Indian Income Tax Rules PDF

CA Jasmeet Singh Arora 1.1 RESIDENTIAL STATUS Residential status of individuals Section 6(1) / 6(6)(a) Section 6(1), an individual is said to be resident, if he satisfies any one of the following two basic conditions...

CA Jasmeet Singh Arora 1.1 RESIDENTIAL STATUS Residential status of individuals Section 6(1) / 6(6)(a) Section 6(1), an individual is said to be resident, if he satisfies any one of the following two basic conditions: (i) He stays in India for 182 days or more during the relevant previous year (RPY) (ii) He stays in India for 60 days or more in RPY and also for 365 days or more during 4 years preceeding the RPY. Note: 1. Period of stay may not be continuous. 2. Date of departure and arrival both shall be considered for stay in india. Exceptions to the basic condition - Check only 182 days 1. If an Indian Citizen leaves India for the purpose of employment 2. If an Indian Citizen leaves India as a crew member of Indian Ship. Note: Date of Joining and Date of Signing Off As per continuous discharge certificate shall be considered as outside India in the case of crew member of foreign going Ship. * Indian Income includes Foreign business income whose control is in India or foreign professional income whose setup is in India Section 6(6), An individual is said to be a resident and ordinarily resident if he satisfies both the following conditions: (i) He is a resident in any 2 out of last 10 previous year, and (ii) His total stay in India in the last 7 years is 730 days or more.  CA Jasmeet Singh Arora 1.2 Deemed Resident Section 6(1A) Individual Shall be NOR if all of the following conditions are satisfied:- a) Individual is Indian Citizen b) Total income excluding income from foreign sources but including foreign business income whose control is in India, exceeds 15 Lakh. c) Such person is not paying Tax In any Country due to his domicile, residence or similar nature Residential status of HUF Section 6(2)/6(6)(b). Section 6(2), an HUF would be resident in India if C&M of its affairs is situated wholly or partly in India. Otherwise, Non- resident. Section 6(6)(b), An HUF is said to be ROR if Karta satisfies both additional conditions, Otherwise NOR Residential status of partnership firm or BOI or AOP Section 6(2) Resident → C&M is wholly or partially in India, other wide NR. Residential Status Of Company Section 6(3) Indian Co. → Always Resident. Foreign company → Resident if POEM is in India Scope of Total Income or Tax Incidence [Section 5] Income Accrue or Arise / Income Received / Deemed To Be Income Deemed To Accrue or Arise Received India India Indian India Outside India Indian Outside India India Indian Outside India Outside India Foreign Income ROR NOR NR Indian Taxable Taxable Taxable Foreign Taxable Non – Taxable Non - Exception : Following Foreign Incomes are Taxable. Taxable 1. Business Income – Business Controlled From India. 2. Professional Income – Profession Set Up in india  CA Jasmeet Singh Arora 1.3 Income deemed to accrue or arise in India Section 9 1. Any income accruing or arising to an assessee in any place outside India whether directly or indirectly (a) through or from any business connection in India, (b) through or from any property, any asset or source of income in India or (c) through the transfer of a capital asset situated in India would be deemed to accrue or arise in India. Exception: Purchase for export. Collection of news. Shooting of film in India by foreign citizen. 2. Income, which falls under the head “Salaries”, deemed to accrue or arise in India, if it is earned in India. Salary payable for service rendered in India would be treated as earned in India. 3. Income from ‘Salaries’ which is payable by the Government to a citizen of India for services rendered outside India would be deemed to accrue or arise in India. However, allowances and perquisites paid or allowed outside India by the Government to an Indian citizen for services rendered outside India is exempt, by virtue of section 10(7). 4. Interest On Loan 5. Royalty Or fees from technical services  CA Jasmeet Singh Arora 2.1 INCOME UNDER HEAD SALARIES Important Concepts Relating To Salaries (1) Employer-employee relationship: Every payment made by an employer tohis employee for service rendered would be chargeable to tax as salaries. (2) Full-time or part-time employment: It does not matter whether theemployee is a full- time employee or a part time one. (3) Foregoing of salary: Once salary accrues, the subsequent waiver by the employee does not absolve him from liability to income-tax. Such waiver is only an application and hence, chargeable to tax. (4) Surrender of salary: Exempt while computing his taxable income. (5) Salary paid tax-free: This, in other words, means that the employer bearsthe burden of the tax on the salary of the employee. In such a case, the income from salaries in the hands of the employee will consist of his salary income and also the tax on this salary paid by the employer. (6) Place of accrual of salary: salary earned in India is deemed to accrue or arise in India even if it is paid outside India or it is paid or payable after thecontract of employment in India comes to an end. BASIS OF CHARGE (SECTION 15) (i) Section 15 deals with the basis of charge. Salary is chargeableto tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier. (ii) However, where any salary, paid in advance, is assessed in theyear of payment, it cannot be subsequently brought to tax in the year in which it due. (iii) If the salary paid in arrears has already been assessed on duebasis, the same cannot be taxed again when it is paid. ALLOWANCES 1. Fully Taxable Allowances Servant Allowance Fixed Medical Allowance Meal Allowance Dearness allowance. City Compensatory Overseas allowance Allowance Entertainment allowance Telephone Allowance Overtime allowance Rural allowance Project allowance High Cost of living (personal research) Allowance Holiday Home Allowance Non-Practising Allowance Marriage / Family Allowance  CA Jasmeet Singh Arora 2.2 2. Fully exempted allowances Following allowances are fully exempted from tax: A. Allowances paid to Supreme Court and High Court Judges. B. Any salary or allowance or perquisites paid to the employees of United Nation Organisation. C. Section 10(7). Any allowances or perquisites paid or allowed by Government of India to Indian citizen for rendering services outside India. 3. Official Allowances For The Following Allowances, amount received or actually spent by Employee, whichever is lower shall be exempt from tax under Old Regime Transfer Allowance Helper Allowance Daily Allowance Conveyance Allowance Academic Allowance Research & Development Allowance(R & D) Uniform Allowance Travelling Allowance Note: Under Default Regime exemption is allowed only for Travelling Allowance/Daily Allowance/ Conveyance Allowance. Other official allowances are fully taxable. 4. Allowances For Personal Nature Following Exemption is allowed only under old regime ( under default regime no exemption is allowed for personal nature allowances) A. Children Education Allowance: exempt upto ₹100 p.m. per child upto two child. B. Hostel Allowance: exempt upto ₹300 p.m. per child upto two children. C. Transport Allowance: Fully Taxable. However, if granted to anemployee, who is blind or orthopaedically handicapped with disability of lower extremities is exempt upto ₹3,200 p.m. D. Outstation Allowance: Granted to an employee working in any transport system to meet his personal expenditure. It is exempt tothe extent of least of the following: (i) 70% of the allowance received (ii) ₹10,000 p.m. E. Underground Allowance: Allowance to the employees who areworking in the mines. It is exempt upto ₹800 p.m. F. Tribal Area Allowance: exempt upto ₹200 p.m G. Other notified allowances: (i) Compensatory modified field area allowance. upto ₹ 1,000 p.m. isexempt. (ii) Composite field area allowance. upto ₹ 2,600 p.m. is exempt. (iii) Compensatory field area allowance. upto ₹ 2,600 p.m. is exempt. (iv) Island Duty allowance. upto ₹ 3,250 p.m. is exempt. (v) Counter insurgency allowance. upto ₹ 3,900 p.m. is exempt.  CA Jasmeet Singh Arora 2.3 (vi) Special Compensatory highly active field area allowance. upto ₹4,200 p.m. is exempt. 5. Section 10(13A) & Rule 2a. House Rent Allowance Exemption is allowed only under old regime (under default regime no exemption is allowed for HRA) House rent allowance is exempt to the extent of the least of the following: (i) (Rent Paid – 10% of salary) (ii) 50% of retirement benefit salary in case of Mumbai, Kolkata,Chennai or Delhi. Or 40% of retirement benefit salary in case of any other place. (iii) House rent allowance received Meaning of Salary for HRA (also known as Retirement Benefit salary) Basic Salary + DA (RB) +Commission (% of TO) Note: If There Is Change In HRA, Salary, Rent Paid and Location of Accommodation, then Exemption shall be computed separately for each such Change. DEDUCTION U/S 16 A. Standard Deduction [Section 16(ia)] - Allowed under Both Regimes A deduction of 50,000 or the amount of the gross salary, whichever is less. B. Entertainment Allowance [Section 16(ii)] - Allowed only under Old Regime Deduction shall be allowed only in case of government employees to the extent of the least of the following: (i) 20% of basic salary (ii) ₹ 5,000 (iii) The actual allowance received by the employee C. Professional Tax [Section 16(iii)] - Allowed only under Old Regime Employee will be allowed to claim deduction Of professional tax paid by him If the amount has been paid by the employer on behalf of the employee, it will be first included in gross salary and subsequentlydeduction is allowed If the amount is due but not paid, deduction is not allowed. RETIREMENT BENEFITS 1. Gratuity Gratuity Received During Employment Is Fully Taxable Gratuity Received at the time of retirement is to be treated as follows:  CA Jasmeet Singh Arora 2.4 Employee Exemption u/s 10(10) [Allowed under Both Regime] Government Fully Exempt Other EE covered under Least Of Following is Exempt: POGA a) ₹ 20 Lakh b) Gratuity Received c) 15/26 x Last Drawn Salary x CY Note: 1. CY = Completed year or partthereof in excess of 6m 2. Last Drawn Salary = Basic + DA Other EE Not covered Least Of Following is Exempt: under POGA a) ₹ 20 Lakh b) Gratuity Received c) 1/2 x Avg Salary x CY Note: 1. CY = Completed year 2. Salary = Basic + DA(RS) +Comm(%) 3. Avg Salary= 10m Avg Salary Immediately Preceeding “month” of Retirement 2. Pension a) Uncommuted Pension – FullyTaxable b) Commuted Pension Received By Exemption u/s 10(10A) [Allowed under Both Regime] Govt. EE Fully Exempt Non Govt.EE Gratuity Received : 1/3 of Total Pension Is Exempt Gratuity Not Received : 1/2 of Total Pension IsExempt Total Pension = [Commuted Pension ÷ Commutation %] 3. Leave Encashment (Exemption u/s 10(10AA)) - [Allowed under Both Regime] Least Of Following Is Exempt: a) Leave Encashment Received b) ₹ 25,00,000 c) 10m x Average Salary d) Leave @ credit (in months) x AverageSalary Note: (i) Leave @ Credit (In Months) Leaves Available For Completed Year (Max= 30 leaves per Year) xx (-) Leaves Availed During Employment xx (-) Leaves Encashed During Employment xx Leaves @ credit (in days) Xx ÷ 30 days Leaves @ credit (in months) xx  CA Jasmeet Singh Arora 2.5 (ii) Salary = Basic + DA(RB) + Commission (% of TO) (iii) Avg Salary= 10m Avg Salary ImmediatelyPreceeding “Day” of Retirement. (iv) Leave Encashed During Employment Is FullyTaxable 4. Retrenchment Compensation S. 10(10B) - [Allowed under Both Regime] Least of the following is exempt : a) Compensation actually received b) ₹ 5,00,000 c) 15/26 × Completed years of service and part thereof in excess of 6 months. 5. Voluntary Retirement Compensation S. 10(10C) - [Allowed under Both Regime] Least of the following is exempt : (i) Compensation received (ii) ₹ 5,00,000 (iii) 3 months’ salary x completed years of service (iv) Last drawn salary x remaining months of services left 6. Provident Fund - [Allowed under Both Regime] Particulars SPF RPF URPF PPF ER EXEMPT Exempt Upto Taxable at the Contribution 12% of RBS time of withdrawal EE Deduction u/s Deduction u/s No Deduction Deduction u/s Contribution 80C 80C allowed u/s 80C 80C Interest EXEMPT Exempt Upto Taxable at the EXEMPT Credited (See Note 3) 9.5% time of (See Note 3) (See Note 3) withdrawal Withdrawal EXEMPT EXEMPT See Note 2 EXEMPT (See Note 1) Note 1. Exempt, If any of the following condition satisfied: a) 5 years of continuous service with same employer b) retires before rendering 5 years of service because of ill health, contraction or discontinuance of employer’s business or reason beyond the control of the employee c) on cessation of employment with existing ER, accumulated balance in RPF is transferred to new employer or transferred to his NPS account referred to in section 80CCD  CA Jasmeet Singh Arora 2.6 2. Withdrawal from URPF shall be treated as follows: ER Contribution EE Contribution Int On EE Cont. Int On ER Cont. Taxable u/h Exempt Taxable u/h Other Taxable u/h Salary salary Source 3. Int on EE’s Contribution towards SPF/RPF a) Exemption u/s 10(11) and 10(12) not available for interest accrued during the PY to the extent it relates to the contribution made by EE exceeding ₹ 2,50,000 in any PY on or after 1/4/2021. b) However if ER do not contribute in that fund then exemption in respect of interest is allowed upto ₹ 5,00,000 instead of ₹ 2,50,000. TAXABILITY OF PERQUISITES 1. Rent Free or Concessional accommodation Section 17(2)(i) Rule 3(1) Particulars Amount Step 1 Value Of Accommodation Case 1: Accommodation Is owned by Employer Specified % of Salary (See Note 1) xx Case 2: Accommodation Is Taken on Rent by Employer Rent Paid by the ER or 10% of Salary – whichever is lower. xx Case 3: Government Employees (Central or State Government) Licence Fee determined by the Government xx Step 2 Add: 10% p.a of Cost Of Asset (If Asset is owned by ER) xx Step 3 Add: Hire Charges paid by the ER (Asset taken on rent by ER) xx Step 4 Less: Amount Recovered From EE xx Note 1 Population % Of Salary Exceeds 40 Lakhs 10% Exceeds 15 Lakhs but upto 40 Lakhs 7.5% Upto 15 Lakhs 5% a) Meaning of Salary Rent free accommodation salary shall include: (i) Basic pay (ii) Dearness Allowance/Dearness Pay. If it forms part of salary for retirement benefits as per service agreement. (iii) Taxable portion of all allowances. (iv) Bonus /Commission /Fees etc. (v) Leave salary (when the employee is in employment) It will not include (i) Taxable portion of perquisites whether monetary or non-monetary  CA Jasmeet Singh Arora 2.7 (ii) Taxable portion of provident fund (iii) Any payment after retirement like gratuity/ commuted pension or provident fund etc. (iv) Arrear of salary or advance salary Note: Salary only for the period for which rent free accommodation is provided shall be taken into consideration Accommodation provided at two places If any employee has been transferred and employer has provided him accommodation at the new place also, in such cases only one of the accommodation shall be taxable having lower perquisite value but only for a period of 90 days (three months) and thereafter both of the accommodations shall be taxable Accommodation provided in a hotel Perquisite value shall be 24% of salary or actual expenditure incurred whichever is less. However, Perquisite shall not be taxable if both of the following conditions are satisfied: 1. Hotel accommodation is for a period not exceeding in aggregate 15 days 2. Employee has been transferred from one place to another FRINGE BENEFITS UNDER SECTION 17(2)(viii) 1. Interest free or concessional loans Rule 3(7)(i) Perquisite = Sum of Monthly Outstanding balance x (SBI Rate – ER Rate) x 1/12 Exception: No perquisite shall be computed in following cases: a) where aggregate amount of all such loan during a particular year is upto ₹20,000 b) If employer has given loan for treatment of specified disease given under rule 3A, there is no perquisite value 2. Free food or refreshment Rule 3(7)(iii) a) Free refreshments Tea or Non-Alcoholic Beverages / Snacks during working hours are Exempt. b) Free meals taxable as follows: Perquisite = (Cost of Meal – Amount Recovered). However, perquisite upto ₹ 50 per meal is exempt [If Assessee Opts Out From Default Regime]. 3. Facility of travelling, touring, accommodation (holiday home) etc. Rule 3(7)(ii) a) Perquisite value shall be actual expenditure incurred by the employer, reduced by the amount recovered from the employee b) If the employee is on official tour and any member of his household has accompanied him, perquisite value is amount spent on Family Member  CA Jasmeet Singh Arora 2.8 c) If official tour was extended for personal purpose, expenditure for the extended part of the tour shall be taxable. 4. Gifts to the employees Rule 3(7)(iv) a) Cash Gift = Fully Taxable b) Kind Gift = Exempt Upto Rs 5000 p.a. 5. Credit card facility Rule 3(7)(v) Perquisite Value = Amount spent for personal use of employee. 6. Club facilities Rule 3(7)(vi) Perquisite Value = Amount spent for personal use of employee. 7. Use of employer’s assets by the employees Rule 3(7)(vii) Asset Perquisite Laptop / Computer NIL Other 10% p.a. of actual cost of such asset (or hire charges paid by ER) Less: amount recovered from EE 8. Amount or the aggregate of amounts of any contribution made to the account of the assessee by employer in a recognised provident fund/NPS/approved superannuation fund [Section 17(2)(vii)] The amount or aggregate of amounts of any contribution made a) in a recognised provident fund b) in NPS referred to in section 80CCD(1) c) in an approved superannuation fund by the employer to the account of the assessee, to the extent it exceeds ` 7,50,000 shall be considered as perquisites 9. Annual accretion to the balance at the credit of the recognised provident fund/NPS/approved superannuation fund which relates to the employer’s contribution and included in total income TP = (PC/2)*R + (PC1 + TP1)*R Where, TP = Taxable Perquisite PC = Amt or agg. of amt of ER’s contribution in excess of ₹ 7.5 lakh PC1 = Amt or agg. of amt of ER’s contribution in excess of ₹ 7.5 lakh for earlier years TP1 = Agg. of taxable perquisite under section 17(2)(viia) for earlier yea₹ R = I/ Favg. 10. Any other benefit Rule 3(7)(ix) Perquisite = Cost to the employer – Amount Recovered Note: If the employer has provided telephone facility including the mobile phone, it will be exempt. However if any telephone allowance has been received, then it shall be fully  CA Jasmeet Singh Arora 2.9 taxable. 11. Sale Of Movable Asset Particulars Amount Asset Depreciation Cost of Asset - Computer & Peripherals 50 % WDV (-) Depreciation - Motor Vehicle 20% WDV (-) Amount Recovered From EE - Other Asset 10% SLM Taxable Value - Note: Depreciation in all cases is charged For Complete Year. 12. Medical Facility A. In India Expenses Incurred/ Facility Provided By ER Treatment In ER Hospital Exempt In Govt. Hospital Exempt In Approved hospital For Specified Disease Exempt Health Insurance Premium of EE & Family Member Exempt Any other Taxable B. Outside India Expenses Incurred by ER Treatment Stay Abroad Exempt upto Permitted By RBI Treatment Abroad Exempt upto Permitted By RBI Travel Abroad a) GTI > 2L Fully Taxable b) GTI ≤ 2L Fully Exempt Note: a) Exemption is allowed for medical treatment of EE, Spouse, Children, Dependent family member ( Parents, Brother & Sister) b) Exemption of stay and travel abroad is for patient and one attendant only. c) Exemption is allowed for COVID-19 treatment subject to conditions notified by CG. 13. Leave Travel Concession [Section 10(5) Rule 2B] - [Allowed Only under OLD Regime] Journey Performed By Maximum Exemption Air Economy Fare Other Than Air 1st Class AC Fare Of Railway Places Not connected By Rail a) Recognised Transport System (RTS) Exist Deluxe or First Class Fare of RTS b) No Recognised Transport System (RTS) 1st Class AC Fare Of Railways on the Exist basis of KM Travelled  CA Jasmeet Singh Arora 2.10 Notes: 1. Ceiling on number of journeys: The exemption shall be available to an individual two times in each block of four calendar year (current block is 2022-25) 2. Family”, shall include— A. the spouse and children however exemption shall be allowed maximum 2 children but in case of multiple birth after the birth of one child, exemption is allowed for all the children B. wholly or mainly dependent parents, brothers and sisters PERQUISITES ARE TAXABLE ONLY IN THE HANDS OF SPECIFIED EMPLOYEES 1. Gardener/watchman/ sweeper or any other servant Perquisite = Amount Spent By ER less Amount Recovered from EE 2. Transport Facilities a) ER business is carriage of goods or passengers b) Perq. Shall be Fair Market Value as reduced by Amount Recovered From EE 3. Education facility Nature Of Expenditure Perquisite Training of Employees Not Taxable Education to Family Member Fully Taxable Education to Children of Employees a) school maintained by the ER or the Cost of education IN similar locality school sponsored by the ER / institution as reduced by amount recovered from EE b) Other Schools Cost to the Employer as reduced by amount recovered from EE Note: If the Cost of Education per Child does not exceed ₹ 1,000 p.m. then such benefit is Not Taxable, otherwise fully taxable. 4. Service of Sweeper, Gardener or Watchman or Personal Attendant Perquisite = Amount Spent By ER less Amount Recovered from EE 5. Gas/Electricity or Water Facility Particulars Perquisite ER has his own business Manufacturing cost to the employer Sourced From Third Party Amount Paid To Third Party Amount recovered from EE Shall be Deducted 6. Sweat Equity Share/ESOP a) Perquisite = FMV on Exercise Date – Amount Paid by Employee b) FMV should be taken on the date on which option is exercised by the EE.  CA Jasmeet Singh Arora 2.11 7. Payments Of Life Insurance Premium By The Employer Premium so paid shall be taxable. However premium paid for personal accident policy or for staff group insurance scheme shall be exempt. 8. Motor car faciltity Valuation of Motor Car facility Car Owned By ER And Used By EE Purpose Expenses Perquisite Value Met By Partly Official And Employer Small Car- 1800 Pm For Driver - 900 Pm Partly Personal Big Car- 2400 Pm (Amount Recovered From Ee Is Ignored) Partly Official And Employee Small Car- 600 Pm For Driver - 900 Pm Partly Personal Big Car- 900 Pm (Amount Recovered From Ee Is Ignored) Personal Employer Expenses Incurred By ER - + Driver Salary - + 10% P.A Of Cost Of Car - + Hire Charges Of Car - (-) Amount Recovered From EE - Perquisite Value - Car Owned By EE & Used By EE Purpose Expenses Perquisite Value Met By Partly Official And Employer Expenses Incurred By ER - Partly Personal + Driver Salary - (-) Fixed Personal Expense Small Car (1,800) Big Car (2,400) Driver (900) Perquisite Value - Personal Employer Expenses Incurred By ER - + Driver Salary - (-) Amount Recovered From EE (-) Perquisite Value - Other Vehicle Purpose Expenses Perquisite Value Met By Partly Official And Employer Expenditure By Employer - ₹ 900 P.M Partly Personal  CA Jasmeet Singh Arora 2.12 Note 1: More than one motor car is provided to the employee for official/personal use – Any 1 car shall be treated as used for partly official and partly personal purpose and other car(s) shall be treated as used for personal. Note 2: If car is used for 100% official use then it shall not be considered as perquisite.  CA Jasmeet Singh Arora 3.1 INCOME U/H HOUSE PROPERTY Basis Of Charge (Section 22) 1. Property should consist of any building or land appurtenant thereto 2. Assessee must be the owner or Deemed Owner 3. HP Must be used for any purpose except business or profession of Assessee Note: Annual value of HP held as SIT will also be taxable under this head. However, As per Section 23(5) NAV of HP held as SIT shall be Nil for 2 years from the end of FY in which completion certificate is issued, if Not Let Out for such period. Computation of Income Under House Property Particulars Rs. Gross Annual Value (GAV) - Less: Municipal Tax (MT) Paid By Owner - Net Annual Value (NAV) - Less: Standard Deduction u/s 24(a) - Less: Interest On Capital Borrowed u/s 24(b) - Income U/H House Property - Calculation Of GAV (Section 23) 1. Fair Rent - 2. Municipal Value - 3. Standard Rent - 4. Expected Rent (Higher of 1 or 2 but restricted to 3) - 5. Actual rent Received or Receivable - 6. GAV (Higher of 4 or 5) Note: Municipal Taxes 1. Deducted from GAV if paid by Owner during previous year. 2. Deductible in PY of Payment even if they relate to past years. CASE A. Income Of House Lying Vacant For Some Period 1. Calculate Expected Rent (ER) for whole year 2. Calculate Actual Rent (AR) for Let out period 3. Compare Expected Rent and AR Situation 1: If AR > ER, then GAV = AR. Situation 2: If AR < ER due to vacancy, then GAV = AR. Situation 3: If AR < ER due to other reason, then GAV = ER  CA Jasmeet Singh Arora 3.2 CASE B. Income Of House Let out For Part of the Year & Self Occupied for part of the year 1. Calculate Expected Rent (ER) for whole year 2. Calculate Actual Rent (AR) for Let out period 3. GAV = Higher Of ER Or AR. CASE C. Self-Occupied/Unoccupied House Property (For Maximum 2 House Property) 1. GAV = Nil for 2 houses 2. Deduction of MT Paid shall not be allowed 3. Thus NAV = Nil 4. Interest on capital borrowed allowed subject to maximum 2,00,000 or 30,000 as the case may be. (Only in case of Old regime) Note: Under default regime, no deduction is allowed for interest on capital borrowed of Self occupied property. Hence, income of Self occupied property shall always be nil under default regime. CASE D. More Than 2 House Self Occupied 1. Any 2 Houses Shall be considered as Self occupied and dealt with accordingly. 2. Remaining house(s) shall be Deemed to be Let Out and its GAV Shall be Expected Rent. CASE E. Part (Portion) of the house if Let Out And Other Part (Portion) Is Self Occupied Let Out (LO) Portion Self-Occupied Portion Compute income of let out portion normally 1. GAV = Nil considering Following: 2. Deduction of MT Paid shall not be a) ER shall be Computed for the part of allowed property LO. 3. Thus NAV = Nil b) MT Allowed for the part of property LO. 4. ICB Shall be allowed for the part of c) ICB shall be Allowed for the part of property Self Occupied only under old property LO. regime (Suppose 60% portion is LO and 40% Is Self (Subject To Maximum 30,000/2,00,000) Occupied, then above 3 points shall be calculated for 60% only) Treatment Of Unrealised Rent Actual rent received/receivable should not include unrealised rent if all the conditions are satisfied: a) Tenancy is bona fide; b) defaulting tenant has vacated HP; c) defaulting tenant is not in occupation of another HP Of Assessee; d) Assessee initiated legal steps to recover unrealized rent or satisfy AO that such will be useless. Tax liability in respect of arrears of rent / Recovery of Unrealised Rent (Section 25A) Recovery of unrealized rent or arrears of rent received shall be taxable in the year of receipt after standard deduction of 30%  CA Jasmeet Singh Arora 3.3 Statutory Deduction (Section 24(a)) Section 24(a), assessee shall be allowed a notional expenditure equals to 30% of NAV Interest On Capital Borrowed (Section 24(b)) 1) Pre- Construction Period (From Date Of Loan till the PY preceeding the PY in which construction is completed) – Accumulated Interest is allowed in 5 installments commencing from the year in which construction is completed. 2) Current Year interest (Relevant PY) – Allowed in same previous Year on due basis. Note: 1. Interest on fresh loan taken to repay original loan is allowed. 2. Brokerage/commission for Arrangement of loan is Not allowed. 3. Interest on unpaid interest is Not allowed 4. If loan is taken from o/s India, Interest is deductible only if TDS is deducted Restriction of deduction in case of Self Occupied House property Situation Max. Deduction Loan for acquisition or construction of HP taken on/after 1.4.99 & such Rs. 2 Lakh acquisition or construction is completed within 5 year from end of FY In Which loan is taken. Other Cases Rs. 30,000 Note: ICB in respect of SO property is allowed only under old regime. Co-owned House Property Co-owned Property Is Let Out Co-owned Property is Self Occupied 1. Calculate income of let out property 1. Calculated for each co-owner separately. normally as a single owner. 2. NAV= Nil 2. Income so calculated shall be divided 3. Each co-owner is entitled for deduction of ICB between each co-owner on the basis of of Rs.30,000 or Rs.2 lakh respectively (only in ownership right. case of old regime) Deemed Owner (Section 27) a) Transfer of HP to Spouse Transferor Spouse is deemed to be owner of HP transferred. for Inadequate However, if Transferred under an agreement to live apart, then consideration transferee spouse shall be considered as owner b) Transfer of HP to Minor Transferor is deemed as owner of HP. However, HP is Child for inadequate transferred to a minor married daughter, then deemed consideration ownership not applied. c) Member of a Co-operative Member to whom a building or part thereof is allotted or leased Society under a House Building Scheme of a  CA Jasmeet Singh Arora 3.4 society/company/association, shall be deemed to be owner of that building d) Person in possession of a If possession is received for part performance of the contract, property then person having the possession is deemed owner for income tax purpose e) Holder Of Impartible Deemed as owner of all properties in the estate Estate f) Lease for 12 years or more A person who acquires any building by way of lease for a period of 12 years or more shall be deemed to be the owner of that building.  CA Jasmeet Singh Arora 4.1 PROFITS & GAINS FROM BUSINESS & PROFESSION Section 28 Basis Of Charge 1. The profit of any business or profession carried at any time during the relevant PY. 2. Export incentives.(Cash assistance/ sale of import licence/ duty drawback) 3. Profit on sale of Duty Entitlement Pass Book. 4. The value of any benefit or perquisite arising from business or Profession (Gift received from customers/client) 5. Any interest, salary, bonus, commission or remuneration, received by a partner of a firm from such firm. 6. Non - competing fees a) for not carrying out any activity in relation to any Business b) not sharing any know-how, patent, copyright, trademark, licence, franchise or any other business or commercial right 7. Any sum received by ER under a Keyman insurance policy 8. Income from speculative transaction 9. Amount received in connection with termination or modification of terms and conditions of any Business contracts. 10. If any person has converted any inventory or stock in trade in to a capital asset.( Business Income = FMV on Date of Conversion Note: Meaning of Speculative Transaction It means a transaction in which a contract for the purchase or sale of any commodity including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or securities. Transactions not deemed to be speculative transactions The following forms of transactions shall not be deemed to be speculative transaction: a) Hedging contract in respect of raw materials or merchandise or stocks and shares b) Forward contract c) Trading in derivatives carried out electronically through SEBI registered stockbroker or sub broker or intermediary in a recognized stock exchange. d) Trading in commodity derivatives carried out electronically through a registered member or intermediary in a recognised stock exchange, which is chargeable to commodities transaction tax. However, the requirement of chargeability of commodities transaction tax is not applicable in respect of trading in agricultural commodity derivatives.  CA Jasmeet Singh Arora 4.2 Section 29 How to Compute PGBP The income referred to in section 28 shall be computed in accordance with the provisions contained in sections 30 to 43D. Rent, Rates, Taxes, Repairs and Insurance for Buildings [Section 30] Building Used As Expenses Allowed Tennant Rent, Current Repairs, Municipal Taxes & Insurance Owner Current Repairs, Taxes, Insurance and also Dep (u/s 32) Note: 1. Capital repairs incurred by the owner are not allowed as a deduction but instead, assesse can claim depreciation on such repairs. 2. Capital repairs incurred by tennant is treated as deemed building and depreciation is allowed to tennant. 3. If assessee is owner of building then assessee cannot claim notional rent. Section 31 Deduction relating to plant, machinery & furniture Current Repairs and Insurance related to P/M & Furniture used in business is allowed u/s 31. Rent Paid for P/M & Furniture if taken on hire, shall also be allowed but in u/s 37. Section 32 Depreciation 1. Conditions for claiming Depreciation a) Asset must be owned by the assessee, wholly or partly. b) Asset must be used for the purpose of business or profession. c) Asset must be used during the previous year. If any of the above condition is not satisfied, depreciation shall not be allowed. Note: a) It is mandatory for Assessee to claim depreciation. b) Depreciation is allowed when asset is put to use and not when it is ready to use. 2. Methods Of Depreciation (a) Normal Depreciation For Block Of Assets on WDV basis [Sec 32(1)(ii)] (b) Additional Depreciation For Eligible Asset [Sec 32(1)(iia)] (c) Asset Wise Depreciation For An Undertaking Engaged In Generation or Generation & Distribution Of Power [Sec 32(1) (i)]  CA Jasmeet Singh Arora 4.3 3. Section 2(11): Block of Assets It means a group of assets falling within a class of assets comprising: a) Tangible assets, being building, plant and machinery or furniture b) Intangible assets, being know how, patents, copyrights, trademarks etc. in respect of which same rate of depreciation is charged. 4. Rate Of Depreciation Building Residential Purpose Building other than Hotel 5% Non Residential Purpose Building including Hotel 10% Temporary erections 40% Furniture and Fittings 10% Machinery and Plant Machinery and Plant (General) 15% Motor cars Used in a business of running them on hire Generally 30% Acquired and Put To Use between 23/8/19 – 31/3/20 45% Other than Used in a business of running them on hire Generally 15% Acquired and Put To Use between 23/8/19 – 31/3/20 30% Ships 20% Aeroplanes 40% Computers including computer software and computer peripherals (Excluding 40% Mobile) Books 40% Intangible Assets other than Goodwill 25% 5. WDV For Charging Depreciation Particulars Amount Opening WDV of Block xxx Add: Assets acquired During the previous year Put To Use for 180 days or more xxx Put To Use for Less than 180 days xxx Not Put To Use xxx Less: Money Payable (Selling Price Of Asset) (xxx) Closing WDV Before Depreciation xxx Less: Depreciation actually Allowed xxx Note: If asset is acquired but not put to use, then deprecation on such asset shall not be allowed.  CA Jasmeet Singh Arora 4.4 6. Depreciation allowed at Half Rate Depreciation will be restricted to 50% of the normal depreciation , if the following conditions are satisfied: 1. Asset is purchased and put to use in the same Year. 2. Period of put to use for less than 180 days. 7. When No Depreciation Shall Be Allowed a) All the assets of the block are transferred (Block Ceases To Exist) In case all the assets in any block are transferred during the previous year then the block shall ceases to exist and no depreciation will be allowed. It can happen in the following two cases: i. Sale price exceeds (Op. WDV + Assets purchased during the year ) STCG u/s 50 = Sale Price - (Op. WDV + Assets purchased during the year) ii. Sale price < ( Op. WDV+ Assets purchased during the year then) STCL u/s 50 = Sale Price - (Op. WDV + Assets purchased during the year) b) Part of block is sold and the sale consideration of assets exceeds block Value i. Sale price > ( Op. WDV + Assets purchased during the year ) ii. Although certain assets exist in block, but the WDV of the block shall be reduced to NIL and no Depreciation shall be allowed. iii. Excess shall be treated as short-term capital gain. 8. Additional depreciation on new machinery or plant [Section 32(1)(iia)] – Only For Old Regime A. Condition: (i) An assessee is engaged in the business of manufacture or production of any article or thing. (ii) An assessee who is in the business of generation transmission or distribution of power. B. Assets for which additional depreciation is allowed: Any new machinery or plant which has been acquired and installed. However , additional depreciation shall not allowed for: (i) Ships and aircraft; (ii) Second Hand Plant/Machinery ;or (iii) Any machinery or plant installed office or residential accommodation or office appliances or road transport vehicles; (iv) Any machinery or plant , the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) C. Additional depreciation shall be allowed @ 20% in the first year in which it is put to use. However, if the asset is put to use for less than 180 days, then additional depreciation is  CA Jasmeet Singh Arora 4.5 allowed @ 10% in the first year, and balance of 10% shall be allowed in the immediately succeeding PY. 9. Actual cost It means, a) Actual cost of the asset to the assessee, and b) It should not include any portion of the cost which has been incurred directly or indirectly by any other person or authority. Important points to remember 1. If the assessee makes a payment or aggregate of payment more than INR 10,000 to a person in a day, by mode other than an A/c payee cheque, A/c payee bank draft, or electronic clearing system through a bank account, such payment shall be ignored for the purpose of determination of actual cost. 2. Interest paid before commencement of production on amounts borrowed for acquisition and installation of machinery forms the part of actual cost. Actual cost in certain special situations [Explanations to section 43(1)] Situation Actual Cost Acquisition of Asset: Where assessee himself Purchase Price acquires the asset. Add: (a) Interest on Loan for the period upto the date of usage of the asset (b) Freight and Insurance (c) Loading, Unloading Charges (d) Installation and Erection Charges Less: (a) Any amount met by any Authority or any other person by way of Subsidy or Grant, (b) GST ITC Credit availed Assets used in Scientific Research Nil. As Asset Cost wholly deductible u/s 35 subsequently put into use for business. Conversion of Stock into Capital Asset FMV which has been taken into account for the purpose of Sec.28(via) Asset received under Gift, Will or WDV to the Previous Owner. Inheritance. Acquisition of Second Hand asset to claim Cost as determined by the AO, having regard depreciation on enhanced cost to reduce tax to circumstances of the case, with the prior liability, in the opinion of A.O. approval of Joint Commissioner of Income Tax. Transfer and Re-acquisition: Transfer of an WDV at the time of Original Transfer or asset and re-acquisition of the same. repurchase price, whichever is less.  CA Jasmeet Singh Arora 4.6 Sale and Lease Back: Sale of an asset to the WDV to the Transferor. Lessor and taking them back on lease. Building used for private purpose and Cost of Acquisition or Construction subsequently put into use in business Less: Notional / Deemed Depreciation for the period of personal use. Assets brought into India by a Non-Resident. Actual Cost of Acquisition Less: Notional Depreciation for the period held outside India Receipt of Subsidy / Grant / Reimbursement Actual Cost shall be reduced by cost as for the acquisition of asset from Central related with such Subsidy/ Grant / Government or State Government Reimbursement 10. Depreciation On SLM Basis Assessee Engaged in Generation, transmission, Distribution of Power Time to Before RFD u/s 139(1) of PY in which they begin to generate power. The Exercise option once exercised shall not be reversed. Note: Option of SLM is For Tangible Assets only; For Intangible Assets only WDV is applicable. Depreciation can be charged on tangible assets individually; i.e SLM/WDV whichever is more beneficial. Sale of Asset By Assessee Engaged In Power Generation Case 1: Sale Value < Book Value Terminal Depreciation (Dr. to P/L) = Book Value – Sale Value Case 2: Sale Value > Book Value But ≤ Actual Cost Balancing Charge (Cr. To P/L) = Sale Value – Book Value Case 3: Sale Value > Actual Cost Balancing Charge (Cr. To P/L) = Actual Cost – Book Value LTCG/STCG Depending on Period of Holding = Sale Value – Actual Cost 11. Carry forward and set off of unabsorbed depreciation If Depreciation claim is more than profits before depreciation, then excess depreciation shall be deducted to the extent profits available and excess shall be c/f as unabsorbed depreciation. After C/F Following shall be the order of setoff (i) PY Depreciation (ii) B/f Business Loss (iii) C/F Unabsorbed Depreciation Section 35 Scientific Research 1. In-house Research ( Research – Related To Business) Assessee All Assessees  CA Jasmeet Singh Arora 4.7 Research 100% of revenue as well as capital expenditure incurred during the During PY previous year shall be allowed as deduction except capital expenditure on purchase of LAND. Research Exp Incurred upto 3 years before the commencement of business shall before be allowed in the year of commencement of business. commencement Revenue Expenditure – Only Salary (Excluding Perq) + Material of business Note: Other Revenue Exp Not Allowed Capital Expenditure – Allowed Except LAND 2. Sale of assets used for scientific research Section 41(3) Asset Sold Without Being Put to use for business purpose: a) Sale Value ≤ Actual Cost, then sale value is Business Income b) Sale Value > Actual Cost, then actual value is business income and difference between sale value and actual cost shall be STCG/LTCG depending upon period of holding Asset Sold After Being Put to use for business purpose: Asset will be added to the respective block with NIL value and deducted from the block with sale value 3. Carried forward of unadjusted capital expenditure of scientific research If profit before deducting capital expenditure on scientific research is less than capital expenditure on scientific research, then excess capital expenditure is carried forward. Revenue expenditure on Scientific Research is always allowed irrespective of availability of profits. 4. Contribution To Outside Agency (Research – Business Relation not compulsory) – Old Regime Donation given to an Approved scientific research association 100% Donation is given to an Indian company approved for the purpose of scientific 100% research or to any approved institution social science or statistical research. Donation is given to IIT/National Laboratory for scientific research 100% Section 35AD Deduction in case of Specified Businesses – Only For Old Regime 1. Specified business means Specified Business Commencement (a) Laying & operating a cross-country Natural Gas or Crude or Petroleum on or after Oil Pipeline Network for distribution, including Storage Facilities being an 01.04.2007 integral part of such network. (b) Setting up and operating a Cold Chain Facility, on or after 01.04.2009  CA Jasmeet Singh Arora 4.8 (c) Setting up and operating a Warehousing Facility for storage of on or after Agricultural Produce. 01.04.2009 (d) Building and operating a Hotel of two star or above category as on or after classified by the Central Government. 01.04.2010 (e) Building and operating a Hospital with atleast 100 beds for patients. on or after 01.04.2010 (f) Developing and building a Housing Project under a scheme for on or after Affordable Housing Slum Redevelopment or Rehabilitation Scheme 01.04.2010 framed by Central or State Government and notified by CBDT. (g) Developing and building a Housing Project under a scheme for on or after Affordable Housing framed by the Central Government or State 01.04.2010 Government and notified by CBDT (h) New Plant or in newly installed capacity in an existing Plant, for on or after production of Fertilizer. 01.04.2010 (i) Setting up and operating an Inland Container Depot or Container on or after Freight Station notified or approved under the Customs Act. 01.04.2012 (j) Bee-keeping and production of Honey and Beeswax. on or after 01.04.2012 (k) Setting up and operating a Warehousing Facility for storage of Sugar. on or after 01.04.2012 (1) Laying and operating a Slurry Pipeline for the transportation of Iron on or after Ore. 01.04.2014 (m) Setting up and operating Semi-Conductor Wafer Fabrication on or after Manufacturing Unit notified by CBDT. 01.04.2014 (n) Business of developing or maintaining and operating or developing, On or after maintaining and operating a New Infrastructure Facility 01.04.2017 2. Deduction: 100% of capital expenditure except (Land, Goodwill and financial instrument). Also expenses incurred before commencement of business shall be allowed if capitalized in books of accounts. 3. However, Any Expenditure for Acquisition of any Asset for which aggregate payment made to A Person in A Day, otherwise than by A/c Payee Cheque/Draft or Electronic clearing system is more than Rs. 10,000 , then such payment Not Eligible for Deduction u/s 35AD 4. Conditions to claim Deduction u/s 35AD: a) Business Not Formed by Splitting/Reconstruction of Existing Business b) Not Formed by Transfer of Used P&M ( However, Used P&M is Allowed upto 20%)  CA Jasmeet Singh Arora 4.9 c) Asset must be used in business for 8 AY for which deduction Is claimed u/s 35AD otherwise, in the year of sale or put to use in other business shall be business income which is equals to: PGBP Income = Total Deduction Claimed (i.e. Cost of Asset)– Deemed Depreciation. Section 35D Preliminary Expenditure 1. Meaning: Preliminary expenses are expenses incurred before setting up of the business; or the expenses are incurred in connection with extension (same line of business) of an undertaking or in connection with setting up a new business. (Setting up new factory, opening a new branch) 2. Assessee: The Assessee should be an -Indian Company, or Non-Corporate Resident Assessee. 3. Eligible Expenses: (i) Preparation of feasibility report (ii) Conducting market survey or any other survey necessary for the business. (iii) Preparation of project report. (iv) Engineering services relating to the business. (v) Legal charges for drafting any agreement relating to the setting up or conduct of the business. (vi) Legal charges for drafting and printing of Memorandum of Association (MOA) and Articles of Association (AOA). (vii) Registration fees of a company paid to Registrar of Companies. (viii) Expenses and legal charges incurred in drafting, printing and advertising of prospectus. (ix) Expenditure incurred on issue of shares or debentures like underwriting commission, brokerage, advertisement etc. Note: Salary to employees, rent of premises, interest on borrowed capital are not treated as preliminary expenses hence deduction never allowed. These are treated as dead expenses. 4. Deduction (i) An Indian company Lower of following shall be allowed as deduction in 5 equal installments (a) Aggregate Amount of eligible expenditure or (b) 5% of the cost of project or 5% of the capital employed-whichever is higher (ii) a resident non-corporate assessee. (a) Aggregate Amount of eligible expenditure or (b) 5% of the cost of project whichever is lower is allowed as deduction in 5 equal installments 5. Note: a) Cost of project includes actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on  CA Jasmeet Singh Arora 4.10 development of land and buildings). b) Capital employed is the aggregate of the issued share capital, debentures and long-term borrowings c) Reserve and Surplus including security premium shall not be part of Capital Employed. Section 35DDA Amortisation of expenditure incurred under Voluntary Retirement Scheme If any employer has given voluntary retirement to the employees and has paid any Amount in connection with such voluntary retirement, such payment shall be allowed to assessee in 5 annual equal installments commencing from the year in which payment is made. Section 36 Other Deductions The following expenses are allowed to be debited in the profit & Loss Account 1. Insurance Premium a) Stock (including livestock) b) Medical Insurance of EE (provided not paid in cash) 2. Bonus Or Commission Paid to the EEs [not payable as dividend], subject to section 43B. Note: there is no restriction on the amount of the bonus, it may exceed the bonus payable under the Payment Of Bonus Act, 1965 3. Interest On Loan taken for business or profession. However, if a loan is taken from a scheduled bank or financial institution including NBFC, deduction is allowed subject to section 43B. Note: loan taken for asset – Interest prior to the date the asset is put to use is capitalized and depreciation is allowed. 4. Discount on Zero coupon bonds is allowed on a pro-rata basis over the life of ZCB. 5. ER contribution to 1. Statutory Provident Fund Allowed subject to 2. Recognized Provident Fund the provisions of 3. Approved superannuation fund Section 43B i.e. if 4. Approved gratuity fund paid upto RFD 5. Any other Approved Fund 6. ER Contribution to NPS referred u/s 80CCD, lower of following shall be allowed as deduction: i) Amount contributed ii) 10% of RBS 7. EE contribution deducted by the ER from his salary will be allowed if ER Deposited the amount in the relevant account upto the due date in the relevant Act (i.e. 15th of Next Month) Note: if the amount is deposited after the due date of the Fund, then such amount shall be considered as PGBP income of ER and never be allowed as deduction to ER. 8. Bad Debts Bad debts written off from the books of accounts – allowed as a deduction Note: Such debts have been taken into account for computing income of PY or any earlier PY. Provision for bad debts is not allowed as a deduction.  CA Jasmeet Singh Arora 4.11 Bad Debts recovered – Income of recovery year, whether or not business or profession is in existence. 9. Family planning Expenditure is allowed to company assessee as follows Revenue Expenditure Full Capital Expenditure In 5 Installments If Sufficient profit is not available then expenditure (R/C) shall be deducted to the extent of profit available. 10. STT/CTT paid is allowed as deduction if securities/commodities are held as stock in trade. SECTION 37(1) GENERAL DEDUCTIONS If any expenditure is not covered under section 30 to 36, then such expense shall be allowed under this section subject to following conditions: (a) Expenditure is of revenue nature (b) Expenditure is incurred for the purpose of business and profession. Various expenditure which may be allowed under section 37(1) are as given below: 1. Expenditure in connection with advertisement. If the expenditure incurred is capital nature, depreciation is allowed. 2. Expenditure on travelling including the expenses of boarding and lodging in connection with business/profession. 3. Salary paid to the employees. 4. Expenditure in connection with entertainment of the employees or the customer 5. Expenditure in connection with opening ceremony (Mahurat) of the business/profession. 6. Expenditure on the occasion of various festivals like Diwali etc. for employees or customer 7. Interest on late payment of GST. 8. Expenditure in connection with legal proceedings. 9. Professional tax paid by a person carrying on business or profession. 10. Expenditure on the filing of return of income, filing of appeal or audit fee etc. is allowed. 11. Expenditure incurred on Keyman insurance policy 12. Any other expenditure which is revenue in nature and it is related to business or profession. Following expenses are not allowed as deduction: a) CSR expenses incurred by company. b) advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. c) Penalty for breach of law. Note: Penalty for breach of contract – Allowed as deduction. d) Interest on loan taken for payment of income tax e) Illegal expenses like, hafta, bribe etc.  CA Jasmeet Singh Arora 4.12 SECTION 38 EXPENDITURE WHICH ARE PARTLY IN BUSINESS USE AND PARTLY IN PERSONAL USE If any person has any asset in business or profession as well as in personal use, expenditure is allowed only to the extent the asset is in the use of the business or profession Expenses Not Allowed As Deduction Payments on Which TDS Provisions Apply Disallowance will be attracted if any of the following conditions are satisfied: a) TDS not Deducted upto last day of Relavant PY b) TDS Not deposited with govt. upto return filing date u/s 139(1). Disallowance shall be: Section Payment To Disallowance 40(a)(i) Payment to any person O/S India or in India to Non-resident 100% 40(a)(ia) Payment In India To Resident 30% Disallowed amount shall be allowed in the year in which TDS is deposited with GOVT Section 40(a)(iii) Any sum which is chargeable under the head ‘Salaries’ if it is payable outside India or to a non- resident and if the tax has not been paid thereon nor deducted. Section 40(a)(v) Tax paid on perquisites on behalf of employees is not deductible- In case of an employee, deriving income in the nature of perquisites (other than monetary payments), the amount of tax on such income paid by his employer is exempt from tax in the hands of that employee. Correspondingly, such payment is not allowed as deduction from the income of the employer. SECTION 40(b) PAYMENT OF SALARY OR INTEREST TO THE PARTNERS (a) Interest to the partner is allowed if mentioned in the partnership deed but maximum @ 12% p.a. (b) Payment of salary, bonus, commission or any other remuneration is allowed to the working partner subject to the following limits: Book Profit(BP) Max. Remuneration Upto Rs. 3,00,000 90% of BP or Rs. 1.5 Lakh, whichever is higher Beyond Rs. 3,00,000 60% of BP Meaning Of BP Particulars Amount Profit as per Income Tax -  CA Jasmeet Singh Arora 4.13 Add: Remuneration to Partner ( if debited to P/L) - Less: Brought forward Depreciation (Unabsorbed Dep) (-) Book Profit - Note: Brought forward losses shall not be adjusted for calculation of Book Profit. Section 40A(2) Payment Made To Relatives If A.O is of the opinion that having regard to FMV, payment is excessive or unreasonable, then such excessive or unreasonable payment shall be disallowed. Meaning of Related Person 1. For An individual → An individual who is relative of the assessee. Relative, in relation to an “individual”, means the spouse, brother or sister or any lineal ascendant or descendant of that individual [Section 2(41)]. 2. For A Company → Director of the company or any relative of a director 3. For A Firm → Partner of the firm or relative of a partner 4. For An AOP → Member of the AOP or relative of a member 5. For An HUF → Member of the family or relative of such person Section 40A(3) Payment by non specified Mode A Payment or Aggregate of Payments made to A Person in A Day for An Expenditure exceeds Rs. 10,000 (Rs. 35,000 to Transporter for Goods Carriages], Entire payment shall be disallowed If it is made through any mode other than A/C payee cheque/Draft or an Electronic clearing system through bank A/C, Debit/Credit Card, IMPS, NEFT, RTGS, Net Banking, UPI etc. Rule 6DD (exception to S.40A(3)) no disallowance for following payments: 1. Payments made to Cultivator, Grower or Producer of agricultural produce & related products etc 2. Payment made to Government, Banks, RBI, LIC 3. Payment to person residing @ place which is not served by bank. 4. Where the payment is made by any person to his agent who is required to make payment in cash for goods or services on behalf of such person; 5. Payment to employee for retirement benefit not exceeding Rs.50,000 6. Where the payment is made for the purchase of the products manufactured in a cottage industry, to the producer of such products. 7. Where the payment is made by transferring funds from one bank account to the other or payment is being made by any credit card/ a debit card/ letter of credit etc., payment is allowed. Note:  CA Jasmeet Singh Arora 4.14 1. If Expenditure has been allowed as deduction in any earlier PY on accrual basis (if assessee is following accrual basis) & payment for such expenditure has been made in any subsequent PY exceeding Rs. 10,000/35,000 in cash to a person in a day, then such payment shall be deemed to be the income of PY in which payment is made [Section 40A(3A)] 2. Sec 40A(3) does not Apply for Repayment of Loans (Capital Expenditure). But it applies to interest payments since interest is a Revenue expenditure. Section 40A(7) Deductibility in respect of provision for Gratuity Fund If provision (contribution) is made towards approved gratuity fund, then such provision is allowed as per Section 36(1)(v) subject to section 43B. However If provision (contribution) is made towards unapproved gratuity fund, then such provision is disallowed under Section 40A(7). Section 43B Certain Payments Allowed On Payment Basis Following expenditures are allowed if paid on or before the due date mentioned u/s 139(1): a) Tax, Duty, Cess or Fee (by whatever name called) levied under any law. b) Employer’s Contribution to any SPF, RPF, Approved Superannuation Fund, Approved Gratuity Fund, Notified Pension Scheme or any recognized fund c) Leave Salary, Bonus/Commission to employees. d) Interest on any Loan or borrowing from any Bank, Financial Institution including NBFC. e) Any Sum Payable to Indian Railways for the use of Railways Assets. Note: 1. If the payment is made after due date of filing of return of income, expenditure is allowed in the year in which the assessee has made the payment. 2. If outstanding interest on any loan or borrowing or advance, is converted into a new loan or borrowing or advance, shall not be considered as paid and hence not eligible for deduction. However, deduction shall be allowed for installments actually paid in respect of new loan. 3. Similarly if outstanding interest is converted into debentures, such conversion is not to be considered as actual payment. Amendment By FA 2023 Any sum payable by the assessee to MSME beyond the time limit specified in section 15 of the MSME Development Act, 2006 would be allowed as deduction only in that previous year in which such sum is actually paid. As per section 15 of the MSME Development Act, 2006, payment is to be made to the supplier as follows: (a) in case of written agreement- as per agreement subject to maximum 45 days from the date of  CA Jasmeet Singh Arora 4.15 acceptance of goods and service (b) in case of no written agreement- maximum 15 days. Section 44AA Compulsory Maintenance Of Books Of Accounts 1. Assessee engaged in Specified Professions Gross receipts exceeds INR 1.5 Lakh in each of Gross receipts doesn’t exceeds INR 1.5 Lakh the last three PY in each of the last three PY Prescribed Books as per Rule 6f Necessary books to enable AO to assess the income. Specified Profession 1. Legal profession 7. Interior decoration 2. Medical profession 8. Authorised representatives 3. Engineering profession 9. Film artists 4. Architectural profession 10. Company Secretary 5. Profession of accountancy 11. Information Technology 6. Technical consultancy 2. Assessee engaged in other Profession or Business Required to maintain such books of a/c which will enable ao to compute their taxable income if any of the following conditions are satisfied in ANY ONE of the last 3 PY: Individual / HUF Other Assessee 1. Income exceeds INR 2.5 Lakh INR 1.20 Lakh 2. Turnover or Gross Receipts exceeds INR 25 Lakh INR 10 Lakh 3. If a person fails to maintain books of account as required by section 44AA → penalty of Rs. 25,000 would be attracted u/s 271A. 4. Prescribe books as per Rule 6F (i) a cash book; (ii) a journal (iii) a ledger; (iv) Carbon copies of bills and receipts in relation to sums exceeding Rs. 25; (v) Original bills and receipts of expenditure. 5. Preservation of the books of accounts The books of accounts are to be kept and maintained for the period of atleast 6 years from the end of the relevant assessment year. Section 44AB Compulsory Audit Of Books Of Accounts Assessee Engaged In Audit Requirement  CA Jasmeet Singh Arora 4.16 Business Turnover exceeds 1 Crore Proviso to Section 44AB(a) Inserted : NO AUDIT Upto 10 Crore Turnover if : a) If Turnover of assessee is more than 1 crore but upto 10 crore b) Aggregate of all Amounts received in cash is not more than 5% of total Receipts during the PY, and c) Aggregate of all Amounts paid in cash is not more than 5 % of total payments during the year. Profession Gross Receipts exceeds 50 Lakh Persons covered under S. If such person claims that his income is LOWER than Income 44AD, 44ADA,44AE computed on Presumptive basis & his Income Exceeds Basic exemption limit. Penalty for failure to get books of account audited u/s 271B: a) 0.5% of Total Sales, Turnover Or Gross Receipts b) Rs. 1,50,000 Presumptive Taxation Section 44AD PROFITS AND GAINS OF BUSINESS ON PRESUMPTIVE BASIS 1. Eligible Assessee: Resident Individual/ HUF / Firm except LLP 2. Section 44AD is applicable only to business and not to specified profession and also it is not applicable for the persons having earning as commission or brokerage or Agency Business. 3. Turnover of eligible assessee doesn’t Exceed 2 crore (3 crore, if aggregate cash receipts in relevant P.Y. is upto 5% of T.O. or G.R.) 4. Presumptive Income = 8% of Turnover or Gross Receipts. No further deduction is allowed under section 30 to 38. Rate of 6% shall be applied instead of 8% if the Amount of total turnover or gross receipts which is received through specified mode upto RFD as per section 139(1). 5. Brought forward business loss is allowed to be adjusted from such income but brought forward depreciation is not allowed to be adjusted from such income. 6. If Assessee opts Section 44AD, then assessee shall be exempt from maintaining books of accounts as well as from audit requirement. 7. Such assessee shall be required to pay advance tax to the extent of 100% of tax liability on or before 15th March of the relevant previous year 8. If an assessee has opted for presumptive income under section 44AD and in the subsequent 5 years he has rejected presumptive income, in that case he will not be allowed to opt for presumptive income for next 5 year If assessee has rejected the presumptive income, he will be required to maintain any books of accounts and also audit is required.  CA Jasmeet Singh Arora 4.17 SECTION 44ADA PRESUMPTIVE SCHEME FOR SPECIFIED PROFESSION 1. Eligible Assessee: Resident Individual or Partnership excluding LLP having specified profession 2. Section 44ADA shall be available if G.R. of PY is upto Rs. 50 Lakhs (75 akhs if aggregate cash receipts in relevant P.Y. ≤ 5% of total gross receipts) 3. Presumptive Income = 50% of Gross Receipts. No further deduction is allowed under section 30 to 38. 4. Brought forward business loss is allowed to be adjusted from such income but brought forward depreciation is not allowed to be adjusted from such income. 5. If Assessee opts Section 44ADA, then assessee shall be exempt from maintaining books of accounts as well as from audit requirement. 6. Such assessee shall be required to pay advance tax to the extent of 100% of tax liability on or before 15th March of the relevant previous year. 7. Assessee can change the option on a year-to-year basis. Section 44AE BUSINESS OF PLYING, HIRING OR LEASING GOODS 1. If any person is engaged in the business of plying, hiring or leasing goods carriages, he will have the option to compute PGBP on presumptive basis: a) Heavy goods Vehicle (Gross Weight > 12,000 Kgs or 12 Tons) → Rs. 1,000 per ton per month or part thereof. b) Other vehicle: Rs. 7,500 per month or part thereof. Note: income is calculated on the basis of ownership of vehicle. It is irrelevant whether assessee actually runs the vehicle or not. 2. Assessee should not own more than 10 vehicles at anytime during the year. 3. No further deduction is allowed under section 30 to 38 but in case of a firm interest and salary to partners is allowed as per section 40(b). 4. The assessee shall be exempt from maintaining books of accounts or audit. 5. The assessee has the option to reject presumptive income but in that case assessee should maintain any books of accounts and also audit is required. 6. An assessee, who is in possession of a goods carriage, whether taken on hire purchase or on instalments, shall be deemed to be the owner of such goods carriage. 7. Assessee can change the option on year-to-year basis. 8. Brought forward depreciation shall not be allowed to be adjusted but brought forward business loss shall be allowed to be adjusted.  CA Jasmeet Singh Arora 5.1 INCOME UNDER THE HEAD CAPITAL GAINS Chargeability of capital Gains [Section 45(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be deemed to be the income of the previous year in which the transfer took place. Capital assets Section 2(14) A. Capital asset" includes all assets Except i) any stock-in-trade ii)Personal movable effects. However, following personal movable assets shall be capital asset— (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. iii) Rural Agriculture Land. iv) Gold Deposit Bonds B. ULIP issued on or after 1.2.2021 where premium or aggregate premium payable exceed ₹ 2,50,000 C. Any securities held by a Foreign Institutional Investor Types Of Capital Assets Short-term capital asset = Capital asset held by an assessee for not more than 36 months, except in the following cases: Short Term Upto 12 months Short Term Upto 24 months (a) Shares Listed in Recognised Stock Exchange; a) Land or Building or both (b) A unit of the Unit Trust of India or an equity oriented b) Unlisted Shares mutual fund; (c) A zero coupon bond (d) Any other security listed in a recognized stock exchange in India Computation of Short term Capital Gains & Long Term Capital Gains [Section 48] Short Term Capital Gain Amount Long Term Capital Gain Amount Full Value Of Consideration - Full Value Of Consideration - Less: Transfer Expenses - Less: Transfer Expenses - Net Consideration - Net Consideration - Less: Cost Of Acquisition (COA) - Less: Indexed COA - Less: Cost Of Improvement - Less: Indexed COI - (COI) Gain Before Exemption - Gain Before Exemption - Less Exemption Claimed - Less Exemption Claimed -  CA Jasmeet Singh Arora 5.2 STCG Taxable - LTCG Taxable - ICOA /ICOI means the cost adjusted as per cost inflation index ICOA = COA x Inflation Index Of Transfer Year / Inflation Index Of purchase year ICOI = COI x Inflation Index Of Transfer Year / Inflation Index Of improvement year Expenditure incurred on transfer of asset is allowed as deduction. For example Brokerage on transfer of asset etc. However STT paid at the time of purchase as well as at the time of transfer of share shall be ignored. Land & Building are separate assets under capital gain. If land is purchased before 2 years and building has been constructed within 2 years then while calculating capital gain, we have to calculate separate capital gain for both assets. Being land is held for more than 24 months there shall be LTCG, whereas building is held for upto 24 months there shall be STCG. Asset purchased before 01.04.2001 If any capital asset has been purchased or constructed before 01.04.2001, in that case cost of acquisition shall be Higher Of: a. Actual Cost of Acquisition. b. FMV as on 1/4/2001. Note: In case of land and building, COA shall not exceed SDV as on 1/4/2001 COI Shall be Considered only if incurred on/after 1/4/2001 COI by Previous Owner shall also be Considered If incurred after 1/4/2001 Section 2(47) Meaning of Transfer 1. The sale, exchange or relinquishment of the asset. 2. The extinguishment of any rights therein. Extinguishment covers destruction of the assets. E.g. Termination of a lease; redemption of preference shares/debentures. 3. The compulsory acquisition of the asset by the govt. 4. Conversion of asset into stock-in-trade. 5. Possession of any immovable property in part performance of a contract. 6. Any transaction which has the effect of transferring, or enabling the enjoyment of, any immovable property. [it is by becoming a member in a co-operative society, company or other association of persons] 7. Maturity or redemption of zero coupon bond. Section 47. What is not transfer (i) Gift, will or inheritance of property (ii) Distribution of capital assets on the partition of a Hindu Undivided Family. (iii) Conversion of bonds/debentures into shares of that company Notes: a) COA of shares shall be COA of that part of debentures which is so converted. b) POH of shares shall include POH of debentures.  CA Jasmeet Singh Arora 5.3 (iv) Conversion of preference shares into equity shares of that company. Notes: a) COA of equity shares shall be COA of that part of preference shares which is so converted. b) POH of equity shares shall include POH of preference shares. (v) Transfer of capital asset in a transaction of reverse mortgage. Note: any amount received by senior citizen under this scheme is fully exempt. Section 49(1). Deemed cost of acquisition In case the asset is acquired through a mode given in section 47 (Gift to relative or will) then cost of acquisition is cost to the previous owner. Previous owner is the person who acquires the asset by paying the price. Period of holding shall be computed from the date the previous owner acquires the asset. Treatment Of Advance Money Forefieted Forfeited Before 1.4.2014 Reduced from Original COA before Indexation Forfeited on/after 1.4.2014 Taxable u/h IFOS u/s 56(2)(ix) No Indexation In Following Cases 1. Zero Coupon Bonds 2. Debentures/ Bonds 3. Slump Sale [Section 50B] 4. Depreciable Assets 5. Long term capital assets specified u/s 112A. [AY 2019-20]. Capital Gain In Case Of Deemed Transfer Particulars Destruction of CA Conversion of CA into Capital Contribution By [Section 45(1A)] SIT [Section 45(2)] Partner [Section 45(3)] Sale Insurance FMV of CA on Date of Value of CA recorded in Consideration Compensation Conversion Firm books. Deemed In The PY of In The PY of Year of contribution Transfer Destruction conversion Taxability PY of Receipt of PY in which SIT is PY in which CA is given Money sold/transferred & not to firm in PY of Conversion into SIT Note : in all of the above cases, Indexation (in case of long term Asset) shall be done upto the year of Transfer.  CA Jasmeet Singh Arora 5.4 Compulsory Acquisition of Capital Asset [Section 45(5)] Full value Of Consideration Compensation Fixed Taxability Year in which initial compensation is received. If compensation is received in installments, then also Entire Capital Gain on Total Compensation is taxable in PY of receipt of 1st Instalment Transfer Year In which asset is compulsorily acquired. Indexation Shall be done upto the year of transfer Enhanced compensation Taxable in the year of receipt after deducting litigation expenses. Capital Gain In Case Of Specified Agreement [Section (45(5A)] Transaction Cap. Gain on Transfer of L&B or Both under Specified Agreement Applicable to Individual & HUF Taxability Year In which completion certificate is received Transfer Date of handing over the possession to real estate developer FVC SDV of share in project as on date of receiving completion certificate as increased by money consideration(if any) Consequences of Transfer before Date of Issue of Completion Certificate: Benefit u/s 45(5A) is not available if the assessee transfers his share in a project on/before the issue of the completion certificate to any person. In such case, CG shall arise in the year of such transfer. In such case, section 45(5A) will not apply and FVC shall be as per S.50C. FVC In Case Of Transfer Of Land or building or Both [Section 50C] If SDV exceeds 110% Of Sales Consideration Yes NO FVC = SDV FVC = Actual Sales Consideration If the Date of agreement and date of registration is different and advance has been received by specified mode at the time of agreement Yes NO SDV as on the ‘agreement date’ shall be SDV as on the ‘registration date’ shall be considered considered  CA Jasmeet Singh Arora 5.5 If the case is referred to the valuation officer then the following shall be the situations and FVC. Value adopted by Valuation officer FVC Exceeds SDV SDV i.e. Valuation Officer value is ignored. Doesn’t exceed SDV But Exceed Actual Sale Value adopted by Valuation officer Value Is less than Actual Sale Value Actual Sales Consideration COA Of Self Generated Assets COA COI Brand name & Trademark associated with the business or profession Nil NA Tenancy rights Nil NA Goodwill of a business or profession Nil Nil Right to manufacture, produce or process any article or thing, for a Nil Nil consideration (Patent) Right to carry on any business or profession Nil Nil Note : i. If the asset is purchased then purchase price is the COA. In case of goodwill of a business or profession on which depreciation is claimed, the cost of acquisition of such goodwill would be the amount of the purchase price as reduced by the total amount of depreciation (upto P.Y.19-20) obtained by the assessee u/s 32(1) ii. FMV as on 1-4-2001 is ignored. Capital Gain In Case Of Slump Sale [Section 50B] When whole unit is sold at lumpsum without valuing each asset individually is termed as Slump Sale. FVC Higher of: Sales Consideration Received OR FMV of capital Asset transferred COA Net worth of unit. However, if any asset has been revalued, then such revaluation shall be ignored If unit is sold after holding for more than 36 month, then capital gain shall be long term capital gain otherwise short term capital gain. However, No indexation benefit shall be available even in the case of long term capital gain.  CA Jasmeet Singh Arora 5.6 Capital Gain In Case Of Depreciable Asset 1. All the assets of the block are transferred: In case all the assets in any block are transferred during the previous year then the block shall ceases to exist and no depreciation will be allowed. It can happen in the following two cases: b. STCG u/s 50 When Sale price > Block Value c. STCL u/s 50 When Sale price < Block Value 2. Part of block is sold and the sale consideration of assets exceed block Value STCG u/s 50 When Sale price > Block Value Capital Gain In Case Of Sale Of Share A. In case of original shares, cost of acquisition shall be the actual cost but if it was purchased before 1/4/2001, cost of acquisition shall be the actual cost or FMV as on 01.04.2001, whichever is higher. B. In case of bonus shares, cost of acquisition shall be nil but if bonus shares are issued before 01.04.2001, COA = FMV on 1/4/2001 C. In case of right shares, cost of acquisition shall be the amount for which such shares have been purchased. D. If right to purchase right shares has been renounced, amount received shall be considered to be short term capital gains. E. Cost of acquisition for the right renouncee shall be the amount paid to the person renouncing the right and amount paid to the company. Listed Equity Shares Sold Through Recognized Stock exchange and Security Transaction Paid 1. STCG: As per section 111A, such capital gains shall be taxed @ 15%. 2. LTCG: As per section 112A, such capital gains shall be taxed @ 10% in excess of ₹ 1,00,000 and indexation is not applicable also no deduction under chapter VI A is allowed. 3. Cost of Acquisition in case of Capital Gains u/s 112A As per section 55(2) (ac), In case of equity shares or units of equity oriented mutual funds or units of business trust which have been sold w.e.f. 01.04.2018 onwards, cost of acquisition shall be higher of: a. Cost of acquisition b. Lower of i. Fair market value of such asset on 31.01.2018 (Highest Quoted Price) ii. Actual sale value.  CA Jasmeet Singh Arora 5.7 Exemptions S. 54 S.54B S.54D Asset LT – Residential House Agriculture land L/B – Industrial Transferred Property (Urban) Undertaking Compulsory Acquired Assessee Individual / HUF Individual / HUF Any Assessee Investment New Residential House New Agriculture Land New Land /Building Property (Note 1) (Urban/Rural) for Industrial Undertaking Time Limit For Purchase – within 1 yr Within 2 years from Within 3 years from Invest. before or within 2 year Transfer Date Date of Receipt of From t