BT PPTs All

Income from salaries
Income from House property


Profits and gains from business or profession 5 Heads of Income
Capital Gains
Income from Other Sources
Gross Total Income Clubbing of Income
Less: Deductions u/s 80C to 80U Set Off and Carry Forward of Losses
Total Income
Tax on Total Income
Add: Surcharge
Tax and surcharge
Add: Education Cess
Add: Secondary and higher education cess
Less: Rebate
Tax Liability
Less: Pre-paid taxes
1. Self assessment tax
2. TDS
3. Advance Tax
• Regularity
• Profit
Business • Number of
transactions
Trade
• Attention of
Commerce
labour for a profit
Manufacturing
• 2 Parties
Activity
• Inclusive
Definition
Profession
Distinction
Intellectual between
skill/ Business /
Qualification/ Profession
Learning for Income
Tax
• Profits /Losses
of Business/ Basis of
Profits and Gains Profession Charge
carried out in
a P.Y.
• Arising for
Benefit or better
performance
Perquisite of business/
profession
Compensation for
• Company/
termination/
Firm/Vested
modification of
Interest
terms of contract
Interest, • Paid by Basis of
Salary, partnership
Charge
Remuneration, firm to the
partners
Bonus
• Import License
• Duty Drawback
Export • Duty Entitlement
incentives Pass Book
Scheme
Speculative • What is
speculative
Transaction business
Basis of
• Not carrying a particular Charge
Sum received for not
carrying out an business activity or sharing
activity patents, know how,
trademark, copyrights
• Sum received
under Keyman
Keyman Insurance
Insurance
Policy
Policy
Income of any trade,

professional
association from
services to members
What is Rent of
not
Business
House Dividend
Income Property Winnings
• Dealer of from
property Trader of lotteries,
• Temporary shares races,
let out &stocks
before sale etc.
May be through
What should agent/
be taken care
of while
Business representative
calculating carried on
Business by Multiple
Income Assessee Business
Business/
Profession Not necessary
of throughout the
Previous year
Year Temporary
suspension/
inactivity-?
What should
be taken care
of while Real
calculating Profits Illegal
Business
Income only Business
Revenue
Incomes
Allowable Losses
1. Loss of stock due to

What should natural disaster
be taken care
2. Loss due to exchange
of while
calculating
rate fluctuations
Business
Taxable in Allowance 3. Loss on sale of
Assessment of Business goods/securities
Income
Year Losses 4. Loss of cash/securities
in bank robbery
5. Loss of realisation of
amount advanced in
business
Method of 6. Loss on account of
Accounting embezzlement by
employee
7. Loss of theft
8. Loss on seizure of
illegal goods/not fit for
consumption – seized by
customs
What should
be taken
care of
while
calculating Losses not allowable
Business
Income
1. Loss not incidental to trade
2. Loss on damage of capital asset
3. Loss on sale of shares held as
investment/(if stock in trade-?)
4. Loss of discontinued business
5. Penalties on violation of law
What is
Business
Income
Revenue Expenses Profit
Credited to Debited to
Profit and Loss Profit and Loss
Account Account
Particulars Rs.
Indirect
Method of Net Profit as per Profit and Loss Account xxxx
Income
Computation Add: All expenses not allowed as per Income Tax Act xxxx
Add: All Unrecorded Business Incomes xxxx
Less: All expenses allowed, but not recorded xxxx
Less: All Incomes which are not Business Incomes xxxx
Taxable Income From Business and Profession

Profit and Loss Account
Step 1: Pick
Expenses/ Rs. Income Rs. Up Net Profit
NET PROFIT Losses from the P/L
Expense 1 xxxx Revenue yyyy Account
(sales)
Expense 2 xxxx Profit on yyyy
sale
Expense 3 xxxx Recovery yyyy
Expense 4 xxxx Other yyyy

Incomes
Net Profit ZZZZ
Total
Step 2: Check if there are
Profit and Loss Account any Expenses not related to
EXPENSES
Business and those related
NOT Expenses Rs. Income Rs. to business, but not
ALLOWED incurred as per Act
Expense 1 xxxx Revenue yyyy
(sales)
sale
Step 3: Add it back to
Expense 3 xxxx Recovery yyyy the Net Profit as per
Step 1 as they are
Expense 4 xxxx Other yyyy disallowed, to calculate
Incomes Profit under Income Tax
Net Profit ZZZZ
Total
Effect: Profit will

increase
Profit and Loss Account Step 4: Add All
Business related
Expenses Rs. Income Rs. Incomes not
recorded in the
UNRECORDED Profit and Loss
BUSINESS Expense 1 xxxx Revenue yyyy
Account
(sales)
INCOMES
sale
Expense 4 xxxx Other yyyy Effect: Profit will

Incomes increase
Net Profit ZZZZ
Total
Unrecorded
Business
Incomes
Profit and Loss Account Step 5: Deduct
All Business
Expenses Rs. Income Rs. related Expenses
ALLOWABLE not recorded in
EXPENSES the Profit and
Expense 1 xxxx Revenue yyyy
Loss Account
NOT (sales)
RECORDED Expense 2 xxxx Profit on yyyy
sale
Expense 4 xxxx Other yyyy Effect: Profit will

Incomes Decrease
Net Profit ZZZZ
Total Unrecorded
Business /
Allowable
Expenses
Step 6: Check
Profit and Loss Account if there are
any Incomes
NON Expenses Rs. Income Rs. not treated as
BUSINESS Business
Income
INCOMES Expense 1 xxxx Revenue yyyy
(sales)
sale Step 7: Deduct
Expense 3 xxxx Recovery yyyy it from the Net
Profit as per
Step 1,as they
Expense 4 xxxx Other yyyy
are not Business
Incomes
Incomes
Net Profit ZZZZ
Total
Effect: Profit
will decrease
Particulars Rs.
Indirect
Method of Net Profit as per Profit and Loss Account xxxx
Income
Computation Add: All expenses not allowed as per Income Tax Act xxxx
Increase
Add: All Unrecorded Business Incomes xxxx
Less: All expenses allowed, but not recorded xxxx

Decrease
Less: All Incomes which are not Business Incomes xxxx
Taxable Income From Business and Profession

Expenses
allowed as
Deductions Sec 30: Rent, Rates, Taxes, Repairs
under Income
Tax Act
, Insurance for Building
Sec 31: Repairs and Insurance of

Plant, Machinery and Furniture
Sec 32: Depreciation of Business

Assets
Expenses
allowed as
Deductions
under Income Sec 36: Specific Deductions
Tax Act
Sec 37: General

Deductions
Sec 40 to 43B :
Disallowances under the Act
Rent – If not owned
ALLOWABLE
Repairs- If agreed to bear
EXPENSES –
as tenant
FOR OFFICE
BUILDING-
Sec -30
Cost of repairs – If building
is owned
Amount paid as Rates and

Municipal Taxes on Owned
Building -43B will apply
Insurance Premium for the

Owned/ Rented Building
What are
current
repairs
Case Laws on Section 30
ALLOWABLE
EXPENSES – 1. Rent paid by firm to a partner for the premises?
FOR OFFICE
BUILDING
2. Premises taken on lease to carry business and assessee
pays rent of previous tenant – Will the arears of rent
of previous tenant be allowed as deduction ?
3. An assessee was running a hotel in Mussorie and

claimed deduction of the following expenditure :
Repair of furniture, Fixing of tiles in the kitchen,
construction of water tank, replacement of cement roof
with tiled roof
4. Premises used partly for business purposes and partly

for other purposes
5. Premises being sub-let

ALLOWABLE
EXPENSES – Cost of repairs – on Plant,
FOR PLANT, Machinery and Furniture
MACHINERY,
FURNITURE
Insurance Premium on
Plant, Machinery and
Furniture
What about Rent

on P/M and
Furniture
Case Laws on Section 31
ALLOWABLE
EXPENSES –
FOR OFFICE
BUILDING 1. P/M and Furniture to be used for the business of the
assessee. Period of use of the Plant, Machinery and
Furniture during the P.Y.- some part or whole year?
Ans: Allowable Expenditure whether part or whole year
1. First time insurance on car

Ans: Capital in nature, not allowed
1. A factory machine has got 2 to 3 electric motors. If

one of them is worn out and replaced by a new motor
of similar capacity involving heavy cost-would it be
treated as a revenue expenditure on repairs? What if
the P/M itself is replaced?
Ans: Capital Repairs, not allowed
ALLOWABLE
EXPENSES –
DEPRECIATION
ON BUSINESS
ASSETS
Rates and
Mechanism
Why allowed different from
under Income Accounting
What is Tax Act Depreciation
Depreciation
Is it compulsory to
claim Depreciation
under the Income
Tax Act
DIFFERENCE
BETWEEN
ACCOUNTING &
ACCOUNTING TAXATION
TAXATION
DEPRECIATION
• Charge Against • Allowance
Profit against profit
• WDV and SLM • WDV
• Individual • Block of Asset
assets • 50% of Normal
• On the basis of Depreciation
no. of days OR Normal Dep
METHOD OF
CALCULATING
DEPRECIATION
UNDER Depreciation
INCOME TAX as per books
ACT • Written may be
Method Down Value
Method
different
• Rates
prescribed
Rates by Income
Tax Act
Book Profits = 30,000
DIFFERENCE (After Depreciation as
BETWEEN PROFIT AND LOSS ACCOUNT per books)
TAXABLE
PROFITS AND EXPENSES RS. INCOMES RS.
BOOK PROFITS All Expenses 15,000 All Incomes 65,000
Depreciation as 20,000 Book Profit = 30,000

per books/ Add: Depreciation
Companies Act as per Books = 20,000
Less: Depreciation
Net Profit 30,000
as per IT Act = 15,000
Taxable Profit 35,000
Total 65,000 Total 65,000
Depreciation as per Income Tax Act is Rs.15,000

(Difference can be because of Rates or Methods
CONDITIONS • Assessee must be
FOR CLAIMING owner of the Business
DEPRECIATION Ownership and Asset
• Tangible or
Type of Intangible
Asset • Land?
• Used for
Use of Business
and
Asset During P.Y.
Period of
CONDITIONS
USE OF ASSET EXPLAINED Usage
FOR CLAIMING
DEPRECIATION
Used For New asset Less than

Business purchased 180 Days –
Half
Purposes during P.Y. Depreciation
More than
During 180 Days –
Previous Full
Active/ Passive Use/ Ready to Use /

Year For full or any
Depreciation
Trial run, Residential quarters for part of the

staff and assets along with it, Previous Year
Partially used for business purpose
DEPRECIATION
UNDER
INCOME TAX
In Income Tax Act Depreciation
ACT
is calculated on Block of Assets
Assets of
Depreciation
similar type
is charged on There can be Whole block
and carrying
the whole multiple gets
the same
block of block of depreciation
rate of
assets and assets for the even if all
depreciation-
not same type of assets are
How many
individual assets – How? not used
blocks are
assets
there?
All assets were already
existing on 1st April 2019
ILLUSTRATTION
ON BLOCK OF
ASSETS
Name of the Asset Rate of Op. WDV as on
Depreciation 01/04/19
Plant A, B & C 15% 12,25,600
Plant D & E 20% 2,56,300
Plant X & Z 15% 8,94,100
Office Buildings 10% 48,36,400
Residential Building 5% 36,50,700
Furniture & Fixtures 10% 2,41,600
Televisions & Refrigerators 10% 6,98,900
Computer 40% 2,15,200
Trademarks & Patents 25% 6,04,500
Block of Assets Rate of Op. WDV as
ILLUSTRATTION Depreciation on 01/04/19
ON BLOCK OF
ASSETS Plant- I 15% 21,19,700
(Includes Plant A, B, C, X & Z
Plant – II 20% 2,56,300
(Includes Plant D & E)
Office Buildings 10% 48,36,400
Residential Buildings 05% 36,50,700
Furniture, Fixtures and 10% 9,40,500
Electronics
Computer 40% 2,15,200
Intangible Assets 25% 8,19,700
Particulars (For Each Block ) Amount
Opening WDV of the block as on the 1st day of the Previous *****
DEPRECIATION
Year (1)
UNDER INCOME
TAX ACT- Add: Actual cost of the assets acquired during the Previous *****
WRITTEN Year (2)
DOWN VALUE Less: Deduct the amount received or receivable in respect *****
of the assets sold or discarded during the Previous Year
(3)
Sub Total : Closing WDV for calculating Depreciation *****
4= (1+2-3)
Less: Amount of depreciation for the year ( On Closing ****
WDV at the rates applicable to the respective block) (5)
Written Down Value at the end of the Previous Year (4-5) *****
Assets already New Assets Sale value of

assets in the 4 * Rate of
existing in the purchased during
block which are 3 cannot Depreciation
block on the year in the
1.4.2019 same block sold during the exceed (1+2)
year
Problem 1- Compute the written down value from the following information for the
assessment year 2020-21
Blocks of asset Rate of depreciation Depreciated value on

(%) 1.4.2019
1. Plant A, B and C 15 10,40,000
2. Plant D and E 40 2,60,000
3. Plant F 30 70,000
4. Building A, B, C and D 10 10,90,600
5. Building E, F and G 5 7,10,200
6. Building H, I, J and K 40 16,90,000
After April 1, 2019 the company purchases the following assets:-
Assets Date of purchase Rate of depreciation (%) Actual cost Rs.
Plant G April 6, 2019 30 6,000
Plant H May 11, 2019 15 18,000
Furniture June 6, 2019 10 56,000
Car July 7, 2019 15 2,56,000
Building L September 26, 2019 5 7,28,700
Computer September 27, 2019 40 90,000
Copyright September 30, 2019 25 17,50,000
The following assets are transferred —

Assets Date of sale Sale consideration Rs
Plant B December 20, 2019 25,10,900
Plant D January 31, 2020 12,000
Building L March 6, 2020 6,00,000
Particulars Block 1 Block 2 Block 3
P/M (15%) P/M (40%) P/M (30%)
Opening WDV 10,40,000 2,60,000 70,000
On 1.4.2019 (A,B,C) (D & E) (F)
Add: New Asset 2,74,000 90,000 6,000
purchased in the block (H & Car) Computer (G)
Less: Any Asset in the 13,14,000 12,000 NIL
block sold (though (D)
(Cannot exceed the cost actual is
of the block) 25,10,900)
Closing WDV on NIL 3,38,000 76,000
31.3.2020
Particulars Block 4 Block 5 Block 6
Buil (10%) Buil (5 %) Buil -40%
Opening WDV 10,90,600 7,10,200 16,90,000
On 1.4.2019 (A,B,C D) (E,F,G) (H,I,J,K)
Add: New Asset NIL 7,28,700 NIL
purchased in the block (L)
Less: Any Asset in the NIL 6,00,000 NIL
block sold (L)
(Cannot exceed the cost
of the block)
Closing WDV on 10,90,600 8,38,900 16,90,000
31.3.2020
Particulars Block 7 Block 8
Fur (10%) INT A-25%
Opening WDV NIL NIL
On 1.4.2019
Add: New Asset 56,000 17,50,000
purchased in the block
Less: Any Asset in the NIL NIL
block sold
of the block)
Closing WDV on 56,000 17,50,000
31.3.2020
Particulars (For Each Block ) Amount
Opening WDV of the block as on the 1st day of the Previous *****
DEPRECIATION
Year (1)
UNDER INCOME
TAX ACT- Add: Actual cost of the assets acquired during the Previous *****
WRITTEN Year (2)
DOWN VALUE Less: Deduct the amount received or receivable in respect *****
of the assets sold or discarded during the Previous Year
(3)
Sub Total : Closing WDV for calculating Depreciation *****
4= (1+2-3)
Less: Amount of depreciation for the year ( On Closing ****
WDV at the rates applicable to the respective block) (5)
Written Down Value at the end of the Previous Year (4-5) *****
4 * Rate of
Depreciation
Time Period
for
Depreciation W.DV. Of the Block is empty
Calculation – block becomes on the last
Exception 1 zero, but day of P.Y. and
and 2 block is not W.D.V. is not
empty zero
Block is empty
on the last
day of P.Y. and
W.D.V. is zero
Depreciation
for the Year
will be zero
Time Period Asset acquired
for Asset existing during the
Depreciation
at the year and used
Calculation –
Exception 3
beginning of for less than
P.Y. and used 180 days in
during the P.Y. P.Y
Asset acquired
during the year
and used for
more than 180
days in P.Y. Exception 3:
Full Half
Depreciation Depreciation for
for the Year is the Year is
allowed allowed
Exception If written down value of the block of asset is reduced to
one zero, though the block is not empty
Exception If the block of assets is empty or ceases to exist on the

two last day of the Previous Year (though the written down
value is not zero)
Exception If in the first year in which an asset is acquired, it is

three put to use for less than 180days
Problem 2: Exception 1
Block 1 – Plant -15% Rs
Opening WDV On 1.4.2019 (A, B) 80,000
Add: New Asset purchased in the block 30,000
(Plant C)
W.D.V. of
Less: Any Asset in the block sold 1,10,000 Block
(Cannot exceed the cost of the block) (A) (Though actual becomes
zero even if
Rs.1,80,000)
assets exist
Closing WDV on 31.3.2020 NIL in the block
Depreciation for 2019-20 NIL

Final Closing W.D.V. on 31.3.2020 after depreciation NIL

Opening WDV On 1.4.2019 (A, B) 2,37,000
Add: New Asset purchased in the block 20,000 Even though
there is a
(Plant C)
Closing W.D.V.
Less: Any Asset in the block sold 49,000 Block is empty
(Cannot exceed the cost of the block) (A, B and C)
Closing WDV on 31.3.2020 2,08,000
Final Closing W.D.V. on 31.3.2020 after depreciation NIL

Problem 3 : Exception 2
Opening WDV On 1.4.2019 (A, B) 2,37,000
Add: New Asset purchased in the block 20,000
(Plant C)
Block is empty
Less: Any Asset in the block sold 2,57,000 and W.D.V. is
(Cannot exceed the cost of the block) (Though actual also zero
(A, B and C) Rs.3,57,000)
Closing WDV on 31.3.2020 NIL
Final Closing W.D.V. on 31.3.2020 after NIL

depreciation
Block 1 – Plant -15% Rs Depreciation will

be calculated @
Opening WDV On 1.4.2019 NIL 50% of 15% on the
closing W.D.V. as
Add: New Asset purchased in the block xxxx put to use for less
(Purchased on 10.05.19) (Put to use on 10.01.20) than 180 days
Less: Any Asset in the block sold NIL
(Cannot exceed the cost of the block)
Closing WDV on 31.3.2020 (a) xxxx
Depreciation for 2019-20 (b) xxxx
Final Closing W.D.V. on 31.3.2020 after depreciation xxxx
(a-b)
Block 1 – Building -10% Rs

Opening WDV On 1.4.2019 14,15,700 On 3,10,000 @ 50%
of 10% = 15,500
Add: New Asset purchased in the block 3,10,000
On 1st December, 2019 (Building C) On (8,55,700 –
3,10,000)
Less: Any Asset in the block sold 8,70,000 =5,45,700@ 10% =
(Cannot exceed the cost of the block) 54,570
(Building A )
Total = 15,500+
Closing WDV on 31.3.2020 8,55,700 54,570 = 70,070
Depreciation for 2019-20 70,070
Final Closing W.D.V. on 31.3.2020 after depreciation 7,85,630

Block 1 – Building -10% Rs

Opening WDV On 1.4.2019 14,15,700
As Closing W.D.V. is
Add: New Asset purchased in the block 3,10,000 less than the cost of
On 1st December,2019 (Building C) Building C which is
used for less than 180
Less: Any Asset in the block sold 15,87,000 days depreciation will
(Cannot exceed the cost of the block) be calculated @ 50%
(Building A ) of 10% on 1,38,700 =
6,935
Closing WDV on 31.3.2020 1,38,700
Depreciation for 2019-20 6935
Final Closing W.D.V. on 31.3.2020 after 1,31,765

depreciation
On 1.4.19 the following details are given :
DEPRECIATION 1.4.19: Opening W.D.V. of Plant A, B, C @ 20% Rs. 5,00,000

UNDER INCOME
TAX ACT- 20.5.2019: Plant D purchased for Rs. 3,00,000
WRITTEN
DOWN VALUE
10.10.2019: Plant A (WDV Rs.1,00,000) lost by theft
Opening W.D.V. Rs.5,00,000
+ New Asset Rs.3,00,000
- Sale / Theft NIL
W.D.V. for Depreciation Rs.8,00,000
Dep on Closing W.D.V. @ 20% Rs.1,60,000
Closing W.D.V. on 31.3.2020 Rs.6,40,000

Practical Exercise on Depreciation
Illustration -1 Block 1 Block 2 Block 3
Particulars Buil (10%) Buil (5%) P/M (15%)
Opening WDV 3,50,000 10,00,000 20,40,000
On 1.4.2019
Add: New Asset 1,00,000 5,00,000 6,50,000
purchased in the block (May 2019) (May 2019) (Nov 2019)
Less: Any Asset in the 60,000 NIL 2,70,000
block sold 24,20,000 - 6,50,000=
17,70,000 * 15%=
(Cannot exceed the cost 2,65,500
of the block) and
6,50,000 * 7.5% =
Closing WDV on 3,90,000 15,00,000 24,20,000 48,750
31.3.2020 (before Depr)
Total = 3,14,250
Depreciation on Closing 39,000 75,000 3,14,250
WDV (10% of (5 % of
3,90,000 15,00,000)
Particulars Block 4 Block 5 Computers
Fur (10%) P/M (40%)
Opening WDV 1,76,000 NIL 1,81,000 - 5,000=
On 1.4.2019 1,76,000 * 10%=
17,600
Add: New Asset 5,000 80,000 and
purchased in the block (Nov 2019) (Oct 2019) 5,000 * 5% = 250
Less: Any Asset in the NIL NIL Total = 17,850

block sold
of the block)
Closing WDV on 1,81,000 80,000 50% of 40%
31.3.2020 (before Depr) of 80,000
Depreciation on Closing 17,850 16,000

WDV (20 % of
80,000)
Total Depreciation Rs
Block 1 – Building – 10% 39,000
Block 2– Building – 5 % 75,000
Block 3 – Plant & Machinery – 15% 3,14,250
Block 4 – Furniture – 10% 17,850
Block 5 – Plant & Machinery – 40% 16,000
Total 4,62,100
Particulars P/M (40%) Furn (10%) Of Bldg (10%)
Opening WDV NIL NIL NIl
On 1.4.2019
Add: New Asset 60,000 + 62,000 12,50,000
(42,000 + 20,000)
purchased in the block 70,000 (July2019)
Less: Any Asset in the NIl NIL NIL
block sold
Closing WDV on 31.3.2020 1,30,000 62,000 12,50,000
Depreciation on Closing 40,000 6,200
WDV (20% of (10 % of 1,25,000
60,000 &
62,000) (10% of
40% of
70,000) 12,500)
Final WDV on 31.3.2020 90,000 55,800 11,25,000
Particulars P/M (15%) P/M (40%) Buil (10%)
Opening WDV NIL NIL NIl
On 1.4.2019
Add: New Asset 47,00,000 10,00,000 15,00,000
purchased in the block A,B,C, Car, AC D&E (Sept2019)
Less: Any Asset in the NIl NIL NIL
block sold
Closing WDV on 47,00,000 10,00,000 15,00,000
31.3.2020 (before Depr)
Depreciation on Closing 6,22,500 2,00,000 1,50,000
WDV (15% of 36 lac (20% of (10% of
&7.5% of
11 lac)
10,00,000) 15,00,000)
Final WDV on 31.3.2020 40,77,500 8,00,000 13,50,000
Expenses
allowed as
Deductions Sec 36: Specific
under Income
Tax Act Deductions
Sec 37: General

Deductions
Sec 40 to 43B :
Specific
Deductions Insurance Premium on Goods,
under Section
36
Stocks
Insurance Premium on Business

assets
Insurance premium on the life
of cattle
Insurance premium on health of

employees (No monetary
ceiling) (Payment not in cash)
Specific Bonus , Commission paid to
Deductions
under Section
employees
36
(Legal or contractual)
Condition :1: Not allowed as

deduction if bonus given in
lieu of profits/dividend
Condition: 2: Payment of
Bonus made during P.Y. or
before filing return for
relevant P.Y.- 43 B
Specific
Interest on loan borrowed for business- whether
Deductions for long term assets or Working Capital
under Section Section 43B applicable
36
Loan should be taken from a third person-
1. proprietor charging interest on capital- is it
allowed?
2. Interest paid by firm to partner?
3. A person engaged in business of paper can
claim deduction of interest for capital
borrowed on setting a garment business (even if
the new business is unremunerative)
Can it be taken from a relative or family

member?
Loan borrowed for personal use?
Interest on late payment of any taxes-not
allowed
The department needs no proof whether there
was a need to borrow loan or not
Specific
Employers contribution
Deductions towards employees
under Section
36
retirement benefits- P.F.,
Gratuity, Pension, etc.
Condition:1: P.F., Gratuity

and Pension fund should be
approved by the authority
Condition:2: Deduction is
available only if
contribution (payment) is
made on or before due date
Bad Debts – allowed as business deduction
Specific provided it was treated as income in that or
Deductions earlier P.Y.
under Section Represents money lent in normal course of
36 business
There must be a debt, incidental to

business, and considered while computing
assessable business income
Allowed only if it is written off as
irrecoverable from the books of accounts
Recovery of bad debt is treated as income-

business may or may not continue
Provision for bad and doubtful debts is not

allowed as deduction
Specific
Deductions X sells goods on credit – Out of credit
under Section
36
sales Rs.50,000 written off as bad debt
Z, a money lender gives loan to A. A

becomes insolvent. If interest income is
included on accrual basis , can be written
off as bad debt and claim deduction. Also
non recovery of loan can be deductible if
written off in books
Money given in advance for purchase of

material and forfeited by creditor- not
treated as bad debt- as it is not income
Expenses
allowed as
Deductions
Tax Act
Sec 37: General

Deductions
Sec 40 to 43B :
Specific Expenditure not claimed under other sections -30to 36
Deductions
under Section
37
Expenditure should not be capital in nature
Expenditure should not be personal
Expenditure should be incurred in the previous

year
Expenditure must be related to business /profession

carried on by the assessee in the P.Y.
Expenditure is not incurred for any purpose which is an

offence
Expenses
allowed as
Deductions
Tax Act
Sec 37: General Deductions
Sec 40 to 43B :
Salary, Rent, Deduction will not
Disallowances – Royalty, be allowed if TDS is
Section 40(a) Commission, deducted but not
Interest deposited with
Payments eligible Central
for tax deduction Government before
at source filing return
Payments will not

be allowed as
deduction if TDS is Deduction will
not deducted as be allowed in a
per due date subsequent year
when deposited
Disallowances –
Section 40(a) Payment to Non
resident
Interest,
Royalty, Fees,
Salary
Rent,
Commission
Default to Default to
Disallowance
deduct TDS- deposit TDS-
Not Applicable –
100% amount 100% amount
Fully deductible
disallowed disallowed
Disallowances –
Section 40(a) Payment to
Resident
Salary, Interest,
Royalty, Fees,
Rent,
Commission
Default to Default to
deduct TDS- 30% deposit TDS-
amount 30% amount
disallowed disallowed
Full amount
Will be
Disallowances –
disallowed
Section 40A(3) Expenditure in
cash or bearer
cheque exceeding
Rs.10,000-may be
an allowed Some exceptions
expense apply
Limit of Rs.10,000 • Payment made to Bank,

is per person, per Government,
day basis • Through Banking system,
Payment to be made on a
public holiday when banks are
closed,
• Payment made by a money
changer against purchase of
foreign currency in his normal
course of business
Disallowances –
Section 40A(2)
Payment made to Unreasonable with

relatives, sister regard to the FMV
concerns of the transaction
Will be disallowed
if payment is
unreasonable or
excessive- only to
the extent of
excessive payment
List of payments:
1. Individual to relative
2. Company to director or relative of director
3. Firm to partner or relative of partner
4. Payment to a person having a substantial interest in the business of the payer
Examples:
1. X is a trader. He purchases goods from his brother at Rs.1,40,000 though the
market value is Rs.1,30,000.
2. X has a substantial interest in Y Ltd. Y Ltd. takes on hire trucks owned by X
and pays rent.
3. X is a trader. He sells goods to his brother at Rs.1,00,000 whose market value
is Rs.1,40,000. X has not incurred any expenditure.
4. X carries a business. He employs his son as Manger and pays him salary
@Rs.10,000 p.m. Can be disallowed by the AO if not appropriate to his
qualification ?
Disallowances – Assessee maintains books as per mercantile
Section 43B
system- Following payments are allowed as
deduction on actual payment during the P.Y.
3. Sum paid as
1. Tax, Duty,
bonus or 5. Sum paid by
Cess, Fee
commission to employer as
2. Employers employees leave salary to
contribution to employee
4. Interest on
employees
loan taken
welfare funds
from Banks, PFI
Sum No. 3 Computation of Business Income of ABC (A.Y . 2019-2020 P. Y. 2018-2019)
Particulars Amount Rs.
Net Profit as per Profit and Loss Account 30,500 30,500
Add: Expenses disallowed
Penalty of FEMA 1,200
Expenses on Criminal Cases 3,000
Donation to PM National Relief Fund 2,000
Wealth Tax 3,000
Bad Debts (No Dr and Cr Relationship) 500
Provision for Tax 22,000
Depreciation as per books 40,000 +71,700
Add: Unrecorded Income
Less: Allowed Expenses
Depreciation allowed as per IT 36,000 -36,000
Less: Incomes Considered Separately
Income Tax Refund (IFOS) 5,000 -5,000
Gross Income as per PGBP 61,200
Sum No. 6
Computation of Business Income of Mr. Sharma
(A. Y. 2019-2020
P. Y. 2018-2019)
Particular Amount
Net profit 20,000
Add: -
Payment made by cheque 30,000
Depreciation 10,000
Freight (penalty and demurrage) 7,000
Diff in stock valuation 1,000
Donation 10,000
Income tax 10,000
Reserve for bad debts 10,000
Patents (cap exp.) 90,000
Interest on Capital 10,000
Less: -
Depreciation as per I.T. 8,000
Entertainment expense not recorded 8,000

Life policy amount 5,000
Sale of machine (Capital Gain) 2,000
Interest and Dividend (IFOS) 4,000
Income from Business and Profession 171000

Daughter in Spouse
Law
Minor
Clubbing of Income
On whom lies the incidence of tax arising from any source
of income?
How is an individual taxed on his total income?
Is it valid to save taxes through judicious tax planning?
Tendency to indulging in practices and arrangements to

shift/pass the incidence of tax on others to ultimately
reduce tax burden
How do you shift the What will be the
incidence of tax consequence of
such transfer?
Transfer of Source of Transfer of Income and

Income not the source Income will be
received by the
transferee and
incidence of tax will
be shifted
Family Members Or
Family Members
Any other individual
This leads to
avoidance of tax by
the transferor
Awareness of different
situations covered
under clubbing
provisions of the Act
Clubbing – Means becomes important
income received by
some other
person(transferee) will
To curb practices of be included/clubbed
tax avoidance- in your
Clubbing provisions income(transferor)
were introduced
Process of Clubbing of Income
Income received by transferee will be treated as his/her income under a

particular head
All exemptions and deductions will be applied to the income
Finally net income will be clubbed in the hands of the transferor

Clubbing applies to negative income(loss) also
• Transfer of
income without
Section transfer of
60 source/ asset
• Mr. X owns a property given on rent of
Rs.25,000 p.m. to a company. The
company is instructed to pay rent in the
account of Mr. Y his friend.
• Mr. X owns 4,000 14% debentures of
Examples Reliance Ltd. of Rs.100 each. He
transfers the interest income received, in
the bank account of his parents/ spouse/
friend through an agreement
In both the cases

income (rent and
interest) will be
clubbed in the
hands of Mr. X
• Clubbing of Substantial Interest
remuneration Company – By holding
Section 64 received by 20% or more equity in
(1) (ii) spouse the company
• The spouse receives
remuneration from a concern in Firm - Being entitled to
which the individual has 20% or more profits of
substantial interest the firm
When • The spouse does not have any
technical or professional Holdings/ profit sharing
Applicable knowledge or experience to do could be individually or
that job along with relatives
• Remuneration
Relative includes-
received by
spouse, brother, sister
the spouse
and any lineal
will be
Consequence clubbed with
ascendant or
descendant
the income of
the individual
• Clubbing of
Section 64 remuneration
(1) (ii) received by
spouse
• When both husband and wife have

substantial interest in a concern
When • Both receive remuneration from the
concern
Applicable • Both don’t have any technical or
professional knowledge or experience
to do that job
• Remuneration received
will be clubbed in the
hands of husband or
Consequence wife whose total
income excluding this
remuneration is higher
Illustration 1
X holds 20% equity share capital in Y Ltd. Mrs. X is employed by Y Ltd .( salary
being Rs.1,40,000 per month )as general manager (finance) . She doesn’t have
any qualification to justify the remuneration. Ascertain in whose hands salary
income is chargeable to tax.
Does it make any difference if Mrs. X was employed by Y Ltd. even prior to her
marriage?
Solution:
X has substantial interest in Y Ltd. where Mrs X is employed
Mrs X doesn’t have any professional qualification
Her salary income of Rs 16, 80,000 (1,40,000*12) will be clubbed and taxable
in the hands of Mr X under the head Income from Salary
Solution:
Illustration 2 Mrs X has substantial interest in B Ltd . Her husband X is
Income of X ( age :31 years ) and Mrs. X ( age :30 employed by B Ltd without any technical or professional
years ) for the previous year 2019-20 is as follows – or educational qualification. So clubbing will apply
X Rs Mrs X X Mrs X
Salary from B Ltd. 5,20,000 Nil Salary of X from B Ltd - 5,20,000
Business Income 10,00,000 1,60,000
Business income 10,00,000 1,60,000
Bank interest (fixed 3,70,000 90,000
Bank interest 3,70,000 90,000
deposit )
Total Income 18,90,000 2,50,000 Gross total income 13,70,000 7,70,000
Tax 3,90,890 Nil Less : Deduction Nil Nil
Total income 13,70,000 7,70,000
X is employed by B Ltd. (salary being Rs 40,000 per Tax 2,23,500 66,500
month and one month’s salary as bonus) without any
Add : education cess 4,470 1,330
technical or professional or educational qualification.
(2% of tax)
Mrs X holds 20 % equity share capital in B Ltd. from
March 20, 2020. Add: secondary and 2,235 665
higher education cess
Find out the net income of X and Mrs. X for the (1 % of tax)
assessment year 2020-21. Tax liability 2,30,210 68,500
(Total: Rs 2,98,710)
Illustration 3
X and Mrs. X hold 20 % and 30% of equity shares in C Ltd respectively . They are also employed
from April 1, 2019 in Mumbai branch of C Ltd ( monthly salary being Rs 80,000 and Rs 40,000
respectively ) without any technical / professional qualification. Other income of X and Mrs. X are
Rs 1,60,000 and Rs 1,90,000 respectively . Find out the net income of X and Mrs. X for the
assessment year 2020-21.
Solution:
X and Mrs X have substantial interest in C Ltd. which employs them without any technical /
professional qualification .In this case , salary of husband and wife shall be included in the
income of Mrs X whose other income is higher
X Mrs. X
Salary of X ( Rs 80,000 *12) - 9,60,000
Salary of Mrs X ( Rs 40,000 *12) - 4,80,000
Other income 1,60,000 1,90,000
Net income 1,60,000 16,30,000
• Clubbing of income
Section 64 from transfer of source
of income / asset to
(1) (iv) spouse
• When an individual transfers an asset

(except house property) to the spouse
without consideration or without
When adequate consideration
Applicable • It should not be transferred in
connection to live apart
• Income from the asset

transferred, though
received by the spouse will
Consequence be clubbed with the
income of the individual
• Taxability on
transfer of house
Section 27 property to
spouse
• When an individual transfers a house

property to the spouse without
consideration or without adequate
When consideration
• It should be not transferred in
Applicable connection to live apart
• Income from the house

property transferred though
received by the spouse will be
taxable in the income of the
Consequence individual as he will be
treated as the deemed owner
of the property
• Clubbing of income from
Section 64 (1) transfer of source of
(iv) income / asset to
spouse
• Income from accretion to the

Which income transferred asset
will not be • Income on income from transferred
asset will not be clubbed
clubbed
• Cash gifted may be invested by

spouse in Fixed Deposit
Change of • Spouse sells the asset transferred
form of asset • Interest on F.D. and capital gain
received by the spouse will be
transferred clubbed in the hands of the
transferor
Section 64 (1) from transfer of source
of income / asset to
(iv) spouse
• Profit from the business will be
Spouse invests the clubbed in the hands of the
money transferred individual (transferor) only to the
to her in a business extent of his capital contribution
along with her own on the 1st day of the previous
capital year
1. If transfer is for adequate
consideration
2. If transfer in connection to live
apart
3. Transfer before marriage
Exceptions 4. Acquiring asset from pin
to clubbing money
5. If asset transferred is house
property
Illustration Solution
Particulars Mr Vaibhav’s Capital Total (₹)
Mr. Vaibhav started a proprietary business on
capital contribution
01.04.2018 with a capital of ₹ 5, 00,000. He contribution out of gift from
incurred a loss of ₹ 2,00,000 during the year (₹) Mrs. Vaishaly
2018-19. (₹)
Capital as on 3,00,000 5,00,000 8,00,000
To overcome the financial position, his wife
1.4.2019 (5,00,000-
Mrs. Vaishaly , a software Engineer, gave a gift
2,00,000)
of ₹5,00,000 on 01.04.2019, which was
immediately invested in the business by Profit for P.Y 1,50,000 2,50,000 4,00,000
Mr.Vaibhav . He earned a profit of ₹4,00,000 2019-20 to be (4,00,000*3/8) (4,00,000*5/8)
during the year 2019-20 . apportioned on
the basis of
Compute the amount to be clubbed in the capital employed
hands of Mrs. Vaishaly for the P. Y. 2019-20. on the first day of
the previous year
If Mrs. Vaishaly gave the said amount as loan, i.e., as on
what would be the amount to be clubbed? 1.4.2019 (3:5)
from transfer of source
Section 64 of income / asset to
(1) (vi) son’s wife (daughter in
law)
• When an individual transfers an

asset to the daughter in law
When without consideration or without
Applicable adequate consideration
• Income from the asset

transferred though
received by the
daughter in law will be
Consequence clubbed with the
income of the
individual
• Clubbing of
income from
Section 64 (1) transfer of source
of income / asset
(vi) to son’s wife
(daughter in law)
• Income from accretion to the

Which income transferred asset
• Income on income from transferred
will not be asset will not be clubbed
clubbed • Cash gifted may be
invested by daughter in
law in Fixed Deposit
• She sells the asset
Change of transferred
• Interest on F.D. and
form of asset capital gain received by
transferred the DIL will be clubbed
in the hands of the
transferor
from transfer of
Section 64 (1) (iv) source of income /
asset to son’s wife
(daughter in law)
Daughter in law • Profit from the business will be clubbed

in the hands of the individual
invests the money (transferor) only to the extent of his
transferred to her in capital contribution on the 1st day of the
a business along previous year
with her own capital
1. If transfer is for
adequate
Exceptions to consideration
clubbing 2. Transfer before
son’s marriage
• Clubbing of
income of minor
Section 64 child (includes
(1A) adopted and step
child)
• Minor receives income from asset

When transferred by parent/grandparents/any
other person
Applicable
• Minors income will be
clubbed in the hands of
his parent whose total
income excluding the
Consequence clubbed income is
higher
• If marriage does not
subsist?
• Clubbing of
Section income of
64(1A) minor child
• Income of minor from his own skills and talent

Which income • Income of minor arising out of manual work
done
will not be • Income of a minor who is suffering from a
clubbed disability
• When minor’s income is clubbed

with the parent they can claim an
exemption of
• Rs.1500 per child
Exemption • or
10(32) • the income clubbed
• whichever is lower
Illustration Particulars X (₹) Mrs X (₹) A(₹) B(₹)
Income from HP - 1,90,000 - -
A and B are minor sons of X and Mrs. X. Business income 3,40,000 - - -
Business income of Mr. X is of ₹ 3, 40,000. Income from stage acting - - 60,000 70,000
Income from house property of Mrs. X is Income from other sources
Rs 1, 90,000. 1. Gift received by B on May - - - -
20,2017 from grandfather (gift
Income of A and B from stage acting is Rs 60,000 from a relative is not taxable )
and Rs 70,000 respectively. Besides interest on 2. Gift received by A on September 58,500 - - -
14 ,2017 from X’s friend (to be
company deposits of A and B (deposit was made
clubbed in the hands of X after
out of income from acting) is Rs 30,000 and Rs giving exemption of Rs 1,500)
1,000 respectively. 3. Gift received by A on September
14 ,2017 from relatives ( gift from -
A and B have received the following birthday relative is not taxable )
gifts – on May 20,2019, gift received by B from 4. Interest from company deposit
received by A ( to be clubbed in 30,000
his grandfather :Rs 80,000 ;
the hands of X )
on September 14,2019 , gift received by A- Rs 5. Interest from company deposit
60,000 from X’s friend and Rs 35,000 from a received by B ( to be clubbed in
relative . the hands of X after giving
exemption of Rs 1,500, amount to Nil
Find out the income of X, A and B for the be clubbed is Rs 1,000- Rs 1,000 )
NET INCOME 4,28,500 1,90,000 60,000 70,000
assessment year 2019-20
Illustration Solution – Total Income of Mr. A after applying clubbing
Compute the gross total income of Mr & provisions
Mrs A from the following information: Particulars ₹ ₹
Particulars (₹) Income from profession 3,90,000
1. Salary income (computed) 2,30,000 Income of minor son B from company 15,000
of Mrs A deposit
2. Income from profession of 3,90,000 Less: exemption under section 10 (32) 1,500 13,500
Mr A Income of minor daughter C
3. Income of minor son B 15,000 From special talent – not to be clubbed -
from company deposit Interest from bank 3,000
4. Income of minor daughter 32,000
Gift of ₹ 2,500 received from a non-
C from special talent
5. Interest from bank 3,000
relative is not taxable being less than
received by C on deposit the aggregate limit of ₹50,000 Nil
made out of her special Total Income of C 3,000
talent income Less : exemption under section 10 (32) 1,500 1,500
6. Gift received by C from 2,500 Gross Total Income 4,05,000
friend of Mrs. A
Practical Exercise -1
Mr. Sharma has four minor children consisting 2 daughters and 2 sons.
The annual income of 2 daughters were Rs 9000 and Rs 4500 and of
sons were Rs 6200 and Rs 4300 respectively The daughter who has
income of Rs 4,500 was suffering from a disability specified under
section 80U .
Compute the amount of income earned by minor children to be clubbed

in hands of Mr Sharma.
Computation of income earned by minor children to be clubbed with the income of Mr. Sharma:
Particulars Rs
(i) Income of one daughter 9,000
Less: Income exempt under section 10(32) 1,500
Total (A) 7,500
(ii) Income of two sons (Rs.6,200 + Rs.4,300) 10,500
Less: Income exempt under section 10(32) (Rs.1,500 + Rs.
1,500) 3,000
Total (B) 7,500
Total Income to be clubbed as per section 64(1A) (A+B) 15,000
•Note: It has been assumed that:

•The income does not accrue or arise to the minor children on account of any manual work
done by them or activity involving application of their skill, talent or specialized knowledge
and experience;
•The income of Mr. Sharma, before including the minor children’s income, is greater than
the income of Mrs. Sharma, due to which the income of the minor children would be
included in his hands;
During the previous year 2019-20, the following transactions occurred in respect of Mr. A:
 Mr. A had a fixed deposit of ₹500,000 in Bank of India. He instructed the bank to credit the interest on the
deposit @ 9% from 1-4-2019 to 31-3-2020 to the savings bank account of Mr. B, son of his brother, to
help him in his education.
 Mr. A holds 75% share in a partnership firm. Mrs. A received a commission of ₹25, 000 from the firm for
promoting the sales of the firm. Mrs. A possesses no technical or professional qualification
 Mr A gifted ₹2,00,000 to his minor son who invested the same in a business and he derived income of
₹20,000 from the investment.
 Mr. A’s minor son derived an income of ₹20,000 through a business activity involving application of his
skill and talent.
 During the year, Mr A got a monthly pension of ₹10,000. He had no other income. Mrs. A received salary
of ₹20,000 per month from a part time job.
Discuss the tax implications of each transaction and compute the total income of Mr. A, Mrs. A and their
minor child.
1. Computation of total income of Mr. A, Mrs . A and the ir minor s on for the A.Y.
2018-19
Particulars Mr.A Mrs . A Minor

(Rs) (Rs) Son (Rs)
Salary income (of Mrs. A) - 2,40,000 -

Pension income (of Mr. A) 1,20,000
(Rs 10,000×12)
Income from othe r s ources
Interest on Mr. A’s fixed deposit - -
with Bank of India (` 5,00,000 × 45,000
9%)
Commission received by Mrs. - -
A from a partnership firm, in 25,000 70,000
which Mr. A has substantial
interest
Income be fore including 1,90,000 2,40,000 -

income of minor s on unde r
s e ction 64(1A)
Income of the minor son from 18,500 -
the investment made in the
business out of the amount
gifted by Mr. A
Income of the minor son - - 20,000

through a business activity
involving application of his
skill and talent
Total Income 1,90,000 2,58,500 20,000

Mr. A has gifted a house property valued at ₹50 lakhs to his wife, Mrs. B, who in turn
has gifted the same to Mrs. C, their daughter-in-law. The house was let out at ₹25,000
per month throughout the year. Compute the total income of Mr. A and Mrs. C.
Will your answer be different if the said property was gifted to son, husband of Mrs.
C?
As per section 27(i), an individual who transfers otherwise than for adequate consideration any house property to
his spouse, not being a transfer in connection with an agreement to live apart, shall be deemed to be the owner of
the house property so transferred.
Therefore, in this case, Mr. A would be the deemed owner of the house property transferred to his wife Mrs. B
without consideration.
As per section 64(1) (vi), when an individual transfers an asset without adequate consideration to the son’s wife,
directly or indirectly, income from the asset would be included in the total income of such individual. Mr. A
transferred a house property to his son’s wife Mrs. C indirectly through Mrs. B without consideration.
Computation of Income
Income from let-out property is Rs. 2,10,000 [i.e., Rs.3,00,000, being the actual rent calculated at Rs. 25,000 per
month less Rs. 90,000, being deduction under section 24 @30% of Rs.3,00,000]
Income of Mr. A and Mrs. C
In this case, income of Rs. 2,10,000 from let-out property arising to Mrs. C, being Mr. A’s son’s wife, would be
included in the income of Mr. A, applying the provisions of section 27 and section 64(1)(vi). Such income would,
therefore, not be taxable in the hands of Mrs. C.
In case the property was gifted to Mr. A’s son
In case the property was gifted to Mr. A’s son, the clubbing provisions under section 64 would not apply, since the
son is not a minor child. Therefore, the income of Rs. 2,10,000 from letting out of property gifted to the son would
be taxable in the hands of the son.
Mr. B is the Karta of a HUF, whose members derive income as given below:
Particulars ₹
1. Income from B’s Profession 45,000
2. Mrs B’s Salary as fashion designer 76,000
3. Minor son D (interest on fixed deposits 10,000
with a bank which were gifted to him by
his uncle)
4. Minor daughter P’s earnings from sports 95,000
5. D’s winnings from lottery (gross) 1,95,000
Discuss the tax implications in the hands of Mr. and Mrs. B
Tax implications
Total Income of Mrs. B
Income from fashion designing 76,000
Income from Other Sources
Interest on Fixed Deposit of Minor son D {Section 64 10,000
(1A}
Less: Exempt u/s 10(32) 1500 8500
Lottery Income of Minor D {Section 64 (1A)} 195000
Total Income of Mrs. B after clubbing 2,79,500
Note: Minor’s income will be clubbed in the hands of Mrs. B as her income is higher than Mr. B
•Mr B: Income of Rs. 45,000 of Mr. B will be taxable in his hands under the head Profits and
Gains from Business and Profession
•Minor Daughter P: Income of Rs. 95,000 arising to the minor daughter P from sports shall not
be included in the hands of the parent, since such income has arisen to the minor daughter on
account of an activity involving application of her skill. It will be taxable in the hands of P.
Income From Salary
 If all heads have
Income From House Property positive income then
GTI is the total of all
Profits and Gains from Business and Profession 5 heads
Capital Gains  If there is a loss /

negative income
Income From Other Sources under any of the
heads then these
Gross Total Income losses can be set off
against the positive
Less : Deductions under Section 80 incomes from other
sources or heads
Total Income
MODE OF SET OFF AND CARRY FORWARD
• Inter-source adjustment under the same head of

step 1 income
• Inter-head adjustment in the same assessment year;

Step 2 is applied only if a loss cannot be set off under Step 1
• Carry forward of a loss; is applied only if loss cannot

Step 3 be set off under Step 1 and 2.
Set Off of Losses
Inter Source Inter Head
Adjustment Adjustment
Set Off of losses Set Off of losses

within the same with other heads
head of income of income
INTER-SOURCE ADJUSTMENT
Setting off loss of one source against income from

other source within the same head
Example: Loss from Business A of Rs.1,00,000 can be

set off against the profits from Business B of
Rs.3,00,000 under the head Profits and Gains from
Business and Profession
Rules for Inter Source Adjustment
Rule 1 • There cannot be a loss under the head Income from Salary
• Loss from one house property can be set off against income
Rule 2 from another house property under the head Income from
House Property
• Loss from Speculation Business can be set off against only

Speculation Business Income under the head PGBP
Rule 3 • Loss from Non-Speculation Business can be set off against both
Speculation and Non-Speculation Business Income under the
head PGBP
• Under the head Capital Gains, Short Term Capital Loss can be
Rule 4 set off against both Long Term and Short Term Capital Gain
• Under the head Capital Gains Long Term Capital Loss can be set
off against only Long Term Capital Gain
• Under the head Income from Other Sources –

• loss from the activity of owning and maintaining race horses
can be set off against only the income from the activity of
owning and maintaining race horses
Rule 5 • No loss can be set off against Winning from lotteries,
crossword puzzles, races including horse races etc. Losses
from these activities also cannot be set off against any other
source of income
• If the income from any source is exempt from tax its
loss will not be set off against any income which is
chargeable to tax
Rule 6
• Eg: Loss from Agriculture activity cannot be set off
against income from agriculture activity or any other
source of income
Source of Income Case I Case II
Income from house property (A) 30,000 40,000
Income from house property(B) (10,000) (25,000)
Speculation income 80,000 (70,000)
Business income (30,000) 50,000
Income from activity of owning and maintaining race horses business(A) (50,000) 10,000
Income from activity of owning and maintaining race horses business(B) 20,000 (6,000)
Income from agriculture business (25,000) 10,000
Short term capital gain (transaction A) 30,000 (20,000)
Short term capital gain (transaction B) (10,000) 5,000
Long term capital gain (transaction A) (30,000) 45,000
Long term capital gain (transaction B) 10,000 (2,000)
Income from lottery 40,000 -
Income from horse races 10,000 25,000
Income on card games (5,000) (3,000)
Income on securities 20,000 10,000
INTER-HEAD ADJUSTMENT
A loss which could not be set off by way inter source adjustment can be set
off against income under other heads
If there is a loss under any head of income after inter source adjustment it
can be set off against other heads of income in the same year
Example: Business A : Loss of Rs.2,90,000, Business B: Income of Rs. 70,000,

Income from House Property: Rs.5,10,000
After setting off loss of Business A against Business B (2,90,000-70,000)

remaining loss of Rs.2,20,000 will be set off against house property income of
Rs.5,10,000 thus leaving total income of Rs.2,90,000 (5,10,000-2,20,000)
under the head income from house property
Rules for Inter Head Adjustment
Rule 1 • There cannot be a loss under the head Income from Salary
•Loss from house property can be set off against

•income from salary,
•income from house property,
Rule 2 •business income (both speculation and non-speculation),

•capital gains(both short term and long term) and
•income from other sources
•Loss from house property can be set off maximum upto Rs.
2,00,000 against any other heads of income
Rules for Inter Head Adjustment
•Loss from Speculation Business can be set off

against only Speculation Business Income under the
head PGBP
•Loss from Non-Speculation Business can be set off
Rule 3 against income from
•house property,
•capital gains(both short term and long term) and
•income from other sources
• Under the head Capital Gains, Short Term Capital
Loss can be set off against both Long Term and Short
Term Capital Gain
Rule 4 • Under the head Capital Gains, Long Term Capital Loss
can be set off against only Long Term Capital Gain
• Short Term and Long Term Capital Losses cannot be
set off against other heads of income
• Under the head Income from Other Sources – loss
from the activity of owning and maintaining race
horses can be set off against only the income from
the activity of owning and maintaining race horses
• No loss can be set off against Winning from lotteries,

crossword puzzles, races including horse races etc.
Rule 5 Losses from these activities also cannot be set off
against any other source of income
• Any other loss under IFOS can be set off against

income from salary, income from house property,
business income (both speculation and non-
speculation) and capital gains(both short term and
long term)
Illustration 1
SOURCE OF INCOME AMOUNT
Income under the head “Salaries” 70,000
Income from house property (A) 60,000
Income from house property (B) (70,000)
Speculation income 20,000
Business income (1,30,000)
Income from activity of owning and maintaining horses (1,50,000)
Income from agricultural business (1,25,000)
Short term capital gain 30,000
Long term capital gain (1,00,000)
Income from lottery 10,000
Income from horse races 1,70,000
Dividend income from non-domestic company 90,000
Interest on securities 20,000
Illustration 2 PN:42
• Mr. A submits the following particulars pertaining to the A.Y. 2020-21:

Particulars Amount
Income from salary 4,00,000
Loss from self-occupied property (70,000)
Loss from let-out property (1,50,000)
Business loss (1,00,000)
Bank interest (FD) received 80,0000
• Compute the total income of Mr. A for the A.Y.2020-21.

Computation of total income of Mr. A for the A.Y.2020-21
Particulars Rs. Rs. Amount

Loss from self-occupied property (70,000)
Loss from let-out property (1,50,000)
Business loss (1,00,000)
Bank interest (FD) received 8,00,000
Gross Taxable Total Income
CARRY FORWARD OF LOSSES
• Losses which could not be set off against income of the previous year,
do not lapse , but are allowed to be carried forward to be set off
against income of subsequent years .
• Carry forward of losses for each head is governed by different

sections which define the number of years it can be carried forward
for and against which income it can be set off etc
CARRY FORWARD OF LOSSES
• No option is available to show profit as income and carry forward the
loss from another source to next year
• No option is available to the assessee for partial set off and partial
carry forward
• Brought Forward Losses can also be set off against clubbed income
Under the Act, the following losses can be carried forward:
Loss under the head “Income from House Property”

Loss under the head “Profits and gains from business or
professions”
Loss under the head “Capital gains”
Loss from the activity of owning and maintaining race horses
CARRY FORWARD AND SET OFF OF NORMAL
BUSINESS LOSS
• Normal Business losses can be carried forward and
Set Off set off against only Business Income (Speculation or
Normal )
Against • Brought Forward Business Loss can be set off against
sale of depreciable assets
• Not necessarily against

Important same business
• Carry forward upto 8 years
Points • Loss Return to be filed
CARRY FORWARD AND SET OFF OF SPECULATION
BUSINESS LOSS
Set Off • Speculation Business losses can be carried

forward and set off against only Speculation
Against Business Income
• Continuity of Business not

Important necessary
CARRY FORWARD AND SET OFF OF CAPITAL LOSSES
• Short Term Capital Loss can be carried forward and
Set Off set off against both Long Term and Short Term
Capital Gain
Against • Long Term Capital Loss can be carried forward and
set off against only Long Term Capital Gain
Important • Carry forward upto 8years

CARRY FORWARD AND SET OFF OF LOSSES FROM
HOUSE PROPERTY
Set Off • Can be carried forward and set off against only
income from House Property
Against
Important • Carry forward upto 8

years
Points
CARRY FORWARD AND SET OFF OF LOSSES FROM
OWNING AND MAINTAINING RACE HORSES
• Loss from the activity of owning and maintaining
Set Off race horses can be carried forward and set off
only against the income from the activity of
Against owning and maintaining race horses

Important • Continuity of activity is
important
Illustration PN:43
• Mr. B ,a resident individual , furnishes the following particulars for the
P.Y. 2019-20:
Particulars Amount
Income from salary (net ) 45,000
Income from house property (24,000)
Income from business-non-speculative (22,000)
Income from speculative business (4,000)
Short-term capital losses (25,000)
Long term capital gains 19,000
• What is the total income chargeable to Tax for the A.Y. 2020-21?
Particulars Rs. Rs. Amount
Income from salary (net ) 45,000
Income from house property (24,000)
Income from business-non-speculative (22,000)
Income from speculative business (4,000)
Short-term capital losses (25,000)
Long term capital gains 19,000

Illustration PN : 45
• During the P.Y.2019-20, Mr. C has the following income and the
brought forward losses:
Particulars Amount
Short term capital gains on sale of shares 1,50,000
Long term capital loss of A.Y 2017-18 (96,000)
Short term capital loss of A.Y 2018-19 (37,000)
Long term capital gain 75,000
• What is the capital gain taxable in the hands of Mr. C for the A.Y.
2020-21?
Particulars Rs. Amount
Long term capital loss of A.Y 2017-18 (96,000)
Short term capital loss of A.Y 2018-19 (37,000)

Illustration
• Compute the taxable income under the following cases for the A.Y.
2019-20: (PN:45)
Particulars Case 1 Case 2 Case 3 Case 4
STCG LTCG STCG LTCG STCG LTCG STCG LTCG
Income of 1,00,000 (30,000) (30,000) 1,00,000 1,00,000 (20,000) (30,000) 1,00,000
the P.Y. 2017-
18
B/f loss of P.Y. 50,000 - - 50,000 60,000 50,000 10,000 20,000
2016-17
Particulars Case 1 Case 2 Case 3 Case 4
STCG LTCG STCG LTCG STCG LTCG STCG LTCG
Income of 1,00,000 (30,000) (30,000) 1,00,000 1,00,000 (20,000) (30,000) 1,00,000
the P.Y.
2019-20
Inter source 1,00,000 c/f
B/f loss of (50,000) - - (50,000) (60,000) (50,000) (10,000) (20,000)

P.Y. 2018-19
GTI 50,000
Page 46 Illustration – Inter Source Adjustment
Page 48: Illustration 1 – Inter Head Adjustment
Page 48: Illustration 2 – Inter Head Adjustment
Page 50- Illustration – Carry Forward of Non-Speculation Business Loss

Total income of Mr. B for the A.Y. 2019-20
Particulars Amount Amount
(Rs) (Rs)
Income from salaries 45,000
Income from house property (24,000) 21,000
Profits and gains of business and profession

Business loss to be carried forward (22,000)
Speculative loss to be carried forward (4,000)
Capital Gains
Short term capital loss (25,000)
Short term capital loss to be carried forward (6,000)
Taxable income 21,000
Page – 52 Illustration – Carry Forward of Capital Loss
Taxable capital gains of Mr. C for the A.Y. 2018-19

Particulars Rs Rs
Less: Brought forward short term capital loss of the (37,000) 1,13,000
A.Y. 2017-18
Less: Brought forward long term capital loss of A.Y.
2016-17 (75,000) Nil
Taxable short-term capital gains 1,13,000
Page – 53 Illustration – Carry Forward of Capital Loss

Page – 54 - Illustration – Carry Forward of Loss from Owning and Maintaining Race
Horses
Page – 54 - Illustration – Carry Forward of Loss from Owning and Maintaining Race
Horses
Particulars Rs Rs
Income from the activity of owning and maintaining race 75,000
horses
Less: Brought forward loss from the activity of owning 96,000
and maintaining race horses
Loss from the activity of owning and maintaining race (21,000)
horses to be carried forward
Income from textile business 85,000
Less: Brought forward business loss from textile busi- 50,000 35,000
ness.
Total income 35,000
Note: Loss from the activity of owning and maintaining race horses cannot be set-off
against any other source/head of income.
Page – 55 Illustration 1- Carry Forward of Loss from House Property
Income from House Property

A 60,000
B 100000
C (1,50,000)
10,000
Less: Brought forward loss (30,000)
House Property Loss c/f (20,000)
IFOS 1,00,000
Total Income 1,00,000
Page – 55 (2) Illustration 2- Carry Forward of Loss from House Property

Computation of taxable income of Mr. E for the A.Y. 2018-19
Particulars Rs Rs
Income from salaries 1,50,000
Income from speculation business 60,000
Less : Loss from non-speculation business (40,000) 20,000
Short-term capital gain 80,000
Winnings from lotteries 20,000
Taxable income 2,70,000
Note: Long term capital loss can be set off only against long term capital gain. Therefore,
long term capital loss of ` 30,000 has to be carried forward to the next assessment year.
Practical Exercise:
1.Computation of Gross Total Income of Mr. Sohan for the A.Y. 2018-19
Particulars Rs Rs
Salaries
Less: Loss from house property set-off against salary income (40,000) 2,60,000
Profits and gains of business or profession

Income from sugar business 50,000
Less: Brought forward loss from iron-ore business set- off
(50,000) Nil
Balance business loss of ` 70,000 of P.Y. 2012-13 to be carried
forward to A.Y. 2019-20
Capital gains
Less: Short term capital loss set-off (40,000) Nil
Balance short-term capital loss of ` 20,000 to be carried forward
Short-term capital loss of ` 10,000 under section 111A also to be
carried forward
Long-term capital gains on which STT is paid Exempt
Income from other sources
Dividend income Exempt
Agriculture Income Exempt
Winnings from lottery 50,000
Winnings from card games 6,000
Bank interest 5,000 61,000
Gross Total Income 3,21,000
Losses to be carried forward to A.Y.2019-20
Loss of iron-ore business 70,000
Short term capital loss (Rs 20,000 + Rs.10,000) 30,000
2.
Computation of Gross Total Income of Mr. Batra for the A.Y. 2018-19
Particulars Rs. Rs.
Salaries 1,00,000
Less: Current year loss from house property (40,000) 60,000
Profit and gains of business or profession
Income from textile business 50,000
Less: Loss from textile business brought forward from 60,000
A.Y. 2010-11
Balance business loss of A.Y. 2010-11 cannot be carried (10,000) NIL
forward
Income from the activity of owning and maintaining 15,000
race horses
Less: Loss from activity of owning and maintaining
race horses brought forward from A.Y. 2015-16 25,000
Loss to be carried forward to A.Y. 2019-20 (10,000) NIL
Capital Gain
Short term capital gain 1,40,000
Long term capital gain on sale of land 30,000
Less: Long term capital loss on sale of shares 1,00,000
Loss to be carried forward to A.Y. 2019-20 (70,000) NIL
Gross Total Income 2,00,000

Losses to be carried forward to A.Y. 2019-20
Particulars Rs.
Current year loss from speculative business 60,000
Current year long term capital loss on sale of shares 70,000
Loss from activity of owning and maintaining of race horse 10,000
pertaining to A.Y.2015-16
3.
Computation of total income of Mr. Aditya for the A.Y. 2018-19
Particulars Rs Rs
Salaries
Income from Salary 3,00,000
Less: Loss from house property set-off against salary income 2,00,000 1,00,000
Profits and gains of business or profession
Income from trading business 45,000
Less: Brought forward loss from trading business of A.Y. 2013- 5,000 40,000
14 can be set off against current year income from trading
business since the eight year time limit within which set-off is
permitted, has not expired.
Income from speculative business B 5,000
Less: Loss from speculative business A set-off 25,000

Loss from speculative business A to be carried forward to
A.Y.2019-20 20,000
Capital Gains
Long term capital gain on sale of urban land 2,00,000
Less: Long term capital loss on sale of shares (STT not paid)
set-off 75,000 1,25,000
Long-term capital loss of ` 82,000 on sale of listed shares on
which STT is paid cannot be set-off against long-term capital
gain on sale of urban land since loss from an exempt source
cannot be set-off against profit from a taxable source.
Items eligible for carried forward to A.Y.2019-20
Particulars Rs.
Loss from House property 50,000
Loss from house property can be set-off against any other head of
income to the extent of ` 2,00,000 only.
Balance loss not set-off can be carried forward to the next year for
set-off against income from house property of that year.
Income From Salary  The aggregate income
after giving the effect of
Income From House Property Clubbing of income and
Set Off of Losses is called
Profits and Gains from Business and Profession Gross Total Income
Capital Gains  Tax is calculated on Total

Income
Income From Other Sources Why
Deductions  Deductions cannot
Gross Total Income ??? exceed the Gross Total
Income. If Gross Total
Less : Deductions under Section 80C to 80U Income is negative no
deductions can be
Total Income claimed
Income From Salary
Deductions are not available from
the following incomes:
Income From House Property 1. All Long Term Capital Gains
which are separately taxed at
Profits and Gains from Business and Profession flat rate of 20%
2. Short Term Capital Gain on sale
Capital Gains of STT paid listed shares which
are separately taxed at flat rate
of 15%
Income From Other Sources 3. Winnings from lotteries,
crossword puzzles, horse races,
Gross Total Income card games etc. which are
separately taxed at flat rate of
Less : Deductions under Section 80C to 80U 30%
These incomes will be excluded
before claiming deduction under
Total Income
Section 80C to 80U
• Individual and HUF can claim 80C deduction
Sec 80C – • Maximum amount of deduction is Rs.1,50,000
Recap
• LIC Premium of self, spouse and children

Eligible (whether dependent or not)
• Contribution to Employees Provident Fund(EPF)
Investments/ and Public Provident Fund (PPF)
• Repayment of Housing loan
Payments • Investment in NSC, Sukanya Samriddhi Scheme

• Tution Fees of Children
Section • Eligible Payment- An amount
paid/deposited by an individual under
80CCC annuity plan of LIC for receiving pension
• Maximum deduction is Rs.1,50,000

Amount of • If 80C is also applicable then
combined limit of 80C and 80CCC is
Deduction Rs.1,50,000
Tax • Pension received on

Treatment maturity will be
taxable
of Pension
Deduction under Section 80 C
ILLUSTRATION
Contribution to PPF 1,10,000
• The gross total income of Mr. X for the A.Y.
2020-21 is Rs. 5, 00,000. He has made the Payment of tuition fees 45,000
following investments/payments during Repayment of housing loan 25,000
the F.Y. 2019-20
PARTICULARS Rs. Total 1,80,000
Contribution to PPF 1,10,000 But deduction u/s 80C is restricted 1,50,000
Payment of tuition fees to 45,000 to Rs.1,50,000
Apeejay School , New Delhi, for
education of his son studying in Deduction under Section 80 CCC
class XI Contribution to approved pension 1,05,000
Repayment of housing loan taken 25,000 fund of LIC
from Standard Chartered Bank
Total 2,55,000
Contribution to approved pension 1,05,000
fund of LIC But deduction u/s 80C and
80CCCcannot exceed Rs.1,50,000
• Compute the eligible deduction under
Chapter VI-A for the A.Y.2020-21. Final Deduction for 2019-20 1,50,000
Why
Section • Individual and HUF can claim Mediclaim
80D Policy
• Mediclaim insurance premium

• Contribution to Central Government
Eligible Health Scheme (CGHS)
Payments • Preventive Health Check Up (Max
Rs.5,000)
• Any mode other than

Mode of cash
• Preventive health check
Payment up may be paid in cash
Type of Payment For Whom Taken Maximum Maximum Deduction for Total
Deduction senior citizen Deduction
1. Mediclaim Insurance Self 25,000 50,000 25,000/
Premium Spouse (If either of column 2 50,000
2. Contribution to CGHS Dependent Children people are senior citizens
3. Preventive Health Check Up i.e. above the age of 60
(5,000 maximum and can be years)
paid in cash)
1. Mediclaim Insurance Parents (whether 25,000 50,000 25,000/ 50,000

Premium dependent or not) (If either of column 2
2. Preventive Health Check Up people are senior citizens
(5,000 maximum and can be i.e. above the age of 60
paid in cash) years)
1. Medical expenditure of Self 50,000 - 50,000

senior citizen (above 60 years) Spouse
or super senior citizen (above Parents (whether
80 years) if Mediclaim policy is dependent or not)
not taken on them
Deduction in the case Deduction in the case of
of an Individual HUF
For whose benefit payment can be made Family Parents Any member of HUF
A. a. Medi-claim insurance premium Eligible Eligible Eligible
b. Contribution to CGHS/notified scheme Eligible - -
c. Preventive health check-up payment Eligible Eligible -
Maximum deduction-
General deduction [applicable in respect of (a), (b) and Rs.25,000 Rs.25,000 Rs.25,000
(c).]
Additional deduction [applicable only in case of (a) when Rs.50,000 Rs.50,000 Rs.50,000
medi-claim policy is taken on the life of a senior citizen]
B. Medical expenditure on the health of a person who is a Eligible Eligible Eligible

senior citizen or super senior citizen if mediclaim
insurance is not paid on the health of such person
Maximum deduction in respect of (B) Rs.50,000 Rs.50,000 Rs.50,000

C. Maximum deduction in respect of (A) and (B) Rs.50,000 Rs.50,000 Rs.50,000
ILLUSTRATION Actual Deduction
• Mr. A, aged 40 years, paid medical payment Allowed
insurance premium of Rs. 20,000 during
For Self and Spouse
the P.Y.2019-20 to insure his health as
well as the health of his spouse. 1. Medical insurance 20,000
• He also paid medical Insurance premium for self and spouse
premium of Rs. 27,000 during the year 2. Contribution to CGHS 3,600
to insure the health of his father, aged
63 years, who is not dependent on him. 3. Preventive Health Check 3,000
• He contributed Rs 3,600 to Central Total 26,600 25,000
Government Health Scheme during the For Senior Citizen Father
year.
1. Medical insurance 27,000
• He has incurred Rs 3,000 in cash on premium
preventive health check-up of himself
and his spouse and Rs 4,000 by cheque 2. Preventive Health Check 4,000
on preventive health check-up of Total *(Since Father is 31,000 31,000
his father senior citizen)
• Compute the deduction allowable Total Deduction u/s 80D 56,000
under section 80Dfor the P. Y. 2019-20.
ILLUSTRATION
• For the previous year 2019-20, the business income of X (age:29 years ) is Rs.11,47,000.
During the year ,he pays the following by cheque to get tax benefit –
Insured person Mediclaim Insurance
Premium
X 22,000
Mrs. X (not dependent upon X) 4,500
Son (not dependent upon X) 800
Daughter (not dependent upon X) 2,500
Parents of the Tax payer –
Father (age:62 years , resident in India, not dependent upon X) 11,000
Mother (age:59 years, dependent upon X ) 36,000
Others –
Grandparents ( dependent upon X ) 500
Father of Mrs. X ( dependent upon X ) 800
Brother ( dependent upon X ) 900
• Besides, X pays Rs. 1,16,000 towards pension fund of LIC. Find out the net income of X for
the assessment year 2020-21
Actual Deduction
payment Allowed
Medical insurance premium for Self, Spouse and
children
X 22,000
Mrs. X 4,500
Son and Daughter (not dependent) NIL
Total 26,500 25,000
Medical insurance premium for Parents and Others
Father - Not Dependent (Senior Citizen) 11,000
Mother –Dependent 36,000
Grandparents, Father in-law and dependent brother Not Eligible
Total *(Since Father is senior citizen) 47,000 47,000
Total Deduction u/s 80D 72,000

TOTAL INCOME OF Mr. X
Business Income 11,47,000
GROSS TOTAL INCOME 11,47,000
Less: Deductions u/s 80
1. Section 80D 72,000
2. Section 80 CCC (Allowed upto Rs.1,50,000) 1,16,000
TOTAL INCOME 9,59,000
Spouse,
Section • Individual and HUF can claim
Children,
Parents,
80DD Brothers and
sisters
• Expenditure on medical
treatment/training/ rehabilitation of
Eligible dependent relative suffering from
Payments disability (40%)
• Fixed deduction of
Rs.75,000
Amount of • Higher deduction of
Deduction Rs.1,25,000 if disability is
severe(80%)
ILLUSTRATION
• X (age :36 years ), a resident individual, has income of Rs.7,30,000 (i.e., Rs. 4,45,000
from a business in Delhi and Rs. 2,85,000 from a property in Bombay ) during the
previous year 2019-20. Find out his net income for the assessment year 2020-21 :
• Life insurance premium on own life (policy since 2011) paid
by X in cash on March 31,2020 (sum assured Rs. 2,00,000) Rs. 33,334
• Contribution towards pension fund of LIC Rs.11,000
• Mediclaim insurance premium on the life of Rs.29,000
dependent father (age :64 years)paid by
cheque on April 20,2019
• Mediclaim insurance premium on the life of Rs.7,000
dependent handicapped brother paid by cheque on April 26,2019
• Medical treatment of dependent brother Rs.50,000
(being a person with disability )
Income from House Property 2,85,000
Business Income 4,45,000
1. Section 80C (Allowed upto Rs.1,50,000) (33,334)
2. Section 80 CCC (Allowed upto Rs.1,50,000) (11,000)
3. Section 80D (29,000)
(Father is senior citizen, so eligible upto Rs.50,000
Not eligible for Dependent brother)
4. Section 80DD (75,000)
(Rs.75,000 will be eligible irrespective of actual expenditure of
Rs.50,000)
Spouse,
Section
• Individual and HUF can claim Children,
80DDB Parents,
Brothers and
sisters
• Expenditure on medical
Eligible treatment of specified disease
or ailment of self or
Payments dependent relative
• Actual amount or Rs.40,000

whichever is lower (Rs.60,000
for senior citizen Rs. 80,000 for
Amount of super senior citizen)
Deduction • Deduction will be reduced by
amount reimbursed from
insurance company or employer
• X (35 years ) is a resident individual. During the previous year 2019-20,
he incurs the following expenditure –
Actual Amount Amount
expenditure reimbursed reimbursed by
by insurance employer of X
company
Medical treatment (specified disease )of 30,000 Nil 28,000
X in a Government hospital
Medical treatment (specified disease ) of 14,000 3,000 6,000
Mrs. X in a hospital recognized by Chief
Commissioner
• Salary of X is Rs. 4,00,000 . In the two cases disease is specified in the

rules made by the Board .
• Find out the net income of X for the assessment year 2020-21.
Salary Income 4,00,000
GROSS TOTAL INCOME
1. Section 80DDB (3,000)
Actual Expenditure : Rs.30,000 +14,000= 44,000 OR
Rs. 40,000 whichever is lower
Then 40,000 will be reduced by (3,000 + 28,000 +6,000)
reimbursement from insurance company and employer)
So, 40,000 -37,000= 3,000
Section
• Individual can claim Self, Spouse,
80E and Children
• If loan is taken for study in India

Eligible or outside India from a bank or FI,
interest paid during the year is
Payments allowed as deduction
• Entire interest is deductible

from the year in which the
Amount of individual starts paying interest
Deduction upto 8 years or till repayment
whichever is earlier
Illustration:
• X has taken three education loans on March 1,2019 . The details of which are given
below
Loan 1 Loan 2 Loan 3
For whose education loan was X Mrs.X Daughter of X
taken
Purpose of loan Full time MBA Part time MCA Full time MBA
Amount of loan 6,00,000 3,00,000 5,00,000
Annual repayment of loan during
the previous year 2019-20 1,00,000 50,000 1,00,000
Annual payment of interest
during the previous year 2019-
20 60,000 40,000 55,000
Find out the amount deductible under section 80E for the assessment year 2020-21.
Repayment of loan NIL
Payment of Interest 1,55,000
Total 1,55,000
AMOUNT DEDUCTIBLE UNDER SECTION 80E 1,55,000
Section • Individual and HUF can claim
80TTA
• Interest on deposit in a saving account
with banking company, co-operative
society engaged in banking, post office
• Note: From the A.Y. 2019-20, the above
Eligible deduction is not available in the case of
Payments a senior citizen who is eligible to claim
deduction under section 80TTB
• Interest upto Rs.10,000 is
deductible
• P.O Savings Bank interest upto
Amount of 3,500 (individual name) and
Deduction 7,000 (joint name) is exempt
Section • Individual - senior citizen
80TTB
• Interest on deposit in a saving account
with banking company, co-operative
society engaged in banking, post office
• Note: From the A.Y. 2019-20, 80TTA
Eligible deduction is not available in the case of
Payments a senior citizen who is eligible to claim
deduction under section 80TTB
• Interest upto Rs.50,000 is

Amount of deductible
Deduction
Section • Any Taxpayer
80G
• Aggregate of the donations made to any of the
institution /fund
• Donation in kind is not included
Eligible • Donation can be given in cash or by cheque or
Payments draft
• Cash donation of max Rs.2,000 will be allowed
Amount of • 50% or 100% (as applicable) of the

Deduction amount of donations
• X (34 years ), a resident individual, submits the following particulars of his income for the
previous year 2019-20
Business income 83,000
Interest on debentures 49,000
Long term capital gains on transfer of gold 4,10,000
Short term capital gain on sale of shares taxable under section 111A 20,000
Other short term capital gain 10,000
Contribution towards public provident fund 40,000
Payment of medical insurance premium on own life 3,000
Donation by cheque to Clean Ganga Fund (N.A. -100%) 4,000
Donation by cheque to Swachh Bharat Kosh (N.A. -100%) 3,000
Donation by cheque to Rajiv Gandhi Foundation (N.A. -50%) 1,000
Donation by cheque to Prime Minister’s Draught Relief Fund (N.A. -50%) 5,000
Donation by cheque to poor boy for higher education 5,000
Donation by cheque of clothes to an approved institution 12,000
Donation by cheque to a charitable institution for construction of a rest house only for a 8,000
particular religious community
Donation by cash to National children fund 40,000
Determine the net income of X for the assessment year 2020-21
Business Income 83,000
Long Term Capital Gains 4,10,000
Short Term capital gains u/s 111A 20,000
Other Short Term Capital Gain 10,000
Interest on debentures 49,000
Less: Deduction u/s 80
1. Deduction u/s 80C 40,000
2. Deduction u/s 80D 3,000
3. Deduction u/s 80G 10,000

• Mr. Gurnam, aged 42 years, has salary income (computed) of Rs. 5,50,000 for the
previous year ended 31.03.2019. He has earned interest of Rs. 14,500 on the saving
bank account with State Bank of India during the year.
Compute the total income of Mr. Gurnam for the assessment year 2020-21 from the
following particulars:
• Life insurance premium paid to Birla Sunlife Insurance in cash amounting to Rs. 25,000
for insurance of life of his dependent parents. The insurance policy was taken on
15.07.2015 and the sum assured on life of his dependent parents is Rs. 1,25,000.
• Life insurance premium of Rs. 25,000 paid for the insurance of life of his major son who
is not dependent on him. The sum assured on life of his son is Rs. 3,00,000 and the life
insurance policy was taken on 30.3.2013.
• Life insurance premium paid by cheque of Rs. 22,500 for insurance of his life. The
insurance policy was taken on 08.09.2015 and the sum assured is Rs. 2,00, 000.
• Premium of Rs. 22,000 paid by cheque for health insurance of self and his wife.
• Rs. 1,500 paid in cash for his health check-up and Rs. 3,500 paid in cheque for health
check-up for his parents, who are senior citizens.
• Paid interest of Rs. 6,500 on loan taken from bank for MBA course pursued by his
daughter.
• A sum of Rs. 15,000 donated in cash to an institution approved for purpose of section
80G for promoting family planning.
Income from Salary 5,50,000
Interest on Saving Bank Deposit 14,500
1. Deduction u/s 80C
LIC Premium for dependent parents NA
LIC Premium of major son 25,000
LIC Premium of self (Policy taken after April 2013 so restricted to
10% of policy amount ) (10% of 2,00,000) 20,000 45,000
2. Deduction u/s 80D
Mediclaim insurance of self and wife 22,000
Payment of Health check up- Self 1500 23,500
Payment of Health check up -Parents 3500 3500

3. Deduction u/s 80E (Interest on loan for MBA of daughter) 6,500
4. Deduction u/s 80TTA (Interest on S.B. Account upto Rs.10,000) 10,000
5. Cash Donation u/s 80G 2,000 90,500
COMPUTATION
OF TOTAL
INCOME
STEPS TO COMPUTE TOTAL INCOME
Step 1 Determination of residential status
1. Resident
1.1 Resident and ordinarily resident
1.2 Resident but not ordinarily resident
2. Non - resident
Step 2 Classification of income under different heads
1. Salaries,
2. Income from house property,
3. Profits and gains of business or profession
4. Capital Gains
5. Income from Other sources
Step 3 Computation of income under each head
Income under each head AND exemptions AND deductions
Step 4 Clubbing of income of spouse, minor child etc.
Step 5 Set-off or carry forward and setoff of losses

1. Inter - source set-off of losses
2. Inter - head set-off of losses
3. Carry forward for set-off of losses
Step 6 Computation of Gross Total Income

Gross Total Income =
 Add income computed under each head
 Apply clubbing provisions
 Apply the provisions for set-off and carry forward of losses.
Step 7 Deductions from Gross Total Income
1. Deductions in respect of expenditure
2. Deductions in respect of income
3. Deduction in respect of other income
4. Other deduction
Step 8 Computation of Total income

1. Gross Total Income Deduction under chapter VI-A
2. Rounded off to the nearest multiple of ₹ 10
Tax Rates for A.Y. 2020-21 – Individual/HUF, AOP,BOI
Income Slabs Income Tax Rate
Upto ₹ 2,50,000 NIL
₹ 2,50,000 - ₹ 5,00,000 5% {Rebate u/s 87A}
₹ 5,00,000 - ₹ 10,00,000 20%
Exceeding ₹ 10,00,000 30%
Income Slabs ( 60 years - 80 years) Income Tax Rate

NIL
Upto ₹ 3,00,000
₹ 3,00,000 - ₹ 5,00,000 5% Rebate u/s 87A
₹ 5,00,000 - ₹ 10,00,000 20%
Exceeding ₹ 10,00,000 30%
Income Slabs (Super Senior Citizen) Income Tax Rate
Upto ₹ 5,00,000 NIL
₹ 5,00,000 - ₹ 10,00,000 20%

Exceeding ₹ 10,00,000 30%
Surcharge for Individual/HUF, AOP, BOI, AJP
• Surcharge of 10 % of Income Tax will be payable, if total income is

above Rs 50 lakhs and less than 1 crore
• Surcharge of 15 % of Income Tax will be payable, if total income is
above Rs 1 crore and less than 2 Crore.
• Surcharge of 25% of Income tax will be payable if total income is
above Rs. 2 Crore and less than 5 Crore
• Surcharge of 37% on Income tax will be payable if total income is
above Rs. 5 Crore.
• Health and Education Cess of 4% on (Income Tax + Surcharge)

1. Total income of R who is aged 46 years, for the previous year ending 31.3.2020 is
Rs.4,94,900. Compute the tax payable by him for the assessment year 2020-21.
Tax Liability of R for A.Y.2020-21
■ Total Income Tax Rate Tax
■ First Rs.2,50,000 NIL NIL
■ Next 2,50,000 -5,00,000 5% 12,245
( 4,94,900 -2,50,000 = 2,44,900)
TAX ON TOTAL INCOME 12,245
LESS: REBATE U/S 87A (Tax or Rs.12,500 w.i.l) 12,245
INCOME TAX AFTER REBATE NIL
ADD: SURCHARGE (If income exceeds 50 lakh) NA
INCOME TAX AFTER SURCHARGE NIL
ADD: HEALTH AND EDUCATION CESS @4% NA
FINAL TAX LIABILITY NIL
2. Total income of Mrs. R aged 60 years, a resident of India , for the previous year 2019-20 is Rs.
9,46,300. Compute her tax liability for the assessment year 2020-21.
Tax Liability of Mrs.R for A.Y.2020-21
■ Next 3,00,000 -5,00,000 5% 10,000
■ Next 5,00,000-10,00,000 20% 89,260
( 9,46,300 -5,00,000 = 4,46,300)
LESS: REBATE U/S 87A (Tax or Rs.12,500 w.i.l) NA
INCOME TAX AFTER REBATE 99,260
INCOME TAX AFTER SURCHARGE 99,260
ADD: HEALTH AND EDUCATION CESS @4% 3,970.4
FINAL TAX LIABILITY 1,03,230
3. Mr. A age 35 informs you that his total income computed under the Income Tax Act
is Rs. 4,01,432.You are required to calculate his tax liability for the Assessment year
2020-21 .
Tax Liability of A for A.Y.2020-21
■ Next 2,50,000 -5,00,000 5% 7,571.6
( 4,01,432 -2,50,000 = 1,51,432)
LESS: REBATE U/S 87A (Tax or Rs.12,500 w.i.l) 7570
INCOME TAX AFTER REBATE NIL
INCOME TAX AFTER SURCHARGE NIL
ADD: HEALTH AND EDUCATION CESS @4% NA
FINAL TAX LIABILITY NIL
4. Mr Mohit, aged 50 has a taxable income of Rs. 1,07,00,000. Compute his tax
liability. Tax Liability of Mohit for A.Y.2020-21
■ Next 2,50,000 -5,00,000 5% 12,500
■ Next 5,00,000-10,00,000 20% 1,00,000
■ Above 10,00,000 30% 29,10,000
( 1,07,00,000 -10,00,000= 97,00,000)
TAX ON TOTAL INCOME 30,22,500
INCOME TAX AFTER REBATE 30,22,500
ADD: SURCHARGE (If income bet. 1crore– 2 crore @15%) 4,53,375
INCOME TAX AFTER SURCHARGE 34,75,875
ADD: HEALTH AND EDUCATION CESS @4% 1,39,035
5. If Mr. Mohit has taxable income of Rs.99,00,000 ?
Tax Liability of Mohit for A.Y.2020-21
■ Next 2,50,000 -5,00,000 5% 12,500
■ Next 5,00,000-10,00,000 20% 1,00,000
■ Above 10,00,000 30% 26,70,000
( 99,00,000 -10,00,000= 89,00,000)
TAX ON TOTAL INCOME 27,82,500
INCOME TAX AFTER REBATE 27,82,500
ADD: SURCHARGE (If income bet. 50 lakh– 1crore @10%) 2,78,250
INCOME TAX AFTER SURCHARGE 30,60,750
ADD: HEALTH AND EDUCATION CESS @4% 1,22,430
Step 12 Credit for Advance Tax, TDS and TCS
• Every person is liable to pay advance tax if tax payable is Rs. 10,000 or more.
•The following are the particulars submitted by different taxpayers for the A.Y. 2020-21: Determine the
amount of advance tax payable during the financial year 2019-20.
Mrs. X (an Y Z
individual ) (A HUF) (A firm)
(30 years ) Rs. Rs.
Rs.
Salaries 1,10,000 - -
Income from house property 62,000 7,97,000 6,000
Profit and gain from business and 10,00,000 (3,000) 5,98,840
profession
Capital gains (short term ) 6,000 - 18,380
Income from other sources 13,000 38,000 23,000
Gross total income 11,91,000 8,32,000 6,46,220
Less : Deductions under sections 80C to 80U
Under section 80C 50,000 61,000 -

Under section 80D 20,000 14,500 -
Under section 80G - 13,000 1,02,000
Net income 11,21,000 7,43,500 5,44,220
Tax 1,48,800 61,200 1,63,266
Add : Surcharge Nil Nil Nil
Tax and surcharge 1,48,800 61,200 1,63,266
Add: HEC cess (4% of tax and surcharge ) 5,952 2,448 6,512
TOTAL 1,54,752 63648 1,69,796

LESS: Tax deducted or collected at source 1,53,265 19,026 61,886
BALANCE (A) 1,487 44,622 1,07910
Is Advance Tax Payable? No Yes Yes
1 st Installment ( upto 15 % of Advance Tax) No 6,693 16186

2nd Installment (upto 45 % of Advance Tax) No 13,386 32373
3rd Installment (upto 75 % of Advance Tax) No 13,386 32373
4th Installment (upto 100 % of Advance Tax) No 11,155 26975
Step 13 Tax payable/Tax refundable

1. Net tax liability should be rounded off to the nearest multiple of ₹10.
2. The assessee has to pay the amount of tax payable (called seIf-assessment tax)
at the time of filing of the return
3. If any refund is due, assessee will get the same after filing the return of
income.
Sum: 1 Ms. Purvi, aged 35 years , is a Chartered Accountant in practice. She maintains her accounts
on cash basis. Her Income and Expenditure account for the year ended March 31, 2020 reads as
follows:
Expenditure ₹ Income ₹
Salary to staff 15,50,000 Fees earned :
Stipend to articled Assistants 1,37,000  Audit 27,88,000
Incentive to articled Assistants 13,000  Taxation services 15,40,300
Office rent 12,24,000  Consultancy 12,70,000 55,98,300

Printing and stationery 12,22,000 Dividend on shares of Indian 10,524
companies (gross )
Meeting, seminar and Conference 31,600 Dividend from UTI 7,600
Purchase of car 80,000 Honorarium received from 15,800

various institutions for valuation of
answer papers
Repair, maintenance and petrol of car 4,000 Rent received from residential flat let 85,600
out
Travelling expenses 5,25,000
Other Information:
 Allowable rate of depreciation on motor car is 15 %.
 Value of benefits received from clients during the course of profession is ₹10,500.
 Incentives to articled assistants represent amount paid to two articled assistants for passing IPCC
examination at first attempt.
 Repairs and maintenance of car include ₹2,000 for the period from 1-10-2019 to 31-03-2020.
 Salaries include ₹30,000 to a computer specialist in cash for assisting Ms. Purvi in one
professional assignment.
 The travelling expenses include expenditure incurred on official foreign tour of ₹32,000 which was
within the RBI norms.
 Medical Insurance Premium on the health of dependent brother and major son dependent on her
amounts to ₹5,000 and ₹10,000, respectively, paid in cash
 She invested an amount of ₹10,000 in National Saving Certificate.
Compute the total income and tax payable of Ms. Purvi for the assessment year 2020-21.
Working Note 1
Income from House Property
GAV (Rent from flat ) 85,600
(-) M .taxes 3,000
N.A.V 82,600
(-) 30% Std Deduction (24,780)
Taxable Income from the head House Property 57,820
Working Note 2
PGBP
Net profit as per Income Expenditure A/c 9,28,224
Add:
1. Salary in Cash disallowed 30,000
2. Cost of Car (Capital Expenditure ) 80,000
3. M.Taxes of property 3,000
4. Benefits from Clients not recorded 10,500
Less :-
1. Dividend (10,524)
2. UTI Dividend (7,600)
3. Honorarium (15,800)
4. Rent of Property (85,600)
5. Depreciation on car (15% of 80,000) (12,000)
(Assuming used for more than 180 days )
9,20,200
Working Note No. 3- Income from Other Sources
1. Dividend from Indian Co. Exempt

2. Dividend from UTI Exempt
3. Honorarium 15,800
15,800
Particulars Amount
1. Income from House Property 57,820
(Refer W.N. No.1 )
2. Profits and Gains from business and profession 9,20,200
(Refer W.N. No. 2)
3. Income from other sources 15,800
(Refer W.N. No. 3)
Less: - Deduction U/s 80
1. 80C –Investment in NSC 10,000
2. 80D – (Not Eligible as mediclaim Premium paid in cash ) Nil
Tax on Total Income
Upto 2,50,000 – Nil
(2,50,000 – 5,00,000 )- 5%
(2,50,000 *5%) = 12,500
5,00,000 -9,83,820 ) – 20%
(4,83,820 *20% ) = 96,764 1,09,264
Add :- Cess @4% 4,371
Total Tax 1,13,635
Sum: 2 Mr. Y carries on his own business. An analysis of his trading and profit & loss for the year
ended 31-3-2019 revealed the following information:
A. The net profit was ₹11,20,000.
B. The following incomes were credited in the profit and loss account :
 Dividend from UTI ₹22,000.
 Interest on debentures ₹17,500.
 Winnings from races ₹15,000.
C. It was found that some stocks were omitted to be included in both the opening and closing
stocks, the value of which were :
 Opening stock ₹8,000
 Closing stock ₹12,000.
D. Salary includes ₹20,000 paid to his brother which is unreasonable to the extent of ₹2,500
E. Advertisement expenses include 15 gift packets of dry fruits costing ₹1,000 per packet
presented to important customers.
F. Total expenses on car were ₹78,000.The car was used both for business and personal
purposes 3/4th is for business purposes.
G. Depreciation debited in the books was ₹55,000. Depreciation allowed as per Income-tax
Rules, 1962 was ₹50,000.
H. Drawings ₹10,000.
I. Investment in NSC ₹15,000.
Working note 1. PGBP
N.P as per P/L A/c 11,20,000
Less:
1. Under valuation of opening stock 8,000
2. Dividend 22,000
3. Winning from races 15,000
4. Interest on debentures 17,500
ADD:
1. Under valuation of closing stock 12,000
2. Salary paid excess to relative 2,500
3. Car expenses being Personal (1/4 of 78,000) 19,500

4. Depreciation (55,000-50,000) 5,000
5. Drawings (Personal) 10,000
6.Investment in NSC 15,000`
Total 11,21,500
Working note 2.
IFOS
1. Dividend Exempt
2. Interest on debentures 17,500

3. Winning from races 15,000
Total Income of Mr. Y for A.Y. 18-19
Particulars Amount
1. Profits and gains from business and Profession (W.N. No. 1) 11,21,500
2. Income from other sources (W.N.No. 2) 32,500
Less:-Deduction U/s 80
1. 80C –Investment in NSC 15,000
Assuming Mr. Y is not a Senior Citizen
Tax Liability
Income taxed @ special rate of 30% (Winnings from races ) 15,000
Income taxed @ Slab rates (11,39,000-15,000) 11,24,000
Tax on winnings from races : (30% of 15,000) 4,500
Tax on Other Income
Upto 2,50,000- Nil
2,50,000 -5,00,000 @ 5% (2,50,000*5% ) = 12,500
5,00,000 – 10,00,000 @20% (5,00,000*20%) = 1,00,000
10,00,00-11,24,000 @30% (1,24,000*30%) = 37,200 1,49,700
TOTAL TAX 1,54,200
Add cess @4% 6,168
1,60,368
Sum : 4: From the following details , compute the total income of Siddhant of Delhi and tax payable for
the A.Y. 2019-20:
Particulars ₹
Salary including dearness allowance 3,35,000
Bonus 11,000
Salary of servant provided by the employer 12,000
Bills paid by the employer for gas, electricity and water provided free of 11,000
Cost at the above flat
Siddhant purchased a flat in a co-operative housing society in Delhi for ₹4,75,000 in April, 2015, which
was financed by a loan from Life Insurance Corporation on India of ₹1,60,000 @15% interest, his own
savings of ₹65,000 and a deposit from a nationalized bank for ₹2,50,000 to whom this flat was given
on lease for ten years. The rent payable by the bank was ₹3,500 per month. The following particulars
are relevant:
1. Municipal taxes paid by Mr. Siddhant ₹4,300 (per annum)
2. House Insurance ₹860
3. He earned ₹2,700 in share speculation business and lost ₹4200 in cotton speculation business.
4. In the year 2019-20, he had gifted ₹30,000 to his wife and ₹20,000 to his son who was aged 11.
The gifted amounts were advanced to Mr. Rajesh, who was paying interest @19% per annum.
5. Siddhant received a gift of ₹25,000 each from four friends.
6. He contributed ₹50,000 to Public Provident Fund.
Total Income
1. Income ofSalary
from Siddhant for A.Y 2019-20
1. Basic Salary 3,35,000
2. Bonus 11,000
3. Perquisites
a) Domestic Servants 12,000
b) Gas/Electricity 11,000 3,69,000
(-) Standard Deduction (50,000)
2. Income from House Property
Gross Annual Value (Rent = 3,500*12) 42,000
(-) M.Taxes (4,300)
N.A.V 37,700
(-) Standard Deduction (30% of NAV) (11,310)
(-)Int on loan (24,000) 2,390
(1,60,000*15%)
PGBP
1. Speculation Business Income 2,700
2. Speculation Business loss (4200)
carried forward to next year (1,500)
IFOS
1. Interest on gifted money
Spouse (30,000*19%) 5,700
Minor (20,000* 19%)
(3,800 -1500 Exemption ) 2,300 8,000

2. Gift Deduction
Less:- from friends
U/s 80 1,00,000 1,08,000
1)Deduction U/s 80C PPF 50,000
Tax on Total Income
Upto2,50,000 – Nil
2,50,000 -5,00,000 @ 5% 1,470
(2,50,000 -2,79,390 ) = 29,390 *5%
Less: Rebate (1,470)
TOTAL TAX Nil
You are destined for
greatness…..
Believe in Yourself and

Go For It !!!
My best Wishes for your life ahead!!!
Sum 1)
Net Profit as per P/L A/c 4,01,000

Add:-
1. Salary to relative 40A (2) (58,000 – 50,000) 8,000
2. Municipal Tax of H. P. 6,000
3. Repairs to House 16,250
4. Depreciation as per books 50,000
5. LIC Premium- Proprietor 13,200
6. GST paid 26,000
Less:-
1. Depreciation as per I.T. Act 46,800
2. Bank Interest (IFOS) 4,500
3. Rent from H.P. (H.P.) 48,000
4. Interest on Business Investments (IFOS) 20,000
Income from Business and Profession 4,01,150

Notes:-
1- Rent- Assuming paid after TDS deduction so 40(a) not applicable. It is an allowable
expense.
2- Commission on sales, Assuming to be paid during P.Y. so 43B is not applicable. It is
allowable expense.
3- Entertainment expense. Interest collection charges are assumed to be for official/ business
purpose.
4- Embezzlement of cash is an allowable business loss.
5- Bad debts is allowed u/s 36.
6- Office expenses are allowed u/s 37.
7- Bad debts recovered is business income as it was allowed in earlier P.Y.
Sum 2)
Net profit as per P/L A/c 20,000
ADD:-
1. Wages of personal servant (250*12) 3,000
2. Rent of premises (50% is for personal use) 3,000
3. Repairs to cars (25% for personal use) 750
4. Electricity Exp ( 50% is for personal use) 1,500
5. Medical expense (to the extent of personal use) 600
6. Depreciation on Car (as block is empty, car is sold) 3,000
7. Advance I.T. (not allowed as its personal) 1,000
Less: -
1. Gift from father but exempt (IFOS) 18,000
2. Sale on motor car (STCG) 9,000
3. Income tax refund (IFOS) 3,000
Income from Business and Profession. 2,850

Notes: -
1. Opening stock, Purchases, sales and closing stock are all business transactions giving
rise to the business gross profits.
2. General expenses are allowed as business expenses u/s 37 assuming to be incurred for
business purpose
3. Audit fees is a business expenses allowed u/s 37.
Sum 3: -,
Net profit as per P/L A/c 30,500
ADD: -
1. Misc. expenses penalty not allowed 1,200
2. Misc. expenses-Defence of criminal case on M.D. 3,000
3. Misc. expenses- donation to fund 2,000
4. Misc. expenses- wealth tax 3,000
5. Bad debts- advance not treated as income so not allowed. 500
6. Provision for tax- (personal expense) notional 22,000
7. Depreciation as per books 40,000
Less: -
1. Depreciation as per IT Act 36,000
2. misc. income- income tax refund(IFOS) 5,000
Income from Business and Profession 61,200
Notes: -
1. Opening stock, purchase, sales, closing stock, stores consumed power and fuel are
allowed as business transaction.
2. Rates and taxes, repairs to machinery and building are deductible u/s 30 & 31.
3. Salaries and wages, contribution to RPF, staff welfare expenses, bonus, insurance, and
commission are allowed u/s 36.
4. Selling expenses and Audit fees allowed u/s 37.
5. License fees and interest allowed u/s 36.
6. All kinds of Provisions and Reserves are Disallowed
7. Income Tax and Wealth Tax are of personal nature. So always disallowed.
8. GST, Sales Tax, Excise Duty, FEMA etc. are allowed on payment basis.
Sum 4: -
Net Profit as per P/L A/c 29,450
Add: -
1. Rent paid to self (personal) 1,200
2. Rates (to the extent of property let out- H.P.) 400
3. Salary Paid to son 40A (2) (doesn’t work for business) 2,400
4. Interest on loan to the extent of own funds. 900
5. Interest on capital (personal) 5,500
6. Charity 100
7. Reserve for doubtful debts 200
8. Ent. Expenses to the extent of personal expenses 150
9. Loss by theft (personal) 800
Less: -
1. Rent from property (H.P.) 2,400
Income from Business and Profession 38,700

Notes: -
1) Diwali Puja expenses are allowed U/s 37
2) Bad debts allowed u/s 36
3) Sundry Income and commission assumed to be business income.
4) Interest from Debtors is business income
Sum 5)
Add: -
1. General Expenses- 30% of car expenses are personal 1,920
2. Provision for Bad Debts 21,000
3. Insurance ( house) personal 600
4. Salary to proprietors 22,000
5. Interest on Capital 13,000
6. Depreciation 60,000
7. Income not Recorded (Business Income) 10,000
8. Interest from debtors (Business Income not recorded) 3,600
9. Sales Tax 12,000
Less:-
1. Rent other than rent from Staff (H.P.) 7,200
2. Depreciation 40,200
3. Interest on deposit with trust (IFOS) 15,000
4. Interest on Units of UTI (IFOS) 13,000
5. Bad Debts 30% not allowed so not income 300
6. Liability paid during the year – not recorded 6,500
7. Audit Fees - not recorded 3,500
8. Discount Allowed - not recorded 2,650

Notes: -
1. Bad debts is allowed as per Sec 36.
2. Salary to staff is allowed u/s 36.
3. Interest on loan from bank and Mrs Ramanathan is allowed u/s 36.
4. Advertisement in newspaper is allowed as deduction u/s 37
5. Commission and brokerage, sundry receipts is business income.
6. Income tax refund not Business income so not included.
7. Interest on deposit with trust and UTI Units is not Business income
8. Interest from Debtors is business income
Sum 6: -
Add: -
1. Diff in stock valuation (9000 – 8000) 1,000
2. Purchase of 30000 by bearer cheque 40A (3) 30,000
3. Freight- demurrage and penalty- 2000+5000 7,000
4. Donation 10,000
5. Income tax 10,000
6. Reserve for bad debts 10,000
7. Depri reserve 10,000
8. Patents (cap exp.) 90,000
9. Interest on Capital to the proprietor 10,000
Less: -
1. Depreciation as per I.T. 8,000
2. Entertainment expense not recorded 8,000
3. Life policy amount 5,000
4. Sale of machine (Capital Gain) 2,000
5. Interest and Dividend (IFOS) 4,000
Notes: -
1. Opening stock valued at 72000*1= 8,000
9
Closing stock valued at 81000 *1= 9,000
9
Profit will increase by 1,000
2. Staff salary, rent and taxes, advertisement, Audit fees, legal exp., Printing stationary
and Contribution to RPF is allowed.
3. Profit on Purchase of lottery is IFOS.
4. All kinds of penalties are disallowed. Demurrage is a kind of penalty for delivering
the goods late from the transport company. So it is disallowed.

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Income from salaries

Income from House property

Income of any trade,

1. Loss of stock due to

Revenue Expenses Profit

Add: All Unrecorded Business Incomes xxxx

Less: All expenses allowed, but not recorded xxxx

Less: All Incomes which are not Business Incomes xxxx

Taxable Income From Business and Profession

Expense 4 xxxx Other yyyy

Effect: Profit will

Expense 4 xxxx Other yyyy Effect: Profit will

Expense 4 xxxx Other yyyy Effect: Profit will

Less: All expenses allowed, but not recorded xxxx

Taxable Income From Business and Profession

Sec 31: Repairs and Insurance of

Sec 32: Depreciation of Business

Sec 37: General

Amount paid as Rates and

Insurance Premium for the

3. An assessee was running a hotel in Mussorie and

4. Premises used partly for business purposes and partly

5. Premises being sub-let

What about Rent

1. First time insurance on car

1. A factory machine has got 2 to 3 electric motors. If

Depreciation as 20,000 Book Profit = 30,000

Depreciation as per Income Tax Act is Rs.15,000

Used For New asset Less than

Active/ Passive Use/ Ready to Use /

Trial run, Residential quarters for part of the

Assets already New Assets Sale value of

Blocks of asset Rate of depreciation Depreciated value on

The following assets are transferred —

Exception If the block of assets is empty or ceases to exist on the

Exception If in the first year in which an asset is acquired, it is

Depreciation for 2019-20 NIL

Block 1 – Plant -15% Rs

Depreciation for 2019-20 NIL

Final Closing W.D.V. on 31.3.2020 after depreciation NIL

Depreciation for 2019-20 NIL

Final Closing W.D.V. on 31.3.2020 after NIL

Block 1 – Plant -15% Rs Depreciation will

Block 1 – Building -10% Rs

Depreciation for 2019-20 70,070

Final Closing W.D.V. on 31.3.2020 after depreciation 7,85,630

Block 1 – Building -10% Rs

Depreciation for 2019-20 6935

Final Closing W.D.V. on 31.3.2020 after 1,31,765

DEPRECIATION 1.4.19: Opening W.D.V. of Plant A, B, C @ 20% Rs. 5,00,000

Opening W.D.V. Rs.5,00,000

+ New Asset Rs.3,00,000

- Sale / Theft NIL

W.D.V. for Depreciation Rs.8,00,000

Dep on Closing W.D.V. @ 20% Rs.1,60,000

Closing W.D.V. on 31.3.2020 Rs.6,40,000

Less: Any Asset in the NIL NIL Total = 17,850

Depreciation on Closing 17,850 16,000

Sec 37: General

Insurance Premium on Business

Insurance premium on health of

Condition :1: Not allowed as

Can it be taken from a relative or family