CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA.

Jignesh Thakkar
Meaning & classification of tax: Tax is a fee charged by the Government on a product, service, income,
wealth or activity. Taxes can be classified as direct taxes and indirect taxes.
Direct taxes Indirect taxes
Meaning It is a tax where incidence as well as impact It is a tax where the incidence is on one
of tax is on one and the same person. person but the impact is on the customer.
Example (a) Income tax (a) Good & Services Tax.
(b) Securities transaction tax (b) Customs duty.
Burden Burden not felt by all persons. Burden shouldered by all persons.
Powers for levying taxes:
 Article 265 of the Constitution prohibits levy or collection of tax except by authority of law.
 Since India being is a federal state, the laws can be enacted by the Union Parliament as well as State
legislatures.
 The matters with respect to which laws can be framed by the Union Government and the State
Governments are spelt out by Article 246 of the Constitution through the Seventh Schedule. The seventh
schedule consists of three lists, namely union list, state list & concurrent list:
Sr.No. List Matters with respect to which
1 Union list (List-I) CG alone can frame laws
2 State list (List-II) SG alone can frame laws
3 Concurrent list (List-III) Both CG & SG can frame laws (like forest, education etc.)
 The authority to levy a tax is derived from the Constitution of India which allocates the power to levy
various taxes between the Centre and the State.
 Taxes in India are levied by the Central Government and the State Governments.
 Some minor taxes are also levied by the local authorities such as the Municipality or the Local Council.
 Entry 82 of the Union List referred to above empowers the Central government to make laws relating to
taxes on income other than agricultural income.
Income tax law: The Income Tax Law consists of the following components:
1) The Income tax Act, 1961: Levy of income tax is governed by this Act. This Act came into force on 1 st
April 1962. It contains 298 sections and XIV schedules. It contains provisions for determination of taxable
income, determination of tax liability, procedure for assessment, appeals, penalties and prosecutions. It
also lays down the powers and duties of various income-tax authorities. Income tax Act is amended
through the annual finance Act and also through the amendment Acts and ordinances.
2) Annual Finance Act: The Provisions of income tax Act are amended every year through the Finance Act.
The Finance Act consists of tax rates applicable for the assessment year, TDS rates and Advance tax rates
(applicable for the current financial year). It also lays down the manner of computation of tax on non-
agricultural income where the assessee has got agricultural income.
3) The Income tax rules, 1962: For carrying out the purposes this Act, CBDT is empowered to frame rules.
These rules are collectively called the Income tax rules. Along with the Act, these rules should also be
studied.
4) Circulars & Notification: Issued by CBDT from time to time to deal with certain specific problems and to
clarify doubts regarding the scope and meaning of the provisions. Issued for guidance of officers and
assessees. The department is bound by the circulars. Such circulars are not binding on assessees but they
can take advantage of beneficial circulars.
5) Case laws: It is not possible for parliament to conceive and provide for all possible issues that may arise in
the implementation of the Act. So judiciary will hear the disputes between the assessees and the
department and give decision on various issues. Supreme Court decisions are binding on all since it is
regarded as law of the land. High court decisions will apply in the respective states in which such High
courts have jurisdiction.
Charge of income tax: As per Section 4, the total income of the previous year of every person shall be
charged to Income Tax at the rates prescribed in the annual Finance Act as applicable to the relevant
assessment year.
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CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA. Jignesh Thakkar
Person [Section 2(31)]: Person includes:
(i) An individual; (ii) A Hindu Undivided Family (HUF);
(iii) A Company; (iv) A Firm;
(v) An Association of Persons (AOP) or a Body of (vi) A local authority;
Individuals (BOI), whether incorporated or not;
(vii) Every artificial juridical person not falling within any of the preceding sub-clauses.
Assessment Year [Section 2(9)]: Assessment year means the period of 12 months commencing on the first
day of April every year.
Previous Year [Section 2(34) & 3]: As per Section 2(34), previous year means the previous year as defined
in Section 3. According to Section 3, previous year means the financial year immediately preceding the
assessment year.
Exception: In case of a newly set up business or profession, or a source of income which comes into
existence during the financial year, previous year for that business / profession or that source of income will be
from the date of setting up the new business or profession, or from the date the new source came into
existence, and ending on the last day of the financial year, i.e. 31st March.
What is gross total income? As per Section 14, income of a person is computed under the five heads of
income. Following is the format of computation of Gross total income & Total income:
Particulars `
I] Income from Salary [Section 15 to 17] xxx
II] Income from House property [Section 22 to 27] xxx
III] Profits and Gains from Business or Profession [Section 28 to 44DB] xxx
IV] Income from Capital gains [Section 45 to 55] xxx
V] Income from Other sources [Section 56 to 59] xxx
GROSS TOTAL INCOME xxx
Less: Deductions under chapter VIA [Section 80C to 80U] (xxx)
NET TAXABLE INCOME / TOTAL INCOME xxx
General rates of tax for A.Y. 2021-22: (As per Part III of the First Schedule to the Finance Act, 2020)
Category (I) Category (II) Category (III)
a) Individual other than those covered In the case of every individual, In the case of every
in category II & category III. being a resident in India, who is individual, being a resident in
b) Hindu undivided family. of the age of 60 years or more India, who is of the age of 80
c) Association of persons or body of at any time during the previous years or more at any time
individuals (except co-op society) year but less than 80 years. during the previous year.
d) Artificial juridical person
Income Slab Rate of tax Income Slab Rate of tax Income Slab Rate of tax
Upto 2,50,000 Nil Upto 3,00,000 Nil
Upto
> 2,50,000 & 3,00,000 & Nil
5% 5% 5,00,000
< = 5,00,000 < = 5,00,000
> 5,00,000 & > 5,00,000 & > 5,00,000 &
< = 10,00,000 20% < = 10,00,000 20% <= 20%
10,00,000
> 10,00,000 30% > 10,00,000 30% > 10,00,000 30%
(IV) In the case of every firm (including a limited (V) In the case of every co- operative society:
liability partnership) & local authority: Income slab Rate of tax
On the whole of the total 30% Upto 10,000 10%
income > 10,000 & < = 20,000 20%
> 20,000 30%
(VI) In the case of a company:
A] In the case of a Domestic company
(i) Where the total turnover or gross receipts of the previous year 2018-19 25%
does not exceed ` 400 crores.
(ii) Domestic companies other than referred to in (i) above. 30%
B] In the case of a company other than a domestic company 40%

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CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA. Jignesh Thakkar
Surcharge: In addition to the amount of income tax computed as per the above mentioned rates or as per
section 111A or section 112, every person shall be liable to pay surcharge as follows:
Assessee & their rate of surcharge
Individual, HUF, AOP / BOI Co-op Society, Domestic Other than
Total Income and Artificial Juridical Firm and Local Company domestic
Person Authority. Company
Total Income ≤ ` 50 lakhs Nil Nil Nil Nil
Total Income > ` 50 lakhs 10% of tax Nil Nil Nil
but ≤ ` 1 crore
Total Income > ` 1 crore but 15% of tax 12% of Tax 7% of tax 2% of tax
≤ ` 2 crores.
Total Income > ` 2 crores *25% of tax 12% of Tax 7% of tax 2% of tax
≤ ` 5 crores.
Total Income > ` 5 crores *37% of tax 12% of Tax 7% of tax 2% of tax
but ≤ ` 10 crores.
Total Income exceeds ` 10 *37% of tax 12% of Tax 12% of tax 5% of tax
crores
*Surcharge Rates for Individuals / HUFs / AOPs / BOIs and AJPs: will remain the same. No changes have
been made here. But the higher surcharge rate of 25% and 37% is not applicable to LTCG u/s 112A, STCG u/s
111A and incomes covered by S. 115AD(1)(b) in case of FPIs. W.e.f AY 2021-22, this benefit of capping the
Surcharge at 15% maximum is now extended to Dividends referred to in Section 196D also i.e. Dividends
received by FPIs from Domestic Companies.
Health & Education cess @ 4% shall be levied on total tax payable including surcharge, if any.
Rounding off of Total income [Sec. 288A] / Rebate for resident individuals having total
Rounding off of tax liability [Sec. 288B] income upto ` 5,00,000 [Section 87A]
1. Ignore the decimal portion in the taxable income / With a view to provide tax relief to the tax payers
tax. who are in lower income group, the Act has
2. If the taxable income / tax is not a multiple of ten and provided rebate from the tax payable by the
if the last digit in that amount is five or more, the assessee, if following conditions are satisfied:
amount shall be increased to the next higher amount a) The assessee is an Individual.
which is a multiple of ten. b) He is Resident in India.
3. If the last digit is less than five, the amount shall c) His total income does not exceed ` 5,00,000
be reduced to the next lower amount which is Quantum of Rebate: Lower of:
multiple of ten. a) 100% of tax liability (excluding education cess).
b) ` 12,500
Marginal relief: To avoid hardship in case of any Average Rate of tax:
assessee whose total income is slightly higher than Tax Liability
` 50 lakhs, a provision has been made to provide for a Average Rate of tax = x 100
Total Income
marginal relief in such cases. The said Marginal Relief
is available in case where Additional tax liability >
Additional income due to applicability of surcharge.
Optional tax regime in case of Individual (including senior & very senior citizen) / HUF (Resident / Non-
resident) [Section 115BAC]: Budget 2020 has introduced a new scheme of tax for Individuals and HUFs with
lower rates of tax if they forego certain exemptions / deductions:
Total Income Tax Rate Total Income Tax Rate
Upto ` 2,50,000 Nil ` 10,00,001 to ` 12,50,000 20%
` 2,50,001 to ` 5,00,000 5% ` 12,50,001 to ` 15,00,000 25%
` 5,00,001 to ` 7,50,000 10% Above ` 15,00,000 30%
` 7,50,001 to ` 10,00,000 15% Note: Surcharge and Cess remains unchanged.
1) Manner of exercising option for New Scheme: The new scheme is optional and the assessees will have
to opt for being covered by the new scheme in the prescribed manner:
(i) Individual / HUF not having PGBP Income needs to exercise option for every year along with the filing
of the return of income u/s 139(1) for the year.
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CA INTERMEDIATE – INCOME TAX [May 2021] Compiled by Prof. CA. Jignesh Thakkar
(ii) An employee not having PGBP income can opt for the lower tax regime u/s 115BAC by intimating the
same to the employer. Employer shall deduct TDS accordingly. If intimation is not made by the
employee, then employer shall deduct TDS ignoring provisions of section 115BAC. Such intimation to
the employer does not amount to exercise of option by the employee u/s 115BAC. Employee is
required to exercise the option u/s 115BAC at the time of submitting his return of income.
(iii) If Individual / HUF have PGBP Income, then option needs to be exercised on or before the due date of
filing the return of income and such option once exercised shall apply for that previous year and to all
subsequent years. Once opted out of new scheme, re-entry is not allowed except when he ceases to
have any business income.
2) Following Exemptions / Deductions needs to be forgone if individual / HUF opts for S. 115BAC:
Standard deduction u/s 16(ia). Entertainment allowance deduction u/s 16(ii).
Profession tax u/s 16(iii). Leave Travel Concession – Section 10(5).
House Rent Allowance – Section 10(13A). Allowances to MPs / MLAS section 10(17).
Specified allowances exempt u/s 10(14) (allowances granted to employees other than transport
allowance, conveyance allowance, per-diems (daily allowance) and travel and transfer allowance as
mentioned in the Explanatory Memorandum).
Interest in respect of SOP u/s 24(b). Inter-head Set-off of IFHP loss u/s 71.
Additional depreciation - Section 32(1)(iia). Investment allowance u/s 32AD.
Tea / Coffee / rubber development a/c u/s 33AB Site Restoration Fund – section 33ABA.
Specified deduction for donations or for expenditure on scientific research – Section 35.
Deduction for specified business u/s 35AD Agricultural extension project u/s 35CCC.
Exemption for unit in SEZ - Section 10AA. Clubbed income of minor upto ` 1,500 u/s 10(32).
Standard deduction for family pension – S. 57(iia) Exemption for food & beverages voucher to
employees.
Deductions under Chapter VI-A (such as section 80C, 80D, 80TTA, 80TTB, 80G etc.) other than the
following:
a) 80CCD(2) - Employer's contribution in notified pension scheme
b) 80JJAA - Employment of new employees
c) 80LA - IFSC centre.
3) Following Exemptions can be claimed even if individual / HUF opts for S. 115BAC
Gratuity exemption u/s 10(10). Commuted pension exemption u/s 10(10A).
Leave Salary exemption u/s 10(10AA). Retrenchment compensation exemption u/s 10(10B).
VRS compensation exemption u/s 10(10C). Exemption u/s 10(10CC) pertaining to tax on non-
monetary perquisites paid by employer.
Exemption u/s 10(10D) pertaining to sum Interest and maturity amount in case of public
received under a life insurance policy. provident fund [Section 10(11)].
Interest and maturity amount in case of Exemption u/s 10(12) pertaining to interest and
Sukanya Samriddhi Account [Section 10(11A)]. withdrawal from recognized provident fund.
Exemption u/s 10(12A) / (12B) pertaining to Exemption u/s 10(13) pertaining to payment from
payment (including withdrawal) from NPS. approved superannuation fund.
4) No adjustment of B/f loss or additional depreciation (it is deemed to have been given full effect):
Brought forward loss (and / or additional depreciation) of any earlier year pertaining to any deductions /
exemptions covered in point (2) above cannot be set-off. Moreover, any loss under the head “Income from
house property” cannot be set off with any other income under any other head of income.
5) Adjustment of Opening WDV of Block of assets as on 1.4.2020: However, where unadjusted
depreciation in respect of a block of assets has not been given full effect to prior to the AY 2021-22,
corresponding adjustment shall be made to the written down value of such block as on April 1, 2020 in the
prescribed manner (if option is exercised for the lower tax regime u/s 115BAC for the AY 2021-22).
6) If Option is exercised for new scheme u/s 115BAC, then AMT provisions are not applicable.
“The only Place where success comes before work is in the dictionary.”
Chapter 1 – Basic Concepts 4