Professional Documents
Culture Documents
M. 9829056469
Important Notes
RESIDENTIAL STATUS
Scope of Income Sec. 5
1. ROR:- Global (All) income of is taxable except:
i. Past untaxed profit
ii. Agricultural Income from Land in India
iii. Dividend from Indian co.
iv. Gifts from relatives
v. other incomes which are exempt.
2. RNOR and NR:-
For both Income earned or received in India are taxable. The only difference is:For NR any type of income earned outside India is not taxable in India. But for RNOR income of
outside India shall be taxable if it is from business which is controlled from India.
Income deemed to be earned in India- Section 9
1. If income is first received in India then only it shall be taxable. If first received outside India and
then remitted to India, then not treated as received in India.
2. If business located in India and controlled from outside India then also taxable.
E.g. Profit from a branch in Chennai controlled from USA is taxable.
3. Salary for services rendered in India but received outside India then taxable as per sec.9 like
pension from a former employer.
4. If the Indian govt. employee received salary/ remuneration from Indian govt. for the services
rendered outside India then it is taxable. e.g. Indian Embassys outside India(u/s 9)
5. If rent received from a house property then also allowed 30% standard deduction.
6. Interest from deposits with an Indian Co. received outside India, then it is assumed that deposits
used in India. Hence it shall be taxable in all cases.
7. In case of interest/ royalty/fees just check that where amount borrowed/patent etc./services are
used.
E.g. Architect sitting in UK made design of Taj Hotel in Mumbai shall be taxable.
8. Exports, News and films in India are not taxable only for non-residents.
Income from shooting of a cinematograph film in India is taxable done a citizen of India.
Residential status Section 6
9. As soon as you find Indian citizen/POI dont check 2nd basic condition. Decide properly whether
POI/ Indian citizen or not. If Relatives born in Undivided India, then it does not make the assessee
person of Indian origin, for that parents & grandparents birth place before 1947 is relevant.
10. If the person initially an Indian citizen but after cancelled his Indian citizenship then any of the two
basic conditions can be checked.
11. For the additional conditions, if both are satisfied then only the assesses will be ROR.
12. For other than Individual/HUF dont check additional conditions. If resident then global income as
of ROR shall be taxable.
SALARY
Under which head
1. Salary of partner-u/h PGBP
Director fee- u/h other sources
Fees for checking/setting papers, guest lecture, honorarium - u/h other sources
Charging section Sec 15
2. There are chances that salary of more than 12 months is taxable in one year. Might be advance of next
year received in current year or salary of last year became due in this year.
E.g. Salary for April 2013 received in advance in March 2013.
In this case, taxable salary for F.Y. 12-13 shall be of 13 months i.e., April 2013+ 12 months of F.Y. 12-13
3. Basic pay scale: Always write a note of calculation of basic with months specially. Because it will be
used in RFA etc. later.
4. Bonus:-If nothing is mentioned that how calculated then assume to be on the basis of last months
salary.
E.g. Bonus is equal to one month basic and Salary for April 12 to Sept.12-`2,000, Oct.12 to March 13- `3,000.
Then bonus shall be `3,000.
Relief u/s 89(1)
5. Slab rates of every year have to be applied separately.
6. For calculating relief u/s 89(1) all the tax calculations have to be done including CESS, as applicable in
the respective year.
7. First calculate tax on arrears in current year, then in the year to which they are related.
E.g. Salary in 11-12 70,000 p.m.
Step 1:
(a)Tax on
(b)Tax on
Balance
Step 2:
(a)Tax on
Concentrate that whether leaves actually taken given or not. If leaves actually taken not given, then
calculate it first.
E.g. Mr. J was entitled to 40 days leaves every year. His avg. monthly salary was ` 6,000. He worked for 7
years. Calculate the value of 4th limit if
(i) Leaves utilized 22 days or (ii) Leaves standing to his credit for every year were 15 days.
Ans.
Step 2:-
Step 3:-
NPS(Pension scheme of central govt.) sec. 80CCD:29. The treatment is different from RPF. Do not mix up with RPF.
30. Contribution of employee is always part of basic salary. But deduction u/s 80CCD shall be only of
10% of basic + DA under contract. Commission not taken.
31. Total Contribution(no limit applicable while adding in salary) made by CG/Employer in pension
scheme shall be added in the salary of employee. Deduction u/s 80CCD shall be only of 10% of basic
+ DA under contract.
Allowances
32. Children education allowance- Exemption has to be calculated for every child separately.
For example: Employer gave CEA for 1st child- 130 p.m. & 2nd child- 70 p.m. Then in total we cannot give
exemption of 200, only 170 p.m. for both will be allowed.
33. Children education allowance and hostel expenditure allowance is given for any two children which
includes a step and adopted child but not a grandchild.
34. Actual amount spent is irrelevant for allowances where limits are specified.
E.g. Transport allowance given to employee for commuting between office and residence `1,000 p.m. However
actual expenditure incurred was 750 p.m.
Transport allowance(1,000-800)12 = 2,400
35. City compensatory allowance(CCA) is fully taxable because any allowance other than 14 allowances
are fully taxable.
HRA
36. If any factor such as rent paid, salary or actual HRA changes during the year, then calculations have to
be made separately for those months.
So decide with the help of chart that how many times
calculations shall be done.
E.g. Employee gets HRA of ` 7,000 p.m. which was increased to `10,000 w.e.f. 1.1.2013. Till 30.6.12 he pays no
rent but from 1.7.12 he pays rent of 4,000p.m. Salary is ` 20,000 p.m.
Chart for computation of HRA:
1st April to 31st March
Perquisites(General principles)
41. If any perquisite is solely given for official purposes or during office hours, then it shall not be
taxable(included) under head salary because no benefit is received by employee.
E.g. An employer gives a car/club/credit card to its employee for office use.
Nothing shall be taxable for employee in this case as no personal benefit is received by employee.
42. Do not forget to deduct the amount recovered from value of perquisite in all the cases.
RFA
43. While solving question of RFA first always write the period for which the house is given.
Salary of only that period shall be taken. Remember negative list(things not to be included). DA(NOT
under contract), every type of perquisite(whether in kind or reimbursement), employer contribution to
PF & Interest.
44. If in question:
45.
46.
47.
48.
49. WDV/FMV of furniture is irrelevant. 10% of actual cost (purchase price of employer)taken.
E.g.
Employer provided furniture with the house cost of which was 20,000 ` .Its WDV is 3,000 and FMV
is 4,000. Value of furniture shall be 10% of 20,000 = 2,000
50. RFA in case of accommodation in hotel shall remain same whether a govt. employee or not and value
of furniture is not added.
51. If any asset or furniture has been given along with house, be extra cautious in making block of the date
from when the asset was given. As it might have been given in the mid of year.
53.
54.
55.
56.
57.
58. Laptops, computer and telephone are fully exempt even if given for personal purposes. Telephone
bills or any other type of benefit in relation to phone is exempt. But mamu na ban jaan telephone
allowance is fully taxable.
59. For other assets 10% principle applicable just like furniture and car.
60. Fix the days during which given to employee. Taxable only proportionately.
61. If ownership of any asset is not transferred by the employer, then it is use of asset & not transfer of
asset. Read the question carefully that whether we are concerned with use or transfer.
62. For computing use of asset & interest free loan calculation must be done in days.
Transfer of Movable assets
63. Actual cost to the employer is taken, no concept of WDV or fair market value.
64. Give depreciation only for complete 12 months of use (not financial year). If any use of less than 12
months left then no depreciation.
65. Depreciation is given for the period it was given by employer to employee for use. Do not forget to
add the value of use in the income of employee.
E.g. Employer purchased furniture on 1-6-10 for ` 20,000. He gives the furniture to his employee for use on 1-412 and transferred the same on 1-7-12 for `3,000.
Other Fringe benefits
Basic Salary- 2,00,000, DA- 20,000, Professional Tax paid by employee- 5,000 and by employer8,000
Basic Salary
2,00,000
DA
20,000
Professional Tax of employer
8,000
Gross Salary =
2,28,000
(-) Deduction u/s 16
Professional Tax (8,000+5,000)
(13,000)
Net Salary
2,15,000
Children education
78. Unlimited bachey. 1,000 is per month. Not for brother sister even if dependant. Deduct the amount
recovered from employee.
Motor Car
79. If nothing is given, assume that the car is upto 1.6 ltrs. (chote) and expenses by employee.
80. If car of employer and partly used then actual % of personal use not relevant. But when car owned by
employee then actual use for personal or limit whichever higher deducted.
E.g. Employee uses his own car for official and personal purpose both. Total expenditure incurred by employer is
`50,000.Car is used 30% for official and 70% for personal purposes.
Total Expenditure
50,000
21,600
28,400
HOUSE PROPERTY
Annual Value: Sec. 23
1. ER is always taken for 12 months.
But AR is taken only for the months actually received.
E.g. House was let out for 10 months for Rs. 3,000 and self occupied/vacant/unrealized for 2 months.
FRV of the house is Rs.3,000 p.m.
Expected rent shall be taken for 12 months although let out only for 10 months. But actual rent shall be taken
for
only 10 months.
2. If FRV of the house is given for any period less than 12 months, then it should be converted for the
period of 12 months.
E.g.
FRV for 5 months = 90,000
FRV shall be 90,000/5 X 12 = 2,16,000
3. If construction completed during the year or purchased/sold during the year only then ER shall be
for less than 12 months.
E.g.
4. GAV shall be higher of AR or ER. But a relief is given when AR is lower due to vacancy, in this
special case even if AR is lower than ER, AR shall be taken as GAV.
26.
27.
28.
29.
Loan
Date of
Repayment of
Pre-construction
Current Year Period
Taken on
Completion
Loan
Period
1-4-12
16-12-12
1-6-2013
1-6-10
1-7-12
1-10-2011
1-3-04
20-8-07
30-3-11
1-4-06
10-11-06
Not repaid
1-4-08
5-5-12
Not repaid
1-10-09
25-4-12
01-08-12
1-06-09
1-6-11
01-10-12
1-10-11
15-07-12
01-12-13
Limit of 30,000/1,50,000:
Applicable only and only for Self occupied that also AV of which is taken to be nil. If self occupied
but treated to be let out then no limit applicable. Also limit not applicable for any other house.
The limit of 30,000/1,50,000 is applicable for total interest (both current years interest + 1/5 th of
pre- construction period)
If a house has more than one self occupied unit then the limit of Rs. 30,000 shall be applicable to all
the units in total and not to each unit separately.
If nothing mentioned that whether 30,000/1,50,000 then do write assumption in such a way ki kuch
kar ke dikha sako.
Co-ownership
30. Let out:- Dont assume to be vacant of any one owner.
Decide ratio in which final income to be divided(on basis that how many units of which owner let
out).
31. Self-occupied:-First divide the interest in the ratio of ownership and then apply the limit of 30/150
for each owner separately.
PGBP
Section 37:
1. If an expense is revenue in nature then deduction is allowed from income of business on the basis of:
(a) Amount spent if cash system is followed (depreciation is allowed in this case also)
(b) Amount accrued if accrual/mercantile system is followed
Note: If Receipts & Payment A/c has been given in question, then always follow cash system unless mentioned
specifically.
E.g.
Electricity charges
Bills due
Accrual system
`500 p.m
1.1.2012 to 31.3.2013
Payment made
NIL
Cash system
`500 p.m
1.1.2012 to
31.03.2013
1.1.2012 to 30.6.2012
`500 x12=`6000
1.4.2012 to 31.03.2013
`500x6=`3000
1.1.2012 to 30.6.2012
The above rule does not apply for accrual basis if any expenditure is specified under Section 43B.
Capital expenditure Vs. Revenue expenditure:
2. Expense in revenue nature is allowed full deduction from business income.
Whereas expense of capital nature is not allowed deduction. BUT we claim depreciation u/s 32 on such expense
(deduction for such expense is given over the years, not together as revenue expense),
a)E.g. If purchase of car for ` 5,00,000 has been debited in P&L A/c ,
Then Add back this 5,00,000 in Net profits & Deduct Depreciation @ 15% from net profit.
b) E.g. If purchase of car is given in Receipts & Payment A/C.
` 5,00,000 not treated as expense but depreciation will be allowed deduction @15%.
3. Never allow deduction for any expense incurred for personal purpose of the proprietor.
(a) If wholly for personal purpose Fully disallowed
Like drawings of proprietor, Premium of life insurance on self, gift for family members etc.
E.g. Dr.
Cr.
To Gifts
2,00,000
By Gross Profits
5,00,000
To LIP of employees
40,000
To LIP
1,10,000
To Net profit
1,50,000
Additional Information : The expense of Gift debited in P&L a/c also includes a gold chain
gifted to girlfriend worth `1,80,000.
Net profit
1,50,000
Add: Expenses disallowed
i. Gift given to girlfriend
1,80,000
ii. LIP(assumed to be for proprietor himself)
50,000 2,30,000
Income taxable u/h PGBP
3,80,000
Less: Deduction u/c VI-A
Sec 80-C : LIP 1,10,000 but as per Sec 80CCE restricted to 1,00,000
2,80,000
(b) Partially personal & official purpose Proportionate deduction allowed for official expense.
E.g. provision for sales tax, Income tax reserve, Contingency reserve, Provision for doubtful
debts, Staff welfare fund (reserve) etc.
5. All expense incurred for the welfare of staff, employee etc. or shall be allowed deduction as it is purely a business/
profession expense. But any reserve created for that purpose shall not be allowed deduction.
E.g. Compensation paid to window of employee, stipend paid to articled assistance for
clearing IPCC Allowed
Section 40(a):
6. Any payment on which provisions of TDS are applicable but not deposited shall be disallowed.
E.g. Fees of Rs. 2,00,000 paid to software engineer for technical services or auditor . etc.
i. TDS not yet deducted No deduction allowed in 12-13, hence 2,00,000 fully disallowed.
But deduction shall be allowed in the P.Y. in which TDS is deposited.
ii. TDS deducted and deposited in P.Y 14-15 - Deduction of 2,00,000 can be claimed in PY 14-15.
Note: If the fees to be paid to professionals is upto 30,000/ rent 1,80,000 then no need to deduct
TDS and hence payment allowed deduction even if TDS not deducted.
iii. Fees paid to CA `20,000 without TDS in PY 12-13 Deduction allowed as no TDS has to be
paid on payment upto 30,000.
7. All sums paid in relation to IT/WT Disallowed. Payment of interest on loan taken for payment of income tax is
not allowed as deduction
E.g. legal expense, payment to lawyer, CA in relation to income tax and wealth tax allowed.
8. All sums paid in relation to taxes other than IT/WT Allowed
a) E.g. Advance Sales Tax, Service tax , Interest on delayed payment of Custom duty , VAT, etc.
b) E.g. Assessee sold goods for `60,000 [`50,000+`10,000(VAT recovered)].
`60,000 is to be credited as Sales and
when he will pay `10,000 VAT to govt. it shall be debited to P&L as expense.
EXCEPT Provision/reserve, Penalty - Disallowed for all.
E.g. Reserve for sales tax, penalty under sales tax, etc.
9. Penalty, under any Act, is not allowed as deduction as it is an offence. But penalty for any breach of contract is
Allowed as it is a normal business expense.
E.g. Penalty under Act-disallowed. Compensation paid to govt. for delay in contract-allowed.
(i)
Amount
Tax
IT,WT
Other Taxes
(ii)
(iii)
(iv)
(v)
(vi)
Advance Payment
Provision/Reserve
Interest
Penalty
Expenses on legal
proceedings
10. Treatment of expenses given above in case of refund (refund of interest or penalty)
(i) Any expense if disallowed when incurred, then that income shall not be charged to tax
E.g. If penalty paid under any act is refunded, then in the year of receipt it shall not be added in
the income u/h PGBP.
(ii) If any expense is allowed deduction when incurred, it shall be charged to tax as income u/h PGBP in the year of
receipt.
E.g. Duty drawback(Refund of custom duty) paid shall be taxable as income u/h PGBP in the
year of receipt.
(iii) If any interest is received on the refunds mentioned in both (i) &(ii) above, it shall be taxable
sources in the year of receipt.
u/h other
E.g. Assessee deposited `1,00,000 Income tax in 08-09.`80,000 excessive income tax was
deposited. Assessee applied for refund of `80,000 but govt. refunded it very late in 12-13.
Because of late refund, govt. gave him interest on `80,000.This interest is NEW INCOME of the
assessee and such interest is always taxable u/h OTHER SOURCES.
Section 40A(2):
11. NO disallowance of any expenditure being excessive or unreasonable shall be made if such transaction is at arms
length price : If more than value paid to relative , partner or director or 20% or more share capital etc. then
EXCESS payment DISALLOWED.
30,000 disallowed.
Section 40A(3):
12. While reading the question circle all the payments which:
(i) exceed Rs. 20,000, (transporter exceed 35,000)
(ii) made in cash/bearer/crossed cheque
(iii) not covered in exceptions given under Rule 6DD (DABANGG)
If all the conditions given above are satisfied, then disallow ENTIRE amount of such expense.
13. Limit of 20,000 is per bill per day, u/s 40A(3), if any payment is made to single person for 2 different bills of Rs.
20,000 each, then nothing shall be disallowed.
a) E.g. A: Mr. A purchased goods on credit on 1.6.2012. for 50000.He makes payment of the
bill as follows- On 6.6.2012 `20000
On 7.6.2012 `19000
8.6.2012 `11000
Allowed as no payment on a single day exceeds Rs.20,000
b) Mr. A makes payment of three different bills on 1.6.12 of `20,000 each i.e collective payment
of `60,000 was made on 1.6.12.
As payment was made of 3 different bills, hence nothing shall be disallowed.
Payment made in a single day to
Software engineer
Mr. K for purchases of goods
A farmer for purchase of agriculture produce
A truck driver for transporting goods
Payment for purchase of machinery
CA for advice taken from him on VAT compliance
Technical consultant for services rendered
cash
A/c payee
cheque
cash
Bearer cheque
crossed cheque
Debit card
Cash
Amount Allowed
/Disallowed
15,000
25,000
1,00,000
30,000
5,00,000
45,000
1,00,000
Section 43B:
14. It must be checked in question that whether expense is covered by 43B or not.
E.g. Payment of electricity bills is not covered by 43B, hence deduction shall be allowed on
accrual basis, even if not paid.
15. Due date of deposit of tax under sales tax law(or any other law), has no effect for computation of income tax. It
should be ignored.
E.g. if sales tax of `12,000 was due for deposit on 15.5.12 under sales tax law, but actually it is
paid within the due date of return under the Income Tax Act, it shall be allowed as deduction.
16. For EEs (Section 36) contribution the due date of only PF Act is applicable, while for ERs (Section 43B)
contribution the due date of return of income is relevant.
E.g.(a) Due date for Employees contribution to PF was 20.02.2013 but deposited it on 31.7.2013
Deduction shall never be allowed as contribution not deposited till the due date of
PF ACT.
(b)
If in the above question employers contribution was deposited instead of
employees contribution.
Deduction allowed in PY 12-13 , as deposited upto due date of return.
(c)If the employers contribution was deposited on 31.12.2013
Deduction allowed in PY 13-14 (year of payment) , as deposited after due date of
return.
(d)
If bonus of PY 11-12 is paid to the employee in PY 12-13.
Deduction shall be allowed in the PY 12-13 on payment basis.
Section 35:
16. Whenever given that donation made to
-university/national laboratory/SR association /other approved bodies for
research programme give 200% deduction whether related to business or not.
approved
scientific
21. If income of assessee does not include income from PGBP, the above expenditures shall be allowed deduction
from total income @100% only (Section 80GGA)
a) E.g. CA.Birbal running his own practice donates `1,00,000 to ICAI for statistical research.
Claim deduction of `1,00,000 X 125% = 1,25,000 from his professional income u/h
PGBP [section 35(1)(iii)].
b) E.g.CA. Akbar is working as employee donates `1,00,000 by cheque to ICAI for statistical
research.
Claim deduction of `1,00,000 (only 100%) from his total income u/c VI-A
[Section 80GGA]
c) If in the above question the donation was made in cash
No deduction allowed because as per amendment any donation u/s 80-GGA and 80-G
exceeding `10,000 shall not be allowed deduction if paid in cash.
22. Deduction of 100% allowed for scientific research expense (revenue or capital) done after commencement whether
related to business or not.
23. Scientific Research- 3 preceding years expenses (whether revenue or capital) are allowed as deduction, however,
salary to administration staff etc. which is not directly connected to research will not be allowed as deduction.
Only two expenses shall be allowed deduction one is salary to scientist, second is raw material consumed in
research. Salary cannot be paid in kind.
24. Entire deduction for the above expenses is allowed in the year of commencement.
25. Always deduct revenue expenses(which may lead to losses) on scientific research first, and then capital
exp.(u/s35). If unabsorbed capital expenditure, then treat like unabsorbed depreciation.
a) E.g.
To amount paid to Scientific research
Association for approved programme u/s 35
To net profit
P&L A/C
`1,00,000
`,700,000
`7,00,000
(`100000)
`6,00,000
NOTE: contribution to approved scientific research association qualifies for weighted
deduction 200% u/s 35.
ANS. Net profit
Less: Weighted deduction u/s 35(200%-100%)
b) E.g. If in the above example, expenditure paid on scientific research of `100000 is not
debited in the P& L A/C and given only as additional information,
Full 200% shall be deducted i.e. 200% of `1,00,000=`200000 shall be allowed as
deduction.
Section 35AC:
27. 100% deduction allowed of payment donation to Public Sector Company, Local Authority and institution
approved by govt.
28. Approval may be withdrawn if institution/project is not being carried as per condition.
29. Deduction under sec.35, 35AC, 35CCA and 80GGA shall not be allowed in respect of payment made after
cancellation of approval of such project.
Section 35CCA:
30. If any businessman makes donations to projects specified under this section, he shall claim 100% deduction u/h
PGBP, for non-businessman, deduction is allowed from GTI u/s 80GGA.
d) E.g. CA. Ajay Jain running his own practice donates `1,00,000 for rural development.
Claim deduction of `1,00,000 from his professional income u/h PGBP (sec 35CCA).
e) E.g. Ritu Jain(MBA) is working with Mahindra & Mahindra as CEO, and she also donates
`1,00,000 for rural development.
Claim deduction of `1,00,000 from her total income u/c VI-A (sec 80GGA)
Section 35CCC:
Donation to Political Party:
31. Donation given / contribution to political party is :
i. not allowed deduction from profits of the business (add back to profits if already debited in P&L a/c)
ii. but allowed deduction from GTI u/s 80GGB/80-GGC.
Section 35CCC:
32. 150% on Agricultural extension project(farmer's education etc.)
E.g. A has a hospital (120 beds) in Kanpur from where he earned income of 1,60,000 and had
spent `50,000 on capital assets and he also has a ho hospital (150 beds) in Delhi where he had
a profit of 60,000. Further he had set up another hospital (50 beds) in Bangalore where he had
profit of 50,000. Compute Business u/h PGBP.
i. Specified business:
Profits from business in Delhi
60,000
Less: Setting off losses from business in Kanpur (60,000)
(15,000 loss to be c/f to next year)
ii. Non- specified business:
Profits from trading business in Bangalore
Income u/h PGBP
50,000
50,000
Section 35D:
37. For non-corporate assessee, deduction shall be allowed upto 5% of cost of project.
38. For company, it cannot exceed 5% of cost of project/capital employed, whichever is higher.
(refer cost of capital and capital employed from book)
Section 40(b)
39. Share of income from partnership business- NOT TAXABLE in hands of Partner.
GOLDEN RULE:
In the hands of partners, only that amount is taxable which is allowed deduction to the firm.
40. Share of income from partnership business- NOT TAXABLE in hands of Partner.
41. (PLATINUM RULE): If interest is received by a partner from the partnership firm, charged u/h PGBP and not
u/h Other sources.
42. Salary/commission or bonus to non-working partner is not allowed deduction to the partnership firm.
43. BOOK PROFIT: Income u/h PGBP after all adjustments but without deducting salary to working partner.
P &L A/C
salary to partner
`40,000
interest to partner @ 14% `28,000
net profit
`1,00,000
ANS.
Net profit
+interest on capital @2%(28000/14 x2)
+salary to partner
BOOK PROFIT
=`1,00,000
=`4000
=`40000
`144000
SEC.32
44. If the asset is put to use for 180 days or more i.e., ON OR BEFORE 3 RD OCTOBER(next to Gandhiji bday) in a
non-leap year, then full depreciation. If upto 2nd October then full.
E.g. A car was purchased on 31st March 2013 Depreciation = 15%X1/2 = 7.5 %
A machine was purchased on 2nd October 2013 Depreciation = 15%
45. If as asset is used for less than 180 days in the year of purchase, then always half depreciation is given for that
asset first and then if any value is left in the block full depreciation on the balance.
E.g. Opening WDV of the residential building Shanti Kunj on 1.4.2012 = 10,00,000,
Residential Building Mastii Kunj purchased on 3.10.2012 for ` 5,00,000.
Opening WDV of residential bldg as on 1.4.2012
=
10,00,000
Add: purchase made on 3.10.2012
=
5,00,000
Closing WDV as on 31.3.2013
=
15,00,000
Computation of Depreciation:
i. Depreciation on Mastii Kunj (5,00,000X 5% X )
=
12,500
ii. Depreciation on remaining WDV (15,00,000 5,00,000 X 5%)
=
50,000
Total depreciation for PY 12-13
=
62,500
46. Calculate depreciation from the date when asset is installed or put to use and not from the date of purchase.
47. No depreciation is charged on the asset sold during the year, even if it is sold at the end of the year.
WDV or FMV of the sold asset is not relevant. Only the sale price is deducted from the block.
48. Some tricky rates of depreciation have been mentioned below:
i. Computer Printers shall be taken @ 60% but as per ICAI it is 15%.
ii. Air conditioner is included in plant and machinery depreciable @ 15%
iii. In case of books, dont forget to identify category as rates differ accordingly.
iv. Neon sign board- Capital expense , CLAIM DEPRECIATION @15%
v. No depreciation is allowed for land. Hence it can be long term and indexed.
vi. Goodwill is included in Intangible Assets and depreciable @ 25%[SC judgement(SMIF Securities)].
48. Depreciation can be carried forward for infinite years. And in future years it can be adjusted inter-head also (not
allowed for business loss) except from salary and lottery.
U/h PGBP
Opening WDV of 500 chairs as on 1.04.2012 = 50,000
Sale of 499 chairs on 1.2.2013
= 60,000
WDV
= NIL
Block continues to exist but no depreciation claimed.
50. If all assets in the block are sold then no depreciation is charge.(KHANDAAN KA CHIRAG BHUJ GAYA)
U/h PGBP
Opening WDV of 500 chairs as on 1.04.2012 = 50,000
Sale of 500 chairs on 1.2.2013
= 40,000
WDV
= NIL
Block does not exist and no depreciation can be claimed.
51. Claim depreciation only if one or more asset is left in the block and closing WDV is positive.
U/h PGBP
Opening WDV of 500 chairs as on 1.04.2012 = 50,000
= 40,000
= 10,000
ADDITIONAL DEPRECIATION-SEC.32(1)(iia)
52. only to manufactures. in first year E.g. 20% extra, (15 + 20 = ???? talwaar nikaal lo)
53. Only for new plant machinery (not on furniture etc.), If AC is used in the factory then additional allowed.
54. Give additional depreciation only if clearly mentioned manufacturer and new machinery.
Machinery X
Machinery Y(second hand)
Machinery D
1.4.12
1.7.12
1.12.12
15%+20%=35%
15%
(15%+20%) x =17.5%
PROPORTIONATE DEPRECIATION
55. If any asset purchased after conversion then only converted new company will claim Depreciation.
56. If any asset was there at the beginning of the year then it shall apportioned on the basis of 365 days
57. If any asset is purchased during the year before conversion then dep. is divided on the basis of total number of
days held during the year. Should be divided on basis of number of days.
58. Date of conversion from firm to company is the first day when the asset is held by new company.
(a) A (proprietorship firm) converted itself into ABC Pvt. Ltd. on 1.10.12.
Asset existing on 1.4.2012:
A & sons will be given depreciation for 183/365 days(from 1.4.12 to 1.10.12)
ABC Pvt. Ltd will be given depreciation for 182/365 days(from 1.10.12 to 31.3.12)
(b) If in the above case, asset was purchased 1.5.2012 and there was no opening WDV .
Total no. of days during the year will be 335.
individual shall be given 153/335.(from 1.5.12 to.30.9.12)
the company will be given depreciation for 182/335 days.(from 1.10.12-31.3.13)
(c) If asset was purchased after conversion i.e. on 1.1.13.
Half depreciation will be claimed by ABC ltd. No proportionate depreciation in this case.
PRESUMPTIVE TAXATION
SEC. 44AD
66. Applicable for individual/HUF/partnership whose turnover in less than 1 crore
67. Books of A/c not required (Pappu cant calculate tax )
68. Any claim of income lower than 8% of sales only if maintain books and goes to CA
69. If in question mentioned that assessee does not maintain any book of accounts then calculation is done under this
section (presumptive taxation i.e. 8% only)
All expenses given in question are to be ignored will calculating income on presumptive taxation basis.
Only 8% and total sales to be remembered.
70. Section 44AD applicable on only income u/h PGBP not for any other head i.e. do not forget to add income u/h
salary CG/HP/other source while calculating GTI.
71. To check whether presumptive taxation is beneficial or not first calculate the net profit and then find 8% of sales
(ii) Normal basis calculate net profit after adjustments
(iii) Presumptive basis- 8% of sales
SEC. 44AE Special section on for transporters/truck drivers
a) E.g. If assessee owns truck for even 9 months 1 day then income of 10 months taken.
b) Mr. X is owner of 10 trucks. On 1st March 2013, he sold 1 truck & purchased another truck on
31.03.2013.
44AE is available because he does not own more than 10 trucks at any time. Income
of 10 trucks for 12 months shall be taxable. And in case of 1 truck income of mark
shall be taxable.
SEC.36(1)
76. Health insurance of employees- deduction only if mode is other than cash
77. Deduction of Family Planning expenses- only to companies.
SEC.28(basis of charge)
78.
79.
80.
81.
CAPITAL GAINS
1. Charging Section
a) Check the date of transfer. Income shall be computed for that year. Except in conversion in stock,
compulsory acquisition and insurance claim where taxable in the year of receipt.
b) Sale of every asset used in business is taxable u/h capital gain. Only movable assets for personal
use(except jeweler, paintings and antiques) not taxable.
c) Date of transfer is left only for checking long or short. For indexation purposes date of transfer is
taken.
d) The period of 1 year is applicable for every type of shares, even for shares of private company.
Although LTCG of shares of private company not exempt.
2. Sec. 48:- Any STT paid is neither added in the cost nor deducted as expenditure on transfer. But if
broker then STT allowed deduction u/h PGBP. But any brokerage paid on purchase of shares shall
be added in the COA and brokerage paid on sale deducted as expenditure.
3. Mummy gives only the value of sale consideration (in the hands of seller), thus, for the buyer the
purchase price shall remain the amount as contracted between the buyer and the seller.
If nothing mentioned about valuation officer then value of SVA shall be taken.
9. Slump sale 50B:- Check whether lump sum consideration for all assets. In such case dont compute
gain of each asset separately. The entire gain will be either long or short without indexation.
Instead of deducting coa/coi, net worth of the entire undertaking is deducted from sale
consideration.
10. Exceptions of charging section:- The transfer is deemed to be in the P/Y in which destruction,
conversion or acquisition took place [as per sec 2(47)], the POH and indexation should be done
accordingly. But the capital gain/loss shall be taxable in the p/y in which amount is received [as
per sec 45(1A)]
11. Liquidation:- Any amount of dividend(reserve) shall be deducted from the amount received on
shares because CDT is payable on that dividend.
EXEMPTIONS:12. If the amount is deposited in Capital Gains Account Scheme (wherever applicable), and such
amount is not utilized within the prescribed time, it will be taxed in the year in which such period
expires, in the same nature as that of the original capital gain.(i.e. if original CG was Short- term
then short-term and likewise for LTCG)
13. The period of utilization of CGA scheme amount is calculated from date of transfer of old asset &
not from the due date of return or from the date of deposit in the CGA account.
14. If the capital gain is invested in the required asset and such asset is sold within the respective lockin period(i.e. before its expiry), then: For SEC.54EC and 54F, exempted gain shall be taxable as LTCG in the year of transfer of new asset.
For all other sections, CG claimed as exemption shall be withdrawn by way of, reducing it from
COA of new asset.
OTHER SOURCES
Section 56
1. Payment to MPs & MLAs [sec. 10(17)]- Any daily allowance or constituency allowance received by any
MP/MLA will be exempt.
2. Any award of state government or central government for bravery or humanitarian or other reasons is also
exempt[10(17A)]
E.g. Decide the amount taxable u/h other sources in the following cases
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
CLUBBING
How to solve questions/points of clubbing:-
1. Compute the income in the hands of receiver without applying any clubbing provisions.
E.g. If there are 2 assessees then compute income of each assessee separately. Ignore clubbing
provisions completely.
2. Now check whether there is any minor child. If yes and
(i) he/she has earned income by own skills or suffering from any disability,
a) no clubbing of income
b) taxable in the hands of minor.
c) no exemption of 1,500 (as no clubbing has been done)
E.g. Master S, a minor child earned income of `60,000 from winning the dance show
DID Little Masters.
`60,000 shall be fully taxable in the hands of Master S. No exemption of 1,500
will be given as there is no clubbing of income.
If this 60,000 is invested and 2,000 interest is earned on that, then this 2,000 -1500
= 500 shall be clubbed
(ii) he/she has earned income not by own skills,
a) income has to be clubbed (added) in the income of that parent whose income is higher (before
including this income) .
b) First deduct maximum (exemption cannot exceed the income of minor)1,500 per child (bachey saare
achey) (even in case of lottery this 1,500 deducted)
E.g. Mr. A gifted `1,00,000 to his wife/son`s wife. She invested her own `2,00,000 also
and purchased debentures of `3,00,000 and she earned interest of `15,000.
In such a case `5,000 (15000 x `1,00,000/`3,00,000) shall be added in the hands of Mr.
A i.e clubbed in the income of Mr A.
If she further invested 15,000 and earned 3,000 on that, then 3,000 shall not be clubbed.
(ii) by person other than spouse or parents-in-law- no clubbing.
4. If income transferred but Asset not transferred: Income clubbed in the hands of transferor
E.g. Mrs. X gave instruction to his bank that interest on Fixed Deposit shall be credited
in the account her sister. But F.D should remain in the name of Mrs. X only.
The interest shall be added in the income of Mrs. X.
5. If the asset is transferred with a condition that asset will be taken back after death then income from that asset
will not be clubbed till death.
E.g. Mr. A transfered asset to Mr. B on the condition that asset or income can be taken
back by him any time. Its called revocable transfer and shall be taxable in the hands of
A.
E.g. Mr. X transfered asset to Mr. Y on the condition that asset will come back to X after
death of Y. Till the life time of Y income shall be taxable in the hands of Y. And after
death of Y, it shall be added in the income of X
6. Spouse receives salary etc. from a concern
where individual has substantial interest (20% or more, alongwith relatives)
to the extent earned not due to own skill/knowledge
clubbed in the hands of individual.
E.g. Mrs. R is working as manager in Ajay Jain Classes. Her husband is owner of the
concern. She is drawing salary of Rs. 5,00,000 while as per her qualification salary will
be 4,00,000. Decide the case.
E.g. Mr. X gifted some amount to his wife, which she invested in a partnership firm, and
earns the following:
Interest @ 14% p.a.
Salary
Share in profits of the firm
The following steps shall be applied to comply with the provisions of clubbing:STEP 1: Calculate income in the hands of the receiver as if it is the receivers income
a) share in profits will be exempt,
b) interest upto 12% p.a. only will be taxable u/h PGBP and
c) taxability of salary shall also be decided as per provisions of Sec.40(b) and taxable
u/h PGBP.
STEP 2: The income so calculated in the above step shall be clubbed in the hands of
husband in the same head i.e. PGBP.
STEP 3: Now husband will be able to set off the losses from such clubbed income. And for
setting off losses it shall be treated that this is the income of husband u/h PGBP.
Salary
HP
Business
Speculative
business
STCG
LTCG
Owning
race
horses
Lottery
Other
sources
Income
a) E.g. Interest of 26,000 @ 13% received from partnership firm in which he is partner.
Firm will be allowed deduction of 24,000 @12% and remaining 2,000 shall be added in the
income of firm Section 40(b) in PGBP. In the hands of partner only 24,000 shall be taxable
which was allowed deduction to the firm. As per sec. 28 this interest & salary shall be taxable
in the hands of partner u/h PGBP.
b) E.g. Salary received from the firm. Such salary shall be taxable u/h PGBP.
c) E.g. share in the income of firm. It is exempt in the hands of partner.
d) E.g. recovery of bad debts. The business is discontinued. Such recovery shall be taxable u/h
PGBP even if business is not in existence. Sec. 41 of PGBP.
II.
10,000
30,000
40,000
30,000
50,000
First losses of current year, then losses of past years(not allowed inter-head). Check the year very
carefully. Convert the entire data either in p/y or in a/y. Then check that whether current year is upto 8th
year(4 in case of saatey n ghorey). The year of loss will be zero year.
E.g.
10,000
20,000
30,000
50,000
70,000
In future years, set off from inter head is not allowed under any head except unabsorbed
depreciation.
VII.
The table shall be given as working notes. The final answer should be shown as:-
70,000
(-)50,000
(-)20,000
Nil
DEDUCTIONS
`25,000
=
=
=
=
6,00,000
25,000
NIL
6,25,000
(25,000)
6,00,000
7. Mutual fund notified u/s 10(23D) on 30-6-2013. Section 10 gives exemption to some mutual funds.
(23D) is the clause where this exemption has been specified. If investment is made in those mutual
funds only then deduction is allowed. But investment should have been made upto 31-3-2013 only to
take deduction in p/y 12-13.
8. Tuition fees only 2 mahngey waley children shall be allowed.
Deduction on education fee is allowed only when education is being given in India
Whereas, u/s 80E deduction on interest is allowed for education given both inside or outside India.
E.g. Mr. Laaltain paid tuition fees of 5 children as following, determine how much deduction can be claimed u/s
80-C by him:
Child A (eldest son) 2,000, Child B (studying outside India) 10,000, Child C (youngest son) 5,000,
Child D(daughter) 6,000, Child E (son) 4,000
Deduction will be claimed for C & D = 5,000+6,000 = 11,000.
9. FD allowed only if taken for minimum 5 years in bank and post office.
Section 80-CCC
10. Payment (upto 1,00,000) made to LIC pension fund or annuity plan of insurance company is allowed
deduction u/s 80-CCE. The amount deposited by assessee shall be allowed deduction. If insurance
company has given some bonus to assessee then it shall not be allowed deduction.
Section 80-CCD
11. Add full contribution of employer in salary (no limit of 12% in such case) and then deduction u/s 80CCD is allowed from GTI only upto 10% of basic + DA(under terms).
12. Employee's contribution is allowed deduction upto 10%.
13. If question says that employer has contributed then assume that employee has also contributed the
same amount.
E.g.
Basic salary
Dearness allowance 30% of basic salary (under terms of employment)
25,000 p.m.
DA
Employers contribution to pension scheme of Central Government 15% of basic salary and D.A.
3,00,000
90,000
58,500
4,48,500
(39,000)
(39,000)
3,70,500
Section 80-CCE
14. Deduction u/s 80-C, 80CCD and 80-CCC are limited to 1,00,000. Make a category of these three and
treat them like one deduction. But keep employers contribution out of this limit.
E.g. In the above example if there was additional deduction to be claimed in Sec 80-C for `90,000
Deduction as per Sec 80-C
= 90,000
Add: Deduction u/s 80-CCD (employee) = 39,000
But as per 80-CCE deduction only upto 1,29,000
Add: Deduction u/s 80-CCD(employer)
Total Deduction u/c VI-A
`1,00,000
39,000
1,39,000
Section 80-D
15. Health insurance premium does not qualify for deduction if paid in cash. But payment for preventive
health check-up is allowed deduction even if paid in cash.
16. But the limit of 15,000/20,000 has not been increased.
17. Parents and wife can be independent also. But deduction allowed only for dependent children only,
not for independent.
18. Brother, sister, grandparents not covered even if dependant.
- `12,000
- `9,000
Section 80-DDB
24. If any amount is received from the employer + insurance co. , then the amount of deduction allowed
shall be reduced by such amount recovered.
Section 80-E
Section 80-G
28. Deduction of 80G is not allowed from lottery income. Only for checking maximum donation of C and
D lottery remains included in Adjusted GTI.
(same concept is applicable for 80GG)
29. Donation given to govt. for family planning qualifies deduction under category C. BUT donation given
to govt. for a purpose other than family planning qualifies deduction under Category D.
30. If payment is more than 10,000 in cash then whole amount shall be ignored for deduction and this
condition is applicable u/s 80GGA.
If nothing mentioned then write an assumption that it has been paid by cheque. Donation of books,
blankets, cement or any other thing in kind never allowed.
31. Only funds/institutions etc. are allowed deduction. Not like donation to poor boy.
32. PMNR(Prime minister national relief fund) and national sports fund are covered by A category.
PMDR(Prime minister drought relief fund) is covered by B.
Whereas all institutions established for charitable purpose are covered under category D.
E.g. CA Benevolent Fund is covered under category D.
33. Donation to IOA(Indian Olympic Association) or other notified institution for infrastructure of sports
are covered by C.
Section 80-GG
34.
Loophole in 80GG. Law says that no deduction allowed if rent-free house given. If employee has
paid some rent to employer then it can not be said to be free. Hence 80GG has been given.
Although employee will get double benefit. One under head salary from RFA rent paid shall be
deducted and then deduction u/s 80GG shall be allowed.
Note: As per Study Material of ICAI, deduction u/s 80-GG is NOT GIVEN in case an employee gets
house at concessional rate.
Section 80-GGA
35.
If a person has income u/h PGBP, then no deduction shall be given u/s 80GGA. Because he will
claim higher deduction under PGBP head.
Section 80-TTA
36.
Interest on bank deposits:- Deduction u/s 80TTA shall not been given if written clearly that
FD/term deposit.
Deduction allowed if written that saving bank.
2. Income from sapling grown in nursery in India is an agricultural income and hence exempt.
Disintegration method:
3.
If tea/rubber/coffee is grown and manufactured in India
Income shall be apportioned between agricultural & business income:
40%/35%/25% - taxed as business income
60%/65%/75% (remaining) agricultural income , hence exempt.
Integration method:
5. Partial integration method is applicable only when:
i. Agriculture income exceeds `5,000
+
ii. Non-agricultural income exceeds exemption limit (2,00,000/2,50,000/5,00,000).
6. While applying the Integration method, agricultural income is added in other income, i.e. income
remaining after excluding lottery, LTCG and STCG u/s 111A.
7. Tax shall be calculated in the following manner:Step 1: Add agricultural with non-agricultural income and calculate the tax on the aggregate as if it
is
the total income
Step 2: Compute the tax on [Exemption limit + Agricultural income] as if it is the total income
From the total amount again Exemption shall be given.
Step 3: Step 1 Step 2 will be the tax payable
Step 4: Add Education Cess @ 2%+1% SHEC
8. Sequence for calculating tax under Step 1
a. Charge flat 30% tax on lottery
b. Apply slab rate on [Other Income + Agricultural Income]
c.
If any exemption limit remains unexhausted, then deduct that amount from LTCG
Charge flat 20% on remaining LTCG
d. If any exemption limit remains unexhausted, then deduct that amount from STCG
Charge flat 15% on remaining STCG u/s 111A
Total Tax under Step 1
9. STCG other than STCG u/s 111A is a part of other income.
xxxx
xxxx
xxxx
xxxx
xxxx
40,000
(ii)
STCG
40,000
(iii)
10,000
(iv)
LTCG
50,000
(v)
Lottery
30,000
(vi)
PGBP
1,00,000
(vii)
Investment in PPF
10,000
(viii)
Agricultural Income
10,000
11. Non Residents are not allowed to deduct unexhausted exemption limit from LTCG or STCG u/s
111A as the benefit of exemption limit is available only for general incomes in their case.