INCOME TAX LAW AND PRACTICE

Current Previous Year: 1.4.2015-31.03.2016

Current Assessment Year: 1.4.2010-31.03.2011

BASIS OF CHARGE
RESIDENTIAL STATUS
RESIDENT STATUS OF INDIVIDUAL (SEC.6)
RESIDENT STATUS OF INDIVIDUAL

Resident [Sec.6(1)] Non Resident [Sec.2 (30)]

Ordinary Resident Not ordinary Resident

BASIC CONDITIONS [SEC 6(1)]

(a) He is in India in the previous year for a period of 182 days or more. (OR)
(b) He is India for a period of 60 days or more during the previous year AND 365 days or more during four
years immediately preceding the previous year.
Exceptions
However the condition as per Sec 6(1)(a) is alone applicable in the following cases.
1. In the case of an Indian citizen who is going outside India for a job and his contract for such
employment outside India has been approved by the central government.
2. In the case of an Indian citizen who is going outside India as a member of the crew of an Indian ship.
3. In the case of persons who are Indian citizens or persons of Indian origin living outside India when they
come to visit India.

ADDITIONAL CONDITIONS [SEC 6(6)]

a. He has been resident in India in at least 2 out of 10 previous year (according to basic condition noted above)
immediately preceding the relevant previous year.

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b. He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant
previous year.
While calculating number of days for stay in India both, day of departure from India and day of arrival
in India are to be counted as stay in India.
Residential status of individual in a Nutshell
S.No Status Basic Conditions Additional Conditions
(Any one)
1. Resident Satisfied -
2. Resident and ordinary Resident [OR] Satisfied Both the additional
conditions are Satisfied
3. Resident and Not Ordinary Resident Satisfied Any one or none of the
[NOR] additional conditions are
Satisfied
4. Non-Resident [NR] Not Satisfied -

RESIDENTIAL STATUS OF HUF

ORDINARY RESIDENT [Sec (2)]
If control or management of such a firm, an association of persons (AOP) or body of individuals (BOI)
was wholly or partially in India during the relevant previous year.
NOT ORDINARILY RESIDENT
A firm, an association of persons (AOP) or body of individuals (BOI) cannot claim this status.
NON-RESIDENT
If control or management of such a firm, an association of persons (AOP) or body of individuals (BOI)
was wholly outside India during relevant previous year.

INCIDENCE OF TAX (SCOPE OF TOTAL INCOME)

Different types of status
S.No Different kinds of incomes Resident Not ordinarily Non
resident resident
1 Income received or deemed to be received in India. It is Taxable Taxable Taxable
immaterial whether it is earned in India or in a foreign country.
2 Income earned in India whether received, paid in India or Taxable Taxable Taxable
outside India.

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3 Income earned and received outside India from a business Taxable Taxable Not
controlled or profession set up in India. Income may or may not Taxable
be remitted to India
4 Income earned or received outside India from a business Taxable Not Taxable Not
controlled or profession set-up outside India. Taxable
5 Income earned and received outside India from any other Taxable Not Taxable Not
source (except income under point 3). Taxable
6 Income earned and received outside India in the years Not Not Taxable Not
preceding the previous year in question and if the same is Taxable Taxable
remitted to India during the current precious year.
Note
1. Gift received from a person other than relative is taxable provided the amount is above Rs.50, 000. [The
whole amount should be taxed] Sec 56(2) (vi). If it is received outside India, it is taxable only for OR. If
it is received in India, it is taxable for all.
2. Dividend from an Indian company is not taxable u/s 10(34).
3. Salary drawn outside India from an Indian company is taxable only for residents. But if service is
rendered in India, then that portion is taxable to all.

INCOME UNDER SALARIES

Computation of income from salary of Mr.. For the assessment year 2010-2011

PARTICULARS AMOUNT
Basic Salary ***
Dearness allowance ***
Commission ***
Bonus ***
Advance salary ***
Arrear salary ***
Taxable allowances ***
Employer contribution to provident fund and interest thereon ***
Taxable Fringe benefits ***
Taxable perquisites ***
Gross salary ***

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 Less Deductions u/s 16
Deduction for Entertainment allowance ***
Deduction for Professional tax ***
Net salary ***

ALLOWANCES
Fully exempted
1. Foreign allowance only
in case of Government
employees posted out
side India.
2. House rent allowance
given to judges of High
court and supreme court
3. Sumptuary allowance
given to judges of High
court and supreme court
4. Allowances from U.N.O
Fully taxable Partially taxable
1. Dearness allowance, 1. House rent allowance.
2. City Compensatory Allowance. 2. Entertainment allowance for
3. Capital Compensatory government employees.
Allowance. 3. Education allowance
4. Lunch Allowance. 4. Helper allowance
5. Tiffin Allowance 5. Uniform allowance
6. Marriage Allowance 6. Academic research allowance
7. Family Allowance 7. Conveyance allowance
8. Deputation Allowance 8. Travelling allowance
9. Wardenship Allowance 9. Transport allowance
10. Non Practicing Allowance 10. Special allowance
11. Project Allowance 11. Allowances for transport employees
12. Overtime Allowance 12. Daily allowance
13. Medical Allowance
14. Entertainment Allowance for
non government employees
15. Water And Electricity
Allowance
16. Servant Allowance

Partially exempted allowances

S.No Allowances Amount of exemption
1. Conveyance or traveling allowances Amount spent for the performance of official duties.
(Expenses on transfer is also to be
treated as official purpose
2. Helper allowance - do -

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 3. Uniform allowance - do -
4. Academic allowance and research Amount spent for academic and research purposes.
5. Travailing / transfer / Daily allowance Daily expenses incurred due absence from his place of
work while on tour or journey in connection with
transfer
When exemption does not depend upon expenditure i.e exemption is a specified amount
6. Children education allowance Actual allowance (or) Rs.100 per month per child
whichever is less (subject to a maximum of two
children)
7. Children Hostel allowance Actual allowance or Rs.300 per month per child
whichever is less (subject to a maximum of two
children)
8. Tribal area allowance Actual or Rs.200 p.m WEL
9. Special compensatory allowance (Hill Amount exempt from tax varies from Rs.300 p.m to
Areas) [Special allowance, High altitude Rs. 7,000 p.m
allowance, uncongenial climate
allowance, snow bound area allowance,
Avalanche allowance
10. Border area allowance (It includes Amount exempt from tax varies from Rs.200 p.m to
special compensatory allowances like Rs. 1,300 p.m
border area allowance, remote locality
allowance, difficult area allowance and
disturbed area allowance)
11. Compensatory field area allowance Exemption limited to Rs.2,600 p.m
12. Compensatory modified area allowance Exemption limited to Rs.1,000 p.m

13. Counter insurgency allowance Exemption limited to Rs.3,900 p.m

14. Transport allowance Exemption limited to Rs.1,600 p.m

15. Underground allowance Exemption limited to Rs.800 p.m

16. High altitude allowance Exempt from tax upto Rs.1,060 p.m for altitude of
9000 to 15,000 feet or Rs.1,600 p.m for altitude above
15,000 feet

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 17. Highly active field area allowance Exemption limited to Rs.4,200 p.m
18. Island duty allowance Exemption limited to Rs.3,250 p.m
19. Allowances to a transport employee or 70% of such allowance or Rs. 10,000 p.m. whichever
running flight allowance is less.

ENTERTAINMENT ALLOWANCE (EA). [Section 16(ii)]

This allowance is fully taxable irrespective of any expenditure incurred on entertainment of guests or
customers. But in case any amount is reimbursed against any expenditure incurred by employee on
entertainment of guests or customers it shall be fully exempted.
U/s 16(ii) a deduction is allowed to those persons who receive this allowance. This deduction is
admissible only to Government employees for an amount equal to least of following.

a. Statutory limit Rs. 5,000 (Or)

b. 1/5th of basic salary only (Or)
c. Actual EA received during the year

HOUSE RENT ALLOWANCE (HRA) [Section 10(13 A)]

Employees living in hired (rented) houses
Sometimes the employer does not provide rent free accommodation but instead makes a provision to pay
some amount in cash; so that the employee may be compensated to some extent as far as rent is concerned. The
amount of cash paid is known as house rent allowance. Out of the total HRA received an amount equal to the
minimum of the following three items is exempted from tax u/s 10(13A) read with Rule 2A and balance, if any
will be added in the salary of the employee for tax purpose. The three items are

1. 50% of salary in the case of principal cities and 40% of salary in the case of other cities (Or)
2. Amount of rent paid for the accommodation over 10% of salary (Or)
3. Actual house rent allowance
Principal cities: Chennai, Delhi, Mumbai, Calcutta

Meaning of salary = Basic + DA(Enters)+Commission on turn over

Cases when HRA is fully taxable

HRA is fully taxable in any of the following cases
If employee is living in his own house or
If employee is living in a house for which he is not paying any rent or
If rent paid does not exceed 10% of salary.
House rent allowance received by Judges of High court and Supreme court : Fully exempted
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PROVIDENT FUND
PARTICULARS SPF RPF URPF PPF
Employee own Eligible for Eligible for Not eligible for Deduction Eligible for
contribution Deduction U/S 80C Deduction U/S 80C U/S 80C Deduction
U/S 80C
Employer Fully exempted Amount exceeding Ignore for the time being Not taxable
contribution 12% of salary is
taxable
Interest credited Fully exempted Amount exceeding Ignore for the time being Fully exempt
9.5% of salary is
taxable

EARNED LEAVE SALARY

Meaning of salary:
Basic + DA (if it is forming part of salary)+Commission(if it is fixed percentage on sales)
1. Average salary
It means average of salary drawn by employee during 10 months immediately preceding his retirement.
Leave salary [ Section 10(10AA)]

Government Employees Non Government Employees

Fully Exempt Any payment received as the cash equivalent of the leave
salary to his credit at the time of superannuation or on leaving
the service shall be exempted up to least of the following
amounts.

a. Actual amount received.

b. Amount calculated at average salary for 10 months.
c. Notified limit of Rs. 3,00,000
d. The cash equivalent of the leave salary to his credit at
the time of retirement. This amount is to be calculated
by taking leave for one moth (30 Days) for every one
year of service less leave already availed of.

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GRATUITY
Gratuity refers to a lump sum payment made by an employer to his employee at the time of leaving job
in appreciation of his long and loyal services. Subject to the Provisions of Sec 10(10) gratuity received by an
employee is exempt as follows.

Gratuity [ Section 10(10)]

Government Employees Non Government Employees

Fully Exempted

Covered by Payment of Not Covered by Payment of

Gratuity Act 1972 Gratuity Act 1972
GOVERNMENT EMPLOYEE:
Any death cum retirement gratuity received by government employee is fully exempt.
Meaning of government employee:
Government employee includes
Employees of central government.
Employees of state government.
Employees of local authority.
Employees working in defence.
Employees of statutory corporations .

NON GOVERNMENT EMPLOYEES:

Non Government employees- Covered by Payment of Gratuity Act 1972
Any gratuity received by such an employee shall be exempt to the extent of least of the following.
a. 15 days salary ( 7 days in case of employees working in seasonal factories) for each completed year of
service or part thereof in excess of six months on the basis of monthly salary last drawn.
b. Notified limit Rs. 10,00,000.
c. Gratuity actually received by the employee.
Hints
While calculating length of service period exceeding 6 months is to be taken as full year. Thus part of
the year up to 6 months is to be ignored.

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 Calculation of 15 days salary

Monthly salary last drawn

15 days salary = --------------------------------- x 15 Days
26 Days

Meaning of salary:
Salary = Basic salary + DA( whether enters or not)

Non Government employees- Not Covered by Payment of Gratuity Act 1972

Least of the following three amounts shall be exempt
a. month average salary for every completed year of service on the basis of average salary drawn during
10 months immediately preceding the month of retirement.
b. Maximum notified limit Rs. 10,00,000.
c. Gratuity actually received by the employee.

Hints
Employees not covered under POGA 1972 includes employees working in any shop or establishment in
which less than 10persons are employed or were employed on any day of the preceding 12 months.
While calculating length of service only completed years are to be counted. Thus any fraction or part of
the year is to be ignored.
Calculation of half month average salary

Month salary = Average salary drawn during 10 months

immediately preceding the month of retirement x

Meaning of salary
Salary = Basic salary + DA ( Enters) + Commission on turnover.

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PENSION
Pension is a payment received by an employee after his retirement.

Pension

Uncommuted pension Commuted pension

Fully taxable

Government employees Non Government employee

(Fully exempted)

If employee receives Gratuity also If employee does not receive Gratuity

(Exempted amount shall be commuted value of (Exempted amount shall be commuted value
One third (1/3) of pension) of One half (1/2)of pension)

Uncommuted pension:
It is monthly payment of pension. It refers to the periodic / regular pension (Generally monthly) received
by an employee from ex employer after retirement and until such an employee dies.
Commuted pension: It is a lump sum payment instead of monthly payment.

Perquisites

Taxable in all cases . Fully exempted Taxable in specified cases only

PERQUISITES TAXABLE FOR ALL EMPLOYEES.

RENT FREE ACCOMMODATION
Meaning of accommodation
It shall include a house, farm house, flat, hotel accommodation, guest house, a caravan, mobile home,
ship etc. For the valuation of rent free accommodation the employees have been classified in to two categories

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 VALUATION OF RENT FREE ACCOMODATION
For unfurnished accommodation (Central and state Government employees).

The taxable value of perquisite in respect of accommodation provided to employees is equal to the license
fee which would have been determined by the central or state government in accordance with the rules framed
by the government for allotment of house to its staff.

For unfurnished accommodation (Private and other non government employees)

Value of rent free house
In cities the population of which is more than 25 Lakhs as per 15% of salary
census of 2001
Owned In cities the population of which is exceeding 10 Lakhs but not 10% of salary
by exceeding 25 Lakhs as per census of 2001
employer In cities and towns the population of which is 10 Lakhs or less 7.5 % of salary
than 10 Lakhs as per census of 2001
Hotel accommodation (For less than 15 days on transfer from Fully exempted
one place to another)
Hotel accommodation (For more than 15 days on transfer from 24% of salary or actual bill
one place to another) Which ever is less is taxable
Hired by - 15% of salary or actual rent
employer paid or payable by employer
which ever is less is taxable in
all cities.

For furnished accommodation. (For all employees)

The term furniture here includes radio sets, television sets, refrigerators, air conditioners and other house
hold appliances.
If furniture is owned by employer. Value of unfurnished house + 10% p.a of
cost of furniture
If furniture is hired by employer. Value of unfurnished house + Actual hire
charges paid or payable by employer

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 For concessional accommodation.
It means that employer has given a house to his employee for which he is charging a part of the rent.
Value of concessional accommodation = Value of rent free accommodation less rent paid by employee

Meaning of salary
For the calculation of value of rent free accommodation the word salary includes
a. Basic salary.
b. Dearness allowance/pay, if terms of employment so provide.
c. Bonus (Statutory)
d. Commission.
e. Fees
f. All other taxable allowances (Excluding amount not taxable)
g. Any monetary payment which s chargeable to tax.

MOTOR CAR
A. MOTOR CAR IS OWNED OR HIRED BY EMPLOYER AND ITS RUNNING AND
MAINTENANCE EXPENSES ARE MET OR REIMBURSED BY EMPLOYER:
1. Car is fully used in the performance of official duties of the employee:

Value of Perk = Nil

2. Car is fully used for the private, personal or family purposes of the employee:
Value of Perk:
Actual expenses incurred by the employer on running and maintenance of car ****
+ 10% of the cost of the car or hire charges ****
Less : Amount recovered from employee ***

3. Car is used partly in the performance of duties and partly for private or personal purposes:
The expenses on maintenance and running are met or reimbursed by the employer
a. Where cubic capacity of engine does not exceed 1.6 litres Rs. 1,800 p.m
b. Where cubic capacity of engine exceeds 1.6 litres Rs. 2,400 p.m
The expenses on running and maintenance for private or personal use are fully met by employee himself
a. Where cubic capacity of engine does not exceed 1.6 litres Rs. 600 p.m

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 b. Where cubic capacity of engine exceeds 1.6 litres Rs. 900 p.m

Facility of Chauffeur
Value of perk = Amount specified for use of car + Rs. 900 p.m for drivers salary.

B. CAR IS OWNED BY EMPLOYEE BUT ITS RUNNING AND MAINTENANCE EXPENSES ARE
MET OR REIMBURSED BY EMPLOYER:

1. Car is fully used in the performance of official duties of the employee:

No value to be taxed but proper log book for official purposes.

2. Car is being used partly for official purposes and partly for personal or private purposes:
Taxable value of perk = Find out the actual amount of expenditure incurred by employer LESS
Rs. 1,800 p.m for small car and Rs. 2,400 p.m for big car and Rs. 900 for driver
Note: A proper log book must be maintained

C. WHERE THE EMPLOYEE OWNS ANY OTHER AUTOMOTIVE CONVEYANCE BUT THE
ACTUAL RUNNING AND MAINTENANCE EXPENSIVE ARE MET OR REIMBURSED BY THE
EMPLOYER:

1. Employees conveyance is fully used in the performance of official duties of the employee:
No value to be taxed but proper log book for official purposes.
2. Employees conveyance is being used partly for official purposes and partly for personal or private
purposes:
Taxable value of the perk shall be the actual amount of expenditure incurred by the employer as reduced
by the amount of Rs. 900
Note: A proper log book must be maintained

Other Points:
Free use of car between office and residence:
Use of employers car to go the place of employees work and come back to his residence is not a
taxable perk and hence it is ignored.
Conveyance facility to high court and Supreme Court judges: It is fully exempted.

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 Meaning of Month:
Month means a complete calendar month and if there is a part of the month, the same shall be ignored.
Car at concessional rate
Value of perk = value of car if car has been provided totally free of cost LESS any amount charged
from the employee for the use of the car.

FREE DOMESTIC SERVANTS

Taxable value of perquisite
Sweeper, watchmen gardener (or) personal attendant Actual cost to employer
Sweeper, watchmen gardener (or) personal attendant Amount spent by employer LESS Amount charged /
and if any amount is paid by employee recovered by employer from employee.

FREE SUPPLY OF GAS, ELECTRIC ENERGY AND WATER SUPPLY.

Taxable value of perquisite
Where the supply is from employers own sources Actual cost of these services to the employer.
Where the supply is from the purchases made by the Amount paid by the employer to the outside agency
employer from outside agencies.
In case employee pays some part of the cost to the Amount spent by employer LESS Amount charged /
employer recovered by employer from employee.

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 INCOME FROM HOUSE PROPERTY (IFHP)

Municipal rental value ***

Fair rental value ***
Which ever is higher (WEH) ***
Standard rent ***
Expected rent (WEL) ***
Actual rent received ***
Less unrealized rent *** ***
Which ever is higher (WEH) ***
Less vacancy ***
Gross annual value (GAV) ***
Less municipal taxes actually paid by the owner ***
Net annual value (NAV) ***
Less deduction u/s 24
a. Standard deduction 30% of NAV ***
b. Interest on loan *** ***
Taxable income from house property ***

Deductions

In case of let out / deemed to be let-out In case of self occupied house

Standard deduction u/s 24(a) Interest on money borrowed u/s 24(b) Interest on money borrowed u/s 24(b)

STANDARD DEDUCTION [Section 24(a)]

IN CASE OF LET OUT /DEEMED TO BE LET OUT HOUSE
S.D = 30% OF NAV
IN CASE OF SELF OCCUPIED HOUSE: S.D = NIL
INTEREST ON HOUSING LOAN/ INTEREST ON BORROWED CAPITAL [Section 24(b)]
Housing loan means loan taken /amount borrowed for purchase, construction, repairs or renovation etc
of house property. Interest paid / payable on housing loan is allowed as deduction while computing house
property income.
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Tax treatment of interest on housing loan
Let out / deemed to be let out
Amount of deduction = Actual interest ( No limit)
In case of self occupied house.
In the case of self occupied house the interest on loan is allowed subject to the following limits.
a. Where the loan is borrowed for the purpose of construction or acquisition before 1-4-99 up to Rs
30,000
b. Where the loan is borrowed for the purpose of construction or acquisition after 1-4-99 up to Rs
2,00,000 provided the following conditions are satisfied.
The construction or acquisition is completed within 3 years from the end of the financial year
in which capital was borrowed.
If it is not completed within 3 years interest on loan is allowed as deduction upto a maximum
of Rs. 30,000.
c. Where the loan is borrowed for repairs or renewal or reconstruction whether before or after 1-4-1999,
up to Rs 30,000

Interest on preconstruction period:

Interest for pre acquisition/ pre construction period shall be allowed as deduction in 5 equal installments
starting from the previous year in which the house is acquired or the construction is completed and for the next
4 previous years.
Current previous year interest XXX
ADD 1/5th of the pre completion interest XXX
-------
XXX
-------
The pre construction period is calculated starting from the date of borrowing and ending on March 31
immediately prior to the date of completion of construction or acquisition of the house or date of repayment of
loan whichever is earlier.

Interest on post construction period:

Post construction interest is allowed in the respective previous years, if the loan is outstanding.

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 INCOME FROM BUSINESS OR PROFESSION
Computation of Business Income
Particulars Amount Amount
Net profit as per P & L account ***
Add
1. Inadmissible expenses but included in P&L account ***
2. Incomes relating to business but not included in P&L account . ***
3. Under valuation of closing stock ***
4. Over valuation of opening stock. *** ***

Less
1. Income not relating to business but included in P&L account. ***
2. Admissible expenses but not included in P&L account ***
3. Over valuation of closing stock. ***
4. Under valuation of opening stock *** ***
Income from business ***

Computation of Professional income:

Profession Income:
Fees (For all professionals) ****
Operation fees, visiting fees (Doctor) ****
Institute fees (for accountants) ****
Gift from clients (for all professionals) ****
Legal fees, practicing fees (for lawyer) ****
Examiner Fees (For all professionals) ****
All other professional receipts **** ****
Less : Professional expenses
Office and Administrative expenses ****
Clinic & expenses and dispensary expenses ****
Cost of books ****
Subscription of journals ****
Depreciation ****

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 Any membership fees ****
Cost of medicine ****
(Op. stock + Purchases closing stock) ****
All other professional payments **** ****
Income from profession ****

Under or over valuation of stock

The stocks may be either under valued or over valued. In such cases the profits of the year if affected.
To eliminate effect of such valuation correct value of the stock should be found by the following procedures.

100
Correct value in case of under valuation = Value of stock x ---------------------------------------
(100- Rate of under valuation)

100
Correct value in case of Over valuation = Value of stock x ---------------------------------------
(100 + rate of under valuation)

Value of stock under different systems of accounting

While computing income of a doctor, the treatment of stock is as under
a. When cash system of accounting is adopted opening and closing stock is Ignored. Only cash purchases
are deducted.
b. When mercantile style is adopted, value of stock = Opening stock + Purchase closing stock and
this amount is deducted from professional income.

ADMISSIBLE DEDUCTIONS U/S 30 TO 37

COMMON DEDUCTIONS U/S (30 35)
1. Rent, Rates, Taxes, Repairs and Insurance in the case of Building premises: (Sec.30)
Deduction is allowed regarding rent, rates, taxes, repairs and insurance premium paid for the building
premises where the assessee is carrying on his own business or profession.
2. Repairs and Insurance of Machinery, Plant and furniture (Sec. 31):
The following deductions shall be allowed in respect of repairs and insurance of machinery, plant and
furniture used for the purposes of the business or profession.

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 i. The amount paid on account of current repairs thereto.
ii. The amount of any premium paid in respect of insurance against the risk of damage or destruction
thereto.
3. Depreciation on Fixed Assets (Sec.32):
Depreciation on the fixed assets is very important item of deduction of any business.

4. Expenditure incurred in the field of scientific research Sec 35

Particulars Amount
allowed as
deduction
1. Revenue expenditure for assessee himself Full

2. Contribution to approved scientific research association, payment to an approved 175% is allowed

university, college or institution for scientific research

3. Payment made for the use of research on social sciences 125% is allowed

4. Contribution to National laboratory 200% is allowed

125% is allowed
5. Contribution to a company for scientific research

6. Capital expenditure
i) On plant, machinery, equipment, building Full
ii) On land (acquisition) Not allowed

5. Expenditure on acquisition or purchase of patents or copy rights sec 35A

i) If expenditure is incurred up to 31/3/98 - 1/14th total expenditure is allowed as deduction.
ii) If expenditure is incurred after 31/3/98 25% is allowed as depreciation..

6. Expenditure on Know how sec 35 (AB)

i) If expenditure is incurred up to 31/3/98.
Know how (generally) - 1/6th is allowed as deduction
If know how developed in Indian laboratory, university or institution- 1/3rd is allowed as
deduction
ii) If expenditure is incurred after 31/3/98 (From 1st April 1998)
Know how (generally) - 25% is allowed as depreciation.

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 If know how developed in Indian laboratory, university or institution 25% is allowed as
depreciation.
7. Amortization of certain preliminary Expenses: (Sec.35D):
U/s 350, the deduction is allowed only in case of an Indian Company or a person resident in India. The
deduction is in respect of the expenditure incurred after 31st March 1970 and Expenditure may be of the type
which was incurred
i. before the commencement of the business, or
ii. After the commencement of the business, or in connection with the extension of its industrial
undertaking or in connection with its setting up a new industrial unit.
Deduction = 1/5th of expenditure is allowed as deduction.

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 CAPITAL GAINS

Computation STCG

Rs. Rs.
Full sale consideration XXXX
(-) Expenses incidental to transfer XXXX
Net Sale Consideration XXXX
(-) Cost of acquisition XXXX
(-) Cost of improvement XXXX XXXX
STCG XXXX
(-) Exemption under sec. 54B, 54D and 54G XXXX
Net STCG XXXX

Computation LTCG

Rs. Rs.
Full sale consideration XXXX
Less : Expenses incidental to transfer XXXX
Net Sale consideration XXXX
Less : Indexed Cost of acquisition XXXX
Less : Indexed Cost of improvement XXXX XXXX
LTCG XXXX
Less : Exemption under sec. 54, 54B, 54D, 54EC, 54F, 54G and 54GA XXXX
Net LTCG XXXX

INDEXING AT A GLANACE U/S 48 (iii)

S.No Situation Indexing

1 Short term capital assets and No indexing
depreciable assets
2 Repurchase of units acquired No indexing
U/S 80CCB
3 Bonds and debentures except No indexing w.e.f assessment year 1998-99
capital indexed bonds
4A Long term capital assets
acquired before 1-4-81 under Actual cost or FMV on 1-4-81(WEH)
gift, will, partition HUF, X CII for the year of sale
inheritance CII of 1981-82 (100)

4B Cost of improvement
incurred after 1-4-81 on Cost of improvement
above mentioned assets. X CII for the year of sale
CII of the year of improvement

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 5 Long term capital assets
acquired on or after 1-4-81 Actual cost
X CII for the year of sale
CII of year of purchase

6 Cost of improvement
incurred after 1-4-81 Cost of improvement
X CII for the year of sale
CII of the year of improvement

Exempted Capital gains u/s 54

S.No Section For what Rules to be followed
purpose it is
allowed
1 54 Transfer of Capital gains arising from transfer of capital asset are exempt from tax
residential on fulfilling certain conditions to be satisfied.
house property Transfer of residential house by an individual or HUF.
and investing Transfer of long term capital asset.
in residential The assessee should purchase a residential house within one
house property year before or two years after the date of transfer or construct
a residential house within a period of three years after
transfer.
Amount of exemption
The capital gain is exempted to the extent of cost of new
residential house acquired and amount deposited under the capital gain
account scheme.
2 54B Sale of land Any capital gain short term or long term, arising an the transfer of
used for agricultural land located in an urban area is exempt on satisfying the
agricultural following conditions.
purposes and The agricultural land has been transferred by an individual.
invested in The agricultural land has been used by the individual or his
another parent for agricultural purposes during the two years
agricultural immediately preceding the date of transfer.
land The assessee has purchased
3 54D Compulsory It is available to individual, HUF, firm, company and other

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 acquisition of persons.
land and The land and building should be used by the assessee for
building atleast 2 years preceding the date of compulsory acquisition.
forming part of It is not necessary that the assessee should own such land and
industrial building during the 2 years.
undertaking. The gain from transfer should be used to purchase another
land and building (industrial) within 3 years.
The new land and building should not be sold for 3 years.
If land and building is not purchased the amount should be
deposited in the CGDAS
When the amount is deposited in CGDAS and to claim
exemption proof of deposit should be shown to the AO.
4 54EC Amount Meaning of Specified assets:
invested in It means any bond redeemable after 3 years issued by NABARD
certain long or National Highways Authority of India or Rural Electrification
term specified Corporation Limited or National Housing Bank or Small Industries
assets Development Bank Of India.

It is applicable to Individual, firm, company or any other

person.
Applicable only to long term specified assets.
The gain should be invested within 6 months from the date of
transfer of the asset.
The assessee can invest the whole or part of the capital gain in
Long term specified assets.
The exemption will be actual gain or amount invested in
specified assets whichever is less
The new asset should not be transferred within 3 years.
Investments in the mentioned Specified assets on or after
1/4/2007, should not exceed Rs. 50,00,000
5 54F Sale of long Individual or HUF can claim deduction under this section.
term capital It is available to LTCA other than residential house property.
assets other The new house should be purchased within 1 year before or

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 than residential within 2 years after the sale.
house property If the house is constructed it should be constructed within 3
but investing in years from the date of transfer.
house property. Exemption should be calculated as follows.
Amount invested
Exemption = LTCG x --------------------------
Net consideration
If the amount is not utilized it should be deposited in CGDAS
and should be used within the specified time limit
When the amount is deposited in CGDAS and to claim
exemption, proof of deposit it should be shown to the AO.
The new house should not be transferred within 3 years.
Assessee should not own any other residential house on the
date of sale.
He should not construct a residential house within a period of
3 years or should not purchase within 2 years a second house.

6 54G For shifting of This section applies when capital assets like plant, machinery,
industrial land or building or any right in land or building used in urban
undertaking area is shifted.
from urban The amount should be reinvested within a period of 1 year
area to non before or 3 years after the date of transfer in new plant,
urban area machinery, land or building should be acquired.
Shifting expenses can be claimed as deduction.
The new asset should not be sold within a period of 3 years.
If the amount is not utilized it should be deposited in CGDAS
and should be used within the specified time limit
When the amount is deposited in CGDAS and to claim
exemption, proof of deposit it should be shown to the AO.
7 54GA Shifting of Applies to shifting of land, building, plant and machinery from
industrial urban area to special economic zone
undertaking The amount should be reinvested within a period of 1 year
from urban before or 3 years after the date of transfer.

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 area to any Shifting expenses can be claimed as deduction.
special The new asset should not be sold within a period of 3 years.
economic zone If the amount is not utilized it should be deposited in CGDAS
and should be used within the specified time limit
When the amount is deposited in CGDAS and to claim
exemption, proof of deposit it should be shown to the AO.
8 54H Extension of It deals with the extension of time limit for acquiring new
time limit for assets.
acquiring new It deals with the time limit prescribed in each section and also
assets. the enhanced compensation.
Enhanced compensation is taxable in the year in which it is
received. Under this the time limit will be determined from the
date of receipt of additional compensation.

INCOME FROM OTHER SOURCES

FORMAT FOR COMPUTATION OF INCOME FROM CAPITAL GAINS
1. Dividend from foreign company
Amount invested as dividend xxx
Less : Amount spent for collection xxx xxx
2. Interest on securities
Amount received xxx
Less
Collection charges xxx
Commission xxx
Interest paid on loan taken to buy shares or securities xxx xxx xxx
3. Casual incomes
Winnings from card games, horse races, cross word puzzles, lotteries, gambling, xxx
betting
4. Income from letting of P & M, building, furniture
Actual amount received xxx
Less
Repairs xxx
Insurance premium xxx
Depreciation xxx xxx xxx
5. Family pension received by legal heirs
Pension received xxx
Less 1/3 of such pension or 15,000 WEL xxx xxx
6. Royalty received by authors
Actual amount received xxx
Less actual expenditure xxx xxx
7. Examinership remuneration
Actual amount received xxx
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 Less actual expenditure xxx xxx
8. Any other income ( Director fee, Honorarium etc)
Actual amount received xxx
Less actual expenditure xxx xxx
Income from other sources xxx

DEDUCTIONS FROM GROSS TOTAL INCOME (GTI)

DEDUCTION REGARDING APPROVED SAVINGS IN P.F. INSURANCE PREMIUM, ETC. [SEC.
80C]
Savings play a vital role in the fast economic development of any country. To encourage savings an
incentive in the form of a deduction out of ones taxable incomes has been allowed. To chanalize those savings,
various schemes have been framed and if the assessee deposits those savings in these approved schemes, a
deduction shall be allowed.
Deduction u/s 80c shall be allowed only to following assesses.
1. An Individual
2. A HUF
Rate of deduction:
Total amount deposited in various approved savings schemes or Rs.1,50,000 p.a. W.E.L shall be
allowed as deduction. This limit of Rs.1,50,000 also includes the amount of deduction allowable to the assessee
was 80 CCC AND 80 CCD.

Qualifying amount for deduction u/s 80C

1. Deposits made in PFs
2. Payment of life insurance premium.
3. Amount deducted out of government employees salary towards deferred annuity.
4. Payment made towards group insurance.
5. Deposits made in approved superannuation fund.
6. Payment for deferred annuity.
7. Deposits made in Unit Linked Insurance Plan (ULIP).
8. Amount invested in NSC VIII issue.
9. Amount invested in National Saving Scheme-1992.
10. Amount paid to LIC under Jeevan Dhara, Jeevan Akshay policies.
11. Amount invested in notified pension fund set up by mutual funds or UTI.
12. Amount deposited with National housing Bank.
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 13. Amount deposited with an authority engaged in housing development or town or rural development.
14. Any subscription in deposit scheme of central Govt.
15. Term deposits with banks.
16. Amount deposited or invested in equity linked saving scheme (ELSS).
17. Repayment of house building loan.
18. Payment of tution fee of children.
19. Amount invested in equity shares or debentures in an eligible issue.
20. Amount invested in units of mutual funds.
21. Subscription to bonds of NABARD.

DEDUCTION IN RESPECT OF CONTRIBUTION TO PENSION FUND [SEC. 80 CCC]

Allowed to Individuals assesses.
The deduction is equal to the whole of the amount paid or deposited or Rs. 1,00,000 WEL.
The aggregate deduction u/s 80, 80CCC and 80CCD can not exceed Rs. 1,50,000.

DEDUCTION IN RESPECT OF MEDICAL INSURANCE PREMIA SEC 80(D)

This deduction is allowed to an individual or a HUF
The premia are to be paid by assessee by cheque, bearer or grossed or account payee to the general
insurance corporation of India or any other insurer approved by the IRDA.
Amount of deduction
Actual amount paid or Rs. 25,000 (Rs. 30,000 for senior citizen) WEL.
Additional amount of Rs. 25000 (Rs. 30,000 for senior citizen) on mediclaim taken on parents.

DEDUCTION IN RESPECT OF MEDICAL TREATMENT OF HANDICAPPED DEPENDENT SEC

80DD
This deduction is allowed to an Individual who is resident of India or HUF.
The deduction is allowed if they have incurred.
Any expenditure for the medical treatment (including nursing), training and rehabilitation of a
dependent, being a person with disability
Amount of deduction
A FIXED DEDUCTION of Rs 75,000 irrespective of amount paid but Rs. 1,25,000 for severe
disability.

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Meaning of dependent:
For individual dependent means the spouse, children, parents, brothers and sisters of the individual or
any of them.

DEDUCTION IN RESPECT OF MEDICAL TREATMENT OF SPECIFIED DISEASES SEC 80DDB

This deduction is allowed to an individual or HUF who is resident in India only.
The expenditure must be incurred for himself or a dependent in case the assessee is an individual to a
member of HUF, in case the assessee s a HUF.

Rate of deduction:
Rs. 40,000 (Rs. 60,000 for senior citizen) or Actual expenses WEL. ( Amount of insurance claim
received is to be deducted).

DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR HIGHER EDUCATION (SEC.

80 E)
Deduction u/s 80 E regarding interest paid on a higher education shall be allowed if following conditions
are fulfilled
Assessee is an individual
Assessee has taken a loan to pursue higher education of his own, spouse or any of his / her child
Loan has been taken from any financial institution or an approved charitable institution.
Assessee has paid interest on such loan during the previous year
Assessee has paid interest out of his taxable income of that year.
Rate of deduction:
Actual amount of interest paid and deduction is allowed for 8 years.

DEDUCTION AS TO SPECIFIED DONATIONS SEC 80G

Donations shall be of sum of money. Donations in kind do not qualify for deductions.
Donation must be made to specified institution/funds.
For claiming deduction u/s 80G it is essential on the part of the assessee to produce proof of payment.
For the purpose of determining the amount deductible the funds are classified under 3 categories as
a) 100% qualifying and 100% deductible.
b) 100% qualifying and eligible for 50% deduction.
c) Restricted donations.
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Computation and rates of deductions u/s 80G donations.
Donation Q.A. Rate
NO LIMIT DONATIONS
1. To P.M. National Relief Fund 100% 100%
2. To Africa fund 100% 100%
3. To Armenia Earthquake relief fund 100% 100%
4. To University or Institution of National Eminence (so notified) 100% 100%
5. To National Foundation for communal harmony 100% 100%
6. To the CMs Earthquake Relief fund, Maharashtra 100% 100%
7. To Zila Sakharata samiti 100% 100%
8. To National Blood Transfusion council state Blood transfusion 100% 100%
9. To any fund set up by the State Govt. to provide medical relief to 100% 100%
poor
10. To Army Central welfare fund, Indian Naval Benovelont fund or 100% 100%
Air force welfare fund
11. To Chief Ministers Relief Fund ; or Lieutenant Governors 100% 100%
Relief fund
12. National illness Assistance fund 100% 100%
13. To AP CMs cyclone Relief fund 100% 100%
14. National sports fund 100% 100%
15. National cultural fund 100% 100%
16. Technology development and application fund 100% 100%
17. To National defence fund 100% 100%
18. Any Fund set up by the State Govt of Gujarat exclusively for 100% 100%
providing relief to the victims of Earthquake in Gujarat.
19. To P.M. National Drought Relief fun 100% 50%
20. To Jawahar Lal Nehru memorial fund 100% 50%
21. To Indira Gandhi memorial fund 100% 50%
22. To Rajiv Gandhi foundation 100% 50%
WITH LIMIT DONATIONS
1. To State Govt. Actual total of 1 Out of Q.A.
2. To Local Authority to 10 or 10% of 100% of
3. To Educational Institutions gross taxable donation for F.P
4. To Charitable Institutions income WEL is + by a company
5. To Sports Institutions Q.A. to Indian
6. To a Corporation set upto protect the interest of minorities. Olympic
7. To an authority constituted for development of housing and
planning of cities and towns Association and
8. To a place of art, public worship or historical importance (so balance Q.A.
notified) 50%
9. To an institution or association engaged in promotion of family
planning in India.
10. Any sum paid by a company to Indian Olympic Association for
development of infrastructure and sponsorship of sports and
games in India.
G. Tax. I = G.T.I. [LTCG + All other deductions u/s 80 + Rebateable income, if any +
STCG on shares)
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DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON PAYMENT OF HOUSE RENT (80
GG)
This deduction is allowed to individually only for rent paid. The assessee must be living in a rented
house due to his employment, business or profession. He should not be getting any HRA.
Rate of Deduction
a. Statutory limit Rs.2,000 p.m.
b. Rent paid 10% of adjusted G.T.I.
c. 25% of adjusted G.T.I. WEL.
Adjusted GTI = GTI [LTCG+STCG on shares covered under STT + Income referred in sec 115A + All other
deductions u/s 80 except 80GG]

DEDUCTION IN THE CASE PHYSICALLY HANDICAPPED RESIDENT PERSON [SEC. 80 U]

A resident individual who is totally blind or suffers from permanent physical disability is entitled to a
deduction of Rs.75,000 under section 80 U. A higher deduction of Rs. 1,25,000 with severe disability is
allowed.
Disability includes
a. Blindness.
b. Low vision.
c. Leprosy cured.
d. Hearing impairment
e. Locomotor disability.

SET-OFF AND CARRY FORWARD OF LOSSES [SEC. 70 80]

Period of carry Income against which

Nature of Loss Conditions if any
forward loss can be set-off
A. House Property 8 AYs following the Income from HP Loss under the head HP
year of loss upto the AY 1998 99
cannot be carried
forward
B. Business Loss 8 AYs following the Profits from any Loss can be carried
years of loss business carried on by forward even if the

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 the assessee. business is discontinued.
C. Capital loss 8 AYs following the Any capital gains for -
year of loss short term loss : Long
term loss can be set off
only against long term
gain
D. Speculation loss 4 AYs following the Profits from any -
year of loss speculation business
E. Loss on owning and 4 AYs following the Income from owning It is not applicable to
maintaining race horses. year of loss and maintaining race losses on horse races.
horses.
F. Unabsorbed depreciation 8 Years following the Business income of the If can also be set off in
year of conversion company the year of conversion

Assessment of individuals
INDIVIDUALS

Taxable income range Rates of Income tax

Upto Rs.2,50,000 Nil

Rs.2,50,001 Rs.5,00,000 10%

Rs.5,00,001 Rs.10,00,000 Rs.25,000 + 20% of income exceeding Rs.5,00,000

Above Rs.10,00,000 Rs.1,25,000 + 30% of income exceeding Rs.10,00,000

For Senior Citizen assessee

Taxable income range Rates of Income tax

Upto Rs.3,00,000 Nil

Rs.3,00,001 Rs.5,00,000 10%

Rs.5,00,001 Rs.10,00,000 Rs.20,000 + 20% of income exceeding Rs.5,00,000

Above Rs.10,00,000 Rs.1,20,000 + 30% of income exceeding Rs.10,00,000

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For super Senior Citizen assessee

Taxable income range Rates of Income tax

Upto Rs.5,00,000 Nil

Rs.5,00,001 Rs.10,00,000 20%

Above Rs.10,00,000 Rs.1,00,000 + 30% of income exceeding Rs.10,00,000

Education cess

It is to be levied @ 2% of tax if any for all persons irrespective of income plus secondary and higher
education cess @ 1% of tax.

Special rates:

For short term capital gain on shares which are subject to security transaction tax (STT) : 15%.

For LTCG 20%

For casual income (Lotteries, races, puzzles) 30%

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