END TERM EXAMINATION

[NOV-DEC.-20191
FIFTH SEMESTER [BBA]
INCOME TAX LAW & PRACTICES
[BBA-3011
Time : 9 hrs. M.M. :75
Note: Attempt any five questions. All questions carry equal marks:
Q.1.Enumerate any 10 incomes which do
not form part of total income, also
explain the meaning of income as per Income Tax Act in India.
Ans. It is generally believed that one can't have the best of both the worlds, especially
when it comes to income and taxation. The more one earns, the more would be the tax
liability. But, not many people are aware that this is not completely true and there exist
certain types of income for which your income tax liability is zero.
"Such incomes are not added to your total taxable income for that assessment year
and thereby remain tax-free. Section 10 of the Indian Income Tax Act of 1961 lists
the various incomesthat comeunder this category,"
An individual taxpayer opting for the new tax regime would have to forgo 70 tax
exemptions and deductions. These include deductions under: section 80C for a maximum
of Rs 1.5 lakh claimed by investing in specified financial products, section 80D for health
insurance premium paid, 80TTAfor deduction on savings account interest earned from
a bank or post officeetp.
However,there are certain tax-exemptionsthat have been left unchanged in the
Finance Bill, 2020.
(1) Interest received on post office savings account balances
Interest received on post officesavings accountbalance is exempted under section
IO(15)(i)of the Income-taxAct up to a certain limit. Interest receivedfrom post office
savings account was exempted from tax via a notification dated June 3, 2011 for up to Rs
,500 in case of individual accounts and Rs 7,000 in case ofjoint accounts per financial
ear.
"In the optional new tax structure, individual will not be able to avail deduction under
section80TTA,i.e., deduction on interest received from savings account held with
bank and post office.However, taxpayers having post officesavings account can still
avail exemption on post officesavings account interest up to the specified extent.
The exemptionon post officesavings accountcan be availed before arriving at the
I figure of gross taxable income. To avail this exemption, a taxpayer would be required
deductthe interest received from post officesavings account (as per the savings
unt held by them) from incomeunder the head other sources before arriving at his/
r gross taxable income.
) Gratuityreceived from your employer
If you receive gratuity from your employer, then the amount received by you will
exempt from tax as per specifiedlimits. An employeeis eligible to receive gratuity if
shehas worked for more than five years in an organisation.
Accordingto income tax laws, gratuity is tax-exempt up to Rs 20 lakh in a lifetime
rim-governmentemployees. For government ernployees,all gratuity received is tax-
mpt,irrespectiveof the amount received by them.
InFY2020-21,if an individual receives gratuity, then maximum tax-exempt gratuity
IbeRs 20 lakh in his/her lifetime for non-government employees. Gratuity received
2-2019 Fifth Semester, Income Tax Law and Präctices
due to •death of an employee will
remain tax-exempt in the new tax Structure
as
(3)Amount received on maturity
Oflife insurance
The tax benefit on paying life
section 80C is not available in insurance premiums to lower the tax liability under
proceedsreceived from a life the hew incömé tåx slab structure. However, maturity
under section insurance companycontinues to be exemptedfrom
IOD)in the new tax regime.
(4) Employer's contribution
to you* EPF/NPS account
As per the Budget
proposals, from FY 202001, contributions made by
to the employee's EPF, NPS
and/or superannuation account wilVbe exempted fromtax
provided the annual contribution to all the accounts (with reference to employee)
not exceed Rs •7.511akh in a financial •year.
Accordingto current income tax laws, employer can contribute an amount equal
to 12 percent of the employee's basic monthly salary to his/her EPF account. Similarly
an employer can contribute an amoUnt equal to 10 per cent of the employee's basic salary
to the Tier-I account of NPS. In a superannuation account, an employer can contribute
maximum of Rs 1.51akh exempted from tax in a financial year.
The budget has proposed to restrict the tax-exempt superannuation, NPS and
account contribution by the employer to maximum of Rs 7.5 lakh in a financial year
Further, the budget proposalstates that any interest or gains earned from the
contribution will also be taxable in the hands of an employee.
The restriction on the amount of contribution to EPF and NPS account whichwill
be tax-exempt is likely to impact those employees whose basic salary is more than Rs60
lakh in year. To explain this with an example, for someone earning Rs 80 lakh per annum
as basic salary will cross the threshold level of Rs 7.5 lakh towards NPS contribution.
(5)Interest received up to 9.5percent er annum from EPF
The interest received from EPF account continues to be exempted from tax in the
new tax regime as well, provided it does not exceed 9.5 per cent.
(6)Interest and maturity amount received from PPF
Under the new tax regime, an individual cannot avail tax benefit.undersection
80C on the contribution made to his/her PPF account. However, any interest accruedor
maturity amount received from the PPP account continues to be tax-exempt in the new
tax structure as well.
A taxpayer opting for new tax regime is not required to pay any tax on the
interest
accrued in the PPP account. Further, any maturity amount received from the PPF
account
will be exempted from tax in the new tax regime.
(7)Interest and payment received from Sukanya Samriddhi Yojana
Individuals investing in Sukanya Samriddhi Yojana for their girl child will
continue
to receive tax-exempted interest in the account under the
new tax regime. Further,the
payment proceeds received from the scheme's account will
remain exempted fromtax,
However,investment under this scheme will not be available
80C under the new tax regime. for tax-break under section
(8)Payment received from NPS accöunt
The lump sum amount received at the
remain tax-free in the new tax regime time of maturity of one's NPS accountwill
as well.
Accordingto tax rules, maximum of 60 canbe
withdrawn tax-free from the Tier. I percent of the accumulated corpus
NPS account on maturity. The remaining 40percent
 I.P.
Books 2019-3
f the accumulated corpus has to be mandatorily uspdlfor
buying annuity plans on
aturity'ofNPS account.
Further, any partial withdrawal made from
the Tier-I NPS account continues
tax-exempt in the new tax regime.
Accordingto current income tax laws, an
dividual can withdraw maximum of?5
own contributi,onfrom the NPS
ccountwhich is exempted from tax.
The proposed tax regime does not
offer any taö benefit to employee? own contribution
the NPS account, however,
deduction under section 8bCCD (2) can be claimed for
n tribution made by the employer
to emplpyee's account. Further„payment received
m NPS account at the time
closure or partigl withArgytraJ to specified limit)
•Ilremain tax-exempt in the new regime.
In the existing/old tax regime, an
employeecan get tax-break of Rs 1.5 lakh under
tion 80CCD (1) and an additional Rs
50,000 under section 80CCD (1B) on his/her
self-contribution to the NPS account. The congributionto Tiera NPS acgountp14ximum
FRS1.5 lakh comes under the overall limit of section 80C.
) Gift from employer
Though various tax exemptions and deductions received from the employer have
n removed under the new tax regime, no changes have been made in the taxation Of
Tt received from an employer.
Gift received from employer for up to Rs 5,000 remains exempted from tax under
both - new and existing regime.
(10)Food coupons
The explanatory memorandum to .the budget åoéument states: "It is also proposed to
amend rule 3 of the Rules subsequently, so as to remove exemption in respect of free food
and beverage through vouchers provided to the employee, being the person exercising
under the proposed sections.by the employer."
(11)Commutation of pension
Commutation of pension refers to receiving part of pension aSlump sum payment
in lieu of future periodic payments.
For non-governmentemployees,one-third of the commutedpension received is
exempted from tax under the current income tax .laws, if gratuity is received. However,
if an employee has not received gratuity, then half of the commuted pension received
will be exempted from tax. Even if the taxpayer opts for the new regime, the taxation of
commutedpension remains the same.
12)Leave encashment on retirement
At the time of retirement, many companiesoffer payment in lieu of leaves that
Ire not taken. Leave encashment receivedby non-government employees is exempt
Yomtax up to Rs 3 lakh. If the employee has opted for the new tax regime, then leave
ncashment received at the time of retirement will continue to remain tax-exempt in
he new tax regime.
13)VRS amount
Monetary benefit received at the time of taking voluntary retirement is exempted
om tax under the new regime. Monetary benefit received by an employee due to opting
r voluntary retirement scheme from his employerwill remain exempt from
aximum up to Rs 5 lakh tax for
in both - new and existing tax regime.
Q.2.Howwill you determine the residential stats of
hat is the scope of total income for an individual? an individual and HUF?
4-2019 Fifth Semester, Income Tax Law and Practices
to determine
Ans. It is important for Income Tax Departmentparticularly the residential
of a tax paying individual or company. It becomes relevant during
th
filing season. In fact, this is one of the factors based on which a person's

l. Meaningand importance of residential status

The taxability of an individual in India depends upon his residential status if
particular financial year. The term residential status has been coined
for any under
income tax laws of India and must not be confused•with an individual's citiz th
India. An individual may be citizen of.lndia but may end up being a non-resident enship
in
a particular year. Similarly, a foreigncitizen may end up being a resident ofI f
ndia
income tax purposes for a particular year. I
Also to ndte that the residential status of different types of persons viz an i]
determined differently. In this article, we have individual
a firm, a company etc is discussed
how the residential ståtus of an individual taxpayer can be determined for anY
particular
financial year
2. How to determine residential status?
For the purpose of income tax in India, the income tax laws in India classifiestaxable
persons as:
(a) A resident
(b) A resident not ordinarily resident (RNOR)
(c) A non-resident (NR)
The taxability differs for each of the above categories of taxpayers. Before we getinto
taxability, let us first understand how a taxpayer becomes a resident, an RNORoranNR
Resident
A taxpayer would qualify as a resident of India if he satisfies one of the following
2 conditions .
1. Stay in India for a year is 182 days or more or
2. Stay in India for the immediately4 preceding years is 365 days or moreand
60 days or more in the relevant financial year.
In the event an individual who is a citizen of India leaves India for employment
during an FY, he will qualify as a resident of India only if he stays in Indiafor182
days or more. Such individuals are allowed a longer time greater than 60 days andless
than 182days to stay in India. However,from the financial year 2020-21,theperiod
is reduced to 120 days or more for such an individual whose total income (otherthan
foreign sources) exceeds Rs 15 lakh. In another significant amendment from FY2020-
21, an individual who is a citizen of India who is not liable to tax in any othercoun
tlY
will be deemed to be a resident in India, The condition for deemed residentialstatus
applies only if the total income (other than foreign sources) exceeds Rs 15 lakh andnil
tax liability in other countries or territories by reason of his domicile or residenceorany
other criteria of similar nature.
Resident Not Ordinarily Resident
If an individual qualifies as a resident, the next step is to determine if he/sheisa
Resident ordinarily resident (ROR) or an RNOR. He will be a ROR if he meets bothof
the following conditions:
I. Has been a resident of India in at least 2 out of 10 years immediatelyprevious
years and
2. Has stayed in India for at least 730 days in 7 immediately precedingyears
 I.P. University—[BBAl—AkashBooks 2019-5
Therefore,if any individual fails to satisfy. eyen one of the above conditions, he
an RNOR.
ould be
From FY 2020-21, a citizen of India or person of Indian origin who leaves India
r employmentoutside India during the yeär will be a resident and ordinarily resident
he stays in India for an aggregate period of 182 days or more. However, this condition
ill apply only if his total income (other than foreign sources) exceeds Rs 15 lakh.
so,a citizen of India who is deemed to be a resident in India (w.e,f FY 2020-21)will
a resident and ordinarily resident in India.
Note: Income from foreign sources means income which accrues or arises outside
Odia(except income derived from a business controlled in India or profession set up
India).
on-resident
would
An individual satisfying neither of the conditions stated in (a) or (b) above
an NR for the year.
Taxability
global income.i.e. income
Resident: A resident will be charged to tax in India on his
arned in India as well as income earned outside India.
Their tax liability in India is restricted to the income they earn in
NR and RNOR:
foreign income.
dia. They need not pay any tax in India on their
a case of double taxation of income where the same income is
Also note that in
India as well as abroad, one may resort to the Double Taxation Avoidance
getting taxed in
with the other country in order
greement (DTAA)that India would have entered into
eliminate the possibility of paying taxes twice.
the 'Income Tax
sidential Status OfHUF (HinduUndividedFamily) - under
t.' [Section
RESIDENTIAL STATUS OF HUF

Resident Non-Resident[Section

OrdinaryResident Non-Ordinaty Resident

Whenis HUF said to be a Resident in India?

except
A HUF is said to be resident in India in any previousyear in every case wholly
hereduringthat year the controland managementof its affairs is situated
tside India.
Whenis HUF said to be a Non-Resident?
A HUFis said to be non-residentin India if during the previous year, the control
d managementof its affairs is situated whollyoutside India.
In other words it will be non-residentin India if no part of the control and
agementof its affairs is situated in India.
Controland managementrefers to the decisionstaken regarding affairs of the HUF.
hecontroland managementlies at the place where decisionsregarding the affairs of
heHUFare taken.
6-2019 Fifth Semester, Income Tax Law and
Practices
Once the HUF is a resident in India, it is to be further de
termined
(a) resident and ordinarily resident in India; or whether
'(b) resident but not oidinnrily resident in India. it
When is to bd AResident and Ordinarii'y
Resident in
The HUF shall be said to be resident and ordinarily resident
ip
(a) He (Karta) must be resident in at least 2 out of AOprevious
Breeding the previous year; and years
imrnqiately
(b) must be in india for at least 730 days during 7 previous
Years
When is HUF said to be Resident but Not Ordinarily Resident
(Section in India?
A HUF, which is resident in India, is said to be resident but not ordinarily
in India during the relevant previousyear, if the manager (Kana) ofthe resi
satisfy any bdth, Ofthé conditionß nientionéd in clauses (a) and (b) above.
For determining whether HUF is a Resident or not, the residential status ofits
for the relevant previous year is of no relevance.But for determining Whether
ordinarily Resident in India or not, Rarta's status for the preceding years becomesrelev
Scope of total Income under section 5 of Income Tax Act, 1961 ant.

Sr. Particulars Resident Resident Not Non

No. Ordinary Ordinary Resident
Resident Resident
(ROR)
1. Income received in India Taxed Taxed Taxed
2. Income Deemed to be receive Taxed Taxed Taxed
in India
3. Income accrues or arises Taxed Taxed Taxed
in India
4. Income deemed to accrues or Taxed Taxed Taxed
arises in India
5. Income accrues or arises Taxed NO NO
outsideIndia
6. Income accrues or arises outside Taxed Taxed NO
India from business/profession
controlled/setup in India
Income Other than Above Taxed NO NO
(No Relation in India)
Note:
1. Residential status is as per section 6 of Income Tax Act, 1961.
2. Deemed income is not actually accrued but is supposed to be accrued notionally
Q.3. X owns two identical houses in Delhi, both of which are selfoccupied'
as
From the following information, suggest which house should be treated
occupied.
 IN. Books 2019-7
Particulars frouse-l (As.) House-Il (Rs.)
Standard Rent under Delhi
Rent Control Act
MunicipalValuation
Fair Rent
Municipal Taxeg '(Päid) 3090001 go,ooo
Insurance Premium ( Paid)
Construction of both houses was completed in September 2016.X had
borrowed Rs 25,00,000@9%p.a fbr constitution Ofhouse —Il ( Date öfborroWing
1.6.2014),date of repayment of loan 30.06.2018.
Ans: In this case, Mr X has more than one house property for self occåpation. As
per Section 23(4) , Mr X cÅn avail the benefit bf:gelf ocbüßåtiofl i.e.(b8Hefitof " NIL"
Annual Value) only in respect of one of the house Properties, at her option. The other
house property would be treated as " deemed let- out" property, in respect of which the
annual letting value would be the gross annual value. Mr. X should, therefore, consider
the most beneficial option while deciding tWhichhoåsd Pioperty should be' treated by
him as self occupied.
OPTION 1 [ House I —Self Occupied and House Il —Deemed to be Let Out]:
for AY
If House I is opted to be self occupied, Mr. X's income from house property
2019-20 would be:
Particulars Amount (Rs)
House I (self occupied) [Annual value to be nil] Nil
House Il (Deemed to be let-out) [See working notes below] 95,250
Income from House Property 95,250
OPTION 2 [House I-Deemed to be let-out and House Il —selfoccupied] :
If House Il is opted to be self occupied,Mr X's income from the house property for
AY 2019-20 would be:
a.'-iQ Amount (Rs)
Particulars
House 1 ( Deemed to be let-out) [see working notes below]
House Il ( self occupied) [Annual value is Nil, but interest (93,750)
deduction would be available]
Incomefrom House Property 95,250
Conclusion: Since Option 1&2 have equal value so, Mr X can opt to treat any
house as self occupied and any house as deemed to be let out
Working Note: Computationof incomefrom House I and House Il assuming that
both are deemed to be let out:
Particulars House I House 11

GAV(Higher of Municipal Value and Fair Rent but

restricted to Standard Rent)
Less:Municipal taxes (paid by the owner during the PY) (30,000)
(30,000)
Net Annual Value
8-2019
Fifth Semester, Income Tax Law and
Practices
Less: Deduction u/s 24 (a) 1 of NAVI
(81,000)
Loss : Deduction u/s 24(b) [Interest on borrowed capitall NIL (81,000)
Interest for current year (. x .09 x 3/12) = (98,750)
Rs 56,250115th of pre construction interest
(interest for the period from 1.06.2014to 31.3.2015)
(1/5 x x .09 x 10/12) 97,500
Income from Deemed to be Let•Out House Property
95,250
Q.4.Explain the term 'Capital gain' as per Income Tax
Act.
between long term and short term capital gain. Also explain the
provisions
section 54B with regard to capital gain on sale of agricultural land.
Ans. Capital Gain : Simply put, any profit or gain that arises from the
sale ofa
asset' is a capital gain. This gain or profit is comes under the category 'income',
you will need to pay tax for that amount in the year in which the transfer andhence
Of capital
asset takes place, This is called capital gains tax, which can be short-term
or long_tem
Capital gains are not applicableto an inherited property as there is
no
a transfer of ownership. The Income Tax Act has specifically exempted assetssale,only
as gifts by way of an inheritance or will. However, if the person who inherited received
the asset
decides to sell it, capital gains tax will be applicable.
Short Term and Long Term Capital Gains Differences
Short-term capital gain refers to the profit earned by selling of assets like shares/
securities or others capital assets which were held for a period less than one year whereas
long-term capital gain refers to the gain by selling of assets or securities that wereheld
for a period of more than one year
Basisfor Short-term Long-term
Comparison Capital Gain Capital Gain
Related to Short-term assets Long-term assets
Meaning When an individual/company When an individual/company
earns more than what is paid earns more than what is paidby
by selling the short-term selling the long-term asset, the
asset, the differencebetween difference between the
the consideration received consideration received and the
and the cost basis is called cost basis is called an LTCG.
an STCG.
Financial We will label the capital gain We will label the capital gain as
asset as a short-term one when the a long-term one when the
duration of a financial asset duration of a financial asset
held is less than a year. held is more than a year.
Capital We will call short-term assets We will call short-term assets as
asset as a capital asset when the a capital asset when the assets
assets are owned for less are owned for more than 24
than 24 months in the case months in the case of immovable
of immovable property and property and more than 36
less than 36 months in the months in the case of movable
case of movable property. property.
per
Taxrate The normal tax rate is 20% (subject Cochange as
applicable. the applicability of tax rate).
 I.P. University-IBBAl-Akash
Books 2019-9
Exemption Under Section 54b of Income Tax Act, 1961
and HUF against Capital Gain Arising from Transfer ofavailable to Individual
investment of Capital Gain amount in another land Agricultural Land by
or in Capital GainsDeposit
AccountScheme.
Introduction
A farmer wants to shift his agricultural
land for certain reason and hence he sold
his old agricultural land and from the sale
proceeds he purchased another agricultural
land. In this case the objective of the seller
was not to earn income by sale of old land
but was to shift to another land. If in this case,
the seller was liable to pay income-tax
on capital gains arising on sale of old land, then it would
be a hardship on him.
Section 54B gives relief from such a hardship. Section 54B gives relief to a taxpayer
who sells his agricultural land and from the sale proceeds he acquires another agricultural
land. The detailed provisions in this regard are discussed in this part.
Basic conditions
Following conditions should be satisfied to claim the benefit of section 54B.
• The benefit of section 54B is available only to an individual or a HUF
• The asset transferred should be agricultural land. The land may be a long-term
capital asset or short-term capital asset.
The agricultural land should be used by the individual or his parents for
agricultural purpose at least for a period of two years immediately preceding the date
of transfer. In case of HUF the land should be used by any member of HUF.
• Within a period of two years from the date of transfer of old land the taxpayer
should acquire another agricultural land. In case of compulsory acquisition the period
of acquisition of new agricultural land will be determined from the date of receipt of
compensation. However, as per section 10(37),no capital gain would be chargeable to
tax in case of an individual or HUF if agricultural land is compulsorily acquired under

any law and the consideration of which is approved by the Central Government or RBI
and received on or after 01-04-2004.
Amount of exemption
Exemption under section 54B will be lower of the•following:
• Amount of capital gains arising on transfer of agricultural land; or

• Investment in new agriculturalland

Consequences if the new land is transferred
Exemption under section 54B is available in respect of rollover of capital gains arising
on transfer of agricultural land into another agricultural land. However, to keep a check
on misutilisation of this benefit a restriction is inserted in section 54B. The restriction
is in the form of prohibition of sale of the new agricultural land.
If a taxpayer purchases new agricultural land to claim exemption under section 54B
and subsequently he transfers the new agricultural land within a period of 3 years from
the date of its acquisition, than the benefit granted under section 54B will be witurawn.
Theultimate impact of the restriction is as follows:
• The restriction will be attracted if, after claiming exemption under section 54B,
the new agricultural land is sold within a period of 3 years from the date of its purchase.
• If the agriculturalland is sold within a period of 3 years from the date of its
Purchase,then at the time of computation of capital gain arising on transfer of the new
land,the amount of capital gain claimed as exemption under section 54B will be deducted
fromthe cost of acquisition of the new agricultural land.
10-2019 Fifth Semester,Income Tax Law and Practices
Capital Gain Deposit Account Scheme
To claim under section 54B, the taxpayer should
agricultural land within a period of two years from the date of transfer
of old
if till the date of filing the return ofincome the capital gain arising
land is not utilised (in whole or in part) for purchase of
on
old another agricultural
land,th
Gains Deposit,Account Scheme in any branch of public sector bank, in
Capital Gains Deposit Accounts Scheme, 1988(hereafterreferredaccordance
AccountSchetve). The new,land can be purchased by withdrawing the as capital
the
Non-utilisation of amount deposited in Capital Gain Deposit Account
If the amount deposited in the Capital
scheme
Gains Account Scheme in respect
taxpayer has claimed exemption is not utilised within the •specifiedperiod ofwhichthe
for purchaseof
another agricultural land, then the unutilised amount
(forwhichexemptionis
will be taxed as income by way of long-term capital gains or short-term
capitalgain
(depending upon the nature of original capital gain) for the previous year in
specified period of 2 years gets over. the
Q.5.How will you adjust or set off the following,for the assessment
2019-20
(a) Business loss of 2010-11 , Rs 80,000
(b) Short term capital loss of 2011-12, Rs 15,000
(c) Short term capital loss of 2013-14,Rs 22,000
(d) Long term capital loss in 2010-11,Rs 12,000
(e) Loss from house property i'2013-14,. Rs 22,000
Give reasons for your answer.
Ans.
Particulars Amount (Rs)
(a) -Business loss of 2010-11can be adjusted with the 80,000
business profitof AY 2019-20 (business loss can be
carried forward for 8 years immediately following
the year of loss)
(b) Short term capital loss of 2011-12 can be adjusted 15,000
with the short term capital gain or with long term
capital gain of AY 2019-20 ( short term capital loss
can be carried forward for 8 years immediately
following the year of loss)
(c) Short term capital loss of 2013-14 can be adjusted 22,000
with the shortwerm capital gain or with long term
capital gain of AY 2019-20 (short term capital loss
can be carried forward for 8 years immediately
following the year of loss)
12,000
(d) Long term capital loss of 2010-11 can be actjusted
with the long term capital gain of AY 2019-20(short
term capital !oss can be carried forward for 8 years
immediatelyfollowingthe year of loss)
22,000
(e) Loss from house property in 2013-14 can be adjusted
 Books 2019-11
with the profit arise frdm the sale of house property
only for AY 2019-20 ( house property loss can
be
carried forward for 8 yyars immediately following
the year of loss).
Q.6."An assesses is not Onlyliable for his/her own incomes for tax purposes
but his liability extends to some other incomes also". Comment.
Ans. Normally, a person is in respect ofincome earned by him only. However,
in certain special cases income of other person is included (i.e. clubbed) in the taxable
income of the taxpayer and in such a case he will be liable to pay tax in respect of his
income (if any) as well as income of other person too. The situation in which income of
other person is included in Cheincome of the taxpayer is called as clubbing of income.
E.g., Income of minor child is clubbed with the income of hismer parent. Section 60 to
64 contains various provisi05)s relating to clubbing of income.
Clubbing of income means Income of other person included in assessee's
total income, for example: Income of husband which is shown to be the income of his
wife is clubbed in the income of Husband and is taxable in the hands of the husband.
Under the Income Tax Act a person has to pay taxes on his income.
A person cannot transfer His income or an asset which is his one of source of his.
income to some other person Or in other words we can say that a person cannot divert
his income to any other person and says that it is not his income. If he do so the income
shown to be earned by any other person is included in the assessee's total income and
the assessee has to pay tax on it.
Chart ExplakningIncome Tax Provisions related to Clubbing of income
Section Nature of Clubbed Conditions/ Relevant
Transaction in the Exceptions Reference
Hands
of
Section 60 Transfer of Transferor Irrespective 1. Income for
Income who transfers of: the purpose of
without the income. 1. Whether Section 64
transfer of such transfer includes losses.
Assets. is revocable [P. Doriswamy
or not. Chetty 183 ITR
2. Whether 559 (SC)J [also
the transfer see Expl. (2) to
is effected Section 641
before or 2. Section 60
after the does not apply
commence- if corpus itself
ment ofIT is transferred.
Act. [Grandhi
Narayana Rao
173
Section 61 Revocable ITR 593 (AP)J
Transferor Clubbing not
transfer of who transfers Transfer held
applicable if: as revocable
Assets. the Assets. 1. Trust/ 1. If there is
transfer provision to
 Practices
Semester,Income Tax Law and
Fifth
12-2019 irrevocable re-transfer
during the directly
lifetime of or indirectly
beneficiaries/ whole/part of
transferee or income/asset to
transferor;
.9
2. Transfer 2. If there is a
made prior right to
to 1-4-1961 reassume
and not power, directly
revocable for or indirectly,
a period of the transfer
6 years. is held
Providedthe revocable and
transferor actual exercise
derives no is not
direct or necessary.
indirect [S. Raghbir
benefit from Singh 57 ITR
such income 408 (SC)I
in either case. 3. Where no
absolute right
is given to
transferee
and asset
can revert
to transferor
inprescribed
circumstances,
transfer is
held revocable.
Jyotendrasinhji
vs. S. I.
Tripathi 201
ITR 611 (SC)I
Section Salary, Spouse Clubbing not 1. The
Commission, whose total appli.cable if: relationship of
Fees or income Spouse husband and
remuneration (excluding poss;esses wife must
paid to spouse income to technical subsist at the
from a concern be clubbed) or professional time of accrual
in which an is greater. qualification of the income.
individual has and [Philip John
a substantial* remuneration Plasket
interest. is solely Thomas
attributable 49 ITR 97 (SC))
to application 2. Income other
of that than salary,
knowledge/ commission,
qualification. fees or remune-
13-2019 Fifth Semester, Income Tax Law and Practices
ration is not
clubbed under
this clause
Section Income from Individual Clubbing not 1. Income
assets transferring applicable if, earned out of

transferred the asset. The assets are Income arising

directly or transferred; from
indirectly to 1. With an transferred
agreement to assets not
the spouse
without live apart. liable for
adequate 2. Before clubbed.
marriage. [M.S.S.Rajan
consideration 252 ITR
3. Income
earned when 126 (Mad)J
relation does 2. Cash gifted
not exist. to
4. By Karta spouse and he/
of HUF gifting she invests to
co-parcenary earn interest.
property to [MohiniThaper
his wife. vs.CIT 83 ITR
L. Hirday 208 (SC)]
Narain vs. 3. Capital gain
ITO 78 ITR on sale of
26 (SC) property which
5. Property was received
acquired out of without
pin money. consideration
[R.B.N.J.Naidu from spouse
vs.CIT 29 [Sevential M.
ITR 194 Sheth vs. CIT
(Nag.)] 68 ITR
503
Transaction
must be
real.[O.N.
Mohindroo
99 ITR
583(Delhi)]
Income from Individual Condition: Crosstransfers
Section transferring The transfer are also
64(1)(vi) the assets covered
transferred the Asset. should be
without [C.M.K0thari 49
to son's wife. ITR 107 (SC))
adequate
consideration.
Section Transferof Individual Condition: 1. Transferor
64(1)(vii), assets by transferring 1. The transfer need not

(viii) an individual the Asset. should be necessarily

to a person without have
or AOP for adequate taxable income
 Fifth Semeqter, Income Tax Law and Practices
14-2019
the immediate consideration„ of his
or deferred [P.Muru
own.
benent of 245 ITR
his:
(vii) 2. Wife
(viii) —Son's legally meaÅ18
Wife. weddedwife.
tbxecutors
of the will
T.V. Krishnaof
38 ITR

Seétiöh Income of a 1.Ifthe Clubbingnot 1. Income

64(1A) minor child marriage applicable for: of piopertyout
(Child includes subsists, in 1. Income of transferred for
step child, the hands of a minor child no
adopted child the parent suffering any consideration to
and minor whosetotal disability a minor married
married income is specified u/s. daughter, shall
daughter). greater; or; 80U. not be clubbed
in
2. If the 2. Income on the parents'
marriage does account of hands. [Section
not subsist, manual work 271 2. The
in the hands done by the parent in whose
of the person minor child. hands the
who maintains 3. Income on minor's income
the minor child. account of any is clubbed is
3. Income once activity entitled to
includedin the involving an exemption
total income of application of up to Rs. 1,500
either of parents, skills, talent or per child.
it shall continue specialized
to be included in knowledge
the hands of and experience.
some parent in
the subsequent
year unless AO
is satisfied that
it is necessary
to do so (after
givingthat
parent
opportunity
of being heard)
Income of Income is Clubbing Fiction
Section
HUF from included in applicable under this
64(2)
property the even if: The section
must be
converted hands of converted
extended to
the individual property is
computation
individual & not in the subsequently
 15-2019 Fifth Semester, Income
Tax Law and
Piactices
into hands ofHÜF. partitioned;
of income also.
income,
property. derived by the Kuppurqj
spousefrom 127 ITR 447
such converted (Mad)J
property
will be taxable
in the hands of
individual,
individual shall deemed to have substantial
.interest in a concern for the purpdSe
ofSection 64(1)(ii)

If the Concern is a company Ifthe concern is other than a Company

Person's beneficial shareholding Person either himself or jointly with his
should not be less than 20% of voting relatives is entitled in aggregate to not
power either individuallyor jointly less than 20% of the profits of such
with relatives at any time during the concern, at any time during the previous
Previous Year (Shares with fixed rate yeär.
of dividend shall not be considered)
Q.7.(a)Discuss the provisions of income tax relating to advance payment
of income tax.
Ans. Liability for Payment of Advance Tax (Section 208):
• •As per section 208 of Income Tax Act, 1961, every person whose estimated tax
liability for the year is Rs. 10,000or more, shall pay his tax in advance, in the form of
"advance tax". Such advance tax must be paid in four instalments on or before due dates
of advance tax payment. In this article we shall discuss about various provisions related
to Advance Tåx and applicable interest in case of non-conformanceto such provisions.
• We know that income earned during the financial year 2018-19shall be charged to
tax in the assessment year 2019-20.But the assessee is required to pay tax, in advance,
on the taxable income of financial year 2018-19during the financial year 2018-19 itself.
• Advance Tax, as computed in accordance with the provisions of this chapter, shall
be payable during a financial year, only when the amount of such advance tax payable
by the assessee during that year is Rs. 10000or more.
Instalments of advance tax and due dates (Section211):
• Advance Tax must be paid on or before due dates as specified in Income Tax Act.
Similarly, it is also clarified how much advance tax must be paid in each installment.
Refer to below table for further details:
Due Date of All assessees (other than Taxpayers who opted
Instalment the Eligible assessee as presumptivetaxation
(Onor before) referred to in Section scheme of section 44AD
44ADor section 44ADA) or section 44ADA
15thJune Not less than 15%of advance Nil
liability
15th September Not less than 45% of advance Nil
tax liability as reduced by the
amount(s) if any, paid in the
earlier instalment(s)
 Fifth Semester,Income Tax Law and Practices
16-2019
Not less than 75% of advance Nil
15th December
tax liability, as reduced by the
amount(s) if any, paid in the
earlier instalment(s)
15th March
The whole amount of advance Up to 100%
of Advance
tax liability as reduced by the
amount(s) if any, paid in the
earlier instalment(s).
Note: Assessees covered u/s 44AD & u/s 44ADA are to pay advance tax of the

Interest payable to assessee u/s 244A:

• When refund is due to assessee, he is entitled to receive refund as well as simple

Refund Type Rate of Interest Period

Where refund is out of h % per month or 1st day of April of the
TDS/TCS or advance part of a month assessment year to the
tax paid during F.Y. date on which refund
granted. is
In any other•case 1/2 % per month or Date of payment of tax
or
part of month penalty to the date on
which
refund is granted.
Interest Payable by Assessee :
• The income tax Act, 1961 provides for the imposition of interest on assesseewho
doesn't pay various taxes timely. In the same •way, government has to pay intereston
excess payment-of tax to assessee.

• Cases Where Interest Payable by Assessee :

• Interest for not filing or late filing of return before due dates u/s 234A.
• Interest for non-payment or short payment of advance tax u/s 234B.
• Interest for deferment of advance tax u/s 234C.
• Interest for failure to deduct & pay the TDS u/s 201(1A).
• Interest for not Filing or Late Filing of Return before Due Dates [section
- 234A]:
Interest u/s 234A is attracted in following cases:
• Where return is filled after due date.
• Where return is not furnished by the assessee.
• Due date: Date specifiedin section 139(1)
• Rate of interest: Simple interest @ 1%per month or part of the month
• Period: Interest will be payable from the due date of submission of return tothe
date of actual furnishing the return.
• Amount: Interest is payable on tax determined minus TDSIPCS& advancetax
paid by assessee.
Note: Where the assessee had paid the taxes before the due date of filingthe return
interest
but could not file the return for reasons beyond his control but filed belated,
u/s 234Awill not applicable as there is no loss of revenue.
 17-2019 Fifth Semester, Income Tax Law and
Practices
Interest for Non-payment or Short Payment of Advance Tax [gection-
234B]: Interest u/s 234B is attracted in followingcages:
Advance tax has not been paid by the assessee
The advance tax paid by the assessee is legs than 90%
of the 'aggesged tax',
Assessed tax: Tax determined on total income minus TDSII'CS & advance tax
paid by assessee.
Rate of interest: simple interest @1%per month or part of the month
• Period: Interest will be payable from 1st April ofA.Y. to
date of Actual payment
or regular assessment.
• Amount: Interest is payable on assessed tax minus advance tax (paid if any)
• Interest for Deferment ofAdvance Tax [section-234CJ:Interest u/s 234Cis
attracted in following cases:
• Instalment is not paid by the assessee
• An instalment is paid by the assessee but amount paid is less than actual/required.
• Interest for Failure to Deduct & Pay the TDS[u/s Interest u/s 201(1A)
is attracted in following cases:
• Assessee who is required to deduct doesn't deduct the tax at source (TDS)
• Assessee after deducting tax at source fails to deposit the same.
• Rate of interest: Simpleinterest @12%P.a.
• Period: Interest will be payable from the date on which such tax was Deductible
to the date on which such tax is actually paid.
• Amount: interest is payable on amount of TDS.
Q.7.(b) R estimates his income for the previous year 2018-19at Rs
Besides this income he has also earned long term capital gain of Rs on
transfer of gold on 1.12.2018.Compute the advance tax payable by R in various
installments.
Ans.
Income in previous year
Income from long term capital gain 180,000 Rs
Total income
Tax on Rs being long term capital gain Rs 36,000
[i.e. of Rs
Tax on Rs [ 12,500 + 20% Rs 90,500
Add: surcharge Nil
Tax and surcharge
Add Health and education cess
Total tax liability Rs 1 31 560
Amount payable by way of advance tax
Advance tax payable on or before June 15, 2018 Rs 19,734
Advance tax payable after June 15, 2018 but on or Rs 39,468
before Septepber 15, 2018
Advancetax payable after September 15, 2018 but on Rs 39,468
or before December 15, 2018
Advancetax payable after December 15, 2018 but on
or before March 15, 2019 Rs 32,890
18-2019 Fifth Semester, Income Tax Law and
Practices
Q.8.Write short notes on any three:
(a) TDSon rental income
Ans. 'Rent' means any payment, by whatever name calle
d,
lease, tenancy or any other agreement or arrangement for the us under
anylease
e of (either
or together) any:
(a) Land
(b) Building (including factory building)
(c) Land appurtenant to a building (including factory building)
(d) Machinery
(e) Plant
(D Equipment
(g) Furniture
(h) Fittings
Whether or not any or all of the above are owned by the payee
(Explanation
• If the landlord collects security or advance payment at the time
of
building to a tenant on the conditionthat the deposit will be refundedatlettingouta
vacating the building, then such a receipt is not in the nature of income and,thetimeof
therefore
• However, advance rent (not in the nature of refundable securitydeposit)
paid
is, subject to a tax deduction. Moreover,where any such rent is creditedto 'suspense
account' or to any other account shall also be liable to deduct tax at source.
Who is Liable to Deduct TDS u/s 1941?
• The person (not being an Individual or HUF) who is responsible for payingany
income to a resident by way of rent is liable to deduct tax at source.
• As per Budget 2017, individual [HUF (not covered under tax audit) payingrent
to a resident exceeding Rs.50,000 per month are also liable to deduct TDS@5%.This
amendment will be effective from 1 June 2017.
• In case the aggregate of the amount of such income credited/paid or likelytobe
credited/paid during the financial year by the aforesaid person to the accountoforto
the payee exceeds Rs. from FY 2019-20 onwards (earlier it was Rs. 1,80,000).
What is the Rate of TDS?
S. No Nature of Payment Rates of tax deduction
1. Rent of plant and machinery 2%
2. Rent of land or building or furniture 10% (5% if rent exceeding
or fitting Rs 50,000/month is paid by
individual/HUF who are not
liable for tax audit)
Q. 8. (b) TDS on income of professionals.
Ans. As per section 194J of Income tax act 1961, a person is required to deduct
during
TDS @ 10% on following payments paid to a resident in excess of Rs. 30,000
a financial year;
• Fees for professional services;
• Fees for technical services;
• Royalty;
 Fifth Semester, Income
19-2019 Tax Law and
Practices
Non-compete fee as referred under
section 28(VA)of income tax act.
Threshold limit OfRs. 80, 000 as
specified under section 194J is
payment separately i.e. applicable independently applicable to each
to each of four items.
With effective from 18tof July
2012, TDS under
remuneration, fees or commission paid to a section 194J is also applicable to
consideredunder the head salary. For this director ofa corhpanywhichis not
particular payment, threshold limit of Rg.
30, 000 as mentioned above is not applicable.
section 194J is applicable to all
persons who are making above payments during
the financiai year.
But the provisions of section 194J will
not be applicable to an individual or HUF
in following cases;
• Where technical or professionalfee for aboveexpensesare credited or paid
exclusively for personal use of such individual or any member of HUF.
• Where total sales, gross receipts or turnover does not exceed the limits ofRs. 1
crore in cases of business or Rs. 25 Lakhs in cases of profession (i.e. if such individual
or HUF is liable to tax audit under section 44ABof income tax act).
Applicability of Section 194Jfor certain specificcases
TDS deduction under section 194J is also applicable to following cases based on
department's circulars and case laws;
• Payment to hospitals for rendering medical services.
• Advertising agencies making payment to film artist towards professional fee.
• Payment to HR consultancy or recruitment agencies.
• Payment to share registrars by companies
Professional Services or Technical Services or Royalty or Non Compete Fee
What is Professional Fee under section 194J ?
Fee for followingprofessionalserviceswill be treated as professionalfee under
section 194J of income tax act 1961;
• All such professionals as notified for the purpose of section 44AA of income tax
act 1961;
• Sports person;
• Umpires and referees;
• Coachesand trainers;
• Team physicians and physiotherapists;
• Event manager;
• Commentators;
• Anchors and sports columnists;
TechnicalServices considered for Section 194J
Technical services mean any consideration for rendering following services;
• Managerial
• Technical
• Consultancy
But does not include considerationfor any construction,assembly, mining or
ike projectundertaken by the recipient or consideration which would be income of
•ecipientchargeable under the head salaries. the
 Fifth Semester, Income Tax Law and Practices
20-2019
Royalty
For the purpose of section 194J royalty is defined in explanation 2 to
section
• The transfer of all or any rights (includingthe granting of a license)
patent, invention, model, design, secret formula or process or trade markin

The imparting of any information concerning the working of, or.the use
bf,a
invention, model, design, secret formula or process or trade mark or similar patent
property
• The use ofany patent, invention, model, design, secret formula or process
ortrade
mark or similar property ;
• The imparting of any information concerningtechnical, industrial, commercial

• The use or right to use any industrial, commercial or scientific equipmentbut

including the amounts referred to in section 44BB; not
• The transfer of all or any rights (including the granting of a license) in respectof
any copyright, literary, artistic or scientific work including films or video tapes forusein
connection with television or tapes for use in connection with radio broadcasting,butnot
including consideration for the sale, distribution or exhibition of cinematographicfilms
• The rendering of any services in connection with the activities referred above.
Non compete fees for section 194J
Non competefee for the purpose of section 194J means, any sum received or
receivablein cash or kind under an agreement for not sharing any know-how,paten%
copyright,trademark, license, franchise or any other business or commercialrights
of similar nature or informationor technique likely to assist in the manufactureor
processing of goods or provision for services.
It also includesany fee receivedfor not carrying out any activity in relation
to any business.
Q. 8. (c) TDS on winnings from lotteries or crossword puzzles.
Ans. As we all aware that, if the assessee received any income by way ofwinnings
from any lottery or crosswordpuzzle or card game and the amount is in excessofRs
10,000 then it will be covered under scope of section 194B. As per section 194Btax need
to be deducted at flat 30% plus cess of 4% i.e at 31.2%.
Extract of Section 194B—
"Winningsfrom lottery or crossword puzzle.
194B. The person responsible for paying to any person any income by way ofwinnings
from any lottery or crossword puzzle or card game an.d other game ofany sort in an amount
exceedingten thousand rupees shall, at the time of payment thereof, deduct income-tax
thereon at the rates in force:
Provided that in a case where the winnings are wholly in kind or partly in cashand
partly in kind but the part in cash is not sufficient to meet the liability of deductionOftax
in respect of whole of the winnings, the person responsible for paying shall, beforereleasing
the winnings, ensure that tax has been paid in respect of the winnings.
While filing your income tax return you must include prize moneyunder'income have
from other sources' and, you must submit the TDS certificate as proofthat you
paid all the tax due against the prize money.
 Fifth Semester, Income
21-2019 Tax Law and Practices

Taxationon prizes in kind

A multitude of game/talent shows opt
for a combination of cash and
kind. The tax
liability on cash prizes can be arrived at by a simple calculation,
but thig is not the case
with prizes in kind. Although the applicable tax rate is the game,
that is, 30 per cent, it
posesa challenge on two fronts — who bears the tax liability and
what is the valuation
ofthe prize?
If the prizes awarded are in kind, the prize distributor will,
beforereleasing the
prize, ensure that tax has been paid in respect of the winnings. will either recover it
It
fromthe winner or bear the tax liability itself and deposit TDS.
But if prizes are partly in cash and partly in kind, tax is deducted on the total value of
the cash and kind from the cash. And, if the cash is insufficient to meet the TDS liability,
either the winner or the prize distributor pays the deficit. This will depend entirely on
the terms and conditions of prize scheme.
Say, you win a car with a market value ofRs 7 lakh and the conditions require you to
bear the tax liability. You will have to cough up Rs 2.1 lakh tax, and Rs 6,300 education
cess. Then there are registration charges, road tax, octroi and insurance, w.hichmust be
borne by the winner. The only alternative: Foregoyour award.
Guidelines for valuing prizes, including holidays, insurance products and even
contracts awarded by channels to winners, are unclear. The valuation will be largely
circumstantial. For inStance, to value a holiday, you may have to consider how much it
costs an unrelated third party.
Q.8. (d) Duties of a person responsible for deduction of TDS
Ans. 1. Deduct Tax at Correct Rate and deposit in Government Account —
Every person responsible for deducting tax •atsource shall at the time of payment or credit
of income, whichever is earlier, verify whether the payment being made is to be subject
to deduction of tax at source. If it is so, he must deduct such tax as per the prescribed
rates. Further he is required to deposit such tax deducted in the Central Government
Account within the prescribed time as specified in Rule 30.
Electronic payment of taxes
(i) An optional scheme ofelectronic payment of taxes for income-tax was introduced in
2004. However with a view to expand the scope ofelectronic payment of taxes, the scheme
of electronic payment of taxes has been made mandatory for the following categories of
tax-payers(vide notification No. 34/2008 dt. 13.3.2008of CBDT).
1. All corporate assessees;
2. All assessees(other than company) to whom provisions of section 44AB of the
Income Tax Act are applicable.
(ii) The scheme of mandatory electronic payment of taxes for income-tax payers is
to be made applicable from 1st April, 2008 and shall also be applicable to payment of
taxes to Government account where tax has been deducted at source.
(iii) Tax-payers can make electronic payment of taxes through the internet banking
facilityofferedby the authorized banks. They will also be provided with an option to
make electronic payment of taxes through internet by way of credit or debit cards.
2. Issue a TDS certificate
Further, such person is required to issue a certificate of tax deduction at source to
e person from whose income the TDS has been done, in the prescribed proforma
i.e.
Form No.16A, within one month from the end of the month during which the credit has
beengiven or the sums have been paid or a cheque/warrant for payment of any
been issued to a shareholder. dividend
22-2019 Fifth Semester, Income TAXLaw
and Practices
3. File TDSReturn/Qunrterly Statement
Finally, Sec.206prescribes that every person, e.g. Princi
pal
company, prescribed person in case of Government Office and Officerin the
and every other person responsible for deducting tax at local aUthorit ease
BOUrce,
time after the end of Financial Year, shall prepare and deliver or c n aYor public
a prescribed return in prescribed form, verified and containing prescrib
ed
prescribed
4. Quarterly statement of TDS
The provisions of quarterly statements of TDS have been
vide section 200(3) w.e.f. 01/04/2005. Every person res ponsible duced
intro inthe
for
required to file quarterly statements of TDS for the quarters ending deductingstatute
September, 31st December and 31st March in each Financial on 30th June,tax i8
is to be prepared in Form No. 26Q for TDS other than salaries,Form Year. This
Tax collectionat source) and 24Q (for salaries) (relevant rule 31A No.27E
to be delivered with prescribed income-tax authority or the person and 31AA)
authority on or before the 15th July, the 15th October and the 15th authorizedby
of the first 3 quarters of the Financial Year and on or before the 15thJanuary in respect
June
last quarter of the Financial Year. However the statement of last quarter followingthe
in form27EQ
Points to be noted related to quarterly statements of TDS-
• Every deductor is required to file the quarterly statement of TDSin
form for each quarter as per the dates specified above. prescribed
• A person other than a corporate or government deductor or that specifiedin
8.4 may at his optiondeliver the para
quarterly statements in computerreadablemediaas
specified above. However, it is not mandatory for him to do so.
• The quarterly statements are to be furnished in accordancewith the provisions
of rule 31A and rule 31AA.
• The persons referred to in Rule 37A (who are making payment to a non-resident
or a foreign company)are required to file quarterly statements in accordance with
provisions of rule 37A and rule 37B.
• It is mandatory for the deductor to quote TAN and PAN in the quarterly statements.
However, where the deduction has been made by or on behalf of the Government,PAN
shall not be required to be quoted in the quarterly statement.
• In the quarterly statements, the deductor is also required to quote the Permanent
Account Number (PAN) of all persons in respect of whom Income-taxhas been
deducted. However, PAN of those persons is not required to be quoted who are specified
under second proviso to sub section (5B) to section 1 39A. These persons includethose
who are not required to obtain PAN under any provisions of this Act or those whosetotal
income is not chargeable to Income-tax.
• The deductor is also required to furnish the particulars of tax paid to the Central
Governmentin the quarterly statements.