TAXATION

BY
PRADEEP PRAJAPATI
 DIRECT TAX

Chapter 1 : Basic Concept

Tax

Source of Revenue for Govt. (Article 246)

DIRECT TAX INDIRECT TAX

Burden of tax cannot be shifted to Burden of tax is shifted to

other person other person

Eg. Income tax, Profession tax etc. Eg. GST, Custom Duty etc.
 INCOME TAX

As per Income Tax Act, 1961 Income Tax is levied on Total Income of a person earned during the
Previous year immediately preceding the Assessment year.
Total income

Heads of Income

Income Income Income Capital Income

from from house From business or Gains from other
Salary property profession sources

IFS IFHP IFB CG IFOS

Employer Rental Profits or Transfer of All other

& Income gains from capital asset income
Employee from business or
Relationship House profession
property
 PERSON

1) Individual :- Natural Person

2) HUF:- Hindu Undivided Family
3) Company :- Indian company, foreign company or entity declared by CBDT as company
4) Firm :- Partnership Firm, LLP.
5) AOP/BOI:- Association of person (Natural and Artificial), Body of Individual (only Natural
Person)
6) Local Authority:- Municipal corporation, Gram Panchayat etc.
7) Artificial Juridical Person:- Created under special Act. e.g. LIC, University etc...

Previous year :- It means the financial year immediately preceding the assessment year.

Assessment year :- Period of 12 months Commencing on 1st April every year.

Assessment:- Process of computing Income and Tax on income.

Assessee:- It means a person by whom any tax or any other sum of money is payable under the Act.
Chapter 2. Residential status & Scope of Total Income

Residential status of Individual

Basic conditions [Sec 6(1)] No. of days Satisfied or

stay in India not satisfied
1) Stay in India for 182 days or more in current P.Y.
OR
2) Stay in India for 60 days or more in current PY.
[AND]
365 days or more during Last 4 PY's
Additional conditions [sec. 6(6)]
1) Resident for 2 PY or more in Last 10 PY's
[AND]
2) Stay in India for 730 days or more during Last 7 PY's.
*Imp. Points:
1. If anyone Basic condition is satisfied then person is Resident otherwise Non-Resident
2. If a person is Resident then check additional condition.
3. If Additional condition is satisfied then ROR Otherwise RNOR.
Exceptional case (2nd Basic condition not applicable)
1) Indian citizen Leaving India for employment Outside India.
2) Indian citizen being a crew member of Indian ship, Leave India during PY.
3) Indian citizen or person of Indian origin comes to India for visit & his total
income. is up to Rs 15 lakhs (other than foreign income).
Amendment
4) Indian citizen or POI comes to India for visit having total income more than
Rs 15 lakh then 2nd basic condition will be applicable but instead of 60
days consider 120 days.
5) If above person (point 1) stay in India for 120 days or more but less than
182 days then he will be treated as RNOR. (Don't check Additional
conditions)
6) If above person (point 1) is not resident in any country & is not liable to pay
tax in any other country, then he will be deemed to R but NOR.
 Income Tax
Computation of Total Income
Particulars Amt
IFS
1) Income From Salary XX
2) Income From House Property XX IFHP
3) Income From Business/profession XX IFB
4) Capital Gains ( STCG / LTCG ) XX CG
5) Income From Other Sources XX IFOS
GROSS TOTAL INCOME XXX
Less: Deduction u/ch. VI-A XX
NET TAXABLE INCOME XXX

Tax@- %
Income From Salary
Important Points
1. Income is taxable under this head if there is Employer & Employee Relationship.
2. Salary is taxable on Due OR Receipt basis whichever is earlier.
3. Salary received by Partner shall be taxable under the head IFB.
4. Salary received by MP/MLA/MLC shall be Taxable under the head IFOS.
5. Contract of service shall be treated an IFS
6. Contract for service shall be treated an IFB
7. Salary forgone is always Taxable (It is mere application of income)
8. Amount received before joining employment or after cessation of employment shall be treated as
Profit in lieu of salary & Taxable as IFS.
 Statement Of Income from Salary
(Name of Assessee : PY 21-22 , AY- 22-23)
Particular Notes Amt
 Basic Salary 1 XX
 Dearness Allowance (DA) 2 XX
 Commission 3 XX
 Bonus 4 XX
 Advance Salary/Arrears of Salary 5 XX
 Gratuity 6 XX
 Pension 7 XX
 Leave Salary 8 XX
 Provident Fund 9 XX
 Super Annuation Fund 10 XX
 Voluntary Retirement Compensation 11 XX
 Retrenchment Compensation 12 XX
 Allowance 13 XX
 Perquisites 14 XX
GROSS SALARY XXX
Less: Deduction U/s 16
 Professional Tax 15 XX
 Entertainment Allowance 16 XX
 Standard Deduction 17 XX
NET SALARY XXX
NOTE 1:- Basic Salary
 It is fully Taxable

NOTE 2:- Dearness Allowance (DA)

 DA is fully taxable whether it is ‘in terms' OR not in terms’.
 In terms means forming part of retirement benefit calculation.
 In all the formula, generally DA in terms is considered.
 If nothing is mentioned then assume DA not in terms.

NOTE 3:- Commission

 Commission is fully taxable whether it is turnover commission or any other
commission.

NOTE 4:- BONUS

Received Declared

Taxable Ignored
NOTE 5:- Advance Salary/ Arrears of Salary

 It is taxable on Receipt basis

 Advance or Advance against salary shall be ignored (It is a loan and
not an income)

NOTE 6:- Gratuity

Received Received at
during employment retirement

Fully taxable for all Exempt u/s 10(10)

Government Employee Other Employee

Fully Exempt

POGA Employee Non POGA Employee

Exemption=Least of following Exempt=Least of following

1. 15/26 * salary p.m. * No. of yrs. of service 1. ½ * salary p.m. * No. of yrs service.
2. Actual Amt 2. Actual Amt
3. Max. Rs. 20,00,000 3. Max. Rs. 20,00,000

Salary means
Salary means
Avg. Basic [Last 10m]
Latest Basic p.m. (+) Latest DA. (+) Avg DA(T) [Last 10m]
(Both) p.m. (+) Avg T/O Comm[Last 10m]
Rounding off years allowed if Rounding off years not allowed
fraction is more than 6 month
 NOTE 7:- Pension

Uncommuted Commuted
(Monthly Basis) (Lumpsum amt.)

Taxable for all

Exempt u/s 10(10A)
Employees

Govt. Employee Other Employee

Fully Exempt

Gratuity Received Gratuity Not Received

[Total pension * 1/3 ] [Total pension * 1/2 ]

 NOTE 8:- Leave Salary

During Employment At Retirement

Taxable for all Exempt u/s 10(10AA)

Employees

Govt. Employee Other Employee

Fully Exempt Exempt Amt

1. Leave Credit* Avg. Sal p.m.
2. 10 months* Avg. Sal. p.m.
3. Actual Amt.
4. Max 3,00,000
Avg sal. p.m. means
Avg Basic [Last 10 Months]
Avg DA(T) [Last 10 Months]
Avg T/O Comm [Last 10 Months]

Last 10 months up to date of retirement

Leave credit = Leave Allowed – Leave taken
Leave allowed max 30 days for every completed year of service.
 NOTE 9 :- Provident Fund

a) SPF b)RPF c)UPF

a)SPF(Statutory Provident Fund)

Interest
(Exempt)
Employee Employer
Contribution Contribution
Dedn u/s Ignore (Exempt)
80c SPF

Lumpsum Amt at Retirement

Exempt u/s 10(11)
 b) RPF(Recognized Provident Fund)

Interest
(Ex upto 9.5%pa)
Employer’s
Employee’s Contribution
Contribution (Ex upto 12% of salary)
Ignore RPF
Dedn u/s 80c

Lumpsum Amt at Retirement

Exempt u/s 10(12)
#Imp.Point
1. Lumpsum amount received from RPF is exempt if employee has rendered
service of 5 year Or more.
2. If above condition is not satisfied then exemption allowed in respect of
employer's contribution and Interest shall be withdrawn.
3. Exception to above condition:-
a) Retired due to ill health
b) Shutdown of employer’s business
c) Balance in RPF is transferred to new employer.
 c) UPF (Unrecognized Provident Fund)
Interest
(Exempt)
Employee Employer
Contribution Contribution
Ignore (Exempt)
URPF

Lumpsum Amt at Retirement

Int. on ER Contribution Int. on

EE Contribution ER Contribution
EE Contribution

Ignore Taxable as IFOS Taxable as IFS Taxable as IFS

 NOTE 10:- Super Annuation Fund

a)Approved Super Annuation Fund (ASF) a)Unapproved Super Annuation Fund (ASF)

a) ASF (Approved Super Annuation Fund)

Interest
(Exempt) ER Contribution
EE (Exempt upto Rs
Contribution 150000)
Ignore
ASF

Lumpsum Amt at Retirement

Exempt u/s 10(13)
b) USF (Unapproved Super Annuation Fund )

Treated same as UPF

NOTE 11:- VRS (Voluntary Retirement Scheme)

Exempt u/s 10(10 C)

1. Sal.p.m. x 3months x No. of yrs. Completed (Ignore Fraction)

2. Sal. p.m. x No. of Remaining months of service
3. Actual Amt received
4. Max. Rs 500000

# Salary p.m.= Basic + DA(T) + T/O Comm

NOTE 12:- Retrenchment Compensation

Exempt u/s 10(10 B)

1. 15/26 x Sal. p.m. x No. of yrs.
2. Compensation as per Industrial Dispute Act
3. Max. Rs 500000

# Sal. Means = Basic + DA(T) + T/O Comm

# Avg. salary of last 3 months
# Rounding off years is allowed if fraction is more than 6
months
NOTE 13 Allowances

Name Of Allowance Exempt u/s 10(14)

1. Children Education Allowance 1. Max. Rs. 100 p.m.p.c. (max 2 children)

2. Children hostel allowance 2. Max. Rs. 300 p.m.p.c. (max 2 children)
3. Underground (mines) allowance 3. Max. Rs. 800 p.m.
4. Tribal area allowance 4. Max. Rs. 200 p.m.
5. Transport (commutation) 5. Max. Rs. 3200 p.m.(If blind/deft/dumb/handicap)
6. Allowance to employee of transport undertaking 6. 70% of Amt received OR Rs 10000 ( )

7. Travelling/Tour Allowance
8. Conveyance Allowance
9. Uniform Allowance Amt Exempt = Amt Spent
10. Daily Allowance
11. Helper Allowance
12. Research Allowance
 HRA (HOUSE RENT ALLOWANCE) Exempt
u/s 10(13 A)

a) 40%/50% of salary (BS + DA(T) + TOC)

b) Actual Amt Received
c) Rent Paid – 10% of salary (BS + DA(T) + TOC)

#Other Allowance Fully Taxable

Note 14 : Perquisites uls 17(2)

# It means personal benefit given by employer to employee. It may be monetary

or non-monetary(facility).

Allowances Perquisites

1. Fixed Amount is given to 1. Facility or personal benefit is given

employee. to employee.
2. It is received whether actual 2. It is received when actual
expenditure incurred or not. expenditure incurred.
3. Example 3. Example
Medical Allowance Medical facility
Travelling Allowance etc. Car Facility etc.
 Leave Travel concession (LTC)

Exempt uls 10(5)

Travel by Air Travel by other mode

Exempt
1. Actual exp
2. Economy-class fare (Air India)

Railway facility Available Railway facility Not Available

Exempt
1. Actual exp
2. 1st Class AC Rail Fare

Recognised Transport facility Available Recognised Transport facility not Available

Exempt Exempt
1. Actual exp 1. Actual exp
2. Deluxe class bus fare 2. 1st Class AC Rail fare
(of similar Distance)
 Additional Point

1. LTC exemption is available for the travel of employee, spouse, children and
dependent Relative (Mother Father Brother & Sister)
2. LTC exemption is available only for 2 children born on or after 1.10.1998.

1st Time 2nd Time Children eligible

1 Child 2 Children 3 Children
2 Children 1 Child 2 Children

3. LTC exemption is available for 2 yrs. During the block of 4 yrs. (Current
block is 2018 to 2021)
Medical facility
Treatment In India

Govt Hospital
Recognized by Govt. Otherwise
Employer's own
Fully Exempt Fully Taxable
Treatment Outside India

Benefit of Treatment Benefit of stay Benefit of Travel

It is fully Exempt if GTI is up to Rs. 200000

Exempt up to Amt
Prescribed by RBI Otherwise fully Taxable

Additional Point:-

1. Medical Insurance Premiums is fully Exempt.

2. Exemption for treatment is allowed for employee, spouse, children & dependent relative(father,
mother, Brother, sister)
3. Exemption of Stay & Travel is allowed only for One patient & One attendant,
 Car facility

Fully office Fully personal Partly Office &

use use Partly Personal (POPP)

Fully Exempt fully Taxable

Car owned by Employee Car owned by Employer

Running & maintenance Running maintenance

Charges paid by charges paid by

Employee Employer Employee Employer

Taxable Amt Taxable Amt
No Benefit no Tax Taxable Amt
Amount received XX Rs. 600 pm Rs.1800 pm
(-)1800p.m./2400p.m. (up to 1600 cc) (up to 1600 cc)
OR OR
Up to 1600 cc >1600 CC Rs. 900 pm (>1600cc) Rs 2400 pm(>1600cc)
# Additional Point
1. If employer provides driver, then Rs 900 pm will be added in above limits.
2. If more than 1 car is given for POPP then 1 car will be treated as per above Rule and all other cars will be treated like fully
personal use.
 Educational Facility

For Employee For Children For Others

Fully Exempt fully Taxable

Value of Education Value of Education

Is upto Rs.1000 pmpc Is more than Rs.1000

Fully Exempt fully Taxable

Note 15: Professional Tax

Paid by

Employer Employee
First Addition (Taxable) No Addition

Then Deduction uls 16 only Deduction

Note 16: Entertainment Allowance

First Addition Then Deduction

Taxable for all Only to Govt Employee

Employee
Least of fallowing
1. 20% of Basic
2. Actual Amt
3. Max Rs. 5000
Note 17: Standard Deduction
1. Rs. 50000
2. Amt of Salary
 INCOME FROM HOUSE PROPERTY [IFHP]
Rental Income (Annual value) is taxable under the head income from house
property if fallowing two conditions are satisfied:-

1. There should be house property.

2. Assessee should be Owner of that house Property
Types of house Property

LOP SOP

Always taxable SOP(R) SOP(B)

Ignore
2 SOP Remaining
Exempt DLOP
Taxable
LOP = Let out property
SOP(R)= Self Occupied Property for Resident
SOP(B)= Self occupied property for Business
DLOP = Deemed to be Let out Property
 Computation of Income From House Property

Particulars SOP(R) LOP DLOP

Municipal value NIL XX XX

Fair Rent NIL XX XX
Whichever is higher NIL XX XX
Standard Rent NIL XX XX
Expected Rent NIL XX XX
Actual Rent NIL XX ---
Gross Annual value(GAV) NIL XX XX
(-) Municipal Tax Paid NIL XX XX
Net Annual value (NAV) NIL XX XX
(-)Deduction u/s 24
(i)Standard Deduction NIL (XX) (XX)
(30 % of NAV)
(ii) Interest on loan (XX) (XX) (XX)
Income from HP (XX) XX XX
 NOTE 1: Interest On Loan

LOP/DLOP SOP(Max 2 house)

No Limit
Normal case
Total interest
Allowed Max. Rs. 30000
Allowed

Special case

1)A Loan is taken on or after 1.4.1999

+
2) Loan is taken for Purchase/construction
+
3) Construction should be Completed within 5 years

Max.Rs.200000

# Pre-construction period interest will be allowed in 5 equal

Installment from the year in which construction is completed.
Note 2: Recovery of Unrealized Rent & Arrears of Rent

# It will be taxable in the year in witch it is recovered whether

assessee is owner or not in that previous year [Financial Year]

# Taxable Amt = 70% of Recovery

Note3: Partly Let out Property [PLOP]

Timewise Area wise

LOP for Part of year

+ Some Area Some Area
SOP for Part of year
LOP SOP
Treated as LOP Treated as LOP Treated as SOP

• Divide All amt in the ratio of area, except

• Actual Rent is taken in LOP Column.
 NOTE 4:- Composite Rent

Rent of HP (+) Rent of other Assets

Agreement is separable Agreement Not Separable

Total Rent
Rent of HP Rent of other
Taxable as IFB/ IFOS
Taxable
Asset as IFHP
Taxable as IFB/ IFOS

Note 5 Joint Ownership(Co-ownership)

# Income from HP will be calculated Normally & thereafter it will be divided

among co-owners in the ratio of ownership.

# Interest on Loan

LOP/DLOP SOP
Total interest Allowed Rs. 30000 OR Rs. 200000
(X) No. of Co-owners
NOTE 6: Deemed Owner

1. If any individual transfers any house Property to his/her spouse for low
consideration or no consideration then such individual is treated as
deemed owner of such property.

Exception: Transfer in connection with Agreement to live apart.

2. If any individual transfers any house property to a minor child (other than
minor married daughter) for without consideration or inadequate consideration
then such individual is treated as deemed owner.

3. In case of co-operative society. shareholder is treated as deemed owner of

such property.

4. Holder of an impartible estate.

 INCOME FROM BUSINESS/PROFESSION
Statement of Income from Business [DIRECT METHOD]
Particulars Rs.
GROSS BUSINESS INCOME:
Sec 28 : Business Income XX
Sec 41: Deemed Business Income XX
LESS : DEDUCTIONS u/s 30 to 37:
Sec 30: Rent, Rates, Repair and Insurance of Building XX
Sec 31: Repair and Insurance of Plant and Machinery, Furniture XX
Sec 32: Depreciation XX
Sec.33 AB: Deduction for Tea, Coffee & Rubber Business XX
Sec 33 ABA: Deduction for Petroleum & Natural Gas Business XX
Sec 35 : Scientific Research XX
sec 35 ABB: Telecommunication License Exp. XX
Sec 35 CCC: Agriculture Extensions Project XX
Sec 35 CCD: Skill Development Project. XX
Sec 35 D : Preliminary Exp. XX
Sec 35 DD: Amalgamation & Demerger Exp. XX
Sec 35 DDA:VRS Expenses XX
XX
Sec 35 AD: Specified Business XX
Sec 35 E : Expenses an Mining of coal / Iron etc. XX
Sec 36 : Specific Deduction XX
Sec 37 : General Deduction XX

Taxable Income from Business (Net Profit As per Income Tax Act) XXX
Section 28 : Charging section.

1. Profit or Gain of any business / profession.

2. Profit on sale of import entitlement license.
3. Export incentive (cash compensatory support or duty drawback)
4. Amount received under Key-man Insurance policy.
5. Gift / Benefit / Perquisite arising due to business/profession.
6. Salary/commission/ Bonus/ Interest received by partner from partnership firm [ to the extent
allowed u/s 40(b) to firm ].
7. Non compete fees
8. Govt. Grant or Subsidy received from Govt.
9. Fair market value of stock on conversion to Capital Asset.
10. Etc.

Section 41: Deemed Business income

11. Recovery against any deduction already claimed (E.g. LBF - Insurance claim)
12. Balancing charge.
13. Sale of scientific Research Assets.
14. Recovery of Bad debts.
 Sec 30 : Rent Rates Repair & Insurance of Building

Capital Repair Other

Not Allowed Allowed

Added to cost of Asset

Sec. 31: Repair & Insurance of P&M and Furniture

Capital Repair Other

Not Allowed Allowed

Added to Cost of Asset

Sec 32 Depreciation.

As per Books As per Income Tax Act

Not Allowed Allowed

Rates of Depreciation
Assets Rate (%)
1) Building
a) Residential 5
b) Commercial 10
c) Temporary Structure 40
2) Furniture & Fitting 10
3) Plant & Machinery
a) Motor Vehicles
i)Used for hiring business 30
Acquired & put to use [23.8.19 to 31.3.20] 45
ii) Other motor vehicle 15
Acquired & Put to use [23.8.19 to 31.3.20] 30
b) Ships 20
c) Air Craft 40
d) Computer/Laptop 40
e) Books 40
f) Windmills & it's equipment.
Installed before 1.4.2014 15
Installed on or after 1.4.2014 40
g) Pollution control Equipment 40
h) Oil wells 15
i) Other P&M 15
4) Intangible Asstes 25
Calculation of Depreciation [Block of Asset ]
Particulars Rs.

Opening WDV of block XX

Add: Actual cost of Asset Acquired during PY.
Put to use for 180 days or more XX
Put to use for less than 180 days XX
Acquired But not put to use XX
XX
Less: Asset transferred [Sale Price] XX
XX

Asset Acquired Used for Balance

But no put to use less than 180 days.
Full Rate Depn.
No Depreciation Half Rate Depn.
 See 33 AB : Deduction for Tea, coffee & Rubber Business

(1) Actual Amount Deposited in NABARD

(2) [40%] of Taxable Business Income (Before this Deduction)

Sec. 33 ABA: Deduction for Petroleum & Natural Gas Business.

(1) Actual Amount Deposited in SBI (Site Restoration A/C)
(2) 20% of Taxable IFB ( Before this deduction)

Sec. 35: Scientific Research

In house Research Contribution to outsider

C

Before Commencement During course of

of business business

A B
 A) INHOUSE RESEARCH (BEFORE COMMENCEMENT)
(Max 3 yrs. before the date of commencement)

Revenue Exp. Capital Exp.

Salary [Excl Perq.] Other Exp Land Other Exp

&
Materials Not Allowed 100% Dedn.

100% Dedn. Not Allowed

(B) INHOUSE RESEARCH(AFTER COMMENCEMENT)

Revenue Exp Capital Exp.

100% Dedn. Land Other Exp.
No Dedn. 100% Dedn.

Note: If assessee is compony engaged in manufacturing or Bio-technology business and Research is approved,
then 100% Dedn. will be allowed for all Exp. except Land.
 C) CONTRIBUTION TO OUTSIDERS

To Approved To IIT To Approved Indian

R = Research Association National Co Engaged in R&D
U = University Laboratory
C = College
I = Institute for Scientific for Scientific
Research Research

for Social & for Scientific 100% Dedn. 100% Dedn.

Statistical Research
100% 100% Dedn
 Sec 35 ABB : Telecommunication Licence

Licence obtained before Licence obtained after

commencement of business commencement of business
Deduction shall be allowed Deduction shall be allowed
from the PY in which business From PY in which fees paid till licence
commences till licence expires expires

Sec 35 CCC :- Expenditure on Agriculture Extension Project

Land & Building Other Exp.

Not Allowed 100% Dedn.

Sec 35 CCD :- Expenditure on Skill Development Project

Land & Building Other Exp.

Not Allowed 100% Dedn.
Note :- This deduction is allowed only to companies.

Sec 35 D: Preliminary Expanses

# Deduction is allowed In 5 Equal Installment
# Amount of Deduction

Indian co. Other Resident

1. Actual expenses 1. Actual expenses
2. 5% of (COP/CE) 2. 5% of COP

Sec 35 DDA: Expenditure on VRS

# Deduction is allowed in 5 equal installment

Sec 35 AD:- Specified Business
# This section is optional for Assessee.
# 100% Deduction is allowed on specified business if prescribed condition are satisfied.
# Specified Business

1. Cold chain facility.

2. Naturel GAS or cross country oil pipeline.
3. Hotel of 2 Star or above category.
4. Hospital with at least 100 beds for patient.
5. Housing project of Govt.
6. Production of fertilizers in India
7. Inland container Depot.
8. Honey Production
9. Warehousing facility for storage of Sugar
10. Warehousing facility for Storage of agriculture produce.
11. Slurry pipeline for transportation of Iron ore
12. Semicondutor Wafer Fabrication Manufacturing Unit
13. Developing, Maintaining & Operating New Infrastructure Facility
 Sec 36: Specific Deductions
1. Insurance premium of stock.
2. Health/medical insurance premium paid for employees (other than cash).
3. Bonus or commission paid to employees.
4. Interest on loan taken for business.
5. Discount on Zero Coupon Bonds
6. Employer’s contribution towards PF, Super Annuation fund, Gratuity fund etc.
7. Employer’s contribution towards Pention Scheme u/s 80 CCD
8. Employee’s contribution towards PF, Super Annuation fund, Gratuity fund etc.
9. Animal used in business (other than stock in trade)
10. Bad debts (Actual).
11. Family planning expenditure by Co. (Revenue 100%, Capital = 5 instalment)
12. Securities Transaction Tax (STT)/Commodities Transaction Tax (CTT)
13. Purchase of sugar cane by Co-op.Soc. engaged in manufacture of sugar
14. Marked to Market Loss or expected loss as per ICDS
Sec 37: General Deduction
# Any other expenditure incurred is allowed as deduction if-
a. It is Revenue expense & not Capital Exp.
b. It is incurred for business & not for personal purpose.
c. It should be legal expense.
Statement of Income from Business [INDIRECT METHOD]
Particulars Rs.
NET PROFIT AS PER BOOKS (P&L A/C) XXX

1) ADD : DISALLOWED EXPENSES (P/L DR. X)

------------------
------------------ XXX
2) LESS : NON - BUSINESS INCOME (P/L CR. X)
------------------
------------------ XXX
3) LESS : UNRECORDED BUSINESS EXPENSES (UBE)
------------------
------------------ XXX
4) ADD : UNRECORDED BUSINESS INCOME (UBI)
-----------------
----------------- XXX

NET PROFIT AS PER INCOME TAX (TAXABLE IFB) XXXX

 CAPITAL GAIN
Sec 45(1): Charging section
Capital Gain will arise if
1) There is Capital Asset
&
2) Transfer of such Capital Asset in PY

Sec 2(14) Definition of Capital Asset :

Capital Asset means. -
(A) Property of any kind held by assessee whether or not connected with business or profession.
(B) Any securities held by a foreign Institutional Investor [FII].
Capital Asset Excludes :
2) Movable personal property.
3) Rural Agriculture Land in India.
4) Stock in trade.
5) Gold Deposit Bonds, 1999 or Deposit certificate issued under the Gold monetization scheme 2015.
Capital Asset includes -
1) Jewellery
2) Sculpture
3) Archaeological collection
4) Any other work of Art
5) Paintings / Drawings

See 2 (47): Definition of Transfer.

Transfer Includes —
6) The sale, exchange of the asset or relinquishment
7) The extinguishment of any right there in, or
8) Compulsory acquisition there of under any law, or
9) Conversion of capital asset into stock in trade or
5) Allowing possession of any immovable property to be taken or retained in part performance of a contract.
6) Any transaction (like becoming a member of, or acquiring shares in a co-op. society)
which has the effect of transferring or enabling the enjoyment of immovable property.
7) The redemption of zero coupon Bonds (ZCB).
Sec 47: Transactions not regarded as Transfer (Exempt Transfer)

1) Transfer under gift, will etc. (Previous owner)

2) Distribution on Total / Partial Partition of HUF
3) Transfer Distribution under amalgamation/ merger/demerger of companies.
4) Transfer of capital Asset between subsidiary & holding co.
5) Conversion of Bond/ Debentures into shares.
6) Conversion of LLP or pvt. Co. into Public Co.
7) Transfer of capital Asset under reverse mortgage..
 Types of Capital Asset

Period of Holding is up Period of Holding

to specified Time limit Beyond specified Time

Short Term Capital Asset [STCA] Long Term Capital Asset [LTCA]
Short term capital gain [STCG] Long Term Capital Gain [LTCG]

Specified Time Limit for Period of Holding

Capital Asset Time Limit

a) Listed shares or securities in RSE in India. 1 yr.

b) Units of UTI / Equity Oriented ME. 1 yr.
c) Zero Coupon Bond 1 yr.
d) Unlisted shares. 2 yrs.
e) Immovable Property 2 yrs.
f) Any other Asset 3 yrs.
Computation of capital gain [STCG]
Particular Rs.

Full value of consideration [FVOC] XX

(-) Transfer Expenses. XX
Net Consideration. XX
(-) Cost of Acquisition [COA] XX
(-) Cost of Improvement [COI] XX
STCG XXX

Computation of capital Gain [LTCG]

Particular Rs.
Full value of consideration [FVOC] XX
(-) Transfer Expenses. XX
Net Consideration. XX
(-) Indexed Cost of Acquisition [ICOA] XX
(-) Indexed Cost of Improvement [ICOI] XX
LTCG XXX
ICOA = Cost of Acquisition X CII [year of Transfer]
CII [year of Acquision
Or 01-02 WEL]
ICOI = Cost of Improvement X CII [year of transfer]
CII [year of Improvement]
 Computation of Income from other sources Rs. Rs.
 Agricultural income from countries other than India XX
 Salary of MP/MLA/MLC XX
 Award XX
Less: Exempt u/s 10(17) if received from Govt. XX XX
 Bank interest XX
 Dividend income XX
Less: Interest on loan up to 20% XX XX
 Winning from lottery etc. XX
 Employees’ contribution to PF XX
Less: Paid/Credited within due date XX XX
 Interest on securities XX
Less: Exempt u/s 10 (15) XX
Less: Realisation charges/interest on loan XX XX
 Rent from Machinery/Furniture XX
Less: Repair/Insurance/Depreciation XX XX
 Family pension XX
Less: Standard deduction (lower of 1/3 or 15000) XX XX
 Gifts (more than rupees 50000 from non - relative) XX
 Keyman insurance policy XX
 Shares of Private company without consideration XX
 Premium on shares by private company XX
 Interest on compensation/enhanced compensation XX
Less: 50% of such interest XX XX
 Advance for transfer of capital asset forfeited XX
 Any other income which is not taxable under any other heads and not exempt XX
TAXABLE INCOME FROM OTHER SOURCES XXX
 Deduction under chapter VI-A Rs. Rs.
Section 80 C : Investments 150000
Life insurance premium XX
Deferred annuity XX
Deferred annuity by government XX
Contribution to PPF/SPF/RPF/SAF XX
Post office cumulative time deposit XX
National saving scheme (NSS) XX
National saving certificate (NSC) XX
Unit Linked Insurance Plan (ULIP) XX
Equity Linked Saving Scheme (ELSS) XX
Dhanraksha XX
Jivan Dhara/Jivan akshay XX
Pension fund of MF/UTI XX
Home loan account of national housing Bank XX
Housing finance deposits XX
Repayment of Principal amount of Housing Loan XX
Tuition fees XX
Infrastructure debentures/shares/units XX
Bank FD for 5 years XX
NABARD Bond XX
Senior citizen saving scheme XX
Post office 5 years time deposit XX XXX
Section 80 CCC : Investments 150000
Premium for pension plan of LIC XX
Section 80 D : Medical insurance
Self/Spouse/dependent children 25000
Parents 25000
Additional (senior citizen) 25000
Section 80 DD : Maintenance of Handicapped 75000/125000
Section 80 E : Interest on higher education loan INTEREST AMT.
Section 80 TTA : Interest on deposit in saving account 10000
Section 80 TTB : Interest on deposit in saving account (senior citizen) 50000
Section 80 U : Blind/Handicapped/Retarded 75000/125000
Total deductions (Limited To Adjusted GTI=GTI-LTCG-WINNINGS) XXX
CLUBBING OF INCOME
Income of Minor Child

Revocable transfer Asset transferred to spouse

Clubbing
Income Transferred without
transfer of asset of Asset transferred to son’s wife
Income

Assets transferred to any

person
Asset transferred to HUF
Benefit

Assets transferred to any

person Spouse

Benefit

Son’s Wife
 Substantial Interest
Sal
ar y
Concern Co
h ar
e Bo mmi
% S nu ssio
20 s n

Assessee Clubbed Spouse

 Cross Transfer

Mr. A Mr. B
10 L
Int=1L Int=1L
12 L

Mrs. A Mrs. B
A. General
Provision

Section 60 Section 61

Transfer of Income without Income arising from

transfer of asset transferred asset

Revocable Transfer Irrevocable transfer

Income Taxable in the
hand of transferer

Income Taxable in the Income Taxable in the

Clubbed hand of transferer hand of transferee

Clubbed Not Clubbed

B. Clubbing of Spouse Income Sec(64)

Remuneration to spouse Income arising to spouse from

from a concern in which asset transferred without Income From asset
individual has substantial consideration or for inadequate transferred to other
interest consideration person without
consideration/Inadequat
e consideration for the
Taxable in the hand benefit of spouse
Taxable in the hand of transferer
of Individual

Clubbed Taxable in the

Clubbed
hands of
Exception transferer
Exception
a) Income earned by investing such income Clubbed
If Spouse has b) Income from accretion of transferred asset is not
technical/ clubbed
Professional c)If Transferred asset is invested by spouse in
knowledge business then

Income X Asset transferred (1st day of P.Y.)

Total Investment/ Capital (1st day of
P.Y.)

Clubbed
C. Clubbing of Son’s Wife Income

Income arising to son’s wife from asset Income from asset transferred to other person
transferred without consideration or for without consideration/inadequate consideration
inadequate consideration for the benefit of son’s wife

Taxable in the hand of transferer

Taxable in the hand of
transferer
Clubbed

Exception Clubbed

a) Income earned by investing such income.

b) Income from accretion of transferred asset is not dubbed
c) If transferred asset is invested by spouse in business then

Income X Asset transferred (1st day of P.Y.)

Total Investment/ Capital (1st day of P.Y.)

Clubbed
D. Clubbing of Minor Child Income
[Sec 64(1 A)]

Clubbed Not Clubbed

In the hand of parent Income is due to manual

whose income is more work

Subject to exemption
Income is due to skill
u/s 10 (32) Rs. 1500 p.a.
and talent
per minor child

Suffering from disability u/s

80U
E. Cross Transfer
Mr. A Mr. B
10 L 12 L

Clubbed Clubbed Rs. 100,000

Rs. 100,000

Mrs. A Mrs. B
Int. = 120,000 Rs. 100,000

F. Asset Transferred to HUF [Sec 64(2)]

Individual HUF
Transferred Asset
(Inadequate Consideration)
🚹 🚹🚹🚹
Income Clubbed
SEC 65: Notice of Demand
AO can also serve notice of demand for payment of tax to the person to whom asset is transferred in case of clubbing.
SET OFF OF LOSSES IN THE SAME P.Y.
SET OFF OF LOSSES

Sec 70 Sec 71
Intra head adjustment Inter Head Adjustment

Set off from different head

Set off from same head of
of income ( but same in
income
same P.Y.)

Exception Exception

}
1) Speculative Business loss <-> Speculative Business Income
2) Specified Business Loss <-> Specified Business Income
3) Long term Cap. Loss <-> Long term Cap. Earn Same
4) Loss of o/m race horse <-> Income of o/m race horse

5) STCL->STCG/LTCG
6) Business loss -> Salary
 CARRY FORWARD OF LOSSES & SET OFF IN SUBSEQUENT YEARS
Mandatory
Section Losses Carry Forward Set off against Time Limit
return filing

71 A Losses from house property Income from house property 8 years No

72 Normal business loss Normal business income 8 years Yes

73 Speculative business loss Speculative business income 4 years Yes

Unlimited
73A Specified Business loss Specified business income Yes
years

Short term capital loss STCG/LTCG 8 years Yes

74
Long term capital gain LTCG 8 years Yes

Losses from opening &

74A Income from o&m Race horses 4 years Yes
maintaining race horses

Unlimited
32(2) Unabsorbed depreciation Any income other than salary No
years
COMMON POINTS:
TDS (TAX DEDUCTED AT SOURCE)
1) TDS is applicable only if amount is taxable in the hands of receiver.
2) TDS is deducted at the time of

}
a) Payment
or Whichever is earlier
b) Crediting the account of payee
3) In the following cases TDS is deducted only at the time of payment
a) Salary
b) EPF
c) Winning
d) Maturity of life Insurance
e) Compensation on compulsory acquision
f) Cash withdrawal from bank
g) Dividend
4) All the TDS rates are fixed rate i.e. 1%/2%/5%/10% but if payment made to NRI/ Foreign Co. or payment of salary then surcharge & HEC shall
be considered.
5) If the Payee does not furnish his PAN to the payer, the TDS rate shall be
a) Rate as per respective section

b) 20%
or
} Whichever is higher

6) If Payment is made by payer without TDS, then payee shall be responsible to make payment of tax directly. But if tax is deducted but not
deposited by payer then payee is not liable for such tax.
 TDS SUMMARY
Section Payment Payer Payee Rate Note

Consider other income & deduction also

192 Salary Any person Employee Slab rate
but not any loss except HP loss.

Accumulated
192 A Any person Employee 10% No TDS if amount is less than Rs. 50,000
balance of P.F.

Any person
Interest on Resident 10%
193 [14/5/20 to No TDS if paid to LIC/GIC, on govt. securities etc.
Securities 7.5%
31/3/21]

No TDS if paid to Individual, Rs 5,000

194 Dividend Domestic Co. Resident 10%
by any mode other than cash.

No TDS if paid by Bank/Co.op.Bank./Post office

Any person other
194 A Other Interest Resident 10% upto Rs. 40,000 for Sr.Citizen,
than Ind/HUF
Rs. 5,000 for other case etc.

Winnings Any
194 B Any person 30% No TDS if amount is upto Rs. 10,000
(Lottery, etc) Person

Winnings Any
194 BB Any Person 30% -------------------------
(Horse race) Person
Section Payment Payer Payee Rate Note
No TDS if single contract value
Any person other than
194 C Contractor Resident 1%/2% less than Rs.30,000 and
Ind/HUF/AOP/BOI
aggregate upto Rs. 1,00,000
No TDS if amount is upto Rs.
194 D Insurance Commission Insurance Company Agent(Resident) 5%
15,000 p.m.
Payment to entertainer/ NR sport person/
20% + Payment for GAA
194 E association/ Any person entertainer/
Cess (Game/Article/Advertisement)
NR Sports person association

Commission on sale of No TDS if amount upto

194 G Any person Any Person 5%
lottery ticket Rs. 15000 p.a.

Commission & Any person, No TDS if amount upto

194 H Resident 5%
Brokerage Ind & HUF ( 1Cr/ 50L) Rs. 15000 p.a.

Any Person, 10%(L&B) No TDS if amount is

194 I Rent Resident
Ind & HUF ( 1Cr/50L) 2%(P/M) upto Rs. 240,000

No TDS if amount is
Any Person,
194 J Professional fees Resident 10% upto Rs. 30,000
Ind & HUF ( 1Cr/50L)
(Director fees – No limit)
 ADVANCE TAX

1) Advance tax means tax paid in P. Y.

2) Advance tax shall be calculated by estimating the current year income and tax rate.

3) Assessee is required to pay advance tax only if his liability for advance tax is Rs. 10,000 or more except resident senior
citizen, not having income from business.

4) Due Date Amount of advance tax

Upto 15th June upto 15% of advance tax liability
Upto 15th Sept upto 45% of advance tax liability
Upto 15th Oct upto 75% of advance tax liability
Upto 15th Mar upto 100% of advance tax liability
5) NOTE- Any amount of tax paid upto 31st march of PY, will be considered as Advance Tax.
 INTEREST u/s 234 A/B/C/D/E/F

1) Sec. 234 A : Interest for delay in filing return

=(Tax remaining unpaid on 1st day of AY) X (1% p.m.) X (No. of month delayed)
*(Part of month shall be considered as full month)
Note: Credit will be given for SA tax paid upto due date of return filing (SC).

2) Sec. 234 B : Interest for non payment/ short payment of advance tax
=(Adv. Tax unpaid) X (1% p.m.) X (No of month delayed)
*(Part of month shall be considered as full month)
3) Sec. 234 C : Interest for deferment of advance tax instalment
= (Deferred amount) X (1% p.m.) X (3 months for all instalment) except last ( 1 month)
4) Sec 234 D : Interest on excess refund granted
= (Excess refund) X (0.5% p.m.) X (no. of months.)
*(From grant date till assessment completed)

5) Sec. 234 E : Fee for default in furnishing TDS/TCS Statement

RS. 200 per day during default periods
Whichever is lower
OR
TDS Amount

6) Sec. 234 F : Fee for default in furnishing return of income

PY AY
Due date Rs. 5000 Rs. 10,000
of return

Note: If total income is upto Rs. 5,00,000 fees shall not exceed Rs 1000/-