Module 1 – Profits and Gains of Business and Profession

Introduction-Meaning and definition of Business, Profession and Vocation. - Expenses Expressly

allowed - Expenses Expressly Disallowed - Allowable losses - Expressly disallowed expenses
and losses, Expenses allowed on payment basis. Problems on computation of income from
business of a sole trading concern - Problems on computation of income from profession:
Medical Practitioner - Advocate and Chartered Accountants.

Meaning : Business, Profession, Vocation.

Business:

 Defined under Section 2(13) of the Income Tax Act, 1961.

 Includes any trade, commerce, manufacturing activity, or any adventure or concern in the
nature of trade, commerce, or manufacture.
 Essentially, it refers to activities carried out for profit or gain.

Profession:

 Defined under Section 2(36) of the Income Tax Act, 1961.

 Includes occupations that require intellectual skills or manual skills controlled by
intellectual skills.
 Examples include doctors, lawyers, architects, accountants, etc.

Vocation:

 Not explicitly defined in the Income Tax Act.

 Refers to any activity pursued for earning a livelihood.
 Can include activities like acting, music, writing, etc.

Expenses Expressly Allowed

These are expenses that are explicitly permitted as deductions while computing the taxable
income under the head "Profits and Gains of Business or Profession." Some of the key allowed
expenses include:

 Rent: Payment of rent for business premises.

 Repairs and Maintenance: Expenditure on repairs and maintenance of assets used for
business.
  Salaries and Wages: Payments made to employees.
 Depreciation: Deduction for wear and tear of tangible assets and amortization of
intangible assets.
 Interest: Interest on borrowed capital used for business purposes.
 Insurance Premium: Payments for insuring business assets.
 Commission and Brokerage: Payments made to agents or brokers for business-related
services

Expenses Expressly Disallowed

Certain expenses are not allowed as deductions under the Income Tax Act. These include:

 Personal Expenses: Any expenditure of a personal nature.

 Capital Expenditures: Expenditures related to the acquisition of capital assets.
 Provisions for Future Losses: Provisions for contingent liabilities.
 Illegal Payments: Payments such as bribes, kickbacks, or other illegal payments.
 Tax Penalties: Penalties and fines paid to government authorities.

Allowable Losses

Allowable losses are those that can be deducted from the income of the business. These include:

 Bad Debts: Debts that have become irrecoverable can be written off.
 Loss on Sale of Assets: Loss incurred on the sale of business assets.
 Expenses on Scientific Research: Expenditure on scientific research related to the
business.
 Unabsorbed Depreciation: Depreciation that could not be fully set off in previous years.

Expressly Dissalowed expenses and Losses

Certain expenses and losses are expressly disallowed under the Income Tax Act:

 Provision for Bad Debts: Only actual bad debts written off are allowed, not provisions.
 Expenses Incurred in Connection with Income Exempt from Tax: Expenses related
to earning tax-exempt income.
 Expenses on Advertisements in Souvenirs of Political Parties: Disallowed under
Section 37(2B).
 Provision for Gratuity: Unless a provision is created for approved gratuity funds.

Expenses allowed on payment basis

Certain expenses are allowed as deductions only when they are actually paid. These include:

 Interest on Loans from Public Financial Institutions: Allowed only on an actual

payment basis.
 Employer’s Contribution to Provident Fund and Superannuation Fund: Allowed
when paid.
 Leave Encashment: Allowed on an actual payment basis.
 Bonus or Commission to Employees: Deductible only when actually paid.
 Taxes: Certain taxes, such as sales tax, service tax, etc., are allowed only when paid.

These provisions ensure that businesses and professions can accurately compute their taxable
income while adhering to the regulations set forth by the Income Tax Act.

Module 2 – Capital Gains

Introduction - Basis for charge - Capital Assets - Types of capital assets – Transfer -
Computation of capital gains – Short term capital gain and Long term capital gain - Exemption
under section 54, 54B, 54EC, 54D, 54F, and 54G. Problems covering the above sections.

Introduction

Capital gains tax is a tax levied on the profit that an individual or entity realizes when they sell
an asset for more than its purchase price.

Basis of Charge

Capital gains tax is charged based on the profit earned from the transfer of a capital asset during
the previous year.

Capital Assets

Capital assets include property of any kind held by a taxpayer, whether or not connected with
their business or profession.

Types of Capital Assets

Capital assets can broadly include immovable property, securities (like stocks and bonds),
jewellery, and even intellectual property rights.
Transfer

Transfer refers to the sale, exchange, relinquishment, or extinguishment of rights in a capital

asset.

Computation of Capital Gains

Capital gains are computed by deducting the cost of acquisition and improvement, and expenses
incurred in connection with the transfer, from the full value of consideration received or
accruing.

Short Term Capital Gains (STCG)

STCG applies to assets held for a period of up to 3 years (for movable assets like shares and
securities) and up to 2 years (for immovable property).

Long Term Capital Gains (LTCG)

LTCG applies to assets held for more than the specified period (3 years for movable assets and 2
years for immovable property) and is taxed at a lower rate than STCG.

Exemptions under Section 54

Section 54 provides exemptions from capital gains tax on the sale of residential property under
certain conditions. Here are some subsections:

 Section 54B: Exemption for capital gains on sale of agricultural land.

 Section 54EC: Exemption for capital gains invested in specified bonds.
 Section 54D: Exemption for capital gains on compulsory acquisition of land and
buildings.
 Section 54F: Exemption for capital gains on sale of any long-term asset other than a
residential house.

Section 54G

Section 54G provides exemption for capital gains arising on transfer of assets in cases of shifting
of industrial undertakings from urban areas to rural areas.

Module 3 – Income from other sources

Introduction - Incomes taxable under Head income other sources – Securities - Types of
Securities - Rules for Grossing up. Ex-interest and cum-interest securities. Bond Washing
Transactions - Computation of Income from other Sources.

Incomes under Other Sources

Income from Other Sources typically includes any income that does not fit under the heads of
Salary, House Property, Business or Profession, or Capital Gains. It covers a wide range of
incomes that are not specifically categorized under other heads.

Securities

Securities refer to financial instruments that can be traded, such as stocks, bonds, debentures, and
derivatives.

Types of Securities

Common types of securities include:

 Equity Shares: Represent ownership in a company.

 Debentures: Debt instruments issued by companies or government entities.
 Government Securities: Bonds issued by the government to raise funds.
 Mutual Fund Units: Units representing investments in a mutual fund portfolio.

Rules for Grossing Up

Grossing up refers to adjusting income to account for taxes paid on behalf of the recipient. It
typically applies to certain incomes like dividends and interest, where tax is deducted at source.

EX-Interest and Cum Interest Securities

 Ex-Interest: Refers to securities where the buyer does not receive the next interest
payment. The seller retains the right to receive the interest.
 Cum Interest: Refers to securities where the buyer is entitled to the next interest
payment. The seller receives the interest accrued up to the date of sale.
Bond Washing Transactions

Bond washing transactions involve selling securities shortly before the ex-dividend date and
repurchasing them shortly after. This is done to claim tax benefits associated with dividend
payments.

Module 4 – Sett off and Carry Forward LOsses and Assesment of Indiviuals
Introduction – Provisions of Set off and Carry Forward of Losses (Theory only) Computation of
Total Income and tax liability of an Individual.

Introduction

In income tax, 'set off' and 'carry forward' of losses refer to the mechanism where losses incurred
in one source of income can be adjusted against profits earned under another source, or carried
forward to future years for set off against future profits.

Provisions for Set off and Carry Forward of Losses

The Income Tax Act provides various provisions for set off and carry forward of losses, ensuring
that taxpayers can mitigate tax liabilities over multiple years. Key provisions include:

 Inter-source Set Off: Losses from one source of income (like business) can be set off
against income from another source (like salary).
 Intra-source Set Off: Losses within the same source of income (like speculative
business losses) can be set off against other incomes within the same source.
 Carry Forward: If losses cannot be fully set off in the current year due to limits or
insufficient income, they can be carried forward to future assessment years (typically up
to 8 years).
 Conditions and Limitations: Specific conditions, such as continuity of business, filing
income tax returns on time, and compliance with other tax laws, may apply to avail set
off and carry forward benefits.

Module 5 – Assesment Procedures and Income Tax Authorities

Introduction - Due date of filing returns, Filing of returns by different assesses, E-filing of
returns, Types of Assessment, Permanent Account Number -Meaning, Procedure for obtaining
PAN and transactions were quoting of PAN is compulsory. Income Tax Authorities their Powers
and duties.
Introduction

Assessment procedures in income tax refer to the process of evaluating and determining the tax
liability of taxpayers by the income tax authorities. This module covers various aspects related to
filing returns, types of assessments, and the role of income tax authorities.

Due Date and Filing Returns

 Due Date: The due date for filing income tax returns in India is typically July 31st of the
assessment year for individuals and other non-corporate taxpayers.
 Filing Returns: Taxpayers must file returns disclosing their income, deductions claimed,
and taxes paid during the previous financial year.

Filing of Returns by Different Assessees

Different categories of taxpayers, such as individuals, Hindu Undivided Families (HUFs),

companies, firms, and other entities, have specific forms prescribed by the Income Tax
Department for filing their returns.

E-Filing of Returns

E-Filing (electronic filing) of income tax returns has become mandatory for certain categories of
taxpayers. It offers convenience, speed, and accuracy in filing returns and processing refunds.

Types of Assessment

 Scrutiny Assessment: Detailed scrutiny by the Income Tax Department to verify the
correctness and completeness of the income declared and deductions claimed by the
taxpayer.
 Best Judgment Assessment: When a taxpayer fails to file a return or provide necessary
information, the assessing officer may make an assessment based on available
information.
 Income Escaping Assessment: When income chargeable to tax has escaped assessment,
the assessing officer can reopen the assessment for a particular year.
Permanent Account Number (PAN) – Meaning

 Meaning: PAN is a unique 10-digit alphanumeric identifier issued by the Income Tax
Department to individuals, entities, and taxpayers.

Procedure for Obtaining PAN

1. Application Form:
o PAN can be applied for using Form 49A (for individuals, including foreign
citizens) or Form 49AA (for entities such as companies, firms, LLPs, etc.).
o These forms are available on the websites of NSDL (National Securities
Depository Limited) and UTIITSL (UTI Infrastructure Technology and Services
Limited).
2. Online Application:
o Visit the NSDL or UTIITSL website to fill out the PAN application form online.
o Fill in all required details such as personal information (name, date of birth,
address), contact details, and select the appropriate category (individual,
company, etc.).
3. Submission of Documents:
o Upload scanned copies of supporting documents as per the requirements.
Common documents include proof of identity (like Aadhaar card, passport, voter
ID, etc.), proof of address (like Aadhaar card, utility bill, bank account statement,
etc.), and proof of date of birth (like birth certificate, passport, etc.).
o Ensure that the documents uploaded are clear and meet the specified criteria to
avoid processing delays.
4. Payment of Fee:
o Pay the applicable fee online through debit/credit card, net banking, or demand
draft. The fee varies based on whether the PAN card is to be delivered within
India or abroad.
5. Submission:
o After completing the application form and uploading documents, submit the
application online.
o Upon successful submission, a 15-digit acknowledgement number is generated.
This number can be used to track the status of the PAN application.
6. Processing and Issuance:
o The PAN application is processed by NSDL or UTIITSL.
o Once processed, the PAN card is dispatched to the applicant’s address within
India or abroad, depending on the delivery option chosen during application.
7. Receipt of PAN Card:
 o Track the status of the PAN application using the acknowledgement number
provided.
o Upon successful processing, the PAN card is delivered to the address mentioned
in the application form.

Points to Note:

 Correction/Changes: If any corrections or changes are required in the PAN details after
issuance (like name change, address change), they can be updated using Form for
Correction available on NSDL or UTIITSL websites.
 Lost/Damaged PAN: In case of loss, theft, or damage of PAN card, a request for re-issue
can be made using the same websites.

Income Tax Authorities, Powers, and Duties

Authorities

Income Tax Authorities in India include:

 Assessing Officers (AOs): Responsible for assessing tax liabilities of taxpayers.

 Commissioners of Income Tax (CITs): Supervisory officers overseeing assessment and
tax administration within their jurisdiction.
 Central Board of Direct Taxes (CBDT): Governing body responsible for policy
formulation and administration of direct taxes in India.

Powers

 Assessment: Authority to assess and determine the tax liability of taxpayers based on
income declared and deductions claimed.
 Inquiry and Survey: Powers to conduct inquiries and surveys to gather information
relevant to tax assessment.
 Search and Seizure: Authority to conduct searches and seizures in cases of suspected
tax evasion or undisclosed income.
 Penalty and Prosecution: Powers to impose penalties for non-compliance and initiate
prosecution for tax offenses.

Duties

 Tax Collection: Ensure timely collection of taxes as per the provisions of the Income
Tax Act.
 Tax Administration: Administer tax laws fairly and transparently.
 Taxpayer Assistance: Provide guidance and assistance to taxpayers in complying with
tax laws.
 Policy Implementation: Implement tax policies and directives issued by the CBDT.