice the rate or rates in force i.e., the rate mentioned in the Finance Act; or
iii. at 5%
However, section 206AB is not applicable in case of tax deductible at source under sections
192, 192A, 194B, 194BB, 194-IA, 194-IB, 194M or 194N.
➢ If the provisions of section 206AA is applicable to a specified person, in addition to the
provision of this section, the tax shall be deducted at higher of the two rates provided in this
section and in section 206AA.
➢ “Specified person" means
• A person who has not furnished the return of income for the AY relevant to the PY
immediately preceeding the FY in which tax is required to be deducted, for which the time
limit of filing return of income under 139(1) has expired: and
• The aggregate of TDS and TCS is ≥ Rs. 50,000 in each of these two previous years
The specified person does not include a non-resident who does not have a permanent
establishment in India or a person who is not required to furnish the return of income for
the AY relevant to the said PY and is notified by CG in this behalf.

38. TAX COLLECTED AT SOURCE

1. Section 206C(1C) provides for collection of tax by every person who grants lease or a license
or enters into a contract or otherwise transfers any right or interest in any parking lot or
toll plaza or mine or quarry, to another person (not being a public sector company) for the use
of such parking lot or toll plaza or mine or quarry for the purposes of business. The tax shall
be collected as provided, from the licensee or lessee of any such licence, contract or lease of
the specified nature, at the rate of 2%.

1FIN BY INDIGOLEARN 13.30

 Under Sec 206C(1), tax has to be collected at source in the following cases:

% Rate of
Nature of goods TCS
applicable
Alcoholic liquor for human consumption 1
Scrap 1
Minerals, being coal or lignite or iron ore 1
Tendu leaves 5
Timber obtained under a forest lease 2.50
Timber obtained by any mode other than under a forest 2.50
lease
Any other forest produce not being timber tendu leaves 2.50

2. Time of collection
Debiting the amount payable by the buyer to the account of the buyer/ licensee / lessee or
Receipt of such amount, whichever is earlier.
In case of sale of a motor vehicle of the value exceeding ₹ 10 lakhs or sale of goods exceeding
₹ 50 lakhs [other than exported goods and goods mentioned in section 206C(1)], tax shall be
collected at the time of receipt of such amount under section 206C(1F) and 206C(1H),
respectively.

3. Section 206C(1A): Non-applicability of TCS

No collection of tax shall be made under section 206C(1), in the case of a resident buyer, if
such buyer furnishes to the person responsible for collecting tax, a declaration in writing in
duplicate in the prescribed form and verified in the prescribed manner to the effect that
goods referred to in section 206C(1) above are to be utilised for the purpose of
manufacturing, processing or producing articles or things or for the purposes of generation
of power and not for trading purposes.

4. Section 206C(1F): Every person, being a seller, who receives any amount as consideration for
sale of a motor vehicle of the value exceeding ₹ 10 lakhs, shall collect tax from the
buyer@1% of the sale consideration.
➢ CBDT Clarification:

Q.1 Whether TCS@1% is on sale of motor vehicle at retail level or also on sale of
motor vehicles by manufacturers to dealers/ distributors?
A. To bring high value transactions within the tax net, section 206C has been amended
to provide that the seller shall collect the tax @ 1% from the purchaser on sale of
motor vehicle of the value exceeding ₹ 10 lakhs. This is brought to cover all
transactions of retail sales and accordingly, it will not apply on sale of motor vehicles
by manufacturers to dealers/distributors.

1FIN BY INDIGOLEARN 13.31

 Q.2 Whether TCS@1% on sale of motor vehicle is applicable only to luxury cars?
A. No, as per section 206C(1F), the seller shall collect tax@1% from the purchaser
on sale of any motor vehicle of the value exceeding ₹ 10 lakhs.

Q.3 Whether TCS@1% is applicable in the case of sale to Government Departments,

Embassies, Consulates and United Nation Institutions, of motor vehicle or any other
goods or provision of services?
A. Government, institutions notified under United Nations (Privileges and Immunities)
Act 1947, and Embassies, Consulates, High Commission, Legation, Commission and trade
representation of a foreign State shall not be liable to levy of TCS@1% under section
206C(1F).

Q.4 Whether TCS is applicable on each sale of motor vehicle or on aggregate value
of sale during the year?
A. Tax is to be collected at source@1% on sale consideration of a motor vehicle
exceeding ₹ 10 lakhs. It is applicable to each sale and not to aggregate value of
sale made during the year.
Q.5 Whether TCS@1% on sale of motor vehicle is applicable in case of an individual?
A. The definition of "Seller" as given in clause (c) of the Explanation below sub-section
(11) of section 206C shall be applicable in the case of sale of motor vehicles also.

Q.6 How would the provisions of TCS on sale of motor vehicle be applicable in a case
where part of the payment is made in cash and part is made by cheque?
A. The provisions of TCS on sale of motor vehicle exceeding ₹ 10 lakhs is not dependent
on mode of payment. Any sale of motor vehicle exceeding ₹ 10 lakhs would attract
TCS@1%.

5. Section 206C(1G):
➢ Provides for collection of tax by every person,
• being an authorized dealer, who receives amount, under the Liberalised Remittance
Scheme of the RBI, for overseas remittance from a buyer, being a person remitting
such amount out of India;
• being a seller of an overseas tour programme package who receives any amount from
the buyer who purchases the package.
At the rate of 5% of such amount.

➢ Tax has to be collected at the time of debiting the amount payable by the buyer or at the
time of receipt of such amount from the said buyer, by any mode, whichever is earlier.

1FIN BY INDIGOLEARN 13.32

 ➢ Rate of TCS in case of collection by an authorized dealer:
S.N Amount and purpose of remittance Rate of TCS
o.
Where the amount is remitted for purchase of overseas 5% of the
tour programme package amount
(w.e.f 1st
October
2023 – 5%
till 7 lakhs
and
thereafter
20%}
(i) (a) Where the amount is remitted for a purpose other Nil
than purchase of overseas tour programme package; (No tax to be
and collected at
(b) the amount or aggregate of the amounts being source)
remitted by a buyer is less than ₹ 7 lakhs in a
financial year
(ii) (a) where the amount is remitted for a purpose other than 5% of the amt or
purchase of overseas tour programme package; and19` agg. of amts in
(b) the amount or aggregate of the amounts in excess of excess of ₹ 7
₹ 7 lakhs is remitted by the buyer in a financial year lakh {Increased
to 20% w.e.f 1st
October 2023}
Where the amount is remitted for the purpose of Nil
education or medical treatment; and the amount or (No tax to be
aggregate of amount remitted by the buyer is less collected at
than 7 lakhs in a financial year source)

Where the amount is remitted for the purpose of 5% of the

education or medical treatment; and the amount or amount or
aggregate of amount in excess of 7 lakhs is remitted aggregate of
by the buyer amount in
excess of 7
lakhs
(iii) (a) where the amount being remitted out is a loan 0.5% of the amt
obtained from any financial institution as defined in or agg. of amts
section 80E, for the purpose of pursuing any in excess of ₹ 7
education; and lakh
(b) the amount or aggregate of the amounts in excess of
₹ 7 lakhs is remitted by the buyer in a financial year

1FIN BY INDIGOLEARN 13.33

 ➢ Cases where no tax is to be collected:
(i) No TCS by the authorized dealer on an amount in respect of which the sum has
been collected by the seller
(ii) No TCS, if the buyer is liable to deduct tax at source under any other provision
of the Act and has deducted such tax
(iii) No TCS, if the buyer is the Central Government, a State Government, an
embassy, a High Commission, a legation, a commission, a consulate, the trade
representation of a foreign State, a local authority12 or any other person notified
by the Central Government, subject to fulfillment of conditions stipulated
thereunder.
Accordingly, the CBDT has, vide notification no. 20/2022 dated 30.3.2022,
notified that the provisions of section 206C(1G) would not apply to an
individual who is not resident in India as per section 6(1) and 6(1A), and who
is visiting India.

6. Section 206C(1H):
➢ Tax is also required to be collected by a seller, who receives any amount as consideration
for sale of goods of the value or aggregate of such value exceeding ₹ 50 lakhs in a previous
year [other than exported goods or goods covered under sub-sections (1)/(1F)/(1G)]
➢ Tax is to be collected at source @0.1% u/s 206C(1H) of the sale consideration exceeding ₹
50 lakhs, at the time of receipt of consideration.
➢ Tax is, however, not required to be collected if the buyer is liable to deduct tax at source
under any other provision of the Act on the goods purchased by him from the seller and has
deducted such tax.
➢ CBDT Clarification: [Circular no.17/2020]
The provisions of section 206C(1F) apply to sale of motor vehicle of the value exceeding ₹
10 lakhs. Section 206C(1H) excludes from its applicability goods covered under section
206C(1F). It may be noted that the scope of sections 206C(1H) and (1F) are different. While
section 206C(1F) is based on single sale of motor vehicle, section 206C(1H) is for receipt
above ₹ 50 lakhs. Hence, in order to remove difficulty that whether all motor vehicles are
excluded from the applicability of section 206C(1H), it is clarified that –
• Receipt of sale consideration from a dealer would be subjected to TCS under section
206C(1H), if such sales are not subjected to TCS under section 206C(1F)
• In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of
the value of ₹ 10 lakhs or less to a buyer would be subjected to TCS under section
206C(1H), if the receipt of sale consideration for such vehicles during the previous year
exceeds ₹ 50 lakhs during the previous year.

1FIN BY INDIGOLEARN 13.34

 • In case of sale to consumer, receipt of sale consideration for sale of motor vehicle of
the value exceeding ₹ 10 lakhs would not be subjected to TCS under section 206C(1H) if
such sales are subjected to TCS under section 206C(1F).
It is been clarified that no adjustment on account of sale return or discount or indirect
taxes including GST is required to be made for collection of tax under section 206C(1H)
since the collection is made with reference to receipt of amount of sale consideration.

7. Power of the CBDT to issue guidelines:

➢ In case of any difficulty arises in giving effect to the provisions of section 206C(1G)/(1H),
the CBDT is empowered to issue guidelines, with the approval of the Central Government,
for the purpose of removing the difficulty.
➢ Every guideline issued by the CBDT shall be laid before each House of Parliament and shall
be binding on the income-tax authorities and on the person liable to collect tax.

8. Meaning of certain terms:

➢ Overseas tour program package: For section 206C(1G) Any tour package which offers visit
to a country/(ies) or territory/(ies) outside India. It includes expenses for travel or hotel
stay or boarding or lodging or any other expenditure of similar nature or in relation thereto.
➢ Buyer:
• For section 206C(1H): means a person who purchase any goods but does not include:
a. The Central Government, a State Government and an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
b. a local authority; or
c. a person importing goods into India or any other person as the Central Government
may, by notification in the Official Gazette, specify for this purpose, subject to
stipulated conditions.
• For section 206C(1): means a person who obtains in any sale (by way of auction, tender
or any other mode) specified goods or the right to receive any such goods but does not
include –
a. A public sector company, the Central Government, a State Government and an
embassy, a High Commission, Legation, Commission, consulate and the trade
representation, of a foreign state and a club; or
b. A buyer in the retail sale of such goods purchased by him for personal consumption.
• For section 206C(1F): means a person who obtains in any sale, motor care, but does not
include –
a. The Central Government, a State Government and an embassy, a High Commission,
legation, commission, consulate and the trade representation of a foreign State; or
b. a local authority; or
c. a public sector company which is engaged in the business of carrying passengers.

1FIN BY INDIGOLEARN 13.35

 ➢ Seller:
• For section 206C(1H): A person whose total sales, gross receipts or turnover from
Business carried on by him exceed Rs. 10 crores during the F.Y immediately preceding
the F.Y in which sales are carried out.
• For section 206C(1) and section 206C(1F): Seller inludes –
The Central Government, a State Government or any local authority or corporation or
authority established by or under a Central, State or Provincial Act, or any company or
firm or co-operative society.
Seller also includes an individual or a HUF whose total sales, gross receipts or turnover
from the business or profession carried on by him exceed ₹ 1 crore in case of business
and ₹ 50 lakhs in case of profession during the financial year immediately preceding the
financial year

9. Section 206CC: Higher rate of TCS for non-furnishers of PAN

➢ If the collectee has not provided PAN or Aadhar to the collector, then TCS rate shall be

Twice of the rate or

Whichever is higher
5% [ 1% in case of sub-section (1H)]

➢ It does not apply to a non-resident who does not have a permanent establishment in India.
➢ Both the collectee and the collector have to compulsorily quote the PAN of the collectee in
all correspondence, bills, vouchers and other documents exchanged between them.
➢ Tax would be collectible at the rates also in case where the person furnishes a declaration
under section 206C(1A) but does not provide his PAN.

10. Section 206CCA: Higher rate of TCS for non-filers of income-tax return
➢ Tax to be collected at source under the provisions of this Chapter on any sum or amount
received by a person from a specified person, at higher of the following rates –

Twice of the rate or

Whichever is higher
5%

➢ In case the provisions of section 206CC are also applicable to the specified person, in
addition to the provisions of section 206CCA, then, tax is required to be collected at higher
of the two rates provided in section 206CC and section 206CCA.
➢ Meaning of “specified person”: A person who has not furnished the return of income for
assessment year relevant to the previous year immediately preceding the financial year in

1FIN BY INDIGOLEARN 13.36

 which tax is required to be collected, for which the time limit for furnishing the return of
income under section 139(1) has expired, and the aggregate of tax deducted at source and
tax collected at source in his case is ₹ 50,000 or more in the said previous year.
However, the specified person does not include a non-resident who does not have a
permanent establishment in India.

11. Section 206C(1B): Furnishing of copy of declaration within specified time

The person responsible for collecting tax under this section shall deliver or cause to be
delivered to the Chief Commissioner or Commissioner one copy of the declaration referred
to in sub-section (1A) on or before 7th of the month next following the month in which the
declaration is furnished to him.

12. Section 206C(3): TCS to be paid within prescribed time

Person Period within which

collecting sums such sum should be
in accordance paid to the credit
Circumstance
with section of the Central
206C Government
(1) An office of where the tax is
the paid without
Government (i) production of an on the same day
income-tax
challan
on or before 7 days
where tax is paid
from the end of the
(ii) accompanied by an
month in which the
income-tax challan
collection is made
(2) Collectors other within one week from
than an office of the last day of the
the Government month in which the
collection is made

Problems

1. State the applicability of TDS provisions and TDS amount in the following cases:
(a) Rent paid for hire of machinery by B Ltd. to Mr. Raman ₹ 2,50,000.
(b) Fee paid to Dr. Srivatsan by Sundar (HUF) ₹ 35,000 for surgery performed to a member of
the family.
2. Ashwin doing manufacture and wholesale trade furnishes you the following information : Total
turnover for the financial year

1FIN BY INDIGOLEARN 13.37

 Particulars Amount
2022-23 1,05,00,00
0
2023-24 95,00,000
State whether tax deduction at source provisions are attracted for the below said expenses
incurred during the financial year 2023-24:
Particulars Amount
Interest paid to UCO Bank on 15.8.2023 41,000
Contract payment to Raj (2 contracts of ₹ 24,000
12,000 each) on 12.12.2023
Shop rent paid (one payee) on 20.01.2024 2,50,000
Commission paid to Balu on 15.3.2024 7,000

3. X won the first prize in a lottery ticket on September 1, 2023 and the prize money was a Maruti
car worth ₹ 4 lakh. According to section 194B, tax has to be deducted at source from the winnings
of lottery at the time of payment of the prize money. What is the procedure to be adopted
before handing over the Maruti car to X?
4. Punjab national bank pays ₹75,000 per month as rent to the central government for a building in
which one of its branches is situated. Is there any TDS liability?
5. Mr.X sold his house property in Bangalore as well as his rural agricultural land for a consideration
of ₹ 60 lakh and ₹ 15 lakh, respectively, to Mr. Y on 1.8.2023. He has purchased the house
property and the land in the year 2021 for ₹ 40 lakh and ₹ 10 lakh, respectively. The stamp duty
value on the date of transfer, i.e., 01.08.2023, is ₹ 85 lakh and ₹ 20 lakh for the house property
and rural agricultural land, respectively. Determine the tax implications in the hands of Mr. X
and Mr. Y and the TDS implications, if any, in the hands of Mr. Y, assuming that both Mr. X and
Mr. Y are resident Indians. [Supplementary Study Paper 2013]

6. X ltd. Makes the following payments during the financial year 2023-24—
1. Payment to A, a resident transport contractor: ₹11,50,000 (PAN is intimated by a to x ltd).
2. Payment to B, a resident transport contractor: ₹1,00,000 (PAN is not intimated by b or b
does not have pan).
3. Payment to C, a resident catering contractor: ₹21,50,000 (PAN is intimated by c to x ltd.).
4. Payment to D, a resident catering contractor: ₹2,00,000 (PAN is not intimated by d or d does
not have pan).
Determine the amount of tax deductible under section 194C in this case.

7. X is a sole proprietor. His annual turnover is more than ₹1,50,00,000 since last 5 years. During
the financial year 2023-24, he makes the following payments of rent—

1FIN BY INDIGOLEARN 13.38

 1. Rent paid to A ltd. For a residential property for his personal use (amount of rent paid on
March 1, 2024: ₹5,00,000).
2. Rent paid to B for taking a machinery on rent (amount of rent paid on March 21st, 2024: ₹
6,00,000).
Under section 194-I, tax is deductible on rent payment. Discuss whether the aforesaid payments
are covered by this provision.

8. Compute the amount of tax deduction at source on the following payments made by M/s. S Ltd.
during the financial year 2023-24 as per the provisions of the Income-tax Act, 1961.

Sr. Date Nature of Payment

N
o.
Payment of ₹2,00,000 to Mr. “R” a transporter who is having
(i) 01-10-2023
PAN.
Payment of fee for technical services of ₹25,000 and Royalty of
(ii) 01-11-2023
₹ 20,000 to Mr. Shyam who is having PAN.
(iii) 30-06-2023 Payment of ₹ 25,000 to M/s X Ltd. for repair of building.
Payment of ₹ 2,00,000 made to Mr. A for purchase of diaries
(iv) 01-01-2024 made according to specifications of M/s S Ltd. However, no
material was supplied for such diaries to Mr. A by M/s S Ltd.
Payment made ₹ 2,30,000 to Mr. Bharat for compulsory
(v) 01-01-2024
acquisition of his house as per law of the State Government.
(vi) 01-02-2024 Payment of commission of 14,000 to Mr. Y.

9. Examine the applicability of the provisions for tax deduction at source in the following cases-
(i) The firm, M/s Duplicate, has two resident partners, Mr. Vikul and Mr. Rahul. During the
previous year, the firm paid ₹ 25,000 and ₹ 30,000 as interest on capital to Mr. Vikul and
Mr. Rahul, respectively.
(ii) Fee of ₹ 41,000 paid to Dr. Kunal Garg by Taneja (HUF) for surgery performed on Master
Vatsal Taneja, son of the Karta of HUF.
(iii) Mr. Dheeraj, a resident, is due to receive ₹ 5.50 lakhs on 31.3.2024, towards maturity
proceeds of LIC policy taken on 1.4.2021, for which the sum assured is ₹ 4.5 lakhs and the
annual premium is ₹ 55,000.

1FIN BY INDIGOLEARN 13.39

 Chapter 14
Return of Income
Before we Begin,

Return of income is the only medium to pay the taxes if any, apart form paying taxes, it
also serves as a purpose to declare income of a person which can be useful in many ways in
the common trade and commerce practices (Loan processing, credit rating, etc)

You will learn about the following

• Return filing Sections
• Late fees and interest charges during filing of Return
• Permanent Account Number
• Role of Aadhar number
• Income Tax Returns
• And other solutions in the above compliances

Great power comes with a great responsibility, similarly

Return filing is a great responsibility which comes with the power of knowledge in Income
Tax Provisions

Happy learning!

1FIN BY INDIGOLEARN 14.1

 Interest and Fee
for Default in
Filing of Return Other Provisions
Furnishing Return
of Income

Permanent Account
Number
[Section 139A]
Compulsory filing of
Return of Income
[Section 139(1)] Quoting of Aadhaar
Number
[Section 139AA]
Interest for default
in Furnishing
Return of Loss Return of income
[Section 139(3)] [Section 234A] Fee for non intimation
of Aadhar Number
[Section 234H]

Submission of Returns
Belated Return
through Tax Return
[Section 139(4)]
Preparers
[Section 139B]

Fee for Default in Person autthorised to

Revised Return furnishing return verify the return of
[Section 139(5)] of income [Section income
234F] [Section 140]

Self-Assessment
Updated Return [Section 140A]
[Section 139 (8A)]
Tax on updated return
[Section 140B]

1FIN BY INDIGOLEARN 14.2

1. RETURN OF INCOME

A return of income is the declaration of income and the resultant tax by the assessee in
the prescribed format.

2. COMPULSORY FILING OF RETURN OF INCOME [SECTION 139(1)]

Section 139 (1) requires that every person, -
➢ Being a Company or a firm; or
➢ Being a local authority, if its total income during the previous year exceeds the
maximum amount which is not chargeable to income tax; or
➢ Being a person other than a company or a firm or a local authority, if
(i) his total income or
(ii) the total income of any other person in respect of which he is assessable under
the Income-tax Act, during the previous year (without giving effect to Chapter VI
-A or section 54/54B/54D/54EC/54F), exceeds the maximum amount which is not
chargeable to income-tax is required to file a return of income or Income of such
other person on or before the due date in the prescribed form and manner and
setting forth the prescribed particulars.

 Compulsory filing of income-tax return in relation to assets located outside India

In the case of a resident person (but other than not ordinarily resident), it is mandatory to
furnish return of income if he/she at any time during the previous year,

a. Holds (as a beneficial owner or otherwise) any asset (including financial interest in
any entity) located outside India or has signing authority in any account located
outside India, or

b. Is beneficiary in any asset (including any financial interest in any entity) located
outside India.

However, an individual being a beneficiary of any asset (including any financial interest
in any entity) located outside India would not be required to file return of income
under this clause, where, income, if any, arising from such asset is includible in the
income of the beneficial owner.

Beneficial Owner Beneficiary

•An individual who has provided, directly or •An individual who derives benefit from the
indirectly, consideration for the asset for asset during the previous year and the
the immediate or future benefit, direct or consideration for such asset has been
indirect, of himself or any other person provided by any person, other than such
beneficiary.

1FIN BY INDIGOLEARN 14.3

  Compulsory filing of income-tax return in certain other cases -
Any person other than a company or a firm, who is not required to furnish a return under
section 139(1), is required to file income-tax return in the prescribed form and manner on or
before the due date if, during the previous year, such person -
1. has deposited an amount or aggregate of the amounts exceeding ₹ 1 crore in
one or more current accounts maintained with a banking company or a co-
operative bank; or
2. has incurred expenditure of an amount or aggregate of the amounts exceeding
₹ 2 lakh for himself or any other person for travel to a foreign country; or
3. has incurred expenditure of an amount or aggregate of the amounts exceeding
₹ 1 lakh towards consumption of electricity; or
4. if his total sales, turnover or gross receipts, as the case may be, in the business
> ₹ 60 lakhs during the previous year; or
5. if his total gross receipts in profession > ₹ 10 lakhs during the previous year;
or
6. if the aggregate of TDS and TCS during the previous year, in the case of the
person, is ₹ 25,000 or more
However, a resident individual who is of the age of 60 years or more, at any
time during the relevant previous year would be required to file return of
income only, if the aggregate of TDS and TCS during the previous year, in his
case, is ₹ 50,000 or more
7. the deposit in one or more savings bank account of the person, in aggregate, is
₹ 50 lakhs or more during the previous year

Points:
Every company has to file a return in respect of its income or loss in every assessment year.
Hence, the following companies are also required to file return of income even if there is no
income/loss:
Type Prescribed Transactions Money Threshold
His Total Sales, Turnover or
1. Person Carrying of
Gross Receipts, as the case > Rs. 60 Lakhs during RPY
Business
may be, in the business
2. Person carrying on His Total Gross Receipts in
> Rs. 10 Lakhs during RPY
Profession Profession
3. Resident individual is
The Aggregate of TDS and
aged >= 60 years at any >= Rs. 50,000 during RPY
TCS in his Case
time during the RPY
The Aggregate of TDS and
4. Any other person >= Rs. 25,000 during RPY
TCS in his Case
The Deposit in one or more
5. Person having Savings
savings bank account of the >= Rs. 50 Lakhs during RPY
Bank Account
person, in aggregate

1FIN BY INDIGOLEARN 14.4

 ➢ Although it is mandatory to file a return of income only when the total income exceeds the
maximum exemption limit but the law does not prohibit the assessee to file a return of income
even if his total income does not exceed the maximum exemption limit.
➢ "Due date'" means 31st October of the assessment year, where the assessee is -
❖ a company; or
❖ a person (other than a company) whose accounts are required to be audited under the
Income-tax Act, 1961 or any other law in force; or
❖ a working partner of a firm whose accounts are required to be audited under the income-
tax Act, 1961 or any other law for the time being in force.

➢ 30th November- Company which is required to furnish a report U/S 92E.

➢ 31st July of the assessment year, in the case of any other assessee

3. PERSONS EXEMPT FROM FILING OF INCOME-TAX [SECTION 139(1C):

The central government may, by notification in the official gazette, exempt any class or
any classes of persons from the requirement of furnishing a return of income having
regard to conditions specified.

4. RETURN OF LOSS [SECTION 139(3)]:

➢ The section requires the assessee to file a return of loss in the same manner as in the case
of return of income within the time allowed under section 139(1).
➢ Section 80 requires mandatory filing of return of loss u/s 139(3) on or before the due date
specified u/s 139(1) for carry forward of the following losses.
i. Business loss u/s 72(1)
ii. Speculation business loss u/s 73(2)
iii. Loss from specified business u/s 73A(2)
iv. Loss under the head "Capital Gains" u/s 74(1)
v. Loss from the activity of owning and maintaining race horses u/s 74A(3)
➢ However, loss under the head "Income from house property" under section 71B and
unabsorbed depreciation under section 32 and loss from specified business u/s 35 AD can be
carried forward for set-off even though return of loss has not been filed before the due
date.

5. BELATED RETURN [SECTION 139(4)]

➢ Any person who has not furnished a return within the time allowed to him under section 139(1) or
within the time allowed under a notice issued under section 142(1) may furnish the return for any
previous year at any time—
❖ before three months prior to the end of the relevant assessment year (i.e., 31.12.2023
for P.Y. 2022-23); or
❖ before the completion of the assessment Whichever is earlier.

6. REVISED RETURN [SECTION 139(5)]

➢ If any person having furnished a return under section 139(1) or in pursuance of a notice issued
under section 142(1) or a belated return under section 139(4), discovers any omission or any
wrong statement therein, he may furnish a revised return at any time before three months

1FIN BY INDIGOLEARN 14.5

 prior to the end of the relevant assessment year (i.e., 31.12.2023 for P.Y. 2022-23) or before
completion of assessment year, whichever is earlier.
➢ If the assessee discovers any omission or any wrong statement in a revised return, it is
possible to revise such a revised return provided it is revised within the same prescribed
time.

7. OPTION TO FILE UPDATED RETURN OF INCOME [SECTION 139(8A)] (Introduced

by Finance Act, 2022)
➢ Any person may furnish an updated return of his income or the income of any other person in
respect of which he is assessable, for the previous year relevant to the assessment year at
any time within 24 months from the end of the relevant assessment year.
➢ Any person may furnish an updated return irrespective of whether or not he has furnished a
return under section 139(1) or belated return under section 139(4) or revised return under
section 139(5) for that assessment year.
➢ The provisions of updated return would not apply, if the updated return of such person for
that assessment year –
I. is a loss return; or
II. has the effect of decreasing the total tax liability determined on the basis of
return furnished under section 139(1) or section 139(4) or section 139(5); or
III. results in refund or increases the refund due on the basis of return furnished
under section 139(1) or section 139(4) or section 139(5)
➢ No updated return can be furnished by any person for the relevant assessment year, where
I. an updated return has been furnished by him under this sub-section for the
relevant assessment year; or
II. any proceeding for assessment or reassessment or recomputation or revision
of income is pending or has been completed for the relevant assessment year
in his case
III. he is such person or belongs to such class of persons, as may be notified by the
CBDT
➢ If any person has a loss in any previous year and has furnished a return of loss on or before
the due date of filing return of income under section 139(1), he shall be allowed to furnish an
updated return if such updated return is a return of income.
➢ If the loss or any part thereof carried forward under Chapter VI or unabsorbed depreciation
carried forward under section 32(2) or tax credit carried forward under section 115JD is to
be reduced for any subsequent previous year as a result of furnishing of updated return of
income for a previous year, an updated return is required to be furnished for each such
subsequent previous year.

8. DEFECTIVE RETURN [SECTION 139(9)]

➢ A return of income shall be regarded as defective unless all the following conditions are
fulfilled, namely:
❖ The annexures, statements and columns in the return of income relating to computation
of income chargeable under each head of income, computations of gross total income and
total income have been duly filled in.
❖ The return of income is accompanied by the following, namely:

1FIN BY INDIGOLEARN 14.6

 ▪ A statement showing the computation of the tax payable on the basis of the return
▪ The report of the audit obtained under section 44AB
▪ The proof regarding the tax, if any, claimed to have been deducted or collected at
source and the advance tax and tax on self-assessment, if any, claimed to have been
paid.
▪ The proof of the amount of compulsory deposit, if any, claimed to have been paid under
the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974.
▪ The proof of payment the tax as required under section 140B, if the return of income
is a updated return furnished under section 139(8A) (Amended by Finance Act, 2022)
➢ Where the Assessing Officer considers that the return of income furnished by the assessee
is defective, he may intimate the defect to the assessee and give him an opportunity to
rectify the defect within a period of 15 days from the date of such intimation. The Assessing
Officer has the discretion to extend the time period beyond 15 days, on an application made
by the assessee.
➢ If the defect is not rectified within the period of 15 days or such further extended period,
then the return would be treated as an invalid return. The consequential effect would be the
same as if the assessee had failed to furnish the return.
➢ Where, however, the assessee rectifies the defect after the expiry of the period of 15 days
or the further extended period, but before assessment is made, the Assessing officer can
condone the delay and treat the return as a valid return.
➢ The return of income shall be regarded as defective unless the tax together with interest,
if any, payable in accordance with the provisions of section 140A has been paid on or before
the date of furnishing of the return.

9. PERMANENT ACCOUNT NUMBER (PAN) [SECTION 139A] [N 07]

The CBDT had introduced a new scheme of allotment of computerized 10 digits PAN. Such PAN
comprises of 10 alphanumeric characters and is issued in the form of a laminated card.
Note:
PAN is a 10 digit alpha numeric number, where the first 5 characters are letters, the next 4 numbers
and the last one a letter again. These 10 characters can be divided in five parts.

➢ First three characters are alphabetic series running from AAA to ZZZ
➢ Fourth character of PAN represents the status of the PAN holder:

❖ C – Company
❖ P – Person
❖ H – HUF (Hindu Undivided Family)
❖ F – Firm
❖ A – Association of Persons (AOP)
❖ T – AOP (Trust)
❖ B – Body of Individuals (BOI)
❖ L – Local Authority
❖ J – Artificial Juridical Person
❖ G – Government
➢ Fifth character represents first character of the PAN holder’s last name/ surname.

1FIN BY INDIGOLEARN 14.7

 ➢ Next four characters are sequential number running from 0001 to 9999.
➢ Last character in the PAN is an alphabetic check digit. Nowadays, the DOI (Date of Issue)
of PAN card is mentioned at the right (vertical) hand side of the photo on the PAN card.
➢ The following persons are compulsorily required to obtain a permanent account number (PAN)
a) Every person, if his total income or the total income of any other person in respect
of which he is assessable under the Act during any previous year exceeds the
maximum amount which is not chargeable to income-tax on or before 31st May of the
assessment year for which such income is assessable.
b) Every person carrying on any business or profession whose total sales, turnover or
gross receipts exceeds or is likely to exceed ₹ 5 lakh in any previous year before the
end of that financial year
c) Every person being a resident, other than an individual, which enters into a financial
transaction of an amount aggregating to ₹ 2,50,000 or more in a financial year On or
before 31st May of the immediately following financial year
d) Every person who is a managing director, director, partner, trustee, author, founder,
karta, chief executive officer, principal officer or office bearer of any person
referred in (c) above or any person competent to act on behalf of such person
referred in (c) above On or before 31st May of the immediately following financial
year in which the person referred in (c) enters into financial transaction specified
therein
e) Any person by whom tax is payable under Income Tax Act
f) Any person or class of persons, notified by the Central Government in its official
gazette
➢ Every person who is required to furnish a return of income under section 139(4A); or
➢ The Assessing Officer may allot to any other person whether or not is payable by him, EVEN
WITHOUT AN APPLICATION. [ASEESING OFFICER'S DISCRETION]
Quoting of PAN is mandatory in all documents pertaining to the following prescribed
transactions:
➢ In all returns to, or correspondence with, any income-tax authority;
➢ In all challans for the payment of any sum due under the Act;
➢ In all documents pertaining to such transactions entered into by him, as may be prescribed
by the CBDT in the interests of revenue.
In this connection, CBDT has notified the following transactions, namely:
➢ Transactions in Assets
❖ sale or purchase of any immovable property valued at ₹ 10 lakh or more or valued by stamp
valuation authority referred to in section 50C at an amount exceeding ₹ 10 lakh
❖ sale or purchase of motor vehicle or other vehicle (other than two wheeled motor vehicle)
which requires registration under section 2 (28) of the Motor Vehicle Act, 1988
➢ Transactions with banks
❖ A time deposit exceeding ₹ 50,000 in any account with Post Office/ bank/ cooperative
bank/ NBFC.
❖ Deposits aggregating to more than INR 5 lakh during the year will also need PAN.
❖ Opening a bank account; (Basic savings bank deposit excluded)
❖ Payment in cash for purchase of bank drafts/pay order/banker's cheque from a banking
company for an amount exceeding ₹ 50,000 during any one day;

1FIN BY INDIGOLEARN 14.8

 ❖ cash deposit exceeding ₹ 50,000 with banking company during any one day;

➢ Transactions in securities/ bonds/ units

Making an application for the following purposes involving payment of an amount exceeding ₹
50,000-
❖ for purchase of units of mutual fund;
❖ for acquiring debentures of a company or institution;
❖ for acquiring bonds of Reserve Bank of India.
➢ Other transactions
❖ All TDS certificates
❖ cash payments to hotels and restaurants exceeding ₹ 50,000 at any one time;
❖ Cash payment in excess of ₹ 50,000 in connection with travel to any foreign country at
any one time. Such payment includes cash payment made towards fare, or to a travel agent
or a tour operator, or for the purchase of foreign currency. However, travel to any foreign
country does not include travel to the neighboring countries or to such places of pilgrimage
as may be specified by the CBDT under Explanation 3 to Section 139(1);
❖ Making an application to any bank or banking institution or company or any institution for
issue of a credit card; {Cooperative banks also to comply}
❖ Payment of an amount exceeding ₹ 50,000 or more in a year as Life insurance premium to
an insurer.
❖ Opening a demat account
❖ Purchase/ sale of shares of an unlisted company of an amount exceeding 1 lakh per
transaction.
❖ A contract for sale or purchase of securities (other than shares) as defined in section
2(h) of the Securities Contracts (Regulation) Act, 1956 exceeding ₹ 1 lakh per transaction
❖ Purchase/ sale of any goods/ services exceeding 2 lakh per transaction.
❖ Payment for one or more pre-paid payment instruments, as defined in the policy guidelines
for issuance and operation of pre-paid payment instruments issued by Reserve Bank of
India under the Payment and Settlement Systems Act, 2007, to a banking company or a
co-operative bank to which the Banking Regulation Act, 1949, applies (including any bank
or banking institution referred to in section 51 of that Act) or to any other company or
institution- Payment in cash or by way of a bank draft or pay order or banker’s cheque of
an amount aggregating to more than ₹ 50,000 in a financial year.
Other points:
➢ Any person who does not have a PAN and who enters into any transaction specified in this
rule, shall make a declaration in Form No.60 giving therein the particulars of such transaction
either in paper form or electronically
➢ If there is a change in the address or in the name and nature of the business of a person, on
the basis of which PAN was allotted to him, he should intimate such change to the Assessing
Officer
➢ Quoting of PAN in certain documents
Where any amount has been paid after deducting tax at source, the person deducting tax
shall quote the PAN of the person to whom the amount was paid in the following documents:
i) in the statement furnished under section 192(2C) giving particulars of perquisites
or profits in lieu of salary provided to any employee;
ii) in all certificates for tax deducted issued to the person to whom payment is made;

1FIN BY INDIGOLEARN 14.9

 iii) in all returns prepared and delivered or caused to be delivered to any income-tax
authority in accordance with the provisions of section 206;
iv) in all statements prepared and delivered or caused to be delivered in accordance
with the provisions of section 200(3) [Sub-section (5B)].
➢ Inter-changeability of PAN with the Aadhaar number
Every person who is required to furnish or intimate or quote his PAN may furnish or intimate
or quote his Aadhar Number in lieu of the PAN, if he
i) has not been allotted a PAN but possesses the Aadhar number
ii) has been allotted a PAN and has intimated his Aadhar number to prescribed
authority in accordance with the requirement contained in section 139AA(2).

Any person, who has not been allotted a PAN but possesses the Aadhaar number
and has furnished or intimated or quoted his Aadhaar number in lieu of the PAN,
shall be deemed to have applied for allotment of PAN and he shall not be required
to apply or submit any documents.

Further, any person, who has not been allotted a PAN but possesses the Aadhaar
number may apply for allotment of the PAN under section 139A(1)/(1A)/(3) by
intimating his Aadhaar number and he shall not be required to apply or submit any
documents
➢ For failure to comply with provisions of Sec 139A or quoting a wrong PAN, penalty of ₹
10,000 is leviable.

10. QUOTING OF AADHAR NUMBER [SECTION 139AA]

➢ Mandatory Quoting Aadhar Number
Every person who is eligible to obtain Aadhar Number is required to mandatorily quote Aadhar
Number:
i) in the application form for allotment of Permanent Account Number
ii) In the return of income
➢ If a person does not have Aadhar Number, he is required to quote Enrolment ID of Aadhar
application form issued to him at the time of enrolment in the application form for allotment
of Permanent Account Number (PAN) or in the return of income furnished by him
➢ Every person who has been allotted Permanent Account Number (PAN) as on 1st July, 2017,
and who is eligible to obtain Aadhar Number, shall intimate his Aadhar Number to prescribed
authority on or before 31st March, 2022.
➢ As per rule 114AAA
i) If a person, who has been allotted PAN as on 1st July, 2017 and is required to
intimate his Aadhaar number under section 139AA(2), has failed to intimate the
same on or before 31st March, 2022, the PAN of such person would become
inoperative immediately after the said date (i.e., after 31st March, 2022)
ii) Accordingly, where a person, whose PAN has become inoperative, is required to
furnish, intimate or quote his PAN under the Act, it shall be deemed that he has
not furnished, intimated or quoted the PAN and he would be liable for all the
consequences under Rule 114AAA for not furnishing, intimating or quoting the PAN.

1FIN BY INDIGOLEARN 14.10

 However, the consequences shall have effect from the date specified by the CBDT
i.e., 1st July 2023 [Circular No.3/2023 dated 28th March 2023]
➢ Further, Rule 114AAA provides that if PAN of a person has become inoperative, he will not be
able to furnish, intimate or quote his PAN and would be liable to all the consequences under the
Act for such failure. This will have a number of implications such as:-
i) Pending returns will not be processed
ii) Pending refunds cannot be issued to inoperative PANs
iii) Pending proceedings as in the case of defective returns cannot be completed once
the PAN is inoperative
iv) Tax will be required to be deducted at a higher rate as PAN becomes inoperative
➢ The provisions of section 139AA relating to quoting of Aadhar Number would not apply to an
individual who does not possess the Aadhar number or Enrolment ID and is
i) residing in Assam, Jammu & Kashmir and Meghalaya;
ii) a non-resident as per Income-tax Act, 1961;
iii) of the age of 80 years or more at any time during the previous year;
iv) not a citizen of India

11. FEE FOR DEFAULT RELATING TO INTIMATION OF AADHAR NUMBER

[SECTION 234H]
➢ If a person, who is required to intimate his Aadhar Number under section 139AA(2), fails to
do so by the date notified in section 139AA(2) i.e., 31st March, 2022, then at the time of
subsequent intimation of his Aadhaar number to the prescribed authority, such person would
be liable to pay, by way of fee, an amount equal to
i) ₹ 500, in a case where such intimation is made within three months from the date
referred in section 139AA(2) i.e., by 30.06.2022; and
ii) ₹ 1,000, in all other cases

12. SCHEME FOR SUBMISSION OF RETURNS THROUGH TAX RETURN PREPARER

[SEC 139B]

➢ This section provides that, for the purpose of enabling any specified class or classes of
persons to prepare and furnish their returns of income, the CBDT may notify a Scheme to
provide that such persons may furnish their returns of income through a Tax Return Preparer
authorized to act as such under the Scheme.
➢ The Tax Return Preparer shall assist the persons furnishing the return in a manner that will
be specified in the scheme, and shall also affix his signature on such return.
➢ A Tax Return Preparer means any individual, other than
i) any officer of a scheduled bank with which the assessee maintains a current
account or has other regular dealings.
ii) any legal practitioner who is entitled to practice in any civil court in India.
iii) an accountant
iv) an employee of the 'specified class or classes of persons'
who has been authorized to act as a Tax Return Preparer under the Scheme

1FIN BY INDIGOLEARN 14.11

 ➢ The 'Specified class or classes of person' for this purpose means any person other than a
company or a person whose accounts are required to be audited under section 44AB (tax
audit) or under any other existing law, who is required to furnish a return of income under
the Act.
➢ The scheme is applicable to any person being an individual or a Hindu undivided family
➢ An individual, who holds a bachelor degree from a recognised Indian University or institution,
or has passed the intermediate level examination conducted by the Institute of Chartered
Accountants of India or the Institute of Company Secretaries of India or the Institute of
Cost Accountants of India, shall be eligible to act as Tax Return Preparer
➢ the following an individual or a HUF cannot furnish a return of income for an assessment year
through a Tax Return Preparer:
i) who is carrying out business or profession during the previous year and accounts
of the business or profession for that previous year are required to be audited
under section 44AB or under any other law for the time being in force; or
ii) who is not a resident in India during the previous year
➢ An eligible person cannot furnish a revised return of income for any assessment year through
a Tax Return Preparer unless he has furnished the original return of income for that
assessment year through such or any other Tax Return Preparer
➢ Note: an employee of the “specified class or classes of persons” is not authorized to act as a
Tax Return Preparer. Therefore, it follows that employees of companies and persons whose
accounts are required to be audited under section 44AB or any other law for the time being
in force (since they are not falling in the category of specified class or classes of persons),
are eligible to act as Tax Return Preparers

13. AUTHORISED SIGNATORIES TO THE RETURN OF INCOME [SECTION 140]:

This section specifies the persons who are authorized to sign and verify return of income under
section 139 of the Act.

Assessee Circumstance Authorised Signatory

1. Individual -the individual himself
where he is absent from -the individual himself; or -any
India person duly authorized by him in
this behalf holding a valid power of
attorney from the individual
where he is mentally -his guardian; or
Incapacitated from - any other person competent to act
attending to his affairs on his behalf
where, for any other - any person duly authorized by him
reason, it is not possible for in this behalf holding a valid power
the individual to sign the of attorney from the individual
return (such power of attorney should be
attached to the return of income)
[Link] Family -the karta
Undivided

1FIN BY INDIGOLEARN 14.12

 where the karta is absent - any other adult member of the
from India HUF
where the karta is mentally - any other adult member of the
incapacitated from HUF
attending to his affairs
3. Company - the managing director of the
company
where for any unavoidable
reason such managing any director of the company
director is not able to or any other person as may be
signed and verify the prescribed for this purpose
return; or where there is no
managing director
where the company is not A person who holds a valid power of
resident in India attorney from such company to do
so.
(a) Where the company is -Liquidator
being wound up (whether
under the orders of a court -Liquidator
or otherwise); or (b) Where
any person has been
appointed as the receiver
of any assets of the
company
(v) Where the management - the principal officer of the
of the company has been company
taken over by the Central
Government or any state
Government under any law
[Link] (i) in circumstances not - the managing partner of the firm
covered under (ii) below
(ii)
(a). where for any
unavoidable reason such
managing partner is not able
to sign and verify the - any partner of the firm, not being
return; or a minor
(b) where there is no - any partner of the firm, not being
managing partner a minor
5. Local - -the principal officer
authority
6. Political party - -the chief executive officer of such
[referred to in party (whether he is known as
section 139(4B)] secretary or by any other
designation)

1FIN BY INDIGOLEARN 14.13

 7. Any other - -any member of the association or
association the principal officer of such
association
[Link] - -The designated Partner,
Liability -when he is not able to sign and
Partnership (LLP) verify the return or when there is
no designated partner, any other
partner can sign the return.
9. Any other - -That person or some other person
person competent to act on his behalf.

14. MANNER OF FILING THE RETURN:

The return of income referred to in sub-rule (1) may be furnished in any of the
following manner:
i. Furnishing the return in a paper form;
ii. Furnishing the return electronically under digital signature;
iii. Transmitting the data in the return electronically and thereafter submitting the
verification of the return in Form ITR-V;
iv. Furnishing a bar-coded return in a paper form.
Compulsory furnishing of return electronically under digital signature only:
a) Firm required to furnish the return in the form ITR-5 and to whom provisions of
section 44AB are applicable;
b) Individuals/ HUF required to furnish return in Form ITR-4 and to whom the provisions
of Sec 44AB are applicable;
c) A company required to furnish the return in Form ITR-6.
Compulsory furnishing of return electronically either under digital signature or without digital
signatures:
a) A person, other than a company and a person required to furnish the return in Form
ITR-7, his or its total income exceeds ₹ 5 lakhs.
b) All other assessees at their option.
Submission of Form ITR-V after signature:
Where return is filed electrically without digital signatures the verified ITR-V Form duly signed
should be sent to Bengaluru, by ordinary post or speed post on or before the due date or within
a period of 3-0 Days of uploading of the electronic return data whichever is later.

15. SELF-ASSESSMENT [SECTION 140A]

➢ Payment of tax, interest and fee before furnishing return of income [Section 140A(1)]
Where any tax is payable on the basis of any return required to be furnished under, inter
alia, section 139, after taking into account-
i) the amount of tax, already paid, under any provision of the Income- tax Act, 1961
ii) the tax deducted or collected at source

1FIN BY INDIGOLEARN 14.14

 iii) any relief of tax claimed under section 89
iv) any tax credit claimed to set-off in accordance with the provisions of section
115JD; and
v) any tax or interest payable as per the provisions of section 191(2)
the assessee shall be liable to pay such tax together with interest and fee payable
under any provision of this Act for any delay in furnishing the return or any default or
delay in payment of advance tax before furnishing the return. The return shall be
accompanied by the proof of payment of such tax, interest and fee
➢ If any assessee fails to pay the whole or any part of such of tax or interest or fee, he shall
be deemed to be an assessee in default in respect of such tax or interest or fee remaining
unpaid and all the provisions of this Act shall apply accordingly

16. TAX ON UPDATED RETURN [SECTION 140B] (Introduced by Finance Bill, 2022)

➢ The additional income-tax payable at the time of furnishing the updated return under section
139(8A) would be-
i) 25% of aggregate of tax and interest payable, as determined above, if such return
is furnished after expiry of the time available under section 139(4) or 139(5) and
before completion of the period of 12 months from the end of the relevant
assessment year; or
ii) 50% of aggregate of tax and interest payable, as determined above, if such return
is furnished after the expiry of 12 months from the end of the relevant
assessment year but before completion of the period of 24 months from the end
of the relevant assessment year.
➢ Interest under section 234B where earlier return has been furnished [Section 140B(4)]
In a case where an earlier return has been furnished, interest payable under section 234B
has to be computed on the assessed tax or, as the case may be, on the amount by which the
advance tax paid falls short of the assessed tax.
“Assessed tax” means the tax on the total income as declared in the updated return to be
furnished under section 139(8A), after taking into account the following:
i) the amount of relief or tax referred to in section 140A(1), the credit for which
has been taken in the earlier return
ii) the tax deducted or collected at source on any income which is subject to such
deduction or collection and which is taken into account in computing total income
and which has not been included in the earlier return
iii) any tax credit claimed to set-off in accordance with the provisions of section
115JD, which has not been claimed in the earlier return
➢ Computation of Additional income-tax
For the purpose of computation of Additional income-tax”,
i) tax would include surcharge and cess, by whatever name called, on such tax.

1FIN BY INDIGOLEARN 14.15

 ii) the interest payable would be interest chargeable under any provision of the Act,
on the income as per updated return furnished under section 139(8A), as reduced
by interest paid in the earlier return, if any.
However, the interest paid in the earlier return would be considered to be nil, if no earlier
return has been furnished
➢ In a case, where no earlier return has been furnished, the interest payable under section
234A has to be computed on the amount of the tax on the total income as declared in the
updated return under section 139(8A), in accordance with the provisions of sub-section (1A)
of section 140A
➢ Interest payable under section 234C, where an earlier return has been furnished, has to be
computed after taking into account the income furnished in the return under section 139(8A)
as the returned income.

17. INTEREST FOR DEFAULT IN FURNISHING RETURN OF INCOME [SECTION

234A]

➢ Interest [Sec 234A]: The assessee, upon his failure to file the return of his income within
the due date, shall be liable to pay a simple interest @ 1% p.m or part thereof.
➢ Note:
The interest has to be calculated on the amount of tax on total income as determined under
section 143(1) and where a regular assessment is made, on the amount of the tax on the total
income determined under regular assessment, as reduced by the advance tax paid and any tax
deducted or collected at source, any relief of tax allowed under section 89 and any tax credit
allowed to be set-off in accordance with section 115JD.

Tax on total income as determined under section 143(1) would not include the additional
income-tax, if any, payable under section 140B or section 143. (Amended by Finance Act,
2022)
Tax on total income determined under regular assessment would not include the additional
income-tax payable under section 140B (Amended by Finance Act, 2022)

➢ FEE FOR DEFAULT IN FURNISHING RETURN OF INCOME [SECTION 234F]:

If any person fails to furnish a return of income as required u/s 139(1) or by the proviso to
section 139(1) before the end of the relevant assessment year, then he shall be liable to
penalty of 5,000. However, if the total income of the person does not exceed ₹ 5 lakhs, the
fees payable shall not exceed ₹ 1,000.

1FIN BY INDIGOLEARN 14.16

 Problems
1. Paras is resident of India. During the F.Y. 2023-24, interest of ₹ 1,88,000 was credited
to his Non-resident (External) Account with SBI. ₹ 30,000, being interest on fixed
deposit with SBI, was credited to his saving bank account during this period. He also
earned ₹ 3,000 as interest on this saving account. Is Paras required to file return of
income?

2. Specify the persons who are authorized to sign and verify under section 140, the return
of income filed under section 139 of the Income-tax Act, 1961 in the case of:
(i) Political party;
(ii) Local authority;
(iii) Association of persons, and
(iv) Limited Liability Partnership (LLP).

3. State with reasons, whether the following statements are true or false, with regard to
the provisions of the Income-tax Act, 1961:
(i) The Assessing Officer has the power, inter alia, to allot PAN to any person by whom no tax
is payable.
(ii) Where the Karta of a HUF is absent from India, the return of income can be signed by any
male member of the family.

4. Mrs. Hetal, an individual engaged in the business of Beauty Parlour, has got her books of
account for the financial year ended on 31st March, 2024 audited under section 44AB.
Her total income for the assessment year 2024-25 is ₹ 2,35,000. She wants to furnish
her return of income for assessment year 2024-25 through a tax return preparer.

1FIN BY INDIGOLEARN 14.17

 Chapter 15

Levy of Interest
Before we Begin,

Late payment or any other delayed compliance of taxes will attract interest
which should be paid to the Government as it is considered as loss of

You will learn about the following

• Interest for non-payment or short payment of Advance Tax

• Interest payable for deferment of Advance Tax
• Rounding off provisions

Happy learning!

1FIN BY INDIGOLEARN 15.1

1. SECTION 234B- Interest for non-payment or short-payment of advance tax:
1.1. Applicability:
Interest under section 234B is attracted for non-payment of advance tax or
payment of advance tax of an amount less than 90% of ASSESSED TAX.
1.2. Rate of Interest: 1% per month or part of month from 1st day of AY till the
actual date of payment of tax
1.3. Procedure:

Tax payable u/s 143(1) /143(3)/144 or the first assessment is XXX

made u/s.147/153A

Less: TDS/TCS (XXX)

Relief u/s 89 (XXX)

Tax Credit allowed u/s 115JD (XXX)

Amount on which 234B is payable XXX

➢ However, where self-assessment tax is paid by the assessee under section 140A
or otherwise, interest shall be calculated upto the date of payment of such tax
and reduced by the interest, if any, paid under section 140A towards the interest
chargeable under this section.

2. SECTION 234C- Interest payable for deferment of advance tax:

2.1. Applicability: Where the assessee fails to pay any installment of advance tax or
pays less amount than prescribed, he shall be liable to pay interest u/s 234C
2.2. Non-applicability:
where such shortfall is on account of under-estimate or failure to estimate –
(i) The amount of capital gains.
(ii) Casual Income
(iii) Income under the head “Profits and gains of business or profession” in cases
where the income accrues or arises under the said head for the first time.
(iv) The amount of dividend other than deemed dividend under Section 2(22)(e)

However, the assessee should have paid the whole of the amount of tax payable in
respect of such income as part of the remaining instalments of advance tax which are
due or where no such instalments are due, by the 31st day of March of the financial
year.

1FIN BY INDIGOLEARN 15.2

 Notes:-
➢ Income accrued unexpectedly after the installment due date is not valid reason
and Interest shall be charged u/s 234C.
3. ROUNDING OFF:
The amount of tax, penalty or other sum in respect of which the interest is to be
calculated shall be rounded off to nearest multiple of 100 and for this purpose any
fraction of 100 shall be ignored.

Problems
1. During the financial year 2023-24, X Ltd. pays ₹ 2,10,000 (on September 15,
2023), ₹ 1,56,000 (on December 15, 2023) and ₹ 82,000 (on March 31, 2024)
as advance tax. Assessment is completed on December 10, 2024 on the basis of
income declared but after addition of ₹ 1,90,000 (income declared: ₹
17,80,000). X Ltd. is also entitled for tax credit of ₹ 18,800 on account of tax
deducted from interest on securities. Determine the amount of interest payable
under section 234B and 234C (tax is not paid at the time of submission of return
of income).

1FIN BY INDIGOLEARN 15.3

 Chapter 16

Income Exempt from Tax

Before we Begin,

As a matter of fact, we all knew that India is one of the largest democracies all
around the world as well as fastest growing economy. As a vast country it would
be unfair to tax every sort of income from every Person in the Country, as a
part of liberalization and encouraging various sectors and various reforms and
economical survival of middle-class people in the country, the Tax laws also
provide relaxations on tax burden in the form of Exemptions.

This Chapter further more clarifies on the aspects of:

• Various Exemptions covered under section 10

Happy learning!

1FIN BY INDIGOLEARN 16.1

SEC 10 (1): Agricultural income is exempt from tax, if it is covered
under the definition of Agricultural income as per section
2(1A) of the Act. (Detail discussion in chapter Agricultural
Income)

SEC 10 (2): Any sum received by an individual as a member of HUF out of

the income of the Family or the income of the estate
belonging to the family is exempt from tax. This exemption
is subject to the provisions of Sec 64(2).

SEC 64(2): If a member converts his self-acquired property into joint

family property without adequate consideration, the income
from the asset so transferred will be taxable in the hands of
the transferor individual. If the income is taxed in the hands
of transferor individual, again it is not taxable in the hands
of the HUF.

SEC 10(2A): The share income received by the partners from partnership
firm is exempt from tax, provided if the income is taxed in
the hands of firm (i.e., firm assessed as such).

SEC 10(4)(ii): Any individual:

- Resident outside India (as per FEMA)

- Permitted by RBI to maintain NRE A/C

then, interest on NRE A/c is exempt.

SEC 10(6): Individual assessees who are not citizens of India are
entitled to exemption under this section as follows:

1FIN BY INDIGOLEARN 16.2

Claus Remuneration/*Sala
For Conditions
e ry received by
- Remuneration received should be
Officials of exempt in the foreign country
Rendering
embassy, high - The officials should be subjects of
(ii) services in their
commission, legation the respective countries
capacity
etc - They should not be engaged in any
other B/P or employment in India.
- Foreign enterprise is not engaged
in any business or trade
Service
Foreign National as - Stay in India <= 90 days in PY
rendered by him
(vi) an employee of - Remuneration is not liable to be
during his stay in
foreign country deducted from the employer’s
India
income chargeable to tax under
the Act
- Stay in India <= 90 days in PY
Services
*Non-citizen (+) rendered in
(viii) Non-resident in connection with
India his employment
on a foreign ship

- Training should be in any

establishment or office of or in
any undertaking owned by:
a) Government
b) Company wholly owned by CG/SG(s)
Employees of Foreign or jointly
Government from Their training in c) Any company which is a subsidiary
Xi
their respective India of (b) above
Government d) Statutory Corporation
e) any society registered under the
Societies Registration Act, 1860
or any other similar law, which is
wholly financed by CG/
SG(s)/jointly

1FIN BY INDIGOLEARN 16.3

SEC 10(11A): Sukanya Samriddhi Account Scheme

Payment (Withdrawl) from an account opened in

accordance with the Sukanya Samriddhi Account Rules, 2014
made under the Government Savings Bank Act, 1873, shall
not be included in the total income of the assessee.

Sukanya Samriddhi Account scheme is declared as EEE

(exempt-exempt-exempt) method of taxation.

(i) The investments made in the Scheme will be eligible for deduction
under section 80C of the Act.,

(ii) The interest accruing on deposits in such account will be exempt

from income tax., and

The withdrawal from the said scheme in accordance with the

rules of the said scheme is exempt from tax under clause
(11A) under section 10 of the Income Tax Act, 1961

SEC 10(16): Any scholarship granted to meet the cost of education is

exempt from tax.

SEC 10(17): Allowances to MPs and MLAs are exempt from tax.

SEC 10(17A): Awards or rewards in cash or in kind which were instituted in

public interest by the Central /State Govt., are exempt from
tax. Like award for literacy, scientific & artistic works etc.

SEC 10(18): Pension to gallantry award winners is exempt from tax by the
receiver who has been awarded Param-vir-chakra or Maha-
vir-chakra or Veera-chakra or any other notified gallantry
award. Exemption is also available if family pension is
received by a family member of an individual who received in
the above awards.

1FIN BY INDIGOLEARN 16.4

 Note: The entire disability pension granted to members of
naval, military or air forces who have been invalided out of
naval, military or air force service on account of bodily
disability attributable to or aggravated by such service
would be exempt from tax.

SEC 10(26AAA): Income of a Sikkimese Individual

If any person is a Sikkimese Individual, then following

income will be exempted in his hands

o Income from any source in the state of Sikkim.

o Income from dividend / interest on securities

from anywhere in India.

Exemption is allowed even in the case of following:

➢ A Sikkimese woman marrying a non Sikkimese on or after April 1, 2008.

➢ An Individual who was domiciled in Sikkim on or before April 26, 1975.
➢ An Individual whose specified ancestors were domiciled in Sikkim on or
before April 26, 1975.

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SEC. 10AA: SPECIAL PROVISIONS IN RESPECT OF NEWLY ESTABLISHED
UNITS IN SPECIAL ECONOMIC ZONE (SEZ)

➢ Sec 10AA has been inserted to give income-tax concession to newly established
units in Special Economic Zone.

➢ The following conditions should be satisfied to claim deduction under Sec 10AA:
❖ The assessee is an entrepreneur as defined in Sec 2(i) of SEZ Act, 2005.
Entrepreneur is a person who has been granted a letter of approval by the
Development Commissioner to set up a unit in a Special Economic Zone.

❖ The unit in Special Economic Zone begins to manufacture or produce articles

or things or provide services during the previous year relevant to A.Y.2006-
07 or any subsequent assessment year but not later than A.Y.2020-21.
*If approval received on or before 31st March, 2020 and the manufacture or
production of articles or things or providing services has not begun on or
before 31st March, 2020, still it shall be deemed that the manufacture has
begun in the AY 2020-2021.*

❖ Manufacture for this purpose means to make, produce, fabricate, assemble,

process or bring into existence, by hand or by machine, a new product having
a distinctive name, character or used and shall include processes such as
refrigeration, cutting, polishing, blending, repair, remaking, re-engineering and
includes agriculture, aquaculture, animal husbandry, floriculture, horticulture,
pisciculture, poultry, sericulture, viticulture and mining.

❖ The assessee has income from export of articles or thing or from services
from such unit. In other words, the assessee has exported goods or provided
services out of India from the Special Economic Zone by land, sea, air or by
any other mode.

❖ Books of the account of the taxpayer should be audited. The taxpayer should
submit audit report in Form No. 56F along with the return of income.

1FIN BY INDIGOLEARN 16.6

 ❖ Amount of deduction - If the above conditions are satisfied, one can claim
deduction under Sec 10AA. Deduction depends upon quantum of profit derived
from export of articles or things or services (including computer software).

❖ Profit from Export = Profits of the unit in SEZ X Export turnover / total
turnover of the business carried on by the undertaking.

❖ For this purpose, 'export turnover' means the consideration in respect of

export by the undertaking of articles or things or services received in or
brought into India within 6 months from the end of FY by the assessee, but
does not include the following:
▪ freight;
▪ telecommunication charges;
▪ insurance
attributable to the delivery of the articles or things or computer software
outside India, expenses, if any, incurred in foreign exchange in providing the
technical services including, computer software outside India.

❖ Profits and gains derived from on site development of computer software

(including services for development of software) outside India shall be
deemed to be the profits and gains derived from the export of computer
software outside India.

❖ Period & Amount of Deduction: -

▪ DEDUCTION FOR FIRST FIVE ASSESSMENT YEARS - 100 per cent

of the profit and gains derived from export of articles or things or from
services is deductible for a period of 5 consecutive assessment years.
Deduction for the first year is available in the assessment year relevant
to the previous year in which the unit begins to manufacture or produce
articles or things or provide services.

▪ DEDUCTION FOR SIXTH ASSESSMENT YEAR TO TENTH

ASSESSMENT YEAR- 50 per cent of the profit and gains derived from
export of articles or things or from services is deductible for the next
5 years.

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 ▪ DEDUCTION FOR ELEVENTH ASSESSMENT YEAR TO FIFTEENTH
ASSESSMENT YEAR-For the next 5 years, a further deduction would
be available to the extent of 50 per cent of the profit provided an
equivalent amount is debited to the profit and loss account of the
previous year and credited to Special Economic Zone Re-investment
Allowance Reserve Account (hereinafter referred to as Special Reserve
Account) to be created and utilised in the manner laid down under section
10AA(2) for next 5 consecutive years.

Conditions to claim deduction for eleventh assessment year to

fifteenth assessment year

▪ The Special Reserve Account should be utilized-

a) for the purpose of acquiring new plant and machinery. The

new plant and machinery should be first put to use before
the expiry of 3 years from the end of the year in which the
Special Reserve Account was created. Eg:- If the reserve
account was created during the previous year ending March
31, 2008, it should be utilized for acquiring machinery or
plant on or before March 31, 2011.

b) Until the acquisition of new plant and machinery the Special

Reserve Account can be utilized for the business of the
undertaking but it cannot be utilized for distribution of
dividends/profits or for remittance outside India as profits
or for creating an asset outside India.

▪ Prescribed particulars [Form No. 56FF] should be submitted in

respect of new plant and machinery along with the return of income
for the previous year in which such plant and machinery was first
put to use.

1FIN BY INDIGOLEARN 16.8

 ❖ If the Special Reserve Account is misutilised, then the deduction would be
taken back in the year in which the Special Reserve Account is misutilised. If
the Special Reserve Account is not utilized for acquiring new plant and
machinery within three years as stated above, then the deduction would be
taken back in the year immediately following the period of three years. For
instance, if Rs.1,50,000 is transferred to the reserve account for the year
ending March 31, 2008, and out of which only Rs.96,000 is utilized for
acquiring plant and machinery up to March 31, 2011, then Rs.54,000 would be
taxable for the previous year 2011-12.

Note:
1. The business loss under section 72(1) or loss under the head “Capital
Gains” under section 74(1), in so far as such loss relates to the business
of the undertaking, being the Unit shall be allowed to be carried
forward or set off.

2. The assessee should furnish the report of a chartered accountant

certifying that the deduction has been correctly claimed, before the
date specified in section 44AB.

3. During the period of deduction, depreciation is deemed to have been

allowed on the assets. Written Down Value shall accordingly be
reduced.

4. If deduction is claimed in respect of a specified business (as referred

to in section 35AD(8)(c)) under section 10AA, no deduction in respect
of that business will be available under section 35AD.

5. In case of amalgamation and demerger - No deduction shall be

admissible under this section to the amalgamating or the demerged
Unit for the previous year in which the amalgamation or the demerger
takes place.

1FIN BY INDIGOLEARN 16.9

 Amendments by FA 2023:
➢ Deduction under Section 10AA is allowed only if the assessee has filed
return of income within the due date under Section 139(1).
➢ Deduction under Section 10AA shall be available only if sale
proceeds are received in convertible foreign exchange within 6
months from the end of PY or within such further period as may be
allowed by the competent authority.
➢ Export proceeds shall be deemed to have been received in India
where such proceeds are credited to a separate account maintained
by the assessee with any bank outside India with the approval of
RBI.

❖ Expenditure related to Exempt Income

• For the purposes of computing the total income, no deduction shall be

allowed in respect of expenditure incurred in relation to exempt income.
• The AO can determine the disallowable expenditure in accordance with the
method prescribed by the CBDT in the following cases:
▪ Where he is not satisfied with the correctness of the claim of such
expenditure by assessee,
▪ where an assessee claims that no expenditure has been incurred by
him in relation to exempt income.
• Rule 8D lays down the method for determining the amount of such
expenditure.

1FIN BY INDIGOLEARN 16.10

 • Expenditure in relation to income =

An amount equal to one per

cent of the annual average of
the monthly average of the
Amount of expenditure
opening and closing balances
directly relating to exempt
of the value of investment,
income
income from which does not
or shall not form part of total
income.

• However, any disallowance computed under this Rule cannot exceed total
expenditure claimed by assessee.

• Sec. 14A read along with Rule 8D (Method of determining amount of

expenditure in relation to income not includable in total income) provides
for disallowance of expenditure even where the taxpayer has not earned
any exempt income in a particular year.

1FIN BY INDIGOLEARN 16.11

 PROBLEMS
1. State whether the following are chargeable to tax and the amount liable to tax:
(i) Arvind received ₹ 20,000 as his share from the income of the HUF.
(ii) Mr. Xavier, a ‘Param Vir chakra’ awardee, received a pension of ₹ 2,20,000 during
the financial year 2022-23.
(iii) Agricultural income of ₹ 1,27,000 earned by a resident of India from a land
situated in Malaysia
(iv) Rent of ₹ 72,000 received for letting out agricultural land for a movie shooting.
Solution:

Taxable/ Amount
S.
Not liable to Reason
No.
Taxable tax (₹)
(i) Not Taxable - Share received by member out of the income of the
HUF is exempt under section 10(2).
(ii) Not Taxable - Pension received by Mr. Xavier, a former Central
Government employee who is a ‘Param Vir Chakra’
awardee, is exempt under section 10(18).
(iii) Taxable 1,27,000 Agricultural income from a land in any foreign
country is taxable in the case of a resident taxpayer
as income under the head “Income from other
sources”. Exemption under section 10(1) is not
available in respect of such income.
(iv) Taxable 72,000 Agricultural income is exempt from tax as per
section 10(1). Agricultural income means, inter alia,
any rent or revenue derived from land which is
situated in India and is used for agricultural
purposes. In the present case, rent is being derived
from letting out of agricultural land for a movie
shoot, which is not an agricultural purpose. In
effect, the land is not being put to use for
agricultural purposes. Therefore, ₹ 72,000, being
rent received from letting out of agricultural land
for movie shooting, is not exempt under section
10(1). The same is chargeable to tax under the head
“Income from other sources”.

1FIN BY INDIGOLEARN 16.12

2. Discuss the taxability of agricultural income under the Income-tax Act, 1961. How
will income be computed where an individual derives agricultural and non-agricultural
income?

3. Which income of Sikkimese individual is exempted from tax under section

10(26AAA)?

4. State, with reference to the provisions of the Income-tax Act, 1961, whether the
following receipts during the P.Y.2023-24 are chargeable to tax:
i. Mr. Sunil, a member of a HUF, received ₹ 8,000 as his share from the income of
the HUF.
ii. Mr. Ankit, a former Central Government employee and a ‘Param Vir Chakra’
awardee, receives pension of ₹ 2,50,000 during the P.Y. 2023-24.
iii. ₹ 25,000 received by Mrs. X, a Sikkimese woman from interest on securities. She
had married a Non-Sikkimese individual, Mr. X, on 1st October,

5. State, with reference to the provisions of the Income-tax Act, 1961, whether the
following are chargeable to tax and if so, the amount liable to tax :
i. Sargam received ₹ 29,000 as his share of income from a partnership firm.
ii. Mr. Tarun has derived an income of ₹ 80,000 derived from manufacturing,
growing and curing coffee in India during the financial year 2023-24.

6. Rudra Ltd. has one unit at Special Economic Zone (SEZ) and other unit at Domestic
Tariff Area (DTA). The company provides the following details for the previous year
2023-24.
Particulars Rudra Ltd. (₹) Unit in DTA (₹)
Total Sales 6,00,00,000 2,00,00,000
Export Sales 4,60,00,000 1,60,00,000
Net Profit 80,00,000 20,00,000

Calculate the eligible deduction under section 10AA of the Income-tax Act, 1961,
for the
Assessment Year 2024-25, in the following situations:
(i) If both the units were set up and start manufacturing from 22-05-2015.
(ii) If both the units were set up and start manufacturing from 14-05-2019.

1FIN BY INDIGOLEARN 16.13

 Solution:
Computation of deduction under section 10AA of the Income-tax Act, 1961
As per section 10AA, in computing the total income of Rudra Ltd. from its unit
located in a Special Economic Zone (SEZ), which begins to manufacture or produce
articles or things or provide any services during the previous year relevant to the
assessment year commencing on or after 01.04.2006 but before 01.04.2021, there
shall be allowed a deduction of 100% of the profit and gains derived from export
of such articles or things or from services for a period of five consecutive
assessment years beginning with the assessment year relevant to the previous year
in which the Unit begins to manufacture or produce such articles or things or
provide services, as the case may be, and 50% of such profits for further five
assessment years.
Computation of eligible deduction under section 10AA [See Working Note
below]:

(i) If Unit in SEZ was set up and began manufacturing from 22-05-2015:
Since A.Y. 2024-25 is the 9th assessment year from A.Y. 2016-17, relevant to the
previous year 2015-16, in which the SEZ unit began manufacturing of articles or
things, it shall be eligible for deduction of 50% of the profits derived from export
of such articles or things, assuming all the other conditions specified in section
10AA are fulfilled.
= Profits of Unit in SEZ x (Export turnover of Unit in SEZ/Total turnover
of Unit in SEZ) x 50%
= 60 lakhs X (300 lakhs/400 lakhs) x 50%
= ₹ 22.50 lakhs

(ii) If Unit in SEZ was set up and began manufacturing from 14-05-2019:
Since A.Y. 2024-25 is the 5th assessment year from A.Y. 2020-21, relevant to the
previous year 2019-20, in which the SEZ unit began manufacturing of articles or
things, it shall be eligible for deduction of 100% of the profits derived from export
of such articles or things, assuming all the other conditions specified in section
10AA are fulfilled.
= Profits of Unit in SEZ x (Export turnover of Unit in SEZ/ Total turnover
of Unit in SEZ) x 100%
= 60 lakhs x (300 lakhs/400 lakhs) x 100%
= ₹ 45 lakhs

1FIN BY INDIGOLEARN 16.14

 The unit set up in Domestic Tariff Area is not eligible for the benefit of deduction
under section 10AA in respect of its export profits, in both the situations.

Working Note:

Computation of total sales, export sales and net profit of unit in SEZ
Particulars Rudra Ltd. (₹) Unit in DTA (₹) Unit in SEZ (₹)
Total Sales 6,00,00,000 2,00,00,000 4,00,00,000
Export Sales 4,60,00,000 1,60,00,000 3,00,00,000
Net Profit 80,00,000 20,00,000 60,00,000

1FIN BY INDIGOLEARN 16.15

 Chapter 17

Total Income
Before we Begin,

Tax is calculated on the basis of Total income which is derived in income Tax are
based on various considerations which were learnt in the previous chapters till
now. The aspects for those chapters above will be aggregated in this chapter
which is a final step in the process of computing total tax liability of a Person

You will learn about the following

• Steps for Calculating total Income

• Computation of Tax liability under new regime u/s 115 BAC
• Interest payable for deferment of Advance Tax
• Alternate Minimum Tax
• Tax Planning in respect of Salary income

Happy learning!

1FIN BY INDIGOLEARN 17.1

 Computation of Total Income

Determination of Residential Status

Classification of Income under 5 Heads of income

Salaries IFHP PGBP Capital Gains IFOS

Compute income under each head applying the charging & deeming provisions and providing for
permissible deductions/exemptions thereunder

Apply the clubbing provisions

Set-off/carry forward and set-off of losses as per the provisions of the Act

Compute Gross Total Income (GTI)

Less: Deductions from Gross Total Income

Total Income (TI)

1FIN BY INDIGOLEARN 17.2

Section 115BAC – Default Tax Regime:

1. FOR INDIVIDUALS/HUF/ AOP/ BOI and AJP

Income Rate of Tax
Upto ₹ 3,00,000 Nil
₹ 3,00,000 To ₹ 6,00,000 5%
₹ 6,00,001 To ₹ 9,00,000 10%
₹ 9,00,001 To ₹ 12,00,000 15%
₹ 12,00,001 To ₹ 15,00,000 20%
Above ₹ 15,00,000 30%
The tax on Total income shall be increased by Surcharge and HEC shall be applicable.

2. Option to opt out of this scheme of tax shall be exercised by:

Individuals or HUF having income from business or profession, on or before the

due date specified u/s 139(1) for furnishing ROI and option once exercised shall
apply for subsequent AYs. However, he can only once withdraw such option and
pay tax under default tax regime and thereafter he shall never be able to
exercise option of opting out except when he ceases to have business income

Individuals or HUF, having income other than the Income referred above, along
with the return of Income to be furnished u/s 139(1) for a PY relevant to the
AY i.e., he may choose to pay tax under default tax regime in one year and
exercise the option to shift out in another year.

Total income is computed without the following exemption /deduction:

Leave travel concession as contained in Interest u/s 24 in respect of self—occupied

Sec. 10 (5) property referred in Sec. 23(2).

House Rent Allowance as contained in Additional deprecation in Sec. 32(1)(iia)

Sec.10(13A)
Some of the allowance as contained in Various deduction for donation for or
Sec.10(14) expenditure on scientific research contained
in section 35
Allowances to MPs/MLAs as contained in Deduction under section 35AD
section 10(17)

Allowance for income of minor as contained Any deduction under chapter VIA except
in Sec. 10(32) Sec. 80CCD(2), CG contribution towards
Agnipath Scheme under Section 80CCH(2)
and Sec. 80JJAA (for new employment)
Exemption for SEZ. unit contained in Section 16(ii) and Section 16(iii)
section 10AA

1FIN BY INDIGOLEARN 17.3

Note:

While computing total income, any exemption or deduction for allowances or

perquisites by whatever name called, provided under any other law for time being in
force in India would not be allowed.

While computing total income, set off of any loss

o Carried forward or depreciation from any earlier AY if such loss or depreciation

is attributable to any of the deductions referred above

o Under the head House Property with any other head of income;

would not be allowed.

ALTERNATE MINIMUM TAX [Applicable from AY 2013-14]

Where the regular income-tax payable for a previous year by a person (other than
a company) is less than the alternate minimum tax payable for such previous year,
the adjusted total income shall be deemed to be the total income of such person
and he shall be liable to pay income-tax on such total income at the rate of 18.5%
The total income shall be increased by deductions claimed under heading “C -
Deductions in respect of certain incomes” of Chapter VI-A and deduction claimed
under 10AA to arrive at adjusted total income. Under the existing provisions,
amount deductible under section 35AD is not considered for calculating adjusted
total income.
Section 115JC has been amended with effect from the assessment year 2015-
16. Under the amended provisions deduction claimed under section 35AD (as
reduced by depreciation allowance under section 32) shall also be added to total
income to arrive at adjusted total income.
The provisions of AMT shall not apply to
a) A Hindu undivided family
b) An Individual or
c) An Association of persons or Body of Individuals (whether incorporate or not)
or
d) Any other artificial juridical person, if the adjusted total income of such person
does not exceed ₹ 20,00,000.

The sections included in the aforesaid Part C of Chapter VI-A are like sections
80HHC, 80-IA, 80-IB, 80-QQB, 80-RRB etc

Tax credit shall be allowed to the extent of the excess of the AMT paid over the
regular income-tax. This tax credit shall be allowed to be carried forward up to the
fifteenth assessment year immediately succeeding the assessment year for which

1FIN BY INDIGOLEARN 17.4

 such credit becomes allowable. It shall be allowed to be set off an assessment year
in which the regular income-tax exceeds the AMT to the extent of the excess of
the regular income-tax over the AMT.

1FIN BY INDIGOLEARN 17.5