COURSE FILE

INCOME TAX
 BACHELOR OF BUSINESS ADMINISTRATION (BBA)
BBA 301: Income Tax Law and Practice

L-4, T/P-0, Credits: 04 Max Marks: 75

Objectives: The course aims to help students to comprehend the basic principles of the laws
governing Direct and Indirect taxes. Students are expected to have only elementary knowledge
of the topics specified in the syllabus.

Course Contents

Unit I Hours: -10

Introduction to Income Tax Act 1961, Salient Features a n d Basic Concepts – Previous
Year, Assessment Year, Person, Gross Total Income and Agricultural Income, Residential
Status and Incidence of Tax, Fully Exempted Incomes

Unit II Hours: -12

Heads of Income-Salary (perquisites, allowances and retirement benefits), House Property,
Business or Profession, Capital Gains, Other Sources

Unit III Hours: -12

Deductions u/s 80C to 80U, Provisions for Clubbing of Income (simple problems), M eaning
and Provis ions of Set off and Carry Forward of Losses (simple problems)

Unit IV Hours: -10

Deduction of Tax at Sources, Payment of Advance Tax, Assessment of Individuals

(computation of Total Income and Tax Liability) and Procedure for filing of returns (online
filing- ITR).

Text Books
1. Lal, B.B., (2012), Income Tax and Central Sales tax Law and Practice, Pearson Education.
2. Singhania, V. K and Singhania, Monica, Students Guide to Income Tax, (2015), Taxman Publications.

Reference Books
1. Ahuja, Girish and Gupta, Ravi, Systematic Approach to Income Tax, (2014), Bharat Law House.
2. Datey, V.S., Indirect Taxes-Law and Practice, (2015), Taxmann Publications.
3. Government of India, Bare Acts (2014), (Income Tax, Service Tax, Excise and Customs).
4. Vashisht, Nitin and Lal, B.B., (2012), Direct Taxes: Income Tax, Wealth Tax and Tax Planning, Pearson Education.
Note: Latest edition of text books may be used.

New Delhi Institute of Management

 GGSIPU BBA-301: INCOME TAX LAW AND PRACTICE
Session Topics Text Additional
Books Readings
Unit 1 Introduction: Introduction to Income Tax Act 1961, Salient T2 Ch 1 T4 Ch1
1-5 Features a n d Basic Concepts T2 Ch 1
6-11 Previous Year, Assessment Year, Person, Gross Total Income T2 Ch1 T2 Ch 3
and Agricultural Income
12-14 Residential Status and Incidence of Tax, Fully Exempted Incomes T2 Ch 2 T4 Ch 8,

Unit2 INCOME UNDER HEADS: Heads of Income-Salary T2 Ch T1 Ch 2,3

15-25 (perquisites, allowances and retirement benefits), 4,5,6,7
26-30 INCOME UNDER HEAD House Property T2 Ch T4 Ch 2,3
4,5,6,7
31-35 Business or Profession, Capital Gains, Other Sources T2 Ch T1 C6,7
4,5,6,7

Unit 3 DEDUCTIONS-: Deductions u/s 80C to 80U T2 Ch21 T4 Ch 12,13, 14

36-40
41-43 Provisions for Clubbing of Income (simple problems), T2 Ch 22 T4 Ch 12,13, 14
44-49 M eaning and Provis ions of Set off and Carry Forward of T2 Ch 24 T4 Ch 5
Losses (simple problems)
Unit 4 Deduction of Tax at Sources, Payment of Advance Tax T2 Ch 23 T4 Ch 14
50-53
54-56 Assessment of Individuals (computation of Total Income and T2 Ch 28 T4 Ch 15
Tax Liability) and Procedure for filing of returns (online filing-
ITR).
Objective: Objectives: The course aims to help students to comprehend the basic principles
of the laws governing Direct and Indirect taxes. Students are expected to have only elementary
knowledge of the topics specified in the syllabus

Text Books
1. Lal, B.B., (2012), Income Tax and Central Sales tax Law and Practice, Pearson
Education.
2. Singhania, V. K and Singhania, Monica, Students Guide to Income Tax, (2015),
Taxman Publications.

Reference Books
1. Ahuja, Girish and Gupta, Ravi, Systematic Approach to Income Tax, (2014), Bharat
Law House.
2. Datey, V.S., Indirect Taxes-Law and Practice, (2015), Taxmann Publications.
3. Government of India, Bare Acts (2014), (Income Tax, Service Tax, Excise and
Customs).
4. Vashisht, Nitin and Lal, B.B., (2012), Direct Taxes: Income Tax, Wealth Tax and
Tax Planning, Pearson Education.
Internal Assessment

As per the university guidelines out of a total of 100 marks, 25 marks are for
internal assessment. The basis on which the students will be evaluated for
internal assessment is given below: -

Mid - Semester Test 15 Marks

Attendance &Class Participation 5Marks
Presentation/ assignment 5Marks
Total 25 Marks
Ms.Swati shrivastava
 NOTES
UNIT WISE
 UNIT 1
PREVIOUS YEAR
MEANING OF 'PREVIOUS YEAR' AND 'ASSESSMENT YEAR'
The "assessment year" means the period of twelve months commencing on the 1st day of
april every year. The period is also known as financial year or income-tax year. This is the
period for which tax is paid. Income tax is charged on the total income of the previous year at
the rates of the relevant assessment year. Therefore, the income chargeable to tax in the
assessment year is of the previous year. in other words the year for which tax is paid is called
'assessment year' and the corresponding period for which income is assessed is called the
'previous year' or 'business year' or 'accounting year'. Therefore, the definition of the term
previous year; is very important as the income tax is levied for each 'assessment year.' on the
total income of the 'previous year'.
From the assessment year 1988-89 all assesses are required to follow a uniform previous year
for all sources of income for the purposes of income-tax. section 3 has been substituted by the
direct tax laws (amendment) act 1987 with effect from 1st april, 1989, according to section
3(1) previous year means the financial year immediately preceding the assessment year.
financial year means a period of twelve months, starting from april 1 to 31st march of next
year, immediately preceding the assessment year. for example for the assessment year 1989-
90, the previous year will be 1st April, 1988 to 31st march, 1989.
Previous Year In Case Of Newly Set Up Business Or Profession: the proviso to section 3(1)
provides that in a case of a business or profession newly set up, a source of income newly
coming into existence, in the said financial year, the previous year shall be the period
beginning with the date of setting up of the business or profession or, as the case may be, the
date on which the source of income newly comes into existence, and ending with the said
financial year. for example if a sets up a new business on 25th September, 1988 then the first
previous year of this business will be the period commencing from 25th September, 1988 to
31st march, 1989). the relevant assessment year in this case will be 1989-90.
Cases where income of previous year is assessed in the same year
The following are the exceptions to the general rule that income earned during "previous
year" is charged to tax in the following assessment year. in these cases the income is assessed
in the year in which it is earned.
1. Income of non-resident shipping companies (section 172). where a ship belonging
to or chartered by a non-resident, carries passengers, livestock, mail or goods shipped
at a port in India, the ship is allowed to leave the port only when the tax has been paid
or satisfactory arrangements have been made for payment thereof.

2. Persons leaving India (section 174), where it appears to the assessing officer that
any individual may leave India during the current assessment year or shortly after its
expiry with no present intention of returning to India, the total income of such
individual for the period from the expiry of the "previous year" for that assessment
year up to the probable date of his departure from India is to be charged to tax in that
assessment year.

3. Bodies formed for short duration (section 174a). Section 174a has been inserted
from the assessment year 2002-03. the section provides that where it appears to the
assessing officer that any association of persons or a body of individuals or an
artificial judicial person, formed or established or incorporated for a particular event
or purpose is likely to be dissolved in the assessment year in which such association
of persons or a body of individuals or an artificial juridical person was formed or
established or incorporated or immediately after such assessment year, the total
income of such association or body or juridical person for the period from the expiry
of the previous year for that assessment year upto the date of its dissolution shall be
chargeable to tax in that assessment year.

4. Persons trying to alienate their assets (section 175). where it appears to the
assessing officer during any current assessment year that any person is likely to
charge, sell, transfer, dispose of or otherwise part with any of his assets with a view to
avoiding payment of any liability under the act, the total income of such person for
the period from the expiry of the "previous year" for that assessment year to the date
 when the assessing officer commences proceedings under this section is chargeable to
tax in that assessment year,

5. Discontinued business or profession (section 176(1)). where any business or

profession is discontinued in any assessment year, the income of the period from the
expiry of the previous year for that assessment year up to the date of such
discontinuance may, at the direction of the assessing officer, be charged to tax in that
assessment year.

ASSESSEE

an assessee is a person who is liable to pay tax or any other sum of money e.g. penalty,
interest, etc. under the income tax act, 1961. section 2(7) of the income-tax act, 1963 defines
an assessee as follows:

"assessee" means a person by whom any tax or any other sum of money is payable under this
act, and includes—

(a) every person in respect of whom any proceeding under this act has been taken for the
assessment of his income or assessment of fringe benefit or of the income of any other person
in respect of which he is assessable, or of the loss sustained by him or by such other person,
or the amount of refund due to him or to such other person;

(b) every person who is deemed to be an assessee under any provision of this act;

(c) every person who is deemed to be an assessee in default under any provision of this act.

since an assessee is a person, it is important to note the definition of 'person' —given in

section 2(31) of the income-tax act, 1961. according to section 2(31) ''person" includes— (1)
an individual,

(2') a hindu undivided family,

(3') a company,

(4) a firm,
(5) an association of persons or body of individuals, whether incorporated or not,

(6) a local authority, and

(7) every artificial juridical person, not falling within any of the preceding sub-clauses.

the following categories of person are included in the definition of assessee:

first category-a person by whom any tax or any sum of money is payable under the act. for
example, income of a is rs. 100,000 for the assessment year 1999-2000. he files his tax return
of income. he is an "assessee". Income of b is rs. 40,000 for the assessment year 1999-2000.
he does not file his return of income because his income is not more than the amount of
exempted slab. income-tax authorities do not take any action against him. he is not an
"assessee" because no tax or any other sum is due from him.

second category-every person in respect of whom any proceeding under the act has been
taken (whether or not he is liable for any tax, interest or penalty). proceeding may be taken
(a) either for the assessment of his income or the loss sustained by him, or (b) for the
assessment of the income of any other person in respect of which he is assessable, or (c) for
the amount of refund due to him or to such other person, or (d) for assessment of fringe
benefits.

third category-every person is deemed to be an assessee under any provisions of the act. for
example, a representative assessee is deemed to be an assessee under section 160(2).

fourth category-every person who is deemed to be an assessee in default under any provisions
of the act. for example, any person who does not deduct tax at source or after deducting the
tax does not pay the tax, is deemed to be an assessee under section 201. similarly, if a person
does not pay advance tax, he is deemed to be an assessee in default under section 218.

it should be noted that hindu undivided family and a firm have been included in the definition
of person given above although they are not legal persons in the general law

AGRICULTURAL INCOME

Definition
under the constitution parliament has no power to levy tax on agricultural income. only the
state governments are empowered to levy tax on agricultural income. therefore, according to
section 10 (1) of the income-tax, act, 1961, agricultural income is exempt from central
income-tax. but with effect from the assessment year 1974-73 agricultural income became a
factor in the determination »of tax on the non-agricultural income, it becomes necessary
therefore, to determine what is agricultural income. the definition is given in sub-clause (1) of
section 2 of the act. it is as follows:

"(1a) "agricultural income" means:

(a) any rent or revenue derived from land which is situated in india and is used for
agricultural purposes;

(b) any income derived from such land by

(1) agriculture; or

(2) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily

employed by a cultivator or receiver of rent-in-kind to render the produce raised or received
by him fit to be taken to market; or

(3) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by
him in respect of which no process has been performed other than a process of the nature
described in paragraph (2) of this sub-clause;

(c) any income derived from any building owned and occupied by the receiver of the rent or
revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any
land with respect to which, or the produce of which any process mentioned in paragraphs (2)
and (3) of sub-clause (b) is carried on: provided that—

(1) the building is on or in the immediate vicinity of the land, and is a building which the
receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of
his connection with the land, requires as a dwelling house, or as a store-house, or other out-
building, and

(2) the land is either assessed to land revenue in india or is subject to a local rate assessed
and collected by officers of the government as such or where the land is not so assessed to
land revenue or subject to a local rate, it is not situated-
(a) in any area which is comprised within the jurisdiction of a municipality (whether known
as a municipality, municipal corporation, notified area committee, town area committee,
town committee or by any other name) or a cantonment board and which has a population of
not less than ten thousand according to the last preceding census of which the relevant
figures have been published before the first day of the previous year; or

(b) in any area within such distance, not being more than eight kilometers, from the local
limits of any municipality or cantonment board referred to in item (a), as the central
government may, having regard to the extent of and scope for urbanization of that area and
other relevant consideration, specify in this behalf by notification in the official gazette.

explanation l—for the removal of doubts, it is hereby declared that revenue derived from land
shall not include and shall be deemed never to have included any income arising from the
transfer of any land referred to in item (a) or hem (b) of sub-clause (in) of clause (14) of this
section.

explanation 2.—for the removal of doubts, it is hereby declared that income derived from any
building or land referred to in sub-clause (c) arising from the use of such building or land for
any purpose (including letting for residential purpose or for the purpose of any business or
profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be
agricultural income."

explanation 3.—for the purposes of this clause, any income derived from saplings or seedings
grown in a nursery shall be deemed to be agricultural income. explanation 1 and explanation
2 were inserted by the finance act, 2000 (w.e.f. 1-4-2001 and explanation 3 was inserted by
the finance act, 2008 w.e.f. 1-4-2009). basic conditions thus the three basic conditions which
must be satisfied before a particular item of income may be treated as agricultural income
are:

(1) that the income has relation to land;,

(2) that such land is situated in india; and

(3) that the land is used for agricultural purposes. land used for agricultural purposes

the supreme court explained the meaning of "agricultural" and "agricultural purposes" in c.lt.
verses raja benoy kumar sahas roy,. the relevant portion from judgment is reproduced below:
(1) "agricultural" in its primary sense denotes the cultivation of the field and is restricted to
cultivation of the land in the strict sense of the term, meaning thereby tilling of the land,
sowing of seeds, planting and similar operations on the land. these are the 'basic operations'
requiring expenditure of human skill and labour on land itself. these are absolutely necessary
for the purpose of effectively raising produce.

(2) operations to be performed subsequently like "weeding" "digging" etc.

(3) "agriculture" comprises within its scope all produce "regardless of the nature". these
produce may be grain, vegetable or fruits including plantations and grass or pastures or
articles of luxury such as betel, coffee, tea, spices, tobacco or commercial crops like cotton,
jute etc."

it was further observed that activities not involving any basic operation on the land would not
constitute agriculture merely because they have relation to or connected with the land e.g.,
breeding and rearing of livestock, dairy-farming, butter and cheese making and poultry
fanning, would not by themselves be agricultural processes

Residential Status and Tax Incidence

Need to determine residential status

Income-tax is levied in any assessment year on the total income of the previous year unless it
is otherwise provided in the act. According to section 5 the incidence of tax depends upon
and is determined with reference to the residential status of an assessee in the previous year.
for example, in the case of an individual ordinarily resident in India the foreign income is
liable to be included in the total income assessable. However, if the individual is not
ordinarily resident foreign income is not so included unless it is derived from a business
controlled in, or a profession set up in India. The residential status is to be determined every
year as it may be different in different years. in one year the assessee may be resident while
in another year he may be non-resident

Basic Rules for Determining Residential Status

An assessee cannot have different residential status for different previous years in relation to
a particular assessment year even if he has different previous years for different sources of
income. this is provided by section 6(5) of the act which states that "if a person is resident in
india in previous year, relevant to an assessment year in respect of any source of income, he
shall be deemed to be resident in India in the previous year relevant to assessment year in
respect of each of his other sources of income". Residential status is to determined for each
category of persons separately. it may be noted that citizenship of a country and residential
status of that country are different concepts.
Section 6 of the act divides taxable entities, on the basis of their residence, in the following
three categories:
(1) Persons who are "resident" in India.
(2) Persons who are "not ordinarily resident" in India,
(3) Persons who are "non-resident".

This division is applicable only in case of an individual and Hindu undivided family. in all
other cases there are only two divisions: resident and non-resident.
For the purpose of determining the residence of a person, in the context of the income-tax act,
1961, the categories of 'persons' have been grouped into four separate classes as under:
(1) An individual
(2) A Hindu undivided family, firm or other association of persons;
(3) A company; and
(4) Every other person.

Residential status of an individual

Resident and ordinarily resident (section 6 (1)
Basic conditions
An individual is said to be resident in India in any previous year, if
(a) He is in India in that year for a period or periods amounting in all to 182 days or more
{section 6(1) (a)};
or
(b) He has been in India for a period or periods amounting in all to 365 days or more during
the four years preceding that year, i.e., the accounting year (previous year) and has been in
India for 60 days or more in that year (previous year) {section 6 (1) (c)}.
the explanation to section 6(1) provides that in the case of an individual being a citizen of
India, who leaves India in any previous year as a member of the crew of an Indian ship or for
the purposes of employment outside India, in order to fulfill the aforesaid condition (b)
regarding residence, the minimum period of stay in India has to be 182 days instead of 60
days.
the explanation further provides that in the case of an individual being a citizen of India, or a
person of Indian origin, who being outside India, comes on a visit to India in any previous
year, in order to fulfill the aforesaid condition (b) regarding residence the minimum period of
stay in India has to be 182 days instead of 60 days.
Additional conditions
In order to become "resident and ordinarily resident" in india an individual is to satisfy both
the following conditions besides satisfying any one of the above mentioned conditions
{section 6 (6) (a)} :
(1) he has been resident in India in at least 2 out of 10 previous years preceding the
relevant previous year. in other words he must have satisfied any one or more of the
above two conditions for two years out of the ten previous years immediately
preceding the relevant previous year.

(2) He has been in India for a period or periods amounting in all to 730 days or more
during the seven years proceeding the relevant previous year.

thus an individual becomes resident and ordinarily resident in India if he satisfies at least one
of the basic conditions and the two additional conditions.

Not ordinarily
If an individual does not satisfy any of the basic conditions mentioned in section 6(1), he is
said to be "non-resident". a person is said to be "not ordinarily resident" in india in any
previous year if such person is an individual who has been a non-resident in india in nine out
of the ten previous years preceding that year, or has during the seven years preceding that
year been in india for a period of, or periods amounting in all to, seven hundred and twenty-
nine days or less.
thus if an individual satisfies any one of the basic conditions (as discussed above), prescribed
in section 6(1) but does not satisfy the two additional conditions, i.e., conditions (1) and (2)
mentioned above, he is "not ordinarily resident".
In other words an individual is a resident but not ordinarily resident in India in any of the
following circumstances:
(a) if he satisfies at least one of the basic conditions as mentioned in section 6(1) and none of
the additional conditions as mentioned in section 6(6) (a).
(b) if he satisfies at least one of the basic conditions as mentioned in section 6(1) and one of
the two additional conditions as mentioned in section 6(6) (a).

Non-Resident
An individual shall be a "non-resident" in India during the relevant previous year if he does
not satisfy any of the basic conditions prescribed for becoming resident under section 6 (1) as
discussed above.

Residential status of Hindu undivided family, firm or other association of persons

Resident {section 6 (2)}—
Any person falling within the above mentioned group is "resident" in India in a previous year
unless the control and management of its affairs is situated wholly outside India during the
said previous year. thus even if a part of the control and management is situated in india
during the previous year, it will be called "resident" in India.
It was further pointed out that:
(1) Normally a Hindu undivided family will be taken to be resident in India unless the
control and management of its affairs is proved to be situated wholly outside India;
(2) The word "affairs" must mean affairs which are relevant for the purpose of the
income-tax act and which have some relation to income; and
(3) The word "wholly suggests that Hindu undivided family may have more than one
"residence" in the same way as a corporation may have.

"Resident and ordinarily resident" and "resident but not ordinarily resident" {section
6(6) (d)}
Firms and other association of persons cannot be "not ordinarily resident".
As said earlier a Hindu undivided family is said to be resident in India in any previous year in
every case except where the control and management of its affairs is situated wholly outside
India. but in order to be "resident and ordinarily resident" it must fulfill two more conditions,
namely,—
(1) That its Karta or manager has been resident in India as individual {by fulfilling any one
of the two basic conditions prescribed under section 6 (1)} in 2 out of 10 previous years
preceding the relevant previous year;
(2) That the Karta or manager has, during the 7 previous year preceding the relevant
previous year been in India for a period or periods amounting in all to 730 days or more.

if either of these two conditions or both the conditions are not fulfilled the Hindu undivided
family would be regarded as "not ordinarily resident" in India.

Non-resident {section 6(2)}

A Hindu undivided family, firm or other association of persons shall &e non-resident where
the control and management of its affairs is situated wholly outside India.

Residential status of a company resident [section 6(3)]

a company is said to be "resident" in India in any previous year if it satisfies any of the two
alternative conditions, viz:
(1) It is an Indian company; or
(2) If during the relevant previous years the control and management of its affairs is situated
wholly in India.
.
Non-resident
If a company does not satisfy any of the aforesaid two alternative conditions of resident, it is
said to be "non-resident" in India.
Thus it is clear from the above mentioned conditions that if the assessee company is an Indian
company, it is automatically resident. and only if it is any other company, it is resident if and
only if, the control and management of its affairs is situated wholly in India during the
relevant previous year. Whereas in the case of a Hindu undivided family, firm or other
association of persons any measure of control and management in India would make them
resident. the expression "control and management" used in reference to a company has the
same meaning as it has in the case of Hindu undivided family, or other association of persons.

Residential status of "every other person"

every other person (for example, local authority, an artificial judicial person etc.) other than
those described in the preceding paragraphs is said to be "resident" in india in any previous
year in every case, except where during that year the control and management of his or its
affairs is situated wholly outside India [section 6(4)]. in case of such entities the status can
only be of "resident" or "non-resident".

Residential Status In Case Of Other Source Of Income

section 6 (5) provides that if a person is resident in indie in any previous year relevant to an
assessment year in respect of any source of income, he shall be deemed to be resident in India
in the previous year relevant to the assessment year in respect of each of his other sources of
income.

Relationship Between Residential Status And Incidence Of Income Tax

Under the act, incidence of tax on a taxpayer depends on his residential status and also on the
place and time of accrual or receipt of income. This is provided in section 5 of the income-tax
act, 1961 which is explained below: incidence of tax in the case of resident and ordinarily
resident [section 5(1)] the total income of any previous year of a person who is resident
includes all income from whatever source derived which:
(a) Is received or deemed to be received in India in such year by or on behalf of such persons;
or
(b) Accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) Accrues or arises to him outside India during such year.
income is said to be received when it reaches the assessee; income is said to accrue or arise
when the right to receive the income becomes vested in the assessee,

Income accrued in India is chargeable to tax in all cases irrespective of residential status of
the assessee. certain incomes are deemed to accrue or arise in India under section 9 even
though they may actually accrue or arise outside India. for example, according to section 9(1)
(1) where through or from any 'business connection' in India income accrues or arises outside
India to any person, it is deemed to accrue or arise in India. similarly all income accruing or
arising through or from any property in India, or through or from any asset or source of
income in India, or through transfer of a capital asset situate in India are deemed to accrue or
arise in India.

Incidence Of Tax In The Case Of A Resident But Not Ordinarily Resident [Section
5(1)1
The liability to tax of a "resident but not ordinarily resident" is the same as in the case of a
"resident and ordinarily resident" but subject to one special exemption. a person who is not
ordinarily resident is chargeable in respect of all the three item of income mentioned above,
but income which accrues or arises to him outside India shall not be included in the total
income of any previous year unless it is derived from a business controlled in or profession
set up in India. In other words, a resident but not ordinarily resident is assessable to tax in
respect of:
(a) Income which is received or deemed to be received in India in the previous year by him or
on his behalf;
(b) Income which accrues or arises or is deemed to accrue or arise to him in India during the
previous year;
(c) Income which accrues or arises to him outside India during the previous year from a
business controlled in or profession set up in India.

Incidence of tax in the case of non-resident [section 5(2)]

The total income of any previous year of a person who is non-resident includes all income
from whatever source derived which:
(a) is received or is deemed to be received in India in such year by or on behalf of such
person; or
(b) Accrues or arises or is deemed to accrue or arise to him in India during such year.
thus, a non-resident is liable to tax in respect of income received or deemed to be received in
India by or on his behalf and accrues or arise or is deemed to accrue or arise in india during
the previous year
 UNIT -:2
INCOME UNDER DIFFERENT HEAD
Head of income-salaries
Heads of income
Section 14 of the act classifies income under the following heads for the purposes of computing the
total income:—

(1) Salaries

(2) Income from house property

(3) Profits and gains of business or profession

(4) Capital gains

(5) Income from other sources.

The first four heads are specific in content while the last i.e. "income from other sources" is
the omnibus head covering all other kinds of income from whatever source derived.

The income is to be taxed under the appropriate head of income and it is imperative on the
part of the department to charge the income under the specific head under which it falls since
the law leaves no option. thus income is to be taxed under the appropriate and specific head
of income. in case an item appears to belong to two or more heads, the assessee will have the
right to claim that it should be assessed under the head most beneficial to him [c.i. t. verses
bosotto bros. ltd, (1940) (mad.)]. if an income falls under a specific head, the income will
have to be taxed under that head and there is no option either for the assessee or the revenue
to vary the head in regard to such income [united commerce bank verses c.i.t., (1957))].
income cannot be assessed under a wrong head merely because the assessee had returned it
under a wrong head [bihar state co-op. bank ltd. verses c.i.t., (1960) ]. As aforesaid, there are
five heads of income, but an assessee has to pay tax not by reference to income under any
particular head, but on "total income" which is the aggregate of the income and/or loss under
all the heads taken together subject to certain exceptions.

Expenditure incurred in relation to income not includible in total income

section 14a(1) provides that for the purposes of computing the total income, no deduction
shall be allowed in respect of expenditure incurred by the assessee in relation to income
which does not form part of the total income under the income-tax act.

section 14a(2) provides that the assessing officer shall determine the amount of expenditure
incurred in relation to such income which does not form part of the total income under this
act in accordance with such method as may be prescribed, if the assessing officer, having
regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the
assessee in respect of such expenditure in relation to income which does not form part of the
total income under this act,

section 14a(3) provides that the provisions of sub-section (2) shall also apply in relation to a
case where an assessee claims that no expenditure has been incurred by him in relation to
income which does not form part of the total income under this act

Heads of income and sources of income

the expressions "heads of income" and "sources of income" do not have the same meaning.
heads of income have been enumerated above. source of income means that from which
income originates. there may be more than one source of income for the same head of income
[shri sobhag mat lodha verses, c.j. t. (1967) (all)] for example, under the head 'salaries' the
different sources of income may be wages, pension, gratuity, fees, commissions, perquisites
or profits in lieu of or in addition to salary or wages.

salaries (section 15-17)

chargeability (section 15.)

according to section 15 of the act the following incomes shall be chargeable to income-tax
under the head "salaries" :—

"(a) any salary due from an employer or a former employer to an assessee in the previous
year, whether paid or not;

(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or
a former employer, though not due or before it became due to him;

(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, if not charged to income-tax for any earlier previous year".
to avoid the same income being taxed again and for the removal of doubts the explanation 1
to section 15 provides where any salary paid in advance is included in the total income of any
person for any previous year, it shall not be included again in the total income of the person
when the salary becomes due.

the explanation 2 provides that "any salary, bonus, commission or remuneration, by whatever
name called, due to, or received by, a partner of a firm from the firm shall not he regarded as
"salary" for the purposes of this section" salary due to or received by the assessee or by a
third party on his behalf from the present or past employee is also chargeable under the head
"salaries". However, the amount or loan advanced by the employer is not chargeable to
income tax. The term "salary" is used in section 15 in the broadest possible sense to include
not only the salaries which are due and paid to the employee, but every amount which is paid,
(whether due or not) and amount due (whether paid or not). for charging the income under
the head "salaries" there must exist the relationship of employee and employer between the
payee and the payer. an employee is a person employed by another to work for him on the
conditions that he is to be subject to the control and directions of his employer in respect of
the manner in which his work is to be done. every servant is an employee; but an agent may
or may not be employee. in c.it. verses lady navaljhi tata, (1947) 15 itr 8, it was held that a
director of a company, though holding an office, is not an employee unless there is a contract
to that effect. an agent is usually not an employee. perquisites or profits or any remuneration
received from persons other than the employer, would be taxable under the head 'income
from other sources' even if they accrue to the employee by reason of his employment. for
example remuneration received by a lecturer of a college for acting as an examiner in a
university.

meaning of salary? (section 17(1)}

According to section 17(1) "salary" includes—

(1) wages;

(2) any annuity or pension;

(3) any gratuity;

(4) any fees, commissions, perquisites or profits in lieu of or in addition to any salary or
wages;
(5) any advance of salary;

(a) any payment received by an employee in respect of any period of leave not availed of by
him;

(6) the annual accretion to the balance at the credit of an employee participating in a
recognized provident fund to the extent to which it is chargeable to tax (under rule 6 part a of
the fourth schedule); and

(7) the aggregate of all sums that are comprised in the transferred balance of an employee
participating in a recognized provident fund, to the extent to which it is chargeable to tax
under sub-rule (4) of rule 11 of part a of the fourth schedule.

(8) the contribution made by the central government or any other employer in the previous
year to the account of an employee under a pension scheme referred to in section 80 ccd.

the above amounts may be paid by the employer either voluntarily or under a contractual
obligation. thus the salary for the notice period payable by the employer is also taxable.
salary and wages signify payments for services rendered to an employee. bonus is taxable on
receipt basis if bonus is received in arrears, the assessee can claim relief under section 89(1).
overtime payments are taxable. annuity is a sum or grant paid every year. annuity paid by
the employer is included in salary and if paid by other outside agencies is taxed under
"income from other sources".

pension is a periodic payment made by the employer to the employee after his retirement. a
lump sum received in commutation of pension or in substitution thereof is taxed under the
head "salaries" to the extent it is not exempted under section 10. it should be noted that
family pension received after the death of an employee is taxable under section 56 under the
head "income from other sources" in the hands of the recipient.

gratuity is paid to an employee for long and meritorious services rendered by him to an
employer. it is not paid to an employee gratuitously or merely as a gift. gratuity is as much
taxable as a contractual salary subject to section 10. it is exempt upto a certain extent under
section 10. gratuity received by an employee is taxable under the head "salary" whereas
gratuity received by the legal heir of the premium paid by the employer on an accident policy
taken the employee is not a perquisite. any fees and commissions payable by the employer to
the employee is taxable as salary. fees and commission are chargeable as salary irrespective
of the fact that they are paid in addition to or in lieu of salary. however, if fees or commission
is paid to a person who is not an employee is not taxable under the head "salary". in all india
reporter verses ramchandra (1961)it was held that compensation awarded by the court for
wrongful termination of service is not 'salary'. in n. sciandra c.lt. (1979), it was held that rent-
free accommodation provided to a foreign technician is not a perquisite as he continued to be
the employee of a foreign company.

advance salary is taxable or receipt basis irrespective of incidence of tax. arrear salary is
taxable on receipt basis, if the same has not been subjected to tax on due basis. however relief
can be claimed in this case under section 89.

leave salary received by a central/state government employee in respect of period of earned

leave at his credit at the time of retirement/superannuation, is exempt from tax. but in the case
of non-government employee (including an employee of a local authority or public sector
undertaking) leave salary is exempt from tax fully or partially in some cases. salary in lieu of
notice period is taxable under section 15 on receipt basis as held in verses d. talwar verses
c.lt. salary paid to a partner is an appropriation of profit and is not chargeable under the
head "salaries" but is chargeable under the head profits and gains of business profession".

retrenchment compensation received by a workman under the industrial disputes act, 1947,
or any other acts or contract of service, or award etc. is exempt from tax to a certain extent.

perquisites {section {17 (2)}

perquisites are taxable under the head "salaries" only if the following conditions are satisfied:

(a) they are allowed by an employer to his employee.

(b) they are allowed during the continuance of employment.

(c) they are directly dependent upon service.

(d) they are resulting in the nature of personal advantage to the employee.

(e) they are derived by virtue of employer's authority.

even a casual and non-recurring receipt can be perquisite if the aforesaid conditions are
satisfied. a combined reading of sections 15 and 17 suggest that salary would include
perquisites.
thus following perquisites are taxable in the hands of an employee:
(1) rent-free accommodation. value of rent-free accommodation provided to the assessee by
his employer [section 17(2)]] such accomdation may be furnished or unfurnished. however,
rent-free official residence provided to a judge of the supreme court or a high court is not
taxable. similarly, rent-free official residence provided to an official of parliament, or to a
union minister or to a leader of opposition in parliament is not taxable.

(2) accommodation at concessional rate. value of any concession in rent in respect of

accommodation provided to the assessee by his employer [section 17(2)]. with a view to
provide a classification as to what constitutes concession in the matter of rent, the finance act
2007 has inserted four explanation to section 17(2)(ii). so as to provide that concession in the
matter of rent shall be deemed to have been provided in the cases mentioned in the four
explanations.

(3) notified benefits and amenities. value of any benefit or amenity granted or provided free
of cost or at concessional rates in certain specified cases [section 17(2)].

(4) employee's obligation met by employer. amount paid by an assessee in respect of any
obligation which otherwise would have been payable by the assessee [section 17(2)]. for
example, if a domestic servant is engaged by an employee and salary of the servant is paid or
reimbursed by the employer. in cit verses lala shri dhar, (1972) 84 itr 192 (del.) it was held
that payment made by company as per resolution of the board of directors to purchase
personal accident insurance in respect of an employee is not covered by section 17(2)(iii).

(5) amount payable by employer to effect an insurance on the life of the employee. amount
payable by an employer, directly or indirectly, to effect an assurance on the life of the
assessee or to effect a contract for an annuity other than payments made to a recognized
provident fund or approved superannuation fund or deposit linked insurance fund established
under the coal mines provident fund act or employees provident fund act.

(6) the value of any specified security or sweat equity shares. the value of any specified
security or sweat equity shares allotted or transferred by the employer or former employer,
free of cost or at concessionable rate to the assessee is taxable as a prequisite.
(7) the employer's contribution to the superannuation fund exceeding rupees. one lakh. the
amount of any contribution to an approved superannuation fund by the employer in respect of
the assessee, to the extent it exceeds one lakh rupees is taxable as a prequisite.

(8) value of any other prescribed fringe benefit. the value of any other fringe benefit or
amenity as may be prescribed.

tax-free perquisites (for all employees)

(1) food and beverages provided to employees: any food or beverages provided by the
employer to his employees in the office or factory or through paid non-transferable vouchers
and usable only at eating joints if value thereof in either case does not exceed a certain
amount per meal, is tax free perquisite.

(2) loans to employees: value of benefit to the assessee resulting from interest-free loan or
loan at concessional rate shall be nil if the amount of loan is petty, not exceeding in the
aggregate to an employee is rs. 20,000/-. similarly loans made available not reimbursed for
medical treatment in respect of diseases specified in rule 3a of the income-tax rules shall be
nil.

(3) rent free house or conveyance facility: rent free official residence and conveyance
facilities provided to a judge of the supreme court or high court is not a 'taxable perquisite.
similarly rent free furnished residence (including maintenance thereof) provided to an officer
of parliament, a union minister, or leader of opposition in parliament, is not a taxable
perquisite.

(4) perquisites provided outside india: perquisites provided by the government of india to
its employees, who are citizens of india for rendering services outside india is not a taxable
perquisite [section 10(7)].

(5) accommodation in a remote area: the accommodation provided by an employer shall be

tax free perquisite if the accommodation is provided to an employee at certain sites being of
temporary nature and located not less than eight kilo metres away from the local limit of any
municipality or cantonment board or is located in a remote area.

(6) educational facility to children of the employee: where educational institution is owned
and maintained by the employer and free educational facilities are provided to the children of
the employee or where such educational facilities are provided in any institution by reason of
his being in employment of the employer, there shall be no perquisite value if the cost of such
education or value of such benefit per child does not exceed rupees. 1000/- per month.

(7) computer and laptos: the value of perquisite shall be nil where computers or laptops are
given to the employee for use, belonging to the employer or hired by him.

(8) leave travel concession: the employee is entitled to exemption under section 10(5) in
respect of the value of travel concession or assistance received by him or due to him from his
employer or former employer for himself and his family subject to certain conditions.

(9) tax paid by the employer on non-monetary perquisites: tax paid by the employer on
non-monetary perquisites of the employee shall be exempt in the hands of the employee as
per section 10(10cc).

(10) first-aid medical facility: any expenditure incurred or payment made to provide first aid
facilities in the hospital or dispensary run by the employer is not liable as a perquisite.

(11) medical reimbursement: any sum paid by the employer in respect of any expenditure
incurred by the employee on his medical treatment or treatment of any member of his family
subject to certain conditions, in the previous year is not liable to tax as a perquisite.

(12) recreational facilities: any recreational facility provided to a group of employees (not
being restricted to a select few) by the employer is not liable to tax as a perquisite.

(13) training of employees: any expenditure incurred by the employer, for providing training
to the employees or by way of payment of fees of refresher courses attended by the
employees, is not liable to tax as a perquisite.

(14) use of health club, sports and similar facilities: use of health club, sports and similar
facilities provided by the employer to his employees is not liable to tax as a perquisite.

(15) expenses on telephone: expenses on telephone, including a mobile phone, actually

incurred on behalf of the employer is not liable to tax as a perquisite.

(16) employer's contribution to superannuation fund: employer's contribution to

superannuation fund of the employee or payment made by the employer for staff group
insurance scheme of the employees not liable to tax as a perquisite. in this case, the
employer's contribution to superannuation fund exceeding rupees. 1, 00,000/- per employee
shall be liable to tax as a prequisite.
(17) other perquisites: ah other perquisites in respect of which no valuation rules have been
prescribed shall be tax free.

profits in lieu of salary {section 17 (3)}

the definition of "profits in lieu of salary" as given in section 17 (3) is reproduced below:

"(3) "profits in lieu of salary" includes—

(1) the amount of any compensation due to or received by an assessee from his employer or
former employer at or in connection with the termination of his employment or the
modification of the terms and conditions relating thereto;

(2) any payment (other than any payment referred to in clause (jo), clause (10 a), clause
(job), clause (11), clause (12), or clause (13) or clause (13a) of section 10, due to or received
by an assessee from an employer or a former employer or from provident or other fund, to
the extent to which it does not consist of contributions by the assessee or interest on such
contributions or any sum. received under a keyman insurance policy including the sum
allocated by way of bonus on such policy. "

explanation. for the purposes of this sub-clause, the expression keyman insurance policy"
shall have the same meaning assigned to it in clause (10d) of section 10.

(3) any amount due to or received whether in lump sum or otherwise, by any assessee from
any person—

(a) before his joining any employment with that person; or

(b) after cessation of his employment with that person. “thus the "profit in lieu of salary"
includes the following:

(1) compensation on termination of employment: the amount of any compensation due to

or received by an assessee from his employer at or in connection with the termination of his
employment or the modification of the terms and conditions relating there will be profits in
lieu of salary [section 17(3)(1)]. the termination may be due to retirement, premature
termination, and resignation or otherwise.

(2) payment from an unrecognized provident fund or an unrecognized superannuation

fund: any payment due to or received by an assessee from an unrecognized provident fund or
an unrecognized superannuation fund to the extent to which such payment does not consists
of contributions by the employee or interest on such employer's contribution, will be regarded
as profits in lieu of salary [section 17(3) (2)]. thus, the employer's contribution and interest
thereon is taxed as profit in lieu of salary.

(3) payment under keyman insurance policy: any payment due to or received by an
employee under a keyman insurance policy including the sum allocated by way of bonus on
such policy will be regarded profits in lieu of salary [section 17(3) (2)].

(4) any amount due or received before joining or after cessation of employment: any
amount due to or received whether in lump sum or otherwise by an assessee from any person
—(a) before joining any employment with that person; (b) after cessation of his employment
with that person [section 17(2)(3)].

compensation for loss of employment though a capital receipt is taxable as profits in lieu of
salary. any other payment received from the present or past employee is also taxable as
profits in lieu of salary:

the following payments made under clauses 10, 10a, 10b, 11, 12 and 13 a of section 10 will
not be included in "profits in lieu of salary”:

1. death cum-retirement gratuity to the extent provided in section 10(10).

2. certain amounts received in commutation of pension {section 10 (10a)

3. compensation received on retrenchment, closure or transfer of an undertaking to the extent

provided in {section 10 (10b)}

4. any payment from a provident fund established under the provident fund act, 1925 {section
10 (11)}

5. the payment of accumulated balance due and becoming payable to an employee

participating in a recognized provident fund, to the extent provided in rule 8 of part a of the
fourth schedule {section 10(12)}.

6. cash house rent allowance, wholly or in part in certain circumstances as provided in section
10(13 a).
INCOME UNDER THE HEAD CAPITAL GAINS

Chargeability
The second head of income under the income tax act, 1961 is "capital gains". sections 45 to
55-a provide for computation of the amount of capital gains that would be subject to the levy
of tax. section 45(1) of the act provides that any profits or gains arising from the transfer of a
capital asset effected in the previous year, shall, save as otherwise provided in sections 54,
54-b, 54~d, 54-e, 54-ea, 54-eb, 54-f, 54-g and 54-h, be chargeable to income tax under the
head (t capital gains'1 and shall be deemed to be the income of the previous year in which the
transfer took place. thus, capital gains is chargeable to tax on accrual basis. the date of receipt
and the method of accounting are irrelevant considerations.

capital gains tax liability arises if the following conditions are satisfied:

(1) there should be a capital asset.

(2) the capital asset is transferred by the assessee

(3) the transfer of capital asset takes place during the previous year.

(4) any profit or gain arises from transfer of capital asset.

(5) such profit or gain is not exempt from tax.

section 45 is a charging section. for the purposes of imposing the charge, the parliament has
enacted detailed provisions in order to compute the profits or gains under this head. no
existing principle or provision at variance with them can be applied for determining the
chargeable profits and gains. all transactions encompassed by section 45 must fall under the
governance of its computation provision. a transaction to which those provisions cannot be
applied must be regarded as never intended by section 45 to be the subject of the charge [c.lt.
verses b.c. sriniva setty (1981)].

capital gain is chargeable to tax on accrual basis, the date of receipt of capital gain and the
method of accounting is immaterial
profit or sale of land after plotting it out to secure better price cannot be taxed as profit from
an adventure in the nature of trade. in other words it is not business income. it shall be taxed
under the head 'capital gains'

section 45 (1-a) provides that "notwithstanding anything contained in sub-section (1), where
any person receives at any time during any previous year any money or other assets under an
insurance from an insurer on account of damage to, or destruction of, any capital asset, as a
result of—

(1) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or

(2) riot or civil disturbance; or

(3) accidental fire or explosion; or

(4) action by an enemy or action taken in combating an enemy (whether with or without a
declaration of war),

then, any profits or gains arising from receipt of such money or other assets shall be
chargeable to income tax under the head 'capital gains' and shall be deemed to be the income
of such person of the previous year in which such money or other asset was received and for
the purposes of section 48, value of any money or the fair market value of other assets on the
date of such receipt shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer of such capital asset.

explanation—for the purposes of this sub-section, the expression 'insurer' shall have the
meaning assigned to it in clause (9) of section 2 of the insurance act, 1938".

section 45 (2) provides that the profits or gains arising from the transfer by way of conversion
by the owner of a capital asset into, or its treatment by him as, stock-in-trade of a business
carried on by him shall be chargeable to income-tax as his income of the previous year in
which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of
section 48, the fair market value of the asset on the date of such conversion or treatment shall
be deemed to be the full value of the consideration received or accruing as a result of the
transfer of the capital assets.

section 45 (2-a) provides that where any person has had at any time during previous year any
beneficial interest in any securities, then, any profits or gains arising from transfer made by
the depository or participant of such beneficial interest in respect of securities shall be
chargeable to income tax as the income of the beneficial owner of the previous year in which
such transfer took place and shall not be regarded as income of the depository who is deemed
to be the registered owner of securities by virtue of sub-section (1) of section 10 of the
depositories act, 1996. for the purposes of (1) section 48; and (2) proviso to clause (42-a) of
section 2, the cost of acquisition and the period of holding of any secruities shall be
determined on the basis of the first-in-first out method.

explanation—for the purposes of this sub-section, the expressions "beneficial owner",

"depository" and "security" shall have the meanings assigned to them in clauses (a), (e) and
(1) of sub-section (1) of section (2) of the depositories act, 1996.

section 45 (3) provides that the profits and gains arising from the transfer of a capital assets
by a person to a firm or other association of persons or body of individuals (not being a
company or a co-operative society) in which he is or becomes a partner or member, by way
of capital contribution or otherwise shall be chargeable to tax as his income of the previous
year in which such transfer takes place. for the purposes of section 48, the amount recorded in
the books of account of the firm, association or body as the value of the capital asset shall be
deemed to be the full value of the consideration received or accruing as a result of the transfer
of the capital asset.

section 45(4) provides that the profits or gains arising from the transfer of a capital asset by
way of distribution of capital assets on the dissolution of a firm or other association of
persons or body of individuals (not being a company or a co-operative society) or otherwise,
shall be chargeable to tax as the income of the firm, association or body, of the previous year
in which the said transfer takes place. for the purposes of section 48, the fair market value of
the asset on the date of such transfer shall be deemed to be the full value of the consideration
received or accruing as a result of the transfer.

according to section 45(5) additional compensation is made taxable in the year of receipt
instead of the year of the transfer of the capital asset. section 45(5) provides:

"notwithstanding anything contained in sub-section (1), where the capital gain arises from the
transfer of a capital asset, being a transfer by way of compulsory acquisition under any law,
or a transfer the consideration for which was determined or approved by the central
government or the reserve bank of india, and the compensation or the consideration for such
transfer is enhanced or further enhanced by any court, tribunal or other authority, the capital
gain shall be dealt with in the following manner, namely—

(a) the capital gain computed with reference to the compensation awarded in the first instance
or, as the case may be, the consideration determined or approved in the first instance by the
central government or the reserve bank of india shall be chargeable as income under the head
"capital gains" of the previous year in which such compensation or part thereof, or such
consideration or part thereof, was first received; and

(b) the amount by which the compensation or consideration is enhanced or further enhanced
by the court, tribunal or other authority shall be deemed to be income chargeable under the
head "capital gains" of the previous year in which such amount is received by the assessee.

(c) where in the assessment for any year, the capital gain arising from the transfer of a capital
asset is computed by taking the compensation or consideration referred to in clause (a) or, as
the case may be, enhanced compensation or consideration referred to in clause (b), and
subsequently such compensation or consideration is reduced by any court, tribunal or other
authority, such assessed capital gain of that year shall be recomputed by taking the
compensation or consideration as so reduced by such court, tribunal or other authority to be
the full value of the consideration.

explanation—for the purposes of this sub-section—

(1) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of
improvement shall be taken to be nil;

(2) the provisions of this sub-section shall apply also in a case where the transfer took place
prior to the 1st day of april, 1988;

(3) where by reason of the death of the person who made the transfer, or for any other reason,
the enhanced compensation or consideration is received by any other person, the amount
referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head
"capital gains", of such other person.'*

section 45(6) provides that notwithstanding anything contained in subsection 1, the difference
between the repurchase price of the units of an equity-linked savings scheme of a mutual
fund under section 80-ccb and the capital value of such units shall be deemed to be the capital
gains arising to the assessee in the previous year in which such repurchase takes place or the
plan is terminated and shall be taxed accordingly.

explanation—-for the purposes of this sub-section, "capital value of such units" means any
amount invested by the assessee in the units referred to in subsection (2) of section 80 ccb.

from the charging section it is clear that the income to be taken as "capital gains", must
arise from the transfer of a capital asset and therefore the meaning of the term
'transfer' and 'capita! asset' have to be understood in the context of the act.

where in relation to original shares held by the assessee in company, bonus shares are issued
by the company, in computing the capital gains arising from the transfer of original shares,
issue of bonus shares should be taken into account for the purpose of averaging and reducing
the cost of acquisition of those original shares. the relevant assessment year was prior to
insertion of sub-clause (3a) to section 55(2)(a). [sumanth raman jam (master) verses c.lt.
(2001) 248 itr 818 (sc)]. it may be noted that section 55(2) was amended by the finance act,
1995 w.e.f. 1.4.1996 by inserting sub-clause (3a) to clause (aa) of section 55(2). as per this
sub-clause the cost of acquisition of bonus shares shall be taken as nil and cost of acquisition
of original shares shall be the amount actually paid to acquire the original shares.

where the assessee had mortgaged his immovable property to the excise department as
security for "kist" due to the state, the state government sold the immovable property in an
auction and after deducting the amount due, paid the balance due to the assessee, it was held
that capital gains had to be computed on the full price. [c.lt. verses attili n. rao air 2002 sc
388].

where, in computing the compensation for acquisition of a portion of land the injurious effect
on the unacquired portion is taken into account, as provided under the land acquisition act, it
is the full consideration awarded that is to be taken into account for the purposes of capital
gains. [mahalakshmi (p) ltd. verses c.lt. (2002)].

tenancy right is a capital asset surrender of which is a transfer and the consideration received
thereof is a capital receipt. it may be noted that the law prior to assessment year 1995-96 was
that if the cost of acquisition cannot in fact be determined the transfer of such asset would not
attract capital gains tax. [c.lt. verses p. sandu brothers chembur (p) ltd.].

capital asset {section 2(14)}

capital asset means property of any kind held by an assessee, whether or not connected with
his business or profession, but does not include—

(1) any stock-in trade, consumable stores or raw materials held for the purposes of the
assessee's business or profession;

(2) personal effects, that is to say, movable property (including wearing apparel and
furniture) held for personal use by the assessee or any member of his family dependent on
him, but excludes—

(a) jewellery;

(b) archaeological collections;

(c) drawings;

(d) paintings;

(e) sculptures; or

(f) any work of art. explanation—for the purposes of this sub-clause "jewellery" includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy
containing one or more of such precious metals, whether or not containing any precious or
semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other
article or worked or sewn into any wearing apparel;

(3) agricultural land in india provided it is not situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known
as municipality, municipal corporation, notified area committee, town area committee, town
committee, or by any other name) or cantonment board and which has a population of not
less than 10,000 according to the last preceding census; or

(b) in any area within such distance, not being more than eight kilometers, from the local
limits of any municipality or cantonment board referred to in item (a), as the central
government may specify by notification in the official gazette;
(4) 6 1/2% gold bonds, 1977 or 7% gold bonds 1980 or national defense gold bonds 1980,
issued by the central government;

(5) special bearer bonds, 1991, issued by the central government. 53 PREPARED BY
RADHIKA SETH, PLEASE VOTE , BALLOT No. 2

(6) (w.e.f. 1-4-2000) gold deposit bonds issued under gold deposit scheme, 1999 notified by
the central government.

capital asset, for the purpose of the income tax, includes all kinds of property movable or
immovable, tangible or intangible, fixed or circulating incorporated rights, and chose in
action except those referred above. the purchased goodwill of business, a partner's share in a
firm, right to subscribe for products, shade trees, patents, trade marks, actionable claims,
leasehold mines, dealership rights have been held to be capital assets. in ahmed g.h. arif
verses c.w.t. (1970) 76 itr 471 (sc), it was held that the term property is of widest import and
subject to any limitation which the context may require, it signifies every possible interest
which a person can clearly hold and enjoy. in c.i.t. verses b.c. srinivasa setty, (1981) 128 itr
(sc) it was held that goodwill which is build up is not a capital asset under the income-tax act.
in c.i.t. verses nanubai j. desai, 1994 supp(3) scc 754, a partner retired from a partnership
firm. he received a certain amount towards self-generated goodwill. it was held that the
amount was not liable to capital gains. from the assessment year 1988-89, gains arising from
sale of self-generated goodwill was made taxable and for this purpose its cost of acquisition
or cost af improvement, as provided in section 55, is be taken to be nil. with effect from
assessment year 1995-96, the same treatment applies in the case of transfer of tenancy tights,
stage carriage permits and loom hours.

any stock-in-trade, consumable stores or raw materials held for the purpose of business or
profession is not a capital asset because any surplus arising on sale or transfer of stock-in-
trade, consumable stores or raw materials is chargeable to tax as business income under
section 28.

amendment by the finance act, 2007: with a view to widening the scope of 'capital asset', the
definition of personal effects given in section 2(14) clause (2) has been amended with effect
from assessment year 2008-09 so as to also exclude from the meaning of personal effects
archaeological collections, drawings, paintings, sculpture, or any work of art. jewellery was
already excluded from the definition of personal effects. in other words, jewellery is treated
as a capital asset even though it is meant for personal use of the assessee. therefore, transfer
of such personal effect will attract capital gains tax w.e.f. assessment year 2008-09. capital
gain on immovable property and jewellery was taxable upto the assessment year 2007-08 and
it will be taxable from assessment year 2008-09 onwards also. capital gains on personal
effects being archaeological collections, drawings, paintings, sculptures, or any other work of
art was not taxable upto assessment year 2007-08. but it will be taxable from the assessment
year 2008-09, capital gain on any other personal effects being movable property was neither
taxable earlier nor it will be taxable from assessment year 2008-09.

cost of acquisition

cost of acquisition of a capital asset is the value for which it was acquired by the assessee. it
includes the expenses of capital nature incurred for completing or acquiring the title to the
property [section 55(2)].

interest on money borrowed to purchase the asset will form part of the cost of asset. but,
interest payable on provident fund loan is not deductible expense as the interest so payable is
credited to the provident fund account of the assessee. [vashisht bhargava verses lt.o.
(1975)].

the cost of acquisition in different cases is explained below:

(1) cost of acquisition of goodwill of a business or a trade mark or brand name associated
with business or right to manufacture, produce or process any article or things or right to
carry on any business, tenancy rights, stage carriage permits or loom hours [section 55(2)
(a)]. it shall be as follows:

(1) in case such asset is purchased, it shall be the amount of purchase price.

(2) in any other case not being a case falling under case (3) below, it shall be taken as nil as it
is self-generated.

(3) if case falls under sub-clauses (1) to (4) of section 49(1), it shall be the cost to the
previous owner if the previous owner paid for it but where it was self-generated by the
previous owner, it shall be taken as nil.

(2) cost of acquisition of right shares [section 55(2)(aa)] where an assessee, by virtue of
holding shares or any other security, becomes entitled to subscribe to any additional shares
(or any other security) then: (1) cost of acquisition of the original shares shall be the amount
actually paid for acquiring the original shares; (2) the cost of acquisition of the right shares,
when the assessee renounces his right to subscribe additional shares in favour of any other
person, shall be taken to be nil; (3) the cost of acquisition of the right shares, when the
assessee subscribes to the right shares as the basis of the said entitlement shall be the amount
paid for (4) the cost of acquisition of shares in whose favour the right to subscribe is
renounced, shall be the amount paid by him to the company for acquiring the shares plus the
amount paid by him to the person renouncing such right.

it may be noted that the expression "financial asset" has been used for a share or any other
security. in navin jindal verses cit, it was held that for determining whether the gain/loss of
renunciation of right to subscribe is a short-term or long-term gain/loss, the crucial date is the
date on which such right to subscribe for additional shares/debentures comes into existence
and the date of renunciation of such right. hence, where assessee renounced that right in
favour of a third party for money in assessment year and consequently suffered loss of a
higher amount due to diminution of value of his .original shares, net loss so suffered, held,
was short-term capital loss and not long-term capital loss. hence, assessee rightly applied
deduction under section 48(2), it act, 1961 to amount of long-term gains earned during the
year and then from the remainder deducted the said short-term loss. department erred in
deducting the said short-term loss from long-term gains and then applying section 48(2) to
the remainder.

3. cost of acquisition of bonus shares or any other financial asset allotted without payment
[section 55(2)(aa)]. section 55(2)(b)(aa)(3a) inserted by the finance act, 1995 w.e.f. 1.4.1996
provides that the cost of acquisition in relation to a financial asset allotted to the assessee
without any payment and on the basis of holding of any other share or other security, shall be
taken as nil in the case of such assessee. therefore, the cost of bonus shares or any other
security shall be taken to be nil and the entire sale consideration received on transfer of the
bonus shares shall be treated as capital gains. it should be noted that the cost of acquisition of
original shares shall be the amount actually paid to acquire the original shares.

4. cost of acquisition of a share or shares allotted to a shareholders of a recognized stock

exchange in india under a scheme of demutualization [section 55(2)(ab)]. in relation to a
capital asset, being equity share or shares allotted to a shareholder of a recognized stock
exchange in india under a scheme for demutualization or corporatization approved by the
sebi, cost of acquisition shall be the cost of acquisition of his original membership of the
exchange. the proviso to this clause states that the cost of a capital asset, being trading or
clearing rights of the recognized stock exchange acquired by a shareholder who has been
allotted equity share or shares under such scheme of demutualization or corporatization, shall
be deemed to be nil.

5. cost of acquisition of any other capital assets acquired before 1.4.1981 [section 55(2)(b)].
in relation to a capital asset, where the capital asset became the property of the assessee
before 1.4.1981, the cost of acquisition means the cost of acquisition of the asset to the
assessee or the fair market value of the asset on 1.4.1981, at the option of the assessee.

(b) in relation to a capital asset, where the capital asset became the property of the assessee
by any of the modes specified in section 49(1) and the capital asset became the property of
the previous owner before 1.4.1981, the cost of acquisition means the cost of capital asset to
the previous owner or the fair market value of the asset on 1.4..1981, at the option of the
assessee. section 49(1) provides as follows:

where the capital asset became the property of the assessee—

(1) on any distribution of assets on the total or partial partition of a hindu undivided family;

(2) under a gift or will;

(3) (a) by succession, inheritance or devolution, or

(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other
association of persons, where such dissolution had taken place at any time before the 1st day
of april, 1987, or

(c) on any distribution of assets on the liquidation of a company, or

(d) under a transfer to a revocable or an irrevocable trust, or

(e) under any such transfer as is referred to in clause (4) or clause (5) or clause (6) or clause
(6a) or clause (6aa) or clause (6ca) or clause (6cb) or clause (13b) of section 47;

(4) such assessee being a hindu undivided family, by the mode referred to in sub-section (2)
of section 64 at anytime after 31.12.1969, the cost of acquisition shall be deemed to be the
cost for which the previous owner of the property acquired it, as increased by the cost of any
improvement of the assets incurred or borne by the previous owner or the assessee, as the
case may be.

previous owner means the previous owner who actually paid for the asset.

section 55(3) provides that where the cost for which the previous owner acquired the property
cannot be ascertained, the cost of acquisition to the previous owner means the fair market
value on the date on which the capital asset became the property of the previous owner.

(c) in relation to a capital asset, where the capital asset became the property of the assessee on
the distribution of the capital assets of a company on its liquidation and the assessee has been
assessed to income-tax under the head "'capital gains" in respect of that asset under section
46, the cost of acquisition means the fair market value of the asset on the date of distribution.

according to section 2(22b), fair market value in relation to the capital market means (1) the
price which the capital asset would ordinarily fetch if sold in the open market on the relevant-
date; and (2) where the price referred to in is not ascertainable, such price may be determined
in accordance with the rules made under the income-tax act.

6. cost of shares of amalgamated company [section 49(2)]. where a shareholder of an

amalgamating (i.e. transferor) company gets the shares of an amalgamated (i.e. transferee)
company in lieu of the shares held in the amalgamating company, the cost of acquisition of
such shares of the amalgamated company shall be deemed to be the cost of acquisition to him
of the shares of the amalgamating company.

7. cost of acquisition of depressible assets (section 50). the excess of the full value of the
consideration over the following shall be the short term capital gain:

(1) expenditure incurred wholly and exclusively in connection with such transfer;

(2) the written down value of the block of assets at the beginning of the previous year;

(3) the actual cost of any asset falling within the block from the transfer of short term capital
assets.

8. cost of acquisition of specified security or sweat equity [section 49(1) 2aaj. where the
capital gain arises from the transfer of a specified security or sweat equity shares referred to
in section 17(2)(6), the cost of acquisition of such security or shares shall be the fair market
value which has been taken into account for the purposes of section 17(2)(6). the said sub-
clause (vi) provides that "fair market value" means the value determined in accordance with
the method as may be prescribed.

9. cost of acquisition of capital asset, being rights of partner of llp [section 49(2aaa)]. where
the capital

10. cost of acquisition of a property subject to income tax under section 56(2)(7). where the
capital gain arises from transfer of a property, the value of which has been subject to income-
tax under clause (7) of sub-section (2) of section 56, the cost of acquisition of such property
shall be deemed to be the value which has been taken into account for the purposes of the
said sub-clause (7).

indexed cost of improvement [explanation (4) to section 48]

"indexed cost of any improvement" means an amount which bears to the cost of improvement
the same proportion as cost inflation index for the year in which the asset is transferred bears
to the cost inflation index for the year in which the improvement to the asset took place.

the cost of improvement only after 1.4.1981 by the assessee will be indexed.

however, where the asset is acquired by the assessee from the previous owner in any mode
given under section 49(1), the expenses on improvement incurred by the previous owner after
1.4.1981 will also be indexed. in this the following formula will be used to calculate indexed
cost of improvement:

capital expenditure cost inflation index of indexed cost of on improvement the year of
transfer improvement cost inflation index in which the improvement was made by the
assessee or by the previous owner
 UNIT -:3

CLUBBING OF INCOME

Income-tax is levied on an assessee generally in respect of his own income. however,

in some cases the income-tax law deviates from this general principle and the assessee may
also be assessed in respect of income of some other persons. sections 60 to 65 of the income-
tax act, 1961 have been enacted to counteract growing tendency on the part of the tax payers
to endeavor to avoid or reduce the tax liability in such a way that the income should no longer
be received by him and at the same time he may retain powers over or interest in the property
or its income. thus the object of clubbing of income is to prevent a person from escaping or
reducing his tax liability by transfer of income generating or by transfer of income to persons
who do not have taxable income.
Circumstances in which an item of income earned or received by a person is included in
the total income of another person
The circumstances in which a particular item of income is earned or received by a certain
person, it becomes includable in the total income of another person are discussed below:-
1. Transfer of income where there is no transfer of assets (section 60)
according to section 60 if a person transfers to another person certain income but does not
transfer the asset which produced the said income, such income will not be assessed in the
hands of the transferee but it will be included in the total income of the transferor. thus when
income alone is transferred without transfer of the asset giving rise to such income, it is
deemed to be the income of the transferor. section 60 is applicable irrespective of whether the
transfer of income is revocable or not and whether it has been effected before or after the
commencement of this act. "transfer" for this purpose includes any settlement, trust,
covenant, agreement or arrangement. cases falling under section 60 do not have any
exception.
2. Revocable transfer of assets (section 61)
According to section 61 all income arising to any person by virtue of a revocable transfer of
assets shall be chargeable to income-tax as the income of the transferor and shall be included
in his total income. "Revocable transfer" for this purpose has been defined in section 63 to
mean:
(1) A transfer containing any provisions for the retransfer directly or indirectly of the whole
or any part of the income or assets to the transferor, or
(2) A transfer which in any way gives the transferor a right to re-assume power directly or
indirectly over the whole or any part of the income or assets.
Exception (section 62): section 61 does not apply to any income arising to any person by
virtue of transfer if the following conditions are satisfied
 where the transfer is by way of trust and it is not revocable during the lifetime of the
beneficiary and in the case of any other transfer, which is not revocable during the
life-time of transferee; or
 if the transfer was made before first april, 1961, which is not revocable for a period
exceeding six years: provided that the transferor derives no direct or indirect benefit
from such income in either case.

3. Income of individual to include income of spouse, minor child, etc. [section 64(1)]
income of spouse and son's wife
In computing the total income of any individual, the following incomes are to be included:
(a) remuneration to the spouse from a concern in which individual has substantial interests
[section 64(1) (ii)j. from the assessment year 1976-77, in computing the total income of an
individual there shall be included all such income as arises directly or indirectly to the spouse
of such individual by way of salary, commission, fees or other form of remuneration whether
in cash or kind from a concern in which such individual has a substantial interest. the proviso
to section 4(1 )(ii) provides that this rule does not apply where the spouse of the said
individual possesses technical or professional qualification and the income to the spouse is
solely attributable to the possession of his/her technical or professional knowledge or
experience.
where both husband and wife have substantial interest in a concern and both are in receipt of
income by way of salary, commission, remuneration etc. from the said concern, such income
will be included in the case of the husband or wife, whose total income, excluding income
received from the concern, is greater
An individual is deemed to have substantial interest in a concern:
(1) In a case where the concern is a company, he by himself or along with his relatives
beneficially holds equity shares carrying not less than 20% voting power;
(2) In any other case, he by himself or together with his relatives is entitled to 20% of the
profits of such concern
(4) Income to spouse from the assets transferred [section 64(1) (4)|.
where certain assets are transferred by an individual to the other spouse, otherwise than for
adequate consideration or in connection with an agreement to live apart, then the income
arising to the transferee, directly, out of such transferred assets shall be included in the total
income of the individual [subject to the provisions of section 27 clause (1)]. for the
application of this clause there must exist a relationship of husband and wife on the date of
transfer

(5) Income from assets transferred to the son's wife [section 64(1) (6)|.
In computing the total income of an individual there shall be included all such income as
arises to the son's wife of such individual from the assets transferred directly or indirectly at
any time on or after june, 1973 by the individual to the daughter-in-law otherwise than for
adequate consideration.

(6) Income arising from assets transferred for the benefit of spouse [section 64(1) (7)]. in
computing the total income of any individual there shall be included all such income as arises
to any person or association of persons from all assets transferred directly or indirectly
otherwise than for adequate consideration to the person or association of persons by such
individual to the extent to which the income from such assets is for the immediate or deferred
benefit of his or her spouse.

(7) Income arising from the assets transferred for the benefit of his son's wife [section
64(1) (8)].
In computing the total income of any individual there shall be included all such incomes as
arises to any person or association persons from assets transferred directly or indirectly on or
after first day of june, 1973, otherwise than for adequate consideration to the person or
association of persons by such individual to the extent to which the income from such assets
is for the immediate or deferred benefit of his son's wife. this provision is effective from the
assessment year 1985-86
in smt. mohini thapar verses c.i.t., it has been held that not merely the income that arises
directly from the asset transferred but also that arises indirectly from the asset transferred is
to be included in the income of the transferor. in this case Mr. thapar made certain cash gifts
to his wife. the wife invested the money in shares and interest yielding securities. the incomes
from these investments were included in the income of Mr. thapar by the assessing officer.
this was upheld by the supreme court.
section 64 provides that for the purposes of clauses (iv) and (vi), where the assets transferred
by an individual to his spouse or son's wife are invested by the transferee,—
(1) In any business, (not being in the nature of capital contribution in a firm), proportionate
income arising to the transferee attributable to the investment; and
(2) In the nature of capital contribution in a firm, any interest receivable by the transferee
attributable to such investment, shall be included in the total income of the individual.
for this purpose, the proportion shall be with reference to the value of investment aforesaid as
on the first day of the previous year to the total investment in the business by the transferee as
on that day.

Transfer of house property. if the asset transferred by an individual otherwise than for
adequate consideration to the spouse or minor child is a house property, the provisions of
section 27 shall apply. in such a case the transferor shall be deemed to be the owner and
income shall be accordingly computed under the head 'income from house property'. however
the purpose of deeming as a owner is only for a limited purpose of charging income from
house property. in sevanthilal verses c.i.t], (1967) 68 itr 503, the supreme court held that
capital gain arising on the sale of gifted asset shall be treated as income arising from such
asset. therefore, capital gain on the sale of transferred house property can be clubbed.

(8) Income of a minor child [section 64(1-a)]

In computing the total income of any individual, there shall be included all such incomes as
arises or accrues to his minor child [section 64(1 -a)]. the proviso to the sub-section provides
that the following incomes of the minor child will not be included in the income of his or her
parent:
(a) income on account of manual work done by the minor child, or
(b) income due to activity involving of his skill, talent or specialized knowledge and
experience.
The explanation provides that the income of the minor child will be included,—
(a) Where the marriage of his parents subsists, in the income of that parent whose total
income is greater, or
(b) Where the marriage of his parents does not subsist, in the income of that parent who
maintains the minor child in the previous year
if the income of a minor child is once included in the total income of either parent, any such
income arising in any succeeding year will not be included in the total income of the other
parent, unless the assessing officer is satisfied, after giving that parent an opportunity of
being heard, that it is necessary so to do.
according to section 64( 1 -a) the clubbing provision will not apply in the case of income of
minor child suffering from any disability as specified in section sou. section 10(32) provides
that in the case of an assessee whose total income the minor child's income is to be included
under section 64(1-a), exemption is given up to rs. 1500 (not exceeding the income clubbed)
in respect of each such minor child.
"child" in relation to an individual, includes a step-child and an adopted child of that
individual [section 2 (15b)
in c.l t. verses shri prem bhai parekh (1970) 77 itr 27 (sc), the assessee gifted a sum of rs.
75,000 to each of his four sons, on his retirement from a firm. the firm was reconstituted. the
major son became a partner and three minor sons were admitted to the benefits of the firm.
the income arising to the minors by virtue of their admission to the benefits of the firm was
sought to be included in the total income of the assessee. the court held that there was no
nexus between the transfer of assets and the income in question; the connection between the
gift mentioned earlier and the income in question is remote one.

(9) Income of HUF [section 64(2)] clubbing of income before partition: where a member
of a hindu undivided family has converted or transferred self acquired property for otherwise
than for adequate consideration into joint family property or thrown into the common stock of
the family, income arising there from is taxable as the income of the transferor member.
Clubbing of income after partition: if the converted property is subsequently partitioned
among the members of the family, the income derived from such converted property as is
received by the spouse of the transferor will be taxable as the income of the transferor

Section 80C Tax Deduction

Under section 80C of the income tax, you are eligible to claim deductions up to Rs. 1,
50,000 on your taxable income from tax-saving instruments and investments. An individual
or Hindu Undivided Family (HUF) is eligible to claim deductions under this section.

The investments which qualify for deductions under 80C are listed below:

Investment Description

Employer and employee contribute an

equal amount (12% of basic) to the

Employee Provident Fund (EPF) fund that acts as a retirement benefits

scheme.

A long-term investment options

Public Provident Fund(PPF) offered by the Government of India.

Premiums paid towards a health

Health Insurance Premiums insurance plan—individual or a
family floater plan.

It is an open-ended mutual fund

which invests majorly into equities
Equity Linked Savings Scheme (ELSS)
for higher returns and provides tax
benefits as well.

National Savings Certificate (NSC) A secure savings scheme offered by

the postal department.
  

Premiums paid for a life insurance

Life Insurance Premiums
plan in a financial year

Tuition fee for full education to any

college/university situated in India.
Children’s Tuition Fee Permissible up to two children.

Repayment of home loan principal as

Housing well as expenses incurred on
registration and stamp duty

Similar to a bank fixed deposit but

Post Office Fixed Deposit only the five-year deposit qualifies
for deductions.

These are government approved infra

bonds. Issued by companies such as
Infrastructure Bonds: India Infrastructure Finance
Company and Infrastructure
Development Finance Company

2. Section 80CCC Tax Deduction

Section 80CCC income tax deduction is with respect to the contributions made towards
pension plans by an individual. Section 80C in India was designed to offer exhaustive
contents, as a result it made tax planning a bit cumbersome. That’s how, Section 80C was
divided into many subsections, one such being Section 80CCC. Under Section 80CCC tax
benefits on expenses accrued for buying or continuing annuity plans/retirement plans are
well-defined, allowing eligible investors to gain more benefits.

Only individuals and HUF are eligible to file deductions under Section. A few points to
remember here are:

Interests or bonuses earned from this plan do not qualify for deductions.

The amount received after the surrender of plan attracts tax.

Pension amount received is taxable.

3. Section 80CCD Tax Deductions

Section 80CCD deals with contributions made to two Government pension schemes: National
Pension Scheme (NPS) & Atal Pension Yojana (APY). There are two parts to this section:

Section 80CCD (1): It deals with tax deductions for employees of Central
Government/Other/ Employer/Self-employed. Salaries employees enjoy a maximum
deduction of 10% of salary. Self-employed tax-payers see a deduction of 10% of gross
income.

Section 80CCD (2): This section deals with the employer’s contribution towards NPS. An
employee can claim a deduction if his or her employer makes payment to employee’s NPS
account. The limit is 10% of employee’s salary.

Section 80CCD (1B): An additional tax-benefit of Rs. 50,000 is possible under Section
80CCD (1B) for investments made in the NPS. Thus, the total tax savings can go up to Rs.
2,00,000.

Moreover, taxpayers can ask their employers to contribute to your NPS account as per section
80CCD (2). The employer’s contribution cannot exceed 10% of the employee’s salary.
However, there is no upper limit in monetary terms on the amount of employer’s contribution
that would be exempt from tax, as per the Income Tax Act. Salary for calculating this 10% is
defined as salary includes dearness allowance, if the terms of employment so provide, but
excludes.

Let us see how to calculate tax using an example:

Nikhil is an IT employee, and earns a salary of Rs. 10.5 lakhs per year.
During the year, his income from a savings account is Rs. 15,000. He has a fixed deposit
(FD) that gives him an annual interest income of Rs. 13,000. He has also invested Rs. 50,000
in Public Provident Fund (PPF) and Rs. 20,000 in tax-saving mutual funds.

Over the last year, he paid a premium of Rs. 80,000 for a life insurance policy, and paid Rs.
10,000 for retirement planning.

From the above data, Nikhil’s gross total income calculations (in Rs.) are:

Nature of income Amount

Salary 10,50,000

Other sources 28,000 (Savings account + FD)

Gross total income 10,78,000

His deductions (in Rs.) are:

Deductions Amount

80C 1,50,000 (PPF + ELSS + Insurance policy)

80CCC 10,000 (retirement/annuity plan)

80CCD 50,000 (NPS + APY)

Total 2,10,000

 
Set off of losses and carry forward of losses
Set off of losses means adjusting the losses against the profit or income of
that particular year. Losses that ar e not set off against income in the same year can be
carried forward to the subsequent years for set off against income of those years. A set-off could be
an intra-head set-off or an inter-head set-off.

a. An intra-head set-off
b. An inter-head set-off

a. Intra-head Set Off

The losses from one source of income can be set off against income from
another source under the same head of income.
For eg: Loss from Business A can be set off against profit from Business B,
where Business A is one source and Business B is another source and the
common head of income is “Business”.
Exceptions to an intra-head set off:
1. Losses from a Speculative business will only be set off against the profit
of the speculative business. One cannot adjust the losses of speculative
business with the income from any other business or profession.
2. Loss from an activity of owning and maintaining race-horses will be set
off only against the profit from an activity of owning and maintaining
race-horses.
3. Long-term capital loss will only be adjusted towards long-term capital
gains. However, a short-term capital loss can be set off against both long-
term capital gains and short-term capital gain.
4. Losses from a specified business will be set off only against profit of
specified businesses. But the losses from any other businesses or
profession can be set off against profits from the specified businesses.

b. Inter-head Set Off

After the intra-head adjustments, the taxpayers can set off remaining
losses against income from other heads.
Eg. Loss from house property can be set off against salary income
Given below are few more such instances of an inter-head set off of
losses:
1. Loss from House property can be set off against income under any
head
2. Business loss other than speculative business can be set off against any
head of income except except income from salary.
One needs to also note that the following losses can’t be set off against
any other head of income:
a. Speculative Business loss
b. Specified business loss
c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses
Carry forward of losses

After making the appropriate and permissible intra-head and inter-head

adjustments, there could still be unadjusted losses. These unadjusted
losses can be carried forward to future years for adjustments against
income of these years. The rules as regards carry forward differ slightly
for different heads of income. These have been discussed here:

Losses from House Property :

Can be carry forward up to next 8 assessment years from the assessment
year in which the loss was incurred
Can be adjusted only against Income from house property
Can be carried forward even if the return of income for the loss year is
belatedly filed.

Losses from Non-speculative Business (regular

business) loss :
Can be carry forward up to next 8 assessment years from the assessment
year in which the loss was incurred
Can be adjusted only against Income from business or profession
Not necessary to continue the business at the time of set off in future
years
Cannot be carried forward if the return is not filed within the original due
date.

Speculative Business Loss:

Can be carry forward up to next 4 assessment years from the assessment
year in which the loss was incurred
Can be adjusted only against Income from speculative business
Cannot be carried forward if the return is not filed within the original due
date.
Not necessary to continue the business at the time of set off in future
years

Specified Business Loss under 35AD :

No time limit to carry forward the losses from the specified business
under 35AD
Not necessary to continue the business at the time of set off in future
years
Cannot be carried forward if the return is not filed within the original due
date
Can be adjusted only against Income from specified business under 35AD

Capital Losses:
Can be carry forward up to next 8 assessment years from the assessment
year in which the loss was incurred
Long-term capital losses can be adjusted only against long-term capital
gains.
Short-term capital losses can be set off against long-term capital gains as
well as short-term capital gains
Cannot be carried forward if the return is not filed within the original due
date

Losses from owning and maintaining race-horses:

Can be carry forward up to next 4 assessment years from the assessment
year in which the loss was incurred
Cannot be carried forward if the return is not filed within the original due
date
Can only be set off against income from owning and maintaining race-
horses only
Points to note:
1.A taxpayer incurring a loss from a source, income from which is
otherwise exempt from tax, cannot set off these losses against profit from
any taxable source of Income
2. Losses cannot be set off against casual income i.e. crossword puzzles,
winning from lotteries, races, card games, betting etc.
 Unit 4

What is Advance Tax?

Advance tax mean income tax should be paid in advance instead of lump sum
payment at year end. It is also known as pay as you earn tax. These payments
have to be made in instalments as per due dates provided by the income tax
department.

Who should pay Advance Tax?

Salaried, freelancers and businesses– If your total tax liability is Rs 10,000 or

more in a financial year you have to pay advance tax. Advance tax applies to all
taxpayers, salaried, freelancers, and businesses. Senior citizens, who are 60
years or older, and do not run a business, are exempt from paying advance tax.

Presumptive income for Businesses–The taxpayers who have opted for

presumptive taxation scheme under section 44AD have to pay the whole
amount of their advance tax in one instalment on or before 15 March. They also
have an option to pay all of their tax dues by 31 March.

Presumptive income for Professionals– Independent professionals such as

doctors, lawyers, architects etc. come under the presumptive scheme under
Section 44ADA. They have to pay the whole of their advance tax liability in
one instalment on or before 15 March. They can also pay the entire amount by
31 March.

OUR EXPERTS CAN HELP YOU

Due Dates for payment of Advance Tax

FY 2019-20 & FY 2018-19 for both individual and corporate taxpayers

Due Date Advance Tax Payable

On or before 15th June 15% of advance tax

On or before 15th 45% of advance tax less advance tax already

September paid

On or before 15th 75% of advance tax less advance tax already

December paid

On or before 15th March 100% of advance tax less advance tax already
paid

For taxpayers who have opted for Presumptive Taxation Scheme under section
44AD & 44ADA – Business Income

Due Date Advance Tax Payable

 On or before 15th March 100% of advance tax

Our CAs will calculate your advance tax liability so you can pay your dues on
time.

Calculation of advance tax liability

We will explain the calculation by way of an example. Ajay is a freelancer

earning income from the profession of interior decoration. For the FY 2019-20,
Ajay estimates his annual gross receipts at Rs 20,00,000. Ajay estimates his
expenses at Rs 12,00,000. Ajay has deposited Rs 40,000 in PPF account. Ajay
has also paid Rs 25,000 towards LIC premium. Further, Ajay has paid Rs
12,000 towards medical insurance premium. The professional receipts of Ajay
are subject to TDS. Ajay estimates a TDS of Rs 30,000 on certain professional
receipts for the FY 2019-20. Besides professional receipts, Ajay estimates an
interest of Rs 10,000 on fixed deposits held by him. Ajay’s advance tax liability
would be as below:

INCOME ESTIMATION FOR ADVANCE TAX AMOUNT AMOUNT

(Rs) (Rs)

     

Income from profession:    

Gross receipts 20,00,000  

Less: Expenses 12,00,000 8,00,000

     

Income from other sources:    

Interest from fixed deposit   10,000

GROSS TOTAL INCOME   8,10,000

Less: Deduction under section 80C    

Contribution to PPF 40,000  

LIC premium 25,000  

  65,000  

Deduction under section 80D 12,000 77,000

TOTAL INCOME   7,33,000

     

TAX PAYABLE   59,100

Add: Education cess @ 4%   2,364

    61,464

Less: TDS   30,000

TAX PAYABLE IN ADVANCE   31,464

ADVANCE TAX PAYMENTS  

 Due date Advance tax payable Amount (Rs)

15th June 15% of Advance tax 4,700

15th September 45% of Advance tax 14,100

15th December 75% of Advance tax 23,600

15th March 100% of Advance tax 31,400

What is TDS?
Tax Deducted at Source is a system introduced by Income Tax Department, where the
person responsible for making specified payments such as salary, commission, professional
fees, interest, rent, etc. is liable to deduct a certain percentage of tax before making
payment in full to the receiver of the payment. As the name suggests, the concept of TDS is
to deduct tax at its source. Let us take an example of TDS assuming the nature of payment is
professional fees on which the specified rate is 10%.

XYZ Ltd makes a payment of Rs 50,000/- towards professional fees to Mr. ABC, then XYZ Ltd
shall deduct a tax of Rs 5,000/- and make a net payment of Rs 45,000/- (50,000/- deducted
by Rs 5,000/-) to Mr. ABC. The amount of 5,000/- deducted by XYZ Ltd will be directly
deposited by XYZ Ltd to the credit of the government.

1) What Is TAN and How to apply for TAN?

TAN stands for Tax Deduction Account Number. It is a 10 digits alphanumeric number
required to be obtained by all persons who are responsible for deducting or collecting tax.
Under Section 203A of the Income Tax Act, 1961, it is mandatory to quote Tax Deduction
Account Number (TAN) allotted by the Income Tax Department (ITD) on all TDS returns. The
procedure for the application of TAN is very simple and can be done online by filling up
Form 49B. Please refer to NSDL Site in order to Apply For TAN.

2) What is the TDS Certificate?

TDS certificates are issued by the deductor (the person who is deducting tax) to the
deductee (the person from whose payment the tax is deducted). There are mainly two types
of TDS certificates issued by the deductor.

1. Form 16: which is issued by the employer to the employee incorporating details of
tax deducted by the employer throughout the year, and

2. Form 16A: This is issued in all cases other than salary.

For example, Mr. Gupta is working as a salaried employee at a company, and tax is deducted
on his salary @ 15%. The company shall provide Mr. Gupta with a Form 16 describing
particulars in detail regarding the amount of salary paid and tax deducted on the same.

However, had Mr. Gupta been working as a professional and received professional fees
from an organization that is subject to TDS, then he will be provided Form 16A for the same.

3) When TDS should be deducted?

The concept of TDS is based on a simple principle i.e. tax is to be deducted at the time of
payment getting due or actual payment whichever is earlier. A set of scenarios will be
helpful in understanding the concept:

Say, ABC Private Limited has to make payment of Rs 50,000/- to Mr. XYZ in exchange for
professional services.

Scenario 1:
Mr. XYZ was paid Rs 30,000/- in advance on 15 th July. XYZ raised the invoice after completion
of work on 31st July and the rest of the payment is to be made.
In such a case the company should have deducted tax in the following manner:

On 15th July: Rs 3,000/- (@ 10% on the advance of Rs 30,000/-)

On 31st July: Rs 2,000/- (@ 10% of the total invoice amount as deducted by tax already
deducted i.e. Rs 5000/- deducted by Rs 3,000/-)

Scenario 2:
Mr. XYZ raised the invoice on 15 th July and was paid whole consideration at one go on
31st July.

In such a whole amount of Rs 5,000/- shall be deducted on 15 th July, the date when payment
got due, and a net payment of Rs 45,000/- shall be made on 31st July.

Scenario 3:
Mr. XYZ is to receive the whole amount of Rs 50,000/- well in advance before completion of
the assignment.

In such a particular case tax of Rs 5000/- shall be deducted right at the time of payment of
advance and no tax is to be deducted at the time of making an entry for the bill due.

4) How much tax should be deducted from salary?

Persons responsible for paying salary are liable to deduct tax on estimated salary at a
prescribed rate of 15% subject to the following:

1. Exemption Limit: No tax is required to be deducted at source unless the estimated

salary exceeds the basic exemption limit.

2. Exempt allowances: Allowances such as LTC, HRA, conveyance, traveling exempt as

per prescribed limits and other perquisites not forming part of salary should be
deducted from total salary while calculating taxable salary.
 3. Other deductions: Other deductions such as deductions under section 80C, 80CCC,
80CCD, 80CCG, 80D, 80DD, 80DDB, 80E, 80EE, etc. should be considered before the
calculation of tax on salary.

5) What is the minimum salary one should have for TDS to be deducted by the employer?

If after comprehensive calculation of allowable allowances, taxable perquisites, and

deductions under chapter VI-A, income from salary head exceeds a sum of basic exemption
limit, then tax has to be deducted by the employer @ 15% on the amount over and above
the basic exemption limit. For example, the salary of Mr. A arrives at Rs 2,80,000/- assuming
that all the allowances, perquisites, and deductions have been taken into consideration, tax
@ 15% on Rs 30000/- (2,80,000 – 2,50,000) shall be deducted by the employer.

Hence, provisions of TDS shall attract only if the minimum salary is above the basic
exemption limit.

6) What are the rates of TDS?

There are around 20-25 sections that prescribe different types of payments on which tax is
deductible at source. Here, we are going to discuss some of the most commonly
encountered nature of payments on which tax is to be deducted at source.

Rates for tax deduction at source (Updated May 2020)

In order to provide more funds at the disposal of the taxpayers for dealing with the
economic situation arising out of COVID-19 pandemic, the rates of Tax Deduction at Source
(TDS) for the following non-salaried specified payments made to residents has been reduced
by 25% for the period from 14th May, 2020 to 31st March, 2021:-
7) How to calculate TDS?

Numerous transactions are covered under the purview of TDS sections and calculation of
TDS can be tricky in some sections. Here, we shall discuss some examples of different
sections to make the calculation clear.

Example 1:
Under the section, 194A tax is to be deducted on payment of interest other than interest on
securities. However, no tax is required to be deducted if the amount of such interest paid or
credited or is likely to be paid or credited does not exceed Rs 10,000/- in case of a banking
company, co-operative society engaged in the business of banking and post office deposits
and Rs 5,000/- in any other case in a financial year. Also, note that no tax is to be deducted
on savings account interest.
 Scenario 1: Suppose interest paid or credited or is likely to be paid or credited by a
banking company to a person in a financial year is Rs 9,000/-, then no tax is required to
be deducted as the amount has not exceeded the cap of Rs 10,000/-.
 Scenario 2: Say interest paid or credited or is likely to be paid or credited by a banking
company to a person in a financial year is Rs 12,000/-, then tax is required to be deducted
on the whole amount of Rs 12,000/- @ 10% i.e. TDS of Rs 1200/-. Please note that Rs
10,000/- is a cap just for fixing responsibility of banking company for TDS and is not
an exemption limit i.e. tax is to be deducted from the whole amount of Rs 12,000/- as
soon as the amount exceeds the cap amount of 10,000/-

Similar examples are relevant for other interests, except in those cases the cap amount shall
be Rs 5,000/- instead of Rs 10,000/-.
 

Example 2:
Under the section, 194C tax is to be deducted on payment or credit to a resident
contractor/sub-contractor. The definition of a contract is derived from the Indian Contract
Act, 1872 and covers almost all types of contracts under its purview. However, no tax is to be
deducted where:
 the sum is credited or paid in pursuance of any contract, the consideration for which does
not exceed Rs. 30,000/-, or,
 where the aggregate of the amounts of such sums credited or paid or likely to be credited
or paid during the financial year does not exceed 75,000/-

Applicable @ 1% if payment/credit is made to resident individual or HUF, @ 2% if

payment/credit is made to any resident person other than individual / HUF and @ 20% if
PAN is not available.

Scenario 1: Mr. A, an individual provided contractual services to a firm and was made
payments in 3 installments, 1st installment of Rs 25,000/- and the second installment of Rs
26,000/- and last installment of Rs 28,000/-.
In this case, the firm need not deduct tax on installments since the amount hasn’t exceeded
the cap of Rs 30,000/-. But, if we sum up all 3 installments the total arrives at Rs 79000/-
which exceeds the yearly cap of Rs 75,000/-. Hence, in this case, the tax is to be deducted
from the whole amount of Rs 75,000/- @ 1% (being an individual), which arrives at Rs
750/-. Please note that once the total amount exceeds Rs 75,000/- in a financial year, the
tax is to be deducted from each and every payment irrespective of the fact whether such
part payments are more or less than Rs 30,000/-.

Scenario 2: M/s ABC, a partnership firm provided some contractual services to Mr. A and
was made payments in 3 installments of Rs 50,000/-, Rs 12,000/- and Rs 14,000/-.

In this case, tax @ 2% (being a partnership firm) shall be deducted at the time of payment of
Rs 50,000/- as the sum exceeds the cap of a single payment of Rs 30,000/-.
No tax shall be deducted when the sum of Rs 12,000/- is paid as the sum is far below the cap
of a single payment of Rs 30,000/- and the total payment during hasn’t exceeded the yearly
cap of Rs 75,000/-.

Tax @ 2% shall be deducted from the whole amount of Rs 12000/- and Rs 14000/- as they
might not have exceeded the cap of single payments, but the yearly cap of Rs 75000/- is
exceeded as and when the final installment of Rs 14000/- is paid to M/s ABC.

8) What are the due dates for TDS?

Payment of TDS each month and filing of quarterly return of TDS are 2 separate processes
and due dates for these processes are different

The due dates for the payment of the deducted TDS are on or before the 7th of next month. It
means, if the deductor has deducted tax from payments in the month of November, then he
has to pay the TDS  on or before the 7th of December. The key point to note here is that the
due dates are the same for all types of assesses whether its Salaried case or non-salaried case.

These due dates are applicable to all non-Government assesses and also to Government
assessees who deposit tax with Challan as specified by the income tax department.  If the
challans are not used to make payment of TDS by government assesses, then the due date for
payment of TDS will be the same day on which the amount is deducted.

Monthly due dates for payment TDS.

Month The due date for payment of TDS

April  7th of May

May  7th of June

June  7th of July

 July  7th of August

August  7th of September

September  7th of October

October  7th of November

November  7th of December

December  7th of January

January 7th of February

February 7th of March

March 30th of April

9) Which are the different forms prescribed for TDS Return?

Before that, we will get a general idea about which forms are applicable to different cases.
These forms are to be prepared in consultation with your tax advisor to avoid any mistake and
then to file the corrected TDS return.

Here is how ProfitBooks can help

Form Detector type

Form 24 Q Deductions made in a salaried case

Form 26 Q Deductions made in the non-salaried case

Form 27 Q Deductions made in the case of NRIs

 
Now that we know the different forms, in the below table we can see the due dates for
different forms and different quarters as well:

Quarter Form 24Q & 26Q Form 27Q

April to June 15 July 15 July

July to September 15 October 15 October

October to December 15 January 15 January

January to March 15 May 15 May

What are penalty provisions for non-deduction of TDS?

There are several instances where interest, fees, and penalties are levied on non-compliance
of TDS provisions. The same are discussed here step by step:

1. Consequences of non-deduction of TDS

If a person who was responsible for deducting tax at source fails to do so, then the
ASSESSING OFFICER has powers to disallow whole of such expenditure for
ascertaining taxable profits. For example, ABC Limited paid a commission of Rs
2,00,000/- during the year to a single person and omitted to deduct tax on the same,
then the Assessing Officer has powers to disallow deduction whole of such expenses
while ascertaining taxable profits.

2. Late deduction of TDS

Tax is to be deducted at the time of payment/credit getting due or payment whichever
is earlier. In terms of income tax, even a single day is counted as a month for the
purpose of calculating interest. In cases of late deduction of tax, interest @ 1% per
month of the TDS amount subject to the maximum amount of TDS is levied. For
example, ABC company was supposed to deduct tax of Rs 20000/- on 15 th July but
 instead the same was deducted by the company on 1 st August. In this case interest of
Rs 200/- (@1% for one month) is required to be paid by the assessee.

3. Late payment of TDS

Tax is to be deducted and paid to the credit of government on every 7 th day of the
succeeding month in which the tax has been deducted, otherwise, interest @ 1.5% per
month of TDS amount subject to the maximum amount of TDS is levied. For
example, ABC Ltd was supposed to deposit TDS of Rs 20000/- deducted in the month
of April by the 7th of May but fails to deposit the same on time and actually deposited
the same in the following month. In this case interest of Rs. 300/- (@ 1.5% for one
month) is required to paid by the assessee.

4. Late filing of return of TDS

TDS returns are required to be filed in the last month of the following quarter i.e.
31st July, 31st October, 31st January, and in the case of March, it is 31st May. Fees
under section 234E are levied @ Rs 200/- per day subject to a maximum amount of
TDS until the return is filed. Example, M/s ABC, a partnership deducted and paid a
total TDS of Rs 40000/- in the first quarter of FY and was supposed to file its TDS
return by 31st July but filed its return on 31st August. Total fees of Rs 6200 (200/- per
day for 31 days) shall be paid before filing of return.

5. Penalty for late filing of TDS return

Assessing officer may direct a person who fails to file the statement of TDS within
due date to pay a penalty minimum of Rs. 10,000 which may extend to Rs.1,00,000.
The penalty under this section is in addition to the penalty u/s 234E and also covers
the cases of incorrect filing of TDS return.

11) How do I know how much TDS has been deducted and whether it has been credited
to me?

It is very simple to know how much TDS has been deducted and whether it is credited to you
or not. Follow these simple process to find it out:
Step 1: Log on to Income Tax India eFiling website and click on the link “Register Yourself”

Step 2: Enter your details as per PAN and generate a password

Step 3: Once you have logged into the portal, click on the option “View Tax Credit
Statement (26 AS)”

Step 4: After clicking on this link you will be directed to another website called TRACES
(TDS Reconciliation Analysis and Correction Enabling System) where you can know about
complete details of your tax deducted at source, advance tax paid and other important details.

26AS is a tax credit statement and covers all the amounts of TDS deducted by others. This
might happen that someone has deducted your tax but the same isn’t appearing in your tax
credit statements, which may be simply due to non-filing of TDS return by the deductor. In
such cases, please make sure to obtain a TDS certificate as this will be an ultimate proof that
your tax has been deducted at source.

12) Can I request tax deductions to not deduct tax from an amount and pay the whole
amount to me?

Yes, if your gross income is well below the basic exemption limit then you can request the
person who is responsible for TDS, to not deduct tax on such income. For doing the same you
have to options:

1. Apply to the Assessing Officer under whose jurisdiction you fall in Form 13 to get a
certificate approving deduction of tax at a lower rate or NIL rate.

2. Submit a declaration in Form 15G/15H in which you declare that your income is
below the basic exemption limit during the financial year and tax is required to be
deducted at source. This certificate has to be submitted every year and non-
submission may lead to deduction of tax. Please note that Form 15G is for individuals
and Form 15H is for senior citizens.

One major difference between Form 13 and Form 15G/15H is Form 15G/15H can be issued
only by individuals assesses, whereas request in Form 13 can be submitted by any person i.e.
individual, partnership firm, company, etc. to the ASSESSING OFFICER to get approval for
deduction of taxes at lower or NIL rate.
 

13) How to apply for a TDS refund?

There is this major misconception that refund of excess TDS is different from an income tax
refund and is called a TDS refund. However, the fact is that there is only one kind of return
that you claim while filing your annual income tax return. Nowadays, it is compulsory to
quote bank account details such as account number and IFSC code while filing of return and
non-entering of such details will not generate a valid .xml file. In case if someone has
deducted more tax than he should have deducted, then income tax refund will arise which can
be claimed upon the filing of your annual income tax return.

For example, you own a goods transport agency and yours is a proprietorship firm. You
presented an invoice of Rs 50,000/- and the person paying freight paid you a net amount of
Rs 49,000/- (after deducting tax of Rs 1,000/- @ 2% under section 194C). In this case, the
deductor deducted tax @ 2% instead of 1% and hence deducted excess TDS by Rs 500/-.
This excess TDS will arise as a refund in the income tax return.

14) What is the applicability of TDS on transactions of immovable property?

There are mainly two sections that prescribe for deduction of taxes on transactions related to
immovable property:

1. Section 194-I: Section 194-I requires for deduction of tax at source on rental income
@ 10% for rent on land & building if the total amount of rent paid/credited or to be
paid/to be credited exceeds the cap of Rs 1,80,000/- during a financial year. Please
note that individuals and HUFs who are not subject to tax audits under section 44AB
need not deduct tax at source on such rental expenses.

2. Section 194IA: Section 194IA came into effect from June 2013 which required
deduction of tax by the transferee before making payment to transferor @ 1% of the
consideration for immovable property. Any sum paid by way of consideration for the
transfer of any immovable property (other than agricultural land) is covered under
section 194-IA, provided the consideration for the transfer of immovable property is
not less than Rs. 50 lakhs.
 3. Section 194LA: Section 194LA provides for deduction of tax at source @ 10% for the
payment to be made to the assessee as compensation on account of compulsory
acquisition of immovable property. Please note that no deduction shall be made under
this section where the amount of such payment or, as the case may be, the aggregate
amount of such payments to a resident during the financial year does not exceed Rs
250000/-.

15) What are the TDS rules?

There are certain rules set out by the tax authorities in regard to TDS, that if complied
properly you will not end up paying penalty, interest, and fees.

1. Tax deduction rules: Tax is required to be deducted at the time of payment getting due
or actual payment whichever is earlier. Delay in deduction of tax will attract interest
@ 1% per month until the tax is deducted.

2. TDS payment rules: Every person is required to pay the tax deducted to the credit of
government by the 7th day of the following month. Non-payment or late payment of
TDS will attract interest @ 1.5% per month until the tax has not been deposited.

3. TDS return filing rules: TDS returns are required to be filed timely on the 31 st day of
July, October, January, and May during a financial year. Non-filing or filing of return
after the due date will attract fees under section 234E @ Rs 200/- per day until the
return is filed. However, this amount shall not exceed the amount of tax.

ASSIGNMENT QUESTIONS

QUIZ
 MULTIPLE CHOICE QUESTIONS

IMPORTANT QUESTIONS FOR TAXATION LAWS

Q.1 Define the following:

a. Assessment year
 b. Previous year
c. Income
d. Gross total income
e. Assessee
f. Annual value in terms of house property
g. Advance payment of tax
h. Agricultural income

Q.2 Short Notes –

a. Deduction u/s 24
b. Sale and its different categories
c. Cost of acquisition
d. Cost of improvement
e. Allowances under the head salaries
f. Different perquisites and their deductions provided by the employer to its employee
g. Agricultural income
h. Treatment of intersale
i. Sale and its different categories
j. Procedure of registration of dealers
k. Process of computation of service tax
l. Determinants of value b of taxable service
m. Gross total income
n. Ten incomes taxable under the head income from other sources
o. Rules of set off and carry forward
p. Deduction of tax at source
q. Advance payment of tax
r. Casual income and non recurring income

Q.3 Distinguish Between-

a. TDS AND ADVANCE PAYMENT OF TAX

b. Short term and long term capital gain
c. Previous year and assessment year
 d. Sale and turnover
e. Direct and indirect tax
f. Firm and association of person
g. BOI and association of person
h. Gross total income and total income

Unit 1

 How to determine the residential status of

i. An individual
ii. HUF
iii. Firm
iv. Company

 Income of previous year is taxable in the immediately following assessment year. What is
the exception to this rule?
 How the tax liability does differs with the difference in the residential status of an
individual.
 “Income tax is a tax on income not on receipts “explain the statement and give main
features of the term income.
 State the conditions which an individual must fulfill in order to be called as a resident,
ordinary resident and non ordinary resident.
 Give ten examples of income which are totally exempted from beiong taxa and an
example of income which forms part of total income but is exempted from income tax at
an average rate.
 How will you value the furnished rent free house given to private sector employee by
the employer if it is owned by the employer or it has been taken on rent by the
employer.
 Explain the provisions of income tax in respect of exemption of the following;
o HRA
o Entertainment Allowance
o Gratuity
o Pension
o PF
 o Leave encashment
o Retrenchment compensation
 How will you treat HRA paid by employer? When is encashment of leave not
chargeable to tax
 How is income from self occupied property or property meant bfor owner
occupoation but remaining wholly or partly unoccupied computed? Discuss
 Explain the deduction U/S 24
 What are the provisions of income tax act regarding the following
o Cash credits
o Unexplained money
o Unexplained expenditure
 Write down the provision regard to clubbing of income U/S 60 to 64 of income tax act
1961
 Discuss the provision of set off and carry forward in detail
 Explain TDS (u/s TAUGHT IN CLASS)
 EXPLAIN RELIEF AND REBATES taught in class
 Advance payment of tax –how to compute, due dates

QUIZ AND MCQ UNIT 1

Q1. Income of previous year is taxed in the immediately following assessment year. Are there any
exceptions to this rule?

(a) Yes                                                 (b) No

Correct answer: (a)

Justification of correct answer:

Income of previous year is taxed in the immediately following assessment year. However, in
following cases the income of previous year is taxed in the previous year itself :

 Income of a person leaving India who has no present intention of returning to India

 Income of a person likely to transfer property to avoid tax

 Income from shipping business of non-residents

 Income of bodies formed for short duration Thus, option (a) is the correct

Comment on incorrect answer: In a few cases, income of previous year is charged to tax in the
previous year itself, hence, there are few exceptions to the rule of taxability given in the question.
Thus, option (b) is not correct.

Q2. Income of previous year is taxed in the immediately following assessment year. However,
income of a person leaving India who has no present intention of returning to India is taxed in the
previous year itself.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Income of previous year is taxed in the immediately following assessment year. However, in
following cases the income of previous year is taxed in the previous year itself :

 Income of a person leaving India who has no present intention of returning to India

 Income of a person likely to transfer property to avoid tax

 Income from shipping business of non-residents

 Income of bodies formed for short duration

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.
Q3. Income of previous year is taxed in the immediately following assessment year. However,
income of a person likely to transfer property to avoid tax is taxed in the previous year itself.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Income of previous year is taxed in the immediately following assessment year. However, in
following cases the income of previous year is taxed in the previous year itself :

 Income of a person leaving India who has no present intention of returning to India

 Income of a person likely to transfer property to avoid tax

 Income from shipping business of non-residents

 Income of bodies formed for short duration

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q4. Income of previous year is taxed in the immediately following assessment year, however,
income from shipping business of non-residents is taxed in the previous year itself.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Income of previous year is taxed in the immediately following assessment year. However, in
following cases the income of previous year is taxed in the previous year itself :

 Income of a person leaving India who has no present intention of returning to India

 Income of a person likely to transfer property to avoid tax

 Income from shipping business of non-residents

 Income of bodies formed for short duration

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q5. Income of previous year is taxed in the immediately following assessment year. However,
income of bodies formed for short duration is taxed in the previous year itself.
(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Income of previous year is taxed in the immediately following assessment year. However, in
following cases the income of previous year is taxed in the previous year itself :

 Income of a person leaving India who has no present intention of returning to India

 Income of a person likely to transfer property to avoid tax

 Income from shipping business of non-residents

 Income of bodies formed for short duration

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q6. Income of discontinued business               taxed in the previous year itself.

(a) Can be                                                        (b) Must be

Correct answer : (a)

Justification of correct answer :

Income of discontinued business/profession can be charged to tax in the previous year itself or in
the assessment year (at the discretion of the Assessing Officer). Thus, option

(a) is the correct option.

Comment on incorrect answer : Income of discontinued business/profession can (and not must) be
charged to tax in the previous year itself or in the assessment year (at the discretion of the Assessing
Officer). Thus, option (b) is not correct.

Q7. Income of a person leaving India who has no present intention of returning to India is charged to
tax in the previous year itself. In this case, the total income of such individual upto shall be charged
to tax in that assessment year.

1. The probable date of his departure from India

2. The end of the assessment year

3. The end of the previous year

4. The end of the previous year in which he leaves India

Correct answer : (a)

Justification of correct answer :

If following conditions are satisfied, then income of a person leaving India is charged to tax in
previous year itself:

 It appears to the Assessing Officer that any individual may leave India during the current
assessment year or shortly after its

 Such a person has no present intention of returning to

In above case, the total income of such individual upto the probable date of his departure from India
shall be charged to tax in that assessment year.

Thus, option (a) giving correct provision is correct.

Comment on incorrect answer : In the case given in the question, the total income of such an
individual upto the probable date of his departure from India shall be charged to tax in that
assessment year. Thus, options (b), (c) and (d) giving incorrect provisions are not correct.

Q8. If it appears to the Assessing Officer during any current assessment year that any person is likely
to charge, sell, transfer, dispose off or otherwise part with any of his assets and the intention of such
sale, transfer, etc, is with a view to avoiding payment of any liability under             , then the total
income of such person for the period from the expiry of the previous year for that assessment year
to the date when the Assessing Officer commences proceedings under section 175 shall be
chargeable to tax in that assessment year.

(a) The Wealth-tax Act           (b) The provisions of the Act (i.e., Income-tax Act) (c) The state VAT
Act(d) The provisions of any Act

Correct answer : (b)

Justification of correct answer :

If following conditions are satisfied, then income of a person transferring his assets is charged to tax
in previous year itself:

 It appears to the Assessing Officer during any current assessment year that any person is
likely to charge, sell, transfer, dispose off or otherwise part with any of his

 The intention of such sale, transfer, etc, is with a view to avoiding payment of any liability
under the provisions of the

In above case, the total income of such person for the period from the expiry of the previous year
for that assessment year to the date when the Assessing Officer commences proceedings under
section 175 shall be chargeable to tax in that assessment year.

Thus, option (b) giving correct provision is correct.

Comment on incorrect answer : Income of previous year is charged to tax in the previous year itself,
if it appears to the Assessing Officer during any current assessment year that any person is likely to
charge, sell, transfer, dispose off or otherwise part with any of his assets and the intention of such
sale, transfer, etc, is with a view to avoiding payment of any liability under the Act. Thus, options (a),
(c) and (d) giving incorrect provisions are not correct.

Q9. In December 2012, while making the assessment of income of Mr. Kapoor for the assessment
year 2012-13, i.e., previous year 2011-12, the Assessing Officer came to know that Mr. Kapoor is
transferring his building with an intention to avoid payment of Income-tax liability. In this case, the
income of the period   to                 can be charged to tax in assessment year 2012-13 only.

(a) April, 2011 and March, 2012        (b) April, 2012 and March, 2013

(c) April, 2012 and December, 2012 (d) January, 2012 and December, 2012

Correct answer : (c)

Justification of correct answer :

By virtue of section 175, the Assessing Officer can assess the income for the period of April, 2012 to
December, 2012 in the assessment year 2012-13 only. Thus, option (c) giving correct period is
correct.

Comment on incorrect answer : The correct period is April, 2012 to December, 2012, thus, options
(a), (b) and (d) giving incorrect periods are not correct.

Q10. Mr. Rahul is running a garments factory. He discontinued his business on 1-1- 2013. In this case,
the Assessing Officer has following two options :

1. To tax the income of the period 1-4-2012 to 1-1-2013 in assessment year 2012-13, i.e., the
assessment year in which business is discontinued.

2. To tax the income of the period 1-4-2012 to 1-1-2013 in assessment year 2013-14.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

If a business or profession is discontinued during a year, then the income from the first day of the
assessment year till the date of discontinuation can be charged to tax by the Assessing Officer (at his
discretion) in the assessment year in which the business is discontinued or in the immediately
following assessment year.

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q11. Income from shipping business of a non-resident is charged to tax in the previous year itself; in 
such  a case,                                                                       % of the amount paid or payable on account of
such carriage to the non-resident shall be deemed to be income accruing in India to the non-
resident.

(a) 5                                                     (b) 5.5

(d) 7                                                    (d) 7.5

Correct answer : (d)

Justification of correct answer :

Income from shipping business of a non-resident is charged to tax in the previous year itself. In such
a case 7.5% of the amount paid or payable on account of such carriage to the non-resident shall be
deemed to be income accruing in India to the non-resident. Thus, option (d) giving correct rate is
correct.

Comment on incorrect answer : In the given case in question 7.5% of the amount paid or payable on
account of such carriage to the non-resident shall be deemed to be income accruing in India. Thus,
options (a), (b) and (c) giving incorrect rates are not correct.

Q12. Income from shipping business of a non-resident is charged to tax in the previous year itself. In
such a case, prescribed percentage of the amount paid or payable on account of such carriage to the
non-resident shall be deemed to be income accruing in India to the non-resident and tax on such
income is payable at the rates applicable to a                        .

(a) Foreign company                           (b) Domestic company

(c) Partnership firm                             (d) Association of firm

Correct answer : (a)

Justification of correct answer :

Income from shipping business of a non-resident is charged to tax in the previous year itself. In such
a case, 7.5% of the amount paid or payable on account of such carriage to the non-resident shall be
deemed to be income accruing in India to the non-resident and tax on such income is payable at the
rates applicable to a foreign company. Thus, option (a) giving correct provision is correct.

Comment on incorrect answer : In the case given in question, tax on such income is payable at the
rates applicable to a foreign company. Thus, options (b), (c) and (d) giving incorrect provisions are
not correct.

Q13. Income of any association of persons or a body of individuals or an artificial juridical person,
formed or established or incorporated for a particular event or purpose can be charged to tax in the
previous year itself, if such an entity is likely to be dissolved in the assessment year in which such an
entity was formed or established or incorporated or                     .

(a) Immediately after such assessment year, (b) Immediately after its creation,

(c) At the discretion of the creator,                (d) At the discretion of any authority,
Correct answer : (a)

Justification of correct answer :

If the following conditions are satisfied, then income of bodies formed for short duration is charged
to tax in previous year itself:

 It appears to the Assessing Officer that any association of persons or a body of individuals or
an artificial juridical person, formed or established or incorporated for a particular event or

 Above entity is likely to be dissolved in the assessment year in which such an entity was
formed or established or incorporated or immediately after such assessment Thus, option
(a) giving correct provision is correct.

Comment on incorrect answer : Income of any association of persons or a body of individuals or an

artificial juridical person is formed or established or incorporated for a particular event or purpose
can be charged to tax in the previous year itself, if such an entity is likely to be dissolved in the
assessment year in which such an entity was formed or established or incorporated or immediately
after such an assessment year. Thus, options (b), (c) and (d) giving incorrect provisions are not
correct.

Q14. While computing income which of the following heads of income the method of accounting
adopted by the assessee is relevant?

(a) Salaries                                                       (b) Business or profession

(c) House property                                          (d) Capital gains

Correct answer : (b)

Justification of correct answer :

As far as income-tax is concerned, the method of accounting followed by the assessee is relevant
only for computing income charged to tax under the head “Profits and gains of business or
profession” and “Income from other sources”. Thus, option (b) gives correct head of income.

Comment on incorrect answer : As far as income-tax is concerned, the method of accounting
followed by the assessee is relevant only for computing income charged to tax under the head
“Profits and gains of business or profession” and “Income from other sources”. Thus, options (a), (c)
and (d) giving incorrect heads of income are not correct.

Q15. Income chargeable to tax under the head “Income from other sources” is computed on the
basis of the method of accounting followed by the assessee.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

As far as income-tax is concerned, the method of accounting followed by the assessee is relevant
only for computing income charged to tax under the heads “Profits and gains of business or
profession” and “Income from other sources”, thus, the statement given in the question is true and,
hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q16. Income chargeable to tax under the heads “Salaries”, “House property” and “Capital gains” is
computed on the basis of the method of accounting followed by the assessee.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

The method of accounting followed by the assessee has no relevance while computing income under
the head “Salaries”, “House property” and “Capital gains”, thus, the statement given in the question
is false and, hence, option (b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q17.                     and                          are the methods of accounting which can be followed by the

assessee.

(a) Mercantile and cash                       (b) Mercantile and hybrid

(c) Cash and hybrid                            (d) Cash and credit

Correct answer : (a)

Justification of correct answer :

Generally, there are two main methods of accounting, viz., Cash system of accounting and
Mercantile system of accounting. Thus, option (a) is the correct option.

Comment on incorrect answer : Generally, there are two main methods of accounting, viz., Cash
system of accounting and Mercantile system of accounting. Thus, options (b), (c) and (d) giving
incorrect methods of accounting are not correct.

Q18. Mercantile system of accounting is also known as                  .

(a) Credit system                                 (b) Cash system

(d) Revenue system                (d) Accrual system

Correct answer : (d)

Justification of correct answer :

Mercantile system of accounting is also known as accrual system. Thus, option (d) is the correct
option.

Comment on incorrect answer : Mercantile system of accounting is also known as accrual system.
Thus, options (a), (b) and (c) giving incorrect names are not correct.

Q19. Under Mercantile system of accounting, revenue and expenses are recorded on accrual basis.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Under Mercantile system of accounting, also known as Accrual system, revenue and expenses are
recorded on accrual basis.

Thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q20. Under Cash system of accounting, revenue and expenses are recorded on cash basis.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Under Cash system of accounting, revenue and expenses are recorded on cash basis. Thus, the
statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q21. On 1-4-2012 Mr. Kumar started a garments shop and started following mercantile system of
accounting. Sales made by him during the year 2012-13 amounted to Rs. 8,40,000 (entire sale was
credit sale). Out of credit sales of Rs. 8,40,000, debtors have paid Rs. 7,40,000 and balance Rs.
1,00,000 is paid in April, 2013. In this case, while computing his taxable income, sales to be recorded
by him will amount to   .

(a) Rs. 1,00,000                                   (b) Rs. 7,40,000

(c) Rs. 8,40,000                                   (d) Rs. 9,40,000

Correct answer : (c)

Justification of correct answer :

Under Mercantile system of accounting, also known as Accrual System, revenue and expenses are
recorded on accrual basis. In this case, the assessee is following mercantile system of accounting.
Hence, sales to be recorded while computing taxable income will come to Rs. 8,40,000. Thus, option
(c) is the correct option.

Comment on incorrect answer : In this case, the assessee is following mercantile system of
accounting. Hence, sales to be recorded while computing taxable income will come to Rs. 8,40,000.
Thus, options (a), (b) and (d) giving incorrect amount of sales are not correct.

Q22. On 1-4-2012, Mr. Raja started a provision shop and started following cash system of
accounting. Sales made by him during the year 2012-13 amounted to Rs. 2,52,000 (entire sale was
credit sale). Out of credit sale of Rs. 2,52,000, debtors have paid Rs. 2,00,000 and balance Rs. 52,000
is paid in April, 2013. In this case, while computing his taxable income, sales to be recorded by him
will amount to            .

(a) Rs. 2,52,000                                   (b) Rs. 2,00,000

(c) Rs. 52,000                          (d) Rs. 3,04,000

Correct answer : (b)

Justification of correct answer :

Under Cash System of accounting, revenue and expenses are recorded on cash basis, i.e., revenue or
expenses not realised/paid during the year are not recorded. In this case, the assessee is following
cash system of accounting, hence, sales to be recorded while computing taxable income will come to
Rs. 2,00,000. Thus, option (b) is the correct option.

Comment on incorrect answer : In this case, the assessee is following cash system of accounting,
hence, sales to be recorded while computing taxable income will come to Rs. 2,00,000. Thus, options
(a), (c) and (d) giving incorrect amount of sales are not correct.

Q23. If a person is receiving tax free income,ei.., tax on such income is paid by the payer, then the
net amount of such income will be treated as taxable income of the receiver. Tax on such income
paid by the payer is not regarded as the income of the receiver.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

If a person is receiving tax free income,,i.e.  tax on such income is paid by the payer, then the gross
amount of such income,,i.e.  tax free income plus tax paid by the payer will be treated as taxable
income of the receiver, thus, the statement given in the question is false and, hence, option (b) is the
correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.
Q24. Mr. Roop received tax free salary of Rs. 8,40,000 from his employer (no perquisites are
provided). Tax of Rs. 1,00,940 on salary is paid by his employer. In this case, what will be his taxable
salary income?

(a) Rs. 8,40,000                                   (b) Rs. 9,40,940

Correct answer : (b)

Justification of correct answer :

If a person is receiving tax free income, i.e., tax on such income is paid by the payer, then the gross
amount of such income, i.e., tax free income plus tax paid by the payer will be treated as taxable
income of the receiver. In this case, taxable salary income will be  salary plus tax on salary paid by
the employer, i.e., Rs. 9,40,940. Thus, option (b) is the correct option.

Comment on incorrect answer : In this case, taxable salary income will be salary plus tax on salary
paid by the employer, i.e., Rs. 9,40,940. Thus, option (a) giving incorrect taxable income is not
correct.

Q25. Mr. Sunil received tax free interest of Rs. 2,52,000 from his friend on loan given by him to his
friend. Tax on the amount of interest is paid by his friend. In  this case, what will be the taxable
amount of interest in the hands of Mr. Sunil?

1. 2,52,000 and tax on interest paid by his friend will be exempt from tax.

2. 2,52,000 plus the amount of tax on interest paid by his friend.

Correct answer : (2) Justification of correct answer :

If a person is receiving tax free income, i.e., tax on such income is paid by the payer, then the gross
amount of such income, i.e., tax free income plus tax paid by the payer will be treated as taxable
income of the receiver. In this case, taxable interest will be Rs. 2,52,000 plus the amount of tax on
interest paid by his friend. Thus, option (b) is the correct option.

Comment on incorrect answer : In this case, taxable interest will be Rs. 2,52,000 plus the amount of
tax on interest paid by his friend. Thus, option (a) giving incorrect amount of interest liable to tax is
not correct.

Q26. Income received in                   is charged to tax.

(a) Cash                                               (b) Kind

(c) Cash as well as in kind                  (d) Bank account of the assessee

Correct answer : (c)

Justification of correct answer :

Income-tax has nothing to do with the nature of income,,i.e. whether in cash or in kind.An income
received in kind is charged to tax in the same way as income received in cash. Thus, option (c) giving
correct taxability of the income is correct.
Comment on incorrect answer : An income received in kind is charged to tax in the same way as
income received in cash. Thus, options (a), (b) and (d) giving individual/incorrect nature of incomes
are not correct.

Q27. Gift in kind received by an engineer from his client is not charged to tax.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

An income received in kind is charged to tax in the same way as income received in cash, thus, gift in
kind received by an engineer from his client is charged to tax. Considering above discussion, the
statement given in the question is false and, hence, option (b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q28. Mr. Anil is a doctor. During the year 2012-13 he received fees of Rs. 8,40,000 from his patients.
Apart from fees of Rs. 8,40,000, his patients gifted him articles valued at Rs. 2,52,000. In this case,
his taxable fees for the year will be                                                                                                      .

(a) Rs. 8,40,000                                   (b) Rs. 2,52,000

(c) Rs. 10,29,000                                 (d) Rs. 10,92,000

Correct answer : (d)

Justification of correct answer :

Income-tax has nothing to do with the nature of income, i.e., whether in cash or whether in kind. An
income received in kind is charged to tax in the same way as income received in cash. Considering
above provision, taxable fees of Mr. Anil will come to Rs. 10,92,000. Thus, option (d) is the correct
option.

Comment on incorrect answer : Taxable fees of Mr. Anil will come to Rs. 10,92,000. Thus, options
(a), (b) and (c) giving incorrect taxable incomes are not correct.

Q29. Gift in kind received by a non-professional from his customers like gift received by
shopkeeper, i.e., a businessman from his customers is not charged to tax.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

Income-tax has nothing to do with the nature of income, i.e., whether in cash or in kind. An income
received in kind is charged to tax in the same way as income received in cash. This rule applies to a
person engaged in a profession as well as a person engaged in business. Thus, the statement given in
the question is false and, hence, option (b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q30. Pin money received by a wife for her personal expenses is not regarded as income of the wife.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Pin money received by a wife for her personal expenses is not regarded as an income of the wife,
thus, the statement given in the question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q31. Mrs. Kapoor is a housewife. During the year 2012-13, she received Rs. 84,000 as  pin  money 
from her  husband.  In this case,                                                           will be treated as taxable income
from the pin money received by her.

(a) Rs. 84,000                                      (b) Nil

Correct answer : (b)

Justification of correct answer :

Pin money received by a housewife for her personal expenses is not regarded as an income of the
house wife. Considering above provision, nothing will be charged to tax from the pin money received
by Mrs. Kapoor. Thus, option (b) is the correct option.

Comment on incorrect answer : Nothing will be charged to tax from the pin money received by Mrs.
Kapoor. Thus, option (a) giving incorrect amount liable to tax is not correct.

Q32. Any saving made by wife from money received from her husband for household expenses is
regarded as income of the wife.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

Any saving made by wife from money received from her husband for household expenses is not
regarded as an income of the wife, thus statement given in the question is false and, hence, option
(b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.
Q33. Mrs. Kapoor is a housewife. During the year 2012-13, she received Rs. 1,84,000 from her
husband for household expenses. Out of Rs. 1,84,000 she utilised Rs. 1,50,000 for household
expenses and saved Rs. 34,000. In  this case, _  will be  treated as taxable income of Mrs. Kapoor out
of Rs. 1,84,000.

(a) Rs. 1,84,000                                   (b) Rs. 1,50,000

(c) Rs. 34,000                                      (d) Nil

Correct answer : (d)

Justification of correct answer :

Pin money received by a housewife for her personal expenses is not regarded as income of the
housewife. Further, any savings made by housewife from money received from her husband for
household expenses is also not regarded as income of the housewife. Considering above provision,
nothing will be charged to tax in the hands of Mrs. Kapoor out of Rs. 1,84,000. Thus, option (d) is the
correct option.

Comment on incorrect answer : Nothing will be charged to tax in the hands of Mrs. Kapoor out of
Rs. 1,84,000. Thus, options (a), (b) and (c) giving incorrect amounts liable to tax are not correct.

Q34. Which of the following is not regarded as income of a person ?

1. Diversion of income by an overriding title

2. Application of income

Correct answer : (1) Justification of correct answer :

If an assessee claims that there has been a diversion of income then the income for which diversion
is claimed cannot be treated as taxable income of the assessee. However, if there is an application of
income (and not diversion), then income so applied will be charged to tax in the hands of the
assessee. Thus, option (a) gives correct legal provision.

Comment on incorrect answer : If an assessee claims that there has been a diversion of income then
the income for which diversion is claimed cannot be treated as taxable income of the assessee.
However, if there is an application of income (and not diversion), then income so applied will be
charged to tax in the hands of the assessee. Thus, option

(b) giving incorrect legal provision is not correct.

Q35. Diversion will occur when income does not reach the assessee and is directly diverted to any
other person.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Diversion will occur when income does not reach the assessee and is directly diverted to any other
person. In other words, in case of diversion of income the assessee has no right over the income; the
income does not reach his hands, thus, the statement given in the question is true and, hence,
option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q36. Application of income occurs when the income reaches the assessee; then by exercising his
right he applies the income.

(a) True                                                (b) False

Correct answer : (a) Justification of correct answer :

Diversion will occur when income does not reach the assessee and is directly diverted to any other
person. In other words, in case of diversion of income the assessee has no right over the income; the
income does not reach his hands, thus, the statement given in the question is true and, hence,
option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q36. Application of income occurs when the income reaches the assessee; then by exercising his
right he applies the income.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Application of income occurs when the income reaches the assessee, i.e., the assessee has a right
over the income; then by exercising his right he applies the income, thus, the statement given in the
question is true and, hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q37. Which of the following is not taxed in the hands of a resident and ordinarily resident?

(a) Income accrued in India                            (b) Income deemed to be accrued in India

(c) Income received in India                           (d) Remittance from other country

Correct answer : (d)

Justification of correct answer :

Income from other country is taxed in the hands of a resident and ordinarily resident. Thus, option
(d) giving correct legal provision is correct.

Comment on incorrect answer : Income from other country is taxed in the hands of a resident and
ordinarily resident. Thus, options (a), (b) and (c) giving individual items are not correct.

Q38. World income is taxed in the hands of a resident but not ordinarily resident.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

Income from other country is taxed in the hands of a resident and ordinarily resident and not in case
of resident but not ordinarily resident, thus, statement given in the question is false and, hence,
option (b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q40. Which of the following incomes are treated as incomes deemed to be received in India?

 Interest credited to recognised provident fund account of an employee in excess of 9.5% per
annum.

 Gift received in India

 Income in kind received in India

 Gift in kind received in India

Correct answer : (a)

Justification of correct answer :

Following incomes are treated as incomes deemed to be received in India :

 Interest credited to recognised provident fund account of an employee in excess of 9.5% per
annum

 Employer’s contribution to recognised provident fund in excess of 12%.

 Transfer balance in case of reorganisation of unrecognised provident

 Tax deducted at source

 Contribution by the Central Government or other employer to the account of the employee
in case of notified pension scheme refered to in section

Thus, option (a) giving correct item which is treated as income deemed to be received in India is
correct.
Comment on incorrect answer : From the items given in the question, only interest credited to
recognised provident fund account of an employee in excess of 9.5% per annum is treated as income
deemed to be received in India. Hence, options (b), (c) and (d) giving incorrect items are not correct.

Q41. Interest credited to recognised provident fund account of an employee in excess of      % per
annum will be treated as income deemed to received in India.

(a) 9                                                     (b) 9.5

(c) 12                                                   (d) 12.5

Correct answer : (b)

Justification of correct answer :

Interest credited to recognised provident fund account of an employee in excess of 9.5% per annum
will be treated as income deemed recevied in India. Thus, option (b) is the correct option.

Comment on incorrect answer : Interest credited to recognised provident fund account of an

employee in excess of 9.5% per annum will be treated as income recevied in India. Thus, options (a),
(c) and (d) giving incorrect rates are not correct.

Q42. Capital gain arising on transfer of property situated in India is treated as

              .

 Income deemed to accrue or arise in India

 Indian income

 Tax free income

 Not treated as income

Correct answer : (a)

Justification of correct answer :

Capital gain arising on transfer of property situated in India is treated as income deemed to accrue
or arise in India. Thus, option (a) giving correct provision is correct.

Comment on incorrect answer : Capital gain arising on transfer of property situated in India is
treated as income deemed to accrue or arise in India. Hence, options (b), (c) and (d) giving incorrect
provision are not correct.

Q43. Mr. Kishan is a non-resident residing in Canada since 1990. He owns a flat in Mumbai. The flat is
sold by him on 8-4-2012. Capital gains arising on the sale of flat amounted to Rs. 8,40,000. In  this
case                                                                                       will be treated as income deemed to accrue or
arise in India in the hands of Mr. Kishan.

(a) Rs. 8,40,000.                                              (b) Nil

Correct answer : (a)

Justification of correct answer :

Capital gain arising on transfer of property situated in India is treated as income deemed to accrue
or arise in India. Considering above provision, Rs. 8,40,000 being capital gains arising on account of
sale of property in India will be treated as income deemed to accrue or arise in India in the hands of
Mr. Kishan. Thus, option (a) is the correct option.

Comment on incorrect answer : Rs. 8,40,000 being capital gains arising on account of sale of
property in India will be treated as income deemed to accrue or arise in India in the hands of Mr.
Kishan. Thus, option (b) giving incorrect option is not correct.

Q44. Income from salary in respect of service rendered outside India is treated as an income
deemed to accrue or arise in India in case of a resident and ordinarily resident.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

Income from salary in respect of service rendered in India is treated as an income deemed to accrue
or arise in India, thus, the statement given in the question is false and, hence, option (b) is the
correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q45. Salary received by an Indian national from Government of India in respect of service rendered
outside India is treated as an income deemed to accrue or arise in India. Further, allowances and
perquisites in this case are also taxable.

(a) True                                                (b) False

Correct answer : (b)

Justification of correct answer :

Salary received by an Indian national from Government of India in respect of service rendered
outside India is treated as an income deemed to accrue or arise in India. However, allowances and
perquisites are exempt in this case, thus, the statement given in the question is false and, hence,
option (b) is the correct option.

Comment on incorrect answer : The statement given in the question is false, hence, option (a) is not
correct.

Q46. Mr. Kumar is an Indian citizen. He is deputed in Canada by the Government of India. During the
year 2012-13 he received salary of Rs. 8,40,000 from Government of India. Apart from salary he also
received various allowances amounting to Rs. 2,52,000. In this case, what will be the amount taxed
in the hands of Mr. Kumar?

(a) Rs. 8,40,000                                   (b) Rs. 2,52,000

(c) Rs. 10,92,000                                 (d) Nil

Correct answer : (a)

Justification of correct answer :

Salary received by an Indian national from Government of India in respect of service rendered
outside India is treated as an income deemed to accrue or arise in India. However, allowances and
perquisites are exempt in this case. Considering above provisions, Rs. 8,40,000 being salary from
Government of India will be taxed in the hands of Mr. Kumar. Allowance of Rs. 2,52,000 will be
exempt from tax. Thus, option (a) is the correct option.

Comment on incorrect answer: Rs. 8,40,000 being salary from Government of India will be taxed in
the hands of Mr. Kumar. Allowance of Rs. 2,52,000 will be exempt from tax. Thus, options (b), (c) and
(d) giving incorrect amount liable to tax are not correct.

Q47. Mr. Kumar is an Indian citizen. He is deputed to Canada by the Government of India. During the
year 2012-13 he received salary of Rs. 8,40,000 from Government of India. Apart from salary he has
been provided various perquisites valuing to Rs. 2,52,000. In this case, what will be the amount
taxed in the hands of Mr. Kumar?

(a) Rs. 8,40,000                                   (b) Rs. 2,52,000

(c) Rs. 10,92,000                                 (d) Nil

Correct answer : (a)

Justification of correct answer :

Salary received by an Indian national from Government of India in respect of service rendered
outside India is treated as an income deemed to accrue or arise in India. However, allowances and
perquisites are exempt in this case. Considering above provisions, Rs. 8,40,000 being salary from
Government of India, will be taxed in the hands of Mr. Kumar. Value of perquisites amounting to Rs.
2,52,000 will be exempt from tax. Thus, option (a) is the correct option.

Comment on incorrect answer : Rs. 8,40,000 being salary from Government of India will be taxed in
the hands of Mr. Kumar. Value of perquisites amounting to Rs. 2,52,000 will be exempt from tax.
Thus, options (b), (c) and (d) giving incorrect amount liable to tax are not correct.

Q48. Interest/royalty/fees for technical services received from Government of India are treated as
incomes deemed to accrue or arise in India.

(a) True                                                (b) False

Correct answer : (a)

Justification of correct answer :

Interest/royalty/fees for technical services received from Government of India are treated as
incomes deemed to accrue or arise in India. Hence, option (a) is the correct option.

Comment on incorrect answer : The statement given in the question is true, hence, option (b) is not
correct.

Q 49). If Anirudh has stayed in India in the P.Y. 2018-19 for 181 days, and he is non- resident in 9 out
of 10 years immediately preceding the current previous year and he has stayed in India for 365 days
in all in the 4 years immediately preceding the current previous year and 420 days in all in the 7
years immediately preceding the current previous year, his residential status for the A.Y. 2019-20
would be

a) Resident and ordinarily resident

b) Resident but not ordinarily resident

c) Non-resident

d) Cannot be ascertained with the given information

Q 50). Raman was employed in Hindustan Lever Ltd. He received a salary at INR 40,000 p.m. from
1.4.2018 to 27.9.2018. He resigned and left for Dubai for the first time on 1.10.2018 and got salary of
rupee equivalent of ` 80,000 p.m. from 1.10.2018 to 31.3.2019. His salary for October to December
2018 was credited in his Dubai bank account and the salary for January to March 2019 was credited
in his Bombay account directly. He is liable to tax in respect of

a) Income received in India from Hindustan Lever Ltd;

b) Income received in India and in Dubai;

c) Income received in India from Hindustan Lever Ltd. and income directly credited in India;

d) Income received in Dubai

Q 51). A company would be resident in India for PY 2018-19 if,

a) It is an Indian Company

b) During that year, majority of its directors are resident in India

c) During that year, its Place of Effective Management is in India.

d) Both (a) and (c)

Q 52). Income accruing in London and received there is taxable in India in the case of

a) resident and ordinarily resident only

b) both resident and ordinarily resident and resident but not ordinarily resident

c) both resident and non-resident

d) non-resident

Q 54). Incomes which accrue or arise outside India but received directly in India are taxable in case
of

a) resident and ordinarily resident only

b) resident but not ordinarily resident

c) non-resident

d) All the above

Q55. An individual is resident and ordinarily resident of India if _______________.

(a) Person had been resident in India at least 2 out of 10 previous years immediately preceding the
relevant previous year

(b) Person been in India for a period of 730 days or more during 7 years immediately preceding the
relevant previous year

(c) All of the above

(d) None of the above

Q56. The Resident HUF is ordinarily resident in India, if _______________.

(a) He has been resident in India at least 2 years out of 10 previous years immediately

(b) He has been resident in India at least 3 years out of 10 previous years immediately

(c) He has been resident in India at least 2 years out of 5 previous years immediately

(d) None of the above

Q57. Basic condition will be for a person who leaves India for employment _______________.

(a) At least 182 days in India

(b) At least 60 days in previous year and 365 days in preceding 4 years
(c) At least 730 days in preceding 7 years

(d) All of the above

Q58. Which of the following is not included in the term Income under the Income Tax Act, 1961?

(a) Reimbursement of travelling expenses

(b) Profits and gains of business or profession

(c) Dividend (d) Profit in lieu of salary

Q 59. The term income includes the following types of incomes.

(a) Illegal

(b) Legal income from India only

(c) Legal

(d) Legal and illegal both

Q 60). _______________ is the casual income.

(a) Interest received

(b) Dividend income

(c) Pension received

(d) Winning from lotteries

1. There is no need to file your income tax return if...
a. TDS has been deducted and all taxes have been duly paid.
b. Tax-saving investments have reduced your tax to zero.
c. Your taxable income is below the basic exemption of Rs 2.5 lakh a year.

Correct answer: c. even if all taxes are paid or if deductions have reduced your tax
liability to nil, you have to file your tax return. Only if your total income is below the basic
exemption limit, you are exempt from filing your tax return.

2. If Rs 1.5 lakh limit under Sec 80C is exhausted, save more tax by…

a. Investing in the National Pension Scheme.

b. Contributing to the Voluntary Provident Fund.
c. Buying a pension plan from an insurance company

Correct answer: a. Under Sec 80CCD(1b), a taxpayer can claim deduction for investment of
up to Rs 50,000 in the NPS. This deduction will be over and above the Rs 1.5 lakh under Sec
80C. More tax can be saved by investing up to 10% of the basic salary in NPS under Sec
80CCD(2d).

3. You didn’t submit proof so your employer cut tax. Now you can…

a. No longer claim the deduction if it does not figure in your Form 16.

b. Claim the deduction later but won’t be eligible for tax refund
c. Claim the deduction at the time of fi ling your return and get a refund

Correct answer: c. A taxpayer can claim deduction at the time of filing return even if it does
not figure in his Form 16. He will be eligible to claim a refund of the excess tax paid. Though
there is no need to submit proof at the time of filing return, the taxpayer may be asked to
furnish it later.

4. You invested in FDs but no TDS was deducted. Should you...

a. Ignore reporting the income because bank didn’t deduct TDS.

b. Add the amount to your annual income and pay tax on it.
c. Mention income in tax return but claim exemption for bank interest

Correct answer: b. Income from fixed deposits is fully taxable and has to be mentioned as
income from other sources. The taxpayer has to pay tax at the marginal rate applicable to
him. The exemption under Sec 80TTA is for interest earned on savings bank balance, not for
interest from fixed deposits.

5. TDS was deducted on interest from tax-saving FDs. The taxpayer...

a. Will not have to report the income because tax has already been paid.
b. Has to add the income to his annual income and pay additional tax if necessary.
c. Can claim a refund of the TDS because these were tax-saving fixed deposits

Correct answer: b. Interest income is fully taxable at the rate applicable to investor. TDS is
only 10%. If the taxpayer is in the higher tax bracket he will have to pay additional tax. This
can’t be ignored because income and TDS details will figure in the Form 26AS of the taxpayer
and alert the tax authorities.

6. The FD in your minor child’s name earned Rs 1,400. This income is...

a. To be mentioned in the tax form of the parent.

b. Eligible for tax exemption and need not be mentioned in tax form.
c. Fully taxable as your income as per the clubbing provisions

Correct answer: b. Though income of minor child is to be clubbed with that of the parent,
there is a small Rs 1,500 exemption per child. Income beyond Rs 1,500 will be clubbed with
that of the parent and taxed at the marginal rate. One can claim this exemption for a
maximum of two children.

7. If you live in your parent’s home you can pay them rent, but…

a. You can’t claim exemption of house rent allowance against such payments.
b. The rent received by the parent will be fully taxable.
c. The parent will have to pay tax on the rent after 30% standard deduction

Correct answer: c. It is perfectly legal to pay rent to a parent and claim exemption for HRA.
Only 70% of the rent received by the parent will be taxed as income. The rules are different in
case of spouse. One cannot pay rent to a spouse and claim HRA exemption.

8. Which of these can’t be claimed as deduction by individual taxpayers?

a. Accidental death and disability insurance.

b. Health insurance of self and family.
c. Preventive health check-ups of self and family.

Correct answer: a. though accidental death and disability insurance is very important, the
premium paid for this cover cannot be claimed as a deduction by an individual. However, a
company can show the premium it pays for group accidental cover as a legitimate business
expense.
 MULTIPLE CHOICE QUESTION AND QUIZ

Q1. Section 45 of Income Tax Act, 1961 is related to _______________.

A) Capital assets

B) Assets

C) Capital expenses

D) Capital gain

Q2. Long-term Capital Loss can only be set off against _______________ .

A) Long-term capital loss

B) Short-term capital loss

C) Long-term capital gain

D) All of the above.

Q3. Loss from speculation business cannot be set off against profit from any non speculation
business, however_______________.

A) Loss from non-speculative business can be set off against speculation income

B) Loss from non-speculative business cannot be set off against speculation income

C) Profit from non-speculative business can be set off againstspeculation income

D) None of the above

Q4. In Income Tax Act, 1961, deduction under sections 80C to 80U cannot exceed ________.

A. Gross total income

B. Total income

C. Income from business or profession

D. Income from house property

Q5. Gross interest = Net x 100/100 – rate of _______.

A. Tax

B) TDS

C) Deduction
D) Exempted

Q6. Payment of LIC premium can be claimed as deduction u/s _______.

A) 80 C

B) 80 CCC

C) 80 D

D) 80 DD

Q7. Clubbing of income means _______________.

A. Addition income of two partners

B. Inclusion of income of other person in assessee income

C. Total of income of various heads

D. Collection of income

Q8. Minors income is clubbed to _______________.

A. Father’s income

B. Mother ’s income

C. Father’s income or mother’s income whichever is greater

D. Both mother’s and father’s income

Q9. As per Section 207, _______ not having any income from business or profession is not liable to
pay advance tax.

A. A resident individual who is of the age of below 60 years

B. A resident HUF

C. A non-resident individual

D. A resident senior citizen

Q10. Generally, long-term capital gain is charged to tax @___________ (plus surcharge and cess as
applicable).

A) 10%

B) 15%

C) 20%
D) 30%

Q11. Mr. Sharma contributed to a political party, he can avail deduction under

A) Section 80G

B) Section 80GGB

C) Section 80GGC

D) Section 80GGD

Q12. Rate of Health & Education cess on total income is ___________.

A) 2%

B)3%

C)4%

D)0.3%

Q13. Section 70-79 deals with _____.

A) Salary

B) Capital gain

C) Clubbing of income

D) Set off and carry forward

Q14. Income from horse race falls under the head _____.

A) Salary

B) Other sources

C) Profession

D) Business

Q15. Deduction can be claimed for amount deposited under ‘SuganyaSamridhi Account’under___.

A) 80 CC

B) 80 C

C) 80 DD

D) 80 D

Q16. Deduction on interest on loan taken for studies fall under _____.
A) 80 CC

B)80 C

C) 80 E

D) 80 D

Q17. The amount of total income is rounded off to the nearest multiple of __

A) Rs.100

B) Rs.10

C) Rs.5

D) Rs.50

Q18. The highest Administrative Authority for Income Tax in India is............

A. Finance Minister.

B. CBDT.

C. President of India.

D. Director of Income Tax.

Q19. Dividend from an Indian company is ......................

A) Fully Taxable

B) Fully Exempted

C) Partly Taxable

D) None of the above

Q20. Income of Benami transactions shall be included in the income of _____

A) Real owner

B) Transferor

C) Transferee

D) None of these

Q21. A method adopted by a person to evade tax by transferring securities before the date of
payment of interest and then again reacquired the same is called:

A) Clubbing

B) Bond washing
C) Grossing

D) Carry forward

Q22. Contribution to RPF is deducted u/s ..................

A) 80C

B) 80D

C) 80E

D) 80G

Q23. The amount of deduction under section 80DD regarding disability is .....................

A) Rs: 30,000

B) Rs: 50,000

C) Rs: 75,000

D) Actual expense.

Q24. . A partnership firm sold a residential house. The firm will get exemption under
section ....................on capital gains.

A) Sec. 54D

B) Sec. 54E

C) Sec. 54C

D) Sec. 54EC

Q25. Indexation is applicable to.......................

A. Sale of short term capital assets.

B. Sale of long term debentures.

C. Sale of depreciable capital assets.

D. Sale of long term capital assets which are not depreciable assets

Q26. Donation is deductible u/s .................................

A. 80C

B.80D

C. 80 E

D. 80 G
Q27. Maximum amount of deduction allowable under section 80CCF is

A. Rs: 10,000

B. Rs: 20,000

C. Rs: 25,000

D. Rs: 1,00,000

Q28. Section 80 C is allowed to :

a) Only individuals

b) Both individual and HUF

c) Firm

d) Company

Q29. Income of a minor child is exempted up to ..........................

A. Rs: 1,000

B. Rs: 1,500

C. Rs: 1,200

D. Rs: 2,000

Q30. When a loan is taken for the education of a child, the father is entitled to deduction
u/s..........................

A. 80 C

B. 80 G

C. 80 E

D. 80 U

Q31. The maximum amount deductible u/s 80GG in respect of rent paid is ........................per annum.
A. Rs: 10,000

B. Rs: 12,000

C. Rs: 50,000

D. Rs: 60,000

Q32. Section 80C provides for deduction in respect of tuition fee to .......................children.

A. One
B. Two

C.Three

D. None

Q33. Which among the following deduction is available only to disabled persons :

A. 80 C

B. 80 G

C. 80 Q

D. 80 U

Q34. Contribution made to an approved research association is eligible for deduction up to ...........

A. 50%.

B. 80%.

C. 100%.

D. 125%.

Q35. Loss from speculation business cannot be set off against profit from any non-speculation
business, however_______________.

A Loss from non-speculative business can be set off against speculation income

B Loss from non-speculative business cannot be set off against speculation income

C Profit from non-speculative business can be set off against peculation income

D None of the above

Q36. In Income Tax Act, 1961, deduction under sections 80C to 80U cannot exceed ________.

A Gross total income

B Total income

C Income from business or profession

D Income from house property

Q38. Gross interest = Net x 100/100 – rate of _______.

A Tax

B TDS

C Deduction
D Exempted

Q39. Payment of LIC premium can be claimed as deduction u/s _______.

80 C

80 CCC

80 D

80 DD

Q40. Clubbing of income means _______________.

Addition income of two partners

Inclusion of income of other person in assessee income

Total of income of various heads

Collection of income

Q41. Minors income is clubbed to _______________.

Father ’ s income

Mother ’s income

Father’s income or mother’s income whichever is greater

Both mother’s and father’s income

Q 42. As per Section 207, _______ not having any income from business or profession is not liable to
pay advance tax.

A resident individual who is of the age of below 60 years

A resident HUF

A non-resident individual

A resident senior citizen

Q43. Generally, long-term capital gain is charged to tax @___________ (plus surcharge and cess as
applicable).

10%

15%

20%

30%
Q44. Mr. Sharma contributed to a political party, he can avail deduction under ________.

Section 80G

Section 80GGB

Section 80GGC

Section 80GGD

Q45. Rate of education cess on total income is ___________.

2%

3%

4%

0.3%

Q46. Section 70-79 deals with _____.

Salary

Capital gain

Clubbing of income

Set off and carry forward

Q 47. Income from horse race falls under the head _____.

Salary

Other sources

Profession

Business

Q 48. Deduction can be claimed for amount deposited under Suganya Samridhi Account under___.

80 CC

80 C

80 DD

80 D

Q 49. Deduction on interest on loan taken for studies fall under _____.

80 CC
80 C

80 E

80 D

Q50. The amount of total income is rounded off to the nearest multiple of ____.

Rs.100

Rs.10

Rs.5

Rs.50