I.

ASSESSMENT OF INDIVIDUALS

Steps:
1. Ascertain the various incomes earned by the assessee during the PY.
2. Compute head-wise incomes, making all eligible deductions and exemptions. Add
‘deemed income’ with the concerned head of income.
3. Adjust unabsorbed losses brought forward from preceding PY. The resulting amount
is ‘Gross Total Income’.
4. From the gross total income, allow deductions under Sec. 80C to 80U.
5. Balance after deduction under chapter VI A is called ‘Total Income’. The total income
is round off to the nearest multiple of ₹ 10.
6. Compute tax liability as per the prevailing rates on the total income. Tax payable is
round off to the nearest multiple of ₹ 10.

Rates of Tax (Individual/HUF/AOP/BOI/Every artificial juridical person)

Individual- (Resident India and below the age of 60 years)

On first ₹ 2,50,000 Nil
On next ₹ 2,50,000 5%
On next ₹ 5,00,000 20%
On the balance 30%

Individual- Senior citizen (Resident India having age of 60 years or more)

On first ₹ 3,00,000 Nil
On next ₹ 2,00,000 5%
On next ₹ 5,00,000 20%
On the balance 30%
 Individual- Super senior citizen (Resident India having age of 80 years or more)

On first ₹ 5,00,000 Nil

On next ₹ 5,00,000 20%

On the balance 30%

Surcharge
Where TI exceeds ₹ 50 lakh but up to ₹ 1 crore 10%
Where TI exceeds ₹ 1 crore but up to ₹ 2 crore 15%
Where TI exceeds ₹ 2 crore but up to ₹ 5 crore 25%
Where TI exceeds ₹ 5 crore 37%

Health and Education Cess 4%

Rebate:
A resident individual is entitled for rebate u/s 87A if his TI does not exceed ₹ 5,00,000.
The amount of rebate shall be 100% of income tax or ₹ 12,500, whichever is less.

Computation of Tax
i. Tax on income at special rates
Winning from lottery, card games, horse race etc. 30%
STCG u/s 111 A 15%
LTCG 20%
LTCG u/s 112 A 10%
ii. Tax on other incomes
Up to ₹ 2,50,000 ⃰ Nil
Next ₹ 2,50,000 5%
Next ₹ 5,00,000 20%
Balance 30%
iii. Less: Rebate up to ₹ 12,500 u/s 87A if applicable
iv. Add: Surcharge (if applicable)
v. Add: HEC @ 4%
⃰ ₹ 3,00,000 in the case of senior citizens, ₹ 5,00,000 in the case of super senior citizens
 II. ASSESSMENT OF HINDU UNDIVIDED FAMILIES

A Hindu Undivided Family consists of all

persons lineally descended from a
common ancestor and includes their
wives and unmarried daughters and
adopted ones.

A Hindu Undivided Family is assessed as such only if there is a common property of the
family, the income from which is assessable under income tax law.

Common property includes;

1. Ancestral property
2. Any other property of the family acquired with the aid of ancestral property
3. Any converted property

Hindu Coparcener: Members of a Hindu Undivided Family who are entitled to demand
their shares on partition are called co-parceners.
Karta of the family: The senior most male member of the family is called the karta of the
family. The karta is assessed for tax on behalf of the HUF.

Two schools of Hindu Law

Mitakshara Dayabhaga
• Son or daughter acquires a right in • Son or daughter gets a right in the
his/her father’s ancestral property ancestral property only after the
by mere birth and therefore he/she death of the father.
has a right to demand partition.
• Self-acquired property of the father
remains as his personal property.
 Rules relevant for the assessment of HUF:
• Once a family is accorded the status of HUF, it shall be assessed as such till there is
a partition.
• The share of income received by a member from his HUF shall not be included in his
individual income.
• Income from converted property is taxable in the hands of the transferor.
• Salary paid to a member out of the funds of the HUF is allowed if the payment is
legitimate.
• A member can carry on any business in his own name and the income from such
business shall be taxed in his hands.
• On the death of manager, the succeeding manager shall be his legal representative.

Partition of HUF
• After total partition of the property of the family, the members who get the share of
property shall be personally liable to pay tax on income from such property.
• In the case of total partition, the AO is satisfied that the partition has taken place
during the PY, the total income up to the date of partition shall be assessed in the
hands of HUF.

Deductions from GTI

80 C, 80 D, 80 DD, 80 DDB, 80 G, 80 GGA, 80 GGC, 80-IA, 80-
IB, 80-IBA, 80-IC, 80-ID, 80 IE, 80 JJA, 80 JJAA, 80 TTA
 III. ASSESSMENT OF FIRMS

Conditions to assess a firm as a partnership firm [Sec. 184]

➢ The partnership firm must be evidenced by an instrument (Deed)

➢ The individual shares of the partnership must be specified in the partnership deed.

➢ A certified copy of the partnership deed must be submitted along with the return

of income for the PY.

Assessment when sec 184 is not complied [Sec. 185]

The following are the consequences of non-compliance of Sec.184 by a firm

❖ Where the firm does not comply with the provisions of Sec. 184, the assessment

is done under section 185.

❖ While computing the profits and gains of business or profession, no deduction

shall be allowed by way of interest, salary, bonus, commission or remuneration,

made by the firm to its partners.

❖ The interest, salary, bonus, commission or remuneration mentioned above shall

not be chargeable to tax in the hands of partners receiving the same.

Remuneration to working partners [Sec. 40(b)]

Conditions:

1. Remuneration shall be paid to the working partners only.

2. Remuneration, more than permitted by the partnership deed shall not be deductible.

3. Any interest paid to partners in excess of 12% shall not be deductible.

4. Remuneration to all the working partners together, shall not exceed the following

limits;

i. On the first ₹ 3,00,000 of book profit: ₹ 1,50,000 or 90% of book profit

whichever is more

ii. On the balance of book profit: 60% of book profit

 Steps to Compute Total Income of a Firm

Step 1: Find out the net profit as per P&L A/c.

Step 2: Add: Expenses not deductible or items disallowed

Step 3: Add: Interest on loan or capital in excess of 12% debited to P&L A/c.

Step 4: Add: Remuneration to partners debited to P&L A/c.

Step 5: Deduct: Remuneration to working partners allowable as per Sec. 40(b)

Resulting amount is the income from business or profession of the firm

Step 6: Add: Income from other heads

Resulting amount is the GTI of the firm

Step 7: Make deduction under chapter VI A

The balance amount is the TI

Rate of Tax
Income of a firm is taxable at the rate of 30% plus 12% surcharge (if TI exceeds ₹ 1
crore) plus 4% HEC

Deductions from GTI

80 G, 80 GGA, 80 GGC, 80-IA, 80-IB, 80-IAB, 80-IC, 80 JJA, 80 JJAA
 Alternate Minimum Tax (AMT) [Sec. 115 JC to 115 JF]
• AMT is applicable to non-corporate assesses (individual, HUF, AOP, BOI, Firm) if the
adjusted total income exceeds ₹ 20 lakhs.
• AMT is charged @18.5%, when the total tax payable goes below 18.5% of the total
income.
• Adjusted total income means total income plus deductions claimed by the assessee
u/s 80H to 80 RRB.
• The excess of AMT paid by the assessee over tax on total income will be available
as tax credit and can be carried forward for a maximum of 10 AY.
• Tax credit can be used to set off the tax liability of any AY in which the income tax
as per normal rules exceeds the AMT.

IV. ASSESSENT OF COMPANIES

Tax on Income of Companies Domestic Foreign

Company Company
If the total turnover of a company during the FY 2107-18 does not 25%
exceed ₹ 400 crore
If the total turnover of a company during the FY 2107-18 exceeds ₹ 30% 40%
400 crore
Surcharge:
TI 1 crore to 10 crores 7% 2%
TI exceeds 10 crores 12% 5%
HEC 4% 4%

Tax on dividend distributed (Corporate Dividend Tax) [Sec. 115 O]

The company distributing its divisible profit is liable to pay corporate dividend tax as per
sec. 115 O.
Deemed dividend [Sec. 2 (22)(e)] 30% + Surcharge @ 12% + Health & Education
Cess (34.944%)
Other dividend 15% + Surcharge @ 12% + Health & Education
Cess 17.472%

Domestic Company [Sec. 2(22 A)]

The term domestic company includes;
• All Indian Companies &
• A foreign company which has made the arrangements for the declaration
and payment of dividends within India.
Foreign Company [Sec. 2(23 A)]
• A company which is neither an Indian company nor company which has
made the arrangements for the declaration and payment of dividends
within India.

Minimum Alternate Tax (MAT) [Sec. 115 JB]

• Sometimes companies can completely escape from tax, if it has brought forward
losses or brought forward depreciation equal to the net profit.
• To avoid such a situation, Sec. 115 JB provides for MAT of 15% of book profit in the
case of the company whose tax liability is less than 15% of its book profits.
• The excess of MAT paid by the company over tax on total income will be available
as tax credit and can be carried forward for a maximum of 15 AY.
• Tax credit can be used to set off the tax liability of any AY in which the income tax
as per normal rules exceeds the MAT.
Tax under tonnage tax system
Instead of paying tax as per normal provisions of the Act applicable to companies, a
shipping company can pay tax on its income on the basis of daily tonnage. Tonnage tax system
is applicable only if:
1. It is an Indian Company
2. The place of effective management of the company is in India
3. It owns at least one qualifying ship
4. The main object of the company is to carry on the business of operating ships.

Income based on Net Tonnage

Up to 1000 tons ₹ 70 for each 100 tons
Exceeding 1,000 but not more than 10,000 ₹ 700+ ₹ 53 for each 100 tons exceeding
1,000 tons
Exceeding 10,000 but not more than 25,000 ₹ 5,470 + ₹ 42 for each 100 tons exceeding
10,000 tons
Exceeding 25,000 ₹ 11,770 + ₹ 29 for each 100 tons exceeding
25,000 tons

Deductions from GTI of Companies

80 G, 80 GGA, 80 GGB, 80-IA, 80-IAB, 80-IAC, 80-IB, 80-IBA, 80-IC,
80-IE, 80 JJA, 80 JJAA, 80-LA
 V. ASSESSENT OF CO-OPERATIVE SOCIETIES

Computation of taxable income and tax liability

The tax liability of co-operative society is determined as follows;
1. Compute income under different heads of income
2. Income of other persons included in the income of co-operative societies
[Sec.60-61]
3. Current and brought forward loses can be adjusted.
4. The resulting figure is GTI
5. Make deductions from GTI under chapter VI A

Rate of Tax
Income up to ₹ 10,000 10%
Income above ₹ 10,000 and up to ₹ 20,000 20%
Income above ₹ 20,000 30%
LTCG 20%
Surcharge:
TI exceeds ₹ 1 crore 12%
HEC 4%

Deductions from GTI of Co-operative Societies

80 G, 80 GGA, 80-IA, 80-IAB, 80-IB, 80-IBA, 80-IC, 80-IE, 80 JJA, 80
JJAA, 80-P