INCOME TAX LAW AND

PRACTICE – I
(UCM18502)
A.N. AMRIN FATHIMA
ASSISTANT PROFESSOR
DEPARTMENT OF COMMERCE
SRM IST, RAMAPURAM
  UNIT I
Meaning of Income – Canons of Taxation and the Income Tax Act –
Important definitions under the Income Tax Act, Scope of Total
Income - Residential Status – Incomes exempt from Tax.
 UNIT II

SYLLABUS Heads of Income – Salaries – Allowances – Perquisites and their

Valuations – Deductions from salary – Other related provisions –
Gratuity – Pension – Commutation of Pension – Provident Fund –
Rebate.
 UNIT III
Income from house property – Definition of annual value -
deductions - Computation of a let out and a self occupied property.
  UNIT IV
Income from business or profession – Allowable and not allowable
expenses - General deductions – Its principles – Provisions relating to
depreciation – deemed business profits chargeable to profits to tax
compulsory maintenance of books of account – Computation of income
from business or profession.
SYLLABU  UNIT V
S Filling of return of income assessment procedure in brief – due date of
filling the return – defective return – Belated return – revised return –
self assessment – Best judgment assessment – various income tax
authorities
 INTRODUCTION

 BRIEF HISTORY OF INCOME TAX

 HEADS OF INCOME

 IMPORTANT TERMS

 INCOME TAX RATES

 EXEMPTION & DEDUCTIONS

 CONCLUSION
WHAT IS TAX?
WHAT IS TAX?

 A Fee Charged or levied by a government on a product, Income or activity

 The purpose of tax is to finance government expenditure

• Examples : Direct Taxes--- Income Tax , Wealth Tax, Corporate Tax

Indirect taxes -- Excise duty , Custom duty, sales tax

 INTRODUCTION

WHAT IS TAX ? & WHY IT IS REQUIRED?

Tax is a part of an individual’s earning which is required to be paid to the
government in order to generate revenue. It is a mandatory liability for every citizen of
the country. There are two types of tax in India i.e. direct and indirect tax. income tax is
direct tax.

WHY TAX IS REQUIRED?

Income tax is the main source of income for the govt. tax money is used in initiating
various welfare and other activities such as
Providing healthcare facilities

Providing education through government schools where fee is

Negligible.

Subsidy on cooking gas, fertilizers and other essential

commodities.

Salary and pension to lakhs of govt employees.

National security and infrastructure development

 CANONS OF TAXATION

Canon of Equality

Canon of Certainty

Canon of Convenience

Canon of Economy
 INCOMES
 Profits and gains;  Amount Received under Keyman Insurance Policy
 Dividend;  Gift received for an amount exceeding ` 50,000: Any
 Voluntary contributions: sum of money or value of property referred to i
 Clause (vii) or clause (viia) of sub-section (2) of Section
 The value of any perquisite or profit in lieu of salary
56.
taxable
 Any special allowance
 City Compensatory Allowance/ Dearness allowance:
 Benefit or Perquisite to a Director
 Any Benefit or perquisite to a Representative Assessee
 Any sum chargeable under section 28, 41 and 59
 Capital Gain
 Insurance Profit
 Banking income of a Co-operative Society
 Employees Contribution Towards Provident Fund
 HEADS OF
INCOME

IIncome
ncome from Income from Income
From
 salary Business or From Other
Profession Sources

Income
Income from
from House
Capital
Property
Gains
 IMPORTANT
 ASSESSEE (TAX PAYER) TERMS
 ASSESSMENT YEAR & PREVIOUS YEAR (1 April & end of 31st
March)
 PY :2019 – 2020 (2019 apr,may,jun,july,aug,sep,oct,nov,dec.
jan2020 feb, mar)
 AY: 2020 – 2021 (2020 apr,may,jun,july,aug,sep,oct,nov,dec.
jan2021 feb, mar)

 RESIDENTIAL STATUS

 GROSS TOTAL INCOME

 DEDUCTIONS
 IMPORTANT TERMS

 Assessee” Means A Person By Whom Any Tax Or Any Other Sum Of Money Is
Payable Under This Act. In Simple Term The Assesse Means “Tax Payers”

 Assessment Year & Previous Year:-

Assessment Year Means The Period Starting From April 1 And Ending On March 31
Of The Next Year And Previous Year Means The Financial Year Immediately Before
The Assessment Year.

Previous year Assessment

2019 - 2020 Year 2020-2021
 Residential Status: There Are Three Types Of Residential Status Of
Assessees As Per Income Tax Act 1961.
 Resident– Means A Citizen Of India Who Resided In India For A Period
Of 182days Or More In During Previous Year. His Income Earned Any
Where In The World Will Be Taxable In India.
 Non Resident (NRI)– Income Earned In India Only Will Be Subject To Income
Tax In India.
 Resident But Not Residing In India – Citizen Of India Who Stayed In India For
Less Than 182 Days During Previous Year. His/her Income Arising Outside
India May Also Be Taxable In India.
 Gross Total Income – It Comprises Sum Of The Income Earned
Through All The Five Heads Of Income Without Any Deduction.

 Deductios – The Amount Which Is Allowed To Be Deducted From

Gross Total Income Before Determining Tax Liability Of An
Assesse Such As Certain Savings, Donations Etc.

 Total Income- It Is Gross Total Income (Minus) Deductions. This

Is The Net Taxable Income Of Assessee.
 CURRENT
INCOME TAX RATES INCOME
FOR CURRENT TAXYEAR I.E. 2019-20
FINANCIAL
RATES
GENERAL PUBLIC SENIOR CITIZENS 60-80 Yrs VERY SENIOR CITIZENS
BELOW 60 Years OF (ABOVE 80Yrs OF
AGE AGE)
Income Range Tax Income Range Tax Income Range Tax
 Upto Rs.2.5 Lakh Nil  Upto 3 Lakh Nil  Upto 5 Lakh Nil
 Above 2.5 to 5%  Above 3 to 5%  Above 5 to 10 Lakh 20%
5 Lakh 5 Lakh
 Above 5 to 20%  Above 5 to 20%  Above 10 Lakh 30%
10 Lakh 10 Lakh
 Above 10 Lakh 30%  Above 10 Lakh 30%
 Education Cess 3% +Health Cess 1 % of Income tax for all tax payers.
 Tax credit of Rs. 12,500/- or actual amt of tax for income of Rs. 5 Lakhs or less u/s 87A.
 Standard deduction of Rs. 50,000/-for Salaried and Pensioners
 There are no separate slab for male & Female.
EXEMPTIONS & DEDUCTIONS
 Amount Of Exemption On HRA (HOUSE RENT
ALLOWANCE)

Minimum Of The Following (A, b and C) Will Be The Amount Of

Exemption House Rent Allowance.

(a) Amount Of Hra

(b) Rent Paid (Minus) 10 % Of Pay (Basic Pay)

(c) 50% Of Pay (Basic Pay) If Residing In Metro And 40% Of Pay If
Residing In A City Other Than Metro.
 IMPORTANT
Section (of
DEDUCTIONS
Details of Deductions Maximum Amount
IT Act
1961)
PF SUBSCRIPTION, GIS SUBSCRIPTION, LIC RS.1,50,000/-
PREMIUM, REFUND OF HOUSE BUILDING
LOAN (PRINCIPAL), REFUND OF EDUCATION
LOAN (PRINCIPAL), PAYMENT OF TUITION
80C FEE FOR HIGHER EDUCATION, TERM
DEPOSIT FOR NOT LESS THAN 5 YEARS IN A
SCHEDULED BANK, POST OFFICE 5 YEARS
TERM DEPOSIT
,CONTRIBUTION TO CERTAIN PENSION
FUNDS.

80CCD CONTRIBUTION UNDER NEW PENSION SCHEME RS.50,000/-

CGHS/ECHS CONTRIBUTION, EXPENSES RS.25000/
80D ON PREVENTIVE HEALTH CHECK UP, RS.50000/- (FOR
MEDICAL INSURANCE PREMIUM SENIOR CITIZENS)
 IMPORTANT DEDUCTIONS
Section (of IT Act
Details of Deductions Maximum
1961)
Amount
MAINTENANCE & MEDICAL TREATMENT OF PERSON RS.75,000/- (UP TO 80%
WITH DISABILITY. DISABILITY)
80DD RS.1,25,000/- (IN CASE OF
SEVERE DISABILITY (<80%)

TREATMENT FOR SPECIFIC DISEASES I.E. CANCER,

RS.40,000/- RS.1,00,000/- IN
80DDB AIDS,CHRONIC FAILURE,HAEMOPHILIA,
CASE OF SENIOR
RENAL
THALASSAEMIA, DEMENTIA,ETC
CITIZEN.

FULL AMOUNT OF INTEREST

TILL REFUND OF LOAN/FOR 8
80E PAYMENT OF INTEREST ON EDUCATION LOAN
YEARS WHICH EVER IS
EARLIER.

PAYMENT OF INTEREST ON HOUSING LOAN AVAILED

80EE DURING 01 APR 2016 TO 31 MAR 2017. (LOAN AMOUNT RS.50,000/-
UPTO 35 LAKH)
 IMPORTANT DEDUCTIONS
SECTION
(OF IT DETAILS OF DEDUCTIONS MAXIMUM AMOUNT
ACT
1961)
PAYMENT OF INTEREST ON HOUSING LOAN
24 RS.2,00,000
AVAILED ON OR AFTER 01.04.1999

INTEREST ON HOUSING LOAN AVAILED DURING FY RS.1,50,000/- IT IS NOT IN

80EEA 2019-20 ONWARDS PROVIDED THE STAMP DUTY ADDITION TO RS.2 LAKH U/S 24
VALUE OF THE HOUSE DOES NOT EXCEED RS.45 AND RS.50000/- U/S 80EE
LAKH
INTEREST ON LOAN AVAILED TO PURCHASE
80EEB RS.1,50,000/-
ANY ELECTRONIC VEHICLE DURING FY 2019-20
ONWARDS
50% OR 100% OF TOTAL
DONATION TO CERTAIN FUNDS,
80G AMOUNT AS NOTIFIED BY GOVT.
CHARITABLE INSTITUTIONS. E.G.
(CASH DONATION UP TO
IAFCWF, PMNRF ETC.
RS.2000/- ONLY)
 RESIDENTIAL STATUS AND TAX LIABILITY (SECTION 6)

 Basic Conditions
i. Stay in India for a period of 182 days or more during the previous year

ii. Stay in India for a period of 60 days or more during the previous year and 365
days or more in the 4 years preceding the previous year

 Additional Conditions
i. Resident in India for at least 2 out of 10 years preceding the previous year.

ii. Stay in India for a period of 730 days or more in 7 years preceding the previous
year.
 TYPES OF RESIDENTS
A. Resident Sec. 6 (1)
A person one who satisfies any one of the basic conditions called as a resident.

1. Resident and Ordinarily Resident

A person one who satisfies any one of the basic conditions and also satisfied both
additional conditions I & II called as a resident and ordinarily resident.

2. Resident but Not Ordinarily Resident Sec. 6 (6)

A person one who satisfies any one of the basic conditions and does not satisfy any
one or none of the additional conditions called as a resident but not ordinarily
resident.

B. Non-Resident Sec. 2 (30)

A person one who does not satisfies none of the basic conditions called as a non-
resident.
 MEANING AND SCOPE OF TOTAL INCOME (SECTION 5)

Section 4 of the Act imposes a charge of tax on the total or taxable income of the assessee. The

scope of total income and consequently the liability to income-tax also depends upon the following

facts:

(a) Whether the income accrues or is received in India or outside,

(b) The exact place and point of time at which the accrual or receipt of income takes place, and

(c) The residential status of the assesse.

The income can be classified as: Indian Income and Income not received in India during the previous year

1. Indian Income

a) Income is received in India during the previous year and accrues in India.

b) Income is received in India during the previous year but it accrues in outside India during the previous year

c) Income is received outside India during the previous year but it accrues in India during the previous year.

2. Income not received in India during the previous year

d) Income is not received in India during the previous year.

e) Income does not accrue or arise in India during the previous year.
 TAX INCIDENCE VIZ-A-VIZ RESIDENTIAL STATUS
Whether taxable or note

Incomes Resident and Ordinarily Resident but Not Ordinarily

Non-Resident
Resident Resident

Income received in India (Whether accrued in or outside India) YES YES YES

Income deemed to be received in India (Whether accrued in or outside India) YES YES YES

Income accruing or arising in India (Whether received in India or outside India) YES YES YES

Income deemed to accrue or arise in India (Whether received in India or outside India) YES YES YES

Income received and accrued outside India from a business controlled or a profession set up in India
YES YES NO

Income received and accrued outside India from a business controlled from outside India or a profession set up
outside India YES NO NO

Income earned and received outside India but later on remitted to India (whether tax incidence arises at the time of
remittance?) NO NO NO

Past untaxed profits (not taxable as relates to past years) NO NO NO

Agricultural Income in India [Exempt under Section 10(1)] NO NO NO

Dividend from a Domestic Company [Exempt u/s 10(34)] or Income from Mutual funds specified u/s 10(23D)
NO
[Exempt u/s 10(35)] NO NO
 
 EXEMPTIONS & EXCLUSIONS U/S. 10
1. Agricultural Income u/s. 10(1)
2. Receipts by a member, from a HUF u/s. 10(2)
3. Share of Profit from partnership firm u./s. 10(2A)
4. Leave Travel Concession in India u/s. 10(5)
5. Gratuity u/s. 10(10)
6. Compensation received at the time of Voluntary Retirement u/s. 10(10C)

7. Amount received under Life Insurance Policy u/s 10(10D)

8. Payment received from Provident Fund u/s. 10 (11), (12).

9. Payment received from an Approved Superannuation Fund u/s. 10(13)

10. House Rent Allowance u/s. 10 (13A).
1. Special Allowance u/s. 10 (14):
Transport Allowance, Conveyance Allowance, Daily
Allowance, Uniform Allowance, Helper Allowance,
Research Allowance, Children Education Allowance,
Children’s Hostel Expenditure Allowance.
12.Interest on Securities u/s. 10(15)
13.Educational Scholarships u/s. 10(16)
14.Income of a minor child u/s 10 (32) [including basic
provisions of sec 64(1A)]
15.Dividends and Interest on Units u/s. 10(34)
 AGRICULTURAL INCOME U/S. 10(1)

Agriculture income is exempted from tax if it

comes from within the definition of
“agricultural income”.

RECEIPTS BY A MEMBER, FROM A HUF U/S. 10(2)

Sum received by an individual, as a member of HUF,

either out of the family or out of income of estate
belonging to the family, is exempted from tax.
 SHARE OF PROFIT FROM
PARTNERSHIP FIRM U/S
10(2A)
• Share of profit received by partners from a firm is not taxable
in the hands of partners.

GRATUITY U/S. 10(10)

• With the enactment of the payment of Gratuity Act, 1972,
gratuity payment has become legally compulsory.
• Where the payment of Gratuity Act, 1972 is inapplicable, an
employee can claim gratuity under the terms of contract of
employment .
The Value Of Leave Travel Concession Received Or Due To An
Individual Is Exempted To The Extent It Is Actually Spent.

For Govt. Employees – Fully Exempt From Tax

For Non-govt. Employee Covered By Payment Of Gratuity
Act 1972. –

Least Of The Following Three Is Exempt From Tax

1. 15 Days Salary (7days Salary In Case Of Seasonal

Establishment ) Based On Salary Last Drawn For Each Year Of
Service
2. Rs. 10,00,000 (Rs 3,50,000 Up To 23rd May 2010)
3. Gratuity Actually Received
COMPENSATION RECEIVED AT THE
TIME OF VOLUNTARY RETIREMENT
U/S. 10(10C)
• Compensation on voluntary retirement of an employee
of a public sector company and other entities shall be
exempted from tax to the extent of Rs. 5,00,000.
• Public sector undertaking and other entities include
• Company.
• Local authority
• Establishment under central and state govt.
• Cooperative society
• Other state govt. and central govt. Institutions.

7/31/2013
 AMOUNT RECEIVED UNDER LIFE
INSURANCE POLICY U/S 10(10D)
• Any sum received under life insurance policy, including the sum
allocated by way of bonus on such policy shall be totally exempt
from tax.

PAYMENT RECEIVED FROM PROVIDENT FUND U/S. 10

(11), (12)
• Any payment from a provident fund to which the provident fund
Act ,1925 applies or from any other provident fund set up by
Central Govt. and notified in the official gazette is totally
exempted from tax.
• Section 10 (12) Accumulated balance due and become payable
to an employee participating in a recognised provident fund, is
exempt from tax
 HOUSE RENT ALLOWANCE U/S. 10
(13A).
Exemption in respect of house rent allowance is least of the following
three
• Amount equal to 50 percent of salary, where house is situated
in metros and 40 percent of salary where residential house is
situated at any other place.
• Actual house rent allowance received
• Excess of rent paid over 10 percent of salary
 NOTE : salary for calculation purpose – FOR HRA
• Basic salary
• Dearness allowance and grade pay
• Does not include any allowance and perquisites.
 SPECIAL ALLOWANCE U/S. 10 (14):
• Conveyance Allowance, Daily Allowance, Uniform Allowance, Helper
Allowance, Research Allowance
• Allowances are exempt to the extent the amount is utilized for the specific
purpose for which allowance is received.
• Transport Allowance, Children Education Allowance, Children’s Hostel
Expenditure Allowance. (fixed amount per month).
• Transport allowance is granted to meet his expenditure for the purpose of
commuting between the place of his residence and place of duty .

• Exemption

• Up to Rupees 800 per month

• Rupees 1600 per month in the case of blind or orthopedically handicapped

employee
 CONVEYANCE ALLOWANCE
• Conveyance allowance is granted to meet expenditure on
conveyance in performance of duties of an office.
• Exemption –

1. Amount of the allowance or

2. The amount utilised for the specific purpose
– whichever is lower.
DAILY ALLOWANCE
• Exemption –
• Amount of the allowance or
• The amount utilised for the specific purpose – whichever is
lower
 UNIFORM ALLOWANCE
• Exemption –
• Amount of the allowance or
• The amount utilised for the specific purpose –
whichever is lower

RESEARCH ALLOWANCE
• Exemption –
• Amount of the allowance or
• The amount utilized for the specific purpose –
whichever is lower
 CHILDREN EDUCATION ALLOWANCE

• The allowance is given for children's education

• Rupees 100 per month per child up to a maximum of 2
children.
HELPER ALLOWANCE
• Exemption –
• Amount of the allowance or
• The amount utilized for the specific purpose – whichever is
lower
 HOSTEL EXPENDITURE ALLOWANCE

• The allowance is granted to an

employee to meet the hostel expenditure
on his child
• Rupees 300 per month per child upto a maximum of
two children.
Interest on Securities u/s. 10(15)
Income by way of interest, premium, etc from certain
securities, certificates, bonds, deposits etc. as specified /
notified in the official gazette are exempted from tax.
 EDUCATIONAL SCHOLARSHIPS U/S. 10(16)

• Scholarship granted to meet the cost of education is totally exempt from tax
and will not be included in the computation of total income of assessee.

INCOME OF A MINOR CHILD U/S 10 (32) [INCLUDING BASIC

PROVISIONS OF SEC 64(1A)]
• In case the income of an individual includes the income of his minor child
in terms of section of 64(1A), such individual shall be entitled to
exemption of Rs 1500 in respect of each minor child.
• Section 64(1A) All income which arises or accrues to the minor child shall
be clubbed in the income of his parents.
 DIVIDENDS AND INTEREST ON UNITS U/S.
10(34) (35).

• Income by way of dividends 10(34)

• Income by way of dividend is exempted from tax in the hands
of shareholders.
• Income from mutual fund 10(35)
• Any income received in respect of units of a Mutual Fund/
specific company is exempted from tax.
THANK
YOU