- 1. This file consist of topics1. heads of income 2. clubbing of
income 3. set of and carry forwardAll amendments made up to Finance
act 2008 incorporated File covered with all the provisions of law
.Case studies which is useful for final students will be uploaded
soon. . Disclaimer: Every effort is taken to avoid errors and
omissions . If any mistake , error that may have crept in, is
unintentional. Author not responsible for any damage or loss any
kind arising to any one. CA N Raja Sekhar M.Com FCA DISA Chennai
[email protected]
2. This file consist of topics1. heads of income 2. clubbing of
income 3. set of and carry forward All amendments made up to
Finance act 2008 incorporated.Every attempt was made to make free
from errors . If any error crept it is unintentional. Author not
responsibleCA N Raja Sekhar M.Com FCA DISA Chennai
[email protected] 3. Gross total income sec 14 Income fromIncome
from Income fromSalariesIncome from SalariesHouse property House
property Profits and gains Profits and gains Capital gainsof
Business andCapital gainsof Business and profession profession
Income from other Income from othersources sources Aggregate of all
the 5 heads of income is known asRaja Sekhar,total incomeCA N gross
Chennai, 4. Income from Salaries employee and
employerrelation,Income must arise out of employment, one must be
an past or present.Preconditionsemployee. To chargethere must exist
amaster-servantrelationship. CA N Raja Sekhar, Chennai, 5. Master
and servant relationship exist when employee employee worksworks
under under the directsupervision control of his Of employer
employeremployerhas receivesthe right to instructionscontrolthe
manner in which from hishe carries out the employerinstructions. CA
N Raja Sekhar, Chennai, 6. Taxability of salary Accrual
basisOrReceipt basisWhich everis earlier CA N Raja Sekhar, Chennai,
7. Salary will be taxable on receipt or due basiswhich ever is
earlier as below Forms of Salary Salary due Salary paid Arrears of
Whether paid Whether due Salary paidor not Or notOr allowed Taxable
when due,Taxable when paidAgain not taxedAgain not taxed when
Taxable when it paid When it was paidDue (ex advance salary If not
taxed earlierSalary is taxable even it is due or received from
former Employer. Advance taken against Salary is not taxable when
it was paidCA N Raja Sekhar, Chennai, 8. Meaning of Salary Salary
includeswages, Annuity or pension, gratuity, fees, commission,
perquisites or profits in lieu of salary, advance salary, leave
encashment, etc Interest earned in excess of 9.5% on Recognized
Provident Fund (RPF) Amount transferred to Recognized Provident
Fund (RPF) in excess of 12% on salary CA N Raja Sekhar, Chennai, 9.
Components of Salary Basic salary - Taxable Dearness Allowance -
taxableBonus - taxable in the year of receipt. Salary in lieu of
notice - is taxableon receipt basisFees or commission
Remunerationfor extra work-- taxableCompensation/annuity from
employer - fortermination of employment or modification of terms
ofRaja Sekhar, Chennai, taxable.CA N employment is 10. Components
of Salary Encashment of unutilized leave onService -taxableSalary
paid by a foreign Government to its employees serving in India is
taxableCity compensatory allowance - taxable Tiffin allowance /
Fixedmedical allowance- taxableServants allowance - taxable 11.
Allowances fully exempt from TaxConveyance allowanceTour/Travel/
Transferfor Oficial Packing allowancePurpose if no freeon tour on
transferConveyance is provided Helper allowance If helper engaged
Research/Training For office purposeAllowance to...Pursuit
knowlegeAllowances to Uniform AllowanceGovt employees forAllowances
to For wear Rendering outside High court judges in
performingIndiaCoveyance compensatory Sumptuary etc. dutiesCA N
Raja Sekhar, Chennai, 12. Allowances exempt from Tax based
onmonetary limits sec 10(14 ) SNDescription of
AllowanceExemption1Special Compensatory Allowance inTo thespecified
areasextent specified 2Tribal Area Allowances in specified states
Up to Rs, 200 p.m 3For meeting personal expenditure ofUp to
70%employee of transport system running oftransport vehicle
provided no dailyallowanceallowance for the said duty is received.
maximum of Rs. 6,000 p.mCA N Raja Sekhar, Chennai, 13. Allowances
exempt from Tax based on monetary limits sec 10(14 ) SN Description
of AllowanceExemption 4Children educational allowance, @ Rs.
100maximum of two children p.m. per Child 5Children hostel
allowance, maximum@ Rs. 300of two children p.m. per child
6Compensatory Field Area Allowance @ Rs. 2,600in specified areas,
p.m. 7Compensatory Field Area modified@ Rs. 1,000Allowance p.m.
8Counter insurgency allowance. to@ Rs. 3,900members of armed
forces.p.mCA N Raja Sekhar, Chennai, 14. Allowances exempt from Tax
based onmonetary limits sec 10(14 ) S Description of Allowance
Exemption N 9Transport allowance granted for theRs. 800 Perpurpose
of commuting between the Monthplace of his residence and the
placeof his duty 10 Transport allowance to an employee Rs. 1600
perwho is blind, orthopedic handicapped monthfor the purpose of
commuting betweenthe place of his residence and theplace of his
duty CA N Raja Sekhar, Chennai, 15. Allowances exempt from Tax
based on monetary limits sec 10(14 ) SN Description of
AllowanceExemption11 Underground allowance granted to anRs. 800
Peremployee who is working in Monthunderground coal mines 12 Any
special allowance in the natureof high altitude) allowancefor
altitude of 9,000 to 15,000 feet Rs. 1,060 per monthAbove 15000
feet Rs. 1600 per monthCA N Raja Sekhar, Chennai, 16. Allowances
exempt from Tax based onmonetary limits sec 10(14 )SDescription of
Allowance Exemption N 13 Any special allowance grantedRs. 4,200to
the members of the armedper monthforces highly active field
areaallowance 14 Any special allowance grantedRs. 3600to the member
of the armed per monthforces allowance (Andaman andNicobar and
LakshadweepGroup of Islands)CA N Raja Sekhar, Chennai, 17. House
rent allowance 10(13A) ConditionsThe Allowance must be specifically
granted for payment of rent in respect of residential accommodation
occupied by the employee The employee must have actually incurred
expenditure on payment of rent. The employee should not stay in his
own residentialaccommodation The assessee should pay more than 10%
of Salaryas rent CA N Raja Sekhar, Chennai, 18. H R A Exempt Least
of the following Allowance actually received Rent paid in excess of
10 per cent of salary 50 per cent of salary in Case ofDelhi, Bombay
Calcutta and Madras40 per cent of salary in Case of Other places
Taxable amount= received amount - exempted amount CA N Raja Sekhar,
Chennai, 19. For Purpose of HRA Salary meansBasic Salary Basic
Salary + D A counted for D A counted forRetirement
benefitsRetirement benefits +Commission fixed %.Commission fixed %.
On turnover On turnover CA N Raja Sekhar, Chennai, 20. Leave Travel
Concession or Assistance (S. 10(5) Rule 2B)available to Indian as
well as foreign citizen forhimself/spouse/children/dependent
parents, brothersand sisters.limited to amount actually spent on
traveling ofemployee and his family members.during employment or on
retirement or on termination.for traveling to any place in
India.allowed twice in a block of four calendar years.block
commenced from calendar year 1986. (Currentblock
2006-2009).exemption on travel concession will not be admissible
tomore than two surviving children of an individual bornafter
1-10-1998.allowance in cases of destination connected by air/rail
isrestricted to economy class air fare/A.C. first classfare.CA N
Raja Sekhar, Chennai, 21. Taxability of PensionPensionUn Commuted
Pension Commuted Pension (periodical Payment For All employees
Govt. Employees Other Employeestaxable Employees who are Employees
who are Fully ExemptReceipt of gratuity not Receipt of gratuity
Commuted value of Commuted value of 1/3 of1/2 of Pension
exemptPension exemptTaxable amount= received Sekhar, Chennai,
exempted amountCA N Rajaamount - 22. Taxability of Gratuity Death
cum Retirement gratuityGovernment Employees Other employees
Employees who areFully exemptCovered Under Employees who
aregratuity ActNot Covered Under gratuity Act Least is exemptLeast
is exemptActual Gratuity SeasonalActual Gratuity Rs. 350000
Employment Rs. 350000 month Salary For every15 days Salary
(denominator 26)Completed service 7 days salary (fraction ignore)
For every completed service orPart there of in excess of 6 10
months average salary (immediately preceding Monthmonths (Last
drawn salary) Salary) CA N Raja Sekhar, Chennai, 23. For Purpose of
gratuity Where employee covered under gratuity act Salary means +
Basic Salary Basic SalaryD A counted forD A counted for Retirement
benefits Retirement benefits Last drawn salary has to considerIn
case of piece rate employee last three Months average salary
(excluding OT) to consider CA N Raja Sekhar, Chennai, 24. For
Purpose of gratuity Where employeenot covered under gratuity act
Salary means Basic SalaryBasic Salary+D A as per terms of D A as
per terms of employmentemployment+Commission fixed %. Commission
fixed %.On turnoverOn turnover 10 months average salary immediately
preceding the month of retirement has to consider In case of piece
rate employee last three Months average salary N Raja Sekhar,
Chennai,to considerCA (excluding OT) 25. Retrenchment Compensation
15 days salary based on the last 3 months average salary for every
completed year of Service or part there of in excess of 6 months
)ID ExemptAct) Least ofCompensation actually receivedRs 5,00,000
where the scheme is approved by the Central Government the entire
amount is Raja Sekhar, Chennai, CA N exempt 26. For Purpose of
Retrenchment Compensation Salary means Basic SalaryBasic Salary +D
A as per terms of D A as per terms of
employmentemployment+Commission fixed %. Commission fixed %.On
turnoverOn turnover Taxable amount= received amount - exempted
amount CA N Raja Sekhar, Chennai, 27. Voluntary Retirement
Compensation (S. 10(10C))Any amount received or receivable by an
employee of A public sector company, or any other company, or An
authority established under a Central, State or Provincial Act, or
A local authority or co-operative society A university established
under a Central, State or Provincial Act An Indian Institute of
Technology Any State or Central Government; or
Notifiedinstitutionshavingimportance throughout India or in any
state or states. Notified Institute of ManagementCA N Raja Sekhar,
Chennai, 28. Voluntary Retirement SchemeConditions: Employee should
be at least 40 years of age. Exemption will be allowed only for one
Assessment Year. Actual VRS Compensation received Exempt Least
ofLast Drawn Salary X 3 X No. offully completed years of
serviceLast Drawn Salary X Balance Number of Months of Service
LeftRs. 500000/- Taxable amount= received amount - exempted amount
CA N Raja Sekhar, Chennai, 29. For Purpose of V R S Salary means
+Basic SalaryBasic SalaryD A counted forD A counted for Retirement
benefits Retirement benefitsLast drawn salary has to considerCA N
Raja Sekhar, Chennai, 30. Unutilized Leave encashmentTaxable for
all employees Taxable for all employees ReceivedCan get relief u/s
89 Can get relief u/s 89 While on serviceReceived at Government
employees Government employees The time of retirement/Full exempt.
Other Full exempt. Other resignation Exempt up to certain limit
Exempt up to certain limit CA N Raja Sekhar, Chennai, 31. Leave
Encashment (S. 10(10AA))when received at the time of
retirement/resignation for other employees Conditions: .Entitlement
to earned leave not to exceed 30 days for every year of actual
service. Leave encashment actually received Exempt Least of Last 10
months salary immediatelypreceding the monthCash equivalent of
leave encashment for every completed year of service based on last
10 months average salaryRs. 300000/- Taxable amount= received
amount - exempted amount CA N Raja Sekhar, Chennai, 32. For Purpose
of Leave Encashment Salary meansBasic Salary Basic Salary + D A
counted for D A counted forRetirement benefitsRetirement benefits
+Commission fixed %.Commission fixed %.On SalaryOn Salary CA N Raja
Sekhar, Chennai, 33. Tax treatment of Medical Expensesincurred by
employer for employeeMedical expenses in India For self,
spouse,Medical expenses in India For self, spouse,dependent parents
& Children dependent parents & ChildrenTreatment
inTreatment in hospital Treatment in Approved Run and
Govt.Hospitals ,10OthermaintainedHospital (23C),,11 InstCases For
specified By employer deceases Exempt to theFully exempt. No
perquisite Extent of Rs. 15000Balance taxable CA N Raja Sekhar,
Chennai, 34. Medical ExpensesContribution by employer to insurance
premium/ reimbursement on the health of employee, spouse, and
dependents Fully exempt Contribution employer to insurance on life
of the employee is taxable in the hands of employeeCA N Raja
Sekhar, Chennai, 35. Tax treatment of Medical Expensesabroad,
incurred by employer Medical expenses in Aborad For self, spouse,
Medical expenses in Aborad For self, spouse, dependent parents
& Children dependent parents & Children GTI below GTI Rs
2Rs 2 lakhslakhs & above before thisbefore thisperquisite
perquisite Only one attendant Fare fully exemptFully exempt. No
perquisiteOther medical to the extent Approved by R B I
exemptBalance taxable.Taxable amount= amount actually spent -
exempted amountCA N Raja Sekhar, Chennai, 36. Perquisites not
taxable for all employees Free meals provided to all employees in
office up to Rs. 50/- per employee or provided by the employer
through paid vouchers usable at eating joints. Telephone including
mobile phone provided to the employee Supply of tea and snacks
during working hours without any monetary limit. Food and
non-alcoholic beverages are supplied from employers canteen Free
food and non-alcoholic beverages provided during working hours in a
remote area, or an offshore installation. Allotment of shares,
debentures or warrants to its employees under ESOP or ESOS in
accordance with guidelines issued by Central Government. Conveyance
facility to High Court/Supreme Court JudgesCA N Raja Sekhar,
Chennai, 37. Perquisites not taxable for all employeesRent-free
official residence to a High Court or Supreme Court Judge.
Rent-free furnished residence to official of Parliament Ministers
and leader of opposition Any accommodation located in a remote area
which is provided to an employee working at a mining site, oran
on-shore oil exploration site,a project execution site, or Any
accommodation provided in an offshore site of a similar nature.CA N
Raja Sekhar, Chennai, 38. Perquisites not taxable for all
employeesPerquisites allowed outside India by theGovernment to a
citizen of India for renderingservices outside India.Sum payable by
an employer to pension ordeferred annuity scheme.Actual traveling
expenses paid/reimbursed forjourneys undertaken for business
purposesPayment of annual premium on personal accidentpolicy, if
such policy is taken to safeguard theemployers interest. Employers
contribution tostaff group insurance schemeLife insurance premium
paid by Employer on lifeof employee and members of the family
Wheresuch insurance scheme is approved by IRDAValue of gift voucher
or token, if it is below Rs.5,000 in one previous yearCA N Raja
Sekhar, Chennai, 39. Perquisites sec 17Perquisites taxable in hands
of all employees Value of rent-free accommodation Value of
concession in rent Amount paid by employer in respect of any
obligation which otherwise would have been payable by employee
Value of any fringe benefit or amenity excluding the fringe
benefits chargeable to taxCA N Raja Sekhar, Chennai, 40.
PerquisitesPerquisites taxable only in hands of specified employees
Provision of domestic servants [Rule 3(3)] Provision of
gas/electricity/water [Rule 3(4)] Provision of free or concessional
educational facilities [Rule 3(5) CA N Raja Sekhar, Chennai, 41.
Specified Employee Specified employeeFollowing employees are
specified employee: Director-employee. An employee having 20 per
cent or more of voting power in employer-company. An employee who
is drawing salary in excess of Rs. 50,000 For computing the limit
of Rs. 50,000 following are excluded/deducted:(a) Non-monetary
benefits.(b) Deduction on account of profession tax.(c) Exempt
entertainment allowance.(d) Non-taxable allowance. CA N Raja
Sekhar, Chennai, 42. Valuation of Rent free unfurnished
AccommodationGovt. employees License feesOther than Government As
per rulesEmployeesAccommodation OwnedAccommodation takenBy
employerOn lease/rent by employerCity population City population
exceeds 25 lakhs10 lakhscities Rental Which ever is less15% of
Salary 10% of Salary7.5% of SalaryConsider salary only for the
period where the accommodationOccupied by the employeeCA N Raja
Sekhar, Chennai, 43. Valuation of Rent free furnished
accommodation: Valuation of unfurnished Accommodation as above ++In
case ofIn case accommodationAccommodation ownedTaken on lease by
employerBy employer Actual hire charges 10% of cost of furniture
Perquisite Value= Value Calculated minus any recoveryFrom Employee
CA N Raja Sekhar, Chennai, 44. Valuation in case of hotel
accommodation24% of Salary for the24% of Salary for the period stay
in the hotel period stay in the hotel Perquisite valueLeast of
Actual hotel bill paid Actual hotel bill paid+ Any additional
charges paid to hotel for laundry, Any additional charges paid to
hotel for laundry,food, telephone calls- actual food, telephone
calls- actualIn case of employees proceeding on transfer value of
In case of employees proceeding on transfer value ofperquisite
beyond 15 days stay should be taken. perquisite beyond 15 days stay
should be taken. CA N Raja Sekhar, Chennai, 45. For Purpose of all
perquisites- SalarymeansBasic Salary Basic Salary+D A as per terms
of D A as per terms of+ EmploymentEmploymentCommission fixed
%.Commission fixed %. + On turnover On turnover All taxable
allowances All taxable allowancesIncl. sec 10 above limits Incl.
sec 10 above limits Excluding employerExcluding employerCA N Raja
Sekhar, Chennai,contribution to PFcontribution to PF 46. Valuation
in case of motor car (w e f 07.11.2007) where No Liability of FBT-
Notification No 271/2007Motor car owned or hired by employer
&Running maintenance expenses borne by employer orCar owned by
employee expenses reimbursed by employerExclusively used forUsed
for BothPersonal/private Official Personal purposes PurposeActual
running CC of Engine doesCC of Engine Not exceed 1.6 Lexceed 1.6
Ltrs And Maintenance Exp + dep @10% On cost + Driver salary ( if)
Rs. 1200 perRs. 1600 per month monthEmployer own or hire carIf
running and MaintenanceExpenses fully borne by Add Rs. 600 p.m if
driver is also provided Employee Rs. 400 instead Of Rs. 1200 or
1600CA N Raja Sekhar, Chennai, 47. Valuation of Perquisite in case
of Tour travel where FBT not liable to payApplicable to employee of
carriage of goods passengers other than airlines
RailwaysExpenditure incurred on employee / his family members -for
free orConcessional fare on personal private journeys -through
own,leased. Arranged vehicleSuch expenditure was not liable for FBT
Perquisite = value of such expenditure/amenity to generalPublic
less amount recovered from employeeCA N Raja Sekhar, Chennai, 48.
Where the employer Provide any tour holiday programme where FBT not
paidApplicable to All employees Expenditure incurred on employee /
his family members -for free orConcessional tour holiday programme
Such expenditure was not liable for FBTPerquisite = value of such
benefit/amenityless amount recovered from employeeCA N Raja Sekhar,
Chennai, 49. Valuation in case of gift where FBTnot Liable
Applicable to All employees Expenditure incurred as a gift, Voucher
token to employee / hisfamily members On the occasion of family
functionsceremonies or otherwiseSuch expenditure was not liable for
FBT Perquisite = value of such gift, voucher, tokenNo perquisite if
the value is below Rs. 5000 CA N Raja Sekhar, Chennai, 50. Credit
card Membership fees or AnnualFess where fbt not liable to
payApplicable to All employees Expenditure incurred on employee /
his family members towards Credit card annual fees or membership
fee Such expenditure was not liable for FBTPerquisite = cost of
such expenditureless amount recovered from employee No perquisite
when fees was paid purely official purposes. Employer has to
maintain record.CA N Raja Sekhar, Chennai, 51. Any other Benefit
where fbt notliable to pay Applicable to All employeesExpenditure
incurred on employee on any other benefitSuch expenditure was not
liable for FBTPerquisite = cost of such expenditure based on arm
lengthtransaction less amount recovered from employeeCA N Raja
Sekhar, Chennai, 52. Perquisite in case of interest free loan
Interest as per Market rateInterest as per Market rate of SBI of
SBIPerquisiteminus interest rate minus interest rate charged
employercharged employer1.Loans up to Rs. 20,0001.Loans up to Rs.
20,000 Exemption 2.Loans for medical 2.Loans for medical (No
perquisite) Treatment of specifiedTreatment of specifieddeceases
deceases Interest to be calculated on monthly outstanding balances
Interest to be calculated on monthly outstanding balances CA N Raja
Sekhar, Chennai, 53. Perquisite in case of use of movable asset
10%cost of Asset or 10%cost of Asset or Actual rental chargesActual
rental chargesPerquisite Which ever is less Which ever is less
MinusMinus Recovery if any from employee Recovery if any from
employee Exemption (No perquisite)Computers, LaptopsComputers,
Laptops CA N Raja Sekhar, Chennai, 54. Transfer of movable
assetsWdv of asset less Perquisite Value the sale price ofthe asset
toemployee Depreciation is to be calculated on the cost of asset
For every completed year from date of use of asset till The date of
transfer. Fraction to be ignored CA N Raja Sekhar, Chennai, 55.
Depreciation rates for movable assets transferSN Movable asset Rate
Method of Dep 1 Computer, Laptop, 50%WDV Printers, Digital dairies,
electronic items etc 2 Motor Cars20%WDV 3 Other Assets 10% SLMCA N
Raja Sekhar, Chennai, 56. Valuation other perquisitesFree domestic
Perquisite- Actual Servants Sweeper,cost to employer iegardener,
cookSalary of servants watchman paid by employerPerquisite-
Ifmanufactured - Supply of gasmanufacture cost ,
IfElectricitypurchase- Purchasecost Any amount recovered from
employee will be reduced from perquisite value above CA N Raja
Sekhar, Chennai, 57. Free or concessional educational facility
Educational institute is Perquisitemaintained/ owned by the cost of
such education in employer or education isa similar institution
allowed in other educational or near the locality institution due
to hisemployment,Other cases Perquisite expenditure incurredby the
employerWhere cost per child per month does not exceeds Rs. 1,000
per month No perquisiteCA N Raja Sekhar, Chennai, 58. Profits in
lieu of Salary S. 17(3) which is taxable as salary,It includes Any
compensation from employer or former employer on termination or
modification of the terms of employment. Any sum received under a
key man insurance policy including the sum allocated by way of
bonus on such policy. Any sum received before his joining any
employment or after cessation of his employment.CA N Raja Sekhar,
Chennai, 59. Profits in lieu of Salary (S. 17(3)), Any receipt from
employer/former employer or from provident/other fund (other than
gratuity,commuted pension, retrenchment compensation, house rent
allowance, provident fund or such other funds) toextentnot
consistingof contributions by assessee/ interest on such
contributions CA N Raja Sekhar, Chennai, 60. Deductions from Salary
S. 16Only two 1. Entertainment allowance-Allowed only for
governmentemployees least of the following will be allowed
asdeduction Rs. 5,000; or20% of salary; orActual amount of
entertainmentallowance 2. Tax on employment Actual Meaning of
salary for entertainmentallowance -only Basic salaryCA N Raja
Sekhar, Chennai, 61. F B T vs allowances With the introduction of
fringe benefit taxthe following perquisites/ allowances willnot be
taxed in the hands of employee ifFBT was payable and paid by
employerProvision of car and other conveyances [Rule3(2)]Provision
of transport facility by transportundertakings [Rule 3(6)]Provision
of holiday tours [Rule 3(7)(ii)]Provision of free food and
non-alcoholicbeverages [Rule 3(7)(iii)]Provision of gifts [Rule
3(7)(iv)]Provision of credit card facility [Rule 3(7)(v)]Provision
of club facilities [Rule 3(7)(vi)]CA N Raja Sekhar, Chennai, 62.
Tax treatment of provident fund in case of employee
StatutoryRecognized provident fund
UnrecognizedPublicprovidentprovident fundprovidentfundfund1234 5
Employers contributionExempt from Exempt up to 12 per cent of
Exempt fromEmployer to provident fund tax salary1. Excess oftaxdoes
not employers contribution overcontribute 12 per cent of salary1 is
taxable Deduction u/s 80 CAvailable Available Not
availableAvailable On employee contr. Interest credited toExempt
from Exempt from tax upExempt fromExempt provident fundtax taxable
(notified rate of taxfrom tax interest at present is 9.5 per cent)*
Deduction under section Available Available Not availableAvailable
80C on employees contribution Lump sum payment at Exempt from
Exempt from tax in some Employee Exempt the time of retirementtax
cases Employee 5 yearscont. exempt from tax or termination of
service. When not exemptInterest- service total income of
employeetaxable IFOS will be computed as ifEmployer provident fund
is ancontribution unrecognized fund from thetaxable-salary
beginning 63. Meaning of salarySFor circumstances Meaning of Salary
N 1 Entertainment Only Basic Salary Allowance 2 For Perquisite rent
Basic+DA as per terms of free etc, employment + Commission on % of
Salary + Bonus + taxable allowances excluding perquisites and
Employer contribution to PF 3 For allowances u/s Basic+DA as per
terms of 10(otherthan employment + Commission on % VRS,gratuity) of
Salary employer contribution to PF CA N Raja Sekhar, Chennai, 64.
Meaning of salary SFor circumstances Meaning of Salary N 4 VRS,
gratuityBasic+DA as per terms ofemployment ( in case ofEmployees
not covered bygratuity + commission %of salary) 5 Specified
employee Income under head salaryexcluding non monetaryperquisites
CA N Raja Sekhar, Chennai, 65. Basic salary xxxxxx Dearness
allowance xxxxxx City compensatory allowancexxxxxx Bonus,
Commissionxxxxxx Other Taxable Allowances xxxxxx Allowances u/s 10
in excess of exemption xxxxxx Retirement benefits- pension
gratuity, VRS etc xxxxxx Perquisites Rent-free furnished
accommodation : xxxxxx Motor Car perquisitexxxxxx Perquisite on
interest free loanxxxxxx Perquisite in respect of sweeper gardener
etc xxxxxx Perquisite in respect of transfer/ use of movable
assetsxxxxxx xxxxxx Other Perquisitesxxxxxx Profits in lieu of
salaryxxxxxx Employers contribution to provident fund in excess of
12 per cent of salaryxxxxxx Gross salary incomexxxxxx Less:
Deductions u/s 16 xxxxxx Entertainment Allowance (only for Govt.
Employees)xxxxxx xxxxxx Profession taxTaxable Salaryxxxxxx CA N
Raja Sekhar, Chennai, 66. End of Chapter Salaries CA N Raja Sekhar,
Chennai, 67. Income from House Property Charging section 22 The
Property should consist of building or land appurtenant there toThe
assessee shall be owner of the propertyThe property shall not be
used for the purpose of business or profession carried on by
him.All the three conditions should beSatisfied to charge income
fromHouse property 68. The Property should consist of building or
land appurtenant there toMeaning of building: Building is an
enclosure of brick or stone work It may consist even mud of walls
An existence without roof is also building. For example swimming
pool, stadium An incomplete house without doors, gates and wall
cannot be a building Meaning of land appurtenant there to: This may
be in the form or approach to roads, compounds, courtyards,
backyards, kitchen garden, motor garage and cattle shed etc: 69. 2.
Assessee should be OwnerReal/LegalDeemed ownerCo owner OwnerSec
27Sec 26 Right toAsset transfer inadequateTwo or more own receive
rentconsideration Definite share Registration in Holder of
impartial his name notestateEach co owner is compulsoryseparately
Member of Co- assessed for his Ownership operative society,share
dispute ITetc who allotted dept will house under If no definite
determine schemeshare assessed Part performanceas A O P 70. 3rd
Condition The property should not be occupied by theassessee for
the purpose of his own businessor profession,for example as a
office or godown or a factory. If the property is used for his own
business purpose and such income will not be charged under the head
income from house property. 71. House property Income exempted from
tax Income from farmhouse. Sec 10 (1), 2 (1A) Annual value of any
one palace of ex ruler Sec 10 (19 A) Property income of local
authority. Sec 10 (20 Property income of approved scientific
research association. Sec 10 (21) Property income of educational
institutions and hospitals. Sec 10 (23C) Property income of trade
union. Sec 10 (24) CA N Raja Sekhar M.Com FCADISA
[email protected] 72. House property Income exemptedfrom tax
Income from house property held under Charitable trusts Sec. 11
Property income of a Political Party. Sec 13 A Property income of
one self occupied Property. Sec 23 (2) Partly Exemption Income
derived by Co-operative Society from letting of go down, or
warehouse Property income of Co-operative Society whose GTI does
not exceeds Rs. 20000/- 73. Concept of Composite RentComposite rent
means,Rent for facilities Rent for thelike lift, furniture,
Building+and other assets 74. taxability of Composite rentRent
amount Two separate Agreement Chargeable under H POne for Rent
& one for Services amountServices or Chargeable under One
agreement SpiltBusiness income or Of rent/serviceIFOSNo split &
if letting of one is not acceptable If other is not let out entire
amount Chargeable underBusiness income or IFOS 75. House Property
Situated in ForeignCountry Resident will be chargeable in respect
of income from property situated in foreign country. A non-resident
and not ordinarily resident will be chargeable to tax, if income of
foreign property is received in India during the previous year. The
annual value of such property shall be computed as such the
property is situated in India. 76. Determination of Annual Value
Important termsActual rent received/ ReceivableRent of property Un
realized rentOnly If rule 4 Received/receivable MinusConditions
satisfied Rent received doesNot include Vacancy rent 77.
Determination of Annual ValueMunicipal Valuation means Annual value
fixed for the property by the local government such as Municipal
Corporation, or Municipality. Fair Rent means rent earned by
similar property situated in same or similar locality Standard Rent
means Rent fixed or rent determined under Rent control Act 78.
Determination of Annual Value2.Compare the Step2.Compare the Step
1. Compare fair 1. Compare fair1 fair rent withCompare the Step 1
fair rent with Compare the Step rent With Municipal rent With
MunicipalStandard rent if 2 RER withStandard rent if 2 RER
withValuation Rent control act Rent control actActual RentActual
RentValuationapply applyreceived (AR)received (AR)Take which ever
is Take which ever isTake which ever is Take which ever is Higher
HigherLower Lower Consider it as Consider it asConsider it as
Consider it as Fair rentFair rent Reasonable Reasonableexpected
rent (RER)expected rent (RER) If A R < RER If A R > RERIf
less because of If less because ofIf less because of If less
because ofvacancy A R is vacancy A R is Any other reason Any other
reasonA R is Annual ValueA R is Annual Value Annual Value Annual
Value RER is Annual RER is AnnualValue Value 79. Determination of
Gross Annual value Step 1 Municipal valuationxxxxxxx Fair
Rentxxxxxxx Higher of the above (Fair rent)xxxxxxx Step 2 Standard
rentxxxxxxx Step 1 amount (fair rent) or xxxxxxx standard rent
which ever is less (Reasonable expected rent) 80. Determination of
Gross Annual value Step 3 Reasonable expected rent xxxxxxx Rent
received un realized (if allxxxxxxx rule 4 conditions satisfied
Step 4 If rent received is higher- rent received is annual value If
rent received is lower - (a) lower is because of vacancy rent
received is annual value (b) lower is because of any other reason
RER is the annual value 81. Considerations in determinegross annual
value If fair rent is not available Municipal value can be
considered as fair rent If standard rent not applicable ignore step
2 Unrealized can be deductible from rent received only when all
rule 4 conditions satisfied Unrealized can be deductible even from
Reasonable expected rent when RER is taken as annual value 82.
Unrealized Rent Unrealized rent is to be deducted from actual rent
received if the following conditions are fulfilled. (Rule 4) The
tenancy is bonafide The defaulting tenant has vacated or steps have
been taken to compel to vacate the property. The defaulting tenant
is not in occupation of any other property of assessee. The
assessee has taken all reasonable steps to institute the legal
proceedings for the recovery of unrealized rent. Or satisfies the
Assessing Officer that legal proceedings are useless.CA N Raja
Sekhar M.Com FCA 16 DISA [email protected] 83. Types of
propertiesTypes of propertiesSelf Part of year DeemedPartly Let out
Occupied let outLet out Let out Partly Selfun occupiedPart of year
PropertypropertySelf occupied occupied PropertyAnnual valueAnnual
valueTaxableComputation AnnualAnnual Taxable Treated as
Separately.value Computation Let out Annual valuevalue of let out
taxable Nil Similar toproperty.Let outPortion computation taxable
Property Similar toSelf occupiedLet out nil Property 84.
Computation of Income from let out property Gross Annual
ValuexxxxxLess Municipal taxesxxxxxNet Annual Value xxxxx Less :
Deductions u/s 24 Standard deduction- 30% of N A V xxxxx Interest
on borrowed capitalxxxxx Income from House Property xxxxx 85.
Deduction of Municipal taxes allowed only Municipal taxes borne by
landlordMunicipal taxes actually paid during the year Arrears of
taxes will also allowed as a deductionin the year of paymentNo
deduction for taxes if paid by tenant 86. Deductions U/s 24 Sec 24
contains only two deductions. 30% flat deduction on Net Annual
value Interest on Borrowed CapitalExcept the above two no other
deductions will be allowed. For example no deduction in respect of
expenses like Electricity charges, ground rent, land revenue,
collections charges, and insurance premium etc. CA N Raja Sekhar,
Chennai,[email protected] 87. 30% flat deduction on Net Annual
valueThis deduction will be allowed irrespective of the quantum of
expenditure incurred.Deduction will be allowed even no expenditure
is incurred or tenant bear to undertake the repairs 88. Interest on
Borrowed CapitalInterest OnBorrowed CapitalLoan taken on Or
after01.04.1999 Loan taken on before 01.04.1999For Repair.
Deduction Renewal of For ConstructionActual Interest orproperty Or
Purchase Rs, 30000Of PropertyWhich ever is less Self Occupied
Property Let out Property DeductionNo ceiling, Actual Interest
orEntire InterestRs, 150000DeductibleWhich ever is less 89.
Interest on Borrowed CapitalAdditional Conditions to Avail Rs.
150000 deduction for self occupied property The acquisition or
Construction of property is to made from the end of 3 financial
years on which Capital is borrowed Assessee should furnish a
certificate as proof of interest from financial institution where
the Principal is borrowed If conditions not satisfied, deduction
allowed maximum Rs. 30,000/- 90. Interest on Borrowed Capital
Interest is allowed on accrual basis, The deduction should be
claimed on yearly basis even interest is not paid during the year
Interest on fresh loan to repay old loan is also eligible for
deduction Deduction is allowed even Interest or Principal is not
charged to Property. Interest on Unpaid interest is not deductible.
No deduction is allowed in respect of any brokerage or commission
on arrangement of loan. Interest payable out of India will not be
allowed as a deduction unless tax has been paid or TDS has been
deducted on the Interest (Sec 25) 91. Interest on Borrowed Capital
Interest on Pre Construction period Interest Payable by the
assessee for the period prior to Previous year in respect of which
Property is acquired or construction will be allowed in 5 equal
annual installments, commencing in the previous year in which house
is acquired or constructed. . 92. Preconstruction Period.FromMarch
31 prior to date ofCompletion of Property/purchase of propertyDate
of borrowal up to Orof loan Date of repayment ofloan Which ever is
earlier 93. Example on preconstruction period Loan borrowed Rs. 50
lakhs on 21. 5.2005 Rate of interest 10.5% p. a. Completion of
house on 14.07.2007 Repayment of loan 31.07.2008The
pre-construction period will be (a) 21.05.2005 to 31.03.2007 or (b)
21.05.2005 to 31.07.2008 which ever is earlier ie 21.05.2005 to
31.03.2007 The interest from 21.05.2005 to 31.03.2007 will be
preconstruction period interest and it will allowed on 5 equal
installments commencing from previous year 07-08.CA N Raja Sekhar,
[email protected] 94. Self Occupied Property Where the
Property consists of one house in the occupation of the owner for
his own residence, the annual value of such property shall be taken
as NIL. Sec 23 (2)(a) Subject to the following conditions: The
property either full or part is not let-out during part or whole of
previous year No other benefit derived there from Only one
deductions under Section 24 Interest on borrowed Capital. 95.
Unoccupied PropertyProperty, which cannot be occupied by the owner
by, reason his employment, business or employment at a different
place and He resides in such other place in a building not
belonging to him. Such Property will be treated as par with Self
Occupied Property. 96. Computation of Income from selfOccupied/un
occupied property Gross Annual Value Nil Less Municipal taxesNil
(not deductible) Net Annual Value Nil Less : Deductions u/s 24
Standard deduction for repairs- Nil 30% of N A V(not deductible
Interest on borrowed capital xxxxxxxx (deductible ) Loss from House
Property xxxxxOnly one deduction, Interest on Borrowed Capital
Maximum Rs. 1,50,000 subject to conditions 97. Partly let-out and
Party Self occupied Where Portion is let out and Portion is Self
Occupied Computationshould bemade separately for let out and self
occupied. Annual value and expenses should be apportioned pro rata
based on % oc occupation 98. Where Property is let out part of the
year and Self Occupied part of the year Ex let out for 4 months and
self occupied for 8 months The property should be treated as let
out property Computation should be as if it is let out CA N Raja
Sekhar Chennai 99. Deemed Let out Property Where the person has
occupied more than one house as self occupied, Any house according
to assessee choice will be treated as Self occupied property and
All other Properties will be treated as deemed let-out Properties.
The computation of deemed let-out property is computed similar to
that of let-out property. 100. Taxability of recovery of Unrealized
Rent/ Where the deduction has been allowed in respect of unrealized
rent Subsequent realization during the any accounting year, The
realized amount will be treated as income under the head Income
from house property No deductions will be allowed Taxable whether
the assessee is owner or not of the property in that year. Where in
respect of recovery of unrealized rent for the A Y 2002-03 onwards
it is taxable only to the extent not included in the Annual value
101. Treatment of Recovery of Arrearsof Rent Sec. 25 B Any arrears
of rent received by assessee Such arrears was not included earlier
as a income Taxable as income from house property in the previous
year such arrears of rent is realized. The income will be charged
in the hands of assessee whether he is owner or not of the property
of that year. Only one deduction- is 30% flat of such rent as
repairs. No other deductionsCA N Raja Sekhar M.Com FCA DISA 102.
Business income Sec 28 to 44 DA CA N Raja Sekhar, Chennai
[email protected] 103. Profit and gains of Business or
ProfessionMeaning of Business Sec. 2 (13) Business includesany
trade, commerce orManufacture or any adventure orconcern in the
nature of trade, 104. Meaning of Profession sec. 2(36) Profession
includes vocation.Vocation includes such activities, whichare
performed by a person on account ofhis natural ability for some
particularwork. 105. Any income or profit accrued to the Assessee
from the operation and exercise of any business or profession or
vacation is chargeable under this head 106. Charging Shareholders
EquityCharging Section 28 Section 28 PGBP earnedAny compensationAny
compensationPGBP earnedtermination of aBy Assessee termination of a
By Assessee contractcontractofofDuring P Y (i)During P Y (i)
managing agencymanaging agency (ii)(ii) Income derived by Income
derived byProfit on sale of Profit on sale of a tradea trade any
export anyexport professional orprofessional or incentive,
incentive, similar associationsimilar association refunds of duty
refunds of dutyfrom specific from specificdrawback etc drawback etc
servicesservicesIncomeIncome from from performed for itsperformed
for its speculativespeculativemembers. (iii) members. (iii)
transactiontransaction 107. Charging Shareholders Equity Charging
Section 28Section 28 The value of anyThe value of any
benefitbenefit or orinterest,interest, perquisite,
whetherperquisite, whethersalary, bonus,salary, bonus,
convertibleconvertible into into moneymoney or or not, not,
commission ofcommission of arisingarisingfromfrom partnerpartner
fromfrom businessorinbusiness exerciseor ofina firm (v)firm
(v)exerciseof a profession. (iv)profession. (iv) Any sum received
/due Any sumAny sumAny sum received /due in cash or in kind underin
cash or in kind under(including (including an agreement for notan
agreement for notbonus) bonus) carrying out activity incarrying out
activity in relation to any business, received under received
underrelation to any business,Profit on Profit on a Key man or not
to share anyor not to share anya Key man intangible assets
exceptintangible assets except Managing Managing insurance
insurance any sum chargeable underany sum chargeable under agency
agencypolicy (vi) capital gains (va)capital gains (va) policy (vi)
108. Charging Shareholders EquityCharging Section 41 Section
41Deduction allowed Deduction allowedAny liability, which Any
liability, which Earlier year Earlier year is is unilaterally
unilaterallyreceived/ trading received/ tradingwritten off in the
written off in the liability incurredliability incurredaccounts
accounts Taxable Taxableearlier now ceasedeven in case of even in
case ofearlier now ceased Taxable even in case successor (1)
successor (1) Taxable even in caseof successor (1) of successor (1)
Profit on sale of Profit on sale ofCapital Asset used Capital Asset
used Balancing charge for for Scientific ScientificBalancing charge
In case of power Purpose Purpose whichwhichIn case of
powerdeductionallowed generatingdeductionallowedgenerating
unitsunits earlier (3) earlier (3) (2)(2) Amount Withdrawn Amount
Withdrawn BadBaddebtsdebts allowedallowed from fromSpecial Special
earlier recovered nowearlier recovered now reserves Sec 36(1)
reserves Sec 36(1) (4)(4) viii -- (4A) viii (4A) 109. ADMISSIBLE
DEDUCTIONS Sec Nature of expenditureQuantum of deduction 30Rent,
rates, taxes, repairs (OtherFull than Capital expenditure) and
insurance for premises 31Current Repairs (Other than Capital Full
expenditure)and insurance of machinery, plant & furniture.
32Depreciation on buildings, machinery, Full plant and furniture
and other intangible assets As per note35Expenditure on Scientific
ResearchfullAs per note 110. ADMISSIBLE DEDUCTIONSSec Nature of
expenditureQuantum ofdeduction35ABB Capital Expenditure for
obtaining Over period of licensetooperate licence telecommunication
services. 35ACExpenditure on eligible projects As per note or
schemes. .35CCA Payment to associations andAs per note institutions
for carrying out rural development programmes 111. ADMISSIBLE
DEDUCTIONS SecNature of ExpenditureQuantum of deduction 35
DPreliminary Expenses1/5- Refer note35DDExpenditureincurred
on1/5amalgamation or Demerger byan Indian company shall be (5
installmentsdeductible in each of five years35DDA Amount paid to an
employee1/5towards VRS 5 installments 35E Expenditure on
prospecting etc. 10 installmentsfor minerals.Refer note 112.
ADMISSIBLE DEDUCTIONS SecNature of Expenditure Quantum
ofdeduction36 Insurance on Stock and storesFull 36 Premium on the
life of cattleFull 36 Premium on health insurance of Full employees
paid by any mode other than Cash ( Insurance scheme approved by
IRDA ) 36 Bonus or Commission to EmployeeFull (Subject to Sec 43 B)
113. ADMISSIBLE DEDUCTIONS SecNature of Expenditure Quantum of
deduction36Interest on Borrowed CapitalFull36Interest on borrowed
Capital on Full assets after put to use 36Employers Contribution to
RPF/ Full ApprovedS A F /Gratuity fund/other staff welfare funds
36Loss on animals in connection ofFull Business 114. ADMISSIBLE
DEDUCTIONS SecNature of Expenditure Quantum of deduction 36Bad
debts Actually written off,Full Condition: Debt have been taken in
to a/c and written of during year 36Bad debts Provision of banks AS
per note36Transfer to special reserve of Not financial corporation
exceeding20% ofProfits 36Family planning expenditure onRevenue
employeesexp. FullCapital exp 5 inst 115. ADMISSIBLE DEDUCTIONS
SecNature of Expenditure Quantum of deduction 36Revenue expenditure
incurred by entitiesFull established under state central provincial
Act, subject to condition that expenditure is incurred for objects
and purpose as CG notify 36Any sum paid by a public financialFull
institution by way of contribution to credit guarantee fund trust
for small industries notified by C G 36Banking Cash Transaction tax
provided Full transaction part of Business36Securities transaction
tax/CommoditiesFull transaction tax ( W E F Ay 09-10) 116.
Depreciation Sec 32 Depreciation is wear and tear on asset when it
is used over a period of time. Depreciation is loss and it will
allowed as a deduction in computing profits. 117. Conditions for
Claiming Depreciation Depreciation will be allowed on block of
assets conceptAsset should be owned wholly or partly bythe
Assessee. In case of part ownership Prorate depreciation will be
allowedAssets should be used for the purpose of the business during
Previous YearDepreciation will be allowed on WDV method basis on
the block of asset (except for power generating units)Assets
acquired on hire purchase are also eligible for depreciation 118.
Block of asset Sec 2 (ii) A. Tangible assets B.Intangible Assets a
group ofasset fallingwithin a class of1. Building1.Know howasset
comprising 2. Plant and 2. PatentMachinery 3. trade mark 3.
Furniture 4. Copy rights5. License In respect of which6.
franchiseSame rate of7. Similar assets Depreciation is prescribed
119. Total Number of Blocks 13 Buildings Plant and Intangible
Furniture MachineryAssets 31 8 1 120. Rates of Depreciation
Building ( Building include roads, bridges, culverts, wells And
tube wells)3 blocksTemporary erections used for Used for
otherBuilding used for inf-residential purposethan Residentialra
structure projects 80 IA (4)- as water treatment s 5%
10%100%Furniture( furniture includes electrical fittings)-Onlyone
Block - 10% 121. Rates on plant and machinery-Total 8 blocks
Motor-cars (other than running them on hire) two wheelers
/office15% equipment Ocean going ships, vessels, speed boats20%
Motor buses, Motor lorries and Motor taxies used in a business
of30% running them on hire. Aero plane Aero engines/Life Saving
medical equipment40%Containers made of glass or plastic used as
refills50%Computers (including computer software)/ Books other than
annual 60% publication for profession/running lending library
Energy saving devices, rollers in flour mills, steel industry,
sugar 80% works Air/Water pollution control equipments/Solid waste
control 100% equipments/ Books of annual publication for
profession/running lending library 122. Rates on intangible
assetsOnly one block All Intangible assets 25% 123. Written Down
Value of AssetsSec 43(6)1 Asset Acquired in Actual Cost incurred by
the Previous Year the Assessee 2 Asset Acquired Actual Cost
incurred by Before the Previous the Assessee (-) YearDepreciation
up to-date3 In Case of Any Block Circular No. 469 Dt. of Asset
23-09-86 of CBDT)shall be calculated asbelowCA N Raja Sekhar,
Chennai [email protected] 124. Written Down Value in case ofblock
of Assets Sec 43(6) Circular No 469 WDV at the beginning of P
Yxxxxxxx Add: Actual cost of Assets Acquired xxxxxxx during the
previous year *xxxxxxx Less: money received in respect of assets
xxxxxxx sold discarded demolished Amount availablefor providing
xxxxxxx depreciation Less Depreciation at the prescribed %xxxxxxx W
D V at the close of the year xxxxxxx* Asset used less than 180 days
in P Y eligible for 50% of total depreciation 125. W D V in certain
circumstances sec 43(6)SCircumstances WDV NO1Succession in business
WDV of predecessor =or professionWDV Successor2Transfer of block
ofW DV of block of assets ofassetsbyholding transferor company
=Company to subsidiary WDV to the transfereeor vice-versa company
3Transfer of block of WDV in the case of theassets on amalgamation
amalgamating Company = WDV to the amalgamated company 126. W D V in
certain circumstances sec 43(6) S NO CircumstancesWDV 4 Transfer of
block of WDV for demerged Company- WDVassets on Demerger reduced by
the WDV value of the assets transferred to the resulting company
Written-down value in case of a resultingcompany- WDV of the
transferred assets as per books of demerged company 5 Assets
acquired before Does not maintain books or maintainprevious year
(FA 2008) booksbut doesnot calculatedeprecation- Actual cost
retrospective W.E.F AY2003-04 Maintain books of accounts-&
providedepreciation and not to compute incomefor earlier previous
year (exemptAssessee)= Actual cost +- revaluation depreciation
provided in books 127. Actual Cost of Asset -Sec 43 S Situation
Actual cost No 1AssetsAcquiredfor Cost+non refundable taxesPrice +
installation+transportation 2Asset usedfor Actual cost as reduced
byScientific research theamount ofanydeduction allowed
underScientific research 3Asset acquired by was Cost to the
Previous ownerof inheritance gift etc (-) Depreciation up todate
shall be cost to thepresent owner. Marketvalue on date of gift
notrelevant. 128. Actual Cost of Asset -Sec 434 Old assets
purchased Costas Assessed by whichwas previously Assessing Officer
used by some other person5 Sale and lease back W D Vat the time of
transfer fromother person. 129. Actual Cost of Asset -Sec 43 S No
SituationActual Cost6 Re-acquiredasset Actual cost which wasby the
Assesseeoriginal( -) Depreciation up to date, or (ii) actual price
for which the asset is reacquired. Least of these two shall be the
actual cost:7 Assessee's building Original Cost Depreciationearlier
usedfor (rate applicable at theother purpose now time of actual
acquisition).usedforBusiness/Profession 130. Cost of Asset -Sec 43
Actual Cost of Asset -Sec 43S SituationActual Cost No8 Transfer of
assets in Actual Cost will be.between holding and W.D. V.to the100%
subsidiary company transferor company.by each Other9 Assets
transferred Actual Cost i.e. W.D.V.under aschemeof to
theamalgamatingamalgamation [being company.Indian Co(s)]. 10
Assetacquired on W.D. V. in the hands ofpartition of
H.U.F.coparceners which would have beenif the partition would not
taken 131. Actual Cost of Asset -Sec 43SSituationActual Cost No 11
Interest in connection Interest up to the datewith acquisition at
which the asset is first put to use will be added to cost 12
Assetacquiredunder Actual Cost ( -) Refundrefund condition
underCustoms Tariff Act, andCentral Excise Rules 132. Cost of Asset
-Sec 43 Actual Cost of Asset -Sec 43S SituationActual Cost
No13Subsidy, grant or Actual Cost (-) suchreimbursement of the
facilitycost by Government orothers.14Where acquired from Change in
the rate ofoutside India exchange aftertheacquisition of such
asset,By money borrowed in such excess or reductionforeign
currencyshouldbe adjustedagainst the cost of asset 133. Actual Cost
of Asset Expenses to be capitalized to the cost of Asset Expenses
on modification and repairs incurred beforethe actual use of
asset.Expenses on salaries, rent, lighting etc., relating to
theperiod before production has commencedInterest paid in
connection with purchase of asset andbank charges upto the date of
installation Orcommissioning of a depreciable asset.Expenses on
site preparation of installation of plantOther incidental expenses
incurred in the acquisition ofthe relevant asset before the asset
could be broughtinto use 134. Depreciation on imported caracquired
on or after 1.4.2001 used for running on hireOr for
business/professionwill be available at normal rate 15% 135.
Depreciation when asset used for part of year Depreciation If the
Asset in the Block being used for less than180 Days in the Year of
Acquisitionthe depreciation allowable in respect of such assetshall
be restricted to 50% of the amount allowableas depreciationAny
asset put to use after October 3rd of p Yeligible only for 50%
depreciation. In case of leapyear October 4th 136. Depreciation in
case of Succession Depreciation in case of Succession,
Amalgamationdemerger Conversion of sole proprietor/partnership
firmin to CompanyDepreciation to be calculated as no such
succession,amalgamation conversion takes placeThe total
depreciationcalculated, shall beapportioned in the ratio of the
number of days forwhich the assets were used by predecessor
andsuccessor,The aggregate allocated depreciation shall not
exceedin any depreciation deductible as if f the successionor the
amalgamation or the Demerger, as if in thecase that had not taken
place 137. Example in case of depreciation on succession etcCompany
A is taken over by Company B as on 31.07.2007 Total Depreciation of
the asset for the previous year 07-08 is Rs. 36600 The depreciation
allowable for Company A = 122/366 x 36600= Rs, 12,200 The
depreciation allowable for Company B = 244/366 x 36600=Rs. 24,400
138. Additional Depreciation u/s 32 (1) (iia) Applicable only for
manufacturing Assessee New Plant and Machinery acquired on or after
31.03.2005 Only one year depreciation allowable extra in addition
to normal,Rate of depreciation - 20% of the actual cost If Asset is
used les than 180 days only half the depreciation Assessee should
furnish a certificate about Machines, capacity from C. A. in order
to claim deduction 139. No Additional Depreciation u/s 32 (1)
(iia)Old Plant machinery used in India or outside India Machinery
plant installed in office Premises/residential guest house ,Any
office appliances or road transport vehicles, ships aircraftsPlant
and machinery whose actual cost was fully written of in P. Y 140.
Depreciation Depreciation In Case of assets of an Undertaking
Engaged inGeneration or Generation and Distribution of Power u/s 32
(l)(i) Depreciation AT SLM ofon the actual cost thereof to
theAssessee.The aggregate depreciation allowed in respect of any
assetfor different assessment year shall not exceed the actualcost
of the said asset.The Assessee, instead of claiming depreciation on
SLM, atits option claim depreciation on basis of written down
valuemethod at the rate prescribed for each block of assets.Such
option should be exercised before the due date of filingthe return
of income uls 139(1)Once the option is made it is final and
applicable to allsucceeding assessment years. 141. Depreciation in
case of power Generating units Where the power-generating unit
claims depreciation on the straight-line basis, where the asset is
sold discarded demolished, the treatment as taxation was as below.
Transfer of Asset Chargeable amount HeadWhenthe Excess of
consideration Profits and Gains consideration is less over WDVis
treated as of Business or the actual cost but Balancing
chargeProfession more than the WDV consideration> Excess
consideration over Short term Capital actual costactual cost is
treated as gainsShort Term Capital gain consideration < WDV
Shortfall/Deficitis Allowedas treated as terminal deduction in PGBP
depreciation u/s 32 in the year of transfer 142. Unabsorbed
depreciationIf depreciation cannot be fully claimed in a particular
year forwant of profits the un-absorbed depreciation will be
treated asbelow Previous yearFirst it is set off against any profit
ny other head except forsalaries) Succeeding Yearcarried forward
and set off against the income in subsequentyears without any time
limit Other PointsThere is no condition of continuance of same
business in orderto carry forward and set off .No need to file
return of Income with in due date to carryforward unabsorbed
depreciation. 143. Example on Unabsorbed depreciation To
Expenses78,00,000 BY Gross 80,00,000ProfitTo Depreciation16,00,000
By Net Loss14,00,000Total94,00,000 Total94,00,000 Assessee able
recover the expenses from Gross profit. However depreciation to the
extent of 14 lakhs remain asunabsorbed. This 14 lakhs is known as
unabsorbeddepreciation. 144. Example on Unabsorbed depreciation and
Business Loss To Expenses 92,00,000 BY Gross80,00,000 ProfitTo
Depreciation 16,00,000 By Net28,00,000 LossTotal 1,08,00,000
Total1,08,00,000Assessee Not able recover the expenses fully as
well asdepreciation. The total Loss would be 28 lakhs Out of which
12 lakhs is Business loss and 16 lakhs is unabsorbeddepreciation.
145. Expenditure on scientific research Related to Assessee
business sec 35 Revenue/CapitalContribution to approved In-house
research Expenditure (except land)National lab/University /Inst. Up
to 31.03.2012Fully allowed as deduction/ Weighted deductionWeighted
deduction Capital exp. No dep 125%150%Revenue exp prior to 3 year
ofcommencement allowed in yearApplicable to Companies drugs-
telecom, business commence Pharmacy, computer, chemicals,
biotechnology Capital Expenditure not Absorbed can carry
forwardApproval of Prescribed Authority,( secretary Dept of As
unabsorbed depreciationScience and research) audit of A/cs 146.
Contribution to Indian company for scientific research purpose FA
2008 Effective AY 09-10 Weighted deduction of 125% will be allowed
to all Assessee if any sum paid to a company to be used by it for
scientific research:Provided that such company (A) is registered in
India, (B) has as its main object the scientific research
anddevelopment, (C) is, for the purposes of this clause, for the
time beingapproved by the prescribed authority in the
prescribedmanner, and (D) fulfils such other conditions as may be
prescribed;;Payee company ( Company received contribution) cannot
avail weighted deduction on its payments. However it can avail
deduction on revenue capital expenditure incurred by it for
scientific research.. 147. Amortization of Preliminary Expenses Sec
35 D Preliminary expenses include Expenditure in
connectionwith:Preparation of feasibility report/project
report;Conducting market survey/other survey relating to
thebusiness of the Assessee.Legal charges for drafting any
agreement for gettingup or conduct of the business In case of
company,Legal charges for drafting/Printing the MOA,AOAFees paid
for registering the company;Expenses regarding issue of shares
/underwritingcommission, brokerage/prospectus. 148. Eligible Amount
Gross Qualifying amount 5% of the Cost of Project or5% of Capital
employed oractual amount, whichever is lower. Net qualifying
amountDeductible 5 equal installment over 5successive years for
expenses 149. Amortization of Preliminary Expenses Sec 35 D Cost of
the Project means:Actual cost of the fixed assets,+ anyadditions in
case of extension of businessafter commencement Capital employed
means:issued share capital,+ debentures + longterm borrowings for
acquiring fixed assetsrepayable after 7 yearsand additional
borrowals in case of extensionof business after commencementCA N
Raja Sekhar, Chennai [email protected] 150. Bad Debts Provision of
Banks u/s 36(1) (viii-a)Deduction will be as belowS N
AssesseeDeduction 1 ScheduleBanks,Cooperative 7.5% of total banks
Other than rural banks Income Primary Agricultural Credit Banks and
andnon schedule Bank except foreign banks 2 Foreign Banks/Public
financial 5% ofTotal institutes Income 4 Rural Banks 10% of total
advancesTotal Income= G TI before this deduction 151. Deduction in
respect of transfer to SpecialReserve Sec 36 (1) (viii)S
NoSpecified entity Eligible Business for providing long-termfinance
for 1Financial Corporation specified in industrial or
agriculturalsection 4Aofthe Companiesdevelopment or
developmentAct,1956 Financial corporation of infrastructure
facility inwhich is a public sector company India 2Bankingcompany
Co-operative Construction or purchase ofbank (other than a primary
houses inIndia foragricultural credit society or a Residential
purposes.primary co-operative agriculturaland rural development
bank) India 152. Deduction in respect of transfer to Special
Reserve Sec 36 (1) (viii) S NoSpecified entity Eligible Business
for providinglong-term finance for 3A housing finance company
Construction or purchase ofhouses in India for
residentialpurposes.4Anyother financial Development
ofinfrastructurecorporationincludinga facility in India.public
company Deduction will be amount transfer to reserve or 20% of
profits which ever is less However, where the aggregate amount
carried to such reserve account exceeds twice the amount of paid up
share capital and general reserve, no deduction shall be allowed in
respect of such excess. 153. Expenditure on eligible projects or
schemes(Sec. 35AC) Eligible project of scheme meansAny amount paid
to project or scheme for promoting Socialand economic welfare of,
or the uplift of, the public notifiedby Central GovernmentAny
amount paid to a public sector company or a localauthority or to an
association or institution for the carryingabove work approved by
the National Committee Quantum of DeductionFull ConditionA
Certificate/receipt confirming the payment should enclosedto R OI
154. Payments to associations and institution forcarrying out rural
development programmes (Sec, 35 CCA) Assessee pays any sum, to the
association, institution Institution which has as its object the
undertaking of any rural development programme/training of persons
for implementing programmes of rural development;
Association/Institution should be approved by the prescribed
authority /notified by Central Government (National Urban Poverty
Eradication Fund) The Assessee should furnish a certificate from
the above mentioned association or institution to the effect that
of approval/training along with R O I Quantum of Deduction fullIf
allowed under this section No deduction u/s 35-C, 35-CC or section
80-G or any other Section. 155. No denial of deductionNo denial of
deduction after making the payment to associations under section 35
AC, 35 CCA and 35 2 A ,if such institutesexemption was withdrawn by
Commissioner of Income tax 156. Amortization of expenditure
onprospective etc. for minerals (Sec. 35E) Applicable toResidents
Assessee (Indian Company and resident nonCorporate)
ConditionsAssessee incurs some expenditure, wholly and
exclusivelyin prospecting of any mineral or on development of a
mineor other natural deposit of any such mineralThe expenditure
eligible for the deduction must beincurred during 5- years period
ending with the year ofcommercial production. 157. Amortization of
expenditure onprospective etc. for minerals (Sec. 35E) Quantum of
deduction10 equal annual installments beginning with the
previousyear in which commercial production of mineral begins.
Other pointsWhere any sale, salvage, compensation or insurancemoney
is realized, net expenditure shall be the allowedas deduction
(total expenditure incurred minus amountrealized.In case of
amalgamation, Demerger, the amalgamatedCompany and resulting
company can avail deduction assuch Demerger, amalgamation not takes
place 158. Amortization of expenditure on prospective etc. for
minerals (Sec. 35E)The expenditure which qualify for such
deductionshall not include:-Any expenditure on the acquisition of
the siteof the mine or any right in or over it,Any expenditure on
the acquisition of thedeposits of such minerals or any right in
orover such deposits:Any expenditure of a capital nature in
respectof any building, machinery, plant of furniturefor which
allowance by way of depreciation isadmissible. 159. Expenditure for
obtaining license to operate telecommunication services Sec. 35(ABB
) ApplicableTelecommunication Companies Nature of PaymentAny
capital expenditure is incurred for acquiring alicense to operate
telecommunication services/expenditure incurred prior to three
years beforethe commencement Quantum of deductionEqual installments
over the period of licence shall beallowed in every previous year
during which thelicense shall be in force. 160. Example 1Period of
license 10 years- amount paid Rs. 50 lakhs infirst year Deduction
available 5 lakhs each for 10yearsExample 2Period of license 10
years- amount paid Rs. 50 lakhs inSecond year Deduction available
50 lakhs/9 =5.55lakhs for each for 9 years starting from 2nd year
Consequences if license is soldIf capital sum realised from
transfer is less than theexpenditure remaining unallowed the
balance shall befully allowed in the year in which it is sold.If it
is more the balance will be charged to incomeunder PGBP 161. Tea/
Coffee/Rubber Development Account ( Sec. 33-AB)Applicable to an
Assessee carrying on business of growing andmanufacturing Tea,
Coffee and Rubber in India:-Deposits any amount in a special
account with the (NABRD) orin The Deposit Account scheme framed by
Tea, Coffee andRubber boards with previousapproval by the
CentralGovernment; Time limit to depositWith in 6 Months from the
end of previous year before filingof the return of income,
whichever is earlier. Amount of deduction:Amount so deposited or
40% of the profits which ever is less Profit means PGBP before this
deduction, and set off of losses u/s 72 162. Tea/ Coffee/Rubber
Development Account ( Sec. 33-AB)Other PointsIf the Assessee is a
firm, AOP/BOI, thisdeduction shall not be allowed to any of
itspartners or members.Deduction shall be admissible to an Assessee
onlywhenaccountsaudited by a CharteredAccountant and furnish the
audit report alongwith the return of income. 163. Withdrawal of
amount from deposit A/c Closure ofClosure ofBusiness Business
Taxable in the Taxable in theyear of withdrawal year of withdrawal
Dissolution DissolutionOf Firm Of Firm Withdrawal Withdrawal On
thePartition ofPartition ofOn the occasion of HUF HUFoccasion
ofAmount AmountWithdrawn WithdrawnDeath ofDeath of Utilized only
forUtilized only forAssesseeAssessee specified purposespecified
purpose If not, amount not If not, amount notLiquidation of
Liquidation of so utilized taxablea Companyso utilized taxable a
Companyin previous year in previous yearOther cases Other cases
164. Withdrawal of amount from Tea depositA/cAsset in Office Asset
in Officepremises /guest premises /guest househouseWithdrawaOffice
appliancesOffice appliances Withdrawa ll excluding AmountAmount
excluding AmountAmountcomputer computer UtilizedUtilized should
notshould nottaxable in taxable inAsset where 100%Asset where 100%
be usedbe used previous year fordepreciation is depreciation
isprevious yearfor claimed which it was claimed which it
wasutilizedutilizedLow Priority article Low Priority article In
11th scheduleIn 11th schedule 165. Sale of Asset Acquired from
amount of tea development account Cost of asset where Cost of asset
where Asset acquired asAsset acquired asdeduction allowed
isdeduction allowed is perpertreated as businesstreated as business
Scheme (Approved Scheme (Approvedprofit and taxed in Asset) is sold
withprofit and taxed inAsset) is sold withthe year of salein in the
year of sale 8 years from the8 years from the end of Previousend of
Previousyear which asset year which asset was acquired was
acquiredException: Not taxable when theException: Not taxable when
the sale was to Government,sale was to Government, Government
company, LocalGovernment company, Local authority, Corporation
formedauthority, Corporation formed under central state
provincialunder central state provincial Act/ Sale of whole assets
and Act/ Sale of whole assets and liabilities by firm to
companyliabilities by firm to company 166. Site restoration fund
Sec. 33 (ABA) An Assessee who is carrying on businessof the
prospecting for, for extractionor production of, petroleum or
naturalgas or both in India under an agreementwith the Central
Government. Quantum of deduction20% of Profits or amount deposited
inSBI or approved fundRest of the points all are same as
teadevelopment a/cCA N Raja Sekhar, Chennai [email protected] 167.
Expenditure on prospecting etc. for mineral oils ( Sec. 42) The
Assessee income consists of profits or gains of anybusiness
consisting of the prospecting for or extraction orproduction of
mineral oils:Assessee should enter in to agreement with the
CentralGovernment or participation of the Central Government
isrequired. Nature of ExpenditureExpenditure by way of infructuous
or abortive explorationexpenses in respect of any area surrendered
prior to thebeginning of commercial production by the
AssesseeExpenditure for drilling or exploration activities or
servicesor in respect of physical assets used in that
connection,except assets on which allowance for depreciation
isadmissible under sec 32 (This expenditure may be before
orcommencement) Quantum of deductionFull 168. General deduction for
Expenses sec37 In addition expenditure deductible under sections 30
to 36 the followingexpenditure will be also allowed as deduction in
computingincome.Not being in the nature of capital expenditureNot
being the Personal expenses of the AssesseeNot being the
expenditure incurred which is offence orprohibition under lawNot
being Expenditure incurred by an Assessee onadvertisement in any
souvenir, brochure, tract, pamphletor the like published by a
political partyAnd if such expenditure incurred wholly and
exclusivelyfor the purposes of the business or professionIt Will be
allowed as deduction 169. Non Deductible items S.SecTransaction
Type of N.40 Assessee 137(2BAdvertisement in souvenir, brochure,
tract, All_pamphlet, etc., of political partyAssessees 2a(i)(iii
Interest, Rent royalty, fees for All)technical services/Salary or
other Assessees chargeable sum payable outside India or in India to
a non-resident or foreign company, on which TDS not deducted/not
paid with in time allowed. 3a(ia)interest, commission, brokerage,
fees All forprofessionalservices/technical Assessees
services,paymentunderworks contractonwhichTDS not deducted/not paid
with in time allowed. 4a(ib)Securities transaction tax and fringe
benefit All tax (STT will be allowed as deduction from Assessees AY
09-10)0 170. Deductibility of Expenditure where TDS notdeducted/
not paid S CaseAllowability of expenditure No 1TDS deductible in
previous Where such amount is deducted inyear but not
deductedsubsequentprevious year, Allowability will be in the
previous year which tax was deposited 2TDS deductible, deductedbut
not paid during theprevious(a) where the payment is Where the tax
deposited before duerelating to march of date for filing of return
of income,previous yearexpenditure will be allowed in the
respective previous year, Otherwise Allowability will be in the
previous year which tax was deposited(b) where the payment is
Allowability will be in the previousrelating toAprilto year which
tax was deposited,February of previous year(depositing before due
not applicable ) 171. Non Deductible items S SecTransactionType of
N 40Assessee5a(ii)Rate or tax levied on the profits or gains All
Assessees of any business or profession (Indian Income as well as
foreign income, relief claimed under 90 &91) 6a(iia) Wealth tax
All Assessees 7a(iv)Employer contribution in excess of funds
Employers which are chargeable to tax as salaries, where TDS not
deducted8a(v) Tax actually paid by an employer referred Employers
to in section 10(10CC)9bInterest, salary, bonus, commission or Firm
remuneration paid to partners in excess of limits 10 ba Interest,
salary, bonus, commissionor AOP/BOI remuneration paid to members
172. Non Deductible items S N Sec TransactionType of 40 Assessee
11A(2) Expenditurefor goods, service, All Assesseefacilities
involving payment to relative/director/partner/ substantially Refer
noteinterested person, etc., which, in theopinion of the Assessing
Officer, isexcessive or unreasonable comparedto FMV/legitimate
business needs. 12A(3) Payments exceeding Rs. 20,000 made All
Assesseeotherwisethan by crossedcheque/bank draft subject to
certain Refer note-exceptions . Wholeofsuch exceptionsexpenditure
will be disallowed Limitfor all the bills per day to beconsidered.
173. Non Deductible itemsS SecTransactionType of N 40Assessee 13
A(7 Anyprovision/paymentof Employers) unapproved
provident/welfarefunds 14 A(9 AnyProvision sumpaid Employers)
unrecognizedgratuity/Provident fund 174. The persons where the
payment under the section 40 A(2) will attract S Type ofPerson whom
the payment made- cover N Assessee1Individual Any relative of the
individual/Any personwhere such individual has
substantialinterest2HUFAny member of HUF Any relative of thesuch
member/Any person where HUF hassubstantial interest3Firm
Anypartner/Any relative of thepartner/Any person where such firm
hassubstantial interest4AOP/BOIAnymember/ Any relative of
themember/Any person where such AOP BOIhas substantial
interest5CompanyAnyDirectorAny relative of theDirector/Any person
where such Companysubstantial interest 175. The persons where the
payment under the section 40 A (2) will attract Any AssesseeTo an
individual who has substantial interest in thebusiness of Assessee
or relative of such individualTo an Company which has substantial
interest in thebusiness of Assessee or to director or relative of
suchDirectorTo Firm/AOP/HUF which has substantial interest in
thebusiness of Assessee or to partner, member ofFirm/AOP/HUF or
relative of such partner, memberTo an Company where any one
director has substantialinterest in the business of Assessee or
payment made todirector or relative of such DirectorTo Firm/AOP/HUF
where any partner, member ofFirm/AOP/HUF has substantial interest
in the business ofAssessee or payment made too partner,
memberorrelative of such partner, member 176. The persons where the
payment under thesection 40 A (2) will attract Meaning of
Substantial interest: if such person is beneficially owner(a) in
case of Company at least 20% ofequity capital at any time during
theprevious year(b) in any other case, at least 20% ofProfits of
the business in concern at anytime during the previous year Meaning
of RelativeIn case of Individual spouse brother sisterany lineal
ascendant or descendant CA N Raja Sekhar, Chennai
[email protected] 177. Exceptions to 40 A(3) payments Rule 6 DD
RBI /Any banks/Government/Public Financial Institutions Any primary
agricultural credit society Payment made in pursuance in respect of
any contract entered into by the Assessee before the 1st day of
April, 1969 Payment is made through Bank by outside India by LOC,
TT, Bill of Exchange, and Account transfer Where the payment is
made for the purchase of agricultural /animal
husbandry/Poultry/Cottage industry working without aid of power
Where the payment is made by way of adjustment against the amount
of any liability incurred by the payee for any goods supplied or
services rendered by the Assessee to such payee; Payment is made in
a village or town, where Assessee resides, such payment is not
served by any bank, Where the payment was required to be made on a
day on which the banks were closed either on account of holiday or
strike; 178. Exceptions to 40 A(3) payments Rule 6 DD Where the
payment is made by an Assessee by way of salary to his employee
after deducting TDS, and when such employee (A) Is temporarily
posted for a continuous period of fifteen days or more in a place
other than his normal place of duty or on a ship; and (B) Does not
maintain any account in any bank at such place or ship Payment to
Authorized dealers/Money changers for purchase of it purchase of
foreign currency or traveler's cheque in the normal course of his
business. Where the payment is made to an employee of the Assessee
or theheirsofany suchemployeetowards termination/retirements/death
benefits if the income chargeable under the head Salaries of the
employee in the immediately preceding financial year did not exceed
Rs. 7,500 179. Certain deductions to be only on actual payment Sec
43 B. tax, duty, cess or fee, under any law interest on any loan or
borrowing from any Banks /publicfinancial institution/ scheduled
bank. Exception interest isconverted into a loan or advance, the
interest so converted,shall not be deemed as actual
payment.contribution to any provident/superannuation/or gratuity
fund /or any other fund for the welfare of employees
Bonus/Commission paid any leave Salary at the credit of his
employeeIf the above payments should be paid in P Y or before due
date for filing of return of income, If not they will be allowed as
deduction in the year of payment 180. MAINTENANCE OF BOOKS OF
ACCOUNT Sec 44 AA AssesseeProfessionals Other Business Category
Gross ReceiptsGross Receipts> 150000Mandatory when1,20,000years
Or likely exceed inPrevious year in case of Gross receipts/
Turnover Previous year in case ofnew business >10 lakhs new
business In any 3 preceding previous years Or likely exceed inRule
6 F, Cash book, journalPrevious year in case ofLedger ,Copies of
bill issued new businessBooks enable A O > Rs.25, Payment bill
>50, To compute incomeIn case of doctors medicines Stock 181.
MAINTENANCE OF BOOKS OF ACCOUNT Sec 44 AAProfession include, legal,
medical, engineering, architecture, accountancy or technical
consultancy and film artists Period which books should be retained
Books and documents at least 6 years Cash book and ledger-at least
16 years 182. Compulsory audit of accounts Sec 44ABBusiness
Assessee turnover/receipts > 40 lakhs Professional Assesses
receipts > 10 lakhs Audit of accounts are compulsory Assessee
has to get his accounts of such previous year audited by a CA and
furnish report by specified date Specified date is 30th Septemberof
the relevant assessment year 183. Compulsory audit of accounts Sec
44ABform of Report of the auditIn the case business Assessee
accounts audited underany other law- Form No. 3CA., In the case
business Assessee other than above inForm No. 3CB.In the case of a
person who carries on profession, is inForm No. 3CC. The report
should contain particulars in- Business Assessee in Form No. 3CD.-
Professional Assessee in Form No. 3CE 184. Taxation of specific
businesses Presumptive tax basis Civil construction business
(turnover not > Rs40 lakh) Sec 44 AD ApplicableAll Assessees is
engaged in the business ofcivil construction or supply of labour
forcivil construction, Deemed Income of PGBPof such
civilconstruction business8 % of the gross receipts 185. Taxation
of specific businesses Presumptive tax basis Business of plying,
hiring or leasing carriages (receipts Not > 40 lakhs) Sec 44
AEApplicable All Assessees is engaged in the business of plying,
hiring or leasing carriages does not own more than 10 vehicles,
,Deemed Income of PGBP of such hiring business Rs 3500/- a month or
part of the month owned byassessee in the case of each heavy goods
vehicle.Rs 3150 a month a month or part of the month owned by
assessee each in the case of other vehicles CA N Raja Sekhar,
Chennai [email protected] 186. Taxation of specific businesses
Presumptive tax basis Retail business (turnover not > Rs 40
lakhs)Sec 44 AF ApplicableAll Assessee is engaged in the business
ofRetail Trade, Deemed Incomeof PGBP of such hiringbusiness 5 % of
the gross receipts . 187. Common points for 44 AD/AE/AF No need to
maintain books of account No deduction will be allowable u/s 30 to
38 in computing such income. It is assumed that all deductions have
deemed to have been allowed. In the case of partnership firms, only
salary bonus, remuneration and interest paid to partners is
deductible while computing the profits of the firm. No
disallowances u/s 40. (prescribed profit need not to be added back
with disallowances) prescribed profit can be used to set off losses
Deductions from Gross total income can be availed 188. Common
points for 44 AD/AE/AFAssessee is free to declare higher profits
andgains, and pay tax thereon. If the Assessee declares Less than
prescribedprofit . He has to maintain books of accounts and getthe
accounts audited by a CA U/s Sec 44 A B. 189. Deduction of Certain
Expenses in case ofReorganization of Cooperative banks Sec 44DB
When reorganization takes place during the year, the following
expenses deductible on prorate basis of number of days of
predecessor and successor banks(1) Section 32 (Depreciation); (2)
Section 35D (Amortisation of certain preliminary expenses); (3)
Section 35DD (Amortisation of expenses in case of amalgamation or
Demerger); (4) Section 35DDA (Amortisation of expenditure incurred
under voluntary retirement scheme). 190. For exampleCooperative
Bank A amalgamated with Cooperative BankB as on
31.12.2007.Deduction allowable for the preliminary expenses willbe
Rs. 36600 in a previous year.The deduction available to Bank A =
36600 x 275/366=27500The deduction available to Bank B = 36600 x
91/366=9100 Business reorganization meansthe reorganization of
business involving theamalgamation or Demerger of a co-operative
bank withother Cooperative bank 191. Method of accounting Sec 145.
Applicable to PGBP, IFOSIncome should be computed as per method of
accounting regularlyemployed by Assessee and as per notified
Accounting StandardsAccounts should be maintained either on
mercantile basis or cashbasis. Hybrid i.e. mixed system is not
permitted.. Notified Accounting Standards for sec 145-Accounting
Standard 1- Disclosure of Accounting policiesAccounting standard 5-
Prior period and extraordinary items Failure to comply method of
accounting/notified ASAO may make best of judgment assessment 192.
Method of accounting in certain cases.Sec 145 A Applicable to
InventoryFor the purpose of determining the income underthe head
PGBP shall be(a) In accordance with the method of
accountingregularly employed by the assessee; and(b) The cost to be
included tax duty cess and othercosts bringing goods in to present
location on thedate of valuation. 193. Computation of Business
income from theProfit & Loss A/c/ Income and expenditure A/c
Rs. Rs.Particulars Balance as per profit and loss (P&L Ale) or
income xxx and expenditure account (I&E Ale) Add Expenses
expressly disallowed/not allowed but1 xxx debited Incomes or
receipts taxable under this head2 xxx but not credited3Capital
expenses/personal expenses debited xxx4Losses not allowed but
debited xxx Expenses not relating to the previous year but5 xxx
debited/6Expenses relating other heads of incomexxxx
Under-valuation of closing stock or over-7 xxxxxx valuation of
opening stock 194. Less.8.Expenses expressly allowed but not
debited xxx 9 Expenses relating to the previous year but not
debited xxx10. Losses allowed but not debited xxx 11. Incomes or
receipts not taxable under this head butxxx credited12. Capital
receipts creditedxxx13 Incomes or receipts taxable under other head
butxxx .credited Over-valuation of closing stock or under-valuation
of 14 xxx xx opening stock Profits/Income taxable under the head
'Profits and gainsxx from business or profession' 195. Computation
When Receipt & Payment Account is given or Cash or bank A/C is
given1Check the debit side and consider for onlyrevenue receipts
exclude capital receipt.2Check credit side and consider for only
thoserevenue expenses, which are pertainingBusiness/profession and
incurred exclude capitalexpenditure 3Check the notes given and
adjust the amountexpenses and income 4Net Business/ Professional
Income = Adjustedincome (-) Adjusted expenses CA N Raja Sekhar,
Chennai [email protected] 196. End of Chapter 197. Capital gains
4th head of income Taxability is on gain on Transfer of Capital
asset 198. Capital gains sections S No Section Description
12(14)Capital Asset 2 2(29A)/2 Long-term capital asset/short
term(42A)capital asset 32(47)Transfer410(33) Exemption of CG on
transfer of US 64 510(36) Exemption of CG on transfer BSE
500index610(37) Exemption of CG on transfer of Urbanagricultural
land on compulsory acquisition710(38) Exemption of CG on transfer
Equityshares or units of MF where STT paid845 Charging section of
capital gains 199. Capital gains S No Section Description 9
46Capital gains on company liquidation 10 46 A Capital gain on
buyback of shares1147Transactions not regarded as transfer12 47 A
Violating the conditions of transfer 1348Computation of Capital
gain 14 49,55Cost of acquisition of capital gain 1550/50 A Capital
gain of Depreciable asset 16 50 B Capital gain on slump sale 200.
Capital gains S No Section Description 17 50 C Full value
consideration land/buildings 1851Cost of improvement1954Various
exemptions on capital gains20 55 A Reference to valuation officer
21111ATax rate of STCG suffered STT 22 112Tax rate of Long term
capital gains 201. Capital Asset sec 2(14) Stock in trade Stock in
trade In case ofIn case ofMovablebusinessbusinessMovableProperty
Propertyof of Personal effects of Personal effects of Every
kindEvery kind Movable natureMovable nature Held by Held by
ImmovableImmovable(except jewellery)(except jewellery)Assessee
Assessee But ButWhether Whether excludingexcluding
ConnectedConnectedAgriculturalAgriculturalwith with
TangibleTangibleLand in rural Land in rural Business orBusiness or
area not areanot Intangible Special bearer Special
bearerIntangiblebonds, gold bonds, goldbonds, defence bonds,
defence bondsbonds 202. Capital Asset sec 2(14)The following are
also The following are alsoCapital assets Capital assets
jewelleryjewelleryPersonal effects such as Personal effects such
asarcheological collections, archeological collections, Paintings.
Drawing,Paintings. Drawing, sculptures and work orsculptures and
work orany art any art 203. Transfer sec 2(47), includes Sale
ExchangeExtinguishment of any Relinquishmentrights in assets
Compulsory acquisition under Conversion of Capital Asset , any
lawIn to stock in tradeDistribution of asset on Transfer of a
capital assetdissolution of a firm / BOI / by a partner or member
to AOP. the firm / AOPTransfer under a gift or an irrevocable trust
of shares,debentures etc allotted by a company to its employees
under ESOP 204. Transactions not regarded as transfer sec
47Transfer of Asset at the time of Liquidation by a company;to its
shareholders; on its liquidation, in the context of Company Any
distribution of capital asset by a HUF on total or partial
partition of the familyTransfer of Capital Asset on Gift or under
irrevocable trust Exception: ESOP allotment as a gift by employer
to employee Transfer of Capital Asset by Holding Company to wholly
owned subsidiary Company vice versa provided transferee company is
aan Indian Company 205. Transactions not regarded as transfer sec
47Transfer of Capital Asset in a Scheme of Amalgamation
providedamalgamated Company is Indian Company. Transfer of Capital
Asset in a scheme of Demerger providedresulting Company is an
Indian Company {Sec. 47 (viB)} Issue of Shares by Resulting Company
to the Shareholders of demerged Company {Sec. 47 (vi)(d)} Allotment
of Shares in the Amalgamated Company in lieu of shares held in
Amalgamating Company {SEC. 47 (vii)} 206. Transactions not regarded
as transfer sec 47 Transfer of Foreign Currency Convertible bonds
or GDR by anNon Resident to Another Non Resident . Such
transfershould be outside India {SEC. 47 (Viia) Transfer of Work
Art manuscript, Painting, to Government /University National Museum
etc {SEC. 47 (ix)}.Conversion of Bonds or Debentures in to Shares
{Sec. 47 (X)} It may be noted that conversion of preference shares
into equityShares /shares in to bonds is treated as
transferTransfer of Scheme involved in scheme of lending
Securitiesas per guidelines of RBI SEBI {SEC. 47 (xv)} CBDT
Circular 751 Dated 10-02-1997 Transfer of Land by Sick Industrial
Company which is managed its workers Cooperative {Sec. 47 (xii)
207. Transfer of Capital Asset being the Shares inIndian Company in
a Scheme of Amalgamation oftwo Foreign Companies (
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