Income Tax 01

8/8/2019 Income Tax 01

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Index

Contents Page Number

Acknowledgement 2

Introduction to Tax 3

Introduction to Income Tax 4

Residential Status 6

Heads of Income 9

Income from Salaries 10

Income from House Property 15

Capital Gains 19

Profits and Gains of Business or Profession 30

Income from Other Sources 55

Advance Payment of Tax 60

Computation of Total Income 61

Computation of Tax Liability on Total Income 64

TDS Rates for Assessment Year 09 10 66

Assessment of Firms 72

Assessment of Companies 74


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Tax:

Tax is nothing but the Money people have to pay to the government which is used to provide

Public Services.

There are two Types of Taxes. They are

1. Direct Tax and2. Indirect Tax.

Direct tax is the charge that is paid directly to the government by the persons on whom it is

imposed.

Direct Tax is divided into 3 parts,

1. Income Tax,2. Wealth Tax and3. Corporate Tax.

Indirect tax is the charge that is paid by one individual at the beginning, but the burden of which

will be passed over to some other individual, who eventually holds the burden.

Indirect Tax is divided into 3 parts,

1. Sales Tax,2. Excise Duty and3. Custom Duty.


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Income Tax Introduction

The direct tax which is paid by individual to the Central Government of India is known as

Income Tax. It is imposed on our income and plays a vital role in the economic growth &

stability of our country. For years the Government is generating revenue through this tax system.

The word 'Tax' originated from the 'Taxation.' which mean 'Estimate.' Hence, 'Income Tax' mean

'Income Estimate,' which helps the government to know the actual economic strength of a

person. It is also a way to set up an economic standard for general people. It helps the

Government to know the distribution of money among country's people.

Income Tax has been in force in different forms since years. If we go through the history of

India, we get relevant information regarding the taxation system of India. In ancient history, it is

mentioned that at about such system which were imposed on the income, expenditure and other

subject. Even information of such is given Manu Smriti and Arthasatra which confirms its

existence at that time.

In modern India, Income Tax came into existence in 1860 with the implementation of first

Income Tax Act. After implementation of this Act, people became aware of the actual meaning

of Income Tax. This act was in force for first five years. After this, in 1865, second Act came

into force. There were major changes in this Act relative to the first. It proved itself as a good

factor for the growth of our economy. With this Act a new concept of Agriculture Income came

into existence.

After this, different new Act was also implemented. The most important of them is the Income

Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose salary from any

source of income is more than the maximum limit of unchargeable amount will be liable to pay

Income Tax. There is also a provision of deduction and exemptions in Income Tax, depending

upon the type of assessee, source of income, residential status and investment in saving schemes.

Income tax rates are a matter of chang, which is declared by Ministry of Finance, Government of

India regularly, usually on annual basis.


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Assessee [Sec. 2(7)]

Assessee means a person by whom income-tax or any other sum of money is payable under the

Act. It includes every person in respect of whom any proceeding under the Act has been takenfor the assessment of his income or loss and the amount of refund due to him. It also includes a

person who is assessable in respect of the income or loss of another or who is deemed to be an

assessee or an assessee in default under any provision of the Act.

Person [Sec. 2(31)] includes

1. An Individual,2.

A Hindu Undivided Family,

3. A Company,4. A Firm,5. An Association of Persons or A Body of Individuals,6. A Local Authority and7. Every Artificial Juridicial Person not falling within any of the preceding categories.

Assessment Year [Sec. 2(9)]

Assessment Year may be defined as a year in which the income of the previous year is to be

assessed. In some countries it is called Tax Year. It always starts on April 1st

and ends on

March 31st

of the next year.

Previous Year [Sec. 3]

Income of the previous year is taxed in the immediately following assessment year. In some

countries it is called Income Year.

In the case of a newly set up business or profession or a source of income newly coming into

existence, the first previous year will be the period commencing from the date of setting up of

the business/ profession, or as the case may be, the date on which the source of income newly

comes into existence and ending on the immediately following March 31st.


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The exceptions to the rule that the income of the previous year, is not taxable in the immediately

following assessment year are

1. Income of a Non-Resident from Shipping,2. Income of Persons leaving India either Permanently, or for a very long time,3. Income of Bodies formed for a Short Duration,4. Income of a Person trying to Alienate his Assets with a view to Avoid Payment of Tax

and

5. Income of a Discontinued Business.Residential Status General Norms

Assesses are either

1. Resident in India, or2. Non-Resident in India

However, Resident Individuals and Hindu Undivided Families have to be

1. Resident and Ordinary Resident, or2.

Resident but Not Ordinary Resident.

The Residential status of each assesse is to be determined for each previous year.

Residential StatusofanIndividual [Sec. 6]

Basic Conditions [Sec. 6(1)]

1. He is in India in the previous year for a period of 182 days or more2. He is in India for a period of 60 days or more during the previous year and for a period of

365 days or more during the four years immediately preceding the previous year.


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Additional Conditions [Sec. 6(6)]

1. He has been a resident of India in at least 2 out of 10 previous years immediatelypreceding the relevant previous year.

2. He has been in India for a period of 730 days or more during 7 years immediatelypreceding the relevant previous year.

Resident and Ordinary Resident

An Individual is said to be a Resident and Ordinary Resident in India in any previous year, if he

satisfies at least one of the basic conditions, and both the additional conditions.

Resident but not Ordinary Resident

An Individual is said to be a Resident but not Ordinary Resident in India in any previous year, if

he satisfies one or more of the basic conditions, but does not satisfy the two additional

conditions.

Non-Resident

An Individual is said to be a Non-Resident in India in any previous year, if he satisfies none of

the basic conditions.

Residential StatusinthecaseofOtherPersons

Residential Statusofa Hindu Undivided Family [Sec. 6(2)]

Resident and Ordinary Resident

A Hindu Undivided Family is said to be a Resident and Ordinary Resident in India if the controland management of its affairs are wholly or partly situated in India and if it satisfies both the

additional conditions.


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Resident but not Ordinary Resident

A Hindu Undivided Family is said to be a Resident but not Ordinary Resident in India if the

control and management of its affairs are wholly or partly situated in India but does not satisfy

the two additional conditions.

Non-Resident

A Hindu Undivided Family is said to be a Non-Resident in India, if its control and management

is situated wholly outside India.

Residential Statusofa Firmor anAssociationofPersons [Sec. 6(4)]

Resident

A Firm or an Association of Persons is said to be a Resident in India, if its control and

management is situated wholly within India during the relevant previous year.

Non-Resident

A Firm or an Association of Persons is said to be a Non-Resident in India, if its control and

management is situated wholly outside India.

Residential Statusofa Company [Sec. 6(3)]

Resident

An Indian Company is always a Resident in India

A Foreign Company is said to be a Resident in India, if its control and management is situated

wholly within India during the relevant previous year.

Non-Resident


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A Foreign Company is said to be a Non-Resident in India, if its control and management is

situated wholly outside India.

HeadsofIncome [Sec.14]

Income of a person is Computated under the following Five Heads

1. Income from Salaries,2. Income from House Property,3. Profits and Gains from Business or Profession,4. Capital Gains and5. Income from Other Sources.

The Aggregate Income under these Heads is Termed as Gross Total Income.


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Income From Salaries

Income under heads of salary is defined as remuneration received by an individual for services

rendered by him to undertake a contract whether it is expressed or implied.

BasisofCharge

According to Income Tax Act there are following conditions where all such remuneration are

chargeable to income tax:

1. When due from the former employer or present employer in the previous year, whetherpaid or not.

2. When paid or allowed in the previous year, by or on behalf of a former employer orpresent employer, though not due or before it becomes due.

3. When arrears of salary is paid in the previous year by or on behalf of a former employeror present employer, if not charged to tax in the period to which it relates.

Under section 17 of the Income Tax Act, 1961 the following incomes comes under the head of

salary:

1. Basic Salary2. Dearness Allowance3. Advance Salary4. Arrears of Salary5. Leave Encashment6. Salary in Lieu of Notice7. Salary to Partner8. Fees and Commissions9. Bonus10.Gratuity11.Pensions12.Annuity from Employer


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13.Annual Accretion to the Credit Balance in a Recognised Provident Fund14.Contribution by Central Government towards Pension Fund15.Retrenchment Compensiation16.Remuneration for Extra Work17.Voluntary Payment18.Salary from a United Nations Organisatin19.Salary to a Foreign Citizen20.Payment Received at the Time of Voluntary Retirement

Basic Salary

It is fully taxable under Sec. 15

DearnessAllowance

It is fully taxable under Sec. 15

Advance Salary

It is Taxable in the Year of Receipt

ArrearsofSalary

It is Taxable in the Year of Receipt, if not Taxable on due basis

Leave Encashment

In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10AA)(i)].

In case of a Non-Government Employee, the least of the following is Exempted [Sec.10(10AA)(ii)]

1. Cash Equivalent of the Leave Salary in respect of the Period of Earned Leave to theCredit of an Employee only at the Time of Retirement whether on Superannuation or

Otherwise


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2. 10 months Average Salary3. Rs.3,00,0004. Actual Leave Encashment.

Salary in LieuofNotice

It is Taxable on Receipt basis

Salary toPartner

Not chargeable under Salaries but Taxable under Profits and Gains from Business or Profession.

Fees and Commission

It is fully Taxable under Sec. 15

Bonus

It is fully Taxable under Sec. 15

Gratuity

In case of a Government Employee, any amount received is fully Exempted [Sec. 10(10)(i)].

In case of a Non-Government Employee covered under The Payment of Gratuity Act,1972, the

least of the following is Exempted [Sec. 10(10)(ii)]

1. 15 days salary.2. Rs.3,50,000.3. Actual Gratuity.

In case of a Non-Government Employee, the least of the following is Exempted [Sec.

10(10AA)(ii)]

1. Half Month Salary for each Completed year of Service.


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2. Rs.3,50,000.3. Actual Gratuity.

Pension

Any Uncommuted Pension is Taxable as Salary under Sec. 15 in the hands of a Government as

well as a Non- Government Employee.

Any Commuted Pension received by a Government Employee is wholly Exempted from Tax

Under Sec. 10(10A).

Any Commuted Pension received by a Non-Government Employee

1. In case where the Employee receives Gratuity, the Commuted value of 1/3 of the Pensionhe is normally entitled to receive,

2. In any other case, the Commuted value of of such PensionIs Exempt from Tax.

HouseRentAllowance [Sec. 10(13A) andRule 2A]

Exemption in respect of House rent Allowance is regulated by Rule 2A.

The least of the following is exempt from tax

1. Amount equal to 50% of salary, where the Residential house is situated at Bombay,Calcutta, Delhi or Madras; and an amount equal to 40% of salary, where the Residential

house is situated at any other place.

2. Actual House Rent Allowance Received.3. Excess of Rent paid over 10% of Salary.

EntertainmentAllowance [Sec. 10(ii)]

Entertainment Allowance is first included in Salary Income and there after a deduction is given.


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In case of a Government Employee, the least of the following is deducted,

1.

Rs. 5,0002. 20% of Basic Salary or3. Actual Entertainment Allowance received

In case of a Non-Government Employee, no deduction is available.

Perquisites [Sec. 17(2)]

Perquisites are any casual emolument or benefit attached to an officer or a position in addition to

salary or wages

There are following perquisites which are tax free:

1. Medical facility2. Medical reimbursement3. Refreshments4. Subsidised Lunch/ Dinner provided by employer5. Facilities For Recreation6. Telephone Bills7. Products at concessional rate to employee sold by his/ her employer8. Insurance premium paid by employer9. Loans to employees by given by employer10. Transportation11. Training12. House without rent13. Residence Facility to member of Parliament, judges of High Court/ Supreme Court14. Conveyance to member of Parliament, judges of High Court/ Supreme Court15. Contribution of employers to employee's pension, annuity schemes and group insurance


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Income From HouseProperty

Under the Income Tax Act the owner of a House property is taxed on the income in the form of

its annual value under the head Income from House Property.

Owner

It is the Legal Owner of the house property who is chargeable to tax in respect of property

income.

In the following cases enumerated by Sec. 27, persons are deemed to be owners of the house

property for the purpose of computing income from house property,

1. An individual, who transfers house property otherwise than for adequate consideration tohis or her spouse or to his minor child, is treated as deemed owner of the house.

2. The holder of an impartible estate is treated as deemed owner of the house property.3. A member of a co-operative society, company or other association of persons, to whom a

building or a part thereof is allotted or leased under a house building scheme of the

society, company or association of persons, is treated as deemed owner of such property.

4. A person who comes to have control over the property in part performance of a contractof the nature referred to in Sec. 53A of the Transfer of Property Act or by virtue of such

transaction are referred to in clause (f) of Sec. 269UA is deemed as owner of such

property.

BasisofcomputingIncomefrom a letouthouseproperty

Income from a let out house property is determined as

Gross Annual Value XXX

Less: Municipal Taxes XXX

Net Annual Value XXX


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Less: Deductions

Standard Deduction XXX

Interest on Borrowed Capital XXX

Income from House Property XXX

GrossAnnual Value [Sec. 23(1)]

Though the tax under the head Income from House Property is a tax on income, yet it is not a

tax upon rent but upon inherent capacity of a building to yield income. The standard selected as a

measure of income to be taxed is Annual Value.

Gross Annual Value is determined as

Reasonable Expected Rent of the Property XXX

Actual Rent Received XXX

The above higher value XXX

Loss due to Vacancy XXX


Reasonable ExpectedRentoftheProperty

Reasonable Expected Rent is deemed to be the sum for which the property might reasonably be

expected to be let out from year to year.

Reasonable Expected Rent of the Property can be determined by taking into consideration the

following factors

1. Municipal Value2. Fair Rent


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3. The higher value of (1) and (2) is the Expected RentMunicipal Value

For collecting Municipal Taxes, the Local Authority makes a periodic survey of all buildings inits jurisdiction. The value estimated is the Municipal Value.

FairRent

This is estimated on the basis of the rent collected for a similar property in a similar location.

StandardRent

If a property is covered under a Rent Control Act, its reasonable expected rent cannot exceed the

standard rent fixed in the Act.

Actual RentReceived

This is the rent collected in the previous year for which the property is available for letting out

less the unrealised rent.

Municipal Taxe

s

These taxes are deductable only if

1. They are borne by the owner and2. They are actually paid by him during the previous year.

Deductionsunder Sec. 24

There are two deductions available under this Section

1. Standard deduction and2. Interest borrowed on capital


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Standarddeduction

It is 30% of Net Annual Value irrespective of any Expenditure incurred by the Taxpayer.

Interest borrowedoncapital

It is deducted if the capital is borrowed for the purpose of purchase, construction, repair, renewal

or reconstruction of the house property.

InterestonPre-ConstructionPeriod

Interest payable by an assessee in respect of funds borrowed for the acquisition or construction

of a house property and pertaining to a period prior to the previous year in which such property

has been acquired or constructed.


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DeterminingthePeriodofHolding

Different Situations Period of Holding Calculation

Shares held in a Company-in-Liquidation The Period Subsequent to the date on which

the Company goes into Liquidation shall be

Excluded

Capital Assets which becomes the Property of

the Assessee in the circumstances mentioned in

Sec. 49(1)

The Period for which the asset was held by the

Previous Owner should be Included

Allotment of Shares in Amalgamated Indian

Company in Lieu of Shares held in

Amalgamating Company

The Period of holding shall be counted from

the date of Acquisition of shares in the

Amalgamating Company

Right Shares The Period of holding shall be counted from

the date of Allotment

Right Entitlement The Period of holding shall be counted from

the date of offer to Subscribe to Shares to date

when such Right is Renounced by a Person

Bonus Shares The Period of holding shall be counted from

the date of Allotment

Issue of Shares by the Resulting Company in a

Scheme of Demerger to the Share Holders of a

Demerged Company


the date of Acquisition of Shares in the

Demerged Company

Membership Right held by a Member of

Recognised Stock Exchange


the date of becoming a Member of the Stock

Exchange

Sweat Equity Shares Allotted by Employer The Period of holding shall be counted from

the date of Allotment or Transfer

Transactions in Shares and Securities not given above

Date of Purchase Date of Purchase by Broker on behalf of

Investor


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Date of Transfer Date of Brokers note provided such

transactions are followed up by Delivery of

Shares and also the Transfer Deeds

Date of Purchase or Transfer Date of Contract of Sale as declared by the

parties provided it is followed up by actual

Delivery of Shares and the Transfer Deeds

Date of Purchase or Sale of Shares and

Securities purchased in several Lots at

different points of time but Delivery taken off

in one lot and subsequently sold in Parts

The First-in-First-out method shall be adopted

to reckon the Period of the holding of the

Security

Transfer of a Security by a Depository The First-in-First-out method shall be adopted

to reckon the Period of the holding

ComputationofCapital Gains

Computation of Capital Gains depends upon the Nature of Capital Assets transferred.

ComputationofShort Term Capital Gains

Value of Consideration XXX

Less : Expenditure incurred during Transfer XXX

Less : Cost of Acquisition XXX

Less : Cost of Improvement XXX

XXX

Less : Exceptions [ Sec. 54B, 54D and 54G] XXX

Short Term Capital Gains XXX


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ComputationofLong Term Capital Gains

Value of Consideration XXX

Less : Expenditure incurred during Transfer XXX

Less : Cost of Acquisition XXX

Less : Cost of Improvement XXX

XXX

Less : Exceptions [ Sec. 54, 54B, 54D ,54EC,

54ED, 54F and 54G] XXX

Long Term Capital Gains XXX

BenefitofIndexation

In the following cases the Benefit of Indexation is not available

1. Bonds or Debentures2. Shares in or debentures of an Indian Company acquired by utilizing Convertible Foreign

Exchange

3. Depreciable Assets4. Undertaking or Division transferred by way of Slump Sale5. Units purchased in Foreign Currency6. Global Depository Receipts purchased in Foreign Currency

CostofAcquisition

Cost of Acquisition of an asset is the value for which it was acquired by the assessee. Expenses

of the Capital nature for completing or acquiring the title to the property are includible in the

Cost of Acquisition.


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CostInflationIndex

Cost Inflation Index for any year means such index as the Central Government ma, having regard

to 75% of the average rise in the Consumer Price Index for Urban Non-Manual Employees, for

the immediately preceding previous year to such previous year, by notification in the Official

Gazette, specify in this behalf.

The Central Government has notified the Cost Inflation Index for the purpose of Long-Term

Capital Gain

Financial Year Cost Inflation Index Financial Year Cost Inflation Index

1981 82 100 1995 96 281

1982 83 109 1996 97 305

1983 84 116 1997 98 331

1984 85 125 1998 99 351

1985 86 133 1999 2000 389

1986 87 140 2000 01 406

1987 88 150 2001 02 426

1988 89 161 2002 03 447

1989 90 172 2003 04 463

1990 91 182 2004 05 480

1991 92 199 2005 06 497

1992 93 223 2006 07 519

1993 94 244 2007 08 551

1994 95 259 2008 09 582

ComputationofIndexed CostofAcquisition andIndexed CostofImprovement

Indexed Cost may be computed under any of the following Situations


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Situation 1:

Capital Asset is Acquired by the Assessee, before 1.4.81

Indexed Cost of Acquisition:

Fair Market Value of the Asset on 1.4.81 X

or Cost of Acquisition, whichever is more

Cost Inflation Index for 1981 82

Cost Inflation Index for the year in which

the Asset is Transferred

Indexed Cost of Improvement:

Cost of Improvement X

Cost Inflation Index for the Improvement

Year



Situation 2:

Capital Asset is Acquired by the Assessee on or after 1.4.81


Cost of Acquisition X


Assets are Acquired




Cost of Improvement incurred X Cost Inflation Index for the Improvement

Year


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Situation 3:

Capital Asset is Acquired by the Assessee, before 1.4.81 in one of the circumstances specified in

Sec. 49(1) and originally Acquired by the Previous Owner before 1.4.81


Fair Market Value of the Asset on 1.4.81 X

or Cost of Acquisition to the Previous

Owner, whichever is more .

Cost Inflation Index for 1981 82




Cost of Improvement incurred by the X

Assessee and the Previous Owner .


Year



Situation 4:

Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the circumstances

specified in Sec. 49(1) and originally Acquired by the Previous Owner before 1.4.81


Fair Market Value of the Asset on 1.4.81

or Cost of Acquisition, whichever is more X


the asset was first held by the Assessee




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Year



Situation 5:

Capital Asset is Acquired by the Assessee on or after 1.4.81 in one of the circumstances

specified in Sec. 49(1) and originally Acquired by the Previous Owner on or after 1.4.81


Cost of Acquisition to the Previous X

Owner .


the asset was first held by the Assessee







Year



ComputationofCapital Gainsfor Non-Residents

Under the First Provision in Sec. 48, Capital Gain is calculated in Foreign Currencies in some

Cases


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Conditions

1.The Taxpayer is a Non-Resident2.He acquires Shares in an Indian Company utilizing Foreign Currency3.The Asset may be a Short Term or Long Term

Special Provisionsfor Non-Residents

Conditions

1.The Taxpayer is a Non-Resident2.He has Transferred Specified Asset, Acquired or Purchased with, or Subscribed to in,

Convertible Foreign Exchange3.Asset is a Long-Term Capital Asset4.Within Six months of the transfer of the Original Asset, the Taxpayer has Invested the

Whole or Part of Net Consideration in any of the following

a.Shares in an Indian Companyb.Debentures of an Indian Public Limited Companyc.Deposit with an Indian Public Limited Companyd.Central Government Securitiese.National Savings Certificates VI and VII Issues

ComputationofCapital Gainfor Self-GeneratedAssets

Self-Generated Assets Sale

Consi-

deration

Cost of

Acqui-

sition

Cost of

Improve

-ment

Expenses

on Transfer

Capital Gain

Goodwill of a Business, Right

to Manufacture, Produce or

Process any Article or Right to

Carry on any Business

Actual Nil Nin Actual Sale Consideration less

Expenses on Transfer

Tenancy Rights, Route Permits Actual Nil Actual Actual Sale Consideration less


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Exercising his Rights Entitlement

Rights Shares purchased by the person in

whose Favour the Rights Entitlement has been

Renounced

Purchase Price Paid to Renouncer of rights

Entitlement plus Amount paid to the Company

which has Allotted the Rights Shares.

Tax Chargeon Short-termor Long-term Capital Gains

Gross Total Income Excluding Capital Gains XXX

Less: Deductions Permissible under Sec. 80C to 80U XXX

Other Net Income XXX

Income Tax on Other Net Income (A) XXX

Long Term Capital Gain XXX

Income Tax on Long Term Capital Gain Sec. 112 (B) XXX

Short Term Capital Gain XXX

Income Tax for Short Term Capital Gain Sec. 111A (C) XXX

Total Income Tax XXX

Surcharge XXX

Education Cess XXX

Tax Liability XXX

Long Term Capital Gain is Taxable at a flat rate of 20%.

In a few cases if Long Term Capital Gain is covered by Sec. 115AB, 115AC, 115AD or 115E, is

Taxable at the rate of 10%.


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Profits and GainsofBusinessorProfession

The following Incomes are chargeable under the head Profits and Gains of Business and

Profession.

1. Profits and Gains of any Business or Profession carried on by the assessee at any timeduring the previous year. Income earned from the exercise of any profession or vocation,

which involves the idea of occupation requiring either purely intellectual skill or any

manual skill, is taxable under this head.

2. Any compensation or other payment due to or received by any person specified by Sec.28(ii).

3.

Income derived by a Trade, Profession or similar Association from specific servicesperformed for its members.

4. Profit on sale of a licence granted under the Imports (Control) Order, 1955 made underthe Imports and Exports (Control) Act, 1947.

5. Cash Assistance received or receivable by any person against Exports under any Schemeof the Government.

6. Any duty of Customs or Excise repaid or repayable as drawback to any person againstExports under the Customs and Central Excise Duties Drawback Rules, 1971.

7. Value of any benefits or perquisites arising from a business or the Excise of a Profession.8. Interest, Salary, Bonus, Commission or Remuneration due to or received by a partner of a

firm for such firm.

9. Any sum received for not carrying out any activity in relation to any business or not toshare any Know-how, Patent, Copyright, Trademark, etc.

10.Any sum received under a Keyman Insurance Policy including the sum by way of bonuson such policy.

11.Any sum received, on account of any capital asset being demolished, destroyed,discharged or transferred, if the whole of the expenditure on such capital asses has been

allowed as a deduction under Sec. 35AD.


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Expensesexpressly allowed asdeduction

Rent, Rates, Taxes, Repairs and Insurance for Buildings [Sec. 30]

In case of premises taken out in rent, the actual rent paid by the assessee and, if he hasundertaken to bear cost of repairs, the expenditure on repairs are permissible deductions. In

respect of premises owned by the assessee, no deduction is allowable on account of notional rent;

amount spent on current repairs is however, allowed as deduction. Besides, the amount paid on

account of Land Revenue, Local Rates and Insurance Premium against the risk of damage or

destruction of the business premises are also allowed as business deduction under this Sec.

Repairs and Insurance of Machinery, Plant and Furniture [Sec. 31]

the Expenditure incurred on Current Repairs, in respect of the Machinery, Plant and Furniture

used for business purpose is allowable as deduction under this section. If, however, Expenditure

is incurred to bring into existence an advantage of an Enduring nature or a New Capital asset, it

cannot be regarded as an expenditure on current repairs. Similarly the Premium paid in respect of

insurance against risk of damage or destruction of such asset is an allowable deduction.

Depreciation [Sec. 31]

In order to claim Depreciation, an assessee has to fulfil the following Conditions

1. The asset should be Owned by the assessee. Where, however, an assessee carries onBusiness or Profession in a building not owned but taken on lease, he is entitled to

depreciation in respect of the Capital Expenditure incurred by him after 31.3.70 on the

construction of any structure or any work in relation to the building by way of

Improvement, Renovation or Extension.

2. The asset, in respect of which Depreciation is claimed, must have been used for thepurpose of business. Where, however the asset is partly used for business or profession

and partly used for personal purposes, a reasonable portion of Depreciation attribute to

the Business user of the asset is allowed.


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DisallowanceofDepreciation

No Depreciation is allowed under Sec. 37(4)(ii) in respect of a building used as a Guest House.Any other asset used therein also does not qualify for Depreciation Allowance.

Where a car is used otherwise than in a business of running it on hire for tourists:

1. Depreciation is not allowed on the excess of the actual cost over Rs.25,000 if the car isacquired after 31.3.67 but before 31.3.75; and

2. Depreciation is wholly disallowed if the car is a Foreign car and has been acquired after28.2.75 but before 1.4.01.

BlockofAssets [Sec. 2(11)]

The term Block of Assets has been defined as a Group of Assets falling within a class of assets,

comprising

1. Tangible Assets Building, Machinery, Plant or Furniture and2. Intangible Assets Know-how, Patents, Copyrights, Trademarks, Licences, Franchises

and any other Business or Commercial Rights of similar nature.

In respect of which the percentage of Depreciation is prescribed

Number Nature of Asset Depreciation R

Block 1 Buildings Residential buildings other than Hotels and

Boarding Houses

5%

Block 2 Buildings Office, Factory, Godowns or buildings not used for

Residential Purpose

10%

Block 3 Buildings-

1. Buildings acquired on or after 1.9.02 for installingMachinery and Plant forming part of Water Supply

100%


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Project or Water Treatment System and which is put to

use for the purpose of Business of providing

Infrastructure Facilities under Sec. 80-IA(4)(i);

2. Temporary ErectionsBlock 4 Furniture Any Furniture or Fittings including Electrical

Fittings

10%

Block 5 Plant and Machinery Any Plant or Machinery and Motor Cars

acquired or put to use on or after 1.4.90

15%

Block 6 Ocean-going Ships, Vessels ordinarily Operating on Inland

waters including Speed Boats

20%

Block 7 Plant and Machinery Buses, Lorries and Taxies used in the business of running them on hire, Machinery used in Semi-

Conductor Industries, Moulds used in Rubber and Plastic Goods

Factories

30%

Block 8 Plant and Machinery Aeroplanes Besides, it includes

Commercial Vehicles which is acquired after 30.9.98 but before

1.4.99 and it is put to use for any period prior to 1.4.99, Life

Saving Medical Equipment

40%

Block 9 Plant and Machinery Containers made of Glass and Plastics

used as Refills, Plant and Machinery which satisfy Conditions of

rule 5(2) an the following:

1. New Commercial Vehicle acquired during 01 02 andput to use before 31.3.02

2. Machinery or Plant used in Weaving, Processing andGarment sector of Textile Industry which is purchasedunder Technology Upgradation Fund Scheme during

1.4.01 and 31.3.04 and put to use up to 31.3.04

3. New Commercial Vehicle which is acquired during

50%


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1.1.09 and 30.9.09 and is put to use before 1.10.09

Block 10 Plant and Machinery Computers including Computer

Softwares. Besides, it includes new Commercial Vehicles

acquired in Replacement of Condemned Vehicle of 15 years of

age and put to use before 1.4.99 or 2000. It also includes books

owned by a Professional. It also includes Gas Cylinders; Plant

used in Field Operations by Mineral Oil Concerns; Direct Fire

Glass Melting Furnaces

60%

Block 11 Plant and Machinery Energy Saving Devices; Renewal Energy

Devices; Rollers in Flour Mills, Sugar Works and Steel Industry

80%

Block 12 Plant and Machinery Air Pollution Control Equipments; WaterPollution Control Equipments; Solid Waste Pollution Control

Equipments; Recycling and Resource Recovery Systems;

Machinery acquired and Installed on or after 1.9.02 in a Water

Supply Project or Water Treatment System or for the purpose of

providing Infrastructure Facility; Wooden parts used in Artificial

Silk Manufacturing Machinery; Cinematograph Films, Bulbs of

Studio Lights; Wooden Match Frames; some plants used in

Mines, Quarries, Salt Works; and Books owned by assessee

carrying on a profession or business in running Lending

Libraries

100%

Block 13 Intangible Assets Know-how, Patents, Copyrights,

Trademarks, Licences, Franchises and any other Business or

Commercial Rights of similar nature.

25%

Written Down Value [Sec. 43(6)]

Written Down Value for the Assessment Year 09 10 will be determined as under

Depreciated Value of the Block of Assets on 1.4.08 XXX


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Add: Actual Cost of the Asset acquired during the Previous Year ending 31.3.09 XXX

XXX

Less: Money Received or Receivable in respect of the Asset Sold XXX

XXX

InvestmentAllowance [Sec. 32A]

It is provided in respect of Eligible Assets and admissible to any Taxpayer who carries on any

Business the Profits and Gains of which are chargeable to tax in India.

DevelopmentAllowance [Sec. 33A]

An Assessee, who carries on the business of Growing and Manufacturing Tea in India, is entitled

to Development Allowance in respect of expenditure incurred for plantation of tea bushes on any

land in India owned by him.

Tea or CoffeeorRubber DevelopmentAccount [Sec. 33AB]

An Assessee can claim this deduction if the following Conditions are Satisfied

1. He must be engaged in the Business of Growing and Manufacturing Tea or Coffee orRubber in India.

2. He must make the following Deposits.A. Deposit with National Bank for Agricultural and Rural Development in accordance

with and for the purpose specified in a scheme approved by the Tea Board or Coffee

Board or Rubber BoardB. Deposit in the Deposit Account opened by the Assessee in accordance with and for

the purpose specified in a scheme framed by the Tea Board or Coffee Board or

Rubber Board with the Previous approval of the Central Government.


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3. The aforesaid amount shall be deposited within 6 months from the End of the PreviousYear or Before the Due Date of furnishing the Return of Income, whichever is earlier.

4. The Accounts of the Taxpayer should be Audited by a Charted Accountant and the reportof the Auditor in Form No. 3AC is to be filed along with the Return of relevant

Assessment Year.

SiteRestoration Fund [Sec. 33ABA]

An Assessee can claim this deduction, if the following Conditions are Satisfied

1. The Taxpayer is engaged in the Business of the Prospecting for, or Extraction orProduction of, Petroleum or Natural Gas or both in India.

2. The Central Government has entered into an agreement with the Taxpayer for suchBusiness

3. It mustA. Deposit with SBI any amount in an account maintained by the Assessee with that

bank in accordance with and for the purpose specified in, a scheme approved by the

Government of India in the Ministry of Petroleum and Natural Gas.

B. Deposit any amount in an account opened by the Assessee in accordance with and forthe purposes specified in the scheme framed by the Ministry of Petroleum and

Natural Gas.

4. The aforesaid amount shall be deposited before the end of the previous year.5. The Accounts of the Taxpayer should be Audited by a Charted Accountant and the report

of the Auditor in Form No. 3AD is to be filed along with the Return of relevant

Assessment Year.

Reservefor ShippingBusiness [Sec. 33AC]

An Indian Public Limited Company engaged in the Business of Operation of Ship can claim this

Deduction.


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Expenditureon ScientificResearch [Sec. 35]

The deduction in respect of expenditure on scientific research may be grouped as under:

Revenue Expenditure Incurred by an Assessee who Himself carries on Scientific Research [Sec.35(1)(i)]

Where the Assessee himself carries on the Scientific Research and incurs Revenue Expenditure,

deduction is allowed for such expenditure only if such Research relates to his Business. Further,

where Salary has been paid to an Employee engaged in Scientific Research or any Expenditure

has been incurred on purchase of Materials used in Scientific Research such Salary or

Expenditure, paid or incurred after 31.3.73, but within 3 Years immediately preceding the

Commencement of the Business, is deemed to have been paid or incurred in the previous year in

which the Business is commenced to the Extent it is Certified by the Authority prescribed for the

purpose under Rule 6.

Contribution to Outsiders [Sec. 35(1)(ii)/(iii)]

Where the Assessee does not himself carry on Scientific Research but makes Contribution to

other Institutions for this purpose, a Weighted Deduction is allowed of One and One-Fourth

times of Payment if:

1. The Payment is made to an Approved Scientific Research Association which has, as itsObject, undertaking of Scientific Research related or unrelated to the Business of the

Assessee.

2. The Payment is made to an Approved University, College or Institution for the use ofScientific Research related or unrelated to the Business of the Assessee.

3. The Payment is made to an Approved University, College or Institution for the use ofResearch for Social Science or Statistical Research related or unrelated to the Business of

the Assessee.


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Amount Paid to an Approved Scientific Research Company [Sec. 35(1)(iia)]

With a view to Encourage Outsourcing of Scientific Research, particularly by Small Companieswhich are Handicapped in making Lumpy Investments for Building In-House Scientific

Facilities, has been included.

Conditions

1. The Taxpayer is any Person.2. The Taxpayer has paid any sum to the Company to be used by the Payee for Scientific

Research.3. The Scientific Research may or may not be related to the Business of the Taxpayer.4. The Payee-Company is registered in India.5. The Payee-Company has as its Main Object the Scientific Research and Development.6. The Payee-Company is for the Time being approved by the Prescribed Authority. An

Application shall be submitted for this purpose in duplicate in Form No. 3CF-III.

7. The Payee-Company fulfils such other Conditions as may be prescribed. TheseConditions are given in Rule 5F.

Amount of Deduction

If the above Conditions are satisfied, then the Taxpayer can claim a Weighted deduction of 125%

of the Amount paid by him to the Payee-Company.

Payee-Company cannot claim Weighted Deduction under Sec. 35(2AB)

With a view to Avoid Multiple claims of deduction, it has been provided that the Payee-Company approved under the Provision of Sec. 35(2)(iia) will not be entitled to claim Weighted

deduction to the extent of 150% under Sec. 35(2AB). However, deduction to the extent of 100%

of the sum spent as Revenue Expenditure or Capital Expenditure on Scientific Research which is

available under Sec. 35(1) will continue to be allowed.


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Capital Expenditure Incurred by an Assessee who Himself Carries on Scientific Research [Sec.

35(2)]

Where the Assessee incurs any Capital Expenditure on Scientific Research related to his

Business, the Whole of such Expenditure incurred in any previous year is allowable as deduction

for that previous year. The following should also be kept in mind

1. Where any Capital Expenditure has been Incurred before the Commencement of theBusiness, the Aggregate of such Expenditure, incurred within 3 Years immediately

preceding the commencement of business, is deemed to have been incurred in the

previous year in which the business is commenced

2. The aforesaid deduction is not available in respect of Capital Expenditure incurred in theacquisition of any Land.

3. If the Asset is Sold without having been used for other purpose, Surplus or Deductionallowed whichever is Less, is Chargeable to Tax as Business Income of the previous Year

in which the Sale took place [Sec. 41(3)]

4. Deduction by way of Depreciation is not Admissible in respect of an Asset used inScientific Research, either in the year in which the Capital Expenditure is Incurred or ina Subsequent year.

Contribution to National Laboratory [Sec. 35(2AA)]

Conditions to be Satisfied

1. The Payment is made toa. National Laboratoryb. Universityc. Indian Institute of Technologyd. Specified Person as Approved by the Prescribed Authority.


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2. The above Payment is made under a specific direction that it should be used by theaforesaid person for undertaking Scientific Research Programme approved by thr

Prescribed Authority.

Amount of Deduction

If the aforesaid Conditions are Satisfied, the Taxpayer is eligible for Weighted Deduction which

is Equal to One and One-Fourth times of Actual Payment.

Expenses on In-House Research and Development [Sec. 35(2AB)]

This provides for a Weighted Deduction in respect of expenditure on In-House Research and

Development expenses subject to the following Conditions

1. The Taxpayer is a Company2. It is engaged in the Business of Bio-Technology or in the Business of Manufacture or

Production of any Drugs, Pharmaceuticals, Electronic Equipments, Computers,

Telecommunication Equipments, Chemicals or any other Article or Thing Notified by the

Board.

3. It incurs any expenditure on Scientific Research and such expenditure is of CapitalNature or Revenue Nature

4. The Research and Development Facility is Approved by the Prescribed Authority. Onceit is approved, the Entire Expenditure Incurred during the Previous Year by the Assessee

on development of such Facility has to be allowed as Weighted Deduction.

5. The Taxpayer has entered into an Agreement with the Prescribed Authority forCooperation of such Research and Development Facility and for Audit of the Accounts

maintained for that facility.

Amount of Deduction

If all the above Conditions are Satisfied, then a Sum Equal to One and One-Half times of the

expenditure so incurred shall be allowed as deduction.


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ExpenditureonAcquisitionofPatentRights and Copyrights [Sec. 35A]

For Claiming Deduction, the following Conditions should be Satisfied

1.

The Know-How, Secret Formula, Designs and Specifications are either Patent Rights orCopyrights

2. The Expenditure is of Capital Nature3. The Expenditure is Incurred on Acquisition of the Patent Rights or Copyrights4. Patent Rights or Copyrights are used for the purpose of Business or Profession of the

Taxpayer and

5. The Capital Expenditure is Incurred prior to 1.4.98If all the aforesaid Conditions are not Satisfied, Then

1. In respect of Capital Expenditure Incurred on or after 1.4.98, one can Claim Depreciationunder Sec. 32

2. In respect of any other Capital Expenditure, no Deduction is available and3. In respect of Revenue Expenditure, one can Claim Deduction under Sec. 37(1).

Expenditureon Know-How [Sec. 35AB]

Deduction under Sec.35AB is not Available if expenditure is incurred after 31.3.98

AmortisationofTelecom Licence Fees [Sec. 35ABB]

Conditions

1. The Expenditure is Capital in Nature2. It is incurred for acquiring any right to Operate Telecommunication Services3. The Expenditure may be incurred either before the Commencement of Business or at any

Time thereafter.

4. The Payment for which has actually been made to Obtain LicenceIf all the above Conditions are Satisfied one can Claim Deduction under this Sec.


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41

Amount of Deduction

The Payment will be allowed as deduction in Equal Installments over the period starting from the

year in which such Payment has been made and ending in the year in which the Licence comes to

an end. It may be noted that the deduction starts from the year in which Actual Payment of

Expenditure is made Irrespective of the Previous year in which the Liability for the Expenditure

is incurred according to the Method of Accounting Regularly Employed by the Assessee.

Expenditureon EligibleProjectsor Scheme [Sec. 35AC]

Deduction is Available, for Promoting Social and Economic Welfare or Uplift of the Public.

Who Can Claim Deduction

Assessee To Whom the Payment should be Made Direct Expenditure on

Eligible Project

A Company Deduction is available if the Taxpayer incurs any

expenditure by way of Payment of any sum to a

Public Sector Company or a Local Authority or

to an Association or Institution Approved by the

National Committee for carrying out any

Eligible Project or Scheme

A Company can also

Directly Incur Expenditure

in respect of Eligible

Project and Claim the

same as Deduction

A Person Other

than a Company

Same as Above Direct Expenditure is not

Permitted

Certificate from the Recipient or Charted Accountant

The Claim for Deduction should be supported by an Audit Certificate obtained from a Public

Sector Company or a Local Authority or to an Association or Institution Approved by the

National Committee to whom the Payment is to be made


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Payment to Associations and Institutions for Carrying out Rural Development

Programmes [Sec. 35CCA]

This provides Deduction of Sums paid by an Assessee to

1. Any Association or Institution to be used for carrying out any Programme of RuralDevelopment [Sec. 35CCA(1)(a)],

2. Any Association or Institution which has as its Object the Training of Persons forImplementation of a Rural Development [Sec. 35CCA(1)(b)],

3. The National Fund for Rural Development set up by the Government [Sec. 35CCA(1)(c)]4. The National Urban Poverty Eradication Fund

Conditions for Availing Deduction under Sec. 35CCA(1)(a)

1. The Association or Institution has as its Object the undertaking of Programmes of RuralDevelopment

2. The Association or Institution is for the Time Being Approved by the PrescribedAuthority

3. The Programme of Rural Development for which sums are paid has been Approved bythe Prescribed Authority

4. Where payment is made after 28.2.83, such Programmes involves work by way ofConstruction of any Building or Other Structure.

Conditions for Availing Deduction under Sec. 35CCA(1)(b)

1. The prescribed Authority had Approved the Association or Institution before 1.3.832. The Training of Persons for Implementing any Programme of Rural Development had

been started by the Association or Institution before 1.3.83

AmortisationofPreliminary Expenses [Sec. 35D]

Certain Preliminary Expenses incurred by an Indian Company or a Resident Non-Corporate

Assessee before the Commencement of Business Qualify for Amortisation. Its Benefit is also


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available if Preliminary Expenses are incurred after the Commencement of Business in

Connection with extension of an industrial Undertaking or Setting up a New Unit. The

Aggregate Amount of Expenses cannot Exceed 5% of the Cost of the Project. One Fifth of the

Qualifying Expenditure is allowed as Deduction in each of the 5 Successive Years beginning

with the year in which extension is Completed or the New Industrial Unit commences.

AmortisationofExpenditureIncurredunder Voluntary Retirement Scheme [Sec. 35DDA]

It provides that where an Assessee incurs any Expenditure in any previous year by way of

payment of any sum to an Employee in connection with his Voluntary Retirement under any

scheme of Voluntary Retirement One Fifth of the Amount so paid shall be deducted in

Computing the Profits and Gains of the Business for the Previous Year and the Balance shall be

Deducted in Equal Installments for each of the 4 Immediately Succeeding Previous Years.

InsurancePremium [Sec. 36(1)(i)]

The amount of any Premium paid in respect of insurance against risk of Damage, or Destruction

of Stocks or Stores, used for the purpose of Business or Profession, is allowable as deduction.

Bonusor Commissionto Employees [Sec. 36(1)(ii)]

This is Allowable as a deduction provided it is not payable to him as Profit or Dividend if it had

not been Payable as Bonus or Commission. The deduction is available in the Payment Year.

InterestonBorrowed Capital [Sec. 36(1)(iii)]

Interest paid on Capital Borrowed for the purpose of Business or Profession is allowable as

deduction. If Capital is borrowed for acquiring a Capital Asset, then Interest Liability pertaining

to the period till the Asset is put to use cannot be allowed as a deduction.

Discounton Zero CouponBonds

Discount on Zero Coupon Bond is deductible on Pro Rata Basis.


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2. It has been written off as Irrecoverable in the Accounts of the Assessee of that previousyear.

TransferofSpecial Reserve [Sec. 36(1)(viii)]

Amount of Deduction

The Lowest of the following Amounts is Deductable

1. The Amount Transferred to the Special Reserve Account during the previous year.2. 20% of the Profits derived from the Business Activities computed before claiming

Deductions.

3.

200% of Paid Up Share Capital and General Reserve as on the last day of the previousyear minus the Balance of the Special Reserve Account on the First Day of the previous

year.

Family Planning Expenditure [Sec. 36(1)(ix)]

Any Bona Fide expenditure Incurred by the Company for the purpose of promoting Family

Planning among its Employees is allowable as deduction.

Contributiontowards ExchangeRiskAdministration Fund [Sec. 36(1)(x)]

Contribution made by a Public Financial Institution towards Exchange Risk Administration Fund

is allowable as deduction.

DeductionofY2K Expenses [Sec. 36(1)(xi)]

This is applicable only if expenditure is incurred by an Assessee during 99 2000.

ExpenditureIncurred by Entitles Establishedunder Statutory Act [Sec. 36(1)(xii)]

Any expenditure incurred by a Corporation or a Body Corporate constituted or established by a

Central, State or Provincial Act for the Objects and purposes Authorised by the Act under which

such Corporation was Constituted or established shall be allowed as deduction.


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Contributionto Credit Guarantee Trust Fund [Sec. 36(1)(xiv)]

A Public Financial Institution can claim deduction in respect of to a Notified Credit GuaranteeTrust Fund for Small Industries.

Advertisement Expenditure [Sec. 37(2B)]

No Allowance is available in respect of expenditure incurred by an Assessee on Advertisement.

General Deductions [Sec. 37]

Any expenditure not Covered by Sec. 30 36 is deductible under Sec. 37, provided the

following Conditions are Satisfied

1. It should be in respect of a Business carried on by the Assessee2. It should have been Laid Out or Expended Wholly and Exclusively for the purpose of the

Business

3. It must have been incurred during the Previous Year4. It should not be in the Nature of Capital Expenditure or Personnel Expenditure of the

Assessee and

5. The Expenditure should not have been incurred for any purpose which is an Offence or isProhibited by any Law.

Amountsexpressly disallowedundertheAct

The following expenses are disallowed by the act while computing income chargeable under the

head Profits and Gains of business or profession. Besides these provisions, no deduction is

permissible in respect of any expenditure or allowance under section 28 to 44C in respect of

income referred to in sections 115A, 115AB, 115AC, 115BBA and 115D.

Amountsnotdeductibleundersection 40


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In the case of any assessee, the following expenses are expressly disallowed

Interest,Royalty, Fee

sfor Technical Service

sP

ayable OutsideIndia [SEC. 40(a)(i)]

If the following three conditions are satisfied the assessee is supposed to deduct tax at source

(TDS) under section 195

1. The amount paid is interest, royalty, fees for technical services or other sum2. The aforesaid amount is chargeable to tax under the Act in the hands of the recipient3. The aforesaid amount is paid or payable

a. Outside India to any personb. In India to a non-resident.

FringeBenefits Tax

Any sum paid on account of fringe benefits tax is not deductible.

Income Tax [Sec. 40(a)(ii)]

Any sum paid on account of income tax is not deductible. Similarly, any interest or penalty or

fine for non-payment or late payment of income-tax is not deductible. This rule is applicable

whether income-tax is payable in India or outside India.

Wealth Tax [Sec. 40(a)(iia)]

Any sum paid on account of Wealth-Tax under the Wealth Tax -Act, 1957, or tax of a similar

nature chargeable under any law outside India is not deductible.

Salary Payable OutsideIndia Without Tax Deduction [Sec. 40(a)(iia)]

Conditions


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1. The payment is chargeable under the head Salary in the hands of the recipient2. It is payable

a. Outside India to any person resident or non-residentb. In India to a non-resident

3. Tax has not been paid to the Government nor deducted at source under the Income TaxAct

If the aforesaid conditions are satisfied, then the payment is not allowed as deduction.

Provident FundPaymentWithout Tax Deduction at Source [Sec. 40(a)(iv)]

Any payment to a provident fund is not deductible if the assessee has not made effective

arrangements to secure that tax shall be deducted at source from any payments made from the

fund which are chargeable to tax under the head Salaries.

Tax onPerquisitepaid by the Employer [Sec. 40(a)(v)]

Provisions

1. The employer provides non-monetary perquisites to employees2. Tax on non-monetary perquisites is paid by the employer3. The tax so paid by the employer is not taxable in the hands of employees by virtue of

section 10 (10CC)

4. While calculating income of the employer, the tax paid by the employer on non-monetaryperquisites is not deductible under section 40(a)(v)

Amountsnotdeductibleinrespectofpaymenttorelatives [Sec. 40A(2)]

Any expenditure incurred by an assessee in respect of which payment has been made to the

persons mentioned is liable to be disallowed in computing business profit to the extent such

expenditure is considered to be excessive or unreasonable, having regard to the fair market value

of the goods or services or facilities, etc.


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Amounts Not DeductibleinrespectofExpenditure ExceedingRs.20,000 [Sec.40A(3)]

If an assessee incurs any expenditure in respect of which payment in excess of Rest.20,000 is

made otherwise than by an account payee cheque or an account payee bank draft, 100 percent of

such expenditure will not be allowable as deduction. Rule 6DD, however prescribes the case and

circumstances in which payment in excess of Rs.20,000 may be made otherwise than by an

account payee cheque or an account payee bank draft without attracting the disallowance. Even

payment made for purchase of goods falls with in the expression expenditure occurring in this

section

Exceptions

1. Payments made to banking and other credit institutions, such as the Reserve Bank ofIndia , commercial banks in the public and private sectors, co-operative banks or land

mortgage bank, primary credit/agricultural credit societies, Life Insurance Corporation of

India

2. Payment made to government if under the rules framed by it such payment is required tobe made in legal tender, such as a payment of direct taxes, customs duty, excise, railway

freight, sales tax, etc

3.

Payment through the banking system, e.g. letters of credit, mail or telegraphic transfer,book adjustment in the same bank or between one bank and another and bills of exchange

payable to a bank, use of electronic clearing system through a bank account , credit card

and debit card

4. Payment made by book adjustment by an assessee in the account of the payee againstmoney due to the assessee for any goods supplied or services renderd by him to the payee

5. Payment to cultivator, grower, or producer in respect of the purchase of agricultural orforest produce or product of animal husbandry or dairy or poultry farming or fish or fish

products or products of horticulture or apiculture.

Provisionforpaymentofgratuity undersection 40A(7)

No deduction is allowed in computing business income in respect of a mere provision made by

the assessee in his books of account for the payment of gratuity to his employees on retirement


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If the above two conditions are satisfied the amount obtained by such persons shall be deemed to

be profits and gains of business or profession accordingly chargeable to tax as income of that

previous year.

Balancingcharges [Sec. 41(2)]

If the Sale Consideration is more than the Written Down Value, then the Tax Treatment of

Surplus is as follows

1. The Surplus Amount which is Equal to the Amount of Depreciation already Claimed, isTaxable as Balancing Charge as Business Income

2. The Remaining Surplus is Taxable under Capital Gains.Saleofassetsusedforscientificresearch [Sec.41(3)]

Where any capital asset used in scientific research is sold without having been used for other

purpose and the sale proceeds, together with the amount of deduction allowed under section 35,

exceeds the amount of the capital expenditure, such surplus or the amount, whichever is less, is

chargeable to tax as income in the year in which the sale took place.

Recovery ofbaddebt

s[Sec. 41(4)]

Where any bad debt has been allowed as deduction under section and the amount subsequently

recovered on such debt is greater than the difference between the debt and the deduction so

allowed, the excess realisation is chargeable to tax as business income of the year in which the

debt is recovered.

Amountwithdrawnfromspecial reserve [Sec. 41(5)]

Where any amount is withdrawn from any reserve, it will be chargeable to in the year in which

the amount is withdrawn, regardless of the fact whether the business is in existence in that year

or not.

Maintenanceofaccounts by persons [sec.44aa]


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Specified Profession

Legal, medical, engineering, architectural, accountancy, technical consultancy, or interior

decoration or any other notified profession are specified professions for this purpose authorised

representative means a person , who represents any other person, on payment of any fee of

remuneration, before any tribunal or authority constituted or appointed by or under any law for

the time being in force, but does not include an employee of the person so represented or a

person carrying on legal profession or a person carrying on profession of accountancy.

Non-Specified Profession

A non specified profession is a profession other than a specified profession mentioned above.

Requirement of compulsory maintenance of books of account

The requirement of section44aa and the rule 6f for compulsory maintenance of books of account

may be summarised by grouping different taxpayers in the following group

y Category APersons carrying on a specified profession whose gross receipts in the profession do not exceed

rs 150000 in any of the three years immediately preceding the previous year.

Persons coming under this category are required to maintain such books of account and other

documents as may enable the assessing officer to compute their taxable income under the income

tax act.

y Category BPersons carrying on a specified profession whose gross receipts in the profession exceed

rs150000 in all the three years immediately preceding the previous year.

Persons coming in this category are required to maintain such books of account.

y Category C


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Persons carrying on s non specified profession or a business whose income from such business

or profession does not exceed rs 120000 or the total sales, turnover or gross receipts thereof are

not in excess of rs 1000000 in all the three years immediately preceding the previous year.

Persons coming under this category are not required to maintain any books of account.

y Category DPersons carrying on a non specified profession or a business whose income from such business

or profession exceeds rs120000 or the total sales, turnover, or gross receipts thereof are in excess

of rs1000000 in any of the three years immediately preceding the previous year.

Persons falling under this Category are required to maintain such Books of Account and OtherDocuments as may enable the Assessing Officer to compute their Taxable Income.

Specified Books of Account

1. a cash book2. a journal, if the accounts are maintained according to the mercantile system of accounting3. a ledger4.

carbon copies of copies of bills exceeding rs 25, issued by the person and carbon copiesor counterfoils of machine numbered or otherwise serially numbered receipts issued by

the person

5. original bills whenever issued to the person and receipts in respect or expenditureincurred by the person or, where such bills and receipts are not issued and the expenditure

incurred does not exceed fifty rupees, payment vouchers prepared and signed by the

person.


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Income From Other Sources

BasisofCharge [Sec. 56]

This is the residual head of charge of income. Where a source of income does not specifically

fall under any one of the other heads of income viz. Salaries, Income from House Property,

Profits and Gains of Business or Profession, Capital gains, such income is to be brought to

charge under sec. 56 under the head Income from other sources.

This residuary head of income would be invoked only if all the following conditions are fulfilled

1. There is a taxable income.2. The income is not exempt from tax.3. Income should not fall under any of the heads of income viz. salaries, income from

House Property, Profits and gains of Business or Profession and capital gains.

ChargeableIncome [Sec. 56(2) ]

As per Sec. 56(2), the following incomes are expressly stated to be chargeable to tax under the

head Income from other sources

1. Dividend [Sec. 56 (2) (i)]2. Any winnings from lotteries, crossword puzzles, races including horse races, card games

and other games of any sort or form, gambling or betting of any form or nature

whatsoever [ Sec.56(2)(ib)]

3. Any sum received by assessee from his employees as contributions to any provident fundor superannuation fund or any fund set up under the provisions of the Employees State

Insurance Act, 1948 or any other fund for the welfare of the employees, if such income is

not chargeable under the head Profits and gains of Business or Profession- [Sec.

56(2)(ic)].

4. Income by way of interest on securities, if it is not chargeable as Profits and gains ofbusiness i.e. where securities are held as investments- Sec. 56(2)(id).


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5. Income from machinery, plant or furniture belonging to the assessee let on hire, if theincome is not chargeable to income-tax under the head, Profits and gains of Business or

Profession - Sec. 56(2)(ii).

6. Income from letting of machinery, plant or furniture, if such income is not chargeableunder the head Profits and gains of Business or Profession- Sec. 56(iii)

7. Any sum received under Key man insurance policy including bonus, if not chargedunder the head Profits and gains of Business or Profession- Sec. 56(iv)

8. Gifts aggregating to more than Rs. 50,000 in a year on or after 1st Day of April, 2006 -Sec. 56(vi)

Some important items of income stated above are hereunder discussed:

Dividend [Sec. 56(2)(I)]

Dividend means the sum paid to or received by a shareholder proportionate to his shareholding

in a company out of the total sum distributed.

The term Dividends includes deemed dividends of the following nature :

1. Any distribution of accumulated profits entailing the release of companys assets- Sec.2(22)(a).

2. Any distribution of debenture stock, deposit certificates to shareholders and bonus topreference shareholder- Sec. 2(22)(b).

3. Any distribution to shareholders on liquidation of company to the extent to which thedistribution is attributable to the accumulated profits of the company, other than

distribution in respect of any share issued for full cash consideration where the

shareholder is not entitled to participate in the surplus assets in the event of liquidation-

Sec. 2(22)(c).

4. Any distribution on reduction of share capital to the extent to which the companypossesses accumulated profit except a distribution in respect of any share issued for full

cash consideration where the shareholder is not entitled to participate in the surplus asset

in the event of liquidation Sec. 2(22)(d).

5. Any payment by way of advance or loan by a closely held company following :


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a. a shareholder, being a person who is the beneficial owner of shares (other thanshares entitled to a fixed rate of dividend) holding not less than 10% of voting

power ; or

b. any concern in which such shareholder is a member or partner and in which hehas a substantial interest; or

c. a person acting on behalf or for the individual benefit of any such shareholder -Sec. 2(22)(e)]

Employees ContributionstoProvident Fund [Sec. 56(2)(ic)]

It has to be remembered that any sum received by the assessee from his employees as

contributions to any provident fund or superannuation fund or any fund set up under the

provisions of the Employees State Insurance Act, 1948 or any other fund for the welfare of such

employees is income in the hands of the assessee and is chargeable as income from other sources

if not chargeable as Profits and gains on Business or Profession [Sec. 2(24)(x)]

However, the tax payer is entitled to deduction of the sum of such contributions received from

his employees if such sum is credited by the taxpayer to the employees account in the relevant

fund on or before the due date. Here, the due date means the date by which the assessee is

required as an employer to credit an employees contribution to the employees account in therelevant fund under an Act, rule, etc. issued in that behalf [Sec. 36(1)(va)].

Therefore, any sum received by the assessee from his employees as contributions to any fund as

aforesaid and is not deposited or deposited belatedly to the employees account, it becomes

income of the assessee.

Intereston Securities

Interest on securities is chargeable as income from other sources if it is not chargeable as Profits

and gains of Business or Profession, i.e. when the securities are held as investment.


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Basis of Charge

If the books of account are maintained on cash basis the interest on securities will be chargeableon receipt basis. However, where books of account are maintained on mercantile system or

where no method of accounting is regularly employed by the assessee, such interest will be

chargeable on accrual basis i.e. as the income of the Previous Year in which such interest is

due to the assessee second proviso to sec. 145(1).

Interest on securities exempt

The interest on securities of the following description is exempt from tax

1. Interest on notified securities, bonds or certificates issued by the Central Govt.2. Interest to an individual or a HUF on 7% Capital investment Bond or on notified Relief

Bonds.

3. Interest to non-resident Indians on notified bonds.4. Interest on securities held by issue Department of the Central Bank of Ceylon.5. Tax planning - Taxpayer is entitled to the deduction of any reasonable sum paid as

commission or remuneration to a banker or any other person for the purpose of realizing

interest on securities. Similarly, he will also be entitled to the deduction of interest on

capital borrowed for investing in securities.

IncomefromInseparable LettingofMachinery,Plantor FurniturewithBuilding

If an assessee lets on hire machinery, plant or furniture and also buildings and the letting of

building is inseparable from the letting of machinery, plant or furniture, the income from such

letting would be chargeable to tax under the residuary head where it is not chargeable under the

Profits and gains of Business or Profession.

Gift


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Now gift received during the previous year shall be included in the income if the aggregate of the

gifts received exceeds Rs. 50,000.

However, the following gifts are not included in taxable income, viz.

1. From any relative; or2. on the occasion of the marriage of the individual; or3. under a will or by way of inheritance; or4. in contemplation of death of the payer; or5. from any local authority as defined in the Explanation to clause (20) of section 10; or6. from any fund or foundation or university or other educational institution or hospital or

other medical institution or any trust or institution referred to in clause (23C) of section

10; or

7. from any trust or institution registered under section 12AA.For this purposes of this clause, relative means

1. spouse of the individual;2. brother or sister of the individual;3. brother or sister of the spouse of the individual;4. brother or sister of either of the parents of the individual;5. any lineal ascendant or descendant of the individual;6. any lineal ascendant or descendant of the spouse of the individual;7. spouse of the person referred to in clauses (ii) to (vi).

In respect of gifts from relatives, although exempt from tax, in respect of income earned from

such a gift, provisions relating to clubbing of income apply in certain cases e.g. gift received

from spouse and father-in-law.


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AdvancePaymentofTax

Advance Tax is Payable as follows

A Corporate Assessee A Non-Corporate Assessee

On or Before June 15 of the

Previous Year

Up to 15% of Advance Tax

Payable

-

On or Before September 15 of

the Previous Year


Payable


Payable

On or Before December 15 of

the Previous Year


Payable


Payable

On or Before March 15 of the

Previous Year


Payable


Payable


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ComputationofTotal Income

Incomefrom Salary

Basic Salary XXX

Allowances XXX

Perquisites XXX

Profits XXX

Gross Salary XXX

Less : Deductions u/s 16

Entertainment Allowances XXX

Professional Tax XXX XXX

Incomefrom HouseProperty


Less: Municipal Taxes XXX

Net Annual Value XXX

Less: Deductions u/s 24

Standard Deduction (30% on N.A.V.) XXX

Interest on Capital Borrowed XXX XXX


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ProfitsfromBusinessorProfession

Business

Net Profit as per Profit and Loss A/c XXX

Add: Debit Side Disallowed Expenses XXX

Income Allowed but not Included XXX

Less: Credit Side Disallowed Income XXX

Expenses Allowed but not Included XXX

Depreciation According to Income Tax Act XXX XXX

Profession

Professional Receipts XXX

Less: Professional Payments XXX XXX

Incomefrom Capital Gains

Short Term

Sale Value XXX

Less: Expenses on Sale XXX

Net Consideration XXX

Less: Cost of Acquisition XXX

Cost of Implantation XXX


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Short Term Capital Gain XXX

Less: Exemption u/s 54B, 54D, 54G XXX XXX

Long Term

Sale Value XXX

Less: Expenses on Sale XXX

Net Consideration XXX

Less: Cost of Acquisition XXX

Cost of Implantation XXX

Long Term Capital Gain XXX

Less: Exemption u/s 54, 54B, 54D, 54ED, 54F 54G XXX XXX

Incomefrom Other Sources

General Income XXX

Special Income XXX

Less: Deductions XXX XXX

Gross Total Income XXX

Less: Deductions u/s 80C, 80CC, 80CCD, 80G, 80GG..80U XXX

Total Taxable Income XXX


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TDS RatesforAssessment Year 2009-10:

Section 192 PaymentofSalary andWages

Criterion of Deduction Deducted if the estimated income of the employee is taxable.

Employer must not deduct tax on non-taxable allowances like

conveyance allowance, rent allowance, medical allowance and

deductible investments under sections like 80C, 80CC, 80D, 80DD,

80DDB, 80E, 80GG and 80U.

No tax is required to be deducted at source if the estimated total

income of the employee is less than the minimum taxable income.

Applicable TDS Rate Income Tax, Surcharge and Education Cess at the applicable rate on

the estimated income of employee for the year.

Section 193 PaymentofIntereston Securities

Criterion of Deduction Deductible if payment exceeds Rs. 5,000/- per annum.

Applicable TDS Rate Income Tax Surcharge Education Cess Total

If the recipient is a Company, Firm

or Cooperative Society *

20.00% 2.00% 0.66% 22.66%

If the recipient is an Individual or

HUF and payment exceeds Rs. 10

lac per annum.

10.00% 1.00% 0.33% 11.33%


HUF and payment does not exceed

Rs. 10 lac per annum.

10.00% 0.00% 0.30% 10.30%


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Section 194 B Winningsfrom Lotteriesor CrossWordPuzzleor Card

Gameor any other Game

Criterion of Deduction Deductible if payment exceeds Rs. 5,000/-.




lac per annum.

30.00% 3.00% 0.99 33.99%




30.00% 0.00% 0.90 30.90%

Section 194 BB Winningsfrom HorseRace



If the recipient is an Individual orHUF and payment exceeds Rs. 10

lac per annum.

30.00% 3.00% 0.99 33.99%




30.00% 0.00% 0.90 30.90%

Section 194 A PaymentofInterest


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20.00% 2.00% 0.66% 22.66%



lac per annum.

10.00% 1.00% 0.33% 11.33%




10.00% 0.00% 0.30% 10.30%

Section 194 C Paymentto Contractors (IncaseofAdvertising

Contracts)

Criterion of Deduction Deductible if Payment exceeds Rs. 20,000/- per contract or

Rs. 50,000/- per annum.




1.00% 0.10% 0.033% 1.133%



lac per annum.

1.00% 0.10% 0.033% 1.133%




1.00% 0.00% 0.03% 1.03%

Section 194 C Paymentto Contractors / Sub-contractors (Incaseof

OtherthanAdvertising Contracts)


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Criterion of Deduction Deductible if Payment exceeds Rs. 20,000/- per contract or

Rs. 50,000/- per annum.


If the recipient is a Company, Firmor Cooperative Society *

2.00% 0.20% 0.066% 2.266%



lac per annum.

2.00% 0.20% 0.066% 2.266%




2.00% 0.00% 0.060% 2.06%

Section 194 H PaymentofCommissionorBrokerage





10.00% 1.00% 0.33% 11.33%



lac per annum.

10.00% 1.00% 0.33% 11.33%


HUF and payment does not exceedRs. 10 lac per annum.

10.00% 0.00% 0.30% 10.30%

Section 194 I PaymentofRentofLand,Buildingor Furniture


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Criterion of Deduction Deductible if payment exceeds Rs. 1,20,000/- per annum.

Individuals and HUFs whose sales/gross receipts in

business is less than Rs 40 lac or professional receipts is

less than Rs 10 lac are not required to deduct TDS




20.00% 2.00% 0.66% 22.66%



lac per annum.

15.00% 1.50% 0.495% 16.995%




15.00% 0.00% 0.45% 15.45%

Section 194 I PaymentofRentofPlant & Machinery

Criterion of Deduction Deductible if payment exceeds Rs. 1,20,000/- per annum.




10.00% 1.00% 0.33% 11.33%



lac per annum.

10.00% 1.00% 0.33% 11.33%




10.00% 0.00% 0.30% 10.30%


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Section 194 J PaymentofProfessional Charges





10.00% 1.00% 0.33% 11.33%



lac per annum.

10.00% 1.00% 0.33% 11.33%




10.00% 0.00% 0.30% 10.30%

(*) Surcharge is deductible if total payments to the payee during the financial year exceed

Rs. 1 Crore.

y TDS deducted is required to be deposited within one week from the last day of the monthof deduction.

y If TDS amount is not deposited by the due date, then for each month a penalty of interestequal to 1% of