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RATHORE INSTITUTE
Revisionary Class notes on
INCOME TAX
By : CA Anupam Parashar
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Visit www.rathoreinstitute.com for details of forthcoming batches at:
(i)Rathore Institute, 2578, Hudson Lane, Kingsway Camp, New Delhi-
110009, Ph : 011-27412649, 27415579
(ii) iSS Rathore Institute, 1/50, iSS Building, Lalita Park, Laxmi Nagar,
New Delhi - 110092 Ph : 09891885266, 011-43073355
CHAPTER - 1
BASIC CONCEPT
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What is Tax Tax is a fee charged by a government There are two types
of taxes
(1) Direct taxes
(2) Indirect taxes.
IMPORTANT DEFINITIONS
ASSESSEE
Sec. 2(7)
'
PERSON
Sec. 2 (31)
INCOME
INDIA
]
TAXATION OF PREVIOUS YEAR'S INCOME DURING THE SAME YEAR
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(1)Shipping business of non-resident [Section 172]
(2) Person leaving India [Section 174]
(3) AOP or BOI or artificial juridical person formed for a particular
event or purpose (Section 174A]
(4) Persons likely to transfer property to avoid tax [Section 175]
(5) Discontinued business [ Section 176]
DEEMED INCOME
(1) Unexplained Cash Credits (Section 68)
(2) Unexplained Investments (Section 69)
(3) Unexplained Money, bullion or jewel or Valuable article (Section
69A)
(4) Investment not fully disclosed (Section 69B)
(5) Unexplained Expenditure (Section 69C)
TAX. RATES FOR ASSESSMENT YEAR 2009-10
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SURCHARGE ON INCOME TAX
MARGINAL RELIEF
CHAPTER 2
SCOPE OF TOTAL INCOME & RESIDENTIAL STATUS
Basic condition
(1) 182 days or more in the relevant previous year; or
(2)60 days or more during the relevant previous year 365 days or more during 4
previous years immediately preceding the relevant previous year.
Exceptions: There are two exceptions to the above rule:
(1)employment outside India,.
(2)Indian origin,comes on a visit to India in any previous year
ADDITIONAL CONDITIONS
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a) 2 out of 10 And
730 days or more, during 7
SECTION 9
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CHAPTER 3
INCOME FROM SALARY
Important concept
Employer and employee relationship
Type of Allowances
House Rent allowance
Section 10(13A)
Specified allowances
DUCHAT
100, 300, 800, 800/1600,200
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70% of such allowance
or Rs, 6,000
p.m. whichever is less.
Treatment of Entertainment Allowance
Allowances which are exempt in case of certain persons
Perquisites
Taxable Tax Free Taxable in hands
of
Other benefit
under
For All for all specified
employees
(Chapter XII H)
(1) Rent Free
Accommodation
(6) Leave
Travel
concession
(8) Water, gas Tax paid by
Employer
Exempt for all
employees
(2) Loan (7) Medical (9) Education
(3) Use of movable assets (10)
Attendance
(4) Transfer of assets
(5) Reimbursement for all
meeting personal
Expenditure except car
and telephone (FBT)
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Who is a specified employee
Profits in lieu of salary
Retirement Benefits
Pension
Gratuity
Leave Salary
Compensation on voluntary retirement
(i) (a) Three months salary for each completed years of service or
(b) Salary of the balance months of service left before his
normal retirement Which is less
Retrenchment compensation
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*Salary includes all but does not include bonus and employer's PF
contribution.
Average salary for preceding 3 months preceding the date of retirement is
taken.
Treatment of Provident Fund for Income-tax Purposes
Deductions from Salaries
(i) Entertainment allowance (Section I6(ii)]
(ii) Tax on employment [Section I6(ii)l
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CHAPTER 4
INCOME FROM HOUSE PROPERTY
Chargeability
Section 22
Deemed owner
Section 27
When income from house property is not charged to tax
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DETERMINATION OF ANNUAL VALUE
Treatment of unrealized rent
Section 23(1)
Deductions
Section 24
No Deduction
Section 25
Recovery of unrealized rent
Section 25AA
Special provisions for arrears of rent received
Section 25B
Co-ownership
Section 26
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Can Annual Value (Net Annual Value) be negative?
CHAPTER 5
INCOME FROM BUSINESS OR PROFESSION
Depreciation
Section 32
Proportionate Depreciation
Set off and carry forward of unabsorbed depreciation
Additional Depreciation
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Written down value for purpose of charging depreciation if during the previous
" year there is a slump sale:
How to claim depreciation when the asset is not exclusively used for the
purpose of business or profession
Tea/Coffee/Rubber Development Account
Section 33AB
40%
Site Restoration Fund
Section (33ABA)
20%
Scientific Research Expenditure
Section 35
Sale of scientific research asset
Section 41(3)
Expenditure for obtaining licence to operate telecommunication services
Section 35ABB
Sale of
licence
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Expenditure on eligible projects or schemes
Section 35AC
Expenditure by way of payments to associations and institutions for carrying
out Rural Development Programmes Section 35CCA
Preliminary Expenses
Section 35 D
Amortisation of expenditure in case of amalgamation or demerger
Section 35DD
Amortisation of expenditure incurred under voluntary retirement scheme
Section 35DDA
Expenditure on prospecting of minerals
Section 35 E
Expenses Allowed Deductions
u/s 36(1)
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General Deductions
Section 37(1)
Expenses not deductible
Section 40 (a)
Deduction for partnership firm
Section 40(b)
Payment lo specified persons
Section 40 A(2)
Payment in cash
Section 40 A(3)
Provision for gratuity
Section 40 A(7)
Deduction on payment basis
Section 43 B
Maintenance of accounts
Section 44AA
exceed Rs. 1,50,000
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in all the 3 years preceding the P/Y or
non specified profession or any business:
If total income exceeds Rs. 1,20,000 or total sales/receipts exceeds Rs.
10,00,000 in any one of three years preceding the P/Y or
Compulsory audit of accounts
Section 44AB
1. In case of business : If total sales or gross receipts of business
exceed Rs. 40,00,000.
2. In case of profession If gross receipts are more than Rs. 10,00,000.
3. U/s 44AD/AE/AF:
Computation of income on estimation basis
Sec. 44AD/AE/AF
8%
3500/3150
5%
CHAPTER 6
INCOME UNDER THE HEAD CAPITAL GAIN
Capital asset
Section 2(14)
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Type of capital gains
Transfer
Section 2(47)
Transactions not regarded as transfer
Sections 46 and 47
Advance Money Forfeited
Section 51
Cost of improvement
Section 55(1)(b)
Indexed cost of acquisition
Indexation of cost not allowed in certain cases
Indexed cost of improvement [Explanation (iv) to section 48]
Computation of capital gain in certain cases
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Taxation of zero coupon bonds
Section 2(48)
Insurance Claim on destruction
Section 45(1A)
Conversion of capital asset- into stock in trade
Section 45(2)
Transfer of a capital asset by a partner to firm
Section 45(3)
Dissolution of firm
Section 45(4)
Compulsorily acquisition
Section 45(5)
Exemption on compulsory acquisition of agricultural land
Section 10(37)
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Capital gain on conversion of debentures into shares:
Liquidation of a company
Section 46
Conversion of preference shares into equity shares
Capital gain on sale of goodwill of a business/trademark or brand name/
tenancy rights/route permits or loom hours, right to manufacture or
right to carry on any business:
Special provision for full value of consideration in certain cases
Section 50C
Reference to valuation officer
Section 55A
Long-term capital gain on eligible equity shares exempt if the shares are
acquired within a certain period Section 10(36)
Exemption of capital gains on compensation received on compulsory
acquisition of agricultural land situated within specified urban limits
Section 10(37)
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Tax on snort-term capital gains in case of equity snares and units or
equity oriented fund
(Section 111A)
Tax on long-term capital gains from listed securities
1. Tax @ 20% on long-term capital gains computed after indexation
or
2. Tax @ 10% on long-term capital gains computed without
indexation of its cost.
CHAPTER 7
INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES
Method of Accounting
Taxability of Dividend
Section 56(2)(i)
Exemption of income from units
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Section 10(35):
Dividend
Deemed Dividend
Section 2(22)
Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games
Section 56(2)(ib)
Special rate of Income-tax in case of winnings from lotteries, crossword
puzzles, races, etc. Section 115BB
Grossing up of lottery income, etc.
Rate of TDS for interest
Interest exempt from tax
Section 10(15)
No deduction
Section 14A
Govt. Non-govt.
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Tax-free Others Tax-free Others
Included in total
IncomeX
Grossing up
X X Or X
Avoidance of tax by certain transaction in securities
Section 94
Bona Washing Transaction
(2) Loss arising from purchase and sale of securities not allowed in
certain cases (Section 94(7))
(3) Bonus stripping in case of units (Section 94(8)]
Income from letting out of machinery, plant or furniture
Section 56(2)(ii)
Income to include gift of money from unrelated persons
Section 56(2)(vi)
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Contribution of the employee towards his welfare fund, deducted/received by
the employer [Section 56(2)(ic)]
Amounts not deductible in computing the income under the head 'Income from
Other Sources' [Section 58]
CHAPTER 13
INCOME OF CHARITABLE TRUST AND POLITICAL PARTY
CHAPTER 12
AGRICULTURAL INCOME
Agricultural income means
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Sec. 2 (1A)
Partly Agricultural and partly non-agricultural income
Disintegration of income in specific composite business
75%,65%,60%.
CHAPTER 8
CLUBBING OF INCOME
Transfer of income where there is no transfer of assets
Section 60
Revocable transfer of assets
Section 61
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When a transfer is revocable [Section 63]:
Section 61 not applicable, if the transfer is irrevocable for a specified period
Section 62
Income of an individual to include income of spouse, minor child, etc.
Section 64
Remuneration of spouse from a concern in which the other spouse has
substantial interest [Section 64(1)(ii)]:
Income from assets transferred to the spouse
Section 64(1)(/V)
Income from assets transferred to son's wife
Section 64(l)(vi)
Income from assets transferred to any person for the benefit of the spouse of
the transferor Section 64(I)(vii)
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Carry forward and set off of losses in case of certain companies
Section 79
Set off and Carry forward of Losses
Nature of Income Set - Off Carry Forward Set - Off
Same
Sourceunder
same
head
Inter-
sourceunder
same
head
Inter-
Head
For
AssessmentYear
From
Salary N.A N.A N.A N.A N.A.
House Property 8 years Same Head
PGBP
Non-
Speculation
Except from thesalary
8 years Same Head
Speculation X X 4 years SameSource
Capital
Gains
Short Term X 8 years Same Head
Long Term X X 8 years Same Head
Other
Sources
Winning from
Lottery etc.
X X X
Interests etc. X
Owning &
Maintenancerace horses
X X 4 years Same
Source
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CHAPTER 10
DEDUCTIONS
Deduction for Life Insurance Premium, PF contribution etc.
Section 80C
Available to: only Individual and HUF,
Investment in Pension Fund
80CCC
Deduction in respect of contribution to pension scheme of CentralGovernment
Section 80CCD
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Section 80CCE:
Total deduction under section 80C, 80CCC and 80CCDcan not exceed Rs.
1,00,000.
Medical Insurance Premium
Section 80D
15000/20000
Medical treatment of Dependent handicapped
Section 80DD
50000/75000
Expenditure on specified diseases
Section 80DDB
40000/60000
Relative in relation to an individual means spouse, children, brother,
sister or parents of the individual.
Payment of interest on loan for higher education
Section 80E
8year
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Deductions for donations
Section 80G
Adjusted Gross total income means
Gross Total Income
less Long Term Capital Gains
less Short Term Capital Gains u/s 111A
less Deductions under other sections of chapter VI-A [but without
deducting deduction under A, B]
Note:- GTI includes lottery income also. But for calculating Adjusted GTI
lottery has not been excluded. Therefore while calculating Adjusted GTI
lottery shall not be deducted.
Deductions for payment of rent
Section 80GG
Deduction in respect of certain donations for scientific research or rural
development
Section 80GGA
Deduction in respect of contributions given by companies to political
parties
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Section 80GGB
Deduction in respect of contribution given by any person to political
parties
Section 80GGC
Development of infrastructure
Section 80- IA
100% of profits from such business for any 10 years out of 15 years
Development of SEZ
Section 80-IAB
100% of profits from such business for any 10 year-; out of 15 years
Manufacturing in specified areas
Section 80-IC
Amount of Deduction:-
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In Sikkim or North East Region 100% of profits for 10 years starting
from the year in which starts
operations
In Himachal Pradesh or Uttaranchal 100% of profits for 5 years starting
from the year
in which starts operations
25% of profits for next 5 years (30%
for company)
Operating Hotels and Convention Centre
Section 80-ID
Amount of deduction:-
100% of profits from such business for 5 consecutive AIY beginning
front the year in which such hotel starts functioning or conventioncentre starts operating on commercial basis.
Manufacturing of Specified Articles Eligible Business in Specified Areas
Section 80-IE.
Amount of deduction:
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100% of profits shall be allowed as deduction for 10 consecutive A/Y
commencing from the year in which it begins to manufacture or produce
articles or things, or completes substantial expansion.
Bio-degradable waste for generating power
Section 80JJA
100% profits shall be allowed as deduction for the 5 consecutive AssessmentYears beginning with the year in which such business is commenced.
Employment of New Workmen
Section 80JJAA
Assignment of copyright of any book
Section 80 QQB
Income from Inventions
Section 80RRB
Deduction for handicapped
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Section 80U
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