Income of other persons included in Assessee’s total income

Introduction
1) Generally an Assessee is taxed in respect of his own income. However in some cases Assessee
may be taxed u/s 60 to 64, in respect of income which legally belongs to some other person.
2) Taxpayers may make an attempt to reduce their tax liability by transferring their assets in favour
of their family members or by arranging their sources of income in such a manner that tax
incidence falls on others, whereas benefit of income, directly or indirectly is derived by them
3) In order to counteract these practices mentioned in point 2 above which relates to tax
avoidance, necessary provisions have been made in Sec. 60 to 64

Transfer of income without transfer of Asset [Sec.60]

1) The following condition is to be satisfied for applicability of Sec.60:-
a) Taxpayer should own the asset
b) Ownership of the asset has not been transferred, however income generated from the asset
has been transferred
c) The above may or may not be revocable
d) The above transfer may be effected at any time (if anything has been transferred before the
commencement of the Income Tax Act, that transfer will also come under this purview of
Sec.60)
2) If the above conditions are satisfied, the income from the asset would be taxable in the hands
of the transferor

Revocable transfer of asset [Sec.61]

1) If an asset is transferred under a “revocable transfer” income from such asset is taxable in the
hands of the transferor
2) Transfer for this purpose includes any settlement, trust, covenant, agreement or arrangement
3) The following constitutes revocable transfer:-
a) If asset is transferred under a trust & it is revocable during the lifetime of the beneficiary
b) If asset is transferred to a person & it is revocable during the lifetime of transferee
c) If asset is transferred before 1.4.1961 & revocable within 6 years
d) If the transfer contains any provision to re-transfer the asset (or income thereform) to the
transferor directly or indirectly, wholly or partly
e) If the transferor has any right to reassume power over the asset (or income thereform)
directly or indirectly, wholly or partly
When an Individual is Assessable in respect of remuneration of spouse [Sec.
64(1) (ii)]
1) The following conditions is to be satisfied:
a) Taxpayer is an individual
b) He/she has substantial interest in a concern
c) Spouse of the taxpayer is employed in the above mentioned concern
d) Spouse is employed in the concern without any technical or professional knowledge or
experience
2) If the above mentioned condition are satisfied, then salary income of the spouse will be taxable
in the hands of the taxpayer
3) What is substantial interest?
• In case of a company – If an individual beneficially holds (individually or along with his
relatives) 20% (or more) of equity shares in the company at any time during the P.Y.
• In case of a concern other than company – If an individual is entitled to 20% (or more) share
in profit in the concern (individually or along with his relatives) at any time during the P.Y.
4) Relative includes husband, wife, brother or sister or any lineal ascendant or descendant
5) If both husband and wife have substantial interest – Refer to class discussion

When an individual is assessable in respect of income from assets transferred to

spouse [Sec.64 (1) (iv)]
1) The following conditions should be satisfied:-
a) Taxpayer is an individual
b) He/she transferred an asset (other than a house property)
c) The asset is transferred to his/her spouse
d) The transfer may direct or indirect
e) The asset is transferred otherwise than :-
i) For adequate consideration
ii) In connection with an agreement to live apart
f) The asset may be held by the transferee – spouse in the same form or in a different form
2) If the above conditions are satisfied, any income from such asset shall be deemed to be the
income of the taxpayer who has transferred the asset
3) The transfer of asset before marriage is outside the scope of this section
4) If transferor-spouse dies, income, though continued to be enjoyed by the transferee, cannot be
included in the income of deceased transferor’s heir, as a widow or widower is not a spouse
5) If an individual transfers an asset without consideration to his wife who sells it at a profit, capital
gain arising to wife on sale of asset is chargeable to tax in the hands of the transferor
6) Sec. 64(1)(iv) is not applicable in the following cases:-
a) If assets are transferred before marriage
b) If assets are transferred for adequate consideration
c) If assets are transferred in connection with an agreement to live apart
d) If on the date of accrual of income, transferee is not spouse of the transferor
e) If property is acquired by the spouse out of pin money [R.B.N.J Naidu vs. CIT]
 7) Clubbing of income when transferred asset is invested in a business by the transferee-spouse is
determined in the following manner:-
Step 1 Find out total investment of transferee-spouse in the business on the first day of the P.Y.
Step 2 Find out amount invested by the transferee-spouse out of the assets transferred to her
without adequate consideration by her husband on the first day of the P.Y. in the said
business
Step 3 Find out the taxable income (exempt income is not included) of the transferee-spouse
from the business. If the transferee-spouse becomes a partner of a firm by investing
the aforesaid asset then only interest income from the firm is considered under Step
3. Share of profit from the firm is not considered under Step 3 as it is exempt u/s 10(2A)
Step 4 The amount which shall be included in the hands of transferor is determined as follows-
Step 3 × Step 2 ÷ Step 1

When an individual is assessable in respect of income from assets transferred to

son’s wife [Sec.64 (1) (vi)]
1) The following conditions are to be satisfied:-
a) Taxpayer is an individual
b) He/she has transferred an asset after 31.5.1973
c) The asset is transferred to his/her son’s wife
d) Transfer may be direct or indirect
e) The asset is transferred otherwise than for adequate consideration
f) The asset may be held by the transferee in the same form or in a different form
2) If the above conditions are satisfied, then income from the asset is included in the income of the
taxpayer who has transferred the asset
3) The relationship of father in law (or mother in law) and daughter in law should subsist both at
the time of transfer of asset and at the time of accrual of income

When an individual is assessable in respect of income from assets transferred to

a person for the benefit of spouse [Sec. 64(1)(vii)]
1) The following conditions are to be satisfied:-
a) Taxpayer is an individual
b) He/she transferred an asset
c) Transfer may be direct or indirect
d) Asset is transferred to a person or an AOP
e) Motive of transfer is immediate or deferred benefit to his/her spouse
f) The transfer is without adequate consideration
2) If the above conditions are satisfied then income from such asset to the extent of such benefit
is taxable in the hands of the taxpayer who has transferred the asset

When an individual is assessable in respect of income from assets transferred to

a person for the benefit of son’s wife [Sec. 64(1)(viii)]
1) The following conditions are to be satisfied:-
 a) Taxpayer is an individual
b) He/she has transferred an asset after 31.05.1973
c) The asset is transferred to any person or an AOP
d) Transfer may be direct or indirect
e) Motive of transfer is immediate or deferred benefit to his/her son’s wife
f) The transfer is without adequate consideration
2) If the above conditions are satisfied then income from such asset to the extent of such benefit
is taxable in the hands of the taxpayer who has transferred the asset
3) For example – X or Mrs. X transfers an industrial undertaking to an AOP subject to the condition
that out of the annual income of Rs70,00,000, a sum of Rs.40,00,000 shall be utilised for the
benefit of daughter in law of X or Mrs. X. In this case Rs. 40,00,000 shall be included in the
income of X or Mrs. X

When an individual is assessable in respect of income of his minor child

[Sec.64(1A)]
1) All income which arises or accrues to the minor child shall be clubbed in the income of his
parents
2) However the income of the minor child will be clubbed with the income of the parents either
father or mother whose total income [excluding the income includible u/s 64(1A)] is greater
3) Where the marriage of the parent does not subsist, the income of minor will includible in the
income of that parent who maintains the minor child in the relevant previous year.
4) The minor’s income, in case both the parents are not alive, cannot be assessed in the hands of
the grandparents or any other relatives or even in the hands of minor.
5) In the following cases clubbing u/s 64(1A) is not applicable:-
a) Income of minor child suffering from any disability of the nature specified u/s 80U
b) Income of minor child on account of any manual work
c) If income of the minor child has been derived involving application of his skill, talent or
specialised knowledge and experience.
6) In case the income of an individual includes an income of his or her minor child in terms of
Sec.64(1A), such individual shall be entitled to exemption of Rs.1,500 in respect of each minor
child.. This Rs.1,500 is an exemption u/s 10(32)

--------------------------------
 TRANSFER OF INCOME WITHOUT TRANSFER OF ASSET - WHEN INCOME
THEREFROM IS REGARDED AS THAT OF TRANSFEROR [SEC- 60]
Section 60 is applicable if the following conditions are satisfied —

Condition 1 The taxpayer owns an asset.

Condition 2 The ownership of asset is not transferred by him. In other words, he has retained the
ownership of the asset.
Condition 3 The income from the asset is transferred to any person under a settlement, trust,
covenant, agreement or arrangement.
Condition 4 The above transfer may be revocable or may not be revocable.
Condition 5 The above transfer may be effected at any time (maybe before the commencement of
the Income-tax Act or after the commencement of the Act, i.e., before or on or after
April 1, 1962).
If the above conditions are satisfied, the income from the asset would be taxable in the hands
of the transferor.
Provisions illustrated
X owns 4,000 14 per cent debentures of A Ltd. of Rs.100 each (annual interest being Rs. 56,000).
On April 1, 2017, he transfers interest income to Y, his friend, without transferring the
ownership of these debentures. Although, during 2017-18, interest of Rs. 56,000 is received by
Y, it is taxable in the hands of X, as he has transferred income without transferring the
ownership of the asset.

 REVOCABLE TRANSFER OF ASSETS - WHEN INCOME THEREFROM IS

REGARDED AS THAT OF TRANSFEROR
By virtue of section 61, if an asset is transferred under a "revocable transfer", income from such
asset is taxable in the hands of the transferor. The transfer for this purpose includes any
settlement, trust, covenant, agreement or arrangement.

Conclusions - The following conclusions can be drawn—

1. There is an asset which is transferred under a "revocable transfer" (i.e., in one of the
situations given in the table above).
2. Income from the aforesaid asset is taxable in the hands of transferor.
3. Such income is taxable as and when the power to revoke arises.
4. The above rule is applicable even if the power to revoke has not been exercised so far.

 WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF REMUNERATION OF

SPOUSE [SEC.64(1)(ii)]
The provisions of section 64(1)(ii) are given below—
Conditions- Section 64(1)(ii) is applicable if the following conditions are satisfied —
Condition 1 The taxpayer is an individual.
Condition 2 He/she has a substantial interest in a concern.
Condition 3 Spouse of the taxpayer (i.e., husband/ wife of the taxpayer) is employed in the
above-mentioned concern.
Condition 4 Spouse is employed in the concern without any technical or professional
knowledge or experience.

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Consequences if the above conditions are satisfied- If the aforesaid conditions are satisfied, then
salary income of the spouse will be taxable in the hands of the taxpayer.

Provisions illustrated—
X has a substantial interest in A Ltd. and Mrs. X is employed by A Ltd. without any
technical or professional qualification to justify the remuneration. In this case, salary
income of Mrs. X shall be taxable in the hands of X
Other points-One has to keep in view the following points —
SUBSTANTIAL INTEREST - MEANING OF- An individual has a "substantial interest" in any of
the following two situations—
 In the case of company - i f a n individual beneficially holds (individually or along with his
relatives) 20 percent (or more) of equity shares in the company at any time during the previous
year.
 In the case of a concern other than company - If an individual is entitled to 20 per cent (or
more) share in profit in the concern (individually or along with his relatives) at any time during
the previous year. RELATIVE- in relation to an individual means the husband, wife, brother or
sister or any lineal ascendant or descendant of that individual.

 WHEN BOTH HUSBAND AND WIFE HAVE SUBSTANTIAL INTEREST-

I. Both husband and wife have a substantial interest in a concern
II. Both are in receipt of the remuneration from such concern
III. Remuneration is received without any technical and professional
qualification.
IV. Remuneration will be included in the total income of husband or wife
whose total income, EXCLUDING such remuneration, is greater.
If once clubbing is done in the hands of X, salary of X and Mrs. X will be included in the
income of X (in the subsequent years), even if income of X is lower than that of Mrs. X in
that year. In such a case, the Assessing Officer can club the income of X and Mrs. X in the
hands of Mrs. X only if the Assessing Officer is satisfied that it is necessary to do so. The
Assessing Officer can take such action only after giving Mrs. X an opportunity of being
heard.

Problem:
X holds 20 per cent equity share capital in Y Ltd. Mrs. X is employed by Y Ltd, (salary being Rs.
1,40,000 per month) as general manager (finance). She does not have any professional
qualification to justify the remuneration. Ascertain in whose hands salary income is chargeable to
tax. Does it make any difference if Mrs. X was employed by Y Ltd. even prior to her marriage?
Solution:
In this case, X has substantial interest in Y Ltd. where Mrs. X is employed. Mrs. X does not have
any professional qualification to justify the remuneration of Rs. 1,40,000 per month. Her salary
income of Rs. 16,80,000 (i.e., Rs. 1,40,000 x 12) will be taxable in the hands of X. It does not make
any difference even if Mrs. X was employed by Y Ltd. prior to her marriage.

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Problem:

Income ofX (age : 31 years) and Mrs. X (age : 30 years) for the previous year 2017-18 is as
follows-

X Mrs. X

Salary from B Ltd 5,20,000 Nil

Business income 10,00,000 160,000

Bank interest (fixed deposit) 3,70,000 90,000

Total income 18,90,000 2,50,000

Tax 3,90,890 Nil

X is employed in B ltd. (salary 40,000 per month-one month salary as bonus) without any technical
or professional or educational qualification. Mrs. X holds 20 per cent equity share capital in B Ltd.
from March 20, 2018. Find out the net income of X and Mrs. X for the assessment year 2018-19.

Solution:

In this case, Mrs. X has substantial interest in B Ltd. for some time during the previous year 2017-
18. Her husband X is employed by B Ltd. during 2017-18 on Rs. 40,000 per month without any
professional qualification. Rs. 5,20,000 shall be included in income of Mrs. X. It may be noted that
this rule of clubbing is applicable even if it is beneficial to the taxpayer. Before dubbing, the lax
liability of X and Mrs. X is Rs. 4,03,760. After applying the aforesaid rule of the clubbing, the tax
liability of X and Mrs. X will be Rs. 3,24,450 as shown below –

X Mrs.X

Salary of X from B Ltd. 5,20,000

Business income 10,00,000 1,60,000

Bank interest 3,70,000 90,000

Gross total income 13,70,000 7,70,000
Less: Deduction Net income Nil Nil
Tax 13,70,000 7,70,000
Add : Surcharge (applicable if net income exceeds Rs. 50 lakh) 2,23,500 66,500
Tax and surcharge Nil Nil
Add: Education cess 2,23,500 66,500
Add : Secondary and higher education cess 4,470 1,330
Tax liability (total: Rs. 2,98,710) 2,235 665
2,30,210 68,500

If X has technical or professional qualification to justify the remuneration, then the above clubbing
provisions are not applicable. If X does not have technical/professional qualification, then his
salary shall be included in the income of Mrs. X (who has substantial shareholding in the
employer-company for a few days during the previous year) even if the resulting tax liability is
lower. In such a case, it is incorrect to state that the clubbing is applicable only if it is beneficial
to the revenue or income will be clubbed in the hands of that spouse whose income is higher-sce
Circular No. 258, dated June 14, 1979.

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Problems:

X and Mrs. X hold 20 per cent and 30 per cent equity shares in C Ltd. respectively. They are also
employed from April 1,2017 in Bombay branch of C Ltd. (monthly salary being Rs. 80,000 and Rs.
40,000 respectively) without any technical/professional qualification.

Other incomes of X and Mrs. X are Rs. 1,60,000 and Rs. 1,90,000 respectively. Find out the net
income of X and Mrs. X for the assessment year 2018-19.
Solution:
X and Mrs. X have substantial interest in C Ltd. which employs them without any
professional/technical qualification. In this case, the salary of husband and wife shall be included
in the income of Mrs. X whose other income is higher as explained under:

X Mrs.X
Rs. Rs.
Salary of X (Rs. 80,000 x 12) - 9,60,000
Salary of Mrs. X (Rs. 40,000 * 12) - 4,80,000
Other income 1,60,000 1,90,000
Net income 1,60,000 16,30,000

WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF INCOME FROM ASSETS

TRANS¬FERRED TO SPOUSE [SEC. 64(1)(iv)]
The provisions of section 64(l)(iv) are given below —

Condition 1 The taxpayer is an individual.

Condition 2 He/she has transferred an asset (other than a house property).
Condition 4 The asset is transferred to his/her spouse.
Condition 4 The transfer may be direct or indirect.
Condition 5 The asset is transferred otherwise than (a) for adequate consideration,
or (b) in connection with an agreement to live apart.
Condition 6 The asset may be held by the transferee-spouse in the same form or
in a different form.
Condition three - Relationship of husband and wife - The relationship of husband and wife
should subsist both at the time of transfer of asset and at the time when income is accrued. It
means that transfer of asset before marriage is outside the scope of this section.

For instance, X transfers 1,000 debentures of IFCI without adequate consideration to his
would be wife Miss Y on April 10, 2017. Interest income from these debentures will not be
taxable in the hands of X even after their marriage.

Similarly, if transferor-spouse dies, income, though continued to be enjoyed by the transferee,

cannot be included in the income of deceased transferor's heir, as a widow or widower is not a
spouse.

Condition four- Transfer includes indirect transfer- If the two or more transfers are inter-
connected and are parts of the same transaction, the aforesaid rule of clubbing is applicable.
For instance, if X gifts or cross transfers Rs.10,000 to Mrs. A and A gifts property worth
Rs.10,000 to Mrs. X, the transaction would be indirect transfer without consideration by X to
Mrs. X and by A to Mrs. A.

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Condition six - There may be change in identity of' transferred asset-Where cash is gifted by
an assessee to his wife and the latter deposits the same in a bank, interest income is included in
the assessee's total income.

 CAPITAL GAIN ON SALE OF TRANSFERRED ASSETS- If an individual transfers an asset

without consideration to his wife who sells it at a profit, capital gain arising to wife on sale
of asset is chargeable to tax in the hands of the transferor.

 APPROPRIATION WHEN TRANSFERRED ASSET IS INVESTED IN A BUSINESS - An asset

(maybe in cash or kind) is transferred by husband to his wife (or vice versa) (directly or
indirectly) without adequate consideration. She invests the asset in a business. The
amount of income that will be clubbed in the hands of husband will be determined as
follows —

Step Find out total investment of transferee-spouse in the business on the first day of the previous
one year.

Step Find out the amount invested by the transferee-spouse out of the assets transferred to her
two without adequate consideration by her husband on the first day of the previous year in the said
business.
Step Find out the taxable income (exempt income is not included) of the transferee-spouse from the
three business. If the transferee-spouse becomes a partner of a firm by investing the aforesaid asset
then only interest income from the firm is considered under Step three. Share of profit from the
firm is not considered under Step three as it is exempt under section 10(2A).
Step The amount which shall be Included In the hands of transferor is determined as follows—
four Step three x (Step two / Step one.)

Problem:

On December 27, 2016, X gifts Rs. 2,50,000 to Mrs. X. Mrs. X starts a business on January 20,
2017 by investing which she has arranged as follows -

The following information is taken from the capital account by Mrs. X in the books of the
business.

Gift on December 27, 2016 from husband 2,50,000

Gift from grandfather of Mrs X 1,50,000
Gift from Mrs. A on December 20, 2016 2,00,000
Gift from father of Mrs. X 1,00,000
Gift from brother of Mrs. X 1,10,000
Her own finds 40,000

Find out the amount taxable in the hands of X for different assessment years on the assumption
that profit credited in the capital account of Mrs. X is as per audited profit and loss account.
However, for the previous year 2017-18, Rs. 28,000 is not deductible (being 100 per cent of
payment of Rs. 28,000 to a supplier by a crossed cheque ). Other expenses debited to profit and
loss account are as per the income-tax law.
Second part:

Suppose in the above problem business is started by Mrs. X on January 20,2017 by investing
Rs.6,00,000 (arranged from sources given in that problem but except gift from X). X gifts
Rs.2,50,000 to Mrs. X on February 1, 2017 which is invested by her in the business on the same
day. Other data in the problem remaining the same, find out the amount taxable in the hands of
X for the assessment year 2017-18.
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Solution:

Assessment years
2017-18 2018-19 2019-20
Rs. Rs. Rs.
First day of the previous year [*in the case of newly set up business, previous January 20, April 1, April 1,
year commences on the date of setting up of the business] (a) 2017* 2017 2018
Total investment of Mrs. X in the business on the first day of the previous 8,50,000 9,80,000 14,65,000
year (b)
How much of the amount given in (b) has been gifted by X (c) 2,50,000 2,50,000 3,50,000
Income of Mrs. X from business (*i.e., Rs. 6,00,000 + disallowance of Rs. 2,00,000 6,28,000* 9,00,000
28,000) (d)
Income to be included in the hands of X [(d) x (c) / (b] 58,824 1,60,204 2,15,017
Note - There is no provision to club proportionate income in respect of gift from Mrs. X's father in
the hands of latter.
Second part:
The business is newly started on January 20, 2017. The first day of the previous year is January
20,2017. On this date, the amount invested in the business by Mrs. X out of assets transferred
without consideration from X is zero. Therefore, nothing will be included in the income of X. The
amount invested after the first day of the previous year will be considered only in the next year.

WHEN TRANSFERRED ASSET IS INVESTED IN A FIRM-

The aforesaid rule is also applicable in case transferred asset is invested by the spouse to
become partner in a firm. Share of profit is not taxable in the hands of partners.
Consequently, clubbing provisions are not attracted in respect of share of profit from a firm
where the transferred assets are invested by way of contribution towards capital.
Proportionate interest on capital will, however, be clubbed if transferred asset is invested in
a firm.

INCOME ARISING FROM ACCRETIONS TO TRANSFERRED ASSETS-

If an assessee gifts debentures of a company to the spouse and, subsequently, the company
issues bonus debentures to the spouse, interest on bonus debentures will not be includible
in the hands of the assessee under section 64(l)(iv) as there is no transfer of bonus
debentures by the assessee to the spouse.

When clubbing is not applicable- On the basis of the aforesaid discussion and judicial
pronouncements, section 64(l)(it;) is not applicable in the following cases :

►If assets are transferred before marriage.

►If assets are transferred for adequate consideration.

►If assets are transferred in connection with an agreement to live apart.

►If on the date of accrual of income, transferee is not spouse of the transferor.

►If property is acquired by the spouse out of pin money {i.e., an allowance given to the wife
by her husband for her dress and usual household expenses)

—In the aforesaid five cases, income arising from the transferred asset cannot be clubbed
in the hands of the transferor.

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CLUBBING OF INCOME
 WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF INCOME FROM ASSETS
TRANSFERRED TO SON'S WIFE [SEC. 64(1)(vi)]

Condition 1 The taxpayer is an individual.

Condition 2 He/she has transferred an asset after May 31,1973.
Condition 3 The asset is transferred to his/her son's wife.
Condition 4 Transfer may be direct or indirect.
Condition 5 The asset is transferred otherwise than for adequate consideration.
Condition 6 The asset may be held by the transferee in the same form or in a different form.

► If the above conditions are satisfied, then income from the asset is included in the income of
the taxpayer who has transferred the asset.
Example: X (or Mrs. X) transfers a bank deposit of Rs. 20,000 in favour of his (or her) son's wife,
without adequate consideration. Income accrued to son's wife shall be included in the income of
X (or Mrs. X).
Other points:
1. The relationship of father-in-law (or mother-in-law) and daughter-in-law should subsist
both at the time of transfer of asset and at the time of accrual of income. It means transfer
of asset before son's marriage by an individual to his prospective daughter-in-law is outside
the scope of clubbing even if income is accrued after son's marriage.
2. Transfer includes indirect transfer.
3. For computation of income from transferred asset.
4. For consequences when the identity of transferred asset is changed.

 WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF INCOME FROM ASSETS

TRANSFERRED TO A PERSON FOR THE BENEFIT OF SPOUSE [SEC. 64(1)(vii)]
Condition 1
The taxpayer is an individual.
Condition 2
He/she has transferred an asset.
Condition 3
The transfer may be direct or indirect.
Condition 4
The asset is transferred to a person or an association of persons.
Condition It is transferred for the immediate or deferred benefit of his/her spouse.
5
Condition 6 The transfer is without adequate consideration.

► If the aforesaid conditions are satisfied then income from such asset to the extent of such benefit
is taxable in the hands of the taxpayer who has transferred the asset.

Example: X transfers Government bonds without consideration to an association of

persons subject to the condition that the interest income from these bonds will be utilised
for the benefit of Mrs. X. Interest from bonds shall be included in the income of X.

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 WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF INCOME FROM ASSETS
TRANS¬FERRED TO A PERSON FOR THE BENEFIT OF SON'S WIFE [SEC.64(l)(viii)]

Condition 1 The taxpayer is an Individual.

Condition 2 He/she has transferred an asset after May 31, 1973,
Condition 3 Tlie asset is transferred to any person or an association of persons.
Condition 4 Transfer may be direct or indirect.
Condition 5 The asset is transferred for the immediate or deferred benefit of
his/her son's wife.
Condition 6 The asset is transferred otherwise than for adequate consideration.

► If the above conditions are satisfied, then income from the asset to the extent of such benefit is
included in the income of the taxpayer who has transferred the asset.

Example: X (or Mrs. X) transfers an industrial undertaking to an association of persons subject

to the condition that out of the annual income (i.e., Rs. 30,00,000), a sum of Rs. 5,00,000 shall
be utilised for the benefit of daughter-in-law of X (or Mrs. X). In this case, Rs. 5,00,000 shall be
included in the income of X (or Mrs. X).

 WHEN AN INDIVIDUAL IS ASSESSABLE IN RESPECT OF INCOME OF HIS MINOR

CHILD [SEC. 64(1A)]

 All income which arises or accrues to the minor child shall be clubbed in the income of his
parent [sec. 64(1A)].
 Ciubbing in the hands of father or mother- The income of minor will be included in the
income of that parent whose total income [excluding the minor’s income] is greater.
 A is minor child of X and Mrs. X. During the previous year 2017-18, income of A is
Rs.2,500 (this is the first income of A during his life time). During the previous year 2017-
18 income of X is higher than that of Mrs. X. Consequently, income of A will be included
in the income of X for the previous year 2017-18. In the subsequent years (during the
minority of A), income of A will be included in the income of X, even if income of Mrs. X is
higher than that of X in any of the subsequent years. However, there is one exception. If
in the subsequent year, the Assessing Officer wants to include the income of minor child
A in the hands of Mrs. X, it can be done only if it is necessary to do so and that too after
giving an opportunity of being heard to Mrs. X.
 Where the marriage of the parents does not subsist, the income of minor will be includible
in the income of that parent who maintains the minor child in the relevant previous year.
 The minor's income, in case both the parents are not alive, cannot be assessed in the hands
of the grandparents or any other relatives or even in the hands of minor.

When ciubbing is not attracted-

1. Income of minor child (from all sources) suffering from any disability of the nature
specified under section 80U is not subject to clubbing provision given above.
2. Income of minor child on account of any manual work.
3. Income of minor child on account of any activity involving application of his skill, talent
or specialised knowledge and experience.

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CLUBBING OF INCOME
 4.
Exemption under section 10(32) - In case the income of an individual includes an income of
his or her minor child in terms of section 64(1 A), such individual shall be entitled to exemption
of Rs.1,500 in respect of each minor child. Where, however, the income of any minor so
includible is less than Rs. 1,500, the aforesaid exemption shall be restricted to the income so
included in the total income of the individual.

Problem:
A and B are minor sons of X mid Mrs. X. Business income of X is Rs. 3,40,000. Income from
house property of Mrs. X is Rs. 1,90,000. Income of A mid B from stage acting is Rs. 60,000 and
Rs. 70,000 respectively. Besides interest on company deposits of A and B (deposit was made
out of income from acting) is Rs. 30,000 and Rs. 1,000, respectively. A and B have received the
following birthday gifts - on May 20, 2017, gift received by B from his grandfather : Rs. 80,000;
on September 14, 2017, gift received by A -Rs. 60,000 from X's friend and Rs. 35,000 from a
relative. Find out the income of X, A and B for the assessment year 2018-19.

Solution : X Mrs.X A B
Rs. Rs. Rs. Rs.
Income from house property - 1,90,000 - -
Business income 3,40,000 - - -
Income from stage acting - - 60,000 70,000
Income from other sources
- Gift received by B on May 20, 2017 from grandfather (gift from a
relative is not taxable) - - - -
- Gift received by A on September 14, 2017 from X's friend (to be
clubbed
in the hands of X after giving exemption of Rs. 1,500) 58,500
- Gift received by A on September 14, 2017 from relatives (gift from
a
relative is not taxable) -
- Interest from company deposit received by A (to be clubbed in the
hands of X) 30,000
- Interest from company deposit received by B (to be clubbed in the
hands of X after giving exemption of Rs. 1,500, amount to be
clubbed is
Rs. 1,000 - Rs. 1,000) Nil
Net income 4,28,500 1,90,000 60,000 70,000

Problem
A is minor son of X and Mrs. X. Taxable business income of X is Rs. 10,00,000. Taxable salary
income of Mrs. X is Rs. 13,80,000. A transfers a residential house property on April 10, 2017
(gifted about 4 years ago by his maternal grandfather) for Rs. 60,00,000 (indexed cost of
acquisition : Rs. 3,00,000). X transfers gold on May 10, 2017 (long-term capital gain being Rs.
54,00,000). A invests Rs. 50,00,000 in NHAI bonds on May 20, 2017. X invests Rs. 50,00,000 in
NHAI bonds on June 1, 2017. Find out the income of X, Mrs. X and A for the assessment year
2018-19.

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CLUBBING OF INCOME
 Solution:
Capital gain of X - Capital gain taxable in the hands of X will be Rs. 4,00,000 (after claiming
exemption of Rs. 50,00,000 under section 54EC).
Capital gain of A - Capital gain generated by A before exemption under section 54EC is Rs.
57,00,000. He has invested Rs. 50,00,000 in NHAI bonds within 6 months from the transfer of
house property. He can claim exemption of Rs. 50,00,000 separately. Taxable capital gain
generated by A is Rs. 7,00,000 which will be clubbed in the hands of X [income of X (after including
long-term capital gain of Rs. 4,00,000) is higher than that of Mrs. X].
X Mrs.X A
Rs. Rs. Rs.
Salary - 13,80,000 -
Business income 10,00,000 - -
Capital gain
Residential house property transferred by A [Rs. 7,00,000 - Rs. 1,500
being
exemption under section 10(32)] 6,98,500 - -
Gold transferred by X 4,00,000 - -
Net income 20,98,500 13,80,000 -

 WHAT IS TAX IMPLICATION OF CONVERSION OF SELF-ACQUIRED PROPERTY

INTO JOINT FAMILY PROPERTY AND SUBSEQUENT PARTITION [SEC. 64(2)]

Case 1 Where an individual (being member of a Hindu undivided family) converts (after December
31,1969) his self-acquired property into property belonging to the family. It is done by
impressing such property with the character of joint family property or throwing such
property into common stock of the family.
Case 2 When such an individual transfers his self-acquired property, directly or indirectly, to the
family otherwise than for adequate consideration.

Clubbing before partition - Income from the converted property or property transferred for less
than adequate consideration is chargeable to lax in the hands of the transferor (before partition
of the family).
ExampleX transfers his self-acquired property yielding an annual income of Rs. 60,000 to
his Hindu undivided family, consisting of X, Mrs. X, his major son Y and minor son Z.
Income of Rs. 60,000 will be included in the income of X (and not of the HUF) by virtue of
this section.
Clubbing after partition - If the property converted or transferred by an individual is
subsequently transferred amongst the members of the family, the income derived from such
converted property, as is received by tlie spouse of tlie transferor will be included in the income of
the transferor.
Example Assume in the example given that the property is partitioned equally among the
family members, income derived from converted property by Mrs. X (i.e., 1/4 of Rs. 60,000)
will be included in the income of X under section 64(2). Share of minor Z (i.e., 1/4 of Rs.
60,000) will be included in the income of X by virtue of section 64(1A) after claiming
exemption of Rs. 1,500. Income out of converted property will be taxable as under
X Mrs.X Y (major z
son) (minor
son)
Rs. Rs. Rs. Rs.
Own share out of converted property 15,000 — 15,000 —
Share of Mrs. X [under section 64(2)] 15,000 - - -
Share of minor child under section 64(1A) after exemption
ofRs. 1,500* 13,500 ______ —
Total 43,500 - 15,000 —

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CLUBBING OF INCOME
OTHER POINTS

 Income from accretion of property transferred or accumulated

income of such property - Whether included in the hands of
transferor-
In the aforesaid cases, income arising to the transferee from the property transferred is taxable
in the hands of transferor. Income arising to the transferee from the accretion of such property
or from accumulated income of such property is, however, not includible in the total income of
the transferor.
Example
X transfers a sum of Rs. 10,00,000 to his wife without any consideration. Mrs. X deposits the
money in a bank. Interest received from the bank on such deposit is taxable in the hands of X.
If, however, Mrs. X purchases a house from the accumulated interest income, rental income
received by Mrs. X is taxable in her hands and will not be clubbed with the income of X.

 Can negative income be clubbed-

For the purposes of including the income of the specified persons in the income of the
individual, the word "income" includes a loss.
In other words, if income is negative and clubbing provisions are applicable, then negative
income would be clubbed.
Example
Consider the following cases —
1. X transfers Rs. 1,00,000 to Mrs. X. By investing Rs. 1,00,000, Mrs. X sets up a
business (total investment only Rs. 1,00,000). For the previous year, income from
business is (-) Rs. 40,000. The loss of Rs. 40,000 will be included in the income of X.
2. Minor son of Y has a business. For the previous year 2017-18, loss from business is
Rs. 20,000. The loss of Rs. 20,000 will be included in the income of Y or Mrs. Y
whosoever has higher income.

 Head of income under which the clubbed income will be included-

First compute the income in the hands of the actual recipient under the relevant head of
income as if the actual recipient of income is liable to pay tax. After computing the income in
the hands of recipient, it will be included under the same head of income in the hands of
other person.

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CLUBBING OF INCOME
Problem:

X (age: 35 years, resident) gifts Rs. 10 lakh to Mrs. X (age: 31 years, resident). She deposits
the same in a bank © 8 per cent per annum. Y is minor child ofX and Mrs. X. Y lias a bank
deposit ofRs. 70,000 (rate of interest 8.25 per cent) which was gifted to him by his
grandfather. Other income ofX and Mrs. X is as follows - X: Rs. 3,50,000 [salary: Rs.
2,60,000, bank interest: Rs. 90,000], Mrs. X: Rs. 2,60,000 (interest on company deposits).
Out of interest income, Mrs. X deposits Rs. 1,000 in Public Provident Fund. X's contribution
to the recognized provident fund is Rs. 40,000.
Find out the income chargeable to tax and tax thereon for the assessment year 2018-19.

Solution: X Mrs. X Y
Rs. Rs. Rs.
Salary 2,60,000 - -
Income from other sources
- Bank interest of Mrs. X 80,000 - -
- Bank interest of Y [8.25% of Rs. 70,000 (-) Rs. 1,500] 4,275 - -
- Bank interest of X 90,000 - -
- Interest of company deposit - 2,60,000 -
Gross total income 4,34,275 2,60,000 -
Less: Deduction under section 80C 40,000 1,000 -
Net income (rounded off) 3,94,280 2,59,000 -
Income-tax 7,214 450 -
Less: Rebate under section 87A (100% of tax or Rs. 2,500,
whichever is lower, in
the case of Mrs. X) Nil 450 -
Balance 7,214 Nil -
Add: Surcharge (not applicable as taxable income does not Nil Nil -
exceed Rs. 50 lakh)
Tax 7,214 Nil -
Add: Education cess 144 Nil -
Add: Secondary and higher education cess 72 Nil -
Tax liability (rounded off) 7,430 Nil -

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 Set off and carry forward of losses
1) The process of setting off of losses and their carry forward may be covered in the following steps:
a) Inter-source adjustment under the same head of income
b) Inter-head adjustment in the same Assessment Year. This step will arise only if loss cannot be set off under
Step (a) above
c) Carry forward of a loss. This step will arise only if a loss cannot be set off under Step (a) and Step (b)
2) Inter-Source Adjustment [Sec.70]
• If the net result for any A.Y., in respect of any source under any head of income, is a loss, the assessee
is entitled to have the amount of such loss set off against his income from any other source under the
same head of income for the same A.Y.
• However the above rule has got some exceptions as follows:-
a) Loss from a specified business shall be set off only against profit of any other specified business
b) LTCL can be set off against LTCG only
c) Loss incurred in the business of owning and maintaining race horses (OMRH) can be only set off
against any income of owning and maintaining race horses
d) A loss cannot be set off against winnings from lotteries, crossword puzzles, race including horse
race, card games and other games of any sort or from gambling or betting of any form or nature
e) Loss from sale of securities
f) Loss from speculation business can be set off only against the profit in a speculation business
3) Inter – Head Adjustment [Sec.71]
• Where the net result of computation made for any A.Y. in respect of any head of income is loss, the
same can be set off against the income from other heads.
• Illustration
X has 2 non-speculative businesses- Business A and Business B. Besides he has income from house
property. The result of the three sources of income is given below:-
Particulars Business Income Property Income
Business A (-) 2,90,000
Business B 70,000
Income from house property 5,10,000
Total (-) 2,20,000 5,10,000
In the above case, business loss of Rs.2,20,000 can be adjusted against property income of Rs.5,10,000
• However the above rule has got some exceptions as follows:-
a) Loss in a speculation business cannot be set off against any other income
b) Loss computed in respect of any specified business referred to in Sec.35AD cannot be set off
against any other income
c) Losses under the head “Capital gains” cannot be set off against any income except income under
the head “Capital gains”
d) Losses from the activity of OMRH cannot be set off against any other income
e) Business Loss cannot be set off against Salary Income
f) House property Loss in excess of Rs.2,00,000 cannot be set off against income under other heads
of income [Applicable from the A.Y. 2018-19]
g) Loss cannot be set off against winnings from lotteries etc.
h) Loss from purchase of securities
• Summary
a) Loss under the head “Income from House Property” can be set off against business income, capital
gains, salary income or income from other sources
b) Business loss can be set off against property income, capital gains or income from other sources
 c) A loss under the head income from other sources other than income from OMRH can be set off
against salary income, property income, business income or capital gains
• Illustration
A taxpayer has the following income/loss –
Particulars Current Year Next Year
Business Income (-) 1,00,000 8,00,000
LTCG 2,30,000 3,00,000
In the above case the entire 1,00,000 business loss will be set off to LTCG u/s 71. Taxpayer cannot
defer the set off under any circumstances
4) Carry Forward of Loss
• If a loss cannot be set off either under the same head or under different heads, because of absence or
inadequacy of the income of the same year, it may be carried forward and set off against the income
of the subsequent year.
• Following losses can be carried forward:-
a) Loss under the head “ Income from House Property” Sec.71B
b) Loss under the head “Profits and Gains of Business or Profession” (i.e. Loss from Speculative or
Non-speculative business) [Sec. 72 and 73]
c) Loss under the head “Capital Gains” [Sec.74]
d) Loss from the activity of OMRH [Sec.74A]
5) Carry forward and set off of business loss other than speculation loss [Sec. 72]
• Loss can be set off only against business income in the subsequent year. This income from business in
the subsequent year may arise not necessarily from the same business carried earlier
• Brought forward loss of a business u/s 35AD can be set off in a subsequent year only against income
from the business under the same section
• Loss can be carried forward for 8 years. In case of specified business, loss can be carried forward for
indefinite years
• Continuity of the business from which loss has incurred is not necessary
• Losses can be carried forward by the person who incurred the loss. However there are certain
exceptions to this as follows:
a) Accumulated business loss of an amalgamating company
b) Accumulated business loss of a demerged company
c) Accumulated business loss of a proprietary concern or a firm when its business is taken over by a
company
d) Loss of business acquired by inheritance – CIT vs. Bai Maniben
• Return of loss should be submitted in time
• The above rules are not applicable for unabsorbed depreciation, capital expenditure on scientific
research and capital expenditures on family planning [Refer to the notes and discussion of PGBP]
6) Carry forward and set off of speculation loss [Sec. 73]
• If a contract for purchase or sale of any commodity, stocks or shares is periodically (or ultimately)
settled, otherwise than by actual delivery, it is known as a speculative transaction
• Speculative loss can be set off only against speculative income
• It can be carried forward for 4 years
• Continuity of the business is not necessary
• Return of loss should be submitted in time
• Speculative business loss from banned items cannot be carried forward to the next year [CIT vs. Kurji
Jinabhai Kotecha]
7) Carry forward and set off of capital loss [Sec. 74]
• LTCL can be set off only against LTCG.
 • STCL can be set off against STCG or LTCG
• Loss can be carried for 8 A.Y.s
• Filing of return is required to carry forward such losses
8) Carry forward and set off of loss from activity of OMRH [Sec. 74A]
• Loss can be carried forward for 4 A.Y.s immediately succeeding the assessment year in which the loss
was first computed
• Loss from the activity of owning and maintaining other race animals is governed by Sec.72
• Loss can be set off only against income from the business of owning and maintaining race horses
9) Carry forward and set off of loss from house property [Sec.71B]
• If the assessee incurs any loss under the head “Income from House Property” and such loss is not fully
adjusted under other heads of income in the same assessment year, then the balance loss shall be
allowed to be carried forward and set off in subsequent years
• This carry forward is limited up to 8 assessment years against income house property

Summarised table on Carry Forward of Loss

Types of Loss Income against which For how many Should the Is it necessary
carried forward loss can years loss can business be to submit
be set off in next year(s) be carried continued return of loss in
forward time
1. House Property Income under the 8 years NA No
“Income from House
Property”
2. Speculation Loss (not Speculation profit 4 years Not necessary Yes
being unabsorbed
depreciation)
3. Non-speculation business
loss
a) On account of Any income but other No time limit Not necessary No
unabsorbed than income under the
depreciation, capital head “Salaries”
expenditure on
scientific research
and family planning
b) Loss from a specified Income from specified No time limit Not necessary Yes
business u/s 35AD business u/s 35AD
c) Other remaining Any business profit 8 years Not necessary Yes
business loss (whether from
speculation or otherwise)
4. Capital Loss
a) STCL Any income under the 8 years Not necessary Yes
head “Capital Gains”
b) LTCL LTCG 8 years Not necessary Yes
5. Loss from activity of Income from the activity 4 years Yes Yes
OMRH of OMRH

***************
 Advance Payment of Taxes (non-corporate assessee)
Syllabus- when the advance tax liability arises, who is not liable to pay advance tax, computation of advance
tax, and instalments of advance tax

1. Every person is liable to pay advance tax if advance tax payable is Rs.10,000 or more.
2. A senior citizen i.e. a resident individual who is at least 60 years of age at any time during the financial year,
not having any income from business or profession, is not liable to pay advance tax
3. The following table shows the due dates for Advance Tax
Due Date of payment of advance For any Assessee (except an An assessee who declares his
tax eligible assesse given in Column ) business/professional income in
accordance with the provisions
of Sec. 44AD(1) or Sec.
44ADA(1)
On or before 15th June of the Up to 15% of advance tax payable -
previous year
On or before 15th September of the Up to 45% of the advance tax -
previous year payable
On or before 15th December of the Up to 75% of the advance tax -
previous year payable
On or before 15th March of the Up to 100% of the advance tax Up to 100% of advance tax
previous year payable payable
4. An assessee who is liable to pay advance tax is required to estimate his current income and pay advance tax
thereon without having to submit any estimate or statement of income to the assessing authorities
5. After making payment of first or second instalment of advance tax, an assessee can revise the remaining
instalment(s) of advance tax in accordance with his revised estimate of current income and pay tax
accordingly without any requirement of filing the revised estimate of advance tax
 Permissible deductions from Gross Total Income under Sections 80C to 80U
1) The following points to be kept in mind while calculating deductions u/s 80C to 80U
a) Aggregate deduction from Gross Total Income (GTI) should not exceed GTI. So if GTI is Nil, deductions
cannot be claimed
b) Deductions u/s 80-IA to 80U is admissible in respect of “net income” computed under the provisions of the
Act (i.e. income arrived at after deducting permissible deductions and adjusting current or brought forward
losses
2) Deduction in respect of Life Insurance premia, deferred annuity, contributions to Provident fund, subscription
to certain equity shares or debentures, etc. [Sec.80C]
a) This deduction is available only to an individual or HUF
b) Deduction is available on the basis of specified qualifying investments/contributions/deposits/payments
made by the taxpayer during the P.Y.
c) Deduction is available on actual payment basis
d) The maximum amount of deduction u/s 80C is Rs.1,50,000
e) The aggregate amount of deduction u/s 80C, 80CCC and 80CCD(1) [i.e. contribution by an employee (or any
other individual) towards National Pension Scheme (NPS)] cannot exceed Rs.1,50,000. However employer’s
contribution towards to NPS (up to 10% of salary) shall not be considered for the ceiling of Rs.1,50,000
3) Deduction in respect of Pension Fund [Sec. 80CCC]
a) Deduction under this section can only be availed by an individual
b) Amount should be paid or deposited under an annuity plan of the LIC of India or any other insurer for
receiving pension
c) Max. amount of deduction is Rs.1,50,000
d) The aggregate amount of deduction u/s 80C, 80CCC and 80CCD(1) [i.e. contribution by an employee (or any
other individual) towards National Pension Scheme (NPS)] cannot exceed Rs.1,50,000. However employer’s
contribution towards to NPS (up to 10% of salary) shall not be considered for the ceiling of Rs.1,50,000
4) Deduction in respect of contribution to a National Pension System (NPS) [Sec. 80CCD]
a) An individual who is employed by the Central Government (on or after 1.1.2004) will have to join NPS on
compulsory basis. Any other employee (irrespective of the date of joining employment) may become
member of NPS
b) Employer’s contribution to NPS is taxable as salary income in the year of contribution
c) Contribution by the employer to NPS is deductible in the hands of the concerned employee in the year in
which contribution is made. This deduction is limited to 10% of salary of the employee [Sec.80CCD (2)]
d) Employee’s contribution to NPS is deductible in the year in which contribution is made, which is limited to
10% of salary of employee. If the contribution is made by a person (other than an employee), deduction is
limited to 10% of the GTI (20% from the A.Y. 2018-19) [Sec.80CCD (1)]
e) The aggregate amount of deduction u/s 80C, 80CCC and 80CCD(1) [i.e. contribution by an employee (or any
other individual) towards National Pension Scheme (NPS)] cannot exceed Rs.1,50,000. However employer’s
contribution towards to NPS (up to 10% of salary) shall not be considered for the ceiling of Rs.1,50,000
f) Additional deduction u/s 80CCD(1B) amounting to Rs.50,000 is allowed to an individual assessee in respect
of any amount paid by him under the NPS.
g) For calculating 10% of Salary, Salary here means Basic + DA + Commission (if commission is calculated at a
percentage of turnovers achieved by an employee). However it excludes all other allowances and
perquisites
5) Deduction in respect of investment made under any equity saving scheme [Sec. 80CCG]
a) Assessee is a resident individual (either ROR or RNOR)
b) His GTI does not exceed Rs.12 lacs
 c) He has acquired listed shares or listed units in accordance with a notified scheme
d) The assessee is a new retail investor as specified in the above notified scheme
e) The investment is locked in for a period of 3 years from the date of acquisition in accordance with the above
scheme
f) Deduction under this section is 50% of amount invested during the P.Y. or Rs.25,000, whichever is less.
g) This deduction is available for 3 consecutive A.Y.s beginning with the A.Y. relevant to the P.Y. in which the
listed equity shares or listed units of equity oriented fund are first acquired (However Deduction is available
up to the A.Y. 2017-18)
6) Deduction in respect of Medical Insurance [Sec. 80D]
a) Taxpayer is an individual (may be resident/ non-resident or India citizen/ foreign citizen) or a HUF (may be
resident or non-resident)
b) Payment should be made by any mode other than cash. However payment on account of preventive health
check-up can be made by any mode (including cash)
c) The maximum deductible amount are as follows:-
Deduction in the case of Deduction in the
individual case of HUF
For whose benefit payment can be made Family Parents Any member of
HUF
a) Medi-claim insurance premium Eligible Eligible Eligible
a) Contribution to notified scheme Eligible - -
A
b) Preventive health check up payment Eligible Eligible -

Maximum deduction-
 General deduction (applicable in respect Rs.25,000 Rs.25,000 Rs.25,000
of a, b, c above)
 Additional Deduction (applicable only in
case (a) when medi-claim policy is taken on
the life of a senior citizen)
Rs.25,000 Rs.25,000 Rs.25,000

Medical expenditure on the health of a person Eligible Eligible Eligible

who is senior citizen if medi-claim insurance is not
B
paid on the health of such person

Maximum deduction in respect of (B) Rs.50,000 Rs.50,000 Rs.50,000

C Maximum deduction respect of (A) and (B) Rs.50,000 Rs.50,000 Rs.50,000

Other points [Sec. 80D]

 Family includes spouse of the individual and dependent children of the individual
 Parents include father and mother (dependent or otherwise). In laws not included
 The aggregate payment on account of preventive health check-up of self, spouse, dependent children, father
and mother cannot exceed Rs.5,000
 “Senior citizen” is a resident individual who is at least 60years of age at any time during the P.Y.
7) Deduction in respect of maintenance including medical treatment of a dependent being a person with
disability [Sec. 80DD]
a) A resident individual or a resident HUF can claim deduction u/s 80DD
b) Any expenditure incurred for medical treatment including nursing, rehabilitation of a dependent relative
(being a person with a disability) or any amount deposited under any approved LIC scheme or UTI for the
maintenance of such dependent relative, will attract the provisions under this section.
c) In case of an individual, “dependent” means spouse, children, parents, brothers and sisters
d) Person with disability means a person who suffers 40% or more of any of the following :-
 Blindness, low vision
 Leprosy-cured
 Hearing impairment
 Locomotor disability
 Mental retardation
 Mental illness
e) A fixed deduction is available to the tune of Rs.75,000. Higher deduction of Rs.1,25,000 is available if such
dependent relative is suffering from a severe disability (i.e. having disability of 80% or above). Deduction
under this section is available regardless of actual expenditure [ Suppose actual expenses is Rs.5,00,000, the
individual will receive either Rs.75,000 or Rs.1,25000 as the case may be as deduction]
f) For claiming the deduction the assessee should have a certificate issued by the medical authority [if the sum
is silent student should assume that this certificate has been obtained]
8) Deduction in respect of Medical treatment [Sec.80DDB]
a) A resident individual or HUF can claim deduction under this Section
b) If the above assessee incurs actual expenditures for the medical treatment of a specified disease or ailment
as prescribed by the Board (Rule 11DD) for himself or on wholly/mainly dependents like spouse, children,
parents, brothers and sisters, deduction under this section is available
c) Amount of deduction is lower of the Actual expenditure on medical treatment or Rs.40,000 (Rs.1,00,000 in
case of senior citizen)
d) If any amount has been received by the assessee under insurance from the insurer, then that amount has to
be subtracted from the amount of deduction
e) The assessee is required to obtain a prescription from a specialist doctor for the purpose of availing this
deduction
9) Deduction in respect of payment of interest on loan taken for higher education [Sec. 80E]
a) Only individuals can claim this deduction on interest paid if loan is taken by the individual for any study in
India or outside India , from a bank, financial institution or an approved charitable institution
b) Interest is deductible if loan is taken for pursuing assessee’s own education or for the education of his
relatives (i.e. spouse, children or any student for whom the individual is the legal guardian)
c) Entire interest is deductible in the year in which the assessee starts paying interest on loan and subsequent
7 years or until interest is paid in full
d) Interest should be paid out of income chargeable to tax
10) Deduction in respect of interest on loan taken for residential house property [Sec. 80EE]
a) The deduction can be claimed by an assessee who may be a resident or not
b) He has the loan for the purpose of acquiring a house property
c) Loan is taken from a bank or a house finance company, and the loan has been sanctioned during 01.04.2016
and 31.03.2017
d) The amount of loan sanctioned for residential house property does not exceed Rs.35 lakhs and the value of
the house property must not exceed Rs.50lakhs
e) The assessee should not own any residential house property on the date of sanction of loan
 f) If the above conditions are satisfied then the assessee can claim deduction in respect of interest payable on
the above loan or Rs.50,000 whichever is less
11) Deduction in respect of donations to certain funds, charitable institution [Sec. 80G]
a) Deduction under this section is available to any taxpayer (may be resident or non resident individual,
company, firm or any other person)
b) However donation to Clean Ganga Fund by a non-resident is not eligible for deduction u/s 80G
c) Deduction under this section is calculated under the following 3 steps:
 Gross qualifying amount
 Net qualifying amount
 Amount deductible
d) Gross Qualifying Amount – It is the aggregate of the donations made to any of the specified institutions.
However donation made in kind shall not be included
e) Net Qualifying Amount – It is the amount which is limited to 10% of Adjusted Gross Total Income of the
assessee
f) Adjusted Gross Total Income – The following shall be deducted from Gross Total Income to find out the
Adjusted Gross Total Income:-
 Amount deductible u/s 80C to 80U (but not Sec.80G)
 Such income on which income tax is not payable
 Long term capital gains
 Short term capital gain which is taxable u/s 111A at the rate of 15%
 Incomes referred to in Sections 115A, 115AB, 115AC, 115ACA or 115AD
g) Net qualifying amount is eligible for deduction on the basis of the below mentioned list:-
To whom the amount is donated Maximum Limit Deduction (as a percentage of net
qualifying amount)
National Defence Fund of Central Govt. NA 100%
Jawaharlal Nehru Memorial Fund NA 50%
Prime Minister’s Drought Relief Fund NA 50%
Prime Minister’s National Relief Fund NA 100%
National Children’s Fund NA 100%
Indira Gandhi Memorial Trust NA 50%
Rajiv Gandhi Foundation NA 50%
An approved university/educational institution NA 100%
Clean Ganga Fund (amount donated by NA 100%
residents only)
Swachh Bharat Kosh NA 100%
The Indian Olympic Association or to an See note below 100%
institution notified by the Central Govt. for the
development of infrastructure for sports and
games in India or the sponsorship of sports
and games in India (only donation by a
company)
National Illness Assistance Fund NA 100%
National Fund for control of Drug Abuse NA 100%
National Trust for welfare of person with NA 100%
Autism, Cerebral Palsy, Mental retardation
and Multiple disabilities
Notes:
 The above list only includes the important areas, student may refer a book for detailed list of
Donation
  Maximum Limit of Donation – If the aggregate of the sums exceeds 10% of the Adjusted Gross Total
Income, then the amount in excess of 10% of the Adjusted Gross Total Income will be ignored while
computing the aggregate of the sums in respect of which deduction is to be allowed
 Donation can be given in cash or cheque or draft. However no deduction shall be allowed u/s 80G in
respect of donation in cash of an amount exceeding Rs.2,000
12) Deduction in respect of Rent paid [Sec. 80GG]
 Only individuals can claim deduction under this section who are either self-employed or does not
get House Rent Allowance from his employer
 The individual claiming deduction under this section must give a declaration electronically in Form
No. 10BA stating the fact that he is paying a rent for a residential accommodation for himself and
family
 The following person should not own any residential accommodation at the place where the
taxpayer resides, performs the duties of his office:-
 The taxpayer himself
 His/her spouse
 His/her minor child (including minor step child and adopted child)
 HUF of which taxpayer is a member
 If the taxpayer owns a residential accommodation at a place other than the place noted above, then
in respect of that house the concession in respect of self-occupied property is not claimed by him
 The quantum of deduction under this section is the least of the following:-
 Rs.5,000 per month
 25% of the Total Income
 The excess of actual rent paid over 10% of Total Income
 Total Income here is the GTI minus LTCG, STCG u/s 111A, deductions u/s 80C to 80U (not being Sec.
80GG) and income u/s 115A
13) Deduction in respect of certain donations for Scientific Research or Rural development [Sec. 80GGA]
 An assessee not having any income under the head “Profits and gains of business or profession” can
claim deduction under this section
 Donation/contribution should be given to an approved research association, university, college or
other institution to be used for scientific research or rural development
 Contribution can also be given for the purpose eligible projects/scheme u/s 35AC or for the purpose
of notified National Fund for Rural Development or notified National Urban Poverty Eradication
Fund
 100% of the aforesaid donation or contribution is deductible
 Mode of donation or contribution can be either by cash, cheque or draft. However cash
contribution or donation should not exceed Rs.10,000
14) Deduction in respect of Royalty Income of Authors [Sec. 80QQB]
 The taxpayer should be a resident individual. He may be an Indian citizen or foreign citizen. He may
be ROR or RNOR. But he should not be a non-resident
 The above person must be an author or joint author
 The book authorised by him is work of literary, artistic or scientific nature. Books should not include
brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, test book
for schools, tracts and other publications of similar nature
 GTI of the taxpayer includes the following:-
 Royalty or copyright fees (payable in lump sum or otherwise)
 Lump sum consideration for transfer (or grant) of any interest in the copyright of the book
  The taxpayer shall have to obtain a certificate in Form No. 10CCD from the person responsible for
paying the income and furnish it electronically along with the return
 Deduction under section 80QQB is not available unless it is claimed in the return of income
 The amount of deduction is lower of the following:-
 Rs.3,00,000
 Income from Royalty as stated above
 Remittance from Abroad - Where the eligible income is earned outside India, the deduction shall be
allowed on so much of the income earned in foreign exchange, which is brought in India within 6
months from the end of the P.Y. (or within extended period as permitted by RBI or competent
authority). Moreover deduction in this respect will only be available if electronic filing in Form No.
10H is done
 Rate of Royalty not to exceed 15% - Where the income by way of royalty (or the copyright fee) is
not a lump sum consideration (in lieu of all rights of the assessee in the book) so much of the
income (before allowing expenses attributable to such income) as in excess of 15% of the value of
such books sold during the P.Y. shall be ignored
15) Deduction in respect of Royalty on Patents [Sec. 80RRB]
 The taxpayer should be a resident individual. He may be an Indian citizen or foreign citizen. He may
be ROR or RNOR. But he should not be a non-resident
 The taxpayer may be a patentee (being the true and first inventor of the invention) or he may be a
joint patentee
 The patentee receives any income by way of royalty in respect of patent, which is registered under
the Patent Act after 31.03.2003
 The patentee must furnish information in Form No. 10CCE electronically
 The quantum of deduction is lower of the following:
 Rs.3,00,000
 Income from Royalty
 Where the eligible income is earned outside India, the deduction shall be allowed on so much of the
income earned in foreign exchange, which is brought in India within 6 months from the end of the
P.Y. (or within extended period as permitted by RBI or competent authority). Form No. 10H is
required to be furnished for any foreign income
16) Deduction in respect of Interest on Deposits in Savings Accounts [Sec. 80TTA]
 Sec.80TTA provides a deduction up to Rs. 10,000 in aggregate to an assessee (being an individual or
HUF) in respect of any income by way of interest on deposits (not being time deposits) in savings
account
 From A.Y. 2019-20 the above deduction is not available in the case of a senior citizen who is eligible
to claim deduction u/s 80TTB
 Post office savings bank interest is exempt up to Rs.3,500 (in an individual account) and Rs.7,000 (in
a joint account) u/s 10(15)(i)
17) Deduction in respect of Interest on Deposits in case of senior citizens [Sec.80TTB]
 The assessee should be a resident individual who is at least 60 years of age at any time during the
P.Y.
 His income includes interest on deposits with a bank/ co-operative bank/ Post Office (it may be
interest on fixed deposits, interest on savings account or any other interest)
 The assessee under this section can claim a deduction to the tune of Rs. 50,000 or the amount of
the aforesaid interest whichever is lower
18) Deduction in the case of a person with disability [Sec. 80U]
 The taxpayer is an individual and resident in India & he suffers 40% or more of any disability (i.e.
blindness, low vision, leprosy-cured, hearing impairment, Locomotor disability, mental retardation,
mental illness)
 The taxpayer shall have a certificate issued by the medical authority
 A fixed deduction of Rs.75,000 is available or Rs.1,25,000 is allowed in respect of a person with
severe disability (i.e. having disability of 80% or above)