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CS-EXECUTIVE TAX LAWS – MARATHON- BY SALEEM QURAISHEE
The Law stated in this book is amended

By the Finance Act 2018
ASSESSMENT YEAR 2019-20

JUNE-2019
NEW & OLD SYLLABUS
MARATHON
SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

CS-EXECUTIVE TAX LAWS – MARATHON- BY SALEEM QURAISHEE
MODULE- 1 TAX LAWS (PAPER-4)

A. INCOME TAX - 50 MARKS (NEW) OLD- 70 MARKS
B. GOODS & SERVICE TAX- 50 MARKS(NEW) OLD -30 MARKS
S.NO CHAPTER PAGE-NO
1) BASIC CONCEPTS 1-6
2) AGRICULTURE INCOME 7-9
3) INCOME FROM SALARY 10-37
4) INCOME FROM HOUSE PROPERTY 38-46
5) PROFITS AND GAINS OF BUSINESS PROFESSION 47-83
6) CAPITAL GAINS 84-119
7) INCOME FROM OTHER SOURCES 120-129
8) CLUBBING OF INCOME 130-132
9) SET OFF AND CARRY FORWARD OF LOSSES 133-136
10) DEDUCTIONS 137-155
11) ADVANCE TAX 156-159

BASIC CONCEPTS Page 1
1. COMPUTATION OF TOTAL INCOME AND TAX LIABILITY-
NAME-
PY-2018-19
AY-2019-20
PARTICULARS AMOUNT AMOUNT
1) Income from salaries XXXX
2) Income from house property XXXX
3) Profits and gains of business or profession XXXX
4) Capital gains XXXX
5) Income from other sources XXXX
Total [(1) +(2)+(3)+ (4)+ (5)] XXXX
Less: Adjustment on account of set-off and carry forward of losses XXXX
GROSS TOTAL INCOME XXXX
Less: Deduction u/s 80C to 80U XXXX
TOTAL INCOME/NET INCOME/TAXABLE INCOME XXXX
COMPUTATION OF TAX LIABLITY

TAX ON NET INCOME XXXX
LESS –REBATE U/S 87A XXXX
TAX XXXX
ADD-SURCHARGE XXXX
TAX AND SURCHARGE XXXX
LESS-Marginal relief (if any) XXXX
ADD-HEC XXXX
TAX XXXX
LESS- RELIEF U/S 86/89 XXXX
RELIEF U/S 90 XXXX
RELIEF U/S 90A XXXX
RELIEF U/S 91 XXXX
TAX XXXX
LESS-PREPAID TAXES
 ADVANCE TAX XXXX
 TDS XXXX
 TCS XXXX
TAX PYABLE OR REFUND +-XXXX
SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

2. ROUNDING-OFF OF INCOME AND TAX (SEC. 288A & 288B)

I. The taxable income shall be rounded off to the nearest multiple of ten rupees and for this purpose any
part of a rupee consisting of paisa shall be ignored
II. If such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount
shall be increased to the next higher amount which is a multiple of ten
III. If the last figure is less than five, the amount shall be reduced to the next lower amount which is a
multiple of ten.
Tax liability actually worked out (Rs.)
Tax liability as rounded off (Rs.)
3. WHAT IS AMALGAMATION [SEC.2 (18)]

For a merger to qualify as an "amalgamation" for the purpose of the Income-tax Act, it has to satisfy the following
conditions:
1 All the properties of the amalgamating company immediately before the amalgamation should become the
property of the amalgamated company by virtue of the amalgamation.
2 All liabilities of the amalgamating company immediately before the amalgamation should become the
liabilities of the amalgamated company by virtue of the amalgamation.
3 Shareholder holding not less than three-fourths (in value) of the shares in the amalgamating company (other
than shares already held by the amalgamated company or by its nominee) should become shareholders of the
amalgamated company by virtue of the amalgamation.
4. WHAT IS "DEMERGER" [SEC.2 (19AA)].

1. All the property of the undertaking, being transferred by the demerged company, becomes the property
of the resulting company.
2. All the liabilities relatable to the undertakings being transferred by the demerged company become the
liabilities of the resulting company.
3. The property and the liabilities of the undertaking being transferred by the demerged company are
transferred at values appearing in its books of account immediately before the demerger. For this
purpose, any change in the value of assets consequent to their revaluation shall be ignored.
4. The resulting company issues shares to the shareholders of the demerged company on a proportionate
basis as a consideration for demerge
5. The shareholders holding not less than three-fourths in value of the shares in the demerged company
(other than the shares already held therein immediately before the demerger, or by a nominee for, the
resulting company or, its subsidiary) become shareholders of the resulting company.
6. The transfer of the undertaking is on a going concern basis.
7. The demerger is in accordance with the conditions, if any, notified under section 72A(

5. TAX RATES- (AY -2019-20)- FINANCE ACT 2018
A. INDIVIDUAL/HUF/AOP/BOI/ARTIFICIAL JUDICIAL PERSON-

1. NORMAL RATES AY-2019-20
INDIVIDUAL/HUF/AOP/BOI/AJP SENIOR CITIZEN( 60 OR MORE) SUPER SENIOR CITIZEN(80 OR MORE)
INCOME - RATE INCOME- RATE INCOME- RATE
0- 250000 = Nil 0- 300000 = Nil 0- 500000 = Nil
Next 250000 = 5% Next 200000 = 5% Next 500,000 = 20%
Next 500,000 = 20% Next 500,000 = 20% Balance = 30%
Balance = 30% Balance = 30%
2. REBATE- 87A
I. Allowed to Individual only (Resident in India)
II. T.I does not exceed ` 3,50,000
III. 100% I.T payable or ` 2500
2500 (which
( ever is less)
POINT TO BE NOTED-
I. Rebate under section 87A is, however, not available in respect of tax payable @10% on long-term
capital gains taxable under section 112A.
3. SURCHARGE- @10 % OF TAX IF T.I EXCEEDS 50 LAKHS but do no exceeds 1Cr.

@15% OF TAX IF T.I EXCEEDS 1 CR
4. H & EC- @ 4% of (Tax + SC)
 POINT TO BE NOTED-
A. SPECIAL BENEFITS FOR ONLY RESIDENT INDIVIDUALS
1) Deficiency in Normal Income: This benefit is available to a resident individual/HUF provided his
normal income is below the exemption limit (2,50,000/3,00,000/5,00,000).
2) The difference between the normal income and the exemption limit is referred to as deficiency.
3) Such deficiency is allowed to be set-off against the special income and tax is charged @ 20% or 15%
(a s the case may be) on the balance income remaining after adjustment of deficiency.
4) Deficiency needs to be adjusted in the following order:
 Firstly against LTCG
 Balance against STCG u/s 111A
 No deficiency can be adjusted against Casual Income
B. Special income-
I. LTCG-20%
II. STCG-111A-15%
III. LTCG-112A-10%
IV. Casual income-30%
 No deduction under section 80C-80U is allowed from above three special income-

B. FIRM(INCLUDING LLP)/LOCAL AUTHORITY

1. FLAT RATE- 30%
2. SURCHARGE- @12% OF TAX IF T.I EXCEEDS 1 CR
3. H & EC- @ 4% of (Tax + SC)
C. CO-OPERATIVE SOCEITY-
1.
First 10000 -10%
Next 10000 -20%
Balance -30%
2. SURCHARGE- @12% OF TAX IF T.I EXCEEDS 1 CR
3. H & EC- @ 4% of (Tax + SC)
D. COMPANY-
1) A Domestic company whose total turnover or Gross receipts ………..not exceeding 250Cr in
PY 2016-17……….25%
2) Any other Domestic Company -30%

3) Foreign Company- 40%
4) SURCHARGE-
If Net income does If N.I exceeds 1Cr but does not exceed 10 Cr. If N.I exceeds 10 Cr
not exceed 1 Cr
DOMESTIC CO. NIL 7% 12%
FOREIGN CO. NIL 2% 5%
5) H &EC- @ 4% of (Tax + SC)
6. MARGINAL RELIEF-
1) Marginal Relief is a reduction from the Tax Payable by the Assessee.
2) Relief from Tax Payable shall be given, where the Tax Payable together with Surcharge exceeds
the Income earned by an Assessee in excess of `50 Lakhs or `1 Crore. Such Relief is known as
Marginal Relief.
3) The principle in Marginal Relief is that the Additional Amount of Income Tax Payable with
Surcharge in excess of Income over `50 Lakhs or `1 Crore, should not be more than the amount
in excess of `50 Lakhs or `1 Crore
4) Computation of Marginal Relief
Marginal Relief = Tax on Total Income including Surcharge
Less: (Total Income – `50 Lakhs or`1 Crore) + (Tax on `50 Lakhs or `1 Crore
excluding Surcharge)
Tax Payable = Tax on Total Income including Surcharge
Less: Marginal Relief as computed above

 SPECIAL RATES OF TAX-( FIXED BY INCOME TAX ACT)

SECTION NATURE OF INCOME RATE
111A Short term capital gains from transfer of securities on which STT has charged 15%
112 Long term capital gains (other than LTCG taxable as per section 112A) 20%
112A Long term capital gains on transfer of – 10%

I. Equity shares in a company [On LTCG>
II. Unit of an equity-oriented fund ` 1 lakh]
III. Unit of business trust
Condition for availing the benefit of this concessional rate is Securities
Transaction tax should have been paid–
I. Equity share in a company – Both at the time of acquisition and transfer
II. Unit of an equity-oriented fund- At the time of transfer
III. Unit of business trust- At the time of transfer
Note: LTCG upto ` 1 lakh is exempt. LTCG exceeding ` 1 lakh is taxable @10%.
115BB Winnings from lotteries ,cross word puzzles ,races, horse races ,card games and 30%
others games of any sort or gambling or betting of any form or nature whatsoever.
115BBE  Where the TI referred in section 68/69/69A/69B/69C/69D and reflected in ROI
furnished under section 139(1) or
 Determined by AO
60%
I. Cash credit [Sec. 68]-
II. Unexplained investments [Sec. 69]- +
III. Unexplained money, etc. [Sec. 69A] – 25%
IV. Amount of investments, etc., not fully disclosed in books of account [Sec. (Surcharge)
69B]- +
V. Unexplained expenditure, etc. [Sec. 69C] – 4% HEC
VI. Amount borrowed or repaid on hundi [Sec. 69D] –
Point to be noted-
I. No basic exemption or allowance or expenditure shall be allowed to the
assessee under any provision of the Income-tax Act, 1961 in computing such
deemed income.
II. Further, no set off of any loss shall be allowable against income brought to
tax under sections 68 or section 69 or section 69A or section 69B or section
69C or section 69D.
115BBDA Income by way of dividend in excess of ` 10 Lakhs in case of an I/HUF/Firm who is 10%
resident in India
115BBF Income by way of royalty in respect of patent developed and registered in India in 10%
respect of person who is resident in India
115BBG Income from transfer of carbon credits- 10%
POINT TO BE NOTED-

PROBLEM:1
Short term capital gain on transfer of shares on which STT is paid ` 1,30,000
Other income ` 1,66,000
Calculate tax of Mr. X aged 45 years?
ANSWER:1
PROBLEM:2 From the following data, find out tax liability for the assessment year 2019-20
X (a resident AB(HUF) (a resident Hindu
individual) (age: 32 undivided family)
years) Rs. Rs.
Income from house property 2,65,000 2,72,000
Capital gain
- Short-term 12,000 12,000
- Long-term on sale of silver 35, 000 60, 000
Deductions under sections 8OCCC, 80D, 80DD and 7,000 8,000
80G
Payment of life insurance premium, contribution to 28,000 30, 000
public provident fund
ANSWER:2
PROBLEM:3
Calculate the tax on following income of Mr. X aged 42 years an Indian resident
Other income ` 2,10,000
Short term capital gain on sale of shares on which STT has been paid ` 35,000
Taxable Long Term capital gains ` 30,000
ANSWER:3
PROBLEM:4 Compute tax liability in the following cases for Assessment Year 2019-20.
I. Mrs A (resident) has total income of Rs 50,50,000
II. Mrs A (resident) has total income of Rs 51,00,000
III. Mrs A (resident) has total income of Rs 1,01,00,000
IV. Mrs A (resident) has total income of Rs 1,02,00,000
ANSWER:4

AGRICULTURE INCOME- Page 7
1. INCOME-
2. AGRICULTURAL INCOME- [SECTION 2(1A)]

a) Income from Letting-Out of Land for Agricultural Purposes - Section 2(1A)(a)- Any rent or revenue
derived from land which is situated in India and is used for agriculture purpose.
b) Income from Agricultural Operations - Section 2(1 A)(b)-

 Any income derived from such land by agriculture operation or from processing of agricultural
produce.
 Income earned by any person from sale of crops which have been grown as a result of agricultural
operations is treated as agricultural income in the hands of the cultivator.
 (Agricultural Operations = Basic Operations + Subsequent Operations)
c) INCOME FROM FARM BUILDING - SECTION 2(1 A)(C)

Bonafide annual value of house property is taxable under Section 22.However, income from House
property which satisfy the following cumulative conditions would be treated as agriculture income and
would be exempt from tax under section 10(1).
I. Building is on or in the immediate vicinity of land situated in India which is used for agricultural
purposes.
II. It is occupied by cultivator or receiver of rent or revenue.
III. It is used as (a) dwelling house; (b) store house; or (c) other out building.
IV. The land is assessed to land revenue or a local rate. If it is not assessed to land revenue or local rate
then such land should be situated outside urban area.
Income derived from any building or land arising from the use of such building or land for any purpose
(including letting for residential purpose or for the purpose of any business or profession) other than
agriculture shall not be agricultural income.

3. TAX TREATMENT OF AGRICULTURAL INCOME-

A. Agricultural Income Earned Outside India: No exemption is available in respect of agricultural income
earned outside India. The taxability of agricultural income earned outside India depends upon the
residential status of the assessee:
 In case of ROR, such income would always be taxable.
 In case of NOR & NR, such income would be taxable only if it is received directly in India.
B. Agricultural Income Earned in India:
POINT TO BE NOTED-
CASE-1 Company Carrying on Agricultural Operations:

I. Income from agricultural operations would be treated as agricultural income in the hands of
the company and thus exempt u/s 10(1).
II. Dividend distributed by a company carrying on agricultural operations shall be treated as
normal dividend on which a domestic company would be liable to pay AIT u/s 115-O. Dividend
received from a domestic company is exempt in the hands of the shareholders u/s 10(34).
Provisions of Section 115BBDA shall apply in case of resident shareholders.
III. Provisions of Section 115-O don't apply in case of foreign companies due to which dividend
received from foreign companies is taxable in the hands of the shareholders.
CASE-2 Partnership Firm Carrying on Agricultural Operations:

I. Income from agricultural operations would be treated as agricultural income in the hands of
the partnership firm and thus exempt u/s 10(1).
II. Share of profit from a partnership firm is exempt in the hands of the partner’s u/s 10(2A).
III. Generally, interest on capital and salary received by the partners from a partnership firm are
treated as income in the hands of the partners u/h ‘income from business/profession'.
However, where such salary or interest on capital is paid by a partnership firm earning income
through agricultural operations, such salary/interest on capital would be treated as agricultural
income in the hands of the partners as per the decision of the Supreme Court in the case of
R.M. Chidambaram Pillai vs CIT.
CASE-3 Salary Received by a Person Employed in Agricultural University:-Where any person is

employed in any agricultural university, the salary income received by him shall be taxable u/h
’income from salary'. Such salary shall not be considered as agricultural income in the hands of such
person.
4. PARTIALLY AGRICULTURAL AND PARTIALLY FROM BUSINESS-

INCOME NON AGRICULTURAL AGRICULTURE INCOME TAX RULE
INCOME INCOME
1) Growing and manufacturing 40% 60% Rule 8
tea in India
2) Growing and manufacturing 35% 65% Rule 7A
rubber
3) Sale of coffee grown and 25% 75% Rule 7B(1)
cured by seller
4) Sale of coffee grown, cured, 40% 60% Rule 7B(1A)
roasted and grounded by
seller in India.

5) Any other case (Rule 7)- For disintegrating a composite business income which is partly agriculture
and partly non agriculture ,the market value of any agriculture produce, raised by the assessee or
received by him as rent in kind and utilized as raw material in his business , is deducted. No further
deduction is permissible in respect of any expenditure incurred by the assessee as a cultivator or
receiver of rent in kind
PROBLEM:1 Mr. Ankush grows sugarcane and uses the same for the purpose of manufacturing sugar in
his factory. 30% of sugarcane produce is sold for Rs. 10 lacs, and the cost of cultivation of such
sugarcane is Rs. 5 lacs. The cost of cultivation of the balance sugarcane (70%) is Rs. 14 lacs and the
market value of the same is Rs. 22 lacs. After incurring Rs. 1.5 lacs in the manufacturing process on the
balance sugarcane, the sugar was sold for Rs. 25 lacs. Compute Mr. Ankush business income and
agricultural income.
ANSWER:1
5. TAX ON NON-AGRICULTURAL INCOME IF THE ASSESSEE EARNS

AGRICULTURAL INCOME ALSO-
i. There is no tax on agricultural income but if an assesses has non-agricultural income as well as
agricultural income such agricultural income is included in his Total Income for the purpose of
computation of Income-tax on non-agricultural income.
ii. This is also known as partial integration of agricultural income with non-agricultural income or
indirect way of taxing agricultural income.
iii. Such partial integration is done only in the case of: (i) individual; (ii) HUF; (iii) AOP/BOI; (iv) Artificial
juridical person.
iv. It is not done in the case of; (i) firm; (ii) company, (iii) co-operative society; (iv) local authority.
The partial integration is done to compute the tax on non-agricultural income only when the following
two conditions are satisfied:
Condition-1-
Condition-2-
Computation of tax where there is agricultural income also: The following steps should be followed to
calculate the tax:

INCOME UNDER HEAD SALARY-(CS-EXECUTIVE) Page 10
1. BASIC ELEMENTS-
1) Every payment made by an Employer to his Employee for service rendered, would be chargeable to
tax as Income from Salaries.
2) Salary includes both Monetary and Non-Monetary facilities –
a) Monetary Facilities – Basic Salary, Bonus, Commissions, Allowances, etc.
b) Non-Monetary Facilities – Housing Accommodation, Medical Facility, Perquisites, etc.
3) Employer-Employee Relationship: To be taxable under “Salaries” -
(a) There should be an Employer – Employee relationship or Master- servant
(b) The Employment may be part-time or full-time employment.
4) Employer may be an individual, firm, and association of persons, company, corporation, Central
Government, State Government, public body or a local authority.
5) A Member of Parliament or of State Legislature is not treated as an employee of the Government.
Salary and allowances received by him are, therefore, not chargeable to tax under the head "Salaries"
but are chargeable to tax under section 56 under the head "Income from other sources".
2. FOREGOING OF SALARY -
I. Section 15 taxes salary on "due" basis even if it is not received.
II. If, therefore, an employee foregoes his salary, it does not mean that salary so foregone is not
taxable.
III. Once salary has accrued to an employee its subsequent waiver does not make it exempt from tax
liability.
IV. Such voluntary waiver or foregoing by an employee of salary due to him is merely an application of
income and is nonetheless chargeable to tax.
CASE-1 An employee instructs his employer that he is not interested in receiving his salary for April
2018 and the same might be donated to a Trust. In this case, the employee cannot claim that he
cannot be charged in respect of the salary for April 2018. It is only due to his instruction that the
donation was made to a Trust by his employer. It is only an application of income. Hence, the salary
for the month of April 2018 will be taxable in the hands of the employee.

3. SURRENDER OF SALARY -
I. If an employee opts to surrender his salary to the Central Government under section 2 of the
Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered
would be excluded while computing his taxable income.
II. Benefit of tax exemption in respect of salary so surrendered is available to all employees whether
they are employed in private sector or public sector
4. SALARY UNDER SECTION 17(1)-

Salary is defined to include the following-
I. Wages ,any annuity or pension any gratuity
II. Any fees, commission, perquisites or profits in lieu of or in addition to any salary or wages;
III. Any advance of salary;
IV. Any payment received by an employee in respect of any period of leave not availed by him;
V. The portion of the annual accretion in any previous year to the balance at the credit of an employee
participating in a recognized provident fund to the extent it is taxable;
VI. Transferred balance in a recognized provident fund to the extent it is taxable; and
VII. The contribution made by the Central Government or any other employer to the account of an
employee under a notified pension scheme referred to in section 80CCD.
5. PLACE OF ACCRUAL OF SALARY -

1) The place of accrual of salary is the place of employment.
2) Salary earned in India (Service rendered in India) is deemed to accrue or arise in India even if -
a) it is paid outside India,
b) it is paid or payable after the contract of employment in India comes to an end.
3) If an Employee gets pension paid abroad in respect of services rendered in India, the same will be
deemed to accrue or arise in India.
Exceptions: Any Pension payable outside India by the Government to its Officials and Judges who
permanently reside outside India shall not be deemed to accrue or arise in India. Salary of an
Employee in the UNO or in its Constituent Bodies is exempt under United Nations (Privilege and
Immunity) Act.
4) Leave Salary paid abroad in respect of leave earned in India is deemed to accrue or arise in India.
5) Salary paid by Government for Service rendered outside India:
a) Sec.9(1)(iii) provides that income chargeable under the head “Salaries” payable by the
Government to a citizen of India for service rendered outside India, will be deemed to accrue or
arise in India.
b) If the Non-Resident is not an Indian Citizen, Salary paid by the Government of India shall not be
deemed to accrue or arise in India, and consequently not chargeable to tax.
c) U/s 10(7), any Allowance or Perquisites paid or allowed outside India by the Government to a
Citizen of India for rendering services outside India will be fully exempt.

6. KEYMAN INSURANCE POLICY

1) Keyman Insurance Policy (KIP) is a Life Insurance Policy taken by a person on the life of another
person, who is or was an Employee of the first-mentioned person, or is or was connected in any
manner with the business of the first-mentioned person.
2) The sums received under a Keyman Insurance Policy, including the sum allotted by way of bonus on
such policy, is considered as Income u/s 2(24)(xi).
3) Tax treatment-
a) For Employees: Sum received by an employee under KIP is deemed to be Profits in lieu of Salary
and taxable under the head “Salaries”. [Sec.17 (3)].
b) For Other Persons: Sum received under KIP is deemed to be income chargeable under the head
“Profits and Gains of Business or Profession” [Sec.28 (vi)] or under the head “Income from
Other Sources” [Sec.56 (2)(iv)]
7. BASIS OF CHARGE OF SALARY INCOME-SECTION 15
CASE-2 If A draws his salary in advance for the month of April 2019 in the month of March 2019
itself, the same becomes chargeable on receipt basis and is to be assessed as income of the P.Y.2018-
19 i.e., A.Y.2019-20. However, the salary for the A.Y.2020-21 will not include that of April 2019.
CASE-3 If the salary due for March 2019 is received by A later in the month of April 2019, it is still
chargeable as income of the P.Y.2018-19 i.e., A.Y.2019-20 on due basis. Obviously, salary for the
A.Y.2020-21 will not include that of March 2019.
PROBLEM:1 X joins a company on June 1, 2018 on monthly salary of ` 30,000 (he was not in
employment prior to June 1, 2018). As per the terms of employment, salary becomes due on the first
day of the next month and is paid on the seventh day of the next month. Determine the amount of
salary chargeable to tax for the assessment year 2019-20.
ANSWER:1 ` 2, 70,000.
PROBLEM:2 Suppose in problem P-1, the salary due for payment on last day of each month, find out
taxable salary for the AY 2019-20.
ANSWER:2 ` 3,00,000
PROBLEM:3 X joins a company on December 1, 2015 in the pay scale of ` 10,000 – `1,000 –` ` 25,000
(salary at the time of joining is fixed at ` 12,000). As per the terms of employment salary becomes
"due" on the first day of the next month, and it is generally paid on the fifth day of the next month. Find
out the salary taxable for the assessment year 2019-20.
ANSWER:3 ` 1,71,000
PROBLEM:4 Assume in above problem salary becomes due on the last day of each month. Find out
salary chargeable to tax for AY 2019-20.
ANSWER:4 `1,72,000

PROBLEM:5 Up till June 30, 2018, X is in the employment of A Ltd. on the fixed salary of ` 25,000 per
month which becomes "due" on the first day of the next month. On July 1, 2018, X joins B Ltd. (salary
being ` 30,000 per month which becomes "due" on the last day of each month). Salary is actually paid
on the seventh day of the next month in both cases. Find out the amount of salary chargeable to tax for
the assessment year 2019-20.
ANSWER:5 `3,70,000
PROBLEM:6 Assume in problem P-5 that salary, becomes due on the last day of the month, in the case
of A Ltd. and on the first of the next day of month in the case of B Ltd., find out the taxable salary for the
assessment year 2019-20.
ANSWER:6 `3,15,000
8. ADVANCE SALARY V/S ADVANCE AGAINST SALARY

A. ADVANCE SALARY- Salary for a future period is taken in advance by the employee.
I. Advance salary is taxable on receipt basis in the assessment year relevant to the previous year in which it is
received, irrespective of incidence of tax in the hands of the employee.
II. The recipient can, however, claim relief in terms of section 89.
B. Advance Against Salary:

I. Advance against salary is different from advance salary.
II. It is an advance taken by the employee from his employer.
III. This advance is generally adjusted with his salary over a specified time period.
IV. It cannot be taxed as salary.
9. Arrear Salary –
I. It is taxable on receipt basis, if the same has not been subjected to tax earlier on due basis
II. Recipient can claim relief under section 89.
10. Salary in lieu of notice period – It is taxable under section 15 on receipt basis.
11. Salary to a partner-Salary paid to a partner by a firm is an appropriation of profits. It is, therefore, not
chargeable under the head "Salaries" but is taxable under the head "Profits and gains of business or
profession
12. Fees and commission-Fees and commission are taxable as salary irrespective of the fact that they are
paid in addition to or in lieu of salary. Commission paid to a director (not being an employee) for his
giving guarantee for repayment of loan, etc., is taxable under the head "Income from the other
sources".
13. Bonus -It is taxable in the year of receipt if it has not been taxed earlier on the basis. If bonus is
received in arrears, the assessee can claim relief in terms of section 89.
14. Annuity [Sec. 17(1)(ii)] -An annuity payable by a present employer is taxable as salary even if it is paid
voluntarily without any contractual obligation of the employer. An annuity received from an ex-
employer is taxed as profit in lieu of salary.
15. Remuneration for extra duties - Where an employee agrees to do something outside the duties of his
office, thereby enlarging scope of his office, for which he is given extra payment, that payment is
taxable as salary.
16. Salary received from a United Nations Organization – Salary received from a United Nations
Organization is not taxable in India.

17. HOW TO COMPUTE SALARY INCOME-

NAME-
PY-
AY-
Particulars Details Amount
Basic Salary XXXX
B/F/C XXXX
Gratuity XXXX
Leave Encashment XXXX
Pension XXXX
Retrenchment Compensation XXXX
Compensation received under Voluntary Retirement Scheme
Allowances:
Dearness Allowance (DA) /Dearness Pay (DP)
House Rent Allowance
Children Education Allowance
Hostel Expenditure Allowance
Entertainment Allowance
Medical Allowance
Conveyance Allowance
City Compensatory Allowance
Uniform Allowance
Transport Allowance
Other Allowances XXXXX
Perquisites u/s 17(2)
Any Obligation of Employee paid by Employer
Accommodation
Shares and securities issued under ESOP
Employer's Contribution to Superannuation Fund
Gas, Electricity & Water
Education Facility
Medical Facility
Other fringe benefits ..
Leave Travel Concession
Contribution of Employer to Provident Fund
Interest on Recognized Provident Fund
Any other item
Gross Salary XXXX
Less: Deduction u/s 16
I. Standard deduction xxxx
II. Entertainment Allowance XXXX
III. Tax on employment/Professional tax XXXX
INCOME FROM SALARY XXXX

18. ALLOWANCES-

19. PERQUISITE-SEC 17(2)-

Meaning of Perquisite:- In simple words, perquisites are the benefits or facilities provided by an
employer to his employee in addition to the normal salary.
1) Rent free accommodation - Section 17(2) (i) & Rule 3(1)or Accommodation at concessional
rent - Section 17(2)(ii) & Rule 3(1)
2) Perquisites taxable in case of specified employees only - Section 17(2)(iii) & Rules 3(2) to 3(6)
A. Motor car facility - Section 17(2)(iii) 4 Rule 3(2)
B. Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
C. Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
D. Free education facility - Section 17(2)(iii) & Rule 3(5)
E. Free transport facility - Section 17(2)(iii) & Rule 3(6)
POINT TO BE NOTED-
‘Specified Employee'; An employee shall be treated as a specified employee, if he falls under any of the
following circumstances:
I. The employee is a director of the company (whether full-time or part-time): or
II. The employee has a substantial interest in the company (ie the employee should be the beneficial
holder of at least 20% equity shares of the company): or
III. The monetary income of the employee u/h salary for the relevant previous year should be more
than `50,000 (monetary income u/h salary means income u/h salary computed in accordance with
the provisions of the Income Tax Act, 1961, however the value of non-monetary perquisites shall
not be taken into consideration).
3) Any obligation of the employee discharged/met by the employer - Section 17(2)(iv)
4) Payment of life insurance premium by the employer on behalf of the employee - Section
17(2)(v)
5) Specified securities or sweat equity shares allotted/transferred by the employer to his
employees free of cost or at concessional rates - Section 17(2)(vi)
6) Employer's contribution to approved superannuation fund - Section 17(2)(vii)
7) Any other fringe benefit - Section 17(2)(viii) 4 Rule 3(7)
A. Interest free/concessional loans - Section 17(2)(viii) 4 Rule 3(7)(i)

B. Facility of travelling, touring, accommodation, etc - Section 17(2)(viii) 4 Rule 3(7)(ii)
C. Free food/refreshment - Section 17(2)(viii) & Rule 3(7)(iii)
D. Gifts to employees - Section 17(2)(viii) & Rule 3(7)(iv)
E. Expenses on credit cards (ie credit card facility) - Section 17(2)(viii) & Rule 3(7)(v)
F. Club facilities - Section 17(2)(viii) 4 Rule 3(7)(vi)
G. Use of employer s moveable assets by employee - Section 17(2)(viii) & Rule 3(7)(vii)
H. Sale of moveable assets by employer to employee - Section 17(2)(viii) & Rule 3(7)(viii)
I. Any other fringe benefit - Section 17(2)(viii) & Rule 3(7)(ix)
8) Medical facility - Proviso to Section 17(2)

9) Leave Travel Concession (LTC)/Leave Travel Assistance (LTA) - Section 10(5) & Rule 2B

1) RENT FREE ACCOMODATION OR ACCOMODATION AT CONCESSIONAL RATE

I. Accommodation provided to employee may be (a) unfurnished (b) furnished.
II. Such accommodation may be provided (a) rent free (b) at concessional rate
III. Accommodation includes house, flat, farm house, hotel, motel, guest house, caravan, mobile home
etc.
IV. Furniture includes radio sets, television, refrigerator, air conditioner and other house hold
appliances
(A) Accommodation provided by Government to its employees-
Point to be noted-
RFA not taxable in case of the following-
I. Accommodation provided to judge of a High court/Supreme court.
II. Accommodation provided to an official of parliament.
III. Accommodation provided to Union minister, Leader of opposition.
IV. Accommodation provided to serving chairman/Member of UPSC
(B) Accommodation provided by any other Employer

(C) A FURNISHED ACCOMMODATION IN A HOTEL –

The value of the perquisite is determined on the basis of lower of the following two
I. 24 per cent of salary paid or payable for the period during which such accommodation is provided
in the previous year
II. Actual charges paid or payable by the employer to such hotel
Exception: If an accommodation is provided in a hotel and the following two conditions are satisfied,
nothing is chargeable to tax.
I. The hotel accommodation is provided for a total period not exceeding to aggregate 15 days in a
previous year
II. Such accommodation is provided on an employee's transfer from one place to another place
Note: If in the aforesaid case, the hotel accommodation is provided for more than 15 days, then the
perquisite is not taxable for the first 15 days. After that it is chargeable to tax.
Points to be noted-
I. Meaning of salary-Basic salary +Dearness allowance(if terms of employment so provide)+All
taxable allowances from more than one employers
II. Salary shall be calculated on accrual basis.
III. Advance salary and arrears of salary shall not be considered for RFA.
RFA not taxable in case of following-

1) Above rules are not applicable to any accommodation located outside in a remote area i.e.
• an area located at least 40 Km away from town having population less than 20000
• Temporary accommodation (of area 800 sq.ft or less) located 8 km away from local limit of
municipality or cantonment board.
Provided to an employee working at mining/onshore oil exploration/project execution/dam/power
generation/offshore site
2) Rent Free Accommodation Provided at Two Places: Where an employee has been transferred from
one place to another and he is provided with accommodation at the new place of posting while
retaining the accommodation at the original place, perquisite value shall be determined as under:
 For the initial 90 days: Perquisite value of only one of the accommodation shall be taxable.
Obviously, the employee would prefer to choose the accommodation with lower perquisite value.
 After 90 days: Perquisite value of both the accommodations shall be taxable.

3) PERQUISITES TAXABLE IN CASE OF SPECIFIED) EMPLOYEES ONLY -

SECTION 17(2)(III)
 PERQUISITES TAXABLE IN CASE OF SPECIFIED EMPLOYEE ONLY
A. Motor car facility - Section 17(2)(iii) 4 Rule 3(2)
B. Facilities of gardener, watchman, sweeper, servant, etc - Section 17(2)(iii) & Rule 3(3)
C. Facilities of gas, electricity and water - Section 17(2)(iii) & Rule 3(4)
D. Free education facility - Section 17(2)(iii) & Rule 3(5)
E. Free transport facility - Section 17(2)(iii) & Rule 3(6)
 Monetary Perquisite V/S Non-Monetary Perquisite:

I. If the facility has been arranged by the employer himself, such perquisite is known as nonmonetary
perquisite.
II. If the facility has been arranged by the employee himself but payment for the same is made by the
employer on behalf of the employee or the employer reimburses the expenditure incurred by the
employee, such perquisite is known as monetary perquisite.
III. Section 17(2)(iii) applies only if the facilities mentioned above have been provided by way of non-
monetary perquisite.
IV. If the above facilities are provided by way of monetary perquisites, such facilities shall not be
covered u/s 17(2)(iii). Instead, such facilities would get covered u/s 17(2)(iv) and would be taxable
in case of specified as well as non-specified employees.

A. VALUATION OF PERQUISITE IN RESPECT OF MOTOR CAR-
1) CAR OWNED OR HIRED BY AN EMPLOYER-
A. RUNNING & MAINTENACE MET BY EMPLOYER-
I. OFFICIAL PURPOSE- NIL
II. PERSONAL PURPOSE- Actual expenditure XXXX

Add- R/M expenses XXXX
Add-10% of AC XXXX
XXXX
Less –Amount recovered from employee XXXX
TAXABLE VALUE OF PERQ IN THE HANDS OF EMPLOYEE XXXX
III. PARTLY OFFICAL/PERSONAL-
 `1800 PER MONTH (1600 CC OR LESS) XXXX

 `2400 PER MONTH (above 1600 cc) XXXX
 IF DRIVER IS PROVIDED `900 PM XXXX
TAXABLE VALUE OF PERQ- XXXX
NOTE- Expenditure recovered from employee is not deductible
B. RUNNING & MAINTENING EXPENSES MET BY EMPLOYEE-
II. PERSONAL PURPOSE- 10% OF ACTUAL COST

OR HIRE CHARGES XXXX
XXXX
Less –amount recovered from employee XXXX
TAXABLE VALUE OF PERQ XXXX
III. PARTLY OFFICIAL/PERSONAL-

 IF DRIVER IS PROVIDED `900 PM XXXX

2) CAR OWEND AND HIRED BY EMPLOYEE-
A. RUNNING & MAINTENACE MET BY EMPLOYER-

II. PERSONAL PURPOSE- Actual expenditure XXXX

Add- R/M expenses XXXX
XXXX
Less –Amount recovered from employee XXXX
TAXABLE VALUE OF PERQ IN THE HANDS OF EMPLOYEE XXXX
III. PARTLY OFFICAL/PERSONAL-

ACTUAL EXPENDITURE INCURRED XXXX
Less-official purpose
 IF DRIVER IS PROVIDED 900 PM XXXX
B. RUNNING & MAINTENING EXPENSES MET BY EMPLOYEE- (NOT TREATED AS PERQ)
Point to be noted-
1) CONDITIONS TO BE SATISFIED IF CAR IS USED FOR OFFICIAL PURPOSES -
a) The employer has maintained complete details of journey undertaken for official purposes which
may include date of journey, destination, mileage and the amount of expenditure incurred
thereon.
b) The employer gives a certificate to the effect that the expenditure was incurred wholly and
exclusively for the performance of official duties.
2) 'Month'- Meaning of – The word "month" in the table denotes completed month according to the
English calendar and a part of the month is left out of consideration.
3) When two (or more car) are allowed – The perquisite will be valued as follows –
I. Two or more cars are owned or hired by the employer.
II. The employee ( or any member of his household) are allowed the use of such motor-cars (or all
or any of such motor-cars) (otherwise than wholly and exclusively in the performance of his
duties).
4) CAR FACILITY NOT CHARGEABLE TO TAX-

I. Car facility between office and residence – The use of motor car by an employee for the
purposes of going from his residence to the place where the duties of employment are to be
performed or from such place back to his residence, is not chargeable to tax.
II. Conveyance facility to judges –
III. Conveyance facility to Chairman/members of UPSC –.

B. DOMESTIC SERVANTS -
C. GAS, ELECTRIC ENERGY OR WATER SUPPLY PROVIDED FREE OF COST –
D. VALUATION OF PERQUISITE IN RESPECT OF FREE EDUCATION–

1) TAXABLE ONLY IN CASE OF SPECIFIED EMPLOYEES.
2) Expenditure incurred by the employer for providing free education facility or training to the employee
is NOT TAXABLE.
3) Taxability of education facility provided to other members of the employee household shall be as
follows:
a) Educational institution is owned by the Employer
 Children: Cost of education in a similar institution in or near the locality shall be taken as
perquisite value. However, exemption of Rs 1,000 per month shall be provided per child without
any limit on the number of children.
 Other Members: Cost of education in a similar institution in or near the locality shall be taken as
perquisite value. No exemption is available in case of other family members.
 Any amount recovered from the employee can be deducted in both the cases.
b) EDUCATIONAL INSTITUTION IS NOT OWNED BY THE EMPLOYER
 Children: Actual expenditure incurred by the employer shall be taken as perquisite value.
(Exemption of Rs 1,000)
 Other Members: Actual expenditure incurred by the employer shall be taken as perquisite value.
No exemption is available in case of other family members.
 Any amount recovered from the employee can be deducted in both the cases.

4) Section 17(2)(iv) (Monetary Perquisite

 Taxable in case of both specified as well as non-specified employees
 Perquisite Value = Amount reimbursed/paid by the employer
 Any amount recovered from the employee can be deducted.
Point to be noted-
1) Rs.1000 per month per child shall be exempted without any restriction on number of children.
2) Child includes adopted child, stepchild of the assessee, but does not include grandchild or illegitimate
child.
3) Any amount charged from the employee for such facility shall be reduced from the above value.
4) Contribution made under an Educational Trust, created for the children of particular group of
employees, is not taxable.
5) Training to employees not chargeable to tax.
6) Scholarship given by Employer Company to children of employee is not assessable as perquisite
E. FREE TRANSPORT FACILITY

1. Transportation facilities provided by airlines/railways to their employees or members of his household-NIL
2. Other employees employed by an employer engaged in carriage of goods or passengers
 Transport facilities provided free of cost- Value at which such benefit or amenity is offered by
the employer to the public
 Transport facilities provided at concessional rate - Value at which such benefit or amenity is
offered by the employer to the public (-) Amount recovered from employee
3) EMPLOYEE'S OBLIGATION MET BY EMPLOYER [SEC. 17(2)(IV)] –

I. Amount paid by an employer in respect of any obligation which otherwise would have been
payable by the employee is taxable in all cases.
4) AMOUNT PAYABLE BY EMPLOYER TO EFFECT AN ASSURANCE ON THE LIFE

OF EMPLOYEE [SEC. 17(2)(V)] –
I. Life insurance premium paid by the employer to LIC or any other insurance company for a life insurance
policy taken in the name of the employee or any member of his family shall be taxable in the hands of the
employee as a perquisite u/s 17(2)(v).
II. The employee shall be entitled to claim deduction u/s 80C in respect of the life insurance premium paid by
the employer subject to the conditions specified u/s 80C.
III. Other insurance premiums like accident insurance premium, group insurance premium, etc shall not be
regarded as a perquisite for the employee because such schemes are generally for the benefit of the
employer and not the employee.
IV. Proviso to Section 17(2): Payment/reimbursement of Mediclaim insurance premium by an employer for a
policy taken in the name of the employee or his family member is exempt in the hands of the employee.

5) APPROVED SUPERANNUATION FUND-

I. Employer’s contribution to an approved superannuation fund is exempt in the hands of the
employee to the extent of Rs 1, 50,000.
II. Employer s contribution in excess of Rs 1, 50,000 shall be taxable as a perquisite u/s 17(2)(vii).
6) SWEAT EQUITY SHARES – SECTION 17(2)(VI)

I. Value of perquisite u/s 17(2)(vi) shall be calculated in the following manner:
FMV of Shares/Securities on the Amount Recovered No. of Shares/Securities

(Minus)
Date of Exercising the Option from the Employees X Allotted to the Employees
II. If such shares/securities are subsequently sold by the employee, the cost of acquisition of such
shares/securities shall be the FMV of the shares/securities as on the date of exercising the option.
III. COMPUTATION OF FMV OF SHARES/SECURITIES

a) Listed shares (listed on a I. FMV shall be the average of the opening price and closing price of
recognized stock the day on which the option is exercised.
exchange) II. If shares are listed on more than one recognized stock exchange on
the date of exercising the option, opening price and closing price of
that stock exchange shall be taken into consideration which records
the highest volume of trading in the share on that day.
b) Unlisted shares I. FMV in such situations shall be the value as determined by a
Securities (whether listed merchant banker.
or unlisted)
7) FRINGE BENEFITS
A. Interest free loan or loan at concessional rate of interest
Interest rates charged by SBI on April 1, 2018.
WHEN PERQUISITE IS NOT CHARGEABLE TO TAX -
I. If a loan is made available for medical treatment in respect of diseases specified in rule 3A
(the exemption is, however, not applicable to so much of the loan as has been reimbursed to
the employee under any medical insurance scheme.
II. Where the amount of original loan (or loans) does not exceed in the aggregate ` 20,000.

B. TRAVELLING / TOURING / HOLIDAY HOME EXPENDITURE ON HOLIDAY –

Case Taxable value of perquisite
Where such facility is maintained by employer and is Value at which such facilities are offered by other
not available uniformly to all employee agencies to the public.
Where the employee is on official tour and the The amount of expenditure so incurred for the
expenses are incurred in respect of any member of accompanying member of his household.
his household accompanying him
Where any official tour is extended as a vacation The value will be limited to the expenses incurred in
relation to such extended period of stay or vacation.
In any other case Amount incurred by the employer.
C. LUNCH/REFRESHMENT, ETC. –
Case Tax Treatment
Tea, snacks or other non-alcoholic beverages in Nil
the form of light refreshment provided during
office hours (including over-time)
Free meals provided during office hours in: Nil
 Remote area; or
 An offshore installation
Free meals provided by the employer during Expenditure on free meals in excess of Rs.50 per meal shall be
office hours: taxable perquisite to the extent of excess amount in hands of all
 At office or business premises; or employees.
 Through paid vouchers which are not
transferable and usable only at eating
joints.
In any other case Actual expenditure to employer - Amount charged from
employee
D. PERQUISITE IN RESPECT OF GIFT, VOUCHER OR TOKEN –

I. Gifts made in cash or convertible into money (like gift cheques) are not exempt).
II. Gifts-in-kind up to ` 5,000 in aggregate per annum would be exempt, beyond which it would be
taxable.
E. VALUATION OF PERQUISITE IN RESPECT OF CREDIT CARD -

Case Tax Treatment
Where such credit card is used wholly and exclusively for office Nil
purpose and specified conditions# are satisfied.
Where expenses (including membership and annual fees) are If directly paid by the employer
incurred by the employee or any member of his household, which Any amount incurred by the employer as reduced by amount
is charged to a credit card (including any add-on card) provided by charged from the employee shall be taxable in the hands of
the employer or otherwise, are paid or reimbursed by the all employees
employer. If amount reimbursed by the employer
Any amount reimbursed by the employer shall be taxable in
the hands of all employees.

F. VALUATION OF PERQUISITE IN RESPECT OF CLUB EXPENDITURE

Case Tax Treatment
Where such expenses are incurred wholly and exclusively for Nil
office purpose
Where health club, sports and similar facilities are provided Nil
uniformly to all employees employers premises.
Where the employer has obtained corporate membership of Amount incurred by employer for such facility shall be taxable
the club and the facility is enjoyed by the employee or any perquisite in the hands of all employees. However, initial fees
member of his household paid for obtaining corporate membership shall not be a taxable
perquisite.
Any payment or reimbursement by the employer of any If directly paid by the employer
expenditure incurred (including the amount of annual or Any amount incurred by the employer as reduced by amount
periodical fee) in a club by employee or any member of his charged from the employee shall be taxable in the hands of all
household employees.
If amount reimbursed by the employer
Any amount reimbursed by the employer shall be taxable in the
hands of all employees.
G. USE OF MOVABLE ASSETS -
H. TRANSFER OF MOVEABLE ASSETS-

Transfer of Ownership of Movable Assets [Rule 3(7)(viii)
Particulars Computer & Electronic Car Other Movable
Gadgets Assets
Method of Depreciation WDV WDV SLM
Rate of Depreciation for every completed year 50% 20% 10%
Actual Cost xxxxx XXXXX XXXXX
Less: Depreciation for completed years xxxxx xxxxx xxxxx
WDV at the end of completed years xxxxx xxxxx xxxxx
Less: Sale Value taken from Employee xxxxx xxxxx xxxxx
Taxable Value of Perquisite xxxxx xxxxx xxxxx
Point to be noted-
I. Electronic Gadgets include Computer, Digital Diaries and Printers, but exclude Washing Machines, Microwave Ovens,
Mixers, Hot Plates, etc.
II. Transfer of Movable Assets which are 10 years old shall not attract taxability.
III. Completed Year means actual completed year from the date of acquisition of the asset to the date of transfer of such
asset to the Employees.

I. ANY OTHER BENEFITS AMENITY, ETC. -

I. Telephone/mobile phone: The perquisite in respect of telephone/ mobile phone is not taxable in the
case of any employee of any organization.
8) VALUATION OF MEDICAL FACILITIES –

I. Fixed medical allowance is always chargeable to tax.
II. For the purpose of valuation of the perquisite in respect of medical facilities, "family" means –
 the spouse and children of the individual; and
 The parents, brothers and sisters of the individual or any of them, wholly or mainly
dependent on the individual.
(A) MEDICAL FACILITIES IN INDIA- The provisions are given below:

a. The perquisite in respect of medical facility provided by an employer in the following
hospitals/clinic is not chargeable to tax –
I. hospital owned/maintained by the employer,
II. hospital of Central Government/State Government/local authority,
III. private hospital if it is also recommended by the Government for the treatment of Government
employees,
IV. Specified medical facility (given in rule 3A) in a hospital approved by the Chief Commissioner.
a. Health insurance premium: Medical insurance premium paid or reimbursed by the employer is not
chargeable to tax.
b. Any other facility in India: Any other expenditure incurred or reimbursed by the employer for
providing medical facility in India is not chargeable to tax up to ` 15,000 in aggregate per
assessment year
(B) MEDICAL FACILITIES OUTSIDE INDIA-

I. Any expenditure incurred by the employer (or reimbursement of expenditure incurred by the
employee) on medical treatment of the employee or any member of the family of such employee
outside India subject to the conditions given below:
Perquisite not chargeable to tax Condition to be satisfied
Medical treatment of employee or any member of Expenditure shall be excluded from perquisite only to
family of such employee outside India. the extent permitted by the Reserve Bank of India.
Cost on travel of the employee/any member of his Expenditure shall be excluded from perquisite only in
family and one attendant who accompanies the the case of an employee whose gross total income,
patient in connection with treatment outside India. as computed before including therein the
expenditure on travelling, does not exceed `
2,00,000.
Cost of stay abroad of the employee or any member Expenditure shall be excluded from the perquisite
of the family for medical treatment and cost of stay only to the extent permitted by the Reserve Bank of
of one attendant who accompanies the patient in India.
connection with such treatment.

9) VALUATION OF LEAVE TRAVEL CONCESSION IN INDIA [SEC. 10(5)-

I. Leave travel assistance extended by an employer to an employee for going anywhere in India
along with his family exempt on the basis of provisions given in the table below.
Journey performed Maximum exempted fare
By Air Air economic class fare of shortest route
By Rail Air conditioned 1st class fare of shortest route
When the place of origin and destination is connected Same as above
by rail but journey is performed by any other mode of
transport
When the place of origin and destination is not connected by rail:
Where a recognised public transport system exists First class or deluxe class fare, as the case may be, on such
transport.
Where no recognised public transport system exists Amount equivalent to air-conditioned 1st class rail fare, for
the distance of the journey by the shortest route, as if
journey had been performed by rail.
POINT TO BE NOTED-
I. No exemption can be claimed without performing journey and incurring expenses thereon.
II. Block-period: Exemption is available in respect of 2 journeys performed in a block of 4 calendar years
commencing from 1st January 1986.
III. Carry-forward facility: Where concession is not availed during the preceding block (whether on one
occasion or both), then any one journey performed in the first calendar year of the immediately
succeeding block will be additionally exempted (i.e. not counted in two journey limit)
IV. Family: Family here means -
 Spouse and children of the individual; and
 Parents, brothers and sisters of the individual, who are wholly or mainly dependent on him.
V. Restriction on number of children: Exemption can be claimed for any number of children born on or
before 30/9/98. In addition, exemption is available only for 2 surviving children born on or after
1/10/98.
However, children born out of multiple birth, after the first child, will be treated as one child only.
VI. Exemption is based upon actual expenditure.
VII. Exemption is available in respect of fare .(shortest route)
VIII. No other expenses, like scooter or taxi charges at both ends, porterage expenses during the journey
and lodging/boarding expenses are qualified for exemption.

23. DEDUCTIONS FROM SALARY INCOME [SEC. 16]

The income chargeable under the head "Salaries" is computed after making the following deductions:
1) Standard Deduction-Section 16(ia)
2) Entertainment allowance-Section 16(ii)
3) Professional Tax- Section 16(iii)
1) STANDARD DEDUCTION- 16( )

 A standard deduction of ` 40,000 or the amount of salary, whichever is lower, is to be
provided to the employees.
2) ENTERTAINMENT ALLOWANCE SEC. 16 (II)

Entertainment allowance is first included in salary income under the head salary and thereafter a
deduction is given-
A. Allowed to Government employee only-(Minimum of the following is deductible)
I. Amount of EA actually received.
II. ` 5000 pa.
III. 20 % of Basic salary.
B. Non government employee fully chargeable to tax.
3) PROFESSIONAL TAX OR TAX ON EMPLOYMENT [SEC. 16 (III)]

I. Professional tax or tax on employment, levied by a State under article 276 of the Constitution, is
allowed as deduction.
II. Deduction is available only in the year in which professional tax is paid.
III. If the professional tax is paid by the employer on behalf of an employee, it is first included in the
salary of the employee as a "perquisite" (since it is an obligation of the employee discharged by the
employer) and then the same amount is allowed as deduction on account of "professional tax"
from gross salary.
IV. There is no monetary ceiling under the Income-tax Act.

24. RETIREMENT BENEFITS
1) LEAVE SALARY-
WHAT IS LEAVE SALARY –
PROBLEM:7 X was employed by PQR Ltd. up to March 15, 1989. At the time of leaving PQR Ltd., he
was paid ` 350000 as leave salary out of which ` ` 57,000 was exempt from tax under section
10(10AA)(ii). Thereafter he joined ABC(P.) Ltd. and received ` 4,12,200 as leave salary at the time of
his retirement on December 31, 2018. Determine the amount of taxable leave salary from the
following information :
Salary at the time of retirement (per month) ` 22,900
Average salary received during 10 months ending on December 31, 2018
- From March 1, 2018 to July 31, 2018 (per month) ` 22,600
- From August 1, 2018 to December 31, 2018 (per month) ` 22,900
Duration of service (a) 14¾ years
Leave entitlement for every year of service (b) 45 days
Leave availed while in service (c) 90 days
Leave at the credit of employee at the time of retirement [(14 X 45-90) ÷30] 18 months
Leave salary paid at the time of retirement at the rate of ` 22,900 per month ` 4,12,200
(i.e.,` 22,900 X 18)
ANSWER:7 Taxable ` 184700

2) GRATUITY [SEC.10 (10)] –

I. Gratuity is a retirement benefit.
II. It is generally payable at the time of cessation of employment and on the basis of duration of
service.
POINT TO BE NOTED-
I. Gratuity received during the period of service is fully taxable.
II. Where gratuity is received from 2 or more employers in the same year then aggregate amount of
gratuity exempt from tax cannot exceed ` 20,00,000/` 10,00,000, as the case may be..
III. Where gratuity is received in any earlier year from former employer and again received from
another employer in a later year, the limit of ` 20,00,000/` 10,00,000, as the case may be, will be
reduced by the amount of gratuity exempt earlier.
IV. The exemption in respect of gratuities would be available even if the gratuity is received by the
widow, children or dependents of a deceased employee.
PROBLEM:8 Mr. Ravi retired on 15.6.2018 after completion of 26 years 8 months of service and
received gratuity of ` 6,00,000. At the time of retirement, his salary was:
Basic Salary : ` 5,000 p.m.

Dearness Allowance ` 3,000 p.m. (60% of which is for retirement benefits)
Commission : 1% of turnover (turnover in the last 12 months was ` 12,00,000)
Bonus : ` 12,000 p.a.
Compute his taxable gratuity assuming:

(a) He is private sector employee and covered by the Payment of Gratuity Act 1972.
(b) He is private sector employee and not covered by Payment of Gratuity Act 1972.
(c) He is a Government employee.
ANSWER:8

3) PENSION -
PROBLEM:9 Determine the amount of pension taxable for the assessment year 2019-20 in the
following cases on the assumption that it becomes due on the last day of each month:
1. X receives ` 18,250 per month as pension from the Central Government during the previous year
2018-19.
2. X receives ` 21,000 per month as pension from the Government of Punjab during the previous year
2018-19.
3. X receives ` 20,000 per month as pension from ABC Ltd., a public limited company in the private
sector, during the previous year 2018-19.
4. X retires from the Central Government service on May 31, 2018. He get pension of ` 15,000 per
month up to November 30, 2018 (i.e., `15,000 X 6). With effect from December 1, 2018 he gets one-
third of his pension commuted for ` 7, 18,000.
5. X retires from ABC Co. on June 30, 2018. He get pension of ` 20,000 per month up to January 31,
2019. With effect from February 1, 2019 he gets 60 per cent of pension commuted for ` 10, 71,000.
Does it make any difference if he also gets gratuity of ` 40,000. At the time of retirement?
ANSWER:9 Rs. 2,19,000, Rs. 2,52,000, Rs. 2,40,000, Rs. 1,30,000, (Rs.1,56,000 , Rs. 4,76,000)
4) RETRENCHMENT COMPENSATION [SEC. 10(10B)] –

A. Meaning –
I. The retrenchment compensation means the compensation paid under Industrial Disputes Act, 1947 or
under any Act, Rule, Order or Notification issued under any law.
II. It also includes compensation paid on transfer of employment under section 25F or closing down of an
undertaking under section 25FF of the Industrial Disputes Act, 1947.
III. It may be noted that compensation on account of termination and due to modification in terms and
conditions of employment would be taxable as “profits in lieu of salary”.
IV. However, the retrenchment compensation would be exempt under section 10(10B), subject to following
limits.
a) Amount calculated in accordance with the provisions of section 25F of the Industrial Disputes Act, 1947 i.e.,
15 days average pay x completed years of service and part thereof in excess of 6 month
b) An amount, not less than` 5, 00,000 as may be notified by the Central Government in this behalf, whichever
is lower.
c) Actual Amount of Retrenchment Compensation Received
POINT TO BE NOTED-
I. Computation is based on 15/30 and not 15/26 as held by Supreme Court
II. For computing Average Salary purposes, Wages includes Basic and Dearness Allo

5) COMPENSATION RECEIVED AT THE TIME OF VRS [SEC. 10(10C)]

A. Meaning: Compensation received under Voluntary Retirement Scheme (called as VRS
Compensation or VRC) falls within the meaning of Profits in Lieu of Salary u/s 17(3), and therefore
is taxable as Salary.
B. Exemption: Exemption u/s 10(10C) is applicable for the Employees of-

I. A Public Sector Company or any other Company.
II. An Authority established under a Central, State or Provincial Act.
III. A Local Authority.
IV. A Co-Operative Society.
V. A University established or incorporated by or under a Central, State or Provincial Act and an
Institution declared to be University u/s 3 of the UGC Act, 1956.
VI. An Indian Institute of Technology u/s 3(g) of the Institutes of Technology Act, 1961.
VII. Any State Government or Central Government.
VIII. Notified Institutes of Management, i.e. IIMs at Ahmedabad, Bangalore, Calcutta, Lucknow, and
Indian Institute of Foreign Trade.
IX. Notified Institutions, having importance throughout India or in any State or States, (e.g.
International Crops Research Institute for Semi-Arid Tropics, Action for Food Production
(AFPRO), Government Tool Room and Training Centre)
C. COMPUTATION OF EXEMPTION: The least of the following shall be available as exemption:

a) Actual voluntary retirement compensation received;
b) Rs 5,00,000;
c) {3 Times (x) retirement benefit salary per month at the time of retirement (x) Number of
completed years of service}
 Any part of year shall be completely ignored
6) PROFITS IN LIEU OF SALARY [SEC. 17(3)] –

I. The amount of any compensation due to or received by an assessee from his employer or former employer
at or in connection with the termination of his employment.
II. The amount of any compensation due to or received by an assessee from his employer or former employer
at or in connection with the modification of the terms and conditions of employment.
III. Any payment due to or received by an assessee from his employer or former employer except the
following:
a. payment of gratuity exempted under section 10(10)
b. payment of house rent allowance exempted under section 10(13A)
c. payment of commuted pension exempted under section 10(10A)
d. payment of retrenchment compensation exempted under section 10(10B)
e. payment from an approved Superannuation Fund under section 10(13)
f. payment from statutory provident fund or public provident fund;
g. payment from recognized provident fund to the extent it is exempt under section 10(12)
IV. Any payment from unrecognized provident fund or such other fund to the extent to which it does not
consist of contributions by the assessee or interest or such contributions.
V. Any sum received under a Key man insurance policy including the sum allocated by way of bonus on such
policy.
VI. Any amount received (in lump sum or otherwise) prior to employment or after cessation of employment

7) TAX TREATMENT OF PROVIDENT FUND-

A. CONCEPT OF PROVIDENT FUND-
I. Provident fund scheme is a retirement benefit scheme.
II. Under this scheme, stipulated sum is deducted from the salary of the employee as his
contribution towards the fund. The employer also, generally, contributes simultaneously the
same amount out of his pocket to the fund.
III. The employee's and employer’s contributions are invested in gilt-edged securities interest earned
thereon is also credited to the provident fund account of employees.
IV. Credit balance in a provident fund account of an employee consists of employee's contribution,
interest on employee's contribution, employer's contribution and interest on employer's
contribution.
V. The accumulated sum is paid to the employer at the time of his retirement or resignation.
VI. In the case of death of an employee, accumulated balance is paid to his legal heirs.
VII. Scheme encourages personal savings at micro level and generates funds for investment at macro
level; the Government provides deduction under section 80C.
B. KINDS OF PROVIDENT FUND -

1) STATUTORY PROVIDENT FUND:
I. Statutory provident fund is set up under the provisions of the Provident Funds Act, 1925.
II. This fund is maintained by the Government and the Semi-Government organizations, local
authorities, railways, universities and recognized educational institutions.
2) Recognized provident fund:

I. A provident fund scheme to which the Employee's Provident Fund and Miscellaneous Provisions
Act, 1952 (hereinafter referred to as PF Act, 1952) applies is recognized provident fund.
3) Unrecognized provident fund:

I. If a provident fund is not recognized by the Commissioner of Income-tax, it is known as
unrecognized provident fund.
4) Public provident fund:

I. The Central Government has established the public provident fund for the benefits of general
public to mobilize personal savings.
II. Any member of the public (whether a salaried employee or a self-employed person) can participate
in the fund by opening a provident fund account at the State Bank of India or its subsidiaries or
other nationalized banks.
III. Even a salaried employee can simultaneously become member of employees' provident fund
(whether statutory, recognized or unrecognized) and public provident fund. Any amount (subject
to minimum of ` 500 and maximum of ` 100,000 per annum) may be deposited under this account.
IV. The accumulated sum is repayable after 15 years (it may be extended). This provident fund, at
present, carries compound interest at the rate of 8 per cent per annum.
V. Interest is credited every year by payable only at the time of maturity.
5) APPROVED SUPERANNUATION FUND
It means a superannuation fund which is approved by the Commissioner of Income-tax.

C. TAX TREATMENT RELATING TO PROVIDENT FUNDS (PF):
Particulars Statutory PF Recognized PF Unrecognized PF PPF

OWN 80C. 80C. NOT ALLOWED 80C.
Contribution
Employer’s Not Taxable. Amount exceeding Not taxable at the time of Not Applicable.
contribution 12% of Salary is contribution.
taxable.
Interest Fully exempt. Exempt upto 9.5% Interest on Employee’s Fully exempt.
credited p.a. Any excess is Contribution is taxable under
taxable. “Other Sources” at the time of
withdrawal and not taxable at
the time of Credit.
Interest on Employer’s
Contribution is not taxable at
the time of credit.
Withdrawal at Exempted Exempt u/s 10(12) I. Employee’s Contribution Exempted u/s
the time of u/s 10(11). subject to conditions. not taxable. 10(11).
retirement / II. Interest thereon is
resignation / taxable under the head
termination, Income from Other
etc. Sources.
III. Employer’s Contribution
and Interest thereon is
taxable as Profits in lieu
of Salary, under
“Salaries”
POINT TO BE NOTED-
1) MEANING OF SALARY= Basic Salary + DA (Considered for Retirement Benefits) + Commission as a

Fixed Percentage of Turnover.
2) WITHDRAWAL FROM RECOGNIZED PROVIDENT FUND: Payment of Accumulated Balance due and
payable to an Employee from a Recognized Provident Fund is exempt, in the following situations -
a) If the Employee has rendered continuous service with his employer for a period of 5 years or
more.
b) If he has not rendered such continuous service of 5 years, then the service has been terminated
I. by reason of such employee’s ill health, or
II. by the contraction or discontinuance of the Employer’s Business, or
III. any other cause beyond the control of the Employee.
c) If, on the cessation of his employment, the employee obtains employment with any other
employer, to the extent, the accumulated balance due and becoming payable to him is
transferred to his individual account in any recognized fund maintained by such other employer.
[Note: The period of service rendered under the previous employer(s) shall also be included in
determining the period of continuous service].

D. TAX TREATMENT RELATING TO APPROVED SUPERANNUATION FUND:
1) Meaning- A Superannuation Fund which has been and continues to be approved by the CIT / PCIT,
in accordance with the Rules contained in Part B of the VIth Schedule to the Income Tax Act, 1961.
2) Tax Treatment of Contribution and Interest-

a) Employer’s Contribution is exempt from tax in the hands of Employee (upto`1,50,000 per
Employee p. a).
b) Employee’s Contribution qualifies for deduction u/s 80C.
c) Interest on Accumulated Balance is exempt from tax.
3) Payment of Accumulated Balance- Sum received by an Employee under an Approved

Superannuation Fund is exempt from tax u/s 10(13) -
a) on the death of a beneficiary, or
b) to an Employee in lieu of or in commutation of an Annuity on his retirement at or after a specified
age or on his becoming incapacitated prior to such retirement, or
c) by way of refund of contributions on the death of a beneficiary, or
d) by way of refund of contributions to an Employee on his leaving the service in connection with
which the Fund is established otherwise than by retirement at or after a specified age or an his
becoming incapacitated prior to such retirement, to the extent to which such payment does not
exceed the contributions made prior to the commencement of this Act and any interest thereon.
8) AMOUNT TRANSFERRED FROM UNRECOGNIZED PROVIDENT FUND TO

RECOGNIZED PROVIDENT FUND-
PROBLEM:10 For the previous year 2018-19 X submits the following information – Basic salary: ` 1,
20,000; dearness allowance: ` 40,000 (46 per cent of which is part of salary for retirement benefits);
commission: ` 6,000 (i.e., 1 per cent of ` 6, 00,000, being turnover achieved by X) and children education
allowance for his 2 children: ` 7,200. The employer contributes ` 20,000 towards provident fund to
which a matching contribution is made by X. Interest credited in the provident fund account on
December 31, 2018 @ 11 per cent comes to ` 93,500. Income of X from other sources is ` 86,000. Find
out the net income of X for the assessment year 2019-20 if the provident fund is (a) statutory provident
fund, (b) recognized provident fund, (c) unrecognized provident fund
ANSWER:10 `

PROBLEM:11 Mr. Rahul is employed in Bharat Textiles Ltd. Mumbai on a monthly salary of `20,000. In
addition to this fixed salary, he is entitled to a commission @ 5% on the sales made by him. During the
previous year 2018-19, he had received following allowances and amenities from his employer:
i) Dearness allowance @ ` 2,000 per month which is granted to him under the terms of employment
and counted for retirement benefits.
ii) Bonus equal to two months basic salary..
iii) House rent allowance @ ` 5,000 per month. .
iv) Entertainment allowance @ ` 250 per month.
v) The company paid ` 1,000 as his income-tax penalty.
vi) In September, 2018 during leave he went on a visit to Kashmir with his family. The expenditure
amounting to `16,000 as passage money by air were paid to him be employer as leave travel
assistance. .
vii) He had been provided with the amenities of gas, electricity and water, the expenses of which
amounting to ` 12,000 were paid by the company.
viii) Commission on sales of ` 10,00,000 @ 5%.
ix) He was given titan watch worth `9,000 by his employer on the foundation day of the company.
x) He and his employer each contributed 12.5% of his salary to recognized provident fund. The interest
credited to this fund for the previous year at 13.5% rate of interest amounted to `27,000 .
Compute taxable income from salary of Mr. Rahul for the assessment year 2019-20 keeping in mind
that he spent ` 6,000 p.m. as rent of the house hired by him.
ANSWER:11 `
PROBLEM:12 Ajit submits you the following particulars of his income received from X Ltd. for the year 31-03-19
Particulars `
Salary (after deduction of tax of source and own contribution@ 14% to recognized provident 2,81,000
fund)
Tax deducted at source 20,000
Employer's contribution to provident fund 49,000
Interest credited on 15-6-2018 to provident fund @ 13.5% 32,400
Allowance for holiday of Ajit and his family 4,000
Academic research allowance for training of X (expenditure incurred: ` 10,000) 15,000
House rent allowance (rent paid for a house in Varanasi by Ajit: ` 48,000) 36,000
Ajit pays life insurance premium of ` 15,000 on own life insurance policy (sum assured: `
1,60,000)
On 15-3-2019, Ajit gets a wrist watch (cost: ` 4,500) from the employer as gift. On 20-3-2019 Ajit is transferred from
Varanasi to Indore. While his family remains in Varanasi, he joins his duties at Indore on 21-3-2019. An
accommodation is provided by the employer in a hotel in Indore from 21-3-2019 to 31-3-2019 (tariff being ` 1,500
per day is paid by employer).Determine the taxable income and tax liability of Ajit for the assessment year 2019-20
assuming that income from other sources is ` 118900 Ajit annually contributes ` 4,000 towards the Unit-linked
Insurance Plan and in March, he has received a sum of ` 5,000 from the Income-tax Department (` 4,000 being
income-tax refund and ` 1,000 being interest thereon.)
ANSWER:12 `

INCOME FROM HOUSE PROPERTY- Page 38
SECTION 22-27
1. WHAT IS THE BASIS OF CHARGE [SEC. 22]

Income is taxable under the head "Income from house property" if the following three conditions are
satisfied:
I. The property should consist of any buildings or lands appurtenant thereto.
II. The assessee should be owner of the property
III. The property should not be used by the owner for the purpose of any business or profession
carried on by him, the profits of which are chargeable to income-tax.
 DEEMED OWNER –SECTION 27

Besides the legal owner, section 27 provides that the following persons are to be treated as deemed
owner of house property for the purpose of charging tax on annual value under the head "Income from
house property":
1. TRANSFER TO SPOUSE OR MINOR CHILD -
2. HOLDER OF IMPARTIBLE ESTATE -
3. PROPERTY HELD BY A MEMBER OF CO-OPERATIVE SOCIETY/COMPANY/AOP -
4. A PERSON WHO HAS ACQUIRED A PROPERTY UNDER A POWER OF ATTORNEY TRANSACTION -
5. A PERSON WHO HAS ACQUIRED A RIGHT IN A BUILDING UNDER SECTION 269UA (f) –

2. PROPERTY HELD AS STOCK-IN-TRADE

As a specific head of charge is provided for income from house property, annual value of house property cannot be
brought to tax under any other head of income. It will remain so even if:
I. The property is held by the assessee as stock-in-trade of a business; or.
II. the assessee is engaged in the business of letting out of property on rent,
III. The assessee is a company which is incorporated for the purpose of owning house property.
Exceptions: The rule that income from ownership of house property is taxable under the head "Income from
house property" has the following exceptions:
Exception one: If letting is only incidental and subservient to the main business of the assessee, rental income is not
taxable under the head "Income from house property" but is chargeable as business income under the head "Profits
and gains of business or profession'.
Exception two: In some cases, income is received not only for letting out of property but also for incidental services
or facilities (e.g., a furnished paying guest accommodation, a well equipped theatre, a safe deposit vault). In such
cases, the subject hired out is a complex one. The income cannot be said to be derived from mere ownership of
house property but because of facilities and services rendered. Income in such case may be assessable as income
from business.
NO NOTIONAL INCOME FOR HOUSE PROPERTY HELD AS STOCK IN TRADE FOR A PERIOD
UPTO ONE YEAR –SECTION 23(5)- W.E.F AY 2018-19
Where the property consisting of any building or land appurtenant thereto is held as stock-in-
trade and the property or any part of the property is not let during the whole or any part of
the previous year, the annual value of such property or part of the property, for the period up
to one year from the end of the financial year in which the certificate of completion of
construction of the property is obtained from the competent authority, shall be taken to be
nil.
3. OTHER SPECIAL ASPECTS

Issue Treatment
Club In case of Property owned by a Club, the Annual Value of the Clubhouse is not chargeable to tax
because of Principle of Mutuality.
Real Estate For a Company in Real Estate Business, with the object of buying and developing landed
Business properties, the Income from unsold property let-out is taxable under the head “Income from House
Property”.
Rent from Rent received from Employees’ Residential Quarters, Rent received from part of the premises let-out
Residential to Government for locating Branch of a Bank or Post Office or Railways to carry on business
Quarters smoothly, is taxable as income under the head Profits and Gains of Business or Profession.
Sub-letting If sub-letting is in the ordinary course of business, such Income is taxable under the head Profits and
Gains of Business or Profession. Otherwise, it will be taxable under the head “Income from Other
Sources.”
Hotel or If the Assessee does not merely let-out a property, but also provides other facilities, it is on par with
Lodging House activity of a Hotel or Lodging House & hence shall be recognized as a Business Activity.
Motive to earn As per MOA of the Company, if the objective of the Company is to acquire property and to earn
Income Income, then such Income is assessable under Profits and Gains from Business or Profession.

4. TREATMENT OF COMPOSITE RENT -

A. Meaning of composite rent: The owner of a property may sometimes receive rent in respect of
building as well as –
I. Other assets like say, furniture, plant and machinery.
II. For different services provided in the building, for eg. –
a) Lifts;
b) Security;
c) Power backup; The amount so received is known as “composite rent”.
B. Tax treatment of composite rent Where composite rent includes rent of building and charges for
different services (lifts, security etc.), the composite rent is has to be split up in the following
manner-
I. The sum attributable to use of property is to be assessed under section 22 as income from
house property;
II. The sum attributable to use of services is to be charged to tax under the head “Profits and gains
of business or profession” or under the head “Income from other sources”, as the case may be.
C. Manner of splitting up
 If let out building and other assets are inseparable Where composite rent is received
from letting out of building and other assets (like furniture) and the two lettings are not
separable ie the other party does not accept letting out of building without other assets, then the
rent is taxable either as business income or income from other sources, the case may be. This is
applicable even if sum receivable for the two lettings is fixed separately.
 If let out building and other assets are separable- Where composite rent is received from
letting out of building and other assets and the two lettings are separable i.e. letting out of one
is acceptable to the other party without letting out of the other, then
(a) Income from letting out of building is taxable under “Income from house property”;
(b) Income from letting out of other assets is taxable under “Profits and gains of business or
profession” or “Income from other sources”, as the case may be.
This is applicable even if a composite rent is received by the assessee from his tenant for the two lettings.
5. WHEN PROPERTY INCOME IS NOT CHARGED TO TAX-

In the following cases rental income is not charged to tax:
I. Income from farm house
II. annual value of any one palace of an ex-ruler
III. property income of a local authority
IV. property income of an approved scientific research association
V. property income of an educational institution and hospital
VI. property income of a trade union
VII. house property held for charitable purposes
VIII. property income of a political party
IX. property used for own business or profession
X. one self-occupied property

6. PROPERTY OWNED BY CO-OWNERS [SEC. 26]

I. If a house property is owned by two or more persons, then such persons are known as co-
owners.
II. If respective shares of co-owners are definite and ascertainable, the share of each such person (in
the computed income of property) shall be included in his total income.
III. It may be noted that co-owners are not taxable as an association of persons
7. COMPUTATION OF INCOME FROM HOUSE PROPERTY-
Particulars LO/DLO SOP

Gross Annual Value (GAV) XXXX
Less: Municipal tax XXXX
Net Annual Value (NAV) XXXX
Less: Deductions u/s XXXX
24(a) Standard deduction [30% of NAV] XXXX
24(b) Interest on borrowed capital XXXX
Income from house property XXXX

8. WHEN UNREALISED RENT SHALL BE EXCLUDED [EXPLN. TO SEC. 23(1)]

Unrealized rent (which the owner could not realize) shall be excluded from rent received/receivable only
if the following conditions are satisfied:
I. The tenancy is bona fide
II. The defaulting tenant has vacated, or steps have been taken to compel him to vacate the
property
III. The defaulting tenant is not in occupation of any other property of the assessee
IV. The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the
unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless
PROBLEM:1 Find out the gross annual values in the case of the following properties for the assessment
year 2019-20 (there is no unrealized rent)
Particulars X Y Z A B C D
Municipal value (per annum)(MV) 60 61 60 80 80 140 140
Fair rent (per annum) (FR) 65 66 64.5 78 78 150 150
Standard rent under the Rent Control Act (per annum) 59.5 59 63 85.5 76 120 120
(SR)
Annual rent 72 57 72 72 NA 96 144
Property remains vacant (in number of month) (1) (11/2) (5) (3) (12) (10) (10)
Loss due to vacancy 6 7.125 30 18 - 80 120

ANSWER:1
9. DEDUCT MUNICIPAL TAXES -
10. DEDUCTION UNDER SECTION 24

The following two deductions are available:
I. Standard deduction u/s 24(a)-
II. Interest on borrowed capital u/s 24(b)-
 STANDARD DEDUCTION [SEC. 24 ( )]

I. 30 per cent of net annual value is deductible irrespective of any expenditure incurred by the
taxpayer.

 INTEREST ON BORROWED CAPITAL [SEC. 24 ( )]
The following points should also be kept in view-

I. If capital is borrowed for the purpose of purchasing a plot of land, interest liability is deductible
even if construction is financed out of own funds.
II. Interest on borrowed capital is deductible on "accrual" basis.
III. Deduction is available even if neither the principal nor the interest is a charge on property.
IV. Interest on unpaid interest is not deductible.
V. No deduction is allowed for any brokerage or commission for arranging the loan.
VI. Interest on a fresh loan, taken to repay the original loan raised for the aforesaid purposes, is
allowable as deduction.
VII. Any interest chargeable under the Act, in the hands of recipient and payable out of India, on
which tax has not been paid or deducted at source, and in respect of which there is no person
who may be treated as an agent, is not deductible, by virtue of section 25, in computing income
chargeable under the head “Income from house property”.(Sec 25)
PRE-CONSTRUCTION PERIOD-
I. Interest of pre-construction period is deductible in five equal installments.
II. The first installment is deductible in the year in which construction of property is completed or in
which property is acquired.
III. Pre-construction period means the period commencing on the date of borrowing and ending on
(a) March 31 immediately prior to the date of completion of construction/ date of acquisition or
(b) date of repayment of loan, whichever is earlier

11. ARREARS OF RENT OR UNREALIZED RENT [SEC. 25A]

The amount of rent received in arrears or the amount of unrealized rent realized subsequently by an
assessee shall be charged to income tax in the previous year in which rent is received or realized. The
following points should be noted-
i. The recipient of arrears of rent (or recipient of unrealized rent ) is chargeable to tax in the year in
which such rent is received regardless of the fact whether in the year of receipt the house property
is owned by him or not.
ii. The recipient can claim 30% of the arrears of rent or unrealized rent realized subsequently as
deduction.
PROBLEM:2 Mr. Goel owns a house property at Allahabad which is let out for residential purposes.
No. Particulars `
(i) Annual Rent 60,000
(ii) Municipal Valuation 48,000
(iii) Municipal taxes (paid by tenant) 4,000
(iv) Expenses incurred
a) Repairs met by tenant 3,000
b) Fire Insurance premium paid 1,500
c) Electricity and water charges paid by Mr. Goel 5,400
d) Lift maintenance charges paid by Mr. Goel 2,400
e) Collection charges(including ` 300 of litigation expenses 750
f) During the previous year 2007-08, he had claimed a deduction of

unrealized rent of ` 22,500 out of which ` 16,500 were allowed as
deduction for that year. On 10-8-2018, however, he recovered `
10,500 from the defaulting tenant.
The construction of the property was completed on 31-8-1996. ` 60,000 is a composite rent of property,
as well as amenities provided to the tenant. Compute the taxable "Income from house property" for the
assessment year 2019-20.
ANSWER:2 `39690

PROBLEM:3 Mr. X is the owner of a residential house, whose construction was completed on 31-8-
1994. It has been let out from 1-12-1994 for residential purposes. FY-18-19
No. Particulars `
(i) Municipal valuation 55,000
(ii) Expected fair rent per annum 60,000
(iii) Standard rent under the Rent Control Act 6.000 p.m.
(iv) Actual monthly rent 6,000 p.m.
(v) Municipal taxes (including ` 5,000 paid by tenant) paid 15,000
(vi) water/sewage benefit tax levied by State Government but disputed in Court 6,000
(vii) Fire Insurance payable 800
(viii) Interest on loan taken for the construction of the house. The interest has
been paid outside India to a non-resident without deduction of tax at source,
as the non-resident agreed to pay income tax on such interest directly to the
Government. 10,000
(ix) Legal charges for the recovery of rent 4,000
(x) Stamp duty and registration charges incurred in respect of the lease
agreement of the house. 2,000
(xi) The unrealized rent of the earlier years amounted to ` 10,000 but a deduction claimed so far
was only for ` 7,000. Now, there is a recovery of ` 8,000 from the defaulting tenants.
Compute his income from house property for the assessment year 2019-20.
ANSWER:3 ` 46900

PROBLEM:4 X (age: 24 years) has occupied two houses for his residential purposes, particulars of
which are as follows:
Particulars House I House II

` `
Municipal valuation (MV) 60,000 30,000
Fair rent (FR) 85,000 32,000
Standard rent under Rent Control Act (SR) 65,000 36,000
Municipal taxes paid 10% 10 %
Fire insurance 600 360
Interest on capital borrowed for construction of houses (` 9,44,000 1,41,600 Nil

is borrowed @ 15 percent per annum on April 10, 2017, construction
is completed on March 10, 2018 and loan is yet to be repaid)
Income of X from business is ` 6, 30,000. Determine the taxable income and tax liability for the
assessment year 2019-20 on the assumption that he contributes ` 140,000 towards the public
provident fund. X could not occupy House II for two months commencing from December 1, 2018.
ANSWER:4 T.I `
PROBLEM:5 Mr. Raman is a co-owner of a house property along with his brother holding equal share
in the property.
Particulars `
Municipal value of the property 1,60,000

Fair rent 1,50,000
Standard rent under the Rent Control Act 1,70,000
Rent received 15,000 p.m.
The loan for the construction of this property is jointly taken and the interest charged by the bank is
`25,000, out of which `21,000 has been paid. Interest on the unpaid interest is`450. To repay this loan,
Raman and his brother have taken a fresh loan and interest charged on this loan is`5,000.The municipal
taxes of`5,100 have been paid by the tenant. Compute the income from this property chargeable in the
hands of Mr. Raman for the A.Y. 2019-20
ANSWER:5 `48000.

PROFITS AND GAINS OF BUSINESS OR PROFESSION (CS-EXECUTIVE) Page 47
SECTION 28-44DA
1. CHARGING SECTION [SEC. 28]
I. Profits and gains of any business or profession;
II. Compensation or other payment for -
a) Termination or modification of Managing Agent’s agreement in relation to an Indian Company.
b) Termination or modification of Managing Agent’s agreement in relation to any other Company
in India.
c) Termination or modification of contract relating to an agency in India.
d) Vesting of management of property or business with Government / Corporation.
e) (W.e.f 01.04.2019) at or in connection with the termination or the modification of the terms
and conditions, of any contract relating to business.
III. Income derived by a trade, professional or similar association from specific services performed
for its members;
IV. The value of any benefit or perquisite, whether convertible into money or not, arising from
business or the exercise of a profession;
V. Export Incentives which includes-
VI. Any interest, salary, bonus, commission or remuneration received by a partner from firm
VII. Any sum received for not carrying out any activity in relation to any business or not to share any
know-how, patent, copyright, trademark, etc.
VIII. Non compete fee received/ receivable (which is of recurring nature) in relation to not carrying
out any profession is brought within the scope of section 28 [Amendment vide Finance Act,
2016 w.e.f. AY 2017-18]
IX. Any sum received under a Keyman insurance policy including bonus;
X. Profits or gains arising from conversion of inventory into capital asset or its treatment as
capital asset shall be charged as business income. W.e.f. 01.04.2019
a) Any profit or gains arising from conversion of inventory into capital asset or its treatment
as capital asset shall be charged to tax as business income.
b) FMV of the inventory on the date of conversion/ treatment determined in the prescribed
manner, shall be deemed to be the full value of the consideration received or accruing as
a result of such conversion or treatment.
XI. Any sum received (or receivable) in cash or kind, on account of any capital asset (other than land
or goodwill or financial instrument) being demolished, destroyed, discarded or transferred, if the
whole of the expenditure on such capital asset has been allowed as a deduction under section
35AD; and
XII. Income from speculative transaction
XIII. Income from the aforesaid activities is computed in accordance with the provisions laid down in
sections 29 to 44DB.

2. BUSINESS INCOME NOT TAXABLE UNDER THE HEAD "PGBP"

I. Rental income in case of a dealer in house property.
II. Dividend on shares in case of a dealer in shares.
III. Winning from lotteries.
IV. Interest received on compensation or enhanced compensation.
3. HOW TO COMPUTE ASSESSABLE PROFIT OR LOSS FROM BUSINES OR

PROFESSION.
4. METHOD OF ACCOUNTING [SECTION 145]
I. The profits from business and profession and income under the head 'Income from Other Sources'
are to be computed in accordance with the method of accounting regularly employed by the
assessee.
II. As per section 145 of the Income tax Act only one of the following two methods of accounting can be
followed:
(a) Mercantile system
(b) Cash system.
III. The income chargeable under the head PGBP/OS shall be computed in accordance with INCOME
COMPUTATION AND DISCLOSURE STANDARDS to be notified by the Central Government from
time to time
IV. If income has not been computed as per above said ICDS the AO may make assessment in the manner
provided under section 144.
V. These standards will not be applicable for maintenance of books of account but shall be relevant for
computation of total income and disclosure of information in the return.

INCOME COMPUTATION AND DISCLOSURE STANDARDS-

1) Section 145(2) empowers the Central Government to notify in the Official Gazette from time to time
income computation and disclosure standards to be followed by any class of assessee or in
respect of any class of income.
2) APPLICABILITY-
i. All assessee
ii. Following mercantile system of accounting.
iii. Having income under the Head PGBP/OS
NOT APPLICABLE-
i. I/HUF (Tax audit not compulsory)
ii. Persons following cash system
3) The ten notified ICDSs are:

ICDS I : Accounting Policies
ICDS II : Valuation of Inventories
ICDS III : Construction Contracts
ICDS IV : Revenue Recognition
ICDS V : Tangible Fixed Assets
ICDS VI : The Effects of Changes in Foreign Exchange Rates
ICDS VII : Government Grants
ICDS VIII : Securities
ICDS IX : Borrowing Costs
ICDS X : Provisions, Contingent Liabilities and Contingent Assets
 Cardinal features of Notified ICDSs

1) Applicability: All the notified ICDSs are applicable for computation of income chargeable under the
head “Profits and gains of business or profession” or “Income from other sources” and not for the
purpose of maintenance of books of accounts. This is stated in the Preamble at the beginning of
each ICDS.
2) Position in case of conflict with the Income--tax Act, 1961: In the case of conflict between the
provisions of the Income tax Act, 1961 and the notified ICDSs, the provisions of the Act shall prevail
to that extent. This is also stated in the Preamble at the beginning of each ICDS.
3) Scope Paragraph: Each of the ten notified ICDSs has a scope paragraph explaining what exactly the
ICDS deals with. In some standards, the scope paragraph also specifies what the ICDS does not deal
with.
4) Transitional Provisions: All ICDSs (except ICDS VIII on Securities) contain transitional provisions to
facilitate first time adoption and prevent any tax leakage or any double taxation.
5) Disclosure Requirements: All ICDSs (except ICDS VI on Effects of changes in foreign exchange rates
and ICDS VIII on Securities) contain specific disclosure requirements. The last paragraph(s) of these
ICDSs is on disclosure.
Method of Accounting in certain cases: [Sec. 145A]

a) Applicability: For determining the income chargeable under the head “Profits and gains of business
or profession
b) Valuation as prescribed under ICDS notified u/s 145(2):
Valuation of Treatment
I. Inventory Lower of Actual Cost or NRV, computed as
per ICDS
II. Inventory being- Actual Cost initially recognized as per ICDS
a) Unlisted Securities, or
b) Listed Securities , but not quoted on a recognized
stock exchange with regularity from time to time
III. Inventory being Securities other than those Lower of Actual Cost or NRV, computed as
referred above per ICDS
c) Valuation – Inclusive of Taxes: Valuation of Purchase and Sale of Goods or Services, and of
Inventory, shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name
called) actually paid or incurred by the assessee to bring the goods or services to the place of its
location and condition as on the date of valuation.
d) For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law
for the time being in force, shall include all such payment notwithstanding any right arising as a
consequence to such payment.
4. Taxability of Certain Income-Sec 145B

Nature of Income Deemed to be income in -
I. Interest received on any Compensation or on The PY in which it is received.
Enhanced compensation
II. Claim for escalation of price in a contract or Export The PY in which reasonable certainty of
Incentives its realization is achieved.
III. Income being Subsidy or grant or Cash Incentive or The PY in which it is received, if not charged to
Duty Drawback or waiver or concession or income-tax in any earlier PY.
reimbursement as referred u/s 2(24) (xviii)
5. RENT, RATES, TAXES, REPAIRS AND INSURANCE FOR BUILDING [SEC. 30]-
6. REPAIRS AND INSURANCE OF MACHINERY, PLANT AND FURNITURE [SEC.

31] –

7. DEPRECIATION ALLOWANCE [SEC. 32]-

A. CONDITIONS FOR CLAIMING DEPRECIATION
I. Asset must be owned by the assessee
II. It must be used for the purpose of business or profession
III. It should be used during the relevant previous year.
IV. Depreciation is available on tangible as well as intangible assets
B. ASSET
C. BLOCK OFASSETS [SEC. 2(11)] - The term "Block of Assets" means a group of assets falling within a
class of assets comprising:
I. tangible assets, being buildings, machinery, plant or furniture;
II. intangible assets, being know-how, patents, copyrights, trademarks, licenses, franchises or any
other business or commercial rights of similar nature, in respect of which the same percentage of
depreciation is prescribed.
D. RATES OF DEPRECIATION-
S.NO ASSET RATES
1) BUILDING-
a. Building residential 5%
b. Building Commercial/factory/shop/Road 10%
c. Temporary structure 40%
2) PLANT AND MACHINERY

a. General 15%
b. Motor Car(other than those used in a business of running them on hire) 15%
c. Motor buses, motor lorries, motor vans ,taxi used in a Business of running them on 30%
hire
d. Books(Annual publications) 40%
e. Books (other than annual publication) 40%
f. Aero planes 40%
g. Air pollution control equipment, Water pollution control equipment 40%
h. Computer 40%
i. Ships 20%
3) Furniture & Fixtures 10%
4) Intangible assets 25%

E. TYPES OF DEPRECIATION-
F. WRITTEN DOWN VALUE – SEC 43(6)
G. ADDITIONAL DEPRECIATION – The provisions of additional depreciation are given below-

1) Assessee eligible for additional depreciation-
I. The assessee should be engaged in the manufacture or production of any article or thing
II. An assessee who is in the business of generation, transmission or distribution of power.(FA-2016)
III. An Industrial undertaking established in the notified backward area in the state of
AP/Bihar/Telangana/WB shall be eligible for additional depreciation if eligible assets are acquired
and installed on or after 1-4-2015 but before 1-4-2020.
2) ASSETS FOR WHICH ADDITIONAL DEPRECIATION IS ALLOWED

I. Additional depreciation is available only in respect of new plant and machinery acquired and
installed after March 31, 2005
II. Additional depreciation is not available in respect of building/ furniture/ old plant and machinery.
III. Eligible plant and machinery -Any plant and machinery which has been acquired and installed after
March 31, 2005 by an assessee is qualified for additional depreciation.

3) The following assets are not eligible for additional depreciation-

 ships and aircrafts;
 any machinery or plant which, before its installation by the assessee, was used either within
or outside India by any other person;
 any machinery or plant which is installed in any office premises or any residential
accommodation, or accommodation in the nature of a guest house;
 any office appliances or road transport vehicles;
 Any machinery or plant, the whole of the actual cost of which is allowed as a deduction
(whether by way of depreciation or otherwise) in computing the income chargeable under
the head "Profits and gains of business or profession" of any one previous year.
4) RATE OF ADDITIONAL DEPRECIATION:
I. Rate of Additional deprecation-20%.
II. Rate of additional depreciation -35% (Notified backward areas).
III. Additional Depreciation 35% not available for P&M used in business of generation,
transmission and distribution of power even if they are set up in notified backward
areas.(only 20% shall be allowed.)
IV. If asset acquired and put to use less than 180 days the rate of depreciation is 50% and the
remaining 10/17.5 % shall be allowed as deduction in the next year.
H. DEPRECIATION IN THE CASE OF POWER UNITS:
 However, such option shall be exercised before the due date of furnishing return of income. Further, it may be
noted that once the option is exercised, it shall be applicable for all subsequent assessment years.
 Rate of depreciation would be percentage specified in IA to the income tax rules
I. MEANING OF "ACTUAL COST" [SEC. 43(1)] – As per section 43(1). "Actual cost" means the actual
cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been
met directly or indirectly by any other person or authority.
Following second proviso shall be inserted after the first proviso to clause (1) of section 43 by the
Finance Act, 2017, w.e.f. 1-4-2018 :
 Where the assessee incurs any expenditure for acquisition of any asset or part thereof in respect of
which a payment or aggregate of payments made to a person in a day, otherwise than by an account
payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system
through a bank account, exceeds ten thousand rupees, such expenditure shall be ignored for the
purposes of determination of actual cost.
 Normal depreciation/Additional Depreciation/32AC/32AD-NA pertaining to a payment exceeding

`10,000 which is made by account payee cheque /draft/use of ECS.

PROBLEM:1 R purchases on 5-5-2018 a new machine at a cost of ` 2,50,000. In bringing it to factory

site, he incurs expenses on clearing, freight and loading amounting to ` 10,000, ` 4,000 and ` 1,500
respectively. In installing the machine a further cost of ` 30,000 is incurred. It is then found that a part is
broken and in repairing such broken part an additional expenditure of ` 24,500 becomes necessary.
Ultimately on 2-2-2019 the machinery is ready for use and is actually brought into use on that day. If the
rate of depreciation is 15% determine the actual cost of the machinery for purposes of depreciation and
also the amount of depreciation admissible for the assessment year 2019-20 assuming the W.D.V. of the
same block as on 1-4-2018 was ` 2,40,000. Give reason for your answer.
ANSWER:1 Depreciation Rs. 60,000
PROBLEM:2 Written down value of 4 machines at the beginning of the PY 2018-19,forming part of a
block of assets carrying 15% rate of depreciation was ` 5,00,000.The following 4 machines of the
same block were bought.
MACHINES DATE OF PURCHASE DATE WHEN PUT TO USE COST
P 05-01-2018 14-01-2019 50,000
Q 05-04-2018 15-05-2018 1,00,000
R 15-05-2018 31-01-2019 2,00,000
S 15-11-2018 27-03-2019 1,50,000
Four machines of this block (other than those which were acquired and put to use less than 180 days)
were sold for ` 4, 00,000.
A. Calculate the depreciation for AY 2019-20.
B. What will be the answer if four machines were sold for 7, 00,000 instead of 4, 00,000.
ANSWER:2
PROBLEM:3 A newly qualified ca, Mr. Kunal , has acquired the following assets in his office during fy
2018-19 at the cost shown below. calculate the amount of depreciation to be claimed from his
professional income for ay 2019-20:
S No Description Date of Date when Amount
acquisition put to use (Rs)
1 Computer 27.09.18 01.10.18 35,000
2 Computer software 02.10.18 06.10.18 8,500
3 Computer printer 02.10.18 02.10.18 12,500
4 Books (of which books being annual publications of Rs 01.04.18 01.04.18 13,000
12,000)
5 Office furniture (acquired from a practicing CA) 01.04.18 01.04.18 3,00,000
6 Laptop 26.09.18 06.10.18 43,000
ANSWER:3
PROBLEM:4 Mr. A is engaged in the business of generation and distribution of electric power. He
always opts to claim depreciation on WDV for income tax purposes. From the following details,
compute the depreciation allowable as per the provisions of the Income Tax Act, 1961 for AY 2019-20
Particulars Rs (in lacs)
Opening WDV of block (15% rate) 42
New machinery purchased on 12.10.2018 10
Machinery imported from Colombo on 12.04.2018. This machine had been used only in 9
Colombo earlier and the assessee is the first user in India.
New computer installed in generation wing of the unit on 15.07.2018 2
ANSWER:4

8. INVESTMENT IN NEW PLANT AND MACHINERY IN NOTIFIED BACKWARD

AREAS IN CERTAIN STATES 32AD
A. AVAILABLE TO- Any assessee (Company and Non Corporate)
B. Conditions-
I. Assessee should set up an undertaking or enterprises for manufacture or production of
any article or thing on or after 1-4-2015
II. Undertaking or enterprises should be set up in any notified backward area in the state of
AP/Bihar/Telangana/WB
III. New asset should be acquired and installed during the period 1-4-2015 to 31-03-2020.
C. ELIGIBLE PLANT & MACHIENERY-

I. New asset means any new plant and machinery.
D. INELIGIBLE PLANT AND MACHINERY-

I. ships and aircrafts;
II. any machinery or plant which, before its installation by the assessee, was used either within
or outside India by any other person;
III. any machinery or plant which is installed in any office premises or any residential
accommodation, or accommodation in the nature of a guest house;
IV. any office appliances or road transport vehicles;
V. Any machinery or plant, the whole of the actual cost of which is allowed as a deduction
(whether by way of depreciation or otherwise) in computing the income chargeable under
the head "Profits and gains of business or profession" of any one previous year.
E. QUANTUM OF INVESTMENT ALLOWNACE-

I. The deduction will be available for the AY relevant to the PY in which new asset is installed.
II. Rate-15%
POINT TO BE NOTED-
I. The deduction is over and above the deduction available under section 32AC.
II. If an undertaking is set up in notified backward area it shall be eligible to claim 32AC as well as
32AD.
9. TEA/COFFEE/RUBBER DEVELOPMENT ACCOUNT [SEC. 33AB]-

A. Conditions:
I. It must be engaged in the business of growing and manufacturing tea or coffee or rubber in India.
II. The assessee must make a deposit in a "special account" (i.e., deposit with NABARD) or deposit
under a scheme approved by the Tea Board or Coffee Board or Rubber Board.
III. Deposit should be made within 6 months from the end of the previous year or before the due
date of furnishing return of income, whichever is earlier.
IV. The accounts of the taxpayer should be audited by a chartered accountant.
B. Amount of deduction -
I. a sum equal to amount deposited in the "special account"; or
II. 40 per cent of the profit of such business computed under the head "Profits and gains of business
or profession" before making any deduction under section 33AB and before adjusting brought
forward business loss under section 72,(whichever is less)
C. OTHER POINTS-
I. Where any deduction is claimed under this section, no deduction shall be allowed in respect of
such amount in any other previous year.
II. The amount standing to the credit of the special account may be withdrawn only for the purpose
specified in the approved scheme.
III. If the amount released from the "special account" in a year is not utilized in the same previous
year for the purpose for which it is released, the amount not so utilized will be treated as taxable
profits of that year and taxed accordingly.
D. TAX TREATMENT OF AMOUNT WITHDRAWN -

TAXABLE AS PROFIT NOT TAXABLE AS PROFIT
1 Closure of business Death of tax payer
2 Dissolution of firm Partition of HUF
Liquidation of company
E. Amount cannot be utilized for certain purpose.

a. For acquiring plant and machinery which is to be installed in any office premises or residential
accommodation or guest houses.
b. Any office appliances (other than computers)
c. Any machinery which is to be installed in an undertaking producing low priority items
(specified in the Eleventh Schedule)
d. Plant or machinery entitled to 100 per cent deduction in any one year, cannot be acquired.
F. Consequence if new asset is transferred within 8 years.

a. Machinery so acquired should not be transferred within 8 years from the end of the year in
which it is acquired.
b. If transferred within 8 years deduction allowed earlier will be withdrawn and taxable as
business profit
c. This rule of 8 years is not applicable in the case of transfer to the Central Government, State
Government, statutory corporation, Government Company or transfer in a scheme of
conversion of firm into company.
10. SITE RESTORATION FUND [SEC. 33ABA] -

A. Conditions-
I. The taxpayer is engaged in the business of the prospecting for, or extraction or production of,
petroleum or natural gas or both in India.
II. The Central Government has entered into an agreement with the taxpayer for such business.
III. It must make a deposit with SBI in a "special account" in accordance with a scheme approved by
the Ministry of Petroleum and Natural Gas or deposit any amount in a "site restoration account"
under a scheme framed by the Ministry of Petroleum and Natural Gas.
IV. The deposit should be made before the end of the previous year.
V. Books of account of the taxpayer should be audited.
B. Amount of deduction-
I. a sum equal to amounts deposited as given above; or
II. 20 per cent of the profit of such business computed under the head "Profits and gains of business
or profession" before making any deduction under section 33ABA and before adjusting brought
forward business loss under section 72,(whichever is less)

11. EXPENDITURE ON SCIENTIFIC RESEARCH [SEC. 35]-

PROBLEM:5 X Ltd. commenced production of paper on December 1, 2018. The company has made the
following expenditure on scientific research up to the year ending on March 31, 2019:
1. On December 13, 2018, the company pays ` 80,000 to the Indian Agricultural Research Institute, New
Delhi, being an approved research institution under section 35(1)(ii), for the purpose of carrying out
scientific research in natural science.
2. On December 21, 2018, the company pays ` 70,000 to the Indian Institute of Management,
Ahmadabad, being an approved institute under section 35(1)(iii), for the purpose of carrying out
research in social or statistical science.
3. On January 10, 2019, the company pays ` 40,250 to an approved National Laboratory for carrying out
programmes of scientific research.
4. On December 23, 2018, the company purchases a plot of land for ` 6,00,000. Later on a laboratory
building is constructed (cost of construction ` 4,70,000, date of completion of construction March 1,
2019) to start an in-house research.
5. Before the commencement of the production, the company had made the following revenue
expenditure for its research laboratory-
Expenditure on salary and perquisite to research personnel and research material during the 12 months
ending on November 30, 2015: ` 30,000.
Expenditure on salary of research professional from December 1, 2015 to November 30, 2018 :` 91,000
(out of which amount certified by the prescribed authority is ` 32,000).
Expenditure on providing rent-free flat and club-facility to research personnel from December 1, 2015 to
November 30, 2018 :` 18,000.
Expenditure on research material from December 1, 2015 to November 30, 2018 :` 76,800 (out of which
amount certified by the prescribed authority is ` 44,800).
Capital expenditure on scientific research (not certified by the prescribed authority).

Particulars Expenditure incurred up Expenditure incurred
to November 30, 2015 between December 1,
2016 and November 30,
`
2018 `
Purchase of land for growing for research 2,50,000 3,60,000
Purchase of equipments for research 2,30,000 1,40,000
Cost of cultivation of herbals 22,000 44,600

Determine the amount of deduction available to X Ltd. under section 35(1) for the assessment year 2019-20 , if the
scientific research is related to the business of the assessee-company.
ANSWER:5 Rs. ………

12. AMORTIZATION OF TELECOM LICENSE FEES [SEC. 35ABB/ABA

A. CONDITIONS:
I. The expenditure is capital in nature.
II. It is incurred for acquiring any right to operate telecommunication services
III. The expenditure is incurred either before the commencement of business or thereafter at any
time during any previous
IV. The payment for the above has been actually made to obtain license year
If all the above conditions are satisfied, then one can claim deduction under section 35ABB. If,
however, these conditions are not satisfied, then deduction under section 35ABB is not available
[one may claim deduction under section 37(l).
B. AMOUNT OF DEDUCTION:
C. PROFIT OR LOSS ON SALE OF TELECOM LICENCE:

I. Any profit or loss on sale of telecom license is taken into consideration while computing business
income.
II. Where under a scheme of amalgamation/demerger, a telecom license is transferred to an Indian
company, and then the provisions of section 35ABB shall continue to apply to the transferee-
company.
13. Agricultural extension project [Sec. 35CCC] –
14. Expenditure for skill development [Sec. 35CCD]-
15. Payment to associations and institutions for carrying out rural development [Sec. 35CCA]
16. Expenditure in the case of amalgamation/ demerger [Sec. 35DD]
17. Expenditure under voluntary retirement scheme [Sec. 35DDA]
18. Expenditure on prospecting, etc., for development of certain minerals -Sec. 35E
I. Only for Indian Company & Resident Non Corporate Assessee.
II. Expenses of 5 Years (year of commercial production + 4 Prior years) allowed in 10 Equal
Instalments.

19. SPECIFIED BUSINESS [SEC. 35AD]-
Expenditure for Specified Business - I. 100% of Capital Expenditure incurred, except on Land,
a) Cross Country Natural Gas Pipe Line Goodwill or Financial Instrument.
Network II. Prior Period Expenditure 100% allowed, if capitalized in
b) Cold Chain Facility, Ware Housing Books.
Facility for Storage of Agricultural III. No other deduction allowed for same expenditure.
Provisions of 80A and 80-IA shall apply for goods in
Produce.
c) Building 2 Star Hotel, Hospital with at specified business.
least 100 beds, Housing Project for IV. No Double Deduction: For Assessee claiming deduction
Slum Redevelopment u/s 35AD, no deduction shall be allowed u/s 10AA or
d) Developing & Building a Housing Chapter VI-A "C Deductions in respect of Certain
Project under a scheme framed by CG Incomes".
/ SG V. Any asset in respect of which a deduction is claimed and
e) Production of Fertilizer in India allowed u/s 35AD shall be used only for the Specified
Business, for 8 years beginning with the previous year in
f) Setting up and Operating Inland
Container Depot or Freight Station, which such asset is acquired or constructed.
Bee-keeping, Warehousing Facility VI. No Deduction in case of cash payments exceeding `
for Storage of Sugar 10,000: Capital Expenditure in respect of which,
g) Laying and operating a Slurry payment or aggregate of payments made to a person in
Pipeline for the transportation of a day, exceeding ` 10,000 is made otherwise than by an
Iron Ore A/c Payee Cheque drawn on a Bank or an A/c Payee
h) Setting-up and operating a Semi- Bank Draft or use of ECS through a Bank account is
disallowed.
Conductor Wafer Fabrication
Manufacturing Unit, and which is VII. Taxable for non-usage of Asset:
notified by CBDT a) Situation: Asset used for other purpose during the 8-
i) w.e.f. 01.04.2018 Business of year period except demolished / discarded / destroyed
developing or maintaining and / transferred as referred u/s 28(vii).
operating or developing, maintaining b) Taxable Amount: Total Amount of deduction claimed
and operating a New Infrastructure and allowed in one or more previous years, as reduced
Facility by the amount of Depreciation Allowable u/s 32, shall
be deemed to be the Income of the Assessee, as if no
deduction u/s 35AD was allowed.
c) Manner of Charge: It is chargeable as "PGBP" of the
previous year in which the asset is so used.
d) Exception: The above shall not apply to a Company
which has become a Sick Industrial Company u/s 17(1)
of the Sick Industrial Companies (Special Provisions) Act,
1985, during the 8 year period.
POINT TO BE NOTED-
I. The specified business should not be set up by splitting up, or the reconstruction, of a business
already in existence.
II. It should not be set up by the transfer of old plant and machinery.
III. 20 per cent old machinery is permitted-
IV. Second-hand imported machinery is treated as new
V. Books of account of the assessee should be audited.

20. AMORTIZATION OF PRELIMINARY EXPENSES [SEC. 35D] –

A. ALLOWED TO-
I. An Indian company or a resident non-corporate assessee can claim deduction under section 35AD
in respect of preliminary expenses.
II. Such expenditure may be incurred before commencement of the business or after
commencement of the business in connection with extension of an undertaking or in connection
with setting up a new unit.
B. QUALIFYING EXPENDITURE -The heads of qualifying expenditure are the following:
The work should be carried on by the assessee The work can be carried on by the assessee itself or by any
itself or by a concern approved by the board concern approved or not.
I. Feasibility report Legal charges for
II. Project report I. Agreement between assessee and any person
III. Market Survey II. Drafting MOA/AOA
IV. Engineering services. III. Printing charges for MOM/AOA
IV. Registration of a Company
V. Expenses in connection with public issue of shares
C. QUALIFYING EXPENDITURE - MAXIMUM CEILING - The aggregate expenditure cannot exceed the
following:
In the case of a corporate assessee In the case of a non-corporate assessee
a. 5 per cent of cost of project; or 5 per cent of cost of project
b. 5 per cent of capital employed, whichever is more
D. DEDUCTION-
PROBLEM:6 X Ltd. is incorporated in Bangalore on September 6, 2018. It commences production on

March 15, 2019. The following expenses are incurred by the company before commencement of
business-
a. expenses on incorporation, issue of shares, etc. : ` 92,000.
b. preparation of feasibility report, project report and conducting market survey (the work is completed
by the taxpayer itself) : ` 1,40,000.
c. engineering services (work is carried on by a concern which is not approved by the Board) : ` 1,30,000.
Determine the amount of deduction under section 35D assuming the following figures of fixed assets and
capital on March 31, 2019 (i.e., the last day of the year in which the taxpayer starts production)-
Particulars ` in lakhs
Cost of fixed asset 55
Share capital 40
Debentures 12
Long-term borrowing from a financial institution (Repayable for not less than 7 years) 8
ANSWER:6 Rs. 46,400
21. DEDUCTION UNDER SECTION 36

A. EXPENDITURE INCURRED BY EMPLOYER FOR BENEFITS OF EMPLOYEE-

SECTION PARTICULARS DEDUCTION CONDITIONS
ALLOWED
36(1)(ib) Premium paid by Yes I. An employer can claim deduction in respect of
employer on health of premium paid by him by any mode other than cash
employee for insurance on the health of his employees in
accordance with the scheme framed by the General
Insurance Corporation and approved by the Central
Government or any other insurer and approved by
IRDA.
36(1)(ii) Bonus and commission YES I. Admissible only if not payable as profit or dividend
II. Bonus or commission is allowed as deduction only
where payment is made during the previous year
or on or before the due date of furnishing return
of income under section 139
36(1)(iv) Employers Contribution to YES I. Employer's contribution towards a recognized

recognized provident fund provident fund or an approved superannuation
and approved fund is allowable as deduction.
superannuation fund II. Fund should be for the benefit of employee.
III. Within due date u/s 139(1)
36(1)(v) Contribution towards YES I. Employer's contribution towards an approved

approved gratuity fund gratuity fund created by him exclusively for the
benefit of his employees under an irrevocable
trust is allowable as deduction.
II. Within due date u/s 139(1)
36(1)(iva) Employer's contribution to YES I. Employer's contribution towards NPS is deductible

notified pension scheme (to the extent of 10 per cent of "salary" of
(NPS) employees) with effect from the assessment year
2012-13.
36(1)(va) Employees' contribution YES I. Section 2(24) defines income. Clause (x) of section
towards staff welfare 2(24) provides that any sum received by an
schemes [Sec employer from his employees as contribution to
provident fund (or any fund for the welfare of such
employees) shall be included in the employer's
income.
36(1)(ix) Family planning YES I. Allowed to company assessee only.

expenditure by COMPANY II. Revenue expenditure-100%
III. Capital expenditure-1/5th
NOTE- Unabsorbed C/E carried forward and sett off as
unabsorbed deprecation.

B. CHARGES RELATING TO FINANCE-

ALLOWED
36(1)(iii) Interest on borrowed YES I. The assessee must have borrowed money
capital II. The money so borrowed must have been used for the
purpose of business
III. Interest is paid or payable on such borrowing
36(1) INTEREST ON CAPITAL I. Interest liability pertaining to the period beginning

BORROWED FOR from the date on which capital is borrowed by an
ACQUIRING A CAPITAL existing concern for the acquisition of an asset till the
ASSET date, when such asset is first put to use, cannot be
claimed as deduction under section 36.
II. It has to be capitalized.
Only interest on capital borrowed to purchase a capital
asset for business purposes pertaining to the period after
the asset is put to use, is deductible under section 36
36(1)(iiia) Discount on ZERO Coupon YES I. Discount on notified zero coupon bonds (being the
Bond. difference between amount received and the
amount payable on redemption/maturity by the
issuing company) is allowed as deduction on pro rata
basis.
II. The pro rata deduction is available under section
36(1)(iiia) having regard to the period of life of such
bond.(For issuer)
III. "Period of life of the bond" means the period
commencing from the date of issue of the bond and
ending on the date of the maturity or redemption of
such bond.
ZERO COUPON BOND-
I. It is a bond issued by any infrastructure capital
company or infrastructure capital fund or public
sector company or scheduled bank on or after
June 1, 2005.
II. In respect of such bond, no payment/benefit is
received (or receivable) before maturity/
redemption from infrastructure capital company
or infrastructure capital fund or public sector
company or scheduled bank.
III. Such bond is specified by the Central
Government by notification in the Official
Gazette.

C. DEDUCTION IN CASE OF LIVE STOCK-

ALLOWED
36(1)(ia) Insurance premium paid by a yes I. Insurance premium paid by a federal milk co-operative
federal milk co-operative society on the lives of cattle, owned by the members of a
society primary milk co-operative society affiliated to it, is
allowable as deduction
36(1)(vi) Write off of allowance for yes I. In respect of animals which are used for the purposes of
animals business or profession (not as stock-in-trade) and have died
or become useless, the difference between the actual cost
of the animals to the assessee and the amount realized (if
any) in respect of carcasses or sale of animals, is allowable
as deduction.
D. DECUTION FOR TAXES TO FINANCIAL SECTOR-

ALLOWED
36(1)(xiii) Banking Cash Transaction YES Actually paid BCTT during the PY will allowed as a deduction.
Tax.
36(1)(xv) Securities Transaction Tax YES I. Taxable securities /Commodities transactions entered
(xvi) /Commodities Transaction into course of business.
Tax II. Income from such transactions chargeable under the head
PGBP.
E. OTHERS
ALLOWED
36(1)(i) STOCK INSURANCE YES I. The amount of any premium paid in respect of
insurance against risk of damage or destruction of
stocks or stores, used for the purposes of business or
profession, is allowable as deduction.
36(1)(xiv) Contribution to credit YES I. A public financial institution can claim deduction in
guarantee trust fund respect of its contribution to the Credit Guarantee
Fund Trust for Micro and Small Enterprises.
36(1)(xiii) Revenue expenditure YES I. Any revenue expenditure incurred by a notified
incurred by entities corporation or a body corporate (by whatever name
established under any called) constituted (or established) by a Central, State
Central, State or Provincial or Provincial Act for the objects and purposes
Act authorized by the Act, shall be allowed as a deduction.
36(1)(xvii) Expenditure by Co- YES I. With effect from 2016-17, deduction will be allowed in
OPERATIVE SOCIETY for respect of expenditure incurred by a co-operative
purchase of sugarcane- society (engaged in the business of manufacturing
sugar) for purchase of sugarcane at a price which is
equal to or less than the price fixed or approve by the
Government
36(1)(xviii) Marked to market loss YES Marked to market loss or other expected loss as computed in
accordance with the income computation and disclosure
standards notified under sub-section (2) of section 145.

22. BAD DEBTS [SEC. 36(1)]-

I. There must be debt.
II. Debt must be incidental to the business or profession of assesses.
III. Debt must have been taken into account in computing assessable income.
IV. Debt must have been written off in the books of accounts of the assessee.
Other points –
I. It is not necessary to establish that debt has become bad during the relevant previous year.
II. For this purpose, transfer to "provision for bad and doubtful debts account" shall not be taken as bad
debts written off.
III. Debts of a discontinued business not deductible
IV. Allowable in the hands of successor
23. PROVISION FOR BAD AND DOUBTFUL DEBTS RELATING TO RURAL BRANCHES
OF SCHEDULED COMMERCIAL BANKS [SEC. 36(1)(VIIA)] –
A deduction is allowed while computing the taxable profits in respect of any provision for bad and doubtful debts
made by a bank and financial institutions. The amount of deduction is given below:
Amount deductible in respect of provision for bad and doubtful debts
In the case of a scheduled In case of public financial In the case In case of

bank [other than a foreign institution, State financial of a NBFC (FA-
bank], a non-scheduled bank corporation, State Industrial foreign 2016)
and a co-operative bank investment corporation bank
Total income (computed 8.5 per cent of such income 5 per cent of such income 5 per cent 5% of such
before this deduction and (FA-2017) of such Income
amount deductible under income
sections 80C to 80U)
Aggregate average 10 per cent of such advances - -

advances made by rural
branches
24. TRANSFER TO SPECIAL RESERVE [SEC. 36(1) (VIII)] –

A financial corporation, banking company, co-operative bank and a housing finance company can claim deduction
under section 36(1)(viii) as follows, if a few conditions are satisfied:
I. the amount transferred during the previous year to the special reserve account created for the purpose of
section 36(1)(viii); or
II. 20 per cent of the profits derived from the business of providing long-term finance before claiming
deduction under section 36(1)(viii); or
III. 200 per cent of (paid-up share capital and general reserve as on the last day of the previous year) minus
the balance of the special reserve account on the first day of the previous year,
Whichever is lower-
Amount withdrawn from reserve account –

I. If any amount is withdrawn from the aforesaid reserve account [in respect of which deduction was allowed
under section 36(1)(viii)], it will be chargeable to tax in the year in which the amount is withdrawn, under
section 41(4A), regardless of the fact whether the business is in existence in that year or not.

25. ADVERTISEMENT EXPENSES [SEC. 37(2B)] –

I. Deduction is not available in respect of expenditure incurred by an assessee on advertisement in
any souvenir, brochure, tract, pamphlet or the like published by a political party.
26. GENERAL DEDUCTION [SEC. 37(1)]-

I. The expenditure should not be of the nature described under sections 30 to 36.
II. It should not be in the nature of capital expenditure.
III. It should not be personal expenditure of the assessee
IV. It should have been incurred in the previous year.
V. It should be in respect of business carried on by the assessee
VI. It should have been expended wholly and exclusively for the purpose of such business.
VII. It should not have been incurred for any purpose which is an offence or is prohibited by any law.

27. AMOUNTS NOT DEDUCTIBLE UNDER SECTION 40(A) –

Amounts not deductible (Section 40)
Notwithstanding anything contained in sections 30 to 38, the following amounts shall not be deducted in
computing the income chargeable under the head profits and gains of business or profession.
(1) In the case of any assessee [Section 40(a)]
A. Any interest, royalty, fees for technical services, or other sums chargeable under Income tax Act
which is payable: (a) Payable Outside India or (b) In India to a Non-Resident (not being a Company)
or (c) to a Foreign Company without TDS, entire expenditure is not allowed.
B. Any Payment made to a Resident, on which Tax is deductible, but tax has not been deducted / after
deduction, tax has not been paid before the due date of furnishing Return u/s 139(1).
 30% of the Expense will not be allowed.


C. DISALLOWANCE OF CONSIDERATION ON NON DEDUCTION/NON PAYMENT OF EQUILISATION

LEVY-F.A 2016
I. If equalization levy is not deducted or if deducted but not been paid before the due date of
filing return of income under section 139(1) the consideration shall not be allowed as
deduction in the PY as per the provision of section 40(ib) of Income tax act.
II. The amount of consideration paid or payable shall be allowed as deduction in the PY in
which payment is made.
D. Tax levied on profits or gains [Section 40(a)(ii)]: Any sum paid on amount of any rate of 'tax' levied
on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on
the basis of any such profits or gains shall not be allowed as deduction;
Taxes which are not deductible
I. Indian income – tax
II. Agricultural income – tax
III. Interest payment in relation to income – tax
E. Taxes paid on income earned outside India-
F. Wealth Tax [Section 40(a)(iia)]: Not allowed as deduction.
G. Royalty, License Fee, Service Fee, Privilege Fee, Service Charge or any other Fee or Charge levied
on, or appropriated either directly or indirectly from, State Government Undertakings by the
State Govt-
H. Salary paid outside India or to Non- Resident-
I. Contribution to Welfare Fund of Employees if no arrangements for TDS-
J. Tax on Perquisites paid by Employer-

28. AMOUNTS NOT DEDUCTIBLE IN RESPECT OF PAYMENT TO RELATIVES

[SEC. 40 A(2)] –
29. AMOUNTS NOT DEDUCTIBLE IN RESPECT OF EXPENDITURE EXCEEDING

` 10,000 [SEC. 40A(3)] –
A. RULE - The following conditions should be satisfied:
I. The assessee incurs any expenditure which is otherwise deductible under the other provisions of the Act
for computing business /profession income (e.g., expenditure for purchase of raw material, trading goods,
expenditure on salary, etc.). The amount of expenditure exceeds ` 10000
II. A payment (or aggregate of payments made to a person in a day) in respect of the above expenditure
exceeds ` 10,000
III. The payment is made otherwise than by an account payee cheque or an account payee demand draft or
use of ECS
If all the above conditions are satisfied, 100 per cent of such payment will be disallowed.
B. EXCEPTIONS - Rule 6DD prescribes the following circumstances under which no disallowance will be made
of the expenditure even if the payment exceeding ` 10,000 is made otherwise than by an account payee
cheque or demand draft:
I. Payment made to banking and other credit institutions, Government (both Central and State
Governments)
II. Payment through the banking system.
III. Payment made by book adjustment by an assessee in the account of the payee against money due to the
assessee for any goods supplied or services rendered by him to the payee
IV. Payment to a cultivator, grower or producer in respect of the purchase of agricultural or forest produce or
product of animal husbandry (including livestock, meat, hides and skins) or dairy or poultry farming or fish
or fish products or products of horticulture or apiculture
V. Payment made to a producer in respect of the purchase of the products manufactured or processed
without the aid of power in a cottage industry
VI. Payment made to a person who ordinarily resides or carries on business in a village not served by any
bank
VII. Payment of terminal benefits, such as gratuity, retrenchment compensation, etc., not exceeding ` 50,000
VIII. Payment made by an assessee by way of salary to his employee after deducting the income-tax from
salary in accordance with the provisions of section 192 and when such employee -
 is temporarily posted for a continuous period of 15 days or more in a place other than his normal
place of duty or on a ship; and
 does not maintain any account in any bank at such place or ship
IX. Payment required to be made on a day on which the banks were closed either on account of holiday or
strike
X. Payment made by any person to his agent who is required to make payment in cash for goods or services
on behalf of such person
XI. Payment made by an authorized dealer or a money changer against purchase of foreign currency or
travelers cheques in the normal course of his business
 POINT TO BE NOTED-
PROBLEM:7 Will the provision of section 40A(3) be attracted in the following cases:
Questions Answers
P.Y. 2018-19(A.Y. 2019-20)
1) R purchases goods worth `30,000 from G against

one bill but makes payment of `18,000 & `12,000 at
different times on the same date.
2) R makes a payment of `40,000 as donation by
crossed cheque to National Defence Fund.
3) R makes a purchase of goods of `60,000 and makes
payment of `45,000 by account payee cheque and
`15,000 in cash.
4) R makes a purchase of goods of `60,000 on 14-2-
2019 and makes the payment as under;
(i) `30,000 by account payee cheque on 15-2-2019
(ii) `15,000 in cash on 15-2-2019
(iii) `15,000 in cash on 16-2-2019
5) R purchases a building for `10,00,000 and makes

the payment in cash
6) R, a dealer in real estate purchases buildings for
`10,00,000 and makes the payment by crossed
cheque.
7) R makes an advance of `30,000 on 14-8-2018 by
crossed cheque for purchase of goods and delivery
of the goods is made on 20-9-2018.
8) R pays a salary of `24,000 by crossed cheque to an

employee.
9) R purchases goods in cash from his brother for
`40,000, whose market value is `35,000.
10) R purchases goods in cash from his brother for

`21,000, whose market value is `19,000.
11) R purchases goods in cash for `40,000 from X, a

villager and makes payment to X in his village where
no banking facility is available.
12) In case given in (11) what will be answer, if R makes
the payment to X (the villager) in town where
banking facility is available.
13) R makes a payment in cash amounting to `35,000
to a transporter
ANSWER:7
30. PROVISION FOR UNAPPROVED GRATUITY FUND [SEC. 40A(7)]:
31. CONTRIBUTIONS TO NON-STATUTORY FUNDS
32. MARKED TO MARKET LOSS OR OTHER EXPECTED LOSS [SEC.40A(13)]

I. No deduction or allowance shall be allowed in respect of any marked to market loss or other
expected loss except as allowable u/s 36(1)(xviii).
II. In other words, loss can be allowed only if it is computed accordance with the provisions of
ICDS.
33. CHANGES IN THE RATE OF EXCHANGE OF CURRENCY SECTION 43A

Section 43A shall be applicable if the following conditions are satisfied.
I. The asset is acquired from a country outside India.
II. It is either acquired through a foreign supplier's credit or a loan in a foreign currency.
III. It is acquired for the purpose of assessee's business and profession.
If the above conditions are satisfied and there is a change in the rate of exchange which results into an
increase or decrease in the liability of the assessee as expressed in Indian currency, such increase or
decrease shall be made only in the previous year in which actual payment is made to the foreign supplier
or to repay the foreign currency loan.
POINT TO BE NOTED-
1) Adjustment referred to in section 43A shall not be made if the supplier's credit or the foreign
currency loan is reinstated at the rates of exchange prevailing on 31st March every year but no
actual payment is made.
2) As per section 43A, the increase or decrease in liability at the time of payment has to be adjusted
from the actual cost of the asset. Cost referred to in section 43A should be read as actual cost
minus depreciation allowed till date.
3) Where foreign exchange fluctuations is on revenue account i.e. debtors for exports, creditors for
imports or creditors for other expenses, such fluctuation if results into profits/loss, it shall be given
effect to while computing income under the head Profits and Gains of Business or Profession.
4) Where the fluctuation in foreign exchange arises after the asset has been transferred by the block
of assets still exists, such fluctuation shall be added/deducted from WDV of the block of assets.
However, if such fluctuation arises after the block ceases to exist, there will be no tax treatment for
such fluctuation/ Such gain/loss shall be treated as capital receipt/capital loss having no tax
treatment

34. TAXATION OF FOREIGN EXCHANGE FLUCTUATION-SECTION 43AA

1) Subject to the provisions of section 43A, any gain or loss arising on account of any change in foreign
exchange rates shall be treated as income or loss, as the case may be, and such gain or loss shall be
computed in accordance with the income computation and disclosure standards notified under
sub-section (2) of section 145.
2) For the purposes of sub-section (1), gain or loss arising on account of the effects of change in
foreign exchange rates shall be in respect of all foreign currency transactions, including those
relating to—
I. monetary items and non-monetary items;
II. translation of financial statements of foreign operations;
III. forward exchange contracts;
IV. Foreign currency translation reserves.
35. AMOUNT NOT DEDUCTIBLE IN RESPECT OF CERTAIN UNPAID

LIABILITIES [SEC. 43B]:
 Section 43B is applicable only if the taxpayer maintains books of account on the basis of
mercantile system of accounting.
 GENERAL RULE - CERTAIN EXPENSES ARE DEDUCTIBLE ON PAYMENT BASIS –
 The following expenses (which are otherwise deductible under the other provisions of the
Income-tax Act) are deductible on payment basis—
a) any sum payable by way of tax, duty, cess or fee (by whatever name called under any law for
the time being in force);
b) any sum payable by an employer by way of contribution to provident fund or superannuation
fund or any other fund for the welfare of employees;
c) any sum payable as bonus or commission to employees for service rendered;
d) any sum payable as interest on any loan or borrowing from a public financial institution (i.e.,
ICICI, IFCI, IDBI, LIC and UTI) or a state financial corporation or a state industrial investment
corporation;
e) any sum payable by the assessee as interest on any [loan or advances] from a scheduled bank
[or a co-operative bank other than a primary agricultural credit society or a primary co-
operative agricultural and rural development bank] in accordance with the terms and
conditions of the agreement governing such loan [or advances]-FA- 2017
f) any sum payable by an employer in lieu of leave at the credit of his employee.
g) Any sum payable by assessee to Indian railways for use of railway assets.(F.A 2016)
The above expenses are deductible in the year in which payment is actually made. There is, however,
one exception
EXCEPTION - WHEN DEDUCTIBLE ON ACCRUAL BASIS - The exception is applicable if the following two
conditions are satisfied-
I. Payment in respect of the aforesaid expenses is actually made on or before the due date of
submission of return of income.
II. The evidence of such payment is submitted along with the return of income

PROBLEM:8 From the information given below, find out how much amount will be allowed. These
expenses relate to previous year 2018-19. The due date of furnishing the return of income is 30-9-
2019.
Sr.No. Expenses Amount & Date of actual payment
1. Interest on term loan from bank ` 3,00,000 on 4-6-2019

` 2,00,000 on 31-12-2019
2. Employer's contribution to Provident Fund ` 45,000 on 22-4-2019

(due date 15-4-2018+ 5 days grace)
3. Advance Income tax ` 37,000 on 15-9-2019
4. Excise duty ` 3,50,000 paid on 5-11-2019

ANSWER:8
36. SPECIAL PROVISION FOR COMPUTATION OF COST OF ACQUISITION OF

CERTAIN ASSETS (SEC 43C)
I. Where an amalgamating company transfers a capital asset as stock in trade to the amalgamated company
and such stock in trade is sold by the amalgamated company, then the cost of acquisition of stock in trade
shall be the aggregate of the following:
 Cost to Previous Owner (+) Cost of Transfer (+)Cost of Improvement Full Value of Consideration in
certain cases [Sec. 43CA] -
Note 1: Option to take FMV as on 01.04.2001 to be the cost is not available for section 43C.
Note 2: Cost of Improvement incurred before 01.04.2001 shall be considered for section 43C.
37. STAMP DUTY VALUE OF LAND AND BUILDING TO BE TAKEN AS THE

FULL VALUE OF CONSIDERATION IN RESPECT OF TRANSFER, IF EVEN IF
SAME ARE HELD BY THE TRANSFEROR AS STOCK IN TRADE- SECTION
43CA
1) Where the consideration received or accruing as a result of the transfer by an assessee of an asset (other
than a capital asset), being land or building or both, is less than the value adopted or assessed or assessable
by any authority of a State Government for the purpose of payment of stamp duty in respect of such
transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and
gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as
a result of such transfer.
Following proviso shall be inserted in sub-section (1) of section 43CA by the Finance Act, 2018, w.e.f. 1-4-
2019 : Provided that where the value adopted or assessed or assessable by the authority for the purpose of
payment of stamp duty does not exceed one hundred and five per cent of the consideration received or
accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall,
for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value
of the consideration.

2) The provisions of sub-section (2) and sub-section (3) of section 50C shall, so far as may be, apply in relation
to determination of the value adopted or assessed or assessable under sub-section (1).
3) Where the date of agreement fixing the value of consideration for transfer of the asset and the date of
registration of such transfer of asset are not the same, the value referred to in sub-section (1) may be taken
as the value assessable by any authority of a State Government for the purpose of payment of stamp duty in
respect of such transfer on the date of the agreement.
4) The provisions of sub-section (3) shall apply only in a case where the amount of consideration or
a part thereof has been received by WAY of an account payee cheque or an account payee
demand draft or by use of ECS through a bank account on or before the date of agreement for
transfer of the asset
PROBLEM:9 Find out "full value of consideration" for the purpose of section 43CA in the cases given below —
SDV (date of agreement) SDV (date of registration) Amount of Date when first payment is
consideration as received by seller by account-
(Rs.) Date (Rs.) Date per agreement payee cheque/draft, etc.
1) 25,00,000 15-04-2018 35,00,000 30-04-2018 24,00,000 10-04-2018
2) 25,30,000 10-04-2018 35,00,000 30-04-2018 24,00,000 10-04-2018
3) 25,00,000 15-04-2018 35,00,000 30-05-2018 24,00,000 10-05-2018
4) 30,00,000 10-05-2018 31,50,000 30-05-2018 30,00,000 14-05-2018
5) 10,00,000 11-04-2018 10,70,000 29-04-2018 10,20,000 14-04-2018
ANSWER:9
Amount of Stamp duty value relevant for 105% of Full value of consideration under
consideration Section 43CA amount of section 43CA
as per consideration
Date of agreement Stamp duty as per
agreement
registration value agreement
1) 24,00,000 Date of agreement 25,00,000 25,20,000 24,00,000
2) 24,00,000 Date of agreement 25,30,000 25,20,000 25,30,000
3) 24,00,000 Date of registration 35,00,000 25,20,000 35,00,000

38. COMPUTATION OF INCOME FROM CONSTRUCTION AND SERVICE

CONTRACTS. SECTION 43CB
1) The profits and gains arising from a construction contract or a contract for providing services shall be
determined on the basis of percentage of completion method in accordance with the income computation and
disclosure standards notified under sub-section (2) of section 145 43c :
Provided that profits and gains arising from a contract for providing services,—
I. with duration of not more than ninety days shall be determined on the basis of project completion
method;
II. Involving indeterminate number of acts over a specific period of time shall be determined on the basis of
straight line method.
2) For the purposes of percentage of completion method, project completion method or straight line method
referred to in sub-section (1)—
I. the contract revenue shall include retention money;
II. The contract costs shall not be reduced by any incidental income in the nature of interest, dividends or
capital gains. ]
39. DEEMED PROFITS-

Deduction Nature of Receipt treated as Deemed income Year in which taxable
already
allowed u/s
30-38 Recovery of loss or Expenditure or trading liability which Year in which recovered or
was already allowed, including remission or cessation of written off by the assessee
liability effected by a unilateral act. by remission or cessation.
32(1)(i) Balancing charge on assets in respect of which Taxable in the year in which
depreciation is claimed, is sold / discarded / demolished / amount becomes due.
destroyed
Balancing charge = Net Consideration Less WDV.
35(2) Amount realized on sale of Capital Assets used for Year in which transfer takes
Scientific Research. place
36(1)(vii) Bad Debts earlier allowed subsequently recovered by the Year in which it is recovered
assessee.
36(1)(viii) Amount withdrawn from Special Reserve created. Year in which it is
withdrawn
- Benefit of set-off loss: Unabsorbed loss pertaining to the Deemed Business Income =
year in which the business or profession was discontinued, Income u/s
is permitted to be set off against Deemed Business Income 41(1)/(3)/(4)/(4A)
u/s 41(1)(3)(4)(4A) Less : Loss of Discounted
Business.

40. SPECIAL PROVISION IN CASE OF INCOME OF PUBLIC FINANCIAL

INSTITUTIONS SECTION 43D-AMENDED W.E.F 1-4-2018
Section 43D provides that in the case of a public financial institution, or a scheduled bank, or a State
Financial corporation, or State industrial investment corporation or Co-operative bank (other than primary
agriculture society) or primary co-operative agriculture and rural development bank or Public companies
etc the income by way of interest on such categories of bad and doubtful debts as may be prescribed
having regard to guidelines issued by the Reserve Bank of India in relation to such debt shall be chargeable
to tax—
I. in the previous year in which it is credited to its profits and loss account by the said institution or
II. In the previous year in which it is actually received
whichever is earlier.
41. INSURANCE BUSINESS 44

Notwithstanding anything to the contrary contained in the provisions of the Income – tax Act relating to
the computation of income chargeable under the head. "Income from house property". "Capital gains" or
"Income from other sources", or in section 199 or in section 28 to 43B, the profits and gains of any
business of insurance, including any such business carried on by a mutual insurance company or by a co –
operative society, shall be computed with the rules contained in the First Schedule of the Income – tax .The
Profits and gains derived from Life Insurance business included in TI of an assess shall be taxable @ 12.5
42. SPECIAL PROVISIONS IN CASE OF CERTAIN ASSOCIATIONS 44A

I. Applicable only to that trade, professional or similar association, the income of which is not distributed to its members.
II. Amount Received by the association from its members by way of contribution or otherwise (other than amount
received from performing specific services) i.e.,
General receipts from members
Less: Expenditure incurred for the purposes of protection or advancement of interest of members (other than expenditure
which is otherwise deductible under the Act and other than capital Expenditure), i.e., General expenditure on member
If negative - call it deficiency - If positive - surplus exempt from tax
III. Such deficiency will be allowed as a deduction in computing the income under the head P/G/B/P.
IV. If deficiency is greater than income under the head P/G/B/P, then the balance deficiency will be allowed as deduction
in computing income under other heads of income.
V. Before setting off the deficiency effect shall be first given to the deductions under this Act and brought forward losses
and allowances.
VI. The total deficiency which can be set off shall not exceed 50% of the Total income computed before giving deduction
of deficiency.
POINT TO BE NOTED:
• The tax rate applicable to a mutual concern shall be the same as applicable to an individual except where the mutual
concern is incorporated as a company.

43. COMPULSORY MAINTENANCE OF ACCOUNTS [SEC. 44AA]

A. "Specified profession" - For the purpose of section 44AA and rule 6F legal, medical, engineering,
architectural, accountancy, technical consultancy, or interior decoration or any other notified
profession [i.e., authorized representative, film artist, company secretary and information
technology] are specified professions.
B. "Non-specified profession" - A non-specified profession is a profession other than a "specified
profession" mentioned above.
C. Maintenance of accounts by certain persons carrying on profession or business [Sec. 44AA]
BASIS SPECIFIED PROFESSIONS NON SPECIFEIED PROFESSIONS

CONDITIONS  If gross receipts in all three preceding  Total income exceeds ` 2,50,000 (I/HUF)
p/y exceeds ` 1,50,000 and other assessee ` 1,20,000
 If it is a new profession which is set up or
in p/y, it is likely to exceed ` 1, 50,000  Total sales exceeds `25,00,000 (I/HUF)
in that p/y. Other assess ` 10,00,000
 In any other case, books of accounts to
be maintained but these have not In any of the 3 p/y immediately preceding
been specified. relevant p/y or likely to exceed ` 1,20,000 or `
10,00,000 as the case may be, but in case of
I/HUF limit is 2,50,000/25,00,000(FA-2017)
Books of accounts not specified but to maintain

such books of accounts as will enable the AO to
compute total income.
OR
 Assessee covered under Section 44AE,
44BB, 44BBB
Books are required to be maintained if assessee
claims that his total income from the said
business is lower than the deemed profits or
gains OR
 Assessee covered u/s 44AD- Books are
required to be maintained if assessee claims
that his income from the said business is
lower than 8% of the turnover but total
income exceeds the exemption limit.
Rule 6F  Rule 6F applicable  Rule 6F not applicable
Applicability
BOOKS OF a) Cash book  Maintain such books of accounts and
ACCOUNTS AND b) Journal (if accounts are maintained documents as enable the AO to compute
DOCUMENTS according to mercantile system of his total taxable income under the act.
accounting)
c) Ledger
d) Carbon copies of bills excepting if the
bills or receipts of an amount less than
` 25.
e) Original bills whenever issued to the
person and receipts in respect of
expenditure incurred by the person.

PLACE OF i. The books of accounts are to be  As prescribed by CBDT

KEEPING maintained at the principal place of
BOA/DOCUMENTS profession.
PERIOD i. The books of accounts should be kept  As prescribed by CBDT

and maintained for a period of 6 years
from the end of relevant A/y.
44. TAX AUDIT [SEC. 44AB]

a) A person carrying on business- If the total sales, turnover or gross receipt in business for the
previous year(s) relevant to the assessment year exceed or exceeds ` 1 crore.
b) A person carrying on profession--- If his gross receipts in profession for the previous year(s)
relevant to the assessment year exceeds `50 lakh (Finance act 2016)
c) A person covered under section 44AE, 44BB or 44BBB-- If such person claims that the profits and
gains from the business are lower than the profits and gains computed under these sections
(irrespective of his turnover).
d) A Person covered under section 44ADA- Where assessee is covered u/s 44ADA & he claims that
such income is lower than such profits and gains computed on a presumptive basis and his
income exceeds the maximum amount not chargeable to tax in any PY.
e) A person covered under section 44AD- If the provisions of section 44AD(4) are applicable
and his income exceeds maximum amount not chargeable to income tax in any PY.(w.e.f AY
2017-18)
[Provided that this section shall not apply to the person, who declares profits and gains for the
previous year in accordance with the provisions of sub-section (1) of section 44AD and his total
sales, turnover or gross receipts, as the case may be, in business does not exceed two crore
rupees in such previous year: ]
f) Form No. - These provisions are given in the table below-

Different taxpayers Audit Form No. Statement
particulars
In the case of a person who carries on business or profession and Form No. 3CA Form No. 3CD
who is required by or under any law to get his accounts audited
In the case of a person who carries on business or profession but Form No. 3CB Form No. 3CD
not being a person referred to above

45. COMPUTATION OF INCOME ON ESTIMATED BASIS IN THE CASE OF

TAXPAYERS ENGAGED IN A BUSINESS [SEC. 44AD]
A. CONDITIONS -
I. The assessee should be an eligible assessee.
II. Eligible assessee for this purpose is a resident individual, a resident Hindu undivided family or a
resident partnership firm (not being a limited liability firm).
III. The assessee has not claimed any deduction under sections 10A, 10AA, 10B, 10BA, 80HH to
80RRB in the relevant assessment year.
IV. The assessee should be engaged in any business (whether it is retail trading or civil construction
or any other business). However, the following persons are not eligible to avail any benefit under
section 44AD -
 a person carrying on profession as referred to in section 44AA(1);
 a person earning income in the nature of commission or brokerage;
 a person carrying on any agency business; or
 a person who is in the business of plying, hiring or leasing goods carriages.
V. Total turnover/gross receipt in the previous year of the eligible business should not exceed ` 2
crore. (F.A 2016)
B. CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED –

I. If the above conditions are satisfied, the income from the eligible business is estimated at 8 percent of
the gross receipt or total turnover or "six per cent” in respect of the amount of total turnover or
gross receipts which is received by an account payee cheque or an account payee bank draft or use
of electronic clearing system through a bank account during the previous year or before the due
date specified in sub-section (1) of section 139 in respect of that previous year. FA-2017
II. The assessee can voluntarily declare a higher income in his return.
III. All deductions under sections 30 to 38, including depreciation and unabsorbed depreciation,
are deemed to have been already allowed and no further deduction is allowed under these
sections.
IV. Salary and interest paid to partners is not allowed as deduction to partnership firm from
estimated income - Finance Act, 2016 w.e.f. AY 2017-18].
V. The written down value is calculated, where necessary, as if depreciation as applicable has
been allowed.
VI. It will be assumed that disallowance, if any, under sections 40, 40A and 43B has been
considered while calculating the estimated income @ 8 per cent.
VII. PAYMENT OF ADVANCE TAX- An assessee opting for section 44AD is required to pay entire
tax on estimated income on Advance basis w.e.f. AY 2017-18 (earlier assessee opting for
section 44AD was exempt from provisions of Advance tax) .He can pay advance tax pertaining
to his business income in one installment (ie on or before 15th March of the FY)
VIII. MAINTENANCE OF BOOKS OF ACCOUNTS & TAX AUDIT-
 An assessee opting for the above scheme shall be exempted from maintenance of books of account
related to such business as required under section 44AA AND Tax audit under section 44AB.
IX. Consequence of not declaring profit as per section 44AD-

CASE STUDY-Let us consider the following particulars relating to a resident individual, Mr. A, being an
eligible assessee whose gross receipts do not exceed Rs. 2 crore in any of the assessment years between
A.Y.2018-19 to A.Y.2020-21
Particulars A.Y.2018-19 A.Y.2019-20 A.Y.2020-21
Gross receipts (Rs.) 1,80,00,000 1,90,00,000 2,00,00,000
Income offered for taxation (Rs.) 14,40,000 15,20,000 12,00,000
% of gross receipts 8% 8% 6%
Offered income as per presumptive Yes Yes No

taxation scheme u/s 44AD
 In the above case, Mr.A, an eligible assessee, opts for presumptive taxation under section 44AD for
A.Y.2018-19 and A.Y.2019-20 and offers income of Rs.14.40 lakh and Rs.15.20 lakh on gross receipts
of Rs.1.80 crore and Rs.1.90 crore, respectively.
 However, for A.Y.2020-21, he offers income of only Rs.12 lakh on turnover of Rs.2 crore, which
amounts to 6% of his gross receipts.
 He maintains books of account under section 44AA and gets the same audited under section 44AB.
 Since he has not offered income in accordance with the provisions of section 44AD(1) for five
consecutive assessment years, after A.Y. 2018-19, he will not be eligible to claim the benefit of section
44AD for next five assessment years succeeding A.Y.2020-21 i.e., from A.Y.2021-22 to 2025--26.
46. PRESUMPTIVE TAXATION FOR PROFESSIONALS- SEC 44ADA

A. CONDITIONS-
I. New Section 44ADA has been inserted to provide for estimating the income of an assessee
(individual, HUF, partnership firm but not limited liability partnership firms) engaged in any
profession referred in section 44AA(1) such as legal, medical, engineering or architectural,
accountancy, technical consultancy, interior decoration or any other profession as is notified by the
Board.
II. Total Gross receipts should not exceed Rs. 50 lakhs.
B. CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED –

I. Income shall be estimated @ 50% of the total gross receipts.
II. Deductions u/s 30 to 38 deemed to have been allowed (Including interest and remuneration to
partners in case of partnership firm)
III. The written down value is calculated, where necessary, as if depreciation as applicable has been
allowed.
IV. It will be assumed that disallowance, if any, under sections 40, 40A and 43B has been considered
while calculating the estimated income @ 50 per cent.
C. IS IT POSSIBLE TO DECLARE LOWER INCOME – Yes

Consequence-
I. The taxpayer will have to maintain the books of account as per section 44AA (irrespective of
income or turnover) if his total income exceeds the exemption limit.
II. The taxpayer will have to get his books of account audited under section 44AB (irrespective of
turnover) if his total income exceeds the exemption limit.

47. COMPUTATION OF INCOME ON ESTIMATED BASIS IN THE CASE OF

TAXPAYERS ENGAGED IN THE BUSINESS OF PLYING, LEASING OR HIRING
TRUCKS [SEC. 44AE] –
A. Conditions-Section 44AE is applicable only if the following conditions are satisfied-
I. The taxpayer may be an individual, HUF, AOP, BOI, firm, company, co-operative society or any
other person. He or it may be a resident or a non-resident.
II. Taxpayer is engaged in the business of plying, hiring or leasing goods carriages
III. The taxpayer owns not more than 10 goods carriages at any time during the previous year.
For this purpose, a taxpayer, who is in possession of a goods carriage, whether taken on hire
purchase or on installments and for which the whole or part of the amount payable is still
due, shall be deemed to be the owner of such goods carriage
B. CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED
I. Presumptive Income = Higher of sum claimed to have been actually earned from the Vehicle or an
amount as computed below -
 Heavy Goods Vehicle:: `1,000 per ton of gross vehicle weight or unladen weight per month or
part of a month during which vehicle is owned by the assessee in the PY.
 Other Vehicle:: `7,500 per month or part of a month during which vehicle is owned by the
assessee in the PY.
Meaning of Terms:
 Heavy Goods vehicle” means any goods carriage, the gross vehicle weight of which exceeds
12000 kilograms (more than 12mt gross vehicle weight).
 Goods carriage”, “Gross vehicle weight” and “unladen weight shall have the respective
meanings assigned to them u/s 2 of the Motor Vehicles Act, 1988.
II. A taxpayer can claim his income from the aforesaid business at a higher amount then that specified.
III. All deductions under sections 30 to 38 including depreciation and unabsorbed depreciation are
deemed to have been already allowed and no further deduction is allowed under this section.
IV. However, in the case of a firm, the normal deduction in respect of salary and interest to partners
under section 40(b) shall be allowed.
C. IS IT POSSIBLE TO DECLARE LOWER INCOME – Yes

Consequence-
I. The taxpayer will have to maintain the books of account as per section 44AA (irrespective of
income or turnover) if his total income exceeds the exemption limit.
II. The taxpayer will have to get his books of account audited under section 44AB (irrespective of
turnover) if his total income exceeds the exemption limit.

PROBLEM:10 Ramamurthy had 4 heavy goods vehicles as on 1.4.2018. He acquired 7 heavy goods vehicles
on 27.6.2018. He sold 2 heavy goods vehicles on 31.5.2018.He has brought forward business loss
of`50,000 relating to assessment year 2015-16 of a discontinued business. Assuming that he opts for
presumptive taxation of income as per section 44AE, compute his total income chargeable to tax for
the assessment year 2019-20.
ANSWER:10
PROBLEM:11 Mr. X commenced the business of operating goods vehicles on 1.4.2018. He purchased the
following vehicles during the P.Y.2018-19. Compute his income under section 44AE for A.Y.2019-20.
Gross Vehicle Weight Number Date of purchase

(in kilograms)
1) 7,000 2 10.04.2018
2) 6,500 1 15.03.2019
3) 10,000 3 16.07.2018
4) 11,000 1 02.01.2019
5) 15,000 2 29.08.2018
6) 15,000 1 23.02.2019
Would your answer change if the goods vehicles purchased in April, 2018 were put to use only in July,
2018?
ANSWER:11
48. ASSESSMENT OF NON-RESIDENTS

Special provisions for computing profits and gains in case of Non-Residents engaged in certain
businesses
Section 44B Section 44BB Section 44BBA Section 44BBB
This section Non-resident Non-resident engaged in Non-resident Foreign company
applies to- engaged in providing services or engaged in engaged in civil
operation of facilities in connection operation of construction or
SHIPS with, or supplying plant aircraft. erection, testing or
and machinery on hire commissioning of
used, or to be used, in the plant or machinery in
prospecting for, or connection with an
extraction or production approved turnkey
of, mineral oils (including power project
petroleum and natural gas)
Deemed 7 ½ % of gross 10% of gross receipts 5% of gross receipts 10% of gross receipts
Income receipts
LOWER
INCOME

PROBLEM:12 The following is the Receipts and Payments Account of a medical practitioner for the year
ending 31-3-2019.
Receipts ` Payment `
Balance b/f 1,60,000 Clinic rent 24,000
Visiting fees 1,40,000 Staff salaries 1,20,000
Consultation fees 1,60,000 Rent and taxes 6,000
Sale of medicines 40,000 Electricity and water 7,000
Operation theatre rent 25,000 Purchase of medical books 20,100
Interest on bank deposit 13,000
Dividends from UTI 10,000 Purchase of surgical 40,000

equipments
Sale of surgical equipment 36,000 Motor car expenses 24,000
Medical association 4,000

membership
Life insurance premium 10,000
Audit fees 14,000
Staff welfare expenses 3,000
Diwali expenses 2,000
Entertainment expenses 8,400
Medicines purchased 26,000
Balance c/d 2,75,500
Total 5,84,000 Total 5,84,000

Additional information:
1. A cash payment of `15,000 was given to him by a patient in appreciation of his medical service but was
not accounted for in the books of account.
2. ¼th of motor-car expenses relate to his personal use, depreciation on motor car allowable under the
Income-tax Act is ` 9,000 for professional us.
3. Audit fees include income-tax appeal expenses of ` 12,000.
4. The rate of depreciation on surgical equipment is 15%. The written down-value of equipments brought
forward from earlier year was ` 26,000. He sold equipments for ` 36,000 during the current year. The
new surgical equipments were purchased on 1-11-2018
5. His taxable income from house properties was ` 3, 00,000.
6. Opening and closing stock of medicines were ` 10,000 & 15,000 respectively.
Compute his income for AY 2019-20.
ANSWER:12 424250
PROBLEM:13 From the Profit and Loss Account of X (age : 31 years) for the year ending March 31, 2019
ascertain his total income and tax liability for the assessment year 2019-20
Particulars ` Particulars `
General expenses 13,400 Gross profits 4,15,500
Bad debts 22,000 Commission 8,600
Advance tax 2,000 Brokerage 37,000
Insurance 600 Sundry receipts 2,500
Salary to staff 26,000 Bad debt recovered (earlier 11,000

allowed as deduction)
Salary to X 51,000
Interest on overdraft 4,000 Interest on debentures (i.e., net 25,000

amount ` 22,500 + tax deducted
Interest on loan to Mrs. X 42,000 at source : ` 2,500)
Interest on capital of X 23,000
Depreciation 48,000 Interest on deposit with a 13,000

company (non-trade) (net interest
Advertisement expenditure 7,000 : ` 11,700 + tax deducted of
source ` 1,300)
Contribution to employees' 13,000
recognized provident fund
Net profit 2,60,600
Total 5,12,600 Total 4,12,600

Other information-
1. The amount of depreciation allowable is ` 37,300 as per the Income-tax Rules. It includes depreciation
on permanent sign board.
2. Advertisement expenditure includes ` 3,000, being cost of permanent sign board fixed on office
premises .
3. Income of ` 4,500, accrued during the previous year, is not recorded in the Profit and Loss Account.
4. X pays ` 6,000 as premium on own life insurance policy of ` 70,000.
5. General expenses include (a) ` 500 given to Mrs. X for arranging a party in honor of a friend who has
recently come from Canada (b) ` 1 ,000 being contribution to a political party.
6. Loan was taken from Mrs. X for payment of arrears of income-tax.
ANSWER:13 `

INCOME UNDER THE HEAD CAPITAL GAINS-(CS-EXECUTIVE) Page 84
1. BASIS OF CHARGE [SEC. 45(1)]
i. There should be a capital asset

ii. The capital asset is transferred by the assessee
iii. Such transfer takes place during the previous year.
iv. Any profit or gains arises as a result of transfer
v. Such profit or gains is not exempt from tax under section 54, 54B, 54D, 54EC, 54F, 54G, 54GA and
54GB.
a. If the aforesaid conditions are satisfied, then capital gain is taxable in the assessment year
relevant to the previous year in which the capital asset is transferred.
2. DEFINITION OF CAPITAL ASSET- SECTION 2(14)
Capital Asset
Includes Does not include

1) Property of any kind 1) Stock in trade.
2) Movable, immovable 2) Personal effects of the assessee. Except
3) Tangible, intangible J/AC/D/P/S/Work of Art
4) Fixed , circulating 3) Agricultural land.
5) Any Security held by FII 4) Gold bonds.
5) Special bearer bonds.
6) Gold deposit bonds Or Deposit Certificate
issued under Gold Monetization scheme
2015.(FA-2016)
IT INCLUDES-
i. Any right in or in relation to an Indian company, including right of management or control or
any other rights whatsoever.
ii. Any security held by a Foreign institutional investor which has invested in such securities in
accordance with the regulations made under SEBI.
SALEEM QURAISHEE MO : 9175664444 INSPIRE PROFESSIONAL ACADEMY-8888881719

3. TYPES OF CAPITAL ASSETS -
A. Short-term capital asset Sec 2(42A): A capital asset held by an assessee for not more than
36/12/24 months immediately preceding the date of its transfer is known as a short-term capital
asset.
When such period is taken as 12 months When such period is taken as 24 months
• Equity/Preference/SECURITIES (Listed) • Unlisted shares
• Units of UTI/ZCB (quoted or unquoted ) • IMMOVABLE PROPERTY
• Units of Equity oriented fund (quoted or
unquoted)
B. Long-term capital asset Sec 2(42B): It means a capital asset which is not a short-term capital
asset. In other words, if the asset is held by the assessee for more than 36/ 12/24 months such an
asset will be treated as a long-term capital asset.
4. TRANSFER OF CAPITAL ASSET-
A. TRANSFER OF CAPITAL ASSET- SECTION 2(47)

Transfer in relation to capital asset includes-
I. The sale, exchange or relinquishment of the asset.
II. The extinguishment of any rights.
III. Insurance claim 45(1A)
IV. Conversion of capital asset into stock in trade 45(2).
V. Transfer of capital asset by a partner to firm 45(3).
VI. Transfer of capital asset by firm to partner. 45(4).
VII. Compulsory acquisition under any law 45(5)
VIII. Part performance of a contract.
IX. Redemption of Zero-coupon bond
B. CERTAIN TRANSACTIONS NOT INCLUDED IN TRANSFER -46/47

For the purpose of section 45, the following transactions are not regarded as transfers:
I. Transfer of Capital asset by a company at the time of Liquidation to its shareholder.
II. Transfer of Capital asset at the time of partition of family
III. Transfer of Capital asset by gift or will.
IV. Transfer of Capital asset by holding company to subsidiary company
V. Transfer of Capital asset by subsidiary company to holding company
VI. Transfer of Capital asset in a scheme of Amalgamation
VII. Transfer in a scheme of Amalgamation of Banking company
VIII. Transfer of Capital asset in a scheme of Demerger
IX. Transfer of work of art, manuscript, painting, etc. to government university national museum,
etc.
X. Conversion of bonds or debentures into shares

XI. Transfer of capital asset (being a share of SPV) to a business trust in exchange of units allotted
by that trust to the transferor.
XII. Any transfer by a unit holder of a capital asset, being unit or units, held by him in the
consolidating scheme of a mutual fund in the consideration of the allotment to him of a capital
asset ,being unit or units in the consolidated scheme of a mutual fund
XIII. Redemption of sovereign gold bonds issued by RBI under the Sovereign Gold Bond Scheme,
2015 by an individual shall not be considered as transfer [inserted vide Finance Act, 2016].
XIV. Any transfer made outside India of a capital asset being rupee denominated bond of an Indian
company issued outside India by a NR to another NR
XV. Any transfer of a capital asset, being—

a) bond or Global Depository Receipt referred to in Section 115AC( 1); or
b) rupee denominated bond of an Indian company; or
c) derivative,
made by a non-resident on a recognized stock exchange located in any International Financial
Services Centre and where the consideration for such transaction is paid or payable in foreign
currency. [Inserted by Finance Act, 2018 w.e.f 01-04-2019 i.e. AY 2019-20]
XVI. Any transfer by way of conversion of preference shares of a company into equity shares.
XVII. Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government is not treated as transfer under section 47.
XVIII. CONVERSION-

5. CAPITAL GAINS - HOW COMPUTED [SEC. 48]-
 Computation of Short Term Capital Gain/LOSS (STCG)- PY-18-19

AY-19-20
Particulars Amount Amount
Sale consideration (Full value of consideration) ****
Less: Expenses on transfer ****
Net sale consideration ****
Less: i) Cost of acquisition ****
ii) Cost of improvement **** ****
Short Term Capital Gain ****
Less: Exemption u/s 54B, 54D, 54G, etc. (****)
Taxable Short-Term Capital Gain *****
Note: No deduction shall be allowed in computing the income chargeable under the head “Capital gains”
in respect of any sum paid on account of securities transaction tax.
 Computation of LONG-TERM CAPITAL GAIN/LOSS(LTCG)- PY-18-19

AY-19-20
Particulars Amount Amount
Sale consideration (Full value of consideration) ****
Less: Expenses on transfer ****
Net sale consideration ****
Less: i) Indexed cost of acquisition ****
ii) Indexed cost of improvement **** ****
Long Term Capital Gain ****
Less: Exemption u/s 54, 54B, 54D, 54EC,54EE, 54F, etc. ****
Taxable Long-Term Capital Gain ****

A. FIRST PROVISO TO SECTION 48 : CAPITAL GAINS IN CASE OF NON-RESIDENTS- In case of an assessee

who is a non-resident, the capital gains arising from the transfer of shares or debentures in an Indian
company, shall be computed by converting
1) A non-resident assessee (not being an assessee covered u/s 115AC and 115AD)
2) Capital assets whether long-term or short term being shares in, or debentures of an Indian
company acquired by utilizing foreign currency
3) Capital gain on transfer of above asset shall be computed as under:
 Cost of acquisition, expenditure on transfer and the sale consideration shall be converted into
the same foreign currency as was initially utilized in the purchase of the shares or debentures;
and
 Capital gains (computed in such foreign currency) shall be reconverted into Indian currency
4) First proviso shall not apply where section 112A apply.
Capital gain shall be determined as under:

Step Conversion of Particulars Conversion rate
1 Sale consideration Find sale consideration in Indian At average exchange rate on the date of
currency and convert it into foreign transfer
currency
2 Expenditure on Find expenditure on transfer in Indian At average exchange rate on the date of
transfer currency and convert it into foreign transfer (not on the date when
currency expenditure was incurred)
3 Cost of acquisition Find cost of acquisition in Indian At average exchange rate on the date of
currency and convert it into foreign acquisition.
currency
4 Capital gain in Step 1 - Step 2 - Step 3 Not applicable
foreign currency
5 Taxable Capital Capital gain so calculated (in step 4) At buying rate on the date of transfer
gain will be reconverted into Indian
currency
1. Average exchange rate: It is the average of the telegraphic transfer buying rate and telegraphic
transfer selling rate.
2. Buying Rate: It is telegraphic transfer buying rate of such currency
Telegraphic transfer buying/selling rate in relation to a foreign currency is a rate of exchange adopted by
the State Bank of India for purchasing/selling such currency where such currency is made available by that
bank through telegraphic transfer.
B. SECOND PROVISO TO SECTION 48-INDEXATION

I. This proviso is not applicable where the first proviso applies.
II. Second proviso shall not apply where section 112A apply. FA-2018
III. Where the capital gains arises from the transfer of a long term capital asset, then for the purpose
of computing capital gains:
a. “Indexed Cost of Acquisition” Shall be taken instead of “Cost of Acquisition” and
b. “Indexed cost of any improvement” shall be taken instead of” “cost of any improvement’.

C. THIRD PROVISO TO SECTION 48: FIRST & SECOND PROVISO TO SECTION 48 NOT TO APPLY
Provided also that nothing contained in the first and second provisos shall apply to the capital
gains arising from the transfer of a long-term capital asset being an equity share in a company or
a unit of an equity-oriented fund or a unit of a business trust referred to in section 112A:
D. FOURTH PROVISO TO SECTION 48-

I. Benefit of indexation is not available for bonds/ debentures of any company whether public
sector company or any other company.
II. INDEXATION benefit is available in case of
a) Capital indexed bonds
b) Sovereign gold bonds
E. FIFTH PROVISO TO SECTION 48- Provided also that in case of an assessee being a non-resident, any
gains arising on account of appreciation of rupee against a foreign currency at the time of redemption
of rupee denominated bond of an Indian company held by him, shall be ignored for the purposes of
computation of full value of consideration under this section.
F. SIXTH PROVISO TO SECTION 48- FMV ON THE DATE OF TRANSFER ( DATE OF GIFT OR IRREVOCABLE
TRUST) SHALL BE TREATED AS FULL VALUE OF CONSIDERATION.
G. SEVENTH PROVISO TO SECTION 48- SECURITIES TRANSACTION TAX NOT ALLOWED AS DEDUCTION
 AT THE TIME OF SALE- NOT TREATED AS TRANSFER EXPENSES.
 AT THE TIME OF PURCHASE-NOT ADDED TO COA.
6. WHAT IS COST OF ACQUISITION- SECTION 55(2)
Situation Cost of Acquisition
a) Capital Asset became property of an  Cost of Acquisition to the Assessee or Fair Market
Assessee before 01.04.2001. Value (FMV) as on 01.04.2001 at the option of the
Assessee. (i.e. whichever is higher).
b) Capital Asset became property of an  Cost incurred by the Assessee.
Assessee on or after 01.04.2001.
c) Capital Asset became property of  Cost to the Previous Owner or Fair Market Value
Previous Owner before 01.04.2001 and (FMV) of the Asset as on 01.04.2001, at the option
transferred to the Assessee by any mode of the Assessee (i.e. whichever is higher.)
u/s 49(1).
7. WHAT IS COST OF IMPROVEMENT-
i. Expenditure incurred before April 1, 2001 not considered

8. INDEXATION IS NOT AVAILABLE IN THE CASE OF LTCA-
I. Transfer of a bond or a debenture other than capital indexed bonds issued by the Government or
Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme,
2015.
II. Transfer of undertaking or division in a slump sale under section 50B.
III. Transfer of shares/debentures of an Indian company purchased by a non-resident in foreign
currency.
IV. Transfer of units purchased in foreign currency by an assessee covered under section 115AB.
V. Transfer of bonds or shares purchased in foreign currency by an assessee covered under section
115AC.
VI. Transfer of global depository receipts by a resident employee of an Indian company under section
115ACA.
VII. Transfer of securities by foreign institutional investors under section 115AD.
VIII. Transfer of a foreign exchange asset by a non-resident Indian under section 115D.
IX. Transfer of equity shares or equity-oriented mutual fund units or units of business trust as
provided in Section 112A.
9. COST OF ASSET TO THE PREVIOUS OWNER [SEC. 49(1)] -

The cost to the previous owner is deemed to be the cost of acquisition to the assessee in cases where capital asset
became the property of assessee under any mode of transfer described below
I. acquisition of property on any distribution of assets on the total or partial partition of a Hindu
undivided family;
II. acquisition of property under a gift or will; by succession, inheritance or devolution,
III. under a scheme of amalgamation, or
IV. under a scheme of conversation of private company/unlisted company into LLP;
V. on any transfer in the case of conversion of firm/sole-proprietary concern into company;
The following points should be duly considered -

a. Where the previous owner has acquired the property in the aforesaid manner, the previous owner of the
property means the last previous owner who acquired the property by means other than those discussed
above.
b. Cost of any improvement of the asset borne by the previous owner, or the assessee, will be added to such
cost.
c. In order to find out whether the capital asset is short- term or long-term in the above cases, the period of
holding of the previous owner shall be taken into consideration.
d. The benefit of indexation will be available from the year in which the asset was first held by the current
owner. However, in case of CIT –vs.- Manjula J Saha 16 Taxmann 42 (Bombay), the Hon’ble Bombay High
Court has held that index benefit is available from the year in which asset was acquired by the previous
owner or for the year beginning on the 1st day of April, 2001, whichever is later.

PROBLEM:1 X purchases a house property for ` 76,000 on June 30, 1977. The following expenses are incurred
by him for making addition/alteration to the house property:
`
a. Cost of construction of first floor in 1985-86 1,10,000
b. Cost of construction of the second floor in 2003-04 3,40,000
c. Alteration/ reconstruction of the property in 2012-13 2,90,000

Fair market value of the property on April 1, 2001 is ` 4, 50,000. The house property is sold by X on June 15, 2018
for ` 99, 50,000 (expenses incurred on transfer: ` 10,000).
ANSWER:1
10. CAPITAL GAIN EXEMPT UNDER SECTION 10

A. CAPITAL GAIN ON TRANSFER OF US64 [SEC. 10(33)]-
i. Any income arising from the transfer of a capital asset being a unit of US 64 is not chargeable to
tax where the transfer of such assets takes place on or after April 1, 2002.
ii. This rule is applicable whether the capital asset (US64) is long-term capital asset or short-term
capital asset.
B. COMPULSORY ACQUISITION OF URBAN AGRICULTURE LAND [SEC. 10(37)]

Conditions:
I. The assessee is an individual or a Hindu undivided family.
II. He or it owns an agriculture land situated in urban area
III. There is transfer of the agriculture land by way of compulsory acquisition or the consideration for
transfer is approved or determined by the Central Government (not by a State Government) or
RBI.
IV. The agriculture land was used by the assessee (and/or his parents if the land was owned by an
individual) for agricultural purposes for 2 years immediately prior to the date of transfer.
V. The asset may be long-term capital asset or short-term capital asset.
VI. Capital gain arises from compensation which is received after march 31 2004
• If above conditions are satisfied, capital gain short term or long term is exempt from tax.
C. CAPITAL GAIN EXEMPTION UNDER SECTION 115JG(1) –

I. Section 115JG has been inserted by the Finance Act, 2012 with effect from the assessment year
2013-14.
II. Capital gains which arise on conversion of an Indian branch of a foreign bank into an Indian
subsidiary, is not chargeable to tax
The exemption is available only if the conversion takes place in accordance with the scheme
framed by RBI and subject to the conditions notified by the Central Government

D. CAPITAL GAIN UNDER LAND POOLING SCHEME OF ANDHRA PRADESH GOVERNMENT – SECTION
10(37A)-FA 2017
Any income chargeable under the head "Capital gains" in respect of transfer of a specified capital asset
arising to an assessee, being an individual or a Hindu undivided family, who was the owner of such specified
capital asset as on the 2nd day of June, 2014 and transfers that specified capital asset under the Land
Pooling Scheme (herein referred to as "the scheme") covered under the Andhra Pradesh Capital City Land
Pooling Scheme (Formulation and Implementation) Rules, 2015 made under the provisions of the Andhra
Pradesh Capital Region Development Authority Act, 2014 (Andhra Pradesh Act 11 of 2014) and the rules,
regulations and Schemes made under the said Act.
Explanation.— SPECIFIED CAPITAL ASSET" MEANS,—
a) the land or building or both owned by the assessee as on the 2nd day of June, 2014 and which has been
transferred under the scheme; or
b) the land pooling ownership certificate issued under the scheme to the assessee in respect of land or
building or both referred to in clause (a); or
c) the reconstituted plot or land, as the case may be, received by the assessee in lieu of land or building or
both referred to in clause (a) in accordance with the scheme, if such plot or land, as the case may be, so
received is transferred within two years from the end of the financial year in which the possession of
such plot or land was handed over to him;]
11. COST OF ACQUISITION IN THE CASE OF DEPRECIABLE ASSETS [SEC. 50]
A. Meaning-The capital asset which forms a part of a block of assets in respect of which depreciation
has been allowed u/s 32(1)(ii) as per WDV method.
B. EXAMPLE- A residential house property being not used for business purpose, on which no
depreciation is allowed under Income tax Act shall be treated as a non-depreciable asset.
Whereas if the same house is used for the residence of employee of the business and
depreciation has been claimed under I.T. Act then it shall be treated as depreciable asset.
C. Nature of Capital gain Capital gain arising on transfer of depreciable asset shall always be a short-
term capital gain.
D. Benefit of indexation Indexation benefit cannot be claimed on such asset.

E. Computation
F. Note: Depreciable asset itself may be a long term capital asset or short term capital asset
depending upon the period of holding (whether held for more than 36 months or not), however
gain on transfer of aforesaid depreciable asset shall always be short term capital gain.

PROBLEM:2 Mr. R is the owner of the following assets as on 1-4-2018: Block: Plant and Machinery –
Rate: 15%
Assets Cost of Acquisition ` Date Acquisition W.D.V. as on 1-4-2018 `
Machinery A 2,00,000 1-4-1987 17,500
Machinery B 2,50,000 1-5-1988 22,000
Machinery C 20,000 31-7-2002 15,000
During the previous year 2018-19 he acquired Machinery D on 3-6-2018, for ` 10,000 and sold Machinery
A for ` 72,000 on 1-8-2018.Calculate the amount of depreciation and capital gain for the assessment year
2019-20.
ANSWER:2 `Nil, ` 7,500
12. TREATMENT OF ADVANCE MONEY RECEIVED: SEC 51
CAPITAL GAIN IN CERTAIN SPECIAL CASES
13. TAXATION OF ZERO COUPON BONDS-

A. MEANING OF ZERO COUPON BOND-
As per Section 2(48), "Zero coupon bond" means a bond -
I. Issued by any infrastructure capital company or infrastructure capital fund or public sector company or
scheduled bank on or after 1.06.2005;
II. In respect of which no payment or benefit is received or receivable before maturity or redemption and
which the Central Government notifies in the Official Gazette.
B. TAX TREATMENT IN THE HANDS OF COMPANY ISSUING BONDS-

I. Discount is deductible on pro rata basis as stated above.
II. Tax will not be deducted at source under section 194A by the payer company.
C. TAX TREATMENT IN THE HANDS OF INVESTOR-
I. Maturity/Redemption of zero coupon bonds will amount to transfer under section 2(47)(iva)
II. If period of holding is more than 12 months, such bonds would be long-term capital asset under section
2(42A).
III. Long Term capital Gains would be taxable at the rate of 10% (plus surcharge plus Education Cess)
without indexation under section 112

14. COMPUTATION OF CAPITAL GAINS – SPECIAL CASES
Nature of Transaction Year of Computation of Capital Gains

Taxability
1) Insurance Claim received on Year of CG = Insurance Claim received Less CA or ICA

Loss of Assets [Sec.45(l A)] receipt
2) Conversion of Capital Asset into Year of CG = FMV of the Capital Asset on conversion Less CA or
Stock-in- Trade. [Sec.45(2)] transfer of ICA,
(Note: Indexation based on year converted PGBP = Sale Consideration
of conversion, not on year of stock Less FMV considered as above.
sale)
3) Sale of Shares held as Year of CG = Consideration for transfer Less CA or ICA

Depository [Sec. 45(2A)] (FIFO transfer
method shall be adopted)
4) Introduction of Capital Asset by Year of CG = Amount credited in Partner's/ Member's Capital

a Partner into the Firm or by a Introductio Account in the books of the Firm/AOP/BOI Less CA or
Member into AOP, BOI n ICA
[Sec.45(3)]
5) Distribution of Capital Asset to Year of CG = FMV on date of transfer Less CA or ICA

Partners / Members on Distributio
dissolution of Firm / AOP / BOI n
[Sec.45(4)]
6) Compulsory Acquisition of Year of first CG = Whole of Normal Compensation Received or

Capital Asset by Government / receipt Receivable
Approved authority [S. 45(5)] Year of Less whole CA or ICA
a) Normal Compensation actual For Subsequent Receipts, CA shall be NIL.
(Indexation based on year of receipt
compulsory acquisition) CG = Enhanced Compensation Less Expenses incurred
b) Enhanced Compensation on receipt of Enhanced Compensation

15. CAPITAL GAINS IN CASE OF JOINT DEVLOPMENT AGREEMENT-SEC

45(5A)-W.E.F. AY 2018-
1) The assessee is an individual or a HUF
2) Such assessee transfer capital asset being land or building or both under a specified agreement to
another person
3) Specified agreement means a registered agreement in which a person owning land or building or
both, agrees to allow another person to develop a real estate project on such land or building or
both, in consideration of a share, being land or building or both in such project, whether with or
without payment of part of the consideration in cash
4) TAX TREATMENT-
Stamp duty value on the date of issue of completion certificate of his share being
Sale consideration
land or building or both in the project + The consideration received in cash, if any.
Cost of acquisition Proportionate cost of the asset transferred
Benefit of indexation Available Upto the year in which completion certificate is issued
In the year in which completion certificate for the whole of part of part of the project
Taxable
is issued by the competent authority
5) The cost of acquisition of capital asset, being share in the project, in the form of land or building
or both, (covered under aforesaid provisions), shall be the amount which is deemed as full value
of consideration while computing capital gain u/s 45(5A).
6) Competent authority means the authority empowered to approve the building plan by or under
any law for the time being in force.
7) Where the assessee transfers his share in the project on or before the date of completion
certificate, in that case, aforesaid provision is not applicable and the capital gains shall be taxable
in the previous year in which such transfer takes place. Further, capital gain shall be computed as
per other provisions

16. CAPITAL GAINS ON DISTRIBUTION OF ASSETS BY COMPANIES IN

LIQUIDATION SECTION 46
A. Tax treatment in the hands of Company- sec 46A- At the time of liquidation of company, any transfer
by way of distribution of assets among its shareholder is not treated as transfer for the purpose of
capital gain. Hence, when assets are distributed among shareholders, nothing shall be charged to
tax under the head 'Capital gains'.
B. Tax treatment in the hands of shareholders Sec 46(2)- When a shareholder receives money or other
assets at the time of liquidation of the company then such receipts [excluding the amount of
dividend u/s 2(22)(c)] shall be liable to capital gain as under-
Total amount (or market value of assets) received on
Liquidation by the shareholder ****
Less: Amount of deemed dividend u/s 2(22)(c) (****)
Sale consideration Sale consideration *****
Deemed dividend [Sec. 2(22)(c)]:Any distribution of assets by a company, at
the time of liquidation, is treated as deemed dividend to the extent of
accumulated profit at the time of liquidation of company.
Cost of acquisition/Cost of As usual
improvement
PROBLEM:3 Balance sheet of Purva India (P) Ltd. as on 31/12/2018
Liabilities Amount Assets Amount
Equity Share capital of ` 10 each 8,00,000 Land 6,00,000
Preference Share capital 1,00,000 Building (WDV as per IT Act) 3,00,000
Reserves 2,00,000 Machinery (WDV as per IT Act) 4,00,000
Loan 6,00,000 Current Asset 10,40,715
Creditors 6,00,000
Provision for dividend tax 40,715
23,40,715 23,40,715
Additional information-Company went into liquidation on the balance sheet date and all current assets and
building realized at book value. The realized money was applied in payment of outside liabilities including
dividend tax and preference shareholder.
Utkarsh is a holder of 10% equity share and 20% preference share of the company. Equity shares were
originally acquired by him on 16/08/2002 at face value. However, he sub-scribed to preference share on 1-
04-2018, which was issued at par. He received a part of land (MV ` 5,00,000) and cash (for preference
share) ` 20,000. Compute capital gain in hands of company & Utkarsh.
ANSWER:3

17. TRANSFER IN CASE OF TOTAL OR PARTIAL PARTITION OF HUF

As per sec. 47(i), any distribution of capital assets in kind by HUF on its total or partial partition is not
treated as transfer u/s 47(i). However, when such assets is further transferred by its member then tax
treatment shall be as under:
Sale consideration As usual
Cost of acquisition Cost of assets in the hands of HUF
Indexation benefit on cost of acquisition shall' be When the member holds such assets
applicable from
Indexation benefit on cost of improvement shall When the actual improvement expenditure was
be applicable from incurred.
Determination of nature of asset For determination of LTCA or STCA, period of holding
of the HUF shall be considered.
18. ESOP
When shares or securities are issued (directly or indirectly) by employer-company to its employees, then
tax treatment shall be as under
If such shares were issued in previous year 1999-00 or on or after 01-04-2009

Tax treatment under the head Difference between the fair market value of shares as on the date of
'Salaries' exercise of option and cost at which it is offered to employee, is treated
as taxable perquisite.
Tax treatment under the head Sale consideration As usual
'Capital Gains' when such assets Cost of acquisition Fair market value on the date of exercise of option
are sold by employee (as considered for calculating above perquisite)
Tax treatment under the head Sale consideration Market value of the asset as on date of such
'Capital Gains' when such assets transfer by way of gift, etc.
are transferred by the employee Fair market value on the date of exercise of option
by way of gift or under an Cost of acquisition (as considered for calculating above perquisite)
irrevocable trust [Such gift or
transfer is not exempted] - fourth
proviso to sec. 48

19. CAPITAL GAIN IN THE CASE OF SELF-GENERATED ASSETS-
SELF GENERATED ASSETS-An asset which does not cost anything to the assessee in terms of money in its
creation or acquisition, is a self-generated asset. When a self-generated capital asset is transferred, the
following special rules are applicable.
A. Self-generated goodwill of a business, right to manufacture/produce an article/thing or right to
carry on business or Profession(FA.2016)
I. In the case of transfer of these capital assets, cost of acquisition and cost of improvement
are taken as nil.
II. Expenses on transfer are, however, deductible on the basis of actual expenditure.
III. If capital asset being goodwill of a business, right to manufacture/produce an article/thing
or right to carry on business, is purchased, cost of improvement is taken as nil.
B. Self -generated assets being tenancy right, route permit, loom hours, trade mark or brand name
associated with a business –
I. In the case of transfer of these self-generated capital assets, cost of acquisition is taken as
nil.
II. Cost of improvement and expenses on transfer are, however, deductible on the basis of
actual expenditure.
C. Any other self-generated asset –

I. In the case of transfer of any other self-generated capital asset, capital gain is not
chargeable to tax.
POINTS TO BE NOTED-
I. Fair market value on April 1, 2001 –Option not available.
PROBLEM:4 X transfers the following assets on May 15, 2018
Cost ` Fair market value Sale

on April 1, 2001 consideration
` `
Land (acquired in 1968) 20,000 45,000 6,85,000
Goodwill of a business -* 10,000 1,75,000
Tenancy rights -* 30,000 2,00,000
Determine the amount of capital gains chargeable to tax for the assessment year 2019-20 Does it make
any difference if the goodwill is of a profession?
ANSWER:4

20. CAPITAL GAIN ON TRANSFER OF BONUS SHARES-
 As per sec. 55(2)(aa)(iiia), the cost of acquisition of financial asset, being allotted on the basis of holding
of any other financial asset to the assessee without any payment, shall be taken to be nil.
 Hence, cost of acquisition of bonus share shall be taken as nil.
 However, if such asset is acquired before 1/4/2001 then its cost of acquisition shall be taken as fair
market value as on 1/4/2001
Tax treatment on transfer of bonus shares shall be as under:
Expenditure on As usual
transfer
Period of holding Starts from the date of allotment of such share
Cost of acquisition If bonus shares are allotted before 1/4/2001 Fair market value of such share as on
1/4/2001
If bonus shares are allotted on or after Nil
1/4/2001
21. CAPITAL GAIN ON TRANSFER OF RIGHT ENTITLEMENT –

A. Right Share: Where, by virtue of holding a share or any other security, (hereinafter this clause referred to as
the financial asset), the assessee becomes entitled to subscribe to any additional financial asset, then such
additional financial asset can be termed as right share [Sec. 55(2) (aa)].
B. Cost of acquisition of such right share shall be the amount actually paid by him for acquiring such right share.
C. Right Entitlement: An assessee can endorse his right to acquire additional financial asset (as stated above) in
favor of another person. Such endorsement of right is termed as right renouncement. Cost of acquisition of
such right entitlement shall be taken as nil.
D. Tax treatment of right issue and right entitlements shall be as under:

Case Right shares Right Entitlement Shares acquired by Right
Renouncee
Cost of Acquisition Right issue price Nil Amount paid for acquisition of
right entitlements + Amount paid
to company for right share
Period of holding The date of allotment The date of declaration of The date of allotment of such
starts from of such shares such right by the shares
company
Sale consideration Amount charged from Amount charged from Amount charged from transferee
transferee transferee

PROBLEM:5 X holds 1,000 equity shares in A Ltd. since 1988 (cost of acquisition: ` 10,000, fair market
value on April 1, 2001: ` 14,000). A Ltd. offers 2,000 rights shares of ` 10 each to X on May 1, 2018 at
a premium of ` 50. X subscribes for 800 rights shares and renounces 1,200 shares in favor of C by
transferring the right entitlement for a consideration of ` 4,800. X sells 1,800 shares in A Ltd. on
March 30, 2019 @ ` 160 per share.
ANSWER:5 STCG- `
PROBLEM:6 R had purchased 1200 listed shares of ` 10 each of a company on 15-4-2001 for ` 78000.
Company declared a right issue in the ratio of 2:1 at a price of ` 30 per share in October, 2018. He
sold the right for 300 shares against ` 20 per share and remaining 300 shares were purchased by him
which were allotted on 5-11-2018. He sold all the shares @ ` 90 each on 15-3-2019 through a
recognized stock exchange. He paid brokerage @ 2% and securities transaction tax at the applicable
rate. Compute taxable capital gains.
ANSWER:6 LTCL-
PROBLEM:7 R purchased 500 listed shares of ` 10 each for ` 70 per share in 2002-03 and incurs an
expenditure of ` 400 on brokerage. In May 2004 he receives 100 bonus shares. In September, 2018
he gets 100 rights shares for ` 20 each. He sold 100 bonus shares in November, 2018 at ` 30 per
share and 100 right shares @ 30 per share in December, 2018. The bonus shares as well as right
shares have been kept in a separated depository. Both the sales were made through the stock
exchange. ` 15 were paid as securities transaction tax assuming that FMV of shares as on
31/03/2018 was `251.Find out the capital gains for the assessment year 2019-20.
ANSWER:7
PROBLEM:8 Ms. Usha purchases 1,000 equity shares in X Ltd., at a cost of ` 30 per share (brokerage 1%)
in January 1996. She gets 100 bonus shares in August 2000. She again gets 1100 bonus shares by virtue
of her holding on February 2006. Fair market value of the shares of X Ltd. on April 1, 2001 is ` 80. In
January 2019, she transfers all her shares @ ` 200 per share (brokerage 2%). Compute the capital gains
taxable in the hands of Ms. Usha for the A.Y. 2019-20.
ANSWER:8
PROBLEM:9 Mr. R holds 1000 shares in Star Minus Ltd., an unlisted company, acquired in the year 2001-
02 at a cost of ` 75,000. He has been offered right shares by the company in the month of August,
2018 at ` 160 per share, in the ratio of 2 for every 5 held. He retains 50% of the rights and renounces
the balance right shares in favour of Mr. Q for ` 30 per share in September 2018. All the shares are sold
by Mr. R for ` 300 per share in January 2019 and Mr. Q sells his shares in December 2018 at ` 280 per
share. What are the capital gains taxable in the hands of Mr. R and Mr. Q?
ANSWER:9

22. CONVERSION OF DEBENTURES INTO SHARES [SEC. 49(2A)] –
a) Any transfer by way of 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.
b) On the sale of shares or debentures received on such conversion, the capital gain 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.
c) It does not cover conversion of preference shares into equity shares.
Points to be noted-
i. Cost of debentures shall be taken as "cost of acquisition" of shares.
ii. 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.
iii. The indexation will start from the date of conversion of debentures into shares.
 Conversion of debentures (including debenture stock and deposit certificate) into shares or
debentures are not treated as a transfer.
 Tax impact on sale of such converted shares shall be as under:
Cost of acquisition of Cost of old asset (convertible debentures) shall be taken as cost of acquisition
new asset of new asset (converted share).
Holding Period Starts from the date of allotment of new asset (converted share)
Indexation benefit Benefit of indexation shall be available from the date of allotment of new asset
(converted share)
Indexation benefit is not applicable in case of debenture
23. CAPITAL GAIN ON BUY BACK OF SHARES/SECURITIES [SEC. 46A]
I. Any consideration received by a shareholder (or a holder of other specified securities) from any
company on purchase of its own shares (or other specified securities) held by such shareholder (or
holder of other specified securities) shall be chargeable to tax on the difference between the cost
of acquisition and the value of consideration received by the holder of shares (or securities), as
capital gains.
II. The computation of capital gains shall be made in accordance with the provisions of section 48.
TAXABILITY BUYBACK OF UNLISTED SHARES BY BUYBACK OF LISTED SHARES

IN THE DOMESTIC COMPANIES
HANDS OF
COMPANY Subject to AIT @ Not subject to tax in the hands of the company
Shareholder Income arising to shareholder exempt under Income arising to shareholder taxable as capital gains
section 10(34A) under section 46A

24. CAPITAL GAINS IN THE CASE OF SLUMP SALE [SEC. 50B] –
MEANING-
Slump sale means the transfer of one or more undertakings for a lump sum consideration without
assigning values to the individual assets and liabilities in such sales.
Undertaking shall include any part of an undertaking or a unit or division of an undertaking or a business
activity taken as a whole but does not include individual assets or liabilities or any combination thereof not
constituting a business activity.
The provisions of section 50B, applicable for computation of capital gains in the case of slump sale-
1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable as
long-term capital gains and shall be deemed to be the income of the previous year in which the
transfer took place.
2) Where, however, an undertaking owned and held by the assessee for not more than 36 months is
transferred under the slump sale, then capital gain shall be deemed to be short-term capital gain.
3) In the case of slump sale of an undertaking, the "net worth" of the undertaking shall be taken as
cost of acquisition and cost of improvement.
4) "Net worth" for this purpose is the aggregate value of total assets of the undertaking or division as
reduced by the value of liabilities of such undertaking or division as appearing in the books of
account. However, the following points should be noted-
I. Any change in the value of assets on account of revaluation of assets shall be ignored for
the purpose of computing the net worth.
II. In the case of depreciable asset, the aggregate value of assets of such undertaking or
division shall be the written down value of block of assets determined in accordance with
the provisions contained in sub-item (C) of section 43(6)(c)(i). In the case of capital assets,
if the entire cost is allowable (or allowed) as deduction under section 35AD, the value of
assets shall be taken as nil.
III. In the case of non-depreciable assets, book value shall be taken.
IV. Net worth cannot be negative.
V. The benefit of indexation will not be available.
VI. Every assessee, in the case of slump sale, shall furnish along with the return of income, a
report of a chartered accountant in Form No. 3CEA indicating the computation of the net
worth of the undertaking or division, as the case may be, and certifying that the net worth
of the undertaking or division, as the case may be, has been correctly arrived at.

PROBLEM:10 PQR Limited has two units - one engaged in manufacture of computer hardware and the
other involved in developing software. As a restructuring drive, the company has decided to sell is
software unit as a going concern by way of slump sale for `385 lakh to a new company called S Limited,
in which it holds 74% equity shares. The balance sheet of PQR limited as on 31st March 2019, being the
date on which software unit has been transferred, is given hereunder-
Liabilities ` In Lakh Assets ` In Lakh

Paid up Share Capital 300 Fixed Assets
General Reserve 150 Hardware unit 170
Share Premium 50 Software unit 200
Revaluation Reserve 120 Debtors
Current Liabilities: Hardware unit 140
Hardware unit 40 Software unit 110
Software unit 90 Inventories
Hardware unit 95
Software unit 35
Total 750 Total 750
Following additional information is furnished by the management:
i. The Software unit is in existence since May, 2013.
ii. Fixed assets of software unit includes land which was purchased at `40 lakh in the year 2010 and
revalued at ` 60 lakh as on March 31,2019.
iii. Fixed assets of software unit mirrored at ` 140 lakh (`200 lakh's minus land value ` 60 lakh) is
written down value of depreciable assets as per books of account. However, the written down
value of these assets under section 43(6) of the Income-tax Act is `90 lakh.
(A) Ascertain the tax liability, which would arise from slump sale to PQR Limited. What would be your
advice as a tax-consultant to make the restructuring plan of the company more tax-savvy, without
changing the amount of sate consideration?
ANSWER:10
PROBLEM:11 X Ltd. has several undertakings carrying on several businesses. During the year 2018-19 the
company sold one of its undertaking (as it was continuously generating loss since last 5 years) for a
lump sum value of ` 300 lacs without as-signing value to individual asset and liabilities. Book value of
sundry as-sets and liabilities of the undertaking as on the date of sale is as under:
Items Book Value Market Value
Land ` 50 lacs (Value for the purpose of Stamp duty ` 70,00,000) ` 100 lacs
Machinery ` 70 lacs (WDV as per IT Act ` 60 lacs) ` 100 lacs
Furniture ` 50 lacs (WDV as per IT Act ` 90 lacs) ` 75 lacs
Stock ` 30 lacs ` 35 lacs
Debtors ` 40 lacs ` 40 lacs
Creditors ` 50 lacs
Brokerage on transfer paid @ 5%. Compute capital gain.
ANSWER:11

25. CAPITAL GAINS IN THE CASE OF LAND AND BUILDING [SEC. 50C] –
A. Section 50C is applicable if the following conditions are satisfied-
i. There is a transfer of land or building or both.
ii. The asset may be long-term capital asset or short-term capital asset. It may be depreciable or non-
depreciable asset.
iii. Stamp duty value adopted ( or assessed or assessable ) by the stamp duty authority in respect of
such transfer is more than 105% of sale consideration.
If above conditions are satisfied the value adopted by stamp duty authority shall be taken as FVC.
In other words 50C is applicable only in those cases where SDV is more than 105% of actual
consideration.
B. CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED-

i. Where the assessee accepts the value adopted by Stamp duty authority- Value adopted by Stamp
duty authority is taken as full value of consideration
ii. Where the assessee has disputed value adopted by Stamp duty authority under the Stamp Act (i.e.,
stamp duty proceedings- The stamp duty valuation as finally accepted for stamp duty purpose is
taken as full value of consideration
iii. Where the assessee claims that value adopted by Stamp duty authority is more than the fair market
value (but he has not disputed such valuation in stamp duty proceedings- Fair market value
determined by the Valuation Officer (if it is less than the stamp duty valuation) is taken as full value of
consideration- Stamp duty valuation (if the fair market value determined by the Valuation Officer is
more than the stamp duty valuation) is taken as full value of consideration.
POINT TO BE NOTED-
1) Section 50C is not applicable for calculating Business Income.
2) Where the date of an agreement fixing the value of consideration and date of registration are not same, the
SDV may be taken as on the date of the agreement for transfer (and not as on the date of registration) for
such transfer. It shall apply only in case where the amount of consideration or part thereof has been
received by way of an account payee cheque or account payee demand draft or by use of ECS through a
bank account on or before the date of the agreement for transfer. (FA-2016)
PROBLEM:12 From the following information compute taxable Capital gains in hands of X —
1) X purchases a plot of land on 10lh August 2008 for Rs. 4,11,000.
2) He enters into an agreement with B to transfer the plot of land on 1st May, 2018 for Rs. 80,00,000
(stamp duty value being Rs. 83,00,000).
3) On 1st May 2018, X gets an advance of Rs. 1,00,000 by an account-payee cheque.
4) Conveyance deed is registered on 5th June 2018 (stamp duty value on the date of registration: Rs.
85,00,000). What would be your answer in case Rs. 1,00,000 is received on 2nd May 2018, instead of
1st May 2018.
ANSWER:12

26. SPECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR

TRANSFER OF SHARE OTHER THAN QUOTED SHARE. –SECTION 50CA
Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share
of a company other than a quoted share, is less than the fair market value of such share determined in such manner
as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value
of consideration received or accruing as a result of such transfer.
Explanation.—For the purposes of this section, "quoted share" means the share quoted on any recognised stock
exchange with regularity from time to time, where the quotation of such share is based on current transaction made
in the ordinary course of business
27. FAIR MARKET VALUE TO BE FULL VALUE OF CONSIDERATION IN

CERTAIN CASES- SECTION 50D
Where the consideration received or accruing as a result of the transfer of a Capital asset by an assessee
a) Is not ascertainable
b) Cannot be determined
Then, for the purpose of computing capital gain, the Fair market value of the said asset on the date of
transfer shall be deemed to be the full value of the consideration received or accruing as a result of such
transfer.
28. INVENTORY CONVERTED INTO CAPITAL ASSET

Where inventory is converted into, or treated as, a capital asset, the fair market value of such inventory as
on the date of such conversion is considered as business income u/s 28(via). If such capital asset is
transferred then it will be treated as under:
Cost of acquisition Fair Market Value taken as income u/s 28(via)
Period of holding Starts from the date of such conversion or treatment
Available from the year of such conversion or

Benefit of indexation treatment

29. VALUATION OF CAPITAL ASSET - WHEN CAN BE REFERRED TO

VALUATION OFFICER-SECTION 55A
With a view to ascertaining the fair market value of a capital asset, the concerned Assessing Officer may
refer the valuation of the capital asset to the Valuation Officer appointed by the Income-tax Department in
the following cases:
i. where the value of the assets as claimed by the assessee is in accordance with the estimate made
by a registered valuers (who works in a private capacity under a license issued by the Central Board
of Direct Taxes and his valuation is not binding on the Income-tax Department), but the Assessing
Officer is of the opinion that the value so claimed is—
a. less than its fair market value (applicable up to June 30, 2012); or
b. at variance with its fair market value (applicable from July 1, 2012) [sec. 55A(a)].
ii. where the Assessing Officer is of the opinion that the fair market value of the asset exceeds the
value of the asset by more than ` 25,000 or 15 per cent of the value claimed by the assessee,
whichever is less [rule 111 AA] ; or
iii. Where the Assessing Officer is of the opinion that having regard to nature of an asset and relevant
circumstances, it is necessary to do so
30. LOSS ON SALE OF SHARES, SECURITIES OR UNITS [SEC. 94(7)]-.

A. Conditions- If the three conditions given below are satisfied, section 94(7) is applicable-
i. Any person buys or acquires any securities/shares/units within a period of 3 months before the record
date
ii. Such a person sells or transfers such securities/ shares/ units within a period of 3 months (9 months in
case of units) after the record date.
iii. The dividend or income on such securities/ shares/ units received (or receivable) by such person is exempt
from tax.
B. Consequences if the above conditions are satisfied-
a. Find out the amount of loss from a transaction which satisfies the above conditions;
b. Find out the amount of dividend/ income received or receivable on the record date which is exempt
from tax.
i. If (a) is less than or equal to (b), then loss cannot be adjusted.

ii. if (a) is more than (b), then (a) minus (b) can be set off against income under the head “Capital
gains”.
31. LOSS ARISING IN THE CASE OF BONUS STRIPPING [SEC. 94(8)]-
A. CONDITIONS: Section 94(8) is applicable if the following conditions are satisfied-

i. The taxpayer buys or acquires any unit (hereinafter referred to as “original unit”) within a period
of 3 months prior to the record date.
ii. Such person is allotted additional units without any payment on the basis of holding of such units
(hereinafter referred to as “bonus units”) on such record date.
iii. Such person sells or transfers all (or any) of the original units within a period of 9 months after
such record date.
iv. But he continues to hold all (or any) of the bonus units.
B. CONSEQUENCES IF THE ABOVE CONDITIONS ARE SATISFIED- Section 94(8) imposes the following
restrictions if the above conditions are satisfied:
i. The loss (if any) arising to the taxpayer on account of purchase and sale of all (or any) of the
aforesaid original units shall be ignored for the purposes of computing his income chargeable to
tax.
ii. The amount of loss so ignored shall be deemed to be the cost of purchase or acquisition of bonus
units as are held by him on the date of such sale or transfer.
32. TAXABILITY OF CAPITAL GAINS-
A. SECTION 111A SHORT-TERM CAPITAL GAINS-
I. Tax is computed on STCG on transfer of

a) an equity shares of a company or
b) a unit of an equity-oriented fund or
c) a unit of a business trust on
which securities transaction tax has been charged capital gains at a flat rate of 15%.
II. The above concessional rate of tax shall apply to a transaction undertaken on a recognized stock
exchange located in any International Financial Services Centre and where the consideration for
such transaction is paid or payable in foreign currency even if securities transaction tax in not
applicable.
III. In case of resident individual or resident HUF, if - other income is less than 'basic exemption limit
then, such STCG shall be reduced by such shortfall/Deficiency and tax on balance of STCG shall be
computed @ 15%.
IV. STCG = 15% × [Such STCG - (basic exemption limit - Other Income)].
V. No deduction under section 80C-80U is available against STCG-111A
VI. Gross total income of an assessee includes any such short-term capital gains, the deduction under
Chapter VI-A shall be allowed from the Gross total income as reduced by such gains.
VII. Other Short-term capital gains: They are taxed at the normal rates applicable to the assessee.

B. COMPUTATION OF TAX ON LONG TERM CAPITAL GAINS [SECTION 112]:
1) INDIVIDUAL & HUF: In the case of an individual or a Hindu undivided family, being a resident, tax
on long-term capital gains is payable @ 20%.
 In case of resident individual or resident HUF, if - other income is less than 'basic exemption
limit', then, such LTCG shall be reduced by such shortfall, and tax on balance of LTCG shall
be computed @20%.
 Accordingly, tax on such LTCG = 20% × [Such LTCG - (basic exemption limit - Other Income)].
2) Domestic Company: Long-term capital gains shall be taxed @20%.
3) Non-resident (not being a company) or a foreign company:
a) Unlisted Securities: The amount of tax on long-term capital gains arising from the transfer of a
capital asset, being unlisted securities or shares of a company not being a company in which the
public are substantially interested, shall be calculated at the rate of 10% without giving effect to the
1st proviso (Converting capital gains into foreign currency and reconverting it into Indian currency)
and 2nd proviso to Section 48 (Indexation Benefit).
b) In case of other capital assets, the tax shall be computed @ 20%.
4) In any other case : Long-term capital gains shall be taxed @20%.

Notes:
a) Tax on listed securities not to exceed 10% [Proviso to section 112] : Where the tax payable in
respect of any income arising from the transfer of long term capital asset being listed securities
(other than a unit) or zero coupon bonds, exceeds 10% of the amount of capital gains before
indexation, then such excess shall be ignored while computing the tax payable by the assessee.
Thus, tax payable in case of listed securities (other than a unit) or zero coupon bonds, shall be
lower of:
I. 10% of gross capital gains i.e. (Net consideration - Cost of acquisition without indexation)
II. 20% of Long term capital gains i.e. (Net Consideration - Indexed cost of acquisition)
b) No deduction under Chapter VI-A on LTCG : The deductions under chapter VI-A cannot be availed
in respect of the long-term capital gains included in the total income of the assessee.

C. TAX ON LONG-TERM CAPITAL GAINS IN CERTAIN CASES [SECTION 112A] FINANCE ACT, 2018
1) Conditions -This section is applicable only if the following conditions are satisfied :
I. The total income includes any income chargeable under the head "Capital gains";
II. The capital gains arise from the transfer of a long-term capital asset being
a) an equity shares in a company or
b) a unit of an equity-oriented fund or
c) a unit of a business trust;
III. Securities transaction tax has, —

a) In a case where the long-term capital asset is in the nature of an equity share in a company, been
paid on acquisition and transfer of such capital asset; or
b) In a case where the long-term capital asset is in the nature of a unit of an equity oriented fund or a
unit of a business trust, been paid on transfer of such capital asset.
Non applicability : This condition shall not apply to a transfer undertaken on a recognized stock
exchange located in any International Financial Services Centre and where the consideration for
such transfer is received or receivable in foreign currency.
Non applicability of condition (iii)(a) in notified cases : The Central Government may, by
notification in the Official Gazette, specify the nature of acquisition in respect of which condition
no. (iii) (a) shall not apply.
2) Tax computation under Section 112A : If the above conditions are fulfilled the tax on long term
capital gains shall be calculated on the basis of following parameters :
I. LTCG in excess of Rs. 1,00,000 shall be chargeable @ 10% : Such long-term capital gains exceeding
Rs. 1,00,000 shall be chargeable to tax @ 10% plus surcharge as applicable plus Health Education
Cess.
II. LTCG does not exceed Rs. 1,00,000 it shall not be chargeable to tax.
III. Benefit of exemption limit in certain cases : In the case of Resident individual or a Hindu undivided
family, where the other income is below the maximum amount which is not chargeable to income-
tax i.e. basic exemption limit, then, the long-term capital gains shall be reduced by the amount of
such short fall and on balance LTCG tax shall be payable @ 10%.
IV. First proviso and second proviso to Section 48 not applicable :
a) Mode of computation of capital Gains in foreign currency in case of non residents as specified
under First proviso to Section 48 shall not be applicable when tax is payable as per provisions of this
section.
b) Indexation benefit (Second proviso to Section 48) is not applicable while computing capital gains
when tax is payable as per provisions of this section.

V. Tax rebate not admissible: The rebate under section 87A shall be allowed from the income-tax on
the total income as reduced by tax payable on such capital gains. Thus, no tax rebate under Section
87A shall be allowed from tax payable under Section 112A.
VI. No deduction under Chapter VI-A from such LTCG : The deductions under chapter VI-A cannot be
availed in respect of the long-term capital gains included in the total income of the assessee.
3) COMPUTATION OF COST OF ACQUISITION [SECTION 55(2)(AC)] : If tax is payable under this

Section, the cost of acquisition of equity share in a company or a unit of an equity oriented fund or
a unit of a business trust, acquired before the 01-02-2018 shall be computed as under:
Step 1: Find out cost of acquisition of such equity shared units
Step 2: Find out
a) the fair market value of such asset as on 31-01-2018; or
b) the full value of consideration received or accruing as a result of the transfer of the capital asset
whichever is less.
Step 3 : Cost of acquisition shall be deemed to the amount computed at Step 1 or Step 2 whichever is
higher. Meaning of Fair Market value:
Circumstance Fair Market Value

 If there is trading in such asset on such
I. In a case where the capital asset is listed
on any recognized stock exchange as on exchange on 31-01-2018-The highest price
31-01-2018 of the capital asset quoted on such
exchange on the said date
 If there is no trading in such asset on such
exchange on 31-01-2018-The highest price
of such asset on such exchange on a date
immediately preceding 31-01-2018 when
such asset was traded on such exchange.
II. In a case where the capital asset is a unit  The net asset value of such unit as on the
which is not listed on any recognized stock said date
exchange as on 31-01-2018
( III. In a case where the capital asset is an
equity share in a company which is
a) not listed on a recognized stock exchange as
on 31-01-2018 but listed on such exchange
on the date of transfer
b) listed on a recognized stock exchange on the

date of transfer and which became the
property of the assessee in consideration of
share which is not listed on such exchange as
on 31-01-2018 by way of transaction not
regarded as transfer under section 47

PROBLEM:13 From the following information determine taxable capital gains. Mr. X has acquired 1,000
equity shares on 1-04-2017 for Rs. 15,00,000 (STT paid @ 0.1%). The fair market value of shares as on
31-01-2018 was Rs. 15,25,000. He sold the shares on 25-08-2018 for Rs. 16,75,000 (STT paid @ 0.1%).
Brokerage Expenses incurred on transfer : 0.5% of the Sales consideration.
ANSWER:13
PROBLEM:14 From the following information determine taxable capital gains. Mr. X has acquired 1,000
equity shares on 1-04-2017 for Rs. 15,25,000 (STT paid @ 0.1%). The fair market value of shares as on
31-01-2018 was Rs. 15,00,000. He sold the shares on 25-08-2018 for Rs. 14,75,000 (STT paid @ 0.1%).
Brokerage Expenses incurred on transfer : 0.5% of the Sales consideration.
ANSWER:14
PROBLEM:15 Computation of LTCG on sale of Equity shares : From the following information determine
taxable capital gains. Mr. X has acquired 1,000 equity shares on 1-04-2017 for Rs. 15,25,000 (STT paid
@ 0.1%). The fair market value of shares as on 31-01-2018 was Rs. 16,50,000. He sold the shares on 25-
08-2018 for Rs. 16,00,000 (STT paid @ 0.1%). Solution: Computation of taxable capital gains (amount
in Rs.):
ANSWER:15
PROBLEM:16 Mr. X acquired 1000 equity shares of unlisted company on 15-04-2008 for Rs. 5,00,000. The
shares were listed in stock exchange on 01-04-2018. He sold all the shares for Rs. 30,00,000 on 10-07-
2018. (STT paid @ 0.1% of sales consideration). Determine taxable capital gain for Assessment Year
2019-20.
ANSWER:16

CAPITAL GAINS EXEMPTION

U/S 54
33. CAPITAL GAINS ARISING FROM THE TRANSFER OF RESIDENTIAL HOUSE
PROPERTY [SEC. 54]
i. Who can claim exemption: An individual or a Hindu undivided family
ii. Which specific asset is eligible for exemption: If a residential house property (long-term) is
transferred
iii. Which asset the taxpayer should acquire to get the benefit of exemption: Exemption is available if
one residential house is purchased or constructed
iv. What is time limit for acquiring the new asset:
a. Purchase- Residential house can be purchased within 1 year before transfer or within 2 years
after transfer-
b. Construction-Residential house can be constructed within 3 years from transfer
v. How much is exempt- Investment in the new asset or capital gain, whichever is lower
vi. Is it possible to revoke the exemption in a subsequent year:
a. If the new asset is transferred within 3 years of its acquisition, exemption will be taken back.
b. For calculating capital gain on transfer of new asset, cost of acquisition will be calculated as-
SCHEME OF DEPOSIT:
I. If the new asset is not acquired up to the due date of submission of return of income, then
the taxpayer will have to deposit the money in "Capital gain deposit account scheme" with a
nationalized bank.
II. On the basis of actual investment and the amount deposited in the deposit account,
exemption will be given to the taxpayer.
III. The taxpayer can acquire the new asset by withdrawing from the deposit account.
IV. New asset should be acquired within the time-limit mentioned in the relevant sections.
V. If the deposit account is not fully utilized for acquiring the new asset, the unutilized amount
[but in case of section 54F it is proportionate unutilized amount] will become chargeable to
tax in the previous year in which the specified time-limit for making investment in the new
asset expires [in case of sections 54 and 54F when the 3-year time limit expires].
VI. It will be taxable as short-term/long-term capital gain depending upon the original capital
gain.
VII. The unutilized amount can be withdrawn by the taxpayer after the expiry of the aforesaid
time-limit.
VIII. If the taxpayer dies before the expiry of specified time-limit (for making investment in the
new asset), then unutilized amount paid to the legal heirs is not taxable in the hands of
recipient.

PROBLEM:17 Mr. Mahesh provides the following data regarding his transaction for the sale of his
residential house for the assessment year 2019-20. Compute the amount of capital gain to be
included in the total income for the assessment year 2019-20.
House purchased in 2004-05 3348000
Sold in November, 2018 92,00,000
Purchased another house in September, 2018 6,00,000
Deposited in the Capital Gains Account Scheme in January, 2019 2,00,000
ANSWER:17 ` 141097
34. CAPITAL GAINS ARISING FROM THE TRANSFER OF LAND USED FOR
AGRICULTURAL PURPOSE [SEC. 54B]
i. Who can Claim exemption- Individual or Hindu undivided family

ii. Which specific asset is eligible for exemption- Any short-term or long-term capital asset (being
agricultural land) if it was used by the individual (or his parents) or by the HUF for agricultural
purpose at least 2 years immediately prior to transfer
iii. Which asset the taxpayer should acquire to get the benefit of exemption- Agricultural land
(maybe in rural area or urban area)
iv. What is time limit for acquiring the new asset- Within 2 years from the date of transfer.
v. How much is exempt- Investment in the new asset or capital gain, whichever is lower
vi. Is it possible to revoke the exemption –
a. If the new asset is transferred within 3 years of its acquisition, exemption will be taken back.
b. For calculating capital gain on transfer of new asset, cost of acquisition will be calculated as
(original cost of acquisition - exemption availed under section 54B).
PROBLEM:18 X sells agricultural land situated within the municipal limits of Calcutta for ` 50, 00,000
(stamp duty value on the basis of circle rate: ` 38, 75,000) on July 4, 2018, which was purchased by
him on March 1, 2007 for ` 1518,000. On July 15, 2019, he purchases agricultural land in rural area
for ` 4, 30,000 and deposits ` 10, 80,000 in a deposit account for availing exemption under section
54B. He purchases another agricultural land (situated within the limit of Delhi Municipal Corporation)
on June 30, 2020 for ` 8, 47,000 by withdrawing from the deposit account. Amount left in the deposit
account is withdrawn on July 10, 2020. The agricultural land in rural area is transferred on April 1,
2021 for ` 4, 90,000 and the land in Delhi is transferred on July 17, 2021 for ` 8, 70,000. Determine
the amount of capital gains.
ANSWER:18 `

35. CAPITAL GAINS ON COMPULSORY ACQUISITION OF LAND AND

BUILDING, FORMING PART OF INDUSTRIAL UNDERTAKING [SEC. 54D]
i. Who can claim exemption: Any taxpayer

ii. Which specific asset is eligible for exemption: Land or building (short-term or long-term) forming
part of an industrial undertaking which is compulsorily acquired by the Government and which is
used 2 years for industrial purposes prior to its acquisition
iii. Which asset the taxpayer should acquire to get the benefit of exemption: Land or building for
Industrial purposes
iv. What is time limit for acquiring the new asset: Within 3 years from the date of receipt of
compensation
v. How much is exempt: Investment in the new asset or capital gain. Whichever is lower.
vi. Is it possible to revoke the exemption-
a. If the new asset is transferred within 3 years of its acquisition exemption will be taken back.
b. For calculating capital gain on transfer of mew asset, cost of acquisition will be calculated as
(original of acquisition-exemption availed under section 54D)
PROBLEM:19 X Ltd., a manufacturing company, purchases a factory building on May 6, 1998 for ` 20
lakh (prior to this the company used the same building as a tenant for about 5 years). The building is
compulsory acquired by the Government on April 20, 2018 for which a sum of ` 60 lakh is paid as
compensation on March 14, 2019. Compute the amount of capital gains chargeable to tax for the
assessment year 2019-20 taking into consideration the following information –
1. On April 1, 2018, the company owns two buildings (rate of depreciation : 10 per cent) one of which is
acquired by the Government during 2018-19. The depreciated value of the block on April 1, 2018 is `
21.35 lakh.
2. The company purchases a factory building on April 6, 2019 for ` 15 lakh.
Does it make difference if the factory building is purchased on March 31, 201?
ANSWER:19 `
36. CAPITAL GAINS ON TRANSFER OF ANY LONG-TERM CAPITAL ASSET ON

THE BASIS OF INVESTMENT IN CERTAIN BONDS [SEC. 54EC]/54EE
I. Who can claim exemption: Any taxpayer

II. Which specific asset is eligible for exemption: Any long-term capital asset ( being Land or building
or both)
III. Which asset the taxpayer should acquire to get the benefit of exemption:
• LONG TERM SPECIFIED ASSETS
Long-term specified asset means any bond, redeemable after 3 years (for bonds issued prior to 01-
04-2018)/ 5 years {for bonds issued on or after 01-04-2018) —
a) Issued by National Highways Authority of India; or
b) Issued by Rural Electrification Corporation Limited; or
c) Notified by the Central Government in this behalf.

d) The Central Government has notified any bond redeemable after three years and issued by the
Power Finance Corporation Limited on or after 15-06-2017 or by the Indian Railway Finance
Corporation Limited on or after 08-08-17 as long-term specified asset']
e) Maximum investment in one financial year is ` 50 lakhs
f) AMENDMENT-From AY 2015-16, investment made by an assessee in the NHAI/RECL bonds out

of capital gains arising from transfer of one or more original assets ,during the FY in which the
original asset or assets are transferred and in subsequent FY should not exceed ` 50 Lakhs
IV. What is time limit for acquiring the new asset:

a. Within 6 months from the date of transfer
V. How much is exempt:

a. Investment in the new asset or capital gain, whichever is lower.
VI. Is it possible in revoke the Exemption:

a. If the new asset (i.e., bonds of NHAI/REC/Notified bonds) is transferred within 3/5 years
from its acquisition-
b. If the new asset is converted into money or any loan/advance is taken on the security of the
new asset within 3/5 years from the date of acquisition of the new asset.
PROBLEM:20 On January 2, 2019, X sells plot for ` 91, 85,000 (cost of acquisition on March 10, 2004 ` 1,
05,000). Expenses on purchase and transfer are ` 100 and 200, respectively. To get the benefit of
exemption under section 54EC, X makes the following investments -
1. Purchase of ` 46, 00,000 NHAI bonds on March 1, 2019.
2. Purchase of ` 24, 00,000 REC bonds on April 10, 2019.
Find out the amount of exemption under section 54EC.
ANSWER:20 `
PROBLEM:21 X transfers the following long-term capital assets -
Capital asset Date of Full Value of Indexed cost Investment in NHAI/REC

transfer Consideration of acquisition bonds (date of investment)
Land 03-04-2018 Rs. 95 lakhs Rs. 40 lakhs Rs. 40 lakh (01-09-2018)
Commercial House 05-11-2018 Rs. 65 lakhs Rs. 20 lakhs Rs. 40 lakh (01-04-2019)
Find out exemption under section 54EC and taxable capital gain for AY 2019-20.
ANSWER:21

PROBLEM:22 X transfers a commercial property on 15-03-2019 for Rs. 2,25,00,000. The commercial
property was acquired on 10-04-2001 for Rs. 5,25,000, expenditure on transfer: Rs. 2,25,000). To get
the benefit of exemption under different sections, he acquires the following assets —
1) Long-term specified assets notified for the purpose of section 54EE —
I. on 20 March, 2019 : Rs. 40,00,000;
II. on 01 June, 2019 : Rs. 30,00,000;
2) Power Finance Corporation Limited capital gain bonds of section 54EC —

I. on 25 March, 2019 : Rs. 41,00,000;
II. on 30 September, 2019 : Rs. 31,00,000.
Determine his taxable capital gains for AY 2019-20.
ANSWER:22
37. CAPITAL GAINS ON TRANSFER OF A LONG-TERM CAPITAL ASSET OTHER

THAN A HOUSE PROPERTY [SEC. 54F]:
i. Who can claim exemption: An individual or a HUF

ii. Which specific asset is eligible for exemption: Capital gain arising on transfer of any long-term
capital asset (other than a residential house property) is qualified for exemption provided on the
date of transfer the taxpayer does not own more than one residential house property(except the
new house property given below)
iii. Which asset the taxpayer should acquire to get the benefit of exemption: One residential house
property

a. Purchase: Residential house can be purchased within 1 year before transfer or within 2 years
after transfer
b. Construction: Residential house can be constructed within 3 years from transfer.
v. How much is exempt:
a. Investment in the new asset / Net sale consideration x Capital gain.
b. Amount of exemption cannot exceed capital gain
vi. Is it possible to revoke the exemption:

a. In the following cases, exemption will be taken back (and the amount of exemption given
earlier will become long-term capital gain of the year in which the assessee commits the
following default)
b. If the new asset is transferred within 3 years from the date of its acquisition.
c. If within 2 years from the date of transfer of the original assets, the taxpayer purchases
another residential house property
d. If within 3 years from the date of transfer of original assets, the taxpayer completes
construction of another residential house property.

38. CAPITAL GAIN ARISING ON TRANSFER OF ASSETS IN CASES OF

SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA TO RURAL
AREA [SEC. 54G]/54GA
i. Who can claim exemption: Any taxpayer
ii. Which specific asset is eligible for exemption:
a. On transfer of short-term/long-term capital assets being land, building, plant or machinery.
b. These assets should be transferred in order to shift an industrial undertaking from an urban area to a rural area
iii. Which asset the taxpayer should acquire to get the benefit of exemption:
a. Land, building, plant or machinery in order to shift undertaking to a rural area
a. New asset should be purchased within 1 year before transfer or within 3 years after transfer of the original
asset.
v. How much is exempt:
a. Investment in the new asset or capital gain, whichever is lower.
vi. Is it possible to revoke the exemption in a subsequent Year:
a. If the new asset is transferred within 3 years of its acquisition, exemption will be taken back. For calculating
capital gain on transfer of new asset, cost of acquisition will be (original cost of acquisition - exemption availed
under section 54G).
PROBLEM:23 X Ltd. owns an industrial undertaking at Nagpur which is situated in urban area. As per
policy of the State Government, the industrial undertaking is shifted to a rural area. In the process of
shifting, the company sells the following assets:
Plant and Building Furniture Land

machinery
Rate of depreciation 15 % 10 % 10 % -
Year of acquisition 1977 1978 1976 1975
Written down value of the block on April 1, 2018 9,50,000 10,75,000 25,000 -
Cost of acquisition of land (fair market value on - - - 20,000

April 1, 2001: ` 245000 )
Sale proceeds (date of sale June 25, 2018) 47,92,000 88,90,000 17,32,000 50,00,000
Value for stamp duty purpose NA 80,00,000 NA 60,00,000
Cost of assets acquired during April-May 2019 for 30,50,000 4,00,000 3,70,000 50,70,000
the purpose of shifting the undertaking to a rural
area
Assuming the industrial undertaking is transferred to rural area by June 15, 2018 , ascertain the capital
gains chargeable to tax for the assessment year 2019-20. Does it make any difference if the assets are
acquired by March 31, 2019?
ANSWER:23 `NIL, ` 3137000, ` 1707000, ` 53,33,60

39. CAPITAL GAIN ON TRANSFER OF RESIDENTIAL HOUSE PROPERTY [SEC.

54GB
I. Who can claim exemption: An individual or a Hindu undivided family.
II. Which specified asset is eligible for exemption:

a. On transfer of a long-term residential property (a house or a plot of land) if transfer takes
place during April 1, 2013 and March 31, 2017 ( In case of investment in eligible start up the
residential property can be transferred upto March 31-2019)
III. Which asset the taxpayer should acquire to get the benefit of exemption:
a. Equity shares in an "eligible company or ELIGIBLE START UP(FA-2016)
IV. What is the time for acquiring the new asset:

a. Equity shares in an "eligible company' should be acquired on or before the due date of
furnishing of return of income under section 139(1).
b. The "eligible company" should utilize this amount for the purchase of a "new asset" within
one year from the date of subscription in equity shares.
V. How much is exempt:

a. Investment in "new asset" by the eligible company ÷ Net sale consideration × Capital gain.
b. Exemption cannot exceed capital gain
VI. It is possible to revoke the exemption:

a. If the equity shares in the eligible company are sold or otherwise transferred by the assessee
within 5 years from the date of within 5 years from the date of acquisition. .
b. If the deposit account is not utilized fully or partly by the eligible company for purchasing the
new asset within 1 year from the date of subscription in equity shares (by the assessee)
 BANK DEPOSIT
i. The "eligible company" should utilize the amount subscribed by the transferor for the
purchase of a "new asset" within one year from the date of subscription in equity shares.
ii. If, however, the company does not utilize this amount for the purchase of a "new asset"
before the due date of furnishing of return of income by the assessee (i.e., transferor of
residential property), it shall be deposited by the company in capital gain deposit account.
iii. In such a case, exemption would be available on the basis of amount deposited in the
deposit account.
VII. ELIGIBLE BUSINESS" means a business carried out by an eligible start up engaged in innovation,
development or improvement of products or processes or services or a scalable business model
with a high potential of employment generation or wealth creation;

VIII. ELIGIBLE START-UP –
IX. ELIGIBLE COMPANY": It means a company which satisfies the following conditions -
i. It is incorporated on or after April 1 (of the previous year in which residential property is
transferred) but on or before the due date of submission of return of income under section
139(1) by the assessee (i.e., transferor of residential property).
ii. It is engaged in an eligible business.
iii. The assessee (i.e., transferor of residential property) has more than 50 per cent share
capital (or voting right) after subscription in shares by the assessee.
iv. The company is AN ELIGIBLE START UP.
X. What is new asset:

I. It means new plant and machinery.
 However, it does not include the following:
a) any plant or machinery which is used in India or outside India by any person before its
installation by the eligible company;
b) any plant or machinery which is installed in office premises/ residential
accommodation/ guest house;
c) Any office appliance;
d) computers /computer software;
e) any vehicle;
f) any plant or machinery which is allowed 100 per cent deduction (by depreciation or
otherwise) in any previous year.
II. For ELIGIBLE START UP , being a technology driven start up , new asset shall include
Computers or Computer software. (F.A-2016)
40. EXTENSION OF TIME FOR ACQUIRING NEW ASSET OR DEPOSITING OR

INVESTING AMOUNT OF CAPITAL GAIN (SECTION 54H)
Applicability  Where the transfer of the original asset is by way of compulsory acquisition under any law and
 Amount of compensation awarded for such acquisition is not received by the assessee on the
date of such transfer
Treatment  The period for acquiring the new asset or the period available to the assessee for depositing
the amount of capital gain in relation to such compensation as is not received on the date
of the transfer, shall be reckoned from the date of receipt of such compensation.
Note-It is irrespective of anything contained in sec. 54, 54B, 54D, 54EC and 54F.
Enhanced Compensation: In case of enhanced compensation, the period for acquiring the new asset shall
commence from the date of receipt of such enhanced compensation.

INCOME FROM OTHER SOURCES- (CS- EXECUTIVE) Page 120
1. CHARGEABILITY- SEC 56(1)
The following conditions must be satisfied before an income can be taxed under the head "Income from
Other Sources"
I. There must be an INCOME;
II. Such income is not EXEMPT under the provisions of this Act,
III. Such income is not chargeable to tax under any first four heads viz, "Income from Salary", "Income
from House Property", 'Profits and Gains of Business or Profession" and "Income from Capital
Gain". Income from other sources is, therefore, a residuary head of income.
2. TAXABILITY OF DIVIDEND-

 TAX ON CERTAIN DIVIDENDS RECEIVED FROM DOMESTIC COMPANY- SECTION 115BBDA.

1) Applicable only to Specified assessee.-
 Specified assessee means a person OTHER THAN,—
I. A domestic company; or
II. A fund or institution or trust or any university or other educational institution or any hospital or
other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-
clause (via) of clause (23C) of section 10; or
III. A trust or institution registered under section 12A or section 12AA.
2) Aggregate amount of dividend received from one or more domestic company during PY exceeds `
1,00,0000 at the rate of 10% (+SC+HEC).
3) The taxation of dividend income in aggregate exceeding ten lakh rupees shall be on gross basis.
However, this rule is not applicable in case of deemed dividend under section 2(22)(e)
4) No deduction is allowed from dividend income.
a) Any distribution by a company to the extent of accumulated profits involving the release of the assets
of the company. [Section 2(22)(a)]:
b) Distribution of Debentures/Deposit Certificates to shareholders and bonus shares to preference
shareholders [Section 2(22)(b)]
c) Distribution to shareholders on liquidation of the company [Section 2(22)(c)]
d) Distribution on reduction of share capital [Section 2(22)(d)] :
e) Loans/advances to certain shareholders/concerns [Section 2(22)(e)]:
 BASIS OF CHARGE OF DIVIDEND

I. Any income by way of dividends, referred to under section 115-O, is excluded from the total
income of the shareholder [Section 10(34)].
II. Under section 115-O, any dividend declared, distributed or paid by a domestic company,
whether out of current or accumulated profits, shall be charged to additional income-tax at a
flat rate of 15% in addition to normal income-tax chargeable on the income of the company.
This is known as corporate dividend tax
III. Corporate dividend tax @30% is leviable on deemed dividend under section 2(22)(e).
IV. Dividends received from a company, other than a domestic company, is still liable to tax in the
hands of the shareholder. For example, dividend received from a foreign company is liable to tax
in the hands of the shareholder.
V. It may, however, be noted that the exemption available under section 10(34) would not
be allowable in respect of dividend income chargeable to tax in accordance with the
provisions of section 115BBDA, even if the dividend distribution tax is paid by the
domestic company on such amount of dividend

PROBLEM:1 Rahul holding 28% of equity shares in a company, took a loan of ` 5,00,000 from the same
company. On the date of granting the loan, the company had accumulated profit of ` 4,00,000. The
company is engaged in some manufacturing activity.
I. Is the amount of loan taxable as deemed dividend, if the company is a company in which the
public are substantially interested?
II. What would be your answer, if the lending company is a private limited company (i.e. a
company in which the public are not substantially interested)?
ANSWER:1
PROBLEM:2 A Ltd., a domestic company, declared dividend of ` 170 lakh for the year F.Y. 2017-18 and
distributed the same on 10.7.2018. Mr. X, holding 10% shares in A Ltd., receives dividend of ` 17 lakh
in July, 2018. Mr. Y, holding 5% shares in A Ltd., receives dividend of ` 8.50 lakh. Discuss the tax
implications in the hands of Mr. X and Mr. Y, assuming that Mr. X and Mr. Y have not received
dividend from any other domestic company during the year.
ANSWER:2
PROBLEM:3 Find out the tax liability for the AY 2019-20 in the following cases
X(40 YEARS) Y(45 YEARS) Z FIRM ALTD B(61 YEARS)(NR)
BUSINESS INCOME 3,00,000 40,00,000 40,00,000 40,00,000 23,00,000
DIVIDEND FROM DC
a) D LTD 40,00,000 960000 15000 11,00,000 40,00,000
b) E LTD 10000 NIL 3000 18,00,000 10000
c) F LTD 890000 NIL 2982000 21,00,000 890000
d) Deemed 7,00,000 17,00,000 80,000 1185000 20,10,000
dividend
Expenditure for 260000 90000 80000 1200000 260000
earning income
Deduction under 4,10,000 2,15,000 7,00,000 8,18,000 4,10,000
section 80C to 80U
ANSWER:3

3. CASUAL INCOME-
a) Taxable @ flat rate 30% +(SC + HEC)

b) Winning from a motor car rally: Winning from a motor car rally is a return for skill and effort and
cannot be treated as casual income but taxable as normal income
c) Lottery held as stock in trade: Winning from lottery to an agent or trader out of its unsold stock
(tickets) shall be treated as incidental to business and taxed under the head "Profits & gains of
business or profession"
d) Income of jockey: Income of jockey from such profession is not treated as winning from horse
races.
e) Expenditure to be deducted: No deduction can be claimed from such income even if such
expenditure is incurred exclusively and wholly for earning such income.
f) Deduction: Deduction u/s 80C to 80U is not available from such income.
 Method of Grossing up-

Sometime in the problem, lottery income received is given rather than lottery income. In such case,
students are required to gross up the lottery income received. Relation between lottery income
earned and lottery income received is as under –
Lottery income received = Lottery income earned - Tax deducted at source on such income
Procedure of grossing up, in case of resident individual or HUF, is as follow-
Lottery Income Received = Gross Lottery Income -TDS @ 30% on Gross Lottery Income.
Lottery Income Received = 70% of Gross Lottery Income
Gross Lottery Income = Lottery Income Received
70%
TAX DEDUCTED AT SOURCE

SEC 194B 194BB
PAYER Any person paying winnings from Any person paying winning from
lotteries/cross word puzzle/card horse race
games/other games
RECEPIENT Any person Any person
PAYMENT COVERED Winnings from Winning from horse race
lotteries/crossword puzzle/card
games
AT WHAT TIME TAX HAS TO BE At the time of payment At the time of payment
DEDUCTED AT SOURCE
MAX AMT WITHOUT TDS ` 10000 or less than ` 10000 ` 10000 or less than ` 10000
RATE 30%(no SC or HEC) 30% (no SC or HEC)
WHEN PROV DO NOT APPLY - -
IS IT POSSIBLE TO GET PAYMENT Not possible Not possible
WITHOUT TDS OR LOWER TDS

4. GIFT- [SECTION 56(2) (X)]

 Any sum of money or value of property received without consideration or for inadequate
consideration to be subject to tax in the hands of the recipient [Section 56(2)(x)]
 In order to prevent the practice of receiving sum of money or the property without consideration or
for inadequate consideration, section 56(2)(x) brings to tax any sum of money or the value of any
property received by any person without consideration or the value of any property received for
inadequate consideration.
 Applicability of section 56(2)(x): The provisions of section 56(2)(x) would apply only to property
which is the nature of a capital asset of the recipient and not stock-in-trade, raw material or
consumable stores of any business of the recipient. Therefore, only transfer of a capital asset,
without consideration or for inadequate consideration would attract the provisions of section
56(2)(x).
A. Sum of Money: If any sum of money is received without consideration and the aggregate value of
which exceeds ` 50,000, the whole of the aggregate value of such sum is chargeable to tax.
B. Immovable property [Land or building or both]:
I. If an immovable property is received

a) Without consideration: The stamp duty value of such property would be taxed as the income of the
recipient if it exceeds ` 50,000.
b) For Inadequate consideration: If consideration is less than the stamp duty value of the property
and the difference between the stamp duty value and consideration is more than the higher of –
i. ` 50,000 and
ii. 5% of consideration,
The difference between the stamp duty value and the consideration shall be chargeable to
tax in the hands of the assessee as “Income from other sources”.
II. Value to be considered where the date of agreement is different from date of registration: Taking
into consideration the possible time gap between the date of agreement and the date of
registration, the stamp duty value may be taken as on the date of agreement instead of the date of
registration, if the date of the agreement fixing the amount of consideration for the transfer of the
immovable property and the date of registration are not the same, provided whole or part of the
consideration has been paid by way of an account payee cheque or an account payee bank draft or
by use of electronic clearing system (ECS) through a bank account on or before the date of
agreement.
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. If such value is less than the stamp
duty value, the same would be TAKEN for determining the value of such property, for computation
of income under this head in the hands of the buyer.

C. Movable Property [Property, other than immovable property]-If movable property is received
a) 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 ` 50,000.
b) For inadequate consideration: If the difference between the aggregate fair market value and
such consideration exceeds `50,000, such difference would be taxed as the income of the
recipient.
D. EXEMPTED CATEGORY-Any sum of money or property received from the following shall not be
chargeable
I. Received from relative
II. Received on the occasion of marriage of Individual.
III. Received by way of will or inheritance
IV. Received in the contemplation of death of payer
V. Received from a local authority, fund, foundation, university, other educational institution, and
hospital/Received from a charitable institute
VI. By way of transaction not regarded as transfer under section 47 (vicb)/(vid)/(vii) F.A 2016 ie
VII. From an individual by a trust created solely for the benefit of the relative of the individual.
E. RELATIVE FOR THE PURPOSES MEANS

i. spouse of the individual/brother or sister of the individual,
ii. brother or sister of the spouse of the individual,
iii. brother or sister of either of the parents of the individual,
iv. any lineal ascendant or descendant of the individual,
v. any lineal ascendant or descendant of the spouse of the individual, and
vi. Spouse of a person referred to in items (ii) to (vi) mentioned above.
F. PROPERTY means-
i. Immovable property being land or building or both,
ii. shares and security
iii. Jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, bullion.
G. 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.


5. RECEIPTS OF SHARES BY A FIRM OR A CLOSELY HELD COMPANY
I. Recipient is a firm or a closely held company.

II. The asset (which is received )is in the form of shares in a closely held company
III. These shares are received from any person on or after June 1,2010.
IV. Such shares are received without consideration or inadequate consideration.
V. Such shares are not received by way of a transaction referred to in sec 47
If these conditions are satisfied then value of such shares are taxable in the hands of recipient (i.e. firm
or closely held company) if aggregate value exceeds ` 50000.
6. SHARE PREMIUM IN EXCESS OF FAIR MARKET VALUE
I. Recipient is a company(not being a company in which public are substantially interested)

II. It receives consideration for issue of shares from a resident person
III. The consideration for issue of shares exceeds the face value of such shares. In other words shares
are issued at premium.
 If above conditions are satisfied the aggregate consideration received for such shares exceeds the
FMV of the shares, shall be chargeable to income tax in the hands of recipient company under the
head income from other sources.
 ABOVE PROVISIONS DO NOT APPLY-

 Where consideration for issue of shares received by a venture capital undertaking from a
venture capital company or a venture capital fund.
 Where the consideration for issue of shares is received by a company from class of a person as
notified by the Central Government.

The following are the details of the shares issued by the following closely held companies. Discuss the
applicability of provisions of Section 56(2)(viib) in the hands of these companies:
Company No of Face Value FMV of Issue Price Applicability of Section 56(2)(viib)
Shares of Shares Shares of Shares
A Pvt Ltd 10,000 100 120 130 I. The provisions of Section 56(2)(viib) are
attracted in this case since the shares are
issued at premium and the issue price is also
more than FMV.
II. The excess of the issue price of the shares over
the FMV would be taxable u/h income from
other sources in the hands of A Pvt Ltd.
III. Taxable amount = Rs 1,00,000 [10,000 shares x
Rs 10 (Rs 130 - Rs 120)].
B Pvt Ltd 20,000 100 120 110 I. Although the shares are issued at premium but
the issue price of shares is less than their FMV.
II. Therefore, no sum shall be chargeable to tax in
the hands of B Pvt Ltd u/s 56(2)(viib).
C Pvt Ltd 30,000 100 90 98 I. Since the shares are issued at discount, the
provisions of Section 56(2)(viib) are not
attracted.
II. No sum shall be chargeable to tax in the hands
of the company even though the issue price is
greater than the FMV.
D Pvt Ltd 40,000 100 90 110 I. The provisions of Section 56(2)(viib) are
attracted in this case since the shares are
issued at premium and the issue price is also
more than FMV.
II. The excess of the issue price of the shares over
the FMV would be taxable u/h income from
other sources in the hands of D Pvt Ltd.
III. Taxable Amount = Rs 8,00,000 [40,000 shares x
Rs 20 (Rs 110 - Rs 90)].
7. DEDUCTIONS ALLOWABLE- (SEC 57)
I. Commission or remuneration or bank charges for realizing dividend or interest on securities.

II. Deduction in respect of employees contribution towards staff welfare scheme
III. Repairs, depreciation, Insurance in case of letting out of plant, machinery, furniture and building
IV. Standard deduction in case of family pension- 1/3rd of pension or ` 15000 (whichever is less)
V. Any other expense for earning income-if following four conditions are satisfied.
 Expenditure must be wholly and exclusively for earning the income
 Expenditure must not be in nature of capital/personal nature.
 Must be laid out or expended in PY.
VI. Amount deductible from interest on compensation- 50% of interest is deductible

8. AMOUNT NOT DEDUCTIBLE UNDER SECTION 58-
a) Any personal expense of the assessee.

b) Any interest chargeable to tax under the Act which is payable out India on which tax has not
been paid or deducted at source.
c) Any payment chargeable to tax under the head “Salaries”, if it is payable outside India unless tax has
been paid thereon or deducted at source there from.
d) 30% of sum payable to a resident on which tax is deductible at source, if such tax has not been
deducted or after deduction has not been paid on or before the due date of return specified in
section 139(1) .
e) Any expenditure in respect of which a payment is made to a person, to the extent the same is
considered excessive or unreasonable by the Assessing Officer, having regard to the FMV.
f) Any expenditure in respect of which payment or aggregate payments exceeding ` 10,000 is made to a
person in a day otherwise than account payee cheque/bank draft or ECS through bank account.
g) Expenditure in respect of winning from lottery
9. DEEMED PROFIT- SEC 59

Loss or expenditure already allowed in computation of Income from other sources u/s 57 and subsequently
recovered shall be treated as income of the PY in which it is recovered.
10. EXEMPTED INCOME-

CLUBBING OF INCOME-(CS-EXECUTIVE) Page 130
1. TRANSFER-
2. CONSIDERATION

3. DIFFERENT TREATMENT-
Sec. Transaction/Income Taxable in hands of

1) Transfer of Income without transfer of assets Transferor
2) Revocable Transfer of Assets. [Note: Transfer is deemed Transferor

revocable if Transferor has a right to re-assume power directly or
indirectly over the whole or any part of the income or assets.]
3) Remuneration of Spouse from a concern in which the Individual Individual
has Substantial Interest, other than for exercising professional
knowledge
4) Income from Assets transferred to the Spouse for inadequate Individual

consideration (except Transfer before marriage/with an
agreement to live apart/ gifting coparcenary property/ property
acquired out of Pin money or household savings.)
5) Income from Assets transferred to Son's Wife for inadequate Individual
consideration
6) Income from Assets transferred to any person for the benefit of Individual
the Spouse of the Transferor
7) Income from Assets transferred to any person for the benefit of Individual
wife of the Transferor's Son
8) Income from self-acquired property converted to Joint Family Individual

Property for inadequate consideration
 The Spouse relationship should exist both at the time of transfer of asset, and at the time of accrual
of income.
 Where Cash is gifted by an Assessee to his wife and the latter invests the same in deposits, Interest
Income is includible in the Assessee's Total Income.

4. CLUBBING OF INCOME OF MINOR CHILD [SECTION 64(IA)]:

I. In computing the total income of an individual, there shall be included all such income as arises or
accrues to his minor child.
II. The income of a minor child is to be clubbed in the hands of either of his parents.
III. The income shall be clubbed in the hands of that parent whose total income (excluding the income
of the minor) is greater.
IV. If the marriage of his parents does not subsist, the income shall be clubbed in the hands of that
parent who maintains the minor child in the previous year.
V. Where any income is once included in the total income of either parent, any such income arising in
any succeeding year shall not be included in the total income of the other parent unless the
Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is
necessary so to do.
VI. Where the income of a minor child has been included in the total income of a parent, such parent
shall be entitled to an exemption to the extent of such income or ` 1,500 whichever is less, in
respect of each minor child whose income, is so included.
When clubbing not attracted:

I. Any income of a minor child suffering, from any disability of the nature specified in section 80U like
physically disabled, totally blind, etc
II. Such income which accrues or arises to the minor child on account of any manual work done by him
III. Such income which accrues or arises to the minor child on account of any activity involving
application of his skills, talent or specialized knowledge and experience
Point to be noted:
I. Child in relation to an individual includes a step child and an adopted child of that individual.
II. Since 64(1A) does not exclude minor married daughter, even income arising to minor married
daughter would be clubbed. However where section 27 applies, clubbing of income from property
gifted by the parent does not arise.
III. If both the parents of the minor child are not alive then the income of minor child cannot be
clubbed and the guardian of the minor child shall file the return of such income on behalf of the
minor. It may be added that it will not be included in the income of guardian, if the guardian is not a
parent.
IV. Where the minor child attains majority during the previous year, then, the income till the date he
remained minor in that previous year shall be clubbed in the hands of the parent.
5. POINTS TO BE NOTED-
I. Income is to be clubbed but income on income is not to be clubbed.
II. Income includes loss.
III. Under which head of income will the clubbed income be assessed
 Such an income will first be computed in the hands of the recipient as if it was his income and
such recipient will compute this income under the relevant head after claiming exemptions/
allowances/ deductions permissible under the relevant head in which it falls.
 Such income computed, under the relevant head, will be included in the total income of the
individual under the same head of income.
IV. Recovery of tax-Sec 65
 The assessing officer has the power for the recovery of tax from the person to whom income
actually accrued if the AO so desire

SET OFF AND CARRY FORWARD OF LOSSES-(CS-EXECUTIVE) Page 133
1. COMPULSORY FILING OF LOSS RETURNS [SECTION 80]:

I. Although the above losses are allowed to be carried forward, but the carry forward is allowed only
when such loss has been determined in pursuance of a return of loss submitted by the assessee on
or before the due date for filing of the returns prescribed under section 139(1).
II. However loss under the head income from house property can be carried forward even if the
return is not filed within the due date, mentioned under section 139(l).
III. Although submission of return of loss, on or before the due date mentioned under section 139(1) is
compulsory for carry forward of losses mentioned in clause (b) to (e) above, but this provision is not
applicable for carry forward of unabsorbed depreciation which is covered under section 32(2).
IV. There are two conditions which are to satisfied before loss is allowed to be carried forward. Firstly
the return of loss must be submitted on or before the due date and secondly such loss has been
determined by the Assessing Officer.
2. TREATMENT OF UNABSORBED DEPRICIATION- SECTION 32(2)

A. Meaning - Assessee carrying business/profession are allowed to debit depreciation expenditure while
calculating their income under the head PGBP. However, such expenditure can be debited only to
the extent income is available under the head PGBP. The balance amount of depreciation that
cannot be debited is referred to as ’unabsorbed depreciation'.
B. Treatment
I. Depreciation allowance of the PY is first deductible from the income chargeable under the head
PGBP.
II. If depreciation allowance is not fully deductible under the head PGBP because of absence of profit,
it is deductible from any other head except income under the salary.
III. If depreciation allowance is still unabsorbed, it can be carried forward to the subsequent
assessment years.
IV. Period of carry forward-No time limit

3. LOSSES CAN BE CARRIED FORWARD BY THE PERSON WHO INCURRED THE

LOSS-BUT THIS RULE HAS THE FOLLOWING EXCEPTIONS-
I. Loss of business can be carried forward by inheritance.
II. Accumulated business loss of an amalgamating company under section 72A or 72AA
III. Accumulated business loss of a proprietary concern or a firm when its business is taken over by a
company satisfying conditions of section 47.
IV. Accumulated business loss of a demerged company.
V.
4. ORDER OF SET OFF:

The order of set off will be as under:
S. No. Sec. Nature of Losses
1) 35(1) Current Scientific Research Capital Expenditure
2) 32(1) Current Depreciation
3) 36(1 )(ix) Current year Expenditure on Family Planning to the extent allowed
4) 72(1) Unabsorbed Business Losses of previous years
5) 32(2) Unabsorbed Depreciation of previous years
6) 35(4) Unabsorbed Scientific Research Capital Expenditure of previous years
7) 36(1 )(ix) Unabsorbed Family Planning Promotion Expenditure of previous year
5. BROUGHT FORWARD LOSSES MUST BE SET OFF IN THE IMMEDIATELY

SUCCEEDING YEARS-
I. The losses which are eligible to be carried forward must be set off against the income/profit of
the immediately succeeding year and if there is any balance still to be set off, it should be set of
in the immediately next succeeding year or years within the time allowed.
II. Where the losses incurred are not set off against the income/profits of the immediately
succeeding year/years, as the case may be, they cannot be set off at a later date
6. CARRY FORWARD AND SET OFF OF LOSS FROM HOUSE PROPERTY-

7. CARRY FORWARD AND SET OFF OF BUSINESS LOSSES –
8. CARRY FORWARD OF LOSSES UNDER THE HEAD 'CAPITAL GAINS' -
POINT TO BE NOTED-
With effect from 1 st April 2018, the long-term capital gain exceeding ` 1, 00,000 arising on sale of equity
shares or units of equity oriented fund or unit of business trust on which STT is paid
I. in respect of equity shares, both at the time of acquisition and sale and
II. in respect of units of equity oriented fund or unit of business trust, at the time of sale
Is taxable under section 112A @10%. Long-term capital loss on sale of such shares/units can, therefore,
be set-off and carried forward for set-off against long-term capital gains by virtue of section 70(3) and
section 74.

9. SET OFF AND CARRY FORWARD AND SET OFF OF LOSS FROM ACTIVITY OF
OWNING AND MAINTAINING RACE HORSES [SECTION 74A]
PROBLEM:1 X, a resident individual, submits the following information, relevant to the previous year
ending 31-3-2019.Calculate GTI
1) Income from salary (computed) 212000
2) Income from house property
House I 12,000
House II (-)250,000
House III (Self-occupied) (-)10,000
3) Profit and gains of business or profession
Business I 8,000
Business II (-)12,000
Business III (Speculative) (-)64,000
Business IV (Speculative) 36,000
4) Capital gains
Short-term capital loss (-) 6,000
Long-term capital gains on transfer of shares 5,400
5) Income from other sources (computed):
Income from card games 36,000
Income from betting 24,000
Loss on maintenance of race horses (-) 4,600

ANSWER:1 `

DEDUCTIONS –(CS-EXECUTIVE) Page 137
1. DEDUCTIONS-
2. BASIC RULES OF DEDUCTIONS [SECTIONS 80A/80AB/80AC]-

I. Deductions cannot exceed Gross Total Income.
II. Deductions not allowed from-
 Long-term capital gain;
 Short term capital gain covered u/s 111A (i.e., STCG on which STT is charged); and
 Casual income like winning from lotteries, races, etc.
 Income referred in Sec.115A, 115AB, 115AC, 115ACA, 115AD, 115BBA, 115D.
III. Deduction not allowed to members if allowed to AOP/BOI.
IV. Double deduction not allowed and deduction cannot exceed the profit of the particular
undertaking or unit or enterprise, etc.
V. Deduction allowed only when it is claimed by the assessee
VI. Profit or gain to be recomputed if inter unit or inter business transfer is not at market value
VII. Assessee duty to place relevant material:
VIII. Deduction to be allowed in respect of net income included in Gross Total Income
IX. Deduction not to be allowed unless return furnished [Section 80AC]-Deduction under section
80H to 80 RRB is not available if return of income is not submitted on or before due date of
return income. [Amended by Finance Act, 2018 w.e.f. 01-04-2018 i.e. AY 2018-19]:

3. DEDUCTION IN RESPECT OF INVESTMENT - [SECTION 80C]

Allowed to Individual or HUF-
i. Life insurance premium-
• Subject to max of 20% of sum assured if policy is issued before April 1, 2012.
• Subject to max of 10% of sum assured if policy issued on or after April 1.2012.
• Subject to max of 15% of sum assured if policy is issued on after April 1.2013 in case of
person with disability.
ii. Any payment made by the individual only to effect or keeps in force a contract of a non-
commutable deferred annuity.
iii. Any sum deducted from salary payable to Government employee for purpose of securing him a
defferd annuity (max 20% of salary)
iv. Any contribution towards
• SPF (individual)
• RPF(individual)
• PPF (individual, HUF)
• APPROVED SUPERANNUATION FUND (individual)
v. Any subscription by an individual or HUF to-
• National Savings Certificates (VIII Issue).
• Notified units of mutual fund or UTI
• Subscription to such bonds issued by the NABARD.
• Any deposit scheme or contribution to any pension fund set up by the National Housing
Bank.
• to any notified deposit scheme of a public sector company which is engaged in providing
long-term finance for construction or purchase of houses in India for residential
purposes; or
• any authority constituted in India by or under any law enacted either for the purpose of
dealing with and satisfying the need for housing accommodation or for the purpose of
planning, development or improvement of cities, towns and villages, or for both;
• to equity shares or debentures forming part of any eligible issue of capital approved by
the Board of wholly public company any public financial institution where such proceeds
are utilized for infrastructure company:
vi. Any contribution by an individual or HUF

• for participation in the Unit Linked Insurance Plan of the Unit Trust of India / LIC Mutual
Fund
vii. Payment made by an individual or HUF to

• Notified annuity plan of the Life Insurance Corporation or any other insurer. New Jeevan
Dhara, New Jeevan Dhara – I and New Jeevan Akshay, New Jeevan Akshay-I and New
Jeevan Akshay-II are the schemes which have been notified:
viii. Any contribution by an individual to a notified pension fund –

ix. Sum paid or deposited in the name of a girl child under SUKANYA SAMRIDDHI ACCOUNT
SCHEME .( Paid by an individual for any girl child of that individual or any girl child for whom
such person is the legal guardian)
x. Any sum paid by an individual as tuition fees provided following conditions are satisfied:
 Such sum should have been paid as tuition fees excluding any payment towards development
fees or donation or payment of similar nature.
 It should have been paid at the time of admission or thereafter.
 It is paid to any university, college, school or other educational institution situated within India.
 It is paid for the purpose of full-time education.
 It is paid for any two children of such individual.
xi. Any payment by an individual or HUF for purchase or construction of a residential house
property, the income from which is chargeable to tax under the head ‘Income from house
property’.
xii. Any sum deposited by individual or HUF-

• for a period of 5 years or more in accordance with scheme framed by central
government.
• Senior Citizens Saving Scheme Rules,
• Five years time deposit in an account under the Post Office Time Deposit Rules, 1981.
I. POINTS TO BE NOTED-
• The deduction is allowed only when the specified amount has been actually paid during
the previous year.
• Maximum deduction ` 150000.
• In case of an Individual, policy should be taken on own life, spouse or any child
(D/ID/M/F/M/M/M/UM).
II. Lock in period in following cases -

i. Life Insurance Policy: The Life insurance policy cannot be surrendered unless premium for 2
years on such policy has been paid.
ii. Housing Loan: The house acquired cannot be transferred before 5 years from the end of
financial year in which the possession of such property is obtained by assessee.
iii. Unit Linked Insurance Plan: The participation in plan cannot be ceased before contribution in
respect of such participation has been paid for 5 years.
iv. Investment in Senior Citizen Saving Scheme / Post office Time Deposit: Such amount, including
interest accrued thereon, shall not be withdrawn by the assessee from his account, before the
expiry of 5 years from the date of its deposit.
III. CONSEQUENCE IN CASE OF VIOLATION OF LOCK IN PERIOD- If the above lock in period is violated,
then entire amount of deduction allowed earlier in any previous year, shall be treated as taxable
income in the year in which default is made.

4. CONTRIBUTION TO CERTAIN PENSION FUNDS [SECTION 80CCC]

i. Allowed to An Individual assessee (NRI also)
ii. It is allowed in respect of any amount paid or deposited in the previous year by such individual to
effect or keep in force a contract for any annuity plan of Life Insurance Corporation of India or any
other insurer for receiving pension from the fund set up by LIC/or any other insurer referred to in
section 10(23AAB).
iii. The amount is paid out of his income chargeable to tax.
Points to be noted-
I. If the assessee or his nominee receives any amount (including interest or bonus), standing to the
credit of the assessee in respect of which deduction under section 80CCC has been allowed to him:
a. on account of the surrender of the annuity plan, whether in whole or in part in any
previous year; or
b. as pension from the annuity plan;
Such amount shall be included in the total income of the assessee or his nominee in the year of receipt.
II. Where deduction has been allowed u/s 80CCC, deduction u/s 80C will not be available in respect of
the payment made towards the annuity plan.
III. Maximum deduction ` 1, 50,000.
5. CONTRIBUTION TO A NATIONAL PENSION SCHEME (NPS) [SEC. 80CCD]

i. What is NPS –
• National Pension Scheme (NPS) is a retirement benefit scheme.
• It is applicable in the case of an employee (CG or any other employer)/ self-employed
ii. Employer's contribution to NPS:

• Employer's contribution to NPS is taxable as salary income in the year of contribution.
iii. Deduction available under section 80CCD(2) in respect of employer's contribution

• Contribution by the employer to NPS is deductible in the hands of the concerned employee in the year in
which contribution is made.
• No deduction is available in respect of employer's contribution, which is in excess of 10 per cent of the
salary of the employee.
iv. Deduction available under section 80CCD(1) in respect of employee's contribution

• Employee's contribution to NPS is deductible in the year in which contribution is made.
• No deduction is available in respect of employee's contribution, which is in excess of 10 per cent of the
salary of the employee.
• If contribution is made by a person (other than an employee), no deduction is available in respect of
his contribution, which is in excess of 20 per cent of his gross total income. (F.A 2017)
• The aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) cannot exceed ` 1,50,000.
• However employers contribution towards NPS ( to the extent of 10% of employees salary) shall not be
considered for the ceiling of ` 1,50,000.

v. ADDITIONAL DEDUCTION OF `50000 UNDER SECTION 80CCD(1B)-

I. From AY 2016-17 a new sub section( 1B) has been inserted in section 80CCD so as to provide an
additional deduction in respect of any amount paid upto ` 50000 for contributions made by an
individual assessee under the NPS.
II. On this additional contribution the ceiling ` 1, 50,000 is not applicable.
vi. What is tax treatment of pension:

a) If, the amount of pension received from NPS is used for purchasing an annuity plan in the same previous
year, then it will be exempt from tax.
b) If the salaried employee /self employed individual passes away, any amount received from NPS by the
nominee/legal heir is not taxable.
c) In other case
PARTICULARS SALARIED EMPLOYEE SELF EMPLOYED
Partial withdrawals Any payment from the NPS Trust to an employee under the Fully taxable
during continuity of pension scheme referred to in section 80CCD, on partial
account withdrawal made out of his account in accordance with the
terms and conditions, specified under the Pension Fund
Regulatory and Development Authority Act, 2013 (23 of 2013)
and the regulations made there under, to the extent it does not
exceed twenty-five per cent of the amount of contributions
made by him; 10(12B)
Withdrawals on closure Exemption of 40% available u/s 10(12A). Balance 60% Withdrawal fully taxable
of Account amount taxable in the withdrawal
NOTE- As per FA 2016 any payment from approved superannuation fund made by way of transfer to account of
employee under pension scheme referred to in section 80CCD shall be exempt under section 10
vii. What is "salary"-
6. INVESTMENT UNDER ANY EQUITY SAVING SCHEME - [SEC. 8O CCG]

A. Conditions:
i. The assessee is a resident individual (maybe ordinarily resident or not ordinarily resident).
ii. His gross total income does not exceed ` 12 lakhs.
iii. He has acquired listed shares or units in listed units of equity oriented fund in accordance
with a notified scheme.
iv. The assessee is a new retail investor as specified in the above notified scheme.
v. The investment is locked-in for a period of 3 years from the date of acquisition in
accordance with the above scheme.
vi. The assessee satisfies any other condition as may be prescribed.
B. Amount of deduction:
• Deduction is 50 per cent of amount invested in equity shares or ` 25,000 (W.e.l)
• The deduction shall be allowed for 3 consecutive assessment year beginning with the
assessment year relevant to the previous year in which the listed equity shares or units were
first acquired.
C. Consequence if above conditions is not satisfied.

7. DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIA [SEC. 80D]
8. MEDICAL TREATMENT OF A DEPENDENT BEING A PERSON WITH

DISABILITY - [SEC. 8ODD]
A. Conditions:
I. Allowed to resident individual or a resident HUF.
II. If he/it has incurred an expenditure for the medical treatment (including nursing), training
and rehabilitation of a dependent relative (being a person with a disability).
III. Deduction can also be claimed, if the resident individual/HUF has paid or deposited under
any approved scheme of LIC (or any other insurer) or UTI for the maintenance of such
dependent relative.
IV. For claiming the above deduction, the assessee should have a certificate issued by the
medical authority
B. AMOUNT OF DEDUCTION-
I. A fixed deduction of ` 75,000 is available.
II. A higher deduction of ` 1,25,000 lakh is available if such dependent relative is
suffering from a severe disability (i.e., having disability of 80 per cent or above).
III. Deduction under this section is available regardless of actual expenditure.
C. “Dependant” means -
I. In the case of an individual, the spouse, children, parents, brothers and sisters of the individual or
any of them.
II. HUF-

PROBLEM:1 X (age : 36 years), a resident individual, has income of ` 7,40,000 (i.e., ` 4,45,000 from a
business in Delhi and ` 2,95,000 from a property in Bombay) during the previous year 2018-19. Find
out his net income and tax liability for the assessment year 2019-20-
`
1. Life insurance premium on own life (policy since 2011) paid by X in cash on March 31,2019
(sum assured ` 2,00,000) 33,334
2. Contribution towards pension fund of LIC 11,000
3. Mediclaim insurance premium on the life of dependent father (age :64 years and last foreign
travel : during 1996-97) paid by cheque on April 20, 2018 29,000
4. Mediclaim insurance premium on the life of dependent handicapped brother paid by cheque
on April 26, 2018 7,000
5. Medical treatment of dependent brother (being a person with disability) 5,000
6. Deposit with LIC for the maintenance of the dependent brother (being a person with
disability) 20,000
ANSWER:1 Net income- ` Tax
9. DEDUCTION IN RESPECT OF MEDICAL TREATMENT, ETC. [SECTION 8ODDB]

A. Conditions-
I. Allowed to resident individual or a resident HUF.
II. Deduction is allowed in respect of any expenditure actually incurred for the medical treatment of
the following persons for such disease or ailment as may be specified in the rules made in this behalf
by the Board:
In the case of individual - for himself or a dependent
In the case of HUF - for any member of the HUF
III. For claiming the deduction, the assessee should furnish a certificate in the prescribed form (Form No
10-I) from a neurologist, an oncologist, a urologist, a hematologist, an immunologist or such other
specialist, as may be prescribed, working in a Government hospital.
B. Quantum of deduction:
I. Actual expenditure on medical treatment or ` 40,000 (` `100000 Senior citizen), whichever is
lower, is deductible.
II. Deduction under this section shall be reduced by the amount received, if any, under insurance from
an insurer, or reimbursed by an employer, for the medical treatment of the person referred to
above.

PROBLEM:2 Find out the amount of deduction under section 80DDB in the following cases -
Name of the taxpayer X Y Z A B
Residential status of the taxpayer Resident Resident Resident Residential N-R
Expenditure incurred on medical 90,000 26,000 60,000 1,00,000 34,000

treatment of dependent mother in a
hospital recognized by the Chief
Commissioner (amount in rupees)
Age of mother 89 years 59 years 64 years 63 years 65 years
Residential status of dependent mother Resident NR Resident NR Resident
Whether the disease is specified under Yes Yes Yes Yes Yes
rule mode by the Board
Amount received from insurance 4,000 14,000 70,000 15,000 7,000

company(amount in rupees)
Amount received from the employer of 2,000 3,000 4,000 20,000 16,000
the taxpayer (amount in rupees)
ANSWER:2
10. DEDUCTION FOR INTEREST PAID ON LOAN TAKEN FOR PURSUING

HIGHER EDUCATION [SECTION 80E]
A. Conditions:
I. Allowed to individual only.
II. The individual must have taken a loan from any
 financial institution, or any
 approved charitable institution
III. The loan must have been taken for pursuing higher education.
IV. Such education must be of assessee himself or any of his relatives.
V. Such amount should be paid out of his income chargeable to tax.
VI. Deduction shall be allowed for 8 assessment years starting from the assessment year in
which the assessee starts paying the interest on loan, or until the interest thereon is paid by
the assessee in full, whichever is earlier
I. The amount paid during previous year towards interest.
C. Meaning of relative:
I. Relative in relation to an individual means the spouse and children of that individual or the
student for whom the individual is a legal guardian.

PROBLEM:3 X has taken three education loans on 1stMarch, 2019. The details of which are given below
Loan 1 Loan 2 Loan 3
For whose education loan was taken X X Daughter of X
Purpose of loan Full time MBA` Part time MCA` Full time MBA`
Amount of loan 6,00,000 3,00,000 5,00,000
Annual repayment of loan during the 1,00,000 50,000 1,00,000
previous year 2018-19
Annual payment of interest during the 60,000 40,000 55,000
previous year 2018-19
ANSWER:3
11. DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR

RESIDENTIAL HOUSE PROPERTY- SECTION 80EE
A. Conditions-
I. Allowed to Individual (Resident or Non resident)
II. He has taken a loan .
III. Loan is taken for acquisition or residential house property.
IV. Loan is taken from Bank/Housing finance company.
V. Loan has been sanctioned by the bank/housing finance company during April 2016-17
VI. The amount of loan sanctioned for residential property does not exceed `35 Lakhs.
VII. The value of residential property does not exceed `50 lakhs.
VIII. The assessee does not own any residential house property on the date of sanction of loan.
B. AMOUNT OF DEDUCTION-
I. Deduction is available in respect of INTEREST Paid or ` 50000 whichever is less.
12. DONATIONS TO CERTAIN FUNDS, CHARITABLE INSTITUTIONS, ETC.

[SECTION 80G]

PROBLEM:4 X (34 years), a resident individual, submits the following particulars of 2018-19:
`
Business income 83,000
Interest on debentures 49,000
Long-term capital gains on transfer of gold 4,10,000
Short-term capital gain on sale of shares taxable under section 111A 20,000
Other short-term capital gain 10,000
Contribution towards public provident fund 40,000
Payment of medical insurance premium on own life 3,000
Donation by cheque to clean Ganga fund 4,000
Donation to cheque by Swach bharat kosh 3,000
Donation to Rajiv Gandhi Foundation 1,000
Donation to the Prime Minister's Drought Relief Fund 5,000
Donation to approved public charitable institution 11,000
Donation to a poor boy for higher education 5,000
Donation of clothes to an approved institution 12,000
Donation to a charitable institution for construction of a rest house only for a particular
religious community 8,000
Determine the net income of X for the assessment year 2019-20.

ANSWER:4

13. DEDUCTIONS IN RESPECT OF RENT PAID [SECTION 8O GG]

A. Conditions-
I. Allowed to Individual only.
II. The individual should pay rent for his residential accommodation, whether furnished or unfurnished.
III. The individual is either a self-employed person or if he is an employee, he is neither entitled to any
house rent allowance nor a rent-free accommodation.
IV. The individual his or her spouse or minor child or a HUF of which he/she is member, does not own
any residential accommodation at the place where such an assessee ordinarily resides or at the place
where he works or carries on his business or profession.
V. If the assessee i.e. the individual owns any residential accommodation at any place, other than the
place of residence or work of the assessee, then such property should not be assessed in the hands
of the individual as self-occupied property.
VI. Such individual should fulfill such other conditions or limitations as may be prescribed,
having regard to the area or place in which such accommodation is situated and other
relevant considerations.
VII. The assessee must file a declaration in Form No. 10BA along with the return of income to
claim deduction under section 80GG.
B. Quantum of deduction: The deduction shall be the minimum of the following amounts:
 Excess of rent paid over 10% of 'Adjusted Total Income';
 25% of the "Adjusted Total Income";
 ` 5,000 per month.( FA-2016)
PROBLEM:5 Mr. X has income under the head Business/Profession Rs. 5,00,000 and LTCG of Rs.
2,00,000, STCG u/s 111A Rs. 3,00,000 and casual income of Rs. 1,00,000. He is paying rent for a house
of Rs. 40,000 p.m. He has deposited Rs. 30,000 in home loan account scheme of National Housing Bank.
He has complied with all the condition of section 80GG. Compute income tax liability for A.Y. 2019-20.
ANSWER:5
PROBLEM:6 Mr. X is a retired Government officer aged 65 years, who derived the following income in
respect of financial year 2018-19. He resides in Cochin:
Rs.
Pension 1,95,000
Interest from hank deposits (fixed deposits) 1,52,000
Total income 3,47,000
He has paid Rs. 18,000 as premium lo effect an insurance on his health and his dependant parents and ii
was paid by a cheque. He pays a rent of Rs. 3,000 per month in respect of furnished accommodation. What
is his eligibility for deduction under Section 80GG? Compute his total income and tax liability for
assessment year 2019-20. What are the conditions to be satisfied by him to qualify for the deduction?
ANSWER:6

14. SCIENTIFIC RESEARCH OR RURAL DEVELOPMENT [SECTION 80GGA]

A. Conditions
i. Allowed to an assessee whose “Gross Total Income” does not include income chargeable under the
head “profits and gains of business or profession”.
ii. The deduction is available in respect of the payments made during the previous year to the
following institutions :
 to an approved research association, university, college or other institution to be used for
scientific research (Business assessee were allowed this deduction u/s 35);
 to an approved research association which has as its objects the undertaking of research
in social sciences or statistical research or to university, college or other institution for
research in social science or statistical research (Business assessee were allowed this
deduction u/s 35);
 to an association or institution engaged in any approved programe for rural development,
or which is engaged in training of persons for implementation of rural development
programe, or to a notified rural development fund or to the notified National Urban
Poverty Eradication Fund
 to a public sector company or a local authority, or to an association or institution
approved by the National Committee, for carrying out any eligible project or scheme
I. 100% of the sum paid to the above institutions.
POINT TO BE NOTED-
• Cash donation exceeding ` 10000 are not eligible for deduction under section 80GGA
15. CONTRIBUTIONS GIVEN TO POLITICAL PARTIES-80 GGB & 80GGC

16. DEDUCTION IN RESPECT OF ELIGIBLE START-UPS [SECTION 80-IAC]

A. ALLOWED TO-
I. Assessee is a Company or LLP
II. Eligible business" means a business carried out by an eligible start up engaged in
innovation, development or improvement of products or processes or services or a
scalable business model with a high potential of employment generation or wealth
creation
III. Eligible start-up" means a company or a limited liability partnership engaged in eligible
business which fulfils the following conditions, namely: —
a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of
April, 2021;
b) the total turnover of its business does not exceed twenty-five crore rupees in the
previous year relevant to the assessment year for which deduction under sub-
section (1) is claimed; and
c) it holds a certificate of eligible business from the Government.
B. CONDTITION FOR DEDUCTION-

I. it is not formed by splitting up, or the reconstruction, of a business already in existence. Provided
that this condition shall not apply in respect of a start-up which is formed as a result of the re-
establishment, reconstruction or revival by the assessee of the business of any such undertaking as
referred to in section 33B, in the circumstances and within the period specified in that section;
II. It is not formed by the transfer to a new business of machinery or plant previously used for any
purpose.
Exceptions:
a) Imported plant and machinery that was not previously used in India, and no deduction on account of
depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of
this Act in computing the total income of any person for any period prior to the date of the installation of
machinery or plant by the assessee.
b) Where the total value of the machinery or plant or part previously used for any purpose does not
exceed 20% of the total value of the machinery or plant used in the business.
C. Amount of Deduction:- 100% of the profits and gains derived from such business
D. Time for deduction:- Any 3 consecutive assessment years out of 7 years beginning from the year in
which the eligible start-up is incorporated.(F.A 2017)

17. DEDUCTION IN RESPECT OF PROFITS AND GAINS FROM CERTAIN

INDUSTRIAL UNDERTAKING OTHER THAN INFRASTRUCTURE
DEVELOPMENT UNDERTAKING SECTION 80IB
S.NO Eligible Business Deduction
I. Undertaking located in Industrially backward state specified in
8th schedule
a) Notified Industries in north eastern region. 100% for 10 years.
b) Any other case 100% for first 5 years and 25% for
Next 5 years.
II. Undertaking engaged in the business of processing, 100% for first 5 years and 25% for
preservation and packaging of fruits or vegetables or in the Next 5 years.
integrated business of handling, storage and transportation of
food grains.
III. Indian company carrying on Scientific research and Development 100% for 10 years.
IV. Production or refining of mineral oil. 100% for 7 years

V. Undertaking operating and maintain a hospital in any other area 100% for 5years
other than excluded area
NOTE-In case of a company deduction will be 30% instead of 25% and in case of Co-operative society the
total period will be 12 years.
18. DEDUCTIONS IN RESPECT OF PROFITS AND GAINS FROM HOUSING

PROJECTS [NEW SECTION 80-IBA] EFFECTIVE FROM: A.Y.2017-18.
A. Assessee:- Any assessee carrying out Housing Projects. (Nothing contained in this section shall
apply to any assessee who executes the housing project as a works-contract awarded by any person
(including the Central Government or the State Government)
B. CONDITIONS-
I. The project is approved by the competent authority after the 1st day of June, 2016, but on or
before the 31st day of March, 2019;
II. The project is completed within a period of 5 years from the date of approval by the competent
authority:
Provided that,—
a) where the approval in respect of a housing project is obtained more than once, the project
shall be deemed to have been approved on the date on which the building plan of such
housing project was first approved by the competent authority; and
b) the project shall be deemed to have been completed when a certificate of completion of
project as a whole is obtained in writing from the competent authority;
III. the Carpet area of the shops and other commercial establishments included in the housing project
does not exceed 3% of the aggregate Carpet up area;
IV. the project is the only housing project on the plot of land;

V. where a residential unit in the housing project is allotted to an individual, no other residential unit
in the housing project shall be allotted to the individual or the spouse or the minor children of such
individual;
VI. he assessee maintains separate books of account in respect of the housing project
VII. Conditions relating to size of plot of land, residential units etc.
LOCATION OF PROJECT AREA OF PLOT AREA OF UTILISATION OF FAR
OF LAND ON RESIDENTIAL UNIT
WHICH IN HOUSING
PROJECT IS PROJECT
SITUATED
a) C/D/M/K Not less than Not to exceed 30 Not less than 90%
1000 sq meter. sq meter
b) Other Not less than Not to exceed 60 Not less than 80 %
2000 sq meter. sq meter
C. Amount of deduction:- 100% of Profit and Gains derived from such business.
D. Consequence of non-completion of housing project within 5 years: In a case where the housing
project is not completed within the period of 5 years from the date of approval by the competent authority
and in respect of which a deduction has been claimed and allowed under this section, the total amount of
deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of
the assessee chargeable under
19. BUSINESS OF COLLECTING & PROCESSING OF BIO-DEGRADABLE

WASTE [SECTION 80JJA]
A. Conditions:
I. Allowed to any taxpayer.
II. Where the gross total income of an assessee includes any profits and gains derived from the
business of collecting and processing or treating of bio-degradable waste for:
 generating power, or
 producing, bio-fertilizers, bio-pesticides or other biological agents, or
 producing bio-gas, or
 making pellets or briquettes for fuel,
 organic manure,
III. Deduction should be claimed in return of Income
I. 100% profit from above activity is deductible for first 5 years.

20. EMPLOYMENT OF NEW WORKMEN [SECTION 80JJAA]

A. Assessee: Any Assessee, to whom section 44AB applies.
B. Amount of deduction: 30% of additional employee cost incurred in course of business in the
previous year for 3 assessment years including the assessment year relevant to the previous year
in which such employment is provided
C. Condition for deduction:

a) Business is not formed by splitting up, or the reconstruction, of an existing business:
Provided that nothing contained in this clause shall apply in respect of a business which is formed as a
result of re-establishment, reconstruction or revival by the assessee of the business in the circumstances
and within the period specified in section 33B;
b) Business is not acquired by the assessee by way of transfer from any other person or as a result of any
business reorganization;
c) Assessee shall furnishes along with the return of income the report of the accountant, as defined in the
Explanation to section 288 giving such particulars in the report as may be prescribed.
i) additional employee cost" means total emoluments paid or payable to additional employees
employed during the previous year:
Provided that in the case of an existing business, the additional employee cost shall be nil, if—
(a) there is no increase in the number of employees from the total number of employees
employed as on the last day of the preceding year;
(b) emoluments are paid otherwise than by an account payee cheque or account payee bank
draft or by use of electronic clearing system through a bank account:
Provided further that in the first year of a new business, emoluments paid or payable to
employees employed during that previous year shall be deemed to be the additional employee
cost;
(ii) "additional employee" means an employee who has been employed during the previous year and
whose employment has the effect of increasing the total number of employees employed by the
employer as on the last day of the preceding year, but does not include,—
(a) an employee whose total emoluments are more than twenty-five thousand rupees per
month; or
(b) an employee for whom the entire contribution is paid by the Government under the
Employees' Pension Scheme notified in accordance with the provisions of the Employees'
Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952); or
(c) an employee employed for a period of less than two hundred and forty days during the
previous year; (150 days if the assessee is engaged in the business of manufacturing of
apparel or footwear or leather products from AY 2019-20.
(d) an employee who does not participate in the recognised provident fund;
(iii) "emoluments" means any sum paid or payable to an employee in lieu of his employment by
whatever name called, but does not include—
(a) any contribution paid or payable by the employer to any pension fund or provident fund or
any other fund for the benefit of the employee under any law for the time being in force;
and
(b) any lump-sum payment paid or payable to an employee at the time of termination of his
service or superannuation or voluntary retirement, such as gratuity, severance pay, leave
encashment, voluntary retrenchment benefits, commutation of pension and the like.

21. OFFSHORE BANKING UNITS AND INTERNATIONAL FINANCIAL SERVICES

CENTRE [SECTION 80LA]-
A. Conditions-
I. The deduction will be allowed to an assessee:
 Scheduled bank, or Foreign bank and having an Offshore Banking Unit in a Special
Economic Zone; or
 Unit of an International Financial Services Centre.
II. The deduction will be allowed on account of the following income included in the gross total
income of the assessee:
 from an offshore banking unit in a Special Economic Zone;
 from the business, referred to in section 6(1) of the Banking Regulation Act, 1949, with
an undertaking located in a Special Economic Zone or any other undertaking which
develops, develops and operates or operates and maintains a special Economic Zone;
 From any unit of the International Services Centre from its business for which it has been
approved for setting up in such a Centre in a Special Economic Zone.
III. a report of a chartered accountant in Form No. 10CCF, certifying that the deduction has been
correctly claimed in accordance with the provisions of this section; and
IV. A copy of the permission obtained u/s 23(1)(a) of the Banking Regulation Act, 1949 in case of a
Offshore Banking Unit.
I. 100% of such income for 5 consecutive assessment years
II. 50% of such income for the next 5 consecutive assessment years.
C. “Offshore Banking Unit”
I. Means a branch of a bank located in a Special Economic Zone and which has obtained
the permission under clause (a) of sub-section (1) of section 23 of the Banking
Regulation Act, 1949 [Section 2(u) of the Special Economic Zones Act, 2005].
D. “International Financial Services Centre”

I. Means an International Financial Services Centre which has been approved by the
Central Government under sub-section (1) of section 18 of the Special Economic Zones
Act, 2005. [Section 2(q) of the Special Economic Zones Act, 2005]

22. ROYALTY INCOME, ETC., OF AUTHORS OF CERTAIN BOOKS OTHER THAN

TEXT BOOKS [SECTION 80QQB/80RRB
A. Conditions:
I. Allowed to an individual who is resident in India. He is an author or joint author
II. The book should be a work of literary, artistic or scientific nature.
III. “Books” shall not include brouchers, commentaries, dairies, magazines, journals, newspapers,
pamphlets, text books for schools, tracts and other publications off similar nature, by whatever name
called;
IV. The income must be derived by him in the exercise of his profession.
V. The income must be either:
 on account of any lump sum consideration for the assignment or grant of any of his interests in
the copyright of such book, or
 of royalty or copyright fees (whether receivable in lump sum or otherwise)
VI. The taxpayer shall have to obtain certificate in Form no 10CCD from the person responsible paying the
income.
VII. Where the eligible income is earned outside India, deduction is not available unless such income is
brought into India in convertible foreign exchange on or before 30th September of the AY.
VIII. A certificate of foreign inward remittance should be taken in form no 10H from prescribed authority.(i.e.
RBI ).
IX. Deduction should be claimed in return of income.
i. 100% of such income or ` 300,000, whichever is less.
ii. Where the income by way of such royalty or the copyright fee is not a lump sum consideration
in lieu of all rights of the assessee in the book, then such royalty, etc., before allowing
expenses-excess of 15% of the value of such books sold during the previous year, shall be
ignored.
23. INTEREST ON DEPOSITS IN SAVINGS ACCOUNTS - [SEC. 80TTA]

A. Conditions:
I. Allowed to Individual or HUF
II. In respect of any income by way of interest on deposits (not being time deposits) in a savings
account with –
• a banking company;/a co-operative society engaged in carrying on the business of banking or
• A post office.
• 100% of such income or ` 10000 whichever is less.
POINT TO BE NOTED-
I. From AY 2019-20 the above deduction is not available in case of senior citizen who is eligible to
claim deduction under section 80TTB.
II. No deduction in case of account held by/ on behalf of Firm/ AOP/ BOI: Where the interest income is
derived from any deposit held by, or on behalf of, a firm, an association of persons or a body of
individuals, no deduction shall be allowed under this section in respect of such income in
computing the total income of any partner of the firm or any member of the association or any
individual of the body

24. DEDUCTION IN RESPECT OF INTEREST ON DEPOSITS IN CASE OF

SENIOR CITIZENS.
1) Eligible Assessee : Individual being senior citizen i.e. resident individual who is of the age of 60
years or more at any time during the relevant previous year.
2) Eligible Income: Any income by way of an interest on deposits with, -

I. a banking company to which the Banking Regulation Act, 1949, applies (including any bank or
banking institution referred to in Section 51 of that Act);
II. a co-operative society engaged in carrying on the business of banking (including a co-operative
land mortgage bank or a co-operative land development bank); or
III. a post office.
3) Amount of deduction: Lower of the following -

(i) 100% of such interest income on deposits; or
(ii) Rs. 50,000.
4) No deduction in case of account held by/ on behalf of Firm/ AOP/ BOI: Where the interest income
is derived from any deposit held by, or on behalf of, a firm, an association of persons or a body of
individuals, no deduction shall be allowed under this section in respect of such income in
computing the total income of any partner of the firm or any member of the association or any
individual of the body
25. DEDUCTION IN CASE OF A PERSON WITH DISABILITY [SECTION 80U]

A. Conditions:
i. Allowed to Individual (resident in India)
ii. The taxpayer suffers 40% or more of any disability
iii. He is certified by the medical authority to be a person with disability, at any time
during the previous year.
iv. He furnishes a certificate issued by the medical authority in the form and manner, as
may be prescribed, along with the return of income under section 139, in respect of
the assessment year for which the deduction is claimed.
i. 75,000 in case of a person with disability.
ii. ` 1,25,000 in case of a person with severe disability (80% or above)

ADVANCE TAX & INTEREST -(CS-EXECUTIVE) Page 156
1. ADVANCE TAX
i. Under the scheme of advance payment of tax (pay-as-you-earn), an assessee is required to pay tax
in a particular financial year, preceding the assessment year, on the basis of his estimated income.
ii. This would mean that though the income earned during the previous year 2018-19 is taxable, in
the assessment year 2019-20, tax on such income is payable during the financial year 2018-19
under the scheme of advance payment of tax.
iii. Section 209 requires an assessee to estimate his current year income to arrive at the tax liability for
the current year.
iv. Advance tax liability is calculated as follows-
Particulars Amount
Estimated Gross Total Income ****
Less: Deduction under chapter VIA ****
Estimated Total Income ****
Gross tax liability on Estimated Total Income ****

Less-Rebate -87A ****
Tax liability after rebate ****
Add: Surcharge (if applicable)
Add: HEC ****
Tax liability after SC & HEC ****
Less- Relief u/s 90
Less- Relief u/s 90A
Less- Relief u/s 91
Less-CREDIT U/S 115JAA (MAT CREDIT)
Less- CREDIT U/S 115JD (AMT CREDIT)
Less- TDS/TCS ****
Advance tax liability ( ` 10000 or More) ****
2. WHEN A PERSON BECOMES LIABLE TO PAY ADVANCE TAX – SEC 208

I. APPLICABLE-Every person is liable to pay advance tax if advance tax payable is ` 10,000 or more. All
items of income are liable for payment of advance tax.
II. NOT APPLICABLE- A senior citizen (i.e., a resident individual who is at least 60 years of age at any
time during the financial year) not having any income from business /profession, is not liable to
pay advance tax
SALEEM QURAISHEE - Mo: 9175664444 INSPIRE ACADEMY-8888881719

3. WHEN ADVANCE TAX PAYMENT BECOMES DUE- SECTION 211

Advance tax is payable as follows:
FOR AN ASSESSEE (EXCEPT 44AD/44ADA
44AD/44ADA
On or before June 15 of the previous Up to 15 per cent of advance tax

year payable
On or before September 15 of the Up to 45 per cent of advance tax

previous year payable
On or before December 15 of the Up to 75 per cent of advance tax

previous year payable
On or before March 15 of the Up to 100 per cent of advance Up to 100 per cent of advance
previous year tax payable tax payable
i. Any payment of advance tax made before March 31 shall be treated as advance tax paid during the
financial year.
ii. If the last day for payment of any installment of advance tax is a day on which the receiving bank is
closed, the assessee can make the payment on the next immediately following working day, and in
such case, the mandatory interest leviable under sections 234B and 234C would not be charged
iii. Eligible assessee computing profits on presumptive basis under section 44AD/44ADA to pay
advance tax by 15th March
4. INTEREST FOR DEFERRMENT OF ADVANCE TAX -SECTION 234C

A. In case of assessee other than those covered under section 44AD-
CONDITIONS RATE MONTHS AMOUNT ON WHICH
INTEREST PAYABLE
i. Where advance tax paid on or before 15th June is 1% p.m 3 15% of the tax due on
less than 12% of tax due on returned income returned income less
advance tax paid upto 15th
June.
1% p.m 3 45% of the tax due on
ii. Where advance tax paid on or before 15th returned income less
September is less than 36 % of tax due on returned advance tax paid upto 15th
income September
iii. Where advance tax paid on or before 15th December 1% p.m 3 75% of the tax due on
is less than 75 % of tax due on returned income returned income less
December
iv. Where advance tax paid on or before 15th March is 1% p.m 1 100 % of the tax due on
less than 100 % of tax due on returned income returned income less
March

B. Assessee covered under section 44AD/44ADA

CONDITIONS RATE MONTHS AMOUNT ON WHICH
INTEREST PAYABLE
Where advance tax paid on or before 15th March is less than 1% p.m. 1 100 % of the tax due on
100 % of tax due on returned income returned income less
advance tax paid up to
15th March
5. INTEREST PAYABLE BY/TO ASSESSEE.
SECTIONS PARTICULARS INTEREST
201(1A) Interest for failure to deduct and pay tax at source Simple interest
@1%/1.5% per
month
220(2) Interest for late payment of demand of tax etc. Simple interest
@1% per
month
234A 1) When interest payable u/s 234A 1% per month
 Interest is payable u/s 234A if a person has discharged his income tax or part of a
liability after the last date of filing of return of Income. month.
2) Period for which interest is payable-
 Period subsequent to the last date of filing the return of income and
ending with the date of payment of Income tax
234B 1) When interest payable u/s 234B 1% per month

 Interest is payable u/s 234B if a person has not discharged at least 90% of or part of a
his tax liability till the last date of relevant PY- month.
2) Period for which interest is payable-
 Period starting from 1st April of the AY and ending with date of payment of
income tax.
234D Interest on excess refund granted at the time of summary assessment Simple interest
@0.5% per
month of the
excess amount
so refunded
234E Fee for delay in furnishing in TDS/TCS statement `200per day
244A Interest payable to assessee (Detailed discussion in chapter of Refund) Simple

interest
@0.5%

PROBLEM:1 Find out the amount of advance tax payable by ABC Ltd. on specified dates for the F.Y.
2018-19:
Business income ` 1,75,000

Long term capital gain on 31-7-2018 ` 2,50,000
Bank interest ` 10,000
TDS on business income ` 19,995
ANSWER:1
PROBLEM:2 R estimates its income for the previous year 2018-19 at ` 490000. Besides this income,
it has also earned long-term capital gain ` 80,000 on transfer of gold on 1-12-2018. Compute the
advance tax payable by the R in various installments.
ANSWER:2
PROBLEM:3 ATUL limited has estimated its Tax liability for AY 2019-20 ` 4,40,000 and has paid advance
tax accordingly but actual tax liability was found to be `10,00,000.The company has paid balance
amount on 02-01-2020 and filed return of income on the same date .Compute interest payable under
section 234A/B/C ?
ANSWER:3
PROBLEM:4 ABC Ltd has tax liability of ` 700,000 for PY 2018-19 and company has not paid any
advance tax and entire tax amount was paid by the company on 31-12-2019 Compute interest under
234A/B/C ?
ANSWER:4
PROBLEM:5 ABC Ltd has estimated tax payable to be `500,000 for PY 2018-19 and has paid advance tax
accordingly but actual tax liability of Company found to be `550000 and difference of tax amount was
paid on 10-12-2019. Compute interest under 234A/B/C?
ANSWER:5

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CS-EXECUTIVE TAX LAWS – MARATHON- BY SALEEM QURAISHEE

The Law stated in this book is amended

ASSESSMENT YEAR 2019-20

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

MODULE- 1 TAX LAWS (PAPER-4)

S.NO CHAPTER PAGE-NO

1) BASIC CONCEPTS 1-6

2) AGRICULTURE INCOME 7-9

3) INCOME FROM SALARY 10-37

4) INCOME FROM HOUSE PROPERTY 38-46

5) PROFITS AND GAINS OF BUSINESS PROFESSION 47-83

6) CAPITAL GAINS 84-119

7) INCOME FROM OTHER SOURCES 120-129

8) CLUBBING OF INCOME 130-132

9) SET OFF AND CARRY FORWARD OF LOSSES 133-136

10) DEDUCTIONS 137-155

11) ADVANCE TAX 156-159

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

1. COMPUTATION OF TOTAL INCOME AND TAX LIABILITY-

COMPUTATION OF TAX LIABLITY

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

2. ROUNDING-OFF OF INCOME AND TAX (SEC. 288A & 288B)

3. WHAT IS AMALGAMATION [SEC.2 (18)]

4. WHAT IS "DEMERGER" [SEC.2 (19AA)].

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

5. TAX RATES- (AY -2019-20)- FINANCE ACT 2018

A. INDIVIDUAL/HUF/AOP/BOI/ARTIFICIAL JUDICIAL PERSON-

3. SURCHARGE- @10 % OF TAX IF T.I EXCEEDS 50 LAKHS but do no exceeds 1Cr.

4. H & EC- @ 4% of (Tax + SC)

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

B. FIRM(INCLUDING LLP)/LOCAL AUTHORITY

2) Any other Domestic Company -30%

5) H &EC- @ 4% of (Tax + SC)

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

 SPECIAL RATES OF TAX-( FIXED BY INCOME TAX ACT)

112A Long term capital gains on transfer of – 10%

115BBG Income from transfer of carbon credits- 10%

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

SALEEM QURAISHEE-9175664444 INSPIRE ACADEMY-8888881719

2. AGRICULTURAL INCOME- [SECTION 2(1A)]

b) Income from Agricultural Operations - Section 2(1 A)(b)-

c) INCOME FROM FARM BUILDING - SECTION 2(1 A)(C)

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

3. TAX TREATMENT OF AGRICULTURAL INCOME-

B. Agricultural Income Earned in India:

CASE-1 Company Carrying on Agricultural Operations:

CASE-2 Partnership Firm Carrying on Agricultural Operations:

CASE-3 Salary Received by a Person Employed in Agricultural University:-Where any person is

4. PARTIALLY AGRICULTURAL AND PARTIALLY FROM BUSINESS-

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

5. TAX ON NON-AGRICULTURAL INCOME IF THE ASSESSEE EARNS

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

4. SALARY UNDER SECTION 17(1)-

5. PLACE OF ACCRUAL OF SALARY -

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

6. KEYMAN INSURANCE POLICY

7. BASIS OF CHARGE OF SALARY INCOME-SECTION 15

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

8. ADVANCE SALARY V/S ADVANCE AGAINST SALARY

B. Advance Against Salary:

SALEEM QURAISHEE Mo: 9175664444 INSPIRE ACADEMY-8888881719

17. HOW TO COMPUTE SALARY INCOME-