Roots Institute of Financial Markets Rifm: Study Notes Tax Planning and Estate Planning Assessment Year 2011-12

Roots Institute of Financial Markets
RIFM
Study Notes
Tax Planning and Estate Planning
Assessment Year 2011-12

1197 NHBC Mahavir Dal Road. Panipat. 132103 Haryana.
Ph.99961-55000, 0180-2663049 email: info@rifm.in
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Welcome to RIFM
Thanks for choosing RIFM as your guide to help you in NCFM/CFP Certification.
Roots Institute of Financial Markets is an advanced research institute Promoted

by Mrs. Deep Shikha CFPCM. RIFM specializes in Financial Market Education and
Services. RIFM is introducing preparatory classes and study material for Stock
Market Courses of NSE , NISM and CFP certification. RIFM train personals
like FMM Students, Dealers/Arbitrageurs, and Financial market Traders,
Marketing personals, Research Analysts and Managers.
We are constantly engaged in providing a unique educational solution through

continuous innovation.
Wish you Luck……………
Faculty and content team, RIFM

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Our Team
Deep Shikha Malhotra CFPCM
 M.Com., B.Ed.
 AMFI Certified for Mutual Funds
 IRDA Certified for Life Insurance
 IRDA Certified for General Insurance
 PG Diploma in Human Resource Management
CA. Ravi Malhotra
 B.Com.
 FCA
 DISA (ICA)
 CERTIFIED FINANCIAL PLANNERCM
Vipin Sehgal CFPCM
 B.Com.
 NCFM Diploma in Capital Market (Dealers) Module
Neeraj Nagpal CFPCM
 B.Com.
 IRDA Certified for Life Insurance N
NCFM Certification in:
 Capital Market (Dealers) Module

 Derivatives Market (Dealers) Module
 Commodities Market Module
Kavita Malhotra
 M.Com. Previous (10th Rank in Kurukshetra University)

 Certification in all Modules of CFPCM Curriculum (FPSB India)

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Exam Pattern
Test Duration 120 Min.
No. of Questions
1Marks 40
2 Marks 20
75
4 Marks 15
Maximum Marks 140
Pass % 60
Passing Marks 84
Negative Marking Nil
Grade System
Grade Score(percentage)
A Equal and above 80%
B Equal and above 70% and less than 80%
C Equal and above 60% and less than 70%
FAIL Less than 60%

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Curriculum
Tax Planning & Estate Planning
COURSE TITLE: Tax Planning & Estate Planning
COURSE DESCRIPTION: This module would cover the knowledge requirements relating to tax
planning and estate planning for a CFP professional.
LEARNING OBJECTIVES: At the end of this module, a student should be able to:
1. Evaluate the appropriateness of tax strategies for individual family situations.

2. Integrate tax planning into the six step Financial Planning process.
3. To understand the universal nature of estate planning needs.
4. To recognize the high level of ignorance regarding estate planning among the general
population as well as students.
5. To comprehend the fundamental objective of greater efficiency in wealth transfer.
DETAILED CLASS OUTLINE:
Tax Planning Considerations
1. Ethical considerations in tax planning

a. Privileged communications
b. Dangers of tax evasion
2. Tax compliance matters
a. Filing tax returns and documentation
b. Advance tax
c. The audit process
d. Refund of income tax
e. Judicial review
3. Taxation terminology
a. Inclusions
b. Exclusions
c. Deductions
Tax Computations
4. Tax calculations and special rules
a. Gross income
b. Adjusted gross income
c. Itemized deductions
d. Taxable income
e. Tax liability
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f. Clubbing of Income
5. Tax characteristics of business forms
a. Sole proprietorship
b. General partnership
c. Limited liability companies
d. Trusts
e. Foundations/exempt organizations
f. Professional associations/corporations
g. Co-operative Societies
h. Others
6. Non Resident Indians (NRIs)
a. Residential status of individuals

b. Types of accounts for non-residents
c. Investment opportunities for non-residents
d. Tax implication for non-residents
7. Heads of income
a. Salaries
b. Income from other sources
c. Capital gains
d. Business/ profession
e. House property
f. Interest on government securities
8. Capital Gains tax rules
a. Determination of gain or loss

b. Characterization of gain or loss
c. Netting rules
d. Indexation benefits
e. Capital loss limitations
Tax Planning Strategies
9. Tax relief
a. Exemptions
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b. Deductions
c. Rebates
10. Non taxable transactions (e.g., gifts, estate)
11. Tax management techniques
a. Deferral and acceleration

b. Maximizations of exclusions and credits
c. Managing loss limitations
d. Capital asset transactions
e. Deductible expenditures of individuals and business forms
12. Interest and penalty taxes and other charges
a. Failure to file tax return or to pay tax

b. Preparer penalties
c. Accuracy related penalties
d. Fraud/concealment penalties
Estate Planning
13. Features of trust
a. Classification of trusts
b. Characteristics of selected trust provisions
c. Rule against perpetuities
14. Taxation of trust
A. Income tax implications of trusts
a. Exemptions
b. Simple and complex trusts
c. Distributable net income
d. Tax implications of trusts
e. Recommendations and justifications of the most appropriate trust
f. Tax issue on retirement plans at death
15. Property documentation
a. Sale letter/ power of attorney

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b. Freehold
c. Mutation
d. Will
e. Succession

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Assessment Year 2010-11
Index
1. Ethical consideration in tax planning 1-6
2. Tax compliance matters 7-16
3. Taxation terminology 17-26
4. Tax calculations and special rules
27-42
5. Tax characteristics of business forms
6. Non Resident Indians (NRIs) 43-66
7. Heads of income 67-94
8. Capital Gains tax rules 95-176
9. Tax relief 177-190
10. Non taxable transactions (e.g., gifts, estate) 191-208
11. Tax management techniques 209-230
12.Interest and penalty taxes
231-242
and other charges
13. Features of trust 243-248
14.Taxation of trust
15.Property documentation 249-256
257-266
267-297

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CHAPTER
1
ETHICAL CONSIDERATIONS IN TAX PLANNING

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A. Legal meaning of privileged communication
An exchange of information between two individuals in a confidential relationship.
A privileged communication is a private statement that must be kept in confidence by the
recipient for the benefit of the communicator. Even if it is relevant to a case, a privileged
communication cannot be used as evidence in court. Privileged communications are
controversial because they exclude relevant facts from the truth-seeking process.
Privileged communications exist because society values the privacy or purpose of certain
relationships. The established privileged communications are those between wife and husband,
psychotherapist and patient, physician and patient, attorney and client.
If patients were unable to keep secret communications with psychotherapists or physicians
relating to treatment or diagnosis, they might give doctors incomplete information. If doctors
received incomplete information, they might be unable to administer health care to the patient,
which is the very purpose of the doctor-patient relationship.
The Attorney-Client Privilege exists for roughly the same reason as the physician-patient
privilege. In order to secure effective representation Privileged Communications are not always
absolute. For instance, a criminal defendant may be able to access communications between
an accuser and the accuser's doctor if the defendant's interest in the disclosure, in the opinion
of the court, outweighs the interest in confidentiality. The court will consider such a request only
if the defendant can establish a reasonable probability that important information exists in the
communication that will be relevant to the case.
Nature of the Privilege

When the communication involves an attorney, the communication between an attorney and
client is protected from compelled disclosure in a controversy when the communication:
(1.) is made in confidence (with an expectation of privilege);
(2.) occurs in the course of soliciting advice from an attorney in his or her capacity as such (i.e.,
providing legal advice); and
(3.) is relevant to the advice sought.
B. DANGERS OF TAX EVASIONS:

Tax Evasion
Tax Evasion entails the efforts that are made by trusts, individuals, firms, and various other
entities to avoid paying taxes by illegal and unfair means. The Evasion of Tax usually takes
place when taxpayers deliberately hide their incomes from the tax authorities in order to reduce
their liability of tax.
Evasion of Tax takes place when the people report dishonest tax that includes declaring less
gains, profits, or income than what has been actually earned and they even go for overstating
deductions.

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The level of Tax Evasion also depends on the chartered accountants and tax lawyers who help
companies, firms, and individuals evade paying taxes. Tax Evasion is a crime in all major
countries and the guilty parties are subjected to imprisonment and fines. The various methods
of Tax Evasion are:
 Smuggling
 Customs duty evasion
 Value added tax evasion
 Illegal income tax evasion
Smuggling is a method of Tax Evasion, following which people export or import foreign goods
through routes that are unauthorized.
Customs duty evasion is another method of Tax Evasion under which the importers evade
paying customs duty by false declarations of the description of the product and quantity.
value added tax evasion under which the producers who collect from the consumers the value
added tax evade paying taxes by showing less sales amount.
Many people earn money by means that are illegal such as theft, gambling, and drug trafficking
and so they do not pay tax on this amount and thus this is another method of Tax. Evasion that
is called illegal income tax evasion.
Tax Evasion results in the loss of revenue for the government and so ideally, no one should be
indulging in it and the Indian government must also take steps in order to stop Evasion of Tax
by the people.
Consequences of Evading Tax and Not Filing a Return
Every year, as July 31 approaches, we see large advertisements issued by the Income Tax
Department of India, advising citizens to pay income tax and file their tax return to ensure
“peace of mind.” Indeed, by not complying with the law, you invite possible action from the
authorities. The cost of complying with the law is always less than the price you have to pay for
not doing so. Let us take a closer look at the two main types of non-compliance in tax matters.
Non-Payment or short payment of tax that is due, and failure to the file one‟s income tax return-
these are two violations that attract stern action from authorities. Other types of violations are
less severe.
It’s a human instinct to save money
While tax evasion is punishable by law, the concept of tax planning has opened up career
avenues for thousands of educated youth, grooming them into financial consultants, creating
employment for them and using them to spread awareness among taxpayers about managing
money in a better way.
Failure to File Your Income Tax Return
An income tax return is a statement that tells the authorities how much you have earned during
the previous Financial Year, how much of your money you invested, what your expenditure was
and how much tax you need to pay based on your taxable income. It also gives them details

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about these that are relevant to your tax obligations.
If you don‟t file your return, the tax authorities will not get a picture of these details. It‟s your
annual financial statement that you are obliged to share with the government because you earn
a certain level of income in India.
Not paying the taxes due or not filing your return can lead to punitive action from authorities.
Let‟s look at the types of action that can be initiated against defaulters.
Types of Action
There are basically 3 types of action that can be initiated against a person who has violated
provisions of tax laws:
Charging interest: If you have not paid taxes by the due date, interest at the rate of 1% per
month or part of the month simple interest is charged. Interest is more of a reactive way of
taking action, in that the defaulter is punished after he has failed to do the needful. He may not
mind parting with some money as interest so long as he gets some time to organize his finances
and then pay the tax due.
Imposing a penalty: A penalty is like a fine and tends to tarnish one‟s image and track record.
So it acts as a deterrent to one who thinks he can relax and avoid filing a return or paying taxes
or defaulting in some other way.
Prosecution: If you were charged interest by the tax authorities because you did not pay taxes
in time, none of your contacts would probably know it. Very few might come to know if you were
assessed a penalty. But „Jail‟? Yet if you failed to pay income tax, you could land up behind bars
for a period ranging from 6 months to 7 years, depending on the amount of tax evaded. This is
in addition to interest, penalty and any fine, if levied.
Why Take Punitive Measures?
In any society, self-censorship is the best form of censorship. Similarly, obeying the law of the
land pro actively is one of the surest indicators of societal progress. It shows that the citizens
are educated, aware, empathic and responsible. But if you fail to obey the law (as in tax
evasion, for instance), the governing authority has to step in, and put in place a system to
recover the loss suffered and at the same time discourage offenders in particular and the public
in general from repeating instances of unlawful behavior.
Let us conclude with this funny but thought-provoking point made by a former U.S. Senator
Elihu Root in a 1913 debate:
“I guess you will have to go to jail, if that is the result of not understanding the Income
Tax Law I shall meet you there.”

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CHAPTER
5
TAX CHARACTERISTICS OF BUSINESS

FORMS

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ASSESSMENT OF INDIVIDUALS
The term “individual” as such has nowhere been defined in the Income-tax Act. Section 2(31),
however, states that “person” inter alia, includes an individual. In the commonly understood
sense of the term, an individual means a human being or a single person. The person may be
major, minor, married or unmarried, possessing sound or unsound mind. All the same, he is
assessable as an „individual‟ and is liable to pay tax, if the total income earned by him during
any previous year exceeds the prescribed limit exempted from tax. If an individual who is liable
to pay tax for any year dies before he is assessed to tax, his executor, administrator or legal
representative is treated as the individual assessee for purposes of assessment of the income
of the deceased person. In the case of an individual who is a minor or a lunatic, the assessment
of his income will be made on his guardian or the trustee. However, if the incapacitated person
has no trustee or guardian or trustee or guardian is a non-resident and cannot be traced, the
assessment can be made directly on the minor or lunatic. The rights and duties of all
representative assessees are the same as those of the persons they are representing.
Total income of an individual: The total income of an individual for any previous year, which is
liable to tax, is to be computed under the various heads discussed earlier. Further, sections 60
to 65 of the Income-tax Act provide for clubbing of income arising to minor children, spouse,
daughter-in-law etc. with the income of the individual under certain circumstances. These
provisions must be strictly construed inasmuch as they create an artificial liability to tax.
A married woman, being an individual, is liable to income tax in respect of the total income of
any previous year arising to her in her own right, including the income from assets inherited by
her or gifted to her by a person other than her husband or her father-in- law or mother-in-law.
Exemptions and reliefs available to individuals : The tax exemptions and reliefs available
under the Act to individuals in respect of income chargeable to tax fall under the following
categories :
1. Income altogether excluded from the total income, and on which in consequence, no
income-tax is payable[Section 10].
2. Deductions from gross total income both in respect of income, a part of which is not
chargeable to income-tax and payments made by the assessee, a part or the whole of
which is deductible from the gross total income.
3. Relief in tax when salary is paid in arrears [Section 89].
4. Special treatment for certain kinds of income [Section 180 and 180A].
Rebate of tax and relief in certain cases
♦ Share of profit from firm

Under the provisions of Section 10(2A), in the case of a person being a partner of a firm which
is separately assessed as such, his share in the total income of the firm is completely exempt
from income tax since AY 1993-94.
For this purpose, the share of a partner in the total income of a firm separately assessed as
such would be an amount which bears to the total income of the firm the same share as the
amount of the share in the profits of the firm in accordance with the partnership deed bears to
such profits.
♦Income from association of persons or bodies of individuals: If the assessee is a member

of an association of persons or a body of individuals (other than a H.U.F., a company or a firm)
income-tax shall not be payable by him in respect of any portion of the amount receivable by
him from the association or body on which tax has already been paid by the association or body
[Section 86]. For the purposes of this provision in the case of an association of persons which is

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assessable under section 67A, the members of the AOP whose shares in the income are
indeterminate or unknown, will be entitled to receive equal shares in the income of the AOP and
the individual share of such member will be determined accordingly.
♦Relief when salary etc. is paid in arrears or in advance [Section 89]: It has already been
explained in the Chapter relating to salaries that arrears or advances of salaries are assessable
in the hands of the recipients in the year in which these are received. Consequently, in a
financial year, an employee may become chargeable to tax in respect of salary for more than 12
months. Likewise any payment in the nature of profit in lieu of salary (within the meaning of
section 17(3) of the Act) is also chargeable in the year of receipt in addition to the normal salary
received by the employee. In consequence, the aggregate salary income may become liable to
tax at a rate higher than that at which it would otherwise have been assessed. To obviate such
a hardship, the Assessing Officer has been empowered to grant relief in appropriate cases, on
the employee making an application, in accordance with Rule 21A of the Income-tax Rules.
In appropriate cases coming under section 192(2A), where the employer is the Government or a
public sector undertaking, co-operative society, local authority, university, institution or body,
such employer himself is entitled to take into account the relief under section 89(1).
TAX IMPLICATION OF HUF

In many financial transactions, people while buying or selling immovable property -- residential,
agricultural, commercial or industrial property, or any movable property -- declare their status as
that of Hindu Undivided Family, or HUF.
But a mere declaration by a Hindu buyer or seller of real estate, or any other asset, that his
status is that of an HUF cannot be accepted in law because there are certain legal requirements
of a valid HUF status. Let us consider the main aspects which need to be borne in mind in
saving tax through HUF status.
Concept of HUF
Under the Income-tax Act, a Hindu undivided family (HUF) is treated as a separate entity for the
purpose of assessment. It is included in the definition of the term “person” under section 2(31).
The levy of income-tax is on “every person”. Therefore, income-tax is payable by a HUF. "Hindu
undivided family" has not been defined under the Income-tax Act. The expression is however
defined under the Hindu Law as a family, which consists of all males lineally descended from a
common ancestor and includes their wives and unmarried daughters.
The relation of a HUF does not arise from a contract but arises from status. A Hindu is born into
a HUF. A male member continues to remain a member of the family until there is a partition of
the family. After the partition, he ceases to be a member of one family. However, he becomes a
member of another smaller family. A female member ceases to be a member of the HUF in
which she was born, when she gets married. Thereafter, she becomes a member of the HUF of
her husband.
Some members of the HUF are called co-parceners. They are related to each other and to the
head of the family. A HUF may contain many members, but members within four degrees
including the head of the family (karta) are called co-parceners. A hindu coparcenary includes
those persons who acquire by birth an interest in the joint coparcenary property. Only the
coparceners have a right to partition.

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Two schools of Hindu law
In India, Hindus are mainly governed by two schools of law, namely Mitakshara and
Dayabhagh. In some parts of India, particularly in south India, certain other systems are also
prevalent.
The Dayabhagh system is especially prevalent in West Bengal and Assam, whereas for the rest
of country for most of the Hindus the law relating to the ownership, devolution, etc. of properties
is the Mitakshara School of Hindu Law.
Generally speaking, under the Mitakshara School of Hindu Law the main principle is the
survivorship principle in the matter of devolution of the ancestral or HUF property, in contrast to
the principle of succession which applies to the individual property of a Hindu.
Another principle is that no member of the HUF, so long as the Hindu family remains joint, can
be said to have a specific share in the HUF property. It is only upon partition of an HUF that the
share belonging to a particular member can be ascertained.
Another way of attaining HUF status to a property is by way of partition and accretions to the
partitioned property. Thus, if the property of an HUF is partitioned amongst its members as per
the HUF law, then the member receiving the property will be said to hold it not in his individual
capacity but as HUF, provided there is more than one member in the family.
Further, if any addition is made to such partitioned HUF property, then the addition so made to
such property also gets the status of HUF property. It may be mentioned here that if an
individual property is inherited as per the Hindu Succession Law, then the property so inherited
is not to be termed as partitioned property.
Very often a mistake is committed by the Hindus in declaring the property received by them on
inheritance under the Hindu Succession Act, as HUF property, whereas it is in truth only the
individual property of the person inheriting it.
Another mode of acquiring the status of HUF in respect of property both movable and
immovable is by a special gift made by the father or mother of the male member of a family. In
some cases, there may not be any ancestral property. There might not have been any cases of
partition of the HUF property and thus the status of a Hindu regarding his property is that of
individual only.
If he is interested in owning property in the status of HUF, he may get the gift of the property of
any amount from his father or mother, or any relative or friend, specifically for his own HUF
consisting of himself, his wife and children. In that case the amount so gifted by the father, etc.
will form part of the HUF property.
If some loans are taken by that HUF and an immovable property or a movable property is
purchased by the HUF, the property so purchased will be known as HUF property. In some
cases, the father, etc. may also pass on his individual property to the children as HUF property
through a specific declaration in a will. What is most relevant is the intention of the donor to treat
the gift for the specific recipient namely, whether the individual or the HUF.
Tax benefits of HUF
The question of HUF status for a Hindu buyer or seller of any property assumes importance
because of certain tax advantages attached with HUF under the income tax and wealth tax
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laws. Thus, if an individual has personal income and has also HUF income, he would be entitled
to have an exemption of Rs 160,000 for his individual income and another Rs 160,000 for his
HUF income.
Besides, he would also be eligible to a further income tax deduction or exemption of Rs 100,000
under Section 80C in respect of LIC premia, PPF contribution, NSC, etc., both on individual and
HUF income separately.
Besides, under the Wealth Tax Act, 1957 too, separate exemptions are available for individual
property and HUF property.
Thus, where the taxable individual wealth is eligible to a general exemption of Rs 160.000, the
HUF's taxable wealth is also eligible to a further general exemption of Rs 160,000. Hence,
persons having immovable property and jewellary and motorcars under HUF status stand to
gain from the extra exemption under Wealth Tax Act as well.
Other points to keep in mind
The bank account should be in the name of either the HUF or in the name of the Karta by
specifically declaring that the account is that of the HUF only. Only the funds belonging to the
HUF should be deposited in such an account.
Normally, the Karta of the HUF is entitled to sign the bank transactions. He may, however, also
permit the other adult members of the family to sign on behalf of the HUF.
Another important thing that can be remembered in connection with HUF property is that where
a person wants to transfer some property by Will to the members of his family, he can transfer
the same for the specific purpose of the HUF of his son or sons so as to constitute the amounts
so transferred through will or so gifted by will as the HUF property of the son(s) concerned.
This would result into a good deal of income tax and wealth tax saving for the persons inheriting
such property by will as mentioned above.
Assessment of Hindu Undivided family
The income of a HUF is to be assessed in the hands of the HUF and not in the hands of any of
its members. This is because HUF is a separate and a distinct tax entity.
Partition of HUF – There are two types of partition. They are –

(1) Total partition – is a partition by which the entire family property is divided amongst the
coparceners. After the total partition, the HUF ceases to exist as such.
(2) Partial partition – is a partition which is partial as regards either the persons constituting the
joint family or as regards the properties belonging to the joint family or both. In case of a partial
partition as regards persons constituting the joint family, some coparceners may separate from
the joint family while the others might continue to remain as part of the joint family. In case of a
partial partition as regards the property, there may be a division or severance of interest in
respect of some part of the estate of the joint family, while the rest of the estate may continue to
remain as property of the joint family.
Effect of partial partitions made after 31st December, 1978

However, partial partitions after 31st December, 1978 are not recognized for tax purposes. If
any partial partition has been effected after 31.12.78, then no claim of such partial partition shall
be recorded by the Assessing Officer. Such family will continue to be assessed as if no such
partial partition has been effected. Every member of the HUF, immediately before such partial
partition, and the HUF shall be jointly and severally liable for any sum payable under the act.

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The several liability of a member would be proportionate to the share of joint family property
allotted to him on such partial partition.

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CHAPTER
8
CAPITAL GAINS TAX RULES

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Basis of charge sec 45(1)
Any profits or capital gain arising from the transfer

 Of a capital asset
 Shall be chargeable to income tax under the head capital gains and
 Shall be deemed to be the income tax of p/y in which transfer took place
 Unless such capital gain is exempt u/s 54, 54B,54D, etc.
 BASICS OF THIS HEAD HAVE BEEN DISCUSSED EARLIER
Capital Gain on transfer of Bonus Shares- Capital gain on transfer of bonus shares shall be
calculated as follows:
Different Situations Special Provisions
Cost of acquisition of bonus shares allotted before Fair Market Value on April 1, 1981 is taken as cost.
April 1, 1981
Cost of acquisition of bonus shares allotted on or Cost of acquisition is taken as zero.
after April 1, 1981
Period of holding bonus shares The period of holding shall be determined from the
date of allotment of bonus shares (and not from the
date of acquisition of original shares
Note: The above rules are also applicable in respect of shares, securities, debentures, bonds,
units allotted without any payment on the basis of holding of any other financial assets.
Capital gain on transfer of rights shares- Cost of acquisition in different situations is as

follows:
Different Situations Cost of acquisition

Original Shares (on the basis on which the Amount actually paid for acquiring shares.
taxpayer becomes entitled to right shares)
Right entitlement (which is renounced by the Nil (see Note)
assessee in favor of a person)
Right shares acquired by the taxpayer by Amount actually paid by the taxpayer for acquiring
exercising his rights entitlement. asset.
Right shares purchased by the person in whose Purchase price paid to renouncer to rights
favor right entitlement has been renounced. entitlement plus amount paid to the company which
has allotted the rights shares.
Note: The amount realized by the original shareholder by selling his rights entitlement will be
short term capital gains in his hands (as the cost is taken as nil).the period of holding of the right
entitlement will be reckoned from the date of offer made by the company to the date of
renouncement.
CONVERSION OF DEBENTURE INTO SHARES:-

Conversion of debentures, debenture-stock, or deposit certificates in any form of a company
into shares or debentures of that company will not be regarded as a transfer giving rise to any
capital gains. On the sale of shares or debentures received on such conversion, the capital gain
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shall be computed by taking the cost of acquisition as that part of the cost of debentures,
debenture-stock or deposit certificates which has been appropriated towards the shares or
debentures.
One has to keep in view the following points in the case of conversion of debentures into
shares-
1. Cost of debentures shall be taken as “cost of acquisition” of shares.
2. To find out whether or not shares are long term capital asset or short term capital asset,
the period of holding shall be determined from the date of allotment of shares.
3. The indexation shall be determined from the date of conversion of debentures into
shares.
Example: X gets 1000 partly convertible debentures (face value Rs. 100) of A Ltd. (cost being
Rs. 200 per debentures) at the time of original allotment to him on May 16, 1984. As per terms
of allotment A ltd. Converts 60% portion of each debentures in to 2 equity shares of face value
of Rs. 10 on July 1, 1992. On September 10, 2010, X transfer 2000 equity shares in A ltd. @Rs.
300 per share and 1000 (non convertible portion) debentures @310 per debentures. Find out
the amount of capital gains chargeable to tax for the assessment year 2010-11.
Solution: Immediately after conversion of debentures into equity shares, X holds the following-
No. of Scrip Type of scrip Face Value (per scrip) Total Cost Rs.
2000 Equity Shares 10 120000*
1000 Debentures 40 80000**
Total 200000
*60% of original investment of Rs. 200000, i.e. Rs. 120000
**Rs. 200000-Rs. 120000
Computation of capital gains
Shares Rs. Debentures Rs.
Sale Consideration 600000 310000
Less: Indexed cost of acquisition[*(Rs. 120000*711/223)

**(indexation is not allowed in the case of debentures)] 382601* 80000**
Long term capital gains 217399 230000
Note: Securities transactions tax of Rs. 750 is applicable (i.e. 0.125% of Rs. 300*2000) if these
shares are transferred in recognized stock exchange and, consequently, long term capital gain
on transfer of shares will not be chargeable to tax.
Capital gains on transfer of shares in demerged company or resulting company [sec.49

(2C)/(2D)]- Section 49 (2C)/(2D) is applicable with effect from the assessment year 2010-11
1. Cost of acquisition of the shares in the resulting company shall be the amount which
bears to the cost of acquisition of shares held by the assessee in the demerged
company the same proportion as the net book value of the assets transferred in a
demerger bears to the net worth of the demerged company immediately before such
demerger.
For this purpose “net worth” shall mean the aggregate of the paid up share capital and
general reserves as appearing in the books of the accounts of the demerged company
immediately before the demerger.
2. Cost of acquisition of the original shares held by the shareholder in the demerged
company shall be deemed to have been reduced by the amount as mentioned in (1)
supra.
 One should note the following points.

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1. To find out whether or not shares in resulting company are long term capital asset,
the period of holding shall be determined from date of acquisition of shares in the
demerged company.
2. The indexation will start from the date of allotment of shares in the resulting
company.
Short-term/Long-term Capital gains-How Charged to tax

Tax will be calculated as follows:
Gross total Income (excluding Long term capital gains taxable Short term capital gain taxable
income given in columns (2) and under section 112 under section 111A
(3))
(1) (2) (3
Step A1-find out gross total Step B1-Find out long-term Step C1-Find out short-term
income from all sources capital gain capital gain taxable under section
excluding income given in step 111A
B1 and step C1
Step A2-deduct, deduction Step B2-find out income tax on Step C2-Find out income tax
permissible under section 80C to long term capital gain at the rate short term capital gain at the rate
80U (A2 cannot exceed A1) specified by section 112 specified by section 111A.
Step A3-The balancing amount is
“other net income”.
Step A4-find out income tax on
“other net income”.
Step D-Add the tax computed at steps A4, B2 and C2. It is income-tax on net income (income
tax on A3+B1+C1).
Step E-Add surcharge*on income tax computed under step D.
Step F- Find out D+E
Step G-Add education cess*at the rate of 2% of step F.
Step H-Add secondary and higher education cess*at the rate of 1%of step F.
Step I-Tax liability is equal to F+G+H
How to compute tax on long term capital gains [Sec. 112]-Long term capital gain is taxable
at a flat rate of 20% +SC+EC+SHEC*
Tax rate is 10%in a few cases-In cases long-term capital gain is covered by section
115AB,115AC,115AD OR 115E, it is taxable at the rate of 10% +SC+EC+SHEC*. Moreover, if
listed shares/securities/units are transferred and the benefit of indexation is not taken, then long
term capital gain is taxable @10% +SC+EC+SHEC*
Incentives under section 80C to 80U are not available-Deductions under sections 80C to
80U are not available in respect of long term capital gains.
 It does not include any long term capital gain. It includes short term capital gain but other
than those given in column (3).
 Surcharge, education cess and secondary and higher education cess is applicable as
follows:
Assessment Year
2010-11

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Surcharge (as a percentage of income tax)
1. If the taxpayer is an individual/HUF/AOP/BOI and Nil
2. If the taxpayer is an artificial juridical person. Nill
3. If the taxpayer is a domestic company and Foriegn company Nill
net income does not exceed Rs. 1 crore.
4. If the taxpayer is a domestic company and net income does 7.5%
exceed Rs. 1 crore.
5. If the taxpayer is a Foreign company and net income does 2.5%
exceed Rs. 1 crore.
Exemption limit in some cases [provision to Sec. 112 (1) (a)]-The proviso to section 112 (1)
(a) gives a relief which is given below-
Conditions- the relief is available if the following conditions are satisfied.
Condition 1 The taxpayer is a resident individual or a resident Hindu individual family.
He or it may be ordinarily resident or not ordinarily resident.
Condition 2 Taxable Income minus long term capital gain is less than the amount of
exemption limit, [i.e. Rs. 190000 in the case of a resident woman (below
65 years), Rs. 240000 in the case of a resident senior citizen (65 years or
more), Rs. 160000 in the case of any other individual or every HUF], for
the assessment year 2010-11.
Relief-If the aforesaid conditions are satisfied, the following shall be deducted from long term
capital gain-
Exemption Limit- (Net income or taxable income-long term capital gain)
After deducting the aforesaid amount, the balancing amount of long term capital gain is
chargeable to tax.
X (28 years) is a resident individual. For the assessment year 2010-11, he has the following
incomes-
Rs.
Long term capital (LT) 33000
Other Income 147000
Net Income 180000
In this case, the two conditions given above are satisfied (i.e. the taxpayer is a resident
individual and NI-Minus LT is Rs. 147000 which is lower than the exemption limit of Rs.
160000). Consequently, from the long-term capital gain the following shall be deducted.
Rs. 160000 (exemption limit)-[Rs. 180000(NI)-Rs. 33000 (LT)]= Rs. 13000
In this case, the long term capital gain chargeable to tax will be Rs. 20000 (i.e. Rs. 33000-Rs.
13000)
Exemption under Section 10- If long term capital gain arises on transfer on or after October 1,
2004 of equity shares or units of equity oriented mutual fund and the transaction is covered by
securities transaction tax, such capital gain is not chargeable to tax by virtue of section 10(38).
Exemption is also available in some cases under section 10(33)/(36)/(37)
Tax Incidence on transfer of listed shares, securities and units-if the following conditions
are satisfied, then tax on long-term capital gain will be computed under option 1 or option 2
given below-
Conditions-The following conditions should be satisfied-

Condition 1 The taxpayer is an individual, HUF, company or any other person (may be
resident or non-resident)

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Condition 2 The asset is a long term capital asset.
Condition 3 The long term capital asset is-

1. A security listed in any recognized stock exchange in India.
2. A unit of UTI or a mutual fund (whether listed in a recognized stock exchange
or not)
3. Zero coupon bonds
Note: As per section 2(h) of the securities Contracts (Regulation) Act, 1956 “securities”
includes-
1. Shares, scrip‟s, stocks, bonds, debentures, debenture stock or other marketable
securities of a like nature in or of any incorporated company or other body corporate.
2. Government securities.
3. Such other instruments as may be declared by the Central Government to be securities
4. Rights or interest in securities
In other words, Shares, Debentures, Government securities or bonds are “securities” for this
purpose.
Tax Computation-IF the capital asset which is transferred is equity shares or units of equity-
oriented mutual fund and the transaction is subject to securities transaction tax, the long term
capital gain is not chargeable to tax. In other cases, if the above conditions are satisfied, the tax
shall be computed as follows (i.e. under option 1 or option 2m, whichever is lower)-
Option 1 Option 2
1.Find out sale consideration. 1.Find out sale consideration.
2.Deduct: Indexed cost of acquisition/improvement 2.Deduct: cost of acquisition/improvement and
and expenses on transfer. expenses on transfer.
3.The balancing amount [i.e. (1)-(2)] is long term 3.The balancing amount [i.e. (1)-(2)] is long term
capital gain. capital gain.
20% of (3) +SC+EC+SHEC* is the amount of tax 10% of (3) +SC+EC+SHEC* is the amount of tax
liability. liability.
The taxpayer has an option in respect of each transaction to pay tax under option 1 or option 2,
whichever is lower. It is difficult to state when option 2 is better. However, in the case of transfer
of listed bonus shares, listed debentures and listed bonds, Options 2 is better as compared to
Option 1.
Tax on short-term capital gain in certain cases [Sec 111A]- The provisions of section 111A
are given below-
Conditions- Section 111A is applicable if the following conditions are satisfied-
1. The taxpayer is an individual, HUF, firm, company or any other taxpayer.
2. During the previous year, he has general short term capital gain on transfer of equity shares
or units in equity-oriented mutual fund.
3. The transaction of transfer takes place on or after October 1, 2004.
4. Such transaction is chargeable to securities transaction tax at the time of transfer.
Consequences if the above conditions are satisfied- If the above conditions are satisfied,
short-term capital gain is taxable at the rate of 15% to +SC+EC+SHEC*. No deduction is
available under section 80C to 80U from the above noted short-term capital gains.
Exemption limit in some cases [provision to sec 111A]- The provision to section 111A gives
a relief-
Conditions- The relief is available if the following conditions are satisfied-
1. The taxpayer is a resident individual or a resident Hindu undivided family. He or it may
be ordinarily resident or non ordinarily resident.

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2. Taxable income minus short-term capital gain is less than the amount of exemption limit.
[i.e. Rs. 190000 in the case of a resident woman (below 65 years), Rs. 240000 in the
case of a resident senior citizen (65 years or more), Rs. 160000 in the case of any other
individual or every HUF] for the assessment year 2011-12.
Relief- If the aforesaid conditions are satisfied, the following shall be deducted from
such short term capital gain.
Exemption Limit-(Net income or taxable income-such short-term capital gain)
After deducting the aforesaid amount, the balancing amount of such short-term capital gain is
chargeable to tax at the rate of 10 per cent +SC+EC+SHEC.
Cumulative impact of section 10,111A and 112- Section 10(33) gives exemptions on capital gain
(if any) arising on transfer of unit of US-64. Section 10(38) gives exemption on long term capital
gain arising on transfer of equity shares, etc, If the transaction is covered by securities
transaction tax . If securities transaction tax is applicable and capital gain is short term capital
gain, it is taxable at the lower rate 15 per cent (+SC+EC+SHEC*) as given by section 111A.
Long term capital gain is taxable at the rate of 20 per cent (+SC+EC+SHEC)*[if the benefit of
indexation is not taken, it is taxable at the rate of 10 per cent (+SC+EC+SHEC)* in some
cases]. The cumulative impacts of these provisions are given below.
Income tax rates

(Add SC+EC+SHEC)*
If transaction is
Capital Asset covered by If it is not covered by securities
securities transaction tax
transaction tax
at the time of
transfer
Long Short Long Term Short

Term Term Without With term
indexation Indexation
US -64 0% 0% 0% 0% 0%
Units (equity oriented) 0% 15% 10% 20% Normal
Units (others) NA NA 10% 20% Normal
Equity shares (listed) any other 0% 15% 10% 20% Normal
Equity shares (not listed) NA NA NA NA Normal
Preference shares (listed) NA NA 10% 20% Normal
Preference shares (not listed) NA NA NA 20% Normal
Debentures (listed) NA NA 10% NA Normal
Debentures (not listed) NA NA 20% NA Normal

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Government securities NA NA 10% 20% Normal

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CHAPTER
10
NON TAXABLE TRANSACTIONS (E.G., GIFTS,

ESTATE)

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GIFT
When a gift or a specified property is received without consideration from a non-relative
whether in cash or in kind or any property is purchased for an inadequate consideration it shall
be treated as income from other sources and taxable in the hand of the recipient under the new
provisions for gift.
The following provisions of law were there in the income tax act prior to finance act, and
following provisions also exist after finance act, 2009
1. Section 47 provides that the following transaction shall not be regarded as transfer for
purpose of section 45 and therefore no capital gains shall arise:
"Any transfer of a capital asset under a gift".
Therefore, no capital gains shall arise on transfer of a capital asset under a gift.
2. section 49(1) which deals with cost of acquisition provides that where a ,capital asset
became the property of the assessee under a gift, then the cost of acquisition of the
asset deemed to be the cost for which the previous owner acquired it. Therefore, the coa
in hands of donee shall be the coa in the hands of donor.
3. Section 2(42A) which deals with period of holding provides that for determining the
nature of capital gains in the hands of the assessee who acquired the asset by way of
transaction of a gift,the period for which the asset was held by the previous owner shall
also be considered
Therefore in the hands of donee, the period of holding of donor shall also be included.
4. Any sum of money, received without consideration by an individual or a HUF from any
person or persons before 1.10.2009 , if the aggregate value exceeds Rs.50,000 i.e.
where any sum of money is received without consideration by an individual or a Hindu
undivided family from any person or persons and the aggregate value of all such sums
received during the previous year exceeds Rs.50,000, the whole of the aggregate value
of such sum shall be included in the total income of such individual or Hindu undivided
family under the head “Income from other sources”.
In order to avoid hardships in genuine cases, certain sums of money received have been
exempted –
(1) Any sum received from any relative; or
(2) Any sum received on the occasion of the marriage of the individual; or
(3) Any sum received under a will or by way of inheritance; or
(4) Any sum received in contemplation of death of the payer; or
(5) Any local authority; or
(6) Any fund or foundation or university of other educational institution or hospital or other
medical institution or any trust or institution referred to in section 10(23C); or
(7) Any trust or institution registered under section 12AA.
For the purpose of this clause, the expression “relative” means –

(i) spouse of the individual,
(ii) brother or sister of the individual,
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(iii) brother or sister of the spouse of the individual,
(iv) brother or sister of either of the parents of the individual,
(v) any lineal ascendant or descendant of the individual,
(vi) any lineal ascendant or descendant of the spouse of the individual, and
(vii) spouse of a person referred to in items (ii) to (vi) mentioned above.
(4) Gift of any sum of money or property or transfer of property for inadequate
consideration on or after 1st October, 2009 to be subject to tax in the hands of the
recipient
(i) New clause (vii) has been inserted in section 56(2) w.e.f. 1.10.2009 to bring within its scope,
in addition to any sum of money, the value of any property received without consideration or for
inadequate consideration. For this purpose, “property” means immovable property being land or
building or both, shares and securities, jewellery, archaeological collections, drawings,
paintings, sculptures or any work of art.
(ii) If an immovable property is received without consideration, the stamp duty value of such
property would be taxed as the income of the recipient if it exceeds Rs.50,000. In case an
immovable property is received for inadequate consideration, and the difference between the
stamp duty value and such consideration exceeds Rs.50, 000, such difference would be taxed
as the income of the recipient.
(iii) 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. In such a case, the
provisions of section 50C and section 155(15) shall, as far as may be, apply for determining the
value of such property.
(iv) If movable property is received without consideration, the aggregate fair market value of
such property on the date of receipt would be taxed as the income of the recipient if it exceeds
Rs.50, 000. In case movable property is received for inadequate consideration, and the
difference between the aggregate fair market value and such consideration exceeds Rs.50,000,
such difference would be taxed as the income of the recipient. The CBDT would prescribe the
method of determination of fair market value of a movable property.
(v) The table below summaries the new scheme of taxability of gifts with effect from 1 st October,
2009
Nature of asset Particulars Taxable value
Money Without The whole amount if the

consideration same exceeds Rs.50,000.
Immovable property Without The stamp value of the

consideration property, if it exceeds
Rs.50,000.
Immovable property Inadequate The difference between the

consideration stamp value and the
consideration, if such
difference exceeds
Rs.50,000
Movable property Without The aggregate fair market

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consideration value of the property, if it
exceeds Rs.50,000.
Movable property Inadequate The difference between the

Consideration aggregate fair market value
and the consideration, if
such difference exceeds
Rs.50,000
(vi) However, any sum of money or value of property received -
(a) from any relative; or

(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer or donor, as the case may be; or
(e) from any local authority as defined in the Explanation to section 10(20); or
(f) from any fund or foundation or university or other educational institution or hospital or
other medical institution or any trust or institution referred to in section 10(23C); or
(g) from any trust or institution registered under section 12AA would be outside the ambit of
section 56(2)(vii).
Explanation.-for the purposes of this clause,-
1. "assessable" shall have the meaning assigned to it in the explanation 2 to sub-section

(2) of section 50C;
2. "fair market value" of a property, other than an immovable property, means the value
determined in accordance with the method as may be prescribed;
3. For the purposes of this sub-clause, "jewellery" includesornaments
 Ornaments made of gold, silver, platinum or any other precious metal or any
alloy containing one or more of such precious metals, whether or not containing
any precious or semi-precious stone, and whether or not worked or sewn into
any wearing apparel;
 Precious or semi-precious stones, whether or not set in any furniture, utensil or
other article or worked or sewn into any wearing apparel;
4. "property" means-
 Immovable property being land or building. Or both; ~
 Shares and securities
 Jewellery
 Archaeological collections;
 'Drawings;
 Paintings;
 Sculptures; or
 Any work of art;
 Bullions
5. for the purposes of this clause, "relative" means-
 Spouse of the individual;
 Brother or sister of the individual:
 Brother or sister of the spouse of the individual;
 Brother or sister of either of the parents of the individual;

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 Any lineal ascendant or descendant of the individual;
 Any lineal ascendant. Or descendant of the spouse of the individual;
 Spouse of the person referred to in clauses (ii) to (vi).".
6. "stamp duty value" means the value adopted or assessed or assessable by any authority
of the central government or a state government for the purpose of payment of stamp
duty in respect of an immovable property.
SECTION 49(4): COST OF ACQUISITION
Where the capital gain arises from the transfer of a property, the value of which has been
subject to income-tax under section 56(2)(vii), the cost of acquisition of such property shall be
deemed to be the value which has been taken in to account for the purpose of the said clause
(vii)
(Inserted by Finance Act, 2009)
Agriculture Income
As per Section 10(1) agricultural income is exempt from income tax.
Agricultural income means
Sec.2 (1A)
a. Any income earned

from the land situated in India and
that land is used for agricultural purposes
b. Any income derived from such land by:
(i) Agriculture, or
(ii) The sale of the produce raised or received as rent in kind.
Any income derived from saplings or seedlings*grown in a nursery shall be deemed to be

agricultural income.
c. Any income derived from any building occupied by the cultivator provided that the
building is on or in the immediate vicinity* of the land and is a building which the
cultivator required as a
a. Dwelling*house or
b. As a store house
However income from any such land or building from the use of any purpose other than
agriculture such as letting for residential or business purpose shall not be treated as agricultural
income.
Partly Agricultural and partly Non-agricultural income
 If assessee is carrying on agricultural operations as well as non-agricultural operation.

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 In determining non-agricultural income which is chargeable to tax
 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 a raw material in such
business
 Shall be deducted and no further deduction shall be made in respect of any expenditure
by the assessee as cultivator or receiver of rent in kind.
For the purpose of the above market value shall be deemed to be:
a. Where the agricultural produce is ordinarily sold in the market,

The average price at which it has been sold, during the relevant previous year; or
b. Where the agricultural produce is not ordinarily sold in the market,
The aggregate of the following shall be its market value:
i. The expenses of cultivation;
ii. The rent paid for the land on which it was grown and
iii. Reasonable profit determined by Assessing Officer.
Disintegration of income in specific composite business
Nature of business Non-agricultural income Agricultural income

Growing and manufacturing Tea 40% 60%
Growing and manufacturing 35% 65%
Rubber
Growing and manufacturing 25% 75%
Coffee
Growing , cured and roased of 40% 60%
coffee
Income for above businesses, first income is computed under the PGBP as if the entire
business is non-agricultural business and then 40/35/25 of such amount is treated as the
taxable income.
Partial Integration of agricultural income with non-agricultural income
If (i) Non-agricultural income exceeds exemption limit and
(ii) Agricultural income exceeds Rs.5,000
Then tax shall be calculated in the following manner:-
Step1: Add agricultural with non-agricultural income and calculate the tax on the aggregate as if
it is the total income
Step2: Compute the tax on [Exemption limit+ Agricultural income]as if it is the total income
Step3: Step1-Step2 will be the tax payable
Step4: Add surcharge@10%
Step 5: Add Education Cess @2%+1%% SHEC

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Example: For the assessment year 2011-12, the net agricultural income of an assessee is
Rs.500000 and non agricultural income isRs.285000.compute the tax liabity if person is an
individual.
(1)Taxability on agricultural and non agricultural income (785000) - 91000
(2) Taxability on agricultural and Exempted income (660000) - 66000
(1)-(2) 25000
add: surcharge Nill

EDUCATION CESS 500
SHEC 250
25750

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CHAPTER
15
PROPERTY DOCUMENTATION

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(A)Power of attorney
Introduction
A Power of Attorney is a formal arrangement by which one person gives another person
authority to act on his behalf and in his name. The person who gives Power of Attorney "the
donor" and the person who acts on the behalf of donor is referred as "the attorney". A Power of
Attorney is an instrument in writing whereby one person, as principal, appoints another as his
agent and confers authority to perform certain specified acts or kinds of act on behalf of
principal. A Power of Attorney includes any instrument empowering a specified person to act for
and in the name of the person executing it. A Power of Attorney may be a general power or a
special power. What one has to look at before one decides whether a power is general or
special is what is the subject matter in respect of which this power is conferred; if the Court
comes to the conclusion that the subject matter is not general, that it is restricted to something
specific, something particular, then the Power of Attorney would not be a general Power of
Attorney.
Power of Attorney & Estate planning
Example
What happens if Hari loses the ability to manage his affairs and make important decisions? Who
will take charge? Although his assets will be protected, there will be a cost associated with
dealing with the legal issues. In addition, as the legal issues are resolved, important financial
decisions may not be made on a timely basis. By drafting a Power of Attorney, he will be able to
choose the person who is best qualified to manage his affairs when he becomes mentally
incapacitated. A Power of Attorney gives written authority to this person to deal with estate on
Hari's behalf If Hari doesn't give a Power of Attorney; laws will govern who is responsible for
managing his affairs. Although interested parties can generally apply to the courts to be granted
the right to conduct Hari's affairs, this can be a time consuming and expensive process. The
family members cannot act on Hari's behalf on short notice.
Even a couple can make separate Power of Attorney and appoint an attorney to one another for
managing their business and any other deal in the absence, death or incapability of another
partner .
Types of Power of Attorney
• General Power of Attorney: A Power of Attorney may be a general power or a special

power. General Power of Attorney It is a document by which one person appoints another
person to represent him/her and act on behalf of himself to manage, attend or carry out certain
works like management, sale of property and dealings in the court, etc.
• Special Power of Attorney: A power of authority conferring on the agent or attorney the
authority to act in a Single or specified transaction in the name of principal or donor is known as
special Power of Attorney. E.g. Special Power of Attorney for a particular court case.
Risks Associated with Power of Attorney

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The risks of appointing an agent are small. The most important way to reduce any risk is to
carefully choose an agent. Select someone whom the client trusts completely. The Power of
Attorney does not mean that the agent owns any of client's property. It allows the agent to make
financial decisions when client can't. The client can withdraw a Power of Attorney whenever he
wants as long as the client is competent. Appointing someone as agent doesn't mean client give
up the right to manage his own affairs.
Responsibility
An individual can select the responsibilities, or powers, he want his agent to have. He can
authorize his agent to do one thing, such as sell his car. Or he can give his agent the authority
to do any legal act he could do himself. He can give a wide range of powers, such as having
access to bank accounts, selling stocks, and managing real estate. He may want his agent to
sign his income tax return, apply for benefits, and make gifts. He should design his Power of
Attorney to fit his anticipated needs and even when he gets incapacitated, he can gives right to
the agent to the alter his will on his behalf.
Some examples of legal powers contained in the Power of Attorney are the following: (they are
only inclusive, not exhaustive)
 Real estate
To execute all contracts, deeds, bonds, mortgages, notes, checks, drafts, money orders.
To lease, collect rents, grant, bargain, sell, or borrow and mortgage.
To manage, compromise, settle, and adjust all matters pertaining to real estate.
 Contracts, agreements
To enter into contacts.
To make, sign, execute, and deliver, acknowledge any contract, agreement.
Perform any contract, agreement, writing, or thing.
 Stocks, bonds, and securities
To sell any and all shares of stocks, bonds, or other securities.
To make, execute, and deliver any assignment, or assignments, of any such shares of stock,
bonds, or other securities.
 Bank accounts, certificates of deposit, money market accounts
To add to or withdraw any amounts from any of the client's bank accounts, Certificates of
Deposit, money Market Accounts, etc.
To make, execute, endorse, accept and deliver any and all cheques and drafts.
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Deposit and withdraw funds.
To acquire and redeem certificates of deposit, in banks, savings and loan.
To execute or release such deeds of Trust or other security agreements as may be necessary.
 Tax returns, insurance and other documents
To file, sign all tax returns, insurance forms and any other documents.
To represent in all matters concerning the foregoing.
What Type of Power of Attorney is best?
The best way to draft a Power of Attorney is to state the broadest range of powers you feel
comfortable giving to your agent. This will allow your agent to take care of all matters, even
those you cannot foresee now.
Who can give a Power of Attorney?
Individual
Any person who is competent to appoint an agent can appoint an attorney. Any person:
 Who is of the age of majority according to the law to which he is subject

 Who is of sound mind, may employ an agent. It therefore follows that any person who is
of the age of majority and who is of sound mind can give a Power of Attorney.
 Married women can execute powers of attorneys even if they are minors
Partnership firms
A partner in a partnership is an agent of the firm, but he cannot bind the firm as regulated by the
partnership Act. In the absence of any usage or custom trade to the contrary, the implied
authority of a partner does not extend to:
 Submit a dispute relating to business of the firm to arbitration;

 Open a banking account on behalf of the firm in his own name;
 Compromise or relinquish any claim or portion of a claim by the firm;
 Withdraw a suit or proceeding filed on behalf of the firm;
 Admit any liability in a suit or proceeding against the firm;
 Acquire immovable property on behalf of the firm;
 Transfer immovable property belonging to the firm; or
 Enter into partnership on behalf of the firm.
From the above, it follows that in case the firm intends to confer any of these powers to a
partner, though there is no usage or custom of trade to the contrary, he would need a Power of
Attorney from all the partners of the firm in his favour, specifying the authority conferred.

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It is therefore desirable to insist in all cases where a Power of Attorney is being given by a
partnership firm that all partners constituting the firm should sign the Power of Attorney.
Companies
Section 48 of the Companies Act, 1956 provides that a company may, by writing under its
common seal, empower any person, either generally or in respect of any specified matters, as
its attorney to execute deeds on its behalf in any place either in or outside India. A deed signed
by such an attorney on behalf of company and under his seal, where sealing is required, shall
bind the company and shall have the same effect as if it were under its common seal. In all
cases, the important point to be noted is that authorization by a Resolution of the Board is
necessary for affixing the seal to any instrument. Where there is no such authorization, the
affixing of the seal will not bind the company.
One trust therefore ensure that in cases where a Power of Attorney is given by a company to
any person, the power is given pursuant to a resolution passed by the Board of Directors of the
company given under its common seal.
Who can be appointed as an attorney?
As between the principal (donor) and third persons, any person may become an agent
(attorney), but no person who is not of the age of majority and of sound mind can become an
agent (attorney), so as to be responsible to his principal (donor). A person who has no capacity,
or only a limited capacity, to contract on his own behalf, is competent to contract so as to bind
his principal. But, such a person is not responsible to his principal for the acts done by him for
and on behalf of his principal.
Authentication
Under Section 85 of [The Indian] Evidence Act, 1872, there is a presumption that every
document purporting to be a Power of Attorney, and to have been executed before and
authenticated by, a Notary public or any Court, Judge, Magistrate, Consul, or Vice-Consul or
representative of the Central government was so executed and authenticated. The
authentication is not merely attestation, but something more. It means that the person
authenticating has assured himself of the identity of the person who has signed the instrument
as well as the fact of execution. It is for this reason that a Power of attorney bearing the
authentication of a Notary Public or an authority mentioned in Section 85 of [The Indian
Evidence Act, 1872 is taken as sufficient evidence of the execution of the instrument by the who
appears to be the executant on the face of it.
Duration
A general Power of Attorney, unless expressly or impliedly limited for a particular period,
continues in force until revoked or determined by the death of either party. A special Power of
Attorney to do a certain act or acts is determined when the act or acts is or are completed. If it is
desired that the power should continue for a particular period or until a certain event happens,
an express provision to that effect should be made.

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A power of Attorney appointing attorneys without in terms limiting the duration of their power but
with a recital that the principal was going abroad and was desirous of appointing attorney during
his absence, was held to be an appointment limited to the time during which the principal was
abroad.
Where principal just before leaving India executed a Power of Attorney authorizing the agent to
act in his absence from India and subsequently came to India and again left it but did not
execute a new power before so leaving, held that the power of the agent did not terminate then
the agent had power to act for the principal during his absence.
Revocation
Power of Attorney can be revoked or would stand revoked if:

 Revoked by the principal himself
 The principal dies or becomes insane or becomes bankrupt
 The business for which the agent was appointed is over
 Mutually agreed upon by the principal and agent
 The right under the Power of Attorney is renounced by the agent
Registration
Registration of Power of attorney is not compulsory, it is optional,
In India, where the Registration Act, 1908 is in force, the Power of Attorney should be
authenticated by a Sub Registrar only (whenever a person signs the document and his attorney
presents/ admits execution).
In other areas, attestation should be by a Notary or diplomatic agents.
In case an attorney under a valid Power of Attorney himself signs a document, he may, as
executing (signing) parties present/admit execution of a document though it is attested by a
Notary, unless the text of the power specifically excludes. Such powers.
Foreign Power of Attorney should be got stamped by the Collector alter its receipt in India within
prescribed time of 3 months.
Registration of Power of Attorney authenticates the deed of Power of Attorney
Power of Attorney shall be attested by two or more adult independent witnesses who are of
sound mind.
If a Power of Attorney is in respect of an immovable property of value more than Rs100, it must
be registered.
Stamp Duty
Power of Attorney is chargeable to stamp duty under Article 48 of Schedule 1 to the Indian
Stamp act subject to state intervention if any.

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Points to remember
The general rule of Power of Attorney is that it should be strictly construed unless an express
power is conferred on an agent to enter into contracts of guarantees on behalf of his principal or
to execute or negotiate negotiable instruments for his principal jointly with others.
An agent cannot, by his acts, bind the principal to a larger extent than he is empowered to do
under the Power of Attorney.
Fraud by the power agent does not bind the principal. He cannot be sued or otherwise held
responsible for fraud by the agent.
If the power does not authorize the agent to carry on a business except with limitations, any act
done by him in excess of such power will not bind the principal. For example, power to dispose
off property does not confer a power to mortgage the property.
 Power to manage immoveable property cannot permit principal's ornaments which are a
moveable property.
Model forms
GENERAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that, I, RP slo late GR, rlo………………………….., do
hereby appoint Mr. PK, Advocate, slo Late SN rlo……………………… as my attorney and
authorise them to do all or any of the thing jointly or severally on my behalf.
That the said attorney shall demand, collect and receive in my name and on my behalf all debt,
advances, loans advantages and other claims due to me . They are further empowered to take
all lawful proceedings and means to recover and receive the said loans advances and debts etc.
They are further empowered to prosecute and defend to lawful action suits and claims and refer
the matter to arbitrators, File the suit, compromise the suit and execute such instruments as
they think proper and necessary.
The said attorneys are empowered to borrow such loans and advances as they think proper in
my interest and furnish security of movable and immovable property on such terms and
conditions as they think proper. The said attorneys are empowered to sell, exchange, surrender,
transfer, lease or depose of any houses and buildings, lands, etc, which belong to me in such
manner as they think proper and expedient.
The said attorneys are empowered to invest my monies as the think proper and expedient.
The said attorneys are empowered jointly and severally to deposit the money they collect on
my behalf in my bank account.
The said attorneys are authorised to draw, accept, endorse, negotiate, retire, and pay any bills
of exchange, promissory note cheques, and other negotiable instruments, as they think proper
and expedient in my interest
The said attorneys are authorised to operate to my bank account, close the bank account, and
open bank account in some other bank as they think proper and expedient in my interest.

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The said attorneys are authorised to let out or to give on lease my properties to the persons
they think proper, recover rent, already due, and recover the rent as may due in future from time
to tirne. They are further authorised to sue the persons for recovery to rent, to compromise the
sue and do all other works concerning with it.
The said attorneys are authorised to take the property on lease and execute lease deed for and
on my behalf as my attorneys.
They are authorised to call upon shares belonging to me and attend the meetings of any
company of which I am the shareholder.
The said attorneys are authorised to appoint, or remove the agents to look after my estate and
fix the salaries etc. of the agent on my behalf.
The said attorneys are authorised to do generally of all such things and acts as may attorneys
or attorney, which shall be binding on me.
IN WITNESS WHEREOF I have signed this deed of Power of Attorney in the presence of the
following
Witnesses: Signature.
1..
2.
SPECIAL POWER OF ATIORNEY FOR A COURT CASE
BYTHIS POWER OF ATTORNEY I,……………. son of residing at……………………. .plaintiff in

civil suit No…………… of ……………………………………..hereinafter referred to as the said
suit, pending in the court of the………….. hereby nominate, constitute and appoint Shr……….i
son of Shri.................. resident of as my attorney for me, in my name and on my behalf to do or
execute all or any of the following acts or things in connection with the said suit:
1. To represent me before the said court or in any other, where the said suit is transferred
in connection with the said suit.
2. To engage or appoint any solicitor, counsel, advocate, pleader or lawyer to conduct the
said suit.
3. To prosecute the said suit and proceedings, to sign and verify ad plaints, pleadings,
applications, petitions or documents before the court and to deposit, withdraw and
receive document and any money or moneys from the court or from the defendant either
in execution of the decree or otherwise and sign and deliver proper receipts for me and
discharges for the same.
4. To apply for inspection and inspect documents and records, to obtain copies of
documents and papers.
5. To compromise the suit in such manner as the said attorney shall think fit.
6. To do generally all other acts and things for the conduct of the said suit as I could have
done, if I was personally present.
And I hereby for myself, my heirs, executors, administrators and legal representatives, ratify and
confirm and agree to ratify and confirm whatsoever our said attorney shall do or purport to do by
virtue of these presents.
IN WITNESS WHEREOF, I the said……….. has hereunto set and subscribed my hand
this……..day of 2000.
Signed and delivered by the within named

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WITNESSES;
1.
Roots Institute of Financial Markets (RIFM)
“Every effort has been made to avoid any errors or omission in this book. In spite of this error
may creep in. Any mistake, error or discrepancy noted may be brought to our notice, which,
shall be taken care of in the next printing. It is notified that neither the publisher nor the author
or seller will be responsible for any damage or loss of action to anyone of any kind, in any
manner, therefrom.
ROOTS Institute of Financial Markets, its directors, author(s), or any other persons involved in
the preparation of this publication expressly disclaim all and any contractual, tortuous, or other
form of liability to any person (purchaser of this publication or not) in respect of the publication
and any consequences arising from its use, including any omission made, by any person in
reliance upon the whole or any part of the contents of this publication.
No person should act on the basis of the material contained in the publication without
considering and taking professional advice.

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Helpful Books from RIFM
RIFM PROVIDES AN ON LINE ACCESS TO ITS STUDENTS , FOR A FAST AND QUICK REVISION
OF MODULE . IT IS BASED ON THE CONCEPT ANYWHERE , ANYTIME !!
1. NCFM: FINANCIAL MARKETS: A BEGINNERS MODULE - ONLINE QUESTION BANK

HAVING QUESTION 645 (COST RS. 800/-)
2. NCFM: CAPITAL MARKET (DEALERS) MODULE - ONLINE QUESTION BANK HAVING
QUESTION 750 (COST RS. 800/-)
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HAVING Q UESTION 780 (COST RS. 800/-)
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QUESTION 770 (COST RS. 800/-)
5. NCFM: SECURITIES MARKET (BASIC) MODULE - ONLINE QUESTION BANK
6. NCFM: INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT - ONLINE
QUESTION BANK HAVING QUESTION 630 (COST RS. 800/-)
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13. CERTIFIED PERSONAL FINANCIAL ADVISOR (CPFA) EXAMINATION - ONLINE
QUESTION BANK HAVING QUESTION 1000 (COST RS. 1000/-)
Also available—Study Notes and Practice Books for CFP Modules (Printed copy)
Study Notes (Detailed Study notes as per FPSB syllabus) Cost Rs. 1000/- Per Module
Practice Books (about 800 Questions per Module) Cost Rs. 1000/- Per Module
1. INTRODUCTION TO FINANCIAL PLANNING
2. INVESTMENT PLANNING
3. RISK ANALYSIS AND INSURANCE PLANNING
4. RETIREMENT PLANNING AND EMPLOYEE BENEFITS
5. TAX AND ESTATE PLANNING
Advance Financial Planning Module--- Practice Book

& Study Notes (Cost Rs. 5000/-)
Roots Institute of Financial Markets (RIFM)

Roots 132103
1197 NHBC Mahavir Dal Road. Panipat. InstituteHaryana.
of Financial Markets
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