Professional Documents
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ENTITLED
Date:
and guidance & that part of this report has been submitted for the
and the work has not been published in any journal or magazine.
Signature
(Guide’s name)
ROLL NO:510924972
FORM
for the fulfillment of MBA course from SIKKIM MANIPAL UNIVERSITY has
I want to thank him for providing his precious time and to help me in completing
the project well in time. I sincerely pay my thanks to ABHISEK JAIN (CFA MS
respect to our Director Sir and Director Madam for their help, coordination and
for their guidance and crucial suggestions at critical phases of the project work.
Therefore, I am greatly indebted to all of them for their valuable guidance and
constructive suggestions, perhaps, without which it would have not been possible
Sections Headings
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
4 Basic principles followed while charging income tax.
27 Deemed ownership
41 Deemed profit.
56(2)(VI) Any sum of money received without consideration exceeding Rs. 50,000.
57 Deduction from income chargeable to tax under the head "Income from other
sources"
234A Interest payable by the assessee for default in furnishing the return of income
PERSON
(Person means individual, HUF, Company,
Firm, AOP,BOI, Loca14l Authority,
artificial judicial person)
EARNS INCOME IN 2010-11
(2010-11 in which person earns income is called Previous Year)
An AOP, BOI, artificial juridical person shall be deemed to be person whether such a person was
formed, established or incorporated with the object of deriving of income, profits or gains or not.
b) Assessee [Section 2(7)1: Assessee means a person by whom income tax or any other sum
of money is payable under the Act. It includes every person in respect of whom any
proceeding under the Act has been taken for the assessment of his income or loss or the
amount of refund due to him. It also includes a person who is assessable in respect of income
or loss of another person or who is deemed to be an assessee, or an assessee in default under
any provisions of the Act.
Question : A single letter of enquiry was issued by the Income Tax Department Mr. Shoumik
of Pune. In the letter there was no specific mention of any provision of the Income Tax Act.
Can Mr. Shoumik be treated as an assessee under the Income Tax Act?
Answer: If a single letter of enquiry issued by the department does not mention any specific
provision of the Act, it does not constitute proceedings under the Act. Hence Mr. Shoumik
cannot be treated as the assessee in the given case.
Previous Year means the financial year immediately preceding the Assessment Year. All
assesses are required to follow financial year (i.e. from 1st April to 31st March next) as previous
3
year. In case of a newly set up business or profession or source of income newly coming into
existence first previous year will be the period starting from the date of setting up business or
profession etc. upto the following March. For instance, if a person starts new business on
3/3/2011, the first Previous Year will be from 3/3/2011 to 31/3/2011.
Assessment Year means the period of 12 months commencing on the first day of April every
year. It is, therefore the period from 1st April to 31st March. For example, the assessment year
2011-12 will commence from 1/4/2011 to 31/3/2012. The tax is levied, in each assessment year,
with respect to or on the total income earned by the assessee in the previous year.
4
1st day of April in any Assessment year.
All income earned by the assessee are not chargeable to tax. There are certain incomes on which
no tax is charged. These are known as Exemptions or Income Exempt from Tax. All income
earned by the assessee and chargeable to tax is divided and classified into following five heads of
Income:
1. SALARIES (Sections 15 to 17)
2. INCOME FROM HOUSE PROPERTY (Sections 22 to 27)
3. PROFITS AND GAINS OF BUSINESS OR PROFESSION ( Section
28 to 44D)
4. CAPITAL GAINS (Section 45 to 55A)
For the purposes of assessment all income chargeable to income tax have been divided into five
categories viz. Income from Salary; Income from House Property; Profits and Gains from
Business or Profession; Capital Gains; Income from Other Sources. These five categories of
income are known as Heads of Income under the Income Tax Act, 1961.Under each head there
may be several sources of income. Sources of Income refer to the place of origination of a
particular income. Thus, an assessee may be carrying 3 businesses say, that of Chemical, Paper
and Tea. In that case these 3 businesses will constitute 3 sources of income all chargeable under
the head Profits and Gains from Business or Profession.
5
(b) Exemptions Vs. Deductions
Those items of income which do not form part of total income known as Exemptions.
Example: Agricultural Income is Exempted from Tax U/s 10(1).
The provisions relating to Deductions are covered under Chapter VIA. Incomes from which
deductions are allowed are first included in Gross Total Income and then the deductions are
allowed to arrive at Total Income. Thus, if there is no Gross Total Income, no deductions will be
permissible.
TOTAL INCOME
Or Rounded off to nearest
multiples of
10
Tax on Total Income
7
APPLICATION OF INCOME VS. DIVERSION OF INCOME
An obligation to apply the income in a particular way before it is received by the assessee or
before it has accrued or arisen to the assessee results in the diversion of the income. On the
other hand, an obligation to apply income which has accrued or arisen or has been received
amounts merely to the apportionment of the income and not to its diversion.
Diversion of income is not regarded as income but when an assessee applies an income to
discharge his obligation after the income reaches the hands of the assessee it would be an
application of income and hence taxable.
Example: Mr. A and Mr. B jointly write an article for its publication in a Magazine on the
understanding that the remuneration is to be shared equally. On its publication, Mr. A receives
the entire amount say Rs. 5,000. Mr. A pays Mr. B Rs. 2,500 as per the agreement. The amount
so paid by Mr. A is a diversion of income. Since the sum paid to Mr. B never accrued to Mr. A as
income, it will not regarded as his income and therefore not taxable. Out of Rs. 2,500, Mr. A
pays Rs. 2,000 towards rent. This Rs. 2,000 is an application of income - as it is a discharge of
obligation out of the income of the assessee.
3. Place of Accrual
The golden rule is that salary will be deemed to accrue or arise at a place where services are
rendered. If the services are rendered in India and salary on account of such services is received
outside India, it will be treated as an income which is deemed to accrue or arise in India.
Similarly, if a person, who after rendering service in India, retires and settles abroad, receives
any pension on account of the same, such pension shall be an income which is deemed to
accrue or arise in India as the service on account of which pension accrues, were rendered in
India.
However, there is one exception to this rule that where an Indian citizen, being a Govt.
Employee receives any salary for rendering services outside India, salary received by him is
treated as income deemed to accrue or arise in India although the services are rendered outside
India.
If an employee opts to surrender his salary to the Central Government under Section 2 of the
Voluntary Surrender of Salaries (Exemption from Taxation) Act, 1961, the salary so surrendered
would be excluded while computing his taxable income. Benefit of tax exemption in respect of
salary so surrendered is available to all employees whether they are employed in private sector
or public sector.
RETIREMENT BENEFITS
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
A. GRATUITY
11
[However in the case of an employee who is employed in a seasonal establishment and is
not so employed throughout the year, the exemption shall be for 7 days wages for each
season.]
(iii) Rs. 10, 00,000 Gratuity received in excess of the minimum of the above amounts will
be included in the salary.
Meaning of Salary for the purposes of Gratuity. For the purpose of calculation of Gratuity
salary means salary last drawn in cash and includes deamess allowance but does not include any
bonus, commission, house rent allowance, overtime wages and any other allowance.
3. Other Employees - who are not covered under the payment of Gratuity Act
In such a case gratuity received by him shall be exempt to least of the following:
1. Actual amount of gratuity received
Meaning of Salary and Average Salary: For this purpose salary includes dearness allowance
only if the term of employment so provides, but excludes all other allowances or perquisites.
[Rule 2(h) of Part A of the Fourth Schedule of the Income Tax Act.] However Supreme Court
has held in the case of Gestetner
Duplicators Pvt. Ltd. that commission, if received as a fixed percentage of turnover achieved
by the employee, would form part of the salary.
Further average salary is to be calculated on the basis of the average of the salary for 10 months
immediately preceding the month in which such event occurs. For example, if an employee
retires on 23.12.2010 then the aggregate salary for the period 1.2.2010 to 30.11.2010 would be
taken and then divided by 10.
Example 1: Mr. X retired on 25.1.2011 after rendering a service of 25 years and 10 months. His
last drawn salary was Rs. 10000 plus dearness allowance ofRs. 5000 plus bonus 20% plus
Overtime allowance of 500 per hour of overtime. During last month he worked 5 hours overtime
and accordingly earned 2500/-. Calculate the taxable amount of gratuity if he received Rs.
250000 as gratuity assuming that Mr. X is covered under the payment of Gratuity Act, 1972.
12
Solution:
Assessee: Mr. X Previous Year : 2010-11
Status: Individual Assessment Year: 2011-12
Computation of Taxable amount of Gratuity
(When covered under The Payment of Gratuity Act)
13
Solution:
Previous Year : 2010-11
Assessee: Mr. X
Assessment Year: 2011-12
Status: Individual
Computation of Taxable amount of Gratuity
(When covered under The Payment of Gratuity Act)
14
B. PENSION
Pension is the payment made by the employer after the retirement/death of the employee as a
reward for the past service. Pension is normally paid as a periodical payment on monthly basis.
But sometimes pension is allowed to be commuted i.e. a lump sum amount is given as against
monthly pension. Where the employee dies then his family members receive pension. This is
known as Family pension and is taxable under the head Other Sources and not under Salary. The
treatment of pension is different in both the situations:
Pension
Fully Exempted
15
Fully taxable
Govt. Employee Others
3. The vacancy caused by VRS should not be filled up and VRS should cause an overall
reduction in the existing strength of the employees.
4. The VRS compensation should not exceed - 3 months salary for every completed year of
service or
Salary at the time of retirement X No. of months service left for retirement
Meaning of Salary: For this purpose salary includes dearness allowance only if the term of
employment so provides, but excludes all other allowances or perquisites. [Rule 2(h) of Part A of the
Fourth Schedule of the Income Tax Act.] However Supreme Court has held in the case of Gestetner
Duplicators Pvt. Ltd. that commission, if received as a fixed percentage of turnover achieved by
the employee, would form part of the salary.
I
Example 3: John is employed in a public sector company and is paid a sum of Rs. 6,00,000 on
Voluntary retirement from service. The normal age of retirement in the company is 60 and John,
who was 45 at the time of retirement, had completed 20 years of service. His monthly salary at
the time of retirement was as follows:
Basic Pay Rs. 10,000; DA (50 % includible for pension) Rs. 6,000 ; H.R.A. Rs. 3,000 ;
Conveyance Allowance Rs. 800; What is the amount of compensation taxable under the Act?
17
Solution:
Assessee: Mr. John Previous Year : 2010-11
Status: Individual Assessment Year: 2011-12
Computation of Taxable amount of VRS
18
Example 4: Mr. X received retrenchment compensation of Rs.8, 00,000 after 29 years 10
months of service. At the time of retrenchment, he was was drawing basic salary Rs. 20,000
p.m.; dearness allowance Rs. 5,000p.m. Compute his taxable retenchment compensation.
Solution:
Retrenchment compensation received Rs.8,00,000
Less: Exempt u/s 10(10B) [Note 1] Rs.432,692
:. Taxable retrenchmant compensation Rs.3,67,308
Note 1: Exemption is to the extent of least of the following:
(i) Compensatation actually received = Rs. 8,00,000
(ii) Statutory Limit = Rs. 5,00,000
(iii) Amount calculated in accordance with provisions of the Industrial Disputes Act, 1947
15/26 x Avg salary of last 3 mths x Completed yrs of service and part thereof
in excess of 6 mths 26
i.e = 15/26 X 25,000 X30 years = Rs. 4, 32,692
A. House Rent Allowance [Exemption u/s 10(13A) read with rule 2A]
Sometimes employer provides to his employee an allowance to meet his house rent expenses.
This house rent allowance is exempt U/s 10(13 A) to the extent of least of the following:
1. Amount Actually Received
2. Rent paid - 10% of Salary
3. 50% of the salary where the residential house is situated at Mumbai, Kolkata, Delhi, Chennai
and 40% of the salary if the house is situated at any other place.
However no exemption shall be available if the employee has not actually incurred expenditure
on payment of rent or stays in his own accommodation.
Meaning of Salary: For this purpose salary includes dearness allowance only if the term of
employment so provides, but excludes all other allowances or perquisites. [Rule 2(h) of Part A of
the Fourth Schedule of the Income Tax Act.] However Supreme Court has held in the case of
Gestetner Duplicators Pvt. Ltd. that commission, if received as a fixed percentage of turnover
achieved by the employee, would form part of the salary.
Further it must be borne in mind that Salary is to be taken on due basis in respect of the period
during which is occupied by the employee in the previous year. The salary of any other period
shall not be included even though it may be received and taxed during the previous year.
19
Example 5: Mr. X is employed with XYZ Ltd. on a basic salary of Rs. 5000 p.m. He is also
entitled to a dearness allowance of 5% of basic salary. He is entitled to HRA of Rs. 3000 p.m.
He takes an accommodation on rent in Kolkata and pays Rs. 2500 p.m. as rent for the
accommodation. Compute his taxable HRA.
Assessee: Mr. P.Y.: 2010-11
Status: Individual A.Y.: 2011-12
Amount Amount
House Rent Allowances Received 36,000
Less: Exemption available U/s 10(13A)
Least of the following :
(i)Amount actually received 36,000
(ii) Rent paid (-) 10% of salary
(a) Rent paid 25x12 30,000
(b) 10% of salary (5000+250)x12 6300 23,700
(iii) 50% of salary i.e.1/2 x 6300 31,500 23,700
TAXABLE HRA 12,300
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
B. Special Allowances [exempt U/s 10(14) read with Rule 2BB]
The following allowances are exempted at lower of amount received or the following limits:
I. ALLOWANCES EXEMPTED UPTO FIXED LIMITS, IRRESPECTIVE OF
EXPENDITURE INCURRED
1. Children Education Allowance: Upto Rs. 100 p.m. per child upto a maximum of 2 children
2. Hostel Expenditure Allowance: Upto Rs. 300 p.m. per child upto a maximum of 2 children
3. Transport Allowance: Upto Rs. 800 p.m. for commuting between place of his residence and
place of his duty. But in case of an employee who is bilnd or orthopaedically handicapped with
disability of the lower extremities of the body, to meet his expenditure for commuting between
his residence and place of duty -Rs. 1,600 per month.
4. Allowance to an employee of transport company for meeting expenditure during his duty of
running of such transport (provided he is not in receipt of daily allowance): 70 % of the
allowance or 6000 p.m. whichever is lower.
20
II. ALLOWANCES EXEMPTED UPTO EXPENDITURE INCURRED FOR OFFICE
PURPOSE
The following allowances are exempted upto the amount spent
for office purpose:
(i) Travelling or Transfer Allowance ;
(ii) Conveyance Allowance ;
(iii) Daily Allowance;
(iv) Helper Allowance;
(v) Academic Allowance;
(vi) Uniform Allowance
Thus if an employee receives Rs. 1000 as travelling allowance and he incurs Rs. 800 to meet
travelling expenditure during the course of employment then Rs. 200 (Rs. 1000 - Rs. 800) would
be taxable.
21
3. The exemption is available in respect of two journeys performed in a block of 4 calendar
years commencing from 2006-2009 and 2010-13. This means that the assessee shall be entitled
to claim exemption on two occasions in every block of 4 years.
4. Where an assessee has not availed any travel concession in any specified block of 4 years or
availed only one leave travel concession, then he can carryover leave travel concession in
respect of one journey in the first calendar year of the next block.
5. For this purpose family means: (a) the spouse and children of the individual and (b) the
parents, brother and sisters of the individual who are wholly or mainly dependent on him.
(iv)Any sum payable by the employer, whether directly or through a fund, other than a
recognised provident fund or an approved superannuation fund or a Deposit-linked Insurance
Fund to effect an assurance on the life of the assessee or to effect a contract for an annuity; and
(v) The value of any other fringe benefit or amenity as may be prescribed.
22
(vi) The value of any specified security or sweat equity shares allotted or transferred, directly or
indirectly, by the employer, or former employer, free of cost or at concessional rate of the
assessee.
(vii) The amount of any contribution to an approved superannuation fund by the employer in
respect of assessee, to the extend it exceeds Rs. 1,00,000;
(vii) - the value of any other fringe benefit or amenity as may be prescribed ;
15% of salary
Or
Rent paid by
Employer –
Whichever is lower
If population less if population If population
10 Lacs 10-25 Lacs > 25 Lacs
7.5% of salary 10% of salary 15% of salary
If the employer provides furniture also then the amount to be added shall be 10%o p.a. of the
Cost of furniture of hire charges as the case may be.
(1) In all the above cases the amount of perquisite shall be reduced by the amount of expenses
reimbursed by the employee.
23
(2) For this purpose Salary means: Basic Salary + D.A. forming part of retirement benefits
taxable allowances + bonus + commission + any monetary payment (i.e. Bonus, Leave Salary
and commission) paid by the employer but does not include employer's contribution to Provident
Fund and value of any perquisites.
(3)Salary is to be calculated on due basis and whether received from that employer or other
employer.
(4) Where on account of the transfer of an employee from one place to another, he is provided
with accommodation at the new place of posting while retaining the accommodation at the other
place, the value of perquisite shall be determined with reference to only one accommodation
which has the lower value for a period not exceeding 90 days and thereafter the value of
perquisite shall be charged for both the accommodations.
(5) If a hotel accommodation is provided in a remote area to an employee working at a mining
site or an on shore oil exploration site, or a project execution site or an accommodation provided
in an offshore site of similar nature the perquisite value shall be NIL. Remote area means an
area that is located at least 40 kms away from a town having a population not excedng 20,000
based on latest published all India census.
(6) But hotel accommodation shall not be regarded as perquisite if the following two
conditions are satisfied:
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(i) The hotel accommodation is provided for not more than 15 days and (ii) such
accommodation is provided on an employee's transfer from one place to another.
(7) While calculating the value of perquisite any advance paid by the employer to the landlord
shall not be taken into account nor can the same be considered as a loan to the employee.
Example 6: Salary of an employee consists of (1) Basic Salary Rs. 1,00,000 per annum (2)
Dearness Allowance Rs. 50,000 per annum (3) a rent free house is provided to employee.
Computte Income from Salaries:
Solution:
Computation of Income from Salaries
Basic Salary 1,00,000
Dearness Allowance 50,000
Perquisite Value of Accommodation 22,500
(15%ofRs. 1,50,000)
SALARIES -- 1,72,500
Car
Education
Personal
(ii) But perquisite shall not be taxable if
(a) loan is taken for medical treatment of specified diseases (The exemption is not
available on so much of loan as has been reimbursed to the employee under medical
insurance scheme) or
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(b) if original loan does not exceed Rs. 20000.
(iii) Further interest shall be calculated on the balance outstanding on the last day of each
month
(i) The amount of perquisite shall be reduced by the amount of expenses
reimbursed by the employee.
25
3 Use and Transfer of Moveable Assets to employee or member of household
Use Transfer
OTHER PERQUISITES
4. Rule 3 (3): Value of Sweeper, gardener, watchman, personal attendant provided by employer:
Fully Taxable
5. Rule 3(4): Supply of Gas, electric energy or water: Fully Taxable
6. Rule 3(5): Education Facilities
If the employer provides education facility to employee's children and cost of education facility
in similar institution does not exceed Rs. 1,000 p.m. then nothing shall be taxable. If it exceeds
Rs. 1,000 p.m. then entire amount shall be taxable.
7. Shares allotted by Employer to employee under Employees Stock Option Plan shall be
taxable as under:
No. of Shares allotted (FMV of shares on the date of exercising option - Allotment Price)
Fair Market Value shall be caculated as under:
a) For listed equities = average of opening and closing price of shares listed or stock exchange
on date of exercising of option less any amount recovered from the employee.
b) For unlisted equities
Perk value of unlisted sweat equity shares and other security allotted or transferred free of cost
or at concessional rates shall be the fair market value as determined by the category -1 Merchant
Banker.
26
Example: The employer allots 1000 shares to employee to its employee at a concessional rate
of Rs. 40. Opening Market Value Rs. 70 and Closing Market Price is Rs. 70. Therefore, 1,000
shares x Rs.(60 -40) = 20 x 1,000 = Rs. 20,000 shall be regarded as the perquisite value of
shares allotted under ESOP and shall be taxable in the hands of the employee.
28
The facility provided by the employer is taxable in the hands of employee on the following
basis:
Fully Exempted Fully Exempted Fully Exempted Exempted up to Rs. 15,000 p.a
For this purpose family means: a. the spouse and children of the individual b. the parents,
brothers and sisters of the individual who are wholly or mainly dependent on him.
Medical Treatment in foreign country:
1. Medical treatment outside India stay abroad of employee or family member
and one attendant is exempted to the extent permitted by the Reserve Bank of
India.
2. Further the amount of traveli1qng expenses shall be exempt only if Gross Total Income
of the employee as computed before including traveling expenditure, does not exceed
200000.
Example 7: Mr. Healthy is working in Wealthy Ltd. at a Basic Salary ofRs. 1,00,000 p.a. .
During the year he suffered from Bird flu and accordingly was taken to USA for medical
treatment. The traveling expenses amounted to Rs. 75,000. The expenses in respect of treatment,
29
stay expenses and cost of medical attendant amounted to Rs. 90,000 (amounted permitted by RBI
Rs. 80, 000)
Solution: Rs.
Basic Salary 1, 00,000
Perquisite Value of treatment (90, 000 – 80,000) 10,000
PROVIDENT FUND
Note 1: In case of Recognised Provident Fund the amount received by the employees on
termination of services —Exempt from tax in the following situations:
• The employee has rendered continuous service with his employer for a period of 5 years
or more or
• If the employee has not rendered continuous service of 5 years, the service has
been terminated (a) by reason of such employee's ill health or (b)
contraction/discontinuance of employer's business or (c) due to reasons beyond
employees control or
• If on cessation of his employment, the employee obtains employment with any
other employer, to the extent the accumulated balance due and becoming payable to him
is transferred to his individual account in any recognised fund maintained by such other
employer.
Note 2: Meaning of Salary: For this purpose salary includes dearness allowance only if the term
of employment so provide, but excludes all other allowances or perquisites. [Rule 2(h) of Part A
of the Fourth Schedule of the Income Tax Act.] However Supreme Court has held in the case of
Gestetner Duplicators Pvt. Ltd. that commission, if received as a fixed percentage of turnover
achieved by the employee, would form part of the salary.
31
Note 3: What happens when the balance in unrecognised provident fund is transferred to
recognised provident fund?
When URPF is converted into RPF it is assumed that URPF is RPF from the beginning and
accordingly the employer's contribution in excess of 12% and interest on PF in excess of 9.5%
from beginning upto the date of conversion shall be taxable in the year of conversion. That part
of the accumulated balance which is not transferred and which relates to employer's contribution
and interest thereon is taxable as profit in lieu of salary.
Example 8: Mr. X retires from on December 1, 2010, after 15 years of service and received
from the Unrecognised Provident Fund Rs. 5,00,000. Out of the amount received from the
provident fund, the employers share was Rs. 1,70,000 and the interest thereon Rs. 50,000. The
employee's share was Rs. 2,20,000 and the interest thereon Rs. 60,000. What is the taxable
Note: The employee's share received from the URPF is exempt from tax
32
(iii) any sum received under a Keyman insurance policy including the sum allocated by way of
bonus on such policy.
(iv)any amount due to or received, whether in lump sum or otherwise, by any assessee from any
person whether before joining or after cessation of his employment with that person.
Approved Superannuation Fund:
Superannuation Fund is also a scheme for retirement benefits of the employees. It is
usually established under trusts by an undertaking for the purpose of providing annuities
etc. to the employees on their, retirement or on their being incapacitated prior to their
retirement etc. The tax treatment of approved Superannuation Fund is discussed below:
• Employee's Contribution - Deduction U/s 80C
• Employer's contribution - Taxable in excess of Rs. 1,00,000 p.a. per employee
• Interest - Exempt from tax
33
Solution:
Case 1: Deduction U/s 16(ii) - least of the following:
Entertainment Allowance received: Rs. 4,800
20% of Basic Salary : Rs. 2,400
Maximum Deduction Limit : Rs. 5,000
Case 2: No deduction shall be allowed U/s 16(ii) as Mr. X is not a Govt, employee.
2. Professional Tax [Section 16(iii)l
34
INCOME FROM HOUSE PROPERTY
(Sections 22 to 27)
INTRODUCTION
The Chargeability (Section 22)
The following conditions must be satisfied in order to charge any income under the head Income
from House Property :
1. The property must consist of buildings and lands appurtenant thereto;
2. The assessee must be the owner of the property and
3. The assessee must not use the property for the purpose of business carried on by him.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
From above it is clear that the following income shall not be charged to Income from House
Property :
1. Rental Income from any vacant land not consisting of any building
2. Where the assessee sublets any property i.e. where assessee is not the owner of the
property but is himself a tenant and again lets out the property to another person and
derives rental income.
3. Where the property is let out for the benefits of the business.
The term House Property does not mean that the property must be let out for residential puipose
only. Commercial buildings, Office Buildings, warehouse are also covered therein. Property in
foreign country is also taxed under the head Income from House Property.
Computation
Income from House Property is computed in the following manner:
PARTICULARS AMOUNT
Gross Annual Value
Less : Municipal Tax Paid
Net Annual Value
Less: Deductions U/s 24
Standard Deduction u/s 24(a)
(30% of Net Annual Value)
Interest u/s 24(b)
INCOME FROM HOUSE PROPERTY
From the above mode of Computation it is clear that determination of Gross Annual Value is the
most important element. For the purpose of determination of Gross Annual Value we classify
house property into following categories :
1. Property let out throughout the year
2. Partly let out partly vacant.
3. Partly let out partly self occupied
35
4. Self occupied or non occupied due to employment
Expected Rent is the higher of Gross Municipal Value or Fair Rent, but will not exceed the
Standard Rent [Shield Kaushish Vs. CIT 1981 131 ITR 435 (SC)] , if any. This means that
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
expected rent will be at first taken at higher of Gross Municipal Value and Fair Rent. If the
resultant figure exceeds the Standard Rent then Standard Rent shall be taken as the Expected
Rent. But if the resultant figure is less than the Standard Rent then it can be taken as Expected
Rent. Thus if:
Municipal Value 50 60 70
Fair Rent 55 58 80
Standard Rent 54 75 50
Expected Rent 54 60 50
(b) Further, Municipal tax will be allowed as deduction only if the same is paid by the owner.
No deduction will be allowed towards Municipal Tax if it is paid by tenant.
(c) It is to be noted only municipal tax which is actually paid is allowed as deduction
irrespective of the year to which it relates. Municipal Tax which is outstanding is not allowed
as deduction.
36
(d)It is not only the Municipal Tax which is allowed as deduction. In fact, all taxes levied by
local authority are allowed as deduction provided it is paid during the previous year. However
taxes levied by State Government are not allowed as deduction. In order to identify whether
the tax is levied by local authority or State Government it must be remembered that all taxes
levied by State Government will have the words 'State' or 'Benefit'. Thus Water Benefit Tax is
levied by State Government and therefore will not be allowed as deduction. But Water Tax is
levied by local authority and will be allowed as deduction.
UNREALISED RENT
Explanation to Section 23(1) states that the actual rent does not include the amount of rent
which the owner cannot realise. But the following conditions must be satisfied before the
assessee can claim any amount as unrealised rent (Rule 4 of the Income Tax Rules):
1. The tenancy is bonafide ;
2. the defaulting tenant has vacated, or steps have been taken to compel
him to vacate the property ;
3. the defaulting tenant is not in occupation of any other property of the
assessee;
4. The assessee has taken reasonable steps to institute legal proceedings for the recovery
of the unpaid rent or satisfies the A.O. that legal proceedings would be useless.
PARTLYLETOUTANDPARTLYVACANT
Section 23 states that for the purposes of section 22, the Gross annual value of any property shall
be deemed to be—
(a) Expected Rent, or
(b) where the property is let out and was vacant during the whole or any part of the previous
year and owing to such vacancy the actual rent is less than Expected Rent, then such
Actual Rent shall be the Gross Annual value.
38
PARTLY LET OUT AND PARTLY SELF OCCUPIED
A House Property can be partly let out and partly vacant in two manners - area wise or period
wise.
1. When the owner of the house lets out the house for a part of the year and lives in the house
for part of the year then the house is said to be Partly let out partly self occupied - period wise. In
this case the period for self occupation is irrelevant. The expected rent shall be taken for full year
and actual rent only for the period let out.
4. A person who is allowed to take or retain possession of any building or part thereof in part
performance of a contract of the nature referred to in section 53 A of the Transfer of Property
Act, shall be deemed to be the owner of that building or part thereof;
5. If lease is for 12 years or more then the lessee shall be deemed to be the owner of the
property.
39
Recovery of Unrealized Rent
Where a deduction has been claimed and the same has been allowed to the assessee in respect of
unrealized rent and the assessee realizes that amount subsequently then the amount so realized
shall be chargeable to tax under the head Income from House Property whether the assessee is
the owner of that property or not in the year of recovery.
Example: Compute the amount of unrealised rent taxable in each of the following cases:
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Case 1: X claimed a deduction in respect of unrealised rent Rs. 5,000 in the Asst. Year 1999-
2000. The Assessing Officer however did not allow the deduction on the ground that conditions
stated in Rule 4 is not satisfied. He receives the entire amount in the current year.
Case 2: X claimed a deduction in respect of unrealised rent Rs. 8,000 in A.Y. 2003-04. The
entire amount was allowed as deduction in the Asst. proceedings. During the previous year
2010-11 X recovered Rs. 6,000 in respect of the unrealised rent.
Answer:
Case 1: Since Deduction has not been allowed in earlier years the recovery amount is also not
taxable
Case 2: The entire amount recovered Rs. 6,000 is taxable under the head House Property.
Arrears of Rent Received (Section 25B)
Any amount received as arrears of rent from such property, not charged to income-tax for any
previous year, the amount so received, after deducting 30% of such amount, shall be taxable
under the head "Income from house property" in the year in which such rent is received,
whether the assessee is the owner of that property in that year or not.
Example 3: X let out a house w.e.f 1/4/2008 to Mr. Y at a monthly rent ofRs. 5,000 p.m. for a
period of two years. While renewing the agreement on 1/4/2010 it was provided that Y shall pay
at a revised rent of Rs. 8,000 p.m. with retrospective effect from 1/4/2008. The house was
completely destroyed on 15/4/2010 by fire. X received the amount on 1/5/2010. Discuss the
treatment of arrear rent so received.
Answer:
Arrears of Rent Received from 1/4/2008 to 31/3/2010 72,000
[8,000 - 5,000] x 12 months x 2 years
Less: Standard Deduction U/s 25B @ 30% 21,600
Taxable Amount 50,400
40
COMPOSITE RENT
Where the owner of the building gets along with the rent hire charges for other assets such as
furniture or services charges for certain services such as security, lift etc. the total amount so
received is known as Composite Rent. The tax treatment of Composite rent is as follows : -
(a) Where Composite rent consists of rent for building and hire for other assets and the two
rents are inseparable then the entire income shall be chargeable as Business Income or Other
Sources (Supreme Court in the case of Sultan Bros. (P) Ltd. V CIT 1964 51ITR 353.)
(b) Where rent for building and rent for assets are separable then rent for building is charged to
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
tax under House Property and rent for assets under Other Sources.
(c) When composite rent consists of rent for building and it includes service charges for some
services then composite rent is split into rent and service charges and rent is assessed under
House Property and Service charges under Business Income.{The Calcutta High Court case of
Kanak Investments Pvt. Ltd.)
Example 4: Mr. Bharat owns a commercial Complex at Kolkata. He is in the business of letting
out premises on rent. The property has been let out an annual rent of Rs. 18,00,000. This rent is
inclusive of Rs. 1,00,000 towards of lift maintenance; Rs. 50,000 towards car parking facility
and Rs. 1,50,000 towards other services. The Annual Municipal Value of the property is Rs.
16,00,000 and Municipal taxes paid amounted to Rs. 2,00,000. Interest on Loan amounted to Rs.
1,00,000. The expenses incurred towards the service provided amounted to Rs. 80,000. Compute
Gross Total Income of Mr. Bharat.
Example 5: Rajesh, an Indian owns a house in London, which he has let out at pound sterling
10,000 p.m. The municipal taxes paid to the Municipal Corporation of London, is pound 8,000
during the P. Y.2010-11. The value of one pound sterling in Indian rupee to be taken at Rs.82.50.
Compute Rajesh's taxable income for the A.Y.2011-12.[Nov. 2010 Question - Modified]
43
PROFITS OR GAINS OF BUSINESS OR PROFESSION
(Sections 28 TO 44D)
THE CHARGEABILITY
Section 28: Income Chargeable under the Head Business/Profession
The following incomes shall be chargeable to income tax under the head "Profits and gains of
Business or Profession":
(ii)any compensation received under United Nations Environment Programme for depletion of
Ozone Layer in accordance with agreement with Government of India.
(x) any sum, whether the received or receivable, in cash or kind on account of any capital assets
(other than land or goodwill or financial instrument) being demolished destroyed ,discarded or
transferred , if the whole of the expenditure on such capital asset has been allowed as deduction
u\s 3 5AD.
DEPRECIATION
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Section 32 allows deduction in respect of depreciation allowance resulting from diminution or
exhaustion in the value of certain assets. The allowance of depreciation which is regulated by
Rule 5 of the Income Tax rules is subject to the following conditions:
1. Asset must be tangible asset being building, plant & Machinery and furniture and fixture or
intangible asset being patent, copyright, trademark license, franchise or any other commercial
right of similar nature.
Buildins. No depreciation is allowed to the cost of land as the building refers only to the
superstructure but not the land on which the building is erected. The term building includes
roads, bridges, culverts, tubewells and wells.
Plant includes "Ships, books, vehicles, surgical equipments and scientific apparatus." It
also includes computers.
Rates of Depreciation
46
Concept Capule 1: Determine the rate of depreciation I each of the following cases: Assume
depreciation rete = 15%
(a) Asset purchased on 01/07/2010 but put to use of 01/12/2010
47
(ii) When all the assets in the block are sold. Resulting figure is short term capital gain or short
term capital loss.
Rate of depreciation
Buildings (residential) 5%
Buildings (office/factory) 10%
Furniture & Fixtures 10%
Plant and Machinery
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Block 1 -.Plant & Machinery and Motor Car 15%
Block 2: Ship and vessels 20%
Block 3: Motor Buses etc. which are used in a business
of running them on hire 30%
Block 4: Computers including Computer Software and books
(other than annual publication 60%
Block 5: Air/ water pollution control equipments, Books which
Are annual publications and Books for asssessee running lending
Library 100%
48
Solution: Rs. Rs.
Block 1 (Furniture 10%)
Opening WDV on 1.04.10 5,00,000
Add: Assets acquired during the year
1. 5 Furniture on 5.07.10 – used for
more than 180 days 4,00,000
2. 2 Furniture on 10.01.11 –used fro
Less than 180days 3, 00,000 7, 00,000
12,00,000
Less: sale realization 10,00,000
Balance 2,00,000
Depreciation @ 5% (A) 10,000
SPECIAL DEDUCTIONS
52
the previous year in which the extension of the undertaking is completed, or, as the case may be,
the new unit commences * production or operation.
53
However, the amount paid on account of the cost of repairs and the amount paid on the
cost of current repairs shall not include any expenditure in the nature of capital
expenditure.
Repairs & Insurance of Machinery, Plant & Furniture [Section 31]
Section 31 allows deduction in respect of the expenses on current repairs & insurance of
machinery , plant and furniture in computing the income from business or profession .
However, the amount paid on accountof the cost of repairs and the amount paid on the
cost of current repairs shall not include any expenditure inthe nature of capital
expenditure.
1.Section 36(l)(i) provides deduction in respect of insurance premium against risk of
damage or destruction of stocks or stores, used for the purposes of business or
profession.
2 Section 36(1 )(i) provides deduction in respect of insurance premium paid by a federal milk co-
operative society on the lives of cattle, owned by the members of a primary milk co-operative
society affiliated to it.
3. Section 36(l)(ib) provides deduction for insurance premium paid other than cash on the health
of the / employees in accordance with scheme framed by the General Insurance Corporation and
approved by the Central Government.
4. Section 36(l)(ii) provides deduction in respect of Bonus or Commission paid to the
employees. The deduction is allowed only if Bonus or Commission is paid to the employees not
as profits or dividend. Further Bonus or commission is allowed as deduction only where payment
is made during the previous year or on or before the due date of furnishing income tax return U/s
139.
5. Employer's contribution to Recognised Provident Fund or Approved Superannuation Fund
Section 36(l)(iv) provides deduction in respect of Employer's contribution to Recognised
Provident Fund or Approved Superannuation Fund. The deduction is, however, subject to
the provisions of Section 43B.
6. Contribution towards approved Gratuity Fund: [Section 36(1)(v)]
Section 36(1) (v) provides deduction in respect of employer's contribution towards
an approved gratuity fund created by him exclusively for the benefit of his
employees under an irrevocable trust.
Section 36(l)(iii) provides deduction in respect of interest paid or payable on capital borrowed
for the purpose of business or profession. The deduction is however subject to the provisions of
Section 43B discussed later.
Explanation to Section 36(l)(iii) provides that any amount of interest paid, in respect of capital
borrowed, for acquisition or extension of existing business or profession (whether capitalised in
the books of account or not) for any period beginning from the date on which the capital was
borrowed for acquisition of the asset till the date on which such asset was first put to use shall
not be allowed as deduction. It has to be capitalised.The term interest is defined U/s 2(28A) to
mean interest payable in any manner in respect of any moneys borrowed or debt incurred
(including a deposit, claim or other similar right or obligation) and includes any service fee or
other charge in respect of the moneys borrowed or debt incurred or in respect of any credit
money of any credit facility which has not been utilised.
As per Section 36(1) (vii) any amount written off as bad debts as irrecoverable in the accounts of
the assessee for the previous year shall be allowed as deduction if:
(a) such debt or part thereof has been taken into account in computing the income of the
assessee of the previous year or earlier previous year or
(b) It represents money lent in the ordinary course of the business of banking or money lending
which is carried on by the assessee.
Example.(i) Bad Debt on account of sales shall be allowed as deduction, because sales has been
taken into account while computing the income of the assessee
(ii) Bad Debt of interest receivable shall be allowed as deduction, because interest has been
taken into account while computing the income of the assessee
(iii) Bad debt of a loan in case of an assessee carrying on the business of banking or money
lending shall also be allowed as deduction as point (b) above
(iv) Bad debt of an advance given for purchase of a capital asset shall not be allowed as
deduction as none of the conditions stated in point (i) or (ii) above is satisfied.
Bad Debt Recovery:
55
Section 40A(2) provides that where the assessee incurs any expenditure in respect of which a
payment has been made or is to be made to a relative or to an associate concern so much of the
expenditure as is considered to be excessive or unreasonable shall be disallowed by the
Assessing Officer.
(i) The word 'Relative' means for an individual spouse, any brother, sister, lineal ascendant or
descendent of such individual;
(ii) Where the assessee is a firm, H.U.F. or an AOP the relationship will have to be reckoned for
the purpose, with reference to the partners of the firm and the members of the family or
association
(iii) Where the assessee is a company the relationship will have to be reckoned for the purpose,
with reference to the directors or persons having substantial interest in the company.
Meaning of Substantial Interest
A person shall be deemed to have a substantial interest in a business or profession -In a case
where the business or profession is carried on by the Company, such person is, at any time,
during the previous year, the beneficial owner of equity shares carrying not less than 20%
voting power.
- In any other case such person is, at any time, during the previous year, beneficially entitled to
not less than 20% of profits.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
-
2. PAYMENTS EXCEEDING Rs. 20,000 BY CASH/BEARER CHEQUE ETC.
(h) where any payment is made to an employee of the assessee or the heir of any such employee,
on or in connection with the retirement, retrenchment, resignation, discharge or death of such
employee, on account of gratuity, retrenchment compensation or similar terminal benefit and the
aggregate of such sums payable to the employee or his heir does not exceed Rs. 50,000.
59
(i) Where the payment is made by an assessee by way of salary to his employee after deducting
the income-tax from salary in accordance with the provisions of section 192 of the Act, and
when such employee—
(a) is temporarily posted for a continuous period of fifteen days or more in a place other than
his normal place of duty or on a ship; and
(b) does not maintain any account in any bank at such place or ship;
(j) Where the payment was required to be made on a day on which the banks were closed either
on account of holiday or strike.
(k) Where the payment is made by any person to his agent who is required to make payment in
cash for goods or services on behalf of such person.
(1) Where the payment is made by an authorised dealer or a money changer against
purchase of foreign currency or travellers cheques in the normal course of his business.
Section 40A(7) of the Income Tax Act, provides that no deduction would be allowable for
provision for gratuity to his employees on termination of their employment. Following shall
however be allowed as deduction:
(i) Any provision made by the assessee for the purpose of payment of a sum by way of
contribution towards an approved Gratuity Fund or
(ii) the amount of gratuity that has become payable during the previous year to employees.
Certain Deductions to be allowed on payment basis only (Sec43B)
The following deductions shall be allowed only if they are paid during the relevant previous year
or before the due date of filing of return:
1. Any sum payable by way of tax, duty, cess or fee, by whatever name called under any law for
the time being in force
2. Any sum payable as bonus or commission to employees for services rendered
3. Any sum payable as interest on any loan or borrowing from a Public FinancialInstitution (i.e.
ICICI, IFCI, IDBI, LIC and UTI) or a state financial corporation or a state industrial investment
corporation
4. Interest on loan or advance taken from a scheduled bank including a co-operative bank.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
5. Any sum payable by an employer in lieu of leave at the credit of his employee
6. Any sum payable by the assessee as an employer by way of contribution to any provident
fund or superannuation fund or gratuity fund or any other fund for the welfare of employees.
Note: If payment is not made within the relevant date stated above then no deduction shall be
allowed in computing business income of that year. But the same shall be allowed as deduction
in the year of payment
60
It is to be noted that deduction in respect of interest to Scheduled Banks (including co-
operative Banks) or Financial Institutions shall be allowed only if such interest has been
actually paid and any interest which has been converted into loan or advance shall not
been deemed to have been actually paid.
Method of Accounting
Section 145 provides that income under the head "Profits and Gains of Business or Profession"
or "Income from Other Sources" has to be computed in accordance with either cash or
mercantile system of accounting regularly employed by the assessee.
Method of Accounting in certain cases [Sec. 145A]
Notwithstanding anything to the contrary contained in section 145,-
(a) the valuation of purchase and sale of goods and inventory for the purposes of determining the
income chargeable to income under the head "PGBP" shall be-
(i) in accordance with the method of accounting regularly employed by the assessee ; and
(ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name
called ) actually paid or incurred by the assessee to bring the goods to the place of its location
and condition as on the date of valuation.
Explanation to Section 145A provides that such levies should be included notwithstanding any
right arising as a consequence to such payment. For instance, MOD VAT credit, if any, will not
be deductible.
Sectiion 44AD: Special provision for computing profit and gains of business on
presumptive basis
The salient features are as follows :-
1. The Scheme shall be applicable to individual, HUFs and partnership firm excluding
limited liability partnership firm. It shall also not applicable to an assessee who is
avilaing deduction under section 10A, 10AA,B,BA,or deduction under any provisions of
62
63
b. an inventory under broad heads, as on opening and closing days of the previous year, of the
stock of
drugs, medicines , and other consumable accessories used for the purpose of his profession.
The following points also need consideration :
The aforesaid books of account and documents should be kept and maintained by the person at
the place where he is carrying on the profession The aforesaid books of account and documents
should be kept and maintained for a period of 6 years.
Audit of accounts of certain person [Sec.44AB]
As per the provisions of Section 44AB, the following persons must get their accounts
compulsorily audited by a chartered accountant by the specified date and also furnish the audit
report in the prescribed form on or before the specified date:
1. A person carrying on business; if the total sales, turnover or gross receipts in business
exceeds Rs.60 lakhs in any previous year.
2. A person carrying on profession, if his gross receipts in profession exceed Rs.15 Lakhs in
any previous year.
3. An assessee covered under 44AE/44AD who claims that the profits and gains from the
business are lower than the profits and gains computed in accordance with these sections.
PARTNERSHIP FIRM
Total Income of the partnership firm will be determined as a separate entity and it will be
computed under various heads of Income. But while computing Business Income a deduction
shall be allowed to the firm on account of interest or remuneration payable to partners. Section
40(b) deals with the amount which are not deductible in the hands of the firm. Therefore,
deductions on account of interest and remuneration to partners can be claimed U/s 36 or 37
subject to the conditions laid in Section 40(b).
Interest to Partners
64
Remuneration to Partners
(i) Payment of salary, bonus, commission or remuneration by whatever name called to a non-
working partner shall not be allowed as deduction.
(ii) Payment of remuneration to working partners and interest to any partner shall be allowed as
deduction only when it is authorized under Partnership deed.
(iii) The amount of remuneration paid to all the partners in aggregate shall not exceed the
following amounts:
On the first Rs. 3,00,000 of the book profit Rs. 1,50,000 or 90% of book profit whichever Or in
case of a loss is more. On balance @60%
Book profit means profit as computed in accordance with the provisions but before
remuneration paid to partners.
Treatment in the hands of the Partner
1. Share of Profit of the partner in the total income of the firm is exempted U/s 10(2A).
2. Interest and remuneration to partner shall be taxable in the hands of the partner
under the head Business/Profession only to the extent the firm gets deduction for the
same
Interest to representative Partner
When an individual is a partner in a firm on behalf of or for the benefit of any other person he is said
to be a representative partner. Interest paid to such individual as partner in representative capacity
and to the person so represented shall be governed by the provisions of Section 40(b). But interest
paid to such individual in other capacity shall not be governed by Section 40(b).
Example: X is the Karta of X(HUF). On behalf of the HUF he is a partner in M/s XYZ.
2 Asset acquired by way of gift or inheritance Actual Cost to the previous owner less the
depreciation allowable on that asset had it been
the only asset in the relevant block.
4A Sale and lease back transaction Actual cost of the asset in the hands of the
lessor shall be the same as the W.D.V. of the
said asset to the seller at the time of transfer
thereof.
5 Buildings brought into use for business Actual cost of the asset less all depreciation that
purpose subsequent to its acquisition would have been allowable had the, building
been used for business since its acquisition
In case of conversion of company into LLP The actual cost of the block of assets for LLP
referred to in 47(xiiib) shall be WDV of the block of the assets of the
company on the date of conversion
9 Actual cost of an asset in which the assessee Actual Cost less duty of excise/customs for
is entitled to MODVAT(CENVAT) which credit of MODVAT has been taken.
10 Where actual cost of an asset acquired by the (i)if the subsidy/grant/reimbursement is directly
assessee has been met, directly or indirectly, relatable to the asset, such subsidy shall not be
by the Central Government or State included in the actual cost or (ii) if the
Government or any Authority established subsidy/grant/reimbursement is not directly
under any law or by any other person in the relatable to any particular asset, such subsidy
form of subsidy or grant or reimbursement shall be apportioned to that particular asset in
the following manager cost of the particular
assets x amount of subsidy
Total cost of asset in respect of which subsidy is
recevid
(b) deposited any amount in Deposit Account opened by the assessee in accordance with, and for
the purposes specified in, a scheme framed by the Tea Board or Coffee Board or Rubber Board
with the previous approval of the Central Government.
On making the deposit within the stipulated time, the assessee will be entitled to a deduction
(such deduction being allowed before set off of any unabsorbed losses of previous years) equal
to the amount of deposit which will, however, be restricted to 40% of the profits of such
business.
Example 4: R Ltd. is engaged in the business of growing and manufacturing tea in India. For the
previous year ending on 31.3.2011 its composite business profits before allowing deduction u/s
33AB are Rs.60,00,000. On 1.9.2010. it deposited a sum of Rs. l 1,00,000 in the Tea
Development A/c. During the previous year 2004-05, R Ltd. had incurred a business loss of
Rs.14,00,000 which has been carried forward.
69
Solution:
Computation of Total Income of R Ltd.
Previous year 2010-11 (Assessment year 2011-12)
PARTICULARS AMT (Rs.)
Section 2(48) provides that a zero coupon bond must satisfy the following conditions:
1.it is a bond issued by the infrastructure capital company or infrastructure capital
fund or public sector company or scheduled bank.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
2. In respect of such bond, no payment or/benefit is received or
receivable before maturity/redemption from infrastructure capital
company or infrastructure capital fund or public sector company or scheduled bank.
3.Such bond is specified by the Central Government by notification in the official gazette.
Tax treatment in the hands of the company issuing such bonds
Discount shall be allowed as deduction on pro rata basis over the period of life
Of the bond commencing from the date of issue of the bond and ending on the
Date of redemption or maturity of such bond. Discount means the difference
Between amount received and the amount payable on maturity by the issuing company.
Example : X Ltd., an infrastructure Co. issued 10,000 ZCB @ 100 per bond.
These bonds are issued on 1/8/2010 and shall be redeemed on 1/8/2013 @ Rs. 136 per bond.
Solution : Total discount = 10,000 x Rs. (136 - 100)
- Rs. 3,60,000
Discount p.m = 3,60,000/36 = Rs. 10,000
Deduction
2010-11 = 10,000 x 8 months = 80,000
2011-12 = 10,000 x 12 months = 1,20,000
2012-13 - 10,000 x 12 months = 1,20,000
2013-14 = 10,000 x 4 months = 40,000
70
SECTION 35AD: DEDUCTION IN RESPECT OF EXPENDITURE ON SPECIFIED
BUSINESS
Specified Business
Deduction under section 3 5 AD is available only in the case of a "specified business" given
below
Specified business Who should own Approval (if Date
the business any)
of
commencement
Setting up and operating a Any person Not required On or after 1-4-2009
cold
chain facility
and
rehabilation in accordance
with scheme framed by
Government
(ii) Expenditure incurred prior to the commencement of operation, wholly and exclusively, for
the purpose of any specified business, shall be allowed as deduction during the previous year in
which the assessee commences the operation of his specified business, if the amount is
capitalized in the books of account of the assessee on the date of commencement of operation.
Additional Deduction: If operation of the business of laying and operating a cross-country
natural gas distribution network is commenced during 1-4-2007 and 31-3-2010, the capital
expenditure (not being for acquiring land or goodwill or financial instrument) incurred before 1-
4-2010 (to the extent not allowed as deduction under any section earlier) will be allowed as
additional deduction under section 3 5AD for the assessment year 2011-12.
12 Interest paid on money borrowed for Yes Commissioner of Income Tax Vs.
payment of dividend Changdeo Sugar Mills Ltd.
74
CAPITAL GAINS
CHAPTER 1: INTRODUCTION
The Chargeability TSec. 45(1)1
Any profit or gain arising from the transfer of a capital asset is chargeable to tax under the head
"Capital gains" in the previous year in which the transfer took place, if it is not eligible for
exemption under sections 54 to 54GA.
Meaning of capital asset [Section 2(14)1
75
1. Motor Car meant for personal use is not a capital asset as it is a moveable personal effect and
consequently there will be no capital gain on sale/transfer of Motor Car.
2. Mr. X sells his residential House. Since House is an immoveable property, it is a capital
asset, even though used for personal use.
3. Mr. X sells his Agricultural Land in Sri Lanka. Since the land is situated outside India is a
Capital Asset.
4. If the agricultural Land is located in India but in an area within jurisdiction of municipality,
say in Kolkata, then also it is a capital asset.
5. Mr. X sells his Land in a Village. The land was let out to a person who used it for
agricultural purpose. In the given case the land is an agricultural land and therefore is not a
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
capital asset. What is to be seen is the purpose for which the land is used and not whether the
owner uses it for agricultural purpose or not.
Transfer fSection 2(47)]
Transfer, in relation to capital asset, includes:
(i) the sale, exchange or relinquishment of the asset; or
(ii) the extinguishment of any rights therein; or
(iii) the compulsory acquisition thereof under any law;
(iv) Conversion of capital asset into Stock in trade.
(v) Any transaction involving possession in part perfonnance of the contract of the
Nature referred to in Transfer of Property Act; or
(vi) Any transaction which has the effect of transferring, or enabling the enjoyment
of any immoveable property.
(vii) The maturity or redemption of a zero coupon bond
CHAPTER 2: EXEMPTIONS UNDER CAPITAL GAINS
c. any transfer of a capital asset under a will or an irrevocable trust or a gift [sec.47 (iii).
However, transferunder a gift or an irrevocable trust of a capital asset being shares,
debentures or warrants allotted by a C Company, to its employees under the ESOP shall
be deemed as "transfer".
76
d. any transfer of a capital asset by a company to its wholly owned Subsidiary Company or
vice versa
provided the transferee Company is Indian Company. [Section 47(iv)]. The exemption shall
however be
withdrawn if:
(i) Such capital asset is converted by the transferee company into stock in trade at
any time before theexpiry of 8 years from the date of transfer of the capital asset
g. any transfer of shares in Indian company held by a foreign company to another foreign
company in pursuance of a scheme of amalgamation between the two foreign companies if
at least 25 per cent of the shareholders of the amalgamating foreign company continue to
remain shareholders of the amalgamated foreign company and such transfer does not
attract tax on capital gains in the country in which the amalgamating company is
incorporated [Section 47(via)]
h. any transfer in a demerger of a capital asset by the demerged company to resulting company
provided that resulting company is an Indian company .[Section 47(vib)]
i. any transfer of shares held in an Indian Company by a demerged foreign company to the
resulting foreign company if the following conditions are satisfied
i) the shareholders holding not less than three-fourths in value of shares of the demerged
foreign company continue to remain shareholders of the resulting foreign company ;
ii) such transfer does not attract tax on capital gains in the country, in which the demerged
foreign company is incorporated
77
j. any transfer or issue of shares by the resulting company in a scheme of demerger to the
shareholders of the demerged company if the transfer or issue is made in consideration of
demerger of the undertaking [see 47(vii)]
k. any transfer by a shareholder, in a scheme of amalgamation of share(s) held by him in
amalgamating company, if the transfer is made in the consideration of the allotment to him
of any share(s) in the amalgamated company and the amalgamated company is an Indian
Company.[sec. 47(vii)]
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
J. any transfer of a capital asset by a non-resident of foreign currency convertible bonds or
shares referred to in section 115AC(1) held by him to another non-resident where the
transfer is made outside India. [Sec.47(viia)]
m. any transfer of a capital asset, being any work of art, archaeological, scientific or art
collection, book, manuscript, drawing, painting, photograph or print, to the Government or
a University or the National Museum, National Art Gallery, National Archives or any other
such public museum or institution as may be notified by the Central Government
n. any transfer by way of conversion of bonds or debentures (or debenture stock or deposit
certificates) of a company into shares or debentures of that company. [Sec 47(x)]
p. any transfer of land under a scheme prepared and sanctioned under section 18 of the Sick
Industrial Companies (Special Provision ) Act, 1985, by a sick industrial company which is
managed by its workers' co-operative provided such transfer is made in the period of its
sickness, [sec 47(xiii)].
q. any transfer of a capital asset to the company where a firm is succeeded by a company in the
business carried on by it subject to following conditions -
i. all the assets and liabilities of the firm relating to the business immediately
before the succession shall become the assets and liabilities of the company ;
ii. all the partners of the firm immediately before the succession become
theshareholders of the company in the same proportion in which their
capital accounts stood in the books of the firm on the date of succession ;
78
iii. the partners of the firm do not receive any consideration or benefit directly or indirectly,
in any form or manner other than by way of allotment of shares in the company ;
and
iv. the aggregate of the shareholding in the company of the partners of the firm is not less
than 50 per cent of the total voting power in the company and their shareholding continues
to be as such for a period of five years from the date of the succession [sec. 47(xiii)] ;
r. any transfer of a capital asset to the company where a proprietary concern is succeeded by a
company in the business carried on by it subject to following conditions -
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
i. all assets and liabilities of the sole proprietary concern relating to the business immediately
before the succession shall become the asset and liabilities of the Company.
ii. the shareholding of the sole proprietor in the company is not less than 50
per cent of the total voting power in the company and shareholding shall
continue to so remain for a period of five years from the date of the
succession
iii.the sole proprietor does not receive any consideration or benefit directly or
indirectly, in any form or manner other than by way of allotment of shares
in the company [sec 47(xiv)]
s. any transfer of a capital asset by a private limited company or unlisted public
Company to a limited liability partnership or any transfer of shares held in the
Company by a shareholder as a result of conversion of company into a LLP shall
be exempted provided the following conditions are satisfied:
(i) All the assets and liabilities of the company relating to the business
Immediately before the succession shall become the assets and liabilities of the
LLP
(ii) All the shareholders of the company immediately before the conversion succession become
the partners of the LLP and their capital contribution and Profit sharing ratio in the LLP are in
the same proportion as their shareholding in the company on the date of conversion;
(iii) the shareholders of the company do not receive any consideration or benefit directly or
indirectly, in any form or manner other than by way of share in profit and capital contribution in
LLP; and
(iv)the aggregate of the Profit sharing ratio of the shareholders of the company in LLP is not less
than 50 per cent at any time for a period of five years from the date of the conversion ;
79
(v) the total sales, turnover or gross receipts in business of the company in any of the three
previous years preceding the previous year in which conversion takes place does not exceed Rs.
60 lakhs
(vi) no amount is paid directly or indirectly to any partner out of balance of accumulated profit
standing in the accounts of the company on the date of conversion for a period of 3 years from
the date of conversion.
t. any transfer involved in a scheme for lending of any securities subject to the guidelines issued
by the Securities and Exchange Board of India or Reserve Bank of India. [sec.47(xv)]
u. any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government. [Sec. 47(xvi)]
80
CHAPTER3:TYPESOFCAPITALASSETSANDPERIODOFHOLDING
Capital Assets
(A) For:
(a) Shares
(c) UTI
Up to 12 Months
Holding
In determining the period for which any capital asset is held by the assessee:
(i) in a case of a share held in a company in liquidation, there shall be an exclusion of the period
subsequent to the date on which the company goes into liquidation
(ii) in the case of a capital asset which becomes the property of the assessee in the circumstances
mentioned in Section 49(1), there shall be included the period for which the asset was held by
the previous owner referred to in the said section
(iii) in the case of shares in Indian Company allotted pursuant to amalgamation referred to in
section 47(vii) or demerger, there shall be included the period for which the shares in the
amalgamating company/demerged company were held by the assessee.
(iv) In the following cases the period of holding shall be determined in the given manner:
(1) In case of right shares the period shall be reckoned from the date of allotment of such
financial asset.
(2) In case of right entitlement, the period shall be reckoned from the date of offer of such right
by the company or institution to the date of renouncement, which in normal circumstances will
be short term.
(3) In case of bonus shares the period will be reckoned from the date of allotment
1. Cost of Acquisition when the asset is acquired before 1/4/1981 [Section 55(2)(b)]
(i) When an asset has been acquired by the (i) assessee or (ii) by the previous owner
from whom the asset was acquired by the assessee U/s 49(1) before 1/4/1981 the
assessee has an option to take either the actual cost of acquisition or the fair market
value of the asset as on 1/4/1981 to be the cost of acquisition for computation of capital
gain.
The option is however not available in respect of the following items:
(a) goodwill of a business or a trade mark or brand name associated with a business
or a right to manufacture, produce or process any article or thing or right to carry on
any business, tenancy rights, stage
carriage permits or loom hours and
(b) depreciable assets.
Note: (1) The option of substitution of Cost of Acquisition is available
in case of Bonus Shares. (2) Cost of Improvement before 1/4/1981 is
ignored.
2.Cost to the previous owner U/s 49:
Where the capital asset became the property of the assessee in any of the manner
mentioned below, the cost of acquisition of the asset shall be deemed to be cost for
which the previous owner acquired it:
(a) on the distribution of the assets on total/partial partition of Hindu Undivided Family;
(b) under a gift or will
(c) by succession, inheritance or devolution
(d) under a transfer to a revocable or irrevocable trust
(e) on any distribution of assets on the liquidation of the company
(f) on a transfer by a wholly owned Indian subsidiary company to its holding company or vice
versa;
(g) on any transfer in a scheme of amalgomation of two Indian Companies subject to
certain conditions U/s 47(vi)/(via)/(viaa)
(h) on any transfer in a scheme of amalgamation of two foreign companies subject to certain
conditions
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
83
(i) on conversion of self acquired property of a member of a Hindu Undivided Family to the joint
family
property.
In this connection the following points must be noted:
1. Previous owner means the last previous owner of the capital asset, who acquired it
through the mode of acquisition other than referred to in clauses (a) to (i) above.
Simply put, previous owner means the previous owner who actually paid for the asset.
2. Where the cost of the previous owner cannot be computed or ascertained, the fair
market value of the asset on the date on which it became the property of the previous
owner shall be the cost of acquisition..
49(2AA) Where the capital gain arises from Cost of acquisition of such security or
the transfer of specified security or shares shall be the fair market value which
sweat equity shares referred to sec. has been taken into account for the purposes
17(2)(vi) of the said sub clause.
49(2AAA) Rights of a partner inLLP in lieu of Cost of acquisitionin rights in firm shall be
shares in company cost of acquisition of shares in company
49(4) Where the capital gajn arises from the cost of acquisition of such property shall
the transfer of a property, the value be deemed to be the value which has been
of which has been subject to tax u/s. taken into account for the purposes of
56(2)(vii) computing taxable gift u/s. 56(2)(vii).
55(2) Right Shares The amount actually paid for acquiring the
right shares plus the amount paid to the
person renouncing the right, where the right
shares have been acquired from the original
shareholder
(ii) In such a case, the fair market value of the asset on the date of such conversion shall be the
full value of the consideration for transfer of the capital asset.
86
4.Capital Gain on transfer of a capital asset by a firm/AOP/BOl by way of on its dissolution
to its partner/member: [Section 45(4)1
In the case of distribution of capital assets on the dissolution of a firm or AOP or BOI or
otherwise, the fair market value of the asset on the date of such transfer shall be the full value of
the consideration.
5.Capital Gain on compulsory acquisition of an asset: [Section 45(5)1
(i) Where a capital asset has been compulsorily acquired under any law or the consideration for
transfer of a capital asset is determined or approved by the Central Government or Reserve Bank
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
of India it will be treated as a transfer of the previous year in which the asset is compulsorily
acquired. However, capital gain will be taxable in the year in which the compensation or part
thereof is first received.
(ii) If the compensation is enhanced or further enhanced the additional compensation shall be
taxable in the year in which it is received. The cost of acquisition for the enhanced
compensation shall be taken at NIL.
(iii) Furthc;, where by reason of the death of transferor, or for any other reason, the enhanced
compensation is received by any other person, then it shall be deemed to be capital gains of such,
other person.
6. Transfer of Securities by Depository [Section 45(2A)]
1. In respect of dematerialsed shares capital gain shall be chargeable in the hands of beneficial
owner.
2. In respect of demat shares the cost of acquisition and the period of holding of any securities
shall be determined on the basis of the first-in-first-out method.
7.Buy Back of Shares or other specified securities [Section46A]
Section 46A states that buyback of shares (or other specified securities) shall be treated as capital
gains in the hands of shareholder and the difference between the cost of acquisition and the value
of consideration received shall be deemed to be the capital gains in the year of buyback.
8. Special provision for full value of consideration in certain cases [Section
50C]
Section 50C provides that where the consideration on transfer of a capital asset, being land or
building or both, is less than the value adopted Stamp Valuation Authority for the purpose of
payment of stamp duty in respect of such transfer, the value so adopted or assessed or or
assessable shall, be deemed to be the full value of the consideration.
However, where
(a) the assessee claims before any Assessing Officer that the value adopted or assessed by the
stamp valuation authority exceeds the fair market value of the property as on the date of transfer;
(b) the value so adopted or assessed by the stamp valuation authority has not been disputed in
any appeal or revision or no reference has been made before any other authority, court or the
High Court,
87
the Assessing Officer may refer the valuation to a Valuation Officer U/s 55A. In such a case, fair
market value determined by the Valuation Officer or the value adopted by stamp valuation
authority - whichever is lower, shall be taken as the full value of the consideration.
Explanation 2—for the purpose of this section, the expression "assessable" means the price
which the stamp valuation authority would have, notwithstanding anything to the contrary
contained in any other law for the time being in force, adopted or assessed, if it were referred to
such authority for the purposes of payment of stamp duty.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
9. Capital Gain on transfer of depreciable Assets [Section 50]
Refer Notes on Profits or Gains of Business or Profession.
10. Computation of Capital Gains in the case of Slump Sale [Sec 50B] :
The provisions relating to computation of capital Gains in case of Slump Sale is discussed
below:
1. Any profit or gains arising from the slump sale effected in the previous year shall be
chargeable as Long term capital Gains and shall be deemed to be the income of the previous year
in which the transfer took place. Where, however, any capital asset being one or more
undertakings owned and held by the assessee for not more than 36 months is transferred under
the slump sale, then capital gains shall be deemed to be short term capital gain.
2. In the case of slump sale of the capital asset being more than one undertaking, the net worth
of the undertaking shall be taken as cost of acquisition and cost of improvement.
3. For computing the net worth, the aggregate value of total assets shall be, (a) in the case of
depreciable assets, the written down value of the block of assets determined as per section 43;
and (b) in the case of capital assets in respect of which the whole of the expenditure has been
allowed or is allowable as a deduction u/s. 3 SAD, NIL (c)in the case of other assets, the book
value of such assets. Provided that any change in the value of assets on account of revaluation
of assets shall be ignored for the purposes of computing the net worth
4. The benefit of indexation shall not be available.
11. Cost of acquisition in case of depreciable asset of Power Units [Section 50A]
Refer Notes on Profits or Gains of Business or Profession.
Reference to Valuation Officer [Section 55A]
With a view to ascertaining the fair market value of a capital asset, the Assessing Officer may
refer the valuation of capital asset to a Valuation Officer—
(a)in a case where the value of the asset is made by a registered valuer, if the Assessing Officer is
of opinion that the value so claimed is less than its fair market value ;
(b)in any other case, if the Assessing Officer is of opinion—
(i)that the fair market value of the asset exceeds the value of the asset as claimed by the assessee
by more
15% of the value of the asset as so claimed or by more than Rs. 25,000; or
88
(ii)that having regard to the nature of the asset and other relevant circumstances, it is necessary
so to do,The jurisdiction of the Valuation Officer has been defined under Rule 3A of The Wealth
Tax Rules. The valuation Officer exercises the same jurisdiction for Income Tax purposes also.
Reference to valuation officer
Asset in respect of Who Which asset should Amou When can the exemption
which capital can be acquired nt of
be withdrawn
Gain is exempted Clai exempt
m ion
Exe
mp-
ion
93
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
SOLVED EXERCISES
Example 1 : S an owner of 3 houses, sells a residential house property in Madras for Rs.
13,90,000 on May 23, 2010. This house was purchased by him on April, 1996 for Rs.2,90,000 .
On May 30, 2010, he purchased a flat in Bombay for Rs.8,70,000 for the purpose of the
residence of his son-in-law. On August 10, 2010, S sells the house in Bombay for Rs. 12,10,000.
Compute the capital gains arising on the two transactions. Is S eligible for exemption under
Sec.54 in respect of the second sale ?
Solution:
Computation of Capital Gains for A.Y. 2011-12
Rs.
Full Value of Consideration 13,90,000
Less: Indexed Cost of Acquisition [2,90,000 x 711/305] 6,76,033
Gross Long Term Capital Gain 7,13,967
Less: Exemption U/s 54 7,13,967
Long Term Capital Gain NIL
Note: To claim exemption U/s 54 the new house need not be used by the assessee.
Computation of Capital Gains for A.Y. 2011-12
Full Value of Consideration 12,10,000
Less: Cost of Acquisition [8,70,000- 7,13,967] 1,56,033
Short Term Capital Gain 10,53,967
Example2: On 25/4/2010, Sri Anirudh sold an urban agricultural Land for Rs. 50,00,000 which
had been using for agricultural purposes for several years. He acquired that land in 1979 for Rs.
2,50,000. The market value of such Land on 1/4/1981 was Rs.5,00,000. He purchased rural
agricultural Land for Rs. 10,00,000 on 25/6/2010 which was sold for Rs. 12,50,000 on
18/1/2011. A sum of Rs. 12,50,000 was also invested by him in the purchase of residential
property on 25/7/2010. He did not own any house property before this date. The new house
property was sold on 28/3/2011 for Rs. 15,00,000. Solution :
Solution:
(A) On Sale of Land
Full Value of Consideration 50,00,000
Less: Indexed Cost of Acquisition
[ 5,00,000 X 711/100] 35,55,000
Gross Long term Capital Gain 14, 45,000
Less: Exemption U/s 54B 10, 00,000
Taxable Long Term Capital Gain 4, 45,000
(B) On Sale of New House Property
94
Full Value of Consideration 15,00,000
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Less: Cost of acquisition 12,50,000
Short Term Capital Gain 2,50,000
Note: Since the assessee has sold the house in the same year he is not entitled to exemption
U/s 54F. Further since agricultural land in Rural area is not a capital Asset, therefore no
capital gains shall arise on its transfer.
FY CII FY CII EX CII
1981-82 100 1991-92 199 2001-02 426
1982-83 109 1992-93 223 2002-03 447
1983-84 116 1993-94 244 2003-04 463
1984-85 125 1994-95 259 2004-05 480
1985-86 133 1995-96 281 2005-06 497
1986-87 140 1996-97 305 2006-07 519
1987-88 150 1997-98 331 2007-08 551
1988-89 161 1998-99 351 2008-09 582
1989-90 172 1999-00 389 2009-10 632
1990-91 182 2000-01 406 2010-11 711
95
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
INCOME FROM OTHER SOURCES
(Section 56 to 59)
The Charqeabilitv TSection 56(1)1
Section 56(1) states that Income of every kind, which is chargeable to Income Tax but not
includible under
Certain Incomes which are always chargeable under the head Other Sources
Although Section 56(1) clarifies that Other Sources is a residuary head of Income, Section
56(2) states certain income which shall always be chargeable to Other Sources, namely.
(i')dividends ;
(ii) Casual Income in the nature of winnings from lotteries, crossword puzzles, races including
horse races, card games etc.
(iii) Following sums if these are not chargeable under Business Income (and Salaries in case
of Keyman Insurance Policy)
(a) any sum received from employees as contribution to any provident fund or other welfare
fund.
(b)income by way of letting of owned machinery, plant or furniture, interest on securities,
(c)any sum received under Keyman Insurance Policy
(iv) income by way of interest received on compensation or on enhanced compensation
referred to in section 145A(2). [Sec. 56(2)(viii)]
Any Sum of money or any property received without consideration [Section 56(2)(vii):
Where an individual or H.U.F. receives in any previous year from any person or persons on or after
1st day of October,2009;
a) any sum of money without consideration, the aggregate value of which exceeds Rs. 50,000
the whole of the aggregate value of such sum shall be treated as income of the individual or
HUF.
b) any immovable property without consideration, the stamp duty value of which exceeds Rs.
50,000 , the stamp duty value of such property the shall be treated as income of the individual
or HUF.
c) any property other than immovable property
i) without consideration, the aggregate fair market value of which exceeds Rs. 50,000 the whole of
the aggregate fair market value of such property shall be treated as income of the individual or
HUF.;
ii) for a consideration which is less than the aggregate fair market value of the property by an
amount exceeding Rs. 50,000 the aggregate fair market value of such property as exceeds such
consideration shall be treated as income of the individual or HUF. Provided that where the
stamp duty value of immovable property as referred in sub clause (b) is disputed by the
96
assessee on grounds mentioned in section 50C(2) the Assessing officer may refer the valuation
of such property to a valuation officer, and the provision of section 50C and section 155(15)
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
shall as far as may be, apply in relation to stamp duty value of such property for the purpose of
sub clause (b) as they apply for valuation of capital assets under that section 50.
Provided further that this clause shall not apply to any sum of money received or any property
received—
(a) from any relative; or
(b) on the occasion of the marriage of the individual; or
(c) under a will or by way of inheritance; or
(d) in contemplation of death of the payer.
(e) from a local authority
(f) from any fund, foundation, university, other educational institution, hospital, medical
institution, any trust or institution referred to in Section 10 (23C)
(g) from a charitable institute registered U/s 12AA.
Explanation.—For the purposes of this clause,
"relative" means—
(i)spouse of the individual;
(ii)brother or sister of the individual;
(iii)brother or sister of the spouse of the individual;
(iv)brother or sister of either of the parents of the individual;
(v)any lineal ascendant or descendant of the individual;
(vi)any lineal ascendant or descendant of the spouse of the individual;
(vii)spouse of the persons referred to in clauses (ii) to (vi).
"property" means - The following CAPITAL ASSETS of the assessee -
i) immovable property being land or building or both; ii) shares and securities; iii) jewellery; iv)
archaeological collections ; v) drawings; vi) paintings ; vii) sculptures; or viii) any work of art;
or ix) Bullion
Note: By virtue of insertation of the word 'Capital Assets', if the above mentioned assets held as
stock in trade then section 56(2)(vii) shall not be invoked.
FMV = Invoice Value Value > Rs. 50,000 Value > Rs. 50,000
Quoted Unquoted
If the quoted shares and securities are received by way of transaction carried out.
(i) through any recognized stock exchange the fair market value of such shares and securities
shall be the transaction value as recorded in such
stock exchange;
The fair market value of unquoted equity shares shall be the value, on the valuation date, of
such unquoted equity shares as determined in the following manner namely;-
The fair market value of unquoted equity shares = (A-L) x (PV)
(PE)
(ii) for a consideration which is less than the aggregate fair market value of the
property by an amount exceeding fifty thousand rupees, the aggregate fair market
value of such property as exceeds such consideration shall be taxable:
Provided that this clause shall not apply to any such property received by way of a transaction
not regarded as transfer under -
Section 47 (via)/ (vic)-i.e, Transfer of shares of an Indian Company in case of amalgamation
between two
foreign company.
Section 47 (vid)/ (vii)- Amalgamation/Demerger between two Indian Co.
Section (vicb) - Business re-organization between two co-operative banks.
Explanation.—For the purposes of this clause, 'fair market value" of a property, being shares of
a company K it being a company in which the public are substantially interested, shall have the
meaning assigned to it in the Explanation to clause (vii);
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
100
Deduction U/s 57
The income chargeable under the head "Income from other sources" shall be computed after
making the following deductions, namely :—
(i)in the case of dividends, or interest on securities, any commission or remuneration to a banker
or any ther person for the purpose of realising such income ;
(ii)in the case of income in the nature of family pension, a standard deduction of l/3 rd of amount
received or Rs. 15000, whichever is less.
(iii)any other expenditure (not being in the nature of capital expenditure) inurred for earning such
income :
Family Pension
Family Pension received by widow or legal heirs of deceased employees is taxable under the
head Other Sources. However, the assessee shall be entitled to standard deduction of l/3 ru of
amount received or Rs. 15,000 whichever is less.
However, Family pension received by the widow or children or nominated heirs, of a member
of the armed forces (including para-military forces) of the Union, where the death of such
member has occurred in the course of operational duties shall be exempted U/s 10(19)
CLUBBING
Transfer of Income where there is no transfer of Assets (Section 60)
If any person transfers income without transferring the ownership of the asset such income is
taxable in the hands of the transferor.
For example, Mr. V has transfered through a duly registered document the income arising from
a godown, to his son, without transferring the godown. In this case According to section 60
where there is a transfer of an income by a person to another person, without the transfer of the
asset from which the income arises, such income shall be included in the total income of the
transferor. Hence, the rental income will be charged in the hands of Mr. V.
All income arising to any person by virtue of transfer of assets is deemed to be the income of
transferor and chargeable to tax in his hands if the transfer is revocable.
Section 62 states exception to the above rule that income arising from revocable transfer of
Assets is taxable in the hands of the transferor:
1. transfer, if effected through the medium of trust, is not revocable
within the lifetime of the beneficiary
2. in the case of any other transfer, the same is not revocable within
the lifetime of transferee.
Remuneration of a spouse [Section 64(1 )(ii)]
Transfer of Assets to certain persons for spouse's benefits [Section 64f l)(vii)] Where any
individual transfer any assets to any person or AOP otherwise than for adequate consideration
the income from such assets shall be included in the income of the transferor to the extent such
transfer is for the immediate or deferred benefit of his or her spouse.
Notes: l. Transfer may be direct or indirect.
2. It is to be noted that what is clubbed is income from the asset and not income from income.
3. In case the amount is invested in partnership firm then clubbing provisions shall apply
as under:
(i) Share of profit: Exempted. Therefore'the question of clubbing does not arise
(ii) Remuneration from firm: It accmes on account of being working partner in the firm.
Therefore, it cannot be clubbed.
(iii) Interest from firm: Clubbing provisions applicable.
4. Where the amount is invested in a proprietorship concern then the proportionate
amount of profit is clubbed
5. The relationship of husband and wife should subsist both at the time of transfer of asset and
at the time when income is accrued [Philip Johan Plasket Thomas vs. CIT 1963 49 ITR 97 SC]
6. If property is acquired out of pin money there would be no clubbing i.e. when wife saves
money out of the allowance given to her for her dress and other usual household expenses and
wife purchases an asset out of money saved from it then income arising therefrom would not be
added in the hands of Husband - R.B.N.J. Naidu Vs. CIT 1956 29 ITR 194 Nag.
7. Further no clubbing shall be done on account of Interest on Bonus Debentures.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Clubbing in the case of Cross Transfers
103
In the case of cross transfers also, the income from the assets transferred would be assessed in
the hands of the deemed transfror if the transfers are so intimately connected as to form part of a
single transaction, and each transfer constitutes consideration for the other by being mutual and
oteherwise.
For example: A making gift of Rs. 50,000 to the wife of his brother B for the purchase of a
house by her and a simultaneous gift by B to A's minor son of shares in a foreign company
worth Rs. 50,000 owned by him. Thus, in the instant case, the transfers have been made by A
and B to persons who are not their spouse or minor child so as to circumvent the provisions of
this section, showing that such transfers constituted consideration for each other.
The supreme court in case of CIT v. Keshavji Morarji (1967) 66 1TR 142, observed that if
two transactions are inter- connected and are parts of the same transaction in such a way that it
can be said that the method was adopted as a device to evade tax , the implication of clubbing
provisions would be attracted. Accordingly, the income arising to Mrs. B from the house
property should be included in the total income of B and the dividend from shares transferred to
A's minor son would be taxable in the hands of A . This is because A and B are the indirect
transferors to their minor child and spouse respectively, of the income yielding assets, so as to
reduce their burden of taxation.
Transfer of Assets to certain persons for benefits of son's wife [Section 64(l)fviii)] Where any
individual transfer any assets to any person or AOP otherwise than for adequate consideration
the income from such assets shall be included in the income of the transferor to the extent such
transfer is for the immediate or deferred benefit of his or her son's wife.
Where the converted property has been the subject-matter of a partition amongst the members of
the family, the income derived therefrom as is received by the spouse on partition shall be
deemed to arise from assets transferred indirectly by the individual to the spouse and the
provisions of Section 64(1) shall apply accordingly.
1. Loss in a speculation business can be set off only against the profit in a speculation
business.
2. Long term capital Loss can be set off only against long-term capital gains. [Section 70(3)].
3. Loss incurred in the business of owning and maintaining race horses can be set off only
against income from business of owning and maintaining race horses.
4. Further, by virtue of section 58(4) a loss cannot be set off against winnings from lotteries ,
crossword puzzles, races including horse races, card games and other games of any sort or
from gambling or betting of any form or nature.
1.Losses under the Head Capital Gains cannot be set off against any other head.
2. Loss in a speculation business can be set off only against the profit in a speculation
business.
3. Loss incurred in the business of owning and maintaining race horses can be set off only
against income business of owning and maintaining race horses.
7. UNABSORBED . NO NO
DEPRECIATION, TIME
LIMIT
8. UNABSORBED SCIENTIFIC
SPECIFIED BUSINESS u/s. NO TIME YES
35AD LIMIT
Note: A Brought forward loss can be set off against its own head only. However, unabsorbed
depreciation, unabsorbed scientific research, unabsorbed Family planning expenditure can be
set off against any head of income even in subsequent years.
Priorities for carry forward and set off of losses and allowances:
The following priorities in the cany forward and set off of losses and allowances will have to be
observed
(i) Business Expenses
(ii) Current depreciation/current scientific research/current family planning expenses
I. Short Term Capital Loss can be set off against long - term capital Gains or short-term capital
Gains. [Section 70(2)].
2. Long term capital Loss can be set off only against long-term capital gains in the same
assessment year [Section 70(3)].
3. Capital loss which cannot be set off in the same assessment year can be carried forward for
set off for 8 succeeding assessment years. Unabsorbed Short term capital loss can be carried
4. forward and set off against both long-term and short-term capital gains. [Section 74(1 )(a)].
5. Unabsorbed long-term capital loss can however be set off only against long-term capital
109
1) any loss, computed in respect of the specified business referred to in section 35AD shall not
be setoff except against profits and gains, if any, of any other specified business.
2) where for any assessment year any loss computed in respect of the specified business has not
been wholly set off, so much of the loss as is not so set off or the whole loss where the assessee
has no income from any other specified business, shall, subject to other provisions of this
chapter , be carried forward to the following assessment year, and
(i) it shall be set off against the profits and gains, if any, of any specified business carried on by
him assessable for that assessment year; and
(ii) if the loss can not be wholly so set off, the amount of loss not so set off shall be carried
forward to the following assessment year and so on. [newly inserted by the Finance Act, 2009,
w.e.f 1-4-2010]
The losses incurred by the owners of race horses in the activity of owning and maintaining such
horses which cannot be wholly set off in the same year in which the loss is incurred are allowed
to be carried
forward under section 74A(3) and set off against income from the same source in subsequent
years upto a
period of 4 assessment years immediately following the assessment year for which the loss is
first computed.
Solved Illustration
Note: Business loss of Rs. 1,00,000 is set off against bank interest of Rs.90,000 and remaining
business loss of Rs. 10,000 shall be carried forward as it cannot be set off against salary Income .
Example 2:Mr.X X furnished the following particulars for the P.Y. 2010-11
Particulars Rs.
Income from salary (Net) 55,000
Income from house property (34,000)
Income from business – non – speculative (22,000)
Income from speculative business (4,000)
Short- term Capital gains (35,000)
Long- term capital gains 29,000
What is the total income chargeable to tax for the A.Y 2011-12?
Solution: The total income chargeable to tax for the A.Y 2011-12is calculate as under:
Particulars Amount Amount
(Rs.) (Rs.)
Income from salaries 55,000
Income from house property (34,000) 21,000
Profit and gains of business and profession
Business loss to be carried forward [Note 1] (22,000)
Note 1: Business loss cannot be set-off against salary income. Therefore, loss of Rs.22,000 from
the non-speculative shall be carried forward.
Note 2: Short term capital loss can be set off against both short term capital gain and long term
capital gain. Therefore, short term capital loss of Rs. 35,000 can be set-off against long-term
capital gains to the extent of Rs.29,000. The balance short term capital loss of Rs.6,000 cannot
be set-off against any other income and has to be carried forward to the next year for set-off
against capital gains, if any.
From the Gross Total Income so arrived at certain deductions are allowed to the assessee. But
before we proceed to discuss these deductions the following points must be borne in mind:
1) Deductions cannot exceed Gross Total Income [Section 80A(2)]
2) The deductions are not allowed from the following income:
3) The deduction under this Chapter shall be allowed with reference to net income of the
assessee.
4) Deductions are to be allowed if the assessee claims it and establishes circumstances
warranting such a deduction.
5) deduction in respect of profits and gains shall not be allowed under any provisions of
section 10A/10AA/10B/10BA or under any other provisions of chapter VIA under the
Heading "C- Deductions in respect of certain income" in any assessment year, if a deduction
in respect of same amount under any of the aforesaid has been allowed in the same
assessment year;
the aggregate of the deductions under the various provisions referred above shall not
exceed the profit and gains of the undertaking or unit or enterprise or eligible business as
the case may be; [ Section 80A(4) -w.r.e.f A.Y. 2003-04]
6) No deductions under the various provisions referred above shall be allowed if the
deduction has not been claimed in the return of income; [ Section 80A(5)]
7) not withstanding anything to the contrary contained in 10A or 10AA or 10B or 10BA or in
any provisions of this chapter under the heading "C. - "deduction in respect of certain
incomes", that the transfer price of goods and services between the undertaking or unit or
enterprise or eligible business and any other undertaking or unit or enterprise or business of
the assessee shall be determined at the market value of such goods or services as on the date
of transfer, if the recorded transfer price does not correspond to the market value of such
goods or services. [ Section 80A(5) - w.r.e.f A.Y. 2003-04]
(xvii) Amount deposited in 5 year time deposit scheme in post office ( applicable from AY-
2009-10). However if any amount is withdrawn from such account before the expiry of 5 years
from the date of its deposit, then, the amount so withdrawn shall be taxable. But any amount
received by the legal heir of the diseased assessee shall not be taxable.
The maximum deduction available U/s 80C shall be Rs. 1,00,000. It is to be noted that deduction
U/s 80C shall be allowed irrespective of whether such investment is made out of income
chargeable to tax.
SECTION 80CCC: CONTRIBUTION TO PENSION FUNDS
Where an individual has in the previous year paid out of his income chargeable to tax towards
annuity plan of LIC or any other insurer then he shall be entitled to a deduction of the amount so
paid subject to a maximum of Rs. 1,00,000/-.
If the assessee or his nominee receives any amount such amount shall be included in the total
income of the assessee or his nominee in the year of receipt.
SECTION 80CCD: CONTRIBUTION TO PENSION FUNDS OF EMPLOYEES
(1) Section 80CCD provides deduction to employees or any other assessee, being an
individual (self- employed) in respect of contribution made by such employee, Employer and
individual to a notified pension scheme of the whole of the amount so paid or deposited or 10%
of his salary whichever is less in each such case - for employer's as well as employee's
contribution.
(2) If the assessee or his nominee receives any amount such amount shall be included in the
total income of the assessee or his nominee in the year of receipt.
Notes:
(1) For the purposes of this section, "salary" includes dearness allowance, if the terms of
employment so provide, but excludes all other allowances and perquisites.'
(2) No deduction shall be allowed u/s 80CCD in respect of amounts on which deduction
has been claimed u/s 80C.
(3) For the purpose of the said section the assessee shall be deemed not to have received
117
[It is to be noted that the tax benefit u/s. 80CCD was hereto available to "employees" only but
now by virtue of amendment made by the Finance Act, 2010 the benefit has been extended also
to "self-employed" These amendments will take effect retrospectively from 1-4-2009]
Section 80CCE: Section 80CCE provides that deduction U/s 80C, 80CCC and 80CCD
shall not exceed Rs. 1,00,000.
Example 1: Mr. X furnishes you the following information to compute his total income, given
that his Gross Total Income Rs. 5,60,000
• Premium paid Rs. 20,000 on LIP ofRs. 1,00,000 on the life of the assessee.
• Premium paid Rs. 10,000 on a LIP of Rs. 1,50,000 on the life of his wife.
• Premium paid Rs. 5,000 on LIP ofRs. 50,000 on the life of the mother of the assessee.
• Contribution to Recognised Provident Fund Rs. 15,000
• Contribution to ULIP Rs. 10,000
• Repayment of housing loan taken from the State Bank of India Rs. 15,000 (Rs.9,000 as
the principal and Rs. 6,000 as interest). The loan was utilised by the assessee to purchase
a flat for his own residential purpose in the year 1994.
• Subscription to units of Mutual Fund notified u/s 10 (23D) Rs. 18,000
• Contribution to 15 year Post office Savings Bank (Cumulative Time Deposits) Rs. 8,000.
• Tution fees of Children for three children Rs. 15,000 each
• Contribution to LIC Pension Fund Rs. 1,85,000
Solution :
Gross Total Income 5,60,000
Less: Deduction Under Chapter V1 A
Deduction U/s 80C
Example 2: X pays medical insurance premia during the previous year through any mode other
than
cash as under:
(a) Rs. 12, 500 for his health and on the health of his wife and dependent children.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(b)Rs. 17,500 for the health of his parents. Compute deduction to be allowable u/s HOD for the AY
2011-12.
119
Solution: Mr. X will be allowed a deduction of Rs. 27,500 (Rs. 12,500 + Rs. 15,000) if neither
of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be
allowed a deduction of Rs. 30,000(Rs, 12,500+ Rs. 17,500). Note: For deciding deduction under
this section it is immaterial whether the parents are dependent or not.
Example 3: In Illustration 2 , if cost of insurance on the health of the parents is Rs. 30,500, out
of which Rs. 17,500 is paid (by any non cash mode) by the son and Rs. 13,000 by the father
(senior citizen). Compute amount of deduction avialble u/s HOD for the AY 2011-12.
Consequences if dependent with disability predeceases the individual or the member of the HUF
If the person with disability predeceases, the individual or the member of the HUF in who has
deposited money, an amount equal to the amount paid or deposited under the scheme shall be
deemed to be the income of the assessee of the previous year in which such amount is received
by the assessee.
Definitions
(a)" disability" shall include "autism", "cerebral palsy" and "multiple disability".
120
(i)a person with 80% or more of one or more disabilities, as referred to in section 56(4) of the
Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act,
1995
(ii) a person with severe disability referred to in section 2(o) of the National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999
Example 4: Mr. X is a resident individual. He deposits a sum of Rs.35,000 with Life Insurance
Corporation every year for the maintenance of his handicapped grandmother who is wholly
dependent upon him. Compute the amount of deduction available u/s 8ODD for the A. Y. 2011-
12.
Solution: Since the amount deposited by Mr. X was for his grandmother, he will not be allowed
any deduction u/s 80DD. The deduction is available if the individual assessee incurs any
expense for a dependant disabled relative. Grandmother does not come within the definition of
dependant relative.
Example 5: What will be the deduction if Mr. X had made this deposit for his dependant father?
Solution : Since the expense was incurred for a dependant disabled relative, Mr. X will be
entitled to claim a deduction of Rs.50,000 under section 80DD, irrespective of the amount
deposited. In case his father has severe disability, the deduction would be Rs. 1,00,000.
This section provides for deduction for donations to certain funds or Charitable Institutions. For
the sake of simplicity we divide deduction under this section into two parts: Deduction without
ceiling limit and deduction subject to certain limit.
Deduction without ceiling limit: This is again divided into two parts: 100 % item and 50%
item.
100% items without any limit: Donation to following are allowed without any ceiling limit i.e
full amount is allowed:
• National Defence Fund Central Army Welfare Fund
Donations
i. National Defence Fund 10,000
ii. Central Army Welfare Fund 15,000
Iii Jawaharlal Nehru Memorial Fund iv. 8,000
iV Donation to Govt, of India for
promoting Family planning
v. Donation to an approved charitable 12,000
trust 5,000
- In Kind 40,000
- In Cash
Solution:
Calculation of Deduction u/s 80G
Calculation of Adjusted Gross Total Income
Gross Total Income 4,93,000
Less: Long term Capital Gain 50,000
Less: Deduction under chapter VIA
Section 80CCC 8,000jkgjjgjgjgj
Section 81D 5,000 13,000
4, 30,000
10% of adjusted Gross Total Income 43,000
Note: In the given problem deductions which are subject to ceiling limit are donation to Govt, of
India for promoting family planning and to approved charitable trust in cash. The Net Qualifying
The following conditions must be satisfied in order to claim deduction under this section
1) This deduction is allowed only to an individual
2) The individual pays rent for his accommodation
3) The individual is either a self employed person or
if he is an employee he is not entitled to any HRA
4) The individual, his or her spouse or minor child or a HUF of which he/she is a
member does not own any residential accommodation at the place where he
works or carries on his business or profession
Adjusted Gross Total Income means Gross Total Income as reduced by Long term Capital
Gains STCG subjected to STT and all deductions permissible u/ss 80C to 80U except
Section 80GG.
Quantum of Deduction
Solution:
Amount
a) Income from house property 30,000
b) Business Income 40,000
c) Long term capital gains 30,000
Gross Total Income 1,00,000
Less: Deduction under chapter VI A
1) Deduction u/s 80C 12,000
2) u/s 80GG (Note 1) 14,500
Total Income 73,500
Note 1: Deduction u/s 80GG shall be the minimum of the following thetee
amounts –
a) Rent paid – 10% of adjusted
Gross Total Income =24,000-5,800 18,200
b) 25% of adjusted Gross Total Income 14,500
c) Rs. 2,000 p.m 24,000
Adjustted Gross Total Income = Gti – LTCG – Deduction u/s .80C to 80UExcept u/s. 80GG
= 1,00,000-30,000-12,000 = 58,000
SECTION 80GGA: DONATION TO SCIENTIFIC RESEARCH ASSOCIATION
Section 80GGA provides deduction in respect of payment to the following
(a) approved research association or to a University, college or other institution to be used
for scientific research :
(b)approved research association, University, college or other institution to be used for
research in social science or statistical research
(c)association or institution, which has as its object the undertaking of any programme of rural
development, or training of persons for implementing programmes of rural development
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(djpublic sector company or a local authority or to an association or institution approved by the
National Committee, for carrying out any eligible project or scheme
(e)any sum paid to a rural development fund
(f)any sum paid to the National Urban Poverty Eradication Fund.
126
No deduction under this section shall be allowed in the case of an assessee whose gross total
income includes income which is chargeable under the head "Profits and gains of business or
profession". The assessee shall not be denied deduction even if, after giving donation, the
approval granted to the associations has been withdrawn.
(a) Profits attributable to certain specified activities: 100% of the profits, included in Gross
Total Income, attributable to any one or more of the following activities are deductible to a co-
operative society engaged in -
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii)a cottage industry or
(iii')the marketing of agricultural produce grown by its members, or
(iv)the purchase of agricultural implements, seeds, livestock or other articles intended for
agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii')fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing
or marketing of fish or the purchase of materials and equipment in connection therewith for the
purpose of supplying them to its members,
However, in the case of a co-operative society falling under sub-clause (vi), and (vii) above, the
deduction is available subject to the condition that the rules and bye laws of the society restrict
the voting rights to the following classes of its member, namely:-
i)the individuals who contribute their labour or, as the case may be, carry on the fishing or allied
activities;
(ii)the co-operative credit societies which provide financial assistance to the society;
iii)the State Government;
b) Profits of certain primary co-operative societies: 100% of the profits, included in the
Gross total income are deductible in the case of a co-operative society, being a primary
society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members
to—
(i)a federal co-operative society, being a society engaged in the business of supplying milk,
oilseeds, fruits, or vegetables, as the case may be; or
(ii')the Government or a local authority; or
Explanation—"urban consumers' co-operative society" means a society for the benefit of the
consumers within the limits of a municipal corporation, municipality, municipal committee,
notified area committee, town area or cantonment.
Note: However, the exemption shall not be available to any co-operative banks other than a
primary agricultural credit society or a primary co-operative agricultural and rural development
bank. But, deduction shall still be available to a co-operative society which is engaged in the
business of providing credit facilities to its member.
Deduction u/s 80P in respect of business income of a co-operative shall be available with
reference to income after claiming deduction u/s 801 and 80IA.
Amount of deduction: - If the aforesaid conditions are satisfied, then the amount of deduction is
—
(a) Rs.3,00,000; or
130
RELIEF U/s 89(1)
Relief is provided in the following cases:
(i) in respect of salary received in advance or in arrears
(ii) in respect of gratuity
(iii) in respect of compensation or termination of employment.
(iv) in respect of commutation of employment
(v) in respect of other payments
(vi) in case of family pension paid in arrears to family members of the deceased employee.
"Provided that no such relief shall be granted in respect of any amount received or receivable by an
assessee on his voluntary retirement or termination of his service, if an exemption in respect of
voluntary retirement has been claimed by the assessee u/s 10(10C) in respect of such, or any other,
assessment year";
Example: Mr. X, an employee of Z Ltd. gives you the following information for computation of
Relief U/s 89(1):
Salary income after all deductions Rs. 9,52,000
During the year arrears of salary (not included above) Rs 15,000 was received relating to F.Y.
2002-03
131
Solution.
Additional Tax required to pay in A.Y. 201 1-12 1,48,420 - 1,43,790 = 4 630
Additional Tax that would have been paid if charged to tax in A.Y. 2003-04
= 6,200-3,200= 3,000
Excess Tax Payable - Relief U/s 89(1) 1,630
Tax Payable 1,48,420
Less: Relief U/s 89(1) 1630
Tax Payable 1,46,790"
GENERAL EXEMPTIONS
2. Interest on arrear of rent receivable in respect No It is neither rent nor revenue from
of agricultural land Land-CIT Vs. K.N.Singh
3. Income from lease of land for grazing of cattle Yes CIT Vs. R.B.Rai
required for agricultural purpose Shamsherjang Bahadur
4. Salary by an active partner from a firm whose Yes It a form of adjustment of firm's
entire income is derived from agricultural income. CIT Vs. Chidambaram
operations
5. Interest on Capital by any partner whose entire Yes It a form of adjustment of firm's
income is derived from agricultural operations income. CIT Vs. M.L. Mahindra
7. Compensation received from insurance Yes CIT Vs. B.Gupta (tea) Ltd.
Company for damage of any agricultural crop
8. Natural growth of trees & Sale No Mustafa AH Khan Vs. CIT. There
is no agricultural process involved.
11. Income from supply of water for irrigation No Sri Ranga Vilas Gunning & Oil
purpose Mills Vs. CIT
Sale of Coffee grown and cured by the seller [Rule 25% 75%
7B(1)1
Sale of Coffee grown, cured, roasted and grounded 40% 60%
by the seller with or without mixing chicory [Rule
7B(2)1
For Other Composite Business [Rule 7] In computing Business Market Value
Income
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
the Market Value of Of agriculture
the
agricultural produce is Agricultural
Products
to be
deducted.
135
RULES FOR COMPUTING AGRICULTURAL INCOME
Rule 1- Agricultural income of the nature referred in section 2(lA)(a) will be computed on the
same basis as is adopted for the computation of income chargeable under the head "Income from
other sources" under section 56 to 59.
Rule 2- Agricultural income of the nature referred in section 2(lA)(b) will broadly be computed
as if it were income chargeable to tax under the head "PGBP" and provision of section 30 to 32,
36, 37, 40, 40A [other than sub-section (3) and (4)], 41, 43, 43A, 43B and 43C will apply
accordingly.
Rule 3- Agricultural income of the nature referred in section 2(lA)(c) will be computed as if
were income chargeable under the head "Income from house property" under section 23 to 27.
Rule 4- Where an assessee derives income from sale of tea grown and manufactured by him in
India, 60% of total income from such business, as computed in accordance with rule 8 of the
income tax Rules, will be regarded as agricultural income.
Rule 5- Where the assessee is a member of an association of person or a body individuals (other
than a Hindu Undivided Family, a company or a firm) which, in the previous year, has either no
income chargeable to tax or has non-agricultural income of not exceeding the maximum amount
not chargeable to tax in the case of AOPs or BOIs, but has agricultural income, then the
agricultural income or loss of the association or body is to be computed in accordance with
these rules and the share of the assessee in the agricultural income or loss so computed will be
regarded as agricultural income or loss of the assessee.
Rule 6- Loss incurred in agriculture will be allowed to be set off against gains from agriculture.
No set off will, however, be allowed in respect of an assessee's share in the agricultural loss of
an AOPs or BOIs.
Rule 7- Any tax levied by a State Government on agricultural income will be allowed as
deduction.
Rule 8- The unabsorbed loss from agricultural activities during the previous year relevant to the
A.Y. 2002-03 to 2010-11 will be set off against the agricultural income of the assessment year
2011-12 in chronological order. Likewise, an absorbed loss from agriculture during the previous
year relevant to the assessment year 2003-04 to 2011- 12 will be taken into account in
determining the net agricultural income for the purpose of payment of advance tax during the
financial year 2011-12. The set-off of loss will, in either case, be allowed only if such loss has
already been determined. Where a person is succeeded by another person (other than the person
who was incurred the loss) cannot claim the set off as discussed above.
136
TAX LIABILITY OF INDIVIDUALS FOR A.Y. 2011-12
Rates of Tax in force
TOTAL INCOME TAX
UptoRs. 1,60,000 NIL
Next Rs. 3,40,000 i.e. Rs. 1,60,001 to Rs. 5,00,000 @ 10%
Next Rs. 3,00,000 i.e. Rs. 5,00,001 to Rs.8,00,000 @ 20%
Above Rs. 8,00,000 @ 30%
Senior Citizen
However for resident individual who is at least 65 years of age at any time during the
Previous Yt Income shall be exempted upto Rs. 2,40,000. Thereafter the aforesaid slab is to
applied.
Resident Woman
For resident woman, not being a senior citizen income upto Rs. 1,90,000 shall be exempt
Thereafter the aforesaid slab is to applied.
Surcharge: NIL
Education Cess: 3% on the amount of Income Tax and surcharge [Including 1% SHEC]
115BB Winnings from lotteries, crossword 30% without basic exemption limit
puzzles, or races including horse
races or card games and other
games of any sort or from
gambling or betting of any from or
nature whatsoever
As per circular (No. 639 dated 13/11/1992) issued by CBDT if the IT department is closed on
the last day for filing of return due to holiday the assessee can furnish the return on the next day
on which the department is opened.
2.Revised return can be filed U/s 139(5) only if the assessee discovers any omission or wrong
statement in return originally filed. While "omission" denotes an unintentional Act or neglect
to perform what the law requires, wrong statement" should include within its scope, statement
which is not false to the knowledge ofthe person making it.
3.Revised Return U/S 139(5) can be filed at any time before the expiry of one year from the
end of the relevant Assessment Year or before the completion of the assessment, whichever is
earlier. A revised return can also be revised again, subject to other conditions.
A Charitable Trust is required to file return of income if its total income before giving
exemption under sections ll and 12 exceeds the maximum exemption limit shall furnish a
return of such income of the previous year in the prescribed form and manner on or before
due date prescribed U/s 139(1).
140
(a) research association referred to in section
10(21);
(b) news agency referred to in section 10
(22B)
|(c) association or institution referred to
in section 10 (23A)
(d) institution referred to in section 10(23B)
(e) fund or institution or trust or institution or any university or other educational institution or
any hospital or other medical institution clauses (iv),(v),(vi) and (via) of section 10(23C)
(f) trade union referred to in section 10(24) shall, if the total income before giving exemption
exceeds maximum exemption limit furnish a return of such income of the previous year in the
prescribed form and prescribed manner.
Return of Income of institution approved U/s 35(1) [Section 139(4P)]
Every College, University or other institution referred to in Section 35(1) (ii)/(iii)which is not
required to furnish return under any other provision shall furnish its return of income if its total
income before giving exemption exceeds the maximum exemption limit in any previous year
in the prescribed form and manner on or before due date prescribed U/s 139(1).
Submission of returns through Tax Return Preparers [Sec. 139B]
A new section 139B has been inserted with effect from June 1,2008. If provides as follows-
1 for the purpose of enabling any specified class of persons to prepare and famish returns of
income, the Board may frame a scheme providing that such persons may furnish their returns of
income through a Tax Return Preparer authorized to act as such under the scheme.
2. The Scheme framed under the above provisions shall specify the manner in which the Tax
Return preparer shall assist the persons furnishing the return of income, and shall also affix his
signature on such return.
3. A Tax Return Preparer may be an individual who has been authorized to act as a Tax Return
Preparer under the above scheme However the following cannot be TRP:
(i) a Chartered Accountant or (ii) an employee of the specified class or classes of persons, (iii)
or an officer of a Scheduled bank with which the assessee maintains a current account or has
other regular dealings (iv) or any legal practitioner entitled to practice in any civil court in India
141
(i) an eligible person is carrying out business or profession during the previous year relevant to
such assessment year and accounts of the business or profession for that previous year are
required to be audited u/s. 44AB of the Act or under any other law for the time being in force; or
(ineligible person is not resident in India during the previous year relevant to such assessment
year:
Provided further that an eligible person shall not furnish a revised return of income u/s. 139(5)
of the Act for any assessment year through a Tax Return Preparer unless he has furnished the
original return of income for that assessment year through such or any other Tax Return
Preparer:
DEFECTIVE RETURNS
For the purpose of Sec. 139(9) ar return of income is regarded as defective if any one or more of
the following defects are there :
1. The annexures, statements and column in the return of income are
not duly filled in.
2. The return of income is not accompanied by one or more of the
following namely :
a. a computation of tax payable on the basis of the return ;
b. The audit report referred to in section 44AB ;
c. The proof of advance tax and tax on self- assessment paid ;
d. Where regular books of account are
maintained by the assessee :
(i) copies of Mfg. A/c,
Trading A/c, P/LA/c
(ii) In case of a proprietary business or profession, personal Accounts of
the proprietor; in case of a firm, AOP, BOI personal accounts of the
partners or members thereof
e. Where the accounts of the assessee have been audited, copies of the audited
P/L, B/S, copies of auditor's report.
f. Where an audit of cost accounts of the assessee, the auditor's
report
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
g. Where regular books of account are not maintained by the assessee, a
statement indicating the amount of turnover, Gross Profit , Expenses , Net
Profit as at the end of Previous Year in
relation to Business or Profession on which such amounts have been
computed.
A defective return is also known as an incomplete return. If the AO considers the return as
defective he may intimate the assessee to rectify it within 15 days or such further period as he
may allow. If the defects are not rectified within the stipulated period of time the return shall be
treated as invalid and it would be deemed as if the assessee had failed to furnish the return. If
142
however the return is rectified after the expiry of the period but before the assessment is
completed the AO may excuse the delay and treat the return as valid. A return which is not
signed or verified is not a defective return but an invalid return and therefore, it is no return in
the eyes of the law. A return is not regarded as defective if the tax deducted at source certificate
or tax collected at source is not furnished alongwith the return and the same is furnished within 2
years from the end of relevant assessment year.
Section 139C: Section 139C provides that the CBDT may make rules providing for a class or
classes of persons who may not be required to required to furnish documents, statements,
receipts, certificate, reports of audit or any other documents, which are otherwise required to be
furnished along with the return under any other provisions of this Act. However, on demand the
said documents, statements, receipts, certificate, reports of audit or any other documents have to
be produced before the assessing officer.
Section 139D: Section 139D empower the CBDT to make rules providing for—
(a)The class or classes of persons who shall be required to furnish the return of income in
electronic form;
(b)The form and the manner in which the return of income in electronic form may be furnished;
(c )The documents, statements, receipts, certificates or audited reports which may not be
furnished along with the return of income in electronic form but have to be produced before the
Assessing Officer on demand;
(d)The computer resource or the electronic record to which the return of income in electronic
form may be transmitted.
PERMANENT ACCOUNT NUMBER [SECTION 139A]
(ii/)carrying on any business or profession whose total sales, turnover or gross receipts are
or is likely to exceed Rs. 5,00,000 in any previous year; or
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(iii)who is required to furnish a return of income under section 13 9(4A),
(iv) being an employer required to furnish return of fringe benefit U/s 115 WD
(v) Persons specified by the Government.
It may be noted that A.O. may allot PAN suo-moto to any person.
Quoting of PAN
Every person shall—
(a)quote such number in all his returns to, or correspondence with, any income-tax authority;
143
(b)quote such number in all challans for the payment of any sum due under this Act;
(c) the person deducting tax or collecting tax must also quote PAN of the deductee and of the
collectee in all statements.
The Board has prescribed the following transactions in which quoting of PAN will be
compulsory:
(a)sale or purchase of any immovable property valued at Rs. 5,00,000
(b)sale or purchase of a motor vehicle, (excluding two wheeled vehicles) which requires
registration by a registering authority
(c)a time deposit, exceeding Rs. 50,000, with a banking company or opening any other account
with Bank
(d)a. deposit, exceeding Rs. 50,000, in any account with Post Office Savings Bank;
(e)a contract of a value exceeding Rs. 1,00,000 for sale or purchase of securities
(f) making an application for installation of a telephone connection(h)payment to hotels and
restaurants against their bills for Rs. 25,000 or more at any one time ;
(i)payment in cash for purchase of bank drafts for Rs. 50,000 or more during any one day;
(j)deposit in cash aggregating Rs. 50,000 or more, with a banking company during any one day;
(k) payment in cash in connection with travel to any foreign country exceeding Rs. 25,000 at any
one time.
(1) making an application to any banking company or bank or to any other company or
institution for issue of a credit card
(m) Payment of an amount of Rs. 50,000 or more to a mutual fund for purchase of its units
(n) Payment of an amount of Rs. 5.0,000 or more to a company for acquiring shares by it
(o) Payment of an amount of Rs. 50,000 or more to a company or an institution for acquiring
debentures or bonds issued by it.
A trust may be defined as an arrangement by which confidence is placed in another person and
property is handed over to or vested in a person, to use and dispose it off for the benefit of
another person. The various persons constituting a trust are discussed below:
Author of Trust: The person who reposes the confidence is called the Author of the trust.
Trustee: The person who accepts the confidence is called the trustee
Trustee: The person who accepts the confidence is called the trustee
Beneficiary: The person for whose benefits the confidence is accepted is called the beneficiary.
Sections 11, 12 and 13 provide exemption in respect of income of a charitable trusts.
Section 2(15) defines Charitable trusts to include relief of the poor, education, medical
relief, preservation of environment (including watersheds, forests and wildlife ) and
preservation of monuments or places or objects of I artistic or historic interes and the
advancement of any other object of general public utility. However, 'the advancement of
any other object of general public utility'shall not be a charitable purpose, if it involves the
carrying on of-
(a) any activity in the nature of trade, commerce or business, or *
(b) any activity of rendering any service in relation to any trade, commerce or business,
for a fee or cess or any other consideration, irrespective of the nature of use or application of the
income from such activity, or retention of such income, by the concerned entity.
Provided that this proviso shall not be applicable if the aggregate vale of receipts from the
activities referred to therein does not exceed Rs. 10,00,000 in the previous year.
Exemption U/s 11
1. Section 11, provides exemption in respect of the Income derived from property held under a
trust for charitable and religious purposes to the extent applied in India. Voluntary
Contributions, not being contributions made with specific direction that they shall form part of
the corpus of the trust, shall also be deemed to be income derived from property held er trust.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
The exemption is however subject to the % following conditions:
2. The exemption is available only if the trust applies 85%of its income for
charitable or religious purposes in India or accumulates income.
3. Trust and institution can carry out business activities if the business activities are incidental to
the attainment of its objective and separate books are maintained without losing complete
exemption from income tax.
4. Further, Income from voluntary contributions with specific direction that they shall form part
of the corpus trust is not deemed to be income of the trust.
146
APPLICATION AND ACCUMULATION OF INCOME
In order to claim exemption, a charitable trusts or institution is required to apply at least 85% of
the income of the income to charitable or for religious purposes. For this purpose, income means
real income which has been received by the assessee and as such, income for the above purpose
has to be computed applying normal rules of Accountancy. Thus depreciation shall be deducted.
APPLICATION OF INCOME
Section 11(1) states that the exemption shall be available to the extent the income is applied for
charitable purposes. For this purpose, application includes:
1. Donation given by trusts
2. Utilisation of income for meeting expenses.
3. Interest bearing loans , advanced by educational trusts can be considered as an application of
income and when the loan is returned the same may be considered as income.
4. Repayment of loans taken for fulfillment of the objectives of the trust is also treated as an
application of income.
What happens if trust fails to apply 85% of income for Charitable purposes ?
The trust should make an application to the The trust should make an Assessing officer
for applying such application to the assessing
Income in the year in which it receives or officer before due date for applying
Subsequent Years Such income
in the next year.
ACCUMULATION OF INCOME
Where 85% of the income is not applied to charitable or religious purposes in India during the
previous year but is accumulated or set apart, such income so accumulated or set apart shall be
exempted, provided the following conditions are complied with, namely:
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(a)such person specifies, by notice in writing given to the Assessing Officer, the purpose for
which the income is being accumulated or set apart and the period of accumulation, which shall
in no case exceed 5 years;
(b)the money accumulated or set apart is invested or deposited in the modes specified in Section
11(5)
Consequences of default
Section 11(3) states that if in any year the income which is accumulated for specified purpose of
the trust,
147
2. ceases to remain invested or deposited in any of the forms or modes specified in section
11(5) then also the income so accumulated shall be deemed to be income of that year
3.is not utilised for the purpose for which it is so accumulated or set apart during the period of
accumulation or in the year immediately following the expiry thereof then it will become
chargeable to tax as income of the previous year following the expiry of the aforesaid period
4. is credited or paid to any trust registered under section 12AA or to any fund or trust or any
university or other educational institution or any hospital or other medical institution referred to
in section 10(23C) then it shall be treated as income of that year
MODES OF INVESTMENT U/S 11(5)
The forms and modes of investing or depositing the money 11(2) are as follows: namely:—
(i) Investment in Government savings certificates; units of the Unit Trust of India, Central
Government or a
State Government securities; immovable property.
(ii) deposit in any account with the Post Office Savings Bank; scheduled bank or a co-operative
Banks; IDBI or investment or deposit in any public sector company:
(iii) Investment in any bonds issued by a financial corporation providing long-term finance for
industrial development or construction or purchase of houses in India
148
ii)shall, if he is not so satisfied, pass an order in writing refusing to register the trust or
institution, after giving the applicant reasonable opportunity of being heard and a copy of such
order shall be sent to the applicant:
(3)If after granting registration subsequently the Commissioner is satisfied that the activities of
such trust or institution are not genuine or are not being carried out in accordance with its
objects he shall pass an order in writing canceling the registration of such trust or institution
after giving such trust or institution a reasonable opportunity of being heard.
FORFEITURE OF EXEMPTION U/S 13
The following income of a trust do not qualify for exemption U/s 13
150
Illustration : A wholly Charitable trust received total donations ofRs. 30,00,000 during the P. Y.
2010-11, out of which Rs.10,00,000 are anonymous donations. Compute tax payable on
Anonymous Donation.
(iv) any income by way of voluntary contributions received by a political party from any person
Provided that –
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(a) Such political party keep and
maintains necessary book of account
i
(i)the Prime Minister's National Relief Fund; or
(ii)the Prime Minister's Fund (Promotion of Folk Art); or
(iii)the Prime Minister's Aid to Students Fund; or
(iii)the National Foundation for Communal Harmony; or
(iv)any other fund or institution established for charitable purposes which may be notified by the
Central Government.
(v)any trust (including any other legal obligation) or institution wholly for public religious
purposes or wholly for public religious and charitable purposes, which may be notified by
the Central Government.
B. Income of an Educational Institution and hospitals
Income of any university or other educational institution existing solely for educational
purposes and not for purposes of profit is exempt from tax u/s 10(23C)
A Charitable trust must also get its accounts audited if before giving exemption U/s 11 and U/s
12 its income exceeds maximum exemption limit.
5. Income of Approved Mutual Funds are exempted U/s 10(23D):
6. Income of Investor Protection Fund are exempted Section 10(23EA)
154
Expenditure incurred in relation to Exempted Income [S. 14A]
For the purposes of computing the total income under this Chapter, no deduction shall be
allowed in respect of expenditure incurred by the assessee in relation to income which does not
form part of the total income under this Act. Further where the Assessing Officer is not satisfied
with the correctness of the claim of the assessee as to the expenditure incurred for earning such
income, then the A.O. shall determine the quantum of such expenditure in accordance with the
method prescribed by the CBDT.
2. Section 2(j) of The SEZ Act, 2006 defines entrepreneur as a person who has been granted a
letter of approval by the Development Commissioner U/s 15(9).
3. The sale proceeds must be received on, or brought into India by the assessee in convertible
foreign exchange.
4. Amount of Deduction: If the aforesaid conditions are satisfied the deduction shall be
5. Period of deduction
If the undertaking begins to manufacture during previous year relevant to
Assessment year 2007-08 in any special economic zone, deduction shall be 100% of
profits from the export for first 5 years.
50% of such profits and gains for further 5 assessment years.
For the next 5 years , a further deduction of 50% of the profit or amount
transferred to Special Economic Zone Re-investment Allowance Reserve Account
whichever is lower.
Special Provisions in respect of newly established 100% export oriented
undertaking fSection 1QB]
Section 10B has been inserted with a view to providing incentive (similar to tax holiday
available u/s 10A) to 100%) export oriented units.
156
1. It must be approved 100% export oriented undertaking: The expression "100%o export
oriented undertaking" means an undertaking which has been approved as a 100%) export
oriented undertaking by the Board appointed in this behalf by the Central Government in
exercise of the powers conferred by section 14 of the Industries (Development and Regulation)
Act, 1951, and the rules made under that Act.
DEDUCTIONS
ii) Any undertaking providing telecommunication services whether basic 100% for first 5
or cellular including radio paging, domestic satellite service network of years and 30% for
trunking, broadband network and internet services the next 5
years
iii) An undertaking set up in any part of India for the generation or 100% for 10
generation and distribution of power if it begins to generate power at any consecutive
assessment years
time during the period beginning on 1-4-1993 and ending 31-03-2011.
[Finance Act, 2010 extended the date from 31-3-2011 to 31-03-2011
w.r.e.f. 1-4-2010}
vi) an undertaking owned by an Indian Company and setup for 100% for 10
reconstruction or revival of a power generating plant- if fulfills following consecutive
assessment years
condition
a. such company is formed before 31.11.2005 with majority equity
participation by public
sector companies for enforcing the security interest of the lenders to the
company owning
the power generating plant;
b. Such Indian Company is notified by the Central Govt, before
31.12.2005 and
c. the undertaking begins to generate or transmit or distribute power
before 31-3-2011.
[Finance Act, 2010 extended the date from 31-3-2008 to 31-3-2011
w.r.e.f 1-4-2008]
vii) Undertaking which develops, operates or maintain an Industrial park 100% for 10
or SEZ notified by Central Government on or after 1-4-1997 but up to consecutive
31-3-2011. [Finance Act, 2010 extended the date from 31-3-2006 to 31-3-
assessment years
2011 w.r.e.f 1-4-2008]
2. If any goods held for the purpose of the eligible business is transferred to any other business
or other assessee and consideration does not correspond to market value profits of the eligible
business shall be recomputed by the A.O.
3. Where deduction under this section has been allowed deduction under other sections shall not be
allowed.
4.The deduction shall not be admissible unless the accounts of the undertaking have been audited
by a Chartered accountant, and the assessee furnishes, along with his return of income, the report of
such audit in the prescribed form and manner.
1. The deduction is available to assesses engaged in the business of developing a Special Economic
Zone, on or after 1-4-2006 under the Special Economic Zones Act, 2006.
2. The deduction shall be allowed of an amount equal to 100% of the profits and gains derived
from such business for 10 consecutive assessment years, out of 15 years beginning from the year in
which a Special Economic Zone has been notified by the Central Govt.
160
Deduction U/s 80IB to certain undertakings
NATURE OF BUSINESS DEDUCTIO REMARKS
N
2. The deduction shall be available at 100% of the profits from such business for first 5
consecutive years.
164
Eligible business has been defined to include hotel (not below 2 star) adventure and leisure
sports, providing medical and health service (more than 25 beds), running an old age home,
165
RESIDENTIAL STATUS
Residential Status
The Exceptions
In the following cases the condition no. 2 above becomes non operative ;
1. When an Indian citizen leaves India during the previous year for employment outside
India;
2. When an Indian citizen leaves India during the previous year as a member of crew of
an Indian Ship.
3. When an Indian citizen or a person of Indian origin comes to visit India.
Thus in the above three cases whether a person is a resident or not shall be
determined only with reference to point 1 above.
Note: While calculating the number of days of stay in India both the day on which an individual
left and the day on which he came to India is to be taken into account. (As per Advance Ruling P
No. 7 of 1995: (1997) 223 ITR 462)
Example 1: Mr. X is an Indian citizen, who receives an employment offer from a company in
Nigeria leaves India for the first time on September 26, 2009 for joining his duties in Nigeria.
During the previous year 2010-11 he comes to India for 176 days. Determine his residential
status for Assessment Year 2010-11 and Assessment Year 2011-12.
Solution:
As per Section 6(1), an individual is said to be resident in India in any previous year if he
satisfies at least one of the following basic conditions :
1.He is in India for at least 182 days in the previous year
2.He is in India for at least 60 days in the previous year and for 365 days or more during 4
years
immediately preceding the previous year.
In the given problem we see that Mr. X is an Indian Citizen who is leaving India for employment
outside India. Therefore the second condition given above in point no. 2 shall not be operative in
the case of Mr. X.
Now let us calculate the no. of days Mr. X stays in India in the previous year 2009-10
Months No.of Days
April 2009 30
May 2009 31
July 2009
June 2009 31
30
August 2009 31
September 2009 26
Name of the student:Total
Gulab Kumar Mishra179
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Since Mr. X stays in India for less than 182 days he is a Non Resident in the Asst. Year 2010-11
An individual is said to be not ordinarily resident if he satisfies any one of the following
conditions:
1. He is a non resident in India in at least 9 years out of the previous 10 years preceding the
relevant previous year.
2. He is in India for 729 days or less during 7 years immediately preceding the
relevant previous year.
Example 2: Pollock, the SA cricketer comes to India for 102 days every year since last 10
years. Find out his residential status for the A.Y. 2011-12.
Solution: For the purpose of his residential status in India for A.Y.2011-12, the relevent
previous year is 2010-11.
The total stay of Pollock in the last 4 years preceding the previous year is 408 days and
his stay in the previous year is 102 days.Therefore, since he has satisfied the second
condition in section 6(1),he is a resident.
168
Since his total in India in the last 7 years preceding the previous year is 714 days (i.e. 102
*7),he does not satisfy the minimum requirement of 730 days in 7 years .Any one of the
conditions not being satisfied,the individual is resident but not ordinarily resident.
The residential status of Pollock for the assessment year 2011-12 is resident but not ordinarily
resident.
Solution: During the previous year 2010-11, Mr. X was in India for 68 days and
during the 4 years preceding the previous year 2010-11, he was in India for 345 days
(i.e. 55+70+80+140 days )
Thus, he does not satisfy section 6(1). Therefore, he is a non-resident for the previous year 2010-
11.
Example 4: Mr. Z, a USA citizen left India after a stay of 10 years on 02.07.2008. During
the financial year 2010-11 he comes to India for 1 year on 1.11.2010. Determine his
residential status for the A.Y.2011-12.
Solution: During the previous year 2010-11, Mr Z. was in India for 151 days (i.e. 30+31+31 +
28+31 days). His stay in last 4 years is:
2009 - 10 = 0
2008 - 09 = 93
2007 - 08 = 365
2006 - 07 = 365
823
Mr .Z. is a resident since his stay in the previous year 2010-11 is 151 days and in the last 4 years
is more
than 365 days.
For the purpose of being ordinarily resident, it is evident from the above calculations, that
(1) His stay in the 7 years is more than 730 days and
169
(2) Since he was in India for 10 years prior to 02.07.2008, he was a resident in a
last 2 out of the last 10 years preceding the relevant previous year.
Mr . Z is a resident and ordinarily resident for the A.Y. 2011-12.
For the purpose of being ordinarily resident, it is evident from the above calculations, that
(1) His stay in the 7 years is more than 730 days and
Example 5: Mr.F. an Indian citizen, leaves India on 24.09.2010 for the first time, to work as
an officer of a company in Paris. Determine his residential status for the A.Y. 2011-12.
Solution: During the previous year 2010-11, Mr, F, an Indian citizen, was in India for 177 days
(i.e.30+31+30+31+31+ 24 days ), He does not satisfy the minimum criteria of 182 days.
Also,since he is an Indian citizen leaving India for the purpose of employment, the second
condition u/s 6(1) is not applicable to him. Mr. F is non-resident for A.Y. 2011-12.
Example 6: Mr. Y after rendering services in India for 15 years left India to England for
employment on June 1, 2008. He again came to India after taking an employment on 10th
January,2011. Find out his residential status for A.Y. 2011-12.
Solution : As per Section 6(1), an individual is said to be resident in India an any previous year
if he satisfies at least one of the following basic conditions :
1. He is in India for at least 182 days in'the previous year
2. He is in India for at least 60 days in the previous year and for 365 days or more
during 4 years immediately preceding the previous year.
Since, Mr. Y stays in India in the relevant previous year for more than 60 days and in 4 years
preceding the relevant previous year for more than 365 days he clearly satisfies the condition
no. 2 and therefore is resident for the A.Y. 2011-12. Again, a resident may be an ordinarily
Thus Mr. Y satisfies both the conditions i.e. he is a resident in India in at least 2 years out of 10
years preceding the relevant previous year and he stays in India for more than 730 days during 7
years preceding the previous year 2010-11.
Therefore, Mr. Y will be treated as resident and ordinarily resident for the A.Y. 2011-12.
Residential Status of HUF [Section 6(2)]
Resident if control and management of its affairs wholly or partly situated in India
Non Resident if control and management wholly outside India
171
Resident HUF is Resident and Ordinarily resident if Karta or manager
satisfy both following conditions:
1. He is a resident in India in at least 2 years out of the previous 10 years preceding the relevant
previous year.
2. He is in India for at least 730 days during 7 years immediately preceding the relevant
previous year.
Example 7: The business of a HUF is transacted from USA and all the policy decisions are
taken there. Mr.F,the karta of HUF, who was born in kolkata, visit India during the
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
P.Y.2010-11 after 15 years. He comes to India on 01.04.2010 and leaves for USA on
01.12.2010. Determine the residential status of Mr. F. and the HUF for A.Y.2011-12.
Solution:(a)During the PY 2010-11 Mr. F has stayed in India for 245 days (i.e.30+31+30+31 +
31+30+31+30+1 days). There fore, he is resident.However, since he has come to India after 15
years, he cannot satisfy any of the conditions for being ordinarly resident.
Therefore, the residential status of Mr. F for the P.Y. 2010-11 is resident but not ordinarily
resident.
(b)Since the control and management is also wholly outside India, the HUF is a non-resident for
the P.Y.2010-11.
Residential Status of Firm/AOP [Section 6(2)]
Resident if control and management of its affairs wholly or partly situated in India
Non Resident if control and management wholly outside India
There is no concept of ordinarily or not ordinarily resident in the case of Firm
and AOP.
Residential Status of Company [Section 6(3)]
An Indian Company always resident in India.
A foreign company is Resident if control and management of its affairs wholly situated in
India
Non Resident if control and management wholly or partly outside India
There is no concept of ordinarily or not ordinarily resident in the case of Company.
What is meant by control and management ?
Control and management means de facto control and management and not merely the right to
control and management. Control and management is usually situated in a place where the head,
the seat and the directing power are situated. In case of a company Control and management is
situated at the place where Board meetings are held.
Scope of Total Income
Under Section 5 of The Income Tax Act, incidence of tax on a tax payer depends on his
residential status as well as the place of accrual or receipt of Income. The foregoing paragraphs
discusses the scope of Total Income of different Individuals depending on his residential status:
(1) Resident and ordinarily resident
172
In the case of resident and ordinarily resident the following shall be chargeable to tax : (a)
Income received or deemed to be received in India whether accrued in India or elsewhere.
(b)Income which accrues or arises or is deemed to accrue or arise in India or outside India,
whether received in India or elsewhere.
(2) Resident but not ordinarily resident
In the case of resident but not ordinarily resident the following shall be chargeable to tax :
TOTAL
6. Income from property in Kenya received outside India [Rs. 10000 used in
Brazil
Income deemed to accrue or arise in India (Section 9)
The following incomes shall be deemed to accrue or arise in India :—
(i)Income accruing or arising, whether directly or indirectly, through or from any business
connection in India.
(ii) Income through or from any property in India, or through or from any asset or source of
income in India, or through the transfer of a capital asset situated in India.
(iii')income chargeable under the head "Salaries" - refer notes on salary
174
(iv)Dividend :a dividend paid by an Indian company outside India ;
(v)Interest /Royalty/technical
Services if it is payable by— (a)the
Government; or
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(b)any other person, except where the interest is payable in respect of any debt incurred, or
moneys borrowed and used, or royalty is payable for right or technical services is payable for
services used outside India.
"Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this
section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or
clause
(vi) or clause (vii) of sub-section (1) and shall be included in the total income of the
nonresident,whether
or not,—
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.".
Business Connection
The expression Business connection has not been defined under Income Tax Act but is used in
Section 9(1) to deem income arising through Business connection to arise in India. A Business
connection involves a relationship between a business carried by a non resident which yields
profit or gains and an activity in India which contributes directly or indirectly in earning those
profit or gains.
Explanation 2 to Section 9 states that "Business connection" shall include any business activity
carried out through a person who, acting on behalf of the non-resident,—
(a)has and habitually exercises in India, an authority to conclude contracts on behalf of the non-
resident, unless his activities are limited to the purchase of goods or merchandise for the non-
resident; or
(b)has no such authority, but habitually maintains in India a stock of goods or merchandise
from which he regularly delivers goods or merchandise on behalf of the non-resident; or
(c)habitually secures orders in India for the non-resident
175
MISCELLANEOUS TOPICS
Company in which public are substantially interested [Sec.2(18)1:
A Company is said to be a company in which public are substantially interested if:
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
1. A company owned by Central or State Govt, or RBI or a Company in which not less that
40% of the shares are held by the Govt, or Reserve Bank of India or Corporation owned by that
bank.
2. A Company which is registered U/s 25 of the Companies Act, 1956 (formed for promoting
science, art, commerce, religion, Charity or other useful object)
3. A Company having no Share Capital which is declared by the Board for the Specific
Assessment Year(s) to be a Company in which public are substantially interested.
4. A Company the equity shares of which on the last day of the relevant previous year is listed
in a recognised Stock Exchange of India
5. A Company which carries on, as its Principal business, the business of acceptance of deposits
from its members & which is declared by the Central Govt. U/s 620A of the Company's Act to
be Nidhi or Mutual Benefit Society.
6. A Company in which equity shares carrying not less than 50% of the voting power were were
throughout the relevant Previous year held by one or more co-operative societies.
Exceptions to the rule that income of Previous Year will be assessed in a subsequent
Assessment Year:
As per the provisions of Section 4, income of the Previous Year is assessed to tax in the
immediately succeeding Assessment Year. However, the following provisions override Section 4
and the income is charged to tax in the same previous year in which it is earned:
1. Shipping business of a non resident (Section 172): Where a ship, belonging to or chartered
by a non-resident carries passengers, goods, livestock or mail shipped at a port in India, it is not
allowed to leave the port unless tax has been paid or satisfactory arrangements for payment of
tax has been made.
2. Persons leaving India (Section 174): Where an individual is leaving India and he has no
intention of returning to India, then the total income of the individual is chargeable to tax in that
previous year.
3. Assessment of AOP or BOI or artificial juridical person formed for a particular event
or purpose (Section 174A): Where any association of persons or a body of individuals or an
artificial juridical person, formed for a particular event or purpose is likely to be dissolved in the
assessment year in which it was formed or established, then its total income shall be chargeable
to tax in that assessment year.
Transfer of property to avoid tax (Sec. 175): Where a person is likely to sell, transfer,
charge, dispose of or otherwise part with any of his asset to escape the liability under this Act,
the total income of the person from the date of expiry of previous year for the Assessment Year
upto the date when the A.O. commences proceeding under this section is chargeable to tax.
- Discontinued business (Sec. 176).Where any business or profession is discontinued in any
Assessment Year then at the discretion of the Assessing Officer income for the period from the
185
Note: Surcharge and Education cess will not be added to TDS except in following two
cases-
ii) If the recipient is a foreign company and the payment subject to TDS exceeds Rs. 1 Crore,
surcharge @ 2.5% will be applicable.
(1) Notwithstanding anything contained in any of the provisions of this Act, any person
whose receipts are subject to deduction of tax at source i.e., the deductee, shall
mandatorily furnish his PAN to the deductor falling which the deductor shall deduct tax
at source at the higher of the following rates—
(i) at the rate specified in relevant
provision of this Act; or
(ii) at the rates or rates in force,
or
(iii) at the rate of 20%.
(2) TDS at the above mentioned rate will also apply in case where the tax payer files a
declaration u/s 197A(Le., inform 15G or 15H) but does not provide his PAN.
(3) No certificate u/s. 197 shall be granted unless the application contains the "PAN" of the
applicant
(4) The deductee shall furnish his PAN to the deductor and both shall indicate the same in all
the correspondence, bills, vouchers, and other documents which are sent to each other .
(5) Where the PAN. provided to the deductor is invalid or does not belong to the deductee, it
shall be deemed that the eductee has not furnish his PAN to the deductor and the provision
subsection (1) shall apply accordingly.
187
2. For Section 193, 194A,194C,194D,194E,194G,194H,194I,194J,195: At the time of credit or
payment whichever is eariler
Due Date for depositing tax at source to the credit of Central Government
(1) In case of any payment other than Salaries; 194B, 194BB, 194LA
(a) Where tax is deducted by or on behalf of Government - on the same day
(b) Where tax is deducted by any other person : (i) In case the tax is deducted on the
credit entry on last day of the financial year then it must be paid within 2 months
from the end of the financial year (ii) In any other case within 1 week from the end of
the month in which tax is deducted at source.
(2) In case of payment of Salaries; 194B, 194BB, 194LA
(a) Where tax is deducted by or on behalf of Government - on the same day
189
Default in filing of Nil U/s 272A(2) 100 per day during which the
returns default continues but not exceeding the
amount of TDS
1. No order shall be made u/s. 200(1) deeming a person to be an assessee in default for failure to
deduct the whole or any part of the tax of a person resident in India at any time after the expiry
of-
(i) In case statement is filed by the deductor u/s. 200 - 2 years from the end of the financial
year in which the statement is filled.
(ii) In any other case: 4 years from the end of the financial year in which payment is made or
credit is given.
However, order pertaining to the financial year 2007-08 or earlier years can be passed at any
time up to 31- 3-2011.
190
Certain period to be excluded : In computing the period of limitation for above purposes,
certain period prescribed under Explanation 1 to section 153 shall be excluded.
191
ADVANCE TAX
1. Liability for payment of advance tax
Under section 208, obligation to pay advance tax arises in every case where the advance tax
payable is Rs. 10,000 or more.
2. Computation of advance tax
(1) An assessee has to estimate his current income and pay advance tax thereon. He need not
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
submit any estimate or statement of income to the Assessing Officer, except where he has
been served with notice by the Assessing Officer.
(2) The Assessing Officer, if he is of the opinion that assessee is liable to pay advance tax,
can serve an order under section 210(3) requiring the assessee to pay advance tax.
(3) The above order can be served by the Assessing Officer at any time during the financial
year but not later than the last date of February.
(4) If the assessee feels that his own estimate of advance tax payable would be less than the
one sent by the Assessing Officer, he can file estimate of his current income and advance tax
payable thereon.
(5) In all cases, the tax calculated shall be reduced by the amount of tax deductible at source.
3. Installments of advance tax and due dates
Due date of installment Amount Payable
On or before the 15th June of p.y Not less than 15% of advance tax liability.
On or before the 15th September of p.y Not less than 45% of advance tax liability, as
reduced by the amount, if any, paid in the
earlier installment.
On or before the 15th December of p.y Not less than 75% of advance tax liability, as
reduced by the amount, if any, paid in the
earlier installment or installment.
On or before the 15th March of p.y The whole amount of advance tax liability as
reduced by the amount or amounts, if any, paid
in the earlier installment or installments.
On or before the 15th September of p.y Not less than 30% of advance tax liability
On or before the 15th December of p.y Not less than 60% of advance tax liability,
as reduced by the amounts, if any, paid in
the earlier installment or installments.
On or before the 15l1 March of p.y The whole amount of such advance tax as
reduced by the amount or amounts, if any,
paid in the earlier installment or installments.
193
2. The interest is chargeable on the amount of tax determined under summary assessment or
regular assessment as reduced by the amount of advance tax and tax deducted at source.
3. Interest is charged @ 1% p.m. or part of the month from the day immediately following the
due date of return till the date of furnishing return or till the date of completion of assessment U/s
143(3).
Interest for non-payment or short-payment of advance tax (section 234B)
1. Interest under section 234B is attracted for non-payment of advance tax or payment of
advance tax of an amount less than 90% of assessed tax.
2. The interest liability would be 1% per month or part of the month from 1st April of
Assesstment year till thedate of payment of tax or till the date of assessment whichever is earlier.
3.Such interest is calculated on the amount of difference between the assessed tax and the
advance tax paid.
4.Assessed tax is the tax calculated on total income less tax deducted at source.
Interest payable for deferment of advance tax (Section 234C)
1.Interest under section 234C is attracted for deferment of advance tax beyond the due dates.
2.The interest liability would be 1% per month , for a period of 3 months, for every deferment.
3.However, for last installment of 15th March, the interest liability under this section would be l
%for one month.
4.The interest is to be calculated on the difference between the amount arrived at by applying the
specified percentage of tax on returned income and the actual amount paid by the due date.
5. In case of company assessee no interest shall be charged U/s 234C for the first 2 instalments if
the company pays advance tax @ 12% and @ 36% of the Advance tax payable for the year.
Advance tax in case of capital gains/casual income (proviso to sec 234C)
.Advance tax is payable by an assessee on his/its total income, which includes capital gains and
casual income like income from lotteries, crossword puzzies etc.
2.Since it is not possible for the assessee to estimate his capital gains, income from lotteries,
etc.it has been provided that if any such income arises after the due date for any installment,
then, the entire amount of tax payable (after considering tax deducted at source) on such capital
gains or casual income should be paid in the remaining installments of advance tax which are due.
3.Where no such installment is due, the entire tax should be paid by 31st March of the relevant
financial year.
4.No interest liability would arise if the entire tax is so paid.
Senior Citizen: However for resident individual who is at least 65 years of age at any time during
the Previous Year Income shall be exempted upto Rs. 2,40,000. Thereafter the aforesaid slab is
to applied.
Resident Woman: For resident woman, not being a senior citizen income upto Rs. 1, 90,000
shall be exempted. Thereafter the aforesaid slab is to applied.
Surcharge: NIL
Section 288A: Total Income shall be rounded off to nearest multiply of Rs. 10
Section 288B: Tax Liability shall be rounded off to nearest multiples of Rs. 10
196
DISCUSSIONS RELEVANT FOR B.COM EXAMINATIONS
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Following are some important discussions relevant only for students appearing in B.Com
examination. These discussions are not relevant for Professional courses.
In cities of Kolkata, Mumbai, Delhi and Chennai Municipal Taxes are not charged on Gross
Municipal Value but on Net Municipal Value. Net Municipal Value = 90% of Gross Municipal
Value. As such, GMV is relevant for Expected Rent and NMV is relevant for Municipal Tax
calculation.
Consider that property is located in Kolkata. Gross Municipal Value = Rs. 1,00,000; Fair Rent
Rs. 80,000 and Actual Rent Rs. 1,50,000; Municipal Taxes @ 40%. The solution would be as
under:
197
Most commonly asked question: Which treatment to be followed for vacancy ?
Student; But in some books it is stated that CBDT circular 14/2001 states that vacancy can
be deducted from Expected Rent also?
Reply: Circular 14/2001 issued by CBDT does not state so. It just states the reverse thing.
Circular 14/2001 states that expected rent should be taken as Gross Annual Value in case Actual
Rent is less than expected rent but not due to vacancy. The contents of circular 14/2001 is
reproduced below [quoted in page 88-89 of Income Tax Reports Volume 252 - If required,
students may take a copy of the said circular in our class]
"In case the actual rent received and receivable during the year is less than the ALV, but not
because of vacancy, it is the ALV which shall be taken to be the annual value."
[ALV is the other term for Expected Rent.]
SERVICE TAX
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
The Charqeability [Section 66]
There shall be levied service tax at the rate of 10% +(EC + SHEC) of the value of taxable services
provided or to be provided to any person referred in Section 65 (105) and collected in such
manner as may be prescribed .
Points to be noted
1. Although, service tax is attracted on service provided or to be provided but the tax has to be paid
only on the receipt of the consideration. In case, some amount has been realized in advance, tax
has to be paid in advance. This is because the charge of Service Tax is not only on service
provided but also on service to be provided
2. The current rate of service tax is 10% of the value of service plus education cess @ 2% of the
tax and SHEC @J% of the tax. Hence, the effective rate of service tax is 10.3% of the value of
taxable service.
3. Finance Act, 2006 has inserted an explanation below section 65, which provides that 'taxable
service includes any taxable service provided or to be provided by any unincorporated
association or body of persons to a member thereof, for cash, deferred payment or any other
valuable consideration. However, in case of Resident Welfare Association providing services to their
members where monthly subscription does not exceed Rs. 3,000 shall be exempted.
4. The power to levy service tax is derived by the Parliament from Entry 92C (to be made effective
from notified date) of the Union List of the VII Schedule to the Constitution of India. At present, the
Parliament's authority to levy service tax is derived from Entry 97 of the Union List. Section 64 to
96 of Finance Act, 1994 provides the legal basis for levy and collection of service tax.
(a) Where the provision of service The gross amount charged by the service
is for a consideration in money provider 1 for such service provided or to be
provided by him
(b) Where the provision of service is for Non monetary consideration should be
a consideration not wholly or converted to equivalent monetary value.
partly consisting of money
Where the gross amount charged is inclusive of service tax : Where the gross amount charged
by a service provider, for the service provided or to be provided is inclusive of service tax payable,
the value of such taxable service shall be calculated as follows -
Value of taxable service Gross amount charged (inclusive of service tax) x 100 (100 + Rate of
service tax) i.e. 110.3
Scope of gross amount charged : The gross amount charged for the taxable service shall
include any| amount received towards the taxable service before, during or after provision of
such service.
Explanations -
(a) 'Consideration' includes any amount payable for taxable services provided or to be provided;
(b) 'Money' includes any currency, cheque, promissory note, letter of credit, draft, pay order,
travelers cheque, money order, postal remittance and other similar instruments but does not include
currency that is held for its numismatic value;
(c) 'Gross amount charged' includes payment by cheque, credit card, deduction from account and
any form of payment by issue of credit notes or debit notes and book adjustment.
Valuation Rules : For the purposes of this section, the value shall be computed in accordance
with the Service Tax (Determination of Value) Rules, 2006.
201
(h) the goods or services procured by the service provider from the third party as a pure agent of
the recipient of service are in addition to the services he provides on his own account.
Pure agent: "Pure agent" means a person who -
(a) enters into a contractual agreement with the recipient of service to act as his pure agent to
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
incur expenditure or costs in the course of providing taxable service;
(b) neither intends to hold nor holds any title to the goods or services so procured or provided as
pure agent of the recipient of service;
(c) does not use such goods or services so procured; and
(d) receives only the actual amount incurred to procure such goods or services.
Value to include all components even if separately shown : The value of the taxable service is
the total amount of consideration consisting of all components of the taxable service and it is
immaterial that the details of individual cpmponents of the total consideration is indicated
separately in invoice.
RULE 6: CASES IN WHICH THE COMMISSION, COSTS, ETC., WILL BE INCLUDED OR
EXCLUDED
This rule specifies certain items, which will be included in the value of the taxable services and
which will not be included in the value of taxable services.
Inclusions : Subject to the provisions of the section 67, the value of the taxable services shall
include,-
(a) the commission or brokerage charged by a broker on the sale or purchase of securities
including commission or brokerage paid by the stock-broker to any sub-broker;
(b) the adjustments made by the telegraph authority from any deposits made by the subscriber
at the time of application for telephone connection or pager or facsimile or telegraph or
telex or for leased circuit;
(c) the amount of premium charged by the insurer from the policy holder;
(d) the commission received by the air travel agent from the airline;
(e) the commission, fee or any other sum received by an actuary, or intermediary or insurance
intermediary or insurance agent from the insurer;
(f) the reimbursement received by the authorized service station, from manufacturer for
carrying of any service of any motor car, light motor vehicle or two wheeled motor
vehicle manufactured by such manufacturer;
(g) the commission or any amount received by a rail travel agent from the
railways or the customer;
(h) the remuneration or commission, by whatever name called, paid to such agent by the client
engaging such agent for the services provided by a clearing and forwarding agent to a
client rendering services of clearing and forwarding operations in any manner; and
202
(i) the commission, fee or any other sum, by whatever name called, paid to such agent by the
insurer appointing such agent in relation to such insurance auxiliary services provided by
an insurance agent.
(d)interest on loans.
(e) the taxes levied by any Government on any passenger traveling by air, if shown
separately on the ticket,
or the invoice for such ticket, issued to the passenger, [w.e.f 27-2-20101
(4) Valuation in case of service taxable under section 66A: The value of taxable service received
under the provisions of section 66A, shall be such amount as is equal to the actual consideration
charged for the services provided or to be provided.
However, where a taxable service is only partly performed in India, then, the value of taxable
service shall be the total consideration paid by the recipient for such services including the value
of service partly performed outside India.
Question: State on what amount is service tax chargeable in the
following cases:
1. An Auditor raises the following bill -
Audit fees Rs. 30,000
Traveling expenses reimbursement Rs. 10,000
Rs. 40,000
2. An Air Travel Agent raises the following bill -
Commission Rs. 500
Air- ticket reimbursement Rs. 10,000
Rs. 10,500
3. A Real Estate Agent raises the following bill -
Brokerage Rs. 5,000
Advertisement Rs. 1,000
Rs. 6,000
4. A Custom House Agent/ Cable Operator raises the following bill -
Service Charges Rs. 20,000
Custom Duty/ Entertainment Tax Rs. 5,000
Rs. 25,000
203
7. In Eg. 2 Airfare incurred is Rs. 10,000 but the agent charges Rs. 10,100 for Airfare +
Rs. 500 for Commission.
I. Will the payment to a hotelier of Rs. 10,000 on behalf of an architect/auditor by a service
receiver ie included in the value of the services?
X visits a beauty parlor and the total amount billed is Rs. 1,500 inclusive of Rs. 500 for
materials old and Rs.200 for materials consumed.
3 EXEMPTIONS UNDER SERVICE TAX
204
During the period of exemption the Small Service Provider shall not be eligible to claim
CENVAT credit. Once the exemption has been already availed and the Service Provider starts
205
organization declared by the Central Government in pursuance of section 3 of the United
Nations (Privileges & Immunities) Act, 1947
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
5. Service provided to diplomatic missions for their official use
All taxable services provided to foreign diplomatic missions or consular posts in India for their
official use are exempted. The exemption would be available on the taxable services provided to
such foreign diplomatic mission or consular post in India for its official use, which is issued with
an entitlement certificate (with or without any conditions) on the principle of reciprocity, by the
protocol division of the Ministry of External affairs (MEA).
6. Service provided to diplomatic missions for their personal use
All taxable services provided to diplomatic mission agents or career consular officers posted in a
foreign diplomatic or consular posts in India for their personal use are exempted.
The exemption would be available on the taxable services provided to such diplomatic agent or
career consular officer working in a foreign diplomatic mission or consular post in India for his
personal use or for the use of their family members, who is issued with an entitlement certificate
(with or without any conditions) on the principle of reciprocity, by the protocol division of the
Ministry of External Affairs (MEA).
Such agent or officer should also hold a photo-identification -card bearing a unique serial
number, issued by the protocol Division of MEA or the protocol department of the state
concerned.
7. Exemption for services provided to units in SEZ
All taxable services, which are provided in relation to the authorized operations in a Special
Economic
Zone, and received by a developer or units of a Special Economic Zone, whether or not the said
taxable
services are provided inside the Special Economic Zone, is exempt.
The said Notification classified the service provided in relation to the authorized operations in a
SEZ in the
following two categories:
(1) Services consumed wholly within the SEZ ; (2) Services consumed partially or wholly
outside SEZ
Exemption for Category 1 : Services consumed wholly within the SEZ
Taxable services falling under this category is exempted.
Conditions
a) The developer or units of SEZ shall get the list of specified services as are required in
relation to the authorized operations in the Special Economic Zone, approved from the
Approval Committee (hereinafter referred to as the specified services).
b) The developer or units of SEZ claiming the exemption actually uses the specified
services in relation to the authorized operations in the Special Economic Zone.
c) The developer or units of a SEZ shall maintain proper account of receipt and utilisation
206
d) of the taxable services for which exemption is claimed.
Exemption for category 2:Services consumed partially or wholly outside the SEZ
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Taxable services falling under this category is exempted by way of refund i.e., the firstly it is
required to be
paid and then refund is required to be claimed.
Conditions
a) The developer or units of SEZ shall get the list of specified services as are required
in relation to the authorized operations in the Special Economic Zone, approved
from the Approval Committee (hereinafter referred to as the specified services).
b) The developer or units of SEZ claiming the exemption actually uses the specified
services in relation to the authorized operations in the Special Economic Zone.
c) The developer or units of SEZ claiming the exemption, by way of refund, has
actually paid the service tax on the specified services.
d) No CENVAT credit of service tax paid on the specified services used in relation to
the authorized operations in the SEZ has been taken under the CENVAT Credit
Rule, 2004.
e) Exemption or refund of service tax paid on the specified services used in relation to
the authorized operation in the SEZ shall not be claimed except under this
notification.
f) The developer or unit of a SEZ shall maintain proper account of receipt and
utilisation of the taxable services for which exemption is claimed.
In nutshell
The exemption claimed by the developer or units of SEZ shall be provided by way of refund of
service tax paid on the specified services used in the relation to the authorized operations in the
SEZ except for services consumed wholly within the Special Economic Zone. Putting it
differently
Service Method of
Exemption
Specified services used in relation to the Exemption by way of refund i.e. first it
authorized operations in the SEZ i.e., services is required to be paid and then refund
may be consumed partially or wholly outside SEZ shall be claimed
207
11. Exemption to digital cinema service provider: Services provided by digital cinema
service provider to producer/distributor in relation to delivery of content of cinema in digital
form after electronic encryption are exempt from service tax.
12. Exemption for Sovereign Functions: Activities assigned to and performed by the
sovereign/public authorities under the provisions of any law are statutory duties, The fee or
amount collected as per the provisions of the relevant statute for performing such functions is in
the nature of a compulsory levy and are deposited into the Government account. Such activities
are purely in public interest and are undertaken as mandatory and statutory functions. These are
not to be treated as services provided for a consideration. Therefore, such activities assigned to
and performed by a sovereign/public authority under the provisions of any law, do not constitute
taxable services. Any amount/fee collected in such cases are not to be treated as consideration
for the purpose of levy of service tax.
However, if a sovereign/public authority provides a service, which is not in the nature of
statutory activity and the same is undertaken for a consideration (not a statutory fee), then in
such cases, service tax would be leviable as long as the activity undertaken falls within scope of
a taxable service as defined.
13. Exemption to RBI: Taxable services provided or to be provided to any person, by Reserve
Bank of India, is exempt from the whole of service tax. Similarly taxable services provided or to
be provided to any person to RBI is exempt from service tax only if the person liable to pay
service in respect of that service is RBI. Also, the service imported by RBI are exempt.
14. Transmission of electricity has been exempted from Service Tax.
REGISTRATION
Registration [Section 69 and rule 41
208
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
Every person liable for paying the service tax is required to make an application to the concerned
superintendent of Central Excise in form ST-1 for registration with in such time as may be
prescribed. Further the central government may, by notification in the Official Gazette , specify
such other person or class of persons, who shall make an application for registration with in such
time and in such manner and in such form as may be prescribed.
Time limit for registration
The application in form. No. ST-1 has to be made within time prescribed as under:
Situation Time limit for Registration
When service tax is imposed on a new service, in Within 30 days from the date of levy of service
case of service providers already engaged tax
in providing that service
In case a service provider commences the Within 30 days from the date of commencement
business of providing the service which is of business
already made taxable
It is important to note that the time limit of 30 days for registration as provided under
rule4(l) is fromthe date of commencement of business and not from the date on which the
liability to pay service taxarises . However, according to section 69 , only persons liable to
pay service tax are required to makeapplication for registration.
Registration of specialised category of persons
The following persons shall also make an application (in Form ST-1) for service tax
registration -
(a) An input service distributor; and
(b) Any provider of taxable service whose aggregate value of taxable service in a financial
year exceeds Rs.
9 lakh.
Time: Such application shall be made within 30 days of the commencement of business, or of
exceeding the aggregate value of taxable service of Rs. 9 lakh, as the case may be.
Question: Discuss whether the following persons are liable apply for registration under the
service tax law and if yes, by which date-f
a) A provider of taxable service, whose aggregate value of service is Rs. 8,80,000 up to 31-03-
2010
b) A provider of taxable service, whose aggregate value of service is Rs. 9,01,000 on 1-01-
2010
c) A provider of taxable service, who has provided services as follows:
Aggregate value of services upto 31-05-2008(i.e. before the service become taxable)
Rs. 7,00,000. Aggregate value of services form 1-06-2008 to 31-03-2010 Rs.
8,95,000;
d) An input service distributor who starts his business w.e.f 05-06-2008;
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Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(e) A provider of taxable service, who starts its business w.e.f. 11-08-2008 and whose aggregate
value of taxable services as on 10-10-2008 becomes Rs.9,02,000;
Answer:
(a)No registraction is required
(b) 31-01-2010
(c) No registration is required
(d) 05-07-2008
(e) 09-11-2008
Centralized registration [Rule 4(2)1
Where a person, liable for paying service tax on a taxable service,--
(i) provides such service from more than one premises or office: or
(ii) receives such service in more than one premises or offices: or
(iii) is having more than one premises or offices, which are engaged in relation to such service
in any other
manner, making such person liable for paying service tax.
AND
Has centralized billing system or centralized accounting system in respect of such service, and
such centralized billing or centralized accounting systems is done, are located in one or more
premises,
He may, at his option, register such premises or offices from where centralized billing or
centralized accounting systems are located.
The registration under above sub-rule (2) shall be granted by the Commissioner of Central
Excise in whose jurisdiction the premises or offices, from where centralized billing or
accounting is done, are located.
Separate Registration of Multiple place of business in the absence of centralized billing or
centralized accounting system [Rule 4(3 A)]
Where an assessee is providing a taxable service from more than one premises or offices, and
does not have any centralized billing systems of centralized accounting systems, as the case may
be , he shall make separate applications for registration in respect of each of such premises or
offices to the jurisdictional superintendent of Central excise.
Single application for registration even it more than one service is provided [Rule 4(4)1
If the same assessee provides more than one category of taxable services, he need not apply for
separate registration for each taxable service. Single application mentioning therein all the
taxable services provided shall be sufficient. In case the assessee is alread\ registered for one
service but subsequently becomes liable for another category of service, then he has to get his
certificate endorsed for the other category of service.
It should be noted that even though the registration is common across different service
categories, the tax liability has to be discharged separately for each of the taxable service in
separate GAR-7 Challans mentioning the accounting code relevant for the pertinent taxable
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Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
service. However, a single return in form ST-3 indicating the details separately for such taxable
service will suffice.
It should also be noted that the registration numbers for each service category would be
different though the service tax code (PAN based) would be common. Also, the classification of
services would be very important in this situation.
Documents to be attached
An application for registration has to be accompanied along with the
following documents: 1. Application in form ST-1 in triplicate duly signed.
2. Attached copy of the PAN card.
3. Proof of address of the premises which is required to be registered.
4. Copy of the Document governing the constitution of the organization (partnership deed in
case of partnership firm), Memorandum of Association in case of a company , Trust deed in
case of a trusts or association)
5. Authority Letter in favour of the person who is to collect the registration certificate on the
letter head of the organization applying for registration.
6. Power of Attorney in case the documents are signed by an authorized representative.
Issue of registration Certificate
The Superintendent of Central Excise is required to verify the application of registration and
issue a certificate in form ST-2 within 7 days of the receipt of application. If the registration
certificate is not granted within the said period , the registration applied for shall be deemed to
have been granted.
New PAN Based service Tax Code
The department has decided to introduce Service tax code based on PAN Accordingly , it is
compulsory, it is compulsory for all concerns registered under the Service tax Rules to obtain
PAN whether or not they pay income tax . The service tax Code is a 15 digits alphanumeric
code. First 10 digits will be 10 character PAN issued by income tax authorities. Next two
characters will be 'ST', Last three will be numeric code -001, 002, 003 etc. the concern person
should apply in prescribed from.
Changes in Registration Certificate
If there is any change in name or place of the applicant, the registration certificate should be sent
for necessary amendment within 30 days from the change .it is now provided that a certified
copy of the registration certification can be filed. Moreover, if the change in the place also
results in a change in the jurisdiction, an additional request for the transfer of records should also
be made.
It has been clarified that in case of change in the case of change in the place of business, looking
at the scheme of premise -specific registration and the provisions of rule 4(1), an application
should be made within a period of 30 days.
If the business is transferred to another person, fresh certificate of registration is necessary vide
rule4 (6). If the assessee ceases to carry on the activity for which he is registered, he should
surrender the registration certificate immediately.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
211
Similarly, in case there is a change in constitution of a partnership firm, the name should be
intimated through a letter to the superintendent of central excise. This stand has also been
supported by the Delhi Commissioner.
Cancellation of registration [Rule 4(8)]
(1) If the assessee ceases to carry on the activity for which he is registered, he should surrender
the registration certificate to the Superintendent of Central Excise.
(2) On receipt of application with certificate, the Superintendent of Central Excise shall ensure
that the assessee has paid all dues to the Central Government under the provision of the Act and
then he will cancel the registration
(3) It is to be note that the cancellation of registration may be done when the assessee applies
for cancellation on his own or surrenders his certificate and not in other cases.
In case where there has been a short recovery, it would be necessary for the assessee to revise
the bill or to endorse the reduction on the original bill. In case an assessee does not do so , his
liability to pay service tax shall be on the amount billed by him to the client for the services
rendered.
There have been frequent changes in the due dates for payment of service tax. The current law
pertaining to due dates for depositing the service tax are summarized in the table given below:
Category of assessee Periodicity of Period Due Date
payment
Individuals, Quarterly April to June, July to 5th (6th if paid
proprietary firms or September, October to electronically through
partnership firms December internet banking ) of
the month immediately
following the said
quarter
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1. It is to be noted that as per CBEC clarification, where the tax is paid electronically, the same
should be paid by 8 p.m on the due date. If the same is paid later than 8 p.m on the due date, it shall
be deemed to have been paid on the next date.
2. Where the transaction of taxable service is with any associate enterprise, any payment received
towards the value of the taxable service, in such case shall include any amount credited or debited to any
account, whether called 'Suspense Account' or by any other name , in the books of the account of a
person liable to pay service tax.
How to make the payment [Rule 6(2)]Under rule 6(2), the assessee is required to deposit the
service tax with the bank designated by the Central board of Excise & Customs for this
purpose. The payment has to be deposited through challan GAR-7
However, in case the assessee has paid service tax of Rs. 10,00,000 or more in the preceeding
financial year including utilization of CENVAT credit service tax shall have to be paid
electronically through internet banking.
It is to be noted that the interest for delayed payment of service tax has also to be paid along
with the service tax amount, however, the accounting codes for interest and penalties are
different from those for the service tax amounts.
In case of payment by cheque , rule6 (2 A) provides that the date of payment is the date on
which the cheque is tendered to the designated bank, provided the cheque is not dishonored in
the course of clearing.
Rounding off of tax
The provisions of section 37D of the Central Excise Act, 1944 provide for the rounding off of
the payment of duty. The said provisions have been made applicable to the service tax law also.
Therefore the payment of service tax should be rounded off in multiple of rupees. Where such
amount includes fifty paise or more, it should be increased one rupee and if it is less than fifty
paise, it should be ignored.
Option to pay service tax in advance and adjust the same against future service
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
tax liability Rule 6 (1 A)
214
Every person liable to pay service tax, may, on his own option, pay an amount as service tax in advance
and adjust the amount so paid against the service tax which he is liable to pay for the subsequent period.
However, the assessee shall,
(a) intimate the details of the amount of service tax paid in advance, to the jurisdictional
Superintendent of Central Excise within 15 days from the date of such payment; and
(b) indicate the details of the advance payment made, and its adjustment, if any in the
subsequent return to be filled U/s 70 of the Act.
Where an assessee has paid to the credit of Central Government any amount in excess of the
amount required to be paid towards service tax liability for a month/quarter, the assessee may
adjust such excess amount paid by him against his service tax liability for the succeeding
month/quarter, subject to the following conditions -
(a) excess amount paid is on account of reasons not involving interpretation of law,
taxability, classification, valuation or applicability of any exemption notification,
(b) excess amount paid by an assessee having Centralized Registration, on account of
delayed receipt of details of payments towards taxable services may be adjusted without
monetary limit,
(c) in cases other than specified in (b) above, the excess amount paid may be adjusted with
a monetary limit of Rs. 1 lakh (amended w.e.f. 1-3-2008) for a relevant month/quarter,
(d) the details and reasons for such adjustment shall be intimated to jurisdictional
Superintendent of Central Excise within a period of 15 days from the date such
adjustment.
In case where an assessee has opted for centralized registration and has paid any service tax
amount in excess of the liability for a period due to non receipt of details of receipts from other
premises or offices, the assessee may adjust such excess amount against his service tax liability
for the subsequent period
Where the excess payment is due to any other reason, the assessee has to apply for a refund
section 1 IB of the Central Excise Act if the assessment is pending, If the assessment is
completed, the assessee should apply for rectification under section 74 of the Finance Act, 1944.
Self Assessment
The Assistant Commissioner or Deputy Commissioner as the case may be, may, on receipt of
such request, order provisional assessment of tax. Accordingly, the provisions of Central Excise
Rules, 2002 relating to provisional assessment shall apply except the provisions relating to
execution of bond.
Rule 6(5) provides that after such request is made, the assessee shall submit a memorandum, in
Form -3A; giving details of difference between the provisional amount of service tax deposited
and the actual amount of service tax payable for each month along with the half-yearly return in
Form - 3.
Where the assessee submit a memorandum, in Form-3A, the AC /DC of Central Excise, as the
case may be shall complete the assessment, wherever he deems it necessary and proper in the
circumstances of the case.
(b) having made a return, fails to assess the tax in accordance with the provisions of this
Chapter or rules made thereunder,
the Central Excise Officer, may require the person to produce such accounts, documents or other
evidence as he may deem necessary and after taking into account all the relevant material which
is available or which he has gathered, shall by an order in writing, after giving the person an
opportunity of being heard, make the assessment of the value of taxable service to the best of his
judgment and determine the sum payable by the assessee or refundable to the assessee on the
basis of such assessment.
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
216
Interest on delay in payment of service tax [Section 75] :
In case of delay in payment of service tax, interest shall be charged @ 13% p.a. after the expiry
of the due date till the date of payment of tax.
(1) Option to air Travel Agent - 0.6% of domestic fare & 1.2% of international fare [Rule (6(7)
of Service tax rules,1994] : The person liable for paying the service tax in relation to the
services provided by an air travel agent, shall have the option, to pay an amount calculated -
"Basic fare" means that part of the air fare on which commission is normally paid to the air
travel agent by the airline.
(2) Life insurance business - 1 % of gross amount of premium [Rule 6(7A)of Service Tax
Rules, 1994]
: an insurer carrying on life insurance business shall have the option to pay an amount calculated
@1 % of the gross amount of premium charged by such insurer towards the discharge of his
service tax liability instead of paying service tax @10.3% on risk premium.
However, such option shall not be available in case where -
• The entire amount paid by policy holder is only towards risk cover in life
insurance ;
• The part of the premium payable towards risk cover in life insurance is shown
separately in any of the documents issued by the insurer to the policy holder.
(3) Money- changing services provided by a foreign exchange broker - 0.25 % of gross
amount of currency [Rule 6(7B)of service tax rule, 1994] : The person liable to pay service
tax in relation to purchase or sale of foreign currency, shall have the option to pay an amount
calculated @0.25%of the gross amount
of currency exchanged towards discharge of his service tax liability instead of paying service tax
@ 10.3% on commission element.
However, such option shall not be available in cases where consideration for the service
provided or to be provided is shown separately in the invoice, bill or challan issued by the
service provider.
217
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
OTHER PROCEDURES UNDER
SERVICETAXProcedure for Issue of bill/invoice/ challan
[Rule 4A & 4B]
(1) Every person providing taxable service shall issue an invoice/bill/challan signed by such
person or a person authorized by him in respect of such taxable service provided or to be
provided.
(2) Time limit for issue of invoice/bill/challan: The invoice/bill/challan shall be issued not
later than 14 days from the date of completion of such taxable service or receipt of any payment
towards the value of such taxable service, whichever is earlier.
Where any payment towards the value of taxable service is not received and such taxable service
is provided continuously for successive periods of time and the value of the such taxable service
is determined or payable periodically, then, an invoice/bill/challan shall be issued by a pe -son
providing such taxable service, not later than 14 days from the last day of the said period.
(3) Contents: Such invoice/bill/challan shall be serially numbered and shall contain the
following -
(a) The name, address and the registration number of such person;
(b) The name and address of the person receiving taxable service;
(c) Description, classification and value of taxable service provided or to be provided; and
(d) The service tax payable thereon.
(4) Issue of consignment note by goods transport agency: Any goods transport agency
providing taxable service shall issue a consignment note to the recipient of service. However,
where any taxable service is wholly exempted, the goods transport agency shall not be required
to issue the consignment note.
(5) Invoice in case of input service distributor: A input service distributor distributing the
credit of taxable services shall issue a invoice/bill/challan in respect of credit distributed by it.
The records (including computerised data) shall be acceptable. Every assessee shall furnish to
the Superintendent of Central Excise at the time of filing of return for the first time or 31-3-2008,
whichever is later, a list in duplicate, of-
218
(2) All other financial records maintained by him in the normal course of business.
All such records shall be preserved at least for a period of 5 years immediately after the financial
year to which such records pertain.
Power of authorised officer to have access to registered premises for scrutiny, etc.
[Rule 5A]
An officer authorised by Commissioner in this behalf shall have access to any registered
premises for the purpose of carrying out any scrutiny, verification and checks as may be
necessary to safeguard the interest of revenue.
Records may be demanded for scrutiny: For the purposes of the scrutiny, such authorised
officer, or, the audit party deputed by the Commissioner or the Comptroller and Auditor General
of India, may demand -
(a) the records listed in Rule 5 ;
(b) trial balance or its equivalent; and
(c) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961.
Assessee to furnish requisite records within, 15 days: On such demand, every assessee shall
make available all the requisite records to such officer or the audit party within a reasonable time
not exceeding 15 working days from the day when such demand is made, or such further period
as may be allowed by such officer or the audit party.
Note: "registered premises" includes all premises or offices from where an assessee is providing
taxable services.
219
Revision of return [Rule 7C1: An assessee may submit a revised return, in Form ST-3, in
triplicate, to correct a mistake or omission, within 90 days (amended w.e.f. 1-3-2008) from date
of submission of original return.
Fees for delayed furnishing of returns [Rule 7C1: Where the return in prescribed form is
furnished after the due date for its submission, the person liable to furnish such return shall pay
to the credit of the Central Government a fees for such delayed submission, computed as follows
Proceedings to be deemed to be concluded if fees paid as above: Where the assessee has paid
the amount as given above for delayed submission of return, the proceedings in respect of such
delayed submission of return will be deemed to be concluded.
Reduction/Waiver of fees if service tax is Nil: Where the gross amount of service tax
payable is nil, the Central Excise officer may, on being satisfied that there is sufficient
reason for not filing the return, reduce or waive the penalty.
The new format of "the return is much more comprehensive and provides for the details of
gross billing, exemptions, abatements, references to notifications & realizations. It also
includes the details of service tax, education cess, CENVAT Credit, interest and the like.
E-Filing of Returns
The Central Board of Excise & Customs has introduced a scheme of e-filing of service tax
returns. The broad scheme is as under:
1. Assessee should have the 15 digits STP Code (based on PAN) to avail the facility of e-filing
of returns.
221
3. The assessee should file an application to the concerned excise officer at least one month in
advance before the due date of filing of the return, in Annexure-I. User 'id' and 'password' for
the assessee will be communicated to him within ten days after filing the application along with
the necessary technical guidance.
4. After receipt of the said details the individual service provider can download form for
entering details of ST-3 returns and GAR-7 challans from the central server using internet and
enter the necessary details for the concerned return period.
5. The computer generates a key number which will depend on the STP code, date of filing,
value of services declared and tax paid and generates an acknowledgement giving these as
declared by the assesses are not found the assessee will be contacted.
6. The computer will verify the fact of payment from data obtained from Focal Point Bank.
Where details as declared by the assesses are not found the assessee will be contacted.
7. Where the assessee has paid service tax of Rs. 10,00,000 or more in the preceding
financial year including utilization of CENVAT credit then the assessee mst file retrn
electronically.
Section 71: Scheme for submission of returns through Service Tax preparers
The Board is empowered to frame a scheme providing that specified class of person may furnish
their service tax returns through an authorised Service Tax Return Preparer. Such scheme may
provide for various provisions applicable to the Service Tax Return Preparer (including
educational qualification, duties, etc.)
222
A Service Tax Return Preparer shall assist the specified person or class of person to prepare and
furnish the return in such manner as may be specified in the Scheme framed under this section.
CLASSIFICATION OF SERVIES
Section 64A(1) provide that where a taxable servive is prime facie classifiable under two or
more categories Service, than classification ssall be done as follows-
EXPORT OF SERVICES
The Export of services Rule, 2005 makes an attempt to define the “export of service rule
classifies the taxable servicea as category ‘A’ and ‘C’. the meaning of categories ‘A’, ‘B’ and
“C’ is as follows :-
(A) Immovable property situated abroad
(B) Service performed (wholly or partly) outside India.
C) When services is provided in relation to business or commerce, export means- provision of
such services to a ^ recipient located outside India.
(ii) When service is provided other wise, export means - provision of such services to a
recipient located outside India at the time of provision of such services.
Rule 4 of the Export of services Rules specifies that any taxable service can be exported
without the payment of service tax.
Rule 5 also enables the Central Government to grant rebate of input taxes paid for the
provision of services which are ultimately exported. It is to be noted that the Central
Government has granted the rebate by way of notification in the official Gazette and the
procedure for claim of such rebates has also been specified. The rebate is available only if the
amount of rebate is Rs. 500 or more.
CENVAT Credit is still available for "exported services"
IMPORT OF SERVICES
Charge of service tax on service received from outside India [Sec. 66A1
223
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
(1) Where any service specified in section 65(105) is provided or to be provided by a person
who has:
(i) established a business or has a fixed establishment from which service is provided or
has been provided in a
country outside India, or (ii) his permanent address or
usual place of residence is in a country other than India
And
Such service is received by a person (i.e. recipient) who has his place of business, fixed
establishment, permanent address or usual place of residence in India.
It will be treated as if recipient himself has provided the services in India and it will be
chargeable to tax in his hands instead of the service provider.
(2) However, if the recipient of the service is an individual, such service shall not be taxable
unless it has been received by him in any business or commerce,
Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 have
been framed to govern the provisions of this section. This provides as under-
Rule 3: It classify all taxable services in four categories, namely (i) Services in relation to
immovable property (ii) Services to be performed in India and (iii) Services received by
recipient located in India (iv) Services which will never be treated as 'import of service'.
Note: The classification is same as per export of Service Rules,
Rule 4: The recipient of service shall make an application for registration in accordance with the
provisions of section 69 and rules framed thereunder.
Rule 5: The service taxable under this section shall not be treated as 'output service' for the
purpose of availing credit of excise duty/service tax paid on any input/input service.
224
Name of the student: Gulab Kumar Mishra
Roll No. : 510924972
SIKKIM MANIPAL UNIVERSITY (Kankurgachi – LC- 02737)
MISCELLANEOUS
The penal provisions under the service tax law are as under :-
The end