Law of Taxation - Introduction

Course Objective

• This course provides an introduction to, and overview of fundamental

concepts of income tax law.

• This course is designed to provide students with a working knowledge

of the fundamental tax principles and rules that apply to commonly
encountered transactions undertaken by companies and individuals.
 Course Outline
1. SCHEME OF INCOME TAX LAW iv. Capital Gain (Ss. 45-55)
i. Understanding of Taxing Statutes v. Income from other Sources (Ss. 56- 59)
1.1 Objectives of Such Statutes
1.2 Scenario at International Level 3. SET OFF AND OR CARRY FORWARD OF LOSSES
1.3 Scenario in India 4. EXEMPTION / DEDUCTIONS
ii. Certain Important Definition 5. EXEMPTED INCOME
2.1. Assessee
2.2. Person (Taxable entity) 6. DEDUCTION
2.3. Assessment Year (S. 2(9)) i. Deduction from Total Income
2.3. Previous Year (S.3) ii. Deduction in Respect of Payments
2.4. Total Income (S. 2(45)) iii. Deduction in Respect of Certain Income
iii. Charge
iv. Income 3. PROCEDURE FOR ASSESSMENT
v. Tax Free Income (S. 10) 4. FILING OF RETURN
5. ASSESSMENT AND RE-ASSESSMENT
2. COMPUTATION OF TOTAL INCOME 6. RECTIFICATION OF MISTAKE
i. Income from Salaries (Ss. 15 - 17) 7. APPEALS AND REVISION
ii. Income from House Property (Ss. 22 - 27)
iii. Profits & gains from Business or Profession (Ss. 28 – 44D)
 Tax?
• A charge usually of money imposed by authority on persons or property for public purposes – The Merriam-
Webster Dictionary

• Features:
- Burden on payee
- Always collected by the State

• How to Interpret:
⁻ Always Strict Interpretation
⁻ No retrospective effect unless language states so
⁻ If two interpretations are there, that interpretation to be considered which will favor the assessee.
Objectives
• Why pay?
₋ To collect revenue for the government
₋ To prevent concentration of wealth (as stated under DPSP Article 39(C)).
₋ To accelerate economic growth of the country (Capital formation –
investment)
₋ To Secure adjustment in allocation of resources
₋ To secure economic stability
 Tax Legislation

Tax

Direct Tax Indirect Tax

Goods and
Income Tax Corporate Tax Services Tax Customs Duty
Pre-GST Legislative Structure

Tax

Indirect
Direct Tax
Tax

Income Corporate Tax on Tax on

Tax Tax Goods Services

Excise Customs VAT

Sales Tax
Duty Duty
 Sources of Income Tax
• COMPONENTS OF INCOME TAX LAW

• Income Tax Act

• Finance Act
• Income Tax Rules
• Circulars/Notifications
• Legal Decisions of Courts
IMPORTANT POINTS:

• Every year a budget is presented before parliament by the finance

minister, this budget results in making of Financial Act of that year.

• INCOME TAX RULES, 1962: Every act normally gives power to an

authority, responsible for implementation of the act and to make
rules for carrying out purposes of the act. Section 295 of INCOME TAX
ACT gave such power to the Central Board of Direct Taxes (CBDT) to
make such rules.
 Income Tax Act - Definition
• India : includes-
(i) The territory of India
(ii) Its territorial waters and an area of exclusive economic zone.
• Income tax : The direct tax paid by the person whose income is more than
maximum exemption limit prescribed
• S. 2(7) - Assessee : person by whom tax, penalty, interest etc. payable
under Income Tax Act 1961.
• S. 2(9) – Assessment Year – Period of 12 months commencing on 1st day of
April, every year. Eg. Assessment Year 2018-19 commences on 01.04.2018
and ends on 31.03.2019.
• Financial Year : 1st April to 31st March
• S. 3 - Previous Year: Financial year immediately preceding the
Assessment year.
• S. 3(21) of General Clauses Act, 1897- Financial Year: Period of 12
months commencing on 1st day of April every year and ending on 31st
March of next year.
❖ PY in case of newly set-up business and profession would be
commencement of business and profession and PY for first salary
would be the day when salary was drawn
 When income of previous year is assessed in
same year
1. Shipping business of non-residents (S. 172)
2. Assessment of persons leaving India (S. 174)
3. Assessment of AoP or BoI or AJP formed for a particular event or purpose (S
174 A)
4. Assessment of persons likely to transfer property to avoid tax (S 175)
5. Discontinued business (S 176)

In the first four exceptions, the Assessing officer shall charge the tax in the same
PY but in the fifth exception Assessing Office has the discretionary power.
• Example 1- R wishes to migrate to USA permanently and plans to leave
India on 15.11 2020. He submitted his return for AY 2020-21 on
31.07.20202 the assessment of which is still pending:

• In this case the assessing officer will make two assessments:-

• (a) regular assessment for previous year income of 2019-20 at the rates
applicable for AY 2020-21.

• (b) assessment of the income of the period 1.4.2020 to 15.11.2021 (either

actual or estimated basis) and tax should be levied on such income in the
AY 2020-21 itself but at the rates of advance tax for financial year 2020-21
(AY 2021-22) given in part III of first schedule of Finance Act 2020.
• Example 2- If an AOP is formed in the PY 2020-21 is going to be
dissolved on 16.6.2021 then the income of the period 1.4.2021 to
16.6.2021 shall be charged to income tax in the AY 2021-22 itself
although its AY should have been AY 2022-23.
• S 2(31) - Person : includes eight kinds of persons as below:-
1. Individual (Individual means a natural person i.e. a male,
female, minor, idiot or lunatic) Analysis- However the income of a
minor is generally included in the income of parent. Assessment of
Lunatic or idiot is done through representative assessee.
2. Hindu undivided family (HUF) - HUF has not been defined under the
act however it means a family which consist of all persons lineally
descended from a common ancestor. (for ex- joint family business)
3. Company - Company includes both Indian company as well as
foreign company.
4. Firm - Firm means partnership firm (including limited liability partnership firm)
but there must be a partnership deed to assess the income in the name of a
firm.

5. Association of persons(AOP) : If a group of person’s Works together

voluntarily without any partnership deed then it will be called As AOP.

6. Body of individuals(BOI) : If a group of individuals works together By

operation of law

7. Local authority - Local authority means a authority which is responsible for the
local maintenance of a place falls under his jurisdiction For eg.- Jaipur Nagar
Nigam, Panchayat Dahmi Kalan, and cantonment board etc.

8. Artificial juridical person (AJP) -Artificial juridical person means a person which
is not natural but is a legal person in the eyes of law (Eg. MUJ)
 Tax Deducted at Source

• TDS is one of the modes of collection of taxes, by which a certain percentage of

amounts are deducted by a person at the time of making/crediting certain
specific nature of payment to the other person and deducted amount is remitted
to the Government account. It is similar to "pay as you earn“ scheme also known
as Withholding Tax in many other countries. It facilitates sharing of responsibility
of tax collection between the deductor and the tax administration. It ensures
regular inflow of cash resources to the Government. It acts as a powerful
instrument to prevent tax evasion.
 Objective of deduction of tax at source is to
collect tax in advance.

• The main object of deduction of at source was to collect tax at the time the
income like salaries, interest on securities or dividend are paid, so that the
Government could have a regular in flow of cash resources, collect tax in
advance, prevent evasion of tax and also place the responsibility of deducting and
depositing tax on the shoulders of persons other than the payees.
 What is the TDS Certificate?
• TDS certificates are issued by the deductor (the person who is deducting tax)
to the deductee (the person from whose payment the tax is deducted). There
are mainly two types of TDS certificates issued by the deductor.
1.Form 16: which is issued by the employer to the employee incorporating
details of tax deducted by the employer throughout the year, and
2.Form 16A: This is issued in all cases other than salary.
• For example, Mr. Gupta is working as a salaried employee at a company, and
tax is deducted on his salary @ 15%. The company shall provide Mr. Gupta
with a Form 16 describing particulars in detail regarding the amount of salary
paid and tax deducted on the same.
• However, had Mr. Gupta been working as a professional and received
professional fees from an organization that is subject to TDS, then he will be
provided Form 16A for the same.
 When TDS should be deducted?
• The concept of TDS is based on a simple principle i.e. tax is to be deducted at the
time of payment getting due or actual payment whichever is earlier. A set of
scenarios will be helpful in understanding the concept:
• Say, ABC Private Limited has to make payment of Rs 50,000/- to Mr. XYZ in exchange
for professional services.
• Scenario1:
•
Mr. XYZ was paid Rs 30,000/- in advance on 15th July. XYZ raised the invoice after
completion of work on 31st July and the rest of the payment is to be made.
• In such a case the company should have deducted tax in the following manner:
• On 15th July: Rs 3,000/- (@ 10% on the advance of Rs 30,000/-)
• On 31st July: Rs 2,000/- (@ 10% of the total invoice amount as deducted by tax
already deducted i.e. Rs 5000/- deducted by Rs 3,000/-)
• Scenario 2:
Mr. XYZ raised the invoice on 15th July and was paid whole
consideration at one go on 31st July.
• In such a whole amount of Rs 5,000/- shall be deducted on 15th July,
the date when payment got due, and a net payment of Rs 45,000/-
shall be made on 31st July.

• Scenario 3:
Mr. XYZ is to receive the whole amount of Rs 50,000/- well in advance
before completion of the assignment.
• In such a particular case tax of Rs 5000/- shall be deducted right at
the time of payment of advance and no tax is to be deducted at the
time of making an entry for the bill due.
Rates for tax deduction at source (Updated May
2020)

Section of
Existing Rate of TDS Reduced rate from
S. the
Nature of Payment from 01/04/2020 to 14/05/2020
No Income Tax
13/05/2020 to 31/03/2021
Act
1 193 Interest on Securities 10% 7.5%
2 194 Dividend 10% 7.5%
Interest other than interest on
3 194A 10% 7.5%
securities
1% 0.75%
Payment of Contractors and sub-
194C (individual/HUF) (individual/HUF)
4 contractors
2% (others) 1.5% (others)
5 194D Insurance Commission 5% 3.75%
Payment in respect of life
6 194DA 5% 3.75%
insurance policy
 Payments in respect of deposits under
7 194EE 10% 7.5%
National Savings Scheme

Payments on account of re-purchase of Units

194F 20% 15%
8 by Mutual Funds or UTI

Commission, prize etc., on sale of lottery

194G 5% 3.75%
9 tickets

10 194H Commission or brokerage 5% 3.75%

11 194-I(a) Rent for plant and machinery 2% 1.5%

12 194-I(b) Rent for immovable property 10% 7.5%

13 194-IA Payment for acquisition of immovable property 1% 0.75%

14 194-IB Payment of rent by individual or HUF 5% 3.75%

194-IC Payment for Joint Development Agreements 10% 7.5%

15

194J Fee for Professional or Technical Services (FTS), Royalty, etc. 2% (FTS, certain royalties, call center)10% (others) 1.5% (FTS, certain royalties, call centre) 7.5% (others)
16

17 194K Payment of dividend by Mutual Funds 10% 7.5%

194LA Payment of Compensation on acquisition of immovable property 10% 7.5%

18

19 194LBA(1) Payment of income by the Business trust 10% 7.5%

20 194LBB(i) Payment of income by Investment fund 10% 7.5%

25%
18.75%
194LBC(1) Income by the securitization trust (Individual/HUF)
(Individual/HUF) 22.5% (Others)
21 30% (Others)

194M Payment to the commission, brokerage etc. by Individual and HUF 5% 3.75%
22

1%
194-O TDS on e-commerce participants 0.75%
23 (w.e.f.1.10.2020)
 What are the due dates for TDS?
• Payment of TDS each month and filing of quarterly return of TDS are 2
separate processes and due dates for these processes are different
• The due dates for the payment of the deducted TDS are on or before the 7th
of next month. It means, if the deductor has deducted tax from payments in
the month of November, then he has to pay the TDS on or before the 7th of
December. The key point to note here is that the due dates are the same for
all types of assesses whether its Salaried case or non-salaried case.
 Which are the different forms prescribed for TDS Return?

Respective TDS
TDS certificate Due date Frequency of issue
return form

Within 15th June of

a Financial Year
Form 16 Form 24Q which succeeds a Annually
Financial Year when
the tax is deducted

Within 15 days of
Form 16A Form 26Q submitting Form Once every quarter
26Q

Within 15 days of
Form 16B Form 26QB submitting Form Monthly
26QB

Within 15 days of
Form 16C Form 26QC submitting Form Monthly
26QC
TDS Return filling dates

Quarter Quarter period Last date of filing

1st quarter 1st April to 30th June 31st July, 2019

2nd quarter 1st July to 30th September 31st October, 2019

3rd quarter 1st October to 31st December 31st January, 2020

4th quarter 1st January to 31st March 31st May, 2020

What are penalty provisions for non-deduction
of TDS?
• Consequences of non-deduction of TDS

If a person who was responsible for deducting tax at source fails to do

so, then the ASSESSING OFFICER has powers to disallow whole of such
expenditure for ascertaining taxable profits. For example, ABC Limited
paid a commission of Rs 2,00,000/- during the year to a single person
and omitted to deduct tax on the same, then the Assessing Officer has
powers to disallow deduction whole of such expenses while
ascertaining taxable profits.
• Late deduction of TDS

Tax is to be deducted at the time of payment/credit getting due or

payment whichever is earlier. In terms of income tax, even a single day
is counted as a month for the purpose of calculating interest. In cases
of late deduction of tax, interest @ 1% per month of the TDS amount.
For example, ABC company was supposed to deduct tax of Rs 20000/-
on 15th July but instead the same was deducted by the company on
1st August. In this case interest of Rs 200/- (@1% for one month) is
required to be paid by the assessee.
• Late payment of TDS

Tax is to be deducted and paid to the credit of government on every

7th day of the succeeding month in which the tax has been deducted,
otherwise, interest @ 1.5% per month of TDS amount. For example,
ABC Ltd was supposed to deposit TDS of Rs 20000/- deducted in the
month of April by the 7th of May but fails to deposit the same on time
and actually deposited the same in the following month. In this case
interest of Rs. 300/- (@ 1.5% for one month) is required to paid by the
assessee.
• Late filing of return of TDS

Fees under section 234E are levied @ Rs 200/- per day until the return
is filed. Example, M/s ABC, a partnership deducted and paid a total TDS
of Rs 40000/- in the first quarter of FY and was supposed to file its TDS
return by 31st July but filed its return on 31st August. Total fees of Rs
6200 (200/- per day for 31 days) shall be paid before filing of return.
• Penalty for late filing of TDS return

Assessing officer may direct a person who fails to file the statement of
TDS within due date to pay a penalty minimum of Rs. 10,000 which
may extend to Rs.1,00,000. The penalty under this section is in addition
to the penalty u/s 234E and also covers the cases of incorrect filing of
TDS return.
 What are the TDS rules?
• here are certain rules set out by the tax authorities in regard to TDS, that if complied
properly you will not end up paying penalty, interest, and fees.
1.Tax deduction rules: Tax is required to be deducted at the time of payment getting
due or actual payment whichever is earlier. Delay in deduction of tax will attract
interest @ 1% per month until the tax is deducted.
2.TDS payment rules: Every person is required to pay the tax deducted to the credit of
government by the 7th day of the following month. Non-payment or late payment of
TDS will attract interest @ 1.5% per month until the tax has not been deposited.
3.TDS return filing rules: TDS returns are required to be filed timely on the 31st day of
July, October, January, and May during a financial year. Non-filing or filing of return
after the due date will attract fees under section 234E @ Rs 200/- per day until the
return is filed. However, this amount shall not exceed the amount of tax.
Section 194IA of Income Tax Act
• Introduced in 2013, this section prescribes that a buyer of immovable
property that costs more than Rs.50 lakhs is required to deduct TDS while
paying the seller.
• The rate of TDS for this deduction is 1%.
 conditions for the application of Section
194IA of Income Tax Act
• TDS is to be deducted by the buyer and not by the seller.
• There is no TDS applicable under Section 194IA if the transaction is worth less than Rs.50
lakhs.
• TDS has to be paid on the complete amount of sale and not just the amount above Rs.50
lakhs. For example, if you buy a property worth Rs.60 lakhs, TDS will be calculated on Rs. 60
lakhs and not Rs.10 lakhs.
• For payment made in installments, TDS will be deducted on each installment.
• Since September 2019, charges such as club membership, car parking, maintenance fees,
advance fees, electricity fees have also been included under ‘consideration for immovable
property’. This means that such charges attached to the property will also be added to the
taxable amount.
• PANs of both buyer and seller are mandatory for TDS deduction under
Section 194IA. If the buyer does not obtain the seller’s PAN, the rate
of TDS rises to 20%.
• This TDS payment has to be made using Form 26QB.
• It has to be paid within 30 days from the last day of the month in
which the sale was conducted.
• After payment of TDS, the buyer will receive Form 16B which they
need to submit to the seller.
Tax not to be deducted in certain cases
• The immoveable property transferred is a rural agricultural land
• The immoveable property has been compulsory acquired under any
law
• The total amount of consideration for the transfer of immoveable
property is less than 50 lakhs.
 Section 194IB of the Income Tax Act
• Section 194IB came to existence in Budget 2017
• Section 194B mandates that individuals or Hindu Undivided Families
deduct TDS for rent payment made to an Indian resident. The rent
amount should be more than Rs.50,000/month for this tax to be
applicable.
• Rent constitutes payments made for a lease, tenancy, sub-lease or other
arrangements for properties like
• Land with factory
• Land
• Building with factory
• Equipment
• Machinery
• Plant
• Furniture
• Fittings
• TDS on rent under Section 194IB of the Income Tax Act has to
be deducted on the earlier of the following-
• When rent is credited for the last month of the previous year or
• last month of tenancy in case the property is not being
occupied anymore.

• When rent is paid by cheque, draft, cash, or other modes.

TDS rate under this Section
• The rate of TDS under Section 194IB of Income Tax Act is 5% if
the tenant obtains the owner’s PAN. If they fail to do so, the rate
is 20%.
 Conditions to pay TDS under Section
194IB
• This payment is required to be made through Form 26QC
• It can be made online or offline through an authorized bank.
• collect Form 16C and submit it to the landlord
• If the rent is paid on behalf of the government, TDS has to be deposited on the very
same day.
• If payment is not on behalf of the government, TDS has to be deposited within 7
days from the last date of the month in which the deduction was carried out.
• If payment was made in March, TDS deposit has to be made before the 30th of April.
Section 194IC
• Section 194IC was recently introduced from the Budget 2017
• Any person paying the owner under the Joint Development
Agreement is required to deduct the TDS under this section.
What is meant by the Joint
Development Agreement?
• Joint Development Agreement is an agreement between two
people i.e. the owner of the land or building and another person
who is given the permission to build a real estate project and in
return, he or she must give a share to the owner or the payment
in cash must be done.
 Rate of Tax U/S 194IC
• the rate of tax that must be deducted under the section 194IC-
• 10 percent if the receiver has the PAN [7.5% from 14th May 2020 to 31st
March 2021 as relief given by the Finance Minister due to coronavirus
outbreak]
• 20 percent, if there is not PAN of the receiver.

• The tax must be deducted u/s 194IC before;

• Crediting the rent amount into the account of the receiver or owner or;
• Actual payment must be done in a cheque, draft, cash, or any other modes

• Also note that, under section 194IC, the threshold limit or exemption limit is
not present.
time duration for depositing TDS
• TDS needs to be deposited by the 7th of the subsequent month
except for the month of March. However for the month of
March, TDS needs to be deposited by 30th April.
Important Note
• The credit of such tax deducted at source will be available to the
individual or HUF, as the case may be, at the time when capital gain is
computed as per section 45(5A) (i.e. previous year in which the
certificate of completion for the whole or part of the project is
issued by the competent authority). In this case, the deductee will
have to carry forward such tax deducted at source and claim the
credit of the same in the previous year in which the capital gain
becomes taxable.
 Example-
• X ltd. a builder enters into a registered joint development agreement with R on
1.7.2018. On same day R handed over the possession of plot to X ltd. and X ltd.
paid an amount of Rs. 1,20,00,000. Completion certificate was issued by the
competent authority on 20.3.2020.
• In this case, As per sec. 194IC, X ltd. will deduct TDS @10% on Rs. 1,20,00,000
i.e. 12,00,000 in A.Y. 2019-20. However the landowner shall claim in the year in
which Capital Gain in Taxable i.e. AY 2020-21.
 ADVANCE TAX [S. 207-211, 217 & 219]
• Advance tax is the income tax payable if your tax liability is or more
than Rs 10,000 in a financial year. [Sec. 208]
• Any amount paid up to March 31 will also be accepted as advance tax
for that financial year
• Individuals may pay advance tax using tax payment challans at bank
branches authorised by the Income Tax (I-T) Department
What is Advance Tax?
• advance tax refers to paying a part of your taxes before the end of the
financial year. Also called ‘pay-as-you-earn’ scheme, advance tax is
the income tax payable if your tax liability is or more than Rs 10,000
in a financial year. It should be paid in the year in which the income is
received.
• By paying in advance, you help the government and also yourself by
not finding it hard to pay the whole tax at one go at the end. This way,
if your advance tax liability for the financial year 2017-18 has
exceeded Rs 10,000, you are expected to pay it in the same financial
year.
 Payment of advance tax [S.211]
Due date of instalment Amount payable
On or before 15th June Not less than 15% of the
advance tax liability
On or before 15th September Not less than 45% of the
advance tax liability
On or before 15th December Not less than 75% of the
advance tax liability
On or before 15th March 100% of the advance tax liability
 Example-
• Ajay is a freelancer earning income from the profession of interior
decoration. For the FY 2019-20, Ajay estimates his annual gross receipts at Rs
20,00,000. Ajay estimates his expenses at Rs 12,00,000. Ajay has deposited
Rs 40,000 in PPF account. Ajay has also paid Rs 25,000 towards LIC premium.
Further, Ajay has paid Rs 12,000 towards medical insurance premium. The
professional receipts of Ajay are subject to TDS. Ajay estimates a TDS of Rs
30,000 on certain professional receipts for the FY 2019-20. Besides
professional receipts, Ajay estimates an interest of Rs 10,000 on fixed
deposits held by him. Ajay’s advance tax liability would be as below:
INCOME ESTIMATION FOR ADVANCE TAX AMOUNT (Rs) AMOUNT (Rs)

Income from profession:

Gross receipts 20,00,000

Less: Expenses 12,00,000 8,00,000

Income from other sources:

Interest from fixed deposit 10,000
GROSS TOTAL INCOME 8,10,000
Less: Deduction under section 80C

Contribution to PPF 40,000

LIC premium 25,000
65,000
Deduction under section 80D 12,000 77,000
TOTAL INCOME 7,33,000

TAX PAYABLE 59,100

Add: Education cess @ 4% 2,364
61,464
Less: TDS 30,000
TAX PAYABLE IN ADVANCE 31,464
ADVANCE TAX PAYMENTS

Due date Advance tax payable Amount (Rs)

15th June 15% of Advance tax 4,700

15th September 45% of Advance tax 14,100

15th December 75% of Advance tax 23,600

15th March 100% of Advance tax 31,400

• if you are a salaried employee, you need not pay advance tax as your employer
deducts tax at source (TDS).
• From Finance Act 2012, a resident senior citizen (age of sixty years or more at any
time during the financial year) is exempted from making payment of advance tax
unless such person derives income from business or profession.
• Advance tax is applicable when an individual has sources of income other than his
salary.
• For instance, if an assessee earns income via capital gains on shares, interest on
fixed deposits, winnings from lottery or races, capital gains on house property
besides his regular business or salaried income then after adjusting for expenses or
losses he needs to pay advance tax.
• Professionals (self-employed) and businessmen will have to pay taxes in advance as,
given their business income, the liability can be huge. The same implies for
companies and corporates.
• Presumptive income for Businesses–The taxpayers who have opted
for presumptive taxation scheme under section 44AD have to pay the
whole amount of their advance tax in one instalment on or before 15
March. They also have an option to pay all of their tax dues by 31
March.
• Presumptive income for Professionals– Independent professionals
such as doctors, lawyers, architects etc. come under the presumptive
scheme under section 44ADA. They have to pay the whole of their
advance tax liability in one instalment on or before 15 March. They
can also pay the entire amount by 31 March.
 How to file Advance Tax?
• Individuals may pay advance tax using tax payment challans at bank branches
authorised by the Income Tax (I-T) Department.
• Individuals may also pay it online through the I-T department or the National
Securities Depository.
• if you miss the deadline, because if you fail to pay or the amount you’ve paid
is less than the mandated total liability [Sec. 234 C]-
Circumstances in Rate of Interest Period Amount on which
which interest is interest is to be paid
payable
Where advance tax not paid Simple Interest @ 1% p.m. Three months 15% of tax due or if paid than
or paid on or before June tax due minus advance tax
15th is less than 12% of tax paid upto 15th June
due
Where advance tax not paid Simple Interest @ 1% p.m. Three months 45% of tax due or if paid than
or paid on or before tax due minus advance tax
September 15th is less than paid upto 15th September
36% of tax due
Where advance tax not paid Simple Interest @ 1% p.m. Three months 75% of tax due or if paid than
or paid on or before tax due minus advance tax
December 15th is less than paid upto 15th December
75% of tax due

Where advance tax not paid Simple Interest @ 1% p.m. One Month 100% of tax due or if paid
or paid on or before March than tax due minus advance
15th is less than 100% of tax tax paid upto 15th March
due
• Mr. Ratan is an assessee whose income tax computed was Rs
6,00,000
• TDS= Rs 1,20,000
• Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000

• He paid the following advance tax:

• 1. 10th June: Rs 30,000
• 2. 15th September: Rs 50,000
• 3. 15th December: Rs 25,000
• 4. 15th March : Rs 30,000
• Total = Rs 1,35,000
• Penalty on the Advance Tax is calculated on the basis of difference
between actual amount paid and due.

• 15% of Rs 4,80,000 = 72,000 differential = 72,000- 30,000 = Rs 42,000

• 45% of 4,80,000 = 2,16,000 differential = 2,88,000- 80,000 = Rs
1,36,000
• 75% of 4,80,000=3,60,000 differential =3,60,000-1,05,000= Rs
2,55,000
• 100% of 4,80,000 = 4,80,000, differential = 4,80,000-1,35,000 = Rs
3,45,000
• Interest Charges:

• Rs 42,000*1%*3 months = Rs 1,260

• 1,36,000*1%*3 months = Rs 4,080
• 2,55,000*1%*3 months = Rs 7,650
• 3,45,000*1%*1 months = Rs 3,450

• Total Penalty= Rs 16,440.

• In COVID situation, if the first instalment of appropriate advance tax is paid by
• -June 15, 2020, there will be no interest levied
• -June 30, 2020, reduced interest will be levied at 0.75 per cent per month,
instead of 1 per cent a month
• -After June 30, 2020, interest will be levied at 1 per cent a month.
• Sec. 234 B- if advance tax in not paid or the amount of advance tax paid is less
than 90% of the assessed tax, the assessee shall be liable to pay simple
interest @1% p.m. from the first day of April following the financial year.
• Sec 234 B-

• Mr. Ratan is an assessee whose income tax computed was Rs

6,00,000
• TDS= Rs 1,20,000
• Tax Assessment: Rs 6,00,000- 1,20,000= Rs 4,80,000
• Total Tax Paid= Rs 1,35,000
• 90% of 4,80,000 = 4,32,000
• Interest- 4,80,000 – 1,35,000 = 3,45,000 X1%X4 months (April, May,
June, July) = 13,800
 Order of Assessing Officer to pay Advance Tax
U/S 210
• Although it is mandatory for the assessee to calculate and pay advance tax, the
assessing officer may pass an order under sec. 210 requiring the assessee to
pay advance tax.
• If estimate of current income is lower- On receipt of the order to pay advance
tax, the assessee if in his estimation the advance tax payable would be less
than the amount specified in the order, can submit his own estimate of his
lower current income and pay advance tax on the basis of his estimation. In
such case, the assessee will have to send an intimation in form no. 28A to
Assessing officer on or before due date of last installment mentioned in sec.
211
• If estimate of current income is higher- in this case assessee shall pay whole
of such higher tax on or before due date of each installment. In this case no
need to send an intimation on Form No. 28A to the Assessing officer.
• If the estimate made by the assessee in Form. No. 28A is not correct, then the
assessee shall be deemed to be an assessee in default [S. 218] and shall be
liable to pay penalty u/s 221 as the Assessing Officer may direct.
• The assessee cannot file appeal against the order passed u/s 210 as he can
pay tax on his own.
 Rates of income-tax
Threshold Limit Rates of Income Tax
where the total income does not exceed Rs. 2,50,000 NIL

where the total income exceeds Rs. 2,50,000 but does not 5 per cent. of the amount by which the total income
exceed Rs. 5,00,000 exceeds Rs. 2,50,000

where the total income exceeds Rs. 5,00,000 but does not Rs. 12,500 plus 20 per cent. of the amount by which the
exceed Rs. 10,00,000 total income exceeds Rs. 5,00,000

where the total income exceeds Rs. 10,00,000 Rs. 1,12,500 plus 30 per cent. of the amount by which the
total income exceeds Rs. 10,00,000.
CHARGE OF INCOME TAX
 Charge of Income Tax
• Charge of income-tax.
• Sec 4. (1) Where any Central Act enacts that income-tax shall be charged for any
assessment year [2(9)] at any rate or rates, income-tax at that rate or those rates shall
be charged for that year in accordance with, and subject to the provisions (including
provisions for the levy of additional income-tax) of, this Act in respect of the total
income [2(45)] [2(24)] of the previous year [3] of every person [2(31)]
• Provided that where by virtue of any provision of this Act income-tax is to be charged in
respect of the income of a period other than the previous year, income-tax shall be
charged accordingly.
• (2) In respect of income chargeable under sub-section (1), income-tax shall be deducted
at the source or paid in advance, where it is so deductible or payable under any
provision of this Act.
• Section 3. Previous Year- For the purposes of this Act, "previous year"
means the financial year immediately preceding the assessment year
:
• Provided that, in the case of a business or profession newly set up, or
a source of income newly coming into existence, in the said financial
year, the previous year shall be the period beginning with the date of
setting up of the business or profession or, as the case may be, the
date on which the source of income newly comes into existence and
ending with the said financial year.
• To understand this concept we should understand – the term “income”,
“gross total income” and “deductions permissible from GTI”.

• S 2(24) – Income: Includes – profits and gains, dividends, salary, allowance,

capital gains etc.
• Income covers receipts in shape of money or money’s worth
 Meaning of Income
• Any benefit whether in cash or kind which can be measured in money
Feature:
• Regular and definite
• Cash/Kind
• Legal/illegal
• Temporary/Permanent
• Lump sum/ Installments
• Real (not fictitious)
• Award/ prize money
Gross Total Income: As per S. 14, all income shall, for the purpose of IT and computation of total income, be
classified under the following heads:
i. Salaries [Ss 15 to 17]
ii. Income from House Property [Ss. 22 to 27]
iii. Profits and Gains of Business or Profession [Ss. 28 to 44 DA]
iv. Capital Gains [Ss. 45 to 55A]
v. Income from other sources [Ss. 56 to 59]

“Clubbing” the incomes from all five sources and applying set-off and carry forward of losses, is known as GTI

• S.2(45) - Total Income: Total amount of income referred to in S. 5, computed in the manner laid down in
the Income Tax Act.
• Total Income – By deducting from GTI all deductions permissible under Chapter VIA (Ss. 80 C – 80 U)
 Scope of Total Income and Residential Status
• Total income of an assessee cannot be computed unless we know his residential
status in India during the previous year.

• According to residential status, the assesssee can either be-

• Resident in India; or
• Non-resident in India

• If an individual is a resident in India, he will be either-

• Resident and ordinarily Resident in India
• Resident but not ordinarily Resident in India
• Section 6 - Residence in India.
• For the purposes of this Act,—
• (1) An individual is said to be resident in India in any previous year, if
he—
• (a) is in India in that year for a period or periods amounting in all to
one hundred and eighty-two days or more ; or
• (b) [***]
• (c) having within the four years preceding that year been in India for a
period or periods amounting in all to three hundred and sixty-five
days or more, is in India for a period or periods amounting in all to
sixty days or more in that year.
• Explanation. 1—In the case of an individual,—
• (a) being a citizen of India, who leaves India in any previous year as a member of the crew
of an Indian ship as defined in clause (18) of section 3 of the Merchant Shipping Act, 1958
(44 of 1958), or for the purposes of employment outside India, the provisions of sub-clause
(c) shall apply in relation to that year as if for the words "sixty days", occurring therein, the
words "one hundred and eighty-two days" had been substituted ;
• (b) being a citizen of India, or a person of Indian origin within the meaning
of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to
India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year
as if for the words "sixty days", occurring therein, the words "one hundred and eighty-two
days" had been substituted.
• Explanation 2.—For the purposes of this clause, in the case of an individual, being a citizen
of India and a member of the crew of a foreign bound ship leaving India, the period or
periods of stay in India shall, in respect of such voyage, be determined in the manner and
subject to such conditions as may be prescribed.
• (2) A Hindu undivided family, firm or other association of persons is said to be
resident in India in any previous year in every case except where during that year
the control and management of its affairs is situated wholly outside India.
• (3) A company is said to be a resident in India in any previous year, if—
• (i) it is an Indian company; or
• (ii) its place of effective management, in that year, is in India.
• Explanation.—For the purposes of this clause "place of effective management"
means a place where key management and commercial decisions that are
necessary for the conduct of business of an entity as a whole are, in substance
made.
• (4) Every other person is said to be resident in India in any previous year in every
case, except where during that year the control and management of his affairs is
situated wholly outside India.
• (5) If a person is resident in India in a previous year relevant to an assessment
year in respect of any source of income, he shall be deemed to be resident in
India in the previous year relevant to the assessment year in respect of each of
his other sources of income.
• (6) A person is said to be "not ordinarily resident" in India in any previous year if
such person is—
• (a) an individual who has been a non-resident in India in nine out of the ten
previous years preceding that year, or has during the seven previous years
preceding that year been in India for a period of, or periods amounting in all to,
seven hundred and twenty-nine days or less; or
• (b) a Hindu undivided family whose manager has been a non-resident in India in
nine out of the ten previous years preceding that year, or has during the seven
previous years preceding that year been in India for a period of, or periods
amounting in all to, seven hundred and twenty-nine days or less.
• Basic Conditions –
1. Present for 182 days or more in relevant PY OR
2. Present for 60 days or more in relevant PY + Present for 365 days or
more during 4 years immediately preceding the relevant PY
Exceptions (60 days or more will not apply) –
1. If an Indian citizen leaving India for employment purposes
2. Indian citizen is a crew member of Indian ship
3. Indian citizen/ Person of Indian Origin and visits India
Additional conditions to be fulfilled for becoming ROR–
1. Resident in relevant PY + present for 730 days or more during 7 PY
immediately preceding the relevant previous year AND

2. Resident in relevant PY + resident for at least 2 years out of last 10

PY immediately preceding the relevant previous year
 Residential Status of HUF
• Resident- where during that year the control and management of its
affairs is situated wholly in India.
• ROR or RNOR – If the “KARTA” of HUF satisfies both additional
conditions.
• Control and management refers to the decisions taken regarding
affairs of the HUF. The control and management lies at the place
where decisions regarding the affairs of the HUF are taken.
 Residential Status of Company
• Resident- if
• (1) it is an Indian company; or
• (2) its place of effective management, in that year, is in India.

• Place of effective management means a place where key

management and commercial decisions that are necessary for the
conduct of the business of an entity as a whole are, in substance
made.
 Residential Status of AOP, BOI and other
persons
• Resident- where during that year the control and management of its
affairs is situated wholly in India.
Residence in case of Individual or HUF

Residential Status

Non Resident (if

Resident (if satisfied
doesn’t satisfy basic
basic conditions)
conditions)

Resident and
Ordinarily resident -
ROR(additional
condition satisfied)

Resident and Non –

Ordinarily Resident -
RNOR (additional
condition not satisfied)
Q. An Australian Cricketer has been coming to India for 100 days every
year since 2006-07:
(a) Determine his residential status for the assessment year 2020-21
(b) Will your answer be different if he has been coming to India for
110 days instead of 100 days every year
Q. Mrs. Clinton, an American citizen comes to India for the first time in
previous year 2014-15 for 120 days. During previous years 2015-16,
2016-17, 2017-18, 2018-19 and 2019-20, she stayed in India for 150
days, 100 days, 120 days, 190 days and 94 days respectively. Determine
her residential status for the assessment year 2020-21.
Q. ‘G’ was born in England in 1966. His father was born in America in
1936. ‘G’s grandfather was born in Lahore in 1916. ‘G’ came to visit
India on 2.10.2019 and returns on 31.3.2020. Determine his residential
status for assessment year 2019-20.
Q. During the previous year 2019-20 H and Sons HUF was partly
controlled from India by its Karta H who is citizen of India but stays
outside India. For the purpose of managing the affairs of the HUF, H
has been regularly visiting India. Determine the residential status of
the HUF for the assessment year 2020-21 if:
1. H has been visiting India for 100 days every year for the last 12
years.
2. H has been visiting India for 110 days every year for the last 12
years.
3. H has been visiting India for the last 12 years. During the
immediately preceding 4 years he was in India for 50 days every
year and prior to that for 200 days every year.
 Scope of Total Income and Residential Status
(Ss. 5-9)
• Scope of total income.
• 5. (1) Subject to the provisions of this Act, the total income of any previous year of a
person who is a resident includes all income from whatever source derived which—
• (a) is received or is deemed to be received in India in such year by or on behalf of such
person ; or
• (b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or
• (c) accrues or arises to him outside India during such year :
• Provided that, in the case of a person not ordinarily resident in India within the
meaning of sub-section (6) of section 6, the income which accrues or arises to him
outside India shall not be so included unless it is derived from a business controlled in or
a profession set up in India.
• (2) Subject to the provisions of this Act, the total income of any previous year of a
person who is a non-resident includes all income from whatever source derived which—
• (a) is received or is deemed to be received in India in such year by or on behalf of such
person ; or
• (b) accrues or arises or is deemed to accrue or arise to him in India during such year.
• Explanation 1.—Income accruing or arising outside India shall not be deemed to be
received in India within the meaning of this section by reason only of the fact that it is
taken into account in a balance sheet prepared in India.
• Explanation 2.—For the removal of doubts, it is hereby declared that income which has
been included in the total income of a person on the basis that it has accrued or arisen
or is deemed to have accrued or arisen to him shall not again be so included on the basis
that it is received or deemed to be received by him in India.
Table explaining Scope of total Income under section 5 of Income Tax Act, 1961:

Sr. Particulars Resident Resident Not Non Resident

No Ordinary Ordinary (NR)– S. 5(2)
Resident Resident
(ROR) – S. (RNOR) – S.
5(1) 5(1)-proviso
1 Income received in India
2 Income Deemed to be receive in India
3 Income accrues or arises in India
4 Income deemed to accrues or arises in India

5 Income accrues or arises outside India from profession

set up in foreign country
6 Income accrues or arises outside India from
business/profession controlled/set up in India

7 Income Other than Above (No Relation In India)

Table explaining Scope of total Income under section 5 of Income Tax Act, 1961:

Sr. Particulars Resident Resident Not Non Resident

No Ordinary Ordinary (NR)– S. 5(2)
Resident Resident
(ROR) – S. (RNOR) – S.
5(1) 5(1)-proviso
1 Income received in India Taxed Taxed Taxed
2 Income Deemed to be receive in India Taxed Taxed Taxed
3 Income accrues or arises in India Taxed Taxed Taxed
4 Income deemed to accrues or arises in India Taxed Taxed Taxed

5 Income accrues or arises outside India from profession Taxed NO NO

set up in foreign country
6 Income accrues or arises outside India from Taxed Taxed NO
business/profession controlled/set up in India

7 Income Other than Above (No Relation In India) Taxed NO NO

 accrues or arises to him outside India during
such year
• Many a times, it is seen that in case of residents, the income tax has
been paid in other countries on their income abroad (i.e Foreign
Income) and on the same income they are also required to pay tax in
India. In such cases, there are provisions of providing relief from
double tax. Basically there are two sections (i.e section 90 and section
91) in Income Tax Act 1961, which provides relief from Double tax.
• Where there is an DTAA agreement (Section 90)

• U/s 90 there are two methods of granting relief under Double Taxation
Avoidance Agreement.
• 1) Exemption method – A particular income is taxed in one of the both
countries and exempted in the other country. (For example- For the Income
from Dividend, Interest, royalty and fees for technical services source rule is
applicable in treaty with Greece, Libyan and United Arab Republic. So for a
citizen of these 3 countries if the dividend, interest, royalty or fees for
technical services is arising in India, then it will be solely taxable in India only
and if for a resident if such income is arising in any of these 3 countries then
the income will solely be taxed in these 3 countries and it will not be at all
taxable in India).
• 2) Tax Credit method- The income is taxed in both the countries as
per the treaty and the country of residence will allow the tax credit /
reduction for the tax charged in the country of source. For example-
Mr A (an Indian resident) has received salary from a US company for
job in US. Since Mr A is a resident so his global Income will be taxable.
In this case source country is US (since the service has been rendered
in US) and resident country is India. So at the time of computation of
tax liability of Mr A the tax paid in US will be allowed as set off against
his total tax liability but limited to the tax payable on such foreign
income at Indian tax rates.
• Where there is an NO DTAA agreement (Section 91)

• If any person who is resident in India in any previous year proves that, in
respect of his income which accrued or arose during that previous year
outside India (and which is not deemed to accrue or arise in India), he has
paid in any country with which there is no agreement under section 90 for
the relief or avoidance of double taxation, income-tax, by deduction or
otherwise, under the law in force in that country, he shall be entitled to the
deduction from the Indian income-tax payable by him of a sum calculated on
such doubly taxed income at the Indian rate of tax or the rate of tax of the
said country, whichever is the lower, or at the Indian rate of tax if both the
rates are equal.
 Documents required
1. A statement of :
• foreign income offered to tax
• foreign tax deducted or paid on such income in Form No. 10F (Sec. 90) or
Form No. 67 (Sec. 91)
2. Certificate or statement specifying the nature of income and the amount
of tax deducted therefrom or paid by the taxpayer :
• From the tax authority of the foreign country
• from the person responsible for the deduction of such tax
• signed by the taxpayer
3. Proof of payment of taxes outside India.
Received in India- Any income received in India by the assesse in any
previous year is liable to tax in India, irrespective of the residential status
of the assesse.
Receipt of income is an important principle in such case, it helps in
determining:
(a) year of receipt
(b) where the tax will be charged

In S. 7 such incomes are mentioned which shall be deemed to be

received in India in the previous year even in absence of actual receipt.
 Received or deemed to be received
Section 7 - The following incomes shall be deemed to be received in the
previous year :—
(i) the annual accretion in the previous year to the balance at the credit of
an employee participating in a recognised provident fund, to the extent
provided in rule 6 of Part A of the Fourth Schedule ;
(ii) the transferred balance in a recognised provident fund, to the extent
provided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule ;
(iii) the contribution made, by the Central Government [or any other
employer] in the previous year, to the account of an employee under a
pension scheme referred to in section 80CCD.]
In S. 7 such incomes are mentioned which shall be deemed to be
received in India in the previous year even in absence of actual receipt:
(i) Contribution made by the employer to the recognized provident
fund in excess of 12% of the salary of the employee.
(ii) Interest credited to the RPF of the employee which is in excess of
9.5 per annum.
(iii) Transfer balance from unrecognized fund to a recognized PF
(iv) Contribution made by the Central Government or any other
employer in the previous year, to the account of an employee under a
notified contributory pension scheme referred to in S. 80CCD.
Four categories of PROVIDENT FUND:
1) Statutory Provident Fund (SPF)- meant for Government Employees/semi-
government employees, universities/educational institutions affiliated to
the university. The Provident Fund Act, 1925

2) Recognized Provident Fund (RPF)- Any person who employs 20 or more

employees. The Employee’s Provident Funds and Miscellaneous Provisions
Act, 1952

3) Unrecognized Provident Fund (URPF)- Approved or not by Provident Fund

Commissioner but Not approved by Commissioner of Income Tax (CIT)

4) Public Provident Fund (PPF)- meant for public. Lock in period 15 years
 SPF RPF URPF PPF

Employee’s Deduction U/s Deduction U/s 80C is No Deduction Deduction

Contribution 80C is available available U/s 80C is
available

Employer’s Fully Exempted Exempt upto 12% of Not exempted Not

Contribution salary and excess of Applicable
12% is taxable and
added in employee’s
salary income

Interest on Fully exempted Upto 9.5% is Not Taxable Fully

Provident exempted but above exempted
Fund 9.5% will be taxable

Lump-sum Fully Exempted Exempted* Sum received on retirement/ termination comprise of Fully
Amount following: Employer’s Contribution and interest there Exempted
on: Taxable as Salary Income.
Employee’s own Contribution : It is not taxable.
Interest on employee’s contribution: Taxable as income
• Salary – 10,0000
• HP- 10,00,00
• Other sources- 20,0000
• Total – 40,0000 – 1,00,000 =39 lakhs
• PF Contribution – 1,00,000

• Employer- salary- 1,00,000 Investment – 1.5 lakh

• PGBP- 2,00,000 - 1 lakh
• PF Contribution – 1,00,000
• Other sources- 5,00,000
• Total Income- 7,00,000 – 30,000- 60,000-
• *Conditions:

• Employee leaves the job after five years of employment; or

• Where the service period is less than five years, the reason for
termination is discontinuance of employer’s business or ill health; or
• The balance in RPF is reassigned to RPF with the new employer on re-
employment.
Section 8: Dividend income
For the purposes of inclusion in the total income of an assessee,-
(a) any dividend declared by a company or distributed or paid by it
within the meaning of sub- clause (a) or sub- clause (b) or sub- clause (c)
or sub- clause (d) or sub- clause (e) of clause (22) of section 2 shall be
deemed to be the income of the previous year in which it is so declared,
distributed or paid, as the case may be;
(b) any interim dividend shall be deemed to be the income of the
previous year in which the amount of such dividend is unconditionally
made available by the company to the member who is entitled to it.
• DIVIDEND INCOME:
• Proposed Dividend
• Interim Dividend
• Deemed Dividend –
• S. 2(22) (a)- Distribution of profits by a company in ‘KIND’
• S. 2(22) (b)- Distribution of profits by a company in form of ‘bonus’ to preference
shareholders
• S. 2(22) (c)- Distribution of profits by a company to its shareholders immediately
before its liquidation
• S. 2(22) (d)- Distribution of profits by a company on the reduction of its capital
• S. 2(22) (e)- Distribution of profits by a closely held company by way of advance or
loan to an equity shareholder, holding not less than 10% of the voting power.
Section 9 : Income deemed to accrue or arise in India
Following incomes shall be deemed to accrue or arise in India:
(a) Income from a business connection in India
[ Business connection includes:
(i) Any business activity carried out through a dependant agent
(ii) Significant Economic Presence (transaction in respect of goods,
services or property/ downloading or interacting with users through
digital means)]
(b) Income from any property, asset or source of income situated in
India
(c) Income from the transfer of any capital asset situated in India
(d) Any income which fall under the head ‘Salaries’ if it is earned in
India (services rendered in India though income may be paid in India or
outside India)
(e) Salary payable by the Government to an Indian Citizen/ National
for services rendered outside India.
(f) Dividend paid by an Indian Company outside India
(g) Interest payable by
(h) Royalty payable by
(i) Fees for technical services payable by
Conditions for (g), (h) & (i): Money paid by (1) Government (2) Indian Resident
except where services are utilized outside India (3) Non-Resident and that is used
for a business/profession carried out in India
• Section 8 Dividend Income
• Section 9 – Incomes accrue or arise in India or deemed to accrue or
arise in India:
-Concept of accrual and earn