DT Bullet by CA Saumil Manglani - CS Exec June 21 Exams

CA Saumil Manglani
Index
Topics Topic Name Page Numbers
1 Basic Concepts 1.1 – 1.10
2 Residential Status and Scope of 2.1 – 2.26

Total Income
3 Exempted Income 3.1 – 3.10
4 Salaries 4.1 – 4.32
5 House Property 5.1 – 5.10
6 PGBP 6.1 – 6.46
7 Capital Gains 7.1 – 7.31
8 IOS 8.1 - 8.12
9 Clubbing 9.1 – 9.06
10 Set off - Carry Forward 10.1 – 10.10
11 Deductions 11.1 – 11.19
12 PAN - Return Filing - Self 12.1- 12.18

assessment
13 TDS - TCS - Advance Tax 13.1 – 13.30
14 Various entities 14.1 – 14.20
15 Tax incidence on companies 15.1 – 15.15
16 Assessment – Appeals – Revision 16.1 – 16.24

- Penalties
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1. Direct Taxes at a Glance 1.1
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Introduction
The word tax is based on the Latin word “taxo” whichmeans “to estimate/ Charge”.
To tax means to impose a financial charge or other levy upon a taxpayer
Definitions
There is no precise and accurate definition for the tax and the concept of tax has been defined
differently by different economists. Some definitions are as follows.
According to Prof Seligman – A tax is compulsory contribution from the person to the
government to defray the expense incurred in the common interest of all without reference to
special benefits conferred.
According to Bastable – A tax as a compulsory contribution of the wealth of a person, or body of
persons for the service of public powers.
Deviti. De Marco defines – A tax as a share of the income of citizens which the state
appropriate in order to procure for itself the means necessary for the production of general public
services.
Hugh Dalton – A tax is a compulsory charges imposed by a public authority irrespective of the
exact amount of service rendered to the tax payer in return and not imposed as a penalty for legal
offence.
Jom Bouvier defined a tax as “A pecuniary burden imposed for support of the government, the
enforced proportional contribution of persons and property of the government and for all public
needs”
According to Trussing, “The essence of Tax as distinguished from other charges by government is
the absence direct quid pro quo- tit for tat between the tax payers and the public authority”.
From the above definitions we may conclude that a tax is compulsory contribution, levied by
government from owner of income without direct benefit but for public benefit, and taxes should be
arranged by the law.
Characteristics of Taxes
1. Tax is compulsory –
2. Tax is contribution –A tax is the duty of every citizen to bear their due share for support
to government to help it to face its expenditures.
3. Tax is for public benefit
4. No direct benefit –absence of a direct quid-pro-quo between the taxpayer and the public
authority.
5. Tax is paid out of income of the tax payer
6. Government has the power to levy tax –
7. Tax is not the cost of the benefit –
8. Tax is for the economic growth and public welfare –

Canons of Taxation
Canons of taxation refer to the administrative aspect of a tax.
1. Canon of equity: This canon implies that any tax system should be based on the
principle of social justice. Equity refers to both horizontal and vertical equity.
2. Canon of Certainty : The tax rules should clearly specify when the tax is to be paid, how
it is to be paid, and how the amount to be paid is to be determined. Objective of this
canon is to create trust between two parties,.
3. Canon of Convenience: A tax should be due at a time or in a manner that is

most likely to be convenient for the taxpayer. Convenience in paying a tax helps
to ensure compliance.
4. Canon of Economy: This canon implies that decreasing the administrative cost of
collection of the tax at the lowest level. This principle considers the number of
revenue officers needed to administer a tax. This principle is closely related to
the principle of simplicity.
Objectives
Objectives of taxes have been developed when the functions of the Government are developed.
The Objectives of taxation in brief are as under:-
• Revenue -
• Social objectives
• Economic significance of taxes-
• Economic growth:
• Enforcing government policy:
• Directing limited scarce resources into effective and essential channels:
• Economic stability:
Direct Vs Indirect Tax
Direct and Indirect taxes
Point of Direct Tax Indirect Tax

difference
Incidence & on one and same person. impact of tax is on one person and
Impact incidence (burden) on the another,
Burden burden of tax cannot be allows the tax burden to shift.

shifted
Viability of Direct taxes are lesser burden Indirect taxes are borne by the
payment then Indirect taxes to people as consumers of commodities and
direct taxes are based on Income services Irrespective of financial ability
earning ability of as the MRP Includes all taxes.
people.
Administrativ The administrative cost of Cost of collecting Indirect taxes is

e viability collecting direct taxes is more very less .
Penalty It is levied on the assessee. It is levied on supplier of Goods &

Services.

Merits of DT Demerits of DT
1. Equity: - depend upon the volume of

income - based on the principle of 1. Evasion: -
progressive, so rates of tax increase as the
2. Uneconomical.:-
level of income of a person rises.
3. Unpopular:-Direct tax is required to be
2. Elasticity and productivity: - Direct taxes
paid in lump sum for the whole year, so
have elasticity because when the
the tax payers feel the painful
government faces some Emergency, like
payment, these taxes are therefore
earthquake, floods and famine the
unpopular.
government can collect money for facing
those Problems by direct tax. 4. Little incentive to work and save
3. Certainty: - The taxpayers are aware of 5. Not suitable to a poor country: -
the quantity of tax. 6. Arbitrary:-
4. Reduce inequality
Demerits of Indirect Tax
5. Good instrument in the case of inflation. -
1. Regressive in effect:- No distinction is
6. Simplicity
made between the rich and poor
Merits of Indirect Tax
people.
1. High revenue production:
2. Uncertainty in collection
2. No evasion.
3. Discourage savings-
3. Convenient: -Indirect taxes are small 4. Increased inflation
amount and indirect taxes are hidden in
the price of goods and service,
4. Economy -
5. Wide coverage
6. Elasticity

Taxation in India during Ancient Time

In India, the system of direct taxation as it is known today, have been in force in one form or another
even from ancient times. there are references both in Manu Smriti and Arthashastra to a variety of
tax measures
Manu, the ancient sage and law-giver He laid down that traders and artisans should pay 1/5th of their
profits in silver and gold, while the agriculturists were to pay 1/6th, 1/8th and 1/10th of their
produce depending upon their circumstances.
Background of Income tax in India
(From here starts the most important part for exams (apart from
this, canons & definitions are important)
Income Tax Act, 1860
✓ Consequent upon the financial difficulties created by the events of 1857.
✓ Income Tax was introduced in India for the first time by the British in the year 1860.
The Act of 1860 was passed only for five years and therefore it lapsed in 1865.
✓ It was replaced 1867 by a licence tax on professions and trades and the latter was
converted into a certificate tax in the following year.
✓ It was latter abolished in 1873.
✓ Licence tax traders remained in operation till 1886 when it was merged in the income
tax Act of that year.
✓ The Act of 1886 levied a tax on the income of residents as well as non residents in
India.
✓ The Act defined agricultural income and exempted it from tax liability in view of the
already existing land revenue a kind of direct taxes.
✓ The Act of 1886 exempted life insurance premiums paid by assesse policies of his
own life.
✓ Another important provision of this Act Hindu undivided family was treated as a
distinct taxable entity.

✓ The Act of 1918 brought under change also receipts of casual or non recurring nature
pertaining to business or professions.
✓ It was in the Act of 1918 that specific provisions were inserted for the first time
pertaining to business deductions for the purpose of computing net income.
✓ The Act of 1918 remained in force for a short period and was replaced by new Act
(Act XI of 1922) in view of the reforms introduced by the Govt. of India Act, 1919.
✓ The organizational history of the income tax department dates back to the year 1922.
✓ “one of the important aspects of the 1922 Act was that, it laid down the basis, the
mechanism of administering the tax and the rates
✓ Before 1922 the tax rate were determined by the Income tax act itself and to revise the
rates, the act itself had to be amended. The Income tax Act, 1922 gave for first time a
specific nomenclature to various income tax authorities and laid the foundation of a
proper system of administration
✓ Is amended from time to time by the annual finance Act
✓ The act which came into force on April 1, 1962, replaced the Indian income tax Act,
1922, which had remained in operation for 40 years.
✓ Furthermore, A set of rules known as Income Tax Rules, 1962 have been framed for
implementing the various provisions of the Act.
Changes in administrative set up since the inception of the department
• The rapid changes in administration of direct taxes, during the last decades, reflect the
history of socio-economic thinking in India.
• The organizational history of the income-tax department starts in the year 1922.
• The income-tax act, 1922, gave, for the first time, a specific nomenclature to various
Income-tax authorities.
• The foundation of a proper system of administration was thus laid.
• In 1924, Central Board of revenue act constituted the Board as a statutory body with
functional responsibilities for the administration of the income-tax act.
• Commissioners of Income- tax were appointed separately for each province and Assistant
Commissioners and Income-tax Officers were provided under their control.
• The amendments to the income tax act, in 1939, made two vital structural changes:
o (i) appellate functions were separated from administrative functions; a class of

officers, known as appellate assistant Commissioners, thus came into existence, and
o (ii) a central charge was created in Bombay.

• In 1940, with a view to exercising effective control over the progress and inspection of the
work of Income-tax Department throughout India, the very first attached office of the Board,
called Directorate of Inspection (Income tax) - was created.
• As a result of separation of executive and judicial functions, in 1941, the appellate tribunal
came into existence. In the same year, a central charge was created in Calcutta also.

• In order to improve the quality of work, in 1977, a new cadre known as IAC (assessment)
and in 1978 another cadre known as CIT (Appeals) were created.
• The Commissioners’ cadre was further reorganized and five posts of Chief Commissioners
(administration) were created in 1981.
Certain important policy and administrative reforms carried out over the past few years are as follows :-
(a) the policy reforms include :-
• Lowering of rates;
• Withdrawals/reduction of major incentives;
• introduction of measures for presumptive taxation;
• simplification of tax laws, particularly relating to capital gains; and
• Widening the tax base.
(b) the administrative reforms include :--
• Computerization involving allotment of a unique identification number to tax payers which is
emerging as a unique business identification number; and
• Realignment of the available human resources with the changed business needs of the
organization.
Tax Structure in India

Constitution of India
• Article 265– No tax shall be levied or collected except by the Authority of Law.
• Article 246- Distributes legislative powers including taxation, between the Parliament of
India and the state legislature
Schedule VII- Enumerates powers under three lists
o Union List – Powers of Central Government
o Legislative List- Powers of State Government
o Concurrent
List- Both Central and state Government have powers, in case of conflict; law
made By Union Government prevails.
Some of the major taxes under respective lists are:-
Central Government
• Customs including export duties
• Excise on Tobacco and other goods manufactured in India except alcoholic liquors for human
consumption, opium, narcotic drugs
• Corporation Tax
• Taxes on interstate trade of goods
• Taxes on interstate consignment of goods
• Any other matter not included in List II or III
State Government
• Excise duty on alcoholic liquors, opium and narcotics
• Octroi or Entry Tax

• Tax on intra state trade of goods other than newspapers
• Tax on advertisements other than that in newspapers
• Tax on goods and passengers carried by road or inland waterways
• Tax on professionals, trades, callings and employment
Administration
✓ The Central Board of Revenue or Department of Revenue is the apex body
charged with the administration of taxes.
✓ It is a part of Ministry Of Finance which came into existence as a result of the
Central Board of Revenue Act, 1924.
✓ Initially the Board was in charge of both direct and indirect taxes.
✓ However Board was split up into two, namely the Direct Taxes (CBDT) and Central
Board of Excise and Customs (CBEC) now CBIC Central Board of Indirect Taxes
and Customs.
✓ This bifurcation was brought about by constitution of the two Boards under
Section 3 of the Central Boards of Revenue Act, 1963.
CBDT
✓ Provides essential inputs for policy and planning
statutory authority
✓ The CBDT is a functioning under the Central Board of
Revenue Act, 1963.
✓ It is India’s official Financial Action Task Force (FATF) unit.
Organizational Structure
✓ The CBDT is headed by CBDT Chairman and also comprises six members.
✓ The Chairperson holds the rank of Special Secretary to Government of India while
✓ the members rank of Additional Secretary to Government of India.

• Member (Income Tax)
• Member (Legislation and Computerization)
• Member (Revenue)
• Member (Personnel & Vigilance)
• Member (Investigation)
• Member (Audit & Judicial)
The CBDT Chairman and Members of CBDT are selected from Indian Revenue Service
(IRS), a premier civil service of India, whose members constitute the top management of Income
Tax Department.
Income Tax Department
✓ Income Tax Department is also responsible for enforcing Double Taxation Avoidance
Agreements & international taxation such as Transfer Pricing & General Anti Avoidance
Rules.
CBIC
✓ Central Board of Indirect Taxes and Customs (CBIC) is a part of the Department of
Revenue under the Ministry of Finance, Government of India.
✓ The Board is the administrative authority for its subordinate organizations, including
Custom Houses, Central Excise Commissionerates and the Central Revenues
Control Laboratory.
Past Exam Questions
(1) The Central Board of Direct Taxes (CBDT) is headed by Chairman and also comprises of sixmembers. The Chairman
and all the Members of the CBDT are being selected: (Dec 19 –NS)
(a) By Finance Minister (b) From IRS
(c) By Prime Minister (d) By Chief Justice of India Ans.(b)
(2) The Central Board of Direct Taxes (CBDT) provides essential inputs for policy and planning of direct taxes in India
and is a functioning under the Central Board of Revenue Act, 1963.(Dec 19 –NS)
(a) Constituted Authority (b) Revenue Administration Authority
(c) Statutory Authority (d) Central Authority Ans.(c)
(3) Cannons of taxation as propounded by Adam Smith despite the modern development of economic sciences still apply
and hold good. These cannons of taxation refer to administrative aspect of a tax. Find out from the following, which
have been considered too under the Income Tax Act as being the fundamental cannons of taxation: (Dec 20 –NS)
(i) Cannon of Equity; (ii) Cannon of Economy

(iii) Cannon of Uncertainty; (iv) Cannon of Non-convenience; (v) Cannon of Certainty
(A) (i), (ii) & (v)
(B) (ii), (iv) & (v)
(C) (i), (iii) & (iv)
(D) All the five above Ans-A
4.The Central Board of Direct Taxes (CBDT) is a statutory authority for providing essential inputs for policy and planning
of direct taxes in India and is also responsible for administration of direct tax laws through Income Tax Department and
is functioning under the : (Dec 20 –NS)
(A) Income Tax Act, 1961
(B) Financial Action Task Force (FATF)
(C) Central Board of Revenue Act, 1924
(D) Central Board of Revenue Act, 1963
ANS-D
5. Judicial decisions are being pronounced by various appellate authorities, tribunals, courts and by High Courts on the disputed
matters which are binding specifically whereas the decisions pronounced by the Supreme Court become judicial precedent and
are binding on ---------------------- (Dec 20 –OS)
(A) All the Courts & Appellate Tribunals
(B) Income Tax Authorities
(C) An Assessee
(D) All in (A), (B) & (C) Ans. D
6.Taxes and duties referred to in the Union list except those referred to in Articles 268 and 269, surcharge on taxes and duties
and any cess levied by the ________for specific purpose are to be collected by the Government of India and are to be
distributed between the Union and the States. (Dec 20 –OS)
A. Parliament
B. Central Board of Direct Taxes
C. Finance Minister
D. Revenue Administration Authority Ans. A
7.The Income Tax Department is governed by the -------------- and is a part of the ------------------ under the Ministry of Finance,
Government of India. (Dec 20 –OS)
A. Central Board of DirectTaxes (CBDT), Taxation Cell
B. Central Board of DirectTaxes(CBDT), Department of Revenue
C. Department of Revenue, Central Board of Direct Taxes(CBDT)
D. Department of Revenue, Revenue Administration Authority Ans. B

CA Saumil Manglani
Why do we even try when the barriers are so high and the odds
are too low?
Why don’t we just pack it in and go home? It would be so so much

easier.
It’s BECAUSE in the end, there’s no glory in easy. No one

remembers easy. They remember the blood and the bones and
the long, agonizing fight to the top. And that is how you become
LEGENDARY
ALL THE VERY VERY BEST !!!

2. Residential Status & Scope of Total Income 2.2
Chapter 2 – Part 1 - BASIC CONCEPTS
✓ Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the
Constitution of India has given the power to the Parliament to make laws on taxes on
income other than agricultural income.
✓ Tax is a tax levied on the TOTAL INCOME of the PREVIOUS YEAR (P.Y.) of every PERSON.
✓ Previous Year (P.Y.) is the F.Y. immediately preceding- the Assessment Year (A.Y.)
✓ A.Y. is the period of 12 months commencing on 1st April every year [2(9)].
✓ Income tax rates are given in Finance Act
Generally, P.Y is a period of 12 months but in following cases P.Y can be of less than 12 months -
a. Business or profession newly set up during the financial year

b. A new source of Income comes into existence during the financial year.
1. Assessee [2(7)] - is a person

• By whom any tax or any other sum of money is payable under the act.
• in respect of whom any proceeding under Income Tax Act has been taken
• Who is deemed to be an assessee.
• Who is deemed to be an assessee in default.
2. Circular 18/2016 – A person born on 1st April would be considered to have attained a particular age
on 31st March. (For Understanding only- Income Tax dept. is celebrating your birthday 1 day in
Advance)
Dates –
a. Person born on or before 1st April 1941 -> Very Senior for AY 21-22
b. Person born during 2nd April 1941 up to 1st April 1961 – Senior citizen for AY 21-22
RATES OF INCOME TAX [A.Y. 2021-22] – INDIVIDUALS/ HUF / AOP/BOI/ AJP

Individual (Other than a resident Individual of age of 60 yrs. Or more) [And same rates are
also applicable for HUF/AOPs/ BOIs/Artificial Juridical Person]
I “Means these rates are applicable to NR Sr. Citizen and NR Very Sr. Citizen as well)”
Total Income (TI) Income-tax payable
(i) ≤ Rs. 2,50,000 Nil
> Rs. 2,50,000 but
(ii) 5% of the amount by which the total income exceeds Rs. 2,50,000
≤ Rs. 5,00,000
> Rs. 5,00,000 but Rs. 12,500 plus 20% of the amount by which the total income exceeds
(iii)
≤ Rs. 10,00,000 Rs. 5,00,000
Rs. 1,12,500 plus 30% of the amount by which the total income exceeds
(iv) > Rs. 10,00,000
Rs. 10,00,000
R Sr. Citizen - Resident individual of the age of 60 years or more but less than 80 years at
II
any time during the previous year 2020-21
(i) ≤ Rs. 3,00,000 Nil
> Rs. 3,00,000 but
≤ Rs. 5,00,000
> Rs. 5,00,000 but Rs. 10,000 plus 20% of the amount by which the total income exceeds
(iii)
≤ Rs. 10,00,000 Rs. 5,00,000
(iv) > Rs. 10,00,000
Rs. 10,00,000
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R Very Sr. Citizen - Resident individual of the age of 80 years or more at any time during the
III
previous year 2020 – 21
(i) ≤ Rs. 5,00,000 Nil
> Rs. 5,00,000 but
≤ Rs. 10,00,000
(iii) > Rs. 10,00,000
Rs. 10,00,000
✓ New Section - 115BAC - AY 21-22

✓ Only for Individuals & HUF
✓ Individual or HUF may opt to pay income tax (on total income) for any AY starting
from 01/04/2021 at the rates specified below: -
AY 21-22
1. Up to Rs. 2,50,000 Nil
2. From Rs. 2,50,001 to Rs. 5,00,000 5 per cent.

7. Above Rs. 15,00,000 30 per cent.:
✓ Everyone is equal in this section – R/NR/Sr. Citizen/Very Sr. Citizen
✓ More detailed aspects will be discussed in Chapter 14 – Various Entities
3. Rebate u/s 87A – Only and only to Resident Individual if Total Income is upto Rs 5,00,000.
Maximum rebate Rs. 12,500.
AY 21-22
Firm/LLP 30%
Rates for Firms

- LLP's and Foreign 40%
Cos. (AY 20-21)
Company Where TO/ GR

in PY 18-19
25%
is"upto" 400
Domestic Cr.
In any other
30%
case
Doubt – Whether Rebate is allowed under section 115BAC as well? Answer - Yes
Special Tax rates for Companies

Section 115BA – Certain manufacturing companies may choose to pay taxes @ 25%
Section 115BAA - Certain manufacturing companies may choose to pay taxes @22% (plus surcharge@10% and HEC@4%)
Section 115BAB - Certain manufacturing companies may choose to pay taxes @15% (plus surcharge@10% and HEC@4%)

Note – Tax Rates for companies in detail will be discussed in Chapter 15 – Taxation of
Companies
(1) ABC Ltd., a domestic company having a turnover of Rs. 450 crore has computed its total
income for the year 2020-21 of Rs. 102 lakh. The tax payable by the company on such income in
A.Y. 2021-22 shall be : (Dec 19 –NS)
(a) Rs. 34,05,168 (b) Rs. 29,70,240
(c) Rs. 33,28,000 (d) Rs. 33,30,968 Ans.(c)
(2) PQ Ltd. is a domestic company whose turnover for the assessment year 2019-20 was Rs. 250
crore and for the assessment year 2020-21 Rs. 80 crore. Its turnover for the previous year 2020-
21 is Rs. 110 crore. The rate of tax (excluding cess) applicable for the assessment year 2021-22
would be: (Dec 19 –OS)
(A) 40% (B) 30%
(C) 29% (D) 25% Ans.(d)
4. Note – Income-tax has to be computed on TI. Surcharge is computed on such

income-tax. Health & Education Cess has to be computed @ 4% on income-tax plus
surcharge, if applicable.
5. Marginal Relief – It is available to all assesses. Available when Surcharge is applicable

and the Total income is a bit higher than 50Lacs/ 1 cr. / 2Cr./ 5 Cr. / 10 cr. wherever
applicable.
6. 5 cases where income is earned in the same year in which it is earned i.e. PY and
AY are the same
a. Income of Non-Resident from Shipping business in India (172)

b. Income of persons leaving India either permanently or for long duration (174) –
Taxable at 7.5%

c. Income of bodies formed for short duration (174A)

d. Income of person trying to alienate his assets with a view to avoid tax (175)
e. Income of discontinued business during the year (176)
MCQ’s
1. The tax rate applicable for a non-resident engaged in shipping business in India shall be :
(December 17)
(A) 5%
(B) 7.5%
(C) 20%
(D) 10% Answer – (b)
(2) X Marine Lines Inc., a Singapore company engaged in shipping business collected Rs. 150
lakh towards carrying goods from Chennai Port. Its presumptive income chargeable to tax in
India would be - (Dec. 2015)
(a) Rs. 15 lakh (b) Rs.11.25 lakh
(c) Rs.12 lakh (d) Nil Ans.(b)
(3} Income of a non-resident from shipping business in India is computed at the rate of - (Dec. 2016)
(a) 5% (b) 7.5%
(c) 10% (d) 30% Ans.(b)
(4) The income of non-resident from the business of operation of aircraft in respect of carrying
of cargo or passenger in India shall be taxable as per section 44BBA @ - (Dec. 2015)
(a) 5% of the amount received/receivable (b) 10% of the amount received/receivable
(c) 15% of the amount received/receivable (d) 7.5% of the amount received/receivable
Ans.(a)
(5) The basic exemption limit in the case of a non-resident individual being super senior citizen is : (Dec
19 –OS)
(A) Rs. NIL
(B) Rs. 2,50,000
(C) Rs. 3,00,000
(D) Rs. 5,00,000
Ans.(b)
(6) Ginger Shippers is owned by a non-resident engaged in shipping business. It received Rs. 120
lakh for carriage of goods shipped from Mumbai, India to Durban, South Africa. The presumptive
income of the assessee under section 44B would be : (Dec 19 –OS)
(A) Rs. 9,60,000
(B) Rs. 12,00,000
(C) Rs. 6,00,000
(D) Rs. 9,00,000
Ans – D

7. Undisclosed sources of Income taxable at higher rates (Section 115BBE)

Note – No expenditure is allowed in respect of above or from above incomes.
Amount
borrowed or
repaid on
hundi
[Section 69D]
Unexplained
Cash Credits
expenditure
[Section 68] [Section 69C]
Undisclosed sources of
income
Unexplained Investment
Investments etc not fully
disclosed
[Section 69]
[Section 69B]
Unexplained
money
[Section 69A]
Implication of
unexplained income
(Sec 115BBE)
Detected by AO
Self declaration (10% penalty of tax
may be applicable)
Total Tax 84 %
Tax (60% Tax+25%
(60% Tax+25% Surcharge+4%
Surcharge+4% HEC) HEC+10% penalty on
60% Tax amount)
8. Rounding off –
a. Section 288A – Total Income rounded off to next multiple of 10 (>=5, next multiple of 10)
b. Section 288B – Final tax amount rounded off to next multiple of 10 (>=5, next multiple of 10)

9. Income [Section 2(24)] [From AY 19-20] – 2 new clauses added in the definition of
Income
a. FMV of inventory which is converted into, or treated as a capital asset [Section 28(iva)].
[Repeated reference in IOS Chapter]
b. Any compensation or other payment, due to or received by any person, in connection
with termination of his employment or the modification of the term and conditions relating
thereto [Section 56(2)(xi)]. [Repeated reference in IOS Chapter]
ICSI Question regarding Capital and Revenue Receipt
Question1: State whether the following are capital or revenue receipts/expenses and give your reasons:
1. ABC & Co. received Rs. 5,00,000 as compensation from XYZ & Co. for premature termination of
contract of agency.
2. Sales-tax collected from the buyer of goods.
3. PQR Company Ltd. instead of receiving royalty year by year, received it in advance in lump sum.
4. An amount of Rs. 1,50,000 was spent by a company for sending its production manager abroad to
study new methods of production.
5. Payment of Rs. 50,000 as compensation for cancellation of a contract for the purchase of
machinery with a view to avoid an unnecessary expenditure.
Solution
1. Receipt in substitution of a source of income is a capital receipt. Therefore, the amount received
by ABC & Co. from XYZ & Co. for premature termination of an agency contract is a capital receipt
though the same is taxable under Section 28.
2. Sales-tax is the liability of a seller to pay to the Government on the sale of goods made by him,
which is allowed as deduction as revenue expenditure. If any part of Sales-tax is collected from the
buyer of goods that may be treated as a revenue receipt. Thus the sales-tax collected from the
buyer of goods is a revenue receipt.
3. Receipt of lump sum royalty in lieu of future royalties is a revenue receipt, as it is an income from
royalty.
4. Amount spent by a company for sending its production manager abroad to study new methods of
production is revenue expenditure to be allowed as a deduction. Because the new knowledge and
exposure of that manager will assist the company in improving its existing methods of production
etc.
5.This is a capital expenditure, as any expenditure incurred by a person to free himself from a
capital liability is a capital expenditure. In the given case, the payment of Rs. 50,000 for
canceling the order for purchase of the machinery, has helped the assessee to become free from
an unnecessary capital liability.
ICSI Module Case Laws
1. What is the nature of liquidated damages received by a company from the supplier of plant for failure
to supply machinery to the company within the stipulated time – a capital receipt or a revenue receipt?
CIT v. Saurashtra Cement Ltd. (2010) 325 ITR 422 (SC)
Supreme Court’s Decision – Capital Receipt (Asked in Dec 19 Exams)
2. Can capital contribution of the individual partners credited to their accounts in the books of the firm be
taxed as cash credit in the hands of the firm, where the partners have admitted their capital

contribution but failed to explain satisfactorily the source of receipt in their individual hands? CIT v. M.
Venkateswara Rao (2015) 370 ITR 212 (T & AP)
High Court’s Decision - No
Past Examination MCQ’s
(1) Income-tax in India is charged at the rate(s) prescribed by — (Dec. 2009)
(a) The Finance Act (b) The Income-tax Act
(c) The Central Board of Direct Taxes (d) The Ministry of Finance. Ans.(a)
(2) As per section 2(31), the following is not included in the definition of 'person' - (Dec. 2014)
(a) An individual (b) A Hindu undivided family
(c) A company (d) A minor Ans.(d)
(3) The year in which the income is earned is known as - (June, 2015)
(a) Previous year (b) Financial year
(c) Both (A) or (b) (d) None of the above. Ans.(a)
(4) Under the Income-tax Act, 1961 the term 'assessee' means a person - (Dec. 2016)
(a) Who is an assessee in default (b) From whom tax is due
(c) Against whom any proceeding under the Act (d) All of the above has been taken Ans.(d)
(5) Dr. Ashok commenced medical practice on 1st September, 2020. The previous year for the profession for
the assessment year 2021-22 would be - (June 2016)
(a) 1st April, 2020 to 31st March, 2021 (b) 1st September, 2020 to 31st March, 2021
(c) 1st June, 2020 to 31st March, 2021 (d) 1st September, 2020 to 31st January, 2021
Ans.(b)
(6) Income-tax in India is charged at the rates prescribed by - (Dec. 2014)
(a) The Finance Act of the assessment year (b) The Income-tax Act, 1961
(c) The Central Board of Direct Taxes (d) The Finance Act of the previous year.
Ans.(a)
(7) A new business was set-up on 1st July, 2020 and trading activity was commenced from 1st September,
2020, the previous year would be the period commencing from - (Dec. 2015)
(a) 1st April, 2020 to 31st March, 2021 (b) 1st July, 2020 to 31st March, 2021
(c) 1st September, 2020 to 31st March, 2021 (d) 1st October, 2020 to 31st March, 2021.
Ans.(b)
(8) Normal rates of income-tax are prescribed in the - (Dec. 2016)
(a) Income-tax Act, 1961 (b) Income-tax Rules, 1962
(c) Finance Act of the current year (d) CBDT circulars Ans.(c)
(9) According to section 2(24) definition of 'income' is - (Dec. 2014)
(a) Inclusive (b) Exhaustive
(c) Exclusive (d) Descriptive. Ans. (a)
(10) 'Income' under section 2(24) includes - (June, 2015)
(i) The profits and gains of a banking business carried on by a co-operative society with its members.

(ii) Any advance money forfeited in the course of negotiations for transfer of capital asset.
Choose the correct option with reference to the above statements -
(a) Both (i) and (ii) (b) Only (i)
(c) Only (ii) (d) Neither (i) nor (ii). Ans.(a)
11. ABC Pvt. Ltd. has a business loss of Rs. 10 lakh. There is unexplained share application money to the
tune of Rs. 25 lakh. The total income of the company will be:
(A) Rs. 15lakh
(B) Rs. 35lakh
(C) Rs. 25lakh
(D) None of the above
Ans C
(12) The term 'income' includes the following types of incomes — (June, 2010)
(a) Legal (b) Illegal
(c) Legal and illegal both (d) None of the above. Ans.(c)
(13) AB & Co. received Rs. 2,00,000 as compensation from CD & Co. for premature termination of
contract of agency. Amount so received is - (Dec. 2014)
(a) Capital receipt and taxable (b) Capital receipt and not taxable
(c) Revenue receipt and taxable (d) Revenue receipt and not taxable
Ans.(a)
(14) Which of the following is not included in taxable income - (Dec. 2014)
(a) Income from smuggling activity (b) Casual income
(c) Gifts of personal nature subject to a maximum (d) Income received in kind.
of Rs. 50,000 received in cash Ans. (c)
15. As per section 176 of Income Tax Act, 1961 where any business or profession is discontinued in
any assessment year than as per section 176(3), person discontinuing their business or
profession shall give to the A.O. a notice of such discontinuance within (Dec 20 –OS)
----------- thereof.
(A) 5 days
(B) 10 days
(C) 15 days
(D) 30 days ANS C
16. Hindu Undivided Families (HUFs) according to Hindu law are governed by two schools being Mitakshara
and Dayabhaga. Mitakshara School applies to whole of India except the states of ------------------(Dec 20 –
OS)
a. West Bengal and Assam
b. Jammu and Kashmir
c. West Bengal
d. Assam and Bihar ANS A

CHAPTER 2 – Part 2 - RESIDENTIAL STATUS

AND SCOPE OF TOTAL INCOME
AY 21 - 22
AY 21 - 22

Note – "income from foreign sources" means income which accrues or arises outside India (except income
derived from a business controlled in or a profession set up in India)].
AY 21-22
I.C – Crew Member of an Indian Ship going
outside India - Period to be excluded
Period commencing from Period ending on

the date entered into the Continuous and the date entered into the Continuous
Discharge Certificate in respect of Discharge Certificate in respect of
joining the ship by the said individual signing off by that individual from
for the eligible voyage the ship in respect of such voyage.
• Points to Note -
1. Residential status may change every year.
2. Period of stay need not be continuous
3. If the time of arrival in India/ departure from India is not known, it is considered that the stay for that day
was in India only. (This is the by default assumption if time is not given in the question).
4. If the time of arrival and departure is known then completion of 24 hours is considered as 1 day else the
day is ignored.
5. Person of Indian Origin – means the assessee himself or any of his parents or any of his
grandparents (Maternal + Paternal) were born in Undivided India. “Spouse” not covered here.
6. Indian Citizen means – the person was born in India or the person has applied for the citizenship of
India.

(1) Atul is a foreign citizen. His father was born in Delhi in 1951 and mother was bom in England in
1950. His grandfather was born in Delhi in 1922. Atul visited India to see Taj Mahal and visit other
historical places. He came to India on 1st November, 2020 for 200 days. He has never come to India
before. His residential status for assessment year 2021-22 will be - (Dec. 2014)
(a) Non resident in India (b) Not ordinarily resident in India
(c) Resident in India (d) None of the above Ans.(a)
(2) The following additional conditions are to be satisfied by a person to be resident and ordinarily resident in
India - (Dec. 2014)
(a) He is a resident in at least two out of the ten previous year previous years immediately preceding the
relevant
(b) He has been in India for 730 days or more during the seven previous years immediately preceding the
relevant previous year
(c) Both (a) and (b) (d) None of the above Ans.(c)
(3) X, an Indian citizen, who is living in Delhi since 1980, left for Japan on 1st July, 2018 for
employment. He came back to India on 1st January, 2021 on a visit and stayed for 4 months. His
residential status for the assessment year 2021-22 would be - (Dec.2014)
(a) Resident and ordinarily resident (b) Not ordinarily resident
(c) Nonresident (d) Resident. Ans.(c)
(4) Paresh, a software engineer at ABC Ltd. left India on 10th August, 2020 for the treatment of his wife. For
income-tax purpose, his residential status for the assessment year 2021-22 will be - (June, 2015)
(a) Resident (b) Non-resident
(c) Not ordinarily resident (d) Cannot be determined from the given
information. Ans.(a)
(5) Ritesh, an Indian citizen, left India for U.K. on 1st September, 2020 to take up a job there. His residential
status for the assessment year 2021-22 would be - (Dec. 2016)
(c) Non-resident (d) None of the above. Ans.(c)
(6) Mr. Rajiv, born and brought up in India left for employment in Belgium on 15-10-2020. He has
never gone out of India, previously. What is his residential status for the assessment year 2021-22?
(June, 2017)
(a) Non-resident (b) Not ordinarily resident
(c) Resident (d) Indian citizen Ans.(c)
(7) Mr. Ramji (age 55) is Karta of HUF doing textile business at Nagar. Mr. Ramji is residing in Dubai for
the past 10 years and visited India for 20 days every year for filing the income tax return and taking
policy decisions of HUF. His two major sons take care of the day to day affairs of the business in India.
The residential status of HUF for the assessment year 2021-22 is : (June, 2017)
(a) Non-resident (b) Resident
(c) Not ordinarily resident (d) None of the above Ans.(c)
(8) If Karta is resident and ordinarily resident in India but control and management of HUF is situated partly
outside India in the previous year, the HUF is - (Dec. 2014)
(c) Non resident (d) Resident. Ans.(a)

(9) An individual is said to be resident in India in a previous year (in which the February month has 29 days) if
he is in India in that year for a period or periods amounting in all to : (June, 2008)
(a) 182 Days or more (b) 60 Days or more
(c) 183 Days or more d) 150 Days or more Ans.(a)
(10) Ram who was born and brought up in India left for employment in Dubai on 20th August, 2020. His
residential status in respect of the assessment year 2021-22 would be - (Dec. 2015)
(a) Resident and ordinarily resident (b) Non-resident
(c) Not ordinarily resident (d) None of the above. Ans.(b)
(11) HUF of Ashwin consisting of himself, his wife and 2 sons is assessed to income-tax. The residential status
of HUF would be non-resident, when - (Dec. 2015)
(a) The management and control of its affairs is (b) The management and control of its affairs is
wholly in India wholly outside India
(c) The status of karta is non-resident for that year (d) When majority of the members are non
resident.
Ans.(b)
(12) Total income of a person is determined on the basis of his — (June 2013)
(a) Residential status in India (b) Citizenship in India
(c) Both (a) and (b) above (d) None of the above. Ans.(a)
13. Mr. Alok Chatterjee born and brought up in India since 1970, left for Singapore on 10-10-2020 for the
purpose of employment. His residential status would be : (Dec 17)
(A) resident
(B) not ordinarily resident
(C) non-resident
(D) none of the above (Answer – A)
14. John is a foreign citizen born in USA. His father was born in Delhi in 1960 and his grand-father was
born in Lahore in 1935 but his mother was born in UK in 1963. John came to India for the first time on
1st June, 2020 and stayed in India for 183 days and then left for USA. His residential status for the A.Y.
2021-22 shall be: ( June 18)
(A) Resident
(B) Resident but not ordinary resident
(C) Non-resident
(D) Foreign national Ans. B

15. The income earned during the previous year is subject to tax under the Act on the basis of residential status
of an assessee. However, the residential status of an assessee
........................ every year.
(A) will not change
(B)will certainly change
(C)may change
(D) None of the above Ans. C
(16) Every year, the residential status of an assessee - (June 2010)
(a) May change (b) Will certainly change

(c) Will not change (d) None of the above. Ans.(a)

(17) Thomas, an Indian citizen is living in Kerala since birth in 1955 and left for UAE on 13 th June 2015 for a
salaried employment contract for 4 years and came back on 7th July, 2020 to India and settled at Kerala. His
residential status for the Assessment Year 2021-22 shall be : (Dec 19 –NS)
(c) Resident & Not Ordinary Resident (d) Resident & Ordinary Resident Ans.(d)
(18) A person is deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was
born in ____________.(Dec 19 –NS)
(a) India (b) India other than J&K
(c) Undivided India (d) Greater India Ans.(c)
(19) Ms. Kapoor born in UK came to India for the first time on 10-5-2020 and remained in India till 31-08-2020.
Her maternal grandparents were born in Dhaka in the year 1941. Her residential status for the assessment year
2021-22 would be : (Dec 19 –OS)
(A) Resident and ordinarily resident
(B) Non-resident
(C) Resident but not ordinarily resident
Ans.(b)
20. Shane Warne, an Australian Cricketer coming to India regularly for plying different league matches since
April, 2013 and was staying in India in each of the financial year for 100 days. His residential status for the
previous year ended on 31.3.2021 relevant for A.Y. 2021-22 shall be: (Dec 20 –NS)
(A) Non-resident
(B) Resident but not ordinary resident
(C) Resident
(D) Resident and ordinary resident
ANS-B
Company
Indian Company Foreign Company
Always Resident
T.Over/ Gross Receipt > 50 T.Over/ Gross Receipt is upto
Crores during the year 50 Crores during the year
POEM is in India ?
Non
Resident
Yes No
Resident Non Resident

We need to understand the guiding principles for POEM but before it we need to understand the Phrase
Active Business Outside India –
Active Business outside India - A company shall be said to be engaged in “active business outside India”
(i) if the passive income is upto 50% of its total income; and
(ii) less than 50% of its total assets are situated in India; and
(iii) less than 50% of total number of employees are situated in India or are resident in India;
and
(iv) the payroll expenses incurred on such employees is less than 50% of its total payroll
expenditure.
Explanation : For the aforesaid purpose
the number of employees the number of employees shall be the average of the
number of employees as at the beginning and at the
end of the year and shall include temporary employees
(Contractors/ Labors)
Passive income “Passive income” of a company shall be aggregate of,

income from the transactions where both the purchase
and sale of goods is from / to its associated
enterprises; and income by way of royalty, dividend,
capital gains, interest or rental income;
Note: any income by way of interest shall not be
considered to be passive income in case of a
company which is engaged in the business of
banking or is a public financial institution,
Module Question
Active Business Outside India
Example 1: Company A Co. is a sourcing entity, for an Indian multinational group, incorporated in country
X and is 100% subsidiary of Indian company (B Co.). The warehouses and stock in them are the only
assets of the company and are located in country X. All the employees of the company are also in country
X. The average income wise breakup of the company’s total income for three years is,
i. 30% of income is from transaction where purchases are made from parties which are non-
associated enterprises and sold to associated enterprises;
ii. 30% of income is from transaction where purchases are made from associated enterprises and sold
to associated enterprises;
iii. 30% of income is from transaction where purchases are made from associated enterprises and sold
to non-associated enterprises; and
iv. 10% of the income is by way of interest.

Interpretation : In this case passive income is 40% of the total income of the company. The passive
income consists of :
i. 30% income from the transaction where both purchase and sale is from/to associated enterprises;
and
ii. 10% income from interest.

The A Co. satisfies the first requirement of the test of active business outside India. Since no assets or
employees of A Co. are in India the other requirements of the test is also satisfied. Therefore company

is engaged in active business outside India.
Example 2 : The other facts remain same as that in example 1 with the variation that A Co. has a
total of 50 employees. 47 employees, managing the warehouse, storekeeping and accounts of the
company, are located in country X. The Managing Director (MD), Chief Executive Officer (CEO) and
sales head are resident in India. The total annual payroll expenditure on these 50 employees is of Rs.
5 crore. The annual payroll expenditure in respect of MD, CEO and sales head is of Rs. 3 crore.
Interpretation: Although the first condition of active business test is satisfied by A Co. as only 40% of
its total income is passive in nature. Further, more than 50% of the employees are also situated
outside India. All the assets are situated outside India. However, the payroll expenditure in respect of
the MD, the CEO and the sales head being employees resident in India exceeds 50% of the total payroll
expenditure. Therefore, A Co. is not engaged in active business outside India.
Example 3 : The basic facts are same as in example 1. Further facts are that all the directors of the
A Co. are Indian residents. During the relevant previous year 5 meetings of the Board of Directors is
held of which two were held in India and 3 outside India with two in country X and one in country Y.
Interpretation : The A Co. is engaged in active business outside India as the facts indicated in
example 1 establish. The majority of board meetings have been held outside India. Therefore, the
POEM of A Co. shall be presumed to be outside India.
Now Determination of POEM if -
Determination
ABOI Outside India ABOI Not outside India
Majority Board Meetings outside India Majority Board Meetings Not outside India Identify persons who make the key
Then POEM in India management and key commercial
Then POEM outside India
decisions
and
Non Resident Resident
Determine the place where decisions are
being made
If location is India -> then POEM in India
then Resident
1. A company shall be said to be engaged in “active business outside India” (ABOI), if the passive income is
not of its total income and of its total assets are situated in India. (Dec 20 –NS)
(A) less than 50%; more than 50%
(B) more than 50%; less than 50%
(C) less than 50%; less than 50%
(D) more than 50%; more than 50%
ANS - B

SCOPE OF TOTAL INCOME [SECTION 5]: Whether the following income are to be included in TI?
Particulars ROR RNOR NR
Income received or deemed to Yes Yes Yes
be received in India during the
relevant P.Y.
Income accruing or arising or Yes Yes Yes
deeming to accrue or arise in
India during the relevant P.Y.
Income accruing or arising Yes, even if such income is Yes, but only if such income is No
outside India during the not received or brought into derived from a business
relevant P.Y. India during the P.Y. controlled from or profession
set up in India; Otherwise, No.
Section 9
Income deemed to accrue or arise
in India [Section 9(1)]
Income Salary earned Salary Dividend Interest, if Fees for Royalty, if

accruing for services payable by paid by India payable by technical payable by
or arising rendered in Government Company service, if
outside India, India to India Outside payable by
directly or Citizen for India
indirectly services
through rendered
or from outside India Person resident Government A non
in India resident
Any Business Any property transfer of

Connection in asset or source capital asset Exception
India of income situated in
in India India
If the money borrowed for technical service If money borrowed If technical service or
or royalty service is utilized for business or Is used for royalty service is utilised
profession or for making income from any business or for business or
source outside India profession in India profession in India or
making income from
any source in India
Section 9(1) The following incomes shall be deemed to accrue or arise in India: —
(i) Income accruing or arising through -
a) Any Business connection in India.
(Only for Understanding - In proportion to the operations carried out in India)
b) Any asset or source of income in India.
c) Transfer of a capital asset situated in India. AY 21-22
Following Explanation 3A shall be inserted after Explanation 3 to clause (i) of sub-section (1) of
section 9 by the Finance Act, 2020, w.e.f. 1-4-2021 :
Explanation 3A.— Income attributable to the operations carried out in India shall include income
from—

(i) such advertisement which targets a customer who resides in India or a customer who accesses
the advertisement through internet protocol address located in India;
(ii) sale of data collected from a person who resides in India or from a person who uses internet
protocol address located in India; and
(iii) sale of goods or services using data collected from a person who resides in India or from a person
who uses internet protocol address located in India.
➢ Exceptions to the business connection - In case of Non-Residents (Means in the following cases
the business connection is not formed for purpose of taxing the income)–
1. Operations confined to purchase of goods from India for Export.
2. Person running a news agency or of publishing newspapers, magazines or
journals & the activities are confined to the collection of news and views in India
for transmission out of India.
3. Foreign company engaged in the business of mining of diamonds no income b
deemed to accrue or arise in India → activities confined to the display of uncut and
unassorted diamond in any special zone notified by the Central Government.
AY 19-20 Amendment
(a) What is Business Connection? Purpose of this amendment is alignment with the
provisions of the Double Taxation Avoidance
Explanation 2 to section 9(1)(i) Agreement (DTAA).
For a Business connection to be established, the person acting on behalf of the non-resident –
Or
Or
&
Or
Such contract should be
Or
Or

(ii) Income from Salary which is earned in India.
Amount earned for the rest period or leave period which is preceded and succeeded by services
rendered in India and forms part of the service contract of employment.
(iii) Income chargeable under the head "Salaries" payable by the Government to a citizen of India
for service outside India (Other than Perquisites and allowances)
(iv) Dividends paid by an Indian company outside India.
(v) In Case of interest, royalty and technical fees following things should be kept in mind –
a) In case it is paid by Government of India, it shall always accrue in India.

b) In case it is paid by resident, it shall always accrue in India except where money borrowed is
used for
- The purpose of business or profession carried outside India or
- For making or earning income from any source outside India.
c) In case it is paid by the Non-Resident person, where such person uses the money borrowed
for a business or profession carried on or in India.
(vi) Section 9(1) The following incomes shall be deemed to accrue or arise in India :—
Income arising outside India, being any gifts paid on or after the 5th day of July, 2019 by a person resident in
India to a non-resident, not being a company, or to a foreign company.”
Past Exam Questions

(1) Which of the following may be a 'not ordinarily resident' in India - (Dec. 2012)
(a) Partnership firm (b) Joint stock company
(c) Association of persons (d) Hindu Undivided Family. Ans.(d)
(2) Residential status of an Indian company is resident and ordinarily resident for the year 2021-22 - (Dec.
2015)
(a) If the entire control and management is wholly (b) If part of the control and management is in in
India India
(c) Regardless of the place of control and management (d) If it is listed on recognised stock exchange.
Ans.(c)
(3) Alpha Ltd. is an Indian company, It carries its business in Delhi and London. Total control and management
of the company is situated in London. More than 85% of its business income is from the business in England. If
so, its residential status will be - (June 2016)
(c) Not ordinarily resident (d) Foreign company Ans.(a)
(4) A company incorporated outside India having its control and management fully situated in India in the
previous year will be treated as - (Dec. 2016)
(a) Resident (b) Not ordinarily resident
(c) Non-resident (d) None of the above Ans.(a)

(5) Satish brought into India, in the previous year, past untaxed income which was earned in U.K. The
income will be taxable if Satish is - (Dec. 2016)
(a) An ordinarily resident (b) A not-ordinarily resident
(c) Anon-resident (d) None of the above Ans.(d)
(6) Abhay earns the following income during the previous year ended 31st March, 2021 : (Dec 2014)
> Interest on U.K. Development Bonds (l/4th being received in India): Rs. 2,00,000;
> Profits on sale of a building in India but received in Holland : Rs. 2,00,000.
The income liable to tax for the assessment year 2021-2022 if Abhay is resident and not ordinarily resident in
India, is –
(a) Rs. 2,50,000 (b) Rs. 4,00,000
(c) Rs. 2,00,000 (d) Rs. 50,000. Ans.(a)
(7) Thomas Inc. of Australia borrowed money from various companies in Australia for doing business
in India by name ANS Co. Ltd. Mumbai. Thomas Inc. paid interest of Rs. 500 lakhs (converted) to various
lenders. The amount of interest paid : (June' 2017)
(a) Has accrued in India (b) Is exempt from tax
(c) Does not accrue in India (d) Is taxable in Australia Ans.(a)
(8) Income accruing in India in previous year is taxable for - (Dec 2009)
(a) Resident (b) Not ordinarily resident
(c) Non-resident (d) All of the above. Ans.(d)
(9) Income accruing from agriculture in a foreign country is taxable in the case of an assessee who is —
(Dec. 2010)
(a) Resident (b) Not-ordinarily resident
(c) Non-resident (d) None of the above. Ans.(a)
(10) Foreign income received in India during the previous year is taxable in the case of — (Dec. 2010)
(a) Resident (b) Not-ordinarily resident
(c) Non-resident (d) All of the above. Ans.(d)
(11) Income earned and received outside India but later on remitted to India, is taxable in the case of-
(June, 2012) [Assumed here – Later on means in the later years]
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident (d) None of the above. Ans.(d)
(12) Past untaxed profit of the financial year 2006-07 brought to India in 2021-21 is chargeable to tax in the
assessment year 2021-2022 in the hands of — (June 2013)
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident in India (d) None of the above. Ans.(d)
13. In the case of an individual being not ordinarily resident the following income is chargeable to tax : (Dec
17)

(A) business income accruing outside India

(B) property income accruing outside India
(C) income accruing outside India if it is derived from a business controlled in India
(D) interest income accruing outside India Ans.(c)
14. The following income of Ms. Nargis who is a non-resident shall be included in her total income : (Jun 18)
• Salary for 2 months received in Delhi Rs. 40,000.
• Interest on Savings Bank Account in Mumbai Rs.2,100.
• Agricultural income in Bangladesh and Invested in shares in Bangladesh.
• Amount brought into India out of past non-taxed profits earned in USA.
A. (i), (iii) and(iv)
B. (i) and(ii)
C. (i), (ii) and(iv)
D. All the four above Ans. B
15. A domestic company whose turnover for the previous year 2018-19 Rs. 4.20 crore; for previous
year 2019-20 Rs. 8 crore and for previous year Rs. 2020-21 Rs. 12 crore. Its total income (computed) for
the assessment year 2021-2021 is Rs. 3 crores. The rate of income tax applicable for such company
(without cess) would be : (Dec 17)
(A) 30%
(B) 40%
(C) 29%
(D) 25% (Ans : D)

16. The basic exemption limit in case of a non- resident individual being a senior citizen for assessment
year 2021-2022 is: (Jun 18)
(A) Rs.5,00,000
(B) Rs.3,00,000
(C) Rs.2,50,000
(D) Rs.1,80,000 Ans C
17. Total income-tax including Health and education cess payable in case of a resident individual aged 58 years,
whose computed total income is 3,40,000 for assessment year 2021-2022 shall be : (Jun 18)
(A) Rs. 4,500

(B) Rs. 2,000
(C) Rs. 2,080
(D) Rs. Nil
Ans. D
18. A domestic company has total income of Rs. 120 lakhs. The rate of surcharge is applicable on income-tax
would be - (Dec 17)
(A) 2%
(B) 5%
(C) 7%
(D) 12% ( Ans c)
19. A resident individual can avail the benefit of rebate of Rs. 12,500 or 100% of Income Tax whichever is less
under section 87A of Income Tax Act, 1961 for the assessment year 2021-2022s on fulfilling the condition that
total income does not exceed: (Jun 18)
(A)Rs.2,50,000
(B)Rs.3,50,000
(C)Rs.5,00,000
(D)Rs.3,00,000 Ans C

20. Surcharge on the amount of tax is to be levied at specified percentage when an individual is having income
exceeding specified limits: (Jun 18)
A. 7% having income exceedingRs.1 crore and @ 12% if the income exceeds Rs. 10crores
B. 2% having income exceedingRs.1 crore and @ 12% if the income exceeds Rs. 10crores
C. 15% having income exceeding Rs. 1 crore but does not exceed 2 crores and @ 10% if the income exceeds
Rs.50lakh but does not exceed Rs. 1 crore
D. None of the above Ans C
21. The basic exemption limit in case of a non- resident individual being a senior citizen for assessment year
2021-2022 is: (Dec 18)
(A) Rs.5,00,000
(B) Rs.3,00,000
(C) Rs.2,50,000
(D) Rs.1,80,000 Ans C
22. Total income-tax including Health and education cess payable in case of a resident individual aged 58 years,
whose computed total income is 3,40,000 for assessment year 2021-2022 shall be : (Dec 18)
(A) Rs. 4,500
(B) Rs. 2,000
(C) Rs. 2,080
(D) Rs. Nil Ans. D
23. Which out of the following criteria determines the Place of Effective Management (POEM) in order to treat a
foreign company as resident in India (resident company) during the previous year as per guidelines issued by
CBDT and the provisions contained under the Income Tax Act, 1961 ............... (Dec 18)
A. General Meeting held in India
B. Research and Development work is done in India
C. Board Meetings are held in India
D. None of the above Ans. C
24 Lalit, a resident individual of 81 years works as a consultant. If his taxable income is Rs. 5,20,000, the tax
payable by him would be— (June, 2015)
(a) Rs. 22,880 (b) Nil
(c) Rs. 2,080 (d) Rs. 4,160 Ans.(d)
25 For the previous year 2020-21, taxable income of B Ltd., a domestic company (Turnover in 2018-19 was Rs.
399 crores) is Rs. 10,86,920. Its tax liability would be — (June, 2015)
(a) Rs. 2,71,730 (b) Rs. 27,17,300
(c) Rs. 2,82,600 (d) Rs. 3,35,860 Ans.(c)
26. As per Income Tax Act, 1961 surcharge @ 12% is payable by a domestic company if the total income
exceeds : (Jun 19)
(A) Rs. 10 lakh
(B) Rs. 1 crore
(C) Rs. 10 crore
(D) Rs. 100 crore. Ans C
27. The total income of Mrs. Rose for the financial year 2020-21 is Rs. 3,40,000. Her tax liability for A.Y. 2021-
2022 on the income of Rs. 3,40,000 shall be :(Jun 19)
(A) Rs. 2,080
(B) NIL
(C) Rs. 2,500
(D) Rs. 4,700. Ans B
28. In the case of a non-resident, which of the following income is not taxable in his hand : (Jun 19)
(A) Interest received from Government of India
(B) Capital gain on transfer of capital assets situated in India
(C) Interest received from a person resident in India on money borrowed and used outside India for carrying a

business
(D) Royalty received from a person resident in India for the patent rights used in India. Ans C
29. In the case of an individual who is not an ordinarily resident in India, the income chargeable to tax in India
out of the following shall be : (Jun 19)
(A) Rental income in foreign country
(B) Interest income in foreign country
(C) Income from outside India from a business controlled in India
(D) All the three above in A, B & C. Ans C
30 . Agriculture income from agriculture land located in a foreign country is taxable in the case of :
(Jun 19)
(A) Non-resident
(B) Not ordinarily resident
(C) Resident
(D) In all cases stated in A, B & C. Ans D
(31) Metro Ltd., a domestic company, is assessed with a total income of Rs. 11.25 crore. The surcharge
payable by the company shall be at the rate of - (June 2016)
(a) 2% (b) 7%
(c) 15% (d) 12% Ans.(d)
(32) The tax exemption limit for a resident senior citizen is - (Dec. 2014)
(a) Upto Rs. 2,00,000 (b) Upto Rs. 5,00,000
(c) Upto Rs. 1,80,000 (d) Upto Rs. 3,00,000 Ans.(d)
(33) The amount of Health and Education cess to be collected along with income-tax for AY 2021-2022 shall be
- (June, 2009)
(a) 1% (b) 2%
(c) 4% (d) 3% Ans.(C
(34) In respect of a resident assessee, who is of the age of 60 years or more at any time during the previous
year but less than 80 years on the last day of Previous Year relevant to Assessment Year 2021-2022: (June,
2008)
(a) Rebate of tax payable subject to a maximum of Rs. 20,000. (b) Higher basic exemption of. 1,50,000.
(c) Higher basic exemption of. 3,00,000. (d) Higher basic exemption of . 1,35,000.
Ans.(c)
(35) Arun, a non-resident of India celebrated his 80th birthday on 10th October 2020. If his total
income for the previous year is Rs. 6,00,000, his income-tax liability for the previous year 2020-21 is -
(June 2016)
(a) Rs. 33,800 (b) Rs. 41,600
(c) Rs. 20,800 (d) Nil Ans.(A)
(36) An assessee, being an individual resident in India, is entitled to a deduction, from the amount of income-
tax on his total income which is chargeable for an assessment year, of an amount equal to 100% of such
income-tax or a lesser amount. The maximum amount of total income qualifying for such deduction and the
maximum amount of deduction so available is - (Dec. 2014)

(a) Rs. 5 lakh and Rs. 12,500 respectively (b) Rs. 3 lakh and Rs. 2,000 respectively
(c) Rs. 3.5 lakh and Rs. 2,500 respectively (d) Rs. 3 lakh and Rs. 5,000 respectively
Ans.(a)
(37) For a individual, the minimum amount of total income liable for surcharge and the rate of surcharge
applicable therein are- (Dec. 2014)
(a) Rs. 50 lakhs and 10% respectively (b) Rs. 1 crore and 15% respectively
(c) Rs. 1 crore and 7% respectively (d) Rs. 10 crore and 12% respectively
Ans.(a)
(38) For a domestic company, the minimum amount of total income liable for surcharge and the rate of
surcharge applicable therein are - (Dec. 2014)
(a) Rs. 10 crore and 7% respectively (b) Rs.1 crore and 7% respectively
(c) Rs. 1 crore and 12% respectively (d) Rs. 10 crore and 12% respectively
Ans.(b)
(39) The total income of Atul, a resident individual, is Rs. 2,65,000. The rebate allowable u/ s 87A would be -
(June, 2015)
(a) Rs. 2.000 (b) Nil
(c) Rs. 750 (d) Rs. 1,545. Ans.(c)
(40) For the previous year 2020-21, taxable income of A Ltd., a domestic company (Turnover in FY 2018-19
was Rs. 401 crores) is Rs. 10,86,920. Its tax liability would be - (June, 2015)
(a) Rs. 2,82,600 (b) Rs. 4,47,811
(c) Rs. 3,32,770 (d) Rs. 3,39,120 Ans.(d)
41. Employer’s contribution to Recognized Provident Fund (RPF) in excess of 12% of salary income of an
employee shall be treated as (June 19)
(A) Taxable income from salaries
(B) Deemed income from salaries
(C) Exempted income
(D) Income of other sources. Ans B
(42) The Apex Court in the case of CIT v. Saurashtra Cements Ltd. (2010) 233 CTR 209 (Gujarat) has held
that liquidated damages received from the supplier on account of delay in the supply of plant and machinery
shall be treated in the nature of: (Dec 19 –NS)
(a) Capital Receipt
(b) Revenue Receipt
(c) Not a receipt but to be reduced from the cost of Plant & Machinery
(d) Compensation Ans.(a)
(43) Which of the following income is not chargeable to tax in the case of Suresh who is resident but not ordinarily
resident ? (Dec 19 –OS)
(A) Income accruing outside India but received in India
(B) Income earned in India
(C) Past untaxed profit
(D) Income from business outside Indiabut controlled from India
(44) Central Board of Direct Taxes (CBDT) vide Circular No. 8 of 2017 dated 23rd February, 2017 has clarified

that the Place of Effective Management (POEM) provisions shall not apply to a company having turnover or gross
receipts in a financial year of ____________.
(a) Rs. 30 crore or less (b) Rs. 10 crore or less
(c) Rs. 50 crore or less (d) Rs. 5 crore or less Ans.(c)
45. Xavier, a resident and ordinary resident had the income computed under the salary of
Rs.1,20,000; agriculture income of Rs.25,000 in Indonesia being invested there and income of a business in
Burma controlled from India of Rs.20,000 during the previous year ended on 31.3.2021. He has brought into
India Rs.45,000 in January, 2021 out of the past untaxed profits earned in UK. His total income for tax purpose
for Asst. Year 2021- 22 shall be: (Dec 20 –NS)
(A) Rs.1,65,000
(B) Rs.2,10,000
(C) Rs.1,40,000
(D) Rs.1,85,000
ANS-A
46. Chirag a resident individual of 67 years of age had total income earned from different sources during
the previous year 2020-21 being computed as per provisions of Income- tax Act, 1961 of Rs.4,75,000.
His tax liability on such income for the Asst. Year 2021- 22 will be --------- but tax payable shall be nil.
(Dec 20 –NS)
(A) Rs.11,700
(B) Rs.8,750
(C) Rs.9,100
(D) Rs.11,250 ANS-B
47. BBG Pvt. Ltd is a domestic company engaged in the business of running and maintaining of hotels in India
had total turnover in Asst. Year 2020-21 of Rs.180 crores declared the total taxable income for the year
ended 31.03.2021 of Rs.12.5 crores. Tax payable on the income of Rs.12.5 crores in the Asst. Year 2021-
22 by the company shall be -------------(Dec 20 –NS)
(A) Rs.3.64 Cr.
(B) Rs.3.4775 Cr.
(C) Rs.4.368 Cr.
(D) Rs.4.173 Cr. ANS-C
48. Incomes not actually received by the assessee during the relevant assessment year are also included in the
total income as income deemed to have been received. Find which out of the following are the income
deemed to have been received as per Income Tax Act, 1961 during the financial year: (Dec 20 –NS)
i. Amount of unrecorded investment
ii. All sums deducted by way of tax at source
iii. Any dividend declared by a company
iv. Transferred balance in Recognized PF
a. (ii) & (iii)
b. (i), (ii) & (iii)
c. (i) & (iv)
d. (i), (ii), (iii) & (iv) ANS – D
49. Sita Raman born in U.K. is a foreign citizen. His father Radha Raman was born in Rajasthan in 1960
and mother Geeta was born in South Africa in 1965. His grandfather was also born in Rajasthan in
1935. Sita Raman for the first time to see historical places comes to India on 25th November, 2020
and remained till June, 2021 for 200 days. Residential status for assessment year 2021-22 of Sita
Raman shall be : (Dec 20 –OS)
i. Resident and Ordinarily Resident

ii. Not Ordinarily Resident

iii. Non-Resident
iv. None of the above Ans. C
50. Section 87A provides a rebate from the tax payable by an assessee, being an individual, whose total income
does not exceed for the assessment year 2021-22. (Dec 20 –OS)
(A)Rs. 2,50,000
(B)Rs. 3,00,000
(C)Rs. 3,50,000
(D)Rs. 5,00,000 - Ans. D
51. A resident assessee, who is of the age of 60 years or more but less than 80 years at any time during the
previous year 2020-21 shall not be paying tax on income up to ------------------ but shall be paying surcharge
at the rate of ---------------------------------- of income tax where total income exceeds 1 crore. (Dec 20 –OS)
(A) 2,50,000, 10%
(B) Rs. 3,00,000, 10%
(C)Rs.2,50,000,15%
(D) Rs. 3,00,000, 15% Ans. D
Questions for practice
(1) The income-tax payable by a Mr Bansal Resident Individual (aged 25 years) for A.Y. 2021-22 if his total
income is 4.50.000 will be:?
(a) Nil (b) Rs. 10,400
(c) Rs. 20,800 (d) Rs. 10,000 Ans.(a)
Hint – Rebate upto Rs. 12,500
(2) The income-tax payable by a Non Resident Individual (aged 32 years) for assessment year 2021-22 if his
total income is Rs. 5,00,000 will be :
(a) Rs. 25,750 (b) Rs. 13,000
(c) Rs. 12,875 (d) Nil Ans.(b)
(3) The income-tax payable by a Resident Individual (aged 72 years) for AY 2021-22 if his total income is Rs.
5,10,000 will be :
(a) Rs. 12,480 (b) Rs. 12,360
(c) Rs. 9,880 (d) Nil Ans.(a)
(4) For the previous year 2020-21, taxable income of B Ltd., a domestic company (Turnover in FY 2018-19 was
Rs. 452 crores) is Rs. 10,86,920. Its tax liability would be - (June,
2015)
(a) Rs. 2,82,600 (b) Rs. 4,47,811
(c)3,32,770 (d)3,39,120 Ans.(d)
(5) If a resident Individual's (41 years of age) wherein his total Income is Rs. 2,00,50,000, the marginal relief
available to the him is -
(a) Rs. 6,00,000 (b) Rs. 5,50,000
(c) Rs. 18,750 (d) Nil Ans.(b)
(6) If a resident Individual's (45 years of age) wherein his total Income is Rs. 5,01,00,000, the tax payable by
him is -
(a) Rs. 1,93,60,250 (b) Rs. 1,92,56,250
(c)1,85,15,625 (d)2,11,47,594 Ans.(a)

3. Exempt Income 3.1
Chapter 3 – Exempt Income

Exempt Income
Fully Exempted Partially Exempted

Income Income
Agricultural Amount received by

Gratuity Leave travel
Income a member from the concession
income of the HUF
Interest on NRE A/c of Encashment of
Commutation
a person resident Share of profit unutilized earned
of pension
outside India of a partner leave on
retirement
Exemption in respect Allowances payable Retrenchment
Voluntary Retirement
of remuneration to outside India by compensation
Receipts
individuals, who the Government
are not citizens of to a citizen of India
India Payment from NPS Trust
Compensation received Royalty or fees for to an assessee (AY 19-20) on
from LIC
on account of Disaster technical services closure of his account
arising to non-resident or on his opting out
for services rendered to of the pension scheme House rent
Payments from Sukanya
NTRO (AY 19-20) allowance
Samriddhi Account
Payment to Bhopal Payment from NPS
Education Gas Victims Trust to an Special Allowance
scholarships/ employee on or benefit
Awards by Payments from
partial withdrawal
the Provident Fund/
Government Superannuation
Interest income arising Income of member
fund
Pension received to certain persons of a Scheduled tribe
by recipient of During operations martyred /
gallantry awards disabled - Family pension
received by widow/children/ Exemption of income Exemption in
nominated heirs of armed of a Sikkimese respect of
Tea Board subsidy/ forces members & also in clubbed income of
Individual
disability minor
others subsidies
Tax on non-monetary Dividends referred Specified
Capital gain on perquisites paid by the to in section 115-O allowances and
transfer of a unit employer for employee perquisites paid to
of Unit Scheme
chairman or a retired
Certain payments to chairman
Income from units from
or any other
Administrator of MPs & MLAs
member of UPSC
specified
undertaking/specified Income received on
company/mutual fund buy-back of
Capital gain on shares of domestic
compulsory acquisition company
of agricultural land
within specified urban Income received in
limits transaction of
reverse mortgage
Unique Academy - 8007916622 CA Saumil Manglani - Contact 9921051593

1. Agricultural Income (Few Aspects)
Broadly 3
sources
Farm
Rent or Revenue Through agriculture building
derived from land
or required for
situated in India
agricultural
and used for Process ordinarily employed by a
agricultural operations
cultivator or receiver of rent in kind
purposes to render the produce fit to be
taken to the market
or
The sale of such agricultural
produce in the market.
a. Agriculture includes 2 operations -

Basic
Operations
Those operations by
agriculturists which are produce sprouts from the land (e.g.,
absolutely necessary for weeding, digging etc.) are subsequent
the purpose of effectively

raising produce from the would be
land are the basic when taken in
operations.
continuation of the basic operations.
Whether income from nursery constitutes agricultural income?
Yes, as per Explanation 3 to section 2(1A), income derived from saplings or
or not the basic operations were carried out on land.
Rural Agricultural Land – Should be subject to the local rates assessed or depends upon the
population of 9999, 1 Lac to 10 Lacs & More than 10 Lacs.
Agricultural land is after a distance of 2 Kms, 6 Kms. & 8 Kms. Respectively.
(Refer Chapter – Capital Gains)
Reference Case Law - Dy. CIT v. Best Roses Biotech (P) Ltd., 49 SOT 277.
Assessee started growing of rose flowers / plants on bridge of plastic trays erected with help of a
stand 2.3 ft. above land. Mother plant was otherwise reared on earth, subsequently saplings were
planted on plastic trays which were kept at height of 2-3 ft. placed on a stand. Court haled the
income generated will be agricultural income.
b. Calculating Agricultural Income – General - Rule 7 (Understanding with illustration)

Illustration
Mr. A grows sugarcane and uses the same for the purpose of manufacturing sugar in his factory.
• 30% of sugarcane produce is sold for Rs. 10 lacs, and the cost of cultivation of such sugarcane is
Rs. 5 lacs.
• The cost of cultivation of the balance sugarcane (70%) is Rs. 14 lacs and the market value of the
same is Rs. 22 lacs.
• After incurring Rs. 1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was
sold for Rs. 25 lacs.
Compute A’s business income and agricultural income
Solution
Income from sale of sugarcane gives rise to agricultural income and from sale of
sugar gives rise to business income.
Business income = Sales (–) Market value of 70% of sugarcane produce (–)
Manufacturing expenses
= Rs. 25 lacs – Rs. 22 lacs – Rs. 1.5 lacs = Rs. 1.5 lacs.
Agricultural income = Market value of sugarcane produce – Cost of cultivation
= [ Rs.10 lacs – Rs. 5 lacs] + [ Rs. 22 lacs – Rs.14 lacs]
= Rs. 5 lacs + Rs. 8 lacs = Rs. 13 Lacs
0 Lacs 14L 22L 25
Agricultural Income Story of Non-agricultural

Income
Determining Market Value for this purpose -
a. Agricultural produce is capable of being sold in the market → either in its raw stage or after
application of any ordinary process to make it fit to be taken to the market → the value calculated at
the average price at which it has been so sold during the relevant previous year.
2. It is possible that the agricultural produce is not capable of being ordinarily sold in the market in its
raw form or after application of any ordinary process. In such case the market value will be the total
of –
Expenses of cultivation + Rent Paid (if any) + Reasonable profit as per AO
a. Specified types of agricultural Incomes
Rule Apportionment of income in certain cases Agricultural Business
Income Income
7A Income from growing and 65% 35%
manufacturing of rubber
7B Income from growing and
manufacturing of coffee
• Income derived from the sale of 75% 25%
coffee grown and cured
• Income derived from the sale of coffee 60% 40%
grown, cured, roasted and grounded
8 Income from growing and 60% 40%

manufacturing of tea

Illustration
Mr. B manufactures latex from the rubber plants grown by him in India. These are then sold in the market for
Rs. 30 lacs. The cost of growing rubber plants is Rs. 10 lacs and that of manufacturing latex is Rs. 8 lacs.
Compute his total income.
Solution
The total income of Mr. B comprises of agricultural income and business income. Total profits from the sale
of latex= Rs.30 lacs – Rs. 10 lacs – Rs. 8 lacs = Rs.12 Lacs
Agricultural income = 65% of Rs.12 lacs. = Rs. 7.8 lacs
Business income = 35% of Rs.12 lacs. = Rs. 4.2 lacs
b. Indirect connection of agricultural income – Not an agricultural Income
S. No. Cases Reasons
1 Butter made by the societies from cream sold to Separate operations of the company
them by farmers
2 Remuneration of agent calculated with reference to Remuneration was received under a
income of the company, part of which was contract for personal service
agricultural income. calculated on the amount of profits
earned by the company.
3 Agricultural land maintained for manuring and other Regularity with which the sales of milk
purposes connected with agriculture, a part of which were affected and quantity of milk sold
was used as pasture for cows. Only the surplus milk showed that the assessee carried on
after satisfying the assessee’s needs was sold. regular business.
Whether income from such sale of milk was

agricultural income?
4 shareholder in certain tea companies, 60% of whose Dividend is derived from the investment
income was exempt from tax as agricultural income made.
5 Forest trees of spontaneous growth which grow on Operations performed by the assessee
the soil unaided by any human skill and labour. may have the effect of nursing and
fostering the growth of such forest trees,
it cannot constitute agricultural
operations.
c. Few examples
Agricultural Income Non-Agricultural Income
Income derived from the sale of seeds Income from breeding of livestock.
Income from growing of flowers and Income from poultry farming.
creepers.
Rent received from land used for grazing Income from fisheries.
of cattle required for agricultural
activities.
Income from growing of bamboo Income from dairy farming.

2.
Section Particulars of Exempt Income

10(1) Agricultural income is exempt under section 10(1).
Scheme of Partial Integration
However, agricultural income has to be aggregated with non-agricultural income for
determining the rate at which non-agricultural income would be subject to tax, in case of
individuals, HUFs, AOP & BOIs etc., where the –
• agricultural income > Rs. 5,000 p.a. &
• non - agricultural income > basic exemption limit.
The following are the steps to be followed in computation of tax –
Step 1: Tax on non-agricultural income plus agricultural income
Step 2: Tax on agricultural income plus basic exemption limit
Step 3: Tax payable by the assessee = Step 1 – Step 2
Step 4: Add Surcharge/Deduct Rebate under section 87A, if applicable.
Step 5: Add Health & Education Cess @ 4 %
Example
Particulars Case 1 Case 2

Suppose Assessee is a Resident Individual aged 42 years
(Given)
Agricultural Income 10,00,000 1,00,000
Non Agricultural Income 4,00,000 3,10,000
Tax Calculation
Step 1 - Tax on
Agri. + Non Agri. Income (on Rs 14 lacs & Rs. 4,10,000) 232500 8,000
Step 2 - Tax on
Basic Exemption Limit (2.5 lacs) + Non Agricultural Income i.e.
(On Rs. 12,50,000 & Rs. 3,50,000) 187500 5,000
Difference (Step 1 - Step 2) 45000 3000
Less : Rebate u/s 87A 12,500 3000
(Available (Available as the TI is
as the TI is Rs. 3,10,000 i.e. within
Rs. 4,00,000 limits of Rs. 5,00,000)
i.e. within
limits of Rs.
5,00,000)
Tax amount before cess 32,500 Nil
add - HEC @ 4% 1300 Nil
Tax Payable 33,800 Nil

Section Particulars of Exempt Income
10(6D) [AY Income arising to non-corporate (i.e. other than company) non-residents and foreign
19-20] 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.
10(17A) Awards for literary, scientific and artistic works and other awards by the Government are
exempt.
10(18) Pension received by individual → awarded “Param Vir Chakra” or “Maha Vir Chakra” or
“Vir Chakra” such other gallantry award as the CG notifies is exempt from tax. Family
pension received in case of death of the awardee is also exempt from tax.
Family Means – Spouse, Children and Dependent Parents, brothers and sisters)
10(26AAA) Income from any source in the state of Sikkim, dividend income and interest on securities
is exempt in the hands of a Sikkimese individual.
This exemption is not available to a Sikkimese woman who, on or after 1st April, 2008,
marries a non-Sikkimese individual.
10(30) Subsidy received by any assessee engaged in the business of growing and manufacturing tea
in India through or from the Tea Board will be wholly exempt from tax.
10(31) Subsidy received by an assessee engaged in the business of growing and manufacturing
rubber, coffee, cardamom or other specified commodity in India from or through the
Rubber Board, Coffee Board, Spices Board or any other will be exempt.
10AA Tax holiday for newly established units in Special Economic Zones (SEZs), which has begun
or begins to manufacture or produce articles or things or computer software or provide any
service on or after 1.4.2005 in any SEZ for 15 consecutive assessment years in respect of
its profits from exports.
Amount of exemption =
Export turnover of Unit SEZ
Profits of Unit in SEZ x -----------------------------------
Total turnover of Unit SEZ
• 100% of such profits would be exempt in the first five years,
• 50% in the next five years and
• In the last five years, 50% subject to transfer to special reserve.
Few points AY 21 - 22
✓ The business is to be established between 1.4.2005 to 31.3.2021
✓ Not be formed by splitting up or reconstruction of a business already in existence
✓ P& M should be new but out of Total value of P&M, 20% can be second hand.
✓ P&M used outside India
and Which is not used before in India
and which is now imported into India
and on which no deduction on account of depreciation has been allowed
earlier,
is not to be treated as 2nd Hand
✓ The deduction of last 5 years is available only if Reserve Account is utilized

(a) For the purposes of acquiring machinery or plant within next 3 years.
(b) For the purposes of the business of the undertaking until the acquisition of the
machinery or plant is done.
(c) If 10AA claimed, 35AD not allowed.
10(23FE)
• Exemption of certain income in respect of the wholly owned subsidiary of Abu
Dhabi Investment Authority and Sovereign Wealth Fund (IASWF)
• Incomes Exempt - Dividend, interest or long-term capital gains
• Investment made by it in India
• whether in the form of debt or equity
• In a company or enterprise carrying on the business of developing, or operating
and maintaining, or developing, operating or maintaining any infrastructure
facility of section 80-IA
• Business notified which is mentioned in Updated Harmonised Master List of
Infrastructure (ICSI Supplementary June 21)
• Investment should be made between 1st April 20 upto 31st March, 2024
• Lock-in Period of 3 years.
(ICSI Supplementary June 21)
TO facilitate SWF
• MIC Redwood 1 RSC Limited, Abu Dhabi, United Arab Emirates has
been specified as sovereign wealth fund
• SWF shall file application in the Form I with the Member (Legislation)
(CBDT)
• And thereafter to the Member, CBDT having supervision and
control over the work of Foreign Tax and Tax Research Division
• SWF shall be required to file return of income along with audit report
and also be required to file a quarterly statement within 1 month
from the end of the quarter
• electronically in Form II in respect of each investment made during
the quarter.
10(48) Exemption of Income of a foreign company from sale of Crude Oil in India
due to agreement with CG or approved by CG.
10 (48B) Sale of leftover of such oil on termination if agreement is also exempt
10(48C)
• Income accruing or arising to Indian Strategic Petroleum Reserves Limited
(ISPRL)
• Any Income arising or accruing to ISPRL
• wholly owned subsidiary of Oil industry development Board
• under the Ministry of Petroleum and Natural Gas
• for refilling of crude oil stored in its storage facility
• Condition:- Crude oil is refilled in the storage facility within 3 years from the
end of the FY in which it was first removed from such facility.
Few Clarifications
Meaning of Export turnover: It means the consideration received in India or brought into India by the
assessee in respect of export by the undertaking being the unit of articles or things or services.
However, it does not include
• freight
• telecommunication charges
• insurance
Attributable to the delivery of the articles or things outside India or expenses incurred
in foreign exchange in rendering of services (including computer software) outside
India. These are to be excluded both from "export turnover" and "total turnover'
Miscellaneous Exemptions
1. Post Office Savings Bank Account be exempt from tax for any assessment year
only to the extent of:
i. Rs. 3,500 in case of an individual account.
ii. Rs. 7,000 in case of a joint account.

Policy issued Exemption u/s 10(10D) Deduction u/s 80C

before 1.4.2003 Any sum received including bonus. Premium paid to the
Between 1.4.2003 Exempt if premium payable for any of the years extent of 20% of “actual
capital sum assured”.
and 31.3.2012 during the term of the policy does not exceeds 20%
of “actual capital sum assured”.
Between 1.4.2012 Exempt Premium paid to the
and 31.3.2013 however, exemption would not be available if the extent of 10% of “actual
(for all premium payable for any of the years during the capital sum assured”.
employees term of the policy exceeds 10% of “actual capital sum
including assured”.
disabled
employees)
For Disabled employee (80U or 80DDB)
Premium paid to the
extent of 15% of “actual
Exempt if premium payable for any of the years
during the term of the policy does not exceeds 15%
On or after Premium paid to the
1.4.2013 For other than Disabled employee extent of 10% of “actual
Exempt if premium payable for any of the years
during the term of the policy does not exceeds 10%
3. Exemption on receipts from Life insurance policy (LIP) [Section 10(10D)]: Any sum received under
a life insurance policy, including the sum allocated by way of bonus on such policy shall not be included
in the total income of a person.
Note - Amount received on death of the person will continue to be exempt without any condition.
Past Exam Questions
(1) Which of the following income is not exempt under section 10 - (Dec. 2011)
(a) Share in total income of firm (b) Income from agriculture in Lahore
(c) Bonus on life insurance (d) Income from mutual funds. Ans.(b)
(2) A member of Parliament received Rs. 1,50,000 per month as salary and Rs. 4,50,000 as daily allowances
during previous year 2020-21. The taxable amount will be - (Dec. 2016)
(a) Salary Rs. 18,00,000
(b) Income from profession Rs. 22,50,000
(c) Income from other sources Rs. 18,00,000
(d) Nil Ans.(c)
(3) Mr. Sankar received Rs. 50,000 as educational scholarship from Nehru Memorial Trust (a charitable trust). The
scholarship is to assist Mr. Sankar for pursuing M.A. (History) at Jawaharlal Nehru University, New Delhi. The
amount of scholarship liable to tax is : (June, 2017)
(a) Rs. 50,000 (b) Rs. 10,000
(c) Rs. 25,000 (d) Nil Ans.(d)
(4)Any payment in commutation of pension received from a pension fund setup by the Life Insurance
Corporation of India in terms of section 10(23AAB) of the Income Tax Act, 1961, is : (June 2019)
(a) Liable for tax (b) Fully exempt from tax Ans.(b)
(c) Partly liable for tax (d) Taxable @ 10%

(5) Find out from the following income derived from house property which is being exempt from Income Tax
: (June 2019)
(a) Income from property of a trust for charitable or religious purposes
(b) Income from property of a housing society
(c) Income from property of a trade association
(d) Income from property of a sports association Ans.(b)
(6) Raghu traced a missing girl by spending Rs. 20,000. For this, he was awarded with a sum of Rs. 1,20,000. In
this case the award is taxable to the extent of - (June 2016)
(a) Rs. 1,00,000 (b) Rs. 1,20,000
(c) Rs. 1,15,000 (d) Nil. Ans.(a)
(7) A registered trade union earned Rs. 1,00,000 by way of interest on bank deposits and Rs. 1,80,000 by way
of rent from let-out of its premises. Total income of the trade union chargeable to tax would be - (Dec.
2016)
(a) Rs. 2,24,000 (b) Rs. 2,80,000
(c) Rs. 1,80,000 (d) Nil Ans.(d)
(8) Tax holiday under section 10AA in respect of newly established units in SEZ is allowed for a total period of -
(Dec. 2016)
(a) 5 Years (b) 10 Years
(c) 15 Years (d) 20 Years Ans.(c)
(9) A registered political party have income during the year 2020-21 of banks interest Rs. 5,00,000, rent from
letting of building Rs. 3,00,000 and voluntary contribution by cheque Rs. 8,00,000. Total income chargeable to
tax under section 13A of the Income Tax Act, 1961 for the A.Y. 2021-22 of the political party shall be :
(June 2019)
(a) Rs. 5,00,000 (b) Rs. 8,00,000
(c) Rs. 16,00,000 (d) NIL Ans.(d)
(10) Yadav leased his agricultural land in Meerut to Kailash. There is one dwelling house and storehouse in the
immediate vicinity of the land. He received lease rent for land Rs. 50,000. He also received Rs. 12,000 as rent for
dwelling house occupied by the tenant/cultivator and Rs. 18,000 as rent for the store house. The amount of
income to be treated as agricultural income would be: (Dec 19 –OS)
(A) Rs. 80,000
(B) Rs. 68,000
(C) Rs. 62,000
(D) Rs. 50,000
Ans.(A)
(11) Which of the following activity is an agricultural activity? (Dec 19 –OS)
(A) Supply of water for irrigation purposes
(B) Production of salt from seawater
(C) Spontaneous growth of grass
(D) Cultivation of flowers Ans.(D)
12. Grow Green Tea Company having tea gardens in Assam engaged in growing and manufacturing of tea in
India. Total profits of the company from the business of growing/ plantation and manufacturing of tea for the
year ended 31.03.2021 are of Rs.2,50,000. Profits subject to tax as business income under Rule - 8 of the
Income-tax Rules for A.Y. 2021-22 shall be ----------(Dec 20 –NS)
(A) Rs.1,00,000
(B) Rs.1,50,000
(C) Rs.2,50,000
(D) Rs.1,25,000 ANS - A

13. Find out from the following incomes which shall not be taken as forming part of the total income of an assessee
for the purpose of taxation in any assessment year as per provisions of Income Tax Act, 1961 : (Dec 20 –NS)
a. Pension received by an awardee of Mahavir Chakra
b. Income of a Notified News Agency
c. Pension received by widow of a Major who died in Balakot attack
d. Income received on behalf of any Regimental Fund
(A) (i), (ii), (iii) & (iv)
(B) (i), (iii) & (iv)
(C) (ii) & (iv)
(D) (ii) & (iii) ANS - A
14. Ramprasad engaged in turbine manufacturing business has a unit located in SEZ in Jodhpur. The unit in SEZ
was in its third year of operation during the financial year 2020-21. Summarized results of SEZ Unit are :
Domestic turnover Rs.200 lakh
Export turnover Rs.800 lakh

Net profit Rs.180 lakh
Income exempt under section 10AA for Asst. Year 2021-22 shall be ----(Dec 20 –NS)
(A) Rs.180 lakh
(B) Rs.90 lakh
(C) Rs.144 lakh
(D) Rs.135 lakh ANS-C
15. Kamal has established in the previous year 2019-20 two industrial undertakings, one in a SEZ and one in a
normal DTA. The summarized results for both the Units for previous year 2020-21 are :
Amount in Lakh (Rs.)
Item SEZ Normal (DTA)

Domestic turnover 100 200
Export turnover 300 0
Gross Profit 75 25
Expenses &
Depreciation 15 15
Deduction available under section 10AA of the Act to Kamal in Asst. Year 2021-22 shall be of Rs. ------ (Dec
20 –OS)
(A) 45
(B) 60
(C) 75
(D) 70 Ans. A
16. Income derived from sale of coffee grown, cured, roasted and grounded in India as per Rule 7B (1A) of Income
Tax Rules shall be treated both as agricultural income and business income in the ratio of
--------------- of such income. (Dec 20 –OS)
(A) 60% & 40%
(B) 65% & 35%
(C) 75% & 25%
(D) 70% & 30% Ans. A

4. Salary 4.1
Chapter 4 – Salaries
Proforma for computation of income under the head “Salaries”
Particulars Amt
(i) Basic Salary XXX
(ii) Fees/Commission XXX
(iii) Bonus XXX
(iv) Allowances:
(a) Dearness Allowance XXX
(b) House Rent Allowance (HRA) (115BAC – Not Allowed) xx
Less: Least of the following is exempt [Section 10(13A)] xx XXX
HRA actually received xxx
Rent paid (-)10% of salary for the relevant period xxx
50% of salary, if accommodation is located in
Mumbai, Kolkata, Delhi or Chennai or 40% of xxx
salary in any other city for the relevant period
(c) Children Education Allowance (115BAC – Not Allowed) xx

Less: Rs. 100 per month per child upto maximum of two xx XXX
children
(d) Children Hostel Allowance (115BAC – Not Allowed) xx
Less: Rs. 300 per month per child upto maximum of two xx XXX
children
(e) Transport allowance (115BAC – Allowed) xx
Less: Rs.3,200 per month in case of blind/ deaf and XXX
dumb/ orthopedically handicapped employeeonly xx
(f) Entertainment Allowance (115BAC – Not Allowed) XXX
(g) Other Allowances including overtime allowance, city compensatory XXX
allowance etc. (115BAC –Not Allowed except Travel, Conveyance, Daily)
(v) Taxable Even after 115BAC the calculation of perquisites remains the same except the exemption
Perquisit of food beverages of Rs. 50 per meal per day is not allowed)
es
(a) Valuation of rent free accommodation* XXX
I) Where the accommodation is provided by the Govt. to its
employees
License fee determined by the Govt. xx
Less: Rent actually paid by the employer xx
II) Where the accommodation is provided by any other employer
If accommodation is owned by the employer
(i) Cities having population > 25 lakh as per
2001census
15% of salary in respect of the period of occupation
(–) rent recovered fromemployee xx

4. Salary 4.2
(ii) Cities having population >10 lakh < 25 lakh as

per 2001census
10% of salary in respect of the period of occupation
(–) rent recovered from employee xx
(iii) In other cities

7.5% of salary in respect of the period of occupation
(–) rent recovered from employee xx
If accommodation is taken on lease by the employer

Lower of lease rental paid or payable by the employer xx
(or) 15% of salary
Less: Rent actually paid by the employee xx
(b) Obligation of employee discharged by employer. For XXX
e.g. Professional tax paid by the employer
(c) Any sum payable by the employer to effect an assurance on the life XXX
of the employee or to effect a contract for annuity: Actual
expenditure incurred by the employer
(d) Value of use of motor car XXX

(e) Any other perquisite: For example, XXX
(1) Provision of services of a sweeper, gardener, watchman or
personal attendant : Actual cost to employer by way of salary paid or
payable for such services (-) amount paid by the employee
(2) Gas, electricity, or water supplied by employer for household

consumption of the employee : Amount paid on that account by the
Specified employer to the agency supplying gas etc. (-) amount paid by the
employees – employee
a. Director (3) Provision of free or concessional education facilities for any
b. Employee member of employee’s household : Sum equal to the expenditure
having incurred by the employer (-) amount paid or recovered from the
substantial employee
interest (i.e. Where educational institution is maintained and owned by employer:
minimum 20% Cost of such education in similar institution in or near the locality (-)
share holding amount paid or recovered from employee [However, there would be
no perquisite if the value of benefit per child does not exceed Rs.
c. Income
1,000 p.m.]
under the head
Salaries > Rs. Note: Above perquisites including Motor car are taxable only in case
50,000 of specified employees.
excluding (4) Interest-free or concessional loan exceeding
perquisites Rs. 20,000 : Interest computed at the rate charged by SBI as on 1st
day of relevant PY in respect of loans for similar purposes on the
maximum outstanding monthly balance (-) interest actually paid by
employee
(5) Value of gift, voucher: Sum equal to the amount of such gift
[If value of gift, voucher is upto Rs. 5,000, there would be
no perquisite]
(6) Use of moveable assets

4. Salary 4.3
Asset given Value of benefit

a) Use of laptops and computers Nil
b) Movable assets, other than - 10% p.a. of the actual cost of
(i) laptops and computers; and such assets, or the amount of
(ii) assets already specified rent or charge paid or payable
by the employer, as the case
may be
(-)
amount paid by/recovered from
an employee
(7) Transfer of movable assets: Actual cost of asset to employer – cost of
normal wear and tear – Amount paid or recovered from employee.
Assets transferred Computation of cost of normal wear and
tear
Computers and electronic items @ 50% on WDV for each completed year of
usage
Motor cars @ 20% on WDV for each completed year of
usage
Any other asset @ 10% of actual cost of such asset to
employer for each completed year of usage [on
SLM basis]
(vi) Leave travel concession (115BAC – Not Allowed) xxx
Less: Exempt u/s 10(5) xxx XXX
(vii) Gratuity
(a) Received during the tenure of employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10) xxx XXX
(viii) Uncommuted pension (fully taxable) Commuted pension xxx
(ix) Less: Exempt u/s 10(10A) xxx
XXX
(x) Leave encashment
(a) Received during the employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10AA) xxx XXX
(xi) Voluntary retirement compensation xxx
Less: Exempt u/s 10(10C) - Least of the following: xxx XXX
(a) Compensation received/ receivable on voluntary xxx
retirement
(b) Rs. 5,00,000 xxx
(c) 3 months’ salary x completed years of service xxx
(d) Last drawn salary x remaining months of service left xxx
(xi) Retrenchment compensation etc. xxx

Less: Exempt u/s 10(10B)] – Least of the following: xxx XXX
(a) Compensation actually received xxx
(b) Rs. 5,00,000 xxx

4. Salary 4.4
(c) 15 days average pay x completed years of service and

part thereof in excess of 6months xxx
Gross Salary XXX
Less: Deduction under section16 (115BAC – All 3 Not Allowed)
Standard deduction u/s 16(ia) upto Rs. 50,000 XXX
Entertainment allowance u/s 16(ii) (only for Govt. employees) xxx
Least of the following is allowable as deduction: xxx XXX
(a) Rs. 5,000 xxx
(b) 1/5th of basic salary xxx
(c) Actual entertainment allowance received xxx
Professional Tax (paid by employer/ employee) under section 16(iii) XXX
Income under the head salary XXX
1. Basics
Basis of Charge [Section 15]
(i) Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
(ii) However, where any salary, paid in advance, is assessed in the year of payment, it cannot
be subsequently brought to tax in the year in which it becomes due.
(iii) If the salary paid in arrears has already been assessed on due basis, the same cannot be
taxed again when it is paid.
2. Few examples given in module -
Professor → Examinership fees →from the same IOS
university in which he is employed
Director → Dual capacity Remuneration received – Salary
Attending the meetings - IOS
Official Liquidator Salary
Partner of a firm PGBP
Member of Parliament IOS
3. Computation of Salary in Grade system – varying Pay Scale

In this concept the person gets an increment in Salary after every completion of
duration of 12 months in employment.
Example – A person joined ABC ltd. On 1stJuly 2016 on a pay scale of monthly salary of Rs
30,000 – 3000 – 39000 – 5000 – 49000. The salary gets due on last day of every month. Find the
taxable salary of this person for P.Y 17 – 18 and PY 20 – 21.
Solution
Working Note
Cycle of 12 months Per month Salary (INR)

July 16 to June 17 30,000.00

4. Salary 4.5
July 17 to June 18 33,000.00

July 18 to June 19 36,000.00
July 19 to June 20 39,000.00
July 20 to June 21 44,000.00
July 21 to June 22 49,000.00
Therefore, for PY 17 -18 i.e. April 17 to March 18 = Rs 30,000 * 3 months and 33,000* 9 months =
Rs. 3,87,000
And for PY 20-21 i.e. April 20 to March 21 = Rs. 39,000 * 3 months and 44,000* 9 months = Rs.
5,13,000
MCQ’s
Basics
(1) Which of the following income is taxable under the head 'income from salary' - (Dec. 2011)
(a) Salary received by a partner from firm (b) Salary received by a Member of Parliament
(c) Salary of a Government Officer (d) None of the above. Ans.(c)
(2) Pankaj joins service on 1st April, 2016 in the grade of 15,000 - (1,000) - 18,000 - (2,000) - 26,000. He shall
be paying tax for the year ended on 31st March, 2021 on the total salary of - (Dec. 2015)
(a) Rs. 1,76,000 (b) Rs. 1,90,000
(c) Rs. 2,24,000 (d) Rs. 1,40,000 Ans.(b)
Answer Hint: Standard deduction is allowed amounting Rs. 50,000 from Gross salary.
(3) Anjan joins a service is the grade of Rs. 15,600 - 39,100 plus grade pay of Rs. 6,000 on 01-08-2020.
He also gets dearness allowance @ 107% of salary. His tax liability for assessment year 2021-22 will be
- (Dec. 2014)
(a) Rs. 3,520 (b) Rs. 920
(C) Nil (d) Rs. 5,600 Ans.(C)
Note - Gross salary is 3,57,696. Standard deduction is allowed - Rs. 50,000. [Taxable salary Rs. 3,07,700 and tax
liability is nil after tax rebate of Rs. 2,885
(4) What will be the amount of gross salary which shall be required to be declared in the return of income to be
filed for the previous year 2020-21 by Harun, who joined services as Manager Accounts on the salary of Rs.
17,000 p.m. In XYZ Ltd. on 1st April, 2018 in the grade of 15,000 - 2000 -19,000 - 3,000 - 28,000? ((Dec 19 –NS)
(a) Rs. 3,00,000 (b) Rs. 2,28,000
(c) Rs. 2,64,000 (d) Rs. 2,52,000 Ans.(c)

4. Salary 4.6
Retirement Benefits
4. Leave Encashment[Section 10(10AA)
Leave Encashment
Received during Received on

the period of retirement whether
Service on Superannuation
or otherwise
Full Taxable
By a Government By any other

employee employee
Full Exempt Least of the

following
is exempt
Rs. 3,00,000 Leave salary 10 months’ salary (Total leaves allowed/ 10 months
actually received (on the basis of average
average salary of
Earned – Total leaves
last 10 months) Availed)  monthly
salary
30
Earned leave entitlement cannot

exceed 30 days for every year of
actual service
Points to note - Mnemonics
➢ पिछले 10 महीनेमें average 4- 4 पिनकीछु ट्टीलीहै (Means 4 amounts to compare)

➢ हरपिन important है(for calculating preceding 10 months, start counting from immediately
preceding day)
➢ तोसाल ignore (Means Total leaves allowed = Completed number of years of service *
max. 30 days per year)
Salary
Basic Conditional D.A Commission fixed

% of T.O
V. Imp- “Salary” is defined as above at total 4 calculations in this Chapter

a. Leave Encashment c. Not Covered by POGA – Gratuity payment
b. H.R.A d. Provident Fund

4. Salary 4.7
5. Gratuity 10(10)
Gratuity
Received during Received at the time of

service retirement/Death
Fully Taxable
Government Non-Government
Employees Employees
Fully Exempt
Covered under Not covered
Payment of underpayment of
Gratuity Act, 1972 Gratuity Act, 1972
Least of the following Least of the following

would be exempt: would be exempt:
- Rs 20 lakh - Rs. 20 lakhs

- Gratuity received - Gratuity received
- 15/26 * Last drawn

- ½ * Salary *
Salary * Number of
years of service completed number
(where > 6 moths = 1 years of service (ignore
year. fraction of years
Covered by POGA – Points to Note
➢ Last Drawer(means Drawn)मेंSalary रखीहै

➢ Covered हैतोचीज़ेंज़रा specific (i.e. 15/26 and > 6 month = 1 year)
➢ Full Drawer खोलोतोिोचीज़ेंपमली ( FULL DA and Basic Salary)
Not covered by POGA–
Salary

% of T.O

4. Salary 4.8
6. Pension 10 (10A)
Pension
Commuted Uncommuted
Lumpsum)d (Monthly)
Employees of the Non-Government Fully taxable

Central Employees
Government/local
authorities/Statutory
Corporation/Members
of the Defence Services If the If the employee
employee is does not
in receipt of receive any
gratuity gratuity
1/3  (commuted ½  (commuted

pension received pension received
 commutation  commutation
%)  100, would %)  100, would
be exempt be exempt
Points to Note
• If nothing is given in question – assume that the person is not in receipt of Gratuity
• Family Pension received – Head IOS – 1/3rd of amount received or Rs. 15,000 per year
(Lower one) is the deduction allowed.
• Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
For example – The assessee was receiving Rs 10,000 p.m. as monthly pension for PY 20-
21.
Now on 31st Jan 21 the assessee got 60% of pension commuted, so now for Feb and
March monthly pension will be Rs. 4.000 for each month.
1. The maximum exemption under section 10(10AA) in case of leave encashment is - (1 marks, CS June, 2011)
(a) 13,50,000 (b) Rs. 3,00,000
(c) Rs. 10,00,000 (d) Rs. 5,00,000 Ans.(b)
2. Salary received in lieu of unavailed leave during service shall be - (Dec. 2012)
(a) Fully taxable (b) Fully exempted
(c) Partially taxable (d) None of the above. Ans.(a)
3. An employee of a public limited company received Rs. 3,00,000 as encashment of leave salary at the time of
retirement. He has 18 months' leave to his credit at the time of retirement and his average salary for last 10
months is Rs. 24,000. The taxable amount of leave encashment would be - (Dec. 2016)
(a) Rs. 2,40,000 (b) 13,00,000
(c) Rs. 60,000 (d) Nil Ans.(c)
4. Bimal is employed in a factory at a salary of Rs. 2,400 per month. He also gets dearness allowance @ Rs. 600
per month and bonus @ Rs. 200 per month. He retired on 31st December, 2020 and received Rs. 75,000 as
gratuity under the Payment of Gratuity Act, 1972 after serving 31 years and 4 months in that factory. The
amount of gratuity exempt under the Income- tax Act, 1961 will be - (Dec. 2014)
(a) Rs. 75,000 (b) Rs. 53,654
(c) Rs. 21,346 (d) Rs. 10,00,000. Ans.(b)

4. Salary 4.9
5. Akash is entitled to get a pension of Rs. 6,000 per month from a private company. He gets 60% of the pension
commuted and receives Rs. 3,60,000. He also receives Rs. 2,00,000 as gratuity from the same employer. The
taxable portion of commuted value of pension will be - (Dec. 2014)
(a) Rs. 1,60,000 (b) Nil
(c) Rs. 3,60,000 (d) Rs. 60,000 Ans.(a)
6. Anand is entitled to get a pension of Rs. 600 per month from a private company. He gets three-fifth of the
pension commuted and received Rs. 36,000. He did not receive gratuity. The taxable portion of commuted value
of pension is- (June, 2012)
(a) Rs. 16,000 (b) Rs. 6,000
(c) Rs. 18,000 (d) Rs. 12,000. Ans.(b)
7. An employee of a company, who was entitled for a gratuity of Rs. 8,00,000, also received Rs. 12,00,000 by
commuting 40% of his pension. The taxable amount of commuted pension is - (June 2016)
(a) Rs. 2,00,000 (b) Rs. 4,00,000

(c) Rs. 12,00,000 (d) Rs. 22,00,000 Ans.(a)
8.Rohan retires from private service on 30th April, 2020 and his pension has been fixed at Rs. 1,500
p.m. He gets 1/2 of his pension commuted during January, 2021 and receives Rs. 75,000. He also gets
Rs. 60,000 as gratuity. The total pension taxable including commuted value will be (Dec. 2015)
(a) Rs. 16,500 . (b) Rs. 41,500
(c) Rs. 39,250 (d) Rs. 14,250 Ans.(c)
9.The maximum amount of compensation received at the time of voluntary retirement exempt from tax is -
(June 2013)
(a) Rs. 2,00,000 (b) Rs. 5,00,000
(c) Rs. 10,00,000 (d) The actual amount received as compensation.
Ans.(b)
10. Mr. Vijay employed in ABC Ltd opted for voluntary retirement and received Rs. 12 lakhs by way of gratuity.
The Payment of Gratuity Act, 1972 is applicable in his case. The monetary limit for exemption under Section
10(10) is - (Dec 17)
(A) Rs. 3,50,000
(B) Rs. 20,00,000
(C) Rs. 10,00,000
(D) Rs. 3,00,000 Ans.(b)
11.The maximum amount eligible for exemption in respect of encashment of earned leave on
retirement is : (Dec 17)
(A) Rs. 3,00,000
(B) Rs.10,00,000
(C) Rs. 50,000
(D) Rs. 5,00,000 Ans.(a)
12. The maximum amount of gratuity exempt and the maximum amount of leave encashment exempt under the
Act respectively are : (June 17)
(A) Rs. 10,00,000 and Rs.3,00,000
(B) Rs. 20,00,000 and Rs.3,00,000
(C) Rs. 5,00,000 and Rs.2,50,000
(D) None of the above Ans. B
13. .Mohan, retried from Y & Company Ltd. on 31-08-2020after rendering services for 31 years and 7 months.
He was paid Rs. 11 lakhs as gratuity under the Payment of Gratuity Act, 1972. His last drawn salary was Rs.
52,000. How much of the amount of gratuity would be exempt ?
(June 19)
(A) Rs. 10,00,000
(B) Rs. 20,00,000
(C) Rs. 9,30,000
(D) Rs. 9,60,000. Ans D

4. Salary 4.10
14. John, who recently retired from service of a company on 31st March, 2020 is eligible for a monthly pension
of Rs. 20,000. He has received gratuity on his retirement also. He wants to commute 50% of his pension for
6.00 lakh. How much amount of this commuted pension shall be subject to tax in A.Y. 2021-22 ? (June 19)
(A) Rs. 6,00,000
(B) Rs. 2,00,000
(C) Rs. 3,00,000
(D) Rs. 3,50,000. Ans B
15.The maximum amount of any death-cum-retirement gratuity received by an employee not covered under
the payment of Gratuity Act, 1972 on Superannuation from the employer exempt from tax is of ____________.
((Dec 19 –NS)
(a) Rs. 20 lakh (b) Rs. 10 lakh
(c) Rs. 5 lakh (d) Rs. 15 lakh Ans.(a)
16. Malik retired from Mehbooba Ltd. after rendering service for 27 years and 8months. His 15 days salary
is Rs. 26,000. He received Rs. 11,50,000 as gratuity from the employer. He is covered under the Payment
of Gratuity Act, 1972.The amount of gratuity eligible for exemption under section 10(10) would be: (Dec
19 –OS) [Good Que]
(A) Rs. 10,00,000
(B) Rs. 7,28,000
(C) Rs. 11,50,000
(D) Rs. 7,02,000
Ans.(b)
7. Allowances
7A. Allowance partially taxable (115BAC – Not Allowed)
House Rent Allowance 10(13A)
Section Allowance Exemption
10(13A) House Rent Least of the following is exempt:
Allowance (a) HRA actually received
(b) Rent paid less10% of salary
(c) 50% of salary, if accommodation is
located in Mumbai, Kolkata, Delhi or
Chennai
40% of salary, if the accommodation is
located in any other city.
Points
➢ Salary means -> Basic + Conditional D.A + Commission fixed % of Turnover
➢ Exemption is given only for that period during which the house is occupied by the
assessee.
➢ If any of the given elements change, the calculation also needs to be done accordingly –
Actual HRA received, rent paid, Salary, Location of the house taken on rent.

4. Salary 4.11
7B.Allowance exemption depends upon the actual expenditure (115BAC –

Colouring)
Mnemonics - (Daily Uniform िहन के Helper साथ Research करने पनकलता है और C.T.T बजाता है )
1. Daily allowance–to meet the ordinary daily charges incurred by an employee on account
of absence from his normal place of duty
2. Uniform allowance.
3. Helper allowance –Helper for official duties(But Servant allowance fully taxable)
4. Research allowance - encouraging the academic research and training pursuits in
research institutions
5. Conveyance allowance - performance of duties of an office
6. Travelling Allowance - cost of travel on tour one city to another – Official tour
7. Transfer allowance–Shifting city - transfer, packing and shifting of personal effects on
such transfer
7C.Allowance exemption does not depend upon the actual expenditure
(115BAC – Not allowed except Transport)
S. Name of Allowance Extent to which

No. allowance is exempt
1 Special Compensatory(Tribal Areas/Schedule Areas / Agency Rs. 200 per month.
Areas)Allowance
2 Any allowance granted to an employee working in any 70% of such allowance
transport system to meet his personal expenditure during his upto a maximum of
duty performed in the course of running such transport from one Rs. 10,000 per month.
place to another, provided that such employee is not in receipt
of daily allowance
3 Children Education Allowance Rs. 100 per month per
child upto a maximum of
two children.
4 Any allowance granted to an employee to meet the hostel Rs. 300 per month per
expenditure on his child child upto a maximum of
two children.
5 Any transport allowance granted to an employee to meet his Rs. 1,600 per month
expenditure for the purpose of commuting between the place of Withdrawn
his residence and the place of his duty from AY 19-20
6 Any transport allowance granted to an employee who is blind or Rs. 3,200 per month.
deaf and dumb or orthopedically handicapped with disability of
the lower extremities of the body, to meet his expenditure for
commuting between his residence and place of duty
7 Underground Allowance would be granted to an employee who Rs. 800 per month
is working in uncongenial, unnatural climate in underground
mines. This is applicable to whole of India.
7D. Allowances Fully Exempt (115BAC – Not Allowed)
a. Allowance to High Court Judges and Supreme court Judges

b. Allowance received from United Nations Organisation (UNO): Allowance
paid by the UNO to its employees is not taxable
c. Allowances payable outside India [Section10(7)] – By the Government to a citizen of
India for services rendered outside India.

4. Salary 4.12
7E. Allowances Fully Taxable

Dearness Allowance Non-Practicing allowance
City compensatory allowance Family allowance
Medical allowance (From AY 19-20, specified Special allowance
medical perquisite is also fully taxable)
Tiffin/ Lunch/Dinner allowance Secret allowance
(But if perquisite – Exempt upto Rs. 50 per
meal)
Overtime allowance Deputation allowance
Servant allowance Interim allowance
Warden/ Proctor allowance Any other cash allowance
Reminding again
Note: If the assessee opted concessional tax slab U/S 115BAC of the income tax act, 1961, then
assessee is not eligible to claim exemption from any allowances
except:
1. Travelling allowances
AY 21-22
2. Daily allowances
3. Conveyance allowance
4. Transport allowance(For blind, handicapped, deaf or dumb employee)
ALLOWANCES
1. Murali employed in Megha Ltd., Delhi. He is paid house rent allowance of Rs. 9,000 per month in financial
year 2020-21. His salary for the purpose of computation of house rent allowance relief may be taken as Rs.
20,000 per month. Murali pays actual rent of Rs. 10,000 per month. How much of the house rent allowance is
tax-free if Murali has opted for Section 115BAC (June 2016)
(a) 1108,000 (b) Rs. 1,20,000
(c) Rs. 96,000 (d) Nil Ans.(d)
2. Children education allowance received by an employee from his employer is Rs. 80 per month per child for 3
children. Taxable education allowance will be - (Dec. 2014)
(a) Rs. 960 (b) Rs. 480
(c) Nil (d) Rs. 1,200 Ans.(a)
3.Chandan, a handicapped employee receives Rs. 1,500 per month as transport allowance from his employer.
His actual expenditure on transport is Rs. 1,000 per month. The amount of transport allowance taxable under
the head income from salaries will be - (Dec. 2 014)
(a) Rs. 18,000 (b) Nil
(c) Rs. 6,000 (d) Rs. 8,000. Ans.(b)
Answer Hint : Transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically
handicapped for commuting between the place of residence and the place of duty is exempt upto Rs. 3,200 p.m.
4. Raman purchased a residential house property in Ahmedabad on loan for which he paid an interest of Rs.
50,000 during the previous year. He is working in Delhi and getting an HRA of Rs. 4,000 per month. He can
claim exemption/deduction for - (June, 2 015)
(a) Only HRA (b) Only interest paid
(c) Either interest paid or HRA but not both (d) Both HRA and interest paid. Ans.(d)
5. Arun, a resident of Meerut, receives Rs. 38,000 per annum as basic salary. In addition, he gets Rs. 12,000 p.a.
as dearness allowance, which does not form part of basic salary, 5% commission on turnover achieved by him
(turnover achieved by him during the relevant previous year is Rs. 6,00,000) and Rs. 7,000 per annum as house

4. Salary 4.13
rent allowance. He, however, pays Rs. 8,000 per annum as house rent. The quantum of house rent allowance
exempt from tax is - (June 2007)
(a) Nil (b) Rs. 8,000
(c) Rs. 7,000 (d) Rs. 1,200 Ans.(d)
6. The maximum exemption in respect of transport allowance granted to an employee to meet his expenditure
for the purpose of commuting between the place of his residence and the place of his duty shall be - (June,
2009)
(a) Rs. 1,200 per month (b) Rs. 1,400 per month
(c) Nil (d) Rs. 1,800 per month Ans.(c)
7. The maximum exemption in respect of transport allowance granted to a blind employee to meet his
expenditure for the purpose of commuting between the place of his residence and the place of his duty shall be
- (June, 2009)
(a) Rs. 1,600 per month (b) Nil
(c) Rs. 3,200 per month (d) Rs. 20,000 per month Ans.(c)
8. Pawan, employed in Magie Ltd., was eligible for transport allowance of Rs. 2,000 per month to meet his travel
expenses from residence to office. He actually incurred Rs. 1,200 per month towards travel. The amount of
travel allowance chargeable to tax as perquisite would be - (Dec. 2016)
(a) Rs. 24,000 (b) Rs. 14,400
(c) Rs. 4,800 (d) Nil Ans.(a)
Answer Hint: Transport allowance granted to meet the expenditure incurred on commuting between residence
and office has been made fully taxable w.e.f. AY 2019-20.
9. Rajesh an employee of transport company receives Rs. 25,000 p.m. as basic salary. In addition, he
gets Rs. 12,000 p.m. as transport allowance to meet his personal expenditure incurred in course of his
official duty of running the transport from one place to another. He has expended Rs. 60,000 for the
said purpose during the previous year. He is not in receipt of daily allowance. The quantum of transport
allowance taxable is -
(a) Rs. 43,200 (b) Rs. 24,000
(c) Rs. 1,44,000 (d) Rs. 84,000 Ans.(a)
10. Manav receives 50,000 as basic salary from the government during the financial year 2020-21 and receives
Rs. 9,000 by way of entertainment allowance which he spends in full for official purposes. The amount
deductible under section 16(ii) in respect of the allowance will be — (Dec. 2010)
(a) Rs. 5,000 (b) Rs. 9,000
(c) Rs. 10,000 (d) None of the above. Ans.(a)
11. Mr. Murthy is employed in ABC Management Institute, Pune. He is eligible for Rs. 24,000 as
allowance for the year towards academic and research work. The amount of academic and research
allowance chargeable to tax is:(Dec 17)
(A) Rs. 10,000
(B) Rs. 24,000
(C) Nil
(D) Rs. 9,000 Ans.(c)
12. Mr. Amit employed in X Co Ltd, Salem received Rs. 10,000 per month as house rent allowance in the year
2020-21. His total salary is Rs.4 lakhs consisting of Basic pay +DA. He paid rent of Rs. 8,000 per month. How
much of HRA is exempt from tax? (Dec 17)
(A) Rs. 40,000
(B) Rs. 56,000
(C) Rs. 1,20,000
(D) Rs. 1,60,000 Ans.(b)
13. Rohan, an employee of State Government received Rs. 1,000 per month as entertainment allowance during
the financial year 2020-21. His salary excluding any allowance, benefit or other perquisite for the year is Rs.
8,40,000. The amount of entertainment allowance eligible for deduction is (June 19)
(A) Rs. 12,000
(B) 1% of salary of Rs. 8,400

4. Salary 4.14
(C) Rs. 5,000

(D) (12000 – 8400) = 3600. Ans C
14. Ms. Bhavani, a blind employee, working in Beta Ltd. was paid transport allowance of Rs. 2,000 per
month from April, 2020 to September, 2020. She was paid Rs. 3,000 p.m. as transport allowance from
October, 2020 to March, 2021. The amount of transport allowance eligible for exemption u/s 10(14)
(A) Rs. 7,200

(B) Rs. 9,600
(C) Rs. 38,400
(D) Rs. 30,000 Ans.(d)
15. Charles Fried working in Coal Mines in Dhanbad was receiving ‘underground allowance for working in
uncongenial, unnatural climate in underground Coal Mines’ of an amount of Rs.2,000 per month from
the employer. Amount of Rs.-------- received per month shall be treated as exempt as per section 10(14)
of the Act. (Dec 20 –NS)
(A) 2000
(B) 800
(C) 1000
(D) 1500 ANS-B
16. Paresh, a Company Secretary working in Roly Poly Ltd Chennai besides Salary, HRA, DA and Bonus was
also getting fixed medical allowance of Rs.10,000 from the employer. He spent out of the medical
allowance so received an amount of Rs.6,000 on his treatment, Rs.2,000 on the treatment of his wife
and Rs.1,000 on the treatment of his major son not dependent on him. The amount of medical
allowance received and to be exempt for Asst. Year 2021-22 shall be(Dec 20 –NS)
(A) Rs.8,000
(B) NIL
(C) Rs.9,000
(D) Rs.5,000 ANS- B
17. Nitesh, working in a factory at Kolkata received during the previous year 2020-21 Rs. 2,00,000 as
basic salary and 50,000 as house rent allowance. Rent paid by him for residence in Kolkata was
50,000. Amount of house rent allowance taxable in assessment year 2021-22 is ----------(Dec 20 –OS)
(A) 20,000
(B) 30,000
(C) 50,000
(D) 25,000 Ans. A
8. Perquisites
8A. Rent free accommodation (Reduce recovery from employer wherever done)
8A.1. Valuation of accommodation only (Excluding furniture)
Rent Free Accommodation
Govt. Employee (Central/State) Non-Govt. Employee
License fee determined by

Govt. would be the value of Accommodation Accommodation not
perquisite Owned by employer Owned by employer
Population# of Population# of City Population# of 15% of Salary*

City upto 10 Lac > 10 lac to 25 lacs City > 25 Lac or
Rent paid
Whichever
7.5% of Salary* 10% of Salary* 15% of Salary* is lower

4. Salary 4.15
Note – Calculate for only that number of months for which the house is occupied by the
employee.
*Salary means
Basic Salary
⬧ DA (forming part of the retirement benefits)
⬧ Bonus
⬧ Fee
⬧ Commission (also includes fixed commission)
Taxable allowances
#⬧ Population of the cityi.e. only 2011
as peer taxable portion of allowances
census.
⬧ Monetary payment not

Accommodation maybeing perquisites (e.g. Leave encashment) i.e.
be provided:
(1) ALL
“Ignore Renttypes
free; or
of perquisites in this calculation”)
(2) At concessional rate.
Note: In case the house is provided at concessional rate, the value determined above
shall be reduced by the rent, if any, actually paid by the employee.
8A.2.Value of Furniture provided (To Govt. + Non - Govt. Employees)
1. Owned by employer –10% p.aof actual cost.
2. Rented by employer – Actual rent paid
8A.3. Accommodation in a hotel
➢ Lower of 24% of Salary or actual hotel charges
8A.4. Where RFA is not taxable– Exceptions
a. Hotel accommodation provided for a period of maximum15 days on his transfer from one
place to another.
b. Any accommodation provided to an employee working at a mining site or an on-shore
oil exploration site or a project execution site, or a dam site or a power generation site or
an off-shore site
c. Accommodation provided at new place of posting (New City) while retaining the
accommodation at the other place (Old city). Only 1 accommodation will be taxable upto a
period of 90 days at the option of the Assessee, thereafter both the accommodations will
be taxable.
RFA
1. Kapil gets salary of Rs. 12,000 p.m. and is provided with rent-free unfurnished accommodation at Pune
(population 20lakh). House is owned by employer, fair rental value of which is Rs. 1,400 p.m. House was
provided with effect from 1st July, 2020. Value of the perquisite of rent-free accommodation will be - (Dec.
2015)
(a) Rs. 21,600 (b) Rs. 10,800
(c) Rs. 16,200 (d) Rs. 12,600 Ans.(b)
2. Satish is employed as chief engineer in Gama Ltd., Chennai w.e.f. 1st April, 2020 for a consolidated salary of
Rs. 60,000 per month. He is provided with rent-free unfurnished accommodation owned by the employer from
1st July, 2020 onwards. The value of taxable perquisite is - (June 2016)

4. Salary 4.16
(a) Rs. 1,08,000 (b) Rs. 81,000

(c) Rs. 72,000 (d) Rs.54,000 Ans.(b)
3. Mr. Arjun employed in KI (P) Ltd. at Mumbai was provided rent-free accommodation by the employer who
owned such accommodation. The salary income of Mr. Arjun for the purpose of computing the perquisite value
is Rs. 8 lakhs. The perquisite value of rent-free accommodation in the hands of Mr. Arjun is: (June, 2017)
(a) 10% of salary i.e. Rs. 80,000 (b) 7.5% of salary i.e. Rs. 60,000
(c) Nil (d) 15% of salary i.e. Rs. 1,20,000 Ans.(d)
4. Ramesh, an employee of Gauri & Co. of Delhi, received the following payments during the previous year
ended 31st March, 2021: Basic salary : Rs. 2,40,000 and dearness allowance: 40% of basic salary (40% forming
part of salary). Rent-free unfurnished accommodation provided by employer for which rent paid by employer
being Rs. 50,000. The value of taxable perquisite in the hands of Ramesh will be - (Dec. 2014)
(a) Rs. 41,760 (b) Rs. 50,000
(c) Rs. 36,000 _ (d) Rs. 52,500. Ans.(a)
5. The employee is provided with furniture costing Rs. 1,50,000 along with house w.e.f. 1-7-2020. The value of
the furniture to be included in the valuation of unfurnished house shall be : (June, 2017)
(a) Rs. 11,250 (b) Rs. 15,000
(c) Rs. 22,500 (d) Rs. 16,875 Ans.(a)
6. Balan is employed in SS Ltd at Madurai. He is provided with a rent free accommodation owned by the
employer. The percentage of salary to be adopted for the purpose of valuation of perquisite would be:
(Dec 17)
(A) 15%
(B) 10%
(C) 7.5%
(D) 20% Ans.(b)
8B. Leave Travel Concession 10(15) (Section 115BAC Not Allowed)
• This clause exempts leave travel concession (LTC)received by employees from their
employers for proceeding to any place in India,
• The benefit is available for assessee, spouse, children and (dependent) parents/
brother/sister
• Exemption will be available in respect of 2 journeys performed in a block of 4 calendar
years. Current block 2018 to 2021 calendar years)
• Where such travel concession or assistance is not availed by the individual during any
block of 4 calendar years, one such unavailed LTC will be carried forward to the
immediately succeeding block of 4 calendar years and will be eligible for exemption if
used in the first year of the block.
• Monetary limits – For comparison Amount not exceeding the shortest route by first class
rail fare or amount not exceeding the air economy fare of the National Carrier (Generally
Air India).
• The exemption referred to shall not be available to more than two surviving children of
an individual on or after 1.10.1998. This restrictive sub-rule shall not apply in respect
of children born before 1.10.1998 and also in case of multiple births after one child.

4. Salary 4.17
Calculation
Case Amount Amount Compariso Amount Amount Taxable
actually actually n amount - exempt
received spent Rail/ Flight
I 40,000.00 35,000.00 50,000.00 35,000.00 5000 (40,000 - 35,000)
(As amount sent is less than the amount
received from employer)
II 40,000.00 42,000.00 50,000.00 40,000.00 Nil
(As whole amount received is spent)
III 40,000.00 45,000.00 38,000.00 38,000.00 2000 (40,000 - 38000)
(As the amount given to employee is more
than the maximum limit regarding Rail/
Flight)
IV 50,000.00 43,000.00 42,000.00 42,000.00 8000 (50,000 - 42000)
(As amount given to employee is more than
the maximum limit regarding Rail/ Flight)
V 50,000.00 30,000.00 43,000.00 30,000.00 20,000
8C. Motor Car
Motor Car
1. Mr. Gupta is given a motor car with chauffeur by the employer which is used for both official
and personal purpose. The entire running expenses of the car amounting to Rs. 64,800 was met by
the employer in the previous year 2020-21. The cubie capacity of the engine of the motor car exceeds
1.6 liters. The perquisite value of motor car taxable in the hands of Mr. Gupta is : (June, 2017)
(a) Rs. 19,200 (b) Rs. 39,600
(c) Rs. 28,800 (d) Rs. 64,800 Ans.(b)

4. Salary 4.18
2. Car having cubic capacity of engine not exceeding 1.6 liters owned or hired by employer provided
to the employee for use wholly for private purposes of which running and maintenance expenses
are being borne/ met by the employee than find out from the following as to value chargeable to
tax in the hands of employee as a perquisite : (Dec 20 –OS)
(A) It is not a perquisite, hence not taxable
(B) Value of perquisite shall be 10% of the actual cost of car or hire charges if car is taken
on hire plus salary of chauffeur if any paid or payable by the employer.
(C) Value of perquisite shall be taken at 600 p.m. and at 900 p.m. if chauffeur is provided.
(D) Value of perquisite shall be the actual expenditure incurred by the employer plus
normal wear and tear @ 10% of the cost of car or hire charges if car is taken on hire.
Ans. B
8D. Medical Facilities
Medical
Facilities
Outside
India
In India
Travel Stay Treatment Maintained Princi. CC/ Other

Expenditure Maintained clinics/
Expenditure (For 1 by Comm.
by Govt./ LA hospitals
(For 2 (For 2 person) employer approved +
persons) persons) Specified
diseases
Exempt if GTI Exempt Exempt

before subject to Exempt
incuding subject
RBI limits Fully Taxable
travel exp. to RBI
upto Rs 2 lacs limits
Points
1. Family means – Spouse, Children, Dependent Parents, Brothers & Sisters
2. Health/ Medical insurance policy premium paid by the employer for employee/
employee’s family members is exempt
3. Payment of premium on personal accident insurance policies of employees is exempt.
4. Medical Allowance and Perquisite

1. Himalaya Ltd. reimburses the following expenditure on medical treatment of the son of an employee Karan.
The treatment was done at UK: (June 2005)
(i) Travelling expenses Rs. 1,15,000.
(ii) Stay expenses at UK permitted by RBI Rs. 45,000 (Actual expenses Rs. 70,000).
(iii) Medical expenses permitted by RBI Rs. 50,000 (Actual expenses Rs. 70,000).
The taxable perquisites in the hands of Karan, if his annual income from salary was Rs. 1,56,000 will be –
(a) Rs. 2,55,000 (b) Rs. 45,000
(c) Rs. 1,60,000 (d) Nil Ans.(c)
2. During the previous year, the employee was reimbursed Rs. 24,000 as medical expenses incurred by him
which includes Rs. 7,000 spent in Government hospital. The taxable perquisite in this case shall be: (June, 2017)
(a) Rs. 9,000 (b) Nil
(c) Rs. 17,000 (d) Rs. 24,000 Ans.(c)

4. Salary 4.19
3. Ravi is receiving Rs. 10,000 as medical allowance from his employer. Out of this, he spends Rs. 5,000 on his
own medical treatment, Rs. 2,000 on the medical treatment of his dependent wife and another Rs. 3,000 for the
medical treatment of his major son who is not a dependent on him. The amount of medical allowance taxable in
his hand is - (June 2016)
(a) Rs. 10,000 (b) Rs. 5,000
(c) Rs. 3,000 (d) Nil Ans.(a)
4.Sridhar employed as general manager in LMN Ltd. received Rs. 30,000 as medical reimbursement from the
employer by producing bills of a Government hospital. The amount of medical reimbursement taxable as
perquisite is: (Dec 19 –OS)
(A) NIL
(B) Rs.30,000
(C) Rs.15,000
(D) Rs.18,000 Ans.(a)
8E. Other Perquisites

Nature of Perquisite Taxable Value of Note
Perquisite
Free Domestic Servant Actual cost of the
Service of sweeper, employer Less: Amount
gardener or watchman or paid by employee
personal attendant
Supply of gas, electricity The amount determined shall be
or water for household reduced by the amount, if any
consumption recovered from the employee for
a) Procured from outside Amount paid to outside such benefit.
agency agency
b) Resources owned by Manufacturing cost per
employer himself unit
Education Facilities for 1. Amount paid for free training of
Children the employee is not taxable
a) Free education to Cost to the Employer 2. Payment or reimbursement of
employee's own children school fee is taxable in all cases
Less: Rs. 1,000 per
in the school 3. No restriction on number of
month
owned/maintained by children
Less: Amount recovered
the employer or the
from employee
school sponsored by the
employer
b) Other Schools Cost to the Employer
Less: Amount
recovered from
employee
c) For others (other than Cost of education to
assessees children i.e., Employer
grandchildren and other Less: Amount
household members) recovered from
employee

4. Salary 4.20
Education Perquisite
1. Ashraf is an employee of Moon Public School. His daughter, Zara, is studying in the said school at a
concessional fees of Rs. 600 per month (Actual fee : Rs. 4,000 per month). The amount taxable in the hands of
Ashraf will be - (June, 2015)
(a) Rs. 48,000 (b) Rs.7,200
(c) Nil (d) Rs. 40,800. Ans.(d)
2. Mr. Bobby employed in PQR Ltd was permitted to admit his only son in the school run by the employer. No
fee was charged on such education provided to the son of Mr. Bobby. The cost of such education for other
children is Rs. 1,800 per month. The perquisite value of free education in the hands of Mr. Bobby would be:
(Dec 17)
(A) Rs. 21,600
(B) Rs. 12,000
(C) Rs. 36,000
(D) Rs. 9,600
Ans.(d)
Interest Free Loan
Interest free or Concessional outstanding Balance for Note taxable if -
Loan each loan on last day of 1. Loan < 20,000
Provided to Employee or each month  Rate of 2. Loan for diseases specified in
household members Interest charged by SBI on the rule 3A (Cancer, TB, AIDS,
1st day of the relevant Disease requiring surgical
PY. operation, mental disorder,
Less: Interest charged caesarean operation).
However, not applicable to so
much of the loan as has been
reimbursed to the employee
under medical insurance
scheme.
3. Ashok took an interest-free loan of Rs. 15,000 from B Ltd. (the employer). Assuming that the market rate of
interest on similar loan is 10%. the taxable value of the perquisite in the hands of Ashok will be - (June, 2015)
(a) Rs. 150 (b) Rs. 1,500
(c) Nil (d) None of the above. Ans.(c)
4.Ms. Janhvi is provided with an interest free loan by her employer for the purchase of a house. The value of the
perquisites hall be- (June 2016)
(a) Simple interest computed at the rate charged by the Central Government to its employees on 1st April of the
previous year
(b) Simple interest computed at the rate charged by State Bank of India on 1st April of the previous year
(c) Simple interest computed at the rate charged by RBI
(d) Simple interest computed at the rate National Housing Bank on 1st April (b)

4. Salary 4.21

Perquisite
Travelling, Touring, The amount
Accommodation determined shall be
a) Where such facility is It will be the value at reduced by the
maintained by the which such facilities are amount, if any
employer, and is not offered by other recovered from the
available uniformly to all agencies to the public. employee for such
employees. benefit
b) Where the employee is The amount of

on official tour and the expenditure so incurred.
expenses are incurred in
respect of any member
of his household
accompanying him.
c) Where any official tour is The value will be limited
extended as a vacation. to the expenses incurred
in relation to such
extended period of stay
or vacation
d) In any other case, where A sum equal to the
such facility is given to amount of expenditure
the employee or any incurred by the
member of his employer.
household. (Facility
available uniformly to all
employee)
Free food and Non-Alcoholic Working hours
Beverages include extended
office hours (like
working on holidays,
over time)
a) Tea or snacks provided Nil
during working hours
b) Free food and non- Nil
alcoholic beverages
during working hours
provided in a:
(i) Remote area; or
(ii) An offshore
installation.

4. Salary 4.22

Perquisite
c) Free food and non- Cost to the employer in excess Not allowed u/s 115BAC
alcoholic beverages of Rs. 50 per meal
provided by the Less: Recovery from the
employer during working employee
hours:
(i) at office or business
premises; or
(ii) Through paid
vouchers which are
not transferable and
usable only at eating
joints.
d) In any other case Actual amount of expenditure
incurred by the employer
Less: Recovery from the
employee
Value of any Gift, Voucher or Gifts made in cash
Token or convertible into
The value of any gift, or Amountover and above of Rs. money (like gift
voucher, or token received by 5,000 onlyshall be taxable cheques) are not
the employee or by member [CircularNo.15/2001 dated exempt.
of his household on 12.12.2001]
ceremonial occasions or Alternative view → proviso to
otherwise from the employers Rule 3(7)(iv)
If amount > Rs. 5,000, full
amount taxable.
Where the value of such gift, The value of perquisite shall
voucher or token, as the case be nil. As per proviso to Rule
may be, is upto Rs. 5,000 in 3(7)(iv)
the aggregate during the
previous year.
Expenses on Credit Cards
Expenses including The amount paid for or
membership fees and annual reimbursed by the employer.
fees are incurred by the Less: Expenditure on use for
employee or any member of official purpose
his household, which is Less: Amount recovered from
charged to a credit card, employee
provided by the employer or
otherwise are paid for or
reimbursed by the employer

4. Salary 4.23
Gift from Employer

1.During the previous year 2020-21, Barun received a watch worth Rs. 20,000 from his employer. The
taxable value of the watch will be - (June, 2015)
(a) Rs. 15,000 (b) Rs. 20,000
(c) Nil (d) None of the above. Ans.(b)

Perquisite
Club Membership
The payment or The actual amount of
reimbursement by the expenditure incurred or
employer of any reimbursed by the employer.
expenditure incurred Less: Expenditure on use for
(including the amount of official purpose
annual or periodical fee) Less: Amount recovered from
in a club by the employee employee
or by any member of his
household
Use of Moveable Assets
a) Use of laptops and Nil The amount
computers determined shall be
reduced by the reduced
b) Moveable assets other i) If owned by employer than
by the amount, if any
than Laptops and 10% per annum of the actual
paid or recovered
computers cost of such asset, or
from the employee for
ii) If taken on hire by employer
such benefit.
the amount of rent or charge
paid, or payable by the
employer as the case may
be.
Transfer of any Moveable
Assets
a) Computers and Actual cost of such asset to the The amount determined
Electronic Items employer as reduced by 50% for shall be reduced by the
each completed year during amount, if any paid or
which such asset was put to use recovered from the
by the employer, on the basis of employee for such
reducing balance method. benefit.
(Note – Completed year
b) Motor Cars Actual cost of such asset to the
means ignore fraction of
employer as reduced by 20% for
the year)
each completed year during
which such asset was put to use
by the employer, on the basis of
reducing balance method.
c) Any other Assets Actual cost of such asset to the

4. Salary 4.24
employer as reduced by
10%SLM of the actual cost to
the employer for each
completed year during which
such asset was put to use by the
employer.
Use of Movable Asset and Sale of Movable assets

1. A company has provided laptop worth Rs. 50,000 to its employee for official as well as personal purposes.
The taxable amount of perquisite will be - (Dec. 2016)
(a) Rs. 5,000 (b) Rs. 25,000
(c) Rs. 10,000 (d) Nil Ans.(d)
2.A company acquired a motor car for Rs. 8 lakh on 30th June, 2019. It sold the and motor car to its employee.
Jayant, for Rs. 6 lakh on 10th June, 2020. The company claimed depreciation @ 15% for the year ended 31st
March, 2021. The perquisite value in the hands of Jayant on sale of motor car would be - (Dec- 2016)
(a) Rs. 80,000 (b) Nil
(c) Rs.2,00,000 (d) Rs. 1,40,000 Ans.(c)
Other Points –
1. Perquisites exempt in all cases
a. Telephone d. Transport Facility by employer engaged on
transportation of goods/ passengers
b. Employer’s contribution to e. Refreshment during working
staff group insurance hours in office premises
scheme
c. Recreational facilities if f. Rent-free official Residence to a Judge of a High
provided to all employees Court, the Supreme Court, Officer of Parliament,
Union Minister and aLeader of Opposition in
Parliament.
2. ESOP
Vesting Period ExercisePeriod
1st year 2nd year 3rd year 4th year 5th year
Date of
Date of Date of
Option Acquired Exercise
Allotment
MP = Rs. 175 MP = Rs.
100 shares @ 20 200
MP = Rs. 100
Vesting
DateMP = Rs.
150
Solution :
Perquisite = MV on the date of Exercise - Amount recovered from employee
= 100 Shares X Rs. 175 - 100 Shares X Rs. 20
= Rs. 17,500 - Rs. 2,000
But taxable in the year of allotment (i.e. 5 year).

4. Salary 4.25
9. Provident Fund
Particulars Statutory Recognized PF Unrecognized PF Public PF

PF
Employer’s Fully Amount in excess Not taxable N.A.
Contribution exempt of 12% of salary is yearly
taxable
Employee’s Eligible for Eligible for deduction Not eligible for Eligible for
Contribution deduction u/s 80C deduction deduction
u/s 80C u/s 80C
Interest Fully Amount in excess of Not taxable yearly Fully exempt

Credited exempt 9.5%
p.a. is taxable
Amount Fully Exempt from tax Employer’s Fully
received on exempt if employee contribution and exempt u/s
retirement, u/s 10(11) served a interest thereon 10(11)
etc. continuous is
period of 5 years taxable as salary.
or more or retires Employee’s
before rendering contribution
5 years of is not taxable.
service because Interest on
of reason employee’s
beyondthe contribution is
control of the taxable under
employee. In other income from
case, it will be other source.
taxable.
Note - For PF, Salary means – Basic + Conditional DA + Fixed % commission on Turnover
New Upper cap of 7.5 Lacs

1. The amount or the aggregate of amounts of any contribution made to the account of the
assessee by the employer—
AY 21-22 (a) in a recognized provident fund;
(b) in the scheme of National Pension Scheme (NPS) ; and
(c) in an approved superannuation fund,
to the extent it exceeds 7.5 Lacs rs. in a previous year shall be taxable
2. The annual accretion by way of interest, dividend on the above amounts is also to be
included in value of 7.5 Lacs rupees.
Note – Previously, contribution of employer to Superannuation fund was exempt to

employee upto Rs. 1.5 lacs. Now this clause has been removed and an overall limit
of 7.5 lacs is given.
1. The amount of any contribution to an approved superannuation fund by the employer in respect of the
employee is exempt from tax upto — (June, 2009)
(a) Rs. 1,00,000 (b) Rs. 1,50,000
(c) Rs. 7,50,000 (d) Nil Ans.(c)

4. Salary 4.26
Illustration: Mr. X, working in MNO ltd., draws the following amount of emoluments from the
company:
Particulars Amount (in lakhs)
Basic Pay 50
Commission 15
Employer's contribution to recognized provident fund 10
Employer's contribution to NPS 7
Employer's contribution to the superannuation fund 5
Total 87
Solutions:
Amount (in lakhs)
Particulars Before After

Amendment Amendment
Basic Pay 50 50
Commission 15 15
Employer's contribution to recognized provident fund (in 4 4
excess of 12% of basic pay) [Rs. 10 lakh (less) Rs.6 lakh (Rs. 50
lakh * 12%] [Section 17(1)]
Employer's contribution to NPS 7 7
Employer's contribution to the superannuation fund in excess 3.50 -
of rs. 1.5 lakhs [Old Section 17(2)(vii)]
Perquisite arising from Employer's contribution to the - 14.50
superannuation fund, RPF and NPS in excess of rs. 7.5 lakhs
[New Section 17(2)(vii)]
Income chargeable to tax under the head "Salary" 79.50 90.50
Expert’s opinion - The above amendment seems to be inappropriate. Let’s see if any
amendment is introduced at a later part.
MCQ’s
1.Mrs. Meena retired from service with Sky Ltd. on 31st January, 2021. She received the following
amounts from unrecognised provident fund: (i) Own contributionRs.1,50,000; (ii) Interest on own
contributionRs.21,000; (iii) Employer's contribution Rs.1,10,000; and (iv) interest on employer's
contributionRs.15,000. How much of the receipt from provident fund is chargeable to tax as income
from salary-(June 2016)
(a) Rs. 21,000 ... (b) Rs. 15,000
(c) Rs. 1,25,000 (d) Rs. 1,71,000 Ans.(c)
3. For the year ended 31st March, 2021 Paresh receives a salary of Rs.2,80,000. Paresh's contribution to
employee's recognised provident fund account is Rs.59,000 and matching contribution has been made
by employer. Taxable income of Paresh will be- (Dec. 2014)

4. Salary 4.27
(a)Rs.1,96,400 (b)Rs.2,55,400
(c)Rs.2,89,000 (d)Rs.2,06,400 Ans.(a)
4.When interest on employee’s own contribution from unrecognized provident fund is received, it is : (Dec 17)
(A) taxable as income from other sources
(B) taxable as income from salary
(C) exempt from tax
(D) taxable if the interest exceeds Rs. 10,000 Ans.(a)
5. Employer’s contribution to Recognized Provident Fund (RPF) in excess of 12% of salary income of an
employee shall be treated as: (June 19)
(A) Taxable income from salaries
(B) Deemed income from salaries
(C) Exempted income
(D) Income of other sources.
Ans B
10.Deductions under the Head Salary (115BAC – All 3 Not Allowed) AY 21-22
Deductions from gross salary [Section 16]

a. Standard Deduction - Section 16(ia) -
A standard deduction of 50,000 or the amount of salary, whichever is lower, is

to be provided to “ALL” employees (Govt. Non Govt., Handicapped etc.)
b. Entertainment allowance (allowable only in the case of government
employees) [Section 16(ii)]
Least of the following is allowed as deduction:
(1) Rs. 5,000
(2) 1/5th of basic salary
(3) Actual entertainment allowance received
c. Profession tax [Section 16(iii)]
Any sum paid by the Assessee on account of tax on employment is allowable
as deduction.
In case profession tax is paid by employer on behalf of employee, the amount
paid shall be included in gross salary as a perquisite and then deduction can
be claimed.
Following table illustrates the impact of 115 BAC under the head salaries (only the
impacted portion)
Sr. Nature of Exemption/Deduction Relating to Head Salaries New System Existing

No. of Tax u/s system of
115BAC Tax
A RETIREMENT BENEFITS EXEMPTIONS
leave travel Concession u/s 10(5) Not allowed allowed
B Allowances

4. Salary 4.28
Sr. Nature of Exemption/Deduction Relating to Head Salaries New System Existing

No. of Tax u/s system of
115BAC Tax
exemption u/s 10(13A) and rule 2Afrom House rent allowance Not allowed allowed
1. Exemption u/s 10(14)(i) and Rule 2BB
Travelling allowance allowed allowed
Conveyance allowance allowed allowed
daily allowance allowed allowed
Helper allowance Not allowed allowed
any allowance granted for encouraging the academic, research and Not allowed allowed
training pursuits in educational and research institutions
uniform allowance Not allowed allowed
2. Exemption u/s 10(14)(ii) and Rule 2BB
Children education allowance Not allowed allowed
Hostel expenditure allowance Not allowed allowed
tribal area allowance Not allowed allowed
transport allowance to Handicapped/deaf/dumb/Blind employee allowed allowed
transport allowance to other than above employees Not allowed Not allowed
C Perquisites
Free food and beverage through vouchers provided to the employee Not allowed allowed
upto 50/meal/tea & snacks
Other exemptions from perquisites e.g. use of Computers, laptops allowed allowed
etc
D Deductions u/s 16
Standard deduction u/s 16(ia) Not allowed allowed
entertainment allowance u/s 16(ii) Not allowed allowed
Professional tax u/s 16(iii) Not allowed allowed
Module - Case Laws
1. Can notional interest on security deposit given to the landlord in respect of residential premises taken on rent by
the employer and provided to the employee, be included in the perquisite value of rent-free accommodation given
to the employee ? CIT v. Shankar Krishnan (2012)(Bom.)
Decision - No
2. CanthelimitofINR1,000 per month per child be allowed as standard deduction, while computing the perquisite
value of free or concessional education facility provided to the employee by the employer?
CIT (TDS) v. Director, Delhi Public School (2011) (Punj. & Har.)
Decision – More than 1,000 – Fully taxable

4. Salary 4.29
Miscellaneous – Few Calculation Based exam questions

1. Government of India paid salary of Rs. 5 lakh and allowances/perquisites valued at Rs. 2.20 lakh to a person
who is citizen of India for the services rendered by him outside India for 5 months during the previous year. His
total income chargeable to tax would be— (Dec. 2015)
(a) Rs. 6,80,000 (b) Rs. 4,60,000
(c) Rs. 5,70,000 (d) Nil Ans.(b)
2. Anil is employed in a company with annual salary of Rs. 8,60,000 (computed). The company paid
income-tax of Rs. 37,000 on his non-monetary perquisites. He paid Rs. 1,20,000 to recognised provident
fund during the year 2020-21. His total income would be - (Dec. 2015)
(a) Rs. 7,77,000 (b) Rs. 7,40,000
(c) Rs. 7,97,000 (d) Rs. 7,60,000 Ans.(b)
3. Allowances and perquisites allowed to an employee for services outside India are tax free in case of - (Dec.
2016)
(a) All types of employees (b) Government employees only
(c) Non-government employees only (d) None of the above Ans.(b)
4. Total income of Nand Kishore under the Head 'Salary' for the financial year 2020-21 of whose basic
salary and DA per month was of Rs. 40,000 and Rs. 3,000 respectively and who was also paid leave
salary of Rs. 6,000 and Rs. 1,000 of professional tax by the employer shall be ((Dec 19 –NS) .
(a) Rs. 4,72,000 (b) Rs. 4,76,000
(c) Rs. 5,23,000 (d) Rs. 5,16,000 Ans.(a)
5. A Central Government Officer received during the year 2020-21 salary excluding all allowances of Rs.
9,00,000 and amount of entertainment allowance of Rs. 12,000 @ Rs. 1,000 p.m. The maximum amount of
entertainment allowance so received by him being exempt under section 16(ii) of the Act is ____________. ((Dec
19 –NS)
(a) 1/5th of salary (b) Rs. 1,000 p.m.
(c) Rs. 5,000 (d) Rs. 10,000 Ans.(c)
(6) Philip who retired from Central Government service on 28-2-2020, received monthly pension of
Rs.42,000 upto 30-9-2020 and Rs.44,100 thereafter. His income from salary after standard
deduction would be: (Dec 19 –OS)
(A) Rs. 5,16,600
(B) Rs. 5,01,600
(C) Rs. 4,76,600
(D) Rs. 4,66,600 Ans.(d)
7. Ramavtar, an employee of GG Carriers provides the following details of his income received from the
employer for the year ended on 31.3.2021 :
Salary Rs. 1,20,000
DA Rs. 24,000
Leave Salary Rs. 5,000
Bonus Rs. 6,000
Professional
Tax paid by employer Rs. 1,000
Free Lunch Rs. 3,000
He has contributed Rs.9,000 in statutory PF and had also paid Rs.1,000 towards LIP premium. His total
income for Asst. Year 2021-22 shall be ----(Dec 20 –NS)
(A) Rs. 95,000
(B) Rs. 1,08,000
(C) Rs. 1,05,000
(D) Rs. 98,000
ANS - A

4. Salary 4.30
8. Subodh Kumar, IAS, a Central Government employee received total salary of Rs. 18,00,000 and
Rs. 10,000 as entertainment allowance during the previous year 2020-21. Actual expenditure
incurred by him on entertainment for the official purposes was Rs. 9,500. The deduction
available for entertainment allowance received or for actual amount spent on entertainment
for the assessment year 2021-22 is -------------(Dec 20 –OS)
(A) 4,750
(B) 9,500
(C) 10,000
(D) 5,000
Ans. D
LTC cash voucher scheme - (ICSI Supplementary June 21)
To compensate and incentivize consumption by employees thereby giving a boost to consumption

expenditure, it has been decided that cash equivalent of LTC, comprising Leave Encashment and LTC
fare of the entitled LTC may be paid by way of reimbursement.
Condition
The employee spends
(i) an amount equal to the value of leave encashment and;
(ii) an amount 3 times of the cash equivalent of deemed fare, as given above on purchase of such
items / availing of such services
(iii)which carry a GST rate of not less than 12%
Limit for CG employees –

Deemed LTC fare per person (Round Trip)
Employees who are entitled to business class of Rs. 36,000
airfare
Employees who are entitled to economy class of Rs. 20,000
airfare
Employees who are entitled to Rail fare of any class Rs. 6,000
Limit for other than CG employees (state governments, public sector enterprises, banks and
private sector)
Payment of cash allowance, subject to maximum of Rs 36,000 per person as Deemed LTC fare per
person (Round Trip) to non-Central Government employees.
Accidental Points
1. While computation of Salary in Grade system – Change the salary after the completion of 12
months period and not from the beginning of the new Financial Year.
2. Remember “Salary” is differently defined in different calculations –
a.
Salary

4. Salary 4.31
% of T.O
“Salary” is defined as above at total 4 calculations in this Chapter
c. Leave Encashment c. Not Covered by POGA – Gratuity
payment
d. H.R.A d. Provident Fund
b. Covered under POGA – Salary means → Basic + Full DA

c. Entertainment allowance - Salary means → Only Basic Salary
d. Rent Free Accomodation → Salary means
⬧ Basic Salary
⬧ DA (forming part of the retirement benefits)
⬧ Bonus
⬧ Fee
⬧ Commission (also includes fixed commission)
⬧ Taxable allowances i.e. only taxable portion of allowances
⬧ Monetary payment not being perquisites (e.g. Leave encashment) i.e. “Ignore ALL types of
perquisites in this calculation”)
3. Remember the mnemonics given in the chapter for different provisions like retirement benefits
calculations, allowances etc. This will make the retention of minute points very easy.
4. Read the beginning of any question very carefully. It may give you the hints regarding –
a. Who is the Person – Individual, Company, Firm etc.
b. Age of the person
c. City of stay of the person
d. Type of employee – Government/ Non Govt. Employee
e. Indian Citizen/ Person of Indian Origin etc.
5. In Pension calculate 1/2 or 1/3 of the (amount received/ commutation %). Generally, students
multiply 1/2 or 1/3 with the amount received and the whole calculation goes wrong.
6. Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
7. Need to mandatory remember the names and categories of the allowances.
8. Check carefully whether the House/ Furniture/ Car/ movable asset given to the employee for use
is “Owned” or “Rented” by the employer?
9. For Medical reimbursements and LTC, spouse, children can be dependent/ Independent but
parents/ brother/sister needs to be dependent to claim the benefit.
10. LTC restriction on Number of children (i.e. Maximum 2 ) is applicable only for those children who
are born 1.10.1998 onwards.
11. In Motor Car, Recovery from the employee is deducted from the value of the perquisite only and
only in the Second Category i.e. car/ expenses provided for “Fully Personal Use”.
The recovery is not to be deducted from Third Category i.e. Car provided for “Partly Official +
Partly Personal Use”
12. Calculation is different for below mentioned category of Motor Car –
Particulars Office + Personal purpose
3. Only Expenditure provided Total Expenditure
(-) 1800/2400 p.m
(-) 900 p.m for Driver (If any)
--------------------------------------
x x x → Taxable perquisite

4. Salary 4.32
(If higher amount to claim as expense, then

maintain documents)
13. Regarding reimbursement of Medical Expenses (Perquisite) now is taxable.
14. In Children’s Education allowance, there is a limit on the Number of Children (Max. 2) but for
Perquisite of education there is no limit on the number of Children.
15. For interest free or Concessional Loan – Consider the interest Rate of SBI only & that too of 1 st
Day of the relevant Year. Don’t get confused with the rates given of RBI, CG etc. and rate of
interest of different dates of the year.
16. Lunch/ Dinner perquisite provided at normal place of duty or paid vouchers provided – Taxable
but with the exemption limit of Rs. 50 per meal.
17. Lunch/ Dinner perquisite provided at offshore sites etc. – Fully exempt i.e. Taxable Value of
Perquisite is Nil
18. Lunch Dinner/ Meal allowance – Fully Taxable
19. Gift from Employer gets taxable under the head Salary (Exemption limit can be taken as Rs.
5000) and from other than employer gets taxable under the head “I.O.S” (Exemption limit can be
taken as Rs. 50,000)
20. If movable assets are transferred to the employee (i.e. sold 2 nd Hand) follow the rates of
depreciation given as per valuation rules only –
a. Computers and Electronic Items - 50% w.d.v method
b. Motor Cars – 20% w.d.v method
c. Any other Assets – 10% SLM method.
Never get confused if the question specifies any other depreciation rate. Other rates if given,
have to be ignored.
21. Telephone perquisite – Not Taxable
Telephone allowance – Fully taxable
22. Specifically remember the category of the allowances where actual expenditure is relevant for
calculation and in which category it is irrelevant.
23. RPF category is most important for exams as this is the only category which contains limits if
12% of Salary and 9.5% of interest.
24. Entertainment allowance is “FULLY TAXABLE” for Non Govt. employee. Deduction is provided
only to the Govt employee.

5. House Property 5.1
Chapter 5 – Income from House Property

1. Basis of Charge (Section 22)
a. Property should consist of any building or land appurtenant thereto.
Income from letting out of vacant land - Income from other sources.
b. Assessee must be the owner of the property
c. Property not to be used by the owner for the purpose of any business or profession
carried on by him.
2. Deemed Ownership
(i) Transferor of the property without adequate consideration, where the property is
transferred to the spouse or to minor child except minor married daughter or to spouse
due to an agreement to live apart
(ii) Holder of an impartible estate
(iii) Member of a co-operative society, Company, AOP etc.
(iv) Person in possession of a property as per TOPA.
(v) Person having right in a property for a period of minimum 12 years. If applicable,
Renewal of rights also needs to be of > 1 year.
3. Business of Renting properties and Stock in Trade.

3.1 Assessee engaged in the business of letting out of properties on rent - would be taxable as
business income (Supreme Court’s decision in case of Rayala Corp (P) ltd.) & also in
Chennai Properties and Investments Ltd. v. CIT (2015) (SC). Intention can be checked
from the MOA of the companies.

3.2 Property held as stock-in-trade - Income from house property.
However, the annual value of property being held as stock in trade would be treated as NIL for a
period of 2 years from the end of the financial year in which certificate of completion of construction
of the property is obtained from the competent authority
Example NAV = Nil
1 April 20 31st March 21 31st March 23

On 15th July
20 Certificate 1st April 23 onwards treated
received as Deemed Let out if not
sold by the contractor
4. Calculating GAV and NAV – Section 23 + Deductions u/s 24 – Pro forma
Sr No. Particulars Amount
(i) Municipal value xxx
(ii) Fair rent xxx
(iii) Higher of (i) & (ii)
(iv) Standard rent xxx

(v) Expected rent [Lower of (iii) & (iv)
(vi) Annual/Actual rent received/ receivable xxx
(vii) GAV [Higher of (v) & (vi)] xxx
(viia) After above step – Deduct “Element of Vacancy”
Less Municipal taxes paid/ Sewerage Tax in the current year (xxx)
(It may be of the previous years as well but paid in the current year & It must
be paid by the owner)
Municipal taxes paid outside India also allowed as deduction

(viiI) NAV xxx
Less Deductions u/s 24
(a) Standard Deduction @ 30% (xxx)
(b) Interest on borrowed Capital (xxx)
(ix) Income from house property xxx
Note – Always before comparing with expected rent - First deduct Unrealized rent from actual/
annual rent
5. Calculation of GAV
Step 1 : Compare fair rent with municipal value
whichever is higher
Step 2 : Compare step 1 value with standard rent
whichever is lower is expected rent
Step 3 : Compare the Expected rent determined

above with actual rent
Actual rent > Actual rent <

Expected Rent Expected Rent
Actual rent < Actual rent <

Actual rent is Expected Rent Expected Rent Expected Rent
GAV because of because of any is GAV
vacancy other reason
Points to Note (Very very Imp.)

1. MV – FR – SR is taken for the period for which the property is held.
Exceptions – Property purchased/ Sold during the mid of the year
2. Annual/ Actual rent is taken for the period for which the property is available for letting out.
Exceptions –
• Property purchased/ Sold during the mid of the year
• SOP for part of the year
3. Annual Value means the inherent capacity of a building to yield income

4. Municipal Taxes - The taxes including service taxes (fire tax, conservancy tax, education,
water tax, etc.) levied by any municipality or local authority and include enhanced
municipal tax finally determined & also in cases where enhanced with retrospective effect.
5. This benefit of SOP is for Individual / HUF only [CIT v. Hariprasad Bhojnagarwala (2012) (Guj.)]
6. In Deemed let out properties Expected Rent becomes the Gross Annual Value
7. Actual rent is to be considered after deducting the Unrealized rent
Unrealized Rent
(Rule 4)
Steps taken to
Property vacated or Tenant not in
institute legal
Bona fide tenacy steps taken to compel occupation of other
proceedings for the
to vacate property
recovery or satisfy AO
Example – Compute GAV in the following Cases.
Particular A B C D E F
Expected Rent 100 100 100 120 100 100
Annual Rent 108 48 120 120 108 108
Unrealized Rent - - - - 10 4
Loss due to vacancy 9 4 10 10 9 9
Solution:
Particular A B C D E F
Step 1: Expected Rent 100 100 100 120 100 100
Step 2: Actual Rent = Annual Rent - 108 48 120 120 98 104
Unrealized Rent
Step 3: Higher of Both AR ER AR Equal ER AR
Step 4: GAV (Step 3 - Loss due to vacancy) 99 96 110 110 91 95
6. If assessee have only two-house properties which are self-occupied then the Net
Annual Value of that property is considered as “Nil”
7. Where the assessee has more than 2 Self Occupied Property then - Only two
houses (any) will be considered as Self Occupied and others will be considered as
Deemed to be Let Out. AY 21-22
FOR SOP Only - The deduction of Rs. 30,000 / Rs. 2,00,000 with respect to interest
paid on borrowed capital u/s 24(b) NOT ALLOWED in case of SOP, if assessee
opted for section 115BAC of the income tax act, 1961.
8. Deductions at a Glance
Deductions
Allowed from NAV
Let out/deemed Self-occupied

Iet out properties
properties
Interest on
borrowed
Standard Interest on capital u/s 24(b)
deduction borrowed
u/s 24(a) capital u/s
24(b)
loan for repair, loan for
30% renewal or acquisition or
Fully reconstruction construction of
Allowed of house house property
property
loan taken loan taken

Maximum
before 1.4.99 on or after
Rs.30,000
1.4.99
Maximum
Rs.30,000 acquisition or construction
completed within 5 years
from the end of the FY in
which the capital was
borrowed
+
certificate from lender
specifying interest payable
No Yes
Maximum Maximum
Rs.30,000 Rs.2,00,000
Note – 1. Interest allowable on accrual basis
2. New loan taken for repayment of old loan then interest on new loan is allowed.
3. Interest paid on borrowed capital for SOP NOT ALLOWED where
assessee opted for section 115 BAC
AY 21-22
9. 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 (Pre-construction interest), can be claimed as
deduction over a period of 5 years in equal annual installments commencing from the
year of acquisition or completion of construction.
AY 21-22
Note – Section 115BAC - Interest Deduction not allowed for SOP
In short
Maximum interest allowed in one year
maximum Rs.
1. Cons. – Purchase -> Current year Cons. + Pre-cons. int. = Maximum Rs. 2 lacs only will
2,00,000 be allowed in
2. Only repairs - Max 30,000 any year.
3. Repairs + cons - 2,00,000
Note - Interest on borrowed capital in terms of Section 24(1)(vi) but subject to a ceiling of
Rs. 30,000 or Rs. 2,00,000 as the case may be.
The aggregate of amount allowed as deduction for both the houses (SOP) cannot exceed Rs.
30,000/ Rs. 2,00,000
10. Arrears of Rent / Unrealized Rent
Section 25A
Arrears of Rent / Unrealized Rent

(i) Taxable in the year of receipt/realization
(ii) Deduction@30% of rent received/realized
(iii) Taxable even if assessee is not the owner of the property in the
financial year of receipt/realization.
11. Composite Rent

Renting out house property + Other services/ articles (Furniture, security etc.)
Renting out house

property + Other
services/ articles
(Furniture, security
etc.)
Letting put inseparablr Letting out separable
Attributable to
Attributabletoo assets
Taxable as PGBP/IOS Building - House
- IOS or PGBP
property
12. Different situations which may arise (Very important – See the treatments on next page)
Different types
of situations
House not let Periodically Area wise

Co owned
SOP out(Deemed to Let out property (Partly SOP + (Partly SOP + property
be let out) Partly Let out) Partly Let out)
For whole time

Element of
when available
Vacancy
for letting out

1. SOP
• Take care regarding Interest deduction and upper amount restrictions.
• Deduction of Municipal tax paid not allowed.
2. Deemed Let out
No restrictions on interest deduction
3A. Let out for whole time when available
No restrictions on interest deduction
3B. Let out with element of vacancy
Deduct element of Vacancy
4. Periodically partly SOP + Partly let out
• No restrictions on interest deduction
• No restrictions on deduction of Municipal tax
5. Areawise Partly SOP + Partly Let out
• Interest and Municipal tax to be calculated proportionately
• Municipal tax deduction not allowed from SOP
• Interest deductions limits applicable to SOP and No limits for Let out portion.
6. Co-owned property
a. Self-occupied property: The annual value of the property of each co-owner will be Nil and each co-
owner shall be entitled to a deduction of Rs. 30,000 / Rs.2,00,000, as the case may be, on account
of interest on borrowed capital.
Let-out property: 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.
HOUSE PROPERTY INCOMES – EXEMPTED FROM TAX
Rent from Farm buildings around Agricultural Land - 10(1)
Income from HP of Local Authorities - 10(20)
Income from HP of Political Parties - 10(13A)
Property belonging to an approved scientific research association -

10(21)
educational organizations, medical institutions - 10(23C)
property subjected to charitable or religious purpose - 11
Certified trade union - 10(24)
annual value of one palace possessed by an ex-ruler of Indian states

where other places comes under taxation - 10(19A)
NAV of 2 SOP's - 23(2)
Property used for own's business or profession - 22

Case Law
1. Letting out is subservient and incidental to the main business
As per CIT v. Delhi Cloth & General Mills Co. ltd., if an assessee constructs residential quarter’s & lets
them out to his employees & letting out of residential quarter’s is only related to business, i.e. it is not
main business of assessee, then income is taxable as business income
In the same way it was held in CIT v. National News prints & Paper Mills ltd., that if the assessee makes its
accommodation available to Govt. for locating a branch of Nationalised bank, post office, police station,
central excise office etc., with the aim of carrying on its business efficiently and smoothly, Rent collected is
taxable as business income.
2. CIT v. Hariprasad Bhojnagarwala (2012) (Guj.)
Benefit of SOP can be given only to Individual & HUF
Past Exam Questions

(1) Narendra engaged in retail trade let out his fully furnished house with lift, air conditioners, fridge, security
staff and gardener at a rent of Rs. 1,00,000 per month. The agreement did not provide for separate rent for
various facilities but is a composite agreement. The amount received by him would be chargeable to tax under
the head: (June 2019)
(a) Other Sources (b) Business Income
(c) Income from House Property (d) Capital Gains Ans.(a)
(2) Rohit owns a house property in Delhi which he wants to give on rent. He seeks your help to determine the
reasonable expected rent when monthly municipal value is Rs. 20,000, fair rent Rs. 25,000 and standard rent Rs.
22,000. The reasonable expected rent will be computed with reference to following amount per month -(June,
2015)
(a) Rs. 22,000 (b) Rs. 20,000
(c) Rs. 25,000 (d) None of the above. Ans.(a)
(3) X is the owner of a house, the details of which are given below :(June, 2009)
(a) Municipal value : Rs. 30,000
(b) Actual rent: Rs. 32,000
(c) Fair rent: Rs. 36,000
(d) Standard rent: Rs. 40,000.
The gross annual value would be —
(a) Rs. 36,000 (b) Rs. 35,000
(c) Rs. 30,000 (d) Rs. 40,000. Ans.(a)
(4) Ramesh let-out his house on 1st April, 2020 on rent of Rs. 15,000 p.m. The fair rent and the municipal value
of house are Rs. 13,500 p.m. and Rs. 16,000 p.m. respectively. Municipal taxes paid for the year were Rs. 12,000.
Income from house property for the assessment year 2021-22 will be -(Dec. 2015)
(a) Rs. 1,26,000 (b) Rs. 1,76,000
(c) Rs. 1,05,000 (d) None of the above. Ans.(a)
(5) Municipal value : Rs. 14,000; Fair rent : Rs. 14,500; Standard rent : Rs. 14,200. Actual rent as property let-out
throughout the previous year : Rs. 16,800. Unrealized rent of the previous year : Rs. 7,000. The annual value of
the house property shall be (June 2007)
(a) Rs. 9,800 (b) Rs. 7,200
(c) Rs. 14,200 (d) Rs. 7,500 Ans.(c)
(6) The construction of a house was completed on 31st January, 2021. The owner of the house took a loan of Rs.
20,00,000 @ 6% p.a. on 1st May, 2020. In this case the deduction allowable for the previous year 2020-21
towards interest on borrowings is (June 2016)
(a) Rs. 22,000 (b) Rs. 24,000
(c) Rs. 1,10,000 (d) None of the above Ans.(c)
(7) Sandeep purchased a house for his residential purpose after taking a loan in January, 2019. During the
previous year 2020-21, he paid interest on loan Rs. 2,17,000. While computing income from house property,
the deduction is allowable to the extent of if the person has opted for section 115BAC — (Dec. 2009)
(a) Rs. 30,000 (b) Nil
(c) Rs. 2,17,000 (d) Rs. 2,00,000. Ans.(b)
(8) Mr. Ahmed acquired two properties in April, 2020 for self-residential use. The loan interest payable to State
Bank of India for the financial year 2020-21 amounts to Rs. 2,10,000. The amount eligible for deduction u/ s 24
is :(June, 2017)
(a) Rs. 30,000 (b) Rs. 2,00,000
(c) Rs. 2,10,000 (d) Rs. 1,50,000 Ans.(b)
(9) A borrowed Rs. 5,00,000 @ 12% p.a. On 1-4-2016 for construction of house property which was completed
on 15-3-2020. The amount is still unpaid. The deduction of interest for Previous Year 2020-21 shall be : (June,
2017)
(a) Rs. 60,000 (b) Rs. 96,000
(c) Rs. 1,80,000 (d) Rs. 2,40,000 Ans.(b)
(10) When a house property is let-out throughout the year for a monthly rent of Rs. 22,000 and municipal tax
paid for current year is Rs. 24,000 and for the earlier year paid now is Rs. 16,000, the income from house property
would be - (Dec. 2015)
(a) Rs. 1,68,000 (b) Rs. 1,56,800
(c) Rs. 1,84,800 (d) Rs. 2,24,000 Ans.(b)
(11) Ms. Padmaja let out a property for Rs. 20,000 per month during the year 2020-21. The municipal tax on the
let-out property was enhanced retrospectively. Hence, she paid Rs. 60,000 as municipal tax which included
arrears of municipal tax of Rs. 45,000. Her income from house property is -(June 2016)
(a) Rs. 1,80,000 (b) Rs. 1,57,500
(c) Rs. 1,26,000 (d) Rs. 1,36,500 Ans.(c)
(12) Suresh owns two house properties. First property was used half for running his business and the
other half was let-out at Rs. 4,000 per month. The second property was wholly used as a residence by
Suresh. Municipal value of the two properties were the same at Rs. 72,000 each per annum and local taxes
@ 10%. Suresh's income from house property for the previous year 2020-21 will be - (Dec. 2014)
(a) Rs. 33,600 (b) Rs. 31,080
(c) Rs. 28,560 (d) Rs. 62,160. Ans.(b)
(13) When share of each co-owner in a house property is not definite, the income from such property shall be -
(Dec. 2015)
(a) Taxed equally (b) Exempt from tax
(c) Taxed as association of persons (d) Taxed as body of individuals. Ans.(c)
(14) Composite rent of let-out house property is taxable as - (Dec. 2014)
(a) Profits and gains from business or profession
(b) Capital Gains
(c) Income from house property
(d) Either (a) or (c) above depending upon certain conditions. Ans.(d)
(15) Sejal is the owner of a house property covered under the Rent Control Act. Municipal value Rs. 30,000,
actual rent Rs. 25,000 fair rent Rs. 36,000 and standard rent is Rs. 28,000. The gross annual value of the house
property will be -(Dec. 2014)
(a) Rs. 30,000 (b) Rs. 25,000
(c) Rs. 36,000 (d) Rs. 28,000 Ans.(d)
(16) The municipal value of a property to Rs. 2,10,000; fair rant is Rs. 1,90,000; standard rant is 11,80,000 and
the actual rent is Rs. 2,40,000. The gross amount value of the property would be -(Dec. 2016)
(a) Rs. 1,80,000 (b) Rs. 1,90,000
(c) Rs. 2,40,000 (d) Rs. 2,10,000 Ans.(c)
(17) Compute her income chargeable to tax under the head 'Income from House Property'.(Dec. 2002)
(a) Rs. 84,000 (b) Rs. 1,04,000
(c) Rs. 1,25,000 (d) Rs. 1,19,000 Ans.(d)
18) Rajendra a non-resident Indian in the previous year 2020-21 was in receipt of rent of house
property located in Dubai of Rs. 27,50,000. The amount of rent was transferred and credited in the bank
account of Rajendra maintained with SBI. Vadodara by the tenant quarterly. The Annual Letting Value
(ALV) of the house located in Dubai subject to tax under the head Income from house property in A.Y.
2021-22 shall be . ((Dec 19 –NS)
(a) Rs. 16,50,000
(b) Rs. 19,25,000
(c) Rs. 27,50,000
(d) Not taxable as property is in Dubai and he is non-resident
Ans.(b)
Note: Since the same is received in India.
(19) What will be the Gross Annual Value (GAV) of a house owned by Ramesh covered by Rent Control
Act remained let out during the year 2020-21 of which; ((Dec 19 –NS)
(i) Municipal value is Rs. 3,50,000
(ii) Actual (De Facto) Rent is Rs. 3,20,000
(iii) Fair Rent is Rs. 3,00,000
(iv) Standard Rent is Rs. 3,60,000
(a) Rs. 3,60,000 (b) Rs. 3,20,000
(c) Rs. 3,50,000 (d) Rs. 3,00,000 Ans.(c)

(20) Santhnam purchased in October, 2019 with the financial assistance by way of housing loan
provided by PNB Housing Finance Ltd. a flat in Chennai to be used exclusively for his own residential
purposes. Interest on the housing loan till March, 2021 paid by him was of Rs. 2,18,780. He wants to
know the amount of deduction to be available to him in respect of interest so paid on the housing loan
while computing his income for A.Y. 2021-22. ((Dec 19 –NS)
(a) Rs. 30,000 (b) Rs. 2,18,780
(c) Rs. 1,50,000 (d) Rs. 2,00,000 Ans.(d)
(21) House owned by Suresh was sold on 1st January, 2021 and till the date of sale, the house
was on rent of Rs. 7,000 p.m. The other relevant details of this house are (i) municipal value Rs.
72,000 p.a. (ii) fair rent Rs. 66,000 p.a. And standard rent Rs. 60,000 p.a. The income chargeable
under the head House Property in A.Y. 2021-22 of this house shall be : ((Dec 19 –NS)
(a) Rs. 63,000 (b) Rs. 50,400
(c) Rs. 46,200 (d)Rs. 44,100 Ans.(d)
(22)Goel completed the construction of a residential house properties on 30-6-2020. He already owns
two properties in the same town which is self-occupied. The new construction is also self-occupied by
him. He wants to treat the new construction as deemed let out property. The relevant details of the
new property are : (i) municipal value Rs. 3,00,000; (ii) fair rent Rs. 3,60,000; and (iii) standard rent
Rs. 2,80,000. The gross annual value of the property would be : (Dec 19 –OS)
(A) Rs. 2,80,000
(B) Rs. 2,10,000
(C) Rs. 3,00,000
(D) Rs. 3,60,000 Ans - A
23. Pushpal, a non-resident Indian in the previous year 2020-21 was in receipt of rent of the house property
located in Singapore of Rs.30,00,000. The amount of rent was transferred and credited in the bank
account of Pushpal, maintained with SBI, New Delhi by the tenant quarterly. However, the rent for the last
quarter of Rs.7,50,000 was not transferred by the tenant in the account of Pushpal till 31-03-2021. The
Rental Income of the house located in Singapore which will be subject to tax in India under the head
Income from house property in A.Y. 2021-22 shall be-------------(Dec 20 –NS)
(A) Rs. 22,50,000
(B) Rs. 21,00,000
(C) Rs. 15,75,000
(D)Not taxable as property is in Singapore and he is non-resident ANS- C
24. Find out with the help of given details/ information, the gross annual value (GAV) of a house owned by Ramnath
covered by Rent Control Act remained let out during the year 01-04-2020 to 01-04-2021 :
a. Municipal value Rs.7,00,000
b. Actual (de facto) Rent Rs.6,48,000
c. Fair Rent Rs.6,60,000, and
d. Standard Rent Rs.7,20,000 (Dec 20 –NS)
(A) 7,20,000
(B) 6,48,000
(C) 7,00,000
(D) 6,60,000 ANS-C
25. Sonu had let out a house located at Jaipur to Monu since 1.4.2019 on a rent of Rs. 3,000 p.m. Monu paid the
rent regularly up to 30.11.19 and vacated the house on 31.3.2020 when it was sold by Sonu to Ramu. Sonu
after great persuasion could recover an amount of Rs.9,000 from Monu in July, 2020 The Income chargeable
under House Property in A.Y. 2021-22 shall be -----(Dec 20 –NS)
(A) Rs.9,000
(B) Rs.6,300
(C) NIL
(D) Rs.6,750 ANS-B
26. Supreme Court in case of Chennai Properties and Investments Ltd vs. CIT (2015) has held that income from
letting of properties by a company whose main object as per the Memorandum of Association (MOA) is to
acquire and let out properties be taxable as : (Dec 20 –NS)
(A) Income under "House Property"
(B) Income under "Profits & Gains of business or profession"
(C) Income under "Other Sources"
(D) Income under "Capital Gains" ANS-B

27. House property owned by Pankaj located at Ajmer having municipal valuation : 1,55,000, fair rent:
Rs. 1,40,000, standard rent: Rs. 1,24,000 was let out for the period 1st April, 2020 to 15th
November, 2020 on a rent of Rs. 8,000 per month and from 16th Nov. 2020 to 31st January 2021
on a rent of Rs. 13,000 per month. Pankaj transferred the property to Shyam on 1st February,
2021. The gross annual value (GAV) of the house property for assessment year 2021-22 shall be
taken at ----------(Dec 20 –OS)
(A) Rs. 1,03,333
(B) Rs. 92,500
(C) Rs. 1,24,000
(D) Rs. 1,30,000 Ans.A
28. Chandra owns a house property constructed with the borrowed capital on 31.03.2009 and
since then used by him for own residential purposes. Municipal value of the property is Rs.
1,00,000 whereas fair rent is Rs. 80,000 and standard rent is Rs. 90,000. Expenses incurred by
Chandra during the previous year 2020-21 for Municipal tax: Rs. 15,000, insurance : Rs. 2,000,
interest on capital borrowed to construct the property Rs. 70,000. Income/loss chargeable
under the head house property for the assessment year 2021-22 shall be-----------(Dec 20 –OS)
(A) (70,000)
(B) (85,000)
(C) (30,000)
(D) (2,00,000) Ans.A/C as per ICSI both are correct
29. The Gross Annual Value (GAV) as per section 23(1) of the Act of a houseproperty owned by Suresh covered
by Rent Control Act, remained let out during the previous year 2020-21 for which (i) Municipal Valuation is Rs.
3,00,000; (ii) Actual (de facto) Rent is Rs. 3,20,000; (iii) Fair rent is Rs. 3,60,000 and (iv) Standard rent is
Rs. 4,00,000 shall be taken at -------(Dec 20 –OS)
(A) Rs. 3,60,000
(B) Rs. 4,00,000
(C) Rs. 3,20,000
(D) Rs. 3,00,000 Ans.A

6. PGBP 6.1
Chapter 6 – Profits and Gains from Business

and Profession
1. Section 28 – Charging Section
Income chargeable under the head" Profits and

Gains of Business or Profession" [Section 28]
i) The profits and gains of any business or profession (PGBP) carried on by the assessee.
ii) Any compensation or other payment due to or received by a person, at or in connection with
termination of his management, office, agency or modification of the terms and conditions
relating thereto in certain cases.
Section 28 (ii) (d) - AY 19-20
Amount received due to termination or modification of the terms and conditions, of any contract
relating to his business.
Scope has been enlarged to include certain types of compensation (Relating to capital
assets, loss of source of Income). It can be of capital or revenue nature.
iii) Income derived by a trade, professional or similar association from specific services
performed for its members.
Any surplus arising to the mutual associations such as Labour Welfare Association, Chamber
of Commerce etc. by performing specific services to its members is deemed as income earned
as carrying on business in respect of these services and accordingly chargeable to tax.
iv) Profit on sale of import license, cash assistance against exports, duty drawback, profit on
transfer of DEPB/DFRC.
v) Value of any benefit or perquisite, whether convertible into money or not, arising from business
or the exercise of profession.
vi) Any interest, salary, bonus, commission or remuneration due to, or received by, a partner of
a (to the extent allowed as deduction in the hands of the firm from such firm firm).
(via) FMV of inventory on the date of its conversion or treatment as capital asset, would be
chargeable to tax as business income.
vii) Any sum, received or receivable, in cash or kind under an agreement for -
a) not carrying out any activity in relation to any business or profession; or
b) not sharing any know-how, patent, copyright, trademark, etc.
viii) Any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
ix) Any sum, whether received or receivable, in cash or kind, on account of any capital asset (other
than land or goodwill or financial instrument) being demolished, destroyed, discarded or
transferred, in respect of which the whole of the expenditure has been allowed as deduction u/s
35AD.
Unique Academy – 8007916622/33 CA Saumil Manglani - Contact 9921051593

6. PGBP 6.2
Not considered as Speculative business

Following will not be considered as engaging in speculative business
• Company’s Gross Total Income (major portion) is chargeable to tax under the head “Interest on
securities”, “Income from house property”, “Capital gains” and “Income from other sources”,
• Company’s principal business of which is trading in shares/ banking/ granting of loans and
advances.
Few points regarding ICDS
The CG has notified 10 ICDS for the purpose of computation of income under the head PGBP or IOS
and not for maintaining books of accounts.
Some key features of ICDS are as under :

(i) ICDS applies to all tax payers except Individual and HUF who are not covered under the tax audit under
section 44AB.
(ii) ICDS applies only to tax payers following mercantile system of accounting.
(iii) ICDS shall apply irrespective of the accounting standards adopted by companies i.e., either Accounting
Standards or Ind-AS.
(iv) ICDS shall also apply to the persons computing income under the relevant presumptive
taxation scheme.
For example, for computing presumptive income of a partnership firm under section 44AD of the Act, the
provisions of ICDS on Construction Contract or Revenue recognition shall apply for determining the
receipts or turnover, as the case may be.
(v) The provisions of ICDS shall not apply for computation of MAT.
(vi) However it shall apply for computation of AMT as AMT is computed on adjusted total income which is
derived by making specified adjustments to total income computed as per the regular provisions of the
Act.
(vii) I.T ACT/ IT Rules Vs ICDS → Act/Rules shall prevail
(viii) judicial pronouncements/ judgements Vs ICDS – ICDS Shall prevail
(ix)
Section 145 - Income chargeable under the head PGBP or Income from other sources has to be
computed in accordance with either cash basis or mercantile system of accounting regularly employed
by the assessee.
Section 145A - Method of accounting in certain cases (PGBP) AY 21-22
Cases Valuation
Inventory Actual Cost or NRV whichever is lower
purchase and sale of goods or include the amount of any tax, duty, cess or fee to bring the
services and of inventory goods or services to the place of its location and condition
as on the date of valuation
Inventory (securities NOT listed or Actual Cost
listed but not quoted on
Recognised stock exchange)
Inventory (securities listed and Actual Cost or NRV whichever is lower
quoted on Recognised stock
exchange)

6. PGBP 6.3
Provided that the inventory being securities held by a scheduled bank or public financial institution
shall be valued in accordance with the ICDS after taking into account the extant guidelines issued by
the RBI Guidelines in this regard.
Section 145B :- Taxability of certain income [Section 145B]
AY 21-22
• Interest on compensation or Enhanced compensation – Taxable on Receipt basis
• Subsidy or grant from Government - Taxable on Receipt basis
• Claim for escalation of price in a contract or export incentives → taxable when reasonable
certainty of its realization is achieved.
2. Computation under the head PGBP
Particulars (Rs)
Net profit as per statement of profit and loss A
Add: Expenses debited to statement of profit and loss but not allowable B
• Depreciation as per books of accounts
• 30% of sum payable to residents on which tax is not deducted at source or after
deduction has been remitted on or before the due date u/s 139(1), would be disallowed
u/s 40(a)(ia) [The same is allowable in the year in which the tax is deducted and remitted]
• Income-tax paid disallowed u/s40(a)(ii)
• Any expenditure incurred, in respect of which payment is made for goods services or
facilities to a related person, to the extent the same is excessive or unreasonable, in
the opinion of the A.O., having regard to its FMV [disallowed u/s 40A (2)]
• Any expenditure incurred in respect of which payment or aggregate of payments to a
person exceeding Rs. 10,000 in a single day is made otherwise than by way of A/c
payee cheque/bank draft or use of ECS through bank A/c [disallowed u/s 40A (3)]
• Certain sums payable by the assessee which have not been paid during the relevant P.Y.
in which the liability was incurred or on or before the due date for filing return u/s 139(1)
in respect of that P.Y. [disallowed u/s 43B]
• Personal expenses [not allowable as per section 37]
• Capital expenditure [not allowable as per section 37]
• Repairs of capital nature [not allowable as per sections 30 & 31]
• Amortization of preliminary expenditure u/s 35D/expenditure incurred under voluntary
retirement scheme u/s 35DDA [4/5th of such expenditure to be added back]
• Fine or penalty paid for infringement or breach of law [However, penalty in the nature of
damages for delay in completion of a contract, being compensatory in nature, is allowable]
• All expenses related to income which is not taxable under this head e.g. municipal taxes
in respect of house property.
• Any sum paid by the assessee as an employer by way of contribution to pension
scheme u/s 80CCD exceeding 10% of the salary of the employee
(A-B) C
Less: Expenditure allowable as deduction but not debited to statement of profit and loss D
• Depreciation u/s 32 [computed as per Rule 5 of Income-tax Rules, 1962]
• Additional depreciation @20% of actual cost of new P & M acquired by an assessee

6. PGBP 6.4
engaged in the business of manufacture or production of any article or thing generation,

transmission or distribution of power (10% of actual cost, if put to use for less than 180
days in the year of acquisition)/ 35% of actual cost (17.5% if put to use for less than 180
days in the year of acquisition), if the manufacturing undertaking is set up in a notified
backward area in the State of A.P./Bihar/Telangana /West Bengal on or after 1.4.2015
[Balance additional depreciation can be claimed in the next year]
Note – Additional Depreciation is not allowed under section 115BAC AY 21-22
• Deduction @ 15% of actual cost of new P&M u/s 32AD in case of a manufacturing
undertaking/enterprise set up in a notified backward area in the State of
A.P./Bihar/Telangana/West Bengal on or after 1.4.2015.
Note – Investment allowance is not allowed under section 115BAC AY 21-22
• Weighted deduction for expenditure on/contribution for research u/s 35(1) (ii), 35(2AA),
35(2AB) in excess of the amount already debited to statement of profit & loss
• Investment-linked tax deduction in respect of specified businesses u/s 35AD - Not
allowed under section 115BAC AY 21-22
(C-D) E
Less: Income credited in the statement of profit and loss but not taxable/taxable under any F
other head
• Dividend income taxable under IOS
• Agricultural income exempt u/s 10(1)
• Interest on securities taxable under the head "Income from other sources"
• Profit on sale of capital asset taxable under the head "Capital Gains"
• Rent from house property taxable under the "Income from house property"
• Interest on savings bank account/FD taxable under the head "Income from other
sources"
• Winnings from lotteries, house races, etc. taxable under the head "Income from other
sources"
• Gifts exempt or taxable under the head "Income from other sources"
• Income-tax refund not taxable
• Interest on income-tax refund taxable under the head "Income from other sources"
(E-F) G
Add: Deemed Income H
• Bad debt allowed as deduction u/s 36(1)(vii) in an earlier PY, now recovered [deemed
as income u/s41(4)]
• Remission or cessation of a trading liability [deemed as income u/s 41(1)]
(G+H) I

6. PGBP 6.5
Past Exam MCQ’s

(1) Under the head ’profits and gains of business or profession’, the method of accounting that should be
followed by an assessee is- (June 2016)
(a) Cash system only (b) Mercantile system only
(c) Hybrid system only (d) Cash system or mercantile system only
Ans.(d)
(2) Under the Income-tax Act, 1961, 'notional profit' from speculative business is - (June, 2015)
(a) Taxable under the head 'income from profits
(b) Taxable under the head 'income from other and gains of business and profession' sources'
(c) Taxable either as income from other sources or as income from profits and gains of business and profession
(d) Not taxable, Ans.(d)
3.HSK, an LLP had taken keyman insurance policy on the life of its managing partner. The policy got
matured on 13th September, 2020 and an amount of Rs. 75 lakh was paid by the insurers to the
managing partner. The amount so received on maturity of the policy by the managing partner is - (Dec.
2015)
(a) Fully exempt under section 10(10D) (b) 50% of Rs. 75 lakh exempt
(c) Rs. 75 lakh taxable (d) Rs. 25 lakh exempt and Rs. 50 lakh
Ans.(c)
4. HSP, a LLP had taken Key Man insurance policy on the life of its Managing Partner. The policy got matured on
13th September, 2020 and amount of Rs. 75 lakh was paid by the insurers to the Managing Partner. The amount
so received on maturity of the policy by the managing partner: (June 18)
(A) is exempt in full u/s10(10D)
(B) 50% of Rs. 75 lakh is exempt
(C) Rs. 75 lakh is taxable
(D) Rs. 25 lakh is exempt and balance is taxable Ans. C
5. Raman & Co., a partnership firm, received Rs. 5,00,000 from an insurance company under keyman
insurance policy consequent to demise of partner Pramod. The amount of premium Rs. 2,30,000 paid
earlier was claimed as deduction under section 37 by the firm. The amount received from the insurance
company is - (June 2016)
(a) Tax-free under section 10(10D) (b) Fully taxable as income
(c) Rs. 2,70,000 is taxable (d) Rs. 2,30,000 is taxable Ans.(b)
6. DPM Ltd constructed staff quarters and let out the same during the financial year 2020-21. Its rent
received Rs. 7,50,000 by way of rent from employees during the year. The rental receipt is taxable as :)
(Dec 17)
(A) income from house property
(B) income from business
(C) perquisite in the hands of employees
(D) income from ‘other sources’ `Ans. B
7. When Mr. X retired from X & Co a partnership firm on 01-01-2021, he was paid Rs. 5 lakhs for not doing a
competing business for the next 5 years. The amount so received chargeable to tax in the hands of Mr. X is :
(Dec 17)
(A) Nil
(B) Rs. 5,00,000
(C) Rs. 1,00,000
(D) Rs. 2,50,000 Ans. B
8. Amount of Rs. 5,00,000 received by Ram & Co., as a compensation for premature termination of contract of
agency in the month of April 2021 is to be treated as: (June 18)
(A) Income from other sources
(B) Taxable under section28(ii)(c)
(C) Revenue receipt which is exempt
(D) Capital receipt which is not chargeable to tax Ans.B
9. Which out of the following elements you find are sufficient for bringing to tax as income from

6. PGBP 6.6
business or profession: (June 18)

a. Ownership of the business is not necessary
b. Business must be legal
c. Income may be earned in cash or kind
d. Profit motive is the sole consideration
i. (i), (ii) and(iv)x
ii. All the four
iii. (i) and (iii)
iv. (ii), (iii) and (iv) Ans iii
10. Priti (age 61) a Chartered Accountant retired from SCG & Co. (a partnership firm) on 31-3-2021. As per
the deed of retirement, she is eligible for a sum of Rs. 20,000 every month in consideration for not
practicing the profession of chartered accountancy for the next 5 years. The receipts is : (Dec 19 –OS)
(A) Taxable under the head ‘other sources’
(B) Taxable under the head ‘profits and gains of business or profession’
(C) Not taxable receipt
(D) Taxable as capital gain Ans – B
11. Which out of the following elements shall be considered for bringing to tax the income under the head Income
from Business & Profession ? (Dec 20 –NS)
(i) Ownership of the business is not necessary
(ii) Business must be legal
(iii) Income may be earned in cash or kind
(iv) Profit motive is not the sole consideration
(A) (iii) & (iv)
(B) (i), (iii) & (iv)
(C) (ii) & (iii)
(D) All the above four ANS-B
12. Income Computation and Disclosure Standards (ICDS) are applicable for transactions under
the head of income : (Dec 19 –OS)
(A) Salaries
(B) Income from house property
(C) Profits and gains of business or profession
(D) Capital gains Ans – C
13. As per ICDS, the unlisted securities shall be valued at : (Dec 19 –OS)
(A) Initial cost
(B) Market price as on 31st March of the previous year
(C) Cost or market price, whichever is less
(D) Average of cost plus market price
Ans – A
14. The Income Computation and Disclosure Standards (ICDS) applicable from Asst. Year 2017-18
for the purpose of computation of Income under the head "Profits and gains of business or
Profession" and "Income from other Sources" shall not apply for computation of but shall
apply for computation of -----------(Dec 20 –NS)
(A) AMT; MAT
(B) Presumptive Income; MAT
(C) MAT; AMT
(D) AMT; Presumptive Income ANS-C
15. Amount of salary paid to a working partner by a partnership firm is taxable in the hands of partner in the
assessment year as per provisions of Income tax Act, 1961 under----------- (Dec 20 –OS)

6. PGBP 6.7
(A) Salaries
(B) Profits & Gain of Business and Profession
(C) Income from other sources
(D) Personal Income Ans. B
16. Mark to market loss computed in accordance with income computation and disclosure standards
(ICDS) is being allowable as deduction from the Income computed under the head ------------------
(Dec 20 –OS)
A. Profits and gains of business or profession
B. Income from other sources
C. Salaries
D. Capital Gains ANS. A
3. Section 30 - Rent, rates, taxes, repairs (not including expenditure in the nature of capital
expenditure) and insurance for buildings. a. Lessor can claim depreciation
4.
b. Roads within a factory eligible
Section 31 - Repairs and insurance of machinery, plant and furniture.
c. Residential quarters eligible
5. Section 32 - Depreciation (Mandatory to claim)
d. construction of metal roads to
5.1 Conditions for claiming depreciation dump waste is capital exp. Not
eligible
• Asset must be used for the business
e. Hire purchase – Buyer can
• Asset should be owned by the Assessee. Registered ownership not required. claim
• Depreciation is allowed on Block of assets f. Normal hire – owner can claim
• Asset must be Put to Use.
NOTE –V.V. Imp. -

1. Asset is acquired in the previous year & Put to use for less than 180 days (up to 179
days) during the same PY – only half depreciation is allowed.
Check Number of days of put to use only if acquisition and put to use are of same
PY. If the year of acquisition and year of put to use are different then full depreciation
will be allowed.
2. Ownership v/s lease: Lessor shall be entitled to claim depreciation on leased assets, whether
the lease is an operating lease or a financial lease.
As per landmark judgment of CIT V/s Annamalai Finance Ltd. (Madras H.C) it is the end use of
the specified asset which is relevant for determining the percentage of depreciation.
In case of business of leasing out vehicle, if lessee is using the vehicle for running them on
hire, depreciation shall be allowable at Higher rate of 30% instead of 15% to the lessor.
Check whether full/ half depreciation will be allowed in following cases for PY 20-21
Case Purchased on Put to use on Depreciation rate

I 01-May-20 15-Jul-20 Full
II 15-Jun-20 10-Oct-20 Half
III 01-Jan-21 01-Jun-21 Not allowed in PY 20-21 as put to use in PY 21 - 22
IV 01-Jan-20 10-Jun-20 Full in PY 20-21
V 28-Feb-20 10-Feb-21 Full
(As Year of purchase and put to use are different)

6. PGBP 6.8
Block of Assets
There are four classes of the assets which are further categorized into ten Blocks of
assets according to different rates of assets prescribed as under:
S. No. Class of asset Block of asset
1. Building 3 blocks (5%, 10% and 40%)
2. Furniture & Fixture 1 block (10%)
3. Plant and machinery 5 blocks (15%, 20%, 30%, 40%, 45%)
4. intangible assets 1 block (25%)
5.2 Written Down Value of Assets (W.D.V.) [Section 43(6)]
(1) W.D.V. of the block of assets on 1st April of the previous year xxxx
(2) Add: Actual cost of assets acquired during the previous year xxxx
(3) Total (1) + (2) xxxx
(4) Less: Money receivable in respect of any asset falling within the block which is
sold, discarded, demolished or destroyed during that previous year xxxx
(5) W.D.V at the end of the year (on which depreciation is allowable) [(3) – (4)] xxxx
(6) Depreciation at the prescribed rate
(Rate of Depreciation × WDV arrived at in (5) above) xxxx
Cost of asset
5.3 Depreciation Rates
AY 19 – 20 → Explanations to the Actual
Note –
• Oil wells (P&M) – 15% Cost [Explanations to section 43(1)]
• Windmills installed up to 31.3.14 (पुराने) (P&M) - 15% [Explanation 1A]
• Windmills installed up to 1.4.14 onwards (नए) (P&M) – 40% Inventory is converted/ treated as a
• No depreciation allowed on land capital asset → used for PGBP → FMV on
• Depreciation not allowed on live stocks or tea bushes. date of conversion = Actual cost of such
Nature of Assets capital asset Rate of Depreciation

(WDV)
Buildings
Residential 5%
General 10%
Temporary Structure 40%
Furniture & Fittings 10%
Plant & Machinery
General 15%
Motors cars other those used in a business of running them on hire 15%
rd st
Motors cars acquired on or after 23 August 19 but upto 31 March 20 and is 30%
put to use upto 31st March 2020.
Motor buses, lorries, vans and taxis used in a business of running them on 30%
hire
Motor buses, lorries, vans and taxis used in a business of running them on 45%
hire acquired on or after 23rd August 19 but upto 31st March 20 and is put to
use upto 31st March 2020
Books owned by assesses carrying on a profession
40%
Books owned by assesses carrying on a business
15%
Books owned by assesses carrying business of running libraries
40%
ships
20%

6. PGBP 6.9
Airphanes 40%
Air Pollution control Equipments, Water Pollution Control Equipments 40%
Computers including Computer Software (Operating System only) 40%
Intangible Assets
Software, knowhow, patents, copy-rights, trade marks, licences, franchises or 25%
any other business or commercial rights of similar nature
1. PQR Ltd engaged in trading business has purchased a motor car amounting Rs. 10,00,000 on 30th August
2019 which was put to use on same day. Depreciation for A.Y. 2021-22 is -
(a) Rs. 1,50,000 (b) Rs. 3,00,000
(c) Rs. 4,50,000 (d) Rs. 2,10,000
Ans.(b)
5.4 Instances of STCG – STCL regarding block of assets
Cases Whether Block Value of Block Treatment/ Result

exists
I Yes +ve Normal depreciation
calculation
II Yes -ve STCG
III No +ve STCL
IV No -ve STCG
Note - The block of assets never becomes negative. It’s shown in the above table just to make the
explanation easy.
5.5 Additional depreciation (Not allowed if opted for Section 115BAC)
AY 21-22
• It is allowed rate of 20% of actual cost
• Allowed only once, not yearly
• Only on plant or machinery
• Assessee engaged in business of printing, manufacture or production, generation, transmission or
distribution of power.
• Available in the year when it is Acquired + Installed.
• IMP - Put to use for less than 180 days (up to 179 days) during the previous year in which it is
acquired, additional depreciation will get restricted to 10% i.e. half of 20% of the depreciation
allowable. The balance half i.e. 10% of additional depreciation will be allowed in the immediately
succeeding previous year.
• Additional depreciation is allowed on the assets which are used in factory.
Very Very Imp.
Check Number of days of put to use only if acquisition and put to use are of same PY. If the year
of acquisition and year of put to use are different then full depreciation will be allowed.
However, additional depreciation will not be allowed on the following plant or machinery:
• Ships, aircraft
• Road transport vehicles
• office appliances (Ex Coffee machine)
• Machinery previously used by any other person (2nd Hand)
• Machinery installed in any office premises, residential accommodation, or guest house;

6. PGBP 6.10
• Machinery in respect of which, the whole of the actual cost is fully allowed as deduction (whether by
way of depreciation or otherwise) of any one previous year (Ex. Scientific research)
AY 21-22
5.5.A - 35 Rs में आधा तेल भी बैन है - Additional depreciation (Not allowed if opted for Section 115BAC)
(Note – This is useful in the PY 20-21 only because of the reason that 50% would have been taken in
19 - 20 and balance 50% which was left to be taken because the number of days of put to use were
less than 180 days will be claimed in the current year that is in 20-21
• In the notified backward areas of the States of Andhra Pradesh(आधा), Bihar(भी), Telangana (तेल) and
West Bengal (बैन)
• Additional depreciation rate 35%
• On New P&M
• Acquired + Installed during the period between PY 1st April, 2015 and 31st March, 2020
• Additional depreciation shall be restricted to 17.5% (i.e., half of 35%), if the new plant and machinery
acquired is put to use for the purpose of business for less than 180 days in the year of acquisition
and installation.
5.6 Depreciation in case of succession of firm/sole proprietary concern by a company or business
reorganization or amalgamation or demerger of companies
• Calculate depreciation as no business re-organization has been done.
• Allocate amount of depreciation on the basis of number of days. Suppose Company A gets merged
with company B on 29th November 2020 – Number of days for Company A will be taken till 28th
November.
5.7 Unabsorbed Depreciation
• First adjust depreciation under the head PGBP
• Next - Set off against other heads except Salary
• Next – Can be carried forward for indefinite number of years
• In the subsequent years – First set off under the head PGBP then against other heads except Salary.
• Set off will be allowed even if the same business to which it relates is no longer in existence in
the year in which the set off takes place.
• Unabsorbed depreciation can be carried forward by the same Assessee.
5.8 Depreciation on SLM basis in case of Power Generating units (Terminal depreciation – Balancing
Charge) – (If applicable, Always STCG)
Example
WDV as per books as on

date o f selling asset Original cost
30 lacs 100 lacs

6. PGBP 6.11
Description Treatment
Case I – Asset sold at 20 Lacs 10 lacs Terminal depreciation – Dr. to P&L (20
Lacs – 30 Lacs)
Case II – Asset sold at 60 Lacs 30 Lacs Balancing Charge – Cr. To P&L (60 Lacs –
30 Lacs)
Case III – Asset sold at 100 Lacs 70 Lacs Balancing Charge – Cr. To P&L (100 Lacs
– 30 Lacs)
Case IV – Asset sold at 120 Lacs • 70 Lacs Balancing Charge – Cr. To P&L (100
Lacs – 30 Lacs)
• 20 Lacs STCG – (120 Lacs – 100 Lacs)
Note:
1. If amount is recovered below WDV as shown the books – The difference between WDV
and amount recovered is treated as Terminal depreciation.
2. Amount received above WDV but upto the original cost is treated as Balancing Charge.
3. Amount received exceeding the original cost is treated as the STCG.
1. Under the Income-tax Act, 1961, depreciation on machinery is charged on — (Dec. 2009)
(a) Purchase price of the machinery (b) Market price of the machinery
(c) Written down value of the machinery (d) All of the above. Ans.(c)
2. If a block of assets ceases to exist on the last day of the previous year, depreciation admissible for the
block of assets will - (June, 2015)
(a)Nil
(b) 50% of the value of the block of assets on the first day of the previous year
(c)The total value of the block of assets on the first day of the previous year
(d) 50% of the value of the block of assets on the last day of the previous year. Ans.(a)
3. Adhu Ltd. owns machinery (rate of depreciation is 15%), the written down value of which as on 1st
April, 2020 is Rs. 30,00,000. Due to fire, entire assets in the block were destroyed and the insurer paid
Rs. 25,00,000. The eligible depreciation in respect of this machinery is - (June 2016)
(a) Rs. 4,50,000 (b) Rs. 75,000
(c) Rs. 5,00,000 (d) Nil Ans.(d)
4. Dr. Sen has surgical equipments whose WDV as on 1-4-2020 was Rs. 4,10,000. He acquired some more
equipments inDecember 2020 for Rs. 3,50,000. He sold equipment in March 2021 for Rs. 2,00,000 whose
original cost was Rs. 1,70,000. The written down value of the block for the purpose of computing depreciation
for the A.Y. 2021-22 is : (June, 2017)
(a) Rs. 5,90,000 (b) Rs. 5,60,000
(c) Rs. 7,30,000 (d) Rs. 4,30,000 Ans.(b)
5. Vikram Mfg Co Ltd located in a backward area in the State of Andhra Pradesh acquired some machinery for
Rs. 20 lakhs on 10-08-2020. It was put to use from 01-09-2020. The applicable rate of depreciation is 15%.
How much would be the eligible additional depreciation for the assessment year 2021-23 in respect of the said
machinery if the assessee has opted for section 115BAC ? (Dec 17)
(A) Rs. 3,00,000
(B) Rs. 4,00,000
(C) Rs. 7,00,000
(D) Nil Ans.(d)
6. Vaibhav, deriving business income, owns a car whose WDV as on 1st April, 2019 was Rs. 3,00,000.
This is the only asset in the block of assets with rate of 15%. It is estimated that one-third of the total
usage of the car is for personal use in both years. The WDV of the block of assets as on 31st March, 2021
would be - (June, 2015)
(a) Rs. 2,16,750 (b) Rs. 2,43,000
(c) Rs. 2,55,000 (d) None of the above. Ans.(b)

6. PGBP 6.12
7. Swan (Pvt.) Ltd. acquired machinery for Rs. 5,75,000 which included excise duty of Rs. 75,000 eligible
for CENVAT credit. It borrowed Rs. 3,00,000 from a bank for purchase of the said machine. Interest on the
bank loan upto the date of usage of machine was ascertained as Rs. 25,000. The machine was put to use
from 15th September, 2020. Assume the rate of depreciation at 15%. The eligible amount of depreciation
will be - (Dec. 2016)
(a) Rs. 90,000 (b) Rs. 78,750
(c) Rs. 86,250 (d) Rs. 75,000 Ans.(b)
8. Ramson Industries acquired a factory building for self use in November, 2020. The value of land
underneath the building was Rs. 5 lakh and value of building was Rs. 10 lakh. The amount of eligible
depreciation allowable for assessment year 2021-22 is- (June 2016)
(a) Rs. 1,50,000 (b) Rs. 25,000
(c) Rs. 1,00,000 (d) Rs. 50,000 Ans.(d)
9. Ekta (Pvt.) Ltd., engaged in manufacturing activity, acquired new plant and machinery for Rs. 100
lakh for its manufacturing unit located in Bihar. The acquisition and unit was from 1st June, 2020. The
assessee is eligible for additional depreciation of - (Dec. 2016)
(c) Rs. 35 lakh (d) Rs. 10 lakh Ans.(b)
10. The amount of depreciation not absorbed in the same year can be carried forward - (Dec. 2016)
(a) For a period of 4 years (b) For a period of 8 years
(c) For a period of 6 years (d) Indefinitely Ans.(d)
11. Ranga & Co had as on 01-04-2020 plant and machinery whose written down value was Rs. 12,00,000. It
acquired 2 plants on 03-11-2020 for Rs. 6 lakhs. The applicable depreciation rate is 15 %. The eligible
depreciation for the asst. year 2021-22 would be : (Dec 17)
(A) Rs. 2,70,000
(B) Rs. 2,55,000
(C) Rs. 2,17,500
(D) Rs. 2,25,000 Ans. D
12. The WDV of a block of asset depreciated @ 15% as on 1stApril, 2020 was of 3,00,000.Out of this
block, on machine was sold forRs.2,00,000 on 1stJuly,2020 and a new machine of Rs. 6,00,000 added on
1st August, 2020 was put to use only from 1st Sept.,2020. The amount of depreciation to be claimed (in
the manner most beneficial to the assessee) in the A.Y. 2021-22 shall be: (June 18)
(A) Rs. 1,20,000
(B) Rs. 96,000
(C) Rs. 1,05,000
(D) Rs. 60,000 Ans. C
13. The additional depreciation on the factory building constructed during the P.Y.2020-21 and put to
use for manufacturing of garments on 1st Feb., 2021 having cost of Rs.100 lakh shall be allowed in
A.Y.2021 - 22 at a rate of: (June 18)
(A) 5%
(B) 10%
(C) 15%
(D) Nil Ans D
14. Hari Krishna Vidhyut Company Ltd. engaged in the business of generation and distribution of power and
electricity has opted WDV method for claiming depreciation on its assets. Opening balance of the block of
Plant and Machinery depreciated @ 15% on 1st April, 2020 was Rs. 15,00,000. New machines of an
amount of Rs. 25,00,000 were purchased on 15th Nov. 2020 but put to use from 1st December, 2020.
Computers for Rs.2,00,000 were purchased on 9th Sept. 2020 and put to use in business since that date.
The depreciation including the additional depreciation available to the company on plant and machinery and
on the computers shall be of an amount of for A.Y.2021-22 (Dec 18)
(A) 4,92,500
(B) 5,32,500
(C) 7,82,500
(D) 7,42,500 Ans. C

6. PGBP 6.13
15. Depreciation whether to be allowed on the purchase and installation of a fire extinguisher by a
practicing CS in his office, even when the same is not put to use or used during the year of acquisition as
stipulated under section 32 of Income Tax, 1961: (Dec 18)
a. No, Failure to use for the profession or business
b. Yes, Safety measures and kept stand by, treated as passive use and eligible for depreciation
c. Yes,Allowable@10%ofthecost
d. Yes,Allowable@50%ofthecost Ans B
16. A company engaged in manufacturing of steel balls acquired computers at a cost of Rs. 3 lakh on
10th July, 2020. The depreciation allowance for the A.Y. 2021-22 under Income Tax, 1961 would be
:(June 19)
(A) Rs. 1,80,000
(B) Rs. 1,20,000
(C) Rs. 3,00,000
(D) Rs. 45,000. Ans A
17. Zed Ltd. a domestic company engaged in manufacturing activity at Mumbai acquired a plant for Rs. 5
lakh on 7th January, 2021 which is eligible for depreciation @ 15%. It paid Rs. 4 lakh through ECS
system from bank and balance Rs. 1 lakh in cash on 23rd February, 2021. The plant was put to use on
12-03-2021. The amount of depreciation (normal and additional) on this plant for A.Y. 2021-22 shall be
: (June 19)
(A) Rs. 40,000
(B) Rs. 30,000
(C) Rs. 70,000
(D) Rs. 60,000. Ans C
18. Raghav Housing Finance Ltd., a NBFC is eligible to claim deduction in the case of provision made for bad and
doubtful debts to the extent of .................... total income. (June 19)
(A) 10%
(B) 5%
(C) 2%
(D) 1%. Ans B
(Note – Provisions allowed to banks 8.5%, for rural branches – 10%, for Financial institutions and foreign
banks – 5%)
19. Assets put to use in business for more than 180 days during the previous year consisting (i) Factory Building,
(ii) Computers, (iii) Motor Vehicles used for Commercial Purposes and (iv) Intangible Assets shall be depreciated
at the rate of respectively. ((Dec 19 –NS)
(a) 5%, 15%, 30%, 25% (b) 10%, 40%, 30%, 25%
(c) 10%, 15%, 25%,25% (d) 5%, 40%, 15%, 25% Ans.(b)
20. The WDV of the block of asset of plant & machinery depreciated @ 15% as on 1st April, 2020 was of
Rs. 13,50,000. Out of this block, one machine was sold on 1st July, 2020 for 1 4,50,000 and a new machine
of Rs. 7,50,000 was purchased on 1st August, 2020 which could be put to use from 1st March, 2021. The
amount of depreciation to be claimed on the block of plant & machinery in the computation of income
from A.Y. 2021-22 shall be : ((Dec 19 –NS)
(a) Rs. 1,35,000 (b) Rs. 2,47,500
(c) Rs. 1,91,250 (d) Rs. 2,53,125 ANS.(C)
21. Any asset, on which depreciation is claimed on the basis of Straight Line Method (SLM) is sold and the amount
by which money payable together with scrap value, fall short of the Written Down Value (WDV) of such asset, the
amount of such deficiency in value of asset is allowed to be written off in the year of sale as (Dec 19 –NS) .
(a) Balancing charge (b) Terminal depreciation
(c) Loss on sale of asset (d) Residual value of asset Ans.(b)
22. An asset eligible for additional depreciation at 20% is entitled to only 50% of the additional depreciation
i.e. 10% as additional depreciation when it is put to use for less than number of days and it is purchased and
put to use in same year. (Dec 19 –OS)
(A) 180
(B) 183
(C) 182
(D) 270 Ans – A

6. PGBP 6.14
23. The WDV of a block of asset of plant & machinery subject to depreciation @ 15% as on 1.4.2020 was of
Rs.27,50,000. One machine out of this block, was sold on 01.07.2020 for Rs.4,50,000 and a new machine of the
value of Rs.17,50,000 purchased on 1.8.2020 was put to use from 01-03-2021. The amount of depreciation to
be claimed on the block of plant & machinery in the computation of income for A.Y. 2021- 22 shall be:(Dec 20 –
NS)
(A) Rs. 4,76,250
(B) Rs. 3,45,000
(C) Rs. 6,07,500
(D) Rs. 6,75,000 ANS-A
24. Rate at which depreciation shall be allowed in case of Ocean-going ships including dredgers, lugs, barges,
survey launches and other similar ships used mainly for dredging purposes and fishing vessels with wooden
hull as per Rule-5 under the Income Tax for Asst. Year 2021-22 is ---------(Dec 20 –OS)
(A) 15%
(B) 20%
(C) 30%
(D) 40% ANS. B
6. Taxability in case of composite income
Rule Nature of composite income Business Agricultural
income Income
(Taxable) (Exempt)
7A Income from the manufacture of rubber 35% 65%

7B Income from the
manufacture of coffee sale 25% 75%
of coffee grown and cured 40% 60%
sale of coffee grown, cured, roasted and
grounded
8 Income from the manufacture of tea 40% 60%
1. Mrs. Rose derives Rs. 5,40,000 by way of income from sale of coffee grown and manufactured in India. The
income chargeable to income-tax would be - (Dec. 2016)
(a) 50%, i.e., Rs. 2,70,000 (b) . 25%, i.e., Rs. 1,35,000
(c) 40%, i.e., Rs. 2,16,000 (d) 60%, i.e., Rs.3,24,000 Ans.(b/c)
Note – Question is not clear
2. Balu paid Rs. 1,00,000 to Raj for purchase of standing crop (paddy). He harvested the produce, i.e., by
incurring expenditure of Rs. 25,000. He sold the said paddy for Rs. 1,80,000 to a trader. His other income for
the year ended 31st March, 2021 was Rs. 4,60,000. The total income of Balu is - (June 2016)
(a) Rs. 6,40,000 (b) Rs. 5,15,000
(c) Rs. 4,85,000 (d) Rs. 5,60,000 Ans.(b)
3. Mr. Ramesh engaged in the business of growing and manufacturing tea in India received Rs. 2 lakhs from Tea
Board towards replacement of tea bushes destroyed by forest fire. The amount received from Tea Board by Mr.
Ramesh is: (June, 2017)
(a) Liable to tax (b) Exempt from tax
(c) 50% is exempt from tax (d) 25% is exempt from tax Ans.(a)
4. Income of an assessee engaged in the business of growing and manufacturing tea in India is taxable to the extent
of - (Dec. 2014)
(a) 40% of such income (b) 60% of such income
(c) 70% of such income (d) 30% of such income. Ans.(a)
5. Pawan reports net income of Rs. 5 lakh from the activity of growing and manufacturing rubber. How much of such
income is to be treated as non-agricultural income - (Dec. 2015)
(a) Rs. 1,75,000 (b) Rs. 2,00,000
(c) Rs. 1,25,000 (d) Nil Ans.(a)
6. If non-agricultural income is Rs. 2,52,000 and net agricultural income is Rs. 40,000, the tax liability of an
individual assessee will be - (Dec. 2014)
(a) Nil (b) Rs.200
(c) Rs. 208 (d) Rs. 4,368 Ans.(a)

6. PGBP 6.15
7. Scientific Research – Section 35 In house Research
Scientific
Research
Research - Maximum 3 years

before date of Research after
commencement commencement
(100%)
Manufacturing
Capital exp. Company -
Revenue exp. Research Others
35(1)(i) expl. to
35(2)(ia)
approved
35(2AB)
Revenue -
Only Salary Capital - 100%
100%
(Excluding All exp. allowed Land - Not
perquisites )& Except Land Revenue - 35(1)(i) allowed
Material allowed 100% Capital-100 %
35(1)(iv)
Land - Not alowed
AY 21-22
Contribution to outsiders
Research
Scientific Social & Statistical
To approved To approved Research

To approved Research To IIT, National
Indian co. association, Institute,
association, Institute, Lab. College, University
College, University engaged in R&D
35(2AA) 35(1)(iii)
35(1)(ii) 35(1)(iia)
100% 100% 100% 100%

AY 21-22
Note – Section 115BAC – Deduction of in house research allowed & and contribution to
outsiders is not allowed.

6. PGBP 6.16
• The benefits given to research institutes in the past will become ineffective if such
research institutions do not intimate the Income tax authorities that they have availed
AY 21-22 the benefit of such notifications within 3 months from the date this proviso came into
effect.
• And instead of life time approval now this benefit shall be applicable for 5 years only
starting from AY 22-23 and after every 5 years reapprovals would have to be taken.
• No deduction to outside agencies (donee) u/s 35(1)(ii), (iia), (iii) where they fail to -
prepare and deliver the statement of donation receipts by them of such donation by
donor for such period as may be prescribed to the prescribed Income Tax Authority and
furnish certificate of donation to donor.
Any failure by the done in preparing and delivering the Statement attracts the following -
• Section 234G - attract fee @Rs. 200 for every day during which the failure continues
• Section 271K - Penalty for a sum not less than rs. 10,000 which may be extended to rs.
1,00,000
Note
a. Selling the asset used in scientific research (If applicable, might be STCG/ LTCG)
b. Scientific research expenditure of capital nature is treated like depreciation (c/f for
indefinite no. of yrs.)
MCQS:
1. A company incurred capital expenditure on scientific research viz., (i) land Rs. 5 lakh; (ii) building Rs. 10
lakh; and (iii) equipments Rs. 7 lakh. The amount of expenditure eligible for deduction under section 35 would
be - (Dec. 2016)
(a) Rs. 22 lakh (b) Rs.17Iakh
2. Where an asset used for scientific research for more than three years is sold without having been
used for other purposes, then the sale proceeds to the extent of the cost of the asset already allowed as
deduction under section 35 in the past shall be treated as - (June 2016)
(a) Business income (b) Long-term capital gain
(c) Short-term capital gain (d) Exempted income. Ans.(a)
3. Where the assessee does not himself carry on scientific research but makes contributions to an approved
university, college or institution, to be used for scientific research related or unrelated to the business of
assessee, hence the amount of deduction from income of business shall be allowed on such contribution to the
extent of - (Dec. 2014)
(a) 125% (b) 150%
(c) 175% (d) 100% Ans.(d)
4. X Ltd. paid Rs. 10 lakh to an approved college to be used for scientific research unrelated to its business. The
amount eligible for deduction under section 35(l)(ii) if the assessee has opted for section 115BAC - (Dec. 2015)
(c) Rs. 17.50 lakh (d) Nil Ans.(d)
4. Donation to university for research in Social Science is eligible for deduction at : (Dec 17)
(A) 100%
(B) 125%
(C) 150%
(D) 175% Ans A
5. Radha engaged in the trading business and had contributed a sum of Rs. 1 lakh to an approved university in
July, 20 to be used for scientific research, which is not related to her business. The amount of deduction for
which she is eligible under section 35 of Income-Tax Act, 1961 for assessment year 2021-22 would be: (Dec 18)
a. Rs. 1lakh
b. Rs. 1.5lakh
c. Rs. 1.75lakh
d. Rs. 2lakh Ans A

6. PGBP 6.17
6. XYZ Ltd. paid Rs. 5 lakh on 22-1-2021 to a national level laboratory for carrying scientific research unrelated
to the business of the company. The amount of deduction eligible under section 35(2AA) of the Income Tax Act,
1961 is :(June 19)
(A) Rs. 5,00,000 @ 100%
(B) Rs. 6,25,000 @ 125%
(C) Rs. 7,50,000 @ 150%
(D) Rs. 10,00,000 @ 200%. Ans A
7. Anirudh had made payment of (i) Rs. 30,000 to IIT, Kanpur for an approved scientific research programme (ii)
Rs. 45,000 revenue expenditure on in house R&D facility as approved by prescribed authority and (iii) Rs.
1,00,000 to Indian Institute of Science, Bengaluru for scientific research, wants to know about the deduction
available while computing the income under "Profits and gains from business"in the Assessment Year 2021-22.
((Dec 19 –NS)
(a) Rs. 2,40,000 (b) Rs. 1,75,000
(c) Rs. 2,62,500 (d) Rs. 2,65,000 Ans.(b)
8. Amitav had made payment of (i) Rs.60,000 to IIT, Kanpur for an approved scientific research
programme; (ii) Rs.90,000 revenue expenditure on in house R&D facility as approved by prescribed
authority and (iii) an amount of Rs.2,00,000 to Indian Institute of Science, Bengaluru for scientific
research. He wants to know about the total amount of deduction available as per provisions of the Act
while computing the income under "Profits and gains from business" in the Asst. Year 2021-22. (Dec 20
–NS)
(A) 4,80,000
(B) 3,50,000
(C) 5,25,000
(D) 5,30,000 ANS-B
9. XYZ limited commenced production on 1st December 2020 of paper boards made payments (i) on 1st
January 2021 of 1,00,000 to the Indian Agricultural Research Association, Jaipur being an approved
research association under section 35(1)(ii) for the purpose of carrying out scientific research in
natural science and (ii) on 15th January 2021 of Rs. 50,000 to the Indian Institute of Management,
Ahmadabad being an approved institute under section 35(1)(iii) for the purpose of carrying out
research in social or statistical science. The amount of deduction available to XYZ limited under section
35(1) for the assessment year 2021-22, if the scientific research not related to the business of the
assessee-company is ---------(Dec 20 –OS)
(A) Rs. 2,00,000
(B) Rs. 2,25,000
(C) Rs. 1,50,000
(D) Rs. 1,62,500 ANS. C
10. Section 35CCC – 150 100% on notified agricultural extension project (Other than Land &
Building) (Not allowed u/s 115BAC)
AY 21-22
11. Section 35CCD - 150% 100% of expenditure (other than expenditure in nature of cost of any land
or building) incurred by a company on notified skill development project.
1. XYZ Ltd., engaged in manufacture of a product, has incurred an expenditure of 3 lakh on notified skill
development project u/s35CCD. The deduction available for such expenditure is Rs……..lakh if the
assessee has opted for section 15BAC (June 18)
(A) 3
(B) 3.75
(C) 4.5
(D) None of the above Ans. a

6. PGBP 6.18
12. Section 35AD - Investment-linked tax deduction under section 35AD

100% of following capital expn. (if assessee opts) incurred wholly and
exclusively for the specified businesses allowable as deduction AY 21-22
Expenditure incurred Expenditure incurred prior to commencement of

during the P.Y. operations
Allowed as deduction • allowed as deduction in the year of commencement of
in the same previous operations
year • If the amount incurred is capitalized in the books of
account on the date of commencement of operations
Capital expenditure does not include the following

expenditure
Expenditure on Expenditure in respect of which payment
acquisition of any or aggregate of payments made to a
person
land, goodwill or in a day, otherwise than by way of A/c
financial instrument Payee cheque/bank draft/ECS/ bank
account or through such other electronic
mode, exceeds
Rs. 10,000
No deduction in respect of an expenditure u/s 35AD(1) where it has been claimed in this PY oy any
other PY.
Note – Section 115BAC – Deduction of section 35AD is not allowed.
AY 21-22
Types of Business
No. Business % of dedn.
1. Setting up & operating a cold chain facility. 100
2. Setting up & operating a warehousing facility for agricultural produce. 100
3. Laying & operating cross country pipeline for distribution of petroleum oil, natural gas. 100
4. Building & operating a Hotel of 2 star or above 100
5. Building & operating a Hospital with minimum 100 patient beds. 100
6. Developing & building a Housing project under slum development scheme. 100
7. Developing & building a housing project under affordable housing scheme. 100
8. Production of Fertilizers. 100
9. Setting up & operating inland container depot or container freight station. 100
10. Bee keeping and production of bee's honey & wax. 100
11. Setting up & operating a warehousing facility for sugar. 100
12. Laying & operating a slurry pipeline for transportation of iron ore. 100
13. Setting up & operating a Semi - conductor water fabrication manufacturing unit. 100
14. Developing or maintaining and operating or developing, maintaining and operating a new 100
infrastructure facility (On or after 1st April 2017).

6. PGBP 6.19
12
Link the above businesses with the pictures drawn below.
2
4
1
11 
13
10
6&7 8
9
14
1. Which of the following is a 'specified business' eligible for deduction under section 35AD ? (June, 2017)
(a) Operating warehousing facility for storage of (b) Operating leather manufacturing unit
agriculture produce
(c) Operating unit for manufacture of tooth paste (d) Units operating in Jammu & Kashmir
Ans.(a)
2. Which of the following business commenced during August 2020 will not be eligible for deduction under
section 35AD - (June, 2015)
(a) Setting-up and operating a cold chain facility (b) A production unit of fertilizer in India
(c) Operating of a 1 star hotel in a village (d) Building a hospital of 200 beds.
Ans.(c)
3. DAS Pvt. Ltd. fulfilling all the conditions as being specified section 35AD of the Income Tax Act, 1961 has
incurred capital expenditure of Rs.30 lakh on purchase of land, 80 lakh (Rs. 75 lakh by cheque and Rs.
5 lakh in cash) on construction of building and 10 lakh on the plant and machinery during the previous year
2020-21 for setting up and operating a warehouse for the storage of sugar. The warehouse became
operational on 1st March, 2020. The amount of deduction which the company can claim for such capital
expenditure as per section 35AD in A.Y. 2021-22 shall be........... (Dec 18)
(A) Rs. 120lakh
(B) Rs. 180lakh
(C) Rs. 85lakh
(D) Rs. 90lakh Ans.C
13. Section 35D – Amortization of preliminary expenditure
• Preliminary expenditure incurred by Indian companies and other resident non-corporate assessees
shall be allowed as deduction over a period of 5 years beginning with the previous year in which
business commences.
• Eligible expenses - The following expenditure are eligible for amortisation:
(i) Expenditure in connection with - (Mnemonics – MELFP)
(a) feasibility report

6. PGBP 6.20
(b) project report;
(c) market survey
(d) engineering services
(e) legal charges for drafting any agreement between

(Above work must be carried out by the Assessee himself or by a concern which
is approved by the Board)
(ii) Where the Assessee is a company, in addition to the above, expenditure incurred –
(f) by way of legal charges for drafting the MOA - AOA
(g) on printing MOA – AOA
(h) by way of fees for registering the company under the Companies Act
(i) in connection with the issue, for public subscription, of the shares in
or debentures of the company, being underwriting commission,
brokerage and charges for drafting, printing and advertisement of the
prospectus;
Whichever
Amount of 5% of cost of
is higher
deduction project
5% of the cost of
1/5th of 5% of capital
the project
qualifying limit employed
In case of other for each of the
resident non- five successive In case of Indian
corporate assesses years companies
Where
• Cost pf project = FA shown in the books on last day of the PY in which the business
commences
• Capital employed means Issued share capital + Debentures + Long term borrowings (Min. 5
years and If borrowed from outside India – Min. 7 yrs.)
• The audit report is to be furnished at least 1 month prior to the due date for furnishing the return of
income under section 139(1). AY 21-22
1. Deccan Ltd. incurred an amount of Rs. 16 lakh as preliminary expenses for setting up a project
costing Rs. 100 lakh during financial year 2020-21. The amount of amortization available as deduction
during the A.Y. 2021-22 for the preliminary expenses would be : (June 19)
(A) Rs. 1,60,000
(B) Rs. 3,20,000
(C) Rs. 16,00,000
(D) Rs. 1,00,000. Ans D

6. PGBP 6.21
14. Section 35 DDA – VRS
• Allowed in 5 equal instalments

• Allowed on payment basis
15. Family Planning expenditure
Family Planning expenditure

for
welfare of employees
Company Assessee Other Assessee
Revenue Expenditure Capital Expenditure Revenue Expenditure Capital Expenditure
Full deductible 1/5th over 5 Not deductible Not deductible

u/s 36(1)(ix) successive year
u/s 36(1)(iv)
16. Section 36 – Various deductions
1. Insurance premium paid for stock or stores
2. Premium paid by employer for health insurance of employees by any mode of payment “other than
cash”
3. Interest paid in respect of capital borrowed for the purposes of business or profession.
However, any interest paid for acquisition of an asset (whether capitalized in the books of account
or not) for any period beginning from the date on which the capital was borrowed for acquisition of the
asset till the date on which such asset was first put to use, shall not be allowed as deduction.
period after the asset is first put to use cannot be capitalised. Supreme Court in Challapalli Sugars Limited
Vs CIT.
4. Discount on Zero Coupon Bonds (ZCBs) [Section 36(1) (iiia)] Discount on ZCB’s on pro rata basis
having regard to the period of life of the bond to be calculated in the manner prescribed.
5. Amount received by Assessee as contribution from his employees towards their welfare fund to
be allowed only if such amount is credited on or before due date. Due date is checked as per the
respective act. Example PF.
6. Allowance for animals
7. Bad debts
• Provisions not allowed
• Debt should have been taken into account
• When irrecoverable, the same is written off in the books of accounts
8. STT and CTT paid is allowed if the Assessee is engaged in the investment business.
9. Contributions to provident and other funds. It may be pension, gratuity or provident fund or any other
fund for benefit of employees but the fund should be approved.
10. Employer’s contribution to the account of the employee under a Pension Scheme referred to in
section 80CCD maximum upto 10% of Salary (Basic + Conditional DA)
17. General Deductions – Section 37

6. PGBP 6.22
• it is not in the nature of capital expenditure;

• it is not a personal expenditure of the assessee;
• it is laid out and expended wholly and exclusively for the purpose of business/ profession;
• it is not incurred for any purpose which is an offence or which is prohibited by law; and
• it is not an expenditure incurred by the assessee on CSR activities referred to in section 135 of
the Companies Act, 2013.
Expense allowed/ Disallowed as per Section 37 and Various Decisions
Various legal expenses incurred Expenses for the installation of Debentures/Convertible
defending monopoly rights new telephone debentures/ Loan/ Bonus issue
issuing related expenses allowed
(IPO/ FPO of shares not allowed
u/s 37)
Sales tax is an admissible deduction Loss through embezzlement
to avoid a business liability, e.g.
for alleged breach of a trading but not estate duty
contract;
defend the assessee’s title to his Bonus to employees under an Professional tax paid
assets, e.g. land, building, etc industrial award allowed
Interest on unpaid purchase price of Annual listing fee paid to stock
secure the termination of a
disadvantageous trading goods or capital assets exchange
relationship, e.g. removal of an
undesirable employee;
by a director of a company in Expenses incurred on the occasion Brokerage paid for raising loan to
defending validity of his election of festival or customary days finance business
to the directorship
to protect the capital asset of the Recurring expenses incurred on Stamp and registration charges
business which has already been imparting basic training to for obtaining overdraft facilities
acquired apprentices
company in resisting a winding Initial expenditure - first Security deposited with postal
up petition installation of fluorescent tube authorities However, when the
lights - Capital expenditure amount is returned treated as an
all subsequent expenditure - income
replacement of tubes revenue
expenditure
However, the expenses incurred Compensation payable cause of any Compensation to an employee for
in criminal proceedings are not business negligence any injury
allowable
Penalty paid by the assessee for Robbery or Dacoity in business Loss due to Non-recovery of
saving from confiscation goods allowed advances
had been illegally imported (The
buyer was unaware)
Particulars Deduction u/s 37 (1)

6. PGBP 6.23
Penalties imposed for infraction of law Not allowed
Penalty paid on failure to deduct TDS Not allowed
Interest paid in respect of delayed payment on Not allowed

income tax
Any interest/penalty paid under Income Tax Not allowed
Interest paid under GST Law Allowed
Demurrage paid to port authorities in connection Allowed as it is not a fine paid for infraction of flaw
with release of confiscated goods
Interest paid under Employees Provident Fund & Allowed

Misc provision Act 1952
Penalty paid by the assessee contractor for non- Allowed as it is not a fine paid for infraction of law
completion of contract within stipulated time
18. Section 37(2B) - Any expenditure incurred for advertisement in any souvenir, brochure, tract,
pamphlet etc. published by a political party is not allowable as deduction.
1. As per section 35DDA, total expenditure in a voluntary retirement scheme is deductible in - (Dec. 2016)
(a) 5 Equal instalments (b) 10 Equal instalments
(c) 2 Equal instalments (d) The same year Ans.(a)
2. Malick & Co. engaged in trading activity could not recover Rs. 5 lakhs from a customer. It claimed the entire
amount as bad debt by writing off in the books of account. The aggregate sale made during the year to the party
amounts to Rs. 30 lakhs. The amount eligible for deduction by way of bad debt is: (June, 2017)
(a) Nil (b) Rs. 3 lakhs
(c) Rs. 5 lakhs (d) Rs. 60,000 Ans.(c)
3. In the case of companies, capital expenditure incurred for the purpose of promoting family planning amongst
the employees would be deductible to the extent - (Dec. 2014)
(a) Equal to 1/5th in each year for 5 years (b) Equal to 1/6th in each year for 6 years
(c) Equal to 1/4th in each year for 4 years (d) Equal to 1/10th in each year for 10 years.
Ans. (a)
3. Under the Income-tax Act, 1961, which of the following outlays incurred by Sun Ltd. during the previous year
ended 31st March, 2021 will not be admissible as deduction while computing its business income - , (June,
2015)
(a) Contribution to a political party in cash (b) Interest on loan taken for payment of income-tax
(c) Capital expenditure on advertisement (d) All of the above. Ans.(d)
4. When ABC Ltd incurred Rs. 10 lakhs in F.Y. 2020-21 as capital expenditure for the purpose of family
planning amongst the employees, the expenditure allowable for the assessment year 2021-22 would be : (Dec
17)
(A) Nil
(B) Rs. 2,00,000
(C) Rs. 10,00,000
(D) Rs. 5,00,000 Ans b
5. Sakshita Pvt. Ltd., has spent a sum of 30 lakh towards meeting its Corporate Social Responsibility (CSR)
obligation. The amount of deduction available while computing the business income is Rs. : (June 18)
(A) 30lakh (B) Nil
(C) 37.5lakh (D) 45 Lakh Ans B
6. Expenses not specifically being allowed under any of sections 30 to 36 and incurred for the purpose of
business or profession are allowable as per section 37(1) of the Act. The following expenses are
allowable under this section: (June 18)
a. Expenditure on issue of share capital
b. Expenses for the installation of new telephone
c. Annual listing fees paid to stock exchange
d. Loss caused by robbery or dacoity, incidental to business

6. PGBP 6.24
(A) (i) and(iv)

(B) (ii), (iii) and(iv)
(C) (ii) and(iii)
(D) All the four Ans B
7. An employee director of a company was paid Rs. 5 lakh as a lump sum consideration for resigning from the
directorship by XYZ Ltd. The amount so paid shall be treated in the accounts of the company as............. (Dec 18)
a. Deferred Revenue expenses
b. Revenue expenses
c. Capital expenses
d. Gift to employee director Ans.B
8. XAB Ltd. has incurred amount of Rs. 4,00,000 towards capital expenditure and Rs. 1,50,000 towards
bona fide revenue expenditure for the purpose of promoting family planning amongst its employees
during the year 2020-21. Company can claim deduction of an amount of _____ for such expenses in the
return to be filed for A.Y. 2021-22. (Dec 19 –NS)
(a) 50% of Rs. 5,50,000 (b) Rs. 2,30,000
(c) Such expenses are not allowed (d) 20% of Rs. 5,50,000 Ans.(b)
9. Dunlop Traders (P) Ltd. is engaged in trade of textile items. On the eve of the Diwali, it sold suitings and
shirting’s to its employees at cost. The market value of those goods was Rs. 1,60,000. The cost price Rs.
1,20,000. The amount liable for adjustment in itstotal income would be : (Dec 19 –OS)
(A) NIL
(B) Rs. 1,60,000
(C) Rs. 1,20,000
(D) Rs. 40,000
Ans – A
10.Any expenditure incurred by an assessee on the activities relating to the corporate social reasonability
(CSR) referred to in section 135 of the Companies Act, 2013 for the purpose of allowability as deduction
under section 37(1) of the Income Tax Act, 1961----------------- for the purpose of the business. (Dec 20 –
OS)
A. shall be deemed to be an expenditure incurred
B. shall not be deemed to be an expenditure incurred
C. shall be capitalized
D. shall be amortized in five equal installments ANS. B
11. Section 40 – Amounts not deductible
Amounts not deductible

Section Particulars
40(a)(i) Any interest, royalty, fees for technical services or other sum chargeable payable
• outside India or
• in India
to a non-resident or to a foreign company, on which TDS has not been deducted
or
after deduction not been paid on or before the due date specified under section
139(1).
40(a)(ia) 30% of any sum payable to a resident on which
(i) TDS has not been deducted
or,
(ii) after deduction has not been paid on or before the due date for filing of return of
income under section 139(1).
However, in both the above cases 40(a)(i) & (ia), if TDS has been deducted in any
subsequent year or
deducted, but paid after due date specified u/s 139(1), 100% / 30% of such amount
disallowed will be allowed in such subsequent year.

6. PGBP 6.25
For both the above two clauses – (a) (i) and (a) (ia)
Provided further that where a Payer fails to deduct the TDS but the Payee whether
Resident or Non-Resident has –
• Considered the income in his calculation
• Paid the tax on such income
• Filed the return &
• Certified the same from a CA
Then Payer will not be considered as an assessee in default, means –

a. Amount of expenditure will be allowed in the year in which the return has been
filed by the payee
b. But will have to pay interest for non-deduction of TDS till the date return if filed by
the payee (whether Resident or Non-Resident)
40(a)(iii) Any payment chargeable under the head “Salaries”, if it is

• payable outside India or
• to a non-resident, if tax has not been paid thereon nor deducted therefrom till
due date of TDS
40(a)(ii) Any sum paid on account of income-tax
Other point – Income tax refund is not taxable but interest from IT dept. is taxable
under IOS
40(a)(v) Tax paid by the employer on non-monetary perquisites provided to its employees,
which is exempt under section 10(10CC) in the hands of the employee.
1. Which of the following is not deductible while calculating taxable income from business - (Dec. 2016)
(a) Goods and services tax (b) Income-tax
(c) Customs duty (d) Local taxes Ans. (b)
2. Andhra Traders a partnership firm paid Rs. 80,000 as contract charges to AKP & Co. (firm). No tax
was deducted at source for the above said payment. The amount liable for disallowance u/s 40(a)(ia)
for the AY 2021-22 is : (June, 2017)
(a) Nil (b) Rs. 80,000
(c) Rs. 40,000 (d) Rs. 24,000 Ans.(d)
3. Varun Ltd. paid fees for technical services of Rs. 6 lakh but omitted to deduct tax at source and such omission
continued till the 'due date’ for filing the return of income specified in section 139(1). The amount of
expenditure liable or disallowance would be - (Dec. 2016)
(a) Rs. 1,80,000 (b) Rs. 6,00,000
(c) Rs. 1,20,000 (d) Nil Ans.(a)
4. Which of the following taxes are allowed as deduction while computing the business income - (June 2013)
(a) Wealth-tax (b) Income-tax
(c) Goods and services tax (d) None of the above. Ans.(c)
5. Manoj & Co. (partnership firm) paid monthly rent of Rs. 30,000 for its premises during the previous year
2020-21. No tax was deducted at source for the rent paid up to 31-3-21. Total Tax was deducted tax at
source on 5-5-2021 and remitted on 10-9-2021. The return of income of the firm for the assessment year
2021-22 was filed on 31-08-2021.The amount ofexpenditure liable for disallowance under section
40(a)(ia) for the assessment year 2021-22 would be : (Dec 19 –OS)
(A) NIL (B) Rs. 3,60,000
(C) Rs. 1,08,000 (D) Rs. 30,000 Ans – C

6. PGBP 6.26
6. XYZ Ltd paid an amount of 3,00,000 towards rent for the business premises to Ramavtar on
12.01.2021 and did not deduct tax at source. Ramavtar also had not paid the tax on such income.
Treatment according to provision under the Income Tax Act, 1961 in the hands of XYZ Ltd in
Assessment Year 2021-22 in respect of expenditure of rent be ----------(Dec 20 –OS)
A. disallowance of 10% of such expenditure
B. disallowance of 20% of such expenditure
C. disallowance of 30% of such expenditure
D. disallowance of 100% of such expenditure ANS. C
12. Calculations in case of partnership firm

Maximum Permissible Remuneration to Partner in Firm [Sec. 40(b)]
To allow remuneration the following specific conditions, as prescribed by section 40(b), should be satisfied:
1. Remuneration should be paid only to a working partner.
2. Remuneration must be authorized by the partnership deed.
3. Remuneration should not pertain to period perior to partnbership deed.
4. Remuneration should not exceed the permissible limit.
If the above conditions are satisfied remuneration to partners is allowable deduction in the hands of the firm.
However, the maximum amount of such payment to “all” the partners during the previous year should
not exceed the limits given below :
Book Profit Maximum amount deductible in respect of

remuneration to partners u/s 40(b)
If book profit is negative Rs. 1,50,000
In case book profit is positive
On first Rs. 3 lakh of book profit Rs. 1,50,000 or 90% of book profit, whichever is more
On the balance of the book profit 60% of book profit
Any remuneration abvoe this limit is not allowed as deduction in the hands of firm and also not taxable in
the hands of partner.
Computation of Book Profit for Remuneration u/s 40(b)
Rs.
NP as per P/L A/c (before Income Tax) xx
Less: Income under all other head (except PGBP) xx
Add: Remuneration to Partner appearing in P/L xx
Add: Excessive Interest of Partner on Capital xx
Less: B/F Depreciation (not b/f loss) xx
Book Profit xx
Maximum Pernissible Interest on Capital to Partner in Firm [Section 40(b)]

The following specific onditions should be fulfilled to obtain deduction of interest paid to the partners :
1. Payment of interest should be authorized by the partnership deed.
2. Payment of interest should pertain to the period after the partnership deed.
3. Rate of interest should not exceed 12%.
Any interest exceeding this limit is not allowed as deduction to firm and also not taxable in the bands of
partner.

6. PGBP 6.27
PAID BY THE FIRM TO ITS PARTNERS

Allowability of Remuneration Allowability of Interest
1. To working partner. 1. To working/non-working partner.
2. To an individual only. 2. To any partner.
3. Should be authorized by partnership deed. 3. Should be authorized by partnership deed.
4. In the partnership deed : 4. Rate of interest should be specified in the
- either specify the amount of partnership deed.
remuneration payable to each partner or
- lay down the manner of quantification of
remuneration to each partner.
5. Remuneration should not be retrospective. 5. Interest should not be retrospective.
1. Under the Income-tax Act, 1961, interest on capital received by a partner from a partnership firm is
chargeable under the head - (June, 2015)
(a) Profits and gains of business or profession (b) Income from other sources
(c) Capital gains (d) None of the above. Ans.(a)
2. The book profit of a partnership firm is Rs. 1,20,000. The actual remuneration paid to working
partners is Rs. 3,54,000. The allowable deduction under section 40(b) towards remuneration to
partners is - (June 2016)
(a) Rs. 1,50,000 (b) Rs. 3,54,000
(c) Rs. 1,08,000 (d) Rs. 1,20,000 Ans.(a)
3. A non-professional firm M/s. Bright has book profits of Rs. 9,36,000. The admissible remuneration to
working partners for income-tax purpose shall be - (June, 2015)
(a) Rs. 6,51,600 (b) Rs. 6,81,600
(c) Rs. 2,70,000 (d) None of the above. Ans.(a)
4. Profit earned during the year by a partnership firm is RS. 1,40,000. The maximum amount of
remuneration deductible from profit is - (Dec. 2014)
(a) Rs. 1,50,000 (b) Rs. 1,40,000
(c) Rs. 1,26,000 (d) Rs. 50,000 Ans.(a)
5. A partnership firm has net profit of Rs. 6,20,000 before deducting interest on capital to partners @
15% of Rs. 1,50,000 and working partner salary of Rs. 1,80,000 (as per the deed of partnership). The
total income of the firm chargeable to tax would be - (Dec. 2016)
(a) Rs. 1,10,000 (b) Rs. 3,20,000
(c) Rs. 2,90,000 (d) Rs. 1,00,000 Ans.(b)
6. When an LLP has book profit of Rs. 6 lakh, the maximum amount allowable towards the salary of working
partners would be - (Dec. 2015)
(a) Rs. 4,50,000 (b) Rs. 6,00,000
(c) Rs. 3,00,000 (d) Nil Ans.(a)
7. Salary received by a partner from his partnership firm is considered in his personal assessment as - (June
2016)
(a) Income from salary (b) Profit from business or profession
(c) Income from other sources (d) Exempted income Ans.(b)
8.Mr. Vijay is partner in Tools & Co., a partnership firm in Mumbai. He received Rs. 30,000 as share income
from the firm for the year ended 31-3-2021. He also received interest at 12% per annum on the capital invested
in the firm and the amount being Rs. 24,000. His income from the firm includible in individual assessment is :
(June, 2017)
(a) Rs. 54,000 (b) Rs. 24,000
(c) Rs. 30,000 (d) Nil Ans.(b)
9. Murali & Co a partnership firm consisting of 3 partners is engaged in textile trade. It’s Net Profit
before allowing interest on capital and working partner salary to partners was Rs. 9 lakhs. The
partnership deed does not provide for interest on capital. It provides for working partner salary at Rs.

6. PGBP 6.28
25,000 per month for all the 3 partners. The income of the firm after allowance of working partner
salary would be : (Dec 17)
(A) Rs. 90,000
(B) Rs. 2,70,000
(C) Nil
(D) Rs. 3,60,000 Ans.B
10. Ram & Co., a partnership firm, worked out total book profits for the year ended 31st March, 2021 at Rs.
5,00,000. The firm has made payment of salary of Rs. 4,60,000 authorized by the deed to the working
partners and wants to know that how much amount of salary paid to partners is allowable: (June 18)
(A) Actual salary paid of Rs.4,60,000
(B) Rs.3,90,000
(C) Rs.2,70,000
(D) Rs.2,50,000 Ans. B
11. Ram & Co., a partnership firm worked out total book profits for the year ended 31st March, 2021 of Rs.
6,00,000 and has made payment of salary of Rs. 4,60,000 authorized by the partnership deed to the working
partners. Firm wants to know that how much amount of salary paid to partners be allowable as deduction in A.Y.
2021-22 (Dec 19 –NS)
(a) Rs. 4,60,000 (b) Rs. 3,90,000
(c) Rs. 2,70,000 (d) Rs. 4,50,000 Ans.(d)
13. Ram & Company constituted by 2 partners sharing profits & loss equally declared net loss of Rs.20,000
after charge of salary of Rs.10,000 p.m. paid to each of the working partners as authorized by the deed
during the previous year 1.4.20 to 31.3.2021. The amount of deduction in respect of payment of salary
made to the partners while computing the income of the firm for assessment year 2021-22 will be
allowed of Rs.----------(Dec 20 –NS)
(A) 2,20,000
(B) 2,40,000
(C) 1,50,000
(D) 1,98,000 ANS-d
13. Section 40 - Expenses or payments not deductible in certain circumstances
Section 41 - Profits chargeable to tax
40A Any expenditure to a related person or entity, to the extent it is excessive or unreasonable by
(2) the Assessing Officer.
40A Any expenditure,
(3) payment or aggregate of payments made to a person in a single day otherwise than by
banking channels account payee cheque or account payee bank draft or ECS through bank
account exceeds10,000.
Payments made to transport operator for plying, hiring or leasing goods carriages, an
enhanced limit of 35,000 shall apply.
If the payment/payments exceed this limit, the” entire expenditure would be disallowed”
Exceptions - Rule 6DD.
Note – Payment by bearer cheques - crossed cheques also not allowed.
41(1) Where deduction allowed in respect of loss, expenditure or trading liability for any year and
subsequently the Assessee or successor of the business has obtained any amount in
respect of such loss or expenditure or some benefit in respect of such trading liability by way
of remission or cessation thereof, the amount obtained or the value of benefit accrued shall
be deemed to be income.
40A Provision for payment of gratuity to employees.
(7) However, disallowance would not be attracted if provision is made for contribution to
approved gratuity fund or for payment of gratuity that has become payable during the year.

6. PGBP 6.29
Rule 6DD
Exception to ✓ Where the payment is made to LIC, and other financial institution
above Sec Rule ✓ Where the payment is made to the Government.
6 DD [For these ✓ Where the payment is made through credit/debit card, e-payments, letter
payment cash of credit (LOC), account adjustment by banks etc.
payment is
✓ Where the payment is made to cultivator or grower for the purchase
allowed]
agricultural or forest produce or produce of animal husbandry or dairy or
poultry farming, or fish or fish products.
✓ Where the payment is made for the purchase of the products of cottage
industry (without the aid of power).
✓ Where the payment is made in a village or town, not served by any bank,
to any villager thereof.
✓ Where any payment is made to an employee or his heir in connection with
payment on account of gratuity, retrenchment compensation or similar
terminal benefit if aggregate amount does not exceed Rs. 50,000.
✓ Where the payment is made by way of salary to the employee after
deducting the income-tax from salary, where such employee is temporarily
posted for 15 days or more in a place other than normal place of duty.
✓ Where the payment was required to be made on a day on which the banks
were closed. (Removed Finance Act 2020)
✓ Where the payment is made for purchase of foreign currency.
Payment/Repayment for purchase of fixed Assets Circular No. 34, 1970. [In
case of fixed assets (CAPEX) purchased in cash more than 10000,
depreciation will not be charge on it.]
✓ Payment through ECS [w.e.f. 01.04.2018]
1. Ravi & Co. paid Rs. 40,000 by cash to Mr. Balu a supplier on 5-9-2020. The cash payment was made on the day
on which the bank was on strike. The amount of expenditure liable for disallowance under section 40A(3) is :
(June, 2017)
(a) Rs. 40,000
(b) Rs. 12,000
(c) Rs. 20,000
(d) Nil Ans.(d)
2. Where the payment of an expenditure claimed as deduction by any assessee carrying on business or
profession other than who is in transport business exceeds Rs. 10,000, it should be paid by: (June,
2017)
(a) Crossed cheque/ draft
(b) Account payee cheque/ account payee draft
(c) Account payee cheque
(d) Any mode other than cash Ans.(b)
3. Under section 40A(3) which of the following payment for an expenditure incurred would not be admissible
as deduction from business income — (June, 2015)
(a) Rs. 15,000 paid in cash to a transporter
(b) Rs. 8,000 paid in cash to a dealer in the morning and Rs. 7,000 paid in cash to the same dealer in the evening
(c) Rs. 40,000 sent through NEFT to the bank account of the dealer for goods purchased
(d) Rs. 19,000 paid through account payee cheque to the dealer for goods purchased.
Ans.(b)
4. When a cash payment of Rs. 15,000 is made on 10th May, 2020 towards purchase of raw material
effected in the earlier year, i.e., on 5th June, 2019, the amount liable for disallowance under section 40A
(3) would be - (Dec. 2015)

6. PGBP 6.30
(a) Nil
(b) 100% of payment
(c) 20% of such payment
(d) 30% of such payment Ans.(b)
5. Mohan Ltd. purchased goods on credit from Sohan Ltd. on 6th May, 2020 for Rs. 86,000 which is paid as Rs.
15,000 in cash on 11th May, 2020; Rs. 30,000 by a bearer cheque on 31st May, 2020; and Rs. 41,000 by an account
payee cheque on 16th May, 2020. The amount of disallowance under section 40A(3) is - (June, 2011)
(a) Rs. 15,000
(b) Rs. 45,000
(c) Rs. 41,000
(d) Rs. 30,000 Ans.(b)
6. Where an assessee doing a business incurs any expenditure in respect of which payments made to a person in a
day exceeds Rs. 10,000 should be paid through account payee cheque or demand draft to claim deduction for such
expenditure. This restriction does not apply to - (June 2 016)
(a) Payments made to RBI
(b) Payments made to cultivators
(c) Payment of terminal benefits to employees not exceeding Rs. 50,000
(d) All of the above Ans.(d)
7. Raju succeeded to the business of his father Ramu consequent to demise of Ramu on 1-2-2021. Raju
recovered Rs. 30,000 due from a customer which was written off by late Ramu as bad debt and allowed in
the assessment year 2016-17. The amount recovered is: (June, 2017)
(a) Exempt from tax
(b) Fully taxable as business income
(c) Rs. 15,000 being 50% taxable as business income
(d) To be set off against current year bad debtsdebt recovered by the successor in business as his income.
Ans.(a)
8. Arul Industries got waiver of GST of Rs. 2,20,000 for the financial year 2020-21. The amount of waiver is -
(Dec. 2016)
(a) Exempt income
(b) Capital receipt
(c) Revenue receipt
(d) None of the above Ans.(c)
9. Biren discontinued wholesale trade in medicines from 1st July, 2017. He recovered Rs. 1,50,000 in
October, 2020 being a bad debt which was written-off and allowed in assessment year 2016-17. He has
eligible brought forward business loss of wholesale trade in medicines of Rs. 1,70,000. The consequence of
bad debt recovery is that - (June 2016)
(a) It is chargeable to tax
b) It is eligible for set-off against brought forward business loss
(c) The brought forward business loss is taxable now
(d) 50% of the amount recovered now is taxable Ans.(b)
10. Sameer sold goods worth Rs. 50,000 at credit on 1st April, 2017. However, he has written off 10,000 of it
as bad debts and claimed deduction for the same during the year 2018-19. On 4th April, 2020, the defaulting
debtor made payment of Rs. 45,000. The taxable amount of bad debts recovered for the year 2020-21 would
be — (June, 2015)
(a) Rs. 5,000
(b) 150,000
(c) Rs. 45,000
(d) Rs. 10,000 Ans.(a)
11. SH made three different cash payments of 10,000, Rs. 10,000 and of Rs. 11,500 to a supplier for purchase of goods
and material on 11th Sept., 2020. The payments were made during different times in the day. Amount to be disallowed
u/s 40A(3) is: (June 18)
(A) Rs.11,500 (B) Rs.31,500
(c )Rs.NIL (D) None of the above Ans. B
12. Welfare Charitable Trust (registeredunder section 12AA), paid monthly salary of Rs. 25,000 to its manager. It
paid Rs. 10,000 by account payee crossed cheque and Rs. 15,000 by cash on the first day of every month during
the previous year 2020-21. The amount of salary eligible for deduction while computing the income of charitable trust for the
assessment year 2021-22 would be : (Dec 19 –OS)
(A) Rs. 3,00,000
(B) Rs. 1,80,000
(C) Rs. 1,20,000
(D) Nil Ans – C

6. PGBP 6.31
14. Section 43 B (IMP) - Poem (कविता)

नह ीं दिया Railways or सरकार Tax - Bonus – Commission भ नह ीं बाींटा
PF – Leave Encashment को भ कर ि या काटा
Bank- NBFC – Financial institutions के ब्याज भुगतान में चूक क
नह ीं दमलेगा इन सब का deduction लगेगा section 43B
Return ki due date तक pay दकया तो इस ह साल दमल जायेगा

नह ीं तो बेटा दजस साल pay करोगे उस साल में दमल जायेगा
Certain deductions to be allowed only on actual payment (Section 43B)
a) Any sum payable by way of tax, duty, cess or fee. Deduction in in the P.Y.
b) Any sum payable as an employer by way of respect of such in which the In the P.Y. of
contribution to any PF or superannuation fund or sums shown in liability to pay actual
the table such sum payment
gratuity fund etc.
was
c) Any sum payable to an employee as bonus or incurred
commissions for services redndered.
d) Any sum payable as interest on any loan or
borrowing from any public financial institution or a
State financial corporation or a State industrial
investment corporation.
In any other case
da) any sum payable by the assessee as interest If payment was made
on any loan or borrowing from a deposit - in the same P.Y.

taking NBFC or systemically important (or)
non-deposit taking NBFC - on or before the due date of

filing
(Clarified – If already expenditure claimed
return u/s 1391)
on accrual basis then can’t again claim
deduction under this clause on payment
basis) “Deposit taking NBFC” means a NBFC which is
accepting or holding public deposits and is registered
e) Any sum payable as interest on any loan or with the RBI
advance from a scheduled bank or co-operative
bank. “Systemically important non-deposit taking NBFC”
means a NBFC which is not accepting or holding public
f) Any sum payable as an employer in lieu of any
deposits
leave at the credit of his employee.
g) Any sum payable to the Indian Railways for use of +
Railway assets.
having total assets of minimum 500 crore rupees as per
the last audited balance sheet and is registered with RBI
Note - Where there is default in the payment of such interest, such interest can be converted
in to a loan. Such conversion of the unpaid interest in to loan, by itself, does not constitute
the payment, for purposes of Section 43B.
This shall be allowed proportionately, as and when these are paid
1. Saraswath Ltd. made provision of Rs. 12 lakh for bonus payable for the year ended 31st March, 2021.
It paid Rs. 7 lakh on 31st July, 2021; Rs. 3 lakh on 30th September, 2021; and Rs. 2 lakh on 15th
December, 2021. The amount eligible for deduction under section 43B would be - (Dec. 2015)
(a) Rs. 10 lakh
(b) Rs. 12 lakh
(c) Rs. 7 lakh
(d) Rs. 3 lakh Ans.(a)

6. PGBP 6.32
15. Section 43CA

• Land or building or both → Held as Stock in Trade & sale consideration < SDV, the
value so adopted or assessed or assessable (i.e., the stamp duty value) shall be
deemed to be the full value of the consideration
AY 21-22
• However, if the SDV is within 105% 110% of the consideration received or accruing
then, such consideration shall be deemed to be the full value of consideration for the
purpose of computing profits.
• Further, where the date of an agreement and the date of registration differs, the SDV
on the date of the agreement can be taken instead of on the date of registration,
provided at least a part of the consideration has been received by any mode other
than cash way of an account payee cheque/account payee bank draft or use of ECS
through a bank account on or before the date of the agreement (Payment by crossed
cheque – bearer cheque will also not suffice here) i.e. payment by specified banking
channels should be done If the assessee wants to consider SDV as on the date of
agreement.
Remember steps to solve question
Step 1 – Find out given sale value from the question
Step 2 – Ascertain SDV (Date of agreement/

registration) on the basis of mode & date on which
token amount is paid
Step 3 – Whether ascertained SDV is within the

range of 105% 110% of Sale consideration?
If Yes, If No,
Actual sale value SDV will be

will be considered considered for
for calculations calculations
Example
Case Date of Actual consider- Stamp duty Stamp duty Full value of
transfer of action value on the value on the consideration
land/ date of date of
building agreement registration
held as
stock- Rs. in lakhs
in-trade

6. PGBP 6.33
1 1/5/2020 100 120 210 120

(Rs. 10 lakhs received (1/9/2019) (1/5/2020)
by A/c payee cheque
on 1/9/2019)
2 1/5/2020 100 104 210 210
(Rs. 10 lakhs received (1/9/2019) (1/5/2020)
by cash on 1/9/2019)
3 31/1/2021 100 110 210 100

(Rs. 10 lakhs received (1/9/2019) 31/1/2021
by A/c payee cheque
on 1/9/2019)
4 31/3/2021 100 120 210 210
(Full amount received (1/5/2020) (31/3/2021)
on the date of
registration)
Note - For the period from 12th November 2020 to 30th June 2021 differential between circle
rate & agreement value has been increased from 10% to 20% (u/s 43CA) only for primary sale of
residential units of value up to Rs 2 crores.
Consequential Relief up to 20% shall also be allowed to buyers of these units under section 56(2)(x)
of IT Act for the said period. - IOS
AY 21-22
16. Section 44AA - Books of accounts
Books to
maintain
(a) Specified Other than (a)

professionals (b) Indi - HUF and (b)
Gross receipts > G.R upto 1.5

lacs in all 3 Existing Newly Set up Existing Newly set up
1.5 lacs in all 3
preceeding PY's preceeding PY's
TI > 2.5 lacs or Likely to TI . 1.2 lacs or

T.over/sakes > exceed the T Over/ Sales Likely to exceed
cash book, Journal ,
Such books to 25 lacs in any 3 limits of > 10 lacs in the limits of
Ledger, ccopes of
enable AO to preceeding PY previous any 3 previous block
bills issued . 25rs,
compute block preceeding
Original bills, Pay taxable PY
vouchers . 50rs income
Note - The books of accounts and other documents shall be kept and maintained for a period of 6 years from
the end of relevant assessment year.
Specified professionals – Doctors, lawyers, engineers, accountants, interior designer etc.

6. PGBP 6.34
17. Section 44AB - Audit of accounts (+ element of books of accounts)
Audit
44AE + 44AD(4) & 44ADA

Business Profession Claiming
+ Claims lower profits
lower profits
cash receipts Audit + Income Income doesnt

Gross Rec. >50
upto 5% and cash applicable (In exceeds exceed exemption
Lacs limit
payments upto this case exemption limit
5% of total monetary
limits doesnt
AY 21-22 apply)
Books maintain + Check 44AA & 44AB
Yes No audit applicable individually
TO during PY > 5 TO During PY > 1
Crores Crore
The assessee needs to furnish audit report 1 month before the due date of return filing specified
in section 139(1) –
S. Type of Assessee Due Date u/s 44AB for Due Date u/s 139(1) for
No. furnishing Tax Audit furnishing Return of
report Income
1. Where the assessee is required to 31st October of the 30th November of the
furnish a report of a CA u/s 92E relating relevant assessment year relevant assessment year
to international transaction or specified
domestic transaction (transfer Pricing
cases)
2. Any other case 30th September of the 31st October of the
relevant assessment year relevant assessment year
1. A person carrying specified profession will have to maintain books of account prescribed by Rule 6F of the
Income-tax Rule, 1962, if gross receipts are more than Rs. 1,50,000 for - (June, 2015)
(a) All preceding 5 years (b) Any of the preceding 5 years
(c) All preceding 3 years (d) Any of the preceding 3 years. Ans.(c)
2. A person carrying on profession is required to get his accounts compulsorily audited by a Chartered
Accountant if his gross receipts from profession for the previous year exceed - (Dec. 2012)
(a) Rs. 10,00,000 (b) Rs. 25,00,000
(c) Rs. 50,00,000 (d) Rs. 1,00,00,000 Ans.(c)
3. A person carrying on profession will also have to get his accounts audited before the specified date, if gross
receipts from the profession for a previous year or years relevant to assessment year exceed - (Dec. 2014)
(c) Rs. 1 crore (d) Rs. 50 lakh. Ans.(d)
4. The maximum penalty for failure to get accounts audited under section 44AB or furnish audit report
along with return of income is - (June, 2009)
(a) Rs. 10,000 (b) Rs. 20,000
(c) Rs. 50,000 (d) Rs. 1,50,000. Ans.(d)
(Penalty – 44AB (Audit) – 0.5% of Turnover or Rs.1.5 lacs, lower)
(Penalty – 44AA (Books of Accounts) – Upto Rs. Rs. 25,000

6. PGBP 6.35
5. The maximum penalty leviable for failure to get accounts audited or to furnish report under section 44AB is -
(Dec. 2015)
(a) Rs. 75,000 (b) Rs. 1,00,000
(c) Rs. 1,50,000 (d) Rs. 3,00,000 Ans.(c)
6. Maintenance of books of accounts in the case of an HUF carrying business is mandatory, if the turnover or
gross receipts in any one of the three years immediately preceding the previous year exceeds :
(June 19)
(A) Rs. 10 lakh
(B) Rs. 15 lakh
(C) Rs. 25 lakh
(D) Rs. 100 lakh. Ans C
7. A professional is required to get his accounts under section 44AB of the Income Tax Act, 1961 where the
gross receipts from profession during the financial year 2020-21 : (June 19)
(A) exceeds Rs. 100 lakhs
(B) equals to or exceeds Rs. 50 lakh
(C) equals to or exceeds Rs. 100 lakh
(D) exceeds Rs. 50 lakhs. Ans D
8. Ganesh Traders (partnership firm) reported a turnover of Rs. 250 lakh for the assessment year 2021-22. It has
not filed the tax audit report under section 44AB before specified date. The amount of penalty leviable for such
failure would be: (Dec 19 –OS)
(A) Rs. 25,000
(B) Rs. 1,00,000
(C) Rs. 1,25,000
(D) Rs. 1,50,000
Ans – C
18. Presumptive Taxation
Particulars Section 44AD Section 44ADA Section 44AE
1) Eligible Resident individual, HUF Resident assessee An assessee
Assessee Partnership firm (but not LLP) engaged in any owning not more
engaged in eligible business and profession specified u/s than 10 goods
who has not claimed deduction 44AA (1), namely, legal, carriage at any time
under section 10AA or Chapter medical, engineering, during the P.Y.
VIA under the heading "C"- architectural profession
Deductions in respect of certain or profession of
incomes" accountancy or
Non-applicability of section technical consultancy or
44AD - interior decoration or
A person carrying on profession notified profession
specified u/s 44AA (1); (authorised
representative, film
A person earning income in the
artist, company
nature of commission or
secretary, profession of
brokerage; agency business.
information technology).
2) Eligible Any business, other than Any profession specified Business of Plying,
business/ business referred to in section under section 44AA (1), hiring or leasing
profession 44AE, whose total whose total gross goods carriages.
turnover/gross receipts in the receipts < Rs. 50 lakhs
P.Y. < Rs. 200 lakhs in the relevant P.Y.
3) Presumptive 8% of total turnover/gross 50% of total gross *
income receipts or a sum higher than the receipts of such
Given separately
aforesaid sum as received in profession or a sum
after this table
cash/ crossed/ bearer cheque. higher than the
because of AY 19-
6% of total turnover/gross receipts aforesaid sum claimed
20
in respect of the amount of total to have been earned by

6. PGBP 6.36
turnover/gross receipts received the assessee.

by A/c payee cheque/bank
draft/ECS during the P.Y. or
before due date of filing of return
u/s 139(1) in respect of that P.Y.
4) Non- Deductions allowable under sections 30 to 38 shall be deemed to have been
allowability given full effect to and no further deduction shall be allowed.
of Even in case of a firm, salary and Even in case of a firm, In case of a firm,
deductions interest paid to partners is not salary and interest salary and interest
while deductible. paid to partners is not paid to partners is
computing deductible. deductible subject
presumptive to the conditions
income and limits in section
40(b) [Refer Note
(1) below Table]
5) Written WDV of any asset of an eligible business/profession shall be deemed to have
down been calculated as if the eligible assessee had claimed and had been actually
value of allowed depreciation for each of the relevant assessment years.
asset
6) Requirement After declaring profits on If the assessee claims If the assessee
of presumptive basis u/s. 44AD, say, his profits to be lower claims his profits to
maintenance for A.Y. 2018-19, non-declaration than the profits be lower than the
of of profits on presumptive basis for computed by applying profits computed by
books of any of the 5 successive AYs the presumptive rate, he applying the
account thereafter (i.e., from A.Y. 2019-20 has to maintain books of presumptive rate,
u/s 44AA to A.Y. 2023-24), say, for A.Y. account and other he has to maintain
and audit 2020-21, would disentitle the documents u/s 44AA (1) books of account
u/s 44AB assessee from claiming profits on and get his accounts u/s 44AA (2) and
presumptive basis for five audited u/s 44AB, if his get his accounts
successive AYs subsequent to the total income > basic audited u/s 44AB.
AY relevant to the PY of such non- exemption limit for that
declaration (i.e. from A.Y. 2021-22 year.
to A.Y. 2025-26). In such a case,
the assessee would have to
maintain books of account and
other documents u/s 44AA (2) and
get his accounts audited u/s 44AB,
if his total income > basic
exemption limit in those years.
Notes: (1) Any payment by a firm to a working partner by way of salary, bonus, commission or
remuneration, authorised by the partnership deed and relates to any period falling after the date of
such deed, upto the following limit prescribed u/s 40(b), is allowable as deduction.

6. PGBP 6.37
Section 44AE
3) Presumptive For each heavy goods vehicle
AY 19-20)
income
Rs. 1,000 per ton(1000 kgs.) of “gross vehicle weight” or “unladen weight”,
as the case may be, for every month or part of a month
&
For other than heavy goods vehicle,
Rs.7, 500 per month or part of a month during which such vehicle is owned by
the assessee
or an amount claimed to have been actually earned from such vehicle,

whichever is higher.
Meaning of certain terms AY 19-20

S.No Term Meaning
(1) Heavy goods Any goods carriage, the gross vehicle weight of which > 12,000
vehicle kilograms.
(2) Gross vehicle Total weight of the vehicle and load certified and registered by the
weight registering authority as permissible for that vehicle.
(3) Unladen The weight of a vehicle or trailer including all equipment ordinarily
weight used with the vehicle or trailer when working but excluding the weight
of driver or attendant
and
where alternative parts or bodies are used the unladen weight of the
vehicle means the weight of the vehicle with the heaviest such
alternative body or part
Illustration
Mr. X commenced the business of operating goods vehicles on 1.4.2020. He purchased the
following vehicles during the P.Y.2020-21. Compute his income under section 44AE for A.Y.2021-
22
Gross Vehicle Number Date of purchase
Weight (in
kilograms)

6. PGBP 6.38
(1) 7,000 2 10.04.2020

(2) 6,500 1 15.03.2021
(3) 10,000 3 16.07.2020
(4) 11,000 1 02.01.2021
(5) 15,000 2 29.08.2020
(6) 15,000 1 23.02.2021
Would your answer change if the goods vehicles purchased in April, 2020 were put to use only in
July, 2020?
Solution –
Since Mr. X does not own more than 10 vehicles at any time during the previous year 2020-21, he is
eligible to opt for presumptive taxation scheme under section 44AE. Rs.1,000 per ton of gross vehicle
weight or unladen weight per month or part of the month for each heavy goods vehicle and Rs.7,500 per
month or part of month for each goods carriage other than heavy goods vehicle, owned by him would be
deemed as his profits and gains from such goods carriage.
Heavy goods vehicle means any goods carriage, the gross vehicle weight of which exceeds 12,000 kg.
(1) (2) (3) (4)
Number of Date of No. of months No. of months × No. of vehicles
Vehicles purchase for which vehicle [(1) × (3)]
is owned
For Heavy goods vehicle

2 29.08.2020 8 16
1 23.02.2021 2 2
18
For goods vehicle other than heavy goods vehicle
2 10.4.2020 12 24
1 15.3.2021 1 1
3 16.7.2020 9 27
1 2. 1. 2021 3 3
55
The presumptive income of Mr. X under section 44AE for A.Y.2021-22 would be -
Rs. 6,82,500, i.e., 55 × Rs. 7,500, being for other than heavy goods vehicle (+)
18 x Rs.1,000 x 15 ton being for heavy goods vehicle.
The answer would remain the same even if the two vehicles purchased in April, 2
2020 were put to use only in July, 2020, since the presumptive income has to be
calculated per month or part of the month for which the vehicle is owned by Mr. X.
1. Provisions of section 44AD for computation of presumptive income are not applicable to - (June, 2015)
(a) Limited liability partnership (b) Partnership firm
(c) Resident Hindu Undivided Family (d) Resident individual. Ans.(a)
2. When a partnership firm has total sales of Rs. 90 lakh, the maximum amount deductible as salary of working
partners on the basis of presumptive income determined under section 44AD is - (Dec. 2015)
(a) Rs. 4,92,000 (b) Rs. 3,60,000
(c) Rs. 3,30,000 (d) NIL Ans.(d)
3. When a person carries on the business of carrying goods for hire for the whole year with 5 self-
owned and 3 hire purchased other than heavy goods vehicles, the presumptive income chargeable to
tax under section 44AE would be - (Dec. 2015)

6. PGBP 6.39
(a) Rs. 4,80,000 (b) Rs. 7,20,000

(c) Rs. 3,96,000 (d) Rs. 3,36,000 Ans.(b)
4. Anuj owns 6 goods carriage vehicles. Out of these 2 are heavy goods vehicle having gross unladen
weight of 15 tons acquired by him on 15th January, 2020. Find taxable income under section 44AE will
be - (Dec. 2014)
(a) Rs. 4,50,000 (b) Rs. 4,05,000
(c) Rs. 8,10,000 (d) Rs. 3,60,000. Ans.(a)
Answer Hint: Deemed Profits under Section 44AE = Rs. 7,500 x 4vehicles x 12months + (Rs. 1,000 x 15 x 2
vehicles x 3months )
5. Mr. Siraj engaged in retail trade reports a turnover of Rs. 43 lakhs for the previous year 2020-21. He
deposited Rs. 30,000 in his PPF account held with SBI. His total income for the AY 2021-22 by applying
Section 44AD provision is : (June, 2017)
(a) Rs. 1,85,000 (b) Rs. 3,44,000
(c) Rs. 3,14,000 (d) Rs. 4,00,000 Ans.(c)
6. DP & Co. is a partnership firm with 3 partners. The capital of each partner was Rs. 2 lakh. The
partnership deed authorised interest on capital @ 15% and working partner salary to each partner @
Rs. 10,000 per month for all the partners. The total sales amounted to Rs. 70 lakh. The total income of
the firm under section 44AD would be - (June 2016)
(a) Rs. 5,60,000 (b) Rs. 4,32,000
(c) Rs. 1,28,000 (d) Rs. 3,50,000 Ans.(a
7. Alpha & Co is a proprietary concern owned by Vimala. The total turnover for the year _ 2020-21 is Rs.
52 lakhs which includes proceeds realized through banking channel before 31st July, 2021 was Rs. 12
lakhs. The presumptive income under Section 44AD would be : (Dec 17)
(A) Rs. 4,16,000
(B) Rs. 2,60,000
(C) Rs. 3,92,000
(D) Rs. 5,20,000 Answer - C
8. Dr. Ravi practising medicine has gross receipt of Rs. 18,40,000 for the financial year 2020-21. His
presumptive income under Section 44ADA would be : (Dec 17)
(A) Rs. 1,47,200 @ 8%
(B) Rs. 92,000 @ 5%
(C) Rs. 9,20,000 @ 50%
(D) Rs. 4,60,000 @ 25% Answer - C
9. Rahim had 5 goods carriage vehicles on 01-04-2020. He acquired and used 3 vehicles from 01-09-2020. What
is the presumptive income under Section 44AE ? (Dec 17)
(A) Rs. 8,10,000
(B) Rs. 3,64,500
(C) Rs. 2,02,500
(D) Rs. 6,07,500 Answer – D
10. Books of account of an individual is liable for tax audit under section 44AB on mandatory basis, if the annual
turnover exceeds : (Dec 17)
(A) Rs. 40 lakhs
(B) Rs. 60 lakhs
(C) Rs. 100 lakhs
(D) Rs. 200 lakhs Answer – C
11. Padmaja Traders a partnership firm with turnover of Rs.140 lakhs omitted to get the books of account
audited under section 44AB. The amount of penalty leviable for failure to get the accounts audited under
section 4AB is : (Dec 17)
(A) Rs. 10,000
(B) Rs. 70,000
(C) Rs. 1,50,000
(D) Rs. 20,000 Answer - B
12. Zing Zang is an individual, manufacturing a product. He has turnover of Rs. 98,50,000 which is
inclusive of amount of Rs. 25 lakh received through electronic clearing system. The accounts are not
properly maintained and you have advised him to pay tax u/s 44AD of the Act. On how much income
he will pay tax for A.Y. 2021-22: (June 18)
(A) Rs.7,88,000 (B) 7,38,000

6. PGBP 6.40
(C) Manufacturers not allowed u/s44AD (D) 5,91,000 Ans.B

13. Radhey a trader having turnover of 90,00,000 from textile business inclusive of turnover of Rs.20,00,000
carried through banking channel by way of drafts and online payments had opted to pay tax as per section 44AD of
the Income Tax Act. The amount of income which shall be taken for the purpose of tax for Asst. Year 2021-22
under the head income from business and profession is............. (Dec 18)
(A) Rs. 9,00,000
(B) Rs. 6,80,000
(C) Rs. 7,20,000
(D) Rs. 5,40,000 Ans. B
14 Where a non-resident/ foreign company is liable to tax at special rate of 10% on account of royalty
or fee for technical services, such assessee shall - (June 2016)
(a) Be eligible for deduction of any expenses from such income
(b) Eligibe for any deduction under such income u/s 28 to 44C but not for Chapter VI-A on account of such
income
(c) Neither be eligible for deduction of any u/s 28 to 44C nor for Chapter VI-A on account of such income
(d) Not be eligible for deduction of any expense expenses u/s 28 to 44C nor be under but shall eligible
for any deduction under Chapter VI-A Ans.(d)
15. Kant, is engaged in the business of purchase and sale of pieces of various lands. During the F.Y.
2020-21, he sold pieces of lands for Rs. 32 lakh. All these sales were made through cheques and
Electronic Clearing System (ECS). The valuation of these pieces of lands for stamp duty purpose was Rs.
41 lakh. He wants to pay tax on the income as per section 44AD. The income as per this section for A.Y.
2021-22 shall be : (June 19)
(A) Rs. 2,46,000
(B) Rs. 3,28,000
(C) Rs. 2,56,000
(D) Rs. 1,92,000. Ans A
16. Tulip & Co. is a partnership firm of two partners. Total turnover of the firm during financial year 2020-21 is
Rs. 160 lakh inclusive of Rs. 60 lakh made through account payee cheques and ECS. The partnership deed
provided for monthly working salary of Rs. 30,000 to each of the partners. The income of the firm by applying
section 44AD for A.Y. 2021-22 would be : (June 19)
(A) Rs. 11,60,000
(B) Rs. 12,80,000
(C) Rs. 5,00,000
(D) Rs. 4,40,000. Ans A
17. The assessee opting to pay tax under the provisions of section 44ADA is not be required to maintain
books of accounts as per section 44AA and gets the accounts audited under section 44AB of the Income
Tax Act, 1961 where................ (Dec 18)
a. It claims that the profit and gains from the profession is higher than the deemed profit and
gains
b. Total gross receipts should not exceed Rs. 60 lakh
c. Its income does not exceed the maximum amount which is not chargeable to
income tax
d. Both (A) and(C) Ans D
18. Ping Pong is a Proprietorship firm of Pinga, resident in India having turnover from manufacturing and sale of
Steel balls for the year 2020-21 of Rs. 148 lakh which is inclusive of amount of Rs. 42 lakh received through
electronic clearing system/ RTGS/ NEFT. The accounts are not properly maintained by Pinga and therefore he
wants to pay tax on the income computed under section 44AD of Act. Advise Pinga, how much income he will be
required to pay tax for A.Y2021-22 as per section 44AD: ((Dec 19 –NS)
(a) Rs. 11,84,000
(b) Not allowed to opt 44AD being turnover above Rs. 100 lakh
(c) Rs. 11,00,000
(d) Rs. 8,88,000 Ans.(c)
19 Mr. Ramanad, engaged in the business of plying, hiring or leasing of goods carriers as on 1st April, 2020 was
having 3 trucks of gross vehicles weight of less than 12,000 kgs each. One truck out of these 3 trucks was sold by

6. PGBP 6.41
him on 23rd July, 2020 and after its sale, 2 more trucks (1 of less than 12,000 kgs. and 1 of 16,900 kgs) were
purchased on 5th September, 2020. He wants to declare the income of trucks as per provisions of section 44AE
of the Act and be required to declaresuch income at Rs. ____________in the return for A.Y. 2021-22 from plying of
these vehicles during the previous year ended on 31st March, 2021. (Dec 19 –NS)
(a) Rs. 3,54,500 (b) Rs. 3,81,500
(c) Rs. 3,15,000 (d) Rs. 3,74,000 Ans.(b)
20. Ramesh owns two vehicles for the purpose of plying on hire. The gross vehicle weight or unladen (without any
goods) weight of one vehicle was 13 MT and of another vehicle 6 MT. The presumptive income under section 44AE for
the previous year would be : (Dec 19 –OS)
(A) Rs. 1,80,000
(B) Rs. 2,46,000
(C) Rs. 1,20,000
(D) Rs. 2,40,000 Ans – B
21. Ravinder has aggregate receipt from profession of Rs. 45 lakhs for the previous year 2020-21. His income
as per books of account is Rs. 20,50,000. He wants to declare income as per the presumptive provisions contained
in section 44ADA. The amount of income liable to tax would be: (Dec 19 –OS)
(A) Rs. 22,50,000
(B) Rs. 20,50,000
(C) Rs. 1,64,000
(D) Rs. 3,60,000 Ans – A
22. Dee & Co. is a partnership firm which filed its return of income by opting section 44AD for the
assessment year 2019-20. It filed its return of income as per regular provision by getting the books of
account audited u/s 44AB for the assessment year 2020-21 with profit of Rs. 70,000. For the assessment
year 2021-22 its income as per section 44AD is Rs. 4,80,000 and its income as per regular provisions is Rs.
6,30,000. What would be the income which is chargeable to tax for the assessment year 2021-22 ? (Dec
19 –OS)
(A) Rs. 6,30,000
(B) Rs. 4,80,000
(C) Rs. 3,45,000
(D) Rs. 3,00,000 Ans – A
23. Pink & Pink is a Proprietorship firm of Pingajee, resident in India having turnover from manufacturing and sale
of Toys for the financial year 2020-21 of Rs.160 lakh. The gross turnover of Rs.160 lakh includes the amount of
Rs.60 lakh received through electronic clearing system/RTGS/NEFT. The accounts are being not properly
maintained by Pingajee and therefore he wants to pay tax on the income to be computed under section 44AD of
Act. Advise Pingajee, as to the amount of income on which he will be required to pay tax for A.Y. 2021-22 as per
section 44AD: (Dec 20 –NS)
(A) Not allowed to opt 44AD being turnover above Rs.100 lakh
(B) Rs.11,60,000
(C) Rs.9,60,000
(D) Rs.12,80,000 Ans - B
24. Ram, engaged in the business of plying, hiring or leasing of goods carriages as on 1st April, 2020 was having 5
trucks of gross vehicles weight of each truck of less than 12,000 Kgs. One truck out of these 5 trucks was sold
by him on 23rd July, 2020 and after sale of one truck; 2 more trucks (1 of less than 12,000 Kgs and 1 of 16,900
Kgs of gross vehicle weight) were purchased on 5th September, 2020 and plied. He wants to declare the income
of trucks as per provision of section 44AE of the Act. He shall be required to declare an income of Rs. in the
return for A.Y. 2021-22 from plying of these vehicles during the previous year ended on 31.03.2021. (Dec 20 –
NS)
(A) 5,29,500
(B) 4,95,000
(C) 5,61,500
(D) 5,54,000 ANS - C
25. Maintenance of such books of accounts and other documents is compulsory under section 44AA of the
Income Tax Act, 1961 when every person who is carrying on business or profession and whose income
from business and profession exceeds ---------or the total sales, turnover or gross receipts exceeds
_______ in any one of the 3 years immediately preceding the previous year. (Dec 20 –OS)
A. 2,50,000 & 25,00,000
B. 2,50,000 & 10,00,000
C. 5,00,000 & 25,00,000

6. PGBP 6.42
D. 1,20,000 & 10,00,000 ANS. → A& D both are correct as the person is not specified
26. GG Goods Transporters engaged in the business of carriage of goods owns on 1st April, 2020 trucks
consisting (i) 6 heavy goods vehicles having weight of each of 14 ton and (ii) 3 light goods vehicles
having weight of each of 5 ton. On 4th May, 2020 one of the heavy goods vehicle was sold and 1 light
goods vehicle was purchased on 15th May 2020. The newly purchased light goods vehicle was put to
use only from 25th June 2020. The assessee wants to declare the income as per section 44AE of the Act;
which for A.Y. 2021-22 is to be taken at ------------(Dec 20 –OS)
(A) Rs. 12,20,500
(B) Rs. 12,06,500
(C) Rs. 12,13,000
(D) Rs. 11,99,000 ANS. A
27. Actual Cost of the Assets acquired for business –
Sr. Mode of Acquisition Actual Cost for Business

No.
1 Asset purchased for Scientific research and subsequently Nil
brought into business
2 Asset acquired by Gift/ Inheritance Actual cost to the previous owner minus
depreciation allowed to him
3 Building used for private purpose and subsequently Actual cost of purchase/ construction
brought into the business
reduced by the notional depreciation
calculated upto beginning of year when
the asset is brought into business.
4 Car or any other asset (other than building) used for Actual cost to the assessee (No matter
private purpose and subsequently brought into the
how old the asset be)
business
5 Suppose any Asset is purchased for Rs. 2,50,000 and out In this case cost of acquisition will be
of this amount Rs. 50,000 were paid in cash.
Rs. 2,00,000 only and Rs. 50,000 will
not be considered as cost because of
Section 40A(3)
1. Sunil acquired a building for Rs. 15 lakh in June, 2018 in addition to cost of land beneath the building
of Rs. 3 lakh. It was used for personal purposes until he commenced business in June, 2020 and since
then it was used for business purposes. The amount of depreciation eligible in his case for the
assessment year 2021-22 would be - (Dec. 2015)
(a) Rs. 1,50,000 (b) Rs. 75,000
(c) Rs. 37,500 (d) Rs. 1,21,500 Ans.(d)
2. Rosy Ltd. engaged in manufacture of bio-medicines in August, 2020 converted one equipment which
was used for scientific research purposes previously, for regular business use. The original cost of the
plant is Rs. 15 lakhs which was acquired in April, 2019. The company had claimed deduction at 150%
under section 35(2AB) in the assessment year 2020-21. The plant used for scientific research would be
included in the block of assets now at a value of: (June, 2017)
(a) Nil (b) Rs. 15,00,000
(c) Rs. 30,00,000 (d) Rs. 12,75,000 Ans.(a)
3. Z an assessee incurs expenditure for acquisition of an asset in respect of which payment (or aggregate of
payment made to a person in a day), otherwise than by an account payee cheque/draft or use of ECS through a
bank, exceeds Rs. ..............., such payment shall not be eligible for claiming the amount of depreciation on such
asset. (June 19)
(A) Rs. 50,000
(B) Rs. 20,000
(C) Rs. 10,000
(D) Rs. 2,00,000. Ans C

6. PGBP 6.43
28. Deductions u/s 33AB & 33ABA
Section 33AB (Tea, Coffee, Rubber Section 33ABA (Site Restoration Fund Account)
Development Account)
For Assessee engaged in tea, coffee, rubber For Assessee engaged in production of Petroleum,
plantation Natural Gas in India
Deposit amount in NABARD or any approved Deposit amount in SBI Account or any approved
account site restoration account
Amount to be deposited within 6 months from Amount to be deposited before end of PY
the Year end or Due date of filing return
(Earlier)
Amount of deduction (Lower of) – Amount of deduction (Lower of) –
• Amount deposited or • Amount deposited or
• 40% of profits • 20% of profits
Lock in Period → Asset Acquisition → Year End + 8 Years
Assessee needs to get accounts audited & & file return of Income duly signed and verified by an
accountant.
The audit report is to be furnished at least 1 month prior to the due date for furnishing the return
of income under section 139(1).
AY 21-22
Note – This deduction is not allowed under section 115BAC AY 21-22

19. ABC limited engaged in the business of growing and manufacturing tea in India deposited Rs.
80 lakh in the “Special Account” during the previous year 2019-20 and claimed the same as
deduction under section 33AB (40% of business profits of 200 lakh). During the previous year
2020-21, company withdrawn 40 lakh from the “Special Account” which was utilized as (i) Rs.
30 lakh on 31st December, 2020 for the scheme framed by the Tea Board (ii) Rs. 4 lakh on
25th January, 2021 for other purposes and 6 lakh was not utilized till 31st March, 2022. The
amount chargeable to tax in assessment year 2021-22 shall be (Dec 20 –OS)
a. 6 lakh
b. 16 lakh (40% of 40 lakh)
c. 10 lakh
d. 40 lakh ANS. C
29. Expenditure for Spectrum (Sec. 35ABA) and for Telecom License Fees Sec. 35ABB)
✓ Allowed on payment basis

✓ Amortize on the basis of balance number of years of the license.
Amount paid
Balance number of years of
license
Example
• Total cost of License if Rs. 100 Cr and total duration of license is 10 years.
• Suppose paid in the first year is Rs. 20 Crores and in the second year us Rs. 80 Crores.
• Therefore, amortization for first year will be Rs. 20 Cr/ 10 years = Rs. 2 Cr. (and for all 10
years Rs. 2 Crores in each year will be claimed)
• And for Second year amount will be Rs. 2 Cr. + (Rs. 80 Cr./ 10 years) i.e. Total Rs. 10 Cr.

6. PGBP 6.44
1. Any capital expenditure incurred on acquiring telecom license is deductible in - (Dec. 2016)
(a) 5 Equal installments (b) 10 Equal installmets
(c) 15 Equal installments (d) Equally over the period of the license
Ans.(d)
Module Case Laws Summary
1. “Actual write off” of individual debtor’s account is not necessary under 36(1)(vii) Bad Debt, of the
Income-tax Act, 1961. Crediting “Sundry Debtors” account will be sufficient
Vijaya Bank v. Commissioner of Income Tax [2010] [323 ITR 166]
2. Remission of a liability under section 41(1) of the Income Tax Act

Commissioner of Income-tax v. Smt. Sita Devi Juneja [2010] [325 ITR 593, Punjab and Haryana High
Court]
The High Court held that merely because liability was outstanding for the last six years, it could not be
presumed that the said liability had ceased to exist.It has to be agreed by both the parties.
3. Is interest income on margin money deposited with bank for obtaining bank guarantee to carry on
business, taxable as business income?
CIT v. K and Co. (2014) (Del)
Conclusion – Yes
4. Is expenditure incurred for construction of transmission lines by the assessee for supply of power to UPPCL
by the assessee deductible as revenue expenditure?
Addtl. CIT v. Dharmpur Sugar Mill (P) Ltd (2015 Allahabad HC)
Conclusion - Yes
5. What is the nature of expenditure incurred on glow-sign boards displayed at dealer outlets - capital or
revenue?
CIT v. Orient Ceramics and Industries Ltd. (2013) (Delhi)
Conclusion – Revenue Nature
6. Would the expenditure incurred on issue and collection of convertible debentures be treated as
revenue expenditure or capital expenditure?
CIT v. ITC Hotels Ltd. (2011) (Kar.)
Conclusion – Revenue Nature
7. Can the commission paid to doctors by a diagnostic centre for referring patients for diagnosis be
allowed as a business expenditure under section 37 or would it be treated as illegal and against public
policy to attract disallowance?
CIT v. Kap Scan and Diagnostic Centre P. Ltd. (2012) (P&H)
Conclusion – No because it’s not a fair practice and is opposed to public policy
8. In a case where payment of bonus due to employees is paid to a trust and such amount is subsequently paid
to the employees before the stipulated due date, would the same be allowable under section 36(1)(ii) while
computing business income?
Shasun Chemicals & Drugs Ltd v. CIT (2016 - SC)
Conclusion - Yes
9. CIT v. Mahindra and Mahindra Ltd. [2018] 404 ITR 1 (SC) – Newly added in ICSI Module
Issue - Whether the waiver in respect of loan taken for purchase of plant & Machinery and tooling
equipment , would the same be taxable in the hands Mahindra and Mahindra Ltd. under section 28(iv)
or 41(1)
Conclusion – Such waiver would not be taxable under both the sections. because section 28(iv) applies
if, income arises from business or profession and the benefit received is in non-monetary form and 41(1)
applies when assess claims an allowance or deduction and debits the amount to the trading account or to
the profit and loss account. Both the elements were missing in this case.

6. PGBP 6.45
1. Karnataka High Court in case of CIT vs. ITC Hotels Ltd. (2011) 334 ITR 109 has held that the expenditure
incurred on the issue and collection of debentures including the convertible debentures (which had to be
converted into shares at a later date) shall be treated as ------------(Dec 20 –NS)
(A) Revenue Expenditure
(B) Deferred Revenue Expenditure
(C) Capital Expenditure
(D) Revenue expenditure to be amortized in five years ANS – A
Other electronic modes have been notified as per new Rule 6ABBA
For various sections under the income tax Act like 35AD,40A,43CA,44AD, 50C/ 269SU etc. the
following shall be the other electronic modes –
(a) Credit Card;
(b) Debit Card;
(c) Net Banking;
(d) IMPS (Immediate Payment Service);
(e) UPI (Unified Payment Interface);
(f) RTGS (Real Time Gross Settlement);
(g) NEFT (National Electronic Funds Transfer), and
(h) BHIM (Bharat Interface for Money) Aadhar Pay”;
Accidental Points
Sr. Description
No.
1 NOTE –V.V. Imp. - Asset is acquired in the previous year & Put to use for less than 180 days
(up to 179 days) during the same PY – only half depreciation is allowed.
Check Number of days of put to use only if acquisition and put to use are of same PY. If the
year of acquisition and year of put to use are different then full depreciation will be allowed.
2 Remember the depreciation rates accurately.
3 Additional depreciation is allowed Only and only for New P&M and that too only to
The Assessee engaged in business of printing, manufacture or production, generation,
transmission or distribution of power
4 Additional depreciation is available in the year in which the Installation is completed.
5 Put to use for less than 180 days (up to 179 days) during the previous year in which it is
acquired, additional depreciation will get restricted to 10%/ 17.5% as he case may be i.e. half of
20%/ 35% of the depreciation allowable.
The balance half i.e. 10%/ 17.5% of additional depreciation will be allowed in the immediately
succeeding previous year.
6 Additional depreciation is not to be allowed on –
a. 2nd hand P&M
b. P&M on which 100% deduction has been claimed. Ex. – Scientific research, 35AD
business assets.
7 For claiming 35% additional depreciation in the specified states, both i.e. Acquisition +
Installation shall be done between 1st April, 2015 and 31st March, 2020
8 Remember the deductions of scientific research very accurately. It has the highest frequency of
being asked in the exams

6. PGBP 6.46
9 Expenditure incurred is allowed only 1/5th of actually incurred in the previous year for
Preliminary expenses, Family planning Capital expenditure to Company and VRS (allowed on
payment basis).
Implication – if the expenditure is incurred in the current year, 4/5th has to be added back.
10 Expenditure allowed to business only if Premium paid by employer for health insurance of
employees by any mode of payment “other than cash”
11 Amount paid to NR without TDS – 100% disallowance of the expenditure
12 Amount paid to Resident without TDS – 30 % disallowance of the expenditure
13 Accurately remember the expenditure to be allowed to the firm and taxable to the partners
regarding Remuneration and Interest.
14 Section 40A(2) – Any unreasonable expenditure to a related person – Only Unreasonable
amount is to be disallowed.
15 Section 40A (3) – Cash payment > Rs. 10,000 to a single person in a single day – Full amount
disallowed.
16 Section 43B is very very important. The adjustment of allowance/ disallowance of
expenditure should be clicked by looking at the actual date of return filing of the assessee.
17
Section 44AD and 44ADA Section 44AE
Advance tax to be paid in a single instalment Advance tax to be paid in normal 4 instalments
i.e. by 15th March – 15th (June, Sept., Dec., March)
In case of a firm, salary and interest paid to In case of a firm, salary and interest paid to
partners is not deductible. partners is deductible subject to the
conditions and limits in section 40(b)

7. Capital Gains 7.1
Chapter 7 – CAPITAL GAINS

NOTE: - Under the head Capital Gains, all exemptions and deductions are allowed even under the New
tax system. So computation of Capital Gain Income will not be effected under the new tax system
(Section 115 BAC)
AY 21-22
1. Proforma for Computation of Capital Gains

Particulars Amt Amt
(Rs.) (Rs.)
Gross Sale consideration xxx
Less: Expenditure incurred wholly and exclusively in connection
with such transfer (for example, brokerage on sale) xxx
In case of a Short-term
(Note: Deduction on account of STT paid will not be allowed)

capital asset
Net Sale Consideration xxx

Less: (Cost of acquisition + Related expenses) xxx
Cost of improvement xxx xxx
Short-term capital gain xxx

Less: Exemption under sections 54B/54D xxx
Short term capital chargeable to tax xxx
Gross Sale consideration xxx
Less: Expenditure incurred wholly and exclusively in connection
with such transfer (for example, brokerage on sale) xxx
In case of a Long-term
(Note: Deduction on account of STT paid will not be allowed)

Net Sale Consideration xxx
xxx
capital asset
Less: Indexed cost of (acquisition + Related expenses)

(Note: Benefit of indexation will, however, not be available in
respect of long-term capital gains from transfer of bonds or
debentures other than capital indexed bonds issued by the
Government and sovereign gold bonds issued by RBI and in
respect of long-term capital gains chargeable to tax under
section 112A)
Less: Indexed cost of improvement xxx xxx
Long-term capital gains xxx
Less: Exemption under sections 54/54B/54D/54EC/54EE/54F xxx
Long term capital gains chargeable to tax xxx
1.Mrs. Lakshmi purchased shares of ABB Ltd. for Rs. 5 lakhs on 3rd April, 2020. The shares were sold on 5th June, 2020 for Rs.
7 lakhs. She paid STT of Rs. 700 and brokerage of Rs. 500. The amount chargeable to tax is : (June, 2017)
(a) Rs. 2,00,000 (b) Nil
(c) Rs. 1,99,500 (d) Rs. 1,98,700 Ans.(c)
Scope and year of chargeability [Section 45]

Any profits or gains arising from the
• Transfer of a
• capital asset
• effected in the previous year
will be chargeable to tax under the head ‘Capital Gains’, and shall be deemed to be the income of the previous year in which the
transfer took place [Section 45(1)]

Capital Asset
CAPITAL ASSET [Section 2(14)]
Property of any kind held by an Any securities held by a FII which

assessee, whether or not connected has invested in such securities as
with his business or profession per SEBI Regulations
EXCLUSIONS
Stock-in-trade, Personal Effects Rural 6 ½ Gold Bonds, 1977, Gold Deposit Bonds
consumable stores, [i.e., movable property Agricultural 7% Gold Bonds, 1980, issued under Gold
raw materials held including wearing Land National Defence Deposit Scheme,
for business or apparel Gold Bonds, 1980, 1999/Deposit
profession and furniture held for Special Bearer Bonds, Certificates issued under
personal use by the 1991 issued by the the Gold Monetisation
assessee or his family] Central Govt. Scheme, 2015 notified
by the Central Govt.
EXCLUSIONS FROM PERSONAL EFFECTS
Jeweller Archaeological Drawings Paintings & Any work of art

collections Sculptures
These assets are hence, capital assets u/s 2(14)
2. Rural agricultural Land: -

• Population upto 9999 – whole of the land is Rural agricultural land
Population upto 2 kms. Urban इसके आगे का Rural Land

>= 10K
upto 1 Lac
Population >
1 Lacs upto upto 6 kms Urban इसके आगे का Rural Land
10 Lacs
Population >
upto 8 kms Urban इसके आगे का
10 Lacs
Rural Land
Shankar Dalal & others v/s CIT (Bom.)

Provisions of local land laws should be considered while determining the land as agricultural land. The Court held
that if activities performed by assessee on the land are recognised as ‘agricultural’ activities under the local land
laws, then the land can be treated as agricultural land, even if actual growing does not take place.

Past Exam MCQ’s

(1)Which of the following is not a requisite for charging income-tax on capital gains - (June, 2015)
(a) The transfer must have been effected in the relevant assessment year
(b) There must be a gain arising on transfer of capital asset
(c) Capital gains should not be exempt u/ s 54
(d) Capital gains should not be exempt u/s 54EC. Ans.(a)
(2) Capital asset excludes all except - (Dec. 2014)
(a) Stock-in-trade (b) Personal effects
(c) Jewellery (d) Agricultural land in India. Ans.(c)
(3) When a capital asset located in India is sold by a non-resident to another non-resident at a place outside
India, the capital gains is taxable : (June, 2017)
(a) At the place of transferor (b) At the place of transferee
(c) At the place of location of asset (d) At the place of both transferor and transferee
Ans.(c)
(5) Rajat purchased a car for his personal use for Rs. 5,00,000 in April, 2020 and sold the same for Rs. 5,50,000
in July, 2020. The taxable capital gains would be - (Dec. 2 016)
(a) Nil
(b) Rs. 5,50,000
(c) Rs. 50,000
(d) Rs. 4,00,000 Ans.(a)
6. Which of the following is not a capital asset for Mr. Rao who is employed in a public sector bank ?
(A) Urban land
(B) Agricultural land within 2 kms from local limits of municipality
(C) Deposit certificate issued under Gold Monetisation Scheme, 2015
(D) Jewellery Ans.(c)
7. Anuj owned land measuring 2 hectares and carried on agricultural operations. The land would be treated
as agricultural land and not capital asset if it is within the aerial distance of_____kms from the local limits of
municipality when its population exceeds 10 lakhs. (Dec 19 –OS)
(A) 2
(B) 4
(C) 6
(D) 8 Ans – D
8. Which of the following is not a capital asset? (Dec 19 –OS)
(A) Jewellery
(B) Equity shares
(C) Personal effects
(D) Land and building
Ans – C
3. Period of Holding
Listed Securities (Equity, preference, debt)
Mutual Fund Unit of equity- oriented fund

STCA if held upto 12 month
(ZULM) ZCB
UTI units
Unlisted shares (Equity –

STCA if held upto 24 month Preference)
Land or building or both
STCA if held upto 36 month Unit of debt-oriented fund
Other capital assets

Note – Period of holding in case of liquidation is taken upto the date of liquidation and not till the date
of distribution of assets.
1. Land or building, or both, if transferred on or after 1st April, 2017 shall be treated as along
term capital asset, if it is being held immediately prior to the date of its transfer for more than:
(June 18)
(A) 36months
(B) 12months
(C) 24months
(D) None of the above Ans C
2. Durafon (P) Ltd., engaged in steel industry, acquired a vacant piece of land on 15th May, 2018. The
company sold the said land in December, 2020. The profit earned on sale of vacant land of Rs. 10 lakh
shall be taxable as : (June 19)
(A) Business income
(B) Income from other sources
(C) Short term capital gain
(D) Long term capital gain. Ans D
3. In terms of section 2(42A), listed securities are treated as long-term capital asset, if they are held
for a period of more than - (June, 2015)
(a) 12 Months (b) 36 Months
(c) 24 Months (d) 48 Months Ans.(a)
4. 2(47) – Transfer includes
Capital assets must have been transferred
Section 2(47)
The sale, The The compulsory Conversion of The maturity Any transaction allowing possession of
acquisition asset into or any immovable property in part

exchange or extinguishment
thereof under stock-in- performance of a contract to in Sec.
relinquishment of of any rights redemption
any law trade. 53A of the transfer of Property Act,
the asset therein of a ZCB
1882 Section 2(47)
coupon
bond.
5. Transactions not regarded as transfer
Transactions not regarded as transfer [Section 47]: Some Examples
1. Any distribution of capital assets on the total or partial partition of a HUF
2. Any transfer of capital asset under a gift or will or an irrevocable trust
3. Any transfer of capital asset by a holding company to its 100% subsidiary Indian company or by
a subsidiary company to its 100% holding Indian company
4. Any transfer of capital asset by amalgamating company to amalgamated company if
amalgamated company is an Indian company
5. Any transfer of capital asset by demerged company to resulting company if resulting company
is an Indian company
6. Any transfer or issue of shares by the resulting company, in a scheme of demerger to the
shareholders of the demerged company
7. Any transfer by a shareholder in a scheme of amalgamation of shares held by him in the
amalgamating company
8. 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

9. Any transfer of a capital asset, being a Government Security carrying a periodic payment of
interest, made outside India through an intermediary dealing in settlement of securities, by
a non-resident to another non-resident
10. Any transfer by an individual of sovereign gold bonds issued by RBI by way of redemption
11. Any transfer by way of conversion of bonds, debentures, debenture stock, deposit
certificates of a company, into shares or debentures of that company.
12. Any transfer by way of conversion of preference shares of a company into equity shares
of that company
13. Any transfer of specified capital asset the University or the National Museum, National Art
Gallery, National Archives or any other public museum or institution notified by the Central
Government to be of national importance or to be of renown throughout any State – work of art,
archaeological, scientific or art, collection, book, manuscript, drawing, painting, photograph or print.
14. Any transfer of a capital asset in a transaction of reverse mortgage under a scheme made
and notified by the Central Government
Note – Regarding Cost of assets
A. For points 1 -2 - 3 – 4 – 5 - Cost of asset is to be considered as cost to the previous owner

B. For points 6 -7 -11- 12 - Cost of the previous asset is to be treated as the cost of the newly
acquired asset.
C. Cost of acquisition of shares received in the resulting company, in the scheme of demerger:
Cost shall be the amount which bears to the cost of acquisition of shares held by the
assessee in the demerged company the same proportion as the net book value of the assets
transferred in a demerger bears to the net worth of the demerged company immediately
before such demerger [Section 49(2C)].
B
Cost of acquisition of shares in the resulting company = A x
C
A = Cost of acquisition of shares held in the demerged company
B = Net book value of the assets transferred in a demerger
C = Net worth of the demerged company i.e. the aggregate of the paid up share capital +
general reserves as appearing in the books of account of the demerged company immediately
before the demerger.
Cost of acquisition of the shares held in the demerged company: Shall be deemed to have
been reduced by the amount as so arrived as per the above calculations.
Suppose the Price before demerger was Rs. 150 and the cost arrived for resulting company
is Rs. 30 then the cost of the demerged company will be Rs. 120. i.e. Rs. Rs. 150 – Rs. 30.
1. Nair, a retired person of 68 years of age obtained Rs. 10,000 per month from 1st April, 2020 on reverse
mortgage of his self occupied residential property from a bank. The fair rent of the property is Rs. 15,000 per
month. The income chargeable to tax in respect of amount received on reverse mortgage for his self-occupied
house property for the F.Y. 2020-21 would be :(June 19)
(A) Rs. 1,20,000
(B) Rs. 1,26,000
(C) NIL
(D) (15000 – 10000) × 12 = 60000. Ans C
2. Mr. Chandan (age 70) received Rs. 30,000 every month during the financial year 2020-21 on reverse
mortgage of his property with State Bank of India. The amount of receipt liable to tax in the hands of Mr.
Chandan is: (June, 2017)
(a) Rs. 2,60,000 (b) Rs. 2,52,000

(c) Rs.40,000 (d) Nil Ans.(d)

3. Ms. Smita inherited a vacant site land consequent to the demise of her father on 10th June, 2010. The land was
acquired by her father on 10th April, 1990 for Rs. 40,000. The fair market value of the land on 1st April, 2001 was Rs.
2,55,000 and on the date of inheritance, i.e., 10th June, 2010 was Rs. 3,50,000. The cost of acquisition for Ms. Smita
is - (June 2016)
(a) Rs. 40,000
(b) Nil
(c) Rs. 2,55,000
(d) Rs. 3,50,000 Ans.(c)
4. Transfer of income is revocable in the following cases: (Dec 19 –NS)
(a) Sale with a condition of re-purchase (b) Power to change beneficiary or trustees
(c) Both (a) and (b) (d) Neither (a) nor (b) Ans.(c)
5. Venkat (age 63) received Rs. 25 lakh from State Bank of India under reverse mortgage scheme on 5-6-
2020. The house property under reverse mortgage was acquired on 1-4-1980 for Rs. 90,000. The fair
market value on 1-4-1981 was Rs. 1,50,000. The fair market value as on 1-4-2001 was Rs. 8,40,000. The
fair market value on 5-6-2020 was Rs. 21 lakh. The cost inflation index for the financial year 2020-21 is
301. The amount of capital gain liable to tax would be: (Dec 19 –OS)
(A) Long-term capital gain Rs. 12,48,000
(B) Long-term capital gain Rs. 10,80,000
(C) Long-term capital gain Rs. 1,48,000
(D) NIL Ans – D
6. Richard acquired 1,000 preference shares of Rs. 100 each in Terry Ltd. on 10-4-2016 for Rs. 1,32,000. He
received 10,000 equity shares of Rs. 10 each on conversion of preference shares into equity shares. TheFair
Market Value (FMV) of equity shares on the date of such conversion was Rs. 2,20,000. (Dec 19 –OS)
Cost Inflation Index F.Y. 2016-17 = 264; F.Y. 2020-21= 301. The taxable long-term capital gain would be :
(A) NIL
(B) Rs. 70,000
(C) Rs. 10,000
(D) Rs. 15,000 Ans – A
7. A transfer of capital asset by a private company or unlisted public company shall not be treated as transfer
u/s 47(xiiib) of the Act on Conversion into LLP on fulfillment of the conditions which inter-alia include that the
total value of assets as appearing in the books of account of the company in any of the three previous year
preceding the previous year in which the conversion took place does not exceed (Dec 19 –NS).Read this as a
provision .
(a) Rs. 5,00,00,000 (b) Rs. 10,00,00,000
(c) Rs. 20,00,00,000 (d) Rs. 1,00,00,000 Ans.(a)
8. Clean Air (P) Ltd. converted into a LLP on 30-4-2020. It is not liable to pay capital gains on conversion
if the total value of assets in any of the 3 previous years preceding the previous year in which conversion
took place, does not exceed : (Dec 19 –OS) Read this as a provision
(A) Rs. 1 crore
(B) Rs. 3 crore
(C) Rs. 5 crore
(D) Rs. 10 crore Ans – C
9. The essential requirement for the incidence of tax on capital gains is the transfer of a "Capital
Asset". Definition of transfer given under the Act is an inclusive definition. Find out which of
the following are being included under transfer: (Dec 20 –NS)
(i) Conversion of asset into stock in trade
(ii)Extinguishment of rights
(iii) Redemption of Sovereign Gold Bonds issued by RBI by an individual
(iv) Transfer of asset under reverse mortgage
(A) (i), (iii) & (iv)
(B) (i) & (ii)
(C) (i), (ii) & (iii)
(D) All the above four ANS-B

6. Table of Indexation - Cost Inflation Index
Financial Cost Inflation Financial Cost Inflation

Year Index Year Index
2001-02 100 2010-11 167
2002-03 105 2011-12 184
2003-04 109 2012-13 200
2004-05 113 2013-14 220
2005-06 117 2014-15 240
2006-07 122 2015-16 254
2007-08 129 2016-17 264
2008-09 137 2017-18 272
2009-10 148 2018-19 280
2019-20 289 2020-21 301
AY 21-22
7. Benefits of Indexation not available
➢ On Bonds or Debentures but other than Capital Indexed Bonds issued by the Govt. and
Sovereign Gold Bonds issued by the RBI.
➢ Depreciable assets – But available to power generating units claiming depreciation on SLM
basis
➢ Slump Sale – Section 50B
➢ To N.R who has acquired shares/ debentures in an Indian Company by utilizing convertible
foreign exchange.
➢ LTCG chargeable under section 112A
MCQ
1. Base year for the purpose of calculation of indexed cost of acquisition or the cost of improvement in
respect of long term capital asset acquired prior to 1st April, 2001 shall be taken as: (June 18)
(A) 1981-82
(B) 2001-02
(C) 1991-92
(D) 2011-12 Ans B
8. Cost of Acquisition
If the cost of the any capital asset (with some exceptions i.e. self-generated assets) is incurred
before 1.4.2001, then the Assessee has the option to take the original cost or FMV as in 1.4.2001
whichever is higher.
However, in case of a capital asset being land or building or both, the FMV of such asset on the 1st
April, 2001, shall not exceed the SDV (on 1st April 2001). AY 21-22
9. Cost of improvement – means the cost of capital nature incurred on any asset. In ANY CASE
cost of improvement incurred before 1.4.2001 is not allowed as cost.
Note – In cases where we take the cost of acquisition to the previous owner, the cost of
improvement incurred by the previous owner is also allowed to be considered (provided cost of
improvement is incurred on or after 1.4.2001).

10. Summary of Cost of acquisition and cost of improvement in case of Self –

generated assets
Capital Asset Cost of Acquisition Cost of
Acquired Self - Generated Improvement
Goodwill of a Business (Not Purchase Nil Nil
Profession) Price
Right to manufacture, produce or Purchase Nil Nil
process any article or thing Price
Right to carry on Business or Purchase Nil Nil
profession Price
Note – For Cost of Acquisition -> In above cases, FMV as on 1.4.2001 is not available
Note – For Cost of improvement -
a. The Cost of improvement before 1.4.2001 is to be ignored

b. As the cost of improvement before 1.4.2001 is to be ignored, the question of considering FMV for
cost of improvement as on 1.4.2001 does not arise
MCQ’s
1. Out of the following, which income is chargeable as capital gain: (June 18)
a. from transfer of self generated goodwill of profession
b. from transfer of personal jewellery
c. from transfer of paintings and art-work
d. from transfer of furniture utilized for personal use

(A) (i) and(ii)
(B) (ii) and(iii)
(C) (i), (ii) and(iii)
(D) All the four Ans C
2. The cost of improvement in relation to the capital asset being goodwill of the business shall be taken to be as:
(June 18)
(A) Cost incurred by the previous owner
(B) Actual cost incurred by the assessee
(C) Incurred cost after indexation
(D) None of the above Ans D
3. Pankaj,a Company Secretary in practice for thepast 30 years,retired and gavehis practice to Chandra in
consideration for Rs. 15 lakh by way of goodwill. His income for the past 3 assessment years are Rs. 12
lakh, Rs. 10 lakh and Rs. 8 lakh respectively. The amount of goodwill chargeable to income-tax as
capital gain would be : (Dec 19 –OS)
(a) NIL
(b)Rs. 15,00,000
(c)Rs. 10,00,000
(d)Rs. 3,00,000 Ans – A

11. In case of Bonus and Right Shares

Bonus Shares Cost of acquisition
If bonus shares are allotted before 1.4.2001 Fair Market Value on
1.4.2001
If bonus shares are allotted on or after 1.4.2001 Nil
Rights Shares Cost of Acquisition Period of Holding
Original shares (which forms the Amount actually paid for acquiring the From date of allotment
basis of entitlement of rights original shares
shares)
Rights entitlement (which is Nil From Date of offer by
renounced by the assessee in company to date of
favor of a person) renouncement
Rights shares acquired by the Amount actually paid for acquiring the From date of allotment
assessee rights shares
Rights shares which are Purchase price paid to the renouncer of From date of allotment
purchased by the person in rights entitlement + amount paid to the
whose favor the assessee has company which has
renounced the rights entitlement allotted the rights shares.
1. Manoj acquired 1,000 equity shares 110 each in a listed company for Rs. 35,000 on 1st July, 2012.
The company issued 1,000 rights shares in April, 2014 at Rs. 15 per share. The company issued 2,000
bonus shares in June, 2020. The market price was Rs. 50 per share before bonus issue and Rs. 25 after
such issue. The cost of acquisition of bonus shares would be - (June 2016)
(a) Nil (b) Rs. 20,000
(c) Rs. 50,000 (d) Rs. 1,00,000 Ans. (a)

12. Deemed Full Value of consideration for computing capital gains [Sections 50C, 50CA & 50D]
Section & Circumstance Deemed Full Value of

Capital consideration for
Asset computing Capital
Gains
1 50C - (1) If Consideration received or accruing as a result of transfer Stamp Duty Value
. Land or ˂ Stamp Duty Value
Building
or both (a) If date of agreement is different from the date of Stamp Duty Value on
transfer and whole or part of the consideration is the date of
received by way of account payee cheque or bank agreement
draft or ECS on or before the date of agreement
(b) If date of agreement is different from the date of transfer Stamp Duty Value on the
but the whole or part of the consideration has not date of transfer
been received by way of account payee cheque or
bank draft or ECS on or before the date of agreement

(2) If the Assessing Officer refers the valuation to a

Valuation Officer, on the assessees claim that the stamp duty
value exceeds the FMV of the property on the date of
transfer
(a) If Valuation by Valuation Stamp Duty Value
Officer > Stamp Duty Value
(b) If Valuation by Valuation Valuation by Valuation
Officer < Stamp Duty Value Officer
155 (3) If stamp duty value has been adopted as full value of Value so revised in such
(14) consideration, and subsequently the value is revised in appeal or revision
any appeal or revision
However, where the stamp duty value does not exceed 110% of the sale
AY 21-22
consideration received or accruing as a result of the transfer, the consideration
so received or accruing shall be deemed to be the full value of the
consideration.
Refer PGBP Chapter - The calculations will be same as Section 43CA of PGBP.
1. Radhey has sold his house on 11th August , 2020 for Rs.80 lakh . The value applied by Stamp
Valuation Authority is Rs.100 lakh. He disputed this valuation and the departmental
valuation cell made the valuation at Rs. 110 lakh. The value to be taken for calculation of capital
gain as per section 50C is Rs.: (June 18)
(A) 80lakh
(B) 110lakh
(C) 100lakh
(D) None of the above ANS –C
2. X entered into an agreement for sale of his house located at Jaipur to Y on 1st April, 2018 for a total
sale consideration of Rs. 90 lakh. Y paid an amount of Rs. 20 lakh by account payee cheque to X on the
date of agreement and balance was to be paid at the time of registration of deed. However, the conveyance
deed could not be executed till 1st Sept., 2020. The Stamp Valuation Authority determined the value of
the property on the date of registration of conveyance deed at Rs. 120 lakh and the value determined by the
Stamp Valuation Authority on the date of agreement was Rs. 100 lakh. The value for the purpose of capital
gain u/s 50C shall be taken: (June 18)
(A) Rs. 90 lakh
(B) Rs. 12 lakh
(C) Rs. 20 lakh
(D) Rs. 100 lakh Ans. D
3. Radhey has sold his residential house on 11th Sept., 2019 for Rs.75 lakh. Value applied by the Stamp Valuation
Authority on the date of registration of the Conveyance Deed on 15th Sept., 2020 was of Rs. 115 lakh. Radhey
disputed the valuation made by the Stamp Valuation Authority and asked the departmental valuation officer
to determine the value of the house on the date of registration of deed. The departmental valuation officer
determined the value of the house on the date of registration of the deed at Rs. 120 lacs. Sale value of the house to
be taken for calculation of capital gain in A.Y. 2021-22 as per section shall be of ................. (Dec 18)
(A) 50C, Rs. 115lakh
(B) 50C, Rs. 120lakh
(C) 48, Rs. 75lakh
(D) 45, Indexed cost of Rs. 75 lakh Ans A
4. Section 50C makes special provision for determining the full value of consideration in case of transfer of —
(June, 2015)
(a) Plant ah machinery
(b) Land or building
(c) All movable property other than plant & machinery and computers
(d) Computers. Ans.(b)
5. Chirag entered into an agreement for sale of his house property located at Jaipur to Yash on 1st
August, 2019 for a total sale consideration of Rs. 95 lakh. Yash paid an amount of Rs. 20 lakh by account

payee cheque to Chirag on 1st August, 2019 and balance was agreed to be paid at the time of registration
of the Conveyance Deed which could only be executed by Chirag on 1st September 2020. The Stamp
Valuation Authority determined the value of the house property on the date of registration of deed at
Rs. 140 lakh. However, the value determined by the Stamp Valuation Authority of the house on the date
of agreement (1st August, 2019) was Rs. 110 lakh. The sale value for the purpose of computing the
capital gain of the property in A.Y. 2021-22 to be taken by Chirag shall be : (Dec 19 –NS)
6. Chiranjeevi entered into an agreement for sale of his house property located at Noida to
Yashashwi on 1st August, 2019 for a total sale consideration of Rs.125 lakh. Yashashwi paid an
amount of Rs.25 lakh by account payee cheque to Chiranjeevi on 1st August, 2019 and balance
was agreed to be paid at the time of registration of the Conveyance Deed which could only be
executed by Chiranjeevi on 1st October, 2020. The Stamp Valuation Authority determined the
value of the house property on the date of registration of deed at Rs.150 lacs. However, the
value determined by the Stamp Valuation Authority of the house on the date of agreement (1st
August, 2019) was Rs.140 lacs. The amount of sale consideration for the purpose of computing
the capital gain of the property in A.Y. 2021-22 to be taken by Chiranjeevi shall be : (Dec 20 –
NS)
(A) Rs.125 lacs
(B) Rs.150 lacs
(C) Rs.140 lacs
(D) Rs.(140-25) = 115 lacs ANS-C
7. Monika enters into an agreement on 7th April, 2020 to transfer a piece of land for an agreed consideration of Rs.
66,00,000 by taking an advance payment of Rs. 10,00,000 by an account payee cheque. Sale deed of the piece
of land was executed on 28th December 2020. Indexed cost of acquisition of the piece of land as per provision
of the Act is computed at Rs. 34,00,000. Stamp valuation Authority determined the value of land on
07.04.2020 at Rs. 68,50,000 and on 28.12.2020 at Rs. 71,00,000. Find out the amount of long- term
capital gain whichshall be chargeable to tax in the assessment year 2021-22. (Dec 20 –OS)
(A) Rs. 32,00,000
(B) Rs. 34,50,000
(C) Rs. 35,00,000
(D) Rs. 37,00,000 ANS. B
2 50CA - If consideration received or accruing as a result of FMV of such share

. Unquoted transfer < FMV of such share determined in the
shares prescribed manner
3 50D - Any Where the consideration received or accruing as a FMV on the date of transfer
. Capital asset result of the transfer of a capital asset by an Assessee is
not ascertainable or cannot be determined
Inventory converted into Capital Asset –
[Section 49(9)] Cost of acquisition FMV as on the date

of ➔ on such conversion
such capital asset
Section Period of Holding from the date
2(42A)(ba) → of conversion

13. ADVANCE MONEY RECEIVED [SECTION 51]
Tax treatment of advance money

forfeited on failure of negotiations
for transfer of a capital asset
[Sections 51 & 56(2)(ix)]
If advance was If advance was

received and received and
forfeited before forfeited on or
1-4-2014 after 1-4-2014
Advance forfeited to be
deducted while determining Advance forfeited to be taxed
Cost of acquisition for under 56(2)(ix) as
computing capital gains income from other sources
Taxability is postponed to the year

Tax liability is attracted in the
of actual transfer of capital asset.
year of forfeiture of advance
Note – IMP
✓ The advance forfeited upto 31.3.2014 is to be adjusted from the actual cost if the amount
forfeited by the Assessee and the person selling the asset are the same.
✓ If advance has been received and retained by the previous owner and not the assessee
himself, then the same will not go to reduce the cost of acquisition of the assessee
14. Few sub sections of Section 45 - Year of Chargeability as “Capital Gains”
Sec. Profits or gains arising from the P.Y. in which Deemed Full Value of
following transactions chargeable as income is consideration (FVC)
income chargeable to tax u/s 48
45(1A) Money or other asset received under an The P.Y. in which such The value of money or the
insurance on account of damage / money or other asset FMV of other asset on the
destruction of any capital asset, as a result is received. date of receipt.
of, flood, hurricane, cyclone, etc.
45(2) Transfer by way of conversion of a capital The P.Y. in which such The FMV of the capital
asset into stock-in-trade (SIT) of a SIT is sold or asset on the date of such
business carried on by him otherwise conversion.
transferred.

Components of income Manner of Computation

arising on subsequent sale of capital gains and
of stock-in-trade business income
FMV on the date of

conversion (-)
Cost/Indexed Cost of
acquisition/ improvement
Capital Gains
Indexation benefit would
be considered in relation
to the year of conversion
of capital asset into stock-
Conversion of capital in- trade
asset into stock-in-trade
Sale price of stock-in-

trade (-) FMV on the
Business date of conversion
Income
1.Rahim converted into stock in trade on10th May 2007 his capital asset which was acquired by him on
15th June, 2002 for Rs. 70,000. Subsequently the stock in trade so converted was sold for Rs.
18,00,000 on 15th July 2020. Fair market value of the asset on 10th May 2007 was Rs. 4,80,000. By
taking the CII for the years 2002-03 as 105, 2007-2008 as 129 and of 2020-21 as 301; determine the
amount of capital gain taxable in assessment year 2021-22. (Dec 20 –OS)
(A) 3,94,000
(B) 13,20,000
(C) 2,87,333
(D) 4,10,000 ANS. A

Sec. Profits or gains arising from the P.Y. in which income Deemed Full Value of
following transactions chargeable as is chargeable to tax consideration (FVC) for
income computation of CG u/s
48
45(3) Transfer of a capital asset by a person to a The P.Y. in which such The amount recorded in
firm or other AOPs or BOIs in which he is or transfer takes place. the books of account of
becomes a partner or member, by way of the firm, AOPs or BOIs as
capital contribution or otherwise. the value of the capital
asset.
45(4) Transfer of a capital asset by way of The P.Y. in which such The FMV of the capital
distribution of capital assets on the transfer takes place. asset on the date of such
dissolution of a firm or other AOPs or BOIs transfer.
or otherwise, is chargeable to
taxes the income of the firm, AOPs or BOIs.
45(5) Transfer of capital asset by way of The P.Y. in which the Compensation or
compulsory acquisition under any law, or a consideration or part consideration determined
transfer, the consideration for which was thereof is first received. or approved in the first
determined or approved by the Central instance by the Central
Government or RBI. Govt. or RBI.
If the compensation or consideration is further The P.Y. in which the Amount by which the
enhanced by any court, Tribunal or other amount was received compensation/
authority, the enhanced amount deemed to by the assessee. consideration is enhanced
be the income. or further enhanced.
However, compensation received in For this purpose, cost of
pursuance of an interim order of a acquisition and cost of
court/Tribunal deemed to be income of the improvement shall be
P.Y. in which the final order is made. taken as ‘Nil’.
Section 45(5A) – Joint Development Agreement

1)Ramesh received Rs. 7 lakh by way of enhanced compensation in March, 2021. A further sum
of Rs. 2 lakh decreed by the court is due but not received till 31st March, 2021. The amount of
income chargeable to tax for the assessment year 2021-22 would be - (Dec. 2015)
(a) Rs. 3,50,000 (b) Rs. 7,00,000
(c) Rs. 9,00,000 (d) Rs. 4,50,000 Ans.(b)
15. Section 45(2A) – Transfer of security in Demat Form -

• Beneficial owner of shares/ securities is chargeable to tax
• FIFO method is applied in case of demat holdings.
• FIFO method is applied account wise
MCQ
1. Cost of acquisition of securities held with depository in to be computed by - (Dec. 2016)

(a) Average cost method (b) First in first out (FIFO) method
(c) Last in first out (FIFO) method (d) Weighted average cost method
Ans.(b)
16. Section 46A – Buy Back by company of its own shares/ Securities.
17.
(1) (2) (3) (4)

Taxability in the Buyback of Buyback of Buyback of
hands of shares by shares by a specified
domestic company, other securities by any
companies(Listed/ than a domestic company
Unlisted) company
Company Subject to additional Not taxable to company.

income – tax
@23.296%.
(115QA)
Shareholder/ Income arising to Taxable to Share holders/ Security Holders
holder of shareholders as capital gains u/s 46A.
specified exempt under
securities section 10(34A)
Case Study
ABC Ltd.; a domestic company purchases its own unlisted shares, on 14th Oct’20. The
consideration for the buyback amounted to INR 50,00,000, which was paid the very same day. The
amount received by the company 2 years ago, for the issue of such shares was INR 27,00,000.
The tax on such buy back was deposited by the company to the credit of the Central Government
on 27th Feb’21. You are required to compute the tax and the interest payable.
Solution
Buy Back Consideration 50,00,000
Less: Cost of Shares 27,00,000
net paid for buy-back 23,00,000
Tax payable 4,60,000
Surcharge 55,200
Cess (on Tax + SC) @ 4% 20,608

Total additional tax payable 5,35,808
Additional Tax Payable (rounded off) 5,35,810
Interest payable 21,432
Note: The tax had to be deposited to the credit of the Central Government within 14 days of the payment of
buy-back consideration, i.e., on or before 28th Oct’20. However, the tax was deposited on 27th Feb, and
hence interest for 4 months @ 1% per month is applicable.
1. XYZ Pvt. Ltd. had distributed income of Rs. 6 lakh to Rajesh for the reason of buyback of its shares (Not being
listed on a recognized stock exchange) from him on 1st February, 2021. The amount of Rs. 6 lakh received by
Rajesh in the A.Y. 2021- 22 shall be (Dec 19 –NS) .
(a) Taxable in full (b) Exempt u/s 10(34A)
(c) Taxable @20% (d) Taxable at normal rate of tax Ans.(b)
2. XYZ Pvt. Ltd. had distributed income of 9,00,000 to Rajesh for the reason of buyback of its
shares from him on 1st March, 2021. These shares were purchased by him for Rs. 5,00,000
on 1st March, 2015. The income out of the amount received by Rajesh against the buy back of
shares from the company XYZ Pvt. Ltd. Shall be subject to tax in A.Y.2021- 22 shall be of........... (Dec
2018)
(A) Rs. 4lakh
(B) Rs. 9lakh
(C) Nil being exempt u/s 10 (34A) of Act
2. ABC Ltd, a domestic company purchased on 14th October, 2020 its own unlisted shares. The
consideration for the buyback of shares amounted to Rs.50,00,000 which was paid by the
company on the very same day. Amount received for the issue of such shares by the
company 2 years ago was of Rs.27,00,000. The company is required to make the payment of
tax for the buy-back of shares in assessment year 2021-22 of Rs.------------(Dec 20 –NS)
(A) 5,35,810
(B) 6,87,700
(C) 6,69,760
(D) 5,50,160 ANS-A
19. Section 55A – Reference to valuation officer by AO

For Assets other than Land and Building
Reference to
Valuation Officer
MV is estimated
1. FMV variation 15%
by Registered taking value claimed as
Nature of asset is
valuer but AO base such
dissatisfied OR
2. Variation > 25,000 rs.

20. Slump Sale
Capital Gains on Slump Sale of an Undertaking [Section 50B]
is the undertaking held for more than 36 months before transfer?

Yes No
Resultant capital gain is LTCG (No Resultant capital

indexation benefit would be available) gain is STCG
LTCG is taxable @ Normal rates of taxation

20%
Full value of (-) Deemed cost of acquisition/cost

Consideration of Improvement
Net Worth*
Aggregate value of total (-) Value of liabilities of the undertaking

assets of the undertaking* appearing in the books of account
In case of In case of capital assets, where the In case of

depreciable assets whole expenditure has been other assets
allowed u/s 35AD
WDV as per Nil (+) Book value

section 43(6)(c)
*Ignore revaluation NOTE - Indexation benefit is not available.

effect
* Every assessee, shall furnish a report of a CA before the specified date referred to in sec 44AB indicating the
computation and certifying the net worth of the undertaking or division, has been correctly arrived.
AY 21-22
21. EXEMPTION OF CAPITALGAINS
Exemption of
Capital Gains
Exemptions under Exemptions under Section

Section 10 54/54B/54D/54EC/
54EE/54F

21A.
Capital Gains: Exemptions under section 10

Section Particulars
10(33) transfer of a capital asset being a unit of Unit Scheme 1964 of UTI
10(37) ➢ individual or HUF owns

➢ urban agricultural land
➢ used for agricultural purposes
➢ for a period of two years immediately preceding the date of transfer
➢ compulsorily acquired under any law or the
➢ consideration is determined or approved
➢ by the Central Government or the RBI,
➢ resultant capital gain will be exempt
10(43) The amount received by the senior citizen as a loan, either in lump sum or in installments,
in a transaction of reverse mortgage would be exempt from income-tax.
21B. Various Exemptions -

S.No. Particulars Section 54 Section 54B Section 54D Section 54EC Section 54EE Section 54F
1 Eligible Assessee Individual/HUF Individual/HUF Any assessee Any assessee Any assessee Individual/HUF
2 Asset transferred Residential House (LTCA) Urban Agricultural Land Land & building Long term Land or Any LTCA Any LTCA other than
forming part of an Residential House
Building or both
industrial undertaking
3 Other Conditions Income from such house Land has been used for L & B have been used for - - Assessee should not own
should be chargeable agricultural purposes by business of undertaking more than one residential
under the head "Income assessee or his parents for at least 2 years house on the date of
from house property". or HUF for 2 years immediately preceding transfer. He should not
immediately preceding the date of transfer purchase within 2 years
the date of transfer. or construct within 3 years
after the date of transfer,
the transfer should be by
another residential house.
way of compulsory
acquisition of the
industrial undertaking
4 Qualifying asset i.e. asset One Residential House Land for being used for Land or Building or right Bonds of NHAI or RECL Unit issued before One Residential House
in which capital gains has situated in India. agricultural purposes. in land or building of issued on or after 1.4.2019 of Specified situated in India.
to be invested Check details on next industrial undertaking Fund notified by Central
1.4.2018 or any other
page Govt.
bond notified by Central
Govt. (Redeemable after
5 years)
5 Time limits for purchase / Purchase within 1 year Purchase with period of 2 Purchase construct within Purchase with a period of Purchase within a period Purchase within 1 years
construction before or 2 years after the years after the date of 3 years after the date of 6 months after the date of of 6 months after the date before or 2 years after the
date of transfer transfer. transfer. for shifting or re- transfer of such transfer. date of transfer or
(or) establishing the existing Construct within 3 years
construct with 3 years undertaking or setting up after the date of transfer.
after the date of transfer a new industrial
undertaking
6 Amount of Exemption Cost of new Residential Cost of new Agricultural Cost of new asset or CG, CG or amount invested in CG or amount invested in Cost of new Residential
House or CG, whichever Land or CG, whichever is whichever is lower. specified bonds, notified units of specified House > Net sale
is lower, is exempt. lower, is exempt. whichever is lower. fund, whichever is lower. consideration of original
Maximum permissible Maximum permissible asset, entire CG is
investment out of CG investment in such units exempt.
arising in any FY is Rs. 50 out of CG arising in any Cost of new Residential
lakhs, whether such FY is Rs. 50 lakhs, House < Net sale
investment is made in the whether such investment consideration of original
current FY or next FY or is made in the current FY asset, proportionate CG is
both. or next FY or both. exempt.
7 Lock in period of not 3 years from date of 3 years from date of 3 years from date of 5 years form the date of 3 years from date of 3 years from date of
transferring the newly acquisition/ purchase acquisition acquisition acquisition (Don’t transfer acquisition/ purchase acquisition
acquired asset or convert into money)

S.no. Particulars 54G 54GA 54GB

1 Eligible Assessee Any assessee being an Any assessee being an Individual/ HUF
Industrial undertaking Industrial undertaking
2 Asset Land, Building, P&M Land, Building, P&M Long term residential property (house or plot
transferred (Short term/ Long (Short term/ Long of land)
Term) Term)
3 Other Transferred from Transferred from For eligible start up – Omg term residential
Conditions Urban area to Non- Urban area to SEZ property should be transferred upto 31.3.21
Urban area
4 Qualifying asset Land, Building, P&M + Land, Building, P&M + Subscribe to > 25% of equity shares of start- up
i.e. asset in Shifting charges Shifting charges company upto 139(1)
which capital & then Company should use the amount for
gains has to be purchasing P&M within one year from the date
invested of subscription in equity shares.
5 Time limits for 1 year before or 3 1 year before or 3 New assets should be purchased by due date
purchase / years after date of years after date of of return filing
construction transfer transfer
6 Amount of Cost of new asset or Cost of new asset or Amount of CG x (Amount Invested/ Net
Exemption CG, whichever is CG, whichever is Consideration)
lower. lower.
7 Lock in period of 3 years from date of 3 years from date of 5 years from date of acquisition/ purchase
not transferring acquisition/ purchase acquisition/ purchase (Shares & P&M)
the newly However in case of a new asset, being
acquired asset computer or computer software the lock in

period is 3 years
Section 54
Capital Gains upto 2 Cr Capital Gains > 2 Cr.
Can take Deduction on purchase/

construction of upto 2 houses Like Before - No change
Deduction for Construction/
purchase of only 1 house
But this is once in a lifetime option

1. Under which section, the assessee has to reinvest the entire net consideration to claim full exemption
for the long-term capital gains earned during a previous year - (June 2016)
(a) Section 54EC (b) Section 54F
(c) Section 54GA (d) Section 54D Ans.(b)
2. Capital Gains be invested in specified bonds within a period of _____________ from the date of transfer. (June,
2015)
(a) 36 Months (b) 4 Months
(c) 6 Months (d) 12 Months Ans.(c)

3. Long-term capital gains on sale of a long-term capital asset in October, 2020 is Rs. 105 lakh. The
assessee invested Rs. 50 lakh in REC bonds in March, 2021 and Rs. 55 lakh in NHAI bonds in May, 2021.
The amount of exemption eligible under section 54EC is - (Dec. 2016)
(a) Nil (b) Rs. 50 lakh
4. A residential house is sold for Rs. 90 lakh and the long-term capital gains computed are Rs. 50 lakh.
The assessee bought two residential house for Rs. 30 lakh and Rs. 20 lakh respectively. The amount
eligible for exemption u/s 54 would be- (Dec.2015)
(c) Rs. 30 lakh (d) Nil. Ans.(a)
Answer Hint: The amount eligible for exemption u/s 54 would be Rs. 50 lakh because w.e.f AY 2020-21 the option
for investment in two residential house properties will be available when the amount of capital gain does not exceeds
Rs. 2 crore
5. Mr. Madan sold a vacant land for Rs. 120 lakhs on 10-10-2020. The indexed cost of acquisition
amounts to Rs. 18 lakhs. He deposited Rs. 50 lakhs in REC bonds in January 2021 and another Rs. 50
lakhs in March, 2021. The amount of capital gain liable to tax after deduction under section 54EC is:
(June, 2017)
(a) Rs. 2 lakhs (b) Rs. 52 lakhs
(c) Rs. 102 lakhs (d) Rs. 18 lakhs Ans.(b)
7. For claiming exemption under section 54G, an assessee has to invest the resultant capital gains
within a specified period. Which of the following is not eligible for such investment - (June, 2015)
(a) Furniture (b) Land
(c) Building (d) Plant or machinery. Ans.(a)
8. If the assessee has exercised the option to make investment in two residential houses under section 54,
whether he can exercise the said option for the same assessment year or any subsequent assessment year.
(a) Yes
(b) No
(c) Not in same assessment year but can exercise the option in subsequent assessment years
(d) Yes, if amount of capital gain do not exceed Rs. 2crore in subsequent assessment years Ans.(b)
9. For the purpose of section 54GB, the eligible assessee must own more than___ of the share capital
or more than___ of the voting rights in the eligible company :
(a)50%; 75% (b) 50%; 50%
(c) 25%; 25% (d) 75%; 75%
Ans.(c)
22. Section 112A (Very Important)
a. Basic point
New section 112A has replaced section 10 (38). With effect from 1.4.2018 i.e. AY 19 – 20
this new section will be applicable and till 31.3.2018, 10(38) will be applicable.
b. Applicability
Any income arising from the transfer of a long-term capital asset being an
✓ equity share in a company or a
✓ unit of an equity oriented mutual fund
✓ or unit of business trust
c. . Conditions:
(a) In case of equity share → STT paid → acquisition and transfer of such capital
asset
(b) In case of equity-oriented fund or unit of business trust → STT paid on →

Only transfer of such capital asset.

Further, LTCG from recognized stock exchange located in an International Financial Service
Centre (IFSC) would be taxable at a concessional rate of 10%, where the consideration for
transfer is received or receivable in foreign currency, even though STT is not leviable in respect
of such transaction.
IMP – For shares, Capital gains are exempt if the STT has been paid at the time of acquisition as
well transfer
d. Amount chargeable to tax as per the Finance Act 2018
LTCG shall now be taxed at the rate of 10% on such capital gains exceeding Rs.
1,00,000 i.e. tax will be applicable only on the amount which is over & above Rs. 1
Lacs
Note
1. Point of taxation - Section 112A is applicable if Specified long term Capital Asset is sold
on or after 1.4.2018.
2. If Capital Asset is sold on or after upto 31st March 2018, full exemption u/s 10(38) will be
available
e. Cost of acquisitions Section 55(2)(ac)
The cost of acquisitions for computing LTCG in respect of a listed equity share
acquired by the assessee before February 1, 2018, shall be deemed to be the
“higher” of following:
In case the specified asset has
been acquired before 1.4.2001,
The actual cost of acquisition of such asset then FMV as on 1.4.2001 can
be considered as the Cost of
or Acquisition.
Lower of following:
Fair market value of such shares as on January 31, 2018;
or
Actual sales consideration accruing on its transfer
Please remember – Through above comparison we are just ascertaining the cost. For
calculation of Capital Gains, the cost has to be deducted from the Sale Consideration.

Illustration
A B C D E F
Cases Actual Cost FMV as on Sale Lower of FMV & Cost of acquisition Capital Gain/ Loss
31.1.18 Value Sale Value (B&C) (Higher of D & A) (C – E)
I 100 200 250 200 200 50
II 100 200 150 150 150 Nil
III 100 50 150 50 100 50
IV 100 200 50 50 100 (50)
[This Capital
Loss can be set
off & C/f
normally]
g. Few important points
• The benefit of indexation shall not be allowed on such LTCG.

• Deductions under chapter VIA (section 80C to 80U) not to be allowed from such LTCG.
• Rebate of tax under section 87A not to be allowed from the tax payable on such LTCG.
• Section 112A is available to all assessee’s including Non-Residents and Foreign
Institutional Investors.
• Section 112A is available to those assessee’s who holds the shares/ units as capital
assets and not as Stock in Trade.
• Losses u/s 112A can be normally carried forward/ set off.
Losses (LT/ST) can be set off against the LTCG referred to u/s 112A.
1 Ms. Netra acquired 1000 equity shares of MMC Ltd. for Rs. 4 lakhs in April, 1996. She received bonus shares
on 1:1 basis in April, 2020 from the company. She sold all the shares in January, 2021 through a recognized stock
exchange for Rs. 8 lakhs. The fair market value of share as on 31-01-2018 is was Rs. 3,50,000. The capital gain
chargeable to tax in the hands of Ms. Netra for the assessment year 2021-22 is :: (June,
2017)
(a) Rs. 4 lakhs (b) Nil since the entire gain is exempt from tax
(c) Rs. 2 lakhs (d) Rs. 80,000 (Ans.(a)
2. When foreign institutional investor has long- term capital gain on sale of listed share (STT paid) of Rs. 5 lakhs, the
amount of tax payable on such capital gain would be : (Dec 19 –OS)
(A) NIL
(B) @ 20%
(C) @ 10%
(D) @ 30% (Ans.(a)

h. Adjustment of Unexhausted Basic Exemption Limit: In the case of resident individuals or

HUF, if the basic exemption is not fully exhausted by any other income, then such LTCG
exceeding Rs. 1 lakh will be reduced by the unexhausted basic exemption limit and only the
balance would be taxed at 10%.
However, the benefit of adjustment of unexhausted basic exemption limit is not available in
the case of non-residents.
Illustration
Suppose the assessee is a Resident Individual aged 50 years, The assessee’s income consists of
PGBP income of Rs 2, 00,000 & sec. 112A income of Rs. 1, 80,000. Find the amount of tax payable.
Answer
• In this case the Basic Exemption limit will be Rs. 2, 50,000.
• Therefore for tax calculation Rs 50,000 of sec. 112A will be adjusted to exhaust the
difference of Rs. 2, 50,000 & Rs. 2 Lacs (PGBP Income).
• So tax payable = Rs. 1, 80,000 of 112A – Rs. 50,000(adjusted) – Rs. 1,00,000 (as tax is
levied on the amount exceeding Rs. 1,00,000)
i.e. Rs. 30,000 * 10% = Rs. 3000 + 4% HEC = Rs. 3120.
Note – Rebate is not allowed from income u/s 112A
22. Tax Rates
Short-term Capital Gains (STCG)

– STCG is clubbed with Total Income and therefore charged to tax at normal rates
– However, STCG on transfer of listed equity shares / unit of an equity-
oriented fund / unit of a business trust, where STT has been paid, STCG is
taxable @ 15% under section 111A.
A. Section 111A
• STCG - equity shares or units of an equity-oriented fund on which STT is paid
(Section also eligible for IFSC although STT is not paid)
• Rate 15 %
• No deduction under Chapter VI-A
• Slab adjustment for resident individuals and HUF
Long Term Capital Gains

B. Section 112
Long term Capital gain
Section 112
Resident N.R. + Foreign

Indi/HUF AOP/BOI/ Firm/Cos. Companies
Normal assets
Assets, other Unlisted
than unlisted securities or
@ 20% Securities or shares of Pvt.
shares of Cos.
ZCB & Listed PVT. Cos.
securities
(other than
@ 10%
units) @ 20% (without benefit)
of indexation &
Foreign
lower of currency
Fluctuation
20% or 10%
without
indexation
Note –
• If STT has been paid for listed shares or a unit of equity-oriented fund / business
trust, the LTCG is taxable @10%, if such LTCG is > Rs. 1,00,000 under section 112A.
• STT is not allowed as a deduction in the computation of Capital Gains.
• No deduction under Chapter VI-A against incomes which are taxable at a lower
rate.
1. D transferred Zero Coupon Bonds on 20th August, 2020. These bonds were acquired during the financial
year 2012-13. The capital gain computed on the redemption with indexation benefit is Rs. 2 lakh an without
indexation benefit is Rs. 3 lakh. The long term capital gain would be chargeable to tax on such Zero Coupon
Bonds in A.Y. 2020-21: (June 19)
(A) @ 5%
(B) @ 10%
(C) @ 20%
(D) @ 30%. Ans B
2. Long-term capital gains on zero coupon bonds are chargeable to tax - (June, 2015)
(a) @ 20% computed after indexation of such bonds (b) @ 10% computed without indexation of such
bonds
(c) Higher of (A) or (b) (d) Lower of (A) or (B). Ans.(d)
3. Short-term capital gains arising from the transfer of equity shares in a company or units of an equity oriented
fund or units of a business trust charged with security transaction tax are subject to income-tax at the rate of -
(June 2016)
(a) 10% (b) 15%
(c) 20% (d) Normal rate Ans.(b)
Adjustment of LTCG u/s 112, u/s 112A and STCG u/s111A against the basic exemption
limit
Only a resident individual/HUF can adjust the basic exemption limit (i.e. Rs. 2,50,000
or 3,00,000 or Rs. 5,00,000 limits) against LTCG u/s 112, u/s 112A (if amount >
1,00,000) and STCG u/s 111A. Thus, a non-resident individual/ HUF cannot adjust
their basic exemption limit (Rs. 2,50,000) against such capital gains.

Applicability of Surcharge
Sr. Rate of
No. Person Total Income Surcharge
upto Rs. 50 Lakhs No Surcharge
> Rs. 50 lakhs upto Rs. 1

crore 10%
1 Individual/ HUF/ AOP/ BOI/ AJP
> Rs. 1 crore upto Rs. 2 crore 15%
> Rs. 2 crore upto Rs. 5 crore 25%
> Rs. 5 crore 37%
upto Rs. 1 Crore No Surcharge

2 Firm/ LLP/ Co-operative Society/ Local Authority
> Rs. 1 crore 12%
> Rs. 1 crore upto Rs. 10

3 Domestic Company
crore 7%
> Rs. 10 crore 12%
> Rs. 1 crore upto Rs. 10

4 Foreign Company
crore 2%
> Rs. 10 crore 5%
Where total income including Capital Gains referred to in section 111A and 112A:
(i) Does not exceed Rs. 50 lakhs No surcharge
(ii) Exceeds Rs. 50 lakhs but does not exceed Rs. 1 crore 10% surcharge on income
tax
(iii) Exceeds Rs. 1 crore but does not exceed Rs. 2 crores 15% surcharge on income
tax
(iv) Exceeds Rs. 2 crores
A. On tax computed on Capital Gains under section 111A & 112A 15%
B. On tax computed on
Total Income - Capital Gains under section 111A &112A
If Total Income - Capital Gains under section 111A &112A
(a) is upto Rs. 2 crores 15%
(b) is above Rs. 2 crores but upto Rs. 5 crores 25%
(c) Above Rs. 5 crores 37%

% of
Components of total
Particulars surcharge How to calculate
income
• STCG u/s 111A Rs. 30

lakhs;
Where the total income (including
Surcharge would be levied@10% on
income under section 111A and
(i) • LTCG u/s 112A Rs. 25 10% income-tax computed on total income
112A) > Rs. 50 lakhs but ≤ Rs. 1
lakhs; and of Rs. 95 lakhs.
crore
• Other income Rs. 40
lakhs
• STCG u/s 111A Rs. 60

lakhs;
Where total income (including income
under section 111A and 112A) Surcharge would be levied@15% on
• LTCG u/s 112A Rs. 65
(ii) 15% income-tax computed on total income
lakhs; and exceeds Rs. 1 crore but does not
of Rs. 1.75 crores.
exceed Rs. 2 crore
• Other income Rs. 50
lakhs
• STCG u/s 111A Rs. 54 Surcharge would be levied @15% on

lakh; income-tax on:
Where total income (excluding
• LTCG u/s 112A Rs. 55 income under section 111A and • STCG of Rs. 54 lakhs
25%
lakh; and 112A) exceeds Rs. 2 crore but chargeable to tax u/s 111A; and
does not exceed Rs. 5 crore
(iii) • Other income Rs. 3 • LTCG of Rs. 55 lakhs
crores chargeable to tax u/s 112A.
The rate of surcharge on the income- Surcharge@25% would be leviable

Not
tax payable on the portion of income on income-tax computed on other
exceeding
chargeable to tax under section 111A income of Rs. 3 crores included in
15%
and 112A total income
• STCG u/s 111A Rs. 50 Surcharge@15% would be levied on

lakhs; income-tax on:
• LTCG u/s 112A Rs. 65 Where total income (excluding • STCG of Rs. 50 lakhs
lakhs; and income under section 111A and
37%
112A) exceeds Rs. 5 crore
• Other income Rs. 6 chargeable to tax u/s 111A; and
(iv) Not
crore Rate of surcharge on the income-tax
exceeding ·LTCG of Rs. 65 lakhs chargeable to
payable on the portion of income
15% tax u/s 112A.
chargeable to tax under section 111A
and 112A Surcharge@37% would be leviable on
the income-tax computed on other
income of Rs. 6 crores included in
total income.
Surcharge would be levied@15% on

• STCG u/s 111A Rs. 60 Where total income (including
(v) 15% income-tax computed on total income
lakhs; income under section 111A and of Rs. 2.25 crore.

• LTCG u/s 112A Rs. 55 112A) exceeds Rs. 2 crore in cases

lakhs; and not covered under (iii) and (iv) above
• Other income Rs. 1.10

crore
Example 1: Non Resident/ Resident Individual

P/G/B/P 1,00,00,000
LTCG 112A 51,00,000
STCG 111A 60,00,000
Total Income 2,11,00,000
Computation of Tax
Tax on LTCG of 112A 5, 00,000
Tax on STCG of 111A 9, 00,000
Taxon 1,00,00,000 28,12,500
Total Tax 42,12,500
Surcharge
Surcharge 15% on 14,00,000 2,10,000
Surcharge 15% on 28,12,500 4,21,875

48,44,375
Add: 4% cess 1,93,775
Total Tax liability 50,38,150
Example 2: Non Resident/ Resident individual
P/G/B/P 2,50,00,000
LTCG of 112A 3,01,00,000
STCG of 111A 1,00,00,000
Total Income 6,51,00,000
Tax on LTCG of 112A 30,00,000
Tax on STCG of 111A 15,00,000
Tax on 2,50,00,000 73,12,500
Total Tax 118,12,500
Surcharge 15% on 45,00,000 6,75,000
Surcharge 25% on 73,12,500 18,28,125
1,43,15,625
Add: 4% cess 5,72,625
Total Tax Liability 1,48,88,250

Module Case Laws
1. Whether, for the purpose of computing the period of holding of the property, the date of
allotment letter issued by the builder of the flat or the date of registration of the property
has to be considered for determining the nature of capital asset – long-term or short-term?
CIT v. S.R. Jeyashankar (2015 Madras HC)
Decision – Count from the date of allotment letter
2. Would an assessee be entitled to exemption under section 54 in respect of purchase of two

flats, adjacent to each other and having a common meeting point? CIT v. Syed Ali Adil
(2013) (A.P.)
The Andhra Pradesh High Court, on the basis of the above rulings of the Karnataka High Court,
held that in this case, the assessee was entitled to investment in both the flats purchased by
him, since they were adjacent to each other and had a common meeting point, thus, making it a
single residential unit.
3. Canexemption under section 54EC be denied on account of the bonds being issued after
six months of the date of transfer even though the payment for the bonds was made by
the assessee within the six month period?
Hindustan Unilever Ltd. v. DCIT (2010) (Bom.)
For the purpose of the provisions of section 54eC, the date of investment by the assessee must be
regarded as the date on which payment is made. The High Court, therefore, held that if such
payment is within a period of six months from the date of transfer, the assessee would be
eligible to claim exemption under section 54EC.
Miscellaneous – Past Exam Questions

1.. B joined Avtar & Co. as a partner on 1st June, 2020. He contributed his vacant land in the firm as his capital
which was recorded in the books of the firm at Rs. 5 lakh. The land was inherited by B from his father in April,
2011 and the Fair Market Value (FMV) on that date was Rs. 2 lakh. The land was originally acquired by his
father in August, 2006 for Rs. 1 lakh. The Fair Market Value (FMV) on 1st June, 2020 was Rs. 10 lakh. The full
value of consideration received as a result of transfer of land by B as capital would be taken as : (June 19)
(A) Rs. 1 lakh
(B) Rs. 2 lakh
(C) Rs. 5 lakh
(D) Rs. 10 lakh. Ans C
2.. Aiyer gifted 100 shares to his wife on 1st August, 2014. She received 200 bonus shares from the
company in April, 2019. All the shares were sold to a friend for Rs. 1,50,000 in May, 2020. The 100
shares were originally acquired by Aiyer for Rs. 5,000. The capital gain on sale of shares in the month of
May, 2020 shall be chargeable to tax :. (June 19)
(A) fully in the hands of Aiyer
(B) fully in the hands of Mrs. Aiyer
(C) for 100 shares in the hands of Aiyer and balance 200 shares in the hands of Mrs. Aiyer
(D) for 200 shares in the hands of Aiyer and balance 100 shares in the hands of Mrs. Aiyer Ans A
(any accretion in income is not clubbed)s
3. When shares of a listed company held for more than 36 months are transferred privately for Rs. 8
lakh, with original cost of acquisition of Rs. 1 lakh whose indexed cost of acquisition is Rs. 2 lakh, the
income-tax payable would be - (Dec. 2015)
(a) Rs. 1,45,600 (b) Rs. 72,800
(c) Rs.1,24,800 (d) Rs. 61,800 Ans.(b)
4. Dr. Sam sold a vacant land to Mr. Roy for Rs. 36 lakhs. For stamp duty purpose, the value of land was Rs. 41 lakhs.
The indexed cost of acquisition of land was computed at Rs. 20 lakhs. The taxable long-term capital gain would be :
(Dec 17)
(A) Rs. 21 lakhs

(B) Rs. 16 lakhs

(C) Rs. 5 lakhs
(D) Rs. 20 lakhs Ans.(A)
5. On 01-06-2020 Kamlesh transferred his vacant land to Rajesh for Rs. 12 lakhs. The land was acquired on
01-09-2016 for Rs. 3 lakhs. If indexation is applied, the indexed cost of acquisition would be Rs. 3.30 lakhs.
The taxable capital gain would be: (Dec 17)
(A) long term capital gain Rs. 8.70 lakhs
(B) short-term capital gain Rs. 9 lakhs
(C) long-term capital gain Rs. 9 lakhs
(D) short term capital gain Rs. 8.70 lakhs Ans.(A)
6. On 15th November, 2020, Mohan sold 100 grams of gold, the sale consideration of which was Rs.
6,00,000. He had acquired the gold on 11th December, 1998 for Rs. 1,64,000. Fair market value of 100
grams. Gold on 1st April, 2001 was Rs. 2,64,000. The amount of capital gains chargeable to tax for the
assessment year 2021-22 shall be - (Dec. 2014)
(a) Rs. 3,36,000 (b) Rs. 6,00,000
(c) Rs. (1,18,080) loss (d) Rs. (1,94,640) loss Ans.(d)
7. Indexed cost of acquisition of the house property purchased for Rs. 80 lakh in June, 1998 and was sold in
December, 2020 will be of Rs. ____________(worked out by taking the CII of 1998-99 as 351; of the year 2001-02 as
100; of the year 2020-21 as 301) and FMV of the house property as on 1st April, 2001 of Rs. 90 lakh. (Dec 19 –
NS)
(a) Rs. 63,81,766 (b) Rs. 90 lakh
(c) Rs. 270.90 lakh (d) Rs. 71,79,487 Ans.(c)
(8) Compute the tax liability for assessment year 2021-22 of resident individual who is having long term capital gains
of Rs. 5,00,000 and has no other income – (Not an exam question)
(a) Rs. 1,04,000 (b) Rs. 39,000
(c) 51,500 (d)52,000
Note : Rebate under section 87A shall be admissible. Ans.(b)
9. Moti & Sons-HUF purchased a piece of land for Rs.1,05,000 in July, 2002. In July, 2006 the HUF was partitioned and
one of the coparcener Manak got this piece of land. The value of the land in July, 2006 was of Rs.2,44,000 as
assessed by Stamp Valuation Authority. Manak, after receipt of the land incurred expenses in August, 2007 of
Rs.2,58,000 on construction of room, boundary wall and kitchen. The land so received was sold by him on
11.2.2021 for Rs.17,50,000. The amount of Capital Gain chargeable to tax in A.Y. 2021-22 will be -------- (Take CII of
2002-03 as 105; 2006-07 as 122; 2007-08 as 129 and of 2020-21 as 301) (Dec 20 –NS)
(A) Rs.8,47,000
(B) Rs.3,44,000
(C) Rs.12,48,000
(D) Rs.9,28,000
ANS -A
10. The Apex Court in case of CIT vs. Equinox Solutions Pvt. Ltd, (2017) 393 ITR 563 has held that the sale of a running
business with all its assets and liabilities would be covered as under the Income-tax Act, 1961 for the purpose of
tax thereon. (Dec 20 –NS)
(A) Normal sale
(B) Slump sale
(C) Transfer of business
(D) Conversion of business ANS - B
11.Ratan Lal, aged 55 years, resident in India having during the previous year 2020-21 income of winnings from
races: Rs. 20,000 (expenditure incurred : Rs. 200), Short Term Capital Gain : Rs. 1,75,000 (applicable STT paid)
Interest on Bank Fixed Deposits :2,31,000 and had made contribution in public provident fund: Rs. 1,14,000. Total
income of Ratan Lal for assessment year 2021-22 shall be --------(Dec 20 –OS)
(A) Rs. 4,26,000
(B) Rs. 3,12,000
(C) Rs. 3,02,000
(D) Rs. 2,62,000 ANS. B

8. Other Sources 8.1
Chapter 8 – Income from Other Sources

1. Computation of Income under the Head Income from Other Sources
Particulars Amt (Rs)

1. Divided Income xxx
2. Casual Income (winnings from lotteries, crossword puzzles, races including horse xxx
races, card games and other games, gambling, betting etc.)
The entire income of winnings, without any expenditure or allowance or
deductions under Sections 80C to 80U, will be taxable. However, expenses
relating to the activity of owning and maintaining race horses are allowable.
Further, such income is taxable at a special rate of income-tax i.e., 30% + surcharge
+ cess @ 4% [Section115BB]
3. Interest received on compensation/enhanced compensation deemed to be income xxx
in the year of receipt [Section 56 (2)(viii)]
4. Advance forfeited due to failure of negotiations for transfer of a capital asset [Section xxx
56(2)(ix)] (Date 1.4.14 onwards)
5. Sum of money or property received by any person [Section 56(2)(x) xxx
6. The following income, if not chargeable under the head "Profit and gains of business
or profession"
a) Any sum received by an employer from his employees as contributions to any xxx
provident fund, superannuation fund or any other fund for the welfare of the
employees
b) Interest on securities AY 21-22 xxx
(Interest expense (income earned from the borrowed fund) incurred for earning
the dividend income is allowed as a deduction (maximum 20%) of such income
& no other deduction shall be allowed)
c) Income from letting out on hire of machinery, plant or furniture xxx
d) Where letting out of buildings is inseparable from the letting out of machinery, xxx
plant or furniture, the income from such letting
e) Any sum received under a Keyman insurance policy including bonus on such xxx
policy (if not chargeable to tax under the head "Salaries" also_
7) Any income chargeable to tax under the Act, but not falling under any other head of xxx
income
8) Deemed income u/s 59 - Remission or cessation of a trading liability or receipt of xxx
any amount in respect of loss or expenditure allowed as deduction in an earlier PY
9) Section 56(2)(xi) – New section introduced by Finance Act 2018 xxx
• Compensation or other payment,
• due to or received by any person,
• in connection with termination of his employment or the
modification of the terms and conditions relating thereto
xxx
Less: Deductions allowable [Section 57]
a) In case of dividends (other than dividends u/s 115-O) or interest on securities xxx
- Any reasonable sum paid by way of commission or remuneration to a
Unique Academy – 8007916622 CA Saumil Manglani - 9921051593

banker or any other person for realization of such income.

b) Income consists of recovery from employees as contribution to any PF, xxx
superannuation fund etc.
- amount of contribution remitted before the due date under the respective
Acts, in accordance with the provisions of section 36(1)(va)
c) Income from letting on hire of machinery, plant and furniture, with or without xxx
building
- current repairs to the machinery, plant of furniture
- insurance premium
- depreciation/unabsorbed depreciation
d) Family Pension: 331/3% of such income or Rs. 15,000, whichever is less xxx
(where section 115 BAC adopted above deduction not allowed) AY 21-22
e) Interest on compensation/enhanced compensation received - 50% of such xxx

interest
f) Any other expenditure not in the nature of capital expenditure incurred wholly xxx xxx
and exclusively for earning such income
Income from Other Sources xxx
2. Some other incomes which are also chargeable under the head “Income from Other
Sources”. for example
✓ Remuneration received for writing articles in Journals.
✓ Income from undisclosed sources
✓ Gratuity received by a director who is not an employee of the company.
✓ Director’s commission for giving guarantee to bank.
✓ Director’s commission for underwriting shares of a new company
✓ Salary of a Member of Parliament, Member of Legislative Assembly or Council.
3. Following income are not chargeable under the head “income from other sources
✓ Lottery held at stock in trade – PGBP
✓ Income of jockey- PGBP
✓ Winning from a motor car rally – Skill and effort involved so cant be treated as Casual
Income. → PGBP
(1) John, engaged in fertiliser trade received rent by sub-letting a building. This will be taxable under the head -
(June, 2015)
(a) Income from house property
(b) Income from capital gains
(c) Income from profits and gains of business and profession
(d) Income from other sources Ans.(d)
(2) Under the Income-tax Act, 1961, dividend derived from the shares held as stock-in-trade are taxable
under the head - (June, 2015)
(a) Income from other sources
(b) Income from profits and gains of business or profession
(c) Capital gains
(d) Either capital gains or income from profits and gains of business or profession. Ans.(a)
(3) Aman entered into an agreement with Brij for sale of a building for Rs. 20 lakh in June, 2020. Aman
received advance of Rs. 2 lakh. Subsequently, the agreement was cancelled and Aman forfeited the
advance money. The advance money is - (Dec. 2015)
(a) To be reduced from the cost of acquisition
(b) To be reduced from indexed cost of acquisition
(c) Taxable as capital gains
(d) Taxable as income under the head 'income from other sources' Ans.(d)

(4) Amit received Rs. 70,000 being winnings from lottery after deduction of tax at source. His gross winnings
from lottery to be included in the total income is - (Dec. 2016)
(a) Nil (b) Rs. 1,00,000
(c) Rs. 70,000 (d) Rs. 30,000 Ans.(b)
(5) Sameer received the following income during financial year 2020-21 : Director's fees Rs. 5,000, income from
agricultural land in Pakistan Rs. 15,000, rent from let-out of land in Jaipur Rs. 20,000, interest on deposit with
HDFC Bank Rs. 1,000 and dividend from Indian company Rs. 5,000. His income from other sources is - (Dec.
2014)
(a) Rs. 41,000 (b) Rs. 46,000
(c) Rs. 31,000 (d) Rs. 26,000 Ans.(b)
(6) Sarath has received a sum of Rs. 3,40,000 as interest on enhanced compensation for compulsory acquisition
of land by State Government in May, 2020, of this, only Rs.12,000 pertains to the current year and the rest
pertains to earlier years. The amount chargeable to tax for the assessment year 2021-22 would be - (June,
2015)
(a) Rs. 12,000 (b) Rs. 6,000
(c) Rs. 3,40,000 (d) Rs. 1,70,000 Ans.(d)
(7) The amount deductible from family pension is upto if the assessee has opted for section 115BAC - (Dec.
2014)
(a) Rs. 15,000 or 1/3rd of family pension whichever is less
(b) Rs. 15,000 or 1/4th of family pension whichever is less
(c) Rs. 10,000 or 1/3rd of family pension whichever is less
(d) No deduction. Ans.(d)
(8) Ms. Mala received family pension of Rs. 15,000 per month during the previous year 2020-21. Also,
she was employed in a private firm where she got a monthly consolidated salary of Rs. 20,000 per
month. Her total income chargeable to tax is : (June, 2017)
(a) Rs. 4,20,000 (b) Rs. 3,65,000
(c) Rs. 3,55,000 (d) Rs. 4,05,000 Ans.(c)
(9) Ms. Sitara is in receipt for family pension of Rs. 15,000 p.m. during 2020-21. Income chargeable to tax for
assessment year 2021-22 of Ms. Sitara is - (Dec. 2015)
(a) Rs. 1,80,000 (b) Rs. 1,20,000
(c) Rs. 1,65,000 (d) Nil. Ans.(c)
(10) Mrs. Laxmi, 70 years old, received Rs. 30,000 every month from SBI under reverse mortgage scheme by
mortgaging her residential house property. She also received monthly family pension of Rs. 15,000. Her total
income for the assessment year 2021-22 is - (June 2016)
(a) Rs. 5,40,000 (b) Rs. 1,80,000
(c) Rs. 1,65,000 (d) Rs. 3,60,000 Ans.(c)
(11). Suresh (age 65) won a prize on lottery ticket on 30-09-2020. The prize amount was Rs. 5,50,000. He had
bought lottery tickets for Rs. 75,000 during the year. Assuming that he had no other income chargeable to tax
for the year, his income tax liability (including cess @ 4%) would be : (Dec 2017)
(A) Rs. 1,69,950
(B)_ Rs. 1,71,600
(C) Rs.36,050
(D) Rs.10,300 Ans – B
12. In the hands of Mr. Sarath, a salaried employee, the following income shall be chargeable to tax
as income under the head “Income from other sources”: (Dec 2017)
(i) Dividend
(ii) Income from hiring of machinery
(iii) Winning from Lottery
(iv) Interest on securities
(A) (i) and(iii)

(B) (iii) and(iv)
(C) All the four above
(D) (i), (iii) and(iv) Ans C
13. Babu Lal won a prize of Rs. 1,00,000 in Rajasthan State Lottery and Lottery Department paid him an
amount of Rs. 70,000 after deduction of tax at source of 30,000. He had purchased lottery tickets
forRs.8,000. The amount chargeable to tax in the hands of Babu Lal under other sources shall be: (Dec

2017)
(A) Rs.70,000 (B) Rs.1,00,000
(C) Rs.92,000 (D) None of the above Ans. B
14. Mr. Pankaj, a salaried employee, has taken a house on rent of Rs. 12,000 p.m. which was sub-let
by him for Rs. 15,000 p.m. He has incurred miscellaneous expenses in relation to sub-let of the
house of Rs. 1,000. How much income from the sub-letting of house shall be taxable in the A.Y.
2021- 22 where the house was taken on rent and also sub-let by him from 1st April, 2020 onwards:
(Dec 2017)
(A) Rs.36,000
(B) Rs.26,000
(C) Rs.1,44,000
Ans – D
15. Chatterjee received Rs. 1 lakh towards advance for sale of his residential house to Xavier on 10-11-
2020. As the buyer Xavier could not pay the balance amount of consideration within 3 months, Chatterjee
forfeited the advance money in accordance with the sale agreement. The advance money forfeited is: (Dec 19 –
OS)
(A) Deductible from cost of the asset
(B) Taxable as long-term capital gain
(C) Taxable as income from other sources
(D) Taxable as short-term capital gain Ans – C
16. Identify out of the following income which shall be chargeable to tax as income under the head -
Income from Other Sources : (Dec 20 –NS)
(i) Income of Dividend
(ii) Income from composite hiring of building with machinery
(iii) Income from speculative business
(iv) Income of a Jockey
(A) (i) & (ii)
(B) (iii) & (iv)
(C) (i), (ii), (iii) & (iv)
(D) (i), (iii) & (iv) ANS-A
4. Deductions not allowable [Section 58]

(a) Any personal expenses of the assessee
(b) Any interest chargeable to tax under the Act, which is payable outside India on which tax has
not been paid or deducted at source.
(c) Any payment chargeable to tax under the head "Salaries,", if it is payable outside India unless
tax has been paid thereon or deducted at source there from.
(d) Any exp. in respect of which a payment is made to a related person, to the extent the same is
considered excessive or unreasonable by the AO, having regard to the FMV
(e) Any exp. in respect of which a payment or aggregate payments exceeding Rs. 10,000 is made
to person in a day otherwise than by A/c payee cheque/bank draft or ECS through bank a/c.
(f) 30% of sum payable to resident on which tax is deductible at source, if such tax has not been
deducted or after deduction has not been paid on or before the due date of filing return u/s 139(1)
1. Palak employed in a private company acquired a generator to be let out on hire for marriages and social functions.
He received hire charges of Rs. 8,50,000 and paid on 1st day of every month, salary to operator @ Rs. 35,000 by cash.
He also paid interest in cash to SBI towards loan for acquisition of generator of Rs. 1,52,000. The income of Palak from
the said activity liable to tax would be (without considering 44AD) : (Dec 19 –OS)
(A) Rs. 2,78,000
(B) Rs. 6,98,000
(C) Rs. 5,78,000
(D) Rs. 3,98,000 Ans – B

5. Any kind of dividend (Normal/Deemed) received by a shareholder is fully taxable now in the
hands of the shareholder.
6. The concept of DDT is removed.
AY 21-22 Before amendment upto Rs. 10 Lacs was exempt and over and above was taxable @ 10%.
7. Deemed Dividend (Finance Act 2020 has abolished dividend distribution tax for dividend declared or
paid by the company therefore such dividends will be taxable in the hands of receiver w.e.f. 1/4/2020)
AY 21-22
Section Payment Payment in Payment to To the extent Tax liability
by of of Company
Equity Accumulated
shares profit
Any
2(22)(a) Asset holder whether
company
Preference capitalized or
share not
Equity share
Debenture,
holder
Deposit
Any Preference
2(22)(b) Certificate " Nil ( Now
company share holder
company is
Preference
Bonus not required
Share holder
to pay any
Any
Equity Share tax, only the
2(22)(c) Company Asset "
holder share holder
in
liquidation will pay)
Any
company Equity Share
2(22)(d) Assets "
reducing holder
capital
Equity Share
holder
(holding >
10% Voting
Power) Nil ( Now
Concern (in company is not
Closely held Loan/ Accumulated
2(22)(e) which equity required to pay
Company Advance Profit
share holder any tax, only the
holding > share holder will
10% Voting pay)
Power has
substantial
interest)
Points to be noted -
• Whether capitalized or not (i.e. bonus shares issued is the capitalization of profit).
• Section 2(22) (e) the CBDT has 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.
• Substantial interest - Minimum 20% of voting power or share of profit

CIT v. Parle Plastics Ltd. 332 ITR 63 (Bom.)
If lending of money is a substantial part of the business of the lending company, the money
given by it by way of advance or loan to the assessee could not be regarded as a dividend, as
it had to be excluded from the definition of “dividend” by virtue of the specific exclusion in section
2(22).
1. A private limited company engaged in manufacturing activity had general reserve of Rs. 20 lakh. It
granted a loan of Rs. 5 lakh to a director who held 13% shareholding cum voting rights in the company.
The said loan was re-paid by him before the end of the year. The amount of deemed dividend arising
out of the above transaction is - (Dec. 2015)
(a) Rs. 2,60,000 (b) Rs. 2,40,000
(c) Rs. 5,00,000 (d) Nil. Ans.(c)
2. Libra P. Ltd. engaged in trading activity had accumulated profits of Rs. 15,00,000 as on 1-4-2020, Mr.
Gautam having 30% of the equity shares and voting rights in the company received Rs. 5 lakhs as loan
on 1-6-2020 from the company. The loan was repaid by him on 30-11-2020. The amount liable to tax in
the hands of Mr. Gautam as deemed dividend is: (June, 2017)
(a) Rs. 5,00,000 (b) Rs. 15,00,000
(c) Dividend will be exempt in hands of (d) Rs. 1,50,000
shareholder under Section 10(34). Ans.(a)
3.. The provisions of ‘ deemed dividend’ under section 2(22)(e) of the Income Tax Act, 1961, in respect of
advances or loans to shareholders, or any payment on behalf of shareholders or any payment for the
individual benefit of a shareholder are applicable to: (Dec 2018)
(A) A Public Limited Listed Company
(B) A Public Limited Unlisted Company
(C) A Closely held Company
(D) None of the above Ans A
4. Ghosh having 25% of the share capital in Ghosh Mfg. Industries (P) Ltd. took loan of Rs. 3,50,000 on 15-9-
2020 from the company. He repaid Rs. 1 lakh on 20-3-2021 The company has accumulated profit of Rs. 8 lakh
as on 1-4-2020. It earned profit in the previous year 2020-21 also. The amount assessable as deemed dividend
in the hands of Ghosh would be : (Dec 19 –OS)
(A) Rs. 1,50,000
(B) Rs. 2,50,000
(C) Rs. 3,50,000
(D) NIL Ans – c
Ms. Anshu received dividend of Rs. 80,000 for her equity shareholding in MNO Ltd (a listed company).
She paid interest of Rs. 12,500 for the amounts borrowed for investment in those shares. The taxable
dividend income would be : (Dec 2017)
(A) Rs. 80,000
(B) Rs. Nil
(C) Rs. 67,500
(D) Rs. 92,500 Ans - C

8. Section 56(2)(x) - Purchase/Gifts received for inadequate consideration/ without consideration
Nature of Particulars Taxable value

asset
1 Money Without The whole amount, if the same exceeds
AY 21-22
consideration Rs. 50,000.
Movable Without The aggregate fair market value of the property, if it exceeds
2 property consideration Rs. 50,000.
3 Movable Inadequate The difference between the aggregate fair market value and
property consideration the consideration, if such difference exceeds Rs. 50,000.
4 Immovable Without The stamp value of the property, if it exceeds

property consideration Rs. 50,000.
5 Immovable Inadequate If consideration is less than the stamp duty value of the
property consideration
property and the difference between the SDV &
consideration is more than the higher of –
(i) Rs. 50,000 and
AY 21-22 (ii) 10% of consideration,
the difference between the stamp duty value & the
consideration shall be chargeable to tax in the hands of the
assessee as “Income from other sources”.
Note - The provisions of section 56(2)(x) would apply only to property which is the nature of a capital
asset of the recipient and not stock-in-trade, raw material or consumable stores of any business of
the recipient.
As part of Demand booster for Residential Real Estate Income Tax relief for Developers &
Home Buyers in Atmanirbhar Bharat Package 3.0
• Decided to increase the differential from 10% to 20% (under section 43CA) for the
period from 12th November 2020 to 30th June 2021 for ONLY primary sale of
residential units of value up to Rs 2 crores.
• Consequential Relief up to 20% shall also be allowed to buyers of these units under
section 56(2)(x).
Question on amendment regarding immovable property
On 1st November, 2020, Mr. Y took possession of property (building) booked by him two years
back at Rs. 20 lakh. The stamp duty value of the property as on 1 st November, 2020 was Rs.
32 lakh and on the date of booking was Rs. 23 lakh. He had paid Rs. 1 lakh by account payee
cheque as down payment on the date of booking.
Compute the income of Mr. Y under the head “Income from other sources” for A.Y. 2021-22.
Solution (please remember how it is to be solved stepwise)
Sr. no. Particulars Amount (Rs.)

a SDV as on the date of booking will be considered as some amount 23,00,000
has been paid by account payee cheque
b Difference between SDV & Consideration (Rs. 23 lacs – Rs. 20 3,00,000
lacs)
Now 2 amounts to be compared

c Rs 50,000
d Rs. 2,00,000 (Rs. 20 Lacs * 10%) [10% of consideration]
e Higher of the above two amounts 2,00,000
f Since difference i.e. “b” is > “e”, therefore the difference between Rs.3,00,000
SDV & Consideration (calculated in b) will be taxable under IOS
Receipts exempted from the applicability of section 56(2)(x) (MR ID LUTH NBHS )
Any sum of money or value of property received -
(a) from any Relative; or
(b) on the occasion of the Marriage of the individual; or
(c) under a will or by way of Inheritance; or
(d) in contemplation of Death of the payer or donor, as the case may be; or
(e) from any Local authority; or
(f) from any fund or University or other educational institution or hospital or other medical institution
or any trust or institution; or
(g) from any registered Trust or institution
(h) by any fund or trust or institution or any university or other educational institution or any Hospital
or other medical institution.
(i) by way of transaction Not regarded as transfer under specified clauses of section 47
(j) from an individual by a trust created or established solely for the Benefit of relative of the
individual.
(k) Transfer of money or property between a Holding company and its wholly owned Indian
subsidiary company or between a subsidiary company and its 100% Indian holding company
Meaning of relative
Relative
Father Mother
Father Mother
Brother
Brother
Father Mother
Father Mother
Sister Sister
Brother Brother
Mr. A
(Assessee) Spouse of Mr. A
Sister
Sister
Son Daughter
& Spouse of all the above

Son Daughter

Note - Only & only specified movable properties are taxable under IOS (जाडा - SP – SB)
Jewellery - Archaeological structures - Drawings - Any work of art - Sculptures - Paintings - Shares –
Bullions
1. Rakesh acquired a motor car for Rs. 3,00,000 from his friend (non-relative) when the fair market value of the
motor car was Rs. 5,00,000. The amount liable to tax in the hands of Rakesh from the transaction is : (June,
2017)
(a) Rs. 3,00,000 (b) Rs. 2,00,000
(c) Rs. 1,50,000 (d) Nil Ans.(d)
Note : Since motor car is not covered in the meaning of movable property.
2. A lady received gifts worth Rs. 1,00,000 from her relatives as defined under the Income-tax Act, 1961 and Rs.
60,000 from her office colleagues on her marriage anniversary. The taxable amount of gifts would be - (Dec.
2016)
(a) Rs. 1,60,000 (b) Rs. 60,000
(c) Rs. 10,000 (d) Rs.1,10,000 Ans.(b)
3. Akshay received a gift of Rs. 35,000 each on 22th May, 2020 from his three friends. The amount chargeable
to tax in this case would be - (Dec. 2014)
(a) Rs. 50,000 (b) Rs. 1,05,000
(c) Nil (d) Rs.55,000 Ans.(b)
4. Which of the following income will be taxable as income from other sources -(June, 2015)
(a) Purchase of house from husband for inadequate consideration
(b) Purchase of painting from registered dealer at invoice value less than fair market value
(c) Cash gift from a non-resident friend on marriage anniversary
(d) All of the above.
Ans.(b&c)
5. On 5th February, 2021 Rajat gets a gift of motor car from a relative Madan. Fair market value of the car is Rs.
3,60,000. The amount taxable in the hands of Rajat under section 56(2)(x) is - (Dec. 2012)
(a) Rs. 3,60,000 (b) 13,10,000
(c) Nil (d) Rs. 50,000 Ans.(c)
6. On 30th December, 2020, Raju gets by gift a commercial flat from the elder brother of his father-in-law
(stamp duty value is Rs. 25,00,000). The amount chargeable to tax in the hands of Raju is - (June, 2012)
(a) Rs. 25,00,000 (b) Rs. 24,50,000
(c) Rs. 20,00,000 (d) Nil. Ans.(a)
7. Mr. Ram received cash gift of Rs. 51,000 from his friends on the occasion of his 50th birthday. None of the
friends are relative. The amount liable to tax in the hands of Mr. Ram. would be : (June, 2017)
(a) Nil (b) Rs. 1,000
(c) Rs. 51,000 (d) Rs. 46,000 after deducting causal income of
Ans.(c)
8.Where a firm or closely held company received from any person any property being shares of closely
held company without consideration: (June, 2017)
(a) The whole of the fair market'value of the shares shall be taxable
(b) The whole of the FMV shall be taxable if it exceeds Rs. 50,000
(c) The whole of FMV shall be exempt
(d) The whole of the cost of such shares shall be exempt Ans.(b)
9. Rishab received the following gifts during the previous year:
(i) Rs. 50,000 from his employer
(ii) Rs. 1,00,000 from mother's sister
(iii) Rs. 10,000 from his friend on the occasion of his marriage
(iv) Rs. 60,000 in the form of scholarship from a registered charitable trust.
11. The amount of taxable gift under the head 'income from other sources' is - (June 2016)
(a) Nil (b) Rs. 50,000
(c) Rs. 1,50,000 (d) Rs. 2,10,000 Ans.(a)
12. Ram received Rs. 80,000 by way of gift from friends upon retirement from service in a privaté company.
The amount of gift chargeable to income-tax would be : (Dec 2017)
(A) Nil
(B) Rs. 30,000
(C) Rs. 70,000
(D) Rs. 80,000
Ans – D

13. Lokesh (age 62) received following gifts on the occasion of his birthday :
(i) cash gift from elder brother Rs. 30,000;
(ii) Gold chain from younger sister market value on the date of gift Rs. 38,000;
(iii) cash gifts from friends (non-relatives) Rs. 45,000;
(iv) Purchased shares from younger brother for Rs. 1 lakh when the market value of the shares was Rs.
1,35,000. Amount of income chargeable to tax in respect to the above transactions would be : (Dec
2017)
(A) Rs. 1,48,000
(B) Rs. 1,18,000
(C) Rs. 80,000
(D) Nil Ans - D
14. State which out of the following gifts received during the year by Girish from different persons shall be
subject to tax in the assessment year 2021-22: (Dec 2018)
(i) Wrist watch of Rs.75,000 given by a non-resident friend.
(ii) Cash of Rs. 51,000 given by elder brother.
(iii) Cash of Rs. 21,000 each given by 4 friends on his birthday.
(iv) Painting of Rs.30,000 given by employer on his birthday.
(A) (iii) and(iv)

(B) (i), (iii) and(iv)
(C) (ii) and(iii)
(D) All the four in (i),(ii),(iii)and(iv) Ans. A
15. All & All is a charitable trust registered under the Income-tax Act, 1961. It acquired a vacant land for Rs.
8,40,000 from Allen. The stamp duty value of the land was Rs. 10,20,000. How much will be added to the
income of the trust towards purchase of property for inadequate consideration ? (Dec 19 –OS)
(A) Rs. 27,000
(B) Rs. 1,80,000
(C) NIL
(D) Rs. 1,38,000 Ans – C
16. A flat in Jaipur was booked by Aditi for Rs.30 lakh with UDB Builders on01.09.2018 and an amount of Rs.10
lakh was paid by account payee cheque. The possession of flat was given by the builder on 13.01.2021. The
Stamp Valuation Authority have determined the value of the flat on the date of booking at Rs.35,00,000
and on the date of possession given by the builder after execution of conveyance deed at
Rs.45,00,000. Find out the amount if any, chargeable to tax in respect of this flat in the hands of Aditi in
the A.Y. 2021-22 under the head ‘Income from other sources’. (Dec 20 –NS)
(A) Rs.15,00,000
(B) NIL
(C) Rs.5,00,000
(D) Rs.10,00,000 ANS-C
17. Shares issued in excess of FMV
Section Provision
56(2)(viib) Consideration received by a closely held company from any person, being a resident in excess
of Face Value then consideration received in excess of FMV of shares issued, to be treated as
income of such company under IOS.
Exception – Income received by start ups or from Venture Capital Funds.
Illustration
The following details of the shares issued by the following closely held companies are
available. You are required to advise the Company on the applicability or otherwise of Sec
56(2) (viib).

Co. No. of FV of FMV of Issue Applicability &

Shares Shares Shares Price Chargeable Tax
(INR) (INR) (INR)
A (P) 10000 100 120 130 Sec. 56(2) (viib) attracted as the
Ltd. shares are issued at premium.
10000 X (130- 120) = INR 100,000
would be chargeable to tax under the
head
“Income from other sources”
B (P) 20000 100 120 110 Sec. 56(2) (viib) attracted as the
However, no amount is chargeable to
tax as the Issue Price is < the FMV
C (P) 30000 100 90 98 Sec. 56(2) (viib) are not attracted as
Ltd. the shares are not issued at premium,
rather at a discount on FV, even
though the issue price is > FMV
D (P) 40000 100 90 110 Sec. 56(2) (viib) attracted as the
40000 X (110-90) = INR 800,000 would
be chargeable to tax under the head
“Income from Other Sources”
1. Agra (P) Ltd. issued equity shares of Rs. 10 each at Rs. 40 per share. The fair market value of the share on the
date of issue was ascertained as Rs. 25 per share. The company issued 1,00,000 equity shares. The amount
liable to tax in the hands of the company would be : '(June, 2017)
(a) Rs. 15,00,000 (b) Rs. 30,00,000 Rs.
(c) Nil (d) Rs. 40,00,000 Ans. (a)
2. Comfort (Pvt.) Ltd. issued 10,000 equity shares to Pawan at Rs. 18 per share when the fair market value of
each share was determined at Rs.11 per share. The tax implication of the transaction is - (June 2016)
(a) Rs. 70,000 taxable as income for Comfort (Pvt.) (b) Rs. 20,000 taxable as income for Pawan
(c) Rs. 10,000 taxable as income for Pawan (d) Nil Ans.(a)
18. ON DISTRIBUTION OF ASSETS BY COMPANIES IN LIQUIDATION
Capital Gains on
distribution of assets by
companies in liquidation
[Section 46]
In the hands of the In the hands of

company [Section shareholders
46(1)] [Section 46(2)]
Subject to dividend
distribution tax
Distribution is not a
transfer Distribution Money received (+)
attributable to FMV of assets
accumulated profits distributed (-)
No capital gains tax of the company deemed dividend
liability u/s 2(22)(c)
Deemed dividend
u/s 2(22)(c) Full value of
consideration for the
purpose of section 48
Exempt u/s 10(34)4
Subject to Capital
Gains

Module Case Laws Summary
1. Union of India vs Tata Tea- [2017] (SC) - Newly added in ICSI Module
Issue – Tata Tea company which manufactures Tea claimed is not liable to dividend distribution tax u/s
115-O as tax on this dividend is nothing but tax on agriculture Income.
Conclusion – DDT is payable because when dividend is distributed to company’s shareholders it is not
relevant how the income has been earned. Also Dividend is not revenue derived from land and hence
cannot be termed as agriculture income in the hands of the shareholders.
2. Commissioner of Income Tax v. Smt. Swapna Roy [2010] (HC)
Issue - Investment by the assessee in sister concerns running in loss since several years
may be treated as investment or expenditure made exclusively for the purpose of
making or earning such income ?
Conclusion - the interest on loan is not allowable deduction under section 57(iii)
3. The Supreme Court held in CIT v. Rajendra Prasad Moody [1978] 115 itr 519, that in order
to claim deduction under section 57 in respect of any expenditure, it is not necessary that
income should in fact have been earned as a result of the expenditure.
The Court held that the interest on money borrowed for investment in shares which had not
yielded any taxable dividend was admissible as a deduction under section 57 under the
head, “Income from other sources”.

9.Clubbing 9.1
Chapter 9 – Clubbing
Income of other persons includible in the income of

an individual
Transfer of income Income arising from Spouse's income Minor's income Income of son's wife
without transfer of revocable transfer of [Section 64(1A)
asset asset
[Section 60] [Section 60]
Remuneration Income arising Income arising All income of a Income arising Income arising
to spouse from to spouse to any person minor is clubbed to son’s wife to any person
a concern from an asset or AOP’s from in the income of from an asset or AOPs
in which transferred assets parent, whose transferred from assets
Exceptions individual has without transferred total income, without transferred
[Section 62] a substantial adequate without excluding minor's adequate without
interest consideration adequate income, is greater. consideration adequate
[Section 64(1) consideration Exemption of [Section 64(1) consideration
(ii)] [Section 64(1) [Section upto Rs. 1,500 per (vi)] for the benefit
(iv)] 64(1) (vii)] child is available of son's wife
u/s 10(32) [Section 64(1)
Transfer by way of a trust Transfer (viii)]
which is not revocable before 1 April
during the life time of 1961 and not
the beneficiary or in case revocable > 6 115BAC – Exemption
of any other transfer years Exceptions of Rs. 1500 is not
not revocable during the Exceptions
lifetime of the transferee Exceptions allowed
Transferor derives no direct or indirect Where spouse

benefit from such income possesses technical Agreement to
or professional live apart
qualification, Income from Income of a minor
As and when power to revoke arises clubbing provisions manual work or child suffering
clubbing provisions would apply will not apply from skill, talent from disability
or specialized mentioned u/s
knowledge or 80U shall not be
experience will clubbed
not be clubbed
* In case of transfer of house property to souse without adequate consideration,
transferor will be deemed as owner of such property as per section 27(i).
Note–Points separately covered for section 64 (1) (ii), (iv) , (vi), (1A),(2)
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9.Clubbing 9. 2
Summary
Section Income to be clubbed Contents
64(1)(ii) Income arising to • To be included in the total income of the individual.

spouse • However, if remuneration received is attributable to the
by way of remuneration application of technical or professional knowledge and
from a concern in experience of spouse, then, such income is not to be
which the individual has clubbed.
substantial interest • Where both husband and wife have substantial interest
in a concern and both are in receipt of income, such
income will be includible in the hands of that spouse,
whose total income, excluding such income is higher.
• Relative - Husband, wife, brother or sister or any

lineal ascendant or descendant of that individual.
64(1)(iv) Income arising to

spouse from assets
Transferred due to
transferred without agreement to live apart
adequate
consideration
Exceptions
The marriage does not
(Love and affection subsist either at the time of
are not adequate transfer or at the time of
accrual of Income.
consideration)
1. However, this provision will not apply in the case of
transfer of house property, since the transferor-spouse would
be the deemed owner as per section 27.
2. The income arising on transferred assets alone have to
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9.Clubbing 9. 3
be clubbed. However, income earned by investing such

income (arising from transferred asset) cannot be clubbed.
Profits of
business to be
Income Transferee clubbed in the
generated invested in hands of the
transferor in
to her proportion to
the capital on
transferee business the 1st Day of
the FY
64(1)(vi) Income arising to son’s • Exception, Point 2nd and 3rd of above clause
wife from an asset applicable here also.
transferred without
adequate consideration
64(1A) Income of minor child • Be included with the income of that parent, whose total
income, before including minor’s income, is higher.
• Income of a minor child suffering from any disability
of the nature specified in section 80U shall not be
clubbed.
• It may be noted that the clubbing provisions are
attracted even in respect of income of minor married
daughter.
64(2) Conversion of self- • Property transferred directly or indirectly, for
acquired property into inadequate consideration, the income from such
the property of a property shall be clubbed.
Hindu Undivided • Where converted property has been partitioned, either
Family by way of total or partial partition, the income derived
from such converted property as is received by the
spouse shall be clubbed in the hands of the person
who effected the conversion of such property.
Note: As per Explanation 2 to section 64 ‘income’ includes ‘loss’. So, loss is also clubbed.
Few Points –
a. Cross Transfers – The Supreme Court, in case of CIT v. Keshavji Morarji [1967] 66 ITR 142, observed
that if two transactions are inter-connected and are parts of the same transaction in such a way that it can

9.Clubbing 9. 4
be said that the circuitous method was adopted as a device to evade tax, the implication of clubbing
provisions would be attracted.
b. transfer shall be deemed to be revocable if:

(i) it contains any provision for the re-transfer directly or indirectly of the whole or any part of
the income or assets to the transferor; or
(ii) it, in any way, gives the transferor a right to reassume power directly, or indirectly over the
whole or any part of the income or assets.
Examples of revocable transfers
Some of the examples of revocable transfers are as follows:
(i) If there is an express clause of revocation in the instrument of transfer; or
(ii) If there is a sale with a condition of re-purchase; or
(iii) If the transfer is to a trust and if the transfer can be revoked with the consent of two or more
beneficiaries;
Or
(iv) If the trustees are empowered in sole discretion to revoke the transfer;
or
(v) If the transferor has power to change beneficiary or trustees. “Transfer” includes any
settlement, trust, agreement or arrangement.
Note: Re-transfer to the transferor must be in the same capacity in which he made the transfer or
settlement. If a settlement is made by a Hindu undivided family and there is a re-transfer to one
member of the family in his capacity as an individual and not in his capacity as a member of the
family this cannot be termed a re-transfer for this purpose.
C. Earnings from pin money are not clubbed in the hands of the husband
D. Section 60 does not apply if corpus itself is transferred. [Grandhi Narayana Rao 173 ITR 593
(AP)]
E. Wife means legally wedded wife.
F. Recovery of tax - Dual Liability for Tax – Tax can either be recovered from the assessee or
from the other person. His liability arises after the service of a notice of demand by the Assessing
Officer in this behalf.
Past Exam Questions
(1) Shyam transferred 2,000 shares of X Ltd. to Ms. Babita without any consideration. Later, Shyam and Ms.
Babita got married to each other. The dividend income from the shares transferred would be - (June, 2015)
(a) Taxable in the hands of Shyam both before and after marriage
(b)Taxable in the hands of Shyam before marriage but not after marriage
(c) Taxable in the hands of Shyam after marriage but not before marriage
(d)Never taxable in the hands of Shyam Ans.(d)
(2) Rohit (a Chartered Accountant) is working as Accounts Officer in Raj (P) Ltd. on a salary of Rs. 20,000 p.m.
He got married to Ms. Pooja who holds 25% shares of this company. What will be the impact of salary paid to
Rohit by the company in the hands of Ms. Pooja - (Dec. 2015)
(a) 100% salary to be clubbed (b) 50% salary to be clubbed

9.Clubbing 9. 5
(c) No amount be clubbed (d) 25% salary be clubbed. Ans.(c)

(3) In whose total income, the income of a minor child is included —(June, 2010)
(a) Father (b) Mother
(c) Father and mother both (d) Parent whose total income is greater. Ans.(d)
(4) When the income of an individual includes Rs. 20,000 as the income of his minor child in terms of section
64(1A), taxable income in this respect will be if the assessee has opted for section 115BAC - (Dec. 2011)
(a) Nil (b) Rs. 20,000
(c) Rs. 18,500 (d) None of the above. Ans.(b)
(5) Aiyer gifted 100 shares to his wife on 1st August, 2013. She received 200 bonus shares from the
company in April, 2019. All the shares were sold to a friend for Rs. 1,50,000 in May, 2020. The 100
shares were originally acquired by Aiyer for Rs. 5,000. The capital gain on sale of shares in the month of
May, 2020 shall be chargeable to tax : (June 2019)
(a) fully in the hands of Aiyer
(b) fully in the hands of Mrs. Aiyer
(c) for 100 shares in the hands of Aiyer and balance 200 shares in the hands of Mrs. Aiyer
(d) for 200 shares in the hands of Aiyer and balance 100 shares in the hands of Mrs. Aiyer
Ans.(c)
(6) Incomes of two minor children are included in the income of their father. Father is entitled to exemption
under section 10(32) upto - (Dec. 2014)
(a) Rs. 1,500 (b) Rs. 1,000
(c) Rs. 3,000 (d) Rs. 2,000. Ans.(c)
(7) Ram has gifted on 11th May, 2020 an amount of Rs. 10,00,000 to his wife Sita without consideration
and also for not to live apart. The gifted amount was invested by his wife in interest bearing security on
which she earned interest of Rs. 1,00,000 on 1st January, 2021. The amount of interest of Rs. 1,00,000
was further invested by her in the business from which she earned a profit of Rs. 15,000 for the period
ended on 31st March, 2021. Specify the income which is to be included in the hands of Ram in A.Y. 2021-
22. (Dec 19 –NS)
(a) Rs. 1,15,000 (b) Rs. 1,00,000
(c) Rs. 15,000 (d) Nil Ans.(b)
(8)Rohit is working as Company Secretary in Raj Chem FVt. Ltd. on a salary of Rs. 20,000 p.m. He got
married to Pooja who holds25% shares of his Company. What will be the impact of salary paid to Rohit
by the company in the hands of Pooja? (Dec 19 –NS)
(a) No amount to be clubbed (b) Club 50% salary
(c) Club 100% salary (d) 25% salary be clubbed Ans.(a)
(9) Chandni (age 14) received Rs. 70,000 as cash gift on her birthday from her parents’ friends. How
much of her income would be liable for clubbing in the hands of her parent ? (Dec 19 –OS)
(A) Rs. 70,000
(B) Rs. 40,000
(C) Rs. 20,000
(D) Rs. 1,08,500 Ans – A
10. Revocable transfer of asset as per section 61 of the Income Tax Act, 1961 includes the transfer which gives
a right to ------- of the asset or the income from such asset or assets during the_____of transferee. (Dec 20 –NS)
(A) Re-assume power; Life time
(B) Revoke; Life time
(C) Transfer; Discretion
(D) Re-locate; Period of 10 years ANS-A
11. Income from assets as per section 64(1)(iv) shall not be included in the income of transferor where any
individual transfers directly or indirectly any asset other than house property to the spouse when -----
(Dec 20 –NS)
(A) has received adequate consideration
(B) has been made with an agreement to live apart
(C) after the death of either transferor or transferee

9.Clubbing 9. 6
(D) all in A, B & C ANS-D

12. Where the income of an individual includes any income of his minor child as per section 64(1A) of the Act;
such individual shall be entitled to claim exemption of a certain amount (not exceeding the income clubbed)
as per section 10(32). The amount of exemption available is --------(Dec 20 –OS)
a. 1,500 in respect of each minor child
b. 1,500 in respect of each minor child but maximum of two children
c. 2,000 in respect of each minor child
d. 3,000 in respect of each minor child ANS. A
13. Rajkamal has four minor children (2 daughters and 2 sons). The annual income of two daughters
was Rs. 9,000 and Rs. 4,500 and of two sons was Rs. 6,000 and Rs. 4,000 for the financial year
2020-21. The income does not accrue or arise to any of the minor children on account of any manual
work done by them or activity involving applicationof their skill, talent or specialized knowledge and
experience. The daughter who has income of Rs. 4,500 was suffering from a disability specified
under section 80U. The amount of income earned by all the minor children to be clubbed as per
section 64(1A) of Act in the hands of Rajkamal for the assessment year 2021-22 is -----------(Dec 20
–OS)
a. Rs. 23,500
b. Rs. 14,500
c. Rs. 17,500
d. Rs. 19,000 ANS.B
14. Income of interest received by a minorchild on a fixed deposit with a bank made out of/from the amount of
scholarship received from the State Government is -----------(Dec 20 –OS)
(A) exempt from tax
(B) to be clubbed with the income of father
(C) to be assessed in the hands of the minor child
(D) to be clubbed with the income ofthat parent whose total income, before including minor’s income is
higher
ANS.D

10. Set off & C/f 10.1
Chapter 10 – Set off – C/f of Losses
Sr No. Heads Types of Set off in the year of Loss Carry forward and set off in Time Limit Return filing
of business/ the subsequent previous years for c/f and requirement
Income activity set off for before due
Inter source Inter head Inter source Inter head
next - date
(Sec 70) (sec 71)
(Section 80)
1 Salary - Loss doesn’t arise
2 House - Allowed Allowed- Allowed Not Allowed 8 A.Y's No

Property Maximum Rs
2,00,000
aggregating al
heads.
Balance C/f
Normal i.e. Allowed from any Allowed except Allowed from any Not Allowed 8 A.Y's Yes
non- business (Normal, Salary business (Normal,
speculation speculative, 35AD) speculative,
business 35AD)
Speculation Allowed - Only Not Allowed Allowed - Only Not Allowed 4 A.Y's Yes
3 PGBP Business and only from and only from
speculation speculation
business business
35AD Allowed - Only Not Allowed Allowed - Only Not Allowed Indefinite Yes
and only from and only from period
35AD business 35AD business

10. Set off & C/f 10.2
Sr No. Heads Types of Set off in the year of Loss Carry forward and set off in Time Limit for c/f Return filing
of Income business/ the subsequent previous years and set off for requirement
activity Inter source Inter head Inter source Inter head next - before due
(Sec 70) (sec 71) date
Short Term Allowed (From both Not Allowed Allowed (From both Not Allowed 8 A.Y's Yes
STCG and LTCG) STCG and LTCG)
4 Capital Gains
Long Term Allowed - Only and Not Allowed Allowed - Only and Not Allowed 8 A.Y's Yes
only from LTCG only from LTCG
Normal income Allowed - Against Allowed Loss not allowed to c/f NA

normal income and
activity of
maintaining horse
races
Lottery, betting, Not Allowed and also No Loss can be set off against such Income. NA
5 IOS gambling, horse
races etc.
Activity of Allowed - Only and Not Allowed Allowed - Only and Not Allowed 4 A.Y's Yes
owning and only against activity only against
maintaining of maintaining horse activity of
Race Horses races maintaining horse
races
- Allowed Allowed Allowed Allowed Indefinite period No
Unabsorbed except except
6
depreciation Salary Salary

10. Set off & C/f 10.3
Impact of Section 115 BAC on Set off and carry forward of losses: -
AY 21-22
Sr. Nature of Exemption/Deduction Relating to Head New System of Tax u/s Existing
No. House Property 115BAC system
of Tax
1. Set off of brought forward House Property losses & Not allowed if related to allowed
brought forward depreciation from disallowed deduction
Current year House Property income & exemptions
2. Set off current year House Property loss from other Not allowed allowed
heads
Few Pointers
1. Loss from an exempt source cannot be set-off against profits from a taxable source of income.
2. Only the person who has incurred the loss is entitled to carry forward or set off the same.
Consequently, the successor of a business cannot carry forward or set off the losses of his predecessor
except in the case of succession by inheritance by death.
Note – The unabsorbed depreciation can’t be carried forward by the successor on inheritance
3. ORDER OF SET-OFF OF LOSSES
a. Current scientific research expenditure [under Section 35(1)].
b. Current Depreciation [under Section 32(1)].
c. Brought forward business losses [under Section 72(1)].
d. Unabsorbed family planning promotion capital expenditure [under Section 36(1)(ix)].
e. Unabsorbed Depreciation [under Section 32(2)].
f. Unabsorbed scientific research expenditure [under Section 35(4)].
4. The loss suffered by a wholly owned subsidiary company cannot be set-off by the parent company
5. Where loss incurred by a wholly owned subsidiary company is reimbursed by the holding company,
the subsidiary company does not use the right to carry forward and set-off the loss.
6. Loss from an illegal speculation business cannot be set-off against income from any lawful
speculation.
7. Commission on speculative transactions is normal income i.e. non-speculative
8. Illegal business dies with all its losses in the same year [CIT v. Kurji Jinabhai Kotecha (1977) 107 ITR 101
(SC)] So no loss can be set off or C/f
9. Sometimes there may be brought-forward speculation loss & current year’s non-speculation business
loss. Now the problem arises which loss should be set-off first against the current year’s speculative
income. Accordingly, to the administrative instructions the Assessing Officer may allow the assessee:

10. Set off & C/f 10.4
(i) either to first set-off the speculation loss carried forward; or
(ii) to first set-off the current year’s losses from non-speculation

business and other sources
whichever is advantageous to the assessee..
10. Speculation business is carried on by sole proprietor and after his death the business is continued
by legal heirs forming partnership, the firm is entitled to carry forward and set-off such loss. [C.I.T.
v. Madhukant M. Mehta (1981) 132 ITR 159 (Guj.)].
11. Only the person who has incurred the loss is entitled to carry forward or set off the same.
Consequently, the successor of a business cannot carry forward or set off the losses of his
predecessor except in the following cases –
Exceptions
Share of loss of
Son succeding the partnership taken
business/ professoin over by one of its Certain cases covered
by inheritance due to partners can also be in point 12 below
father's death set-off by the
partner[Dwarkadass
Leeladhar v. CIT (1963)
47 ITR 619 (Ker.)]
Note - However, loss incurred by HUF → cannot be C/f & set-off after its partition against income of firm
formed by certain coparceners. [KeshrichandBhanabhai v. CIT(1951) 20ITR 201 (Bom.)].
Note – The unabsorbed depreciation can’t be carried forward by the successor on inheritance
12. C/f and Set – Off of Business Loss and Unabsorbed Depreciation in case of Amalgamation, Demerger etc.
(Section 72A)

10. Set off & C/f 10.5
This point 8 is again exception to point 7 above –
Losses/ unabsorbed
depre. to be c/f by
successor entities -
In case of reorganisation -
Amalgamation of industrial a. firm/proprietary concern
undertaking/ ship co./ a In Demerger 72A(4) is succeeded by a company
hotel with another company and (5) - 72A(6)
or an amalgamation of a
banking company (72AA) b. private company / unlisted
public company is
succeeded by a LLP - 72(6A)
Unabsorbed
Unabsorbed depreciation &
depreciation & Losses can be C/f Unabsorbed
Losses can be C/f by the new entity depreciation &
by the new entity Losses can be C/f
by the new entity
Here the losses are Here the losses are

considered to be the fresh not considered to Here the losses are
losses for the new entity in be the fresh losses considered to be the fresh
the year of for the new entity losses for the new entity in
amalgamation.(Refer Note the year of
below) reorganizations.(Refer Note
below)
• Note – Suppose losses are incurred by Company “A” in PY 13-14 and amalgamation took place in 17-18
with company “B”, then for those old losses incurred by Company “A” it is considered as if the same are
suffered in the year 17-18 (i.e. 17 – 18 is considered as the first year of losses) and it can be further c/f by
Company “B” for next 7 years.
[ In simple words there is re-incarnation of Losses] [ पुनर्जन्म ]
AY 21-22
Note: - Benefit of Setoff and Carry forward of losses has now (FA 2021) been extended to
amalgamation of public sector banks and public sector General insurance Companies from 1st
April 2020 and onwards.

10. Set off & C/f 10.6
13. Treatment of C/f – Set Off of Losses of certain assesses –
a. In case of change in constitution of firm [Section 78] - Firm is not entitled to carry forward and
set off so much of the loss proportionate to the share of a retired or deceased partner as exceeds
his share of profits, if any, in the firm in respect of the previous year.
Example - A firm consists of 3 partners A, B & C with equal Profit -sharing ratio. The firm suffered loss for the
year 16 17 amounting to Rs. 3,00,000. Further partner C retired on 31 st March 17. Now for PY 18 – 19, firm will
not be able to c/f losses of Rs. 1 Lacs which belonged to the retired partner C.
Thus, the carried forward losses for the year 18-19 will be only Rs. 2 lacs.
b. Carry-forward and set-off of losses of companies in which the “public are not substantially
interested” [Section 79]
The losses of such companies can be carried forward and set-off only if -:
“Minimum 51% shareholders having voting powers shall be the same as on the last day of the PY in
which the loss was incurred
“&”
on the last day of the PY in which the loss is to be adjusted against the profit.”
Example –
• On 31st march 2017 (PY 16-17) → Company consists of 4 shareholders – A, B, C, D with 25% equity holding
each. Company suffered loss of Rs 10 Lacs during PY 16-17.
• Now in PY 17-18, Mr. C retired and Mr. D took over his share in the company and company earned a profit of
Rs. 25 Lacs. The s/h as on 31st March18 were A, B, C, D.
• Here as on the last day of PY 17-18 and PY 18-19, 3 shareholders are the same (i.e. Mr. A, B and C) holding
minimum 51% voting powers on both these dates.
• Therefore Co. will be able to set off the loss of Rs. 10 Lacs against the profits of Rs. 25 Lacs.
Note - However, the benefit of set-off will not be denied if the change in voting power is
due to
Death of a transfer of shares by way

Shareholder
of gift to any relative of
the shareholder making
such gift.
c. Carry forward and set of losses in case of eligible start-up u/s 80-IAC and it should be a
company in which public are not substantially interested. Section 79(b)
This section is applicable if following conditions are satisfied:
In case of such company the losses of such companies can be carried forward and set-off if –

10. Set off & C/f 10.7
“The shares of the company carrying not less than 51% of the voting power were beneficially
held by persons who beneficially held shares of the company carrying not less than 51% of
the voting power on the last day of the year or years in which the loss was incurred.
Provided that even if the said condition is not satisfied in case of an eligible start up as referred to in section
80-IAC, the loss incurred in any year prior to the previous year shall be allowed to be carried forward and set
off against the income of the previous year if all the shareholders of such company who held shares
carrying voting power on the last day of the year or years in which the loss was incurred, continue
to hold those shares on the last day of such previous year and such loss has been incurred during the
period of seven years beginning from the year in which such company is incorporated.
Note - However, the benefit of set-off will not be denied if the change in voting power is
due to
a.
Death of a transfer of shares by way of
Shareholder
gift to any relative of the
shareholder making such gift.
b. Change in shareholding takes place due to the Insolvency & Bankruptcy code.
c. If the assessee is a subsidiary of foreign company and the foreign holding company is amalgamated
/ merged with another foreign company (and the persons holding 51% or more shares in the
amalgamating/ demerged company become the shareholders of the amalgamated/resulting
foreign company).
d. Change in shareholding takes place due to resolution plan approved by NCLT.
MCQ’s
(1) Where a change in shareholding has taken place during the previous year in the case of a company, not being a
company in which the public are substantially interested, no loss incurred in any year prior to the previous year
shall be carried forward and set off against the income of the previous year, unless on the last day of the previous
year, the shares of the company carrying not less than of the voting power were beneficially held by persons who
beneficially held shares of the company carrying not less than of the voting power on the last day of the year or
years in which the loss was incurred.
(a) 25%, 25%

(b)51%, 51%
(c) 75%, 75%
(d) 50%, 50%
Ans.(b)

10. Set off & C/f 10.8
Past Exam MCQ’s
(1) Mr. Shahu has loss from house property of Rs. 1,10,000 (computed) for the assessment year 2021-22. He
can carry forward such loss for subsequent assessment years. (June, 2017)
(a) 4 (b) Nil
(c) 8 (d) Indefinite Ans.(c)
(2) Business loss can be set off from income of any other business but cannot be set off from: (June 2019)
(a) Salary Income
(b) House Property Income
(c) Long Term Capital Gains
(d) Income from derivatives specified in Sec. 43(5) Ans.(a)
(3) Loss from speculation business can be set-off against - (Dec. 2016)
(a) Income from salaries (b) Income from house property
(c) Income from speculation business only (d) Any head of income Ans.(c)
(4) Loss from speculation business is eligible for carry forward of loss for a period of -(Dec. 2016)
(c) 8 Years (d) 12 Years Ans.(a)
(5) Unabsorbed loss from house property can be carried forward for - (Dec. 2016)
(c) Indefinite period (d) Can not be carried forward
Ans.(b)
(6) No loss can be set-off against -(Dec. 2016)
(a) Income from salaries (b) Income from house property
(c) Income from capital gains (d) Winnings from lotteries, etc.
Ans.(d)
(7) Which of the following losses available after inter source set-off, cannot be set-off from incomes in other
heads in the same assessment year - (June 2016)
(a) Speculation losses (b) Loss from specified business
(c) Loss under the head capital gains (d) All of the above Ans.(d)
(8) To carry forward and set-off losses, a loss return must be filed by the assessee within the stipulated time
and gets the loss determined by the Assessing Officer. However, this condition is not applicable to - (June
2016)
(a) Loss from house property (b) Loss from speculation business
(c) Loss from discontinued business (d) Loss from capital assets Ans.(a)
(9) Ashwin has speculation business loss brought forward of the assessment years 2015-16 Rs. 1,00,000;
2016-17 Rs. 70,000 and 2017-18 Rs. 60,000. He has income from the same speculation business for the
assessment year 2021-22 Rs. 5,40,000. His total income chargeable to tax for assessment year 2021-22 would
be - (June 2016)
(a) Rs. 3,10,000 (b) Rs. 4,10,000
(c) Rs. 4,80,000 (d) Rs. 4,40,000 Ans.(c)
(10) Mathur Storage (P) Ltd. engaged in chain cold storage has brought forward business loss of Rs. 12 lakhs
relating to A.Y. 2020-21. During the previous year 2020-21, its income from the said business is Rs. 9 lakhs. It
also has profit from trade in food grains of Rs. 6 lakhs. The total income of the company for the A.Y. 2021-22
is :(June, 2017)
(c) Rs. 6 lakhs (d) Rs. 3 lakhs Ans.(c)
[Note : If chain cold storage is a specified business u/s 35AD, the brought forward business loss can be set-off
only from profits of specified business is such case the brought forward business loss can be set-off to the
extent of Rs. 9 lakh and balance loss shall be carried forward and the answer will be Rs. 6 lakh.]
(11) If an individual, having a sales turnover of Rs. 60 lakh files his return of income for the assessment year
2021-22 after the due date, showing unabsorbed business loss of Rs. 23,000 and unabsorbed depreciation of
Rs. 45,000, he can carry forward to the subsequent assessment years -(June, 2015)
(a) Both unabsorbed business loss of Rs. 23,000 and unabsorbed depreciation of Rs. 45,000
(b) Only unabsorbed business loss of Rs. 23,000
(c) Only unabsorbed depreciation of Rs. 45,000
(d) Neither unabsorbed business loss of Rs. 23,000 nor unabsorbed depreciation of Rs. 45,000.
Ans.(c)
(12) Short term capital loss can be set-off as per provisions of section 72 of the Income Tax Act, 1961 from :
(June 2019)

10. Set off & C/f 10.9
(a) Short term capital gain
(b) Short term capital gain and Long term capital gain
(c) Long term capital gain
(d) Short term capital gain and profit & gain from business Ans.(b)
(13) Short-term capital loss can be set-off from - (June, 2012)
(a) Short-term capital gains
(b) Long-term capital gains
(c) Both short-term and long-term capital gains
(d) Any income of the previous year. Ans.(c)
(14) Loss from the activity of owning and maintaining race horses could be set-off - (June, 2015)
(a) Against income under any of the five heads of income
(b) Only against income under the head 'income from other sources'
(c) Only against income under the head 'profits and gains of business or profession'
(d) Only against income from same. Ans.(d)
(15) For the previous year 2020-21, an assessee suffered a business loss of Rs. 2,50,000. His income from
other sources is Rs. 1,80,000. His due date of return was 31st July, 2021 but he submitted the return on 9th
September, 2021. The assessee in this case - (June 2016)
( a. Shall be allowed to carry forward ( b. Shall not be allowed to carry forward any loss
a the loss of Rs. 70,000 b
) )
( c. Shall be allowed to set-off current ( d. Shall not be allowed to set-off the business
c year business loss to the extent of ` d loss to the extent of Rs. 1,80,000 and would be
) )
1,80,000 but shall not be allowed to liable to tax on Rs. 1,80,000
carry forward the balance loss of `
Ans.(c)
70,000
(16) The loss from activity of owning and maintaining race horses is eligible for carry forward and set off for
a maximum period of : (June 2019)
(a) 8 Assessment years (b) 6 Assessment years
(c) 4 Assessment years (d) 2 Assessment years
Ans.(c)
(17) A partnership firm with 4 equal partners brought forward depreciation of Rs. 3 lakh and business
loss of Rs. 3 lakh relating to assessment year 2020-21. On 1st April, 2020, two partners retired. The
amount that assessee-firm can set-off against its income for the assessment year 2021-22 would be -
(Dec. 2015)
(a)Unabsorbed depreciation of Rs. 3 lakh plus brought forward business loss of Rs. 3 lakh.
(b)Unabsorbed depreciation 'nil' plus brought forward business loss Rs. 3 lakh.
(c) Unabsorbed depreciation Rs. 3 lakh plus brought forward business loss 'nil'.
(d)Unabsorbed depreciation Rs. 3 lakh plus brought forward business loss of Rs. 1.50 lakh.
Ans.(d)
Answer Hint: Loss to the extent of share of retiring partner shall not be allowed to be carried forward
and set-off.
(18) Mr. Hussey for the previous year has (i) business loss of Rs. 1,30,000; (ii) income from salary Rs.
2,40,000; and (iii) speculation gain of Rs. 1,10,000. His total income for income tax assessment is ; (June,
2017)
(a) Rs. 3,50,000 (b) Rs. 2,20,000
(c) Rs. 2,40,000 (d) Rs. 1,10,000 Ans.(c)
(19) If a person is eligible to claim : (1) unabsorbed depreciation; (2) current scientific research expenditure;
(3) current depreciation; (4) brought forward business loss. The order of priority to set-off would be - (Dec.
2015)
(a) (4), (3), (2) & (1) (b) (2), (3), (4) & (1)
(c) (3), (4), (1) & (2) (d) (1), (2), (3) & (4) Ans.(b)
(20) Annamalai has income from business of Rs. 5,50,000 and loss from horse race of Rs. 60,000 of the
previous year 2020-21. He has brought forward discontinued business loss of Rs. 1,10,000 of the
assessment year 2012-13 and regular business loss of Rs. 90,000 of assessment year 2019-20. His total
income for the assessment year 2021-22 after set off of eligible losses would be : (Dec 19 –OS)
(A) Rs. 2,90,000

10. Set off & C/f 10.10
(B) Rs. 3,50,000
(C) Rs. 4,60,000
(D) Rs. 4,10,000
Ans – C
(21) Kamal has eligible brought forward business loss relating to assessment year 2018-19 of Rs. 70,000.
For the previous year 2020-21 he has
(i) loss from house property Rs. 3,10,000;
(ii) loss from business Rs. 90,000; and
(iii) loss under the head ‘other sources’ Rs. 1,00,000.
He filed the return of income for the assessment year 2021-22 on 5-9-2021 which is beyond the ‘due date’
specified in section 139(1). State the losses which are eligible for carry forward for assessment year 2022-
23. (Dec 19 –OS)
(A) All losses except loss under the head “other sources”
(B) Carried forward loss of Rs. 70,000 from AY 18-19
(C) Only loss from house property is eligible for carry forward
(D) All losses are eligible for carry forward including loss under the head “income from other sources”
Ans – B
Note – The options given are incorrect. Exact answer would have been Both B&C. ICSI has given the answer
B.
24. Where the net result for any assessment year in respect of any source falling under any head of income
is a loss; the assessee is entitled to set-off the amount of such loss against his income from any other
source under the same head. However, certain losses are not being allowed to be set-off as per General
Rule. Find out from the following which are those: (Dec 20 –NS)
(i) Speculative business loss
(ii) Long term capital loss
(iii) Casual income
(iv) Loss from an exempt source
(A) (i) & (ii)

(B) (i), (ii) & (iv)
(C) (i), (ii), (iii) & (iv)
(D) (i), (iii) & (iv)
ANS-C
25. Carried forward losses of normal business can be set off against any other income in subsequent assessment
year except -------(Dec 20 –OS)
a. income from speculation business
b. income under the head House Property
c. income under the head other sources
d. income under the head salaries
ANS - B/C/D (Given in ICSI’ suggested answers as well)

11. Deductions 11.1
Section 115BAC Impact

AY 21-22
Individual and HUF opting for connectional tax regime under section 115BAC: Only deduction under
section 80CCD(2) and 80JJAA are allowed to Individual and HUF.

11. Deductions 11.2
Section Eligible Eligible Payments Permissible

Assessee Deduction
1. Bonds of NABARD
2. 5-year time deposit Post Office
3.Deposit in Senior Citizens Savings Scheme
4.Minimum 5-year term deposit with bank
5.LIP - Self, Spouse, Children, any member of HUF
(Dependent, Independent, married, unmarried, major, minor)
[Parents – Bro and sis की ज़िन्दगी की ज़ िंता मत करना]
- For policies issued upto 31.3.2012 - Max 20% of minimum sum

assured.
- For policies issued on or after 1.4.2012 - Max 10% of minimum
sum assured.
- For disabled persons (80U & 80 DDB) policy issued on or after
1.4.2013 - Max 15% of minimum sum assured.
6.Contribution to PPF/SPF/RPF & approved superannuation fund
7. Deposited in Sukanya Samridhi Account
8.National Savings Certificate
9.Contribution in ULIP1971/ LIC Mutual Fund
10.Contribution to approved annuity plan of LIC Sums paid or
Individual - New Jeevan Dhara and New Jeevan Akshay deposited, subject to
80C
or HUF -Tata AIG a maximum of
11. notified units of mutual fund or UTI Rs. 1,50,000
12.Contribution to National Housing Bank (Tax Saving) Term 80 CCE
Deposit Scheme, 2008 Max
13.Subscription to any such deposit scheme of a public sector company ded.
which is engaged in providing long-term finance for construction, or 1.5
purchase of houses in India for residential purposes for example, public
lacs
deposit scheme of HUDCO, Housing Boards
14.Payment of tuition fees (excluding development fees, donation
for all
etc.) to any university, college, school or other educational 3 secs.
institutions within India for full-time education for maximum 2 in
children aggreg
15.Repayment of housing loan (Only Principal component) ate
including stamp duty, registration fee and other expenses related
to transfer.
Conditions -
a. income from such property should be chargeable to tax under
the head “Income from house property"
b. Payment to Government, financing institutions, banks, LIC etc.
16.Subscription to certain equity shares or debentures with a
lock-in period of three years
17.Premium paid in respect of a contract for deferred annuity
18. Investment in Tier II NPS Account by Central Govt. employee
AY 20-21
(Lock in 3 years)
80CCC Individual Pension fund of LIC or other insurer Amount paid or
deposited, subject to
80CCE
80CCD (1) Individual Contribution to Pension Scheme of Central Govt. [National Employee’s/
Pension Scheme & Atal Pension Yojana]. Individual's
Contribution
(This is also subject to 80CCE) For employees - Max 10%
of Salary (Basic +
Conditional DA)
Other than employee -
Max 20% of GTI

11. Deductions 11.3
Section Eligible Assessee Eligible Payments Permissible Deduction

80CCD(1B) Individual Additional deduction of upto Rs. 50,000 is
Contribution to Pension Scheme of Central available (In addition to 80CCD (1)
80CCD (2) Individual Govt. [National Pension Scheme & Atal Employer’s Contribution
Pension Yojana]. Dedn. of employer’s contribution u/s
80CCD (2) restricted to
Note - The limit 1.50 lakh u/s 80CCE does not 14% of Salary for CG employees AY 20-21
apply to dedn. u/s 80CCD (2) and 80CCD(1B) &
10% of salary for others
NPS Tier 1 Account NPS Tier 2 Account

• It is the basic account • It’s the additional account
• Lock in of up to 3 years • NPS tier 2 account basically serves like a
• After 3 years, a maximum of 25% of the fund regular bank savings account
value can be withdrawn • Tier 2 account functions like an investment
• Upon maturity (i.e. on retirement) 60% of the option and is not subject to the mandatory
fund value can be withdrawn. Rest of the 40% is withdrawal rules like a tier 1 account.
mandated to be utilized for annuity-related
fund options.
Few pointers (Amendment Ay 19-20) (Marked below)
Withdrawl AY 20-21
of amount
fomr NPS
Assessee is Assessee is
an other than
employee employee
closure of Partial
Purchased account/ Purchased closure of Partial
annuity in withdrawl withdrawl
opting out from NPS annuity in account/
the same the same opting out from NPS
of NPS (Sec (sec
year year of NPS (Sec (sec
10(12A) 10(12B)
10(12A) 10(12B)
No upto 25% No
Exemption No
withdrawl exempt Exemption
upto 60% provided upto 60%
amount exempt provided
exempt
taxable

11. Deductions 11.4
Section 80D (AY 19-20 → Amendment → Limit increased to Rs 50,000 & also age for “c” point
changed)
S. Nature of payment/ Expenditure on behalf of Deduction
No expenditure
A (i) Health insurance In case of Self, spouse and
premium (in other than individual dependent 25,000
cash) children
(ii) Contribution to Central In case of Family member
HUF
Government Health
Scheme (CGHS)
(iii) Preventive health 50,000
checkup (cash If any person from above is >= 60 + “R”
expenditure allowed)
B (i) Health insurance Parents
Parents
Parents (dependent/ Independent) 25,000
premium (in other than
cash)
(ii) Preventive health If any person from above is >= 60 + “R” 50,000
checkup (cash
expenditure allowed)
Maximum 5,000 allowed as deduction for aggregate of preventive health checkup expenditure
mentioned in A and B (Subject to overall limit of Rs. 25,000 or Rs. 50,000, as the case may be)
C Amount paid on account of For self/ spouse/ >= 60 yrs. 50,000
medical expenditure dependent
children/ parents
+
Resident No Health
Insurance
Note A + C – Maximum allowed Rs. 50, 000

B + C – Maximum allowed Rs 50,000
1. Deduction where premium for health insurance is paid in lump sum [Section 80D(4A)] (AY
19-20) Ne
(i) Appropriate fraction of lump sum premium allowable as deduction: In a case where mediclaim
premium is paid in lumpsum for more than one year by:
(a) an individual, to effect or keep in force an insurance on his health or health of his spouse,
dependent children or parents; or
(b) a HUF, to effect or keep in force an insurance on the health of any member of the family,
Then, the deduction allowable under this section for each of the relevant previous year would
be equal to the appropriate fraction of such lump sum payment.
(ii) Meaning of certain terms
Term Meaning
Appropriate fraction 1 ÷ Total number of relevant previous years
Relevant previous The previous year in which such lump sum amount
year is paid; and the subsequent previous year(s) during
which the insurance would be in force.

11. Deductions 11.5
Section Eligible Eligible Payments Permissible Deduction
Assessee
80DD Resident Maintenance + medical treatment of a dependant disabled - Normally Flat deduction of
Individual or 1. Amount incurred for the medical treatment (including nursing), Rs. 75,000.
HUF training and rehabilitation of a dependant disabled
And / or
2. Deposit in scheme of LIC or any other Insurer. - Severe disability (80% or
more), the flat deduction -
- Meaning of Dependant: Rs. 1,25,000.
For Individual - Spouse, children, parents, brothers, sisters
For HUF - Any member
- Such persons should not have claimed dedn. u/s 80U in

computing TI of that year.
80DDB Resident medical treatment of specified diseases or ailments (treatment from Upto Rs 40,000
(AY 19 – Individual or neurologist, immunologist, blood related, tumours etc.)
20) HUF For Senior citizen/ Very Sr.
- For himself or his dependant, being spouse, children, parents, Citizen - Maximum upto Rs.
brothers or sisters, which are wholly or mainly dependant 1,00,000
- For HUF - Any dependent member.
- The amount received from the insurance company or reimbursed by

the employer shall be reduced from deduction computed.
80E Individual 1.Interest on loan taken from any financial institution or approved Amount of interest paid (not
charitable institution. the principal sum)
2. Higher education (after Class XII) of self, his or her relative i.e.,
spouse or children of the individual or the student for whom the
individual is the legal guardian. In India
3. available for 8 A.Y. beginning with AY year in which payment of
interest begins.
80EE Individual Interest on loan borrowed from any financial institution (bank/housing Dedn. of upto Rs. 50,000.
finance company) for acquisition of residential house property.
Conditions:
(In case the property is self-occupied, the dedn. would be over and (1) Loan should be
above the dedn. of Rs. 2 lakhs u/s 24; In case the property is let-out, sanctioned during P.Y.2016-
entire interest can be claimed as dedn. u/s 24 while computing income 17
from house property. (2) Loan sanctioned ≤ 35
lakhs
However, dedn. u/s 80EE can be claimed during the pre-construction (3) Value of house ≤ 50 lakhs
period, when dedn. u/s 24 is not permissible. Such interest on which (4) The assessee should not
dedn. u/s 80EE has been claimed cannot be included in pre-construction own any residential house
interest for dedn. u/s 24 later on in instalments). on the date of sanction of
loan.
80EEA Individual Interest on loan borrowed from any financial institution (bank/housing Dedn. of upto Rs. 1,50,000.
finance company) for acquisition of residential house property.
AY 21-22
Conditions:
(In case the property is self-occupied, the dedn. would be over and (1) Loan should be
above the dedn. of Rs. 2 lakhs u/s 24; In case the property is let-out, sanctioned between 1.4 .2019
entire interest can be claimed as dedn. u/s 24 while computing income to 31.3.21 [AY 21-22]
from house property. (2) Value of house ≤ 45
lakhs
However, dedn. u/s 80EEA can be claimed during the pre-construction (3) The assessee should not
period, when dedn. u/s 24 is not permissible. Such interest on which own any residential house
dedn. u/s 80EEA has been claimed cannot be included in pre- on the date of sanction of
construction interest for dedn. u/s 24 later on in instalments). loan.

11. Deductions 11.6
80EEB Individual Dedn. of

AY 20-21 upto Rs.
1,50,000
80G Any Donations to certain funds, charitable institutions etc. (100/50 % without restriction, 100/50 % with restriction)
assessee
Calculation of Qualifying limit for Category III & IV donations:
Step 1: Compute adjusted total income, i.e., the GTI as reduced by the following:
1. Deductions under Chapter VI-A, except u/s 80G

2. STCG taxable u/s 111A
3. LTCG taxable u/s 112/112A
Step 2: Calculate 10% of adjusted total income.
Step 3: Calculate the actual donation, which is subject to qualifying limit [Total of Category III and IV donations]
Step 4: Lower of Step 2 or Step 3 is the maximum permissible dedn.
Step 5: The said dedn. is adjusted first against donations qualifying for 100% dedn. (i.e., Category III donations).
Thereafter, 50% of balance qualifies for dedn u/s 80G.
Note - No deduction shall be allowed for donation paid in cash in excess of Rs. 2,000 and donation in kind.
Supreme Court Ruling (Vijaipat Singhania v. CIT)
(Full amount disallowed)

11. Deductions 11.8
Donation qualifying for 100% deduction, without any qualifying limit

The Army Central Welfare Fund or Indian Naval Benevolent Fund or Air Force
The National Defense Fund set up by the Central
Central Welfare Fund established by the armed forces of the Union for the The National Sports Fund set up by the Central Government
Government
welfare of past and present members of such forces or their dependents.
Prime Minister’s National Relief Fund. The Africa (Public Contributions-India) Fund The National Cultural Fund set up by the Central Government
The Fund for Technology Development and Application set up by the Central
Prime Minister’s Armenia Earthquake Relief Fund The National Illness Assistance Fund
Government
Any Zila Saksharta Samiti for primary education
National Trust for welfare of persons with Autism, Cerebral Palsy, Mental
in villages and towns and for literacy and post- The Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund
Retardation and Multiple Disabilities
literacy activities
The Swachh Bharat Kosh, set up by the Central Government, other than the
The National Children’s Fund sum spent by the assessee in pursuance of CSR u/s 135(5) of the Companies Any State Government Fund set up to provide medical relief to the poor
Act, 2013
The Clean Ganga Fund, set up by the Central Government, where such
The National Foundation for Communal
assessee is a resident, other than the sum spent in pursuance of CSR u/s The National Fund for Control of Drug Abuse constituted under section 7A of the
Harmony
135(5) of the Companies Act, 2013 Narcotic Drugs and Psychotropic Substances Act, 1985
National Blood Transfusion Council or any State Blood Transfusion Council
Approved University or educational institution of
whose sole objective is the control, supervision, regulation or The Prime Minister's Citizen Assistance and Relief in Emergency
national eminence
encouragement of operation and requirements of blood banks Situations Fund (PM CARES FUND)
AY 21-22
Donation qualifying
for 50% deduction, Donation qualifying for 100% deduction, Donation qualifying for 50% deduction,
without any subject to qualifying limit subject to qualifying limit
qualifying limit
The Jawaharlal Nehru The Government or to any approved local authority, institution or association Any Institution or Fund established in India for charitable purposes fulfilling prescribed
Memorial Fund for promotion of family planning conditions
Sum paid by a company as donation to the Indian Olympic Association or any
Prime Minister’s other association/institution established in India, as may be notified by the The Government or any local authority for utilization for any charitable purpose other than the
Drought Relief Fund Government for the development of infrastructure for sports or games, or the purpose of promoting family planning
sponsorship of sports and games in India
An authority constituted in India by or under any other law enacted either for dealing with and
Indira Gandhi
satisfying the need for housing accommodation or for the purpose of planning, development or
Memorial Trust
improvement of cities, towns and villages, or both
Rajiv Gandhi Any Corporation established by the Central Government or any State Government for promoting
Foundation the interests of the members of a minority community
for renovation or repair of Notified temple, mosque, gurdwara, church or other place of historic,
archaeological or artistic importance or which is a place of public worship of renown throughout
any State or States

11. Deductions 11.9
For Claiming Deduction u/s 80G under Category 4th the institutions or funds need to satisfy certain conditions -
a. Institutions or funds should be approved by Principal Commissioner or Commissioner (PC/C)
b. The institutions/ funds need to apply for approval
AY 21-22
Scenario Time for making Pass Order – Grant approval Approval will
application Applicaton for effective from
Received →
Month End +
i Institution or Fund within 3 months from 3 Months For 5 Years From the AY
already approved the 1st day of April, from which
before 2021 approval was
earlier granted
Ii Institution or Fund is At least 6 months prior Call for such From AY
approved and the to expiry of the said documents or immediately
period of such period information to following the
approval is due to satisfy himself financial year in
expire about— which such
genuineness and application is
fulfilment of all made
iii Institution or fund has At least 6 months prior the conditions From the first of
6 Months
been provisionally to expiry of the period the AY for which
approved of the provisional Pass an order for such institution
approval 5 Years or fund was
or Or provisionally
within 6 months of if he is not so approved
commencement of its satisfied order in
activities, whichever is writing rejecting
earlier; application
iv Any other case At least 1 month prior 9 Months Granting approval From AY
to commencement of provisionally for a immediately
the previous year period of 3 years following the
relevant to the from the financial year in
assessment year from assessment year which such
which the said approval from which the application is
is sought registration is made
sought,
c. Prepare statement of donations received

d. furnishes to the donor, a certificate specifying the amount of donation
Explanation added –
Claim of the assessee for a deduction in respect of any donation made to an institution or fund in the return of income
for any assessment year filed by him, shall be allowed on the basis of information relating to said donation furnished
by the institution or fund to the prescribed income-tax authority.

11. Deductions 11.10
Section Eligible Assessee Eligible Payments Permissible Deduction

80GG Individuals not in Rent paid for residential accommodation. Least of the following is allowable
receipt of house Conditions as dedn.:
rent allowance (1) 25% of adjusted GTI
a. No dedn. if any residential accommodation is owned (2) Rent paid – 10% of adjusted
by assessee/spouse/minor child/HUF at the place where GTI
he ordinarily resides or performs the duties of his office (3) 5,000 p.m.
or employment or carries on his business or profession.
b. Thee assessee should not own any residential house

at any other place and claim benefit of SOP.
80GGA Any Assessee not Sum paid to approved research Association (Scientific, 100% of the sum paid
having PGBP social, statistical) Note - Any payment exceeding Rs.
income Note – Deduction will be allowed subject to verification by 2,000 must be paid in any mode
the department verification in accordance with the risk other than cash. [AY 21-22]
management strategy formulated by the Board from (Full Disallowance)
time to time. [AY 21-22]
80GGB Indian Company Any sum contributed by it to a registered political party Actual contribution
or an electoral trust. (otherwise than by way of cash)
80GGC Any person, Amount contributed to a registered political party or an Actual contribution
other than local electoral trust. (otherwise than by way of cash)
authority and an
artificial juridical
person funded by
the Govt.
(AY 19-20 – New requirement)

Section 80AC: Furnishing return of income on or before due date mandatory for claiming deduction under
Chapter VI-A under the heading “C. – Deductions in respect of certain incomes"
Section 80AC stipulates compulsory filing of return of income on or before the due date specified under
section 139(1), as a pre-condition for availing benefit of deductions under any provision of Chapter VI-A
under the heading “C. – Deductions in respect of certain incomes”.
Table showing the deductions contained in Chapter VI-A under the heading “C. – Deductions in respect of
certain income”
Section Deduction
80-IA Deductions in respect of profits and gains from undertakings or enterprises engaged
in infrastructure development/ operation/ maintenance, generation/ transmission/
distribution of power etc.
80-IAB Deduction in respect of profits and gains derived by an undertaking or enterprise

engaged in development of SEZ
80-IAC Deduction in respect of profits and gains derived by an eligible start-up from an eligible
business
80-IB Deduction in respect of profits and gains from certain industrial undertakings other
than infrastructure development undertakings
80-IBA Deduction in respect of profits and gains from housing projects

80-IC Deduction in respect of profits and gains from certain undertakings or enterprises in
certain special category States [Himachal Pradesh and Uttaranchal]
80-IE Deduction in respect of profits and gains from manufacture or production of eligible
article or thing, substantial expansion to manufacture or produce any eligible article or
thing or carrying on of eligible business in North-Eastern States
80JJA Deduction in respect of profits and gains from business of collecting and processing
of bio-degradable waste
80JJAA Deduction in respect of employment of new employees
80LA Deduction in respect of certain income of Offshore Banking Units and International
Financial Services Centre
80P Deduction in respect of income of co-operative societies
80PA Deduction in respect of certain income of Producer Companies
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
The effect of this provision is that in case of failure to file return of income on or before the stipulated
due date, the undertakings would lose the benefit of deduction under these sections.
Few Income based deductions

Section Eligible Eligible Income Permissible
Assessee Deduction
80IAC Eligible start up Profits from start up 100% of the profit
and gains derived
Conditions
from such business
Eligible Start-up should not be formed by splitting up, or for 3 consecutive
assessment years
the reconstruction, of a business already in existence
option of the
and should not formed by the transfer to a new assessee out of
seven 10 years
business of machinery or plant previously used for any
beginning from the
purpose. year in which the
eligible start-up is
However, any machinery or plant being previously used
incorporated
for any purpose is transferred to a new business and AY 21-22
the total value of the machinery or plant or part so
transferred does not exceed 20 % of the total value of
the machinery or plant used in the new business.
(i) “eligible business” means a business
carried out by an eligible start-up engaged
in innovation, development or
improvement of products or processes or
services or a scalable business model

with a high potential of employment
generation or wealth creation.
(ii) “eligible start-up” means a company or a
limited liability partnership (LLP)
engaged in eligible business which fulfils
the following conditions: –
a. It is incorporated on or after the 1st day of April,
2016 but before the 1st day of April,2021.
b. The total turnover of its business does not
exceed 25 100 crore rupees in any 3 previous
years out of Seven 10 previous years for which
deduction under section 80-IAC is first claimed.
c. it holds a certificate of eligible business from the AY 21-22
Inter-Ministerial Board of Certification.
The assessee needs to submit audit report at
least 1 month prior to the due date of return filing
80PA Producer Conditions 100% Deduction of
(AY 19-20) Companies Total turnover of less than 100 crore rupees. the profits derived
Benefit shall be available for the previous from eligible business
year relevant to an assessment year to a Producer
commencing on or after the 1st day of April, Company
2019, but before the 1st day of April, 2025.
In a case where the assessee is entitled also

to deduction under any other provision of
this Chapter, the deduction under this
section shall be allowed with reference to the
income, if any, as referred to in this section
included in the gross total income as
reduced by the deductions under such other
provision of this Chapter.
“eligible business” means –

(a) the marketing of agricultural produce grown
by the members
(b) the purchase of agricultural implements,
seeds, livestock or other articles intended for
agriculture for the purpose of supplying them
to the members
(c) the processing of the agricultural produce of
the members
“member” and “Producer Company” shall have the
meaning assigned to it in section 581A of the Companies
Act, 1956.

Other Income based deductions
Eligible Income/ Payments Permissible
Section Eligible Assessee
Deduction
New workmen hired
Deduction available only to business
New business (Business should not be formed by splitting up old business,
reconstruction of old business, business reorg. transfer from any other
person.)
Total emoluments (Including cash payments) upto 25,000 p.m.
3. There should be increase in number of employees as on the last date of
the year
4. Existing business - Emoluments paid in cash/crossed/bearer cheque not
to be considered for deduction.
5. New business - Emoluments paid in cash crossed/bearer cheque are to
be considered for deduction.
Any Assessee to
6. Ineligible employees - 30% of
80JJAA whom section
Additional
(AY 19-20) 44AB is
a. Receiving emoluments > Rs. 25,000 p.m. wages in 3 AY
applicable
b. Govt. employees
c. Employees engaged for less than 240 days in a year (150 in case of
manufacturing of apparel/ footwear or leather products)
d. Not participating in RPF
Exclusions from Emoluments

1. any contribution paid or payable by the employer to any pension fund
or provident fund etc.
2. 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.
The assessee needs to submit audit report at least 1 month prior to the due date of return filing
AY 21-22
Note for 80JJAA (AY 19-20) – If an employee is employed during the previous year for less than 240
days or 150 days, as the case may be, but is employed for a period of 240 days or 150 days, as the
case may be, in the immediately succeeding year, he shall be deemed to have been employed in the
succeeding year. Accordingly, the employer would be entitled to deduction of 30% of additional
employee cost of such employees in the succeeding year.
Permissible
Section Eligible Assessee Eligible Income Deduction
80M Domestic Dividends from any other domestic company or a foreign Dividends
Company company or a business trust received upto the
amount of
AY 21-22 Note – Once the deduction is allowed from an income, it dividend
won’t be allowed in any other year. distributed by it
on or before the
Expression “due date” means the date 1 month
prior to the date for furnishing the return of
due date.
income under sub-section (1) of section 139.’.

80QQB Resident Case 1 -
Individua Lumpsum receipt
Work of literary, artistic or scientific nature or royalty or
l being
copyright fee received as lumpsum or otherwise. (But
an Royalty received
other than text books)
author - Expenses
or
If amount is to be received from abroad in foreign
Rs 3,00,000
currencies, it will be considered as income for calculation if
(whichever is
it is actually received in India within 6 months from the
less)
year end (prescribed by RBI)
Case 2 -
otherwise than
by way of lump
sum
Then in above
clause income to
be restricted to
15% of value of
books sold during
the relevant P.Y.
80RRB Resident Royalty on patents Whole of such
individua income or Rs.
l, being a 3,00,000,
patentee whichever less
80TTA Individual Interest on deposits in savings account with a bank/a maximum upto
or HUF co-operative society engaged in banking business or a Rs.10,000.
post office.
Note - Deduction under this section would,
however, not be available to a resident senior
citizen eligible for deduction under section 80TTB.
Restrictions: If the aforesaid income is derived from any
deposit in a savings account held by, or on behalf of, a firm,
an AOP/BOI, no deduction shall be allowed in respect of such
income in computing the total income of any partner of the
firm or any member of the AOP or any individual of the BOI.
80TTB Resident income by way of interest on deposits with Upto Rs. 50,000
(AY 19-20) Senior (a) a banking company to which Banking
Citizen Regulation Act, 1949 applies
(b) a co-operative society engaged in
carrying on the business of banking
(including a co- operative land mortgage
bank or a co-operative land development
bank)
(c) a Post Office.
Restrictions: If the aforesaid income is derived
from any deposit in a savings account held by, or
on behalf of, a firm, an AOP/BOI, no deduction
shall be allowed in respect of such income in
computing the total income of any partner of the
firm or any member of the AOP or any individual of
the BOI.
Note - Deduction u/s 80TTB is allowed on
interest on saving bank account, recurring deposit
account & Fixed Deposit as well.

80U Resident Individual A person with disability (Blindness, Low vision, Flat deduction of
leprosy-cured, Hearing impairment, locomotors Rs. 75,000, in
disability, mental retardation, mental illness) case of a person
with disability.
Flat deduction. of
Rs. 1,25,000, in
case of a person
with severe
disability (80% or
more disability).
Note - F&O Transaction carried out through recognized Stock Exchange is not Speculative Transaction
can be set off against Ordinary Business Income
Past Exam Questions
1) Deduction under section 80C can be claimed for fixed deposit made in any scheduled bank, if the
minimum period of deposit is- (June 2016)
(c) 10 Years (d) 12 Years Ans.(a)
(2)An individual has made investments in the schemes approved under section 80C, and 80CCD of Rs.
2,50,000 and Rs. 1,00,000 respectively during the year ended 31s' March, 2021. Amount that can be
claimed by him as deduction out of income in assessment year 2021-22 is - (Dec. 2015)
(a) 50% of Rs.3,50,000
(b) Rs. 1,50,000 under section 80C and Rs. 1,00,000 under section 80CCD
(c) Rs. 2,00,000
(d) None of the above. Ans.(c)
(3)The maximum amount of deduction admissible under section 80D is -(Dec. 2014)
(a) Rs. 15,000 (b) Rs. 20,000
(c) Rs. 35,000 (d) Rs. 1,00,000 Ans. (d
(4) Varun incurred medical expenditure of Rs. 32,000 towards cataract surgery of his mother (aged 70 years). She
also underwent a minor surgery for which he incurred an expenditure of Rs. 26,000. Deduction u/s 80D will be -
(Dec. 2016)
(a) Rs. 50,000 (b) Rs. 12,000
(c) Rs. 25,000 (d) Rs. 38,000 Ans.(a)
(5) Raghu's father is dependent on him and suffering with 90% disability. Raghu has incurred an amount of Rs.
72,500 in maintaining and medical treatment of his father. The deduction he can claim in his income-tax return for
assessment year 2021-22 is - (Dec. 2015)
(a) Rs. 72,500 (b) Rs. 75,000
(c) Rs. 1,25,000 (d) None of the above. Ans.(c)
(6) Rajan paid Rs. 25,000 to LIC of India for the maintenance of his disabled son and incurred Rs. 15,000
for the treatment of his handicapped wife who is working in State Bank of India. The deduction allowable
to him u/s 80DD is -' (June 2016)
(a) Rs. 15,000 (b) Rs. 25,000
(c) Rs. 50,000 (d) Rs. 75,000 . Ans.(d)
(7) Deduction available to an individual in respect of maintenance including medical treatment of a
dependent being a person with 80% disability, when amount incurred in this respect is Rs. 40,000 will be -
(Dec. 2017)
(a) Rs. 40,000 (b) Rs.50,000
(c) Rs. 1,25,000 (d) None of the above. Ans.(c)
(8) Raghunath repaid during previous year 2020-21 education loan of Rs. 60,000 and interest on education loan of
Rs. 18,000 taken from Punjab National Bank for his son to pursue MS in Germany. The loan was taken in the
financial year 2013-14 and the payment commenced from financial year 2013-14. The amount eligible for
deduction under section 80E for the assessment year 2021-22is : (June, 2017)
(a) Rs. 60,000 (b) Rs. 78,000
(c) Rs. 18,000 (d) Nil Ans.(c)
(9) Deduction under section 80G on account of donation is allowed to : (June, 2017)
(a) A business assessee only (b) Any assessee
(c) Individual or HUF only (d) Any resident assessee Ans.(b)
(10) Deduction in respect of donations to National Defence Fund is allowed under section - (June, 2015)
(a) 80G (b) 80CCG
(c) 80C (d) None of the above. Ans.(a)
(11) Deduction available under section 80GG in respect of rent paid cannot be more than - (Dec. 2016)
(c) Rs. 2,000 per month (d) Rs. 10,000 per month Ans.(b)
(12) The maximum amount of deduction under section 80GG in respect of rent paid is - (June, 2011)
(c) Rs. 5,000 per month (d) Rs. 10,000 per month. Ans.(c)
(13) Bharat, engaged in business, claimed that he paid Rs. 10,000 per month by cheque as rent for his
residence. He does not own any residential building. His total income computed before deduction under
section 80GG is Rs. 3,40,000. The amount he can claim as deduction under section 80GG is - (June 2016)
(a) Rs. 24,000 (b) Rs. 34,000
(c) Rs. 1,20,000 (d) Rs. 60,000 Ans.(d)
(14) Under the Income-tax Act, 1961, which of the following can claim deduction for any sum contributed during
the previous year to a political party or electoral trust - (June, 2015)
(a) Local authority (b) Individual
(c) Artificial juridical person (d) None of the above. Ans.(b)
(15) Under section 80QQB, the maximum deduction in respect of royalty is allowed upto - (Dec. 2 016)
(a) Rs. 1,00,000
(b) Rs. 1,50,000
(c) Rs. 2,50,000
(d) Rs. 3,00,000 Ans.(d)
(16) n Indian resident patentee is entitled to a deduction under section 80RRB to the extent of - (Dec. 2014)
(a) 100% of such income
(b) 50% of such income
(c) 100% of such income or Rs. 3,00,000 whichever is less
(d) 50% of such income or Rs. 3,00,000 whichever is more. Ans.(c)
(17) Deduction available to an individual in respect of interest on saving bank account is - (Dec. 2011)
(a) Such Interest Income
(b) Rs. 10,000
(c) Such interest income or Rs. 10,000 which ever is less
(d) Such interest income or Rs. 10,000 which ever is more. Ans.(c)
(18) The maximum amount of deduction under section 80U allowed to a person with 80% or more of one or more
disabilities is. (Dec. 2014)
(a) Rs. 40,000 (b) Rs. 60,000
(c) Rs. 50,000 (d) Rs. 1,25,000 Ans.(d)
(19) When a person suffers from severe disability, the quantum of deduction allowable under section 80U is -
(June 2016)
(a) Rs. 50,000 (b) Rs. 75,000
(c) Rs. 1,25,000 (d) Rs. 1,00,000 ANS.(C)
(20) The following is not allowed as deduction under section 80TTA - (Dec. 2014)
(a)Interest on deposits in a savings account with bank upto Rs. 10,000
(b)Interest on time deposits with bank upto Rs. 10,000
(c)Interest on deposits in a savings account with post office upto Rs. 10,000
(d)Interest on deposits with co-operative society engaged in carrying on the business of banking upto Rs. 10,000.
Ans.(b)
(21) Deduction in respect of interest on savings accounts under section 80TTA shall be allowed with respect to
savings account with - (June 2016)
(a) Bank (b) Co-operative society
(c) Post office (d) All of the above Ans.(d)
(22) An amount upto a maximum of Rs. 10,000 is deductible under section 80TTA from the gross total income of -
(Dec. 2016)
(a) Individual only (b) HUF and individual only
(c) Company only (d) All assessees Ans.(b)
23. Mr. Mithun acquired a house property for Rs. 8 lakhs and paid stamp duty and registration fee of Rs. 80,000. He borrowed
housing loan and repaid principal of. Rs. 60,000 and interest of Rs. 20,000. The amount eligible for deduction under Section
80C would be : (Dec. 2017)
(A) Rs. 80,000
(B) Rs. 60,000
(C) Rs. 1,00,000
(D) Rs. 1,40,000 Ans.(d)
24. Mr. Uday is a resident individual having patent registered on 01-07-2012 under the Patents Act, 1970. He received Rs. 5
lakhs by way of royalty from ABC Ltd during the financial year 2020-21. The quantum of royalty eligible for deduction would
be : (Dec. 2017)
(A) Rs. 5 lakhs
(B) Rs. 3 lakhs
(C) Rs. 1 lakh
(D) Rs. 2 lakhs Ans.(b)
25. Mr. Veer earns monthly rental income of Rs. 60,000 from a house property. He suffers from severe disability and
has obtained certificate from the prescribed medical authority. He has not incurred any expenditure towards
treatment of severe disability. His total income chargeable to tax after deduction under Section 80U would be : (Dec.
2017)
(A) Rs. 3,79,000
(B) Rs. 5,95,000
(C) Rs. 5,04,000
(D) Rs. 7,20,000 Ans.(a)
26. Mr. Baskar a person with disability referred to in Section 80U is employed in a bank. He paid Rs.
50,000 as premium on life insurance policy taken on himself and whose sum assured is Rs. 4 lakhs. The
amount of premium eligible for deduction under Section 80C would be : (Dec. 2017)
(A) Rs. 40,000 (10% of sum assured)
(B) Rs. 50,000
(C) Nil (since it exceeded 10%)
(D) None of the above Ans.(b)
27. Mr. Anand engaged in business wants to deposit in pension fund of Life Insurance Corporation of India. The
maximum amount of contribution eligible for deduction from total income is : (Dec. 2017)
(A) Rs. 10,000
(B) Rs. 50,000
(C) Rs. 1,00,000
(D) Rs. 1,50,000 Ans.(d)
28. Sudhan Ltd incorporated in April 2020 commenced commercial production from 01-06-2020. It deployed 100
employees who were employed for 260 days during the year and recruited 50 casual workmen who were employed
for 100 days during the financial year 2020-21. The salary paid to 100 employees was Rs. 25 lakhs and salary paid to
casual workmen was Rs. 6 lakhs. The quantum of deduction under section 80JJAA is: (Dec. 2017)
(A) Rs. 7.50 lakhs
(B) Rs. 9.30 lakhs
(C) Rs. 25 lakhs
(D) Rs. 6 lakhs Ans.(a)
29. Mr. Rath borrowed loan of Rs. 10 lakhs for higher education in India in the year 2006-07. He completed the
course study in 2009-10. He started repayment of the loan from April 2015: He paid interest of Rs. 41,000 and
principal of Rs. 1,20,000 during the financial year 2020-21. The amount eligible for deduction under section 80E
would be : (Dec. 2017)
(A) Rs. 1,20,000
(B) Rs. 1,61,000
(C) Rs. 41,000
(D) Rs. 1,00,000 (monetary limit) Ans.(c)
30 Mr. Ganesh gave donation by way of cheque of Rs. 40,000 and by cash Rs. 5,000 to an approved
charitable trust having recognition under section 80G. His gross total income for the assessment year
2021-22 is Rs. 5 lakhs. The quantum of deduction under section 80G would be : (Dec. 2017)
(A) Rs. 45,000
(B) Rs. 5,000
(C) Rs. 40,000
(D) Rs. 20,000 Ans.(D)
31. Mr. Sridhar employed in KL Ltd took voluntary retirement in December 2020 and received Rs.
2,00,000 from National Pension System Trust. The amount so received chargeable to income-tax is: (Dec.
2017)
(A) Nil as 100% is exempt
(B) Rs. 1,20,000 as 40% is exempt
(C) Rs. 1,00,000 as 50% is exempt
(D) Rs. 80,000 as 60% is exempt Ans.(D)
32. Deduction u/s 80C from the gross total income of an amount equal to the eligible investment made
subject to a maximum amount of Rs. 1,50,000 is allowed to the assessee who is: (June 2018)
(A) A Hindu Undivided Family
(B) Any person
(C) An individual
(D) Both (A) and(C) Ans. D
33. An assessee can avail the deduction in respect of rent paid u/s 80GG of the Act subject to a maximum amount of:
(June 2018)
(A) 5,000p.m. (B) 25% of the adjusted total income
(C) 3,000p.m. (D) None of the above Ans. A
34. Maximum amount of deduction (in terms of )in the case of an individual who is resident in India, a patentee and in
receipt of income by way of royalty in respect of a patent registered on or after first day of April,2003 under the
Patents Act, 1970 is allowed: (June 2018)
(A) 100% of such income
(B) 50% of such income
(C) Rs. 3lakh
(D) No such deduction under the Act Ans. C
35. Contribution made or given other than by way of cash by an Indian company in the previous year to any political
party or to an electoral trust shall be allowed as deduction while computing its total income under section 80GGB of
Income Tax Act, 1961 of an amount maximum or up to: (Dec 2018)
(A) 50,000 (B) 1,50,000
(C) No monetary ceiling limit (D) None of the above Ans. C
36. SJG Ltd., a manufacturer of leather goods in a factory located at Noida having annual turnover of Rs. 50 crore.
The company, during the year, employed 200 new regular workers in the factory, which was 20% of the existing
work-force employed on the last day of the preceding year. It paid Rs. 30 lakh to the new workers during
the year as additional wages. All workmen were employed from 1st May, 2020. The eligible amount of
deduction which the company can claim under section 80 JJAA of Income-Tax Act, 1961 is: (Dec 2018)
a. Rs. 30lakh
b. Rs. 15lakh
c. Rs. 9lakh
d. Rs. 18lakh Ans C
37. Nargis during the previous year 1st April, 2020 to 31st March, 2021 had donated the amount of Rs.
50,000 each in Africa Fund, National Children Fund, National Illness Assistance Fund and further
amount of Rs. 30,000 in Rajiv Gandhi Foundation. The amount of deduction eligible to be claimed by
her as per section ................. in A.Y. 2021-22 shall be of................. (Dec 2018)
(A) 80GG,Rs.1,80,000
(B) 80G,Rs. 1,65,000
(C) 80GGB, Rs. 1,50,000
(D)80G,Rs.90,000 Ans B
38. Rao, carrying a business, contributed Rs. 40,000 in the National Pension Trust account. He also made
a tax saving deposit of Rs. 1,20,000 in his PPF account and Rs. 40,000 in LIC Premium. The total amount
eligible for deduction under various sections enumerated in Chapter VI-A shall be : (June 19)
(A) Rs. 1,90,000
(B) Rs. 1,50,000
(C) Rs. 1,20,000
(D) Rs. 2,00,000. Ans A
39. 100% deduction in respect of donations as per section 80G without any qualifying amount or limit is available
in the case of : (June 19)
(A) Prime Minister Drought Relief Fund
(B) Jawaharlal Nehru Memorial Fund
(C) Payment to local authority for promotion of family planning
(D) Africa Fund. Ans D
(40) ABC Limited fulfilling all the conditions of operating different infrastructure facilities for claiming deduction
u/s 80-IA. Find which are being not covered under infrastructure facility out of the following : (Dec 19 –NS)
(a) Developing of Toll-Road (b) Operating and maintaining of Highway
Project
(c) Operating and maintaining of an Air-port (d) Developing of industrial park
Ans.(d)`
41. Ramchand (age 62) is a pensioner with monthly pension of Rs. 49,000. His income from
interest on bank fixed deposit is Rs. 80,000. His income-tax liability for the assessment year 2021-

22 would be : (Dec 19 –OS)
(A) Rs. 34,940 (B) Rs. 45,340
(C) Rs. 43,260 (D) Rs. 41530 Ans – A
42. Mahadev (age 45) engaged in business paid Rs. 52,000 towards medical insurance of his parents who are
senior citizens. He also paid Rs. 30,000 towards medical insurance for himself, his wife and one daughter. The
premium amount was paid by account payee crossed cheque. The amount of deduction allowable under section
80D would be : (Dec 19 –OS)
(A) Rs. 55,000 (B) Rs. 75,000
(C) Rs. 80,000 (D) Rs. 82,000 Ans – B
43. M incurred Rs. 2 lakh as expenditure towards medical treatment of his father P (age 61) who suffered from
advanced stage of cancer. The amount of expenditure eligible for deduction under section 80DDB would be : (Dec
19 –OS)
(A) Rs. 30,000 (B) Rs. 60,000
(C) Rs. 80,000 (D) Rs. 1,00,000 Ans – D
44. MNO Ltd. was incorporated in April, 2020 and its aggregate turnover for the previous year 2020-21 must
not exceed ................. in order to be eligible for deduction under section 80-IAC of the Act. (Dec 19 –OS)
A.Rs. 2 crores B. Rs. 5 crores
C. Rs. 100 crores D. 25 crores Ans – C
45. Rahul & Co. Ltd. paid Rs. 1,10,000 towards printing of pamphlets of a registered political party in
connection with state assembly elections. The expenditure incurred is : (Dec 19 –OS)
A.Inadmissible expenditure B. Deductible @ 50%
C. Deductible @ 100% D. Deductible U/s 80GGB Ans – D
46. Lal authored a text-book for school students of Malaysia. He received Royalty (in convertible foreign
exchange before 31-5-2020) of Rs. 5 lakh. He incurred expenditure such as Rs. 20,000 for reference books,
Rs. 60,000 for text proof readers and Rs. 1,00,000 for content assistants. How much of his income is
eligible for deduction under section 80QQB? (Dec 19 –OS)
A. NIL B. Rs. 3,20,000
C. Rs. 3,00,000 D. Rs. 1,60,000 ANS – C
47. Who can claim deduction under section 80GG in respect of rent paid for accommodation? (Dec 19 –OS)
A. Company B. Partnership firm
C. Individual D. Co-operative society Ans – C
48. Senthil employed in a nationalized bank incurred Rs. 60,000 towards medical expenditure of his
parent who is a senior citizen and dependent upon him. There is no health insurance policy to cover the
parent. The amount eligible for deduction under section 80D would be: (Dec 19 –OS)
A. Rs. 10,000 B. Rs. 25,000
C. Rs. 35,000 D. Rs. 50,000 ANS -D
49. Pankaj, fulfilling all theprescribed conditions for claiming deduction under section 80GG having adjusted total
income of Rs.1,84,000 before providing such deduction and was paying rent in respect of residential
accommodation occupied by him at Delhi @ Rs.4,800 p.m. He is entitled to claim the deduction for the house rent
so paid in assessment year 2021-22 whilecomputing his taxable income of an amount of -----(Dec 20 –NS)
(A) Rs. 39,200
(B) Rs. 46,000
(C) Rs. 60,000
(D) Rs. 57,600 ANS -D
50. Babu Lal authored a book which is covered as per provision of section 80QQB and received an amount of royalty
of Rs.2,00,000 @ 20% during the year ended 31.3.2021. He had incurred an expenditure of Rs.30,000 for earning
the amount of royalty of Rs.2,00,000. The entire royalty was received by him from abroad and amount
of Rs.1,10,000 out of the royalty amount shall be remitted to India till 30.09.2021. He can claim deduction out
of such royalty income in assessment year 2021-22 for an amount of --------(Dec 20 –NS)
(A) Rs. 1,70,000
(B) Rs. 80,000
(C) Rs. 1,20,000
(D) Rs. 2,00,000 ANS -B
51. Rama Farm Pvt Ltd is a producer company as specified under section 581A(i) of the Companies Act, 1956. In
order to avail/ taking the benefit of deduction under section 80PA, the total turnover of the company is to be less than
in any previous year. (Dec 20 –OS)
(A) 100 crores
(B) 200 crores
(C) 300 crores
(D) 500 crores ANS – A
(E)

52. Zubin is intending/going to purchase agriculture lands in the rural area located in Gujrat for Rs. 70,00,000 in
the previous year 2020-21. He wants to know whether there is any obligation on him to deduct tax at source from
the payment to be made and if so at what rate ? (Dec 20 –OS)
A. deduct tax @ 1%
B. deduct tax @ 2%
C. deduct tax @ 5%
D. not to deduct tax at source ANS – D
53 The maximum amount which can be donated in cash for claiming benefit of deduction under section 80G of the Act is ---
------(Dec 20 –OS)
(A)1,000
(B)2,000
(C)5,000
(D)10,000 ANS - B
54. An individual resident senior citizen tax payer can claim an amount of as deduction in respect of specified income
of interest on bank deposits, post office deposits and deposits held in a banking cooperative society. (Dec 20 –OS)
(A) 10,000
(B) 30,000
(C) 50,000
(D) 75,000
ANS C
55. A deduction of an amount of Rs. --------- under section 80EEA in respect to interest paid on home loan for
acquisition of residential house under affordable housing is available to ----------- in A.Y. 2021-22. (Dec 20 –OS)
(A) 50,000; Individual
(B) 1,50,000; Individual & HUF
(C) 2,00,000; Individual
(D) 1,50,000; Individual
ANS D

12. PAN – Return Filing – Self assess - Refund 12.1
Chapter – 12
PAN - Return Filing - Self Assessment – Refund

I. Filing of Return of Income Under section 139(1)
AY 21-22

Note: Loss from house property and unabsorbed depreciation can be carried forward
for set off even though return of loss has not been furnished on or before the due date
u/s 139(1).
1. Few pointers
✓ E-filing of Return - Every person who total for the previous year exceeds the
exemption limit provided under the Income Tax Act, 1961.
✓ Other persons filing Return
A. Return of Income of charitable trust and institutions [Section 139(4A)] –

If the total income (without giving effect to the provisions of Sections 11 and 12)
exceeds the amount not chargeable to tax.
B. Return of Income of Political Party [Section 139(4B)]
If the income without giving effect to the provisions of Section 13A) exceeds the
maximum amount not chargeable to tax duly signed by the Chief Executive Officer of
the party
C. Return of Income of Specified Association/Institutions [Section 139(4C)]
(a) Research association
(b) news agency
(c) fund or institution or trust or institution or any university or other educational institution or
any hospital or other medical institution
(ea) Mutual Fund
(eb) securitisation trust
(ec) venture capital company or venture capital fund
(d) trade union
(e) body or authority or Board or Trust or Commission
(f) infrastructure debt fund or Mutual Fund or
MCQ
(1) Zeet & Co. is a partnership firm whose turnover for the previous year 2020-21 was 220 lakhs. The 'due
date’ for filing the return of income of the firm is : (June, 2017)
(a) 31st July, 2021
(b) 30th September, 2021
(c) 30th November, 2021
(d) 31st October 2021 Ans.(d)
(2) Zeet Ltd. engaged in manufacturing of cement also had wind mills to generate power. Entire power
generated by it was used by its wholly owned subsidiary Zoom Ltd. The amount received for the said
power supply was of 7 crore. Zeet Ltd. disclosed total income of Rs. 10 crore for the assessment year
2021-22. The due date for filing return of income by Zeet Ltd. is- (June 2016)
(a) 31st July, 2021
(b) 30th September, 2021
(c) 31st October, 2021
(d) 30th November, 2021 Ans.(c)
(3) As per section 139(1), an individual other than an individual of the age of 60 years or more shall
have to file return of income if- (June 2016)
(a) His total income exceeds Rs. 2,50,000
(b) His total income exceeds Rs. 3,00,000
(c) His total income exceeds Rs. 2,00,000
(d) His total income before allowing deduction u/s 80C to 80U & 54/54B etc. exceeds Rs. 2,50,000
Ans.(d)

(4) The due date of filing the return of income for assessment year 2021-22 is case of a working partner of a
firm whose accounts are liable to be audited shall be - (June 2016)
(a) 31st July of the assessment year
(b) 30th September of the assessment year
(c) 31st October of the assessment year
(d) 30th November of the assessment year in case it is required to furnish report referred to in section 92E and
30th September of the assessment year in any other case Ans.(b)
(5) The 'due date specified under section 139(1) for filing the return of income in case of companies engaged in
international transactions and who have to furnish a report under section 92E is - (Dec. 2015)
(a) 31st July (b) 31st August
(c) 30th September (d) 30th November Ans.(d)
(6) The last date for filing return by a company which is required to furnish a report referred to in section 92E
is- (Dec. 2016)
(a) 31st July of the relevant assessment year
(b) 30th September of the relevant assessment year
(c) 30th November of the relevant assessment year
(d) 31st December of the relevant assessment year Ans.(c)
(7) It is not mandatory for an assessee to file a return of loss, if it pertains to - (Dec. 2014)
(a) Loss under the head 'profits and gains from business or profession'
(b) Loss under the head 'Income from other Sources'
(c) Loss under the head 'capital gains'
(d) Loss under the head 'income from house property'. Ans.(d)
(8)Any person who has not filed the return within the time allowed under section 139(1) or 139(5), may file a
belated return u/s 139(4) - (Dec. 2014)
(a) At any time before the expiry of the relevant assessment year
(b) Before the completion of the assessment
(c) (a) or(b) above, whichever is earlier
(d) (a) or(b) above, whichever is later. Ans.(c)
(9) A partnership firm whose sales turnover is Rs. 250 lakh has derived income from an industrial undertaking
entitled to deduction u/s 80-IB. The due date for filing the return of income for the AY 2021-22 will be — (June,
2015)
(a) 31st July, 2021 (b) 30th September, 2021
(c) 31st October, 2021 (d) None of the above. Ans.(c)
(10) Chand Ltd. filed its return of income on 7th December, 2021 declaring loss of Rs. 3,50,000 for AY
2021-22. Later, it noticed a claim of expenditure omitted in the return filed. The revised return - (June
2016)
(a) must be filed before 31s' March, 2022 (b) cannot be filed
(c) must be filed before 31st March, 2023 (d) Can be filed after completion of the assessment.
Ans.(a)
(11) Chatterjee filed his return of income for the assessment year 2021-22 on 10-06-2021. He is eligible to
revise his return : (June, 2017)
(a) Upto the end of the assessment year 2021-22
(b) Before the end of 1 year from the end of the assessment year 2021-22
(c) Before completion of assessment u/s 153
(d) Before issue of notice u/s 148 Ans.(a)
12. Mandatory filing of return of income by individuals will apply when the total income before deduction
under the following section exceeds the basic limit chargeable to tax. (Dec. 2017)
(A) Deduction under chapter VI-A
(B)Deduction under section 35
(C) Deduction under section 86
(D) Deduction under section 37 Ans.(a)
13. Finance Act, 2017 has inserted the provision for charging of fees for delay in furnishing the return of
income and as per this section, be the amount of fee payable for the return declaring income of Rs. 25 lakh to be
filled by ‘X’ on 28th January, 2022 instead of due date of filing of return u/s 139(1) for A.Y. 2021-22: (Jun. 2018)
(A) Rs. 1,000
(B) Rs. 5,000
(C) Rs. 10,000
(D) Rs. 3,000 Ans. C

14. ABC Limited has filed its return of income forA.Y.2021-22 as per section 139 (1) but had failed to make
the payment of tax on the returned income as per section 140A. The return so filed by ABC Limited shall
be treated as: (Jun. 2018)
(A) A defective return u/s139(9)
(B) A valid return
(C) An invalid return
15. A non-resident Indian is not required to furnish his return of income under section 139(1) if his total
income in respect of which he is assessable under the Income-tax Act, 1961 during the previous year consists of
- (June 2016)
(a) Investment income only (b) Long-term capital gains only
(c) Short-term capital gains only (d) Investment income and long-term capital gains
only
Ans.(d)
16. The assessee who has filed a return of income for A.Y. 2020-21 as per section 139(1)can file revise
return any time: (Dec. 2018)
(A) before 1 year from the end of the relevant assessment year
(B) before the end of the relevant assessment year or before the completion of assessment
which ever is earlier
(C) before the expiry of the relevant assessment year or before the completion of assessment
which ever is later
(D) before the completion of the assessment year Ans. B
17. The due date for e-filing of return of income by a Charitable Trust claiming exemption u/s 11 and 12
for assessment year 2021- 22 is: (Dec. 2018)
(A) 31st March,2021
(B) 30th September,2021
(C) 31st October, 2021
(D) Between any time specified in (B) and(C) Ans B
18. Any person who has not filed the return within the time allowed under section 139(1)may file a belated
return: (Dec. 2018)
a. at any time before the end of the relevant previous year
b. at any time before the end of the relevant assessment year
c. before the completion of assessment
d. at any time before the end of the relevant assessment year or before the completion of the
assessment whichever is earlier Ans B
19. What are the items taken into consideration by Assessing Officer (AO) while processing a return at
Centralized Processing Centre (CPC)? (Jun. 2019)
a. the total income or loss after making adjustments for any arithmetical error in the return
b. an incorrect claim, if such incorrect claim is apparent from any information in the return
c. the fee payable under section 234F(fee for default in furnishing return of income) in computing
the tax
d. All of the above Ans D
20. The total income of Ram isRs.4,90,000 and due date of filing the return of income for A.Y. 2021-22 is
31st July, 2021. The return by Ram shall be filed on 20th September, 2021.The late fee payable for late
filing of return of income shall be: (Jun. 2019)
(A) Rs.1,000
(B) Rs.5,000
(C) Rs. 10,000
(D) No late fee up to income of Rs. 5 lakh Ans A
21.The return of income for the previous year 2020-21 required to be filed by an individual who is not a
senior citizen as per section 139(1) of the Act by 31st October, 2021. However, the assessee finds that he
cannot file the return as per 139(1) within the due date. Can he file his return of income after the due
date and if yes, by which date/time ? (Dec 20 –NS)
(A) On or before 31st December, 2021
(B) On or before 31st March, 2022
(C) On or before 31st March, 2023
(D) On or before 30th June, 2022 ANS-B

Income Tax Return Forms
ITR Applicability
Form No
1 ITR 1 (SAHAJ) can be filed by an individual who is resident other than not
ordinarily resident, having income from salaries, one house property and does
not have any brought forward loss [or loss to be carried forward] under the
head of HP, income from other sources (interest etc.). and having total income
upto 50 lakh.
2 Individuals and HUFs having not having income from business or profession
shall be eligible to file ITR 2.
3 Individuals and HUFs having income under the head “Profits and gains of
business or profession” have to file ITR 3.
4 • Under PGBP - Presumptive income u/s 44AD, 44AE or 44ADA
• In addition, they may have salary income, income from house property and
income from other sources (excluding winnings from lottery and income
from race horses, income taxable under section 115BBDA and income of the
nature referred to in section 115BBE).
• Any person having agricultural income in excess of Rs. 5,000 cannot use
ITR 4.
• Further, a person claiming relief of foreign tax paid under section 90, 90A or
91 cannot use this form.
• Also, this form cannot be used by a resident having any asset (including
financial interest in any entity) located outside India or signing authority in
any account located outside India and by a resident having income from any
source outside India.
5 ITR 5 can be used by persons other than individual, HUF, company and person
filing Form ITR 7.
6 ITR 6 can be used by companies other than companies claiming exemption under
section 11.
7 ITR 7 can be used by persons including companies required to furnish return
under sections 139(4A) or 139(4B) or 139(4C) or 139(4D) or 139(4E) or 139(4F).
Note - All these ITR Forms are to be filed electronically. However, where return is furnished in
ITR Form-1 (SAHAJ) or ITR-4 (SUGAM), the following persons have an option to file return in
paper form:
✓ An Individual of the age of 80 years or more at any time during the previous year; or
✓ an Individual or HUF whose income does not exceed five lakh rupees & who has not
claimed any refund in the Return of Income.

1. An individual having income from proprietary business in required to file the return of income in - (June,
2015)
(a) ITR-2 (b) ITR-3
(c) ITR-3A (d) ITR-4 Ans.(b)
2. A partnership firm having 9 trucks engaged in the business of plying these trucks on hire is to file its
return of income for the assessment year 2021-22 on the basis of provisions of section 44AE. The
partnership firm is required to file its return of income in - (Dec. 2015)
(a) Form ITR-4

(b) Form 1TR-3
(c) Form ITR-2
(d) Form ITR-5 Ans.(a)
3. In the case of an individual assessee, the return of income must be verified by following, except -
(Dec. 2014)
(a)Individual himself
(b) Where he is absent from India, by some person duly authorised by him in this behalf
(c)Where he is mentally incapacitated from attending to his affairs, by his guardian or any other person
competent to act on his behalf
(d) Spouse. Ans.(d)
4. Hindu Undivided Family (HUF) of Vinay consisted of himself, his major son, minor son and his wife. At the
time of filing of return of income of the HUF for A.Y. 2021-22, Vinay was out of country. The return of income
of the HUF can be signed in this case by: (Jun. 2019)
a. Karta
b. Authorized Tax Consultant
c. Major Son
d. Minor Son
Ans C
2. Defective return u/s 139(9):

If return is not furnished with all accompanied documents mentioned in this section (like, tax audit
report, challans, etc.) then, AO shall intimate such defect and assessee shall rectify the defect within
15 days of intimation or extended period otherwise, return deemed to be void ab-initio.
However, if return is filed without payment of self-assessment tax u/s 140A then it does not amount
to defective return.
5. A return of income when notified as defective, has to be rectified within - (Dec. 2015)
(a) 30 days
(b) The financial year
(c) 15 days
(d) 60 days Ans.(c)
6. A return filed by Ms. Mala was found to be defective. The Assessing Officer gave notice of the defect to the
assessee. The time-limit for rectification of the defect is - (June 2016)
(a) 30 Days
(b) 15 Days
(c) 45 Days
(d) 60 Days Ans.(b)

3. Scheme to facilitate submission of returns through tax return preparers [Section

139B] [W.E.F. 1-6-2006]
Certain persons may furnish their returns of income through a Tax return preparer authorized to
act as such under the scheme.
The following persons are not authorized to act as Tax return preparer:
– any officer of a scheduled bank in which the assessee maintains a current account or
has regular dealings. Also a person on whom 44AB is applicable cant get filed
through TRP
– A legal practitioner; or
– A chartered accountant.
Educational qualification for Tax Return Preparers(TRP) notified vide Notification No.
4/2018, dated 19-01-2018 :
An individual, who holds a bachelor degree from a recognized Indian university or institution,
or has passed the intermediate level examination conducted by the Institute of Chartered
Accountants of India or the Institute of Company Secretaries of India or the Institute of Cost
Accountants of India, shall be eligible to act as TRP.
4. Fee and Interest

1. Interest for belated payment of Income-Tax [Section 220(2)]
An assessee is liable to pay interest @ 1% for every month or part thereof
comprised in the period intervening between the expiry of 30 days w.e.f.
serving of the notice of demand
Sub-section (2A) of Section 220, empowers the Board to reduce or waive

the amount of interest payable by an assessee under the above section on
the recommendation made by the Chief Commissioner or Commissioner
in this behalf. The Board’s order will be passed only upon satisfaction that :
(a) the payment of such interest has caused or would cause genuine hardship
to the assessee;
(b) the default in the payment of the amount on which interest has been paid
or was payable was due to circumstances beyond the control of the assessee;
and
(c) the assessee has co-operated in any enquiry relating to the assessment
or any proceeding for recovery of any amount due from him.
Provided that the order accepting or rejecting the application of the

assessee, either in full or in part, shall be passed within a period of twelve

months from the end of the month in which the application is received
2. INTEREST FOR DEFAULT IN FURNISHING RETURN OF INCOME [SECTION 234A]
Furnished after the due date or is not furnished
Pay simple interest at the rate of 1% per cent for every month or part of the month
on the total income as determined as per 143(1) or on the total income determined under regular
assessment reduced by an amount of –
(1) advance tax if paid

(2) any TDS/TCS;
(3) relief under Sections 89
(4) relief under Sections 90, 90A
(5) any deduction under Sections 91
(6) any tax credit under the provisions of Section 115JD (AMT Credit)
The interest calculation is upto the dates as below –

Circumstances Ending on the following dates
Where the return is furnished the date of furnishing of the return
after due date
Where no return is furnished the date of completion of
assessment
Note - No interest under section 234A shall be charged on self-assessment tax paid by
the assessee on or before the due date of filing of return.
3. FEE FOR DEFAULT IN FURNISHING RETURN OF INCOME [SECTION 234F]

Fee Circumstances
Rs. 5,000 if the return is furnished on or before the 31st December of the
assessment year;
Rs. 10,000 in any other case
However, if the total income of the person does not exceed Rs. 5 lakhs, the fees
payable shall not exceed Rs. 1,000
1. Ram Nath a resident individual having income of salary and interest on deposits has computed his total
income at Rs. 9,00,000 for assessment year 2021-22. He wants to furnish his return of income for
assessment year 2021-22 after the due date as prescribed under section 139(1) likely on or by
30.01.2022. As per section 234F of Income Tax Act, 1961, he is liable to pay fees of (Dec 20 –OS)
(A) Rs. 1,000
(B) Rs. 5,000
(C) Rs. 10,000
(D) Rs. 15,000 ANS C
2. Kayal employed in a private company, having only salary income, filed her return of income of
assessment year 2021-22 on 10-9-2021. Her total income is Rs. 4,10,000. The amount of fee payable by
her under section 234F would be : (Dec 19 –OS)
(A) Rs. 10,000
(B) Rs. 5,000
(C) Rs. 1,000
(D) Nil Ans – C

5. COLLECTION AND RECOVERY OF TAX
A. Assessee in Default
The amount specified in the notice of demand shall be paid within 30 days of the service of the
notice at the place and to the person mentioned in the notice. If the Assessing Officer has any
reason to believe that it will be detrimental to revenue if the full period of 30 days is allowed he may,
with the prior approval of the Joint Commissioner reduce the period as he thinks fit (Section 220).
B. The total amount of penalty shall not exceed the amount of tax in arrears.
6. PERSONS AUTHORISED TO VERIFY RETURN OF INCOME [SECTION 140]
Assessee Circumstance Authorized Persons

1 Individual (i) In circumstances not covered under (ii), (iii) - the individual himself
. &(iv) below
(ii) where he is absent from India - the individual himself; or
- any person duly authorized by him
in this behalf holding a valid power
of attorney from the individual
(Such power of attorney should be
attached to the return of income)
(iii) where he is mentally incapacitated from - his guardian; or
attending to his affairs - any other person competent to
act on his behalf
(iv) where, for any other reason, it is not possible for - any person duly authorized by him
the individual to verify the return in this behalf holding a valid power
of attorney from the individual
(Such power of attorney should be
attached to the return of income)
2 HUF (i) in circumstances not covered under (ii) and (iii) - the karta
. below
(ii) where the karta is absent from India - any other adult member of the HUF
(iii) where the karta is mentally incapacitated from
attending to his affairs
3 Compan (i) in circumstances not covered under (ii) to (v) - the managing director of the company
. y below
(ii)
(a) where for any unavoidable reason such
managing director is not able to verify the - any director of the company
return; or - or any other person, as may
where there is no managing director be prescribed for this
purpose
(iii) where the company is not resident in India - a person who holds a valid power of
attorney from such company to do so
(such power of attorney should be
attached to the return).
(iv)
(a) Where the company is being wound up - Liquidator
(whether under the orders of a court or
otherwise); or

where any person has been appointed as the receiver

of any assets of the company
(v) Where the management of the company has been - the principal officer of the Company
taken over by the Central Government or any State
Government under any law
(vi )Where an application for corporate insolvency insolvency professional appointed by
(AY 19-20) resolution process has been admitted by the such Adjudicating Authority
Adjudicating Authority under the Insolvency and
Bankruptcy Code, 2016.
4 Firm (i) in circumstances not covered under (ii) below - the managing partner of the firm
.
(ii)
(a) where for any unavoidable reason such - any partner of the firm, not being
managing partner is not able to verify the a minor
return; or - or any other person, as may be
where there is no managing partner. prescribed for this purpose
5 LLP (i) in circumstances not covered under (ii) below - Designated partner
.
(ii)
(a) where for any unavoidable reason such - any partner of the LLP
designated partner is not able to verify the
return; or
where there is no designated partner.
6 Local - - the principal officer
. authority
7 Political - - the chief executive officer of such

. party party (whether he is known as secretary or
[referred by any other designation)
to in
section
139(4B)]
8 Any - - any member of the association or
. other the principal officer of such association
associati
on
9 Any - - that person or some other person
. other competent to act on his behalf.
person
7.
Self -Assessment under section 140A
Tax Payable = Tax on Return to be Order of adjustment
Total Income – accompanied by of amount paid
Advances tax paid – proof of payment of Fee, Interest and tax
TDS/TCS – RELIEF – Tax payable + Interest
Relief u/s 89 U/S u/s 234A, 234B and
90,91,90A – 234C + Fee payable
115JJAA/115JD credit u/s
234F

MCQ
1. The self-assessment tax computed u/s 140A by an individual assessee is Rs. 1,50,000 which
includes Rs. 15,000 as interest for late filing of return as per section 234A. The assessee has
deposited Rs. 75,000 as self-assessment tax. In this case: (Dec. 2018)
a. Rs. 75,000 so deposited shall be adjusted in the proportion of 9 : 1 towards tax and interest
b. Rs. 15,000 shall be adjusted towards interest due and balance of Rs.60,000 shall be
adjusted towards tax due
c. Rs. 75,000 so deposited shall be adjusted towards tax due
d. None of the above
Ans B
2. A return of income where furnished after the due date than the period for which the interest is payable under
section 234A commences from -------- (Dec 20 –OS)
(A) first day of relevant Assessment Year to ending on the date of furnishing of the return
(B) the date immediately following the due date for filing the return and ending on the date of furnishing of
the return
(C) first day of relevant Assessment Year to due date for filing the return
(D) the date immediately following the date for filing the return and ending on the end of relevant
Assessment Year
ANS B
8. REFUNDS (SECTION 237 TO SECTION 245)
A. Every claim for refund → prescribed Form (No. 30) → AY End to which the claim is
related
B. Where refund arises on completion of assessment on account of excess
payments of advance tax or on self- assessment or it results on account of reduction
in appeal, revision or rectification of mistakes, no formal application for refund is
required.
C. WHO IS ENTITLED TO REFUND
Any one of the following persons can apply for the refund :
(i) Owner of the income who has made excess payment;

(ii) Where the income of a person is included in the hands of another, only the latter is
entitled to refund;
(iii) In case of death of the assessee, his legal representative;
(iv) In case of insolvency of the assessee - the receiver;
(v) In case of liquidation of a company - the liquidator of the company;
(vi) In case of minor or incapable assessee - the guardian of the minor or incapable;
(vii) In case of non-resident assessee - his agent provided he has been duly authorised by
the principal; and
(viii) In case of dissolved partnership firm - any partner provided he has been duly
authorised by all other ex-partners of the firm.

D. INTEREST ON REFUNDS
a. Refund because of excess TCS or paid by way of Advance tax –
✓ 0.5 % for every month or part of a month
✓ from 1st day of April of the assessment year to the date on which the
refund is granted.
✓ But, if the amount of refund is < 10% percent of the tax as determined on
regular assessment, no interest shall be payable
b. Refund is out of any tax paid under section 140A
✓ interest - 0.5% for every month or part of a month
✓ from the date of furnishing of return of income or payment of tax,

whichever is later, to the date on which the refund is granted
✓ However, no interest shall be payable if the amount of refund is < 10%

percent of the tax as determined under Sub-section (1) of Section 143 or
regular assessment.
c. In any other case – 0.5% for every month or part of a month comprised in the
period or periods from the date or dates of payment of the tax or penalty to the
date on which the refund is granted
d. Where a refund arises out of appeal effect being delayed - an additional

interest on such refund amount calculated @ 3% per annum, for the period
beginning from the date following the date of expiry of the time allowed
e. New Section 244A(1B) - Refund becomes due to the deductor, such person
shall be entitled to receive, in addition to the refund, simple interest on such
refund at rate of 0.5% per month or part of month. Interest will be available from
the date on which claim for refund is made in the prescribed form to the date
on which refund is granted.
Where refund arises on account of giving effect to an appellate order under

section 250/254/262, interest will be available from the date of deposit of TDS to
the date on which refund is granted. However, interest shall not be allowed for
the period for which the delay (in the proceedings resulting in the refund) is
attributable to the deductor. [Amendment vide Finance Act, 2017 w.e.f. AY
2018-19]

PAN
A. The structure of the ten characters of PAN is as under :
a. The first 3 characters - alphabetic series running from AAA to ZZZ.

b. The fourth character of PAN represents the status of the PAN holder i.e.
✓ “P” stands for Individual
✓ “C” stands for Company;
✓ “H” stands for Hindu Undivided Family (HUF);
✓ “A” stands for Association of Persons (AOP);
✓ “B” stands for Body of Individuals (BOI)
✓ “G” stands for Government Agency
✓ ”J” stands for Artificial Juridical Person
✓ “L” stands for Local Authority
✓ “F” stands for Firm/ Limited Liability Partnership and
✓ “T” stands for Trust.
c. 5th character of PAN represents the first character of the PAN holder’s last
name/surname in case of an individual.
In case of non-individual PAN holders fifth character represents the first character of
PAN holder’s name.
d. Next 4 characters are sequential numbers running from 0001 to 9999.
e. 10th character is an alphabetic check digit.
B. Process to apply for PAN

✓ Income Tax Department has authorised UTI Infrastructure Technology and Services Limited
(UTIITSL) and National Securities Depository Limited (NSDL) to set-up and manage PAN Service
Centers.
✓ Thus, a person wishing to obtain PAN can apply for PAN by submitting the PAN application form
(Form 49A – (Indian Citizens) /49AA (Foreign Citizens) ) along with the related documents and
prescribed fees at the PAN application center of UTIITSL or NSDL.
An online application can also be made from the website of UTIITSL or NSDL.
MCQ
1. Interest is payable to an assessee on the amount of refund under the Income Tax Act, 1961 where the
amount of refund is............ (Dec. 2018)
a. more than ten percent of the tax as determined on regular assessment

b. more than five percent of the tax as determined on regular assessment
c. more than fifteen percent of the tax as determined on regular assessment
d. more than twenty percent of the tax as determined on regular assessment
Ans A
2. Section 244A provides where the refund is out of any tax paid under section 140A, simple interest
shall be calculated at the rate of -------------- comprised in the period from the date of furnishing of
return or payment of tax, whichever is later, to the date on which the refund is granted. (Dec 20 –
OS)
(A) 1% for every month
(B) 1% for every month or part of a month
(C) 1½% for every month
(D) ½% for every month or part of a month ANS D

PAN Applicability
139A - PAN APPLICABILITY and

time limit for making
application for PAN
Charitable/ Total
reigious Income > Person Any resident entity, In order to link the
trust amount carrying other than an financial transaction
required to which is not PGBP entered by such resident
individual, which
file ROI. chargeable where, enters into a financial entity every managing
to tax Likely Sales, transaction of an director, director, partner,
turnover or amount aggregating trustee, author, founder,
receipt > minimum Rs. 2.5 lacs in karta, chief executive
a financial year. officer, principal officer or
Before PY Rs. 5,00,000 office bearer of such
ends entity will have to apply
By 31st for PAN.
May of AY
Before PY By 31st
ends May of AY
By 31st
May of AY
Instant PAN: CBDT has launched a new functionality on the e-filing portal which allots a PAN to the individual
assessee on the basis of his Aadhaar Number. This facility can be used by an assessee only if the following
conditions are fulfilled:
a. He has never been allotted a PAN
b. His mobile number is linked with his Aadhaar number
c. His complete date of birth is available on the Aadhaar card
d. He should not be a minor on the date of application for PAN
✓ Besides above cases, the Assessing Officer may also allot a permanent account number
to any other person by whom tax is payable.
✓ Permanent Account Number (PAN) is a ten-digit alphanumeric number
✓ Section 206AA: If PAN not furnished, TDS be at higher rate of 20%.
✓ Penalty for non-compliance u/s 139A or quoting false PAN - Rs. 10,000 (Section 272B)

S. Nature of transaction Value of transaction

No.
1. Payment to a hotel or restaurant Payment in cash of an amount exceeding
against a bill or bills at any one time. Rs. 50,000.
2. Payment in connection with travel to Payment in cash of an amount exceeding
any foreign country or payment Rs. 50,000.
for purchase of any foreign
currency at any one time.
3. Payment to a Mutual Fund for Amount exceeding Hint to remember →
purchase of its units Rs. 50,000. Everywhere “>” is used
4. Payment to a company or an Amount exceeding for amounts
institution for acquiring debentures Rs. 50,000.
or bonds issued by it.
5. Payment to the Reserve Bank of Amount exceeding
India for acquiring bonds issued Rs. 50,000.
by it.
6. Deposit with a banking company or Cash deposits exceeding Rs. 50,000 during any
a co-operative bank one day; Amount >
50,000 rs.
7. Purchase of bank drafts or pay Payment in cash of an amount exceeding (Generally)
orders or banker’s cheques Rs. 50,000 during any one day.
8. A time deposit with a Bank/Banking Amount exceeding 50,000.
Company/Banking Institution
9. Deposit in Post Office Savings Bank. exceeding Rs. 50,000

10. Payment for one or more pre-paid Payment in cash or by way of a bank draft or
payment instruments,
pay order or banker’s cheque of an amount
aggregating to more than Rs. 50,000 in a
financial year.
11 life insurance premium Amount aggregating to more than Rs. 50,000 in
a financial year.
12 Sale or purchase of a motor vehicle All such transactions
or vehicle, other than two wheeled
vehicles.
13 Opening an account with a banking All such transactions
company or a co-operative bank
14 Making an application for issue of a All such transactions
credit or debit card.
15. Opening of a demat account All such transactions
Application for installation of a All such transactions
telephone connection including
mobile phone.
16. A contract for sale or purchase of Amount exceeding Rs. 1 lakh per transaction
securities (other than shares)
17. Sale or purchase, by any person, of Amount exceeding Rs. 1 lakh per transaction.
shares of a company not listed in
a recognized stock exchange.
18. Sale or purchase of any immovable Amount exceeding Rs. 10 lakh or valued by
property. stamp valuation authority referred to in section
50C at an amount exceeding Rs. 10 lakhs
19. Sale or purchase, by any person, Amount exceeding Rs. 2 lakh per transaction:
of goods or services of any nature
other than those specified at Sl.
No. 1 to 17 of this Table, if any.

PAN or General Index Register Number or Aadhar can be quoted

Inter-changeability of PAN with the Aadhaar number
Every person who is required to furnish or intimate or quote his PAN may furnish or
intimate or quote his Aadhar Number in lieu of the PAN w.e.f. 1.9.2019 if he
- has not been allotted a PAN but possesses the Aadhar number
- has been allotted a PAN and has intimated his Aadhar number to prescribed authority in
accordance with the requirement contained in section 139AA(2) {Section for Quoting of
Aadhar}
Penalty for failure to comply with the provisions of section 139A [Section 272B]
Section Default Penalty

272B(1) Failure to comply with the provisions of section 139A Rs. 10,000
272B(2) Failure to quote PAN/Aadhaar number in any document Rs. 10,000 for
required each such default
Knowingly quoting or intimating a number which is false

272B(2A/2B) Failure to quote PAN/Aadhaar Number in documents Rs. 10,000 for
referred to in section 139A(6A) or authenticate such number each such default
in accordance with the provisions contained therein
Note – It is necessary to give an opportunity to be heard to the person on whom the penalty
under section 272B is proposed to be imposed.
Persons who are not required to quote Aadhar Number or Enrolment ID
(i) residing in the States of Assam, Jammu & Kashmir and Meghalaya;
(ii) a non-resident as per Income-tax Act, 1961;
(iii) of the age of 80 years or more at any time during the previous year;
(iv) not a citizen of India.

CBDT has further extended the time for linking PAN with Aadhar till 31st March, 2020

Note –
Quoting of Aadhaar Number mandatory in returns filed on or after 1.4.2019 [Circular No. 6/2019 dated
31.03.2019]
Consequences of failure to intimate Aadhar Number (Provision effective from1.9.19)

Then the permanent account Number (PAN) allotted to such person shall be made inoperative
after the date so notified in the prescribed manner.
MCQ
1. Quoting of PAN is mandatory when a person is entering into following transactions :
(1) Sale of immovable property of Rs. 10 lakh or more
(2) Deposit of cash exceeding Rs. 50,000 in Post Office Savings Bank
(3) Deposit of cash aggregating Rs. 40,000 in one day in a bank
(4) Contract of sale and purchase of securities exceeding Rs. 1 lakh
Select the correct answer from the options given below s(Dec. 2015)
(a) (1), (2) and (3)
(b) (1), (2) and (4)
(c) (1), (3) and (4)
(d) (1), (2), (3) and (4) Ans.(b)
2. For which of the following transactions, quoting of Permanent Account Number is mandatory? (Dec
19 –OS)
a. Payment to hotel Rs. 22,000 on any single day
b. Deposit of cash in saving bank account of Rs. 55,000 on any single day
c. Purchase of property valued at Rs. 3 lakhs
d. Payment of life insurance premium of Rs. 25,000
Ans –B
3.Quoting of PAN is compulsory/mandatory in respect of financial transactions undertaken during the year by an
assessee. Find from the following transactions in which quoting of PAN is compulsory/mandatory: (Dec 20 –NS)
(i) deposit of cash of Rs.60,000 on 11.06.2020 in bank account
(ii) payment of Rs.40,000 made to hotel Raj Palace in cash on 11.07.2020
(iii) payment for purchase of travel ticket, to travel agent in cash of Rs.55,000 on 10.05.2020
(iv) payment of Rs.5,00,000 to RBI for purchase of Capital Gain Bonds as per section 54EC on 5.05.2020
(A) (i), & (iii)
(B) (i), (iii) & (iv)
(C) (i), (ii) & (iii)
(D) All the four in, (i), (ii), (iii) & (iv) ANS-B
4.State and find out in which of the following transactions quoting of PAN is not compulsory/mandatory ? (Dec
20 –OS)
(A) Payment in cash in connection with travel to any foreign country of an amount exceeding Rs. 50,000 at
anyone time
(B) Contract for sale/purchase of securities exceeding Rs. 1,00,000
(C) Sale/Purchase of any immovable property valued at Rs.10 lakhs or more and valued by the stamp
valuation authority under section 50C at an amount exceeding Rs. 10 lakhs
(D) Sale or purchase, by any person of goods or services of any nature other than those specified where
amount exceeding Rs.1,00,000 per transaction
ANS D

13.1
Chapter - 13
TDS – TCS – Advance tax

13.2
Sec. Description Threshold Limit Payer Type Rate Time of Payments / Income exempted from TDS
of of dedn.
Payee TDS
192 Salary Basic exemption Any Individual Average payment Allowances, exempt under section 10, &
person rate exempt perquisites – be excluded.
192A Premature Rs. 49,999 Employee Individual 10% payment Applicable only if amount is withdrawn
withdrawal Provident before 5 years of contribution.
from PF Fund
(Recognized) Officer
192 - Deferring TDS in respect of income pertaining to Employee Stock Option Plan (ESOP) of start ups: For the
purposes TDS under section 192, a person, being an eligible start-up referred to in section 80-IAC, responsible for
providing sweat equity shares/ESOP shall deduct or pay, as the case may be, tax on such income
AY 21-22 within 14 days—
(i) after the expiry of 48 months from the end of the relevant AY; or
(ii) from the date of the sale of such specified security or sweat equity share by the assessee; or
(iii) from the date of the assessee ceasing to be the employee of the person,
whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security
or sweat equity share is allotted or transferred.
13.3
of of dedn.
Payee TDS
193 Interest on 8% Savings Any Any 10% Credit or Some exempted interest payments are –
Securities (Taxable) Bonds, person resident payment • Any security of CG/SG.
2003, / 7.75% , earlier. • On debentures issued by any co-operative
Savings (Taxable) society as notified by CG.
Bonds, 2018. – • 6½% Gold Bonds, 1977 or 7% Gold
Rs. 10,000 Bonds, 1980, where bonds are held by an
Interest on individual (other than a non-resident),
provided that total nominal value of the
debentures bonds did not exceed Rs. 10,000 at any
(whether listed or time during the period to which the interest
not) issued by a relates.
company in which • Payable to LIC/ GIC
the public are • Payable to any other insurer in respect
substantially of any securities owned by it or in which it
interested, paid or has full beneficial interest.
credited to a • Payable on any security issued by a
resident company, where such security is in
individual or HUF dematerialized form and is listed
- 5,000 & by a/c
payee cheque
Note – Section 193 - No tax is required to be deducted at source on interest payable on “Power Finance Corporation
Limited 54EC Capital Gains Bond” and “Indian Railway Finance Corporation Limited 54EC Capital Gains
Bond” – [Notification No. 27 & 28/2018, dated 18-06-2018]
The benefit of this exemption would, however, be admissible in the case of transfer of such bonds by endorsement
or delivery, only if the transferee informs PFCL/IRFCL by registered post within a period of 60 days of such
transfer.
13.4
of of deduction
Payee TDS
194 Dividend Rs. 5,000 in a F.Y. The Resident 10% Before
(including company wise Principal shareholder making any
dividends in case of dividend Officer of payment by
AY 21-22
on paid or credited to an a any mode
preference individual domestic in respect
shares) shareholder by any company of any
mode other than cash dividend or
before
No threshold in making any
other cases distribution
or payment
of dividend.
13.5
Sec. Description Threshold Limit Payer Payee Rate Time of Payments / Income exempted from TDS
deduction
194A Interest Rs. 40,000 in a Any person, Any 10% Credit or Interest credited or paid to:
other than financial year, in & For Resident payment, - any banking company, or a cooperative society in
interest on case of interest paid Indi/HUF if in earlier. business of banking
securities by – preceding - any financial corporation established by or under a
• a banking year T. Over Central, State or Provincial Act.
company; > 1Crore/50 - LIC/ UTI
• a co- operative Lakhs - any company and cooperative society carrying on
society in
banking the business of insurance.
business; and
• deposits with AY 21-22 Interest credited or paid –
post office
On time deposits - by a firm to a partner
In all the above - by a co-operative society (other than a co-
cases, if payee is a operative bank) to a member thereof or to such
resident senior income credited or paid by a co-operative society
citizen, tax deduction to any other co-operative society
limit is >Rs. 50,000. - By banking co-operative society on other than
time deposits
5,000 in a financial - By primary agriculture credit society or primary
year, in other cases. credit society or a co-operative land mortgage
bank or a co-operative land development bank
- By CG under Income Tax act
- Interest credited by the Motor Accidents Claims
Co operative Tribunal
- Interest paid by Motor Accidents Claims Tribunal
where aggregate during FY does not exceed
Payer - co - op 50,000
Payer - Bank society - Other - Interest on ZCB
than Bank
Summarizing Co – Op. Banks and Societies

Receiver - Co -
Receiver - Any Reciver - Any
op Bank/Co- Note - Threshold will be checked by aggregating all the
other person perosn
op society
bank accounts if Core Banking solutions have been
adopted.
Time deposits
- TDS Other deposits
No TDS No TDS 2. Cheque discounting charges does not attract 194A
Threshuld - Rs. No TDS
40,000 ITO v. A.S. Babu Sah (2003) 86 ITD 283 (Mad.)
13.6
However, a cooperative society referred to in (e) or (f) is liable to deduct tax if –
(i) the total sales, gross receipts or turnover of the co-operative society exceeds Rs. 50 crore during the
preceding financial year;
AY 21-22 and
(ii) the amount of interest or the aggregate amount of interest is more than Rs. 50,000 in case of
payee being a senior citizen and Rs. 40,000, in any other case.
Thus, such co-operative society is required to deduct tax under section 194A on interest credited or paid by it –
(a) to its member or to any other co-operative society; or

(b) in respect of deposits with a primary agricultural credit society or a primary credit society or a co-
operative land mortgage bank or a co-operative land development bank or
(c) in respect of deposits with a co-operative bank other than a co- operative society or bank engaged in
carrying on the business of banking
13.7
Sec. Description Threshold Payer Type of Rate Time of Payments / Income exempted from TDS
Payee deduction
194B Winnings from Rs. 10,000 Any Person Any 30% payment -
any lottery, Person
crossword
puzzle or card
game or other
game of any
sort
194BB Winnings Rs. 10,000 Book Maker Any 30% payment -

from horse or a person Person
race holding
license for
horse racing,
wagering
or betting
in any race
course.
194C Payments to Single sum Any person, Any 1% - Credit or (i) Any sum credited or paid to a contractor
Contractor credited or & For Resident if the payment, in transport business, who owns ten or
paid – Indi/HUF if in contract payee is an earlier. less goods carriages at any time during
Individual
30,000 preceding or or HUF the previous year if the contractor
Or The year T.Over (including furnishes a declaration to that effect
> 1Crore/50 supply of along with his PAN to the person paying
aggregate of 2% -
Lakhs Labour) or crediting such sum.
sums credited if
or paid during the payee is
the financial AY 21-22 any other (ii) Any sum by an individual or HUF
year – 1,00,000 person. exclusively for personal purposes of such
individual or HUF.
194D Insurance Rs. 15,000 in a Any person Any 5% Credit or
Commission financial Resident payment
year , earlier.
194DA Any sum Upto 99,999 Any person Any payment Sums which are exempt under section 10(10D)
under a Life (aggregate resident 5% on i.e. Insurance policies which are not taxable on
Insurance amount of amounts maturity.
Policy payment to a received – (Note – Policy becomes taxable on maturity if
payee in a premiums paid the premium paid exceeds 20%, 15%, 10% of
maturity amount and also Keyman Insurance
financial year)
policy is fully taxable)
13.8
Section Description Threshold Payer Type of Rate of Time of deduction Payments / Income
Limit Payee TDS exempted from TDS
194E Payment to non- - Any person non-resident 20% + Sur . Credit or payment, -
resident sportsmen sportsmen +Cess + cess earlier.
or sports (including an (If
associations of athlete) or non- applicable)
income referred to citizen
in section 115BBA entertainer or
non-resident
sports
associations
194EE Payment of deposit Rs. 2,500 in a Any person Individual or 10% Time of payment Payment to the heirs of
under National financial year HUF the assessee
Saving Scheme
194G Commission on sale Rs. 15,000 in a Any person Any person 5% Credit or payment,
of lottery tickets financial year earlier.
194H Commission or Rs. 15,000 in a Any person, Any resident 5% Credit or payment, Commission or
brokerage financial year & For earlier. brokerage payable by
Indi/HUF if in BSNL or MTNL to their
preceding PCO franchisees.
year T.Over >
1Crore/50
Lakhs AY 21-22
194-I Rent Rs. 2,40,000 in Any person, Any resident For P & M Credit or payment, Rent is paid / payable to a
- (Ownership of a financial & For or earlier.
Government agency.
the person giving year Indi/HUF if in equipment-
on rent is preceding 2% Sharing of proceeds
year T.Over
immaterial) between a Film distributor
> 1Crore/50 For land,
building, and exhibitor owing the
Lakhs
AY 21-22 furniture cinema theatre
or fixtures
-10%
13.9
Section - Description Threshold Payer Type of Payee Rate of TDS Time of deduction Payments / Income
Limit exempted from TDS
194M - Payments to > Rs. 50,00,000 Individual or Any Resident 5% Credit or payment, Indi/ HUF on whom 44AB is
Contractors in a HUF other earlier. applicable in the preceding
Commission or financial year than those year
brokerage Fees for who are
professional required to
services deduct tax at
source under
section 194C
or 194H or
194J
Secti Description Threshold - Payer Type of Payee Rate of TDS AY 21-22 Time of Payments / Income
on Limit deduction exempted from TDS
194N Cash withdrawals > Rs. 1 crore - a banking Any person • @2% of such sum. At the Paid to –
company or any • In case the recipient has time of a. Government
bank or not filed ROI for all the 3 payment b. Bank/ Co-operative bank,
banking immediately Preceding of such Post office and their
institution P.Y.s, for which time limit sum
business correspondents
- a co- u/s 139(1) has expired,
operative such sum shall be the
c. any white label ATM
society amt or agg. of amts, in
cash > Rs. 20 lakh during operator of a banking
engaged in
the P.Y. company (Ex.Tata Indicash,
carrying on the
Muthoot Finance etc.)
business of
banking or a • TDS d. commission agent or
post office - @2% of the sum, where cash trader, operating under
withdrawal > Rs. 20 lakhs but ≤ Agriculture Produce Market
Rs. 1 crore Committee (APMC)
- @5% of sum, where cash
withdrawal exceeds Rs. 1 crore
1. The payer as per section 194N of Income tax Act, 1961 is required to deduct tax at source at the rate of ---------------- on the cash
payments, if aggregate of withdrawals during the financial year from any account maintained with a banking company or
cooperative bank or post office exceeds----------------. (Dec 20 –OS)
(A) 1%, Rs. 1 crore
(B) 2%, Rs. 1 crore
(C) 1%, Rs. 2 crore
(D) 1%, Rs. 5 crore ANS A
13.10
2. Any person being an individual or a HUF (other than those who are not required to deduct tax under section 194C or 194H or 194J)
paying any sum to any resident contractor or professional required to deduct tax at source under section 194M at the rate of --------
---, if aggregate payment during the year exceeds --. (Dec 20 –OS)
(A) 10%, 20 lakh
(B) 5%, 20 lakh
(C) 5%, 50 lakh
(D) 10%, 50 lakh
ANS C
Section Natur Threshold Limit for Payer Payee Rate of TDS Time of
e of deduction of tax at source deduction
paym
ent
194-O Rs. 5 lakhs, being gross E-commerce operator, E-commerce 1% At the time of credit
(w.e.f. 1.10.20 amount of sales or service who facilitates sale of participant of gross of such sum to the
20) or both in a financial year to goods or provision of amount of account of the payee
an e- commerce services of an e- sale or or at the time of
AY 21-22
participant, being commerce participant service or both payment, whichever
individual or HUF and such through digital or [In case of failure is earlier.
e- commerce participant electronic facility or to furnish PAN,
has furnished PAN or platform Maximum
Aadhar number to the e- TDS@5%]
commerce operator
> No threshold in other
cases
(ICSI Supplementary June
21)
T.O of 5 lacs will be
counted from 1st April
2020 but will be
applicable on
transactions from 1st
October onwards)
13.11
Sec. Description Threshold Payer Payee Rate Time of deduction Payments / Income
194-IA Payment on Rs. 50 lakh Any Resident 1% Credit or payment, earlier. Payment for transfer of
transfer of (Consideration person, Individual agricultural land
9.80
certain for transfer) being a /HUF
immovable transferee
Property (Land or
Building)
194-IB Payment of rent Rs. 50, 000 Indi/HUF if Any 5% At the time of credit of rent,
[w.e.f. by certain for a month in Resident for the last month of the
1st individual or HUF or part of a preceding previous year
month year 44AB or the last month of tenancy,
June, if the property is vacated
2017] NOT during the year, as the case
applicable may be, to the account of
the payee or at the time of
payment, whichever is earlier
194-IC Payment - Any person Any 10% Credit or payment, earlier.
under Resident
specified
agreement u/s
45(5A) - JDA
194 - IA
Meaning of consideration for transfer of immovable property – 194- IA Consideration for transfer of immovable property include all
charges of the nature of club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar
nature, which are incidental to transfer of the immovable property.
For 194-IA, Deductor doesn’t need to obtain TAN.
1. DAB Builders entered into a registered agreement with Lallu Ram Yadav owning a land located at Jaipur under Joint
Development Agreement to develop a real estate project on such land and in consideration of his share of being land in
such project on the date of entering in the Joint Development Agreement paid an amount of Rs.50 lakh by Account Payee
Cheque in January, 2021. The amount of TDS to be deducted by DAB Builders on such payment shall be Rs................ (Dec 20
9.79
9.81
–NS)
(A) 5,00,000
(B) 50,000
(C) 2,50,000
(D) 1,00,000 ANS-A
13.12
Section Description Threshold Limit Payer Type of Rate of TDS Time of

Payee deduction
194J Fees for Rs. 30,000 in a • Any person, Any Read from below table At the time
professional financial year, other than an individual or HUF; Resident of credit of
or technical for each such sum to
services/ category of • However, in case of fees for the account
Royalty/ Non- income. professional or technical services of the
compete fees/ (However, this payee or at
• Individual/HUF, whose total sales,
Director’s limit does not the time of
gross receipts or turnover from
remuneration apply in case of payment,
Business or profession exceeds
payment made whichever is
Rs. 1 crore in case of business
to director of a earlier.
or Rs. 50 lakhs in immediately
company).
preceding F.Y., is liable to
deduct tax u/s 194J,
• except where fees for
professional services is credited
or paid exclusively for his
personal purposes.
Note - It may be noted that individuals and HUFs are not required to deduct tax at source under section 194J on royalty and
non-compete fees and there’s no scope of payment to director as well.
13.13
Section Nature of Threshold Limit for Payer Payee Rate of Time of deduction
payment deduction of tax at TDS
source
194K Income on Rs. 5,000 in a Any person responsible for paying Any 10% At the time of credit
units other financial year any income in respect of units of a resident of such sum to the
AY 21-22 than in the mutual fund/ Administrator of the account of the payee
nature of specified undertaking/ specified or at the time of
capital gains company payment, whichever
is earlier.
Section Description Threshold Payer Payee Rate Time of Payments / Income

Limit deduction exempted from TDS
194LA Compensation/ Rs. 2,50,000 Any person Any 10% payment Compensation on
enhanced in a financial Resident acquisition of agricultural
compensation year land.
on acquisition
of certain
immovable
property
13.14
Sec. Description Threshold Payer Payee Rate Time of deduction Payments / Income
194LB Special rate of tax - Any person non- 5% At the time of credit of such
on interest corporate sum to the account of the
received by non- non- payee or at the time of
residents from payment, whichever is earlier.
resident
notified or a
infrastructure
foreign
debt funds
company
194LC Concessional rate Indian non- 5% on gross At the time of credit of such
of tax on interest sum to the account of the 194LC is extended to
company corporate interest
on foreign payee or at the time of interest payable in respect
or non-
payment, whichever is earlier. of monies borrowed by an
currency business resident 4%long-term Indian company or business
borrowings by an trust or a bond or trust from a source outside
Indian company
foreign rupee India by way of issue of
or business trust
company denominated rupee denominated bond
outside India on bond issued issued before 1st July,
issue of long-term between 2023.
infrastructure 1.4.20 to
bonds including 30.6.20 listed
long-term in IFSC
infrastructure
bonds approved
by CG
194LD Interest on interest Governme FII OR 5% on gross At the time of credit of such
Government payable nt or QII interest sum to the account of the
securities or RDB during the Indian payee or at the time of
of an Indian payment, whichever is earlier
period company
company payable between
to a FII or a
1.6.2013 and
Qualified Foreign
30.6.2023
Investor (QFI)
13.15
Section Description Threshold Limit Payer Type of Payee Rate of Time of deduction Payments / Income exempted
TDS from TDS
194LBA Income from - Business Resident 10% At the time of
units of Trust credit of such sum
to the account of
9.82
business trust
the payee or at the
non-resident 5% + Sur + time of payment,
HEC whichever is
earlier.
10% in case
amount is
received/re
ceivable
from
Special
purpose
vehicle.
Few Pointers
Tax deducted at source (TDS) is an indirect mechanism of collecting tax which combines twin concepts of “pay
as you earn” and “collect as it is being earned.”
Payments of other sums to Non-Residents [Section 195]

Rate of TDS under Section 195 : Rates prescribed under the Act has to be increased by surcharge and health
and education cess at the prescribed rate. If the payment is being made as per DTAA rates, then there is no
need to add surcharge and cess. The rates are as follows :
Particulars TDS rates
Income in respect of investment made by a NRI 20%
Income by the way of long term capital gains in Section 115E in case of a NRI 10%
Income by way of long-term capital gains 10%
Short Term Capital gains under section 111A 15%

13.16
Any other income by way of long-term capital gains 20%
Interest payable on money borrowed in foreign Currency 20%
Income by way of royalty payable by Government or an Indian concern 10%
Income by way of royalty, not being royalty of the nature referred to be payable by Government 10%
or an Indian concern
Income by way of fees for technical services payable by Government or an Indian concern 10%
Any other income 30%
Payment of dividend to a non-resident shareholder by domestic company 20% AY 21-22
Tax deducted at source (TDS) is an indirect mechanism of collecting tax which combines twin concepts of “pay as you earn” and
“collect as it is being earned.”
Past Exam Questions

(1) Wealth Maximization Fund Limited had paid an amount of interest of Rs. 20 lakh in respect of money borrowed outside India on rupee
denominated bonds to a foreign Institutional Investor. Wealth Maximization Fund Limited is required to deduct tax at source out of such
payment of interest on these bonds at the rate of ____________. (Dec 19 –NS)
(a) 10% (b) 15%
(c) No TDS (d) 5% Ans.(d)
2. Few pointers
Section 194C
1. 194C - Definition of work
Work includes –
(a) advertising;
(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;
(c) carriage of goods or passengers by any mode of transport other than by railways;
(d) catering;
(e) manufacturing or supplying a product according to the requirement or specification of a customer by using material
purchased from such customer. or its associate, being a person related to the customer in such manner as defined u/s
40A(2)(b), (i.e., the customer would be in the place of assessee; and the associate would be the related person(s) mentioned in
that section) However, “work” shall not include manufacturing or supplying a product according to the requirement or
specification of a customer or associate of such customer, by using raw material purchased from a person, other than such
AY 21-22
13.17
customer, as such a contract is a contract for ‘sale’. However, this will not be applicable to a contract which does not entail
manufacture or supply of an article or thing (e.g. a construction contract).
Section 194-I
1. Payment made to C&F agent are regarded as payment made for carrying out work under Section
194C instead of treating it as rent - National Panasonic India (P) Ltd. v. CIT (TDS) (2005) 35 OT 16 Del.
2. Payment for advertisement for boarding site is dealt under Section 194C. - ITO v. Roshan Publicity
(P.) Ltd. (2005) 45 OT 105 Mum.
3. Landing and Parking fee received by Airport Authorities is treated as rent as was decided in the case
United Airlines v. CIT (2006) 152 Taxman 516 Del.
4. No requirement to deduct tax at source under section 194-I on remittance of Passenger Service Fees
by an Airline to an Airport Operator [Circular No. 21/2017, dated 12.06.2017]
As it us use of land and building and mere incidental use of the same while providing other facilities and
service would not make it a payment for use of land and building only so as to attract section 194-I.
Sec 196 - No TDS in certain

cases - Payment to
entity established under any Mutual Fund

Government RBI law and whose income is specified
exempt 10(23D)
13.18
3. Tax shall not be deducted on payments related to:
Bank guarantee
commission; &
Cash
management
service charges;
credit card or
debit card
commission for Depository charges
transaction on maintenance of
between the DEMAT accounts;
merchant
establishment &
acquirer bank.
Tax shall not be

deducted on
payments related to
Charges for
Clearing charges warehousing
services for
commodities;
Underwriting
service charges;
4. Note – If PAN not furnished by the deductee – TDS will be deducted @ 20%
Past Exam Questions
(1)Deduction of tax from salary as per section 192 shall be at - (June 2016)
(a) 10% of salary
(b) The average rate of income-tax computed on the basis of rates in force for the financial year in which the
payment is made
(c) The maximum marginal rate of 30%
(d) None of the above. Ans. (b)
(2) Mr. Nitin after serving Lion Ltd. for 4 years resigned his job to commence a business of his own. His
provident fund account consisted of his own contribution Rs. 50,000; employer's contribution Rs.
50,000 and interest of Rs. 20,000 being attributable equally to the said contribution. How much would
be the amount deductible at source under section 192A ? (June, 2017)
(a) Rs. 12,000 being 10% of total withdrawal
(b) Rs. 10,000 being 10% of total contributions
(c) Rs. 6,000 being 10% of employer's contribution and interest thereon
(d) Rs. 2,000 being 10% of interest on the contributions Ans.(c)
(3) Rohan won a State Government lottery of Rs. 1,00,000 on 11th October, 2020. The government
should deduct tax on such winning amounting to - (June 2016)
(a) Rs. 30,000 (b) 133,000
13.19
(c) Rs. 33,990 (d) Rs. 31,200 Ans.(a)

(4) The person responsible for paying any income by way of winnings from lottery an amount exceeding Rs.
10,000, shall deduct - (Dec. 2015)
(a) TDS @30% (b) TDS @ 31.2%
(c) TDS @10% (d) No TDS. Ans., (a)
(5) While making payment of winnings from horse race, tax will be deducted at source, if the payment exceeds -
(June 2016)
(a) Rs. 5,000 (b) Rs. 10,000
(c) Rs. 25,000 (d) Rs. 50,000 Ans.(b)
(6) Mr. Ravi solved a crossword puzzle and received Rs. 84,000 after deduction of tax at source. His
income from crossword puzzle chargeable to tax would be: (June, 2017)
(a) Rs. 84,000 (b) Nil
(c) Rs. 72,000 (d) Rs. 1,20,000 Ans.(d)
(7) In a contest, Amit wins Rs. 50,000 cash and a motor-cycle worth Rs. 50,000. The amount of tax
deducted at source will be - (Dec. 2014)
(a) Rs. 30,000 (b) Rs. 15,000
(c) Rs. 27,000 (d) Rs. 27,810. Ans.(a)
(8) Zen Ltd. made a payment of Rs. 11,00,000 to Amar, a resident transport contractor who owns 5 goods
carriages and who has intimated his PAN details. The tax to be deducted at source under section 194C will be -
(June, 2015)
(a) Rs. 10,000 (b) Rs. 200
(c) Nil (d) Rs. 11,000. Ans.(c)
(9) The liability to deduct tax at source on insurance commission will arise when the commission paid or
payable to an agent for the year exceeds - (Dec. 2016)
(a) Rs. 5,000 (b) Rs. 10,000
(c) Rs. 15,000 (d) Rs. 20,000 Ans.(c)
(10) An HUF, not subject to tax audit in the earlier year, paying fees of Rs. 35,000 to a Practising
Company Secretary shall - (June, 2015)
(a) Not deduct TDS (b) Deduct TDS @ 10%
(c) Deduct IDS @20% (d) Deduct TDS @ 10.3%. Ans.(a)
(11) At what rate, will the tax be deducted at source by a banking company, responsible for paying to a
resident any income by way of interest other than interest on securities amounting to more than Rs.
10,000, when the payee does not furnish his PAN to Deductor- (Dec. 2014)
(a) 10% (b) 20%
(c) 30% (d) 40%. Ans.(b)
(12) When an employee makes premature withdrawal from employee's provident fund account, the
requirement for tax deduction is attracted when the quantum of withdrawal exceeds - (Dec. 2016)
(a) Rs. 10,000 (b) Rs. 40,000
(c) Rs. 50,000 (d) None of the above. Ans.(c)
(13) The maximum amount of rent payment where deduction of tax at source is not required in a financial year
is - (Dec. 2014)
(a) Rs. 1,20,000 (b) Rs. 1,80,000
(c). Rs. 2,40,000 (d) None of the above. Ans.(c)
(14) Pradip acquired an urban land from Chitra for Rs. 70 lakh on 10th October, 2020. At what rate, tax is
deductible at source in respect of such transaction - (June 2016)
(a) 2% (b) 5%
(c) 1% (d) 3% Ans.(c)
(15) If a payee eligible for commission exceeding Rs. 15,000 does not furnish his PAN to the payer, tax is
deductible at source at- (Dec. 2016)
(a) Nil rate (b) 20%
(c) 10% (d) 30% Ans.(b)
16. LM, a co-operative society, has paid interest of Rs. 1,05,000 to PQ, another co operative society. The tax
to be deducted at source u/s 194A is: (June. 2018)
(A) Rs.10,500(B) Rs.10,815(C) Rs. 5,250 (D) Nil Ans. D
17. Mr. Rajesh had a turnover of Rs.3 Crore during the year ended 31st March, 2020. During the F.Y.
2020-21, he paid a sum of Rs. 10 lakh to E, an Engineer for construction of his self-occupied
residence and Rs. 25 lakh to E, for construction of office building. The amount of tax to be deducted
at source from payments made to E is: (June. 2018)
13.20
(A) Rs. 3 lakh (B) 50,000

(C) Rs. 2.5lakh (D) None of the above Ans.C
18. Payment of Rs.2,00,000 was made to Krishna Road ways Pvt . Ltd. owning nine heavy goods carriages and having
PAN which was furnished by them to the payer of freight GG Carriers. The amount of tax to be deducted by the
payer on such amount is...............as per section .......... (Dec. 2018)
(A) 2,000, 194C
(B)10,000, 194C
(C)4,000,194C
(D) Nil because PAN furnished,194C(6) Ans D
19. A Co Ltd made payments to B Co Ltd towards contracts executed during the financial year 2020-21. They
are (i) contract —1 Rs. 15,000 on 15-06-2020; (ii) contract — 2 Rs. 22,000 on 29-09-2020; (iii) contract — 3
Rs. 27,000 on 30-12-2020; and (iv) contract -4 Rs. 29,000 on 13-03-2021. The tax deductible at source would
be: (Dec. 2017)
(A) Rs. 1,560 @ 2% on Rs. 78,000
(B) Rs. 1,860 @ 2% on Rs. 93,000
(C) Rs. 780 @ 1% on Rs. 78,000
(D) Nil Ans.(d)
20. P & Co. a partnership firm whose turnover was Rs. 42,60,000 in the previous year 2019-20 and Rs.
1,01,30,000 in the previous year 2020-21 paid brokerage of Rs. 21,000 to Mr. Ashwin during the
financial year 2020-21. Mr. Ashwin furnished his PAN to the firm. The amount of tax deductible at
source on such brokerage payment would be :(Dec. 2017)
(A) Rs. 2,100 @ 10%
(B) Rs. 1,050 @ 5%
(C) Nil
(D)Rs. 4,200 @ 20% Ans.(b)
21. Sagar engaged in a business, booked a marriage hall of Yash having PAN for conducting mega sale
during festival season of F.Y. 2020-21 and paid rent of Rs. 55,000 for 3 days period. His total turnover
for financial year 2019-20 is Rs. 85 lakh. The amount of Tax Deduction at Source (TDS) to be made by
Sagar on the amount of rent paid will be : (June 2019)
(A) NIL
(B) Rs. 5,500
(C) Rs. 2,750
(D) Rs. 11,000. Ans C
22. Ashish, director of PQR Ltd. is eligible for board sitting fees of Rs. 10,000 for every meeting attended by
him. During the year 2020-21, he had attended six meetings. The amount of tax required to be deducted from such
sitting fees to be paid to Ashish by the company shall be: (June 2019)
(A) Rs. 12,000 @ 20%
(B) Rs. 1,200 @ 2%
(C) Rs. 3,000 @ 5%
(D) Rs. 6,000 @ 10% Ans D
23.A house property owned by Nitin, a non-resident, at Delhi was agreed to be sold to Ramesh for a
consideration of Rs. 70,00,000. Ramesh has stated to Nitin that the payment of sale consideration shall be subject
to TDS and the amount of TDS on the sale consideration will be @ ____________as per section ____________of the
Income-tax Act, 1961. (Dec 19 –NS)
(a) 34.32%, 195 (b) 10%, 194-IC
(c) 5.72%, 194-LBA (d) 1%,194-IA Ans.(a)
(Hint – 30% + 10% Sur + 4% Cess)
24. Rakesh entered into a Joint Development Agreement with Reality Builders Pvt. Ltd. for developing a project
on the landowned by him during the previous year 2020-21 and the builder who agreed to make the payment of
Rs. 50 lakh to Rakesh paid the same to him on execution of the Joint Development Agreement. The amount of TDS
u/s 194-IC required to be deducted on the amount of Rs. 50 lakh shall be ____________. (Dec 19 –NS)
(a) Rs. 50,000 (b) Rs. 2,50,000
(c) Rs. 5,00,000 (d) Rs. 10,00,000 Ans.(c)
25. Kayal engaged in trading activity reported turnover of Rs. 210 lakh for the previous year 2019-20 and
Rs. 190 lakh for the previous year 2020-21. She paid brokerage of Rs. 40,000 to Padmaja in October, 2020.
13.21
Both the party are resident for tax purpose. The amount of tax deductible by Kayal on the brokerage paid
(A) NIL
(B) Rs. 800
(C) Rs. 2,000
(D) Rs. 4,000 Ans – C
26. Anyway (P) Ltd. paid sitting fees to directors, who attended the Board Meeting. S was paid Rs. 5,000 per
meeting and he attended 7 meetings during the year. The amount of tax deductible at source on the sitting fees
would be .......................if S has not furnished his PAN. (Dec 19 –OS)
(A) Rs. 7,000
(B) Rs. 3,500
(C) Rs. 1,750
(C) NIL Ans – A
27. XYZ Ltd during the previous year 2020- 21 has made payments for Professional Services of Rs. 15,000
and of Rs. 20,000 towards Royalty to Mahesh Kumar. TDS required to be deducted by XYZ Ltd for
Assessment Year 2021-22 out of such payments shall be ---------- (Dec 20 –OS)
(A) NIL being not required
(B) 10% of Rs. 35,000
(C) 10% of Rs. 15,000
(D) 10% of Rs. 20,000 ANS A
5. TAX DEDUCTION ACCOUNT NUMEBER (TAN)
• TAN number is a 10 Digit Alphanumeric number and is used as an abbreviation for
• Tax Deduction and Collection Account number.
• Every Assessee liable to deduct TDS is required to apply for a TAN no. and shall quote this
number in all TDS Returns, TDS Payments and any other communication regarding TDS with the
Income Tax Department.
• As per Section 203A of the income tax act 1961, it is mandatory for all asseesee’s liable
to deduct TDS to quote this TAN Number in all communications regarding TDS with
the income tax department and failure to do so attracts a penalty of Rs. 10,000 u/s
272BB.
• Structure of TAN: of the total 10 digit TAN number, first 4 digits of TAN are
alphabets, the next 5 digits of TAN are numeric and last digit is a random alphabet.
• First 3 alphabets of TAN represent the jurisdiction code, 4th alphabet is the initial of
the name of the TAN holder who can be a company, firm, individual, etc. For example,
TAN allotted to Mr. Mahesh of Delhi may appear as under: DELM12345I
7. Consequence in the event of default
Note - No order shall be made deeming a person to be an assessee in default
for failure to deduct the whole or any part of the tax from a person resident
in India, at any time after the expiry of seven years from the end of the
financial year in which payment is made or credit is given.
8. Due Dates to deposit TDS
Deducted between April to Feb 7th of Next month

Deductor is other than Govt.
Deducted in March Upto 30th April
Amount deposited without challan On same day of deduction
13.22
Deductor is Govt. Deposited with challan 7th of Next month

Note - TDS under sections 194-IA and 194-IB have to be remitted within 30 days from the end of the
month of deduction
9. Interest liability for TDS [Section 201(1A)]
• Failure to deduct tax - 1% for every month or part of month - date on

which tax was deductible to the date on which such tax was actually
deducted on TDS Amount
• Deducted but failed to deposit - 1½% for every month or part of month -
date on which tax was deducted to the date on which such tax is
actually paid on TDS Amount.
Illustration
An amount of Rs. 40,000 was paid to Mr. X on 1.7.2020 towards fees for professional services without
deduction of tax at source. Subsequently, another payment of Rs. 50,000 was due to Mr. X on 28.2.2021,
from which tax@10% (amounting to Rs. 9,000) on the entire amount of Rs. 90,000 was deducted.
However, this tax of Rs. 9,000 was deposited only on 22.6.2021. Compute the interest chargeable under
section 201(1A).
Solution - Interest under section 201(1A) would be computed as follows –

•
Particulars Rs.
1% on tax deductible but not deducted i.e., 1% on Rs. 4,000 for 8 320
months
1½% on tax deducted but not deposited i.e. 1½% on Rs. 9,000 for 540
4 months
860
Interest liability for assessee not deemed as assessee in default - on account of payment of taxes by such
resident payee, interest @1% p.m. or part of month, shall be payable by the payer from the date on
which such tax was deductible to the date of furnishing of return of income by such resident payee.
Prosecution –
• For TDS Default, amount exceeds Rs. 1,00,000

• he shall be punishable with rigorous imprisonment for a term
• not less than 6 months to 7 years and with fine.
• In any other case, he shall be punished with a rigorous imprisonment of a term of not
less than 3 months to 3 years and with fine.
Past Exam Questions
1. If a person responsible for deduction of tax at source, after deduction, fails to deposit the same into
the Government treasury, he will be liable to pay interest @ - (Dec. 2016)
(a) 1% per month or part of the month (b) 1.5% per month or part of the month
13.23
(c) 2% per month or part of the month (d) 15% per annum Ans.(b)
2. Penalty for failure to collect tax at source, as a percentage of tax to be collected is - (Dec.
2016)
(a) 25% (b) 100%
(c) 75% (d) 50% Ans.(b)
8. TDS Forms
Form No. Particulars

Form 24Q Statement for tax deducted at source from salaries
Form 26Q Statement for tax deducted at source on all payments except salaries
Form 27Q Statement for deduction of tax from interest, dividend, or any other sum
payable to non-Residents
Form 27EQ Statement of TCS
Form 26QB For section 194 IA separate return is not required, challan cum return to be
filed on Form 26QB to be deposited within a period of 30 days (w.e.f.
01.06.2016) from the end of the month in which the deduction is made.
Note : ‘Nil’ TDS return is not mandatory
Issue of TDS Certificate & Due Date for Issue of Certificate

FORM 16 to employees: 15th June of the Next Financial year in which tax is deducted.
FORM 16A in other cases: Within 15 days from due date for furnishing the statement of tax
deducted under rule 31A
9. Rule 31A - Time limit for submission of quarterly statements – TDS – TCS – Form 16A
Quarter Form 27EQ(TCS) TDS Return Due Form 16A (TDS

Date for Form 24Q, return + 15 days)
Form 27 Q
& Form 26Q
April to June 15th July 31st July 15th August
July to Sept 15th Oct 31st Oct 15th November
Oct to Dec 15th Jan 31st Jan 15th February
Jan to March 15th May 31st May 15th June
10. Section 234E (Fee for TDS return) - A fee of Rs. 200 for every day would be levied under for late
furnishing of TDS statement from the due date of furnishing of TDS statement to the date of
furnishing of TDS/ statement. However, the total amount of fee shall not exceed the total
amount of tax deductible/collectible and such fee has to be paid before delivering the TDS
statement.
MCQ
(1) The quarterly return of TDS relating to payments made to non-resident and the foreign
company being a unit holder of mutual funds is to be filed in return form number :(Dec 19 –NS)
(a) 24Q (b) 27Q
(c) 26Q (d) 22Q Ans.(b)
13.24
11. Refund of TDS

No claim of refund can be made after two years from the end of financial year in which tax was
deductible at source.
12. E – TDS Return
13. ELECTRONIC PAYMENT OF TAXES – Mandatory – All Corporate assessees & other
assesses on whom 44ABI.e. Tax Audit is applicable
ADVANCE PAYMENT OF TAX
• Advance tax is payable if tax amount (after reducing TDS/TCS) less sec. 89 relief -
AMT Credit 115JD) during the year is ` 10,000 or more.
• However, an individual resident in India of the age of 60 years or more at any time
during the P.Y., who does not have any income chargeable under the head “Profits and
gains of business or profession” (PGBP), is not liable to pay advance tax.
Installments of advance tax and due dates [Section 211]
Other than 44AD or section 44ADA – Four installments
Due date of instalment Amount payable
On or before 15th June Not less than 15% of advance tax liability.
On or before 15th September Not less than 45% of advance tax liability (-) amount paid in
earlier installment.
On or before 15th December Not less than 75% of advance tax liability (-) amount paid in
earlier installment or installments.
On or before 15th March The whole amount of advance tax liability (-) amount paid in earlier
installment or installments.
For persons opting - 44AD (1) or 44ADA (1) to pay advance tax by 15th March
However, any amount paid by way of advance tax on or before 31st March shall also be
treated as advance tax paid during the F.Y. ending on that day.
Interest for defaults in payment of advance tax [Section 234B]
(1) Interest liability if advance tax of an amount less than 90% of assessed tax. (assessed
tax means the tax on total income determined u/s 143(1)/under regular assessment, as
the case may be, less TDS & TCS less sec. 89 relief - AMT Credit 115JD)
(2) 1% per month or part of the month from 1st April following the F.Y. upto the date of
determination of total income under section 143(1) and where regular assessment is made,
upto the date of such regular assessment.
13.25
(3) Amount of difference between the assessed tax and the advance tax paid.
Interest for deferment of advance tax [Section 234C]

(a) For other than 44AD AND 44ADA - Simple interest@1% per month for the period specified in
column (4) on the amount of shortfall, as per column (3) is leviable u/s 234C.
Specified date Specifie Shortfall in advance tax Period

d%
(1) (2) (3) (4)
15th June 15% 15% of tax due on returned income (-) 3 months
advance tax paid up to 15th June
15th September 45% 45% of tax due on returned income (-) advance 3 months
tax paid up to 15th September
15th December 75% 75% of tax due on returned income (-) advance 3 months
tax paid up to 15th December
15th March 100% 100% of tax due on returned income (-) 1 month
advance tax paid up to 15th March
Note – However, if the advance tax paid by the assessee on the current income, on or
before 15th June or 15th September, is not less than 12% or, as the case may be, 36% of
the tax due on the returned income, then, the assessee shall not be liable to pay any
interest on the amount of the shortfall on those dates.
Tax due on returned Income = Tax chargeable on Total Income declared in Return – TDS –
TCS less sec. 89 relief- AMT Credit 115JD
(b) Computation of interest u/s 234C in - 44AD AND 44ADA case of an assessee who declares profits
and gains in accordance with the provisions of section 44AD (1) or section 44ADA (1):
Failed to pay on or before 15th March is less than the tax due on the returned income, then, the
assessee shall be liable to pay simple interest at the rate of 1% on the amount of the shortfall
from the tax due on the returned income.
(c) Non-applicability of interest u/s 234C where shortfall arises because of:
The amount of capital gains;
Income of nature referred to in section 2(24)(ix) i.e., winnings from lotteries, crossword puzzles
etc.;
Income under the head “PGBP” in cases where the income accrues or arises under the said
head for the first time; or
Income of the nature referred to in section 115BBDA (1) i.e., dividend income received. AY 21-22
st
However, the assessee still needs to pay the whole advance tax amount by 31 March.
Note - An assessee who is liable to pay advance tax of less than 10,000 will not be saddled
with interest under sections 234B and 234C for defaults in payment of advance tax.
Past Exam Questions

(1)A senior citizen is not liable for advance tax, if he does not get any income from - (Dec. 2016)
(a) Interest or securities (b) Capital gains
(c) Profit and gains from business or profession (d) All of the above Ans.(c)
(2)Which of the following assessee is not liable to pay advance tax u/ s 207 during the FY 2020-21 - (June,
2015)
13.26
(a) A senior citizen having income chargeable under the head 'profits and gains of business or profession
(b) A senior citizen not having income chargeable under the head 'profits and gains of business or profession
(c) A super senior citizen having income chargeable under the head 'profits and gains of business or profession
(d) A resident individual not being senior citizen having income chargeable under the head 'profits and gains of
business or profession'. Ans.(b)
3. Under section 208, it is obligatory for an assessee to pay advance tax where the tax payable is - (June, 2015)
(a) Rs. 10,000 or more (b) Rs. 20,000 or more
(c) Rs. 5,000 or more (d) Rs. 8,000 or more. Ans.(a)
4. Raghu, aged 62 years, has pension income of Rs. 2,40,000 (computed) and rental income (computed)
of Rs. 3,60,000 for the financial year 2020-21. How much amount he must have paid as advance tax in
September, 2020 - (June 2016)
(a) Rs. 12,000 (b) Rs. 10,000
(c) Rs. 30,000 (d) Nil Ans.(d)
5. An assessee liable to pay advance tax is not liable to pay interest under section 234B, if advance tax paid by
him is not less than - (Dec. 2014)
(a) 90% of advance tax payable by him (b) 80% of advance tax payable by him
(c) 100% of advance tax payable by him (d) 70% of advance tax payable by him. Ans.(a)
6. Steam (P) Ltd. reports total income of Rs. 20 lakh for the year ended 31st March, 2021 (Turnover in
FY 2018-19 is 480 crores).The total tax liability payable before 15th September, 2020 by way of
advance tax is - (Dec. 2015)
(a) Rs. 93,600 (b) Rs. 2,80,800
(c) Rs. 1,87,200 (d) Rs. 3,12,000 Ans.(b)
7. The liability to pay interest under section 234B would arise when the advance tax plus TDS/TCS to the credit
of the assessee is less than - (Dec. 2016)
(a) 75% of the assessed tax (b) 90% of the assessed tax
(c) 60% of the assessed tax (d) 100% of the assessed tax Ans.(b)
8. Interest for default in payment of installment(s) of advance tax is levied under section - (June, 2015)
(a) 234A (b) 234B
(c) 234C (d) 234D. Ans.(c)
9. Interest for deferment in payment of advance tax u/ s 234C is calculated on the tax liability computed on -
(Dec. 2015)
(a) Assessed income (b) Returned income
(c) Disputed income (d) Appealed income Ans.(b)
10. An assessee is required to make payment of interest where he failed to make the payment, of demand
before the expiry of 30 days from the service of notice of demand @ - (Dec. 2015)
(a) 1% for every month or part thereof till the date
(b) 2% p.m. Till the date of payment of payment
(c) 1.5% p.m. Till the date of payment
(d) 1.25% for every month or part thereof till the date of payment. Ans.(a)
11. Where the advance tax paid on or before March, 2021 is less than 100% of the tax due on the total income
declared in the return of income, as reduced by tax deducted at source, the assessee shall be making payment of
interest on the amount of shortfall on the returned income so declared at the rate of .................. per month for the
period of delay. (June. 2018)
A. 2% B 1% C Nil D 1.5% Ans. B
12. It is obligatory for an assesse to make payment of tax under section 208 of Income Tax Act, 1961............. (Dec. 2018)
a. Where the advance tax payable is 10,000 or more.
b. Where the advance tax payable is2,500 or more
c. Where the advance tax payable is5,000 or more.
d. Where the advance tax payable is1,000 or more Ans A
13. Where the advance tax paid on or before March, 2021 is less than 100% of the tax due on the total income declared in
the return as reduced by the amount of tax deducted at source, the assessee shall be making payment of interest on the
amount of shortfall for the tax due on the returned income so declared per month at the rate of (Dec 19 –NS) .
(a) 2% (b) 1%
(c) Nil (d) 1.50% Ans.(b)
14. As per section 234B, where the advance tax paid during the previous year 01.04.2020 to 31.03.2021 on or before March, 2021 is less
than 90% of the assessed tax as reduced by the amount of tax deducted at source, the assessee shall be making payment of simple
interest on the amount of shortfall per month at the rate of --. (Dec 20 –OS)
a. 1%
b. 1.25%
c. 1.50%
d. 1.75% ANS A
13.27
TCS Summary -206C
(1) (1C) (1F)
Alcohalic liquor for human Sale of Motor

consumption - 1%
Grant of license of - Parking lot,
Toll Plaza, Mining & Quarrying Vehicle > Rs. 10
Scrap - 1% Lacs
Minerals being coal or (Other than mining & quarrying
lignite or iron ore - 1% of mineral oil, petroleum &
Timber/ Wood - 2.5%
Natural Gas) TCS @ 1%
Tendu Leaves - 5%
on full
amount
Rate - 2%
No TCS if these No TCS if

goods are purchased Payee is
fro production
purpose
Public sector An Embassy, high Local
company engaged CG/ SG commission, Authority
in business of legatiion,
carrying passangers commission,
(Form 27C to seller) consulate & trade
representation of a
No TCS if Payee foreign state & club
is -
An Embassy, high TCS will not apply on sale of motor vehicles by

Public sector A buyer in the
company CG/ SG commission,
legatiion, retail sale of manufacturer to dealer / distributors but applicable
commission, such goods at retail level)
consulate & trade purchased by
representation of a him for
foreign state & personal
cliub. connsumption
For subsection 1 & 1F → Seller includes all persons but for individual + HUF, seller means whose Turn Over > 1 Crore/ Rs. 50 Lacs in the
preceding year.
13.28
1G (w.e.f
1.10.20)
Authorised dealers who receives

Seller of an Overseas amount under the liberalised
Tour program remittance scheme of RBI for
package Overseas remittance from a buyer
remitting amount out of India Note - TCS
@ 10% if
TCS @ 5% Remittance is a loan
No PAN/
Remittance other obtained from
( No upper limit than overseas tour financial institution
so TCS on whole package for pursuing any
Aadhar is
amount) education furnished.
Yearly Remittance > Yearly Remittance >

Yearly Remittance
7 lacs 7 lacs
upto 7 Lacs
TCS @ 5% on over TCS @ 0.5% on over

No TCS
and above amount and above amount
(1G)
No TCS if
by authorised dealer if Payer is liable for CG/ SG, An

seller of package has TDS and has also Embassy, high Local Authority
already collected it deducted TDS commission etc.
13.29
(1H)
(1H)
Seller of goods(seller means a person No TCS if
turnover is more than 10 crore in the
preceding year) buyer is
buyer is liable CG/ SG, An
for TDS and has Embassy, high
imprting into Local Authority
also deducted commission
India
TDS etc.
TCS on sale consideration > Rs. 50 lacs
Whether PAN/Aadhar is furnished by the buyer

(ICSI Supplementary June 21)
Yes No 1. T.O of 50 lacs will be counted from 1st April
2020 but will be applicable on transactions from
TCS @ 0.1% TCS can be maximum 1% 1st October onwards)
2. No adjustment of GST, sales return is to be
made
3. TCS on only over and above amount of 50 lacs
Due Dates to deposit TCS

Collector is other than Govt. Within a week from month end
Amount deposited without challan On same day of deduction

Collector is Govt.
Deposited with challan 7th of Next month
Section 206CC
Collectee shall furnish his PAN to the person responsible for collecting such tax at source else TCS will be collected at double the rate given or 5% (Higher)
13.30
Past Exam Questions

Mr. Rajan (a trader in furniture items) acquired a motor car for Rs. 11 lakhs by availing loan from a nationalized bank. The amount was paid by demand
draft. The amount of tax collectible at source by the car dealer who sold the car is :(Dec. 2017)
(A) Nil
(B) Rs. 22,000 @ 2%
(C) Rs. 11,000 @ 1%
(D) Rs. 1,10,000 @ 10% Ans.(c)
2. State whether tax is required to be collected at source (TCS) under the provision of section 206C of Income Act, 1961 by a person making.............
(Dec. 2018)
a. Payment of dividend
b. Winning from horse races
c. Sale of motor vehicle of the value exceeding Rs. 10 lakh by a dealer to the customer
d. Payment to non-resident Ans C
3.CK & Company is engaged in the diversified business of sale of Indian made foreign liquor, tendu leaves, forest produce neither being timber nor tendu leaves
required to collect TCS as per section 206C of the Income Tax Act on the amount of sale proceeds of these products/items during the previous year ended on
31.03.2021 at the rate of -----------(Dec 20 –NS)
(A) 1% on all the three
(B) 1%, 5% & 2.5%
(C) 2.5%, 1% & 5%
(D) 5%, 1% & 2.5% ANS-B
4.Person paying any sum on which tax is collectible at source as per provisions of section 206CC shall furnish his PAN to the person responsible for collecting such
tax at source. A lower tax collection certificate under this section shall not be granted unless application in made contains his --. (Dec 20 –OS)
(A) Form no. 10, PAN
(B) Form no. 10, TAN
(C) Form no. 13, PAN
(D) Form no. 13, TAN ANS C
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, 13th May, 2020
PRESS RELEASE
Reduction in rate of Tax Deduction at Source (TDS) & Tax Collection at Source (TCS)
In order to provide more funds at the disposal of the taxpayers for dealing with the
economic situation arising out of COVID-19 pandemic, the rates of Tax Deduction at Source
(TDS) for the following non-salaried specified payments made to residents has been reduced
by 25% for the period from 14th May, 2020 to 31st March, 2021:-
Section of Nature of Payment Existing Rate Reduced rate

the Income- of TDS from
S. No tax Act 14/05/2020 to
31/03/2021
1 193 Interest on Securities 10% 7.5%
2 194 Dividend 10% 7.5%
194A Interest other than interest 10% 7.5%

3 on securities
194C Payment of Contractors 1% (individ- 0.75% (indi-

and sub-contractors ual/HUF) vidual/HUF)
4 2% (others) 1.5% (others)
5 194D Insurance Commission 5% 3.75%
194DA Payment in respect of life 5% 3.75%

6 insurance policy
194EE Payments in respect of 10% 7.5%

7 deposits under National
Savings Scheme
194F Payments on account of 20% 15%

8 re-purchase of Units by
Mutual Funds or UTI
194G Commission, prize etc., 5% 3.75%

9 on sale of lottery tickets
10 194H Commission or brokerage 5% 3.75%

194-I(a) Rent for plant and ma- 2% 1.5%
11 chinery
194-I(b) Rent for immovable prop- 10% 7.5%

12 erty
194-IA Payment for acquisition 1% 0.75%

13 of immovable property
194-IB Payment of rent by indi- 5% 3.75%

14 vidual or HUF
194-IC Payment for Joint Devel- 10% 7.5%

15 opment Agreements
194J Fee for Professional or 2% (FTS, cer- 1.5% (FTS,

Technical Services (FTS), tain royalties, certain royal-
16 Royalty, etc. call centre) ties, call cen-
10% (others) tre)
7.5% (others)
194K Payment of dividend by 10% 7.5%

17 Mutual Funds
194LA Payment of Compensa- 10% 7.5%

tion on acquisition of im-
18 movable property
194LBA(1) Payment of income by 10% 7.5%

19 Business trust
194LBB(i) Payment of income by In- 10% 7.5%

20 vestment fund
194LBC(1) Income by securitisation 25% (Individ- 18.75% (Indi-

trust ual/HUF) vidual/HUF)
21 30% (Others) 22.5% (Oth-
ers)
194M Payment to commission, 5% 3.75%

22 brokerage etc. by Individ-
ual and HUF
194-O TDS on e-commerce par- 1% 0.75%

23 ticipants (w.e.f.
1.10.2020)
2. Further, the rate of Tax Collection at Source (TCS) for the following specified receipts
has also been reduced by 25% for the period from 14th May, 2020 to 31st March, 2021:-
Section of Nature of Receipts Existing Reduced rate

the In- Rate of TCS from
S. No come-tax 14/05/2020 to
Act 31/03/2021
206C(1) Sale of
(a) Tendu Leaves 5% 3.75%
(b)Timber obtained under a for- 2.5% 1.875%

est lease
(c) timber obtained by any other 2.5% 1.875%

1 mode
(d) Any other forest produce not 2.5% 1.875%

being timber/tendu leaves
(e) scrap 1% 0.75%
(f) Minerals, being coal or lig- 1% 0.75%

nite or iron ore
206C(1C) Grant of license, lease, etc. of 2% 1.5%

(a) Parking lot
2
(b) Toll Plaza 2% 1.5%
(c) Mining and quarrying 2% 1.5%
206C(1F) Sale of motor vehicle above 10 1% 0.75%

3 lakhs
206C(1H) Sale of any other goods 0.1% 0.75%

4 (w.e.f
01.10.2020)
3. Therefore, TDS on the amount paid or credited during the period from 14th May, 2020
to 31st March, 2021 shall be deducted at the reduced rates specified in the table in para 1
above. Similarly, the tax on the amount received or debited during the period from 14th
May, 2020 to 31st March, 2021 shall be collected at the reduced rates specified in the table
in para 2 above.
4. It is further stated that there shall be no reduction in rates of TDS or TCS, where the tax
is required to be deducted or collected at higher rate due to non-furnishing of
PAN/Aadhaar. For example, if the tax is required to be deducted at 20% under section
206AA of the Income-tax Act due to non-furnishing of PAN/Aadhaar, it shall be deducted
at the rate of 20% and not at the rate of 15%.
5. Legislative amendments in this regard shall be proposed in due course.
(Surabhi Ahluwalia)
Commissioner of Income Tax
(Media & Technical Policy)
Official Spokesperson, CBDT
14. Various Entities 14.1
Chapter – 14
Taxation of Various Entities
Section 115BAC – 10-IE - Application for exercise/ withdrawal of option (ICSI Supplementary June
21)
Comparison of Existing Tax System with New Optional Tax System for Individual & HUF
Basis Existing System of Tax New System Of Tax U/S 115BAC AY 21-22
Exemption limit for 3 exemption limit are applicable Only 1 exemption limit of Rs.2,50,000
incomes taxable at available irrespective of age/residential
1) 5,00,000 for super senior citizen
Slab rates status
(minimum 80 years &resident)
2) Rs 3,00,000 for senior citizen

(minimum 60 years but less than 80
years & resident)
3) Rs.2,50,000 for other individual

Slab rates 3 different slab rates One slab rate
0 – 2,50,000 : Nil 0 to 2,50,000 Nil

> 2,50,000 upto 5,00,000 : 5% > 2,50,000 to 5,00,000 : 5%
> 5,00,000 upto 10,00,000 : 20% > 5,00,000 to 7,50,000 : 10%
> 10,00,000 : 30% > 7,50,000 to10,00,000 : 15%
> 10,00,00 to12,50,000 : 20%
0 – 3,00,000 : Nil
> 12,50,00 to 15,00,000 : 25%
>3,00,000 upto 5,00,000 : 5%
> 15,00,000 30%
>5,00,000 upto 10,00,000 : 20%
> 10,00,000 : 30%
0 – 5,00,000 : Nil
> 5,00,000 upto 10,00,000 : 20%
> 10,00,000 : 30%
Special rates of Available available
taxes e.g. section
115BB,112,112A
etc.
rebate u/s 87A Available Available
Chapter VI- A Available Not available except 80CCD(2), 80JJAA
Deductions
Surcharge Applicable (10%/15%/25%/37%) Applicable at same rates (10% / 15% /
25% / 37%)
Health & education 4% 4%
Cess
deductions and Available Many deductions & exemptions not
exemptions available

Set off of C/F losses Available Not allowed if related to deductions &
& depreciation, exemptions not allowed u/s 115BAC
from past p/y
Set off of current Available allowed except losses of House
year losses Property
Intimation Not required as old tax system available Assessee can opt for new tax system
by default only if intimation given in prescribed
manner
Provisions of AMT Applicable Not applicable
u/s 115JC
Notes:-
Under new tax regime total income of the individual or Hindu undivided family shall be computed:-
(i) without any exemption or deduction under the provisions of
• Leave travel concession (LTC)
• House rent allowance (HRA)
• Some of the allowance as contained in clause (14) of section 10;
• Allowances to MPs/MLAs
• Allowance for income of minor
• Exemption for SEZ unit contained in section 10AA;
• Standard deduction, deduction for entertainment allowance and employment/professional tax.
• Interest under section 24 in respect of self-occupied or vacant property. (Loss under the head
income from house property for rented house shall not be allowed to be set off under any other
head and would be allowed to be carried forward as per extant law);
• Additional deprecation
• Deductions under section 32AD (Investment allowance), 33AB (Tea, Coffee, Rubber Development
account), 33ABA (Site Restoration Fund)
• Various deduction for donation for or expenditure on scientific research
• Deduction under section 35AD or 35CCC;
• Deduction from family pension (IOS).
• Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E, 80EE,
80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, etc). However,
deduction under sub-section (2) of section 80CCD (employer contribution on account of
employee in notified pension scheme) and section 80JJAA (for new employment) can be claimed.
(i) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is
attributable to any of the deductions referred to in clause (i);
(b) under the head “Income from house property” with any other head of income;
(ii) by claiming the depreciation, if any, under any provision of section 32, except additional depreciation and
(iii) without any exemption or deduction for allowances or perquisite, by whatever name called,
provided under any other law for the time being in force.
Sub section 5 of 115BAC- Nothing contained in this section shall apply unless option is exercised in the
prescribed manner (exercised before the due date under section 139(1)) by the person. (Applicable for
the income earned from 01 April 2021)
Provided that the option once exercised for any previous year can be withdrawn only once for a
previous year other than the year in which it was exercised and thereafter, the person shall NEVER BE
ELIGIBLE to exercise option under this section, except where such person ceases to have any income
from business or profession in which case, option under clause (ii) shall be available.

1. Taxability of Individual – Past Exam Questions

(1) Mr. Shiva gifted a let-out building which fetches rental income of Rs. 10,500 per month to his son's
wife on 1-11-2020. The municipal tax of Rs. 6,000 on the property was paid on 10-1-2021. The total
income from all other sources (computed) amounts to Rs. 2,60,000 except income from above said
property. His total income chargeable to tax is: (June, 2017)
(a) Rs. 3,11,450 (b) Rs. 3,44,000
(c) Rs. 3,80,000 (d) Rs. 3,33,500 Ans.(b)
(2) Mr. Robert aged 52 years received monthly pension of Rs. 30,000 during the financial year 2020-21.
His agricultural income in India is Rs. 50,000. His net income-tax liability is : (June, 2017)
(a) Rs. 14,420 (b) Nil
(c) Rs. 1,040 (d) Rs. 11,330 Ans.(b)
Answer Hint: Salary Income - Rs. 3,60,000 - Rs. 50,000 = Rs. 3,10,000. Tax liability is computed after giving
rebate under Section 87A
(3) During the year 20120-21, Basu won Rs. 4,00,000 from a motor car rally out of which he deposited Rs.
1,50,000 in his PPFaccount. He does not have any other income. Net tax payable by Basu for AY 2021-22 will be
- (June, 2015)
(a) Rs. 1,24,800 (b) Rs. 15,450
(c) Nil (d) None of the above. Ans.(c)
(4) Arjun has a salary income (computed) of Rs. 4,60,000. He also received an interest of Rs. 18,000 on
his fixed deposit (after deducting TDS @ 10%) and Rs. 2,000 on his saving account with SBI. He
deposited Rs. 50,000 in PPF account. The net income-tax liability of Arjun for the assessment year 2021-
22 is - (June, 2015)
(a) Rs. 9,360 (b) Rs. 23,920
(c) Rs. 16,270 (d) None of the above. Ans.(d)
Note : Tax liability will be Nil because of rebate upto 12,500rs. He will get a refund if Rs. 2,000 deducted as TDS
(5) Rajiv (aged 28 years) received cash gift of Rs. 2 lakh on the occasion of his marriage. It includes gift
from non-relative of Rs. 80,000. His income by way of lottery winnings is Rs. 3 lakh. His net income tax
liability (ignoring TDS and rebate) would be (Dec. 2015)
(a) Rs. 93,600 (b) Rs. 22,880
(c) Rs. 12,480 (d) Rs. 26,000 Ans.(a)
6. Where the total income of an assessee, being a non-resident Indian includes income by way of long-
term capital gains arising from transfer of unlisted securities, applicable income-tax rate on such
income is - (Dec. 2014)
(a) 10% (b) 20%
(c) 30% (d) 40% Ans. (a)
2. Taxation of Hindu Undivided Families
A Hindu Joint Family consists of two types of members:
1. Coparceners:
• The lineal male descendants of a person up to the 3rd generation of such person are
known as coparceners.
• The coparceners acquire, on birth, ownership in the ancestral properties of such

ascendant and have a right to claim partition of such property at any time.
• However due to amendment of Hindu Succession Act, the daughter of a coparcener shall
by birth become a coparcener in her own right in the same manner as the son. Hence,
the daughter can also ask for partition.
2. Other members: Such members include wives of male members of the family and other male
members, Widow or widows of deceased male member or members.
Few pointers
1. The joint property of the HUF is managed through Karta. However, In the absence of a male
member in the family or when all male members are minors, a woman member can be treated
as manager of the family for income-tax purposes.

2. Any sum paid by an HUF to a member of the family out of its income is not deductible in
computing the income of the family.
However, such amount is exempt in the hands of such individual whether the family had paid tax
on its income or not [Section 10(2)].
3. If any remuneration is paid by HUF → to the karta or any other member for services rendered by
him in conducting family’s business, the remuneration is deductible if remuneration is
(a) paid under a valid and bona fide agreement;
(b) in the interest of, and expedient for, the business of family; and
(c) genuine and not excessive.
4. Who is entitled to share on partition?
Though only coparceners can demand partition → but once the partition takes effect, the following
persons are entitled to a share:
(a) all coparceners;

(b) a son in the womb of his mother at the time of partition;
(c) mother, who gets an equal share if the partition takes place among her sons after the death of her
husband; and
(d) wife, who gets a share equal to that of a son at the time of a partition between father and sons.
(1) Murali received Rs. 1 lakh from the HUF of which he is a coparcener. The HUF consists of four
coparceners including his father who is the Karta of the HUF. The amount paid was by way of debit to
the capital account of HUF engaged in textile business. Is the amount of receipt chargeable to tax - (Dec.
2016)
(a) Yes, full amount is taxable (b) 50%, i.e., Rs. 50,000 is taxable
(c) Nil, i.e., it is exempt from tax (d) 25%, i.e., Rs. 25,000 is taxable
Ans.(a)
2. RS HUF consists of R Karta, Y and S coparceners, D, the daughter of a co-parcener and W, the wife
of Karta as members. The following can demand the partition of RS HUF: (June 2018)
(A) D
(B) R, Y and S
(C) W
(D) (A) and (B) above Ans. D

3. Which out of the following income is not to be clubbed while computing income of the Hindu
Undivided Family (HUF) for the assessment year 2021-22? (Dec. 2018)
(A) Fees or remuneration received by the member as a director or a partner in the company or firm if
the funds of the HUF are invested in a company or firm
(B) Income from ‘stridhan’ and personal income of the members
(C) Income of minor sons out of the investments of the family funds
(D) None of the above Ans B

3. Firm
Few Pointers–
• A joint Hindu family as such cannot be a partner in a firm.
However, through its Karta it may enter into a valid partnership with a third person or
with a member of the undivided family in his individual capacity. In such a case, the
Karta occupies a dual position. On the partnership he functions in his individual
capacity; on the relations to other members of the Hindu undivided family, in his
representative capacity.
• An incorporated company being a legal person may form a partnership with an

individual or with another company. In considering the maximum number of partners
comprising a firm, the company will be considered as one person only.
• A partnership firm as such is not entitled to enter into a partnership with another
firm, H.U.F individual, or a company.
However, its partners in their individual capacity can enter into another partnership.
1.From tax point of view, a limited liability partnership (LLP) is treated as - (Dec. 2015)
(a) Sole trader concern (b) General partnership firm
(c) Private limited company (d) Public limited company

Ans.(b)
4. Tax exemptions for Charitable Trusts and Institutions
A. Charitable purpose: The term ‘charitable purpose’ as per Section 2(15) of the Act
includes
Charitable
Purpose
includes
Relief Educat Yoga Medi preservation any other object

of the ion
cal preservation of of general
poor relief
of monuments public utility not Promotion
environment or places or involving the of sports
(including objects of carrying on of and
watersheds, artistic or any activity for games
forests and profit.
wildlife)
historic
interest

The trust or institution should not be created or established for the benefit of any -
Particular religious community or caste (if the trust or institution is established for the benefit of the
member of a club or employees of a factory, it would not be a public charitable trust)
B. Business Income of Charitable Trust
Activity in the nature of trade, commerce or business, for a Cess or fee or any other consideration
will not be exempt, irrespective of the nature of use or application, or retention, of the income
from such activity, unless (Means exemption can be claimed if below 2 points are satisfied) –
Conditions
activity is aggregate receipts

undertaken in the from such activity
course of are maximum 20%
advancement of any And of the total receipts,
other object of of that previous year;
general public utility
C. Exempt Income i.e. Income not to be included in the Total Income - According to Section
Exempt income
Income derived from

Contributions for
property held under trust
Corpus - Fully
wholly for charitable or
exempt
religious purposes:
15% of the income (including out of the balance 85%, that much
voluntary contributions but amount will be exempt which will
excluding corpus amount) will be be applied for the specified
exempt by default. purposes in India.
11(1), the following items are exempt –
Explanation - It might occur that the income applied to charitable or religious purposes in
India is less than 85% of the income derived because of –

Because of
Case A
Not receiving the income during that year Case B
(Suppose Income belongs to PY 17-18) for any other reason (Suppose
Income belongs to PY 17-18)
Not able to apply income in 17-18, Then -

Suppose Income Actually
received in PY 19-20 then - if assessee can apply the same by PY 18-
19 the income will be exempt originally for PY
The received income will be 17-18
exempt originally for PY 17-18 if
applied in the year of receipt i.e.
PY 19-20 or 1 year after that i.e.
PY 20-21
Suppose income is not applied during PY 18-19 then

the same will be taxable in PY 18-19
Suppose received income is not applied

as above then the same will be taxable
in PY 20-21
Explanation below
Note –The years taken in the above chart are just examples.
Explanation for last2 blocks in wordings –
Where any income in (Case A) and (Case B) above is not applied to charitable or religious
purposes in India within the prescribed time, then such income shall be deemed to be the
income of the person in receipt thereof:
(A) In case of not receiving the income: Such income shall be deemed to be the income of
the previous year immediately following the previous year (PY 20-21) in which the
income was received (PY 19-20).
(B) In any other case: Such income shall be deemed to be the income of the previous year
immediately following the previous year (PY 18-19) in which the income was derived (PY
17-18)

D. Capital Gains [Section 11(1A)
i. Asset held wholly for religious purposes or charitable purposes
To claim exemption of Capital Gains the trust need to apply the net sale consideration for purchase of a
new asset.
Remember for below 2 cases in short
• Amount not taxable will be cost of old asset + Capital Gains utilized
• Amount taxable will be →Net Sale Consideration – (Cost of old asset +Capital Gains utilized) =
Balance (This balance amount if left will be taxable)
Case 1 - Where the whole of the net consideration received on transfer is utilized for acquiring the
new capital assets, so much of the capital gains shall be exempt.
Example: Given
Particulars Amount
Net sale Consideration Rs. 1,00,000
Cost of old asset Rs. 80,000
Capital Gains Rs. 20,000
Now New asset purchased for Rs.1,00,000

In this case full amount of Capital Gains Rs. 20,000 will be exempt
as amount utilized for new asset is cost of old asset (Rs. 80,000+
Capital Gains utilized Rs. 20,000)
Case 2 - Where only a part of the net consideration is utilized for acquiring the new capital
asset, so much of the capital gain as is equal to the amount by which the amount so
utilized exceeds the cost of the transferred asset will be taxable. Understand with the
example -
Example: If a trust had a capital asset costing Rs.1,00,000 and sold the same for Rs. 1,50,000
and then bought a capital asset for Rs. 1,30,000, then the working will be as follows:
Particulars Rs.
Sale proceeds of old asset 1,50,000
Cost of the old asset (1,00,000)
Capital gain 50,000
Cost of the new asset 1,30,000
So, amount not taxable (cost of old asset + Capital Gains utilized) 1,30,000
Capital gain taxable is 20,000
Net Sale Consideration [Rs. 1,50,000]
minus
Cost of old asset [Rs. 1,00,000] + Capital Gains utilized [Rs. 30,000]

ii. Assets held partly for religious or charitable purposes(Asked in June 18)
In such case the appropriate fraction of the capital gain arising from the transfer shall be
deemed to have been applied to charitable or religious purposes to the extent specified here
under:
(i) where whole of the net consideration is utilized in acquiring the new capital asset
→ whole of the appropriate fraction of such capital gain shall be exempt.
Example - A trust has a capital asset costing Rs. 2,00,000 and 1/2 of its income is utilized for charitable purpose.
It is sold for Rs. 3,50,000. If the trust buys another capital asset for Rs. 3,50,000 then appropriate fraction of the
capital gain deemed to have been applied for charitable purpose. Here –
Particulars Rs.
Sale proceeds of Capital asset relevant for charitable purpose (Rs. 3.5 Lacs/2) 1,75,000
Cost of the asset sold relevant for charitable purpose (Rs. 2 Lacs/2) 1,00,000
Capital gain on transfer of capital asset relevant for charitable purpose (Rs. 1.5 75,000
Lacs/2)
Another asset purchased relevant for charitable purpose (Rs. 3.5 Lacs/2) 1,75,000
Appropriate fraction utilised (Relevant cost of old asset – Rs. 1 Lac + Relevant 1,75,000
Capital gains Rs. 75000)
In this case amount of relevant Capital Gains Rs. 75,000 will be exempt as amount utilized for new
asset is relevant cost of old asset (Rs. 1,00,000+ relevant Capital Gains utilized Rs. 75,000)
(ii) in any other case, so much of the appropriate fraction of the capital gain as is equal to
the amount, if any, by which the appropriate fraction of the amount utilized for acquiring
the new asset exceeds the appropriate fraction of the cost of the transferred
asset.(Let’s understand with the help of example)
Example - (Asked in June 18)→ A trust has a capital asset costing Rs. 2,00,000 and 1/2 of its income is
utilized for charitable purpose. It is sold for Rs. 3,50,000. If the trust buys another capital asset for Rs.
2,90,000 then appropriate fraction of the capital gain deemed to have been applied for charitable purpose.
Here –
Solution–
Particulars Rs.
Sale proceeds of Capital asset relevant for charitable purpose (Rs. 3.5 Lacs/2) 1,75,000
Cost of the asset sold relevant for charitable purpose (Rs. 2 Lacs/2) 1,00,000
Capital gain on transfer of capital asset relevant for charitable purpose (Rs. 1.5 Lacs/2) 75,000
Another asset purchased relevant for charitable purpose (Rs. 2.9 Lacs/2) 1,45,000
Appropriate fraction utilised (Relevant cost of old asset – Rs. 1 Lac + Relevant Capital gains 1,45,000
Rs. 45,000)
So, amount not taxable (cost of old asset + Capital Gains utilized) 1,45,000
Capital gain taxable is 30,000
Relevant Net Sale Consideration [Rs. 1,75,000]
minus
Relevant Cost of old asset [Rs. 1,00,000] + Relevant Capital Gains utilized [Rs. 45,000]

D. Accumulations of Income [Section 11(2)] – 5 years wala funda

If 85 % of the income even if could not applied shall still not be included in the total
income if –
Following conditions are

fulfilled
Trust furnishes
statement to AO - money so accumulated
Income Tax return is
a. Explaining purpose is invested modes
filed as per 139(1)
of accumulating the specified 11(5)
amount
b. This accumulation
can be for Max.5 years
Explanation: Any amount donated out of income received by Charitable Trust shall not be
treated as application of income.
E.
Forms and Modes

of Investment
[Section 11(5)]
Post Deposit co-

saving Small Indira operativ co- Debentures
Office with UTI public
certific Savings Vikas e land operativ unconditionall
Saving Patra Bank, co- sector
ates Schemes develop e land y guaranteed
s Bank operative co. IDBI
ment mortgag by the CG or
bank, e bank by a SG
bank
According to section 11(6), If acquisition for an asset has been claimed as an application of
income then depreciation on same can’t be claimed.
F. Registration of Trusts [Section 12A]
The provisions of Sections 11 and 12 shall not apply(i.e. exemption shall not be provided) unless the
following conditions are fulfilled:

Conditions
Trust If TI > Basic In case of

registered exemption modifications
under section limit before of objects
12AA + exemption which do not
under section conform to Assess to file
application for return of
registration 11/12, then the
audit conditions of Income as
given to per sec.
Principal required to registration
be furnished 1 → application 139(4A) within
Comm. or due date
Comm. month before to Principal
due date of Comm. or
return filing comm. within
30 Days
AY 18-19
G. Procedure for Registration [Section 12AA

On receipt of application - Principal Commissioner or Commissioner shall call for such
documents or information as he thinks necessary and may also make inquiries
IMP
✓ Either grant or decline registration within six months from → end of the month in
which the application was → received.
✓ The Commissioner may also cancel the registration of such trust or institution, if it has
not complied with the requirement of any law (not only income tax) and the order,
direction or decree, by whatever name called
✓ Registration can be cancelled only if the matter has not been put into dispute by the
assessee or if disputed, the order of the courts have attained finality
✓ However, if the trust or institution proves that there was a reasonable cause for the
activities to be carried out in the above manner, the registration shall not be cancelled.

H. Denial of Exemption [Section 13]i.e. Income will not be eligible for exemption under sections
11 and 12
Following
cases
Income from Income from

Property trust
held under a established Trust created Impermissible Deposits/
trust for for benefit of for benefit of Investments
private any particular any specified
religious religious person -
purposes community
or caste
However
exempion will Specified
be available if persons
trust created for are -
SC,ST, OBC,
Women,
Children
Where Any
Person made a Any concern in
Author/ substanti relative
Trustee/ substantial al which
contribution of authors,,
Manager of contributo founder
the trust (i.e. > Rs. r is HUF - trustees
50,000during s/ etc. have
> any authors
the year) member substantial
etc. interest
of HUF
Impermissible Investments
a. Loan without adequate interest/ security e. Excess payment for purchase of property
b. Allowing use of property without adequate rent f. Inadequate consideration for property sold
c. Excess payment for services g. Diversion of income or property exceeding Rs. 1,000
d. Inadequate remuneration for services rendered Investment in substantial interest concerns

I. Anonymous Donations received by Charitable Trusts/Institutions to be subject to tax

[Section115BBC]
Anonymous donations in excess of specified limit would be subject to tax @ 30% under section
115BBC.
The exemption limit (specified limit) is the higher of the following –
5% of the total Rs 1 Lakh

donations received
The total tax payable –
Tax @ 30% Tax on balance

anonymous income at Slab Rate
donations on > the
exemption limit
Provisions of anonymous donations does not apply to –
Trust created Trust created wholly/

wholly for partly for religious/
religious charitable purposes
purposes
But in this case, if anonymous donation is made → specific direction →

donation is for any university or other educational institution or any
hospital or other medical institution run by such trust or
institution → then such anonymous donation shall be taxable
MCQ’s
(1) Ray Charitable Trust (registered under section 12AA) has total income of Rs. 20 lakhs. It applied Rs.
10 lakhs towards its objects. How much is chargeable to tax in case the trust does not opt for
accumulation of income under section 11(2) of the Act? (June, 2017)
(c) Rs. 5 lakhs (d) Rs. 3 lakhs Ans.(b)
2. Ramji Charitable Trust had sold a capital asset costing Rs. 70,000 on 13th June, 2020 for Rs. 1,50,000. It
purchased new asset on 1st July 2020 for Rs. 1,20,000. The amount taxable as capital gains for Ramji Charitable
Trust in A.Y.2021-22 is - (Dec. 2015)
(a) Rs. 80,000 (b) Nil, because of charitable trust
(c) Rs. 30,000 (d) Rs. 40,000 Ans.(c)
2. A charitable trust registered under section 12AA has gross receipts of Rs. 40 lakh. It spent Rs. 28 lakh
towards its objects. The total income of the trust chargeable to income-tax would be - (Dec. 2016)
(a) Nil (b) Rs. 12 lakh
(c) Rs. 6 lakh (d) Rs. 2 lakh Ans.(c)

3. A charitable trust acquired two air-conditioners for Rs. 1,40,000 on 10th June, 2020. It claimed the
acquisition as application of income. The amount it can claim by way of depreciation for the said air-
conditioners for the AY 2021-22 is- (Dec. 2015)
(a) Rs. 21,000 (b) Rs. 1,40,000
(c) Rs. 35,000 (d) Nil. Ans.(d)
4. A capital asset purchased on 11th Sept., 2015 for Rs. 2,00,000 was sold for 3,00,000 on 18th Dec.,
2020 by a Charitable Trust registered under section 12AA of the Income Tax Act. New capital assets
after the sale was purchased on 1st January, 2021 for 2,60,000. The amount of capital gain arising
from the sale of capital asset utilized in purchase of new asset for the A.Y.2021 - 22shall be _______and
taxable amount shall be ......... (Dec 18)
(A) Rs. 40,000 and Rs.60,000
(B) Rs. 1,00,000 and Rs.2,60,000
(C) Rs. 2,60,000 and Rs.1,00,000
(D) Rs. 60,000 and Rs.40,000 Ans. D
5. A charitable trust registered as per section 12AA of Income Tax Act, having capital asset purchased in June,
2016 for Rs.1,00,000 and used for the charitable purposes till the same was sold in December, 2020 for Rs.
1,50,000. The Trust, after sale of capital asset purchased a new capital asset for Rs. 1,20,000 which was also
used for charitable purposes of the Trust. The amount of capital gain utilized in purchase of new capital asset
by Trust shall be ____________. (Dec 19 –NS)
(a) Rs. 20,000 (b) Rs. 50,000
(c) Rs. 30,000 (d) Nil Ans.(a)
6. Samode Charitable Trust formed under the Trust Deed on 1st May, 2020 filed an application for grant of
registration u/s12AA of the Act to the CIT (Exemption) on 13th May, 2020. The CIT (Exemption) did not pass
any order as to Registration of the Trust, till 31st March, 2021. The trust shall be deemed to have the
registration as per provisions of Act under section 12AA effective from (Dec 19 –NS) .
(a) 1st May, 2020 (b) 1st December, 2020
(c) 13th May, 2020 (d) 13th November, 2020 Ans.(d)
5. Political Parties - Section 13A
1. Political parties are assessed as ‘An association of persons’
2. he income from voluntary contributions, House Property, Capital Gains, IOS are
exempt from subject to the following conditions:
AY 18-19
Conditions
Maintain For each Accounts Donation > Rs. 2000

books of Voluntary audited by has to be received
accounts contribution CA through banking File return
which is > Rs. channels only account u/s 139
20,000 , name payee (4B) by
& address of cheque/draft/ECS Due Date
contributor through a bank account
or through electoral
bonds
1. Registered political parties have to maintain a record of the contributions and names and address of the
persons who have made such contribution where each contribution exceed: (Dec. 2017)
(A) Rs. 1,000
(B) Rs. 5,000
(C) Rs. 10,000
(D) Rs. 20,000 Ans.(d)
2. Any voluntary contributions received by an electoral trust not be included in the total income where such
electoral trust distributes to any political parties ------------- of the aggregate donations received by it duringthe

previous year along with the surplus, if any, brought forward from any earlierprevious year. A political party, for
this purpose, means a political party registered under section of the Representation of the People Act, 1951. (Dec
20 –OS)
(A) 85%, 29
(B) 95%, 29A
(C) 95%, 29B
(D) 85%, 29A ANS B
6. Electoral trust
Voluntary contributions received by an Electoral Trust (Section 13B)
Any voluntary contributions received by an electoral trust shall be exempt if electoral trust
distributes to any political party during the said previous year, minimum 95% of the
aggregate donations received + the surplus, if any brought forward from any earlier
previous year.
1. An electoral trust receiving voluntary contributions for the purpose of distributing to political parties
registered under Section 29A of the Representation of the People Act, 1951 must distribute .............. % of such
contributions. (Dec. 2017)
(A) 100
(B) 95
(C) 75
(D) 50 Ans.(d)
7. Co – Operative Society
a. Rate of Tax for Co- Operative Societies –

Income Rate of Tax
First Rs. 10,000 10%
Next Rs. 10,000 20%
Balance Income 30%
Note – HEC is also applicable @ 4% & if the TI > 1Cr. then Surcharge @ 12%
b. Deduction in respect of income of co-operative societies [Section 80P]
1.
Income Derived from Deduction
Specified Activities1 100% income exempt
Other than specified Assessee is a consumers co-operative up to Rs. 1 Lac
activities Society
In any other case up to Rs.
50,000

carrying on the business of banking or

providing credit facilities to its members
cottage industry
Meaning of specified activities
marketing of the agricultural produce grown by

its members
purchase of agricultural implements, seeds,

livestock or other articles intended for agriculture or
for the purpose of supplying them to its members
processing without the aid of power, of the

agricultural produce of its members
supplying milk, oilseeds, fruits or co-operative credit societies

vegetables to another society supplying which provide financial
same commodities, Govt. or to the Local assistance to the society
Authority who actually carry on the
exemption is available fishing or other allied
collective disposal of the labour to only to those co- activities
its member or fishing and other operative societies
allied activities which restrict the voting members who contribute
rights to their labour force
the State Government
2. Following income of Co-operative society is also exempt –

1. Interest – Dividend from its investments with another Co- Operative society
2. Letting of godowns, warehouses, facilitating marketing of commodities
3. Interest on securities or income from House Property subject to the following conditions–
Conditions
Co - operative GTI should be

society must + upto Rs.
not be 20,000
Urban Co- Engaged in Manufacturing

Housing
operative transportation with the aid of
society
society business power

New Optional Section – Section 115BAD AY 21-22
• 10-IF - Application for exercise/ withdrawal of option (ICSI Supplementary June 21)
• Finance act, 2020 has introduced a New Optional tax System for Cooperative
society u/s 115BAD w.e.f, A/Y 21-22 to provide for flat rate of Tax of 22% + 10%
flat surcharge + 4%HEC (Flat rate of 22%) to be applied on Total Income
calculated without claiming specified deductions and exemptions.
• Hence, from ay 2021-22 (or Fy 2020-21), there are two operative tax system –
• Provided that where the person fails to satisfy the conditions contained in sub-
section(2) in computing its income in any previous year, the option shall become
invalid in respect of the assessment year relevant to that previous year and
subsequent assessment years and other provisions of the act shall apply, as if
the option had not been exercised for the assessment year relevant to that
previous year and subsequent assessment years.
• Total income of the co-operative society shall be computed,—
(i) without any deduction
• Exemption for SEZ unit contained in section 10AA;
• Additional deprecation
• Deductions under section 32AD(Investment allowance), 33AB (Tea, Coffee,
Rubber Development account), 33ABA (Site Restoration Fund)
• Various deduction for donation for or expenditure on scientific research
• Deduction under section 35AD or section 35CCC;
• Any deduction under chapter VIA (like section 80P, 80G, etc). However,
deduction section 80JJAA (for new employment) can be claimed.
• Without set off of any loss carried forward or depreciation from any
earlier assessment year, if such loss or depreciation is attributable to any of
the deductions referred to in clause (i); and
• by claiming the depreciation, if any, u/s 32, other than additional

depreciation, determined in such manner as may be prescribed.
Subsection 5 of 115 BAD- Nothing contained in this section shall apply unless option is
exercised in the prescribed manner (exercised before the due date under section 139(1) by
the person. (Applicable for the income earned from 01 April 2021)
Provided that once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.
1. In the case of a co-operative society, surcharge is levied, where its total income exceeds Rs. crore.
(June 2018)
(A) 1
(B) 5
(C) 10
(D) None of the above Ans. A
2. Which of the under mentioned incomes of a Co-operative Society is not eligible for deduction under
section 80 P of the Income Tax Act, 1961 when the gross total income of the society exceeds Rs. 20,000?
(Dec. 2018)
(A) Agency business

(B) Income from letting of godown

(C) Income from house property
(D) Dividend from other Co-operative Societies Ans C
3. The profits of a co-operative society engaged in (i) Carrying out the business of banking, (ii) A cottage industry
and (iii) Collective disposal of labours of its member are eligible for deduction u/s 80 Pup-to (June 2018)
(A) 75% of the profits
(B) 100% of the profits
(C) 50% of the profits
4. In case of which of the following co-operative society, the deduction u/s 80P is restricted to Rs. 1,00,000 -
(June 2016)
(a) Consumers' co-operative society
(b) Society engaged in collection and disposal of labour
(c) Society engaged in fishing
(d) Society engaged in processing of agricultural produce without the aid of power
Ans. (a)
5. The profits of a Co-operative Society engaged in (i) Carrying out the business of banking, (ii) A cottage
industry and (iii) Collective disposal of labour of its members are exempt from the as per section 80P up-to :
(Dec 19 –NS)
(a) 75% of the profits (b) 100% of the profit
(c) 50% of the profits (d) 40% of the profits Ans.(b)
6. The total income of a co-operative society is Rs. 2,10,000 after claiming deduction under section 80P of the
Act. The total tax payable by the co-operative society on its total income, including cess, would be : (Dec 19 –
OS)
(A) NIL
(B) Rs. 52,000
(C) Rs. 62,400
(D) Rs. 64,890 Ans – C
7. Shanti Nagar Co-operative Society had derived the following income during the previous year
1.4.2020 to 31.3.2021 :
(i) Marketing of agricultural

produce of its members 20,000
(ii) Interest from members
on
delayed payment 2,000
(iii) Processing (without aid of
power) of agricultural
produce of its members 5,000
(iv) Supplying milk to the
Government (raised by
its members) 25,000
(v) Agency business 15,000
(vi) Dividends from
other Co-operative 15,000
Societies
The total income of the Society for the A.Y. 2021-22 shall be ----------(Dec 20 –NS)
(A) Rs. 22,000
(B) Rs. 37,000
(C) Rs. (82000 – 50000) = 32,000
(D) Rs. 2,000 ANS-D

8. The rates of income tax excluding Cess and surcharge if any applicable to a co-operative society for the
assessment year 2021-22 where the total income exceeds Rs. 20,000 be -----------(Dec 20 –OS)
A. 10% of the total income
B. 2,000 plus 20% of the amount by which the total income exceeds 20,000
C. 3,000 plus 30% of the amount by which the total income exceeds 20,000
D. 3,000 plus 25% of the amount by which the total income exceeds 20,000
ANS C
Tax Rates on AOP/BOI - Section 167B
Where the shares of Where the shares of

members are Known members are unknown or
& Determinate indeterminate
No member One or more One or more

Where None One or more
have TI > member have members is members is
of the
maximum TI > maximum assessable at assessable at
members is
amount not amount not a rate > MMR
assessable at a rate > MMR
chargeable to chargeable to
a rate > MMR
tax AND No tax AND No
member is member is
assessable at assessable at
a rate > MMR a rate > MMR
Tax income of Tax entire Tax on AOP/ BOI shall be

AOP/ BOI at income of Tax entire Tax entire
aggregate-
normal rates AOP/ BOI at income of income of
(i) Tax at such higher rate on such AOP/ BOI at AOP/ BOI at
applicable to MMR
members share in the Total MMR such higher
an Individual
Income rate
(ii)Tax at MMR on the Balance
Income
Section 86 – Rebate in respect of Members share in the income of AOP/ BOI
If the AOP is Will share in income of Rebate

chargeable to tax at AOP be included in
the Total income of
the member
Normal Rates Yes Available at Average
rate of Tax
Normal Rates but the Yes Not available
tax payable by the
AOP is Nil
MMR or higher rate No Does not arise
Notes-
1. Maximum Marginal Rate (MMR) means the highest tax rate possible for an Individual i.e. 30% tax +
15% Surcharge + 4% Cess
2. Member assessable at a rate > MMR means a Foreign company
3. Shares of the members in AOP/ BOI are deemed to be unknown/ indeterminate if such shares are
unknown at the time of formation of AOP/ BOI or at any time thereafter.
4. Loss of AOP/ BOI shall be c/f by AOP/BOI only and shall not be allocated to the members

5. Interest Paid by an AOP/ BOI to the member will not be allowed as deduction
6. If Interest is paid by AOP/ BOI → Member and also by Member → AOP/BOI then interest disallowed
will be interest paid by AOP/BOI less interest receved by AOP/BOI from member
MCQ’s
(1) When a non-domestic company is a member in an AOP and its share of profit is indeterminate, the tax on
total income of the AOP is charged at the - (June 2016)
(a) Nominal rate (b) Maximum marginal rate
(c) Rate applicable to the company (d) Least of the above three rates. Ans.(c)
2. Maruti & Co. is an AOP consisting of 4 members with equal share. None of the member has income exceeding
the taxable limit. The total income of the AOP is Rs. 5 lakhs. The income tax liability of the AOP would be : (June,
2017)
(a) Rs. 1,54,500
(b) Rs. 77,250
(c) Rs. 13,000
(d) Rs. 20,600 Ans.(c)
3.. Tax shall be charged on the total income of the AOP at the maximum marginal rate under the
provisions of section 167B of IncomeTaxAct,1961:
(A) Where individual shares of the members of an association or body are indeterminable
or unknown in relation to the whole of income
(B) where members share equally
(C) where the individual shares of the members of an associate or body are indeterminable
or unknown relating to any part of income
(D) Both (A) and(C) Ans D
4. Vinod & Co. is an AOP consisting of three members E, F and G. The concern paid interest on capital to
member E Rs. 1,05,000 @ 15% per annum. It also received interest from the member E Rs. 90,000 on
the amount advanced @ 18% per annum. The total income of the AOP after including interest receipt
and deducting interest payment to E is Rs. 4,85,000. Its total income liable for income-tax assessment
would be : (Dec 19 –OS)
(A) Rs. 4,85,000
(B) Rs. 5,00,000
(C) Rs. 4,70,000
(D) Rs. 6,80,000
Ans – B
Miscellaneous
1. A municipal committee legally entitled to manage and control a municipal fund is chargeable to income-tax in
the status of : (Dec. 2017)
(A) individual
(B) association of persons
(C) local authority
(D) artificial juridical person Ans.(c)
2. Find out from the following income derived from house property which is beinge xempt from
Income Tax: (June 19)
(A) Income from property of a trust for charitable or religious purposes
(B) Income from property of a housing society
(C) Income from property of a trade association
(D) Income from property of a sports association Ans C
3. A non-resident (other than company) and a foreign company will pay tax on the income of interest
received from an infrastructure debt fund referred to in section 10(47) at the rate of: (June 19)
(A) 20%
(B) 5%
(C) 10%
(D) 7.5% Ans B

15. Tax incidence on companies 15.1
Chapter 15
Classification & Tax Incidence on Companies
TYPES OF COMPANIES
Indian Company
Company’ – Company registered in India and Having a registered place of

business in India
Infrastructural capital company
• means a company which makes investments by way of
acquiring shares or
• providing long-term finance
• to any enterprise or undertaking wholly engaged in the business
referred to in an undertaking developing and building a housing
project referred to in Section 80-IB(10) or a project for
• constructing a hotel of not less than 3 star category
• or a project for constructing a hospital with at least 100 beds for
patients.
Domestic Company
It is an Indian company
or any other company which, in respect of its income liable to tax under
the Income Tax Act, has made the prescribed arrangements for the
declaration and payment within India, of the dividends (including
dividends on preference shares) payable out of such income.
From this definition, it is clear that all Indian companies are domestic
companies while all domestic companies need not necessarily be
Indian companies.
Under Rule 27 of Income tax rules, the prescribed arrangements are as
follows:
(i) The share register of the company concerned, for all its shareholders,
shall be regularly maintained at its principal place of business within
India from 1st April of the year.
(ii) The general meeting for passing the accounts of the previous year
relevant to the assessment year declaring any dividends in respect

thereof shall be held only at a place within India
(iii) The dividends declared, if any, shall be payable only within India to all
shareholders.
Foreign Company
Section 2(23A) of the Income Tax Act defines foreign company as a

company, which, is not a domestic company.
Company in which public are substantially interested (A widely-held company)
Section 2(18) of the Income Tax, Act defines the expression “company in
which the public are substantially interested”.
A company is said to be one in which public are substantially interested in
the following cases, namely -
(i) A company owned by Govt./ RBI corporation owned by the Reserve
Bank of India – Minimum 40% holding in aggregate
(ii) Section 8 company
(iii) A company having no share capital declared by CBDT
(iv) Nidhi/ Mutual Benefit Society
(v) A company owned by co-operative Society – Minimum 50% equity shares
heId by one or more cooperative societies throughout the relevant
previous
(vi) Listed company
• If it is a company which is not a private company as defined in
Companies Act,
• and equity shares of the company were,
• as on the last day of the relevant previous year, listed in a
recognized stock exchange in India
(vii) Public company owned by Govt. and/ or public limited company – If it

is a company which is
• not a private company within the meaning of the Companies Act,
• and the equity shares in the company carrying not less than 50
per cent (40 per cent in case of an industrial company) of the
voting power have been allotted to and were
• throughout the relevant accounting year beneficially held by
• (a) the Government, or (b) a corporation established by a

Central or State or Provincial Act, or (c) any company in which
the public are substantially interested or a wholly owned
subsidiary company.
Note –
Industrial Company means an Indian company where business consists
mainly in the construction of “ships” or in the manufacture or

processing of goods or in mining or in the generation or distribution
of electricity or any other form of power.
Illustration: State with the reason whether in the following cases Companies are widely held or
closely held:
(a) The shares of ABC Private Limited are held as follows:
i A corporation owned by RBI 15%
ii Central Govt. 18%
iii R.B.I. 10%
iv Mr. Raman 28%
v Mr. Bhuvan 27%
(b) 85%equitysharesofProgressivePrivateLimitedwereheldbythepublicanditsaffairsduringther
elevant previous year were controlled by seven persons.
Solution:
(a) Shares held by Govt., RBI and Corporation owned by RBI = 18%+10%+15% =43%.
As shares held by CG along with RBI are more than 40%, therefore, ABC Pvt. Ltd. is a
Govt. Participating company. Hence it is a company in which Public is substantially
interested i.e. widely held.
(b)As none of the criteria mentioned in Section 2(18) are met in case of Progressive
Pvt. Ltd. (such as Govt. Participating, Section 8 Company or Nidhi etc.) therefore, it
is a closely held company.
PRACTICAL QUESTIONS
Q.1. State whether the following companies can be said to be companies in which the
public are substantially interested:
(i) Vimal Industries (P) Ltd. The entire equity share capital was beneficially held
by public and its affairs were managed during the financial year by more than
five persons.
(ii) Arun Industries Ltd. During the year more than 75 per cent of the equity share
capital of the company was beneficially held by the public in general. The
shares of the company were not listed in a recognized stock exchange in
India.
(iii) Reliable Industries Ltd. The company is running a textile mill. 60 per cent of its
equity share capital was beneficially held during the year by D & Co. Ltd. which
is a widely-held company, i.e., a company in which the public were
substantially interested. The shares of Reliable Industries Ltd. were not listed
in a recognized stock exchange in India.
(iv) 30 per cent of the equity share capital of the ABC Ltd. was beneficially held
during the year by XYZ Co. Ltd. which is a widely-held company. i.e., a
company in which the public were substantially interested. The rest 70 per
cent shares were held by the public in general. The shares were listed in a
recognized stock exchange in India.
(v) M & Co. Ltd. The company carried on mining business. During the year the
equity share capital of the company was beneficially held as under:

30 per cent by Arun Industries Ltd. which is a Company in which the

public were substantially interested.
15 per cent by Varun Industries Ltd. which is a 100 per cent
subsidiary of Arun Industries Ltd.
55 per cent by the public in general. The shares of the company
were not listed in a recognized stock exchange in India.
Answers – (i) No (ii) No (iii) Yes (iv) Yes (v) Yes
Closely held company
A Company in which the public is not substantially interested is known

as a closely held company.
Corporate Taxation Rates
Domestic Company Assessment Year 2021-22
- Where it has opted for Section 115Ba [other than those opted 25%
under section 115Baa and section 115BaB]
[this regime shall be available only for the manufacturing
companies incorporated in india on or after 01-03-2016.
- Where it opted for Section 115BAA 22%
[This benefit shall be available when total income of the company
is computed without claiming specified deductions, incentives,
exemptions and additional depreciation available under the
income-tax act.]
- Where it opted for Section 115BaB 15%
[this regime shall be available only for the manufacturing
companies incorporated in india on or after 01-10-2019. Hence,
old companies will not be able to take the benefit of this section.]
- Where it has not opted for Section 115Baa and the total turnover 25%
or Gross receipts of the company in the previous year 2018-2019
does not exceeds 400 crore rupees
- any other domestic company 30%
Foreign Company 40%
Note: Health and education Cess @ 4% on tax & surcharge
A. Section 115BA (Old Section)
✓ Manufacturing company set up and registered on or after 1.4.2016 and
✓ the company doesn’t take benefits of SEZ, Additional Depreciation, 32AD, 33AB,
33ABA, scientific research weightage deduction, 35AD Businesses, 35CCC and 35CCD
✓ then it may opt to chose to pay taxes @ 25%.
✓ Option once exercised can’t be withdrawn but if the new section 115BAA is opted
then option under 115BA can be withdraw

Following sections 115BAA and 115BAB shall be inserted after section 115BA by the
Taxation Laws (Amendment) Ordinance, 2019, w.e.f. 1-4-2020:
B. Tax on income of certain domestic companies - 115BAA.
Section 115BAA provides for concessional rate of tax@22% (plus surcharge@10% and
HEC@4%)for domestic companies, subject to certain conditions, like
✓ Non – availability SEZ, Additional Depreciation, 32AD, 33AB, 33ABA, scientific
research weightage deduction, 35AD Businesses, 35CCC 35CCD, Chapter VI-A
Deductions (Except 80JJAA & 80M) etc.
✓ Cannot C/f losses of any earlier year AY 21-22
✓ The option has to be intimated by the due date of return filing u/s139(1)
✓ once the option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year
✓ Section 115JB of the Act relating to Minimum Alternate Tax (MAT)shall not apply to a
person who has exercised the option referred to undernewly insertedsection115BAA.
✓ Such Company shall not be allowed to claim set off of any brought forward loss
on account of additional depreciation for an Assessment Year for which the option has
been exercised and for any subsequent Assessment Year.
✓ MAT credit paid by the domestic company exercising option under section 115BAA
of the Act shall not be available consequent to exercising of such option.
✓ Further as there is no time line within which option under section 115BAA can be
exercised
C. Tax on income of certain new domestic manufacturing companies - 115BAB.
Section 115BAB provides for concessional rate of tax@15% (plus surcharge@10% plus
HEC@4%) to new manufacturing domestic companies set up and registered on or after
1.10.2019, and commences manufacturing on or before 31.3.2023, subject to certain
conditions, like
✓ Is not formed by splitting up, or the reconstruction, of a business already in existence

✓ It should not be formed by the transfer of machinery or plant previously used for any
purpose to a new business.
✓ However benefit will be available if total value of the machinery or plant transferred
does not exceed 20% of the total value of machinery or plant used in the business.
✓ For this purpose, any machinery or plant which was used outside India by any person
other than the assessee shall not be regarded as machinery or plant previously used
for any purpose if the following conditions are fulfilled:
o such machinery or plant was not at any time used in India;
o such machinery or plant is imported into India from any country outside India; and
o no deduction on account of depreciation has been allowed in respect of such
machinery or plant to any person earlier.
✓ Does not use any building previously used as a hotel or a convention centre, as
the case may be
✓ Non- availability SEZ, Additional Depreciation, 32AD, 33AB, 33ABA, scientific research
weightage deduction, 35AD Businesses, 35CCC 35CCD, Chapter VI-A Deductions
(Except 80JJAA & 80M) etc.
AY 21-22
✓ Cannot C/f losses of any earlier year
✓ The option has to be intimated by the due date of return filing u/s139(1)

✓ Once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year
Note
It may be noted that companies exercising option under section 115BAA or section 115BAB
are not liable to minimum alternate tax under section 115JB.
Minimum Alternate Tax (MAT) - 115JB and Alternate Minimum Tax (AMT) – 115JC
MAT is applicable to every company whether public or private and whether Indian or foreign.
However MAT shall not apply to :
(i) any income arising to a company from life insurance business.
(ii) Companies option for 115BAA/BAB
(iii) any shipping income arising to a company liable to tonnage taxation.
(iv) a foreign company resident of a country with which India has an Double Taxation Avoidance
Agreement (DTAA) and such company does not have a permanent establishment in India.
(v) the foreign company is a resident of a country with which India does not have an agreement
(DTAA) and such company is not required to seek registration under any law for the time
being in force relating to companies.
(vi) Further by Finance Act, 2018, MAT provisions shall not be applicable to a foreign company,
whose total income comprises of profits and gains arising from business referred to in section
44BB (NR providing P&M on hire basis for extracting Minera oil), 44BBA(NR Carrying out aircraft
business), or 44BBB (Foreign companies engaged in turn Key projects) and such income has
been offered to tax at the rates specified in those sections.
Sr. No. Description MAT 115JB AMT 115JC

1 Applicable to Companies (Also to Other than Companies
the Foreign
Companies)
2 Calculated on Book Profits Adjusted Total Income (ATI)
3 Rate of Tax 15% + 4% Cess 18.5% + 4% Cess
+ Surcharge as + Surcharge as applicable

applicable
4 Rate of tax in IFSC 9% + 4% cess
(International Financial Services Centre
+ Surcharge as applicable
5 Provisions not applicable if No such limit ATI upto Rs 20 Lakhs

(No threshold for LLP & Firms)
6 Applicability conditions No such conditions. If a person has claimed
Applicable to all deductions u/s -
companies.
a. Section 80IA to 80RRB (Other
than sec. 80P)
b. Sec. 10AA
c. Sec. 35AD
7 MAT/ AMT Credit to be Carried forward for - For 15 AY's AY 21-22
8 If Following Section 115BAC/115BAD Not Relevant AMT Doesn’t apply

For both MAT & AMT, assessee needs to submit audit report 1 month before due date of return filing.
AY 21-22
Calculation of Adjusted Total Income

Adjusted Total T.I as per normal provisions of the Act xxx
Income Add: Deductions under Chapter VI- A (Heading C-Deductions in respect of xxx
Certain Incomes except Deduction u/s 80P)
Add: Deduction u/s 10AA (SEZ) xxx
Add: Deduction claimed u/s 35AD xxx
Less: Depre. Allowable as per sec. 32 assuming that deduction u/s 35AD (xxx)
was not allowed
Adjusted Total Income xxx
Note – The tax credit paid by a person on account of AMT shall be allowed to the extent
of the excess of the AMT paid over the regular income-tax.
It shall be allowed to be set off for an assessment year in which the regular income-tax
> AMT, to the extent of the excess of the regular income-tax over the AMT
Example for understanding the above Note
A B C D E F G H
Yr. Tax Tax Higher of Tax Payable as Difference of Carried Final tax Amount
Payable Payable A or B per A and B (in forward payable to credit
as per as per absolute amount this year to be C/f
Normal AMT/ terms) to be set off -
provisions MAT
of the IT provisions
Act
1 Rs 25 Lacs Rs. 17 Rs 25 Normal Rs. 7 Lacs Nil. Since Tax Rs 25 Nil
Lacs Lacs provisions of as per Lacs
Income Tax act - normal
subject to the provisions is
credit available > tax as per
AMT/ MAT
2 Rs. 10 Rs. 15 Rs. 15 Provisions of Rs. 5 Lacs Not available 15 Lacs Rs 5 Lacs
Lacs Lacs Lacs AMT/ MAT for this year (Rs 15
Lacs - Rs.
10 Lacs)
3 Rs, 12 Rs. 9 Lacs Rs. 12 Normal Rs. 3 Lacs Rs 5,00,000 Rs. 9 Rs. 2 Lacs
Lacs Lacs provisions of but Lacs (Rs (Rs. 5
Income Tax act - maximum 12 Lacs - Lacs - Rs.
subject to the credit that Rs 3 3 Lacs)
credit available can be used Lacs)
is upto Rs
3,00,000
4 Rs 20 Lacs Rs 15 Lacs Rs 20 Normal Rs. 5 Lacs Available Rs 18 Nil
Lacs provisions of only Rs. Lacs (Rs
Income Tax act - 2,00,000 20 Lacs -
subject to the Rs 2
credit available Lacs)

(1) Provisions of section 115JB are applicable in case of - (Dec. 2016)

(a) Domestic companies only (b) Foreign companies
(c) All companies (d) Closely held companies Ans.(c)
2. For computing the Book Profit under section 115JB, which of the following is not added back to the
profits ? (June, 2017)
(a) Income-tax (b) Provision for Tax
(c) Dividend Distribution Tax U/s 115-0 (d) Securities Transaction Tax Ans.(d)
3. Number of years for which credit of MAT excess paid u/ s 115JB can be carried forward is - (Dec. 2014)
(a) 7 Assessment years (b) 8 Assessment years
(c) 15 Assessment years (d) 10 Assessment years. Ans.(c)
4.MAT credit in respect of excess taxes paid under section 115JB can be carried forward for - (June, 2015)
(a) 7 Assessment years (b) 10 Financial years
(c) 15 Assessment years (d) 7 Financial years. Ans.(c)
5. The provisions of Alternate Minimum Tax (AMT) will apply only when the adjusted total income computed
under section 115JC exceeds :(Dec, 2017)
(A) Rs. 5 lakhs
(B) Rs. 20 lakhs
(C) Rs. 50 lakhs
(D) Rs: 100 lakhs Ans.(b)
6. The provisions of AMT under Chapter XII- BA shall not apply to an individual, a HUF, etc., if the adjusted total
income of such person does not exceed: (June 2018)
(A) Rs.10,00,000
(B) Rs.25,00,000
(C) Rs. 5,00,000
(D) Rs. 20,00,000 Ans. D
7. MAT credit can be carried forward for a period of following number of assessment years: (June 2018)
(A) 5
(B) 15
(C) 10
(D) No time limit Ans B
8. Provisions of Minimum Alternate Tax (MAT) are applicable to the companies which are: (June 2018)
i. Indian companies
ii. Foreign companies in certain situations
iii. LLP
a. (i) and (iii)
b. (i) and(ii)
c. All the three
d. None of the above Ans. B
9. Ram & Co., a proprietorship firm has paid tax for the assessment year 2021-22 as per section 115JC of the
Income Tax Act,1961. Credit of such paid tax can be carried forward by the proprietor for a period of following
number of assessment years immediately succeeding the assessment year 2021-22: (Dec 2018)
(A) 8years
(B) 5years
(C) 10years
(D) 15years Ans D
10. M Ltd. Has Minimum Alternative Tax (MAT) credit of Rs. 5,20,000 of the assessment year 2021-22. It can carry
forward this MAT credit up to....................assessment Years immediately succeeding the assessment year2021-22.
(Jun 2019)
(A) 5
(B) 10
(C) 15
(D) 20 Ans C
11. Alternate minimum tax under section 115JC is not applicable to - (Dec. 2015)
(a) Company (b) Individual
(c) Partnership Firm (d) Association of persons. Ans.(a)
12. Provision of section 115JC are not at all applicable to - (June, 2015)
(a) LLPs (b) Companies
(c) Partnership firms (d) Individuals. Ans.(b)
13. The provisions of alternate minimum tax under section 115JC are applicable for limited liability
partnership when the adjusted total income exceeds : (June, 2017)
(c) Rs. 100 lakhs (d) Rs. 5 lakhs Ans.b
Note: AMT is applicable in case of LLP irrespective of adjusted its total income. The limit of Rs.
20 lakhs apples to an individual or HUF or an AOP/BOI, whether incorporated or not, or an
artificial juridical person.
14.. Alternate Minimum Tax (AMT) under chapter XII-BA will not apply if the adjusted total income of an
individual does not exceeds : (Dec 19 –OS)
(A) Rs. 5,00,000
(B) Rs. 10,00,000
(C) Rs. 20,00,000
(D) Rs. 25,00,000 Ans – C
15. When a domestic company has paid tax on book profit which is higher than the normal tax payable on the
total income, such excess tax so paid is eligible for carry forward up to : (Dec 19 –OS)
(A) 5 succeeding assessment years
(B) 8 succeeding assessment years
(C) 10 succeeding assessment years
(D) 15 succeeding assessment years Ans – D
16.The total income of the partnership firm Xavier & Company for the assessment year 2021-22 of
Rs.8,15,000 arrived at after claiming deduction u/s 35AD of Rs.11,00,000, u/s 80-IB of Rs.1,00,000, and
donation paid to a registered political party by cheque of Rs.85,000. The adjusted total income of the firm
for payment of tax under section 115JC of the Act shall be Rs.--------------(Dec 20 –NS)
(A) 20,15,000
(B) 21,00,000
(C) 10,00,000
(D) 19,15,000 ANS – A
17.Credit for tax (tax credit) paid by a person on account of AMT under Chapter XII-BA shall be allowed which
can be carried forward up to ----------- immediately succeeding the assessment year in which such credit
becomes allowable. (Dec 20 –OS)
A. 20th assessment years
B. 15th assessment years
C. 10th assessment years
D. 5th assessment years ANS B
18.Provisions of section 115JC under Chapter XII-BA shall not apply to an Individual or a HUF or an AOP or a
body of Individual (whether incorporated or not) or any artificial judicial person, if the adjusted total income of
such person does not exceed Rs. ------(Dec 20 –OS)
(A) 5 lakh
(B) 10 lakh
(C) 20 lakh
(D) 30 lakh ANS C
Taxability of Dividend income of an Indian company from a Specified foreign company [Section
115BBD]
• "Specified foreign company" means a foreign company in which the Indian company
holds minimum 26% nominal value of the equity share capital of the company.
• Dividend declared, distributed or paid by a Specified foreign company → Received

by an Indian company → is taxable @ 15%.
• No deduction in respect of any expenditure or allowance shall be allowed to the

assessee under any provision of this Act in computing its income by way of such
dividends.

MCQ’s
(1) Radha Ltd. received dividend of Rs. 100 lakhs from King P. Ltd. of Singapore in December 2020. The
company declared interim dividend of Rs. 200 lakhs in January 2021. The dividend distribution tax
payable by Radha Ltd. would be ________ (June, 2017)
(a) On Rs. 200 lakhs (b) On Rs. 100 lakhs
(c) Nil since dividend declared is more than (d Nil Ans.(d)
Note : The concept of DDT is removed
2. An Indian company having 30% voting power in a foreign company received dividend of Rs. 10 lakh from the
foreign company. The dividend so received by the Indian company is - (Dec. 2016)
(a) Exempt (b) Taxable @ 15%
(c) Taxable at the regular rates (d) Taxable @ 20% Ans.(b)
3. In order to be entitled to concessional rate of tax for dividend received from a foreign company, the Indian
company should have the following minimum shareholding in such foreign company - (June, 2015)
(a) 10% (b) 25%
(c) 26% (d) 51%. Ans.(c)
4. . Total income of XYZ Limited includes the income of dividend of Rs. 10 lakh paid by a U.K.-based foreign
company in which XYZ Limited holds 30% of the equity share capital. Rs. 50,000 has been spent for earning such
dividend. The dividend income so received by the company from the U.K.-based foreign company and the tax rate
shall be: (Dec 2017)
(A) Not taxable being exempt u/s10(34)
(B) Taxable@15%of Rs.10lakh
(C) Taxable @ 15% of Rs.9.5 lakh
(D) Taxable@10%ofRs.9.5lakh Ans. B
5. A domestic company distributed a dividend of Rs. 30,00,000 to its shareholders. Out of this dividend,
Rs. 4,00,000 paid to a person on behalf of the New Pension System Trust and Rs. 1,00,000 paid to
another corporate shareholder. The company also received a dividend of Rs. 2,00,000 from its
subsidiary which paid dividend distribution tax under section 115-0. In this case, the amount of
dividend subject to dividend distribution tax for the domestic company will be - (June 2016)
(a) Rs. 24,00,000 (b) Rs. 27,00,000
(c) Rs. 28,00,000 (d) Nil Ans.(d)
6. DLF Limited, an Indian domestic company received an amount of Rs.15 lakh as dividend declared and
distributed on 18.11.2020 by John Miller Inc of UK in which it holds 30% in nominal value of equity share
capital. Indian company has paid interest of Rs.5 lakh on the amount invested in the shares of John Miller
Inc. The tax payable (rounded off in nearby two decimal points) on the amount of dividend received by the
Indian company in assessment year 2021-22 shall be ----(Dec 20 –NS)
(A)Rs.3.12 lakh
(B)Rs.2.50 lakh
(C)Rs.2.34 lakh
(D)Rs.2.68 lakh ANS-C
As per section 115BBD where the total income of an Indian company includes any income by way of
dividends declared, distributed or paid by a specified foreign company, such income of divided shall be
chargeable to tax at the rate of with applicable surcharge and Cess (Dec 20 –OS)
(E) 5%
(B) 10%
(C) 15%
(D) 20% ANS C
EQUALISATION LEVY
• “Equalization Levy” provides for an equalization levy of 6%
• on the amount of consideration for specified services, received / receivable by a non-

resident, not having permanent establishment in India,
• from a resident in India, who carries out business / profession, or from a non-resident
who has a permanent establishment in India.
Addition through Finance Act 2020 AY 21-22
As amended by Finance Act, 2020, an equalization levy of 2% shall be charged on or after 01.04.2020
on the consideration by an e-commerce operator from e-commerce supply made or provided by it:
a. to a person resident in India.

b. to a non-resident in the specified circumstances
c. to a person who buys such goods or services or both using internet protocol address located
in India.
Where e-commerce operator means a non-resident who owns, operates or manages digital or
electronic facility or platform for online sale of goods or online provision of services or both.
and e-commerce supply or services means-
online sale of goods, provision of services, owned, provided or facilitated by the e-commerce operator
However, the equalization levy shall not be charged in the following cases:
a. where the e-commerce operator making or providing or facilitating e –commerce supply or services has
a permanent establishment in India and such e-commerce supply or services is effectively connected
with such permanent establishment
b. where the equalization levy is leviable @ 6% under consideration for specified services.
c. Sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the
e-commerce supply or services made or provided or facilitated is less than Rs. 2 Crore during
the previous year.
Date of payment of 2% Equalization Levy
S. No. Date of ending of the quarter of financial year Due date of the financial
year
1 30th June 7th July
2 30th September 7th October
3 31st December 7th January
4 31st March 31st March
Refer to the table below to understand the various parameters and aspects involved
Sec. Subject Provisions

166 Person responsible every person being a resident in India, who carries out business / profession, or a
for deduction of non-resident who has a permanent establishment in India shall deduct equalization
equalization levy levy from the amount paid / payable to a non-resident in respect of the specified
service
Rate 6% of the amount of consideration for a specified service, received / receivable by a
non-resident, not having permanent establishment in India, from a resident in India, who
carries out business / profession, or from a non-resident who has a permanent
establishment in India, rounded off to the nearest ten rupees
Threshold equalization Levy is deductible if the aggregate amount of consideration for a specified
service in a previous year > INR 100,000
Time-period The equalization Levy so deducted during any calendar month shall be paid by every
assessee to the credit of the Central Government by the 7th of following month
Consequence of Any assessee who fails to deduct, would anyway continue to be liable to pay to the
failure credit of the Central Government, the equalization Levy by 7th of the following month

167 furnishing the every assessee shall, within the time prescribed after the end of the FY, submit a
statement statement in the prescribed form # 1, on or by 30th June immediately following
the FY, setting forth all details for specified services pertaining to that FY
Revised Statement If the assessee notices omissions / errors / wrong details, he can furnish a revised
statement before the expiry of 2 years from the end of the FY in which the
specified service was provided
notice by the Where any assessee has failed to file the statement within the prescribed time, the A.O.
Assessing is empowered to issue a notice calling for the statement and in which case the
Officer (A.O.) statement has to be furnished within 30 days of date of serving of such notice
168 Processing of the The statement shall be processed, and the amount payable along with interest if any,
Statement shall be computed towards the equalization Levy. The net amount payable by or
refundable to the assessee has to be worked out and an intimation must be served upon
the assessee. However, no intimation is to be sent after the expiry of one year, from the
end of the FY in which the statement is furnished
169 Rectification of With a view to rectifying a mistake apparent on the record, the A.O. may amend the
mistake intimation and such intimation must be amended within one year from the end of the
FY in which the intimation sought to be amended was issued
170 Interest on delayed every assessee who fails to deposit to the credit of the Central Government, the
payments applicable equalization Levy, within 7th of the month following the month in which it was
deducted, the assessee shall be liable to pay Interest @ 1% of such levy for every
month / part of the month of delay
171 Penalty If the assessee fails to deduct the equalization Levy, in addition to the equalization
Levy and Interest, penalty equal to the amount of equalization Levy that he failed to
deduct would be applicable
If the assessee fails to remit the equalization Levy so deducted to the credit of the
Government by 7th of the following month, a penalty of INR 1000 per day would be
leviable, subject to a maximum of the equalization levy that he was to deduct
172 Penalty for delay in

If furnishing
the assessee
the statement
fails to furnish the statement within 30th June of the following FY or
within 30 days of the notice served by the A.O., a penalty of INR 100 per day is
leviable on the assessee
Case Study
Def Ltd. is in the business of manufacture and sale of formal apparels and in order to expand its footprints
globally, has launched a massive online campaign. For the purpose of the online advertisements, it utilized the
services of GHI Ltd, based out of Singapore. During the PY, DEF Ltd. paid a consideration of INR 20,00,000 to
GHI Ltd. for such services.
entail the implications if:
a) GHI Ltd. has no permanent establishment in India
b) GHI Ltd. has a permanent establishment in India

Answer
a) In case GHI Ltd. has no permanent establishment in India, the consideration paid to GHI Ltd. by DEF
Ltd. would attract Equalization Levy to be deducted @ 6%. Hence, INR 120,000 has to be deducted by
Def Ltd. and deposited to the credit of the Central Government within 7th of the following month. non-
deduction of equalization levy would attract a disallowance u/s 40(a)(ib) of 100% of the amount paid,
while computing business income.
b) In case GHI Ltd. has a permanent establishment in India, Equalization Levy would not be attracted.

Therefore Def Ltd. need not deduct equalization Levy from the payment of consideration to GHI Ltd.
However, tax has to be deducted u/s 195 in respect of such payments towards TDS. non-deduction of
TDS would attract a disallowance u/s 40(a)(i) of 100% of the amount paid, while computing business
income.
MCQ
1. Every person being resident Indian who carries-out the business/profession or a non-resident who has a
permanent establishment in India shall deduct equalization levy from the amount paid/payable to a non-
resident in respect ofspecified services @ ____________whereas the aggregate amount of consideration for
specified services in the previousyear exceeds ? ____________. (Dec 19 –NS)
(a) 8%, Rs. 10,00,000 (b) 8%, Rs. 1,00,000
(c) 6%, Rs. 1,00,000 (d) 10%, Rs. 1,00,000 Ans. (c)
2. An Indian resident availed services by way of online advertisement space provided by a foreign company
located in UK. The foreign company does not have a PE (Permanent Establishment) in India. The Indian
company has to pay equalization levy when the amount paid to the foreign company exceeds: (Dec 19 –OS)
(A) Rs. 50,000 in previous year
(B) Rs. 1,00,000 in previous year
(C) Rs. 5,00,000 in previous year
(D) Rs. 10,00,000 in previous year
Ans – B
Carbon Credit [Section 115BBG]
• Income from the transfer of carbon credit taxable at →rate of 10% (SC+ HEC)→on the gross amount
of such income.
• No expenditure or allowance in respect of such income shall be allowed.
(1) RAJA Ltd. has earned income of Rs. 150 lakh inclusive of income of Rs. 50 lakh from the transfer of Carbon
Credit during the year 2020-21. The company had incurred an amount of Rs. 5 lakh as transfer expenses on
transfer of Carbon Credit. The income received from transfer of Carbon Credit in the A.Y. 2021-22 shall be
taxed as per section 115BBG of the Act and the amount of tax on such income payable shall be : (Dec 19 –NS)
(a) Rs. 5,82,400 (b) Rs. 5,56,400
(c) Rs. 13,00,000 (d) Rs. 5,00,000 Ans.(b)
Hint – Surcharge @ 7%
2. Where the total income of an assessee includes any income by way of transfer of Carbon Credits, the tax
payable thereon in Asst. Year 2021-22 shall be at the rate of ------------ with applicable surcharge and
cess. (Dec 20 –OS)
(A) 2%
(B) 5%
(C) 7%
(D) 10% ANS D

TAX LIABILITY OF COMPANIES IN THE EVENT OF LIQUIDATION
The table / diagram below explain the various aspects that require careful reading and evaluation.
Section 178 Section 220 Section 139
Tax to be paid within Liquidator of the

Liquidator to notify 30 days of service of Company to file an
A.O. within 30 days of notice along with the annual return of it's
his appointment necessary and income in respect of
applicable interest, if the business being
any carried on for the
benefit of winding up
A.O. notifies the tax Cannot override the This return has to be
liability within 3 provisions of Sec.530 of filed by 31st Oct,
months from date of the Companies Act, irrespective of date of
service of notice of 1956, for the payment of winding up / closure of
liquidator's Interest shall be outside
appointment scope of preferential books, and the
payments Liquidator must verify
and sign the return
TAXATION ASPECTS OF AMALGAMATIONS, MERGERS AND DEMERGERS
Section 2(1B) of the Income Tax Act, 1961, defines the term “amalgamation” as follows:
“Amalgamation in relation to Companies, means the merger of one or more companies with
another company or the merger of two or more companies to form one company, the
companies which so merge being referred to as the “amalgamating company” and the company
with which they merge or which is formed as a result of the merger, being referred to as the
“amalgamated company”, in such a manner that
a) all the property of the amalgamating company(ies) before the amalgamation

become the property of the amalgamated company by virtue of the amalgamation
b) all the liabilities of the amalgamating company(ies) before the amalgamation

become the liabilities of the amalgamated company by virtue of the amalgamation
c) shareholders holding not less than 3/4ths in value of the shares in the
amalgamating company become shareholders of the amalgamated company by
virtue of the amalgamation
Past Exam Questions
(1) According to section 2(1B), "amalgamation, in relation to companies means, the merger of one or more
companies with another company or the merger of two or more companies to form one company"
provided all conditions except the following are satisfied : (Dec. 2014).

(a) All assets to be transferred from amalgamating company to the amalgamated company
(b)All liabilities including contingent liabilities to be transferred from amalgamating company to amalgamated
company.
(c) Shareholders holding at least 3/4th in value of shares of the amalgamating company should become
shareholders of the amalgamated company
(d)Shareholders holding at least 9/10th in value of shares of the amalgamating company should become
shareholders of the amalgamated company. Ans.(d)
(2)Which of the following is not a requirement for amalgamation of two companies?

(June, 2017)
(a) All the assets are transferred from amalgamation company to amalgamated company
(b)More than 50% of the directors of the amalgamating company become directors of the amalgamated
company
(c) All liabilities including contingent liabilities are transferred from amalgamating company to
amalgamated company
(d) Shareholders having 3/4 the in value of shares of the amalgamating company become shareholders of
the amalgamated company
Ans.(b)
Miscellaneous
1. Rahim has shown an air-conditioner installed at his residence as having been installed at his factory, and
claimed depreciation thereon. This is an act of: (June 2018)
(A) Tax planning
(B) Tax management
(C) Tax evasion
2. Income Tax Act, 1961 distinguished a closely held company from widely held company significantly from the
viewpoint of: (Dec 2018)
(A) tax levied at different rates
(B) section 2(22)(e) where certain payments made to shareholders are treated as deemed
dividend
(C) allowed to carry forward its business losses only if the condition specified in section 79 are
satisfied
(D) Both (B) and(C) Ans D

16. Assessment – Appeals – Revisions - Penalties 16.1
Chapter 16
Assessment –Appeals – Revisions - Penalties

Assessment Procedures
Phase I Phase II Phase III Phase IV Phase V Phase VI Phase VII

Person require to Required to file Intimation u/s Inquiry made by AO Assessment by the For the purpose of Assessment special
file Return has to return of income u/s 143(1) shall be sent u/s 142, he may department: assessment cases - 147/153A.
obtain PAN u/s 139 and pay self which may be direct special audit Regular u/s 143 or department can
139A assessment tax u/s followed up with u/s 142 (2A), refer Best judgment u/s exercise various
140A scrutiny u/s 143(2) case to valuation 144 powers available
officer u/s 142A under the Act.

Phase III - Intimation (Section 143(1))
Processing of return u/s 143(1):
Return filed u/s 139 or 142(1) shall be processed u/s 143(1) as per following procedures:
1. Total income / loss computed making some adjustments but Before making adjustment
intimation shall given to the assessee & response received within 30 days shall be
considered.
2. Tax and interest on above income to be computed.
3. In computation of tax payable (or refund due) on account of processing of return under
this section, the fee payable under section 234F shall also be taken into account. (AY
2018-19)
4. Acknowledgement of return shall be deemed to be intimation in case of no change & no tax
payable or refundable.
5. Time limit for intimation under section 143(1) :1year from the end of financial year in
which return of income is made.
Phase IV - Notice of Scrutiny (Section 143(2), 142 (1))
Issue of notice u/s 143(2): Notice can be issued under this section only if the return is filed
No notice of scrutiny can be served after expiry of 6 months from the end of F.Y. in which
return is filed u/s 139 or 142(1).
Non-compliance with above notice shall attract: penalty u/s 272A(1)(d) of Rs.10,000 & best
judgment assessment u/s 144.
Notice u/s 142(1):
Notice issued by AO to any person if:

ROI not furnished u/s 139(1): to furnish ROI
ROI furnished u/s 139(1): to produce required books of accounts for 3 years prior to relevant
P.Y. or
to produce information or documents.
Consequence of non-compliance: (1) Best judgment assessment u/s 144, (2) Penalty u/s 271E of
Rs. 10,000, (3) Prosecution u/s 276D: imprisonment of 1 year or fine every day till default
continues, (4) Issue of order u/s 132 for search and seizure

Phase V - Order of assessment
Scrutiny assessment order u/s 143(3): Regular scrutiny
AO, on the basis of material gathered & evidence produced by the assessee, shall make
assessment of total income or loss &determine sum payable or refundable.
Faceless Assessments (ICSI Supplementary June 21): The Finance Act, 2018 has
inserted a new sub-section (3A) in Section 143 that the Central Govt. may make a
scheme for the purpose of making assessment so as to impart greater efficiency,
transparency and accountability by:
(a) Eliminating the interface between the Assessing Officer and the assessee in the course
of proceeding to the extent technologically feasible.
(b) Optimizing utilization of the resources through economies of scale and

functional specialization.
(c) Introducing a team-based assessment with dynamic jurisdiction.

As part of e-governance initiative to facilitate conduct of assessment proceedings electronically,
Income-tax department has launched ‘e-Proceeding’ facility. under this initiative, CBDT has
made it mandatory for the tax officers to take recourse of electronic communications for all limited
and complete scrutiny. The CBDT had issued the instructions and notice formats for conducting
scrutiny assessments electronically. As per the instruction, except search related assessments,
all scrutiny assessments shall be conducted only through the ‘E-Proceeding’ functionality
available at e-filing website of Income-tax Department.
Best Judgment assessment u/s 144:

AO may reject the books of account u/s 145(3):
If AO is not satisfied about the correctness or completeness of the accounts, or

Method of accounting u/s 145(1) or ICDS is not followed by the assessee then, he may reject the
accounts & proceed for best judgment assessment u/s 144.
(1) Rose Ltd. filed its return of income for the assessment year 2021-22 on 10th August, 2021. The notice under section 143(2)
for scrutiny assessment should be served on the assessee by - (June 2016)
(a) 31st March, 2023 (b) 31st March, 2022
(c) 10th February, 2021 (d) 30th September 2022 Ans.(d))
(2) XYZ Ltd. filed its return of income for the A.Y. 2021-22 on 1st February, 2022. The return was selected for scrutiny
assessment u/s 143(3). The Assessing Officer is required to serve upon the assessee a notice u/s 143(2) upto - (Dec. 2015)
(a) 31st July, 2021 (b) 30th September, 2022
(c) 31st July, 2022 (d) 30 th September, 2023 Ans.(b)
3. The notice under section 143(2) must be served within -(June 2016)
(a) 12 months from the date of filing of return under section 139(1) or from the date of filing of return of income
(b) 12 months from the due date of filing the return
(c) 6 month from the end of the financial year in which the return was furnished
(d) 6 months from the end of month in which the return was furnished Ans.(c)
(4) Regular assessment means assessment made under section - (Dec. 2014)
(a) 143(3)
(b) 144
(c) Both (a) and (b) above
(d) None of the above Ans.(c)
(5)If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any
assessment year, he may initiate proceedings of - (Dec. 2014)
(a) Re-assessment (b) Regular assessment
(c) Self assessment (d) Best judgment assessment. Ans.(a)
6. The A.O. can complete the assessment u/s 144 of the Act even though there is no failure on the part of assessee u/s
139(1), 139(4), 139(5), 142(1), 142(2A) or143(2) of the Act. Such powers by the A.O. may be exercised in the following
situations: (June 18)
a. Where the A.O. is not satisfied about the correctness or completeness of the accounts of the assessee.
b. Where the method of accounting has not been regularly followed by the assessee.
c. Where the income has not been computed in accordance with “ICDS” notified by the Central Government u/s145(2).
d. Any of above three or in all three above situations. Ans. D
7. X filed his return of income for the A.Y. 2021-22 on 31st July, 2021. The return so filed was selected for scrutiny assessment.
The notice under section 143(2) for making scrutiny assessment can be served by : (June, 2019)
(a) 30th September, 2022 (b) 31st December, 2022
(c) 31st March, 2021 (d) 31st December, 2021 Ans.(a)
8. The Assessing Officer can complete the assessment under section 144 of the Act even though there is no failure on the
part of assessee under section 139(1), 139(4), 139(5), 142(1), 142(2A) or 143(2) of the Act. Such powers by the A.O. May
be exercised in which of the following situations: (Dec 19 –NS)
(a) Where the A.O. Is not satisfied about the
(b) Where the method of accounting has not been correctness or completeness of the account of regularly followed by the
assessee the assessee
(c) Where the income has not been computed in
(d) Any of above three or in all the threeabove accordance with "ICDS" notified by the Central situations Government u/ s
145(2) Ans.(d)
9. Srikant filed his return of income for the assessment year 2021-22 on 5-6-2021 declaring total income of Rs.
7,40,000. What is the maximum time within which notice under section 143(2) is to be served on the assessee?
(Dec 19 –OS)
(A) 31-12-2021 (B) 31-3-2022
(C) 30-9-2022 (D) 31-12-2022 Ans – C

Section 153 – Time Limits
Section reference Time limit

Regular assessment u/s 143/Best Income was first assessable → End of AY + 12 months
judgment assessment u/s 144
Reassessment u/s 147 (Income year end + 12 months
escaping assessment)
An order of fresh assessment as a order received → year end + 12 months

result of an order u/s 254 (ITAT’s
order) or 263 or 264 (Revision by
commissioner) setting aside or
cancelling an Assessment
An order giving effect otherwise Order received →Month end + 3 months[+ 6
than making a fresh assessment or months extn. If reasons beyond officer’s control]
reassessment
Assessment, reassessment or Order received → Month end + 12 months
recomputation to give effect to any
finding or direction contained inthe
order of CIT, CIT(A), ITAT or any
court
Assessment is made on partner of Assessment order passed → Month end +
firm in consequence of assessment 12months
made on firm u/s 147 AY 21-22
Reference made to TPO u/s 92CA In any of the above case, extend the time limit by 12
months.
Assessment u/s 153A 12 months from the end of the financial year in which
the last of the authorizations for search u/s 132 or for
requisition u/s 132A was executed
Assessment u/s 153C 12 months from the end of the financial year in which
the last of the authorization for search u/s
132 or requisition u/s 132A was executed
11. The time limit prescribed u/s 153 for completion of the regular assessment u/s 143(3) and a best
judgment assessment u/s 144 is of months from the end of the assessment year in which the income
was first assessable. (June 18)
(A) 24
(B) 12
(C) 18
(D) 3 Ans B
12. The time limit for completion of Assessment / Re-assessment under section 143 and 144 of the Income Tax
Act, 1961 is........... (Dec 18)
a. 24 months from the end of relevant assessment year
b. 18 months from the end of relevant assessment year
c. 12 months from the end of relevant assessment year
d. 9 months from the end of relevant assessment year Ans C
13. .Time limit for completion of Assessment/ Re-assessment under section 147 of the Income Tax Act, 1961 is:
(June 19)
(A) 9 months from the end of the financial year in which notice for re-assessment is served
(B) 6 months from the end of the financial year in which notice for re-assessment is served
(C) 12monthsfromtheendofthefinancial year in which notice for re-assessment is served
(D) 15monthsfromtheendofthefinancial year in which notice for re-assessment is served
Ans C

Phase VI - Powers of Income tax authorities - Powers (Except Search)

Cross inquiry/Cross confirmation u/s 142(2):
AO can make necessary inquiry to obtain full information of income or loss.
Special audit u/s 142(2A):
AO is of opinion that on account of:
Nature and complexity or Volume or Doubts about the correctness or Multiplicity of transactions of
and having regard to the Interest of the revenue, may direct special audit with prior approval of
CCIT/CIT during the course of the proceedings. CA nominated by CCIT/CIT carry out such audit
within time allowed or extended by AO however, in no case aggregate time should exceeds
180 days & expenses of such audit to be borne by the govt.
Consequence of non- compliance: Same as u/s 142(1) except, Penalty which is u/s 271(1)(b) of
Rs. 10,000.
Opportunity of being heard to be given before passing order on the basis of material gathered u/s
142(2) or 142(2A).

Phase VII - Income escaping assessment u/s 147
Where the AO has REASON TO BELIEVE that any INCOME • Notice u/s 148 can be served only after
chargeable to tax for any AY has ESCAPED ASSESSMENT.
reason recorded in writing
EXPLN TO SEC 147: INCOME DEEMED ESCAPED • Reason to be disclosed to assessee only
after filing of return in response to notice
S. No. ROI furnished Assessment made? Income u/s 148 & he has demanded such reason.
1  NO Income > Basic Exemption Limit
2  NO Understated Income/Claimed Excessive Loss,
deduction, allowance or relief
3  YES Income under-assessed/or assessed at lower REASONS TO BELIEVE
rate/claimed (Examples)
FA 2016: On the basis of information or document received from the prescribed income-tax Includes:
authority, u/s 133C(2), it is noticed by the AO that the : 1. CAG audit Party Report
4  N.A. Income > Basic Exemption Limit 2. A later Supreme Court Judgment
5  N.A. Income under-stated/or claimed excessive 3. Retrospective amendment in law
loss, deduction, allowance or relief. 4. Evidence in possession of AO
6 Person found to have asset located outside India 5. Mistake apparent from records.
7 Assess has failed to furnish transfer pricing report u/s 92E
Excludes:
- Opinion of CAG audit party
Time limit & approval for issuing notice here – - Mere change in personal opinion
of AO
- Taking other view on debatable
Cases Upto4yearsfromtheendofrelevant Beyond 4 years but upto 6 years from the end issue
assessment year of the relevant assessment year.
Assessment (i) Notice → be issued for any amount (i) Notice → Escaped amount minimum Rs. 1 Lac
order passed u/s (ii) Issued by → AC/ DC/ AO Note - Where income in relation to any
(ii) Issued by → AO
143(3) or 147 Approval → JC Approval → CC/ C asset (including financial interest in any
No assessment (i) Notice → be issued for any amount (i) Notice → Escaped amount minimum Rs. 1 Lac entity) located outside India→ Has escaped
order has been (i) Issued by → AO (ii) Issued by → AO assessment.→ Time limit for issue of Notice
passed u/s 143(3) Approval → JC
or 147. → 16 years
AY 21-22 Section 151A provides for Faceless assessment of income escaping assessment

1. A fixed deposit of Rs. 90,000 made by Mr. P on 5-11-2015 was detected on 7-9-2020 The time limit for issue of notice u/ s 148 is : (June, 2017)
(a) 31-03-2021 (b) 31-03-2023
(c) 31-03-2025 (d) 31-03-2027 Ans.(a)
Note : Since Income likely to escape assessment does not exceed Rs. 1,00,000, income escaping assessment notice can be issued upto 4 years from the end of
relevant Assessment year.
2. Notice for assessment or re-assessment of the escaped income of non-resident can not be issued to the statutory agent of the non-residential after expiry
of....................Years from the end of the relevant assessment year. (June 19)
A. 4
B. 6
C. 2
D. 16 Ans D
3.A notice under section 148 for A.Y. 2014- 15 in the case of Jockey Limited where the original assessment was completed u/s 143(3) of the Income Tax Act, 1961
and the escaped income is of Rs............... or more can be issued before 31.03.2021 by the Assessing Officer only with the approval of ...................... (Dec 20 –NS)
(A) 5 lakh or more; Addl. Commissioner of Income Tax
(B) 5 lakh or more; Principal Commissioner or Commissioner
(C) 1 lakh or more; Principal Commissioner or Commissioner
(D) 1 lakh or more; Addl. Commissioner of Income Tax
ANS-C
ASSESSMENT IN CASE OF SEARCH OR REQUISITION [SECTION 153A]

The Assessing Officer shall assess or reassesses the total income of six assessment years immediately preceding the assessment years
relevant to the previous year in which such search is conducted or requisition is made.
Notice for filing return
[Section153A(1)(a)] Completion of Assessment

Assessment in Case of
of 6 Assessment years
Search or Requisition
[Section153A]
Separate assessment for six
assessment year
Completion of assessment
year relevant to the previous
year in which search is
conducted or requisition is
made

Duration for which Notice can be issued → Current Year + 6 preceding AY’s + for “Relevant
assessment year or years” i.e. preceding 7th,8th,9th,10th year.
Particulars 6 Relevant AY’s

preceding
AY’s
Conditions for issue AO has IF AO has evidence Income has escaped assessment
of Notice reasons to during these 4 years Of Minimum 50 Lacs In 1 year or
believe that aggregate of 4 years
Income has
Such income escaping assessment in the form
escaped
of asset
assessment
“Asset” shall include immoveable property being
land or building or both, shares and securities,
loans and advances, deposits in bank account);
The income escaping assessment or part thereof

relates to such year or years
Search under section 132 is initiated or

requisition under section 132A is made on or after
April 1, 2017
IT authorities No Yes
required to disclose
reason for
conducting search
before any person,
authority or Tribunal
• The AO shall Separately assess or reassess the total income of each of such 6
Assessment year i.e. separate notice for each year is required to be issued.
• Time limit of completion of Assessment of 6 Assessment years and Relevant AY –
a. Year in which search executed → Year End + 12 months
b. reference was given under section 92CA (1) (Transfer pricing issue) - Year End + 33
months

Appeals – Revisions – Penalties
Appeals
Return filed AO issue scrutiny Order passed Assessee/ Deductor/ Collector CIT (A) ITAT HC SC
u/s 139 notice u/s 143(2) u/. s 143(3) aggrieved by the order and
challenges it by appeal
Section 246A 253 260A 261
Time limit 30 days 60 days 120 days 90 days
From the date of service of order
PARTICULARS CIT (A)* ITAT (2nd Appeal) High Court Supreme

(Income Tax Appellate Tribunal Court
Appealable order Following orders passed by the AO can • Assessee aggrieved: Order of ITAT Order of High
be challenged: 1. Order of the CIT(A) [enhancing the (where an assessment Court
1. Assessment order assessment, or imposing penalty or order is very arbitrary
2. Order of levying Penalty confirming the order of AO] for any reason, the
3. treating a person as an assessee 2. Order of CIT (enhanced in the assessment assessee can directly
in default as per TDS & TCS u/s 263, or imposing penalty or cancelling or file a writ petition
Chapter denying the registration of Trust u/s 12AA or before the High Court.
4. Refund order against assessee order passed u/s 10(23C) denying the However, in all other
5. Intimation u/s 143(1) approval. cases the remedy
6. An order made u/s 163 treating 3. Order passed by the AO in pursuance of the available under the Act
the assessee as the agent of the direction of the DRP u/s 144C. against the assessment
NR 4. Penalty order u/s 270A (under/mis order shall be followed)
7. (Generally, orders of DRP are not reporting) passed by CIT(A), Principal CIT
appealable here) or CIT
8. Appeal can be made by • Department aggrieved:
Assessee only (First Appeal
1. Order passed by CIT(A)
Section246A)
9. Apply in Form 35

Memorandum of cross After appeal is made to the ITAT, notice is sent

objection to the respondent.
Memorandum for cross objection may be
filed before ITAT by respondent (optional):
➢ 30 days from receipt of notice from ITAT.
➢ No filing fees.
➢ Shall be treated as separate appeal.
Power to condone
✓ ✓ ✓ ✓
delay in filing appeal
Nature of Power of CIT is co-terminus with the Since ITAT is the final fact-finding authority, Only substantial Only
Authority power of AO. Therefore, what AO can do, hence it can cause further inquiry if it feels question of law substantial
CIT(A) can also do. (i.e.causing inquiry, necessary. question of
examination of records etc.) law
Application for Can be allowed, if there is reasonable Can be allowed at the discretion of ITAT - -
adjournment by cause
assessee
Time Limit for passing Year in which appeal Filed → Year-end + 1 Year in which appeal Filed → Year end + 4 N/A N/A
order year years
Grant of stay on Section 220(6): Allowed, but 1st stay up to 180 days and if ✓ ✓
demand - Where the assessee has presented an appeal is not disposed of till 1st stay and delay in
appeal u/s 246A disposal of appeal is not attributable to the
- the AO may, treat the assessee as not assessee, then further extension of stay can be
being in default in respect of the amount in granted by the ITAT, as it thinks fit on
dispute in the appeal, application of assessee. However, such period
of 1st stay and subsequent stay in aggregate
- even though the time for payment has
shall not exceed 365 days, subject to the AY 21-22
expired
condition that the assessee deposits not less
- as long as such appeal remains
than 20% of the tax, interest, fee, penalty, or
indisposed of.
any other sum payable under the provisions of
this act, or furnishes security of equal amount in
respect thereof.
Rectification of ✓ ✓ ✓ ✓
mistake apparent from U/s 154 Suo moto within 4 years from the U/s 254 within 6 months from the end of the
records date of order month in which order was passed by the
ITAT. (Finance Act 16)

A. PROCEDURE FOR FILING OF APPEAL [SECTION 249(1)] to CIT (Appeals)

The rates of fees are as follows:
S.No. Total Income determined by the Assessing Officer Appeal Fee
1 Less than Rs. 1,00,000/- Rs 250/-
2 More than Rs.1,00,000/- but less than Rs.2,00,000/- Rs 500/-
3 More than Rs. 2,00,000/- Rs 1000/-
4 In any other case Rs 250 /-

Form No. 35 – Application in Duplicate
B. PROCEDURE FOR FILING OF APPEAL to ITAT

1. The filing fees in case of appeal to the Tribunal is prescribed under Section 253 as follows:
(i) Assessed income upto Rs 1 lakh - Rs. 500/-
(ii) > Rs 1 lakh upto Rs 2 lakhs – Rs 1,500/-
(iii) > Rs 2 lakhs – 1% of the assessed income or Rs 10,000, whichever is less.
2. Where the subject matter of an appeal is not with reference to the income assessed
the filing fee shall be Rs 500/-. For example, appeal against an order imposing
penalty for default in deducting tax at source or in filing certain returns will fall
under this category.
3. No such filing fee is payable where the appeal is preferred by the Commissioner or
where a memorandum of cross-objections is filed by assessee or by CIT.
4. An application of stay of demand shall be accompanied with a fee of Rs. 500/-
5. Any application filed by an assessee seeking rectification of any mistake apparent from
the record by the Appellate Tribunal shall be accompanied by a fee of Rs. 50.
Form No. 36 – Application in Triplicate
E-Appeal & E Penalties have been introduced through an amendment has been made vide
Finance act, 2020 by inserting sub-section 250(6a) & Section 274(2A)] of the income tax act, 1961
to provide the following:
AY 21-22 ⚫ empowering Central Government to notify an e-appeal scheme for disposal of appeal so as to impart
greater efficiency, transparency and accountability.
⚫ eliminating the interface between the Commissioner (appeals) and the appellant in the course of
appellate proceedings to the extent technologically feasible.
⚫ Optimizing utilization of the resources through economies of scale and functional specialization.
⚫ introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by
one or more Commissioner (appeals).

Enhancement of Monetary limits for filing of appeals by the Department before Income
Tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court-Amendment
to Circular 3 of 2018 - Measures for reducing litigation
Appeals/SLPs Monetary Limit (Rs.)

Income-tax matters
Before Appellate Tribunal 50,00,000
Before High Court 1,00.00.000
Before Supreme Court 2.00.00,000
The appeal can be filed if the tax amount in respect of the disputed issues exceeds the monetary
limit specified above.
However, Board, by way of special-order direct filing of appeal on merit in cases involved in
organized tax evasion activity.
1. M/s XYZ Co. Ltd., Delhi filed appeal before Commissioner (Appeals) and succeeded in its appeal. Now
the Revenue wants top refer an appeal before the tribunal. For filing appeal by the Revenue before the
tribunal, the tax effect must exceed:(Dec 19 –OS)
(A) Rs. 10,00,000
(B) Rs. 20,00,000
(C) Rs. 25,00,000
(D) Rs. 50,00,000
Ans – D
2. Income-tax Department can also file an appeal before the Income Tax Appellate Tribunal, High Court and
Supreme Court only in those cases where the tax affected in appeal is exceeding certain mandatory limit. An appeal
by the Income Tax Department before the High Court can only be filed where the tax effect of appeal exceeds the
amount of Rs............. (Dec 20 –NS)
(A) 50 lakh
(B) 1 Crore
(C) 30 lakh
(D) 10 lakh
ANS-B
3.The Chief Commissioner or the Commissioner or an assessee aggrieved by any order passed by the
Income Tax Appellate Tribunal (ITAT) may file an appeal before the high court and such appeal shall be filed within
of the date on which the order appealed against is received by the assessee or the chief commissioner. (Dec 20 –
OS)
(A) 120 days
(B) 90 days
(C) 60 days
(D) 30 days ANS A

Revision
S.NO. PARTICULARS SECTION 263 SECTION264
I INCOME Income of the assessee is increased Generally, Income of the assessee is
here decreased here
II. SCOPE The order of the AO is erroneous and Revision of order passed by any subordinate
prejudicial to the interest of revenue. authority.
Order of CIT(A) can be revised here
Deemed Erroneous and Prejudicial if
the order of AO is:
1. Not as per HC or SC verdict
which is prejudicial to the
assessee; or
2. Without any inquiries or
verification which should have
been made; or
3. Not as per order, direction or
instruction by CBDT
4. Allowing any relief without
inquiry of claim.
RESTRICTION Commissioner shall not revise any order

where:
i. Appeal is pending before CIT(A) or ITAT; OR
ii. At the time of filing an application for revision,
right to appeal has not lapsed and assessee
has not waived such right
III. PROCEDURE Every application for revision accompanied by
fees of Rs. 500.
IV. TIME LIMIT No order can be revised after expiry of i. Suomoto: CIT cannot revise any order
2 years from the end of financial beyond 1 year from the date of the order
yearin which the order sought to be sought;
revised was passed. ii. On Application of Assessee:
a. Application by assessee: Assessee
cannot file an application after expiry of
1 year from the date of service of the
order sought to be revised.
b. Time Limit to pass order:
Revision petition to be disposed of by
CIT within 1 year from the end of FY
in which revision petition filed by an
assessee.
Delay in filing application by assessee can be
condoned.
Order can be passed at any time for Order can be passed at any time for giving
giving effect to findings, direction effect to findings, direction contained in verdicts
contained in verdicts of ITAT, HC, SC. of ITAT, HC, SC.
V REMEDY Assessee aggrieved by the order of There is no right to appeal. A writ can be
CIT u/s. 263 may file an appeal filed to High Court.
against such order before ITAT
VI Revision of Revision u/s 263 is possible of order Revision u/s 264 is not possible of order u/
263/264 u/section 264 section 263

1. Mr. Bimal received assessment order passed by the Assessing Officer on 10-01-2021. What is the time limit
within which the appeal has to be filed to CIT (Appeals) in case the assessee wants to challenge the order of the
Assessing Officer? (Dec 17)
(A) 10 days after the receipt of order
(B) 15 days after the receipt of order
(C) 30 days after the date of passing of order
(D) 30 days after the date of receipt of order Ans.(D)
2. An appeal against the order passed by the Assessing Officer u/s143(3) read with section 148 can be
filed by an aggrieved assessee before the: (June 18)
a. Addl. Commissioner of Income Tax
b. Commissioner of Income Tax
c. ITAT
d. Commissioner of Income Tax (Appeals) Ans D
3. The Principal Commissioner of Income-tax is empowered to revise the assessment order of the
Assessing Officer when the same is found to be erroneous and pre-judicial to the interest of Revenue
Such power is vested in the Principal Commissioner of Income- tax u/s: (June 18)
(A) 263
(B) 246C
(C) 264
(D) Both 263 and 264 Ans A
4. First appeal can be filed by : (June 18)
a. Department only
b. Assessee only
c. (A) or(B)
d. None of the above Ans. B
5. The respondent is having right to file Memorandum of Cross Objections before the ITAT after receipt of the
Memorandum of Appeal filed by the appellant. Such Memorandum of Cross Objections is to be filed by the
respondent within a period of: (June 18)
(A) 45 days
(B) 60 days
(C) 30 days
(D) 15 days
Ans C
6. Income-tax Appellate Tribunal cannot grant stay either under the original order or any other subsequent
order in aggregate beyond the period of: (June 18)
a. 180days
b. 365days
c. 90days
d. 240days Ans B
7.. An appeal from the order of ITAT lies before the High Court and the same is to be filed within the period of
days from the date on which the order appeal against is received by the assessee or the CIT. (June 18)
(A) 60
(B) 90
(C) 120
(D) 180 Ans C
8. The time limit for filing an appeal by person denying liability to deduct tax in respect of payments
payable to non-resident or a foreign company as provided in section 249(2)(a) of the Income Tax Act
1961 is within: (Dec 18)
a. 30 days from the date of payment of tax deducted at source to the credit of Central Government
b. 35 days from the date of payment of tax deducted at source to the credit of Central Government
c. 45 days from the date of payment of tax deducted at source to the credit of Central Government
d. 60 days from the date of payment of tax deducted at source to the credit of Central Government Ans A
9. An application for stay of demand to be filed before the Income Tax Appeallate Tribunal (ITAT) has to be
accompanied by requisite fee of: (Dec 18)
(A) Rs.1,000
(B) Rs.500

(C) Rs.1,500
(D) Rs.10,000 Ans B
10. The rationale behind power of revision of orders prejudicial to the interest of revenue conferred on the
Commissioner of Income Tax under section 263 of Income Tax,Act, 1961 is that: (Dec 18)
a. The order passed is without inquiries or verification which should have been made
b. The order is passed allowing any relief without inquiring into the claim
c. The department has no right of appeal to the Commissioner (Appeals)against any order passed by the
Assessing Officer
d. the order has not been made in accordance with any order, direction or instruction issued by the Board under
section 119 Ans C
11. Appeal against the order of Appellate Tribunal (ITAT) can be filed in High Court within days. (June 19)
(A) 30 days from the date of order
(B) 60 days from the date of receipt of order by the assessee
(C) 120 days from the date of receipt of order by the assessee
(D) 180 days from the date of order Ans C
12. A tax payer wants to prefer an appeal against the order of the Assessing Officer. He received the order dated
30th April, 2021 on 5th May, 2021. He must prefer an appeal before the CIT (Appeals) under section 246A of
the Income Tax Act, 1961, within: {June,
2019)
(a) 30 days from the date of order (b) 30 days from the date of receipt of order
(c) 60 days from the date of order (d) 60 days from the date of receipt of order
Ans.(b)
13. Income Tax Appellete Tribunal (ITAT)as per section 254(2A) may hear and decide any appeal within a
period of: (June 19)
(A) 1 year from the end of financial year in which appeal is filed
(B) 2 years from the end of financial year in which appeal is filed
(C) 3 years from the end of financial year in which appeal is filed
(D) 4 years from the end of financial year in which appeal is filed Ans D
14.The Commissioner of Income Tax can shall for the records of an assessee and by virtue of powers conferred
under the Act can make the revision of the order passed by the Assessing Officer after giving an opportunity of
being heard to the assessee. Such powers can be invoked by the CIT, when : (Dec 19 –NS)
(a) The order is erroneous
(b) The order is prejudicial to the interest of revenue
(c) When the return has not been filed by the assessee
(d) When both the conditions of (a) and (b) exist. Ans.(d)
Penalties - Important Provisions
Section 270A: Penalty for under-reporting & mis-reporting of income w.e.f. 1/4/17
During the course of assessment or other proceeding AO/CIT(A)/Principal CIT/CIT may direct that,
Any person who has Shall be liable to pay, PENALTY on his UNDER-REPORTED
UNDERREPORTED his income income in addition to tax payable on such under-reported income
Penalty 50% of TAX PAYABLE on UNDERREPORTED

INCOME or
200%ofTAX PAYABLE on UNDERREPORTED

INCOME resulted from MISREPORTING

1. The Assessing Officer, while scrutinizing the return of an assessee, finds under-reporting of income for the
reason of misreporting of facts of such income. He can levy penalty on such under-reported income resulting
from misreporting of income up to of tax payable on such under-reported or misreported income. (June 18)
(A) 50%
(B) 100%
(C) 200%
(D) 300% Ans. C
2. The maximum penalty leviable for under reporting of income which results from misreporting of income by
the assessee is: (Dec 18)
a. Two hundred percent of the tax payable
b. One hundred percent of the tax payable
c. Fifty percent of the tax payable
d. Three hundred percent of the tax payable Ans A
3.If there is an apparent error in the intimation dated 11th June, 2021 issued under section 143(1), the
time-limit for filing application for rectification under section 154 is available up to -(Dec. 2016)
(a) 31st March, 2025 (b) 31st March, 2026
(c) 31st March, 2022 (d) 31st October, 2021 Ans.(b)4.
The amount specified in notice of demand must be paid within ….... days otherwise the assessee would be
treated as assessee in default. (Dec 17)
(A) 10
(B) 15
(C) 30
(D) 60 Ans.(C)
5. The Assessing Officer while scrutinizing the return of an assessee find under reporting of income for the
reason of misreporting of facts of such income and thus levied penalty on such under reported income resulting
from misreporting of income. The penalty to be imposed by the A.O. Shall be at the rate of ____ tax payable on
such misreported income. (Dec 19 –NS)
(a) 50% (b) 100%
(c) 200% (d) 300% Ans.(c)
6. Income tax assessment of Kuber was completed on 15-12-2020 for the assessment year
2018-19. There is an error apparent in the assessment order. The time limit for rectification of
mistake in the assessment order under section 154 is available up to: (Dec 19 –OS)
(A) 31-3-2021
(B) 31-3-2022
(C) 31-3-2023
(D) 31-3-2025 Ans – D
1. Cases of mis-reporting: [Section 270A (9)]:
a. Mis representation/suppression of facts.
b. Failure to record investment in the books of account.
c. Claim of expenditure not substantiated by any evidence.
d. Recording of any false entry in the books of account
e. Failure to record any receipt in books of account having a bearing on total income.
f. Failure to report any international transaction or any transaction deemed to be an interactional
transaction or any specified domestic transaction
2. Cases of under-reporting (Section 270A (2)): A person can be considered to have under-reported his
income in the following situations, as specified
Sr. No. Cases A B
1 ROI filed Income assessed Greater Income
than determined in the ROI processed
u/s 143(1)(a)
2 ROI not filed Income assessed Basic exemption limit
3 Reassessment 2nd or more time Income reassessed Income reassessed in previous
reassessment
4 Loss case Income assessed/reassessed has effect
of:  reducing the loss or  converting
the loss into income.

Few other Penalties
Section Type of Default Quantum of Penalty Levied by

(Authority)
271A Failure to keep, maintain or retain Rs. 25,000 Assessing Officer or
books of account etc. as required Commissioner
under (Appeals)
Section 44AA
271AA Failure to keep and maintain A sum equal to 2% of the value of each Assessing Officer or
information and international transaction or specified Commissioner
document in respect of domestic transaction. (Appeals)
international transaction or
specified domestic transaction
or fails to report such
transactions or maintains or
furnishes an incorrect
information or document.
Failure to furnish docs. 92D/ (3)

271AAC Penalty where income includes 10% of tax payable on
any income referred to in undisclosed income
Section 68, Section 69, Section
69a, Section 69B, Section 69C
or Section 69d.
271AAD It is found that in the books of
sum equal to the aggregate amount of such
account maintained by any false or omitted entry.
person there is—a false entry
AY 21-22 or an omission of any entry to
evade tax liability.
271B Failure to get accounts audited 0.5% cent of Total Sales, turnover or AO
under Section 44AB or furnish . 1,50,000 (Lesser)
audit report along with return of
income
271BA Failure to furnish report under Rs. 1,00,000 AO
Section 92E (TP)
271CA Failure to collect tax at source 100% of tax sought to be collected Imposed by the
Joint
Commissioner
271D/E Taking any loan or deposit or A sum equal to the amount of loan or Imposed by the
specified sum in contravention deposit or specified amount so taken or Joint
of Section 269SS. (accept accepted
Commissioner
>=20,000 loan/immovable
property)
269ST (Pay >=20,000
loan/immovable property)

271DA Penalty for receiving an amount A sum equal to the amount of such Impose d
ofRs.2,00,000ormoreotherwise receipt. (100%) by the Joint
than an A/c payee cheque/ However, penalty shall not be imposed, if such
draft/ECS, in contravention of person proves that there were good and sufficient commissioner
provisions of Section 269ST reasons for the contravention.
(w.e.f. April 1, 2017)
271DB Failure to comply with the Penalty of Rs. 5,000 per day of Penalty imposable
provisions of section 269SU continuing default, if the person who is by Joint
[w.e.f. 1.11.2019] required to provide facility for accepting Commissioner.
payment through the prescribed
No penalty
electronic modes of payment referred to
imposable if the
in section 269SU, fails to provide such
person proves that
facility
there were good and
sufficient reasons
for such failure
271K research association, Minimum 10,000 rs. but which may

university, college or other extend to 1 Lac rs
institution (referred to in
clause (ii) or clause (iii) or the
company referred to in
clause(iia) of sub-section (1)
of section 35), if it fails to
deliver or cause to be
delivered a statement
institution or fund, if it fails
to deliver or cause to be
delivered a statement within
the time prescribed under
clause (viii) of sub-section (5)
of section 80G, or furnish a
certificate prescribed under
clause (ix) of the said sub-
section
269SU
• Every person, carrying on business

• shall provide facility for accepting payment through prescribed electronic modes
• if his total sales, turnover or gross receipts, as the case may be, in business > 50
Crore rupees
• during the immediately preceding previous year.

Rigorous Imprisonments
Section Nature of Default Minimum Period Maximum Period
276BB Failure to pay to the 3 months and fine 7 years and fine
Government,
tax collected u/s. 206C
276C (1) Willful attempt to evade tax If tax If tax evaded
penalty or interest imposable evaded exceeds
or under reports his income exceeds ` 25,00,000, 7 years &
under the Act. Rs. 25, 00,000, then fine; otherwise 2
for 6 months& fine; years and fine.
otherwise 3 months
and fine.
276C (2) Willful attempt to evade the 3 months and fine 2 years and fine
payment of any tax, penalty
or interest
276D Willful failure to produce books Any period upto 1 1 year and fine
of account and documents u/s. year
142(1) or willful failure to and fine
comply with a direction to get
the accounts
audited u/s. 142(2A)
16.2 Prosecution in Case of Willful Failure To File Return Of Income Under Section 139/148/153A Or In
Response To Notice Under Section 142(1)
If ROI filed after the expiry of the relevant AY

If ROI filed before the expiry
of the relevant AY
No prosecution whatever may In case of person other than In case of Company:
be the amount of income tax Company: Prosecution will be there
payable. Tax on Income Assessed Less: TDS even if no tax is payable.
/TCS xxx Less: Advance tax xxx
Less: Self assessment tax paid
before the end of the assessment
year xxx BalanceRs. 3,000
Rs.10,000 or less
1. Zeet (P) Ltd. incurred loss of Rs. 1,10,000 for the assessment year 2021-22. It is planning not to file
return of loss and claim the loss for carry forward. The monetary limit of the tax amount for applying
prosecution provisions contained in section 276CC will apply when the tax liability exceeds:(Dec 19 –OS)
(A) No monetary limit(NIL)
(B) Rs.3,000
(C) Rs.10,000
(D) Rs.25,000 Ans – C
2. A notice under section 142(1) was issued to Ashok Ghosh for filing the return of the assessment year 2021-
22. When he failed to file the return within the time specified in the notice, the amount of penalty leviable would
be:(Dec 19 –OS)
(A) Rs. 10,000
(B) Rs. 20,000
(C) Rs. 50,000
(D) Rs. 1,00,000 Ans – A

3. Natraj engaged in business repaid loan received from Narain of Rs. 50,000 by cash on 16-3-2021 (Sunday).
He also repaid the balance of Rs. 15,000 by cheque on 20-3-2021. The amount of penalty leviable for
repayment of loan would be : (Dec 19 –OS)
(A) Rs. 15,000
(B) Rs. 50,000
(C) NIL
(D) Rs. 65,000 Ans – b
Note – Read Section 271D/E
4.Prosecution as per section 276CC of the Income Tax Act, 1961 for willful failure to file return of income in
time under section 139(1), or in response to notice issued under section 142(1) or section 148 shall not be
initiated where the tax payable on regular assessment as reduced by TDS and advance tax does not exceed----
------(Dec 20 –NS)
In case of failure to file the income tax return, prosecution proceeding may be initiated against the assessee under
section 276CC of the Act where the tax payable on the returned income exceeds Dec 20 –OS)
(A) Rs.1,000
(B) Rs.3,000
(C) Rs.5,000
(D) Rs.10,000 ANS-D
5.Ram & Associates entered into an international transaction or specified domestic transaction failed to furnish
information and documents in respect of such international transaction or specified domestic transaction. State the
quantum of penalty to be imposed by Assessing Officer or Commissioner (appeals) for such failure on Ram &
Associates. (Dec 20 –OS)
(A) 1% of the value of each international transaction
(B) 2% of the value of each international transaction
(C) 3% of the value of each international transaction
(D) 4% of the value of each international transaction ANS B
Procedure for identification and processing of cases for prosecution under Direct Tax Laws
Section Offence Not to be prosecuted if Exceptions to prosecute
276B Non-payment of TDS If Non-payment of TDS is Habitual defaulters

upto Rs. 25 Lacs & delay in
deposit is less than 60 days Only with the previous
from the due date administrative approval
of the Collegium of
276BB Failure to collect TCS Same as above two CCIT/DGIT rank
officers.
276C(1) Willful attempt to evade tax amount sought to be
evaded or tax on under-
reported income is upto Rs.
25 Lakhs
276CC Failure to furnish returns of income amount of tax, which would

have been evaded if the
failure had not been
discovered, is Rs. 25 Lakhs
or below
276D Willful failure to produce books of Any period upto 1 year 1 year and fine
account and documents u/s. 142(1) or and fine
willful failure to comply with a direction to
get theaccounts
audited u/s. 142(2A)

Power of AO for granting immunity from Penalty & Prosecution
Particulars Immunity from Penalty

Section 270AA of Income Tax Act w.e.f. 1/4/17 (Finance Act, 2016)
Authority AO
Conditions for a) All conditions mentioned below to be satisfied:
application • Assessee pays (Tax + Interest) as per assessment order &within
time limit as per notice of demand
• Assessee does not prefer an appeal against such assessment or
reassessment order
• Application is to be made within 1 month from the end of month in
which assessment or reassessment order is received
b) Period of filing appeal to CIT(A) u/s 249(2) has been expired
c) Proceeding for penalty has not been initiated for case of
MISREPORTING OF INCOME
Time limit to AO shall pass order accepting or rejecting the application within 1
pass order month from the end of the month in which application is received
Additional • No appeal/application for revision is admissible against the order of
points assessment or reassessment in respect of which application for
immunity is accepted.
Miscellaneous
1. Wherever any tax, interest, penalty or other sum under the I.T. Act is payable, the Assessing Officer has to
serve upon the assessee a notice of demand as per Rule 15 and 38 under section ____________of the I.T. Act, 1961.
(Dec 19 –NS)
(a) 156 (b) 143(3)
(c) 153 (d) 220 Ans.(a)
2. The premises of an assessee within the jurisdiction of an Assessing Officer can be surveyed during business
hours by such Income-tax Authority ____________. (Dec 19 –NS)
(a) After sunset and before sunrise (b) After sunrise but before sunset
(c) Any time during 24 hours (d) After 11 A.M. Ans.(b)
3. When the Advance Pricing Agreement (APA) has been entered into, it is valid for not more than
consecutive previous years. (Dec 19 –OS)
a. 7
b. 5
c. 3
d. 1 Ans – B
4. A resident having transaction with a non-resident who has filed form 35D for advance ruling, can withdraw
the application within : (Dec 19 –OS)
a. 15 days
b. 30 days
c. 45 days
d. 60 days Ans – B
5. Income tax assessment of Ajay was completed determining the income at Rs. 8,40,000 as against the
returned income of Rs. 5,40,000. The amount payable as fee for appeal before Commissioner
(Appeals) by him, would be : (Dec 19 –OS)

(A) Rs. 250

(B) Rs. 500
(C) Rs. 1,000
(D) Rs. 5,000 Ans – C
6 As per section 9A, an eligible off-shore investment fund shall furnish within 90 days from the end of the
financial year, a statement containing information relating to fulfillment of specified conditions and such other
information or documents as may be prescribed. Penalty of ____________to be levied, if investment fund failed to
comply with the requirements asper section 271FAB. (Dec 19 –NS)
(a) Rs. 1,00,000 (b) Rs. 500 per day
(c) Rs. 5,00,000 (d) Rs. 10,00,000 Ans.(c)
7.If any eligible investment fund is required to furnish statement or information or documents in respect of its
activities in a financial year as per section 9A; fails to furnish such statement/information or documents within
the time prescribed of ............. days shall be liable to pay by way of penalty a sum of
Rs................ (Dec 20 –NS)
A. 60 days; 1 lakh
B. 90 days; 1 lakh
C. 90 days; 5 lakh
D. 60 days; 5 lakh ANS-C
8.An assessee may at any stage of a case relating to him make an application in Form No___ to the Settlement
Commission to settle the case. Such application other than the case of specified person can be made to the
Settlement Commission only where the additional amount of income tax payable on the income disclosed in the
application as per section 245C(1A) exceeds (Dec 20 –OS)
(A) 34A; 5,00,000
(B) 34B; 10,00,000
(C) 34A; 25,00,000
(D) 34B; 50,00,000 ANS B
9.Instructions issued by CBDT as per section 119 of the Act have statutory force and are equally binding on all
concerned. State which out of the following is the false statement in this context : (Dec 20 –OS)
(A) The instructions of the board are binding on the department and assessee both
(B) The instructions have to be followed by the department officers.
(C) In the exercise of its power, the board cannot impose a burden or put the assessee in a worse position
(D) Instruction adverse to an assessee’s interest can be challenged by him ANS A
10.The Advance Pricing Agreement (APA) shall be valid for a period as specified in the Advance Pricing Agreement.
However this period will not be more than --- --. (Dec 20 –OS)
(A) Six consecutive previous years
(B) Five consecutive previous years
(C) Four consecutive previous years
(D) Three consecutive previous years ANS B
11.The application for obtaining an advance ruling as per section 245Q (2) shall be made in --------------
and it should be accompanied by a fee of --- or such fees as may be prescribed stating the question
on which the advance ruling is sought. (Dec 20 –OS)
A. Triplicate, Rs. 10,000
B. Triplicate, Rs. 20,000
C. Quadruplicate, Rs.10,000
D. Quadruplicate, Rs.20,000 ANS C
12.State which amongst the following is not a power of Authority for Advance Ruling (AAR) under
section 245U of Income Tax Act, 1961 : (Dec 20 –OS)
A. Compelling the production of books of account and other documentspecific Anti-Avoidance Rules
B. Power of arrest
C. Enforcing the attendance of any person, including any officer of a banking company and examining
him on oath.
D. Issuing commissions ANS B

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CA Saumil Manglani

Topics Topic Name Page Numbers

1 Basic Concepts 1.1 – 1.10

2 Residential Status and Scope of 2.1 – 2.26

4 Salaries 4.1 – 4.32

5 House Property 5.1 – 5.10

6 PGBP 6.1 – 6.46

7 Capital Gains 7.1 – 7.31

8 IOS 8.1 - 8.12

9 Clubbing 9.1 – 9.06

10 Set off - Carry Forward 10.1 – 10.10

11 Deductions 11.1 – 11.19

12 PAN - Return Filing - Self 12.1- 12.18

14 Various entities 14.1 – 14.20

15 Tax incidence on companies 15.1 – 15.15

16 Assessment – Appeals – Revision 16.1 – 16.24

Unique Academy, Pune

Unique Academy - 8007916622 CA Saumil Manglani - Contact: 9921051593

Unique Academy - 8007916622 CA Saumil Manglani - Contact: 9921051593

Canons of taxation refer to the administrative aspect of a tax.

3. Canon of Convenience: A tax should be due at a time or in a manner that is

Direct Vs Indirect Tax

Direct and Indirect taxes

Point of Direct Tax Indirect Tax

Burden burden of tax cannot be allows the tax burden to shift.

Administrativ The administrative cost of Cost of collecting Indirect taxes is

Penalty It is levied on the assessee. It is levied on supplier of Goods &

Unique Academy - 8007916622 CA Saumil Manglani - Contact: 9921051593

1. Equity: - depend upon the volume of

Unique Academy - 8007916622 CA Saumil Manglani - Contact: 9921051593

Taxation in India during Ancient Time

Background of Income tax in India

Income Tax Act, 1886

Income Tax Act, 1918

Income Tax Act, 1922

Income Tax Act, 1961

✓ Is amended from time to time by the annual finance Act

Changes in administrative set up since the inception of the department

• The foundation of a proper system of administration was thus laid.

o (i) appellate functions were separated from administrative functions; a class of

o (ii) a central charge was created in Bombay.

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Tax Structure in India

o Union List – Powers of Central Government

o Legislative List- Powers of State Government

• Taxes on interstate trade of goods

• Taxes on interstate consignment of goods

• Any other matter not included in List II or III

• Excise duty on alcoholic liquors, opium and narcotics

• Octroi or Entry Tax

• Tax on intra state trade of goods other than newspapers

• Tax on advertisements other than that in newspapers

• Tax on goods and passengers carried by road or inland waterways

• Tax on professionals, trades, callings and employment

✓ Provides essential inputs for policy and planning

✓ the members rank of Additional Secretary to Government of India.

• Member (Legislation and Computerization)

• Member (Personnel & Vigilance)

• Member (Audit & Judicial)