Taxation Notes
Taxation Notes
Taxation Notes
POST-MID SEM
1. HOUSE PROPERTY
2. PGBP
3. CAPITAL GAIN
4. OTHER SOURCES
5. CLUBBING OF INCOME
6. SET-OFF AND CARRY FORWARD
7. DEDUCTIONS (not coming in exam)
8. GST- DEFINITIONS, SCOPE OF SUPPLY (S. 7), COMPOSITION SCHEME, INPUT TAX CREDIT
9. INTERNATIONAL TAXATION- TRANSFER PRICING, TRANSFER PRICING RELATED TO ARMS-LENGTH
PRINCIPLE, DOUBLE TAXATION AVOIDANCE AGREEMENT
10. DIFFERENCE B/W TAX PLANNING V. TAX MANAGEMENT, TAX EVASION V. TAX AVIODANCE
Indirect Tax
GST, VAT, Customs, Excise Duty, Service Tax
Not known to us, levied indirectly on sale of goods and services.
GST ACT 2013, CENTRAL EXCISE ACT 1944, CUSTOMS ACT 1962
GST Council:-
Consists of representatives of centre and state authorities; makes recommendations to the Union and State on GST
Rates, Exemptions and Other Issues
Tax Authorities
Income Tax Authorities as per Section 133A of IT Act are-
1. Commissioner
2. Joint Commissioner
3. Director
4. Joint Director
5. Assistant Director
6. Deputy Director
7. Assessing Officer
8. Tax Recovery Officer
9. Inspector of Income Tax
Section 116- Hierarchy of IT
1. CBDT
2. Principal Director General of IT or Principal Chief Commissioner of IT
3. Directors General of Income Tax or Chief Commissioner of IT
4. Principal Director of IT or Principal Commissioner of IT
5. Directors of IT
6.
7.
8.
9.
10.
11.
12.
Section 117-
Central Govt. appoints principal director, director general, etc. and empowers them to appoint assistant commissioner or
below.
GST 2017-
Section 3,4- Hierarchy and Appointment same as IT.
Section 3- officers
Section 4- appointment
24.08.2023
Residential Status (Sec .
6)
If an individual or HUF
is resident
I
-
S 6-Test to
.
60 days) 4
yrs immediately preceding the p Y
. .
+ 60 days or more
pY
during the . .
Eg. PY. :
2022-23 , Preceding 4
yus
:
2021-22 2021-20 2020-19 ,
, ,
2019-18 .
conditions he becomes
any any two ,
a non-resident .
·
6(6)(a) -
ROR =
Resident +
(for ROR) a ind resident is treated as resident &
resident in India if he satisfies the
two additional
ordinarily two additional conditionals
following
:
conditions
-
.,
relevant
during =
yrs imm
preceding the py .
. - .
satisfies at least
-
one of the basic conditions & two additional
conditions .
08 -
09 -
2023
sub-clause (c) -
/(b) -
OR
In Such person
case .
having TI . .
(other than foreign
income) exceeds 15 lakhs
rupees during py .
the
word 60 days had been substituted with 120
days -
Eg
·
sub-clause (c) -
is not
equally not that the stay should be
necessary
continuous .
iv) where a
person is in India
only for part of a a
day ,
the calculation
Imp points
.
(u/s 5)
withine
Resident -> India
- Non-resident
↳
foreign income but
controlled in India
·Indian income is taxable in India ,
whether the person is resident or non-
resident .
conversly ,
a
foreign income of a
person is taxable in India only if such
is resident in India
person
.
settled in India .
Note :
· An assessee
may enjoy diff residential status for diff .
assessment
year .
therefore
resident
not
in
necessary
India will
that
be
person who is
a
-
The burden lonus of proof is on assessee (be
.
Resid
law)
Staful is
qutn of fact .
not
question of .
Relaxation
During Covid Times
↳ s .
6(6)(b) -
conditions
·
HUF like an individual is either R in India or NR in India .
A resident HUF
is either OR or NOR .
situated .
2) The head & brain is situated where vital decisions are taken . Such as
raising finance & its appropriation for specific purposes appointment &
,
S .
6 (6(b) -
.,
relevant
during =
yrs imm
preceding the py .
. - .
Note -
resident
Residential Status of a
company [S 6131_->
.
Indian Company
Foreign Co .
(4 .
0 = M
. . .
)
of Effective Management - (Circular No 6S
↑
Place .
Active business
⑮ O -
Passive Income
<Sister co
., subsidiary co .
i
-
control
=
-
0
Illustration
- Refer to the circular No .
6 , 2017
6/3(i) -
Indian co will
always be R in India
6(3)(2) -
A foreign co .
(whose turnover or
gross receipt
in pY
. .
is more
than 50 croves) ,
it will be resident in India if its
is in
P O EM
. . . .
Circular No .
6 ,
2017
·
Point No . -2 , 4 , 5(a) ,
5(c) ,
5(d) .
C write it down)
Circular No 6-
.
p 0 EM
-
~
. . .
.
I
verymp
:
topic
28.08.2023
Write Point 8 2 Circular No 6
.
of .
.
Illustrations -
↓
1
GOVt .
PF
Employee's PF
Gout Services
·
.
Employee
·
NO GOVT .
EMPLOYMENT
,
Rule 6
taxable)
29.08.2023
Section 7 -
c tax A taxable
these needh
4
of .
11
ratatory emere replicable
Particulars unrecognised
Employer's contribution
is *aryI : awes
.
Interest credited
NottaxableFutempted
Amt in of
excess
Fully
.
9 5%
.
p
.
a .
s exempted .
tax able
I
ofeigen
I
Employee's contr
Eligible for Elig ible for Eligible for
deduction
deduction Us deduction
↓Is 80C .
80C
wh .
/s
Amt- received See i
Fully
Employee's
Fullpted
on the
refirement below contri not exempted .
Note -
Amt ·
revd on maturity of RPF is
fully exempted .
In case
of
an employee who has rendered continuous service for a
periodwithin
of 5
Yes
,
or more . In case , the
maturity of RPF takes
Foreign Income -
·
Transferred balance in a RPF (incase of a non-taxable portion
of unrecognised PF due to conversion of unirewg . PF to
acc .
Section 9 -
.
or or thru or
in India
Exceptions -
1 .
Incase of business other that bus connection in
operations presence
.
31.08.2023
shall be deemed
2 incase
of a NR ,
no income to
s .
incase
of a NR , no inc .
shall be deemed
to accrue/arise in India , if a NR is
agency
or of publishing newspapers ,
magazines
or
journals from activities confined to collection
of news in India
for transmission out
of India .
4 .
Incase of a NR , no income shall be deemed to
are confined to
shooting of any cinematography
film in India .
5 .
incase
of a
foreign company engaged ,
in the
to
display of uncut/unaborted diamonds in
sec . q((i)
auto marblea
- cnadis evenma
Explanation
a s
5 (Refer) . ↳ Iimmorable ,
movable ,
can
tangible ,
ie
intangible)
-
capital gains- ? -
Finance Act ,
2012 has introduced
clarificatory amendment ols I
to supercede the
rulings of Sc incase
of Vodafone International
BV
Holding vs VOI
(2012) 204 Taxmann 408
. .
.
.
,
The amend .
Inserted in sec . 5 in sec :
9(1)(i) with the
being any
share
ols
or interest in a
company
always
incorporated
be situated
or
registered India shall be deemed to
India .
Exception -
As per circular no
-
a NR , on an acc .
of redemy D or
indi in the
,
arises
from the transfer on shares or
in
securities held Indic
by the
to a citizen of India
(recud)
sec .
9(1) (v) -
Income
by way of interest payable by Gout ,
or Resident or NR
then ,
it is considered inc deemed to accrue or arise in India .
Provided : -
on
>
Int is reud by a
foreign bank in its head office ols India from its
Indian permanent (PE) establishment .
In the hands of Indian PE ,
it
deductible while hands
is computing · However
India
,
in the
of recipient head office , same is not taxable in was peer & receipent
are the same .
Illustrations -
X= NR in India ,
only Indian income is taxable in the hands
in India By 2022-23 he recieves interest
of x
during the , on
diff dates
.
. In all cases ,
interest is roud Ols India .
profession ol India .
[Taxable 1
Sec .
9 (1) (vi) -
Income
by way of royalty
roud R , NR
Royalty inc .
from gort ,
business I
profession
ols India
(No)
Sec .
9(1) (vii) -
07.09.2023
1) Exemption 2) Deduction 3) Rebate / Relief
(not
forming the I part of total (claimed after
total
part of income but
may filing the tax ,
filing tax
eg-investment) Liability)
eg
-
agriculture
income)
General (available to all in
general)
Exemptions (Types)
Specific (as in SEZs , exemption for special/specific purposes)
S .
10(1) -
Agricultural Income -
by state port .
08.09.2023
Agricultural Income
=
Agricultural t
Rent / Revenue ↓
produce fit to I agri . land
situated
Activity revd .
by receiver be taken to
Sec . 2 (IA) -
Agricultural Income
(a) -
essentials -
① rent or revenue & situated in India used for
agri purposes
(b) -
(C) rent roud from rented
buildings/land for storage is included
-
purposes
income
in
agri -
.
Exemption
Two
types
:
-
1) General 2) Specific
10(1) Us 2(IA) of
Sec
Agricultural Income It is defined the Income Tax Act
- -
.
Sec . 2(11) -
Definition of Agri .
Income -
It means-
(i) any rent or revenue derived from land which is sit in India
& is used for
agri. purposes
(ii) any income derived
from such land by agri operations inc
processing of
agri produce raised ,
or roud as rent-in-kind so as to render it as fit
assessed to land revenue at local rate & where the land is not
assessed to land revenue ,
it should not be in the local limits of
municipality or cantonment board .
Rent is the
payment in
money or
kind (share of crops) by any person to the
the
recipient of the rent/revenue should be the owner of land (sub-leasel .
only if the land is effective & immediate source of income & not the
secondary
source of income like dividend paid by the co. out of its agri income is not a
ITIGST
consti . Provisions
Definition -
Assessee ,
Person ,
Ay , PY ,?
Case Laws -
Diff .
kinds & forms of income
calculations -
# 5 5 .
5 6
Very Imp
.
.
(Ind , HUF , co .
) + covid circulars + I more circular
#s 7-income .
deemed to be revd -
#S 9 .
·
study
case (application & diversion)
#Exemption Agri Income Gratuity - .
, ,
HRA ,
[25 exemptions)
E
# S .
15
Salaries
I
1) Land situated in India
Rent or revenue would be
agri
-
income if the land is situated in India .
·
S .
10 (1)
The
primary cond to claim exemption as
agri - income is that land in
qusn
.
(of fact) should
used
be
for agri purposes -
·
Agriculture -
not been defined in the Act ,
but one must understand the term in common
parlance .
Agriculture" =
Agre + Culture
I
↳ field) + (cultivation of a field)
which implies expenditure of human skill labour upon the
land It includes
.
BASIC OPERATIONS
& SUBSEQUENT
OPERATIONS On the land I not
merely
the
growth of crops for man and animal .
Eg -Dairy
.
Husbandry ,
etc .
Agri .
Income doesnot contemplate sale of commodity in diff. from what is
↑vated
culve .
K .
Lakshmanan v .
CIT
in order
The assessee was
growing 'Mulberry Leaves' to silkworm to
get sick
coccous . The SC held that the income from silk coccoons is not agri-income .
CIT v ·
In this case ,
Raja own a forest . The gen was whether the income derived
labour but on which the forestry operations carried out (which is pruning ,
weeding ,
felling guarding digging
, , ,
etc .
not ?
The SE laid
determ of
to serve as a
guide in .
O scope terms in
agri. purposes .
agri-
The basic operations would involve expenditure of human skill I labour
upo the land & not merely the
growth from the land .
Eg- Tiling
of land ,
sowing of seeds ,
planting ,
etc .
the crop ,
removal of excel plants (undesirable plants) & all operations
which foster the
growth & preserve the same not only from the
insects but also from depriciation from outside .
[Eg harvesting
.
It would not be
enough to constitute
agri operations .
Bes human skill labour rad . Therein can't be said to have been
land
spent on .
Produce Fit to be taken to market
• Sometimes it becomes difficult to find the ready market of the crop as harvested. In order to make the produce as a
saleable commodity, it becomes necessary to perform some kind of a marketing process on the produce.
• The income arising by way of enhancement of value of such produce is also considered as agricultural income.
However, the following conditions must be satisfied-
1. The operations or processes must be employed by a cultivator or receiver.
2. There is no market for the produce available. Eg- Tea Leaves without getting dried.
3. The process must be applied to render the produce fit to be taken to the market.
4. The produce must not change its original character. Eg- converting wheat into flour.
• Example- Tobacco leaves are ordinarily dried to make them suitable for sale and is considered as agricultural
income. Moreover, if the marketing processes is performed on produce which can be sold in its raw form, income
derived from such process is partly agricultural and partly non-agricultural.
14.09.2023
Income from sale of agricultural produce [Sec. 2(1A)(b)(iii)]
• Explanation- Any income from the sale of any produce to the cultivator or receiver of rent-in-kind is agricultural
income provided the produce is not subjected to any process except process ordinarily employed to make it fit for
taking it to market. (the sale of rent-in-kind)
Section 10(2)- HUF pays tax- members don't need to pay the tax on the same income (only members are given
exemption under this section under the impartible estate)
Section 10(2A)-
Section 10(5)- given only to members and family member traveling within India.
15.09.2023
Sum received by an individual as a member of HUF (S. 10(2))
• Any sum rcvd by any individual as a member of HUF, either out of income of family or out of income of estate
belonging to the family, is exempted from tax.
• The exemption is based upon the principle of avoidance of double taxation.
3. Where the place of origin of journey and destination are not connected by rail and is performed by public transport,
Note- Definition of family-
• The exemption is available to the family of an employee. Family includes spouse and children and also includes
parents, brothers and sisters of the employee, subject to the condition that they are wholly or mainly dependent on
employee.
• Family does not include more than two surviving children of an individual.
• This limit of two children born out of multiple births after one child will be treated as one child only.
Note-
• Exemption is available in respect of two journeys performed in a block of 4 calendar years.
• If an assessee has not availed travel concession or assistance during any of the specified four years, exemption can
be claimed in the first calendar year of the next vlog but only in respect of 1 journey [Carry Over Concession].
18.09.2023
• 10(6)(vi)- Remuneration received by foreign employees/individuals- Remuneration received by foreign individual as
employee of a foreign enterprise for the services rendered by him during his stay in India is exempted from tax, if
following conditions are fulfilled:-
1. Foreign enterprise is not engaged in any trade or business in India
2. His stay in India does not exceed a period of 90 days in PY
3. Remuneration is not liable to be deducted from the income of the employer in tax
• 10(6)(viii)- Remuneration/ Salary received by a non-resident (NR) as a member of ships’ crew- The salary received
by the employee (foreign national) as a member of ships’ crew is exempted from tax provided that his total stay in
India does not exceed 90 days in the PY.
• 10(6)(xi)- Remuneration received by a foreign trainee- Remuneration received by a foreign trainee as an employee
of a foreign government is exempted from tax, if the remuneration is received in connection with training in an
undertaking owned by:-
1. Government, or
2. Company owned by Central or State Govt., or
3. Any Co. who is subsidiary of (2), or
4. Any statutory corporation, or
5. Any co-orporative society wholly/ partly financed by Central or State Government.
Section 10(6A)- Royalty or fees for technical services received by a foreign company
• In case a foreign company deriving income by way of royalty or fees for technical services received from the
government (CG and SG) or an Indian concern (resident of India) in pursuance of an agreement made after 31st
March 1976 but before 1st June 2002.
• Note- This section will be read with Section 9(1)(vi) and 9(1)(vii).- It talks about income deemed to accrue or arise in
India if the agreement is signed or made between Government/ Indian Concern and foreign national on or before
• In case a foreign company deriving income by way of royalty or fees for technical services received from the
1st April 1976, it will be exempted from tax.
19.09.2023
• Agreement between foreign concern and Government of India from 31 March 1976 to 01 June 2002 - exempted
from tax.
• As per section 10(6A) further exemption was provided if the agreement was made between Govt./ Indina concern
and foreign national on or after 31st March 1976 but before 1st June 2002 is exempted from tax.
• An Govt. or Non-Govt. employee can claim gratuity as per Payment of Gratuity Act, 1972.
• Government employees are fully exempted. - 10(10)(i) - wholly exempted
• Non-Government employee covered under PGA, 1972 is fully or partly exempted. - 10(10)(ii) - exempted up to Rs.
20 lakhs
• Non-Government employee not covered under PGA, 1972 is fully or partly exempted. - 10(10)(iii) -
• exempted up to Rs. 20 lakhs
21.09.2023
• In case of Government employee [10(10)(I)] any DCR gratuity received under revised pension rules of the Central
government or Central Civil Services (pension Rules or any other similar scheme applicable to the members of civil
services of Union and State or holders of the post connected with defence, or civil post under Union and State or
member of All Indian Services or employee of local authority is wholly exempted from tax.
• Ram Kawan Rana V. ITO (2016)- A professor or teacher of a university established under the act of parliament or
the state legislature is treated as government employee as per section 10(10)(i).
Any gratuity received by such employee is exempted from taxon the following basis:
1. 20 lakhs (statutory limit), or
2. Gratuity actually received, or
3. 15 days salary based on last drawn salary for each completed year of service, or
whichever is less.
Length of Service
1. 26 years 5 months 29 days = 26 years
2. 26 years 6 months = 26 years
3. 26 years 6 months 1 day = 27 years
4. 26 years 11 months 29 days = 27 years
[10(10)(I I I)]
• any gratuity received by such employee is exempted from tax on the following basis:
1. 20 lakhs,
2. Gratuity actually received
3. Half months average salary for each completed year of service
whichever is less.
Length of Sevice
1. 26 years 5 months 29 days = 26 years
2. 26 years 6 months = 26 years
3. 26 years 6 months 1 day = 26 years
4. 26 years 11 months 29 days = 26 years
2
.
.
3 :
Non-Gout .
No .
Ye of the pension is exempted from tax .
22.09.2023
Read it on
your own .
IOB ,
IOBB ,
IOBC , 10C 10CC
, ,
10 D .
26.09.2023
Section 10(13A)- House Rent Allowances read with Rule 2A
• either money or accomodation
1. 50% of salary or 40% of salary, where salary includes (Basic + DA)
2. HRA actually received
3. Not less than 10% of salary (HRA should be more than 10%)
least of the above will be exempted.
Q. Mr. X who receives 78,000 as basic pay during the PY. He stays in his father’s house upto 31st Aug 2022 for
which he does not pay any rent and thereafter in an accommodation taken on monthly rent of 3,000. The
employer however pays 700 per month as HRA throughout the PY. Discuss the tax treatment.
Salary
-> 6 , 500 m
p
:
. .
Rent
Monthly 3 , 000 m
=
p
. .
1 500 2600
196
=
,
p m
-
.
the least) i .
e . 700x7 : 4 , 900
3) 3000 p .
m .
Mr. A receives 100000 as basic salary during the previous year. He pays 24000 p.m. As rent. His employer pays
18000 per month as HRA. Discuss the tax treatment.
->
Salary 1 , 00 , 000
:
2) 18 ,
000
3) 24 000,
Section 10(14)- Special Allowances
When exemption depends upon actual expenditure by the employee, the amount of exemption is
1. Amount of allowance, or
2. Amount utilised for specific purpose
whichever is lower.
Eg. Uniform Allowance, Research Allowance, Conveyance Allowance, Transfer Allowance
When the exemption does not depend upon the expenditure incurred by the employee, the amount of exemption is
1. Amount of allowance, or
2. Amount specified in Rule 2BB,
whichever is lower.
Eg. Hill Area Allowance (the amount of exemption varies from 30—7000 p.m.), Border Area Allowance (the amount of
exemption varies from 200-1300 p.m.), Children Education Allowance (100 p.m. per child, up to max. 2 children), Hostel
Expenditure (300 p.m. per child, Max. of 2 children).
28.09.2023
Section 10(16)- scholarship granted to meet the cost of education
Section 10(23C)-
• Income of certain national funds- Any income received by any person on behalf of the following funds is exempted
from tax.
• Income of Educational Institutions- Income of any university or educational institution existing solely for educational
purposes and not for profit and which is wholly or substantially financed by government or if the aggregate annual
receipt of such university or educational institution do not exceed 5 crore rupees, is exempted from tax.
• Income of Hospital- Income of any hospital or other institution for the reception and treatment of persons suffering
from illness or mental effectiveness or requiring medical attention or rehabilitation, exists solely for philanthropic
purposes and not for profit is exempted from tax provided the hospital or other institution is substantially financed by
government or if the aggregate annual receipt of such university or educational institution do not exceed 5 crore
rupees, is exempted from tax.
29.09.2023
Salaries [Section 15, 16,17]
• Salary is a vital term. EVERY PAYMENT made by an employer to his employee for his services rendered and is
chargeable to tax as income under head Salaries.
• Salary includes but monetary (bonus, commissions, etc) as well as non-monetary (rent free accommodation, etc)
• The essential agreement for under the head salary is thatthere must exist an employer employee relationship
between the assessee and the party making the payment.
• Payment rcvd by an individual from. The person other than his employer (cannot be termed as salty) and
consequently not chargeable to tan under the head salaries.
• Such payment may be chargable as PGBP or other sources.
for eg- (I)Commission rcvd from. Director from a company is salary if the director is an employee of the company.
However, the employer must be employee other cimlsnh, thesaid commission done has d
(I I) the salary made to a partner of the firm is nothing
Any salary, bonus, commission rcvd by partner of a firm from the firm shall not be regarded as salary.
• Tips received by waiters Is taxable under the head income from other sources and not the head salary.
• MP and mass is not treated as but chargeable under income from other sources.
• An advocate general holding the office under the state government terminable at the will and pleasure of the
governor and who gets a retainer fees is not treated as salaries as he is not an employee of the government and his
income is a professional income.
Union of India v. Pratibha Banerjee (1996)- It was held that high court judge is not an employee of the government
and also a member of parliament is not an employee of the government and he does not receive salary.
The above case was overruled by JUSTICE DEVKI NANDAN AGARWAL V. UNION OF INDIA (1999). SC held that
being constitutional functionaries like judges receive salaries just like an employee even in the absence of strict
employer-employee relationship and is chargeable to tax under the head Salaries.
03.10.2023
Section 17(1)- Salary include- (9 pointers)
[Sec .
17 (1) (ix) ]
Head Salaries
Agnicorpus Fund (By Finance Act 2023)
- ↓
not taxable for people not enrolled in
Salary prerequisit e -
profit in Lieu
of salary
05.10.2023
value of perquisite as
per Rules which is taxable .
acc .
with the rules + 10 %
p
.
a .
of the
ii) 2 .
5% of salary in + 10 %
p
.
a .
of the
cost of furniture
cities
having populatio
.
blw 15 lacs -
40 lacs .
iii) 5% of salary in
the cities
having
population less
than 15 lacs .
il
ii) where the accommodation is taken on Actual amt of lease value of peng .
in
lease or rent by the employer . rent paid by employ clude rent of the
unfurnished
10%
of Salary
accom
er or
4 10 % of
*
whichever is lower
. pa the
cost of furniture
3
·
Where the accommodation is provided by the NOT 24 % salary paid
employer in hotel/guest
a house APPLICABLE or
payable or
Section 17(2)(iv)
Any sum paid by the employer in respect of any obligation which would have been payable by the assessee. For
instance, X is a general manager in the company, he engages a domestic servant on the monthly salary of Rs. 2000.
The entire salary is paid by the company to the domestic servant is an obligation of the employee, Mr. X.
Section 17(2)(v)
Any sum payable by the employer directly or indirectly to effect and assurance of life of an employee or assessee is
taxable perquisite.
Exception : this will not be applicable towards-
1. Recognised provident fund
2. Approved super annation fund
3. Deposit link insurance fund
Section 17(2)(vii)
The annual aggregate of amount of any contradictions made to the account of assessee.
1. Recognised provident fund
1. Approved super accretion fund
2. Deposit link insurance fund
Section 17(2)(viia)
Interest, dividend on the annual accretion in the previous year to the balance as the above funds.
Value of another Fringe Benefit
16.10.2023
As per section 22, income is taxable under income from house property if following conditions are satisfied:-
1. property should consist of any building or land appurtenant thereto (attached to).
2. assessee should be the owner of the property.
3. property should not be used by the owner for his own business or profession carried on by him.
Property should consist of any building or land appurtenant thereto (attached to)
The term property is very wide, though under section 22 it is used for limited purpose. The rental income from vacant
plot is not chargeable from tax under income from house property but it is taxable under PGBP or other sources.
Building means a permanent, essentially box like construction having a roof and used for any of the wide variety of
activities, such as living, entertaining or manufacturing.
The word ‘building’ is wide enough to include residential house (either to let out or self-occupied), building let-out for
office or for storage or for use as a factory, music halls, dance halls, lecture halls, public auditorium and cinema theatre.
Land appurtenant thereto may be in the form of approach roads to or from public streets, compounds, courtyards,
backyards, playground, kitchen garden, garage, cattle shed, etc., attached to or forming the part of the building.
Note- A land would be called a land appurtenant thereto, if it is indivisible part and parcel of building for its use and
enjoyment by the occupiers and the land is not put to any other use. The above rationale was given in ITO v. Dr. KK
Bhatnagar (2009).
Deemed Owner- s. 27
Owner includes deemed owner. The following persons are to be treated as deemed owner of house property:-
• transfer to spouse or minor child-
1. Taxpayer is an individual.
2. He or she transfers a house property.
3. The property is transferred to his or her spouse (not being a transfer in connection with an arrangement to live apart)
or minor child (only unmarried daughters).
4. The property is transferred without adequate monetary condition.
19.10.2023
Property should not be occupied by the owner for his own business or profession
Annual value of the house property is not chargeable to tax under the head Income from House Property, if the following
conditions are satisfied:-
1. The owner of the property utilises the property for the purpose of carrying on his business or profession.
2. The income from business or profession is chargeable to tax.
Proviso- the municipal taxes levied by the local authority in respect of the property shall be deducted in determining the
annual value.
GROSS ANNUAL VALUE (GAV)- the tax under the head income from house property is not the tax upon the rent of a
property
property. It is taxed on the inherent capacity of the building to yield income.
Following are the steps to determine GAV:
1. Find out reasonably expected rent of the property
2. Find out rent actually received after excluding unrealised rent
3. Find out which one is higher in step 1 or step 2
4. Find out loss because of vacancy (deduct with Step 3)
However, reasonable expected rent can be determined by taking into consideration the following factors:
1. Municipal value, or
2. Fair rent
whichever is HIGHER, subject to the amount so computed cannot exceed standard rent (if the property is covered by
rent control act).
Q. Municipal value is 40000. Fair rent is 46000. Standard rent is 45000. What is reasonable expected rent?
A. 45,000 as it cannot exceed standard rent.
Q. Municipal value is 1,00,000. Fair rent is 1,40,000. Standard rent is 1,30,000. The house property has been let out for
13,000 per month and was vacant for 1 month during the previous year. Municipal taxes during the year were 50,000.
Compute the annual value for assessment year.
A. Reasonable expected rent= 1,40,000
Rent actually received= 1,43,000
Section 23(3)
The above provision shall not apply if the house is actually let during the whole or any part of the previous year or any
other benfit therefrom is
Section 23(4)
Where the property in subsection (2) consist of more than two houses, the provision of that subsection shall apply only in
respect of two houses, which the assesse may at his option specify in this behalf, and the annual value of the other
house shall be determined as per reasonably expected rent.
Section 23(5)
Where the property consist of any building or land there appurtenant to is held as stock-in-trade and the property is not
let during the whole or any part of the previous year, the annual value of such property shall be taken to be NIL, for the
period upto two years from the end of financial year in which certificate of completion of construction of the property is
obtained.
A.
-
C) Unrealised rent :
(11 , 0001
GAV
=
1 , 21 , 000
(-) Municipal
-
Tax
000
NAV = 1 , 08 ,
Standard
Deduction -o
Interest on
:
(40 ,
0007
apital
add
Inc .
from house
property
Section 28
(iiic) Drawback Duties
26.10.2023
PROFESSION is defined under section 2(36) includes vocation. The word profession implies attainment of special
knowledge as distinguished from mere skill, which is to be acquired only after patient study and application. Examples,
lawyers, doctors, tax experts, chartered accountants, architects, engineers, etc.
A company being an artificial person cannot be said to possess any personal skills. A company does not have a mind
and body and therefore cannot be engaged in profession.
BUSINESS LOSS
Business losses can be allowed as deduction only if the following conditions are satisfied:
1. Losses should be revenue in nature
2. Losses should be incurred during the previous year
3. Losses should be incidental to business or profession carried on by the assessee
4. It should not be fictitious in nature and not merely anticipated to incur in future
5. Losses should not, directly or indirectly, be restricted under the Act
Section 30- Rents, rates, taxes, repairs and insurance for buildings.
The following deductions are allowed in respect of rent, rates, taxes, repairs and insurance for premises used for the
purpose of business or profession:
1. Rent of premises if the assessee has occupied the premises as tenant and the amount of repairs if he has
undertaken
2. The amount of current repairs (not being capital expenditure), if the assessee has occupied the premises otherwise
than as a tenant
3. Any sum on account of land revenue, local rates or municipal taxes and
4. Amount of any premium in respect of insurance against risk of damage or destruction of the premises.
Section 31- Repairs and insurance of machinery and plants and furniture
The following expenditres are allowed as deductions in respect of machinery, plant or furniture used for thr purpose of
business or profession:
The amount paid on the account of current repairs and the amount of insurance premium paid in respect of insurance
against the risk of damage and
Section 32AD- Investment in new plant or machinery in notified backward areas in certain states.
1. Certain states- if an undertaking is set up in the notified backward areas in Andhra Pradesh, Bihar, Telangana or
West Bengal by a company being an assessee, it shall be eligible to deduction if it fulfils the following
conditions:
• the assessee may be a company or any other person
• he sets up an undertaking/enterprise for manufacture or production of any article on or after 2015
• such undertaking must be set up in any backward areas notified by the CG
• he acquires and installs a new asset
• the new asset should be acquired and installed after 2015 but before 2020.
Note- A sum equal to 15% of the actual cost of new asset shall be allowed as a deduction.
The asset should not be sold or transferred within a period of five years from the date of installation. If the new asset is
sold within five years from its installation , the amount of deduction allowed shall be deemed to be the income of
assessee and will be taxable under PGBP, in addition to the taxability of capital gains.
30.10.2023
Section 33AB- Tea Development Account, Coffee Development Account and Rubber Development Account
Tea/ Coffee/ Rubber Development Board
Where an assessee can claim deduction as per the following condition:-
1. the assessee must ebe engaged in tea, coffee or rubber plantation
2. it must take a deposit in the specified account
3. the deposit should be made within specified time limit
4. the account of the assessee should be audited
Time Limit:-
The said amount shall be deposited within 6 months from the end of the previous year OR before the due date of
furnishing the return of income, whichever is earlier.
Note: 100% of capital expenditure incurred during the previous year wholly and exclusively for specified businesses
would be allowed as deduction.
Expenditure incurred on acquisition of any land, goodwill or financial instrument would not be eligible for
deduction.
02.11.2023
Section 36 & 37- Other deductions & General deductions
(1)(i)- Insurance Premium
Expenses or Deductions Not Allowed Under PGBP (important from exam pov)
Section 40, 40A and 40B
(ia) 30% of such expenditure on which tax is deductible at source is disallowed under PGBP if such tax has nit been
deducted or after deduction has not been paid to the Government.
(ii) any sum paid on account of any tax rates levied on PGBP shall not be allowed as deduction
(iii) any payment which is chargeable under the head ‘salaries’ which is paybale outside India or to a non-resident in
India, if the tax has not been paid to the Govt. nor deducted at source shall not be allowed as a deduction
(iv) any payment to a provident fund for the benefit of the employees of the assessee is not allowed as deduction if the
assessee has not made effective arrangements to secure tax.
Relative means husband, wife, brother or sister or any lineal ascendant or descendant of that individual.
Substantial interest- A person is deemed to have substantial interest in the business or profession if such person is the
beneficial owner of at least 20% of voting rights.
07.11.2023
Section 2(14)- Capital Asset
↓ Y I
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.
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Gold
furniture held national
Gout
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gold bond
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or
Deposit
certificates
family numbers Cent Govt
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.
I Cent GOVI
iewte
Very
-
collections
scultures art
D exclusion from (exclusion/negat Tel ,
The term
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nature& hence ,
it
signifies any
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Holdings B v . .
v .
VOI (2012) held
as a
right in legal sense To supersede .
explanation is inserted
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to
April 1962 clarify that "property"
includes
any rights in in relation or to an indian co . ind
rights of mgmt
·
or control on
any
other
right
whatsoever -
silver Utensils of an assence which are not in use
ordinarily & normally by the assence
but
only for certain occassions are
personal effects & hence will not be considered as
& normally ,
intended for personal use are not
personal effects .
09.11.2023
For instance, clothes meant for use at weddings or formal occasions are not used daily. Yet they are stitched for
personal use of wearer and would form a part of his personal effects. (CIT v. H.H. Maharani Usha Devi, 1998)
Rural Agricultural Land- It is not a capital asset. In order to qualify for agricultland in India, it is not necessary that the
land was once agricultural land. It must be agricultural land at the time of sale.
Note- Capital Asset is of two types, long term and short term. Short-term capital asset held by an assessee for not more
than 36 months immediately preceding to the date of transfer. In other words, capital asset held for more than 36 minths,
it is known as long-term capital asset.
Transfer- S. 2(47)
transfer", in relation to a capital asset, includes,-
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law; or
(iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock- in- trade of a
business carried on by him, such conversion or treatment;] or]
(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part
performance of a contract of the nature referred to in section 53A; or
(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company
or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever)
which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.- For the
purposes of sub- clauses (v) and (vi)," immovable property" shall have the same meaning as in clause (d) of section
269UA;]
The definition of transfer is merely exclusive and does not involve other kinds of transfer. In other words, the expression
transfer must be read widely and not narrowly. The definition of transfer is applicable only in relation to capital asset.
Capital Gains arising from the transfer of residential house (section 54)
Following conditions must be satisfied to claim exemption:-
1. the assessee must be an individual of HUF and no other person is eligible to claim exemption
2. only long term capital asset (residential house property) is eligible to claim exemption
3. the exemption is available only on one residential house property in India (building or land there appurtenant to) in
India. the assessee will have to purchase or construct one residential house property.
4. the time limit for acquiring the new asset (means new residential house property) is one year before or within two
years from the date of transfer of residential house property. In case of a construction, it shoukd be completed
withing three years from the date of the transfer of resodential house property. [note: amount of exemption is- (i)
investment in purchasing or constructing of the new capital asset or (ii) amount of capital gain, whichever is lower || if
the new asset is transferred within three years from the date of its acquisition or condition of construction, the
amount of exemption given earlier will be taken back and chargeable to tax under the head capital gain]
Capital gains arising from the transfer of land used for agricultural purposes (section 54B)
Following conditions must be satisfied to claim exemption:-
1. the assessee must be an individual of HUF and no other person is eligible to claim exemption
2. he must transfer an agricultural land (maybe long term or short term)
3. the agricultural land was used by the assessee being an individual or his parent or by HUF for agricultural purposes
for a priod of two years immediately preceding the date of transfer
4. the taxpayer has purchased another land for agricultural purposes within a period of two years from the date of such
transfer
[note: amount of exemption is- (i) investment in purchasing a new agricultural land or (ii) amount of capital, whichever is
lower || if the new agricultural land is transferred within three years from the date of its acquisition, the amount of
exemption given earlier will be taken back and chargeable to tax under the head capital gain]
Capital gains on compulsory acquisition of land forming part of industrial undertaking (section 54D)
1. The assessee may be individual, HUF, firm or any other person
2. The asset may be short term or long term
3. The capital gain arises on transfer by way of compulsory acquisition of land or building which forms a part of
industrial undertaking belonging to the taxpayer
4. such land or building was used by the assessee for the purpose of industrial undertaking for at least two years
preceding the date of compulsory acquisition
5. Assessee has purchased any other land or building within a period of three years from a date of receipt or
compensation or constructed a building within such period
6. Newly acquired land or buikding should be used for thr purpose of …… Or setting up another industrial undertaking
[note: the amount of exemption is investment in new land or building or amount of capital gain whichever is lower ||
if the new land or building is transferred within three years from the date of its acquisition or condition of
construction , the amount of exemption given earlier will be taken back and chargeable to tax under the head capital
gain]
Capital gains on the transfer of long-term capital asset other than house property (section 54F)
The following conditions must be satisfied to claim exemption:
1. The assessee must be individual or HUF
2. The asset must be long term capital asset but other than residential house property
3. The taxpayer will have to purchase one residential house or construct a residential house within the following time
limit:
i) for pipurchaidng a new house, it should be within …. Of the original asset
ii) for constructing a new house it should be completed within three years from the date of transfer of original assets
[note: section 54F does not provide an exemption incase of renovation/modification of an existing house. Amount of
exemption = cost of new house * capital gain / net sale consideration]
[note: If the assessee transfers the new house within three years of its purchase or construction, the amount of
exemption given earlier would be taken back and shall be treated as long term capital gain of that year. if the assessee
purchases within a period of two years from adte of transfer of original asset if constructs within a period of three years,
a residential house other than the amount of exemption given earlier would be taken back and shall be deemed to be
the income by way of long term capital gain]
20.11.2023
CUSTOMS DUTY
Customs Duty is an indirect tax imposed under Customs Act, 1962. The power to enact the laws is under Art. 265- Sch.
VII, List 1, Entry 83. This act is the basic statute which covers the entry and exit of different categories of vessels,
aircrafts, good, etc. into or outside the country. This act extends to the whole of India.
The primary purpose of this law is the levy and collection of duties but at the same time it has other equally important
purposes such as-
1. Regulation of imports and exports
2. Protection of domestic industry
3. Prevention of smuggling
4. Conservation and Augmentation (means supporting) of foreign exchange and so on.
• Section 12 of the Customs Act provides that duties of cutoms shall be levied at such rates as specified under
Customs Tarrifs Act, 1975.
• Customs Act, 1962 came into force on 1st Feb, 1963. It has 17 Chapters and 161 Sections.
• Section 2(11) defines exports which means taking goods out of India to a place outside India.
• Section 2(15) defines goods which includes vessels, aircrafts, vehicles, stores, baggage, currency and negotiable
instruments and other kind of movable property.
• Section 2(16) defines import which means bringing into India from a place outside India.
Taxable Event
The basic condition to levy custom duty is export or import of goods i.e. goods become liable to duty when there is
import into or export from India.
Types of Duties under Customs-
1. Basic Customs Duty
2. Additional Customs Duty/ Countervailing Duty
3. Special Additional Duty
4. Protective Duty
5. Safeguard Duty
6. Countervailing Duty on Subsidised Articles
7. Anti-dumping Duty
Deemed Owner not liable to
pay tax .
21.11.2023
CLUBBING OF INCOME (S. 60-64)
• Generally the assessee is taxed only for his or her own income but under certain special circumstances some
incomes are clubbed along with the assessee’s income and assessee may be liable to pay tax on such clubbed
income.
• Section 60- Transfer of income where there is no transfer of asset-
• Section 61- Revocable transfer of asset
• Section 64- Income of individual to include income of spouse, minor child, etc.
• Section 64(1A) - Refer Sec. 80(U), pg. 602)
Section 64(1)(iv)-
When an individual is assessable in respect of income from asset transfer to spouse. The provision provides that if an
individual transferred the spouse any asset directly or indirectly without adequate consideration, the income arising to
the transferor/taxpayer out of such asset will be included in his total income.
Exception— It doesn’t include _____ where such asset in transfer in connection with an agreement to live apart.
(asset here means other than house property)
(the transfer should not be before marriage)
At the time of transfer, marriage should subsist. Spouse means legal wife and not illegal wife.
Section 64(1A)- Income of Minor Child
It provides that all income of a minor child (not being a minor child suffering from any disability of the nature specified
given under 80U) as arises or accrues to him is to be included/ clubbed in the income of his parent.
However, the income received by the minor from manual work or from any activity involving his application of skill, talent,
specialised knowledge and experience, will not be clubbed in the parent’s income.
(The income of minor will be included in the income of that parent whose total income is greater || Where the marriage of
the parent does not subsist, the income of the minor will be clubbed in the income of that parent who maintains the
minor child || Incase, both the parents are not alive, the minor income cannot be assessed in the hands of grandparents
or any other relatives or even in the hands of minor)
(As per section 10(32), incase of an assessee whose total income, the minor child’s incomeis to be clubbed, the
assessee is eligible to exemption upto 1500/-)
23.11.2023
Set-off and Carry Forward [S. 70-74B]
①
-> Inter-source
-
adjustment
set -
O If way ②
->
Inter-head ->
exception of PGBP be set-off by income
from 'salary'
:
loss cannot
③ arry -Forward
I
-
for 8
years (max ) .
Loss from one source of income can be set-off against the profit of any other source of income.
Note:
1. No losses from the exempted income can be set-off against any source of income. Example: Agricultural income
2. No losses can be set-off against casual income
• Set-off means adjusting the loss incurred in the previous year against the profit of the assessment year. If in case
there is no adequate profit to set- off the entire loss, it can be carry-forward to the next assessment year subject to
condition stated in the act.
There are two ways to set-off or adjust the loss: (i) Inter Source Adjustment and (ii) Inter Head Adjustment
Note: If both these two ways are not applied, then the losses can be carry-forward in the assessment year. It is
applicable to both resident and non-resident.
2. Loss from specified business mentioned u/s 35AD cannot be set-off against the profit of any other business.
Exception: the loss from specified business can only be set-off against the income of specified business.
3. No loss can be set-off against the income of a casual nature such as winning from lotteries, horse race, card games,
etc.
4. Long-term capital loss can only be set-off against long-term capital gain.
Exception:
1. Loss from speculation business cannot be set-off against the income from any other head of income.
2. Loss from specified business u/s 35AD cannot be set-off against the income of any other head.
3. No loss can be set-off against the income of a casual nature such as winning from lotteries, horse race, card games,
etc.
4. Long-term capital loss cannot be set-off against the income of any other head.
5. Loss arising from purchase and sale of securities cannot be set-off against the income of any other head.
Note : (a) If the losses could not be set-off under the same head or under different heads in the same assessment year,
such losses are allowed to be carry-forward and set-off from the income of the subsequent years.
(b) All the losses are not allowed to be carry-forward. Following losses are only allowed to be carry-forawrd and
set-off in the subsequent years: (i) loss from house property (ii) business loss (iii) capital loss (iv) loss on
account of owning and maintaining horse race.
Any loss can be carry-forward upto maximum 8 years.