CAPITAL GAINS

Assets received in gift Note - In such case, for computing period of holding, the period for which the
asset was held by the previous owner shall also be considered.

Period of holding in case asset which was not held as capital asset initially but is a capital asset at the
time of transfer In case, an asset was not held as capital asset initially but is a capital asset at the time of
transfer, the entire period of holding from date of initial acquisition upto date of transfer will be
considered.

Examples of extinguishment— (i) Forfeiture of shares is an extinguishment of right. (ii) Extinguishment

of capital rights. (iii) Reduction of share capital of a company and payment to shareholders.

Tax Rates on Capital Gains (General)

● Short term capital gains - Will form part of total income and will be taxable according to the slab rates
● Long term capital gains are taxable @ 20% Flat

Full Value of Consideration

● Full value of consideration means what the transferor receives, or is entitled to receive as
consideration for the capital asset transferred.

Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee
is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to
tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be
the full value of the consideration received or accruing as a result of such transfer.

Expenses on transfer Expenses on transfer include any expenditure incurred, whether directly or
indirectly, for the purpose of transfer like advertisement expenses, brokerage, stamp duty, registration
fees, legal expenses, etc.

Cost of acquisition Section 55(2)

● Cost of acquisition is the price which the assessee has paid, or the amount which the assessee has
incurred, for acquisition of the asset. ● Expenses incurred for completing the title are a part of the cost
of acquisition. ● Interest on money borrowed for acquiring capital assets will form part of cost of asset.

(i) In case such asset is purchased by the assessee — it means the amount of purchase price.

(ii)In any other case — it shall be taken as nil as it will be self-generated.

Capital expenditure incurred by the previous owner also be treated as cost of improvement.
INCOME FROM OTHER SOURCES

 Dividend given by Unit trust of India and mutual funds specified u/s 10(23D)(Exempt in the hand
s of the unit holder) 10(35)
 Dividend from foreign company is fully taxable.
 Dividend from cooperative society is fully taxable
 Gifts from only one wedding is fully exempt
 Dividend from Indian company is exempted U/S 10 upto rs 10 lakh, else 10%.
 Deemed to be dividend – taxable as it is a grey area of taxation. In a closely held
company/private company, if the person holds substantial (10% or more) interest in the affairs
of the company and money lending is not their business, then loan given to him is taxable upto
the extent of accumulated reserves because this loan is considered as deemed to be dividend.
 Maintenance expenditure should be deducted from net amount of casual income or not?
 Gifts in cash on wedding?
 For races other than horse, net amount = gross amount
 Cost of lottery ticket and commission paid to lottery seller are not allowed as expense out of
winning from lottery
 Interest on income tax refund is included under the head ‘other sources’
 Income tax refund is not included under the head ‘other sources’
 Subletting –
Rent received from tenant
- Total expenses * portion subletted
- Rent paid * portion subletted

DEDUCTIONS

Deduction from an Income Tax point of view, is the investment / expenditure made by you that help
you save taxes. So, the income tax deduction reduce your gross income (means the income on which,
tax has to be paid).Thereby, reducing your tax on your total income.

Deductions u/c VI-A

Basic understanding

● Deduction are given after clubbing and set-off, carry forward and set-off of losses.

● Deductions are given under section 80C to 80U.

● These deductions are of two types ○ Deduction on account of certain payment and investment
covered under section 80C to 80 GGC. ○ Deduction on account of certain incomes which are already
included in the gross total income covered under section 80IA to 80U

Important points

 Deductions u/c VI-A are not allowed from the following incomes:-
 ○ Any Type of Long term capital gain (LTCG).

○ Short term capital gain (STCG) only on equity shares u/s 111A.

○ Any Winning from lotteries, horse races etc.

○ Dividend

 Deductions cannot exceed gross total income.

1. 80C - The maximum permissible deduction under section 80C is ₹1,50,000
 Premium paid on insurance on the life of the ○ individual, ○ spouse or ○ any child (minor
or major) and ○ in the case of HUF, any member thereof OR 10% of policy amount w.e.l
 Contribution to SPF/PPF/RPF (URPF not eligible)
 Subscription to National Savings Certificates VIII
 Contribution in Unit-linked Insurance Plan
 Subscription of bonds of NABARD
 Amount invested/deposited in Equity Linked Saving Scheme (ELSS)
 Payment of tuition fees to any university, college, school or other educational institutions
within India for full-time education for maximum 2 children
 Repayment of principal towards housing loan including stamp duty, registration fee and
other expenses
 Investment in term deposit for a period of not less than five years with a scheduled bank
 Deposit in Senior Citizens Savings Scheme Rules, 2004
 Investment in five year Post Office time deposit
 Any sum paid or deposited in Sukanya Samridhi Account
2. 80CCC - Contribution made to the notified pension scheme of Central government
PGBP

THINGS NOT DEDUCTIBLE

 Reserves/provisions for contingencies

 Any expenditure for any activity → which is an offence or which is prohibited under any law →
Shall not be allowed as deduction. → Therefore, penalty paid under any Act shall not be allowed
deduction. → But penalty for breach of contract shall be allowed deduction because that is
not imposed under Act.
 CSR expenditure - Not Deductible, shall not be deemed to be an expenditure incurred by the
assessee for the purposes of the business or profession.
 Advertisement expenditure in magazine published by political party - Not deductible
 Repairs of capital nature
 Employer contribution to URPF
 Mere provision made by employer towards payment of gratuity
 Any outsourcing amount to PF
 Brokerage paid for raising capital
 Interest on capital
 Donations except National Urban Poverty Eradication Fund which is allowed.
 Baddebts reserve
 Annual contribution to debenture sinking fund
 Contribution of staff welfare fund
 General reserve
 Proposed dividend
 Amount t/f to special reserve
 Unreasonable salary
 Loss on sale of assets
 Bank interest
 Gifts to sales tax officer to Diwali
 Interest on bank loan – only official allowed.
 Contribution to unapproved gratuity fund
 Purchases made with bearer cheque exceeding 10,000 = 100% disallowed
 100% of advertisement expenses exceeding 10,000 is added back to the profit.
 Repair expenses on let out building are to be added to net profit.
 Cash shortage is capital loss and is to be added back.
 Interest on income tax refund received is subtracted as it is disallowed.
 Refund of excise duty is allowed. – isn’t this not an income?
 Underwriting commission is a preliminary expenditure and only 1/5th is allowed every year. So
add back 4/5th
 Payment made in cash exceeds 10000 hence 100% of such payment is disallowed.
 Add smuggling income also at last – why to add when this is illegal?
 Dual effect of unabsorbed depreciation of earlier years, add then subtract.
 GST paid before 30 sept is admissible, Commission and bonus too same thing.
 Amortization of preliminary expenses: Deduction can be claimed up to 5 % of cost of project
/5% of capital employed or amount spent on perlimainary expenditure, whichever is less, over
a period of five years in equal annual instalments commencing from the relevant previous year
in which the new business commences.
 In case of any payment like salaries, interest on money borrowed, royalty , technical fees, to an
NRI without TDS is not deductible. If it TDS is deducted, then only it is allowed as deduction
 the entire capital expenditure on research is allowed as deduction in the PY in which such an
expenditure was incurred provided the profit is available in the year. If the profit is not
available, the amount of expenditure in this account is allowed to be c/f till it is fully written
off.
 Income tax paid on behalf of a non-resident cannot be allowed as deduction as law does not
entitle any tax payer to negotiate or transfer his tax liability with any other person.
 Cost of installing a new telephone is an admissible deduction
 Legal expenses are allowed as deduction
 GST and Bonus is allowed to be debited only if it is paid before due date of filing returns i.e. 31-
7
 Baddebts recovered but disallowed earlier is subtracted
 Baddebts recovered allowed earlier are to be ignored
 Entertainment expenses are also business expenses
 Rent paid to partner is allowable. Do nothing
 Salary paid to working partner as per agreement is allowed.
 Expenditure incurred by employer for promoting family planning expenditure among
employees. Deduction is eligible in 5 equal annual instalments. So full amount taken or 1/5th ?
 Donation to university for research qualifies for 150% deduction.
 Income tax appeal expenses are allowed to be debited in P&L a/c
 Profit on sale of import license is a business income.
 Refund of income tax is not an income
 Interest on income tax refund is other sources income not business income
 Baddebts recovered relating to discontinued business not included in p&L a/c , claimed as
deduction in the past is called deemed business income can be added back to profit
 Franchises is an intangible asset.
 Neon sign board is an item of P&M.
 When use is less than 180 days, dep charged for 6 months.
 Patents = 25%
 P&M = 15%
 Factory building/building = 10%
 Furniture = 10%
 Computers = 40%
  Non-factory building = 5%
 The rates given in book are different from rates given by ma’am
 Concept of depreciation of P&M
 Concept of Research

PROFESSION

 Be careful with dep on motor car. Take into account only official purpose.
 Cost = O/S + Purchases - C/S for mercantile basis
 For cash basis, ignore opening and closing stock.

THINGS NOT INCLUDED –

 Dividends
 Income tax
 Drawings
 Charities
 Gifts given to relatives