Taxation

Mr. Bijoy joins a company on December 1, 2019, in the pay scale of ₹10,000— ₹1,000
—₹25,000 (salary at the time of joining is fixed at ₹12,000). As per the terms of the
employment salary becomes “due” on the first day of the next month, and it is
generally paid on the fifth day of the next month. Find out the salary (after standard
deduction) taxable for the assessment year 2023-24.

To find the taxable amount for the assessment year 2023-24, we only need to consider Mr.
Bijoy's earnings from December 2019 to March 2023, as the assessment year begins from
April 1, 2023, and ends on March 31, 2024.

He receives an increment of ₹1,000 every year.

As he joined on December 1, 2019, his first increment will be due on December 1, 2020.
So, the basic salary from December 2019 to November 2020: ₹12,000
The basic salary from December 2020 to November 2021: ₹13,000
The basic salary from December 2021 to November 2022: ₹14,000
The basic salary from December 2022 to March 2023: ₹15,000

Basic salary 14000 * 9 + 15000 * 3 = 1,71,000 (From

April 2022)
Standard deduction 50,000 (fixed irrespective of income)
Net income 1,21,000

So, Mr. Bijoy's taxable salary for the assessment year 2023-24, after standard deduction,
is ₹1,21,000.

 Section 4 of the Income Tax Act – income tax for any assessment year will be
charged at the prescribed rate on the total income of the preceding year; provisions
to add income tax for any other year as well with charges accordingly.
o “Persons”:
1. Association of persons (AOP) – who come together for a mutual benefit
or a common purpose.
Natural (humans) or artificial (LLP). LLP (Limited Liability Partnership) is a
partnership in which each partners’ liabilities are limited to the amount
they invest.
2. Body of individuals (BOI) – (Natural) individuals who come together for
earning income.
BOI only individuals; AOP (legally associated)
 Heads of income:
o Income from salary
o Income from house property
o Income from other sources
1. Profits & Gains of Business – income which the taxpayer generates through
business.
2. Capital Gains - profits from selling an investment, such as stocks, bonds, or real
estate; taxes are lower than ordinary taxes.
Types:
(i) Short-term CG – assets held <= 36 months; for immovable property it is
24 months; 12 months for equity shares and securities listed on
 Recognized stock exchange, Unit Trust of India (UTI), Equity oriented
mutual fund units, and zero-coupon bonds.
Tax is 15% if security transaction is applicable, else normal tax under
income slab.
Full value consideration - money that you would receive when you
transfer the capital asset (SP).
Cost of Acquisition - price at which the capital asset was bought (CP).
Capital gain = Full value consideration – [COA + COI]
Cost of Improvement – money spent on the capital asset to improve it.
(ii) Long-term CG – assets sold after the above periods.
Tax is 20%; 10% for equity shares above 1 lakh.
Tax slab for AY 2023-24,

Mr. Chakraborty (age: 26 years), a leading tax consultant, who maintains books of
account on cash basis furnishes the following particulars of income and
expenditure for the assessment year 2023-24. Determine the taxable income and the
tax liability of X for the assessment year 2023-24. Calculate the taxable liability
under alternative tax-regime.

Consider only the incomes that fall under heads of income.

Typewriter and car must be shown as assets for depreciation to be considered.

Straight-line basis – equal depreciations over the life cycle of the asset.

Add Balance brought down 12,400

Fees from clients 1,13,000 +
7,30,500 +
1,11,500 =
9,55,000
Presents from clients 24,000
Winnings from lottery 46,000
Interest from UTI 12,000
 Income from rent of a let out property 60,000 – 2,000 10,53,600
= 58,000 - 30% of
[Rent – Municipal tax] 58,000
= 40,600
[30% tax on rental income]
Less Depreciation of typewriter 6,000
Car expenses 40% of 18,000 =
7,200
Office expenses 40,000
Salary to staff 32,000 + 11,000
= 43,000
Expenses of a let out property 6,000
Depreciation of car 40% of 15% of
2,40,000 =
(10 Dec 2022 to 31 Mar 2023 – 4 months) 14,400 / 4 =
3,600
Repairs of office 12,000
Interest on loan 10,000
Life-Insurance Premium 2,08,000 1,21,800
Taxable income 9,31,800

Tax liability under alternative tax-regime:

 ₹2,50,000: No tax
 Next ₹2,50,000 (₹2,50,001 to ₹5,00,000): 5% tax
 Next ₹2,50,000 (₹5,00,001 to ₹7,50,000): 10% tax
 Next ₹1,81,800 (₹7,50,001 to ₹9,31,800): 15% tax

Tax = (₹2,50,000 * 0%) + (₹2,50,000 * 5%) + (₹2,50,000 * 10%) + ( ₹1,81,800 * 15%) =

₹64,770

 Indexed cost of acquisition = (CII for the year the asset was sold or transferred /
CII for the year the asset was bought) * Cost of Acquisition [CII – Cost
Inflation Index]
This is done to consider the effect of inflation.
During inflation, CII sold / CII bought will be high -> Indexed cost of acquisition
increases -> Selling price high (CII sold is high) -> Capital gains high -> high income
tax.
Indexed cost of improvement = (CII for the year the asset was sold / CII for the
year the asset was improved) * Cost of Improvement
CII is applied on LTCG -> cost of acquisition increases -> lesser profits -> lesser tax.
(Base year 1 April 2001),
For asset acquired before base year -> COA can be fair market value (FMV) on base
year or actual cost as chosen by taxpayer; COI will include expenses incurred after
base year.
FMV - an estimate of the market value of an asset such as property or gold based on
what a knowledgeable, willing, and unpressured buyer would probably pay to a
knowledgeable, willing, and unpressured seller in the market; FMV is generally
higher than original cost of an asset -> better to consider FMV for increased
COA -> lesser profit -> lesser tax.

Mr. Chakraborty purchases a house property for ₹76,000 on June 30, 1977. The
following expenses are incurred by him for making addition/alteration to the house
 property:
(a). Cost of construction of first floor in 1985-86: ₹1,10,000.
(b). Cost of construction of second floor in 2003-04: ₹3,40,000.
(c). Alteration/reconstruction of property in 2012-13: ₹2,90,000.
Fair Market value of property on April 1, 2001, is ₹4,50,000. The house property is
sold by Mr. Chakraborty on June 15, 2022, for ₹99,50,000 (expenses incurred on
transfer: ₹10,000). Compute Long-Term Capital Gains.

Add Net sales 99,50,000 99,50,000

Less Indexed cost of acquisition 4,50,000 *
(331/100) =
14,89,500
Indexed cost of improvement 3,40,000 *
(331/109) +
2,90,000 *
(331/200) =
15,12,427
Expenses on transfer 10,000 30,11,927
LTCG ₹69,38,073

 Section 45 of the Income Tax Act – any gain arising from the transfer of a capital
asset during a previous year is chargeable to tax as Capital gains in the immediately
following assessment year (exceptions under sections 54, 54B, 54D, 54EC, 54F,
54G, 54GA, and 54GB).
 Personal effects (use) are not capital assets, except Jewellery, Archaeological
collections, Drawings, Paintings, Sculptures, or any work of art.
 Section 54 of the Income Tax Act – exemption on capital gains if individual or HUF
(Hindu Undivided Family; all persons directly descended from a common ancestor,
and the wives and daughters of the male descendants) sell a long-term residential
property (LTCG) and invest that money in the purchase of another residential
property.
Section 54D – Land or building is a part of an industrial undertaking.
Section 54B – Land used for agricultural purposes.
Section 54EC – Capital gains from land or building are invested in specified bonds
issues by NABARD, SIDBI, NHAI, NHB or REC.
Section 54EE – Capital gains from long-term assets invested in specified assets.
Section 54F - Capital gains from long-term assets other than house property
invested in house property.
Section 54G - Shifting of industrial undertaking from the urban area to a non-urban
area.
Section 54GA - Shifting of industrial undertaking from the urban area to any SEZ
(Special Economic Zone; an area in a country that is designed to generate positive
economic growth).
Section 54GB: Capital gains from residential property invested in eligible companies
or start-ups.

X Ltd. owns the following assets. These capital assets (no depreciation is claimed)
are transferred by X Ltd., to its wholly-owned Indian subsidiary company —S Ltd.
on April 1, 2021. On July 18, 2022, these assets are transferred by S Ltd., for a
consideration of ₹4,50,500 (i.e. units: ₹2,15,700, house property ₹2,34,800).
Compute the capital gain chargeable to tax in case of S Ltd. for the assessment
year 2023-24).
We need to calculate both STCG and LTCG separately for each asset category (units and
house property) and then sum them up.

 Units of Mutual Fund:

Cost of acquisition by X Ltd.: ₹1,40,000
Date of acquisition by X Ltd.: April 10, 2014
Date of transfer by S Ltd.: July 18, 2022
Since the assets are held for more than 12 months, any gain or loss arising from the
transfer of these units will be considered LTCG.

Indexed Cost of Acquisition = Cost of acquisition × (CII of the year of transfer / CII of the
year of acquisition) = ₹1,40,000 × (331 / 240) = ₹1,93,083

LTCG = Consideration received - Indexed Cost of Acquisition

LTCG for units = ₹2,15,700 - ₹1,93,083 = ₹22,617

 House Property:
Cost of acquisition by X Ltd.: ₹70,000
Date of acquisition by X Ltd.: March 10, 2021
Date of transfer by S Ltd.: July 18, 2022
Since the asset is held for less than 24 months, any gain or loss arising from the transfer
of this property will be considered STCG.

STCG = Consideration received - Cost of acquisition

STCG for house property = ₹2,34,800 - ₹70,000 = ₹1,64,800

Total Capital Gain for S Ltd. = LTCG for units + STCG for house property
= ₹22,617 + ₹1,64,800
= ₹1,87,417

 Advance tax – pay-as-you-earn; an individual is required to pay tax in a particular

financial year, preceding the assessment year based on his estimated income (E.g.,
for FY 2022-23, the AY is 2023-24; AY is the time in which the income earned during
FY is assessed and taxed).
Taxpayer estimates his current income without having to submit any estimate or
statement of income to the assessing authorities.
Senior citizens without any income are exempted from advance tax.
 (e.g.,) FY 2021-22 -> AY 2022-23
Tax paid in the FY 2021-22 till 31 March 2022 -> Advance tax.
Tax paid after 31 March 2022 -> Self-assessment tax.
 When and how much you have to pay advance tax,
Paid when tax in a financial year >= ₹10,000 [If tax liability – TDS >= ₹10,000]
15-06-2021 — 1st installment (15 Jun) -> Upto 15% of advance tax payable.
15-09-2021 — 2nd installment (15 Sep) -> Upto 45%.
15-12-2021— 3rd installment (15 Dec) -> Upto 75%.
15-03-2022— 4th installment (15 Mar) -> Upto 100%.
 Presumptive tax – businesses or professions whose income is less than 2 crores
can opt for presumptive tax under Sections 44AD, 44ADA, and 44E of the Income
Tax Act, 1961.
To give relief to small businesses from maintaining accounts and getting it audited.
100% of the advance tax is paid by 15 March (no installments).
  Surcharge (extra income tax to be paid for higher income) on income tax if taxable
income > 50 lakhs (individuals) and > 1 crore (companies).
 Marginal relief = Difference between tax payable (including surcharge) on
income above set limit (for surcharge) and the amount of income that exceeds
the set limit (for surcharge).

Assume that the Mr. X has a taxable income of ₹51 lakhs (after all possible
deductions). Then what will his tax liability including surcharge? Suppose Mr. X has
a taxable income of ₹50 lakhs, in that case what would have been the tax liability?

 Income of ₹51 lakhs,

Tax liability under old tax regime (to avail certain exemptions and deductions):
₹2,50,000: No tax
Next ₹2,50,000 (₹2,50,001 to ₹5,00,000): 5% tax
Next ₹5,00,000 (₹5,00,001 to ₹10,00,000): 20% tax
Next ₹41,00,000 (Above ₹10,00,000): 30% tax

Tax = (₹2,50,000 * 0%) + (₹2,50,000 * 5%) + (₹5,00,000 * 20%) + ( ₹41,00,000 * 30%) =

₹13,42,500
Tax + Surcharge = 13,42,500 + 13,42,500 * 10% = ₹14,76,750 (Individuals 50 lakhs to 1
crore – 10%)

 Income of ₹50 lakhs,

Tax = (₹2,50,000 * 0%) + (₹2,50,000 * 5%) + (₹5,00,000 * 20%) + ( ₹40,00,000 * 30%) =
₹13,12,500

Marginal relief = (14,76,750 – 13,12,500) – (51,00,000 – 50,00,000) = ₹64,250

Hence, tax liability for income ₹51 lakhs after marginal relief (before health and
educational cess) = 14,76,750 – 64,250 = ₹14,12,500

 Section 234A – levy of interest (penalty); which ITR is filed after due date or not filed
at all; SI of 1% per month (partial month is considered as full month).
Interest is levied on tax on total income reduced by advance tax, TDS, relief ->
Assessed tax -> determined under Section 143(1).
If you fail to file ITR -> Section 144 (an assessing officer uses his best judgement
against you and based on all relevant information gathered).

Assume that Mrs. X and the firm Z have paid a TDS of ₹1,44,753 and of ₹63,519
respectively in the above financial year (2022-23). How much advance tax has to be
paid by Mrs. X and the firm Z? What is installment amount in each quarter?

(I’m using old tax regime)

 Mrs. X

Net income = ₹11,21,000

Tax liability = (₹2,50,000 * 0%) + (₹2,50,000 * 5%) + (₹5,00,000 * 20%) + ( ₹1,21,000 *
30%) = ₹1,48,800
(Add) Cess = 1,48,800 * 4% = ₹5,952
Total tax liability = 1,48,800 + 5,952 – 1,44,753 = ₹9,999 [TDS – Tax deducted at
Source]
Since the total tax liability is less than ₹10,000, Mrs. X does not have to pay advance tax.

 Firm Z
Income tax rate for domestic companies/firms is 30%.
Net income = ₹5,44,220
Tax liability = 5,44,220 * 30% = ₹1,63,266
(Add) Cess = 1,63,266 * 4% = ₹6,531
Total tax liability = 1,63,266 + 6,531 – 63,519 = ₹1,06,278

Due date Advance Total advance tax payable by Advance tax to be paid in
tax (₹) each installment (₹)
15 Jun 15% 15,942 15,942
2022
15 Sep 45% 47,825 31,883
2022
15 Dec 75% 79,708 31,883
2022
15 Mar 100% 1,06,278 26,570
2023

A cess is imposed when the government looks to raise funds for specific purposes. Every
taxpayer needs to pay a cess charge along with his/her payable direct taxes.

 Section 234B – levy of interest (penalty) when taxpayer fails to pay advance tax or
when the advance tax paid is less than 90% of the assessed tax.
 Section 234C – levy of interest (penalty) when taxpayer fails to pay installment of
advance tax or,
o If the advance tax paid on or before 15th Jun < 12% of the advance tax
(15%).
o Advance tax paid on or before 15th Sep < 36% of the advance tax (45%).
o Advance tax paid on or before 15th Dec < 75% of the advance tax (75%).
o Advance tax paid on or before 15th Mar < 100% of the advance tax (100%).
Interest is paid in the following installments or till 31 Mar if no installment is pending.
Interest is not levied if non-payment of advance tax is due to failure to estimate
capital gains or income from winning lotteries, etc or from new business.

Mr. Khushal is running a garments shop. Tax liability of Mr. Khushal is ₹45,500. He
has paid advance tax as given below: ₹8,000 on 15th June, ₹11,000 on 15th
September, ₹12,000 on 15th December, ₹14,500 on 15th March. Mr. Khushal has not
opted for presumptive taxation scheme of Section 44D. Will he be liable to pay
interest under Section 234C, if yes, then how much?

He has paid more than 12% in first installment (No interest)

Second installment,
Advance tax paid = 8,000 + 11,000 = 19,000 (more than 45,500 * 36%).
No interest.

Third installment,
Advance tax paid = 8,000 + 11,000 + 12,000 = 31,000 (less than 45,500 * 75%).
Shortfall in payment = 34,125 – 31,000 = 3,125

Interest = 3,125 * 1% * 3 = ₹94 [3 months as the interest would be paid in the

next installment]

 TDS – to avoid tax evasion and to collect tax from the source of income; person
responsible for payment of income should deduct tax at source and deposit in the
account of Central Government by the 7th of subsequent month (30 days’ time for
TDS deducted on rent and purchase of property).
TDS is claimed from final tax liability.
Banks deduct TDS @ 10% or @20% without PAN information.
TDS for salary income.
o House rent allowance exemption.
o Two or more employers – Form 12B sent by one employer, the other
employer deducts tax on aggregate salary.
TDS return is submitted quarterly.
 TAN (Tax Deduction and Collection Account Number) - unique 10 digits alpha
numeric allotted to deductor/collector of TDS.

X (29 years) is a businessman. For the financial year 2023-24, his business income
is ₹8,86,000. Besides, he has received ₹90,000 as interest on fixed deposit from
Punjab National Bank on January 31, 2024 (gross interest earning on fixed deposit:
₹1,00,000, less tax deducted at source by bank: ₹10,000). He has deposited ₹60,000
in public provident fund. Compute the amount of tax that has to be finally paid by
Mr. X?

Net income = (8,86,000 + 1,00,000) – 60,000 = ₹9,26,000

Tax liability = (₹2,50,000 * 0%) + (₹2,50,000 * 5%) + (₹4,26,000 * 20%) = ₹97,700
(Less) TDS = 97,700 – 10,000 = ₹87,700
Cess = 87,700 * 4% = ₹3,508

Total tax liability = 87,700 + 3,508 = ₹91,208

Determine the amount of interest under Section 234A in the following cases—

 Mr. Tejas

Months delayed = 3 months 6 days = 4 months

Balance = (Tax liability - TDS - Advance Tax) - Self-assessment tax

= (₹79,000 - ₹4,000 - ₹40,000 - ₹36,000) = ₹-1000

The outstanding amount has been paid by self-assessment tax before the due date of
filing ITR. Therefore, no interest is applicable under Section 234A.

 Mr. Rishabh
Months delayed = 3 months 6 days = 4 months

Interest = (₹79,000 - ₹4,000 - ₹40,000 - ₹10,000) * 1% * 4 months = ₹1,000

  Ms. Cheena
Months delayed = 2 months 15 days = 3 months

Balance = (₹69,000 - ₹9,000 - ₹30,000) - ₹12,000 = ₹18,000

The outstanding amount has been partly paid by self-assessment tax, but after the due
date of filing ITR. Therefore, interest is payable on ₹30,000 for 1 month and on ₹18,000
for 2 months.

Interest = ₹30,000 * 1% * 1 month + ₹18,000 * 1% * 2 months = ₹300 + ₹360 = ₹660

 CGST (Central goods and services tax), SGST (State goods and services tax)
 Direct tax – imposed directly on taxpayers; cannot be shifted from one person to
another (e.g., income tax) -> progressive.
 Indirect tax – imposed on consumers; equal tax irrespective of financial status ->
regressive.
 GST -> single tax on goods and services -> One Nation One Tax.
 Four GST bills passed by Finance Minister in 2017,
o CGST bill
o IGST (Integrated Goods and Services Tax) bill
o UTGST (Union Territories Goods and Services Tax) bill
o GST bill
 Cess on goods over and above GST rate of 28%.
 TCS (Tax Collection at Source) – collected by seller of “specified goods” (Section
206C) from the buyer at the time of sale over and above the sale amount and is
remitted to the government account.
 Set off - adjustment of losses against the profits from another source of income in
the same assessment year. If there is inadequacy of eligible profits, the losses are
carried forward to be adjusted in the next assessment year.
 Section 70 (Inter Source Adjustment) – loss from a source adjusted against
income from another source, both of which are under the same head (loss of upto 2
lakhs can be adjusted for house property).
 Speculative loss – speculation business (act of purchasing an asset that has a
substantial risk of losing value but also holds the hope of gaining value in the near
future).
 Loss from short term capital asset -> adjusted against any other capital asset.
Loss from long term capital asset -> adjusted against capital assets which are not
short term.

Mr. A submits the following particulars pertaining to the A.Y. 2018-19. Compute the
total income of Mr. A for the A.Y. 2018-19.

Particulars Amount (₹)

Income from salary 4,00,000
Loss from house property can be adjusted only upto ₹2 (-) 2,00,000
lakhs 2,00,000
Bank interest received 80,000
Business loss set-off (-) 1,00,000
Total income 2,00,000
The balance loss of ₹20,000 from house property will be carried forward to the next
assessment year. Business loss of ₹1,00,000 is set off against bank interest of ₹80,000
and remaining business loss of ₹20,000 will be carried forward as it cannot be set off
against salary income

 Section 71 (Inter Head Adjustment)– loss from any income other than capital gains
can be adjusted against income (salary). It cannot be adjusted against income
from salary for loss under profits and gains of business. Loss under capital
gains cannot be adjusted under any other income. Loss from house property only
upto ₹2 lakhs can be adjusted against income from other head.
 Carry forward maximum duration,
o House property – 8 AY
o Business loss – 8 AY
o Loss from speculation business – 4 AY
o Loss from specified business under Section 35 AD - indefinite