Unit X: Income-Tax and Corporate Tax Planning

1.​ Income-tax: Basic Concepts

○​ Assessee, Person, Assessment Year, Previous Year, Gross Total Income (GTI),
Total Income, Agricultural Income (brief), Capital and Revenue
Receipts/Expenditure.
2.​ Residential Status and Tax Incidence
○​ Resident (ROR, RNOR), Non-Resident.
○​ Incidence of Tax based on Residential Status.
3.​ Exempted Incomes (Section 10)
○​ Key exemptions like agricultural income, leave travel concession, house rent
allowance (partial), gratuity, commuted pension, interest on NRE/FCNR, etc.
4.​ Computation of Taxable Income under Various Heads
○​ Salaries (Section 15-17): Basic Salary, Allowances (fully taxable, partially exempt,
fully exempt), Perquisites (taxable, tax-free), Provident Fund, Gratuity, Pension,
Leave Encashment, Deductions u/s 16 (Standard Deduction, Entertainment
Allowance, Professional Tax).
○​ Income from House Property (Section 22-27): Gross Annual Value (GAV), Net
Annual Value (NAV), Deductions u/s 24 (Standard Deduction, Interest on Borrowed
Capital), Self-occupied property.
○​ Profits and Gains of Business or Profession (PGBP) (Section 28-44D): Basis of
charge, Allowable deductions (general, specific), Disallowances, Depreciation
(Section 32, WDV/SLM, additional depreciation), Presumptive Taxation (44AD,
44ADA, 44AE).
○​ Capital Gains (Section 45-55A): Short-term vs. Long-term Capital Assets, Cost of
Acquisition, Indexed Cost of Acquisition, Capital Gains Computation, Exemptions
u/s 54, 54EC, 54F, etc.
○​ Income from Other Sources (Section 56-59): Residual head, Income from
dividends, interest, lottery, winning from games, gifts, family pension, etc.
5.​ Deductions from Gross Total Income (Chapter VI-A)
○​ Section 80C (LIC, PPF, EPF, ULIP, Housing Loan Repayment, etc.)
○​ Section 80CCC (Pension Funds)
○​ Section 80CCD (NPS)
○​ Section 80D (Medical Insurance Premium)
○​ Section 80DD (Maintenance/Medical treatment of disabled dependent)
○​ Section 80DDB (Medical treatment of specified diseases)
○​ Section 80E (Interest on Education Loan)
○​ Section 80G (Donations)
○​ Section 80GG (Rent Paid where HRA not received)
○​ Section 80GGA/GGC (Donations for Scientific Research/Political Parties)
○​ Section 80TTA/TTB (Interest on Savings Account/Fixed Deposits for Senior
Citizens)
○​ Section 80U (Disabled Person)
6.​ Clubbing of Incomes
○​ Transfer of income without transfer of asset.
○​ Income from assets transferred to spouse/son's wife.
○​ Income of minor child.
7.​ Set-off and Carry Forward of Losses
○​ Intra-head and Inter-head adjustment.
 ○​ Carry forward of various losses (House Property, Business, Capital Gains,
Speculation, etc.).
8.​ Assessment of Individuals, HUF, Partnership Firms, Companies
○​ Specific provisions, basic tax slab rates, surcharges, education cess.
○​ Alternative Minimum Tax (AMT) and Minimum Alternate Tax (MAT) (briefly).
9.​ International Taxation (Brief Overview for NET)
○​ Double Taxation and its avoidance mechanisms (DTAA, Unilateral Relief).
○​ Transfer Pricing (concept).
10.​Corporate Tax Planning
○​ Concepts and significance.
○​ Tax avoidance vs. Tax evasion.
○​ Techniques of corporate tax planning: Make or buy, Own or lease,
Retain/Renew/Replace asset, Shut down or continue operations.
○​ Deduction and Collection of Tax at Source (TDS/TCS).
○​ Advance Payment of Tax.
○​ E-filing of Income-tax returns (ITR forms).
Unit IX (Legal Aspects of Business - Part): Goods and Services Tax (GST)
1.​ Basic Concepts and Features of GST
○​ One Nation One Tax, destination-based consumption tax, dual GST, Value Added
Tax.
○​ Cascading effect elimination.
2.​ Scope of Supply (Section 7)
○​ Taxable event: "Supply" instead of manufacture, sale, service etc.
○​ Forms of supply (sale, transfer, barter, exchange, license, rental, lease or disposal).
○​ Consideration and furtherance of business.
○​ Schedules I, II, III.
3.​ Registration under GST
○​ Threshold limits, Compulsory Registration, Voluntary Registration.
○​ Types of registration.
4.​ Levy and Collection of GST
○​ CGST, SGST/UTGST, IGST.
○​ Inter-state vs. Intra-state supply.
○​ Reverse Charge Mechanism (RCM).
5.​ Input Tax Credit (ITC)
○​ Meaning, conditions for claiming ITC.
○​ Blocked Credits (Section 17(5)).
○​ Apportionment of ITC.
6.​ Composition Scheme
○​ Eligibility, conditions, advantages/disadvantages.
7.​ Returns and Payments (Briefly)
○​ Types of returns (GSTR-1, GSTR-3B).
After preparing these detailed notes, I will integrate specific previous year questions where they
fit best to provide practical examples.
I will now start generating the detailed notes topic by topic. This will be a multi-part response
due to its extensive nature.

UGC NET Commerce: Taxation - Detailed

Notes
Unit X: Income-Tax and Corporate Tax Planning
1. Income-tax: Basic Concepts
Income-tax in India is governed by the Income Tax Act, 1961 (IT Act). It is a direct tax levied on
the income of individuals, Hindu Undivided Families (HUFs), companies, firms, etc.

a. Assessee (Section 2(7))

●​ A person who is liable to pay tax under the IT Act.

●​ Includes:
○​ Every person in respect of whom any proceeding under this Act has been taken for
the assessment of his income or of the income of any other person in respect of
which he is assessable.
○​ Every person who is deemed to be an assessee under any provision of this Act
(e.g., legal representative of a deceased person).
○​ Every person who is deemed to be an assessee in default under any provision of
this Act (e.g., someone who fails to deduct TDS).

b. Person (Section 2(31))

●​ The term "Person" is very broad and includes:

1.​ An Individual
2.​ A Hindu Undivided Family (HUF)
3.​ A Company
4.​ A Firm (including LLP)
5.​ An Association of Persons (AOP) or a Body of Individuals (BOI), whether
incorporated or not.
6.​ A Local Authority (e.g., Municipality, Panchayat).
7.​ Every Artificial Juridical Person not falling under any of the preceding categories
(e.g., deities, universities).

c. Assessment Year (AY) (Section 2(9))

●​ The period of 12 months commencing on the 1st day of April every year and ending on
the 31st day of March of the next year.
●​ It is the year in which the income earned in the previous year is assessed and taxed.
●​ Example: For the financial year 2023-24 (Previous Year), the Assessment Year is
2024-25.

d. Previous Year (PY) (Section 3)

●​ The financial year immediately preceding the assessment year.

●​ It is the year in which the income is earned.
 ●​ For a business or profession newly set up, the previous year is the period starting from
the date of setting up of the business/profession till the immediately succeeding 31st
March.
●​ Rule: Income of the previous year is taxable in the assessment year.

e. Gross Total Income (GTI) (Section 80B(5))

●​ The total income computed under the five heads of income, after applying clubbing
provisions and set-off of losses (intra-head and inter-head adjustments), but before
making deductions under Chapter VI-A (Sections 80C to 80U).

f. Total Income (Section 2(45))

●​ The amount remaining after allowing all permissible deductions under Chapter VI-A
(Sections 80C to 80U) from the Gross Total Income (GTI).
●​ This is the income on which tax is calculated. It is rounded off to the nearest multiple of
₹10.

g. Agricultural Income (Section 2(1A) and 10(1))

●​ Definition: Income derived from agricultural operations, typically exempt from income tax
in India.
●​ Types:
1.​ Rent or revenue derived from land situated in India and used for agricultural
purposes.
2.​ Income derived from such land by agricultural operations (e.g., cultivation, tilling,
sowing, harvesting).
3.​ Income derived from the process employed to make the produce fit for market (e.g.,
crushing sugarcane, drying tobacco) or sale of such produce.
4.​ Income from a farmhouse which is situated on or in the immediate vicinity of
agricultural land.
●​ Exemption (Section 10(1)): Agricultural income is fully exempt from tax.
●​ Partial Integration (for non-corporate assessees): While agricultural income is exempt,
it is partially integrated with non-agricultural income for the purpose of calculating tax on
non-agricultural income of individuals, HUFs, AOPs, and BOIs if:
○​ Net agricultural income exceeds ₹5,000.
○​ Net non-agricultural income exceeds the basic exemption limit (e.g., ₹2,50,000 for
individuals below 60).
○​ Process:
1.​ Calculate tax on (Non-agricultural income + Agricultural income).
2.​ Calculate tax on (Basic exemption limit + Agricultural income).
3.​ Subtract the tax calculated in step 2 from step 1. This is the tax payable on
non-agricultural income. This ensures that agricultural income helps push
non-agricultural income into higher tax slabs.

h. Capital Receipts and Revenue Receipts

●​ Capital Receipts: Non-recurring in nature, generally arise from non-operational activities

 or sale of fixed assets. They are generally not taxable unless specifically made taxable
(e.g., Capital Gains).
○​ Examples: Loan received, proceeds from sale of a building, fresh capital
introduced.
●​ Revenue Receipts: Recurring in nature, arise from day-to-day business operations. They
are generally taxable.
○​ Examples: Sales revenue, interest received, commission earned.

i. Capital Expenditure and Revenue Expenditure

●​ Capital Expenditure: Incurred to acquire or improve a long-term asset, providing benefits

for more than one accounting period. Not allowed as a deduction in a single year, but
depreciation can be claimed.
○​ Examples: Purchase of machinery, construction of a building.
●​ Revenue Expenditure: Incurred for day-to-day operations, providing benefits within one
accounting period. Allowed as a full deduction in the year incurred.
○​ Examples: Salaries, rent, electricity bills.

2. Residential Status and Tax Incidence

The residential status of a person is crucial in determining the scope of his total income that is
taxable in India.

a. Residential Status of an Individual (Section 6)

An individual's residential status for a Previous Year (PY) is determined based on the number of
days he/she stays in India during that PY and preceding PYs.
●​ 1. Resident (R): An individual is a Resident if he satisfies at least one of the Basic
Conditions:
○​ Basic Condition 1: Stays in India for 182 days or more during the Previous Year.
○​ Basic Condition 2: Stays in India for 60 days or more during the Previous Year
AND 365 days or more during the 4 preceding Previous Years.
■​ Exception to Basic Condition 2: The 60-day limit is extended to 182 days for:
■​ Indian citizens who leave India during the PY for employment outside
India or as a member of the crew of an Indian ship.
■​ Indian citizens or persons of Indian origin who come on a visit to India
during the PY.
■​ Further Exception (from FY 2020-21): For Indian citizens/persons of
Indian origin visiting India:
■​ If total income (excluding foreign sources) exceeds ₹15 lakhs, 60
days becomes 120 days.
■​ A new category: Deemed Resident (if Indian citizen, total income
other than foreign sources exceeds ₹15 lakhs, and not liable to
tax in any other country due to domicile/residence). Such a
person is "Resident but Not Ordinarily Resident (RNOR)".
●​ Once an individual is a Resident, we then determine if they are "Ordinarily Resident"
(ROR) or "Not Ordinarily Resident" (RNOR) by checking the Additional Conditions:
○​ Additional Condition 1: Has been a Resident in at least 2 out of 10 Previous
 Years immediately preceding the relevant PY.
○​ Additional Condition 2: Has stayed in India for 730 days or more during the 7
Previous Years immediately preceding the relevant PY.
●​ Resident and Ordinarily Resident (ROR): An individual is ROR if he satisfies BOTH the
Additional Conditions.
●​ Resident but Not Ordinarily Resident (RNOR): An individual is RNOR if he satisfies
neither or only one of the Additional Conditions.
○​ Also includes the "deemed resident" category mentioned above.
○​ An Indian citizen or person of Indian origin visiting India whose total income
(excluding foreign sources) exceeds ₹15 lakhs and whose stay in India is between
120 and 181 days during the PY.
●​ Non-Resident (NR): An individual is a Non-Resident if he does not satisfy any of the
Basic Conditions.

b. Residential Status of HUF, Firm, AOP (Section 6(2), 6(4))

●​ Resident: An HUF, firm, or AOP is Resident if the control and management of its affairs
are wholly or partially situated in India during the previous year.
●​ Non-Resident: It is Non-Resident if the control and management of its affairs are wholly
situated outside India during the previous year.
●​ HUF - ROR or RNOR: If an HUF is Resident, it is ROR if its Karta (manager) satisfies
both additional conditions of an individual. Otherwise, it is RNOR. Firms and AOPs cannot
be RNOR.

c. Residential Status of a Company (Section 6(3))

●​ Indian Company (Section 2(26)): Always a Resident in India. An Indian company is one
registered under the Companies Act, 2013 or any previous Company law.
●​ Foreign Company:
○​ A foreign company is Resident in India if its Place of Effective Management
(POEM) in that year is in India.
■​ POEM: A place where key management and commercial decisions that are
necessary for the conduct of the entity’s business as a whole are, in
substance, made.
○​ A foreign company is Non-Resident if its POEM is outside India.

d. Incidence of Tax based on Residential Status (Scope of Total Income - Section

5)

The scope of income taxable in India depends on the assessee's residential status:
Type of Income ROR RNOR NR
1. Indian Income:
a. Accrues or arises in Taxable Taxable Taxable
India
b. Received in India Taxable Taxable Taxable
c. Deemed to accrue or Taxable Taxable Taxable
arise
Type of Income ROR RNOR NR
d. Deemed to be Taxable Taxable Taxable
received
2. Foreign Income:
a. Accrues/arises Taxable Not Taxable Not Taxable
outside
India from a business (unless
controlled from India or business
a
profession set up in
India)*
b. Accrues/arises Taxable Not Taxable Not Taxable
outside
India from any other
source (e.g., foreign
rent,
foreign interest)
Key Points:
●​ Indian Income: Always taxable for all types of assessees (ROR, RNOR, NR).
●​ Foreign Income:
○​ ROR: Taxable in India, regardless of where it is received or accrued.
○​ RNOR: Foreign income is taxable in India only if it is derived from a business
controlled from India or a profession set up in India. Other foreign incomes are NOT
taxable for RNOR.
○​ NR: Foreign income is NEVER taxable in India.
Previous Year Question Example (UGC NET Commerce):
Question: Which of the following income would be taxable in India for a 'Resident but Not
Ordinarily Resident' (RNOR)? (A) Income from a business in London, controlled from Delhi. (B)
Income from salary earned and received in the USA. (C) Rent received from a property in
Dubai. (D) Interest on fixed deposit in a bank in France.
Answer & Explanation:
●​ Correct Option: (A)
●​ Explanation: As per the incidence of tax, foreign income from a business controlled from
India or a profession set up in India is taxable for an RNOR. Options (B), (C), and (D)
represent foreign incomes from other sources, which are not taxable for an RNOR.

3. Exempted Incomes (Section 10)

These are incomes that are specifically excluded from the computation of total income and thus
are not subject to income tax.
●​ Section 10(1): Agricultural Income (Already discussed, fully exempt).
●​ Section 10(2): Share of Income from HUF: Any sum received by an individual as a
member of an HUF out of its income.
●​ Section 10(2A): Share of Income from a Partnership Firm/LLP: Partner's share of
profit from a firm or LLP is exempt in the hands of the partner, as the firm is separately
taxed.
●​ Section 10(5): Leave Travel Concession (LTC): Amount received by an employee from
his employer for leave travel, subject to specified conditions and limits (domestic travel,
twice in a block of 4 calendar years).
●​ Section 10(10): Gratuity:
○​ Government Employees: Fully exempt.
○​ Non-Government Employees covered by Payment of Gratuity Act, 1972:
Exempt up to least of:
■​ ₹20,00,000 (statutory limit)
■​ 15 days' salary for each completed year of service (15/26 * Last Drawn
Salary * Completed Years)
■​ Actual gratuity received.
○​ Other Non-Government Employees: Exempt up to least of:
■​ ₹20,00,000 (statutory limit)
■​ Half month's average salary for each completed year of service (1/2 *
Average Salary of last 10 months * Completed Years)
■​ Actual gratuity received.
●​ Section 10(10A): Commuted Pension:
○​ Government Employees: Fully exempt.
○​ Non-Government Employees:
■​ If also receiving gratuity: 1/3rd of the full value of commuted pension is
exempt.
■​ If not receiving gratuity: 1/2 of the full value of commuted pension is exempt.
●​ Section 10(10AA): Leave Encashment on Retirement:
○​ Government Employees: Fully exempt.
○​ Non-Government Employees: Exempt up to least of:
■​ ₹3,00,000 (statutory limit)
■​ 10 months' average salary (based on last 10 months preceding retirement).
■​ Actual leave encashment received.
■​ Cash equivalent of unavailed leave (max 30 days per year of service).
●​ Section 10(10D): Maturity Amount of Life Insurance Policy: Any sum received under a
life insurance policy, including bonus, is generally exempt.
○​ Exceptions: If premium paid exceeds 10% of sum assured (for policies issued after
01.04.2012) or 20% (for policies issued before 01.04.2012), or certain unit-linked
insurance plans (ULIPs) where aggregate premium exceeds ₹2.5 lakhs (from FY
2021-22).
●​ Section 10(11) & 10(12): Provident Fund (PF):
○​ Statutory Provident Fund (SPF): Fully exempt.
○​ Recognized Provident Fund (RPF): Exempt if employee's contribution, employer's
contribution (up to 12% of salary), and interest on PF (up to 9.5% p.a.) are within
limits. Lump sum payment on retirement is generally exempt if continuous service
of 5 years.
○​ Public Provident Fund (PPF): Contributions, interest, and maturity amount are
fully exempt (EEE regime).
●​ Section 10(13A): House Rent Allowance (HRA): Exempt up to least of:
○​ Actual HRA received.
○​ Rent paid minus 10% of salary.
○​ 50% of salary (for living in Mumbai, Delhi, Chennai, Kolkata) or 40% of salary (for
other cities).
 ○​ Salary for HRA = Basic Salary + Dearness Allowance (if part of retirement benefits)
+ Commission based on fixed percentage of turnover.
●​ Section 10(14): Special Allowances: Specific allowances are exempt to the extent spent
for official purposes or up to prescribed limits (e.g., Children Education Allowance
₹100/month/child for max 2 children, Hostel Expenditure Allowance ₹300/month/child for
max 2 children).
●​ Section 10(15): Interest on certain Securities/Bonds: Certain types of interest (e.g.,
from specified bonds, non-resident external accounts) are exempt.
●​ Section 10(16): Scholarships: Scholarships granted to meet the cost of education.
●​ Section 10(17): Daily Allowance of MPs/MLAs: Fully exempt.
●​ Section 10(18): Family Pension to Gallantry Award Winners' Widows/Heirs: Family
pension received by specified heirs of armed forces members who died in operational
duties.
●​ Section 10(19): Family Pension to Dependents of Armed Forces (in specific cases):
Widows/children of members of armed forces where death occurred in operational duties.
●​ Section 10(23C): Income of certain Funds/Institutions: Income of specified
universities, hospitals, educational institutions, etc., if approved.
●​ Section 10(34): Income from Dividends: Until FY 2019-20, dividends from Indian
companies were exempt in the hands of shareholders up to ₹10 lakh (DDT regime). From
FY 2020-21, DDT is abolished, and dividends are now fully taxable in the hands of the
shareholders.
●​ Section 10(35): Income from Mutual Funds: Income received from specified mutual
funds was exempt. From FY 2020-21, this is also taxable.
●​ Section 10(37): Capital Gain on Compulsory Acquisition of Urban Agricultural Land:
Exempt if the land was used for agricultural purposes by the individual/HUF for 2 years
prior to acquisition.
●​ Section 10(38): Long Term Capital Gain on Sale of Equity Shares/Equity Mutual
Funds: Exempt up to ₹1,00,000 from FY 2018-19, if Security Transaction Tax (STT) is
paid. Beyond ₹1,00,000, taxed at 10% without indexation. (Prior to FY 2018-19, fully
exempt).
Previous Year Question Example (UGC NET Commerce):
Question: Which of the following is NOT a fully exempted income under the Income Tax Act,
1961? (A) Agricultural Income (B) Share of profit from a partnership firm (C) Commuted pension
received by a Government employee (D) House Rent Allowance (HRA) received by an
employee
Answer & Explanation:
●​ Correct Option: (D)
●​ Explanation:
○​ (A) Agricultural Income is fully exempt under Section 10(1).
○​ (B) Share of profit from a partnership firm is fully exempt in the hands of the partner
under Section 10(2A).
○​ (C) Commuted pension received by a Government employee is fully exempt under
Section 10(10A).
○​ (D) House Rent Allowance (HRA) is partially exempt under Section 10(13A),
subject to certain conditions and limits. It is rarely fully exempt.

4. Computation of Taxable Income under Various Heads

Income Tax Act, 1961 classifies all income into five heads for the purpose of computing taxable
income.

a. Income from Salaries (Sections 15-17)

This head includes any remuneration received by an individual for services rendered under an
employer-employee relationship.
●​ Basis of Charge (Section 15): Salary is taxable on a "due basis" or "receipt basis,"
whichever is earlier. Arrears of salary are taxable when received.
●​ What constitutes Salary (Section 17(1)):
○​ Wages
○​ Any annuity or pension
○​ Gratuity
○​ Any fees, commissions, perquisites, or profits in lieu of or in addition to any salary
or wages
○​ Advance of salary
○​ Any payment received in respect of any period of leave not availed (leave
encashment)
○​ Employer's contribution to Recognized Provident Fund (RPF) in excess of 12% of
salary
○​ Interest credited to RPF in excess of 9.5% p.a.
○​ Transferred balance in RPF (if unrecognized PF becomes recognized)
●​ Allowances (Section 10): Fixed monetary amounts paid by the employer for specific
purposes.
○​ Fully Taxable Allowances:
■​ Dearness Allowance (unless part of retirement benefits)
■​ City Compensatory Allowance (CCA)
■​ Tiffin/Lunch/Dinner Allowance
■​ Overtime Allowance
■​ Fixed Medical Allowance
■​ Servant Allowance
■​ Non-practicing Allowance
■​ Warden Allowance, etc.
○​ Partially Exempt Allowances (Exempt up to limits specified in Section 10(14)):
■​ House Rent Allowance (HRA): (Discussed under Exempted Incomes - Sec
10(13A)).
■​ Children Education Allowance: ₹100 per month per child, maximum for two
children.
■​ Hostel Expenditure Allowance: ₹300 per month per child, maximum for two
children.
■​ Transport Allowance (for commuting to office): ₹3,200 per month for
physically challenged employees.
■​ Underground Allowance: ₹800 per month (for employees working in
underground mines).
■​ Travelling Allowance: For expenses incurred on tour or transfer.
■​ Daily Allowance: For ordinary daily expenses incurred by an employee on
account of absence from his normal place of duty.
■​ Conveyance Allowance: For expenditure incurred on conveyance in
 performing official duties.
■​ Helper Allowance: For expenditure incurred on a helper in performing official
duties.
■​ Uniform Allowance: For expenditure incurred on purchase or maintenance
of uniform.
■​ Note for partially exempt allowances: The exemption is limited to the least of
the actual amount received or the amount spent for the purpose, or the
statutory limit, whichever is less.
○​ Fully Exempt Allowances:
■​ Allowance to High Court and Supreme Court Judges.
■​ Allowance from UNO (United Nations Organization) to its employees.
■​ Compensatory allowance received by a judge.
■​ Sumptuary allowance to judges.
●​ Perquisites (Section 17(2)): Non-cash benefits or facilities provided by the employer.
○​ Taxable Perquisites for All Employees:
■​ Rent-free unfurnished/furnished accommodation (value as per rules).
■​ Obligation of employee paid by employer (e.g., gas, electricity, water bills,
children's school fees).
■​ Interest-free or concessional loans (if loan value > ₹20,000).
■​ Transfer of movable assets (other than specified) to employee at
concessional rate.
■​ Use of movable assets (other than specified) by employee.
■​ Premium for life insurance paid by employer on employee's life.
■​ Contribution to unapproved superannuation fund.
○​ Perquisites Taxable only for Specified Employees:
■​ Meaning of "Specified Employee":
■​ Director Employee.
■​ Employee having substantial interest (at least 20% voting power).
■​ Employee whose monetary salary exceeds ₹50,000 p.a. (excluding
non-monetary benefits).
■​ Examples for Specified Employees: Use of car, education facility to
employee's children, domestic servant facility.
○​ Tax-Free Perquisites (Exempt for all employees):
■​ Medical treatment (certain limits and conditions apply).
■​ Use of health club, sports facility (employer's own).
■​ Telephone/mobile phone provided to employee.
■​ Employer's contribution to Superannuation Fund (up to ₹1,50,000 p.a.).
■​ Refreshments provided in office.
■​ Free meals in office premises (up to ₹50 per meal).
■​ Conveyance facility for official duty.
■​ Perquisite for training of employees.
■​ Premium paid by employer for employee's accident insurance.
●​ Deductions from Salary (Section 16):
○​ Section 16(ia): Standard Deduction: A fixed deduction of ₹50,000 or the amount
of salary, whichever is less. Available to all salaried employees.
○​ Section 16(ii): Entertainment Allowance: Available only to Government
Employees. Least of:
■​ ₹5,000
 ■​ 1/5th of Basic Salary
■​ Actual Entertainment Allowance received.
○​ Section 16(iii): Professional Tax (Tax on Employment): The amount of
professional tax paid by the employee (or paid by employer on employee's behalf,
which is first added to salary and then deducted).
Previous Year Question Example (UGC NET Commerce):
Question (Similar to past papers): Mr. X is a salaried employee with the following details for
the financial year 2023-24: Basic Salary: ₹40,000 p.m. Dearness Allowance (40% of Basic, 50%
part of retirement benefits): ₹16,000 p.m. House Rent Allowance (HRA): ₹10,000 p.m. Actual
Rent Paid: ₹12,000 p.m. Professional Tax paid: ₹2,000 (annual)
Compute Mr. X's taxable salary for Assessment Year 2024-25.
Answer & Explanation:
1. Calculation of HRA Exemption (Section 10(13A)):
●​ Salary for HRA = Basic Salary + DA (forming part of retirement benefits)
○​ = ₹40,000 + (₹16,000 * 50%) = ₹40,000 + ₹8,000 = ₹48,000 p.m.
○​ = ₹48,000 * 12 = ₹5,76,000 p.a.
●​ Least of the following is exempt:
1.​ Actual HRA received = ₹10,000 p.m. * 12 = ₹1,20,000
2.​ Rent Paid - 10% of Salary = (₹12,000 * 12) - (10% of ₹5,76,000) = ₹1,44,000 -
₹57,600 = ₹86,400
3.​ 50% of Salary (assuming metro city) or 40% (other cities). Let's assume a
non-metro city for 40%:
■​ 40% of Salary = 40% of ₹5,76,000 = ₹2,30,400
●​ HRA Exemption = ₹86,400
2. Computation of Taxable Salary:
Particulars Amount (₹)
Basic Salary (₹40,000 * 12) 4,80,000
Dearness Allowance (₹16,000 * 12) 1,92,000
HRA Received (₹10,000 * 12) 1,20,000
Gross Salary 7,92,000
Less: Exempt HRA (calculated above) (86,400)
Taxable Gross Salary (before deductions) 7,05,600
Less: Deductions u/s 16
Standard Deduction (Sec 16(ia)) (50,000)
Professional Tax (Sec 16(iii)) (2,000)
Net Taxable Salary 6,53,600
b. Income from House Property (Sections 22-27)

This head includes income from house property consisting of any building or land appurtenant
thereto, of which the assessee is the owner.
●​ Basis of Charge (Section 22): Income is taxable if the property is owned by the
assessee and is not used for his own business or profession.
●​ Types of House Property:
○​ Self-Occupied Property (SOP): Property used for own residence. An individual
can claim up to two properties as SOP.
○​ Let-Out Property (LOP): Property that is rented out.
○​ Deemed Let-Out Property (DLOP): If an assessee owns more than two SOPs, the
 remaining properties are treated as DLOP for taxation purposes.
●​ Computation Steps:
1.​ Determine Gross Annual Value (GAV) (Section 23):
■​ For Let-Out Property (LOP): GAV is the highest of:
■​ Actual Rent Received or Receivable (ARR): Rent for the period the
property was let out.
■​ Municipal Value (MV): Value as determined by municipal authorities.
■​ Fair Rent (FR): Rent fetched by similar properties in the same locality.
■​ Standard Rent (SR): Rent fixed under the Rent Control Act (if
applicable).
■​ Calculation logic for LOP:
■​ Step 1: Reasonable Expected Rent (RER) = Higher of (MV or
FR).
■​ Step 2: If SR is applicable, RER = Lower of (RER from Step 1 or
SR).
■​ Step 3: GAV = Higher of (RER from Step 2 or Actual Rent
Received/Receivable (ARR)).
■​ Exception: If the property remains vacant for a part of the year
and the actual rent received is less than RER only because of
vacancy, then GAV will be ARR.
■​ For Self-Occupied Property (SOP): GAV is Nil.
■​ For Deemed Let-Out Property (DLOP): GAV is the Reasonable Expected
Rent (RER) calculated as if it were a let-out property.
2.​ Less: Municipal Taxes paid by the owner (Section 23):
■​ Deductible only if actually paid by the owner during the previous year.
■​ Note: If municipal taxes are due but not paid, or paid by tenant, they are not
deductible.
3.​ Result: Net Annual Value (NAV) (Section 23): \text{NAV} = \text{GAV} -
\text{Municipal Taxes Paid}
4.​ Less: Deductions from NAV (Section 24):
■​ a. Standard Deduction (Section 24(a)):
■​ A flat 30% of NAV is allowed as a deduction, irrespective of actual
expenses incurred on repairs, collection charges, etc.
■​ Available for LOP and DLOP. Not available for SOP (as NAV is Nil).
■​ b. Interest on Borrowed Capital (Section 24(b)):
■​ For Let-Out Property (LOP) and Deemed Let-Out Property (DLOP):
Full amount of interest on loan taken for acquisition, construction,
repair, renewal, or reconstruction of the property is deductible, with no
limit.
■​ For Self-Occupied Property (SOP):
■​ Limit: Maximum deduction of ₹2,00,000 for interest on loan
taken for acquisition or construction, if the loan was taken on or
after April 1, 1999, and the construction/acquisition is completed
within 5 years (earlier 3 years) from the end of the financial year
in which the capital was borrowed.
■​ Limit: Maximum deduction of ₹30,000 for interest on loan taken
for repair, renewal, or reconstruction, or if the
construction/acquisition period criteria for ₹2,00,000 is not met.
 ■​ Pre-construction/Pre-acquisition Interest: Interest paid before the
completion of construction/acquisition is allowed as a deduction in 5
equal annual instalments starting from the year of completion.
5.​ Result: Income from House Property. Can be a loss if deductions (especially
interest) exceed NAV.
Previous Year Question Example (UGC NET Commerce):
Question: Mr. A owns two house properties. One is self-occupied, and the other is let out. For
the self-occupied property, he has an outstanding loan for which he paid ₹2,50,000 as interest
during the previous year. For the let-out property, the NAV is ₹1,80,000. He also paid interest of
₹1,00,000 on a loan for the let-out property. Calculate his income/loss from house property.
Answer & Explanation:
1. Self-Occupied Property (SOP):
●​ GAV = Nil
●​ NAV = Nil
●​ Less: Interest on borrowed capital = Limited to ₹2,00,000 (assuming conditions for ₹2 lakh
limit are met, even though actual interest is ₹2.5 lakh)
●​ Loss from SOP = (₹2,00,000)
2. Let-Out Property (LOP):
●​ Net Annual Value (NAV) = ₹1,80,000
●​ Less: Deductions u/s 24:
○​ Standard Deduction (30% of NAV) = 30% of ₹1,80,000 = ₹54,000
○​ Interest on Borrowed Capital = ₹1,00,000 (fully deductible for LOP)
●​ Total Deductions = ₹54,000 + ₹1,00,000 = ₹1,54,000
●​ Income from LOP = ₹1,80,000 - ₹1,54,000 = ₹26,000
3. Total Income/Loss from House Property:
●​ Loss from SOP + Income from LOP = (₹2,00,000) + ₹26,000 = (₹1,74,000) (Loss)
Note: A loss from house property can be set off against other heads of income up to ₹2,00,000
in the current year. Any unabsorbed loss can be carried forward for 8 assessment years.

c. Profits and Gains of Business or Profession (PGBP) (Sections 28-44D)

This head taxes the income derived from carrying on any business or profession.
●​ Basis of Charge (Section 28): Profits and gains of any business or profession carried on
by the assessee at any time during the previous year.
●​ Method of Accounting (Section 145): Accrual basis or Cash basis (consistently
followed).
●​ Computation: Generally, PGBP is computed by making additions for disallowed
expenses and deductions for allowable expenses to the Net Profit as per P&L Account.
●​ Allowable Deductions (Important Sections):
○​ Section 30-37 (General Deductions):
■​ Section 30: Rent, rates, repairs, and insurance for buildings.
■​ Section 31: Repairs and insurance of machinery, plant, and furniture.
■​ Section 32: Depreciation: Most significant deduction.
■​ Allowed on tangible assets (buildings, machinery, plant, furniture) and
intangible assets (know-how, patents, copyrights, trademarks, licenses,
franchises, any other business or commercial rights of similar nature).
■​ Assessee must be the owner and use the asset for
business/profession.
 ■​ Allowed on Written Down Value (WDV) method for all assets except
power generating units (which can opt for SLM).
■​ Rates are prescribed in IT Rules (e.g., General machinery 15%,
computers 40%).
■​ If an asset is acquired and put to use for less than 180 days in the PY,
only 50% of the normal depreciation is allowed.
■​ Additional Depreciation (Section 32(1)(iia)): Allowed at 20% (or 10%
if put to use for less than 180 days) on new plant and machinery
(excluding certain items like office appliances, road transport vehicles)
acquired and installed by a manufacturing or power generating unit. No
additional depreciation on second-hand assets.
■​ Section 35: Scientific Research Expenditure (revenue and capital).
■​ Section 36: Specific deductions like interest on borrowed capital, premium
for risk insurance, bad debts, employee contributions to welfare funds, etc.
■​ Section 37(1): General Deductions: Any expenditure (not being in the
nature of capital expenditure or personal expenses of the assessee) laid out
or expended wholly and exclusively for the purposes of the business or
profession.
■​ Examples: Rent, salaries, office expenses, legal fees, etc.
●​ Express Disallowances (Important Sections):
○​ Section 40(a): Payments to Non-Residents without TDS: If TDS is not
deducted/paid on payments like interest, royalty, fees for technical services to a
non-resident, the entire amount is disallowed.
○​ Section 40(a)(ia): Payments to Residents without TDS: If TDS is not
deducted/paid on specified payments (e.g., rent, commission, professional fees,
contractor payments) to residents, 30% of such expenditure is disallowed.
○​ Section 40A(2): Payments to Related Parties: Excessive or unreasonable
payments made to specified related persons are disallowed.
○​ Section 40A(3): Cash Payments exceeding ₹10,000: Any payment exceeding
₹10,000 made otherwise than by account payee cheque/draft or ECS is fully
disallowed. (Limit ₹35,000 for transport operators).
○​ Section 43B: Certain deductions are allowed only on actual payment basis (e.g.,
tax, duty, cess, fee, bonus/commission to employees, interest on loan from public
financial institutions).
●​ Presumptive Taxation (Sections 44AD, 44ADA, 44AE):
○​ Section 44AD (Eligible Business): For resident individuals, HUFs, and
partnership firms (excluding LLPs) engaged in eligible business with turnover up to
₹3 crore (from FY 2023-24, earlier ₹2 crore).
■​ Deemed income is 8% of the total turnover or gross receipts.
■​ If receipts are through digital means (account payee cheque/draft, ECS, or
other electronic mode), the rate is 6%.
■​ No need to maintain detailed books of accounts.
○​ Section 44ADA (Eligible Profession): For resident individuals, HUFs, and
partnership firms (excluding LLPs) engaged in specified professions (legal, medical,
engineering, architectural, accountancy, technical consultancy, interior decoration,
etc.) with gross receipts up to ₹75 lakh (from FY 2023-24, earlier ₹50 lakh).
■​ Deemed income is 50% of the total gross receipts.
■​ No need to maintain detailed books of accounts.
 ○​ Section 44AE (Plying, Hiring, or Leasing Goods Carriages): For persons
owning not more than 10 goods carriages.
■​ Deemed income for heavy goods vehicle: ₹1,000 per ton of gross vehicle
weight/unladen weight per month (or part thereof).
■​ Deemed income for other goods vehicles: ₹7,500 per vehicle per month (or
part thereof).
Previous Year Question Example (UGC NET Commerce):
Question: Which of the following statements is NOT correct with reference to Section 44AD of
the Income Tax Act, 1961? (A) It applies to resident individuals, HUFs, and partnership firms. (B)
It is applicable for eligible businesses with a turnover up to ₹3 crore. (C) The deemed income is
6% of gross receipts received in cash. (D) Assessees opting for this scheme are not required to
maintain detailed books of accounts.
Answer & Explanation:
●​ Correct Option: (C)
●​ Explanation:
○​ (A) is correct.
○​ (B) is correct (for AY 2024-25 onwards, earlier it was ₹2 crore).
○​ (D) is correct.
○​ (C) is incorrect. The deemed income is 8% of total turnover or gross receipts. The
rate is 6% only for the amount received via digital modes (account payee
cheque/draft, ECS, or other electronic modes).

d. Capital Gains (Sections 45-55A)

This head covers profits or gains arising from the transfer of a capital asset.
●​ Basis of Charge (Section 45): Any profit or gain arising from the transfer of a capital
asset effected in the previous year shall be chargeable to income tax under the head
'Capital gains'.
●​ Capital Asset (Section 2(14)): Property of any kind held by an assessee, whether or not
connected with his business or profession.
○​ Includes: Shares, securities, jewellery, archaeological collections, drawings,
paintings, sculptures, any work of art, or any other movable property (if held for
personal use, it's generally not a capital asset, except for specific items like
jewellery, archaeological collections, etc. which are always capital assets).
○​ Excludes:
■​ Stock-in-trade, consumables, raw materials held for business.
■​ Movable property held for personal use (except those specifically included
above).
■​ Rural agricultural land in India (defined as land outside specified municipal
limits and population thresholds).
■​ 6.5% Gold Bonds (1977) or 7% Gold Bonds (1980) or National Defence Gold
Bonds (1980).
●​ Transfer (Section 2(47)): Includes sale, exchange, relinquishment, extinguishment of any
rights, compulsory acquisition, conversion of capital asset into stock-in-trade.
●​ Types of Capital Gains:
○​ Short-Term Capital Asset (STCA): Held for a period of 36 months or less
immediately preceding the date of transfer.
■​ Exception (reduced holding period for STCA):
 ■​ 12 months or less: For equity/preference shares listed on a
recognized stock exchange, units of equity-oriented mutual funds, zero
coupon bonds, units of UTI.
■​ 24 months or less: For unlisted shares of a company, or immovable
property (land or building or both).
○​ Long-Term Capital Asset (LTCA): Held for a period of more than 36 months.
■​ Exception (reduced holding period for LTCA):
■​ More than 12 months: For equity/preference shares listed on a
recognized stock exchange, units of equity-oriented mutual funds, zero
coupon bonds, units of UTI.
■​ More than 24 months: For unlisted shares of a company, or
immovable property (land or building or both).
●​ Computation of Capital Gains:
Particulars Short-Term Capital Gain Long-Term Capital Gain
(STCG) (LTCG)
Full Value of Consideration XXX XXX
(Sale Price)
Less: Expenditure on (X) (X)
Transfer
Net Sale Consideration XXX XXX
Less: Cost of Acquisition (X) (Indexed Cost of Acquisition)
Less: Cost of Improvement (X) (Indexed Cost of
Improvement)
Capital Gain / Loss XXX / (X) XXX / (X)
●​ Indexed Cost of Acquisition/Improvement: Applies only to LTCG. It adjusts the cost for
inflation using the Cost Inflation Index (CII) published by the CBDT.
○​ Indexed Cost of Acquisition: \text{Cost of Acquisition} \times \frac{\text{CII of Year
of Transfer}}{\text{CII of Year of Acquisition}}
○​ Indexed Cost of Improvement: \text{Cost of Improvement} \times \frac{\text{CII of
Year of Transfer}}{\text{CII of Year of Improvement}}
○​ Note: For assets acquired before 01.04.2001, the cost of acquisition can be taken
as the actual cost OR Fair Market Value (FMV) as on 01.04.2001, whichever is
higher. Indexation will be from 2001-02.
●​ Tax Rates for Capital Gains:
○​ STCG:
■​ On sale of listed equity shares/units of equity-oriented mutual funds (if STT
paid) (Section 111A): 15%.
■​ Other STCG: Taxed at normal slab rates applicable to the assessee.
○​ LTCG:
■​ On sale of listed equity shares/units of equity-oriented mutual funds (if STT
paid) exceeding ₹1,00,000 (Section 112A): 10% (without indexation benefit).
■​ On sale of any other LTCA (Section 112): 20% (with indexation benefit).
■​ LTCG arising from sale of unlisted shares of a company: 10% (without
indexation benefit, or 20% with indexation benefit, whichever is more
beneficial).
●​ Exemptions from Capital Gains (Re-investment exemptions - Section 54 series):
○​ Section 54 (LTCG on House Property): Exempt if LTCG from sale of residential
 house property is reinvested in:
■​ One new residential house in India (within 1 year before or 2 years after
transfer, or constructed within 3 years after transfer).
■​ For gains up to ₹2 Crores, assessee can invest in two residential houses in
India. This option is available only once in a lifetime.
■​ Exemption = Cost of new house or Capital Gain, whichever is lower.
○​ Section 54EC (LTCG on Land/Building): Exempt if LTCG from sale of land or
building is reinvested in specified bonds (e.g., NHAI, REC bonds) within 6 months
from transfer.
■​ Maximum investment allowed: ₹50 lakhs. Bonds have a lock-in period.
○​ Section 54F (LTCG on any other asset): Exempt if LTCG from sale of any other
LTCA (other than a house property) is reinvested in purchasing/constructing a new
residential house property in India.
■​ Condition: Assessee should not own more than one residential house (other
than the new one) on the date of transfer.
■​ Exemption = \text{LTCG} \times \frac{\text{Cost of New House}}{\text{Net
Sale Consideration}} (if investment is less than Net Sale Consideration). If
cost of new house is more than net sale consideration, full capital gain is
exempt.
Previous Year Question Example (UGC NET Commerce):
Question: Which of the following is NOT considered a capital asset for the purpose of
computing capital gains under the Income Tax Act, 1961? (A) Jewellery held for personal use
(B) Rural agricultural land in India (C) Shares of a listed company (D) Paintings and sculptures
Answer & Explanation:
●​ Correct Option: (B)
●​ Explanation:
○​ (A) Jewellery, even if held for personal use, is specifically included in the definition
of capital asset.
○​ (B) Rural agricultural land in India is explicitly excluded from the definition of capital
asset. Urban agricultural land is a capital asset.
○​ (C) Shares of a listed company are capital assets.
○​ (D) Paintings and sculptures are specifically included in the definition of capital
asset.

e. Income from Other Sources (Sections 56-59)

This is the residuary head of income, covering any income that does not fall under the other four
heads of income.
●​ Basis of Charge (Section 56): Income of every kind which is not chargeable under any
of the other four heads of income.
●​ Common Incomes Taxable under this Head:
○​ Dividends: From FY 2020-21, dividends from Indian companies are fully taxable in
the hands of shareholders.
○​ Interest Income: Interest from bank deposits, fixed deposits, loans given,
securities etc.
○​ Winnings from Lotteries, Crossword Puzzles, Races (including horse races),
Card Games, etc.: Taxable at a flat rate of 30% (plus surcharge and cess) without
any deductions for expenses or losses. The payer is usually liable to deduct TDS.
 ○​ Gifts (Section 56(2)(x)):
■​ Any sum of money received as a gift exceeding ₹50,000 without
consideration from any person(s) is fully taxable.
■​ Movable property (shares, jewellery, drawings, etc.) received without
consideration, where FMV exceeds ₹50,000, is fully taxable.
■​ Immovable property received without consideration, where stamp duty value
exceeds ₹50,000, is fully taxable.
■​ Exceptions (gifts that are NOT taxable, regardless of amount):
■​ Gifts received from relatives (defined to include spouse, siblings, lineal
ascendants/descendants of individual/spouse, and spouse of
siblings/lineal ascendants/descendants).
■​ Gifts received on the occasion of marriage of the individual.
■​ Gifts received under a will or by way of inheritance.
■​ Gifts received in contemplation of death.
■​ Gifts received from local authority, fund, foundation, university, hospital,
medical institution, trust, etc. specified in Section 10(23C) or Section
12A/12AA.
○​ Family Pension (Section 57(iia)): Pension received by heirs of a deceased
employee. A deduction of ₹15,000 or 1/3rd of the pension, whichever is less, is
allowed.
○​ Income from Sub-letting of House Property: If the assessee is a tenant and
sub-lets the property.
○​ Interest on Compensation/Enhanced Compensation (Section 56(2)(viii)):
Taxable in the year of receipt. 50% of such interest is allowed as a deduction
(Section 57(iv)).
○​ Remuneration from non-employment sources: e.g., examiner's fees,
remuneration for setting question papers.
●​ Deductions (Section 57):
○​ Any sum paid by way of commission or remuneration to a bank or a banker for
realizing dividend or interest.
○​ In the case of dividends or interest on securities, reasonable sum by way of
commission for realizing the dividend or interest.
○​ For family pension, deduction of ₹15,000 or 1/3rd of pension, whichever is less.
○​ For interest on compensation/enhanced compensation, 50% of such interest.
○​ Any other expenditure laid out or expended wholly and exclusively for the purpose
of earning such income, provided it is not in the nature of capital expenditure or
personal expense.
Previous Year Question Example (UGC NET Commerce):
Question: Mr. P received the following amounts during the Previous Year 2023-24:
1.​ Winning from Lottery: ₹1,00,000 (net of TDS 30%)
2.​ Gift of cash from a friend on his birthday: ₹70,000
3.​ Interest on Fixed Deposit: ₹15,000
4.​ Family Pension: ₹60,000
Compute Mr. P's income from Other Sources.
Answer & Explanation:
1. Winning from Lottery:
●​ Net of TDS means ₹1,00,000 is 70% of gross winnings.
●​ Gross Winnings = ₹1,00,000 / 0.70 = ₹1,42,857 (rounded)
 ●​ Taxable Winning from Lottery = ₹1,42,857 (No deductions allowed from lottery
winnings).
2. Gift of cash from a friend on his birthday:
●​ Amount received = ₹70,000.
●​ Since it's from a non-relative and exceeds ₹50,000, the entire amount is taxable.
●​ Taxable Gift = ₹70,000
3. Interest on Fixed Deposit:
●​ Fully taxable.
●​ Taxable Interest = ₹15,000
4. Family Pension:
●​ Pension received = ₹60,000
●​ Less: Deduction u/s 57(iia) (Least of ₹15,000 or 1/3rd of pension)
○​ 1/3rd of ₹60,000 = ₹20,000
○​ Deduction = ₹15,000
●​ Taxable Family Pension = ₹60,000 - ₹15,000 = ₹45,000
Total Income from Other Sources:
●​ ₹1,42,857 (Lottery) + ₹70,000 (Gift) + ₹15,000 (Interest) + ₹45,000 (Family Pension) =
₹2,72,857
This covers the initial concepts and heads of income. The next part will delve into deductions
from GTI, clubbing, set-off/carry forward of losses, assessment of various entities, and corporate
tax planning. Following that, GST will be covered.
(To be continued in the next response...)