M.

Com -I Semester-I
Advanced Accountancy - Paper-III
(Taxation)

Unit-I: Income from Salary-

Exemptions under salary income-
1. House Rent Allowance (HRA)
2. Leave Travel Allowance (LTA)
3. Standard Deductions
4. 80CCD(1), 80CCC, Section 80C
 1.) Life insurance premium
 2.) Employee Provident Fund (EPF)
 3.) Equity Linked Savings Scheme (ELSS)
 4.) Pension schemes
 5.) Home loan principal payment
 6.) Sukanya Samriddhi Yojana
 7.) Contribution to PPF account
 8.) Fixed deposit
 9.) National Savings Certificate (NSC)
 10.) Post office scheme deposits
 11.) National Pension Schemes (NPS)
 12.) Health insurance schemes (section 80D)
5. Deductions Against Loan Interests
Valuation of perquisites- As a general rule, the taxable value of perquisites in the hands of the
employees is its cost to the employer. However, specific rules for valuation of certain perquisites
have been laid down in Rule 3 of the I.T. Rules. These are briefly given below:
 3.1 VALUATION OF UNFURNISHED RESIDENTIAL ACCOMMODATION PROVIDED
BY THE EMPLOYER: - (a) Union or State Government Employees The value of perquisite is the
license fee as determined by the Govt. as reduced by the rent actually paid by the employee.
(b) Non-Govt. Employees- The value of perquisite is an amount equal to 15% of the salary in cities
having population more than 25 lakh, 10% of salary in cities where population as per 2001 census
is exceeding 10 lakhs but not exceeding 25 lakh and 7.5% of salary in areas where population as
per 8 2001 census is 10 lakh or below. In case the accommodation provided is not owned by the
employer, but is taken on lease or rent, then the value of the perquisite would be the actual amount
of lease rent paid/payable by the employer or 15% of salary, whichever is lower. In both of above
cases, the value of the perquisite would be reduced by the rent, if any, actually paid by the
employee.
3.2 Value of Furnished Accommodation- The value would be the value of unfurnished
accommodation as computed above, increased by 10% per annum of the cost of furniture (including
TV/radio/ refrigerator/ AC/other gadgets). In case such furniture is hired from a third party, the
value of unfurnished accommodation would be increased by the hire charges paid/payable by the
employer. However, any payment recovered from the employee towards the above would be
reduced from this amount.
3.3 Value of hotel accommodation provided by the employer- The value of perquisite arising out
of the above would be 24% of salary or the actual charges paid or payable to the hotel, whichever is
lower. The above would be reduced by any rent actually paid or payable by the employee.
It may be noted that no perquisite would arise, if;
• The employee is provided such accommodation on transfer from one place to another for a period
of 15 days or less.
• The employee is provided such accommodation at a mining/ oil exploration/ project execution/
Dam/ Power generation/ off- shore site located in remote area or being of temporary nature having
plinth area < 800sq. ft and not less than 8 kms away from municipality or cantonment limits.
3.4 Perquisite of motor car provided by the employer– a) Nil, if the motor car is used by the
employee wholly and exclusively in the performance of his official duties.
b) Actual expenditure incurred by the employer on the running and maintenance of motor car,
including remuneration to chauffeur as increased by the amount representing normal wear and tear
of the motor car and as reduced by any amount charged from the employee for such use (in case the
motor car is exclusively for private or personal purposes of the employee or any member of his
household).
c) Rs. 1800/- (plus Rs. 900/-, if chauffeur is also provided) per month (in case the motor car is used
partly in performance of duties and partly for private or personal purposes of the employee or any
member of his household if the expenses on maintenance and running of motor car are met or 11
reimbursed by the employer). However, the value of perquisite will be Rs. 2400/- (plus Rs. 900/-, if
chauffeur is also provided) per month if the cubic capacity if engine of the motor car exceeds 1.6
litres.
 d) Rs. 600/- (plus Rs. 900/-, if chauffeur is also provided) per month (in case the motor car is used
partly in performance of duties and partly for private or personal purposes of the employee or any
member of his household if the expenses on maintenance and running of motor car for such private
or personal use are fully met by the employee). However, the value of perquisite will be Rs. 900/-
(plus Rs. 900/-, if chauffeur is also provided) per month if the cubic capacity of engine of the motor
car exceeds 1.6 litres. If the motor car or any other automotive conveyance is owned by the
employee but the actual running and maintenance charges are met or reimbursed by the employer,
the method of valuation of perquisite value is different.
3.5 Perquisite arising out of supply of gas, electric energy or water: This shall be determined as
the amount paid by the employer to the agency supplying the same. If the supply is from the
employer’s own resources, the value of the perquisite would be the manufacturing cost per unit
incurred by the employer. However, any payment received from the employee towards the above
would be reduced from the amount [Rule 3(4)]
3.6 Free/Concessional Educational Facility: Value of the perquisite would be the expenditure
incurred by the employer. If the education institution is maintained & owned by the employer, the
value would be nil if the value of the benefit per child is below Rs. 1000/- P.M. or else the
reasonable cost of such education in a similar institution in or near the locality. [Rule 3(5)].
3.7 Free/Concessional journeys provided by an undertaking engaged in carriage of
passengers or goods: Value of perquisite would be the value at which such amenity is offered to
general public as reduced by any amount, if recovered from the employee. However, these
provisions are not applicable to the employees of an airline or the railways.
3.8 Provision for sweeper, gardener, watchman or personal attendant: The value of benefit
resulting from provision of 16 any of these shall be the actual cost borne by the employer in this
respect as reduced by any amount paid by the employee for such services. (Cost to the employer in
respect to the above will be salary paid/ payable). [Rule 3(3)].

Deductions from salaries u/s 16-

Standard Deduction u/s Section 16 of Income Tax Act, 1961
Section 16 of Income Tax Act, 1961 provides deduction from income chargeable to
tax under the head ‘salaries. It provides deductions for the standard deduction, entertainment
allowance, and professional tax. Through this deduction, a salaried taxpayer can lower his/ her
taxable salary income chargeable to tax.
Moreover, with the recent amendments to the standard deduction, the benefit of this
section is extended to a higher amount. Further, there is no hassle of providing bills for travel and
medical making it quite easy to claim.
In this article, we will cover each of the deductions under section 16 along with the
illustrations on calculation.
Standard Deduction from Salary u/s 16 (ia)
Standard deduction is allowed under section 16ia of Income Tax Act. The standard
deduction replaced transport allowance of Rs 19200 and medical reimbursement of Rs 15000. In
the budget – 2018 our finance minister Jaitley introduced it. The budget – 2018 provided for a
standard deduction of Rs 40,000 in place of transport allowance and medical reimbursement. This
deduction of Rs 40,000 does not require a taxpayer to submit any bill or proof of the expenditure. It
provides for a flat deduction of Rs 40,000. Later in the Interim Budget 2019, the deduction amount
of Rs 40,000 was increased to Rs 50,000. Hence the deduction for FY 2018-19 was Rs 40,000 and
from FY 2019-20 the deduction will be Rs 50,000.
In the Budget 2020, the standard deduction was removed for tax payers who opted for
the New Regime. However, in Budget 2023, the deduction of INR 50,000 was re-introduced under
the new tax regime.
The standard deduction is also available to pensioners. A clarification was issued by
the CBDT clarifying the applicability of standard deduction on pensioners. The pension received by
a taxpayer from his/ her former employer will be chargeable to tax under the head of ‘salaries’.
Since the pension received is taxed under the head of ‘salaries’, the deduction will also be available
to pensioners under section 16.
The amount of deduction available under section 16 for standard deduction
is Salary received or Rs 50000
Whichever is lower
Remember that standard deduction is not related to deduction u/s 80C or any other
section of Chapter VIA.
How Standard Deduction is Calculated
Particulars Old Regime New Regime (before New Regime (after Budget
Budget 2023) 2023)
Basic Salary + Dearness ₹8,00,000 ₹8,00,000 ₹8,00,000
Allowance
Other Taxable Allowance ₹1,00,000 ₹1,00,000 ₹1,00,000
Gross Salary ₹9,00,000 ₹9,00,000 ₹9,00,000
Standard Deduction ₹50,000 ₹0 ₹50,000
Total Income ₹8,50,000 ₹9,00,000 ₹8,50,000
Other Deductions ₹2,00,000 ₹0 ₹0
Income Chargeable to Tax ₹6,50,000 ₹9,00,000 ₹8,50,000
Income Tax ₹44,200 ₹62,400 ₹41,600
Entertainment Allowance u/s 16 (ii)
The entertainment allowance is first included in the salary income and then a
deduction is provided based on a few criteria. The allowance must be an allowance specifically
granted by an employer to the taxpayer as an entertainment allowance.
Entertainment Allowance for a Government Employee
For employees of the central government and state government, the deduction available
is the least of the following:
1. 20% of basic salary
2. Rs 5000
3. Amount granted as entertainment allowance in the financial year
To determine the allowance, a taxpayer must ensure the following particulars are met:
1. Salary must not include any other allowance, benefit from employer or perquisite received.
Basically, the salary must be the gross amount received without considering any other
benefit.
2. Never consider the actual amount spent out of the entertainment allowance received from
the employer.
Entertainment Allowance for a Non-Government Employee
The deduction against entertainment allowance is not available to non government
employees. Only the Central or State Government employees are eligible for the deduction.
Moreover, the employees of local authorities and statutory corporations are not eligible for the
deduction.
Standard deduction against Entertainment Allowance Calculation
Particulars Amount
Salary (Excluding other allowances, benefits, and perquisites) 120000
Entertainment Allowance Received Per Month 1000
Entertainment Allowance for the entire financial year 12000
Amount of deduction available:
20% of salary (a) 24000
Rs 5000 (b) 5000
Actual Amount Received (c) 12000
The amount allowed as a deduction (least of a, b and c) 5000
Explore our article on Section 43B
Professional Tax or Tax on Employment u/s 16 (iii)
The deduction is allowed for tax on employment under section 16iii of income tax
act. The amount a taxpayer pays on account of a tax on employment or professional tax is allowed
as a deduction under section 16. Here the tax on employment is provided in the (2) of Article 276 of
the Constitution.
You must keep the below-mentioned points in mind while calculating the deductions
against professional tax:
1. The taxpayer must claim the deduction only in the financial year in which the professional
tax is actually paid to the government
 2. The tax paid by the employer on behalf of the employee is also eligible for deduction. Here,
the amount paid by the employer as the professional tax will be first included as a
prerequisite in the total salary. Later the equal amount will be allowed as a deduction under
section 16
3. Under Section 16 of the Income Tax Act there is no upper or lower limit on the deduction.
The deduction solely depends on the actual amount of professional tax. However, any state
government cannot levy more than Rs 2500 annually as a professional tax. Only the tax
paid is eligible for deduction and not the interest or late fee for delay or nonpayment of
professional tax.

Computation of Income from Salary considering the exemptions and deductions available
under Regular (Old) Tax Regime and Alternative (New) Tax Regime-

Comparison of Old and New Tax Regimes

There cannot be a straight answer to the question that which tax regime is better to opt
for. It depends on each taxpayer’s situation and financial position.
Looking at the reduction in tax rates new system looks better but due to the non-availability of
various deductions or exemptions, it is advisable to do a comparative evaluation under both regimes
before you opt for the new regime or decide to continue with the old one.
Here are some examples of how much tax a person must pay in the old and new regimes without
any exemptions for the same salary.
Tax Slab Rates
Under the New Regime, new tax slabs were introduced with existing rates which are
slashed on income up to INR 15 Lakh. The tax slab rates as per the ‘New Income Tax Regime’ and
‘Old Income Tax Regime’ are as follows:
Rates as per Old Rates as per New Regime
Income Range
Regime (up to AY 2023-24)

Up to INR 2,50,000 Nil Nil

INR 2,50,001 – 5,00,000 5% 5%

INR 5,00,001 – 7,50,000 20% 10%

INR 7,50,001 – 10,00,000 20% 15%

INR 10,00,001 – 12,50,000 30% 20%

INR 12,50,001 – 15,00,000 30% 25%

Above INR 15,00,000 30% 30%

Income Range Rates as per New Tax Regime

 (AY 2024-25 onwards)

Up to INR 3,00,000 Nil

INR 3,00,001 – 6,00,000 5%

INR 6,00,001 – 9,00,000 10%

INR 9,00,001 – 12,00,000 15%

INR 12,00,001 – 15,00,000 20%

Above INR 15,00,000 30%

Basic Exemption Limit

Under the new tax regime, the basic tax exemption limit will remain the same for all assesses
including senior citizens. Therefore, in case you opt for the new regime, there will be no higher tax
exemption for the senior and super senior citizens.
Age New Regime New Regime Old Regime
Exemption Limit Exemption Limit Exemption Limit
(AY 2024-25 (up to AY 2023-24)
onwards)

People Below 60 Years INR 2,50,000 INR 2,50,000

INR 3,00,000
of Age

People Between 60 to 80 INR 2,50,000 INR 3,00,000

INR 3,00,000
Years of Age

People Above 80 Years INR 2,50,000 INR 5,00,000

INR 3,00,000
of Age

A PERSON WITH AN ANNUAL INCOME OF INR 7,50,000

Suppose a person aged 45 years is having an income of INR 7,50,000 which includes INR
3,50,000 from Salary, INR 2,00,000 profit from trading, INR 50,000 Interest on FDs, and the
remaining INR 1,50,000 dividend. He has made an investment of INR 1,50,000 under section 80C
and INR 20,000 under section 80D.

Solution
 The following table shows the tax calculation under different regimes:
Particulars Tax under Tax under
Tax under New
Old Regime New Regime
Regime
(up to AY
(AY 2024-25 onwards)
2023-24)

Income from Salary INR 3,50,000 INR 3,50,000 INR 3,50,000

Less: Standard Deduction (INR 50,000) NA (INR 50,000)

Profit from Business &

INR 2,00,000 INR 2,00,000 INR 2,00,000
Profession

Income from Other Sources INR 2,00,000 INR 2,00,000 INR 2,00,000

Total head wise Income INR 7,00,000 INR 7,50,000 INR 7,00,000

Less: Deduction under chapter

VI-A

Section 80C Deduction (INR NA

NA
1,50,000)

Section 80D Deduction (INR 20,000) NA NA

Net Taxable Income INR 5,30,000 INR 7,50,000 INR 7,00,000

Total Tax Liability INR 18,500 INR 37,500 INR 25,000

Less: Rebate u/s 87A NA NA (INR 25,000)

Health and education Cess 4% INR 740 INR 1,500 NA

Net Tax Payable (annually) INR 19,240 INR 39,000 NA

A PERSON WITH AN ANNUAL INCOME OF INR 20,00,000

Suppose a person aged 50 years is having an income of INR 20,00,000 which includes INR
16,00,000 from Salary, INR 2,00,000 profit from trading, INR 50,000 from Interest on FDs, and the
remaining INR 1,50,000 dividend. He has made an investment of INR 1,50,000 under section 80C
and INR 20,000 under section 80D.

Solution
The following table shows the tax calculation under different regimes:
 Particulars Tax under Old Tax under New Tax under New
Regime Regime Regime
(up to AY 2023- (AY 2024-25
24) onwards)

Income from Salary INR 16,00,000 INR 16,00,000 INR 16,00,000

Less: Standard Deduction (INR 50,000) NA (INR 50,000)

Profit from Business &

INR 2,00,000 INR 2,00,000 INR 2,00,000
Profession

Income from Other Sources INR 2,00,000 INR 2,00,000 INR 2,00,000

Total head wise Income INR 19,50,000 INR 20,00,000 INR 19,50,000

Less: Deduction under chapter

VI-A

Section 80C Deduction (INR 1,50,000) NA NA

Section 80D Deduction (INR 20,000) NA NA

Net Taxable Income INR 17,80,000 INR 20,00,000 INR 19,50,000

Total Tax Liability INR 3,46,500 INR 3,37,500 INR 2,85,000

Less: Rebate u/s 87A NA NA NA

Health and education Cess 4% INR 13,860 INR 13,500 INR 11,400

Net Tax Payable (annually) INR 3,60,360 INR 3,51,000 INR 2,96,400

Unit-II: Income from Business or Profession-

Income from business or profession is chargeable to tax only if the business or
profession is carried on by a taxpayer at any time during the previous year. Let us first understand
what is Business:
Business, in simple words, means an occupation carried on by a person with a view to
earn a profit. Business does not include income from the Profession or partnership firm. The
business includes any –
 Trade,
 Commerce,
  Manufacturing,
 Even rendering services to others is considered as business.
For example: Owning a shop, running a hotel, transportation, travel agency, share broking, etc.
Profession may be defined as a vocation, or a job requiring some thought, skill, and special
knowledge. So, profession refers to those activities where the livelihood is earned by the persons
through their intellectual or manual skill like:
 Legal
 Medical
 Engineering
 Chartered Accountant
 Architectural etc.

Income from House Property-

The income from Houses, Building, Bungalows, Godowns etc. is to be computed and
assessed to tax under the head “INCOME FROM HOUSE PROPERTY”. The income under this
head is not based upon the actual income from the Property but upon Notional Income or the
Annual Value of the Building.
Income is taxable under this head “Income from House Property” if the following 3
conditions are satisfied:
Condition-1: The property should consist of any building or lands appurtenant thereto.
Condition-2: The assesses should be owner of the property.
Condition-3: The Property should not be used by the owner for the purpose of any business or
profession carried on by him, the profits of which are chargeable to Income Tax.
The ‘Annual Value’ of a ‘House Property’ is taxable as income in the hands of the owner
of the property.
For tax purpose, properties are classified as “Self-Occupied Property” and “Let-out
Property”.
There are certain Tax Benefits for interest on Housing Loan.
Self-Occupied Property: Interest up to a maximum of Rs. 30,000/- will be allowed as
deduction. However, if the house acquired or constructed with capital borrowed on or later 4-1-
1999 interest up to a max. of Rs. 1,50,000 is allowed as deduction.
Principal amount of loan instalment is allowed as deduction from total income, to the
maximum extent of Rs. 1,00,000 p.a. under section 80C.
The acquisition / construction should be completed within 3 years from the end of F/Y in
which the capital was borrowed.
Interest on loan during the period of construction is allowed in equal instalments over a
period of 5 years commencing from year of completion.
Interest certificate should be accompanied with income tax return showing the amount of
interest payable / paid for the purpose of such acquisition construction of property.
Let-out Property
A. To calculate income from House Property, the first thing require is Rateable / Taxable Value of
the Property. This is required to assess the reasonable value at which the property could yield if let
out from year to year. The base for this is higher of the following:
1. Municipal Valuation of property.
2. Actual Annual Rent received/ receivable.
3. License Fees.
B. From the Rateable Value, the municipal taxes actually paid by the owner towards general tax,
water, sewerage tax etc., will be deducted. The amount so arrived at is known as “Annual Value of
the House Property”.

Capital Gains and Income from other Sources (of Individuals only)-
Capital Gains- The profit that an investor makes when they sell an investment is subject to
the capital gains tax. It must be paid in the tax year when the investment is sold. Depending on the
filer’s income, the long-term capital gains tax rates for the 2021 and 2022 tax years are 0%, 15%, or
20% of the profit. Every year, the income rates are modified. Any investment that is owned for
more than a year will result in a long-term capital gains tax obligation for the investor. A short-term
capital gains tax is imposed if the investor owns the investment for six months or less. The
taxpayer’s typical income band affects the short-term rate. That is a higher tax rate than the capital
gains rate for everyone who saves their best income. This article discusses the concept of capital
gains tax with respect to India.
The term ‘capital gain tax’ refers to the tax imposed on this capital gain. For the sale that
occurred the previous year, this tax is assessed under the heading of capital gains. You must pay the
capital gain tax if and when:
1. A capital asset that you have for sale falls within this category.
2. The sale has given you a profit.
3. The transaction took place the prior year (the year immediately before the assessment
year).
Capital gains tax calculator
Finding the difference between the price you paid for your asset or piece of property and
the price you received for it at the sale is the foundation of a capital gain computation. The steps
involved in calculating capital gains tax have been listed hereunder:
1. Establish your foundation first. The purchase price plus any commissions or fees paid often
constitutes this foundation. Dividends on equities that are reinvested, among other things,
may also raise the basis.
2. Calculate the amount you realised.
3. To calculate the difference, deduct your basis (the price you paid) from the realised amount
(the price you received when you sold it).
4. Find out how to use capital losses to reduce your capital gains tax.

Income from other Sources-

Income from Other Sources is one of the five heads of income subject to taxation under
the Income Tax Act, 1961. Any income that is not covered in the other remaining four heads of
income is taxed under income from other sources. It is referred to as residuary head of income.
Incomes excluded from salary, house property, business & profession (PGBP) or capital gains are
covered in Income from Other Sources, barring incomes that are exempt under the Income Tax Act.
Section 56: Incomes Taxable Only in Income from Other Sources – Criteria
Under Section 56 of the Act, the following three conditions must be satisfied for a receipt of
earning to come under the ‘income from other sources’ head –
1. You have an income
2. Such income is not tax-exempt under any other Sections of the Income Tax Act 1961
3. Such income cannot be categorized as salary, profits, and gains from business or profession,
income from house property, or capital gains
Click here to use - Income Tax Calculator
What does ‘Income from Other Sources’ Include?
The following types of receipts of income fall under the Income from Other Sources’ category –
1. Dividends
Dividends are taxable under ‘income from other sources,’ based on the residential status of the
source company that paid out the dividend.
2. Dividend from an Indian Company
If any company has paid Dividend Distribution Tax (or DDT) on this receipt of income, the
dividend is exempted from tax. Under Section 115BBDA of the Act, however, if a resident
individual, firm, or HUF receives dividends over Rs 10 lakhs from an Indian company, then the
excess amount over Rs 10 lakhs is subject to taxation at 10%.
3. Dividend from a Foreign Company
Dividends received from any foreign company are subject to taxation under ‘Income from Other
Sources.’
4. One-time Income
One-time incomes such as winnings from lotteries, horse races, crossword puzzles, card games,
gambling or betting of any form are categorized under ‘Income from Other Sources.’
5. Interest on Compensation
Interest received by you (as assesse) on the amount of reimbursement or compensation paid out in
situations such as compulsory acquisition is subject to taxation under ‘Income from Other Sources’
head.
6. Gifts
Gifts received in the form of any sum of money, movable or immovable property, are also taxable.
Then, there are the following receipts of income, which can only be classified under ‘Income from
Other Sources’ if they are not chargeable as ‘Profits and Gains of Profession or Business’ –
a) Employees’ contribution to any welfare scheme
b) Interest on securities such as debentures or government bonds
c) Rental income received from letting out the plant, furniture, or machinery owned by the assessee
d) Rental income received from letting out the plant, furniture, or machinery along with a building
(here, these two cases of letting out are inseparable)
e) Receipts of income under a Keyman Insurance Policy
Examples of Receipts that are Chargeable Under ‘Income from Other Sources’
The following are some of the examples of other receipts of income that automatically fall under
the ‘Income from Other Sources’ category –
a) Income received from subletting a house property by a tenant
b) Insurance commissions received by you (i.e., assesse)
c) Casual income
d) Family pension payments received by the lawful heirs of dead employees
e) Interest earned on deposits with companies and bank deposits
f) Interest on loans
g) Remuneration received by the Members of Parliament (MP)
h) Rental income earned from a vacant plot of land
i) Agricultural income received from an agricultural land situated outside of India
j) Interest paid out by the Government on excess payment of advance tax

Section 58- Expenses not Deductible while Calculating Income Tax

Section Nature of Income

58(1)(a)(i) Personal expenses

58(1)(a)(ii) Interest subject to tax, which is payable outside India (there has been no previous tax
deduction on this interest)

58(1)(a)(iii) ‘Salary’ payable outside India on which no tax is deducted at source or paid

58(1A) Wealth-tax

58(2) Expenditures specified in section 40A

Section 57- Expenditures Allowed as Deductions

The following expenditures are subject to tax deductions under the ‘Income from Other Sources’
category:
 Section Nature of Income Deductions allowed

57(i) Dividend or interest earned on securities Any reasonable sum paid as commission or
remuneration to a banker or any other person
to realize interest or dividend on securities

57(ia) Employee’s contribution towards Provident In case the employees’ contribution is

Fund (PF), Superannuation Fund (SF), or ESI credited to their respective accounts in
Fund setup for employees’ welfare relevant fund before or on the due date

57(ii) Rental income received from letting of plant, Rent, taxes, rates, repairs, depreciation and
furniture, machinery or building insurance, etc

57(iia) Family Pension One-third of the family pension, subject to a

maximum of Rs. 15,000

57(iii) Any other income Any other expenditure (apart from capital
expenditure) expended exclusively and
wholly for earning such income

57 (iv) Interest on the compensation or enhanced 50% of such interest received (subject to
compensation specific conditions)

58(4) Income from any activity of maintaining or All expenditures relating to such activity
Proviso owning race horses

58(4) Expenditure associated with winnings from lotteries, races, crossword puzzles, games,
gambling, or betting

Unit-III: Deductions under Chapter VIA-

As we move to learn about chapter VI A deductions, let us get to the details of some of the
popular Section 80 sub-sections and the types of investments, expenses or donations that allow tax
savings:
80C: This is one of the most popular and availed sections under chapter VI A. It allows the
most tax deductions of ₹1.5 lakh when clubbed with Sections 80CCC and 80CCD(1).
Deductions under chapter VI A for Section 80C are made possible because of various
investments that allow deductions and help generate tax returns. Taxpayers need to remember that
to avail of benefits in a financial year under this section of chapter VI A, the investments also need
to be made in the same financial year. The section applies not only to investments but also to
expenditures.
 Here's the list of expenditures and investments that can be claimed for deductions under 80
C of chapter VI A:
 Employee Provident Fund (EPF) & Voluntary Provident Fund (VPF)
 Public Provident Fund (PPF)
 Life Insurance Policy Premiums
 Contribution to National Pension System (NPS)
 Payment of Tuition Fees
 Unit Linked Insurance Plan (ULIP)
 Five-Year Tax Saver FDs
 Sukanya Samriddhi Yojana
 Equity Linked Savings Scheme (ELSS)
 National Savings Certificate (NSC)
 Senior Citizen Savings Scheme (SCSS)
 Five-Year Post Office Time Deposit (POTD) Scheme
 Home Loan Principal Repayment
The schemes mentioned above are some of the more popular deductions that you can avail
under Chapter VI A.
80CCC: The section of chapter VI A is responsible for deductions made against contributions to
pension schemes. Clubbed with 80C and 80CCD (1), the deduction limit is ₹1.5 lakh.
80CCD (1): Contributions made to the central government's pensions funds are eligible for
deductions under the section. The deduction limit under it is ₹1.5 lakh. If you are an employee,
10% of your basic salary and dearness allowance will be exempt from tax. In any other case, 20%
of total income will be tax-free, but the limit remains the same.
80CCD (1B): Deductions under chapter VI A for this sub-section of 80CCD are considered for
pension scheme self National Pension System (NPS)/NPS Swavalamban and Atal Pension Yojana.
The tax exemption, in this case, is limited to ₹50,000.
80CCD (2): This section also deals with tax deductions related to corporate NPS and central/state
government NPS subscribers. The tax benefit is 14% of basic + DA (dearness allowance) if the
employer is the central government. In case of corporate NPS subscriber, this tax benefit is limited
to 10% of basic + DA. The tax benefit of this sub-section of the Income Tax Act is over and above
the Rs. 2 lakh overall limit offered by NPS u/s 80 C and 80 CCD(1B)
80D: Chapter VI A deductions under this section are made on health insurance premiums and
premium paid for critical illness rider of life insurance policies. The max tax deduction limit
under Section 80D is ₹1 lakh for a senior citizen paying health insurance premium for self and
parents. A premium of up to ₹25,000 qualifies for deductions if you are a normal taxpayer. It is
₹50,000 for self and family if you are a senior citizen.
80DD: The section deals with deductions on maintenance that includes medical treatment of a
dependent who is a person with a disability. The deduction limit under it is set as ₹75,000.
80DDB: Expenses made on medical treatment from an oncologist, neurologist, urologist,
haematologist, immunologist, or any other specialist are covered under this section for deductions
under chapter VI A. The deductions limit is ₹40,000.
80E: There is no upper limit on deductions in this section. Section 80E tax benefits apply to interest
payments made towards education loans taken for higher education.
80EE: This applies to loans taken for purchases residential house property and sanctioned between
1st April 2016 to 31st March 2017. Chapter VI A dictates that the upper limit for deductions here is
₹50,000. However, this benefit can only be availed by a first time home buyer purchasing an
affordable housing property.
80EEB: The section applies to purchasing an electric vehicle via a loan. The deduction is given on
interest, and the maximum limit is ₹1.5 lakh.
80G: It deals with donations to funds or charitable institutions. The nature of the doner determines
the deduction limit. It may be up to 100% of the donated amount.
80GG: The maximum deduction limit here is ₹5,000 per monthly or 25% of total yearly income,
whichever is less. This Chapter VI A deduction applies to salaried individuals who do not have
a House Rent Allowance salary component.
80GGA: The complete amount donated for scientific research or rural development can be claimed
for deductions under this section of chapter VI A.
80GGC: The non-cash donations made to political parties qualify for deductions under this section.
The deduction allowed under it is 100%.
80TTA: The maximum amount that can be claimed under this deduction of chapter VI A is
₹10,000. The section applies to interest on saving bank accounts. The limit doesn't apply to senior
citizens.
80TTB: This tax benefit is available only to senior citizens, and tax deduction of ₹50,000 annually
can be claimed under it.
80TTB: is also applicable to interest on savings and fixed deposit accounts held with banks or India
Post Office.
80U: This is relevant for people with disability. The deduction amount varies with the kind of
disability. The overall limit under this Chapter VI A deduction is ₹1.25 lakh annually.

Computation of Total Income and Tax Liability (of Individuals only)

Step 1: Compute the income of an individual under 5 heads of income on the basis of his
residential status.
Step 2: Income of any other person, if includible u/ss 60 to 64, will be included under
respective heads.
Step 3: Set off of the losses if permissible, while aggregating the income under 5 heads of
income.
Step 4: Carry forward and set off of the losses of past years, if permissible, from such income.
Step 5: The income computed under Steps 1 to 4 is known as Gross Total Income from which
deductions under sections 80C to 80U (Chapter VIA) will be allowed. However, no deduction
under these sections will be allowed from short-term capital gain covered under section 111A, any
long-term capital gain and winning of lotteries etc., though these incomes are part of gross total
income.
Step 6: The balance income after allowing the deductions is known as total income which will
be rounded off to the nearest Rs. 10.
Step 7: Compute tax on such Total Income at the prescribed rates of tax.
Step 8: Allow rebate of maximum Rs. 2,500 under section 87A in case of resident individual
having total income upto Rs. 3,50,000. For details see below.
Step 9: Add surcharge @ 10% on total income exceeding Rs. 50,00,000 and upto Rs. 1 crore
and 15% of such income tax in case of an individual having a total income exceeding Rs. 1 crore.
Step 10: Add education cess @ 2% and SHEC @ 1% on the tax (including surcharge if
applicable).
Step 11: Allow relief under section 89, if any.
Step 12: Deduct the TDS, advance tax paid for the relevant assessment year and double taxation
relief under section 90, 90A or 91. The balance is the net tax payable which will be rounded of
nearest ten rupees and must be paid as self-assessment tax before submitting the return of income.

Unit-IV: Clubbing of Income Set-off and Carry Forward of Losses-

Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However,
the Income-tax law in India does provide taxpayers some benefits of incurring losses too. The law
contains provisions for set-off and carry forward of losses which are discussed in detail in this
article.
Set off of losses
Set off of losses means adjusting the losses against the profit or income of that particular
year. Losses that are not set off against income in the same year can be carried forward to the
subsequent years for set off against income of those years. A set-off could be an intra-head set-off
or an inter-head set-off.
Intra-head Set Off
The losses from one source of income can be set off against income from another source
under the same head of income.
For e.g.: Loss from Business A can be set off against profit from Business B, where Business A is
one source and Business B is another source and the common head of income is “Business”.
Exceptions to an intra-head set off:
 Losses from a Speculative business will only be set off against the profit of the speculative
business. One cannot adjust the losses of speculative business with the income from any
other business or profession.
 Loss from an activity of owning and maintaining race-horses will be set off only against the
profit from an activity of owning and maintaining race-horses.
 Long-term capital loss will only be adjusted towards long-term capital gains. However, a
short-term capital loss can be set off against both long-term capital gains and short-
term capital gain.
 Losses from a specified business will be set off only against profit of specified businesses.
But the losses from any other businesses or profession can be set off against profits from
the specified businesses.

Inter-head Set Off

 After the intra-head adjustments, the taxpayers can set off remaining losses against
income from other heads.
E.g. Loss from house property can be set off against salary income.
Given below are few more such instances of an inter-head set off of losses:
 Loss from House property can be set off against income under any head
 Business loss other than speculative business can be set off against any head of income
except income from salary.
One needs to also note that the following losses can’t be set off against any other head of income:
a. Speculative Business loss
b. Specified business loss
c. Capital Losses
d. Losses from an activity of owning and maintaining race-horses
Carry forward of losses
After making the appropriate and permissible intra-head and inter-head adjustments,
there could still be unadjusted losses. These unadjusted losses can be carried forward to future years
for adjustments against income of these years. The rules as regards carry forward differ slightly for
different heads of income.
Losses from House Property :
 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from house property
 Can be carried forward even if the return of income for the loss year is belatedly filed.
Losses from Non-speculative Business (Regular Business) Loss
 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from business or profession
 Not necessary to continue the business at the time of set off in future years
 Cannot be carried forward if the return is not filed within the original due date.
Speculative Business Loss
 Can be carry forward up to next 4 assessment years from the assessment year in which the
loss was incurred
 Can be adjusted only against Income from speculative business
 Cannot be carried forward if the return is not filed within the original due date.
 Not necessary to continue the business at the time of set off in future years
Specified Business Loss under 35AD
 No time limit to carry forward the losses from the specified business under 35AD
 Not necessary to continue the business at the time of set off in future years
 Cannot be carried forward if the return is not filed within the original due date
 Can be adjusted only against Income from specified business under 35AD
Capital Losses
 Can be carry forward up to next 8 assessment years from the assessment year in which the
loss was incurred
 Long-term capital losses can be adjusted only against long-term capital gains.
 Short-term capital losses can be set off against long-term capital gains as well as short-term
capital gains
 Cannot be carried forward if the return is not filed within the original due date
Let us understand with an example-
Mr P has invested in equity shares. Below are the details related to his capital gain/loss
transactions for different years.
Balance
STCL LTCL STCG LTCG
STCG LTCG STCL and
A.Y. during during during during
taxable taxable LTCL to be
the year the year the year the year
c/f

2015- STCL- 3,000

3,000 1,000 - - - -
16 LTCL- 1,000

2,600
(5,600-
2016- 3,000) STCL- Nil
- 1,300 5,600 - -
17 Set-off LTCL- 2,300
against
LTCL

4,700
(7,000-
2,300- 800)
2017- STCL- Nil
800 - - 7,000 - Set-off
18 LTCL- Nil
against
STCL and
LTCL

3,800*
(9,000-
4,000-
STCL- Nil
2018- 1,200)
1,200 4,000 3,000 9,000 3,000* LTCL- Nil
19 Set-off
against
STCL and
LTCL
* Assuming there is 15% tax on STCG and 20% tax on LTCG. The order of adjusting STCL and
LTCL is not prescribed in the Act. Hence, the STCL and LTCL are first adjusted with LTCG of the
year to reduce the tax liability.
Losses from owning and maintaining race-horses
 Can be carry forward up to next 4 assessment years from the assessment year in which the
loss was incurred
 Cannot be carried forward if the return is not filed within the original due date
 Can only be set off against income from owning and maintaining race-horses only

Time upto which Mandatory to file

Losses to be carried Can be set off against
Section losses can be return in the year
forward Income
carried forward of loss

Unabsorbed Any income (other than

32(2) No time limit No
depreciation salary)

Loss from House Income from house

71B 8 years No
property property

Loss from Normal

72 Income from business 8 years Yes
business

Loss from Income from speculative

73 4 years Yes
speculative business business

Loss from specified Income from specified

73A No time limit Yes
business business

Short term capital gain

Short term capital
(STCG) and long term 8 years Yes
loss (STCL)
capital gain (LTCG)
74
Long term capital
LTCG 8 years Yes
loss (LTCL)

Loss from owning

Income from owning and
74A and maintaining 4 years Yes
maintaining horse races
horse races
Income Tax E-Filing and E- Payment:
E-Filling- e-Filing refers to the process of submitting your tax returns electronically. Short
for electronic filing, e-Filing can be completed through income tax website. e-Filing can be used by
all taxpayers.
e-Filing offers speed, security, and convenience to taxpayers. It also reduces the income tax
department’s burden and provides a sophisticated alternative to traditional paper filing.
While there are no specific eligibility criteria for e-Filing, there are certain conditions that
require individuals to file an ITR, either offline or via e-Filing. The conditions are mentioned
below:
 If your total income exceeds the prescribed income tax exemption limit of ₹3 lakh in a
financial year under the new tax regime, it is mandatory to file the return. The income tax
exemption limit under the old tax regime is ₹2.5 lakh for an individual taxpayer, ₹3 lakh
for resident senior citizen taxpayers aged between 60 and 80 years, and ₹5 lakh for resident
super senior citizen taxpayers aged 80 years or more
 Firms and companies must file ITR whether they make a profit or undergo a loss
 You need to file an ITR if you invest in foreign assets or earn from foreign assets
 If you have incurred expenditure of an amount or aggregate of the amounts exceeding ₹1
lakh towards consumption of electricity or if you deposit more than ₹1 crore in one or
more current accounts maintained with a banking company or a co-operative bank, filing an
ITR is mandatory
E-Payment- There are two modes of payment of direct taxes (i) physical mode i.e.,
payment by furnishing the hard copy of the challan at the designated bank; and (ii) e-
payment mode i.e., making payment by using the electronic mode. In this part, you can gain
knowledge about various provisions relating to e-payment of various direct taxes.
Introduction
Earlier, we used to stand in queue for hours to book movie tickets, railway tickets,
etc. but now we can relax at our place and perform these tasks using the internet. With the
development of technology, the Government has also upgraded itself. Previously, the
taxpayers have to wait in long queues at the banks for making the payment of tax, but after
the introduction of e-payment facility one can pay tax quite comfortably from any place by
using various online payment mode.
Mandatory or compulsory e-payment It is compulsory for the following taxpayers
to pay tax using the e-payment mode only. In other words, following persons cannot use the
physical mode of payment of tax and have to pay the tax electronically using the e-
payment facility:
 All companies
 All taxpayers other than company who are liable to get their accounts audited as per
section 44AB.
Optional e-payment
as discussed earlier, e-payment is mandatory for all companies and all non-
corporate taxpayers covered by audit under section 44AB. A person not covered in the
 mandatory category can voluntarily pay his tax by using the e-payment mode. E-payment
saves time and efforts.
Benefits of e-payment
E-payment is time saving, simple, safe and this facility can be used at anytime
from anywhere.
Requirements for making e-payment
Tax can be paid online using any of the following payment mode:
a) Net Banking
b) Debit Card
c) Credit Card
d) RTGS/NEFT
e) UPI
If the taxpayer does not have any of the above-mentioned facility, he can make e-
payment using account of any other person but the tax should be paid in his name. If the
payment is to be made through a credit card, you need to select the ‘Payment Gateway’
mode option. In such a case, the transaction charges of 0.85% + GST @ 18% shall apply.
These transaction charges will be applicable over and above the tax amount in this mode.

Nature of Question Paper

M.Com. Part-I (Semester-I)
Advanced Accountancy Paper III
(Taxation)

1. Question No.1, Q. No. 2 and Q. No. 3 are Compulsory.

2. Attempt any Two Questions from Q. No.4 to 6.
3. Use of calculator is allowed
Q.No.1 a) Choose Correct Alternative (10 Marks)
b) State True or False (6 Marks) 16 Marks
Q.No.2 Write Short Notes (Any 2 out of 4) 16 Marks
Q.No.3 Problem on Computation of Total Income and Tax
Liability 16 Marks
Q.No.4 Practical Problem 16 Marks
Q.No.5 Practical Problem 16 Marks
Q.No.6 a. Short Problem 8 Marks
b. Short Problem 8 Marks

(Theory questions – 40% and Practical Problems – 60%)