Income Tax India

History of Taxation in India
Income-tax and Death are the only two inevitable things in life
In India, taxes were levied even in ancient times refer to
Manu Smriti & Arthashastra
Why to Pay Tax ?
It was only for the good of his subjects that he collected
taxes from them, just as the Sun draws moisture from the
Earth to give it back a thousand fold.
--Kalidas in Raghuvansh eulogizing KING DALIP.
Income-tax Act, 1922
Income-tax Rules, 1962
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History of Taxation in India

In the past we had very high tax rates.
Now, the rates are quite moderate and comparable with
several other countries.
We also had very high wealth-tax rates, estate duty, gift tax.
Now there is a sea-change.
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Tax Rates - comparison with other

countries
Countries
India
Brazil
China
Denmark
Japan
Netherland
Russia
UK
USA
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Tax Rates (%)

10 30
7.5 - 27.5
3 45
38 65
5- 50
5.85 52
13
0 45
0 39.6
Source: http://www.worldwide-tax.com 3

Came into force w.e.f. 1st April, 1962
Extends to whole of India
Consists of more than 300 sections, 23 Chapters and 14

schedules. The number of sub-sections, provisos and
Explanations runs into several hundreds
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The Act determines which persons are liable to pay tax and in
respect of which income. The sections lay down the law of
income tax and the schedules lay down certain procedures and
give certain lists, which are referred to in the sections.
However, the Act does not prescribe the rates of Income Tax
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The rates of Income-tax are prescribed every year by the
Finance Act (popularly known as The Budget)
At present, the tax rates are same for all corporate assessees
and partnership firms (30%) and there are different slabs for
Individual tax payers
We also have surcharge for corporate assessees and education
cess for all assessees
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Income-tax Rules, 1962

The Act empowers the CBDT to formulate rules for
implementing the provisions of the Act. Rules can be amended
more easily than the Act - by merely publishing a notification in
the Official Gazette of the GOI.
To amend the Act, an amendment Bill has to be passed in the
Parliament.
In case of a conflict between the Act and the Rules, the

provisions of the Act shall prevail.
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Circulars issued by the CBDT

CBDT issues circulars on certain matters for the guidance of
the Tax Officers and the general public
Circulars are binding only on the Income Tax Officers
Circulars cannot change the provisions of law; they can merely

clarify the law or relax certain provisions in favour of the
taxpayers
In event of a dispute, the Courts are not bound by the
circulars
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Case Laws and Doctrine of Precedents

Case Laws are the decisions of the various Income-tax Appellate
Tribunals (ITAT) and the High Courts (HC) and the Supreme
Court (SC)
Decisions of the SC are binding on all lower Courts and tax
authorities in India
HC decisions are binding only in the states which are within the
jurisdiction of that particular High Court
Decisions of one HC has persuasive powers over other HCs

when deciding similar issues
ITAT can be a single member bench (SMC) or a two member
bench or a Special Bench or a Third Member Bench
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Definitions
Section 2 gives definitions of various terms referred to in the
Act
Definitions can be inclusive definitions or exclusive definitions
Definition of one term may lead to the definition of another
term
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10
10
Definitions
Some of the important definitions contained in the
Act are of:
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Person
Assessee
Assessment Year
Previous Year
Assessment
Income
Dividend
11
11
Important Terms
Assessee
Assessment Year (A.Y. 2014-15)
Previous Year (F.Y. 2013-14)
Residential Status
Gross Total Income
Deductions
Total Income
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12
Assessee
Means a person by whom any tax or any other sum
of money is payable under this Act, and includes
Person in respect of whom any proceedings under this

Act has been taken for assessment of his income
Deemed assessee under provisions of this Act
Any person deemed to be an assessee in default under

any provisions of this Act
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Assessment Year
Assessment year means the period starting from
April 1 and ending on March 31 of the next year.
E.g. - Assessment year 2014-15 which commenced on
April 1, 2014 and will end on March 31, 2015.
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14
Previous Year
The financial year immediately preceding the
assessment year
E.g.: For the assessment year 201415, the previous year is F.Y. 2013-14
In case of a business or source of income, the

previous year commences from the date of set up of
business or the date on which the source of income
comes into existence
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Residential Status
Residential status of an assessee is important in determining the
scope of income on which income tax has to be paid in India.
The different types of Residential Status are: Resident (R)
An individual or HUF assessee who is resident in India may
be further classified into
resident and ordinarily resident (ROR) and
resident but not ordinarily resident (NOR).
Non Resident (NR)
To be determined in each previous year (1 April to 31 March
next)
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16
Residential Status
Importance of Residential Status:
Resident World income is taxable in India
Non Resident Only income arising or accruing in
India is taxable in India
Resident but Not Ordinarily Resident Income
accruing or arising outside India may also be taxable
in India
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Section 6 - Resident
An individual is said to be resident in India in
any previous year, if he satisfies any of the 2
basic conditions
a.Physical presence in India for 182 days or more in a
previous year
OR
a.Physical presence in India for 60* days or more in
the previous year and 365 days or more during the
4 years preceding the previous year
* See next slide
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* the above is subject to the following
i. Citizen leaves for employment or as member of
crew of an Indian ship instead of 60 days, it is 182
days
ii. Citizen or Person of Indian Origin already abroad
comes on a visit - instead of 60 days, it is 182 days
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Individual - Resident but Not
Ordinarily Resident
Satisfies any one Basic condition and

two Additional conditions
a. Such person has been a non resident in India in at
least 9 out of 10 previous years preceding the
relevant previous year; or
b. The person has been in India for a period of 729 days
or less during 7 years preceding the relevant previous
year
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Section 6 Residential Status of

Individuals summary
Assessee
Basic Condition
Resident and
He must satisfy at least one of
Ordinarily Resident the basic conditions.
Additional Condition
Must NOT satisfy both the

additional conditions
Not Ordinarily
Resident
Must satisfy at least one of the

basic conditions.
Must satisfy either of the

additional conditions
Non-Resident
Should not satisfy any of the

basic conditions.
Not applicable
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Hindu Undivided Family
Resident unless Control and Management of affairs
wholly outside India
R-NOR if Manager (Karta) is a non resident in India in 9
out of 10 preceding previous years or is in India for 729
days or less in 7 preceding previous years
Company
Resident in India
If an Indian Company Section 2(26)
If Control and Management of its affairs is situated
wholly in India
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Firm, Association of Persons and Any other person
Resident unless control and management of its affairs
is situated wholly outside India
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Basic principles of Incometax

What is income?
Distinction between Taxable Income and Taxfree Income
Heads of Income
Sources of Income
Gross Total Income
Deductions
Total Income
Tax on Total Income
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Scope of Total Income

The scope of Total Income depends on the
Residential Status of the tax payer. The incidence of
tax under different circumstances is given in the
following table
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25
Scope of Total Income

ROR
RNOR
NR
Income received in India
Yes
Yes
Yes
Income deemed to be received in India
Yes
Yes
Yes
Income accruing or arising in India
Yes
Yes
Yes
Income deemed to accrue or arise in

India
Yes
Yes
Yes
Income received/ accrued outside India

from a business in India
Yes
Yes
No
Income received/ accrued outside India

from a business controlled outside India
Yes
No
No
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Definition of Income:
Income is defined to include several items

It is not an exhaustive definition
Any income which is not specifically exempt is taxable
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Examples of Exempt Income
Agricultural income
Receipts by a member from a HUF
Gratuity received on retirement, termination or death
Commuted Pension
Exemption of amount received by way of encashment of unutilized
earned leave on retirement.
Dividend Income
Any allowance to the extent not taxable
Amount received from insurance policies on maturity of LIC
policies (subject to conditions prescribed)
Income from provident funds
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Examples of Exempt Income

Voluntary Retirement Receipts to the Maximum limit of Rs.
5,00,000 (subject to conditions)
Payments from Superannuation Fund

House Rent Allowance (subject to conditions)
Educational Scholarships
Exemption in respect of clubbed income of minor
Long Term Capital Gains on Transfer of listed Equity Shares
and Units of Equity Oriented Mutual Funds
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Heads of Income
Five main Heads of Income:
Salaries
Income from House Property
Profits and Gains of Business or Profession
Capital Gains
Income from Other Sources
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30
Sources of Income
Under each Head of Income, there could be
multiple Sources of Income
For example, a person could be employed with more
than one employer. In such a case, each employment is a
different Source of Income under the Head of Salaries
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31
Salaries (basis of charge)

Income is taxable under head Salaries, only if there exists
Employer - Employee Relationship between the payer and the
payee. The following incomes shall be chargeable to income-tax
under the head Salaries:1.Salary Due
2.Advance Salary [u/s 17(1)(v)]
3.Arrears of Salary
Note:
(i)Salary is chargeable on due basis or receipt basis, whichever is
earlier.
(ii)Advance salary and Arrears of salary are chargeable to tax on
receipt basis only.
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Income from house property

Properties can be broadly classified into:
Let out property
Self occupied property
Deemed to be let out
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SALARY INCOME
(Sec15,16 & 17)
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What is salary?
Payer & Payee

More than one source
Foregoing salary is salary income
Tax free salary should include the tax paid
by the employee
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Basis of Charge
Salary is chargeable to tax when it is due to
be paid whether it is paid or not (salary paid
on 1.4.2009)
Salary is chargeable to tax when any amount
is paid whether it is due or not
Arrears of salary paid to employee is
chargeable to tax.
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Salary means Basic salary and allowances

Annuity
Gratuity
Commission
Perquisite in lieu of salary
Advance salary
Employers contribution to PF
Leave salary
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House Rent Allowance

The least of the following is exempt from tax:
1.50% of Salary where the assessee lives in Mumbai, Delhi
,Chennai & Calcutta and 40% in other cases
2.Actual HRA received
3.Excess of rent paid over 10% of Salary.
(Salary for HRA means basic salary , commission if based on fixed
percentage of sale & DA ,if it is part of retirement benefits)
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Allowances:
Conveyance: Exempted upto Rs.800 per month if
used for travel between home and place of work
Medical expenses: Exempted when it is a
reimbursement of actual expenses upto Rs.15000
.Beyond this limit, it is taxable.
Fixed Medical allowance is taxable
City compensatory allowance is taxable in all cases
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Allowances(cont.)
Tiffin allowance: It is taxable
Tea & snacks during office hours are not
charged to tax as perquisite while free meals
in excess of Rs50 per meal is a perquisite
Servant allowances: It is taxable
Gifts: Perquisite in respect of gift where it is
below Rs.5000, the value is taken as nil
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PENSION
1.Pension from UNO
2.Pension received
by the family of
armed forces
3.Family pension
received by family
members after the
death of employee
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It is not chargeable to tax

Exempted
Taxable as in the hands
of recipient as income
from other sources
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PENSION (cont.)
Pension received in any other case
Tax treatment: Rules apply
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PENSION (cont.)
Uncommuted
Pension
Commuted
Pension
Commuted
Pension
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Govt. /Non Govt

Taxable
Employee
Govt. Employee
Exempted
from Tax
Non-Govt.
It is fully or part
Employee
exempted
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COMMUTED PENSION (cont.)
Central /state Govt, With or without Exempted

Local authority
Gratuity
Fully
employee
Gratuity is received
1/3 of norma
Non Govt.
Exempted
Employee
Non Govt.
Employee
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Gratuity is not
received
of normal
is exempted
44
Pension scheme for employees joining

Central Govt. or Other Employees after
January 1, 2004
Contribution by Employer is added to salary

Employers contribution along with the
Employees contribution to Pension fund is
deductible U/S 80CCD
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Leave Encashment
GOVERNMENT EMPLOYEES GETTING LEAVE ENCASHME

AT TIME OF RETIREMENT:
Govt employee at that time is exempted from tax.

While leave encashment while in service is taxable
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Leave Encashment( cont.)

NON GOVERNMENT EMPLOYEES are chargeable
to tax on leave encashment while in service
LEAVE ENCASHMENT AT TIME OF RETIREMENT:
He is exempted on basis of least of the following:
1.period of earned leave (in no.of months) to
the credit of employee at the time of his retirement
or leaving the job)* average monthly salary
2.10 months *average monthly salary
3. the amt. specified by the government
Rs.3,00,000
4. leave encashment actually received at the time
of retirement
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HOW TO FIND OUT

AVERAGE MONTHLY SALARY?
Salary for this purpose means
1.basic salary and includes

2 .dearness allowances if terms of employment
so provide
3.Commision if it is fixed % based on turnover
It is calculated on the basis of

average salary drawn
during the period of 10 months immediately

preceding the retirement.( date wise)
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Leave travel concession is exempted twice in a block

of FOUR years.
It is available to Indian citizen for proceeding on leave
for himself and his family (family includes spouse,
children, dependent parents ,brother and sister)
Amount of exemption is the actual fare paid for
travel anywhere in India by the economy class airfare
of national carrier by shortest route, or first class air
conditioned rail fare, or any other mode not
exceeding the shortest first class rail fare.
The Present Block is Jan 1,2006 Dec31,2009
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GRATUITY
1. GRATUITY WHILE IN SERVICE IS FULLY TAXABLE
2. GRATUITY AS RETIREMENT BENEFITS
Government employee fully exempt
Non-government employee-fully or partially exempt
under section 10
Non-government employees not covered by the
Payment of Gratuity Act ,1972- fully or partially
exempt under section 10
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GRATUITY (cont.)
IN CASE OF GOVT EMPLOYEES:
wholly exempt
IN CASE OF EMPLOYEES COVERED UNDER PAYMENT

OF GRATUITY ACT:
15 days salary based on last drawn for each year of service
(26 days a month as working days)
Rs.3,50,000
gratuity actually received
(the least of the above 3 is exempt from tax and the balance
is taxable)
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GRATUITY (cont.)
how to find length of service -if 6mths or less
then ignored else taken as 1 full year
what is salary: Salary means last drawn by
employee and includes dearness allowance
how to determine 15 days salary -calculated
by dividing salary last drawn by 26 days
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Provident Fund
Statutory Recognised Public Unrecognised
PF
PF
PF
PF
Employees
Eligible for
No deduction
Contribution Deduction U/S 80C
U/S 80C
Employers
Contribution
Exempted
N.A.
No exemption
upto 12%
Interest
Exempted as notifd No tax
Taxable
Eg.8.5%
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PERQUISITES
It means any benefit in addition to salary and w

Any sum paid by the employer which otherwis
would have been payable by the employee.
Eg. Rent free house accommodation,
car, amenities provided free of cost,
concessional interest on housing loan, etc
The benefit should be from the employer to be
charged as salary
It could be in cash or kind
It should have a legal origin
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Perquisites taxable (Category A

Perquisites taxable in the hands of all employees
(fringe benefit tax whether payable or not by
employer)
Furnished /Unfurnished house without rent or at a
concession (not in a remote area, house for MPs, and
stay in hotel on transfer not exceeding 15 days)
Service of sweeper, gardener( not taxable for non
specified employee)
Education facility to employees family members (not
taxable for non specified employee)
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Perquisites taxable (with or without FBT)

Contribution by employer to effect an
assurance on the life of the employee or to
effect an annuity
Interest free loan( exempted for loan not
exeeding Rs.20000, or loan for medical
treatment)
Use of Employers movable assets are taxable
except laptop, desktop & car
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Perquisites taxable (Category B)

B1.Car or other automotive conveyance ( not taxable
for non specified employee)
B2. Transport facility by a Transport undertaking( not
railways & airlines)
B3 Traveling touring accomodation
B4 Free Food & Beverage ( Rs.50 within office hours
exempted)
B5 Gift voucher beyond Rs.5000
B6 Club Membership & credit Card
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SPECIFIED EMPLOYEE
A director is a specified employee
An employee who holds 20% or more voting power
(called substantial interest)
Where an employee is drawing salary of more than
Rs.50,000 per year ( without considering non
monetary benefit and exemptions like HRA) but ,
since the minimum exemption limit is Rs.1,10,000,
practically all tax payers are specified employees.
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Rent Free Unfurnished Accomodation

Classified as Central & State Government
Employees
Private Sector Employees
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Central & State Govt. Employe

Accomodation provided to MPs, judges of
High court & Supreme Courts, employees who
are in Govt. service being provided
accomodation by virtue of their employment
is exempted from any tax
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Valuation of Rent Free Unfurnished

Accommodation (private sector)
Population
as per 2001
census
Above 25
lakhs
Property owned by
Employer
Leased or rent
15% of salary for

the period
Amount of lease
rent or 15% of
salary
Same as above
Between
10% of salary for
10- 25 lakhs the period
Any other
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7.5% of salary for

the period
Same as above
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Meaning of salary for House accomodation

Salary includes
- basic salary
- DA ( if terms of employment provide)
- bonus, commission, fees
- all other taxable allowances
- any monetary payment chargeable to tax, but
not monetary payments in the nature of
perquisite
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Exception to accomodation rules

It is not applicable to an accomodation
located in a remote area( 40 kms from town)
and in a mining, project ,oil exploration site
Where on account of transfer, an employee is
given two accomodation , only one will be
taxed for 90 days. Beyond that the lesser of
the two will be taxed.
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Furnished accomodation
Step 1: Find out the value of the
accomodation without the value of the
furniture
Add 10% of the value of furniture if owned by
employer or actual hire charges when hired
( Furniture includes TV, fridge, radio and any
household appliances)
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Furnished accomodation in a Hotel

It Includes accomodation in a motel, guest
house.
The value of perquisite is the lower of the two.
24% of salary paid during the period when
accomodation is taken or
Actual paid by the employer
(not taxable if provided for 15 days in a P.Y. and
when an employee is transferred)
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Accomodation at a concessional value

Value is determined as follows:
Find out the value of accomodation as if it is
not provided at a concession
Deduct the value of rent charged from the
employee
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Perquisite of free domestic servants

When servants are engaged by employee and
reimbursed by employer, taxable in all cases
When engaged by employer only specified
employees are taxable
Servant allowances are always taxable
If servants are provided in a rent free
accomodation , they are not valued separately
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Valuation of gas, electric energy or water

supply
All assesses are taxable except non specified
employees
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Perquisite of Motor Car

Perquisite in respect of motor car is taxable only when the
employer is not liable to fringe benefit tax (like sole
proprietor, charitable institutions, etc) Private company
employees will not pay any tax.
1.Car is owned by Employee
2. Car is owned or hired by Employer
a) Expenses met by Employer
b) Expenses met by Employee
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Motor car perquisite

Car owned by Employee
a) Expenses met by Employee No Tax
b) Expenses met or reimbursed by Employer
- Official purpose only
No tax
- Used for private purpose-actual expenses
less recovery taxable
-Partly used for private purpose (cont. next
slide)
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Motor car perquisite( Cont.)

Car owned by employee (cont.)
-Partly used for private purpose
1) Find actual expense incurred by employer
2) Less amount used for official purpose
ie.Rs.1200 upto 1.6lts engine capacity &
Rs.1600 above 1.6 lts
3) Balance is the value less if any recovered
from employee
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2.When Car is owned or hired by Employer

A. Expense by employer
a) Used only officially
No tax
b) Wholly used for personal- all expense paid
by employer
c) Partly official & partly personal-sum of Rs.1200 upto 1.6 ltrs engine capacity
-sum of Rs.1600 beyond 1.6 ltrs capacity
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2.When Car is owned or hired by Employer

(cont.)
B. Expense & maintenance by Employee
a) Used only officially, not perquisite so no tax
b) Wholly used for personal- 10% of cost for wear
& tear
c) Partly official & partly personal-sum of Rs.400 upto 1.6 ltrs engine capacity
-sum of Rs.600 beyond 1.6 ltrs capacity
and Rs.600 for chauffeur
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Deductions from salary

Standard Deduction- No deduction is
available now.
Professional Tax paid in this year
Entertainment allowance: available only for
Government employees
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The annual value of property consisting of any
buildings or lands appurtenant thereto of which
the assessee is the owner
other than such portions of such property as he
may occupy for the purposes of any business or
profession carried on by him
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Determination of Annual Value
This involves three steps:
Step 1
Step 2
Step 3
Step 4
Step 5
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Determination of Gross Annual Value (GAV)

GAV minus municipal tax paid by the owner during
the previous year
Balance = Net Annual Value (NAV)
Reduce 30% of NAV as an ad-hoc Standard
Deduction
Reduce Interest, if any, paid on a loan taken to
buy/construct the property
76
Income from House Property
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What consist of House Property?

Property must be consist of any building or
land appurtenant thereto.
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Conditions for Taxability

Property must be in the ownership of the
Assessee
Property should not be use in the business of
Assessee
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Is location of property relevant?

No, it does not matter that Property is situated in India or
outside India.
In both of the cases Property shall be taxable in the head of

Income from House Property.
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Deemed Owner
Transfer to spouse or
to a minor child who is
not a married
daughter
Holder of impartible
estate
Member of cooperative society
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Deemed Owner
Person in possession of property.
(Sec 53A)
In case of HUF which have not been
partitioned to members, the Karta of HUF
Person having right in a property for
a period not less than 12 years.
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Computation of Taxable Income from

House Property
Gross Annual Value
Less: Municipal Tax
Net Annual Value
Less: Deduction u/s 24
(i) S.D. of 30% of Annual Value
(ii) Interest on Loan
Taxable Income from H.P.
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xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
83
What is Gross Annual Value?

Sec 23(1)(a)
Sum for which Property might reasonably be
expected to be let from year to year.
It is something like notional rent which could
have been derived, had the property been let.
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Calculation of Annual Value
Where Rent Control Act apply.
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Where Rent Control Act does not apply
85
Types of House Property
Let out House Propertys
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Self occupied House Property
Partly let out House Property
86
Let out House Property

Where Rent Control Act
Apply
Step-A
Higher of the Fair Value and
Municipal Value
In any case above amount
can not exceed the
Standard Rent
Step-B
Higher of the actual rent
received or receivable and
Annual value calculated in
step-A
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Where Rent Control Act

does not apply
Step-A
Higher of the Fair Value and
Municipal Value
Step-B
Higher of the actual rent
received or receivable and
Annual value calculated in
step-A
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Self occupied House Property

If assessee have a single
house then Annual
value of such house
shall be NIL
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If assessee have more

than one house then
valuation of one of
them shall be at NIL and
valuation of other
houses shall be as they
are let out.
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Partly let out House Property

Valuation of self occupied portion shall be at
NIL.
Valuation of let out portion as fully let out
But if assessee let out the property for some
period in the year and occupied for the
remaining period then there is no deduction
for the occupied period.
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Rules for the unrealized rent

If owner of Property cannot
realize the rent from the
tenant then such rent
received rent shall be
deemed the GAV.
But after fulfilling some
conditions.
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Tenancy is bona fide

Tenant has vacated, or steps
have been taken to compel
him
Tenant is not occupation of
any other property of the
assessee
All reasonable steps have
been taken to institute legal
proceedings for the
recovery of the unpaid rent
90
Subsequent recovery of unrealized rent

Such recovery shall be taxable in the previous
year of receipt of unrealized rent irrespective
of the ownership if:
a deduction has been claimed and allowed in

respect of such unrealized rent
and no deduction u/s 24 shall be given on this
recovery
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91
Special provisions for arrears of rent

received
Where the assessee is the owner of House Property
and received arrears of rent from such property, not
charged to income tax in any previous year
then such amount, after deducting 30% of such

amount, shall be deemed to be income from House
Property
irrespective of the ownership of the House Property
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92
Deductions from Net Annual Value
Deduction u/s24
Standard Deduction u/s24(i)
2/8/2015
Interest on Loan u/s24(ii)
93
Standard deduction u/s 24(i)

In case of let out House
Property
30% of the NAV
This deduction is
notional deduction
irrespective of actual
expenditure for
realization of rent
2/8/2015
In case of self occupied

House Property
There will no deduction
as NAV is NIL
94
Deduction of interest on loan

In case of let out House
Property
In case of self occupied

House Property
All the interest paid or

due
Deduction is limited to
Rs.30,000/- for each coowner separately
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95
Maximum Deduction of interest

In case of self occupied House Property
Maximum amount of deduction of interest is
Rs. 1,50,000/- if the following conditions are
satisfied:
1. Loan is taken on or after 01.04.1999
2. House Property was acquired/constructed
within three years from the end of Financial
Year in which loan was taken
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96
Interest attributable to prior

construction/acquisition period
Interest from the date of borrowing
Till the end of the previous year prior to the
previous year in which the house is completed
Interest of the previous year in which
construction was completed will be deducted
as normal interest
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97
Interest on loan taken for repayment of

loan
Such interest shall be allowed as deduction
But interest on interest shall not be allowed
2/8/2015
98
Income from the head Capital Gain
2/8/2015
99
Capital Asset
House Property is a Capital Asset if it is Owned
by the assessee
If holding period of house property is more

than 36 months then it is Long Term Capital
Asset otherwise Short Term Capital Asset
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100
Chargeability of capital gain

On the transfer of Capital asset in the previous
year being house property owned by the
assessee
If the sale consideration is more than the
acquisition value of the house property
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101
What is transfer?
Transfer includesSale, exchange or relinquishment
The extinguishment of any right in the asset
Compulsory acquisition thereof under any law
Conversion into stock in trade
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102
Computation of Capital Gain

Sale proceeds
Less: transfer expenses
Less: indexed cost of acquisition
Less: indexed cost of improvement
Capital Gain/Loss
2/8/2015
xxxxx
xxxxx
xxxxx
xxxxx
xxxxx
103
Special provision for full value of

Consideration Sec. 50 C
Where consideration received as a result of the
Transfer of a land or building or both,
-is less than the value adopted by stamp valuation
authority of State Government
-for the purpose of payment of stamp duty
-then such value adopted shall be deemed to be full
value of the consideration received.
2/8/2015
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Special provision for full value of

Consideration Sec. 50 C
Assessee may claim before any Assessing Officer that such
value adopted exceeds the fair market value of the property
on the date of transfer.
The Assessing Officer may refer the valuation of property to
valuation officer
and if such value is less than value adopted by the A.O. then
such value shall be taken for the computation of Capital Gain
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105
Exemption from capital gain
Section 54
2/8/2015
Section 54F
106
Section 54
Exemption of capital gain on transfer of

residential house property
Conditions for avail exemption1. Owner must be an individual or HUF
2. There should be transfer of a House Property
which is Long Term Capital Asset
3. Income from such house should be taxable
in the head Income from house property
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Section 54
4. Assessee has purchase another residential

House Property one year before or two years
after the date on which transfer took place
5. Or has within three years after that date

constructed
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What will be the amount of exemption?

Exemption will be provide to the maximum
amount invested into another house property
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109
If assessee fails to invest the amount

If assessee fails to invest the amount of capital gain
into another residential house property before the
due date of filling the return of income
Then he may deposit the amount into Capital Gain

account scheme 1988
The amount deposited shall be deemed to be cost of
another house property
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Withdrawal of exemption
Exemption granted on the capital gain shall be
withdrawn ifthe new house property purchased/constructed is
transferred within three years of
purchase/construction
Amount deposited in the capital gain scheme 1988 is
not utilized for purchase/construction in the
stipulated time period
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Can amount deposited be used for any

purpose
No, the amount deposited cant be used other
than for purchase/construction of house
property
If amount is used for any other purpose then
such amount shall be treated Short Term
Capital Gain for that previous year and liable
to tax
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Section 54F
Exemption of capital gain on transfer of capital
asset other than house property
If an assess transfer a Long Term Capital asset
other than house property
and purchase house property then he can
avail exemption of this section
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Conditions for availing exemption

Assessee must be an individual or HUF
Transferred capital asset is not a residential
house property
Capital asset is a Long Term Capital Asset
On the date of transfer assessee has not more
than one house
Assessee has purchase another House
Property one year before or two years after
the date on which transfer took place
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Amount of exemption
Exemption from Capital Gain shall be avail in
the proportion of amount of sale
consideration invested in the new House
Property
In other words amount of exemption shall be
Capital gain* amount invested
sale consideration
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Other conditions are same
All other conditions of section 54 are applied

to this section as they applied in section 54
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116
Some cases related to House Property

1. Incase of sale of land and building, capital gain is
bifurcated between long term capital gain and
short term capital gain
2. Construction of new floor in the same building
shall be entitled to exemption under section 54
3. Release of share by one co-owner in the favor of
another co-owner shall be deemed purchase by
another co-owner
4. Amount of capital gain partly invested in purchase
of new house property and partly amount used in
construction of new floor is allowed
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Cases, where Rule-8 apply

1. Where the A.O. is of the opinion that it is not
practicable to the apply Rules 3 to 7
2. Where the difference between the unbuilt area
and the specified area exceeds 20% of the
aggregate area
3. Where the property is constructed on a leasehold
land and the lease expires within a priod of less
than 15 years and the deed of lease does not give
an option for the renewal of the lease
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Profit and Gains from Business &

Profession
Business
:
Business simply means any economic activity carried on for
earning profits. Sec. 2(3) has defined the term as any trade,
commerce, manufacturing activity or any adventure or concern
in the nature of trade, commerce and manufacture.
Profession
:
Profession may be defined as a vocation, or a job
requiring some thought, skill and special knowledge like that
of C.A., Lawyer, Doctor, Engineer, Architect etc. So profession
refers to those activities where the livelihood is earned by the
persons through their intellectual or manual skill.
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Basis of Charge (Section 28)

Following Incomes shall be charged to tax under this head
1. Profit and Gains of any business or Profession carried on by the
assessee
2. Any Compensation or other payments due or received by assessee,
for loss of agency, due to termination or modification in terms and
conditions of such agency
3. Income derived by a trade, professional or similar association, for
specific services performed; for its members.
4. Export Incentives received by Exporter such as Sale of licenses, Cash
Assistance, Duty Drawback
Basis of Charge (contd.)

5. Value of any benefit or perquisite, whether convertible into
money or not, arising from business or the exercise of a profession
6. Interest, Salary, Bonus, Commission or remuneration due o or
received by, a partner of a firm from such firm.
7. Sum Received or receivable in cash or kind for
a) not carrying out any activity
b) not sharing any knowhows, patent etc.

8. Sum Received under Keyman Insurance Policy
9. Income from Speculative Business.
Business & Profession

Business
includes any Trade, Commerce or Manufacture or any
adventure in the nature of Trade, Commerce or Manufacture.
Profession:
means an occupation requiring specialised Knowledge and
Skill.
Vocation:
is an activity in which an assessee has specialised skill for
earning Income.
Deduction Allowable
1. Rent, Rates, Taxes and Insurance of Building ( u/s 30)
2. Repairs and Insurance of Machinery, Plant and Furniture
(u/s 31)
Depreciation (u/s 32)

Following conditions are to be fulfilled.
a) Assessee must be owner of the Asset.
b) Asset must be used for the purpose of

business or Profession.
c) Such use must be in the relevant previous
year.
Depreciation
Deprecation is allowed in respect of

a) Building
b) Plant & Machinery
c) Furniture
d) Motor Vehicles
e) Computers
f) Intangibles
Depreciation
Depreciation is allowed on the Written Down Value of Block of
Assets
Opening WDV
XX
Add : Purchases during the year
XX
Less : Sales during the year
XX
Closing WDV
XX
Note : If the Asset is put to use for less than 180 Days in the
year, depreciation will be allowed at 50 % of the eligible rate.
Additional Depreciation
Additional Deprecation @ 20 % of Actual Cost of Machinery
acquired after 31.03.2002 for
a) New Industrial Undertaking
b) Existing Industrial Undertaking
Note : If the Asset is put to use for less than 180 Days in the
year, depreciation will be allowed at 50 % of the eligible rate.
Expenditure of Scientific Research U/s 35

Any Expenditure (other than Cost of Land) expended on scientific research
related to the business.
Contribution to
i) Association, university, college for the purpose of Scientific Research
ii) National Laboratory
eligible for 175 % Deduction
iii) Association, university, college for the purpose of research in social
sciences or statistical research
eligible for 125 % Deduction
In House Research in specified industries eligible for
200 % Deduction
Expenditure for Obtaining License to operate Telecommunication

Services U/s 35ABB
Allowed as Deduction equally over the

number of years of Validity of Licenses
Other Expenditures
35AC : Expenditure on Eligible Projects
35CCA : Expenditure for carrying out rural development
programmes
35 CCB : Expenditure for carrying out programmes of
conservation of natural resources.
Amortisation of
Preliminary Exp deduction is allowed in 5 Years ( Section
35D)
Amortisation of Amalgamation or Demerger in 5 Years
(Section 35DD)
Amortisation of VRS Expenses in 5 Years
( Section 35DDA)
Expenditure on Minerals Prospecting in 10 Years (Section

35E)
Other Deduction u/s 36

i) Insurance premium paid to cover the risk of damage or
destruction of Stock
Ii) Bonus or Commission paid to Employees
Iii) Interest on Borrowed Capital
iii) Contribution to Recognised Provident Fund
iv) Contribution to Approved Gratuity Fund
V) Write off of useless or Dead Animals
Vi) Bad Debts
Vii) Expenditure on promotion of Family Planning among
employees
General Expenses u/s 37

Conditions to be fulfilled
i) Expenditure should not be in the nature
prescribed u/s 30 to 36
ii) Not a Capital Expenditure
iii) Not Personal Expenditure
iv) for the purpose of Business
Advertisement Expenses
( Section 37(2B)
Deduction is not allowed in respect of
expenditure incurred by an assessee on
advertisement in any souvenir, brochure,
tract, pamplet or like published by a political
party.
Disallowance u/s 40a

Interest Royalty Fees for Professional Services
paid outside India without deducting TDS
Disallowance us/s 40 a
Payment to Resident without deducting TDs

Following payments are covered
I) Interest
II) commission or Brokerage
III) Rent
Iv) Fees for Technical or Professional Services
V) royalty
VI) Payment to Contractor
Disallowance us/s 40 a
Securities Transaction Tax

Fringe Benefit Tax
Income Tax
Wealth Tax
Salary paid outside India without deducting TDS
Provident Fund payment without deducting TDS
Tax on Prequisites paid by the employer
Disallowance u./s 40 (b)

Amount not Deductible in case of Partnership
Firm
I) Interest exceeding the rate specified in the
Partnership Deed or 12 % whichever is lower
II) Remuneration to Partner
Remuneration to Partner
Is allowed upto the following limits
First Rs 3,00,000 - 90 % or Rs 1,50000
which ever is high

Balance
- 60 %
Disallowance u/s 40 A
Excessive Payment to Relatives
Payment exceeding Rs 20,000 in mode
otherwise than Crossed cheque
(Entire amount is disallowed)
Contribution to Non Statutory Funds

Provision for Unapproved Gratuity Fund
Section 43 B : Deduction on Payment

Basis
Following will be allowed as Deduction on actual paid basis.
Outstanding amount has to be paid before Due Date of Filing of Return
of Income.
i) Any Tax, Duty paid to government
ii) Contribution to PF
iii) Bonus or Commission
iv) Interest on Loans from financial
institution
V) Interest on Loans from Scheduled Bank
Vi) Leave Salary to Employees
Capital gains
Capital Gains tax liability arises only when the
following conditions are satisfied:
There should be a capital asset.

The capital asset is transferred by the assessee
Such transfer takes place during the previous year.
Any profit or gains arises as a result of transfer.
Such profit or gains is not exempt from tax under
section 54, 54B, 54D, 54EC, 54F, 54G, 54GA and
54GB
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Capital Gain
Any Income derived from a Capital asset movable or immovable is

taxable under the head Capital Gains under Income Tax Act 1961.
Basis of Charge
Profit or gain arising from the transfer of capital assets during

previous year is chargeable under the head capital gains if
following conditions are full filed;
Their should be capital Assets.
Their should be transfer of capital assets.
Transfer should take place in previous year.
Their should be profit or gains.

144
There must be a Capital Asset

[S.2(14)]
Capital assets is defined to mean propety of any kind, held by the

assesse, whether or not connected with his business or profession.
Property may be tangible or intangible.
Land, buildings, vehicles, goodwill, tenancy rights, leasehold rights,

licences, patents, trademarks, etc. are some examples of capital
assets
145
Capital Assets must be transferred

[S.2(47)]
The sale, exchange or relinquishment of
the asset;
The extinguishment of any rights therein;
The compulsory acquisition of any capital
assets by the government;
Conversion of capital assets into stock in
trade.
146
Types of Capital Assets

There are two types of capital assets;
Short Term Capital Gains: It means a capital assets
held by an assesse for not more than 36 months
immediately prior to its date of transfer. Tax is
calculated as per Income Tax Act.
Long Term Capital Gains : A Asset is not a short term
capital gain is long term capital gain. 20 % is
taxable.
147
Computation of STCG
Full value of Consideration
XXX
Less: Cost of acquisition
XXX
Less: Cost of improvement
XXX
Short Term Capital Gain
XXX
Less: Exemption U/S 52(B), 54(D) & 54(G)
XXX
148
Computation of LTCG
Full value of Consideration
XXX
Less: Cost of acquisition
XXX
Less: Cost of improvement
XXX
Short Term Capital Gain
XXX
Less: Exemption U/S 54 54(H)
149
Meaning
Full Value Consideration : It means what the
transferor or is entitled to receive as consideration for
the sale of property/Asset. This Value may be in cash
or in kind i.e. in exchange for an asset.
Cost of Acquisition : It is the price which the assesse
has paid or the amount which the assesse has
incurred for acquiring the property/Asset.
Cost of Improvement : It is capital expenditure
incurred by am assesse in making any
addition/Improvements to the capital asset.
150
Indexed Cost of Acquisition

ICOA : Cost of Acquisition*Cost of the year
in which asset is transferred.
Cost inflation index of the first year in which
asset was first hold by the assesse or Cost
inflation index of the year beginning on 1st
april,1981.(which Every is later)
151
Indexed cost of Investment

ICOI : Cost of Acquisition* Cost Inflation
Index of the year in which asset is
transferred.
Cost inflation index of the year in which
improvement took place.
152
Sum
X Transfers Gold on 10th May, 2011 Rs
3655000.
Expenses on Trasfer Rs 55000.
Gold purchased on 23rd June, 1982 Rs 3
Lakhs to get benefit u/s 54(F).
X Purchases house property on 12th May,
2011 Rs 27 Lakhs at pune.
Mr X Transfers pune property on 29th June,
2013 For Rs 30 Lakhs.
Find out Capital gain chargeable
153
Solution
Sales Consideration
3655000.0
Less: Expenses
55000.0
3600000.0
Less: Index Cost Of Acquisition
1982 & 2011-12 is 109 & 785 respectively
(300000*785/109)
2160550.0
1439450.0
Less: Exemption U/S 54(F)
(2700000/3600000*1439450)
1079587.5
Income Under head Capital Gain
359862.5
154
Income From Other Sources

(Residuary head of Income)
Income of every kind, which is not to be excluded from the
total income and not chargeable to tax under any other
head, shall be chargeable under the head Income from
Other Sources.
List of items chargeable under this head:-
Dividends from Co-op. Banks/Foreign companies

Winning from lotteries, crossword puzzles, races,
gambling, betting of any form
Interest on securities
Income from plant, machinery or furniture on hire
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155
Contd.
Any sum received under a Keyman insurance policy

Any gift exceeding Rs. 50,000 received from non relatives
Interest on foreign government securities
Agriculture income received outside India
Directors Sitting Fees
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156
Filing of Returns
Any Individual whose total income exceeds the
threshold limit is chargeable to tax in India and has
to file return of income
All corporate tax payers and all partnership firms
have to file the return irrespective of the level of
income
Different forms and due dates prescribed for the
returns
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157
157
Deductions
The total income of an assessee is to be computed
after making deductions permissible u/s 80C to 80U.
However, the aggregate amount of deductions
cannot exceed the Gross Total Income.
Deductions are allowed under chapter VI-A of
Income Tax Act.
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Section 80C Deductions

Section 80C of the Income Tax Act allows certain
investments and expenditure to be deducted from
total income up to the maximum of 1lac. The total
limit under this section is Rs. 100,000 (Rupees One lac)
which can be any combination of the below:
Contribution to Provident Fund or Public Provident fund

Payment of Life Insurance Premium
Investment in Pension Plans
Investment in Equity Linked Savings Scheme of Mutual Funds.
Investment in NSC
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Section 80C Deductions

(Contd.)
Tax Saving Deposits provided by Banks

Payment towards principal repayment of housing loans
Payment of Tuition fees of Children
Post Office Term Deposit
This investment can be from any source and not necessarily

from income chargeable to tax.
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Section 80D: Medical Insurance

Premium
Deduction is available in respect of the amount paid to effect or to keep
in force health insurance under a scheme
made by General Insurance Corporation of India (GIC) and approved
by Central Government; or
made by any other insurer and approved by IRDA
Deduction shall be to the extent of lower of
Actual Health insurance premium paid by any mode other than cash,
or
Rs. 15,000 (Rs. 20,000 if the insured is a senior citizen).
Deduction on account of expenditure on preventive health check-up
(for self, spouse, dependent children and parents) shall not exceed in
the aggregate Rs.5,000. This payment can be made in cash.
The deduction for preventive health-checkup is included in the overall
limit of Rs. 15,000 / Rs. 20,000 as the case may be
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Section 80TTA: Deduction for Interest

on Saving Bank Account
This section has been inserted into the Income-tax Act
with effect from Assessment Year 2013-14 i.e. F.Y. 201213.
This section provides deduction to an individual or a
Hindu undivided family in respect of interest received on
deposits (not being time deposits) in a savings account
held with banks, cooperative banks and post office.
The deduction is restricted to Rs.10,000 or actual interest
whichever is lower.
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162
Basic difference between

Exemptions and Deductions
Exemptions
Incomes which are
exempt u/s 10 will
not be included
while computing
total income
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Deductions
Incomes from which
deductions are
allowable under
Chapter VI-A will first
be included in the
gross total income
and then the
deductions will be
allowed
163
Assessments and Appeals
Scrutiny assessments
Appeals to CIT(A)
Appeals to ITAT
Appeals to HC
Appeals to SC
Departmental appeals
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164
164
Tax Deducted at Source (TDS)

In simple terms, TDS is the tax getting deducted from the
person (Employee/ Deductee) by the person paying such
amount (Employer/Deductor)
Different sections and rates of tax for different type of
payments.
A tax deductor is require to pay to the Central
Government the amount so deducted and issue TDS
certificate to the deductee within specified time and in a
specific format.
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165
165
TDS Important Sections
192 Salaries
194A Interest
194C Contracts
194H Commission
194I Rent
194IA Purchase of Certain Immovable Property
194J Professional Fees
195 Payment to Non-Residents (other than
salaries)
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166
166
RATES OF TAX FOR F.Y. 2013-14
Individual tax payers and H.U.F.s (Incl. Women)

Total Income
Tax Payable
0 2,00,000
NIL
2,00,001
5,00,000
10% of income in excess of Rs. 2.00 lakh

Less : Tax credit of upto Rs. 2,000/-.
5,00,001
10,00,000
30,000 + 20% of income in excess of Rs.

5,00,000
Above 10,00,000

10,00,000
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167
Resident Individual tax payers who are senior citizens (more than
60 yrs upto 80yrs)
Total Income
Tax Payable
0 2,50,000
NIL
2,50,001
5,00,000
10% of income in excess of Rs. 2,50,000

Less : Tax credit of upto Rs. 2,000/-.
5,00,001
10,00,000

5,00,000
Above 10,00,000

10,00,000
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168
Resident Individual tax payers who are very senior citizens (for 80yrs or
more)
Total Income
Tax Payable
0 5,00,000
NIL
5,00,001
10,00,000
20% of income in excess of Rs. 5,00,000
Above 10,00,000

10,00,000
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169
Wealth Tax Act,1957
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170
Charge of Wealth Tax (Sec.3)

Wealth Tax shall be charged on the net wealth
on the corresponding valuation date
of every Individual, HUF and company
at the rate of 1% of the amount by which net
wealth exceeds Rs.15 lakhs
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What is Asset?
Section 2(ea)(i)
Asset meansAny building or land appurtenant thereto, whether
used for
- residential purpose or
- commercial purpose (if it is vacant or let out) or
- for the purpose of maintaining of guest house
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Not to be included
A House meant exclusive for residential
purpose
A house which is allotted by a company to an
employee or officer or whole time director,
having a gross salary of less than Rs.5 lakhs
Any house for residential or commercial

purpose which form part of stock in trade
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173
Not to be included
Any house used for the purpose of any
business or profession carried on by him
Any residential property that has been let out
for a minimum period of 300 days in the
previous years
Any property in the nature of commercial

establishment or complexes
2/8/2015
174
Taxability of farm house

Farm house shall be included in Asset if it is
situated within 25 km from the local limit of
any municipality or a cantonment board
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175
Computation of Net Wealth

Aggregate value of all assets wherever located
belonging to the assessee
Aggregate value of all asset required to be included
in the net wealth of the assessee
Less: Exemption u/s 5 of Wealth Tax Act
Less: Debts owed by the assessee on the valuation

date relating to asset included in his wealth
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Exemption u/s 5 of Wealth Tax Act

Wealth Tax shall not be payable on the
following:
1. Any property held under trust or other legal
obligation for any public purpose of a
charitable or religious nature in India
[sec.5(i)]
2. The interest of the assessee in the
co-parcenary property of any HUF [sec.5(ii)]
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177
Exemption u/s 5 of Wealth Tax Act

3. Any building in occupation of Ruler being a
building which was decleared as his official
residence by the Central Govt. under Merged
State Order [sec.5(iii)]
4. One house (whether residential or commercial
or whether let out or self occupied) or part of
a house or a plot of land of 500 sq. metres or
less [sec.5(vi)]
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Determination of value of Immovable

Property
Valuation of Property as per
Rules 3, 4 and 5 of Part B of
Schedule III
Add: Adjustment for unbuilt Area
As per Rule 6
Less: Adjustment for unearned
increase in the value of land
2/8/2015
xxxxx
xxxxx
xxxxx
179
Valuation of Property
Valuation of property shall be done as per
rules 3,4 and 5 of part B of schedule III
which is divided in 5 steps
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180
Step-1 Determination of actual rent

Actual rent received or receivable
Add:
1. Taxes in respect of the property agreed to be borne
by the tenant
2. 1/9th of actual rent received or receivable where
the repairs are to be borne by the tenant
3. 15% interest on the deposit received reduced by
interest actually paid by the tenant (only if such
deposit is for more than three months)
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Step-1 Determination of actual rent

4. Non refundable deposit spread equally over
the period of the lease
5. Value of any perquisite or benefit received
by the assessee for leasing out the property
6. Any obligation of the owner met by the
tenant
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Step-2 Determination of annual rent

Where property is let
out for the entire year
Actual Rent
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Where property is let

for part of the year
Actual rent*12
No. of month for which
property was let out
183
Step-3 Determination of Gross

Maintainable Rent
Where property is not let out
Annual value as assessed by the Local Auth.
2/8/2015
Otherwise Fair Market Rent
184
Step-3 Determination of Gross

Maintainable Rent
Where property is let out then higher of
Annual Rent
2/8/2015
Annual Value as assessed by Local Auth.
185
Step-4 Determination of Net Maintainable

Rent
Gross Maintainable Rent
Less: 15% of GMR
Less: Municipal Taxes
(on paid basis whether
by owner or tenant)
NET MAINTAINABLE RENT
2/8/2015
xxxxx
xxxxx
xxxxx
xxxxx
186
Step-5 Valuation of Property

CASE-1
CASE-2
Where property has

been acquired or
constructed on or
before 31.03.1974
Where property has

been acquired or
constructed after
31.03.1974
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187
Case-1
Property constructed
on freehold land
Property constructed
on Lease hold Land and
unexpired Period of
Lease is 50 years or
more
Where unexpired
Period of Lease is less
than 50 years
2/8/2015
NMR * 12.5
NMR * 10
NMR * 8
188
Case-2
Value of the property shall be higher of the
following:
1. NMR * Capitalization Factor (12.5/10/8)
2. Cost of acquisition /construction + cost of
improvement
2/8/2015
189
Remedy to assessee
Valuation of any one house property which is
constructed/acquired after 31.03.1974
and used for his own residential purpose
throughout the year
and whose cost of acquisition/construction +
cost of improvement does not exceed :
2/8/2015
190
Remedy to assessee
-Rs.50 lakhs in case house is situated in
Delhi/Mumbai/Kolkata/Chennai
-Rs.25 lakhs in case of other cities
shall be the NMR * Capitalization Factor

(12.5/10/8)
2/8/2015
191
Adjustment for unbuilt area of plot of land

as per Rule-6
If unbuilt area > Specified area
then there shall be addition in the value of
property as per Rules 3, 4 & 5 of
as per % of default
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192
What is percentage of default?
Unbuilt Area - Specified Area

Aggregate Area
2/8/2015
193
What is Specified Area?

Specified Area is in the sense of permissible
unbuilt area
Therefore if Unbuilt Area > Specified Area,
then addition shall be made as per Rule 6
2/8/2015
194
Specified Area mentioned in

Wealth Tax Act
Where property
situated in
Delhi, Mumbai, Kolkata,
Chennai
60% of aggregate area
Specified citied
Other cities
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195
Addition in the value of property as per

Rule -6
% of default
Upto 5%
5% to 10%
10%to 15%
15% to 20%
Above 20%
2/8/2015
Addition
NIL
20% of value as per
rules 3 4 & 5
30% of value
40% of value
FMV of property (Rule8)
196
Adjustment for unearned increased in

value of land as per Rule-7
If the property is constructed on a land taken on
lease from Govt. Authority
and Govt. Authority is entitled to recover a specified
% of unearned increase in the value of land at the
time of transfer of property
then, the value determined as per Rules 3, 4, 5 & 6

shall be reduced by the least of the following :
2/8/2015
197
Adjustment for unearned increased in

value of land as per Rule-7
Amount of unearned increase liable to be

recovered by the Govt. Authority
50% of the value as per Rules 3, 4, 5 & 6
2/8/2015
198
What is unearned increase?

Unearned increase means the difference
between the :
value of such land as determined by the Govt.
Authority for the purpose of calculating such
increase
and the lease premium paid or payable to the

Govt. Authority for lease of land
2/8/2015
199
Rule-8
Notwithstanding contained in Rules 3 to 7 the
value of the property shall be estimated to be
the price which, in the opinion of the
Assessing Officer,
it would fetch if sold in the open market on
the valuation date.
2/8/2015
200
2/8/2015
201
Section-10
INCOME EXEMPT FROM TAX
Introduction
Chapter III of the Income-tax Act, 1961 deals
with the Incomes which do not form part of
total income.
This Chapter covers sections 10 to 13A
Introduction
Section 10 contains numerous clauses
subject to amendments, exempting various
kinds of income from inclusion for
purposes of tax. These exemptions have
been inserted from social, economic,
political,
international
and
other
considerations and the contents and scope
of the exemptions change from time to
time.
Introduction
Section 10 : Any income of any persons
falling within any of the clauses of section 10
shall not be included in the total income.
EXEMPTION VS DEDUCTION
Section-10(1)
Agricultural Income
is exempt from tax
if it comes within the definition of
agricultural income as given in
Section 2(1A)
Section 10(2)
Any Sum Received from HUF
Subject to the provisions of 64(2), any sum
received by an individual as a member of a
HUF, where such sum has been paid out of
the income of the family, or, in the case of
any impartible estate, where such sum has
been paid out of the income of the estate
belonging to the family.
Section 10(2A)
Share of Profit from the Partnership Firm
In the case of a person being a partner

of a firm which is separately assessed
as such, his share in the total income of
the firm.
Section 10(10D)
Amount paid on Life Insurance Policies
Any sum received on life insurance policies (including

bonus) is exempt.
Exclusions :
a. any sum received u/s. 80DD(3)
b. any sum received under a Keyman Insurance Policy
c. any sum received under an insurance policy (issued
after 31.03.2003) in respect of which the premium
paid in any year during the term of policy, exceeds
20% of the actual sum assured
However, sum received under such policy on the death of a
person shall continue to be exempt
Actual sum assured does not include any
premiums
agreed to be returned or any benefits by way
of
bonus
DEDUCTION IN RESPECT OF MAINTENANCE OF A DEPENDENT WHO IS

A PERSON WITH DISABILITY: SECTION 80DD
Deduction is available to an Individual or HUF who is resident in
India.
Individual can be a resident or a non resident or a foreign
national.
Deduction is available for any amount paid for the medical
treatment (including nursing), training and rehabilitation of a
handicapped dependent.
Deduction is also available for any amount deposited in a scheme
with LIC or any other insurer or UTI in this regard for the
maintenance of a person who is dependent and disabled. This
scheme should provide for the payment of money in lump sum
for the benefit of dependent in the event of death of a person
making such deposit.
Deduction is available for expenditure done on the treatment of
dependent that is a person with a disability.
The person should be atleast 40% disabled. If individual is less
than 40% disabled then no deduction is allowed.
Deduction allowed is Rs.50000 in case of a dependent being a
disabled and has a disability of atleast 40% but less or equal to
80% or Rs.75000 in case a person is dependent and severely
disable i.e. disability of more than 80% of one or more disabilities
Such person should be wholly and mainly dependent for

support and maintenance on such individual or HUF.
Dependent himself should not claim deduction under section 80U in
computing his own total income.
If the person being a person with a disability in whose name the sum has been
deposited with LIC or any other insurer or UTI, dies before the assessee then the
amount equal to the amount which has been deposited shall be deemed to be the
income of the assessee in the previous year in which such sum has been received
from insurer and shall be chargeable to tax in the year of receipt.
For claiming the deduction the assessee has to furnish a

certificate from the medical authorities and has to file it
along with ITR under section 139(1).
Disability for this section would mean blindness, low vision, leprosycured---meaning person who has been cured of leprosy but
is suffering from loss of sensation in feet or hands, hearing
impairment, locomotors disability---means disability of
bones, joints or muscles leading to substantial restriction of
the movement of the limbs, mental retardation---means
incomplete development of mind, which is specially
characterized by sub normality of intelligence, mental
illness.
Section 10(32)
Income of Minor
In case the income of an individual

includes the income of his minor child in
terms of section 64(1A), such an
individual shall be entitled to exemption
of Rs. 1,500/- in respect of each minor
child if the income of such minor is
includible under section 64(1A) exceeds
that amount.
64(1a)
Any income accruing or arising to a minor child is liable
to be clubbed with father or mother whose total
income is greater before such clubbing.
Income derived by a minor child out of skill and talent
or by way of salary and wages shall not be clubbed.
However, if such income is invested and income is
earned thereon, such income shall be clubbed.
Clubbing ceases to operate when the minor becomes a
major.
There is no clubbing of income in the case of a minor
child who is eligible for deduction u/s. 80U.
Similarly, where a minor child does not have parents,
clubbing of income does not arise. The minor child will
be assessable in his own case. Guardian will be
representative assessee for assessment purposes.
Income of minor child will be included in the total income of that parent whose total income is greater (before
including income of child).
If marriage of parents does not subsist it shall be income of that parent who maintains the child in the previous
year.
Where any such income is once included in the total income of either parent any such income arising in any
succeeding year shall not included in the total income of the other parent unless AO is satisfied that it is necessary
to do so.
Clubbing of incomes of minor accruing till the date of attaining majority shall be done and not thereafter. On and
from the date of attaining majority the incomes shall be taxed in the hands of child himself.
Brought forward loss of an individual assessee can be set off against the business income of minor child which has
been so clubbed under this section.
Under this section only net incomes shall be clubbed and that too under the same head of income.
Deductions of section 80C to 80U shall be allowed till the aggregate of the income of minor child and that of
parent.
Minor shall not be allowed the deductions under sections 80C to 80U on account of the income, which have been
clubbed in the hands of parent.
In the following cases income of minor shall not be clubbed:
Child is suffering from any disability of the nature specified in Section 80U like physically disability, totally blind etc.
Income of child on account of manual work or activity involving skill, talent or specialized knowledge etc.
If income of child is so included, the parent shall be entitled to an exemption in respect of each minor child under
section 10(32) which shall be of the lower of:
`1, 500 pa per child

Income of minor so included in income of parent.
Such exemption is available from the total income of the minor child that is included in the total income of the
assessee. Exemption to parent under section 10(32) for ` 1,500 shall be available if the clubbing of minor childs
income is done as per section 64(1A). If income is added as per section 27 of deemed ownership then exemption
of section 10(32) shall not be allowed
DEDUCTION ALLOWED TO PHYSICALLY HANDICAPPED PERSON: SECTION 80U

The assessee claiming the deduction should be an Individual (can be Indian or a
foreign national) being a resident and a person with a disability.
The disability should be 40% or more.
Deduction shall be given only when he could satisfy the assessing officer that the
disability has the effect of reducing considerably his capacity to do normal work or
engaging in gainful employment or occupation.
He is certified by a medical authority to be a person with the disability at any time
during the PY and this certificate has to be furnished along with the ROI. Further
this certificate has to be furnished every year in which this deduction is claimed.
The amount of deduction shall be Rs.50000 in case of a person with

a disability and Rs.75000 in case of a person with a severe disability
(having disability of over 80%).
Meaning of disability under this section is Blindness, Low vision, Leprosy-cured--meaning person who has been cured of leprosy but is suffering from loss of
sensation in feet or hands, Hearing impairment, Locomotors disability---means
disability of bones, joints or muscles leading to substantial restriction of the
movement of the limbs.
Section 10(33)
Capital Gain on Transfer of US 64
Any income arising from the transfer of a
capital asset being a unit of US 64and where
the transfer of such assets takes place on or
after 1.04.2002, shall be exempt from tax.
This exemption is applicable whether US 64
Unit is long term capital asset or short term
capital asset.
Section 10(34)
Income from Dividends referred in Sec. 115-O
Any income by way of dividends received from

Domestic Company.
As per Section 2(22A), Domestic Company
means an Indian Company, or any other
company which, in respect of its income liable
to tax under this Act, has made the prescribed
arrangements for the declaration and payment,
within India, of the dividends (including
dividends on preference shares) payable out of
such income.
Section 10(35)
Income from Units
a) Income received in respect of units of Mutual
Fund specified under clause (23D); or
b) Income received in respect of units from the
Administrator of the specified undertaking; or
c) Income received in respect of units from the
specified company
It may please be noted that Transfer of the
abovementioned Units are not exempt under this
provision.
Section 10(37)
Income from transfer of Agricultural Land
Income from transfer of Agricultural Land is

exempt if following conditions are fulfilled :
a. such land is situate in any area referred to in item
(a) or item (b) of sub-clause (iii) of clause (14) of
Section 2
(land within Municipality, cantonment board having
more than 10000 population, within 8 kms from local
limits or municipality are not covered)
Section 10(37) : Contd.

such land, during the period of two years
immediately preceding the date of transfer,
was being used for agricultural purposes by
such HUF or individual or a parent of his.
such transfer is by way of compulsory
acquisition under any low or a transfer the
consideration for which is determined or
approved by the Central Government or the
Reserve Bank of India.
Such income has arisen form the compensation or
consideration for such transfer received by such
assessee on or after the 01.04.2004
Section 10(38)
LTCG on transfer of equity shares/units
Long Term Capital
Gains arising
on transfer of
chargeable
to
STT
equity shares or units of equity oriented mutual
fund is not chargeable to tax from the assessment

year 2005-06 if such transaction is covered by
securities transaction tax.
Mutual Fund as defined u/s. 10(23D) i.e. Mutual
fund registered under the SEBI Act, 1992, Mutual
fund set up by Public Sector Bank, Public Financial
Institution or Authorised by the RBI and subject to
such conditions as the Central Govt. may by
notification in the Official Gazette, specify in this
behalf
Section 10(10C)
Amount received at the time of VRS
(a)
(b)
(c)
(d)
Amount received (Compensation) at the time of voluntary

retirement or separation is exempt from tax if the following
conditions are satisfied :
Compensation is received at the time retirement or
termination.
Compensation is received by an employee of the specified
undertakings.
Compensation is received in accordance with the scheme of
voluntary retirement/separation which is framed in
accordance with prescribed guidelines.
Maximum amount of exemption is Rs. 5,00,000/-.
INTEREST ON SECURITIES: SECTION 10(15): Interest income exempt

from tax are given under section 10(15) some of which are:
Interest on post office saving bank account.
Interest on fixed deposits with government or with post office.
Interest on capital investment bonds.
Interest on relief bonds.
10(16) Scholarships grant for education
10(17) Daily allowances of MP
10(17A) Award of Central or State Govt
10(18) Pension income of winners of gallantry awards
10(19) Family pension in case of death of members of armed forces
SECTION 10(39): INCOME EARNED FROM THE

NOTIFIED INTERNATIONAL SPORTING EVENTS held in
India are exempt from tax if such events are approved
by the international bodies and has a participation of
more than 2 countries.
SECTION 10(43): REVERSE MORTGAGE: Any amount

received by an individual as a loan, either in lump sum
or in installment, in a transaction of reverse mortgage is
exempt.
SECTION 10(44): NEW PENSION TRUST: Any income

received by any person on behalf of the New Pension
System Trust established on 27-2-2008 under the
provision of the Indian Trust Act of 1882 shall be
COMPENSATION ON DISASTER: SECTION 10(10BC)

Compensation received or receivable by an individual or
his legal heir on account of disaster from central
government, state government or local authority.
However if the loss due to disaster has been claimed as
deduction while calculating PGBP income then such
compensation shall not be exempt
Explanation. For the purposes of this clause, the expression "disaster" shall have the
meaning assigned to it under clause (d) of section 2 70 of the Disaster Management Act, 2005
(53 of 2005);]
"disaster" means a catastrophe, mishap, calamity or grave

occurrence in any area, arising from natural or man made
causes, or by accident or negligence which results in
substantial loss of life or human suffering or damage to, and
destruction of, property, or damage to, or degradation of,
environment, and is of such a nature or magnitude as to be
beyond the coping capacity of the community of the
affected area

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History of Taxation in India

History of Taxation in India

Tax Rates - comparison with other

Tax Rates (%)

Income-tax Act, 1961

Consists of more than 300 sections, 23 Chapters and 14

Income-tax Act, 1961

Income-tax Act, 1961

Income-tax Rules, 1962

In case of a conflict between the Act and the Rules, the

Circulars issued by the CBDT

Circulars cannot change the provisions of law; they can merely

Case Laws and Doctrine of Precedents

Decisions of one HC has persuasive powers over other HCs

Person in respect of whom any proceedings under this

Deemed assessee under provisions of this Act

Any person deemed to be an assessee in default under

In case of a business or source of income, the

Satisfies any one Basic condition and

Section 6 Residential Status of

Must NOT satisfy both the

Must satisfy at least one of the

Must satisfy either of the

Should not satisfy any of the

Basic principles of Incometax

Scope of Total Income

Scope of Total Income

Income received in India

Income deemed to be received in India

Income accruing or arising in India

Income deemed to accrue or arise in

Income received/ accrued outside India

Income received/ accrued outside India

Income is defined to include several items

Examples of Exempt Income

Examples of Exempt Income

Payments from Superannuation Fund

Salaries (basis of charge)

Income from house property

Payer & Payee

Salary means Basic salary and allowances

House Rent Allowance

It is not chargeable to tax

Govt. /Non Govt

COMMUTED PENSION (cont.)

Central /state Govt, With or without Exempted

Pension scheme for employees joining

Contribution by Employer is added to salary

GOVERNMENT EMPLOYEES GETTING LEAVE ENCASHME

Govt employee at that time is exempted from tax.

Leave Encashment( cont.)

HOW TO FIND OUT

1.basic salary and includes

It is calculated on the basis of

during the period of 10 months immediately

Leave travel concession is exempted twice in a block

IN CASE OF EMPLOYEES COVERED UNDER PAYMENT

It means any benefit in addition to salary and w

Perquisites taxable (Category A

Perquisites taxable (with or without FBT)

Perquisites taxable (Category B)

Rent Free Unfurnished Accomodation

Central & State Govt. Employe