Income Tax Revision

THIS REVISION BOOK HAS BEEN A
REALITY ONLY BECAUSE OF MY

FAMILY & STUDENTS.
CA SURAJ AGRAWAL
PREFACE
Taxation is a dynamic subject, which is not only a vast subject but also difficult to
comprehend in view of frequent amendments. Yet it is the scoring subject of your
syllabus. In addition, practice in the field of Taxation is also highly remunerative.
My association with the students has helped me to bring this book in its present form –
simplified, comprehensive and easy to understand.
The present edition of this book is designed to bridge the gap between theory &
applications and incorporates the following:
Updated with Finance Act 2018 (Assessment Year 2019-20) applicable for
2019 Exams
Covers entire Income Tax syllabus with Chapter-wise short notes
Contains more than 100 important practical problems with solutions
Hope this book serves the purpose of the students. I shall be thankful to the readers for
their suggestions, criticism and feedback if any.
Email: suraj.agrawal@hotmail.com
Contact: 9953006445 (Whatsapp / SMS only); 01147542530
ACKNOWLEDGEMENT
This book is a result of sincere efforts of our family members, colleagues, associates,
well-wishers and students, whose contribution cannot go unacknowledged.
Master Reyaan, my wife CA Monika Agrawal and my mother deserve special mention
for the time (on which they had the first right) they allowed me for this book.
I dedicate this book to my beloved late grandparents & Papa.
CA Suraj Agrawal
Updated as on 23.04.2019
“One more step towards success”

THANK YOU!
ALL THE BEST FOR YOUR EXAM!!
https://www.youtube.com/channel/UCv-ybxFp_X9EWiei7YhZQmw
PROFILE – CA SURAJ AGRAWAL
CA Suraj Agrawal is a Commerce Graduate [B.Com (H)] from Kolkata University and has
qualified CA in November 2005 in First Attempt from Kolkata. He has also secured All India 27th
Rank in CA-Foundation – 1st level (First Attempt – 70% marks).
Besides CA, he has completed Certification Course of International Taxation of the ICAI in
2009. He has also qualified CPA (Certified Public Accountant) examination from AICPA
(USA) in 2009 with more than 90 Marks in each of four papers in First Attempt [Presently, he is
inspired to complete CIMA, London as well as LLM in International Taxation (UK) by Year
2024]
He started his career by joining Direct Tax Department of Reliance Industries Limited,
Mumbai and worked for near 2 years in core tax team. He has also worked in Taxation Division
of Chaturvedi & Shah (Chartered Accountants), Delhi followed by Tax Division of Ernst &
Young, Gurgaon, India (A Leading Big 4 Firm having International Presence). During the
working tenure of more than 4 years, he is exposed to in-depth theoretical and practical
knowledge of Direct Taxation & has a consultancy exposure in various industries including
Energy - Oil & Gas, Airlines, Retail, Infrastructure and Shipping Industries.
With the above academic and practical knowledge, he is in teaching profession from more than
10 years to serve professional students (taught 14,000 CA/CMAs Students till date). His in-
depth coverage of legal provisions in Tax with practical approach is very well recognized
among the students. He is also an associate member of ICAI and is also providing services as
Tax Consultant to various organisations.
He was also a member in WTO, FEMA & International Tax Study Group of the NIRC of the
ICAI for the year 2011-12 and was member of International Taxation & FEMA Research
Study Group of NIRC of the ICAI for the year 2010-11. He is regularly contributing tax articles
and various opinions on subjects of Direct Taxation including International Taxation in various
leading magazines [Taxmann] and professional forums.
CA Suraj Agrawal
“CA Rank Holder, Qualified CPA (USA), B.Com(H)”
Email: suraj.agrawal@hotmail.com
Contact: +91 99530 06445 / 011 4754 2530
Subjects: CA Inter / CMA Inter / CMA Final - DT & IDT
FB: http://www.facebook.com/suraj.agrawal.564
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Inside
S. No. Particulars Page No.
1 Important Sections 1.1 - 1.6
2 Amendments – PART A – Finance Act 2018 2A.1 – 2A.20
Amendments – PART B – Finance Act 2017 (Imp only) 2B.1 – 2B.06
3 Relative means 3.1 – 3.2
4 Introduction, Tax Rates & Agriculture Income 4A.1 – 4A.4
4B.1 – 4B.2
5 Residential Status 5.1 – 5.6
6 Salary 6.1 – 6.12
7 HP 7.1 – 7.6
8 PGBP 8.1 – 8.8
9 Chart for Gift & CG -IMP 9.1 – 9.2
10 Capital Gains 10.1 – 10.14
11 Income from other Sources 11.1– 11.6
12 Deduction [80C – 80U] 12.1 – 12.10
13 Deduction u/s 10AA 13.1 – 13.2
14 Various Exemptions – Section 10 14.1 – 14.2
15 Clubbing of Income 15.1 – 15.2
16 Set off of losses 16.1 – 16.2
17 ROI 17.1 – 17.6
18 Advance Tax 18.1 – 18.2
19 TDS & TCS 19.1 – 19.6
20 HUF 20.1 – 20.2
21 Additional Questions – Taxation of Individuals [Master] A.1 – A.64
IMP
22 Additional Questions – HP, Salary, IOS, Deductions B.1 – B.32
Revisionary Notes – Income Tax - Important Section – CA Suraj Agrawal 1.1
CHAPTER – II BASIS OF CHARGE
5 Scope of Total Income

6 Residence in India – Individual – Section 6(1) & 6(6)
7 Income deemed to be received
9 Income deemed to accrue or arise in India - Section 9(1)(i) to Section 9(1)(vii)
CHAPTER – III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME
10 Incomes not included in total income

10AA Special provisions in respect of newly established Units in Special Economic Zones
CHAPTER – IV COMPUTATION OF TOTAL INCOME
A. SALARIES
15 Salaries
16 Deductions from salaries
17 “Salary”, “perquisite” and “profits in lieu of salary” defined
B. INCOME FROM HOUSE PROPERTY
22 Income from house property

23 Annual value how determined
24 Deductions from income from house property
25 Amounts not deductible from income from house property
25A Unrealised rent received subsequently to be charged to income-tax
25A Special provision for arrears of rent received
26 Property owned by co-owners
27 Deemed Owner
C. PROFITS AND GAINS FROM BUSINESS OR PROFESSION

28 Profits and gains of business or profession
29 Income from profits and gains of business or profession, how computed
30 Rent, rates, taxes, repairs and insurance for buildings
31 Repairs and insurance of machinery, plant and furniture
32 Depreciation
32AD Deduction for Investment in Notified Backward Area of 4 Stats
35 Expenditure on scientific research
35AD Specified Business – 14 Business
35CCA Expenditure by way of payment to associations and institutions for carrying out rural development programmes
35CCC Expenditure on Notified Agriculture Extension Projects
35CCD Expenditure on Notified Skill Development Projects
35D Amortisation of certain preliminary expenses
35DDA Amortisation of expenditure incurred under voluntary retirement scheme
36 Other deductions
37 General
40(a) Amounts not deductible
40A Expenses or payments not deductible in certain circumstances
41 Profits chargeable to tax
43CA Transfer of Immovable Property – Sale Consideration
44AA Maintenance of accounts by certain persons carrying on profession or business
44AB Audit of accounts of certain persons carrying on business or profession
44AD Special provision for computing profits and gains of business other than 44AE case
44ADA Special provision for computing profits and gains in case of Specified Profession
44AE Special provision for computing profits and gains of business of plying, hiring or leasing goods carriages
D. CAPITAL GAINS
45 Capital gains
46 Capital gains on distribution of assets by companies in liquidation
46A Capital gains on purchase by company of its own shares or other specified securities
47 Transactions not regarded as transfer
48 Mode of computation
49 Cost with reference to certain modes of acquisition
50 Special provision for computation of capital gains in case of depreciable assets
50A Special provision for cost of acquisition in case of depreciable asset [SLM Method]
50B Special provision for computation of capital gains in case of slump sale
50C Special provision for full value of consideration in certain cases
50D FMV as a Full Value of consideration when it is unknown
51 Advance money received
54 Profit on sale of property used for residence
54B Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
54D Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
54EC Capital gain not to be charged on investment in certain bonds
54EE Capital gain not to be charged on investment in certain bonds
54F Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house
54H Extension of time for acquiring new asset or depositing or investing amount of capital gain
55 Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”
55A Reference to Valuation Officer
E. INCOME FROM OTHER SOURCES

56 Income from other sources
57 Deductions
58 Amounts not deductible
CHAPTER – V INCOME OF OTHER PERSONS INCLUDED IN ASSESSEES TOTAL INCOME
60 Transfer of income where there is no transfer of assets
61 Revocable transfer of assets
62 Transfer irrevocable for a specified period
63 “Transfer” and “revocable transfer” defined
64 Income of individual to include income of spouse, minor child, etc.
CHAPTER – VI AGGREGATION OF INCOME AND SET OFF OR CARRY FORWARD OF LOSS
A. AGGREGATION OF INCOME
68 Cash credits
69 Unexplained investments
69A Unexplained money, etc.
69B Amount of investments, etc., not fully disclosed in books of account
69C Unexplained expenditure, etc.
69D Amount borrowed or repaid on hundi
B. SET OFF CARRY FORWARD AND SET OFF
70 Set off of loss from one source against income from another source under the same head of income
71 Set off of loss from one head against income from another
71B Carry forward and set off of loss from house property
72 Carry forward and set off of business losses
73 Losses in speculation business
73A Carry forward and set off of Losses by Specified Business [u/s 35AD]
74 Losses under the head “Capital gains”
74A Losses from certain specified sources falling under the head "income from other sources"
80 Submission of Return for Losses [Read with Section 139(3)]
CHAPTER – VIA DEDUCTIONS TO BE MADE IN COMPUTING TOTAL INCOME
Deduction in respect of life insurance premia, deferred annuity, contributions to provident fund, subscription to certain equity
80C
shares or debentures, etc.
80CCC Deduction in respect of contribution to certain pension funds
80CCD Deduction in respect of contribution to pension scheme of Central Government
80CCE Limit on deductions under sections 80C, 80CCC and 80CCD
80CCG Deduction in respect of investment in Certain listed shares under Rajiv Gandhi Equity Scheme.
80D Deduction in respect of medical insurance premia
80DD Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability
80DDB Deduction in respect of medical treatment, etc.
80E Deduction in respect of interest on loan taken for higher education
80EE Deduction in respect of interest on House Loan
80G Deduction in respect of donations to certain funds, charitable institutions, etc.
80GG Deductions in respect of rents paid
80GGA Deduction in respect of certain donations for scientific research or rural development
80GGB Deduction in respect of contributions given by companies to political parties
80GGC Deductions in respect of contributions given by any person to political parties
A. DEDUCTIONS IN RESPECT OF CERTAIN INCOMES
80JJAA Deduction in respect of additional wages to Factory workers
80QQB Deduction in respect of royalty income, etc., of authors of certain books other than text books
80RRB Deduction in respect of royalty on Patents
80TTA Deduction in respect of Interest Income
B. OTHERS
80U Deduction in case of a person with disability
CHAPTER – VIII REBATES AND RELIEF
87A Tax Rebate (Maximum Rs. 5000 to Resident Individual)
89 Relief when salary, etc., is paid in arrears or in advance
CHAPTER – XII DETERMINATION OF TAX IN CERTAIN SPECIAL CASES
111A Tax on short-term capital gains in certain cases
112 Tax on long-term capital gains
115O Tax on distributed profits of domestic companies
CHAPTER – XIV PROCEDURE FOR ASESESSMENT
139 Return of income
139A Permanent account number
140 Return by whom to be signed
140A Self-assessment
CHAPTER XVII COLLECTION AND RECOVERY OF TAX
A. DEDUCTION AT SOURCE
192 Salary
192A EPF
193 Interest on securities
194 Dividends
194A Interest other than “Interest on securities”
194B Winnings from lottery or crossword puzzle
194BB Winnings from horse race
194C Payments to contractors and sub-contractors
194D Insurance commission
194DA Payment in respect of Life Insurance Policy on Maturity.
194E Payments to non-resident sportsmen or sports associations
194EE Payment from NSS covered in Section 80CCA
194G Commission, etc., on the sale of lottery tickets
194H Commission or brokerage
194I Rent
194-IA Immovable Property
194J Fees for professional or technical services
194LA Payment of compensation on acquisition of certain immovable property
198 TDS Deducted is income received
199 Credit for tax Deducted at Source
201 Consequences of failure to deduct or pay
203A Common Number for TDS
205 No Direct Demand from Assessee
206AA Tax @ 20% in PAN is not submitted
B. INTEREST CHARGEABLE IN CERTAIN CASES
234A Interest for defaults in furnishing return of income
234B Interest for defaults in payment of advance tax
234C Interest for deferment of advance tax
CHAPTER XXIII MISCELLENEOUS
288A/B Rounding off of income & Tax Payable
Class Notes
Amendments [AY 19-20] – By CA Suraj Agrawal (99530 06445) 2A.1
AMENDMENTS – Income Tax

AY 19-20 (FINANCE ACT 2018)
Check Various Playlist (Specially DT & GST Amendments – full amendments lectures will be uploaded by
30.04.2019) – we are maintaining separate playlist for CA & CMA Students as per their course contents
Disclaimer:
This DT Amendment notes are strictly based on CA Intermediate syllabus. However, all amendments
discussed here are equally applicable to CMA Inter & CMA Final Students.
Further, Part B of DT Amendment Notes (20% additional content) will also be issued in PDF for CMA
Students (covering CMA syllabus) after 30 April 2019 (Check via whatsapp at 9953006445 only after
30 April 2019)
GST Amendment notes are not available separately. Refer Regular Edition (3rd Edition) PDF for
amendments as amendments are inserted chapter-wise in Red Colour for May/June 2019 Exam (CA/CMA)
Finance Bill 2019 (Interim Budget) is not updated here as it is not applicable for any exams in year 2019
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CA INTER PENDRIVE CLASSES & CMA INTER/FINAL ALL CLASSES ARE AVAILABLE ONLY AT SATC – 011-47542530
Amendment in Tax Rates
There is no change in Income Tax Rate & Surcharge Rate Except as follows:
A. Cess: W.e.f. AY 2019-20, Education Cess @ 2% & Secondary & Higher Education cess @ 1% is now
replaced with Health & Education Cess @ 4% for every assessee. There is no bifurcation of Cess
between Health & Education Category.
B. New Tax Rate for Domestic Company (Normal Rate is 30%):

If Turnover/Sales does not exceeds ` 250 Crore ` 50 Cr in PY 16-17 PY 15-16, Tax Rate for the PY 18-19
will be 25% instead of 30%. There is no change in surcharge rate.
C. New Section 112A is inserted to levy Tax @10% on LTCGs from Sale of listed shares (To be covered in
CG Amendments).
Amendment in Chapter - “Agriculture Income & Tax Computation”
No new amendments in this chapter.
| SURAJ AGRAWAL TAX CLASS | LAXMI NAGAR | NEW DELHI | 011-47542530 | +91 99530 06445 |
Amendment in RESIDENTIAL STATUS
A. Expansion of Scope of Dependent Agent - Business Connection
Explanation 2 to Clause (i) of Sub-section (1) of Section 9
Any business activity carried out through a person acting on behalf of the non-resident and such person
a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident
or habitually concludes contracts or habitually plays the principal role leading to conclusion of
contracts by that non-resident and the contracts are-
(i) in the name of the non-resident; or
(ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by
that non-resident or that non-resident has the right to use; or
(iii) for the provision of services by the non-resident;
has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident
unless his activities are limited to the purchase of goods or merchandise for the non-resident deleted
b) maintains in India a stock of goods from which he delivers goods on behalf of the non-resident or
c) secures orders in India, mainly or wholly

for the non-resident or
for that non-resident and other non-residents
under the same common control & managements
however, Business Connection shall not include the cases where the non-resident carries on business
through a broker, general commission agent or any other agent of an independent status.
Rationale:
Often, the affairs of non-residents and their agents in India are organised as commissionaire
arrangements, whereby the agent carries out all activities including negotiations on behalf of the non-
resident, but the contract is concluded by the non-resident outside India. Such arrangements remain
outside the scope of a dependent agent business connection and are thus, not liable to tax in India even
though substantial activities are undertaken in India.
The above amendment seeks to widen the meaning of business connection to include such situations
where significant activities prior to conclusion of a contract are carried out by the agent without
concluding the contract
B. Significant Economic Presence to constitute Business Connection – NEW CONCEPT
Existing provisions:
The present concept of business connection focuses largely on physical presence of the non-resident in
India, to tax the business profits of such non-resident.
Amendment brought from AY 2019-20:

Explanation 2A is proposed to be added to Section 9(1)(i) to provide that business connection shall
include significant economic presence (‘SEP’) in India, which means
a) transaction in respect of any goods, services or property carried out by a non-resident in India including
provision of download of data or software in India, if the aggregate of payments arising from such
transaction or transactions during the previous year exceeds such amount as may be prescribed; or
b) systematic and continuous soliciting of business activities or engaging in interaction with such number
of users as may be prescribed, in India through digital means:
Provided that the transactions or activities shall constitute significant economic presence in India, whether
or not,—
i. the agreement for such transactions or activities is entered in India; or
ii. the non-resident has a residence or place of business in India; or
iii. the non-resident renders services in India:
Provided further that only so much of income as is attributable to the transactions or activities referred to in
clause (a) or clause (b) shall be deemed to accrue or arise in India.
Rationale:
With the advent of technology and digital means of doing business, physical presence in a territory
is no longer necessary to do business. This defeats the very basis of business connection, which
largely rely on the physical nexus to tax business profits.
The above amendment seeks to address this by tapping into “significant economic presence” of
digital businesses in India, which exists by way of transactions carried out in India, download of data
or software in India, solicitation of business or user interactions
C. Exemption for Royalty and Fees for Technical Services in certain cases
New Section 10(6D)

New sub-section (6D) is introduced in Section 10 to exempt income in the nature of Royalty or Fees for
Technical Services received by a non-resident or a foreign company, from National Technical Research
Organisation (‘NTRO’).
Rationale
The NTRO is a technical intelligence agency under the National Security Advisor. The proposed
amendment is introduced considering business exigencies of the NTRO. As a result, the NTRO will not be
liable to deduct tax at source on such payments. This amendment will be effective retrospectively from
AY 2018-19 onwards.
Amendment in Salary
A. Standard Deduction u/s 16(ia) - ` 40,000
Clause (ia) to section 16 is inserted so as to provide standard deduction to salaried employees. Income
chargeable under the head “Salaries” was entitled to Standard deduction up to A.Y. 2005-06. Standard
deduction has been reintroduced to the extent of ` 40,000 or the amount of salary whichever is lower.
This standard deduction is available against Gross Salary. Further, Deduction is also available in case of
Pension income which is taxable as a part of Gross Salary.
Students are advised to consider this deduction in Residential Status chapter as well as clubbing of income
chapter also while dealing with Basic Salary/Per month Salary/Per annum Salary/Pension etc.
B. Reimbursement of medical expenses – now taxable

Section 17 provides that any sum paid by the employer in respect of any expenditure actually incurred by the
employee on his medical treatment or treatment of his family member not exceeding ` 15,000 in the previous
year shall not be treated as perquisite in the hands of the employee. This provision is now omitted from AY
19-20.
Now, reimbursement of medical expenditure incurred will be fully taxable (AY 2019-20 onwards).
C. Transport Allowance – now taxable

As per Section 10(14)(ii), Transport allowance for the purpose of commuting between the place of residence &
the place of duty is exempt upto ` 1,600 p.m.. This exemption is now withdrawn from AY 19-20.
The exemption of transport allowance upto ` 3,200 p.m. would continue to be available to differently-abled
persons.
Quote of Finance Minister:

In order to provide relief to salaried taxpayers, I propose to allow a Standard deduction of ` 40,000 in
lieu of the present exemption in respect of transport allowance and reimbursement of miscellaneous
medical expenses. Apart from reducing paper work and compliance, this will help middle class
employees even more in terms of reduction in their tax liability.
“Thus, Standard deduction is allowed in lieu of deduction of transport allowance of ` 19,200 per annum
and ` 15,000 per annum for the medical reimbursement”
In view of increase in cess by 1% and withdrawal of deduction of transport allowance and medical
allowance there is no effective benefit to most salaried employees. However, Standard deduction shall
benefit the pensioners who do not enjoy any exemption on account of transport allowance and medical
expenses.
D. Gratuity Exemption Limit – Increased to ` 20,00,000
The limit for gratuity notified under the Payment of Gratuity Act, 1972 has been increased from ` 10 lakh to
` 20 lakh with effect from 29.3.2018.
Therefore, from AY 19-20, maximum amount of Gratuity exemption u/s 10(10) will be ` 20 lakh in case
employee is covered under Gratuity Act.
However, maximum amount of exemption is ` 10 lakh only in case employee is not covered under Gratuity
Act.
Note: This is not an amended brought by Finance Act 2018 but limit is increased due to change in Gratuity
Act.
E. NPS withdrawal exemption extended to non-employees also
Section 10(12A) provides that amount received by an employee from National Pension Scheme (NPS) either
on closure or opting out from scheme referred to in section 80CCD is exempt up to 40% of the total amount
payable to employees at the time of such closure or opting out of the scheme.
This exemption was not available to non-employee subscriber. Now, said benefit is extended to all the
subscribers (employee or non-employee) to National Pension System Trust from AY 19-20. [Covered in
Section 80CCD (Deduction Chapter) during Class]
F. Compensation received in connection with the termination or modification of a contract

Clause (xviib) in section 2(24) and clause (xi) in section 56(2) of the Income-tax Act is inserted to provide
that any compensation or other payment due to or received by any person in connection with the
termination of employment or modification of the terms and conditions relating thereto shall be chargeable
to income tax under the head “Income from other sources”. [Covered in IOS Chapter]
Amendment in House Property

“No New Amendments in this chapter for AY 19-20 by Finance Act 2018”
Amendment inserted by Finance Act 2017 - IMP
No Notional Income for House Property Held as Stock in Trade
Following sub-section (5) shall be inserted in Section 23 by the Finance Act, 2017 w.e.f AY 18-19:
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
[The Delhi High Court in case of CIT v. Ansal Housing & Construction Ltd. held that the assessee engaged in
business of construction and sale of flats is liable to pay tax on notional rent in respect of unsold flats, owned by
the assessee at the end of the relevant financial year if these flats are not let for the whole of the previous year.
Above amendment is introduced to provide relief to builders for 1 year]
Assessee engaged in the Business of Letting out House Properties

“The income earned by an assessee engaged in the business of letting out of properties on rent would be
taxable as business income”
Recently, the Supreme Court in case of “Rayala Corporation Pvt. Ltd. v. ACIT” held that Income from
Letting out of Property on rent by an assessee engaged in the business of letting is assessable as “Business
Profits” u/s 28 and not as “Income from House Property” u/s 22 and there is no concept of notional rent
under the head “Profits and Gains of Business of profession”
Also, the Supreme Court in case of “Chennai Properties & Investment Ltd. v. CIT” held that where the
assessee company is incorporated with main objective, as stated in the MOA to acquire the properties in
the city & let out those properties and the assessee had rented out such properties, rental income from
such properties is a business income & cannot be taxed as Income from House Property u/s 22.
(Earlier, we used to treat above income as Income from House Property)
CBDT Circular: Lease Rent from letting out buildings/developed space along with other amenities in Industrial
Park/SEZ
In case of an undertaking which develops, develops and operates or maintains and operates a notified Industrial
Park/SEZ, the income from letting out of premises/developed space along with other amenities/facilities in such
park/SEZ is to be charged to tax under the head ‘PGBP’.
Amendment in Depreciation Chapter (Part of PGBP Chapter)
“No New Amendments in this chapter for AY 19-20 by Finance Act 2018”
Amendment in PGBP
A. Compensation/any payment received on termination/modification of contract relating to

business
Presently clause (ii) of Section 28 governs the chargeability of only certain specific classes of compensation
received by a person, enumerated in Sub-clauses (a) to (d) thereof. However the said clause (ii) of Section 28
does not cover all kinds of compensation.
Text of Section 28(ii)

Any compensation or other payment due to or received by,—
a. any person, by whatever name called, managing the whole or substantially the whole of the affairs of an
Indian company, at or in connection with the termination of his management or the modification of the
terms and conditions relating thereto;
b. any person, by whatever name called, managing the whole or substantially the whole of the affairs in
India of any other company, at or in connection with the termination of his office or the modification of
the terms and conditions relating thereto;
c. any person, by whatever name called, holding an agency in India for any part of the activities relating to
the business of any other person, at or in connection with the termination of the agency or the
modification of the terms and conditions relating thereto;
d. any person, for or in connection with the vesting in the Government, or in any corporation owned or
controlled by the Government, under any law for the time being in force, of the management of any
property or business ;
If any compensation is received by a person in the course of his business, it has to be seen whether it is a
compensation of a revenue nature or a capital in nature. If it is of revenue nature, it can be brought to tax
under clause (i) of section 28. However, if it is of a capital nature (except above 4 payments) it is neither
covered by clause (i) nor by clause (ii).
To bring to tax such compensation of capital nature received in the course of business, a new sub-clause (e)
is inserted in section 28(ii) w.e.f. 1-4-2019. The reason given in the Explanatory Memorandum for this
amendment is to avoid base erosion and revenue loss. The proposed Sub-clause (e) under clause (ii) of
Section 28 shall govern the chargeability of any compensation or other payment which is received by/due
to any person. However, it shall be in connection with the termination or the modifications of the terms
and conditions of any contracts which is related to the business of the person receiving it.
It is a very widely worded sub clause which shall cover all kinds of compensation in the course of business
irrespective of the nomenclature of the said compensation. The only requirement is that it should relate to a
contract relating to assessee’s business.
However, a doubt arises whether the proposed sub-clause is restricted in its applicability to compensation
relating to business contracts or it will cover those contracts which provide compensation with respective a
profession also. It does not refer to compensation received in the course of profession.
The Honourable Supreme Court in the case of G. K. Choksi and Co. (2007) has held that the reference to the
word ‘business’ in any provision of statute cannot be construed as a reference to the word ‘profession’.
Hence, one may argue that compensation received in the course of contracts relating to profession are
outside the scope of the proposed amendment.
B. Amendments in Section 43CA – 5% variation & Payment mode
Section 43CA provides that in case of transfer of land or building or both (which are not held as capital
assets), the value adopted or assessed or assessable by the stamp valuation authority for the purpose of
payment of stamp duty shall be deemed as the full value of consideration for the purpose of computing
profits and gains from transfer of such asset, if it is higher than the actual sale consideration.
This causes undue hardship and litigation in a scenario where there was a small variation in the value
adopted or assessed or assessable by the stamp valuation authority and the actual sale consideration. There
are various judicial pronouncements which favoured the assessee in case the variation was up to 10% to 15%:
Amendment: In order to overrule these decisions and avoid undue hardship due to some minor variations in
the two values, Parliament has inserted a proviso below Sub-section (1) of Section 43CA which provides that
in case if value adopted or assessed or assessable by Stamp valuation authority is higher by an amount
which is up to 5% of the actual consideration, then no addition shall be made. This proviso is stated to be
applicable from AY 2019-20.
However it is important to note that, by a literal interpretation, this 5% is not an exemption limit i.e., if the
difference amounts to 6% of actual sale consideration then whole of 6% shall be added up in order to
determine the fair value of consideration and not just 1% (6% - 5%).
Further, Sub-section(3) provides that in case where ‘date of agreement (fixing sale consideration)’ and ‘date
of registration of Transfer’ are not same, then for the purpose of determining the variation with actual sale
consideration as provided in Sub-Section (1), Value adopted by authority as on ‘date of Agreement’ shall be
taken. However, Sub-section (3) will only apply in case where consideration has been received by ‘any mode
other than cash’ on or before the date of agreement for transfer of the asset as provided in Sub-section (4).
Thus, Sub-section (4) puts an additional requirement for the applicability of the beneficial provisions of sub-
section (3) that the consideration or part of it is received otherwise than in cash on or before the ‘date of
agreement’.
Amendment: In order to have further check on various other modes resorted by a person and to have more
traceability via banking channels; sub-section (4) is amended to provide that consideration or part of it must
have been received only by account payee cheque or an account payee bank draft or by use of Electronic
Clearing Services for the purpose of Sub-Section (3).
C. Amendments in Section 44AE – Presumptive Income in case of Goods Carriage

The intent of legislature to introduce presumptive based taxation u/s. 44AE was to benefit small transporters.
Any person in business of plying, hiring or leasing goods carriages who owns up to 10 goods carriages can opt
for presumptive taxation.
Presently, Section 44AE does not distinguish on the basis of type of goods carriage. The distinction between
heavy and other than heavy goods vehicle as to the minimum rate of presumptive income was removed by
the Finance (No. 2) Act, 2014.
Now it is amended to bring back the distinction between large capacity vehicles, being those whose gross
vehicle weight exceeds 12,000 Kg. from others with effect from A.Y. 2019-20.
Thus accordingly, for a transporter who owns up to 10 vehicles (whether heavy or other than heavy goods
vehicle), the scheme has been bifurcated w.e.f AY 19-20 based on type of vehicle as follows:
Particulars Presumptive Income
For Heavy Goods Vehicle (Gross Vehicle Weight > ` 1,000 per tonne of gross vehicle weight or
12,000 Kg.) unladen weight X no. of months / part thereof
Or
Amount claimed to have been actually earned
whichever is higher.
For other than Heavy Goods Vehicle (Gross Vehicle ` 7,500 per month/part thereof
Weight is less than or equal to 12,000 Kg.) Or
Amount claimed to have been actually earned
whichever is higher.
For the purpose of this section, ‘Gross Vehicle Weight’ shall be total weight of the vehicle and load certified
and registered by the registering authority as permissible for that vehicle; as defined in clause 15 of Section 2
of Motor Vehicles Act, 1988.
Amendment in Capital Gain

A. Cost Inflation Index for AY 19-20 is 280.
B. Conversion of Inventory into Capital Asset & Subsequent Sale:

We are aware of the provisions relating to the treatment of converting or treating a ‘Capital Asset’ into
‘Stock-in-trade’. This transaction is governed by the provisions of Section 45(2) of ‘Capital Gains’ chapter.
Similarly, vide Finance Bill 2018, the Parliament has proposed to bring into tax ambit, a reverse situation
where ‘Inventory’ is converted into or treated as ‘Capital Asset’.
Need: There is no existing provision which specifically governs the chargeability to tax in case of
Conversion/Treatment of Inventory into Capital Asset. As a result, there are disputes relating to the head in
which the income is to be taxed on actual transfer of such capital asset, as also with regard to the
determination of cost of acquisition and period of holding of such capital assets. Different High Courts and
Tribunals have taken different views in this matter.
Amendment Brought:
a. Section 28(via) – Amendment in PGBP Chapter
The fair market value (FMV) of inventory as on the date on which it is converted into, or treated as, a
capital asset determined in the prescribed manner shall be chargeable to tax as business income.
b. Explanation 1A to Section 43(1) – Amendment in PGBP Chapter

Where a capital asset referred to in clause (via) of section 28 is used for the purposes of business or
profession, the actual cost of such asset to the assessee shall be the fair market value which has been
taken into account for the purposes of the said clause. (For the purpose of Depreciation)
c. Section 49(9) – Amendment in CG Chapter
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28,
the cost of acquisition of such asset shall be deemed to be the fair market value which has been taken
into account for the purposes of the said clause.
d. Explanation 1 to Section 2(42A) – Amendment in CG Chapter
In the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from
the date of its conversion or treatment.
e. Section 2(24)(xiia) – Definition of “Income”

Unless any income/gain is covered by the definition of ‘Income’ under clause (24) of section 2, it cannot
be said as ‘income’ earned and will also not form part of total income.
Hence, a new sub-clause (xiia) has been inserted in Section 2(24) to include “the fair market value of
inventory referred to in clause (via) of Section 28”in the definition of income.
C. Amendment to Section 50C – Full value of consideration in case of sale of Land/Building
Section 50C taxes difference between SDV & actual sale consideration as capital gains in case land or
building, being a capital asset, is transferred at a value lower than the stamp duty value. However, there were
certain instances where stamp duty values varied due to the location of the property or size of the property or
nature of property.
The Government, as a measure to address practical difficulties, has now amended Section 50C to allow a 5%
variation between the stamp duty value and the actual consideration. In case the stamp duty value does not
exceed 105% of the actual consideration, then such variation will be ignored & actual sales consideration
will be considered as Full value of consideration. Similar provisions are inserted in Section 43CA & Section
56(2)(x).
In case Valuation officer is appointed, variation of 5% is available between price decided by VO & Actual
Sales consideration.
D. Section 54EC – No CG on investment in certain bonds by Any Assessee

In another attempt to increase the collection of taxes, the Government has made sweeping amendments to
section 54EC. Earlier, Section 54EC allowed exemption of capital gains arising out of the transfer of any long
term capital asset, if the resultant capital gain was invested in long term specified asset for a period of 3
years.
The Finance Bill now seeks to limit the benefit of exemption to only transfer of land or building or both,
instead of exempting long term capital gains arising out of any asset.
Further, the term for investment of 3 years, has now increased to 5 yrs. Term ‘Land & building’ may not
include leasehold rights, rights of a buyer of flat under construction, tenancy rights, development rights
etc.
For the purpose of this Section, assessee may invest in following four bonds: Bonds issued by
a. National Highways Authority of India
b. Rural Electrification Corporation Limited
c. Power Finance Corporation Limited
d. Indian Railway Finance Corporation Limited
Note: No tax is required to be deducted at source u/s 193 on Interest payable on bonds issued u/s 54EC by
power finance corporation limited and Indian Railway finance corporation Limited
E. Taxation of Securities – New Section 112A (Tax Rate 10%) & Withdrawal of Sec 10(38) exemption
Earlier, long-term capital gains arising from transfer of certain securities were exempt under Section 10(38)
subject to the conditions specified therein. The exemption is available to the following securities (referred as
specified long-term capital assets):
i. Equity share in a company
ii. Unit of an equity oriented fund
iii. Unit of a business trust
The exemption is available subject to the condition that transfer of such assets should be chargeable to
Securities Transactions Tax (STT).
In order to prevent abuse of exemption by entering into sham transactions, the Finance Act, 2017 imposed an
additional condition for claiming exemption in respect of long-term capital gain arising from transfer of
equity shares.
As per the amended provision, the exemption is available only if the acquisition of equity shares, which were
acquired on or after 1-10-2004, was also chargeable to STT. However, this additional condition for claiming
exemption is not applicable in respect of certain acquisitions which may be notified for this purpose.
Accordingly, a Notification No. 43/2017 dated 5-6-2017 was issued notifying the transactions of acquisition
which are eligible for the purpose of exemption under Section 10(38), though not chargeable to STT.
Withdrawal of exemption under Section 10(38)
Finance Act 2018 has withdrawn the exemption available under Section 10(38) in respect of transfer of
specified long-term capital assets made on or after 1st April, 2018. Thus, the exemption under Section 10(38)
will no longer be available in respect of long-term capital gains from A.Y. 2019-20 onwards. The exemption
continues to apply in respect of transfers made till 31st March, 2018 subject to fulfilment of relevant
conditions.
As a result of withdrawal of exemption which was available hitherto under Section 10(38), the concerned
long-term capital gains will now be chargeable to tax under Section 45. However, the assessee can claim
exemptions against such long-term capital gains under the applicable provisions like Section 54EE, 54F etc.
The loss arising upon transfer of specified long-term capital assets can be set off against any other long-
term capital gain or may be carried forward to the subsequent assessment year in accordance with the
provisions of Sections 70 & 74 respectively.
The set-off of such long-term capital loss may be claimed even against that long-term capital gain which is
otherwise taxable at a rate higher than 10%.
New Section 112A inserted:

A new Section 112A is inserted in the Act to deal with taxation of such long term capital gains. Various
conditions are as follows:
1. Notwithstanding anything contained in Section 112, the tax payable by an assessee on his total income
shall be determined in accordance with the provisions of sub-section (2), if—
i. the total income includes capital gains arise 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;
ii. 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.
2. The tax payable by the assessee on the total income referred to in sub-section (1) shall be the aggregate
of—
i. the amount of income-tax calculated on such long-term capital gains exceeding ` 100,000 at the
rate of 10%; and
ii. the amount of income-tax payable on the total income as reduced by the amount of long-term capital
gains referred to in sub-section (1) as if the total income so reduced were the total income of the
assessee:
3. RESIDENT IND/HUF: Such LTCG will be reduced by the unexhausted basic exemption limit.
4. Requirement of STT payment shall not apply to a transfer undertaken on a recognised stock exchange
located in any International Financial Services Centre and where the consideration for such transfer is
received or receivable in foreign currency.
5. The Central Government may notify the nature of acquisition where STT is not required to be paid (Like
IPO, Bonus shares, Right Shares etc)
6. Deductions under Chapter VI-A cannot be availed in respect of such LTCG.
7. Indexation is not permitted to compute LTCG chargeable to tax under Section 112A
8. Rebate under Section 87A is not available against tax computed under Section 112A.
9. [Reading purpose] "Equity oriented fund" means a fund set up under a scheme of a mutual fund
specified under clause (23D) of section 10 and-
i. in a case where the fund invests in the units of another fund which is traded on a recognised stock
exchange,
A. a minimum of ninety per cent of the total proceeds of such fund is invested in the units of such
other fund; and
B. such other fund also invests a minimum of ninety per cent of its total proceeds in the equity
shares of domestic companies listed on a recognised stock exchange; and
ii. in any other case, a minimum of sixty-five per cent of the total proceeds of such fund is invested in
the equity shares of domestic companies listed on a recognised stock exchange:
Provided that the percentage of equity shareholding or unit held in respect of the fund, as the case may
be, shall be computed with reference to the annual average of the monthly averages of the opening and
closing figures;
Imp: New Section 55(2)(ac) – COA in computing LTCG as discussed above

Cost of Acquisition, In relation to 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, acquired before the 1st day
of February, 2018 shall be higher of-
i. the cost of acquisition of such asset; and
ii. lower of –
a. the fair market value of such asset as on 31.01.2018; and
b. the full value of consideration received or accruing as a result of the transfer of the capital asset.
Thus, in substance, the provisions of Section 112A will apply to that long-term capital gain which was hitherto
exempt under Section 10(38). The condition of payment of STT on acquisition of equity shares is also
retained in the proposed provisions of Section 112A subject to the exceptions to be notified for this
purpose.
"Fair Market Value" means,—

i. in a case where the capital asset is listed on any recognised stock exchange as on the 31st day of
January, 2018, the highest price of the capital asset quoted on such exchange on the said date:
Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018,
the highest price of such asset on such exchange on a date immediately preceding the 31st day of
January, 2018 when such asset was traded on such exchange shall be the fair market value;
ii. in a case where the capital asset is a unit which is not listed on a recognised stock exchange as on the
31st day of January, 2018, the net asset value of such unit as on the said date;
iii. in a case where the capital asset is an equity share in a company which is—
A. not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such
exchange on the date of transfer;
B. listed on a recognised 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 the 31st day of
January, 2018 by way of transaction not regarded as transfer under section 47,
an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the
financial year 2017-18 bears to the Cost Inflation Index for the first year in which the asset was held by
the assessee or for the year beginning on the first day of April, 2001, whichever is later;
[Complete lectures with examples related to Section 112A is available at you-tube channel]
Amendment in Income from Other Source
a) Amendment to Section 56(2)(x)(b) – Immovable Properties
The Parliament introduced a new Clause (x) in section 56(2) in the Finance Act, 2017 replacing sub-clauses
(vii) & (viia) commonly referred to as tax on gifts. Currently (old provisions), in case where any person
receives, in any previous year, from any person or persons any immovable property,
A. Without consideration, the stamp duty value of which exceeds fifty thousand rupees, such stamp duty
value; (i.e., whole of such ‘Stamp Duty Value’ of the said property shall be considered as ‘Income From
Other Sources’)
B. For a consideration which is less than the stamp duty value of the property by an amount exceeding fifty
thousand rupees, the stamp duty value of such property as exceeds such consideration. (i.e., if
difference between ‘Stamp Duty Value’ and actual consideration is more than ` 50,000/, then whole of
such difference shall be considered as ‘Income from Other Sources’)
There have been several situations where the actual consideration paid is below the stamp duty valuation
for various factors. This has caused genuine hardship to the assessees since the Assessing Officers have
simply ignored the arguments of the assessee and adopted the stamp duty value and added the
difference.
The Finance Act 2018 has substituted new provisions in Section 56(2)(x) (effective from AY 19-20) as
follows:
Immovable property against inadequate consideration:

Where any person receives, in any previous year, from any person or persons any immovable property for a
consideration, the stamp duty value of such property as exceeds such consideration shall be chargeable to
Income Tax under the head IOS if the amount of such excess is more than the higher of the following
amounts, namely:
i. The amount of ` 50,000; and
ii. The amount equal to 5% of the consideration.
Accordingly, Section 56(2)(x) will be invoked only in case where:
a. The value of the property exceeds ` 50,000 and
b. The difference between the consideration paid and stamp duty value, exceeds 5% of such
consideration paid.
This amendment is in line with the amendments being made to section 50C and section 43CA.
b) Tax neutral Transfers [Section 56(2)(x)] – W.r.e.f. AY 18-19 (Holding/Subsidiary company)

In order to further facilitate the transaction of money or property between a wholly owned subsidiary
company and its holding company, the Act has amended provisions of Section 56(2)(x) so as to exclude such
transfer from the scope of Section 56(2)(x). Hence, no gift provisions are applicable on such transfer.
c) Expanding the scope of taxing payments related to employment – New clause (xi) in Section 56(2)
Under the existing provisions of the Act the assessing officers have attempted to bring to tax certain types of
compensation received by an employee under section 17(3)(iii) under the head ‘Income from Salaries’.
Whereas, the appellate authorities, in certain cases, have held these receipts to be ‘capital’ in nature and
hence cannot be taxed.
Further, in certain cases where employer-employee relationship did not exist at the time of payment of
such compensation and hence held that these would not be chargeable to tax under ‘Income from
Salaries’. In CIT vs. Pritam Das Narang (2016), it was held that where there was no commencement of the
employment and that the offer by prospective employer to the assessee was withdrawn even prior to the
commencement of such employment, amount received by the assessee from prospective employer is a
capital receipt and could not be taxed under the head ‘Profits in Lieu of Salary.’
In order to overcome all such judicial pronouncements where compensation received has not been charged
to tax by the appellate authorities, the Finance Act 2018 has inserted a new Sub-Clause (xi) Section 56(2)
which provides the chargeability of any compensation or other payment which is received by/due to any
person. However, it shall be in connection with the termination or the modifications of the terms and
conditions of any contracts which is related to the employment of the person receiving it.
Consequential amendment has also been made to the definition of income u/s. 2(24) wherein a new Sub-
Clause (xviib) has been inserted to define the amount specified in newly inserted Sub-Clause (xi) of Section
56(2) as ‘Income’.
Henceforth, all payments received by any person which relates to either the termination of his employment
or any variation of terms of employment whether capital or revenue would be chargeable to tax.
d) Clarification in Sub-section 2 of Section 115BBE [Tax on Undisclosed Income]

Currently, Section 115BBE of the Income-tax Act provides for levy of tax at the rate of 60% on income
referred to in Clauses (a) & (b) of sub-section (1) of Section 115BBE.
Section 115BBE(1)(a) relates to unexplained income referred to section 68, section 69, section 69A, section
69B, section 69C and section 69D of the Act and reflected in the return of income filed u/s. 139(1).
Clause (b) relates to unexplained income referred to in the above sections which have been determined by
the assessing officer and not covered under Clause (a) above.
Sub-section (2) starting with a non-obstante clause provides that no deduction in respect of any expenses or
allowances or set-off of any loss shall be allowed to the assessee under any provision of this Act in
computing his income referred to in Clause (a) of sub-section (1) referred to above.
This bar on non-deduction of expenditure or allowance or set-off of any loss was applicable only to Clause
(a) and not to Clause (b).
Therefore, in a case where the assessing officer himself charges tax on income referred to in the specified
sections (Section 68 to Section 69D), then the assessee was entitled to claim the deductions of expenses or
allowances as well as set-off of any loss. This seemed to be an unintentional anomaly.
The amendment in Finance Act 2018 has corrected this anomaly and hence proposed a retrospective
amendment w.e.f. 1st April, 2017 to include income referred to in both Clauses (a) and (b) of sub-section (1)
in sub-section (2).
Now, no deduction of expenditure or allowance or set-off of any loss is available against Undisclosed
income as referred in clause (a) as well as clause (b).
e) 7.75% GOI Savings (Taxable) Bonds, 2018
The Government has introduced a new “7.75% GOI Savings (Taxable) Bonds, 2018” commencing from 10th
January, 2018. Investment in this scheme is open only to resident individuals & HUF without any monetary
ceiling. The bonds have a maturity period of 7 years. The rate of interest on these bonds is 7.75% and the
same is taxable in the hands of the investors.
Effective from AY 19-20, TDS on interest paid/payable on these bonds shall be deductible u/s. 193 at rates
in force (presently 10%) if the said interest exceeds ` 10,000/-.
f) Extension of DDT in case of Deemed Dividend u/s 2(22)(e)

The loans or advances granted by a closely held company to certain shareholders or concerns wherein such
shareholders have a substantial interest are considered as deemed dividend as per sub-clause (e) of Section
2(22). Presently (upto AY 18-19), such deemed dividend referred to in Section 2(22)(e) is not subject to
Dividend Distribution Tax (DDT) under Section 115-O and is taxable in the hands shareholder/recipient at the
applicable rate.
As amended by Finance Act 2018, DDT u/s 115-O is now applicable on Deemed Dividend u/s 2(22)(e) also.
Important Points:
a) DDT rate of 30% is prescribed for such dividend without grossing up.
b) Such dividend will be fully exempt u/s 10(34) in the hands of shareholders from AY 19-20 without any
limit of ` 10,00,000.
c) TDS u/s 194A is now not applicable.
Note: Provisions of Section 115BBDA are not applicable to deemed dividend falling under sub-clause (e) of
Section 2(22).
g) ‘Accumulated Profits’ in case of amalgamation [Deemed Dividend u/s 2(22)]

The distribution made by the company can be regarded as dividend as per Section 2(22) only if the company
possesses ‘accumulated profits’.
In case of amalgamation, in several cases, the accumulated profits of the amalgamating company were
converted into the capital of the amalgamated company. In such cases, subsequent reduction of capital of
the amalgamated company did not result into ‘deemed dividend’ with respect to the payout from the
accumulated profits of the amalgamating company as the same were converted into the capital.
In order to prevent such abusive arrangements, it is proposed to widen the scope of the term ‘accumulated
profits’ by inserting Explanation 2A so as to provide that in the case of an amalgamated company,
accumulated profits, whether capitalised or not, or losses as the case may be, shall be increased by the
accumulated profits of the amalgamating company, whether capitalised or not, on the date of
amalgamation (Applicable from AY 2019-20).
Amendment in Deduction
a) Deduction under Section 80D - Health insurance premium
Finance Act 2018 has amended Section 80D of the Income-tax Act relating to deduction in respect of health
insurance premium.
Upto AY 18-19, any payment towards medical insurance or preventive health check up of a senior citizen or
medical expenditure of a very senior citizen was entitled for deduction up to ` 30,000.
The limit of said deduction in respect of payment of premium for all senior citizens is increased to ` 50,000
from AY 19-20.
Further, the deduction available for medical expenditure only for a very senior citizen is now available for
all senior citizens up to the limit of ` 50,000 subject to a condition that such senior citizen does not have a
mediclaim policy.
Single Premium Health Insurance Policy:

As per section 80D any payment in lump sum to effect or to keep in force insurance on the health of a
person, for more than a year was allowed as deduction, in the year of payment (upto AY 18-19). From AY
19-20, in case of a single premium health insurance policies having cover of more than one year, deduction
shall be allowed on proportionate basis for all those years for which health insurance cover is provided,
subject to the specified monetary limit.
b) Deduction under Section 80DDB

Finance Act 2018 has further amended Section 80DDB of the Income- tax Act relating to deduction in respect
of medical treatment etc.
As per Existing Section 80DDB, deduction was available to an individual and HUF in respect of payment made
for medical treatment of specified diseases of senior citizen up to ` 60,000 and very senior citizen up to
` 80,000.
W.e.f. AY 19-20, the said deduction is now increased to ` 1 lakh without any distinction between senior
and very senior citizen.
c) Section 80TTB - Deduction in respect of interest on deposits for Senior Citizens

Keeping in view the fixed and restricted sources of income for Senior Citizens, a new Section 80TTB is
inserted by Finance Act 2018. This provision allows a deduction up to ` 50,000 in respect of interest income
of Senior Citizen from deposits with banks or post office or co-operative banks (any Deposits including
saving/fixed deposits).
Further, corresponding amendment is inserted in section 194A to provide that no tax shall be deducted at
source from payment of interest to a senior citizen up to ` 50,000 w.e.f. 1st April, 2018 (AY 19-20).
Section 80TTA is also amended. Now, deduction under section 80TTA shall not be available to senior citizens
in respect of interest on saving deposits as deduction u/s 80TTB is available to them.
d) Section 80AC - Certain Deduction not to be allowed unless return furnished (w.r.e.f AY 18-19)
As per existing provisions of section 80AC of the Act, no deduction would be admissible under section 80-IA
or section 80-IAB or section 80-IB or section 80-IC or section 80-ID or section 80-IE, unless the return of
income by the assessee is furnished on or before the due date specified under section 139(1). This burden of
filing of return on time is not casted on other assesses who are claiming deductions under other similar
provisions.
Therefore, to bring uniformity in all income-based deductions, the scope of section 80AC shall be extended
by Finance Act 2018 to all similar deductions which are covered in heading "C.—Deductions in respect of
certain incomes" in Chapter VIA (sections 80-IA to 80RRB).
The impact of such amendment shall be that no deduction covered u/s. 80-IA to 80RRB would be allowed to
a taxpayer under these provisions if income-tax return is not filed on or before the due date.
e) Amendments in Section 80JJAA

Existing provisions Section 80JJAA allows a deduction of 30% of additional employee cost incurred in the
previous year in the course of business, for 3 assessment years starting from the assessment year relevant to
the previous year in which such employment is provided.
For claiming such additional deduction, one of the conditions was that eligible new employee needs to be
employed for a minimum period of 240 days during the relevant previous year. However, in the case of
apparel industry, the minimum number of days of employment is only 150 days instead of 240 days.
Issues in existing provisions

In case where employees were employed in the organization in later part of the year, the duration of
employment may be less than 240 days or 150 days and hence, the assessee was not eligible for the
deduction in that year. Further, in the succeeding year also, no deduction was available for such employees
as they were not newly employed in the succeeding year.
Amendment brought from AY 2019-20:

A proviso is inserted to the effect that if new employees are employed for less than the minimum period
during the first year of employment but continue to remain employed for the minimum period in
subsequent year, such employees will be deemed to have been employed in the succeeding year. This will
entitle the assessee to claim deduction of 30% of such employee cost incurred in such succeeding year as a
deduction.
Section 80JJAA has been also amended to reduce the minimum employment period of 240 days to 150
days in case of ‘Footwear’ and ‘Leather’ industry from AY 2019-20.
f) Adjusted GTI in Section 80G/80GG

Due to New Section 112A inserted in Capital Gain Chapter for Taxability of LTCG in sale of Listed shares etc in
place of Section 10(38), GTI will also be reduced by LTCG taxable u/s 112A in addition to STCG taxable u/s
111A & LTCG taxable u/s 112 while computing adjusted GTI in Section 80G/Section 80GG.
Amendment in Clubbing
No new amendments in this chapter for AY 19-20.
Please Note: Standard Deduction of ` 40,000 will be available in case Salary p.m. is given in question for clubbing
provisions. Refer my DT Volumes PDF too. Amended solutions are available in PDF with changes made in red
colour.
Amendment in Set-off of Losses

CARRY FORWARD AND SET-OFF OF SPECULATION BUSINESS LOSSES [Section 73]
Exclusion of agricultural commodities derivatives from ‘speculative transaction’
Presently, the transaction in respect of trading in commodity derivatives carried out in a recognised
association is excluded from the definition of ‘speculative transaction’ as per Section 43(5) subject to
fulfilment of several conditions. However, such exclusion is applicable only if such transaction is chargeable to
Commodities Transaction Tax (CTT).
The CTT as introduced by the Finance Act, 2013 is applicable to transaction of sale of commodity derivatives
in respect of all commodities but other than agricultural commodities. Since derivative contracts in
agricultural commodities are not subject to CTT, they are not eligible for exclusion from ‘speculative
transaction’ as provided in Section 43(5).
Therefore, Section 43(5) is amended by Finance Act 2018 to remove the condition of chargeability of CTT in
respect of trading in agricultural commodity derivatives.
Thus, trading in agricultural commodity derivatives will no more be regarded as ‘speculative transaction’ if
it is an ‘eligible transaction’ otherwise and carried out in a ‘recognised association’. This amendment is
effective from A.Y. 2019-20.
Amendment in ROI Chapter

a) Amendment to Section 139A - Permanent Account Number (PAN) mandatory for certain cases
Section 139A provides that every person specified therein shall apply to the Assessing Officer for allotment of
a PAN. Finance Act 2018 has amended the said requirement of PAN under Section 139A of the Act to every
person (not being an individual) which will enter into a financial transaction of an amount of ` 2,50,000/-
or more in a financial year.
Further, it is also proposed that managing director, director, partner, trustee, author, founder, karta, chief
executive officer, principal officer or office bearer or any person competent to act on behalf of above
entities shall also apply to the Assessing Officer for allotment of PAN.
b) Amendment to Section 140 – Verification of return where an application for insolvency has been
admitted under Insolvency and Bankruptcy Code, 2016
Finance Bill, 2018 has amended section 140 of the Act so as to provide that where for a company an
application for corporate insolvency resolution process has been admitted by Adjudicating Authority under
Section 7 or Section 9 or Section 10 of the Insolvency and Bankruptcy Code, 2016 then the return shall be
verified by an Insolvency Professional appointed by the Adjudicating Authority under the Insolvency and
Bankruptcy Code, 2016.
c) SELF-ASSESSMENT [SECTION 140A] – New Concept Added in the Syllabus recently (Not a part of
amendment)
Payment of tax, interest and fee before furnishing return of income
Where any tax is payable on the basis of any return required to be furnished under, inter alia, section 139,
after taking into account -
a. the amount of tax, already paid, under any provision of the Income-tax Act, 1961
b. the tax deducted or collected at source
the assessee shall be liable to pay such tax together with interest and fees payable under any provision of
this Act for any delay in furnishing the return or any default or delay in payment of advance tax before
furnishing the return. The return shall be accompanied by the proof of payment of such tax, interest and
fee.
Order of adjustment of amount paid by the assessee

Where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax, interest
and fees as aforesaid, the amount so paid shall first be adjusted towards the fees payable and thereafter
towards interest and the balance, if any, shall be adjusted towards the tax payable.
Interest under section 234A

For the above purpose, interest payable under section 234A shall be computed on the amount of tax on the
total income as declared in the return, as reduced by the amount of-
a. advance tax paid, if any;
b. any tax deducted or collected at source;
Interest under section 234B

Interest payable under section 234B shall be computed on the assessed tax or on the amount by which the
advance tax paid falls short of the assessed tax.
For this purpose “assessed tax” means the tax on total income declared in the return as reduced by the
amount of tax deducted or collected at source on any income which forms part of the total income;
Consequence of failure to pay tax, interest or fee

If any assessee fails to pay the whole or any part of such of tax or interest or fees, he shall be deemed to be
an assessee in default in respect of such tax or interest or fees remaining unpaid and all the provisions of this
Act shall apply accordingly.
Amendment in Advance-Tax Chapter

No new amendments in this chapter
Amendment in Exempted Income - ‘Section 10’
a) Royalty income or fees for technical services received from National Technical Research
Organisation (NTRO) [Section 10(6D)]
Income arising to non-corporate non-residents and foreign companies, by way of royalty from or fees from
technical services rendered in or outside India to, the National Technical Research Organisation (NTRO) is
exempt
Rationale
The NTRO is a technical intelligence agency under the National Security Advisor. The amendment is
introduced considering business exigencies of the NTRO. As a result, the NTRO will not be liable to deduct
tax at source on such payments to non-residents.
b) Payment from NPS [Section 10(12A)] - NPS withdrawal exemption extended to non-employees
Section 10(12A) provides that amount received by an employee from National Pension Scheme (NPS) either
on closure or opting out from scheme referred to in section 80CCD is exempt up to 40% of the total amount
payable to employees at the time of such closure or opting out of the scheme. This exemption was not
available to non-employee subscriber.
W.e.f. AY 19-20, benefit of exemption is extended to all the subscribers (Employee or non-employee) to
National Pension System Trust.
Amendment in TDS Chapter

a) Interest on securities [Section 193] - 7.75% GOI Savings (Taxable) Bonds, 2018
The Government has introduced a new “7.75% GOI Savings (Taxable) Bonds, 2018” commencing from 10th
January, 2018. Investment in this scheme is open only to resident individuals & HUF without any monetary
ceiling. The bonds have a maturity period of 7 years. The rate of interest on these bonds is 7.75% and the
same is taxable in the hands of the investors.
The Finance Act 2018 has amended Section 193 to provides that TDS on interest paid/payable on these bonds
shall be deductible u/s. 193 at rates in force (presently 10%) if the said interest exceeds ` 10,000/-
b) Interest other than interest on securities [Section 194A]

A new Section 80TTB is inserted vide Finance Act 2018 to provides deduction of interest income from Banks
etc. to Senior citizen to the extent of ` 50,000.
Further, corresponding amendment has been introduced in Section 194A from AY 2019-20 to provide that no
tax shall be deducted at source from payment of interest by Banks etc. to a senior citizen up to ` 50,000.
Earlier, the general limit was ` 10,000 for all.
Amendment in TCS Chapter

No new amendments in this chapter
Amendment in Section 10AA – SEZ Units
a) Circular 4/2018 dated 14.08.2018 - Computation of Exemption u/s 10AA – SEZ Units
Existing Provisions:
The profits derived from export of articles or things or services (including computer software) shall be:
Export Turnover
Profits of the Business of the undertaking X ———————————————
Total Turnover
“Export Turnover” means the consideration received in or brought into India by the assessee in convertible
foreign exchange but does not include:
a) Freight, Telecommunication Charges and Insurance attributable to the delivery of the articles or things
outside India; or
b) Expenses incurred in foreign exchange in providing the technical services outside India.
Here, profits includes profits derived from on-site development of computer software (including services for
development of software) outside India for the purpose of determining profits derived from export of
computer software outside India
New Provisions:
CBDT has clarified that freight, telecommunication charges & insurance expenses are to be excluded both
from “Export Turnover” and “Total turnover” while working out deduction admissible under Section 10AA to
the extent they are attributable to the delivery of articles or things outside India.
Similary, expenses incurred in foreign exchange for rendering services outside India are to be excluded from
both “Export Turnover” and “Total Turnover” while computing deduction admissible u/s 10AA.
Amendments – By CA Suraj Agrawal (99530 06445) 2B.1
LAST YEAR - IMPORTANT AMENDMENTS

(FINANCE ACT 2017)
Introduction
Clarification regarding attaining prescribed age of 60 years/80 years on 31st March itself, in case of senior/very
senior citizens whose date of birth falls on 1st April [Circular No. 28/2016, dated 27-07-2016]
An individual who is resident in India and of the age of 60 years or more (senior citizen) and 80 years or more
(very senior citizen) is eligible for a higher basic exemption limit of Rs. 3,00,000 and Rs. 5,00,000, respectively.
The CBDT has, vide this Circular, clarified that a person born on 1st April would be considered to have attained a
particular age on 31st March, the day preceding the anniversary of his birthday. In particular, the question of
attainment of age of eligibility for being considered a senior/very senior citizen would be decided on the basis of
above criteria.
Therefore, a resident individual whose 60th birthday falls on 1st April, 2018, would be treated as having attained
the age of 60 years in the P.Y. 2017-18, and would be eligible for higher basic exemption limit of Rs. 3 lakh in
computing his tax liability for A.Y. 2018-19.
Likewise, a resident individual whose 80th birthday falls on 1st April, 2018, would be treated as having attained
the age of 80 years in the P.Y. 2017-18, and would be eligible for higher basic exemption limit of Rs. 5 lakh in
computing his tax liability for A.Y. 2018-19.
RESIDENTIAL STATUS
CBDT Circular: CBDT has clarified that salary accrued to a non-resident seafarer for services rendered outside
India on a foreign going ship (with Indian Flag or foreign flag) shall not be included in the Total Income merely
because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.
PGBP
Expenditures allowed on Cash Basis [SECTION 43B]

Deduction in respect of following expenses are allowed only if payment is made on or before the due date for
furnishing return of income u/s 139(1) of the previous year in which such liability is incurred [i.e. before 31st
July/ 30th Sep/ 30th Nov]:
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) Interest on any loan or advances from a scheduled bank or a cooperative bank (Added by FA 17) on
actual payment basis.
[Cooperative banks excludes Primary Agriculture Credit Society or a primary co-operative agriculture &
rural development Bank]
c) Any sum payable by the assessee as interest on any loan or borrowing from
- any public financial institution or
- a State Financial Corporation or
- a State Industrial Investment Corporation.
d) Bonus or Commission (for services rendered) payable to employees.
e) Leave encashment payable to employees.
f) Any sum payable by the assessee as an employer by way of contribution to any Provident Fund or
Superannuation Fund or Gratuity Fund or any other fund for the welfare of employees.
g) Any sum payable to the Indian Railways for the use of railway assets [Added by FA 16]
Note:
1. If the payment is not made before the date mentioned above, then no allowance shall be allowed in respect
of the outstanding liability. Deduction can, however, be claimed in the year of payment.
2. Section 43B is applicable only if the assessee is following mercantile system of accounting.
3. The above provisions are applicable on Employers contribution to PF, ESI etc and not employee contributions
recovered by the employer which is being paid subsequently as per respective Acts.
4. No deduction for interest converted into loan/advance: Any interest falling under (b) & (c), which has been
converted into a loan or borrowing or advance, shall not be regarded as “actually paid” and shall not be
allowed as deductions.
Post Amendment from AY 18-19:

Any Sum payable by an assessee as interest on any loan or advances from a co-operative bank (other than
a primary agricultural credit society or a primary co-operative agriculture and rural development bank) shall
be allowed as deduction if it is actually paid on or before the due date of furnishing the return of Income
of the relevant previous year.
Cash payments in excess of Rs. 10,000 / Rs. 35,000 – Section 40A(3) & 40A(3A) read with Rule 6DD
(Limit is reduced to Rs. 10,000 from AY 18-19)
1) Where the assessee incurs any expenditure, in respect of which payment or aggregate of payments made to
a person in a day otherwise than by an account payee cheque or by an account payee bank draft or use of
electronic clearing system through a bank account exceeds Rs. 10,000 Rs. 20,000, such expenditure [100%]
shall not be allowed as a deduction. [Section 40A(3)]
2) Further, In case of an assessee following mercantile system of accounting, if an expenditure has been
allowed as deduction in any previous year on due basis, and payment has been made in a subsequent year
otherwise than by account payee cheque or account payee bank draft draft or use of electronic clearing
system through a bank account, then the payment so made shall be deemed to be the income of the
subsequent year if such payment or aggregate of payments made to a person in a day exceeds Rs. 10,000 Rs.
20,000.[Section 40A(3A)]
3) This limit of Rs. 10,000 has been raised to Rs. 35,000 in case of payment made to transport operators for
plying, hiring or leasing goods carriages.
Post Amendment:
1. With a view to discourage cash transactions, Limit of cash payment to a person in a day is reduced from Rs.
20,000 to Rs. 10,000.
2. Specified mode of payment is also expanded to include “use of electronic clearing system through a bank
account”
MAINTENANCE OF BOOKS OF ACCOUNTS [SECTION 44AA]
A. In case of Specified Professionals:
(i) Every person carrying on the specified profession shall keep and maintain the specified books of
account:
a) if his gross receipts exceed Rs. 1,50,000 in each of the 3 years immediately preceding the previous
year; or
b) if, where the profession has been newly set up in the previous year, his gross receipts are likely to
exceed Rs. 1,50,000 in that year.
[However, notified professionals opted for Section 44ADA is not required to maintain books u/s 44AA]
B. In case of Other Profession or Business:

Every taxpayer carrying on any business or profession (other than the professions specified above) must
maintain the books of account prescribed by the CBDT in the following circumstances:
I. in cases where the income from the business or profession exceeds Rs. 1,20,000 or the total sales
turnover or gross receipts, as the case may be, in the business or profession exceed Rs. 10,00,000 in any
one of three years immediately preceding the accounting year; or
Finance Act 17: For an Individual/HUF assessee, the above limit is revised to Rs. 250,000 & Rs. 25,00,000
II. in cases where the business or profession is newly set up in any previous year, if his income from business
or profession is likely to exceed Rs. 1,20,000 or his total sales turnover or gross receipts, as the case may
be, in the business or profession are likely to exceed Rs. 10,00,000 during the previous year
Finance Act 17: For an Individual/HUF assessee, the above limit is revised to Rs. 250,000 & Rs. 25,00,000
Capital Gain
SECTION 50CA – SALE CONSIDERATION IN CASE OF TRANSFER OF UNLISTED SHARES

[W.e.f AY 18-19 – Added by FA 2017]
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.
SECTION 45(5A) – Transfer under Specified Agreement – AY 18-19

Under the existing provisions of Section 45, Capital Gain is chargeable to tax in the year in which transfer
takes place except in certain cases [like Section 45(1A), 45(2), 45(5)]. The definition of ‘Transfer’ includes any
arrangement or transaction where any rights are handed over in execution of part performance of contract,
even though the legal title has not been transferred.
In such a case, execution of Joint development agreement between the owner of immovable property &
developer triggers the capital gains tax liability in the hands of the owner in the year in which the possession
of immovable property is handed over to the developer for development of a project.
With a view to minimize the genuine hardship which the owner of land may face in paying capital gains tax
in the year of transfer, the Act is amended as under:
1. Notwithstanding anything contained in Sub-section (1), where the capital gain arises to an assessee,
being an Individual or a HUF, from the transfer of a capital asset, being land or building or both, under a
specified agreement, the capital gains shall be chargeable to income-tax as income of the previous year
in which the certificate of completion for the whole or part of the project is issued by the competent
authority.
2. For the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his
share, being land or building or both in the project, as increased by the consideration received in cash,
if any, shall be deemed to be the full value of the consideration received or accruing as a result of the
transfer of the capital asset
3. The provisions of this sub-section shall not apply where the assessee transfers his share in the project
on or before the date of issue of said certificate of completion, and the capital gains shall be deemed to
be the income of the previous year in which such transfer takes place and the provisions of this Act,
other than the provisions of this sub-section, shall apply for the purpose of determination of full value of
consideration received or accruing as a result of such transfer
4. "Competent Authority" means the authority empowered to approve the building plan by or under any
law for the time being in force;
5. "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;
6. "Stamp Duty Value" means the value adopted or assessed or assessable by any authority of Government
for the purpose of payment of stamp duty in respect of an immovable property being land or building or
both
Consequential amendments due to Section 45(5A):
(A) Cost of acquisition of the share in the project:

COA of the share in the project being land or building or both, in the hands of the Individual or HUF who
was the owner of land or building or both shall be the amount which is deemed as full value of
consideration under section 45(5A) mentioned above
(B) TDS on monetary consideration – Section 194-IC:

Notwithstanding anything contained in Section 194-IA, any person responsible for paying to a Resident
any sum by way of consideration, not being consideration in kind, under the agreement referred in
Section 45(5A), shall at the time of credit of such sum to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier,
deduct an amount equal to 10% of such sum as income tax thereon.
ROI
Fee for Default in furnishing Return of Income [SECTION 234F] - It is not a penalty
Where a person, who is required to furnish a return of income under section 139, fails to do so within the
prescribed time limit under section 139(1), he shall pay, by way of fee, a sum of-
a. Rs. 5,000 if the return is furnished on or before the 31st December of AY;
b. Rs. 10,000 in any other case
However, if the total income of the person does not exceed Rs. 500,000, the fees payable shall not exceed Rs.
1,000
[In case of late filing of Return, now Late fee u/s 234F is also payable in addition to Interest u/s 234A]
TDS Chapter
NO TDS on GST Component
Circular No. 23/2017 - Tax shall be deducted at source on the amount paid/payable to Resident without GST
component if such GST component is indicated separately.
TDS ON PAYMENT OF RENT BY CERTAIN IND/HUF [Section 194-IB]]

Person Responsible to deduct Any Individual and HUF whose accounts are not subject to audit u/s
Tax 44AB of the Act during the preceding financial year
Payee Resident
Payments Covered Rent Exceeding Rs. 50,000 p.m.
Rate of Deduction of Tax 5%
Time for Deduction of Tax At the Time of Credit of Rent for the Last Month or Payment,
whichever is earlier.
NOTE:
1. Provisions of Section 203A (pertaining to TAN) shall not apply in respect of tax deducted
2. In case Section 206AA applies, TDS amount shall not exceed the amount of Rent payable for the last
month of the Previous Year/Tenancy Period.
Payment to Call Centre [Section 194J]

TDS rate is reduced to 2% (from existing rate of 10%) if payment/credit is given to a person who is engaged only
in the business of operation of call centre.
INCOME FROM OTHER SOURCES
Clarification regarding trade advance not to be treated as deemed dividend under section 2(22)(e) – [Circular
No. 19/2017, dated 12.06.2017]
Section 2(22)(e) provides that "dividend" includes any payment by a company in which public are not substantially
interested, of any sum by way of advance or loan to a shareholder who is the beneficial owner of shares holding
not less than 10% of the voting power, or to any concern in which such shareholder is a member or a partner and
in which he has a substantial interest or any payment by any such company on behalf, or for the individual benefit,
of any such shareholder, to the extent to which the company in either case possesses accumulated profits.
The CBDT observed that some Courts in the recent past have held that trade advances in the nature of
commercial transactions would not fall within the ambit of the provisions of section 2(22)(e) and such views
have attained finality.
In view of the above, the CBDT has, vide this circular, clarified that it is a settled position that trade advances,
which are in the nature of commercial transactions, would not fall within the ambit of the word 'advance' in
section 2(22)(e) and therefore, the same would not to be treated as deemed dividend.
DEDUCTIONS under Chapter VI-A

Contributory Health Service Scheme notified for the purpose of section 80D [Notification No. 9 /2018 dated 16-
2-2018]
Under section 80D, a deduction to the extent of Rs 25,000 (Rs 30,000, in case of resident senior citizens) is
allowed in respect of premium paid to effect or keep in force an insurance on the health of self, spouse and
dependent children or any contribution made to the Central Government Health Scheme or such other health
scheme as may be notified by the Central Government.
Accordingly, the Central Government has, vide this notification, notified the Contributory Health Service Scheme
of the Department of Atomic Energy, contribution to which would qualify for deduction under section 80D.
TDS CHAPTER
No requirement to deduct tax at source under section 194-I on remittance of Passenger Service Fees (PSF) by an
Airline to an Airport Operator [Circular No. 21/2017, dated 12.06.2017]
Section 194-I requires deduction of tax at source at specified percentage on any income payable to a resident by
way of rent. Explanation to this section defines the term “rent” as any payment, by whatever name called, under
any lease, sub-lease, tenancy or any other agreement or arrangement for the use of any (a) land; or (b) building; or
(c) land appurtenant to a building; or machinery; (e) plant; (f) equipment (g) furniture; or (h) fitting, whether or not
any or all of them are owned by the payee.
The primary requirement of any payment to qualify as rent is that the payment must be for the use of land and
building and mere incidental/minor/insignificant use of the same while providing other facilities and service would
not make it a payment for use of land and buildings so as to attract section 194-I.
Accordingly, the CBDT has, vide this circular, clarified that the provisions of section 194 -I shall
not be applicable on payment of PSF by an airline to Airport Operator.
Revisionary Notes – Income Tax – CA Suraj Agrawal 3.1
MEANING OF RELATIVE AT VARIOUS PLACES

Income from Salary
S. Particulars Meaning of Relative
No.
1. Perquisite Member of household
a) Spouses
b) Children and their spouses
c) Parents
d) Servants and dependants
2. Medical Facilities and Leave Travel a) The spouse and children
Concession b) Parents, Brothers and sister of the individual
wholly or mainly dependant on the individual
Profits & Gains of Business or Profession

1. Payments to specified persons Specified persons means relative, partner, director
[Section 40A(2)] or person having substantial interest or relative of
any such person (Any relative i.e., Spouse, any
brother, Sister lineal ascendant or descendant of
such individual)
Income from Other Sources

1. Gifts (in money) [Section 56(2)] a) Spouse of the individual;
b) Brother or sister of the individual;
c) Brother or sister of the spouse of the
individual;
d) Brother or sister of either of the parents of the
individual;
e) Any lineal ascendant or descendent of the
individual;
f) Any lineal ascendant or descendent of the
spouse of the individual;
g) Spouse of the person referred to in clauses (b)
to (f)
Clubbing of Income
1. Substantial Interest [Section 64(1)(ii)] Individual, Spouse, Brother, Sister or lineal
ascendant & descendent
Deductions
1. LIP, ULIP, PPF [Section 80C] Himself, Spouse, Children
2. Medical insurance premium [Section 80D] Individual, Spouse, Parents (whether dependent
or not), dependent children
3. Section 80DD & Section 80DDB Dependent Relative: Spouse, Children, Parents,
Brother & Sisters
4. Section 80E Spouse, Children of Individual, Legal Guardian
SURAJ AGRAWAL TAX CLASS, LAXMINAGAR I 01147542530 I 9953006445 I

Revisionary Notes – Income Tax – CA Suraj Agrawal 3.2
Class Notes

INTRODUCTION & TAX RATE SATC 4A.1
APPLICABLE RATE OF TAX – AY 2019-20

(A) Individuals [except (B) & (C)], HUF, AOP’s & BOI’s & every Artificial Juridical Person:
TOTAL INCOME AMOUNT OF TAX
Up to ` 2,50,000 NIL
On next ` 2,50,001 - 500,000 5%
On next ` 5,00,001 – 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%
(B) For a Resident individual, being a Sr. Citizen, Age ≥ 60 yrs (but less than 80 years)
at any time during the PY.
Up to ` 3,00,000 NIL
On next ` 300,001 - ` 500,000 5%
On next ` 500,001 - ` 10,00,000 20%
On the balance amount [Above ` 10,00,000] 30%
(C) For a resident individual, being a Very Sr. Citizen, Age ≥ 80 yrs at any time during
the PY.
Up to ` 5,00,000 NIL
On next ` 500,001 – ` 10,00,000 20%
On the balance amount ` 10,00,001 & above 30%
Surcharge on Individual / HUF / AOP / BOI / Artificial Juridical Person

Where the total income exceeds ` 50 Lakhs, surcharge is payable at the rate of 10% of income-
tax & if total income exceeds ` 1 crore, surcharge is payable at the rate of 15% of income-tax.
Education Cess: @ 2% of the Total Tax Payable including Surcharge

Secondary & Higher Education Cess: @ 1% of the Total Tax Payable including Surcharge
For AY 19-20, in all above cases, Income Tax (including surcharge, if any) shall be further
increased by Health and Education Cess @ 4% (Amended by Finance Act 2018)
Rebate of ` 2,500 for resident individuals having total income up to

` 3.5 lakh [Sec. 87A]
Conditions - This rebate will be available if the following two conditions are satisfied -
a) Taxpayer is a Resident Individual (he may be ordinarily resident or not ordinarily resident).
b) His total income or net income or taxable income (Le., GTI minus deduction under sections 80C
to 80U) is ` 3,50,000 or less
Amount of Rebate: If the above two conditions are satisfied, the resident individual can claim rebate under
section 87A. The amount of rebate is 100 per cent of income-tax payable on total income or ` 2,500, whichever is
less. This rebate will be available from income-tax (before adding Health & Education Cess).
CA Suraj Agrawal [9953006445] Suraj Agrawal Tax Classes: 011-47542530
In case of other category of Persons: AY 19-20
OTHERS AMOUNT OF TAX SURCHARGE

FIRM & LLP @30% @ 12% of Tax Payable if TOTAL
INCOME > ` 1 Crore
Local Authority @30% @ 12 % of Tax Payable if TOTAL
INCOME > ` 1 Crore
Co-operative On first Rs.10,000 @10% @ 12 % of Tax Payable if TOTAL
Societies On next Rs.10,000 @20% INCOME > ` 1 Crore
For the Balance @30%
Companies Domestic Co.: @30% @ 7 % of Tax Payable if TOTAL

(If Total Turnover / Gross INCOME > ` 1 Crore
receipts during PY 16-17
PY 15-16 does not exceeds @ 12 % of Tax Payable if TOTAL
` 250 Crore ` 50 Cr then Tax INCOME > ` 10 Crore
rate is 25%)
Foreign Co.: @40% @ 2 % of Tax Payable if TOTAL

INCOME > ` 1 Crore
@ 5 % of Tax Payable if TOTAL

INCOME > ` 10 Crore
Education Cess: @ 2% of the Total Tax Payable including Surcharge

Secondary & Higher Education Cess: @ 1% of the Total Tax Payable including Surcharge
For AY 19-20, in all above cases, Income Tax (including surcharge, if any) shall be further
increased by Health and Education Cess @ 4% (Amended by Finance Act 2018)
CONCEPT OF MARGINAL RELIEF – Applicable in case of all assessee

The additional amount of Income tax payable with surcharge in excess of income over
` 1 Crore should not be more than the amount in excess of ` 1 Crore.
Calculation of Marginal Relief:
Marginal Relief = Tax on Total Income including Surcharge

Less: (Total Income - ` 1 Crore) + (Tax on ` 1 Crore including
surcharge if applicable)
Tax Payable = Tax on Total Income including Surcharge

Less: Marginal Relief as computed above
Add: H&EC
Note: Marginal Relief is available at 3 levels – ` 50 Lakhs / ` 1 Crores / ` 10 Crores

Rounding-off of Income [Section 288A]:
The Total Income computed under this Act, shall be rounded off to the nearest multiple of ` 10.
Rounding-off of Tax [Section 288B]:

The amount of tax including Tax Deducted at Source (TDS) and advance tax, interest, penalty, fine or
any other sum payable, and the amount of refund due under the Income Tax Act, shall be rounded off
to the nearest multiple of ` 10.
MEANING OF ASSESSMENT YEAR AND PREVIOUS YEAR

Assessment year [Section 2(9)]
This means a period of 12 months commencing on 1st April every year. The year in which tax is
paid is called the assessment year while the year in respect of the income of which the tax is levied
is called the previous year. For example, for the AY 2019-20, the relevant PY is 2018-19
(1.4.2018 to 31.3.2019).
Previous year [Section 3]

It means the financial year immediately preceding the assessment year. The income earned during
the previous year is taxed in the assessment year.
Business or profession newly set up during the financial year - In such a case, the previous
year shall be the period beginning on the date of setting up of the business or profession and
ending with 31st March of the said financial year.
Newly Source of Income: If a source of income comes into existence in the said financial year,
then the previous year will commence from the date on which the source of income newly comes
into existence and will end with 31st March of the financial year.
CERTAIN CASES WHEN INCOME OF A PREVIOUS YEAR WILL BE ASSESSED IN THE

PREVIOUS YEAR ITSELF – EXCEPTION TO SECTION 4
The income of an assessee for a previous year is charged to income-tax in the assessment year
following the previous year. However, in a few cases, this rule does not apply and the income is taxed
in the previous year in which it is earned. The exceptions are as follows:
(1) Income of a Non resident from Shipping Business;
(2) Income of persons Leaving India either permanently or for a long period of time;
(3) Income of bodies formed for short duration;
(4) Income of a person trying to alienate his assets with a view to avoiding payment of tax and
(5) Income of a discontinued Business

PERSON [Section 2(31)]
Section 2(31) - The definition is inclusive i.e. a person includes,

(A) An Individual
(B) A Hindu Undivided family [HUF]
(C) A Company
(D) A Firm (including LLP)
(E) An AOP or a BOI, whether incorporated or not
(F) A local authority
(G) Every artificial juridical person, not covered above, but which are separate entities in the eye of
law
Definition of “Assessee”
As per Section 2(7), “assessee” means a person by whom any tax or any other sum of money is payable
under the Income-tax Act, 1961. In addition, the term includes –
Every person in respect of whom any proceeding under the Income-tax Act, 1961 has been taken for the
assessment of –
his income; or
the income of any other person in respect of which he is assessable; or
the loss sustained by him or by such other person; or
the amount of refund due to him or to such other person.
Every person who is deemed to be an assessee under any provision of the Income-tax Act, 1961;
Every person who is deemed to be an assessee-in-default under any provision of the Income-tax Act,
1961.

Agriculture Income – By CA Suraj Agrawal SATC 4B.1
AGRICULTURAL INCOME
Section 10(1) provides that agricultural income from land situated in India is exempt.
CONCEPT OF TAXATION OF THE AGRICULTURE INCOME
Agriculture Income is totally exempt under the Act, but shall be included in the total income in case of certain
assessee for the purpose of determining the rate of tax on the non-agriculture income known as partial
integration of taxes. It is applicable to Individuals, HUF, AOP, BOI and Artificial Judicial Persons.
Two conditions which need to satisfied for partial integration are:
Net Agricultural Income should exceed ` 5,000 p.a.

AND
Non-Agricultural Income should exceed the maximum amount not chargeable to tax.
Tax calculation in such cases is as follows:

Step 1: Add non-agricultural income with net agricultural income. Compute tax on the aggregate amount.
Step 2: Add net agricultural income and the maximum exemption limit available to the assessee (i.e.
` 2,50,000 / ` 3,00,000 / ` 500,000). Compute tax on the aggregate amount.
Step 3: Deduct the amount of income tax calculated in step 2 from the income tax calculated in step 1 i.e. Step
1 – Step 2.
Step 4: The sum so arrived at shall be increased by health & education cess @4% after taking Rebate u/s 87A
if applicable.
[Note: In case TOTAL INCOME excluding LTCG/STCG(111A)/Casual Income does not exceeds the
maximum exemption limit, partial integration of tax will not be applicable.
DEFINITION OF AGRICULTURAL INCOME [Section 2(1A)]
Agricultural income may arise in any one of the following three ways:-
(1) It may be Rent or Revenue derived from land situated in India and used for agricultural purposes.
(2) It may be income derived from such land
a. through agriculture or
b. through the performance of a process ordinarily employed by a cultivator or receiver of rent in kind to
render the produce fit to be taken to the market or
c. through the sale of such agricultural produce in the market.
(3) It may be derived from any farm building required for agricultural operations
The income derived from saplings or seedlings grown in a nursery would be deemed to be agricultural
income, whether or not the basic operations were carried out on land.

Agriculture Income – By CA Suraj Agrawal SATC 4B.2
INCOME FROM COMPOSITE ACTIVITY OF AGRICULTURE AND BUSINESS
Amount of Non-agricultural
Nature of Income Agricultural Income Income i.e. business
income
1. Income from sale of TEA Grown and Manufactured by 60% 40%
the assessee in India
2. Income from RUBBER plants Grown by the seller in 65% 35%
India
3. Income derived from the sale of COFFEE Grown and 75% 25%
Cured by the seller in India
4. Income derived from the sale of COFFEE Grown, 60% 40%
Cured, Roasted and Grounded by the seller in India
Rule 7 - Agricultural produce other than Tea, rubber etc used as Raw Material in a Manufacturing Concern
FMV of any agricultural produce shall be deducted in computing PGBP income & not the cost of cultivation.
Question No. 5 (Tony) & 6 (Vivitha) – IMP

Residential Status – By CA Suraj Agrawal SATC 5.1
RESIDENTIAL STATUS [Section 6]

RESIDENT STATUS OF AN INDIVIDUAL [Section 6(1)]
Under section 6(1), an individual is said to be Resident in India in any previous year, if he satisfies any one of
the following BASIC conditions:
1. He has been in India during the previous year for a total period of 182 days or more,
OR
2. He has been in India during the 4 years immediately preceding the previous year for a total period of 365
days or more AND has been in India for at least 60 days in the relevant PY.
Exceptions:
The following categories of individuals will be treated as Residents only if the period of their stay during the
relevant previous year amounts to 182 days or more.
1. Indian Citizen who leaves India as a member of the crew of an Indian ship,
2. Indian Citizen who leaves India for the purpose of employment outside India OR
3. Indian Citizen or Person of Indian origin engaged outside India coming on a visit to India.
Note: A person is said to be of Indian origin if he or either of his parents or either of his grandparents were born in
undivided India.
Rules notified are as follows

For the purposes of Section 6(1), in case of an individual, being a citizen of India and a member of the crew of a
ship, the period or periods of stay in India shall, in respect of an eligible voyage, not include the period
beginning on the date entered into the Continuous Discharge Certificate in respect of joining the ship by the
said individual and ending on the date entered into the Continuous Discharge Certificate in respect of
signing off by that individual from the ship.
"Eligible voyage" shall mean a voyage undertaken by a ship engaged in the carriage of passengers or freight in
international traffic where
i. For the voyage having originated from any port in India, has as its destination any port outside India; and
ii. For the voyage having originated from any port outside India, has as its destination any port in India.'
ADDITIONAL CONDITION [Section 6(6)]: Resident but Not-Ordinarily Resident (Individual)

Only Individuals and HUF can be Resident but Not Ordinarily Resident in India.
A Not-Ordinarily Resident person is one who satisfies any one of the conditions specified under section
6(6) which are:
1. If such individual has been Non-Resident in India in any 9 out of the 10 previous years immediately
preceding the relevant previous year, OR
2. If such individual has during the 7 previous years immediately preceding the relevant previous year been in
India for a period of 729 days or less.
n other words, an Individual has to satisfy the both additional conditions in order to become Ordinary
Resident (ROR) in India:-
I. Resident in India in any 2 out of the last 10 previous years immediately preceding the relevant previous
year AND
II. Total stay in India for 730 days or more during 7 previous years immediately preceding the relevant
previous year.

RESIDENT STATUS OF HINDU UNDIVIDED FAMILY (HUF) [Section 6(2)]
A HUF would be Resident in India if the control and management of its affairs is situated wholly or partly in
India. If the control and management of the affairs is situated wholly outside India it would become a non-
resident.
STATUS
If Control & Management of its affairs is wholly / party situated in India - Resident
If Control & Management of its affairs is wholly situated outside India - Non-Resident
Resident but Not-Ordinarily Resident (HUF)

If the HUF is Resident, then the status of the Karta determines whether it is ROR or RNOR. If the Karta/Manager
satisfies the conditions of Section 6(6), then the HUF is said to be RNOR.
RESIDENT STATUS OF A COMPANY [Section 6(3)]

IF PERSON IS: STATUS
An Indian Company [as defined under section 2(26)] - Resident
Company other than Indian Company will be Resident in India in any previous year if its Place of
Effective Management [POEM], in that year, is in India.
“POEM” to mean a place where key management and commercial decisions that are necessary for the
conduct of the business of an entity as a whole are, in substance made.
RESIDENT STATUS OF PERSONS OTHER THAN ABOVE [Section 6(4)]

(FIRMS/AOP/BOI/Local Authority/Artificial Judicial Persons)
STATUS
If Control & Management of its affairs is wholly / party situated in India - Resident
If Control & Management of its affairs is wholly situated outside India. - Non-Resident
SCOPE OF TOTAL INCOME [Section 5] – Tax Incidence vs Residential Status

NATURE OF INCOME R & OR RNOR NR
a) Income received or deemed to be received in India Taxable Taxable Taxable

during the year
b) Income accrues/arises or deemed to accrue/ arise in Taxable Taxable Taxable

India during year
(c) Income accrues/arises and received outside
India and derived from
- A business / Profession controlled/ Taxable Taxable Not Taxable
setup in India
- A business / Profession controlled/ Taxable Not Taxable Not Taxable
setup from outside India
Or Income from other heads
(d) Past income (earned and received abroad) remitted Not Taxable Not Taxable Not Taxable
to India in Previous year

INCOME DEEMED TO ACCURE OR ARISE IN INDIA [Section 9]
Section 9 applies to all assesses irrespective of their residential status and place of business. The categories of
income which are deemed to accrue or arise in India are as under:
Income Accruing/Arising [Section 9(1)(i)]

All income accruing or arising, whether directly or indirectly,
through or from any Business Connection (including professional connection) in India, or
through or from any property, asset or source of Income, or
through the transfer of a capital asset situated in India i.e. if the source of income is in India.
shall be deemed to accrue or arise in India
Note:
Existence of Professional connection amounts to existence of business connection. (for example
when foreign lawyer is called upon in India to plead the case in Indian courts.
Salaries Earned in India [Section 9(1)(ii)]

Taxable including Pension, Arrear Salary & Leave Salary for work done in India.
Salaries Payable by Indian Govt. [Section 9(1)(iii)]

Any income chargeable under head “salaries” payable by the Indian Govt. to a citizen of India for service
rendered outside India shall be deemed to accrue or arise in India.
Foreign Allowances by the Govt. Employer - Section 10(7) –Exempted
Any allowance or perquisite paid or allowed outside India, by the Indian Govt. to a citizen of India, for rendering
service outside India is fully exempt.
INCOME FROM DIVIDEND [Section 9(1)(iv)]
All dividends paid by an Indian company must be deemed to accrue or arise in India.
INTEREST [Section 9(1)(v)]
Under section 9(1)(v), an interest is deemed to accrue or arise in India [Taxable in the hands of recipient]
if it is payable by:
1) the Government; or
2) a person resident in India except where it is payable
a) in respect of any money borrowed and used for the purposes of a business or profession carried on by
him outside India OR
b) for the purposes of making or earning any income from any source outside India) ; or
3) a Non-Resident when it is payable in respect of any debt incurred or moneys borrowed and used for the
purpose of a business or profession carried on in India by him.
IMP: Interest on money borrowed by the non-resident for any purpose other than a business or
profession, will not be deemed to accrue or arise in India.
ROYALTY [Section 9(1)(vi)]

Royalty will be will be deemed to accrue or arise in India when it is payable by –
2) a person who is a resident in India except in cases where it is payable
a) for the transfer of any right or the use of any property or information or for the utilization of services for the
purposes of a business or profession carried on by such person outside India OR
b) for the purposes of making or earning any income from any source outside India; or
3) a non-resident only when the royalty is payable
a) in respect of any right, property or information used or services utilised for purposes of a business or
profession carried on in India OR
b) for the purposes of making or earning any income from any source in India.
FEES FOR TECHNICAL SERVICES [Section 9(1)(vii)]
Any fees for technical services will be deemed to accrue or arise in India if they are payable by:
2) a person who is resident in India, except in cases where the fees are payable
a) in respect of technical services utilised in a business or profession carried on by such person outside
India OR
b) for the purpose of making or earning any income from any source outside India; or
3) a person who is a non-resident, only where the fees are payable in respect of
a) services utilised in a business or profession carried on by the non-resident in India OR
b) where such services are utilised for the purpose of making or earning any income from any
source in India.
Explanation to Section 9
Income deemed to accrue or arise in India to a non-resident by way of interest, royalty and fee for
technical services to be taxed irrespective of territorial nexus
Explanation to section 9 clarifies that income by way of interest, royalty or fee for technical services which is
deemed to accrue or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included in the
total income of the non -resident, whether or not:
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
Explain the concept of "Apportionment of Profit" under section 9 of the Income-tax Act, 1961.
Clause (a) of Explanation 1 to Section 9(1)(i) provides that, “in case of a business of which all the operations
are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall
be only such part of the Income as is reasonably attributable to the operations carried out in India.”
Business Connection in India shall include
Any business activity carried out through a person acting on behalf of the non-resident and such person
a) exercises in India, an authority to conclude contracts or plays the principal role leading to
conclusion of contracts on behalf of the non-resident or
b) maintains in India a stock of goods from which he delivers goods on behalf of the non-resident or
c) secures orders in India, mainly or wholly
for the non-resident or
for that non-resident and other non-residents
under the same common control & managements
Business Connection shall not include the cases where the non-resident carries on business through a
broker, general commission agent or any other agent of an independent status.
Independent status: Where a broker, general commission agent or any other agent not works mainly or
wholly on behalf of a NR or other non-residents under the same common control & management.
Following cases shall not be treated as Business connection in India:

1) Purchase of goods in India for the purpose of export.
2) Engaged in the business of running a news agency or publishing newspapers, magazines or

journals, through or from activities which are confined to the collection of news and views in India
for transmission out of India.
3) Non-resident’s operations is confined to shooting of cinematography films in India but if non-

resident is
(i) An Individual - He should not be citizen of India.
(ii) A Firm- No partner should be citizen of India or resident in India.
(iii) A Company - None of the shareholder should be citizen of India or resident in India.
4) In the case of a foreign company engaged in the business of mining of diamonds, no
income shall be deemed to accrue or arise in India to it through or from the activities which are
confined to the display of uncut and unassorted diamond in any special zone notified by
the Central Government in the Official Gazette in this behalf.
Added by Finance Act 2018

Explanation 2A to Clause (i) of Sub-section (1) of Section 9
Significant economic presence of a non-resident in India shall constitute "business

connection" in India {Theory Question – 4 Marks}
Significant economic presence of a Non-Resident in India shall constitute "business

connection" in India and
"significant economic presence" for this purpose, shall mean-
a) transaction in respect of any goods, services or property carried out by a non-resident in India
including provision of download of data or software in India, if the aggregate of payments
arising from such transaction or transactions during the previous year exceeds such amount
as may be prescribed; or
b) systematic and continuous soliciting of business activities or engaging in interaction with
such number of users as may be prescribed, in India through digital means:
Provided that the transactions or activities shall constitute significant economic presence in
India, whether or not,—
i. the agreement for such transactions or activities is entered in India; or
ii. the non-resident has a residence or place of business in India; or
iii. the non-resident renders services in India:
Provided further that only so much of income as is attributable to the transactions or activities referred
to in clause (a) or clause (b) shall be deemed to accrue or arise in India.

CLASS NOTES

Revisionary Notes – Income Tax - Salary – CA Suraj Agrawal [SATC] 6.1
SHORT NOTES ON SALARIES

Income from Salary XXX
Add: Income by way of Allowances XXX
Add: Taxable Value of Perquisites XXX
Gross Salary XXX
Less: Deduction under section 16
(ia) Statutory Deduction 40,000
(ii) Entertainment Allowances XXX
(iii) Professional Tax XXX XXX
INCOME UNDER THE HEAD “SALARIES” XXX

IMPORTANT FEATURES OF EMPLOYER-EMPLOYEE RELATIONSHIP:
It is a Contract of Services and not Contract for services, Master-Servant Relationship, Direct supervision
and control of the employer.
SECTION 15 - BASIS OF CHARGE
Salary chargeable to tax either on ‘due’ basis or on ‘receipt’ basis whichever is earlier. Accounting method of
the employee is not relevant. However, in case of Advance Salary/Arrear Salary which is taxable on receipt basis,
the assessee is eligible to claim relief under section 89.
SALARY IN THE GRADE SYSTEM: 7,000 - 500 - 10,000 - 800 - 15,600 - 1,000 - 22,600
Salary for every 12 months will remain same and then it will increase by 500 upto 10,000 after that by 800 etc
TAX TREATMENT OF DIFFERENT FORM OF ‘SALARY’

A. Advance Salary:
Salary can’t be taxed twice i.e. where any salary paid in advance is taxed on receipt basis (in the yr. of
receipt) it can’t be taxed again on the due basis (in the yr. in which it becomes due).
B. Arrear of Salary:
Arrear of Salary received by an assessee is charged to tax on receipt basis (if it was not taxed earlier on due
basis).
C. Salary in Lieu of notice period: Salary in lieu of notice period is generally taxable u/s 15 on receipt basis.
D. Salary to Partners:
Any salary, bonus, commission or remuneration received by a partner from his firm is taxed as business
income and not as salary income.
E. Bonus: Bonus is taxed in the year of receipt, it is not taxed on due basis.
F. Salary from UNO {Sec. 2 of UN (Privileges & Immunities Act, 1947)}: Exempt
G. Full-time or part-time employment: Taxable u/h Salary
H. Foregoing of Salary: Taxable
I. Surrender of Salary: Not Taxable
J. TDS on Salary: TDS deducted paid by employer will be added to salary.
K. Salary Paid Tax-Free: Tax paid by employer will be added to salary.
L. Loan or Advance Against Salary - Not taxable
SECTION 17(3) – “PROFITS IN LIEU OF SALARY”
(a) Any Terminal Compensation
(b) Payment from an Unrecognized Provident Fund
(c) Payment under Keyman Insurance Policy
(d) any amount, whether in lumpsum or otherwise, due to the assessee or received by him, from any
person before joining employment with that person, or after cessation of his employment with that person.

PLACE OF ACCRUAL OF SALARY
Section 9(1)(ii) provides that salary earned in India is deemed to accrue or arise in India even if it is paid
outside India or it is paid or payable after the contract of employment in India comes to an end.
[Pension paid abroad in respect of services rendered in India & leave salary paid abroad in respect of leave
earned in India is deemed to accrue or arise in India]
Section 9(1)(iii) provides that salaries payable by the Government to a citizen of India for services
outside India shall be deemed to accrue or arise in India.
Foreign Allowances by the Govt. Employer - Section 10(7) –Exempted

Any allowance or perquisite paid or allowed outside India, by the Indian Govt. to a citizen of India, for
rendering service outside India is fully exempt.
ENTERTAINMENT ALLOWANCE [SEC.16 (ii)]

A. First the entire entertainment allowance received by an employee is added to the gross salary.
B. Then deduction u/s 16(ii) [only to Govt employee] shall be allowed as under:
Least of the following is deductible-
a. Amount actual received
b. ` 5,000
c. 20% of salary (Salary=Basic Salary)
Here, Government Employee includes Central/State but excludes employees of local authorities,
statutory corporations, PSU.
PROFESSIONAL TAX
Professional tax or taxes on employment levied by a State is allowed as deduction only when it is actually paid
by the employee during the previous year.
If professional tax is reimbursed or directly paid by the employer on behalf of the employee, the amount so paid is
first included as salary income and then allowed as a deduction under section 16.
TAXABILITY IN RELATION TO RETIREMENT FUNDS
1. Taxability of Employer’s Contribution:
a. Statutory Provident Fund - Fully Exempt without any limit

b. PPF - Employer does not contribute in PPF
c. Recognised Provident Fund - Exempt to the extent of 12% of Salary [Basic +DA(R) + Com(R)]
d. Approved Superannuation Fund - Exempt upto ` 1,50,000
e. UnRecognised PF - No Tax Treatment at the time of contribution.
2. Taxability of Interest received in above Funds:
a. Statutory Provident Fund - Fully Exempt

b. PPF - Fully Exempt u/s 10(15)
c. Recognised Provident Fund - Exempt to the extent of 9.5%
d. Approved Superannuation Fund - Fully Exempt
e. UnRecognised PF - No Tax Treatment at the time of interest credit.
3. Taxability of amount received from Funds:
a. Statutory Provident Fund - Exempt u/s 10(11)

b. PPF - Exempt u/s 10(11)
c. Recognised Provident Fund - Exempt u/s 10(12) [5 Years works]
d. Approved Superannuation Fund - Exempt u/s 10(13)
e. UnRecognised PF - Employer’s Contribution & Interest – Taxable u/h Salary
- Interest on employee’s contribution – Taxable u/h IOS

GRATUITY [Section 10(10)] Exempt Taxable

(a) Government Employee Fully exempt NIL
(b) Employee covered by Gratuity Act:

Least of:
(i) Actual Gratuity received;
Actual amt.
(ii) 15/26 x Last Drawn Salary x Number of years of Completed
Least is exempt received Less
Service or part thereof in excess of six months;
Amount exempt
(Salary = Basic + D.A.)
(iii) Statutory Limit: ` 20,00,000;
(c) Other employees: Least of the following:

(i) Actual Gratuity received;
(ii) 1/2 x Average salary for 10 months preceding the month of
Actual amt.
retirement x Number of fully completed years of service
Least is exempt received Less
(iii) Statutory Limit: ` 10,00,000;
Amount exempt
Salary = Basic + DA (if forming part of Retirement benefits) +
Commission on Turnover.
PENSION Exempt Taxable

UNCOMMUTED PENSION NIL Fully taxable
COMMUTATION OF PENSION [Section 10(10A)]
a. Government Employee Fully exempt NIL
b. Other Employee
• If in receipt of Gratuity 1/3 x Full Value Actual amt.
of Pension is received Less
Exempt Amount exempt
• If not in receipt of Gratuity 1/2 x Full Value
of Pension is
Exempt
LEAVE ENCASHMENT Exempt Taxable

LEAVE ENCASHMENT DURING SERVICE NIL Fully taxable
LEAVE ENCASHMENT ON RETIREMENT [Sec. 10(10AA)]

(a) Government Employees Fully exempt NIL
(b) Other employees: Least of the following:
i. Amount Actually Received
ii. ` 3,00,000
iii. Average Salary of 10 Months preceding the date of trf x 10
Actual amount
Months
Least is Exempt received Less
iv. Leave credit (Maximum @ 30 days p.a.) for every completed
Amount Exempt
year of service x Average salary on 10 months basis
RETRENCHMENT COMPENSATION [Sec 10(10B)]

Least of the following:
1. Amount actually received
Actual amount
2. ` 5,00,000 Least is exempt
received Less
3. Amount determined u/s 25F(b) of Industrial Disputes Act, 1947
Amount exempt
[15/26 x 3 months average Salary x Number of years of
Completed Service or part thereof in excess of six months;
(Salary = Basic + D.A.)]

VOLUNTARY RETIREMENT COMPENSATION (if relief u/s
89(1) is not claimed) [Section 10(10C)] & Rule 2BA] Exempt Taxable
[Only once in any Assessment Year – Once in a Life]
Least of the following is exempt
(a) Amount actually received Actual amount
(b) ` 5,00,000 received Less
Least is exempt
(c) Last drawn Salary x 3 x No. of fully completed years of service or Amount Exempt
(d) Last drawn Salary x Balance of months of service left C

LEAVE TRAVEL ASSISTANCE [Sec 10(5) - Rule 2B]

Twice in a block of four years: [Current Block is 2018-2021].
(a) By Air - National Airways - Economy Class - Shortest route
(b) By Train -1 Class AC fare - Shortest Route
(c) By Recognized Transport – Deluxe / First Class - Shortest Route
(d) By other means - 1 Class AC fare as per Railways, equivalent for
Amount is exempt Actual amount
distance travelled - Shortest Route
only for the received Less
If LTA is not availed twice in a block of 4 yrs, One LTA can be
st Shortest Route Amount Exempt
availed in the 1 year of next block
This exemption is not available for more than two surviving
children of an individual and born after 1.10.1998. (Multiple Birth
after one child – ok)
Family: Self + Spouse + Child + Dependents (Parents,
brothers, Sisters)
HOUSE RENT ALLOWANCE [Sec 10(13A)]

Least of the following is exempt:
A. Actual HRA Received
B. 50% (metros) / 40% (others) of Salary
C. Rent paid Less 10% of salary
Salary = Basic + DA (Forming Part of Retirement Benefits) + Commission on Turnover
If there is a change in Rent, Salary, Place, HRA etc, than HRA exemption will be on periodic basis.
ALLOWANCES which is Partly Exempted to the extent specified [Section 10(14)]
A. Children Education allowance (for Maximum 2 Children) ` 100 p.m. per child
B. Children Hostel Expenditure allowance (for Max 2 Children) ` 300 p.m. per child
C. Running Allowance/Outstation Allowances for Transport Sector Employees Lower of

70% of amount received
or ` 10,000 p.m.
D. Transport Allowance (for going to office and back)
(i) General (Now fully taxable) ` 1,600 p.m. NIL
(ii) For handicapped, Blind etc ` 3,200 p.m.
E. Mining / Underground Allowance ` 800 p.m.
F. Tribal Area Allowance ` 200 p.m.
G. Hill compensatory allowance ` 300 p.m.
ALLOWANCES which is Exempted to the extent incurred for official purpose [Section 10(14)]
A. Travelling Allowance B. Conveyance Allowance C. Academic Allowance
D. Daily Allowance E. Helper Allowance F. Uniform Allowance

ALLOWANCES – Fully Taxable
A. City Compensatory Allowances B. Entertainment Allowance C. Dearness Allowance
D. Medical Allowance E. Lunch Allowance F. Overtime Allowance
ALLOWANCES – Fully Exempt
A. Allowances & Perquisites to Indian Citizen working outside India by GOI

B. Allowances & Perquisites to UNO Employee
Allowance/Perquisites u/s 10(45):

Notified allowance or perquisite paid to the Chairman / Retired Chairman / any other Member / Retired Member
of UPSC is exempt.
Exempted Perquisites
Following perquisites are exempted in hands of employee:
1. Tea or snacks: Tea, similar non-alcoholic beverages and snacks provided during working hours.
2. Food: Food provided by employer in working place upto ` 50 per meal. Remote area – full exempt.
3. Recreational facilities: Recreational facilities extended to a group of employees.
4. Goods sold to employee at concessional rate: Goods manufactured by employer and sold by him to his
employees at concessional (not free) rates.
5. Conveyance facility: Conveyance facility provided -
• to employees for journey between office and residence and vice versa.
• to the judges of High Court and Supreme Court
6. Training. Amount spent on training of employees including boarding and lodging expenses of the employees
on such training.
7. Services rendered outside India: Any perquisite/allowances allowed outside India by the Government to a
citizen of India for rendering services outside India.
8. Contribution in some specified schemes
• Employer's contribution to staff group insurance scheme.
• Payment of annual premium by employer on personal accident policy affected by him in respect of his
employee.
9. Loans
• Loan given at nil or at concessional rate of interest by the employer provided the aggregate amount of loan
does not exceed ` 20000.
• Interest free loan for medical treatment of the diseases specified in Rule 3A.
10. Medical facility
• A provision of medical facility at office is exempt.
• In any other case, medical facility up to ` 15000 is exempt.
11. Periodicals and journals: Periodicals and journals required for discharge of work.
12. Telephone, mobile phones: Expenses for telephone, mobile phones actually incurred on behalf of employee
by the employer whether by way of direct payment or reimbursement.
13. Free education facility: Free education facility to the children of employee in an institution owned or
maintained by the employer provided cost of such facility does not exceed ` 1000 per month per child.
14. Computer or Laptop: Computer or Laptop provided whether to use at office or at home (provided ownership
is not transferred to the employee).
15. Movable assets: Sale or gift of any movable asset (covered under SLM method) to employee after being
used by the employer for 10 or more years.
16. Leave Travel Concession: Leave Travel Concession (LTC) to the extent of lowest cost incurred.
17. Rent-free accommodation
• Rent-free official residence provided to a Judge of a High Court or the Supreme Court.
• Rent-free furnished residence (including maintenance thereof) to Official of Parliament, a Union Minister or
a Leader of opposition in Parliament.
18. Accommodation: Accommodation provided -
• on transfer of an employee in a hotel for a period not exceeding 15 days in aggregate.
• in a remote area to an employee working at a mining site or an onshore exploration site or a project
execution site or a dam site or a power generation site or an offshore site.
19. Tax on non-monetary perquisite paid by employer on behalf of employee.
20. Health club. Sports club facility

[SATC]
Revisionary Notes – Income Tax - Salary – CA Suraj Agrawal 6.6
ACCOMMODATION PROVIDED BY THE EMPLOYER TO THE EMPLOYEE
1. Value of Unfurnished Accommodation
Nature of Perquisite Taxable Value of Perquisite

Provided by Government License fee determined by the Government
Less: Rent recovered from Employee
Provided by Employer other than Central and State Government
(a) Owned by Employer If population > 25 Lakhs: 15% of Salary
If population > 10 Lakhs but does not exceeds 25 Lakhs: 10% of

Salary
If population < 10 Lakhs: 7.5% of Salary
Less Rent actually paid by the employee
(b)Taken on lease by the employer Lower of the Two:

(a) Rent paid by employer or
(b) 15% of Salary
Less Rent recovered from employee
(c) Accommodation in hotel 24% of Salary paid / payable or actual charges paid / payable whichever
is lower Less Amount paid or payable by the employee
Hotel Accommodation: Accommodation provided in a hotel will not be a taxable perquisite if—
• The period of such accommodation does not exceed 15 days;
• Such accommodation has been provided on the transfer of the employee from one place to another.
2. Valuation of Furnished Accommodation:

Particulars `
Value of unfurnished accommodation as above XXX
Add: Value of Furniture
- If owned by employer, then 10% per annum of Original Cost of such Furniture XXX
- If hired from third party, then Actual Hire Charges XXX
Less: Any charges paid or payable by the employee (xxx)
Value of furnished accommodation XXX
Note: Furniture includes Television sets, Radio, Refrigerator, other Household Appliance, Air-Conditioning plant or
Equipment.
VALUATION NOT APPLICABLE

(a) Employees Covered: Employees working at —
• Mining Site; • Offshore Site; • Dam Site;
• Onshore Oil Exploration Site; • Project Execution Site; • Power Generation Site
(b) Conditions:
• The accommodation should be of a temporary nature and
• Accommodation should be located at least 8 kms away from local limits of Municipality / Cantonment or
located in a remote area (i.e. 40 kms away from town with Less than 20,000 population)
VALUATION OF ACCOMMODATION IN CASE OF EMPLOYEES ON TRANSFER

a) For the first 90 days of transfer: Where accommodation is provided both at existing place of work and in
new place, the accommodation, which has lower value, shall be taxable.
b) After 90 days: Both accommodations shall be taxable.
MEANING OF SALARY FOR VALUATION OF ACCOMMODATION FACILITIES
Salary (from one or more employer) includes Salary excludes
• Basic Salary • Employer's contribution to PF
• D.A., if considered for retirement benefits • Exempted Allowances
• All taxable allowances • Value of perquisites (monetary or non-monetary)
• Bonus or Commission • Arrear Salary / Advance Salary
• Any other monetary payment

TAXABLE PERQUISITES PROVIDED BY AN EMPLOYER TO AN EMPLOYEE OR MEMBERS OF HIS
HOUSEHOLD
(A) Taxability of Motor Car Benefits [Rule 3(2)(A)] - Taxable only in the hands of specified employee
[Specified employee means – Director, 20% (beneficial ownership), Cash salary (Excluding non-monetary
perquisites) more than ` 50,000 p.a.]
Owner of Car Expenses Purpose Taxable Value of Perquisite

met by
1(a) Employer Employer Fully Official Not a perquisite provided the documents specified in Rule
3(2)(B) are maintained.
1(b) Employer Employer Fully personal use Aggregate of-
(a) Actual expenditure on car
(b) Remuneration to chauffeur
(c) 10% of the cost of car (normal wear & tear)
Less: Amount charged from employee
1(c)(i) Employer Employer Partly for official Upto 1.6 Litres [Small Car]
and partly for ` 1,800 p.m. + ` 900 p.m. for chauffeur
personal
Above 1.6 Litres
` 2,400 p.m. + ` 900 p.m. for chauffeur
1(c)(ii) Employer Employee Partly for official Upto 1.6 Litres [Small Car]
and partly for ` 600 p.m. + ` 900 p.m. for chauffeur
personal
Above 1.6 Litres
` 900 p.m. + ` 900 p.m. for chauffeur
2(i) Employee Employer Fully official use Not a perquisite provided documents as per Rule 3(2)(B)
are maintained.
2(ii) Employee Employer Partly for official use Subject to Rule 3(2)(B)
and partly for Actual expenditure incurred Less
personal use Small Car - Value as per 1(c)(i)
Big Car - Value as per 1(c)(i)
3(i) Employee Employer Fully official use Not a perquisite provided documents as per Rule 3(2)(B)
owns other auto- are maintained
motive but not car
3(ii) Employee Employer Partly for official Subject to Rule 3(2)(B)

owns other auto- and partly for Actual expenditure incurred by employer
motive but not car personal use Less: 900 p.m.
Notes:
1. Using cars from pool of cars owned or hired by Employer:
The employee is permitted to use any or all cars for both official and personal use:
For one car - Valued as per 1(c)(i)
For more than one car - Valued as per 1(b) as if fully used for personal purpose

Perquisites taxable in case of Specified Employee only (if it is provided by employer):
Rule Nature of perquisite Taxable Value of perquisite (TVP)

3(3) Service of sweeper, gardener or Actual cost to the employer
watchman or personal attendant Less: Amount paid by the employee
3(4) Supply of gas, electricity or water for Procured from outside Agency: Amount paid to outside agency
household consumption
Resources owned by employer himself: Manufacturing cost
per unit Less: Amount paid by the employee
3(5) Education facilities to members of
his household:
(a) Free Education to children
If the cost of education per child does not exceed ` 1,000
in the school maintained by
p.m. - Not taxable [2 Views]
the employer or the school
sponsored by the employer [No
limit]
(b) Other Schools In other case, Cost to such education
Less: Amount recovered from employee
3(6) Transportation of goods or Value at which it is offered to public

passengers at free or concessional Less: Amount recovered from the employee
rate provided by the employer
engaged in that business (other
than railways / airlines)
VALUATION OF OTHER PERQUISITES:

• Interest charged by employer is equal to or higher
than SBI rates: It is not a taxable perquisite
• Interest charged is lower than SBI rates:

Perquisites will be:
Interest at SBI rates on maximum monthly
Interest Free of Concessional Loan: outstanding balance on last day
3(7)(i) Less: Interest paid by the employee on that loan.
SBI Rate = SBI Rate prevailing on
the First Day of the Previous Year Exceptions:
(a) Medical loan for treatment of diseases specified
in Rule 3A except Loan reimbursed by medical
insurance
(b) Loan not exceeding ` 20,000 in aggregate
3(7)(ii) Travelling, touring, accommodation

and other expenses met by the
employer other than official purpose. Amount incurred by employer or Value offered to public
(To be calculated only for the period of Less: Amount recovered from employee
vacation)
3(7)(iii) Free meals during office hours A. Actual cost to the employer above ` 50/- per day per
[Free meal in remote area or offshore meal
installation area is not a taxable Less: Amount recovered from the employee
perquisite]
B. Tea or non-alcoholic beverages / snacks during working
hours is not taxable.
3(7)(iv) Value of any gift or voucher or token

A. Value of gift (in Kind) in excess of ` 5,000. [2 Views]
including cash gift
B. Gift in cash – Fully taxable.
.
3(7)(v) Expenditure incurred on credit card or A. Actual expenditure by employer is taxable
add on card including membership fee Less: Amount recovered from employee.
and annual fee.
B. If it is incurred for official purpose - Not taxable
3(7)(vi) Expenditure on club A. Actual expenditure incurred by the employer Less:
Amount recovered from employee.
B. If it is incurred for official purpose - Not taxable
C. Initial fee of corporate membership of a club is not a
taxable perquisite.
D. Health club or sports club or similar facilities
provided uniformly to all employees – Not a
perquisite.
3(7)(vii) Use of any movable asset other than 10% of Actual cost if owned by the employer; or
computer or laptops or other assets Actual Rental Charge Paid / Payable by employer
Less: Amount recovered from employee
Transfer of movable asset to employees
Computers & Electronic Items Motor Car Other Assets

Actual Cost Actual Cost Actual Cost
Less: Depreciation @ 50% for Less: Depreciation @ 20% Less: Depreciation @
every completed year for every completed 10% for every
under WDV method. year [WDV] completed year
under SLM Method.
Value of the Asset Value of the Asset Value of the
3(7)(viii)
Less: Amount recovered from Less: Amount recovered from Asset
the employee the employee Less: Amount recovered
from the employee
Value of the perquisite Value of the perquisite Value of the
perquisite
• Electronic gadgets include Computer. Digital Diaries and Printers, but exclude washing
machines, Microwave ovens, Mixers, Hot plates, Ovens etc.
• Transfer of other assets (SLM), which are 10 years old, shall not attract taxability.
3(7)(ix) Any other benefit or amenities or Cost to the employer

service or right or privilege provided Less: Amount recovered from employee
by the employer other than telephone
or mobile phone
SECTION 10(10CC) – INCOME IN THE NATURE OF PERQUISITE –Exempted

As per section 10(10CC), tax paid by employer on non-monetary perquisite income of employee shall be exempt
in the hands of employee. Further it will behave like TDS and eligible for deduction from final tax liability.
TAX IMPLICATION IN HANDS OF EMPLOYER: Section 40(a)(v) disallows such expenditure in the hands of the
employer. Therefore, the tax so paid by the employer will not be deductible expenditure in his hands.

Medical Facilities - Exempt
MEDICAL TREATMENT IN INDIA:
I. Expenditure incurred in a HOSPITAL MAINTAINED BY THE EMPLOYER.
II. Sum paid by the employer for any expenditure for medical treatment in any hospital maintained by the
Govt. or local authority or an approved hospital under CGHS or of prescribed diseases/ ailment in a
hospital approved by CCIT. [Certificate is required]
III. Group Medical Insurance, Medical Insurance paid u/s 80D, Premium of Accidental Insurance Policy.
IV. Any other medical expenditure reimbursed to the extent of `15,000
Medical Treatment Abroad:
Medical treatment and Stay expenses (one attendant) abroad – exempt (If permitted by R.B.I.)
Travel expenditure (patient + one attendant) – GTI upto ` 2,00,000 – Fully exempt.
– GTI above ` 2,00,000 (fully taxable)
Family = Spouse + Children + Dependent [Parents + Brothers + Sister]
RELIEF UNDER SECTION 89 VRS vs Relief

COMPUTATION OF RELIEF IF SALARY RECEIVED IN ARREARS OR IN ADVANCE
Steps Procedure
1 Compute the tax payable (after cess) on the total income, including the additional salary, of the
relevant previous year in which the same is received.
2 Compute the tax payable (after cess) on the total income, excluding the additional salary, of the
relevant previous year in which the same is received.
3 Find out the difference between the tax at (1) and (2).
4 Compute the tax (after cess) on the total income after including the additional salary in the
previous year to which such salary relates.
5 Compute the tax (after cess) on the total income after excluding the additional salary in the
previous year to which such salary relates.
6 Find out the difference between tax at (4) and (5).
7 If tax computed in step (3) > tax computed in step (6) then the excess amount is
admissible as relief u/s 89.
If tax computed in step (3) ≤ tax computed in step (6) then NO RELIEF is admissible u/s
89. In such a case, the assessee employee need not apply for relief.
MEANING OF GOVERNMENT EMPLOYEES FOR DIFFERENT PURPOSE

S. No. Purpose Government employees
1. GRATUITY [SECTION 10(10)] CG/SG/LA
PENSION
2. CG/SG/LA/SC
[SECTION 10(10A)]
LEAVE SALARY
3. CG/SG
[SECTION 10(10AA)]
RENT FREE ACCOMODATION
4. CG/SG
[SECTION 17(2)(i) & 17(2)(ii)]
ENTERTAINMENT ALLOWANCE
5. CG/SG
[SECTION 16(ii)]

MEANING OF SALARY FOR COMPUTATION
SECTION Purpose of computation Salary includes
16(ii) Entertainment allowance Basic salary
10(10) Gratuity [if gratuity Act, 1972 is Basic salary + DA
applicable]
10(10) Gratuity [it Act not applicable] Basic salary + DA (R) + % Commission on Sales.
10(10AA) Leave Salary DO
10(10B) Retrenchment Compensation Basic salary + DA
10(13A) HRA Basic salary + DA (R) + % Commission on Sales.
10(10C) VRS DO
10(12) RPF DO
17(2)(i) & RENT FREE ACC [RFA] OR Basic + Allowance +Bonus + Commission + DA(R) + Any
17(2)(ii) ACCOMMODATION AT money payment ( which in chargeable to tax)
CONFESSIONAL RATE But does not include –
1. Employer’s contribution to RPF
2. Value of perquisite specified in Sec 17(2)
[from one or more employer]
17(2)(iii) SPECIFIED EMPLOYEE Basic Salary + D.A. + Commission, whether payable
monthly or turnover based + Bonus + Fees + Advance
Salary + Arrear Salary + Any other taxable payment + Any
taxable allowances + Any other monetary benefits –
Deductions under section 16
[from one or more employer]
DEARNESS ALLOWANCES & DEARNESS PAYS

DEARNESS ALLOWANCE (DA)
If in question DA is given, then it will not be treated as forming part of salary unless question specifically
says that –
• If forming part of retirement benefit
• Under the terms of employment
• Consider for retirement benefit
DEARNESS PAYS (DP)

It means it is forming part of retirement benefit unless question says otherwise.
MEMBERS OF HOUSEHOLD
= Spouse, Children, Spouse of children, Parents, Servants & all other Dependents.
FAMILY = Spouse + Children + Dependent [Parents + Brothers + Sisters]

CLASS NOTES

Revisionary Notes – House Property - CA Suraj Agrawal [9953006445] 7.1
INCOME FROM HOUSE PROPERTY

HOW TO COMPUTE INCOME FROM HOUSE PROPERTY:
Gross Annual Value [GAV] XXX
Less: Municipal Taxes PAID by owner during the P.Y. XXX
Net Annual Value (Sec 23) [NAV] XXX
Less: Deductions u/s 24
(a) Statutory deduction @ 30% of NAV XXX
(b) Interest on Loan [Accrual Basis] XXX .
Income from House Property during the year XXX
Add: (a) Recovery of Unrealised Rent (Less 30%) [Section 25A] XXX
(b) Arrear Rent Received (Less 30%) [Section 25A] XXX
Income Under the head House Property XXX
Important Facts:
1. The annual value of property shall be taxable under the head “Income from House Property”
subject to fulfillment of the following conditions:
a. Property should consist of any building or land appurtenant thereto.
b. Assessee must be the owner [Including Deemed owner] of the property
c. Property must not be used by the assessee for his own business/profession
2. House property situated in a foreign country - As per Residential Status
• ROR- Taxable as per H.P. Head
• RNOR / NR - Taxable as per H.P. Head but rent must be received in India.
3. Disputed ownership: - The income shall be taxable in the hand of recipient.
4. Property held as a stock in trade: Taxable in H.P. Head.

[Letting out incidental to Business is taxable under the head PGBP]
5. Composite Rent
If it is separable: Rent against Property will be taxable in HP Head and Rent towards other
Facilities (services/Assets) will be taxable in Other Sources Head.
If it is not separable: All the receipt will be taxable either in PGBP or in IOS as the case may
be.

Synopsis of Sections
Section Description Important Provisions
Chargeability of Income from
Property
22 Annual value chargeable to tax
(Ownership, Property, Not be
Business Use)
FR
MV ALV or Expected Rent
23(1) Annual Value – Manner of
SR
(a)/(b)/(c) Determination
AR less UR
AR less UR & Check for Vacancy
Deduction for Municipal tax
including water/sewerage tax Paid by Owner during current previous year
23(1) Proviso
[Land revenue, Ground Rent - allowed as deduction
Not covered ]
23(1) Expln, Treatment of unrealised rent Reduced from actual rent [in case Rule 4 is satisfied]
Self occupied property or Annual Value - NIL
23(2)
Unoccupied property (Not let out for part of the year & no benefit derived)
More than one house property One house treated self occupied all other house
23(4)
self occupied deemed let out at the option of the assessee
Deductions from income from (a) 30% of NAV and
24
house property (b) Interest on borrowed capital
Treatment of Pre-construction Allowed in 5 equal instalments from the PY in which
24 Exptn.
period interest acquisition was made or construction completed.
Disallowed if paid without deduction of TDS and no
25 Interest paid outside India
person treated as agent u/s 163
Treated as the income of the previous year in which it
Recovery of Unrealized Rent is realized and allow deduction 30% of amount
25A received.
Treatment of receipt of arrears of Treated as the income of the previous year in which it
rent is received and allow deduction 30% of arrears.
Property owned by co-owners
If their shares are defined, it is assessable in their
26
hands independently to the extent of their share
Person treated as owner even though no

document of title is registered in his name and
includes:
1. Transfer to spouse (except agreement to
live apart) and Transfer to a minor child
(except minor married daughter) without
adequate consideration.
2. Holder of Impartible estate
Deemed ownership 3. Member of Co-operative Society, Company
27 which has allotted house property
4. Part-performance of a contract u/s 53A of
the Transfer of Property Act (Holder of a
Power of Attorney)
5. Ownership of property is under dispute
6. Lessee of a property taken on a lease for a
period of not Less than 12 years [Other than
month to month or renewal of not more than
12 month]
7. Property constructed on a Leasehold Land.
Income from a house property Determined at TT buying rate of such currency on the
Rule 115
earned in foreign currency last day of Relevant Previous Year
(a) One Palace of Ex-ruler,

(b) Farm House,
(c) One self occupied property,
(d) Property used for business or profession,
Property Exempt from Tax
Section 10
(e) Property used for Charitable Purposes,
(f) House Property of a Local Authority or
approved scientific research association or
universities/educational institutions or any
registered trade union or any political party.
COMPUTATION OF INCOME UNDER THE HEAD HOUSE PROPERTY

Let-out for Let-out Self-Occupied Property More than Portion of
full year property &Kept Vacant self- One Property let
kept vacant u/s 23(2) occupied Property Out and
for part of for part of Self- Portion self
Particulars the year the year Occupied Occupied
arid let out (Area-wise)
for part of
the year
(Time-wise)
(1) (2) (3) (4) (5) (6)
Gross Annual ALV for
Value whole year
Higher of will be
u/s 23(1)(a)/(b)
ALV compared
Check conditions (in proportion
[FR,MV,SR] NIL with AR of
of u/s 23(1)(c) One to the portion
or let-out
Property like occupied)
AR less UR period u/s
Column 3 (at
23(1)(a)/(b)
the option of
the
Less: Paid basis Paid basis
Assessee)
Municipal Tax Paid basis Paid basis NIL for whole but
Paid year (Proportionate)
Net Annual NAV NAV NIL NAV NAV

Value
Less: Dedn. u/s
24
U/s 24(a):
30% x NAV 30%xNAV NIL 30% x NAV 30%xNAV
Deduction@ 30%
Other
Properties
Interest for like Column 1
U/s 24(b): 30,000/-
th whole
Interest + 1/5 [2,00,000 in
No Limit No Limit year (No No Limit
PCPI specific
Ceiling
conditions]
Limit)

DETERMINATION OF ANNUAL VALUE IN DIFFIRENT SITUATION
(1) Where the property is let out throughout the previous year
GAV would be the higher of:
(a) Annual Letting Value (ALV) OR EXPECTED RENT OR
(b) Actual rent received or receivable [Less Unrealised Rent] during the year
ALV (or Expected Rent) means Municipal Valuation or Fair Rent (Market Rent), whichever
is more, subject to maximum of Standard Rent.
(i) Municipal Valuation
Higher
(ii) Fair Rent
Lower (ALV)
(iii) Std. Rent
Higher will be GAV.
(iv) Actual Rent [Less Unrealised Rent]
[Unrealised Rent – Conditions of Rule 4: (i) Tenancy Bonafide (ii) Tenant has vacant or Steps
have been taken (iii) Tenant is not in occupation of any other property (iv) Assessee has taken all
reasonable steps for the recovery of unpaid rent.]
(2) Where Let Out Property is vacant for part of the year [Section 23(1)(c)]
Where let out property is vacant for part of the year and owing to vacancy, the actual rent is lower
than the ALV, then the actual rent received or receivable will be the GAV of the property.
NOTE:
1. If Actual Rent received or receivable (after Vacancy or Unrealised Rent) is higher than ALV,
than Section 23(1)(c) will not apply and Actual rent received/receivable will be GAV.
2. If Actual Rent received or receivable (After Unrealised Rent) is lower than the ALV, than
Section 23(1)(c) will not apply even if there is Vacancy as lower rent is not due to Vacancy.
(3) In case of One Self-Occupied Property or Unoccupied Property

GAV – NIL, M. Tax Deduction – NIL, Net Annual Value – NIL
Deduction u/s 24 (b): Interest on capital borrowed – ` 30,000 (Maximum limit)
Maximum Limit will be ` 2,00,000 – if –

a) Loan on or after 1.4.99
b) for Acquisition/Construction
c) Construction Completed within 5 year from the end of the financial year in which the loan
is taken,
d) Certificate
Note: 1. There is no upper limit on Interest u/s 24(b) if the property is Let out or DLO
2. Limit will be applicable after adding Current Year Interest with 1/5th of the Pre-construction
interest.
(4) In case of Deemed to be Let Out Property [Section 23(4)]

Where the assessee owns more than one property for self-occupation, then the income from any
one such property, at the option of the assessee, shall be computed under the self occupied
property category and its annual value will be NIL. The other self occupied/ unoccupied
properties shall be treated as “deemed let out properties”.

(5) Where a house property is Let-out for Part of the year and Self-occupied for part of the year
[Time Wise Division]
(a) If a single unit of a property is self-occupied for part of the year and let-out for the remaining
part of the year, then the ALV for the whole year shall be taken into account for determining
the GAV.
(b) The ALV for the whole year shall be compared with the actual rent for the let out period
and whichever is higher shall be adopted as the GAV.
(6) Where a portion let out and a portion self-occupied [AREA WISE DIVISION]
(a) Income from any portion or part of a property which is let out shall be computed separately
under the “let out property” category AND the other portion or part which is self occupied shall
be computed under the “self-occupied property” category.
(b) There is no need to treat the whole property as a single unit for computation of income
from house property.
Deduction u/s 24(b) – Interest on borrowed capital – ACCRUAL BASIS
(a) loans borrowed for the acquisition, construction, repairs, renewal or reconstruction
(b) Interest relating to the year of completion of construction can be fully claimed in that year
irrespective of the date of completion.
(c) Interest on unpaid interest is not deductible.
(d) Pre Construction Period Interest: Interest payable on borrowed capital for the period
prior to the previous year in which the property has been acquired or constructed, can be
claimed as deduction.
Pre-acquisition/pre-construction period = Period Starting from the date of borrowing
and ending on the,
(i) 31st March immediately prior to the date of completion of construction or acquisition of
property, or,
(ii) Date of repayment of whole loan, whichever is earlier.
Period of Deduction: 1/5th of the interest of pre-acquisition or pre-construction period, for 5

consecutive years starting from the previous year in which the property is acquired or
constructed
Deduction of 5 installment will be available even if the loan outstanding is repaid

before 5 year period
TREATMENT OF INCOME FROM CO-OWNED PROPERTY [SECTION 26]
1. Where property is owned by two or more persons, whose shares are definite and ascertainable,
then the income from such property cannot be taxed as income of an AOP.
2. Where the house property owned by co-owners is self occupied by each of the co-owners, the
annual value of the property of each co-owner will be NIL and each co-owner shall be entitled to a
deduction of ` 30,000 or ` 2,00,000, as the case may be.
3. Where the house property owned by co-owners is let out, the income from such property shall
be computed as if the property is owned by one owner and thereafter the income so computed
shall be apportioned amongst each co-owner as per their specific share.

FEW IMPORTANT POINTS:
No Notional Income for House Property Held as Stock in Trade

Following sub-section (5) shall be inserted in Section 23 by the Finance Act, 2017 w.e.f AY 18-19:
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
[The Delhi High Court in case of CIT v. Ansal Housing & Construction Ltd. held that the assessee
engaged in business of construction and sale of flats is liable to pay tax on notional rent in respect of
unsold flats, owned by the assessee at the end of the relevant financial year if these flats are not let for
the whole of the previous year. Above amendment is introduced to provide relief to builders for 1 year]
Assessee engaged in the Business of Letting out House Properties

“The income earned by an assessee engaged in the business of letting out of properties on rent would
be taxable as business income”
Recently, the Supreme Court in case of “Rayala Corporation Pvt. Ltd. v. ACIT” held that Income
from Letting out of Property on rent by an assessee engaged in the business of letting is assessable
as “Business Profits” u/s 28 and not as “Income from House Property” u/s 22 and there is no concept of
notional rent under the head “Profits and Gains of Business of profession”
Also, the Supreme Court in case of “Chennai Properties & Investment Ltd. v. CIT” held that where
the assessee company is incorporated with main objective, as stated in the MOA to acquire the
properties in the city & let out those properties and the assessee had rented out such properties, rental
income from such properties is a business income & cannot be taxed as Income from House Property
u/s 22.
(Earlier, we used to treat above income as Income from House Property)
CBDT Circular: Lease Rent from letting out buildings/developed space along with other
amenties in Industrial Park/SEZ
In case of an undertaking which develops, develops and operates or maintains and operates a notified
Industrial Park/SEZ, the income from letting out of premises/developed space along with other
amentities/facilities in such park/SEZ is to be charged to tax under the head ‘PGBP’.

Revisionary Notes - PGBP – CA Suraj Agrawal [9953006445] 8.1
PROFITS & GAINS OF BUSINESS OR PROFESSION

SUMMARY OF IMPORTANT PROVISIONS – AY 19-20
Section Description Important Provisions
Income under the head profits and Gains of Business or Profession
a. Income from any business/profession
b. Salary & Interest received by Partner
c. Payment under Keymen Insurance policy
d. Gifts/Benefits relating to Business
e. Duty Drawback, Sale of import license, cash assistance etc
f. Compensation for not pursuing any business or Professional activity
g. Income of trade or professional association
h. Compensation for termination of any agency agreement etc
28 i. FA 18 - Termination or the modification of the terms and conditions, of any contract
relating to his business
j. FA 18 - Fair Market Value of inventory as on the date on which it is converted into, or
treated as, a capital asset
k. Sum received on account of any capital Asset destroyed where whole cost was allowed as
deduction u/s 35AD.
Not a business income:

(a) Rent from HP kept as a stock in Trade [HP]
(b) Dividend from securities kept as Stock-in-trade [IOS]
Recovery of loss or expenditure already Treated as income of the year of recovery or write
41(1)
allowed or remission of liability off by the assessee. [Creditors Forgone]
Treated as balancing charge and taxable as

business income in the year in which the amount
Profit on Sale of assets of Power sector is due.
41(2)
unit claimed depreciation under SLM
[Sale Price Less Opening WDV to extent of
depreciation claimed]
Transfer of capital asset used for scientific Treated as business income in the year of
41(3)
research and claimed u/s 35 transfer
41(4) Recovery of bad debt allowed u/s 36(1)(vii) Treated as income in the year of receipt
Set off of losses related to year of First set off against income u/s 41(1), 41(3),
41(5)
discontinuance of business 41(4), 41(4A) – NO Time Limit of 8 Years
Transactions involving transfer of commodities

43(5) Definition of Speculative transactions securities etc, which are settled without actual
delivery. Derivative transaction is not
speculative.
Maintenance of Accounts by certain Mandatory Maintenance of Books:
persons carrying on business or profession
Notified Professionals:
Specified Books of Accounts for notified Gross receipts exceeds ` 1,50,000 in each of
professionals: three prior previous years.
a) a Cash Book;
b) a journal, if mercantile basis is being Others:
followed. 1. Gross receipts exceeds ` 10,00,000 or
44AA& c) a ledger; Income exceeds ` 1,20,000 in any one of
Rule 6F d) Carbon copies of bills and receipts issued three prior previous year. (For Ind / HUF-
where sums exceeds ` 25; ` 25,00,000 / ` 2,50,000)
e) Original bills for expenditure exceeding `
50. 2. Declaring Lower income than as
f) In case of a person carrying on prescribed in u/s 44AE/44BB/44BBB
medical profession, he will be required
to maintain the following in addition to
the list given above:
I. a daily cash register in Form 3C. 3. Where the provisions of Section 44AD(4)
II. Inventory records of drugs, medicines are applicable & Income exceeds the
and other consumable accessories maximum amount which is not
used for his profession. chargeable to income-tax in any PY
4. Profession covered u/s 44ADA: If he

claims that his income is lower than the
profits and gains computed on a
presumptive basis and his income exceeds
the basic exemption limit
a) Business: if the total sales, turnover or gross
receipts in business exceeds ` 1 Crore in any
previous year; or
Audit of accounts of certain persons b) Profession: if the gross receipts in profession
carrying on business or profession. exceeds ` 50 lakh in any previous year; or
c) Business covered u/s 44AE/44BB/44BBB: if
Due date of filing the Tax Audit Report
the assessee claims that his income is lower
than the profits and gains computed on a
- 30th November of the Relevant A.Y.
presumptive basis.
44AB and in case the assessee has under
Rule 66 taken any international transaction d) Business covered u/s 44AD: Where the
as per Section 92B or specified provisions of Section 44AD(4) are
domestic transaction as per section applicable & Income exceeds the maximum
92BA amount which is not chargeable to income-
tax in any PY
- Any other Case: 30th September of
e) Profession covered u/s 44ADA: If he claims
the Relevant A.Y.
that his income is lower than the profits and
gains computed on a presumptive basis and
his income exceeds the basic exemption
limit
a) Income is 8% of turnover or any other higher
sum declared by the assessee (6% in case of
banking transactions)
a) Any business except the business of
Section 44AE; & whose turnover/gross b) Where an eligible assessee declares profit for
receipts does not exceed ` 2 Crore. any PY as per this section and he declares profit
for any of the 5 consecutive AYs relevant to
b) Eligible Assessee: the PY succeeding such PY not as per
Resident Individual/HUF/Firm, but not Section 44AD, he shall not be eligible to
LLP claim the benefit of the provisions of this
section for 5 AYs subsequent to the AY
44AD c) Partner’s Interest & Salary is now not relevant to the PY in which the profit has not
deductible been declared as per the Sec 44AD
[Sec 44AD (4)]
d) No Deduction against Depreciation,
Unabsorbed Depreciation, Any c) The provisions of Section 44AD is not
Business expenses applicable in following cases:
a. A person carrying on specified profession
e) Other Business Loss, Other Head’s as referred to in Section 44AA;
loss, Chapter VIA Deduction is
permitted. b. A person earning income in the nature of
commission or brokerage; or
c. A person carrying on any Agency Business.
Resident Assessee engaged in Notified
Profession as per Section 44AA &
Income is 50% of gross receipts or higher
44ADA
sum.
Total Gross receipts does not exceed ` 50
Lakhs

FA 18 - In case of HEAVY GOODS VEHICLE
(Gross Vehicle Weight exceeds 12000 kilograms)
` 1,000 per ton of gross vehicle weight or

Business of Plying, hiring or leasing of unladen weight, as the case may be, for every
Good carriage where the Assessee is month or part of a month during which the heavy
44AE
owning not more than 10 trucks at any goods vehicle is owned by the assessee in the
time during the previous year. previous year
OTHER THAN HEAVY GOODS VEHICLE:
` 7,500 for every month or part of a month
COMPUTATION OF INCOME UNDER THE HEAD

Section P & L Item Conditions / Restrictions
Net Profit as per Profit and Loss Account
Less: Allowable Expenditure and not debited to Profit & Loss A/c
Rent, rates, taxes, repairs and insurance Current repairs of capital nature not allowed as
for building a deduction
30 - Business Use
- Taxes are deductible subject to
Sec 43B
Repairs & insurance for machinery, plant Current repairs of capital nature not allowed as
31
& furniture a deduction
32 Depreciation
a. It is Mandatory, Business Use – Active or Passive, Ownership (Hire Purchase)
b. Assets must be either Tangible Assets (Building, Plant & Machinery, Furniture) or
Intangible Assets.
c. Newly acquired asset during current previous year put into use for Less than 180
days entitled for depreciation at 50% of normal rate.
d. Depreciation is applicable on WDV of each block where same % is applicable.
e. Power Sector Unit can opt for SLM method [under SLM – no Block Concept]
Different Situation in case of Sale (when WDV Method is being followed): Section 50
a. STCL – In case block ceased (all assets sold) and sale value is lesser than Op WDV +
cost of new purchase.
b. STCG – In case Sales value exceeds Op WDV + cost of new purchase (whether block
ceased or not)
Different Situation in case of Sale (when SLM Method is being followed):

a. Terminal Depreciation: In case asset is sold at less than its open WDV
b. Balancing Charges: In case asset is sold above its open WDV – To the extent of
depreciation earlier allowed. Sale value above the Actual Cost will be taxable as CG.
c. If the asset is sold in same year – than situation of STCL or STCG will arise.
Additional Depreciation for new Plant and Machinery acquired
by Manufacturer / Producer of any article or thing or
by Power Generating/Distribution/Transmission Units (WDV Method)
AD - Additional Depreciation at 20% of cost of current year purchases. If used for Less
than 180 days, 10% of the cost shall be allowed (balance 10% in Next PY) NEW
32(1)(iia) Not available if the new asset is sold in same year.
Additional Depreciation at 35% of cost of current year purchases
Notified Backward Area of 4 States - AP, Telangana, Bihar, WB
If used for Less than 180 days, 17.5% of the cost shall be allowed

Such additional depreciation will not be available in respect of:
(a) any old plant or machinery
(b) any machinery installed in office premises, residential accommodation etc
(c) office appliances or road transport vehicles
(d) any machinery where 100% deduction or Depreciation is allowed.
(e) Ships and Aircrafts.
Business Reorganization / Succession / Depreciation apportioned on the basis of
32 Amalgamation / Demerger / number of days held by them.
Unabsorbed depreciation - Can be set off against any income [Except Salary & Casual
Income] and can be carry forward for any number of years.
Order of Set-off:
a) Current year depreciation / Current year capital expenditure on scientific research and current
32(2) year expenditure on family planning, to the extent allowed.
b) Inter Source & Inter Head Adjustments [Section 70 & Section 71]
c) Brought forward loss from business/profession [Section 72(1)]
d) Unabsorbed depreciation [Section 32(2)]
e) Unabsorbed capital expenditure on scientific research or family planning
Any Assessee, 15% of Cost of New plant if purchased for setup undertakings in Notified
32AD Backward Area of 4 States - AP, Telangana, Bihar, WB
Actual Cost of the Asset (Cash payment upto ` 10,000)
Add: Interest on loan, Expenses incurred before put to use, trail expenses etc.
Less: Any subsidy met by any third person
Adjustments:
43(1)
1. Cost of Assets originally acquired for research and now transferred to business use – NIL
2. Cost of Building previously used for non-business purpose – Notional depreciation
is to be reduced at current depreciation rate.
3. Cost of Assets where deduction is allowed u/s 35AD – NIL
Expenditure on Scientific Research 100% of Revenue expenditure or Capital
[In house] expenditure incurred and prior period
35 expenditure of three years fully allowed as
deduction in the year of commencement of
business
Contribution to any scientific research 150% of contribution allowed as deduction.
35 association for scientific research 150% from AY 18-19 to AY 20-21
100% from AY 21-22
Contribution to an Indian Company for
35 Scientific research or Contribution for 100% of contribution allowed as deduction.
Social or Statistical research
Weighted deduction for contribution to 150% of such contribution is fully allowed as
National Laboratory, IIT etc. deduction.
35(2AA) 150% from AY 18-19 to AY 20-21
100% from AY 21-22
Weighted deduction on in-house research 150% of revenue or capital expenditure
by a company engaged in business of bio- incurred [current year] except land and building.
technology or of manufacture or production 150% from AY 18-19 to AY 20-21
35(2AB) of any article or thing not being any article
100% from AY 21-22
specified in the list of the Eleventh
Schedule [Building 100% only allowed, Prior Period
Expenditure 100% only Allowed]

Expenditure for Specified Business a. 100% of capital expenditure incurred
1. Cold Chain Facility except on land, Goodwill or financial
2. Warehouse Facility for Agriculture instrument.
Produce
3. Lying Cross country gas pipelines b. Cash Payment upto ` 10,000
4. Hotel – 2 star and above
5. Hospital – 100 Bed above c. Prior Period Expenditure: 100% is
6. Housing projects under slum allowable if capitalized in the books in the
redevelopment year of commencement.
7. Housing project under affordable
house scheme project d. 20% old Machine permitted. Imported old
8. Production of fertilizer machines is considered as new.
9. Inland Container Depot / Container
35AD e. Loss from eligible specified business can
Freight Station
10. Bee-Keeping / Production of Honey be set-off with only specified business
11. Warehouse Facility for Sugar whether eligible u/s 35AD or not.
12. Lying/Operating a Slurry Pipeline for
transportation of IRON Ore. f. Lock in Period of Assets – 8 Years from
13. Semiconductor Wafer Fabrication the PY of deduction
Manufacturing Unit
14. From AY 18-19: Developing or
Operating & Maintaining or
Developing, Operating & Maintaining
any Infrastructure facility (Road,
Rail, Highway, Water Supply, Port,
Airport etc)
Expenditure by way of payment to 100% contribution shall be allowed as
association and institutions for rural reduction
35CCA development programs National Rural Development Fund
National Urban Poverty Eradication
Fund
Where an assessee incurs any 150% of Such expenses are allowed as
expenditure on any notified agriculture Deduction
35CCC extension project in accordance with the (100% w.e.f. AY 21-22)
prescribed guidelines
Where a company incurs any expenditure 150% of Such expenses (except Land & Building)
(not being expenditure in the nature of cost are allowed as Deduction.
35CCD of any land or building) on any notified skill (100% w.e.f. AY 21-22)
development project
Amortisation of Preliminary • Company Assessee:
Expenses incurred for setting up or Maximum: 5% of the [Cost of the project or
extension undertaking or business unit Capital employed, whichever is higher].
(only to Indian Company or other Resident
Assessee) • Non-Corporate Assessee
a. Project/Feasibility Report Cost Maximum: 5% of Cost of project
35D b. Market survey cost
c. Engineering services • Time Period: Above amount shall be
d. Legal charges distributed in 5 equal installments.
e. MOA/AOA drafting charges
f. Fees for Registration of company
g. Public issue expenses
[work by approved concern]
Amortisation of expenses incurred for Allowed in 5 equal installments
35DD
amalgamation / demerger
Amortisation of expenditure incurred under Allowed in 5 equal installments
35DDA
VRS
36 Insurance premium of stocks Fully Allowed.
36 Insurance on health of employees Should be paid by any mode other than cash.
36 Bonus or Commission to employees Paid before due date of filing return u/s 43B.

36(1)(iii) Interest on borrowed capital Paid before due date of filing return u/s 43B.
Discount on Zero Coupon Bonds issued by Written off over the period of the Bond.
36(1)(iiia)
companies and scheduled banks
36(1)(iv) Employer's Cont. to a RPF / ASF Paid before due date of filing return u/s 43B.
Contribution towards Pension Scheme Lower of the two is allowable:
u/s 80CCD
(i) Contribution made by employer
36(1)(iva) (ii) 10% of the aggregate Salary.
Salary = Basic Salary + DA (forming part of
retirement)
Employer's contribution to an approved Paid before due date of filing return u/s 43B.
36(1)(v)
gratuity fund
Sums received from employees towards Paid before the prescribed due date under
36(1)(va) certain welfare schemes if credited to their the respective act.
accounts before the due date
Allowance in respect of dead or Cost of animal Less insurance claimed or any
36(1)(vi)
permanently useless animals other receipt
Allowable subject to write-off in the books of
36(1)(vii) Bad debts
accounts
Allowable only for Companies. Revenue
Expenditure on promoting family planning
36(1)(ix) expenditure is fully allowed. Capital
amongst the employees
expenditure in five equal installments.
36(1)(xiii) Banking Cash Transaction Tax paid Allowed as a deduction
Securities Transaction Tax &
36(1) Fully allowed as deduction
Commodity Transaction Tax Paid
Revenue expenses, related to business and
37(1) General deductions
not contrary to provision of law fully allowed.
Add: Inadmissible Expenditures debited in Profit and Loss Account
Fully disallowed
37(2B) Advertisement in political parties souvenir [Deduction u/s 80GGB (Company) & 80GGC
(Others) is available.]
Building, etc., partly used for business, Proportionate depreciation and expenses used
38
etc., or not exclusively so used for other purpose disallowed
Payment outside India or to Non-Resident
without TDS - Not Allowed
40(a)(i) Payment to NR (Except Salary) A. TDS must be deducted during the PY
B. It must be remitted within the time limit
u/s 139(1).
1. TDS must be deducted during the PY.
2. Payment made without TDS – 30% is
Payment to Resident (Including Salary) disallowed
40(a)(ia) 3. TDS deducted but not remitted within
[Imp – 194C, 194-I, 194J, 194H etc] the time limit u/s 139(1) – 30% is
disallowed
4. However, it is allowable on paid basis.
Salary paid outside India or to Non-
40(a)(iii) Resident Payment without TDS not allowed
Contribution to welfare fund of employees if

40(a)(iv) Not allowed
no arrangements for TDS
Not allowed
40(a)(v) Tax on Perq. paid by employer [192(1A)]

Interest: Maximum 12%
Remuneration:
Disallowances in case of partnership Allowed least of following or as specified in
firm – If not provided in Deed partnership deed or paid: [Only to Working
Partners]
Book Profits: Net profit just before allowing
40(b) any remuneration to partners [means
taxable profit after all adjustments and any Book Profit Maximum
interest to partners] Remuneration
Till 3 Lakhs Higher of ` 1,50,000 or
90% of book profit
On balance 60% of Book profit

Disallowances in case of AOP/BOI Any Interest, Remuneration - paid to member –
40(ba) Not all.
Payments to Specified Person of any Payment considered as excessive or

allowable expenditure unreasonable shall not be allowed.
40A(2) [Relative, Substantial Interest Holder,
Partner, Director, Members etc.]
Single or Aggregate Payments in respect of Whole of the payment shall be disallowed.

allowable expenditure in excess of `
The limit is increased to ` 35,000 if Payment
10,000 other than by way of A/c payee
is made for plying, hiring or leasing goods
40A(3) & cheque or A/c payee Demand Draft to a
carriages.
Rule 6DD single person on a single day.
Exceptions - Given in Rule 6DD.
Disallowance w.r.t. provision for Gratuity Except provision for recognized gratuity fund or
40A(7) actual liability incurred.
40A(9) Disallowance in respect of contribution to non- Payment not allowed except contribution u/s
recognised funds 36(1)(iv) / (iva) / (v)
43B Following sums/expenses shall be paid before the due date of filing return otherwise in the
year of provision it is not allowed:
a) Any sum payable by way of Tax, Duty, Cess or Fee
b) Interest on any loan or advance from a scheduled bank or a cooperative bank
c) Any sum payable by the assessee as interest on any loan or borrowing from financial
institution
d) Bonus or Commission payable to employees.
e) Leave Salary payable to employees.
f) Employer’s Contribution to any Provident Fund or Superannuation Fund or Gratuity Fund
or any other fund for the welfare of employees.
g) Any sum payable to the Indian Railways for the use of railway assets
Expenses not allowable under the head “PGBP”:
a. Penalty / Fine under any law
b. Income tax / Wealth Tax / Defered Tax
c. Interest under Section 234A/234B/234C
d. Payment of Advance Tax
e. Dividend & Dividend Distribution Tax
f. Interest on loan taken for payment of Income Tax, Advance Tax
g. Any Provision/Reserve created in books
h. Prior period expenses
i. House hold expenses
j. Interest on own capital, Salary to Owner
k. Donation to political party
l. CSR Expenditure

Expenses Allowable under the head PGBP”:
a. Penalty under any contract (not under law)
b. Custom Duty / Excise Duty / Service Tax / VAT / Security Transaction Tax / Banking Cash
Transaction Tax / Commodity Transaction Tax / Professional Tax
c. Interest on loan taken for payment of Dividend
d. Brokerage paid for raising loan
e. Paid a lump-sum amount to employee for not resigning the position
In case of sale of Immovable Property, If Sale price is less than SDV, then SDV will be
43CA
taken as Sale price. [FA 18 - SDV should exceeds 105% of sales price]

Revisionary Notes - Other Source – CA Suraj Agrawal [9953006445] 9.1
TAXABILITY OF GIFT
S. No. Nature of Transfer SDV/FMV Treatment in hands of donor Treatment in hands of donee
Property Price Less Tfr.
Capital Gains Sale Gift taxability COA POH Indexation of
Price
taxability Consideration COA
COA to From the date

Not taxable by PoH of previous owner first held by
1 ≤ 50,000 -NA- Not taxable previous
virtue of section 47 shall also be included
owner donee*
Nil
From the date
Not taxable by Taxable = PoH shall start from
2 > 50,000 -NA- SDV first held by
Immovable virtue of section 47 SDV date of gift
donee
property Purchase From the date
SDV by virtue of PoH shall start from
3 ≤ 50,000 Taxable Not taxable price, not first held by
section 50C date of purchase
Inadequate SDV donee
consi- > Higher of Taxable =
From the date
deration 50,000 or 5% SDV by virtue of SDV - PoH shall start from
4 Taxable SDV first held by
of Sales section 50C purchase date of purchase
donee
consideration price
CoA to From the date
Not taxable by PoH of previous owner first held by
5 ≤ 50,000 -NA- Not taxable previous
Nil virtue of section 47 shall also be included
owner donee *
From the date
Not taxable by Taxable = PoH shall start from
6 > 50,000 -NA- FMV first held by
virtue of section 47 FMV date of gift
donee
Sale price, no
Movable applicability of
Purchase From the date
specified section 50C PoH shall start from
7 ≤ 50,000 Taxable Not taxable price, not first held by
property [FMV if Section date of purchase
Inadequate FMV donee
50CA is
consi-
applicable]
deration
Sale price, no
applicability of Taxable =
From the date
section 50C FMV - PoH shall start from
8 > 50,000 Taxable FMV first held by
[FMV if Section purchase date of purchase
donee
50CA is price
applicable]
* HC Ruling will apply

Revisionary Notes - Capital Gains – CA Suraj Agrawal 10.1
INCOME UNDER THE HEAD OF “CAPITAL GAINS”
[Sections: 45 to 55A]
Sections Particulars
45(1) Basis of Charge
Capital gain in case of insurance claim received on damage or destruction of capital
45(1A)
assets.
45(2) Capital gain on conversation of capital assets into stock in trade
45(2A) Capital gain on transfer of security by depositary
Capital gain on trade of capital assets by a partner/member to Firm/AOP/BOI as capital
45(3)
contribution
45(4) Capital gain on distribution of capital assets by a firm/AOP/BOI to a partner/member
45(5) Capital gain on transfer by way of compulsory acquisition of an asset
45(5A) Capital gain on transfer under Specified Agreement
46 Capital gains on distribution of assets by companies in liquidation
46(1) - Whether capital gain arises to company or not
46(2) - Whether capital gain arises to shareholder or not
46A Capital gains on purchase by company of its own shares or other specified securities
47 Transactions not regarded as transfer
48 Mode of computation
49 Cost with reference to certain modes of acquisition
50 Special provision for computation of capital gains in case of depreciable assets
50B Special provision for computation of capital gains in case of slump sale
50C Special provision for full value of consideration in certain cases
50D FMV as a full value of consideration when it is unknown or indeterminable.
51 Advance money received
54 Profit on sale of property used for residence
Capital gain on transfer of land used for agricultural purposes not to be charged in certain
54B
cases
54EC/54EE Capital gain not to be charged on investment in certain bonds/Units
Capital gain on transfer of certain capital assets not to be charged in case of investment
54F
in residential house
54H Extension of time for acquiring new asset or depositing or investing amount of capital gain
55 Meaning of ‘cost of improvement’ and ‘cost of acquisition’
55A Reference to Valuation Officer
Capital gains on compensation received on compulsory acquisition of agricultural land
10(37)
situated within specified urban limits
112 / 112A Tax on long term capital gain
Tax on short term gain arises on transfer of equity shares or units of equity oriented fund
111A
on which securities transaction tax has been charged

SECTION 45 - SCOPE AND YEAR OF CHARGEABILITY OF CAPITAL GAINS
Sec45 Transaction Full value of consideration Year of chargeability
(1) Transfer of capital asset. Consideration of Transfer Year of Transfer
Damage to, or destruction Insurance compensation i.e. Year of Receipt
of, any capital asset. [Note Money + Fair market value (on
(1A)
1] date of receipt) of other assets
received
Conversion of a capital The FMV as on the date of Year in which
(2) asset into stock in trade. conversion. converted stock is
[Note 2] sold [CG + PGBP]
Transfer of shares held in Agreed consideration. Year of Transfer
(2A)
depository [FIFO basis]
Transfer of capital asset as Amount at which such asset is Year of Introduction
capital contribution or recorded in books of the
(3)
otherwise by a Partner or Firm/AOP/BOI.
Member to Firm/AOP/BOI.
Distribution of capital asset FMV as on the date of transfer. Year of Distribution
on dissolution or otherwise
(4)
of Firm/ AOP/ Body of
Individuals.
Compulsory acquisition Compensation or Enhanced Year of First Receipt
(5)
Compensation. [Note 2].
Notes:
1) Section 45(1A) applies only when the damage/ destruction is due to –
(a) Flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature
(b) Riot or civil disturbance; or
(c) Accidental fire or explosion; or
(d) Action by enemy or action taken in combating an enemy (whether with or without declaration of
war).
2) Interest received in case of compulsory acquisition will be taxable as 'income from other
sources' in the year in which it is received. The taxable amount shall be = Amount of such
interest × 50%. (i.e. 50% of interest will be allowed as deduction).
SECTION 45(5A) – Transfer under Specified Agreement

1. Notwithstanding anything contained in Sub-section (1), where the capital gain arises to an assessee,
being an Individual or a HUF, from the transfer of a capital asset, being land or building or both, under
a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous
year in which the certificate of completion for the whole or part of the project is issued by the
competent authority.
2. For the purposes of section 48, the stamp duty value, on the date of issue of the said certificate, of his
share, being land or building or both in the project, as increased by the consideration received in
cash, if any, shall be deemed to be the full value of the consideration received or accruing as a result of
the transfer of the capital asset
3. The provisions of this sub-section shall not apply where the assessee transfers his share in the project
on or before the date of issue of said certificate of completion, and the capital gains shall be

deemed to be the income of the previous year in which such transfer takes place and the provisions of
this Act, other than the provisions of this sub-section, shall apply for the purpose of determination of full
value of consideration received or accruing as a result of such transfer
4. "Competent Authority" means the authority empowered to approve the building plan by or under any law
for the time being in force;
5. "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;
6. "Stamp Duty Value" means the value adopted or assessed or assessable by any authority of
Government for the purpose of payment of stamp duty in respect of an immovable property being land
or building or both
Consequential amendments due to Section 45(5A):
(A) Cost of acquisition of the share in the project:

COA of the share in the project being land or building or both, in the hands of the Individual or HUF who
was the owner of land or building or both shall be the amount which is deemed as full value of
consideration under section 45(5A) mentioned above
(B) TDS on monetary consideration – Section 194-IC w.e.f. 01/04/2017:

Notwithstanding anything contained in Section 194-IA, any person responsible for paying to a Resident
any sum by way of consideration, not being consideration in kind, under the agreement referred in
Section 45(5A), shall at the time of credit of such sum to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier,
deduct an amount equal to 10% of such sum as income tax thereon.
SEC. 2 (14) – DEFINITION OF CAPITAL ASSET

Capital asset means property of any kind held by an assessee, whether or not connected with his business or
profession, but does not include any stock-in-trade, PERSONAL EFFECTS (excluding jewellery; drawings,
paintings, work of Art etc), Rural agricultural land in India etc.
Capital asset includes any securities held by a Foreign Institutional Investor (FII) which has invested in such
securities as per SEBI Regulations [Added by Finance (No. 2) Act 2014]. W.e.f. AY 15-16, Securities held by FII
will now be treated as capital asset only (even if it kept as Stock in Trade) and transfer of such securities will
always result into Capital Gain.
FA 16: Capital Assets Excludes Deposit Certificates issued under Gold Monetisation Scheme 2015
SEC. 2(47) – DEFINITION OF TRANSFER

Sale, exchange or relinquishment; extinguishment of any rights; Reduction of share capital; Compulsory
acquisition thereof under any law; Conversion of capital asset into stock in trade of a business; the
maturity/redemption of a Zero Coupon Bond; Part-performance of the contract [Sec 53A of the Transfer of
property Act]; or enjoyment of any immovable property as member of a co-operative society, company or other
AOPs

NATURE OF CAPITAL ASSETS
Section 2(42A) defines Short-Term Capital Asset as a capital asset held by an assessee for not more
than 36 months (Period of Holding) immediately preceding the date of its transfer.
However, in case of following financial assets the above period of 36 months is replaced by 12 months:
W.e.f. 11/07/2014, the period of 12 months shall be applicable only in case of following assets:
a) A Securities (other than Unit) listed in a recognized stock exchange in India;
b) Units of an Equity Oriented Fund;
c) Units of UTI / Zero Coupon Bond;
FA16: In case of Unlisted equity shares, period of 36 months is replaced by 24 Months.
FA17: In case of LAND/BUILDING, period of 36 months is replaced by 24 Months.
SECTION 488 - MODE OF COMPUTATION OF CAPITAL GAINS

Computation of Capital Gains
Full value of Consideration xxxx
Less: Cost of Transfer xxxx
Less: ICOA / COA xxxx
Less: ICOI / COI xxxx xxxx
Gross Long Term Capital Gain / Short Term Capital Gain xxxx
Less: Exemption U/s 54 / 54B / 54EC / 54F xxxx
Taxable LTCG / STCG xxxx
CII for the year in which asset is transferred
ICOA means = COA × ------------------------------------------------------------------------------
CII for the P.Y. in which the asset was first held by the assessee
Or
CII for the year of 2001-02, whichever is later.
CII for the year in which asset is transferred

ICOI means = COI × -------------------------------------------------------------------------------------
CII for the year in which the improvement to the asset took place
Alternate view in computing ICOA in special cases like Inheritance, Gift, Partition etc
As per the view expressed by Bombay High Court in CIT v. Manjula J. Shah, in case the cost of
acquisition of the capital asset in the hands of the assessee is taken to be cost of such asset in the hands
of the previous owner, the indexation benefit would be available from the year in which the capital asset is
acquired by the previous owner.
Cases covered: Gift, Will, Inheritance, Partition, Amalgamation, Demerger, Succession etc.
SECTION 55(2)(a) : COA IN CASE OF FOLLOWING INTANGIBLE ASSETS:

Goodwill of a business Tenancy rights
Right to carry on any business Trade mark or brand name associated with
a business
Right to manufacture, produce / process any Stage carriage permits (Route Permits)
article or thing
Loom Hours
Self Generated-Then COA shall be NIL. Goodwill of profession is not taxable–B. Srinivas Setty (SC)
SECTION 55(1) - COST OF IMPROVEMENT (COI)

COI may be incurred by Assessee or Previous Owner
Any COI incurred before 01-04-2001 is to be completely ignored.
COI in respect of following assets is taken at NIL:
Goodwill of Business;
Right to manufacture, produce or process any article or thing;
Right to carry on any business.

SECTION 55(2)(b) : COA WHEN THE ASSET IS ACQUIRED BEFORE 01/04/1981
If the Asset is acquired before 01/04/2001, COA or “FMV of the asset as on 01/04/2001” - HIGHER
The option is however not available in respect of the following items:
(a) Intangible Assets mentioned above and
(b) Depreciable Assets
SECTION 46 – CG in case of Liquidation of Company

In the hands of company — Exempted Transfer. No CG to Company.
In the hands of shareholders — Taxable as CG.
[Sale consideration of shares for computing CG shall be FMV of assets received on the date of
distribution less deemed dividend under section 2(22)(c), if any. The period of holding shall be only
upto the date of liquidation of the company.]
SECTION 49(4) – COA of GIFTED PROPERTY

If the Same is taxable in IOS, then COA shall be FMV/SDV which is considered for calculating Income
under the head IOS. [New Cost, New Life]
SECTION 49(2AA) – COA OF SPECIFIED SECURITY OR SWEAT SHARES
COST OF ACQUSITION of such SECURITY or SHARES Shall be the FAIR Market Value which has been taken
into account for the purposes of calculating Perquisite under the head Salary.
COA IN CASE OF FINANCIAL ASSETS

Capital asset Cost Of Acquisition POH Will Start From
Shares/securities originally
purchased from:
Primary Market (Direct from Date of allotment
Allotment price
Company)
Secondary Market
• Transaction through brokers
Purchase price +
Date of Broker’s note
Brokerage
• Transaction between parties Purchase price
directly Date of Contract of sale
Right Share / Securities

Offer price by the Co. Date of Allotment
Renouncement of right:
For the person who renounces the Nil
right.
For the person who purchased the Offer price + Amount paid
right. for Renouncement
Bonus shares / Securities Nil Date of Allotment
SECTION 50B – CAPITAL GAINS IN CASE OF SLUMP SALE

Slump sale means a sale where the assessee transfers one or more undertaking as a whole including all the
assets and liabilities as a going concern without assigning value to the individual assets and liabilities.
LTCG: If the undertaking was owned by the assessee for more than 36 months. Certificate from a CA should be
filled along with the return.
Mode of computation of capital gains: The capital Gains shall be computed in the following manner -
Full Value of consideration XXXX
Less: Expenses wholly and exclusively in connection with such transfer XXXX
Less: NET WORTH [Ignore Revaluation effect] of the undertaking (no indexation XXXX
benefit even in case of long-term capital asset)
Short Term/Long Term Capital gains XXXX

SECTION 49 (2C)– COA OF SHARES IN CASE OF DEMERGER
COA of Shares in resulting Company = COA X Net Book Value of the assets transferred
Net Worth of the Demerged Company immediately before such
demerger
SECTION 51 - ADVANCE MONEY RECEIVED & FORFEITED

–
Advance or other money forfeited (retained) by the Assessee (and not previous owner) shall be deducted
from COA/FMV/WDV. Amount forfeited either before or after 1.4.1981both is eligible for deduction.
However, Amount forfeited on or after 01/04/2014, will not be deducted under this Section, but it will be
taxable as IOS as per New Section 56(2)(ix)
SECTION 50C – SALE CONSIDERATION IN CASE OF TRANSFER of LAND OR BUILDING OR

BOTH
Where the consideration received (as declared) for LAND OR BUILDING OR BOTH is LESS THAN the Stamp
Duty Value (SDV) then, sales consideration shall be SDV
Where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of
the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation
authority on the date of agreement may be taken for the purposes of computing full value of consideration for
such transfer if amount of consideration, or a part thereof, has been received by way of an account payee cheque
or account payee bank draft or by use of electronic clearing system through a bank account, on or before the
date of the agreement for transfer.
FA 18 - Where the value adopted or assessed or assessable by the stamp valuation authority does not
exceed 105% 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 section 48, be deemed to be
the full value of the consideration.
ON REFERENCE TO VALUATION OFFICER:

Different situation Consideration
> SDV SDV
< Value adopted or assessed Value ascertained by a valuation

or assessable by the SVA officer u/s. 55A
Where value ascertained
but more than 105% of
by a valuation officer
declared value
< Declared value in the ROI or Value declared by Assessee

105% of declared value
SECTION 55A - REFERENCE TO VALUATION OFFICER

If AO opines (a) estimated value by registered Valuer is at variation from FMV; (b) FMV of Assets exceeds
declared value by ` 25,000 or 15%; (c) when circumstances warrant.
SECTION 50CA – SALE CONSIDERATION IN CASE OF TRANSFER OF UNLISTED

SHARES [W.e.f AY 18-19 – Added by FA 2017]
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.
SEC 10(37) – Exemption on compulsory acquisition of Agricultural Land on or after

01/04/2004
Individual & HUF; Agricultural Land Situated in Urban Area; Holding period – 2 Years or more; used for
agriculture purpose; Consideration determined by CG/RBI;

SECTION 111A – TAX ON STCG ON SHARES/UNITS
• This Section provides for a concessional rate of tax (i.e. 15%) on the STCG on transfer of
Equity Share of a company or Units of a Equity Oriented Mutual Fund or a Unit of Business Trust
(Added w.e.f. AY 15-16); Sale on or after 1.10.2004; STT Paid on sale
• RESIDENT IND/HUF: STCG will be reduced by the unexhausted basic exemption limit.
• No Deductions under Chapter VI-A.
• FA 16: Concessional Tax rate is also applicable in the case of STCG which arises from a transaction
undertaken in foreign currency on a recognized stock exchange located in an International Financial
Services Centre located in SEZ (evenif STT is not applicable).
SECTION 112 – TAX ON LONG TERM CAPITAL GAINS

Where the Total Income of an assessee includes LTCG, tax is payable by the assessee @20% on such
LTCG.
RESIDENT IND/HUF: LTCG will be reduced by the unexhausted basic exemption limit.
Deductions under Chapter VI-A cannot be availed in respect of such LTCG
New Section 112A – Finance Act 2018

1. Notwithstanding anything contained in section 112, the tax payable by an assessee on his total
income shall be determined in accordance with the provisions of sub-section (2), if—
i. the total income includes capital gains arise 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;
ii. 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.
2. The tax payable by the assessee on the total income referred to in sub-section (1) shall be the
aggregate of—
i. the amount of income-tax calculated on such long-term capital gains exceeding one lakh
rupees at the rate of 10%; and
ii. the amount of income-tax payable on the total income as reduced by the amount of long-term
capital gains referred to in sub-section (1) as if the total income so reduced were the total
income of the assessee:
3. RESIDENT IND/HUF: Such LTCG will be reduced by the unexhausted basic exemption limit.
4. Requirement of STT payment shall not apply to a transfer undertaken on a recognised stock
exchange located in any International Financial Services Centre and where the consideration for
such transfer is received or receivable in foreign currency.
5. The Central Government may notify the nature of acquisition where STT is not required to be paid.
6. Deductions under Chapter VI-A cannot be availed in respect of such LTCG.
7. Indexation is not permitted to compute LTCG chargeable to tax under Section 112A
8. Rebate under Section 87A is not available against tax computed under Section 112A.

New Section 55(2)(ac) – Finance Act 2018 : COA
Cost of Acquisition, In relation to 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, acquired before
the 1st day of February, 2018 shall be higher of-
i. the cost of acquisition of such asset; and
ii. lower of –
a. the fair market value of such asset as on 31.01.2018; and
b. the full value of consideration received or accruing as a result of the transfer of the capital
asset.
DIVIDEND STRIPPING – Section 94(7) -
Purchase of shares/units 3 months prior to record date and sells within 9 months (units) and 3 months
(Securities), then any loss on sale shall be ignored to the extent of dividend received or receivable.
BONUS STRIPPIN G – Section 94(7) – ONLY UNITS
Purchase of units 3 months prior to record date and sells within 9 months (units), then any loss on sale shall
be ignored and such loss shall be treated as COA of such additional unit on their subsequent sale.
Taxability on conversion of Inventory into Capital Aseet – Finance Act 2018
Section 28(via)
The fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset
determined in the prescribed manner shall be chargeable to tax as business income.
Explanation 1A to Section 43(1)

Where a capital asset referred to in clause (via) of section 28 is used for the purposes of business or profession,
the actual cost of such asset to the assessee shall be the fair market value which has been taken into account for
the purposes of the said clause.
Section 49(9)
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the cost
of acquisition of such asset shall be deemed to be the fair market value which has been taken into account for
the purposes of the said clause.
Explanation 1 to Section 2(42A)

In the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from the date of
its conversion or treatment.

SECTION 47 – TRANSACTIONS NOT REGARDED AS TRANSFER
Section Nature of transaction not regarded as Conditions to be fulfilled for the transaction Holding Period in the Cost in the hands of
transfer not to be regarded as transfer between hands of the Transferee, in Transferee [Sec.49]
Transferor and Transferee (Section 47) case of subsequent
transfer by him Sec. 2(42A)
47(i) Distribution of Capital Asset in total or — Previous Owner's holding Cost to Previous Owner
partial partition of HUF period shall be included.
47(iii) Transfer of Capital Asset under Gift/will Capital Assets other than Shares, Previous Owner's holding Cost to Previous Owner
etc. Debentures or Warrants allotted directly or period shall be included.
indirectly under ESOP.
47(iv)/(v) Transfer of Capital Asset by Holding — Previous Owner's holding Cost to Previous Owner
Company to its 100 % Indian Subsidiary period shall be included.
or vice versa
47(vi) Transfer of a Capital Asset, in a scheme Amalgamated Company is an Indian Previous Owner's holding Cost to Previous Owner
of amalgamation, by the Amalgamating Company. period shall be included.
Company to the Amalgamated Company.
47 (vib) Transfer of Capital Asset, by a Demerged Resulting Company is an Indian Company. Holding Period in Demerged Cost to Previous Owner
Company to the Resulting Company. Company shall be included.
47 (vid) Transfer, or Issue of Shares by a The issue is made in consideration of demerger Holding Period in Demerged
Resulting Company to the Shareholders of the undertaking. Company shall be included.
of Demerged Company.
47(vii) Transfer by Shareholders in a scheme of The Amalgamated Company is an Indian Period of holding of Cost of Previous Asset.
Amalgamation: Company. Amalgamating Company
• Asset Transferred: Shares held in Shares shall be included.
Amalgamating Company.
• Consideration received: Shares of
Amalgamated Company.
47 (ix) Transfer of the following: Work of Art, The transfer is made to Government, Not Applicable Not Applicable
Archaeological, Scientific or Art University, National Museum, National Art
Collections, Books, Manuscripts, Gallery, National Archives, any institution
Drawings, Paintings, Photographs, notified by Central Government to be of
Printings. national importance.

47 (x) Transfer by way of conversion of Bonds, — Holding Period of earlier Cost of New Asset = That
Debentures, Debenture Stock and asset can now be taken portion of cost of Old Asset
Deposit Certificates in any form into into account that is converted.
Shares or Debentures of that Company.
Amendment to Section 47
1. Any transfer of Capital asset, being government securities carrying a periodic payment of interest, made outside India through an intermediary dealing in
settlement of securities, by a NR to another NR shall not be considered as transfer.
2. Any transfer of Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015, by way of redemption, by an
assessee being an individual [Indexation benefit is available in case of LTCG arising from transfer of such bond]
3. Transfer of Rupee Denominated Bond outside India by a Non-Resident to another Non-Resident: Any transfer, made outside India, of a Capital Asset being
rupee denominated bond of an Indian Company issued outside India, by a non-resident to another non-resident.
4. Any Transfer by way of conversion of preference shares of a company into equity shares of that company shall not be regarded as a Transfer.
[In case of subsequent transfer, cost of acquisition of preference shares will be treated as COA of equity shares (Section 49). POH in case of equity shares will
include period for which the preference shares were held by the assessee.]

EXEMPTIONS FROM CAPITAL GAINS AVAILABLE IN RESPECT OF ASSETS OTHER THAN INDUSTRIAL UNDERTAKINGS
[SECTIONS 54, 54B, 54EC, 54EE AND 54F]:
Provisions Profit on sale of property used Capital gains on transfer of Investment in certain bonds Capital gain on transfer of
for residence [S. 54] agricultural land [S. 54B] [S.54EC] certain capital assets not to be
charged in case of investment
in residential house [S. 54F]
1. Assessee Individual/HUF Individual/HUF Any person Individual / HUF
2. Asset transferred Residential house property being Agricultural land used by individual LTCA being Land or Any capital asset not being
buildings or lands appurtenant or his parent for agricultural building or both residential house property.
thereto. purposes during 2 years [Note: Exemption is not available
preceding date of transfer if assessee owns more than 1
residential house (other than
new) on date of transfer of
original asset; or
3. Nature of Asset Long term Short/Long term Long term Long term
4. New Asset to be Residential house property i.e. Agricultural land (urban or rural) Bonds, redeemable after Residential house property i.e.
purchased/ buildings or lands appurtenant 5 years issued by - buildings or lands appurtenant
thereto
constructed (a) National Highway thereto
W.e.f AY 15-16, exemption Authority of India; or W.e.f AY 15-16, exemption
under this section is available if under this section is available if
the investment is made in One (b) REC,
the investment is made in One
Residential House and that too Maximum - ` 50 lakhs Residential House and that too
the house is situated in India. W.e.f. AY 15-16, Investment the house is situated in India.
made during the PY in which
the original assets are
transferred and in the
subsequent financial year
does not exceed ` 50,00,000.
5. Time-limit for Purchase: Within 1 year before Purchase within 2 years from the Within 6 months from the date Purchase: Within 1 year before or
purchase/ construction or 2 years after date of transfer; date of transfer of transfer of original asset. 2 years after date of transfer; and
and Construction: Within 3 year from
Construction: Within 3 year date of transfer
from date of transfer
6. Deposit scheme Applicable Applicable Not Applicable Applicable
7. Amount Lower of Capital gains or Lower of capital gains or cost of Lower of - capital gains or Cost of new house x LTCGs
of Exemption investment in new asset new asset investment in new asset Net consideration
8 Exemption will be Transfer of the new asset within Transfer of the new asset within Transfer of new asset, (a) assessee purchases within 2
withdrawn on- 3 years from its purchase/ 3 years from its purchase conversion thereof in money or years or constructs within 3
construction taking loan or advance on its years from date of transfer of
security within 5 years from original asset, a residential
date of its acquisition house other than new house;
or
(b) transfers new asset within 3
years from date of its
purchase/construction
9. Taxability on Exemption claimed earlier shall Exemption claimed earlier shall be Exempted capital gain will be Amount exempted earlier shall be
Withdrawal be reduced from cost of reduced from cost of acquisition taxable as long-term capital taxable as long-term capital gains
acquisition of new asset. of new asset. gains in previous year in which in previous year in which -
such transfer/conversion takes (a) another residential house is
place. purchased or constructed; or
(b) new asset is transferred.
W.e.f. AY 18-19, Investment in any bond (redeemable after 5 years) notified by the CG shall also be eligible investment for the purpose of claiming exemption under
Section 54EC. For this purpose, bond issued (on or after 1506.2017) by Power Finance Corporation Limited & bond issued (on or after 08.08.2017) by Indian Railway
Finance Corporation Limited is considered as long term specified asset.
Extension of time in case of compulsory acquisition [Section 54H] : Where transfer of original assets referred to in sections 54, 54B, 54EC and 54F, is by way of
compulsory acquisition under any law, the period for acquiring new asset referred to in those sections or the period available under those sections for depositing or
investing the amount of capital gain in relation to such compensation, which is not received on the date of the transfer, shall be reckoned from the date of receipt of such
compensation.
Capital Gains Accounts Scheme, 1988: This scheme applies to all assessees who are eligible for exemption under Section 54,54B & 54F. The tax implications of this
scheme are as follows -
1) Exemption allowed if amount deposited before due date of return : Exemption u/s 54, 54B, 54F is available if the investment in new asset is made within time
allowed in those sections. If the amount of capital gains or net consideration could not be fully or partly 'reinvested for the purposes specified in said sections before
the due date of furnishing return of income, then, exemption will be available in respect of amount deposited before the due date of furnishing return of income in the
said deposit account as if the amount so deposited had been invested in new asset.
2) Withdrawal out of deposit account: The amount in deposit account can be withdrawn for purposes specified in sections u/s 54, 54B, 54F. However, if such amount
is not utilised wholly or partly for purchase of new asset within stipulated period specified under said sections, then —
a) If exemption was claimed u/s u/s 54, 54B, 54F: Amount not so utilised shall be chargeable to tax as 'Capital gains' of previous year in which period
specified under those section expires.
b) If exemption was claimed under Section 54F: The following amount shall be taxable as capital gains of previous year in which the period under Section 54F
expires -

Taxable = Amount not so utilised x Original Capital Gains (before claiming exemption)
Capital Gains Net sale consideration in respect of transfer of original asset
If individual dies before expiry of stipulated period u/s 54, 54B, 54F, unutilised amount cannot be taxed in the hands of the deceased, also not in hands of
legal heirs, as the unutilised portion is not income but is only a part of the estate devolving upon them.
CAPITAL GAINS NOT CHARGEABLE ON INVESTMENT IN NOTIFIED UNITS OF SPECIFIED FUND [Section 54EE] W.e.f. AY 17-18
1. Where the capital gain arises from the transfer of a long-term capital asset (original asset) and the assessee has, at any time within a period of 6 months after
the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be exempt as follows:
QUANTUM OF EXEMPTION
If Cost of the long-term specified asset > Capital Gains
Entire Capital Gain is exempt.
If Cost of the long-term specified asset < Capital Gains
Capital Gain to the extent of Cost of new Asset
2. Investment made during the PY in which the original assets are transferred and in the subsequent financial year does not exceed ` 50,00,000.
3. "long-term specified asset" means a unit or units, issued before the 1st day of April, 2019, of such fund as may be notified by the Central Government in this
behalf.
4. POH of NEW ASSET - 3 YEARS

3 years from the date of acquisition.
5. ON VIOLATION OF CONDITIONS
In case of transfer or conversion of such notified units or availing loan or advance on security of such Units before the expiry of 3 years, the capital gain exempted
earlier shall be taxed as LTCG in the year of violation of condition.

Class notes

INCOME FROM OTHER SOURCES

Dividend Income, Casual Income, Gift, Sub-Letting Income, Family Pension, Director’s Sitting Fee, Remuneration
received by MP, Interest, Income from undisclosed sources, Examiner-ship fee from non-employer, Rent from a
vacant land, Agricultural Income from land situated outside India, Interest on Income Tax Refunds, Sum received
from Keyman Insurance Policy, Dividend income from foreign company
The following income is chargeable under the head “Income from other sources” only if such income is
not chargeable under the head “Profits and gains of business or profession”:
Income from letting out of plant, machinery or furniture, Composite Rent where letting out of buildings is
inseparable from the letting out of plant, machinery or furniture, Insurance Commission, Income from Royalty,
Interest on Securities etc
CASUAL INCOME
1. Income in the nature of winning from lotteries, crossword puzzles, horse races (including camel race), card
games and other games of any sort, gambling, betting etc.
2. Section 115BB - Tax @ 30%
3. Deduction of Expenses not permissible
4. Other loss cannot set off. Also loss from casual source is to be ignored.
5. No Deduction under Chapter VI-A [Section 80C to 80U]
6. No Adjustment of unexhausted BEL.
7. Grossing up where earning given after TDS
TDS u/s 194BB: Winning from Horse Race (excluding camel race) exceeding ` 10,000
TDS u/s 194B: Other Winnings exceeding ` 10,000.
8. Income derived from owning & maintaining racehorses is not a casual income and normal slab rate will be
applicable on such income.
SUM RECEIVED UNDER A KEYMAN INSURANCE POLICY

Any sum received under a Keyman insurance policy (including any bonus) is chargeable under the head “IOS”
if such income is not chargeable under the head “PGBP” or under the head “Salaries” i.e. if such sum is received
by any person [Family Members] other than the employer who took the policy (PGBP Income) and the
employee in whose name the policy was taken (Salary Income).
Taxability of Family Pension

1) Family pension means pension received by the family members of the deceased employee. It is taxable u/h
IOS.
Deduction u/s 57: Least of the following is allowed as a deduction:
(a) 1/3rd of such income
(b) ` 15,000
2) Exemptions: Pension received by Army personnel who are recipient of gallantry awards or Family pension
received by his family members is exempt in full. [Section 10(18)].
Family pension received by the widow or children or nominated heirs of a member of the armed forces
(including para-military forces) whose death has occurred in the course of operational duties is exempt in full
[Section 10(19)].
INTEREST ON COMPENSATION OR ENHANCED COMPENSATION

Interest received on compensation/enhanced compensation deemed to be income in the year of receipt and
taxable under the head “Income from Other Sources” [Sections 56(2)(viii)]. However, a fixed deduction of 50%
of interest received will be allowed u/s 57 irrespective of actual expenses.
Compensation or any other payment received in connection with termination of his employment [Section
56(2)(xi)] – FINANCE ACT 2018
Any compensation or any other payment, due to or received by any person, by whatever name called, in
connection with the termination of his employment or the modification of the terms and conditions
relating thereto shall be chargeable to tax under this head.

DIVIDEND INCOME
Dividend shall include any dividend u/s 2(22)(a), 2(22)(b), 2(22)(c), 2(22)(d), 2(22)(e) and such dividends shall
be exempt in the hands of shareholders u/s 10(34) to the extent it is not covered under section 115BBDA.
Every Domestic Company, which has declared, distributed or paid any amount by way of dividends (whether
interim / otherwise), whether out of current or accumulated profits shall be charged to tax on Distributed Profits
@15% (after grossing up) + SC @ 12% + 3% Cess, in addition to the income-tax chargeable in respect of
the Total Income of such a domestic company. W.e.f. 01/10/2014, DDT will be calculated @15%
considering dividend payable equivalent to 85%.
Dividend u/s. 2(22)(e) is now covered u/s 115-O and the same is exempt in hands of the shareholder
and the company is liable to DDT @ 30% without grossing up. Further, Section 115BBDA is not
applicable on Deemed dividend u/s 2(22)(e).
Dividend received from a FOREIGN COMAPNAY is not covered u/s. 115-O and shall not be exempt in
the hands of shareholder u/s 10(34).
Dividends from cooperative society are taxable in the hands of members.
TAXATION OF CERTAIN FOREIGN DIVIDEND @ 15% [Section 115BBD]

Section 115BBD provides that where Total Income of an Indian Company includes any dividend income [Except
2(22)(e)] received from a foreign specified company [in which Indian company has 26% of holding], then such
dividends shall be taxable at the rate of 15% (plus applicable surcharge and cess) on the gross amount of
dividends.
Tax on Certain Dividends received from Domestic Company [Sec 115BBDA]
1. Notwithstanding anything contained in this Act, where the total income of a Specified Assessee, being an
Individual, HUF or a Firm, Resident in India, includes any income in aggregate exceeding ten lakh rupees,
by way of dividends [except 2(22)(e)] declared, distributed or paid by a domestic company or companies,
then dividend in excess of ` 10,00,000 shall be taxable at the rate of 10%.
2. No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assessee
under any provision of this Act in computing the income by way of dividends as referred above.
3. Specified Assessee means a person other than
(a) A Domestic Company
(b) A Trust/Institution registered under Section 12A or Section 12AA
(c) A Fund/Institute/Trust/Any University/Other Educational Institution/Any Hospital/other Medical
Institution/Hospital/Medical Institution as referred in Section 10(23C)(iv)/(v)/(vi)/(via).
DEEMED DIVIDEND
a) any distribution of assets
b) any distribution of debentures etc by a company to its shareholders OR Any distribution of shares by way of
bonus by a company to its preference shareholders.
c) Any distribution of assets is made by a company on its liquidation
d) Any Distribution of assets by company to its shareholders on reduction of its capital
e) Any payment, by a closely held company, of any sum by way of loan or advance:
to a shareholder holding not less than 10% of voting power through shares, OR
to any concern, in which such a shareholder is a member/partner and in which he has a substantial
interest, OR
to any persons on behalf of or for the individual benefit of such a shareholder,
shall be deemed to be the dividend to the extent to which the company possesses accumulated profits.
Note:
1. Bonus shares given to equity shareholders are not treated as dividend.
2. Any payment made by a company on purchase of its own shares from a shareholder is not a deemed
dividend.

Taxability of Allowances to MLA/MP
Daily Allowances & Constituency Allowances to MLA & MP are exempt from tax u/s 10(17).
PROVISION RELATING TO TAXABILITY OF INTEREST ON SECURITIES

Interest on securities may be taxed on Receipt basis or on Due basis, depending on the system of
accounting adopted by the assessee. If no system of accounting is followed, it will be taxable on ‘DUE’ basis.
LIABILITY FOR TAX: The person who owns the security on the due date of payment of interest is liable
for the entire interest even if he is not the owner for the entire period to which the interest relates.
INTEREST AFTER TDS: If interest is received after TDS, then such amount is required to be grossed up to
include in the total income.
Rate of TDS = 10% [In case of Govt. Securities – Rate of TDS is NIL]
8% Taxable Saving Bond: Rate of TDS is 10% if interest > ` 10,000
7.75% GOI Saving (Taxable) Bond: Rate of TDS is 10% if interest > ` 10,000
No TDS is deductible if debentures (whether listed or not) is issued by a widely held company if interest
is paid /payable to a Resident Individual/HUF by an account payee cheque & the aggregate amount of
such interest during the FY does not exceeds ` 5,000
Section 10(15) – EXEMPTED INTEREST INCOME

Interest on notified bonds issued by a local authority.
Interest on Capital Investment Bond
NEW: Interest from Deposit Certificates issued under the Gold Monetisation Scheme, 2015
Interest on PPF
Interest on notified bond/debentures of Public Sector Company.
[However, Interest from Tax Saving Bonds and POMIS is taxable]
Interest from Post Office Saving Bank Accounts: Interest from Post Office Saving Bank Accounts is
exempt to the extent of ` 3,500 in case of an Individual Account and ` 7,000 in the case of Joint Account.
Section 10(11A)
Interest Income from account opened as per Sukanya Samriddhi Account Rules 2014 is exempt from AY 16-17.
Amount Withdrawal will also be exempt. [Amount deposited in SSA will qualify for deduction u/s 80C]
Advance forfeited due to failure of negotiations for transfer of a capital asset to be

taxable as “Income from other sources” [Section 56(2)(ix)]
With effect from A.Y. 2015-16, new clause (ix) has been inserted in section 56(2) to provide for the taxability
of any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital
asset. Such sum shall be chargeable to income-tax under the head ‘Income from other sources’, if such sum is
forfeited and the negotiations do not result in transfer of such capital asset.
Share premium in excess of the FMV to be treated as income [Section 56(2)(viib)]

Section 56(2)(viib) provides that where a company, not being a company in which the public are
substantially interested (i.e. Closely held Company), receives any consideration from issue of shares in
excess of the face value of such shares from any person being a resident, then consideration as exceeds
from FMV of the shares shall be chargeable to income tax under the head “IOS”
However, the above provision shall not apply where the consideration is received by a venture capital undertaking
from a Venture Capital Company or a Venture Capital Fund.

METHOD OF ACCOUNTING
1) Income chargeable under this head [other than deemed dividend under section 2(22)(e) has to be
computed in accordance with the Cash OR Mercantile system of accounting regularly employed by the
assessee.
2) However, deemed dividend under section 2(22)(e) is chargeable to tax on receipt basis under section 8,
irrespective of the method of accounting followed by the assessee.
3) Interest on compensation / enhanced compensation is taxable on receipt basis irrespective of the

method of accounting followed by the assessee.
PREVIOUS YEAR FOR UNDISCLOSED SOURCES OF INCOME

Unexplained Cash Credits [Section 68]
Any sum is found credited in the books of assessee and he offers no explanation about its nature and source
OR the explanation offered is not satisfactory in the opinion of AO, then the amount so credited is treated as
the income (under the head IOS) of the Previous Year in which the same is found credited.
Further, Section 68 of the Act has also been amended w.e.f. 01.04.2012 to provide that the nature and
source of any sum credited, as share application money, share capital, share premium etc., in the
books of a closely held company shall be treated as explained only if the source of funds is also
explained by the assessee company in the hands of the resident shareholder (other than regulated
entity) and such explanation in the opinion of the AO is found to be satisfactory.
Unexplained Investment [Sec. 69]
Unexplained Money etc. [Sec. 69A]
Investment not fully disclosed [Sec. 69B]
Unexplained Expenditure [Sec. 69C]
Amount borrowed or repaid on Hundi other than by way of account payee cheque [Sec. 69D]
Taxation of Cash Credit, Unexplained Money, Unexplained Investment etc. covered u/s 68, 69, 69A, 69B,
69C & 69D [Section 115BBE]
Section 115BBE has been inserted to tax the unexplained credits, money, investment, expenditure, etc.,
which has been deemed as income under section 68, 69, 69A, 69B, 69C & 69D.
Tax Rate: 60% (plus surcharge@25% and cess@3% as applicable)
No deduction in respect of any expenditure or allowances or Set off of any loss shall be allowed in
computing above deemed income. Benefit of Basic Exemption Limit is also not available while computing
tax liability.
Bond Washing Transactions [Section 94]

Section 94(1) provides that where the owner of a security transfers the security just before the due date of
interest and buys back the same immediately after the due date and interest is received by the transferee,
such interest income will be deemed to be the income of the transferor and would be taxable in his hands.
Restrictions on Allowability of expenditure [Section 14A]

As per section 14A, expenditure incurred in relation to any exempt income is not allowed as a deduction
while computing income under any of the five heads of income [Sub-section (1)].

Taxability of Gift
Section 56(2)(vii) - Taxability from 01.10.2009 to 31.03.2017: - INDIVIDUAL/HUF – Gift Provisions
Section 56(2)(viia) - Taxability from 01.06.2010 to 31.03.2017: - Firm/Private Company – Gift Provisions
Section 56(2)(x) – Gift Taxability from 01.04.2017: - ANY PERSON – Widening scope of Gift Provisions
Gift of any sum of money or property or transfer of property for inadequate consideration on or after 1st April,
2017 to be subject to tax in the hands of Any Person as IOS subject to the following:
Nature of asset Particulars Taxable value
Money Without consideration The whole of aggregate amount if the same
exceeds ` 50,000.
Movable property Without consideration The aggregate Fair Market Value (FMV) of the
property, if it exceeds ` 50,000.
Movable property Inadequate consideration The difference between the aggregate FMV and
the consideration, if such difference exceeds `
50,000.
Immovable property Without consideration The Stamp Duty Value [SDV] of the property, if it
exceeds ` 50,000.
[Each Property Separately]
Immovable property Inadequate consideration The difference between the SDV and the
consideration, if such difference exceeds higher of
the following amount:
a) ` 50,000 or
b) 5% of the consideration
[Each Property Separately]
Note:
1) Gift provisions will not be applicable if property is received as stock in trade, consumable stores and raw
materials.
2) Sum of money includes not only cash but also cheque, drafts, fixed deposits receipts or a NSC since it
represents a sum of money though not in cash.
3) For this purpose, “property” means the capital Asset of the assessee namely immovable property being
land or building or both, shares and securities, jewellery, archaeological collections, drawings, paintings,
sculptures or any work of art or bullion.
4) Stamp Duty Value means the value adopted by any authority for the purpose of payment of stamp duty in
respect of an immovable property.
5) If the Stamp Duty Value of immovable property is disputed by the assessee, the AO may refer the valuation
of such property to a Valuation Officer. In such a case, the provisions of section 50C shall, as far as may be,
apply for determining the value of such property
6) When date of agreement and date of registration are not same - Where the date of an agreement fixing
the value of consideration for the transfer of the asset and the date of registration of the transfer of the
asset are not same, the stamp duty value may be taken as on the date of the agreement for transfer and not
as on the date of registration for such transfer. However, this exception shall apply only in those cases where
amount of consideration (or a part thereof) for the transfer has been paid by way of an account payee
cheque or an account payee draft or by use of electronic clearing system through a bank account on or
before the date of the agreement.

7) Exceptions: However, any gift received from following ways would be outside the ambit of Section
56(2)(x):
(1) from any relative; or
(2) on the occasion of the marriage of the individual; or
(3) under a will or by way of inheritance; or
(4) in contemplation of death of the payer or donor, as the case may be; or
(5) from any local authority; or
(6) from any fund or foundation or university or other educational institution or hospital or other
medical institution or any trust or institution referred to in section 10(23C); or
(7) by any fund or trust or institution or university or other educational institution or hospital or other
medical institution referred to in section 10(23C)(iv)/(v)/(vi)/(via);
(8) from or by any trust or institution registered under section 12AA [Charitable or Religious Trust]
(9) from an Individual by a Trust created or established solely for the benefit of relative of the
Individual.
(10) from HUF on Total/Partial Partition of HUF by members
(11) Asset received by Amalgamated Indian company from Amalgamating company
(12) FA 18 - From Holding Company to 100% Subsidiary Company or vice versa where transferee is an
Indian Company.
(13) Asset received by Indian Resulting Company from Demerged company in a demerger
(14) Any shares received by shareholders under Amalgamation/Demerger which is not regarded as
Transfer u/s 47.
For the purpose of this clause, the expression “RELATIVE” means

In Case of Individual:
(i) spouse of the individual,
(ii) brother or sister of the individual,
(iii) brother or sister of the spouse of the individual,
(iv) brother or sister of either of the parents of the individual,
(v) any lineal ascendant or descendant of the individual,
(vi) any lineal ascendant or descendant of the spouse of the individual, and
(vii) spouse of a person referred to in items (ii) to (vi) mentioned above.
In Case of HUF: Any Member
Clubbing Provisions: As per Section 64(2), if a member of the HUF converts his separate property
into the property belonging to the family otherwise than for adequate consideration, the income
derived from the converted property shall be deemed to arise to the individual and not the
family.

Revisionary Notes - Deduction – CA Suraj Agrawal [9953006445] 12.1
DEDUCTIONS FROM GROSS TOTAL INCOME

No deduction u/s 10AA & u/s 80-IA to 80-RRB, if not claimed in the return of income
Where the assessee fails to make a claim in his return of income for any deduction u/s 10AA or under
any provision of sections 80-IA to 80-RRB, no deduction shall be allowed to him thereunder.
As amended by Finance Act 2018, w.e.f. AY 2018-19, Benefit of deduction from 80-IA to 80RRB
will not be available if return is not filed within due date of Section 139(1).
No deduction from certain Incomes: No deduction is allowed in respect of the following incomes:
• Long Term Capital Gains referred u/s 112 or u/s 112A, and Short Term Capital gains referred u/s
111A [15%].
• Winnings from lotteries, races, etc. as referred to in Section 115BB [30%].
Deduction in respect of investment in specified assets

[Sec 80C]
Applicability: Individual or HUF
Maximum Qualifying Amount: ` 150,000
Name of the investment / payment Payment made by the

Individual HUF
Subscription to NSC - VIII Issue including NSC Interest Self Any member
Tuition Fees (only) paid at the time of Admission or otherwise to any Maximum
university/college/educational institution in India for full time up to two
education. children NA
Contribution to ULIP of UTI/MF Self, Spouse Any member

& Child
Contribution to Units of Mutual Funds or UTI Self Any member
Contribution to Notified Annuity Plan of LIC or other approved Self Any member
insurer.
Life Insurance Premium on Life Policy or Endowment Policy Self, Spouse Any member
& child
Maximum Amount of Deduction:
• 10% of Sum Assured in case of policy issued on or after April
1, 2012
[15% of sum assured in case of policy issued on or after April

1, 2013 on life of any person with disability (u/s 80U) or any
person suffering from specified disease (u/s 80DDB)]
• 20% of Sum Assured in case of policies issued before April 1,

2012.
Contribution towards
Statutory Provident Fund / Recognized Provident Fund Self NA
PPF – Minimum: ` 500 & Maximum: ` 150,000 Self, Spouse Any member
& Child
Approved Superannuation Fund (ASF) Self NA
Contribution to Notified Pension Fund of Mutual fund or UTI Self NA
Term Deposit of 5 year or more with a scheduled bank; Self NA
NABARD Bonds, 5 year Time Deposit with PO, Deposit in Senior Self Any member
Citizens Saving Scheme;
Any payment towards the cost of purchase/construction of a

residential property where loan is taken from
Self Any Member
Income from such property should be chargeable to tax under the
head House Property.
Amount invested in Approved debentures/ equity shares in a public
Co. engaged in infrastructure faclity; or Units of MF proceeds of which
are utilized for the developing, maintaining, etc., of a new infrastructure Self Any Member
facility.
Amount deposited in Sukanya Samriddhi Account Scheme
Amount paid on Life Insurance Policies – Exempt [Section 10(10D)]

1) As per section 10(10D), any sum received on maturity of life insurance policy (including bonus) is not
chargeable to tax.
2) Exemption is not available in respect of:
a) Any Sum received under Section 80DD
b) Any Sum received under a Keyman Insurance Policy
3) Exemption u/s 10(10D) for insurance policies issued on or after 1.4.2012 would only be available for policies
where the premium payable for any of the years during the term of the policy does not exceed 10% of the
actual capital sum assured (as against 20% upto 31.03.2012)
[If the premium payable during any PY for a policy issued on or after 1.4.2012 exceeds 10% of the
actual capital sum assured, the entire amount received under such policy shall be taxable.]
However, the above provision shall not apply to any sum received on the death of a person.
4) From AY 2014-15: The limit of 10% has been increased to 15 per cent for insurance (if policy is issued
on or after 1.4.2013) on the life of any person who is
a. a person with disability or a person with severe disability as referred to in section 80U; or
b. suffering from disease or ailment as specified in the rules made under section 80DDB.
Policy on the life of a person Policy on the life any

with disability or severe other person
disability or on the life of a
person suffering from disease
or ailment as given in section
80DDB
- If policy was issued before April 1, 2003 Any % of sum assured Any % of sum assured
- If policy was issued on or after April 1, 2003 20% of sum assured 20% of sum assured
but before April 1, 2012
- If policy was issued during 2012-13 10% of sum assured 10% of sum assured
- If policy is issued on or after April 1, 15% of sum assured 10% of sum assured
2013

Deduction in respect of contribution to certain pension funds [Section 80CCC] - Individual – 150,000
Amount paid or deposited for any annuity plan of LIC/ Any other Insurer for receiving Pension from
the Pension Fund is allowed as a deduction u/s 80CCC. However, it is taxable on maturity.
Deduction in respect of contribution to new pension scheme [NPS] of Central Government [Section
80CCD]
1) Applicability: ANY INDIVIDUAL [Employed or Self Employed]
2) Quantum of Deduction (Maximum): “Salary” means Basic Salary + DA (R)
(A) In Case of Employment:

a. Contribution made by the employee or 10% of Salary whichever is lower [80CCD(1)],
AND
b. Contribution made by the employer or 10% of Salary whichever is lower [80CCD(2)]
(B) In Case of Self Employment: Contribution made or 20% of GTI, whichever is less [80CCD(1)]
3) The entire employer’s contribution would be included in the Salary of the employee
4) 80CCD(1B) An Individual is eligible for additional deduction of upto ` 50,000 in respect of the whole of the
amount paid or deposited under NPS, whether or not any deduction is allowed under section 80CCD(1).
5) Maturity is taxable. However, amount received by nominee on the death of the assessee shall not be
taxable.
6) However, amount received on maturity will not be taxable if the same is used for purchasing an
annuity plan.
7) Any payment from NPS to to assessee an Employee on closure of account/scheme as referred in

Section 80CCD, to the extent of 40% amount payable is Exempt. [Section 10(12A)]
8) Any payment from NPS to an Employee on partial withdrawal made out of his account, to the extent it
does not exceed 25% of the amount of contributions made by him is Exempt. [Section 10(12B)]
Limit on deductions under sections 80C, 80CCC & 80CCD [Section 80CCE]
This section restricts the aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) to `
1,50,000 lakh.
Consequently, deduction to assessee in relation to employer’s contribution to pension scheme shall be

available over and above ` 1,50,000 lakh limit.
Further, Assessee’s contribution to CG Pension fund as per section 80CCD(1B) is also not covered in
limit specified in Section 80CCE.
DEDUCTION IN RESPECT OF INVESTMENT MADE UNDER ANY EQUITY

SAVING SCHEME [SEC. 80CCG] – NO DEDUCTION FROM AY 18-19
1. The assessee is a Resident Individual & a New Retail Investor.
2. His GTI does not exceed ` 12 lakh
3. He has acquired listed shares or listed units of an equity oriented fund
4. Amount of deduction: 50% of amount invested subject to Maximum of ` 25,000.
5. Deduction shall be allowed for 3 consecutive AYs, begging with the AY relevant to the PY in which the
listed equity shares or listed units were first acquired.
6. The investment is locked-in for a period of 3 years from the date of acquisition.
7. Withdrawal of Deduction: If the assessee, after claiming the aforesaid deduction, fails to satisfy the above
conditions, the deduction originally allowed shall be deemed to be income of the assessee of the year in
which default is committed.

Deduction in respect of Health insurance premium [Section 80D]
1. Applicability: INDIVIDUAL or HUF
2. Nature of payment: [Other than in Cash]

Premium towards Mediclaim Health Insurance Policy taken
In case of an Individual: In the name of Individual, Spouse, Parents and dependent children
In case of HUF: In the name of any Member
AY 16-17: In case of Very Senior Citizen, Medical expenditure incurred if no payment is made for
health insurance premium.
Contribution to Central Government Health Scheme [CGHS] or other health scheme as notified by CG
is also eligible for deduction if it is taken in the name of Individual, Spouse or Dependent Children
(Parents & HUF-Not eligible
Any payment made by an individual on account of preventive health check up of self, spouse,
dependent children or parent(s) during the PY is also eligible [maximum amount – 5,000 within overall
limit]
3. Maximum Amount of Deduction:
Particulars Individual HUF
Premium/Contribution Individual, Spouse & Parents (Whether Any Member

for Dependent Children dependent or not)
Deduction being lower a. Premium Paid, or a. Premium Paid, or a. Premium Paid, or

of
b. ` 25,000 p.a. b. ` 25,000 p.a. b. ` 25,000 p.a.
Additional Deduction
` 25,000 ` 25,000 ` 25,000
for Senior Citizen
4. In case of single premium health insurance policies having cover of more than one year,
Deduction under section 80D shall be allowed on proportionate basis for the number of
years for which health insurance cover is provided, subject to the specified monetary limit.
Deduction in respect of maintenance including medical treatment

of a dependent disabled [Section 80DD] Resident INDIVIDUAL / HUF.
1) Assessee must have a Dependent Disabled Relative:
Situation Relative Includes
In case of Individual Spouse, Children, Parents, Brothers & Sisters of the Individual
[Not taking benefit of Section 80U]
In case of HUF Any Member
2) Nature of Expenditure on Such Relative: Assessee has
paid any amount for the medical treatment (including nursing), training and rehabilitation of
a dependant, being a person with disability, or
any amount paid or deposited under a scheme of LIC or any other insurer for the
maintenance of a dependant, being a person with disability, qualifies for deduction.
3) Quantum of Deduction:
Relative suffering with Disability ` 75,000
Relative suffering with Severe Disability [80% or more] ` 125,000
Tax Point: Deduction shall be irrespective of actual expenditure incurred.
Deduction in the case of a Person with Disability [Section 80U]

1) ELIGIBLE ASSESSEE: RESIDENT INDIVIDUAL with disability
2) FIXED DEDUCTION: In case of

Person with Disability - ` 75,000
Person with severe disability - ` 1,25,000
Deduction in respect of medical treatment etc. [Section 80DDB]

1) Applicability: RESIDENT INDIVIDUAL & RESIDENT HUF
2) Nature of Expenditure:
The assessee has actually paid any amount for the medical treatment of such disease or ailment as may
be specified in the rules made in this behalf by the Board [Specified Disease] for
Situation Relative Includes
In case of Individual Himself/Herself or for dependent relative being Spouse,
Children, Parents, Brothers & Sisters of that Individual
In case of HUF Any Member
3) Quantum of Deduction: Lower of the Two:

(a) Amount actually paid or
(b) ` 40,000 / In case of Senior Citizen – ` 100,000 (W.e.f. - AY 19-20)
Interest loan taken for higher education [Section 80E] - Individual

Maximum Permissible Period: 8 Assessment Years
The loan must have been taken for the purpose of pursuing his/her own higher education or for
higher education of his or her relative.
Relative means Spouse or Children (Dependent or Independent) or the student for whom the individual
is the legal guardian.
Deduction in respect of interest on loan taken for residential house property [Sec. 80EE]
– NO DEDUCTION FROM AY 18-19
• Conditions - The following conditions should be satisfied in order to claim deduction under section
80EE -
1. The assessee is an Individual. He may be resident or non-resident.
2. He has taken a loan.
3. Loan is taken for acquisition of residential house property.
4. Loan is taken from Financial Institution (includes Banks/Housing finance Companies).
5. Loan has been sanctioned during April 1, 2016 and March 31, 2017.
6. The amount of loan sanctioned for residential house property does not exceed ` 35 lakh.
7. The value of residential house property does not exceed ` 50 lakh.
8. The assessee does not own any residential house property on the date of sanction of loan.
• Amount of Deduction:
Deduction will be available in respect of interest payable on the above loan or ` 50,000, whichever is
less.

Donation [Section 80G] - Applicability: All assessee
A. No ceiling limit for amount of donation and deduction of such donation
(1) Deduction = 100% of donation (2) Deduction = 50% of donation
1. The National Defence Fund 1. The Jawaharlal Nehru Memorial

2. Prime Minister’s National Relief Fund Fund
3. The National Foundation for Communal Harmony
2. Prime Minister’s Drought Relief Fund
4. Approved University or educational institution of national
eminence 3. Indira Gandhi Memorial Trust
5. Maharashtra Chief Minister’s Earthquake Relief Fund 4. Rajiv Gandhi Foundation
6. Gujarat Relief Fund for earthquake victims
7. Zila Saksharta Samiti
8. National Blood Transfusion Council
9. Any State Government Fund set up to provide medical relief to
the poor
10. The National illness Assistance Fund
11. The Chief Minister’s Relief Fund or Lieutenant Governor’s
Relief Fund
12. National Sports Fund
13. National Cultural Fund
14. Fund for Technology Development and Application
15. National Trust for welfare of persons with Autism, Cerebral
Palsy, Mental Retardation and Multiple Disabilities
16. The National Children’s Fund
17. National Fund for Control of Drug Abuse [AY 16-17]
18. Swachh Bharat Kosh [AY 16-17]
19. Clean Ganga Fund [AY 16-17]
[Point 2 & 3: Donation does not qualify for deduction if it is a
Part of CSR Expenses]
Note – Income of Swachh Bharat Kosh & Clean Ganga
Fund is also exempt u/s 10(23C).
QUALIFYING AMOUNT: It means 10% of Adjusted GTI or the Donations given [in Aggregate] whichever is
less.
[Adjusted GTI means: GTI – LTCG (112 & 112A) – STCG u/s 111A – All deduction of Chapter VIA except
80G]
3) 100% deduction shall be allowed 4) 50% deduction shall be allowed subject to the qualifying
subject to the qualifying amount if the amount if the donation are made-
donation are made –
• To Govt., or local authority, for charitable purpose
• To Govt., or any approved
• To approved charitable institution u/s. 80G.
association / institution to be utilized
for promoting family planning; • To any authority or corporation for the benefit of minority
community.
• By company to the Indian Olympic
Association or notified association / • For renovation or for repair of any temple, mosque,
institution in India Gurudwara, church, or other place
• To housing development authority constituted in India.
No deduction shall be allowed u/s 80G in respect of donation exceeding ` 2,000 if paid in cash.

Deduction in respect of Rent paid [Section 80GG]
1) No House Rent Allowances [HRA] or No Rent Free Accommodation [RFA]
2) No House at Place of Employment: The Individual or his spouse or his minor child or an HUF of
which he is a member should not own any accommodation
3) No Claim for the benefit of Self-occupied House Property:
4) Quantum of deduction: Least of the following
a) Actual rent paid minus 10% of the Adjusted GTI, or
b) 25% of the Adjusted GTI, or
c) ` 5,000 ` 2,000 p.m.
Adjusted GTI means Gross Total Income XXX
Less: LTCG u/s 112 & 112A (XXX)
Less: STCG u/s 111A (XXX)
Less: Deduction u/s 80C to 80U except 80GG (XXX)
DEDUCTION IN RESPECT OF ROYALTY INCOME ON BOOKS [Sec 80QQB]
1. ELIGIBLE ASSESSEE: RESIDENT Individual being an author (including a joint author)
2. DEDUCTION: LOWER OF
a) 100% of such lump sum income [15% of the value of books in case of Royalty]
(Less: Related Expenses)
OR
b) ` 3,00,000
3. If income earned from foreign sources: Deduction is allowed to the extent the income is brought
into India in Convertible Foreign Exchange within 6 month from end of Previous Year or such
extended period as allowed by RBI [Less: Related Expenses]
DEDUCTION IN RESPECT OF ROYALTY INCOME ON PATENTS [Sec 80RRB]
1. ELIGIBLE ASSESSEE: RESIDENT Individual being a patentee (True & First)

2. DEDUCTION: lower of
a. 100% of such income; or
b. ` 3,00,000
3. If income earned from foreign sources: same as 80QQB
Deduction in respect of interest on deposits in saving accounts to the

extent of ` 10,000 [Section 80TTA]
1. Applicability: Individual or HUF
(Other than senior citizen covered u/s 80TTB)
2. Maximum Qualifying Amount of deduction under section 80TTA: ` 10,000
3. GTI includes interest on deposits (not being time deposit) in a Saving Bank Account with
a) Banks,
b) Co-operative society into Banking Business or
c) Post Office.
Deduction in respect of interest on deposits to the extent of ` 50,000
[Section 80TTB] W.e.f. AY 19-20
1. Applicability: Senior Citizen
2. Maximum Qualifying Amount of deduction under section 80TTB: ` 50,000
3. GTI includes interest on deposits with Banks, Co-operative society into Banking Business
or Post Office.
4. However, where such income is derived by Firm/AOPs/BOIs, no deduction shall be allowed to
any partner/member as the case may be.

Deduction in respect of employment of new Workmen/Employees [New Section 80JJAA]
1. Where the GTI of an assessee to whom section 44AB applies, includes any profits and gains derived from
business, a deduction of an amount equal to 30% of additional employee cost incurred in the course of
such business in the previous year shall be allowed, for 3 assessment years including the assessment year
relevant to the previous year in which such employment is provided.
2. No deduction under sub-section (1) shall be allowed:

(a) if the business is 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) if the business is acquired by the assessee by way of transfer from any other person or as a
result of any business reorganisation;
(c) unless the assessee furnishes alongwith 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.
NOTE:
A. "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;
B. "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 ` 25,000 per month; or
(b) an employee for whom the entire contribution is paid by the Government under the
Employees' Pension Scheme; or
(c) an employee employed for a period of less than 240 days during the previous year (150
days in case of Apparel, footwear or leather products); or
(d) an employee who does not participate in the recognised provident fund;
where an employee is employed during the previous year for a period of less than two hundred and
forty days or one hundred and fifty days, as the case may be, but is employed for a period of two
hundred and forty days or one hundred and fifty days, as the case may be, in the immediately
succeeding year, he shall be deemed to have been employed in the succeeding year and the
provisions of this section shall apply accordingly
C. "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.
D. From A.Y. 2017-18, it is not necessary that the employee should qualify as a “workman” under the
Industrial Disputes Act, 1947 for the employer to avail benefit under section 80JJAA.

OTHER DEDUCTIONS:
80GGA Deduction in respect of certain All assesses not 100% of sum donated [Cash
donations for scientific research or having business in excess of ` 10,000 not
rural development, etc. income permissible]
80GGB Deduction for contributions by Company assessee Amount so contributed
companies to political parties (Other
than cash)
80GGC Deduction for contributions by any Any assessee except Amount so contributed
person to political parties (Other than local authority and
cash) every artificial juridical
person wholly or
partly funded by the
Govt.


Income Based Deduction/Exemptions – By CA Suraj Agrawal [9953006445] 13.1
Deduction to Newly Established Units in SEZs [SECTION 10AA]
A deduction of profits and gains which are derived by an assessee being an entrepreneur from the export of
articles or things or providing any service, shall be allowed from the TOTAL INCOME of the assessee.
(1) Conditions:
i) It has begun or begins to manufacture or produce articles or things or provide any service on or
after 1.4.2005 (PY 05-06) in any SEZ. [No Deduction from AY 21-22]
ii) The sale proceeds from exports should be received in or brought into India, in convertible foreign
exchange, within a period of 6 months from the end of the Previous Year or within extended
period allowed by RBI.
(2) New Business / New Plant & Machinery: Same as given in Section 35AD
(3) Quantum and Period of Deduction:

i) For First 5 AYs : 100% of the profits derived from exports.
ii) For next 5 Consecutive AYs : 50% of such profits
iii) For next 5 Consecutive AYs : Least of the below two:
(a) 50% of Such Profits
(b) Reserve credited to SEZ Re-Investment Allowance
Reserve Account
(4) Conditions to be satisfied for claiming deduction for further 5 years (after 10 years):
The amount credited to the Special Economic Zone Re-investment Reserve Account is utilized-
a) for the purposes of acquiring machinery or plant which is first put to use before the expiry of a period
of three years following the previous year in which the reserve was created; and
b) until the acquisition of the machinery or plant as aforesaid, for the purposes of the business of the
undertaking. However, it should not be utilized for
i. distribution by way of dividends or profits; or
ii. for remittance outside India as profits; or
iii. for the creation of any asset outside India;
(5) CONSEQUENCES OF MIS-UTILISATION / NON-UTILISATION OF RESERVE:

(a) Mis-Utilised amount shall be deemed to be the profits in the year in which the amount was so
utilised; or
(b) Unutilised amount shall be deemed to be the profits in the year immediately following the said
period of three years.
(6) Computation of Deduction u/s 10AA:

The profits derived from export of articles or things or services (including computer software):
Export Turnover
Profits of the Business of the undertaking X ———————————————
Total Turnover
Note:
1. “Export Turnover” means the consideration received in or brought into India by the assessee in
convertible foreign exchange but does not include:
a) Freight, Telecommunication Charges and Insurance attributable to the delivery of the
articles or things outside India; or
b) Expenses incurred in foreign exchange in providing the technical services outside India.
2. Here, profits includes profits derived from on-site development of computer software (including
services for development of software) outside India for the purpose of determining profits derived
from export of computer software outside India

Income Based Deduction/Exemptions – By CA Suraj Agrawal [9953006445] 13.2
3 New: CBDT has clarified that freight, telecommunication charges & insurance expenses are to be
excluded both from “Export Turnover” and “Total turnover” while working out deduction
admissible under Section 10AA to the extent they are attributable to the delivery of articles or things
outside India.
4
Similary, expenses incurred in foreign exchange for rendering services outside India are to be
excluded from both “Export Turnover” and “Total Turnover” while computing deduction admissible
u/s 10AA.
(1) OTHER COMMON POINTS:
a) AUDIT: Accounts of the assessee for the relevant year should be audited by a CA and audit report
should be furnished.
b) INTER-UNIT TRANSFER: Where any goods or services of eligible business are transferred to
any other business (or vice versa) otherwise than at Market Value on date of transfer, then the
profits and gains of the eligible business shall be computed as if the transfer was made at
market value.
c) NO DOUBLE OR EXCESS DEDUCTION: The deductions claimed and allowed under this section
shall not exceed the profits and gains of the eligible business. Further, profits and gains
allowed as deduction under this section will not be considered for deduction under any other
provisions of the Act.
d) AMALGAMATION/DEMERGER:
INDIAN COMPANY INDIAN COMPANY
In the case of any amalgamation or demerger, by virtue of which the Indian company carrying
on the eligible business is transferred to another Indian company:
(i) No deduction will be available to the amalgamating company/demerged company, in the year
of amalgamation/demerger.
(ii) The deduction will be available to the amalgamated/resulting company for unexpired
period.
e) Where a deduction under this section is claimed and allowed in relation to any specified business
eligible for investment-linked deduction under section 35AD, no deduction shall be allowed under
section 35AD in relation to such specified business for the same or any other assessment
year.
Amendment in Section 10AA – SEZ Units (Finance Act 2017)

Before amendment, key issue was whether provision of Section 10AA are deduction provision or exemption
provision & if this is deduction, at what stage one will get the benefit of deduction (under PGBP Head, After
GTI before chapter VIA deduction etc)
To resolve above controversy, following Explanation shall be inserted in sub-section (1) of Section 10AA by the
Finance Act, 2017, w.e.f. AY 2018-19:
For the removal of doubts, it is hereby declared that the amount of deduction under this section shall be allowed
from the total income of the assessee computed in accordance with the provisions of this Act, before
giving effect to the provisions of this section and the deduction under this section shall not exceed such total
income of the assessee.
“It means Deduction u/s 10AA will be available after deduction under chapter VIA”
No deduction u/s 10AA & u/s 80-IA to 80-RRB, if not claimed in the return of income
Where the assessee fails to make a claim in his return of income for any deduction u/s 10AA or u/s 80-IA to
80-RRB, no deduction shall be allowed.

Exemptions – By CA Suraj Agrawal [9953006445] SATC 14.1
INCOMES NOT INCLUDED IN TOTAL INCOME [SEC10]
Agricultural Income from Land Situated in India[Section 10(1)]
Amounts received by a member from the income of the HUF [Section 10(2)]
Share Profit of a partner from partnership firm [Section 10(2A)]

Circular No 8/2014: The CBDT has clarified that the entire profit credited to the Partner’s accounts
in the firm would be exempt from tax in the hands of such partners, even if the income chargeable
to tax becomes NIL in the hands of the firm on account of any exemption or deduction.
Exemption to non-residents and person resident outside India from Interest credited in Non-resident
(External) Account in India[Sec 10(4)]
Exemption to Individuals who are not citizens of India [Sec 10(6)]

SALARY OF DIPLOMETIC PERSONNEL - Section 10(6)(ii) grants exemption to a person in respect of the
remuneration received by him for services as an official of an embassy, high commission, legation, consulate
or the trade representation of a foreign State or as a member of the staff of any of these officials.
SALARY OF FOREIGN EMPLYEES - Section 10(6)(vi) provides that remuneration received by a foreign
national as an employee of a foreign enterprise for service rendered by him during his stay in India is also
exempt from tax.
Conditions -
(1) The foreign enterprise is not engaged in a business activity in India;
(2) The employee’s stay in India does not exceed a total of 90 days in the previous year;
(3) The remuneration is not liable to be deducted from the employer’s income chargeable to tax under the
Act.
SALARY RECEIVED BY A SHIP CREW - Section 10(6)(viii) provides that salary income received by or due
to a non-citizen of India who is also non-resident for services rendered in connection with his employment on
a foreign ship where his total stay in India does not exceed a total of 90 days in the previous year.
REMUNERATION OF A FOREIGN TRAINEE: Section 10(6)(xi) provides that any remuneration received by
employees of foreign Government from their respective Government during their stay in India in connection
with their training in any establishment or office of the Government; or any company owned by Government or
its subsidiary; or any Statutory Corporation; or any Co-operative Society wholly financed by the CG/SG.
Any income arising to such foreign company, as the Central Government may, by notification in the
Official Gazette, specify in this behalf, by way of royalty or fees for technical services received in
pursuance of an agreement entered into with that Government for providing services in or
outside India in projects connected with security of India [Section 10(6C)]
FA 18: Income arising to non-corporate non-residents and foreign companies, by way of royalty from
or fees from technical services rendered in or outside India to, the National Technical Research
Organisation (NTRO) is exempt
Allowances payable outside India [Section 10(7)]
Payments to Bhopal Gas Victims [Section 10(10BB)]
Exemption of compensation received on account of disaster [Sec 10(10BC)]
Receipts from LIC [Section 10(10D)]

[Exemption under section 10(10D) not available in respect of any sum received by any person
under “keyman insurance policy” assigned to Keyman before maturity]
Any Payment from SPF/PPF [Section 10(11)]
Any Payment from Sukanya Samriddhi Account [Section 10(11A)]

Exemptions – By CA Suraj Agrawal [9953006445] SATC 14.2
Any Payment from RPF [Section 10(12)]
FA 18: Any payment from NPS to any assessee an Employee on closure of account/scheme
as referred in Section 80CCD, to the extent of 40% amount payable [Section 10(12A)]
Any Payment from Approved Superannuation Fund [Section 10(13)]
Interest from Deposit Certificates issued under the Gold Monetisation Scheme, 2015 [Sec
10(15)]
Education Scholarship - Exempt [Section 10(16)]
Government Rewards / Awards [Sec. 10(17A)]
Exemption of income of a Sikkimese Individual [Section 10(26AAA)]
Income of a Sikkimese individual from any source in the State of Sikkim; or by way of dividend or interest
on securities. However, no exemption will be available to a Sikkimese woman who marries a non-
Sikkimese Individual.
Exemption in respect of clubbed income of minor [Section 10(32)]
Exemption of capital gain on transfer of a unit of Unit Scheme, 1964 (US 64) [Section 10(33)]
Exclusion of dividends referred to in Section 115-O from total income [Section 10(34)]
Exemption of income received by an investor on account of buy-back of unlisted shares of a domestic

company [Section 10(34A)] – w.e.f. AY 14-15
The income arising to the shareholders in respect of such buy back of unlisted shares by the domestic
company would be exempt under section 10(34A) w.e.f. AY 2014-15, where the company is liable to pay
the additional income-tax on the buy-back of shares.
Income from units from the Administrator of specified undertaking / specified company / mutual fund specified
in clause (23D) [Section 10(35)] – Income/Dividend from Units of UTI / MF
Exemption of specified income arising from any international sporting event in India [Section 10(39)]
Income received in a transaction of reverse mortgage [Sec 10(43)]
Income received by any person on behalf of NPS Trust [Sec 10(44)]
Exemption of certain perquisite and allowance of Chairmen and Members of Union Public Service
Commission [Section 10(45)] [W.r.e.f. A.Y 2008-09]
The CG hereby notifies the following allowances and perquisites for the purposes of the above
Section:
1) in case of serving Chairman and Members of UPSC:
a) the Value of Rent Free Official Residence;
b) the Value of Conveyance Facilities including Transport Allowance;
c) the Sumptuary Allowance;
d) the Value of LTC provided to the assessee and members of his family;
2) in case of Retired Chairman and Members of UPSC:

a) A sum of maximum ` 14,000 pm for defraying the service of an attendant and for meeting expenses
incurred towards secretarial assistance on contract basis;
b) the value of a residential telephone free of cost and the number of free calls to the extent of 1,500
pm (over and above the number of free calls per month allowed by the telephone authorities).

Revisionary Notes - Clubbing – CA Suraj Agrawal [9953006445] 15.1
CLUBBING OF INCOME
Section Important Provisions
60 If any person transfers the income from any asset without transferring the asset itself, such
income is to be included in the total income of the transferor
61 1. All income arising to any person by virtue of a revocable transfer of assets is to be included in
the total income of the transferor
2. The transfer is deemed to be revocable if whole or any part of income or assets is re-
transferred to the transferor or transferor gets the right over such income or assets.
3. Exception:
(a) If there is a transfer of asset which is not revocable during the life time of the transferee,
the income from the transferred asset is not includible in the total income of the transferor
(b) If there is transfer before 01.04.1961 & transfer is for a period exceeding 6 Years.
64(1)(ii) Remuneration of spouse from a concern in which another spouse has substantial interest
1. Any remuneration derived by a spouse from a concern in which the other spouse has a
substantial interest, shall be clubbed in the hands of the spouse who has a substantial interest in
that concern.
2. No clubbing if remuneration is due to technical or professional qualifications of spouse.
3. If the husband and wife both have substantial interest in the concern and both are in
receipt of remuneration from the concern, then the remuneration of both shall be clubbed in
the hands of that spouse whose total income, before including such remuneration, is greater.
4. Meaning of substantial interest:
Ownership of atleast 20% equity shares / 20% of the profits of such concern at any time during
the PY is held by individual along with his relatives.
[“Relative” means the spouse, brother or sister or any lineal ascendant or descendant of the
individual]
64(1)(iv) Income from assets transferred to the spouse for without adequate consideration
If an individual transfers (otherwise than as a consideration to live apart) directly or indirectly any
asset other than house property to his/her spouse, the income from such an asset shall be
included in the total income of the transferor.
64(1)(vi) Income from assets transferred to son's wife for without adequate consideration
Where an asset is transferred, directly or indirectly, by an individual to his or her son’s wife without
adequate consideration, the income from such asset is to be included in the total income of the
transferor.
Common points:
1) The relationship must exist on the date of transfer as well as at the time of accrual of
income during the P.Y.
2) Clubbing is not applicable on any income which arises on accretion of the transferred asset.
[Say bonus shares allotted after transfer of shares]
3) Where the transferred assets is invested by the transferee in any business by way of
capital contribution then, the following proportionate income shall be clubbed with the
income of the individual:
Investment made by transferee out of transferred asset

as on the first day of PY X Total income from such business
Total Investment in the business as on the

first day of Previous Year

Revisionary Notes - Clubbing – CA Suraj Agrawal [9953006445] 15.2
64(1)(vii) Where any asset is transferred by an individual, without adequate consideration, to any person for
the benefit of Spouse, then any income arising from such transferred asset, is liable to be taxed in
the hands of the transferor, to the extent such income is used for the immediate / deferred
benefit of such spouse.
64(1)(viii) Where any asset is transferred by an individual, without adequate consideration, to any person for
the benefit of Son’s wife, then any income arising from such transferred asset, is liable to be taxed
in the hands of the transferor, to the extent such income is used for the immediate / deferred
benefit of the Son’s wife
64(1A) Clubbing of income of a minor child The income of the minor child [including minor married
daughter] is liable to be taxed in the hands of that parent,
whose Total Income, excluding income of minor child, is
Greater.
Exception: No clubbing shall apply in case of following incomes:
1. Where a minor child is suffering from disability of the nature specified in Sec. 80U.
2. Where such income as arises / accrues to the minor child on account of any manual work
done by him or activity invoking application or his skill, talent or specialized knowledge
and experience.
1. Exemption u/s Section 10(32): Maximum exemption of ` 1,500 per annum per child.
2. Marriage of his parents does not subsist : Clubbing to that parent who maintains the minor
child
3. If the income by way of manual work or activity involving application or skill, etc. which was not
clubbed, in invested, and income is earned thereon, such investment income shall be
clubbed.
4. If the minor child becomes major during the P.Y., then the incomes till the date he remained
minor in that P.Y. shall be clubbed with the parent.
64(2) Income from self acquired property converted to joint family property for inadequate
consideration
1. Where an individual, who is a member of the HUF converts, his separate property as the
property of the HUF otherwise than for adequate consideration, then the income from such
property shall continue to be included in the total income of the individual.
2. Implication in the case of subsequent partition:
Where the above converted property has been distributed on partition among members of the
family, the income derived from such, converted property as is received by the spouse, after
partition, shall be deemed to arise to the spouse from assets transferred indirectly by the
individual to the spouse and the income from the portion, received by the spouse, shall be
clubbed in the hands of the transferor.
65 Liability of transferee: The transferee is always liable to pay that portion of tax levied on the
transferor which is attributable to the income so clubbed.
Other 1. Loan is not a transfer, so clubbing will not apply on Loan amount (even if it given interest free to
Common spouse, son’s wife etc.)
Points
2. The clubbing provisions of section 64(1)(iv) is not applicable if the property is transferred by a
Karta of HUF, gifting the coparcenary property to his wife.
3. Income accruing or arising from transferred assets only will be clubbed. Any income earned out
of such income [accreted assets] should not be clubbed [Dividend/CG from Bonus Shares
allotted to transferee]
4. The clubbing shall continue to apply even if the transferee has converted the transferred assets
to some other form
5. If property has been transferred to spouse or son’s wife directly or indirectly for a consideration
which is inadequate, then only the part of income which is related to transfer of inadequate,
shall be clubbed

Revisionary Notes - Set-off of losses – CA Suraj Agrawal [9953006445] 16.1
SET OFF, CARRY FORWARD OF LOSSES
Section Particulars
Inter Source - Set off of loss from one source against income from another source under the same
70
head of income
71 Inter Head - Set off of loss from one head against income from another Head
71B Carry forward and set off of loss from house property
72 Carry forward and set off of Business Losses [Non-Speculative]
73 Losses in Speculation Business
73A Carry forward and set off of Losses by Specified Business [u/s 35AD]
74 Losses under the head “Capital gains”
Losses from certain specified sources falling under the head "income from other sources" [Owning &
74A
Maintaining Race Horses]
80 Submission of Return for Losses [Read with Section 139(3)]
Set –Off and Carry forward of losses

Set – Off Carry Forward Set – Off
Same Inter – Inter – For Assessment From
Nature of income Source Source Head Year
under under
same same
head head
Salary N.A

Maximum
House property 8 Years Same Head
Limit
` 2 Lakhs

Except
Non – Speculation 8 Years Same Head
from
Salary
Speculation × × 4 Years Same Source
PGBP
Specified Business u/s
× × Indefinite Same Source
35AD

Unabsorbed Depreciation
Except Any Income
Cap Exp on Sci. Research Indefinite
from Except from Salary
Cap Exp on F. Plan by Co
Salary
Short Term × 8 Years LTCG/STCG
CGs
Long Term × × 8 Years Only LTCG
Owing & Maintenance race

× × 4 Years Same Source
OS horses

Revisionary Notes - Set-off of losses – CA Suraj Agrawal [9953006445] 16.2
Winning from Lottery etc. × × ×
Interest etc. Carry forward of loss under the head

IOS is not permissible.
NOTE:
i) Loss u/h HP can be setoff with other Head’s income upto ` 200,000
ii) Speculation business loss can be set off only against speculation business income. However, losses from
other business can be adjusted against profits from speculation business.
iii) Loss from the activity of trading in derivatives, however, is not to be treated as speculative loss.
iv) FA18: Trading in agricultural commodity derivatives is not regarded as ‘speculative transaction’.
v) Loss under the head “PGBP” cannot be set off against income under the head “Salaries”.
vi) Long term Capital Loss can be set off against Long term Capital Gains. Thus, short-term capital loss is
allowed to be set off against both short-term capital gain and long-term capital gain.
vii) Loss under the head ‘Capital Gains’ cannot be set-off against income under any other head.
viii) Loss from activity of owning and maintaining race-horses can be set off only against income from owning
and maintaining racehorses.
ix) Loss from a Specified Business [Referred to in Section 35AD] can be set off against profits and gains, if
any, of any other specified business whether eligible or not. [14 Business]
x) Loss from a source, the income from which is exempt, cannot be set off against any income. [Say 10(1)]
xi) Loss from lottery, card games etc. cannot be set off against any income.
xii) A loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting of any form or nature.
xiii) In case the assessee is lower income group, It’s prefer to set off losses with LTCG (u/s 112) first as the
same is taxed @ 20% and also deductions under chapter VIA against such loss is not available.
Important Notes:
A. Where the losses incurred are not set – off against the income of the immediately succeeding year, such
losses cannot be set – off at a later date. However, the benefit to be denied is limited to the loss which could
be set – off and not the entire loss which is being carried forward.
B. Order of Set-off:
Section 70 [Inter Source]; Section 71[Inter Head]; Adjustment of B/f Losses and then finally Carry forward of
losses
C. Section 80:
Following losses cannot be carried forward if Return of Loss is not filled within Due Date u/s 139(1):
1. Loss from Non-Speculative Business under Section 72
2. Loss from Speculative Business under Section 73
3. Loss from Specified Business under Section 73A
4. Capital Loss under Section 74
5. Loss from the activity of owning and maintaining race horses under Section 74A.
[Note: Non-Filling of Return of Loss will not affect the Inter Source Adjustment u/s 70 or Inter-head
Adjustment u/s 71 or adjustment of brought forward losses of previous year with current year
Income]

Revisionary Class - Return of Income – CA Suraj Agrawal [9953006445] 17.1
Return of Income
Section Particulars
Return of Income – Mandatory filing
Company & Firm - Always
A person other than company or firm - if it is Total Income [without giving effect to the provisions of Section 10AA or Chapter
VI-A] exceeds the maximum amount which is not chargeable to income tax (i.e. ` 250,000 / ` 300,000 / ` 500,000 as the
case may be)
Compulsory filing of income tax return in relation to assets located outside India
Any resident person who is not required to furnish a return under section 139(1) and who during the PY has:
a) Any asset (including any financial interest in any entity) located outside India or
b) Signing authority in any account located outside India or
c) is a beneficiary of any asset (including financial interest in any entity) located outside India
Shall furnish, on or before the due date, a return in respect of his Income or loss.
139 (1)
Due Date
(a) Any assessee who is required to Submit Report u/s 92E - 30th Nov of AY
(Transfer Pricing Report for International Transactions & Certain Specified Domestic Transactions)
(b) Other Company - 30th Sep of AY
(c) Assessee Other than company where A/c’s are audited - 30th Sep of AY
(d) working partner of a firm (A/c’s are audited) - 30th Sep of AY
(e) In any other case (including Non working partner) - 31st July of AY
Consequences for default in Furnishing Income tax Return:

a) Interest u/s 234A & Late Fee u/s 234F
b) Certain Losses can not be carried forwarded.
c) Deduction u/s 10AA & Income based deduction [80-IA to 80RRB] will not be available.
File within the time specified in section 139(1). If return of loss is not filed then
following loss cannot be carried forward
(i) Business Loss (including speculative loss & loss from Specified
139 (3) Return of Loss
Business)
(ii) Capital Loss
(iii) Owing and maintenance race horses loss
139 (4) Belated Return By the end of relevant A.Y. or before completion of assessment (earlier)

By the end of relevant A.Y. or before completion of assessment (earlier)
Revised Return of income [Original return filed
139(5)
u/s 139(1) or 139(4)] Belated return can now be revised.
Mandatory:
(i) Total Income greater than Basic Exemption Limit
(ii) Gross Turnover/Receipts Greater than ` 5,00,000
(iii) Charitable Trust u/s 139 (4A)
(iv) FA 18 - Every person, being a resident, other than an individual, which
enters into a financial transaction of an amount aggregating to ` 2,50,000 or
more in a financial year.
(v) FA 18 - Every person who is the managing director, director, partner,
trustee, author, founder, karta, chief executive officer, principal officer or
office bearer of the person mentioned in (c) above or any person competent
to act on behalf of such person.
Certain Transactions where PAN is Mandatory:
(a) Sale or purchase of any immovable property valued at amount exceeding `
10,00,000;
139A Permanent Account Number
(b) Sale or purchase of motor vehicle (other than two wheeled motor vehicle) which
requires registration;
(c) A Time Deposit exceeding ` 50,000 or aggregating to more than ` 5 lakh
during a financial year;
(d) Bill payments to hotels and restaurants exceeding ` 50,000 at any one time;
(e) Cash deposit aggregating ` 50,000 or more with a banking company during any one
day;
(f) Cash payment in excess of ` 50,000 in connection with travel to any foreign
country at any one time.
(g) Making an application to any bank or banking institution or company or any institution
for issue of a credit card / Debit Card
etc
1. Intimation of the defect to the assessee and an opportunity to rectify the defect
within a period of 15 days from the date of such intimation.
Defective Return 2. Extension of the time period beyond 15 days, on an application made by the
139(9) (FA 16: Now, If tax is not paid before filing ROI, assessee.
Return will not be considered as defective)
3. If the defect is not rectified within the period of 15 days or such further extended
period, then the return would be treated as an invalid return.

Individual – Himself;
HUF – KARTA / Adult Member;
Company – MD / Any Director;
Company in liquidation - Liquidator
Company under insolvency
proceedings - Insolvency Professional
140 Verification of Return
Non-Resident Company – A Person holding Valid Power of Attorney;
Firm – Managing Partner /Adult Partner;
LLP – Designated Partner / Any Partner;
local Authority - Principle Officer,
Political Party - CEO,
AOP - Principal Officer
Fee for Default in furnishing Return of Income [SECTION 234F] – FA 2017 -

Where a person, who is required to furnish a return of income under section 139, fails to do so within the prescribed time limit under section 139(1), he shall pay, by way
of fee, a sum of-
a. ` 5,000 if the return is furnished on or before the 31st December of AY;
b. ` 10,000 in any other case
However, if the total income of the person does not exceed ` 500,000, the fees payable shall not exceed ` 1,000

Section 139AA - Quoting of Aadhaar number
1. Every person who is eligible to obtain Aadhaar number shall, on or after the 1st day of July, 2017, quote Aadhaar number—
(i) in the application form for allotment of permanent account number;
(ii) in the return of income:

2. Where the person does not possess the Aadhaar Number, the Enrolment ID of Aadhaar application form issued to him at the time of enrolment shall be quoted in
the application for permanent account number or, as the case may be, in the return of income furnished by him.
3. Every person who has been allotted permanent account number as on the 1st day of July, 2017, and who is eligible to obtain Aadhaar number, shall intimate his
Aadhaar number to such authority in such form and manner as may be prescribed, on or before a date to be notified by the Central Government in the Official
Gazette:
Provided that in case of failure to intimate the Aadhaar number, the permanent account number allotted to the person shall be deemed to be invalid and the other
provisions of this Act shall apply, as if the person had not applied for allotment of permanent account number.
4. The provisions of this section shall not apply to such person or class or classes of persons or any State or part of any State, as may be notified by the Central
Government in this behalf, in the Official Gazette.
Accordingly, the Central Government has, vide Notification No. 37/2017 dated 11.05.2017 effective from 01.07.2017, notified that the
provisions of section 139AA relating to quoting of Aadhar Number would not apply to an individual who does not possess the Aadhar
number or Enrolment ID and is:
a. residing in the States of Assam, Jammu & Kashmir and Meghalaya;
b. a non-resident as per Income-tax Act, 1961;
c. of the age of 80 years or more at any time during the previous year;
d. not a citizen of India

TAX RETURN PREPARERS SCHEME [SECTION 139B]
Particulars Contents
Applicability of The scheme is applicable to all eligible persons.
the scheme
Eligible person Any person being an individual or a Hindu undivided family
Any individual who has been issued a "Tax Return Preparer Certificate" and a "unique identification number" under
Tax Return this Scheme by the Partner Organisation to carry on the profession of preparing the returns of income in accordance with the
Preparer Scheme.
However, the following person are not entitled to act as TRP:
(i) any officer of a scheduled bank with which the assesse maintains a current account or has other regular dealings.
(ii) any legal practitioner who is entitled to practice in any civil court in India.
(iii) A chartered accountant.
Educational An individual, who holds a bachelor degree from a recognised Indian University or institution, or has passed the
qualification intermediate level examination conducted by the Institute of Chartered Accountants of India or the Institute of Company
Secretaries of India or the Institute of Cost Accountants of India, shall be eligible to act as TRP.
An eligible person may, at his option, furnish his return of income u/s 139 for any assessment year after getting it prepared
Preparation of
through a TRP:
and
Furnishing the
However, the following eligible persons (an individual or a HUF) cannot furnish a return of income for an assessment
Return of Income
year through a TRP:
by
the TRP
(i) who is carrying out business or profession during the previous year and accounts of the business or profession for that
previous year are required to be audited under section 44AB or under any other law for the time being in force; or
(ii) who is not a resident in India during the previous year.
An eligible person cannot furnish a revised return of income for any assessment year through a TRP unless he has
furnished the original return of income for that assessment year through such or any other TRP.
Further, a return of income which is required to be furnished in response to a notice under section 142(1)(i) or under section
148 or under section 153A cannot be prepared or furnished through a TRP.

SELF-ASSESSMENT [SECTION 140A] – New Concept Added
Payment of tax, interest and fee before furnishing return of income
Where any tax is payable on the basis of any return required to be furnished under, inter alia, section 139, after taking into account -
a. the amount of tax, already paid, under any provision of the Income-tax Act, 1961
b. the tax deducted or collected at source
the assessee shall be liable to pay such tax together with interest and fees payable under any provision of this Act for any delay in furnishing the
return or any default or delay in payment of advance tax before furnishing the return. The return shall be accompanied by the proof of payment of
such tax, interest and fee.
Order of adjustment of amount paid by the assessee
Where the amount paid by the assessee under section 140A(1) falls short of the aggregate of the tax, interest and fees as aforesaid, the amount so paid
shall first be adjusted towards the fees payable and thereafter towards interest and the balance, if any, shall be adjusted towards the tax
payable.
Interest under section 234A
For the above purpose, interest payable under section 234A shall be computed on the amount of tax on the total income as declared in the return, as
reduced by the amount of-
a. advance tax paid, if any;
b. any tax deducted or collected at source;
Interest under section 234B
Interest payable under section 234B shall be computed on the assessed tax or on the amount by which the advance tax paid falls short of the assessed
tax.
For this purpose “assessed tax” means the tax on total income declared in the return as reduced by the amount of tax deducted or collected at
source on any income which forms part of the total income;
Consequence of failure to pay tax, interest or fee
If any assessee fails to pay the whole or any part of such of tax or interest or fees, he shall be deemed to be an assessee in default in respect of such
tax or interest or fees remaining unpaid and all the provisions of this Act shall apply accordingly.

Advance Tax – By CA Suraj Agrawal [9953006445] SATC 18.1
ADVANCE TAX [SECTIONS 207 TO 219]
(1) Under section 208, obligation to pay advance tax arises in every case where the advance tax payable is
` 10,000 or more.
(2) Provision of Advance Tax is now applicable on business income covered u/s 44AD &
professional income covered u/s 44ADA.
(3) Provision of Advance Tax is not applicable to a Resident Senior Citizen, not having any
income chargeable u/h “PGBP”
(4) Amount of Advance Tax Payable is:
Tax (including cess) on Total Income XXX
Less: Tax Deducted at Source (XXX)
Amount of Tax Payable XXX
Section – 211 – Advance tax is payable in the following installments
For Eligible Assessee in respect of income referred in Section 44AD or in Section 44ADA
Advance tax is payable to the extent of the whole amount of such advance tax during each financial year
on or before the 15th March – 100% by 15 March (Only 1 Installment)
Assessee other than above (Now 4 Installments for all)
Due date of installment Instalment Amount
On or before 15th June 15% of the advance tax liability
On or before 15th Sept 45% of the Advance tax liability as reduced by the amount, of any, paid
in earlier installment.
On or before 15th Dec 75% of the advance tax liability as reduced by the amount, if any, paid
in earlier installments.
th
On or before 15 Mar 100% of the advance tax liability as reduced by the amount, if any,
paid in earlier installments.
Interest for non-payment or short-payment of advance tax [Section 234B]

(1) Interest under section 234B is attracted for non-payment of advance tax or payment of advance tax of an
amount less than 90% of assessed tax.
(2) The interest liability would be 1% per month or part of the month starting from 1st April following the
financial year and ending on the date of payment of Income Tax.
(3) Such interest is calculated on the amount of difference between the assessed tax and the advance tax
paid.
(4) Assessed tax is the tax calculated on total income less TDS
1% p.m. of (Total Tax – TDS – Advance Tax paid) from 1st April 2019 till the payment of Tax.

Advance Tax – By CA Suraj Agrawal [9953006445] SATC 18.2
Interest payable for deferment of advance tax [Section 234C]
(1) Interest under section 234C is attracted for deferment of advance tax beyond the due dates.
(2) The interest liability would be 1% per month, for a period of 3 months, for every deferment.
(3) However, for the installment due on 15th March, the interest liability under this section would be 1%
for one month. [In case of Business covered in Section 44AD / 44ADA, 1% Interest is applicable]
(4) The interest is to be calculated on the difference between the amount arrived at by applying the specified
percentage of Tax due on Returned Income [Tax Less TDS] and the actual amount paid by the due date
st nd
(5) If advance tax paid in case of 1 & 2 installment is 12% or more and 36% or more respectively, then no
interest shall be payable by any assessee.
Payment of advance tax in case of capital gains/casual income [Proviso to

section 234C]
The provisions of Section 234C shall not apply to any shortfall in the payment of tax due on returned income
where such shortfall is on account of under-estimate or failure to estimate-
(a) The amount of Capital Gains or,
(b) Income by way of winnings from lotteries, crossword puzzles, races, card games, gambling etc.
(c) PGBP Income where the income accrues or arises under the said head for the first time
(d) Income in the nature referred to in Section 115BBDA i.e. dividend in aggregate exceeding of Rs. 10
Lakhs received during the PY
And the assessee has paid the whole of the amount of tax payable in respect of above incomes as part of the
remaining installments of advance taxes which are due, or where no such installment is due, by 31st March of the
financial year.
SECTION 234A - INTEREST (PENAL NATURE) FOR DEFAULT IN FURNISHING OF ROI
Applicability: 1. The ROI is not filed within the due date u/s 139(1) or within the time allowed by
the notice u/s 142 (1), or
2. The ROI is not furnished
Rate of Interest 1% for every month or part of the month
Period of Interest 1. When the ROI is filed: From the due date of filling the return, till the date of
furnishing the ROI.
2. Where ROI is not filled: From the due date of filling Return of Income, upto the
date of completion of assessment.
Amount on which Tax Payable XXX

interest is payable Less: TDS & Advance Tax Paid XXX
Tax Amount on which interest is payable: XXX
Return filed late, but tax paid before due date:
The ROI was filed belatedly, but the tax u/s 140A was paid before the due date u/s 139(1). It was held that there
was no loss of interest to the revenue and interest u/s 234A was not leviable. [Supreme Court]

Revisionary Notes - TDS - CA Suraj Agrawal [9953006445] 19.1
TAX DEDUCTED AT SOURCE

Payer Type of payment Income Type of payee Rate of tax to be
deducted
192 Any person Salary Employee As per the slab
[192(1A) - Tax on Non- [No TDS if taxable income is rates in force for
Monetary Perquisite] less or equal to the basic individuals.
exemption limit]
192A EPF Premature withdrawal from EPF if Employee 10%

Amount is ` 50,000 or more
In case PAN is not
furnished, TDS rate
will be MMR
193 Any person Interest on Securities more than Resident 10%
` 5,000
194 Domestic company Dividend more than ` 2,500 Resident 10%
194A Any person Any interest other than interest on Any resident in 10%
Securities more than ` 5,000 India
(In case of banks etc- ` 10,000 /
` 50,000 in case of senior
citizen)
194B Any person Winnings from lottery or Any person 30%
crossword puzzle or card game
and other game of any sort
exceeding ` 10,000
194BB Book maker or person Winnings from horse race Any person 30%
holding a licence for horse exceeding ` 10,000
racing, wagering, betting in
any race course
194C Any person; Any payment in pursuance of any Any resident In the case of
contract for consideration of more contractor for individual, HUF
than ` 30,000 (OR) Aggregate of carrying out any payees - 1%
payments during the year work including Other payees- 2%.
exceeds ` 100,000 supply of labour
[Payment to Transporter – NIL
If PAN is submitted & owns 10
or Less goods carriage]
194D Any person Insurance Commission Any resident 10%
exceeding ` 15,000 person
194DA Any person Maturity received from Insurance Any resident policy 1%
Company – ` 100,000 or more holder
[Not exempt u/s 10(10D)]
194E Any person Income for participation in any Any non resident 20%
game or sport in India; Income by sportsman who is
way of advertisement; Income by not a citizen of
way of remuneration for articles India.
on sports, etc.
194E Any person Guaranteed sum in relation to any Any non-Resident 20%
game or sport played in India. association

194EE Person responsible for Payment exceeding ` 2500. Any person 10%
paying to any person any
amount from NSS as
mentioned in section
80CCA
194G Any person Commission, remuneration or Any person 5%
prize exceeding ` 15,000 Stocking,
purchasing/selling
lottery tickets.
194H Any person Commission or Brokerage Any resident 5%
exceeding ` 15,000 per annum.
194I Any person Rent exceeding ` 1,80,000 per Any resident a) Plant - 2%
annum.
b) Rent for land,
building or
both, furniture
or fittings-10%.
194IA Any person Consideration for transfer of Any Resident 1%

immovable property – transferor
` 50 Lakhs or more.
(other than Rural Agriculture
Land)
194IB Ind./HUF Rent exceeding ` 50,000 Any Resident 5%

transferor
194J Any person Fees for Professional or Technical Any resident 10%
Services or Royalty or Non-
Compete Fee referred u/s. 28(va)
exceeding ` 30,000 in a year or
Fees to Directors
194LA Any person Acquisition of certain immovable Any resident 10%
property other than agricultural
land, where compensation
exceeds ` 2.5 Lakh
Mandatory requirement of furnishing PAN [Section 206AA]:

Any person whose receipts are subject to TDS i.e. the deductee, shall mandatorily furnish his PAN to the
deductor otherwise the deductor shall deduct tax at source at higher of the following rates –
(i) the rate prescribed in the Act;
(ii) at the rate in force i.e., the rate mentioned in the Finance Act; or
(iii) at the rate of 20%
Section 206AA is not applicable in case payee is NR.

SUMMARY
At what point of • AT THE TIME OF PAYMENT:
time tax has to be (i) Salary [192],
deducted at (ii) Deemed dividend u/s 2(22)(e)[194],
source (iii) Winnings from lottery/crossword puzzle [194B],
(iv) Winnings from horse race [194BB],
(v) Payment of compensation on acquisition of capital asset [194LA]
• AT THE TIME OF PAYMENT OR AT THE TIME OF GIVING CREDIT TO THE
RECIPIENT IN THE BOOKS OF THE PAYER, WHICHEVER IS EARLIER:
(i) Interest on securities [193],
(ii) Interest other than interest on securities [194A],
(iii) Payment to contractors [194C],
(iv) Insurance commission [194D],
(v) Payment to non-resident sportsmen [194E],
(vi) Commission on lottery tickets [194G],
(vii) Commission or brokerage [194H],
(viii) Rent [194-I],
(ix) Transfer of Immovable property [194-IA]
(x) Fees for professional/technical services/royalty etc. [194J],
Who has deduct The person responsible for making payment (or passing book entry) shall deduct tax
tax at source at source under the aforesaid sections. However, the following propositions should
be noted:
1. If the payer is an individual/HUF and books of account are not required to be

audited in the immediately preceding financial year, tax is not deductible in the
following cases:
(i) Interest [193 and 194A],
(ii) Payment to resident contractors [194C],
(iii) Commission/brokerage [194H],
(iv) Rent [194-I] and
(v) Professional/technical fees [194J]
2. If payer is an individual /HUF and payment/credit is of ROYALTY TO A RESIDENT

PERSON OR NON-COMPETE FEES [194J], tax is not deductible.
3. If payer is an individual/HUF and payment/credit is of professional fees (for personal

purpose of the payer)[194J] or it is payment to a resident contractor (for personnel
purposes of the payer)[194C], tax is not deductible.
4. In the case of section 194C, tax is deductible only if the payer is a “specified person”.
The term “specified person” covers almost every entity except of
individuals/HUF/AOP/BOI, whose books of account is not required to be audited in
the immediately preceding financial year.
Who should be Recipient may be resident or non-resident – In case of payment under Sections 192,
recipient – 194B, 194BB and 194G, the recipient may be resident or non-resident.
resident or non-
resident Recipient should be resident – In the case of payment of interest [193 and 194A],
deemed dividend [194], payment to contractors [194C], insurance commission [194D],
any other commission/brokerage [194H], rent [194-I], technical/professional fees or
royalty [194J], compensation on acquisition [194LA], the recipient should be resident of
India.

Threshold limit Nature Exemption limit
(up to which tax is
not deductible)
Salary [192] B.E.L.

EPF Withdrawal [192A] Less than 50,000
Interest on Securities [Certain Conditions] 5,000
[193]
Bank or co-operative bank or post office 10,000 / 50,000
interest [194A]
Any other interest [194A] 5,000
Winning from lottery/crossword puzzles 10,000
[194B]
Winnings from horse race [194BB] 10,000
Payment to contractor (single contract) 30,000
[194C]
Payment to contactor (aggregate 100,000
consideration for a financial year) [194C]
Insurance commission [194D] 15,000
Maturity from Life Ins Policy [194DA] Less than 100,000
Lottery commission [194G] 15,000
Commission/brokerage [194H] 15,000
Rent [194-I] 1,80,000
Transfer of Immovable Property [194-IA] Below 50,00,000
Rent [194-IB] 50,000p.m.
Professional fees [194J] 30,000
Technical fees [194J] 30,000
Royalty [194J] 30,000
Non-Compete fees [194J] 30,000
Fees to Directors [194J] No Limit
Compulsory acquisition payment [194LA] 2,50,000

TAX COLLECTION AT SOURCE [Section 206C]

1. Every Seller at the time of debiting the buyer with the amount payable or receiving payments from buyers
engaged in business of alcoholic liquor, forest produce, scrap, timber, tendu leaves, etc. shall collect tax at
the followings rates:
Sr. No. Nature of goods TCS

Rate
1 Alcoholic liquor for human consumption (other than Indian made foreign liquor) 1%
2 Tendu Leaves 5%
3 Timber obtained under a forest lease 2.5%
4 Timber obtained by mode other than under a forest lease 2.5%
5 Any other forest produced not being timber or tendu leaves 2.5%
6 Scrap 1%
7 Minerals, being Coal or lignite or iron ore 1%
Such tax is not to be collected if the purchase of above goods is made by buyer (Resident in India) for
the purpose of manufacturing, processing or producing articles or things or for the purposes of
generation of power.
2. Every person, who grants a lease or a licenseor enters into a contract, etc for the purpose mentioned
below shall collect tax at the following rates:
Sl. No. Nature of contract or license or lease, etc. TCS Rate
(i) Parking Lot 2%
(ii) Toll plaza 2%
(iii) Mining and quarrying 2%
3. Every Person, being a Seller, who receives any amount as consideration for sale of a motor vehicle (at retail
level) of the value exceeding ten lakh rupees, shall, at the time of receipt of such amount, collect from the
buyer, a sum equal to 1% of the sale consideration (any mode) as income-tax.
4. "Seller" means the Central Government, a State Government or any local authority or corporation or authority
established by or under a Central, State or Provincial Act, or any company or firm or co-operative society
and
also includes an individual or a Hindu undivided family whose total sales, gross receipts or turnover
from the business or profession carried on by him exceed the monetary limits specified under clause
(a) or clause (b) of section 44AB during the financial year immediately preceding the financial
5. Buyer for Point 1: Buyer does not include

a Public Sector Company, the CG, SG and an Embassy, a High Commission, Legation, Commission,
Consulate and the trade representation of a foreign state and a club
A buyer in the retail sale of such goods purchased by him for personal consumption.

6. Buyer for Point 3:
Buyer doesn’t include
(a) Public Sector company which is engaged in the business of carrying passengers
(b) A Local Authority
(c) CG, SG and an Embassy, High Commission, Legation, Commission, Consulate & the Trade
representation of a foreign State.
Section 206CC - Requirement to furnish Permanent Account number by collectee.

(1) In case PAN is not submitted by collectee, tax shall be collected at the higher of the following rates,
namely:—
a. at twice the rate specified in the relevant provision of this Act; or
b. at the rate of 5%.

HUF Taxation – By CA Suraj Agrawal [9953006445] SATC 20. 1
HINDU UNDIVIDED FAMILY
1) A person becomes a member of the HUF not by virtue of contract but by his birth.
2) Cessation of membership:
A male member continues to be a member of the HUF until partition of the HUF. On partition, he ceases
to be a member of the earlier larger HUF and becomes member of another smaller HUF.
A female member ceases to be a member of the HUF in which she was born, when she gets married; in
that case, she becomes a member of the HUF of her husband.
3) Co-parcenership: Co-parcener refers to those members of an HUF who acquire by birth an interest in the
joint family property. Only the coparceners have a right to partition. After commencement of Hindu
Succession (Amendment) Act, 2005, the female members have been brought at par with the male
members.
4) Schools of Hindu Law: There are two schools of Hindu law. They are
(1) Mithakshara school of Hindu law
(2) Dayabhaga school of Hindu law
Mithakshara law is followed by entire India except West Bengal and Assam. Under the Mithakshara law, the
inheritance is by birth. Dayabagha law prevails in West Bengal and Assam. In Dayabagha law, nobody
acquires the right, share in the property by birth as long as the head of family is living
5) ASSESSMENT OF HUF:
The income of a HUF is to be assessed in the hands of the HUF and not in the hands of any of its members.
This is because HUF is a separate and a distinct tax entity.
6) FOLLOWING POINTS SHALL BE CONSIDERED:
1. Remuneration to member of HUF due to investment of HUF fund: Where joint fund is invested in a
company or a firm, fees or remuneration received by any member of HUF as a director or partner from
such company or firm by virtue of such investment shall be treated as income of the HUF. On the other
hand., where such remuneration or fees is received by virtue of service rendered by such member (in
his personal capacity) then such amount shall be taxable in hands of such member
2. Remuneration to Karta: Any genuine (not excessive) remuneration paid to the Karta for conducting
business of the HUF is allowed expenditure in the hands of the HUF provided such remuneration is paid
under a bonafide agreement and is in the interest of the family business.
3. Any sum received by member from HUF paid out of income of HUF is exempt in the hands of
member.
4. Personal income of the members: income of the member of HUF acquired in his personal capacity
shall not be taxable in the hands of HUF.
5. Income from impartible estate: Though the impartible estate belongs to the family, income arising
there from is taxable in the hands of the holder of the ‘estate’ and not in the hands of the HUF.
7) Deduction Available to HUFs

Sl. No. Section Nature of Deductions
1 80C Deduction in respect of Life Insurance Premium, deferred annuity,
contribution to PF, subscription to certain equity shares or debentures, etc.
2 80D Payment of medical insurance premium
3 80DD Medical treatment of handicapped dependents and deposits made for
maintenance of handicapped dependents
4 80DDB Deduction in respect of medical treatment, etc.
5 80G Donations to certain funds/charitable institutions etc.
6 80GGA Certain donations for scientific research or rural development
7 80GGC Deduction in respect of contribution given by any person to political parties
8 80TTA Deduction is respect of Saving Bank Account Interest
SURAJ AGRAWAL TAX CLASS, LAXMINAGAR / 011-47542530 / 9953006445

HUF Taxation – By CA Suraj Agrawal [9953006445] SATC 20. 2
CLASS NOTES
SURAJ AGRAWAL TAX CLASS, LAXMINAGAR / 011-47542530 / 9953006445

Revisionary Notes – CA Suraj Agrawal (99530 06445) A.1
TOTAL INCOME & TAX COMPUTATION – PRACTICE MANUAL
1. Ms. Vaishali, employed in a private sector company, furnishes following information for the year
ended 31.03.2019.
Particulars `
Income from salary (computed) 3,45,000
Bank interest (Fixed Deposit) 15,000
Tax on non-monetary perquisite paid by employer 20,000
Amount contributed by her during the year are given below:

Contribution to recognized provident fund 60,000
Health insurance premium-on self (paid by crossed cheque) 7,000
Medical expenditure for dependent sister with disability 20,000
Compute the total income of Ms. Vaishali for the assessment year 2019-20
Answer
Computation of total income of Ms. Vaishali for the A.Y. 2019-20
Particulars ` `
Income from salary (computed) 3,45,000
Income from other sources
Bank Interest (Fixed Deposit) 15,000
Gross Total Income 3,60,000
Less: Deductions under Chapter VI-A
Section 80C
Contribution to recognized provident fund 60,000
Section 80D
Medical insurance premium (Note -2) 7,000
Section 80DD
Medical expenditure for dependent sister with disability (flat deduction 75,000 1,42,000
irrespective of expenditure incurred)
Total income 2,18,000
Note:
1. Tax on non-monetary perquisite paid by employer is exempt in the hands of employee under
section 10(10CC).
2. Medical insurance premium paid by cheque for self is allowed as deduction under section 80D.
2. Dr. Gurumoorthy, a resident individual at Madurai, aged 50 years is running a clinic. His Income and
Expenditure Account for the year ending March 31st 2019 is as under:
Expenditure ` Income `
To Medicine consumed 8,40,000 By Consultation and Medical charges 21,00,000
To Staff salary 4,25,000 By Income-tax refund (principal 16,500
To clinic consumables 1,55,000 ` 15,000, interest ` 1,500)
To Rent paid 1,20,000 By Dividend from Indian companies 27,000
To Administrative expenses 3,00,000 By Winning from lottery Net of TDS 35,000
To Donation to IIT Delhi for 1,00,000
Research approved under By Rent 54,000
section 35(2AA)
To Net Profit 2,92,500
22,32,500 22,32,500
(i) Rent paid includes ` 36,000 paid by cheque towards rent for his residence.
(ii) Clinic equipments are :
01.04.2018 Opening WDV ` 4,50,000
07.02.2019 Acquired (cost) ` 1,00,000
(iii) Rent received relates to property let out at Madurai. Gross Annual Value ` 54,000. The municipal tax of `
9,000, paid in January 2019 has been included in “administrative expenses”.
(iv) Dr. Gurumoorthy availed a loan of ` 5,50,000 from a bank for higher education of his daughter. He repaid
principal of ` 50,000, and interest thereon ` 65,000 during the year 2018-19.
(v) He paid ` 60,000 as tuition fee to the university for full time education of his son. From the above,
compute the total income of Dr. Gurumoorthy for the A.Y. 2019-20

Answer
Computation of total income of Dr. Gurumoorthy for the A.Y. 2019-20
Particulars ` ` `
I Income from profession
Net profit as per Income and Expenditure account 2,92,500
Less: Items of income to be treated separately
Income tax refund (including interest) 16,500
Dividend from Indian companies 27,000
Winning from lottery (net of TDS) 35,000
Rent received 54,000 1,32,500
1,60,000
Add: Expenditure debited but not allowable
Rent for his residence 36,000
Municipal tax paid relating to residential house at Madurai
included in administrative expenses 9,000 45,000
2,05,000
Less: Expenditure allowable but not debited
Depreciation on Clinic equipments u/s 32
on ` 4,50,000 @ 15% 67,500
on ` 1,00,000 @7.5% (i.e.50% of 15%) 7,500
Additional deduction of 50% in respect of amount paid to IIT [since

weighted deduction of 150% is available in respect of such payment 50,000 1,25,000 80,000
under section 35(2AA)]
II Income from house property
Gross Annual Value (GAV) 54,000
Less : Municipal taxes paid 9,000
Net Annual Value (NAV) 45,000
Less : Deduction under section 24 @ 30% 13,500 31,500
III Income from other sources
Interest on Income-tax refund 1,500
Dividend from Indian companies 27,000
Less: Exempt under section 10(34) 27,000 Nil
Winnings from lottery (See Note 1) 50,000 51,500
Less: Deductions under Chapter VI A:
• Under section 80C
Tuition fee paid to university for full time education of his son 60,000
• Under section 80E
Interest on loan taken for higher education of daughter 65,000
but restricted to (See Note 2) 1,25,000 113,000
Total income 50,000
Notes:
1. Winnings from lottery should be grossed up for the chargeability under the head “Income from other
sources”. The applicable rate of TDS is 30%. Gross income from lottery, would, therefore, be `
35,000/70% = ` 50,000
2. Deduction under Chapter VI-A cannot exceed Gross Total Income. Further, no deduction is allowable
from income by way of winning from lottery. Therefore, the maximum deduction allowable would be `
1,13,000.
`
Less: Winnings from lottery 50,000
Maximum deduction under Chapter VI-A 113,000
The total income of ` 50,000 would, therefore, represent winnings from lottery taxable at a flat rate of
30%, without any basic exemption limit.
3. Dr. Gurumoorthy is staying in a rented premises in Madurai itself. Hence, he would not be eligible
for deduction under section 80GG, since he owns a house in Madurai which he has let out.

3. Ms. Purvi, aged 55 years, is a Chartered Accountant in practice. She maintains her accounts on cash
basis. Her Income and Expenditure account for the year ended March 31, 2019 reads as follows:
Expenditure `)
(` Income `)
(`
Salary to staff 5,50,000 Fees earned:
Stipend to articled assistants 37,000 Audit 7,88,000
Incentive to articled assistants 3,000 Taxation services 5,40,300
Office rent 24,000 Consultancy 2,70,000
Printing and stationery 22,000 Dividend on shares of Indian companies 10,524
Meeting, seminar and Conference 31,600 (Gross)
Purchase of car 80,000 Income from UTI 7,600
Repair, maintenance and petrol of Honorarium received from various
car 4,000 institutions for valuation of answer papers 15,800
Travelling expenses 35,000 Rent received from
Municipal tax paid in respect of 3,000 residential flat let out 85,600
house property
Net Profit 9,28,224
17,17,824 17,17,824
Other Information:
(i) Allowable rate of depreciation on motor car is 15%.
(ii) Value of benefits received from clients during the course of profession is ` 10,500.
(iii) Incentives to articled assistants represent amount paid to two articled assistants for passing IPCC
Examination at first attempt.
(iv) Repairs and maintenance of car include ` 2,000 for the period from 1-10-2018 to 30-09-2019.
(v) Salary include ` 30,000 to a computer specialist in cash for assisting Ms. Purvi in one professional
assignment.
(vi) The total travelling expenses incurred on foreign tour was ` 32,000 which was within the RBI norms.
(vii) Medical Insurance Premium on the health of dependent brother and major son dependent on her
amounts to ` 5,000 and ` 10,000, respectively, paid in cash.
(viii) She invested an amount of ` 10,000 in National Saving Certificate.
Compute the total income and tax payable of Ms. Purvi for the assessment year 2019-20
Answer
Computation of total income and tax liability of Ms. Purvi for the A.Y. 2019-20
Particulars ` `
Income from house property (See Working Note 1) 57,820
Profit and gains of business or profession (See Working Note 2) 9,20,200
Income from other sources (See Working Note 3) 15,800
Less: Deductions under Chapter VI-A (See Working Note 4) 10,000
Total Income 9,83,820
Tax on total income
Upto ` 2,50,000 Nil
` 2,50,001 – ` 5,00,000 @5% 12,500
` 5,00,001 - ` 9,83,820 @20% 96,764 1,09,264
Add: Health & Education cess @ 4% 4,371
Total tax liability (Rounded off) 1,13,630
Working Notes:
(1) Income from House Property
Particulars ` `
Gross annual value under section 23(1) 85,600
Less: Municipal taxes paid 3,000
Less: Deduction under section 24 @ 30% of NAV 24,780 57,820
Note - Rent received has been taken as the Gross Annual Value in the absence of other information
relating to Municipal Value, Fair Rent and Standard Rent.

(2) Income under the head “Profits & Gains of Business or Profession”
Particulars ` `
Add: Expenses debited but not allowable
(i) Salary paid to computer specialist in cash disallowed under 30,000
section 40A(3), since such cash payment exceeds ` 10,000
(ii) Amount paid for purchase of car is not allowable under section 80,000
37(1) since it is a capital expenditure
(iii) Municipal Taxes paid in respect of residential flat let out 3,000 1,13,000
10,41,224
Add: Value of benefit received from clients during the course of
profession [taxable as business income under section 28(iv)] 10,500
10,51,724
Less: Income credited but not taxable under this head:
(i) Dividend on shares of Indian companies 10,524
(ii) Income from UTI 7,600
(iii) Honorarium for valuation of answer papers 15,800
(iv) Rent received from letting out of residential flat 85,600 1,19,524
9,32,200
Less: Depreciation on motor car @15% (See Note (i) below) 12,000
9,20,200
Notes:
(i) It has been assumed that the motor car was put to use for more than 180 days during the
previous year and hence, full depreciation @ 15% has been provided for under section 32(1)(ii).
Note: Alternatively, the question can be solved by assuming that motor car has been put to use for
less than 180 days and accordingly, only 50% of depreciation would be allowable as per the second
proviso below section 32(1)(ii).
(ii) Incentive to articled assistants for passing IPCC examination in their first attempt is
deductible under section 37(1).
(iii) Repairs and maintenance paid in advance for the period 1.4.2019 to 30.9.2019 i.e. for 6 months
amounting to ` 1,000 is allowable since Ms. Purvi is following the cash system of accounting.
(iv) ` 32,000 expended on foreign tour is allowable as deduction assuming that it was incurred in
connection with her professional work. Since it has already been debited to income and expenditure
account, no further adjustment is required.
(3) Income from other sources

Particulars ` `
Dividend on shares of Indian companies 10,524
Income from UTI 7,600
Honorarium for valuation of answer papers 15,800
15,800
(4) Deduction under Chapter VI-A :

Particulars. `
Deduction under section 80C (Investment in NSC) 10,000
Deduction under section 80D (See Notes (i) & (ii) below) Nil
Total deduction under Chapter VI-A 10,000
Notes:
(i) Premium paid to insure the health of brother is not eligible for deduction under section 80D, even
though he is a dependent, since brother is not included in the definition of “family” under
section 80D.
(ii) Premium paid to insure the health of major son is not eligible for deduction, even though he is a
dependent, since payment is made in cash.

4. Calculate the income-tax liability for the Assessment Year 2019-20 in the following cases:
Mr. A Mrs. B Mr. C Mr. D
(age 45) (age 62) (age 81) (age 82)
Status Resident Nonresident Resident Nonresident

Total income other than long-term 2,40,000 2,80,000 5,90,000 4,80,000
capital gain
Long-term capital gain 15,000 10,000 60,000 Nil
from sale from sale of from sale of
of vacant unlisted agricultural
site shares land in rural
area
Answer
Computation of income-tax liability for the A.Y.2019-20
Particulars Mr. A Mrs. B Mr. C Mr. D
(age 45) (age 62) (age 81) (age 82)
Status Resident Nonresident Resident Nonresident
Applicable basic exemption limit ` 2,50,000 ` 2,50,000 ` 5,00,000 ` 2,50,000
Asset sold Vacant site Unlisted Rural -
shares agricultural
land
Long-term capital gain ` 15,000 ` 10,000 ` 60,000 -

(on sale of above asset) [Taxable@20% [Taxable@20% (Exempt –
u/s 112] u/s 112] not a capital
asset)
Other income ` 2,40,000 ` 2,80,000 ` 5,90,000 ` 4,80,000
Tax liability
On LTCG (15000-10000)*20% ` 1,000 2,000 - -
On Other income (after adjusting Basic

Exemption limit) ` NIL ` 1,500 ` 18,000 ` 11,500
` 1,000 ` 3,500 ` 18,000 ` 11,500
Less: Rebate u/s 87A ` 1,000
` NIL
Add: Health & Education cess @4% NIL 140 720 460
Total tax liability ` NIL ` 3,640 ` 18,720 ` 11,960
Notes:
1. Since Mrs. B and Mr. D are non-residents, they cannot avail the higher basic exemption limit of ` 3,00,000
and ` 5,00,000 for persons over the age of 60 years and 80 years, respectively.
2. Since Mr. A is a resident whose total income does not exceed ` 3.5 lakhs, he is eligible for rebate of `
2,500 under section 87A.

5. Mr. Y carries on his own business. An analysis of his trading and profit & loss for the year ended 31-3-
2019 revealed the following information :
(1) The net profit was ` 11,20,000.
(2) The following incomes were credited in the profit and loss account :
(a) Dividend from UTI ` 22,000.
(b) Interest on debentures ` 17,500.
(c) Winnings from races ` 15,000.
(3) It was found that some stocks were omitted to be included in both the opening and closing stocks, the
value of which were:
Opening stock ` 8,000.
Closing stock ` 12,000.
(4) ` 1,00,000 was debited in the profit and loss account, being contribution to a University approved and
notified under section 35(1)(ii).
(5) Salary includes ` 20,000 paid to his brother which is unreasonable to the extent of ` 2,500.
(6) Advertisement expenses include 15 gift packets of dry fruits costing ` 1,000 per packet presented to
important customers.
(7) Total expenses on car was ` 78,000. The car was used both for business and personal purposes. ¾th is
for business purposes.
(8) Miscellaneous expenses included ` 30,000 paid to A & CO., a goods transport operator in cash on 31-1-
2019 for distribution of the company’s product to the warehouses.
(9) Depreciation debited in the books was ` 55,000. Depreciation allowed as per Income-tax Rules, 1962 was
` 50,000.
(10)Drawings ` 10,000.
(11)Investment in NSC ` 15,000.
Compute the total income of Mr. Y for the assessment year 2019-20
Answer
Computation of total income of Mr. Y for the A.Y. 2019-20
Particulars `
Profits and gains of business or profession (See Working Note 1 below) 10,46,500
Income from other sources (See Working Note 2 below) 32,500
Less: Deduction under section 80C (Investment in NSC) 15,000
Working Notes :
1. Computation of profits and gains of business or profession
Particulars ` `
Net profit as per profit and loss account 11,20,000
Add :Expenses debited to profit and loss account but not
allowable as deduction
Salary paid to brother disallowed to the extent considered 2,500
unreasonable [Section 40A(2)]
Motor car expenses attributable to personal use not allowable (` 19,500
78,000 × ¼)
Depreciation debited in the books of account 55,000
Drawings (not allowable since it is personal in nature)[See Note (iii)] 10,000
Investment in NSC [See Note (iii)] 15,000 1,02,000
12,22,000
Add : Under-statement of closing stock 12,000
12,34,000
Less: Under-statement of opening stock 8,000
12,26,000
Less: Contribution to a University approved and notified under section
35(1)(ii) is eligible for weighted deduction@150%. Since only the
actual contribution (100%) has been debited to profit and loss
account, the additional 50% has to be deducted. 50,000
11,76,000
Less :Incomes credited to profit and loss account but not taxable as
business income
Income from UTI [Exempt under section 10(35)] 22,000
Interest on debentures (taxable under the head “Income from other 17,500
sources”)

Winnings from races (taxable under the head “Income from other 15,000 54,500
sources”)
11,21,500
Less : Depreciation allowable under the Income-tax Rules, 1962 50,000
10,71,500
Notes:
(i) Advertisement expenses of revenue nature, namely, gift of dry fruits to important customers, is
incurred wholly and exclusively for business purposes. Hence, the same is allowable as deduction
under section 37.
(ii) Disallowance under section 40A(3) is not attracted in respect of cash payment of ` 30,000 to A & Co.,
a goods transport operator, since, in case of payment made for plying, hiring or leasing goods
carriages, an increased limit of ` 35,000 is applicable(i.e. payment of up-to ` 35,000 can be made in
cash without attracting disallowance under section 40A(3))
(iii) Since drawings and investment in NSC have been given effect to in the profit and loss account, the
same have to be added back to arrive at the business income.
2. Computation of “Income from other sources”

Particulars `
Interest on debentures 17,500
Winnings from races 15,000
32,500
Note:
The following assumptions have been made in the above solution:
1. The figures of interest on debentures and winnings from races represent the gross income (i.e.,
amount received plus tax deducted at source).
2. In point no. 9 of the question, it has been given that depreciation as per Income-tax Rules, 1962 is `
50,000. It has been assumed that, in the said figure of ` 50,000, only the proportional depreciation
(i.e., 75% for business purposes) has been included in respect of motor car.
6. IMP Question - Mrs. Deepali (aged 40 years), working with M/s Good Company Ltd., a manufacturer of
tyres based at Mumbai, has received the following payments during the financial year 2018-19 from
her employer:
Basic salary ` 60,000 per month.
Dearness allowance 40% of basic salary.
Her employer has taken on rent her own house on a monthly rent of ` 15,000 and the same has been
provided for residence of Mrs. Deepali. Company is recovering ` 2,000 per month as rent of house. Mrs.
Deepali has further furnished the following details:
(i) She has paid professional tax of ` 6,000 during financial year 2018-19.
(ii) She is owning only one house and payment of interest of ` 1,75,000 and principal of ` 1,00,000 was
made for housing loan taken for purchase of house.
(iii) She has also taken a loan of ` 2,00,000 from her employer for study of her son. SBI rate for such loan is
10%. Her employer has recovered ` 10,000 as interest from her salary for such loan during the year.
Compute taxable income and tax liability for assessment year 2019-20.
Answer
Computation of taxable income of Mrs. Deepali for A.Y. 2019-20
Particulars ` `
Income from Salaries
Basic salary (` 60,000 x 12) 7,20,000
Dearness Allowance (40% of basic salary) 2,88,000
Perquisite value of Concessional Accommodation taken on hire. Lower of: 1,08,000
(i) actual rent (` 15,000 x 12) ` 1,80,000
(ii) 15% of salary (15% of ` 7,20,000) ` 1,08,000
(assuming that dearness allowance does not form part of pay
for retirement benefits)
Less: Rent recovered (` 2,000×12) 24,000 84,000
Perquisite value of concessional loan [Rule 3(7)(i)] [` 20,000 (10% of `
2,00,000) – ` 10,000] 10,000
Gross Salary 11,02,000
Less: Deduction under section 16(ia) 40,000
Deduction under section 16(iii) - Professional tax paid 6,000
Net Salary 10,56,000

Income from house property
Gross Annual Value (GAV) (Rental income has been taken as GAV in the 1,80,000
absence of other information)
(a) 30% of ` 1,80,000 = ` 54,000
(b) Interest on loan = ` 1,75,000 2,29,000 (49,000)
Less: Deductions under Chapter – VIA
80C – Repayment of housing loan 1,00,000
Computation of tax liability for A.Y. 2019-20

Tax on ` 9,47,000 `
Upto ` 2,50,000 Nil
250,001 -5,00,000 - 5% 12,500
5,00,001 – 9,07,000 - 20% 81,400
93,900
Total Tax Liability 97,656

Total Tax Liability (Rounded off) 97,660
Note: Mrs. Deepali cannot claim benefit of self-occupation (i.e. taking the annual value as nil and claiming a
higher loss of ` 2,00,000) in respect of the house property owned and occupied by her, since the same has
been given on rent to her employer, who has allotted the same as residence for Mrs. Deepali.
7. Shri Madan (age 61 years) gifted a building owned by him to his son's wife Smt. Hema on 01.10.2018.
The building fetched a rental income of ` 10,000 per month throughout the year. Municipal tax for the first
half-year of ` 5,000 was paid in June 2018 and the municipal tax for the second half-year was not paid till
30.09.2019. Incomes of Shri Madan and Smt. Hema other than income from house property are given below:
Name Business income (` `) `)

Capital gain (` `)
Other sources (`
Shri Madan 1,00,000 50,000 (long term) 1,50,000
Smt. Hema (75,000) 2,00,000 (short term) 50,000
Note: Capital gain does not relate to gain from shares and securities.
Compute the total income of Shri. Madan and Smt. Hema taking into account income from property
given above and also compute their income-tax liability for the assessment year 2019-20.
Answer
Computation of total income and tax liability of Shri Madan for A.Y. 2019-20
Particulars. ` `
Income from house property (Refer Note 1) 80,500
Business Income 1,00,000
Long-term Capital Gains 50,000
Income from Other Sources 1,50,000
Computation of tax liability
Long-term Capital Gain of ` 50,000 @ 20% 10,000
Other income of ` 3,30,500
(` 3,30,500 – ` 3,00,000) × 5% (Refer Note 2) 1,525
11,525
Less: Rebate under section 87A NIL
11,525
Add: Health & Education cess @ 4% 461
Tax liability 11,986
Tax liability (Rounded Off) 11,990

Computation of Total Income and Tax Liability of Smt. Hema for A.Y. 2019-20
Particulars ` `
Short-term Capital Gains 2,00,000
Less: Business loss 75,000 1,25,000
Income from Other Sources 50,000
Tax liability Nil
(Since total income is less than basic exemption limit of ` 2,50,000)
Notes:
1. As per section 64(1)(vi), the income arising to the son’s wife of an individual, directly or indirectly, from
assets transferred to her, otherwise than for adequate consideration, by such individual, shall be included
in the total income of the individual.
Therefore, the rental income from building transferred by Shri Madan to his son’s wife Smt. Hema without
consideration on 01.10.2018 is includible in the hands of Shri Madan.
Computation of Income from House Property

Madan (` ) Hema (` )
Particulars Period Period
(01.04.2018- (01.10.2018-
30.09.2018) 31.03.2019)
Gross Annual Value (` 10,000 × 6 months) 60,000 60,000
(Rental income taken as GAV in the absence of information
relating to Municipal Value, fair value and standard rent)
Less: Municipal taxes paid (paid in June for first half year only) 5,000 Nil
Net Annual Value (NAV) 55,000 60,000
Less: Deduction under section 24(a), 30% of NAV 16,500 18,000
Income from House Property 38,500 42,000
Income from House Property of Hema to be clubbed in the hands
of Madan as per section 64(1)(vi) 42,000
Income from house property 80,500
2. The basic exemption limit for A.Y. 2019-20 in respect of an individual who is of the age of 60 years or
more during the relevant previous year is ` 3,00,000. The same has been considered while calculating
Madan’s tax liability.
8. Mr. Chandran (aged 38) owned 6 non-heavy goods vehicles as on 01.04.2018. He acquired 2 more non-
heavy goods vehicles on 1.7.2018. He is solely engaged in the business of plying goods vehicles on
hire since financial year 2011-12.
He did not opt for presumptive provision contained in section 44AE for the financial year 2017-18. His books
were audited under section 44AB and the return of income was filed on 5.8.2018. He has unabsorbed
depreciation of ` 70,000 and business loss of ` 1,00,000 for the financial year 2017-18.
Following further information is provided to you:

(a) Deposited ` 20,000 in Tax Saver Deposit with UCO Bank in the name of married son.
(b) Paid medical insurance premium of ` 33,000 for his parents (both aged above 70) by means of bank
demand draft.
(c) Paid premium on life insurance policy of his married daughter ` 25,000. The policy was taken on
1.04.2013 and the minimum sum assured is ` 2,00,000.
(d) Repaid principal of ` 40,000 and interest of ` 15,000 to Canara Bank towards education loan of his
daughter, who completed B.E. two years ago. She is employed after completion of her studies.
Assuming that Mr. Chandran has opted for presumptive provision contained in section 44AE of
the Income-tax Act, 1961 for F.Y. 2018-19. Compute the total income of Mr. Chandran for the
assessment year 2019-20.

Answer
Computation of total income of Mr. Chandran for the A. Y. 2019-20
Particulars ` `
Income from business of plying goods vehicle (Refer Note 1) 6,75,000
Less: Brought forward business loss of financial year 2017-18 (Refer Note 2 & 3) 1,00,000
Less: Deduction under Chapter VI-A
Section 80C:-
Life insurance premium paid for insurance of married daughter (Refer Note 5) 20,000
Section 80D:-
Medical insurance premium paid for insurance of parents (Refer Note 6) 33,000
Section 80E:-
Interest paid towards education loan taken for studies of his daughter (Refer 15,000 68,000
Note 7)
Working Notes:
(1) Computation of income from business of plying goods vehicles under section 44AE.
Particulars `
6 non-heavy goods vehicle held throughout the year (` 7,500×6×12) 5,40,000
2 non-heavy goods vehicle – held for 9 months (` 7,500×2×9) 1,35,000
Income under section 44AE 6,75,000
(2) As per section 44AE, any deduction allowable under the provisions of sections 30 to 38 shall be deemed
to have been already allowed. Therefore, the unabsorbed depreciation of ` 70,000 shall not be
allowed as a deduction since it is covered by section 32.
(3) Brought forward business loss of ` 1,00,000 shall be allowed as deduction, by virtue of section 72, as it is
allowed to be carried forward for 8 assessment years following the assessment year to which it relates,
since the return for A.Y. 2018-19 was filed before the due date specified under section 139(1).
(4) Fixed deposit in the name of married son does not qualify for deduction under section 80C.
(5) Premium paid for insurance on the life of any child of the individual, whether married or not, qualifies for
deduction under section 80C. In respect of policies issued on or after 1.04.2012, only premium paid to the
extent of 10% of “minimum capital sum assured” qualifies for deduction under section 80C. Therefore, out
of the life insurance premium of ` 25,000 paid for insurance policy of married daughter, only ` 20,000
(being 10% of ` 2,00,000) is allowed as deduction under section 80C.
(6) Deduction is allowed under section 80D for payment made for medical insurance of parents. Medical
insurance premium paid for insuring the health of a person who is a senior citizen i.e. of age 60 years or
more, qualifies for deduction under section 80D, subject to a maximum of ` 50,000. Hence, deduction of
` 33,000 is provided to Mr. Chandran, as his parents are senior citizens.
(7) It is only the payment of interest on education loan which qualifies for deduction under section
80E. Deduction under section 80E is allowed in respect of interest on loan taken for education of children
of the individual even if they are not dependent. Principal repayment of the education loan is not eligible
for deduction under section 80E.
9. Mr. Vidyasagar, a resident individual aged 64, is a partner in Oscar Musicals & Co., a partnership firm.
He also runs a wholesale business in medical products. The following details are made available for
the year ended 31.3.2019:
Particulars ` `
(i) Interest on capital received from Oscar Musicals & Co., at 15% 1,50,000
(ii) Interest from bank on fixed deposit (Net of TDS ` 1,500) 13,500
(iii) Income-tax refund received relating to assessment year 2017-18 including 34,500
interest of ` 2,300
(iv) Net profit from wholesale business 5,60,000
Amounts debited include the following:
Depreciation as per books 34,000
Motor car expenses 40,000
Municipal taxes for the shop 7,000
(For two half years; payment for one half year made on 12.6.2019 and
for the other on 14.11.2019)
Salary to manager by way of a single cash payment 21,000
(v) The WDV of the assets (as on 1.4.2017) used in above wholesale
business is as under:
Computers 1,20,000
Motor car (20% used for personal use) 3,20,000

(vi) LIP paid for major son 60,000
PPF of his wife 70,000
Compute the total income of the assessee for the assessment year 2019-20. The computation should
show the proper heads of income. Also compute the WDV of the different blocks of assets as on
31.3.2019.
Answer
Computation of total income of Mr. Vidyasagar for the A.Y. 2019-20
Particulars ` `
Profit and gains of business or profession
Income from wholesale business
Net profit as per books 5,60,000
Add: Depreciation as per books 34,000
Disallowance of municipal taxes paid for the second half-year under
section 43B, since the same was paid after the due date of filing of 3,500
return (` 7,000/2)
Disallowance under section 40A(3) in respect of salary paid in 21,000
cash since the same exceeds ` 10,000
20% of car expenses for personal use 8,000 66,500
6,26,500
Less: Depreciation allowable (Note 1) 1,10,400
5,16,100
Income from firm
Interest on capital from partnership firm (Note 2) 1,20,000
Income from other sources 6,36,100
Interest on bank fixed deposit (Gross) 15,000
Interest on income-tax refund 2,300 17,300
Gross total income 6,53,400

Less: Deduction under Chapter VIA (Note 3) 1,30,000
Notes:
(1) Depreciation allowable under the Income-tax Rules, 1962
Opening WDV Rate Depreciation Closing WDV
Block 1 Computers 1,20,000 60% 72,000 48,000
Block 2 Motor Car 3,20,000 15%
48,000
Less: 20% disallowance for personal use 9,600 38,400 2,81,600
1,10,400
(2) Only to the extent the interest is allowed as deduction in the hands of the firm, the same is includible as
business income in the hands of the partner. Maximum interest allowable as deduction in the hands of the
firm is 12% p.a. It is assumed that the partnership deed provides for the same and hence is allowable to this
extent in the hands of the firm.
Therefore, interest @12% p.a. amounting to ` 1,20,000 would be treated as the business income of Mr.
Vidyasagar.
(3) Deduction under Chapter VI-A

Particulars ` `
Under section 80C
LIP for major son 60,000
PPF paid in wife’s name 70,000
1,30,000
Since the maximum deduction under section 80C and 80CCE is ` 1,50,000.
The entire amount of deduction would be allowed as deduction. 1,30,000
Total deduction 1,30,000

10. Balamurugan furnishes the following information for the year ended 31-03-2019:
Particulars `
Income from business (1,35,000)
Income from house property (15,000)
Lottery winning (Gross) 5,00,000
Speculation business income 1,00,000
Income by way of salary (computed) 60,000
Long term capital gain (Building) 70,000
Compute his total income, tax liability and advance tax obligations.
Answer
Computation of total income of Balamurugan for the year ended 31.03.2019
Particulars ` `
Salaries 60,000
Less: Loss from house property (15,000)
Net Salary (after set off of loss from house property) 45,000
Profits and gains of business or profession
Speculation business income 1,00,000
Less: Business loss set-off (1,35,000)
Net business loss to be set-off against long-term capital gain (35,000)
Capital Gains
Long term capital gain 70,000
Less: Business loss set-off (35,000)
Long term capital gain after set off of business loss 35,000
Lottery winnings (Gross) 5,00,000

Particulars `
On total income of ` 80,000 (excluding lottery winning) Nil
On lottery winnings of ` 5,00,000 @ 30% 1,50,000
Add: Health & Education cess @4% 6,000
Total tax liability 1,56,000
The assessee need not pay advance tax since the total income (excluding lottery income) liable to tax is
below the basic exemption limit. Further, in respect of lottery income, tax would have been deducted at source
@ 30% under section 194B. Since the remaining tax liability of ` 4,500 (` 1,54,500 – ` 1,50,000) is less than
` 10,000, advance tax liability is not attracted.
Notes:
(1) The basic exemption limit of ` 2,50,000 has to be first exhausted against salary income of ` 45,000. The
unexhausted basic exemption limit of ` 2,05,000 can be adjusted against long-term capital gains of `
35,000 as per section 112, but not against lottery winnings which are taxable at a flat rate of 30% under
section 115BB.
(2) The first proviso to section 234C(1) provides that since it is not possible for the assessee to estimate his
income from lotteries, the entire amount of tax payable (after considering TDS) on such income should be
paid in the remaining installments of advance tax which are due. Where no such installment is due, the
entire tax should be paid by 31st March,2019. The first proviso to section 234C(1) would be attracted only
in case of non-deduction or short-deduction of tax at source under section 194B.

11. Mr. Rajiv, aged 50 years, a resident individual and practicing Chartered Accountant, furnishes you the
receipts and payments account for the financial year 2018-19.
Receipts and Payments Account
Receipts ` Payments `
Opening balance (1.4.2018) Staff salary, bonus and stipend to
articled clerks 21,50,000
Cash on hand and at Bank 12,000 Other administrative expenses 11,48,000
Fee from professional services 59,38,000 Office rent 30,000
Rent 50,000 Housing loan repaid to SBI
(includes interest of ` 88,000) 1,88,000
Motor car loan from
Canara Bank (@ 9% p.a.) 2,50,000 Life insurance premium 24,000
Motor car (acquired in Jan. 2019) 4,25,000
Medical insurance premium (for
self and wife) 18,000
Books bought (annual publications) 20,000
Computer acquired on 1.11.2018
(for professional use) 30,000
Domestic drawings 2,72,000
Public provident fund subscription 20,000
Motor car maintenance 10,000
Closing balance (31.3.2019)
Cash on hand and at Bank 19,15,000
62,50,000 62,50,000
Following further information is given to you:
(1) He occupies 50% of the building for own residence and let out the balance for residential use at a monthly
rent of ` 5,000. The building was constructed during the year 1997-98.
(2) Motor car was put to use both for official and personal purpose. One-fifth of the motor car use is for
personal purpose. No car loan interest was paid during the year.
(3) The written down value of assets as on 1-4-2018 are given below:
Furniture & Fittings = ` 60,000
Plant & Machinery = ` 80,000
(Air-conditioners, Photocopiers, etc.)
Computers = ` 50,000
Note: Mr. Rajiv follows regularly the cash system of accounting.
Compute the total income of Mr. Rajiv for the assessment year 2019-20.
Answer Computation of total income of Mr. Rajiv for the assessment year 2019-20
Particulars ` ` `
Self-occupied
Annual value Nil
Less: Deduction under section 24(b)
Interest on housing loan
50% of ` 88,000 = 44,000 but limited to 30,000
Loss from self-occupied property (30,000)
Let out property
Annual value (Rent receivable has been taken as the
annual value in the absence of other information) 60,000
Less: Deductions under section 24
(a) 30% of Net Annual Value 18,000
(b) Interest on housing loan (50%
of ` 88,000) 44,000 62,000 (2,000)
Loss from house property (32,000)
Fees from professional services 59,38,000
Less: Expenses allowable as deduction
Staff salary, bonus and stipend 21,50,000
Other administrative expenses 11,48,000
Office rent 30,000
Motor car maintenance (10,000 x 4/5) 8,000
Car loan interest – not allowable (since the same has
not been paid and the assessee follows cash system of
accounting) Nil 33,36,000

26,02,000
Less: Depreciation
Motor car ` 4,25,000 x 7.5% x 4/5 25,500
Books being annual publications @ 40% 8,000
Furniture and fittings @ 10% of ` 60,000 6,000
Plant and machinery @ 15% of ` 80,000 12,000
Computer @ 40% of ` 50,000 20,000
Computer (New) ` 30,000 @ 40% x ½ thereon 6,000 77,500 25,24,500
Gross Total income 24,92,500
Deduction under section 80C
Housing loan principal repayment 1,00,000
PPF subscription 20,000
Life insurance premium 24,000
Total ` 1,44,000 is allowed as deduction
since it is within the limit of ` 1,50,000 1,44,000
Deduction under section 80D
Medical insurance premium paid ` 18,000 18,000 1,62,000
12. State under which heads the following incomes are taxable:
(i) Rental income in case of dealer in property
(ii) Dividend on shares in case of a dealer in shares
(iii) Salary by a partner from his partnership firm
(iv) Rental income of machinery
(v) Winnings from lotteries by a person having the same as business activity
(vi) Salaries payable to a Member of Parliament
(vii) Receipts without consideration
(viii) In case of retirement, interest on employee’s contribution if provident fund is unrecognized.
Answer
Particulars Head of Income
(i) Rental income in case of dealer in property Income from house property
(ii) Dividend on shares in case of a dealer in shares Income from other sources
(iii) Salary by partner from his partnership firm Profit and gains of business or profession
(iv) Rental income of machinery (See Note below) Income from other sources/PGBP
(v) Winnings from lotteries by a person having the
same as business activity Income from other sources
(vi) Salaries payable to a Member of Parliament Income from other sources
(vii) Receipts without consideration Income from other sources
(viii) In case of retirement, interest on employee’s
contribution if provident fund is unrecognized Income from other sources
Note - As per section 56(2)(ii), rental income of machinery would be chargeable to tax under the head
“Income from Other Sources”, if the same is not chargeable to income-tax under the head “Profits and gains
of business or profession”.
13. Dr. Shuba is a medical practitioner. Her age is 64 as on 1st January, 2019. The receipts and payments
account of 2018-19 of her is as under:
To ` By `
Balance B/f 10,000 Purchase of commercial vehicle before 4,00,000
Receipts from sale of medicine 2,50,000 30 Sep. 2018
Consultation fee 50,000 Drawings 2,50,000
Visiting fee 2,00,000 Deposit in bank for 5 years 1,50,000
Lecture fees 5,000 Surgical instrument purchased before 30 50,000
Family pension 2,80,000 Sep. 2018
Savings bank interest 1,000 Installment of loan paid 1,21,000
Loan from bank 3,00,000 (including interest ` 22,333)
Share from HUF 50,000 Medical insurance premium 32,000
Agricultural income 1,00,000 Installment of housing loan 1,08,000
Income from lottery 35,000 (Principal component ` 48,000)
(net after deduction of TDS@30%) Advance tax paid 20,000
Purchase of medicine 47,000
Payment for medical journal 5,000
Vehicle expenses 50,000
Balance C/f 48,000
12,81,000 12,81,000

Other relevant information is as under:
(i) She resides in her own house which was constructed in 1998 with a loan from LIC Housing of ` 10,00,000
out of which ` 6,00,000 was still due. She got it refinanced from SBI on 01-04-2018 at the rate of 10%.
One-fourth portion of the house is used for clinic purposes.
(ii) She invested in term deposit ` 1,50,000 in Bank of Baroda on 01-07-2018 for a period of 5 years in the
name of her minor daughter at 9% interest p.a.
(iii) She purchased a commercial vehicle on 1st July 2018 at ` 4,00,000. A loan of ` 3,00,000 was taken to
buy the vehicle. One fourth use of vehicle is estimated to be personal.
(iv) She paid medical insurance premium for herself of ` 16,000 and for mother ` 16,000. Her mother is
dependent on her.
(v) She got her share from HUF’s income of ` 50,000.
Compute total income of Dr. Shuba, ignoring depreciation on building.
Answer
Computation of total income of Dr. Shuba for A.Y. 2019-20
Particulars ` ` ` `
Income from house property:
Annual value of self-occupied house
Less: Interest on loan [` 45,000, being Nil
3/4th of ` 60,000] (Restricted to ` 30,000) (30,000) (30,000)
Income from profession:

Sale of medicine 2,50,000
Consultation fees 50,000
Visiting fee 2,00,000
Less: Expenses
Medicine purchases 47,000
Medical journal 5,000
Vehicle expenses (3/4th) 37,500
Interest on loan (3/4th) 16,750
Interest on housing loan (1/4th) 15,000
Depreciation
Surgical instrument(15% of ` 50,000) 7,500
Vehicle (3/4th of 15% of ` 4,00,000) 45,000
Total expenses
1,73,750 3,26,250
Family Pension 2,80,000
Less: Deduction under section 57(iia) 15,000
[33⅓% or ` 15,000, whichever is lower] 2,65,000
Lecture fees 5,000
Savings bank interest 1,000
Interest on bank FD in the name of minor daughter 10,125

[` 1,50,000 × 9% × 9/12] 1,500
Less : Exempt under section 10(32) 8,625
Winnings from lottery 50,000 3,29,625

Under section 80C
Repayment of housing loan (` 48,000 × ¾) 36,000
Under section 80D
Medical Insurance Premium Own (Senior Citizen, hence
fully allowed) 16,000
Mother (Senior Citizen, hence fully allowed since
premium is less than ` 50,000) 16,000
Under section 80TTA
Interest on deposit in a saving account of bank 1,000 33,000
Total deduction 69,000
Total income (Rounding off) 5,56,880

Notes:
1. Since the residential house was constructed before 01.04.1999, the deduction for interest is restricted to `
30,000.
2. Since ¼th portion of house is used for business purposes, therefore, ¼th share of interest paid is
deductible while computing business income.
3. Agricultural income is exempt under section 10(1) and share of income from HUF is exempt under section
10(2).
4. Term deposit of ` 1,50,000 in the name of minor daughter does not qualify for deduction under section
80C. However, principal repayment of housing loan (3/4th) would qualify for deduction under section 80C.
Therefore, the deduction under section 80C would be ` 36,000 (i.e. 3/4th of ` 48,000).
5. Depreciation@15% has been provided on surgical instruments. It is also possible to assume that the
surgical instruments mentioned in the question are life-saving medical equipment (for example,
surgical laser) and therefore, eligible for depreciation@40%.
6. Depreciation on the portion of the house used for business purposes has not been provided since the
written down value is not given in the question.
14. Mr. Raghu, Marketing Manager of KL Ltd., based at Mumbai furnishes you the following information
for the year ended 31.03.2019:
Basic salary - ` 1,00,000 per month
Dearness allowance (Forming part of salary for retirement benefits) - ` 50,000 per month
Bonus - 2 months basic salary
Contribution of employer to Recognized Provident Fund - 15% of basic salary plus
dearness allowance
Rent free unfurnished accommodation was provided by the company at Mumbai (accommodation
owned by the company).
Particulars `
(i) Recognised Provident Fund contribution made by Raghu 1,50,000
(ii) Health insurance premium for insurance of his wife’s health 30,000
(iii)Health insurance premium in respect of parents (senior citizens) 33,000
(iv) Medical expenses of dependent brother with ‘severe disability’ (covered by Section 2(o) 6,000
of National Trust for Welfare of Persons with Austism,
Cerbral Palsy, Mental Retardation and Multiple Disabilities Act, 1999).
(v) Interest on loan taken for education of his son studying B.Com (full-time) in a recognized 24,000
college.
(vi) Interest on loan taken for education of a student for whom Mr. Raghu is 20,000
the legal guardian for pursuing B.Sc. (Physics) (full-time) in a recognized university.
Compute the total income of Mr. Raghu for the assessment year 2019-20.
Answer Computation of total income of Mr. Raghu for the A.Y. 2019-20
Particulars ` `
Basic salary 12,00,000
Dearness allowance 6,00,000
Bonus 2,00,000
Employer contribution to recognized provident fund in excess of
12% is taxable (3% of ` 18,00,000) 54,000
Rent free accommodation @ 15% of ` 20 lakh (basic salary +
dearness allowance + bonus) 3,00,000
Less: Deduction u/s 16(ia) 40,000
Income from Salary 23,14,000
Section 80C
Contribution to recognized provident fund ` 1,50,000 restricted to 1,50,000
Section 80D – Health insurance premium
Wife ` 30,000 restricted to 25,000
Parents (Senior Citizens) 33,000 58,000
Section 80DD
Medical treatment of dependent brother with severe disability
(flatdeduction irrespective of expenditure incurred) 1,25,000

Section 80E – Interest on loan taken for full-time education of
- his son studying B.Com. 24,000
- a student studying B.Sc. for whom he is the legalguardian 20,000 44,000 3,77,000
15. Mr. Dinesh Karthik, a resident individual aged 45, furnishes the following information pertaining to the
year ended 31.3.2019:
(i) He is a partner in Badrinath & Co. He has received the following amounts from the firm:
Interest on capital at 15%: ` 3,00,000
Salary as working partner (at 1% of firm's sales) (allowed fully to the firm) : ` 90,000
(ii) He is engaged in a business of manufacturing wheat flour from wheat. The Profit and Loss account
pertaining to this business (summarised form) is as under:
To ` By `
Salaries 1,20,000 Gross profit 12,50,000
Bonus 48,000 Interest on Bank FD 45,000
Car expenses 50,000 (Net of TDS 5,000)
Machinery repairs 2,34,000 Agricultural income 60,000
Advance tax 70,000 Pension from LIC
JeevanDhara 24,000
Depreciation on:
- Car 3,00,000
- Machinery 1,25,000
Net profit 4,32,000
13,79,000 13,79,000
Opening WDV of assets are as under:
Particulars `
Car 3,00,000
Machinery (Used during the year for 170 days) 6,50,000
Additions to machinery:
New purchased on 23.9.2018 2,00,000
New purchased on 12.11.2018 3,00,000
Old purchased on 12.4.2018 1,25,000
(All assets added during the year were put to use immediately after purchase)
Of the total bonus amount, ` 15,000 was paid on 11.10.2018
One-fifth of the car expenses are towards estimated personal use of the assessee.
(iii) In March, 2017, he had sold a house at Chennai. Arrears of rent relating to this house
amounting to ` 75,000 was received in February, 2019.
(iv) Details of his Savings and Investments are as under:

Particulars `
Life insurance premium for policy in the name of his major son employed in
LMN Ltd. at a salary of ` 6 lacs p.a. (Sum assured ` 2,00,000) (Policy taken on 1.07.2014) 30,000
Contribution to Pension Fund of National Housing Bank 70,000
Medical Insurance premium for his father aged 70, who is not dependent on him 32,000
You are required to compute the total income of Mr. Dinesh Karthik for the AY 2019-20.
A Answer
Computation of total income of Mr. Dinesh Karthik for the A.Y. 2019-20
Particulars ` `
Arrears of rent received in respect of the Chennai
house taxable under section 25A Note 2 75,000
Less: Deduction @ 30% 22,500 52,500
(a) Own business Note 3 5,33,250
(b) Income from partnership firm (See Note 1)
Interest on capital 2,40,000
[As per section 28(v), chargeable in the hands of
the partner only to the extent allowable as
deduction in the firm’s hand i.e. @12%]
Salary of working partner 90,000 3,30,000

(a) LIC Jeevan Dhara pension 24,000
(b) Interest from bank FD (gross) 50,000 74,000
Less: Deductions under Chapter VIA
Section 80C
Life insurance premium for policy in the name of major
son qualifies for deduction even though he is not
dependent on the assessee. However, the same has
to be restricted to 10% of sum assured i.e. 10% of ` 2,00,000. 20,000
Contribution to pension fund of National Housing Bank 70,000 90,000
Section 80D
Mediclaim premium for father, a senior citizen
(qualifies for deduction, even though the father is not
dependent on the assessee) 32,000 1,22,000
Notes:
(1) The income by way of interest on capital and salary of Mr. Dinesh Karthik from the firm, Badrinath & Co.,
in which he is a partner, to the extent allowed as deduction in the hands of the firm under section 40(b),
has to be included in the business income of the partner as per section 28(v). Accordingly, ` 3,30,000
[i.e., ` 90,000 (salary) + ` 2,40,000(interest@12%)] should be included in his business income.
(2) As per section 25A, any arrears of rent received will be chargeable to tax, after deducting a sum equal to
30% of such arrears, as income from house property in the year of receipt, whether or not the assessee
remains the owner of the house property.
(3) Computation of income from own business

Particulars ` `
Less: Items credited to profit and loss account not
treated as business income
Interest on bank FD (net of TDS ` 5,000) 45,000
Agricultural income 60,000
Pension from LIC Jeevan Dhara 24,000 1,29,000
3,03,000
Add: Items debited to profit and loss account to be
disallowed/considered separately
Advance tax 70,000
Depreciation:
Car 3,00,000
Machinery 1,25,000
Car expenses disallowed 10,000 5,05,000
8,08,000
Less: Depreciation (See Working Note below) 2,74,750
Income from own business 5,33,250
Working Note
Computation of depreciation allowable under the Income-tax Act, 1961
Particulars ` `
On Car-
15% on 3,00,000 45,000
Less: 1/5th for personal use 9,000 36,000
On Machinery-
Opening WDV 6,50,000
Additions during the year (Used for more than 180 days) 3,25,000
Depreciation at 15% on 9,75,000 1,46,250
Additions during the year (used for less than 180 days)
Hence, depreciation at 7.5% on 3,00,000 22,500
Total normal depreciation (A) 2,04,750
Where an asset acquired during the year is put to use for less than
180 days, 50% of the rate of depreciation is allowable. This restriction
does not apply to assets acquired in an earlier year.

Additional depreciation
New machinery
Used for more than 180 days at 20% ` 2,00,000 40,000
Used for less than 180 days at 10% ` 3,00,000 30,000
Total additional depreciation (B) 70,000
Total permissible depreciation (A) + (B) 2,74,750
16. From the following details, compute the total income of Siddhant of Delhi for the A.Y. 2019-20:
Particulars `
Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by the employer 12,000
Rent paid by Siddhant for his accommodation 49,600
Bills paid by the employer for gas, electricity and water provided free of cost at the above flat 11,000
Siddhant purchased a flat in a co-operative housing society in Delhi for ` 4,75,000 in April, 2011, which was
financed by a loan from Life Insurance Corporation of India of ` 1,60,000@ 15% interest, his own savings of `
65,000 and a deposit from a nationalized bank for ` 2,50,000 to whom this flat was given on lease for ten
years. The rent payable by the bank was ` 3,500 per month. The following particulars are relevant:
(a) Municipal taxes paid by Mr. Siddhant ` 4,300 (per annum)
(b) Insurance ` 860
(c) He earned ` 2,700 in share speculation business and lost ` 4,200 in cotton speculation business.
(d) In the year 2012-13, he had gifted ` 30,000 to his wife and ` 20,000 to his son who was aged 11. The
gifted amounts were advanced to Mr. Rajesh, who was paying interest @19% per annum.
(e) Siddhant received a gift of ` 25,000 each from four friends.
(f) He contributed ` 50,000 to Public Provident Fund.
Answer
Computation of total income and tax liability of Siddhant for the A.Y. 2019-20
Particulars ` `
Salary Income
Bonus 11,000
Value of perquisites:
(i) Salary of servant 12,000
(ii) Free gas, electricity and water 11,000 23,000
Gross Annual Value (GAV) (Rent receivable is taken as GAV in the
absence of other information) (` 3,500 × 12) 42,000
(i) 30% of NAV ` 11,310
(ii) Interest on loan from LIC @15% of ` 1,60,000 [See Note 2] ` 24,000 35,310 2,390
Income from speculative business
Income from share speculation business 2,700
Less: Loss from cotton speculation business 4,200
Net Loss 1,500
Net loss from speculative business has to be carried forward as it
cannot be set off against any other head of income.
(i) Income on account of interest earned from advancing money
gifted to his minor son is includible in the hands of Siddhant as
per section 64(1A) 3,800
Less: Exempt under section 10(32) 1,500
2,300
(ii) Interest income earned from advancing money gifted to wife
has to be clubbed with the income of the assessee as per
section 64(1) 5,700
(iii) Gift received from four friends (taxable under section 56(2)(x)
as the aggregate amount received during the year exceeds ` 50,000) 1,00,000 1,08,000
Less: Deduction under section 80C
Contribution to Public Provident Fund 50,000 50,000
Notes:
(1) It is assumed that the entire loan of ` 1,60,000 is outstanding as on 31.3.2019; and
(2) Since Siddhant’s own flat in a co-operative housing society, which he has rented out to a nationalised
bank, is also in Delhi, he is not eligible for deduction under section 80GG in respect of rent paid by him for
his accommodation in Delhi, since one of the conditions to be satisfied for claiming deduction under
section 80GG is that the assessee should not own any residential accommodation in the same place.
17. Mr. Janak, working as Finance Manager in Thilagam Realty Ltd., Jaipur, retired from the company on
31.10.2018 at the age of 60. The following amounts were received from the employer from 1st April,
2018 to 31st October, 2018:
Basic Salary ` 30,000 p.m.
Dearness Allowance ` 20,000 p.m. (40% reckoned for superannuation benefits)
Ex-gratia (lump sum) ` 15,000
In addition to the above –
a) The company had taken on lease a residential house at Jaipur, paying a lease rent of ` 9,000 p.m. Mr.
Janak, who was paying to the company ` 6,000 p.m. towards aforesaid rent, vacated the said premises
on 31.10.2018.
b) The company had also provided to Mr. Janak a cooking range and micro-wave oven owned by it. The
original cost of these assets was ` 40,000 and the written down value as on 1.4.2018 was ` 22,000.
c) Mr. Janak has two sons. His second son was studying in a school run by the employer company
throughout the financial year 2018-19. The education facility was provided free of cost. The cost of such
education in a similar school is ` 1,800 p.m.
d) The employer-company was contributing ` 7,000 p.m. to Central Government Pension Scheme. Mr.
Janak contributed an equal amount.
e) Professional tax paid by the employer ` 3,000.
f) Subsequent to his retirement, Mr. Janak started his own business on 15-11-2018. The results of the said
business from 15.11.2018 to 31.3.2019 were:
a. Business loss (excluding current depreciation) ` 90,000
b. Current year's depreciation ` 60,000
g) Mr. Janak won a prize in a TV game show. He received a sum of ` 2,10,000 after deduction of tax at
source to the tune of ` 90,000.
h) Mr. Janak furnishes the under-mentioned data relating to savings, investments and outgoings:
A. Life insurance premium, with a private insurance company ` 30,000 for his son and ` 20,000 for his
married daughter.
B. Medical insurance premium of ` 22,000 for himself and ` 26,000 for his father (aged 82), paid by
credit card. His father is however not dependent on him.
You are required to compute the total income of Mr. Janak (showing clearly the computation
under various heads of income) and tax payable by him for the assessment year 2019-20.
Answer
Computation of total income of Mr. Janak for A.Y. 2019-20
Particulars ` `
Basic salary = ` 30,000 x 7 2,10,000
Dearness Allowance = ` 20,000 x 7 1,40,000
Ex-gratia 15,000
Employers’ contribution to Central Government Pension Scheme
= ` 7,000 x 7 49,000
Professional tax paid by employer 3,000
Concessional accommodation (See Notes 1 & 2) 150
Value of furniture (See Note 3) 2,333
Value of concessional educational facility = (` 1,800 x 7) (See Note 4) 12,600
Gross salary 4,32,083
Statutory Deduction 40,000
Professional tax 3,000
Net salary 3,89,083
Winnings from TV Game Show (` 2,10,000 + ` 90,000) 3,00,000

80C Life insurance premium (` 30,000 + ` 20,000) 50,000
80CCD(1) (See Notes 5)
Employee’s contribution to pension scheme [No amount is allocated here]
NIL
Total deduction under section 80C &80CCD(1) 50,000
80CCD (1B) Employee’s contribution to penson scheme 49,000
Employer’s Contribution to pension scheme (to be restricted to 10%
of salary) [Section 80CCD(2) [to be restricted to 10%of salary
i.e. 10% of ` 2,66,000 (` 30,000 + ` 8,000) x 7] [See Note 5] 26,600
80D (` 22,000 + ` 26,000) (See Note 6) 48,000 1,73,600
Total income (rounded off) 5,15,480
Computation of tax liability of Mr. Janak for the A.Y. 2019-20

Particulars ` `
Tax @ 30% on winnings of ` 3,00,000 from game show 90,000
Tax on balance income of ` 2,97,880(See Note 8) Nil
90,000
Add : Health & Education cess @ 4% 3,600
Total Tax Liability 93,600
Less :TDS 90,000
Net Tax Payable 3,600
Notes:
(1) For computation of perquisite value of concessional accommodation, 40% of dearness allowance (i.e. `
8,000) should be taken into consideration as forming part of salary, since the question clearly mentions that
only 40% is to be reckoned for superannuation benefits. Therefore, salary for the purpose of perquisite
valuation would be ` 2,81,000 [i.e., (` 30,000 + ` 8,000) x 7 + 15,000].
(2) In a case where the accommodation is taken on lease or rent by the employer and provided to the employee,
the value of perquisite would be lower of the actual amount of lease rental paid or payable by the employer
[i.e. ` 63,000, being 9,000 x 7) and 15% of salary [ i.e., ` 42,150, being 15% of ` 2,81,000]. This value (i.e.
` 42,150) would be reduced by the rent paid by the employee (i.e., ` 42,000, being 6,000 x 7). The value of
concessional accommodation is ` 150 [i.e. ` 42,150 – ` 42,000].
(3) The value of furniture owned by employer and provided to the employee is 10% p.a. of actual cost which
amounts to ` 2,333 [i.e. 10% of 40,000 x 7/12]. Therefore, the value of furnished accommodation will be `
2,483 (`150 + ` 2,333) provided to the employee. It is also possible to consider the cooking range and micro-
wave oven provided by employer to the employee as a perquisite on account of use of movable assets of the
employer by the employee. Even it is so assumed, there would be no change in the answer since in such a
case also, the perquisite value is 10% p.a. of actual cost.
(4) In determining the value of perquisite resulting from the provision of free or concessional educational facilities,
from a plain reading of the proviso to Rule 3(5), it is apparent that if the cost of education per child exceeds `
1,000 per month, the entire cost will be taken as the value of the perquisite. Accordingly, the full amount of `
1,800 per month is taxable as perquisite. In such a case, the value of the perquisite would be ` 12,600 (i.e. `
1,800 × 7).
Note – An alternate view possible is that only the sum in excess of ` 1,000 per month is taxable. In
such a case, the value of perquisite would be ` 5,600.
(5) The entire employer’s contribution to Central Government Pension scheme should be included in salary and
deduction under section 80CCD(2) should be restricted to 10% of salary. The employer’s contribution to
pension scheme would be outside the overall limit of ` 1,50,000 stipulated under section 80CCE. Also, the
deduction for the employee’s contribution to the pension scheme is taken first under section 80CCD(1B)
which is also outside the limit of ` 150,000. Salary means basic salary and dearness allowance, if provided in
the terms of employment for retirement benefits.
(6) The deduction for medical insurance premium of ` 26,000 paid for father is allowable in full under section
80D, as the maximum limit is ` 50,000, since his father is a senior citizen. Therefore, the total deduction
under section 80D would be ` 22,000 (for self) + ` 26,000 (for father) = ` 48,000.
(7) Winnings from TV game show is chargeable at a flat rate of 30% under section 115BB. No loss can be set-off
against such income. Therefore, business loss cannot be set-off against such income.
(8) As per section 71(2A), business loss cannot be set-off against salary income. Section 71(2A) provides that
where the net result of the computation under the head “Profits and gains of business or profession” is a loss
and the assessee has income chargeable under the head “Salaries”, the assessee shall not be entitled to

have such loss set-off against such income. From a plain reading of the provisions of section 71(2A), it is
possible to take a view that even depreciation cannot be set-off against salary income. Therefore,
both business loss and current depreciation cannot be set-off against salary income.
(9) Deduction under section 80GG has not been provided in respect of rent paid by Mr. Janak to his employer.
Such deduction can be provided, if it is assumed that all conditions mentioned in section 80GG are satisfied.
18. Mr. Mahesh, a production manager working in ABC Ltd., New Delhi, receives the following
emoluments during the previous year 2018-19:
` `
Basic salary 1,75,000 Bonus 8,000
D.A. (not forming part of salary) 1,80,000 Medical allowance 5,000
Commission on extra production 12,000 Special allowance 18,000
Education Allowance (including allowance for hostel expenditure) for two sons who are engineering students
at Mumbai - ` 16,000.
(i) His employer has provided rent free house to him in New Delhi. The house is owned by the employer.
(ii) Electricity bills paid by ABC Ltd. for him during the previous year are of ` 11,500.
(iii) On 1.1.2019, his employer company has given him a CD player for domestic use and a laptop for office
and personal use. Ownership of both the assets have not been transferred. The cost of CD player is `
20,000 and that of laptop is ` 40,000.
(iv) His investments during the previous year are:
(1) Notified mutual fund ` 25,000
(2) PPF ` 15,000
(v) He has paid tuition fees of his sons on 17.12.2018 of ` 60,000.
(vi) He has deposited ` 10,000 in Five Year Time Deposit Scheme in Post Office on 25.3.2019.
(vii) His agricultural income during the year is ` 45,000.
(viii) He has received gift of ` 25,000 from his grandfather on 10.6.2018.
(ix) He has gifted his car to his wife on 15.5.2018. She has earned income of ` 30,000 from the business of
hiring the same during the previous year.
Compute the total income and tax payable of Mr. Mahesh for the A.Y. 2019-20.
Answer
Computation of total income of Mr. Mahesh for the A.Y. 2019-20
Particulars `
Income from salary (as per note 3) 4,10,053
Business Income
(assuming that his wife carries on the business of hiring of cars)
[Income of wife from hiring of car clubbed under section 64(1)(iv)] 30,000
Less: Deduction under section 80C (as per note 5) 1,10,000
Computation of tax liability of Mr. Mahesh for the A.Y. 2019-20

Step 1 ` `
Add: Agricultural income and Non-agricultural income (` 45,000 +` 3,40,050)
Tax on ` 3,75,050 6,253
Step 2
Add: Basic exemption limit to agricultural income (` 2,50,000 +` 45,000)
Tax on ` 2,95,000 2,250
Step 3
Tax on non-agricultural income (Tax under step 1 – Tax under step 2)
(` 6,253 – ` 2,250) 4,003
Less: Rebate under section 87A 2,500
1,503
Add: Health & Education cess @4% 60
Total tax liability 1,563
Rounded off 1,560

Notes:
1. Valuation of rent free house
Particulars `
D.A. (not to be considered as it is not forming part of salary) Nil
Commission on extra production 12,000
Bonus 8,000
Special allowance 18,000
Education allowance (See Note 4) 6,400
Medical allowance 5,000
Salary for the purpose of valuation of rent-free house 2,24,400
Value of rent-free house = 15% of ` 2,24,400 33,660
2. Valuation of perquisite of CD Player given for use by the employee

Taxable value of this perquisite is 10% p.a. of cost of the CD player w.e.f. 1.1.2018 (i.e. for 90 days)
10% of ` 20,000 = 2,000 x 90/365 = ` 493
Provision of laptop by the employer is a tax-free perquisite.
3. Income from salary

Particulars ` `
Basic pay 1,75,000
D.A. 1,80,000
Bonus 8,000
Commission 12,000
Special Allowance 18,000
Taxable education allowance (See Note-4 below) 6,400
Medical Allowance 5,000
Total 4,04,400
Add :Taxable perquisites :
1. Rent free accommodation (Note 1) 33,660
2. Electricity Bill paid by employer 11,500
3. CD Player given by employer (Note 2) 493 45,653
Taxable salary 4,50,053
4. Education allowance exempt under section 10(14)

Education allowance of ` 100 per month per child for a maximum of 2 children plus hostel allowance of ` 300
per month per child for a maximum of 2 children is exempt.
i.e. (` 100×2×12) + (` 300×2×12) =` 2,400 + ` 7,200 = ` 9,600
Therefore, taxable education allowance would be ` 16,000 – ` 9,600 = ` 6,400.
5. Investments/payments deductible under section 80C

Particulars `
Investment in notified mutual fund 25,000
Investment in PPF 15,000
Investment in 5 year Time Deposit in Post Office 10,000
Tuition fees of children (assumed to be paid to an eligible educational
institution – hence qualifies for deduction under section 80C) 60,000
1,10,000
However, the total deduction under section 80C cannot exceed ` 1,50,000. This restriction is contained in
section 80CCE.
Therefore, the permissible deduction under section 80C would be ` 1,10,000
6. Taxability of gift received from grandfather

Gift from a relative is not taxable under section 56(2)(x). Grandfather is a relative as per the definition of
“relative” given in the Explanation to section 56(2)(x) and hence ` 25,000, being gift received from
grandfather, is not taxable.

19. Rajat is a Chartered Accountant in practice. He maintains his accounts on cash basis. He is a
Resident and ordinarily resident in India. His income and expenditure account for the year ended
March 31, 2019 reads as follows:
Expenditure ` Income ` `
Salary to staff 15,25,000 Fees earned:
Stipend to articled Assistants 3,18,000 Audit 26,65,800
Incentive to articled Assistants 5,000 Taxation services 14,68,600
Office rent 13,24,000 Consultancy 13,82,000 55,16,400
Printing and stationery 6,600 Dividend on shares of Indian 9,635
companies (gross)
Meeting, seminar and 10,38,600
Conference Income from Unit Trust of India 6,600
Repairs, maintenance and 22,400 Profit on sale of shares (STT paid) 15,620
petrol of car
Subscription and Periodicals 2,15,000 Honorarium received from various 16,350
Postage, telegram and fax 2,32,500 institutions for valuation of answer
Depreciation 29,500 papers
Travelling expenses 55,000
Municipal tax paid in respect of Rent received from residential flat 84,000
house property 1,000 let out
Net profit 8,76,005
16,48,605 56,48,605
Other information:
(i) The total travelling expenses incurred on foreign tour was ` 20,000 which was within the RBI norms.
(ii) Incentive to articled assistants represent amount paid to two articled assistants for passing IPCC
Examination at first attempt.
(iii) Repairs and maintenance of car includes ` 1,600 for the period from 1.10.2018 to 30.09.2019.
(iv) Salary include ` 30,000 to a computer specialist in cash for assisting Mr. Rajat in one professional
assignment.
(v) ` 1,500, interest on loan paid to LIC on the security of his Life Insurance Policy and utilised for repair of
computer, has been debited to the drawing account of Mr. Rajat.
(vi) Medical Insurance Premium on the health of:
Particulars ` Mode of
Payment
Self 10,000 By Cheque
Dependent brother 5,000 By Cheque
Major son dependent on him 3,000 By Cash
Minor married daughter 2,000 By Cheque
Wife dependent on assessee 5,000 By Cheque
(vii) Shares sold were held for 10 months before sale.

(viii) Rajat paid life membership subscription of ` 1,000 to Chartered Accountants Benevolent Fund. The
amount was debited to his drawings account. The Chartered Accountants Benevolent Fund is an
approved fund under section 80G of Income-tax, 1961.
(ix) Depreciation debited to income and expenditure account is as per the rates of Income tax Rules, 1962.
Compute the total income and tax payable of Rajat for the Assessment year 2019-20.

Answer
Computation of Total Income of Mr. Rajat for Assessment Year 2019-20
Particulars W.N. `
Income from House Property 1 58,100
Profit and gains of Business or Profession 2 7,73,300
Short-term capital gains 3 15,620
Income from other sources 4 16,350
Less: Deduction under Chapter VI-A 5 15,500
Tax on total income
Less: Short-term capital gains (See Note 9 below) 15,620
Normal Income 8,32,250
Tax on normal income 78,950
Tax on short-term capital gains @15% 2,343
81,293
Total tax liability (rounded off) 84,550
Notes :
(1) Income from House Property ` `
Gross Annual Value 84,000
Less: Municipal taxes paid by owner 1,000
Rent received has been taken as the Gross Annual Value
in the absence of other information relating to Municipal
Value, Fair Rent and Standard Rent.
(2) Income under the head “Profits & Gains of Business or Profession”
Net profit as per Profit & Loss Account 8,76,005
Add: Expenses debited to the Profit & Loss Account but not allowable
(i) Salary paid to computer specialist in cash disallowed under section 40A(3),
since such cash payment exceeds ` 10,000 30,000
(ii) Municipal Taxes paid in respect of residential flat let out 1,000 31,000
9,07,005
Less: Expenses allowable but not debited to profit and loss account
Interest paid on loan taken from LIC used for repair of computer 1,500
9,05,505
Less: Income credited to Profit & Loss Account but not taxable under this head:
Profit on sale of shares 15,620
Honorarium for valuation of answer papers 16,350
Rent received from letting out of residential flat 84,000 1,32,205
7,73,300
(3) Capital gains:
Short term capital gain on sale of shares 15,620
(4) Income from other sources:
Honorarium for valuation of answer papers 16,350 16,350
(5) Deductions under Chapter VI-A :
Deduction under section 80D (Medical Insurance Premium)
Policy holder Amount of Amt. eligible
Premium (` ) for deduction (` )
Self 10,000 10,000
Dependent brother 5,000 Nil
Major son dependent on him 3,000 Nil
Minor married daughter 2,000 Nil
Wife dependent on assessee 5,000 5,000
15,000
Amount of deduction is restricted to ` 15,000 15,000
Deduction under section 80G (Donation)
Donation to CA Benevolent Fund (50% of ` 1,000) 500
Note – Premium paid to insure the health of brother is not eligible for deduction under
section 80D. Premium paid to insure the health of son is not eligible for deduction since
payment is made in cash. Premium paid to insure the health of minor married daughter is
not eligible for deduction as she is not dependent on Mr. Rajat.
(6) ` 20,000 expended on foreign tour is allowable as deduction assuming that it was incurred in connection
with his professional work. Therefore, it requires no further treatment.
(7) Incentive to articled assistants passing IPCC examination in their first attempt is deductible under section
37(1).
(8) Repairs and maintenance paid in advance for the period 1.4.2019 to 30.9.2019 i.e. for 6 months
amounting to ` 800 will be allowed since Mr. Rajat is following the cash system of accounting.
(9) Since securities transaction tax has been paid on the shares and the period of holding of these shares is
less than 12 months, the profit arising there from is a short-term capital gain chargeable to tax at 15%
under section 111A.
(10)Since depreciation debited to income and expenditure account is as per the Income-tax Rules, 1962, no
adjustment for the same has been made.
20. Dr. Sparsh Kumar is running a clinic. His Income and Expenditure account for the year ending 31st
March, 2019 is given below:
To Staff Salary 14,30,000 By Fees Receipts 52,63,600
To Consumables 9,250 By Dividend from Indian Companies 9,500
To Medicine consumed 23,64,800 By Winning from Lotteries
(Net of TDS of ` 12,000) 28,000
To Depreciation 91,000 By Income-tax refund 2,750
To Administrative Expenses 11,46,000
To Donation to Prime Minister's
National Relief Fund 15,000
To Excess of Income over expenditure 2,47,800
Total 53,03,850 Total 53,03,850
(a) Depreciation in respect of all assets has been ascertained at ` 50,000 as per Income-tax Rules, 1962.
(b) Medicines consumed include medicine of (cost) ` 16,000 used for his family.
(c) Fees Receipts include ` 14,000 honorarium for valuing medical examination answer books.
(d) He has also received ` 90,000 on account of Agricultural Income which had not been included in the
above Income and Expenditure Account.
(e) He has also received ` 57,860 on maturity of one LIC Policy, not included in the above Income and
Expenditure Account.
(f) He received ` 6,000 per month as salary from a City Care Centre. This has not been included in the 'Fees
Receipts' credited to Income and Expenditure Account.
(g) He has sold land in June, 2018 for ` 9,00,000 (valuation as per stamp valuation authority ` 9,76,513). The
land was acquired by him in October, 2009 for ` 4,50,000.
(h) He has paid premium of ` 1,00,000 for another LIC Policy which was taken on 1.04.2013 (sum assured `
5,00,000).
(i) He has paid ` 2,500 for purchase of lottery tickets.
(j) Donation to Prime Minister Relief Fund has been made by way of an account payee cheque.
(k) He deposited ` 1 lakh in PPF.
From the above, compute the income and tax payable of Dr. Sparsh Kumar for the A.Y. 2019-20. Cost
Inflation Index: F.Y. 2009-10 – 148; F.Y. 2018-19 – 280.

Answer
Computation of total income and tax liability of Dr. Sparsh Kumar for the A.Y. 2019-20
Particulars `
Income from salary (Working Note – 1) 80,000
Income from business (Working Note – 2) 2,65,550
Long-term capital gains (Working Note – 3) 1,25,162
Income from other sources (Working Note – 4) 54,000
Less: Deduction under Chapter VI-A (Working Note – 5) 1,65,000
Total Income 3,59,712/359,710
Tax on total income (Working Note - 6) 34,260

Less: Rebate under section 87A NIL
Less: Tax deducted at source (TDS) 12,000
Tax payable 23,630
Rounded off 23,630
Working Notes:
1. Computation of salary income
Particulars `
Gross Salary (` 10,000×12) 120,000
Less: Deduction under section 16 40,000
Net Salary 80,000
2. Computation of income under the head “Profits and gains of business or profession”
Particulars ` `
Net Income as per Income and Expenditure Account 2,47,800
Add: Expenses disallowed:
Depreciation (` 91,000 – ` 50,000) 41,000
Cost of medicine for self-use 16,000
Donation to Prime Minister’s Relief Fund 15,000 72,000
3,19,800
Less: Dividend from Indian companies 9,500
Income-tax refund 2,750
Winning from Lotteries 28,000
Honorarium for valuing answer books 14,000 54,250
2,65,550
3. Computation of Capital Gains
Particulars ` `
Sale consideration 9,00,000
Valuation as per Stamp Valuation Authority
(Value to be taken higher of actual sale consideration or
valuation adopted for stamp duty purposes as per section 50C) 9,76,513
Consideration for the purpose of capital gain 9,76,513
Less: Cost of acquisition = ` 4,50,000 x 280/148 8,51,351
Long term capital gain 1,25,162
4. Computation of income under the head “Income from other sources”

Particulars ` `
Dividend from Indian Companies [Exempt u/s 10(34)] -
Honorarium for valuing answer books 14,000
Winning from Lotteries (Net) 28,000
Add: TDS 12,000 40,000
Income from other sources 54,000
Note : As per section 58(4), no expense or deduction is allowable in respect of winnings from lotteries.

5. Computation of deduction under Chapter VI-A
Particulars `
U/s 80C Life Insurance Premium (maximum 10% of sum assured) 50,000
PPF 1,00,000
U/s 80G Donation to Prime Minister’s Relief Fund [See Note below] 15,000
Total deduction under Chapter VI-A 1,65,000
Note –The donation made to the Prime Minister’s National Relief Fund qualifies for 100%deduction under
section 80G.
6. Computation of tax on total income

Particulars `
Tax on agricultural income plus non-agricultural income
i.e. tax on ` 4,49,710(being ` 90,000 + ` 3,59,710) [See Note below] 38,760
Less: Tax on agricultural income plus basic exemption limit
i.e. tax on ` 3,40,000, (being ` 90,000 + ` 2,50,000) 4,500
Tax on total income 34,260
Note : Tax on ` 3,59,710 plus agricultural income of ` 90,000 is computed hereunder :

Particulars `
Tax on long term capital gain
` 1,25,162 @ 20% 25,032
Tax on winnings from lotteries
` 40,000 @ 30% 12,000
Tax on balance income of 2,84,550 (` 4,49,710 – 1,25,162 -40,000) 1,728
38,760
Note : Agricultural income is exempt from tax. It is considered for rate purpose only.
7. Any sum received under a life insurance policy is wholly exempt from tax under section 10(10D).subject to
satisfaction of conditions given thereunder. In this case, it is presumed that all the conditions are satisfied.
21. From the following details compute the total income of Kamal, a resident individual aged 54 years for
the year ended 31-3-2019. Tax payable need not be calculated.
`
a) Salary including dearness allowance 5,00,000
b) Bonus 15,000
c) Salary to servant provided by employer 12,000
d) Bill paid by employer for gas, electricity and water provided free of cost at his flat 14,500
e) Cost of laptop provided by the employer (Used both for official and personal purposes) 40,000
Following additional information is provided:

(1) Kamal purchased a flat in a Cooperative Housing Society in Delhi for ` 10,75,000 in April, 2011 by taking
loan from State Bank of India amounting to ` 5,00,000 @ 15% per annum interest, ` 65,000 from his own
savings and a deposit from a Nationalized Bank to whom this flat was given on lease for 10 years at a
monthly lease rental of ` 5,500.The outstanding amount of loan is ` 1,60,000.
(2) Municipal taxes paid by Kamal ` 4,500 p.a.
(3) Insurance in respect of the said flat ` 1,275
(4) Kamal earned a profit of ` 15,000 in shares speculation business and incurred a loss of ` 20,200 in
speculation business of cotton.
(5) In the year 2013-14, he had gifted ` 50,000 to his wife and ` 30,000 to his son who was aged 11 years
then. These amounts were advance to Mr. Mohan @ 15% per annum interest.
(6) Kamal received a gift of ` 25,000 each from his four friends on the occasion of his birthday.
(7) He contributed ` 10,500 to Public Provident Fund and ` 6,000 to Unit Linked Insurance plan.
(8) He deposited ` 60,000 in tax saver deposit with a Nationalised Bank in the name of his married son.
(9) He has taken a policy on life for his married daughter on 1-4-2018 and paid a premium of ` 25,000.
(10)The sum assured for policy is ` 2,00,000.

Answer
Computation of total income of Kamal for the A.Y. 2019-20
Particulars ` `
Salaries
Bonus 15,000
Perquisites:
(i) Salary of servant provided by employer [As per Rule 3(3), the
actual cost to employer is the value of perquisite] 12,000
(ii) Free gas, electricity and water [As per Rule 3(4), the amount
paid by employer on this account is the value of perquisite] 14,500
(iii) Facility of Laptop provided by employer is an exempt
perquisite, whether the same is used for personal or official
purpose or both [Rule 3(7)(vii)]. Nil 26,500
Gross Annual Value (GAV) (Lease rental is taken as GAV, in the
absence of other information) (` 5,500 × 12) 66,000
30% of NAV ` 18,450
Interest on loan from State Bank of India
@15% of ` 1,60,000 ` 24,000 42,450 19,050
Income from share speculation business 15,000
Less: Loss from cotton speculation business 20,200
Net loss from speculation business to be carried forward (5,200)
[As per section 73, any loss from speculation business can be setoff only against
income from another speculation business. Hence, the net loss from speculation
business in the current year has to be carried forward to the next year for set-off
against speculative business income for that year. Such loss can be carried
forward for a maximum of four succeeding assessment years]

(i) Income on account of interest earned from advancing money gifted to his
minor son is includible in the hands of Kamal, since as per section 64(1A) all
income of a minor child is includible in the hands of the parent (` 30,000 x
15%)
[During the P.Y.2018-19, Kamal’s son is still a minor] 4,500
3,000
(ii) Interest income earned from advancing money gifted to wife has to be clubbed
with the income of Mr. Kamal as per section 64(1) [` 50,000 x 15%] 7,500
(iii) Gift of ` 25,000 each received from four friends on the occasion of his
birthday [taxable under section 56(2)(x), since the aggregate amount received
during
the year exceeds ` 50,000] 1,00,000 1,10,500
Less: Deduction under section 80C
Contribution to Public Provident Fund 10,500
Unit Linked Insurance Plan 6,000
Tax saver deposit with Nationalized bank in the name of his
married son does not qualify for deduction under section 80C.
The deposit has to be in Mr. Kamal’s own name. Nil
Life Insurance Premium [paid to insure life of married
daughter is allowable]
[In respect of policies taken on or after 1.4.2013, the deduction is
restricted to 10% of minimum capital sum assured. Hence, in this case,
deduction is restricted to 10% of ` 2,00,000] 20,000 _ 36,500

Notes:
(1) No separate deduction is available for insurance of ` 1,275, while computing income under the head
“Income from house property”.
(2) It is assumed that ` 1,60,000 is the loan outstanding at the beginning of the year and there is no
principal repayment of housing loan during the year qualifying for deduction under section 80C.
Interest under section 24 has, accordingly, been calculated at the rate 15% of ` 1,60,000.
(3) It is assumed that Mr. Kamal’s total income, before including minor’s income, is higher than that of his
spouse.
22. IMPORTANT - The following is the Profit and Loss Account of Mr. Aditya, aged 58 years, a resident,
for the year ended 31.03.2019:
Particulars ` Particulars `
Rent 60,000 Gross Profit 1,85,000
Repair of car 3,000 Gift of cash from a friend 25,000
Wealth tax 5,000 (received on 15.09.2018)
Medical expenses 4,500 Sale of car 17,000
Salary 18,000 Interest on income-tax refund 3,000
Depreciation on car 3,000
Advance income-tax 1,500
Net Profit 1,35,000
2,30,000 2,30,000
Other information:
(1) Aditya bought a car during the year for ` 20,000. He charged depreciation @ 15% on the value of the
car. The above car was sold during the year for ` 17,000. The use of the car was 3/4th for business and
1/4th for personal use.
(2) Medical expenses were incurred for the treatment of Nikita, his wife.
(3) Salary had been paid on account of car driver.
(4) Rent includes arrears of rent from April 2018 to October 2018 @ ` 5,000 p.m., paid in cash on
1.11.2018.
(5) Mr. Aditya had also let out· a house property at a monthly rent of ` 25,000. The expected value is
considered to be ` 2,50,000. The municipal taxes are ` 6,000, out of which ` 3,000 are paid by the
tenant and ` 3,000 are yet to be paid by Mr. Aditya. Interest on loan taken for repairs of the house
property is ` 20,000.
(6) Mr. Aditya's minor daughter received ` 75,000 from stage acting. Interest on company deposits of Mr.
Aditya's daughter (deposit was made out of income from stage acting) was ` 10,000.
(7) Aditya incurred an expense of ` 50,000 on the medical treatment of his dependant son, who has
disability of more than 80%.
(8) Aditya had taken a loan during the year 2018-19 for the education of his son, who is pursuing B.Com. in
Delhi University. Interest paid on the same during the year was ` 10,000.
Compute the total income of Mr. Aditya for the assessment year 2019-20.
Answer Computation of total income of Mr. Aditya for the A.Y. 2019-20
Particulars `
Income from house property (Working Note – 1) 1,90,000
Income from business (Working Note – 2) 1,44,250
Income from other sources (Working Note – 3) 11,500
Less: Deduction under Chapter VI-A (Working Note – 4) 1,35,000
Working Notes:
1. Computation of income under the head “Income from house property”
Particulars ` `
Gross Annual Value (Higher of Actual Rent and Expected Rent)
Actual Rent (` 25,000 × 12) 3,00,000
Expected Rent 2,50,000 3,00,000
Less: Municipal taxes paid by Mr. Aditya Nil
Net Annual Value (NAV) 3,00,000
(a) 30% of NAV 90,000
(b) Interest on loan 20,000 1,10,000
Income from house property 1,90,000

2. Computation of income under the head “Profits and gains of business or profession”
Particulars ` `
Net Profit as per profit and loss account 1,35,000
Add: Expenses disallowed:
Wealth-tax 5,000
Advance income-tax 1,500
Depreciation on car (not allowable, since the asset does
not exist at the end of the year) 3,000
Medical expenses of wife (personal expenses, disallowed) 4,500
Driver’s salary (¼th being for personal use, disallowed) 4,500
Repair of car (¼th being for personal use, disallowed) 750
Rent paid [` 35,000 paid in cash – disallowed u/s 40A(3)] 35,000 54,250
1,89,250
Less: Income not taxable/exempt under the Income-tax Act,
1961 Income not taxable under this head
Cash gift from friend (not taxable under this head) 25,000
Sale of car 17,000
Interest on income-tax refund (taxable under the head
“Income from other sources”) 3,000 45,000
Income under the head “Profits and gains of business or profession” 1,44,250
3. Computation of income under the head “Income from other sources”

Particulars ` `
Cash gift from friend received on 15.9.2018 (not taxable under
section 56(2)(x), since the aggregate value of gifts is less than ` 50,000) -
Interest on income-tax refund 3,000
Interest on company deposits accruing to Mr. Aditya’s minor daughter
[See Note below] 10,000
Less: Exempt under section 10(32) 1,500 8,500
Note: Income received by Aditya’s minor daughter from stage acting is not includible in the income of Mr.
Aditya, since the income has been earned by her on account of her special talent. However, interest on
company deposits is includible in Mr. Aditya’s income as per section 64(1A), even though the deposit was
made out of income derived from special talent.
4. Computation of deduction under Chapter VI-A

Section Particulars `
80DD Medical treatment of dependent disabled [flat deduction of
` 1,25,000 in case of severe disability (80% or more)
irrespective of the amount incurred] 1,25,000
80E Interest on loan for higher education of son, being a relative 10,000
Total deduction under Chapter VI-A 1,35,000
Note:
(1) The municipal taxes actually paid by the owner during the year are allowable as deduction. In this
case, since ` 3,000 is paid by the tenant and ` 3,000 is yet to be paid by Mr. Aditya, the municipal
taxes of ` 6,000 are not allowable as deduction.
(2) The transaction of purchase and sale of motor car during the year would result in a short-term capital
loss to be carried forward for set-off against capital gains of the subsequent year.
23. Dr. Krishna furnishes you the following information:

Income and Expenditure Account for the year ended 31st March 2019
To Medicines consumed 42,42,000 By Fee receipts 58,47,500
To Staff salary 11,65,000 By Rent 27,000
To Hospital consumables 47,500 By Dividend from Indian
Companies 9,000
To Rent paid 60,000
To Administrative expenses 1,23,000
To Net Income 2,46,000
58,83,500 58,83,500

(i) Rent paid includes rent for his residential accommodation of ` 30,000 (paid by cheque) at Bangalore.
(ii) Hospital equipments (eligible for depreciation @ 15%)
01.04.2018 Opening WDV ` 5,00,000
07.12.2018 Acquire (Cost) ` 2,00,000
(iii) Medicines consumed include medicines (cost) ` 10,000 used for Dr. Krishna’s family.
(iv) Rent received – relates to a property situated at Mysore (Gross Annual Value). The municipal tax of `
2,000 paid in December, 2018 has been included in the “administrative expenses”.
(v) He received ` 5,000 per month as salary from Full Cure Hospital. This has not been included in the “fee
receipts” credited to income and expenditure account.
(vi) He sold a vacant site in July, 2018 for ` 4,26,400. It was inherited by him from his father in January,
2008. The site was acquired by his father in December, 2004 for ` 1,50,000.
(Cost inflation index for F.Y 2004-05 = 113; 2007-08 = 129 and 2017-18 = 280)
Compute Dr. Krishna’s taxable income for the year ended 31.03.2019.
Answer
Computation of taxable income of Dr. Krishna for the previous year ended 31.03.2019
Particulars ` `
Salary received @ ` 5,000 per month 60,000
Gross Annual Value 27,000
Less: Municipal tax 2,000
Net Annual Value 25,000
Less: Deduction under section 24 @ 30% 7,500 17,500
Income from business or profession
Net income as per income & expenditure account 2,46,000
Add: Rent paid to residence 30,000
Medicines consumed – personal use 10,000
Municipal tax relating to let out property included in
administrative expenses – disallowed 2,000
2,88,000
Less: Depreciation (See working note 2) 90,000
Rent credited to income & expenditure account 27,000
Dividend from Indian companies [Exempt u/s 10(34)] 9,000 1,62,000
Capital Gains (Long term capital gains)
Sale consideration 4,26,400
Less: Indexed cost acquisition (` 1,50,000 x 280/129) (See Note 3) 3,25,581 1,00,819
Less: Deduction under chapter VIA – Section 80GG
Under section 80GG, rent paid would be allowable as a deduction
to the extent of the least of the following
(i) 25% of total income = 25% of ` 2,39,500 (See Note 1) 59,875
(ii) Excess of rent paid over 10% of total income (` 30,000 -` 23,950) 6,050
(iii) ` 5,000 per month 60,000
Least of the above 6,050
Note :
1. Deduction under section 80GG is to be made from Gross Total Income. Gross Total Income as defined
under section 80B(5) means the total income computed in accordance with the provisions of this Act,
before making any deduction under Chapter VI-A. Under section 112(2), Long term capital gains have to
be reduced from Gross Total Income and Chapter VI-A deductions should be allowed as if the Gross
Total income so reduced were the Gross Total Income of the assessee. Therefore, in this case, for the
purpose of allowing deduction u/s 80GG, Gross Total Income = ` 3,40,319 – ` 1,00,819 = ` 2,39,500.
2. Depreciation on plant & machinery
On opening WDV of ` 5,00,000 @ 15% 75,000

On equipment acquired ` 2,00,000 @ 7.5% 15,000
(50% thereon, since acquired in December) 90,000

3. Since the property was acquired by Dr. Krishna through inheritance, the cost of acquisition to him will be
the cost to the previous owner. However, indexation will be from the year in which the assessee (i.e., Dr.
Krishna in this case) first held the asset i.e. F.Y.2007-08.
Alternative view: In the case of CIT v. Manjula J. Shah 16 Taxmann 42 (Bom.), the Bombay High Court
held that the indexed cost of acquisition in case of gifted asset can be computed with reference to the
year in which the previous owner first held the asset.
As per this view, this indexation cost of acquisition of property would be ` 3,71,681
24. IMPORTANT: Mr. Pankaj, aged 58 years, who retired from the services of the Central Government on
30.6.2018, furnishes particulars of his income and other details as under:
• Salary @ ` 6,000 p.m.
• Pension @ ` 3,000 p.m. for July 2018 to Nov 2018.
• On 1.12.2018, he got 1/3rd of his pension commuted for ` 1,20,000.
• A house plot at Ernakulam sold on 1.2.2019 for ` 4,00,000 had been purchased by him on 3.11.1999 for `
10,000. The stamp valuation authority had assessed the value of said house plot at ` 4,78,650 which was
neither disputed by the buyer nor by him. The value of this house plot as on 1.4.2001 was ` 15,000 (The
cost inflation index for the financial year 2017-18 is 280).
• Received interest on bank FDRs of ` 72,500, dividend on mutual fund units of ` 15,000 and interest on
maturity of NSC of ` 50,000 out of which an amount of ` 40,000 was already disclosed by him on accrual
basis in the returns upto assessment year 2018-19.
• Investment in purchase of NSC for ` 30,000 and payment for mediclaim insurance for self and wife of `
12,500. Made investment in Tax Magnum units of Mutual Fund of SBI of ` 80,000.
Compute the total income of Mr. Pankaj for A.Y. 2019-20.

In the event of Mr. Pankaj being ready to make appropriate investment for availing exemption in respect of
capital gain arising from sale of house plot, what will be the amount to be invested and the period within which
the same should be invested?
(a) if he wishes to avail exemption under section 54F by constructing a new residential house;
(b) if he wants to avail exemption under section 54EC.
Answer
Computation of total income of Mr. Pankaj for A.Y. 2019-20
Particulars `
Income from salaries (See Working Note 1) [41,000 – Deduction u/s 16(ia) 40,000] 1,000
Capital gains (See Working Note 2) 4,36,650
Income from other sources (See Working Note 3) 82,500
Less: Deductions under Chapter VI-A (See Working Note 4) 1,32,500
Working Notes:
2. Income from salaries
Particulars `
Salary for 3 months received from Government of India (` 6000 x 3) 18,000
Pension for 5 months from July 2018 to Nov 2018 @ ` 3000 p.m. (` 3000 x 5) 15,000
Pension for 4 months from Dec 2018 to March 2019 @ ` 2,000 p.m. (` 2,000x4) 8,000
Goss Salary 41,000
Note: Commuted value of pension of ` 1,20,000 received from the Central Government is fully exempt under
section 10(10A).
3. Capital gains
Particulars `
Long term capital gains on sale of house plot at Ernakulam on 01.02.2019
Sale consideration received is ` 4,00,000. However, since the value
assessed by the stamp valuation authority (i.e. ` 4,78,650) is higher than
the 105% of sale consideration, such value assessed is deemed to be the full
value of the consideration received or accruing as a result of such
transfer as per section 50C 4,78,650
Less: Indexed cost of acquisition
` 15,000 x 280/100 42,000

4,36,650
4. Income from other sources
Particulars ` `
Interest on bank FDRs 72,500
Dividend of ` 15,000 on units of Mutual Fund [exempt under section 10(35)] -
Interest on maturity of NSC 50,000
Less: Interest already shown on accrual basis in the past returns 40,000 10,000
82,500
5. Deductions under Chapter VI-A
Particulars ` `
Under section 80C
Purchase of NSC 30,000
Tax Magnum units of Mutual Fund of SBI 80,000
Deduction available under section 80C 1,10,000
Under section 80D
Medical insurance premium paid ` 22,500 (assumed to
have been paid by cheque) 22,500
1,32,500
Investment in approved modes
Section 54F (by constructing a new house)
In order to avail exemption under section 54F by constructing a new residential house, the assessee should
construct a residential house within three years from the date of transfer of house plot. To avail the maximum
exemption, the entire net consideration received from sale of house plot should be invested. If only part of the
net consideration is invested, then proportionate exemption of long term capital gains would be available
i.e.
Long term capital gain x Amount invested in new residential house
Net sale consideration
Section 54EC
In order to avail maximum exemption under section 54EC, the assessee should invest the entire long-term
capital gain arising from transfer of the house plot, i.e. ` 4,37,850,within six months from the date of sale of
house plot, in bonds of National Highways Authority of India (NHAI) or Rural Electrification Corporation
Ltd. (RECL) or Power Finance Corporation Limited or Indian Railway Finance Corporation Limited. If
only part of the capital gain is invested, then the exemption would be restricted to the amount invested in such
bonds.
25. Ramdin working as Manager (Sales) with Frozen Foods Ltd., provides the following information for
Basic Salary ` 15,000 p.m.
DA (50% of it is meant for retirement benefits) ` 12,000 p.m.
Commission as a percentage of turnover of the Company 0.5 %
Turnover of the Company ` 50 lacs
Bonus ` 50,000
Gratuity ` 30,000
Own Contribution to R.P.F. ` 30,000
Employer’s contribution to R.P.F. 20% of basic salary
Interest credited in the R.P.F. account @ 15% p.a.. ` 15,000
Gold Ring worth ` 10,000 was given by employer on his 25th wedding anniversary.
Music System purchased on 01.04.2017 by the company for ` 85,000 and was given to him for personal
use.
Two old non-heavy goods vehicles owned by him were leased to a transport company against the fixed
charges of ` 6,500 p.m. Books of account are not maintained.
Received interest of ` 5,860 on bank FDRs, dividend of ` 1,260 from shares of Indian Companies and
interest of ` 7,540 from the debentures of Indian Companies.
Made payment by cheques of ` 15,370 towards premium of Life Insurance policies and ` 12,500 for
Mediclaim Insurance policy.
Invested in NSC ` 30,000 and in FDR of SBI for 5 years ` 50,000.
Donations of ` 11,000 to an institution approved u/s 80G and of ` 5,100 to Prime Minister’s National
Relief Fund were given during the year by way of cheque.
Compute the total income thereon for the A.Y. 2019-20.

Answer
Computation of Total Income for the A.Y. 2019-20
Particulars ` `
Basic Salary (` 15,000 x 12) 1,80,000
Dearness Allowance (` 12,000 x12) 1,44,000
Commission on Turnover (0.5% of ` 50 lacs) 25,000
Bonus 50,000
Gratuity (Note 1) 30,000
Employer’s contribution to recognized provident fund
Actual contribution [20% of ` 1,80,000] 36,000
Less: Exempt (Note 2) 33,240 2,760
Interest credited in recognized provident fund account @15% p.a. 15,000
Less: Exempt upto 9.5% p.a. 9,500 5,500
Gift of gold ring worth ` 10,000 on 25th wedding anniversary by
employer (See Note 3) 10,000
Perquisite value of music system given for personal use (being
10% of actual cost) i.e. 10% of ` 85,000 8,500
Profits and Gains of Business or Profession
Lease of 2 trucks on contract basis against fixed charges of

` 6,500 p.m. In this case, presumptive tax provisions of section
44AE will apply i.e. ` 7,500 p.m. for each of the two non-heavy trucks (7,500
x 2 x12). He cannot claim lower profits and gains since he has
not maintained books of account. 1,80,000
Interest on bank FDRs 5,860
Interest from debentures 7,540
Dividend on shares [Exempt under section 10(34)] Nil 13,400
Gross total Income 6,09,160
Section 80C
Premium on life insurance policy 15,370
Investment in NSC 30,000
FDR of SBI for 5 years 50,000
Employee’s contribution to recognized provident fund 30,000 1,25,370
Section 80D - Mediclaim Insurance 12,500
Section 80G (Note 4) 10,600 23,100
Notes:
(1) Gratuity received during service is fully taxable.
(2) Employer’s contribution in the recognized provident fund is exempt up to 12% of the salary i.e. 12% of
(Basic Salary + DA for retirement benefits + Commission based on turnover)
= 12% of (` 1,80,000+ (50% of ` 1,44,000)+ ` 25,000)
= 12% of 2,77,000 = ` 33,240
(3) An alternate view possible is that only the sum in excess of ` 5,000 is taxable in view of the language of
Circular No.15/2001 dated 12.12.2001 that such gifts upto ` 5,000 in the aggregate per annum would be
exempt, beyond which it would be taxed as a perquisite. As per this view, the value of perquisite
would be ` 5,000. In such a case the Income from Salaries would be ` 4,10,760.
(4) Deduction under section 80G is computed as under:
Particulars `
Donation to PM National Relief Fund (100%) 5,100
Donation to institution approved under section 80G (50% of ` 11,000)
(amount contributed ` 11,000 or 10% of Adjusted Gross Total Income i.e.
` 47,129, whichever is lower) 5,500
Total deduction 10,600
Adjusted Gross Total Income = Gross Total Income − Deductions under section 80C and 80D
= ` 6,09,160 − ` 1,37,870 = ` 4,71,290.

26. Dr. Niranjana, a resident individual, aged 60 years is running a clinic. Her Income and Expenditure
Account for the year ending March 31st, 2019 is as under:
To Medicine consumed 35,38,400 By Consultation and Medical charges 58,85,850
To Staff salary 13,80,000 By Income-tax refund (Principal
` 5,000, interest ` 450) 5,450
To Clinic consumables 1,10,000 By Dividend from units of UTI 10,500
To Rent paid 90,000 By winning from game show on
T.V. (net of TDS of ` 15,000) 35,000
To Administrative expenses 2,55,000 By Rent 27,000
To Amount paid to scientific
research association approved
under section 35 1,50,000
To Net profit 4,40,400
59,63,800 19,63,800
(i) Rent paid includes ` 30,000 paid by cheque towards rent for her residential house in Surat.
(ii) Clinic equipments are:
1.4.2018 Opening W.D.V. - ` 5,00,000
7.12.2018 Acquired (cost) - ` 2,00,000
(iii) Rent received relates to property situated at Surat. Gross Annual Value ` 27,000. The municipal tax of `
2,000, paid in December, 2018, has been included in "administrative expenses".
(iv) She received salary of ` 7,500 p.m. from "Full Cure Hospital" which has not been included in the
"consultation and medical charges".
(v) Dr. Niranjana availed a loan of ` 5,50,000 from a bank for higher education of her daughter. She repaid
principal of ` 1,00,000, and interest thereon ` 55,000 during the year 2018-19.
(vi) She paid ` 1,00,000 as tuition fee (not in the nature of development fees/ donation) to the university for
full time education of her daughter.
(vii) An amount of ` 28,000 has also been paid by cheque on 27th March, 2019 for her medical insurance
premium.
From the above, compute the total income of Dr. Smt. Niranjana for the A.Y. 2019-20.
Answer
Computation of total income and tax liability of Dr. Niranjana for A.Y. 2019-20
Particulars ` ` `
I Income from Salary
Basic Salary (` 7,500 x 12 – 40,000) 50,000
II Income from house property
Less : Deduction under section 24 @ 30% of ` 25,000 7,500 17,500
III Income from profession
Less: Items of income to be treated separately
(i) Rent received 27,000
(ii) Dividend from units of UTI 10,500
(iii) Winning from game show on T.V. (net of TDS) 35,000
(iv) Income tax refund 5,450 77,950
3,62,450
Less : Allowable expenditure
Depreciation on Clinic equipments
On ` 5,00,000 @ 15% 75,000
On ` 2,00,000 @ 7.5% 15,000
(On equipments acquired during the year after
September 2018 she is entitled to depreciation @
50% of normal depreciation)
Additional deduction of 50% for amount paid to
scientific research association (Since weighted
deduction of 150% is available in respect of such
payment) 75,000 1,65,000
1,97,450

Add: Items of expenditure not allowable while
computing business income
(i) Rent for her residential accommodation
included in Income and Expenditure A/c 30,000
(ii) Municipal tax paid relating to residential
house at Surat included in administrative
expenses 2,000 32,000 2,29,450
IV Income from other sources
(a) Interest on income-tax refund 450
(b) Dividend from UTI 10,500
Less : Exempt under section 10(35) 10,500 Nil
(c) Winnings from the game show on T.V.
(` 35,000 + ` 15,000) 50,000 50,450
Less: Deductions under Chapter VI A:
(a) Section 80C - Tuition fee paid to university for
full time education of her daughter 1,00,000
(b) Section 80D - Medical insurance premium (fully
allowed since she is a senior citizen) 28,000
(c) Deduction under section 80E - Interest on loan
taken for higher education is deductible 55,000 1,83,000
Notes:
(i) The principal amount received towards income-tax refund will be excluded from computation of total
income. Interest received will be taxed under the head “Income from other sources”.
(ii) Winnings from game show on T.V. should be grossed up for the chargeability under the head “Income
from other sources” (` 35,000 + ` 15,000). Thereafter, while computing tax liability, TDS of ` 15,000
should be deducted to arrive at the tax payable. Winnings from game show are subject to tax @30% as
per section 115BB.
(iii) Since Dr. Niranjana is staying in a rented premise in Surat itself, she would not be eligible for deduction
u/s 80GG, since she owns a house in Surat which she has let out.
27. Mr. X is a resident individual. His Profit and Loss account for the year ending 31st March, 2019 is
given below:
To ` By `
General charges 35,650 Gross Profit 5,25,860
Insurance 3,500 Commission 6,800
Staff Salary 1,12,560 Rent received 37,500
Donation to political party 1,000 Interest on debentures (Net amount
` 22,500 plus TDS ` 2,500) 25,000
Depreciation 1,25,656 Agricultural income 45,000
Administrative expenses 42,500 Short term capital gain on sale of
Investment 29,000
Advance tax 17,000 Dividend from Indian Company 16,000
Net Profit 3,47,294
6,85,160 6,85,160
(i) Depreciation has been calculated as per the Income-tax Rules, 1962 at ` 75,000
(ii) He has deposited ` 35,000 in a notified scheme under Post Office Time Deposit Rules, 1981 for a five
year time period.
(iii) He had bought 150 shares of PQ Co. Ltd. on 3.8.2018 @ ` 112 each and 150 shares of AB Co. Ltd. on
05.09.2018 @ ` 60each. He sold all the shares of AB Co. Ltd. on 15.12.2018 @ ` 98 each and sold the
shares of PQ CO. Ltd. on 10.3.2019 @ ` 102 each. All shares were sold in National Stock Exchange
through a registered broker.
(iv) One of his life insurance policies matured on 14.6.2018. The sum assured was ` 1,00,000 and amount
received on maturity was ` 1,62,850.
(v) Donation to the political party represented the contribution made by cheque to a political party
registered under section 29A of the Representation of the People Act, 1951.
(vi) Income tax department refunds ` 42,580 (including interest of ` 1,470) which was directly credited in his
personal savings account.
(vii) He incurred expenditure of ` 40,000 on treatment of his dependent father who was suffering from
specified disease as defined in rule 11DD of Income-tax Rules, 1962. The payment of medical
expenses was made by cheque and an amount of ` 7,500 was reimbursed to him by an insurance
company.

(viii) Bad debt of a business which was discontinued in earlier years, recovered during the year ` 15,000.
Compute total income and tax payable thereon by Mr. X for the assessment year 2019-20
Answer
Computation of taxable income of Mr. X for the A.Y. 2019-20
Particulars ` ` `
1. Income from House Property ( Note 1) 26,250
2. Profits and gain of business or profession (Note 2) 2,78,450
3. Capital gains (Note 3) 33,200
4. Income from other sources (Note 4) 26,470
Less : Deductions under Chapter VIA
(i) Deduction under section 80C (Note 5) 35,000
(ii) Deduction under section 80DDB in respect of
expenditure on medical treatment incurred on
treatment of his father 40,000
Less: Expenditure reimbursed by insurance
Company 7,500 32,500
(iii) Deduction under section 80GGC in respect
of contribution to the Political Party (Note 11) 1,000 68,500
Components of total income

Special Income
Short-term capital gains from sale of shares
(chargeable at a special rate of 15% u/s 111A) 4,200
Normal income 2,91,670
2,95,870
Computation of tax payable by Mr. X for the A.Y. 2019-20

Particulars ` `
Tax on short-term capital gains from sale of shares @ 15% of ` 4,200 630
Tax on agricultural income plus non-agricultural income aggregating to ` 3,36,670
First ` 2,50,000 NIL
Next ` 86,670 @ 5% 4334
` 3,36,670 4,334
4,964
Less: Tax on agricultural income plus basic exemption limit aggregating to ` 2,95,000
First ` 2,50,000 NIL
Next ` 45,000 @ 5% 2,250
2,250
Income tax payable 2,714
Tax after rebate 214
Add: cess @4% 9
Total Tax 223
Less : Tax deducted at source 2,500
Advance tax paid 17,000
Tax refundable (19,277)
Notes:
1. Computation of Income from House Property
Particulars `
Rent received is taken as the GAV in the absence of other information
Less: Municipal taxes paid Nil
Less: Deduction under section 24 @ 30% of NAV 11,250
26,250
2. Computation of Profits and gains of business or profession
Particulars ` `
Net profit as per Profit & Loss account 3,47,294
Add : Inadmissible expenses
Depreciation charges 1,25,656
Advance tax (Note 9) 17,000
Donation to political party 1,000
1,43,656
Add: Recovery of bad debt (Note 8) 15,000
5,05,950
Less: Income chargeable under any other head / exempt income
Rent received 37,500
Interest on debentures (gross) 25,000
Agricultural income (Note 10) 45,000
Short term capital gain on sale of investment 29,000
Dividend from Indian Company (Note 10) 16,000 1,52,500
3,53,450
Less: Depreciation as per Income-tax Rules, 1962 75,000
2,78,450
Particulars ` `
Short term capital gains on sale of investment 29,000
Short term capital gains on sale of shares
Shares of AB Co. Ltd.
Sale consideration 150 shares @ ` 98 each ` 14,700
Less: Cost of 150 shares @ ` 60 each ` 9,000 5,700
Shares of PQ Co. Ltd.
Sale consideration 150 shares @ ` 102 each ` 15,300
Less: Cost of 150 shares @ ` 112 each ` 16,800 (1500) 4,200
Capital Gains 33,200
4. Computation of Income from other sources

Particulars `
Interest on debentures 25,000
Interest on refund from IT authority (Note 7) 1,470
5. Five year time deposit in an account under Post Office Time Deposit Rules, 1981, is eligible for deduction
under section 80C.
6. The maturity proceeds of the life insurance policy are exempt under section 10(10D) assuming that the
policy does not fall under the exceptions stated under that section.
7. Refund of income tax is not taxable. However, interest on such refund is chargeable to tax under the head
“Income from other sources”.
8. Recovery of bad debts, assumed to be allowed in full in an earlier year, is taxable under section 41(4),
whether or not the business or profession in respect of which the deduction has been allowed is in
existence at the time when it is recovered.
9. Advance tax is not allowable as deduction.
10. Agricultural income is exempt under section 10(1) and dividend from an Indian company is exempt from
tax under section 10(34).
11. Contribution to a Political Party registered under section 29A of the Representation of the People Act,
1951 is deductible under section 80GGC, since payment is made otherwise than by way of cash.
28. Dr. Parekh is a resident individual. His Income and Expenditure Account for the year ending 31st
March, 2019 is given below:
To ` By `
Salary to staff 3,78,000 Consultation fees 51,85,000
Cost of medicine 36,35,000 Cost of medicines recovered 7,85,000
Rent 66,000 Stock of medicine 25,000
Administrative cost 11,98,000 Interest on Post Office MIS 86,400
Advance tax 1,40,000 Interest on Time Deposit with bank (Net 27,000
Membership Fee 5,000 of TDS ` 3,000)
Depreciation on apparatus 42,500 Rent received 20,000
Net profit 6,70,900 Winning from lotteries (Net of 7,000
TDS ` 3,000)
61,35,400 61,35,400

(i) He has deposited ` 1,20,000 in PPF.
(ii) He received salary of ` 1,50,000 and commission of ` 50,000 from a nursing home in which Dr. (Mrs.)
Parekh is also an equal partner.
(iii) He received fees of ` 50,000 from University of Trividad as lecturer.
(iv) Received pension of ` 84,000 from LIC Jeevan Suraksha.
(v) Paid ` 32,500 by cheque as mediclaim insurance premium for his medical treatment.
(vi) He paid LIC premium of ` 80,000 for his own life.
(vii) Cost of administration includes ` 3,000 paid for municipal tax for the house let out to a tenant.
(viii) Depreciation as per Income-tax Rules, 1962 to be computed as follows:
WDV as on 1.4.2018 ` 3,00,000
Rate of depreciation @ 15%
(ix) Cost of lottery tickets amounting to ` 350 has not been debited to Income and Expenditure account.
You are required to compute the total income and tax payable thereon by Dr. Parekh for the
assessment year 2019-20
Answer Computation of total Income and tax payable by Dr. Parekh for the A.Y. 2019-20
Particulars ` `
Income from House Property (Note 1) 11,900
Profits and gains of business or profession (Note 2) 8,71,000
Income from other sources (Note 3) 2,60,400
(i) Deduction under section 80C 1,20,000
Life insurance premium paid 2,00,000
Deduction restricted to 1,50,000
(ii) Deduction under section 80D
Mediclaim premium of ` 32,500 paid by cheque for
himself. However, deduction restricted to 25,000 1,75,000
Components of Total Income
Special income:
Winning from lotteries (chargeable at special rate @ 30%
under section 115BB) 10,000
Normal income 9,58,300
9,68,300
Computation of Tax
Tax on winnings from lotteries @ 30% 3,000
Tax on normal income (` 9,68,300)
First ` 2,50,000 Nil NIL
Next ` 2,50,000 5% 12,500
Balance ` 4,68,300 20% 91,660 1,04,160
Income tax payable 1,07,160
Add: Health & Education cess @4% 4,286
Total Tax Payable 1,11,446
Less: Tax deducted at source
From Interest 3,000
From lottery income 3,000 6,000
1,05,446
Less : Advance tax paid 1,40,000
Refund (-)34,554
Notes:
1. Computation of Income from House Property
Particulars `
Gross Annual Value – Rent received (treated as fair rent) 20,000
Less : Statutory deduction under section 24 @ 30% of NAV 5,100
Income from House Property 11,900

2. Computation of Profits and gains of business or profession
Particulars ` `
Net Profit as per Income & Expenditure Account 6,70,900
Add: Depreciation charged 42,500
Municipal Taxes paid 3,000
Advance Tax (See Note-4) 1,40,000 1,85,500
8,56,400
Less: Rent received 20,000
Interest on Post Office MIS 86,400
Interest on Term Deposit with bank (Net of TDS) 27,000
Winning from lotteries (Net of TDS) 7,000
Depreciation as per Income-tax Act, 1961 45,000 1,85,400
6,71,000
Salary from Nursing Home as partner 1,50,000
Commission from Nursing home as partner 50,000 2,00,000
Income from business 8,71,000
3. Computation of Income from Other Sources

Particulars `
Interest Post Office MIS 86,400
Interest on Term Deposit with Bank (Gross) 30,000
Winning from lotteries (Gross) 10,000
Fees from University of Trividad 50,000
Pension from LIC Jeevan Suraksha 84,000
4. Advance Tax is not allowable as deduction.
5. Depreciation of Apparatus : `
WDV as on 1.4.2018 3,00,000
Depreciation @15% 45,000
WDV as on 31.3.2019 2,55,000
6. Any salary, bonus, commission or remuneration by whatever name called due to or received by a partner
of a firm from the firm shall not be treated as salary but it shall be treated as income from business or
profession for the purposes of section 28.
7. As per section 58(4), no expenditure can be allowed against winnings from lotteries. Therefore, amount
spent on lottery tickets being ` 350, cannot be allowed as deduction from income from winnings of
lotteries.
8. Pension from LIC Jeevan Suraksha is taxable as Income from other sources.
29.
(i) Smt. Savita Rani was born on 01.07.1950. She is a Deputy Manager in a Company in Mumbai. She is
getting a monthly salary and D.A. of ` 45,000 and ` 12,000 respectively. 50% of DA forms part of pay.
She also gets a House Rent Allowance of ` 6,000 per month. She is a member of Recognised P.F.
wherein she contributes 15% of her salary of ` 51,000p.m. (45,000 + 6,000, being 50% of DA). Her
employer also contributes an equal amount.
(ii) She is living in the house of her minor son in Mumbai.
(iii) During the previous year 2018-19, her minor son has earned an income of ` 30,000 (computed) as rent
from a House Property, which had been transferred to him by Smt. Savita Rani without consideration a
few years back.
(iv) During the previous year 2018-19, she sold Government of India Capital Indexed Bonds for ` 1,50,000
on 30.09.2018, which she purchased on 01.07.2001 for ` 80,000 (Cost inflation index – F.Y. 2001-2002:
100 and for the F.Y. 2018-19: 280).
(v) Her employer gave her an interest free loan of ` 1,50,000 on 01.10.2018 to one of her son’s wife for the
purchase of an Alto Maruti Car. Nothing has been repaid to the company towards the loan. The lending
rate on SBI for a similar loan is 8% as on 01.04.2018.
(vi) During the previous year 2018-19 she paid ` 15,000 by cheque to GIC towards Medical Insurance
Premium of her dependent mother.
Compute the taxable income and tax liability of Mrs. Savita Rani for the A.Y. 2019-20.

Answer
Computation of taxable income and tax liability of Smt. Savita Rani for A.Y. 2019-20
Particulars ` `
Income from salary
Basic salary (` 45,000 х 12) 5,40,000
Dearness Allowance (` 12000 х 12) 1,44,000
House Rent allowance (fully taxable) 72,000
Employer’s contribution to recognized provident fund in excess
of 12% is taxable as salary income
12% of salary is ` 73,440. Employer’s contribution is 15% of
salary, which is ` 91,800
Excess contribution is (` 91,800 – ` 73,440) 18,360
Perquisite in respect of interest free loan (` 1,50,000 x 8% x ½) 6,000
Net Salary 7,80,360
Income from house property (See Note below) 30,000
Long term Capital Gain:
Sale consideration of GOI capital indexed bonds 1,50,000
Less: Indexed cost of acquisition (` 80,000 x 280/100) 2,24,000
Long-term capital loss (to be carried forward) 74,000
Deduction under section 80C – in respect of recognized
provident fund contribution 91,800
Deduction under section 80D – Mediclaim 15,000 1,06,800
Tax Payable on ` 6,63,560 45,212
Add : Health & Education cess @ 4% 1,808
Total tax payable 47,020
Note: As per section 27, any property transferred to the minor child without adequate consideration would be
deemed to be the property of the assessee. Therefore, the income from house property of ` 30,000 (computed) is
to be assessed in the hands of Smt. Savita Rani.
30. Ramesh retired as General manager of XYZ Co. Ltd. on 30.11.2018 after rendering service for 20 years
and 10 months. He received ` 3,00,000 as gratuity from the employer. (He is not covered by Gratuity
Act, 1972).
His salary particulars are given below :
Basic pay ` 10,000 per month up to 30.6.2018
Basic pay ` 12,000 per month from 1.7.2018
Dearness allowance (Eligible for retirement benefits) 50% of basic pay
Transport allowance ` 700 per month
He resides in his own house. Interest on monies borrowed for the self-occupied house is ` 24,000 for
the year ended 31.03.2019.
From a fixed deposit with a bank, he earned interest income of ` 18,000 for the year ended 31.03.2019.
Compute taxable income of Ramesh for the year ended 31.03.2019.
Answer
Computation of taxable income of Ramesh for the A.Y. 2019-20
Particulars ` `
Income from salary
Basic pay : April to June (` 10,000 х 3) 30,000
Basic pay : July to November (` 12,000 х 5) 60,000
Dearness allowance @ 50% basic pay 45,000
Transport allowance 5,600
Gratuity
(i) Statutory limit ` 10,00,000
(ii) Half month average salary [See Note below]
` 8,100 х 20 yrs = ` 1,62,000
(iii) Actual amount received = ` 3,00,000
Least of the above i.e. ` 1,62,000 is exempt. Balance is taxable
(` 3,00,000 – ` 1,62,000) 1,38,000

Income from house property:
Self-occupied – ALV Nil
Less: Interest on monies borrowed under section 24(b) 24,000 (24,000)
Income from other sources:
Fixed deposit interest 18,000
Note :
Average salary of 10 months preceding the month of retirement is to be computed : `
Basic pay ` 10,000 x 6 60,000
Basic pay ` 12,000 x 4 48,000
Total 1,08,000
Add: 50% of Dearness Allowance–eligible for retirement benefits 54,000
1,62,000
Average salary :` 1,62,000/10 16,200
Half month average salary ` 16,200 / 2 8,100
31. Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1982 and settled at
Canada since 1982. Mary got married and settled in Mumbai. Both of them are below 60 years. The
following are the details of their income for the previous year ended 31.3.2019:
S.No. Particulars Rosy Mary
` `
1. Pension received from State Government -- 10,000
2. Pension received from Canadian Government 20,000 --
3. Long-term capital gain on sale of land at Mumbai 1,00,000 50,000
4. Short-term capital gain on sale of shares of Indian listed
companies in respect of which STT was paid 20,000 2,50,000
5. LIC premium paid -- 10,000
6. Premium paid to Canadian Life Insurance Corporation atCanada 10,000 --
7. Mediclaim policy premium paid -- 25,000
8. Tax saving bond purchased in March, 2019 30,000 20,000
9. Rent received in respect of house property at Mumbai 60,000 30,000
Compute the taxable income and tax liability of Mrs. Rosy and Mrs. Mary for the Assessment Year
2019-20 and tax thereon.
Answer
Computation of taxable income of Mrs. Rosy and Mrs. Mary for the A.Y.2019-20
S. No. Particulars Mrs. Rosy Mrs. Mary
` `
(I) Salaries
Pension received from State Government - 10,000
Pension received from Canadian Government is not
taxable in the case of a non-resident since it is earned
and received outside India
- 10,000
(II) Income from house property
Rent received from house property at Mumbai
(assumed to be the annual value in the absence of
other information i.e. municipal value, fair rent and
standard rent) 60,000 30,000
Less: Deduction under section 24(a) @ 30% 18,000 9,000
42,000 21,000
(III) Capital gains
Long-term capital gain on sale of land at Mumbai 1,00,000 50,000
Short term capital gain on sale of shares of Indian
listed companies in respect of which STT was paid 20,000 2,50,000
1,20,000 3, 00,000
(A) Gross Total Income [(I)+(II)+(III)] 1,62,000 3,31,000
1. LIC Premium paid - 10,000
2. Premium paid to Canadian Life Insurance Corporation 10,000
3. Tax Saving Bond (assuming that they are notified
infrastructure bonds eligible for deduction under section 80C) 30,000 20,000
40,000 30,000
Deduction under section 80D – Mediclaim premium
paid (assuming that the same is paid by cheque) 25,000
40,000 55,000
(B) Total deduction under Chapter VIA is restricted to
income other than capital gains taxable under sections
111A & 112 40,000 31,000
(C) Total income (A-B) 1,22,000 3,00,000
Tax liability of Mrs. Rosy for A.Y. 2019-20

Tax on long-term capital gains @ 20% 20,000
Tax on short-term capital gains @ 15% 3,000
23,000
Tax liability of Mrs. Mary for A.Y. 2019-20
Tax on short-term capital gains @ 15% of ` 50,000 [i.e.
` 2,50,000 less ` 2,00,000, being the unexhausted
basic exemption limit as per proviso to section 111A] 7,500
5,000
Health & Education cess @ 4% 920 200
Total tax payable 23,920 5,200
Note:
(1) Long-term capital gains is chargeable to tax @ 20% as per section 112.
(2) Short-term capital gains on transfer of equity shares in respect of which securities transaction tax is paid
is subject to tax @ 15% as per section 111A.
(3) In case of resident individuals, if the basic exemption limit is not fully exhausted against other income,
then the long-term capital gains/short-term capital gains will be reduced by the unexhausted basic
exemption limit and only the balance will be taxed at 20%/15%respectively. However, this benefit is not
available to non-residents. Therefore, while Mrs. Mary can set-off unexhausted basic exemption limit
against long-term capital gains and short-term capital gains taxable under section 111A, Mrs. Rosy
cannot do so.
(4) Since long-term capital gains is taxable at the rate of 20% and short-term capital gains is taxable at the
rate of 15%, it is more beneficial for Mrs. Mary to first exhaust her basic exemption limit of ` 2,50,000
against long-term capital gains of ` 50,000 and the balance limit of ` 2,00,000 (i.e., 2,50,000 – 50,000)
against short-term capital gains.
32. Mr. Rajesh is serving in a public limited company as General Manager (Finance). His total emoluments
for the year ended 31st March, 2019 are as follows:
Basic Salary ` 5,40,000
HRA (Computed) ` 1,80,000
Transport allowance ` 42,800
Apart from the above, his employer has sold the following assets to him on 1st January, 2019:
(i) Laptop computer for ` 20,000 (Acquired in September, 2017 for ` 1,20,000)
(ii) Car 1800 cc for ` 3,20,000 (purchased in April, 2016 for ` 8,50,000)
He also owns a residential house, let out for a monthly rent of ` 15,000. The fair rental value of the property
for the let out period is ` 1,50,000. The house was self-occupied by him from 1st January, 2019 to 31st
March, 2019. He has taken a loan from Bank of ` 20 lacs for the construction of the property, and has repaid
` 1,05,000 (including interest ` 40,000) during the year.
Mr. Rajesh sold shares of different Indian companies on 14th April, 2018:
Name Sale value Purchase price Acquired on No. of shares
(per share) (per share)
B Ltd. ` 82 ` 65 16th April, 2017 125
Sale proceeds were subject to brokerage of 0.1% and securities transaction tax of 0.125% on the gross
consideration. He received income-tax refund of ` 5,750 (including interest ` 750) relating to the assessment
year 2014-15.
Compute the total income of Mr. Rajesh for the Assessment Year 2019-20.
Answer Computation of total income of Mr. Rajesh for the A.Y. 2019-20
Particulars `
Income from salaries (Working note 1) 9,86,800
Income from house property (Working note 2) 1,00,000
Capital gains
Short-term capital gains (Working note 3) 2,115
Income from other sources: Interest on Income-tax refund 750
Less: Deduction under Chapter VIA
Repayment of housing loan (principal) [See Note below] 65,000
Total Income (rounded off) 10,24,670
Working Notes :
Particulars ` `
1. Income from salaries
Basic Salary 5,40,000
HRA (computed) 1,80,000
Transport allowance 42,800
Perquisites (relating to sale of movable assets by employer)
Laptop Computer
Cost [September, 2016] 1,20,000
Less: Depreciation at 50% for one completed year 60,000
WDV [September, 2017] 60,000
Less: Amount paid to the employer 20,000
Perquisite value of laptop (A) 40,000
Car
Cost [April, 2015] 8,50,000
Less: Depreciation for the 1st year
(April’15 to March’16) @ 20% of WDV 1,70,000
WDV [April, 2016] 6,80,000
Less: Depreciation for the 2nd year
(April’16 to March’17) @ 20% of WDV 1,36,000
WDV [April, 2017] 5,44,000
Less: Amount paid to the employer 3,20,000
Perquisite value of car (B) 2,24,000
Perquisite value (A) + (B) 2,64,000
Les: Deduction u/s 16(ia) 40,000
Income from Salary - 9,86,800
2. Income from house property

Section 23(2) provides that the annual value of a self-occupied house shall be taken as Nil. However,
section 23(3) provides that the benefit of self-occupation would not be available if the house is actually let
during the whole or part of the previous year. This implies that the benefit of taking the annual value as nil
would be available only if the house is self-occupied for the whole year.
In this case, therefore, the benefit of taking annual value as Nil is not available since the house is self-
occupied only for 3 months. In such a case, the gross annual value has to be computed as per section
23(1). Accordingly, the fair rent for the whole year should be compared with the actual rent for the let-out
period and whichever is higher shall be adopted as the Gross Annual Value.
Particulars ` `
Gross Annual Value (higher of fair rent for the whole year
and actual rent for the let-out period) 2,00,000
Fair rent for the whole year = ` 1,50,000 × 12/9 2,00,000
Actual rent received = ` 15,000 × 9 1,35,000
Less: Municipal taxes Nil
30% of NAV 60,000
Interest on loan [See Note below] 40,000 1,00,000
Note : It is presumed that the interest of ` 40,000 paid on housing loan represents the interest actually
due for the year.
3. Income chargeable as “Capital Gains”
Shares in B Ltd. are held for less than 12 months and hence the capital gains arising on sale of such
shares is a short-term capital gain chargeable to tax @15% as per section 111A, since the transaction is
subject to securities transaction tax. It may be noted, however, that securities transaction tax is not a
deductible expenditure.
Short-term capital gains arising from sale of shares of B Ltd.
Sale consideration (82 × 125) 10,250
Less: Brokerage @ 0.1% 10
Net sale consideration 10,240
Cost of acquisition (65 x 125) 8,125
Short-term capital gains 2,115
33. Mr. Ram, who does not maintain books of account for the year ended 31.3.2019, requests you to
compute his total income for the assessment year 2019-20 from the following:
`
(i) Basic Salary - 20,000 p.m.
CCA - 1,000 p.m.
HRA - 5,000 p.m.
(ii) Ram resides in Chennai, paying a rent of ` 6,000 per month.
(iii) Ram is paid an education allowance of ` 500 per month per child for all the three of his children. Actual
expenses (tuition fees only) amounts to ` 15,000, ` 10,000 and ` 5,000 respectively.
(iv) He bought a non-heavy goods vehicle on 7.6.2018 and has been letting it on hire from the same date.
He declares an income of ` 34,900 from the same.
(v) Interest from company deposits is ` 15,000 and bank interest from saving bank account is ` 5,000.
(vi) Interest is payable on bank loans availed for buying the truck and making company deposits as follows:-
Purpose Date of loan Amount Interest rate
Truck purchase 1.4.2018 5 lakhs 10% p.a.
Company deposit 1.10.2018 1 lakh 9 % p.a.
(vii) Loss carried forward arising from speculating in shares during the preceding previous year and eligible
for set-off is ` 1,00,000.
(viii) Ram has invested ` 12,000 in notified equity linked saving scheme of UTI, ` 52,000 in PPF, ` 9,000 as
premium on life insurance policy taken on 31.07.2015 on his own life(sum assured ` 40,000) and `
15,000 towards pension fund of LIC.
Answer
Computation of total income of Mr. Ram for the Assessment Year 2019-20
Particulars ` `
Income from Salary
Basic Salary ( ` 20,000 × 12) 2,40,000
CCA (` 1,000 × 12) 12,000
HRA (` 5,000 × 12) 60,000
Less: Exempt under section 10(13A) [See Note 1 below] 48,000 12,000
Education Allowance (` 500×12×3) 18,000
Less: Exempt under section 10(14) (` 100×12×2) 2,400 15,600
Les: Deduction u/s 16(ia) 40,000
Income from Salary - 239,600
Profits and gains from business or profession

Income from the business of letting on hire, a non-heavy vehicle
under section 44AE (` 7,500×10) [See Note 2 below] 75,000
Interest from company deposits 15,000
Interest from Saving Bank Account 5,000
20,000
` 1,00,000 @ 9% for 6 months–towards loan interest 4,500 15,500

Under section 80C [See Note 4 below] 93,000
Under section 80CCC 15,000
1,08,000
Under section 80TTA- Interest from Saving Bank Account (See Note-7 below) 5,000 1,13,000

Notes :
(1) HRA is exempt to the extent of the least of the following under section 10(13A)
50% of salary (as the city is Chennai ) i.e. 50% of ` 2,40,000 = ` 1,20,000
Excess of rent paid over 10% of salary = ` 72,000 – ` 24,000 = ` 48,000
Actual HRA received = 5,000 × 12 = ` 60,000
Least of the above i.e. ` 48,000 is exempt under section 10(13A)
(2) In the case of a person owning not more than 10 vehicles at any time during the previous year, estimated
income from each non-heavy vehicle will be deemed to be ` 7,500/- for every month or part of the month
during which the non-heavy vehicle is owned by the assessee during the previous year [Section 44AE].
Presumptive income = ` 7,500 × 10 = 75,000
If, however, the assessee declares a higher amount, such amount will be considered as income. In the
instant case, since the assessee declares a lower amount, it cannot be considered, since no books of
account are maintained. Also, interest is not deductible, since under section 44AE, all deductions under
sections 30 to 38 are deemed to have been allowed.
(3) Brought forward loss from speculation business can be set off only against income from speculation
business and not against other business income.
(4) Deduction under section 80C:
Investment in notified equity linked saving scheme of UTI 12,000

Life insurance premium on own life restricted to 10% of sum assured 4,000
Tuition fees paid for two of his children (Most favourable to Ram) 25,000
93,000
(5) Contribution to pension fund of LIC ` 15,000 is deductible under section 80CCC.
(6) Total deduction under sections 80C, 80CCC and 80CCD is limited to ` 1,50,000 as per section 80CCE.
(7) Deduction under section 80TTA is allowed in respect of interest from Saving Bank Account upto a
maximum of ` 10,000. Therefore, interest from Saving Bank Account of ` 5,000 is allowed as deduction.
34. Mr. Ashok owns a property consisting of two blocks of identical size. The first block is used for
business purposes. The other block has been let out from 1.4.2018 to his cousin for ` 10,000p.m. The
cost of construction of each block is ` 5 lacs (fully met from bank loan), rate of interest on bank loan is 10%
p.a. The construction was completed on 31.3.2018. During the year ended 31.3.2019, he had to pay a penal
interest of ` 2,000 in respect of each block on account of delayed payments to the bank for the borrowings.
The normal interest paid by him in respect of each block was ` 42,000. Principal repayment for each block
was ` 23,000 made at the end of the year. An identical block in the same neighbourhood fetches a rent of
` 15,000 per month. Municipal tax paid in respect of each block was ` 12,000.
The income computed in respect of business prior to adjustment towards depreciation on any asset is `
2,20,000.
Depreciation on equipments used for business is ` 30,000.
On 23.3.2019, he sold shares of B Ltd., a listed share in BSE for ` 2,30,000. The share had been purchased
10 months back for ` 1,80,000. Securities transaction tax paid may be taken as ` 220.
Brought forward business loss of a business discontinued on 12.1.2018 is ` 80,000. This loss has been
determined in pursuance of a return of income filed in time and the current year is the seventh year.
The following payments were effected by him during the year:
(i) LIP of ` 20,000 on his life and ` 12,000 for his son aged 22, engaged as a software engineer and drawing
salary of ` 25,000 p.m.
(ii) Mediclaim premium of ` 6,000 for himself and ` 5,000 for above son. The premiums were paid by
cheque.
You are required to compute the total income for the assessment year 2019-20 and the tax payable.
The various heads of income should be properly shown. Ignore the interest on bank loan for the
period prior to 1.4.2018, as the bank had waived the same.

Answer
Computation of total income of Mr. Ashok for the A.Y. 2019-20
Particulars ` ` `
Income from house property [ See Note I ]
House block 1 used for business, hence ALV Nil
House block 2 let out (higher of fair rent and rent receivable) 1,80,000
Less: Municipal tax paid 12,000
Net annual value (NAV) 1,68,000
(a) 30% of NAV 50,400
(b) Interest on bank loan @ 10% on ` 5,00,000 50,000 1,00,400 67,600
Profits and gains of business or profession [See Note II]
Income prior to adjustment for depreciation 2,20,000
Less : Depreciation on equipments used for business 30,000
Depreciation on building ` 5,00,000 @ 10% 50,000 80,000
1,40,000
Less: Set off of brought forward business loss
relating to discontinued business [ See Note III] 80,000 60,000
Capital Gains [See Note IV]
Short term capital gains from sale of listed shares
Full value of consideration 2,30,000
Less: Cost of acquisition 1,80,000 50,000
Less: Deduction under section 80C in respect of
LIP ` 32,000 and housing loan repayment in
respect of II block ` 23,000 55,000
Deduction under section 80D (for self) 6,000 61,000
Tax on total income Nil
Notes:
(a) On computation of Income from house property
(i) The annual value of the house property which is used for business would not fall under the head
“Income from house property”. Therefore, the annual value of the first block is not chargeable to tax
under the head “Income from house property”. However, depreciation there on at 10% has been
claimed while computing the income from business.
(ii) As regards the second block, the sum for which the property may be reasonably expected to be let is
` 15,000 per month. The Gross Annual Value (GAV) of the block is the higher of fair rent (i.e., `
15,000 p.m.) or the actual rent received (` 10,000 p.m.) Hence, the GAV of the second block is `
1,80,000 (i.e. ` 15,000 p.m.)
(iii) Under section 24(b), interest on bank loan for construction of house is deductible. However, penal
interest is not deductible. Interest due during the year in respect of the second block is ` 50,000 (i.e.
10% of ` 5 lakhs), which is allowable as deduction under section 24(b).
(b) On computation of Profits and gains of business or profession

Mr. Ashok can claim depreciation @ 10% on the building used by him for business purposes. The
depreciation on the first block is ` 50,000 (being 10% of ` 5,00,000) and depreciation on equipments
used for business is ` 30,000. Hence the depreciation allowable during the year is ` 80,000.
(c) On set off of business loss

As per section 72, business loss relating to discontinued business is eligible for set off.
(d) On treatment of short-term capital gains (STCG)

The listed shares have been sold and securities transaction tax is paid, hence it is taxable at 15% as per
section 111A. For the purpose of providing deduction under Chapter VI-A, the gross total income should
be reduced by the STCG on listed shares.
(e) On computation of deductions under sections 80C and 80D

Deduction under section 80C can be claimed in respect of life insurance premium paid for major son,
even though he is not dependent on the assessee. It is assumed Block 2 let out to cousin was used for
residential purpose and accordingly principal repayment was considered for deduction under section 80C.
However, deduction under section 80D cannot be claimed in respect of mediclaim premium paid for non-
dependent son. Mediclaim premium paid for self of ` 6,000 is eligible for deduction.
35. Total income of Mrs. Priti, aged 59, a resident of Mumbai for the financial year 2018-19 is ` 21,05,000. It
includes an income of ` 2,20,000 from the business of dealing in shares on which she has paid
securities transaction tax of ` 15,000. She has also deposited ` 1,50,000 in her P.P.F. account with the
State Bank of India. Compute her tax liability for the A.Y. 2019-20.
Answer
Computation of tax liability of Mrs. Priti for A.Y. 2019-20
Particulars ` `
Total income other than business of dealing in shares (` 21,05,000 –` 2,20,000)
(before deduction under section 80C) 18,85,000
Income from business of dealing in shares – See Note 2,05,000
Less : Deduction under section 80C in respect of PPF deposit 1,50,000
Tax on total income 3,94,500

Tax Liability 4,10,280
Or 4,10,280
Note: ` 2,20,000 less amount of ` 15,000 paid towards securities transaction tax eligible for deduction under
section 36(1)(xv).
36. Mr. A, a senior citizen, has furnished the following particulars relating to his house properties:
House I House II
Nature of occupation Self occupied Let out
` `
Municipal valuation 60,000 1,20,000
Fair rent 90,000 1,50,000
Standard rent 75,000 90,000
Actual rent per month 9,000
Municipal taxes paid 6,000 12,000
Interest on capital borrowed 70,000 90,000
Loan for both houses were taken on 1.4.2008. House II remained vacant for 4 months.
Besides the above two houses, A has inherited during the year an old house from his grand-father. Due to
business commitments, he sold the house immediately for a sum of ` 250 lakhs. The house was purchased in
1960 by his grand-father for a sum of ` 2 lakhs. However, the fair market value as on 1.4.2001 was ` 20
lakhs. With the sale proceeds, A purchased a new house in March, 2019 for a sum of ` 100 lakhs and the
balance was used in his business.
The other income particulars of Mr. A besides the above are as follows (A.Y. 2019-20)
Business loss ` 2 lakhs
Income from other sources (Fixed Deposit interest) ` 1 lakh
Investments made during the year: PPF ` 1,00,000
Cost inflation index (F.Y. 2018-19) 280
Compute total income of Mr. A and his tax liability for the assessment year 2019-20
Answer
Computation of Total Income and Tax liability of Mr. A for A.Y. 2019-20
Particulars ` `
1. Income from house property – House I (70,000)
– House II (48,000)
(See working note 1) (1,18,000)
2. Profits and gains of business (2,00,000)
3. Capital gains – long term (See working note 2) 1,30,00,000
4. Income from other sources – Bank interest 1,00,000
Gross total income 1,27,82,000
Less : Deduction under chapter VI-A
Deduction under section 80C (PPF) 1,00,000
Total income 1,26,82,000

Tax liability
Total income other than long term capital gain is Nil.
Taxable long term capital gain is = 1,23,82,000
[i.e. ` 1,30,00,000 – ` 3,18,000 – basic exemption limit of ` 3,00,000]
On long term capital gains of ` 1,23,82,000 @ 20% 24,76,400
Surcharge @ 15% 3,71,460
28,47,860
Health & Education cess@4% 1,13,914
Total tax payable 29,61,774
Working notes:
1. Calculation of income from house property
House I – Self occupied `
Annual value Nil
Less : Interest as per section 24(b) 70,000
Loss from house property (House I) (70,000)
House II - Let out `
Gross annual value (` 9,000 x 8) 72,000
Less :Municipal taxes 12,000
Less : Deductions under section 24
30% of NAV 18,000
Interest on borrowed capital 90,000
1,08,000
Loss from house property (house II) (48,000)
Note : Interest on capital borrowed will be allowed in full for let out properties. As per section 23(1)(c),
where the property or any part of the property is let and was vacant during the whole or any part of the
previous year and owing to such vacancy the actual rent received or receivable by the owner in respect
thereof is less than the annual letting value, then the actual rent received or receivable would be the
Gross Annual Value of the property. In this case, the actual rent received (i.e. ` 72,000) is less than the
annual letting value on (i.e. ` 90,000) account of vacancy and therefore, the actual rent received is taken
as the Gross Annual Value.

Particulars ` `
Sale consideration 2,50,00,000
Less: Indexed Cost of acquisition
(` 20,00,000 x 282/280) 20,00,000
2,30,00,000
Less : Exemption under section 54 1,00,00,000
Taxable long term capital gain 1,30,00,000
As per the definition of the indexed cost of acquisition under clause (iii) of Explanation to section 48,
indexation benefit will be available only from the previous year in which Mr. A first held the asset i.e. P.Y.
2018-19. Since Mr. A sold the asset in the same year in which it was held by him, cost of acquisition and
indexed cost of acquisition would be same.
Note: As per the view expressed by Bombay High Court, in the case of CIT v. Manjula J. Shah 16
Taxmann 42, in case the cost of acquisition of the capital asset in the hands of the assessee is taken to
be cost of such asset in the hands of the previous owner, the indexation benefit would be available from
the year in which the capital asset is acquired by the previous owner. If this view is taken, the indexed
cost of acquisition would be ` 56,00,000
3. It has been assumed that the loss from house property and business loss have been setoff fully against
long term capital gains. Therefore, ` 1 lakh relating to section 80C investments are deducted against
“Income from other sources”. The taxable income represents long term capital gains only and the tax
liability is computed accordingly.

37. Mr. Balaji furnishes you the following information for the financial year ended 31st March, 2019:
Pension from Central Government 2,87,000
Rent from let out property 2,40,000
Interest on moneys borrowed for let out property - paid 1,60,000
Interest on moneys borrowed for let our property - unpaid 12,000
Income from business in trade in grains and pulses 4,10,000
Loss from speculation in Jewellery 80,000
Unabsorbed depreciation of discontinued textiles business of assessment year 2015-16 2,00,000
He let out a factory building with machinery for a monthly rent of ` 20,000.
The WDV of factory building as on 01-04-2018 was ` 8,10,000 (depreciation rate 10%) and WDV of
machineries being ` 4,91,300 (depreciation rate 15%).
Compute the total income of Mr. Balaji for the Assessment year 2019-20.
Answer
Computation of total income of Mr. Balaji for the A.Y. 2019-20
Particulars ` ` `
Income from salaries
Pension from Central Government [2,87,000 – 40,000] (See Note 1) 2,47,000
Gross Annual Value 2,40,000
(Rent received has been taken as the Gross Annual
Value in the absence of other information relating to
Municipal Value, Fair Rent and Standard Rent)
Less: Municipal Taxes paid NIL
(a) Standard deduction @ 30% of NAV 72,000
(b) Interest on borrowed capital
(` 1,60,000+ ` 12,000) (See Note 2) 1,72,000 2,44,000 (4,000)
Income from business or profession
Income from business of trading in grains and pulses 4,10,000
Rent of factory building with machinery (` 20,000 x12) (See Note 3)2,40,000
Less: Depreciation
- Factory building (8,10,000 x 10%) 81,000
- Machinery (4,91,300 x 15%) 73,695 85,305 4,95,305
7,38,305
Less: Brought forward depreciation relating to A.Y.
2015-16 from discontinued textile business
(See Note 4 ) 2,00,000
Notes:
1. Uncommuted pension is fully taxable in the hands of both government and non government employees. It
is presumed that pension received by Mr. Balaji is uncommuted pension. Deduction u/s 16(ia) is available
2. Interest accrued is allowable as deduction under section 24(b). Therefore, interest of ` 12,000 accrued
but not paid during the year can also be claimed as deduction.
3. Composite rent from letting out of building along with machinery is not taxable under the head “Income
from house property”, if the two lettings are not separable. It would be taxable either as business income
or income from other sources. It has been assumed that the composite rent received by Mr. Balaji
from letting out of factory building and machinery is not separable and letting out of factory
building by Mr. Balaji is incidental to his main business of trading in grains and pulses and
therefore, such income would be taxable under the head “Profit and gains from business or
profession”.
4. Unabsorbed depreciation under section 32 can be carried forward indefinitely and set-off against income
under any head, even if it relates to a discontinued business.
5. As per Section 73, loss from a speculation business can be set off only against profit of another
speculation business. Therefore, loss from speculation in jewellery of ` 80,000 cannot be set off in the
current year since there is no profit from any other speculation business. The loss of ` 80,000 from
speculation business has to be carried forward for set off against profit and gains of any speculation
business in the succeeding 4 years.

38. Mr. Hari, aged 54 years, provides the following information for the year ending 31-03-2019:
`
(i) Rent from vacant site let on lease 1,12,000
(ii) Rent from house property at Delhi 20,000 per month
(iii) Turnover from retail trade (cash sale) in grains (No books of account maintained) 24,37,500
(iv) Arrears of salary received from ex-employer 80,000
(v) Purchase of 10,000 shares (unlisted) of X Co. Ltd., on 01-01-2010 1,00,000
He received a 1 : 1 bonus on 01-01-2011. Sale of 5,000 bonus shares in
September, 2018 2,20,000
(vii) Brought forward business loss relating to discontinued textile business of
Hari relating to the Assessment Year 2015-16. 1,97,500
(viii) Brought forward depreciation relating to discontinued textile business of Hari 1,50,000
(ix) Hari contributed ` 30,000 to National Children’s Fund and ` 40,000 to Charitable Trust
enjoying exemption under section 80G.
Compute the total income and the tax thereon of Mr. Hari for the Assessment Year 2019-20.
Answer
Computation of total income and tax liability of Mr. Hari for the A.Y. 2019-20
Particulars ` `
Arrears of salary received from ex-employer (80,000 less deduction u/s 16(ia) 40,000] 40,000
Income from house property (See Note 1) 1,68,000
Profit and gains of business or profession
Income from business of retail trade in grains(See Note 2) 1,95,000
Less: Set-off of brought forward business loss relating to A.Y.2015-
16 of discontinued textile business (See Note 5) 1,95,000 Nil
Capital gains (See Note 3)
Sale consideration on sale of bonus shares 2,20,000
Less: Indexed cost of acquisition Nil
Long term capital gains 2,20,000
Rent from vacant site let on lease 1,12,000
5,40,000
Less: Set-off of unabsorbed depreciation relating to textile business (See Note 6) 1,50,000
Less: Deductions under Chapter VI-A (See Note 7) 46,000
Tax on total income

Tax on long-term capital gains@20% of ` 70,000 14,000
(` 2,20,000 - ` 1,50,000, being unabsorbed depreciation set-off)
Tax on balance income of ` 2,74,000 1,200 15,200
(i.e. ` 3,44,000 – ` 70,000, being long term capital gains taxable@20%)
12,700
13,210
Notes:
(1) Income from House Property at Delhi
Particulars `
Gross Annual Value (GAV) 2,40,000
Less: Municipal taxes paid Nil
Less: Deduction under section 24 @ 30% of NAV 72,000
Note: Rent received has been taken as the Gross Annual Value in the absence of other information
relating to Municipal Value, Fair Rent and Standard Rent.

(2) Since Mr. Hari has not maintained books of accounts in respect of the business of retail trade in grains
and the turnover from such business doesnot exceeds 2 crores, the income from such business would be
computed on a presumptive basis under section 44AD @8% of turnover. The income under section 44AD
is, therefore, ` 1,95,000, being 8% ×` 24,37,500.
(3) Cost of acquisition of bonus shares is Nil as per section 55. Since the bonus shares were allotted on
1.1.2011, the period of holding of bonus shares exceeds 2 year, therefore, it is a long-term capital asset
and the gain arising from sale of such shares shall be long-term capital gains.
(4) Business loss of a discontinued business can be carried forward and set-off against the profits of an
existing business in the subsequent years. Brought forward business loss of ` 1,97,500 from discontinued
textile business can be set-off against the current year income of ` 1,95,000 from the business of retail
trade. The balance loss of ` 2,500 can be carried forward to the next year to be set-off against the
business income of that year. It can be carried forward upto a maximum of 6 more assessment years to
be set-off against the business income of those years.
(5) Unabsorbed depreciation under section 32 can be carried forward indefinitely and set-off against income
under any head.
Section 44AD specifically provides that while computing income of an eligible business on presumptive
basis, any deduction allowable under sections 30 to 38 shall be deemed to have been given full effect to
and no further deduction under those sections shall be allowed. However, in the given problem, the
unabsorbed depreciation relates to discontinued textile business and not to the retail trade
business (eligible business) in respect of which income is computed on a presumptive basis
under section 44AD.Therefore, it is possible to take a view that such unabsorbed depreciation not
relating to the eligible business under section 44AD, can be set-off against income of the current
year.
(6) In the above solution, the deduction under Chapter VI-A and computation of tax liability has been worked
out by setting-off the unabsorbed depreciation against long-term capital gains, which would be most
beneficial for Mr. Hari, since the long-term capital gain is taxable @ 20%, whereas the normal income of
Mr. Hari (i.e., ` 2,74,000) after such set-off would be taxable at 10%, which is the rate applicable to the
income slab which Mr. Hari falls in. Therefore, the deduction under Chapter VI-A be as follows -
Deduction under Chapter VI-A:

Particulars ` `
Deduction under section 80G
Contribution to National Children’s Fund
(Eligible for 100% deduction) 30,000
Contribution to Charitable trust recognized for section 80G purposes 40,000
Deduction restricted to 50% of 10% of Adjusted Total
Income i.e. 50% × (10% × ` 3,20,000) 16,000
Adjusted total income (for the purpose of computation of deduction under section 80G):
Less: Long term capital gains (` 2,20,000 - ` 1,50,000) 70,000
Adjusted total income 3,20,000
39. Mr. Rahul, an assessee aged 61 years, gives the following information for the previous year ended 31-
03-2019:
Sl.
No. Particulars `
a. Loss from profession 1,05,000
b. Capital loss on the sale of property - short term 55,000
c. Capital gains on sale of unlisted shares - long term 2,05,000
d. Loss in respect of self-occupied property 15,000
e. Loss in respect of let out property 30,000
f. Share of loss from firm 1,60,000
g. Income from card games 55,000
h. Winnings from lotteries 1,00,000
i. Loss from horse races in Mumbai 40,000
j. Medical Insurance premium paid by cheque 18,000
Compute the total income of Mr. Rahul for the assessment year 2019-20.

Answer
Computation of total income of Mr. Rahul for the A.Y. 2019-20
Particulars ` `
Loss (` 15,000 + ` 30,000) (` 45,000)
Profits and gains from business or profession
Loss from profession (1,05,000)
Capital Gains
Long-term capital gains on sale of shares 2,05,000
Less: Short-term capital loss on sale of property (Note 1) 55,000
Income under the head “Capital Gains” 1,50,000
Less: Set-off of losses under other heads of income (Note 2)
Loss from profession 1,05,000
Loss under the head “Income from house
property” (` 15,000 + ` 30,000) 45,000 1,50,000
Nil
Income from card games 55,000
Winnings from lotteries 1,00,000 1,55,000
Less: Deductions under Chapter VIA (Note 4) Nil
Notes:
(1) As per section 74, short-term capital loss can be set-off against both short-term capital gains and long-
term capital gains. Hence, short term capital loss of ` 55,000 can be setoff against long-term capital gains
of ` 2,05,000 on sale of shares. The net income under the head “Capital gains” would be ` 1,50,000.
(2) Section 71 provides for set-off of loss from one head against income from another. As per section 71(2),
loss under any head of income, other than capital gains, can be set-off against income under any head,
including capital gains. Therefore, loss of ` 1,05,000 from profession and loss of ` 45,000 from house
property (both let out and self-occupied) can be set-off against the net income of ` 1,50,000 under the
head “Capital Gains”.
(3) Loss from an exempt source cannot be set-off against profit from a taxable source. Therefore, share of
loss from a firm cannot be set-off against any other income, since share of profit from firm is exempt
under section 10(2A).
(4) As per section 58(4), no deduction in respect of any expenditure or allowance in connection with income
by way of winnings from lotteries and income from card games is allowable under any provision of the
Income-tax Act, 1961. Therefore, since the total income comprises only of income from card games and
winnings from lotteries, deduction under Chapter VI-A is not allowable from such income. Therefore, Mr.
Rahul will not be entitled to claim deduction under section 80D in respect of medical insurance premium
paid by cheque.
(5) Since the total income comprises entirely of income from card games and winnings from lotteries taxable
at a flat rate of 30% under section 115BB, the tax liability has to be accordingly calculated @ 30% without
providing for basic exemption limit.
(6) Further, loss from horse races can neither be set-off against winnings from lotteries and income from card
games nor can it be carried forward.
40. Mr. Vishal is a resident individual. His Profit & Loss Account for the year ended 31st March, 2019 is
given below:
` `
To Staff Salary 3,57,500 By Gross profit 13,55,500
To Office Rent 78,000 By Interest on Post Office Monthly Income
Scheme 98,400
To Administrative Expenses 2,14,000 By Bank F.D. interest (Net of TDS 7,000) 63,000
To Income-tax 1,60,000 By Rent (on let out property) 66,000
To Depreciation 67,500 By Winning from lotteries(Net of TDS 7,500) 17,500
To Net Profit 7,23,400
16,00,400 16,00,400

Following further information is given to you:
(i) During the financial year 2018-19, he deposited ` 1,50,000 into his Public Provident Fund Account (i.e.
on 27-3-2018)
(ii) He received annual salary of ` 1,20,000 and annual Commission of ` 60,000 from a partnership firm in
the capacity of working partner. It is fully chargeable to tax under section 28 (v).
(iii) Received annuity pension of ` 72,500 from LIC of India.
(iv) Paid medical insurance premium of ` 26,850. The medical insurance was on self. Mr. Vishal is not a
senior citizen.
(v) Life Insurance Premium of ` 25,000 was paid on the policy standing in the name of his wife Sujatha.
(vi) Administrative expenses include ` 5,000 being municipal tax on let out property.
(vii) Depreciation eligible as per the Income-tax Act, 1961 amounts to ` 57,000.
Compute the total income of Mr. Vishal for the Assessment year 2019-20.
Answer
Computation of total income of Mr. Vishal for the A.Y. 2019-20
Particulars ` ` `
Income from House Property
Gross Annual Value – Rent received (Note 1) 66,000
Net Profit as per Profit & Loss Account 7,23,400
Add: Expenses not allowable
Income-tax 1,60,000
Depreciation charged 67,500
Municipal Taxes paid on let out property 5,000 2,32,500
9,55,900
Less: Income not forming part of business income
Interest on Post Office Monthly Income scheme 98,400
Interest on Bank Fixed Deposit 63,000
Rent received 66,000
Winning from lotteries 17,500 2,44,900
7,11,000
Less: Depreciation as per Income-tax Act, 1961 57,000
6,54,000
Add: Salary received from partnership firm (Note 2) 1,20,000
Commission received from partnership firm (Note 2) 60,000 8,34,000
Interest on Post Office Monthly Income scheme 98,400
Interest on Bank Fixed Deposit (` 63,000 + ` 7,000) 70,000
Winning from lotteries (` 17,500 + ` 7,500) 25,000
Annuity pension received from LIC of India 72,500 2,65,900
(i) Deduction under section 80C
Investment in PPF 1,50,000
Life insurance premium paid for his wife 25,000
1,75,000
Deduction restricted to 1,50,000
(ii) Deduction under section 80D
Mediclaim premium of ` 26,850 paid for insurance on
self. However, the deduction is restricted to ` 25,000. 25,000 1,75,000
Notes:
(1) Rent received is assumed to be the gross annual value of the let out property in absence of any
information regarding municipal value, fair rental value and standard rent.
(2) Any salary, bonus, commission or remuneration, by whatever name called, due to or received by a
partner of a firm shall not be treated as salary but it shall be treated as income from business or
profession for the purposes of section 28.

41. Mr. Devansh, an Indian Resident aged 38 years, carries on his own business. He has prepared the
following Profit & Loss A/c for the year ending 31-03-2019:
Salary 48,000 Gross Profit 4,30,400
Advertisement 24,000 Cash Gift (on the occasion 1,20,000
Sundry Expenses 54,500 of marriage)
Fire Insurance (` 10,000 relates to 30,000 Interest on Debentures 5,400
House Property) (Listed in recognized stock
Income-tax and Wealth-tax 27,000 exchange) Net of Taxes
Household expenses 42,500
Depreciation (allowable) 23,800
Contribution to an University 1,00,000
approved and notified U/s. 35(1)(ii)
Municipal Taxes paid for house 36,000
property
Printing & Stationery 12,000
Repairs & Maintenance 24,000
Net Profit 1,34,000
5,55,800 5,55,800
Other information:
i. Mr. Devansh owns a House Property which is being used by him for the following
purposes:
a. 25% of the property for own business
b. 25% of the property for self-residence
c. 50% let out for Residential purpose
ii. Rent received from 50% let out portion during the year was ` 1,65,000.
iii. On 1-12-2018 he acquired a vacant site from his friend for ` 1,05,000. The State Stamp
Valuation Authority fixed the value of the site at ` 2,80,000 for stamp duty purpose.
iv. He received interest on Post Office Savings Bank Account amounting to ` 500
v. Cash gift on the occasion of marriage includes gift of ` 20,000 from non-relatives.
vi. LIC premium paid (Policy value ` 3,00,000 taken on 01-06-2013) ` 60,000 for his
handicapped son (suffering from disability mentioned in section 80U)
vii. He purchased 10,000 shares of X Company Ltd on 01-01-2013 for ` 1,00,000 and
received a 1:1 bonus on 01-01-2016. He sold 5000 bonus shares in September 2018 for
` 2,20,000. (Shares are not listed and STT not paid).
Compute the total income and tax payable by Mr. Devansh for the Assessment Year 2019-20
Answer
Computation of total income and tax liability of Mr. Devansh for A.Y.2019-20
Particulars Working `
Note Nos.
Income from house property 1 1,02,900
Profit and gains of business or profession 2 62,600
Short term capital gains 3 2,20,000
Income from other sources 4 1,81,000
Less: Deduction under Chapter VI-A 5 45,000
Tax on total income
Tax on total income 16,800
Less: Rebate under section 87A (since total income does not NIL
exceed ` 5,00,000) 16,800
Less: Tax deducted at source on interest on debentures 600
[` 5,400 × 10/90]
Net Tax liability 16,872
16,870

Working Notes:.
Particulars ` `
(1) Income from House Property
(i) (Self-occupied portion (25%) Nil
As per section 23(2), income from self-occupied portion
is Nil
(ii) Let-out portion – 50% 1,65,000
Gross Annual Value
(Rent received has been taken as the Gross Annual
Value in the absence of other information relating to
Municipal
Value, Fair Rent and Standard Rent)
Less: Municipal taxes paid in respect of let out portion 18,000
(50% of ` 36,000)
Less: Deduction under section 24@30% of NAV 44,100
1,02,900
(2) Profits & Gains of Business or Profession
Add: Expenses debited to profit and loss account but
not allowable
i. Fire Insurance [relating to let-out and self 7,500
occupied house property] (75% of ` 10,000)
ii. Income-tax and wealth-tax [disallowed as per 27,000
section 40(a)(ii)/(iia)]
iii. Household expenses (Under section 37, personal
expenses are disallowed) 42,500
iv. Contribution to university approved under section
35(1)(ii), considered separately 1,00,000
v. Municipal Taxes paid in respect of let-out and self
occupied portions [75% of ` 36,000] 27,000 2,04,000
3,38,000
Less: Weighted deduction@150% for contribution to
university approved and notified under section
35(1)(ii) [1,00,000 × 150%] 1,50,000
1,88,000
Less: Income credited to Profit & Loss Account but not
taxable under this head:
(i) Cash gift
(ii) Interest on debentures (See Note below) 1,20,000
5,400 1,25,400
62,600
Capital gains
(3) Sale consideration of bonus shares
Less: Cost of acquisition [Nil, for bonus shares] 2,20,000
Short term capital gain [Since unlisted shares are held Nil
by Mr. Devansh for less than 24 months]
(4) Cash gift on the occasion of marriage is exempt, even if
the same is received from a non-relative
In case of vacant site received for inadequate Nil
consideration, difference between stamp duty value (`
2,80,000) and actual consideration (` 1,05,000) is 1,75,000
taxable under section 56(2)(x), since such difference
exceeds ` 50,000 & 5% of sales consideration.
Interest of ` 500 on post-office savings bank account [In
case of individual account, a sum upto ` 3,500 is exempt Nil
under section 10(15)]
Interest on debentures (gross) [` 5,400 × 100/90] (The
rate of TDS under section 194A is 10%) (See Note 6,000
below)
Income chargeable under this head
Deduction under Chapter VI-A : 1,81,000
(5) Deduction under section 80C
LIC Premium paid ` 60,000 [Since the policy was taken
after 31.3.2013 to insure the life of disabled son, the
premium is restricted to 15% of sum assured] [15% of `
3,00,000] 45,000

Revisionary Notes – CA Suraj Agrawal (9953006445) SATC A.59
42) In respect of AY 2019-20, Mr. Alexander an author of Text-books furnishers the following particulars
and request you to work out his tax liability:
` `
1. Royalty from Printers Ltd. on publication of books 1,20,000
2. Capital gains long/term (Urban Land) 2,80,000
3. Other sources:
(a) Interest on bank deposits 12,000
(b) Dividend income 3,000
(c) Income from units of UTI 5,000 . 20,000 .
Deductions:
(i) Contribution towards:
(a) LIC pension scheme 15,000
(b) LIC premium 10,000
(ii) Contribution to public provident fund 10,000
(iii) Investment in national savings certificates 50,000
(iv) Expenditure on medical treatment of handicapped dependent. 20,000
Answer:
Computation of taxable income
`
Income under the head profit and gains of business of profession 1,20,000
Royalty from Printers Ltd. on publication of books
Income from capital gains 2,80,000
Long term capital gains
Interest on bank deposits 12,000
Dividend income 3,000
Income from units of UTI 5,000
Less: Exempt under section 10(35) 5,000 Nil . 12,000
4,12,000
Less: Adjustment for set off of losses Nil
Under section 80C (LIC + PPF + NSC) 70,000
Under section 80CCC
LIC pension scheme 15,000 85,000
(Aggregate of deduction under section 80C,
80CCC restricted to ` 1,50,000)
Under section 80DD (Fixed Deduction) 75,000
Under section 80QQB royalty income of authors of book
(assuming other than text books for school, guides)) 1,20,000.
(as per working note 1) 2,80,000
Deduction restricted to ` 1,32,000, as no deduction available from LTCG 1,32,000
Taxable income 2,80,000
Tax on total income i.e. 20% on (LTCG less basic exemption limit) 6,000
Less: Rebate u/s 87A – Maximum ` 2,500 2,500
Tax after Rebate 3,500
Add: H & EC @ 4% 140
Tax Payable 3,640

Working Notes:
1. Deduction under section 80QQB: Income by way of royalty or copyright fee is eligible for deduction
subject to a maximum of ` 3,00,000 if the following conditions are fulfilled.
(i) Income must be derived by the author in the exercise of his profession by way of assignment or
grant of any of his interests in the copyright of a book.
(ii) Book does not include, brochures, commentaries, diaries, guides, journals, magazines,
newspaper, pamphlets, text books for schools, tracts and other publications of similar nature.
43) From the following information, compute taxable income of Mr. X for the AY 2019-20:
`
Income from business – letting cycles on hire 40,000
Lease rent received from lands given to tenants for agricultural operations 48,000
Sale of agricultural produce (landlord’s share) 30,000
Sale proceeds of agricultural land situated in a village 1,20,000
Fixed deposit interest received from companies on deposits made of sale proceeds of land 18,000
Dividends from an Indian company having rubber plantations 6,000
Salary received as a partner of a firm manufacturing tea 36,000
Payment of government tax on agricultural lands 6,000
Expenses on power, irrigation cess and farm labour 10,000
Purchase of seeds 1,000
Tractor hire charges (for agricultural operations) 2,500
Your answer must indicate reasons for the treatment given to the items mentioned above.
Answer: Computation of taxable income
`
Income under the head “Profits and gains of business and profession
(i) Letting cycles on hire 40,000
(ii) Salary as partner from a firm manufacturing tea
(as per working note 1) 36,000 76,000
Interest on fixed deposits with companies (18,000+2,000) 20,000
(as per working note 2)
Dividends from an Indian company 6,000
Less: Exempt under section 10(34) 6,000 Nil . 20,000
GTI- 96,000
Working Notes:
1. It is assumed that the firm is not engaged in growing of tea as well; otherwise 60% would have been
agricultural income and 40% thereof business income.
2. Interest on fixed deposits is always taxable as income from other sources. The sources of investment in
fixed deposits is not to be considered. It is assumed that company has deducted TDS @ 10%. Hence
added back.
3. Computation of income from agriculture.
Income and Expenditure Account
` `
To Govt. tax on agricultural land 6,000 By Lease rent 48,000
To Expenses on power, irrigation, By Sale of agricultural produce 30,000
Less and farm labor 10,000
To Purchase of seeds 1,000
To Tractor hire charges 2,500
To Net income from agriculture 58,500 . .
78,000 78,000
As per section 2(1A), the following incomes are included in agricultural income
(i) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
In the present case, lease rent is accordingly covered in agricultural income.
(ii) Any income from above land by agriculture (in the present case ` 30,000 being sale of agricultural
produce).

44) Following details are furnished by Sundaram, an Indian citizen for the year ending March 31, 2019
`
Salary (Net of tax and Sundaram’s contribution to provident fund) 48,000
Sundaram’s contribution to provident fund 4,950
Employer’s contribution to provident fund 4,950
Interest credited to provident fund @ 3.75% per annum) 14,000
Leave travel allowance received 3,600
House rent allowance (rent paid on house in Hyderabad, ` 4,500 per annum) 4,500
Dividends from ACC Ltd. an Indian company (gross) 2,500
Dividend collection charge 200
Tax deduction at source on salary 1,500
Contribution to public provident fund 4,000
Contribution to National Laboratory approved under section 35 5,000
Amount received on maturity of a Keyman Insurance Policy 6,000
Determine the total income of Sundaram of the AY 2018-19
Answer: Computation of taxable income

`
Income from salaries
Basic salary (as per working note1) 54,450
House rent allowance (as per working note 2) 4,500
Employer’s contribution to provident fund (as per working note 3) Nil
Interest credited to provident fund (as per working note 3) Nil
Leave travel allowance (as per working note 4) Nil
Profits in lieu of salary - Amount received on maturity of a keyman insurance policy 6,000
Gross Salary 64,950
Less: Deduction u/s 16 Nil
64,950
Dividend income 2,500
Less: Exempt under section 10(34) 2,500 Nil .
64,950
Gross Total Income
Less: Deductions under chapter VI-A:
Under section 80C – (RPF 4950+ PPF 4000) 8,950
Under section 80GGA – contribution to National lab 5,000 13,950
Taxable income 51,000
Working Notes:
1. Basic salary
Salary net of tax and Sundram’s contribution to provident fund 48,000
Add: Tax (i.e. TDS on salary) 1,500
Add: Contribution of Sundram’s to provident fund 4,950 .
Amount to be included in gross salary 54,450
2. House rent allowance (in a city other than Delhi, Mumbai, Kolkata and Chennai)
Least of the following is exempt under section 10(13A)
HRA actually received. 4,500
Excess of rent paid over 10% of salary [4,500 – (` 54,450 x 10%)] Nil
40% of salary (` 54,450 x 40%) 21,780
Least of the above three is Nil. Hence Nil is exempt
Salary for this purpose means
Basic salary 54,450
Dearness allowance (to the extent is forms part of retirement benefits) Nil
Commission (if it is based on fixed percentage of turnover achieved - By the employee Nil .
54,450

3. Employer’s contribution to provident fund
Amount contributed by the employer 4,950
Less: Exempt upto 12% of salary (` 54,450 x 12%) 6,534
Amount to be included in gross salary Nil .
Salary for this purpose means
Basic salary 54,450
D.A. (to the extent it forms part of retirement benefits) Nil
Commission (if it is based on fixed % of turnover) Nil .
54,450
Interest credited to provident fund is exempt upto 9.5% p.a.
4. Leave travel allowance
Amount received 3,600
Amount to be included in gross salary Nil .
It is assumed that
(i) Mr. Sundram has complied with the prescribed conditions.
(ii) Since exemption cannot exceed the actual expenditure incurred on the performance of the
journey, it is assumed that entire amount of ` 3,600 is expended.
45) Mr. Manohar submits the following information for the year ending 31.3.2019 from his proprietary
business:
Net profit (As per Profit and Loss Account) 1,12,500
The following expenditure was part of debits to the Trading and Profit & Loss Account
(i) He used goods for his personal use. The value was credited to sales was ` 25,000.
The cost of which was ` 20,000
(ii) Rent of residence, ` 3,000 per month 36,000
(iii) Payments in cash for purchases exceeding ` 20,000 4,00,000
(iv) Sales tax in dispute provided 20,000
(v) Interests on term loan from State Bank of India, paid in the month of May 2019 70,000
The following amount were credited to profit & loss account:
(i) Agricultural income 50,000
(ii) Income from Unit Trust of India (monthly income plan) 30,000
(iii) Winnings from lottery gross (tax deducted at source ` 30,000) 1,00,000
Compute the taxable income, assuming Mr. Manohar has no residential house. Give reasons for the
claim under each head of income.
Answer:
Computation of taxable income `
(i) Income under the head ‘profit and gains of business or profession 3,83,500
(as per working note 1)
(ii) Income from other sources (as per working note 2) 1,00,000
Less: Deductions under chapter VI-A
Under section 80GG (as per working note 3) NIL
Agricultural income [included in total income for rate purposes] 50,000
Working Notes:
` `
1. Income from business
Net profit as per profit & loss a/c 1,12,500
Add back: Expenses debited to profit and loss account but not
Allowable under section 28 to 44D
- Rent of residence 36,000
- Cash purchases under section 40A(3) (see working note 5) 4,00,000
- Provision for disputed sales tax 20,000 4,56,000
5,68,500

Less: Adjustment for goods for personal use credited to profit
and loss account (see working note 4) 5,000
Agricultural income 50,000
Income from UTI (MIP) 30,000
Winnings from lottery 1,00,000 1,85,000
3,83,500
2. Income from other sources
Income from UTI-(MIP) 30,000
Less: Exempt under section 10(35) 30,000 Nil .
Winning from lottery (Gross) 1,00,000
1,00,000
3. Deduction under section 80GG for rent paid
It is the least of the following three.
(i) Rent paid minus 10% of adjusted total income (` 36,000 – 10% x ` 4,83,500) NIL
(ii) 25% of adjusted total income (25% x ` 4,83,500) 120,875
(iii) ` 5,000 per month 60,000
The least of the above three is ` NIL
4. This is the fundamental accounting principle that one cannot trade with himself. Therefore, profit of
` 5,000 on account of goods taken for personal use has been deducted from the net profit.
5. As per section 40A(3), where the assessee incurs any expenditure in respect of which payment is made
in a sum exceeding ` 10,000 otherwise than by an account payee cheque or account bank draft, 100% of
such expenditure shall not be allowed as a deduction. Therefore, the amount disallowed is ` 400,000.
46) Determine the total income of Mr. Chand from the following information for the Assessment Year
2019-20:
Particulars `
i. Interest received on enhanced compensation (It relates to transfer of 4,00,000
land in the financial year 2010-11. Out of the above, ` 65,000 relates to
financial year 2018-19 and the balance relate to preceding years)
ii. Business loss relating to discontinued business of the assessment year 1,50,000
2012-13 brought forward and eligible for set off
iii. Current year business income (i.e. financial year 2018-19) (computed) 1,10,000
Answer
Computation of total income of Mr. Chand for A.Y. 2019-20
Particulars ` `
Current year business income 1,10,000
Less: Brought forward business loss of discontinued 1,10,000 Nil
business ` 1,50,000 set-off to the extent of current year
business income as per section 72
Interest on enhanced compensation taxable on receipt basis
under section 56(2)(viii) 4,00,000
Less: Deduction under section 57(@ 50% 2,00,000 2,00,000
The unabsorbed business loss of ` 40,000 (` 1,50,000 – ` 1,10,000) of A.Y. 2012-13 relating to
discontinued business will be carried forward for set -off against income from any business in the next year
i.e. A.Y. 2020-21.


Revisionary Notes – CA Suraj Agrawal (9953006445) B.1
Additional Questions on House Property
Question 1
Two brothers Arun and Bimal are co-owners of a house property with equal share. The property was
constructed during the financial year 1998-1999. The property consists of eight identical units and is
situated at Cochin.
During the financial year 2018-19, each co-owner occupied one unit for residence and the balance of six
units were let out at a rent of ` 12,000 per month per unit. The municipal value of the house property is `
9,00,000 and the municipal taxes are 20% of municipal value, which were paid during the year. The other
expenses were as follows:
`
(i) Repairs 40,000
(ii) Insurance premium (paid) 15,000
(iii) Interest payable on loan taken for construction of house 3,00,000
One of the let out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He does not own any
other house.
The other income of Mr. Arun and Mr. Bimal are ` 2,90,000 and ` 1,80,000, respectively, for the financial
year 2018-19.
Compute the income under the head ‘Income from House Property’ and the total income of two brothers
for the assessment year 2019-20.
Answer
Computation of total income for the A.Y. 2019-20
Particulars Arun (` ) Bimal(` )
I. Self-occupied portion (25%)
Annual value Nil Nil
Interest on loan taken for construction ` 75,000 (being 25% of ` 3 lakh) in total
restricted to maximum of ` 30,000 for each co-owner since the property was
constructed before 1.04.1999 30,000 30,000
Loss from self occupied property (30,000) (30,000)
II. Let-out portion (75%) – See Working Note below 1,25,850 1,25,850
Income from house property 95,850 95,850
Other Income 2,90,000 1,80,000
Total Income 3,85,850 2,75,850
Working Note – Computation of income from let-out portion of house property

Particulars ` `
Let-out portion (75%)
Gross Annual Value
(a) Municipal value (75% of ` 9 lakh) 6,75,000
(b) Actual rent [(` 12000 x 6 x 12) – (` 12,000 x 1 x 4)] = ` 8,64,000 - ` 48,000 8,16,000
- whichever is higher 8,16,000
Less: Municipal taxes 75% of 1,80,000 (20% of ` 9 lakh) 1,35,000
Less: Deduction under section 24 2,04,300
(a) 30% of NAV
(b) Interest on loan taken for the house [75% of ` 3 lakh] 2,25,000 4,29,300
Income from let-out portion of house property 2,51,700
Share of each co-owner (50%) 1,25,850
Question 2
Mr. A and B constructed their houses on a piece of land purchased by them at New Delhi. The built up
area of each house was 1,000 sq.ft. ground floor and an equal area in the first floor. A started construction
on 1-04-2017 and completed on 1-04-2018. B started the construction on 1-04-2017 and completed the
construction on 30-06-2018. A occupied the entire house on 01-04-2018. B occupied the ground floor on
01-07-2018 and let out the first floor for a rent of ` 15,000 per month. However, the tenant vacated the
house on 31-12-2018 and B occupied the entire house during the period 01-01-2019 to 31-03-2019.

Following are the other information
(i) Fair rental value of each unit ` 1,00,000 per annum
(ground floor /first floor)
(ii) Municipal value of each unit ` 72,000 per annum
(ground floor / first floor)
(iii) Municipal taxes paid by A – ` 8,000
B – ` 8,000
(iv) Repair and maintenance charges paid by A – ` 28,000
B – ` 30,000
A has availed a housing loan of ` 20 lakhs @ 12% p.a. on 01-04-2017. B has availed a housing loan of ` 12
lakhs @ 10% p.a. on 01-07-2017. No repayment was made by either of them till 31-03-2019. Compute
income from house property for A and B for the previous year 2018-19 (A.Y. 2019-20).
Answer
Computation of income from house property of Mr. A for A.Y. 2019-20
Particulars ` `
Annual value is nil (since house is self occupied) Nil
Less : Deduction under section 24(b)
Interest paid on borrowed capital ` 20,00,000 @ 12% 2,40,000
Pre-construction interest ` 2,40,000 / 5 48,000
2,88,000
As per second proviso to section 24(b), interest deduction restricted to 2, 00,000
Loss under the head “income from house property” of Mr. A (2,00,000) (2,00,000)
Computation of income from house property of Mr. B for A.Y. 2019-20

Particulars Ground floor First floor
(Self occupied)
Gross annual value (See note below) Nil 90,000
Less :Municipal taxes (for first floor) 4,000
Net annual value (A) Nil 86,000
Less : Deduction under section 24
(a) 30% of net annual value 25,800
(b) interest on borrowed capital Current year interest
` 12,00,000 x 10% = ` 1,20,000
Pre-construction interest
` 12,00,000 x 10% x 9/12 = ` 90,000 60,000 60,000
` 90,000 allowed in 5 equal instalments
` 90000 / 5 = ` 18,000 per annum 9,000 9,000
Total deduction under section 24 (B) 69,000 94,800
Income from house property (A)-(B) (69,000) (8,800)
Loss under the head “income from house property” of Mr. B (both ground (77,800)
floor and first floor)
Note : Computation of Gross Annual Value (GAV) of first floor of B’s house – If a single unit of property (in this
case the first floor of B’s house) is let out for some months and self-occupied for the other months, then the
annual letting value (ALV) of the property shall be taken into account for determining the annual value. The ALV
shall be compared with the actual rent and whichever is higher shall be adopted as the annual value. In this case,
the actual rent shall be the rent for the period for which the property was let out during the previous year. The
Annual Letting Value (ALV) is the higher of fair rent and municipal value. This should be considered for 9 months
since the construction of property was completed only on 30.6.2018.
Annual letting value = ` 75,000 being higher of -
Fair rent = 1,00,000 x 9 /12 = ` 75,000
Municipal value = 72,000 x 9/12 = ` 54,000
Actual rent = ` 90,000 (` 15,000 p.m. for 6 months from July to December, 2018)
Gross annual value = ` 90,000 (being higher of ALV of ` 75,000 and actual rent of ` 90,000)
Question 3
Discuss the following issues relating to Income from house property:
(i) Income earned by residents from house properties situated in foreign countries.
(ii) Properties which are used for agricultural purposes.

Answer
(i) In case of resident individual, his global income is taxable in India. Therefore, income earned by residents
from house properties situated in foreign countries is taxable in India. If the income from house properties
situated outside India is chargeable to tax in India the annual value of such property would be computed as if
the property is situated in India. Further, municipal taxes paid under the laws of that country can also be
deducted while arriving at the Annual Value of the property.
(ii) If the property is used for agricultural purposes, the annual value of such property would be treated as
“Agricultural Income” as per section 2(1A)(c) and it is exempt under section 10(1) of the Act. However, if the
house property is used for purpose other than agriculture the annual value of such property cannot be treated
as agricultural income.
Question 4
Mr. Vaibhav own five houses at Cochin, all of which are let out. Compute the gross annual value of each
house from the information given below: (`
`)
Particulars House-I House-II House-III House-IV House-V
Municipal value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard rent 1,08,000 N.A. 1,44,000 N.A. 78,000
Actual rent received / receivable 1,80,000 2,10,000 1,20,000 1,08,000 72,000
Answer
As per section 23(1) Gross Annual Value (GAV) is the higher of Expected rent and actual rent received.
Expected rent is higher of municipal value and fair rent but restricted to standard rent.
Computation of GAV of each house owned by Mr. Vaibhav
Particulars House-I House-II House-III House- House-
IV V
(i) Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
(ii) Fair rent 1,50,000 2,40,000 1,14,000 84,000 80,000
(iii) Higher of (i) & (ii) 1,50,000 2,40,000 1,14,000 90,000 80,000
(iv) Standard rent 1,08,000 N.A. 1,44,000 N.A. 78,000
(v) Expected rent [Lower of 1,08,000 2,40,000 1,14,000 90,000 78,000
(iii) & (iv)]
(vi) Actual rent 1,80,000 2,10,000 1,20,000 1,08,000 72,000
received/receivable 1,80,000 2,40,000 1,20,000 1,08,000 78,000
GAV [Higher of (v) & (vi)]
Question 5
Mr. Krishna owns a residential house in Delhi. The house is having two identical units. First unit of
the house is self-occupied by Mr. Krishna and another unit is rented for ` 12,000 p.m. The rented unit
was vacant for three months during the year. The particulars of the house for the previous year 2018-
19 are as under:
Standard Rent ` 2,20,000 p.a.
Municipal Valuation ` 2,44,000 p.a.
Fair Rent ` 2,35,000 p.a.
Municipal tax paid by Mr. Krishna 12% of the Municipal Valuation
Light and water charges ` 800 p.m.
Interest on borrowed capital ` 2,000 p.m.
Insurance charges ` 3,500 p.a.
Painting expenses ` 16,000 p.a.
Compute income from house property of Mr. Krishna for the A.Y.2019-20
Answer
Computation of Income from house property of Mr. Krishna for A.Y. 2019-20
Particulars ` `
(A) Rented unit (50% of total area)
Step I - Computation of Expected Rent
Municipal valuation (` 2,44,000 x ½) 1,22,000
Fair rent (` 2,35,000 x ½) 1,17,500
Standard rent (` 2,20,000 x ½) 1,10,000
Expected Rent is higher of municipal valuation and 1,10,000
fair rent, but restricted to standard rent
Step II - Actual Rent 1,44,000

Rent receivable for the whole year (` 12,000 x 12)
Step III – Computation of Gross Annual Value 1,08,000
Actual rent received owing to vacancy (` 1,44,000 – `
36,000)
Since, owing to vacancy, the actual rent received is
lower
than the Expected Rent, the actual rent received is
the
Gross Annual value 1,08,000
Less: Municipal taxes (12% of ` 1,22,000) 93,360
Less : Deductions under section 24 12,000
(a) 30% of NAV
(b) Interest on borrowed capital (` 1,000 x 12) 40,008
Taxable income from let out portion 53,352
(B) Self occupied unit (50% of total area)
Annual value
Less : Deduction under section 24: (12,000)
Interest on borrowed capital (` 1,000 x 12) _41,352
Note: No deduction will be allowed separately for light and water charges, insurance charges and painting
expenses.
Question 6
Mr. Vikas owns a house property whose Municipal Value, Fair Rent and Standard Rent are ` 96,000, `
1,26,000 and ` 1,08,000 (per annum), respectively. During the Financial Year 2018-19, one-third of the
portion of the house was let out for residential purpose at a monthly rent of ` 5,000. The remaining two-
third portion was self occupied by him. Municipal tax @ 11 % of municipal value was paid during the year.
The construction of the house began in June, 2011 and was completed on 31-5-2014. Vikas took a loan of
` 1,00,000 on 1-7-2011 for the construction of building. He paid interest on loan @ 12% per annum and
every month such interest was paid. Compute income from house property of Mr. Vikas for the
Assessment Year 2019-20.
Answer
Computation of income from house property of Mr. Vikas for the A.Y. 2019-20
Particulars ` `
I. I. Self-occupied portion (Two third)
Net Annual value Nil
Interest on loan (See Note below) (` 18,600 x 2/3) 12,400
Loss from self occupied property (12,400)
II. Let-out portion (One third)
Gross Annual Value
a) Actual rent received (` 5,000 x 12) = ` 60,000
b) Expected rent = ` 36,000
[higher of municipal valuation (i.e., ` 96,000)
and fair rent (i.e., ` 1,26,000) but restricted to
standard rent (i.e., ` 1,08,000)] = ` 1,08,000
x 1/3
Higher of (a) or (b) 60,000
Less: Municipal taxes (` 96,000 x 11% x 1/3) 3,520

(a) 30% of NAV 16,944
(b) Interest on loan (See Note) (` 18,600 x 1/3) 6,200 33,336

Note: Interest on loan taken for construction of building
Interest for the year (1.4.2018 to 31.3.2019) = 12% of ` 1,00,000 = ` 12,000

Pre-construction period interest = 12% of ` 1,00,000 for 33 months (from 1.07.2011 to 31.3.2014) = ` 33,000
Pre-construction period interest to be allowed in 5 equal annual installments of ` 6,600 from the year of
completion of construction i.e. from F.Y. 2014-15 till F.Y. 2018-19. Therefore, total interest deduction under
section 24 = ` 12,000 + ` 6,600 = ` 18,600.
Question 7
Nisha has two houses, both of which are self-occupied. The particulars of these are given below:
(Value in `)
Particulars House - I House - II
Municipal Valuation per annum 1,20,000 1,15,000
Fair Rent per annum 1,50,000 1,75,000
Standard rent per annum 1,00,000 1,65,000
Date of completion 31-03-1999 31-03-2002
Municipal taxes payable during the year (paid for
House II only) 12% 8%
Interest on money borrowed for repair of property
during current year - 55,000
Compute Nisha's income from house property for the Assessment Year 2019-20 and suggest which
house should be opted by Nisha to be assessed as self-occupied so that her tax liability is minimum.
Answer
In this case, Nisha has more than one house property for self-occupation. As per section 23(4), Nisha can
avail the benefit of self-occupation (i.e., benefit of “Nil” Annual Value) only in respect of one of the house
properties, at her option. The other house property would be treated as “deemed let-out” property, in respect
of which the annual letting value would be the gross annual value. Nisha should, therefore, consider the most
beneficial option while deciding which house property should be treated by her as self -occupied.
OPTION 1 [House I – Self-occupied and House II – Deemed to be let out]

If House I is opted to be self-occupied, Nisha’s income from house property for A.Y.2019-20 would be –
Particulars Amount in `
House I (Self-occupied) [Annual value is Nil] Nil
House II (Deemed to be let-out) [See Working Note below] 54,060
54,060
OPTION 2 [House I – Deemed to be let out and House II – Self-occupied]

If House II is opted to be self-occupied, Nisha‟s income from house property for A.Y.2019-20 would be –
Particulars Amount in `
House I (Deemed to be let-out) [See Working Note below] 70,000
House II (Self-occupied) [Annual value is Nil, but interest deduction
would be available, subject to a maximum of ` 30,000. In case of money
borrowed for repair of self-occupied property, the interest deduction
would be restricted to ` 30,000, irrespective of the date of borrowal]. (30,000)
Since Option 2 is more beneficial, Nisha should opt to treat House - II as Self occupied
and House I as Deemed to be let out, in which case, her income from house property
would be ` 40,000 for the A.Y. 2019-20

Working Note:
Computation of income from House I and House II assuming that both are deemed to be let out
Amount in Rupees
Particulars House I House II
Gross Annual Value (GAV)
Annual Letting Value (ALV) is the GAV of house
property ALV = Higher of Municipal Value and Fair Rent
but restricted to 1,00,000 1,65,000
Standard Rent
Less: Municipal taxes (paid by the owner during the Nil 9,200
previous year)
1,00,000 1,55,800
Net Annual Value (NAV)
(a) 30% of NAV
30,000 46,740
(b) Interest on borrowed capital (allowed in full in
- 55,000
case of deemed let out property)
Income from deemed to be let-out house property
70,000 54,060
Question 8
Explain the treatment of unrealized rent and its recovery in subsequent years under the provisions of
Income-tax Act, 1961.
Answer
Unrealised rent refers to the rent payable but not paid by the tenant and which the owner is also not able to
realize from the tenant. As per Explanation below section 23(1), the amount of rent which the owner cannot
realize shall not be included in the actual rent while determining the annual value of the property, subject to
fulfillment of following conditions prescribed under Rule 4 of the Income-tax Rules, 1962:
(a) the tenancy must be bonafide;
(b) the defaulting tenant has vacated the property or steps have been taken to compel him to vacate the
property;
(c) the defaulting tenant does not occupy any other property of the assessee; and
(d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of unpaid
rent or satisfies the Assessing Officer that the legal proceedings would be useless.
If the conditions mentioned above are satisfied, then, the actual rent should be reduced by the unrealized
rent and thereafter, compared with the Expected rent (being the higher of fair rent and municipal value, but
restricted to standard rent) for computing the gross annual value.
As per section 25A, the unrealised rent, when realised in any subsequent year, shall be deemed to be the
income chargeable under the head Income from house property in the previous year in which such rent is
realised, whether or not the assessee is the owner of the property in that previous year. A sum of 30% of
the unrealized rent shall be allowed as deduction.
Question 9
Explain briefly the applicability of section 22 for chargeability of income-tax for:
(i) House property situated in foreign country and
(ii) House property with disputed ownership.
Answer
Applicability of section 22 for chargeability of income-tax for –
(i) House property situated in foreign country
resident assessee is taxable under section 22 in respect of annual value of a house property situated in
foreign country. A resident but not ordinarily resident or a non resident is taxable in respect of income
from such property if the income is received in India during the previous year. Once incidence of tax is
attracted under section 22, the annual value will be computed as if the property is situated in India.
(ii) House property with disputed ownership
If the title of ownership of the house property is under dispute in a court of law, the decision about who is
the owner lies with the Income tax Department. The assessment cannot be held up for such dispute.
Generally, a person who receives the income or who enjoys the possession of the house property as
owner, though his claim is under dispute, is assessable to tax under section 22.

Question 10
Ownership itself is the criteria for assessment under the head income from house property. Discuss.
Answer
Section 27 enumerates certain cases, where the legal ownership may vest with one person whereas the
taxability is cast on another person who is deemed to be the owner.
In these specific cases, the charge of tax is on the deemed owner and not on the legal owner. The
exceptions are given below:
(i) In case of transfer of house property to spouse (not being a transfer in connection with an agreement
to live apart) or minor child (not being a married daughter) wi thout adequate consideration -
transferor is the deemed owner.
(ii) Holder of an impartible estate – shall be deemed to be the individual owner of all the properties
comprised in the estate.
(iii) A member of a co-operative society/company/AOP to whom a building or part thereof is allotted or
leased under a house building scheme – shall be deemed to be the owner of building or part thereof.
(iv) A person who is allowed to take or retain possession of any building or part thereof is the deemed
owner of such building or part thereof if such possession is obtained in part performance of a
contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.
(v) A person who acquires any rights (excluding any rights by way of a lease from mo nth to month or for
a period not exceeding one year) in or with respect to any building or part thereof, by virtue of any
such transaction as is referred to in section 269UA(f).
Therefore, legal ownership itself is not the criteria for assessment of income under the head “Income from
house property”.
Also, the provision of section 25A dealing with receipt of unrealised rent and arrears of rent also fall in
this category. The receipt is considered as income under the head house property though the recipient
may not have legal ownership of the property to which the receipt relates.
Question 11
1) X let out his property to Y. Y sublets it. How is sub-letting receipt to be assessed in the hands of
Y?
2) Y has built a house on a leasehold land. He has let out the property and claims that the income
therefrom is chargeable under the head “Income from other sources”. He has deducted expenses
on repairs, security charges, insurance and collection charges in all amounting to 40% of receipts.
Is Mr.Y‟s claim valid?
3) Z uses his property for his own business. Would the annual value be subject to tax under the head
“Income from house property”?
4)
Answer
1) Sub-letting receipt in the hands of Y can be assessed as “Income from Other Sources” or as “Profits and
gains from business or profession” depending upon the facts and circumstances of each case. It is not
assessable as income from house property.
2) No, Mr. Y‟s claim is not valid. The income from letting out of house built on leasehold land is assessable
as “Income from house property” since ownership of land is not a pre - requisite for assessment of income
under this head. 30% of Net Annual Value is allowed as deduction under section 24.
3) Where the assessee uses his property for business, it is not assessable under the head “Income from
house property”. He is entitled to depreciation under section 32(1)(ii) on the building.
Question 12
Discuss the tax liability in respect of arrears of rent.
Answer
As per section 25A, where the assessee receives any amount by way of arrears of rent in respect of any
property consisting of buildings or land appurtenant thereto of which he is the owner, the amount so received
shall be chargeable to tax under the head “Income from House Property”. It shall be charged to tax as the
income of the previous year in which such rent is received even if the assessee is no longer the owner of
such property. In computing the income chargeable to tax in respect of the arrears so received, 30% shall be
allowed as a deduction, irrespective of the actual expenditure incurred.

Additional Questions on Salary
Question 1
Mr. Harish, aged 52 years, is the Production Manager of XYZ Ltd. From the following details, compute
the taxable income for the assessment year 2019-20.
Basic salary ` 50,000 per month
Dearness allowance 40% of basic salary
Transport allowance (for commuting between place of residence and office) ` 3,000 per month
Motor car running and maintenance charges fully paid by employer ` 60,000
(The motor car is owned by the company and driven by the employee. The
engine cubic capacity is above 1.60 litres. The motor car is used for both
official and personal purpose by the employee.)
Expenditure on accommodation in hotels while touring on official ` 80,000

duties met by the employer
Loan from recognized provident fund (maintained by the employer) ` 60,000
Lunch provided by the employer during office hours. Cost to the employer ` 24,000
Computer (cost ` 35,000) kept by the employer in the residence of

Mr. Harish from1.06.2018
Mr. Harish made the following payments:
Medical insurance premium: Paid in Cash ` 4,800
Paid by account payee crossed cheque ` 25,700
Answer
Computation of taxable income of Mr. Harish for the A.Y.2019-20
Particulars ` `
Basic salary (` 50,000 x 12) 6,00,000
Dearness allowance @ 40% of basic salary 2,40,000
Transport allowance (` 3,000 x 12) 36,000
Motor car running & maintenance charges paid by employer (See Note-1) 28,800
Expenditure on accommodation in hotels while touring on official duty is not a
perquisite in the hands of employee and hence not chargeable to tax Nil
Loan from recognized provident fund – not chargeable to tax Nil
Value of lunch provided during office hours 24,000
Less: Exempt under Rule 3(7)(iii) (See Note-2) 15,000 9,000
Computer provided in the residence of employee by the employer – not Nil
chargeable to tax [Rule 3(7)(vii)]
Less : Deduction under Chapter VI-A
Deduction under section 80D in respect of medical insurance premium paid by
cheque amounting to ` 25,200 but restricted to 25,000 (See Note-3) 25,000
Notes:
1. As per Rule 3(2), if the motor car (whose engine cubic capacity is above 1.60 litres) is owned by the employer
and is used for both official and personal purpose by the employee, then the value of perquisite for use of
motor car would be ` 2,400 per month. Therefore value of perquisite for use of motor car would be ` 2,400 x
12 = ` 28,800
2. As per Rule 3(7)(iii), lunch provided by the employer during office hours is not considered as perquisite upto `
50 per meal. Since, the number of working days is not given in the question, it is assumed to be 300 days
during the F.Y. 2018-19. Therefore, ` 15,000 (i.e. 300 x ` 50) would be exempt and the balance ` 9,000 (i.e. `
24,000 - ` 15,000) would be taxable.
3. Medical insurance premium paid in cash of ` 4,800 is not allowable as deduction under section 80D. Further,
deduction for medical insurance premium paid through cheque is restricted to ` 25,000, which is the
maximum deduction allowable.

Question 2
Mr. Balaji, employed as Production Manager in Beta Ltd., furnishes you the following information for
(i) Basic salary up-to 31.10.2018 ` 50,000 p.m.
Basic salary from 01.11.2018 ` 60,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness allowance @ 40% of basic salary.
(iii) Bonus equal to one month salary. Paid in October 2018 on basic salary plus dearness allowance
applicable for that month.
(iv) Contribution of employer to recognized provident fund account of the employee@16% of basic
salary.
(v) Profession tax paid ` 3,000 of which ` 2,000 was paid by the employer.
(vi) Facility of laptop and computer was provided to Balaji for both official and personal use. Cost of
laptop ` 45,000 and computer ` 35,000 were acquired by the company on 01.12.2018.
(vii) Motor car owned by the employer (cubic capacity of engine exceeds 1.60 litres) provided to the
employee from 01.11.2018 meant for both official and personal use. Repair and running expenses
of ` 45,000 from 01.11.2018 to 31.03.2019, were fully met by the employer. The motor car was self-
driven by the employee.
(viii) Leave travel concession given to employee, his wife and three children (one daughter aged 7 and
twin sons aged 3). Cost of air tickets (economy class) reimbursed by the employer ` 30,000 for
adults and ` 45,000 for three children. Balaji is eligible for availing exemption this year to the
extent it is permissible in law.
Compute the salary income chargeable to tax in the hands of Mr. Balaji for the assessment year
2019-20.
Answer
Computation of Taxable Salary of Mr. Balaji for A.Y. 2019-20
Particulars `
Basic salary [(` 50,000 × 7) + (` 60,000 × 5)] 6,50,000
Bonus (` 50,000 + 40% of ` 50,000) (See Note 1) 70,000
Employers contribution to recognised provident fund in excess of 12% of salary = 4% of ` 26,000
6,50,000 (See Note 4)
Professional tax paid by employer 2,000
Perquisite of Motor Car (` 2,400 for 5 months) (See Note 5) 12,000
Statutory Deduction 40,000
Professional tax (See Note 6) 3,000
Taxable Salary 9,77,000
Notes:
1. Since bonus was paid in the month of October, the basic salary of ` 50,000 for the month of October is
considered for its calculation.
2. As per Rule 3(7)(vii), facility of use of laptop and computer is an exempt perquisite, whether used for official or
personal purpose or both.
3. Mr. Balaji can avail exemption under section 10(5) on the entire amount of ` 75,000 reimbursed by the
employer towards Leave Travel Concession since the same was availed for himself, his wife and three
children and the journey was undertaken by economy class airfare. The restriction imposed for two children is
not applicable in case of multiple births which take place after the first child.
It is assumed that the Leave Travel Concession was availed for journey within India.
4. It is assumed that dearness allowance does not form part of salary for computing retirement benefits.
5. As per the provisions of Rule 3(2), in case a motor car (engine cubic capacity exceeding 1.60 liters) owned by
the employer is provided to the employee without chauffeur for personal as well as office use, the value of
perquisite shall be ` 2,400 per month. The car was provided to the employee from 01.11.2018, therefore the
perquisite value has been calculated for 5 months.
6. As per section 17(2)(iv), a “perquisite” includes any sum paid by the employer in respect of any obligation
which, but for such payment, would have been payable by the assessee. Therefore, professional tax of `
2,000 paid by the employer is taxable as a perquisite in the hands of Mr. Balaji. As per section 16(iii), a
deduction from the salary is provided on account of tax on employment i.e. professional tax paid during the
year.
Therefore, in the present case, the professional tax paid by the employer on behalf of the employee ` 2,000 is
first included in the salary and deduction of the entire professional tax of ` 3,000 is provided from salary.

Question 3
From the following details, find out the salary chargeable to tax for the assessment year 2019-20.
Mr. X is a regular employee of Rama & Co. in Gurgaon. He was appointed on 1.1.2018 in the scale of
20,000-1,000-30,000. He is paid 10% D.A. & Bonus equivalent to one month pay based on salary of
March every year. He contributes 15% of his pay and D.A. towards his recognized provident fund and
the company contributes the same amount. He is provided free housing facility which has been taken
on rent by the company at ` 10,000 per month. He is also provided with following facilities:
(i) Facility of laptop costing ` 50,000.
(ii) Company reimbursed the medical treatment bill of his brother of ` 25,000, who is dependent on
him.
(iii) The monthly salary of ` 1,000 of a house keeper is reimbursed by the company.
(iv) A gift voucher of ` 10,000 on the occasion of his marriage anniversary.
(v) Conveyance allowance of ` 1,000 per month is given by the company towards actual
reimbursement.
(vi) He is provided personal accident policy for which premium of ` 5,000 is paid by the company.
(vii) He is getting telephone allowance @` ` 500 per month.
(viii) Company pays medical insurance premium of his family of ` 10,000.
Answer
Computation of taxable salary of Mr. X for A.Y. 2019-20
Particulars `
Basic pay [(` 20,000×9) + (` 21,000×3)] = ` 1,80,000 + ` 63,000 2,43,000
Dearness allowance [10% of basic pay] 24,300
Bonus 21,000
Employer’s contribution to Recognized Provident Fund in excess of 12% (15%-
12% =3% of ` 2,67,300) [See Note 1 below] 8,019
Taxable allowances
Telephone allowance 6,000
Taxable perquisites
Rent-free accommodation [See Note 1 & 2 below] 44,145
Medical reimbursement 25,000
Reimbursement of salary of housekeeper 12,000
Gift voucher [See Note 6 below] 10,000
Notes:
1. It has been assumed that dearness allowance forms part of salary for retirement benefits and accordingly,
the perquisite value of rent-free accommodation and employer’s contribution to recognized provident fund
have been worked out.
2. Where the accommodation is taken on lease or rent by the employer, the value of rent free
accommodation provided to employee would be actual amount of lease rental paid or payable by the
employer or 15% of salary, whichever is lower.
For the purposes of valuation of rent free house, salary includes:

(i) Basic salary i.e., ` 2,43,000
(ii) Dearness allowance (assuming that it is included for calculating retirement benefits) i.e. ` 24,300
(iii) Bonus i.e., ` 21,000
(iv) Telephone allowance i.e., ` 6,000
Therefore, salary works out to

2,43,000 + 24,300 + 21,000 +6,000 = 2,94,300.
15% of salary = 2,94,300 × 15/100 = 44,145
Value of rent-free house =

Lower of rent paid by the employer (i.e. ` 1,20,000) or 15% of salary (i.e., ` 44,145).
Therefore, the perquisite value is ` 44,145.
3. Facility of use of laptop is not a taxable perquisite.

4. Reimbursement of medical expenditure is now fully taxable. Medical insurance premium paid by employer
is exempt.

5. Conveyance allowance is exempt since it is based on actual reimbursement for official purposes.
6. The value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household not exceeding ` 5,000 in aggregate during the previous year is exempt. In this case, the gift
voucher was received on the occasion of marriage anniversary and the sum exceeds the limit of ` 5,000.
Therefore, the entire amount of ` 10,000 is liable to tax as perquisite.
Note - An alternate view possible is that only the sum in excess of ` 5,000 is taxable in view of the
language of Circular No.15/2001 dated 12.12.2001 that such gifts upto ` 5,000 in the aggregate per
annum would be exempt, beyond which it would be taxed as a perquisite. As per this view, the value of
perquisite would be ` 5,000.
7. Premium of ` 5,000 paid by the company for personal accident policy is not liable to tax.
Question 4
From the following details, find out the salary chargeable to tax of Mr. Anand for the assessment year
2019-20:
Mr. Anand is a regular employee of Malpani Ltd. in Mumbai. He was appointed on 01-03-2018 in the
scale of 25,000-2,500-35,000. He is paid dearness allowance (which forms part of salary for retirement
benefits) @ 15% of basic pay and bonus equivalent to one and a half month's basic pay as at the end
of the year. He contributes 18% of his salary (basic pay plus dearness allowance) towards recognized
provident fund and the Company contributes the same amount.
He is provided free housing facility which has been taken on rent by the Company at ` 15,000 per
month. He is also provided with following facilities:
(i) The Company reimbursed the medical treatment bill of ` 40,000 of his daughter, who is
dependent on him.
(ii) The monthly salary of ` 2,000 of a house keeper is reimbursed by the Company.
(iii) He is getting telephone allowance @ ` 1,000 per month.
(iv) A gift voucher of ` 4,700 was given on the occasion of his marriage anniversary.
(v) The Company pays medical insurance premium to effect an insurance on the health of Mr. Anand
` 12,000.
(vi) Motor car running and maintenance charges of ` 36,600 fully paid by employer. (The motor car is
owned and driven by Mr. Anand. The engine cubic capacity is below 1.60 litres. The motor car is
used for both official and personal purpose by the employee.)
(vii) Value of free lunch provided during office hours is ` 2,200.
Answer
Computation of taxable salary of Mr. Anand for A.Y. 2019-20
Particulars `
Basic pay [(` 25,000×11) + (` 27,500×1)] = ` 2,75,000 + ` 27,500 3,02,500
Dearness allowance [15% of basic pay] 45,375
Bonus [` 27,500 × 1.5] 41,250
Employer’s contribution to Recognized Provident Fund in excess of 12% 20,873
(18% - 12% = 6% of ` 3,47,875)
Taxable allowances 12,000
Telephone allowance
Taxable perquisites
Rent-free accommodation [See Note 1 below] 60,169
Medical reimbursement 40,000
Reimbursement of salary of housekeeper [` 2,000 × 12] 24,000
Gift voucher [See Note 4 below] -
Motor car owned and driven by employee, running and maintenance charges borne by the
employer [` 36,600 – ` 21,600 (i.e., ` 1,800 × 12)] 15,000
Value of free lunch facility [See Note 5 below ] -
Notes:
1. Where the accommodation is taken on lease or rent by the employer, the value of rent-free
accommodation provided to employee would be actual amount of lease rental paid or payable by the
employer or 15% of salary, whichever is lower. For the purposes of valuation of rent free house, salary
includes:

(i) Basic salary ` 3,02,500
(ii) Dearness allowance ` 45,375
(iii) Bonus ` 41,250
(iv) Telephone allowance ` 12,000
Total ` 4,01,125
15% of salary = ` 4,01,125 × 15/100 = ` 60,169
Value of rent-free house will be
- Actual amount of lease rental paid by employer (i.e. ` 1,80,000) or
- 15% of salary (i.e., ` 60,169),
whichever is lower.
Therefore, the perquisite value is ` 60,169.
2. Any sum paid by the employer in respect of any expenditure actually incurred by the employee on his
medical treatment or treatment of any member of his family is exempt to the extent of ` 15,000.
Therefore, in this case, the balance of ` 25,000 (i.e., ` 40,000 – ` 15,000) is a taxable perquisite.
3. Medical insurance premium paid by the employer to effect an insurance on the health of the employee is
fully exempt.
4. If the value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household is less than ` 5,000 in aggregate during the previous year, the perquisite value is Nil. In this
case, the gift voucher was received on the occasion of marriage anniversary and the sum is less than `
5,000. Therefore, the perquisite value of gift voucher, is Nil.
5. Free lunch provided by the employer during office hours is not a perquisite, assuming that the value does
not exceed ` 50 per meal.
Question 5
Shri Hari is the General Manager of ABC Ltd. From the following details, compute the taxable income
for the Assessment year 2019-20:
Basic salary ` 20,000 per month
Dearness allowance 30% of basic salary
Transport allowance (for commuting between place of ` 2,000 per month
Motor car running and maintenance charges fully paid by employer ` 36,000
(The motor car is owned and driven by employee Hari. The engine cubic capacity
is below 1.60 litres. The motor car is used for both official and personal purpose
by the employee)
Expenditure on accommodation in hotels while touring on official duties met by ` 30,000
the employer.
Loan from recognised provident fund (maintained by the employer) ` 40,000
Lunch provided by the employer during office hours.
Cost to the employer ` 12,000
Computer (cost ` 50,000) kept by the employer in the residence of Hari from 1.10.2018
Hari made the following payments:
Medical insurance premium: Paid in cash ` 3,000
Paid by cheque ` 27,200
Answer
Computation of taxable income of Shri Hari for the A.Y. 2019-20
Particulars ` `
Basic salary (` 20,000 x 12) 2,40,000
Dearness allowance @ 30% 72,000
Transport allowance (` 2,000 x 12) 24,000
Motor car maintenance borne by employer [` 36,000 - ` 21,600 i.e., ` 1,800 × 14,400
12)]
Expenditure on accommodation while on official duty not a Nil
perquisite and hence not chargeable to tax
Loan from recognized provident fund – not chargeable to tax Nil
Value of lunch provided during working hours – not chargeable to
tax as per rule 3(7)(iii) Nil
Computer provided in the residence of employee by the employer –
not chargeable to tax [Rule 3(7)(vii)] Nil
Income from Salary 310,400

Gross Total Income 310,400
Less :Deduction under Chapter VI-A
Deduction under section 80D in respect of medical insurance
premium paid by cheque 25,000
Premium paid in cash not eligible for deduction Nil
Taxable income 25,000
2,85,400
Question 6
Mr. Vignesh, Finance Manager of KLM Ltd., Mumbai, furnishes the following particulars for the
financial year 2018-19:
(i) Salary ` 46,000 per month
(ii) Value of medical facility in a hospital maintained by the company ` 7,000
(iii) Rent free accommodation owned by the company
(iv) Housing loan of ` 6,00,000 given on 01.04.2018 at the interest rate of 6% p.a. (No repayment
made during the year). The rate of interest charged by State Bank of India (SBI) as on 01.04.2018
in respect of housing loan is 10%.
(v) Gifts in kind made by the company on the occasion of wedding anniversary of Mr. Vignesh `
4,750.
(vi) A wooden table and 4 chairs were provided to Mr. Vignesh at his residence (dining table). This
was purchased on 1.5.2013 for ` 60,000 and sold to Mr. Vignesh on 1.8.2018 for ` 30,000.
(vii) Personal purchases through credit card provided by the company amounting to ` 10,000 was
paid by the company. No part of the amount was recovered from Mr. Vignesh.
(viii) An ambassador car which was purchased by the company on 16.7.2015 for ` 2,50,000 was sold
to the assessee on 14.7.2018 for ` 80,000.
Other income received by the assessee during the previous year 2018-19:
Particulars `
(a) Interest on Fixed Deposits with a company 5,000
(b) Income from specified mutual fund 3,000
(c) Interest on bank fixed deposits of a minor married daughter 3,000
(ix) Contribution to LIC towards premium under section 80CCC ` 1,00,000

(x) Deposit in PPF Account made during the year 2018-19 ` 40,000
Compute the taxable income of Mr. Vignesh for the Assessment year 2019-20
Answer
Computation of taxable income of Mr. Vignesh for the Assessment Year 2019-20
Particulars ` `
Income under the head “salaries”
Salary [ ` 46,000 x 12 ] 5,52,000
Medical facility [ in the hospital maintained by the company is exempt] -
Rent free accommodation
[Rule 3(1) ] – 15% of salary is taxable 82,800
Use of dining table for 4 months
[` 60,000 x 10 /100 x 4 /12] 2,000
Valuation of perquisite of interest on loan
[Rule 3(7)(i)] – 10% is taxable which is to be reduced by actual rate of
interest charged i.e. [ 10% - 6% = 4%] 24,000
Gift given on the occasion of wedding anniversary ` 4,750 is exempt, since -

its value is less than ` 5,000
Perquisite on sale of dining tables Cost 60,000

Less: Depreciation on straight line method @ 10% for 3 years 18,000
W.D.V 42,000
Less: Amount paid by the assessee 30,000 12,000
Purchase through credit card – not being a privilege but covered by section 10,000
17(2)(iv)

Original cost of car 2,50,000
Less: Depreciation from 16.7.2015 to 15.7.2016 @ 20% 50,000
2,00,000
Less: Depreciation from 16.7.2016 to 15.7.2017 @ 20% on 40,000
WDV Value as on 14.07.2018- being the date of sale to employee 1,60,000
Less : Amount received from the assessee on 14.07.2018 80,000 80,000
Computation of taxable income

Particulars ` `
(a) Income from salaries 7,22,800
(b) Income from other sources
(i) Interest on fixed deposit with a company 5,000
(ii) Income from specified mutual fund exempt under section 10(35) Nil
(iii) Interest on Fixed Deposit received by minor daughter
(` 3,000 - ` 1500) 1,500 6,500

Less: Deductions under Chapter VI-A 1,00,000
Section 80C – PPF & ICICI bonds 40,000
Section 80CCC – LIC 1,40,000
Overall deduction limited to ` 1.5 lakh as per section 80CCE
Note - Under Rule 3(7)(viii), while calculating the perquisite value of benefit to the employee arising from the
transfer of any movable asset, the normal wear and tear is to be calculated in respect of each completed year
during which the asset was put to use by the employer. In the given case the third year of use of ambassador
car is completed on 15.7.2018 where as the car was sold to the employee on 14.7.2018. The solution worked
out above provides for wear and tear for only two years.
s
Question 7
M` ` Lakshmi aged about 66 years is a Finance Manager of M/s. Lakshmi & Co. Pvt. Ltd., based at
Calcutta. She is in continuous service since 1965 and receives the following salary and perks from the
company during the year ending 31.03.2019:
(i) Basic Salary (`` 50,000 x 12) = ` 6,00,000
(ii) D.A. (` ` 20,000 x 12) = ` 2,40,000 (forms part of pay for retirement benefits)
(iii) Bonus – 2 months basic pay.
(iv) Commission – 0.1% of the turnover of the company. The turnover for the F.Y. 2018-19 was `
15.00 crores.
(v) Contribution of the employer and employee to the recognized provident fund Account ` 3,00,000
each.
(vi) Interest credited to Recognized Provident Fund Account at 9.5% - ` 60,000.
(vii) Rent free unfurnished accommodation provided by the company for which the company pays a
rent of ` 70,000 per annum.
(viii) Entertainment Allowance – ` 30,000.
(ix) Hostel allowance for three children – ` 5,000 each. She makes the following payments and
investments :
(i) Premium paid to insure the life of her major son – ` 15,000.
(ii) Medical Insurance premium for self – ` 6,000 ; Spouse – ` 6,000.
(iii) Donation to a public charitable institution registered under 80G ` 2,00,000 by way of
cheque.
(iv) LIC Pension Fund – ` 12,000.
Determine TI for the Assessment Year 2019-20
Answer Computation of Total Income of Mrs. Lakshmi for A.Y. 2019-20

Particulars ` `
Income from salary
Bonus 1,00,000
Commission (calculated as percentage of turnover) 1,50,000

Entertainment allowance 30,000
Children’s hostel allowance 15,000
Less : Exemption (` 300 x 12 x 2) 7,200 7,800
Interest credited to recognized provident fund account (exempt) -
Rent free unfurnished accommodation (Refer Working Note 1) 70,000
Excess contribution to PF by employer (Refer Working Note 2) 1,81,200
Less : Deduction under section 80C

Life insurance premium paid for insurance of major son 15,000
Contribution to recognized provident fund 3,00,000
3,15,000
Restricted to 1,50,000
Deduction under section 80CCC in respect of LIC pension fund 12,000
1,62,000
Deduction limited to ` 1,50,000 as per section 80CCE 1,50,000
Deduction under section 80D 12,000
Total income before deduction under section 80G 11,77,000

Deduction under section 80G :
50% of ` 1,17,700 (10% total income)(Refer Working Note 3) 58,850
Working Notes:
1. Value of rent free unfurnished accommodation
Particulars `
Bonus 1,00,000
Commission @ 0.1% of turnover 1,50,000
Entertainment allowance 30,000
Children’s hostel allowance 7,800
Salary 11,27,800
15% of salary 1,69,170
Actual rent paid by the company 70,000
The least of the above is chargeable perquisite.
2. Employer’s contribution to P.F. in excess of 12% of salary

Employer’s contribution ` 3,00,000
Less : 12% of basic salary, dearness allowance & commission (12% of ` 9,90,000) ` 1,18,800
_` 1,81,200
3. No deduction shall be allowed under section 80G in respect of any sum exceeding ` 10,000 unless such
sum is paid by any mode other than cash. Here, since the donation of ` 2,00,000 is made by cheque, the
same is allowed.
Question 8
Mr. X retired from the services of M/s Y Ltd. on 31.01.2019 after completing service of 30 years and
one month. He had joined the company in 1980 at the age of 30 years and received the following on
his retirement :
(i) Gratuity ` 6,00,000. He was covered under the Payment of Gratuity Act, 1972.
(ii) Leave encashment of ` 3,30,000 for 330 days leave balance in his account. He was credited 30
days leave for each completed year of service.
(iii) As per the scheme of the company, he was offered a car which was purchased on 01.02.2016 by
the company for ` 5,00,000. Company has recovered ` 2,00,000 from him for the car. Company
depreciates the vehicles at the rate of 15% on Straight Line Method.
(iv) An amount of ` 3,00,000 as commutation of pension for 2/3 of his pension commutation.
(v) Company presented him a gift voucher worth ` 6,000 on his retirement.

(vi) His colleagues also gifted him a Television (LCD) worth ` 50,000 from their own contribution.
Following are the other particulars :

(i) He has drawn a basic salary of ` 20,000 and 50% dearness allowance per month for the period
from 01.04.2018 to 31.01.2019.
(ii) Received pension of ` 5,000 per month for the period 01.02.2019 to 31.03.2019 after commutation
of pension.
Compute his gross total income from the above for Assessment Year 2019-20.
Answer
Computation of Gross Total Income of Mr. X for A.Y. 2019-20
Particulars `
Basic Salary = ` 20,000 x 10 2,00,000
Dearness Allowance = 50% of basic salary 1,00,000
Gift Voucher (See Note - 1) 6,000
Transfer of car (See Note - 2) 56,000
Gratuity (See Note - 3) 80,769
Leave encashment (See Note - 4) 1,30,000
Uncommuted pension = ` 5000 x 2 10,000
Commuted pension (See Note - 5) 10,000
Less: Deduction u/s 16(ia)
Income from Salary
GTI
Notes -
(1) As per Rule 3(7)(vi), the value of any gift or voucher or token in lieu of gift received by the employee or by
member of his household not exceeding ` 5,000 in aggregate during the previous year is exempt. In this
case, the amount was received on his retirement and the sum exceeds the limit of ` 5,000. Therefore, the
entire amount of ` 6,000 is liable to tax as perquisite.
perquisite would be ` 1,000 and gross taxable income would be ` 7,27,769.
(2) Perquisite value of transfer of car: As per Rule 3(7)(viii), the value of benefit to the employee, arising
from the transfer of an asset, being a motor car, by the employer is the actual cost of the motor car to the
employer as reduced by 20% of such cost for each completed year during which such motor car was put
to use by the employer on a written down value basis. Therefore, the value of perquisite on transfer of
motor car, in this case, would be:
Particulars `
Purchase price (1.2.2016) 5,00,000
Less: Depreciation @ 20% 1,00,000
WDV on 31.1.2017 4,00,000
Less: Depreciation @ 20% 80,000
WDV on 31.1.2018 3,20,000
Less: Depreciation @ 20% 64,000
WDV on 31.1.2019 2,56,000
Less: Amount recovered 2,00,000
Value of perquisite 56,000
The rate of 15% as well as the straight line method adopted by the company for depreciation of vehicle is
not relevant for calculation of perquisite value of car in the hands of Mr. X.
(3) Taxable gratuity

Particulars `
Gratuity received 6,00,000
Less : Exempt under section 10(10) - Least of the following:
(i) Notified limit = ` 20,00,000
(ii) Actual gratuity = ` 6,00,000
(iii) 15/26 x 30,000 x 30 = ` 5,19,231 5,19,231
Taxable Gratuity 80,769

(4) Taxable leave encashment
Particulars `
Leave Salary received 3,30,000
Less : Exempt under section 10(10AA) - Least of the following:
(i) Notified limit ` 3,00,000
(ii) Actual leave salary ` 3,30,000
(iii) 10 months x ` 20,000 ` 2,00,000
(assuming that dearness allowance does not form part of
pay for retirement benefit)
(iv) Cash equivalent of leave to his credit ` 2,20,000
330 ×20,000 2,00,000
30
Taxable Leave encashment 1,30,000
Note – It has been assumed that dearness allowance does not form part of salary for retirement benefits.
In case it is assumed that dearness allowance forms part of pay for retirement benefits, then, the third
limit for exemption under section 10(10AA) in respect of leave encashment would be ` 3,00,000 (i.e. 10 x
` 30,000) and the fourth limit ` 3,30,000, in which case, the taxable leave encashment would be ` 30,000
(` 3,30,000 -` 3,00,000). In such a case, the gross total income would be ` 6,32,769.
(5) Commuted Pension Since Mr. X is a non-government employee in receipt of gratuity, exemption under
section 10(10A) would be available to the extent of 1/3rd of the amount of the pension which he would
have received had he commuted the whole of the pension.
Particulars `
Amount received 3,00,000
Exemption under section 10(10A) = 1 x 3 x 3,00,000 1,50,000
3x2
Taxable amount 1,50,000
(6) The taxability provisions under section 56(2)(x) are not attracted in respect of television received from
colleagues, since television is not included in the definition of property therein.
(7)
Question 9
Mr. Mohit is employed with XY Ltd. on a basic salary of ` 10,000 p.m. He is also entitled to dearness
allowance @ 100% of basic salary, 50% of which is included in salary as per terms of employment.
The company gives him house rent allowance of ` 6,000 p.m. which was increased to ` 7,000 p.m. with
effect from 1.01.2019. He also got an increment of ` 1,000 p.m. in his basic salary with effect from
1.02.2019. Rent paid by him during the previous year 2018-19 is as under:
April and May, 2018 - Nil, as he stayed with his parents

June to October, 2018 - ` 6,000 p.m. for an accommodation in Ghaziabad
November, 2018 to March, 2019 - ` 8,000 p.m. for an accommodation in Delhi.
Compute his gross salary for assessment year 2019-20
Answer
Computation of gross salary of Mr. Mohit for A.Y. 2019-20
Particulars `
Basic salary [(` 10,000 × 10) + (` 11,000 × 2)] 1,22,000
House Rent Allowance (See Note below) 21,300
Less: Deduction u/s 16(ia)
Income from Salary

Note: Computation of Taxable House Rent Allowance (HRA)
Particulars April-May June-Oct Nov-Dec Jan Feb-March
(` ) (` ) (` ) (` ) (` )
Basic salary per month 10,000 10,000 10,000 10,000 11,000

Dearness allowance (included
in salary as per terms of 5,000 5,000 5,000 5,000 5,500
employment) (50% of basic
salary)
Salary per month for the 15,000 15,000 15,000 15,000 16,500
purpose of computation of
house rent allowance
Relevant period (in months) 2 5 2 1 2
Salary for the relevant period

(Salary per month × relevant 30,000 75,000 30,000 15,000 33,000
period)
Rent paid for the relevant Nil 30,000 16,000 8,000 16,000
period (` 6,000×5) (` 8,000×2) (` 8,000×1) (` 8,000×2)
House rent allowance (HRA) 12,000 30,000 12,000 7,000 14,000
received during the relevant (` 6,000×2) (` 6,000×5) (` 6,000×2) (` 7,000×1) (` 7,000×2)
period (A)
Least of the following is

exempt [u/s 10(13A)]
1. Actual HRA received 12,000 30,000 12,000 7,000 14,000
2. Rent paid – 10% of salary N.A. 22,500 13,000 6,500 12,700
3. 40% of salary (Residence N.A. 30,000
at Ghaziabad–June to (40% ×
Oct, 2018) ` 75,000)
15,000 7,500 16,500
50% of salary (Residence at (50% × ` (50% × (50% ×
Delhi– 30,000 ) ` 15,000) ` 33,000)
Nov’18- March’19)
Exempt HRA (B) Nil 22,500 12,000 6,500 12,700
Taxable HRA (Actual HRA – 12,000 7,500 Nil 500 1,300
Exempt HRA) (A-B)
Taxable HRA (total) = ` 12,000 + ` 7,500 + ` 500 + ` 1,300 = ` 21,300
element in the hands of Mr. Y.
Question 10
Shri Bala employed in ABC Co. Ltd. as Finance Manager gives you the list of perquisites provided by
the company to him for the entire financial year 2018-19:
(i) Medical facility given to his family in a hospital maintained by the company. The estimated
value of benefit because of such facility is ` 40,000.
(ii) Domestic servant was provided at the residence of Bala. Salary of domestic servant is ` 1,500 per
month. The servant was engaged by him and the salary is reimbursed by the company (employer).
(iii) In case the company has employed the domestic servant, what is the value of perquisite?
(iv) Free education was provided to his two children Arthy and Ashok in a school maintained and
owned by the company. The cost of such education for Arthy is computed at ` 900 per month and
for Ashok at ` 1,200 per month. No amount was recovered by the company for such education
facility from Bala.
(v) The employer has provided movable assets such as television, refrigerator and airconditioner at
the residence of Bala. The actual cost of such assets provided to the employee is ` 1,10,000.
(vi) A gift voucher worth ` 10,000 was given on the occasion of his marriage anniversary. It is given by
the company to all employees above certain grade.
State the taxability or otherwise of the above said perquisites and compute the total value of
taxable perquisites.

Answer
Taxability of perquisites provided by ABC Co. Ltd. to Shri Bala
(i) Medical facility to employees’ family in a hospital maintained by the employer is not a taxable perquisite.
Regardless of the estimated value of benefit arising from such facility to the employee, it is exempt from
tax. Therefore, the value of perquisite is Nil.
(ii) Domestic servant was employed by the employee and the salary of such domestic servant was
paid/reimbursed by the employer. It is taxable as perquisite for all categories of employees.
Taxable perquisite value = ` 1,500 × 12 = ` 18,000.

If the company had employed the domestic servant and the facility of such servant is given to the
employee, then the perquisite is taxable only in the case of specified employees. The value of the taxable
perquisite in such a case also would be ` 18,000.
(iii) Where the educational institution is owned by the employer, the value of perquisite in respect of free
education facility shall be determined with reference to the reasonable cost of such education in a similar
institution in or near the locality. However, there would be no perquisite if the cost of such education per
child does not exceed ` 1,000 per month.
Therefore, there would be no perquisite in respect of cost of free education provided to his child Arthy,
since the cost does not exceed ` 1,000 per month. However, the cost of free education provided to his
child Ashok would be taxable, since the cost exceeds ` 1,000 per month. The taxable perquisite value
would be ` 14,400 (` 1,200 × 12).
Note – An alternate view possible is that only the sum in excess of ` 1,000 per month is taxable. In such a
case, the value of perquisite would be ` 2,400.
(iv) Where the employer has provided movable assets to the employee or any member of his household, 10%
per annum of the actual cost of such asset owned or the amount of hire charges incurred by the employer
shall be the value of perquisite. However, this will not apply to laptops and computers. In this case, the
movable assets are television, refrigerator and air conditioner and actual cost of such assets is `
1,10,000. The perquisite value would be 10% of the actual cost i.e., ` 11,000, being 10% of ` 1,10,000.
(v) The value of any gift or voucher or token in lieu of gift received by the employee or by member of his
household not exceeding ` 5,000 in aggregate during the previous year is exempt. In this case, the
amount was received on the occasion of marriage anniversary and the sum exceeds the limit of ` 5,000.
Therefore, the entire amount of ` 10,000 is liable to tax as perquisite.
perquisite would be ` 5,000.
Total value of taxable perquisite = ` 53,400 [i.e. ` 18,000 + 14,400 + 11,000 +10,000].
Note - In case the alternate views are taken for items (iii) & (v), the total value of taxable perquisite would
be ` 36,400 [i.e., ` 18,000 +2,400+11,000+5,000]
Question 11
Ms. Rakhi is an employee in a private company. She receives the following medical benefits from the
company during the previous year 2018-19:
`
1) Reimbursement of following medical expenses incurred by Ms. Rakhi
(A) On treatment of her self employed daughter in a private clinic 4,000
(B) On treatment of herself by family doctor 8,000
(C) On treatment of her mother-in-law dependent on her, in a nursing home 5,000
2) Payment of premium on Mediclaim Policy taken on her health 7,500

3) Medical Allowance 2,000
per month
4) Medical expenses reimbursed on her son's treatment in a government hospital 5,000
5) Expenses incurred by company on the treatment of her minor son abroad 1,05,000
6) Expenses in relation to foreign travel and stay of Rakhi and her son abroad for 1,20,000
medical treatment (Limit prescribed by RBI for this is ` 2,00,000)
Discuss about the taxability of above benefits and allowances in the hands of Rakhi.

Answer
Tax ` , allowances and mediclaim premium in the hands of
Ms. Rakhi for A.Y. 2019-20
(1) Reimbursement of medical expenses incurred by Ms. Rakhi is now fully taxable from AY 19-20.
Therefore, the aggregate sum of ` 17,000, specified above, reimbursed by the employer would be taxable as
perquisites.
(2) Medical insurance premium of ` 7,500 paid by the employer for insuring health of Ms. Rakhi is an exempt
perquisite as per clause (iii) of the first proviso to section 17(2).
(3) Medical allowance of ` 2,000 per month i.e., ` 24,000 p.a. is a fully taxable allowance.
(4) As per clause (ii)(a) of the first proviso to section 17(2), reimbursement of medical expenses of ` 5,000 on her
son’s treatment in a hospital maintained by the Government is an exempt perquisite.
(5) As per clause (vi) of the first proviso to section 17(2), the following expenditure incurred by the employer
would be excluded from perquisite subject to certain conditions –
(i) Expenditure on medical treatment of the employee, or any member of the family of such
employee, outside India [` 1,05,000, in this case];
(ii) Expenditure on travel and stay abroad of the employee or any member of the family of such
employee for medical treatment and one attendant who accompanies the patient in
connection with such treatment [` 1,20,000, in this case].
The conditions subject to which the above expenditure would be exempt are as follows -
(i) The expenditure on medical treatment and stay abroad would be excluded from perquisite to the extent
permitted by Reserve Bank of India;
(ii) The expenditure on travel would be excluded from perquisite only in the case of an employee whose
gross total income, as computed before including the said expenditure, does not exceed ` 2 lakh.
Assuming that the limit of ` 2 lakh prescribed by RBI pertains to both expenditure on medical treatment of
minor son as well as expenditure on stay abroad of Ms. Rakhi and her minor son, such expenditure would be
excluded from perquisite subject to a maximum of ` 2 lakh. If such expenditure is less than ` 2 lakh, it would
be fully excluded.
The foreign travel expenditure of Ms. Rakhi and her minor son borne by the employer would be excluded from
perquisite only if the gross total income of Ms. Rakhi, as computed before including the said expenditure,
does not exceed ` 2 lakh.
Question 12
AB Co. Ltd. allotted 1000 sweat equity shares to Sri Chand in June 2018. The shares were allotted at `
200 per share as against the fair market value of ` 300 per share on the date of exercise of option by
the allottee viz. Sri Chand. The fair market value was computed in accordance with the method
prescribed under the Act.
(i) What is the perquisite value of sweat equity shares allotted to Sri Chand?
(ii) In the case of subsequent sale of those shares by Sri Chand, what would be the cost of
acquisition of those sweat equity shares?
Answer
(i) As per section 17(2)(vi), the value of sweat equity shares chargeable to tax as perquisite shall be the fair
market value of such shares on the date on which the option is exercised by the assessee as reduced by
the amount actually paid by, or recovered from, the assessee in respect of such shares.
Particulars `
Fair market value of 1000 sweat equity shares @ ` 300 each 3,00,000
Less: Amount recovered from Sri Chand 1000 shares @ ` 200 each 2,00,000
Value of perquisite of sweat equity shares allotted to Sri Chand 1,00,000
(ii) As per section 49(2AA), where capital gain arises from transfer of sweat equity shares, the cost of
acquisition of such shares shall be the fair market value which has been taken into account for perquisite
valuation under section 17(2)(vi).
Therefore, in case of subsequent sale of sweat equity shares by Sri Chand, the cost of acquisition would
be ` 3,00,000.

Question 13
Mr. Shah an Accounts Manager has retired from JK Ltd. on 15.1.2019, after rendering services for 30
years 7 months. His salary is ` 25,000/- p.m. upto 30.09.2018 and ` 27,000/- thereafter. He also gets `
2,000/- p.m. as dearness allowance (55% of it is a part of salary for computing retirement benefits). He
is not covered by the Payment of Gratuity Act, 1972. He has received ` 8 Lacs as gratuity from the
employer company. Compute the gratuity taxable in the hands of Mr. Shah.
Answer
Computation of gratuity taxable in the hands of Mr. Shah for the P.Y. 2018-19
As per section 10(10)(iii), gratuity received by an employee would be exempt upto the least of the following limits
Particulars `
(i) Gratuity received 8,00,000
(ii) Half-month’s salary for every year of completed service (See Note below) 4,00,500
(iii) Monetary limit 10,00,000
Therefore, ` 4,00,500 would be exempt under section 10(10)(iii). The balance ` 3,99,500
(i.e.` 8,00,000 – ` 4,00,500) would be taxable.
Note: One of the limits for calculation of gratuity exempt under section 10(10)(iii) is one-half-month’s salary
for each year of completed service (fraction of a year to be ignored), {{on the basis of average salary for the
ten months immediately preceding the month of retirement. In this case, the month of retirement is January,
2019. Therefore, average salary for the months of March 2018 to December 2018 has to be considered. The
salary is ` 25,000 p.m. upto 30.9.2018 and ` 27,000 p.m. from 1.10.2018. Hence, average salary would be
` 26,700 {[(` 25,000 × 7) + (` 27,000 × 3) + (2000× 55%×10)]/10}.
Further, half-month’s salary should be multiplied by the number of years of completed service and any
fraction of a year has to be ignored.
Therefore, in this case, half-month’s salary should be multiplied by 30 and the fraction of 7 months should be
ignored.
Computation of average salary
`
Basic salary March 2018 to December 2018 (25,000×7+27,000×3) 2,56,000
Dearness allowance (2,000 × 10 × 55%) 11,000
2,67,000
Average salary = 2,67,000/10 = ` 26,700
Half-month’s salary for every year of completed service (fraction is to be
ignored) [30 × 26,700/2] 4,00,500
Question 14
Mr. Alok, a Government employee, retired from service on 31-7-2018 after rendering service of 25
years and 7 months. He received gratuity of ` 7,00,000. His salary at the time of retirement was as
under: Basic salary ` 16,000 p.m.; Dearness Allowance ` 8,000 p.m. (eligible for retirement benefits)
(i) Compute the taxable portion of gratuity.
(ii) If Mr. Alok is not a Government employee but covered by Payment of Gratuity Act,
1972 determine the taxable and exempt portion of gratuity.
Answer
(i) As per section 10(10), gratuity received by a Government employee on retirement is fully exempt from
tax. Since Mr. Alok is a government employee, gratuity amounting to ` 7,00,000 received would be fully
exempt. The taxable portion of gratuity shall be Nil.
(ii) If Mr. Alok is not a Government employee but covered by the Payment of Gratuity Act, 1972, then, gratuity
received by him would be exempt upto least of the following :
Particulars `
(i) Statutory limit 20,00,000
(ii) Actual gratuity received 7,00,000
(iii) 15/26 x last drawn salary x years of service (including part of
the year in excess of 6 months) 15/26 x ` 24,000 x 26 years 3,60,000
Therefore, ` 3,60,000 is exempt under section 10(10).

Therefore, taxable portion of gratuity = ` 7,00,000 – ` 3,60,000 = ` 3,40,000
Note: Salary, for the purpose of computation of exempt gratuity, means basic salary
plus dearness allowance i.e. ` 24,000 (` 16,000 + ` 8,000).

Question 15
Distinguish between foregoing of salary and surrender of salary.
Answer
Foregoing of salary – Waiver by an employee of his salary is foregoing of salary. Once salary accrues,
subsequent waiver does not absolve him from liability to income-tax.
Surrender of salary – If any employee surrenders his salary to the Central Government under the Voluntary
Surrender of Salaries (Exemption from Taxation) Act, 1961, the surrendered salary would not be included in
computing
Question 16
How is advance salary taxed in the hands of an employee? Is the tax treatment same for loan or
advance against salary?
Answer
Advance Salary
Advance salary is taxable when it is received by the employee, irrespective of the fact whether it is due or not.
It may so happen that when advance salary is included and charged in a particular previous year, the rate of
tax at which the employee is assessed may be higher than the normal rate of tax to which he would have
been assessed. Section 89(1) provides for relief in these types of cases.
Loan or Advance against salary
Loan is different from salary. When an employee takes a loan from his employer, which is repayable in certain
specified installments, the loan amount cannot be brought to tax as salary of the employee.
Similarly, advance against salary is different from advance salary. It is an advance taken by the employee
from his employer. This advance is generally adjusted against his salary over a specified time period. It
cannot be taxed as salary.
Question 17
From the following details furnished by Mr. Dinesh, a marketing manager of XL Corporation Ltd., Delhi,
compute the gross total income for the Assessment Year 2019-20
Particulars Amount
(` )
Salary including Dearness Allowance 6,50,000
Conveyance allowance of ` 900 p.m. 10,800
Bonus 50,000
Salary of servant provided by the employer 48,000
Bills paid by the employer for gas, electricity and water provided free of cost
at the residence of Mr. Dinesh 82,000
Dinesh purchased a flat in a co-operative housing society in Dwarka, Delhi for self occupation for ` 35,00,000
in April 2015, which was financed by a loan from Bank of India of ` 20,00,000 @ 11% interest and his own
savings of ` 5,00,000 and a deposit of ` 10,00,000 from Bank of Baroda, to whom he let out his another
house in Rohini, Delhi on lease for ten years. The rent payable by Bank of Baroda is ` 35,000 per month.
Other relevant particulars are given below:
(i) Municipal taxes paid by Dinesh for his flat in Dwarka are ` 18,000 per annum and for his house in
Rohini are ` 12,000 per annum.
(ii) Principal loan amount outstanding as on 01-04-2018 was ` 18,50,000.
(iii) He also paid ` 8,000 towards insurance of both the houses.
(iv) In the financial year 2017-18, he had gifted ` 40,000 each to his wife and minor son. The gifted
amounts were advanced to Mr. Sandeep, who is paying interest @ 18% per annum.
(v) Mr. Dinesh’s son is studying in a school run by the employer company throughout the financial year
2018-19. The education facility was provided free of cost. The cost of such education in similar
school is ` 2,500 per month.
(vi) Dinesh also received gifts of ` 45,000 each from his two friends during the financial year 2018-19.

Answer
Computation of gross total income of Mr. Dinesh for the A.Y. 2019-20 Particulars `
Particulars ` `
Salaries
Bonus 50,000
Conveyance allowance (Fully exempt under section
10(14)(i) read with Rule 2BB(1)(c), assuming that it is
granted to meet the expenditure actually incurred on
conveyance in performance of duties of an office or
employment of profit). Nil
Value of perquisites:
(i) Salary of servant [Rule 3(3)] 48,000
(ii) Free gas, electricity and water [Rule 3(4)] 82,000
(iii) Cost of free education provided by employer (`
2,500 x 12) is fully taxable, since the cost of
education exceeds ` 1,000 per month [Rule 30,000 1,60,000
3(5)].

Let-out property (At Rohini)
Gross Annual Value (GAV) (Lease rental is taken as 4,20,000
GAV in the absence of other information) (` 35,000 ×
12)
Less: Deduction under section 24(a): 30% of NAV1 1,22,400
(A) 2,85,600
Self-occupied property (At Dwarka)
Net Annual Value (NAV) [Since the property is self Nil
occupied]
Less: Deduction under section 24(a)
Interest on loan from Bank of India @11% of `
18,50,000 restricted to (2,00,000)
(B) (2,00,000)
Income from house property [A - B] 85,600
(i) Interest earned by minor son from advances
made out of money gifted to him by his father,
Mr. Dinesh, is includible in the hands of Dinesh
as per section 64(1A), since all income arising
to a minor child is includible in the hands of
parents whose total income (before including
the income of minor child) is greater (` 40,000
x 18%) 7,200
5,700
(ii) Interest income earned by Dinesh’s wife from
advances made out of money gifted to her by
her husband, Mr. Dinesh, has to be included in
the total income of Mr. Dinesh as per section
64(1) (` 40,000 x 18%) 7,200
(iii) Gift received from two friends [taxable under
section 56(2)(x)] since the aggregate amount
received during the year exceeds ` 50,000 (` 90,000 _1,02,900
45,000 x 2)

Additional Questions on IOS

Question 1
The following details have been furnished by Mrs. Hemali pertaining to the year ended 31.3.2019:
(i) Cash gift of ` 51,000 received from her friend on the occasion of her “Shastiaptha Poorthi”, a wedding
function celebrated on her husband completing 60 years of age. This was also her 25th wedding
anniversary.
(ii) On the above occasion, a diamond necklace worth ` 2 lacs was presented by her sister living in
Dubai.
(iii) When she celebrated her daughter's wedding on 21.2.2019, her friend assigned in Mrs. Hemali's
favour, a fixed deposit held by the said friend in a scheduled bank; the value of the fixed deposit and
the accrued interest on the said date was ` 51,000.
Compute the income, if any, assessable as income from other sources.
Answer
(i) Any sum of money received by an individual on the occasion of the marriage of the individual is exempt. This
provision is, however, not applicable to a cash gift received during a wedding function celebrated on
completion of 60 years of age.
The gift of ` 51,000 received from a non-relative is, therefore, chargeable to tax under section 56(2)(x) in the
hands of Mrs. Hemali.
(ii) The provisions of section 56(2)(x) are not attracted in respect of any sum of money or property received from
a relative. Thus, the gift of diamond necklace received from her sister is not taxable under section 56(2)(x),
even though jewellery falls within the definition of “property”.
(iii) To be exempt from applicability of section 56(2)(x), the property should be received on the occasion of the
marriage of the individual, not that of the individual’s son or daughter. Therefore, this exemption provision is
not attracted in this case. Any sum of money received without consideration by an individual is chargeable to
tax under section 56(2)(x), if the aggregate value exceeds ` 50,000 in a year. “Sum of money” has, however,
not been defined under section 56(2)(x).
Therefore, there are two possible views in respect of the value of fixed deposit assigned in favour of Mrs.
Hemali –
a. The first view is that fixed deposit does not fall within the meaning of “sum of money” and therefore, the
provisions of section 56(2)(x) are not attracted. It may be noted that fixed deposit is also not included
in the definition of “property”.
b. However, another possible view is that fixed deposit assigned in favour of Mrs. Hemali falls within the
meaning of “sum of money” received.
Income assessable as “Income from other sources”
If the first view is taken, the total amount chargeable to tax as “Income from other sources” would be ` 51,000,
being cash gift received from a friend on her Shastiaptha Poorthi. As per the second view, the provisions of
section 56(2)(x) would be attracted in respect of the fixed deposit assigned and the “Income from other sources”
of Mrs. Hemali would be ` 1,02,000 (` 51,000 + ` 51,000).
Question 2
Decide the following transactions in the context of Income-tax Act, 1961:
Mr. Chezian is employed in a company with taxable salary income of ` 5,00,000. He received a cash
gift of ` 1,00,000 from Atma Charitable Trust (registered under section 12AA) in December 2018 for
meeting his medical expenses. Is the cash gift so received from the trust chargeable to tax in the
hands of Mr. Chezian?
Answer
The provisions of section 56(2)(x) would not apply to any sum of money or any property received from any
trust or institution registered under section 12AA. Therefore, the cash gift of ` 1 lakh received from Atma
Charitable Trust, being a trust registered under section 12AA, for meeting medical expenses would not be
chargeable to tax under section 56(2)(x) in the hands of Mr. Chezian.

Question 3
State whether the following are chargeable to tax and the amount liable to tax :
i. A sum of ` 1,20,000 was received as gift from non-relatives by Raj on the occasion of the marriage
of his son Pravin.
ii. Interest on enhanced compensation of ` 50,000 was received as per court decree in December
2018 by Mr. Yogesh. Out of the said amount, a sum of ` 35,000, relates to preceding financial
years.
iii. Interest on enhanced compensation of ` 96,000 received on 12-3-2019 for acquisition of urban
land, of which 40% relates to the earlier year.
Answer
S.No. Taxable/Not Amount Reason
Taxable liable to
tax (` )
(i) Taxable 1,20,000 The exemption from applicability of section 56(2)(x)
would be available if, inter alia, gift is received from a
relative or gift is received on the occasion of marriage
of the individual himself. In this case, since gift is
received by Mr. Raj from a non-relative on the
occasion of marriage of his son, it would be taxable
in his hands under section 56(2)(x).
(ii) Taxable 25,000 25,000 As per section 56(2)(viii), interest on
enhanced compensation is taxable in the year in
which it is received. Deduction of 50% in respect of
the said income is allowed under section 57(iv).
Therefore, ` 25,000 (i.e., ` 50,000 – ` 25,000) is
taxable in the hands of Mr. Yogesh in the F.Y. 2018-
19.
(iii) Taxable 48,000 As per section 145A, interest received by the
assessee on enhanced compensation shall be
deemed to be the income of the year in which it is
received, irrespective of the method of accounting
followed by the assessee.
Interest of ` 96,000 on enhanced compensation is

chargeable to tax in the year of receipt i.e. P.Y.2018-
19 under section 56(2)(viii) after providing deduction
of 50% under section 57(iv). Therefore, ` 48,000 is
chargeable to tax under the head “Income from other
sources”.
Question 4
On 10.10.2018, Mr. Govind (a bank employee) received ` 5,00,000 towards interest on enhanced
compensation from State Government in respect of compulsory acquisition of his land effected
during the financial year 2015-16.
Out of this interest, ` 1,50,000 relates to the financial year 2016-17; ` 1,65,000 to the financial year
2017-18; and ` 1,85,000 to the financial year 2018-19. He incurred ` 50,000 by way of legal expenses
to receive the interest on such enhanced compensation.
How much of interest on enhanced compensation would be chargeable to tax for the assessment
year 2019-20?

Answer
Section 145A provides that interest received by the assessee on enhanced compensation shall be deemed
to be the income of the assessee of the year in which it is received, irrespective of the method of accounting
followed by the assessee and irrespective of the financial year to which it relates.
Section 56(2)(viii) states that such income shall be taxable as „Income from other sources‟.
50% of such income shall be allowed as deduction by virtue of section 57(iv) and no other deduction shall be
permissible from such Income.
Therefore, legal expenses incurred to receive the interest on enhanced compensation would not be allowed
as deduction from such income
Computation of interest on enhanced compensation taxable as “Income from other sources” for the
A.Y 2019-20:
Particulars `
Interest on enhanced compensation taxable under section 56(2)(viii) 5,00,000
Less: Deduction under section 57(iv) (50% x ` 5,00,000) 2,50,000
Taxable interest on enhanced compensation 2,50,000
Question 5
Smt. Laxmi reports the following transactions to you:
(i) Received cash gifts on the occasion of her marriage on 18-7-2018 of ` 1,20,000. It includes gift of `
20,000 received from non-relatives.
(ii) On 1-8-2018, being her birthday, she received a gift by means of cheque from her mother's maternal
uncle, the amount being ` 40,000.
(iii) On 1-12-2018 she acquired a vacant site from her friend for `1,05,000. The State stamp valuation
authority fixed the value of site at ` 1,80,000 for stamp duty purpose
(iv) She bought 100 equity shares of a listed company from another friend for `60,000. The value of share
in the stock exchange on the date of purchase was ` 1,15,000.
Determine the amounts chargeable to tax in the hands of Smt. Laxmi for the A.Y. 2019-20. Your
answer should be supported by reasons.
Answer
Computation of amount chargeable to tax in hands of Smt. Laxmi for A.Y. 2019-20
Particulars `
(i) Cash gift of ` 1,20,000 received on the occasion of her marriage is not Nil
taxable since gifts received by an individual on the occasion of marriage is
excluded under section 56(2)(x), even if the same are from non-relatives.
(ii) Even though mother’s maternal uncle does not fall within the definition of Nil
“relative” under section 56(2)(x), gift of ` 40,000 received from him by
cheque is not chargeable to tax since the aggregate sum of money
received by Smt. Laxmi without consideration from non-relatives(other
than on the occasion of marriage) during the previous year 2018-19 does
not exceed ` 50,000.
(iii) Purchase of land for inadequate consideration on 1.12.2018 would attract 75,000
the provisions of section 56(2)(x). Where any immovable property is
received for a consideration which is less than the stamp duty value of the
property by an amount exceeding ` 50,000, the difference between the
stamp duty value and consideration is chargeable to tax in the hands of
Individual. Therefore, in the given case ` 75,000 is taxable in the hands of
Smt. Laxmi.
(iv) Since shares are included in the definition of “property” and difference 55,000
between the purchase value and fair market value of shares is ` 55,000 (`
1,15,000 - ` 60,000) i.e. it exceeds ` 50,000, the difference would be
taxable under section 56(2)(x).
Amount chargeable to tax 1,30,000

Question 6
State with proper reasons whether the following statement is True/False with regard to provisions of
Income-tax Act, 1961:
“A” receives ` 2 lakh from his friends on the occasion of his marriage on 22.04.2018 and ` 1 lakh
from the brother of his father-in-law on 31.12.2018. A’s income includible under “other sources” for
the previous year 2018-19 would be ` 3 lakh.
Answer
False : As per section 56(2)(x), where any sum of money is received without consideration by any person
from any person or persons and the aggregate value of all such sums received during the previous year
exceeds ` 50,000, the whole of the aggregate value of such sum shall be included in the total income of such
individual or Hindu Undivided Family under the head “Income from other sources”.
However, in order to avoid hardship in genuine cases, certain sums of money received have been exempted,
which includes, inter-alia, any sum received on the occasion of the marriage of the individual and any sum
received from any relative. As such, ` 2 lakh received from friends on the occasion of marriage is exempt.
However, brother of father-in-law is not included in the definition of relative. Hence, ` 1 lakh is taxable under
the head “Income from other sources”. The statement that ` 3 lakh is includible in A’s income is, therefore,
false.
Question 7
When would the dividend income be taxed in the hands of a shareholder
Answer
The provisions relating to the year of taxability of dividend are contained in section 8 of the Income-tax Act,
1961.
(a) Any dividend declared by a company or distributed or paid by it within the meaning of section 2(22) shall
be deemed to be the income of the previous year in which it is so declared, distributed or paid, as the
case may be.
(b) Any interim dividend shall be deemed to be the income of the previous year in which the amount of such
dividend is unconditionally made available by the company to the member who is entitled to it.
Any dividend which is liable for dividend distribution tax covered by section 115-O (being a dividend declared
by a domestic company) is exempt under section 10(34) except dividend covered u/s 115BBDA and hence
would not be chargeable to tax.
Question 8
How is “dividend stripping” enforced by section 94(7) of the Income -tax Act, 1961?
Answer
According to section 94(7), where :
(a) any person buys or acquires any securities or units within a period of three months prior to the record date
; and
(b) such person sells or transfers such securities within a period of three months after such record date or
transfers such units within a period of nine months after such record date ; and
(c) the dividend or income on such securities or units received or receivable by such person is exempt from
tax, then, the loss, if any, arising to him on account of such purchase and sale of securities or units, to the
extent such loss does not exceed the amount of dividend or income received or receivable on such
securities or units, has to be ignored for the purposes of computing his income chargeable to tax.

Additional Questions on Deduction
Question 1
The gross total income of Mr. Nepal for the Assessment Year 2019-20, was ` 12,00,000. He has made the
following investment/payments during the year 2018-19
Particulars `
1. L.I.C. premium paid (Policy value ` 1,00,000) (taken on 1.03.2012) 25,000

2. P.P.F. amount paid 70,000
3. Repayment of housing loan to Indian Bank 50,000
4. Payment made to L.I.C. pension fund 20,000
5. Medical insurance premium for self, wife and dependent children. 28,000
6. Mediclaim premium for parents (aged over 80 years) 32,000
Compute eligible deduction under Chapter VI-A for the Assessment Year 2019-20.
Answer
Computation of eligible deduction under Chapter - VI A of Mr. Nepal for A.Y. 2019-20
Particulars ` `
Deduction under Section 80C
LIC premium paid ` 25,000 20,000
[Limited to 20% of policy value, since policy has been taken before
1.04.2012 (20% x ` 1,00,000)]
Contribution to P.P.F. 70,000
Repayment of housing loan to Indian Bank 50,000
1,40,000
Deduction under Section 80CCC
Payment to LIC Pension Fund 20,000
1,60,000
Eligible deduction limited to ` 1,50,000 as per section 80CCE 1,50,000
Deduction under Section 80D
Payment of medical insurance premium ` 28,000 for self, wife and
dependent children. Deduction limited to ` 25,000. 25,000
Medical insurance premium paid for parents ` 32,000
Eligible deduction under Chapter VI-A 32,000 57,000
2,07,000
Question 2
Mr. Chaturvedi having gross total income of ` 6,35,000 for the financial year 2018-19 furnishes you the
following information:
(i) Deposited ` 50,000 in tax saver deposit in the name of major son in a nationalized bank.
(ii) Paid ` 25,000 towards premium on life insurance policy of his married daughter. (Sum Assured `
2,50,000 ) The policy was taken on 01.05.2012.
(iii) Contributed ` 10,000 to Prime Minister's National Relief Fund.
(iv) Donated ` 20,000 to a Government recognized institution for scientific research by a cheque.
Note: Assume that the gross total income of Mr. Chaturvedi does not include any income under the head
‘Profits and gains of business or profession’.
Compute the total income of Mr. Chaturvedi for the assessment year 2019-20.
Answer Computation of total income of Mr. Chaturvedi for the A.Y. 2019-20
Particulars ` `
(i) Deposit of ` 50,000 in tax saver deposit in the name of major son in a
nationalized bank – Fixed deposit in the name of son does not qualify
for deduction under section 80C
(ii) Premium on life insurance policy of his married daughter - Eligible for
deduction under section 80C 25,000
(iii) Contribution of ` 10,000 to PM’s National Relief Fund, eligible for
100% deduction under section 80G 10,000
(iv) Payment of ` 20,000 to a Government recognized institution for
scientific research - Eligible for deduction under section 80GGA since
the payment is made by way of cheque 20,000 55,000

Question 3
State with proper reasons whether the following statements are True/False with regard to the provisions
of the Income-tax Act, 1961:
(i) During the financial year 2018-19, Mr. Amit paid interest on loan availed by him for his son's higher
education. His son is already employed in a firm. Mr. Amit will get the deduction under section 80E.
(ii) Subscription to notified bonds of NABARD would qualify for deduction under section 80C.
(iii) In order to be eligible to claim deduction under section 80C, investment/contribution/ subscription
etc. in eligible or approved modes, should be made from out of income chargeable to tax.
(iv) Where an individual repays a sum of ` 30,000 towards principal and ` 14,000 as interest in respect of
loan taken from a bank for pursuing eligible higher studies, the deduction allowable under section
80E is ` 44,000.
Answer
(i) True: The deduction under section 80E available to an individual in respect of interest on loan taken for his
higher education or for the higher education of his relative. For this purpose, relative means, inter alia, spouse
and children of the individual. Therefore, Mr. Amit will get the deduction under section 80E. It is immaterial
that his son is already employed in a firm. This would not affect Mr. Amit’s eligibility for deduction under
section 80E.
(ii) True: Under section 80C(2) subscription to such bonds issued by NABARD (as the Central Government may
notify in the Official Gazette) would qualify for deduction under section 80C.
(iii) False: There is no stipulation under section 80C that the investment, subscription, etc. should be made from
out of income chargeable to tax.
(iv) False: Deduction under section 80E is in respect of interest paid on education loan. Hence, the deduction will
be limited to ` 14,000.
Question 4
For the Assessment year 2019-20, the Gross Total Income of Mr. Chaturvedi, a resident in India, was `
8,20,240 which includes long-term capital gain of ` 2,45,000 and Short-term capital gain of ` 58,000.
The Gross Total Income also includes interest income from saving bank deposits with banks of `
12,000. Mr. Chaturvedi has invested in PPF ` 1,40,000 and also paid a medical insurance premium `
30,000. Mr. Chaturvedi also contributed ` 50,000 to Public Charitable Trust eligible for deduction
under section 80G by way of an account payee cheque.
Compute the total income and tax thereon of Mr. Chaturvedi, who is 70 years old as on 31.3.2019.
Answer
Computation of total income and tax payable by Mr. Chaturvedi for the A.Y. 2019-20
Particulars ` `
Gross total income including long term capital gain 8,20,240
Less : Long term capital gain 2,45,000
5,75,240
Less : Deductions under chapter VI-A:
Under section 80C in respect of PPF deposit 1,40,000
Under section 80D (it is assumed that premium of ` 30,000 is paid by 30,000
otherwise than by cash.)
Under section 80G (See Note-1 & 2 below) 19,662
Under section 80TTB (See Note-3 below) 12,000 2,01,662
Total income (excluding long term capital gains) 3,73,578
Total income (including long term capital gains) 6,18,578
Tax on total income (including long-term capital gains of ` 2,45,000)
LTCG ` 2,45,000*20% 49,000
Balance total income ` 3,73,580
3,679
52,679
Add: Health & education cess @4% 2,107
Total Tax liabilities 54,786
Total tax liability (rounded off) 54,790

Notes :
1. Computation of deduction under section 80G:

Particulars `
Gross total income (excluding long term capital gains) 5,75,240
Less : Deduction under section 80C, 80D & 80TTB 1,82,000
3,93,240
10% of the above 39,324
Contribution made 50,000
Lower of the two eligible for deduction under section 80G 39,324
Deduction under section 80G – 50% of ` 15,000 19,662
2. Deduction under section 80G is allowed only if amount is paid by any mode other than cash, in case of
amount exceeding `10,000. Therefore the contribution made to public charitable trust is eligible for deduction
since it is made by way of an account payee cheque.
3. Deduction upto ` 50,000 under section 80TTB is allowed, inter alia, to an individual senior citizen if gross total
income includes interest income from deposits with bank.
Question 5
Explain how contributions to political parties are deductible in the hands of corporate and
noncorporate assessees under the income-tax law`
Answer
Section 80GGB provides for deduction of any sum contributed in the previous year by an Indian company to
a political party. Section 80GGC provides for deduction of any sum contributed by any other person to a
political party. However, this deduction will not be available in respect of sum contributed by a local authority
and every artificial juridical person, wholly or partly funded by the Government.
It may be noted that cash donations to political parties would not qualify for deduction under section 80GGB
and section 80GGC. Deduction under sections 80GGB and 80GGC would be available in Act, 1951.
Note: For the purpose of section 80GGB, the word “contribute” shall have the same meaning assigned to it
under section 293A of the Companies Act, 1956, which provides that –
a) a donation or subscription or payment given by a company to a person for carrying on any activity which
is likely to effect public support for a political party shall also be deemed to be contribution for a political
purpose;
b) the expenditure incurred, directly or indirectly, by a company on advertisement in any publication (being a
publication in the nature of a souvenir, brochure, tract, pamphlet or the like) by or on behalf of a political
party or for its advantage shall also be deemed to be a contribution to such political party or a contribution
for a political purpose to the person publishing it.
However, it may be noted that as per section 37(2B), no allowance shall be allowed in respect of expenses
incurred by him on advertisement in any souvenir, brochure, tract or the like published by any political party. It
is only after computation of gross total income, contribution to a registered political party is allowed as
deduction under section 80GGB to an Indian company.
Question 6
Mr. Rajmohan whose gross total income was ` 6,40,000 for the financial year 2018-19 furnishes you
the following information:
a) Stamp duty paid on acquisition of residential house (self-occupied) ` 50,000.
b) Five year time deposit in an account under Post Office Time Deposit Rules, 1981 ` 20,000.
c) Donation to a recognized charitable trust ` 25,000 which is eligible for deduction under section 80G at
the applicable rate.
d) Interest on loan taken for higher education of spouse paid during the year ` 10,000.
Compute the total income of Mr. Rajmohan for the Assessment year 2019-20.

Answer
Computation of total income of Mr. Rajmohan for the A.Y. 2019-20
Particulars ` `
Less: Deduction under Chapter VI-A Under section
80C
Stamp duty paid on acquisition of residential house 50,000
Five year time deposit with Post Office 20,000
70,000
Under section 80E
Interest on loan taken for higher education of spouse,
10,000
being a relative.
Under section 80G (See Note below)
Donation to recognized charitable trust
(50% of ` 25,000) 92,500
12,500
Total Income
5,47,500
Note: In case of deduction under section 80G in respect of donation to a charitable trust, the net qualifying
amount has to be restricted to 10% of adjusted total income, i.e., gross total income less deductions under
Chapter VI-A except 80G. The adjusted total income is, therefore, ` 5,60,000 (i.e. 6,40,000 – 80,000), 10% of
which is ` 56,000, which is higher than the actual donation of ` 25,000. Therefore, the deduction under
section 80G would be ` 12,500, being 50% of the actual donation of ` 25,000.
Question 7
Deduction under section 80CCD is available only to individuals employed by the Central Government.
Discuss the correctness of this statement.
Answer
The deduction under section 80CCD is available to the individuals employed by the Central Government or
any other employer. The deduction is also available to self-employed individuals. Therefore, the statement is
incorrect.
Question 8
Mr. Abhik, an individual, made payment of health insurance premium to GIC in an approved scheme.
Premium paid on his health is ` 20,000 and his spouse’s health is ` 15,000 during the year 2018-19.
He also paid health insurance premium of ` 35,000 on his father’s health who is a senior citizen and
not dependent on him. The payments have not been made by cash. Compute the amount of
deduction under section 80D available to Mr. Abhik from his gross total income for the assessment
year 2019-20.
Answer
Mr. Abhik will be eligible to claim deduction under section 80D on payment of health insurance premium to
GIC in a medical insurance scheme approved by the Central Government. The premium is paid otherwise
than by way of cash and hence qualifies for deduction under section 80D. Therefore, the amount of
deduction under section 80D would be –
Particulars `
On health insurance premium paid on the health of himself and his spouse 25,000
(` 20,000 + ` 15,000 = ` 35,000, but restricted to ` 25,000)
On health insurance premium paid on the health of his father, ` 35,000
(Maximum deduction is now ` 50,000 in the case of a parent, who is a 35,000
senior citizen (whether dependent or not) 60,000

Question 9
Compute the eligible deduction under Chapter VI-A for the Assessment year 2019-20 of Ms. Roma,
who has a gross total income of ` 15,00,000 for the assessment year 2019-20 and provides the
following information about her investments/payments during the year 2018-19:
Sl. Particulars Amount
No. (` )
1. Life Insurance premium paid (Policy taken on 01-01-2012 and 35,000
sum assured is ` 1,50,000)
2. Public Provident Fund contribution 1,50,000
3. Repayment of housing loan to Bhartiya Mahila Bank, 20,000
Bangalore
4. Payment to L.I.C. Pension Fund 1,40,000
5 Mediclaim Policy taken for self, wife and dependent children,
premium paid 30,000
6. Medical Insurance premium paid by cheque for parents (Senior
Citizen) 32,000
Answer
Computation of eligible deduction under Chapter VI-A of Ms. Roma for Assessment Year 2019-20
Particulars ` `
Life insurance premium paid ` 35,000 (deduction restricted
to 20% of the sum assured since the policy was taken before
1.4.2012) ` 1,50,000 x 20% 30,000
Public Provident Fund 1,50,000
Repayment of housing loan to Bhartiya Mahila Bank,
Bangalore 20,000
2,00,000
Restricted to a maximum of ` 1,50,000 1,50,000
Deduction under section 80CCC for payment towards
LIC pension fund 1,40,000
2,90,000
As per section 80CCE, aggregate deduction under, inter alia, 1,50,000
section 80C and 80CCC, is restricted to
Deduction under section 80D
- Payment of medical insurance premium of ` 30,000
towards medical policy taken for self, wife and dependent
children restricted to 25,000
- Medical insurance premium paid ` 32,000 for parents,
being senior citizen 32,000 57,000
Eligible deduction under Chapter VI-A 2,07,000

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5 Scope of Total Income

CHAPTER – III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

10 Incomes not included in total income

CHAPTER – IV COMPUTATION OF TOTAL INCOME

B. INCOME FROM HOUSE PROPERTY

22 Income from house property

C. PROFITS AND GAINS FROM BUSINESS OR PROFESSION

E. INCOME FROM OTHER SOURCES

AMENDMENTS – Income Tax

Amendment in Tax Rates

B. New Tax Rate for Domestic Company (Normal Rate is 30%):

Amendment in Chapter - “Agriculture Income & Tax Computation”

No new amendments in this chapter.

c) secures orders in India, mainly or wholly

Amendment brought from AY 2019-20:

New Section 10(6D)

B. Reimbursement of medical expenses – now taxable

C. Transport Allowance – now taxable

Quote of Finance Minister:

F. Compensation received in connection with the termination or modification of a contract

Amendment in House Property

Assessee engaged in the Business of Letting out House Properties

(Earlier, we used to treat above income as Income from House Property)

A. Compensation/any payment received on termination/modification of contract relating to

Text of Section 28(ii)

C. Amendments in Section 44AE – Presumptive Income in case of Goods Carriage

Amendment in Capital Gain

B. Conversion of Inventory into Capital Asset & Subsequent Sale:

b. Explanation 1A to Section 43(1) – Amendment in PGBP Chapter

e. Section 2(24)(xiia) – Definition of “Income”

D. Section 54EC – No CG on investment in certain bonds by Any Assessee

New Section 112A inserted:

6. Deductions under Chapter VI-A cannot be availed in respect of such LTCG.

Imp: New Section 55(2)(ac) – COA in computing LTCG as discussed above

"Fair Market Value" means,—

Immovable property against inadequate consideration:

b) Tax neutral Transfers [Section 56(2)(x)] – W.r.e.f. AY 18-19 (Holding/Subsidiary company)

d) Clarification in Sub-section 2 of Section 115BBE [Tax on Undisclosed Income]