TAX -1

Semester – V

BCOM /BCOM (H)/BMS

Edition: 2023-24

#44/4, District Fund Road, Behind Big Bazaar, Jayanagar 9th Block, Bengaluru, Karnataka
560069
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 1
 Program: B.Com

Semester: V Subject: TAX - I

Total Lecture Hours: 60 Credits: 04
Course
Objectives

1. Provide the regulatory outline under which the direct law functions.
2. Inculcate the practice of applying tax concepts for practical scenarios.
3. Provide knowledge of concepts that can be applied to day-to-day lifestyle
while calculating taxable income for any natural person.
4. Unify the students to solve problems on the application of Tax Provisions available.
5. Extend the pros of tax planning for efficient decision making.
Module – 1: Introduction to Taxation 14 hours
Brief history of Indian Taxation – Legal Frame work – Cannons of Taxation – Finance Bill
– Scheme of Income Tax- Meaning of Assessee – Person – Assessment year –
Previous year – Income – Gross Total Income – Total Income- Agricultural
income- Capital and Revenue- Residential Status and Incidence of Tax on
individual- Exempted Incomes. Income tax authorities: CBDT – powers and
functions; Commissioner of Income Tax – powers and functions; Types of
assessment and rectification of mistakes; Recovery of tax and refunds. Time
limits for the submission of information, claims and payment of tax, penalties for
non-compliance – Tax planning
Module-2: Income from Salary 14 hours
Basic Salary- Allowance - Types – Perquisites – Types section 89(1) – Tax Rebate U/S 88
- Problems. (Restricted to Individual Assessee) Allowance – Leave Encashment – Pension
–Gratuity – Perquisites compensation received on termination of the service.
Module-3 : Income from House Property 12
hours Introduction – Annual value under different situations (self-occupied – Let
out – Partly self-occupied partly let out – Portion wise and time wise) –
Deductions (u/s 24)
– Problems.
Module – 4: Income from Capital Gains - 10
hours Meaning and kinds of capital asset, transfer, transactions not regarded as
transfer, full value of consideration, cost of acquisition, cost of improvement,
capital gains exempt from tax, exemptions from capital gains u/s 54. Problems on
computation of short term and long-term capital gains.

Module -5: Income from Other Sources 10

hours General income, specific incomes, treatment of specific incomes, deduction
of tax at source with respect to interests, winnings, prizes etc. Problems on
computation of taxable income from other sources and deduction u/s 57 and
amounts expressly disallowed u/s58.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 2
 .Reference Books
1. Vinod K Singhania. and Monica Singhania, Students’ Guide to Indirect Taxes,
TaxmannPublications Pvt. Ltd., Delhi. – 2023.
2. Swamynathan. C, Abhirami.D, Srinivas. G, Income tax – Kalyani Publications –
Bangalore. – 2023.
3. B.B. Lal Income Tax Law and Practice. Konark Publications, New Delhi. B.Com
ProgramCBCS Department of Commerce, University of Delhi, Delhi . – 2023.
4. Dr. Mehrora and Dr. Goyal: Direct taxes – Law and practice, Taxmann publication.
– 2023.
5. Gaur and Narang: Income Tax – 2023.

Bloom’s
Course Outcomes (CO) Taxonomy
Level

Describe the basic principles underlying the provisions of direct

tax laws and develop a broad understanding of UNDERSTANDING
CO1
the tax laws and accepted tax practices with the technical terms (2)
U/S: (2(9), 3, 2(7)2(24) 2(31), 24, 2(1A), U/S10&
Rules: (8,7A 7B(1), 7B(1A))
Determine the taxable income from different heads of income
UNDERSTANDING
CO2 and Deductions.(U/S-16, 24, ) and
(2)
Exemption under the head Income from salary .
APPLYING
CO3
Illustrate the Calculation of Income from House property (3)
Illustrate the Calculation of Income from Capital Gain APPLYING
CO4 (54,54B,54AC ,54F,54EC) (3)
APPLYING
CO5 Illustrate the Calculation of Income from Other sources. (3)

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 3

 Income Tax Slab Rate for AY 2023-24 for Individuals:
Individual (resident or non-resident), who is of the age of less than 60
years on the last day of the relevant previous year:

Net income range Income-Tax rate

Up to Rs. 2,50,000 Nil
Rs. 2,50,000- Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Resident senior citizen, i.e., every individual, being a resident in India, who
is of the age of 60 years or more but less than 80 years at any time during
the previousyear:

Net income range Income-Tax rate

Up to Rs. 3,00,000 Nil
Rs. 3,00,000 – Rs. 5,00,000 5%
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Resident super senior citizen, i.e., every individual, being a resident in

India, who is of the age of 80 years or more at any time during the previous
year:

Net income range Income-Tax rate

Up to Rs. 5,00,000 Nil
Rs. 5,00,000- Rs. 10,00,000 20%
Above Rs. 10,00,000 30%

Plus:-
 Health and Education cess: - 4% of income tax and surcharge.

 Surcharge: -
Rs. 50 Lakhs Rs. 1 Crore to Rs. 2 Crores to Rs. 5 crores to Exceeding Rs.
to Rs. Rs. Rs. Rs. 10Crores
1 2 Crores 5 Crores 10 Crores
Crore
10% 15% 25% 37% 37%

Note: - A resident individual is entitled for rebate under section 87A if

his total income does not exceed Rs. 5, 00,000. The amount of rebate
shall be 100% of income-tax or Rs. 12,500, whichever is less.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 4

 Module – I
Introduction to Taxation

OBJECTIVES OF THIS MODULE:

1. To understand the basic concepts of tax.
2. To know various terminologies used.
3. To give a clear idea about, how individuals are treated under taxing system.
4. To be familiar with the authorities related to income tax and their functioning.

1. INTRODUCTION
Tax is levied by the government to form a pool of resources to be used for the
collective benefit of the public. Taxes collected would be used by the government
for public welfare programs, maintenance of law and order in the country,
running public sector undertakings etc.
There are two types of taxes – Direct and Indirect. Direct tax is a type of tax
where the tax is imposed on a person and it is paid by the same person. That
means the incidence and the impact of tax are on the same person.

1.1Brief History of Income Tax:

The concept of income tax was introduced in India for the first time by Sir
James Wilson in the year 1860 in order to recover the expenditure incurred by
the Government on account of Sepoy Munity in 1857 (First war of Indian
Independence). Thereafter several amendments were made in 1918, 1921 etc. In
1961, based on the recommendation of the Direct Tax Committee and in
consultation with the Law Ministry a Bill was framed and introduced in the

Parliament on 1st September 1961 and the same came to force with effect from

1st April 1962.

The comprehensive Income Tax Act 1961 includes 14 section and sub
section running into thousands and many amendments which were made since
1961. Finance minister presents budget every year in the parliament with a view
to change rates and laws of income tax if any needed in the interest of the nation
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 5
 building.
Income tax is levied by the Central Government and administered by
Central Board of Direct Taxes (CBDT). Income tax shall be levied only on those
persons whose income exceeds certain limit. Total tax revenue collected by the
Central Government is shared by Central and State Government on the basis of
recommendation of finance commission.

1.2 Legal framework:

Income tax is a direct tax. It is levied and collected from the public who have
income more than the exempted limit for a given financial year. Income tax is a
central subject and it is levied, collected, administered, regulated and monitored
by the Central Board of Direct

Taxes (CBDT) under the Ministry of Finance, Government of India. The scope of
Incometax subject covers the following aspects. Viz
1. Income Tax Act,1961 (Bare Act – subjected to many amendments from time to
time tilldate)
2. Income Tax Rules 1962
3. Finance Act (passed in the Parliament every year)
4. Judicial pronouncements relating to various issues in Income Tax.

1.3 Tax:
It is compulsory levy under certain conditions and it is meant for the general
purposes of the state.
1.3.1 Features of tax:

1) It is compulsory payment to be paid by the citizens who are liable to pay it, hence
refusedto pay tax is a punishable offence.
2) It is levied to meet public expenditure incurred by the government in the
commoninterest of the nation.
3) The payment of tax by a person does not entitle him to receive any direct benefits
fromthe government in return for the tax.
4) There is no direct relationship between the tax paid by the person and the
benefits thathe may receive as a result of government expenditure.
5) It has to be paid regularly and periodically as determined by the tax authority.

1.3.2 Types of taxes:

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 6
1) Direct Taxes: It is a kind of tax where in incidence and impact is on the same person.
‘Incidence’ means liability to pay tax to the Government
and‘Impact means burden of paying the tax.
E.g. Income Tax, Wealth Tax, Property
Tax etc.Customs Duty, GST

1.4 Difference between Direct tax and Indirect Tax

Particulars Direct Tax Indirect Tax

Meaning It is a kind of tax where in It is a kind of tax where in
incidence and impact is on the ‘incidence’ and ‘impact’ is on two
same person. different persons.
Nature of Tax Progressive in nature. Regressive in nature.
Taxable event Taxable income of the Purchase/Sale/Manufacture of
Assessee goods and or rendering of services.
Levy Levied and collected from the Levied and collected from
Assessee. the consumer but paid or
and Collection deposited to the exchequer by the
Assessee or Dealer.
Shifting of Tax burden is borne by the Tax burden is shifted to
Burden person on whom it is levied. the subsequent or ultimate
Hence, the burden cannot be user.
shifted.
Tax Collection Tax is collected on the income At the time of sale or purchase or
for a year is earned. rendering of services.
Examples Income Tax, Wealth Tax, Excise Duty, Customs Duty, Sales
Property Tax etc. Tax, Service Tax etc.

1.5. Principles or Canons of taxation:

1) Canon of Equality:
According to this canon taxes imposed should be in accordance with an individual’s
ability to pay. That is it should be impartial and based on one’s ability to pay.

2) Canon of Certainty: The amount to be paid, the time and the method of payment
should be clear and certain for the tax payers to adjust his/her income and
expenditure accordingly.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 7
 3) Canon of Convenience: This canon says that the time of payment and the
manner payment should be convenient to the tax payer.
4) Canon of Economy: Every tax involves a collection cost. It is important that the
cost of collection should be the minimum possible. The tax is economical, in the
sense that the cost of collection is very small.
5) Canon of Productivity: The tax system should sufficiently yield the revenue
needed to meet the requirements of the state. Productivity again means that the
government shouldnot depend upon deficits.
6) Canon of Elasticity: Elasticity is closely connected with fiscal adequacy. This
canon implies that yield from taxation should grow along with increase in
population and development of economy.
7) Canon of Simplicity: Calculation of taxable income and taxable liability should be
simpleand understandable to the tax payer.
8) Canon of Flexibility: Income tax authorities should revise the tax structure at
the right time in order to meet the changing needs of the economy.

1.6 BASIC TERMINOLOGIES UNDER INCOME TAX:

1.6.1 Income Tax:

It is a tax on the income earned by an assessee during the previous year and the
tax is payable in the assessment year at the rates prescribed by the relevant
Finance Act. It is a tax levied by the Central Government on the income earned by
an assessee every year.

1.6.2 Assessment U/S 2(8):

According to section 2(8) of Income Tax Act, 1961 the term assessment means-

1) Computation of total income or taxable income

2) Computing the tax on the income and
3) Imposition of tax liability

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 8

 1.6.3.Assessment Year U/S 2(9):
Assessment year is defined as “the period of twelve months starting from 1 st of

April andending of 31st March every year”. The current Assessment year is 2023-
24.
1.6.4.Previous Year U/S 3

It is the financial year immediately preceding the Assessment year. In other

words, the year in which income is earned is known as previous year. The
previous year for the assessment year 2023-24 is 2022-23.

1.6.5.Difference between Previous year and A ssessment year

Previous year Assessment year

The year in which income is earned. The year in which the income of the
previous year is assessed to tax.
It always precedes the assessment year. It always succeeds the previous year.
It may be either a full year or part of the It is always a full year
year.
The present previous year is 2022``-23. The present assessment year is 2023-24.

1.6.6.Exception to the General Rule Previous Year:

Normally all the incomes of the P.Y are assessed to tax in the A.Y. But there are
certain exceptions to this rule. In these cases, the income of a financial year is
assessed to tax in the same year. They are:
1) Sec. 172 – Income of non-resident from shipping business.

2) Sec. 174 – Income of persons leaving India either permanently or for a long period of time.
3) Sec. 174 (A) – Income of bodies formed for short duration.
4) Sec. 175 – Income of a person trying to transfer his/her assets to avoid the
payment oftax.
5) Sec. 176 – Income of a discontinued business.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 9

 1.6.7 Assessee Sec 2(7):

An assessee means a person by whom any tax or any other sum is payable under the
Income Tax Act of 1961, it includes:
a) Every person in respect of whom any proceeding under this Act has been taken
for theassessment of income or any refund due to him or to such other person.
b) Deemed Assessee.
c) Deemed Assessee in default.

1.6.8. Deemed Assessee:

A person may be liable not only for his own income but also on the income of
other persons. A person who is liable to pay any tax or file return of income for
the income earned by a minor, agent of non-resident or by any other person is
called Deemed Assessee.
Deemed assessee is a person who is assessable for the income of any other
person underthis act and includes the following.
1) The executors or the legal heirs of a deceased person
2) The guardian of a minor, lunatic or idiot having taxable income
3) The agent of any non – resident Indian having income in India.

1.6.9 Assessee in Default: When a person is responsible for doing any work
under the Income Tax Act and fails to do it, he is called as assessee in Default. E.g.
A company istreated as assessee in default for non-deduction of TDS..
1.6.10.Person Sec 2(31):

The term person includes:

a) An individual
b) A Hindu Undivided Family
c) A Firm
d) A Company
e) An association of persons/body of individuals
f) A Local Authority
g) Artificial Juridical Person

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 10

 1.6.11.Income Sec 2(24):

The term income means and includes

1) Profit and gains of business
2) Dividends
3) Voluntary contribution received by a Trust or an Institutions
4) Perquisites of profit in lieu of salary/Allowance
5) Capital Gains
6) Winning from Lottery/ Cross word Puzzle/ Race
7) Sum received under Keyman insurance policies including bonus thereon
8) Gifts as per section 56
9) Any consideration received for issue of share as exceeds the fair market value of
shares as referred in clause of (vii)(b) of section 56(2)
10)Any sum of money referred to in section 56(2)(ix) sum of money received as an
advance or otherwise in course of negotiations for transfer of Capital Asset, if it is
forfeited and negotiations do not result in transfer of such capital asset.

1.6.12.Casual Income:

An income becomes casual income, if it contains the following feature: It is

unanticipated, it is non-recurring in nature, it arises from an unknown source, no
specific efforts were put in to earn such income. For example,

1) Winning from lottery

2) Income from cross word Puzzles and card games
3) Tips given to taxi drivers
4) Prize awarded for coin or stamp collection

1.7Heads of Income:
Different heads of income are:
1) Income from Salary
2) Income from House Property
3) Profits and gains from Business or Profession
4) Capital Gains
5) Income from Other Sources

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 11

 Income from Salary All the money you receive while rendering your
job as a result of an employment contract

Income from house Income from house property you own; property
property can be self-occupied or rented out.

Income from Income/loss arising as a result of carrying on a

business and business or profession. Freelancers’ income come
profession under this head.

Income from capital Income earned from the sale of a capital asset
gains (mutual funds or house property).

Income from other Income accrued from fixed deposits and savings
sources account come under this head.

1.8. Gross Total Income:

It is the aggregate of the income computed under various heads of income after
allowing set-off of losses according to the provision of Income Tax Act. Section 14
deals with the Gross Total Income and it includes:

1) Income from Salary

2) Income from House Property
3) Profits and gains from Business or Profession
4) Capital Gains
5) Income from Other Sources

1.9.Total Income Sec 5:

Total income of an assessee is Gross Total Income after making deductions u/s 80C
to80U. This is also called as taxable income.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 12

 1.10.Exempted incomes

The exempted incomes are given u/s 10(1) to 10 (49) of the act and are not included
for the calculation of total income of the assessee. Some of these incomes are listed
below:

1. Agricultural income from a land in India – fully exempted u/s 10(1).

2. Share of income from HUF- fully exempt u/s 10(2)
3. Share of income from firms assessed as firm u/s 184 or 185 is fully exempt u/s 10(2A)
4. Any income from investment by an NRI in bonds and securities –fully
exempted u/s10(4)(i). No exemption on such bonds issued after 1.6.2002.
5. Any income from interest on Non-resident (external) account – fully exempted
u/s 10(4)(ii).
6. Leave travel concession to an Indian citizen employee – exempted up to limits
laiddown u/s 10(5)
7. Tax paid by government or an Indian concern on behalf of foreign company
(sec10(6A))
8. Perquisites and allowances given by the government to its employees posted abroad
-fully exempted u/s 10 (7).
9. Any income of employees of foreign countries working in India under co-
operativetechnical assistance Programme – fully exempted u/s 10(8).

10. Amount of retrenchment compensation given to workers – fully exempted

u/s 10(10B)
11. Compensation received in case of any disaster [sec 10(10BC)] – in case an
individual or his legal heir receives any compensation on account of any disaster
from central or state Government or a local authority, the same shall be
exempted.
12. Any amount received from life insurance corporation on maturity of policy
with or without bonus – fully exempt u/s 10(10D). The sum assured shall be
exempt along withbonus in the following cases:
a) If any sum received from insurance company on insurance of a dependent
handicappedmember
b) If any sum received from insurance company when a dependent, or a member
of familyis suffering from a notified disease,
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 13
 c) Any sum received under a key man insurance policy

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 14

 13. Payment received out of statutory provident fund – fully exempt u/s 10(11)

14. Payment received out of recognized provident fund – fully exempt u/s 10(12)
15. House rent Allowance – exempted as per conditions given u/s 10 (13A).
16. Income from certain exempted securities u/s 10(15).
17. Educational scholarships given by government or any other organizations -
fullyexempt under sec 10(16).
18. Allowances received by MPs/MLAs – exempted u/s 10(17) up to the following extent:
 Daily allowance and Constituency allowance – fully exempted.
19. Any Awards instituted or notified by central or state government in the
followingfields– fully exempt u/s 10(17 A)
a) Literary, scientific or artistic work or attainment
b) Services alleviating the distress of the poor, the week and the ailing
c) Proficiency in sports or games
d) Gallantry awards (paramveerchakra, Mahaveer chakra) approved by the
government
20. Any pension received by winners of Param veer chakra, Mahaveer chakra and
veer chakra and family pension received by their dependents- fully exempted
under sec 10(18)
21. Family pension received by family members of armed forces. u/s 10(19).
1. nnual value of any one palace of an ex-ruler of Indian states shall be fully
exempt u/s 10(19A)
2. Income of a local authority – exempted as per conditions given u/s 10(20)
3. Income of a scientific research association – exempted as per conditions given
u/s10(21).
22. Income of a fund set up for welfare of employees or their dependents
exempted as perconditions given u/s 10(23AAA).
23. Any income of a trust or society approved by Khadi and Village Industries
Commissionu/s 10(23B).
24. Income of mutual fund – exempted as per conditions u/s 10(23D).

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 15

 25. Income of a venture fund - exempted as per conditions u/s 10(23FA)
26. Income by way of dividend from an Indian company –fully exempted u/s 10(34)
27. Income from units of UTI and other mutual funds (sec 10(35)Any income by way of:
a) Any income received by way of dividend from a domestic company.
b) Income received in respect of units from the specified company.
28. Income from sale of shares in certain cases [sec 10(36)]
Any income arising from the transfer of a long-term capital asset, being an
eligible equity share in a company purchased on or after march 1, 2003 and
before march 1, 2004and held for a period of twelve months or more.
29. Any income from long- term capital asset being self-cultivated urban
agricultural land on compulsory acquisition [section 10(37)]- in case of an
assessee, being an individual or a Hindu Undivided family, capital gain arising
from the compulsory acquisition of self- cultivated land shall be fully exempted.
30. Income from international sporting event (sec 10(39))
Any specified income of specified persons from any international event held in
India shallbe fully exempt if:
a) Such event is approved by the international body regulating the international
sport relating to such event;
b) It has participation by more than two countries; and
c) It is notified by the central government in this regard.

1.11. Agriculture income

According to Sec 2 (IA) Agriculture income means:
1) Any rent or revenue received from land which is used for agricultural purpose
and situated in India.
2) Any income derived from such land by agricultural operations including
processing of agricultural produce, raised or received as rent in kind so as to
render it fit for the market,or sale of such produce.
3) Income attributable to a farm house subject to the condition that building is
situated on or in immediate vicinity of the land and is used as a dwelling house,
store house etc.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 16

 1.11.1. Examples of Agricultural Income:

1) Income from sale of replanted trees.

2) Rent received from agricultural land.
3) Income from growing flowers and creepers.
4) Share of profit of a partner from a firm engaged in agricultural operations.
5) Interest on capital received by a partner from a firm engaged in agricultural operations.
6) Income derived from sale of seeds, straw, dried Tobacco leaves.
7) Land leased for grazing of animals required for agriculture purpose.
8) Insurance money received for destruction of agricultural produce.

1.11.2. Examples of Non- Agricultural Income:

1) Income from sale of earth for brick making.

2) Income from stone quarries and fishing
3) Income from sale of spontaneously grown trees.
4) Income from dairy farming, poultry farming.
5) Interest received by a money lender in the form of agriculture products.
6) Income of salt produced by flooding the land with sea water.
7) Royalty income from mines.
8) Income from butter and cheese making.
9) Maintenance allowance charged on agriculture land.
10Remuneration received as an employee of an agriculture
farm.

10)Dividend received from a company engaged in agricultural operation

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 17

 Illustration
Determine whether the following incomes are agricultural incomes or not.
1. Income from interest on arrears of rent payable in respect of land used for
agriculturalpurpose.
2. Income from use of land for grazing of cattle required for agricultural operations.
3. Income from the sale of trees spontaneously grown.
4. Income from the sale of replanted trees in the forest.
5. Lease rent for letting out a tea estate by the assessee doing the business of
growing andmanufacturing tea.
Solution:
1. Non-agricultural income as the income is derived from a financial activity and not
fromdirect agricultural activity.
2. Agricultural income as it is an agricultural activity.
3. Non-agricultural income because no agricultural activity is involved.
4. Agricultural income as there is some agricultural activity involved.
It is agricultural income as the estate is used for agricultural activities

1.11.3.Partly Agricultural Income:

Sometimes, there is composite income which is partially agricultural and

partially non- agricultural income. For certain crops, income tax act gives fixed
percentages to segregate agricultural and non- agricultural incomes. Agricultural
income is not taxable and the non-agricultural portion would be taxable.

Table 1.1
PARTLY AGRICULTURAL AND PARTLY NON-AGRICULTURAL
INCOME

Crop Rule Agricultura Non-

l income agricultura
l income

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 18

 1) Growing and manufacturing of 8 60% 40%
tea
2) Rubber manufacturing business 7A 65% 35%
3) Coffee grown and cured by seller 7B(1) 75% 25%
4) Coffee grown and cured, roasted 7B(1A) 60% 40%
and grounded by the seller in India
with or without mixing chicory or
other flavoring agents

1.11.4.Integration of Agricultural Income with Non-Agricultural Income: [sec 2(2)]:

Agricultural income is exempt from tax u/s 10(1) but it is included in the total
income for tax liability calculation. The object of aggregating the net agricultural
income with non- agricultural income is to tax the non-agricultural income at
higher rates.

Conditions for aggregation:

 Integration is done only in case of Individuals, HUF, Firms assessed as association

of persons (AOP), Association of persons, Bodies of individuals, artificial juridical
persons.
 Integration is done only if Non-agricultural income of persons mentioned above
exceeds the exempted limits which are Rs.2,50,000 for individuals and HUF, and
Rs. 3,00,000 for senior citizens in the relevant previous year.
 Integration is done if net agricultural income of all these persons exceeds Rs.
5000 in therelevant previous year, companies and co-operative societies.

1.11.5. Calculation of net agricultural income:

It is computed in accordance with the rules laid down u/s 2(iA) of the Income tax
act 1961and rules 7 & 8 of the income tax rules 1962. These rules are:

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 19

1. Rent or revenue derived from agricultural land will be computed on the same
basis which is adopted for computation of income under the head income from
other sources u/s 57 to 59 of the income tax act.
2. Income derived from agricultural operations will be computed as if it is income
chargeable to tax under the head profits & gains of business or profession.
Depreciation and loss on the death of animals used in agricultural operations are
allowed as expenses.
3. Income from agricultural house property will be computed as if such income is
chargeable to tax under the head ‘income from house property’ and provisions
under section 22 to 27 shall be applicable.
4. For computing share of income from tea business income is computed under rule
8 whichshall be considered to be agricultural income.
5. For computing share of income or loss of a firm assessed as AOP same rules are
applicable as provided in income tax act for computing share of profits and losses
from firm assessedas firm.
6. Loss incurred in agriculture will be allowed to be set off only against agricultural incomes.
7. Any sum payable by the person on account of any tax levied by State Govt. on
agriculturalincome will be allowed as deduction.
8. Where the net result of agricultural income from the various sources stated
above in a particular previous year is a loss, such loss will be disregarded and net
agricultural income shall be taken as nil.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 20

1.12.Capital and Revenue:

Introduction
It is necessary to understand the distinction between capital and revenue items
to determine the tax treatment of expenses and incomes. For the understanding
of the concepts, it is divided into three parts:
i) Receipts
ii) Expenditure
iii) Losses

Capital Receipt Revenue Receipt

1.Amount of fixed capital received is a 1.Amount received as circulating capital is
capital receipt. a revenue receipt.
2.A receipt in substitution of a source of 2. A receipt in substitution of an income is
income is a capital receipt. E.g. a revenue receipt. E.g. Bonus received by
Compensation received from his an employee from his employer is a
employer for the termination of service is revenue receipt.
a capital receipt.
3.An amount received as a compensation 3. An amount received under an
for the surrender of certain rights under agreement as compensation for loss of
an agreement is a capital receipt. E.g. future profits is a revenue receipt.
Amount paid to a retiring director of a Compensation paid for breach of
company for not starting a competing agreement is a revenue receipt
business after his retirement
4. If the asset is used by the assessee as 4. If the asset is kept in the business as
an investment, then the sale proceeds stock in trade i.e. for the purpose of
thereof will be a capital receipt. E.g.: making profit from its sale then the sale
Motor car used by a business is a capital proceeds thereof is a revenue receipt. E.g.
asset and

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 21

 the sale proceed thereof is a capital Sale proceeds of motor cars maintained by
receipt. vehicle dealer.
5. Subsidies or grants received from the 5. Subsidies or grants received from the
government for specific capital purpose. government for meeting foreign
E.g., For any development scheme competition or otherwise assisting the
or renovation or modernization is a trader in his business are revenue
capital receipt. receipts.
6. Insurance money received for a capital 6. Insurance money received for a trading
asset is capital receipt. asset is revenue receipt.

1.13. Capital Expenditure and Revenue Expenditure:

Capital expenditure is not deductible from the gross income of the business but
the revenue expenditure is deductible therefore, it is essential to know the
difference between the two:

Capital expenditure Revenue expenditure

1. Cost of acquisition and installation of a 1. Purchase price of goods bought for
fixed asset is a capital expenditure. resale along with expenses on their
purchase is revenue expenditure.
2. An expenditure incurred to discharge 2. An expenditure incurred to discharge
a capital liability is a capital expenditure. a revenue liability is revenue
expenditure.
3. An expenditure incurred for acquiring 3. An expenditure incurred for earning
a source of income is a capital expense. an income is a revenue expense.
e.g. acquisition expenses of a business
4. An expenditure incurred for 4. An expenditure incurred for
increasing the earning capacity of a maintaining a fixed asset in good
business by improving its fixed assets is condition is revenue expenditure.
a capital expenditure.
5. Capital expenditure is a non- recurring 5. It is recurring in nature.
item.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 22

 6. Expenditure in obtaining capital by 6. Expenditure incurred in raising loans
issuing shares is a capital expenditure. or issuing debentures
is revenue
expenditure.
1.14 Capital and revenue Losses:

Loss on the sale of a capital asset is a capital loss whereas loss on sale of goods of
the business is a revenue loss. Loss sustained on account of embezzlement done
by an employee, destruction of goods or non-recovery of any amount due in
connection with business is a revenue loss. Loss sustained by theft committed by
an employee during usual business hours or outside business hours is a revenue
loss being incidental to the trade.

1.15 Summary:

 Agricultural income from India is exempt from tax.

 Classification of receipts and payments is very essential for determining the

taxability ofthe transaction.
 Capital receipts are not taxed whereas revenue receipts are taxed.

 Capital losses are not allowed as expenses in calculation of taxable income

whereasrevenue expenses and losses are allowed to be subtracted from income.

1.16. RESIDENTIAL STATUS AND INCIDENCE OF TAX

Introduction:
Under section 4 of the act income tax is charged on the total income of a person.
Section 5 of the act defines the total income of a person on the basis of his or her
residential status.This section divides a person into three categories:

a) Resident and ordinary resident

b) Resident but not ordinary resident
c) Non-resident.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 23

 The status of the assessee is determined every year as it may change.

It refers to the status of an individual, which determined on the basis of his/her

total stay in India. Under section 6, the residential status of an individual is
divided into the following categories.

Residential status of an individual

Non- Resident
Resident Any one of the basic

Ordinarily Resident Not Ordinarily

1.17. Determination of residential status of individual:

An individual’s residential status is decided number days he or she stayed

in Indiaon the basis of basic conditions and additional conditions.
To get a residential status any one basic condition has to be satisfied will
become Resident Suppose (1) Assessee satisfies one Basic condition U/S6
(1) and Both Additional Basic condition/S 6(6), He/She is a Resident and
Ordinarily Resident.
(2) Assessee satisfies one Basic condition U/S6 (1) and one or none of the
Additional Basic condition/S 6(6) is satisfies he / She becomes Resident but
not ordinarily Resident
(3) Assessee does not satisfy any basic conditions will become Non-Resident.

Basic Conditions u/s 6 (1)

(i) An assessee must be in India for a period of 182 days or more during the previous year
OR

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 24

(ii) An Assessee must be in India for a period of 60 days or more during the previous
yearand 365 days in 4 years preceding the relevant previous year.
Exceptions to the 2nd Basic Condition In respect of an individual who
is a citizen of India or person of Indian origin leaves India for employment during
an FY, he will qualify as a resident of India only if he stays in India for 182 days or
more. Such individuals are allowed a longer time greater than 60 days and less
than 182 days to stay in India. However, from the financial year 2022-23, the
period is reduced to 120 days or more for such an individual whose total income
(other than foreign sources) exceeds Rs 15 lakh. In another significant
amendment from FY 2022-23, an individual who is a citizen of India who is not
liable to tax in any other country will be deemed to be a resident in India. The
condition for deemed residential status applies only if the total income (other
than foreign sources) exceeds Rs 15 lakh and nil tax liability in other countries or
territories by reason of his domicile or residence or any other criteria of similar
nature. NOTE 2: Income from foreign sources means income which accrues or
arises outside India (except income derived from a business controlled in
India orprofession set up in India).
However, W.e.f., Assessment year 2023-24, the finance act 2020 has inserted the
following two more situation wherein a resident person is deemed to be Not
Ordinarily Resident’ in India:
a) An Indian Citizen or a person of Indian origin whose total income (other
than foreign sources) exceeds Rs. 15 lakhs during the previous year
and who has been in India for the period of120 days or more but less
than 182 days.
b) An Indian Citizen who is deemed to be resident in India as per new
section 6(1A).
A resident individual who does not satisfy any of the aforesaid conditions or
satisfies only one of the aforesaid conditions will be treated as resident but
not ordinarily resident.

Exception: II Basic condition is subject to the following exceptions

(i) In case of an assessee who is an Indian citizen leaves India for employment
purpose or asa crew member of an Indian ship.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 25

(ii) In case of an assessee who is of an Indian origin comes to India during the
previous yearfor a visit.
In the above cases 60 days, as suggested u/s 6 (1) shall be replaced by 182. In
other words, the second basic condition shall not be applicable.

Additional Conditions u/s 6(6)

(i) An assessee must be a Resident for 2 or more years out of 10 years preceding the
relevantprevious year.
AND
(ii) An assessee must have been in India for at least 730 days in 7 years preceding the
relevantprevious year.

3.3 Types of Residential Status

An individual who satisfies any one of the above Basic conditions u/s 6(1) is treated as a
resident for the previous year.
1) Ordinary Resident (O.R): An individual who satisfies any one of the basic
conditions andboth the additional conditions.
2) Not Ordinary Resident (N.O.R): An individual who satisfies any one of the basic
conditions and any one or none of the additional conditions
3) Non-Resident (N.R): An individual who does not satisfy any of the basic
conditions willbe treated as Non-Resident; here the additional conditions are
irrelevant.

Illustration 1:
Mr. Prakash an Indian citizen left India on 15 August 2022 for the first time to
U.K. for the purpose of employment. He plans to visits India every year and stay

here from 15th April to 10th September from 2023 onwards. What will be his
residential status for A.Y. 2023-2024?

Solution
: STEP
1:

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 26

 Basic condition
a) An assessee must be in India for a period of 182 days or more during
previous yearOr
b) An assessee must be in India for a period of 60 days more during the previous
year and365 days in 4 years preceding the relevant previous year.

Additional condition

a) Assessee must be a resident in India at least two out of ten previous years
preceding yearspreceding the relevant previous year,

And

b) An assessee must have been in India for at least 730 days or more during the
sevenprevious years preceding the previous year.

STEP 2:
Calculation of Number of Days
Stayed Stay in India during the
P.Y.2022 -2023.
1st April 2022 to 15th August 2022 = 137days.

STEP 3:
RESIDENTIAL STATUS
Mr. Prakash being an Indian citizen and left India for the purpose of employment

will come under the categories of exception to 2 nd basic condition. Hence 60days
or more in second basic conditions will be replaced by 182 days. Since the basic
condition is not satisfied, he is a non-resident for the assessment year 2023–
2024

Illustration 2:

Mr. Ajith went to England for studies on 5 th August 2022 and came back to India

on 25th February 2023. He had never been out of India before. What is his
residential status for the A.Y 2023– 2024?

Solution:
STEP 1:
Basic condition
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 27
 a) An assessee must be in India for a period of 182 days or more during
previous year Or

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 28

 b) An assessee must be in India for a period of 60 days more during the previous
year and365 days in 4 years preceding the relevant previous year.

Additional condition
a) Assessee must be a resident in India at least two out of ten previous years
precedingthe relevant previous year,
And

b) An assessee must have been in India for at least 730 days or more during the
sevenprevious years preceding the previous year.
STEP 2:
Calculation of Number of Days Stayed

Mr. Ajith’s stay in India from during the previous year is as

under:1st April 2020 to 5th August 2020 = 127 days

25th February to 31st March 2021 =

35 days Total no. Of days =
162 days
He was in India in the earlier previous year completely.
STEP 3:
Residential Status
Mr. Ajith’s stayed in India during the previous year 2022– 2023 for 162 days and
satisfies the second basic condition. Since he leaves India in the previous year for
the first time, he has been resident for more than two years and also stayed for
more than 730 days in past preceding years. He satisfies second basic condition
and both the additional conditions. Hence, he is a resident and Ordinary Resident
for the A.Y 2023-24

Illustration 3: Mr. Irfan comes to India for the first time on April 16, 2022. He has
stayed in India up to October 5, 2022. Determine his residential status for the A.Y
2023- 24.

STEP 01: Apply Basic Conditions and Additional Conditions (write down)

STEP 02: Calculation of Number of Days

Stayed a) In the previous year – 01/04/2022-
31/03/2023
16/04/2022 -05/10/2022 = 173days
b) In preceding to previous years, he has not been in India, as he has come to India
for thefirst time in the year 2022.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 29
 STEP 03: RESIDNETIAL STATUS

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 30

 Mr. Irfan is not an Indian citizen as he came to India for the first time in the year
2022. His stay in India is for a total period of 173days. Thus, he does not satisfy
any of the basic as well as additional condition. So, he is considered as a NON-
RESIDENT for the AY2023-2024.

Incidence of tax or taxability of total income on the basis of residence:

1) Resident: Total income of any previous year of a person who is an “Ordinary

Resident” includes all income from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or is deemed to accrue or arise to him in India
c) Accrues or arises to him outside India during the previous year.

2) Resident but not Ordinary Resident

The total income of a person who is a resident but not ordinary resident includes all
income from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or deemed to accrue or arise to him in India
c) Accrues or arises to him outside India from a business controlled in or a
professionsetup in India.

3) Non–resident
Total income of a Non-resident includes all income from whatever source derived which:
a) Is received or deemed to be received in India
b) Accrues or arises or is deemed to accrue or arise to him in India during such year.
1.18 .Incidence of Tax

Chart showing the Incidence of Tax for different types of status:

II- Indian income, CI- Controlled income, EI- Exempted income and FI- Foreign income.

Different types of status

Nati
Types of income Resident
ona Not- Non-
and
l Ordinaril Reside
Ordinaril
inc y nt
y
o Resident
Resident
me
1. Income received or deemed to be II
received in India. But received outside Taxable Taxable Taxable
India

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 31

2. Income earned or deemed to be II
earned outside India but received in Taxable Taxable Taxable
India
3. Income earned and received in India II
or income deemed to be earned and Taxable Taxable Taxable
received in India
4. Income earned or deemed to be FI
Taxable Not Taxable Not Taxable
earned and received both outside India
5. Income earned and received outside CI
India from the business controlled or Taxable Taxable Not Taxable
profession setup in India income may
or may not be remitted to India
6. Income earned and received outside FI
India from a business controlled or Taxable Not Taxable Not Taxable
profession setup outside India
7. Past untaxed income brought into EI
Not Taxable Not Taxable Not Taxable
India during the relevant previous year
8. Gift is not an income, If it is less than EI
Rs. 50,000. (If gift is received by an Not Taxable Not Taxable Not Taxable
individual from a relative or at the time
of marriage or by a will, it is tax free)
9.Gift from a friend exceeding Rs. II
50,000 received in India is an income. Taxable Taxable Taxable
Therefore taxable. ( refer Note :1)
10.Dividend from an Indian company II
is exempted up to10,00,000 in case of Taxable Taxable Taxable
a resident. Further, in case
of non-
resident, it is fully exempted from tax
II
11.Dividend from Cooperative societies Taxable Taxable Taxable
12.Dividend from foreign company II
Taxable Taxable Taxable
received in India
13. Share of profits from HUF EI Not Taxable Not Taxable Not Taxable

Note :1
Gift received by an individual
I a. IF the gift received by an Individual without any consideration.
b. The aggregate value of such amount of money received by an individual
during the year exceeds ₹. 50,000 will be chargeable to tax.
II. Money received from relatives (spouse of an individual, Brother or sister of an
individual, Brother or sister of the spouse of an individual, Brother or sister of
either of the parents of an individual.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 32

 III. Money received on the occasion of the marriage of the individual is not
chargeable totax

TABLE SHOWING NUMBER OF DAYS PER MONTH FOR THE AY 2023-2024 PY:
01/04/2022-31/03/2023 AY:01/04/2023-
31/03/2024
MONTH DAY MONTH DAY
S S
April 2020 30 October 31
May 31 November 30
June 30 December 31
July 31 January 2021 31
August 31 February 28
September 30 March 31

Illustration 1: Kishan, a foreign national furnishes the following particulars

of his incomerelevant for the previous year 2022-2023.
1. Profit on sale of plant at London (one half is received in India) 1,46,000.
2. Profit on sale of plant at Delhi (one half is received in London) 1,02,000
3. Salary from an Indian company received in London (one half is paid for
servicesrendered in India) Rs.60, 000.
4. Interest on UK development bonds (entire amount received in London) Rs. 40,000
5. Income from property in London received there Rs. 30,000
6. Profit from a business in Delhi managed from India Rs. 49,000
7. Income from agriculture in London received there, half of which is used for
meeting hostel expenses of his son and remaining amount is later on remitted to
India Rs. 25,000.
8. Dividend (gross) received in London from a company registered in India but
mainly operating in London Rs.17,000.
9. Rental income from a property in Nepal deposited by the tenant in a foreign
branch ofan Indian bank operating there. Rs. 12,000
10. Gift from a relative in foreign currency (one third of which is received in India
and remaining amount is used for meeting education expenses of Kumar’s son in
USA) Rs. 3,90,000.
Determine gross total income of Kishan for the assessment year 2023-24 if he is
a) Resident and ordinary resident
b) Resident but not Ordinary resident, and
c) Non-resident.

Solution:
Computation of Gross Total Income of Kishan for the A.Y 2023-24.

Not
Ordinary Non-
Details of Income ordinary
resident resident
resident

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 33

 1. Profit on sale of plant at London 1,46,000 73,000 73,000
2. Profit on sale of plant at Delhi 1,02,000 1,02,000 1,02,000
3. salary from an Indian company 60,000 30,000 30,000
4. Interest on UK development bonds 40,000 Not taxable Not taxable
5. Income from property in London 30,000 Not taxable Not taxable
6. profit from a business in Delhi 49,000 49,000 49,000
7. income from agriculture in London 25,000 Not taxable Not taxable
8. Dividend from an Indian company 17,000 17,000 17,000
9. Rental income from property in Nepal 12,000 Not taxable Not taxable
10. gift from a relative Exempt Exempt Exempt
Gross total income 4,81,000 271,000 2,71,000

Illustration 2
Mr. Satya gives you the following information being a Resident Ordinary Resident.
1. Salary Rs.80,000 received in Japan for the services rendered in India.
2. Commission received in India for the services given in Sri Lanka Rs.1,40,000.
3. House rent of the house situated in Nepal received in India Rs.30,000.
4. Dividend of a England based company received in India Rs.75,000.
5. Profit of the business situated in Japan brought to India Rs.5,00,000.
Determine the residential status of Mr. Satya for the previous year 2022-23 and
explain that on which income he is liable to pay tax in India.
Compute his taxable income for the AY. 2023-2024.

Computation of Total
income
Name of the Assessee: Ms. Satya P.Y.2022-2023
Residential status: Resident Ordinary Resident A. Y. 2023-
2024
Types of NI R
Income
Salary received in Japan for the services rendered in
1 India (Assumed to be computed income) Rs.80,000
Commission received in India for the services given
2 Rs.1,40,000
in Sri Lanka
.
House rent of the house situated in Nepal received in
4 Rs.30,000.
India
5 Dividend of a England based company received in India Rs.75,000.
6 Profit of the business situated in Japan brought to India Rs.5,00,000
.
GTI/ TOTAL INCOME 8,16,000

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 34

 Illustration 3

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 35

 Mr. Jacob is a foreign national furnishes the following particulars of income relevant
forthe previous year 2022-2023.
I. Profit on sale of land at London (½ received in India) Rs 1,46,000.
II. Profit on sale of plant at Delhi (1/2 received in London) Rs 1,02,000.
III. Salary (net of salary deduction) from Indian co. received in London Rs 60000.
IV. Interest on U.K. development bonds Rs 60,000. (1/3 is received in India)
V. Income from property in London received there Rs 30000.
VI. Income from agriculture in London received there but later on remitted to India
Rs2500.
VII. Dividend received in London from company registered in India 17000.
VIII. Profit from a business in Delhi, managed from India Rs 49000.
IX. Profit for the year 2019-20 of a business in USA remitted to India during 2020-21 (Not
taxed
earlier)
X. Gift from friends 80,000
XI. Dividend paid by an Indian company. Received in Canada ₹20,000
XII, Pension from Indian company received in London
XIII. Profit from business in Indonesia, Controlled from Delhi

Determine gross total income of Mr. Jacob for assessment year 2022-23. If he is
(1) Ordinary resident, (2) Not ordinary resident, (3) non-resident

Computation of Total
income
Previous year2022-
Name of the Assessee: Mr. Jacob 2023 Assessment Year:
2023-2024
Types of Income NI R NOR NR
Profit on sale of land at
73000
I London (½ received in India) II 73,000 73,000
73,000
Rs 1,46,000 FI
Profit on sale of plant at Delhi
II (1/2 received in London) Rs II 1,02,000 1,02,000 1,02,000
1,02,000.
Salary (net of salary deduction)
III from Indian co. received in II 60,000 60,000 60,000
London Rs 60000.
Interest on U.K. development
20,000
IV bonds Rs 60,000. (1/3 is FI 20,000 20,000
received in India) 40,000
II
Income from property
V in London received 30,000 Not taxable Not taxable
there Rs30000. FI
Income from agriculture in
VI London received there but later 2,500 Not taxable Not taxable
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 36
 on remitted to India Rs 2500.
FI

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 37

 Dividend received in London
VII from company registered in 17,000 17,000 17,000
India 17000. II
Profit from a business in Delhi,
VIII II 49,000 49,000 49,000
managed from India Rs 49000.
Past untaxed income is
IX EI Tax free Tax free Tax free
exempted
X Gift from friends II 80,000 80,000 80,000
Dividend paid by an
XI II 17,000 17,000 17,000
Indian company.
Received in Canada
Pension from Indian company
XII 36,000 36,000 36,000
received in London II
Profit from business in
XIII Indonesia, Controlled from 1,20,000 1,20,000 Tax free
Delhi CI
GTI 7,19,500 5,74,000 4,54,000

Illustration 4. From the following particulars of Mr. Uday compute his Gross total
income for the A.Y.2023-24 if he is 1. Resident, 2. Not Ordinarily Resident and 3.
Non-
Resident
(a) Income from business from Raichur ₹. 50,000
(b) Profit from business in U.K. controlled from India ₹. 60, 000
(c) Income from house property in Japan not received in India ₹. 30, 000
(d) Income from business in India but received in Pakistan ₹. 50, 000
(e) Salary received in India for service rendered in USA ₹. 70, 000
(f) Interest on deposit with State Bank in Bangalore ₹. 10, 000
(g) Profit from business in Ceylon controlled from India (1/3 profit received in India)
₹. 30,000
(h) Salary received in India for service rendered in Kuwait ₹. 35, 000
(i) Past untaxed foreign income brought into India ₹. 8, 000
(j) Dividend received from Domestic Company ₹. 5,000
(k) Interest on Post Office Savings Bank A/c ₹.1,000
(l) Agriculture income earned in Nepal ₹. 25,000.
(m) Gift in cash from a relative received in India ₹. 60000.
(n) Interest received from a firm in UK later on remitted to India ₹. 10000

Computation of Total
income
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 38
 Previous year2022-
Name of the Assessee: Mr. Uday 2023 Assessment Year:
2023-2024
Types of NI R NOR NR
Income

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 39

(a) Income from business from Raichur II 50,000 50,000 50,000
Not
(b) Profit from business in U.K. controlled from India CI 60, 000 60, 000
Taxabl
e
Income from house property in Japan not received in Not Not
(c) FI 30, 000
India Taxabl Taxabl
e e
Income from business in India but received in
(d) II 50, 000 50, 000 50, 000
Pakistan Rs

(e) Salary received in India for service rendered in USA II 70,000 70,000 70,000

(f) Interest on deposit with State Bank in Bangalore II 10, 000 10, 000 10, 000

Profit from business in Ceylon controlled from India II 10, 000 10, 000
(g) 10, 000
(1/3 profit received in India) ₹. 30,000 & 20,000 20,000
CI
Salary received in India for service rendered in
(h) II 35, 000 35, 000 35, 000
Kuwait
₹. 35,000.
Not Not Not
(i) Past untaxed foreign income brought into India EI Taxabl Taxabl Taxabl
e e e
(j) Dividend received from Domestic Company II 5,000 5,000 5,000

Not Not Not

(k) Interest on Post Office Savings Bank A/c EI Taxabl Taxabl Taxabl
e e e
Not Not
(l) Agriculture income earned in Nepal. 25,000
FI Taxabl Taxabl
e e
(m) Gift in cash from a relative received in India II 60000 60000 60000
Interest received from a firm in UK later on Not
(n) CI 10,000 10,000
remitted to India Taxabl
e

1.19. Income Tax authorities

Income tax authorities are government agencies responsible for administering and enforcing
income tax laws and regulations. These authorities are typically part of the country’s tax
administration system and their primary role is to collect income taxes from individuals and
businesses.

The income tax authorities are responsible for a range of activities, including

1. Collecting income tax returns: Income tax authorities collect tax returns from individuals
and businesses, which detail their income and tax liability.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 40
2. Auditing tax returns: The income tax authorities are responsible for auditing tax returns to
ensure that taxpayers are complying with tax laws and regulations. This involves reviewing
financial records, conducting interviews, and verifying tax deductions and credits.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 41

3. Enforcing tax laws: The income tax authorities have the power to enforce tax laws and
regulations, including imposing penalties and fines on taxpayers who fail to comply with
tax laws.
4. Providing taxpayer assistance: The income tax authorities also provide assistance and
support to taxpayers who need help understanding tax laws and regulations, filing tax
returns, and resolving tax-related issues.

Overall, the income tax authorities play a critical role in ensuring that individuals and
businesses paytheir fair share of taxes and that tax revenue is used to fund public services and
infrastructure.

1.20.CBDT powers and functions

The Central Board of Direct Taxes (CBDT) is a statutory authority responsible for
administering and enforcing direct tax laws in India. The CBDT derives its power and
functions from the Income Tax Act, 1961, and other relevant laws and rules. Some of the key
powers and functions of the CBDT are as follows:

1. Administration of direct tax laws: The CBDT is responsible for administering and enforcing
the direct tax laws, which include the Income Tax Act, 1961, and other relevant laws and
rules.
2. Formulation of policy: The CBDT formulates and recommends policies relating to direct
taxes in India.
3. Collection of taxes: The CBDT is responsible for the collection of direct taxes, such as
income tax, corporate tax, and wealth tax.
4. Exemptions and deductions: The CBDT grants exemptions and deductions to taxpayers
under various provisions of the Income Tax Act.
5. Issuing guidelines and instructions: The CBDT issues guidelines and instructions to tax
authorities for effective administration of the direct tax laws.
6. Dispute resolution: The CBDT is responsible for resolving disputes between taxpayers and
tax authorities.
7. International taxation: The CBDT is responsible for implementing and enforcing
international taxation agreements entered into by India.
8. Investigation and enforcement: The CBDT carries out investigations and enforcement
actions against taxpayers who violate the direct tax laws.
9. Framing rules and regulations: The CBDT frames rules and regulations for the
administration of direct tax laws.
10. Budget proposals: The CBDT provides inputs and suggestions for budget proposals related
to direct taxes.
11. Monitoring tax collection: The CBDT monitors the collection of direct taxes and takes
necessary steps to increase tax compliance.
12. Coordination with other agencies: The CBDT coordinates with other agencies such as the
Reserve Bank of India, Securities and Exchange Board of India, and the Financial
Intelligence Unit for effective implementation of direct tax laws.
Overall, the CBDT plays a crucial role in the administration and enforcement of direct tax laws
in India. Its powers and functions are aimed at ensuring efficient and effective tax
administration, promoting tax compliance, and facilitating economic development.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 42
1.21.Commissioner of income Tax – Power and functions

The Commissioner of Income Tax (CIT) is a senior officer in the Income Tax Department of
India. The CIT is responsible for the administration and enforcement of the Income Tax Act,
1961, and has several powers and functions, some of which are listed below:

1. Assessment of Income Tax: The CIT is responsible for assessing the income tax liability of
taxpayers, including individuals, companies, and other entities.
2. Issuing notices and summons: The CIT has the power to issue notices and summonses to
taxpayers for the purpose of assessment, inquiry, or investigation.
3. Approving refunds: The CIT approves refunds of excess tax paid by taxpayers
4. Power of revision: The CIT has the power to revise an assessment order passed by a
subordinate assessing officer if there are errors or omissions in the order.
5. Dispute resolution: The CIT is responsible for resolving disputes between taxpayers and
the Income Tax Department, including appeals against assessment orders.
6. Conducting surveys: The CIT can authorize the conduct of surveys to gather information for
the purpose of taxation.
7. Seizure and attachment of property: The CIT has the power to seize and attach property of
taxpayers who fail to pay their tax liabilities
8. Imposing penalties: The CIT can impose penalties on taxpayers for various violations, such
as non-filing of returns or incorrect reporting of income.
9. Granting exemptions and deductions: The CIT has the power to grant exemptions and
deductions to taxpayers under various provisions of the Income Tax Act, 1961.
10. Approving search and seizure operations: The CIT can authorize search and seizure
operations against taxpayers if there are reasonable grounds to believe that they have
undisclosed income or assets.
11. Coordination with other agencies: The CIT coordinates with other agencies such as the
Enforcement Directorate, Central Bureau of Investigation, and the Financial Intelligence
Unit for effective implementation of tax laws.
Overall, the CIT plays a crucial role in the administration and enforcement of the Income Tax
Act, 1961. The CIT’s powers and functions are aimed at ensuring efficient and effective tax
administration, promoting tax compliance, and facilitating economic development.

1.22.Types of assessment

In the context of the Income Tax Act, 1961, there are different types of assessments that can
be carried out by the Income Tax Department. The following are the three main types of
assessments

1. Scrutiny Assessment:
A scrutiny assessment is a detailed assessment carried out by the Income Tax Department,
wherein the assessing officer examines and verifies the taxpayer’s tax returns and
supporting documents to ensure that the taxpayer has correctly disclosed their income and
claimed the appropriate deductions and exemptions. Scrutiny assessments are usually
conducted when the Income Tax Department suspects that the taxpayer has underreported
their income or overclaimed deductions or exemptions.
2. Best Judgment Assessment:
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 43
 A best judgment assessment is carried out by the assessing officer when the taxpayer fails
to file their tax returns despite receiving notices from the Income Tax Department. In this
case, the

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 44

 assessing officer makes an assessment based on the information available to them, and the
taxpayer is deemed to have no objections to the assessment.
3. Summary Assessment:
A summary assessment is a simplified assessment carried out by the assessing officer in
certain cases, such as when the taxpayer has already paid their tax liability in full, or when
the taxpayer has filed their tax returns after the due date but before the end of the
assessment year. In such cases, the assessing officer issues an intimation to the taxpayer,
informing them of the tax liability or refund due to them. In addition to the above three
types of assessments, there are two other types of assessments:
Reassessment:
Reassessment is carried out by the assessing officer when there is reason to believe that
the taxpayer has underreported their income or overclaimed deductions or exemptions.
The assessing officer can issue a notice for reassessment within a certain time limit from
the end of the relevant assessment year.
Protective Assessment:
Protective assessment is carried out by the assessing officer when there is uncertainty
about the tax liability of the taxpayer due to pending litigation or other reasons. The
assessing officer can make a protective assessment and demand payment of the tax
liability, which is kept in a separate account until the issue is resolved.

In summary, the types of assessments under the Income Tax Act, 1961 are scrutiny
assessment, best judgment assessment, summary assessment, reassessment, and protective
assessment. Each type of assessment has its own purpose and is carried out under specific
circumstances.

1.23. Rectification of mistakes

Rectification of mistakes is a provision under the Income Tax Act, 1961 that allows taxpayers
to correct errors or omissions in their tax returns or assessment orders. This provision is
important as it provides relief to taxpayers who may have inadvertently made errors or
omissions that could lead to incorrect tax computation or assessment.

The Income Tax Act provides for two types of rectification:

1. Rectification by the taxpayer:

Under this provision, a taxpayer can file an application for rectification of mistakes in their tax
returns within four years from the end of the assessment year. The rectification application
can be filed for any mistake, including incorrect reporting of income, incorrect claim of
deductions or exemptions, or any other error

2. Rectification by the assessing officer:

Under this provision, the assessing officer can rectify any mistake in the assessment order
within four years from the end of the assessment year. This provision is important as it allows
the assessing officer to correct errors or omissions in the assessment order that may have
been overlooked during the assessment process.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 45
The rectification process involves filing an application with the assessing officer, either by the

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 46

taxpayer or by the assessing officer, as the case may be. The application must clearly specify
the mistake that needs to be rectified and provide supporting documents to substantiate the
claim. The assessing officer will then consider the application and pass an order either
accepting or rejecting the rectification request.

If the assessing officer accepts the rectification request, they will issue a revised assessment
order. If the assessing officer rejects the rectification request, the taxpayer has the option to
appeal against the decision to higher authorities, such as the Commissioner of Income Tax
(Appeals) or the Income Tax Appellate Tribunal.

Overall, the provision for rectification of mistakes is an important safeguard for taxpayers as it
allows them to correct errors or omissions in their tax returns or assessment orders. This
provision ensures that taxpayers are not penalized for inadvertent mistakes and can rectify
them in a timely manner.

1.24.Recovery of tax and refunds

The recovery of tax and refunds are two important aspects of the Income Tax Act, 1961. Let’s
take a look at each of these aspects in detail:

1. Recovery of Tax:
Recovery of tax refers to the process of collecting tax from taxpayers who are liable to pay it. The
Income Tax Department has several powers to recover tax, including:
Attachment and sale of property: The Income Tax Department can attach and sell the
property of the taxpayer to recover the tax liability.
Recovery from salary or bank accounts: The Income Tax Department can recover tax from the
taxpayer’s salary or bank accounts by issuing notices to the employer or the bank.
Recovery from third parties: The Income Tax Department can recover tax from third parties
who owe money to the taxpayer, such as tenants or debtors.
Prosecution: The Income Tax Department can prosecute taxpayers who fail to pay their tax
liability.

2. Refunds:
A refund is the amount of tax paid by the taxpayer that exceeds their tax liability. The Income
Tax Department refunds this excess amount to the taxpayer. The process of refund is initiated
by the taxpayer by filing an income tax return. Once the return is processed, the Income Tax
Department verifies the amount of tax paid by the taxpayer and the amount of tax liability as
per the return. If the tax paid exceeds the tax liability, the taxpayer is entitled to a refund.
The Income Tax Department has a time limit of one year from the end of the financial year in
which the return is filed to process the refund. If the refund is not processed within this time
limit, the taxpayer is entitled to interest on the refund amount. The interest rate is determined
by the government and is currently set at 0.5% per month.
It is important to note that the Income Tax Department may withhold the refund in certain
cases, such as when there is a pending tax demand against the taxpayer or when the taxpayer
has not responded to notices or requests for information. In such cases, the taxpayer may
need to provide additional information or clear the pending demand before the refund can be
processed.
In summary, the recovery of tax and refunds are two important aspects of the Income Tax Act,
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 47
1961. The Income Tax Department has several powers to recover tax from taxpayers who are
liable to pay it, and taxpayers who have paid excess tax are entitled to a refund. It is important
for

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 48

taxpayers to be aware of these provisions and comply with the tax laws to avoid penalties and
other consequences.

1.25. Time limits for the submission of information

The Income Tax Act, 1961 sets out various time limits for the submission of information by
taxpayers or other parties to the Income Tax Department. These time limits are important as
they ensure that the tax administration process runs smoothly and efficiently. Some of the key
time limits for the submission of information are as follows:

1. Filing of Income Tax Returns:

The due date for filing income tax returns for individuals is July 31 st of the assessment year.
For taxpayers who are required to get their accounts audited, the due date is September
30th of the assessment year
2. TDS Returns:
The due date for filing TDS returns is the 31 st of every month, following the month in which
the deduction is made. For example, the TDS return for deductions made in the month of
June is due by July 31st.
3. Tax Audit Report:
The due date for filing the tax audit report is September 30 th of the assessment year
4. Response to Notices:
Taxpayers are required to respond to notices issued by the Income Tax Department within
the specified time limit. Generally, the time limit for responding to a notice is 30 days from
the date of receipt of the notice.
5. Submission of Form 15CA and 15CB:
Form 15CA and 15CB are required to be submitted for certain types of foreign remittances.
The due date for submission of Form 15CA and 15CB is on or before the date of remittance
or payment.
6. Submission of Annual Information Return:
The due date for filing the Annual Information Return (AIR) is July 31 st of the assessment year.
7. Submission of Tax Deduction at Source (TDS) Certificate:
The due date for issuing TDS certificates to taxpayers is June 30 th of the financial year
following the year in which the tax was deducted.
It is important for taxpayers to comply with these time limits to avoid penalties and other
consequences. In certain cases, the Income Tax Department may allow for an extension of
time to file returns or submit information, but this is generally granted only in exceptional
circumstances. Therefore, taxpayers should plan and prepare well in advance to meet these
time limits and avoid any last-minute rush or delays.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 49

1.26.Claims and payment of tax

The Income Tax Act, 1961 sets out various provisions for the payment and claiming of tax by
taxpayers. Let’s take a look at some of the key provisions:
1. Advance tax:
Advance tax refers to the payment of tax by taxpayers in instalments, based on an estimate
of their income for the financial year. The due dates for the payment of advance tax are
June 15th, September 15th, December 15th, and March 15th.
2. Self-assessment tax:
Self-assessment tax refers to the tax paid by taxpayers when they file their income tax
returns. If the tax liability as per the tax returns is more than the advance tax paid, the
taxpayer must pay the balance amount as self-assessment tax.
3. TDS (Tax Deducted at Source):
TDS refers to the tax deducted by the payer while making a payment to the payee. The
payer is required to deduct tax at the specified rates and deposit it with the government.
The payee can claim credit for the TDS deducted while computing their tax liability.
4. Refund of excess tax paid:
If a taxpayer has paid more tax than their tax liability, they are eligible for a refund of the
excess tax paid. The refund can be claimed by filing an income tax return and specifying the
details of the excess tax paid.
5. Penalties for non-payment or delayed payment of tax:
If a taxpayer fails to pay taxes or pays taxes after the due date, they may be liable to pay
penalties and interest. The penalty and interest rates are specified by the Income Tax Act
and may vary depending on the nature and extent of the default.
6. Set-off of losses:
Taxpayers can set off losses incurred in one source of income against income earned from
another source. This can help reduce their overall tax liability.
7. Deductions and exemptions:
Taxpayers are eligible for various deductions and exemptions under the Income Tax Act.
These include deductions for investments made in specified instruments such as Public
Provident Fund (PPF), National Savings Certificate (NSC), and life insurance policies.
Exemptions are available for certain types of income, such as agricultural income and
income from long-term capital gains.
In summary, the Income Tax Act provides for various provisions for the payment and claiming
of tax by taxpayers. Taxpayers are required to comply with these provisions to avoid penalties
and other consequences. Additionally, taxpayers can take advantage of deductions and
exemptions to reduce their tax liability.

1.27.Penalties for non-compliance

The Income Tax Act, 1961 provides for various penalties for non-compliance with the
provisions of the Act. These penalties are levied to ensure that taxpayers comply with the tax
laws and to deter non-compliance. Let’s take a look at some of the key penalties for non-
compliance:

1. Penalty for late filing of income tax returns:

If a taxpayer fails to file their income tax returns by the due date, they may be liable to pay a
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 50
penalty of up to Rs. 10,000. The penalty amount may vary depending on the period of delay.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 51

2. Penalty for incorrect reporting of income:
If a taxpayer incorrectly reports their income or understates their income, they may be liable
to pay a penalty of up to 200% of the tax payable on the understated income

3. Penalty for non-maintenance of books of accounts:

If a taxpayer fails to maintain books of accounts or other documents as required by the
Income Tax Act, they may be liable to pay a penalty of up to Rs. 25,000

4. Penalty for non-payment of tax:

If a taxpayer fails to pay their tax liability on time, they may be liable to pay a penalty of up to
1% per month or part thereof, on the amount of tax unpaid

5. Penalty for non-compliance with TDS provisions:

If a taxpayer fails to deduct TDS or fails to deposit TDS with the government, they may be
liable topay a penalty of up to the amount of TDS that was not deducted or deposited.

6. Penalty for non-compliance with tax audit provisions:

If a taxpayer who is required to get their accounts audited fails to comply with the tax audit
provisions, they may be liable to pay a penalty of up to 0.5% of the total turnover or gross
receipts

In addition to the above penalties, the Income Tax Act also provides for prosecution of
taxpayers who willfully fail to comply with the tax laws. In such cases, the taxpayer may be
liable to pay a fine and/or serve a prison term.

It is important for taxpayers to comply with the provisions of the Income Tax Act to avoid
penalties and other consequences. Taxpayers should maintain proper records, file their
returns on time, pay their taxes on time, and comply with TDS and tax audit provisions. In
case of any doubt or difficulty, taxpayers should seek professional advice to ensure
compliance with the tax laws.

1.28.Tax planning

Tax planning refers to the process of organizing one’s finances in a way that minimizes the tax
liability while complying with the tax laws. Tax planning is a legitimate and legal way to
reduce one’s tax burden and maximize after-tax income. Here are some common tax planning
strategies

1. Take advantage of deductions and exemptions:

Taxpayers can take advantage of various deductions and exemptions available under the
Income Tax Act, such as deductions for investments made in specified instruments such as
Public Provident Fund (PPF), National Savings Certificate (NSC), and life insurance policies.
Exemptions are available for certain types of income, such as agricultural income and income
from long-term capital gains.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 52

2. Plan investments:
Taxpayers can plan their investments in a way that reduces their tax liability. For example,
investments in tax-saving instruments such as Equity-Linked Saving Schemes (ELSS) and
Unit- Linked Insurance Plans (ULIPs) can help reduce tax liability

3. Plan income and expenses:

Taxpayers can plan their income and expenses in a way that reduces their tax liability. For
example, they can plan to receive bonus or income in the next financial year, when they may
be in a lower tax bracket. Similarly, they can plan expenses such as medical bills, insurance
premiums, and charitable donations to take advantage of deductions and exemptions.

4. Take advantage of tax credits and rebates:

Taxpayers can take advantage of tax credits and rebates available under the tax laws. For
example, the tax credit for taxes paid in a foreign country, the rebate on home loan interest
payments, and the tax credit for donations made to charitable organizations.

5. Use the tax-saving options provided by the employer:

Employers provide various tax-saving options to their employees, such as medical insurance,
transport allowance, and meal vouchers. Taxpayers can take advantage of these options to
reduce their tax liability.

6. Plan retirement:
Taxpayers can plan their retirement in a way that reduces their tax liability. For example,
investing in a pension plan or National Pension System (NPS) can help reduce tax liability.

7. Consult a tax professional:

Taxpayers can consult a tax professional, such as a Chartered Accountant or Tax Consultant, to
help them plan their taxes in a way that reduces their tax liability while complying with the
tax laws.

In summary, tax planning is an important part of financial planning. Taxpayers can use
various strategies to reduce their tax liability while complying with the tax laws. It is
important to plan well in advance and consult a tax professional to ensure compliance with
the tax laws and optimize tax savings.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 53

 Terminal Questions
Section A(5 Marks)

1. Demonstrate the types of residents for income tax purpose?

2. Define Not Ordinary Resident?
3. Explain Non-resident?
4. Explain how an individual becomes Ordinary Resident?

Section B (9 and 12 Marks)

1. Mr. James a citizen of West Indies was appointed as sales

manager in India on 1stApril 2018 at Mumbai. On 25 January 2021he went

to Uganda on deputation for period of 3 years, but left his wife and children

in India. On 1st May 2021 he came to India and took with him his family to

Uganda on 30th June 2021. He returned to India and joined his original job

on 24th January 2022. Determine his residential status for the A.Y 2023-24.

2. Mr. Raj, citizen of U.S. came to India for the first time
on 01.05.2017. He stayed here without any break for 3
years and left for Bangladesh. on 01.05.2020. He
returned to India on 01.04.2021 and went back to U.S.
on 01.12.2021 He was posted back to India on
20.01.2022. Determine his residential status for the A.Y
2022-23.

3. Vaishak, a foreign national (not being a person of

Indian origin), comes to India for the first time on April
15, 2016. During financial years 2016-17, 2017-18,
2018- 19, 2019- 20,2020-2021he was in India for
130days, 80days, 13 days, 210 days and 75
daysrespectively. Determine his residential status for
the A.Y 2022-23.

4. Mr. Adithya sen is an Indian Citizen, went out of

India on 28th August 2022 for a service in a company in
Japan and came back to India on 1st April, 2023 to meet

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 54

 his family. Duringthe financial year 2022-23 he received
the following incomes:
i) Income from salary in Japan ₹1,70,000

ii) Interest on bonds of central government of India ₹28,000

iii) Taxable income from house property in Rajasthan ₹26,500

iv) Dividend on shares from foreign company ₹7,500, received in

Japan

v) Income from agricultural land situated in Punjab ₹10,000

vi) Interest received from a firm in UK remitted to India ₹9,200

vii) Payment from public provident fund ₹20,000

viii) Commission received in India for the services given in Nepal

₹10,000

ix) Profit from business in Sri Lanka ₹40,000 (business

controlled from Chennai) of which ₹15,000 was received in India.

x) Profit of the business situated in Nepal brought to India

₹50,000.

xi) Amount brought to India out of past untaxed profit earned in

Japan ₹8,000.

xii) Share of Income from HUF ₹12,000.

Calculate the gross total income of Mr. Adithya sen after
ascertaining his residential statusfor the assessment year 2023-24.

5. . Mr. Anish has the following incomes for the previous year 2022-2023
₹
1. Income from salary in India from a company 50,000
2. Dividend from an Indian company received in England and
spent there 10,000
3. Income from house property in India received in Pakistan 20,000
4. Dividend from a foreign company received in England
deposited in a bank there 10,000
Income from
business in Kolkata, managed from USA 20,000
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 55
 Income from
business in USA (controlled from Kanpur) 12,000
7. Income was earned in Australia and received there but
brought
into India 25,000
8. His maternal uncle sent bank draft from France as a gift
on his marriage 20,000

Compute the gross total income, if he is:

(i) Resident (ii) Not-ordinary Resident (iii) Non-resident.
6. Mr. Naresh is an Indian Citizen. He left India on 16th July 2020
to England and return to India on 02 Feb 2021. During the
Previous Year his details of income were as follows:
(a) Interest on Securities of an Indian Company received in England Rs
22,000
(b) Agricultural Income in Gujarat Rs 30,000
(c) Dividend from Indian Company Rs 10,000
(d) Interest received from a firm in England remitted to India Rs 9,500
(e) Amount brought to India out of past untaxed profit earned in England
Rs 22,000
(f) Income from business in Pakistan being controlled from India Rs
15,000
(g) Interest earned & received in England from bank & deposited there
Rs20,000
(h) Income from Salary received in India for services
rendered in England Rs20,000 Determine his
Residential Status & Gross Total Income for the AY
2023-24.

7.Following are the particulars of Mr. Praful for the

previous year

2022-23.
i) Profit on sale of plant at Singapore (on-half is received in
India) ₹. 2,50,000.
ii) Profit on sale of property at Bengaluru

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 56

 (one-half received in Hong-Kong) ₹.50,000.
iii) Interest on UK Development Bonds ₹. 2,00,000 of
which
₹.1,00,000 remittedto India.
iv) Profit from business in Mangalore, the control is from
USA ₹. 30,000,
v)Income from business Mysuru but received in Holland ₹.
5,00,000.
vi) Profit from business in Pakistan
controlled from India (40% profit receivedin
India) ₹. 6,00,000
vii) Dividends from domestic company ₹. 2,00,000.
viii) Interest on post office Savings Bank Account ₹. 1,000.
ix) Past untaxed foreign income
brought to India during previous year
₹.2,00,000.
x) Rural agricultural income in India ₹. 3,00,000.
xi) Salary and allowances from UNO ₹. 3,00,000.
xii) Interest and dividends from units of UTI ₹. 20,000.
xiii) Income earned in Australia and
received there but brought to India
₹.2,00,000.
xiv) Salary (computed) received in India
for services rendered in Sri Lanka ₹. 1,50,000.
Compute his taxable income for the A.Y. 2023-
24.

8. From the following particulars of Mr. Manjunath compute his

Gross Total Income forthe A.Y. 2023-24 a) Resident b) Not-
ordinarily resident c) Non-resident.

a) Income from business in Chennai, business managed from Sri Lanka

₹25,000

b) Income from House Property in Mysore ₹1,00,000

c) Income from Salary in Japan ₹1,60,000

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 57

 d) Income from business in Kuwait, business being controlled
from Mumbai (₹25,000 is received in India) ₹65,000

e) Income from agriculture in Punjab, received in Mumbai ₹30,000

f) Income from agriculture in Bangladesh remitted to India ₹10,000

g) Profit from sale of building in India ₹2,50,000

h) Profit from business in Indonesia; this business controlled from Delhi
₹40,000

i) Income from Indian partnership firm ₹5,000

j) Interest on Savings Bank deposits in State Bank of India ₹1,000

k) Dividend from foreign company received in England ₹10,000

l) Interest on German Development Bonds (1/3 received in India)

₹51,000

9. Mr. Bharat Pathak gives the following information:

(i) Mr. Pathak first time went to Japan on 10th January; 2007
and came back to India on22nd June 2007.

(ii) On 30th September 2010 he went to England and came

back to India after 90 days.

(iii) On 16th July 2013 he had gone to Sri Lanka and came back
to India after staying 100days.

(iv) On 2nd December 2015 he had gone to Nepal for 85 days.

(v) In the previous year 2017-18 he was out of India for 180 days.

He submits the following details of his incomes for the previous year:

(i) Salary ₹80,000 received in Japan for the services given in India.

(ii) Commission received in India for the services given in Sri

Lanka ₹1,40,000.

(iii) House rent of the house situated in Nepal received in India

₹30,000.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 58

 (iv) Dividend in England based company received in India ₹75,000.

(v) Profit of the business situated in Japan brought to India

₹5,00,000.

Determine residential status of Mr. Pathak for the previous year

2022-23 and compute his total income.

10. Following are the incomes of Mr. Vishnu for the previous year
2022-23

a) Received ₹. 20,000 in India, which accrued in England.

b) ₹.10,000 earned in India but received in England.

c) ₹.5,000 were earned and received in Africa but brought to India.

d) ₹. 10,000 were earned and received in Japan from a business

which was controlled andmanaged in Japan.

e) ₹. 16,000 was untaxed foreign income of some earlier year,

which was brought to Indiain the previous year.

f) Interest on FD in State Bank of Mysore, Bangalore ₹.1,200.

g) Income from agriculture in Africa, received in India ₹.10,000.

h) Dividends received in U.K from an American Company ₹. 10,000.

i) Salary income for three months for working in Indian Embassy's

office in Australia andsalary received there ₹. 72,000.

j) Income from house property in Mumbai ₹. 1,00,000.

k) Interest received on POSB a/c ₹. 1,000.

l) Pension income from Belgium for services rendered in India with a

limited company
₹.2,20,000.

Which of the above incomes are taxable if Mr. Vishnu is – a)

Resident and ordinarily resident?

c) Resident but not ordinarily resident c) Non-resident.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 59

 Module II

INCOME FROM SALARY

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 60
 OBJECTIVES:

1. To know the items treated under the head of income.

2. To consider exemptions accordingly.

3. To evaluate the allowances as per the guidelines of IT authority.

4. To treat various perquisites and bonus.

5. To calculate the total amount of taxable income under the head salary.

1.1 Salary

Salary (Section 15 – 17) Salary is the remuneration received by or accruing to an

individual, periodically, for service rendered as a result of an express or implied
contract. The actual receipt of salary in the previous year is not material as far as its
taxability is concerned. According to Income Tax Act there are certain conditions
where all such remuneration is chargeable to income tax:

 When due from the former employer or present employer in the previous year,
whether paid or not

 When paid or allowed in the previous year, by or on behalf of a former employer

or present employer, though not due or before it becomes due.

 When arrears of salary is paid in the previous year by or on behalf of a former

employer or present employer, if not charged to tax in the period to which it
relates.

1..2 Basis of charge:

 Relationship between payer and payee is vital.

 Salaries and wages are not conceptually different. Both are compensation for
work done or services rendered.

 Salary from more than one source or employer also considered.

 Salary from former employer, present or prospective employer shall also

taxable.

 Salary income must be real and not fictitious.

 Foregoing of salary: Section 15 taxes salary on ‘’due’’ basis even if it is not

received.

 Voluntary payments: Salary perquisites or allowances may be given as a gift to

an employee yet they would be taxable.

Section 17(1) of the Income tax Act gives an inclusive and not exhaustive definition of
“Salaries”, which includes:
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 61
 1) Wages

2) Annuity or pension

3) Gratuity

4) Fees, Commission, allowances perquisites or profits in lieu of salary

5) Advance of Salary

6) Amount transferred from unrecognized provident fund to recognized provident

fund

7) Contribution of employer to a Recognized Provident Fund in excess of the

prescribed limit

8) Leave Encashment

9) Compensation as a result of variation in Service contract etc.

10) Contribution made by the Central Government to the account of an employee

under a notified Pension scheme.

1.3Arrears of Salary - Salary in arrears / advance, received in lump sum, is liable to

tax in the year of receipt. Relief can be obtained for salary arrears u/s 89(1) of the
Income Tax Act.

1.4 Salary: is paid by the employer to the employee in consideration of the service
rendered by him to the organization. It includes monetary value or non-monetary
value of benefits and facilities provided by the employee. Any amount received other
than from employer cannot be termed as salary.

1.5 Computation of taxable income from salary of for the assessment year 2023-
2024

Computation of Taxable Income from Salary

Assessee: XXX Previous year: 2022-

2023

R/S: OR/ROR/NR Assessment year:

2023-2024

Particulars Rs Rs

1. Basis Pay xxx

2. Dearness Pay xxx

3. Fees, Bonus, Commission and xxx

Advance salary
xxx

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 62

 4. Gratuity xxx

5. Pension xxx

6. Encashment of Earned Leave

salary
xxx
7. Employer’s contribution to RPF & xxx
interest there on in excess of
exempt limit xxx

8. Allowances u/s 17(2) xxx

9. Perquisites u/s 17(3) xx

x
Profits in lieu of salary

Gross Salary xxx

Less: Deductions U/s 16

Standard Deductions U/S 50,000

16(i)
xxx
a. Entertainment Allowance U/S
16(ii) xxx xxx

b. Professional tax U/S 16(iii)

Taxable Income from Salaries xxx

1.6 Salary sec 17(1)

The term salary includes the following:

a. Wages

b. Any annuity or pension

c. Any gratuity

d. Any fees, commission, perquisites or profits in lieu of salary

e. Any advance salary

f. Encashment of earned leave salary

g. Employer’s contribution in excess of 12% of employee salary to RPF and interest on

RPF in excess of 9.5% p.a.

h. The contribution made by Central Government to the account of an employee under

Pension scheme referred to in sec. 80CCD.

1.7 Basic Salary: It is fully taxable; there are two methods of calculating Basic Salary,

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 63

 1) Receipts Basis: Under this method salary will be received at the end of every
month. It falls due on the last date of the same month (1st April 2020 o 31st March
2021).

2) Due Basis: Under this method, salary of any month will be received in the first
week of next month. It falls due on the first day of next month (March 2020-
Februray 2021).

1.8 Leave Salary: Section 17 (1) (a)

It is also called as salary in lieu of leave. An assessee is entitled for certain

number of leaves as per the employment contract. If the assessee does not
avail such leave then he can get the salary for the number of days he has
not availed leave.

Leave Salary Received can be classified into two types. They are:

1. Leave Salary received while in service: It is fully taxable for both

government employees and non- government employees.

2. Leave salary received at the time of retirement: It is fully exempt U/S

10(10AA) for government employee and it is partially exempted U/S 10(10AA)
for non–government employee.

Calculation of taxable amount of leave salary (for Non – government

employees):

Actual EL received xxx

Less: Least of the following is exempted U/S

10(10AA)

1. Cash equivalent of leave due at the rate of average salary

XX

2. 10 months Average salary XX

3. Maximum limit 3,00,000 xxx

4. Actual leave salary received

XX

Actual Taxable EL XX
X

Note:

1. Leave at the credit of the employee = Leave entitled – leave encashed/taken

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 64
 Leave entitled = Actual leave allowed by organization or 30 days for 1 full
year of service whichever is less.

2. Average Salary: It is the average of the last 10 months salary preceding the date
of retirement. Salary here should be total of

Basic salary

(+) Dearness allowance (if it enters into service benefit)

(+) Commission at fixed rate calculated on turnover achieved by assessee.

Total Salary
Average Salary =
10
1.9 Gratuity: Gratuity is a retirement benefit generally payable at the time of cessation
of employment and on the basis of duration of service.

Gratuity received can be classified into two types. They are:

1. Gratuity received while in service: it is fully taxable for both government and
non–government employees.

2. Gratuity received at the time of retirement: This includes

a. Gratuity received by government employees: It is fully exempt

b. Gratuity received by non–government employees who are covered by the

payment of gratuity Act 1972 it is taxable but exemption can be availed U/S
10(10).

c. Gratuity received by non – government employees who are not covered by

the payment of gratuity Act 1972 it is taxable but exemption can be availed
U/S 10(10).

A) Format of Calculation Of Taxable Gratuity (non–government employee

when gratuity received is covered by payment of gratuity act, 1972)

Particulars Rs. Rs.

Actual Gratuity Received XX

X
Less: Least of the following
is exempted u/s 10(10):
XXX
1. Actual Gratuity received
20,00,000
2. Maximum amount
XXX
3. 15/26 X Last salary Drawn X No.
of years completed service
XX
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 65
 X
Exempted Gratuity

Taxable XX
Gratuity X

NOTE:

1. Salary last drawn comprises of

Basic salary +Dearness allowance of the month of retirement (full month

salary should be taken)

2. No. of years of service (rounded off): if it is 6 months or less ignore and if it is

more than 6 months round it off to next year.

B. Calculation of taxable gratuity (non – government employee when gratuity

received is not covered under payment of gratuity act, 1972)

Particulars Rs. Rs.

Actual Gratuity XX
Received X

Less: Least of the

following is XXX
exempted u/s
20,00,000
10(10):
XXX
1. Actual Gratuity received

2. Maximum amount
XX
3. 1/2 X Average salary X X
No of years completed
service

Exempted Gratuity

Taxable Gratuity XX
X

Therefore, taxable gratuity will be actual amount of gratuity received (minus) exempt
U/S 10(10).

NOTE:

1. Average salary: It is the average of last 10 months salary proceeding the month
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 66
 of retirement. It includes

Basic salary

(+)Dearness allowance (if it enters retirement benefit)

(+)Commission at a fixed rate calculated on turnover achieved by assessee.

2. Only completed number of years must be considered.

1.9 Pension U/S 17(1)(Ii) – [Exemption U/S10(10a)]

It is the amount received by employee from his employer after his retirement for the
service rendered. Pension received in the employee is only covered here. Any pension
received by family members after the death of employee is discussed under income
from other sources. The amount of pension received by an employee is taxable like
salary. If an employee receives a lump sum instead of receiving monthly pension, it is
called commutation of pension.

Commuted pension would be taxed in the following manner:

a) Government Employee:

Commuted pension received by government employee is exempt from tax.

Govt employee includes central Govt employee, state Govt employee,
employee of a local authority or any Govt employee absorbed into a public
sector undertaking.

b) Non–government employees:

In this case the commuted value of pension is exempt to the following

extent:

a) Where the employee receives gratuity, the commuted value of one-third (1/3)
of the pension

b) Where the employee does not receive any gratuity, the commuted value of one-
half (1/2) of the pension.

c) Any payment received by way of commutation of pension by an individual out

of an annuity plan of LIC of India after 31.7.1996 or any other insurer is fully
exempt.

1.10 . Provident Fund (PF):

To encourage savings for the social security of employees, government has setup
various kinds of provident funds. The employee contributes a fixed percentage of
salary towards these funds and in many cases, employer also contributes an equal
amount.

The mechanism of PF works like this

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 67

 1. Every month the employee will be contributing to this fund for his future
benefits.

2. Normally the same amount will be contributed by the employer also to the fund.

3. Interest will be earned by investing these funds in some good rated securities.

4. Assessee can withdraw this at the time of leaving the job or retirement or death.

Provident Fund:

Any fund to be provided in the future is known as provident fund. In this fund certain
percentage is deducted from the salary of an employee and an equal sum is contributed
by the employer and both the amounts are deposited in provident fund account by the
employer on behalf of employee.

Types of Provident Fund:

1. Statutory Provident Fund (SPF): Any fund maintained as per the Provident Fund
Act of 1925 and it is generally maintained by the employees of Government &
Statutory Corporation.

2. Recognized Provident Fund (RPF): Provident Fund which is recognized by

commissioner of Income Tax of the purpose of tax exemption is known as RPF and
generally maintained by private companies.

3. Unrecognized Provident Fund (URPF): It is a fund which is not recognized by

commissioner of income tax but still contribution can be made in this fund.
Employee of private and unorganized sector will contribute to this fund.

4. Public Provident Fund (PPF): Any member of the public whether salaried
employee or self-employed can invest in the public provident fund by opening a
PPF account at the State Bank of India and its subsidiaries or any other nationalized
banks.

Particulars SPF RPF URPF PPF

Sl.No.

Employers Fully Exempted To be ignored Not

`11Contribution Exempted upto 12% of at the time of applicable
employees contribution
salary
Employees Qualifies for Qualifies for
Not qualifies Qualifies for
2 Contribution deduction deduction u/s
for deduction deduction
u/s 80C 80C u/s 80C u/s 80C
Interest on PF Fully Exempted To be ignored Fully
3 Exempted upto 9.5% p.a.
in the year of Exempted
credit
Refund from Fully It is fully Employee Fully
4 Provident fund Exempted exempted. contribution is Exempted
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 68
 deposit If the fully
employee has exempted.
rendered Employers
continuous contribution
service of 5 and interest
years thereon is
otherwise it is taxed under
treated as the head
refund from income from
URPF and salary.
accordingly Interest on
taxed employee
contribution is
taxed under
the head
income from
other sources.

1.11.Allowances:

Fixed sum of money given regularly in addition to basic salary to meet a particular
purpose are known as allowances. The types of allowances are:

1) Fully Exempted Allowances:

1. Foreign allowance to Government employee

2. Allowance from UNO

3. Allowances given to judges of High Court and Supreme Court

2) Fully Taxable Allowance

1. Dearness allowance

2. City compensatory allowance

3. Tiffin allowance

4. Medical allowance

5. Servant allowance

6. Foreign allowance to non-government employee

7. Overtime allowance

8. Deputation allowance

9. Project allowance

10. Warden allowance

11. Lunch allowance

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 69

 12. Non practicing allowance

13. Marriage allowance

3) Partly Taxable Allowance

(a) Allowance related to official duties: These allowances are exempted to the extent
they are spent and balance is taxable.

1. Uniform allowance

2. Daily allowance

3. Transfer allowance

4. Conveyance allowance

5. Helper allowance

6. Research allowance

7. Professional Development allowance

(b)Allowance related to employee’s personal expenses: A fixe amount determined

by Central Government is exempted irrespective of the actual expenditure incurred.

1. Tribal Area Allowance: Exempted up to Rs. 200 p.m.

2. Compensatory Hill Allowance: Exempted up to Rs. 300 p.m. to Rs. 7,000 p.m.
based on the area.

3. Children Education Allowance: Exempted up to Rs. 100 p.m. per child up to a

maximum of two children.

4. Child Hostel Allowance: Exempted upto Rs. 300 p.m. per child up to a maximum
of two children.

5. Transport Allowance: Exempted upto Rs. 3200 p.m. and in case of handicapped
employee up to Rs. 3,200 p.m.

6. Allowance for transport employees: Exempted to the least of 70% of such

allowance or Rs. 6,000 p.m. whichever is less.

7. Entertainment Allowance: It is the amount paid by employer for availing

entertainment services. It is first added to gross salary and then allowed as
deduction u/s 16(ii).

In case of government employee - Least of the following is given as

deduction u/s 16(ii):

- Actual Entertainment Received or

- 20% of basic salary or

- Maximum limit of Rs. 5,000

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 70
 8. House Rent Allowance: It is an allowance given by an employer to an employee
to meet the cost of accommodation which is partly exempted, According to section
10(13A). Exemption for HRA is not available if the assessee is living in his own
house or a house for which he is not paying rent.

Particulars Amou Amou

nt nt

Actual HRA received xxx

Less: Least of the following is

exempted:
xxx
1) Actual HRA received
xxx
2) Excess of Rent paid over 10% of
salary xxx

3) 40% of salary (50% in case of Delhi,

Mumbai, Kolkata and Chennai)
xxx
Exempted
HRA

Taxable HRA xxx

Salary for HRA:

1. Basic pay

2. Dearness pay

3. Dearness allowance (If it enters into retirement benefit)

4. Commission based on turnover

1.12 Perquisites

Monetary or Non-monetary benefits (either in cash or in kid) received by

an employee from an employer in addition to salary.

Perquisites

Tax free perquisites Taxable

perquisites

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 71

 Taxable in all cases Taxable in hands of

specified employee only

a) Tax free perquisites

1) Computer, laptops given to employee for official or personal use.

2) Employer’s contribution towards Staff Group Insurance Scheme.

3) Employee’s refreshments provided by an employer to all employees during

working hours in office.

4) Refreshments during working hours provided outside the place of work upto Rs. 50
per day will be exempted.

5) Rent free house provided to the judges of High Court, Supreme Court or an officer of
parliament or Union Minister.

6) Amount spent on training of employees or fees paid for refreshing management

course.

7) Free ration provided to Defence force.

8) Medical insurance premium paid by the employer.

9) Telephone facility provided by employer to employee.

10)Interest on loan given by the employer is not taxable if the loan amount does not
exceed Rs. 20,000.

11)Perquisites given to Government employee who is staying abroad.

12)Gifts in kind if the value is less than Rs. 5,000.

13)Family planning expenses.

14) Products at concessional rate to employee sold by his/her employer

b) Taxable perquisites in hands of specified cases

Specified employee is one who satisfies any one of the following condition:

(a) The assessee must be a Director employee in the employer company or

(b) If he is the beneficial owner of equity share carrying 20% or more voting power in
the employer company or

(c) The total taxable monetary receipts of the employee from all employers during the
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 72
 Previous Year after deduction u/s 16 exceed Rs. 50,000.

c) Taxable perquisites in the hands of specified employee

1. Free service of Sweeper, Gardner, Watchman and Personal Attendant: Actual salary
paid by employer is taxable.

2. Free supply of gas, electricity, water supply for household purpose: Manufacturing
cost or amount paid by employer is taxable.

3. Educational institution owned by employer:

(a) If education institution owned by the employer

- If it is for the children of the employee- any amount in

excess of Rs. 1,000 per month per child is taxable.

- If it is for other members of the employee – actual cost

of the education is taxable.

(b) For outside institutions

4. Leave Travel Concession in India (LTC): Leave travel benefits extended by an

employer to an employee for going anywhere in India along with his family are
exempt from tax as the provision of the IT Act. The exemption is available only in
respect of fare for going anywhere in India along with family twice in a block of four
year.

5. Medical Facilities: If the employer reimburses or provides the expenditure incurred

by the employee is taxable as follows:

- If medical treatment is taken from an hospital

maintained by the employer – not taxable

- If medical treatment is taken in Government Hospital –

not taxable

- If medical treatment is taken in Private Hospital –

exempted up to Rs. 15,000

6. Transport facilities by transport undertaking: it is exempted if it is provided by

airlines or railways. In case of other modes of transportation value of such benefit
offered to public is chargeable to tax.

7. Motor car facility:

Ownership Expenses Fully Fully Personal Both for official and personal
met by Official ≤ 1,600 CC >1,600 CC
Employer Employer Not a Aggregate of the following: Rs. 1,800 p.m. Rs. 2,400 p.m.
Perquisite 10% of cost of car or + +
Actual hire charges Driver salary Driver salary
Running and Maintenance Rs. 900 p.m. Rs. 900 p.m.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 73

 Driver salary
Less: Amount collected from
employee
Employee Not a Aggregate of the following: Rs. 600 p.m. Rs. 900 p.m.
Perquisite 10% of cost of car or + +
Actual hire charges Driver salary Driver salary
Driver salary Rs. 900 p.m. Rs. 900 p.m.
Employee Employer Not a Actual expenses incurred by Rs. 1,800 p.m. Rs. 2,400 p.m.
Perquisite employer + +
Less: Amount collected from Driver salary Driver salary
employee Rs. 900 p.m. Rs. 900 p.m.
Employee Not a Not a Not a Not a
Perquisite Perquisite Perquisite Perquisite

d) Taxable Perquisites under all cases u/s 17(2)(d)

Rent Free Unfurnished Accommodation

Provided to the Govt. employee Provided to the Non-

Govt. Employee

As per Govt. Prescribed rates

Owned by employer Hired by

employer

 Population > 25 lakhs = 15% of salary

 Between 10 to 25 Lakhs = 10% of salary

 < 10 lakh = 7.5 % of salary

WEL - WEL -

House Accommodation Hotel

Accommodation

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 74

 15% of salary 24% of
salary

or or

Rent paid by the employer Rent paid by

the employer

Note:

1) For the above cases furnished value will be 10% of cost of furniture or actual hire
charges.

RFFA = Unfurnished + Furnished Value

2) Salary for RFA is

1. Basic pay

2. Dearness allowance entering into retirement benefit

3. Dearness pay

4. All taxable allowance

5. Leave encashment

It includes all monetary payment except the following

a) Dearness allowance not entering into retirement benefits

b) Provident Fund contribution and interest there on

c) Value of Perquisites

TERMINAL QUESTIONS:

Section A (5 marks )

PROBLEMS ON EARNED LEAVE

1. Mr. P retires on 1st July 2022 after 18 years 5months of service and receives
Rs.75,000 as amount of leave encashment for 15 months. His employer allows
45 days leave for every one year of service. During service he has already
encashed leave for 12 months. Calculate the taxable amount of leave
encashment if his salary during 1-7-2022 to 1-7-2023 was Rs.5,000 p.m.

2. Mr.Srinath,is a non govt employee who receivesRs.28000

as EL Salary, at the time of retirement on 10th March 2023.
On the basis of the following information, calculate his taxable amount
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 75
 of EL Salary -

a. Basic Pay = Rs.5700 p.m. since 1/1/2022 and D.A (forming part of salary) =
Rs.800p.m

b. Duration of service = 26years 8months

c.Leave availed while in service is 17 months

Also, what benefit would he receive, if he was a Govt employee?

PROBLEMS ON GRATUITY

1. Mr. Arun of BN Ltd retired on 31/12/2022, after completing 32 years and 6

months of service. The company paid him a gratuity of 68,000 (not covered
under the payment of gratuity act). The terms of employment were as follows:

 Basic pay-2,100 per month till September 2022

 Basic pay-2,400 per month from October 2022

 Dearness allowance @ 50% of Basic pay of which 25% enters to

retirement benefit.

Compute taxable gratuity for the AY 23-24.

2. Mr.Mohith is employed for a salary of ₹6,200 p.m. he is also getting D.A. of 2,800
p.m(forming part of salary). He receives Rs.750,000 as bonus. On 30/10/2022 he
retired from his service after serving for a period of 29 years and 5 months. He
received Rs.2,00,000 as gratuity under the Payment of Gratuity Act. Compute his
taxable gratuity for the Assessment Year 2023-24.

PROBLEMS ON PENSION

1. Mr. Sujith retired from service on 31/03/2023. His pension was fixed at 8,000
p.m. He commutes one-half of his pensions and received Rs.5,00,000. Find out
the taxable amount of commuted pension if -

a) He is Government Employee

b) He is Non-Government employee who also gets gratuity

c) He is Non-Government employee who does not get any gratuity

2. Mr.Khan retired from service on 30/06/2022. He gets pension of Rs.2,000 p.m.

upto 31/01/2023 and with effect from 01/02/2023 he gets 70% of pension
commuted for Rs.80,000. Determine the taxable pension for Assessment Year
2023-24 assuming,he also receives gratuity

PROBLEMS ON HRA

1. Mr. Hari is employed at Amritsar on a salary of 30,000 p.m. The employer is

paying H.R.A. of 8,000 p.m. but the actual rent paid by him (employee) is 12,000
p.m. He is also getting 2% Commission on turnover achieved by him and
turnover is 50,00,000. Calculate his Gross Salary.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 76
 2. Mr. Ganesh is employed with a company at Delhi. During the previous year
2022-23, he gets 60,000 p.m. as basic salary and 20,000 p.m. as house rent
allowance. He is also getting? 20.000 p.m. as dearness allowance, but only 50%
shall be taken into account to calculate value of other retirement benefits. In
Delhi he is having his own residential flat which he bought in 2016.

On 28th June, he was transferred to his native place of Nagpur where he stayed
with his parents upto 31st October and shifted to a rented house on 1st November
and started paying rent of 24,000 p.m. He did not pay any rent when he was staying
with his parents. Find out the amount of H.R.A. chargeable to tax for the Assessment
Year 2023-24.

PROBLEMS ON RENT FREE ACCOMMODATION

1. Mr. Rahul gets basic salary of 40,000 p.m., medical allowance * 1,000 p.m., 1,200
p.m. as transport allowance, bonus 24,000 and commission 60,000. He is also
provided with rent free unfurnished accommodation at Ludhiana (Population
20 lakhs as per latest census) whose fair rental value is 24,000 p.m. He gets
leave encashment for the current previous year of 20,000 during the year.
House was provided to him with effect from 1-7-2022. His salary is due on 1st
day of every month. Calculate the value of rent-free accommodation.

2. Mr. Jitender is in receipt of annual salary of 2,00,000. He is provided with a

furnished accommodation at Gurgaon [population is 11 lakhs] for which his
employer pays a rent of 4,000 p.m. and deducts 1,000 p.m. from employee's
salary. The cost of furnishing of the residence amounts to 30,000. Calculate the
value of perquisite if house is occupied for 9 months Only.

Section B (9 and 12 marks )

1.Mr.Harish is working with two employers simultaneously and submits the following
particulars of his income for the year ending on 31.03.2023:

From ABC Ltd Fron XYZ Ltd

Salary 30,000 p.m. 20,000 p.m.

D.A. 30,00 p.m. 40,00 p.m.

Bonus 12,000 5,000

Conveyance 2,000 p.m. 300 p.m.

Allowance

He spends 60% of conveyance allowance received from Ist employer and 40% of such
amount received from 2nd employer for employment purposes. He joined service with
ABC Ltd. in 1983 and since then he has been receiving 400 p.m. as Entertainment
Allowance. M/s ABC Ltd. has provided him rent free house at Chennai for which it pays
rent of 6,000 p.m. Services of gardener have also been placed at the disposal of Mr.
Harish for which company is paying 800 p.m. The house has been furnished with all
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 77
 items costing 1,00,000.

Computation of Salary Income of Mr. Harish.

2. Computation of salary income in case employee opts for new tax slab rates.
Followings are the particulars of Mr. A's salary income. Compute his salary income if he
opts for new tax slab rates.

Salary (Basic) 60,000 p.m.

D.A-50% of salary (50% of D.A. forms part of salary)

Bonus one month's basic salary

Leave travel concession-equal to one month's basic salary

(Given once in two years)

Conveyance allowance 4,000 p.m.

House rent allowance 12,000 p.m.

Mr. A is paying 15,000 p.m. as rent

Entertainment allowance 2,000 p.m.

Education allowance @ 500 p.m. per child. Two children of Mr. A are studying in a
school and he is paying a monthly tuition fees of 1,800 p.m. for both children.

Helper allowance 2,000 p.m.

Uniform allowance 5,000 p.a.

Conveyance allowance is given to Mr. A to meet petrol expenses of his car which he
uses to come to office and go back to his residence. It is also observed that he spends
almost 50% of the entertainment allowance on visitors coming to meet him in
connection with his business/job duties.

3. From the particulars given below compute the salary income of Mrs. Swati for the
year ending on 31-3-2023:

Net salary received after deduction of the following 1,50,000

Income tax deducted at source 6,000

Own contribution to RPF 20,000

Rent of residential house provided 4,000

Profit Bonus 24,000

Entertainment Allowance 12,000 p.a.

She went on tour for official purposes and received travelling allowance 6,000

She was ill and was treated in a private hospital. Medical bills reimbursed 12,000

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 78

 She was provided with rent free house owned by the company at Patna [Population 20
lakhs] company also provided a gardener to maintain this house. Salary of gardener
paid by the company 500 p.m.

The electricity and water bill of the above house paid by the company 1,200 p.m.

She was provided with a car of 1.2 lt. CC which was used partly for personal and partly
for employment purposes.

The company contributed 24,000 towards RPF. 10. She has taken interest free loan of
12,000 against salary during the year repayable in 6 equal monthly instalments
starting from August, 2022.

4. Mr. A an employee of Ranchi [Population 15 lakhs] based company provides the

following particulars of his salary income:

(i) Basic Salary 12,000 p.m.

(ii) Profit Bonus 12,000

(iii) Commission on turnover achieved by Mr. A 42,000

(iv) Entertainment allowance 2,000 p.m.

(v) Club facility 6,000

(vi) Transport allowance1,800 p.m.

(vii) Free use of car of more than 1.6 It. capacity for both personal and
employment purposes; expenses are met by employer.

(viii) Rent free house provided by employer. Lease rent paid by employer
6,000 p.m.

(ix) Free education facility for three children of the employee : [Bills issued
in the name of employer] Rs 22,500

(x) Gas, water and electricity bills issued in the name of employee but paid
by employer

16,800

5. Compute income under the head salary for the assessment year 2023-24.

Following details are furnished by R an Indian citizen for the year ending
31-3-2023.

Salary (net of professional tax, rent of house provided by employer and

R's contribution to Provident Fund) 2,48,000

R's contribution to Provident Fund 40,000

Employer's contribution to Provident Fund 40,000

Rent of residential house provided by employer and deducted out of salary

9,600
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 79
 Professional Tax deducted at source 2,400

Interest credited to Provident Fund @ 8.75% per annum 44,000

Leave Travel Allowance received 7,800

Rent free house provided to employee at Hyderabad [Population 30 lakhs]

Rent of house paid by employer 66,000

Remote Locality Allowance @3,000 p.m. [Notified to be exempted upto 200

p.m].

Bonus equal to one month salary

Running Allowance 2,000 p.m.

Children Education Allowance for 3 children @ 400 p.m. each (one of his
son is living in hostel)

Entertainment Allowance 700 per month

Amount contributed to PPF 1,30,000.

6. Sh. Rakesh an employee working in Dreams Ltd. (Mumbai) has presented the
following particulars of his salary.

Calculate (1) Salary income for the previous year 2022-23

(i) Basic salary 20,000 p.m. [Due on the last day of the month]

(ii) D.A.-80% of salary [50% of D.A. forms part of salary

(iii) Bonus – Basic Salary of one month

(iv) He has engaged a helper at 1,200 p.m. and his employer pays him?
1,500 p.m. on this account.

(v) Medical bills for 75,000 were re-imbursed in following manner:

(a) of a notified hospital 22,000 (for nose surgery-a notified disease

(b) of a private hospital 53.000.

(vi) Leave encashment (relating to current year) 20,000.

(vii)Mobile telephone bill of employee's wife paid by employer? 15,000.

(viii) His employment tax paid by employer? 2,500.

(ix) On 1-12-2022 he has taken a loan of 3,00,000 from his employer to

purchases a car. Rate of interest is 6.25% p.a. Repayment of loan @ 5,000
p.m. is to start after 4 months from the date of taking of loan. Prescribed
rate of interest by SBI as on 1-4-2022 is assumed to be 9.25%.

(x) Commission Rs 66,000

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 80
 (xi) He and his employer contribute 3,200 p.m. each towards RPF.

(xii) Interest credited on the accumulated balance of RPF @ 10% is 20,000.

xii (xiii) He received 20,000 as leave travel concession but has not travelled
anywhere

(xiv).He has been provided with free use of a car of 1.8 lt. C.C. Car is used
partly for personal and partly for employment purposes.

(xv) He has been provided with a rent free house owned by employer (FRV
of House 8,000 p.m.) alongwith facility of gardener costing employer 6.000
p.a. Furniture costing 1.00.000 (W.D.V. 75,000) has also been provided for
his use by the employer.

(xvi) His personal club bills paid by employer 25.000 p.a.

7. Mr. Sarangi, an employee of a public limited company at Cuttack, received the

following emoluments for the previous year 2022-23.

(i) Basic salary @30,000 p.m. 3,60,000

(ii) D.A. as per terms of employment 3,000 p.m. 36,000

(iii) Bonus equal to 1 month's salary 33,000

(iv) Commission 60,000

(v) Advance salary 66,000

(vi) Employee's contribution in recognised Provident Fund 48,000

(vii) Employer's contribution in Recognised Provident Fund 48,000

(viii) Special allowance @2000 p.m. 24,000

(ix) House rent allowance received @ 10,000 p.m. 1,20,000

(x) Rent paid by him @12,000 p.m. 1,44,000

(xi) Entertainment allowance 3,000 p.m. 36,000

(He spends the whole amount while performing his official duties)

(xii) During the year employer has provided him a Honda city car of 1600
ce capacity with chauffeur which he uses for his personal purposes.
Employer's expenditure of the running and maintenance of the car
including salary of the driver is 1,20,000 during the year. Cost of the car is
7,50,000.

(xiii) Interest credited to his recognised provident fund @ 12% is 30,000.

(xiv) Employer company has provided him free club facility which costed
the company* 24,000 and free lunch for 300 days cost being 150 per day.
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 81
 (xv) During the previous year he has been provided a interest free loan of
18,000 to purchase a moter cycle. In November 2022 his father fell ill
(disease specified under Rule 3A) and he again got interest free loan of
50,000 from his employer for the medical treatment of his father.

Find out his Salary Income for the Assessment Year 2023-24.

Module III.

Income from House Property

3.1 Introduction:

This is the second head of income which charges income from house properties by
wayofrentreceivedorreceivable.

3.2 Basis of charge:

According to Sec 22, Annual value of a property, consisting of any building, or

landappurtenant thereto, of which the assessee is the owner, is chargeable to tax under
thehead “incomefromhouse property”.

Rentalincomeistaxableunderthehead“incomefromhousepropertyifthefollowing

conditionsaresatisfied.

a) Thepropertyshouldconsistofanybuildingorlandappurtenantthereto

b) Theassesseeshouldbetheownerand

c) The property should not be used by the owner for any business or profession

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 82

 carried onbyhim

3.3.Explanation:

a) Building and land appurtenant thereto: - Income tax is charged on buildings

and landappurtenant (belonging) thereto. Income from a land which is not part
of any buildingwillbe chargedunder income fromothersources.

b) Landappurtenanttobuildingincludecompoundwalls,playground,gardenetc.,inca
seofnon- residential building car parking spaces, drying grounds, connecting
roads in thefactorybuildingshall beincludedinlands appurtenanttobuildings.

c) Buildings include residential houses, warehouses, auditoriums, cinema halls,

buildingsletoutforoffice use, dancehalls, lecturehalls etc.,

3.3.1.Exceptionstotherulethatincomefromhousepropertyistaxableunderthehead
houseproperty:

Theincomefromfollowingbuildingsisnottaxableundertheheadhouseproperty:

1) Buildings or staff quarters let out to employees – if the assessee lets out staff
quarters tohis employees whose residence there is necessary for the efficient
conduct of business,then the rent collected by the assessee is taxable as income
from business and not asincomefromhouseproperty.

2) If a building is let out to authorities for locating bank, post office, police station
etc., theincome is taxable as business income, provided the dominant purpose
of letting out thebuildingwasto carryonassessee businessmore efficiently.

3) Composite letting of building with other assets: - where the assessee gives on
hire,building along with machinery, plant for a composite rent and the rent of
the building isinseparable from other assets, the income from such letting is
chargeable under incomefromothersourcesorbusiness income.

4) Incomefrompayingguestaccommodationischargeableunderbusinessincome.

3.3.2 Deemed owners:

Deemed owners are not legal owners of the property, but according to Income act
theyare treated as owners of the property. In the following circumstances assess shall
betreated asdeemed owners:

1) An individual who transfers any house property to his or her spouse,

without adequateconsideration, or to a minor child, not being a married
daughter shall be deemed to betheownerofthehousepropertyso transferred.

2) The holder of an impartible estate is deemed to be the owner of all the

propertiescomprisedin theestate.

3) Amemberofaco-
operativesociety,company,oranAOPtowhomabuildingoritspartisallotted or
leased under a house building scheme shall be deemed to be owner of
thatproperty.

3.4 Exemptionsregardingincomefromhouseproperty:
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 83
 Incomefromthefollowingsourcesisnottaxableunderincometaxact.

 Incomefromafarmhouse

 Incomefrompropertyownedby

I. Localauthority

II. Scientificresearchassociation

III. Tradeunion

IV. Charitabletrust

V. Politicalparty

VI. Universityorothereducationalinstitutions

VII. Hospitalsormedicalinstitutions

 Incomefrompropertyusedforassesseeownbusinessorprofession.

 Incomefromtwoself-occupiedhouse.

 Income from house meantfor self-residence but couldnotbe

occupiedthroughout thepreviousyearonaccount ofhisservice or
business/professionelsewhere.

3.5 BASIC TERMINOLOGIESUNDERHOUSE PROPERTY:

3.5.1 Annual Value: Income from house property does not mean rental income, but it
is asum for which the building might reasonably be expected to be let from year to
year.Annual value of the property is calculated by considering the municipal valuation
of
theproperty;fairrentalvalue,standardrentandactualrentreceivableofthehousepropertyA
nnualvaluemaybe GrossAnnualValue(GAV) orNetAnnualValue(NAV).

3.5.2 Municipalrentalvalue(MRV):Itreferstotherentalvalueofthehouseproperty
fixedbythemunicipalauthoritiestolevythemunicipaltaxes.

3.5.3 Fair Rental value (FRV): It refers to the rental value of similar
accommodation in
thesameorsimilarlocalityasdeterminedbylocalauthorityoranyothercompete
ntauthority.

3.5.4 Standard Rental value (SRV)/ Minimum Rent: It refers to the rental
value fixed bytheRent ControlAuthority.

3.5.5 AnnualRentalValue(ARV)/De-
factoRent:Itreferstotherentreceivedorreceivablebytheowneroftheproperty
.Itisalsocalledasde-factorent. The Annual rental value is the value after
deduction of Unrealized Rent.

3.5.6 Compositerent:Itreferstotherentcollectedbytheownerforthehousepropert
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 84
 yletout along with the facilities of water, gardening, stair case lighting,
security charges,pump maintenance etc. composite rent should be split into
Annual Rental value andservicecharges forassociated services.

The part of Annual Rental Value is assed under sec. 22, as Income from House Property.
The amount which related to rendition of the services (such as water, gardening, stair
case lighting, security charges,pump maintenance etc.) is charged to tax under the head
“Profit and gains of Business or profession” or under the head of “Income from other
sources”.

3.5.7 Expected Rental Vale (ERV):It refers to the highest of MRV or FRV but
subject to amaximumofSRV.

3.5.8 Unrealized Rent - Unrealized rent is the amount of rent which the owner
cannotrealize or which is payable but not paid by the tenant. It is allowed to
be deducted fromGAVif conditionsof Rule4 are satisfied.Those
conditionsare as follows:

a) ThetenancyisBonafide.

b) The defaulting tenant has vacated, or steps have been taken to compel him to
vacate theproperty;

c) Thedefaultingtenantisnotinoccupationofanyotherpropertyoftheassessee;

d) Theassessehastakenallreasonablestepsofinsistinglegalproceedingsfortherecov
eryof the unpaid rent or satisfies the assessing officer that legal proceedings
would beuseless.

3.5.9 Loss due to VacancyPeriod:

The loss due to vacancy period is not to be subtracted from rent received. It shall be
deducted under step.

3.6 Municipal Taxes:

Municipal taxes are deductible only if:

a) These taxes are borne by the owner,

b) The tax must be paid by the owner during the previous year. (If municipal
taxes are due but not paid is not allowed as deduction.)

3.7.Computation of gross annual value(GAV)

FormatDeterminationofGrossAnnualValue
NameoftheAssessee: PreviousYear2022-23
Status: AssessmentYear2023-24
MunicipalValue Whicheverishigher
Step1 xxx
OR
Fairrentalvalue xxx
NotionalRent xxxx

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 85

 NotionalRent WhicheverisLess
step 2 (Theresultantofstep1) xxxx
OR
StandardRent xxx
ExpectedRent xxxx
ExpectedRent
step 3 (Theresultantofstep2) Whicheverishigher xxx
OR
Actualrent xxx
(Actualrent=Actualrent-Unrealizedrent-costofcommonfacilities)
GrossannualValuebeforevacancyperiodloss xxx
Less:-vacancyperiodloss xx
GrossannualValue xxxx

3.7 (b)Computation of income from houseproperty of an L.O.P/D.L.O.P

Grossannualvalue xxx

Less:municipaltaxes“paidbyowner” xxx

Xxxx
Netannualvalue xxx
Less:deductionu/s24

(i)Standarddeduction30%ofNAV.(ii)Interestonloan:(no limit)

Pre-construction interest 1/5thPost-constructioninterest.

Incomeorlossfromhouseproperty.

xxx

Xxxx

3.8. Determination of actual rent:

Sometimestheownertakesuponunderanagreementtheburdenofprovidingcertainfacilitie
stothetenant,e.g.lift,waterpump,electricity,vehicleparking,gardener,etc.,in such a case
the actual rent received or receivable minus the cost of providing suchfacilitieswillbe
theactualrent.If the tenant has undertaken the obligations of the landlord, the amount
so paid will beadded in rent received to arrive at the actual rent. However, no
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 86
 adjustment will be made in determination ofactualrentregardingthefollowing:
i) Taxpaidbythetenanttothelocalauthority
ii) Repairchargesbornebythetenant
iii) Notionalinterestondeposittakenfromthetenant.
TreatmentofPre-ConstructionperiodInterest.
CalculatetheallowableinterestonloanfromNAVofthehouseproperty.

1.Dateofborrowingloan 01-06-2013

2.Dateofrepaymentofloan 10-05-2021
Date of completion
ofConstruction May-18
4.Amountofloanborrowed ₹.30,000
5.Interest onLoan 20%P.A
01-06-2014 31-03- 30,000X20 %X10months 5,000
2015
01-04-2015 31-03- 30,000X20%X12months 6,000
2016
01-04-2016 31-03- 30,000X20%X12months 6,000
2017
01-04-2017 31-03- 30,000X20%X12months 6,000
2018
01-04-2018 31-03- 30,000X20%X12months 6,000
2019
Total 29,00
0
Forthefirst-
yearloantakenisinthemonthofJune,sothetotalinterestiscalculatedonlyfor10
monthsin2014- 2015.Thetotalof29,000hastobeadjustedfrom2018to2023(5years)

Pre-Construction Period interest deductible in the previous year =

29,000/5= 5,800Previousyearinterest(i.e.,Currentyearinterest)=6,000
Total-11,800(5,800+6,000)

3.9. Treatment of unrealized rent recovered or

realized during the P.Y.2022-23 or subsequently
(i) Anyunrealizedrentrecoveredduringthepreviousyear,whichwasdisa
llowedearlier,isnottaxable.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 87

 (ii) Anyunrealizedrentrecoveredduringthepreviousyear,whichwasallo
wedearlier,isfullytaxableasdeemedincome.
(iii) Note:NostandarddeductionunderSec24isallowed.Similarly,expensesincur
redtorealizeunrealized rentisalsonot allowed.

3.10 DeductionsfromAnnualvalue(Sec24)

Whilecomputingincomefromhousepropertythefollowingtwo deductions are

allowed under section 24.
i) Standard Deduction U/s 24(a)
ii) Interest on Loan U/s 24 (b)
Explanation:
3.11 Standard deduction:
Asumequalto30%ofAnnualvalueasstandarddeduction.
ii) Interestonloantakeninrespectofhouseproperty:
Interestonloantakenforthepurposeofpurchasing,constructing,reconstructin
gorrepairingthehouse propertyis allowed asdeductionon accrualbasis.

3.12.Exceptions:
In the following cases the Interest on loan is not allowed as deduction:
1) Interest on unpaid interest – not allowed as deduction.
2) Interest on a fresh loan, taken to repay the original loan taken for
purchasing,constructing,reconstructingorrepairingthehouse property.
3) Interest on loan paid to outside India, on which tax has not bee
deducted at source (TDS).
4) Any brokerage or commission for arranging the loan.

3.13 SELF OCCUPIED-PRPOERTY:

Assesse may occupy maximum two houses for his own residential
purposes.
If more than two properties are used for won residential purposes, only two
houses (according the choice of the assesse) are treated as self-occupied
properties and other house/houses will be treated as “deemed to be let out.
Conditions:
 The property is used throughout the previous year for own residential
purposes, it is not let out or put to any other use.
 The property could not be occupied throughout the previous year
because employment, business or profession of the owner is situated at
some other place.
In case of self-occupied house the GAV is nil and Municipal tax are not
allowed as deductions, So NAV also Nill, but Interest on loan is allowed as
deduction as under:

(a) If the loan is borrowed before 1.04.1999 –maximum limit for

deduction of interest is ₹. 30,000.
(b) If the loan is borrowed after 1.04.1999 – purpose of loan shall
determine the maximum limit.
1. Loan taken for acquisition, construction – ₹.2,00,000
2. Loan taken for repairs, renewals – ₹.30, 000.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 88

 Note: No limit shall be applicable to let out house property.
Note: (the construction or acquisition must be completed within 3 years
from the end of the financial year in which loan were taken).

3.14 Whenthe part of the property is self-occupied and a part is let

out.
Inthe abovecasetheunit occupied is treated as self-occupied and the expenses
apportioned between the all units.
3.15 When the part of the year the property is self-occupied and a part is
let out.
In the above
casethehouseshallbetreatedasletouthouseproperty(deemedtobeletouthous
eproperty).

Points to be noted:

a) Theexpected rentwouldbeGAVasthehousepropertyisnotactuallyletout.
b) Thefullamountofinterestonloantakenforsuchpropertyshallbeallowedtode
ductfromannualvalueu/s24.
c) Theassessecanchoosethehousewhichwouldbetreatedasself-occupiedhouse.
d) For the FY 2020-21 and onwards, the benefit of considering the houses
as self-occupiedhas been extended to 2 houses. Now, a homeowner can
claim his 2 properties as self-occupied and
remaininghouseasletoutforIncometaxpurposes.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 89

 Illustration 1

Mrs.Shanthi (resident) owns two houses in Bangalore. She has let-out both the
housesthroughouttheyear for residentialpurpose.

House1 House2
Municipalvalue 4,00,000 12,00,000
FairRentalvalue 7,20,000 7,20,000
Rentreceived 4,80,000 8,00,000
StandardRent 6,00,000 6,00,000
Repairs 72,000 1,00,000
MunicipalTaxpaid 40,000 1,20,000
InsurancePremiumpaid 48,000 70,000

On 1st April 2022, she bought residential house for self-occupation for ₹.
10,00,000
bytakingahousingloaninCanaraBank.Loanamountwas₹.7,00,000andrateofintere
st12%p.a.

ComputetaxableincomefromHousepropertyfortheAssessmentYear2023-24.

Solution:
Computation of Taxable Income from House Property
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 90
Assessee: Mrs. Shanthi Previous Year: 2022-23
Status: Resident Assessment Year: 2023-24
Particulars House I ₹. House II ₹. House III ₹.
Municipal rental value 4,00,000 12,00,000 ---
Fair rental value 7,20,000 7,20,000 ---
Notional Rent (Whichever is high ofthe above 2) 7,20,000 7,20,000 ---
Standard rent 6,00,000 6,00,000 ---
Expected Rent (Whichever is low ofthe above 2) 6,00,000 6,00,000 ---
Actual rent 4,80,000 8,00,000 ---
Gross Annual Value (Whichever is high ofthe above 2) 6,00,000 8,00,000 ---
Less: Municipal taxes -40,000 -1,20,000 ---
Net Annual value 5,60,000 6,80,000  
Less: Deductions U/s 24    
Standard Deduction (Note 1) -1,68,000 -2,04,000 ---
Interest on Loan (Note 2) 0 0 -84,000
Income from House property 3,92,000 4,76,000 -84,000

Computation of Taxable Income of House Property

Particulars Amount ₹.
Income from House I Let-out property 3,92,000
Income from House II Let-out property 4,76,000
Loss fromHouse III Self occupied property -84,000
Taxable Income from House Property 7,84,000
Working notes:

Note 1
Particulars Amount ₹.
Standard Deduction 30% on NAV
House I 5,60,000 * 30% 1,68,000
House II 6,80,000 * 30% 2,04,000
Note 2
Particulars Amount ₹.
Interest on loan 7,00,000*12% 84,000
Illustration 2

Mr.Praveenistheownerofthreehouses.The particularsareasfollows:

Particulars HouseA HouseB HouseC

Annualfairrent 40,000 35,000 50,000
Municipal
valuation 50,000 40,000 50,000
Standardrent 45,000 42,000 55,000
Let out
(permonth) 3,000 2,500 -
Purposeofuse Letout Letout Self
Residential business occupied
Repairs 2,000 - 5,000
Collectioncharges 3,000 1,000 -
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 91
 Interestonloan 15,000 5,000 2,000

Municipal tax is 10% of MV. Municipal tax of House A was paid bytenant, but
Municipal tax of House B was not paid till 31.03.23, municipal tax of House Cwas
paid by owner. House A remained vacant for 4 months. Compute income
fromHousePropertyforA.Y. 2023-24.

Solution:
Computation of Taxable Income from House Property
Assessee: Mr. Praveen Previous Year: 2022-23
Status: Resident Assessment Year: 2023-24
Particulars House A ₹. House B ₹. House C ₹.
Municipal rental value 50,000 40,000 ---
Fair rental value 40,000 35,000 ---
Notional Rent (Whichever is high ofthe above two) 50,000 40,000 ---
Standard rent 45,000 42,000 ---
Expected Rent (Whichever is low ofthe above two) 45,000 40,000 ---
Actual rent (House A ₹. 3,000*12; B ₹. 2,500 * 12) 36,000 30,000 ---
Gross Annual Value (Whichever is high ofthe above two) 45,000 40,000 ---
Less: Vacancy rent (A ₹. 3,000*4) -12,000 0  
Adjusted Gross Annual Value 33,000 40,000  
Less: Municipal taxes 0 0 ---
Net Annual value 33,000 40,000  
Less: Deductions U/s 24    
Standard Deduction (Note 1) -9,900 -12,000 ---
Interest on Loan (Note 2) -15,000 -5,000 -2,000
Income from House property 8,100 23,000 -84,000
Computation of Taxable Income of House Property
Particulars Amount ₹.
Income from House A Let-out property 8,100
Income from House B Let-out property 23,000
Loss from House C Self occupied property -2,000
Taxable Income from House Property 29,100
Working notes:
Note 1
Particulars Amount ₹.
Standard Deduction 30% on NAV  
House A 33,000 * 30% 9,900
House B 40,000 * 30% 12,000

Section A (5 Marks )
1. Miss.Roopaistheownerofthefollowinghouseproperties.Findoutthenetannualvalue
fortheassessmentyear 2023-24.
Particular A B C

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 92

 Municipal valueFair 1,80,000 1,80,000 3,60,000
rental valueStandard 1,92,000 1,68,000 3,96,000
rentActual rent 2,04,000 2,40,000 3,00,000
(p.a)Municipaltaxpaid 2,16,000 1,92,000 2,88,000
Municipaltaxdue 12,000 24,000 -
12,000 - 24,000

1) ComputeGAVfromthe followinginformation
Particulars A B C D
FRVMRVSRVARV 1,25,000 1, 1 1
Unrealized 1,20,000 2 , ,
rentVacancyAllowance 1,10,000 0, 4 0
0 4 8
1,44,000 0 , ,
0 0 0
1, 0 0
24,000 0 0
2
5, 1 1
0 , ,
0 0 4
0 8 4
1, , ,
4 0 0
4, 0 0
0 0 0
0 1 1
0 , ,
1, 2 2
0 5 0
8, , ,
0 0 0
0 0 0
0 0 0

2 1 1
7, , ,
0 2 3
0 0 2
0 , ,
0 0
9, 0 0
0 0 0
0
0 1 1
0 1
, ,
0 0
0 0
0 0

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 93

 2 2
0 2
, ,
0 0
0 0
0 0

2) CalculateNAVinthefollowingcases:
Particular H-1 H-2 H-3
Municipal valueFair rental 80,000 1,40,000 1,40,000
valueStandard 78,000 1,50,000 1,50,000
rentActualrent
85,000 1,20,000 1,20,000
Unrealized
rentVacancyAllowance 72,000 96,000 1,44,000
6,000 16,000 12,000
3Month 4Months 2Months
s
Municipaltaxpaid10%ofMunicipalvalue.

3) FromthefollowinginformationcomputeIncomeHousePropertyfortheA.Y.2
023-2024.
Municipal Value ₹. 1,80,000
Fair Rental Value ₹. 1,00,000
Let out (per month) ₹. 16,000
Standard Rent ₹. 1,20,000
Unrealized rent for one month.
VacancyAllowanceonemonth.
Municipal tax paid by owner of house property ₹. 20,000
Municipaltaxpaidbytenant₹. 10,000
4) Mr.Aistheownerofahouse.Theparticularsofwhichareasfollows:Municipalv
alue₹. 1,80,000
Faire Rental value ₹. 1,95,000
Standardrent₹.1,90,000
Actual rent ₹. 15,500 p.m.
Vacancyperiod1month
Municipaltaxpaidbyowner₹.20,500
Municipaltaxpaidbytenant₹.2,500
DeterminethetaxableincomefromhousepropertyfortheA.Y.2023-24.
5) Mr. Ram borrows Rs 80,000 at 15% p.a on 1st August 2014 for
construction of a House Property and the construction was completed on
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 94
 31st March 2019 and loan is to be repaid by 31 January 2023. Determine
the Pre-Construction Interest and Post Construction Interest.

SECTION–B(9 Marks and 12 Marks )

1) From the following particulars of house properties owned by Sri.

Viswanath. Computehisincome fromhousepropertyfortheA.Y.2023-24.

Particulars I House II House III House IVHouse

Municipal valueActual rentLocal 8,000 9,000 20,000 24,000
taxes paidRepaircharges --1,600 ---1,800 24,000 30,000
Fire insurance premiumInterest 1,000 --150 4,000 4,800
on loan 50 3,000 --500
forconstruction -- 200
Unrealized rentVacancyperiod 1,180 --- 4,200
-- -- 1,800 --
-- 3,000 ---
3months

Thefirstandsecondhouseisself-
occupied.Thethirdhouseisletoutforresidenceandthefourthhouseisletoutforbusin
ess.Thetenantpaidlocaltaxesofthefourthhouse.
2) Mr.SukruthistheowneroffourhousesinBangalore.Hegivesthefollowi
ngparticularsofthese properties.

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 95

 UseoftheHouse IHPSOP IIHPSelfBus III HPLOP IVHPLOP
iness
Rent receivedFair -60,000 -70,000 66,000 54,000
rental 62,000 67,000 56,000 90,000
valueMunicipalvalue - 70,000 60,000
Municipal 5,000 Paid byTenant Paid by Tenantbut
Tax10% - 3,000 - deductedfromRent
2months - - -3,000
RepairsInterestonloan - 1month -
Vacancyperiod

FindouttheIncomefromHousePropertyfortheAY2023-24.

3) Mr. Chopra owns four houses. The details of these properties are
given below for thePY2021-22.
Self- Self-
Particulars occupiedforRes Let out occupiedfor Let out
idence Residence
Municipal valueFair rental 1,20,000 1,32,000 10,80,000 2,20,000
valueStandardrent 1,50,000 1,60,000 12,00,000 2,50,000
Rent receivable - 1,55,000 10,00,000 2,48,000
permonth - 8,000 - 15,000
Vacancy periodUnrealized 3months 1month - -6,000
rent(conditions -9,600 - -42,000
satisfied)Municipaltax - 1,00,000 1,000
Paid by ChopraPaid byTenant 4,000 11,000
Interest on loanborrowed 6,000
3,900
8,600

Computehistotalincome forthepreviousyear2023-24

4) Mr. Kumar owns a house at Delhi.During the previous year 2022-23,

3/4th portion ofthe house is occupied for self-residence for full year and
1/4th portion is let out forresidential purposes from 1.4.2022 to 31-12-
2022 on a rent of ₹. 700 p.m. From 1-1-2020 this portion was used for
own residency by him.Municipal valuation of the entirehouse is ₹. 20,000
and fair rental value is ₹. 24,000.Expenses incurred in respect
ofthehousepropertywere:MunicipalTaxes₹.60,000;Repairs₹.2,000;Firein
FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 96
 surance
premium₹. 3,500; Land Revenue ₹. 4,000 and Ground Rent ₹. 200.These
expenseswerepaid duringtheyear

Findouthisincomefromhousepropertyfortheassessmentyear2023-24

5) Mr.Gurudasownsfollowingfourhouseproperties.Otherparticularsareasf
ollows:
House 1Self- House 2Self- House 3Letouttoa House 4Usedfor
Particulars occupied occupied businesshouse ownbusiness

Municipalvalue 20,000 50,000 70,000 45,000

Standardrent --- ---- 72,000 48,000
Fairrentalvalue 26,000 60,000 80,000 50,000
Annualrent --- --- 96,000 ----
Vacancy --- --- 1month ----
Unrealizedrent --- --- 16,000 ----
Municipaltaxes 5,000 2,000 6,000 4,000
Repairs 4,000 2,000 8,000 5,000
Interestonmoneyborrowed
(construction) 8,000 10,000 18,000 ----

DeterminethehousepropertyincomeofMr.Gurudas.

SECTION–C(12 Marks )

1) Mr. Raj has three houses all of which are self-occupied. The
particulars of the houses for the previous year 2022-23 are as under:
Particulars House 1 House 2 Houses3
Municipal Valuation p.a. 3,00,000 3,60,000 3,50,000
Fair rent p.a. 3,50,000 3,25,000 3,90,000
Standard Rent p.a. 3,75,000 3,70,000 3,75,000
Date of Completion/purchase 31.3.1999 31.3.2001 1.4.2015
Municipal taxes paid during the year 36,000 28,800 19,800
Interest on money borrowed during the current year --- 50,000 ---

Interest for current year on money borrowed in

--- --- 1,65,000
August 2020 for purchase of property

Compute Mr. Raj’s income from house property for the AY 2023-24, and suggest
which houses should be opted by Raj to be assisted as of self-occupied, so that his
tax liability is minimum, assuming he has not opted u/s 115 BAC

FOR PRIVATE CCIRCULATION ONLY CICIRCULATION ONLY 97