Question: What are the test to determine the residential status of individual?

Ans: The residential status of an individual is determined based on their physical presence in
India during the financial year (April 1 to March 31). The tests for determining residential
status are:

1. Resident:
o Basic Condition: An individual is considered a resident if they meet either of
the following criteria:
▪ They are in India for at least 182 days during the financial year, or
▪ They are in India for at least 60 days during the financial year and 365
days in the preceding four years.
2. Resident and Ordinarily Resident (ROR):
o An individual who qualifies as a resident must also meet both of the following
additional conditions to be classified as ROR:
▪ They have been a resident of India for at least 2 out of the 10 preceding
years, and
▪ They have been in India for at least 730 days in the preceding 7 years.
3. Resident but Not Ordinarily Resident (RNOR):
o An individual is classified as RNOR if they meet either of the following:
▪ They do not satisfy both of the additional conditions for ROR, or
▪ They are a non-resident in 9 out of the 10 preceding years, or
▪ They have been in India for 729 days or less in the preceding 7 years.
4. Non-Resident:
o An individual who does not meet any of the conditions mentioned for being a
resident is classified as a non-resident.

These classifications affect tax liability on income earned globally or within India.

Question: Explain the transactions which are excluded from the meaning of
‘transfer’ for the purposes of capital gains.

Ans: Certain transactions are excluded from the definition of 'transfer' for the purposes of
capital gains tax, as specified in Section 47 of the Income Tax Act, 1961. These include:

1. Partition of HUF: Distribution of assets during the partition of a Hindu Undivided

Family (HUF).
2. Gift or Inheritance: Transfer of a capital asset under a gift, will, or inheritance.
3. Company Amalgamation: Transfer of assets in a scheme of amalgamation, provided
the amalgamated company is an Indian company.
4. Company Demerger: Transfer of assets in a scheme of demerger, given that the
resulting company is an Indian company.
5. Holding to Subsidiary: Transfer of shares in an Indian company from a holding
company to its 100% subsidiary, and vice versa.
6. Transfer under Trust: Transfer of a capital asset under a trust.
7. Conversion of Bonds or Debentures: Conversion of bonds or debentures into shares
or debentures.
 8. International Transactions: Transfer by a non-resident of bonds or GDRs purchased
in foreign currency.
9. SEZ Transactions: Transfer of land or building by a developer to a Special
Economic Zone (SEZ).

These exclusions aim to facilitate certain types of reorganization and transfers without
triggering capital gains tax, fostering economic and business activities.

Question: What do you understand by Self-Assessment?

Ans.: Self-assessment is the process where taxpayers independently calculate and declare
their tax liability for a given financial year. Governed by Section 140A of the Income Tax
Act, 1961, it involves several key steps:

1. Calculation of Income:: Taxpayers calculate their total income from all sources, such
as salaries, business profits, capital gains, and other income.
2. Deductions and Exemptions: They apply relevant deductions and exemptions to
determine their taxable income.
3. Tax Calculation: Tax is computed on the taxable income using the applicable tax
rates.
4. Adjustment with Prepaid Taxes: The tax liability is adjusted for any advance tax
paid, tax deducted at source (TDS), and other credits.
5. Payment of Balance Tax: Any remaining tax liability must be paid before filing the
income tax return.
6. Filing the Return: Taxpayers submit their income tax return (ITR), including details
of income, deductions, and tax paid.

Self-assessment promotes voluntary compliance, making taxpayers responsible for accurate

tax computation and timely payment. It reduces the administrative burden on tax authorities
and enables efficient tax collection. Tax authorities may later review and scrutinize returns to
address discrepancies, if any.

Question: What are the tests to determine the residential status of an

individual?

Ans.: An individual's residential status is determined based on their physical presence in

India during a financial year (April 1 to March 31). The criteria are as follows:

Resident:

1. Basic Conditions:
o The individual is in India for at least 182 days during the financial year, or
o The individual is in India for at least 60 days during the financial year and 365
days in the preceding four years.
Resident and Ordinarily Resident (ROR):

To be classified as ROR, a resident individual must meet both of the following additional
conditions:

1. They have been a resident of India for at least 2 out of the 10 preceding years.
2. They have been in India for at least 730 days in the preceding 7 years.

Resident but Not Ordinarily Resident (RNOR):

A resident individual is classified as RNOR if:

1. They do not satisfy both additional conditions for ROR, or

2. They have been a non-resident in 9 out of the 10 preceding years, or
3. They have been in India for 729 days or less in the preceding 7 years.

Non-Resident:

An individual who does not meet any of the conditions mentioned for being a resident is
classified as a non-resident.

These classifications impact the taxability of income earned globally and within India.

Question: What is depreciation? Discuss in detail.

Ans.: Depreciation, under Indian Taxation Law, refers to the systematic allocation of the cost
of a tangible asset over its useful life. It is an allowance for the wear and tear, obsolescence,
or diminution in the value of the asset due to its use. Here are key aspects of depreciation:

1. Purpose: Depreciation recognizes that assets lose value over time due to factors like
usage, technological advancements, or market conditions. It allows businesses to
match the cost of acquiring assets with the revenue they generate.
2. Calculation Methods: The Income Tax Act provides various methods to calculate
depreciation, including Straight Line Method (SLM), Written Down Value (WDV)
Method, and others specific to certain types of assets. Each method determines the
rate at which depreciation is calculated annually.
3. Assets Covered: Depreciation applies to tangible assets such as buildings, machinery,
vehicles, furniture, and intangible assets like patents and copyrights.
4. Tax Implications: Depreciation expense reduces taxable income, thereby lowering
the tax liability of businesses. The rate and method of depreciation influence the
timing and amount of tax deductions available.
5. Compliance: Businesses must adhere to prescribed rules and rates for calculating and
claiming depreciation. Detailed records of asset acquisition, usage, and depreciation
calculations are essential for compliance and audit purposes.

Overall, depreciation plays a crucial role in financial reporting and taxation by reflecting the
economic reality of asset usage and facilitating accurate profit determination.
Question: What is ‘Agricultural Income’? What are its kinds? Explain.

Ans.: 'Agricultural Income' refers to income derived from agricultural operations. It includes:

1. Basic Definition: Income generated from land situated in India used for agricultural
purposes, including:
o Revenue from cultivation of crops
o Income from farming or plantation
o Livestock breeding and grazing
2. Exclusions: Certain activities are not considered agricultural income:
o Income from processing agricultural produce beyond primary production stage
o Rent from agricultural land (not used for agriculture by the taxpayer)
o Income from sale of trees grown on agricultural land
3. Types of Agricultural Income:
o Revenue from Land: Direct income from cultivation of crops or plantations.
o Livestock Income: Income from breeding, raising, and selling livestock.
o Forestry Income: Revenue generated from forestry operations on agricultural
land.
o Rent from Agriculture: Rent received for leasing agricultural land.
4. Tax Treatment: Agricultural income is exempt from income tax under Section 10(1)
of the Income Tax Act, 1961. However, it is considered for rate purposes for
taxpayers whose non-agricultural income exceeds certain thresholds.

Understanding agricultural income is crucial for tax planning and compliance, as it impacts
the overall tax liability and exemption eligibility under Indian tax laws.

Question: What is the process of Computing Income Tax

Ans.: Computing income tax involves several steps:

1. Income Calculation: Determine total income from all sources, including salaries,
business profits, capital gains, house property income, and other sources as per tax
laws.
2. Deductions and Exemptions: Apply eligible deductions under Sections 80C to 80U
(e.g., investments, expenses, deductions for specific income sources) and exemptions
(e.g., agricultural income, income of certain institutions).
3. Taxable Income Determination: Subtract deductions and exemptions from total
income to arrive at taxable income.
4. Applying Tax Slabs: Calculate tax liability based on applicable income tax slabs for
the financial year. For example, 0% for income up to a certain limit, 5%, 10%, 15%,
20%, and 30% for different income ranges.
5. Education Cess and Surcharge: Apply education cess (currently 4% of income tax)
and surcharge (if applicable based on income levels) to compute the final tax liability.
6. Tax Credits: Subtract tax credits like TDS (Tax Deducted at Source), advance tax,
and self-assessment tax already paid during the year.
7. Payment and Filing: Pay any remaining tax due and file Income Tax Return (ITR)
online or physically, reporting income, deductions, and taxes paid.
 8. Verification and Assessment: The Income Tax Department may verify details and
conduct assessments to ensure compliance and accuracy.

This process ensures taxpayers calculate and pay their taxes correctly, facilitating effective
tax administration and compliance with Indian tax laws.

Question: What is Income? Explain the fundamental principles of

determining income.

Ans.: Income, as per Indian Taxation Law, broadly refers to any money earned or received
during a financial year, including earnings from salaries, business profits, capital gains, house
property rent, and other sources. The fundamental principles of determining income under
Indian tax law include:

1. Accrual Concept: Income is recognized when it accrues or is due, regardless of when

it is actually received. For example, salary for a month is taxable when earned, not
when paid.
2. Receipt Concept: Income is taxable when it is received in cash, kind, or as a benefit.
However, certain exceptions apply, such as income subject to advance tax provisions.
3. Real Income vs. Notional Income: Tax is levied on real income or actual earnings.
Notional income, which is not actually received but hypothetically attributed, is
generally not taxed.
4. Income from Different Sources: Different types of income (salaries, business
income, capital gains, etc.) have specific rules and exemptions for their taxation.
5. Periodicity: Income tax is computed on an annual basis for income earned during the
financial year (April 1 to March 31).

These principles ensure fairness and consistency in assessing and taxing income, promoting
compliance and transparency in the Indian taxation system.

Question: Discuss the exempted Income of House Property

Ans.: Certain incomes from house property are exempted from tax. The key exemptions are:

1. Self-occupied Property: If a taxpayer owns only one residential property and it is

used for self-residence, the annual value of such property is considered nil. No tax is
payable on such property.
2. Family Pension: Income received by the family members of armed forces personnel
or government employees is exempt from tax under Section 10(19) and Section
10(19A).
3. House Rent Allowance (HRA): HRA received by individuals from their employers
to meet rental expenses of a residential accommodation is partially exempt from tax,
subject to certain conditions.
 4. Interest on Housing Loan: Interest paid on a housing loan for a self-occupied or let-
out property is eligible for deduction under Section 24(b) of the Income Tax Act,
subject to specified limits.
5. Agricultural Land: Rental income from agricultural land situated in rural areas is
exempt from tax.
6. Income of Charitable Trusts: Rental income received by charitable trusts or
institutions from property held for charitable purposes is exempt from tax under
certain conditions.

These exemptions aim to provide relief to taxpayers and promote investment in housing
while encouraging charitable activities. It's crucial for taxpayers to understand these
exemptions to correctly report their income and claim deductions under Indian tax laws.

Question: How the residential status of HUF is determined ? Discuss.

Ans.: The residential status of a Hindu Undivided Family (HUF) is determined based on the
control and management of its affairs. Here’s how it is assessed:

1. Control and Management: The residential status of an HUF depends on where the
control and management of its affairs actually rest. If the control and management of
the HUF is situated wholly in India during the financial year (April 1 to March 31),
the HUF is considered a resident in India.
2. Non-Resident HUF: An HUF is deemed non-resident if the control and management
of its affairs are situated wholly outside India during the financial year.
3. Resident but Not Ordinarily Resident (RNOR) HUF: Similar to individuals, an
HUF can also be classified as RNOR if it meets certain conditions, such as being a
non-resident in India in 9 out of the 10 preceding financial years or being in India for
729 days or less in the preceding 7 financial years.
4. Tax Implications: The residential status determines the taxability of the HUF’s
income in India. Resident HUFs are taxed on their global income, whereas non-
resident HUFs are taxed only on income accrued or received in India.

Determining the residential status of an HUF is crucial for compliance with Indian tax laws,
as it dictates the scope of income taxation and applicable rates.
Question: What is Salary? Discuss in detail.

Ans.: Salary encompasses all payments received by an individual from an employer in

monetary terms for services rendered. Here are key aspects:

1. Components of Salary: It includes basic salary, allowances (such as house rent

allowance, dearness allowance), bonuses, commissions, perquisites (like company
accommodation, car facility), and profits in lieu of salary.
2. Tax Treatment: Salary is taxable under the head "Income from Salaries" as per the
Income Tax Act, 1961. Employers deduct tax at source (TDS) based on the
individual’s income tax slab rate.
3. Exemptions and Deductions: Certain allowances and perquisites are partially or
fully exempt from tax, subject to specified conditions (e.g., HRA exemption based on
rent paid).
4. Calculation and Reporting: Employers issue Form 16 detailing salary components,
TDS deductions, and other relevant details. Employees use this for filing Income Tax
Returns (ITR).
5. Perquisites: Benefits provided by employers such as rent-free accommodation,
concessional loans, club memberships, etc., are considered perquisites and taxed
accordingly.
6. Tax Planning: Employees can optimize tax liability through salary structuring,
claiming deductions under Section 80C to 80U, and availing exemptions.

Understanding salary under Indian Taxation Law is essential for both employers and
employees to ensure compliance, accurate tax calculation, and effective tax planning.

Question: What is income from House Property ? Explain

Ans.: Income from house property, refers to the rental income earned by an individual from
any building or land appurtenant thereto. Here are the key aspects of income from house
property:

1. Scope: It includes rental income from residential houses, commercial properties,

vacant land, buildings rented out for shops or offices, and rental income from letting
out of factory buildings.
2. Calculation: The annual value of the property is determined based on the highest of
the following:
o Actual rent received or receivable
o Municipal value (if the property is municipal valued)
o Fair rent determined by the Income Tax Officer
o Standard rent as per Rent Control Act (if applicable)
3. Deductions: From the annual value, deductions are allowed under Section 24 of the
Income Tax Act, including:
o Standard deduction of 30% of the annual value (for repairs, maintenance, etc.)
o Interest on borrowed capital for acquisition, construction, repairs, or
renovation of the property
 4. Exemptions: Certain incomes are exempt from tax, such as rental income from
farmhouses used for agricultural purposes.
5. Taxation: Income from house property is taxed under the head "Income from House
Property" after allowing deductions from the annual value. Losses from house
property can be set off against other heads of income.

Understanding income from house property is crucial for property owners to correctly
compute their taxable income and avail of deductions and exemptions under Indian tax laws.

Question: What are perquisites? What perquisites are included in the salary
income of an employee?

Perquisites, often referred to as perks or fringe benefits, are benefits or amenities provided by
an employer to an employee in addition to their salary. Perquisites are taxable under the head
"Income from Salaries" unless specifically exempted. Here's a detailed overview:

1. Types of Perquisites: Perquisites can include:

o Rent-free Accommodation: Value of accommodation provided by the
employer.
o Concessional Rent: Rent paid by the employee for accommodation provided
by the employer at a lower rate.
o Motor Car Facility: Value of car provided for personal use, including
running and maintenance expenses.
o Interest-free or Concessional Loans: Interest-free loans provided by the
employer exceeding Rs. 20,000.
o Club Memberships: Membership fees paid or reimbursed by the employer.
o Utilities: Payments made by the employer for electricity, water, gas, etc., for
personal use of the employee.
o Gifts and Vouchers: Non-monetary gifts or vouchers provided to employees.
o Medical Reimbursements: Medical expenses paid by the employer on behalf
of the employee.
2. Valuation of Perquisites: Perquisites are valued based on prescribed rules and
guidelines. The value is added to the employee's salary and taxed at applicable rates.
3. Exemptions: Some perquisites may be exempt from tax under specific conditions,
such as medical reimbursements up to a certain limit, transport allowance, and certain
amenities provided in remote areas.

Understanding perquisites is essential for both employers and employees to ensure

compliance with tax laws and proper reporting of income from salaries in India.
Question: What do you mean by capital gain? How are capital gains
calculated?

Ans.: Capital gains, under Indian Taxation Law, refer to the profits or gains arising from the
transfer of a capital asset during a financial year. Here's how capital gains are calculated:

1. Types of Capital Assets: Capital assets include immovable property (like land,
building), movable property (like shares, securities, jewelry), and intangible assets
(like patents, trademarks).
2. Calculation of Capital Gains:
o Sale Consideration: Amount received or accrued from the transfer of the
capital asset.
o Cost of Acquisition: Purchase price of the asset, including expenses directly
related to the acquisition (like brokerage, stamp duty).
o Cost of Improvement: Expenses incurred to improve the capital asset (like
renovation costs).
o Indexed Cost of Acquisition/Improvement: Adjusted cost of
acquisition/improvement to account for inflation using Cost Inflation Index
(CII), if applicable.
o Capital Gains:
▪ Short-term Capital Gains (STCG): If the asset is held for 36 months
or less (24 months for immovable property), the gains are treated as
STCG and taxed at applicable rates.
▪ Long-term Capital Gains (LTCG): If held for more than the
specified period, gains are LTCG and taxed at lower rates with
indexation benefits (if applicable).
3. Exemptions and Deductions: Certain transfers are exempt from tax (like agricultural
land in rural areas), and deductions (like exemptions under Sections 54, 54F) are
available to reduce taxable gains.

Capital gains calculation involves intricate rules and provisions under the Income Tax Act,
ensuring proper taxation on profits from the sale of capital assets in India.

Question: What do you understand by Provident Fund? Explain different

types of Provident Funds.

Ans.: A Provident Fund (PF) under Indian Taxation Law is a savings scheme that serves as a
retirement benefit for employees. It requires both the employee and employer to contribute a
fixed percentage of the employee's salary towards the fund. Here are the different types of
Provident Funds:

1. Employees' Provident Fund (EPF):

o EPF is governed by the Employees' Provident Funds and Miscellaneous
Provisions Act, 1952.
o Mandatory for organizations with 20 or more employees earning up to a
specified salary threshold.
o Contributions are made monthly, with interest accrued on the balance.
 o Withdrawals are allowed for purposes like retirement, medical emergencies,
housing, education, etc.
2. Public Provident Fund (PPF):
o PPF is a long-term savings scheme established by the Government of India.
o Open to all individuals, including salaried employees, self-employed, and
professionals.
o Contributions qualify for tax deductions under Section 80C of the Income Tax
Act.
o Offers attractive interest rates, compounded annually.
o Withdrawals are permitted after a specified lock-in period, with partial
withdrawals allowed under certain conditions.
3. Recognized Provident Fund (RPF):
o RPF refers to PFs recognized by the Income Tax Act, such as PFs maintained
by certain educational institutions, hospitals, etc.
o Contributions and withdrawals are regulated by specific rules applicable to
each recognized PF.

Provident Funds aim to secure financial stability for employees post-retirement and offer tax
benefits on contributions and interest earned, encouraging long-term savings. Understanding
these funds helps employees and employers comply with regulatory requirements and
maximize financial planning benefits under Indian tax laws.

Question: What do you understand by depreciation? How is the depreciation

deduction availed while company income is from business or profession?

Ans.: Depreciation, under Indian Taxation Law, refers to the systematic allocation of the cost
of tangible assets over their useful life. It recognizes that assets like buildings, machinery,
vehicles, etc., lose value over time due to wear and tear, obsolescence, or technological
advancements. Here’s how depreciation deduction is availed for companies earning income
from business or profession:

1. Calculation Methods: Companies can choose from different methods of depreciation

like Straight Line Method (SLM), Written Down Value (WDV) Method, or Unit of
Production Method. Each method prescribes the rate at which depreciation is
calculated annually.
2. Allowed Deduction: Depreciation is treated as an expense and deducted from the
company's gross income while computing taxable profits. This reduces the taxable
income, thereby lowering the tax liability of the company.
3. Asset Classification: Assets eligible for depreciation must be used in the business or
profession and should have a determinable useful life. The Income Tax Act specifies
depreciation rates for various classes of assets to ensure uniformity and fairness.
4. Compliance and Reporting: Companies must maintain proper records of asset
acquisition, usage, and depreciation calculations. These details are crucial for tax
audits and assessments by tax authorities.
Depreciation deduction helps companies reflect the true cost of asset usage over time and
promotes investment in new assets while facilitating tax planning and compliance under
Indian tax laws.

Question: Explain different types of provident funds.

Ans.: Under Indian Taxation Law, there are several types of Provident Funds (PFs) aimed at
providing retirement benefits and savings incentives to individuals. Here are the main types:

1. Employees' Provident Fund (EPF):

o Governed by the Employees' Provident Funds and Miscellaneous Provisions
Act, 1952.
o Mandatory for organizations with 20 or more employees earning up to a
specified salary threshold.
o Both employer and employee contribute a fixed percentage of the employee's
salary to the fund.
o Interest is accrued on the balance, and withdrawals are allowed for purposes
like retirement, medical emergencies, housing, education, etc.
2. Public Provident Fund (PPF):
o Established by the Government of India under the PPF Act, 1968.
o Open to all individuals, including salaried employees, self-employed, and
professionals.
o Offers tax benefits with contributions qualifying for deductions under Section
80C of the Income Tax Act.
o Operates with a specified maturity period, and withdrawals are permitted after
a lock-in period, with partial withdrawals under certain conditions.
3. Recognized Provident Fund (RPF):
o Refers to PFs recognized under the Income Tax Act, maintained by certain
educational institutions, hospitals, etc.
o Contributions and withdrawals are regulated by specific rules applicable to
each recognized PF.

These Provident Funds serve to encourage savings, provide financial security in retirement,
and offer tax benefits to contributors, promoting long-term financial planning and stability.
Understanding these funds helps individuals maximize benefits and comply with regulatory
requirements under Indian tax laws.
Question: Discuss how the capital gains are calculated.

Ans.: Capital Gains are calculated based on the profit or gain realized from the transfer of a
capital asset. Here’s a concise explanation of how capital gains are computed:

1. Sale Consideration: Determine the full value of consideration received or accrued

from the transfer of the capital asset. This typically includes money received plus the
fair market value of any other consideration like property or shares.
2. Cost of Acquisition: This includes the actual cost of acquiring the asset. For assets
acquired before April 1, 2001, taxpayers have the option to take the fair market value
as on April 1, 2001, or the actual cost.
3. Cost of Improvement: Any expenditure incurred to improve the capital asset is
added to the cost of acquisition. These include expenses like renovation costs,
extension costs, etc.
4. Indexed Cost of Acquisition/Improvement: Adjust the cost of acquisition and
improvement for inflation using the Cost Inflation Index (CII) published by the
Income Tax Department. This indexed cost helps account for the impact of inflation
on the asset's value.
5. Net Sale Consideration: Subtract the indexed cost of acquisition and improvement
from the sale consideration to arrive at the capital gains.
6. Types of Capital Gains: Depending on the holding period of the asset (short-term or
long-term), the gains are classified accordingly. Short-term capital gains (STCG) arise
from assets held for 36 months or less (24 months for immovable property), while
long-term capital gains (LTCG) arise from assets held for more than the specified
period.
7. Taxation: Short-term capital gains are taxed at normal slab rates applicable to the
taxpayer. Long-term capital gains are taxed at special rates with indexation benefits
(if applicable) or at a flat rate without indexation.

Understanding these calculations is essential for taxpayers to accurately compute their tax
liabilities arising from the sale of capital assets under Indian tax laws.

Question: What do you mean by Capital Assets?

Ans.: Capital assets, refer to any kind of property held by a taxpayer, whether tangible or
intangible, with certain exceptions. These assets typically hold long-term value and include:

1. Tangible Assets: Such as land, building, machinery, vehicles, jewelry, and other
physical properties.
2. Intangible Assets: Including patents, trademarks, copyrights, goodwill, and financial
securities like stocks and bonds.

Exclusions from capital assets encompass certain items such as stock-in-trade, consumable
stores, raw materials held for business purposes, personal effects (excluding jewelry,
archaeological collections, drawings, paintings, sculptures, or any work of art), agricultural
land in rural India, and certain bonds and government securities.
Capital assets are crucial in determining the tax implications when they are transferred, as
capital gains tax applies based on the profit realized from the transfer of these assets.
Understanding which assets qualify as capital assets is vital for taxpayers to correctly assess
and report their income under Indian tax laws.

What do you mean by Tax and Fee and what is the difference between the
two?

Ans.: In Indian Taxation Law, "tax" and "fee" are both financial charges imposed by the
government, but they differ in their nature and purpose:

1. Tax:
o Tax is a compulsory levy imposed by the government on individuals,
businesses, or other entities to generate revenue.
o It is typically based on the ability to pay (income tax), transaction (GST),
ownership (property tax), or consumption (customs duty).
o Taxes are used to fund public services, infrastructure, and government
operations.
o Examples include Income Tax, Goods and Services Tax (GST), Corporate
Tax, Excise Duty, etc.
2. Fee:
o Fee is a charge imposed by the government or a public authority for providing
specific services or benefits to individuals or entities.
o It is usually charged in exchange for services rendered by the government,
such as licenses, permits, registrations, or certifications.
o Fees are often proportionate to the cost of providing the service or maintaining
regulatory oversight.
o Examples include license fees, registration fees for vehicles or properties,
application fees for exams or permits, etc.

Difference:

• Nature: Tax is a compulsory contribution levied by the government, whereas a fee is

a charge for specific services or benefits provided by the government.
• Purpose: Taxes primarily fund public expenditures and services, while fees recover
costs associated with specific services or regulatory functions.
• Legality: Taxes are governed by tax laws and legislations, while fees are often
regulated through specific statutes or regulations governing the provision of services.

Understanding the distinction between tax and fee is essential for taxpayers and entities to
comply with financial obligations and understand the purposes for which these charges are
imposed under Indian tax and regulatory frameworks.
Question: What is the basis of charge of Salary income as given in section 15
of Income Tax Act, 1961?

Ans.: As per Section 15 of the Income Tax Act, 1961, the basis of charge for salary income is
determined based on the following principles:

1. Accrual or Receipt: Salary income is taxable either on receipt basis or on accrual

basis, whichever is earlier. It includes any salary, wages, annuity, pension, gratuity,
fees, commissions, perquisites, profits in lieu of salary, advance salary, etc., received
by an employee from an employer.
2. Perquisite Valuation: The value of perquisites provided by an employer to an
employee is included in the salary income unless specifically exempted. These may
include rent-free accommodation, car facilities, club memberships, interest-free loans,
etc.
3. Allowable Deductions: Certain deductions are allowed under Section 16 of the
Income Tax Act, such as standard deduction (currently 30% of salary or actual rent
paid, whichever is less), entertainment allowance, professional tax, etc.
4. Tax Treatment: Employers deduct tax at source (TDS) from salary income based on
the applicable slab rates and exemptions. Employees receive Form 16 from employers
detailing their salary income, TDS deductions, and other relevant information for
filing Income Tax Returns (ITR).

Understanding Section 15 ensures proper compliance with tax laws by both employers and
employees regarding the taxation of salary income in India.

Question: What is exemption? Discuss the exemption under Section, 80G of

Income-Tax Act?

Ans.: An exemption refers to a provision that relieves certain income, investments, or

expenditures from tax liability, encouraging specific behaviors or activities.

Under Section 80G of the Income Tax Act, 1961, taxpayers can claim deductions for
donations made to specified funds and charitable institutions. The key points regarding
exemptions under Section 80G are:

1. Eligible Donations: Donations made to funds, charitable institutions, and certain

NGOs specified under Section 80G qualify for deductions.
2. Quantum of Deduction: The amount eligible for deduction varies:
o 100% deduction without any qualifying limit for donations made to specified
relief funds and charitable institutions (subject to certain conditions).
o 50% deduction with qualifying limits for donations made to other specified
funds and institutions.
3. Conditions: Donations must be made through any mode other than cash to be eligible
for deduction. Receipts issued by the receiving entity must be retained as proof of
donation.
4. Aggregate Limit: The total deduction under Section 80G cannot exceed 10% of the
taxpayer’s gross total income.
 5. Reporting: Taxpayers must provide details of donations in their Income Tax Returns
(ITR) to claim deductions under Section 80G.

Section 80G aims to incentivize philanthropic activities and support charitable causes by
providing tax benefits to donors. Understanding these provisions helps taxpayers optimize
their tax planning while contributing to social welfare initiatives in India.

Question: Discuss the method of calculation of Capital Gains.

Ans.: Calculating capital gains under Indian Taxation Law involves several steps to determine
the taxable profit arising from the sale or transfer of a capital asset. Here's a concise
explanation of the method:

1. Sale Consideration: Calculate the full value of consideration received or accrued

from the transfer of the capital asset. This includes money received and the fair
market value of any other consideration received in exchange.
2. Cost of Acquisition: Determine the actual cost incurred to acquire the asset. For
assets acquired before April 1, 2001, taxpayers have the option to consider either the
fair market value as of April 1, 2001, or the actual cost.
3. Cost of Improvement: Include any expenditure incurred to improve the capital asset,
such as renovation costs, extension costs, etc.
4. Indexed Cost of Acquisition/Improvement: Adjust the cost of acquisition and
improvement for inflation using the Cost Inflation Index (CII) published by the
Income Tax Department, if applicable. This helps account for the impact of inflation
on the asset's value.
5. Net Sale Consideration: Subtract the indexed cost of acquisition/improvement from
the sale consideration to arrive at the capital gains.
6. Classification of Capital Gains: Depending on the holding period of the asset (short-
term or long-term), classify the gains accordingly. Short-term capital gains (STCG)
arise from assets held for 36 months or less (24 months for immovable property),
while long-term capital gains (LTCG) arise from assets held for more than the
specified period.
7. Taxation: Short-term capital gains are taxed at normal slab rates applicable to the
taxpayer. Long-term capital gains are taxed at special rates with indexation benefits
(if applicable) or at a flat rate without indexation.

Understanding these steps is crucial for taxpayers to accurately compute their tax liabilities
arising from the sale or transfer of capital assets in India.
Question: Define Previous Year. How previous year will be determined.

Ans.: The term "Previous Year" refers to the financial year immediately preceding the
Assessment Year (AY) for which income tax is calculated and assessed. Here’s how the
Previous Year is determined:

1. Duration: The Previous Year typically spans from April 1st to March 31st of the
following year. For example, for the Assessment Year 2023-24, the Previous Year
would be from April 1, 2022, to March 31, 2023.
2. Applicability: All income earned during the Previous Year is assessed to tax in the
subsequent Assessment Year. This includes income from salaries, business profits,
capital gains, house property, and other sources.
3. Determination: The Previous Year is fixed based on the period for which income is
computed, regardless of when income is actually received or accrued. It ensures a
standardized period for assessing and calculating tax liabilities.
4. Tax Liability: Income earned or received during the Previous Year is subject to tax as
per the Income Tax Act provisions applicable for that Assessment Year.

Understanding the concept of Previous Year is crucial for taxpayers to correctly report their
income, deductions, and tax liabilities in their Income Tax Returns (ITR) for the respective
Assessment Year under Indian tax laws.