Ram Baan - Direct Tax MAY - 23: Ca Vikram Biyani

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RAM BAAN _DIRECT TAX

MAY_ 23
CA VIKRAM BIYANI
www.vikrambiyani.com
DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

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TAX RATES FOR AY 2023-24
TAX RATES IN CASE OF INDIVIDUALS OR HUF

I (A) In case of every individual other than the individual referred to in 1(B) and 1(C) or in
case of Hindu Undimded Family: (Resident as well as Non-resident)
Total Income Rates of Income Tax
(1) Where the total income does not exceed ₹ NIL

2,50,000
(2) Where the total income exceeds ₹ 2,50,000 5% of the amount by which the total income exceeds ₹
but does not exceed ₹ 5,00,000 2,50,000
(3) Where the total income exceeds ₹ 5,00,000 ₹ 12,500 plus 20% of the amount by which the total income
but does not exceed ₹ 10,00,000 exceeds ₹ 5,00,000
(4) Where the total income exceeds ₹ ₹ 1,12,500 plus 30% of the amount by which the total
10,00,000 income exceeds ₹ 10,00,000
1(B) In case of every individual, beina a resident in India, who is of the age of 60 years or
more but less than 80 years at any time during the previous year:

3,00,000
but does not exceed ₹ 5,00,000 3,00,000
(3) Where the total income exceeds ₹ 5,00,000 ₹ 10,000 plus 20% of the amount by which the total income
but does not exceed ₹ 10,00,000 exceeds ₹ 5,00,000
(4) Where the total income exceeds 50,00,000 ₹ 1,10,000 plus 30% of the amount by which the total
income exceeds ₹ 10,00,000

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1(C) In case of every individual, being a resident in India, who is of the age of 80 years
or more at any time during the previous year:

5,00,000
but does not exceed 5,00,000
50,00,000
(3) Where the total income exceeds ₹ ₹ 1,00,000 plus 30% of the amount by which the total
10,00,000 income exceeds
50,00,000
KEY NOTES:
1. The tax rates given in 1(A) above are for residents as well as non-residents.
2. The tax rates given in 1(B) and 1(C) are for a resident individual. Therefore, in case of a senior citizen or super
senior citizen being a non-resident, the tax rates given in 1(A) shall apply.

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3. Surcharge on Income-tax (Residents and Non-Residents)

Where total income does not include capital gains referred to in section 111A and/or section 112 , 112 A
and/or DIVIDEND INCOME
The income tax on total income shall, in case of every individual or HUF, be increased by a surcharge of
(a) 10% of such income tax where the total income exceeds ₹ 50,00,000 but does not exceed ₹ 1 crore.
(b) 15% of such income tax, if the total income exceeds ₹ 1 crore but does not exceed ₹ 2 crores.
(c) 25% of such Income Tax, if the total income exceeds ₹ 2 crores but does not exceed ₹ 5 crores.
(d) 37% of such Income Tax, if the total income exceeds ₹ 5 crores.
Where total income includes Capital Gains referred to in section 111A and /or section 112
/112A/and/or DIVIDEND INCOME then surcharge shall be as under:
TOTAL INCOME SURCHARGE
(i) Does not exceed ₹ 50 lakhs No surcharge
(ii) Exceeds ₹ 50 lakhs but does not exceed ₹ 1 crore 10% surcharge on income
tax
(iii) Exceeds ₹ 1 crore but does not exceed ₹ 2 crores 15% surcharge on income
tax
(iv) Exceeds ₹ 2 crores
A. On tax computed on Capital Gains under section 111A & 15%

112A and dividend income
B. On tax computed on
Total Income - Capital Gains under section 111A 112A

and dividend income
If Total Income - Capital Gains under section
111A 6B 112A and dividend
income
(a) is upto ₹ 2 crores 15%
(b) is above ₹ 2 crores but upto ₹ 5 crores 25%
(c) Above ₹ 5 crores 37%

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II. In case of every LOCAL AUTHORITY, 30% of the total income. The income tax on total income shall,
in case of every local authority, be increased by a surcharge of 12% of such income tax, if the total income
exceeds ₹1 crore.
III. In case of a FIRM, 30% of the total income. The income tax on total income shall, in case of every firm, be
increased by a surcharge of 12% of such income tax, if the total income exceeds ₹ 1 crore.
IV. In case of a DOMESTIC COMPANY,
(i) Where the total turnover or the gross - 25% of the total income
receipts in Previous Year 2020-21 does not
exceed ₹ 400 crores
(ii) Other than referred in (i) above - 30% of the total income
The income tax on total income shall, in case of every domestic company, be increased by a surcharge of 7% of
such income tax, if the total income exceeds ₹ 1 crore but does not exceed ₹ 10 crores. And where total
income exceeds ₹ 10 crores, surcharge shall be levied at 12% of such income tax.
V. In case of a FOREIGN COMPANY, 40% of the total income. The income tax on total income shall in
case of every foreign company be increased by a surcharge of 2% of such income tax, if the total income
exceeds ₹ 1 crore but does not exceed ₹ 10 crores. And where total income exceeds ₹ 10 crores, surcharge
shall be levied at 5% of such income tax.
VI. In the case of every co-operative society, -
Rates of income-tax
(1) where the total income does not 10 per cent of the total income;
(2) exceed ₹ 10,000 ₹ 1,000 plus 20 per cent of the

where the total income exceeds
₹ 10,000 but does not exceed amount by which the total income
(3) ₹ 20,000 where the total income exceeds ₹ 10,000;

exceeds ₹ 3,000 plus 30 per cent of the
₹ 20,000 amount by which the total income

exceeds ₹ 20,000.
The income tax on total income shall, in case of every co-operative society, be increased by a surcharge of 12%
of such income tax, if the total income exceeds ₹ 1 crore.

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MARGINAL RELIEF
In case of Surcharge
A.
(1) In case of individual and HUF, where total income exceeds ₹ 50 lakhs but does not exceed ₹ 1 crore, the
aggregate of income tax and surcharge shall be restricted to:
(Tax on ₹ 50 lakhs) + (Total Income - ₹ 50 lakhs)
(2) In case of individual and HUF, where total income exceeds ₹ 1 crore but does not exceed ₹ 2 crore, the
(Tax on ₹ 1 crore with surcharge of 10%) + (Total Income - ₹ 1 crore)
(3) In case of individual and HUF, where total income exceeds ₹ 2 crore but does not exceed ₹ 5 crore, the
(Tax on ₹ 2 crore with surcharge of 15%) + (Total Income - ^ 2 crore)
(4) In case of individual and HUF, where total income exceeds ₹ 5 crore, the aggregate of income tax and
surcharge shall be restricted to:
B. In case II, III and IV above i.e., in case of Local authority Firm and Co-operative society, where the total
income exceeds ₹ 1 crore, then, the aggregate of income tax and surcharge shall be restricted to:
(Tax on ₹ 1 crore) + (Total Income - ₹ 1 crore)
C. In case of domestic/ Foreign company, where the total income exceeds ₹ 1 crore but does not exceed ₹
10 crores, then the aggregate of income tax and surcharge shall be restricted to:
(Tax on ₹ 1 crore) + (Total Income - ₹ 1 crore)
D. In case of domestic company, where the total income exceeds ₹ 10 crore, then the aggregate of income
tax and surcharge shall be restricted to:
E. In case of foreign company, where the total income exceeds ₹ 10 crore, then the aggregate of income
tax and surcharge shall be restricted to:

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SECTION 87A
Rebate of income-tax in case of certain individuals
 An assessee, being an individual resident in India,
 whose total income does not exceed ₹ 5,00,000, shall be entitled to a deduction,
- from the amount of income-tax on his total income with which he is chargeable for any assessment year,
 of an amount equal to 100% of such income-tax or
 an amount of ₹ 12,500,
- whichever is less.
NOTE:
Rebate under section 87A is not available from tax computed under section 112A. Illustration:
Mr. A, aged 50 years, earned a total income of ₹ 3,40,000. Compute his tax liability.
Tax on ₹ 3,40,000 ₹ 4,500
Less: Relief under section 87A ₹ 4,500
Nil
Net tax payable Nil
HEALTH AND EDUCATION CESS

In all the above cases, the income tax computed above as increased by surcharge, if any, and after allowing
marginal relief shall be further increased by Health and Education Cess of 4% for assessment year 2023-24.
SECTION 288A
Rounding Off of Income
The taxable income shall be rounded off to the nearest multiple of ₹ 10 and for this purpose any part of a
rupee consisting of paise shall be ignored and thereafter if such amount is not a multiple of ten, then, if the last
figure in that amount is five or more, the amount shall be increased to the next higher amount which is a multiple of
ten and if the last figure is less than five, the amount shall be reduced to the next lower amount which is a multiple
of ten.
SECTION 288B
Rounding Off of Tax
Any amount payable, and the amount of refund due, under the provisions of this Act shall be rounded off to the
nearest multiple of ₹ 10 and for this purpose any part of a rupee consisting of paise shall be ignored and
thereafter if such amount is not a multiple of ten, then, if the last figure in that amount is five or more, the amount
shall be increased to the next higher amount which is a multiple of ten and if the last figure is less than five, the
amount shall be reduced to the next lower amount which is a multiple of ten.
CIRCULAR NO.28/2016
The Central Board of Direct Taxes, hereby clarifies that a person born on 1st April would be considered to
have attained a particular age on 31st March, the day preceding the anniversary of his birthday.
Therefore, if a person is born on 1st April, 1962/1942 then he shall get slab of ₹ 3,00,000/ ^5,00,000 in
Previous Year 31.3.2022.
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W.e.f. A.Y. 2021-22, where the individual or HUF opts to be taxed under section 115BAC (i.e. the
new regime), the rates of income-tax shall be as under provided the conditions mentioned in
section 115BAC are satisfied:
Total income Rate of tax
Upto Rs.2,50,000 Nil
From Rs.2,50,001 to Rs.5,00,000 5%
From Rs.5,00,001 to Rs.7,50,000 10%
From Rs.7,50,001 to Rs. 10,00,000 15%
From Rs. 10,00,001 to Rs. 12,50,000 20%
From Rs.12,50,001 to Rs.15,00,000 25%
Above Rs. 15,00,000 30%
Notes:
1. If the individual opts to be taxed under section 115BAC (i.e. the new regime) the exemption
limit in case of all individuals (whether of the age of less than 60 years, or 60 years or more or 80
years or more) shall be Rs.2,50,000.
2. As per section 115BAC(2), individual or HUF who opts to be taxed under section 115BAC,
— certain allowances and deductions are not allowed to a salaried employee
— deduction of interest is not allowed under the head "income from house property"
— certain deductions are not allowed while computing the business income
— deductions under section 80C to 80U (i.e. Chapter VI-A) are not allowed

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(A) Section 115BAC(1): Special Tax Rate
(a) This section is applicable only to Individuals and HUF. Such individual and HUF may be
ROR/NOR/NR
(b) Individual and HUF may have income under any of 5 heads of income.
(c) This section overrules all sections of Income Tax Act, 1961
(d) This section is optional section and is applicable for AY 2021-2022 and thereafter. If individual
and HUF does not exercise the option, then individual and HUF would continue to pay tax as
per normal tax rates applicable to him and all provisions of the Income Tax Act, 1961 will
continue to apply for him.
(e) If the assessee is having any income other than PGBP income then the option is available to
the assessee every year, whether he opted for optional scheme in the preceeding year or not
(f) If the assessee is having PGBP income, then option is available only once in the first year
and it will be valid for the subsequent years as well. If the assessee exercises the option
and he fails to satisfy the conditions in any year, then the option shall become invalid for
that year as well as for all subsequent years, till he carries on business or profession. In such
circumstances, other provisions of the Act would apply as if the option is not exercised by the
assessee. However, once he ceases to have income from business or profession, then he
can exercise the option every year.
(g) Applicable rates of income tax are given in table below and shall be applicable if conditions of
Section 115BAC(2) are satisfied
(h) When the person company fails to satisfy conditions of Section 115BAC(2) in any year then
the option shall become invalid in that year and in every subsequent years and other
provisions of the Income Tax Act,1961 shall apply as if the option had never been exercised
(i) Rebate u/s 87A and Relief u/s 89(1) shall be allowed from the tax under section 115BAC
(j) Advance tax payable u/s 211 shall be payable even if assessee opts to follow section 115BAC.
(l) Assessee shall be liable to surcharge and HEC as usual

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Income of Previous Year taxed in same Year:
1. Assessment of Income of a Non-Resident from Shipping Business [Sec.172]: In

case of any ship belonging to or chartered by a Non-Resident which shipped at a port in
India then 7.5% of amount of such carriage including
Points to Remember demurrage and handling charges shall be deemed as Income of the
Non-resident and chargeable to in the same PY.
2. Assessment of persons leaving India without intention to return [Sec.174]: If
Assessee leaves India during PY or shortly after its expiry and does not have intention to
return to India immediately, then Total Income up to the date of departure charged to tax in
the Previous Year of leaving.
3.Assessment of AOP/BOI/AJPs formed for a particular event / purpose [Sec. 174A]:
Where AOP/BOI/AJP established for a particular purpose is likely to be dissolved in first AY
or shortly after its expiry, then Total Income for the period from the beginning of PY to the
date dissolution is charged to tax in the PY of dissolution.
4.Assessment of person trying to transfer his assets with a view to avoid tax
[Sec.175]: Where a person transfers his assets in the current AY with a view to avoid tax,
then Total Income for the period from the beginning of PY to the date of commencement of
proceedings u/s 175 is charged to tax in the PY of transfer of assets.
5.Assessment of Discontinued Business [Sec.176]: Where any Business or Profession is
discontinued in any AY, then Total Income for the period from the beginning of PY to the
date of discontinuance is charged to tax in the PY of discontinuance.
RAM BAAN _DIRECT TAX CA VIKRAM BIYANI

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Cash Credits [Sec.68]: Taxable in the FY in which it is found credited in books of

accounts if Assessee offers no explanation or offers unsatisfactory explanation about its
nature and source.
For a Closely Held Company, amount is credited towards Share Application Money, Share
Capital, Share Premium, etc. and the Person being a Resident (not being Venture Capital
Fund or Venture Capital Company u/s 10(23FB)), in whose name such credit is recorded in
the Company books offers no explanation or offers unsatisfactory explanation about its
nature and source, it is deemed that the Assessee Company has not offered satisfactory
explanation.
Unexplained Investments [Sec.69]: Investments made by Assessee which are not

recorded in books and he offers no explanation or offers unsatisfactory explanation about its
nature and source, then the value of investment is deemed to be Income of the Assessee of
such FY.
Unexplained Money, Bullion, Jewel or valuable article etc [Sec.69A]: Where

in any FY the Assessee is found to be the Owner of Money, Bullion, Jewellery or any
valuable article and those assets are not recorded in books and he offers no explanation or
offers unsatisfactory explanation about its nature and source, then the value of those assets
is deemed to be Income of the Assessee of such FY.
Investments, etc. not fully disclosed in books of account [Sec.69B]: Where

in any FY the Assessee has made Investments or is found to be the Owner of Money,
Bullion, Jewellery, etc & the AO finds that amount expended exceeds the amount recorded
in books and Assessee offers no explanation or offers unsatisfactory explanation about
excess amount, then such excess amount is deemed to be Income of the Assessee of such
FY.
Unexplained Expenditure, etc. [Sec.69C]: Where Assessee incurred any

expenditure and he offers no or unsatisfactory explanation about source of expenditure or
part thereof, then such amount may be deemed to be Income of the Assessee of such FY.
Such Expenditure shall not be allowed as deduction under any head of Income.
Amount borrowed / repaid on Hundi except by A/c Payee Cheque
[Sec.69D]: Where any amount borrowed on Hundi or repaid the same otherwise than
through an Account Payee Cheque drawn on Bank, then such amount shall be treated as
Income of the person for the PY in which the amount borrowed or repaid. If the amount is
taxed at the time of borrowing the same cannot be taxed at the time of repayment. Amount
repaid includes interest on borrowed amount.

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RESIDENTIAL STATUS
Non-Resident [Sec.2(30)]: Not a Resident u/s 6(1).
Individual [Sec.6(1)]:
 Atleast 182 days stay in India in RPY ,or
 At least 60 days stay in India in RPY and atleast 365 days in India in 4 Prior P.Ys.
Deemed to be resident [Sec.6(1A)]: An Individual, being a citizen of India, having Total
Income, other than the Income from Foreign Sources, exceeding Rs 15 Lakhs during the
Previous Year shall be deemed to be Resident in India in that Previous Year, if he is not liable to
tax in any other Country or territory by reason of his domicile or residence or any other criteria of
similar nature.
Special Situations for determination of Residential Status: [Sec. 6(1) Expln.] [w.e.f.
01.04.2021]
Person shall be considered Resident only if -
Indian Citizen leaving India for they are in India for 182 days or more during the
employment outside India or being a Crew Relevant Previous Year (RPY)
Member of an Indian Ship leaving India
Indian Citizen or person of Indian Origin (a)If he stayed in India for a period of 182 days or
having Total Income, other than the more during RPY (OR)
Income from Foreign Sources, exceeding (b)If he stayed in India for a period of 120 days or
Rs 15 Lakhs during the Previous Year more during RPY and 365 days or more during 4
preceding previous years.
Indian Citizen or Person Indian Origin, they are in India for 182 days or more during the
visiting Indian (other than mentioned Relevant Previous Year (RPY)
above)
Note: Indian Citizen leaving India for employment outside India then 182 days condition alone
shall apply.
Determination of Residential Status of Crew Member of a Ship: In the case of an Individual,
being a Indian Citizen and a Member of the Crew of a Foreign-bound Ship leaving India, the
period(s) of stay in India shall, in respect of such voyage shall be determined in the manner and

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subject to such prescribed conditions. For determining the period of Stay in India, the following
period shall not be included-
Period beginning From Period ending to
Date entered into the Continuous date entered into Continuous Discharge Certificate
Discharge Certificate in respect of joining in respect of the signing off by that individual from
the ship by the said individual for the the ship in respect of such voyage.
eligible voyage

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SE CTION 6(6): R esident and Ordinarily Resident/ Resident bu t

Not Ordi na ri ly Resident
Only individuals and HUFs can be resident but not ordinarily resident in India. All other classes of
assessees can be either a resident or non-resident. A resident but not ordinarily resident person is one
who satisfies any one of the following twin conditions:
(i) If such individual has been non-resident in India in any 9 out of the 10 previous years preceding
the relevant previous year, or
(ii) If such individual has during the 7 previous years preceding the relevant previous year been in
India for a period of 729 days or less.
Note: In simpler terms, an individual is said to be a resident and ordinarily resident if he satisfies both
the following conditions:
(i) He is a resident in any 2 years (or more) out of the last 10 previous years preceding the
relevant previous year, and
(ii) His total stay in India in the last 7 years preceding the relevant previous year is 730 days or
more.
If the individual satisfies both the conditions mentioned above, he is a resident and ordinarily
resident but if only one or none of the conditions are satisfied, the individual is a resident but
not ordinarily resident.
The amendments made by Finance Act, 2021 in section 6(6) have been discussed under section 6(1)
and section 6(1A).

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Illustration 1:
Mr. Ranbir Singh, is living in Dubai since 1985. He comes to India to meet his parents on
01.06.2022 and leaves India for Dubai on:
CASE I 30th September, 2022
CASE II 30th November, 2022
He has the following incomes: Situation I Situation II
(i) Incomes arising in India Rs 6,00,000 Rs 6,00,000
(ii) Incomes received abroad but deemed to accrue or Rs 7,00,000 Rs 7,00,000
arise in India as per section 9
(iii) Incomes arising in Dubai and not deemed to accrue Rs 40,00,000 Rs 40,00,000
or arise in India
(iv) Income arising in Dubai from a business controlled Rs 10,00,000 Nil
from India
Comment on the residential status of Mr. Ranbir Singh. Further, also tell the taxable amount in
the hands of Mr. Ranbir Singh for the assessment year 2022-23.
Solution: Situation I Situation II
Total Income other than Income from foreign sources Rs 23,00,000 Rs 13,00,000
CASE I & SITUATION I

His income other than income from foreign sources exceeds Rs 15,00,000. His stay in India is 122
days in previous year 31.03.2023. Assuming that his stay in India is 365 days or more in the period
01.04.2018 to 31.03.2022, he becomes a resident. However, since his stay is less than 182 days, he
shall be a resident but not ordinarily resident. Therefore Rs 6,00,000 + Rs 7,00,000 + Rs 10,00,000 is
taxable in India in P/Y 31.03.2022.
CASE I & SITUATION II

Since his total income other than income from foreign sources is not exceeding Rs 15 lakhs the
amendments made by Finance Act, 2021 are not applicable to him. He remains to be a Non-Resident
since his stay in India does not exceed 182 days in P/Y 31 03 2022 Only Rs 6,00,000 + Rs 7,00,000 is
taxable in India.
CASE II & SITUATION I AND SITUATION II

He becomes a resident in India since his stay in India during the P/Y 31.03.2023 is 183 days (i.e., 182
days or more). It shall be irrelevant whether his total income (other than income from foreign sources)
exceeds Rs 15 lakhs or not. However, he shall be Resident but Not Ordinarily Resident if he-
(i) is non-resident in any 9 out of 10 previous years preceding P/Y 31.03.2023; or
(ii) during the 7 previous years preceding the P/Y 31.03.2022 has been in India for 729 days or less.
Assuming he is Resident but Not Ordinarily Resident,
Situation I: Rs 6,00,000 + Rs 7,00,000 + Rs 10,00,000 shall be taxable in India.
Situation II: Rs 6,00,000 + Rs 7,00,000 shall be taxable in India.

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Illustration 2:
Mr. Abhinav Jhakira is living in Cyprus, a tax heaven. He is a citizen of India and left India in
1972. Since then, he has not returned to India for a single day.
Details of his income for the financial year 2022-23 are as follows:
Situation I Situation II
(i) Incomes arising in India Rs 6,00,000 Rs 6,00,000
(ii) Incomes received abroad but deemed to accrue or arise Rs 7,00,000 Rs 7,00,000
in India as per section 9
(iii) Incomes arising in Cyprus and not deemed to accrue Rs 40,00,000 Rs 40,00,000
or arise in India
(iv) Income arising in Cyprus from a business Rs 10,00,000 Rs 1,00,000
controlled from India
Comment on his residential status and taxable income in his hands for the A.Y. 2023-24.
Solution: Situation I Situation II
Total Income other than Income from foreign sources Rs 23,00,000 Rs 14,00,000
SITUATION I
Since Mr. Abhinav is not taxable anywhere in the world by reason of his domicile in Cyprus, a tax
heaven, he is deemed as Resident as per section 6(1 A) as his total income excluding income from
foreign sources exceeds Rs 15,00,000.
Further, as per section 6(6), he shall be deemed as resident but not ordinarily resident
He shall be liable to pay tax in India on Rs 6,00,000 + Rs 7,00,000 + Rs 10,00,000 = Rs 23,00,000.
SITUATION II
Section 6(1 A) is not applicable since his total income excluding income from foreign sources does
not exceed Rs 15,00,000. He is a non-resident and is liable to pay tax in India on Rs 6,00,000 + Rs
7,00,000 = Rs 13,00,000.
Illustration 3:
What will be your answer in Illustration 2 if Mr. Abhinav was borne in Cyprus and his parents
were borne in India.
Solution:
Since Mr. Abhinav is a person of Indian Origin and is not a citizen of India. Section 6(1 A) shall not
be applicable. He shall be therefore, a non-resident in both the situations and shall be liable to pay tax
on Rs 13,00,000 in both the situations.
CIRCULAR NO. 13/2017, DATED 11-4-2017
Clarification Regarding Liability to Income-Tax in India For a Non-Resident Seafarer Receiving
Remuneration in NRE (Non-Resident External) Account Maintained with An Indian Bank
Representations have been received in the Board that income by way of salary, received by non-
resident seafarers, for services rendered outside India on-board foreign ships, are being subjected to
tax in India for the reason that the salary has been received by the seafarer into the NRE bank account
maintained in India by the seafarer.
2. The matter has been examined by the Board. Section 5(2)(a) of the Income-tax Act provides that
only such income of a non-resident shall be subjected to tax in India that is either received or is
deemed to be received in India. It is hereby clarified that salary accrued to a non-resident seafarer for

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services rendered outside India on a foreign going ship (with Indian flag or foreign flag) shall not be
included in the total income merely because the said salary has been credited in the NRE account
maintained with an Indian bank by the seafarer.
Illustration 4: Mr. A is son of Mr. B. Mr. A gets admission in a foreign university and leaves
India on 15/5/2022. The father, Mr. B leaves India on 1/8/2022 to join his son, Mr. S. Mr. B
invested some money in the stock market of that country and earned some income. Mr. B
submits you the following details of his Indian and foreign incomes
Income accruing or arising outside India Rs7,00,000
Income accruing or arising in India Rs21,00,000
Deduction u/s 80C to 80U Rs3,00,000
Discuss the residential status of Mr. A for the AY 2023-2024 i.e. PY 2022-2023
Solution: Computation of total Overseas income Indian Total

income:
Gross total income Rs7,00,000 income
Rs21,00,000 Rs28 lakh
Less: Deduction u/s 80C to 80U NIL Rs3,00,000 Rs30 lakh
Total income Rs7,00,000 Rs18,00,000 Rs25 lakh
Thus, the total income excluding overseas income is Rs18,00,000 the condition of 120
days will be available. Mr.B stays in India for 123 days [April:30, May:31, June:30,
July:31, August:1] and thus he is resident of India.

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Residential Statu s of a HUF
Is the control and managem ent of

its affairs si tuated w holly or
par tly in India?
YES NO
Is Karta resident in I ndia in any 2 PYs HUF is

out of 10 PYs preceding the re levant
PY Non-resident
(+)
Is his st ay in Ind ia for 730 d ays or
more during the 7 PYs preceding the
relev ant P Y
YES NO
HUF is
HUF is RO R
RNOR

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R E L AT I O N S H I P B E T W E E N R E S I DE NT I AL S T A T U S A N D I N C I D E N C E O F T A X { Sec. 5}
TRANSACTIONS ROR NOR NR
Income received in India whether accrued in or outside India Y Y Y
Income deemed to be received in India whether accrued in or outside

Y Y Y
India
Income accruing or arising in India whether received in or outside India Y Y Y
Income deemed to accruing or arising in India whether received in or

outside India Y Y Y
Income accrued and received outside India from business controlled or

profession set up in India Y Y N
Income accrued and received outside India from business controlled or

profession set outside India Y N N
Income (not from business or profession) received and accrued outside

India but received should be first receipt Y N N
Income earned and received outside India but later on remitted to India Y N N
Past untaxed incomes remitted to India N N N
Agricultural Incomes from land in India N N N
Agriculture incomes from land outside India and received in India Y Y Y

22
Income de em ed
to accrue or
arise in India
[Secti on 9( 1)]
Interest Fees for

Salary , if Royalty, if technical
earned Dividen payable payab le by servic es, if
Income
for d paid by payable by
accruing or
servic e Salary by an
arising
s payab le by Indian
outside
rendere the Compa n
India,
d in y
direct ly or Governme
India outside
indirect ly nt to India
through or India n
from Cit ize n for
services Person
rendere d resid ent in
outside A non Governme
India
India resident nt
Any
Busines s Exce ptio n
Conn ection s
in India
If money
is
borrowed If the
and used money
Any for the borrowed
property/ass purpos e and us ed
et or source of or
of income in bus iness technica l
India or servic es
prof essio or royalty
n carried servic es
on in are
India utilised
transf er of for the
capital purpose
asset of
situated in bus iness

23
India or
If
technical prof ess io
servic es or n carried
royalty on
servic es outside
are India
utilis ed for
the
purpos e of
bus iness
or
prof ession
carried on
in India or
makin g
income
from any
source in
India
If the
money
borrowed
and us ed
or
technica l
servic es
or royalty
servic es
are
utilised
for
making
inc ome
from any
source
outside
India

24

25
 The foll owing opera tion s d o n ot am ou nt to bu sin ess con n ection

by virtue of the s pecific pr ov ision in the Act:
A. Indepe ndent broker / agent ar e excl uded – The busine ss
connec tion shall not inclu de cas e s wh ere the NR carries on
bus iness through a broker ,general com mis si on age nt or any
other agent of an independ ent status , prov ided that s uch a
person is act ing in t he ordinary course of busin ess
B. Non r esident expo rter selling goods fro m abro ad to Indi an
im porter
C. Non r esident com pany selling good s fr om abr oad to its
Indian subsidiar y
D. Sale of plant and machin ery to an Indian Importer on
instalm ent basis
E. Commission paid t o foreign agent of I ndian exporters
F. Wher e al l the o perations are no t carrie d out in India. [E xp l.
(a) to Sec.9(1)(i)]
If all t he o perat ions are not c arried out in India,
the income of the business deemed to accrue or
arise in Ind ia shall be only s uch part of t he incom e
as is r easonably at tributable to the operations
carried out in In dia. The app ortionment of the
profit should b e on rational bas is and not be
arbitrary.
G. Income to non-r esident s fm operatio ns confin ed to

purchase of goo ds in In dia for ex po rt. [Expl. (b) to u/ s
9(1)(i)]
H. Collection of news and view s. [Expl. (c) to sec.9(1)(i)]
Operat ions confined to the collection of news and
views in India for transmission outside by or on
behalf of non-resident who is engaged in the
business of running news agency or of publishing
newspapers, magazines or journals.
I. Shooting of Cinem atographic films in Indi a. [Expl. (d) to

sec. 9(1)(i)]
If non-resident is:
 an in dividua l who is not a cit iz en of India; or
 a firm which does n ot have any partner who is a citiz en of India or
who is resident in India; or
 a company which does not h ave any shareholder who is a c it ize n of
India or who is res id ent in In dia;
J. Eligible investment fund [Section 9A ] – In the case of
elig ib le investment fund , the managem ent activity c arrie d out
through an eli gib le fund manag er actin g on behalf of such fund

26
shall not constit ute bus iness connect ion in In dia by virtu e of
section 9A ins erted by the Finance Act 2015
K. In case of foreign com pa ny engaged in th e busi ness of
mi ning of diamonds , no income shall be deemed to accr ue
or arise in I ndia to it through or fr om the activities whi ch
are confined to dis play of un cut and unassorted diam ond in
any S pecial Zone n otified by Central Governm en t .
Inter est, royalty and fees for tec h. ser vices {S ec.9(1)(v)/ ( vi)/ (vii)}:
 Interest, royalty and fee for tech. s ervi ce
payable by:
o Government whether Centra l or State; or
o Resident except where intere st, royalty and fee for tech.
service is payable in respect of money borro wed or in
respect of any right/ information/ prop ert y or service us ed
for the purpos e of
 bus iness or prof e ssio n carr ied on by him outsi de
India; or
 making or earning any inc ome fm any source outside
India, a nd
o Non-resident prov ided interest, roy alty or fee f or
tech.serv ice is p ayable in respect of money borrowed or in
respect of any rig ht /information / proper ty or service and
used for the purpos e of bus iness or pr ofession carried on
by him in India.
Income of a NR s ha ll be deemed to accr ue or aris e in In dia under c lause(v )

(vi) or (v ii) of section 9 (1) a nd s ha ll be inc luded in his total income ,
wheth er or not –
 the NR has a res ide nce or place of bus in ess in I n dia
 the NR has rendered servic e in In dia
Section 9(1)(viii) : Income aris ing out side India ,bein g any sum of money
referred to in sub c lause (xvi ia) of c lau se (24) of s ection , paid on or after
5.7.2021 by a perso n resident in India t o a NR ,not being a company ,or to a
foreign compa ny ,shal l be deemed t o ac c rue or aris e in India .

27
Illustration 1: Mr. A earns the following incomes during the AY 2022-2023 i.e. PY 2021-
2022
Interest paid by Central Government of India but received in London Rs. 20,000
Pension from former employer in India, received in America. Rs. 32,000
Profits from business in Paris, which is controlled in India, half of the profits Rs.
being received in India. 1,60,000
Income from agriculture in Pakistan and brought to India. Rs. 40,000
Income from house property in UK and received there. Rs. 32,000
Past foreign untaxed income brought to India in the previous year. Rs. 40,000
Gift in foreign currency from a relative received in India. Rs. 50,000
Determine total income of Mr. A if he is ROR/NOR/NR for the AY 2022-2023
Illustration 2 :Following are taxable income of Mr. Z for the AY 2022-2023 i.e. PY 2021-
2022.
Salary accrued and received India. Rs.

60,000
Rs.
Profit of a hotel business at Melbourne (Australia) 90,000
Rs.
Dividend declared in Perth (by an Australia company) but received in India.
12,000
Rs.
Income from transfer of a long-term capital asset situated in India.
60,000
Rs.
Interest on debenture of a foreign company which was received in India.
18.000
Interest received from Mr. K a non-resident on the loan provide to him for a Rs.
business carried on in India. 15,000
Royalty received in Germany from Mrs. K a resident in India for technical services Rs.
provided for a business carried on in Germany. 60,000
Fees from an Indian company carrying on business in India from technical Rs.
services rendered in India having been directly deposited by the company in his 90,000
bank account in India.
Compute Mr. A total income if he is (i) ROR (ii) NOR (iii) NR for the AY 2022-2023

28
Illustration 3: Following are the taxable income of Mr. J for the AY 2021-2022 i.e. PY
2021-2021.
Income from Germany, half is received in India Rs. 3,00,000
Interest income from UK development bonds, money was received in UK and Rs. 1,00,000
then later on remitted to India
Income from business in Bombay, received in UK Rs. 3,00,000
Income from House property in India received in UK Rs. 5,00,000
He has received salary in India whereas half of the services were rendered in
UK Rs. 5,00,000
He has received gift from father Rs. 50,000
He has received the remittance from his friend in USA Rs. 85,000
Agriculture income from land in Ludhiana Rs. 1,00,000
Compute A total income for AY 2022-2023 i.e. PY 2021-2022 if he is (i) ROR (ii) NOR
and (iii) NR
Illustration - Taxability of Interest - Sec.9(1 )(v) -M 06
Mr. A, a Citizen of India, left for USA for the purposes of employment on 01.05.2022. He has
not visited India thereafter. Mr. A borrows money from his friend Mr. B who left India one
week before Mr. A's departure, to the extent of ₹ 10 Lakhs and buys Shares in X Ltd, an
Indian Company. Discuss the taxability of the interest charged at 10% in B's hands where
the same has been received in New York.
Illustration - Taxability in the hands of Recipients - N 12

State with reasons whether the following attract Income Tax in India in the hands of
Recipients -
1. Salary of ₹ 7,00,000 paid by Central Government to Mr. John, a Citizen of India, for the
services rendered outside India.
2. Interest on moneys borrowed from outside India ₹ 5,00,000 by a Non-Resident for the
purpose of business within India say, at Mumbai.
3. Post Office Savings Bank Interest of ₹ 12,000 received by a Resident Assessee say, Mr.
Ram.
4. Royalty paid by a Resident to a Non-Resident in respect of business carried on outside
India.
5. Legal Charges of ₹ 5,00,000 paid to a Lawyer of United Kingdom who visited India to
represent a case at the Delhi High Court.
Illustration - Taxability in the hands of Recipients - M 15

Explain with reasons whether the following transactions attract Income-tax in India in the
hands of recipients?
(a) Salary paid to Mr. David, a citizen of India ₹ 15,00,000 by the Central Government for the
services rendered in Canada.

29
(b) Legal Charges ₹ 7,50,000 paid to Mr. Johnson, a lawyer of London, who visited India to
represent a case at the Supreme Court.
(c) Royalty paid to Rajeev, a Non-Resident, by Mr. Mukesh, a Resident for a business
carried on in Sri Lanka.
(d) Interest Received ₹ 1,00,000, on money borrowed from Frances, by Ms. Dyana, a Non-
Resident for the business at Bangalore.
Illustration - Taxability in the Hands of Non-Resident - N 09

Determine the taxability of the Income of a US-based Company Heli Ltd in India on entering
following transactions during a certain financial year. Explain the rate of tax applicable on
Taxable Income for US based company Heli Ltd in India.
(a) ₹ 5 Lakhs received from an Indian Domestic Company for providing Technical Know-how
in India.
(b) ₹ 6 Lakhs from an Indian Firm for conducting the feasibility study for the new project in
Finland.
(c) ^ 4 Lakhs from a Non-Resident for the use of Patent for a Business in India.
(d) ₹ 8 Lakhs from a Non-Resident Indian for use of know-how for a Business in Singapore.
(e) ₹ 10 Lakhs for supply of manuals and designs for the Business to be established in
Singapore.
Illustration - Income Tax - Scope of Total Income - M 17

A Korean Company Damjung Ltd, entered in to the following transactions during the
financial year 2021-2022. Explain briefly, whether, these receipts are chargeable to
Tax in India.
Particulars Answer / Reason
1. Received ₹ 20 Lakhs from a Non-Resident

for use of Patent for a business in India.
2. Received ₹ 15 Lakhs from a Non-Resident

Indian for use of Know-How for a business in
Sri Lanka and this amount was received in
Japan. (Assume that the above amount is
converted / stated in Indian Rupees].
3. Received ₹ 7 Lakhs from RR Co. Ltd, an

Indian Company, for providing Technical
Know-How in India.
4. Received ₹ 5 Lakhs from R & Co. Mumbai

for conducting the Feasibility Study for a new
project in Nepal, and the payment was made
in Nepal.

30
Illustration - Taxability of Income - Sec.9(1 )(i) -N 16

Mr. Federer, a Non-Resident residing in Sweden, has received rent from Mr. Nadal, also a
Non- Resident residing in France in respect of a property taken on lease at Mumbai. Since
this income is received outside India from a Non-Resident, Federer claims that his income is
not chargeable to tax in India.
Illustration - Deemed to Accrue or Arise in India - M 11

Ms. Vivitha paid a sum of $ 5,000 to Mr. Kulasekhara, a Management Consultant practicing
in Colombo, specializing in Project Financing. The payment was made in Colombo. Mr.
Kulasekara is Non-Resident. The Consultancy is related to a project in India with possible
Ceylonese collaboration. Is this payment chargeable to tax in India in the hands of Mr.
Kulasekhara, since the services were used in India
Illustration - Taxability of Income & Computation of Total Income - M 12
Mr. Ramesh & Mr. Suresh are brothers and they earned the following income during the
Previous Year 2022-2023. Mr. Ramesh settled in Canada in the year 2002 and Mr. Suresh
settled in Delhi. Compute the Total Income for the Assessment Year 2023-2024.
S. Particulars Mr. Mr.

No. Ramesh Suresh
1 Interest on Canada Development Bond (only 50% of Interest is 35,000 40,000

received in India)
2 Dividend from British Company received in London 28,000 20,000
3 Profit from a Business in Nagpur, but managed directly from 1,00,000 1,40,000
London
4 Short Term Capital Gain on sale of Shares of an Indian Company 60,000 90,000
received in India
5 Income from a business in Chennai 80,000 70,000
6 Fees for Technical Services rendered in India, but received in 1,00,000 -

Canada
7 Interest on Savings Bank Deposit in UCO Bank, Delhi 7,000 12,000
8 Agricultural Income from a land situated in Andhra Pradesh 55,000 45,000
9 Rent received in respect of House Property in Bhopal 1,00,000 60,000
10 Life Insurance Premium paid - 30,000

31
Illustration - Taxability of Income & Computation of Total Income - M 13

Mr. Devesh and Mr. Siddhant are brothers and they earned the following Income during the
Financial Year 2022-23. Mr. Devesh settled in America in the year 2002 and Mr. Siddhant
settled in Mumbai. Mr. Devesh visits India for 20 days every vear. Mr. Siddhant also visits
America every year for a month. Compute their Total Income for Assessment Year 2023-
2024 from the following information.
S.No Particulars Devesh Siddhant
1 Interest on America Development Bonds, 50% of Interest 46,000 18,000

received in India
2 Dividend from a Japanese Company received in America 10,000 15,000
3 Profit on Sale of Shares of an Indian Company received in 45,000 75,000

India
4 Profit from a Business in Mumbai, but managed directly from 10,000 -

USA
5 Income from a business in Mumbai 32,000 28,000
6 Fees for Technical Services rendered in America and 1,50,000 —

received in America. The services were, however, utilized in
India.
7 Interest on Savings Bank Deposits in State Bank of India, 4,500 12,000

Mumbai
8 Rent Received in respect of House Property at Mumbai 96,000 55,000
9 Life Insurance Premium paid - 25,000
Illustration - Scope of Total Income - Explanatory Reasons-M 10, RTP

From the following particulars furnished by Mr. Anirudh pertaining to the year ended 31.03.2023,
compute the Total Income for the Assessment Year 2023-2024, if he is - (i)Resident and Ordinary
Particulars
Profit on Sale of Shares in Indian Company received in Germany 15,000
Dividend from a Japanese Company received in Japan 10,000
Rent from Property in London deposited in Bank in London, later remitted to India through 75,000
approved Banking Channels
Dividend from RP Ltd, an Indian Company 6,000
Agricultural Income from Lands in Gujarat 25,000

32
Illustration - Computation of Gross Total Income - M 12

Compute the Gross Total Income in the hands of an individual, if he is
(a) a resident and ordinary resident; and (b) a non-resident for the A.Y. 2022-2023.
S.No. Particulars Amount ( ₹ )
(i) Interest from German Derivatives Bonds (1/3 received in India) 21,000
(ii) Income from agriculture land situated in Malaysia, remitted to India 51,000
(iii) Income earned from business in Dubai, controlled from India ( ₹ 75,000
20,000 received in India)
(iv) Profit from business in Mumbai, controlled from Australia 1,75,000
(v) Interest received from Mr. Ashok (NRI) on loan provided to him for 35,000
business in India
(Vi) Dividend from Brown Ltd an Indian Co. u/s 115 O of IT Act, 30,000
(vii) Profit from business in Canada controlled from Mumbai (60% of 60,000
profit deposited in a bank in Canada and 40% remitted to India)
(viii) Amount received from an NRI for the use of know-how for his 8,00,000
business in Singapore
(ix) Dividend received from Foreign Company in India 25,000
(x) Past years untaxed foreign income brought to India 50,000

33
Agriculture Income
CH ARG E ABI LI T Y
 Ac c or di ng t o s e c. 2 ( 1 A) " ag r i cu lt u ra l in c o m e" m e ans :

i. An y r e nt o r r ev e nu e , d e r i ve d fm l an d w hi c h is si t u at e d in In d i a and i s
u se d f or ag ri cu l tu r e p ur p o s es ;

34
ii. An y i nc om e d er i v ed f m :
a. la n d s i tu at e d in I nd ia a nd u s e d for a gr ic u lt ur e o pe r at i o ns; or
b. th e pe r fo r m a nc e of s o me a gr ic u l t ur e p r o c e ss o rd in a r i l y e m pl o y ed
by a c u l t iv a t or o r r ec ei v er of r e nt in k in d t o re n d er t h e p ro d uc e f it f or
ma r k e t or s a le o f s u c h pr o d uc t .
c. th ro u g h t h e s a le of agr ic u lt u r a l p r od uc e ( of an y la n d s it u at ed in
In di a a n d use d f or a gr ic ul t ur e pu rp os e s) pr o vid ed t h e pr od uc e is n o t
subj ect e d to a ny p ro ce s s ex c e p t p r oce s s or d in ar i ly e mp l oy e d t o
ma k e it f it f o r t akin g i t in to m ar k et .
 KEY POINTS
A. If m ar ke t in g proc es s is pe rf or me d on t h e pr od uc e, wh ic h c an b e
so ld in its r a w f or m i n th e mar ke t, t h e n in c o m e d er iv e d fm su c h
pr o d u ct is p ar t ly a gr ic u lt ur e & p art ly n on- a gr ic ul t ura l in c o m e .

35
B. “P r o c e s s o rd in ar il y e m pl o y ed ” ma y be ma nu a l or m ec h a ni cal .
Ho wev er , it m us t b e t o re n d er t h e p r o duc e f it t o b e t a k e n t o t h e
ma r ke t.
iii. In c om e at t ri bu t abl e t o a f ar m h ou se p ro vi ded th at:

a. th e fa rm h o use s ho u ld be oc c u p ied by th e c u lt iva t o r ( as a la nd l o rd
or a s a t e n an t) o r r ec e iv er o r r en t in k in d (a s a la n d lor d ).
b. it should be immediate vicinit y of land situated in India and used for
agriculture purposes.
c. Such house is used for agriculture operations as dwelling / store house
or ot her out building.
d. Th e la nd is as s es s e d to la n d r ev e nue in I nd ia or s it u at ed o u ts i de
ur b a n ar ea .
 KEY POINTS
A. In c o me d er iv e d f m a n y f ar m bu i ld in g or l an d t he r e t o ar is in g f m
th e us e of s u c h b u il d in g o r l a nd f or a ny p ur p os e ot h e r t h an
ag r ic u lt u r e ( inc l u di ng l et t in g f or r es id en t ia l p ur p os e or f or t h e
pu r p o s e of a ny bus i n es s or pr o f e s sio n ), s ha l l n ot be a gr ic u lt ur al
in co me . { E x p l. to s e c. 2 ( 1A) }

36
IN ST A N C E O F AG R IC ULU RA L I NC O M E & NO N AG R I CU L T U R E I N CO M E
Agricultural Income Not an Agricultural Income
1. Rent for Agricultural Land received from Tenant or 1. Income from Marketing Process, Fisheries, etc.
Sub-Tenant. 2. Income from supply of water for irrigation purpose.
2. Income from growing of Flowers & Creepers. 3. Income from mining royalties.
3. Income from sale of re-planted trees. 4. Income from sale of earth for brick-making.
4. Share of Profit or Salary received by Partner, from 5. Income from sale of forest trees of spontaneous
a Firm engaged in agricultural operations. [CIT vs growth of wood bark, leaves, fruits, etc.
R.M. Chidambaram Pillai 106 ITR 292 (SC)] [Maharajadhiraj Sri Kameshwar Singh 32 ITR
587(SC)].
6. Income from Stone Quarries.
7. Income from dairy or poultry farming.
5. Interest received by Partner on his Capital, from a 8. Dividend paid by a Company out of its Agricultural
Firm which is engaged in agricultural operations. Income.
6. Fees collected for allowing cattle to graze on 9. Interest on Arrears of Rent payable in respect of
forest lands of spontaneous growth. Agricultural Land. 10.Income from sale of salt produced
7. Compensation received from Insurance Company by flooding of land with sea
due to damage of tea garden from hailstorm. water.
8. Income from growing mulberry leaves. 11. Remuneration of fixed percentage of Net Profit
9. Income from Sale of plants and seedlings grown received by Managing Agent, from a Company earning
in pots in a Nursery. [Soundarya Nursery 241 ITR Agricultural Income. [Premier Construction Co. Ltd.
530 (Mad.)] 16 ITR 380 (PC)J.
10. Income derived from Sale of Seeds. 12.Interest received by a Money-Lender in the form of
agricultural produce.
11. Income from growing of Bamboo.
13. Transfer of Urban Agricultural Land.
14. Rental Income from farmhouse given for non-
agricultural purpose.
15. Growing mulberry leaves and feeding them to
silkworms and obtaining silk cocoons.
16. Income from Breeding and Rearing of Livestock.
17.Income from Dairy Farming, Butter & Cheese
making, Poultry Farming.

37
RULES
 In c om e t h at i s p ar t ia l ly ag r i cu lt u r e an d p a r ti al l y f m b u s in es s
In t he case o f a n ass ess ee who is grow in g an d ma nuf act ur ing te a in India, th e
inc ome der ived fm t he s ale of t ea / c offe e / rubbe r sh all be co mpu te d as if it
wer e inc o me d eriv e d fm bu s ines s . I n s uch c ompu tat ion, the prov is ion con ta in ed
in s ec. 30 t o 43 -D appl ic ab le to the c o mpu tation of b usiness inc om e sh all be
ap plie d. O u t of s uc h inc ome, ratio of agric ultur e and b usin ess income lia ble t o
ta x s h all be as follo ws :
Ag r i c ul t u r Bus in e ss
Ru l e P r od u c e
e In c o m e Inc om e
7A Cen tr ifuged la tex or ce ne x or la tex 65 % 35 %

bas e d cr epes or t ec h nic a lly spec ified
blo ck rubbe r ma nuf ac ture d fm r ub ber
pla nts .
7B Co f f ee gr o w n , m a n u fa c t ur e d and 75 % 25 %
c u re d
Co f f ee gr ow n, ma n uf a c t ur e d, c ur e d 60 % 40 %
an d r o as t e d
8 Tea 6 0% 40 %
No t e:
1. Salary and int erest received by a partner fm a firm growing and

manufacturing tea, coffee or rubber, shall be treated as partly agriculture
income and partly business income as stated above.

38
 An y ot h e r c as e { Ru le 7 }
If a gr ic ul tur e p r od uc e c u lt iv a t e d is us ed as r a w ma t e ri al in t he bu s in es s o f t h e
c u lt iv at or , h e c a n de d uc t m ar k et v a lu e o f s u c h p r od uc e in co m pu t i ng b u s i nes s
in c om e .
In s uc h c as e, a s s es s ee w il l pr e pa r e t wo s ta te m en ts of i nco m e, i. e . o n e f o r
ag r o bu s i nes s a n d a no th er f or n on a g ro b u s i nes s as s h o w n be lo w:
Statem en t sho wing computation of agriculture income and manufacturing
income:
P a rt i cu l a r s Ma n u fa ct ur in g Ag ricu ltu r e
Inc om e In co m e
S a le of a gr o pr o d uc t s in th e m ark e t x xx
S a le of m an u fac tu r ed p ro d uc t in mark e t x xx
No t io n al s a le of ag r o p ro d uc t s us e d in t h e abc
pr oc es s of m fg .
Re v e n u e XX XX
Le s s : Ex p en s es I nc ur r ed
A gr ic u l t ur a l ex pe n d it ur e x xx
No t io n a l s a le o f a gro pr od uc ts u s ed ab
i n t he p r oc e s s o f m f g. c
Cos t of c onv er s ion x xx
E x p e n d it u re YY YY
In c om e ( R ev en u e – E x p end it u r e) ZZ ZZ
F o r e x amp l e :
If s ug ar c a ne is c u lt iv a t e d a nd u s e d a s ra w m at er ia l in t he m a nu f act ur e o f
s ug a r o r j ig g ery b y t h e as s es s e e , t h is p r i nc ip le be c o m es ap p lica b le .

39
AGRICULTURAL INCOME
# 1. 40 per cent of the profits of a tea company amounting to Rs. 3,00,000 is charged to Income-tax at the rate
of 30% and the balance 60%, amounting to Rs. 4,50,000 is exempt from Income-tax being agricultural income.
The company pays out of the surplus a sum of Rs. 2,25,000 as dividend. One shareholder receiving Rs. 12,250 as
dividend claims 60% thereof, i.e., Rs. 6,750 as exempt from tax in his own assessment as agricultural income.
Discuss whether the claim is correct or not.
# 2. Mr. Ashwani submits the following information regarding his income for the previous year 2022-
23:
Rs.
a. Gross salary per annum 4,46,000
b. Rent received @ Rs. 5,000 pm 60,000
c. Agricultural Income 60,000
d. NS C ( V II I I s s ue) pu rc h as e d o n 2 5- 3- 2 02 3 20 , 00 0
Compute his taxable income and tax liability for the assessment year 2023-24.
# 3. Mrs. R owns a house property in Delhi which he has let out for residential purposes at Rs 31,000 p.m.
The municipal valuation of the house property is Rs. 2,20,000. Municipal taxes are 12% of Municipal value which
have been paid during the year. Besides the above, Mrs. R is having an agricultural income of Rs. 77,000.
Compute the total income of Mrs. R for the assessment year 2023-24. Also compute income-tax payable
by her.
# 4. R has rented out his agricultural land to S who uses the same for agricultural purposes. As per the
agreement, 'S' will pay the rent in the shape of agricultural produce from the land to R. R has received during the
previous year agricultural produce valued at i.e- 60,000. He has consumed agricultural produce worth Rs. 40,000
for his own consumption and the balance has been sold by him for Rs. 20,000.
Compute the total income for the assessment year 2023-24 assuming he is getting a salary of Rs. 12,000
p.m. from Y Ltd. and has deposited Rs. 25,000 in PPF. He has no other income. Also compute the tax
payable by him.
# 5. R earns the following income during PY 2022-23

a. In c o me fr o m fa rm b u ild in g 50 , 0 00
b. In c o me fr o m s a le of s t an d i ng c r ops 1, 0 0 , 0 00
c. In c o me fr o m G in n in g o pe r a t i on c ar r ie d on b y th e
ow ne r o f lan d o n un gi nn e d c ot t o n 1, 8 0 , 0 00
Co m p u te h i s t a x l i a b i li t y f or th e a ss e ss m e n t ye a r 20 2 3- 24
# 6. For the assessment year 2023-24 , X, an individual (age 66 years), submits the following
information.
Rs .
a. Ho us e pr o pe rt y I n c o m e 2, 7 5, 0 0 0
b. In c o me fr o m gr ow i ng a n d m an uf ac t u ri ng
c o f f e e i n I n di a (gr o s s ) 4, 0 0, 0 0 0
c. Ex p e nd it ure on e ar n in g c of f ee inc o me 2, 0 00
De te r m in e t h e t a x l i ab i lit y o f X f or th e As s es s m en t ye a r 2 02 3- 2 4 o n t h e
as su m pt io n t h at h e c o n tr ib u t io n R s . 2 0 , 00 0 t ow a rd s p u b li c pr o v id en t fu n d .

40
# 7. X ltd grows sugarcane to manufacture sugar. Data of P.Y 2022-23 is as follows

a. Cost of cultivation of sugarcane 6,00,000
b. Market value of sugarcane when sugarcane is transferred to factory 9,00,000
c. Other manufacturing expenses 6,00,000
d. Sales turnover of sugar 22,00,000
e. Salary of M.D 2,00,000
# 8. From the situations given below identify income as agricultural and non-agricultural Income.
 W h ea t gr o w n a nd s o l d
 Co ff e e s ee d s gr o w n an d s o ld
 S o ld , s e lf gr o wn t r ee s
 In c o me i n t h e f or m of r e nt f or gr an t i ng r ig h t s f or t h e o th er s t o us e l an d fo r
ag r ic u lt ur e.
 In te r es t on o u ts t an di ng r e nt f or g ra n t in g r ig hts f or t h e o th e rs t o u s e l an d f or
ag r ic u lt ur e.
 Ac c ou nt a nts ’ s a l ar y w h o w or k s i n ag r ic u lt u r a l ba s e d c o mp a ny
 X g av e Rs . 1 ,0 0 , 0 0 0 l oa n t o Y, wh er e Y is a c u l tiv a to r o f l a nd . Y ga v e 1 2 0
k g s of r ic e a s In te re s t o n lo a n t o X . I s it inc om e f ro m a gr icu lt ur e f o r Mr X ?
 V ija y in v e s t ed Rs . 1 2 , 0 0 0 in a c om pa n y a nd t he c o mp a ny pa id Rs . 5 0 0 as
d iv i d en d o ut of i ts a g ric ul tur a l in c o me . I s V ija y ’s I nc o m e con s ide r ed as
ag r ic u lt ur a l In c o m e?
 Ra m r ec e iv e d Rs . 5, 00 0 a s ins ur a nc e d u e t o d am a ge c au s e d by h e avy r a i n
fo r h is c r ops .
 Ak s ha y a w o rk i n g pa r t n er re c e iv e d s a lar y f ro m h is pa r tn ers h ip f i r m, wh er e
th e f ir m is in v olv e d in g r ow i ng f l ow er a n d c r e ep e r s .
 S a le o f s to n e o b t a in e d by d ig gi n g t h e l a n d.
 In c o me fr om b ut t er a n d c h ee s e m ak in g.
 In c o me fr om p ou lt ry f ar m in g.
 In c o me in t h e fo r m of R oy a lt y f r om M in i n g.
 S a le o f g r as s t o c o mp a n i es t o ma in ta in gr ee n lo u nge .
# 9. Spectrum Agro Foods Ltd manufactures and sells tea. The raw materials of tea leaves will be grown in
their own agricultural land. The total profits from the above activities is Rs. 30,00,000 for the AY 2023-2024. What
is the income from agriculture?
# 10. In Problem 9, if the market value of tea leaves is Rs. 8,00,000 will your answer differ?
# 11. Suncafe Coffee Ltd produces and sells Rs. 5,00,000 worth coffee which is grown in their coffee estates
and is cured by them. The profit made by this is Rs. 2,50,000. What is the portion of agricultural Income?
# 12. In Problem 11, if coffee is grown, cured, roasted and grounded by the company itself, what will bethe
agricultural income?
# 13. Natural Company Ltd sells both tea and rubber which are produced in the company’s own farms.The
profits earned from tea business is Rs. 9,50,000 and from latex (rubber) is Rs. 8,00,000. What will be their
agricultural income for the AY 2023-2024 ?
# 14. Sweet Sugar Ltd grows sugarcane and manufactures sugar out of it.For growing sugarcane the
cultivation cost including ploughing and manure is Rs.60,000.The sale of sugar during the AY 2023-2024 is Rs.
2,50,000.The manufacturing cost is Rs. 1,00,000.If the company would have sold sugarcane in the market without
spending on manufacturing, the market value for sugarcane would be Rs. 85,000.Find out Income from business
and income from agriculture for the AY 2023-2024

41
Illustration - Income Tax - Agricultural Income M 17

Discuss with brief reasons, whether Rent Received for letting out Agricultural Land for a Movie
Shooting and Amounts Received from Sale of Seedlings in a Nursery adjacent to the
Agricultural Lands owned by an Assessee can be regarded as Agricultural Income, as per the
provisions of the Income-Tax Act, 1961.
Item Treatment
Rent for Movie It is not an Agricultural Income, since it is not Income derived “through
Shooting Agriculture”. This constitutes Rental Income for “non-agricultural purposes”.
Sale of Seedlings As such, Income from Sale of Plants and Seedlings grown in Pots in a Nursery
in Nursery constitutes Agricultural Income as per decision in Soundarya Nursery 241 ITR
530 (Mad). However, in this case, such Income is derived not from agricultural
land, but from a Nursery “adjacent” to it. Hence, it does not constitute
Agricultural Income.
Business Income 4,00,000
Illustration-M 18
Mr. Avani, a resident aged 25 years, manufactures tea leaves from the tea plants grown by him
in India. These are then sold in the Indian Market for ₹ 40 lakhs. The cost of growing tea plants
was ₹ 15 lakhs and the cost of manufacturing tea leaves was ₹ 10 lakhs. Computer her tax
Liability for the Assessment Year 2023-2024.
Illustration - Income Tax - Agri & Business Income

Mr. Kamal grows Paddy and uses the same for the purpose of manufacturing of Rice in his
own Rice Mill. The Cost of Cultivation of 40% of Paddy Produce is t 7,00,000 which is sold for ₹
15,00,000, and the Cost of Cultivation of balance 60% of Paddy is ₹ 12,00,000 and the Market
Value of such Paddy is ₹ 24,00,000. To manufacture the Rice, he incurred ₹ 2,00,000 in the
manufacturing process on the balance (60%) Paddy. The rice was sold for ₹ 30,00,000.
Compute the Business Income and Agriculture Income of Mr. Kamal.

42
Income fm Salary
CHAR GE ABILI TY
 In ord in a ry s e ns e , ‘S al ar y ’ m ea ns a ny c om p en s a t io n or c o ns id e r at i on r e c e iv e d
by a p er s o n (s ay e m pl oy e e ) f o r s e rv ic e r en d er ed t o an o t h er per s o n ( s ay
em p l o y er ) . S o , any am o u n t d u e t o o r r e ce iv ed by a n e m plo y e e fm e m p loy er
as s a lary is c ha rg e a b le to t ax U /H “ S a la r y” .
Points to be remembered

01. T h e r e m us t b e e mp loy er a nd em pl oy ee re lat i on s h ip , e it h er in p r es en t o r

pa s t , b et w e en th e p e rs on l ia b le to pay t h e a m o u n t a nd th e pe rs o n
en t it le d t o r ec e iv e t he a mo u nt .
02. As p er se c . 15 , S a lar y is c h ar g ea b le t o t ax e it he r o n du e b as is o r r e ce i pt
ba s is w hic h ev e r is e a rli er . He nc e ad v a nc e s a lar y ( d u e t o r ece i pt bas is)
as w el l as a c c ru e d s a lar y ( due t o d ue b as is ) bo t h a re t ax a b le .
 KEY POINTS
A. A d v an c e a g ai ns t s a l ar y is tr ea t ed as lo an a n d h e nc e no t t a x a bl e
U/ H “ S a lar y ” .
03. As p er s e c. 9( 1 ) , s a la r y is d ee m e d t o ac c r u e or ar is e a t t h e p la c e wh er e
th e s erv ic e i n r es p ec t of w h ic h it a c c r u es is r en d er e d .
KEY POINTS

A. A s p e r s e c . 9 ( 1 ) ( i i i ) , s a l a r y p a i d b y I n d i a n G o v t . t o a n I n d ia n n a t i o n a l
i s d e e m e d t o a c c r u e o r a r i s e i n I n d ia e v e n i f s e r v i c e i s r e n d e r e d
outside India.
B. A n y a l l o w a n c e a n d p e r q u i s i t e s p a i d / a l l o we d b y t h e G o v t . t o I n d ia n
national working abroad are exempt u/s 10(7).

43
CO M P UT AT I O N
S al a r y a
B as ic X
De ar nes s all ow a n c e X
B on u s X
F e es an d C om m is s i on X
E mp loy er ’s c on t . t o P F i n e x c es s o f 1 2% o f S a lar y X
A nn u a l a c c re t io n t o P F in ex c e ss of 9. 5% X
P ens io n X
G ra t u ity X
Le a v e S a lar y X
Re tr e nc h me n t / V ol un t a ry Re t i r em en t C o mp e ns at ion X
T a xa bl e al lo w an c es a f t er a v a il in g ex e mp t i on u /s 1 0 X
XX
T a xa bl e P e rq u i s i te s u / s 1 7( 2) b XX
P ro fi t i n li e u o f s al ar y u / s 1 7( 3 ) c XX
G RO S S S AL A R Y ( a( a + b + c XXX
L e ss: D e d u c t io n u /s 1 6
S t an d a rd d e du c t i o n {S e c 1 6(i a) } d
E nt e rt a inm e nt All o wa n c e De d u c t ion { Se c . 16 (i i) } e XX
P r o fes s i o n T ax { S e c. 16( ii i) } f XX
XXX
IN CO ME T A XA B L E U/ H S A LA R Y XXX

44
Deduction (Section 16)

- Standard deduction -
Entertainment allowance -
Professional tax
Chargeability (Section 15)
- Salary due Meaning (Section 17)
- Paid or allowed, though - Salary - Perquisite
not due - Profits in lieu of salary
- Arrears of salary
Income
under the
head
"Salaries"
STANDARD DEDUCTION: [SECTION 16(1a)]

(1) Standard Deduction is allowed to meet various expenses that employee has to meet while in the
employment like expenses on travelling to office and back to home, expenses of stationary, medical
expenses etc.
(2) Standard deduction is allowed from Gross Salary and it is lower of—
(a) Rs. 50,000 (Amendedfrom AY 2022-2023) or
(b) the amount of Gross Salary.
ENTERTAINMENT ALLOWANCE: SECTION 16(ii)

For government employees the least of the following is allowed as deduction:
(a) Actual amount received
Salary means only Basis Salary
(b) 20% of the Salary
(c) Maximum limit of Rs. 5,000
(6) For Non-government employees no deduction for Entertainment Allowance is allowed.
PROFESSIONAL TAX/EMPLOYMENT TAX: SECTION 16(iii)

(1) Article 276 of the Constitution of India gives the power to the State Government to charge tax on
any profession or employment and this is known as Professional Tax or Employment Tax.
(2) Article 276 does not give power to any State Government to charge Employment or Professional
Tax for more than Rs. 2,500 pa per person.
(3) As per Income Tax Act any amount paid by the employee shall be allowed as deduction in the
year of payment. This means that payment should be made on or before 31/3/PY.
(4) If the employer has paid any amount of Professional Tax on the behalf of the employee, then it
shall be first included in the Gross Salary of the employee, and then the deduction under this section
shall be given.

45
COMPUTATION OF INCOME UNDER THE HEAD SALARIES
Exemption/
Particulars Deduction Net Amount Taxable
BASIC SALARY NIL Fully Taxable
DEARNESS ALLOWANCE - Whether forming

part of Salary or Not NIL Fully Taxable
ADVANCE SALARY NIL Fully Taxable
ARREARS SALARY NIL Fully Taxable
CITY COMPENSATORY ALLOWANCE NIL Fully Taxable
BONUS NIL Fully Taxable
COMMISSION AS % OF TURNOVER NIL Fully Taxable
FEES NIL Fully Taxable
LUNCH / TIFFIN ALLOWANCE NIL Fully Taxable
OVERTIME ALLOWANCE NIL Fully Taxable
SERVANT ALLOWANCE NIL Fully Taxable
WARDEN ALLOWANCE NIL Fully Taxable
NON-PRACTISING ALLOWANCE NIL Fully Taxable
FAMILY ALLOWANCE NIL Fully Taxable
RETIREMENTS BENEFITS –
Received from Statutory PF / PPF [Sec.10(ll)] Fully Exempt NIL
RPF - subject to conditions [Sec. 10(12)j Fully Exempt NIL
Approved Superannuation Fund [Sec. 10(13)] Fully Exempt NIL

46
GRATUITY [Sec. 10(10)]

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

of:
•Actual Gratuity received,

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

•1/2 x Average salary for 10 months preceding Amount exempt
the month of retirement x Number of fully Least is exempt
completed years of service
•Rs 20,00,000,
Salary = Basic + DA (if forming part of

Retirement Benefits) + Commission on T/O.
Gratuity from more than one Employer:

Aggregate amount exempted shall not exceed
Rs 20,00,000.

47
UNCOMMUTED PENSION NIL Fully taxable
COMMUTATION OF PENSION [Sec.10(10A)]

a. Government Employee Fully exempt NIL
b. Other Employee 1/3 x Full Value

• If in receipt of Gratuity of Actual amt. received
Pension is
Exempt Less Amount exempt
½ x Full Value of
• If not in receipt of Gratuity Pension Actual amt. received
is Exempt Less Amount exempt
LEAVE ENCASHMENT DURING SERVICE NIL Fully taxable
LEAVE ENCASHMENT ON RETIREMENT

[Sec. 10(10AA)]
(a) Government Employees Fully exempt NIL
(b) Other employees, Least of the following: Actual amount received

Least is Exempt
• Amount actually received Less Amount Exempt
•Average Salary of past 10 Months x 10 Months

• Rs 3,00,000
Leave credit at 30 days p.a. for every completed
year of service x Average Salary of past 10
months

retirement benefits) + Commission on Turnover.
If the assessee receives Leave Encashment
from more than one employer, the aggregate
amount of Leave Encashment exempted shall
not exceed Rs 3,00,000.

48
RETRENCHMENT COMPENSATION
[Sec.10(10B)] Least of -
•Amount determined u/s 25F(b) of Industrial
Actual amount received
Disputes Act, 1947 Least is exempt
Less Amount exempt
•Amount actually received
• Rs 5,00,000
VOLUNTARY RETIREMENT
COMPENSATION (if relief u/s 89(1) is not
claimed) [Sec.10(10C)] & Rule 2BA, Least of-
(a)Amount actually received
(b)t 5,00,000
(c)Maximum of:
Actual amount received
•Last drawn Salary x 3 x No. of fully completed Least is exempt
Less Amount Exempt
years of service, or
•Last drawn Salary x Balance of months of
service left
Salary = Basic Pay + DA (if forming part of
Retirement Benefits). This exemption can be
availed by assessee only once in a lifetime.
LEAVE TRAVEL ASSISTANCE Sec 10(5) -

Rule 2B
Twice in a block of four years: [Current Block is
2022-2025],
(a)By Air - National Airways - Economy Class - Amount is
Shortest route exempt only for Actual amount received
(b)By Train -1 Class AC fare - Shortest Route the Shortest Less Amount Exempt
(c)By Recognized Transport - Deluxe Class - Route

Shortest Route
(d)By other means - I Class AC Fare as per
Railways, equivalent for distance travelled -
Shortest Route

49
•If LTA is not availed twice in a block of 4 yrs, 1st

LTA availed in the next 4 yrs block can be taken
as if it is for previous block.
•Exemption not available for more than two

surviving children of an individual and born after
1.10.1998.
•W.e.f. 01.04.2021, Where an individual claims
the above exemption, no such exemption shall
be allowed in respect of same expenditure to
any other individual.
EMPLOYER CONTRIBUTION TO RPF Sec.

10(12)
Actual Contribution made Less 12% of Salary NIL Fully Taxable
Retirement Benefits)
EMPLOYER CONTRIBUTION TO URPF

Taxable only at the time of actual receipt from
NIL Fully Taxable
URPF or transfer from URPF to RPF. (Amount
+ Interest thereon is taxable)
INTEREST ON RPF: Actual Interest received

Less Interest at 9.5% NIL Fully taxable
Allowance/Perquisites u/s 10(45):

Notified Allowance or Perquisite paid to the
Chairman / Retired Chairman / of UPSC is
Fully Exempt NIL
exempt.
INTEREST ON URPF: On Employee

contribution - taxable as Income from Other
Sources
Not Applicable

50
HOUSE RENT ALLOWANCE [Sec.10(13A),

Rule 2A]: Least is Exempt Actual HRA Received
• Actual HRA received for relevant period Less Amount exempt
•50% (4 metros) / 40% (others) of Salary of the

relevant period.
•Rent for relevant period Less 10% of salary for
relevant period. Salary = Basic + DA (if part of
Retmt Benefits) + Comm, on T/O
Sec.10(14) ALLOWANCES - Partly Exempted
(a) Children Education Allowance (for Rs 100 pm per

Maximum 2 Children) child
(b) Children Hostel Expenditure Allowance Rs 300 pm per

(for Max 2 Children) child
(c) Running Allowance for Transport Sector 70% of Amount

Employees Received or Rs
10,000 pm
(d) Transport Allowance (only for differently

abled persons) Rs 3,200 p.m.
(e)Mining / Underground Allowance

(f)Tribal Area Allowance Rs 200 p.m.
Rs 300 to 7,000
(g) Composite Hill Compensatory Allowance p.m Actual amount received
(h) Border Area, Remote Area, Disturbed Rs 200 to Rs

Area Allowance 1,300 pm Less Amount Exempt
(i) Compensatory Field Area Allowance Rs 2,600 p.m.
(j)Compensatory, Modified Field Area

Allowance Rs 1,000 p.m.

51
(k) Counter Insurgency Allowance Rs 3,900 p.m.
1,060 to Rs 1,600
(l) High Altitude Allowance pm
(m) Special Compensatory Highly Active

Field Area Allowance Rs 4,200 p.m.
(n) Island Duty Allowance

Rs 3,250 p.m.
Fully Exempted Allowances

(i) Travelling Allowance
(ii)Daily Allowance Fully Exempt If NIL

(iii)Conveyance Allowance incurred for
performance of
(iv)Helper Allowance
official duties
(v)Academic Allowance
(vi)Uniform Allowance
(vii)Allowances / Perquisites to Govt.
Employees for Services rendered outside
India - Sec. 10(7)
GROSS SALARY (before Valuation of

Perquisites) Total of above
Add: Valuation of Perquisites See Rule 3
Gross Salary
Less: Deduction u/s 16
Standard Deduction Rs 50,000

Entertainment Allowance
Tax on Employment (Professional Tax)
INCOME UNDER THE HEAD SALARIES

52
ILL UST RATI ON :
F i n d o u t t h e am o u n t o f ex em p ti o n un d e r s e ct i o n 10 ( 1 4) i n t h e c a se s g i ve n
b el o w p e rt ain in g to t he a ss e ss m ent y e ar 20 23 - 24:
X i s em p l o y ed in I n d o r e ( Ma d h ya P ra d e sh). H e h a s b ee n a ll o w ed th e
f ol l o w in g al l o w an c es - ----
T ri b al a r ea a ll o wa nc e 6, 0 00 n il
Ed u c a ti o n al lo w an c e fo r f i r st c h i ld 2, 0 00 20 0
Ed u c a ti o n al lo w an c e fo r s ec o nd ch i ld 24 0 60 0
Ed u c a ti o n al lo w an c e fo r t h i r d ch i l d 78 0 50
He lp e r al lo w an ce fo r o ffi ce pu rp o s e s 30 0 0 36 0 0
Un if o r m a l lo w a n c e f o r p u r ch a se a n d o r Ma in t en an ce o f 6, 4 00 2 , 0 00
u n ifo r m fo r o f fi c ia l p u rp o s e s
Re se a r ch a ll ow an ce 9, 0 00 10 , 00 0
Co n v ey an c e al l o w an c e f o r o f fi c e p ur p o se s . 15 , 00 0 1 4 , 50 0
2, 0 00 i s in cu r r ed fo r co v e r i ng th e j ou r n ey be t w e en
o ff i c e an d r e si d e n c e , R s. 6 , 0 0 0 f or p r i v at e p u rp os e s
an d R s. 8, 5 0 0 i s in c u r re d f o r off i c e p u r po se s]
T r an s po rt a llo wan c e f or c o m p u ti ng b et w ee n o ff i c es 10 , 00 0 NI L
an d re s i d en c e
Me d i ca l a ll o wa n c e 4, 8 00 4, 8 00
ILL UST RATI ON :
X, w h o r e s id es in K a n p ur , r ec e iv es R s . 7 8 , 0 00 as b as ic p ay d u ri ng th e pr e v ious
y e ar 2 02 2- 2 3. H e s t ay s in h is f at he r’s h o us e up t o Au g us t 3 1, 2 0 2 2 fo r w h ich h e
do es n o t p ay a ny r en t a n d t h er e af t er i n a n a c c om mo da t ion tak e n o n mo nt h ly r e nt
of Rs . 3 , 0 00 . T h e e mp loy e r, ho we v er , p ay s Rs . 70 0 p er m on t h a s h ou s e r e nt
a llo w a n c e t hr o u g ho u t th e pr ev i o us y ea r . A s , t h e s u m of Hou s e R en t all ow a n c e
pa i d is t he l eas t o f t h e t h re e s u m [ v iz . ( a) R s . 31 ,2 0 0, i. e . 4 0 p e rce n t o f sa l ary ,
( b) Rs . 8 , 4 00 , i. e. ho u s e r e n t a l lo wa nc e, an d (c ) Rs . 13 ,2 0 0, i. e. ex ce ss of r e nt
pa i d o v er 10 p erc e nt o f s ala ry ], h e c lai ms th a t e nt ir e ho us e r en t a l lo w a nce is
ex em p t fr o m t ax un d e r s ec t io n 1 0 ( 1 3 A ) re ad wit h r u le 2 A. Is he l eg al ly
co r r e ct ?
ILL UST RATI ON :
A is e n tit l e d to a b as ic s a lar y of Rs . 5 0 , 0 00 p m a nd D A o f Rs . 10 , 0 0 0 p m( 4 0% of
wh ic h f or m s p a rt o f R et ir e me nt b en e f it) .H e is a ls o e nti t le d to H R A of Rs . 20 ,0 0 0
pm . H e a c tu a lly p ay Rs . 20 , 0 0 0 pm as re n t for a h o us e i n De l hi . Co m pu te th e
t ax ab l e HR A.
ILL UST RATI ON :

X i s e m p l o y ed at Del h i as th e F i na nc e M an ag e r of R ltd . T h e p a r ti cul ar s o f
h i s s a l a r y f o r t h e P Y 2 0 2 2- 2 3 ar e a s u nd er :
B a s ic s al ar y 30 , 00 0 pm
De ar n es s s al low a n c e (f or min g p art o f R B) 10 , 00 0 pm
Co nv ey a n c e al lo wa nc e fo r pe rs o na l us e 5, 0 00 p m
Co m mi s s io n @ 2% o f t he t ur n ov er (Rs . 2 2 , 5 0, 00 0 )
HR A 15 , 00 0 pm

53
T he a c t ua l r e nt p a id b y h im is Rs . 10 , 0 00 p m f o r a ac c o mm o da t io n a t N o id a t i ll
31 . 12 .2 0 22 .F ro m 1. 1 . 2 0 23 t h e r e nt was inc r e as ed to 2 0, 0 00 p m . Co mp u te t he
ta x a bl e H R A.
ILL UST RATI ON :
Mr X is em p l oy e d wi t h A B C Lt d. o n a Bas ic s a lar y o f Rs. 30 ,0 0 0 pm .H e is a ls o

en t it le d to a D A o f 20 % o f b as ic s al ar y ( 7 0% f or m in g p a rt of r et ir em e nt ). T h e
c o m p a ny g iv e h im H R A o f Rs . 1 5, 0 00 pm .
w. e. f 1. 1 . 2 0 23 he r ec e iv e in c r em e nt o f Rs . 5, 0 00 in h is B as ic s a la ry . Du r i ng th e
P Y 2 0 22 -2 3 h e h as r ec eiv ed a rre a r s of s a la ry p er t a in i n g t o ea rl i er y ea rs
am o u nt i ng Rs . 4 0, 00 0 . X w as s t ay i ng w it h h is p are n ts t il l 3 1. 10 . 2 0 22 he t ake s a n
ac c o m mo d at i on o n r en t i n D e l hi an d pa y s Rs . 1 2, 5 00 pm as re n t f or t h e
ac c o m mo d at i on .
Co m p u te h i s g ro s s s al a ry f o r A Y 2 02 3 - 24
Illustration : R retires on 4.1.2023 after serving XY company Ltd. for a period of 16 years
and 11 months. At the time of retirement, his basic salary was ₹ 44,000 p.m. and he was
also entitled to Dearness Allowance of ₹ 8,000 p.m. On his retirement, he received ₹
6,00,000 as gratuity. Compute the amount of gratuity exempt from tax and the amount to be
included in gross salary. He is covered under the Payment of Gratuity Act.
Illustration : R joined the service on 1.6.2003. He retired from his service on 17.11.2022
and received ₹ 21,20,000 as gratuity.
At the time of retirement his basic salary was ₹ 1,40,000 p.m. and dearness allowance ₹
70,000 p.m. (60% of which was part of salary).
Compute the amount of gratuity exempt from tax and the amount to be included in gross
salary. He is covered under the Payment of Gratuity Act.
Illustration : R, who was employed with P Company Ltd. retired on 21.10.2021, received ₹
3,60,000 as gratuity. He served the company for 26 years and 8 months. At the time of
retirement, his salary was ₹ 15,000 p.m. However, the average salary for 10 months
preceding the month of retirement is ₹ 14,400 p.m. He is not covered under the Payment of
Gratuity Act, 1972.
(A) Compute the taxable gratuity.
(B) What amount of gratuity shall be taxable, if R, earlier to his appointment with P Company
Ltd, had worked for 4 years with X Ltd. and was not entitled to gratuity from X Ltd.?
Illustration (where exemption has been claimed in the past as well)

X, a General Manager of R Company Ltd., retired from the company on 15.6.2022. At the
time of such retirement, his basic salary was ₹ 70,000 p.m. He was also entitled to dearness
allowance @ 20% of his basic salary. 60% of the dearness allowance forms part of the
salary for retirement benefits. He had worked with the company for 10 years 11 months and
15 days. He got an increment of ₹ 5,000 in his basic salary w.e.f. 1.2.2022. At the time of his
retirement, the company paid him a gratuity of ₹ 20,00,000. X had earlier worked with S
Company Ltd. from where he had received gratuity and had availed of an exemption of ₹
3,00,000. Compute the amount of exemption available out of the gratuity received from R
Company Ltd. He is not covered under the Payment of Gratuity Act. Also compute his gross
salary for the assessment year 2023-24.

54
Illustration: A retired from his job w.e.f. 1.9.2022. He had joined the service on 1.1.2005. He
gets an increment in his basic salary amounting to ₹ 2,500 every year on January 1. At the
time of his retirement, he was getting a basic salary of ₹ 50,000 p.m. He was also entitled to
dearness allowance @10% of basic salary and a commission on turnover @1% of the total
sales achieved by him. His turnover for the 12 months ending on 31.8.2021 was ₹
30,00,000, spread evenly over the year. He received a sum of ₹ 8,00,000 as gratuity on the
date of his retirement. Compute his gross salary for the assessment year 2023-24.
Illustration (where he receives gratuity from more than one employer)

G, who has been in part time employment with R Ltd. and S Ltd. submits the following
information:
R Ltd. S Ltd.
Basic Salary (On the date of ₹9,000 p.m. ₹5,000 p.m.

retirement)
Dearness Allowance 20% 20% (60% forms part of Salary

for retirement benefits)
Date of retirement 15.9.2022 1.1.2023
Period of service 20 years and 11 months 16 years and 5 months
Amount of gratuity received ₹ 1,80,000 ₹80,000
Although he has been drawing the same salary from R Ltd. for the last one year; but from S
Ltd. he received an increment of ₹ 500 w.e.f. 1.8.2022.
Compute the gratuity exempt under section 10(10). Also compute his Gross Salary.
Illustration : An employee, drawing a salary of ₹ 15,000 p.m., retires from service and
becomes entitled to receive pension of ₹ 9,000 p.m. He gets half his pension commuted and
receives ₹ 1,80,000 as lump sum payment. Henceforth, he shall be entitled to a pension of ₹
4,500 p.m. Compute the exemption available under section 10(10A) in respect of the
commuted pension. He is also entitled to gratuity.
Illustration : E, an employee of XYZ Pvt. Ltd. retired from the company on 30.11.2022. At
the time of his retirement, he received ₹ 2,88,000 as leave salary from his employer. The
following information is provided by the employee:
(1) Salary at the time of retirement (p.m.) ₹ 18,000
(2) Period of Service 20 years & 8 months
(3) Leave encashment ₹2,88,000
(4) Leave availed while in service 14 months

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(5) Balance unavailed leave at the time of retirement 16 months
(6) Average salary for the months of February, 2022 to ₹ 17,600

November, 2022
(7) Leave entitlement 11/2 month for every

completed year of service
Compute the amount of taxable leave encashment.
Illustration : X was employed with ABC Ltd. He retired w.e.f. 1.2.2023 after completing a
service of 24 years and 4 months. He submits the following information:
Basic Salary ₹25,000 p.m. (at the time of retirement)
Dearness 100% of Basic Salary (40% of which forms part of salary for retirement
Allowance benefits).
Last increment ₹ 2,500 w.e.f. 1.7.2022
His pension was determined at ₹ 15,000 p.m. He got 50% of the pension commuted w.e.f.
1.3.2023 and received a sum of ₹ 5,00,000 as commuted pension. In addition to this, he
received a gratuity of ₹ 6,00,000 and leave encashment amounting to ₹ 2,80,000 on account
of accumulated leave of 240 days. He was entitled to 40 days leave for every year of
service.
Compute his Gross Salary for assessment year 2023-24 assuming that he is not covered
under Payment of Gratuity Act.

56
PRO VIDENT F UND
Types of
Provident Funds
Recognized Unrecognized
Statutory Provident Public Provident
Provident Fund Provident Fund
Fund (SPF) Fund (PPF)
(RPF) (URPF)
I. During the Employment period
Particulars Recognised Unrecognised Statutory Public

PF PF PF PF
Employer's Amount in Not taxable yearly Fully N.A. (as there is only
excess of 12% of assessee's own
Contribution exempt
salary is taxable
contribution)
Employee's Eligible for Not eligible for Eligible for Eligible for deduction
deduction u/s deduction deduction u/s u/s 80C
Contribution
80C 80C
Interest Amount in Not taxable yearly Fully Fully exempt

excess of 9.5%
Credited exempt
p.a. is taxable
Note: Salary for this purpose means basic salary and dearness allowance - if provided in the
terms of employment for retirement benefits and commission as a percentage of turnover.

57
AY 2020-2021 i.e. PY 2019-2020 AY 2021-2022 i.e. PY 2020-2021

Contribution of employer to superannuation Contribution of employer to various funds
fund: Section 17(2)(vii) on the behalf of the employee: Section
Contribution of the employer to superannuation 17(2)(vii)
fund The amount or aggregate of amounts of
in excess of Rs1.5 lakhs shall be taxable contributions
made to following account of employee by
for the employee employer
(a) RPF
(b) NPS referred u/s 80CCD(1) and
(c) Approved SAF
Shall be exempt upto Rs7,50,000 but amount
beyond
Rs7,50,000 shall be taxable as perquisites
Illustration: Salary of an employee, Mr. X is Rs80,00,000. Contribution of employer towards RPF

for the amount of Rs9,60,000 (being 12% of salary of Rs80,00,000) would not be treated as salary
u/s 17(1)(vi). However, since it exceeds Rs7,50,000, the amount in excess of Rs7,50,000 i.e.
Rs2,10,000 (Rs9,60,000 - Rs7,50,000) would be treated as perquisite u/s 17(2)(vii)
Annual increase due to interest, dividend etc. related to funds mentioned above: Section
17(2)(viia)
The annual increase due to interest, dividend or any other amount of similar nature which is credited
to the funds referred to in Section 17(2)(vii) to the extent it is related to the contribution made by the
employer and which is included in total income shall be computed in a manner as prescribed
Illustration: In above illustration, interest income on excess contribution of Rs2,10,000 would also
be treated as perquisite u/s 17(2)(viia)

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Perquisites
Definition of "Perquisite"
The term "perquisite" is defined under section 17(2). The definition of perquisite is an
inclusive one. Based on the definition, perquisites can be classified in following three ways:
Types of Perquisites
Perquisites exempt from Perquisites taxable only in

Perquisites taxable in the
tax in the case of all the hands of specified
case of all employees
employees employees

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Perquisites exempt from tax in all cases

The following perquisites are exempt from tax in the hands of all employees.
Telephone Telephone provided by an employer to an employee at his

residence
Transport Facility Transport facility provided by an employer engaged in the

business of carrying of passengers or goods to his
employees either free of charge or at concessional rate;
Privilege passes and privilege Privilege passes and privilege ticket orders granted by
ticket Indian Railways to its employees;
Perquisites allowed outside Perquisites allowed outside India by the Government to a

India by the Government citizen of India for rendering services outside India;
Employer's contribution to staff Employer's contribution to staff group insurance scheme;

group insurance scheme;
Annual premium by employer Payment of annual premium by employer on personal

on personal accident policy accident policy effected by him on the life of the employee;
Refreshment Refreshment provided to all employees during working

hours in office premises;
Subsidized lunch Subsidized lunch or dinner provided to an employee;
Recreational facilities Recreational facilities, including club facilities,

extended to employees in general i.e., not restricted to
a few select employees;
Amount spent on training of Amount spent by the employer on training of

employees employees or amount paid for refresher management
course including expenses on boarding and lodging;
Sum payable by employer to a Sum payable by an employer to a RPF or an approved

RPF or an approved superannuation fund or deposit-linked insurance fund
established under the Coal Mines Provident Fund or the
superannuation fund
Employees' Provident Fund and Miscellaneous
Provisions Act;
Leave travel concession Leave travel concession, subject to the conditions

specified under section 10 (discussed below)
Note: Value of Leave travel concession provided to the High Court judge or the Supreme
Court Judge and members of his family are completely exempt without any conditions.

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Medical facilities Medical facilities subject to certain prescribed limits;
Rent-free official residence Rent-free official residence provided to a Judge of a

High Court or the Supreme Court;
Rent-free furnished residence Rent-free furnished residence including maintenance

provided to an Officer of Parliament, Union Minister and
a Leader of Opposition in Parliament;
Conveyance facility Conveyance facility provided to High Court Judges

under section 22B of the High Court Judges
(Conditions of Service) Act, 1954 and Supreme Court
Judges under section 23A of the Supreme Court
Judges (Conditions of Service) Act, 1958.

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Exemption in respect of Leave travel concession [Section 10(5)]
Note: The exemption referred to shall not be available to more than two surviving children of
an individual after 1.10.1998. This restrictive sub-rule shall not apply in respect of children
born before 1.10.1998 and also in case of multiple births after one child.

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ILLUSTRATION
Mr. D went on a holiday on 25.12.2022 to Delhi with his wife and three children (one son -
age 5 years; twin daughters - age 2 years). They went by flight (economy class) and the total
cost of tickets reimbursed by his employer was Rs. 60,000 (Rs. 45,000 for adults and Rs.
15,000 for the three minor children). Compute the amount of LTC exempt.
SOLUTION
Since the son's age is more than the twin daughters, Mr. D can avail exemption for all his
three children. The restriction of two children is not applicable to multiple births after one
child. The holiday being in India and the journey being performed by air (economy class), the
entire reimbursement met by the employer is fully exempt.
ILLUSTRATION
In the above illustration 10, will there be any difference if among his three children the twins
were 5 years old and the son 3 years old? Discuss.
SOLUTION
Since the twins' age is more than the son, Mr. D cannot avail for exemption for all his three
children. LTC exemption can be availed in respect of only two children. Taxable
LTC = 15,000 × = Rs. 5,000.
LTC exempt is only Rs. 55,000 (i.e. Rs. 60,000 - Rs. 5,000)

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VALUATION OF PERQUISITES
1.ACCOMMODATION PROVIDED BY THE EMPLOYER TO THE EMPLOYEE

1. Value of Unfurnished Accommodation - Explanation 1 to Sec. 17(2).
Nature of Perquisite Taxable Value of Perquisite
License Fee determined by the Government Less Rent recovered

Provided by Government from Employee
Provided by Employer other than Central and State Government
(a) Owned by Employer In cities having population exceeding 25 Lakhs as per 2001
Census:
15% of Salary Less Rent actually paid by Employee
In cities having population exceeding 10 Lakhs but not exceeding
25 Lakhs as per 2001 Census: 10% of Salary Less Rent actually
paid by Employee In Other places: 7.5% of Salary Less Rent
actually paid by the Employee
(b) Taken on Lease by Rent paid by Employer or 15% of Salary, whichever is lower Less
the Employer Rent recovered from Employee
(c) Accommodation in 24% of Salary paid / payable or Actual Charges paid / payable,
hotel whichever is lower Less Amount paid or payable by the Employee
Hotel Accommodation: Accommodation provided in a Hotel will not be a taxable perquisite

if—
•The period of such accommodation does not exceed 15 days,
•Such accommodation has been provided on the transfer of the Employee from one place to
another.

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2. Valuation of Furnished Accommodation:
Particulars
Value of Unfurnished Accommodation as above XXX
Add: Value of Furniture
- If owned by Employer, then 10% per annum of Original Cost of such Furniture XXX
If hired from Third Party, then Actual Hire Charges XXX
Less: Any charges paid or payable by the Employee (XXX)
Value of Furnished Accommodation XXX
Note: Furniture includes Television Sets, Radio, Refrigerator, other Household Appliance,
Air-Conditioning Plant or Equipment.
VALUATION NOT APPLICABLE
(a)Employees Covered: Employees working at — Mining Site, Onshore Oil Exploration
Site, Offshore Site, Project Execution Site, Dam Site, Power Generation Site.
(b)Conditions:
•The accommodation should be of a temporary nature and
•Plinth area should not exceed 800 Square Feet.

•Accommodation should be located atleast 8 kms away from local limits of Municipality /
Cantonment or located in a remote area (i.e. 40 kms away from town with less than 20,000
population)
VALUATION OF ACCOMMODATION IN CASE OF EMPLOYEES ON TRANSFER
(a)For the first 90 days of transfer: Where accommodation is provided both at existing place
of work and in new place, the accommodation, which has lower value, shall be taxable.
(b)After 90 days: Both accommodations shall be taxable.

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MEANING OF SALARY FOR VALUATION OF ACCOMMODATION FACILITIES
Salary includes Salary excludes
•Basic Salary •Other D.A.

•D.A. if considered for Retirement Benefits •Employers Contribution to PF
•All Taxable Allowances •Exempted Allowances
•Bonus or Commission or Ex-gratia •Value of Perquisites
•Any other Monetary Payment •Value of Perquisites specifically excluded
IL L U S T RA T I O N :
X, r e ce i ve s t h e f o l lo wi ng e m ol u m e nt s d u r in g t he p r e vio u s y e ar e n d i n g Ma r c h
31 , 20 2 3: b as ic s al ar y : R s. 9 2 , 0 00 , d ea rn e s s a l lo w an c e: R s. 8, 00 0 ( 4 8 p e r ce n t
f or m s p a rt o f s al a ry f o r c o m pu t ing r et i r em e nt be n ef it s ), in c om e -t a x pa i d o n
b eh al f o f X: R s. 7, 0 00 an d e d uc a t i on al l o w an ce : Rs. 4 , 8 0 0 ( t ot a l a llo w a nc e
p ai d fo r 3 ch i ld r e n ) .
Du r in g t h e p r ev io u s ye a r 2 02 2- 2 3, h e i s p ai d R s . 2 0 ,0 00 b y wa y o f a s pe ci al
al lo w an c e .
X is a r e ti r ed Go v e rn m e n t e m p l o y ee. P en si on r e cei v ed f ro m t h e G ov e r n m en t i s
Rs . 3 ,0 7 0 pe r m o n th . H e h as b e en p r o vid e d a r e nt fr ee un fu rn i sh e d h o u s e b y
t he e m p l o ye r f r o m S ep t emb er 1 , 2 02 2 . F in d o ut th e ta x a bl e va lu e o f t h e
p e r q u is i t e fo r th e a s se s s m en t y e ar 20 2 2- 23 un de r th e f o ll o w in g s it u at i o n s -
a. T h e h ou s e i s o w n ed by th e e mp lo y e r an d i s si tu at e d i n Ke la p u r
( po p u la ti o n: 3 .5 0 l akh );
b. T h e ho u s e i s o w n ed by th e e m p lo y e r a nd is si tu a te d in D elh i
( po p u la ti o n: 28 l a kh ) ;
c. T h e h o u se is t a k e n on le as e b y t h e e m p l o y er ( le as e re n t be in g R s . 1, 0 00
pe r m on t h );
d. T h e h o u se is t a k e n on le as e b y t h e e m p l o y er ( le ss r en t b ei n g R s. 20 , 0 0 0
pe r m on t h ).
X, r ec ei ve d d u r i n g t h e p r ev io u s y e ar e n di n g Ma r c h 3 1, 20 2 2 e m o lu m en t s
co n si s t i n g o f ba s i c pa y: Rs . 9 6, 0 00; p ro j ec t a llo w an c e: R s. 6 , 0 00 ; s pe ci al
al lo w an c e: R s. 8, 0 0 0 an d r e im b u r s e m e nt of m ed i c al e x p en d it u r e: R s . 4 , 00 0.
Hi s e m p l o y e r h as a l so p r o v i d e d a r en t- f r e e f ur n i sh ed f l a t i n B omb ay . L ea se
r en t of th e un f u r n i sh e d fl at i s R s . 72 , 0 00 p e r an n um . S om e of the h o u se ho ld
ap p l i a n c es p r o vi d ed t o X w i th ef fe ct f r o m Au g us t 1, 20 2 2 a r e o w n ed b y th e
em p l o ye r ( co s t p r i c e o f w h i ch i s R s . 96 , 0 0 0, d a t e o f pu r ch a s e i s Ap r i l 1, 19 7 0
an d w rit t e n do wn v a l u e, as on A pr il 1, 2 02 0 i s R s. 9, 0 00 . Em p l o y er p a ys Rs.
12 , 00 0 a n n u a ll y as hi re c h ar g es fo r o ne a i r- c on d i ti o ne r i n st al l e d in re n t -f r e e
f lat . C o m pu t e t h e v al u e o f th e p er q ui si t e if ; (1 ) X i s a s e cr e t ar y in th e
Mi n i s t ry o f I n d u st r y an d R s . 5, 0 00 is t h e li ce ns e f e e o f un f u rn ish e d f l at as

66
p e r Ce n t r a l Go ve r n m e nt ’ s Ru le s ; an d ( 2) X I s t h e M an ag i n g D i r ec to r o f PQ R
( p) L td . Do e s i t m ak e a n y d i ff e r e nc e i f X h as b ee n p r ov ide d a ho t el
ac co m mo d at i o n th ro u g h o u t t h e y ea r ( ta r if f b ein g R s . 2, 0 0 , 0 00 p e r a nn u m ) .
X f u r n i sh th e f o ll ow i n g f o r th e P Y 2 02 2- 2 3
Ba si c s a l a r y 2, 0 00p m
DA( 40 % f o r m in g p a r t of ret i r e me n t ) 1 ,0 0 0p m
L u nc h al l ow an ce 20 0p m
Me d i ca l a ll o wa n c e 50 0p m
CC A 30 0p m
CE A ( pe r c h i l d fo r 2 ch i l d r en) 23 0p m
He i s p r o vi de d w it h RF A i n D e lh i. T h e co s t o f f u r ni tu r e pr o v i d ed i s
Rs .1 , 00 , 0 0 0 an d t w o AC , w h i ch h av e b e e n t ak e n o n hi r e b y t h e c om pa n y,
h a v e a l so b ee n p r o v i d ed i n t h e ac co m m od at io n .Th e hi r e ch a r g es o f ea ch
AC i s R s . 2, 00 0 pa . Co m p u t e th e V a l ue of R FA i f th e ac c o m mo d a t ion i s
p ro v i d e d b y :
a. Th e g o v er n m en t an d t h e v a l ue o f t h e a c co m m o d a ti o n a s pe r Go vt r u l es i s
Rs . 5 00 p m
b . RB I an d a cc o m m od ati o n h a s be en t a k en o n r e nt b y R B I a t R s . 5, 00 0 pm
c. X YZ L t d . a nd t h e a cc om m o d a tio n h a s b ee n t ak en o n r ent b y t h e c om p an y
at Rs. 5, 00 0 p m
A i s w o r kin g as G M o f X L t d . P a rt i cu la r s o f h i s s al ar y f o r t h e F Y 2 02 2- 2 3 a r e
as u n d e r
Ba si c S a la r y 10 , 00 0 p m
Bo n u s 19 , 20 0
Co n v e y an ce al l o w an c e ( 70 % sp e n t on off i ci al d ut i es ) 14 , 00 0
M e di c a l al lo w a n c e 50 0p m
E m p lo y er co n t ri b u t i o n to R PF 20 % of S a l a ry
Co m p u te t h e v al ue o f R F A t o b e in c l u d e d i n t he s al a r y i n co m e o f A f o r th e A Y
20 2 3- 2 4 if :
a. t h e a cc o mm o d a t io n i s o w n ed b y t h e co m p an y
b . t h e a c co m m od at i o n h a s b ee n t ak e n o n re nt b y th e co m pa n y a t 7, 00 0 p m

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2.VALUATION OF OTHER PERQUISITES
Rule Nature of Perquisite Taxable Value of Perquisite (TVP)
Service of Sweeper, Actual Cost to the Employer Less: Amount paid by

Gardener or Watchman or the Employee
3(3) Personal Attendant
Procured from outside Agency: Amount paid to

Supply of Gas, Electricity or
outside agency Resources owned by employer
3(4) Water for household
himself: Manufacturing cost p.u. Less: Amount paid
consumption
by the Employee
3(5) Education facilities to If the Cost of Education per Child does not exceed
members of his household: Rs 1,000 p.m. - Not Taxable, otherwise fully
(a) Free Education to children taxable.
in the school maintained by Cost to the Employer (See limit of Rs 1,000 pm
the Employer or the school above.) Less: Amount recovered from Employee
sponsored by the Employer
(b) Other Schools Cost of education in similar locality / institution

Less: Amount recovered from Employee
Transportation of goods or Value at which offered to Public Less: Amount

passengers at free or recovered from the Employee
concessional rate provided
3(6)
by the employer engaged in
that business (other than
Railways / Airlines)
Housing Loan / Vehicle Loan •Interest Charged by Employer > SBI Rates: NOT
- For acquiring Capital Taxable.
Assets and not for repairs •Interest charged is lower than SBI rates:
3(7)(i)
SBI Rate = SBI Rate Interest at SBI rates on maximum outstanding
prevailing on the First Day of balance Less: Interest paid by the Employee on
the Previous Year that loan.

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Interest Charged by Employer > SBI Rates: NOT

Taxable. Interest charged is lower than SBI rates:
Interest at SBI Rate on maximum outstanding
balance Less: Interest paid by the Employee on
Other Loans that Loan Exceptions:
(a)Medical Loan for treatment of diseases specified
in Rule 3A except Loan reimbursed by Medical
Insurance
(b)Loan not exceeding Rs 20,000 in aggregate.
Travelling, Touring,
Accommodation and Other
Expenses met by the
3(7) Amount incurred by Employer or Value offered to
Employer other than
GO public Less: Amount recovered from Employee
specified in Rule 2B. (To be
calculated only for the period
of vacation)
Free Meals during office •Actual Cost to the Employer (upto Rs 50 per Meal
hours Free Meal in remote / Tea/ Snacks is NOT taxable) Less Amount
3(7)(iii)
area or offshore installation recovered from the Employee
area is not a taxable •Tea or Non-Alcoholic Beverages / Snacks during
perquisite working hours are not taxable.
Value of any gift or voucher

or token other than gifts •Value of Gift.
made in cash or convertible •In case the aggregate value of gift during the
into money (e.g. gift previous year is less than Rs 5,000, then it is not a
cheques) on Ceremonies. taxable perquisite.
3(7)(v) Expenditure incurred on •Actual expenditure to Employer Less Amount

credit card or add on card recovered from Employee.
including membership fee •If it is incurred for official purpose and supported
and annual fee. by necessary documents then it is not taxable.

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3(7)(vi) Expenditure on Club other •Actual Expenditure incurred by the Employer Less
than Health Club or Sports Amount recovered from Employee.
Club or similar facilities •If the expenditure is incurred exclusively for official
provided uniformly to all purposes and supported by necessary documents
Employees. then it is not taxable.
•Initial Fee of Corporate Membership of a Club is
not a taxable perquisite.
Use of any Movable Asset 10% of Actual Cost if owned by the Employer, or
other than Computer or Actual Rental Charge Paid / Payable by Employer
3(7)(vii) Laptops or other assets Less: Amount recovered from Employee
already mentioned
Transfer of Movable Asset to Employees:
Computers & Electronic

Items Motor Car Other Assets
Actual Cost
Less:
Depreciation @
Actual Cost 20% for every Actual Cost
Less: Depreciation @ 50% for completed year Less: Depreciation @ 10% for
every completed year under under WDV every completed year
WDV method. method. under SLM Method.
Value of the
3(7)(viii)
Asset Less:
Value of the Asset Less: Amount Value of the Asset Less: Amount
Amount recovered from the recovered from recovered from the employee
employee the employee

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Value of the
Value of the perquisite perquisite Value of the perquisite
• Electronic gadgets include Computer, Digital Diaries and Printers, but exclude
washing machines, Microwave ovens, Mixers, Hot plates, Ovens etc.
• Transfer of assets, which are 10 years old, shall not attract taxability.
3(7)(ix) Any other benefit or Cost to the employer Less: Amount recovered from
amenities or service or right employee
or privilege provided by the
employer other than
telephone or mobile phone
•Member of household includes Spouse(s), Children & their spouses, Parents, Servants and
dependents.
•Completed year means actual completed year from the date of acquisition of asset to the
date of transfer of such asset to Employees.

71
3.TAXABILITY OF MOTOR CAR BENEFITS [Rule 3(2)(A)]
Expen
Owner of Car ses Purpose Taxable Value of Perquisite
met by
1(a) Employer Employ Fully Official Not a perquisite provided the documents
er specified in Rule 3(2)(B) are maintained.
1(b) Employer Employ Fully personal Aggregate of -

er use (a)Actual expenditure on car
(b)Remuneration to Chauffeur
(c)10% of the Cost of Car (normal wear & tear)

Less: Amount charged from Employee
1(c) Employer Employ Partly for Cubic Capacity of Car Engine up to 1.6 Litres Rs
er official and 1,800 p.m. + Rs 900 p.m. for Chauffeur Cubic
partly for Capacity of Car Engine above 1.6 Litres Rs
personal 2,400 p.m. + Rs 900 p.m. for Chauffeur
Not a Perquisite, provided the documents

Employ Fully Official
2(a) Employer specified in Rule 3(2)(B) are maintained. [See
ee use
Note 2 below]
Employ 10% of the Cost of Car (normal wear & tear) /

2(b) Employer ee Fully Personal hire charges
Employ Partly for Cubic Capacity of Car Engine upto 1.6 Litres Rs
ee official and 600 p.m. + Rs 900 p.m. for Chauffeur Cubic
2(c) Employer
partly for Capacity of Car Engine above 1.6 Litres Rs 900
personal p.m. + Rs 900 p.m. for Chauffeur
3(a) Employee Employ Fully official Not a perquisite provided documents as per Rule
er use 3(2)(B) are maintained.
Employ Partly for Subject to Rule 3(2)(B)

3(b) Employee er official use and Actual Expenditure incurred Less
partly for
Car Cubic Capacity upto 1.6 Litres - Value as per

72
personal use l(c)(i) Car Cubic Capacity above 1.6 Litres -

Value as per l(c)(i)
Employ
3(c) Employee er Fully Personal Actual Expenses incurred by Employer.
3(i) Employee Employ Fully official Not a Perquisite provided documents as per
owns other auto- er use Rule 3(2)(B) are maintained
motive but not
car
3(ii) Employee Employ Partly for

Subject to Rule 3(2)(B)
owns other auto- er official and
motive but not partly for Actual Expenditure incurred by Employer
car personal use Less: Rs 900 p.m.
Notes:
1. Using Cars from a Pool of Cars owned or hired by Employer:
The employee is permitted to use any or all cars for both official and personal use:
For one car Valued as per l(c)(i)
For more than one

car Valued as per 1(b) as if fully used for personal purpose
2. Documents to be maintained for claiming not taxable perquisite or higher deduction

wherever applicable. [Rule 3(2)(B)]
(a)Employer should maintain complete details of journey undertaken for official purpose,
which includes date of journey, destination, mileage and amount of expenditure incurred
thereon.
(b)Certificate of supervising authority of the employee, wherever applicable, to the effect that
the expenditure was incurred wholly and exclusively for performance of official duties, should
be provided.

73
a. X i s em p lo y e d b y B lt d . O n A p ri l 1 , 20 22 , he t a k es a p er s o n al
lo a n o f Rs . 2 5 , 00 0 f r om B lt d . B l td . R e c ov er s in t er e st @ 7 % p . a
f ro m X
b . X p u rc ha s e a H o nd a c it y on M ar ch 1, 2 0 2 2 fr o m a l oa n of R s.
8, 0 0, 00 0 t ak en a t c o n c es si o n al rat e of 7 % p . a f r o m h i s e m p l o y er
PQ R lt d . A s p e r t h e a gr e ed t er ms of r ep a y m e nt , A i s sup p os e d to
r ep a y i n mo n t hl y i n s tal l m en t o f R s . 2 5 , 00 0 s t a rt i n g fr o m J an u ar y
1, 2 02 2. . C om p u t e t h e t ax a b le va l u e of p e rq u i sit e i n r e sp ec t o f
co n c es s i o n al l o a n f o r t he P . Y 2 2- 2 3
c. C lt d . g i v e s t h e fo l lo w i n g in t e re s t f r ee l o an t o Z , an em p lo y e e o f
t he co m p an y – R s. 1 5, 0 0 0 f o r ch i ld ’ s e d u cat i on a nd Rs . 5, 00 0 fo r
p u rc h a sin g a r ef r ig e ra t or . N o ot he r lo a n i s gi v e n b y C l t d .
d . X t ak es a n i n t e re st fr ee l o an o f R s. 7 , 0 0 , 0 00 f r o m h i s em p l oy er
AB C l t d. , o n Ju ne 1 6, 20 2 0 fo r m e di ca l t r ea tm e n t of h i s w i f e w h o i s
su f f e rin g f r om a di se a se sp e ci fi ed i n r ul e 3A . Mr s . X is a l so
co v e re d u n de r a m ed ic l ai m i n su r a n c e co v e r . In su r a n ce co m p an y
r ei m b u rs e s h e r o f th e h o s pi t al iz a ti o n ch a rg es o f R s . 2, 50 , 00 0 on
Ja n u ar y 1, 20 2 3. A c co r d i n g to t e rm s o r r ep ay m e n t o f l o an, X h as to
p a y Rs . 1 2 , 0 00 p er m o n th o n t h e s ec o nd d a y of e ac h m o n t h
st a rt i ng f ro m N o v 2 0 2 2 . A sc e rt a in th e t a xa bl e v al ue o f p er qu i s it e
in re s pe c t of in te r e st f r e e l o an f or t h e P Y 2 0 22 - 23 .
ILLUSTRATION
 M r . V is ha l g et s a b a s i c s a l ar y o f Rs . 1 0 , 0 00 p.m . h i s e mp l o y er h a s
f ur t h e r p ro vi d ed h i m w it h t he f o ll o wi n g h i m w it h t he f o ll o w i ng
f ac il it i e s:
a. He has been provided a credit card. Annual fees of such card is Rs. 8,000 which is
incurred by the employer. The card is used for office as well as personal purpose.
b. His employer is a corporate member of a club of which initial fees is Rs. 1,00,000 and
annual expenditure of Rs. 30,000, paid by the employer. The membership is enjoyed by
Mr. Vishal.
c. He has been given a gift voucher of Rs. 13,500.
d. He has been provided the facility of laptop used for office as well as personal purpose.
The cost of the asset is Rs. 1,20,000.
e. He has been provided with a TV set of Rs. 50,000 used for personal purpose, written
down value of the same is Rs. 30,000.
f. In his office chamber A.C. machine has been installed for Rs. 30,000.
Calculate taxable salary of Mr. Vishal

74
ILLUSTRATION :
 Th e em p lo y er co m p a n y se ll s th e f o ll o w in g a s s et s to t h e e m p l o y ee s on
Ja n u ar y 1 , 20 2 3 –
Na m e o f t h e e m p l oy e e X Y Z
As s e t s o l d CAR CO M P U T E R F R I DE
Co s t o f t h e a s s e t t o e m p l o y e r Rs. 6,96,000 Rs . 1 , 1 7 , 0 0 0 Rs. 40,000
Da t e o f pu r c h a s e ( p ut t o us e on t h e s a m e d a y ) 15/05/2018 15/05/2018 15/05/2018
Sale price Rs. 2,10,000 Rs . 2 4 , 2 7 0 Rs. 1,000
ILLUSTRATION :
 Co m p u te t h e v al ue o f p er q .
a. X i s a n em p l o y e e in t h e p u r ch a se d ep art m e nt o f A l td .O n No v 2 7 , 2 0 22 , h e
at t en d a s e m in a r . Se m in a r f e e o f R s . 3, 5 00 i s p aid b y A l td .
b. X’ s so n i s a stu d e nt o f 7 t h cl a ss o f D P S, D e lh i .R s. 1 7 , 8 00 b e in g t u ti o n f e es
o f X ’ s so n is p ai d / r eim b u r s ed b y P l td , w he re X i s e m p l oy e d . T h e re is n o
ar r a ng em e n t b et w e e n P l td and DP S .
c. S P S , k o l k a t a , i s o w n e d and m a i nt a in e d b y Z l td ; a m an uf a ct u ri n g co .
Bo o k s o f ac c o u n t of t h e s ch o o l a n d Z l t d a r e m a i nt a in ed s e pa rat e ly . X i s
an e m p l oy e e Z lt d . T h e f o l l ow in g f a m i ly m em b e r o f X a r e st ud en t i n S P S –
Co s t of ed u c ati o n i n a Am o u n t ch a rg ed f ro m X
si m i l a r in st i tut i o n
H,d a ug ht e r o f X Rs . 5, 5 00 p .m Rs . 8 0 0 p. m
T , d ep en d e n t b r o th e r Rs . 6, 0 00 p .m Rs . 1, 6 0 0 p .m
of X

75
ILLUSTRATION :
 Compute the taxable value of the perquisite in respect of medical facilities

availed of by X from his employer in the following situations:
(a) the employer reimburses the following medical expenses:

(i) treatment of X by his family physician Rs. 8,400
(ii) treatment of Mrs. X in a private nursing home Rs. 7,200
(iii) treatment of X's mother (dependent upon him) Rs. 2,400 by a private doctor
(iv) treatment of X's brother (not dependent upon him) Rs. 800
(v) treatment of X's grandfather (dependent upon him) Rs. 3,000
(b) The employer reimburses an insurance premium of Rs. 6,000 paid by X under health
insurance scheme on the life of X and his wife.
(c) The employer maintains a hospital for the employees where they and their family
members are provided free treatment. The expenses on treatment of X and his family
members during the previous year 2022-23 were as under:
Rs.
treatment of X's major son (dependent upon him) 4,400
treatment of X 10,400
treatment of X's uncle 9,200
treatment of Mrs. X 16,000
treatment of X's widowed sister (dependent upon him) 8,200
treatment of X's handicapped nephew 5,000
(d) Expenses on cancer treatment of married daughter of X at Tata Memorial Hospital,

Bombay paid by the employer Rs. 1,00,000 and reimbursement of expenses for medical
treatment of himself amounting to Rs. 40,000.
(e) The following expenses on treatment of X's major son outside India were paid by the
employer.
Actual expenses Expenses permitted by RBI
Actual medical expenses 1,50,000 1,20,000

Expenses on stay abroad of X's son and
brother who accompanied the patient 1,30,000 90,000
Traveling expenses of X's son and X's brother 2,40,000 
Assume that the other income of X is (a) Rs. 1,20,000 (b) Rs. 1,80,000. (including
income under the head salary excluding the above taxable perquisite)

76
 De te r m in e t a xab l e p e rq u is it e in f o l low i n g ca s es :
a. Miss shradha received a wrist – watch of Rs. 3,000 on 17/7/2022 and a golden chain
worth Rs.12,000 on 18/8/2022 from her employer mr. Raju.
b. Miss rakhi received Rs. 11,000 cash-gift from her employer dipu ltd.
c . Mr. A ni r ud h a is w o rk in g w it h X &c o a par t ne rs h ip f ir m . D u r in g t he y e ar
th e e m p lo y e r f ir m g ift ed a d ia mo n d r in g w or th R s. 8 0, 0 0 0 t o w if e o f
Mr . A n ir ud h a
a. X is em pl oy ed b y a pr iv at e s ec to r c o m pa ny . He h as b ee n pr o v id e d a
c a r ( 1 2 00c c ) ow n e d b y t h e e mp loy er , c os t of t h e c ar is Rs . 4, 2 6 ,0 00 .
T he ex p e nd it ur e i nc u r re d by t h e e m pl oy er on t h e m a i nt en a nc e of t h e
car ar e- p et r ol: Rs . 4 6, 00 0 ,dr iv er: Rs . 3 6 , 00 0 a nd m a in t e na n c e
:Rs .1 0 , 0 00 .T h e c ar c a n be us e d by X p ar tl y f or o f f ici a l p u rp os es a n d
pa r t ly f o r pr iv at e p u r p o s e s . F in d o ut t he v a lu e o f t h e p er qu is it e . A su m
of Rs . 1 2, 00 0 re c ov e r ed f r o m X .
b . As s um e i n s it u at io n 1 th at t h e c ar is o nl y u s ed f o r pr iv at e p u r po s e
c. A c ar (1 . 8c c ) is o wn ed b y t he e mp l o y er (c ost o f t he c a r Rs. 4, 8 0, 0 0 0)
.X , an e m p l oy ee , c a n u s e i t p ar t ly f or of f ic ial p ur po s e a nd p ar t ly f or
pr iv a t e pur p o s e .E x p e n s e s f or pr iv a t e p ur p o se ar e h ow ev e r i ncu rr e d by
X . D ur ing t he P. Y 20 2 2- 2 3, th e to t a l ex pe n dit ur e in c u r re d b y X i s Rs.
50 , 00 0 o n c ar a n d Rs . 2 0, 0 0 0 on d r iv e r .

77
d . As s um e i n s it u at io n 3 th at t h e c ar is u s e d o n ly f or p riv a t e pu r po s e .
e. X own s a c ar ( 1. 4c c ) . He us es it p ar t ly f o r o f f ic i a l p u rp os e a nd pa rt ly
fo r p r iv a t e .D ur in g th e P Y 2 02 2 -2 3 , h e i n c ur a s um of Rs. 40 , 0 0 0 o n
r un ni ng a nd m a in te n a nc e of c a r . B es id es , he h as e n ga g ed a d riv e r
( s a lar y Rs . 2 4, 0 00) .T he e mp lo y e r r e im b ur s e s t h e en t ir e ex pe n d it u re o f
Rs . 6 4 , 0 00
f. As s um e in s itu a t io n 5 t ha t t h e l og b oo k o f t he c ar is ma in ta in ed a n d
70 % of t h e ex p e n d it ur e is a ttr i bu t a b l e t o war d s th e off ic ial pu r po se .

78
MEANING OF GOVERNMENT EMPLOYEE IN DIFFERENT SECTIONS

Section Topic Meaning
16(ii) Entertainment Allowance CG/SG
10(10) Gratuity CG/SG/LA
10(10A) Committed pension CG/SG/LA/SC
10(10AA) Leave salary CG/SG
17(2)(i) & (ii) RFA CG/SG
DISTINGUISH BETWEEN ‘MEMBER OF HOUSEHOLD’ AND ‘FAMILY’

Members of household mean spouse, children, spouse of children, parents, servants and all other
dependents.
Family to include spouse, children dependent parents dependent brothers and dependent sisters.
PAYMENT OF INCOME TAX ON NON MONETARY PERQUISITES: SECTION

10(10CC)
Generally any tax paid by employer on behalf of employee is treated as the income of employee and
is included in gross salary. But if the employer has paid income tax on the perquisite value of non-
monetary perquisite that have been provided to employee then such an amount of tax shall not be
included in the salary of employee as it is exempt from tax u/s 10(10CC).

79
# 15. X had been working with BV ltd. , in a tribal area since 1-12-1997. He was entitled
to the following emoluments.
a. Basic salary w.e.f 1-1-2022 Rs. 6,000 p.m
b. D.A 40% of basic salary (50% forming part of salary for R.B)
c. Medical allowance Rs. 500 p.m (entire amount is spent on his own treatment )
d. Entertainment allowance Rs. 400 p.m
e. Children education allowance Rs. 40 p.m per child for three children
f. Hostel expenditure allowance Rs. 120 p.m per child for three children
g. Tribal area allowance Rs. 300 p.m
h. Uniform allowance Rs. 250 p.m (He spend Rs. 1,500 on the purchase and
maintenance of uniform)
i. House rent allowance Rs. 750 p.m. He pays Rs. 1,000 per month as rent
j. He contributes Rs. 900 p.m to RPF to which his employer contributes an equal
amount
He retired from his job on 1-1-2023 and shifted to Delhi. He was entitled to the
following benefits at the time of his retirement .
a. Gratuity Rs. 1,15,000
b. Pension from 1-1-2023 Rs. 2000 p.m
c. Payment from RPF Rs. 3,00,000
d. Encashment of earned leave for 150 days Rs. 36,000
e. He was entitled to 40 days leave for every completed year of service . He got 50% of
his pension commuted in lump sum w.e.f 1-3-2023 and received Rs. 1,20,000 as
commuted pension.
He joined VB ltd. w.e.f 1-2-2023 and was entitled to the following emoluments;
a. Basic salary Rs. 5,000 p.m
b. DA 20% of salary ( forming part of R.B )
c. Rent free unfurnished accommodation in Delhi which is owned by the employer and
whose fair rental value is Rs. 48,000 p.a
d. Motor car (1.4cc) with driver , which he uses partly for official and partly for
personal purposes.
e. The monthly expenses incurred on gas and electricity were Rs. 500 which were
reimbursed by the employer.
f. Reimbursement of educational expenses of his two children which amounted to Rs.
350 p.m
g. On 4-3-2023 his wife fell ill and the employer reimburse the expenditure of medical
treatment amounting to Rs. 17,500.
h. A watchman , a sweeper , a cook and a gardener have been provided to whom the
company pays a salary of Rs. 400 p.m each.
i. Loan of Rs. 1,00,000 @ 7% p.a for construction of his house was given by the
company . Normal rate of interest is 8%.
j. He made the following payments during the P.Y.
k. professional tax Rs. 500
l. LIP on his life policy of Rs. 1,00,000 – Rs. 15,000
m. Deposit in PPF Rs. 50,000.
Compute his total income and tax liability

80
# 16. Mrs. A , an employee – director of RK Ltd. submits the following information

relevant for the A.Y 2023-24
salary Rs. 1,86,000 ; EA (date of joining 1st may 1965 ) Rs. 8,000 ; Bonus : Rs. 12,200 ;
Education allowance : 4,000 ( for her grandchildren ) ; income tax penalty paid by the
employer : Rs. 2,000 , Medical expenses reimbursed by employer : Rs. 2,000 ; leave travel
concession : Rs 1,000 ; payment of electricity bill by employer : Rs. 1,060 ; free residential
telephone : Rs 4,000; free refreshment during office hours: Rs 4,000; reimbursement of
gas bill : Rs 1,000 ; professional tax paid by the employer : Rs. 300 ; professional tax paid
by the Mrs. A Rs. 150.
Mrs A owns two houses , particulars of which are as follows
House I House II
M.V 43,000 80,000
Rent 46,000 nil(SO)
S.R 50,000 60,000
M.Tax paid 4,800 8,000
Interest on borrowed capital for purchase of H.P 4,000 16,000
Repayment of loan taken from LIC for the purpose of
Purchasing House I 15,000
Date of completion of construction 15-4-2010 15-5-2077
Other incomes:
Agricultural income for the P.Y 2022-23 2,00,000
Dividend from Indian private limited companies 17,000
Dividend from foreign company 70,000
Payment and investments:
Own contribution to URPF 1,500
Contribution to PPF 16,000
Donation to the Prime Minister’s National Relief fund 2,000
Determine the net income and tax liability of Mrs. X for the A.Y 2023-2024.
# 17. VB is the principal of a college in Bangalore. He furnished the following details:

a. Bas ic salary Rs .16,200 per month
b. DA ( un der terms of employment) Rs.1 2,8 00 per mo nth
c. He contri butes 1 2.5 % of his basic pay to RPF. The employer als o contrib utes t he
same amount.
d. E duca tio n al lowanc e fo r 3 childre n Rs.6,000
e. Medi ca l allowance Rs.8,000 actua l amount spent R s.3,000
f. Tele pho ne bi ll Rs .5, 000 paid by the em plo yer on behalf o f Mr. Vyasa Raj
g. Sweeper, servant, watchman at a salary o f Rs.350 per m onth pe r perso n
appo inted by Mr.Vyasa Raj a nd t he ir sal ary i s pai d by the employe r.
h. S urrender o f earne d leave a nd re ceived a n amount o f Rs.2 2,000
i. LIC premi um paid by emplo yer o n the l ife po licy of Mr. Vyasa Ra j is Rs.6,0 00
j. Mr. Vyasa R aj pai d professional tax o f Rs.2 ,40 0
k. He has bee n pro vided with rent free furnished ho use by the co lle ge whose FRV
is Rs.5, 000 pm and f urni ture fac il ity of w hich re nt o f Rs.25,000 is pai d by the
employer.
l. Gro up i ns ura nce p remium also bei ng pa id by the employer Rs.1, 560

81
Compute his tax able salary fo r the AY 22-2 3 and also the amo unt ent itled to
deduction U/ s 80C.
# 18. R is General Manager of a Textile Company of Ludhiana since 1997. He has

submitted the following particulars of his income for the financial year 2023-24.
a.
Basic Salary Rs. 1,12,000,
b.
D.A. Rs. 2,000 per month (Rs. 500 p.m. enters into retirement benefits).
c.
Education allowance for two children at Rs. 130 p.m. per child.
d.
Commission on sales Rs. 20,000.
e.
Entertainment allowance Rs. 800 p.m.
f.
He was given cloth worth Rs. 2,000 by his employer free of cost.
g.
He resides in the Bungalow of the company. Its fair rent is Rs. 2,000 p.m. He
pays Rs. 12,000 p.a. as rent for the house. The company who were paid Rs. 400
per month each has provided a watchman and a cook.
h. He has been provided with a motorcar of 1.8 Itr. engine capacity power for his
official as well as Personal use. Running and maintenance expenses are borne by
the company.
i. The company has contributed Rs. 15,000 to his RPF. Interest credited to RPF was
@ 13% p.a. amounted to Rs. 16,250.
Compute his income from salary for the assessment year 2023-24.
# 19. From the following particulars of R compute his total income for assessment year
2023-24.
a. Salary Rs. 13,000p.m. (increased to Rs. 15,000 w. e. f. 1-12-2022) 1,64,000
b. Bonus 16,000
c. Dearness allowance 18,000
d. Entertainment allowance 8,000
e. Employers contribution to Recognized P.F. 25,000
f. Employees contribution to Recognized P.F. 25,000
g. Interest on P.P. @ 9.5% 22,000
h. Personal expenses of R's son met by the employer 12,000
i. Rent-free unfurnished house provided by the employer, at Delhi whose annual
rental value is 96,000
Watchman engaged by the employer for. many years for the security of residence
of R, total salary paid to him by employer during the year 6,000
j. Medical expenses of the employee and free refreshment in the office
12,000
k. Club bill of the assessee reimbursed by the employer 2,400
l. Unit Linked Insurance Plan Contribution paid by the employer 6,000
m. He deposited Rs. 18,000 in NSS 1992.
n. He was provided with rent free house till November 2019 for a period of 8 months
only during 2022-23 after which he shifted to his own house. He continued to enjoy
the facility of a watchman for his own house also.

82
Retrenchment Compensation [Sec. 10(1OB)]

1. Meaning: It is a Compensation received by a Workman at the time of -
(a) Closing down of the undertaking.
(b) transfer (by agreement or by compulsory acquisition) if the following conditions are satisfied -
• Service of Workmen interrupted by transfer.
• Terms and Conditions of employment after transfer are less favourable to Workmen.
• New Employer is not under a legal obligation whether under the terms of transfer or otherwise, to
pay compensation on the basis that the Employee’s service has been continuous and has not been
interrupted by transfer.
2. Taxability:
(a) Retrenchment Compensation received in accordance with any Scheme, which is approved by the
Central Government, is fully exempt from tax.
(b) Other than above, if an Individual who receives Retrenchment Compensation, is entitled for
exemption u/s 10(1 OB) in respect of the amount received, as computed below. Further, the taxable
portion is eligible for Relief u/s 89(1),
Particulars ₹ ₹
Amount of Retrenchment Compensation Received xxxx

Less: Exemption u/s 10(10B) = Least of the following -
(a) Actual Amount of Retrenchment Compensation Received XXX

(b) ₹ 5,00,000 XXX
(c) Amount determined under Industrial Disputes Act, 1947, i.e. 15/30 x Average XXX (XXX)
Salary of last 3 months x Number of Completed Years of Service and part
thereof in excess of 6 months. (See Note)
Taxable Value XXXX
Note:
• Computation is based on 15/30 and not 15/26 as held by Supreme Court in Guru Jambheshwar
University through Registrar vs Dharampal [AIR 2007 SC 1040].
• For computing Average Salary purposes, Wages includes Basic and Dearness Allowance.
Illustration - Retrenchment Compensation - M 13

Mr. Gobind received Retrenchment Compensation of ₹ 10,00,000 after 30 years and 4 months
of service. At the time of retrenchment, he was receiving Basic Salary of ₹ 20,000 p.m. and
Dearness Allowance of ₹ 5,000 p.m. Compute his taxable Retrenchment Compensation.

83
Voluntary Retirement Compensation [Sec. 10(10C)]

1. Meaning: Compensation received under Voluntary Retirement Scheme (called as VRS
Compensation or VRC) falls within the meaning of Profits in Lieu of Salary u/s 17(3), and therefore
is taxable as Salary.
2. Exemption: Exemption u/s 10(10C) is applicable for the Employees of-
(a) A Public Sector Company or any other Company.
(b) An Authority established under a Central, State or Provincial Act.
(c) A Local Authority.
(d) A Co-Operative Society.
(e) A University established or incorporated by or under a Central, State or Provincial Act and an
Institution declared to be University u/s 3 of the UGC Act, 1956.
(f) An Indian Institute of Technology u/s 3(g) of the Institutes of Technology Act, 1961.
(g) Any State Government or Central Government.
(h) Notified Institutes of Management, i.e. IIMs at Ahmedabad, Bangalore, Calcutta, Lucknow, and
Indian Institute of Foreign Trade.
(i) Notified Institutions, having importance throughout India or in any State or States, (e.g.
International Crops Research Institute for Semi-Arid Tropics, Action for Food Production (AFPRO),
Government Tool Room and Training Centre)
3. Computation of Exemption:
Particulars ₹ ₹
1. Computation of Salary for VRC Exemption: Salary means Last drawn salary.
Last drawn Salary = Last completed month of Salary.
Basic Salary XXX
DA considered for Retirement Benefits XXX
Salary for Voluntary Retirement Compensation Exemption XXX
2. Taxable Voluntary Retirement Compensation
Amount Received as Voluntary Retirement Compensation XXX
Less: Exempt u/s 10(10) = Least of the following -
(a) Actual Voluntary Retirement Compensation received by the Individual XXX
(b) ₹ 5,00,000 XXX
(c) Amount as per Note below XXX (xxx)
Taxable Amount of Voluntary Retirement Compensation XXX
Note: The Compensation received shall not exceed higher of -

• Last Drawn Salary x 3 x Number of fully completed years of service.
• Last Drawn Salary x Balance Number of Months of Service left.

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Illustration - VRS Compensation - N 00

John is employed in a public Company and is paid a sum of ₹ 6,00,000 on Voluntary Retirement from
service. The normal age of retirement in the Company is 60 and John, who was 45 at the time of
retirement, has completed 20 years of service. His monthly salary at the time of retirement was as
follows —
Basic Pay ₹
Dearness Allowance (50% includible for 10,000
Pension) ₹ 6,000
House Rent Allowance ₹ 3,000
Conveyance Allowance ₹ 800
What is the amount of compensation taxable under the Act?
Illustration - Computation of value of Perquisites - N 10

AB Co. Ltd allotted 1000 Sweat Equity Shares to Sri Chand in June 2022. The shares were allotted at
₹ 200 per Share as against the fair market value of ₹ 300 per Share on the date of exercise of Option
by the allotted viz. Sri Chand. The Fair Market Value was computed in accordance with the method
prescribed under the Act.
(i) What is the Perquisite Value of Sweat Equity Shares allotted to Sri Chand?
(ii) In the case of subsequent sale of those Shares by Sri Chand, what would be the Cost of
Acquisition of those Sweat Equity Shares?
Illustration - Computation of LTA Exemption-Twin Children - M 13

Rajesh went to Shrinagar on a holiday on 15-11-2022 with his wife and two children (one Son - age 6
years, twin daughters - age 3 years). They went by aeroplane (economy class) and the total cost of
tickets by his employer was ₹ 58,000. ( ₹ 43,000 for adults and ₹ 15,000 for the three minor children).
Compute the amount of Leave Travel Concession exempt. Will the answer be any different if among
his three children, the twins are 6 years old and son 3 years old?
Illustration - Tax Treatment of Medical Benefits - N 02 (F)

From the following data, you are required to calculate the perquisite value of the expenditure on
medical treatment, which is assessable in the hands of the Employee of a Company, inclusive of the
conditions to be satisfied - (amounts in ₹ )
Gross Total Income, inclusive of Salary 2,00,000
(a) Amount spent on treatment of the Employee's wife in a hospital maintained by the Employer
10,000
(b) Amount paid by the Employer on treatment of the Employee's child in a notified hospital 5,000
(c) Medical Insurance Premium reimbursed by Employer on a policy covering Employee, his wife &
dependent parents 8,000
(d) (i) Amount spent on medical treatment of the Employee outside India 1,50,000
(ii) Amount spent on travel and stay abroad 1,00,000
(e) Amount spent on travel and stay abroad of Attendant 50,000
Illustration-Taxability of Medical Benefits-M 14

Ms. Rakhi is an Employee in a Private Company. She receives the following Medical Benefits from
the Company during the Previous Year 2022-2023
Particulars ₹
1. Reimbursement of following Medical Expenses incurred by Ms. Rakhi.

85
(A) On treatment of her Self Employed Daughter in a Private Clinic. 4,000
(B) On treatment of herself by Family doctor 8,000
(C) On treatment of her Mother-in-Law dependent on her, in a Nursing Home 5,000
2. Payment of premium on Mediclaim Policy taken on her health. 7,500
3. Medical Allowance 2,000 P.m
4. Medical Expenses Reimbursed on her Son's treatment in a Government Hospital 5,000
5. Expenses incurred by Company on the treatment of her minor son abroad. 1,05,000
6. Expenses in relation to Foreign Travel and Stay of Rakhi and her son abroad for 1,20,000
Medical Treatment. (Limit prescribed by RBI for this is ₹ 2,00,000)
Discuss about the taxability of above benefits and allowances in the hands of Rakhi.
Illustration - HRA vs RFA - N 07

Khanna, an Employee of IOL, New Delhi, a Private Sector Company, received the following for the
Previous Year 2022-2023 -
Basic Salary ₹ 3,20,000, House Rent Allowance ₹ 90,000, Special Allowance ₹ 50,000. Khanna was
residing at New Delhi and was paying a rent of ₹ 10,000 a month.
(a) Compute eligible exemption u/s 10(13A) in respect of House Rent Allowance received.
(b) If Khanna opts for Rent Free Accommodation whereby IOL would be paying a rent of ₹ 10,000 per
month, to the Landlord, and recovers a sum of ₹ 1,000 per month from Khanna which was in excess
of his entitlement, what will be the perquisite value in respect of such Rent Free Accommodation?
(c) Which of the above would be beneficial to Khanna, i.e. House Rent Allowance or Rent Free
Accommodation?
Illustration - Valuation of Perquisites - M 11

Shri Bala employed in ABC Co. Ltd as Finance Manager gives you the list of Perquisites provided by
the Company to him for the entire Previous Year 2022-2023 -
(i) Medical Facility given to his family in a hospital maintained by the Company. The estimated value
of benefit because of such facility is ₹ 40,000.
(ii) Domestic Servant was provided at the residence of Bala. Salary of Domestic Servant is ₹ 1,500
per month. The Servant was engaged by him and the Salary is reimbursed by the Company
(Employer).
In case, the company has employed the Domestic Servant, what is the value of perquisite?
(iii) Free Education was provided to his two children Arathy and Ashok in a school maintained and
owned by the Company. The cost of such education for Arathy is computed at ₹ 900 per month and
for Ashok at ₹ 1,200 per month. No amount was recovered by the Company for such education facility
from Bala.
(iv) The employer has provided movable Assets such as Television, Refrigerator and Air Conditioner
at the residence of Bala. The actual cost of such Assets provided to the employee is ₹ 1,10,000.
(v) A Gift voucher worth ₹ 10,000 was given on the occasion of his marriage anniversary. It is given by
the Company to all employees above certain grade.
State the taxability or otherwise of the above Perquisites and compute the Total Value of Taxable
Perquisites.
Illustration - Value of Concessional Loan - M 08

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Following benefits have been granted by Ved Software Ltd, to one of its employees Mr. Badri —
(a) Housing Loan at 6% per annum. Amount Outstanding on 01.04.2021 is ₹ 6,00,000. Mr. Badri pays
₹ 12,000 per month, on 5th of each month.
(b) Air Conditioners purchased 4 years back for ₹ 2,00,000 have been given to Mr. Badri for ₹
90,000.
Compute the chargeable perquisite in the hands of Mr. Badri for the Assessment Year 2023-2024.
The Lending Rate of State Bank of India as on 01.04.2021 for Housing Loan may be taken as 10% for
calculation convenience.
Illustration - Valuation of Various Perquisites - N 11

Mr. Balaji, employed as Production Manager in Beta Ltd, furnish you the following information -
(i) Basic salary upto 31.10.2022 - ₹ 50,000 p.m.
Basic salary from 01.11.2022 - ₹ 60,000 p.m.
Note: Salary is due and paid on the last day of every month.
(ii) Dearness Allowance @ 40% of Basic Salary.
(iii) Bonus equal to One Month Salary paid in October 2022 on Basic Salary plus Dearness Allowance
applicable for that month.
(iv) Contribution of Employer to Recognized Provident Fund account of the employees @ 16% of
Basic Salary.
(v) Profession Tax paid ₹ 3,000 of which ₹ 2,000 was paid by the Employer.
(vi) Facility of Laptop and Computer was provided to Balaji for both Official and Personal Use. Cost of
Laptop ₹ 45,000 and Computer ₹ 35,000 were acquired by the Company on 01.12.2022.
(vii) Motor Car owned by the Employer (CC of Engine exceeds 1.60 Litres) provided to the Employee
from 01.11.2022 meant for both Official and Personal Use. Repair and Running Expenses of ₹ 45,000
from 01.11.2022 to 31.03.2023 were fully met by the Employer. The Motor Car was self-driven by the
Employee.
Leave Travel Concession given to Employee, his wife and three children (one daughter aged 7 and
twin sons aged 3). Cost of Air Tickets (Economy Class) reimbursed by the Employer was ₹ 30,000 for
adults and ₹ 45,000 for three children. Balaji is eligible for availing exemption this year to the extent it
is permissible in Law.
Compute the Salary Income chargeable to tax and tax liability in the hands of Mr. Balaji for
Assessment Year 2023-2024.
Illustration - Computation of Salary Income - N 13

From the following data, find out the Salary chargeable to tax of Mr. Anand for Assessment Year
2023-2024:
Mr. Anand is a regular employee of Malpani Ltd in Mumbai. He was appointed on 01-03-2022 in the
scale of 25,000-2,500-35,000. He is paid dearness Allowance (which forms part of Salary for
Retirement Benefits) @ 15% of Basic Pay, and Bonus equivalent to one and a half month's Basic Pay
as at the end of the year. He contributes 18% of his Salary (Basic Pay plus Dearness Allowance)
towards Recognized Provident Fund and the Company contributes the same amount.
He is provided free housing facility which has been taken on Rent by the Company at ₹ 15,000 per
month. He is also provided with following facilities:
(i) The Company reimbursed the medical treatment bill of ₹ 40,000 of his dependent daughter.
(ii) The monthly salary of ₹ 2,000 of a house-keeper is reimbursed by the Company.
(iii) He is getting Telephone Allowance @ ₹ 1,000 per month.
(iv) A Gift Voucher of ₹ 4,700 was given on the occasion of his marriage anniversary.
(v) The Company pays Medical Insurance Premium to effect an insurance on the health of Mr. Anand
₹ 12,000.
(vi) Motor Car running and maintenance charged fully paid by Employer of ₹ 36,600. (The Motor Car
is owned and driven by Mr. Anand. The engine cubic capacity is below 1.60 litres. The Motor Car is
used for both official and personal purpose by the Employee.)

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(vii) Value of Free Lunch provided during office hours is ₹ 2,200.

Assessee: Mr. Anand Previous Year: 2022-2023 Assessment Year: 2023-2024
Illustration - Valuation of Perquisites, Exemption for Retirement Benefits - N 11
Mr. X retired from the services of M/s Y Ltd on 31.01.2023 after completing service of 30 years and
one month. He had joined the company in 1992 at the age of 30 years and received the following on
his retirement:
(a) Gratuity ₹ 6,00,000. He was covered under the Payment of Gratuity Act, 1972.
(b) Leave Encashment of ₹ 3,30,000 for 330 days leave balance in his account. He was credited 30
days leave for each completed year of service.
(c) As per the scheme of the Company, he was offered a Car which was purchased on 01.02.2020 by
the Company for ₹ 5,00,000. Company has recovered ₹ 2,00,000 from him for the Car. Company
depreciates the vehicles at the rate of 15% on Straight Line Method.
(d) An amount of ₹ 3,00,000 as Commutation of Pension for 2/3rd of his Pension Commutation.
(e) Company presented him a Gift Voucher worth ₹ 6,000 on his retirement.
(f) His colleagues also gifted him a Television (LCD) worth ₹ 50,000 from their own contribution.
Following are the other particulars:
(a) He has drawn a Basic Salary of ₹ 20,000 and 50% Dearness Allowance per month for the period
from 01.04.2022 to 31.01.2023.
(b) Received Pension of ₹ 5,000 per month for the period 01.02.2023 to 31.03.2023 after
Commutation of Pension.
Compute his Gross Total Income from the above for Assessment Year 2023-2024.
Illustration - Valuation of Perquisites & Chapter VI A Deductions - N 10

Mr. Raghu, Marketing Manager of KL Ltd. based at Mumbai furnishes you the following information -
Jasic Salary - ₹ 1,00,000 per month, Dearness Allowance - ₹ 50,000 per month, Bonus - 2 Months
Basic Salary, Contribution of Employer to RPF - 15% of Basic Salary plus Dearness Allowance. Rent
Free Unfurnished Accommodation was provided by the Company at Mumbai (Accommodation owned
by the Company).
Illustration - Computation of Total Income & Tax Payable - N 08

Mr. Mahesh, a Production Manager, working in ABC Ltd, New Delhi, receives following emoluments
during the Previous Year 2022-2023:
Particulars ₹ Particulars ₹
Basic Salary 5.25.000 Bonus 24.000

D.A. (not forming part of Salary) 4.20.000 Medical Allowance 15.000
Commission on extra production 36,000 Special Allowance 54.000
1. Education Allowance (including allowance for Hostel Expenditure) for two sons who are
engineering students at Mumbai - ₹ 48,000.
2. His Employer has provided Rent Free House to him in New Delhi.
3. Electricity Bills paid by ABC Ltd for him during the previous year are for ₹ 34,500.
4. On 02.01.2021, Employer Company has given him a CD player for domestic use and a laptop for
office and personal use. Ownership of both the assets have not been transferred. The cost of CD
player is ₹ 60,000 and that of laptop is ₹ 1,20,000.
5. His investments during the previous year are - (a) Notified Mutual Fund ₹ 75,000, & (b) PPF ₹
45,000.
6. He has paid tuition fees of his sons on 17.12.2022 of ₹ 1,80,000
7. He has deposited ₹ 30,000 in Five Year Time Deposit Scheme in Post Office on 25.03.2023.
8. His Agricultural Income during the year is ₹ 1,35,000

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9. He has received Gift of ₹ 75,000 from his Grandfather on 10.06.2022.
10. He has gifted his Car to his wife on 15.05.2021. She has earned income of ₹ 90,000 from hiring
the same during the previous year.
Compute the Total Income and Tax Payable of Mr. Mahesh for the Assessment Year 2023-2024.
Illustration - Computation of Income under the Head “Salaries - M 17

Mr. Nambi, a Salaried Employee, furnishes the following details for the Financial Year 2022-2023:
Particulars ₹
Basic Salary 6,00,000
Dearness Allowance 3,20,000
Commission 50,000
Entertainment Allowance 7,500
Medical Expenses reimbursed by the Employer 21,000
Profession Tax (of this, 50% paid by Employer) 7,000
Health Insurance Premium paid by Employer 9,000
Gift Voucher given by Employer on his birthday 12,000
Life Insurance Premium of Nambi paid by Employer 34,000
Laptop provided for use at home. Actual Cost of Laptop to Employer [Children of the 30,000
Assessee are also using the Laptop at home.]
Employer- Company owns a Tata Nano Car, which was provided to the Assessee,
both for official and personal use. No Driver was provided. (Engine Cubic Capacity
less than 1.6 litres)
Annual Credit Card Fees paid by Employer [Credit Card is not exclusively used for 2,000
official purposes, details of usage are not available.]
You are required to compute the income chargeable under the head "Salaries" for the assessment
year 2023-2024.
Illustration - Computation of Income under the Head “Salaries - M 18

Mr. Honey is working with a Domestic Company having a production unit in the U.S.A. for last 15
years, he has been regularly visiting India for export promotion of Company's product. He has been
staying in India for atleast 184 days every year.
He submits the following information:
Salary received outside India (For 6 Months) ₹ 50,000 P.M.
Salary received in India (For 6 months) ₹ 50,000 P.M.
He has been given rent free accommodation in U.S.A for which company pays ₹ 15,000 per month as
rent, but when he comes to India, he stays in the guest house of the company. During this period he
is given free lunch facility. During the previous year company incurred an expenditure of ₹ 48,000 on
this facility.
He has been provided a car of 2,000 cc capacity in U.S.A which is used by him for both office and

89
private purposes. The actual cost of the car is ₹ 8,00,000. But when he is in India, the car is used by
him and the members of his family only for personal purpose. The monthly expenditure of car is ₹
5,000. His elder son is studying in India for which his employer spends ₹ 12,000 per year where as his
younger son is studying in U.S.A and stays in a hostel for which Mr. Honey gets ₹ 3,000 per month as
combined allowance.
The Company has taken an accident insurance policy and a life insurance policy. During the year the
company paid premium of ₹ 5,000 and ₹ 10,000 respectively.
Compute Mr. Honey's taxable income from salary for the Assessment Year 2023-2024.
Illustration - Place of Accrual of Salary - N 16
Mr. Rajnesh, a Citizen of India, was serving in the Ministry of Finance in India and transferred to High
Commission of Australia on 15th March 2022. He did not come to India during the Financial Year
2022-2023. His Income during the Financial Year 2022-2023 is given here under:
Particulars ₹
Salary from Govt, of India 7.20.000

Foreign Allowances from Govt, of India 6,00,000
Rent from a House situated at London, received in London 3.60.000
Interest accrued on National Saving Certificate during the year 2022-2023 45,000
Compute the Gross Total Income of Mr. Rajnesh for the Assessment Year 2023-24
Illustration - Place of Accrual of Salary - N 11

Mr. David a Government Employee serving in the Ministry of External Affairs left India for the first time
on 31.03.2021 due to his transfer of High Commission of Canada. He did not visit India any time
during Previous Year 2022-2023. He has received the following income for the Previous Year 2022-
2023.
S.No. Particulars ₹
(i) Salary 5.00. 000

(ii) Foreign Allowance 4.00. 000
(iii) Interest on Fixed Deposit from bank in India 1.00. 000
(iv) Income from Agriculture in Pakistan Income from House Property in 2,00,000
(v) Pakistan 2,50,000
Compute his Gross Total Income for Assessment Year 2023-2024.
Illustration - Profit in Lieu of Salary - M 02

Raghav requests you to compute his Taxable Income for the previous year ending 31.03.2023, from
the following data -
(a) Joined service on 01.10.2021, on a consolidated salary of ₹ 60,000 per month.
(b) He was paid ₹ 30,000 in September 2021, so that he should not join elsewhere.
(c) He contributed towards - (i) Life Insurance Premium - ₹ 20,000, (ii) PPF - ₹ 1,50,000.
Illustration - Computation of Taxable Salary-Taxability of Allowances - N 08

Mr. M is an Area Manager of M/s N Steels Ltd. During the PY 2022-2023, he gets following
emoluments from his Employer -
Basic Salary Upto 31.08.2022 - ₹ 20,000 p.m., From 01.09.2022 - ₹ 25,000 p.m.

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Transport Allowance ₹ 2,000 p.m.

Contribution to Recognized Provident Fund 15 % of Basic Salary and D.A.
Children Education Allowance ₹ 500 p.m. for two children
City Compensatory Allowance ₹ 300 p.m.
Hostel Expenses Allowance ₹ 380 p.m. for two children
Tiffin Allowance (Actual Expenses ₹ 3,700) ₹ 5,000 p.a.
Tax paid on employment ₹ 2,500
Compute Taxable Salary and Tax Payable of Mr. M for the Assessment Year 2023-2024.
Illustration - HRA with different periods & Rents - M 12

Mr. Mohit is employed with XY Ltd on a Basic Salary of ₹ 10,000 p.m. He is also entitled to DA at
100% of Basic Salary, 50% of which is included in Salary as per Terms of Employment. The
Company gives him House Rent Allowance of ₹ 6,000 p.m. which was increased to ₹ 7,000 p.m. with
effect from 01.01.2022. He also got an increment of ₹ 1,000 per month in his Basic Salary with effect
from 01.02.2021.
Rent paid by him during the Previous Year 2022-2023 is as under:
April and May 2022 - Nil, as he stayed with his parents
June to October 2022 - ₹ 6,000 p.m. for an accommodation in Ghaziabad
November 2022 to March 2023 - ₹ 8,000 p.m. for an accommodation in Delhi
Compute his Gross Salary for Assessment Year 2023-2024.
Illustration - Computation of Gratuity - Different Scenarios - N 12, RTP

Alok, retired from service on 31.07.2021 after rendering service of 25 years and 7 months. He
received Gratuity of ₹ 7,00,000. His Salary at the time of retirement was as under: Basic - ₹
16,000 p.m. DA (Eligible for Retirement Benefits) - ₹ 8,000 p.m.
Compute the Taxable Portion of Gratuity in the following cases -
1. Alok is a Government Employee.
2. Alok is not a Government Employee but covered by Payment of Gratuity Act, 1972.
3. Alok is not a Government Employee and also not covered by Payment of Gratuity Act, 1972.
Illustration - Gratuity Exemption - N 10

Mr. Shah, an Accounts Manager, has retired from JK Ltd, on 15.01.2023 after rendering services for
30 years 7 months. His Salary is ₹ 25,000 p.m. up to 30.09.2022 and ₹ 27,000 thereafter. He also
gets ₹ 2,000 p.m. as Dearness Allowance (55% of it is a part of Salary for computing Retirement
Benefits). He is not covered by the Payments of Gratuity Act, 1972. He has received ₹ 8 Lakhs as
Gratuity from his Employer Company. Compute the Exemption u/s 10(10) and Gross Income under
Salaries.

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Income fm House Property
SECTIONS DISCUSSED IN THIS CHAPTER
Chargeability - Chargeable amount is Annual Value Section 22
Computation of the Annual Value Section 23
Deductions from NAV: Statutory deduction Section 24(a)
Deductions from NAV: Interest on borrowed capital Section 24(b)
Interest on borrowed capital payable outside India Section 25
Recovery of unrealized rent and arrear of the rent received Section 25A
Property owned by co-owners Section 26
Deemed Ownership Section 27

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CH ARG E AB I L I T Y
 As per s e c. 2 2, a nn u a l v a lu e o f th e pr o pe r t y c o ns is t in g of a ny b u il d ing or la n d
ap p urt e na n t th er et o of wh ic h t he a s s es s e e is t he own e r, o t h e r t ha n s uc h
po r t io ns o f s uc h pr op e rt y a s s / he m ay o c c up y f or th e p ur p os e o f a ny bu s in es s
or p ro f e s s i o n ( B/ P ) , c ar r ie d o n by h im , t h e pro f its o f w h ic h a r e c har g e ab le t o
in c om e –t ax , s h a ll b e s ubj ec t to inc om e- t a x U/ H “ I nc o m e fr o m h ou se pr o per ty .
(I HP ) .
S o , in s im p l e ter m i no lo g y, we c a n s ay t h a t , f ol low in g c on di tio ns m ust b e
s at is fie d to t ax ed inc o me U /H “ IH P” .
i. T h e p r op er ty s ho u ld c on s is t of b u ildi ng s or la n d a d jo in i ng t h e bu il d in g.
ii. T h e a s s es s e e s h ou l d be t h e ow n e r of s uc h HP .
iii. T h e o wne r s ho u ld no t u t il iz e th e p r op er ty f or t h e p ur p os e o f any B / P
c a r rie d o n by hi m, t he p r of its o f w hic h ar e t a x ab l e un d er I .T. A ct .
COMMERCIAL This chapter covers Rental Income from both residential building and
PROPERTIES commercial building such as offices, shops, go-downs etc.
Building has not been defined in the Act but in the ordinary meaning it means
MEANING OF the
BUILDING space, which has the boundary walls, which may be with or without roof
RENT OF LAND The term House Property shall include any building and lands appurtenant
thereto. If the land is not attached to the building then Rent from such land is
not taxable under this head but instead it shall be taxable under the head other
sources
SUBLETTING Any Rental Income earned from letting out of Property shall be chargeable to
tax for the owner of House Property. But if tenant has let out the Property (sub-
letting) then income earned by him shall be chargeable to Tax under the head
of ‘other sources’
BUSINESS OF If any person is holding any HP for the purpose of business of letting it out then
LETTING OUT OF rental income of such person shall be taxable as PGBP income and not as
BUILDINGS income of HP. [Rayala Corporation Pvt. Ltd. (SC) ]
Important Practical Issues
The House Property is owned by the Assessee, but it is used by the Firm in which he is a Partner,
and he has not derived any benefit from the Firm. It is deemed that the Partner is using the property
for his own business, and hence not taxable under Income from House Property.
Where the Property is owned by HUF, but used by the Firm in which all the Members are Partners,
Property Income shall be assessable in the hands of HUF as House Property.
Where IT Authorities found that the Assessee had leased out his property to his own family
members to show lesser income in his hand and family members had in turn sub-leased it to
outsiders on much higher rentals, Assessing Authorities could tax the said income in hands of the
assessee.

93
Deemed Ownership [Sec.27]: Person treated as Owner even if no document of title is

registered in his name. Includes-
04. •Property transferred to Spouse or Minor Child for inadequate consideration,
05. •Holder of Impartible estate,
06. •Member of Co-operative Society, Company, etc. who is allotted a House
Property,
07. •Part-performance of a Contract u/s 53A of the Transfer of Property Act,
08. •Holder of a Power of Attorney,
09. •Property constructed on a Leasehold Land.
10. •Ownership of Property is under dispute,
11. •Lessee of a Property taken on a lease for a period of not less than 12 years.
Unrealised Rent [Sec.23(l) Expln]: Reduced from Actual Rent, if - (a) Tenancy is Bonafide,
(b) Tenant has vacated the property, (c) Tenant not in occupation of any other Property of
Assessee, (d) Steps taken for Recovery.
Recovery of Unrealised Rent [Sec.25A]: Treated as the Income of the Previous Year in
which it is realized, to the extent of the benefit enjoyed by way of reduction in Net Annual
Value. 30% deduction will be allowed against such receipt / recovery of Unrealised Rent..
Municipal Tax including Tax for Services [Sec.23(l) Proviso]: Paid during current
previous year allowed as deduction. Deductions u/s 24: 30% of NAV and Interest on
Borrowed Capital.
Treatment of Prior Period Interest [Sec.24 Expln.]: Allowed in 5 equal installments from the
PY in which acquisition was made or construction completed.
Interest paid outside India [Sec.25]: Disallowed if paid without deduction of TDS and no
person treated as Agent u/s 163.

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Composite R ent
 S o me tim e s , ow ne r c h ar g es r e nt f m t h e t en an t no t o n ly o n acc ou nt o f r e nt fo r
th e H P b ut a ls o on a / c o f s e rv ic e c h ar ge s f o r v a r ious f a c i l it i es p ro v id e d w it h
th e h ou s e . S uc h r e nt is k n o wn as “ C om p o s it e r ent ” .
C o m p o s it e r en t = R en t for b ui ld in g + re nt f o r as se ts + c h a r g es f or v ar io us
s e r v ic e s .
 L et ti n g o f bu i ld i ng wi th o t h er in se pa r ab le as s e ts :
If t h e le t t ing o f bu il d i n g is i ns e p ar a b le f m t h e l et t in g o f ot he r as se ts lik e
ma c hi n er y , f ur n it u re e tc ., th e en t ire in c o me wou ld b e t ax a b le a s I B & P o r I O S,
ev e n s e gr eg at i o n of r e nt is po s s ib le .
 KEY POINTS
A. W h er e let t ing o f bu il din g an d let t in g o u t of ot h e r ass e ts a r e
s e p ar a ble ( i. e . in th e s e ns es t ha t l et t in g of o ne is a cce p ta b le t o
ot h er w i t ho u t le t t in g ou t of t h e ot he r ; f o r in s t a nc e l et t in g o u t o f
bu il din g a lo ng w it h c a r ), t he n s u m re c e iv e d fo r u s e o f b u i ld in g is to
be t ax a b l e as “ I H P” a nd s um r ec e iv e d f or u se o f as se ts or s er v ic es
is t ax a b le ei t he r a s “ I B & P” or “I O S ” .
 Ren t i n c lud es r en t o f bu i ld in g a n d c h ar g e s o f d iff e r en t s e rv i c e s ( li k e li ft ,

ai r - c o n d i ti on i n g et c.)
If t he o wn e r o f a h ou s e pr op e rt y g e ts a c o m po s it e re n t f or t he pr o p er ty as
we l l as f or s er v ic es r en d er e d t o a t en a nt , c o mp o s it e r e n t h as t o b e sp lit up
an d t h e s u m w h ic h is at t r i b ut ab le t o t he u s e o f the p r op er ty is t a x a bl e as
re n t a l inc o me fm h o us e pr o per t y u /s 22 . Th e a m ou n t w hic h r e la t es to
re n d it i o n of s e r v ic e s ( s uc h as e lec tr ic it y s u p ply , pr o v is io n of lif ts , sup p ly of
wa ter , w atc h an d w a te r f a c ilit y , a r ra n ge m en t f o r s c av e n g i ng.

95
X owns a house property at Kolkata which is let out for residential purposes ,
particulars of which are as follows :---
Rent of house and amount charged for different amenities ( Rs. 96,000 Includes charges for
the following amenities – water charges Rs. 8,000,Electricity charges Rs. 24,200 , lift
charges Rs. 12,000 and security chargers. 11,000) 96,000
Rent of 1 month could not be collected 8,000
Municipal taxes paid by the tenant 3,000
MV 36,000
FR 38,000
SR 39,000
Expenditure :-
The construction of the property was completed on October 31,2015.
During the P.Y 2002-2003, X had claimed deduction of UR of Rs. 15,000 out of which Rs.
11,000 was allowed as Deduction for that year .On August 10,2020, X, however recovers
Rs. 7,000 from the defaulting tenant (expenditure on recovery of rent) .
For providing the different amenities, the following expenses are incurred by X:
Water bills 19,400
Lift maintenance 4,600
Salary of liftman 6,000
Depreciation on lift 2,800
Salary of guard 18,000
Assuming that income of X from business is Rs. 4,00,000.Find out the net income and tax
liability of X for the A.Y 2022-2023 .X annually contributes Rs. 55,000 towards PPF.

96
T Y P E O F HO US E P RO P ER T Y
Ho u se P ro p e r ty
Co m ple te ly let ou t. T h e en t ir e h o us e or f la t P art ly l e t ou t f or t h e

{ Sec . 23 ( 1) } is used by the f ul l y e ar { S e c. 23 (1 ) }
as s e s s e e f or his ow n an d p ar t l y u s ed b y t h e
r es id e n ce. as se s s e e f or his ow n
{ Se c . 2 3( 2) } r es id e n c e f or t h e fu ll
y e ar .
Thr ou g ho u t t he P Y Ca n n ot b e oc c u p ied owi ng

{ Se c . 23( 2 ) ( a) } to his e mp lo y me n t e tc .
{ Se c . 23 ( 2 )( b) }
M OD E OF CO M P UTA T I O N O F I NCO M E

97
LET OUT PROPERTY
Co m p u ta t io n o f G ro s s An n u al V al u e ( GA V) { S e c. 23 ( 1) }

98
SELF OCCUPIED HOUSE PROPERTY
A HP fully utilised throughout the PY for self-reside ntial purpose, it is

not let out or put to any other use. {Sec. 23(2)(a)}
 No th in g is t ax a b l e. A nn u a l v a l u e is n il. O n ly in t ere s t on b o rr o w e d ca p it a l is
de d uc t ib le s u bj ec t t o a m ax imu m o f Rs 3 0, 00 0/- o r R s 2, 00 , 0 0 0 /- .
 X owns a house property .It is used by him throughout the P.Y 2022-23 for his
residence .Municipal value of the property is Rs. 1,66,000 , whereas fair rent is Rs.
1,76,000 and standard rent is Rs. 1,50,000.The following expenses are incurred by X ;
repairs Rs. 20,000 , municipal tax ; 16,000 , insurance Rs. 2,000 ; interest on capital
borrowed to construct the property Rs. 1,36,000 ; interest on capital borrowed by
mortgaging the property for daughter marriage Rs. 20,000 ( in either case capital is
borrowed before April 1,1999).Income of X from business is Rs. 7,10,000 . Find out the
net income of X for the assessment year 2022-23.
HP away fm the p la ce of the work. {Sec. 23(2)(b)}
 Ne t a n nu a l v alu e of s uc h HP s ha ll be t ak en as n il pr o vid e d t h e f o l lo w in g
c on d it i on s ar e s at is fie d :
i. T h e a s s es s e e mu s t b e t h e ow ne r of o n ly o n e H P.
ii. He c a n ’t oc c u py t h e HP t hr o u gh o ut th e P Y bec a use of h is em p l oy m en t ,
bu s i n es s or pr of es s i on a way f m t h e p lac e w h er e t h e pr op e r ty is si t ua t e d .
iii. He h as t o r e s i de a t t h at o t h er p l a c e i n a b u il di ng n ot b el on g i ng t o him .
iv. T h e p r op er ty is n ot a c t ua l ly l e t ou t; a n d
v. No o t her b e n e f it is d e riv ed f m t he p ro pe r ty .
 No th in g is t ax ab le . O n ly i nt e r es t o n bo r r owe d c ap it a l is de d uct i b l e s u b jec t to

a m ax imu m o f R s 30 ,0 00 /- or Rs 2 , 00 ,0 0 0/ - .

99
Assessee has mor e than one house for residential purpo se. {Sec. 23(4)}
 Wh er e t h e as s es s e e h a s o c c u pi e d mo re t ha n o n e h ous e f o r his o w n
re s ide nt ia l p ur po s es , on ly T WO o f t he m ( ac c o rd in g t o h is o w n ch oic e ) is
tr ea t e d a s s e lf oc c u p i ed u /s 23 ( 2)( a) a n d al l o t he r h ou ses s h a ll b e tr e at e d as
de e me d t o be l et ou t.
 Points to be remembered
01. S u c h o pt io n m ay b e c h a ng e d f m y ea r t o y e ar i n a m an n er b e ne f i cia l t o
th e as s e s s e e .
02. Ho wev er if a n as s es s e e h as a H P c o ns is t o f tw o or m or e r es i d en t ia l u n it s
an d all s u c h u n its ar e s elf oc c u p ie d , t h e a n nu a l v a l u e o f t h e e nt ir e H P
s h al l be t a k e n a s ni l a s th er e is on ly o n e HP th o ug h it h as m or e t h a n o n e
r es id e nt i a l u ni ts .
 M r X o w n s fo u r h o us e , p a r t i cu l a rs o f w h ic h a r e a s fo l lo w s
H1 H2 H3 H4
MV 30 , 00 0 70 , 00 0 92 , 00 0 28 , 00 0
FR 40 , 00 0 58 , 00 0 96 , 00 0 37 , 00 0
SR 37 , 00 0 74 , 00 0 NA 36 , 00 0
Mu n ic i pa l t ax 3, 0 00 16 , 00 0 29 , 00 0 12 , 00 0
In s u r an c e pr e m ium 1, 0 00 2, 0 00 11 , 70 0 2, 8 10
In te r es t on bo r ro we d
c a pi ta l(c a pit a l wa s
bo r ro we d b e f o re 1- 4 -9 9
in t he c a s e of H1 ,H 3 an d
H4 .I n c as e o f H 2 c ap it al
wa s b o rr o w ed o n 16 - 04 - 11 , 06 0 75 , 90 0 54 , 09 0 85 , 30 0
20 0 3
Re pa y m e nt o f lo a n t a k e n
fr o m L I C n il 6, 0 00 17 , 00 0 2, 0 00
F i n d o ut th e ne t in c om e an d t ax lia bi lit y of X f o r A Y 2 0 2 2- 2 3 t ak i n g i n to
c o ns i d er a t io n t h e f o l lo win g inf or ma t io n
1. in c o m e of X f ro m o t h e r s ou r c e is Rs . 1 4 , 7 5, 00 0
2. X h a s d ep o s it e d Rs . 3 0, 0 0 0 in P PF .

100
Par t of HP is self occupied and par t is let out. {Sec. 23(3)}
 In t h is c as e, a HP c o n s is ts of t wo or mo re i n de p en d en t u n its a n d o n e o r m or e
of wh ic h ar e s elf- o c c u p ie d a nd r e m a in in g u nits ar e let o ut .
 In c o m e fm t he in d ep e nd e nt un i t, w h ic h is s e lf oc c u pie d , wi ll n o t be tax ab le .
In t er e s t o n b o r ro w e d c ap ita l is d e duc t ib le up t o Rs 3 0 , 0 00 /- Rs 2, 00 , 0 0 0/ - .
In c o m e f m t he un i t whi c h is le t o u t is c o m p ut ed as if t h e un i t is le t ou t.
 X o w ns a re s id en t i a l h o u s e p r op e rt y .I t ha s tw o e q u al
u ni ts – Un it s 1 an d Un it 2. Un i t 1 i s se l f o c cu p ied b y X
fo r h i s r e si d ent i a l pu rp o s e . Un it 2 is l et o u t ( r e n t b e i ng
Rs . 6, 0 00 p er m o nt h , r e nt o f 2 m o nt h c ou l d n o t b e
re c o v e r ed ) . Mu n i ci pal va lu e o f t h e p ro p e rt y is R s .
1, 3 0, 00 0 , St a nd a r d r en t R s. 1 , 2 5 , 00 0 a n d f a i r re nt i s R s .
1, 4 0, 00 0 .M u n i c ipa l t ax i s i m p o s e d @ 1 2 pe r c en t wh i ch
is p a i d b y X . O t h e r e xp e ns e s fo r t h e P. Y 2 0 22 - 2 3 be ing
re p a i r s R s. 25 0 , i ns u r an c e R s. 6 0 0, i nt e re s t o n ca p it al
fo r co n s t r u ct in g t h e p ro p e r ty R s . 6 3, 00 0 ..
F in d t h e in co m e of X f o r th e a ss e s s m e nt y ea r 2 0 2 2-2 3 on
th e a ss u m p t ion t h at in c om e o f X f ro m ot h e r s o u r ce s i s
Rs . 1 , 8 0 , 0 00 .

101
No notion al incom e for house pr ope rty held as stock in trade {Sec.
23(5)}
a. Th e pr o p er ty ( c ons is tin g o f a ny bu il d in g a n d la n d
ap p ur t e na n t t h er e t o) i s he ld a s s t o ck in t r a d e by
th e o wn e r o f the h o us e pr o pe r ty
b. Th e pr o pe rt y ( or an y par t of t h e p r op er ty ) is n ot
le t o u t du ri ng th e w ho l e (o r a ny p ar t) of t h e P Y
If a bo v e c o n d it io n s a t i s fie d , an n ua l v a lu e of s u ch
pr o p e r ty ( or pa r t of t h e pr o pe r ty ) sh a ll be t a ke n to
be n il .H owe v er t h is c onc es s io n w i ll b e av a i l ab l e
on ly fo r t he p e r io d u p t o 2 y ea r f r o m t h e en d of t h e
F Y in w h ic h t h e c e rt if ic at e o f com pl et i o n of
c o ns t r uc t i on o f t he pr op er ty is o bt a i ne d f ro m t h e
c o m p e t e nt a ut h or ity

102
HP w hich is self occupi ed fo r a part of the year and let out for other par t
of the year .
 In t h is c as e b en e fit of s ec . 2 3( 2) ( a ) is no t a v a il a b le a n d i ts an n u a l va lu e s h a ll
be c o mp u t e d as if t he pr op e rty is le t o ut t hr o ug h ou t t h e y ea r. I n t h i s c as e , t h e
pe r io d of o c c u p at ion o f pr o p er ty f or o wn s r es i de nc e s ha ll b e ir re l ev an t .
 X o w n s a p ro p e r t y at D e lh i ( M V ;R s. 1 , 64 ,0 00 , F R; Rs . 2 , 1 6, 0 00 ,
SR ; Rs . 1 , 80 ,0 00 ). T h e ho u s e i s l et ou t u p t o J an u a r y 31 , 20 23 (
m o nt h ly r en t b e ing Rs . 1 4 , 0 0 0) .F r o m F eb ru a r y 1 , 2 0 2 3 t h e
p ro p e rt y i s s e lf o ccu pi e d f o r o w n r es id en t ia l p u r po s es . Ex pe ns e s
in c u rr e d b y X a r e : Mu n ic ip al ta x ; R s. 6, 00 0 ( a ct u a ll y pa i d ) ,
Re p a i rs R s. 2 ,1 0 0, i n su r an c e R s. 1 , 1 00 , in t e re st o n c ap i tal
b o rr o w ed f o r a cq ui r i n g t h e p r op er t y Rs . 1 , 2 3 , 00 0 . As s u m in g t h at
t he in co m e o f X fr o m o th e r so u r c es i s R s . 1,8 6 , 0 00 , f in d ou t t h e
n et i n c o m e of X f or t h e A . Y 2 02 3 -2 4 . Do e s it m a ke an y di f fe r en c e
if th e p ro pe rt y i s l e t o ut u p to J a nu a r y 3 1, 20 2 3 @ 19 , 0 00 pe r
m o nt h . T he r e i s n o u n r e ali z ed ren t .

103
REMNANTS
Recovery of Unr ealised Re ntand taxati on of arrear s of re nt {Sec. 25-A

red with sec. 25-AA }
A m ou n t o f r e nt r ec e i v ed in ar r ea rs o r th e a mo u nt of u nr e a liz ed r e nt r e a liz e d
s u bs e q u en t ly b y an as s e s s e e s h a ll b e c h ar ge d t o i nc om e t ax i n t h e pr e v io us y e ar
in wh ic h s uc h r e n t is r ec e iv ed o r r e a lis ed , w h e t h er t he a ss ess ee is th e o w n er of
th e p r o pe r ty o r n ot in t h at p re v i o u s y e ar . M o re ov er , t h e as s ess e e c a n c l a im 3 0%
of t h e arr e ars o r th e un re a l is e d r en t r e a lis e d s u bs eq u en t ly a s d e du ct i on .

104
Propert y owned by co-ow ner s {Sec. 26 }
 If tw o o r m or e pe r s o ns jo int ly o wn a hou s e p r o p er ty , t h en t hey a r e k n ow n as

c o-o w n er s . If i n div id u a l s ha r e of e ac h c o- o wn er is d e f in it e a n d a s ce rt a in a b l e,
th e s h ar e o f e ac h s uc h pe rs o n fr o m s uc h h o us e w ill be i nc lu d e d i n re s pec t iv e
in div idu a l as s es s me n t as h is I HP . O t h er w is e, t h es e c o- ow n e r s w i ll b e t re a t e d
as A O P t o b e t re a t e d as as s es s e e s e pa r a te fm ind iv idu a ls.
 If t h e pr o pe r ty is s e lf o cc u p i e d b y al l th e c o- o w ne rs , t ha n a n nu a l v alu e f o r
ea c h c o-o w ner s h a ll b e ni l. I n s u c h a c a s e , in t er es t o n l o a n u /s 2 4( b) sh a l l b e
al lo w ed t o e ac h c o- ow ne r t o t h e ex t en t o f R s 30 , 0 0 0/ - or R s 1, 50 , 00 0 /- as th e
c as e m ay b e .
 If t h e pr op er ty is l et o ut , t ha n it wi ll b e f ir s t c o mp u te d ig n or i ng t h e co -
ow n e r s hi p a nd t ha n d i s tri b ut e d a m on gs t c o - ow n e r s i n t h eir re s p e ctiv e ex t e nt
of o w n er s h i p.
T h re e b r ot h e r A ,B a n d C h a v i ng e q u a l sh a re ar e co -o w n e r o f a h o us e pr op e rt y
co n si s t i n g o f s i x i d e nt ic a l u n i t s , t h e p ro p e rt y w a s co n st r u ct e d on 31- 5 -
19 9 8. E a ch o f th em o ccu p i e s on e u n i t fo r h i s r es id e n ce an d t he o th e r t h r ee
u n it s a r e le t o u t a t a r e n t o f R s. 7 , 0 00 p er m o nt h .T h e M V of t h e ho us e p r o p e rt y
is R s. 4, 00 ,0 0 0 a n d th e m un i ci pa l T ax e s ar e 4 0 % of su c h m u ni cip al va l u e ,
w hi ch w e r e p ai d d u r i ng th e y e a r . T h e o th e r i nf or m a ti on a r e as f ol l o w s ;
Re p a i rs 2 0, 00 0
Co l l ec t io n c h a rg e s 5 , 0 00
In t er e st p a y ab l e o n l o an ta k e n f o r c o n s t r uct io n o f h o u s e 2 , 4 2, 00 0
O ne o f t h e le t o u t r em a in ed v a ca n t f o r t h re e mo nt h s d u r in g t h e y e ar .A c ou l d
n o t o c cu p y h i s u nit f o r si x m o n t h as h e w a s t ra ns f e r r ed t o M u m b ai . He do es
n o t ow n an y o t h e r h ou s e. T h e ot h er in c o me o f A, B a n d C a r e Rs . 1, 8 0 ,0 0 0 ;a n d
Rs .1 , 90 , 0 0 0 a n d R s . 2 , 10 , 0 00 re sp e ct i v e l y
Co m p u te t h e in co m e un d e r th e h e ad In co me fr o m h o u s e p r o pe r t y .

105
Exempte d Properti es
 In c o m e f m a ny f ar mh o us e f or min g p ar t of a gr ic u l t ur e inc o m e. { S e c. 10( 1 )}
 A n nu a l v a l u e of a ny o ne p a l ac e i n th e oc c u p at io n of a n ex- r u le r . { Se c.
10 ( 1 9A) }
 Pr op er ty in c o m e of a lo c a l a u t h or ity . { S e c . 1 0( 2 0) }
 Pr op er ty in c o m e of a n ap p ro v e d s c ie nt i f ic re s ea rc h ass o c ia t io n . { S e c. 1 0( 21 ) }
 Pr op er ty in c o me o f c er ta in f u nds , ed u c a t io n al ins tit ut i ons , ho s p it a ls e tc . { S e c.

10 ( 2 3C) }
 Pr op er ty in c o m e of a ny r e g is t er ed t r a d e un io n . { S e c. 1 0( 2 4) }
 HP he l d f o r c h a rit ab l e pur p os es . { S e c. 11 }
 Pr op er ty in c o m e of a p o li t ica l pa r ty . { S e c. 1 3 A}
 Pr op er ty u s e d f o r o wn bu s i n e s s or p r of es s i o n.
 On e SO HP . { S e c. 2 3( 2) }
For eign Pr operty
 If H P is s it u at e d a b roa d , t he n in c om e f m s uc h p ro p er ty is t ax a ble as
fo l lo w in g :
i. O rd in ar i ly r es ide n t A lw ays t axa b le.
ii . No t o rd i nar ily r es ide n t or n on - In c o me m ust be r ec e iv ed in

r es id e nt In d ia .
 X, an America national , is a resident in India during the P.Y ending on

March 31, 2020.He was owner of a building located in New york . The
same was on rent @ US $ 12,500 per month . The Municipal tax on such
building was paid of US $ 10,000 on February 12,2023.Besides the
above property , he purchased a piece of land at Delhi for construction
of a house .The said land was given on rent for running of dairy @ Rs.
3,000 p.m with effect from October 1,2020.The value of one US $ in
Indian rupee throughout the year remained at Rs. 78.50.

106
Dispu ted Ownershi ps
 In c ase o f d is pu te d o wn er s h ip , p er s on wh o is i n re ce ip t o f inc o me o r w h o
enj oys t he p oss es s io n o f t h e H P is as s e ss a bl e t o t a x .
Loss fm HP
 DI SC U S S ED I N “ S ET O FF AN D CA RR Y FO R WA RD O F L O S S E S” .
Doctrin e of Mutuality
 S e c. 22 l ev ie d ta x o n a n n ua l v alu e of h o us e p ro p er ty an d n ot on h o use
pro p e rt y . I n ca s e o f a c lu b , wh ic h pr ov id e s r e c r ea t i on al fac ilit ie s e x c lus iv e ly
to its m e mb ers an d th eir g u e s t an d no t t o a n y n o n- m em b ers , it is c o ns id ere d
as no n- pr o f it se ek ing c onc e r n a nd ru n o n o n -pr o f i t no - los s b as is . S uch cl u b is
r un n i ng on p r inc ip le of m u t ua l ity a nd it s m e mb er ar e no t e nt i t le d t o a n y s ha r e
of pr of it . I n t he c as e of s u c h a mu t u a l c on c e rn , n o t o n ly t h e s ur p lus of th e
org a n isa t io n b ut t he a n nu a l v a lu e o f th e c lu b h ou s e s h a ll be e xe m pt e d fm t a x.
Th is h as b e e n c o n f ir m ed in t h e c as e l aw s o f CH EL MSF O RD C L UB.
House let out to em ployer company which in tur ns allot the sam e as r ent
free acc omm odation
 In s uch a cas e , t he as s es s e e is no t e n t it le d t o t h e a fo r es a i d b e ne f it s
per mis s i ble u / s 2 3 (2) , a s h e occ u pi e s t h e h ou s e n ot as a n ow ne r b ut o n ly in
h is c ap ac ity a s a s u b t e n a nt o f t h e e m p loy er c om p an y .
S o , t he re w il l b e tw o c om p ut a t i on s of t w o c o un ts :
Inc o m e f m H o us e P r o pe r t y : f or r e n t r ec eiv ed .
Inc o m e f m S al a r y : f or p e r q u is it e s as r e nt f r ee
ac co mm o da t i o n .

107
A B C D E
Mu n ic i pa l v al ue 40 40 40 40 40
F a i r r e nt 46 46 46 48 51
St a n da r d r e nt NA 45 35 45 63
If the property is let out throughout the previous year ( no unrealized rent and
vacancy )
H 1 H 2 H 3 H 4 H 5
Mu n ic i pa l v al ue 10 5 10 5 10 5 10 5 10 5
F a i r r e nt 10 7 10 7 10 7 10 7 10 7
St a n da r d r e nt NA 88 88 13 5 13 5
A n n u a l r en t 10 2 11 0 85 11 2 96
If property is let out throughout the previous year, but the entire rent could not
be collected
X Y Z A B
Mu n ic i pa l v al ue 60 60 60 11 2 11 2
F a i r r e nt 68 68 68 11 7 11 7
St a n da r d r e nt 62 62 70 11 5 11 5
A n n u a l r en t 66 66 72 12 0 11 0
Un re a liz e d r e n t 2 2 5 50 40

108
If the entire rent is collected but the property remains vacant
X Y Z A B C D
Mu n ic i pa l v al ue 60 61 60 80 80 14 0 14 0
F a i r r e nt 65 66 64 . 5 78 78 15 0 15 0
St a n da r d r e nt 59 . 5 59 63 85 76 12 0 12 0
A n n u a l r en t 72 57 72 72 NA 96 14 4
Pr op er ty r e ma in s v ac an1t 1 ½ 5 3 12 10 10
Un re a liz e d r e n t Nil Ni l Nil Nil Ni l Nil Nil
If the property remains vacant and the entire rent is not collected
X Y Z A B
Mu n ic i pa l v al ue 14 0 18 0 18 0 14 0 23 1
F a i r r e nt 14 5 18 5 18 5 14 5 26 2
St a n da r d r e nt 14 2 17 5 17 5 14 2 24 1
A n n u a l r en t 16 8 16 8 16 8 16 8 25 2
Pr op er ty r e ma in s v ac an t ½ 1 1 3 5
Un re a liz e d r e n t 14 42 1 70 42

109
( 1) F i n d i t t h e i n co m e f r om p ro p e r ty c h a r g e a b le t o t a x fo r t he A . Y 2 02 3- 2 4 in
t h e fo l l o w i n g c as e s -- -
X Y
Mu n ic i pa l v al ue 1 , 2 0, 00 0 1 , 2 0, 00 0
F a i r r e nt 1 , 3 0, 00 0 1 , 3 0, 00 0
St a n da r d r e nt u n d er th e r e nt c o n t r ol Ac t 1 , 1 0, 00 0 1 , 1 0, 00 0
Ac t u a l r e nt if p r o per ty is le t ou t thr o u gh o u t t h e P . Y 1 , 2 6, 00 0 1 , 2 6, 00 0
Un re a liz e d r e n t of P . Y 2 0 22- 2 02 3 1 0, 5 00 ni l
P e r io d w he n t h e pr o pe rt y r e ma in s v a c a nt
( in n o. o f mo n t h ) ( 1) ( n il)
Lo s s du e t o v a c a nc y 10 , 50 0 ni l
Mu n i c i p al t ax e s - -- 1 8, 0 00 1 8 , 0 00
- -- - pa id b y X a n d Y d ur ing 2 0 22 - 23 1 7, 0 00 8, 00 0
- -- - pa id b y X a n d Y a f te r M arc h 3 1 , 2 02 3 1 ,0 0 0 9, 00 0
- -- - pa id b y t e n a nt s d u ri ng 2 0 2 2-2 3 n il 1, 00 0

110
Problem on house property
# 20. A and B construct their houses on a piece of land purchased by them at New Delhi.
The built up area of each house is 1,000 sq. ft. (ground floor and an equal area in
the first floor). A starts construction on April 1,2017 and completes it on March
31,2020 . B starts the construction on April 1,2017 and completes the same on June
30,2021. A occupies the entire house on April 1,2020. However, B occupies the
ground floor on July 1,2021 and lets out the first for a rent of Rs. 15,000 per month.
The tenant vacates the house on December 31,2021 and B occupies the entire
house during the period January 1,2022 to March 31,2022.
The following is the other information:
Fair rental value of each unit (ground floor/first floor) (per annum) 1,00,000
Municipal value of each unit (ground floor/first floor) (per annum) 72,000
Municipal taxes paid by
A 8,000
B 8,000
Repair and maintenance charges paid by
-A 28,000
-B 30,000
A has availed a housing loan of Rs. 20 lakh @ 12 percent on April 1,2017. B has availed a
housing loan of Rs. 12 lakh @ 12 percent on July 1, 2017. No repayment is made by either
of them till March 31,2020.
Compute income from house property for A and B for the assessment year 2022-23.
# 21. X owns a big house (erection completed on 31-03-2017) which is partly self-
occupied and partly let out. Unit 1(fifty per cent of the floor area) is let out for
commercial purposes on a monthly rent of Rs. 8,200pm (1 month and Rs.700 could
not be realized). Unit 2 (25 per cent of the floor area) is used by X for the purpose
of his profession, while Unit 3 (the remaining 25 percent), is utilized for the purpose
of his residence. Other particulars of the house are as follows:
Municipal valuation: Rs. 60,000, Fair rent 70,000 &Standard rent under the Delhi Rent
Control Act: Rs. 90,000, Muncipal tax: Rs. 15,000, Repairs: Rs. 8,000, Ground rent: Rs.
16,800, Annual charge created by will by father in favour of Mrs.X: Rs. 9,000and Insurance
Premium: Rs. 12,000. Income of X has from profession is Rs. 7,95,000 (without debiting
house rent and other incidental expenditure on the portion of house used for profession Rs
8,000. Determined the taxable income of X for the assessment year 2023-24 , on the
assumption that he maintains books of account on the basis of mercantile system.
# 22. Mr.X has 3 house properties situated at Delhi .

Property A is let out for business.
Property B is let out for residential purpose.
Property C has four identical units:
Unit P ---- let out for residential purpose throughout the P.Y
Unit Q ---- used for own business.
Unit R ---- used for own residence
Units S ---- let out for residential purposes ; but w.e.f. 1-1-2022 was also used for own
residence

111
The particulars of property A and B are as under:

Property A Property B
Municipal value 50,000 60,000
Actual rent 5,000 p.m 6,000 p.m
Fair rent 70,000 75,000
Standard rent 54,000 84,000
Date of completion of construction 1-3-2015 1-3-2016
Municipal tax paid 12,000 20,000
Repairs 5,000 -----
Interest on money borrowed for construction 30,000 12,000
Collection charges 4,800 4,800
Insurance premium paid 2,000 2,000
Mr.X has borrowed a sum of Rs. 2,50,000 @ 12% p.a on 1-1-2015 for construction of
House –A . The entire loan was still outstanding though interest is being paid every year.
The particulars of property C are as under :
Date of completion 1.3.2015
Date of purchase by Mr.X 1.5.2016
Rs.
Municipal value 1,60,000
Rent of unit P 3,000 p.m
Rent of unit S 3,000 p.m
Municipal tax paid 20,000
Interest on money borrowed for purchase of house 40,000
Lease rent of land of house property 5,000
Compute the income of Mr.X under the head RsIncome under the head house property
Rs for the A.Y 2022-23.
# 23. X owns four houses particulars of which are as follows :

I II II IV
MV 30 , 00 0 5, 0 00 68 , 00 0 95 , 00 0
FR 39 , 00 0 18 , 00 0 77 , 00 0 95 , 00 0
SR 36 , 20 0 12 , 00 0 75 , 00 0 90 , 00 0
Re nt ( if pr o pe r ty is let o ut
th r ou g h ou t t h e y e ar ) 42 , 00 0 - -- - - -- - -- -
UR 3, 5 00 - -- - - -- - --
Mu n ic i pa l T a x es
- P a id b y X - -- - 50 0 7, 0 00 9, 0 00
- P a id b y t e na n t 3, 0 00 - -- - - -- - -- -
Da te of c om p let i o n of Ma y Ma y ma r ch A p r il
c o ns t r uc t i on 31 , 20 21 31 , 20 21 31 , 20 21 1, 2 02 1
Na tu re o f oc c u pa ti o n SO SO SO
LO
Pr op er ty I r e ma in s v a c a n t f or 2 mo n th ( M ar c h 1 6 , 20 2 2 to May 1 5,2 0 2 2) . X
bo r ro ws R s . 3 0, 0 00 . R s . 40 , 0 0 0 a nd Rs . 65 , 0 0 0 f or c ons tr u ct i on of H o use I , Ho us e
II a n d H ou s e IV , r e s p ec t iv e ly ( d at e of bo r ro win g ; J u n e 1 5, 2 01 6, d at e o f
r ep ay m en t of lo a n a l o ng w ith i nt er es t ; D ec em b er 3 1 ,20 2 1 , r at e o f i nt er es t 15 % ) .
B u s in es s in c om e of X for th e P. Y 20 2 3 -2 4 is Rs . 1 2, 5 5 , 0 0 0 ( i t h a s be e n c o m pu te d
as per t he p r ov is io n o f t he in c o m e t a x . ) De t e r m ine th e t ax a b le in co m e an d t ax
lia bi lit y o f X for t he A . Y 20 23 -2 4 o n t he a s s um p t io n t h a t he c o nt r i bu t es R s . 4 0, 0 00
to wa rd s PP F .

112
# 24. M r . X o w n s a h o u s e in D e l h i , D u r i n g t h e p r e v i o u s y e a r 2 0 2 2 - 2 3 , 3 / 4 t h p o r t i o n o f t h e
h o u s e w a s s e lf - o c c u p i e d f o r f u l l y e a r a n d 1 / 4 t h p o r t io n wa s l e t o u t f o r r e s i d e n t i a l
p u r p o s e s f r o m 1 . 4 . 2 0 2 1 t o 3 1 . 1 2 . 2 0 2 1 o n a r e n t o f R s . 7 , 0 0 0 p . m . F r o m i. 1 . 2 0 2 2
t h i s p o r t i o n w a s a l s o u s e d f o r o wn r e s i d e n c e . M u n i c i p a l v a l u a t io n o f t h e h o u s e i s
Rs . 2 , 0 0 , 0 0 0 . He i n c u r r e d t h e f o l lo w i n g e x p e n d i t u r e i n r e s p e c t o f t h e h o u s e
property.
M u n i c i p a l t a x e s d u e Rs . 6 0 , 0 0 0 ; Re p a i r s R s . 2 0 , 0 0 0 ; F i r e I n s u r a n c e P r e m i u m
Rs . 3 5 , 0 0 0 ; L a n d R e v e n u e R s . 4 0 , 0 0 0 ; G r o u n d R e n t R s . 2 , 0 0 0 we r e p a i d d u r i n g t h e
y e a r . A l o a n o f R s . 1 0 , 0 0 , 0 0 0 w a s t a k e n o n 1 . 4 . 2 0 1 7 @ 9 % p . a . f o r t h e c o n s t r u c t io n
o f t h e h o u s e w h i c h w a s c o m p l e t e d o n 2 8 . 3 . 2 0 1 8 . No t h i n g w a s r e p a i d o n l o a n
account so far.
Fi nd o u t h i s i n c o m e f r o m h o u s e p r o p e r t y f o r t h e a s s e s s m e n t y e a r 2 0 2 3 - 2 4 i f X :
( a ) d oe s no t o p t t o b e t a x e d u n d e r s e c t i o n 1 1 5 B A C
( b) op t s t o b e t a x e d u n d e r s e c t i o n 1 1 5 BA C
# 25. R o wn s a h o u s e p r o p e r t y w h i c h is s e l f - o c c u p i e d b y h i m t i l l 3 0 . 1 1 . 2 0 2 1 a n d
t h e r e a f t e r l e t o u t f o r R s . 1 0 , 0 0 0 p . m . T h e m u n i c i p a l v a l u e o f h o u s e p r o p e r t y i s Rs .
1 , 0 0 , 0 0 0 a n d t h e f a i r r e n t i s R s . 1 , 2 0 , 0 0 0 , R p a i d Rs . 1 , 5 0 , 0 0 0 a s m u n i c i p a l t a x e s
d u r in g t h e p r e v i o u s y e a r w h ic h r e la t e t o p a s t y e a r s a s w e l l a s f o r c u r r e n t y e a r .
De t e r m in e t h e i n c o m e f r o m h o u s e p r o p e r t y a s s u m i n g t h e i n s u r a n c e p r e m iu m a n d
i n t e r e s t p a i d d u r in g t h e y e a r we r e Rs . 3 , 0 0 0 & R s . 2 5 , 0 0 0 r e s p e c t i v e l y . A s s u m e i f R :
(a) does not opt to be taxed under section 115BAC

(b) opts to be taxed under section 115BAC
# 26. R h a s a h o u s e p ro p e r t y s i t u a t e d i n D e l h i . F r o m t h e f o l l o w i n g p a r t i c u l a r s
s ub m i t t e d t o y o u . C o m p u t e t h e i n c o m e f r o m h o u s e p ro p e r t y f o r t h e a s s e s s m e nt
year 2023-24.
Rs.
Municipal valuation 90,000
Fair rent 1,10,000
Standard rent 1,00,000
The house property was let out w.e.f. 1.4.2021 for Rs.8,000 p.m. which was vacated by
tenant on 30.9.2021. It remained vacant for 2 months. W.e.f. 1.12.2021, it was let out for Rs.
1 1,000 p.m.
Municipal taxes paid 20% of

municipal
valuation
Insurance premium paid Rs.3,000
Interest on money borrowed for purchase of house property Rs.30,000
Assume R:
(a) does not opt to be taxed under section 115B AC
(b) opts to be taxed under section 115BAC

113
Illustration - Evaluation of Beneficial Option - M 10

Mr. Mahesh has three flats at Chennai, all the houses were self occupied, the particulars of
which are provided below (in ₹ )
Particulars Flat I Flat II Flat III
Municipal valuation 3,00,000 3,60,000 3,30,000
Fair Rent (Rent which similar property would fetch) 3,75,000 2,75,000 3,80,000
Standard rent 3,50,000 3,70,000 3,75,000
Municipal taxes paid 12% 8% 6%
Date of Completion/ Purchase 31.03.1999 31.03.2001 01.04.2014
Interest on loan for Repairs of property during the Current — 55,000 —

year
Current year Interest on loan borrowed in July 2013 for 1,75,000

Purchase of property
You are required to advise Mr. Mahesh which flats can be treated as self-occupied and the
other deemed to be let out in a manner beneficial to him.
Assessee: Mr. Mahesh Previous Year: 2022-2023 Assessment Year: 2023-2024
Illustration - Computation of Income from House Property - M 17

Mr. Ganesh owns a Commercial Building whose construction got completed in June 2020. He
took a Loan of ₹ 15 Lakhs from his friend on 01-08-2019 and had been paying Interest
calculated at 15% per annum. He is eligible for Pre-Construction Interest as deduction as per
the provisions of the Income Tax Act.
Mr. Ganesh has let out the Commercial Building at a monthly rent of ₹ 40,000 during the
financial year
2020-2021. He paid Municipal Tax of ₹ 18,000 each for the financial year 2020-2021 and 2022-
2023 on 01-05-2021 and 05-04-2022 respectively.
Compute Income under the head 'House Property ₹ of Mr. Ganesh for the Assessment year
2023-2024.
Illustration - Determination of Annual Value - M 12

Mr. Vaibhav owns 5 houses at Cochin. Compute the Gross Annual Value of each House from
the information given:
Particulars House -1 House - II House - III House - IV House - V
Municipal Value 1,20,000 2,40,000 1,10,000 90,000 75,000
Fair Rent 1,50,000 2,40,000 1,14,000 84,000 80,000
Standard Rent 1,08,000 NA 1,44,000 NA 78,000

114
Actual Rent received / 1,80,000 2,10,000 1,20,000 1,08,000 72,000

receivable
Illustration - Income from House Property - N 13
Mr. Krishna owns a Residential House in Delhi. The House is having two
identical units. First Unit of the House is self-occupied by Mr. Krishna, and
another unit is rented for ₹ 12,000 p.m. The rented unit was vacant for three
months during the year. The particulars of the house for the previous year 2022-
2023 are -
Standard Rent ₹ 2,20,000 p.a.
Municipal Valuation ₹ 2,44,000 p.a.
Fair Rent ₹ 2,35,000 p.a.
Municipal Tax paid by Mr. Krishna 12% of the Municipal Valuation
Light and Water Charges ₹ 800 p.m.
Interest on Borrowed Capital ₹ 2,000 p.m.
Insurance Charges ₹ 3,500 p.m.
Painting Expenses ₹ 16,000 p.a.
Compute Income from House Property of Mr. Krishna, for the Assessment Year 2023-
2024.
Illustration - Portions Self Occupied & Let out - N 12

Mr. Vikas owns a House Property whose Municipal Value, Fair Rent and Standard Rent are ₹
96.000, ₹ 1,26,000 and ₹ 1,08,000 (per annum) respectively. During the Previous Year 2022-
2023, one-third of the portion of the house was let out for residential purpose at a monthly rent
of ₹
5.000. Remaining two-third portion was self-occupied by him. Municipal Tax @ 11% of
Municipal Value was paid during the year.
The Construction of the House began in June 2012 and was completed on 31.05.2016. Vikas
took a Loan of X 1,00,000 on 01.07.2013 for the Construction of Building. He paid Interest on
Loan @ 12% p.a. and every month such interest was paid.
Compute Income from House Property of Mr. Vikas for the Assessment Year 2023-2024.
Assessee: Mr. Vikas Previous Year: 2022-2023 Assessment Year: 2023-2024
Illustration - Co-Ownership - N 12
Two brothers Arun and Bimal are Co-Owners of a House Property with equal share. The
property was constructed during the Previous Year 1998-1999. The property consists of eight
identical units and is situated at Cochin.
During the Previous Year 2022-2023, each Co-Owner occupied one unit for residence and the
balance of six units were let out at a rent of ₹ 12,000 per Month per unit. The Municipal Value
of the House Property is ₹ 9,00,000 and the Municipal Taxes are 20% of Municipal Value, which
were paid during the year. The other expenses were as follows:

115
Particulars
Repairs 40.000
Insurance premium (paid) 15.000
Interest payable on loan taken for construction of house 3,00,000
One of the Let - Out units remained vacant for four months during the year.
Arun could not occupy his unit for six months as he was transferred to Chennai. He does not
own any other house.
The Other Income of Mr. Arun and Mr. Bimal are ₹ 2,90,000 and ₹ 1,80,000 respectively for the
Previous Year 2022-2023.
Compute the Income under the head Income from House Property and the Total Income of two
brothers for the Assessment Year 2023-2024.
Illustration - Indian & Foreign Property - N 09

Mrs. Indu, a Resident Individual, owns a house in USA. She receives rent at $ 1,500 per month.
She paid municipal taxes of $ 1,125 during the Previous Year 2022-2023. She also owns a two
storied house in Mumbai, Ground Floor is used for her residence and First Floor is Let Out at a
monthly rent of ₹ 10,000. Standard Rent for each floor is ₹ 11,000 per month. Municipal taxes
paid for the house amounts to ₹ 7,500. Mrs. Indu had constructed the house by taking a loan
from a nationalized bank on 20.06.2017. She repaid the loan of ₹ 54,000 including interest of ₹
24,000. The Value of one dollar is to be taken as ₹ 60.
Compute Total Income from House Property of Mrs. Indu.
Illustration - Indian & Foreign Property - Beneficial Option to Assessee - M 09

Mrs. Rohini Ravi, a Citizen of the USA is a Resident and Ordinarily Resident in India during the
Previous Year 2022-2023. She owns a House Property at Los Angeles, U.S.A. which is used as
her
residence. The annual value of the house is $ 20,000. The value of 1 USD ($) may be taken as ₹
65.
She took ownership and possession of a flat in Chennai on 01.07.2021, which is used for Self-
Occupation, while she is in India.
The flat was used by her for 7 months only during the year ended 31.03.2022. Whilst the
Municipal Valuation is ₹ 32,000 p.m, the Fair Rent is ₹ 4,20,000 p.a. She paid the following to
Corporation of Chennai - Property Tax ₹ 16,200 and Sewerage Tax ₹ 1,800.
She had taken a Loan from Standard Chartered Bank for purchasing this flat. Interest on Loan
was
Period prior to 01.04.2021 49,200
01.04.2021 to 30.06.2021 50,800
01.07.2021 to 31.03.2022 1,31,300
She had a house property in Bangalore, which was sold in March, 2022. In respect of this
house, she received arrears of rent of ₹ 60,000 in March, 2022. This amount has not been
charged to tax earlier.
Compute the Income chargeable from House Property of Mrs. Rohini Ravi for the Assessment
Year 2023-2024, exercising the most beneficial option available.

116
Illustration - Taxable Income & Tax Liability
Pritam occupied Three flats for his residential purposes, h are as follows
particulars of which
Particulars Flat 1 Flat 2 Flat 3
Gross Annual Value 4,80,000 4,50,000 4,75,000
Municipal Taxes paid 10% 10% 10%
Interest payable on Loan for purchase of Flat — 1,20,000 1,60,000
Income of Pritam from his proprietary business, "Pritam Warehousing Corporation" is ₹

19,50,000. Determine the Taxable Income and Tax Liability for AY 2023-2024, on the
assumption that he contributes ₹ 80,000 towards the Public Provident Fund.
You are informed that Pritam could not occupy Flat 2 for two months commencing from
December 1, 2016 and that he has attained the age of 60 on 23rd August 2021.
Illustration - Computation of Taxable Income & Tax Liability for NRI - N 19

Mr. Jagdish, aged 61 years, has set-up his business in Thailand and is residing in Thailand
since last 20 years. He owns a house property in Bangkok, half of which is used as his
residence and half is given on rent (Such rent received, converted in INR is ₹ 6,00,000). The
annual value of the house in Thailand is ₹ 50,00,000 i.e. converted value in INR.
He purchased a flat in Pune during F.Y. 2017-2018, which has been given on monthly rent of ₹
27,500 since 01.07.2020. The annual property tax of Pune flat is t 40,000 which is paid by Mr.
Jagdish whenever he comes to India. Mr. Jagdish last visited India in July 2018. He has taken a
loan from Union Bank of India for purchase of the Pune flat amounting to ₹ 15,00,000. The
interest on such loan for the F.Y. 2022-2023 was ₹ 84,000. However, interest for March 2022
quarter has not yet been paid by Mr. Jagdish.
He had a house in Jaipur which was sold in May 2017. In respect of this house he received
arrear of rent of ₹ 96,000 in Feb.2022 (not taxed earlier).
Details of other incomes during F.Y. 2022-2023 which are as follows:
• Profit from business in Thailand t 2,75,000
• Interest on bonds of a Japanese Co. ₹ 45,000 out of which 50% was received in India.
• Income from Apple Orchid in Nepal given on contract and the yearly contract fee of ₹
5,00,000, for F.Y. 2022-2023 was deposited directly by the contractor in Kathmandu branch of
Union Bank of India in Mr. Jagdish's bank account maintained with Union Bank of India in Mr.
Jagdish's bank account maintained with Union Bank of India's Pune Branch.
Compute the total income of Mr. Jagdish for AY 2023-2024 chargeable to income tax in India.

117
DEDUCTIONS FROM GROSS TOTAL INCOME
Sec 80A Gener al ru les of ded uctions
Sec 80B(5) Gross total income means a total income computed in accordance with
the provisions of act without deduction under chapter VIA which implies that.
 Deduction under respective chapter has been taken
 Clubbing provisions is effected
 Setoff has been made
 Unabsorbed losses and depreciation has been effected.
Sec 80A - The aggregate amount of deductions under this Chapter shall not, in any
case, exceed gross total income of the assessee i.e. an assessee cannot have a
loss after taking the deduction.
No Deduction is available if income (GTI) only contains

 LTCG - u/s 112.
 STCG - u/s 111A
 NR Presumptive Income u/s 115A to 115AD
 Income of NR under chapter XIIA
Sec 80AC - No deduction would be allowed to a taxpayer if Income-tax return is not

filled on or before the due date u/s 139[1]

118
Sec 80TTA Deduction for interest on savings account
Assessee Individual or HUF (Other than Senior citizen)

Qualifying Income Interest on savings account (not time deposits) earned on
savings account with
a) Banking company
b) Co-operative society doing banking business
c) Post office
Amount of Minimum of the following
Deduction a. Interest on such deposits in saving account.
b. Rs.10,000
Sec 80TTB Deduction for interest on Deposits
Assessee Individual being Resident [Being Senior Citizen] [FA 2018]

Qualifying Income Interest on deposit earned from
a) Banking company
b) Co-operative society doing banking business
c) Post office
Amount of Minimum of the following
Deduction a. Interest on deposits
b. Rs.50,000
Other Condition > Where the income is derived from any deposit held by or
on behalf of
a. A Firm
b. AOP/BOI
no deduction shall be allowed to any partner of the firm or
any member of the association or any individual of the body.
> corresponding amendment has been proposed in Sec
194A to provide that TDS is required from payment of
interest to senior citizen upto Rs.50,000

119
Sec 80GGB Contribution to Poli tical Party
Assessee Indian Company

Contribution to Political Party or Electoral Trust [Within the meaning of Sec
182 of the Companies Act, 2013]
Amount of Any Amount [100%]
Deduction
Restriction Amount should not be paid in Cash
Sec 80GGC Contribution to Poli tical Party
Assessee Any Assessee [other than Indian Company]

Contribution to Political Party or Electoral Trust [Within the meaning to of
Sec 182 of the Companies Act, 2013]
Amount of Any Amount [100%]
Deduction
Restriction Amount should not be paid in Cash

120
Sec 80U Deduction for person with Disability
Assessee Individual being Resident

Condition The assessee, at any time during the PY, is certified by the
medical authority to be a person with disability.
The assessee Furnishes a copy of certificate issued by the
medical authority in the prescribed form along with the return
of income in respect of the A.Y. for which the deduction is
claimed.
Amount of Disability of the assessee Amount of deduction
Deduction
Other than severe disability Rs.75,000
Sever disability [80%] Rs.1,25,000
Deduction is allowed irrespective of expense incurred by the
assessee.
Ill u st r a ti on :
X is total blind. Determine his net income for the Assessment year 2023-24:
a. Salary from a publishing house for working as an artist (gross) 4,96,000
b. Special allowance from the employer 1,07,000
c. Transport allowance for commuting between office and residence 19,200
d. Cash award received from the Govt. 1,10,000
e. Remuneration for setting question papers 12,000
f. Interest on debentures 71,000
g. Dividend from a foreign Company 11,200
h. Collection charges of question paper setting remuneration 1,100
 Contribution towards recognized provident fund 62,000
 Payment of insurance premium on the life of Mrs. X
(sum assured Rs. 50,000) 12,500

 Contribution to Prime Minister’s National Relief Fund 11,800

121
Sec 80DD Maintenance/Medical treatment of dis ab led dependant
Assessee Individual/HUF being Resident

Condition 1) Medical treatment (including nursing), training & rehabilitation
of a dependant, being a person with disability
2) Deposited any amount under a scheme (framed by the LIC or
any other approved insurer), which would provide for payment
of annuity or lump sum amount For the benefit of such
dependent, in the event of the death of the assessee.
Amount of Disability of the assessee Amount of deduction
Deduction
Other than severe disability Rs.75,000
Sever disability [80%] Rs.1,25,000
assessee.
Deduction is Allowed on Actual Payment Basis
Where disabled dependent dies before the death of the assessee: In such a case,
the amount paid or deposited under scheme, as discussed above, shall be deemed
to be the income of the assessee of the PY in which such sum is received.
"disability" shall have meaning assigned to it in sec 2(i) of the Persons with
Disabilities Act, 1995 (i.e. "Blindness", "low vision", "leprosy-cured", "hearing
impairment", "locomotor disability", "mental retardation" & includes "autism",
"cerebral palsy" and "multiple disability").

122
Sec 80DDB Deduc tion w.r. t m edical treatment
Assessee Individual/HUF being Resident

Condition Expenditure incurred on the medical treatment of relative. [Specified
Diseases in Rule 11D ~ Neurological disease, Cancer, Chronic Renal
failure, Thalassaemia.]
Amount of Dependent Amount of deduction
Deduction
1. Other than senior citizen Actual or Rs.40,000, whichever is
less
2. Senior citizen Actual or Rs.100000, whichever is
3. Very senior citizen less

assessee.
Deduction is Allowed on Actual Payment Basis
Meaning of Dependent Person Covered
Various
Individual Spouse, children, parents, brothers and sisters of the
Terms
individual.
HUF Any Member

123
Sec 80D Medical I nsurance
Assessee Individual HUF [R/NR]

Condition Payment should be in any mode other than cash however payment
shall be made by any mode including cash in respect of any sun paid
on account of preventive health check-up.
Conditions for claiming deduction:

Description medical ins, Health Expense on Medical
1.e. insurance Scheme preventive Expense -
on the health contribution. health very senior
i.e. to 1) CG checkup citizen
health
scheme 2)
other scheme
notified by
CG.
Applicable for whether individual Individual Individual/HUF
resident/non- whether whether whether R/NR
resident resident/non- resident/NR
resident
Payment Any mode Any mode Any mode Any mode
mode other than other than including cash. other than
cash. cash. cash.
The Insurance/Contribution/Checkup can be

Individual In name of Individual/Spouse/Parents & dependent Children.
HUF In the Name of any member.
Amount of Deduction:
Assessee Deduction = least of
Individual: - Aggregate of (a)(b)(c) of point 1 Aggregate of amount,
> Individual/his family (Spouse, Dependent Child) or
> Parents (dependent or not) Rs.25000
HUF: - Policy in the name of any member

124
Mr. A, aged 40 years, is a central government employee, paid Medical Insurance
premium of Rs. 10,000 to insure his health, health of his spouse and dependent
children. He has incurred Rs. 7.000 for the preventive health check-up for himself
and the amount was paid in cash. He also paid Medical Insurance premium of Rs.
51,000 during the year to insure the health of his father, aged 61 years, who is not
dependent on him. He contributed Rs. 12,400 to the Central Government Health
Scheme during the year. Compute the deduction allowable under Section 80D
for the AY 2023-24 i.e. PY 2021-2122.
Solution: Deduction allowable under Section 80D for the AY 2023-24 i.e. PY 2021-
2122
Particulars Rs. Rs.
Medical Insurance premium paid for self, spouse and dependent

children 10,000
Expenditure of preventive health check-up 5,000 Restricted
Contribution to CGHS 12,400 to 25,000
Mediclaim premium paid for father, who is over 60 years of age 50,000
(restricted to Rs. 50,000)
Total deduction allowed 75,000
Mr. A, aged 40 years, paid medical insurance premium of Rs. 12,000 to insure his
health as well as the health of his spouse and dependent children. He also paid
medical insurance premium of Rs. 51,000 during the year to insure the health of his
father, aged 67 years, who is not dependent on him. He contributed Rs. 2,400 to the
Central Government Health Scheme during the year. Compute deduction
allowable under Section 80D for the AY 2023-24 i.e. PY 2021-2122.
Solution: Deduction allowable under Section 80D for the AY 2022-23 i.e. PY
2020-2120
Particulars Rs. Rs.
Medical Insurance premium paid for self, spouse and dependent 12,000
children Contribution to CGHS 2,400
Mediclaim premium paid for father, who is over 60 years of age (Rs. 50,000
51,000 but restricted to Rs. 50,000, being the maximum allowable)
64,400

125
Mr. A, aged 40 years, paid medical insurance premium of Rs. 20,000 during the AY
2022-23 i.e. PY 2020-2120 to insure his health as well as the health of his spouse.
He also paid medical insurance premium of Rs. 47,000 during the year to insure the
health of his father, aged 63 years, who is not dependent on him. He contributed Rs.
3,600 to Central Government Health Scheme during the year. He has incurred Rs.
3,000 in cash on preventive health check-up of himself and his spouse and Rs.
4,000 by cheque on preventive health check-up of his father. Compute the
deduction allowable under section 80D for the AY 2023-24 i.e. PY 2021-2122
Solution: Deduction allowable under section 80D for the AY 2023-24 i.e. PY
2021-2122
Particulars Actual Maximum
Payment Deduction
Rs. Allowable (Rs.

)
Premium paid and medical expenditure incurred for

self and spouse
Medical insurance premium paid for self and spouse 20.000 20,000
Contribution of CGHS 3,6.00 3,600
Expenses on preventive health check-up of self & 3,000 1,400

spouse
Total 26,600 25,000
Premium paid or medical expenditure incurred for

father, who is a
senior citizen
Mediclaim premium paid for father, who is over 60 47,000 47,000

years of age
Expenditure on preventive health check-up of father 4,000 3,000
Total 51,000 50,000
Total deduction under section 80D (Rs. 25,000 + Rs. 75,000

50,000)

126
Sec 80EEB T ax Incentive for Electric Vehicles
Assessee Any Assessee

Condition 1) Interest on Loan taken for Purchase of Electric Vehicle
from Financial Institution/NBFC
2) Loan must be taken between April' 19 to March' 23
3) Assessee does not own any other Electric Vehicle on the
date of sanction
Amount of Interest Paid or 150,000 - whichever is lower
Deduction
Sec 80E Interest on Education Loan
Assessee Individual (R/NR)

Payment for Paid Interest on education loan [out of income chargeable to
Tax] taken for Own/Relative's Education
Amount of > Any Amount of Interest Paid [100%]; Only Interest is
Deduction allowed and not the principal amount.
Deduction is available from the year from which assessee
start paying interest & 7 immediately succeeding A.Y. (or
until above interest is paid in full, whichever earlier)
Meaning Condition  Relative : Spouse, Children, for whom Assessee is
Guardian
 Loan should be taken from approved financial institute.
 The loan is taken for graduate & post graduate studies
 Actual amount of interest paid is available
 "higher education" means any course of study pursued
after passing the Senior Secondary Examination or its
equivalent from any school, board or university
recognized by CG or SG or local authority or by any other
authority authorized by the above to do so

127
Sec 80EEA In terest on Self Occupied property (SOP)
Assessee Individual (R/NR)

Payment for Paid Interest on Loan borrowed for SOP
Amount of Additional Benefit upto Rs.150000 apart from Available in
Deduction Sec.24(b). Benefit will be available till the date of
Repayment
Meaning &  Loan should from approved financial institute.
Condition  Actual amount of interest paid is available
 The Stamp Value of the House does not exceed Rs.45L
 Loan should be Sanctioned Between 2019-21 [FA'19]

128
Sec 80C Deduction w.r.t various I nvestments
Assessee Individual/HUF irrespective of Residential Status

Investment See list below
Maximun Maximum deduction along with sec 80CCC and 80CCD or
Deduction independently u/5 80C is restricted to Rs.150000. [80CCE]
Condition  Investment is made in approved scheme
 Payment income need not necessarily made out of
chargeable to tax
 Deduction shall be made only on payment basis not on
accrual basis.
Qualifying savings/investments
Any sums paid or deposited in PY by assessee: Individual HUF
To effect or to keep in force a Life insurance on
life of following persons:
1. The children may male/female,
married/unmarried, dependent/ independent.
2. The premium exceeding 10% of sum assured Self/ Spouse/Child Any member
is no eligible for deduction. [if policy is issued
before 31.03.12 then it shall be 20%]
3. 15% of SA for person covered u/s
80U/80DDB
to effect or to keep in force a non-commutable
deferred annuity, (other than the annuity plan of
LIC, or other insurer), on the life of the individual, Self/ Spouse/Child NA
the wife or husband and any child of such
individual.
by way of deduction from the salary of Govt. EE,
being a sum deducted, for the purpose of
securing to him a deferred annuity or making Self NA
provision for his spouse or children, max upto
1/5th of the salary.
as a contribution by an individual to any
Self NA
statutory PF or RPF.
as a contribution by an employee to an approved
Self NA
superannuation fund.
as a contribution an to any PPF,
Self/ Spouse/Child Any Member
Min - 500 Max - 150000

129
as subscription to NSS-1992. Self NA

as subscription to NBC. VIII issue. Note:Interest
accrued on these certificates which is deemed to Self NA
be reinvested, also qualifies for deduction.
as a contribution in the Unit-linked Self/
Self/ Spouse/Child Any Member
Spouse/Child Any Insurance Plan (ULIP)
to effect or to keep in force a contract for notified
Spouse/Child Any Member
annuity plan of the LIC or any other insurer.
as subscription to any units of any /Mutual Fund
referred to in section 10(23D), under any notified Self NA
plan.
as a contribution an individual to Retirement
Self NA
Benefit Pension Fund of UTI
as subscription to the Home Loan Account
Self NA
Scheme of National Housing Bank.
as subscription to notified deposit scheme. Self NA
as tuition fees paid by individual, whether at the
time of admission or thereafter,—
Including Stamp duty and registration fees.
> to any university, college, school/other Maximum 2 children NA
educational institution situated in India;
> for the of full-time purpose education of any
two children of such individual.
RE-PAYMENT OF HOUSING LOANS
Repayment of Housing loan except interest on
borrowed capital provided house is taken for &
Self NA
NA residential purpose assessee should not
transfer the house property for 5 years. Including
Stamp Duty.
as subscription equity shares/debentures
forming part of any eligible issue of capital
approved by the Board of a public co engaged in Self NA
infrastructure including power sector or public
financial institution.
as term deposit—
(a) for a fixed period of not less than 5 years with
a scheduled bank; & Self NA
(b) which is in accordance with a scheme framed
& notified, by CG

130
as subscription to bonds of NABARD Self NA

in an account under the senior Citizen Saving
Self NA
Scheme Rules, 2004.
as 5 year time deposit in an a/c under the Post
Self NA
Office Time Deposit Rules, 1981.
Sukanya Samriddhi Account [Noti. 5/2015]
Deposit by CG Employee as a contribution to his
Self NA
Tier-II A/c of Pension Scheme

131
Illustartion
X (age: 26 years), a resident individual, has income of Rs. 5,90,000 (i.e., Rs. 4,10,000
from a business in Delhi and Rs. 80,000 from a property in Bombay) during the
previous year 2022-23. Find out his net income and tax liability for the Assessment
year 2023-24 taking into consideration the following payments-
 Insurance premium paid on own life (sum assured: Rs. 22,500) 6,500
 Insurance premium paid on the life of mother 13,800
 Insurance premium paid on the life of father 15,500
 Insurance premium paid on the life of Mrs. X
(sum assured: Rs. 1,00,000) 4,000

 Insurance premium paid on the lie of his major son
(sum assured: Rs. 20,000) 3,100

 Insurance premium due before March 31, 2022 but paid on
April 4, 2022 on own life 1,000

 Contribution towards employees’ provident fund 15,000
 Contribution towards public provident fund 30,000
 Deposit in 10 years account under the Post Office savings Bank (CTD)
Rules 1969, (including Rs. 600 paid in advance) 23,000

 Contribution made for participating in unit-linked insurance plan 10,000
 Repayment of loan taken from LIC for purchase of a house
(whose constriction Is completed on March 10, 1987 and used

by him for his residence) 32,000
 Tuition fee of X’s son 25,000
 Investment in units of a notified Mutual Fund for financing
Infrastructure facility 35,000

132
Sec 80CCC Contribution to c ertain funds
Condition 1 The assessee is an Individual. [irrespective of status]

Condition 2 The assessee has paid or deposited any amount for any annuity plan of
LIC of India (or any other insurer) For receiving pension from Fund
referred to in section 10(23AAB)
Condition 3 The amount is paid out of his income chargeable to tax. Any amount
withdrawn or pension received from the plan is taxable in the hands of
the assessee or nominee in the year of receipt
Deduction Independently - Rs.150000
Overall- Rs.150000
Or actual, whichever is lower.

133
Sec 80CCD Contribu tion to pension schem e of CG or other

employer
Condition 1 The assessee is an Individual, who is -

a) employed by CG or any other employer, or
b) any self employed person.
Condition 2 The assessee has, during the previous year, paid or deposited any
amount in his account under a pension scheme notified by the
> Central Government/Employer/Assessee.
> Atal Pension Yojna is also Eligible.
Deduction CG/Employer/Employee - 10% (14% proposed) of salary Any other
individual- 20% of Gross Total Income [Basic+DA(R)]
80CCD[1B] Additional deduction upto Rs.50000 shall be allowed other than
Own contribution covered u/s 80CCD[1]
Contribution Example: Assessee contribution Rs.140000 towards NPS & GTI is
560000 in this case deduction shall be
20% of GTI = 112000 u/s 80CCD[1]
Balance deduction = 28000 u/s 80CCD[1B]
80CCD[2] Emplyer contribution is first taxable under the head salary & then he
Own [employee] gets deduction u/s 80CCD[2] lower of
Contribution a. Employers contribution
b. 10% of salary
Other notes 1) As per 10 [12A] any payment received from the NPS by
Assessee upon closure of his account or on his opting out of the
pension scheme to the extent of 60% [40% Taxable] of the total
amount payable to him at the time of such closure or his opting out of
the scheme. [If amount is received by legal heir it is fully exempt].
2) As per 10[12B] Any payment from the NPS to an EE under the
pension scheme on partial withdrawal made out of his account in
accordance with terms & conditions, specified under the Pension Fund
Regulatory and Development Authority Act, 2013 and the regulations
made thereunder, to the extent it does not exceed 25% of the amount
of contributions made by him;]

134

135
Illustartion
Mr.X , a resident individual and self employed industrial designer , furnished
the following particulars for the year ended 31.03.2022
Gross total income 5,00,000
Housing loan repayment (property is under construction as on 31.03.2022) 1,10,000
Principal repayment of housing loan from a relative 50,000
Contribution to PPF in the name of his mother 70,000
Deposit Rs. 5,000 pm in his account under a pension scheme notified by CG
Compute total income of Mr.X for AY 2023-24

136
Sec 80G Do nati ons
Assessee All Assessee

Expense Any donation in form of sum of money. Donation in kind is not
on qualified for deduction. [Rama Vera 187 ITR 308] The donation should
be made only to specified funds/ institutions (List).
Payment If the Donation Exceed Rs.2000 then only through Cheque
Mode
Deduction % Specified in the List
Some items: - With Qualifying Limit [10% of Adjusted Total Income]
Rest:- Without Qualifying Limit
Calculation Particulars Rs.
of
Gross Total Income Xxx
Qualifying
Less:
Limit
LTCG (xxx)
STCG u/s 111A(only) (xxx)
Deduction u/s 80C to 80U Except 80G (xxx)
Adjusted Gross Total Income Xxx
10% of ATI Xxx
Deduction = 50% or 100% of (10% of ATI) xxx
While calculating Adjusted GTI, casual income like winning from
lotteries etc. shall be included.
The amount of deduction in respect of various kinds of donations is :

Trust/institution to which donation is made Qualifying % of
limit donation
applies or eligible for
not dedn
National Defence Fund set up by Central Govt No 100
Prime Minister's National Relief Fund No 100
Prime Minister's Armenia Earthquake Relief Fund No 100
Africa (Public Contributions - India) Fund No 100
National Foundation for Communal Harmony No 100
University/any educational inst. of national Eminence No 100
Maharashtra Chief Minister's Relief Fund or Earthquake No 100
Relief Fund

137
Fund set up by the Govt. of Gujarat for relief of the victims No 100
of earthquake
Zila Saksharta Samiti No 100
National/State Blood Transfusion Council No 100
Any fund set up by a State Govt. to provide medical relief No 100
to the poor
Army Central Welfare Fund/Indian Naval Benevolent No 100
Fund/Air Force Central Welfare Fund
Andhra Pradesh CM's Cyclone Relief Fund, 1996 No 100
National Illness Assistance Fund No 100
Chief Minister's Relief Fund/Lieutenant Governor's Relief No 100
Fund
National Sports Fund to be set up by the CG No 100
National Cultural Fund set up by the CG No 100
Fund for Tech Development/application by CG No 100
National Trust for Welfare of Persons with Autism, No 100
Cerebral Palsy, Mental Retardation & Multiple Disabilities
Any sums paid by the assessee, between Jan 26 2001 to No 100
Sep 30, 2001, to any trust, institution or fund which
satisfies conditions of sec 80G(5) for providing relief to
victims of Guj earthquake
Jawaharlal Nehru Memorial Fund No 50
Prime Minister's Drought Relief Fund No 50
National Children's Fund No 100
Indira Gandhi Memorial Trust No 50
Rajiv Gandhi Foundation No 50
The Govt/any approved local authority, institution or Yes 100
association, to be utilised for purpose of promoting family
planning
Any sums paid by assessee, being a co, in the PY as Yes 100
donations to Indian Olympic Association or to any other
association/institution established in India and notified by
the CG for—i) the development of infrastructure for sports
& games, in India; or ii) the sponsorship of sports &
games, in India
Fund or any institution which satisfies the conditions given Yes 50

138
u/s 80G(5)
The Government or any local authority, to be utilised For Yes 50
any charitable purpose other than the purpose of
promoting family planning
An authority constituted in India for satisfying the need for Yes 50
housing accommodation or for the purpose of planning,
development or of cities, towns and villages, or for both
Any corporation referred to in sec 10(26BB) for promoting Yes 50
the minority community
sums paid For the renovation or repair of any such Yes 50
temple, mosque, gurdwara, church/other notified place.
Swachh bharat Kosh set up by CG No 100
Clean Ganga Fund set up by CG No 100
National Fund for control of drug abuse constituted u/s 7A No 100
of the narcotic drugs
CIT v. Shree Govindbhai Jeehalal Nathavani Charitable Trust (2015) (Guj.)

Can Commissioner reject an application For grant of approval u/s 80G(5) on the
ground that the trust has failed to apply 85% of its income for charitable purposes?
At time of granting approval of exemption u/s 80G, only object of trust is required to
be examined &, therefore, assessee's application seeking approval u/s 80G(5) could
not be rejected on ground that it failed to incur expense to extent of 85% of its
income during relevant year.High Court observed that, while considering application
for the purpose of sec 80G, the authority cannot act as an assessing authority &
enquiry should be confined to finding out if institution satisfies the prescribed
conditions.

139
Illustartion
X (34 years), a resident individual, submits the following particulars of his income for
the previous year 2022-23:
a. Business income 83,000
b. Interest on debentures 49,000
c. Long-term capital gains on transfer of gold 4,10,000
d. Short-term capital gain on sale of shares taxable U/S 111A 20,000
e. Other Short-term capital gain 10,000
f. Contribution towards public provident fund 40,000
g. Payment of medical insurance premium on own life 3,000
h. Donation to the
 National Trust for welfare of persons with Autism 4,000
 Donation to the fund set up by the Gujarat Govt. for providing
relief to victims of Earthquake in Gujarat 3,000

 Donation to Rajiv Gandhi Foundation 1,000
 Donation to the Prime Minister’s Drought Relief Fund 5,000
 Donation to approved public charitable institution 11,000
 Donation to a poor boy for higher education 5,000
 Donation of clothes to an approved institution 12,000
 Donation to a charitable institution for construction of a rest
house only for a Particular religious community 8,000
Determine the net income of X for the Assessment year 2022-23.

140
Section 80GG Deduction in respect of re nt paid
Assessee Individual [R/NR]

Condition > No HRA : Assessee is not receiving HRA.
> No house at place of employment: He/his spouse/minor child or HUF of
which he is a member, should not own any residential house at a place
where the assessee resides, perform the duties of this office, or employment
or carries on his business or profession.
> A declaration in Form 10BA should be filed for expense incurred by him
towards payment or rent.
> The assessee has not claimed concession in respect of self-occupied
property
Deduction Lower of
> Rs.5000 pm (60000 pa)
> 25% of Adjusted Total Income
> Rent paid (-) 10% of ATI
Calculation Particulars Rs.
of ATI
Gross Total Income Xxx
Less:
LTCG (xxx)
STCG u/s 111A(only) (xxx)
Deduction u/s 80C to 80U Except 80GG (xxx)
Adjusted Gross Total Income Xxx
While calculating Adjusted GTI, casual income like winning from lotteries etc.
shall be included.

141
Illustartion
X,a professional tax consultant, based at New Delhi furnishes the following
particulars of his income/expenditure relevant for the assessment year 2023-
24:
a. Income from profession 6,70,000
b. Short-term capital gain (covered by section 111A) 4,000
c. Long-term capital gain 11,000
d. Winning from a camel race 1,700
e. Winning from a horse race 2,000
f. Winning from lottery 1,600
g. Income from other sources 11,000
 Payment of medical insurance premium on own life 3,000
 Payment of rent 80,000
 Contribution towards public fund 70,000
Determine the amount deductible under section 80GG and the net income for the
Assessment year 2023-24.

142
Section 80GGA Certain donations for scientific research or ru ral

development
Assessee Any Assessee not having Income from PGBP

Contribution to > A Scientific Research Association, or to an Approved University,
or College or other institutions to be used For Scientific Research
or Research in Social Science or Statistical Research.
> An Approved Association, Institution, Public Sector Co which
has as its object the training of persons for implementing program
of rural development.
> Sum paid to the National Fund for rural development set up and
notified by the Central Government for the purpose of carrying out
rural development programmers
Deduction Any Amount [100%]. However if Sum Exceed Rs.2000 then
Amount should be paid via Cheque.
Logics No withdrawal of deduction even if approval is withdrawn
Above deduction, shall not be denied merely on the ground that
subsequent to the payment of such sum by the assessee, the
approval of above mentioned institutions has been withdrawn.

143
Sec 80JJAA Employment of new workmen
Assessee Assessee to whom Section 44AB applies

Deduction 30% of "additional wages" paid to the "new regular workmen"
employed by the assessee in the PY.
The deduction shall be allowed for 3 AYs, including the AY
relevant to the PY in which such employment is provided.
Meaning of New Regular workmen do not include -
Terms > Employee Whose Total Remuneration exceed Rs.25000pm
> Whose entire contribution is paid by Government under
Pension Scheme
> Employee worked for Less than 240 days/150 days in case of
apparel Business/footwear & leather industry.
> Employee who does not participate in RPF.
Restriction 1) The Business should not be formed by splitting up or
reconstruction of an existing business. Exceptions: Business
formed as a result of re.establishment, reconstruction or revival
by the assessee of the business referred u/s. 33B & within the
period specified in that section;
2) The Business should not be acquired by the assessee by way
of transfer from any other person or as a result of any business
reorganization;
3) The assessee furnishes along with the ROI the report of the
accountant, as defined in the Explanation to Sec 288 giving such
particulars in the report as may be prescribed. [Form 10DA]

144
Sec 80QQB Royalty Income of Authors
Assessee Individual Being

> Resident
> An Author (Including Joint Author or Book) being a work of literary,
artistic or scientific nature
Deduction Lumsump Royalty - Actual or Rs.3L., whichever is lower Other than
above - Upto 15% of value of book sold
Conditions 1) The assessee must furnish a certificate in prescribed form
(Form No 10CCD), duly verified by the person responsible for making
such payment to the assessee,
2) If the income is earned outside India, the assessee must
furnish a certificate, in the prescribed form (Form No. 10H) from the
prescribed authority (i.e. RBI, see rule 29A).
3) If royalty is earned outside India the deduction is allowed only if
such royalty is brought to India in convertible Forex within 6m from the
end of PY or time allowed by RBI.

145
Determine the amount of deduction deductible under section 80QQB in the

following cases pertaining to the AY 2022-23
X Y Z A
Royalty on books covered u/s 90,000 3,00,000 6,00,000 8,00,000
80QQB
Is it lum sum payment No No No Yes
Rate of royalty as % of value of 18% 17.5% 12.5% NA
books
Expenditure for earning royalty 10,000 1,10,000 1,80,000 2,40,000
Is royalty received from abroad Yes Yes No Yes
Amount remitted to India till sep 70,000 2,80,000 NA 7,00,000
30,2022

146
Sec 80RRB Royalty on Pe tant
Assessee Individual Being

> Resident
> Patentee: person who is true and first inventor of the patent and
whose name is entered on the patent which is registered on or after
1.4.2003 under the Indian Patents Act, 1970.
Deduction Earned In Minimum of the following:
India > 100% of such income; or
> Rs.3,00,000
Earned Minimum of the following:
outside > Income in respect of money brought into India in
India convertible foreign exchange within prescribed time limit; or
> Rs.3,00,000
Conditions > The assessee must furnish a certificate in the prescribed form (Form No.
10CCE), duly verified by the person responsible for making such payment to
the assessee,
> Deduction should not exceed royalty as per licence
> Double deduction not permissible: Where deduction under this section is
claimed and allowed for any AY, no deduction shall be allowed in respect of
such income under any other provisions of the Act for the same or in any
other AY.
> If royalty is earned outside India the deduction is allowed only if such
royalty is brought to India in convertible Forex within 6m from the end of PY
or time allowed by R81.

147
SSDEDUCTION FROM GROSS TOTAL INCOME
# 27. Taxable income of R, resident in India, for the previous year 2022-23 consists of the following:
LTCG on sale of shares on which securities transaction tax has been paid 1,20,000
Short-term capital gain on shares on which securities transaction tax has been paid 26,000
Long-term capital gain on gold 24,000
Short-term capital gain on other assets 22,000
Other income 3,04,000
Compute the tax payable for the assessment year 2023-24 assuming he has deposited Rs.
20,000 towards PPF during the year.
# 28. X, aged 69 years, furnishes the following particulars of his income for the previous year 2022-23:
a. Pension @Rs. 25,000 p.m. 1,80,000
b. Interest on FDRs in a Bank (Gross) 46,000
c. Income from Royalty 1,12,000
He has deposited Rs. 2,000 in a PPF account and has paid Life Insurance premium of Rs. 1,000
on the life of his major son. Compute the tax liability of X for the assessment year2023-24.
# 29. The following are the particulars of income of R for the previous year 2022-23:—
a. Income from House Property 61,200
b. Business income 1,80,000
c. Dividends from co-operative society 500
d. Long-term capital gain from
 Land 40,000
 Listed Shares sold through a
recognized stock exchange 15,000

e. Life Insurance premium on his life on policy of Rs. 2,00,000 28,000
f. Donation to charitable institution approved u/s 80G 20,000
g. Deposit in a scheme notified u/s 80C 12,000
h. Deposit in National Saving Scheme, 1992 12,500
i. Interest accrued on National Saving Certificate VII 1,840
issue for Rs. 20,000 purchased in May, 2018

Compute his total income and tax payable for assessment year 2023-24 .

148
# 30. Compute the deduction allowable u/s 80C and the net-tax payable by R from the : Following
information submitted by him for the assessment year 2023-24:
a. Gross Salary 5,85,000
b. Royalty (Gross) 40,000
c. Expenses allowable from royalty 8,000
d. Interest on bank deposits (gross) 19,000
e. Donations to an approved charitable institution 38,000
f. LIP on his own life (sum assured Rs. 40,000) 5,000
g. LIP on the life of his wife 3,000
h. LIP on the life of his major son (not dependent on A) 3,000
i. LIP on the life of dependent brother 2,500
j. Contribution to a Recognized Provident Fund 22,000
k. Term deposit in scheduled bank for 5 years 31,000
l. Contribution to ULIP 4,000
m. Repayment of housing loan taken from LIC (principal
Amount Rs. 40,000 and interest Rs. 35,000) 75,000
n. Subscription to units of a Mutual fund notified u/s 12(23D)
for eligible issue of capital of some companies 12,000
He had taken the loan from LIC for construction of a residential house property which was
completed in 1994 and which is being utilized by R for his own residence.
# 31. The gross total income of A for the previous year 2022-23 as computed is Rs 4,55,000 which
includes Rs. 1,12,000 Long-term Capital Gain and Rs. 12,000 on account of Short-term Capital
Gain from the sale on 5-12-2021 of listed shares through a recognized stock exchange. Besides
the above he provides you the following information:
a. He has deposited Rs. 12,000 to effect a contract for annuity plan of L.I.C.
b. He has paid the following premium to the New India Assurance Co. Ltd. for mediclaim
scheme for himself and his relatives:
 his own health 1,000

 for health of spouse 600
 Major son not dependent on him 800
 Mother dependent on him 1,200
 Brother dependent on him 1,120
c. One of his brothers is a person with disability wholly dependent on him for medical
treatment and rehabilitation. A spends Rs. 12,000 on such brother.
d. He has also deposited Rs. 25,000 under a scheme framed by U.T.I, for the
maintenance of his dependent brother with disability.
Compute his total income and tax payable for the assessment year 2023-24.

149
# 32. R submits the following information regarding his income for the previous year 2020-2021.
a. Salary (per month) 24,000

b. Rent received from property in Delhi (per month) 5,000
c. Winnings from lottery (Gross) . 25,000
d. He makes the following deposits/Payments during the year
 Contribution towards PPF 15,000
 Premium paid in cash on Mediclaim policy for his dependent father4,000
He has a son with disability, dependent on him, for whom he incurs Rs. 20,000 as expenses for his
medical treatment and rehabilitation. He also deposits a sum of Rs. 25,000 for the benefit of his son
under a scheme framed by the UTI for such a purpose.
(a) Compute his Total Income for the assessment year 2023-24.
(b) Compute his tax liability for the assessment year 2023-24.
# 33. A, whose Gross Total Income for assessment year 2023-24 is Rs. 3,00,000 (which includes long-
term capital gains of Rs. 60,000 and short-term capital gains of Rs. 30,000), submits the following
information:
a. Contribution towards PPF 45,000

b. LIP paid for married son not dependent on him 16,000
c. Mediclaim Premium paid by cheque for:
Himself 4,000
For married son not dependent on him 2,000
d. He has made the following donations:
 National Defense Fund 3,000

 PM's National Relief Fund 5,000
 Indira Gandhi Memorial Trust 6,000
 Delhi University
(declared as an institution of national eminence) 3,000
 Zila Saksharta Samiti 5,000
 An approved charitable institution 14,000
 Government for Family Planning 5,000
 Donations of blankets to an orphanage 5,000
 Donations to National Blood Transfusion Council 3,000
Compute: (A) Total Income for the assessment year 2023-24

(B) Tax Payable for the assessment year 2023-24
# 34. R has computed his income under various heads for the previous year 2022-23 as under:
a. Income under the head salary 1,12,000
b. Income under the head house property (-) (15,000)
c. Profits and Gains of business or profession 90,000
d. Capital Gains — short-term 30,000
— long-term 40,000 70000
e. Income from other sources
Winnings of lotteries (gross) 15,000
Interest on Government securities 20,000 35,000

150
f. A also submits the following information:

 Payment made by cheque for Mediclaim policy 5,000
 Expenses on Medical treatment of dependent son with severe disability 25,000
 Re-payment of loan, with interest to Canara Bank, which was taken for pursuing approved higher
education 35,000 (Principal amount Rs. 25,000 + 12,000 interest)
Donations to:
 Prime Minister's Drought Relief Fund 3,000
 National Fund for Communal Harmony 4,000
 Jawaharlal Nehru Memorial Fund 4,000
 Prime Minister's National Relief Fund 4,200
 Government for Family Planning 12,000
 Approved Charitable Institution 7,000
Compute the tax liability for the assessment year 2023-24 , if he deposits Rs. 60,000 in his PPF Account
during the previous year.
# 35. G, who is working in Delhi as a Manager of X Ltd. furnishes the following particulars of his
income for the previous year 2022-23 :
a. Basic Salary 25,000 per month
b. DA (forming part of salary for retirement benefits) 30% of Basic salary
He has been provided with a motor car of 1.8 Itr. engine capacity which he uses partly for official
purposes and partly for his personal use. The running and maintenance expenses of the motor car
are met by the employer. However, the employer recovers Rs. 500 per month from the employee for
use of such motor car.
He is also provided with a furnished accommodation in Delhi. The house has beer. taken on rent by
the company at Rs. 7,000 p.m. The cost of furniture provided is Rs 90,000.
Besides salary, he has earned the following income:
(i) Interest on bank deposits 14,000
(ii) Winnings from card games 12,000
Compute the Total Income of G for the assessment year 2023-24 assuming that he donates Rs.
12,000 to National Children Fund.
# 36. The Gross Total Income of Shiveti for the assessment year 2023-24 is Rs. 5,12,000 which includes
Rs. 40,000 as long-term capital gain and Rs. 6,000 as interest accrued on National Saving
Certificate VIII issue purchased last year. She has made the following payment during the year:
a. L.I.P. for her own life 5,000

b. Deposit in Public Provident Fund 30,000
c. Premium for mediclaim scheme by cheque 4,000
Donations to:

151
 The Prime Minister Drought Relief Fund 5,000

 Birla Mandir (an approved charitable trust) 12,000
 Municipal corporation of Delhi for family planning 5,000
 National Foundation for communal harmony 5,000
Compute the total income of Shiveti for the assessment year 2023-24.
# 37. Find out the amount of deduction under section 80DDB in the following cases for the
assessment year 2022-23
Name of the taxpayer X Y Z A B

Residential status of the taxpayer Resident Resident Resident Resident Non-
resident
Expenditure incurred on medical
treatment of dependent mother in a
hospital recognized by the Chief 12,000 26,000 80,000 1,00,000 34,000
Commissioner (amount in Rs.)
Age of mother 60 years 60 years 67 years 67 years 65 years
Residential status of dependent Resident NR Resident NR Resident

mother
yes yes
Whether the disease is specified Yes Yes Yes
under rule made by the Board
Amt. received from insurance Co. 4,000 14,000 70,000 15,000 7,000
(amt. in Rs.)
Amount received from the employer

of the taxpayer (amount in Rs.) 2,000 3,000 4,000 20,000 16,000
# 38. From the following information find out the net income and tax liability of X (26 years), a resident
individual, for the Assessment year 2023-24-
a. Salary 3,94,000
b. Business income (-) 32,000
c. Capital gain:
d. Long term 50,000
e. Short term (not covered by section 121A) 16,000
f. Winning from horse races __35,000
Total 4,63,000
 Mediclaim insurance on his own health 9,000
 Contribution towards pension fund of LIC 2,000
 Expenditure on medical treatment of a dependent relative

152
(being a person with Disability) 12,000

 Deposit for maintenance of a handicapped dependent relative 25,000
 Donation to the Govt. of India for family planning 20,000
 Donation to the Central Welfare fund of Indian army 4,000
 Life insurance premium on the life of Mrs. X 1,000
# 39. X (age: 62 years) is an employee of a private limited Company in Madras. He gets Rs. 25,000 per
month as salary. Besides, the employer provides a furnished housing facility (house being
owned by the employer) at concessional rate (fair rent of unfurnished house: Rs. 28,000; rent of
furniture: Rs. 20,000; rent paid by X: Rs. 36,000); and medical allowance at the rate of Rs. 500 per
month. The employer provides sports club facility. A similar facility will cost X, Rs. 7,000 per year.
Determine the net income and tax liability of X for the Assessment year 2023-24 after giving due
consideration to the following particulars:
Rs.
a. Long term capital gains in respect of commercial buildings 17,000
b. Long term capital gains in respect of shares (non-listed) 12,000
c. Income from horse races (gross) 4,000
d. Winning from lottery (gross) 75,000
e. Expenditure on recovery of lottery prize 16,000
f. Interest from IFCI 8,000
g. Interest paid on capital borrowed for the purpose of investment in

bonds of IFCI
8,500
h. Interest on Company deposit 48,200
 Insurance premium paid on a joint life policy on the life of X and Mrs. X
(sum assured: Rs. 1,00,000) 24,000
 Mediclaim insurance on the life of X’s father 14,000

153
Illustration - Quantum of Deduction-N 14

Determine the eligibility and quantum of deduction under Chapter VI-A in the following cases -
(1) Subscription to Sukanya Samriddhi Account ₹ 30,000 paid by Mr.A, he also paid Life
Insurance Premium of ₹ 70,000 during the year. (Sum Assured ₹ 3,50,000 Policy issued on
31.03.2012)
(2) Contribution to Notified Pension Scheme (referred to in Sec.80CCD) by the Employer ₹
40,000 for an Employee whose Basic Salary plus Dearness Allowance is ₹ 3,00,000 for the
year.
Assessee: Individual Previous Year: 2022-2023 Assessment Year: 2023-2024
Illustration - Chapter VI A Deductions - M 17
Mr. Rohan, a Resident Individual, has Gross Total Income of ₹ 7,50,000 comprising of Income
from Salary and Income from House Property for the Assessment Year 2023-2024. He provides
the following information:
1. Paid ₹ 70,000 towards Premium on Life Insurance Policy of his Handicapped Son (Section
80U disability). Sum Assured is ₹ 4,00,000, and Date of Issue of Policy 01.08.2020.
2. Deposited ₹ 90,000 in Tax Saver Deposit in the name of his major son in State Bank of India.
3. Contributed ₹ 25,000 to The Clean Ganga Fund, set up by the Central Government.
Compute the Total Income and Deduction under Chapter VI-A for the Assessment Year 2023-
2024.
Illustration - Insurance Premium Deduction u/s 80C

Compute the eligible deduction u/s 80C for A.Y 2023-2024 in respect of Life Insurance
Premium
S.No Date of Issue Person insured Actual Capital sum Insurance

of policy assured Premium paid
(₹) during 2021- 2022
(₹)
1 30.03.2012 Self 2,00,000 50,000
2 01.05.2020 Spouse 1,50,000 20,000
3 01.06.2021 Handicapped Son (Sec.80U 3,00,000 60,000

Disability)
Illustration - Allowability of Prior Period Interest and Principal - M 08

Kalpesh borrowed a sum of ₹ 30 Lakhs from the National Housing Bank for purchase of a
Residential Flat. The Loan amount was disbursed directly to the Flat Promoter by the Bank.
Though the construction was completed in May 2022, repayments towards Principal & Interest
had been made during the year ended 31.03.2022.
In the light of the above facts, state-
(a) Whether Kalpesh can claim deduction u/s 24 in respect of interest for Assessment Year
2023-2024?
(b) Whether deduction u/s 80C can be claimed for the above Assessment Year, even though
the construction was completed only after the closure of the year?

154
Illustration - Investment in NSC - Deduction u/s 80C - N 96(Mod)

From the following data, find out the tax payable on self-assessment by Mr. Bharath, 66 Year
old Resident Individual -
House Property 75,000 Interest on Company Deposit 60,000
Pension 98,000 Capital Gains - Long Term 1,25,000
Investment in National Savings Certificate is ₹ 40,000.
Illustration - Deduction u/s 80D - M 09 (Mod.)

Mr. Abhik, an individual made payment of health insurance premium to GIC in an Approved
Scheme. Premium paid on his health ₹ 10,000 and his Spouse ₹ 15,000 during 2022-2023. He
also paid Health Insurance Premium of ₹ 35,000 on his father's health who is a Senior Citizen
and not dependent on him. The payments have not been made by cash. Compute the amount
of deduction under Chapter VI-A of the Act, available to Mr. Abhik for the AY 2023-2024.
Illustration - Deductions u/s 80C, 80CCC, 80D - N 11

The Gross Total Income of Mr. Nepal for the Assessment Year 2023-2024, was ₹ 12,00,000. He
has made the following investments / Payments during the year 2022-2023:
S.No Particulars ₹
1. L.I.C. Premium paid (Policy Value 7 1,00,000) 25,000
2. PPF Amount paid 25,000
3. Repayment of Housing Loan to Indian Bank 50,000
4. Payment made to L.I.C. Pension Fund 20,000
5. Medical Insurance Premium for self, wife and dependent Children. 18,000
6. Mediclaim Premium for Parents (aged over 80 years) 80,000
Compute eligible deduction under Chapter VI A for the Assessment Year 2023-2024.
Illustration - Deductions u/s 80C, 80CCC, 80D - M 15
Comp Lite the Eligible Deduction under Chapter VI-A for the Assessment Year 2023-2024 of
Roma Ms. who has a Gross Total Income of ₹ 15,00,000 for the Assessment Year 2023-2024
,provi and e the following information about his investments / payments during the year
d 2022-2023:
Particulars ₹
1. Life Insurance Premium paid (Policy taken on 01-01-2012 and sum assured 35,000
is ₹ 1,50,000)
2. Public Provident Fund Contribution 90,000

155
3. Repayment of Housing Loan to Bhartiya Mahila Bank, Bangalore 20,000
4. Payment of L.I.C. Pension Fund 25,000
5. Mediclaim Policy taken for Self, Wife and Dependent Children, premium 30,000
paid.
6. Medical Insurance Premium paid for Parents (Senior Citizen) 55,000
Assessee: Ms. Roma Previous Year: 2022-2023 Assessment Year: 2023-2024
Illustration - Sec.80DD- Treatment / Maintenance of Handicapped Dependent

The Gross Total Income of A for the Previous Year 2022-2023 as computed is ₹ 3,50,000 which
includes ₹ 2,80,000 Long-Term Capital Gain and ₹ 10,000 on account of Short-Term Capital
Gain. Besides the above, he provides you the following information -
(a) He has deposited ₹ 12,000 to effect a contract for Annuity Plan of LIC.
(b) He paid the following premium to New India Assurance Co Ltd for Mediclaim scheme for
himself & his relatives. ?
(i) His own health 1,000 (iv) Mother dependent on him 1,200
(ii) For health of Spouse 600 (v) Brother dependent on him 1,100
(iii) Major Son not dependent on him 800
(c) One of his brothers is totally blind and dependent on him for medical treatment and
rehabilitation. A spends ₹ 10,000 on his blind brother.
(d) He has also deposited ₹ 25,000 in a Scheme framed by UTI for maintenance of his
handicapped dependent brother.
Compute his Total Income and Tax Payable for the Assessment Year 2023-2024.
Illustration - Sec.80DD - Maintenance of Handicapped Son
Sri submits the following information regarding his income for Previous Year 2022-2023 -
(a) Salary (Per Month) ₹ 32,500
(b) Rent received from property in Delhi (Per Month) ₹ 5,000
(c) Winnings from Lottery (Gross) ₹ 30,000
(d) Contribution towards PPF ₹ 15,000
(e) Premium paid in cash on Mediclaim policy for his dependent father ₹ 4,000
He has a handicapped son, dependent on him, for whom he incurs ₹ 20,000 as expenses for
his medical treatment and rehabilitation. He also deposits a sum of ₹ 25,000 for the benefit of
his son under a scheme framed by the UTI for such a purpose. Compute his Total Income and
determine tax liability for the Assessment Year 2023-2024.
Illustration - Deductions u/s 80EEA & 80EEB

The Following are the particulars relating to Mr.A, Mr.B, Mr.C and Mr.D salaried individuals for
AY 2022-23-
Particulars Mr.A Mr.B Mr.C Mr.D
Amount of loan ₹ 43 lacs ₹ 45 lacs ₹ 20 lacs ₹ 15 lacs

taken
Loan taken from HFC Deposit taking Deposit taking Public Sector

156
NBFC NBFC Bank
Date of Sanction of 01.04.2021 01.04.2021 01.04.2021 30.03.2019

Loan
Date of 01.05.2021 01.05.2021 01.05.2021 01.05.2019

disbursement of loan
Purpose of loan Acquisition of Acquisition of Purchase of Electric Purchase of

residential residential vehicle for personal Electric vehicle
house house property use for personal use
property for for Self
Self occupation
occupation
Stamp Duty value of ₹ 45 lacs ₹ 48 lacs - -

house property
Cost of Electric - - 122 lacs ₹ 18 lacs

Vehicle
Rate of interest 9% p.a 9% p.a 10% p.a 10% p.a
Compute the amount of deduction if any allowable under the provision of IT Act for AY 2023-24
in the hands of Mr.A, Mr.B, Mr.C and Mr.D. Assume that there has been no principal repayment
during the P.Y 2020-21.
Illustration - Donation u/s 80G - N 12

Mr. Rajmohan whose Gross Total Income was ₹ 6,40,000 for the Previous Year 2022-2023
furnishes the following information:
1. Stamp Duty paid on acquisition of Residential House (Self-Occupied) ₹ 50,000.
2. Five-Year Time Deposit in an account under Post Office Time Deposit Rules, 1981 ₹ 20,000.
3. Donation to a recognized Charitable Trust ₹ 25,000 which is eligible for deduction u/s 80G at
the applicable rate.
4. Interest on Loan taken for Higher Education of Spouse paid during the year ₹ 10,000.
Compute the Total Income of Mr. Rajmohan for the Assessment Year 2023-2024.
Illustration - Computation of 80G Deduction
Prem has computed his income under various heads for PY 2022-2023. He submits the
following information
Income under the head Salary 4,50,000 Payment made by Cheque for 10,000
Mediclaim Policy
Income under the head House (90,000) Expenses on Medical Treatment of 40,000
Property dependent son being a person with

disability
Profits and Gains of Business or 1,50,000 Repayment of interest on loan from 20,000
Profession Canara Bank (taken on 01.04.2011

for pursuing approved higher

157
education)
Capital Gains - Short Term 75,000 Donations to:
- Long-term 1,20,000 Prime Minister's Drought Relief 2,000

Fund
Income from Other Sources - 30,000 National Foundation for Communal 3.000
Winnings from Lotteries Harmony 4.000
Jawaharlal Nehru Memorial Fund
- Interest on Government 45,000 Prime Minister's National Relief 1,000
Securities Fund
Compute Prem's Total Income for A.Y. 2023-2024. Compute his Tax Liability if he deposits ₹
60,000 in his PPF Account, ₹ 40,000 in NSC during the previous year.
Illustration - Quantum of Deduction u/s 80JJAA

Mr. Krishnan has commenced the operations of Manufacture of goods in a factory on
01.04.2021. He employed 105 New Employees during the PY 2022-2023, - as under
(a) 10 Employees, Who does not participate in PF benefits
(b) 30 Employees employed From 01.04.2021 to 30.03.2022
(c) 50 Employees employed on 01.05.2021, to whom Salary is paid at ₹ 30,000 pm.
(d) 15 Employees employed on 01.09.2021
Compute the Deduction, available to Mr. Krishnan for AY 2023-2024, if Salary paid to each
employee at ₹ 10,000 p.m. except those employed on 01.05.2021 and the Profits and Gains
from the Manufacture of Goods in the Factory for AY 2023-2024 is ₹ 4.75 Lakhs.

158
INCOME OF OTHER PERSONS INCLUDED IN

ASSESSEE’S TOTAL INCOME
Transfer of Income with out Trans fer of Assets [Sec. 6 0):
(a) Clubbed in the hands of: Transferor who transfers the income.
(b) Conditions: The Clubbing shall apply irrespective of-
• Whether such transfer is revocable or not,
• Whether the transfer is effected before or after the commencement of IT Act.
Revocable Trans fer of Assets [Sec. 61]:
(a) Meaning of Revocable Transfer: A Transfer shall be deemed to be revocable if, -

• It contains any provision for the re-transfer directly or indirectly of the whole or part
of the Income (or) Assets to the Transferor, (or)
• Gives the Transferor a right to re-assume power directly or indirectly over the whole
or any part of the income or assets.
(b) Clubbed in the hands of: Transferor who transfers the assets.
(c) Exceptions u/s 62: Sec. 61 shall not apply in the following cases, if the Transferor does
not receive any direct or indirect benefit from such income-
• Trust / transfer not revocable during the life time of Beneficiaries / Transferee.
• Transfer made prior to 01.04.1961 and not revocable for a period of 6 years.
Note:
1. When the Transferor receives direct or indirect benefit from such Income, such Income
is to be included in his Total Income, even though transfer may not be revocable during the
lifetime of the Transferee.
2 Even in cases excepted u/s 62, Clubbing will apply when the power to revoke the transfer
. arises.
If there is provision to re-assume power, the transfer will be “revocable”, actual exercise
of power is not necessary. [S. Raghbir Singh 57 ITR 408 (SC)]
Where Assessee can at any time re-assume power over assets or income by just
cancelling / altering the terms of the deed, trust is “revocable”. [Senthilnathan Chettiar
vs State of Madras 67 ITR 102 (SC)]
Where no absolute right is given to Transferee, and asset can revert to Transferor in
certain circumstances, transfer is revocable. [V. Venugopala Varma Rajah 84 ITR 466
(SC)]

159
Salary, Co mmission, Fees or Remunerati on paid to Spouse, from a

concern in w hich an Individual ha s a Substan tial Interest [Sec.
64(1)(ii)]:
(a) Clubbed in the hands of: Husband or Wife whose Total Income is greater, before
including the Income from that concern.
(b) Conditions:
• Husband or Wife should get remuneration from such a Concern.
• The relationship of Husband and Wife should subsist at the time of accrual of such
income.
(c) Exception: Clubbing is not attracted in case the Spouse possesses technical or
professional qualifications and the remuneration is received in exercise of that knowledge /
qualification / experience.
(d) Change in Assessment: Any such income is once included in the Total Income of either
Spouse, income arising in the succeeding year shall not be included in the Total Income of
other Spouse, unless the A.O is satisfied that it is necessary to do so, after giving that
Spouse an opportunity of being heard.
Income from Assets (other than House Property) transferred

directly or indirectly to Spouse [Sec. 64(1)(iv)]:
(a) Clubbed in the hands of: Individual.

(b) Exceptions:
• If the assets are transferred before marriage.
• If the assets are transferred for adequate consideration. [Note: Natural Love and
Affection does not constitute adequate consideration.]
• If the assets are transferred in connection with an agreement to live apart.
• If on the date of accrual of income, Transferee is not the spouse of the Transferor.
• If a property is transferred by a Karta of HUF, gifting coparcenary property to his wife.
• If Property is acquired by the spouse out of pin money (i.e. an allowance given to the
wife by her husband for her dress and usual household expenses)
(c) Other Points:
• Any Income from the accretion of the Transferred Asset is to be clubbed with the
Income of the Transferor.
• Any Income earned by investing such Income (arising from Transferred Asset)
cannot be clubbed.
• If the investment is in the nature of contribution of Capital, proportionate Interest on
Capital will be clubbed with the Income of the Transferor. The value of investment shall
be as on the first day of the P.Y to the Total Investment in the business by the
Transferee as on that day.
5. Income from Assets transferred to Son’s Wife [Sec. 64(1)(vi)]:
(a) Clubbed in the hands of: Transferor (i.e. in laws)

(b) Condition: The transfer should be for inadequate consideration.

160
Transfer of Assets by an Individual to a person or AOP to the

extent such incom e is used by Transferee for the immediate or
deferred benefit of (a) Spouse/ (b) S on’s Wi fe [Sec. 64(1)(vii)(viii)]:
(a) Clubbed in the hands of: (i) Individual Transferor- when transferred to spouse, and (ii)
In-Laws - When transferred to Son’s Wife.
(b) Condition: The transfer should be for inadequate consideration.
Income from HUF Property:
Note:
• As per Explanation to Sec.64, Income would include Loss. If the specified income to
be included in the Total Income of the individual is a Loss, such Loss will be taken into
account while computing the Total Income of the Individual. It is significant for clubbing
provisions under both Sec.64 (1) and Sec.64 (2).
• Distinction between Sec.61 and Sec. 64 - Sec. 61 applies only to a Revocable
Transfer made by any person and Sec.64 applies to both Revocable and
Irrevocable transfers made by Individuals.
Significant Issues
Conversion of Where the Original Asset is converted into any other form, income from
Original Asset converted asset should also be clubbed. [Explanation 1 to Sec. 64]
Cash gifted • Where Cash is gifted by an Assessee to his wife, and the latter invests
and invested in the same in deposits, Interest Income is includible in the Assessee’s
other forms Total Income. [Mohini Thapar [1972[ 83 ITR 208 (SC)432]
• If gifted money is invested by wife in house property, Rental Income is
taxable u/s 64. [R. Ganesan [19751 58 ITR 411 (Mad.)]
CG on sale of If an individual transfers an asset without consideration to his wife who

Transferred sells it at a profit, Capital Gain arising to wife on sale of such asset is
chargeable to tax in the individual’s hands. [Seventilal Maneklal Sheth
Assets
[1968] 68 ITR 503 (SC)[
Income in Share Income of husband of Assessee who was a Partner in a Finn in

Representative representative capacity as Karta of HUF, is not liable to be included in
income of Assessee u/s 64. [Smt.Ravaban B. Mistry 163 CTR 297
Capacity
(SC)]
Spouse For clubbing u/s 64, relationship between individual and spouse should
Relationship subsist both at the time of transfer and at the time of accrual of income. [
Philip John Plasket Thomas 49 ITR 97 (SC)]
Natural Love & Natural Love and affection would not be adequate consideration for the
Affection purpose of Sec.64(1). [Thulsidas Kilachand 42 ITR 1 (SC)]
Income on Income accruing or arising from transferred assets only will be clubbed.
Income from Any income earned out of such income should not be clubbed, e.g.
Trfd Assets dividend from Bonus Shares. [MSS Rajan 252 ITR 126 (Mad.)]

161
Maturity of Assessee pays premium on policy in spouse’s name for her benefit
Policy for under Married Women’s Property Act, 1874. On maturity, interest on
Wife’s Benefit investment made out of proceeds of policy will be clubbed in husband’s
hands. [Damodar K. Shah 252 ITR 235 (SC)]
Transfer to Transfer of Assets to Trust for benefit of the daughter-in-law and

Trust grandchildren of Assessee is not a direct or indirect transfer. Trust is an
Independent Legal Entity and Trustees are the Legal Owners of trust
property. Income from the Trust not includible in Income of Assessee.
[CIT vs Smt. Pushpawati 327 ITR 490 (Del)]
Illustration - Transfer for inadequate Consideration Arjun was holding 3,000 listed
Shares in White Light Limited purchased by him on 08.08.2018 at ₹ 60 per share. He
gifted them to his girlfriend, Chitrangada on 10.02.2021. Arjun married Chitrangada on
01.03.2021. Chitrangada was allotted bonus shares by the Company at the rate of one
share for every three shares held on 11.02.2022. She sold all shares including Bonus
Shares at ₹ 150 per Share. State in whose hands Capital Gain on sale of Shares is
taxable. Also compute the Capital Gain. FMV of shares on 10.02.2021 is ₹ 100 per
share
Cross Transfers
1. Principle: Income from assets transferred in a cross-transfer would be assessed in the

hands of the Transferor, if -
(a) Transfers are so intimately connected to form part of a single transaction, and
(b) Each transfer constitutes consideration for the other by being mutual or otherwise.
2. Legal Position: When two transactions are inter-connected and are parts of the same
transaction in such a way that it can be said that the circuitous method was adopted as a
device to evade tax, the implication of clubbing provisions would be attracted.[CIT Vs
Keshavji and Moraji 66 ITR 142 (SC)]
Illustration:
Situation: Mr. A makes a gift of ₹ 1,00,000 to his brother’s spouse Mrs. B which was used
by her for purchase of a house. Mr. B gifted to Mr. A’s minor son ₹ 1,00,000. The cash was
deposited in Fixed Deposits and the interest accrued during the Financial Year is ₹ 6,000.
Inference: In the given case, income accruing from House Property should be included in
the Total Income of Mr. B and the interest received from the Fixed Deposits would be
taxable in the hands of Mr. A, as Mr. A and Mr. B are indirect Transferors of their income
yielding assets, to their Minor Child and Spouse respectively, and such transfer has been
made so as to reduce their burden of taxation.

162
Illustration -CrossTransfer-M 15
Mr. Ramesh gifted a sum of ₹ 5 Lakhs to his brother's Minor Son on 16-04-2021. On
18-04- 2021, his brother gifted Debentures worth ₹ 6 Lakhs to Mrs. Ramesh. Son of
Mr. Ramesh ₹ Brother invested the amount in FD with Bank of India @ 9% p.a. Interest
and Mrs. Ramesh received Interest of ₹ 45,000 on Debentures received by her.
Discuss the implications under the provisions of the Income-Tax Act, 1961.
Illustration - Clubbing of Business Income - N 11

Mr. Vaibhav started a Proprietary Business on 01.04.2020 with a Capital of X 5,00,000.
He incurred a loss of ₹ 2,00,000 during the year 2020-2021. To overcome the financial
position, his wife Mrs. Vaishaly, a Software Engineer, gave a gift of ₹ 5,00,000 on
01.04.2021, which was immediately invested in the business by Mr. Vaibhav. He
earned a profit of ₹ 4,00,000 during the year 2021- 2022. Compute the amount to be
clubbed in the hands of Mrs. Vaishaly for the Assessment Year 2023-2024. If Mrs.
Vaishaly gave the said amount as Loan, what would be the amount to be clubbed?

163
Minor’s Income [Sec.64(1A)]

A. Basic Principles
Nature of Clubbed in the hands of Conditions / Exceptions

Transaction
Income of a Minor • If the Parents ₹ marriage Following Incomes of Minor Child

Child, including subsists, in the hands of the shall not be
Minor Married Parent whose total income is clubbed -
Daughter. greater, or 1. Income of a Minor Child suffering
Note: Child • If the marriage does not any disability specified u/s 80U,
includes Step-Child subsist, in the hands of the 2. Income on account of manual
and Adopted Child. person who maintains the work done by Minor Child.
Minor Child.
3. Income on account of any activity
Exemption u/s 10(32): The involving application of skills, talent
Parent in whose hands the or specialised knowledge and
Minor’s Income is clubbed, is experience.
entitled to an exemption of ₹
1,500 per child, u/s 10(32). 4. If an individual transfers House
[Note] Property to a Minor Married Daughter,
income from that property shall not be
clubbed in the Parents ₹ hands.
[Sec.27]
Note: For assessee who opting for new tax regime u/s 115BAC, exemption u/s 10 (32)
cannot be claimed.
B. Taxability of Income of a Minor Married

Daughter:
Source of Income Clubbed in the hands of
1. Income from House Property, where the Clubbing provisions not attracted. Taxable in
Transferor is - (a) Parents Minor’s hands.
(b) Parents-in- Law Parents-in-law.
(c) Spouse Spouse.
(d) Any other Person Parents. Exemption u/s 10 (32) is applicable.
2. Income under other Heads of Income
(a) Minor suffering from disability u/s 80U Clubbing provisions not attracted. Taxable in
Minor’s hands.
(b) Income earned through - Manual work Clubbing provisions not attracted. Taxable in
Minor’s hands.
Skill, Talent and Specialised knowledge Clubbing provisions not attracted. Taxable in
Minor’s hands.
Any other source Parents. Exemption u/s 10 (32) is applicable.

164
C. Change in Clubbing: Once clubbing of Minors Income is done with that of one parent, it
will continue to be clubbed with that parent only, in subsequent years. However, the A.O
may club income of Minor with that of other parent if it is necessary to do so, after giving
reasonable opportunity of being heard to other parent.
If the Assessee transferred part of his share in profits to the Trust for benefit of the children
of the Assessee, income from share in the Firm received by the Trust is not includible in
the Total Income of the Assessee. [CIT vs Jayantilal D. Patel 295 ITR 386 (Guj.)]
illustration - Clubbing of Minor’s Income - N 14

Mr. Mittal has 4 Minor Children consisting of three daughters and one son. The
Annual Income of all the Children for the Assessment Year 2023-2024 were as follows
-
First Daughter (including Scholarship received ₹ 5,000) ₹ 10,000
Second Daughter ₹ 8,500
Third Daughter (suffering from Disability specified u/s 80U) ₹ 4,500
Son ₹ 40,000
Mr.Mittal gifted 2,00,000 to his Minor Son who invested the same in the business and
derived Income of 20,000 which is included above.
Compute the amount of Income earned by Minor Children to be clubbed in the hands
of Mr.Mittal.
Illustration - Clubbing of Minor’s Income

Mr. Sharma has 4 children consisting 2 daughters and 2 sons. The Annual Income of 2
daughters were ₹ 9,000 and ₹ 4,500 and of sons were ₹ 6,200 and ₹ 4,300
respectively. The daughter who has Income of ₹ 4,500 was suffering from a disability
specified u/s 80U. Compute the amount of Income earned by minor children to be
clubbed in hands of Mr. Sharma.
Assessee: Mr. Sharma Previous Year: 2022-2023 Assessment Year: 2023-2024
Particulars Son 1 Son 2 Daughter 1 Total
Annual Income 6,200 4,300 9,000 19,500
Less: Exempt u/s 10(32) (1,500) (1,500) (1,500) (4,500)
4,700 2,800 7,500 15,000
Note: Income of Daughter whose income is ₹ 4,500 and suffering from disability specified u/s
80U shall not be clubbed in the hands of Mr. Sharma.
Illustration - Clubbing of Minor’s Income - M 08

Mr. Dhaval and his wife Mrs. Hetal furnish the following information: ?
(a) Salary Income (computed) of Mrs. Hetal 4,60,000
(b) Income of Minor Son "B" who suffers from disability specified in Sec.80U. 1,08,000
(c) Income of Minor Daughter "C" from singing 06,000
(d) Income from profession of Mr. Dhaval 7,50,000

165
(e) Cash Gift received by "C" on 02.10.2021 from friend of Mrs. Hetal, on winning of
Singing Competition 48,000
(f) Income of Minor Married Daughter "A" from Company Deposit 30,000
Compute the Total Income of Mr. Dhaval and Mrs. Hetal for the Assessment Year
2023-2024.
Illustration - Clubbing of Minor’s Income - Jul 21

Mr. Dharmesh who is 45 years old and his wife Mrs. Anandi is 42 years old furnished
the following information:
Particulars ₹
(i) Salary Income (computed) of Mrs. Anandi 9,60,000
(ii) Income of minor Son "A" who suffers from disability specified in 3,08,000
Section 80U
(iii) Income of minor daughter "C" from script writing for Television 1,86,000
Serials
(iv) Income from garment trading business of Mr. Dharmesh 17,50,000
(v) Cash gift received by minor daughter "C" on 02-10-2021 from 45,000
friend of Mrs. Anandi, on winning of a story writing competition
(vi) Income of minor son "B" from Scholarship received from his 1,00,000
School
(vii) Income of minor son "B" from fixed deposit with PNB, made out of 5,000
income earned from Scholarship
Compute the total income of Mr. Dharmesh and his wife Mrs. Anandi for AY 2023-24
assuming that they have not opted to be taxed under section 115BAC
Illustration - Clubbing of Business Income and Minor Income

Mr. Singh is a Trader. Particulars of his income and those of the members of his
family are given below. These relate to the Previous Year ending 31.03.2022: ?
(a) Income from Business - Mr. Singh's 90,000
(b) Salary derived by Mrs. Singh from a school in which she is the principal 50,000
(c) Interest on Company deposits derived by Master Deep Singh (Minor Son)
These deposits were made in Deep Singh's name by his father's father about 6 years
ago 12,000
(d) Receipts from sale of paintings and drawings made by Minor Dipali Singh
(Minor Daughter of Mr & Mrs.Singh and a noted child artist) 60,000
(e) Lottery earnings by Master Dipendar Singh (Minor son of Mr. Singh) 6,000
Discuss whether the above will form part of the Assessable Income of any Individual
and also compute the Assessable Income of Mr. Singh.

166
Illustration - Clubbing of Salary and Minor Income - M 13

Mr. A is an Employee of Larsen Limited and has substantial interest in the Company.
His Salary is ₹ 25,000 p.m. Mrs. A also is working in that Company at a Salary of ₹
10,000 p.m. without any professional qualification. (Ignore Standard Deduction)
Mr. A also receives ₹ 30,000 as Income from Securities, Mrs. A owns a House
Property which she has let out. Rent Received from such House Property is ₹ 12,000
p.m.
Mr. & Mrs. A have three minor children - two twin daughters and one son, Income of
the twin daughters is ₹ 2,000 p.a. and that of his son is ₹ 1,200 p.a. Compute the
Income of Mr. and Mrs. A.
Illustration - Computation of Total Income and Tax liability - N 09

Mr. Dhaval has an income from Salary of ₹ 3,20,000 and his Minor Children's income
are under:
(a) Minor Daughter has earned the following income:
From TV show 50,000
From Interest on FD with a Bank (deposited by Mr. Dhaval from his Income) 5,000
(b) Minor Son has earned the following income:
From the sale of a own painting 10,000
From Interest on FD with a Bank (deposited by Mr. Dhaval from his income) 1,000
Compute the Taxable Income and tax liability in the hands of Mr.Dhaval.
Illustration - Computation of Total Income - N 12

Mr. B is the Kart a of a HUF, whose Members derive Income as given below -
Particulars ₹
(i) Income from B's Profession 45,000
(ii) Mrs. B's Salary as Fashion Designer 76,000
(iii) Minor son D (Interest on Fixed Deposits with a Bank which were 10,000
gifted to him by his Uncle)
(iv)Minor Daughter P's earnings from sports 95,000
(v) D's winnings from Lottery (Gross) 1,95,000
Discuss the tax implications in the hands of Mr. B and Mrs. B.
Illustration - Clubbing of Income - M 12

During the Previous Year 2022-2023 the following transactions occurred in respect of
Mr. A:
(a) Mr. A had a Fixed Deposit of ₹ 5,00,000 in Bank of India. He instructed the Bank to
credit the Interest on Deposit at 9% from 01.04.2021 to 31.03.2022 to the Savings Bank
Account of Mr. B, son of his brother, to help him in his Education.
(b) Mr. A holds 75% share in a Partnership Firm. Mrs. A received a Commission of ₹
25,000 from the Firm for promoting the sales of the Firm. Mrs. A possesses no

167
technical or professional qualification.

(c) Mr. A gifted a Flat to Mrs. A on April 1st 2021. During the PY the Flat generated a
Net Income of ₹ 52,000 to Mrs. A.
(d) Mr. A gifted ₹ 2,00,000 to his minor son who invested the same in a Business & he
got a share Income of ₹ 20,000 from the Investment.
(e) Mr. A's minor son derived an Income of ₹ 20,000 through a Business Activity
involving Application of his Skill & Talent.
(f) During the year Mr. A got a Monthly Pension of ₹ 10,000. He had no other Income.
Mrs. A received Salary of ₹ 20,000 per month from a Part Time Job. (Ignore Standard
Deduction)
Discuss the Tax Implications & compute the Total Income of Mr. A, Mrs. A and their
Minor Child.
Illustration - Clubbing of Income - N 19

Mr. Mahadev, a noted bhajan singer of Rajasthan and his wife Mrs. Dariya furnish the
following information relating to the Assessment Year 2023-2024.
S.no Particulars ₹
1 Income of Mr. Mahadev - professional bhajan singer (computed) 5,65,000
2 Salary income of Mrs. Dariya (computed) 3,80,000
3 Loan received by Mrs. Dariya from Ramu & Jay (Pvt) Ltd. (Mrs. 2,50,000
Dariya holds 35% shares of the Co. The Co. has incurred losses
since its inception 2 years back)
4 Income of their minor son Golu from winning singing reality show 2,50,000
on T.V.
5 Cash gift received by Golu from friend of Mr. Mahadev on winning 21,000
the show
6 Interest income received by minor married daughter Gudia from 40,000

deposit with Ramu & Jay Pvt Ltd.
Compute total taxable income of Mr. Mahadev & Mrs. Dariya for the Assessment Year
2023-2024.
.

168

169
SET-OFF & CARRY FORWARD OF LOSSES
Sec. Nature of loss Details of set-off Conditions / Exceptions
70 Current Year Loss Set-off within the same Exceptions: Loss from -
within the same source 1. Activity of owning or maintaining of race
Source horses.
2. Speculation Business.
3. Short Term Capital Loss- (set-off against
STCG / LTCG.)
4. Long Term Capital Loss- (set-off only against
LTCG.)
71 Current Year Loss Set-off against income Exceptions:

under any head under any other head. 1. Loss from -
(a) Activity of owning or maintaining of race
horses.
(b) Speculation business.
(c) Capital Gains.
2. w.e.f. 01.04.2018 Set-Off of loss u/h "Income
from House Property" against any other Head of
Income shall be restricted to ₹ 2,00,000 for any
Assessment Year.
3. Loss under the head Profits & Gains of
Business or Profession cannot be set-off against
Income from Salaries.
4. Loss from Specified Business u/s 35AD can be
setoff only against Income from any other
Specified Business. [S.73A]
71B Brought forward Set-off only against Permissible for 8 Assessment Years immediately
Unabsorbed Loss income from House succeeding the Assessment Year in which the
from House Property Property. loss first arose.
72 Brought Forward Set-off only against 1. Carry forward and set-off is permissible for 8
Unabsorbed income under the head assessment years immediately succeeding the
Business Loss other profits and gains of assessment year in which the loss first arose.
than Speculation Business Or 2. Loss can be carried forward, only if the return
loss Profession is filed u/s 139(1) and determined and
communicated u/s 157.
32(2) Brought forward Set-off against any Unabsorbed Depreciation Loss can be carried
Unabsorbed head of Income forward for any number of years until it is fully set-
Depreciation off.
73 Brought forward Set-off only against 1. Carry forward and set-off is permissible for 4
Unabsorbed income under assessment years immediately succeeding the
Speculation Speculation business assessment year in which the loss first arose.
Business Loss 2. Loss can be carried forward, only if the return
is filed u/s 139(1) and determined and
communicated u/s 157

170
73A Brought forward loss Set-off only against 1. Loss can be carried forward for any number of
of Specified Income from any other years until it is fully set-off.
Business u/s 35AD Specified Business 2. Loss can be carried forward if Return is filed
u/s 139(3) and it is determined and
communicated u/s 157. [S.80]
74 Brought forward Set-off only against 1. Carry forward and set-off is permissible for 8
Unabsorbed Loss Income under the head assessment years immediately succeeding the
under the head Capital Gain. assessment year for which the loss was
Capital Gains. computed.
2. Loss can be carried forward, only if the return
is filed u/s 139(1) and is determined and
communicated u/s 157
3. STCL can be set-off against any Capital Gain.
However, LTCL can be set-off only against LTCG.
74 A Brought forward Set-off only against 1. Carry forward and set-off is permissible for 4
Unabsorbed Loss Income from owning assessment years immediately succeeding the
from activity of and maintaining Race assessment year for which the loss was
owning & Horses computed.
maintaining Race 2. Loss can be carried forward, only if the return
Horses is filed u/s 139(1) and determined and
communicated u/s 157.
Note: Deemed Speculation Business -

1. If any part of the business of the Company consist of purchase and sale of the Shares of other
Companies otherwise than in ordinary course of their business, such a Company shall be deemed to
be carrying on speculation business, to the extent of purchase and sales of such Shares.
2. Companies whose principle business is that of trading in shares or banking or granting of loans &
advances, would not be treated as carrying on Speculation Business, in cases where they purchase
and sell shares of other Companies.
Significant Issues
Beneficial to • Wherever two views or methods are possible, the view or the method, which is
Taxpayer beneficial to the taxpayer, shall be adopted in the absence of any specific provision
to the contrary. (Vegetable Products Ltd 88 ITR 192 (SC)]
• For Sec.71, where there are more than one source for set-off, the Assessee can
adopt the most beneficial method for set-off. [Circular No. 26/7.7.55]
LTCG U/s 71, Any loss determined under any other head can be set-off against LTCG. [Cir.
721/13.9.95]
Order of setoff The effect has to be first given to the provisions of Sec.71. This position is however
and carry subject to exceptions provided in Chapter VI of the Act which prohibits inter-head
forward adjustments with regard to certain losses. [Circular No. 587/11.12.90]
Loss from Loss incurred on account of derivatives would be deemed business loss under proviso
Derivatives to Sec. 43(5) and not speculation loss and, hence, Explanation to Section 73 could not
be applied. [CIT vs Asian Financial Services Ltd. [2016J 75 taxmann.com 68 (SC)]

171
Illustration - Computation of Carried Forward Loss - M 13

From the following information of Mr. Mohit for the Financial Year 2022-2023, you are required
to compute his Total Income for the Financial Year 2022-2023, and ascertain the amount of
losses which will be carried forward to next year.
Particulars ₹
He owns two houses:
House No. 1 - Income after all statutory deductions 80,000
House No. 2 - Current Year Loss (38,000)
He has three proprietary business concerns:
1. Textile Business: Discontinued from 30th September 2021 -
(a) Current Year's Loss 40,000
(b) Brought Forward Loss of AY 2017-2018 95,000
Particulars ₹
2. Chemical Business - since discontinued: Nil
(a) Bad Debts allowed in earlier years recovered during the year 35,000
(b) Brought Forward Business Loss of Asst. Year 2019-2020 50,000
3. Leather Business - Profit for the current year 1,00,000
Other Information:
Share of Profit in a Firm in which he is Partner since 2007 16,550
Capital Gains:
(a) Short Term Capital Gains 60,000
(b) Long Term Capital Loss 35,000
Contribution to L.I.C towards Premium 10,000
Computation of Total Income

Illustration - Computation of Total Income - M 10
Mr. Banerjee furnishes you the following details for the year ended 31.03.2022. Compute the
Total Income of Mr. Baneerjee for the Assessment Year 2023-2024.
Income (loss) from house property - ₹
House 1 36,000
House 2 - Self occupied (20,000)

172
House 3 60,000
Profits and gains from Business or Profession - ₹
Textile Business 2,00,000
Automobile Business (3,00,000)
Speculation Business Capital Gains - 2,00,000
Long Term Capital Gain from Sale of Shares (STT) paid 1,50,000
Long Term Capital Gain from Sale of Vacant Site 2,00,000
Short Term Capital Loss from Sale of Building Other Sources - 1,00,000
Gift from a Friend (Non-Relative) on 05.06.2021 60,000
Gift from Maternal Uncle on 25.02.2022 1,00,000
Gift from Grandfather's Younger Brother on 10.02.2022 1,00,000
Note: Assume that the figures given above are computed and arrived at after considering
eligible deductions.
Priority for Set-off of Losses
S. No. Sec. Nature of Losses
1 35(1) Current Scientific Research Capital Expenditure
2 32(1) Current Depreciation
3 36(1 )(ix) Current year Expenditure on Family Planning to the extent allowed
4 72(1) Unabsorbed Business Losses of previous years
5 32(2) Unabsorbed Depreciation of previous years
6 35(4) Unabsorbed Scientific Research Capital Expenditure of previous years
7 36(1 )(ix) Unabsorbed Family Planning Promotion Expenditure of previous year

173
Illustration - Computation of Total Income - N 12

Mr. Rahul an Assessee aged 61 years gives the following information for the Previous Year
31.03.2022:
Particulars Amount ₹
(a) Loss from Profession 1,05,000
(b) Capital Loss on the Sale of Property - Short Term 55,000
(c) Capital Gains on Sale of Shares - Long Term 2,05,000
(d) Loss in respect of Self Occupied Property 15,000
(e) Loss in respect of Let Out Property 30,000
(f) Share of Loss from Firm 1,60,000
(g) Income from Card Games 55,000
(h) Winnings from Lotteries 1,00,000
(i) Loss from Horse Races in Mumbai 40,000
(j) Investment in Notified Bonds 21,000
(k) Medical Insurance Premium paid by Cheque 24,000
Compute the Total Income of Mr. Rahul for the Assessment Year 2023-2024.
Illustration - Set Off and Carry Forward of Losses - M 14

Mr. Garg, a Resident Individual, furnishes the following particulars of his Income and other
details for previous year 2022-2023.
(1) Income from Salary ₹ 15,000
(2) Income from Business (before providing Depreciation) ₹ 66,000
(3) Long term Capital Gain on Sale of Land ₹ 10,800
(4) Loss on Maintenance of Race Horses ₹ 15,000
(5) Loss from Gambling ₹ 9,100
The other details of Unabsorbed Depreciation and Brought Forward Losses pertaining to
Assessment Year 2022-2023 are as follows:
(1) Unabsorbed Depreciation ₹ 11,000
(2) Loss from Speculative Business ₹ 22,000
(3) Short term Capital Loss ₹ 9,800
Compute the Gross Total Income of Mr. Garg for the Assessment Year 2023-2024 and the
amount of Loss, if any, that can be carried forward, or not.

174
Illustration - Set Off and Carry Forward - M 17

Mr. Shyam, a resident of Chandigarh, provides the following information for the financial year
2022-2023:
Particulars ₹
Income from Textile Business 4,60,000
Income from Speculation business 25,000
Loss from Gambling 12,000
Loss in maintenance of Race Horse 15,000
Eligible Current Year Depreciation of Textile Business not adjusted in the Income 5,000
given above
Unabsorbed Depreciation of Assessment Year 2020-2021 Brought Forward 10,000
Speculation Business Loss of Assessment Year 2020-2021 30,000
Compute the Gross Total Income of Mr. Shyam for Assessment Year 2023-2024 and any other
item of expense or loss eligible for carry forward.
Illustration - Set-off and Carry Forward of Multiple Losses - N 11 Mr. Batra furnishes the
following details for year ended 31.03.2022:
Particulars
Short Term Capital Gain 1,40,000
Loss from Speculative Business 60,000
Long Term Capital Gain on Sale of Land 30,000
Long Term Capital Loss on Sale of Shares (Securities Transaction Tax not paid) 1,00,000
Income from Business of Textile (after allowing current year Depreciation) 50,000
Particulars ₹
Income from activity of owning and maintaining Race Horses Income from Salary 15.000
Loss from House Property 1,00,000
40.000
Following are the Carry Forward Losses:

(i) Losses from activity of owning and maintaining Race Horses - pertaining to Assessment
Year 2017-2018 ₹ 25,000.
(ii) Carry Forward Loss from Business of Textile ₹ 60,000 - Loss pertains to Assessment Year
2014-2015.
Compute Gross Total Income of Mr. Batra for the Assessment Year 2023-2024. Also state the
eligible carry forward losses for the Assessment Year 2023-2024.

175
Illustration - Loss from Specified Business - M 11, RTP

The following are the details relating to Mr. Srivatsan, a Resident Indian, aged 57, relating to
the year ended 31.03.2022:
Particulars ₹
Income from Salaries 2,20,000
Loss from the House Property 2,10,000
Loss from Cloth Business 2,40,000
Income from Speculation Business 30,000
Loss from Specified Business covered by Sec. 35AD 20,000
Long-Term Capital Gain from sale of Urban Land 2,50,000
Long-Term Capital Loss from sale of Listed Shares in Recognized Stock 1,10,000
Exchange (STT paid)
Loss from Card Games 32,000
Income from betting 45,000
Life Insurance Premium paid 1,20,000
Compute the Total Income and show the items eligible for Carry Forward.
Illustration - Set-off of various Losses - M 12

Sanjay engaged in various types of activities gives the following information for the year
ended
31.03.2022.
Particulars ₹
(i) Loss from Automobile Business (Total Turnover ₹ 6,00,000) 1,10,000

(ii) Profit from Wholesale Trade in Furniture items at the prescribed percentage 4.00. 000
of Turnover as per Sec. 44AD 2.00. 000
(iii) Brought Forward Loss relating to discontinued Textile Business 70,000
(discontinued w.e.f. 01.06.2016)
(iv) Short Term Capital Loss on sale of vacant site during the year
(v) Profit from Speculation Business relating to oil seeds 1,10,000

(vi) Loss from Speculation Business brought forward and related to Cotton 50.000
(brought forward from AY 2020-2021) 60.000
(vii) Brought Forward Unabsorbed Depreciation of trade in Furniture items
related to Assessment Year 2020-2021
Note: Aggregate Total Business Turnover of Sanjay to be assumed as below limit prescribed
u/s 44AB. Compute the Total Income of Sanjay for the Assessment Year 2023-2024.

176
Illustration - Computation of Business Income - N 02

The summarised P&L Account of Sri Raj (from his Grocery Stores) for the Previous Year ended
31.03.2021 is as under:
To Expenses To Net 4.20.000 By Gross Profits 6,00,000

Profit 2.80.000 By Dividends (From Indian Listed 1,00,000
Companies)
Total 7,00,000 Total 7,00,000
The following further information was provided for the same Previous Year: Raj had other
businesses (Proprietary)
(a) Cloth Trade (Loss) ₹ 42,000
(b) Speculation (Profit) ₹ 30,000
(c) Loss in Proprietary business carried on in the name of Minor Son ₹ 45,000
He had carried forward loss of ₹ 39,000 in Electrical Spares for Assessment Year 2021—2022.
The business was closed down. However, the Income Tax return for Assessment Year 2022-
2023 was filed in time.
Income of Smt. Raj was ₹ 55,000
Compute the income of Mr. Raj for AY 2022—2023 chargeable under the head Profits and
Gains of Business.
Illustration - Set-off Multiple Losses - M 03 '

Compute the tax liability of X for Assessment Year 2023-2024 from the following particulars: ?
(a) Net House Property Income as computed under the head "IHP 4,70,000
(b) Income from business before adjusting the following 90,000
(i) Carried forward Business Loss 70,000
(ii) Current Depreciation 30,000
(iii) Carried forward Unabsorbed Depreciation 1,40,000
(c) Short Term Capital Gain - Jewellery 1,60,000
(d) Long Term Capital Loss - Shares 40,000
(e) Long Term Capital Gains - Debentures 2,00,000
(f) Income from growing and manufacturing coffee (cured and roasted) 1,00,000

177
Illustration-Set Off, Computation of Total Income -N 13

Compute the Total Income of Mr. Krishna for the Assessment Year 2023-2024 from the
following particulars:
Particulars ₹
Income from Business before adjusting the following items - 1,75,000
(a) Business Loss brought forward from Assessment Year 2019-2020 70,000
(b) Current Depreciation 40,000
(c) Unabsorbed Depreciation of earlier year 1,55,000
Income from House Property (Gross Annual Value) 4,32,000
Municipal Taxes paid 32,000
Mr. Krishna sold a Plot at Noida on 12“ ₹ September 2021 for a consideration of ₹
6,40,000,
which had been purchased by him on 20th December 2017 at a cost of ₹ 4,10,000.
Long-Term Capital Loss on Sale of Shares sold through Recognized Stock 75,000
Exchange
(STT paid)
Long-Term Capital Gain on Sale of Debentures 60,000
Dividend on Shares held as Stock-in-Trade 22,000
Dividend from a Company carrying on agri business 10,000
During the previous year 2022-2023, Mr. Krishna has repaid ₹ 1,67,000 towards Housing Loan
from a Scheduled Bank. Out of ₹ 1,67,000, ₹ 97,000 was towards Payment of Interest and rest
towards Principal Payments. Cost Inflation Indices are- Financial Year 2017-2018: 272,
Financial Year 2022-2023:317.
Illustration - Order of set-off and carry forward of losses - M 07

Simran, engaged in various types of activities, gives the following particulars of her Income for
the year ended 31.03.2022:
(a) Profit of business of Consumer and Household Products ₹ 1,50,000
(b) Loss of business of Readymade Garments ₹ 10,000
(c) Brought forward loss of Catering Business, which was closed in AY 2022-2023 ₹ 15,000
(d) Short Term Loss on Sale of Securities and Shares ₹ 15,000
(e) Profit of Speculative Transactions entered into during the year ₹ 12,500
(f) Loss of Speculative Transactions of AY 2017-2018 not set-off till AY 2022-2023 ₹ 15,000
Compute the Total Income of Simran for the Assessment Year 2023-2024.

178
Illustration - Order of set-off and carry forward of losses

P, a Resident Individual, furnishes the following particulars of income and other details for PY
2022-2023:
Income from Salary 18,000 Unabsorbed Depreciation 9,000
Net Annual Value Taxable under 70,000 Depreciation allowable under the 8,000
Income from House Property IT Act for which no treatment is
given above
Income from Business 80,000 Short Term Capital Loss 7,800
Income from Speculative Business 12,000 Unrealized Rent 17,000
LTCG on Sale of Land 15,800 Loss from Speculative Business 16,000
Loss on Maintenance of Race Horses 9,000 Loss on Gambling 8,000
Compute the Gross Total Income, for AY 2023-2024 and amount of Loss that can be carried
forward.
Illustration -Set-off and carry forward of losses - Tax Planning

From the following particulars of Naresh for the Previous Year ending 31.03.2022, compute the
income under each head and the taxable income with reasons and also explain the provisions
of carry forward of such loss, that could not be absorbed - ₹
(a) Income from Business (Proprietary Concerns) ₹
Net Adjusted Profit from Textile Trade 20,000
Net Adjusted Loss from Automotive Trade (-) 30,000
Loss in Shares traded (Shares were never taken delivery) (-) 40,000
(b) Negative Income from House Property (-) 25,000
(c) Capital Gains:
Short Term Loss (-) 20,000
Long Term Capital Gain 30,000
Illustration -Carry forward of losses

Mr. Rajat submits the following information for the Year ending 31.03.2022. He desires that you
should -
(i) Compute the Gross Total Income, and (ii) Ascertain the amount of losses that can be carried
forward.
(a) He has two houses - ₹
(i) House No. I - After all statutory deductions 72,000

179
(ii) House No. II- Current year loss (30,000)
(b) He has three proprietary businesses - (i) Textile Business: (40,000)

- Discontinued from 31.10.2021 - Current year loss
- Brought forward business loss of the Assessment Year 2017-2018 (95,000)
(ii) Chemical business: NIL

- Discontinued from 01.03.2020 - hence no Profit / Loss
- Bad debts allowed in earlier years recovered during this year 35,000
- Brought forward business loss of the Assessment Year 2020-2021 (50,000)
(iii) Leather business: Profit for the current year 1,00,000
(iv) Share of Profit in a Firm in which he is a partner since 2011 16,550
(c) (i) Short term Capital Gains 60,000
(ii) Long Term Capital Loss 35,000
(d) Contribution to LIC towards Premium 10,000
Illustration - Computation of Total Income - Jul 21

Mr.X a resident individual submits the following information relating to the previous year
ending 31st March, 2022.
Particulars ₹
(i) Income from Salary (Computed) 2,22,000
(ii) Income from House Property 22,000

House in Delhi House in Chennai (2,60,000)
House in Mumbai (Self occupied) (20,000)
(iii) Profits and gains from business or profession 18,000

- Textile Business (22,000)
- Cosmetic Business (74,000)
- Speculative Business-1 46,000
- Speculative Business-2
(iv) Capital gains (16,000)

Short term capital loss from sale of property 15,400
Long term capital gains from sale of property
(v) Income from other sources (Computed) 34.000

- Income from betting 46.000 (14,600)
- Income from Card games
- Loss of maintenance of race horses
Determine the gross total income of Mr.X for the Assessment year 2023-24 and the losses to
be carried forward assuming that he does not opt to be taxed under section 115BAC.

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RAM BAAN _DIRECT TAX

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

TAX RATES FOR AY 2023-24

TAX RATES IN CASE OF INDIVIDUALS OR HUF

(1) Where the total income does not exceed ₹ NIL

Total Income Rates of Income Tax

(1) Where the total income does not exceed ₹ NIL

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

Total Income Rates of Income Tax

(1) Where the total income does not exceed ₹ NIL

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

3. Surcharge on Income-tax (Residents and Non-Residents)

TOTAL INCOME SURCHARGE

(i) Does not exceed ₹ 50 lakhs No surcharge

(iv) Exceeds ₹ 2 crores

A. On tax computed on Capital Gains under section 111A & 15%

Total Income - Capital Gains under section 111A 112A

If Total Income - Capital Gains under section

111A 6B 112A and dividend

(a) is upto ₹ 2 crores 15%

(b) is above ₹ 2 crores but upto ₹ 5 crores 25%

(c) Above ₹ 5 crores 37%

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

IV. In case of a DOMESTIC COMPANY,

VI. In the case of every co-operative society, -

(2) exceed ₹ 10,000 ₹ 1,000 plus 20 per cent of the

(3) ₹ 20,000 where the total income exceeds ₹ 10,000;

₹ 20,000 amount by which the total income

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

Tax on ₹ 3,40,000 ₹ 4,500

Less: Relief under section 87A ₹ 4,500

Net tax payable Nil

HEALTH AND EDUCATION CESS

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

Total income Rate of tax

Upto Rs.2,50,000 Nil

From Rs.2,50,001 to Rs.5,00,000 5%

From Rs.5,00,001 to Rs.7,50,000 10%

From Rs.7,50,001 to Rs. 10,00,000 15%

From Rs. 10,00,001 to Rs. 12,50,000 20%

From Rs.12,50,001 to Rs.15,00,000 25%

Above Rs. 15,00,000 30%

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

(A) Section 115BAC(1): Special Tax Rate

(l) Assessee shall be liable to surcharge and HEC as usual

DIRECT TAX _RAM BAAN _MAY 23 _V1 CA VIKRAM BIYANI

Income of Previous Year taxed in same Year:

1. Assessment of Income of a Non-Resident from Shipping Business [Sec.172]: In

RAM BAAN _DIRECT TAX CA VIKRAM BIYANI

Cash Credits [Sec.68]: Taxable in the FY in which it is found credited in books of

Unexplained Investments [Sec.69]: Investments made by Assessee which are not

Unexplained Money, Bullion, Jewel or valuable article etc [Sec.69A]: Where

Investments, etc. not fully disclosed in books of account [Sec.69B]: Where

Unexplained Expenditure, etc. [Sec.69C]: Where Assessee incurred any

Amount borrowed / repaid on Hundi except by A/c Payee Cheque

RAM BAAN _DIRECT TAX CA VIKRAM BIYANI

Non-Resident [Sec.2(30)]: Not a Resident u/s 6(1).

Person shall be considered Resident only if -

RAM BAAN _DIRECT TAX CA VIKRAM BIYANI

Period beginning From Period ending to