Ipcc Short Notes

CA AMIT KUMAR KHANDAL 1
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.

M. 9829056469
13. Only different treatment for foreign company(entire control in India to be treated as Resident).
HUF, firm, club etc. even if partly controlled from India, shall become resident.
14. Profits received from a partnership firm is exempt in the hands of partners but if the firm is situated
outside India and share of income from such firm is deemed to accrue or arise in India, then such
share of income shall be taxable in the respective partners hand.
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
In 12-13 80,000 p.m. w.r.e.f. 1-4-11

M. 9829056469
(b)Tax on
Balance
Step 3:
Step 1 Step 2
Retirement Benefits (General principles)

8. All Retirement benefits received during the job - TAXABLE in all the cases without any exemption.
E.g. Gratuity/leave salary received during the job- Fully Taxable
9. While solving the question if any of the limits comes out to be nil then there is no need to calculate
other limits because least of the limits is considered.
E.g. HRA received- 3,00,000, Salary- 20,00,000 p.a. and rent paid is 1,50,000 p.a.
Least of the following shall be exempt:
(i)
3,00,000
(ii)
1,50,000- 10% of 20,00,000= Nil
No need to calculate the 3rd limit as 2nd limit is coming out to be NIL and full HRA taxable.
10. If nothing is given about the kind of Dearness allowance, write the assumption that it is not forming
part of salary for retirement benefits.
Pension
11. Write the date of retirement. Pension will start only after that.
12. In question first always calculate uncommuted pension. Because fully taxable for govt. as well nongovt employees.
13. Exemption is always calculated on commuted value of 100% pension, not on pension actually
received.
1/2 or 1/3rd amount will be the amount of exemption (not taxable). Balance taxable.
E.g. Employee gets 40% of his pension commuted for ` 1,00,000.
Commuted value of 100% pension: 1,00,000/.40= 2,50,000
Amount of Exemption- 2,50,000/2= 1,25,000
14. Pension received by:
Employee
Family (in case of death) -
Taxable in the hands of employee

Taxable u/h Salary
1/2 or 1/3 of 100% pension exempt
Taxable in the hands of family
Taxable u/h Other Sources
15,000 or 33.33% of actual whichever less, is exempt

M. 9829056469
Gratuity
15. Except salary write all other amounts by checking that whether covered or not.
16. If nothing is mentioned then assume that the gratuity act is not applicable.
17. Concentrate on components of salary and the period of which salary has to be taken.
18. If employee is not covered under payment of Gratuity Act, then average salary for last 10 months is
taken preceding the month of retirement, even if it falls in 11-12.
E.g. An employee retired on 16.6.12. Then his average salary for last 10 months shall be taken from 1-8-11 to 315-12 and other components shall be calculated accordingly.
Leave Salary
19. If leave salary is encashed during the continuity of employment, no exemption is available on
retirement. Such amount shall be added in rent free house because it shall be treated as monetary
payment.
20. Write all the parts and limits leaving the 4th one.
Now in case of 4th check whether data is for the entire job or yearly.
accordingly.
Make calculations only
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.
(i) Step 1:-
Step 2:-
Step 3:-
(ii) Step 1:Step 2:Leave entitlement

Leave unutilized
Leave utilized
Step 3:21. Average salary of 10 months:
a. For gratuity - preceding MONTH of retirement.

M. 9829056469
(when not covered by gratuity act)
b. For leave salary - preceding DATE of retirement.
For example: If an employee retires on 16th December then,
For Gratuity- Salary till 30th November shall be taken
For leave salary- Salary till 15th December shall be taken
22. In case of gratuity or leave salary exemption of 10,00,000/3,00,000 is for the entire life of an employee.
Therefore deduct from the limit if any amount has been exempted. Compensation of voluntary
retirement can also be claimed only once in lifetime.
E.g. An employee retired from A ltd. and joined B ltd. He received gratuity from A ltd. and availed exemption of
4,00,000. So from B ltd, he can claim exemption of only maximum 6,00,000.
Provident Fund
23. If nothing mentioned then assume that employees contribution is already included in basic salary.
Basic salary is gross before deducting EE's contribution. But do write 80C there in case of RPF/SPF.
E.g.
Mrs. Q is receiving net salary (after deduction of her RPF contribution) of ` 1,00,000. Her
contribution to PF is ` 20,000 and income from other sources is `50,000
Net Salary
1,00,000
+ Mrs. Qs Contribution
20,000
Gross Salary
1,20,000
+Other sources
50,000
GTI
1,70,000
(-)Deduction u/c VI A- 80C
20,000
Taxable income
1,50,000
24. If employer has contributed % of Basic only then calculate actual contribution of basic only. But for
exemption 12% shall be calculated of Basic + DA(under contract) + commission of turnover. And the
difference shall be taxable. No deduction of employer's contribution to RPF in 80C.
E.g. Basic salary-1,00,000 p.a., DA(under contract)-20,000 p.a. and employer contributes 20% of basic salary
for RPF.
Employers contribution (20%of 1,00,000) = 20,000
(-)Exempt [12% of (1,00,000+20,000)]
= 14,400
Taxable
56,000
25. If nothing is mentioned in question assume it to be RPF.
26. If in question amount is received from RPF, then nothing is taxable at the time of retirement if the
period of service is more than 5 years or any other 2 conditions are satisfied.
27. Loan from RPF lying with government is not taxable because it is not given by employer.
28. In case of transfer from URPF to RPF :
Employers contribution (in excess of 12%) and Interest on both (in excess of 9.5%) shall be charged to
tax (added to salary) in the year of conversion.

M. 9829056469
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
1st April to 31st December
1st April to 30th June
1st January to 31st March
1st July to 31st December

M. 9829056469
37. The period /months during which no rent is paid to any person, full HRA shall be taxable. Those
months HRA shall be kept separate and fully taxable.
E.g. HRA received- 3,00,000, salary- 1,20,000 p.a. and rent paid is nil
No need to calculate the limits as rent paid is NIL and full HRA shall be taxable.
38. Exemption of HRA shall be allowed even if rent is paid to father, mother or spouse etc.
39. Place of office is not relevant, place of residence matters.
E.g.
If office is in Delhi and he resides in Gurgaon, then we will take 40% of salary as taxable.
40. In case of HRA, if nothing is mentioned about the place then assume it to be a non-metropolitan city &
apply 40%
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.
FRV (fair rental value)- means house owned by employer

Lease rent- house taken on rent
If population of city is not given, then write assumption of 15%.
If house is taken on rent or given by government, population of city is not relevant.
Any maintenance charges or repairs of house shall be ignored.
Value of furniture has to be calculated separately for all the cases including govt. employee.
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.

M. 9829056469
52. If any advance salary is drawn then it shall not be included in computation of salary for RFA.
However while computing income under head salary, advance salary shall be included.
53.
54.
55.
56.
57.
Value of Interest free Loan

If loan is taken for specified diseases, then nothing taxable. No limit of 20,000.
In other cases upto 20,000 on the last day of month, then also nothing taxable.
E.g. A took interest free loan from his employer ` 50,000 on 1-4-12. However, he repaid 35,000 on 29-4-12.
Nothing shall be taxable because on 30-4-12 value of loan is only ` 15,000.
Calculate interest for every month separately. Focus on the outstanding amount on the last day of
each month.
Rate of interest shall always be only of 1st April of SBI irrespective of time of loan. Deduct the rate
recovered from the employer.
E.g. A took loan @ 4% from his employer on 1-6-12 of ` 50,000. Rate of SBI on the date of loan was 12% and
on 1-4-12 it was 10%.
Rate of interest shall be 10% - 4% = 6%
Value of interest free loan shall be 50,000 X 10/12 X 6/100 = 2,500
If loan is taken from RPF maintained by employer then nothing taxable because it is not any benefit
given by employee.
Use of movable assets
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

M. 9829056469
66. Gift in cash, cheque, cash voucher, ex-gratia is fully taxable. No exemption of 5,000. If given to
employee on marriage then also 5,000 not u/h other sources. As per ICAI.
67. In case of free meals, 25 working days in a month shall be assumed.
68. Tea or snacks (provided during office hours) are exempt without any limit.
69. Expenses on use of health club, sport facilities are exempt. If mentioned only club, then fully taxable
assuming for personal purposes of employee.
LTC
70. In case the LTC is encashed without performing the journey, the entire amount received by the
employee would be taxable.
71. If LTC is given for outside India, then it shall be fully taxable.
72. Only one journey can be carried forward to next block and that also it has to be used only in the first
year of next block. If not used in the first year then it shall expire. If nothing mentioned then assume
to be the first journey in the block.
73. Calendar year has to be used for block. (No financial year)
Medical Perquisites
74. In case of reimbursement of medical facilities exemption is allowed upto maximum of ` 15,000 per
year for the entire family and any amount exceeding 15,000 shall be taxable.
75. In medical perquisites, no limit of children while in LTC purane saare naye 2 bache. Parents, bro sis
only if dependant. Medical allowance fully taxable.
Deductions under section 16
76. Professional tax -If paid by employer- first add in salary then allow deduction
If paid by employee- Allow deduction (not to be added first)
E.g.
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
77. Under income tax act there is no limit of deduction.

basis.(irrespective of the year and amount)
Deduction shall be allowed only on paid
Children education
78. Unlimited bachey. 1,000 is per month. Not for brother sister even if dependant. Deduct the amount
recovered from employee.

M. 9829056469
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
Less: 1,800 X 12= 21,600

Or
50,000 X 30%=15,000
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.
Construction completed(house purchased) on 1-1-13. FRV 3,000 p.m.

FRV shall be only for 3 months i.e. 3,000 x 3 = 9,000
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.

M. 9829056469
5. In case house let out for some months and self occupied for remaining months:- In such cases
although AR is less due to self occupied still sarkaar ko taras ni aaya. Janta ne bahot duahi ki.
sarkaar ne kaha dhat bekar ki baat.
If a house has been let out even for a single day in a year but has remained self-occupied for
remaining 364 days, it shall be deemed to be let out for the whole year. GAV will be higher of:
(i)
Actual rent received (during the period let out) or
(ii)
ER for the whole year.
In such case sec 23(1)(c) can not be applied because the house never remained vacant.
If FRV not given then assume AR to be FRV.(otherwise will not be able to show the above concept).
In other type of questions there is no need to assume AR to be FRV, if municipal value given.
6. Unrealised rent:- As per ICAI it shall be deducted from AR first and then higher of ER and AR shall
be GAV. In case of recovery, the rent which was not taxed shall be taxable separately u/s 25AA.
7. In case of property being divided into identical units, read the question very properly and check
whether the FRV/ER /MV is given for each unit or for the whole property. If given for the whole
property then while computing GAV, do not forget to take proportionate amount.
Similar precaution is needed while calculating interest on capital borrowed if any.
8. ER can never be more than Standard rent. As soon as you find Standard rent in the question write
there itself, whichever is less.
9. In case more than one self- occupied house, there will be no actual rent. Therefore only ER shall be
GAV.
Municipal Taxes:
10. Taxes paid to corporation, municipality, local authority whether in India or outside India, called by
any name like water tax, sewerage tax, house tax, property tax etc. allowed deduction. Any taxes
paid to state govt. /Central govt. shall not be allowed deduction.
11. If in question not mentioned that whether paid or not, only written municipal taxes, then write
assumption that assume to be paid.
12. Municipal taxes paid by the tenant is neither added in AR nor allowed deduction from GAV .
13. Municipal taxes are always computed as a percentage of municipal value.(not on the basis of FRV)
14. If municipal taxes are given on per month basis then they should be taken for the months actually
paid, not affected by the fact whether AR is being received for that period or not.
15. If part of the building is used for business then dont forget to deduct taxes of that part from income
u/h PGBP(nahee to dandey padengey).
16. In case of self-occupied house AV is taken to be nil hence no deduction of municipal taxes. But if
house is deemed to be let out then deduction of taxes allowed.
Sec. 24

M. 9829056469
Standard Deduction of 30% v. facility charges
17. There is different treatment of expenses of the property and rent(charges) of facilities other than
house.
18. Any expense like land revenue, repair, rent collection charges, insurance premium, ground rent,
taxes paid to state govt. etc. (apart from interest and municipal taxes) shall not be allowed
deduction separately, it will be covered by deduction of 30%, so nistey nabooting them.
Whereas such expenses shall be given full deduction if the house is used for own business.
19. If AR includes any charges for facility (lighting, water or electricity charges, watchman, cooperative maintenance charges), then first deduct such charges from AR and then compare it with
ER to compute GAV.
20. Deduction of 30% shall be allowed from arrears u/s 25B. Not allowed from recovery of unrealized
rent u/s 25AA.
Interest Deduction:
21. Basis of giving deduction u/h HP:
a.
Municipal taxes- on actual payment basis
b.
Interest on accrual basis
c.
All other expenses covered by 30% Standard deduction on notional basis.
22. Law cheela cheela kar kah raha hai that only interest allowed deduction. So nothing else than
interest like brokerage, interest on interest allowed deduction.
23. Interest on fresh loan taken to repay the old loan is allowed deduction u/s 24. New loan steps into
the shoes of old loan.
24. If nothing has been mentioned about repayment of loan, then always assume that nothing has been
repaid till date.
25. Pre-construction period:A. Steps to compute pre-construction periods interest:
(i) Identify the P.Y. in which the construction of house was completed 12-13
(ii) Write the first day of that P.Y. -1.4.2012
(iii) Preconstruction period shall be from the date of loan upto the preceding day as computed
above or till the date of repayment of loan whichever is earlier.
(iv) Compute interest for above period which shall be called total pre-construction periods
interest.
(v) BUT deduction shall be given in 5 installments.
B. If loan for construction was taken before completion of house & also repaid before construction,
then
there shall be No current years interest.
C. If loan for construction was taken in the year of completion of house then there shall be No preconstruction interest.
D. If the construction has been completed 5 years before the current year, then no deduction for preconstruction periods interest.[As the 5 installments have expired]
E. Do not forget to divide pre-construction periods interest by 5 as deduction for such interest is
always given in 5 installments and never divide current year interest by 5.

M. 9829056469
If an assessee takes loan for purchase/construction of residential house, then deduction for:
a. Interest is given u/h house property, Section 24 (on accrual basis).
b. Principal- is given u/c VI-A, Section 80-C (on repayment).
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
preconstruction 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

M. 9829056469
Deduction allowed as per IT ACT in P.Y.12-13
`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. 1/4th of car used for personal purpose, then

Car repair expense 3/4th allowed but 1/4th is disallowed.
Depreciation on car - 3/4th allowed but 1/4th is disallowed.
4. All kinds of reserve/provision are disallowed.
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.

M. 9829056469
Any kind of incentive given to employees or staff shall also be allowed deduction as it is for the benefit of business/
profession.
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. Advance Tax, Wealth tax, Interest on WT/IT.

EXCEPT Expense on Legal proceedings Allowed everywhere.
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

M. 9829056469
(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.
E.g. salary of Mrs. X should be `20,000.
`50,000 payment made.
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

M. 9829056469
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

M. 9829056469
17. If donation is given for scientific research not for approved programme to other than co. Then deduction shall be
allowed 175%/.
18. If donation is given for Statistical or social research to any approved body other than company then deduction
allowed @ 125%.
19. If donation is given for social and statistical research to an Indian company, then no deduction is allowed.
Deduction @125% to Indian company is allowed only in case of donation for scientific research.
20. No deduction of land in entire PGBP except Sec 35CCC (agricultural extension).
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%)

M. 9829056469
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.)
[Also a part of negative list in service tax]

Section 35CCD:
33. 150% on skill development by a company only.
Section 35AD - Saare Cases me He Shall Be Allowed Hundred% Deduction For Capital Payment:
33. 100% allowed for capital expenditure (except land & goodwill) in case of businesses specified under this section.
34. However, in the following cases, deduction of 150% shall be allowed to the assessee:
Allowed 100 % Deduction For Capital
i. Housing project under a scheme for affordable housing

M. 9829056469
ii.
iii.
iv.
v.
Hospital(with atleast 100 beds )

Warehousing for storage of agricultural produce
Fertilizer production in India
Cold chain facility
35. NO LIMIT on the years of c/f of losses under this section.

36. Losses of specified businesses can be set off only from any specified business.
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.

M. 9829056469
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.
Only HP loss can be set off from Salary nothing else.

49. If WDV turns out to be negative, no depreciation shall be charged.
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.
U/h Capital Gains

60,000 50,000 = 10,000
Taxable as STCG
50. If all assets in the block are sold then no depreciation is charge.(KHANDAAN KA CHIRAG BHUJ GAYA)
U/h PGBP
= 40,000
WDV
= NIL
Block does not exist and no depreciation can be claimed.
U/h Capital Gains

40,000 50,000
= 10,000
Shall be treated as STCL
51. Claim depreciation only if one or more asset is left in the block and closing WDV is positive.
U/h PGBP
U/h Capital Gains

No treatment

M. 9829056469

WDV
Depreciation = 10,000 X 10% = 1,000.
= 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

M. 9829056469
72. Applicable only if assessee does not more than 10 trucks at any time(even for a single day) during the year.
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.
Sale of Import Licence is taxable u/h PGBP

Interest and salary of partners taxable u/h PGBP upto the amount allowed deduction to the firm.
Compensation from Montreal Protocol- not taxable
If Rent received is from flat let out to employees or guest house let out to customers, then income from such house
property is chargeable under head PGBP
and expense related to that property shall be allowed deduction u/h PGBP.
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.

M. 9829056469
4. Brokerage
a) Brokerage on purchases is always calculated on the actual purchase price. First it shall be added
in the cost of the asset(COA) then compared with the FMV and then indexation is done.
b) Brokerage/ expenses on transfer is always calculated on the actual sale price agreed b/w the
buyer and the seller and not on the value determined by the SVA, Valuation Officer or the FMV.
5. Self-generated goodwill shall be treated as long-term capital asset if it is sold after three years of
starting of the business. (no depreciation is allowed on such goodwill because its COA is NIL) If it
is purchased then depreciation will be allowed and hence on sale it shall be STCG.
6. Indexation
a) Depreciation has to be claimed on all assets of business. And as per sec. 50 capital gain on
depreciable asset is always STCG even if sold after 3 years. Therefore no indexation on assets of
business.
In case of land, depreciation is not allowed and hence if it is sold after three years, it shall be
LTCG and cost shall be indexed.
Compensation received from insurance company towards asset held for more than 3 years:
Loss of StockTo be assessed under head PGBP
Damage to machineryunder Capital Gains as STCG because depreciable
Loss of personal gold chain- under capital gains as LTCG, no deprecation being personal
asset
b) Debentures In case of debentures, indexation shall never be done except in case of debentures
issued by government (Capital Index Bonds). If nothing mentioned then assumed not capital
indexed bonds.
c) In case of gift, or where the asset is received under will, then indexation shall be done from the
date on which the asset is FIRST HELD BY THE current ASSESSEE(not previous owner).
(However, quote the judgment of Mumbai High Court in case of Manjula J. Shah as part of
notes.)
Although COA and POH shall be taken from the previous owner.
d) COI is always indexed from the year in which actually done.
e) FMV is relevant only when asset was purchased before 1-4-81. And any improvement before
that, done by current assessee or by previous owner shall be namo nishan mitaying.
Bonus shares, if acquired before 1-4-81 then FMV on 1-4-81 shall be taken and indexed even
though the actual cost in case of bonus shares is NIL.(loophole in law)
(This is because the law clearly states that if an asset is acquired before 1-4-81 then he has the
option to take either the cost of acquisition or the FMV as COA, whichever is higher, except in 8
assets).
7. Section 51(Advance money forfeited)
a) First cost or FMV, whichever is higher is taken, then Advance money forfeited is deducted and
then the balance amount is indexed.
b) only the amount forfeited by the current assessee even if forfeited before 1-4-81.
c) In case of depreciable assets it is deducted from the WDV.
8. Shares

M. 9829056469
a) Whenever RIGHT OFFER is sold (not right shares), cost of acquisition shall be NIL. In case of
right shares amount paid to company shall be cost.
b) In shares FORFEITED sale consideration is nil and the amount paid to company is cost. Hence
there is short term capital loss which can be adjusted from any STCG or LTCG.
c) Employees stock option plan(ESOP) benefit upto FMV is taxable u/h salary because given by the
employer. U/h cap gain FMV is taken as coa so that amount only above FMV is taxable here
and there is no double taxation.
d) RESULTING company shares period shall be taken from the shares of demerged company.
e) DEMAT:-If shares of one company purchased at different times then sale them on FIFO basis.
f) 10(38) EXEMPTION:-If the question specifies that the shares are sold through Recognized Stock
Exchange, then assume automatically that STT has been paid on such shares. Only for equity
shares of listed public companies sold through stock exchange. Because income exempt, no loss
allowed.
g) In 111A flat rate 15%, no slab rate. Loss allowed to be set off from any STCG or LTCG.
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.

M. 9829056469
15. 54B:-If rural agricultural land is sold and then the amount is invested in the purchase of agricultural
land (whether rural or urban) then exemption shall not be available u/s 54B. This is because rural
agricultural land is not a capital asset as per Section 2(14) and hence, it is not taxable u/h capital
gains.
If urban land sold and rural purchased, but rural sold within 3 years then nothing taxable again.
16. To claim exemption u/s 54D, the asset must be purchased within 3 years after the date of receipt of
compensation on such compulsory acquisition.
Thus if the asset is purchased before the date of receipt of compensation then no exemption shall be
allowed u/s 54D.
Section 54EC
17. If investment in bonds of RECI & NHAI is made after 6 months of sale of any asset, exemption
under section 54EC will not be allowed. CGA is not allowed only for 54EC.
18. An assessee can claim exemption of more than 50 lakhs if he invests the amount in 2 financial years
but within 6 months from the date of transfer.
For example: An assessee transferred a vacant site on 1-12-12. He invested ` 50 lakhs in bonds of RECI on 21-13 and ` 30 lakhs in bonds of NHAI on 20-4-13. He is eligible to claim total exemption of ` 80 lakhs u/s
54EC in F/Y 12-13.
Section 54F
19. If in the question, exemption is to be given u/s 54F (of proportionate net consideration invested)
and any other section (where exemption is available for capital gains invested), then first always
give exemption under such other section and not u/s 54F. (BENEFICIAL TO ASSESSEE)
20. While computing exemption u/s 54F, exemption under any other section shall not be deducted.
21. For the purpose of giving exemption u/s 54F (of proportionate net consideration invested) sale
consideration taken is always the NET SALE CONSIDERATION i.e. after deducting any expenses
paid on transfer (sale).
22. If the amount was deposited in CGA for 54F but not used within time then only the proportionate
amount shall be taxable again.
For example: Sale consideration 50 lakhs. Capital gain 10 lakhs. Deposited 50 lakhs in CGA for 54F and
claimed exemption of 10 lakhs. Entire 50 lakhs remained unutilised in CGA. Only 10 lakhs shall become
taxable again because exemption of 10 lakhs was given not 50 lakhs.
23. The capital gain on furniture is not exempt u/s 54G & 54GA.
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)]

M. 9829056469
3. Income from agriculture earned outside India is taxable under head other sources while agricultural income
earned in India is exempt u/s 10(1).
Section 56(2)
4. Cousin of father and brother of grandfather are not included in the definition of relatives and hence taxable
under head other sources.
If movable property is purchased from registered dealer then invoice value shall be taken as
market value.
And if purchased from unregistered dealer then market value shall be taken.
5. Dividend of co-operative society, foreign company and loan from private co u/s 2(22)(e) are taxable in the
hands of shareholders at normal rate of tax.
If dividend is taxable then its expenses shall also be allowed deduction. While if dividend is exempt then its
expenses shall not be allowed deduction.
Deductible expenses (Section 57)

6. Sub-letting of residential house
Residential house has been taken on rent means, that he is not the owner of the house. And therefore when he
will sub-let, income will be not be taxable u/h house property. It will be taxable u/h other sources. And in
other sources there is no concept of standard deduction of 30%. All expenses are allowed deduction only on
actual basis.
The rent paid for the part it is sub-let shall be allowed as deduction.
Expenses not allowed deduction (section 58)

7. In case of wining from horse races all expenses shall be ignored but in owning & maintenance of race horses
actual expenses shall be allowed deduction.
Interest exempt from tax: Section 10(15)
8. Interest of NSC
Interest of NSC is not exempt. It is included in the income of other sources and then deduction is allowed of
the same amount u/s 80C because it is deemed to be reinvested. But interest of NSS(national saving scheme)
is exempt.
9. Interest on govt.(centre & state both) loans is fully taxable. But interest on securities mentioned in sec.
10(15) only is exempt like capital investment bonds. Like PPF & NSS.s
10. The due date of interest may be given in question to confuse the students. It has no impact on the answer.
When income is treated after TDS:If any of the following words is given in the question then it means that the amount given is after TDS. And
it has to be calculated before TDS.
(I) Net

M. 9829056469
(II) Net after TDS
(III) Received
(IV) Received after TDS
11. When income is treated before TDS (without deduction of TDS):(I)
Gross
(II)
....% Debentures etc. of .... If face value and rate of interest has been given then it means the interest
will be before deduction of TDS.
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
Salary of member of parliament(MP) or

member of legislative assembly
Daily allowance/constituency allowance
received by MP/MLA
Bravery award received from govt/ award
received for humanitarian work
Income from agricultural land in Honolulu
Income from growing and manufacturing tea
in you ganda 50,000
Gift from brother of grandfather
Purchased car from unregistered dealer for
5,00,000 FMV 20,00,000
Purchased jewellery from unregistered dealer
for 5,00,000 FMV 20,00,000
Purchased jewellery from registered dealer
invoice 5,00,000 FMV 20,00,000
Purchased immovable property for 8lacs value
of SVA 10 lacs
Dividend of Indian company 10,000 collection
expenses 2,000
Dividend from foreign company 10,000
collection expenses 2,000
Dividend from co-operative society
Dividend u/s 2(22)(e)
2 floors taken on rent of 5000 p.m. each. One
floor sub-let for Rs. 7,000 p.m. Expenses on
repair and collection of such floor 500 p.m.
Income from owning race horses 5,000
expenses 2,000
Winning from horse races 5,000 expenses 2,000
Prize of lottery 5,000 Purchase price of lottery
6,000
Interest of NSC 10,000
Interest of NSS/PPF/notified public sector
company 10,000
Interest of central govt. loans 10,000

M. 9829056469
22
23
24
25
Interest of Post office saving bank a/c 15,000

Interest of saving bank a/c 15,000
Interest of bank FD 15,000
10% debentures of 5,00,000(purchased for
4,80,000)
26 Received interest of 18,000 on debentures
27 Net winning from lottery 21,000
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. Assessee having 2 minor chillar.

i. Chillar No. 1 earned interest of `1200 on FD.
ii. Chillar No. 2 had won a lottery of `1800.
Income of father = `20 & Income of Mother `2,00,000
Income of both chillars shall be clubbed in the hands of Mother as she has higher
income.
For Chillar No.1 exemption of `1200 shall be given and thus nothing shall be clubbed.
Chillar No. 2 `1500 exemption will be given i.e (`1800-`1500=`300 shall be
clubbed)

M. 9829056469
3. If asset is transferred without adequate consideration (gifted)

(i) by spouse or parents-in-law
only income from asset originally transferred
taxable in hands of transferor
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.
7. Income is clubbed in the same head in which receiver earned.

8. Losses are deducted after clubbing of income.

M. 9829056469
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.
SET-OFF AND CARRY FORWARD

I.
Write all the incomes.
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.

M. 9829056469
II.
Write losses separately below the table.

Write losses of current year and past years separately.
Do write that loss of which year.
Convert the entire question either in P/y or in A/y.
Details of losses:-1. ........ of the current Assessment Year

2.......... brought forward loss of Previous Year
Losses of current year are set off first.

III.
Adjust the losses from same sources.

Intra-source set-off i.e. setting off from the same source under same head is allowed in all cases.
[No loss of lottery allowed: Sec.58 any expenses relating to lottery are not allowed deduction.]
E.g. (A) Loss from owning horse races in Bangalore

Income from owning horse races in Delhi
E.g. (B) Short Term capital loss u/s 111A
Short term capital gain
Long Term capital gain
IV.
10,000
30,000
Then from different source under same head.

a) Sattey waley, ghorey waley ( to discourage) LTCL & 35AD not allowed from others.
Keep their losses to themselves only.
b) STCL(normal and of 111A) both can be adjusted from any STCG as well as LTCG.
LTCG on equity shares is exempt hence its Long term loss is also exempt(not allowed)
c) NSB loss can be adjusted from sattey waley income.
E.g (A) Long Term capital loss

60,000
Short term capital gain
70,000
E.g. (B) Loss of business
80,000
Income from speculative business
90,000
E.g. (c) Loss from business of hospital of more than 100 beds
30,000
Income from house property
50,000
V.
40,000
30,000
50,000
Then inter-head(from different head).

M. 9829056469
a) Only of the current year allowed. Not allowed of the past years(brought forward). Brought forward
depreciation only allowed inter-head in the current year.
b) Only HP(can be set off from salary ) and NSB(except from salary) of current year allowed. No loss can be
deducted from lottery income.
c) In case of inter-head adjustment of losses, the Act has not prescribed any particular order, hence, it should be
made in a manner which is most beneficial to the assessee.
Set off first the losses which cant be carried forward.(e.g. other sources)
Set-off from incomes which have higher rate of tax.(e.g. sometimes flat rate of 20% on LTCG may
make it beneficial for the assessee to set-off losses against it)
E.g. (A) Loss of business of current year

90,000
Income from STCG of current year
1,00,000
E.g. (B) Brought forward Loss of business/HP
10,000
Income from STCG of current year
20,000
VI.
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.
Brought forward Loss of business of P/y 04-05

Brought forward Loss of house property of P/y 03-04
Brought forward Loss of house property of P/y 04-05
Loss of house property of current year P/y 12-13
Income from house of current year p/y 12-13
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:-
E.g. Income u/h HP

Less: loss of HP of p/y 12-13
Less: loss of HP of p/y 04-05
Net Income u/h HP
70,000
(-)50,000
(-)20,000
Nil
DEDUCTIONS

M. 9829056469
Section 80-C
1. LIP Sum assured:- more than 10% of sum assured has to be ignored. The balance can NOT be carried
forward to next year.
E.g. LIP on his own life (sum assured ` 40,000)
6,000
Deduction allowed for `4,000, i.e. 10% of 4,000.
2. LIP in cash:- Allowed deduction. Condition of payment in cheque applicable in 80D health insurance
only.
E.g. Medical Insurance premium on the health of mother
3,800
Life insurance premium on life of major son
5,000
Both the premiums given above were paid in cash
Deduction allowed for 5,000 u/s 80C.
No deduction allowed u/s 80D as paid in cash.
3. For the purpose of claiming deduction u/s 80-C, investments in LIC, PPF, ELSS/ULIP can be done in
the name of self, spouse and any child of such individual (major/minor/married/unmarried)
Every other investment u/s 80C and every other section has to be in the name assessee himself.
Investment
Deduction allowed or not
1. LIP on married daughter dependant on her husband
2. Subscription to NSS in the name of major son
3. Investment in ELSS in the name of independent wife
4. PPF in the name of dependent father
5. PPF in name of brothers son
4. ULIP(unit linked insurance plan) or ELSS(equity linked saving scheme):- Another name of Notified
equity linked saving scheme of UTI. Hence deduction allowed.
5. Employees contribution is a part of salary (add it in salary if mentioned in question that basic is after
deduction of contribution) and then allowed deduction u/s 80-C from GTI. 10% not applicable here.
But this deduction is allowed only in case of SPF/RPF, no deduction allowed in case of URPF.
`50,000
E.g. Basic Salary(after deduction of PF contribution)

p.m.
`25,000
Contribution made by employee to RPF

Equal contribution made by the employer
Income u/h Salary
(50,000x12)
Add: Contribution by employee
Add: Contribution by employer (exempt upto 12% of salary)
GTI
Less: Deductions u/c VI-A
Section 80C employees contribution
Total Income
=
=
=
=
6,00,000
25,000
NIL
6,25,000
(25,000)
6,00,000

M. 9829056469
6. Principal of loan taken for purchase/construction of residential house (not for commercial building) is
allowed deduction here (on repayment). Whereas interest is given u/h house property, Section 24 (on
accrual basis). U/h HP interest allowed for commercial building also. No deduction of 80C till the
completion of the house. u/h HP preconstruction period interest allowed in 5 years.
Housing loan from friend:- Under chapter house property loan can be taken from any person. But u/s
80C it has to be taken only from specific persons.
[
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.

M. 9829056469
Employees contribution to Contributory Pension Scheme of Central Government
15% of Basic &
DA
Employers contribution to pension scheme of Central Government 15% of basic salary and D.A.
Income u/h Salary

(25,000x12)
=
Add: DA
(3,00,000 x 30%)
=
Add: Contribution by employer (15% of 3,90,000 )
=
GTI
=
Less: Deductions u/c VI-A
i.
Section 80CCD employers contribution (10% of 3,90,000) =
-employees contribution (10% of 3,90,000)
=
Total Income
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.

M. 9829056469
19. If in question the assessee is a senior citizen and age of his parent is not mentioned, then also assume
his parents to be senior citizen.
E.g.1:
An individual is paying (i) Premium for health insurance
- `12,000
(ii) Expense on preventive health care in cash - ` 4,000

Deduction would be restricted to ` 15,000
E.g.2:
An individual is paying (i) Premium for health insurance
- `9,000
(ii) Expense on preventive health care - ` 6,000

Deduction would be restricted to ` 14,000 coz maximum limit for preventive health care is Rs. 5,000.
Section 80-DD and Section 80-U [ Specially abled persons]
20. If a relative (spouse/children/brother/sister/parents) suffering from disability is dependent on

assessee, then claim deduction under section 80DD by guardians .
21. If the assessee is himself disabled then deduction shall be given under section 80-U.
22. And if child and parent both disabled then for child 80DD and for self 80U.
23. Actual expenditure is not relevant in both the sections.
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

M. 9829056469
25. Deduction of interest is allowed on loan taken for adopted child also.
26. Deduction is allowed only for interest paid and not for repayment of principal component.
27. Whenever interest is paid deduction shall start. That shall be the first year of deduction. And
deduction can be claimed only in next 7 years. In every year deduction shall be only of the interest
actually paid in that year.
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.

M. 9829056469
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.
In case of unclear information write an assumption that assumed to be of saving bank

account.
AGRICULTURE INCOME AND TAX CALCULCATION

1. Agricultural income from land in India - EXEMPT (not included in GTI). But considered only at
the time of tax calculation.
Income from agricultural land situated OUTSIDE India Taxable.
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.
But , if tea/rubber/coffee is grown and manufactured in COLOMBO etc.(outside India) and

then sold in India.
Full 100% income taxable u/h PGBP as business income.

M. 9829056469
4. If it is sale of coffee only grown and cured in India only 25% shall be taxed as business income
But if the coffee is also grounded and roasted along with above 40% shall be taxed as PGBP
income.
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

M. 9829056469
10. Any casual income given in the question can be assumed as income from lottery and a note should
be given to this effect.
What shall be the tax liability of Mr. X if :
(i)
Salary
40,000
(ii)
STCG
40,000
(iii)
STCG u/s 111A
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.

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CA AMIT KUMAR KHANDAL 1

CA AMIT KUMAR KHANDAL 2

In 12-13 80,000 p.m. w.r.e.f. 1-4-11

CA AMIT KUMAR KHANDAL 3

Retirement Benefits (General principles)

Family (in case of death) -

Taxable in the hands of employee

CA AMIT KUMAR KHANDAL 4

Make calculations only

(i) Step 1:-

(ii) Step 1:Step 2:Leave entitlement

a. For gratuity - preceding MONTH of retirement.

CA AMIT KUMAR KHANDAL 5

CA AMIT KUMAR KHANDAL 6

1st April to 31st December

1st April to 30th June

1st January to 31st March

1st July to 31st December

CA AMIT KUMAR KHANDAL 7

FRV (fair rental value)- means house owned by employer

CA AMIT KUMAR KHANDAL 8

Value of Interest free Loan

CA AMIT KUMAR KHANDAL 9

77. Under income tax act there is no limit of deduction.

Deduction shall be allowed only on paid

CA AMIT KUMAR KHANDAL 10

Less: 1,800 X 12= 21,600

Construction completed(house purchased) on 1-1-13. FRV 3,000 p.m.

CA AMIT KUMAR KHANDAL 11

CA AMIT KUMAR KHANDAL 12

CA AMIT KUMAR KHANDAL 13

CA AMIT KUMAR KHANDAL 14

Deduction allowed as per IT ACT in P.Y.12-13

E.g. 1/4th of car used for personal purpose, then

CA AMIT KUMAR KHANDAL 15

E.g. Advance Tax, Wealth tax, Interest on WT/IT.

CA AMIT KUMAR KHANDAL 16

E.g. salary of Mrs. X should be `20,000.

`50,000 payment made.

CA AMIT KUMAR KHANDAL 17

CA AMIT KUMAR KHANDAL 18

CA AMIT KUMAR KHANDAL 19

[Also a part of negative list in service tax]

CA AMIT KUMAR KHANDAL 20

Hospital(with atleast 100 beds )

35. NO LIMIT on the years of c/f of losses under this section.

CA AMIT KUMAR KHANDAL 21

Only HP loss can be set off from Salary nothing else.

U/h Capital Gains

U/h Capital Gains

U/h Capital Gains

CA AMIT KUMAR KHANDAL 22

Sale of 499 chairs on 1.2.2013

CA AMIT KUMAR KHANDAL 23

Sale of Import Licence is taxable u/h PGBP

CA AMIT KUMAR KHANDAL 24

CA AMIT KUMAR KHANDAL 25

CA AMIT KUMAR KHANDAL 26

CA AMIT KUMAR KHANDAL 27

Deductible expenses (Section 57)

Expenses not allowed deduction (section 58)

CA AMIT KUMAR KHANDAL 28

Salary of member of parliament(MP) or

CA AMIT KUMAR KHANDAL 29