Income tax UGC NET Commerce

KD COMMERCE CLASSES
2019
Income Tax
Theoretical & Legal Aspects
Umakant Annand(UGC NET Commerce, MCom,MBA)
D A D D Y C O O L , H A R D O I R O A D , B A L A G A N J L U C K N O W

2 | Page Prepared by Umakant Annand(UGC NET Commerce, MCom, MBA,BCom)
Topic-1 Introduction & Brief History
Tax is the compulsory financial charge levy by the government on income, commodity, services, activities or transaction.
The word ‘tax’ derived from the Latin word ‘Taxo’. Taxes are the basic source of revenue for the government, which are
utilized for the welfare of the people of the country through government policies, provisions and practices.
In India, Income Tax was first time introduced in the year 1860 by Sir James Wilson in order to meet the loss caused on
account of ‘military mutiny’ in 1857. In India, Income Tax was first time introduced in the year 1860 by Sir James Wilson in
order to meet the loss caused on account of ‘military mutiny’ in 1857.
In the year 1886, a separate Income Tax Act was passed, this act was in force for a long time, subject to the various
amendments from time to time. In the year 1918, a new Income Tax Act was passed, but again, it was replaced by another
new act of 1992. The Act of 1922 became very complicated due to various amendments. This act remains in force to the
assessment year 1961-62. In the year 1956, the Government of India referred to the Law Commission in order to simplify the
law and also to prevent the evasion of Tax.
The Law Commission submitted its report in September 1958 in consultation with the Ministry of Law. At present, this law
is governed by the Act of 1961 which is commonly known as Income Tax Act, 1961 which came into force on and from 1st
April 1962. It applies to the whole of India, including the state of Jammu & Kashmir.
Any law is in itself is not complete unless the gaps are being filled. The law of Income Tax in India governed by the Income
Tax Act of 1961 and the gaps are being filled by the Income Tax Rules, Notifications, Circulars and judicial pronouncement
including rulings by the Tribunal
The Income Tax law in India consists of the following components;
➢ Income Tax Act, 1961: The Act contains the major provisions related to Income Tax in India.
➢ Income Tax Rules, 1962: Central Board of Direct Taxes (CBDT) is the body which looks after the
administration of Direct Tax. The CBDT is empowered to make rules for carrying out the purpose of this
Act.
➢ Finance Act: Every year Finance Minister of Government of India presents the budget to the
parliament. Once the finance bill is approved by the parliament and get the clearance from President of
India, it became the Finance Act.
➢ Circulars and Notifications: Sometimes the provisions of an act may need clarification and that
clarification usually in a form of circulars and notifications which has been issued by the CBDT from
time to time. It includes clarifying the doubts regarding the scope and meaning of the provisions.
Types of Taxes
Taxes are levied by the government on the taxpayer. Taxes are broadly divided into two parts namely, Direct Tax and
Indirect Tax.
Direct Tax is levied directly on the income of the person. Income Tax and Wealth Tax are the part of Direct Tax. Whereas,
in indirect taxes, the person who pays the tax, shifts the burden to the person who consumes the goods or services.
Before 2017 the Indirect Tax comprises of various taxes and duties like Service Tax, Sales Tax, Value Added Tax, Customs
Duty, Excise Duty and etc. From July 1st, 2017 all such Indirect Taxes are submerged in one tax law which was named as
‘The Goods and Services Tax Act, 2017”.
Basic Concept of Income Tax Act
“Income Tax is levied on the total income of the previous year of every person”. To understand the basic
concept. It is very important to know the various other concepts.
Concept of Income
In common parlance, Income is known as a regular periodic return to a person from his activities. However, the
Income has broader classified in Income Tax law. The Income Tax Act, even take consideration of income which
has not arisen regularly and periodically. For instance, winning from lotteries, crossword puzzles, income from
winning of shows is also subject to tax as per income tax.
The Income includes income from
Cash or Kind
Income in terms of Cash is not the only way to receive income, it can also be received in terms of a kind. The calculation of
income from kind is subject to different treatments in both Direct and Indirect Tax. When the income is received in kind, its
valuation will be made.
Legal or Illegal Income

A man of ordinary prudence may think that the illegal income may not be falling under the concept of income, but income
tax does not make any distinction between the income received from a legal or illegal source. In CIT v. Piara Singh[2]
,the
Supreme Court held that the loss of business of smuggling shall be allowed for deduction under Income Tax. The rationale
behind the decision was that the smuggling activity is also regarded as a business. Therefore, the confiscation of currency
notes employed in smuggling activity is a loss which arises directly from the carrying on of the business.
Temporary or Permanent
As per Income Tax Act, there is no distinction in computing income whether nature is temporary or permanent.
Receipt basis or Accrual basis
Income arises either on receipt basis or accrual basis. It may accrue to a taxpayer without its actual receipt. The income in
some cases is deemed to accrue or arise to a person without its actual accrual or receipt. Income accrues where the right to
receive arises.
Gifts
Gifts up to Rs. 50,000 received in Cash do not constitute tax liability. Gifts in kind having the fair value maximum up to Rs.
50,000 is not liable to tax. However, the whole amount will be taxed if the value exceeds the prescribed limit. Moreover, the
treatment of valuation of the gift is different in the different situation especially gifts received on occasion of marriage.
Lump sum or Instalments
Income Tax does not make any distinction in computing income, whether it receive in lump sum or instalment.
Person
Income tax is levied on the total income of the previous year of every person. In general terms, the meaning of a person can
be interpreted in a short term. Whereas, as per Section 2 (31), Person includes:
1) an individual,
2) a Hindu undivided family (HUF),
3) a company,
4) a firm,
5) an association of persons (AOP) or a body of individuals (BOI), whether incorporated or not,
6) a local authority, and
7) every artificial juridical person (AJP), not falling within any of the preceding sub-clauses.
The definition of Person starts with the word includes, therefore, the list is inclusive, not exhaustive
Assessment Year
“Assessment Year” means the year in which income of the previous year of an assessee is taxed. The timed lap of assessment
year is of twelve months beginning from the 1st April every year. The period starts from 1st April of one year and ending on
31st March of next year. Broadly, assessment year is defined under section 2 (9) of the Act.
Previous Year
Income earned during the year is taxable in the next year. The definition of “Previous Year” is given under section 3 of the
Act. Previous Year is the year in which income is earned. Previous year is the financial year immediately preceding the
relevant assessment year. From 1989-90 onwards, every taxpayer is obliged to follow financial year (i.e., April 1st of one
year to March 31st of next year) as the previous year.
Heads of Income
As per Income tax, section 14 classifies income under five heads:
1) Income from salaries
2) Income from House Property
3) Profits and gains of business and profession
4) Capital Gains
5) Income from other sources
Tax Rates
The Income is taxed at the rates prescribed by the relevant Finance Act. The tax levied on the basis of a slab
system where different tax rates have been directed for the different slab. In India, there are three categories of
individual taxpayers:
1) An individual below the age of 60 years,
2) A senior citizen above the age of 60 years, but below the age of 80 years,
3) A super senior citizen above 80 years of age.
4) The tax slab varies according to the different persons.

Surcharge
The Surcharge is commonly known as Tax on Tax. It is an additional tax levied on the taxpayers on a special
group of people. It is an additional tax liability levied on the person having more income than prescribed.
Education Cess and Secondary Higher Education Cess
The amount of income tax shall be increased by an Education Cess on Income Tax by 2% and Secondary and
Higher Education Cess by 1% of the tax liability.
A.
I. In the case of the individual below the age of 60 years, or HUF, or AOP/BOI (other than a co-operative
society) whether incorporated or not or every AJP.
INCOME CATEGORIES TAX RATES
Upto Rs. 2,50,000 Nil
Rs. 2,50,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
II. In the case of an individual, being a resident in India, who is of 60 years or more but below 80 years (senior
citizen) at any time during the previous year.
Upto Rs. 3,00,000 Nil
Rs. 3,00,000 to Rs. 5,00,000 5%
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
III. In the case of an individual, being an Indian resident, who is of 80 years of age or more (super senior citizen)
at any time during the previous year.
Up to Rs. 5,00,000 Nil
Rs. 5,00,000 to Rs. 10,00,000 20%
Above Rs. 10,00,000 30%
B. In the case of a co-operative society;
INCOME RATES
where the total income does not exceed Rs.
10,000
10% of the total income;
where the total income exceeds Rs. 10,000 but
does not exceed Rs. 20,000
Rs. 1000 plus 20% of the amount by which the
total income exceeds Rs. 10,000;
where the total income exceeds Rs. 20,000
Rs. 3000 plus 30% of the amount by which the
total income exceeds Rs. 20,000;
C. In the case of any firm (including Limited Liability Partnership), the tax will be charged at
the rate of 30%.
D. In the case of a company;
I. For domestic companies:
a. If the total turnover or the gross receipts of the previous year 2015-16 does not exceed Rs. 50 Cr.: 25%
b. In all other cases: 30%
II. For foreign companies: 40%

Topic-2 Residential Status
The first and foremost thing while preparing an Income Tax Return is to determine the Residential Status of the
person. The levy of Income Tax on a taxpayer is dependent on his Residential Status. The Residential Status of a
person can be graphically described as mentioned below
Resident (Ordinary Resident) [Section 6(1)]
To determine the residential status of an individual, section 6(1) prescribes two tests. An individual who fulfils
any one of the following two tests is called Resident under the provisions of this Act. These tests are :
1) If he is in India during the relevant previous year for a period amounting in all to 182 days or more.
2) If he was in India for a period or periods amounting in all to 365 days or more during the four years
preceding the relevant previous year and he was in India for a period or periods amounting in all to 60
days or more in that relevant previous year.
Resident But Not Ordinarily Resident
An individual who is resident u/s 6(1) can claim the beneficial status of N.O.R. if he can prove that :
He was non resident in India for 9 previous years out of 10 previous years preceding the relevant previous year.
OR
He was in India for a period or periods aggregating in all to 729 days or less during seven previous years
preceding the relevant previous year.
Ordinary Resident Resident But Not Ordinarily Resident
(a) He was in India for a period or periods totaling in
all to 182 days or more during relevant previous
year.
OR
(b) He was in India for a period or periods totaling in
all to 60 days or more during relevant previous year
and 365 days or more during four previous years
preceding the relevant previous year.
And
Must be resident of India (by fulfilling at least one
of two above mentioned tests) in at least 2 out of 10
previous years preceding the relevant previous year.
And
Must have stayed in India for 730 days or more
during 7 previous years preceding the relevant
previous year.
(a) He was in India for a period or periods totaling in all
to 182 days or more during relevant previous year
OR
(b) He was in India for a period or periods totaling in all
to 60 days or more during relevant previous. year and
365 days or more during four previous years preceding
the relevant previous year.
And
Was non-resident in India in 9 or 10 previous years out
of 10 previous years preceding the relevant previous
year.
OR
Was in India for less than 730 days during 7 previous
years preceding the relevant previous year.

Non-resident [Section 2(30)]
Under section 2(30) of the Income-tax Act, 1961 an assessee who does not fulfil any of the two conditions given
in section 6(1)(a) or (b) would be regarded as ‘Non-resident’ assessee during the relevant previous year for all
purposes of this Act.
Taxability of Income in the hands of different categories of taxpayers is as under
Particulars Ordinary
Resident
Not Ordinary
Resident
Non-Resident
Income received or deemed to be received in India
whether earned in India or elsewhere
Yes Yes Yes
Income which accrues or arise or is deemed to
accrue or arise in India, whether received in India or
elsewhere
Yes Yes Yes
Income which accrues or arise outside India and
received outside India from a business controlled
from India
Yes Yes No
received outside India from any other source
Yes No No
received outside India during the year preceding the
year and remitted to India during the previous year
Yes No No
Important Points
1) Meaning of Stay in India:- It means stay any where within Indian geographical territory, i.e., any where
in Indian villages, towns, cities, waters or mountains.
2) Stay may be continuous or intermittent:-Stay in India for specified days should not necessarily be
continuous.
3) Stay need not be at one place:- A person must stay within Indian territory and where he stays is not an
important cods4deration.
4) Object of stay is not important:- It is immaterial whether he stays in India for business purposes or on a
personal purposes or visits India as a tourists.
5) Calculation of ‘period of stay’ in India:- The ‘period of stay’ in India is to be calculated on the basis of
actual stay of an individual in India during the relevant previous year.
Topic-3 DEFINITION’ Of Agricultural Income [ Section 2(1A)]
Agricultural income including the following:
1) any rent or revenue derived from land which is situated in India and is used for agricultural purposes [sec.
2(1A)(a)];
2) any income derived from such land by agricultural operations including processing of the agricultural
produce, raised or received as rent-in-kind so as to render it fit for the market, or sale of such produce
[sec. 2(1A)(b)]; and
3) income attributable to a farm house subject to the condition that the building is situated on or in the
immediate vicinity of the land and is used as a dwelling house, storehouse, or other out-building and the
land is assessed to land revenue or a local rate or, alternatively, the building is situated on or in the
immediate vicinity of land which (though not assessed to land revenue or local rate) is situated in a rural
area [sec. 2(1A)(c)].
The above three types of income shall be treated as 'agricultural income' only when the prescribed conditions are
satisfied.

Section 10(1) exempts agricultural income from tax. The reason for exemption for agricultural income from
Central taxation is that the Constitution gives exclusive power to make laws with respect to taxes on agricultural
income to the State Legislature. However, in some cases agricultural income is taken into consideration to
determine tax on non-agricultural income.
From the assessment year 2009-10, any income derived from saplings or seedings grown in a nursery shall be
deemed to be agricultural income.
Rural area - Rural area for the above purpose is as follows –
From the assessment year 2014-15 - Any area which is outside the jurisdiction of a municipality or cantonment
board having a population of 10,000 or more and also which does not fall within distance (to be measured
aerially) given below –
2 kilometres from the local limits of municipality /
cantonment board.
If the population of the municipality/cantonment board is
more than 10,000 but not more than 1 lakh
cantonment board.
more than 1 lakh but not more than 10 lakh
cantonment board.
more than 10 lakh
How To Determine Agricultural Income
The three basic tests which must be satisfied to treat a particular income as agricultural income are given below.
It is essential that all the following three tests must be fulfilled
Test (A) —Income derived from land
It is essential that for any income to be termed as agricultural income land must be effective and immediate
source of income and not indirect and secondary.
As a result, interest on arrears of land revenue, dividend paid by a company out of its profits which included
agricultural income also and salary paid to a manager for managing agricultural farms are not agricultural
incomes because in all these cases land is not the effective and immediate source of income.
Test (B)—Land is used for agricultural purposes
To term any income as agricultural income, it is necessary that income must be the result of agricultural
operations performed on agricultural land. Agriculture means performance of some basic operations—ploughing,
sowing, irrigating and harvesting and some subsequent operations—weeding, digging, pruning cutting etc. It
involves employment of some human skill, labour and energy to get some income from land.
Test (C)—Land is situated in India
To qualify for exemption u/s 10(1) of the Act, it is necessary that agricultural income must he derived from land
situated in India. In case income is derived from agricultural land situated outside India or is from any non-
agricultural land, it will not be exempted u/s 10(1). It is taxable income under the head “Income from other
Sources.”
Types Of Agricultural Income
Assessments of 'AGRICULTURAL INCOME']
On the basis of definition of agricultural income given above, it can be classified into five broad categories. These
types of agricultural incomes are :
1. Any income received as rent or revenue from agricultural land
Rent can very simply be defined as a payment in cash or in-kind which the owner of the land receives from
another person in consideration of a grant of a right to use land. When the owner of land is not performing
agricultural operations himself but gives his land on contract basis, any amount received from the actual cultivator
by the owner of the land shall be agricultural income. Such rent may he in cash or in-kind, i.e., a share in the
produce grown by the cultivator. .
2. Income derived from Agriculture
Income derived from land situated in India by applying agricultural operations shall be agricultural income. If all
the basic operations like preparation of land for sowing, planting, watering, harvesting etc. are applied, any
income resulting from such operations shall be agricultural income. On the other hand, if grass, trees etc. have
grown spontaneously or without the aid of human skill, effort, labour etc., any income resulting from the sale
of such grass, trees or lease rent of such land shall not he agricultural income.

3. Any income accruing to the person by the performance of any process to render the produce marketable
If, in the ordinary course, a process is to he employed by the cultivator himself or the landlord who receives the
produce as rent-in-kind, any income derived from such a process shall he agricultural income. Such a process
must be employed to render the produce fit for marketing. The process may he manual or mechanical. It should be
noted that the produce should not change its original character in spite of the processing unless the produce
cannot be sold in that form or condition.
Following points are to he noted in this connection :
1) The process must he one which is ordinarily employed by the cultivator.
2) The process is employed to render the produce fit to be taken to the market.
3) The produce must retain its original character in spite of process unless the produce is having no market if
offered for sale in its original condition.
4. Any income received by the person by the sale of produce raised or received as rent-in-kind
Any income derived by any person by the sale of agricultural produce raised by him or received as rent-in-kind
shall also be agricultural income. Sometimes such person puts some extra effort by selling the produce through
his own shop, any extra profit raised due to shopping activities shall not he agricultural income.
5. Income from buildings used for agriculture
Any income derived from a building used for agricultural operations shall be agricultural income provided
1) The building from where the income is received, is in the immediate vicinity of the land and is occupied
by the owner, or by the cultivator or by the receiver of rent-in-kind.
2) Building is used as a dwelling house or a store house or other out-building.
3) The cultivator or the receiver of the rent-in-kind, by reason of his connection with the land, is in need of
the house as a dwelling house or as a house to store the goods required for agricultural operations.
4) The land if assessed to land revenue in India or is subject to a local rate assessed and collected by officers
of the Govt. and in case the land is not assessed to land revenue or to local rate, it should not be situated
within the urban areas.
TABLE - PARTLY AGRICULTURAL AND PARTLY BUSINESS INCOME
Corp Rule Agricultural
Income
Business
Income
Growing and Manufacture of Tea 8 60% 40%
Rubber manufacturing business 7A 65% 35%
Coffee grown and cured by seller 7B(1) 75% 25%
Coffee grown, cured, roasted and grounded by the seller in India with
or without mixing chicory or other flavouring ingredients
7B(1A) 60% 40%
Income related to Land but not treated as Agriculture Income
1) Income from poultry farming.
2) Income from bee hiving.
3) Income from sale of spontaneously grown trees.
4) Income from dairy farming.
5) Purchase of standing crop.
6) Dividend paid by a company out of its agriculture income.
7) Income of salt produced by flooding the land with sea water.
8) Royalty income from mines.
9) Income from butter and cheese making.
10) Receipts from TV serial shooting in farm house.
Topic-4 What is a Tax Incidence
A tax incidence is an economic term for the division of a tax burden between buyers and sellers. Tax incidence is
related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden
falls on the buyers. If demand is more elastic than supply, producers will bear the cost of the tax.
the person who originally pays the tax may not be actually bearing its money burden as such. This problem is,
therefore, to determine who bears the tax, ultimately. This is known as incidence of taxation.

The concept of “incidence” of taxation has been variously described by different economists. Dalton, for instance,
considers incidence as the direct money burden of tax on the person who ultimately pays it. Incidence, thus, rests
on the person who cannot shift the money burden of the tax to any other person.
For example, when a sales tax is imposed on Bata shoes, but the company’s shop recovers it from the buyers, so
the incidence of this tax lies on the buyers since they ultimately bear its money burden.
Inelastic and Elastic Demand
Karen will pretty much buy the same number of cigarettes each day regardless of their cost because of her
addiction. This is an example of inelastic demand. With inelastic demand, a consumer's demand is unaffected by
changes in price. When inelastic demand occurs, it's the consumer who is paying the tax.
However, Karen will try to save as much money on her textbook as she can. In our example, she chose to
purchase her textbook online because it was $14 cheaper than the one in the bookstore due to the sales tax. This is
an example of elastic demand. With elastic demand, a consumer's demand is highly affected by changes in price.
When elastic demand occurs, it is the seller who is paying the tax. In this case, the campus bookstore saw a
decrease in demand for the textbook, which was caused by the sales tax. The bookstore paid the tax in the form of
fewer textbook sales
Topic-5 Exempted incomes
Income exempt u/s 10
Exempted incomes are those incomes which are not added to the total income for the purpose of
taxation. The incomes on which tax is not levied are known as exempted incomes. These receipts do not
come under the purview of taxation. They are known as fully exempted incomes. There are partially
exempted incomes as well which are included in total income but are exempt to some specialized rate.
Incomes of certain institutions or authorities are also exempt
There are certain types of incomes which are fully exempt from Income tax as per section 10.
Special Allowance Exemption u/s 10(14)
In the Income tax Act, there are cetain allowances which are characterised as special allowances and they are fully exempt
from tax. Such allowances are listed below:
1) Allowances granted to High Court Judges
2) Allowance given to a UNO employee
3) Sumptuary allowance received by Supreme Court and High Court judge
4) Allowances granted to government employees who are Indian citizens, working abroad
Section 10(1) – Agriculture Income Exemption
➢ As per section 10(1), agricultural income earned by the taxpayer in India is exempt from tax. Any rent or revenue
derived from land used for agricultural purposes or agricultural produce to sell in the market.
➢ Any income from farm house subject to certain satisfactory conditions specified in section 2(1A) would be exempt.
Section 10(2) – Amount received by a member of the HUF from the income of the HUF, or in case of
impartible estate out of income of family estate
➢ As per section 10(2), amount received out of family income, or in case of impartible estate, amount received out of
income of family estate by any member of such HUF is exempt from tax.
➢ Example-1. HUF earned ` 5, 00,000 during the previous year and paid tax on its income. Mr A, a co-partner is an
employee and earns a salary of ` 20,000 p.m. During the previous year Mr A also received ` 1, 00,000 from HUF.
Mr A will pay tax on his salary income but any sum of money received from his HUF is not chargeable to tax in Mr
A’s hands.
➢ Example-2. HUF earned ` 90,000 during the previous year 2016-17 and it is not chargeable to tax. Mr A, a co-
partner is earning individual income of Rs 20,000 p.m. Besides his individual income, Mr A receives ` 30,000 from
his HUF Mr A will pay tax on his individual income but any sum of money received by him from his HUF is not
chargeable to tax in the hands of co-partner whether the HUF has paid tax or not on that income.
Section 10(2a) – Share of profit from Partnership Firm
➢ As per section 10(2A), share of profit received by a partner from a firm is exempt from tax in the hands of the
partner.

➢ Further, share of profit received by a partner of LLP from the LLP will be exempt from tax in the hands of such
partner.
➢ This exemption is limited only to share of profit and does not apply to interest on capital and remuneration received
by the partner from the firm/LLP.
Section 10(4) of Income Tax Act – Certain Interest to Non-Residents
➢ Any income earned by way of interest on certain notified securities or bonds (income by way of premium on the
redemption of such bonds) or NRE account in the hands of individual taxpayer, is exempt from tax.
Section 10(4)(ii) – Interest to Non-Resident on Non-Resident (External) Account
▪ Any income by way of interest on money standing to his credit in a Non-Resident (External) Account in any bank in
India shall be exempt from tax in case of an individual;
▪ Who is a person resident outside India or is a person who has been permitted by the RBI to maintain the aforesaid
account.
▪ The person residing outside India shall have the same meaning as defined under Foreign Exchange Regulation Act,
1973, FEMA, 1999.
▪ This exemption shall not be available on any income by way of interest paid or credited on or after 1-4-2005.
Section 10(5) – Leave Travel Concession
▪ An employee can claim exemption under section 10(5) in respect of Leave Travel Concession.
▪ Exemption under section 10(5) is available to all employees (i.e. Indian as well as foreign citizens).
▪ Exemption is available in respect of value of any travel concession or assistance received or due to the employee from
his employer (including former employer) for himself and his family members in connection with his proceeding on
leave to any place in India.
Section 10(6) – Remuneration received by an individual who is not a citizen of India
▪ Such individuals include ambassadors or other officials of the Embassy, High Commission or Legation of a foreign
State in India, Consulate Officer of a foreign State in India and trade commissioner or other official representatives in
India of a foreign State
▪ The remuneration received an employee of a foreign enterprise for services rendered in India, provided:
(a) The foreign enterprise is not engaged in any trade or business in India;
(b) His stay in India does not exceed in the aggregate a period of 90 days in such previous year; and
(c) Such remuneration is not liable to be deducted from the income of the employer chargeable under this Act
Section 10(7) of the Income Tax Act – Perquisites and Allowances paid by Government to its Employees
serving outside India
▪ All the perquisites and allowances paid by the Government to its employees for services rendered outside India are
exempt from tax.
▪ This exemption is allowed only to such employees of the Government who are citizens of India.
Section 10(10CC)- Tax on Perquisites paid by employer
Sometimes for non-monetary perquisites employer pay tax on behalf of employee in that case the tax so paid by the employer
is treated as exempt in the hands of the employee.
Section 10(10d) – LIC Tax Exemption
Any sum received under a life insurance policy is fully exempt in the following cases:
▪ If any sum received from insurance company on insurance of a dependent handicapped member [under subsection (3) of
section 80DD].
▪ If any sum received from insurance company when a dependent, or a member of family is suffering from a notified
disease [under subsection (3) of section 80DDA].
▪ Any sum received under a key man insurance policy.
▪ Any other policy (not being the case when sum received on the death of a person).
 Policy issued before April 1st, 2003 –Exemption available, nothing is chargeable to tax.
 Policy issued on or after April 1st, 2003 but before April 1st, 2012 – Exemption available only when annual premium
payable exceeds 20% of sum assured.
 Policy issued on or after 1st April 2012 – Exemption available only when annual premium payable exceeds 10% of
sum assured.
 Policy issued on or after April 1st, 2013 for a disabled person referred to in section 80U or a person with disease or
ailment specified in section 80DDB – Exemption available only when annual premium payable exceeds 15% of sum
assured.

▪ Any other policy (sum received on the death of a person) – exemption available, nothing is chargeable to tax.
Section 10(11) of Income Tax Act – Payment from Statutory Provident Fund
Any payment received on statutory provident fund related to employer’s contribution, interest, amount received on
termination will be exempted.
Section 10(15) – Interest income exempt from tax
Interest incomes which are exempt under section 10(15) could be explained with the help of the following table:
Section Income Exemption to
10(15)(i)
Interest, premium on redemption, or other payment on
notified securities, bonds, certificates, and deposits, etc.
(subject to notified conditions and limits)
All assesses
10(15)(iib)
Interest on notified Capital Investment Bonds notified
prior to 1-6-2002
Individual/HUF
10(15)(iic) Interest on notified Relief Bonds Individual/HUF
10(15)(iid)
Interest on notified bonds (notified prior to 1-6-2002)
purchased in foreign exchange (subject to certain
conditions)
Individual – NRI/ nominee or
survivor of NRI / individual to
whom bonds have been gifted by
NRI
10(15)(iii) Interest on securities
Issue Department of Central Bank
of Ceylon
10(15)(iiia)
Interest on deposits made with scheduled bank with
approval of RBI
Bank incorporated
Abroad
10(15)(iiib) Interest payable to Nordic Investment Bank Nordic Investment Bank
10(15)(iiic)
10(15)(iiic) Interest payable to the European
Investment Bank on loan granted by it in pursuance of
framework agreement dated 25-11-1993 for financial
corporation between Central Government and that bank
European Investment bank
10(15)(iv)(a)
Interest received from Government or from local
authority on moneys lent to it before 1-6-2001 or debts
owed by it before 1-6-2001, from sources outside India
All assessees who have lent money,
etc., from sources outside India
10(15)(iv)(b)
Interest received from industrial undertaking in India
on moneys lent to it under a loan agreement entered
into before 1-6-2001
Approved foreign financial
institution
10(15)(iv)(c)
Interest at approved rate received from Indian industrial
undertaking on moneys lent or debt incurred before 1-
6-2001 in a foreign country in respect of purchase
outside India of raw materials, components or capital
plant and machinery, subject to certain limits and
conditions
All assessees who have lent such
money, or in favour of whom such
debt has been incurred
10(15)(iv)(d)
Interest received at approved rate from specified
financial institutions in India on moneys lent from
moneys

sources outside India before 1-6-2001
10(15)(iv)(e)
Interest received at approved rate from other Indian
financial institutions or banks on moneys lent for
specified purposes from sources outside India before 1-
6-2001 under approved loan agreement
moneys
10(15)(iv)(f)
Interest received at approved rate from Indian industrial
undertaking on moneys lent in foreign currency from
sources outside India under loan agreement approved
before 1-6-2001
moneys
10(15)(iv)(fa)
Interest payable by scheduled bank, on deposits in
foreign currency when acceptance of such deposits by
bank is approved by RBI
Non-resident or individual/HUF
who is not ordinarily resident in
India
10(15)( iv)(g)
Interest received at approved rate, from Indian public
companies eligible for deduction under section
36(1)(viii) and formed with main object of providing
long-term housing finance, on moneys lent in foreign
currency from sources outside India under loan
agreement approved before 1-6-2003
moneys
10(15)( iv)(h)
Interest received from any public sector company in
respect of notified bonds or debentures and subject to
certain conditions
All assesses
10(15)( iv)(i)
Interest received from Government on deposits in
notified scheme out of moneys due on account of
retirement
Individual –Employee of Central
Government/ State
Government/Public sector company
10(15)(v)
Interest on securities held in Reserve Bank’s SGL A/c
No. SL/DH-048 and Deposits made after 31-3-1994 for
benefit of victims of Bhopal Gas Leak Disaster held in
such account with RBI or with notified public sector
bank
Welfare Commissioner, Bhopal
Gas Victims, Bhopal
10(15)(vi)
Interest on Gold Deposit Bonds issued under the Gold
Deposit Scheme, 1999 or deposit certificates issued
under the Gold Monetisation Scheme, 2015
All assesses
10(15)(vii)
10(15)(vii) Interest on notified bonds issued by a local
authority/State Pooled Finance Entity
All assesses
10(15)(viii)
Interest on deposit made on or after 1-4-2005 in an
Offshore Banking Unit referred to in section 2(u) of the
Special Economic Zones Act, 2005
Non-resident or person who is not
ordinarily resident
Section 10(16) – Stipend Scholarship
▪ Scholarship is free education to students. It covers the cost of education like tuition fees and other related expenses.
▪ The scholarship may have been given by Govt., University, Board, Trust, etc. is exempt to the fullest amount.
Section 10(18) of Income Tax Act – Pension received by certain winners of gallantry awards
Individual who has received any of the gallantry awards stated below will have to pay no taxes on their pension:
▪ service to Central or State Government
▪ awarded ‘Param Vir Chakra’ or ‘Mahavir Chakra’ or ‘Vir Chakra’ or such other notified gallantry awards

Also, any amount received as a family pension by any member of the family of such an individual will also qualify for
exemption u/s 10(18).
Section 10(19) of Income Tax Act – Family pension received by family members of armed forces including
paramilitary forces
Family pension received by the widow or children or nominated heirs of a member of the armed forces (including
paramilitary forces) where the death of such member has occurred in the course of operational duty is fully exempt. W.E.F
01/04/2005.
Section 10(19A) – Income from one palace of a former ruler
▪ Annual value of any one palace or a portion of a palace in the occupation of a former ruler shall be exempted.
▪ But in case such palace or a portion of a palace is let out , its income shall not be exempted.
Section 10(20) – Income of a local authority
The following income of a local authority is exempt from tax:
▪ Income which is chargeable under the head “Income from house property”, “Capital gains” or “Income from other
sources” or
▪ Income from a trade or business carried on by it which accrues or arises from the supply of a commodity or service (not
being water or electricity) within its own jurisdictional area or
▪ Income from business of supply of water or electricity within or outside its own jurisdictional area.
Section 10(23BB) – Income of Khadi and Village Industries Boards
Any income of Khadi and Village Industries Boards is exempt from tax under section 10(23BB).
Section 10(23BBB) – Income of European Economic Community
Any income of European Economic Community derived in India by way of interest, dividends or capital gains, from
investments made out of its funds under a notified scheme is exempt from tax.
Section 10(23BBC) – Income of SAARC fund
Any income of SAARC fund for Regional Projects is exempt from tax under section 10(23BBC).
Section 10(23BBD) – Income of Secretariat of Asian Organisation of Supreme Audit Institutions
Any income of Secretariat of Asian Organisation of Supreme Audit Institutions is exempt from tax for the assessment years
2001-02 to 2010-11.
Section 10(23BBE) – Income of Insurance Regulatory and Development Authority
Any income of the Insurance Regulatory and Development Authority established under section 3(1) of the Insurance
Regulatory and Development Authority Act, 1999 is exempt from tax.
Section 10(23BBF) – Income of North-Eastern Development Financial Corporation Limited
No exemption is available under section 10(23BBF) from the assessment year 2010-11.
Section 10(23BBG) – Income of Central Electricity Regulatory Commission
Income of Central Electricity Regulatory Commission is exempt from tax from the assessment year 2008-09.
Section 10(23BBH) – Income of the Prasar Bharati
Any income of the Prasar Bharati (Broadcasting Corporation of India) established under section 3(1) of the Prasar Bharati
(Broadcasting Corporation of India) Act, 1990 is exempt from tax.
Section 10(23C)(iiia) – Income of National Foundation for Communal Harmony

[As amended by Finance Act, 2018] Any income received by any person on behalf of the Prime Minister’s
National Relief Fund, the Prime Minister’s Fund (Promotion of Folk Art) or the Prime Minister’s Aid to Students
Fund is exempt from tax under clause (i), (ii) and (iii) of section 10(23C) respectively.
Any income of National Foundation for Communal Harmony is exempt from tax under section 10(23C)(iiia)
Section 10(23C)(iiiaa) – Income of Swachh Bharat Kosh
Income of the Swachh Bharat Kosh, set up by the Central Government is exempt under section 10(23C)(iiiaa).
Section 10(23C)(iiiaaa) – Income of Clear Ganga Fund
Income of the Clear Ganga Fund, set up by the Central Government is exempt under section 10(23C)(iiiaaa).
Section 10(23C)(iiiaaaa) – Income of Chief Minister’s Relief Fund or Lieutenant Governor’s
Relief Fund
As per section 10(23C)(iiiaaaa) (as inserted by the Finance Act, 2017 with retrospective effect from the assessment year
1998-99),income of the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund in respect of any state or
union territory is exempt from tax.
Section 10(23C)(iiiab)/(iiiad)/(vi) – Income of Educational Institutions
Section 10(23C)(iiiab)
Income of any university or other educational institution existing solely for educational purposes and not for
purposes of profit, and which is wholly or substantially financed by the Government would be exempt under
section 10(23C)(iiiab).
Section 10(23C)(iiiad)
Income of any university or other educational institution existing only for educational purposes and not for purposes of profit
would be exempt under section 10(23C)(iiiad) if the aggregate annual receipts of such university or educational institution do
not exceed Rs. 1 Core.
Section 10 (34A) – Exemption of income to a shareholder on buyback of shares of unlisted company
Any income arising on buyback of shares by the company as referred to in section 115QA will be exempt from tax.
Section 10(35) – Income from units of UTI and other mutual funds
All the below following are exempt:
➢ Dividend income covered by section -115-O
➢ Income in respect of units of a mutual fund
➢ Income received by unit holder of UTI
➢ Income earned units of a specified company
Note:
1. Under section 115-O and section 115R, the person paying the dividends on share or income on units will have to pay
distribution tax on dividend/income distributed.
2. It should be noted that under this clause, Income on the transfer of units is not exempt.
Section 10(23D) – Tax free mutual funds
Any income of following mutual funds (subject to provisions of sections 115R to 115T) is exempt from tax:
A mutual fund registered under the Securities and Exchange Board of India Act or regulation made thereunder.
A mutual fund set-up by a public sector bank, or a public financial institution or authorised by RBI (subject to conditions
notified by the Central Government).
Section 10(23DA) – Exemption of income from securitization trust
Any person who is an investor of securitization trust receives any income from such a trust, by way of distributed income
shall be exempt.
Section 10(36) – Income from sale of shares in certain cases
The transfer of a long-term capital asset for arising any income, when a company purchases eligible equity shares held for a
period of 12 months or more shall be exempt.
Section 10(37) – Capital Gain on compulsory acquisition of urban Agricultural Land
Any income chargeable under the head “Capital Gain” arising from the transfer of agriculture land shall be exempt.

Section 10(38) of income tax act – Long Term Capital Gain on transfer of shares and securities
covered under Security Transaction Tax (STT)
When the transfer of securities are not chargeable to tax to any individual then long-term capital arises, following conditions
should be satisfied:
▪ At the time of transfer, transactions must be liable to securities transactions tax.
▪ At the time of transfer of assets, it should be equity shares or a unit of a business trust or units of an equity oriented
mutual fund.
▪ Assets must be a long-term capital asset.
▪ Transfer must be taken place on or after October 1, 2004.
Section 10(39) – Income from international sporting event
Any specified income (which is from such international event and which is notified by the Central Govt.) of specified
persons from any international event held in India shall be fully exempted if;
▪ Such event is approved by the international body regulating the international sport relating to such event.
▪ It has participation by more than two countries; and
▪ is notified by the Central Govt. in this regard.
Section 10(40) – Income received as grant by a subsidiary company
Income of any subsidiary company by way of grant or otherwise received from its Indian holding company which is engaged
in the business of generation/ transmission/distribution of power is exempt, only if;
▪ Such receipt is for settlement of dues in connection with reconstruction
▪ Or revival of an existing business of power generation.
The exemption is available if the reconstruction or revival is by way of transfer of business to the Indian company
notified under section 80 IA(4)(v)(a).
Under section 10(41), any capital gain arising in the above case is not chargeable to tax, if the transfer has taken
place before April 1, 2006.
Section 10(41) – Income from transfer of asset of an undertaking engaged in the business of
generation, transmission or distribution of power
Income from transfer of capital asset of an undertaking engaged in the business of generation, transmission or distribution of
power where such transfer takes place on or before 31.3.2006 and transfer is made to the Indian company as notified u/s
801A.
Section 10(43) – Reverse mortgage
Any amount received by an individual as a loan, either in lump-sum or in instalment in a transaction of reverse mortgage
referred in clause (xvi) of Section 47 shall be exempted.
Section 10(44) – New Pension System Trust
Any income received by any person for, or on behalf of the New Pension System Trust established on 27th February, 2008
shall be exempted.
Section 10 (45) – Exemption of Allowance or perquisite to chairman/member of UPSC
Any allowance or perquisite, as may be notified by the Central Government in the Official Gazette, in this behalf, paid to the
chairman or a retired chairman or any other member or retired member of the Union Public Service Commission, shall be
exempt.
Section 10(47) – Exemption of Income of notified ‘Infrastructure debt fund’
It shall be exempt from income tax, when the fund is set up as per prescribed guidelines and the notifications are issued by
the government in this regard.
Section 10(49) – Exemption of income of National Financial Holdings Company
Any income of the National Financial Holdings Company, being a company set up by the Central Government, shall be
exempt.
Partially Exempt Incomes
This category includes allowances which are exempt up to certain limit specified in Income Tax Rules. For certain
allowances, exemption depends on amount of allowance spent for the purpose for which it was received and for other
allowances, there is a fixed limit of exemption. They are as follows:
section 10(13a) – HRA Exemption

An allowance granted to a person by his employer to meet expenditure incurred on payment of rent in respect of
residential accommodation occupied by him is exempt from tax to the extent of least of the following :
1) House Rent Allowance actually received by the assessee
2) Excess of rent paid less 10% of salary* due to him
3) An amount equal to 50% of salary due to assessee
Note: If the rent is more then 100,000/- individual need to compulsory submit PAN of the landlord under Circular No. 08
/2013 dated 10th October 2013.
*Salary – Basic + DA (if part of retirement benefit) + Turnover based Commission
Entertainment Allowance
This allowance is first included in gross salary under allowances and then deduction is allowed .In the case of government
employees ,least of the following is exempt:
1) Rs 5,000;
2) 20% of salary; or
3) entertainment allowance actually received.
Leave Travel Concession [Section 10(5)]
For a government employee, leave encashment upon retirement or leaving the job is tax free under Section 10.
For a non-government employee, it is exempt up to least of the following:
1) Earned leave (No. of months) multiplied by Average monthly salary
2) 10 multiplied by Average monthly salary
3) Rs. 3, 00,000
4) Actual leave encashment received
Section 10(13) – Superannuation Fund Taxability
A pension fund created by company for his employee’s benefit paid after retirement or withdrawal with approval of
commissioner of income tax.
Exempted up to 1, 50,000 and entire accumulated interest is also exempt.
Section 10(14) of Income Tax Act – Prescribed allowances or benefits
As per section 10(14), read with rule 2BB following allowances granted to an employee are exempt from tax subject to
certain limit:
Allowance Name Exemption limit
Children Education Allowance
Up to Rs. 100 per month per child up to
a maximum of 2 children is exempt
Children Hostel Allowance
Up to Rs. 300 per month per child up to
a maximum of 2 children is exempt
Transport Allowance granted to an employee or (who is a blind
and handicap) meet expenditure on commuting between place
of residence and place of duty
Rs. 1600/- p.m.
Or
Rs. 3200/- p.m. (for handicapped)
Any Allowance granted to an employee working in any
transport system to meet his personal expenditure
Rs. 10,000/- p.m.
Or
70% of allowance
(whichever is lower)
Tribal area allowance in (a) Madhya Pradesh (b) Tamil Nadu
(c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West
Bengal (h) Bihar (i) Orissa
Rs. 200/- p.m.
Underground Allowance Rs. 800/- p.m.
Compensatory Field Area Allowance Rs. 2,600/- p.m.
Compensatory Modified Field Area Allowance Rs. 1,000/- p.m.

Counter-insurgency allowance to members of armed forces Rs. 4200 /-p.m.
Conveyance Allowance granted to meet the expenditure on
conveyance in performance of duties of an office
Exempt to the extent of expenditure
incurred for official purposes
Travelling Allowance to meet the cost of travel on tour or on
transfer
Daily Allowance to meet the ordinary daily charges incurred
by an employee on account of absence from his normal place
of duty
Helper/Assistant Allowance
Research Allowance granted for encouraging the academic
research and other professional pursuits
Uniform allowance
Special compensatory Allowance (Hilly Areas) (Subject to
certain conditions and locations)
Amount exempt from tax varies from Rs.
300 to Rs. 7,000 per month.
Border area, Remote Locality or Disturbed Area or Difficult
Area Allowance (Subject to certain conditions and locations)
Amount exempt from tax varies from Rs.
200 to Rs. 1,300 per month.
High Altitude Allowance granted to armed forces operating in
high altitude areas
a) Up to Rs. 1,060 per month (for
altitude of 9,000 to 15,000 feet)
b) Up to Rs. 1,600 per month (for
altitude above 15,000 feet)
Island Duty Allowance granted to members of armed forces in
Andaman and Nicobar and Lakshadweep group of Island
Up to Rs. 3,250 per month
Section 10(12) – Recognised provident fund
Any amount received against recognized provident fund by way of:
▪ Employer’s contribution = exempted up to 12%
▪ Interest = exempted up to 9.5%
▪ Amount received on termination = fully exempted
Section 10(10) – Gratuity Exemption
The amount received by Government employee (i.e., Central Government or State Government or local authority) for Death-
cum-retirement is fully exempt.
Gratuity income received by employees who are covered under Payment of Gratuity Act, 1972 is exempt from Income tax.
Least of the below is exempt:
▪ a) 15 day’s salary x years of services
▪ b) Maximum amount i.e. 20lacs
▪ c) Amount actually received
Section 10(10a) of Income Tax Act – Commuted Pension Taxability
▪ The full amount of commuted value of pension received is exempted if it is received from the Government, a local
authority or a statutory corporation.
▪ Any payment in commutation of pension received under any scheme from any other employer to the extent it does not
exceed
(a) In a case where the employee receives any gratuity, the commuted value of 1/3rd of pension which he is normally
entitled to receive ; and
(b) In any other case the commuted value of 1/2 of such pension.

Section 10(10AA) – Leave Encashment Exemption
▪ Central & State Govt. Employees—any payment received as the cash equivalent of the leave salary in respect of the
earned leave at his credit at the time of his retirement shall be fully exempt.
▪ Other Employees—any payment received as the cash equivalent of the leave salary at his credit at the time of
superannuation shall be exempt up to least of the following:
(a) Actual amount received
(b) (average salary means average of salary drawn by employee during 10 months immediately preceding the month of
his retirement);
(c) Cash equivalent of leave salary due at the time of retirement.
(d) Notified Limit—Rs 3,00,000.
Excess of amount received over the least of the above shall be taxable.
Section10 (10B) – Retrenchment compensation paid to workmen
As per section 10(10B), compensation received at the time of retrenchment is exempt from tax to the extent of lower of the
following:
1) An amount calculated in accordance with the provisions of section 25F(b) of the Industrial Dispute Act,
1947; or
2) Maximum amount specified by the Central Government (Rs 5,00,000);
3) Actual amount received.
Fully Taxable Allowances (Individual salaried employees)
Allowances generally mean any sum of money given to a person to meet his/her needs or expenses. These allowances are
given to employees to meet some of the particular requirements like house rent, expenses on uniform conveyance, here is a
list of some fully taxable allowance:
City Compensatory Allowance
These are given to compensate for the high cost of living in a particularly big city of India or any other capital city. These are
also fully taxable.
Fixed Medical Allowance
Medical expenses paid to the employees irrespective of whether they submit the bills to substantiate the
expenditure or not are fully taxable
Tiffin, Lunch, Dinner or Refreshment Allowance
Any amount received for lunch or dinner refreshment is fully taxable.
Servant Allowance
servant provided at employee’s resident would be fully taxable
Project Allowance
Any allowance provided by employer to employees to meet project expenses are taxable.
Overtime Allowance
Employee working beyond working hours and receives the amount for the same will be taxable.
Any Other Cash Allowance
Cash given for telephone allowance, holiday allowance, it is fully taxable
Topic-6 Computation of taxable income under various heads
As per the Section 14 of the Income Tax Act of 1961, there can be several modes of income for an individual. The
income tax computation is an important part and has to be calculated according to the income of a person. For
a hassle-free computation, the income has to be classified properly so that there is zero confusion regarding the
same. The government has classified the sources of income under separate heads and then the income tax is
computed accordingly. The provisions and rules are according to the details mentioned in the Income Tax Act.
The five main heads of income according to the above-mentioned Section 14 for the computation of the Income
Tax in India:
• Income from Salary

• Income from House Property
• Income from Profits and Gains of Business or Profession
• Income from Capital Gains
• Income from Other Sources
Income from Salary
This clause essentially assimilates any remuneration, which is received by an individual on terms of services
provided by him based on a contract of employment. This amount qualifies to be considered for income tax only
if there is an employer-employee relationship between the payer and the payee respectively. Salary also should
include the basic wages or salary, advance salary, pension, commission, gratuity, perquisites as well as annual
bonus.
Income from House Property
According to the Income Tax Act 1961, Sections 22 to 27 is dedicated to the provisions for the income tax
computation of the total standard income of a person from the house property or land that he or she owns. An
interesting aspect is that the charge is derived out of the property or land and not on the amount of rent received.
However, if the property is utilized for letting out the normal course of business, then the income from the rent
will be considered.
Income from Profits of Business
The income tax computation of the total income will be attributed from the income earned from the profits of
business or profession. The difference between the expenses and revenue earned will be chargeable. Here is a list
of the income chargeable under the head:
1) Profits earned by the assessee during the assessment year
2) Profits on income by an organisation
3) Profits on sale of a certain license
4) Cash received by an individual on export under a government scheme
5) Profit, salary or bonus received as a result of a partnership in a firm
6) Benefits received in a business
Income from Capital Gains
Capital Gains are the profits or gains earned by an assessee by selling or transferring a capital asset, which was
held as an investment. Start investing in mutual funds via Fintoo.
Any property, which is held by an assessee for business or profession, is termed as capital gains.
Income from Other Sources
Any other form of income, which is not categorized in the above mentioned clauses, can be sorted in this
category. Interest income from bank deposits, lottery awards, card games, gambling or other sports awards are
included in this category. These incomes are attributed in the Section 56(2) of the Income Tax Act and are
chargeable for income tax.
Topic-7 Tax Deductions under Section 80C to 80U
Under Section 80C
Section 80C of the Income Tax Act provides provisions for tax deductions on a number of payments, with both individuals and Hindu
Undivided Families eligible for these deductions. Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year
under Section 80C, with this amount being a combination of deductions available under Sections 80 C, 80 CCC and 80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.
1) Payment made towards life insurance policies (for self, spouse or children)
2) Payment made towards a superannuation/provident fund
3) Tuition fees paid to educate a maximum of two children
4) Payments made towards construction or purchase of a residential property
5) Payments issued towards a fixed deposit with a minimum tenure of 5 years
6) This section provides for a number of additional deductions like investment in mutual funds, senior
citizens saving schemes, purchase of NABARD bonds, etc.
Subsections under Section 80C:
Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to the creation of suitable sub-sections to
provide clarity to taxpayers.

➢ Section 80 CCC: Section 80 CCC of the Income Tax Act provides scope for tax deductions on investment
in pension funds. These pension funds could be from any insurer and a maximum deduction of Rs 1.5 lakh
can be claimed under it. This deduction can be claimed only by individual taxpayers.
➢ Section 80 CCD: Section 80 CCD aims to encourage the habit of savings among individuals, providing
them an incentive for investing in pension schemes which are notified by the Central Government.
Contributions made by an individual and his/her employer, both are eligible for tax deduction, subject to
the deduction being less than 10% of the salary of the person. Only individual taxpayers are eligible for
this deduction.
➢ Section 80 CCF: Open to both Hindu Undivided Families and Individuals, Section 80 CCF contains provisions
for tax deductions on subscription of long-term infrastructure bonds which have been notified by the
government. One can claim a maximum deduction of Rs 20,000 under this Section.
➢ Section 80 CCG: Section 80 CCG of the Income Tax Act permits a maximum deduction of Rs 25,000 per year,
with specified individual residents eligible for this deduction. Investments in equity savings schemes
notified by the government are permitted for deductions, subject to the limit being 50% of the amount
invested
Tax Deductions under Section 80D:
Section 80D of the Income Tax Act permits deductions on amounts spent by an individual towards the premium
of a health insurance policy. This includes payment made on behalf of a spouse, children, parents or self to a
Central Government health plan. An amount of Rs 15,000 can be claimed as deduction when paid towards the
insurance for spouse, dependent children or self, while this amount is Rs 30,000 (Union Budget 2017) if the
person is over the age of 60 years.
On February 1, 2018, Finance Minister Arun Jaitley presented the Union Budget 2018 with a few changes in the
tax deductions applicable for senior citizens. Under Section 80D, income tax deduction limit for senior citizens
has been increased to Rs.50,000 for medical expenditure.
Both individuals and Hindu Undivided Families are eligible for this deduction, subject to the payment being made
in modes other than cash.
Subsections under Section 80D:
Section 80D is further subdivided into two sub-sections, offering clarity on the benefits available to taxpayers.
• Section 80DD: Section 80DD provides provisions for tax deductions in two cases, with the permitted
deduction being Rs 75,000 for normal disability and Rs 1.25 lakh if it is a severe disability. This deduction can
be claimed in case of the following expenditures.
• On payments made towards the treatment of dependants with disability
• Amount paid as premium to purchase or maintain an insurance policy for such dependant
The permitted deduction is Rs 75,000 for normal disability and Rs 1.25 lakh for a severe disability. Both Hindu
Undivided Families and resident individuals are eligible for this deduction. The dependant, in this case can be
either a spouse, sibling, parents or children.
Section 80DDB: Section 80DDB can be utilised by HUFs and resident individuals and provides provisions for
deductions on the expense incurred by an individual/family towards medical treatment of certain diseases. The
permitted deduction is limited to Rs 40,000, which can be increased to Rs 60,000 (Union Budget 2015) if the
treatment is for a senior citizen.The deduction under Section 80DDB for senior citizens and very senior citizens
has been increased to Rs.1 lakh in Union Budget 2018.
Tax Deductions under Section 80E:
Under Section 80E of the Income Tax Act has been designed to ensure that educating oneself doesn’t become an
additional tax burden. Under this provision, taxpayers are eligible for tax deductions on the interest repayment of
a loan taken to pursue higher education. This loan can be availed either by the taxpayer himself/herself or to
sponsor the education of his/her ward/child. Only individuals are eligible for this deduction, with loans taken
from approved charitable organisations and financial institutions permitted for tax benefits.

Subsections of Section 80E:
Section 80EE: Only individual taxpayers are eligible for deductions under Section 80EE, with the interest
repayment of a loan taken by them to buy a residential property qualifying for deductions. The maximum
deduction permitted under this section is Rs 3 lakhs.
Tax Deductions under Section 80G:
Section 80G encourages taxpayers to donate to funds and charitable institutions, offering tax benefits on monetary
donations. All assessees are eligible for this deduction, subject to them providing proof of payment, with the limit
of deductions decided based on a few factors.
➢ 100% deductions without any limit: Donations to funds like National Defence Fund, Prime Minister’s
Relief Fund, National Illness Assistance Fund, etc. qualify for 100% deduction on the amount donated.
➢ 100% deduction with qualifying limits: Donations to local authorities, associations or institutes to
promote family planning and development of sports qualify for 100% deduction, subject to certain
qualifying limits.
➢ 50% deduction without qualifying limits: Donations to funds like the PMs Drought Relief fund, Rajiv
Gandhi Foundation, etc. are eligible for 50% deduction.
➢ 50% deduction with qualifying limit: Donations to religious organisations, local authorities for
purposes apart from family planning and other charitable institutes are eligible for 50% deduction, subject
to certain qualifying limits.
The qualifying limit refers to 10% of the gross total income of a taxpayer.
Subsections of Section 80G:
Under Section 80G has been further subdivided into four sections to simplify understanding.
➢ Section 80GG: Individual taxpayers who do not receive house rent allowance are eligible for this
deduction on the rent paid by them, subject to a maximum deduction equivalent to 25% of their total
income or Rs 2,000 a month. The lower of these options can be claimed as deduction.
➢ Section 80GGA: Tax deductions under this section can be availed by all assessees, subject to them not
having any income through profit or gain from a business or profession. Donations by such members to
enhance social/scientific/statistical research or towards the National Urban Poverty Eradication Fund
are eligible for tax benefits.
➢ Section 80GGB: Tax deductions under this section can be availed by Indian Companies only, with the
amount donated by them to a political party or electoral trust qualifying for deductions.
➢ Section 80GGC: Under this section, funds donated/contributed by an assessee to a political party or
electoral trust are eligible for deduction. Local authorities and artificial juridical persons are not entitled
to the tax deductions available under Section 80GGC.
Tax Deductions under Section 80 IA:
Section 80 IA provides an avenue for all taxpaying assessees to claim tax deduction on the profits generated
through industrial activities. These industrial undertakings can be related to telecommunication, power
generation, industrial parks, SEZs, etc.
The following subsections are related to Section 80-IA
➢ Section 80 IAB: Section 80 IAB can be used by SEZ developers, who can claim tax deductions on their
profits through development of Special Economic Zones. These SEZs need to be notified after 1/4/2005 in
order for them to be eligible for tax deductions.
➢ Section 80-IB: Provisions of section 80-IB can be used by all assessees who have profits from hotels, ships,
multiplex teatres, cold storage plants, housing projects, scientific research and development, convention
centres, etc.
➢ Section 80-IC: Section 80 IC can be used by all assessees who have profits from states categorised as
special. These include Assam, Manipur, Meghalaya, Himachal Pradesh, Uttaranchal, Arunachal Pradesh,
Mizoram, Tripura and Nagaland.
➢ Section 80-ID: All assessees who have profits or gain from hotels and convention centres are eligible for
deduction under this section, subject to their establishments being located in certain specified areas.

➢ Section 80-IE: All assessees who have undertakings in North-East India are eligible for deductions under
this Section, subject to certain conditions.
Tax Deductions under Section 80J:
Section 80J of the Income Tax Act was amended to include two subsections, 80JJA and 80 JJAA
➢ Section 80 JJA: Section 80 JJA relates to deductions permitted on profits and gains from assessees who are
in the business of processing/treating and collecting bio-degradable waste to produce biological products
like bio-fertilizers, bio-pesticides, bio-gas, etc. All assessees who deal with this are eligible for deductions
under this section. Such assessees can claim deduction equivalent to 100% of their profits for 5 successive
assessment years since the time their business started.
➢ Section 80 JJAA: Deductions under Section 80 JJAA can be claimed by Indian companies which have
profits from the manufacture of goods in factories. Deductions equivalent to 30% of the salary of new full
time employees for a period of 3 assessment years can be claimed. A chartered accountant should audit the
accounts of such companies and submit a report showing the returns. Employees who are taken on a
contract basis for a period less than 300 days in the preceding year or those who work in managerial or
administrative posts do not qualify for deductions.
Tax Deduction under Section 80LA:
Deductions under Section 80LA can be availed by Scheduled Banks which have offshore banking units in
Special Economic Zones, entities of International Financial Services Centres and banks which have been
established outside India, in accordance to the laws of a foreign nation. These assessees are eligible for deductions
equivalent to 100% of the income for the first 5 years, and 50% of income generated through such transactions for
the next 5 years, subject to the rules of the land.
Such entities should have relevant permission, either under the SEBI Act, Banking Regulation Act or registration
under any other relevant law.
Tax Deduction under Section 80P:
Section 80P caters to cooperative societies, offering tax deductions on their income, subject to certain conditions.
100% deduction is permitted to cooperative societies which have incomes through cottage industries, fishing,
banking, sale of agricultural harvest grown by members and milk supplied by members to milk cooperative
societies.
Cooperative societies which are involved in other forms of business are eligible for deductions ranging between
Rs 50,000 and Rs 1 lakh, depending on the type of work they are involved in.
Deductions which can be claimed by all cooperative societies are listed below.
• Income which a cooperative society makes by renting out warehouses
• Income derived through interest on money lent to other societies
• Income earned through interest from securities or properties
Tax Deduction under Section 80QQB:
Section 80QQB permits tax deductions on royalty earned from sale of books. Only resident Indian authors are
eligible to claim deductions under this section, with the maximum limit set at Rs 3 lakhs. Royalty on literary,
artistic and scientific books are tax deductible, whereas royalties from textbooks, journals, diaries, etc. do not
qualify for tax benefits. In case of an author getting royalties from abroad, the said amount should be brought into
the country within a specified time period in order to avail tax benefits.
Tax Deduction under Section 80RRB:
Section 80RRB offers tax incentives to patent holders, providing tax relief to resident individuals who receive an
income by means of royalty on their patent. Royalty to the tune of Rs 3 lakhs can be claimed as deductions,
subject to the patent being registered after 31/3/2003. Individuals who receive a royalty from foreign shores need
to bring said amount to the country within a specific time period in order to be eligible for tax deductions on such
royalty.
Tax Deduction under Section 80TTA:
Deductions under Section 80TTA can be claimed by Hindu Undivided Families and Individual taxpayers. This
section permits deductions to the tune of Rs 10,000 every year on the interest earned on money invested in bank
savings accounts in the country.

Tax Deduction under Section 80U:
Tax deductions under Section 80U can be claimed only by resident individual taxpayers who have disabilities.
Individuals who have been certified by relevant medical authorities to be a Person With Disability can claim
a maximum deduction of Rs 75,000 per year. Individuals who have severe disabilities are entitled to a
maximum deduction of Rs 1.25 lakh, subject to them meeting certain criteria. Some of the disabilities which
classify for tax benefits are autism, mental retardation, cerebral palsy, etc.
Summary of Tax Deductions Available under Section 80C to 80U:
Section Permissible limit (maximum) Eligible Claimants
80 C
Rs 1.5 lakh (aggregate of 80C, 80CCC
and 80CCD)
Individuals/Hindu Undivided Families
80
CCC
and 80CCD)
Individuals
80
CCD
and 80CCD)
Individuals
80 CCF Rs 20,000 Individuals/Hindu Undivided Families
80
CCG
• RS 50,000 for senior citizens
• Rs 25,000 for other individuals
Individuals/Hindu Undivided Families
80 D RS 20,000 Individuals/Hindu Undivided Families
80 DD
Rs 75,000 for general disability
Rs 1.25 lakh for severe disability
Resident Individuals/Hindu Undivided Families
80
DDB
• Rs 1 lakh for senior citizens
• Rs 40,000 for others
Resident Individuals/Hindu Undivided Families
80 E No limit mentioned Individuals
80 EE Rs 3 lakh Individuals
80 G Different limits based on donation All assessees
80 GG Rs 2,000 per month Individuals who do not get HRA
80
GGA
Depends on quantum of donation
All assessees who do not have income from profit or
gains from a business/profession
80
GGB
Depends on quantum of donation Indian companies
80
GGC
Depends on quantum of donation
All assesses apart from local/Artificial judicial
authorities who are funded by the government
80 IA
No maximum limit defined All assessees
80 IAB
No maximum limit defined All assessees who are SEZ developers
80 IB
80 IC
80 ID
80 IE

Section Permissible limit (maximum) Eligible Claimants
80 JJA
All profits earned for first 5 years All assessees
80 JJAA
30% of increased wages Indian companies which have income from profit/gains
80 LA
Portion of their income Scheduled banks, IFSCs, banks established outside India
80 P
Portion of their income Cooperative societies
80 QQB
Rs 3 lakh Authors – resident individuals
80 RRB
Rs 3 lakh Resident individuals
80 TTA
Rs 10,000 per year Individuals/Hindu Undivided Families
80 U
Rs 75,000 for people with disabilities
Rs 1.25 lakh for people with severe
disabilities
Resident individual
Topic-8 Clubbing of Income Under Income Tax Act
'Its all in the family'. It may seem ordinary to invest money for a non earning spouse by way of fixed deposits, or
other income earning assets or to set up bank accounts, mutual funds or other investments for children to provide
for their needs in future. Usually, you are only taxed for your own income, but under certain special
circumstances some incomes are 'clubbed' along with your income and you may be liable to pay tax on such
clubbed income.
The intention here is to make sure there is no tax that escapes, in case an individual is moving assets or incomes
in the family. In a situation where you have incurred a loss, such loss (wherever allowed to be adjusted against an
income) is also not allowed to be transferred to anyone and will be 'clubbed' to your income.
Objective –Main Objectives are as follows:-
➢ Circumstances when income of some other person is included in the income of Assessee
➢ Provisions when these sections will be applicable
➢ Under what head and in whose income it will be included.
A. Clubbing of Income for Transfer Of Income Without Transfer Of Asset (Sec. 60)
Section 60 is applicable if the following conditions are satisfied:
➢ The taxpayer owns an asset
➢ The ownership of asset is not transferred by him.
➢ The income from the asset is transferred to any person under a settlement, or agreement.
If the above conditions are satisfied, the income from the asset would be taxable in the hands of the transferor
B. Clubbing of Income for Revocable Transfer Of Assets (Sec 61)
‘Revocable transfer,
means the transferor of asset assumes a right to re-acquire asset or income from such an
asset, either whole or in parts at any time in future, during the lifetime of transferee. It also includes a transfer
which gives a right to re-assume power of the income from asset or asset during the lifetime of transferee.
If the following conditions are satisfied section 61 will become applicable.
• An asset is transferred under a “revocable transfer”,
• The transfer for this purpose includes any settlement, or agreement
Then any income from such an asset is taxable in the hands of the transferor and not the transferee (owner).

C. Clubbing of Income Of Spouse SEC. 64(1) (ii)
The following incomes of the spouse of an individual shall be included in the total income of the individual:
(i) Remuneration from A Concern In Which Spouse Has Substantial Interest [Sec 64 (1) (ii)]
Concern – Concern could be any form of business or professional concern. It could be a sole proprietor,
partnership, company, etc.
Substantial interest – An individual is deemed to have substantial interest, if he /she (individually or along with
his relatives) beneficially holds equity shares carrying not less than 20 per cent voting power in the case of a
company or is entitled to not less than 20 percent of the profits in the case of a concern other than a company at
any time during the previous year.
If the following conditions are fulfilled this section becomes applicable.
➢ If spouse of an individual gets any salary, commission, fees etc (remuneration) from a concern
➢ The individual has a substantial interest in such a concern
➢ The remuneration paid to the spouse is not due to technical or professional knowledge of the spouse.
➢ Then such salary, commission, fees, etc shall be considered as income of the individual and not of the
spouse.
When both husband and wife have substantial interest
Where both the husband and wife have a substantial interest in a concern and both are in receipt of the
remuneration from such concern both the remunerations will be included in the total income of husband or wife
whose total income, excluding such remuneration, is greater.
There is one exception to this - if your spouse receives the salary due to his/her application of technical or
professional knowledge & experience then such salary will be taxed in the hands of the person receiving it and
not clubbed.
(ii) Income From Assets Transferred To Spouse [SEC. 64(1) (iv)]
Income from assets transferred to spouse becomes taxable under provisions of section 64 (1) (iv) as per following
conditions:-
• The taxpayer is an individual
• He/she has transferred (directly/indirectly) an asset (other than a house property) The asset is transferred
to his/her spouse
• The asset is transferred without adequate consideration. Moreover there is no agreement to live apart.
If the above conditions are satisfied, any income from such asset shall be deemed to be the income of the taxpayer
who has transferred the asset.
When Section 64(i) (iv) is not applicable
On this basis of the aforesaid discussion and judicial pronouncements, section 64 is not applicable in the
following cases:
1) If assets are transferred before marriage.
2) If assets are transferred for adequate consideration.
3) If assets are transferred in connection with an agreement to live apart.
4) If on the date of accrual of income, transferee is not spouse of the transferor.
5) If property is acquired by the spouse out of pin money (i.e. an allowance given to the wife by her husband
for her dress and usual household expenses).
In the aforesaid five cases, income arising from the transferred asset cannot be clubbed in the hands of the
transferor.
D. Clubbing of Income From Assets Transferred To Son’s Wife [SEC. 64 (1) (VI)]
Income from assets transferred to son,
s wife attract the provisions of section 64 (1) (vi) as per conditions below:-
➢ The taxpayer is an individual.
➢ He/she has transferred (directly/indirectly) an asset after May 31, 1973. The asset is transferred to son‘
s
wife.
➢ The asset is transferred without adequate consideration.
In the case of such individuals, the income from the asset is included in the income of the taxpayer who has
transferred the asset.

E. Clubbing of Income From Assets Transferred To A Person For The Benefit Of Spouse [SEC.
64(1) (VII)]
Income from assets transferred to a person for the benefit of spouse attract the provisions of section 64 (1) (vii) on
clubbing of income. If:
• The taxpayer is an individual.
• He/she has transferred(directly/indirectly) an asset to a person or an association of persons. Asset is
transferred for the benefit (immediate/deferred) of spouse.
• The transfer of asset is without adequate consideration.
In case of such individuals income from such an asset is taxable in the hands of the taxpayer who has transferred
the asset
F. Clubbing of Income From Assets Transferred To A Person For The Benefit Of Son,S Wife [Sec.
64 (1) (VIII)]
Income from assets transferred to a person for the benefit of son,
s wife attract the provisions of section 64 (1) (vii)
on clubbing of income. If,
• The taxpayer is an individual.
• He/she has transferred (directly/indirectly) an asset after May 31, 1973.
• The asset is transferred (directly/indirectly) to any person or an association of persons. The asset is
transferred for the benefit (immediate/deferred) of son,
s wife.
• The asset is transferred without adequate consideration.
In case of such individual, the income from the asset is included in the income of the person who has transferred
the asset.
G. Clubbing of Income Of Minor Child (SEC. 64 (1A)
All income which arises or accrues to the minor child shall be clubbed in the income of his parent (Sec. 64(1A),
whose total income (excluding Minor,
s income) is greater. However, in case parents are separated, the income of
minor will be included in the income of that parent who maintains the minor child in the relevant previous year.
H. Clubbing of Income Of HUF{SEC. 64 (2)}
Where, in the case of an individual being a member of a Hindu undivided family, at any time after the 31st day of
December, 1969, has converted his self-acquired property into property belonging to the family through the act of
impressing such separate property with the character of property belonging to the family or throwing it into the
common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise
than for adequate consideration (the property so converted or transferred being hereinafter referred to as the
converted property), the income arising from such converted/transferred property shall be dealt with in the
following manner:
Topic-9 Corporate Tax Planning
The term "corporate tax planning" encompasses the strategic structuring of business operations in order to
minimize tax liabilities. Corporate tax planning activities generally seek to avoid legally triggering tax costs
rather than illegally evading an existing obligation to pay taxes. Tax planning represents a forward-looking
activity, as opposed to tax compliance or reporting, which reflects back on events that have already taken place.
Corporations typically engage certified public accountants or tax attorneys for technical advice in this
complicated area.
Tax Planning
Definition: Tax Planning can be understood as the activity undertaken by the assessee to reduce the tax liability
by making optimum use of all permissible allowances, deductions, concessions, exemptions, rebates, exclusions
and so forth, available under the statute.
Put simply, it is an arrangement of an assessee’s business or financial dealings, in such a way that complete tax
benefit can be availed by legitimate means, i.e. making use of all beneficial provisions and relaxations provided in
the tax law, so that the incidence of the tax is minimum. This ensures savings of taxes along with conformity to
the legal obligations and requirements. Therefore, it is permitted by law.
Objectives of Tax Planning

1) Reduction of Tax Liability: An assessee can save the maximum amount of tax, by properly arranging
his/her operations as per the requirements of the law, within the framework of the statute.
2) Minimization of Litigation: There is a war-like situation between the taxpayers and tax collectors as the
former wants the tax liability to be minimum while the latter attempts to extract the maximum. So, a
proper tax planning aims at conforming to the provisions of the tax law, in such a way that incidence of
litigation is minimized.
3) Productive Investment: One of the major objective of tax planning is channelisation of taxable income
to different investment plans. It aims at the optimum utilization of resources for productive causes and
relieving the assessee from tax liability.
4) Healthy Growth of Economy: The growth and development of the economy greatly depend on the
growth of its citizens. Tax planning measures involve generating white money that flows freely and
results in the sound progress of the economy.
5) Economic Stability: Proper tax planning brings economic stability by various techniques such as
mobilizing resources for national projects or availing ways for investments which are productive in
nature.
Tax Planning follows an honest approach, to achieve maximum benefits of tax laws, by applying the
script and moral of law. Therefore the objectives do not in any way contradict the concept of tax laws.
Types of Tax Planning
1) Short-range and long-range Tax Planning: The tax planning which is made every year to arrive at
specific or limited objectives, is called short-range tax planning. Conversely, long-range tax planning
alludes to such practices undertaken by the assessee which are not paid off immediately.
2) Permissive Tax Planning: Tax planning, wherein the planning is made as per expressed provision of the
taxation laws is termed as permissive tax planning.
3) Purposive Tax Planning: Purposive tax planning refers to the tax planning method which misleads the
law. Under this type, there is no expressed provision of the statute.
A good tax planning results from the following
1) All you need to do is to claim the tax benefits is invest in eligible instruments.
2) Giving correct information to relevant IT authorities.
3) Being well informed of applicable tax laws and court judgements on the same.
4) Tax planning should be done completely under the purview of law.
5) Planning should take into consideration business objectives and flexibility for the incorporation of future
changes.
6) You could be a long-time taxpayer or a first-time payer, in case you did not plan your taxes properly, you
are probably paying more in tax than you should.
7) Income Tax clauses seem so complex that the common man is averse of dealing with taxes.
This is the arrangement of a tax payer’s business or financial dealings, in such a way that complete tax benefit can
be availed by legitimate means, so that the amount of the tax is minimal.
Common mistakes people make regarding income tax
1) Procrastination: This is the root of all follies you will make as a tax planner. This will eventually lead to
you paying more taxes, instead of making timely investment leading to optimum planning of taxes.
2) Investing in insurance products for tax saving: When approaching the last of a financial year, a lot of
us receive phone calls from insurance companies that insist that you buy an insurance policy that saves
tax. This isn’t one of the wisest things to do.
3) Power of compounding through tax saving mutual funds: Many people don’t consider the power of
compounding despite all supporting factors.
4) Failing to optimise all available options for tax saving: Don’t be the person who believes that tax
planning starts and ends with Section 80C of Income-tax Act, 1961- that only describes investment
instruments for saving tax.
Generic Saving Methods in Tax Planning
Let’s talk about tax saving expenses. We end up paying tax on various expenses which are otherwise eligible for tax benefits that we fail to
grasp due to ignorance about them. Read on to understand some such expenses where you can save tax.

Medical expenses of disabled dependent: For a dependent person in your family who has a disability, there is tax benefit under
section 80DD. This tax deduction is a social support for disabled family member from the government, so as to ease that person’s
dependence on you. This means a saving of up to Rs 1,25,000 on the taxable income.
Expenses for a disabled individual: Same as section 80DD deductions. A person who has disability gets benefit through section
80U. Maximum deduction is INR1,25,000.
Treatment of specified diseases:
Treatment of diseases like cancer and AIDS is very expensive and Section 80DDB offers the much needed
financial relief to the person suffering from such ailment and his family members.
Charitable donations:
o There is another reason to rejoice when you make donations. Besides supplementing your good deeds,
you also gather the right to claim another tax exemption covered under section 80G.
o There is an upper limit on cash donations. Such donations are capped at Rs 2,000.
Donations for scientific research or rural development:
o Donations towards scientific research are open for deduction through section 80GGA.
o There are some other situations too where you get to save tax.
Topic-10 Definition of Tax Avoidance
o An arrangement made to beat the intent of the law by taking unfair advantage of the shortcomings in the
tax rules is known as Tax Avoidance. It refers to finding out new methods or tools to avoid the payment
of taxes which are within the limits of the law.
o This can be done by adjusting the accounts in a manner that it will not violate any tax rules as well as the
tax incurrence will also be minimised. Formerly tax avoidance is considered as lawful, but now it comes
to the category of crime in some special cases.
o The only purpose of tax avoidance is to postpone or shift or eliminate the tax liability. This can be done
investing in government schemes and offers like the tax credit, tax privileges, deductions, exemptions,
etc., which will result in the reduction in the tax liability without making any offence or breach of law.
Definition of Tax Evasion
An illegal act, made to escape from paying taxes is known as Tax Evasion. Such illegal practices can be
deliberate concealment of income, manipulation in accounts, disclosure of unreal expenses for deductions,
showing personal expenditure as business expenses, overstatement of tax credit or exemptions suppression
of profits and capital gains, etc. This will result in the disclosure of income which is not the actual income
earned by the entity.
Tax Evasion is a criminal activity for which the assessee is subject to punishment under the law. It involves
acts like:
o Deliberate misrepresentation of material facts.
o Hiding relevant documents.
o Not maintaining complete records of all the transactions.
o Making false statements.
Comparison Chart
BASIS FOR
COMPARISON
TAX AVOIDANCE TAX EVASION
Meaning Minimization of tax liability, by
taking such means which do not
violate the tax rules, is Tax
Avoidance.
Reducing tax liability by using illegal ways is
known as Tax Evasion.
What is it? Hedging of tax Concealment of tax
Attributes Immoral in nature, which involves
bending the law without breaking it.
Illegal and objectionable, both in script and
moral.

BASIS FOR
COMPARISON
TAX AVOIDANCE TAX EVASION
Concept Taking unfair advantage of the
shortcomings in the tax laws.
Deliberate manipulations in accounts resulting
in fraud.
Legal implication Use of Justified means Use of such means that are forbidden by law
Happened when Before the occurrence of tax liability. After tax liability arises.
Type of act Legal Criminal
Consequences Deferment of tax liability Penalty or imprisonment
Objective To reduce tax liability by applying
the script of law.
To reduce tax liability by exercising unfair
means.
Topic-11 Tax Considerations in Make or Buy Decision
India is a highly taxed country and the proportion of indirect taxes is till higher. The customs, foreign exchange,
import and export restrictions, priority sector subsidies, excise duty are a few examples of tax and restrictive
measures which attract the attention of the management when it is posed with a problem of taking a make or buy
decision.
Profit is the prime motive behind any management’s decision. Taxes erode profits and thereby leave little
incentive to increase profits, if the management decides to take more than a normal risk while taking a decision
‘to make’ and save, thus reducing the cost of production.
Tax Management with reference to –Repair, Replace, Renewal Or
Renovation
REPAIR, REPLACE, RENEWAL OR RENOVATION
The main tax consideration which one has to keep in mind is whether expenditure on repair, replacement or
renewal is deductible as revenue expenditure u/s 30,31, or 37(1). It the expenditure is deductible as revenue
expenditure under these sections, then cost of financing such expenditure is reduced to the extent of tax save.
On the other hand if such expenditure is not allowed as deduction u/s 30,31 or 37(1) then it may be capitalized
and on the amount so capitalized depreciation is available if certain conditions are satisfied.
DIFFERENCE BETWEEN REVENUE AND CAPITAL EXPENDITURE
Capital Expenditure Revenue Expenditure
Cost of acquisition and installment charges of a
fixed asset is a capital expenditure.
Purchase price of a current asset for resale or manufacture is a
revenue expenditure.
Expenditure incurred to free oneself from a capital
liability is a capital expenditure.
Expenditure incurred to free oneself from a revenue liability is
a revenue expenditure.
Expenditure incurred towards acquisition of a
source of income is a capital expenditure.
Expenditure incurred towards an income is a revenue
expenditure.
Expenditure incurred to increase the operating
capacity of fixed assets is capital expenditure.
Expenditure incurred to maintain the fixed assets is a revenue
expenditure
Expenditure incurred for obtaining capital by issue
of shares is a capital expenditure
Expenditure incurred towards raising loans or issue of
debentures is a revenue expenditure.
“Repair” implies the existence of a thing has malfunctioned and can be set right by effecting repairs which may
involve replacement of some parts, thereby making the thing as efficient as it was before or close to it as possible.
After repair the thing to which the repair was carried out continues to be available for use. Replacement is
different from repair.
“Replacement” implies the removal or discarding of the things that was in use, by a different or new thing capable
of performing the same function with the same or greater efficiency. The replacement of a section in a series of

machines which are interconnected , in a segment of the production process which together form an integrated
whole may in some circumstances , be regarded as amounting to repair when without such replacement that unit
in that segment will not function. That logic cannot be extended to the entire manufacturing facility from the stage
of Raw Material to the delivery of the final finished product.
“Current Repair” implies the expenditure must have been incurred to ‘preserve and maintain’ an already existing
asset and the object of the expenditure must not be to bring a new asset into existence of for obtaining a new
advantage.
Shifting of Administrative Office :
Expenditure incurred for shifting the administrative office from one city to another city as a result of
amalgamation of three companies having a number of activities in various centers is allowable as Revenue
Expenditure.
Shifting of Head Office from one place to another is Capital Expenditure :
Where the assessee-company shifted its head office from one place to another place after it Board of Directors
resolved that it would be commercially prudent to centralized the Registered Office of the company in one place,
in connection with the shifting , it incurred huge expenses including a certain payment made to the lawyers, the
expenses incurred on this account could not be on revenue account.
Expenditure of shifting of employees is Revenue Expenditure :
Expenditure incurred by assessee on shifting of employees to another place consequent on shifting of factory to
another site due to labour unrest was allowable as Revenue Expenditure.
Decoration of reception / dining halls in Hotels is revenue expenditure :
Expenses incurred in putting up decorative mirrors in the wall, plaster molded roof, plywood panels, etc. in
reception-cum dinning halls of a Hotel, in order to deep the place fir and attract customers, is deductible as
revenue expenditure.
Expenditure on renovation an modernization of Hotel Premises is Revenue Expenditure :
Expenditure incurred solely for repairs and modernizing the Hotel and replacing the existing components of the
building, furniture, and fittings, with a view to create a conductive and beautiful atmosphere for the purpose of
running of a business of a Hotel , will fall under the category of Revenue Expenditure only, and is hence
deductible.
Expenditure on Wall to Wall Carpet for office is capital expenditure :
Expenditure on purchase of wall-to-wall carpet, for being used in the office, has nothing to do with the
augmenting, preserving or protecting the turnover or profits of the business and hence it is in the nature of capital
expenditure.
Repairs to building can be capital or revenue, depending on nature of change brought about :
So long as the repair does not bring into existence an additional advantages or benefit of an enduring nature or
change the nature, character or the identity of the building itself, the expenditure must be regarded as a revenue
expenditure. On the other hand, if it does, it will be in the nature of a Capital Expenditure.
Replacement of Assets as a whole is not ‘Repair’ :
Where substantial repairs are carried out in order to put to use an existing asset, the same could be termed as
Revenue Expenditure. But where there is replacement ‘As a Whole’ , it amounts to reconstruction and not repairs.
It is pertinent that the asset in its old form must continue to exist to say that the expenditure involved in improving
the assets is Revenue Expenditure. Where effacement takes place and a new asset comes into being, then
expenditure involved would become a Capital Expenditure.
Repairs for converting Godown into Administrative Office :
Where the assessee incurred expenditure on repairs to a godown used for business purpose so as to convert it into
an Administrative Office, the expenditure was allowable as revenue expenditure, since the business asset has
retained its character and only its use had changed, and the use at both points of time, i.e. before and after the
expenditure was incurred, related to the business of the assessee without there being any addition to or expansion
of the profit-making apparatus of the assessee.
Remodeling of furniture in retail outlet is revenue expenditure :

The expenditure incurred by the assessee company towards the remodeling of furniture in its various retails
depots which was necessitated by changes in design, was deductible as revenue expenditure.
Repair and replacement of false ceiling in cinema building is revenue expenditure :
Expenditure on repair and replacement of false ceiling in cinema building owned by the assessee was allowable as
revenue expenditure, since it was incurred for keeping the business running.
Replacement of electric wiring in cinema building is revenue expenditure, since it was incurred for keeping the
business running.
Expenditure in repairs to car damaged during riots are deductible :
Expenditure to repair damage to car in which director of assessee-company was traveling to the business
premises, was allowable as business expenditure.
Tax Management with reference to –Lease or Buy Decisions
LEASE OR BUY DECISIONS
Assets may purchased or taken on lease. Apart from tax angle other factors also are important in taking lease or
buy decisions like rate of change in technology.
Advantages when Assets are taken on Lease : Lease Rental can be claimed as deduction as revenue
expenditure. However Depreciation cannot be claimed since assets are not owned by the assessee.
Advantage when Assets are Purchased : Depreciation on specified assets can be claimed as deduction u/s
32. the Assets may be purchased outrightly or may be taken on loan. Where the asset is taken on loan interest
amount can either be claimed as revenue expenditure or can be capitalized. But where interest is paid after the
asset is first put us use, the deduction on account of interest shall be claimed as revenue expenditure, i.e. such
interest cannot be capitalized.
Topic-12 What is TDS
TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified
payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments.
Usually, the person receiving income is liable to pay income tax. But the government with the help of Tax
Deducted at Source provisions makes sure that income tax is deducted in advance from the payments being made
by you.
Where is TDS applicable
Tax Deducted at Source or TDS is applicable in the following cases:
➢ Income from salary: The TDS is deducted by the employer from the salary and deposited on behalf of
the employee. The salary is taken into consideration along with the deductions and exemptions. The rate
of TDS varies from employee to employee on the basis of their income, deductions, and exemptions
.
➢ Income from interest: The TDS is deducted in this case if the total income from interest is more than
Rs.10,000 for a year. The tax on fixed deposits (FDs) and recurring deposits (RDs) is deducted and
deposited by the banks on behalf of the individual. In this case, the rate of TDS is 10% if the details of
Permanent Account Number or PAN is provided. Otherwise, it is 20% of the total income from interest.
➢ Income from sale of property: In case of disposal of a property, TDS will be applicable in case the
value of the property is more than Rs.50 lakh. The rate of TDS will be 1% of the sale value if the PAN is
provided. However, if the PAN is not provided, the TDS rate will be 20% of the sale value.
➢ Income from EPF withdrawals: TDS will be applicable to withdrawals from the Employees’ Provident
Fund (EPF) if the withdrawal is made before the end of 5 years of service. However, if the amount of the
withdrawal does not exceed the mark of Rs.30,000, TDS is not applicable. The rate of TDS is 10% in
case the PAN is provided and it is 20% otherwise.
TDS Return

• An individual is required to file TDS return in order to receive TDS refunds and to maintain a healthy
financial record. The TDS return can be carried out over the internet by visiting the website -
www.incometaxindia.gov.in
• The individual will need to sign onto the website by using the existing credential or by registering for the
services. There are specific deadlines that an individual will be required to follow to ensure the TDS
returns are filed within the due time. Depending on the income category, the individual will need to fill
up the necessary form and provide required documents for the refund process to begin.
• Once the individual has registered and submitted the return, he/she will need to validate the TDS Return
File. The validation can be done by using the free software provided by the Income Tax Department.
• If you are wondering about the possibilities of receiving a refund for the excess TDS paid, you will need
to file the claim through TDS return to receive a refund for the excess amount.
e-Payment of TDS
o The Income Tax Department provides an online option to Pay Taxes Online. The e-Payment service
facilitates payment of direct taxes online. The taxpayer will require having the net-banking services from
any of the authorized banks.
o Penalty for Late Filing of TDS Return
o If an individual fails to file the TDS Return within due time, he/she will need to pay a fine of Rs.200 per
day until the return is filed. The fee is applicable for every day until the fine amount is equal to the total
liable TDS amount.
o If the taxpayer exceeds one-year time limit to file the TDS return or furnishes incorrect details of PAN,
TDS amount, he/she will need to pay a penalty of minimum Rs.10,000 to Rs.1 lakh.
Reimbursement of Expenses Related to TDS
o The following reimbursement of expenses are considered for TDS:
o Management expenses to parent company are non-taxable
o Per-Diem expenses are non-taxable
o Relocation expenses for employees are non-taxable
o Audit fee is taxable
o Marketing expenses are taxable
o Traveling expenses are non-taxable, however, if it is taxable for FTS
o The reimbursement for visit of a foreign artist is non-taxable
o Consultant fees are non-taxable
o Infrastructure expenses are non-taxable, etc.
When is TDS not Deducted
TDs is not collected on payments made to the Reserve Bank of India, the Government of India etc. TDS will not
be collected when interest is credited or paid to:
o Central or State Financial Corporations.
o Banking companies.
o Interest paid under Direct Taxes or refund from the IT department.
o UTI, LIC and other insurance or co-operative societies.
o Interests earned from recurring deposit or savings account in cooperative societies or banks.
o Interest in Indira Vikas Party, KVP, or NSC.
o Interest earned in NRE account.
o All institutions notified under no-TDS.
Apart from these, there are other avenues also where TDS may not be applicable, such as interest on
compensation from MVCT (Motor Vehicles Claims Tribunal). Therefore, taxpayers are advised to check if their
interest income is liable for TDS with a particular institution or not.
TDS Exemption:
If your TDS has been deducted under Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J,
194LA and 195, while at the same time if you feel that you are not eligible to pay TDS, then, in order to claim a
tax deducted at source exemption, follow the below mentioned procedure:
o Contact your corresponding Income Tax official or the department through Form 13 to get permission.
o There has to be a consequent disposal of the applicants within the time frame of a month (30 days).
o All the taxpayers are advised to fill in authentic and complete information in the first occasion itself. Not
doing so might result in your application being rejected by the assessing officer. In any other scenario, if

the officer is satisfied with the information provided, he/she will go ahead and issue your exemption
certificate under Section 197.
o Save a copy of this receipt to later attach it with the invoice that you will eventually raise in order to
claim your TDS exemption.
o Your certificate will have total validation, unless the officer cancels it.
o TDS vs Income Tax
Here is simple difference between Income Tax and TDS:
1) Income tax is levied on all individuals or corporates for the income earned above the tax limit for that
particular period.
2) TDS is tax deducted at source. Where the tax is deducted at the source of income, merely assuming that
you have taxable income.
3) Income tax is paid on the annual income, where as TDS is deducted at source on a periodic basis in the
particular year.
4) A taxpayer will have to pay income tax on his total annual income, where TDS is only his partial
contribution to his total annual income.
5) In case of TDS, the tax is deducted by the payer and is remitted to the Government by the payer on behalf
of the payee. Income tax should be paid by the taxpayer.
6) If a taxpayer's income is below the taxable limit and TDS is deducted then he can claim for the same in
his tax returns. TDS is deducted in cases such as from salary income, fixed deposits, etc.
Topic-13 What is advance tax
As the name suggests, advance tax refers to paying a part of your taxes before the end of the financial year. Also
called ‘pay-as-you-earn’ scheme, advance tax is the income tax payable if your tax liability is more than Rs10,000
in a financial year. It should be paid in the year in which the income is received.
Rather than receiving all tax payments at the end of the year, advance tax receipts help the government get a
constant flow of income throughout the year so that expenses can be met. For instance, if your advance tax
liability for the financial year 2017-18 has exceeded Rs10,000, you are expected to pay it in FY17-18 itself.
Who should file it
If you are a salaried employee, you need not pay advance tax as your employer deducts it at source, known as
TDS (tax deducted at source). Advance tax is applicable when an individual has sources of income other than his
salary. For instance, if an assessee earns via capital gains on shares, interest on fixed deposits, winnings from
lottery or races, and capital gains on house property besides his regular business/salaried income, then he needs to
pay advance tax on all income after adjusting expenses or losses. While employers apply TDS on salaries,
advance tax is paid on income that is not subject to TDS. Professionals (self-employed) and businessmen will
have to pay taxes in advance as, given their business income, the liability can be huge. The same implies for
companies and corporates.
Payment of advance tax: Self-employed and businessmen
Due date of installment Amount payable
On or before September 15 Not less than 30% of the advance tax liability
On or before December 15 Not less than 60% of the advance tax liability
On or before March 15 100% of the advance tax liability
Payment of advance tax: Companies
Due date of installment Amount payable
On or before June 15 Not less than 15% of the advance tax liability
On or before September 15 Not less than 45% of the advance tax liability
On or before December 15 Not less than 75% of the advance tax liability
On or before March 15 100% of the advance tax liability
Advance tax has to be paid on the 15th of September, December, and March in instalments of 30%, 30%, and
40%, respectively, for self-employed individuals as well as businessmen. Companies need to pay advance tax on

the 15th of June, September, December, and March.
Income Tax E-Filing
o The easiest option for first-time e-filers
o The ClearTax platform automatically detects the ITR you need to file on the basis of your income sources
o Upload your Form 16, and ClearTax auto-prepares your income tax return
o You can file your return directly from ClearTax without logging into the income tax website
o Useful tips to help you with filling up the information
What is E Filing?
Efiling or electronic filing is submitting your income tax returns online. There are two ways to file your income
tax returns. The traditional way is the offline way, where you go the Income Tax Department’s office to
physically file your returns. The other way is when you e-file through the internet. Over the past few years, e
filing has become popular because it is easier, doesn’t require prints of documents, and can be done for free!
Am I Required to File Income Tax Returns?
It is mandatory to file income tax returns in India if any of the below conditions are applicable to you (as per the
Income Tax Act):
Earn gross annual income more than-
Particulars Amount
For individuals below 60 years Rs 2.5 Lakhs
For individuals above 80 years Rs 5.0 Lakhs
o Earn income other than salary like house property, etc
o Want to claim income tax refund from the department
o Earn from or have invested in foreign assets
o Wish to apply for visa or loan applications
o Company or a firm, irrespective of profit or loss
Difference Between AY and FY
Financial Year is the period between 1st April to 31st March. Assessment Year is the next year in which the
income is liable to tax.
For example, if your financial year is from 1 April, 2015 to 31 March 2016, then it is known as FY 2015-16. The
assessment year for income earned during this period would begin after the financial year ends–that is on 1 April
2016 until 31 March 2017.

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