DIRECT TAX ASSIGNMENT

NAME – HETVI SHAH

CLASS- TYBFM
ROLL NO. – 128
SUBJECT - DIRECT TAX
SEM – 5

CHAPTER 2
Section 2 of the Income Tax Act, 1961 gives the definition of various terms and
expression used in the Act. It is essential to have a thorough knowledge of the
meaning of certain key terms like ‘person’, ’assesses’, income etc. to understand
the provision of the Income Tax Act.
The act is divided into 23 chapters covering sections 1 to 298. Besides it has 14
schedules also.
The definitions given by the act are classified into 2 categories:
1. Exhaustive definitions
2. Inclusive definitions

PERSON (U/S 2(31)) (pg no. 4)

The term, ‘Person’ includes the following :
1) An individual
2) A Hindu undivided family
3) A company
4) A firm
5) An association of persons or body of individuals, whether incorporated or
not
 6) A local authority
7) Every artificial juridical person not falling in the categories mentioned
above.

ASSESSMENT (U/S 2(8)) (pg no. 5)

Assessment is the process of determining the tax payable by an assessee. This is
done in 2 stages:
1. Assessing the taxable income or loss, if any
2. Finding out the tax payable by the assessee or refundable to the assessee
Section 2(8) defines assessment as “Assessment includes Reassessment”.

INCOME (U/S 2(24)) (pg no. 6)

Income tax is the tax on income.
The term “income” means the periodical monetary return coming in with some sort
of regularity or expected regularity from definite source
Some important points related to income:
1. Income is expected to be a periodical monetary return of regular nature from
a definite source.
2. Income may be received in cash or kind which will be treated as different
forms of income.
3. Income may be by way of lawful means or unlawful means.
4. It may be taken either on accrual basis or on receipt basis.
5. A distribution of surplus arising from the mutual activity cannot be treated as
income chargeable to tax.
6. Personal gift, such as gift at the time of marriage is not income chargeable to
tax in the hands of the receiver.
7. The term income also includes loss.
8. Income should be real and not fictional.
9. Awards received by a professional sportsman is an income

ASSESSMENT YEAR [U/S 2(9)] (pg no. 9)

Assessment year means a period of 12 months commencing from 1st day of April
st
every year. For example, the assessment year 2024-25 commence on 1 April,
st
2024 and ends on 31 March, 2025
The assessment year is the year during which the income of the previous year is
assessed to tax.

PREVIOUS YEAR [U/S 2(34)] (pg no. 9)

The definition of previous year U/S 2(34) states that the Previous Year means the
previous year as defined in Section 3.
As per Section 3 there will be only one previous year of all the assesses ending on
31st March for all sources of income. All assessees, for all sources of income, will
st
have to follow, the same previous year i.e. financial year ending on 31 March
every year.

CHAPTER 3
This chapter discusses how the Income-tax is charged on the various types of
income of various different assesses. These are well specified under Section 4 to 9.
CHARGE OF INCOME TAX (SECTION 4) (pg no. 13)
Section 4 is a charging section. The principles of this section are as follows:
1. Income tax does not specify the rates at which tax is to be levied. The rates
of tax are prescribed for each assessment year by the respective Finance Act
which is passed every year.
2. The charge of income tax is on every person.
3. In any particular assessment year, Income tax is charged on the total income
of the previous year.
4. By virtue of a specific provision of the act, Income tax may be charged in
respect of a period other than the previous year also.
5. Income tax shall be deducted at source or paid in advance where it is so
deductable or payable under the provisions of the act.
RESIDENTIAL STATUS OF THE ASSESSEE
The residential status of the assessee is very important in determining the scope of
total income.
1. Total income varies according to the residential status of the assessee.
2. Residential status has nothing to do with citizenship. A person may be a
citizen of America but resident of India.
3. Residential status of the assessee depends on the stay of the assessee in India
during the previous year.
4. The assessee can be classified according to their residential status as
follows:
1) Deemed Resident
2) Non-Resident
3) Resident
a) Resident and ordinarily resident (R&OR)
b) Resident but not ordinarily resident (R but NOR)
Section 2(42) defines Resident as a person who is a resident in India within the
meaning of Section 6.
Resident Individual [SECTION 6(1)]
An Individual will be treated as resident in India in any previous year, if he fulfills
any one of the following two basic conditions:
a) If he is in India in that year 2023-24 for a period or periods amounting in all
to 182 days or more OR
b) Within the four years 2019-20 to 2022-23 preceding to that year he had been
in India for a period or periods in all amounting 365 days or more and has
been in India for 60 days or more in that year 2023-24.
A person shall be deemed to be of an Indian Origin, if he, or either of his parents or
any of his grandparents, were born in undivided India.
Non-Resident Individual [SECTION 2(30)]
‘Non-Resident’ means a person who is not a resident. An individual is non-resident
in India if he does not satisfy any of the two basic conditions as stated Under
Section 6(1). This definition was amended w.e.f. assessment year 1999-2000 to
include in the definition of “non-resident”; a person who is not ordinary resident in
India for the purposes of Sections 92, 93 and 168.

An Individual is treated as Resident if he fulfills any one test out of the two as
specified under section 6(1). An individual who is resident is further classified into
two groups:
a) Resident and Ordinarily Resident (R & OR)
b) Resident But Not ordinarily Resident (R But NOR)
Residential status of the individual depends upon his number of days of stay in
India as given below
Basic conditions: u/s 6(1)
a) He should stay in India during the previous year 2023-24 for at least 182
days OR
b) He should stay in India during the previous year 2023-24 for at least 60 days
and should also be in India for at least 365 days in 4 preceding previous
years.
Additional conditions: u/s 6(6)
c) He should be a Non Resident in India for 9 out of the 10 preceding previous
years
d) He should stay in India for less than 729 days in 7 previous preceding years

SECTION 6(2) HINDU UNDIVIDED FAMILY (HUF), FIRM, ASSOCIATION

OF PERSONS (AOP) (pg no. 26)
A HUF, Firm or AOP is said to be resident in India in any previous year if the
control and thereof is situated either partly or wholly in India. If the control and
management thereof is situated wholly outside India then it will not be considered
as resident. The control and management means the controlling and directive
power, which can be called as ‘Head and Brain’.
Thus all of them can be classified either as ‘Resident’ or ‘Non-Resident’ assessee
only.
SECTION 6(3) COMPANY
An Indian company is always resident in India. A foreign company is resident in
India only if its “Place of effective management”, in that year, is in India.
SECTION 6(4) OTHER ASSESSEES
Any other assessee is said to be a resident in India in any previous year if the
control and management of its affairs are wholly or partly situated outside in India.
SECTION 6(5) RESIDENT FOR DIFFERENT SOURCES OF INCOME
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.
Chart showing scope of Total Income
NATURE OF INCOME R & OR R BUT NR
NOR
Income received in India Include Include Include
Income deemed to be received in India Include Include Include
Income accruing or arising in India Include Include Include
Income deemed to accrue or arise Include Include Include
Income accruing or arising outside India
and recd. outside India
a) From a business controlled from India Include Include Exclude
or profession set up in India
Include Exclude Exclude
b) From a business controlled outside
India or profession set up outside
India

INCOME DEEMED TO BE RECEIVED IN INDIA (SECTION 7)

Income deemed to be received in India in the previous year is also included in the
taxable income of the assessee. Section 7 states that the following incomes shall be
deemed to be received in India:
a) Annual accretion to the credit balance of an employee in the case of
recognized provident fund to the extent provided under rules.
b) Excess contribution of employer in the case of recognized provident fund to
the extent as provided under the rules.
c) Transfer balance in a recognized provident fund from unrecognized
provident fund to the extent as provided under the rules.
d) Any contribution made by the Central Government or any other employer in
the previous year, to the account of the employee under the pension scheme
referred to in Sec 80 CCD.
INCOME DEEMED TO ACCRUE OR ARISE IN INDIA (SECTION 9)
1) Income from Business connection
2) Income through or from any property, any asset or source of income in India
3) Income through the transfer of Capital Asset situated in India
4) Income which falls under the head “salaries” shall be regarded as income
earned in India if the income is payable for –
a) Services rendered in India
b) The rest period or leave period which is preceded and succeeded by
services, rendered in India and forms part of the service contract of
employment.
5) Salary paid by the government to a citizen of India for rendering service
outside India.
6) Dividend paid by an Indian company outside India.
7) Interest payable by Government, any resident person and any non -resident
person.
8) Royalty payable by Government, any resident person and any non -resident
person.
9) Income by way of fees for technical service payable by Government, any
resident person and any non -resident person.
10) Income arising outside India, being any sum of money referred to in sub
clause (xviia) of clause (24) of section paid on or after the 5th day of July,
2019 by a person resident in India to a non resident, not being a company, or
to a foreign company.
BASIS OF CHARGE FOR DIVIDEND INCOME (SECTION 8) (pg no. 36)
Dividend is always declared at Annual General Meeting and hence is deemed to be
the income of the previous year in which it is declared. The basis for charge is
provided under Section 8.
The final dividend is taxed in the hands of shareholder in the previous year in
which it is declared.
Interim dividend is deemed to be the income of previous year in which the amount
of such dividend is unconditionally made available by the company to a
shareholder.
Deemed dividend is the loan to a substantial interested shareholder in a private
company out of its reserves is taxed in the hands of the shareholder in which it is
paid.
CHAPTER 4
This chapter talks about the various incomes which are not included in Total
Income (U/S 10)
The Income Tax Act, 1961 enumerates in Section 10, the items of incomes which
are totally exempt from tax.
A person is not liable to pay tax under any of the following incomes which are
exempted from tax.

Incomes not included in Total Income [U/S 10]

1) Agricultural Income [U/S 10(1)]
2) Receipts from HUF [U/S 10(2)]
3) Partners Share in the Profits of the Firm [U/S 10(2A)]
4) Leave Travel Concession [U/S 10(5)]
5) Gratuity [U/S 10(10)]
6) Commutation of Pension [U/S 10(10A)]
7) Leave salary [U/S 10(10AA)]
8) Retrenchment Compensation [U/S 10(10B)]
9) Compensation on account of Disaster [U/S 10(10BC)]
10) Compensation on Retirement of Employee of a Public Sector Company
[U/S 10(10C)]
11) Tax Borne by the employer on Non Monetary Perquisite provided to
Employee [U/S 10(10CC)]
12) Amount received under a Life Insurance Policy [U/S 10(10D)]
13) Payment from Provident Fund [U/S 10(11)]
14) Accumulated Balance from a Recognized provident fund [U/S 10(12)]
15) Payment from an Approved Superannuation Fund [U/S 10(13)]
16) House Rent Allowance [U/S 10(13A)]
17) Special Allowances for Expenses [U/S 10(14)]
18) Income by way of Interest, premium on redemption or other payment
on securities, bonds or certificates etc., notified for this purpose. [U/S
10(15)]
19) Scholarship [U/S 10(16)]
20) Allowances received by MP. Or State Legislature [U/S 10(17)]
21) Awards [U/S 10(17A)]
22) Pension received by a Person honoured by a Gallantry Award [U/S
10(18)]
23) Family Pension received by the Family Members [U/S 10(19)]
24) Clubbed Income of a Minor Child [U/S 10(32)]
25) Income of Units of US-64 of Unit Trust of India [U/S (33)]
Agricultural Income is totally exempt from tax u/s 10(1)
Any receipts received by a member of HUF, from the HUF shall be exempt from
tax u/s 10(2)
Any share of profit received by a partner, from the partnership firm shall be exempt
from tax u/s 10(2A)
Gratuity means a free gift of charge. It is normally given in respect of favours or
services rendered. The provisions in respect thereof are discussed in three groups-
a) Gratuity received by Government Employee – fully exempt
b) Gratuity received under Payment of Gratuity Act 1972 – Exemption
calculated as provided under the Act
c) Any other Gratuity – Exemption lowest of the following
i) Rs.20,00,000
ii) ½ months avg. salary * completed years of service
iii) Actual amt received
Under gratuity the limit of exemption is specified as Rs.20, 00,000.
Pension is a periodical payment made by the employer to his employee after his
retirement. Pension can be divided into two groups:
a) Uncommuted Pension – periodical payments
b) Commuted Pension – lumpsum amount
Leave salary is taxable under the head Salaries as per the definition of salary.
Compensation on Retirement of an employee of a Public Sector Company is
exempt upto actual amount received or Rs. 5 lacs whichever is less.
Tax borne by the employer, for any non-monetary perquisite provided to the
employee shall be exempt u/s 10(10CC) and will not be treated as perquisite u/s
17(2).
Any amount of compensation received by an individual or their heirs from Central
or State government or by a local authority due to disaster is exempt from tax.
Any sum received under a Life Insurance Policy including the sum allocated by
way of bonus on such policy is totally exempt from tax u/s 10(10D) except
a) Any sum received from policy u/s 80 DD or u/s 80 DDA
b) Any sum received under Keyman insurance policy
c) Any sum received under an insurance policy, except on death and in respect
of which premium payable for any of the years during the term of policy
exceeds 10% of actual capital sum assured for policy issued on or after
01/04/2012.
The above limit of 10% is enhanced to 15% in case of insurance policy on life
of a person who is
a) A person with disability or a person with severe disability as referred to in
sec 80U
b) Suffering from a disease or ailment as specified in the rules made u/s 80
DDB.
Any payment from a provident fund to which the Provident Fund Act, 1925,
applies or from any other provident fund set up by the Central Government and
notified in the official Gazette is totally exempted from tax.
Example- Public Provident Fund
The accumulated balance due and becoming payable to an employee participating
in a recognized provident fund, to the extent provided in rule 8 of Part A of
schedule, is exempt from tax.
There is also exemption from tax in respect of any payment from an approved
superannuation fund made:
a) On death of a beneficiary
b) To an employee in lieu of or in commutation of an annuity on his retirement
at or after a specified age or on his becoming incapacitated prior to such
retirement
c) By way of fund refund of contributions on the death of beneficiary
 d) By way of refund of contributions to an employee on his leaving the service
in connection with which the fund is established otherwise than by
retirement at or after a specified age or on his becoming incapacitated prior
to such retirement, to the extent to which such payment does not exceed the
contributions made prior to the commencement of this Act and any interest
thereon.
The exemption from tax is granted to the employee in case of House Rent
Allowance, to the extent prescribed under the rules in respect of house rent
allowance.
The exemption under House Rent Allowance will not be available if:
a) The residential accommodation occupied by the assessee is owned by him
b) The assessee has not actually incurred expenditure on payment of rent in
respect to the residential accommodation occupied by him.
Any special allowances specifically granted by the employer to the employee to
meet the expenses shall be exempt from tax, if those allowances are not in the
nature of perquisite and such allowances are notified by the Central Government.
The exemption is available only to the extent specified in the notification, however,
not exceeding the amount of expenses actually incurred.
Income by way of interest, premium on redemption or other payment on securities,
bonds or certificates etc. notified for this purpose are exempted from tax. Incomes
derived from the following investments are specified u/s 10(15) :
i) 12 year National Saving Annuity Certificates
ii) Treasury Savings Deposit Certificates
iii) Post Office Cash Certificates
iv) National Plan Certificates
v) National Plan Savings Certificates
vi) Post Office National Savings Certificate
vii) Interest on Gold Deposit bonds, 1999
viii) Interest on deposit certificates issued under Gold Monetization Scheme,
etc..
Scholarships granted to meet the cost of education is totally exempt from tax and
will not be included in the computation of total income of an assessee.
Daily allowance of MP’s and MLA are exempt from tax, MP’s constituency
allowance is fully exempt from tax u/s 10(17).
Awards/Rewards in cash or kind in public interest by Central, State Government is
exempted u/s 10(17A).
Pension received by a person, honoured by a Gallantry award is exempt u/s 10(18)
Any income accruing or arising to a minor child and clubbed with his parent gets
an exemption of Rs. 1,500 or actual Income clubbed whichever is less.
Income from transfer of Long term capital asset being Equity Shares purchased
between 01-03-2003 to 01-03-2004 shall be exempt from tax u/s 10(36).

CHAPTER 6
SALARIES [SECTION 15 TO 17]
Basis of Charge [U/S 15]
Definition of Salary [U/S 17(1)]
Perquisites [U/S 17(2)]
Profits in Lieu of salary [U/S 17(3)]
Deductions from salary [U/S 16]
a) Standard Deduction [U/S 16(i)]
 b) Entertainment Allowance [U/S 16(ii)]
c) Tax on Employment [U/S 16(iii)]
Salary means and includes remuneration in any form due for personal services as
per the contract of employment or service. This necessarily means that
remuneration will be treated as salary which is received out of the relationship of
employer and employee.
If the payer is the employer and payee is employee, then whatever the
remuneration in any form paid by the employer to the employee will be treated as
salaries.
This remuneration may be termed as salary or wages. There is no difference
between the salary paid to the General Manager and wages paid to a helper in a
factory.
It is possible that an individual might have received salary from more than one
employer. In such a case, each source of salary is taxable under the head Salaries.
BASIS OF CHARGE [U/S 15] [pg no. 61]
Section 15 states that the following incomes shall be chargeable under the Head
Salaries:
a) Any salary due from an employer or a former employer to an assessee in the
previous year, whether paid or not.
b) Any salary paid or allowed to him in the previous year by or on behalf of an
employer or former employer though not due or before it became due to
him.
c) Any arrears of salary paid or allowed to him in the previous year by or on
behalf of any employer or a former employer, if not charged to income-tax
for any earlier previous year.
d) Any salary, bonus, commission or remuneration due to or received by a
partner of a firm from the firm shall not be regarded as “Salary” for the
purposes of this section.
Salary income is brought to tax on accrual basis or on receipt basis, whichever
occurs earlier.
Amount received by an individual can be treated as salary if the relationship
between the payer and the payee is that of an employer and employee.
There is no difference between salary and wages for the purpose of taxation.
An individual may receive the previous year salary from more than one employer.
Salary may be received from former, present or prospective employer.
Salary income must be real and not fictitious.
Salary is taxable on ‘due basis’ even if it is not received.
DEFINITION OF SALARY [U/S 17] [pg no. 62]
Section 17(1) of the Income-Tax Act gives an inclusive definition of the term
salaries. The following items are included in the income under the head Salaries;
U/S 17(1): Salary includes:
a) Wages
b) Any annuity or pension
c) Any gratuity
d) Any fees, commissions, perquisites or profits in lieu of or in addition to any
salary or wages
e) Any advance of salary
f) Any payment received by an employee in respect of any period of leave not
availed of by him
g) The annual accretion of the balance to the credit of an employee
 participating in a Recognised Provident Fund, to the extent it is in excess of
the prescribed limits
h) Aggregate of the transferred balance to the account of an employee
participating in a RPF to the extent taxable as prescribed under the rules.
i) Any contribution made by the Central Government or any other employer to
the account of an employee covered under the pension scheme referred to in
Section 80CCD
j) Any contribution made by the Central Government or any other employer to
the account of an employee in the previous year to Agnireet Corpus fund.

DIFFERENT FORMS OF SALARY AND TAX TREATMENT [pg no. 63]

Basic salary /D.A./Pay Taxable U/S 15
Advance salary/Arrears of salary Taxable in the year of receipt
Salary in lieu of notice Taxable on receipt basis
Leave encashment at the time of Govt. employee: exempt from tax
retirement Non-govt. employee: exempt to the
extent specified
Gratuity Govt. employee: fully exempt
Non-govt. employee: exempt to the
extent specified
Pension Uncommitted pension: taxable
Commuted pension:
Govt. employee: fully exempt
Non-govt. employee: exempt to the
extent specified
Annuity from employer Taxable as salary
City compensatory allowance Taxable
HRA Exempt to the extent specified
Special allowances Exempt to the extent specified
Tiffin allowances, fixed medical Taxable U/S 15
allowance and servant allowance

ALLOWANCE: It is generally defined as a fixed quantity of money or other

substance given regularly in addition to salary for the purpose of meeting some
particular requirement connected with the services rendered by the employee.
The amount of exemption would be the amount of allowance or the actual amount
spent whichever is lower.
PERQUISITES [U/S 17(2)] [pg no. 63]
Perquisite is an additional benefit received by an employee over and above the
basic salary or wages but it is different from the allowance granted.
Perquisites may be paid voluntarily by an employer or by virtue of service
contract.
According to Section 17(2), perquisites include:
a) The value of rent free accommodation provided to the assessee by the
employer.
b) The value of any concession in the matter of rent relating to any
accommodation provided to the assessee by his employer.
Any amount of tax paid by the employer, at his option for non-monetary
perquisites provided to the employee shall be exempt u/s 10(10CC) and will not be
treated as perquisite.
DEDUCTION U/S 16
 1) Standard deduction u/s 16(i): standard deduction will be available of Rs
50,000 or Gross salary, whichever is lower.
2) Entertainment allowance u/s 16(ii): deduction available only to Government
employees. Least of the following:
a) Actual amount of entertainment allowance received
b) 1/5th of the Basic salary
c) Rs. 5000
3) Professional Tax u/s 16(iii): any amount of tax paid on employment is
allowed as deduction.
FORMAT OF COMPUTATION OF INCOME FROM SALARIES [pg no. 71]
Name of the Assessee:_______
Assessment year: ______ Previous year: _______
Legal Status: ______ Residential status:
_______
Computation of Income from salaries
Particulars Amount(Rs.) Amount(Rs.)
A. SALARY (Gross)
(Including arrears and advance salary recd.)
Basic salary/ wages xx
xx
Fees
xx
Commission
xx
Pension (Taxable portion) xx
Gratuity (Taxable portion) xx
Leave salary (Taxable portion) xx
Annuity xx
Bonus (taxable on Receipt basis)

xx xx
B. ALLOWANCES xx
Dearness allowance xx xx
H.R.A. xx
Less: Exempt [U/S 10(13A)] xx
Conveyance allowance xx
Less: Exempt [U/S 10(14)] xx
City Compensatory allowance xx
Special allowance xx
Lunch allowance xx
Fixed Medical allowance xx
Servant allowance xx
xx
Entertainment allowance received
xx
C. PERQUISITES TAXABLE
xx
Rent free accommodation
Concession in Rent xx
Benefit/Amenity granted free of cost to xx
specified employee xx
Employees obligation discharged by employer
Premium for period for Life of
employee/Annuity xx
Fringe benefit/Amenity
xx
D. PROFITS IN LIEU OF SALARY
 Compensation recd. from the employer xx
Employer’s contribution to unrecognized P.F.
and Interest thereon recd. xx
Payment recd. for outstanding performance of xx
duty or on the occasion of Diwali or Christmas xx
Employer’s contribution to RPF in excess of xx xxx
12% of Basic salary xx
Interest exceeding 9.5% p.a.
Amount recd. under Keyman Insurance Policy xx
GROSS SALARY xx
Less: Deductions (U/S 16) xx
a) Standard deduction [u/s 16(i)]
b) Entertainment allowance [u/s 16(ii)]
c) Professional Tax or Tax on Employment [u/s
16 (iii)]
NET TAXABLE SALARY

CHAPTER 8
Income from house property is required to be computed in accordance with the
provisions of Section 22 to 27.
Section 22 – States and explains the income chargeable to tax under the head
Income from House Property on the basis of Annual Value.
Section 23 – States and explains how the Annual Value of the House Property is
determined.
Section 24 – Specifies the deductions which are allowed to be deducted from the
annual value as determined u/s 23 to arrive at taxable income under this head.
Section 25 – States the amount not deductible in computing income chargeable
under the head, Income from House Property.
Section 26 – States the ways in which income chargeable to tax is ascertained
when the house property is owned by the co-owners.
Section 27 – Certain terms such as Owner of House Property and taxes are defined.
BASIS OF CHARGE [U/S 22] [pg no. 94]
a) Property must consist of building and land appurtenant thereto.
b) Assessee must be the owner.
c) Use may be for Residential/Commercial purpose.
Reasonable Letting Value u/s 23(1)(a) is higher of
a) Fair Rent
b) Municipal Rateable Value
The Fair Rent can be ascertained by taking the following factors into
consideration:
a) Locality in which property is situated
b) Rent payable for similar property in the same or similar locality
c) Owner’s obligations discharged by the tenant
d) Tenant’s obligations discharged by the owner
e) If Rent Control Act is applicable, the standard rent as fixed by the Rent
Controller
The Municipal Rateable Value is one of the important tests to be taken into
consideration for determining the annual value. It is being ascertained by the Local
authorities such as Municipal Corporation or Municipal Council or
Grampanchayat.
Gross Annual Value U/S 23(1) (b) is higher of
a) Reasonable Letting Value
b) Actual Rent Received
However, if the actual rent received is less than the reasonable letting value, due to
vacancy and no other factor, then actual rent is taken as Gross Annual Value U/S
23(1)(c).
Actual Rent received = Rent Receivable – Unrealized Rent – Vacancy Period Rent.

LET OUT PROPERTY/ DEEMED TO BE LET OUT PROPERTY

Computation Income of LET-OUT Properties
Particulars Amount (RS.)
Gross Annual Value (GAV) xx
Less: Municipal Taxes (paid and borne by owner) xx
Net Annual Value (NAV) xx
Less: Deduction U/S 24
1) Standard Deduction [@30% of NAV] xx
2) Interest on Borrowed funds xx
xxx
TAXABLE INCOME

SELF OCCUPIED HOUSE PROPERTY

Computation Income of Self-Occupied Properties (SOP)
Particulars Amount (Rs.)
Gross Annual Value (GAV) will be taken as Nil
Less: Deduction U/S 24
Interest on Loan (RS.30,000 or 20,000 maximum as the case may xx
be)
TAXABLE INCOME -ve

When a property is occupied by the owner himself, that property is called as self-
occupied house property. Where the property consists of a house or a part of house
which is occupied by the owner for his own residence, the annual value of such a
house, or 2 house properties shall be taken as NIL. The following 2 conditions
must be satisfied:
a) The property or part thereof is not let out actually during any part of the
previous year
b) No other benefit is derived from such property.
Important points to be considered while computing the income from self occupied
house property:
a) Deemed to be Let Out House Property(DLOP) – If a person has occupied
three or more than three houses for his own residential purpose, in that case
only 2 houses according to his choice is treated as self-occupied and all other
houses will be treated as Deemed to be Let Out property u/s 24 would be
allowed.
b) Set off of Loss from SOHP – Annual Value of self-occupied property will be
treated as NIL. No deduction will be allowed except interest on borrowed
funds for the purpose of purchase, construction, repairs, renovation of such
property, subject to limit of Rs. 30,000 or 20,000 as the case may be.
c) House Property partly self-occupied & partly Let Out during the year – the
 annual value and income of such house property will be computed as if the
property is Let Out.
d) Self occupied House Property Remaining Vacant due to Employment
purpose – the annual value of such house will be taken as NIL.
e) Annual Value of Property Held as Stock in Trade – the annual value of such
property for a period upto 2 year from the end of financial year in which the
certificate of completion of construction of property is obtained should be
taken as Nil.
DEDUCTIONS [pg no. 102]
a) A sum equal to 30% of Annual Value (Standard deduction)
b) Interest on Housing loan
1) Normal interest
2) Pre Construction Interest
SET OFF AND CARRY FORWARD OF LOSS
The income which is computed under the head “Income from House Property”, is a
loss, then such loss shall be set off against the Income under the same head and
then under any other heads of Income in the same year “maximum upto
Rs.2,00,000. Any unadjusted loss can be carried forward and set off in subsequent
years subject to a limit of 8 assessment years against income from house property.
A deduction of 30% of the amount received as arrears of Rent or unrealized rent
received is allowed.
Property Owned by Co-Owner [U/S 26]
If a house property is owned by two or more persons and their respective shares are
definite and ascertainable, such persons shall not be assessed in respect of such
property as an Association of Persons (AOP) but the share of each co-owner, in the
income of house property, will be included in his total income
Taxes levied by a local authority of any property shall be deemed to include service
taxes levied by the local authority in respect of the property.

CHAPTER 9
Sec.2(13) defines Business as “includes any trade, commerce, or manufacture or
any adventure in the nature of trade, commerce or manufacture.”
Sec.2 (36) profession includes vocation.
Following 3 conditions should be satisfied to claim deduction of depreciation:
a) Assessee must be the owner of the asset
b) Such asset must be used for the purpose of business or profession
c) Such use must be in the relevant previous year
If an asset is put to use for less than 180 days during the previous year, the amount
of depreciation in respect of such asset shall be restricted to 50% of the rate
applicable to that Block of Asset.
Any revenue expenditure/capital expenditure except on land incurred on scientific
research will get a weighted deduction of one and three forth times 175% of
amount paid u/s 35 if it is paid to
a) A University/ College/ Association or Institution approved by General Govt.
b) National Laboratory, IIT for scientific research
A weighted deduction of one and one forth times (125%) of actual sum paid will be
allowed as deduction if it is paid to
a) A company registered in India with main object of scientific research
b) An Institution/ College/ University in Social Science recognized by Central
 Govt.
A weighted deduction of two times 200% of actual sum paid to a company
engaged in bio-technology.
General Expenditure: Conditions to be satisfied
a) The expenditure should not be of the nature prescribed u/s 30 to sec. 36
b) Such an expenditure shall not be a Capital Expenditure
c) Such an expenditure shall not be a Personal Expenditure
d) Such expenses shall be wholly and exclusively incurred for the purpose of
business/profession
e) Such expense should be for the business carried on by the assessee
f) Such expenditure should not be in the nature of an offence or which is
prohibited by any law.
Expenses not deductable [U/S sec 40(a)]
a) Interest, royalty, salaries, interest, commission, brokerage, fees for
professional services, payment to contractor, subcontractor etc paid outside
India on which tax is not deducted as source.
b) Any sum paid as security transaction tax (STT)
c) Fringe Benefit Tax
d) Taxes Levied on Profits i.e. Income Tax
e) Wealth Tax
f) Tax borne by employer assessee on non monetary perquisite provided to
employees
g) Where an assessee has not made effective arrangement of tax to be deducted
at source from any payment made from the fund which is taxable.
Expenses or Payment not deductable U/S 40A
a) Payment to certain Persons which is unreasonable or excessive
b) Payment exceeding Rs.10, 000 made otherwise than by account payee
cheques or draft.
c) Provision made for Gratuity.
d) Contribution by employer to non statutory fund
Deduction allowed on Payment basis 43 B
a) Tax, duty, cess fee etc
b) Employers contribution to PF/Superannuation fund
c) Bonus/commission paid to employees
d) Interest on term loan taken from schedule bank
e) Interest on loan from financial Institution
f) Leave salary paid to employee
The above 6 payments are allowed as deduction if they are actually paid during
the previous year or before the date of furnishing the return of Income.
Loss under the head “Income from Business/Profession” shall not be allowed to be
set off against “Income under the head salary”.

CHAPTER 10
“Capital Gain” is a part of the Taxable Income. In order to invoke the provisions of
Capital Gains the following ingredients should be present:
 1) The existence of Capital Asset
2) The transfer of such Asset
3) Profits and Gains from Transfer of such asset
Format for calculation of Short Term Capital Gain (STCG)
Capital Asset held for < 36 months
Financial asset held for <12 months
Immovable property < 24 months
Particulars Amount (Rs.) Amount (Rs.)
Full Value of Consideration xx
Less: Expenditure incurred in connection with
transfer xx
Cost of Acquisition xx
Cost of Improvement xx xx
Short Term Capital Gain xxx

Format for calculation of Long Term Capital Gain (LTCG)

Capital Asset held for > 36 months
Financial Asset held for > 12 months
Immovable Property > 24 months
Particulars Amount (Rs.) Amount (Rs.)
Full Value of Consideration xx xx
Less: Expenditure incurred in connection with
transfer xx
Indexed Cost of Acquisition xx
Indexed Cost of Improvement xx xx
Long Term Capital Gain xxx

Format for calculation of Capital Gain on Transfer of Depreciable Asset

Particulars Amount (Rs.) Amount (Rs.)
st
Opening WDV as on 1 April x
Add: Purchases during the year x
Less: Full Value of Consideration (x)
Less: Expenditure in Connection of Transfer (x) (x)
Total xx

If total is negative it is chargeable as Short Term Capital Gain u/s 50

If total is positive it is chargeable as Long Term Capital Loss as all Asset in that
block are transferred during the year
Chart of FULL VALUE OF CONSIDERATION:
SEC. Particulars of transfer u/s 45 Amount deemed to Year in which
be the full value of chargeable to tax
consideration u/s 48
45(1A) Money/other assets recd. Value of Year in which money
from insurance co. towards money/FMV of /other asset is recd.
damage/destruction of assets recd. from from insurance co.
Capital Asset insurance company
45(2) Conversion of Capital Asset FMV of the asset on Year in which sale or
into stock-in-trade the date of transfer of stock-in-
conversion trade takes place
45(2A) Transfer of Securities made Amount of Year in which such
by depository consideration recd. securities are
 transferred
45(3) Transfer of Capital Asset by The amount recorded Year in which asset is
a person to firm /AOP/BOI in the books of the transferred
as his Capital Contribution or firm
otherwise
45(4) Transfer of Capital Asset by FMV on the date of Year of distribution
way of distribution thereof distribution
on dissolution of
firm/AOP/BOI of otherwise
45(5) Transfer of Capital Asset by
Compulsory Acquisition
under any law or transfer
where consideration
determined/approved by
Central Govt./RBI
a)Initial compensation Amount of initial Year in which initial
compensation compensation is first
recd.
b)Enchanced compensation Enchanced amount Year in which
enchanced
compensation is first
recd.
45(6) Transfer of units referred to The repurchase price Year in which
in Sec. 80CCB(2) by way of repurchase takes place
repurchase

CHAPTER 11
Income from other sources is a residuary head of Income which includes all
income which are not covered by other heads of Income and which are not exempt
from tax.
Dividend Income other than dividend u/s 1150 winning from lottery, crossword
puzzles shall always be chargeable under the head Income from other sources. Any
sum of money i.e. gift in cash /cheque or draft exceeding Rs. 50,000 the entire
aggregate value will be charged to tax.
Apart from specific deduction u/s 57, any expenditure which is wholly and
exclusively incurred for the purpose of earning any Income under this head is
allowable as deduction. Any movable or immovable property recd. without
consideration in excess Rs. 50,000 then the stamp duty value for immovable
property and fair market value for movable property will be chargeable to tax.
Deduction u/s 57 for family pension – 33 1/3% of such income or Rs. 15,000
whichever is less. If the consideration for movable property is less than the fair
market value then the difference between aggregate fair market value and
consideration is chargeable to tax.
No deduction shall be allowed in respect of winning from lotteries, cross word
puzzles, card games, races include horse race, gambling, betting etc.
Expenses incurred to maintain the houses shall be allowed as deduction if the
owner of the houses maintains them for running it in horse race.

Format for Computation of Income under the Head “Income from Other Sources”
Name of the Assessee: ___________
Assessment Year: _________ Previous Year:
_______
Legal Status: __________ Residential Status:
______
Computation of Income from Other Sources
Particulars (Rs.) (Rs.)
1.Dividend
a) On shares of Foreign Companies xx
b) On shares of Cooperative Societies xx
c) On shares of Indian Companies xx
xx
Less: a) Collection charges xxx
xx xx
b)Interest on Capital borrowed(less than 25%) xx

2.Interest xx
a) On deposits with Banks xx
b) On deposits with Companies xx
c) On deposits with any other person xx
d) On loans given xx
e) On Govt. Securities xx
f) On Non-Govt. Securities xxx
xxx
Less: a) Collection charges xx
xx
b)Interest on Capital borrowed
xx
xx
xx
3.Rent xxx
a) From House property sub-let
xxx
b) From other assets let out
xx
Less: a) Collection charges
xx
b)Expenses on assets let out xx
xx xx
c)Depreciation of assets let out xx xxx
xx xx
d) Interest on capital borrowed xx
xx
xxx
4.Certain Casual Income xx
a) Winnings from lotteries xx
b) Winnings horse races
c) Winnings from card games xx
d) Gambling/betting income xx xx
e) Income from crossword puzzle xx
xx
5.Sums received from employees as contributions to P.F.
or other funds xx
Less: Amount deposited before due date xx
xx
xx
6.Other Income xx
xx
a) Royalty on books
xx xx
Less: Expenditure in connection with preparation of
manuscript xx
b)Director’s Fees xx
c) Director’s commission for underwriting shares etc. xx
d) Examinership remuneration recd. by a teacher from
University/Board xx
Less: Expenses, if any xx xx
e)Family Pension
Less: Deduction 33 1/3% or Rs.15,000/- whichever is less xx
f)Royalty from a mine
g)Agriculture income from land situated in a foreign xx
country
xx
h)Income from undisclosed sources
xx
i)Commission for procuring Insurance
xx
j)Salary of M.P./MLA
xxx
k)Tips recd. by a hotel waiter, taxi driver
l)Withdrawal from NSS, 1987 A/c
m)Annuity from LIC of India
n)Certain incomes of other persons included in the
assessee’s total income
(eg. Minor child, spouse, deceased person etc.)
o)Income recd by non professional writers, inventors,
designers etc.
p)Income from vacant lands not being agricultural lands
q)Amount recd. under Keyman Insurance Policy
r)Gift in excess of Rs.50,000 (subject to exception)
NET TAXABLE INCOME

CHAPTER 12
Total Deductions under Chapter VI A cannot be more than Gross total Income.
Deduction should be allowed only if they are made out of Taxable Income of the
previous year.
Deduction in respect of LIP, Deferred annuity, Contribution to PF, NSC, Tution
fees for 2 children, Principal repayment of housing loan etc. is available to an
individual to the actual amount invested/spend or Rs.1,50,000 whichever is less
(U/S 80C).
Contribution to certain pension fund is deductable u/s 80CCC to the extent of
amount invested or Rs.1, 50,000 whichever is less.
Section 80CCE specifies that the total deduction an assessee can claim aggrading
section 80C and 80CC is restricted to Rs. 1, 50,000.
Mediclaim Insurance premium should be paid in cheque only, and not in cash. (sec
.80 D)
Deduction allowed in respect of Mediclaim Insurance premium for self, spouse and
dependent children is actual amount paid or Rs.25,000 whichever is less.
Additional Deduction for Medical Insurance premium for parents is actual amount
paid or Rs.25,000 whichever is less.
Medical Insurance premium is paid for a senior citizen, deduction allowed is actual
amount paid or Rs. 50,000 whichever is less.
Senior citizen for Sec 80D means an individual resident in India who is of the age
of 60 years or more any time during the relevant previous year.
In case of an assessee incurs medical expenditure on the health of a senior citizen
not covered under Medical Insurance he shall be eligible to a deduction of actual
expenses or Rs. 50,000 whichever is less.
Payment made upto Rs.5,000 in cash or otherwise shall be allowed as deduction
towards preventive health check up.
Deduction in respect of Maintenance including medical treatment of a dependent
who is a person with disability is as follows:
1. A standard deduction of Rs. 75000 irrespective of the amount spent or
deposited
2. A higher standard deduction of Rs.125000 is allowed if the dependent
relative is severely disabled (more then 80%).
Deduction in respect of Interest on loan taken for higher education for self,
spouse or children u/s 80E.
Sec.80TTA: Deduction in respect of deposits in saving account deduction is
available to an individual or a HUF other than senior citizen, if the gross total
income includes, interest on deposits in a saving account with a bank, co-op
society or a post office deduction shall be allowed to such an income, to the
extent of actual amount earned or Rs.10,000 whichever is less.
Deduction in respect of person resident in India disability (sec 80U):
Amount of deduction:
1) A standard deduction of Rs.75,000
2) In case of severe disability the above standard deduction is enhanced to
Rs.1,25,000.