Unit -I

INCOME-
Income generally refers to the amount of money, property, and other transfers of value
received over a set period of time in exchange for services or products. Taxable income is gross
income minus exclusions, exemptions, and deductions allowed under the tax law.

Income is the money received in exchange for labor or products. Its definition varies based on
context, such as taxation, financial accounting, or economic analysis. In taxation, income is the
earnings subject to tax. In financial accounting, it includes revenue generated from business
operations.

In defining and counting income, states generally take into account these four factors: Countable
(base) income, including but not limited to, wages, salaries and tips; or means-tested benefits
such as SSI, Social Security and veteran's benefits.

Assessee

An income tax assessee is a person who pays tax or any sum of money under the provisions of
the Income Tax Act, 1961.Furthermore, Section 2(7) of the act defines an income tax assessee
as anyone who is required to pay taxes on any earned income or incurred loss in a single
assessment year.

Income Tax Assessee under the Income Tax Act

An income tax assessee is a person who pays tax or any sum of money under the provisions of
the Income Tax Act, 1961.

Furthermore, Section 2(7) of the act defines an income tax assessee as anyone who is required to

pay taxes on any earned income or incurred loss in a single assessment year. They can also be

referred to as each and every person for whom:

1. Is there any action being taken under the act to evaluate his income?

2. The income of another person for which he is taxed

3. Any loss incurred by him or any other person or persons entitled to a tax refund

Plan Early and Get ahead for next year’s savings

Use Tax Calculator and get your taxes estimates in mins as per new budget

Who is a ‘Person’ under the Income Tax Act?

The 7 categories of “persons” mentioned under the Income Tax Act:

Prof.DHARMADHIKARI G.A.
 Individual

 Hindu Undivided Family

 Partnership Firm

 Company

 Association of Persons (AOP) or Body of Individuals (BOI)

 Local Authority

 Artificial Judicial Body (not covered under any of the above-mentioned categories)

Normal Assessee

An individual who is liable to pay taxes for the income earned during a financial year is known as

a normal assessee. Every individual who has earned any income earned or losses incurred during

the previous financial years is liable to pay taxes to the government in the current financial year.

All individuals who pay interest/penalty or who are supposed to get a refund from the

government are categorised as normal assessees. Say, Mr A is a salaried individual who has been

paying taxes on time over the past 5 years. Then, Mr A can be considered as a normal assessee

under the Income Tax Act, 1961.

An assessee is any individual who is liable to pay taxes to the government against any kind of
income earned or any losses incurred by him for a particular assessment year. Each and every
person who has been taxed in the previous years for income earned by him is treated as an
Assessee under the Income Tax Act, 1961.

MEANING OF PREVIOUS YEAR-

The year in which income is earned is known as previous year and the next year in which income
is taxable is known as assessment year. In other words, previous year is the financial year
immediately preceeding the assessment year.

Assessment Year
The Assessment Year is the 12 month-period that comes right after the financial year. It is the
period from April 1 to March 31, during which revenue produced during the fiscal year is taxed.
For example, the Assessment Year for any revenue produced between April 1, 2022, and March
31, 2023, would be 2023-24.
Gross Income

Prof.DHARMADHIKARI G.A.
The total income earned by an individual on a paycheck before taxes and other deductions

Gross income refers to the total income earned by an individual on a paycheck before taxes and
other deductions. It comprises all incomes received by an individual from all sources – including
wages, rental income, interest income, and dividends.
How to Calculate Gross Income

The gross income of an individual is often a figure required by lenders when deciding whether or
not to advance credit to an individual. The same applies to landlords when determining whether
a potential tenant will be able to pay the rent on time. It is also the starting point when
calculating taxes due to the government.

Gross Income for an Individual

The gross income for an individual is the amount of money earned before any deductions or
taxes are taken out. An individual employed on a full-time basis has their annual salary or wages
before tax as their gross income. However, a full-time employee may also have other sources of
income that must be considered when calculating their income.

For example, any dividends on stocks held by an individual should be factored into the gross
income. Other incomes that should be considered include income from rental property
and interest income from investments and savings.

Example

Assume that John earns an annual income of $100,000 from his financial management
consultancy work. John also earns $70,000 in rental income from his real estate properties,
$10,000 in dividends from shares he owns at Company XYZ, and $5,000 in interest income from
his savings account. John’s income can be calculated as follows:

Gross Income = 100,000 + 70,000 + 10,000 + 5,000 = $185,000

Gross Income for a Business

Gross profit is an item in the income statement of a business, and it is the company’s gross
margin for the year before deducting any indirect expenses, interest, and taxes. It represents the
revenue that a company earned from selling its goods or services after subtracting the direct
costs incurred in producing the goods being sold.

Direct costs can include expenses such as labor costs, equipment used in the production process,
supply costs, cost of raw materials, and shipping costs. Taxes are not deducted since they are not
directly related to the production and sale of the product.

The formula for calculating the gross income, or gross profit, of a business is as follows:

Gross Income = Gross Revenue – Cost of Goods Sold

Residential Status

It is important for the Income Tax Department to determine the residential status of a tax paying
individual or company. It becomes particularly relevant during the tax filing season.

Prof.DHARMADHIKARI G.A.
Residential Status for Income Tax

An individual’s taxability in India is determined by his residential status under the income tax act

in India for any given fiscal year. The phrase “residential status” was coined by India’s

income tax rules and should not be confused with an individual’s citizenship in India.

An individual may be an Indian citizen but become a non-resident for a certain year. Similarly, a

foreign citizen may become a resident of India for income tax purposes in a given year.

It is also worth noting that the residential status as per income tax differs to sorts of people, such

as an individual, a corporation, a company, and so on, decided differently.

Resident Status Classifications

Income Tax Law has divided the residence status of an individual in India into three categories
based on the length of time he or she has lived in India. An individual’s residential status will

include his or her current fiscal year as well as previous years of stay.

The following categories are used to classify an individual’s residence status.

o Resident (ROR)

o Resident but Not Ordinarily Resident (RNOR)

o Non-Resident (NR)

Resident and Ordinarily Resident

Individuals are deemed to be residents of India under Section 6(1) of the Income Tax Act if they
meetthe following conditions: If he/she stays in India for 182 days or more in a fiscal year, or if

he/she stays in India for 60 days or more in a fiscal year, and if he/she stays in India for 365 days
or more in the four years immediately before the previous year and comes under ordinary

resident in income tax.

Prof.DHARMADHIKARI G.A.
According to section 6(6) of the Income Tax Act of 1961, there are two criteria under which an

individual will be considered a “Resident and Ordinarily Resident” (ROR) in India.

o If he or she spends 730 days or more in India in the seven years preceding the current

year.

o If he/she has resided in India for at least two of the ten prior fiscal years before the

current year.

Resident but Not Ordinarily Resident

When an assessee meets the following fundamental requirements, he or she will be regarded as
RNOR: If an individual stays in India for a time of 182 days or more in a fiscal year; or if he/she
stays in India for a period of 60 days in a fiscal year and 365 days or more in the four preceding

fiscal years.

An Assessee, on the other hand, will be classified as a Resident but Not Ordinarily Resident

(RNOR) if they meet one of the following fundamental conditions:

o If he/she stays in India for 730 days or more in the previous fiscal year.

o If he/she was a resident of India for at least 2 out of 10 days in the previous fiscal year.

Non Resident

An individual will be eligible for Non-Resident (NR) status if he or she meets the following

criteria:

o If an individual spends less than 181 days in India within a fiscal year.

o If an individual stays in India for no more than 60 days in a fiscal year.

o If an individual stays in India for more than 60 days in a fiscal year but does not remain

for 365 days or more in the preceding four fiscal years.

Tax Incidence

Prof.DHARMADHIKARI G.A.
Tax incidence is a measure of who ultimately pays a tax, either directly or through the tax burden.
This burden can be split between buyers and consumers, or different groups in the economy.

Revenue Receipts: Tax and Non-Tax Revenue

ReThe receipts that do not create any liabilities and do not lead to a claim on the government are

called revenue receipts. These revenue receipts are non-redeemable and can be classified into

two categories, namely: tax revenue and non-tax revenue. Tax revenues are the vital

components of revenue receipts that have been bifurcated for the long term into direct taxes,

enterprises, and indirect taxes such as customs duties, excise taxes, and service tax. Non-tax

revenues, on the other hand, are the recurring income that is earned from sources other than

taxes by the government.

ceThe receipts that do not create any liabilities and do not lead to a claim on the government are

called revenue receipts. These revenue receipts are non-redeemable and can be classified into

two categories, namely: tax revenue and non-tax revenue. Tax revenues are the vital

components of revenue receipts that have been bifurcated for the long term into direct taxes,

enterprises, and indirect taxes such as customs duties, excise taxes, and service tax. Non-tax

revenues, on the other hand, are the recurring income that is earned from sources other than

taxes by the government.ipts- Tax Revenue and Non-Tax Revenue

Prof.DHARMADHIKARI G.A.
[Type here]

UNIT –II
.

Personal Finance
How to Check Your Tax Deductions from Salary?
Form 16: Form 16 is issued by your employer and is a statement mentioning salary income
and certifying that taxes have been deducted from your salary income. When you receive
your Form 16, check whether your PAN is mentioned correctly so that the TDS reflects
against your PAN in the income tax records.

26AS: You may log in to either the TRACES website or your income tax filing account to check
your 26AS Form or Annual Information Statement. You must validate whether the deducted
amount has been deposited with the government.

Tax Saving Options for Salaried Professionals:

There are a plethora of options for you to save taxes if you earn through salary income. You
may consider a few of them listed below:

Term Insurance: A term life plan pays out the sum assured to the beneficiary in case of your
unfortunate, untimely demise. Term life plans are safety nets and will give you peace of mind
that your family will continue to sustain you even if you are not around. Amounts paid
towards premiums can be deducted from taxable income under section 80C.

Health Insurance: Health insurance is much needed in today’s times when healthcare costs
are increasing by the day. You may cover yourself and your family with a family floater
Mediclaim/health insurance plan that will cover most hospitalisation expenses. You do not
have to dip into your savings to pay those exorbitant medical bills. Health insurance premium
payments are deductible from taxable income under section 80D.

Unit Linked Insurance Plans (ULIPs): The returns from ULIPs are exempt from tax under
section 10(10D). The money paid towards premiums can be deducted, under section 80C,
from taxable income.
ULIP investments offer the following added benefits:

Assist.Prof.Dharmadhikari G.A.
[Type here]

Bonus additions for long-term investments (5 years+)

Diversified portfolio investment without affecting taxability

Tax-free partial withdrawals after five years

Invest up to the age of 99 (option available in Invest 4G ULIP from Canara HSBC Life
Insurance). You can use the same plan to build a corpus until 60, then have a tax-free pension
income for life. Upon your demise, higher of the corpus or sum assured it passed to your
legal heirs.
4. Public Provident Fund (PPF): PPF is a Central Government guaranteed investment cum tax
saving instrument, offering a 7.1% rate of interest. The amount deposited in PPF accounts is
deductible, under Section 80C, from taxable income, whereas all withdrawals are exempt
from taxes. Partial withdrawals are permitted only from the 7th year onwards.

5. National Pension Scheme (NPS): You must try and invest at least 10% of your income into
NPS to build a corpus for your retirement. On retirement, you can withdraw 60% of this
corpus and opt to get a pension from the balance of 40%. Contributions to NPS are also
deductible, under sections 80C and 80CCD(1B), from taxable income.

What Is Business Income

Business income is a type of earned income and is classified as ordinary income for tax
purposes. It encompasses any income realized as a result of an entity’s operations. In its
simplest form, it is a business entity’s net profit or loss, which is calculated as its revenue
from all sources minus the costs of doing business.

Understanding Business Income

Business income is a term commonly used in tax reporting. According to the Internal
Revenue Service (IRS), business income “may include income received from the sale of
products or services,” such as “fees received by a person from the regular practice of a
profession...[and] rents received by a person in the real estate business.”

Business expenses and business losses can offset business income, which can be either
positive or negative in any given year. The profit motive behind business income is universal
to most business entities. However, the way in which business income is taxed differs for
each of the most common types of businesses: sole proprietorships, partnerships, and
corporations.

How Business Income Is Taxed

Assist.Prof.Dharmadhikari G.A.
[Type here]

How a business is formed determines how it reports its income to the IRS and the federal
taxes it must pay. Also, some states impose taxes based on the structure of the business.

 A sole proprietorship is not a legally separate entity from its owner. Therefore,
business income from a sole proprietorship is reported on that individual’s Form
1040 tax return using Schedule C: Profit or Loss from Business.
 A partnership is an unincorporated business that is jointly owned by two or more
individuals. It reports business income on Form 1065.5 However, the partnership
itself does not pay income tax. All partners receive a Schedule K-1 and report their
share of the partnership’s income on their own individual income tax returns.627
 A limited liability company (LLC) is a hybrid between a corporation and a sole
proprietorship or partnership. Single-member LLCs report business income on Form
1040, Schedule C. LLCs with more than one member, on the other hand, use the
same form used by partnerships: Form 1065. An LLC also can opt to be taxed as a C
corporation (C-corp) or an S corporation (S-corp).8
 A corporation is a legally separate entity from any individual who owns it.
Corporations are each generally taxed as a C-corp, which means they are taxed
separately from their owners. Business income from a corporation is reported on
Form 1120.


Income from Profession

Profession may be defined as a vocation, or a job requiring some thought, skill, and special
knowledge. So profession refers to those activities where the livelihood is earned by the
persons through their intellectual or manual skill like:

Legal
Medical
Engineering
Chartered Accountant

Architectural etc.
In case of Profession
The taxpayers carrying out any of the above-mentioned professions are required to maintain
the books of accounts in accordance with rule 6F of the Income Tax Rules. These
professionals have to maintain the books of accounts if the gross receipts exceed INR 1.5
Lakhs in any of the 3 immediately preceding years.

Incomes chargeable under Business and Profession

Assist.Prof.Dharmadhikari G.A.
[Type here]

Any income earned by a taxpayer with an intention to earn a profit is covered under the head
business and profession. There are 3 types defined for Businesses/profession under the
income tax act:

Non-Speculative Businesses/Profession: Includes profits/loss from all the normal business

carried by a taxpayer. Any salary, remuneration, commission, etc received by a partner from
a partnership firm is also considered as a business and professional income of a partner.
However, the same is exempt from tax in the hands of the partner.
Speculative Businesses: As name suggests, it includes profits/loss from doing speculative
transactions i.e, without taking actual delivery of goods. Although profits from the
speculative business (eg. Share trading) are chargeable under this head, they should be
maintained and shown separately while e-filing the income tax return
Specified Businesses: It includes profits/loss from businesses that are defined under section
35AD of the income tax act. These businesses include affordable housing projects, water
fabrication manufacturing units, etc.

However, following are the incomes which are not chargeable as income from business and
profession:

Any profits from activities other than above-mentioned businesses should be shown as casual
income and will be shown under Income from Other Sources
Any income from salary, remuneration, bonus, etc. received by the director of the company is
treated as Salary Income and not as a business and professional income.
Income from Capital Gains
Capital gain is denoted as the net profit that an investor makes after selling a capital asset
exceeding the price of purchase. The entire value earned from selling a capital asset is
considered as taxable income. To be eligible for taxation during a financial year, the transfer
of a capital asset should take place in the previous fiscal year.

Financial gains against a sale of an asset are not applicable to inherited property. It is
considered only in case of transfer of ownership. According to the Income Tax Act, assets
received as gifts or by inheritance are exempted in the calculation of income for an
individual.

Buildings, lands, houses, vehicles, Mutual Funds, and jewelry are a few examples of capital
assets. Also, the rights of management or legal rights over any company can be considered as
capital assets.

Assist.Prof.Dharmadhikari G.A.
[Type here]

The following are not included under capital assets –

Any stock, consumables or raw materials that are held for the purpose of business or
profession.

Goods such as clothes or furniture that are held for personal use.
Land for agriculture in any part of rural India.
Special bearer bonds that were issued in 1991.
Gold bonuses issued by the Central Government such as the 6.5% gold bonus of 1977, 7%
gold bonus of 1980 and defense gold bonus of 1980.
Gold deposit bonds that were issued under the gold deposit scheme (1999) or the deposit
certificates that were issued under the Gold Monetisation Scheme (2015).
Types of Capital Gain

Depending on the tenure of holding an asset, gains against an investment can be broadly
divided into the following types –

Short Term Capital Gain

If an asset is sold within 36 months of acquisition, then the profits earned from it is known as
short term capital gains. For instance, if a property is sold within 27 months of purchase, it
will come under short term capital gains.

However, tenure varies in the case of different assets. For Mutual Funds and listed shares,
Long term capital gain happens if an asset is sold after holding back for 1 year.

Long Term Capital Gain

The profit earned by selling an asset that is in holding for more than 36 months is known as
long-term capital gains. After 31st March 2017, a holding period for non-moveable properties
was changed to 24 months. However, it is not applicable in case of movable assets such as
jewelry, debt-oriented Mutual Funds, etc.

Furthermore, a few assets are considered as short-term capital assets if the holding period is
less than 12 months. Here is a list of assets that are considered according to the rule
mentioned above –

Assist.Prof.Dharmadhikari G.A.
[Type here]

Equity shares of any organization listed on a recognized Indian stock exchange.

Securities like bonds, debentures, etc. that are listed on any Indian stock exchange.

UTI units, regardless of being quoted or unquoted.

that are equity-oriented, whether they are quoted or not.
Zero-coupon bonds.
All the assets mentioned above are considered as long-term capital assets if they are held for
12 months or more. In case of any asset acquired by inheritance or gift, then the period for
which an asset is owned by a previous owner is considered.
What is Income from Other Sources?
According to section 56(1) of the Income Tax (IT) Act, 1961, Income from other sources
includes all income you earn from other sources. In simple words, if any income can not be
declared under any other income head. it will come under this head. Income from Other
Sources is a category of income that includes all types of income that cannot be classified
under any other head of income, such as salary, house property, business or profession, and
capital gain.

Some common examples of income from other sources are:

Interest earned on the savings account, fixed deposits, recurring deposits, and other financial
instruments

Rental income earned from a property owned by an individual

Dividend income earned from shares and mutual funds
Income earned from winning lotteries, races, card games, other games like gambling or
betting.
Income earned from letting out machinery or equipment
Any gift received that exceeds Rs. 50,000 in a financial year.

Assist.Prof.Dharmadhikari G.A.
 UNIT-III
Exempt Income

Exempt Incomes are the incomes that are not chargeable to tax as per Income Tax law i.e. they are
not included in the total income for the purpose of tax calculation while taxable Incomes are
chargeable to tax under the Income Tax law.

Exempt income are those on which tax is not likely to be paid.Some examples are - dividend income,
agricultural income etc.

Example of Exempted Income

Agricultural Income: Income derived from agricultural activities within India is given tax exemption
under Section 10(1).

HRA (House Rent Allowance): Exemptions applicable to HRA are determined based on specific
criteria including the actual HRA received, rent payments made, and components of salary.

Income for HUF (Hindu Undivided Family): Funds received by a member from the income of an HUF
or from an impartible estate are exempt under Section 10(2).

Partner’s Share from a Firm: Profits distributed to a partner from a firm are exempt under Section
10(2A).
Interest to Non-Residents: Certain interest earnings are exempt for non-residents under Section
10(4).

Income tax rebate

Income tax rebate is a benefit provided by the government to taxpayers that allows them to reduce
their total tax liability. It is the reduction in the amount of tax to the taxpayers by the government in
order to promote savings and investment.

A tax rebate is a tax relief provided to individuals, particularly those in the lower-income bracket to
ensure that they are not burdened with income tax if their income is below a certain threshold. A tax
rebate is available on income up to Rs. 7 lakh under the new tax regime and up to Rs. 5 lakh under
the old regime.

Who is eligible for income tax rebate

Tax rebate under Section 87A of the Income Tax Act, 1961 is eligible for people whose taxable
income is less than Rs. 5 lakh in Financial Year 2022-23. The maximum amount of tax rebate of Rs.
12,500 will be given in both old as well as new tax regimes.

Deductions available to corporate assesses

Deductions allowed from Gross Total Income

After calculating the income of each head separately, to assess the income tax, add the incomes of
the different heads together, combinedly known as the Gross Total Income (GTI).

Assist.Prof.Dharmadhikari G.A.
Further, there are certain deductions under Chapter VI-A of the Income Tax Act, 1961 that can made
by the taxpayer and the resultant is called taxable income.

Basic rules –

The deduction has to be claimed via way of means of the assessee:

According to Section 80A (1) of the Income Tax Act, if the assessee requests any of the deductions
listed below and shows the circumstances necessitating the kind of deduction, the deduction will be
granted.

The total gross income should not be exceeded by deductions.

The total of deductions under Section 80C to 80U (Chapter VI-A) should not exceed the Gross Total
Income (GTI) of the assessee. Thus, the total income after deducting the deductions can be either
positive or nil. And, if the GTI is negative or nil, then no deductions will be allowed under the said
chapter.

Allowable deduction in relation to net income included in gross total income:

When any deduction is necessary to be made in relation to any income under any provision of the
Income Tax Act, the net income computed in accordance with Income Tax Act rules shall only be
recognised as the income received by the assessee and included in his gross total income.

Deductions will be not allowed to member if allowed to an AOP/BOI:

It means if a deduction is permitted to an AOP/BOI, no deduction will be allowed to the members of

such AOP/BOI.

In cases where the return is not filed within the specified time limit, benefits of certain deductions
are not to be allowed:

Unless the assessee furnishes his income tax return within the specified time limit us 139(1), d

eduction shall not be allowed under Section 80-IA/IAB/IB/IC/ID/IE.

Set Off and Carry Forward of Losses

Profit and losses are two sides of a coin. Losses, of course, are hard to digest. However, the Income-
tax law in India does provide taxpayers some benefits of incurring losses too. The law contains
provisions for set-off and carry forward of losses which are discussed in detail in this article.

Set Off of Losses

Set off of losses means adjusting the losses against the profit or income of that particular year.
Losses that are not set off against income in the same year can be carried forward to the subsequent
years for set off against income of those years. A set-off could be an intra-head set-off or an inter-
head set-off.

Assist.Prof.Dharmadhikari G.A.
Intra-head Set Off

The losses from one source of income can be set off against income from another source under the
same head of income.

For eg: Loss from Business A can be set off against profit from Business B, where Business A is one
source and Business B is another source and the common head of income is “Business”.

Exceptions to an intra-head set off:

Losses from a Speculative business will only be set off against the profit of the speculative business.
One cannot adjust the losses of speculative business with the income from any other business or
profession.

Loss from an activity of owning and maintaining race-horses will be set off only against the profit
from an activity of owning and maintaining race-horses.

Long-term capital loss will only be adjusted towards long-term capital gains. However, a short-term
capital loss can be set off against both long-term capital gains and short-term capital gain.

Losses from a specified business will be set off only against profit of specified businesses. But the
losses from any other businesses or profession can be set off against profits from the specified
businesses.

Inter-head Set Off

After the intra-head adjustments, the taxpayers can set off remaining losses against income from
other heads.

Eg. Loss from house property can be set off against salary income.

Given below are few more such instances of an inter-head set off of losses:

Loss from House property can be set off against income under any head upto a limit of Rs. 2 lakhs.

Business loss other than speculative business can be set off against any head of income except
income from salary.

One needs to also note that the following losses can’t be set off against any other head of income:

a. Speculative Business loss

b. Specified business loss

c. Capital Losses

Assist.Prof.Dharmadhikari G.A.
d. Losses from an activity of owning and maintaining race-horses

e. Losses from sources of Lotteries, crosswords, Puzzles, card games other gambling.

f. Losses from exempted sources of income are not eligible for adjustment against taxable income.

Carry Forward of Losses

After making the appropriate and permissible intra-head and inter-head adjustments, there could
still be unadjusted losses. These unadjusted losses can be carried forward to future years for
adjustments against income of these years. The rules as regards carry forward differ slightly for
different heads of income.

Tax Deducted at Source

TDS full form stands for Tax Deducted at Source. It is the tax amount deducted by the employer from
the taxpayer which is deposited to the IT Department on behalf of the taxpayer. It is a certain
percentage of one’s monthly income which is taxed from the point of payment.

According to the Income Tax Act 1961, every individual or organisation is liable to pay taxes if their
income is above a certain threshold.

TDS full form is Tax Deducted at Source. Under this mechanism, if a person (deductor) is liable to
make payment to any other person (deductee) will deduct tax at source and transfer the balance to
the deductee.

What is Tax Deducted at Source (TDS)?

Tax Deducted at Source is a type of advance tax that the Government of India levies on a periodic
basis. The overall deducted TDS is claimed as a tax refund after a taxpayer files the Income Tax
Return.

Self Assessment Tax

Self Assessment Tax means the amount that an assessee pays on the requisite income after
deducting Advance Tax and TDS for the given financial year. Individuals who are required to file their
income tax returns are liable to pay their SAT beforehand. A taxpayer can file SAT by submitting
Challan 280, also used for e-filing income tax.

There is no specific date for paying SAT as it is computed at the end of a financial year. Hence, there
is no deadline associated with the payment of such tax. Nevertheless, taxpayers must make SAT
payments before filing their respective income tax returns to avoid paying interest on the tax
amount.

Why Should One Pay Self Assessment Tax?

SAT has to be paid by individuals who earn income from other sources. The tax amount is levied for
the following reasons:

Assist.Prof.Dharmadhikari G.A.
There might be some instances where a taxpayer fails to take an income into consideration while
paying advance tax.

Sometimes the TDS amount deducted might be inaccurate.

A salaried employee may earn a substantial income from investments such as fixed deposits and
mutual funds which may not be known to the employer.

Hence, self assessment in income tax is essential to avoid inaccuracies in relation to the taxable
income.

Calculation of Self Assessment Tax

SAT can be calculated by using the following formula:

[(B+C) – (D+E+F+G)]

Where,

B = Total amount of tax payable

C = Interest payable under section 234A/234B/234C

D= Relief on the tax payable under Section 90/90A/91

E= MAT Credit under Section 115JAA

F= Amount of TDS/TCS

G= Advance Tax

Please note that interest under Section 234A will only be included in case of late filing of income tax
returns; whereas, interest under Section 234B/234C will only be paid in case of late payment of
Advance Tax.

ITR filing

Assist.Prof.Dharmadhikari G.A.
Income Tax Return or ITR is a form used to show your gross taxable income for the given fiscal year.
The form is used by taxpayers to formally declare their income, deductions claimed, exemptions and
taxes paid. Therefore, it calculates your net income tax liability in a fiscal year.

Income Tax Return Filing

An Income Tax Return (ITR) is a form primarily used for filing details about your income and the
applicable tax to the Income Tax Department of India. The Indian income tax laws state that the IT
return should be filed by every individual and business earning an income. It assists in declaring
taxable income, tax liability, and tax deductions claims, if any.

It is mandatory for Firms or corporations, Hindu Undivided Families (HUFs), and self-employed or
salaried individuals to file income tax returns before the due date otherwise, a penalty will be levied
for late filing. Understanding what is Income Tax Return ensures compliance with Indian tax laws.

What is Income Tax Return Filing

ITR filing is the process through which a taxpayer must record his total income earned during the
fiscal year. Individuals can file their taxes through the Income Tax Department's official portal. It has
been notified in seven different forms.

Assist.Prof.Dharmadhikari G.A.
 UNIT-IV
Tax planning
Tax planning refers to planning your finances to minimise taxes by utilising deductions, exemptions,
and other similar provisions from The Income Tax Act, 1961.

Tax planning refers to the strategic arrangement of finances to minimise tax liabilities while
complying with tax laws. It involves analysing income, expenses, investments, and other
financial activities to identify potential tax-saving opportunities.

The three most popular types of tax planning are short-term tax planning, long-term tax
planning, and permissive tax planning. Short-term tax planning focuses on minimising tax
liability for the current financial year, while long-term tax planning involves comprehensive
financial planning for the future. Permissive tax planning involves utilising any and all
exemptions, deductions, and credits provided by the tax laws.

Tax planning is the analysis of a financial situation or plan to ensure that all elements work
together to allow you to pay the lowest taxes possible. A plan that minimizes how much you
pay in taxes is referred to as tax efficient. Tax planning should be an essential part of an
individual investor's financial plan. Reduction of tax liability and maximizing the ability to
contribute to retirement plans are crucial for success.

Understanding tax planning for businesses

Everyone wants to minimise their tax liabilities, and businesses are no different. Tax
Planning for Businesses is the process that helps them organise their financial structure so
they have to pay the least tax possible legally. This structuring includes assessing the costs,
profits, operations, investments, assets, liabilities, and other aspects to strategically optimise
the overall tax burden. Businesses are important for a country’s development. They
contribute to economic progress and they create employment. The government recognises
their importance and provides incentives and various tax benefits to encourage business
growth.

According to the Income Tax Act, businesses can benefit from many provisions such as
deductions for capital expenditures, incentives for exports, favourable tax treatment for
certain types of income, and more. The smartest move for new businesses is to kick off tax
planning right from the start. The first few months and years are important and tax can have a
huge impact on the bottom line.

Assist.Prof.Dharmadhikari G.A.
Tax planning is a systematic financial procedure to look at the taxation options to determine
when and which way the business is to be conducted so that the taxes can be eliminated or
reduced. Tax planning is extremely important for new business entities that are to be set up in
India and has become extremely important after the increasing market competition and the
post-pandemic consequences. Professional tax planning is important for a new business to
reach the desired goal.

What is the importance of tax planning for a new business?

Tax planning for a new business helps the entrepreneurs and the business personnel in
attaining the financial goals. To conduct the business it is not only enough to invest a good
amount of funds the organization is also required to maintain a positive flow of the money
too. From the several benefits of new business tax return filings, here we have noted down a
few:

Track the expenses- The most important thing to plan is to follow the areas where you have
to invest as well as spend funds. You can maintain a record of such through bookkeeping and
it would be helpful in terms of controlling the cash flow in a better way to save taxes.

Conduct inclusive research- Tax saving, as well as tax planning, is complicated and very
challenging to be executed. At first, there is a need for research on the taxation laws,
guidelines, and amendments. You can take assistance from any tax planning consultancy as
well.

Classify the business- As per the Income Tax Act, 1961 of the Indian Government the slab
rates that are effective for different categories of business are different. By selecting the
different types of company registration like Private Limited Company, SOle proprietorship,
One Person Company and you can effectively save the taxes

Tax filing deadlines- When you complete the Income-tax return filing within the government
guidelines you avoid the late fines and help in saving the taxes for the businesses. It is
advisable to be in touch with experts like we have at IndiaFilings to manage the taxation part.

Home Office- Many entrepreneurs start the journey of their business by using their home as a
workplace. Sections 32 and 37 of the Act claim that the owners can claim a tax deduction on
the expenses that are related to office costing, utilizing bills, property laws, and mortgages.
The growing Indian Economy and the available manpower have to lead the way to
incorporate a new business with not much difficulty. But it's better to opt for tax planning to
run a business successfully. The marketplace becomes competitive and it is not an easy task

Assist.Prof.Dharmadhikari G.A.
to beat the competition and grow in the market. With the technical boom, the business is
marking its presence in search engines and becoming quite competitive and is not an easy
task to beat the competition and grow the business at the same time.

Financing Decision

Decisions, decisions. Running an organization must involve taking thousands of decisions a

day as you can imagine. The decisions that have to be taken with respect to the capital
structure are known as Financing Decision.

Financing Decisions

If carefully reviewed what constitutes a business, we will come to the conclusion that there
are two things that matter, money and decision Without money, a company won’t survive and
without decisions, money can’t survive. An administration has to take countless decisions in
the lifetime of the company. Thus, the most important ones are related to money. The
decisions related to money are called ‘Financing Decisions.’

There are three decisions that financial managers have to take:

Investment Decision

Financing Decision and

Dividend Decision

Browse more Topics under Financial Management

Meaning of Business Finance

Financial Management and Objectives of Financial Management

Financial Planning

Capital Structure

Investment Decision

These are also known as Capital Budgeting Decisions. A company’s assets and resources are
rare and must be put to their utmost utilization. A firm should pick where to invest in order to
gain the highest conceivable returns.This decision relates to the careful selection of assets in

Assist.Prof.Dharmadhikari G.A.
which funds will be invested by the firms. The firm puts its funds in procuring fixed assets
and current assets. When choice with respect to a fixed asset is taken it is known as capital
budgeting decision.

Factors Affecting Investment Decision

Cash flow of the venture: When an organization starts a venture it invests a huge capital at
the start. Even so, the organization expects at least some form of income to meet everyday
day-to-day expenses. Therefore, there must be some regular cash flow within the venture to
help it sustain.

Profits: The basic criteria for starting any venture is to generate income but moreover profits.
The most critical criteria in choosing the venture are the rate of return it will bring for the
organization in the nature of profit for, e.g., if venture A is getting 10% return and venture В
is getting 15% return then one must prefer project B.

Investment Criteria: Different Capital Budgeting procedures are accessible to a business

that can be utilized to assess different investment propositions. Above all, these are based on
calculations with regards to the amount of investment, interest rates, cash flows and rate of
returns associated with propositions. These procedures are applied to the investment
proposals to choose the best proposal.

Dividend Decision

Dividends decisions relate to the distribution of profits earned by the organization. The major
alternatives are whether to retain the earnings profit or to distribute to the shareholders.

Factors Affecting Dividend Decisions

Earnings: Returns to investors are paid out of the present and past income. Consequently,
earning is a noteworthy determinant of the dividend.

Dependability in Earnings: An organization having higher and stable earnings can

announce higher dividend than an organization with lower income.

Balancing Dividends: For the most part, organizations attempt to balance out dividends per
share. A consistent dividend is given every year. A change is made, if the organization’s
income potential has gone up and not only the income of the present year.

Assist.Prof.Dharmadhikari G.A.
Development Opportunity: Organizations having great development openings if they hold
more cash out of their income to fund their required investment. The dividend announced in
growing organizations is smaller than that in the non-development companies.

Other Factors

Cash flow: Dividends are an outflow of funds. To give the dividends, the organization must
have enough to provide them, which comes from regular cash flow.

Shareholders’ Choices: While announcing dividends, the administration must remember the
choices of the investors. Some shareholders want at least a specific sum to be paid as
dividends. The organizations ought to consider the preferences of such investors.

Taxes: Compare tax rate on dividend with the capital gain tax rate that is applicable to
increase in market price of shares. If the tax rate on dividends is lower, shareholders will
prefer more dividends and vice versa.

Stock market: For the most part, an expansion in dividends positively affects the stock
market, though, a lessening or no increment may negatively affect the stock market.
Consequently, while deciding dividends, this ought to be remembered.

Access to Capital Market: Huge and organizations with a good reputation, for the most part,
have simple access to the capital market and, consequently, may depend less on retained
earnings to finance their development. These organizations tend to pay higher dividends than
the smaller organizations.

Contractual and Legal Constraints: While giving credits to an organization, once in a while,
the lending party may force certain terms and conditions on the payback of dividends in
future. The organizations are required to guarantee that the profit payout does not abuse the
terms of the loan understanding in any manner.

Remuneration

What does remuneration mean?

Remuneration refers to the total compensation someone receives in exchange for their
services or work for a company or organization. In addition to pay, it includes an employee’s
nonfinancial benefits, such as mobile phones, company cars, travel allowances and free or
discounted food and drinks.

Assist.Prof.Dharmadhikari G.A.
There are three categories of employment-related remuneration:

Fixed remuneration is predetermined and won’t change, regardless of circumstances. For

example, a customer service clerk who makes $60,000 per year.

Variable remuneration is based on the work that is performed. For example, a sales
representative who can generate $1 million in sales.

Incidental remuneration isn’t tied to specific tasks or responsibilities, so even those without
formal employment agreements can be eligible. For example, an independent contractor who
receives reimbursement for travel expenses.

How remuneration affects taxes

With the exception of health insurance, all types of remuneration are taxable. While
determining the value of an employee’s base pay, cash incentives and bonuses is usually
straightforward, it can be challenging to calculate the value of noncash benefits. The Internal
Revenue Service (IRS) offers a Fringe Benefit Guide to help you understand the value of
nonfinancial benefits.

Anything that an employee receives in the form of compensation is taxable, so you may be
required to withhold taxes and report the value on the employee’s W-2 form. A certifiedtax
professionalcan help you understand how to pay and report remuneration for your employees.

Assist.Prof.Dharmadhikari G.A.
 UNIT-V
Tax planning with respect to Dividends-

“Navigate tax planning for dividends in Assessment Years 2021-2025. Understand key provisions,
definitions, tax rates, TDS, and recent amendments for informed financial decisions.” Tax planning
with respect to Dividends for the Assessment Year 2021-2022 and Assessment Year 2022-2023 and
Assessment Year 2023-2024 and Assessment Year 2024-2025 I hereby try to give a simplified version
of Tax planning with respect to Dividends for the Assessment Years 2020-2021, 2021-2022 and
Assessment Year 2022-2023 and Assessment Year 2023-2024 and Assessment Year 2024-2025.
Assessment Year 2021-2022 and Assessment Year 2022-2023 and Assessment Year 2023-2024. You
have to understand the following provisions to plan your dividend decisions. Definition of Dividend
(sec 2(22)) Dividend includes:—

(a) Any distribution which entails the release of all or any part of the assets of the company;

(b) Any distribution of debentures, debenture-stock, or deposit certificates and any distribution to
its preference shareholders of shares by way of bonus;

(c) Any distribution made to the shareholders on its liquidation;

(d) Any distribution on the reduction of its capital

(e) Any payment by a closely –held company by way of advance or Loan to a shareholder (being a
person who is the beneficial owner of shares) having at least 10% of the voting power or to any
concern in which such shareholder is a member or a partner and is beneficially entitled to not less
than 20% of income of the concern. Advances /loans received by HUF from a closely-held company is
taxable as deemed dividend u/s 2(22) (e) if Karta, who is shareholder in lending company has
substantial interest in the HUF even if HUF is not a registered shareholder. If a person takes trade
advances, which are in the nature of commercial transactions would not fall within the ambit of the
word ‘advance’ in Sec 2(22) (e) of the Act. Hence, not liable to tax. Income Tax by Company on
dividend Sec 115-O of Income Tax Act 1961—-

.Notwithstanding anything contained in any other provisions of this Act and subject to the provisions
of this section, in addition to the income -tax chargeable in respect of the total income of a domestic
company for any assessment year, any amount declared, distributed or paid by such company by
way of dividends (whether interim or otherwise ) on or after the 1 st day of April 2003 but on or
before the 31st day of March,2020) , whether out of current or accumulated profits shall be charged
to additional income-tax (hereafter referred to as tax on distributed profits )at the rate of 15%.
Provided that in respect of dividend referred to in sub-clause (e) of clause (22) of section 2, this
subsection shall have effects as if for the words “fifteen per cent “, the words “thirty percent had
been substituted”. Now no Dividend Distribution Tax is to be paid by the company.

Tax on Distributed Income to unit holders –Sec 115 R. Now the company has no liability to pay
income tax on distributed income. Dividends Received is an exempted Income in the hands of
customer as follows (up-to 31/03/2020 only). Sec 115 BBDA of Income Tax Act 1961. If a person
resident in India, receives dividends in aggregate exceeding ten lakh rupees from a domestic
company or companies on or before 31st day of March 2020 he will be liable to tax as follows: i.@
10% on exceeding ten Lakh Rupees plus surcharge ii. Plus health &education cess@4% Tax planning

Assist.Prof.Dharmadhikari G.A.
through issue of Bonus Debentures instead of Bonus Shares (From the point of view of company)
Following are the important points you have to understand in that connection

i. The interest on debentures is deductible in computing Income

ii. A company can issue Bonus debentures if it wants to distribute deferred dividend. No
Dividend Distribution Tax [Amendment to sections 115O, 115R, 10(34), 10(35) etc.] It has
been decided to remove the concept of Dividend Distribution Tax u/s 115-O (from
Companies) and 115R (From Mutual Funds etc ). The amendment is applicable to dividend
received after 01/04/2020.Now dividend is taxable in the hands of recipients. Dividend is
not exempt in the hands of recipient u/s 10(34) and 10(35). Dividend taxable in the hands of
the recipient as per their regular income, without any exemption ceiling. The previous
ceiling was Rs.10 Lakhs. Whereas if dividend is taxable under the head other sources, the
assesse can claim deduction of only interest expenditure which has been incurred to earn
that dividend income to the extent of 20% of total dividend income. No deduction shall be
allowed for any other expenses including commission or remuneration paid to a banker or
any other person for the purpose of realising such dividend. Tax rate on dividend income to
the Shareholders The dividend income shall be chargeable to tax rat normal tax rates as
applicable in case of an assesse except certain cases. In case of a non-resident shareholder,
the provisions of Double Taxation Avoidance Agreements (DTAAs) and Multilateral
Instrument (MLI) shall also come into play. New Section 80M. Where the gross total income
of a domestic company in any previous year includes any income by way of dividends from
any other domestic company or a foreign company or business trust, there shall, in
accordance with and subject to the provisions of this section, be allowed in computing the
total income of such domestic company, a deduction of an amount equal to so ,much of the
amount of income by way of dividends received from such other domestic company or
foreign company or business trust as does not exceed the amount of dividend distributed by
it on or before the due date. TDS u/s 194. TDS u/s 194 to be deducted by companies on
dividend exceeding the limit of Rs 5000 per payee.

iii. The TDS is to be deducted from the amount of such dividend, income-tax at the rate of 10%.
Inter-Corporate Dividend Taxable subject to sec 80 M Special Provisions relating to tax on
distributed income of Domestic Company from Buy -Back of Shares Sec 115 QA
Notwithstanding anything contained in any other provisions of this Act, in addition to the
income-tax chargeable in respect of the total income of a domestic company for any
assessment year, any amount of distributed income by the company on buy-back of shares
from a shareholder shall be charged to tax and such company shall be liable to pay
additional income tax at the rate of 20% on the distributed income. Distributed Income
means the consideration paid by the company in buy-back of shares as reduced by the
amount, which was received by the company for issue of such shares, determined in the
manner as may be prescribed. Special provisions with respect to customers in the case of
Buy -Back of Shares Sec 10(34A) Any income arising to an assesse, being a shareholder, on
account of buy-back of shares by the company as referred to in section 115 QA-Exempted
Income.

Assessment Year 2024-2025. In addition to the above provisions, following amendments have been
made in the Assessment Year 2024-2025. After clause (34A), the following clause shall be inserted
with effect from the 1st day of April, 2024, namely:— ‘(34B) any income of a Unit of any
International Financial Services Centre, primarily engaged in the business of leasing of an aircraft, by

Assist.Prof.Dharmadhikari G.A.
way of dividends from a company being a Unit of any International Financial Services Centre
primarily engaged in the business of leasing of an aircraft. Explanation.—For the purposes of this
clause, “International Financial Services Centre” shall have the same meaning as assigned to it in
clause (q) of section 2 of the Special Economic Zones Act, 2005;’

Undistributed profits tax

Greetings, students. Today, we will be discussing a key concept in finance, namely, the concept of
accumulated earnings tax. This is an annual tax that is levied on the undistributed portion of a
corporation's profits or surplus, in addition to the regular corporate income tax. Essentially, it is a tax
on the retained earnings of a company. Let's delve deeper into this topic to gain a better
understanding.

Tax liabilities

Tax liabilities are the entire amount of tax outstanding within a concerned time horizon, payable to
taxing entities like central or state government or local authorities like a municipality. Individuals and
institutions are liable to pay taxes on their earned income.

A federal tax liability is an amount that's owed to the government in taxes. It can include income
taxes on earnings and capital gains taxes on assets. Both are based on brackets, a percentage of the
money earned, and brackets are determined by various factors.

A liability can be owed by an individual, business, or other entity. It can be owed to a state or local
tax authority as well as to the federal government.

You generally have a tax liability when you earn income or generate profits by selling an investment
or other asset. It's possible to have no tax liability if you don't meet the income requirements or
brackets to file taxes.
Federal, state, and local governments impose taxes and use the money that's raised to pay for
services such as repairing roads, funding social programs, and maintaining a military.

Companies withhold income taxes, Social Security taxes, and Medicare taxes from employees' wages
and send the money to the federal government to cover their tax liabilities

Undistributed profits tax

Today, we will be discussing a key concept in finance, namely, the concept of accumulated earnings
tax. This is an annual tax that is levied on the undistributed portion of a corporation's profits or
surplus, in addition to the regular corporate income tax. Essentially, it is a tax on the retained
earnings of a company. Let's delve deeper into this topic to gain a better understanding.

This is an annual tax that is levied on the undistributed portion of a corporation's profits or surplus,
in addition to the regular corporate income tax. Essentially, it is a tax on the retained earnings of a
company.

Assist.Prof.Dharmadhikari G.A.
What is tax liability?

The Indian Government taxes your income every year. However, you only have to pay the tax at the
end of the financial year. Tax liability is the amount of money you owe the Indian Government at the
end of the year.

Tax liability is a term usually used by businesses. This is the amount your business is expected to pay
at the end of the financial year.

Various factors are involved in calculating tax liability using the tax liability formula. Businesses can
also reduce their tax liability. Claiming exemptions or tax credits under the respective clauses are
some ways you can reduce your tax liability.

When calculating your business’s tax liability, you need to consider all sources of income. This makes
it confusing for many people to calculate tax liabilities. The tax liability formula is simple.

How to calculate tax liability?

1. Determine your income.

To calculate your salary income, you need all your salary slips. You will also need form 16S. Calculate
all your allowances, bonuses and compensations. Most full-time employees are provided medical.
But you may also receive others such as house rent allowance, travel expenses, etc.

Deduct the exemptions that apply to you. You are also allowed a standard deduction of 50,000/- on
your annual salary. Deferred tax liability does not apply here.

2. Calculate your income from other sources.

Calculate the income you receive from other sources. For example, if you have rented out your
properties, the rent is considered income. You can also add other similar incomes. If you rent one or
more rooms on your existing property, you should include that in the income. For example, some
businesses may rent out one or more floors in their office building.

3. Calculate your capital gains

. Capital gains are the income you earn from selling shares, mutual funds, or bonds. Capital gains can
be either short-term or long-term. Short-term capital gain is the profit you make by selling shares,
mutual funds or bonds less than one year after purchasing. You can claim any deductions under
Section 54 and its sub-sections that you are applicable for. The remaining amount is the capital gains
income.

4. Calculate your business income.

If you run a profitable business, calculate the net profit. Deduct the expenses and allowances from
the net total. Refer to the applicable allowances under the clauses of the IT Act.

Deferred tax liability is the net difference between the company’s income and earnings before tax.
Subtract your earnings before tax from your company’s net income and multiply it by the expected
tax rate.

5. Determine if you are missing any sources of income.

After calculating all income sources, determine if you have missed any sources. For example, declare
if you have received any additional money. If you have won a lottery, you should provide the exact

Assist.Prof.Dharmadhikari G.A.
figure. Similarly, you also need to include if you have received money as a gift. Providing the correct
amounts will help you simplify the process of income tax filing.

6. Calculate your total income.

Calculate your total income by adding all the values you have calculated in Steps 1 to 5. If you earn
income from only one source (for example, you are a salaried person), then you need not calculate
all these.

All money you earn in the financial year should be declared when you file your taxes.

7. Deductions you can claim under chapter VI A.

These are the deductions related to investments under Sections 80C to 80U of the Income Tax Act. It
includes:

Public Provident Fund (PPF)

Equity Linked Savings Scheme (ELSS)

National Pension System Fund (NPS)

Unit Linked Insurance Plan (ULIP)

National Savings Certificate (NSC)

Voluntary Provident Fund (VPF)

Life insurance policies

Health insurance policies.

You can deduct this amount if you invest in any of these schemes. Before deducting, calculate how
much money you invest in these schemes per year. For example, you may have life insurance
policies and health insurance policies but not ELSS funds. You can also invest in these funds to get
deductions.

The total exempt amount allowed is INR 1.5 lakh.

8. Calculate your net taxable income.

Your net taxable income is the gross income (step 6) minus deductions (Step 7). The final amount is
the final taxable income. The income tax rate on this amount will be according to the amount. You
have to check the income tax slabs.

9. Determine your income slab.

You have to determine your income tax slabs. Using this slab, you can calculate the tax liability.
Before using the income tax formula, understand your slabs.

What are the income tax slabs?

In the table below, find your category. For example, if you are a senior citizen whose net income of
INR 4,00,000, the income tax rate is 5%. Use your net income (amount calculated in step 8) to
determine your income tax rate.

Assist.Prof.Dharmadhikari G.A.