CA INTER– DIRECT TAX

INDEX
REPORTING
1
1
Basic Concept To
7

2
8
Residential Status & To
Scope of Income 14

3
15
Income from House Property To
21

4
Salary 22
To
(Section 15 to 17 + Rules) 38

5
39
Profit & Gain from Business or To
Profession 61

6
62
Capital Gain To
80

7
81
IFOS To
87

8
88
Clubbing To
91

9
92
Agricultural Income To
93

10
94
Other Exemptions To
95
11
96
Set Off Carry Forward To
97

12
98
Deduction from GTI uc VI-A To
107

13
108
Tax Deducted at Source & To
Collected at Source 121

14
122
Assessment Procedure To
131
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1. Basic concept

❖ How Government has power to make any law

Article 265-No tax can be levied except by authority of law
Entry 82 of Union list of Article 246 of constitution allows CG to collect income tax.

Income Tax Act, 1961

Act Income Tax Circular CBD Finance Act, 2022 Case

Rules, 1962 Notification  CG & Laws
CBDT
Budget
Section,
Subsection CBDT
T
Clause,
sub clause 1. Rate of Tax
Circular: binding on
2. TDS
officer
3. Advance Tax
Notification: For all
Proviso & explanation 4. Net Agri. Income

Proviso=exceptions
Explanation=Further clarification
CBDT=Central Board of direct taxes

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❖ Step to be followed :-

Computation of Total
Income
Determine Residential status

Classify under heads

Salaries Income from house property Profit & Gain from Capital Gains Income from
Business/profession (CG) other sources
(PGBP) (IFOS)

Apply Clubbing

Set off / Carry forward

forForward

Gross total Income (GTI)

(-) Deduction u/c VI-A (Section 80C to 80U)

Total Income

Basic Tax @ Applicable Rates

+ Surcharge / Rebate

+ Health & Education Cess (4%)

(-) Advance Tax & TDS

Tax Payable / Refundable

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❖ Section 1. Title: Income Tax Act. 1961: applicable from 1-4-1962 to whole of India
including J&K

❖ Section 4:
Charging Section

Income Tax is Payable by Every person[2(31)]

On Total earned in Relavent to At the

Income  Previous Year  assessment Year Rates
2(24), 80B, 2(45) 2(34)/Sec.3 2(9) Applicable
(Income tax act & Finance Act)

❖ Section 2 (31) : Person :

1. Individual:
2. HUF:
3. Firm:
4. Company:
5. AOP / BOI:
6. Local Authority:
7. Every Artifical Judicial Person(AJP):

❖ Previous Year 2(34)/ section 3:

o P.Y. means year immediately preceding A.Y.
o P.Y. = Financial Year. Income earned in this year is Taxed in A.Y.
o P.Y. = 2022-23 A.Y. = 2023-24
o For Business, Profession newly setup or source of income newly coming into
existence for the first time in life  P.Y. from Date of setting up the business to
31st March.
o So P.Y. can be lesser then 12 months

❖ Assessment Year [2(9)]:

o The period of 12 month from [1-4 To 31-3]
o It is of 12 months [April To March]
o It is “Assessment” year because in this year income is assessed, tax is assessed and
it is paid and return of income is filled.

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❖ Rates of Taxes [Finance Act, 2022]:
Slab rates Resident individual Resident Resident individual
below age of 60 + individual of age of age 80 or more at
HUF + AJP + AOP + 60 or more at any time during P.Y.
BOI + All Non- any time during (Very senior
Resident Individual P.Y citizen)
(Senior citizen)
Basic Exemption Limit 2,50,000 3,00,000 5,00,000
5% From 2.5L – 5L From 3L – 5L ---
20% From 5L – 10L From 5L – 10L From 5L – 10L
30% Above 10L Above 10L Above 10L

 At any time: even 1 day.

CBDT: If any person has birthdate on 1/4/23 and completing 60th yr and starting
61st yr then actually he is completing 60th year on preceding date i.e., 31.3.23. So
higher limit available in PY 2022-23.

Examples:

(1) Mr. Aagam (24 Years)  Income ` 30,00,000

Up to 2.5L B/w 2.5L - 5L 5L - 10L 10L - 30L

NIL + 12500 + 1,00,000 + 6,00,000

Basic Tax = ` 7,12,500

+ 4% H & E Cess = ` 28,500
= ` 7,41,000
± R/off =` -
Tax Payable = ` 7,41,000

Section 115BAC: With effect from(W.E.F) PY 20-21

new optional tax regime is introduced for Individual/HUF (for all-resi, NR, senior
citizen, all) Subject to non deduction of some expenses, deduction, exemption (See
Total Income chapter)

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Tax Rate
Total Income
(under the new regime)
Up to Rs. 2,50,000 Nil
>2,50,000 -Rs. 5,00,000 5%
>5,00,000 -Rs. 7,50,000 10%
>7,50,000 -Rs. 10,00,000 15%
>Rs. 10,00,000- Rs. 12,50,000 20%
>Rs. 12,50,000 -Rs. 15,00,000 25%
> Rs. 15,00,000 30%

 Rates :
(1) Firm, LLP, Local authority  Flat 30%
E.g. ABC & Co. Total income - Rs.45 L

Basic tax(30%) = 1350000

+4% H&EC = 54000
=========================
1404000
(2) Co-operative society:

Up to 10000 10%
10001-20000 20%
Above 20000 30%

(3) Company

Domestic Company Foreign Company

30% 40%
But if Gross receipt/T/o
of 2020-21 is upto ` 400 Crore
than 25%

E.g.Tata Ltd Gross total Income 60L, Deductions  2L,

T/o of 22-23-500 cr,T/o of 20-21 ` 100 cr
What will be Tax for PY 2022-23 ?

Basic tax(@25%) = 1450000

+4% H&EC = 58000
======================
1508000

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❖ Rebate (87A)  Discount
Only for Resident individual + Total Income(Net Income) does not exceed ` 5L Then,
Rebate from basic Tax (Before cess)
= ` 12500 or basic Tax whichever is lower

Example: Resident Individual  Income  4,60,000,

Basic tax = 10500
Less: rebate u/s 87A (10500)
===============
Tax payable=Nil

What if NR
Basic tax = 10500
Less: rebate u/s 87A = NA for NR
===============
10500
Add: 4% H&EC = 420
=================
Tax payable = 10920

❖ Surcharge : Tax on tax for rich people

(1) Individual (All) / HUF / AOP / BOI / AJP (Again To be done in CG)
Total income Rate
(on tax)
>50 Lakh <=1 cr (Incl all income) 10%
>1 cr <=2 cr (Incl all income) 15%
>2 cr <= 5 cr
25%
(Excluding Dividend, STCG u/s 111A & LTCG u/s 112, 112A)
>5 cr
37%
(Excluding Dividend, STCG u/s 111A & LTCG u/s 112, 112A)

❖ E.g.- Example:
o Aagam  ` 63 Lakh
Calculation :
Basic Tax  Income ` 63 Lakh

Upto ` 2.5L 2.5L - 5L (5%) 5L - 10L (20%) 10L - 63L (30%)

NIL + 12500 + 1,00,000 + 15,90,000

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Basic Tax = ` 17,02,500
+ Surcharge (10%) = ` 1,70,250
= ` 18,72,750
+ 4% H & E Cess = ` 74,910
Tax Payable = ` 19,47,660

(2) Firm / LLP / Local Authority :

Total Income > 1 Cr. 12%

(3) Co. Op. Society: TI > 1cr but <= 10 cr- 7%...IF T.I > 10 crore- 12%

(4) Company :

Domestic Company Foreign Company

>1 Cr but ≤ 10 Cr. >10 Cr. >1 Cr but ≤ 10 Cr > 10 Cr.

7% 12% 2% 5%

✓ Round off (288A / 288B)

` 10 Round off (total income & tax payable). If lower than 5  then lower side
(if >=5 then higher side)
E.g Tax payable= 186,534 then rounded off to 186,530
Tax payable=186,535 then rounded off to 186,540
Marginal Relief:
 Concept: Due to increase in Income above threshold then Surcharge is
applicable. But diff. of Tax due to difference in income should not be more
than diff of Income.
Example :

threshold ` 50,00,000 ` 51,00,000--TI

Tax ` 13,12,500 ` 13,42,500
(Before Cess) + 10%--Surcharge
` 14,76,750
Income Diff = ` 1,00,000
Tax Diff = ` 1,64,250
Marginal Relief = ` 64,250—to be deducted from tax payable and then add cess

Marginal Relief = (Basic Tax + S.C on Tax) – (Tax payable before cess on Threshold Limit) –
Diff of Income---ignore if answer is negative


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Residential Status &

2. Scope of Income

Residential Status

Individual / HUF Any Other Assessee

Resident Non Resident Resident Non Resident

Resident & Resident but not

Ordinary resident ordinary resident

Section 6(1): Residential status of individual

Whether satisfy “any” of the two basic conditions? (W.N.1)

Resident Non-Resident

Whether satisfy both the Additional condition? (W.N.2)

Yes No

Resident & Ordinary Resident but

Resident not ordinary
Resident
W.N. 1 : Basic Condition
1) He is in India at least 182 days during the P.Y.
OR
2) He is in India for at least 60 days during P.Y. & 365 Days during 4 preceding
Years immediately preceding P.Y.

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 How to count presence in India (Days)?

If timing of arrival & if timings not available

Departures are available

Then 24 hrs = 1 Day The day when he enters India & Day
he leaves, both Included.

Example 1: Mr. Aagam comes in India for the first time on 10-4-2022 & leaves on 30-6-2022.
He again comes In India on 1-12-2022 & leaves on 28-3-2023 status.? He is
foreign citizen.

Ans: Number of days for Mr. Aagam for P.Y.2022-23(A.Y. 2023-24)

April : 21(30-9)
May : 31
June : 30
July-Nov : -
Dec : 31
Jan : 31
Feb : 28
March : 28
200>182….Resident

W.N-2 : Section 6(6) : Additional condition:

(1) He has been Resident of India for at least 2 yrs out of 10 yrs immediately preceding
P.Y (as per W.N.1)
AND
(2) He has been in India for at least 730 days during 7 years Imm. Preceding 7 years.

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(A) Exception to General rules:

Special Provision for determining residential status

Indian Indian
citizen citizen Indian citizen or person Indian citizen -
leaving leaving of Indian origin coming to not covered
India for the India as a India for visit purpose elsewhere
purpose of member of
employment foreign crew
abroad of an Indian
ship

TI (excluding
>=182 days <182 days
Foreign Source
during PY-Resi. during the
Income) > 15
Then check PY
Lakhs + if he is
both additional
not liable to tax in
conditions u/s
any other country
6(6)
or territory-
RBNOR(6(1A))
Basic condition (b) is not
applicable. If Basic
condition (a) is satisfied
then assessee is resident TI(Excluding Foreign TI(Excluding Foreign
otherwise he is directly non Source Income) <= 15 Source Income) > 15
resident. Lakhs Lakhs
If assessee is resident then
additional condition are to
be checked for the purpose
of R&OR or RBNOR NR(Not to be seen Basic Condition (b)
any other conditions) i)  120 days in PY but
<182 +
ii)  365 days in
preceding 4 PY
Then RBNOR
If not satisfied then
NR

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For crew member  Rule 126: presence in India=365/366-days as per CDC
(Continues discharge certificate)

Kerala HC- Employment includes self employment

Indian Citizen

By Birth Express Citizenship

 Person of Indian origin:

parents (either) or Grand Parents (either) are born in India and if before 1947 then
in undivided India [India + Bang + Pak.]

Example:
1) Mr. X (Indian citizen) for job in USA left India on 1-9-2022 for first time what is R.S
?
Ans.: No. of days in India  154 days  NR(as <182).

2) What if for trip

Ans.: Then = Resident (Because not covered by exception and >60+last 4 years >365)

❖ Section 6(2) : Resi. Status of HUF:

Control & Management

Wholly or Partly in India Wholly O/S India

Resident NR

Whether Karta satisfy

the condition of section 6(6)

Yes No

R & OR R BNOR

(Note: Karta can be NR but Still HUF can be R & OR or RBNOR)

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❖ Section 6(2) :
Firm & AOP ,BOI,AJP:

Control & Management

Wholly or Wholly O/S

Partly in India India

Resident NR

❖ Section 6(3) :
Company:

Indian Co. Other than Indian Co.

Resident *** POEM

In India O/s India

Resident NR

[*** POEM Place of effective management CBDT circular (In Final)]

Scope of Income

❖ Section : 5 : Scope of income

Tax incidence in case of

Particulars
R & OR (Global
RBNOR NR
income taxable)
1. Income received in India
whether or not accrued in India
Yes Yes Yes
(e.g. salary o/s India credited in
Indian bank account)
2. Income deemed to be received in
Yes Yes Yes
India (e.g TDS, section 7)

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3. Income accruing or arising in
India whether or not received in
Yes Yes Yes
India(Accrue Where
contract/invoice is made)
4. Income deemed to accrue or
Yes Yes Yes
arise in India (Sec. 9)
5. Income received & accrued
outside India from the business
Yes Yes No
controlled in or Profession setup
in India
6. Income received accrued o/s India
Yes No No
from B/P controlled o/s India
7. Any income (other than B/P
received accrued o/s India (e.g. Yes No No
Div. of foreign co.)
8. Income earned in earlier yrs
No No No
brought in India

❖ Section 9 : Income Deemed to accrue or arise in India (Taxable to all)

(A) Business connection :

1. If business is done because of agents in India…Business connection in India..
Taxable to all.
Following shall not be treated as business connection in India.
1. Activities merely confined to shooting of cinematographic films.
2. Merely collection of news & views from India for transmission O/s India.
3. Purchasing goods from India as raw material and directly export to other
country.

(B) Any Income from house property in India, asset in India, Capital gain from
capital asset which is belonging to India, Dividend paid by Indian Company to
any person.Salary Income because of services provided in India.

(C) Income from salaries paid by GOI for services rendered O/s India
[Example: External affair] However 10(7)  allowances & perquisites will be
exempt  paid by GOI O/s India.

(D) Interest :
- Interest on money borrowed “ Deemed to accrue or arise in India” if
1. Interest paid by GOI-Taxable for all

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2. Interest paid by Resident person and he has used borrowed money for
any purpose in India-Interest Taxable for all
3. Interest paid by NR and he has used borrowed money for
business/profession in India (Not for other purpose)-Then only
taxable for all.

E.g.
For Lender whether
Where borrower is
Lender borrower Interest deemed to
using money
accrue?
Mr.A (NR) GOI In India
O/s India
Mr.B (NR) Mr.Ram(Resi) Busi in India
Busi o/s India
Pur House Prop in
India
Pur HP o/s India
Mr.C (NR) Mr.John(NR) Busi in India
Busi o/s India
Pur HP in India
Pur HP o/s India

(E) Royalty & Technical fees:

- Royalty means consideration to use of intangible asset.
Technical Services: Means any consideration for rendering of any managerial
Technical or Consulting service.
- Royalty/technical fees “ Deemed to accrue or arise in India” if
1. Paid by GOI-Taxable for all
2. Paid by Resident person and he has used services for any purpose in
India- Taxable to income recipient
3. Paid by NR and he has used services for any purpose in India- Taxable
to income recipient

(G) Any monetary gift received a person outside India from resident of India shall be
deemed to accrue or arise in India.
Exceptions mentioned in section 56(2)(x) shall apply-IFOS.


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Income from House Property

3. (Section 22 to 27)

❖ Section – 22 : Basic of charge :

Property = Consist Assessee should be Prop. Should not

Of building or land Owner of Prop. Be occupied for Appurtenant
thereto. (Even if registration is pending) Purpose of own busi.
or prof. carried on by him

[Building :Resi.House [Owner :includes deemed

Office use, factory, hall owner section-27]
Etc.
[Land appurt: Any land attached to building]

Examples :
(1) Vacant land if letout  No HP but IFOS or PGBP [why -it is not appurtenant to
building]
(2) Mr. X took a house on rent for ₹ 5,000 P.m. he let out the same to Mr. Y for ₹ 6,000
P.m. so ₹ 72,000(6000*12 m) will be Taxable under head  IFOS(Subletting) [Not
Owner]
(3) Mr. Aagam gave his prop. to Mrs. Dalal a CA., Mrs. Dalal is carrying on practice from
there so  HP for Aagam [Mr. Aagam is not doing B/P from that]
(4) Lodha Constructor has 10 flats unsold and given on rent — HP? --- Yes
(5) ABC Co.is in business of renting of property? — HP?? ---- No PGBP.

 Three types of H.P.

Let out property Self occupied Property (SOP) Deemed letout (DLOP)
(LOP) The one in which
which is given you or family Which is not SOP & not LOP.
on rent are staying also
if any person has >2 SOP then
any 2=SOP balance will be
DLOP.

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Format of structure
Gross Annual Value(GAV)
(-) Municipal tax paid by owner during PY
------------------------------------------
Net Annual Value(NAV)
(-) Deduction u/s 24
(a) 30% of NAV
(b) Int. On Borrowed capital
------------------------------------------
Income from house property

❖ Section 23 : Determination of Gross Annual Value:

First for LOP
 Step -1: Municipal value or Fair Rent W.e. Higher
 Step - 2: Step-1 or Standard Rent W.e. Lower
 Step - 3: Step-2 or Actual Rent W.e. Higher
(Expected Rent) (Receivable)
(Due basis)

Case -1 : When unrealized Rent is given

 When any not realized Rent can be termed as “Unrealized Rent” Rule 4of
I.T.Rules 1962.
1. Tenant has vacated premise or steps taken to make him vacate.
2. Legal proceeding started to recover the rent.
3. Tenant is not in occupancy of any other property of same owner

 First step & second as it is.

 In third step
Actual Rent = Annual Rent – U.R. Rent & then
w. e. higher = GAV.
Note: Alternative View  UR Can be deducted from GAV also.

Example : Mr.A gives a property on rent to Mr.B for ₹ 10,000 p.m. Municipal value is
₹ 1,00,000 p.a fair value is ₹ 8,000 p.m, standard Rent is ₹ 40,000 for 6 months.
Unrealized rent from Mr. B were for month of Feb & March. Calculation GAV.

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Ans : GAV: M.R 1,00,000
F.R 96,000
Step-1 1,00,000
S.R 80,000
Step-2 80,000
Actual Rent 1,00,000(120000-20000 UR)
GAV 1,00,000

Case -2: Loss due to vacancy

 While finding GAV due to vacancy :
RENT

AR>ER (after vacancy also) AR<ER

GAV=AR
(AR+ Vacancy loss) > ER (AR+ Vacancy loss) < ER
(Before vacancy it was higher)

GAV=AR GAV=ER

e.g. Expected Rent = ₹ 1,00,000

Actual Rent = ₹ 80,000 (₹ 8,000 p.m. For 10 month)

GAV = ER because ER = 1,00,000 & (AR + Vacancy loss) =96000 Still ER is higher. So
GAV=ER

It instead ₹9000 is actual rent…then for 10 months it will be 90000

(AR + Vacancy loss) = 108,000 but ER=100000.So, GAV=AR=90000

❖ GAV for SOP = NIL

 For deemed LOP [23(1)(a)]  GAV=ER

❖ Municipal Tax : (Property Tax, Sewerage Tax)(% of municipal Value)

 From gross Annual Value Municipal Taxes paid to local authority is deducted
ifPaid by owner in current year.
o Notes :
- If paid by tenant  no ded”
- If payable  no ded”
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- If paid in P.Y. for so many years combinly full ded”
- If HP is O/s India then M. tax O/s India Deductible (Madras HC)
For SOP = No deduction
- For deemed LOP = Full deduction

❖ Section 24:
i) 24(a) : deduction of 30% of NAV from NAV
- Standard deduction & no other expense other than 24(b) is allowed as
deduction.

ii) 24(b) : Interest on borrowed capital

Type of HP

LOP/DLOP SOP

Repairs/renovation Purchase/ Repairs /renovation Purchase/

Construction construction

No limit No limit Max 30000 Max 200000

Per yr per yr per owner

if 2 condition
fulfilled

For purchase/construction-SOP:
If loan is taken:
on or after 1.4.99 &
purchase/construction is completed within 5 years from end of year in which
loan taken
then deduction limit will be Rs.200000 per year per owner.
If conditions not satisfied then max deduction 30000 per year per owner.
(IF loan taken before 1.4.99 then limit Rs.30000 OR when
purchase/construction not completed within 5 years from end of yr of loan then
also limit 30000)
Remember: Maximum deduction per owner for any loan combinly is
Rs.200000 for SOP (Limit is per owner not per house)

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Notes : Interest is allowed as ded” on accrual basis
: Interest deduction starts from beginning of yr in which prop purchased or
construction completed.
: Interest on unpaid int is not ded” (i.e. Penalty int = No Ded”)
: Interest on fresh loan taken to repay original loan raised is allowed
: Brokerage / commission for arranging a loan = No ded”
: No deduction in 24(b) for SOP if 115BAC followed.

❖ Section 25 : if interest paid abroad without TDS → No deduction

Pre-construction interest:
Pre-construction Interest is deductible in 5 equal installments starting from P.Y. in
which construction or acquisition (for purchase) is completed.

❖ Special Cases
1) When property not occupied during whole P.Y. due to employment, busi /
prof. carried on at some other places.
It will be considered as self-occupied property
If

Concerned prop.is & he has to reside at other

Not let out during P.Y place in property not owned
By him.

2) When property is let out for some period & self-occupied for remaining
period during P.Y.

- Here consider as if let out for whole year (So,ER for full year, deduct
municipal tax.No limit in int also). But actual rent will be taken for months for
which rent is actually received.(Do not consider vacant for the period for
which it was SOP)

3) House property consist of 2 independent units of which one let out, other self
occupied.

For LOP unit For SOP unit

ER,M.Tax,Int-% wise Interest % wise

Here, loss from self occupied will be set off against income from LOP.
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4) When assessee owns more than two resi. HP & all are reserved for self
occupation.
Deemed let out at option of assessee so here, calc. considering any 2 as SOP&
other as LOP, then reverse case & find out where lower income is Taxed, that
option will be selected.
e.g.A=Mr,A has three property..A,B,C.Now will assume
A & B=SOP and C=DLOP
B & C=SOP and A=DLOP
A & C=SOP and B=DLOP
And the income from HP w.e.lower will be final option

5) When house property is owned by more than one owner.

Section 26: where property owned by 2 or more persons and shares are definite &
ascertainable then it has to be calculated as if owned by one owner & then
divide income between co-owner as per % define
[Interest limit u/s 24(b) is per assessee & not per house]
So, Prop

SOP LOP
Calc.of Int individually as per % Calc.as if owned by one owner
and then bifurcate into co-
owners
as per %

❖ Section 25 A : Provision for arrears of rent & unrealised rent received subsequently
→ Both are taxable on receipt basis.
→ Std. deduction 30% is allowed.
→ Even though in year of receipt Assessee is not owner, than also “IFHP”.

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❖ Section 27 : Deemed owner : (Ref. Sec-22)
1) Transfer to spouse or minor child:
If following conditions met then transferor of property = deemed owner

Tax Payer=Individual He/she transfer a H.P The property is transferred without adequate
to his / her spouse (Not in consideration
Connection in arrangement
To live apart) or to minor
Child (not being married
Daughter)

House Property-Market value₹ 1 Cr. House Property- Market value ₹ 1 Cr.

Mr. A Son (19 Yrs) Mr. A Mrs. A

₹ 1 Lakh ₹ 1 Lakh
[Major : no deemed owner ] [Mr. A = Deemed Owner]



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Salary
4. (Section 15 to 17 + Rules)

❖ When income is charged under head?

Employer Employee relationship is must.

❖ Basic of charge [Sec – 15]

(1) Due(Accrue) or receipt basis whichever is earlier
(2) Bonus → Receipt basis
(3) Any arrears of salary taxable in year in which allowed to pay by employer
[Arrears → increase in salary form back date][ Relief u/s 89]

❖ How to compute salary :

Particulars ₹ ₹
1. Basic salary ✓✓
2. Advance salary (Sec-15) ✓✓
3. Arrears of salary [Sec-15] ✓✓
4. Bonus (Receipt basis) ✓✓
5. Commission (Fixed,% of NP,% of turnover) ✓✓
6. Allowances (W.N. 1) ✓✓
Less : Exemptions (✓✓) ✓✓
7. Retirement benefits (W.N. 2) ✓✓
Less : Exemptions (✓✓) ✓✓
8. Perquisite [17(2)] (W.N.3) ✓✓
9. Gross Salary ✓✓
Less : Deduction [Sec-16] (W.N.4) (✓✓)
Net Salary ✓✓

W.N.1: Allowances
Allowance → amount given for expense (Monetary) on monthly basis as fixed amount.
perq→ non monetary- direct benefit or reimbursement of exps.

(1) Dearness allowance: It is the allowance given for mitigating gap due to inflation.
D.A. is fully taxable whether or not it is forming part of retirement benefit
(Forming part of employment)

DIRECT TAX : 22 :
CA INTER
(2) Foreign Allowances :
Sec-10(7): Foreign Allowance is exempt if

Allowance or By GOI to Indian For rendering service

Perq. o/s India Citizen outside India.

(3) House Rent Allowance [10(13A)]:

Lowest of the following is exempt
1) Actual HRA Received or
2) 50% salary (Metro cities) → [DKBC-Delhi, Kolkata, Bombay, Chennai] or 40%
of salary (Other Cities) or
3) Rent paid (-) 10% of salary.

→ Points: No exemption if 115BAC followed.

: Salary = Basic + DA (% in terms of retirement Purpose) +
commission [% of T/o]
→ Note: Exemption of HRA depends on

Salary Rent HRA Location

So, advisable to calc. monthly if there are any changes in any of the above factor.
Note : if no rent paid then No exemption.

(4) Special Allowances [Sec 10(14)(i) + Rule 2BB]:

Exemption = Allowance or Amount Spent w.e. Lower

C = Conveyance Allowance (Journey b/w office to client place)

U = Uniform Allowance (Purchase or maintenance)
T = Tour, Travel, Transfer Allowance (For Transfer of Place of Job.)
H = Helper Allowance (To meet official duly)
A = Academic Pursuit Allowance
D = Daily Allowance

E.g. Mr. X has been given ₹ 2,500 p.m. as uniform allowance, expense for uniform is
₹ 10,000 p.a. What is taxable amount?
Ans : Uniform allowance (2500 x 12) = 30000
Less: Exemption u/s 10(14)(i) = (10000)
Taxable = 20000
DIRECT TAX : 23 :
CA INTER
E.g.2 What if exp = ₹ 40,000 in above case?
If 40000 → then → Exemption = 30000 or 40000 w.e.lower=30000
So, taxable = NIL

No exemption if 115BAC followed except CTD-Conveyance, travelling, daily

allowance.

(5) Allowances →exemption based on limit [10(14)(ii) + 2BB]

Sr. Name of Allowance Purpose Exemption
No
1 Transport Allowance Journey b/w office to Blind/ Handicap →
(Example -2) home ₹ 3200 p.m
Other → Fully Taxable
2 Children Education - ₹ 100 p.m per child
Allowance (Example- max. for 2 children
1)
3 Hostel Expense - ₹ 300 p.m per child
Allowance max. for 2 children
4 Monthly allowance Employee operating 70% of allowance or ₹
for personal expense commercial 10,000 p.m
(Example – 3) Transport + no daily w.e. lower.
allowance
(i.e. employer in
business of
Transportation)
5 Special Tribal/ - ₹ 200 p.m
Schedule area
Allowance

Example – 1:
a. Mr.A is getting Children education allowance for Rs.370 PM for 1 child.
C.E.A = ₹ 370 p.m x 12 month x 1 child = ₹ 4,440
(-) Exemption u/s 10(14)(ii) (₹100x12) = (₹ 1,200)
Taxable = ₹ 3,240

b. Mr.A is getting Rs.90 P.M.for 3 children each as CEA.

C.E.A = ₹ 90 p.m x 12 month x 3 child = ₹ 3,240
(-) Exemption u/s 10(14)(ii) (₹90x12x2) = (₹ 2,160)
Taxable = ₹ 1,080

DIRECT TAX : 24 :
CA INTER
No exemption if 115BAC followed except transport allowance.

(6) Fully Taxable Allowances

→ City compensatory allowance (for high cost)
→ Entertainment allowance (Ded’ u/s 16)
→ Transport allowance (Other than disable)
→ Telephone allowance
→ Medical allowance
→ Tiffin allowance/Food allowance
→ Project allowance
→ Dearness allowance [D.A]

(7) Fully exempt Allowances:

→ Allowance to HC/SC Judge
→ Allowance Received from UNO
→ Allowance to MPs and MLAs

W.N.-2 Retirement Benefit

(1) Gratuity [ Exempted u/s 10(10)](Voluntary payment for appreciation of service)

→ Exemption only after service received

Govt. Employee Other Employee

Fully Exempt
[10(10)(i)] Covered by Payment of Gratuity Not Covered by
Act, 1972 Gratuity Act, 1972

→ Least of following is → least of following is

Exempt [10(10)(ii)] Exempt[10(10)(iii)]

A. Actual Gratuity A. Actual Received

Received B. 15/30xAvg. Salary of 10
Month x completed years
B. 15/26 x Last Salary x
of Service
completed years of Service
C. upto ` 20,00,000
C. upto ` 20,00,000

DIRECT TAX : 25 :
CA INTER
1) Salary = Basic + DA(All) 1) Salary = Basic + DA(forming
2) If no. of month >6 month part)+ Commission(%)
→ full year 2) Any fraction of year→Ignore

Covered by Act Not Covered by Act

24 yrs 5 months = 24 yrs 24 yrs 5 months = 24 yrs
24 yrs 6 months = 24 yrs 24 yrs 6 months = 24 yrs
24 yrs 7 months = 25 yrs 24 yrs 8 months = 24 yrs

Note:
(i) Gratuity Received during employment→ Fully Taxable
(ii) Gratuity exemption from any employer together cannot exceed ₹ 20L
(So if received second time then from ₹ 20L deduct exemption availed earlier)

(2) Pension :
Pension [10(10A)]

Uncommuted Commuted (Lumpsum)

(Monthly Basis)

Taxable for any Govt. Employee Other Employee

Employee
Fully exempt

In receipt of Not in receipt

Gratuity of Gratuity

1/3 of full 1/2 of full

Pension is exempt pension is exempt

Full pension = Commuted pension X 100

% of commutation
(Note → after commuted pension, uncommuted will be reduced by that %)

DIRECT TAX : 26 :
CA INTER
(3) Leave Salary [10(10AA)]

During employment On retirement

Fully Taxable Govt. Employee Other Employee

Fully exempt Least is exempt:

(a) Actual A/m received
(b) Total salary of last 10 month
(i.e. avg salary * 10 months)
(c) Cash equivalent of leave (note-1)
(d) Max. upto ₹ 3,00,000

[Salary = Basic + DA (In part) + Commission (%)]

Note-1 Cash equivalent:

o As per Income Tax Act leave can’t exceed 30 days for every completed year of
service.
o Steps for calc. of cash equivalent:
It is nothing but balance leaves as per I.Tax Act in terms of months.
1) Find out duration of service in yrs (ignore fraction)
2) Find out Gross Earned leave (but 1 yr = Max 30 days)
3) Reduce leave availed during e’ment
4) Balance is earned leave as per I.T ÷ 30 days. (Unavailed leave as per IT Act in
mnths)
5) Step-4 * Average salary of last 10 month.

Example: Reliance Ltd. is allowing per year 35 days of leaves to Mr. Dalal who has
served in Co. for 20 years and 4 months. He has already availed 370 days leaves already.
What will be Leaves unavailed in terms of month as per income tax.

Ans:
Total Leaves
Less: Leave availed as per company
Leave unavailed days

DIRECT TAX : 27 :
CA INTER
(4) Retrenchment compensation [10(10B)](Profit in lieu of salary)
Lower of following is exempt:
a) A/m received
b) 15/26 xAvg salary last 3 month x completed yr of service [>6 month = full
year]
c) Max ₹ 5,00,000
[Salary = Basic + D.A. (all)]

(5) VRS→ Voluntary Retirement Scheme [10(10C)]:

Exemption = lower of
a) Amount received → VRS
b) ₹ 5,00,000
c) 3 month salary x complete yrs(Ignore fractions)
d) Last drawn salary x remaining Month of service.

Salary = Basic + DA(%) + Commission (%)

(6) Provident fund :

Taxability
Reco. PF Public PF
Stat. Prov.
(RPF) (PPF) Superannuation
Fund
Unreco Non Fund(10(13))
(SPF)(10(11))
other PF salaried + (Like a pension
For Govt.
e’yees (URPF) All Fund)
e’yees (SPF
(EPF Act, (EPF Act,
Act, 1925)
1952) 1952)
1- E’yer Exempt Exempt Not N.A No separate
contri. upto 12% taxable [E’yer exemption (See
of salary yearly don’t notes below)
(cross ref. contri]
sec-7)
2- Int. Exempt Exempt Not Exempt Exempt
credited upto int taxable
to P.F rate =9.5% yearly
p.a (sec-7)
3- Ded’ Available Available Not Available Available
u/s 80C Available
e’yee
contri

DIRECT TAX : 28 :
CA INTER
4- On Exempt Exempt in Taxable Exempt Exempt in some
Maturity some case (Note-2) cases(Note-3)
(Note-1)
[10(12)]

→ Salary = Basic + DA (%) + commission (%)

Note:-1: If employee has withdrawn money after working 5 years from any organization
then exempt.
If withdrawn before 5 years but due to unavoidable reasons then also exempt.
In all other cases taxable.

Note:-2 Taxability for lump sum under URPF

Amt. of e’yer Int. on e’yer e’yee contri int on e’yees contri.

Contri contri

Taxable under head salary exempt IFOS

Salary (it is inflow not income)

Note:3
Supperannuation Fund Fully exempt if
Maturity is given as annuity to employee or given to relative in case of death.

Note: W. e. from P.Y.20-21, employer’s contribution to RPF, superannuation fund

and NPS together if exceeding 750000 in a year then excess is taxable and interest
on such excess is also taxable.(Means now max exemption=Total Exemption or
750000 w. e. lower)

2. If employee contribution to PPF+RPF is more than 250000 p.a. than interest on

amount in excess of 250000 is taxable. (If no employer contribution then 5L will
be limit)

How to determine interest belonging to such excess?-Rule 3B

TP= (PC/2)*R + (PC1+TP1)*R

TP=Taxable perquisite u/s 17(2)(viia)-Taxable interest component for the PY

PC=Amount in excess of 750000 as employer contribution for this PY
DIRECT TAX : 29 :
CA INTER
PC1= Amount in excess of 750000 as employer contribution for all years after 1.4.20 up
to starting this PY.
TP1= Taxable perquisite u/s 17(2)(viia)-Taxable interest component for all years after
1.4.20 up to starting of this PY.
R= I/Favg (Means Interest divided by average of opening and closing balance of all
funds).

W. N. -3 Perquisites
 Perquisite

Which is obligation of employee Which is not of employee obligation

Taxable for all Taxable to specified employee

for specified e’yee

or or
E’yee who e’yee having substantial salary except perq.
Is director of co. int. in company exceeds ₹50,000 p.a
(if equity ≥20%)

(1) Value of Rent free Unfurnished accommodation:

[House, Flat, Farm House, Hotel, Motel, Guest House] (if provided to Judge of HC or
SC not taxable)
Taxable Perquisites
[Rule 3(1)]

Govt. employee Non Govt. employee

Taxable = License fee as Accommodation owned Accommodation

Per govt. rules by e’yer not owned by employer
Taxable = lower of
a) Actual Rent paid
Population >10L but >25L or
Of city ≤ 10L ≤ 25L b) 15% of salary

7.5% of salary 10% 15% Salary = Basic + DA (forming

part) + Bonus + Commission
Population from 2001 Census (all) + All Taxable Allowance

DIRECT TAX : 30 :
CA INTER
(2) Value of Rent-free furnished Accommodation:
 When accommodation is not hotel
Step-1 : find out value as if unfurnished
Step-2 : Add value of furniture →Rule 3(7)

Furnitures owned Not owned

By e’yer

10% p.a of original cost Actual hire charges

(Ignore WDV)
Furniture includes household appliances like Radio, TV, Fridge, AC.

 When accommodation is Hotel

24% salary or hire charges w.e. lower will be taxable
General Notes : Value to be calculated for period of occupation of
house.(Month wise)

(3) Value of accommodation Provided at concessional rent:

(I.e. Some amount is charged from e’yee)
Step-1: find value as per 1 & 2
Step-2: Deduct rent recovered from e’yee [If amount positive → then Taxable]

(4) Value of perq. In respect of free domestic servants.

(Sweeper, Gardener, Watchman, Personal attendant, etc)
Rule 3(3)
taxable = Actual cost to employer
(–) Recovery from employee

(5) Value of perq. In respect of Gas, Electricity, Water supply [Rule →3(4)]

Purchased by e’yer or Supplied out of own Resource.

From outsider

Taxable value = Amount paid/P’ble Taxable = manufacturing cost to e’yer

By e’yer
(–) Recovered from e’yee (–) Recovered from e’yee
Balance (if positive) Balance (if Positive)

DIRECT TAX : 31 :
CA INTER
(6) Valuation of perq. In respect of free institute [ Rule 3(5)]

Provided to employee provided to children or other

Household member
Not Taxable
Whether education trust owned
By employer?

Yes No

Whether outside student Actual fees paid by

Allowed? The employer

Yes (i.e. Open) No (i.e Close)

Taxable value= Taxable value =

Fees charged from fees charged by other
Other students institute in similar
Locality providing
Similar facility.

Less: Amount reimbursed by e’yee to e’yer

Balance (If positive)-Taxable.

 Note : If educational inst. is owned by e’yer then whether open & close if facility
is provided to children then not taxable if upto ₹ 1000 p.m. per children.(No
limit on children)…So if exceeding 1000 p.m no exemption(Alternatively we can
also take value above 1000 p.m. only taxable)

 (Not for other member & not in case not owned by e’yer)
Note: If tie-up with school then also deemed owned by employer

DIRECT TAX : 32 :
CA INTER
(7) Leave Travel concession [Section 10(5)]
 Exemption of LTC can be availed twice in a block of 4 calendar years (from
1986 → Rules 2B) Current Block = 2022-2025
 LTC exemption can be availed for Travel anywhere in India (Not O/s India)
 Exemption for Travellers who is e’yee + Family.
o Family = Spouse, children (Dependent or Not), Parents, Brother, Sister
(Dependent).(Do not Include → Grand Parents, in Laws)

 Children if Date of Birth

Before 1-10-98 On or after 1-10-98

Any no. of children are allowed Max 2 Children allowed

1st Child- Single 1st Child- Multiple

2ndChild – Multiple 2ndChild – Single
(Multiple Birth after single) (Single birth after multiple)
[to be consi →2] [to be consi →3]
For 1 child it is taxable.

Journey done through Exemption

Rail Upto AC 1st class
Air Economic class fare
Recognized public transport Executive class fare
Any other mode Ac 1st class fare as if journey by rail
 Carry over concession :
Concession can be carried forward if assessee has not availed travel
concession during block to next block. But it should be claimed in 1st
calendar year of next block [only 1 carryover].
 Exemption is only for fare not for other expense.

(8) Valuation of perq. For interest free loan or loan at concessional rate of
interest. [To e’yee or Family member](Rule 3(7)(i))
Perquisites= Interest @ market rate- Interest charged by employer
If repayment is monthly then calculate perq monthly.
 Market rate= Find out rate of interest charged by SBI as on first day of P.Y.
for same purpose.

DIRECT TAX : 33 :
CA INTER
 Where such loan is not taxable

A/m of Original Loan Or Loan is for diseases specified

Does not exceed ₹ 20,000 In rule 3A.

(9) Valuation of perq. In respect of use of movable asset [3(7)(vii)]

If computer/ Laptop/telephone/mobile Any other movable asset(except car)

Given

Not Taxable Owned by e’yer Taken on Rent

Taxable = 10% p.a of original Taxable = Rent Paid

(–) Amt recovered (–)Amt recovered
Balance (if +ve) Balance (if +ve)

(10) Valuation of perq. For sale movable asset by e’yer to e’yee of nominal price
[3(7)(viii)]

Electronic/ computers Motor car any other (furniture,

Motorbike etc)

Actual Cost to e’yer Actual cost Actual cost

Less : 50% for each (–) 20% for each dep (–) 10% for each
dep
Dep. Completed yr by completed yr by completed yr by
WDV WDV SLM
Less : Amt. recovered (–) Amt. recovered (–) Amt. recovered
Balance (if +ve) Balance (if +ve) Balance (if +ve)
(in year → ignore fractions-only completed year to be taken)
 e.g. :1) X Ltd has a car purchased on 1-12-20. It was purchased for ₹ 50,00,000. X
Ltd sold it to e’yee on 1-5-22 for ₹ 10,00,000. Cal. Value of perq.

Ans : (i) Car.

→ here car is used by e’yer for 1 year and 5 month.
Completed year = 1 year
Actual cost = ₹ 50,00,000
(–) 20% Dep. For 1 year = (₹ 10,00,000)
= ₹ 40,00,000
Asset sold for = ₹ 10,00,000
Value of perquisites = ₹ 30,00,000
DIRECT TAX : 34 :
CA INTER
(11) Valuation of medical facilities : [Proviso to 17(2)]
Exemption only for himself or family → [spouse, children (dep. Or not), parents,
brother, sister(Dep)] does not include Grand Parents inlaws.
So any exps paid by employer for a person who is not Family-Always taxable

Medical facilities in India-For himself/family

Provided by Provided in Provided in hospital provided in

Hospital owned Govt. Hospital approved by I. tax authority Private hospital
By e’yer [For deceases mentioned (family Dr,
In rule 3A(2)] Nursing home. etc)
Not Taxable Not Taxable
Not Taxable Fully Taxable

Medical facilities O/s India-For himself/family

Treatments expense + Staying expenses Travelling expenses

Exempt upto amount certified by RBI for patient if GTI > 2 lakh if GTI ≤ 2 Lakh&
1 attendant Fully Taxable Fully Exempt
[GTI only excluding travelling exps.]

illu-13 (SM)
Note: Mediclaim paid by employer- Not taxable
Life Ins Prem Paid by employer- Taxbale

(12) Valuation of perquisite in respect of Motor car [3(2)]-----Only to specified

e’yee
 Car is owned by employee:

Situation Exps. Met by e’yee Exps. Met by e’yer

Office purpose Not Taxable No benefit = not Taxable

Cost to e’yer (Running &

maintainance+ Driver Salary)
Private Purpose Not Taxable
(–) Amt. recovered
Bal. (+ ve) → Taxable.

DIRECT TAX : 35 :
CA INTER
Cost to e’yer
(–) Used for office purpose (W.N
Partly office /
Not Taxable -1)
Partly Private
(–) Amt. recovered
Bal. (+ ve) → Taxable.

W.N -1 : How much amt. used for office purpose :

Option →B : Car engine ≤ 1600 c.c (1.6litre) = ₹ 1800 p.m.

> 1600 c.c (1.6 litre) = ₹ 2400 p.m.
+ Driver salary (if provided) = ₹ 900 p.m.

 Car is owned by employer:

Situation Exps. Met by e’yee Exps. Met by e’yer

Office purpose Not Taxable Not Taxable
Cost to e’yer Cost to e’yer [10% Dep./Hire]
[10% of Dep. SLM/ Hire charges] + Running main. exps
Private Purpose (–) Recovered from e’yee + Driver Salary (if provided)
Bal. (+ ve) → Taxable. (–) Amt. recovered
[here running cost → by e’yee] Bal. (+ ve) → Taxable.
Value of Taxable Perqs.
Value of Taxable Perqs. → ≤ 1600 cc → ₹ 1800 p.m
CC → ≤ 1600 cc → ₹ 600 p.m →> 1600 cc → ₹ 2400 p.m
Partly office /
CC → > 1600 cc → ₹ 900 p.m + Driver salary → ₹ 900 p.m
Partly Private
[No driver salary added & No (if provided)
recovery to be deducted] [Here amt. is higher considering
running & maintenance exps]

(13) Value of perquisite in respect of Lunch / Refreshment : [Rule 3(7)(iii)]

If its food allowance Fully taxable
Tea of coffee in working hrs Not taxable
Food,Meal, Non alcoholic drink given in Not taxable
working hrs in remote location
Food, Meal, Non alcoholic drink given in Taxable Value=
other normal area Total cost to employer
(-) Rs. 50 per mean
(-) Recovery from emplyee

DIRECT TAX : 36 :
CA INTER
(14) Value of perquisite of gift, voucher, token [Rule 3(7)(iv)]

Gift made in cash or Convertible to money Gift in kind upto ₹ 5000 in

(like gift cheque) aggregate p.a.

Taxable Exempt
(beyond that taxable)
2 views

If above 5000 Only amt above

Fully taxable 5000 is taxable
(Follow this)

(15) Value of specified security or sweat equity share for purpose of sec-17(2)
Perq. Taxable Value = FMV on date of exercising option
(–) Cost (any) recovered from e’yee
Bal. if +ve Taxable.

Note-1 : At time of sale of such shares cost of acq. wiil be such FMV[sec-49(2AA)]
Note-2 : If sweat equity is given by employer who is startup unit(As certified by
government)-then tax on such esops will be paid by employee in the year
1. after 48 months after end of AY(5 yrs from end of PY) or
2. year of sale Or
3. year of termination
w.e.earlier.

(16) Valuation of perq. For any other purpose not specified elsewhere
Find out exp by employer
(–) exp. On use for official purpose
(–) Amt. recovered from e’yee
Bal. (+ ve) → Taxable

Special note on maturity of keyman insurance policy:

→ P’ment under keymen insurance policy

DIRECT TAX : 37 :
CA INTER
Compensation under keymen Ins. Policy

R’ved by e’yee R’ved by e’yer R’ved by family of e’yee

Taxable under salary Taxable under PGBP IFOS

W. N. 4 : Deduction (Sec 16)

1) Standard deduction [16(ia)]

Gross Amt. of salary or ₹ 50,000 w.e. less (For all salary together in the P.Y.)

2) Entertainment allowance: [16(ii)]

Step-1 First add to salary for all employee.
Step-2 Then deduction only for Govt. e’yee

1/5th (20%) of or amount received or ₹ 5,000 p.a.

Basic salary
w.e less

3) Professional Tax or Tax on employment [16(iii)]

→ Levied by state Govt. → Deduction only when paid by employee in P.Y.

If paid by employee If paid by employer on behalf of employee

Take deduction Step-1-First add to Salary (Perq)

Step-2-Take deduction if employer has
actually paid

No deduction in section 16 if followed 115BAC




DIRECT TAX : 38 :
CA INTER

Profit & Gain from Business or

5. Profession (28 to 44DB)

❖ Section 145: Taxability as per method of accounting followed by assessee.

❖ Section 28 : Basis of charge:

1. Profit & Gains of B/P, carried on at any time during year.
2. Value of any benefit or perquisite arising from business.
[E.g. car received by dealer as gift]
3. Partnership – Remuneration ,Interest For Partner PGBP.
Bonus, commission, Salary, Etc
4. Fair market value of inventory on conversion in capital asset.
Note: Any speculative business to be kept separate from other business and all
calculations to be done separately (E.g. Intraday share trading)

Format for calculation PGBP income :

Net Profit as per P & L ✓✓
Add : Exps debited to P & L A/c but not allowed as deduction ✓✓
Add : Income not credited to P & L but taxable ✓✓

Less : Exps not debited to P & L but allowed (✓✓)

Less : Income credited to P & L but charged in other heads or (✓✓)
exempt
PGBP ✓✓

1. Section 29: Manner of computation of income under head PGBP :

As per section 30 to 43D

Admissible inadmissible Exp/P’ment Profits charge Other

deduction Deduction not deductible to
in certain circumstances Tax

30 to 37 40 & 43B 40A 41 44AA,44AB,

44AD,44ADA,44AE
DIRECT TAX : 39 :
CA INTER
2. Section 30 : Rent, Repairs, Rates, Taxes, & Insurance of Building(3RTI)
Allowed only if used for B/P

Rents Current Repairs Local Rates Insurance

Municipal Tax Premium

[For cap. Exp subject to condition

depre.] u/s 43B
[Paid b4 return
filing due date]

3. Section 31 : Repairs & Insurance of machinery plant furniture

Allowed only if used for B/P

Current repairs Ins. Premium What about Rent??

(Except capex)

4. Section 32 : Depreciation
Dep. in BOA → Disallowed
Dep. As per IT act → Allowed

→ Ded’ is to be claimed compulsorily [Explanation 5]

→ Conditions to be satisfied for depreciation.
Assessee should

Be the owner & Asset used for Busi / Profession

Asset in respect of which depreciation is claimed must belong to either of

Following category.

Building, Machinery, Plant or Knowhow, Patent, Copyright,

Furniture [Tangible] Trademark, License, or any other
Busi. right of similar nature
(Other than goodwill)

DIRECT TAX : 40 :
CA INTER
→ Asset used for less than 180 days(Full dep/Half dep concept)

Acquired in the yr & put to use in same P.Y. otherwise (>=180 upto 3rdoct)
for < 180 days during P.Y.(after 3rdOct)

Half depreciation Full depre

Note :
Date of purchase Put to use date Depreciation
1.4.22 1.11.22
1.4.21 31.3.23

1.5.22 3.10.22
1.5.22 4.10.22

→ “Block of asset” system & WDV method:

Meaning: Group of asset falling within class of asset in respect of which same rate
of dep. shall be charged under WDV method as per rules.

 WDV method [Section 43(6)]

Written down value is determined as under

Particulars ₹
Depreciated value of block as on 1-4-22 ✓✓
Add : Actual cost of asset acquired during P.Y. ✓✓
Less : Monies received or receivable for asset sold, demolished, (✓✓)
destroyed incl. any scarp value
(A) WDV for P.Y. 22-23 ✓✓
Less : Depreciation [ A x %] (✓✓)
Depreciated value of block as on 1-4-23 ✓✓

Rates of Depreciation:
Before that lets understand what is plant [43(3)]:
Plant include computers, laptop, books, equipments, vehicles but exclude
building,furniture,livestocks.

DIRECT TAX : 41 :
CA INTER
For rate of depreciations:[ Rule 5(1)]
Brief summary
→ Building used for residential purpose
Building 5%
[except hotels ]
→ Building → office, Factory, Godown, Hotel 10%

Furniture Furniture-fitting 10%

P&M → Motor car [other than used on hire] 15%

If acquired and put to use b/w 23.08.19 to 31.3.20 30%
→ Motor bus, lorries, Motor car if used as taxi 30%
If acquired and put to use b/w 23.08.19 to 31.3.20 45%
→ General P & M-Equipment 15%
→ Other (Computer, Laptop, Books) 40%

I.T.Asset Intangible asset(Other than goodwill) 25%

Examples:
Plant 15%
1. Block as on 1-4-22 → 10,00,000
Purchased plant D on 1-5-22 → 2,00,000
Sold out on 28-3-23 → 30,000
Dep ?
Ans.: Block value as on 1-4-22 → 10,00,000
Add : Actual cost of Plant D (1-5-22) → 2,00,000
12,00,000
Less : Sold out Plant C → (30,000)
WDV as on 31-3-23 → 11,70,000
Depreciation @ 15% → 1,75,500

 Suppose → Pur is on 1-11-22 ?

Block 10,00,000
+Cost 2,00,000
12,00,000
Less : Sold (30,000)
11,70,000

9,70,000 2,00,000
@ 15% @15% x 50%
1,45,500 + 15000
= 160500

DIRECT TAX : 42 :
CA INTER
When WDV of “Block of asset” shall be reduced to NIL (Section 50)

When sale consi.< Op.+addition When sale consi. of one

or more asset in block exceed.
Total of Op. + Addition
Any asset exists No asset exist
Short term capital gain
Conti. Depre Short term capital loss

Additional Depreciation : (Over & Above normal depreciation)[32(1)(iia)]

The assessee must be New P & M should be acq. & It should be eligible
Engaged in manufacture / installed P&M
Production of article or thing

Which are not eligible?

Ships/ Asset which b4 its P&M installed Road P & M whose

Aircraft installation was used in office premise Transport whole actual cost
Either in / outside India or Resi. accom. Vehicle allowed as ded’
(2nd hand) (Incl. Guest House) (E.g.section 35)

Rate of additional depre:

20% of original asset cost (Only in 1st yr of purchase of such plant).
If asset is put to use for <180 days then in this year 10% and in subsequent year balance
10%.
→ However whole additional depre is to be deducted from WDV same like normal
depreciation.

No additional depre can be claimed if 115BAC followed.

Special option available for assessee engaged in Business of generation & distri. Of
power/Electricity.
SLM
Assessee engaged in Additional depre ?
available
A) Trading No No
B) Professional No No
C) Manu. Of any article No Yes
D) Manu./ Gen & distri. Of power Yes Yes. Provided they follow WDV

DIRECT TAX : 43 :
CA INTER
So,

Assessee engaged in option to Option has to Option once

& distri. Power follow SLM exercise b4 due exercised shall
@ Rates date of filing be final.
Rule-5(1A) return u/s 139(1)
[can also opt
For WDV]

→ 180 Days rules applicable

→ if SLM → then no concept of block.

∴ Treatment when asset is sold, discarded demolished or destroyed.

Terminal dep(TD) [ 32(1)] or Balancing charge(BC) [41(2)]

If sale value < WDV then diff is if sales value > WDV, then
Allowed as ded’ in PGBP as diff is taxable in PGBP as
“Terminal Dep.” “Balancing charge”
Diff :
a) Surplus or
b) Dep. Claimed till date
w.e lower.
Balance=Capital gain

E.g. Assume that electricity company has followed SLM

Cost Op.WDV Sale value Surplus/Deficit TD/BC STCG?
1,00,000 50,000 70,000
1,00,000 50,000 10,000
1,00,000 50,000 120,000
1,00,000 50,000 1,00,000

Actual Cost : [Sec – 43(1)]

 Actual cost=total cost born by assessee to purchase asset
 Proviso: if exp on acq. of asset → P’ment to a single person in a single day is
otherwise than by a/c payee cheque or a/c payee draft or ECS (or through any e
mode) exceeds ₹10000 → then this will not form part of cost.

DIRECT TAX : 44 :
CA INTER
Other e-mode includes-credit card, debit card, net banking, IMPS, UPI, RTGS, NEFT,
BHIM Aadhar pay

 Special Cases (Explanations)

i) When asset acquired by gift → cost=WDV of previous owner.
ii) When earlier asset deduction taken in section 35/35AD now Cost=Nil
iii) Building previously used for personal use and in this year brought to
business:
Cost = original cost (–) Notional dep. from date of acquisition till starting of
yr.
[so if any other pvt asset converted then actual cost = original cost]

iv) Capitalization of int. on loan paid / payable in connection with acquisition of

asset.

Int. for period before put to use int. for period after asset put to use

Capitalise not to capitalize (take direct deduction)

v) Amt of tax on purchase of asset (GST, custom)-- if credit(ITC) is claimed

If credit is claimed → that much amount not to be included in total cost.

If ITC not taken—Then it will be added to actual cost.

Unbsorbed depreciation[Sec-32(2)]
→ When there is no profit under this head or not sufficient to absorb whole dep.
→ The Balance is called “ unabsorbed dep ”
→ Which can be set off against any other head except salary & bal. (if any) can be c/f
for “n” no. of years.
In any year ded’ order.

Current year Dep. → B/f Busi. Loss → unabsorbed depreciation

Note : No depre on asset which is fully allowed as deduction as capital exp.

5. (1) Section 35 : Expenditure on scientific research :

(1) Inhouse Research :
 By any assessee [sec-35(1)(i) + 35(2)+35(2AB)]
(Research should be for own business)

DIRECT TAX : 45 :
CA INTER
Following expenses are allowed as deduction

Current Year Prior period exps

3 yrs prior to commencement

Revenue + Capital (Except land) of busi.

Revenue Capital

To be approved Not to approve

By autho.

Only two Every exps (Except land)

1) P’ment of salary to
Research personnel.
(except perquisite exps.)
2) Pur. Of Material for Scientific Reaserch

100% deduction

No depreciation on asset claimed as ded’

Here R & D facility should be approved by prescribed autho.

DIRECT TAX : 46 :
CA INTER
(2) Contribution made to outsiders for scientific research / social research
(No deduction if 115BAC followed.)

Contribution to

University college University college National Co. registered in India having

Or association or association Laboratory main object of Sci. research
Which is approved which is approved IIT Uni. [35(1)(iia)]
[35(1)(ii)] [35(1)(iii)] [35(2AA)]

Scientific research for social science scientific scientific research

Or statistical research
research

100% of 100% of 100% of 100% of

Contribution Contribution Contribution Contribution

Other Points:
41(3): if ded’ claimed for asset & subsequently sold.
Then from
Sale proceeds

Upto amt of ded’ claimed earlier Bal. Amt

PGBP Capital Gain

 Unabsorbed amt of scientific research → same treatment as unabsorbed

depreciation

6. Section 35AD : Deduction in respect of expenditure on specified business

Commencement
Nature of business
Date
1 Operating cold chain facility 1-4-09
2 Warehousing for agriculture produce 1-4-09
3 Warehousing for sugar 1-4-12
4 Affordable housing project 1-4-11

DIRECT TAX : 47 :
CA INTER
5 Production of fertilizer 1-4-11
6 Hospital (100+ beds) 1-4-10
7 Cross country pipeline for oil &Gas 1-4-07
8 Hotel (2 star + ) 1-4-10
9 Slum re-development housing project 1-4-10
10 Inland container depot or container freight station 1-4-12
11 Bee keeping and production of honey & bees wax 1-4-12
Laying & operating a slurry pipeline for transportation of 1-4-14
12
iron ore
Setting up & operating a semi conductor wafer fabrication 1-4-14
13
manu. Unit
Busi in nature of developing, maintaining, operating infra 1-4-17
14
facility

Deduction (100%)

Current year Prior yr (No limit)

Revenue Capital Revenue Capital

(Only if
capitalized in
BOA)

→ Expenses which are not allowed

Land, Goodwill, financial Payment to a person in a day

Instrument exceeding ₹ 10,000 otherwise
Than by A/c payee, cheque,
Draft, ECS or other e-mode.

Other Points:
1) When deduction u/s 35AD claimed for same exps no other deduction like section
10AA, section 32.

2) Claim of 35AD is optional. So if any person is not claiming 35AD then they can
claim other deduction like section 32.
3) No deduction if 115BAC claimed.
DIRECT TAX : 48 :
CA INTER

4) If any asset on which deduction u/s 35AD claimed → Sold, demolished, destroyed,
then amt received = PGBP Income [Sec. 28]

5) Loss of specified busi. can be set off only against specified business u/s 35AD even
though that business is not claiming 35AD because it was started earlier than the
date specified.
[Unabsorbed to be c/f →infinity Period]

6) An asset on which ded’ u/s 35AD claimed shall be used only for specified business
for 8 years from beginning of P.Y. of acquisition.
If used for non-specified business then:

Following shall be deemed to be income of PGBP in yr in which asset so used.

Total amt. of ded’ claimed ✓✓
(–) dep. u/s 32 allowed if no ded’ was
allowed (✓✓)
Deemed Income [35AD(7B)] ✓✓

7. Section 35D : Amortization of certain preliminary expenses

→ Eligible assessee : Indian co. or any other resident person
→ Eligible expense : Before starting business or to start new unit.
→ List of Qualifying exps: Feasibility report, Engineering report, Project report,
Market survey, Printing MOA, AOA, Prospectus etc.

Maximum Qualifying Expense :

Company Others
→ 5% of cost of project → 5% of cost of project
or
→ 5% of capital employed
W.e. higher

Or actual exps w.e. Lower

Deduction: Deduction of above expense is allowed one fifth [in 5 equal

installments]
→ Starting from P.Y. in which business commences.

DIRECT TAX : 49 :
CA INTER
 Audit of BOA
What is capital employed

Issued Share Capital + Debenture + Long Term Borrowings(SC judgement-

Securities premium not to be included)
[as On last day of P.Y. in which busi. Commences / extension completed]

E.G.: Aagam Ltd. Commences business on 1.4.22.He incurred exps during the year for
preliminary exps of Rs.200000.The capital employed on first day is Rs.3000000.On
last day is Rs.3500000.The cost of project for which exps done is Rs.5000000.What
will be deduction u/s 35D in this yr 2022-23?

Ans.

8. Section – 35DDA : Amortization of compensation paid under VRS

Where assessee incurred exps. In P.Y. for VRS → 5 equal annual installment

9. Section – 36 : other deduction:

Nature of Exps Applicable To Conditions
Insurance premium on stock All Assessee
/ store of business [36(1)(i)]
Insurance premium on health All employer Payment → Other than cash
of employee. [36(1)(ib)] Insurer → Approved by IRDA
Bonus & commission paid to All employer Not payable as profit or
employee. [36(1)(ii)] dividend + payment as per
sec-43B
Interest paid on borrowed All Assessee a) Money should be
capital (If owned capital → borrowed for business.
Not allowed) Section b) In case interest payable to
[36(1)(iii)] financial Insti,Banks →
43B
c) Int. for capital asset from
date of borrow to date put
to use → not deductible.
[because it is to be
capitalized ∴ Dep u/s 32
Employer contribution to All employer → as per sec -43B
reco. PF or approved Gratuity

DIRECT TAX : 50 :
CA INTER
fund / Superannuation fund
[36(1)(iv) & (v)]

Employer contribution in All employer → Deduction upto 10% of

A/c of employee pension salary of employee [Salary =
fund u/s 80CCD [36(1)(iva)] Basic+ DA(%)]
→ ∴ excess contri. Disallowed
u/s 40A(9)
Contribution from employee All employer → Step-1:first add to income
toward P.F. S.A, other fund of employer [2(24)]
[36(1)(va)] → Step-2: Then ded’ is
available if paid within due
date of that act.
[E.G. PF → 15 days from
month]
Bad debt [36(1)(vii) & 36(2)] All Assessee → Incidental to business.
→ Bad debt should be
written off in BOA.
No deduction for bad debt
provision/reserve.
Expense on family planning Companies → Rev. exps → Fully
amongst e’yee [36(1)(ix)] (not to firm → Capital exps → Over 5 years
etc) → Unabso. Exps → same as
unabso. Depre.
→ No ded’ in other sec.
Security Transaction Tax All Busi Allowed as ded’ if tax is paid
(STT) assessee during P.Y. & such income is
Or taxable under head PGBP.
Commodities trans. Tax
[36(1)(xv)] & [36(1)(xvi)]

DIRECT TAX : 51 :
CA INTER
10. Section 37 (1) : General ded’
Condition for allowability for other exps

Expense Should be in Not in nature Should be

Other than connection of capital exps incurred
those with busi / + during P.Y
Specified prof. carried Not personal
In sec 30-36 on by exps
Assessee
(e.g. donation not
A busi.exps.)

Explanations to section 37

Explanation 1 Explanation 2

Any exps done for offense under any law CSR exps.as per Sec
Not allowed. 135 of Co.s Act,2013
Penalty for late filing return, fine, is also not allowed
Traffic memo, as deduction.
However interest on late payment of gst
is extention of tax only. so,
Int is allowed.

Explanation 3: Expl. 1 shall include any offence in or outside India.

Any amount which the receiver cannot legally accept due to any law, rules,
regulation is also disallowed.
Any Payment done to compound the offence is also disallowed.

CBDT:1. Premium paid on keyman ins. Policy →Allowed (circular)

Expenses Disallowed:
11. Section : 37(2B) : Advertisement exps in relation to political party
No ded’ for exps. done in advertisement in any souvenir, brochure, pamphlet by
political party.
In Que : Step-1: Disallow from PGBP
: Step-2: Ded’ u/s 80GGB
If paid other than cash.

DIRECT TAX : 52 :
CA INTER
12. Section: 38: When Building, P & M, furniture, not used wholly for business.
Proportionate exps for non busi uses will be disallowed.

13. Section 40(a)(i) r.w 40 (a)(iii) :

Payment O/s India or to Non-resident on which payer has duty to deduct TDS,
then that expenses will be allowed as deduction only if during the year TDS is
deducted and that TDS is deposited to government on or before due date of filling
return of Income U/s 139(1).
So, If TDS not deducted during the year—100% of that expense will be disallowed.
If TDS deducted but not deposited up to due date of filling return of income then
also disallowed 100%.
This 100% will be allowed in that subsequent year in which TDS is deducted and
deposited.

14. Section 40(a)(ia) :

→ Any sum payable to resident and TDS not deducted or after deducting the same
not deposited to govt on or before due date of 139(1) then disallowance will be
30% of exps
→ 30% allowed in yr TDS deducted and deposited.

15. Section 40(a)(ii) :

Sum paid as tax or cess on profit (i.e. Direct tax) will be disallowed.
∴ Indirect tax → allowed as deduction (GST, Customs, etc)

Direct Tax Indirect Tax

Tax Int. Penalty Tax Int Penalty

Disallowed Disallowed
Disallowed as per expl.1 Allowed as ded’ as per expl.1
u/s 40(a)(ii) of 37(1) u/s 37(1) of 37(1)

→ I.T Refund → Not income. Int. on refund: IFOS

Note: Any surcharge, cess is also part of direct tax hence not allowed.

16. 40(a)(v) & 10(10CC):

→ Any obligation of e’yee met by e’yer then it is perquisites = Allowed as
deduction to employer & Income for employee.

DIRECT TAX : 53 :
CA INTER
→ But if tax on such perq. If also borne by e’yer = Exempt to employee u/s
10(10CC) and disallowed to employer u/s 40(a)(v)

Disallowance u/s 40A:

(1) 40A(2) : Payment made to relative.
If payment is made to specified person (w.n-1) being relatives for Goods,
services or any facilities & considered excess than Fair Market Value (FMV)
by Assessing Officer.

Then excess amt. will be disallowed

Specified Person:
Individual [2(41)] → Relative (Spouse, bro, sis, lineal ascendant /
Descendant)

Note: Payment to uncle, sister in law etc eventhough excess than FMV still
allowed because they are not relative.

(2) 40A(3) : Payment exceeding ₹ 10,000 :

 If assessee incurred any exps for which payment or aggregate made to a
person in a day exceeding ₹ 10,000.

Otherwise than by A/c payee chq, Draft, ECS,or any other e-mode

Disallowed.

 Note: In case of payment made to transport operators for plying,

hiring or leasing goods carriages → ₹ 35,000 instead of ₹ 10,000

This will not apply to loan Transaction, because it is not expense.

Cases where 40A(3) will not apply [Rule 6DD]:

a) Payment made to RBI, Any Bank, LIC, Govt.
b) Where payment made for purchase of
Agricultural or forest or fishery produces to cultivator, grower, Producer
[Not to trader, broker, middleman]

DIRECT TAX : 54 :
CA INTER
c) Payment made of salary & TDS ded’ u/s 192 if

e’yee temporality posted & does not maintain bank a/c at

for continues 15 or more days that place.
in other place.

Example.1. Mr. B paid Rs.5000 in cash to Mr,C for printing exps on 1/10/22
at 8 AM.He again gave Rs. 6000 in cash to him at 5 PM.

1. ABC Ltd. Send employee Mr.A on temporary basis to Mumbai where he do

not have bank account from 1/11/22 to 13/11/22.After deducting TDS paid
salary Rs.50000 in cash.

(3) 40A (7) : Provision for payment of Gratuity:

For employer Provision for gratuity is not allowed as deduction but when
actually paid then allowed as deduction.
However if employer is maintaining own gratuity fund which is approved
then deduction of provision is allowed.

(4) 40A (9) :

Payment to unrecognised or non statutory welfare fund → Not allowed

17. Section 41 : Deemed Income :

Nature of deemed Profit Taxable in which P.Y
41(1) Recovery against ded’ of any loss exps or P.Y. in which amt.
trading liabi. (for which ded’ allowed recovered or written
earlier) back.
(E.g. Discount given by creditor, Custom
duty recovered)
41(4) Bad debt recovered only upto amount P.Y. in which recovered
allowed as deduction earlier
Note: Unallowed portion will be recovered
first.
41(5) For loss: if after ceases of any busi. deemed income arises then
unabsorbed loss during the P.Y. of cease will be set off against income.

DIRECT TAX : 55 :
CA INTER
Example:
Bad debt Allowed Unallowed Bad debt Taxable?
recovery
10000 6000 4000 6000
10000 10000 0 8000
10000 2000 8000 5000
10000 8000 2000 6000

18. Section 43B : Certain ded’ to be allowed on actual P’ment :

Following expenses are allowed as ded’ only if paid by assessee on or before due
date of furnishing return u/s 139(1) of P.Y.
a) Sum payable as tax, duty, cess, fee under any law
b) Sum payable by employer by way of contri. to P.F, Superannuation fund,
Gratuity fund
c) Bonus or commission to e’yees
d) Int. payable to Bank. public financial Institute or state financial corporation,
NBFC
Note: Int on friends, relatives not covered.
e) Leave money to e’yee.
f) Any sum payable to Indian Railways for use of railway asset.

Note: 1. This section is applicable when assessee follows mercantile system.(In

cash basis we take deduction only in year in which actually paid)
Note: 2. This will be allowed in the P.Y. in which paid.
Note: 3. If unpaid interest is converted into loan/debenture/bond by bank / PFI →
it is not actual payment. However, when installments are paid then it will be actual
payment upto amount of that installment.

19. Special Section for partnership firm : [40(b)] :

→ 40(b) : Deduction for “remuneration to partners” & “ interest to partners”
i) Remuneration : Deductible if
Paid to working partner as per the deed.
Maximum deduction only up to permissible limit.
→ Permissible limit u/s 40(b)
This limit is based on book profit:
Book profit in simple terms means PGBP income before deducting remuneration
Book profit = N.P. as per P & L
+ Remuneration to partner if debited to P/L
± Adjustment as per sec-28 to 44DB (int. upto 12% is also ded’)

DIRECT TAX : 56 :
CA INTER
[so disallow if debited in P/L & allow below given]

On 1st₹ 300000 of book profit + on balance book profit

Or loss above ₹ 300000

₹ 150000 or 90% of 60% of such B.P

Book profit w.e higher

Ded’ = Total or actual w.e. Less

→ Note: No adj. for B/f, C/f loss because it is covered by section 72, 73, but adj, for
unabsorbed dep is to be done as it is covered u/s 32

ii) Interest to partner [ loan or capital] :

Can be paid to any partner but maximum deduction @12% p.a.

Note: Remu. & Int. which is deductible for firm is taxable for Partner.

20. Section 44AA : Maintenance of Books of A/c

(1) For specified professions: Legal, Medical, Engineering, Architect, A/c,
Technical service, film artist, CS, IT professional

If gross receipt do not exceed ₹ 1.5L if Gross receipt exceeds ₹ 1.5L

In all/any of the 3 preceding P.Y. in all 3 preceding P.Y. or for
New prof. likely to exceed ₹ 1.5L

Maintain BOA as may maintain BOA as per Rule -6F

Enable A.O to compute Income

Rule-6F:: Cash book, journal(If mercantile

system), Ledger
→ Copy of bills & receipt → serially
Numbered for amt >₹ 25
→ Original bill / voucher for exp >₹ 50
For medical additional requirement:
Daily case regi. Form 3c
→ Inventory of stock.

DIRECT TAX : 57 :
CA INTER
(2) For other nonspecified profession & business :

If PGBP Income do not exceed PGBP >₹ 1.2L* Person show income lower
₹ 1.2L *& gross sale / receipt or t/o > 10L* than prescribed u/s 44AE or
Do not exceed ₹ 10L* in in any of 3 44ADA sec. 44AD(4)
All 3 years preceding P.Y.

Do not require to Keep such BOA as can enable AO to

Maintain BOA compute income.

* for individual / HUF → PGBP → ₹ 2.5L or T/o → ₹ 25L

If failure → penalty u/s 271A → ₹ 25000

Where to maintain For how many years

Place of busi. 6yrs from end of A.Y.

21. Section 44AB : Audit of Books of A/c

Assessee is covered by section Not Covered

44AD/ ADA/AE

Declares min. Declares Busi. profession

Income as per less income
that section Total t/o Gross receipt
>1 cr.(Note-1) > 50 L in PY
Audit is not Audit is in P.Y. [44AB(b)]
Required compulsory [44AB(a)]

If 44AD & 44ADA if 44AE T/o = Sales + Other busi.

Receipt
Only if income Compulsory
Exceed basic [44AB(c)]
Exemption limit
[44AB(e), 44AB(d)]

DIRECT TAX : 58 :
CA INTER
Note: 1. Instead of 1 cr limit will be 10 cr if:
A. Total Receipt in cash (incl. for sales, gross receipt) in PY is <= 5% of
total receipt. and
B. Payment in cash for exps., etc in PY is <=5% of total payment.
(No change in limit for professionals)
(Cash includes cross cheque, bearer cheque)
 Report to be submitted on or b4 1 month prior to due date of filing
return u/s 139(1) (means 30th September because due date of return is
31/10.)

22. Section 44AD : Profit or Gains on presumptive Basis :

1) Eligible assessee : Resident individual, HUF, Firm (but not LLP)& who
should not have claimed deduction u/s 10AA or heading C → 80H 80RRB of
Ch. VI-A

2) Eligible business :All business (except plying, hiring, leasing, goods

carriage → 44AE)
&whose T/o ≤ 2 crore.

3) Non eligibility:

Resi. ALL Busi Profession Busi of plying, Broker Person having

Co./LLP NR T/o>2 cr (44ADA) leasing, hiring of Agency income
AOP/BOI goods carriage
(44AE)

4) Presumptive tax rate : (Deemed income of PGBP)

(i.e. % of T/o)

8% of Total T/o However, it will be 6%

If amount received
(i.e. A/m of T/o)
By

A/c Payee or A/c payee or ECS or emode

Cheque Draft

During P.Y. or Before due date

Of return of income.
Assessee can claim higher % also.

DIRECT TAX : 59 :
CA INTER
Note: If turnover amount is received from debtor after due date of return of
income then whatever is mode of payment always we have to apply 8%.

5) Other Provision :
i) No further deduction of sec-30 to 38..No other disallowances to be
made.
[even Remuneration to partner, Int. not allowed]
ii) WDV of Block will be calculated as if assessee has claimed depreciation.
iii) No requirement of maintaining books as per section 44AA & no audit
u/s 44AB.

6) Advance Tax :→ Eligible assessee shall pay advance tax in 1 installment up to

15th March of P.Y.

7) 44AD(4) :→ if assessee fails to declare profit u/s 44AD (i.e. declaring lower
profit) in any five consecutive year after the relevant to P.Y. then not
eligible for this section for 5 next year from yr of contradiction. +
In the year in which shown lower profit--Require to maintain BOA → 44AA &
Audit [44AB(e)] (if income exceed BEL).

23. Sec-44ADA: Profit – Gains of profession on presumptive Basis.

1) Eligible assessee → who is resident IND/Firm(Except LLP) & engaged in
specified profession as per sec. 44AA(1).
2) Eligible business : whose gross Receipt ≤ 50Lakh in P.Y.
3) Presumptive rate:
50% of total receipt = Deemed Income. (can declare higher)
4) Other provision
a) Deduction u/s 30 to 38 → deemed allowed…No further disallowances
(i.e no farther ded’of remuneration & Int to partner)
b) WDV of block will be calc. as if depre has been claimed
c) No. requirement of BOA u/s 44AA & no audit.
5) Advance Tax → Before 15th March.
6) If lower profit → Audit u/s 44AB(d) nd BOA u/s 44AA if income exceed BEL.
(No 5 years criteria)

24. 44AE : Presumptive income for busi. Of hiring, plying, leasing of goods
carriage.
1) Eligible assessee: persons owning NMT 10 goods vehicle at any time during
P.Y.
2) Eligible business: busi. Of plying, hire or leasing of goods carriage.

DIRECT TAX : 60 :
CA INTER
3) Presumptive rate of Tax:

Heavy Goods vehicle(Wight>12 tons..>12000kg) Other than heavy

₹ 1000 X per ton of ₹ 7500 X Per month

Gross vehicle weight or part X per vehicle
X per month or part X per vehicle

During which vehicle is owned (& not used)

(can declare higher income)
Other provision:
a) Ded’ u/s 30 to 38 → Deemed (but remuneration and int to partner→
allowed additionally)..No further disallowances
Unlike 44AD & 44ADA.
b) No. req. of BOA & Audit.
c) WDV calc as it depre allowed.

4) Advance Tax → as per normal norms(i.e.4 installments)

5) If lower income → Audit u/s 44AB(c)
Evenif lower BEL

Composite Income: What is tax treatment of income which is partly agri &
partly busi. (Rule 7. 7A, 7B, 8)
(For Agri in India)

Busi. Income Agri. Income Rule

1. Growing & Mfg tea 40 60 8
2. Mfg. Rubber 35 65 7A
3. Coffee grown & cured 25 75 7B
4. Coffee grown, cured, roasted 40 60 7B

→ Note :if agri o/s India → 100% Business



DIRECT TAX : 61 :
CA INTER

6. Capital Gain

Types of Capital gain: Short term Capital Gain (STCG), Short Term Capital Loss (STCL), Long
Term Capital Gain (LTCG), Long Term Capital Loss (LTCL).

❖ Section 45 : Chargeability :

+ + +
There should be a Capital asset is Profit/Gain it is not exempt u/s
Capital Asset Transferred by arises 54,54B. 54D, 54EC
Assessee during 54F
P.Y.

❖ What is capital asset[2(14)] :

Property of any kind whether or OR Securities held by foreign institutional

Not connected with business investor as per SEBI Act-1992.

Capital Asset

Exclude Include
1) Stock in trade, consumable Jewellery, Archeological
Store, Raw material collection, Painting,
2) Personal Movable asset Drawing, Sculptures work of
any art. [Car, Cloths, watch, etc. not
e.g. wearing apparel & covered]
Furniture held for Personal use,
But does not include
3) Rural Agriculture land in India (Note-1)
4) Specified Gold Bonds

DIRECT TAX : 62 :
CA INTER
Note:-1 What is Rural Agriculture land:
Means other than urban agriculture land.

What is urban Agriculture Land?

Agriculture land in area or Beyond limit up to how much area?

Within jurisdiction of
Municipality having
Distance from
Population NLT (>) 10,000 Population
local limit=urban
> 10,000
≤ 2 KM
≤ 1,00,000
> 1,00,000
≤ 6 KM
But ≤ 10,00,000
> 10,00,000 ≤ 8 KM

❖ What is transfer [2(47)] :

i) Sale, exchange, relinquishment of asset
“Relinquishment” = Abandon / give up asset
E.g Exchange:
Gold Urban Land

(i) A B A B

Silver Rural Agri. Land

Cap. Gain Cap. Gain Cap. Gain No Cap. Gain

ii) Extinguishment of right

Extinguishment = Give up rights.
E.gMr. Aagam has 100 shares of MRF.
MRF gives a letter for offering to purchase Right shares 2:5 @ ₹ 2,00,000
Aagam sale Right offer letter @ ₹ 10,000/ share.
So, this is extinguishment of Right.
iii) Compulsory acquisition of asset under any law.
iv) Conversion of capital asset into inventory.

DIRECT TAX : 63 :
CA INTER
❖ Transactions not regarded as transfer [Sec – 46 & 47]
1) Distribution of asset by company on liquidation → Section 46

On liquid co. trf For SH who Cost will be FMV

Asset to is receiving the on date of acq.
SH = Not trf asset when SH will
subsequently sale
It is deemed div
u/s 2(22)(c) (IFOS)
(Amt = FMV on date)
Up to amt of accumulated profit(R&S)
Balance=Sale value for capital gain

2) Distri. Of asset by HUF to members at time of total or Partial partition [47(i)]

(For member it is exempt u/s 10(2))

3) Transfer of Cap. Asset by way of Gift or will under Irrevocable trust(Except

ESOPS given under gift or irrevocable trust) [47(iii)] [but for receiver → IFOS
sec-56]

4) Conversion of bond/Deb/Preference shares into shares or debenture

[47(x),47(xb)]

❖ Type of capital asset:

Short term capital asset Long term capital asset

[2(42A)] [2(29A)]

Asset held for

≤ 12 / 24 / 36 month Which is not short term

≤ 12 months → Listed shares, securities

→ Mutual Fund Unit of equity fund/
UTI(Unit trust of India).
→ Zero coupon Bond.
≤ 24 months → Unlisted Share.
→ Land & Building

DIRECT TAX : 64 :
CA INTER
≤ 36 months → Unit of debt fund
→ Unlisted security other than share
→ Other asset [Jwellery etc.]

❖ Section 48 : Computation of capital Gain

Short term capital gain Long term capital gain

Full value of consideration (FVC) full value of consideration

Less : Expense incurred wholly Less : Expense incurred wholly
In connection with transfer In connection transfer
Net consideration Net consideration
Less : Cost of acquisition(COA) Less : Indexed Cost of acquisition
Less : Cost of improvement(COI) Less : Indexed Cost of improvement
STCG before exemption LTCG before exemption
Less : Exemption u/s 54B Less : Exemption u/s 54, 54B,54D
54D, 54EC,54F,
STCG(u/s 111A or finance act rate) LTCG(U/s 112 or 112A)

Note: No deduction of STT is allowed in capital gain. [It was allowed in PGBP while
calc. business income]

I) Full value of consideration:

It is amount received by transferor on sale of asset b4 expense.
Sometimes it is notional amount.

Section 50 D: where consideration received or accruing as a result of trf. Of cap.

Asset by assessee is not ascertainable or cannot be determined (e.g. in case of exch
extinguishment etc)

The FMV of said asset on date of trf shall be deemed to be FVC.

II) Expense in connection with transfer :

Means exps which is necessary to effect transfer.
e.g. Brokerage, commission cost of stamp, registration fee, legal exps, etc(STT not
allowed)

DIRECT TAX : 65 :
CA INTER
III) Cost of acquisition:
Means value for which it was acquired by assessee + capital exps at time of acq.

→ Notional cost of acq. [49(1)]

In the following cases “cost to previous owner” shall be deemed to be cost of
owner.
1) Acq. of asset by HUF to member on total or partial partition.
2) Acq. of prop. Under GIFT/Will
3) Acq. of property.
- By succession inheritance.
- By trf of asset b/w holding & wholly owned Indian subsidiary.
- Under amalgamation, demerger.

❖ Platinum principles for capital gain computation :

1) If cap. Asset is acquired by any mode referred in sec 49(1) → then to find whether
asset is long term or short term → period of holding (POH) & Cost of acquisition of
previous owner is to be considered.

2) As per section 55(2) → if cap. Asset acquired by owner or previous owner prior to
1-4-2001 then option is available to adopt i) FMV on 1-4-01(See note)
or ii) Cost of acquisition
w.e.higher
(Except for listed eq. Share.)
Note: For land or building:
Step-1: FMV on 1.4.1 or stamp duty on 1.4.1 w.e.lower
Step-2: Step-1 or actual cost w.e. higher
E.g. Determine COA for following asset(Purchased prior to 1.4.2001)
Asset Purchase FMV on Stamp duty on COA
cost 1.4.2001 1.4.1
Jwellery 100,000 150,000 -
Unlisted Shares 50,000 20,000 -
Land 20,00,000 23,00,000 22,00,000
Building 30,00,000 33,00,000 35,00,000

3) Cost of acquisition shall be indexed (for LTCG) as follows:

Cost of acquisition x CII of yr of transfer
CII of yr in which asset acquired
CII=Cost inflation Index
(Indexation from PN.4.376)

DIRECT TAX : 66 :
CA INTER
Note: There are two views:
For cases covered u/s 49(1)

1st view (From act) 2nd view

Indexation from yr of acquisition by Bom.-CIT vs. Manjula J. Shah
Current owner CII from yr of previous owner
(Follow this)

4) 55(1)(b) : cost of improvement prior to 1-4-01 incurred by previous owner or

by current owner is to be ignored.
Cost of improvement by previous owner or owner shall also be indexed (if after
1.4.01 nd case is u/s 49(1).
Cost of Improvement x Transfer yr Index
Improvement year index

5) No indexation benefit for followings.

a. Bond or Debenture
b. Slump sale=50B
c. Listed shares covered u/s 112A

Capital Gain for depreciable asset

Sec-50 (learnt in PGBP)

When WDV of “Block of asset” shall be reduced to NIL (Section 50)

When sale consi.< Op.+addition When sale consi. of one

or more asset in block exceed.
Total of Op. + Addition
Any asset exists No asset exist
Short term capital gain
Conti. Depre STCL

❖ For FVC of Land or Building

Section 43CA & Section 50C :

Land or building land or building held as

Held as stock capital asset.

DIRECT TAX : 67 :
CA INTER
Applicable if on date of registration stamp duty value >110% of actual
consideration

Whether Taxpayer accept stamp Duty valuation for income tax?

If accept if does not accept

Sale value = Stamp duty A.O will assign valuation

Officer

V.O-Value lower V.O. → Value higher V.O. → value lower

That actual Than SD than SD
FVC=Actual FVC = SD FVC = value of V.O.

A.O=Assessing officer, V.O=Valuation officer,SD=Stampduty

Note : Generally we take stamp duty on date of registration but Taxpayer has option
to take stamp duty value as on date of agreement (& not date of reg.)
If.
Part of consi. must have been paid by way of A/c payee cheque A/c payee draft or use of
ECS or by e-mode on or b4 date of agreement.

Note : if SD ≤ 110% of actual consi. than sale value = actual consi.

Refer example on PGBP

❖ Sec-50CA : FVC for trf of unlisted shares

Actual Consi. Or FMV on date of trf w.e.higher.

❖ Section – 51 : Advance money received

Tax treatment of advance money forfeited due to failure of negotiation for trf. of cap
asset.

If received before Received on or after

1-4-14 1-4-14

It is to be reduced from cost Amendment u/s 56(2)(ix)

of acq. in year of trf.
Taxable in IFOS in yr Of receipt.
Note: Received by previous owner → ignore

DIRECT TAX : 68 :
CA INTER
❖ Special Cases:
1) Computation of C.G. when insurance claim is received [45(1A)]:
→ History: SC gave judgment that insurance claim received on a/c of destruction of
asset is not chargeable to tax as “destruction” is not transfer.
But by insertion of 45(1A) → Judgement nullified upto certain extent

When C.G. is chargeable u/s 45(1A)

Condition-1 & Condition-2

Compensation is received because the damage or destruction is
Of “Damage to” or as a result of 4 categories
“Destruction of” C.A

i) Flood Typhoon Hurricane earthquake

ii) Riot or civil disturbance
iii) Accidental fire explosion
iv) Action by enemy

→ CG will be taxable in year of receipt.

→ If any asset is received in claim, then FVC = FMV of asset on date of receipt.

2) Cap. Gain in case of conversion of cap. Asset into stock in trade → [45(2)]
Step-1 : Cal. cap gain on trf of cap. Asset into inventory
FVC = FMV of cap. Asset on date of Trf.
POH=upto conversion
CII=upto conversion
This cap. Gain will be taxable (the amount as calc. in yr of trf) in year
when inventory is sold.

Step-2 : When inventory sold profit taxable in PGBP. For profit calculation Cost =
FMV of capital asset on date of conversion.
So, both a/m taxable in yr of sale
(Note : Personal asset which is not cap. Asset will not be taxable)

DIRECT TAX : 69 :
CA INTER

3) Capital gain in case of compulsory acq. of asset [45(5)] ∴ [cross ref. 10(37)]
→ Trf. Of asset is by way of compulsory acquisition under any law.

Initial compensation Enhanced compensation

→ Charged to tax in P.Y. → Enhanced by court, trib

in which compensation → Chargeable in yr in which received
(or part) is received → FVC = Difference received
→ Cost = NIL (as full cost taken earlier)
→ FVC = Full initial comp → if enhanced because of any interim order
(even if received part) then charged to tax in yr in which final
POH=Upto trf Order is passed & not in interim order.
CII = Upto trf → Litigation exps are deductible as “exps on
Transfer”
→ Type of cap. Gain → STCG or LTCG → same
as original.
→ If person die before receiving compensation- taxable in hand of recipient.

4) Capital Gain in case of specified agreement with developer [45(5A)]

Specified agreement entered by person other than Ind/HUF-CG of property given

to contractor taxable in year in which given to him (FVC=Stamp duty on date of trf-
Handing over)

If agreement entered by Individual/HUF then CG of property given to contractor

taxable in year in which Certificate of completion (COC) received for new property.
(FVC=Stamp duty on date of COC + Cash consideration)

If Ind/HUF has transferred share in new property before COC came or he has not
accepted share in new property rather opted out then cap gain for old property
taxable in that yr of handling over to constructor. (FVC= Stamp duty on date of
handing over)

However in all cases indexation of COA to be done upto the yr of transfer.

Whatever is FVC here, will become COA for new property.

DIRECT TAX : 70 :
CA INTER
5) Trf of shares [55(2)(ac)] = cost of acq. or listed shares
→ History=earlier u/s 10(38) → LTCG was exempt now LTCG > 1L is taxable @
10% u/s 112A so, there can be huge cap gain tax on sale of shares purchased long
back.
Hence, amendment for genuine investor
Applicable for listed shares and equity oriented mutual fund on which at time of
purchase and sale STT is paid.

Which was acquired b4 1-2-18 (Budged date)

COA= Step-1: FVC on trf or FMV on 31.1.18 w.e. lower

Step-2: Step-1 or actual cost w.e. higher
[Means gain upto 1st feb is still exempt]
Note: This rule is same for listed bonus & right shares also.
: FMV on 31.1.18 to be taken as highest price on stock exchange.
: If shares were acquired on/after 1/2/18 COA=actual cost
: No indexation benefits available.

6) Taxability of self-generated asset (cost = sec.55)

What is cost of acq. & Cost
Self – Generated asset
of improvement
1. Goodwill of busi. and profession NIL
2. Tenancy right NIL
3. Right to mfg, produce or process any article
NIL
of business.
4. Trademark, Brand name NIL
→ What if goodwill is purchased?
If purchased prior to 1.4.20 COA=WDV on 1.4.20
If purchased on or after 1.4.20 COA=Actual cost

7) Cost of acquisition of bonus share (sec-55)

Unlisted bonus shares Allotted prior to 1.4.01 COA=FMV on 1.4.01
Allotted on or after 1.4.1 COA=NIL

Listed Bonus Shares Allotted prior to 1.2.18 COA= FMV on 31.1.18 or

FVC whichever is lower
Allotted on or after 1.2.18 COA=NIL

DIRECT TAX : 71 :
CA INTER
8) Cost of acquisition of right share
a) Original shareholder sale the right entitlement letter…for this letter COA=NIL
b) Original shareholder purchase right shares. For these shares COA=Actual cost
c) 3rd party who purchase letter from original shareholder.
COA of shares=Cost paid to original shareholder for letter + Cost of shares paid to
company

9) Cap. Gain in case of share / deb. Or warrant issued under ESOP in case of trf.
Under Gift : (Sec-48)

If shares / deb / warrant received in ESOP is given as gift or irrevocable trust

then it will be treated as transfer. (IF ESOPS given under will then again not a
transfer)
FVC =FMV as on date of transfer.
COA=FMV as on date of acquisition(49(2AA))
Because, at time of receipt- salary income must also have taxed.

10) Capital Gain on buy back of unlisted + Listed shares (Sec-46A) :

Buyback by domestic co. buyback by other than

Domestic co.

Co. → Pay additional Income Tax No Tax to co.

@23.296 % (20%+12%+4%)
Sh → Exempt u/s 10 (34A) For S.H. Cap. Gain u/s 46A

12) Capital Gain in case of slump sale (50B) :

One or more asset

Slump sale = Trf of more than 1 asset without value being assigned to individual
asset & liab.
→ Tax consequences: No CG for single asset but total CG.
Slump sale = LTCG but if all cap. Asset owned & held for < 36M → STCG
FVC = FMV of consideration received or FMV of business w.e.higher
→ Cost of acquisition = Net worth
= Total asset (–) liability at book value

DIRECT TAX : 72 :
CA INTER
Net worth Value
Depreciable asset WDV as per incometax act
Asset u/s 35AD (as ded’ is claimed) NIL
Self-generated goodwill NIL
Other asset Book Value
Sub total ✓
Less : Liab. (Book value)
Net worth ✓

→ Ignore any ∆ in value of asset due to revaluation. (to avoid manipulation)

→ No. benefit of indexation.
→ If no dep. Provided on dep-asset then provide & take WDV.

❖ Exemptions given in section 10:

i) Section 10(37) :

Ind./ HUF Trf. Urban by way of exempt only if land

Agri. Land compulsory used for agri. purpose
Rural agri. Land acquisition during past-2 years
Is already not from date of trf.
Taxable Initial or
Enhanced
After 1-4-2004 both are
exempt

❖ Exemptions in capital Gain head:

Question 54 54f 54EC 54B 54D
For which Ind/HUF Ind/huf All Ind/huf All
assessee
For which Long term Long term Long term LT/ST LT/ST
kindof asset
Which asset A Any capital Immovable Urban land Land or
to be trf residential asset prop. used for building of
House except agri. industrial
Property residential Purpose for undertaking
(chargeable HP atleast 2 yrs compulsory
in head hp) prior to date acquired by
of trf. Govt. & Used

DIRECT TAX : 73 :
CA INTER
for 2 prior
yrs for
industrial
Purpose.
Which asset One One 5 yr redeemable Urban or Land or
to be residential residential bond: rural agri building for
purchased house house -NHAI land industrial
property in property (National purpose
India in India Highway
(Note 1) authority of
India)
-RECL
(Rural
electrification
corporation
Ltd.)
-Power finance
corp.
-Indian railway
finance corp.
Upto what Within 1 yr 6 mnths from 2 yrs from 3 yrs from
time to before date date of trf date of trf date of trf
purchase? of trf or
After
transfer
within:
Pur: 2 yrs
Const-3 yrs
What is CG or Invst* CG CG or Invst or CG or invst Cg OR INVST
exemption Invst Net consi 50 Lakhs w.e.lower W.E.LOWER
w.e.lower w.e.lower
Upto what 3 yrs 3 yrs 5 yrs 3 yrs 3 yrs
time new
prop not to
be trf
Any other - -Assessee No loan on this - -
condition? should not Bond
own more
than 1 Resi

DIRECT TAX : 74 :
CA INTER
H.P. on
date of trf
of Asset.

-In time of
2/3 yrs he
will not
pur/const
other HP

What if trf or Exemption CG CG exempted Exemption Exemption

conditions granted exempted earlier = LTCG granted granted
contradicted/ earlier will earlier = in this yr earlier will earlier will
be reduced LTCG in be reduced be reduced
from cost of this yr from cost of from cost of
asset to asset to calc. asset to calc.
calc. new new CG new CG
CG
CG a/c Yes Yes No Yes Yes
scheme avbl?

Refer S.M, illu. 11,Refer illu 12 SM .Q-13 extra sum

Common points
1- In section 54: instead of 1 HP benefit for 2 HP can be claimed once in lifetime if
capital gain is less than equal to 2 cr.(No such benefit in 54F)
2- Capital gain account scheme(CGAS): For sec 54, 54D, 54B, 54F, if investment
not done b4 Due date of filing return then amount to be invested in future has to be
deposited in CGAS
 If amount deposited not utilized in that 2/3 years from date of trf → Unutilised
amount = CG in yr which period expires
(CBDT….In case of death → Not taxed to legal heir)
3- 54H : In case of compulsory acq. period exemptions will start from date of
compensation received.
4- Exemption available in more than 1 section also.

DIRECT TAX : 75 :
CA INTER
❖ Tax Rates :
Asset

Listed shares/securities or unit of Any other asset

Equity oriented Mutual fund or unit
Or business trust
LTCG STCG

Through stock Outside stock 112 Finance Act

Exchange exchange
@20% (Rates applicable)
STT applicable STT not applicable

LTCG STCG LTCG STCG

Section 112A Sec-111A 112 Finance Act

>₹100000akj @ 15%
@ 10% 1 Or 2
10% 20%
(w/o indexation) (With indexation)

Question 112(20%) 111A(15%) 112A(10%)

Shifting benefit avbl? Yes (To RESI) Yes (To RESI) Yes (To RESI)
Deduction u/c VI-A? No No No
Rebate u/s 87A? Yes Yes NO
Higher surcharge NO NO NO
25/37% applicable?

Note: Higher surcharge also not applicable on dividend income,

What is shifting benefit?
1. If Other general rate income is lower than Basic Exemption limit (BEL) then BEL
can be adjusted against Special rate income mentioned above.

DIRECT TAX : 76 :
CA INTER
Rule for shifting :
First against normal income

Then against LTCG @ 20% (112)

Then against STCG @ 15% (111A)

Then LTCG u/s 112A @ 10% (112A)

“For Surcharge of Individual/HUF/AOP/BOI/AJP”

What is Total Income
(Incl. 111A,112 112A& Dividend Income)

> 50L but < 1 Cr >1 Cr but <2 Cr >2 Cr but <5 Cr >5Cr
10% 15% Excl. 111A,112
112A & Div.

> 5Cr > 2Cr < 2 Cr

Excl. Excl. 111A, 37% But 15%
111A,112,112A,div. 112,112A,div. & < 5 Cr On all
Also > 2 Cr < 2 Cr 15% 25%
 15% on all &
25% on Tax of 15%
other Income
15% on Tax
U/s
111A,112,112A,div.

DIRECT TAX : 77 :
CA INTER

E.g.-1 Mr.__________ (Resident) (59 yrs)

Salary(Computed) = 90000 STCG (111A) = 200000
STCG (Silver) = 50000 Int = 50000
H.P.(Computed) = 40000 L.T.C.G = 40000

Total = 470000

Normal Rate Special Rate

₹230000
LTCG STCG @111A
NIL
40000 200000
– 20000*
20000 200000
@20% @ 15%
4000 30000

*Shifting benefit-250000-230000=20000

Tax 34000
– Rebate (12500)
21500
+ 4%
22360

DIRECT TAX : 78 :
CA INTER

E.g.-2 Mr.__________(Resi)(61 yrs)

H.P. Income = 70000 LTCG on Land = 50000
STCG on Gold = 100000 STCG u/s 111A= 120000
LTCG u/s 112A = 130000

Total: 470000

Tax @ Normal Special Rate

₹170000
LTCG STCG @111A LTCG@112A
NIL
50000 120000 (130000-1L)
- 50000 -80000
=0* 20% =40000 @15% @10%
=Nil =6000 =3000

All 112A Total

Total Tax = 6000 3000 9000
– Rebate u/s 87A = (6000) - (6000)
3000 3000
+ 4% = 120
3120

E.g.5 Mr. Aagam has the following income (25 yrs, Resident):
Other income: 2,02,00,000
LTCG u/s 112:1200000
STCG u/s 111A: 800000
LTCG u/s 112A: 400000

Ans: Total income excluding 112,112A and 111A is exceeding 2 cr..So surcharge on
other incomes will be 25% and on 112,112A and 111A will be 15%.

DIRECT TAX : 79 :
CA INTER

Total: 22600000

Tax @ Normal Special Rate

₹ 20200000
LTCG STCG @111A LTCG@112A
₹ 5872500
1200000 800000 (400000-1L)
= @ 20% = @15% @10%
= 240000 = 120000 = 30000

All(Except
112,112A & 111A Total
112,112A & 111A)
Total tax 5872500 390000 6262500
Surcharge rate 25% 15%
Surcharge 1468125 58500 1526625
Total 7789125
CESS 4%
Total 8100690



DIRECT TAX : 80 :
CA INTER

7. IFOS

❖ Sec. 56 (1) : Basis of Charge

There is an Income Income is not exempt u/s That income is not covered
10 to 13 B by any other head.

❖ Sec. 145: IFOS Income to be taxable as per method of a/c followed by assessee.

❖ Sec. 56(2) : Chargeable Income u/s 56(2)

a. Dividends***
b. Casual Income → Winning from lotteries, Crossword, Puzzles Card Games etc.***
c. Income by way of “Int. on securities” (If not taxed in PGBP)
d. Income from machinery, plant or furniture let on hire (If not taxed in PGBP)
e. Any sum r’ved under keyman Ins. Policy (If not taxed in Salary or PGBP).
f. Sum of money / properties r’ved without consideration or Inadequate Consi.***
g. Interest r’ved on compensation or enhanced compensation. ***
h. Share Premium in excess of FMV.***

*** Always taxable under head IFOS.

❖ Dividend: Any Div. declared, distributed or paid by Co. to Sh. →taxed in IFOS.
 Dividend Includes Deemed Dividend

It means Deemed Div. as per Sec. 2(22) even if not termed as Div. as per Companies
Act.

DIRECT TAX : 81 :
CA INTER
2(22)(a)to 2(22)(d):

Deemed Dividend

2(22)(a) 2(22)(b) 2(22)(c) 2(22)(d)

Release of Co.’s Distri. of debentures Distri of asset by co. Distri by co.
Asset by Co. to SH w/o consi. to to SH in case of to SH for
(Except in case of ESH or PSH liquidation reduction of
Liquidation) + share cap.
Bonus to PSH

Upto amt of accumulated profit  Deemed dividend

Here AP= R&S + Bonus share value.

 2(22) (e)→
Distribution of accumulated profit by way of Advance or Loan to Shareholder
is treated as Deemed Dividend to the extent of accumulated profit (except Cap.
Profit-Bonus share value)

So, 2(22) (e) applicable when

1) Loan/advances given by company in & 2) Loan/advance given to shareholder having
which public is not substantially >= 10% of shareholding in company
interested i.e. closely held company
(Unlisted company)
Then

Amount up to Accumulated Profit In excess → No deemed

(Excluding bonus share i.e. capital div
profit)
Deemed Div.

DIRECT TAX : 82 :
CA INTER
→ Loan given to concern of S.H. is Deemed Dividend in hands of S.H.
1) Loan/advances given by & 2) Loan/advance given to a concern (i.e. HUF / firm
Unlisted company / company, etc) in which our shareholder having
>= 10% of shareholding in company is substantially
interested (Means owner for >=20%)
Means 2 conditions-- >=10% shareholding in
lending company and >=20% ownership in
borrowing concern

Then that loan amount will be Deemed dividend for that shareholder upto amount
of accumulated profit
 However, following shall not be treated as deemed dividend u/s 2(22)(e):
1. Giving loan is ordinary course of business for compony like bank, NBFC
2. Advances given to Shareholder which is trade advance for benefit of company

❖ Sec. 8 : Basis of Charge of Dividend irrespective of Method of A/c

Normal Dividend Deemed Div. Interim

Income of Yr. in Yr in which Paid Yr in which paid

which Declared.

Note: Dividend is a slabrate income.

Section 57: Against dividend income only interest exps. can be deducted maximum up
to 20% of dividend income. (No other exps. can be deducted against dividend income)
E.G. Loan of 50,00,000 taken @10% to purchase shares. Dividend received Rs.10,00,000.
IFOS?

❖ 56(2) (ib) : Casual Income

Winning from Crossword Races Incl. Horse

Lottery Puzzle Race, Card Game,
Other Game of
Gambling betting

This Income is taxed to recipient u/s

DIRECT TAX : 83 :
CA INTER
115 BB @ 30%

No Exps. allowed, No Deduction u/c VI-A, No Shifting

Benefit but rebate available.

Note:
Payer will deduct TDS u/s 194B/194BB @30% and it will pay balance amount. So if in
question after the Income(Net) is written then add gross income in IFOS.

❖ 56 (2) (viib) : Share Premium in excess of FMV

Conditions

Recipient is a Co. Receives Consideration

unlisted company Consideration for Exceeds for face
shares from value
Resident Person (i.e. at premium)

If above conditions satisfied then IFOS Income= (Issue price-Fair market value)
Note: If shares issued at discount then this concept not applicable

❖ Sec. 56 (2) (viii) : Int. on compensation / enhanced compensation: In IFOS

Sec. 145 B: Taxable → In year in which Received
Sec. 57: 50 % Ded. (No other exps allowed)

❖ 56 (2) (ix): Advance money forfeited on failure to execute contract of sale of

building/land: If received on or after 1.4.14 then taxable in IFOS
Cross Ref. Sec. 51—Cap gain chapter

❖ 56(2)(x) : For recipient → Taxability of sum of money or property Received w/o

consi. Or inadequate consideration (Gift Income)…W.E.From 1.10.2009
Transaction Condition Taxable Amt.
Sum of Money Without Aggregated value exceeds Rs. Entire Amt. received
Consideration 50,000/- p.a.
Movable Property Received Aggregate FMV of such prop. ExceedsEntire FMV.
without consideration Rs. 50,000/- p.a.
Movable Property R’ved with If FMV exceeds consi. For more Diff. of FMV & Consi.
Inadequate Consideration than Rs. 50,000/- p.a.
Immovable Prop. R’ved w/o Stamp duty exceeds Rs. 50,000/- Stamp Duty

DIRECT TAX : 84 :
CA INTER
consideration (land or building (Here per transaction)
or Both)
Immovable Prop. R’ved with Diff of actual value & SD is higher Difference between
Inadequate Consideration then stamp duty and
(Actual sale consi< Stampduty) a) Rs. 50,000/- & actual consideration
b) 10% of actual consi.
[In tuning with 43CA, 50C]

Note : Generally we take stamp duty on date of registration but Taxpayer has option to
take stamp duty value as on date of agreement (& not date of reg.)
If.
Part of consi. must have been paid by way of A/c payee cheque A/c payee draft
or use of ECS or by e-mode on or b4 date of agreement.

→ When Sec. 56(2)(X) is N.A. :

If sum of money or prop. R’ved from :
1) Relative.
2) On occasion of own marriage
3) Under Will or Inheritance.
4) From local autho.
5) From Institution / Trust registered u/s 10(23C) or 12AA/12AB
6) Gift Income will also not be taxable if received for the followings:
1. Received by individual for expense on himself/family for illness of
Covid 19
2. Received by family memberof deceased person from employer of
deceased person(For any amount) or from any other person (Upto total
10 lakhs).This exemption only if death is due to Covid-19 and gift
received within 12 month from date of death.
→ Meaning :

1) Property : Capital asset namely

Immovable Prop. Share/ Jewellery Drawing, Painting, Bullion

(land or building) Securities/ Archeological
Virtual collection, sculpture
digital asset work of any art

DIRECT TAX : 85 :
CA INTER
[So, Capital asset do not include other movable asset like Mobile, TV, Fridge, Car,
AC,
It also don’t include Stock in trade, rural agricultural land and hence if we receive
any of these assets without consideration then still 56(2)(x) not applicable]

2) Relative :

For individual For HUF

→ Spouse
→ Brother or Sister Any member
→ Brother or Sister of spouse
→Bro or Sis or either of parents of Ind
→ Lineal ascendant or descendant
→ Lineal ascendant or descendant of spouse
→Spouse of all above

For nephew uncle is relative

for uncle nephew is not

Note :
Whether At time of Then what will be COA POH will be from?
receipt of gift it was at time of future CG?
taxable?
NO 49(1)-Cost to previous From previous owner
owner
Yes 49(4)-FMV/SD taxed in From current owner
IFOS

56(2) (xi) : Any compensation received in connection with term of e’ment If

received from person other than employer

❖ Unexplained Income / Exps. / Investment

Sec. 68 Sec. 69 Sec 69A

Cash Credit Unexplained invt. Unexplained Money

DIRECT TAX : 86 :
CA INTER
A/m recorded in books If investment found Money, Jwellery, bullion,
(loan or etc.) & no & not recorded in article found & not
explanation found books recorded in book
₹
Income Income Income
→ 69 B → Investment not fully disclosed in BOA → Diff. = income
→ 69 C → unexplained expenses → expense not recorded in BOA & no
explanation for that → income (No ded” in any head)
→ 69 D → If amt was borrowed by hundi & repaid otherwise a/c payee ch,,→
Income

Sec. 115 BBE → 60% (+ 25% SC+ 4% Cess) = 78%

(No expense, No deductions, No rebate, No Shifting Benefit)

E.g, There is a income tax search in home of Mr. Ravan and dept found 2 gold chain worth
Rs.50000 each. He could give explanation for Rs.25000 only. What is tax payable??

Ans: Unexplained invst= Rs.75000…Tax @78%=58500

❖ Deductible Expenses Sec. 57 :

a. Commission or remuneration paid for Interest Income
b. For letting out P & M, Furniture, Building.
Current repairs of building, Ins. Prem. On Premises, Repairs & Ins of P & M,
Furniture, Depre.
c. Family Pension → Ded =15000 or 1/3rd w.e. lower(No deduction if 115BAC
followed)
d. Any other expense (not capital exps) wholly& excl. for Income

❖ Sec. 58: Expenses not deductible

Personal exps 100% of int./salary 30% of exps paid same disallowance like
Paid o/s India to resi. w/o TDS sec. 40A(2), 40A(3),
Without TDS [excess payment to
relative & p’ment >
10000 otherwise than by…]
No exps. against casual income.

❖ Sec. 59: Same as Sec. 41(1)

Any deduction claimed in earlier yr & recovered in this year → Deemed Income



DIRECT TAX : 87 :
CA INTER

8. CLUBBING

 Sec. 60 : Transfer of Income without transfer of asset

This kind of Income will be included in the Income of transferor only. Whether or not
transfer is revocable or irrevocable

 Sec. 61 : Income arising from revocable transfer:

Sec. 61 Exception (62)

 If transfer is revocable
 It contains provision for  If transfer is irrevocable
retransfer property to transferor. then no clubbing applicable.

Then income arising to transferee

shall be clubbed in income of
transferor

 Sec. 64(1)(ii) : Clubbing of Remuneration paid to spouse clubbing is to be done if:

Taxpayer is He/she along with Spouse of T.P. is Spouse has no

Individual Relative has substantial employed in such technical or
Int. in a concern at any concern (salary, professional
time during P.Y. Fees, commi. Etc) knowledge for
[Co.  20% Voting cash or kind such
Other  20% Profit] employment.

 Relative  spouse, brother, sister lineal ascendant or descendent

 Where both husband & wife has sub. Int. & both are getting remuneration w/o
knowledge from same concern

Income will be clubbed in total income of husband or wife whose T.I. (w/o salary) is
higher
Once Incl.  then for subsequent yr also in same person

Note: In case salary is clubbed.. Std deduction will be separate?:

DIRECT TAX : 88 :
CA INTER
 Sec. 64(1)(iv):
Income arising to spouse from asset (other than H.P.) transferred w/o adequate consi.

Taxpayer is Transferred asset (not H.P.) Not in Transfer Directly

Individual to spouse w/o adequate agreement to or Indirectly
consideration live apart
(love & affection is not
consi.)

For H.P.  Sec. 27  Deemed owner (same provision).

Clubbing is still applicable if money is gifted & spouse invest in asset.
Cap. Gain from asset is also to be clubbed
If transferred asset are invested in business of transferee

Income from such business will be clubbed as under

Profit of busi. X A/m invested out of Transfer asset as on 1st day of PY.
Total Investment of busi. on 1stday

(This prov N.A. if amount given as bonafied loan)

 Sec. 64(1) (vii) :

If asset is trf w/o adequate consi. to any person or association & income from such asset
is used for direct or indirect benefit of spouse then also clubbing will be done.

 Sec. 64(1) (vi) :

Income arising to son’s wife from asset (incl. H.P.) transferred w/o adequate consi. By
Father In law or Mother In law.

Tax pay is Transferred asset Then it is to For transferred asset if

Individual directly or indirectly be clubbed invested in her busi.
w/o adequate consi. to then
son’s wife
Profit X
A/m as on 1st day
Total inv. As on 1st day

DIRECT TAX : 89 :
CA INTER
 Sec. 64(1) (viii) : Same as 64(1) (vii)

Direct or Indirect benefit for son’s wife

 Sec. 64(1A) : Clubbing of minor’s income

Every Income of minor (apart from 3 mentioned below) will be clubbed in parent
(whose T.I. w/o this income is greater). Once it is clubbed then in subsequent year
also it will be clubbed in same parent.
When marriage does not subsist  in the hand of parent who maintains him.
Income of minor married daughter will also be clubbed.
The following 3 income will not be clubbed :
a). Income is on a/c of any activity of his skill, talent or specified knowledge.
b). Income is on a/c of his manual work.
c). Minor child is suffering for disability mentioned in Sec. 80U.

 Sec. 10(32): Exemption of Rs. 1500 p.a. per child from minor’s income.
(No exemption if 115BAC followed)
Child

Minor married daughter Other minor

Every income(Including If rent income-Section 27

HP Income) to be clubbed (1500 exemption Not avbl)
To parent u/s 64(1A) Other Income-U/s 64(1A)
(1500 exemption available)
 Cross transfer :
E.g. Mr.A trf shares of Rs.50000 to Mrs.B-Dividend Income Rs.2000
Mr.B trf debentures of Rs.60000 to Mrs.A-Interest Income is Rs.2400.

So here Income of Mrs.B for Rs.2000 taxable to Mr.B & Income of Mrs.A
Rs.2000(2400/60000*50000) will be taxable to Mr.A(Balance Rs.400 to Mrs.A)

SC  CIT Vs Keshavji Morarji

If 2 transactions are interconnected & are Part of same transaction in such a way
tht it can be said that transaction are entered to avoid tax. Then clubbing will be
appli.
NOTE : Cross transfer of same amt will be clubbed.

DIRECT TAX : 90 :
CA INTER
 Sec. 64(2) : Conversion of self acquired property into prop. of HUF.

Before partition of HUF After partition of HUF

If prop. transferred directly / When such converted prop. is given in
indirectly to HUF w/o adequate total or partial portion to spouse of
consi. trasnferor

Income of such prop. to be clubbed to Then income of spouse to be clubbed

transferor i.e. in hands of member
[& not to HUF]

 Common Notes :
(1) Explanation 2 to Sec. 64: Income includes loss.

(2) Clubbing u/s 64 appli. To spouse, minor child, son’s wife and HUF. Section 60 & 61-
to all.

(3) Accretion of Income i.e. Income from Income is not to be clubbed.

E.g. Mr. A give HP to Mrs. A w/o consi. Then income of HP to be clubbed o Mr. A bt
if Mrs. A invest this HP income into FD and earn int. then it is not to be clubbed.
This accretion point is N.A. for income of minor.

(4) In answer also write a note abt Sec. 56(2)(X)  N.A. from relative.



DIRECT TAX : 91 :
CA INTER

9. Agricultural Income

 Sec. 10(1) :

 Partial Merger :
Q. : Agricultural Income is exempt from Income for Act but I.T. Act Indirectly collect tax
on Agri. Income explain
Ans: Though Sec. 10(1)  Agri. Income in India is exempt. For tax payable we may
consider agricultural Income if following condition are met :
a). Assessee is Ind. / HUF / AOP / BOI / AJP(i.e. persons to whom Slab rates
applicable).
b). (Net) Agri. Income exceeds Rs. 5000
c). Total Income which is taxable (other than agri) exceeds BEL.

ASSESSEE

Ind / HUF / AOP / BOI / AJP Other

Whether other 2 condition satisfied Fully exempt

YES NO

Partial merger Fully exempt

If these 3 conditions met then: Find out total Income by considering fully exempt
but then find out tax payable as under:
Step 1 : Find out (Total Income + Net Agri. Income)
Step 2 : Find out basic tax on step 1 (b4 cess)
Step 3 : Find out (B.E.L + net Agri. Income)
Step 4 : Find out basic tax on step 3(b4 cess) .
Step 5 : Final Basic Tax = (Tax on Step 2 – Step 4)
Step 6 : Then apply surcharge/REBATE & H&EC

DIRECT TAX : 92 :
CA INTER
Note: For limits of rebate & surcharge only see taxable income.
E.g. Mr.B non agri income: Rs.60 L and agri income Rs.50 L
Ans:

What if common activity is there having agricultural and non agricultural

activities(how to bifurcate total income into agri & nonagri)

For Mfg of rubber, tea, coffee For other common busi.

Composition Step-1: Agri income = FMV-Agri exps.

Step-2: Busi income = Sale value-Exps.-

FMV of agri produce.



DIRECT TAX : 93 :
CA INTER

10. Other Exemptions

(1) Sec. 10(2) : Income From HUF as a share from asset etc. is exempt for member.

(2) Sec. 10(2A) : Share in Profit of firm is exempt for partner

(3) Sec. 10(4): For individual  Int. on money standing to his credit in NR (external) a/c
(NRE A/c) is exempt if it is approved by RBI.

(4) 10(10BC): P’ment r’ved by any Individual or legal heir  for compensation r’ved from
CG or SG or LA for any disaster provided the person has not claimed any loss/damage as
exps in incometax.

(5) 10(11A): Any p’ment (Int. etc) from a/c opened with Sukanya Samriddhi A/c rules
2014.

(6) 10(I5) : Following Int. Income is exempt :

1). Post Office Saving Bank Int. upto Rs. 3500 for Ind. & Rs. 7000 for joint a/c.
2). Int. p’ble by Bond issued and notified by CG E.g. NHAI, RECL, HUDCO, Power
Finance Corp., Indian Railway Finance Corp. Ltd.

(7) 10(16): Any scholarship r’ved by Individual granted by anybody to meet cost of
education.

(8) 10(17): For Member of Parliament or state legislature or committee:

Daily allowances,any allowamnces as per MP rules,1986,constituency allowance.
 Raj.  CIT v/s Shive Charan Mathur  MPS & MLAs are not e’yee hence salary and
allowance r’ved are IFOS.
No exemption in 10(17) if 115BAC followed.

(9) 10(17A) : To any assessee who receives award or reward received in cash or kind 
Given in Public Int. by CG, SG or body established by Govt.

(10) 10(18): Pension r’ved by e’yee or family member (after death of e’yee) from CG or SG if
he is eligible e’yee.
Eligible e’yee = who has received Param Vir Chakra, Mahavir Chakra, Virchakra.
(gallantry awards)

DIRECT TAX : 94 :
CA INTER
(11) 10(26) :
Member of Schedule tribe i). Income from source in
residing in that area

Nagaland, Manipur, Tripura, ii). Int. & Div. (World Int.

Arunachal Pradesh, Mizoram, , Div.)
Ladakh of J&K

(12) 10(26AAA): A Sikkimese Individual Any income accruing from source of Sikkim &
World Int. + Div.
However if Sikkimese woman marries on or after 1/4/08 to non Sikkimese  Then no
exemption

(13) 10AA: Newly established units in SEZ.

(No exemption if 115BAC followed)
Unit in SEZ begun to mfg or produce any article or thing on or after 1.4.06 but
before 31.3.21.
Report from CA is to be furnished
Period & ded’
Period Deduction
1st 5 consecutives A.Y. (from 100% of profit from export
A.Y. is which begins mfg.
For next 5 A.Y. 50% of profit from export
50% of profit from export or Amt. trf. to “special
Next 5 A.Y. eco. Zone reinvestment allowance res’
w.e. lower

Profit from export = Profit of SEZ x Export T/o of SEZ

Total T/o of SEZ.

Export T/o & total T/o shall not include :

Freight Telecommunication Ins. Attributable Exps. in F. Exch. O/s

Charges O/s India India



DIRECT TAX : 95 :
CA INTER

11. Set Off Carry Forward

LOSS In current Inter head Carry

year first Set [Sec.71] In forward
Off Current year against
(Intra head  Inter Head Set which head
Sec.70) Off
1. Loss from  Not possible  X  X [No loss]
salary

2. Loss from HP  Income from  Any other head 8Yrs Income from
HP Incl. Salary  HP 71B [No
[Max. upto 2 Limit]
Lakh(71(3A))

3. Loss from  Income from  Any other head 8Yrs Income from
PGBP (Non PGBP (Spec. + excl. salary  PGBP (72)
speculative) Non Spec. + (NS + S +
[Sec. 72] 35AD) 35AD)

4. Unabso.  Income from  Any other head Infi. Any other

Depre, Sci. PGBP excl. Salary  head (excl.
research (NS + S + 35AD) salary)
family
planning

5. Loss from  Income from  X (No head) 4Yrs Speculative

PGBP Speculative  PGBP - 73(1)
(Speculative) (PGBP)

6. Loss from  Income from  X (No head) 4Yrs Income from

owing & main O&M Race  O&M – 74A
horse race Horse R.H.

DIRECT TAX : 96 :
CA INTER
7. Loss of 35AD  Income from  X (No head) Infi. Income from
35AD  35AD (73A)
8 yrs
8. S.T.C.L.  S.T.C.G.  L.T.C.G. (70(3))  STCG + LTCG
8 yrs
9. L.T.C.L.  L.T.C.G.  X  LTCG

10. Loss I.F.O.S.  Income from OS  Any head (Incl.  X No C/f.

Salary)

11. Loss from  No Set Off

card game,
lotteries,
gambling

NS=Non speculative
S= Speculative

Note:
1) Business loss can be set off against CG but Capital loss can’t against Business gain
STCL canbe setoff against LTCG bt LTCL can’t against STCG
NS loss can be setoff against S gain bt S loss can’t be against NS gain.
NS loss can be setoff against 35AD gain bt 35AD loss cant be againt NS gain

2) As per Sec. 72(2) :

Order of setoff in any year:
CY depreciation then CY PGBP loss then B/f PGBP loss then Unabsorbed depre.

1) Sec. 80 : Submission of return for loss :

Assessee must file a return of Income on or before due date u/s 139(1) to carry forward
losses. However following loss can be set off even without filling return on time.
i) H.P. Loss (71B)
ii) Unabsorbed dep. (32(2))
2) Owning & maintaining camel  same treatment as “non speculative busi.”.
3) Loss from exempt source cannot be set off against profit of Taxable source.
4) No setoff of HP against other head income if 115BAC followed.



DIRECT TAX : 97 :
CA INTER

12. Deduction from GTI u/c VI-A

 General Rules
1) Section-80A: Aggregate a/m of ded’ u/c VI-A cannot exceed G.T.I.
2) No ded’ can be claimed from special rate income (LTCG, STCG u/s/ 111A, lottery.
etc)
3) 80AC : For claiming ded’ of heading C
(80IA to 80RRB  80JJAA, 80QQB, 80RRB), Return has to be filed on or before due
date u/s 139(1)
Entire chapter not applicable if 115BAC followed except 80CCD(2), 80JJAA.

1) Sec. 80C : Deduction for specified Investment to Ind. / HUF(R+NR)

 Max. Ded’ under this Section is Rs. 1,50,000
 Following are allowed
a) Life Insurance Premium :
For Ind.  him/herself + spouse + any children [No ded’ for parents]
For HUF member

Can be paid by any mode

Deduction of Ins. Prem. Cannot exceed:
Normal Person Person suffering
from 80U
Policy b/w 1/4/3 to 31/3/12 20% of sum 20%
assured
Policy b/w 1/4/12 to 10% 10%
31/3/13
From 1/4/13 10% 15%

DIRECT TAX : 98 :
CA INTER
Cross ref : Sec. 10(10D) :
Amt. R’ved under LIP incl. bonus is exempt except

Cross Received for Keyman Ins. If Prem. Paid was in excess

Ref.
Dependent person Policy of 10/15/20% of sum
Sec.
u/s 80DD assured [on death 
194DA
exempt]

b) i. E’yee contri. To approved superannuation fund, SPF., RPF

ii. Contri. to Any contri. In PPF for family
Int. on PPF  exempt.
c) Amt. deposited in “Sukanya Samridhi Yojana” [For Ind. + girl child]
d) Subscription in NSC [National Saving Certi]
Int on NSC  First add to IFOS then ded’ u/s 80C.
e) Tuition fees paid in India for full time education for max upto 2 children.
f) For house property whose income is chargeable under head “HP”

Stamp Duty, Home loan principal

regi. Fees repayment to CG, SG,
Bank, LIC, Public Co.

[So, if loan taken from friend, relative then Int. is allowed u/s 24(b) but principal
r’ment is not] Pre construction period principal repayment not allowed.
g) Invst. In > 5 yr term depo of schedule bank, post office.
Note : If Invest. Of fixed period withdraw before 5 yr then deemed Income
=Ded’ Allowed earlier
h) Depo. In Senior Citizen Saving Scheme, 2001
i) Contribution by CG employee for contribution in NPS A/c(This is additional
account-Tier II)..80CCD gives deduction for tier-1 account of NPS.

Note : except point no. a, b , c, g all other for Ind. / HUF himself.

2) Sec. 80CCC : Contribution in Pension Fund of LIC by Individual(R+NR)

Ded’ only if paid out of Income chargeable to tax [same as 80D, 80E].
Ded’ = Exps. or Rs. 150000 w.e. lower.

DIRECT TAX : 99 :
CA INTER
At time of maturity / surrender  amt. of pension is taxable.
3) Sec. 80CCD (1): Contri. to pension scheme notified to CG (Eg. NPS,Atal Pension
Yojna)

Sec. 80CCD (1) :

Individual e’yed by e’yer  Ded’ upto 10% of Salary
or actual or Rs.150000
w.e.lower
Eligible assessee
Self employed 20% of GTI or actual or
Rs.150000 w.e.lower

Salary = Basic + DA(%)

Sec. 80CCE: [Aggregate] of 80C + 80CCC + 80CCD(1) – Rs. 150000
Now onwards Over & above Rs. 150000

4) 80CCD (1B) : Additional deduction for Individual on Investment in pension

scheme upto Rs. 50000 [If there are other deductions also in sum then always taken
ded’ first in this & then in 80CCD (1)]

At time of maturity

Full withdrawal Partial withdrawal

Employee Self employed Employee Self employed

60% of total is exempt 60% of total 25% of e’yee contri fully taxable
exempt is exempt
(10(12A)) (10(12B))

[For all  In case of death  to nominee not taxable u/s 80CCD (3)]

5) 80CCD(2) : Additional ded’ to Ind. For contri. made by e’yer in pension plan
Step-1: First add to Income of salary.
Step-2: Then ded’ upto 10% of Salary. However if CG/SG contributes then 14%.

DIRECT TAX : 100 :

CA INTER

6) 80D : Deduction in respect of Mediclaim for Ind/HUF(R+NR)

Condition : Ind. / HUF + Mediclaim paid out of Income Chargeable to tax
(same  80CCC, 80E)
: Payment should be “other than cash”
: However, preventive health check up can be made in cash.

Max. Ded’

To Individual HUF
Himself Parents For Member
+For spouse (Dep. + Not Dep.)
+ Depn. Child)
i). Mediclaim Avbl Avbl Avbl

ii). CG Health Avbl N.A. N.A.

Scheme
iii) Preventive Avbl Avbl N.A.
health check up
(PHCU)
25000 25000 25000
(If any person (If any person = (If any person =
= Resi .S .C Resi .S .C then Resi .S .C then
then 50000) 50000) 50000)

For PHCU  Max. ded’ Rs. 5000 (Incl. in limit of Rs. 25000 / 50000) for all.
For himself + spouse or parents if Resi.S.C + > 60 yrs & no ins. Then actual medical
exps. upto Rs. 50000

E.g.: Mediclaim 10000 + Rs. 6000 for PHCU  what will be deduction u/s 80D=

80D (4A): If mediclaim is paid for lumpsum, for more than 1 yr then ded’ will be
proportionately for each year. (For PY covered by policy tenure)
Deduction= Total premium paid/total no.of years (franctions=1)

E.g. Mr,A paid Rs.30000 as Mediclaim on 1.3.23 for 3 yrs. What will be deduction u/s
80D for PY 2022-23?

DIRECT TAX : 101 :

CA INTER
Ans:
7) Sec. 80DD : Ded’ for maintenance Incl. Medical treatment of dependent being
person with disability

Condition : Resident Ind. / HUF.

: Taxpayer has incurred exps. for medical treatment under
scheme of LIC or other medical treatment for person
dependent with disability
: Such person has not claimed 80U.

Ded’ :
Disability Fixed ded’ if any
Exps. Done
40% - 79% 75000
>=80% 125000
(Severe Disability)

Dependent  Indi.  spouse, children, parent, bro, sis (Dependent)

 HUF  member.
[Grandparents, Uncle not covered]

Other Condition: For ded’File Certi. issued by medical autho.

In case of death of annuity scheme if money received by nominee
taxable.(80DD(3))
If before death money received by disabled person then not taxable.(80DD(3A)

8) Sec. 80DDB : Medical Treatment

Condition: Resident Ind. Or HUF  Actually paid a/m for medical treatment

For Himself or Dependent Relative for diseases mentioned under rule 11 DD

Ded’ : Actual exps or limit w.e. lower

Himself / Dependent  40000
If the patient is Resi. Senior Citizen  100000
Dependent person  Same as 80DD

Ded’ amt shall be reduced by reimbursement by e’yer by insurer.

E.g, Exps of Rs. 60000 done by resident for NR Brother dependent(62 years) on
him & Insurer reimbursed 10000.

DIRECT TAX : 102 :

CA INTER

9) Sec. 80E :Loan taken for higher studies.(R+NR)

Condition: Individual has taken loan for higher studies (after 12th) from financial
institute(Not NBFC) or approved charitable institutes.
For himself, spouse or any child (even for child of which he is legal guardian)
& Int. a/m paid from Income chargeable to tax.

Ded’ : Entire Int…Deduction available for 8 years

(No need to see full time or Part time course)
In 80C  Tuition fee for full time

10) Sec. 80EE : Int. on loan taken for Resi. H.P. :

Condition : Individual + Home loan taken from Fin. Inst. &Sanctioned in P.Y.
16-17
: A/m of loan < =35 L
: A/m of home < =50 L
: T.P. does not own any H.P. on date of sanction of loan.
Ded’ : Int. or 50000 w.e.lower [In addition to 24(b)]
So,

11) Sec.80EEA. - Deduction in respect of interest on loan taken for certain house
property
Condition: Ind + Not eligible to claim 80EE+ Home loan from fin. Inst (Not NBFC) &
sanctioned in P.Y.2019-20 to P.Y.2021-22
: Stamp duty of house <= 45 Lakhs
: T.P. does not own any H.P. on date of sanction of loan.
Ded’ : Int. or 150000 w.e.lower [In addition to 24(b)]
So,

12) Sec.80EEB. - Deduction in respect of purchase of electric vehicle (From finance

Act,2019(No.2)
Condition: Ind+ loan from fin. Inst (Incl. NBFC) to purchase electric vehicle& sanctioned
between 1-4- 19 to 31-03-23
Ded’ : Int. or 150000 w.e.lower .

13) Sec. 80G : Donation to certain fund, charitable, institution.(To any assessee)
Condition
i) Donation in Kind  not deductible
ii) Donation directly to beneficiary  Not deductible
iii) Donation for particular cast / community  Not deductible
iv) Donation in Cash > 2000  No deduction

DIRECT TAX : 103 :

CA INTER
v) Deduction only if paid in India
Deduction :
Type 1 Type 2 Type 3 Type 4
100% w/o limit 50% w/o limit 100% with limit 50% with limit
(clue : CG / SG) (clue : congress) (clue : games) (General)
Find names having 1) Jawaharlal 1) CG / SG for Any other
1) National Nehru promoting family charitable /
2) International 2) Indira Gandhi planning religious trust
3) Central 3) Rajiv Gandhi 2) Indian Olympic registered u/s 80G
4) State 4) PM’s draught Asso. [to Company
5) Zila Relief fund Only]
6) PM 3) Indian Archery
7) CM Asso.
8) Notified Uni.
9) Swachh Bharat
10)Clean Ganga
(Only to resident)
11) PM Cares Fund

Type 3 & 4 together subject to 10% of

Adjusted Total Income

Adjusted total Income = GTI-Deduction u/s 80C to 80U (Except 80G)-LTCG u/s
112/112A-STCG u/s 111A.

Total Ded’ = Type 1

+ 50% of Type 2
+ Type 3 (upto 10% of ATI)
+ 50%(Type 4 ) or 50% [Limit - Type 3] w.e. lower.

E.g. : Olympic asso.  60000

Trust  100000
10% of ATI  100000

14) 80GG : Rent paid by self employed

Condition: 1). Indi. + Any self e’yed or E’yee with no HRA
2). Person or spouse or HUF or minor child does not own any Resi.
H.P. where he resides
3) himself do not own any other HP as SOP anywhere.

DIRECT TAX : 104 :

CA INTER

Ded’: 1) Rs. 5000 P.M. or

2) 25% of A.T.I. or w.e. lower
3) Actual Rent – 10% of A.T.I.
A.T.I. = GTI – Ded’ u/s 80C to 80U (except 80GG) – LTCG – STCG u/s 111A.

15) Sec. 80GGA: Donation for scientific research or rural development.

Condition : Person = whose income do not cover PGBP Income
: Sum paid to Science Research, Social Science, Rural Development
approved fund
Ded’ : Ded’ = Actual Exps.
: No ded’ for donation in cash > Rs. 2000.

16) Sec. 80GGB: Donation by Indian Co. to political party. [which was disallowed in
PGBP 37(2B)]
: No ded’ for sum contributed by Cash.
: Donation to political party or electoral trust  Regi. u/s 29A of
Representation of People Act, 1951.
+ for exps (Dir or Indirectly) by Co. on advertisement in any
publication of party souvenir, brochure etc
Deduction= 100% of amount contributed

17) Sec. 80GGC: Donation by any person (other than co.) to political party
 Same as 80GGB(But here no deduction for advertisement exps.)
+ Ded’ not avbl. to local autho. & AJP. 100% Which funded by
govt.

18) 80QQB : Royalty Income of Author

Condition : To resi. Individual
: The book is authored by him related to literacy, artistic or science
nature.
: No ded’ for T.B. of schools, guides, newspaper, journal pamphlet

Ded’ : Royalty Income

Lumpsum % wise

A’m received or ₹ 300000 A/m NMT 15% or

DIRECT TAX : 105 :

CA INTER
W.e. lower ₹ 300000 w.e. lower

In case of Royalty from abroad only received within 6 m from end of P.Y. will be
income.
Ded’ to be cal. after exps.

19) 80RRB : Royalty for patent

Condition : Resi. Individual + Regi. as true & first inventor under Patent Act,
1970.
Ded’ : Royalty Patent Income

A/m Received or 3 L w.e. lower (No % condition)

 Abroad  To be received within 6 m from end of P.Y.

20) 80JJAA : Deduction for e’ment of new employee

Ded’ = 30% of additional e’yee cost for 3 P.Y. from employment (if)

Assessee is audited Busi. is not by splitting Busi. not acquired by Report of CA is

u/s 44AB up or reconstruction transfer attached to ROI.
or existing busi.

Existing Busi. New Busi.

Additional e’yee cost shall be NIL if : 1stYr.  Total e’yee p’ment =
i) No increase in e’yee additional cost
ii) P’ment by other than a/c payee chq.
Draft, ECS or any other e-mode.
(So if new e’yee  allowed)

Additional e’yee shall exclude:

i) e’yee > 25000 P.M.
or ii) e’yee  e’yed for <240 day(For busi of mfg of appearel,footware,
leather produce it is 150 days)—They will be deemed appointed in next
year.
or iii) e’yee  does not participate in Reco. P.F.(E.g. Casual Worker)

DIRECT TAX : 106 :

CA INTER

21)
Topic 80TTA 80TTB
Applicable to Any Ind+HUF(Except Resi. Senior citizen
Resi.S.C.)
For(From Bank/PO) S/B A/c Interest(First add FD+SB A/c Int
to income then deduction)
Deduction Max.10000(Note-1) Max.50000(Note-1)
Note-1: cross ref 10(15)  First P.O. Saving Int. exempt upto Rs. 3500 then ded” of
80TTA]
E.g. Post office sb a/c interest Rs.13000.

22) Sec. 80U : Ded’ in respect of Income or person with disability

(Cross ref. Sec. 80DD)
Condition : Resi. Ind. + Disability > 40%
Ded’ : >=40% - <80%  Fixed Rs. 75000
> =80%  Fixed Rs. 125000



DIRECT TAX : 107 :

CA INTER

Tax Deducted at Source &

13. Collected at Source

 Section 190 : Ded’ of Tax & Advance Tax

Income of P.Y. is taxable in A.Y. However Income tax is recovered in PY through

TDS TCS Advance Tax

 Section 192 : Ded’ of tax from salaries (applied to NR also)

Ded’ at time of Rate = I.Tax E’yer will Exemption & Ded’ +

Payment p’ble by e’yee estimate Relief u/s 89 to be
(monthly) Income incl. considered for TDS
perq. of e’yee

If e’yee has 2 e’yer  e’yee will select any one of TDS ded’.
Steps for deducting TDS
Tax on [Salary – Loss on H.P. + other positive Income-Deduction u/c VI-A]
(-) TDS on other income
TDS on salary / No. of months
= monthly TDS.

Note: Any cap. Gain loss or busi. loss to be ignored for calc. TDS. (Only HP Loss
allowed).

Sec. 192(2D). It will be duty of e’yer to obtain from assessee evidence or proof of
claims done by assessee

Rule 26C : E’yer shall take following from e’yee as a proof u/s 192(2D)
HRA  it rent > 1L – Name, Address, PAN of Landlord
LTC, Ded’  Evidence of Exps.
Int. of H.P.  Name, Address, PAN of Lender
Deduction U/c VI-A= All proof of payment

DIRECT TAX : 108 :

CA INTER
 Sec. 192A: P’ment of accumulated balance due to e’yee. (i.e. EPF).

Ded’ of TDS from EPF

Who? At time of Threshold @10%

Trustee of EPF payment >= 50000 (If no PAN-MMR)
(Only if e’yee not rendered
Continuous service of 5 yrs due to avoidable reason)
(if rendered >=5 then exempt)

Note: MMR- Maximum marginal rate (30%+37% SC +4% H&EC= 42.744%)

 Sec. 193 : Ded’ of TDS from Int. on Security

For paying int. Time payment No threshold @ 10%

On securities to or of A/m
Resi Credit to a/c w.e.
Earlier [Cr. in BOA incl.
Suspense a/c]

 Sec. 193 is N.A. for following :

1. IRFC, Power finance corporation 54EC capital gain bond interest then no TDS.
2. IF RBI Bonds then TDS @ 10% if ineterst exceeding ₹ 10,000
3. No TDS if securities owned by LIC or GIC or subsidiary of GIC or any other
insurer
4. 6.5/7% Gold bonds held by resident Individual provided total value of bond
does not exceed 10000.

 Sec. 194: Ded’ of TDS from Dividend Income of domestic co.

For paying dividend to time payment 5000 @ 10%

Resi. or
Credit to a/c
w.e. earlier

Note: 1. No Threshold limit if dividend is paid by cash. (Means from 1st rupee TDS
applicable)
2. TDS N.A. If div paid to LIC, GIC, subsidiary of GIC

DIRECT TAX : 109 :

CA INTER
 Sec. 194K: Ded’ of TDS from Dividend of Mutual fund.

For paying dividend to time payment 5000 @ 10%

Resi. or
Credit to a/c
w.e. earlier

To whom 194 ACHIJ applicable?

Who is required
 Every person other than Ind / HUF
 Ind./HUF whose T/o exceeds 1 cr/50L in preceding P.Y.

 Sec 194 A: TDS from Int. other than Int. on Securities (For Resi.)

Who is required @ 10% Limit Time

 *** P’ment or
Same in 194C, 194H, credit
194I, 194J] Bank/P.O Other-5000 w.e. earlier

To resi. S.C. To-other - 40000

50000

CBDT: For CBS System, where int. is credited monthly / daily basis for micro
monitoring use  TDS to be ded’ on accrual basis.
 Limit of Rs. Rs. 40000 / Rs. 50000 is not branch wise if bank has adopted
CBS [If no CBS  Branch wise]

 No ded’ if Int. paid / credited (to)

Bank LIC By co. Op. Soc. Hudco

UTI to Co. op Soc.

Partnership Firm to Resi Partner  Profit - Exempt

Salary-No Tds u/s 192
Interest-No Tds u/s 194A
No TDS on Saving a/c.
No TDS on Int. paid by CG on direct tax.

DIRECT TAX : 110 :

CA INTER
 Sec. 194B: Winning from lotteries or crossword puzzle or card game & other game.

Who? At time of on amt of @ 30%

Person responsible p’ment exceeds
For paying by way ₹ 10000
Of lottery

 Sec. 194BB : Winning from horse races.

Who ? At time of If a/m exceeds Rs. @ 30%

Bookmaker or P’ment 10000
person whom
license is granted

Note: No TDS on gambling & Betting.

 Sec. 194C : Payment to contractor / sub contractor

Who ? To Resi. For any work At time of Limit

[same as Contractor / Sub (Incl. supply of payment Single P’ment
194A] Contractor labour for Or > 30000
carrying work Cr. w.e. earlier Or
Aggregate in a FY >
100000
Note: If TDS deducted due to amt exceeding 30000 then not to be deducted on entire
amt…On entire amt only when exceeding 100000 in FY.

Rate :
Payee Rate
Ind. / HUF 1%
other 2%
contractor / sub contractor NIL.
in transport (with PAN) & less than 10
trucks in the year

Note-1 : No TDS for Ind. / HUF  if work is for personal purpose (same in 194J)
(For this payment refer 194M)

DIRECT TAX : 111 :

CA INTER
2. Meaning of Work :

Advertising Broadcasting Carriage catering Mfg. or supplying a

Telecasting of goods product as per
Passenger by specification of
Any mode customer
Other than by
Railway

By using R.M By using R.M

Supplied from supplied from
Customer It is work 3rd party

(Also if material supplied from associates- 40A (2) (b))

It is not work

3. Where in invoice material and labour both are there  TDS to be deducted

If material is mentioned Separately Material not shown separately

On Amt. excl. mat. On whole value

 Sec. 194D : Insurance commission

Who? Time of p’ment if a/m exceeds @ 5%

Person making p’ment or credit ₹ 15000
To resi. any income as w.e. earlier
Ins. Commi.

 194G : Commission on sale of lottery ticket.

Person paying comm. P’ment or if exceeds @ 5%

On lottery ticket cr. w.e. earlier ₹ 15000

 194H : Commission or Brokerage (other than Ins. Commission)

Who? P’ment if exceeds @ 5% no TDS

like 194A] or cr. ₹ 15000 For dealing in

To res. W.e. earlier Securities

TDS applicable even if used for personal purpose (unlike 194C, 194J)

DIRECT TAX : 112 :

CA INTER
 Sec. 194DA: TDS on non exempt p’ment under LIP.

Who? At time of p’ment if a/m > = 5%

Person paying LIP maturity ₹ 100000
a/m resi. not exempt u/s
10(10D)

TDS to be deducted on amount

After deducting LIC premium
Paid till date

Cross Ref : Sec. 80C & 10(10D): If premium was under % then exempt otherwise
taxable
Note: Step 1. Taxable or exempt based on sum assured.
2. If taxable then whether maturity a/m>=1L
3. If yes then Find out amount for TDS=Maturity value(-) LIC premium
upto date

 Sec. 194E : NR sportsman or sport association (Ref : 115BBA)

Payee Income
1. NR foreign citizen sportsman (Incl. - Participation in any game in India
athlete) [umpire coach not covered  (other than card & gambling)
195)] - Advertisement
- Contri. of article
2. NR Sports asso. - Amt. guarantee to be paid in relation
to game (other than card & gambling)
3. NR foreign citizen entertainer - Income from performance in India.

At time of Cr. Or P’ment w.e. earlier

@ 20% (+ H&EC)  No Limit

 194EE : P’ment for National Saving Certificate

Person paying at time of if a/m @ 10% No TDS on p’ment

Amt. p’ment > = 2500 to legal heir of
assessee

 194F : P’ment of repurchase of units by MF or UTI

Person making p’ment at time of @ 20% no limit

As per 80CCB (old sec.) p’ment
DIRECT TAX : 113 :
CA INTER

 194 I : Income by way of Rent [lease, sublease tenancy]

Who ? Cr. Rate It a/m exceeds Rent Incl. 

(like 194A) Or P&M  2% Rs. 240000 Advance rent bt
P’ment Land. Buldg. [To one party for excl. refundable
w.e. furni. 10% all contract] deposit.
earlier

TDS to be ded’ whether or not payee is owner.

TDS appli. Even for personal use (unlike 194C, 194J)
CBDT.: 1). merely fixing room tarrif  Non regular…No rent
2). No TDS on GST component (If charged separately for all Sec. No TDS
on GST)

 Sec. 194 IA : Purchase of Immovable prop.

Transferee making p’ment to Cr. If prop.value @ 1%

Resi. Transferor (seller) for pur. Or > =50 L
Of Immovable prop. (except rural P’ment (Actual or
agri. Land) w.e. earlier SDV on date
of reg. w.e.
higher)

Amt will include all charges in nature of club membership fees, car parking fees,
electricity and water facility, advance fees etc.
Here limit is per property(Not per payer)
Prop. may or may not be in India.(Owner should be resident)

 Sec. 194IB : P’ment of rent by certain Ind. / HUF (not covered in 194I).

By Ind./HUF not TDS appli. If @ 5% TDS to be ded’ in last

covered under monthly rent month of p.y. or last
194ACHIJ exceeds month of tenancy [tds
Rs. 50000 will not exceed last
month rent]

If no PAN of payee  @ 20% [Restricted to last month rent]

DIRECT TAX : 114 :

CA INTER

 Sec. 194 IC : Specified agreement

Who ? Cr. @ 10%

Person making p’ment to Resi. Or (no limit)
(in cash) as per agreement u/s P’ment
45(5A) w.e. earlier

Redevelopment of real estate

project

 Sec. 194 J : Profession or technical fees

Who ? For Limit for each Cr.

Same as a) Professional service exceeding or
(194A) b) Technical Rs. 30000 [No limit P’ment
c) Royalty for director Rs. 1 w.e. earlier
d) Non compete agree also TDS]
e) Remu. to director
[if paid otherwise than
salary]

Rate of TDS
Professional Fee, Non competence Fee, dir remuneration 10%
Technical Fees 2%
All royalty 10%
Royalty in case of sale/distribution/exhibition of 2%
cinematographic films
In case payee is in business of call center For entire section 2%

No TDS if for personal use (same as 194C).

If deductor is individual/HUF then TDS to be deducted only on prof fees and
technical fees.
Limit of 30000 is per payee per category.
Professional service incl. sport activity. [Sport person, umpire, referee coach,
trainer, event manager, etc.]
So, Event Mgmt

Sport Other event

194J 194C

DIRECT TAX : 115 :

CA INTER

 Sec. 194 LA : P’ment of compulsory acquisition compensation

Who ? P’ment If exceeds @ 10%

Paying to Resi. For Rs. 2.5 L
compulsory acq.
[Except for Urban &
Rural agri. Land]

No TDS if p’ment as per right to fair compensation & transparency in

land acq. Rehabilitation & Resettlement Act, 2013.

 Section 194M: Payment for Work or professional fees or commission

Who? For payment to resident p’ment thres. ₹ 50L @5%

Ind/HUF not for carrying our work or or cr.
Covered by professional fees or w.e. earlier
Section 194C/ commission
194J/194H

So, if covered 194C.194J and payment for personal purpose then 194M
TDS deducted even if for personal purpose

 Section 194N: TDS on cash withdrawal

Who? For resident at time of thre. 1Cr 2% above

Bank, post office for withdrawal payment ₹1 Cr.
Co. op soc in banking from any a/c
Busi. Maintained
However if person who is withdrawing cash has not furnished ROI for last three
PY for which limit of 139(1) is expired upto last PY….Then >20 L upto 1 cr—2%
and if> 1 cr—5%.

 Section 194O: TDS on Payment of certain sums by e-commerce operator to e-

commerce participant

Who? Time of p’ment @1% If parti. For goods

Ecommerce operator or is IND/HUF & service
While making payment credit in BOA then threshold
To ecommerce participants W.e. earlier Rs.5L (If provide
(E.g. Amazon making to PAN and Aadhaar)
Traders for purchasing goods
from trader)
Note: If TDS deductible in this section then no TDS in any other section.

DIRECT TAX : 116 :

CA INTER
 Section 194P: Deduction of TDS by specified bank in case of a senior citizen
Banking co. as notified by govt. (Specified bank) will deduct TDS of a resident Ind. aged
75 or more if individual has only:
Pension Income credited in the bank and Any interest (S/b or FD) Income from that
bank.
If such person has furnished declaration, then bank will deduct TDS equal to tax payable
by such person and such person will not be required to file ROI then.

 Sec-194R: Deduction of tax on benefit or perquisites in respect of business or

profession
(W.e.from 1.7.22)

Who? For resident before 20000 10%

Same like getting benefit releasing
ACHIJ or perquisites in benefit
Cash or kind

CBDT guidelines (12/2022)

Note: Though TDS applicable from 1.7.22 but limit computation to be done from 1.4.22.

Other section

A) Section 200: It will be duty of deductor to deposit TDS to govt within time
prescribed.
Time limit-Rule 30
Deductor Month/challan Due date
Any other Deductee For any month On or before 7th of next month
For march month 30th April

TDS u/s 194IA,194IB Within 30 days of next month

B) Interest liability:
Does not deduct TDS or deduct lower TDS

Deduct TDS after the date of deductible Fails to pay TDS to govt after ded”

@1% of TDS per month or part thereof @1.5% of TDS per month or
From date on which TDS deductible to the part from date on which Tds
Date on which actually deducted. Ded” to the date on which paid
(Section 201(1A) (i)) (Section 201(1A)(ii))

Note: See months date wise

C) Section 206AA: Mandatory furnishing PAN: Deductee has to mandatorily

furnish PAN. If no PAN then deductor has to deduct TDS at higher of

DIRECT TAX : 117 :

CA INTER
i). Applicable rate or
ii). 20% (For 192A=MMR& 194O,194Q-5%)
No certificate u/s 197,197A w/o PAN
If incorrect PAN=deemed that no PAN.

L) Section 206AB: Higher TDS for non fillers of Income tax:

If the payee has not filled Income tax return for last year and aggregate TDS/TCS in
that year is >50000 then deductor will deduct TDS at higher rate of:
1. Twice the rate applicable
2. 5%
If to such person 206AA is also applicable then higher rate of 206AA or 206AB.
This is N.A. to 192,194P,194B,194BB,194N

Tax collected at source: TCS

Explanation: TDS was deducted by payer of amount. Intention was that govt should
come to know which person has earned how much income…TCS is collected by person
receiving the income from the buyer. Intention is govt wants to know for some goods
that which person has done exps on purchase for how much amount.

Section 206C: TCS: meaning: every specified seller shall collect below mentioned rate of
TCS in addition to bill amount for specified goods from specified buyer.
Goods Rates
1. Alcoholic liquor for human consumption
2. Indian made liquor
3. Scrap 1%
4. Mineral (Coal, lignite, ore)

5. Timber
2.5%
6. Forest produce

7. Tendu leaves 5%
8. For lease of parking lot, toll plaza, 2%
mining by one person to another for
business

TCS collected at time of debit in books or receipt whichever is earlier.

Specified seller means: All person (Excl. AOP/BOI/Ind/HUF) + Ind/HUF whose turnover
in preceding yr is exceeding 1 cr/50L.

Specified buyer means: Every buyer other than

a) Buyer in retail sale for personal consumption c) Public sector co.
b) Govt., embassy, etc.

Note: If above goods are raw material for generating electricity then NO TCS.
Section 206C(1F) : Seller who receives amount on sale of motor vehicle above Rs. 10
Lakh. Collect TCS @1%.
This section apply only for retail user and not to dealer or distributor.
TCS to be collected at time of receipt of amount.

DIRECT TAX : 118 :

CA INTER
Section 206C(1G): Every authorized dealer of RBI at time of taking collection for
remitting outside India under Librelised remittance scheme of RBI will collect TCS
(Other than tour package) of buyer.
@5% on amt in excess of 7L if amount is >7L in FY.
@0.5% on amt in excess of 7L if amt is >7L in FY for purpose of repayment of education
loan taken from financial institution abroad.
A overseas tour operator will collect TCS @5% from buyer who purchases package.(No
threshold)
Time of TCS: debit in BOA or receipt w.e.earlier.
No TCS if buyer is CG, SG,high commission, LA.

Section TDS 194Q

A buyer while purchasing goods during the year from Resident Seller will deduct TDS.
Conditions:
1. During the P.Y. purchase of goods exceeds Rs.50 Lakhs from the resident seller.
2. Total Turnover of buyer in immediately preceding PY was exceeding Rs. 10 Cr.
3. No other TDS or TCS applicable on the said transaction other than 206C(1H).
TDS to be deducted @ 0.1% on amount of purchase in excess of Rs. 50
Lakhs.
TDS to be deducted at time of credit in books or payment whichever is
earlier.

TCS U/s Section 206C(1H) :Eligible Seller of goods to collect TCS of buyer if in PY sale
consi>50 Lakhs.
At time of receipt
@0.1% (If no PAN/aadhaar given then 1%).
No TCS if TDS is deducted u/s 194Q or anyother section.
No TCS on export.
Eligible seller = Seller whose T/o or gross receipt from business in last PY > 10 cr.
Eligible buyer = Any buyer except Govt, Local authority
No TCS for the goods mentioned in 206C(1)

Practical on TDS U/s 194Q r.w. TCS U/s 206C(1H)

Buyer Buyer’s Seller Seller’s last Goods TDS/TCS?
last year year purchased
turnover turnover during the
previous year
Mr. A 2 cr Mr. B 12 cr 40 L No TDS, No TCS
Mr.A 2 cr Mr. B 12 cr 60 L Mr.B will collect TCS from
MR.A on 10 L- 206C(1H)
Mr.A 12 cr Mr.B 2 cr 40 L No TDS,No TCS
Mr.A 12 cr Mr.B 2 cr 60 L Mr.A will deduct TDS of
MR.B on 10 L-194Q
Mr.A 7 cr Mr.B 5 cr 1 cr No TDS, No TCS
Mr.A 12 cr Mr.B 15 cr 70 L Mr.A will deduct TDS of
MR.B on 20 L-194Q
(Here TCS not applicable)
Mr.A 15 cr Mr.B 20 cr 80L TDS U/s 194-O will be
(Purchasing (E- deducted by Amazon from
through commerce payment to be done to
Amazon) participants) MR.B.

DIRECT TAX : 119 :

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1. TDS U/s 194Q will not be applicable in case of transactions through
recognized stock exchanges or registered power exchanges or any other
exchanges. (As buyer and seller do not know identity of each other)
2. If TDS deducted at time of advance—TDS on entire amount.
If TDS deducted at time of credit in books—TDS on Invoice amount excluding
GST.

Section 206CC: If no PAN provided then TCS rates higher of:

1. Twice rates of TCS and
2. 5%(1% in case of 206C(1H)

Section 206CCA: Same as 206AB.

Advance Tax
Section 207,208: Every person is liable to pay advance tax except

Advance tax p’ble is less than 10000 or Advance tax not appli.
(If >= 10000 then pay) to Resi.senior citizen if
does not have PGBP.

Advance Tax = Total tax-TDS-TCS

Section 211: Time limit:

Due date All assessee (Except Assessee covered by
44AD, 44ADA) 44AD, 44ADA
On or before 15th June of Upto 15% of adv.tax -
P.Y.
On or before 15th sept of Upto 45% of adv.tax -
P.Y.
On or before 15th Dec of Upto 75% of adv.tax -
P.Y.
On or before 15th March of Upto 100% of adv.tax Upto 100% of adv.tax
P.Y.
Even tax paid between 16th march and 31st march is said advance tax.
If on due date bank holiday then advance tax p’ble on next working day.

E.g. Mr. X has total income of Rs.600000. How much advance tax and due date.

Total tax: 33800

Inst. Upto 15/6 15/9 15/12 15/3

% 15% 45% 75% 100%
Tax 5070 15210 25350 33800
(-) paid ( 0 ) (5070) (15210) (25350)
Adv tax 5070 10140 10140 8450

DIRECT TAX : 120 :

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 Interest payment for advance tax defaults:

234B: Int on nonpayment of tax 234C: Int on deferment of tax

1. Interest u/s 234B: Int for default in payment of advance tax.

Whether 90% of advance tax paid for assessed income?

Yes No

No interest Pay interest @1% per month or part on

balance advance tax from 1st April of A.Y. to
the date of order u/s 143(1) or 143(3).(If
date not given then upto date of filling
return of income)

2. Interest u/s 234C: Int on deferment of advance tax on returned income.

If paid lower than
No int if paid
Due date % TO BE PAID column 3 then
upto %
interest
15/6 15% 12% 1% * 3 month *
balance tax
15/9 45% 36% 1% * 3 month *
balance tax
15/12 75% 75% 1% * 3 month *
balance tax
15/3 100% 100% 1% * 1 month *
balance tax

Note: 1. For 44AD/44ADA only last installment interest

2. For advance tax paid between 16/3 to 31/3 no 234B but 1month int of 234C
will be calculated.
3. No interest u/s 234C if shortfall is due to below mentioned reason and tax on
that income paid in subsequent installments:

Capital gain, dividend Casual Income PGBP arising for 1st time

Rule 119A: In calculation of Int u/s 234A, 234B, 234C amount on which Int to be
calculated is to be round off to lower side Rs.100.



DIRECT TAX : 121 :

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14. Assessment procedure

 Section : 139 (1) : Return of Income

Every Company/Firm/LLP OR
Every other person only if (Gross total Income+ Exemptions of capital gain)>Basic
exemption limit. OR
Deposited > 1 cr in any current bank accounts during FY OR
Incurred > 2 Lakhs in foreign travelling for himself +Relative OR
Incurred > 1 Lakh in electricity during FY OR
HE is R&OR and Owning any foreign asset OR
During PY turnover > 60 Lakhs (Rule 12AB) OR
During PY Professional receipt > 10 Lakhs (Rule 12AB) OR
Aggregate TDS/TCS in PY > 25000(For resident senior citizen Rs.50000)(Rule 12AB)
Deposited > 50 Lakhs In one or more saving account (Rule 12AB)

 Due date of ROI :

Assessee Due Date
1 Assessee = Report u/s 92E (T.P) 30th Nov. of A.Y.
2 Assessee = Co not covered u/s 92E
OrAssessee audited u/s 44AB or any other law
31st October.
Or ALL(Working/nonworking) partner of audited
firm
3 Any Other Case 31st July

 What if ROI Filed late than 139 (1)?

Int. u/s 234A + Late fees u/s 234F

Int @1% per month or part Total Income

from next day of due date to
Date of filling ROI
On self asst.tax 5L >5L
(If no tax is to be paid then no Int)
` 1000 5000

DIRECT TAX : 122 :

CA INTER
 139 (3) : Return of Loss (Cross Ref. Section 80) :
No losses can be carried forwarded if ROI filled late after the due date of 139(1)
Below losses can be c/f even if ROI not filed within due date.
1. HP loss
2. Unabsorbed depre

 Sec. 139 (4) : Belated Return

→ If ROI not filed as per 139(1), last date upto which if can be filed

3 mnths before End of A.Y. or Assessment(Scrutiny)order

w.e. earlier

 Sec – 139 (5) Revised Return

Original Return must have Assessee discover any omission

Been filed u/s 139(1) or 139(4) or wrong statement therein
(i.e. belated can also be Revised)

Can be filed on or by

3 mnths before End of A.Y. or Assessment(scrutiny) order

W.e. lower

→ Once revised return filed, it will attract all provision as if filed originally
→ Revised return can be filed any no. of times.

 Sec – 139 (6) Details to be furnished with ROI :

Exempt Prescribed Bank a/c No. Prescribed

Income asset details or Credit Card Exps details

DIRECT TAX : 123 :

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 Sec – 139 (6A) Particulars to be furnished with ROI if PGBP income :

Report u/s Place of Busi. & if firm then if he is a member of

44AB (if any) Branches Partner’s details firm/ AOP/BOI then
details of that.
 Sec.139(8A): Updated return
This return can be filled whether or not original return/belated return/revised return is
filled.
This return can be filled up to 2 yrs (24 months) from end of AY.
This return cannot be filled if its return of loss or it decreases tax or increases
refund from the earlier filled return u/s 139(1)/(4)/(5)
This return cannot be filled if once return in this section is filled.
This return cannot be filled if assessment/reassessment/revision is pending or
completed.
Provisos: When a person has filled ROI earlier showing loss then now updated return
can be filed only for return of Income.
Tax to be paid first u/s 140B.

 Section 140B: How much additional income tax to be paid for return u/s 139(8A):
1. If return to be filed up to 12 months from end of AY then 25% of additional
incometax.
2. If return to be filed after 12 months but before 24 months from end of AY then
50% of additional Income tax.

 Sec – 139 (9) Defective Return :

AO → discretion to intimate defect to assessee
Assessee to do rectification in 15 days of intimation or such extended period as allowed
by AO.

Assessee fails to rectify Assessee → Rectify after

Extended Time but before
assessment
Return = Invalid + Prov. Apply
As if not filed ROI. AO may condone delay & treat
it Valid

DIRECT TAX : 124 :

CA INTER
 ROI = Defective if

Not file any annexure, OR Not accompanied by

Statement, Column, etc. 1) Computaion 2) Report u/s 44AB
3) Proof of tax 4) Audited P/L, B/S
5) Various A/cs

 Sec-139A : Permanent Account Number :

Every below mentioned person shall take PAN:
Sr. Upto which date application
Who is required to obtain
No. to be made.
1 T.I.> BEL Upto 31st May of A.Y.
2 T/O > 5 lakh in P.Y, Before end of P.Y.
3 Resident person (Except ind) entering into Upto 31st May of A.Y.
financial transaction> 2.5 lakh
4 Every trustee,director,karta,member etc of Upto 31st May of A.Y.
point no.3
5 Ao can also allot pan suo moto
 PAN is 10 digit alphanumeric numbers.E.g.CFJPS6565D
 PAN to be quoted in every I.T. Return & all correspondence.
 In lieu of PAN even AADHAAR number can be quoted w.e.f.1.9.19.
For following transaction, PAN is to be quoted (CBDT).
Transaction Limit
(1) Sale / Purchase of motor vehicle (other than 2- Any amount
Wheeler)
(2) Opening account (other than TD and Savings a/c) Any amount
(3) Appli. to debit card – credit card Any amount
(4) Opening demat a/c. Any amount
(5) Payment to hotel / Restaurant at one time or for If in cash > Rs.50,000
travel in foreign or pur. F. currency
(6) Payment for purchase of MF units Amount > 50,000
(7) Payment for purchase of debentures / bonds to Amount > 50,000
company or from RBI to purchase bonds.
(8) Deposit with Bank/P.O. If cash deposit in a day >
Rs.50,000
(9) Purchase of Bank draft or pay order In cash > 50,000 in a day
(10) Any time deposit (Bank, Post, NBFC) For 1 TD > 50,000 or
aggregate > 5 L in PY.

DIRECT TAX : 125 :

CA INTER
(11) Payment to LIC Premium > Rs.50,000 in a year
(12) Sale, purchase of securities (not shares) > 1 L per transaction
(13) Sale, purchase of unlisted shares > 1 L per transaction
(14) Sale, purchase of immovable property > 10L (actual or stamp
duty)
(15) Sale, purchase of Goods – service > 2 L per transaction

 Sec-139 AA: Quoting AADHAAR NUMBER

 Aadhaar is compulsory to be quoted after 1-7-2017 in

I.T. Return PAN Card Appli.

 if no Aadhaar  Enrollment Id (28 Digit)

 if fails to intimate AADHAAR  PAN shall be made inoperative after date notified
by CBDT
 Followings are not required to obtain AADHAAR

Resident NR as per Very Senior Not a Indian

Of J & K I.T. Act citizen Citizen
Aasam,
Meghalaya

234H: 1/4/22 to 30/6/22-Late Fees Rs.500…After that Rs.1000.

If no PAN and Aadhaar linked then from 1.7.23(Rule 114AAA):
No return can be filled, No return will be processed, No refund, No response of
defective return, TDS at higher rate.

 Sec-139 B: Scheme of submission of Return through tax Return Preparers (TRP)

 Only resident non audited Ind/HUF can file ROI through TRP (CBDT).
They will assist the assessee in furnishing ROI. TRP cannot be.

Officer Legal Practitioner CA Employee other than

of Bank with employee of co. or
which assessee employee of person
has bank a/c. Audited u/s 44AB
 Only those TRP can file revised return who has filed Original Return.
What is qualification required to be TRP: Degree of bachelor or Inter CA/CS/CMA.

DIRECT TAX : 126 :

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 Sec-139 D : Filing Return in e-form
139C : Power of CBDT to dispense with 139D for specific class or classes.

 Sec-140 : Return to be verified by

Assessee By
1 Individual Present in India Himself
 Not present in India Guardian / Authorised person
2 HUF  Karta Present in India Karta
 Karta not present in India Adult member
3 Co  MD able to verify  MD
 MD unable / no MD  Other director
 Co. is NR  Holder of Power of attorney
 Co. in liquidation  Liquidator
 Co. Management by Govt  Prin. Office
4 Firm Managing or major Partner
5 LLP  Designated Partner  D.P.
 No D.P / Unable  other Partner
6 Local Autho. Prin. Officer
7 Political Party CEO
8 AOP Member
9 Any Other Any member who is able to verify

 Sec-140 A : Self assessment tax

S.A.T. = Tax incl. sc and H&ec 
(–) TDS / TCS 
(–) Advance Tax 
(–) AMT credit 
(–) relief u/s 89 


 Special cases where income is assessed in Previous year instead of assessment

year.
1. Section 172: Shipping Busi. Of NR: Pay tax & file ROI in PY itself and then leave
India.
2. Section 174: Person leaving India and no intention to return to India then pay tax
file ROI of the PY in the PY itself
3. Section 174A: AOP/BOI/AJP formed for particular event & AO feels that it will be
dissolved then pay…
4. Section 175: Person likely to transfer property to avoid tax then pay…
5. Section 176: Discontinued business.

DIRECT TAX : 127 :

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Total Income

AMT concept (Section 115JEE): Alternate minimum tax concept is applicable for
Deduction u/s
Person 35AD/10AA/80JJAA/80QQB/80RRB
Not claimed Claimed
1) For firm/LLP N.A. Applicable
2) Ind/HUF/AOP/BOI/AJP
whose adjusted total N.A. Applicable.
income> 20 Lakhs
AMT only if 115BAC not followed.

What is adjusted total income for this section?

Total income ==
Add: Deductions u/s 80JJAA/80QQB/80RRB ==
Add: Deduction u/s 10AA ==
Add: Deduction u/s 35AD(-) Notional Depreciation ==
ATI

How to compute final tax in this case when AMT Applicable:---Section 115JC
Step-1: Find out total income
Step-2: Find out normal tax payable on step-1
Step-3: Find out ATI
Step-4: 18.5% of step-3.(Plus surcharge + cess etc.)—rate as per 115JF
Step-5: Final tax payable=Step-2 or Step-4 w.e.higher.

All other provisions of act as it is applicable.

E.g.1: Mr.A has total income of Rs.700000 after claiming deduction u/s 10AA
Rs.400000.Calculate ta payable.
Ans. Here adjusted total income is Rs.1100000. So AMT is not applicable.
(Ind & < 20L ATI).
So tax payable is=52500+ 4%

E.g.2 Suppose in above e.g. T.I. is Rs.1700000. Then?

Ans. AMT applicable because ind+ ATI> 20L.
Stap-1: 1700000
Step-2: 335400
Step-3: 2100000(17+4)
Step-4: 404040
Step-5: Final tax payable=Rs.404040.
DIRECT TAX : 128 :
CA INTER
E.g.3 Mr.B total income Rs.1700000.After claiming deduction u/s 35AD for capital exps
of P&M rs.500000.Calc tax payable.
Ans. ATI= 1700000+(5L-15% dep)=2125000.
So, AMT applicable.
Step-1: 1700000
Step-2:335400
Step-3: 2125000
Step-4: 408850
Step-5: 408850

 115JD: AMT credit.

If assessee has paid tax as per AMT then credit of that extra paid tax i.e. AMT-normal tax
(Step-4(-) Step-2) will be available in future as follows:
Whether tax paid as per AMT in earlier yrs?

Yes then credit available. No credit

Whether in this year paid normal tax? (As per step-2)

Yes No

Then this yr credit can be availed No credit can be availed.

Max=Tax in this yr as per normal
(-) Tax in this yr as per AMT

Credit can be carried forward upto 15 yrs from the yr of credit.

For company - MAT provisions --- CA final.
Year Tax as AMT AMT Credit Credit to Tax Credit AMT Credit
per available be used in payable generate available
normal (Opening this year (1or 2 d this (Closing
balance) (1-2) or 3 w.e. year balance)
(3) w.e.lower higher) - (5)=2-1 (3-4+5)
(1) (2) (4) 4
2016- 100000 125000 0 0 125000 25000 25000
17
2017- 120000 125000 25000 0 125000 5000 30000
18
2018- 130000 120000 30000 10000 120000 0 20000
19
2019- 90000 92000 20000 0 92000 2000 22000
20
2020- 80000 60000 22000 20000 60000 0 2000
21

DIRECT TAX : 129 :

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Section 115BAC: New tax regime with effect from P.Y.20-21 for Individual/HUF-
Optional.
Government has introduced a new scheme for Individuals and HUFs (Resi/NR/Senior
citizen/all) with lower rates for those foregoing certain exemptions / deductions:
Total Income Tax Rate (under the new regime)
Up to Rs.2,50,000 Nil
Rs. 2,50,001 to Rs. 5,00,000 5%
Rs. 5,00,001 to Rs. 7,50,000 10%
Rs. 7,50,001 to Rs. 10,00,000 15%
Rs. 10,00,001 to Rs. 12,50,000 20%
Rs. 12,50,001 to Rs. 15,00,000 25%
Above Rs. 15,00,000 30%

1. Optional scheme.
2. No change in Rebate/surcharge/special rate income/H&EC.
3. Individual or HUF does not have business income, the option is to be exercised for
every year along with the filing of the return of income under section 139(1) for the
year.
4. Where such individual or HUF has business/profession, the option is to be exercised
on or before the due date of filing the return of income and such option once
exercised shall apply for that previous year and to all subsequent years. One-time
change is possible. After such change is done once then change never possible
unless business stops.
5. Which deduction/exemptions not to be allowed?
1. Leave Travel Concession – section10(5)

2. House Rent Allowance – section10(13A)

3. Exemption for allowance u/s 10(14) except-Transport allowance,

Conveyance allowance, daily allowance, tour-travel-transfer
allowance.

4. Allowances to MPs/MLAs – section10(17)

5. Clubbing Exemption Rs.1,500 – section10(32)

6. Exemption for unit in SEZ – section10AA

7. Standard and other deductions (including profession tax) from salary – section16

8. Interest in respect of Self Occupied Property– section 24(b)

9. Setoff of loss under the head income from house property against other heads –

10. Additional depreciation – section32(1)(iia)

DIRECT TAX : 130 :

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11. Specified deduction for donations or for expenditure on scientific research – section
35(1)(ii)/(iia)/(iii) or section 35(2AA)

12. Weighted deduction for expenditure on specified business/agricultural Extension

project–sections 35AD and 35CCC

13. Standard deduction for family pension–section57(iia)

14. Deductions under Chapter VI-A (such as section 80C, 80D, 80 TTA, 80TTB, 80G etc.)
Other than the following:-
a) 80CCD(2) – employer’s contribution in notified pension scheme
b) 80JJAA – employment of new employees
c) 80LA – IFSC centre(CA Final)

15. AMT concept N.A. once this option is exercised

If any last yr loss belongs to above mentioned deductions then that loss cannot be setoff this
year.
If employee wants employer to deduct TDS U/s 192 as per 115BAC then give declaration in
starting of PY.

Refer all exercise.




DIRECT TAX : 131 :