22572069 Income Tax Law Practice

8/10/2019 22572069 Income Tax Law Practice

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1Income Tax calculation of Madhya Pradesh

INTRODUCTION

The word tax was derived from the Latin word taxore meaning to estimate,appreciate or value. Tax is a price which each citien pays to the state to cover his

share of the cost of the general pu!lic services which he will consume. It indirectlyprovides employment opportunities. Taxes are compulsory contri!utions imposed !ythe government on its citiens to meet its general expenses incurred for thecommon good, without any corresponding !ene"t to the tax payer.

In #$%&, the 'ritish government "rstly introduced tax in India. The presentlaw of income tax is contained in the income tax (ct,#)%# as amended up to date*the income tax rules #)%+ as amended up to date and "nance (ct passed !y theparliament every year. Income Tax (ct came into force with eect from #--#)%+and extends to the whole of India.Assessee [Sec 2(7)]

(ssessee means a person !y whom any tax or any other sum of money ispaya!le under this (ct, and includes*

a. (ny person who is lia!le to pay tax, interest or penalty!. (ny person who is deemed to !e assessee as per the (ct

c. (ny person who is considered as default assessee !y the (ct

d. (ny person who is entitled to get refund of tax

Types of assessee:

There are three types of assessee*

a. Ordinary assessee:-(ny person who is lia!le to pay tax, interest or penalty

b. Deemed assessee:-also /nown as representative assessee. 0e in not onlyresponsi!le for his income !ut also responsi!le for income of other person towhom he acts as a representative. 1uardian is a deemed assessee in thecase of minor.

c. Assessee in default:-if any person fails to ful"ll his duty or o!ligation, thenhe is as assessee in default.

Assessment yea [Sec 2(!)]

(ssessment year means the period of twelve months commencing on the #stday of (pril every year . It is also called the "nancial year. 2urrent (3 starts from # st

(pril +&&) and ends on 4#stMarch +&. (3 is +&&)-+&.

"e#$o%s yea [Sec &]

Previous year means the "nancial year immediately preceding theassessment year. The P3 is +&&$-&).

A#ea'e ate of $ncometa [Sec2 (*+)](verage rate of income-tax means the rate arrived at !y dividing the amount

of income-tax calculated on the total income, !y such total income."eson [Sec 2(&*)]

Person includes

5i6 (n individual,

5ii6 ( 0indu undivided family,

5iii6 ( company,

5iv6 ( "rm,


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5v6 (n association of persons or a !ody of individuals, whether incorporatedor not,

5vi6 ( local authority

(vii)7very arti"cial 8uridical person, not falling within any of the precedingsu!-clauses.

,oss tota- $ncome [Sec *]

1ross total income refers to the sum total of "ve heads of income such as salary,house property, !usiness or profession, capital gain and other sources.

Income from salary xxxx

Income from house property xxxx

Income from !usiness or profession xxxx

Income from capital gains xxxx

Income from other sources xxxx

1ross total income xxxx

Tota- Income

The excess of gross total income after allowing deductions under 9ec $& is termedas Total Income.

1ross total Income xxxxx Less: deduction u;s $& xxxxx

Total Income

A'$c%-t%e Income [Sec 2(*A)](gricultural income refers to any income refers to any rent or revenue derived

from land, which is situated in India and used for agricultural purpose and anyincome from a farm house. 9ince agriculture is a state su!8ect, the centralgovernment can not impose tax on agricultural income. Therefore it is exempt fromtax u;s #&5#6. . (ny loss is also included under the concept of income$. In case of any disput regarding the title of the income, the !ene"ciary will !e

taxed


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Acce-eate0 Assessment1enerally the income of the previous year is taxa!le in the assessment year.

'ut in certain cases the income of the previous year is taxa!le in the same year. It iscalled accelerated assessment. The following are the situations in which acceleratedassessment is made

#. Income of a non resident from shipping !usiness at a port in India is taxa!le

in the year of earning itself.+. Income of a person, who is leaving India in any previous year with intention of

not returning to India in the near future, will !e assessed in such year itself.4. Income of an (?P or '?I formed for a short duration shall !e chargea!le to

tax in the year in which it is dissolved.. If an assessee is li/ely to transfer his property to avoid tax, the total income

of such transfer too/ place.=. The income of discontinued !usiness;profession will !e taxed in the year in

which such !usiness or profession is discontinued.

TA1 RATS [app-$cab-e fo t3e A4 2++!2+*+]

*. /o In0$#$0%a-5 6U/5AO"5OI an0 at$8c$a- 9%$0$ca- pesonNet income % of

tax@p to "rst #,=&,&&& AilBs.#,=&,&-4,&&,&&& #&CBs.4,&&,&-=,&&,&&& +&CBs.=,&&,& and a!ove 4&C

2. /o Res$0ent omen [ be-o t3e a'e of ;< yeas at any t$me 0%$n't3e "4]Net income % of

tax

@p to "rst #,$&,&&& AilBs.#,$&,&-4,&&,&&& #&CBs.4,&&,&-=,&&,&&& +&CBs.=,&&,& and a!ove 4&C

&. /o Sen$o c$t$=ens [ ;< yeas of a'e o moe at any t$me 0%$n' t3e"4]Net income % of

tax@p to "rst +,+=,&&& AilBs.+,+=,&-4,&&,&&& #&CBs.4,&&,&-=,&&,&&& +&CBs.=,&&,& and a!ove 4&C

a. 9urcharge D#&C is to !e calculated in the income tax if the net incomeexceeds Bs.#&,&&,&&&

!. 7ducation cess D4C is to !e calculated on the tax amount after chargingsurcharge if any

. /o 8ms


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7ducation cess D4C is to !e calculated on the tax amount after

charging surcharge if anyIT4

The scope of total income is determined on the !asis of residential status of theassessee.


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as$c Con0$t$ons:

5a6 0e is in India in that year for a period or periods amounting in all to onehundred and eighty-two days or more* or

5b6 0e has !een in India for a period or periods amounting in all to threehundred and sixty-"ve days or more within the four years proceeding the previousyear, and has !een in India for a period or periods amounting in all to sixty days ormore in the previous year.

In the following cases the period of %& days in clause 5!6 a!ove will !esu!stituted !y #$+ days.

#. (n individual who leaves India in any previous year as a mem!er of thecrew of an Indian ship for the purposes of employment outside India.

+. (n individual who is a citien of India, or a person of Indian origin, who,!eing outside India, comes on a visit to India in any previous year

A00$t$ona- Con0$t$ons:

5a6 0e has !een resident in India in two out of the ten previous yearspreceding the relevant previous year, and

5!6 0e has !een in India a period, or periods amounting in all to, sevenhundred and thirty days or more during the seven previous years precedingthe relevant previous 3ear.

Individuals stay in India during the previous year need not necessarily !e acontinuous one and at the same place. The period of stay may !e a !ro/en period.

The calculation of his stay

in India shall !e made on an hour !asis. ( total of + hours stay in India shall !ecounted as one day. The place and the purpose of the stay are also immaterial.

RSIDNTIA> STATUS O/ 6U/ [SC ; (2)]

0@< is a separate tax entity apart from its mem!ers and therefore, it is lia!leto pay tax on income earned !y it in the previous year.

Res$0ent Non Res$0ent

#. Fhen control and management iswholly situated in India

+. Fhen control and management ispartly situated in India and partlysituated outside India

Fhen control and management is whollysituated outside India

#. If the Garta satis"es the additional conditions of individual then the 0@< isresident and ordinarily resident

+. If the Garta does not satis"es the additional conditions of individual then the0@< is resident !ut not ordinarily resident

Res$0ent an0 O0$na$-y Res$0ent:( 0@< is said to !e resident in India if the control and management of its

aairs is situated wholly or partly in India. (nd the manager or Garta satis"es thethe following additional conditions

5a60e has !een resident in India in two out of the ten previous years precedingthe relevant previous year, and


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5!6 0e has !een in India a period, or periods amounting in all to, sevenhundred and thirty days or more during the seven previous years precedingthe relevant previous

3ear.

Not O0$na$-y Res$0ent:

( 0@< is not ordinarily resident in India, if control and management of itsaairs is situated wholly or partly outside India !ut the manager or Garta does notsatis"es the additional conditions.

Non Res$0ent:

0@< is non resident if the control and management of its aairs is situatedwholly outside India.

RSIDNC O/ A CO@"AN4 [SC ;(&)]Res$0ent Non Res$0ent

#. Fhen the control andmanagement is fully situated in

India

#. Fhen the control andmanagement is partly situated in

India and partly situated outsideIndia

+. Fhen control and management isfully situated outside India

( company can !e either resident or non resident. ( company is said to !eresident in any previous year if, it is an Indian company or during that year, thecontrol and management of its aairs is situated wholly in India.

If a company is neither an Indian company nor the control and managementof its aairs is situated wholly in India it is said to !e non resident India.SCO" O/ TOTA> INCO@ INCIDNC O/ TA1

The residential status of an assessee determines the scope of total income.

The total income lia!le to tax vary according to the residential status The incidenceof tax is highest on resident, a little lower on not ordinarily resident and lowest onnon resident assessee.

Income "#et#er taxable or not

O.R N.O.R N.R

Income received or deemed to !e received in India inthe P3

Taxa!le Taxa!le Taxa!le

Income which arises or accrues or is deemed to accrueor arise to the assessee in India in the P3


Income received outside India from a !usiness or

profession controlled from India


Income received outside India from a !usiness orprofession controlled from outside India

Taxa!le Aot

Taxa!le

AotTaxa!le

Income received outside India from any other sourceapart from !usiness

Taxa!le AotTaxa!le

AotTaxa!le


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Past untaxed pro"t !rought into india Aot

Taxa!le

Aot

Taxa!le

Aot

Taxa!le

Income earned outside India in earlier years !ut lateron remitted to india

Aot

Taxa!le

Aot

Taxa!le

Aot

Taxa!le

salary drawn outside India from an Indian company Taxa!le Taxa!le Aot

Taxa!lesalary drawn outside India from an Indian company forservice rendered within india


INCO@ 1@"T /RO@ TA1

@nder 9ec#& of income tax act the following incomes are exempt from tax

*. A'$c%-t%a- Income [Sec *+(*)]Income from agricultural land situated within India is exempted from tax.

2. S3ae $ncome of 6U/ [Sec *+(2)](ny sum received !y an individual as a mem!er of a 0indu @ndivided


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a. months salary for every completed year of service!. actual amount receivedc. Bs.4, =&,&&&.


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If income of a minor child is included in the income of a parent u;s %5#(6such individual is entitled to exemption of Bs.#=&& in respect of each minor child orsuch income whichever is less.

INCO@ /RO@ SA>AR4

D$%I&I'IO&(ccording to 9ec #> 5#6 9alary includes

5i6 wages*5ii6 any annuity or pension*5iii6 any gratuity*5iv6 any fees, commissions, perNuisites or pro"ts in lieu of or inaddition to any salary or wages*5v6 any advance of salary*

5vi6 any payment received !y an employee in respect of any periodof leave not availed of !y him*5vii6 the annual accretion to the !alance at the credit of an employeeparticipating in a recognised provident fund,5viii6 the contri!ution made !y the 2entral 1overnment in the

previous year, to the account of an employee under a pension scheme ./eat%es of sa-ay


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Income from salary is the "rst head of income. The following are theimportant features of salary income.

*. mp-oye emp-oyee e-at$ons3$pThere should !e an employer employee relationship or master servant relationship!etween two persons. In other words the amount received !y an employee from hisemployer while occupying the position of his employment is taxa!le under this

head.2. De0%ct$ons fom sa-ay

The deductions from salary, li/e employees contri!ution to P


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Partly taxa!le allowance


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It is an allowance given to an assesee !y his employer to meet theexpenditure on payment of rent in respect of residential accommodation occupied!y him. In case an assessee lives in his own house or lives in a house for which he isnot paying any rent, then the whole amount of 0B( received will !e taxed. ?therwise The least of the following is exempted and the !alance is taxa!le.

#6 (ctual amount of 0B( received during the P3.

+6 7xcess of rent paid over #&C of salary46 &C of salary 5=&C of salary in Mum!ai, Gol/ata , Eelhi and 2hennai6

[Salary= basic pay +DA [FP]+xe! % of commission]

nteta$nment A--oance (A)7ntertainment allowance is not eligi!le for exemption !ut it only Nuali"es

deduction. 7ntertainment allowance is "rst included in the salary and thendeduction is allowed under 9ec#% 5ii6. Eeduction is allowa!le only for 1ovt.employees 5 from (3 +&&+-&46 and the Nuantum of deduction is least of thefollowing

#6 Bs.=,&&&+6 +&C of salary

46 (ctual amount of entertainment allowance granted during the P3.[Salary="asic pay only]

C3$-0en 0%cat$on A--oanceIt is exempt up to Bs.#&& pm per child su!8ect to a maximum of two children.

C3$-0en 6oste- A--oance If hostel expenditure allowance is given, it is exempt to the extent up to

Bs.4&& pm per child su!8ect to a maximum of two children.

Spec$a- a--oance(ny special allowance given !y the employer to employee in the performance

of duties is exempt to the extent of amount actually spent. 7g, uniform allowance,travelling allowance, conveyance allowance, daily allowance, academic researchallowance etc.

"REUISITSPerNuisite means monetary !ene"ts, facilities or advantages provided !y the

employer to the employee in addition to salary. It may !e a casual emolument, feeor pro"t attached to a position or employment. PerNuisites denote personaladvantage. PerNuisites may !e provided either in cash or in /ind. Fhen theperNuisites are provided in cash there is no need for valuation. 'ut if perNuisites areprovided in /ind, the value of such perNuisites are to !e determined as per incometax rules.


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ii6 who is employee sum shareholder having su!stantial interest in thecompany

iii6 any other employee whose monetary salary exceed Bs=&,&&&;-p.aMonetary salaryQ !asic payR E(R 'onusR .=C of salary

9alary Q !asic salaryR E(


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In case the accommodation is provided !y the employer at a concessionalrent then, rent paid ;paya!le !y the employee will !e deducted from form the valueof accommodation .'alance amount is the value of concessional rent./ee e0%cat$on


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!. actual amount receivedc. noti"ed limit Bs4,=&,&&&;-

[N#mber of !ays in a mont$ s$all be &][Avera'e salary = last !ran salary imme!iately prece!in' t$e retirement][ Avera'e salary= "asic pay + DA[FP]+% of commission]

c6 for other employees- least of the following is exempt provided service is more

than = yearsa. months average salary for every completed year of service) part to

!e ignored6!. (ctual amount receivedc. Aoti"ed limit Bs.4,=&,&&&;-

[Avera'e salary means * mont$s avera'e salary prece!in' t$e mont$ ofretirement][Avera'e salary= "asic pay + DA [FP] +% of commission]

/o 'o#t.emp-oyess F#lly xempte!"ayment of 'at%$ty Act *!72 Ot3e emp-oyees,east of t$e folloin' exempte!-

a. (ctual gratuity received!. Bs.4,=&,&&&c. #= days average salary for every

one completed year of service orpart thereof in excess of % months

,east of t$e folloin' exempte!-a. (ctual gratuity received!. Bs.4,=&,&&&c. 0alf month average salary for

every one completed year ofservice

N#mber of !ays in a mont$ s$allbe &

Avera'e salary = last !ransalary imme!iately prece!in' t$eretirement

Avera'e salary= "asic pay +DA[FP]+% of commission

Above & mont$s. ta/e as one year& mont$s or belo. i'nore

Avera'e salary = last * mont$ssalary imme!iately prece!in' t$eretirement

Avera'e salary= "asic pay +DA[FP]+% of commissionFraction of a service is to bei'nore!

Ann%$ty o "ens$on [Sec *+( *+A)]:Pension is the periodical payment made !y the employer to the employee

after retirement. 2ommuted pension is a one time payment. It means lump sumamount ta/en !y commuting the pension or part of the pension. (nnuity is theannual payment made !y an employer to employee. @ncommuted pension is the!alance which he receives after commutation. @n commuted pension is taxa!leunder the head salary in the hands of !oth 1ovt. and non 1ovt. employee.

a6 In the case of govt.employee :- commuted value of pension received is fullyexempted

!6 In the case of other employees:a. Fho receives gratuity:- #;4rdof the commuted value of pension whichhe is normally entitled to receive.

!. Fho does not receive gratuity:- o f the commuted value of pensionwhich he is normally entitled to receive.

ncas3ment of eane0 -ea#e [Sec *+(*+AA)7very employee can surrender the accumulated leave at the time of

retirement 7ncashment of earned leave during service is fully taxa!le as salary. 'ut


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encashment of earned leave at the time of retirement or resignation, exempt to thefollowing extent.

#6 1ovt. employees :- amount fully exempt+6 ?ther employees :- least of the following is exempt.

a. 2ash eNuivalent of leave due at the rate of average salary for theperiod of earned leave to the credit

!. #& O (verage salaryc. (mount of leave encashment actually receivedd. Bs.4,&&,&&&;-

(verage salary means average salary drawn during the period of ten monthsimmediately preceding his retirement.In case leave encashment is given to legal heirs of deceased employee, it will not!e taxed under salary7mployee is eligi!le for one month leave for one years service/ee me0$ca- fac$-$tates

#6


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the children of the individual and the parents, !rothers or sisters of the individual orany of them wholly or mainly dependant on the individual.Ann%a- Accet$on

(nnual accretion means, employers contri!ution to recognied providentfund 5BP


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9alary Q 'asic PayR E(AR4:Income from salary is computed after ma/ing the following deductions under

9ec #%

*. Stan0a0 0e0%ct$ons [Sec *;($)] it is not availa!le

2. nteta$nment a--oance [Sec *;($$)7ntertainment allowance is "rst included in the salary and then deduction is

allowed under 9ec#% 5ii6. Eeduction is allowa!le only for 1ovt. employees 5from (3+&&+-&46 and the Nuantum of deduction is least of the following

6 Bs.=,&&&=6 +&C of salary%6 (ctual amount of entertainment allowance granted during the P3.

9alary for this purpose excludes any allowances, !ene"ts or perNuisites&. "ofess$ona- ta o emp-oyment ta [Sec *;($$$)

It is the tax levied !y state. It is allowed on payment !asis. If profession tax ispaid !y the employer, it is included in salary as perNuisites and then allowed asdeduction.


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INCO@ /RO@ 6OUS "RO"RT4

The annual value of any property comprising of !uilding or land attached tothe vicinity of the !uilding of which the assessee is the owner, is chargea!le to taxunder the head income from house property. 'ut if the assessee occupies the!uilding or land attached to the vicinity of the !uilding for the purpose of !usinessor profession carried on !y him, then it is not chargea!le to tax.


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This is the value determined !y the municipal;local authority for "xing the propertytax. This is !ased on a survey.

2. %air rental value.

This is the reasona!le amount of rent which a house property can fetch. It is !asedon the rent prevailing for similar type of property in same locality.

3. Actual rentThis is the rent actually received !y the owner of the house property from thetenant. (ny amount of local tax paid !y the tenant is not to !e added. If rentconsists of amount charged for rendering some common facilities, such amount isdeducted from actual rent.

. +tandard rent

In some states, government may "x rent as per Bent 2ontrol (ct prevailing in thatstate. This rent is called 9tandard rent. It is the maximum rent an owner can claimfrom his tenant as rent.

Detem$nat$on of Ann%a- ?a-%e

#. Municipal valueMK or . Property income of political parties


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Comp%tat$on

(ll the !uilding properties are divided into the following three categories forthe purpose of /nowing the principles involved in computation.

a6 Let out property 9ec +45#6

!6 9elf occupied property or unoccupied property 9ec +4 5+6 and 546S

c6 Eeemed let out property 9ec +456(articulars Let out7 deemed

let out+elfoccuied

1ross (nnual Kalue

Less: municipal tax paid

Aet (nnual Kalue

Less: deductions under 9ec +

a. 9tandard deduction 5 4&C of A(K6

!. Interest on !orrowed capital

Income from 8ouse (roerty

Oxxx

Oxxx

xxxx

xxxx

xxxx

1111

Ail

Ail

Ail

Ail

Oxxxif any

1111

Note:

1ross annual value is ta/en as Ail for self occupied house property

Municipal tax paid !y the owner is allowed. Municipal tax due or paid !y the

tenant is not allowed

If there are more than one self occupied house property, one house whose

municipal value is higher should !e ta/en as self occupied and all otherhouses as deemed to !e let out

Municipal tax, if to !e calculated on C !asis, it should !e calculated on

municipal valuation

oint expenses should !e separated on Municipal Kaluation.

4unicial taxMunicipal tax paid !y the assessee for the house property is deducted from

gross annual value of the house property to determine the net annual value.Eeduction is permissi!le in respect of taxes su!8ect to the following conditions:

a6 It should !e !orne !y the assessee

!6 It should !e actually paid during the previous year.

De0%ct$ons [Sec 2]

The following deductions are allowed from net annual value for thecomputation of income from house property.

+tandard Deduction 9 3; of &et annual value.

4&C of net annual value !eing allowed as deduction for repairs of let out and

deemed let out house* it is automatic and does not depend on the Nuantum ofactual expenditure incurred. This deduction is allowed even if no expenditure isincurred !y the assessee. (ssessee can avail this deduction even if tenantunderta/es to do the repairs.

Interest on borro)ed caital.

Interest paya!le on loans !orrowed for the purpose of acNuisition,construction, renovation, repairing or reconstruction can !e claimed as deduction.


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Interest is allowed on accrual !asis. Ao deduction is allowed for a !ro/erage orcommission for arranging a loan.

Interest relating to the year of completion of construction can !e fully claimedin that irrespective of the date of completion. Interest accrued during theconstruction period preceding the year of completion of construction can !eaccumulated and claimed as deduction over a period of = years in eNualinstallments commencing from the year of completion of construction.

(ny su!seNuent loan !orrowed to repay the original loan shall also !e entitledto the same treatment as the original loan. Therefore, the interest paya!le inrespect of the second loan would also !e admissi!le as deduction in thecomputation of income from house property. 'ut interest on unpaid loan is notdeducti!le.

Interest on !orrowed capital for purchase or construction of self occupiedhouse is also deducti!le su!8ect to maximum ceiling given !elow.

a. If capital is !orrowed on or after #--#))) and, acNuisition or construction iscompleted within 4 years from the end of the "nancial year in which thecapital was !orrowed amount of interest deducti!le is Bs.#,=&,&&& or actual

amount of interest whichever is less.!. In any other case interest is deducti!le up to a maximum of Bs.4&, &&&.

Interest on mortgage will !e allowed only if the purpose of loan is relating toconstruction, repairs or renovation of house.

"ecomp-et$on $nteest

Interest on pre-construction or pre-completion period is allowed as deduction in =eNual installments from the P3 in which the property is acNuired or constructed.Fhile calculating the pre completion interest the following dates are considered*

#. Eate of loanE?L+. Eate of repaymentE?B

4. Eate of completionE?2

(lways consider date of loan and ta/e date of repayment or date ofcompletion whichever is earlier to calculate the interest. If date of repayment ista/en, consider the actual date and if date of completion is ta/en, consider the 4# st

March immediately preceding the date of completion.

If there is pre-completion interest

2urrent P3 interest OOO

(dd:#;=thof the pre-completion interest OOO

Total deducti!le interest 111

Se-f occ%p$e0 popety o %nocc%p$e0 popety [Sec 2& (2) an0 (&)]

Fhere the property consists of one house in the occupation of the owner forhis own residence, the annual value of such house shall !e ta/en to !e nil, if thefollowing conditions are satis"ed.

a. The property is not actually let out during whole of the previous year

!. Ao other !ene"ts is derived there from


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If an assessee occupies more than one property for own residential purposes,only one property selected !y the assessee will !e treated as self occupied and allother properties will !e deemed as let out.

If the assessee owns only one residential house and he could not occupy thesame !ecause of his employment , !usiness or profession elsewhere and resides ina house not !elonging to him in that place, the annual value in respect of the housewhich he claims as self occupied shall !e ta/en as nil.

Fhen a part of the property is self occupied and other part is let out, theannual value of self occupied unit shall !e ta/en as nil. (nnual value of the unit letshall !e computed in the normal way and taxa!le.

Fhen a property is self occupied for a part of the year and let out for theother part of the year, no concession is availa!le. If the assessee lets out his houseto his employer company, which in turn allots the same to him as rent free Nuarters,then assessee is not entitled to ta/e the !ene"t of self occupied house property.

Ta teatment $n se-f occ%p$e0 3o%se popety

#. if the property is used !y the ownerfor his own !usiness or profession

Aot taxa!le under the head houseproperty

+. if property is used for his ownresidential purpose

(nnual value of house is ta/en as Ail

4.when a part of the house is selfoccupied and the other part is let out

9elf occupied portion is not taxa!le andthe remaining let out portion is taxa!le

.when house self occupied for the partof the year and let out for the other partof the year

0ouse will !e ta/en as let out for thewhole year. Ao concession is availa!le

=. if more than one property is selfoccupied for residential purpose

?nly one property selected !y theassessee will !e treated as self occupiedand the remaining houses will !e treatedas let out

Reco#ey of %nea-$=e0 entFhere a deduction has !een allowed in respect of unrealied rent in the (3

+&-&+ or earlier years, and su!seNuently the assessee has realied any suchunrealied rent, such amount will !e chargea!le to tax under the head income fromhouse property. Ao deduction is allowed from such amount recovered and is taxa!leeven if house is not owned !y the assessee at the time of collection of unrealiedrent.

(rrears of rent received

If an assessee receives any amount !y way of arrear of rent which is notcharged to income tax for any P3, the amount so received shall !e deemed to !ethe income from house property and from that amount a standard deduction of 4&C

is allowed as deduction.

Aeas of ent ece$#e0 [Sec 2


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"opety one0 by coones[Sec 2;]

If the house property is owned !y two or more persons and their respectiveshares are de"nite and ascertaina!le, the share of each such person in the incomefrom the property shall !e included in his total income. The concessional taxtreatment in respect of self occupied property is applica!le as if each such person isindividually entitled to such relief.

Compos$te ent

Fhen the owner of a !uilding receives rent for letting the !uilding along withfurniture or machinery or for providing extra services li/e maintenance , lighting ofstair case, water pool etc, such rent is called composite rent. If the rent of !uildingis separa!le, rent is taxed under the head house property. The amount received forextra services less expenses is taxa!le as income from other sources. 'ut if the rentis insepara!le, then the whole amount is taxa!le under the head other sources.

Ne'at$#e ann%a- #a-%e

Fhen the amount of municipal tax paid !y the owner is more than the annualvalue then it !ecomes negative annual value. In such case only deduction ofinterest on loan is allowed as per the rules. 0ence there will !e loss from house

property.This loss can !e set o from any income of the same year. Fith eect from

assessment year #)))-+&&& any loss under the head house property whether fromlet out or self occupied which remains unad8usted, can !e carried forward for $succeeding previous years to !e set o from income from house property only.

Fo$nt pense

If somewhere expenses are given 8ointly for two or more house, these will !eapportioned on some common !asis. 1enerally municipal value is ta/en as the !ase

"RO/ITS AND ,AINS O/ USINSS OR "RO/SSION

@ean$n' of %s$ness an0 "ofess$on

'usiness simply means any economic activity carried on for earning pro"ts.(ccording to 9ec +546 !usiness is Uany trade, commerce, manufacture or any

adventure in the nature of trade commerce and manufactureV. (ny transaction witha motive of selling at pro"ts included under this concept. It is not necessary thatthere should !e a series of transaction in a !usiness and it should !e carried onpermanently.

Profession is an occupation reNuiring purely intellectual s/ills or manual s/illscontrolled !y the intellectual s/ill of the operator. e.g. Lawyer, doctor, engineer etc.9o profession refers to those activities where the livelihood is earned !y the personsthrough their intellectual or manual s/ill.


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The following income shall !e chargea!le to income-tax under the headPro"ts and gains of !usiness or profession,

#6 The pro"ts and gainsof any !usiness or profession which was carried on !ythe assessee at any time during the previous year

+6 (ny compensation or other payment due to or received !y any person inconnection with a !usiness or profession

46 Income derived !y a trade, professional or similar association from speci"cservices performed for its mem!ers

6 Pro"ts on sale of a license granted under the Imports 52ontrol6 ?rder, #)==,made under the Imports and 7xports 52ontrol6 (ct, #)> 5#$ of #)>6 *

=6 2ash assistance 5!y whatever name called6 received or receiva!le !y anyperson against exports under any scheme of the 1overnment of India *

%6 (ny duty of customs or excise re-paid or re-paya!le as draw!ac/ to anyperson against exports under the 2ustoms and 2entral 7xcise EutiesEraw!ac/ Bules, #)># *

>6 Kalue of any !ene"t or perNuisite, whether converti!le into money or not,

arising from !usiness or the exercise of a profession*

$6 (ny interest, salary, !onus, commission or remuneration, !y whatever namecalled, due to, or received !y, a partner of a "rm from such "rm:

)6 (ny sum received under a Gey man insurance policy including the sumallocated !y way of !onus on such policy.

#&6Interest on securities held as stoc/ in trade

Comp%tat$on of $ncome fom b%s$ness o pofess$on

The following are the general principles to !e followed while computingincome of !usiness or profession.

#6 Pro"t should !e computed according to an accepted method of accounting

regularly employed !y the assessee. 7.g. cash system or mercantile system+6 ?nly expenses incurred in connection with the !usiness or profession of the

assessee will !e allowed.

46 Losses, if any should !e incidental to the operation of the !usiness

6 Pro"t and losses of speculation !usiness should !e /ept separate.

=6 If any sum is allowed as deduction in any previous year and su!seNuentlyrecovered, it will !e taxa!le in the previous year in which it is received.

%6 (ny amount allowed as expenses in the earlier years if recovered during thecurrent

penses epess-y a--oe0

*. Rent5 ates5 taes5 epa$s an0 $ns%ance fo b%$-0$n's[Sec &+]

Bent, rates, taxes, repairs and insurance for premises, used for the purposesof the !usiness or profession is allowed as a deduction. If the !usiness premises areowned !y the assessee, no notional rent will !e allowed.

2.Repa$s an0 $ns%ance of mac3$ney5 p-ant an0 f%n$t%e[Sec &*]

The amount paid on account of current repairs and the amount of anypremium paid in respect of insurance against ris/ of damage or destruction ofmachinery, plant and furniture used in !usiness or profession will !e allowed asdeduction


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&.Depec$at$on [Sec&2]

Eepreciation is allowed in respect of tangi!le assets li/e !uildings,machinery, plant or furniture and intangi!le assets acNuired on or after the #st dayof (pril, #))$, li/e /now-how, patents, copyrights, trade mar/s, licenses, franchisesor any other !usiness or commercial rights of similar nature, owned wholly orpartly, !y the assessee and used for the purposes of the !usiness or profession.

Eepreciation is allowed on !loc/ of assets at the prescri!ed rates on thewritten down value of such !loc/ of asset. 'loc/ of assets means the group ofassets falling within a same class of assets for which same rate of depreciation isprescri!ed.

Eepreciation will !e allowed only when the assets are owned wholly or partly!y the assessee. If an asset is used partly for !usiness purpose and partly forpersonal purpose, depreciation shall !e allowed only for that part which is used in!usiness or profession.

Ca-c%-at$on of D?

Kalue of asset at the !eginning of the previous year OOOO(dd: value of assets acNuired during the previous year OOOO

OOOO

Less: scrap value received on the sale of assets in the P3 OOOO

F.E.K of the asset 1111

In the case of an asset acNuired !y the assessee during the previous yearand is put to use for the purpose of !usiness or profession for a period less than #$&days in that previous year , the depreciation of such asset shall !e restricted to =&Cof the amount calculated at the prescri!ed rate.

Teatment of 0epec$at$ona0 If depreciation given PWL (;c and ad8ustment

i0 (dd depreciation given in the PWL a;c to Aet pro"t

ii0 9u!tract depreciation given in the ad8ustment to net pro"t

b0 If depreciation is given only in PWL a;c and not in the ad8ustment

i0 Ignore depreciation given in PWL a;c

c0 If the depreciation is given only in the ad8ustment and not in the PWLa;c

i0 9u!tract depreciation from the net pro"t

Unabsobe0 0epec$at$on[Sec &2(2)]If the full amount of depreciation cannot !e charged due to a!sence or

inadeNuacy of pro"t, the !alance amount of depreciation which cannot !e soallowed is called una!sor!ed depreciation. @na!sor!ed depreciation relating to theprevious year can !e set o against pro"t of other !usiness and !alance, if any can!e set o against his income chargea!le under any other head for that year. If stillsome part of such allowance remains una!sor!ed, it can !e carried forward. Ao timelimit is "xed for the purpose of carrying forward of una!sor!ed depreciation. It can!eset o against any income. In the matter of set o, the order of priority is , "rst,


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current depreciation, second !rought forward !usiness losses and last ,una!sor!eddepreciation.

A00$t$ona- 0epec$at$on

(dditional depreciation is availa!le from the assessment year +&&4-&,su!8ect to the following conditions

#. It is availa!le only in respect of plant and machinery acNuired andinstalled after 4#-4-+&&=

+. additional depreciation is availa!le at the rate of +&C of the actual cost. Ifhowever, the asset is put to use for less than #$& days in the year inwhich it is acNuired, the rate of depreciation will !e #&C

. Tea 0e#e-opment acco%nt[Sec &&A]

If an assessee , who carrying on the !usiness of growing and manufacturing tea,coee or ru!!er , deposits an amount in the tea development account, he can availthis deduction . The amount of deduction least of the following

5a6 a sum eNual to the amount or the aggregate of the amounts so deposited *or

5b6 a sum eNual to &C per cent of the pro"ts of such !usinessFithdrawal from deposits will not !e allowed except for the speci"ed purposesspeci"ed !elow. They are:

5a6 closure of !usiness *

5b6 death of an assessee *

5c6 partition of a 0indu undivided family *

5!6 dissolution of a "rm *

5e6 liNuidation of a company.


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allowa!le. Ao deduction in respect of such sum shall !e allowed under anyother provision of this (ct

f6 Fhere a company engaged in the !usiness of !io-technology or manufactureor production of any drugs, pharmaceuticals, electronic eNuipments,computers, telecommunication eNuipments, chemicals or any other article,incurs any expenditure on scienti"c research on in-house research anddevelopment facility a sum eNual to #=&C of the expenditure is allowed asdeduction

;. pen0$t%e on Gno3o[Sec &


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9ales tax appeal expenses

Eay to day expenses to carry on the !usiness

1ift to employees

For/men compensation fund

1"NSS 1"RSS>4 A>>OD

The following expenses are expressly disallowed from !usiness orprofessional income.

!0 1uest house expenses

e0 Fealth tax

f0 Income tax

'0 Tax penalty

$0 (dvance income tax

i0 Erawings

10 9alary to proprietor/0 Interest on capital

l0 Life Insurance Premium

m0 7xpenses for family mem!ers

n0 Provision li/e provision for !ad de!ts, provision for taxation etc

o0 Eonations, gift and charity

p0 Eepreciation allowed a!ove the prescri!ed limit

20 (ll expenses of capital nature

r0 (ll expenses relating to other heads of income

s0 (mount exceeding Bs.+&,&&& paid in cash

t0 Medical insurance premium paid in cash

SC6@ O/ TA1ATION O/ INCO@ /RO@ USINSS

(articulars Amount

Aet pro"t as per PWL (;c

(dd: Aon !usiness expenses

(dd: 'usiness income not credited in PWL (;c

Less: Aon-!usiness Income credited in PWL (;c

Less: 'usiness expenses not de!ited in PWL (;c

Income from !usiness

xxxx

xxxx

xxxx

xxxx

xxxx

1

SC6@ O/ TA1ATION O/ INCO@ /RO@ USINSS

(articulars Amount

Professional receipts

Less: professional expenses

Income from rofession

xxx

xxx

1


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(ll rules of !usiness income is applica!le in the case of professional income

INCO@ /RO@ CA"ITA> ,AINS

(ny pro"ts and gains arising from the transfer of a capital assets eected inthe previous year shall !e chargea!le to income tax under the head capital gain inthe P3 in which the transfer too/ place.It should satisfy the following conditions

#. There should !e a capital asset+. The capital assets should !e transferred.4. Transfer should result in pro"t or gains

aital Assetmeans any property of any /ind held !y an assessee whether or notconnected with his !usiness or profession.

'ut the following assets are not capital assets.a. (ny stoc/ in trade, consuma!le stores or raw materials held for the

purpose of his !usiness or profession.!. (ll personal eects except 8ewelleryc. (gricultural land in India which is situated in rural area etc.


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SC6@ O/ TA1ATION [S6ORT TR@ CA"ITA> ,AIN](articulars Amount


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ost of imrovementmeans all expenses of capital nature incurred in ma/ing anyaddition , alteration to the capital asset !y the assessee or the previous owner incase of 9ec)5#6.2ost of improvement incurred !efore #st (pril #)$# is notconsidered while calculating the capital gain.

Indexed cost of acNuisition means cost of acNuisition which is indexed on the!asis of cost ination index52II6 noti"ed !y the central govt. having regard to

average rise in the consumer price index.

Indexed cost of acNuisition Q 2ost of acNuisition x 2.I.I for the year of transfer2.I.I for the year of acNuisition

Indexed cost of improvement Q 2ost of improvement x 2.I.I for the year of transfer2.I.I for the year in which improvement too/

placeDDUCTION /RO@ CA"ITA> ,AIN UNDR SC


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Cost InHat$on In0e as not$8e0 by t3e centa- 'o#t/$nanc$a- yea C.I.I /$nanc$a- yea C.I.I

#)$#-$+ #&& #))=-)% +$##)$+-$4 #&) #))%-)> 4&=#)$4-$ ##% #))>-)$ 44##)$-$= #+= #))$-)) 4=##)$=-$% #44 #)))-&& 4$)#)$%-$> #& +&&&- &%#)$>-$$ #=& +&-&+ +%#)$$-$) #%# +&&+-&4 >#)$)-)& #>+ +&&4-& %4#))&-)# #$+ +&&-&= $))#-)+ #)) +&&=-&% )>

#))+-)4 ++4 +&&%-&> =#)#))4-)> + +&&>-&$ ==##))-)= +=) +&&$-&) =$+

INCO@ 1@"TD /RO@ CA"ITA> ,AIN* .Income fom se-f c%-t$#ate0 a'$c%-t%a- -an0 $n %ban aea [Sec *+(&7)]

in the case of an assessee , !eing an individual or a 0@< , capital gain arisingfrom the compulsory acNuisition of self cultivated ur!an agricultural land shall !efully exempted.&. Tansfe of es$0ent$a- 3o%se popety [Sec


34/59


. the amount of exemption is capital gain or investment in the new assetwhichever is less

=. if the new land is transferred , within a period of 4 years , then the amount ofcapital gain arising there from and together with the amount of capital gainsexempted earlier, will !e chargea!le to tax in the year of sale of the newland. If the new land is situated in rural area it is not taxa!le.

%. if the amount of capital gain is not utilied !y the assessee for purchasing anew agricultural land !efore the date of furnishing the return of income, itshall !e deposited in 2apital 1ain (ccount 9cheme 521(96 with a pu!licsector !an/. If the amount so deposited is not utilied fully or partly forpurchasing a land, then the amount not so utilied shall !e treated as longterm capital gain.


35/59


+. asset transferred !eing any long term capital asset other than a residentialhouse

4. assessee has purchased # year !efore or + years after the date of transfer orconstructed within 4 years after the date of transfer, a residential house.

. assessee should not own, on the date of the transfer of original asset morethan one residential house other than the new house. 0e should not purchase

any residential house other than the new house within a period of + yearsafter such date.

=. the amount of exemption is the net consideration from the sale of capitalasset invested in new house. If only a part of the net consideration is invested, capital gain will !e exempted proportionately as follows

capital gain; net sale consideration O 2ost of new house%. if assessee transfers the new house within 4 years of its purchase or

construction, capital gain which arises on the transfer of the new house will!e ta/en as the capital gain.

>. if the amount of net consideration is not utilied !y the assessee forpurchasing or constructing a new house on or !efore the date of furnishingthe return of income, it shall !e deposited in 2apital 1ain (ccount 9cheme

521(96 with a pu!lic sector !an/. If the amount of so deposited is notutilied , then the proportionate amount shall !e treated as capital gain of theP3 in which the period 4 years from the date of transfer original asset expires.

The proportionate amount is :(mount deposited Wclaimed exemption !ut not utilied O amount of

original capital gain ; net sale consideration.

B. Tansfe of assets $n case of s3$ft$n' of $n0%st$a- %n0etaG$n' fom%ban aea [Sec


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*. Con#es$on of cap$ta- asset $nto stocG $n ta0e [Sec


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6. Income from su! letting7. (ny other receipts which doesnt fall under any other heads of income.8. Income from agricultural land situated outside India9. 7xaminer ship fees received !y college teachers10. Income from undisclosed source11. 1round rent etc

12. Beceipts without consideration in certain cases

D$#$0en0It means any amount paid !y a company, out of divisi!le pro"ts, whether

taxa!le or not taxa!le, to its share holders in proportion to his share holding in thecompany. Eividend also includes deemed dividend. The following payments aredeemed as dividend.

a6 any distri!ution entailing the release of companys assets!6 any distri!ution of de!entures, de!enture stoc/, deposit certi"catesc6 distri!ution on liNuidation of companyd6 distri!ution on reduction of capitale6 any payment !y way of loan or advance !y a closely held company

Eividend distri!uted or paid !y a domestic company after 4#-4-+&&4 is not taxa!lein the hands of the shareholder under sec#& 546. ?n such dividend, the dividenddeclaring company has to pay tax. 'ut deemed dividend under sec+ 5++6 is taxa!lein the hand of the share holders.$nn$n's fom -otte$es5 cosso0 p%==-es5 3ose aces etc

Finnings from games of any sort or from gam!ling or !etting of any form aretaxa!le. ( at rate of 4&C tax plus surcharge and cess will !e deducted at sourcefrom such winnings. Ao TE9 will !e collected if the winnings from lottery, crosswordpules etc is upto Bs.=,&&&;- and Bs.+=&&;- in case of winnings from horse race.Fhile computing the income of the assessee it is the gross winning 5net winningsplus tax deducted at source6 is to !e included.

1ross amount Q Aet amount O #&& #&&-4&

Inteest on sec%$t$esInterest on securities is charged to tax under this head if the securities are

held !y the assesee as "xed assets. If the securities are held as stoc/ in trade thenthe interest is taxa!le under the head pro"t and gains of !usiness or profession .

The gross interest 5net interest plus tax deducted at source6 is taxa!le. If netinterest is given, it should !e grossed up in the hands of recipient if tax is deductedat source !y the payer.

Aet interest O #&&&- rate of TE9

&o

(articulars 'D+ 0ate

# Interest on any security of central or state government Ao TE9+ Interest on de!entures listed in a recognied stoc/

exchange, statutory !odies and local authority#&C

4 (ny other interest on securityunlisted +&C Finnings from lottery, crossword pules, card games, horse

race etc4&C


38/59



39/59


86 any lineal ascendant or descendant of the spouse of the individual/6 spouse of the persons referred to in 5!6 to 586

. Post oJce savings !an/ account.

SC6@ O/ TA1ATION [INCO@ /RO@ OT6R SOURCS]


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(articulars Amount Amount

Eividend from foreign company

,ess- collection c$ar'es

Interest on securities

,ess- reasonable expenses in connection it$ t$e

sec#rities

2asual income winnings from lottery, crow pules etc

Income from letting PWM, 'uilding etc

,ess- !epreciation an! ot$er expenses relate! it$ it

UIN, O/ INCO@


41/59


(n assessee may reduce his tax lia!ility !y transferring his assets in favour of aperson who is related to him. (s per 9ec %& to 9ec%, income !elonging to someother person will !e taxed in the hands of the assessee in certain situation for thepurpose of avoiding tax evasion. This is called clu!!ing of income.

*. Tansfe of $ncome $t3o%t t3e tansfe of assetsIncome arising to nay person !y virtue of any transfer of any income, without

transferring the assets is deemed to !e the income of the transferor and is taxa!lein his hands. The transfer may !e revoca!le or not. There is no exception to thisrule.

2. Re#ocab-e tansfe of assets(ny income arising to any person from an asset as a result of revoca!le transfer

of asset shall !e deemed to !e the income of transferor. (s per 9ec%+ the incomerevoca!le transfer of assets shall not !e clu!!ed with income of transferor when it iseected through the medium of trust is not revoca!le in the life time of the!ene"ciary or transferee.

&. Rem%neat$on of spo%seany remuneration received !y the spouse of the individual from a concern in

which the individual has su!stantial interest will !e clu!!ed with the income of the

individual. 0owever if the remuneration is solely attri!uta!le to the application oftechnical or professional /nowledge and experience of the spouse, then the incomewill not !e clu!!ed.

Fhere !oth hus!and and wife have a su!stantial interest in the concern and!oth are in receipt of the remuneration , it will !e included in the total income ofhus!and or wife whose total income excluding such remuneration is greater. If suchincome is included in the total income of either of the spouse, any such income inthe su!seNuent year cannot !e included in the total income of the other spouseunless the assessing authority is satis"ed after giving a reasona!le opportunity of!eing heard.

(n individual is said to have su!stantial interest in a concern if he individually oralong with relatives !ene"cially holds eNuity shares carrying not less than +&C

voting power in case of a company or is entitled to not less than +&C of the netpro"t in the case of a company other than a company, at any time during the year.

. Income fom any assets tansfee0 to spo%seFhere an individual transfers an asset other than a house property to his or her

spouse directly or indirectly otherwise than for adeNuate consideration or inconnection with an agreement to live apart, any income from such asset will !edeemed to !e the income of the transferor. The relationship !etween the hus!andand wife should su!sist !oth at the time of transfer and at the time when income isaccrued, if the spouse sells that asset for a pro"t, capital gain arising from to thespouse on sale of the asset is chargea!le to tax in the hands of the transferor.

4 without

adeNuate consideration to a sons wife, income arising from such assets will !eincluded in the total income of the transferor.

;. Income fom assets tansfee0 to a peson fo t3e bene8t of t3espo%se(n asset transferred directly or indirectly !y an individual to a person for the

immediate or deferred !ene"t of his or her spouse, without any adeNuateconsideration , the income arising the transferred assets will !e included in thetotal income of the transferor to the extent of such !ene"t.


42/59


7. Income fom assets tansfee0 to a peson fo t3e bene8t of t3esonJs $fe(n asset transferred directly or indirectly !y an individual on or !efore #st

une, #)>4, to a person for the immediate or deferred !ene"t of sons wife, withoutany adeNuate consideration, the income arising the transferred assets will !eincluded in the total income of the transferor to the extent of such !ene"t.

B. Income of a m$no c3$-0Income accruing or arising to a minor child shall !e included in the total income

of those parents who has greater total income !efore clu!!ing the minors income.If the marriage of the parents not su!sist, the income will !e included in the totalincome of that parent who maintains the child in the relevant P3. If the income of aminor child is included in the total income of a parent, that parent is eligi!le forexemption of Bs.#=&& in respect of each minor child or actual amount clu!!edwhichever is less.

In the following situation income of the minor child shall not !e clu!!ed.a6 Income of physically handicapped minor child!6 Income of a minor child on account of any manual wor/c6 Income of a minor child from any activity involving application of hi or her

s/ill, talent or specialied /nowledge and experience!. Con#ete0 popety [Fhere an individual who is a mem!er of a 0@< converts, his self occupiedproperty without adeNuate consideration after 4#st Eecem!er #)%) into theproperty !elonging to the family, the income arising from such asset will !eincluded in the income of the individual who transfers such property.


43/59


Fhere an assessee incurred any expenditure in any P3 and , he cannot give asatisfactory explanation a!out its source such expenditure will !e deemed to !e theincome of the assessee for the P3 in which such expenditure in incurred.

ST O// AND CARR4 /ORARD O/ >OSSS

If an assessee incurs any loss under one or more heads of income, it can !eset o against income under any other heads of income. This is /nown as set oand carry forward of losses. Losses can !e set o su!8ect to the following rules.

#. Intra head set o+. Inter head set o

4. 2arry forward of lossesInta 6ea0 Set OK:If the net result of any head of income is a loss in any "nancial year, the

assessee can set o such loss against his income from any other source of incomeunder the same head of income. 'ut the following are the exceptions to this rule.

a6 Loss from speculation !usiness can !e set o only against speculation!usiness pro"t !ut not against non-speculation !usiness pro"t.

!6 Loss incurred from owning and maintaining race gorse cannot !e set oagainst any income other than from such !usiness

c6 Losses cannot !e set o against winnings from lotteries, cross word pulesand card games

d6 Long term capital loss can !e set o only against long term capital gain.

Inte 3ea0 set oK:If the net result under any heads of income is a loss the same can !e set o

against the income under any other heads. 'ut the following are exceptions to thisrule.

a6 Losses in a speculation !usiness cannot !e set o against any other income!6 Loss under the head capital gain cannot !e set o against income under any

other head.c6 Loss from !usiness or profession cannot !e set o against income under the

head salariesd6 Loss cannot !e set o against winnings from lotteries, crossword pules,

card games etc.Cay foa0 of -osses:

If in any year, loss cannot !e set o either under the same head or under thedierent heads, !ecause of a!sence or inadeNuacy of the income in the same year,it may !e carried forward and set o against the income of the su!seNuent year.

The following losses can !e carried forwarded.a6 Loss under the head income from house property!6 Loss under the head income from !usiness or professionc6 Loss under the head capital gaind6 Loss under the head income from other sources only from the activity of

owning and maintaining race horse.


44/59


Set oK an0 cay foa0 %n0e 0$Keent 3ea0s on $ncome#. Income from salary

2arry forward and set o will not arise under the head salary as there is no chanceof any loss

+. Income from house propertya. Loss can !e carried forward for a period of $ (3

!. 2arried forward loss should !e set o only from house property incomec. Beturn of loss should !e "led within the time limit

4. Income from !usiness and professiona. Aon speculative loss

i. Loss can !e carried forward for a period of $ (3.ii. 2arried forward loss should !e set o only against !usiness

incomeiii. It is not necessary that loss should !elong to the same !usiness

and continuity of !usiness is also not necessaryiv. Beturn of loss should !e "led within the time limit

!. 9peculative lossi. Loss can !e carried forward and set o only against speculative

incomeii. Loss can !e carried forward for a period of (3.iii. It is not necessary that the same !usiness should !e continuediv. Beturn of loss should !e "led within the time limit

. Income from capital gaina. Loss can !e ad8usted only from capital gains!. Loss can !e carried forward for a period of (3.c. Long term capital loss can carried forward and set o only against LT21

d. 9hirt term capital loss can carried forward and set o against !othLT21 and 9T21

e. Beturn of loss should !e "led within the time limit=. Income from other sources

a. Loss can !e carried forward for a period of (3.!. Beturn of loss should !e "led within the time limitc. Loss from owning and maintaining horse race can !e ad8usted against

same income

>oss %n0e t3e 3ea0 Ca$e0 foa0e0 to be set oKa'a$nst $ncome of:

T$me -$m$tfom t3eyea $n3$c3 -ossasocc%e0

Income from houseproperty9ec >#'

0ouse property $ (3

Aon speculation'usiness Loss 9ec>+

9peculation or non speculation !usinesspro"t

$ (3

9peculation 'usinessLoss 9ec>4

9peculation !usiness pro"t only (3

@na!sor!eddepreciation

(ny Income Ao timelimit


45/59


Long term capital loss9ec>

Long term capital gain $ (3

9hort term capital loss9ec>

(ny capital gains $ (3

Loss from the activity ofowning and maintainingrace horse9ec>(

Pro"t from the same activity (3

Un absobe0 0epec$at$onIt refers to the amount of depreciation, which is still not a!sor!ed from the

pro"ts of !usiness or from other heads of incomeexcept salary in a particular"nancial year.

a. Eepreciation allowance should !e deducted from the !usiness income!. If the pro"t and gains is not suJcient then the same should !e ad8usted with

other heads of income other than salaryc. (my amount which is still remains una!sor!ed should !e carried forward to

the next year

d. There is not time for carry forwarding una!sor!ed depreciatione. @na!sor!ed depreciation carried forward can !e ad8usted with any heads ofincome except salary income

f. The following order should !e followed in charging una!sor!ed depreciationi. 2urrent year depreciationii. 'rought forward losses

iii. @na!sor!ed depreciation

DDUCTIONS TO @AD IN CO@"UTIN, TOTA> INCO@

2ertain deductions are allowed from the gross total income of an assesseeeither as an incentive to save for future or as a /ind of relief to the assessee. The

aggregate amount of deduction cannot exceed the gross total income.

*. >IC5 "/5 U>I"5 NSC5 Repayment Of 6o%s$n' >oan5 Amo%nt Of T%$t$on [SCB+C

Eeduction is availa!le on the !asis of gross Nualifying amount. The maximumamount of deduction cannot exceed Bs.#&&&&&;-. The gross Nualifying amount is theaggregate of contri!ution to the a!ove-mentioned items. In the case of lifeinsurance premium, deduction is su!8ect to a maximum of +&C of sum assured.

The amount of deduction is gross Nualifying amount or Bs.#&&&&&;-whichever is less.+."ens$on /%n0 [SC B+CCC

The amount received !y the assessee as pension will !e taxa!le in the yearof receipts. Ao re!ate under 9ec$$ will !e allowed to persons to whom deductionsunder this section has !een allowed..4."ens$on Sc3emes Of Centa- ,o#t [SC B+CCD

The assessee must !e employed on or after #-#-+&&. 7mployeescontri!ution in the P3 up to #&C of salary and central govt. contri!ution up to #&Cof salary is deducti!le. 9alary includes !asic pay and E( if the terms of employmentprovides !ut excludes all other allowances and perNuisites..@e0$ca- Ins%ance "em$%m [SC B+D


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Insurance premium paid !y cheNue on the health of the assessee, spouse,dependant children or parents are eligi!le for deduction. The insurance schemeshould !e formed !y 1I2 of India.=.@e0$ca- Teatment Of 6an0$cappe0 Depen0ant [SC B+DD

7xpenditure incurred for the medical treatment, training and reha!ilitation ofa handicapped dependant, or the assessee has paid or deposited under any scheme

framed in this !ehalf !y the LI2 or @TI for maintenance of handicapped dependant.%. @e0$ca- Teatment [SC B+DD

7xpenditure incurred for the treatment of speci"ed disease or ailment forhimself or any dependant relative or in case of 0@< any mem!er of family. Theassessee shall have to su!mit a certi"cate in the prescri!ed form a registereddoctor wor/ing in a 1ovt. hospital. The speci"c disease includes* Aeurologicaldiseases 5dementia, motor neuron disease, ataxia, chorea, deformans, aphasia,Par/insons disease6 cancer, (IE9, chronic renal failure, hemophilia etc.>. Repayment Of 6$'3e 0%cat$on >oan [SC B+

Bepayment of higher education loan ta/en from any "nancial institution forperusing his higher education is eligi!le for deduction. , nodeduction will !e availa!le under this section in respect of principal amount repaid.

$. Donat$on [SC B+,Eonations are classi"ed into a6 no limit donation , ! 6 with limit donation.

7ach of these can again !e classi"ed into two. #6 Eeduction allowed D #&& C ofNualifying amount and +6 deduction allowed D =& C of Nualifying amount.

Limit means #&C of (d8usted Total Income 5(TI6. (TI means gross totalincome minus LT21, 9T21 taxa!le under 9ec ###( D #&C and all deduction u;sother 9ec $& 1). Rent "a$0 [Sec B+,,].

9elf employed persons or a salaried employee who is not in receipt of anyhouse rent allowance, are eligi!le for the deduction. (d8usted total income for thissection means gross total income minus LT21 and all deduction u;s $& other than9ec $&11.

#&. Roya-ty $ncome of a%t3os [Sec B+ EE](ssessee should furnish a certi"cate in


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Bs.#,&&,&&&;-$&E IndividualW

0@=&&&6

DONATIONS IT6OUT >I@ITDe0%ct$on L *++M De0%ct$on L


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a6 Aational defence fund!6 Prime ministers national relief

fundc6 Aational foundation for communal

healthd6 @niversity or educational

institutions of national eminenceas approved !y the prescri!edauthority in this !ehalf

e6 Aational or state !loodtransfusion council

f6 TC,)De0%ct$on L *++M De0%ct$on L


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INCO@ TA1 AUT6ORITIS

The following are the various income tax authorities:#. 2entral !oard of direct tax+. Eirector general of income tax ; chief commissioners of income tax4. Eirectors of income tax; commissioners of income tax. (dditional director of income tax=. oint director of income tax%. Eeputy director of income tax>. (ssistant director of income tax$. Income tax oJcers). Tax recovery oJcers#&.Inspectors of income tax

CDT:2'ET is the top most authority with regard to direct tax. It is constituted

under the central !oard of revenue act #)%4. 2'ET is given powers to issue suchorders, instructions and direction to other income tax authorities as it may deem "tfor the proper administration of the (ct.D$ecto 'enea- of $ncome ta:

0e is appointed !y the central govt. 0e is reNuired to perform such functionas may !e assigned !y the 2'ET

#.1iving instructions to the income tax oJcers+.7nNuiry or investigation into concealment4.9earch and seiure.To reNuisite !oo/s of accounts

=.Power of survey%.power to ma/e any enNuiry

Comm$ss$one Of Income Ta:0e is appointed !y the central govt. they are appointed to administer the

income tax departments of a speci"ed area .2IT en8oys !oth administrative powerand 8udicial powers. It includes

#.9earch and seiure+.1ranting registration4.(ppointment of class ii oJcers.Beduction or waiver of penalty=.To award and withdraw recognition to pf%. Transfer case from one IT oJcer to another

>.Bevision of orders passed !y the IT?, which is pre8udicial to the revenue.Comm$ss$one (Appea-s):

0e is an appellate authority. 0is powers are#.(cceptance and disposal of appeals+.Power to call for information or production of evidence4.Power to inspect the registers.9et o refunds against tax remaining paya!le=.Imposition of penalty


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Income Ta oPces:They perform their functions in respect of such areas or of such persons or

classes of incomes as the commissioner may direct. If a Nuestion arises as towhether IT? has 8urisdiction to assess any person, the commissioner determines theNuestion. 0is powers includes

#.Power regarding discovery, production of evidence

+.9earch and seiure4.BeNuisition of !oo/s of accounts.Issue notice for furnishing return and extend time therefore=.(llot P(A%.Impose penalty for default in payment of tax.>. Ma/e assessment$. Beassess escaped income). Becti"cation of mista/es#&.Eemand advance payment of tax.

Ta eco#ey oPcesQ(ny income tax oJcer can !e appointed as Tax recovery oJcer !y the 2hief

2ommissioner of Income Tax. Tax recovery oJcers can !e appointed with speci"c or

general orders. 0e will exercise powers as applica!le.Inspectos:

The commissioners appoint them. They are su!ordinate to IT?. They have no"xed 8urisdiction or particular power or function. They are to assist the IT? or otherincome tax authority under which they are attached.Assess$n' oPce:

(ssessing oJcer means an income tax oJcer. (ssistant commissioner ordeputy commissioner who is vested with powers to assess. (? is the "rst andforemost oJcer of the income tax department who comes in contact with theassessee. 0e is !oth an administrator and a Nuasi-8udicial oJcer.


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ASSSS@NT "ROCDUR

(ssessment of income relating to one P3 starts in the succeeding "nancialyear, which is called (3. (ssessment procedure !egins when an assessee "les hisreturn of income to the income tax department.

/$-$n' of et%n [Sec *&! (*)]

( person has to "le return of income in the prescri!ed form within thespeci"ed time limit if his total income exceeds the maximum non-taxa!le limit. (person other than a company though income is less than the nontaxa!le limit, whosatis"es any one of six economic criteria and residing in a speci"ed area.

a. ?wnership of a motor vehicle other than a two wheeler!. ?ccupation of any category of immova!le property as may !e noti"ed !y

the 2'ETc. Incurred expenditure on foreign travel !y himself or in respect of any

other person. Travel to 'angladesh, Pa/istan, 'hutan, Aepal, Maldives, 9riLan/a and 9audi (ra!ia for ha88 or china on pilgrimage to Manasarover areexcluded.

d. 0older of a credit card other than an add on carde. Mem!er of a clu! where entrance fees charged is Bs.+=&&& or moref. 7xpenditure of Bs.=&&&& or more during the P3 towards consumption of

electricity.

T$me of 8-$n' of et%nIn the case of a company, due date of su!mission is ?cto!er 4#In the case of person other than a company

Fhere audit is compulsory, due date of "ling return is ?cto!er 4#In any other case, the due date of "ling of return is uly 4#

Ret%n of -oss [Sec *&! (&)]Beturn can also !e "led in the prescri!ed form in respect of loss suered !y

the assessee. It is not compulsory to "le a return of loss, !ut certain losses can !ecarried forward only on "ling return of loss

Belated return [Sec 139(4)]If the return is not furnished within the time, the person may furnish the

return of any P3 at any time !efore the end of one year form the end of the relevant(3 or !efore ma/ing assessment whichever is earlier. (n assessee who "les !elatedreturn are lia!le for penal interest

Re#$se0 et%n [Sec *&!(


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Defect$#e et%n [Sec *&!(!)]Fhere the (? "nds that the return "led !y an assessee is defective he should

intimate the assessee a!out the defect and give him an opportunity to rectify thedefects within #= days from the date of intimation or within such further extendedtime as the (? may allow. If the defect is not recti"ed within the time allowed, thereturn will !e treated as invalid and it will !e deemed that no return has !een "led

!y the assessee attracting penal interest

T4"S O/ ASSSS@NT

1. +elf assessment Fhen a return is furnished the assessee will have to pay tax, if any paya!le

on the !asis of return. 0e has also to pay interest up to the date of "ling the returnalong with self-assessment of tax. The return of income is to !e accompanied !yproof of payment of !oth tax and interest. (ssessing oJcer may ma/e an enNuiryfor getting full information in respect of assesses income. The assessee shall !egiven an opportunity of !eing heard in respect of any material gathered on the !asisof any enNuiry so made. The assessing authority may also direct the assessee to gethis accounts audited !y an accountant nominated !y chief commissioner, even ifthe accounts of the assessee have !een audited under nay other provision.

2. +ummery assessment If on the !asis of return "led, any tax or interest is due the (.? shall send

intimation to the assessee specifying the sum so paya!le. If any refund is due onthe !asis of such return it shall !e granted to the assessee. 9uch intimation shall !edeemed to !e a notice of demand. 9uch an intimation should !e send !efore theexpiry of + years from the end of the (3 in which income was "rst assessa!le

3. Assessment in resonse to an order (ssessment of income after receiving a notice from income tax authorities is

called assessment in response to an order. (.? can send notice if he considers itnecessary to ensure that the assessee has not understated the income or has notunderpaid tax. (fter hearing such evidence as the assessee may produce inresponse to the notice and after ta/ing into account all relevant materials, whichthe (.? has gathered, he shall pass an assessment order in writing determining thetotal income of the assessee and the sum paya!le or refund due to the assessee onthe !asis of such assessment order.

. !est udgment Assessment In the following situation the (.? can ma/e a !est 8udgment assessment afterconsidering all relevant materials, which he has gathered.

a. if the assessee has not "led a return or a !elated return or a revised return!. if he fails to comply with the terms of the notice or fails to comply with the

direction to get his account auditedc. if he fails to comply with the terms of the notice reNuiring the presence or

production of evidence and documentsd. if the (.? is not satis"ed with the correctness or completeness of theaccounts of the assessee

The !est 8udgment assessment can !e made only after giving the assessee areasona!le opportunity of !eing heard. (ssessee has a right to "le an appealor to ma/e an application for revision to the commissioner.

B. Income escaing assessment or reassessment


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If the (? has reason to !elieve that any income chargea!le to tax has escapedassessment for any (3 he may assess or re assess such income. If an assesseehas not furnished a return of income although total income is a!ove the taxa!lelimit or where a return of income has !een made !ut assessee is found to haveunderstated his income where an assessment is made !ut income chargea!le totax has !een under assessed, reassessment can !e made.

Rect$8cat$on of m$staGes [Sec *ANNIN,Tax planning refers to paying minimum amount of tax after legally utiliing

the availa!le deductions, exemptions, re!ate and relief provided !y the income taxdepartment. Tax planning is in the hands of the tax payer. Tax planning is legal innature and is entirely dierent from tax evasion and tax avoidance. Tax evasion isone where the assessee ma/es a false claim of his income to reduce or escape tax


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lia!ility. Tax avoidance is one where the assessee tries to reduce his tax lia!ility !yta/ing advantage of some provisions or some of the loopholes in the tax law. (person who has avoided tax is not lia!le for any penalty.

TA1 6O>IDA4If an assessee is permitted or given exemption for not to pay tax for certain

num!er of year; years then that particular year or years will !e termed as Taxholiday. The following are the some of provisions mentioned !y income taxdepartment regarding tax holidays.

#. #&&C export oriented units #& year tax holiday is allowed for #&&C ofthe income.

+. .it is taxed in the hands of the employer.


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TA1 DDUCTD AT SOURC

Income tax (ct ma/es it o!ligatory for certain persons to deduct tax andsurcharge from certain payments at prescri!ed rates and to pay the tax sodeducted to the credit f central 1ov. within the prescri!ed time. Eefault incompliance of this o!ligation will ma/e him assessee in default and lia!le to

penalties and prosecutions .TE9 should !e collected form the following#. 9alary+. Interest on securities4. Finnings from lotteries. Finning from horse race=. Payment to contractors%. Payment of insurance commission>. Payment to non resident sportsman or sports association$. 2ommission on sale of lottery tic/ets).


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(ny person responsi!le for paying interest on securities should deduct tax atthe rate in force 5#&C plus surcharge plus education cess6 at the time of payment ofinterest or crediting the same to the account of payee.&. TDS fom $nn$n's fom -ottey5 coss o0 p%==-es [Sec *!]

( person who pays any income exceeding Bs.=&&& !y way of winnings fromlotteries or cross word pules is reNuired at the time of such payment to deduct

income tax thereon at the rate in force. Fhere the prie money is given partly incash and partly in /ind tax will !e deducted from cash prie with reference to theaggregate amount of cash prie and the value of the prie in hand..TDS fom $nn$n's fom 3ose ace [Sec *!]

a person responsi!le for paying to nay person any income !y way of winningsfrom horse race is reNuired at the time of such payment, to deduct income taxthereon at the rate in force. It is not possi!le to get the payment without TE9


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@p to >= C of advance tax payment on or !efore Eec#= of P3@p to #&&C of advance tax payment on or !efore March #= of P3

Noncopoate assessee:@p to 4&C of advance tax payment on or !efore une#= of P3@p to %&C of advance tax payment on or !efore 9ept #= of P3@p to >=C of advance tax payment on or !efore Eec #= of P3

@p to #&&C of advance tax payment on or !efore March #= of P3

Ref%n0 of ta

If the amount of tax paid !y an assessee in any year exceeds the amount,which he is properly chargea!le for that year, he is entitled to a refund of the excesstax so paid. ?nly a person who has paid excess amount of tax can claim refund.


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CA"ITA> AND R?NU

Income tax is charged on income and not on capital. Therefore distinction!etween capital and revenue is very important.Cap$ta- Rece$pts an0 Re#en%e Rece$pts

The following are the dierence !etween capital receipts and revenue receipts1. &ature of assets

If a receipt is refera!le to "xed asset, it is capital receipts and if it isrefera!le to current asset it is a revenue receipt.

2. 'ermination of source of incomeFhen a source of income ceases or terminates any compensation

received thereof is capital receipt.3. 0eceit in substitution of an income

(ny income received in su!stitution or in lieu of income is revenue receipt. +urrender of rig#ts


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( right is a capital asset. (mount received as compensation for surrenderof rights is a capital receipt. 'ut an amount received under an agreement ascompensation for loss of future pro"ts is a revenue receipts

=. (urose of /eeing an asset.If any asset is used !y an assessee in his !usiness or /ept as an

investment, the sale proceeds thereof will !e a capital receipt. 'ut if any

asset has !een purchased !y a person for a resale, the proceeds thereof will!e a revenue receipt.

Cap$ta- pen0$t%e Re#en%e pen0$t%e

Date post:	02-Jun-2018
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22572069 Income Tax Law Practice

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