Basic Concepts

Tax: It is one of the most common financial terms. Taxes are one of the primary sources
of income for the government through which it fulfils public needs and provide them
services. In Simple words “Money paid by people to the government on income, goods
and services, etc.” There are two types of taxes – Direct tax and Indirect tax.

Direct tax: A type of tax in which person pays tax from its own pocket. Tax, incidence
and impact of which fall on the same person. It means the burden of tax liability is not
shifted from assesse to another person and is recovered directly from the assesse.
Example: Income Tax, Wealth Tax (now abolished).

Indirect Tax: In this type of tax, Person collects the tax from the customer and pays to
government. Tax, incidence and impact of which falls on two different persons. The
burden of tax liability is shifted. Example Goods and Service tax, Custom Duty.

Example: A is a teacher and he charge fees excluding all taxes of ₹100,000 for a
complete year. He incurred 30,000 as expenses. Now Fees charged by teacher attracts
GST (indirect tax) which he will collect from students (say 18%). So, teacher will collect
₹ 100,000 + 18% of ₹ 100,000 from students. This ₹18,000 (the burden is shifted from
teacher to student and teacher collects the tax from students and pay to the Government)
Now, lets calculate the income of the teacher i.e. Revenue less Expenses = ₹ 70000
(₹100,000 - ₹ 30,000). Tax liability on ₹ 70,000 will be paid by teacher itself and thus it
is direct tax.

Income [Sec. 2(24)]

As per Income Tax Act, 1961 sec 2(24) Income gives an inclusive and not exhaustive
definition. It includes the following:

Profits and gains

Dividend
Voluntary Contributions received by a trust. Voluntary contributions received by a trust
are included in the definition of income. As such contributions received by following
types of trusts, funds, associations, bodies etc. are included in the income of such bodies.
Contributions received by a trust created wholly or partly for charitable or religious
purposes

Contributions received by a scientific research association.

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Contributions received by a fund or institution set up for charitable purposes and
notified u/s 10(23c) (iv) (v).

Contribution received by any university or other educational institution; hospital

referred in section 10(23c).

The value of any perquisite or profit in lieu of salary taxable under section 17(2) (3)
Any special allowance or benefit, other than perquisite included under sub-clause (iii),
specifically granted to the assesse to meet expenses wholly, necessarily and exclusively
for the performance of the duties of an office or employment of profit.

Any allowance granted to the assesse either to meet his personal expenses at the place
where the duties of his office or employment of profit are ordinarily performed by him or
at a place where he ordinarily resides or to compensate him for the increased cost of
living.

Value of any benefit or amenity, whether convertible into money or not, obtained by a
representative assesse or by any person on whose behalf such benefit is received by
representative assesse and sum paid by representative assesse in respect of any obligation
which hut for such payment would have been payable by the person on whose behalf
representative assesse has made such payments.

The profits and gains of any business of banking (including providing credit facilities)
carried on by a co-operative society with its members;
The value of any benefits or perquisites, whether convertible into money or not,
obtained from a company either by a director or by a person, who has a substantial
interest in the company, or by a relative of a director of such person, and any sum paid by
such company in respect of any obligation but for which, such payment would have been
payable by the director or other person afore said Any sum chargeable to income-tax
under section 28(u) and (iii) or section 41 or section 59;
Any sum chargeable to tax u/s 28 (iiia), 28(iiib), 28 (iiic), 28 (iv)
Any capital gain taxable under section 45
(a) Any sum whether received or receivable in cash or in kind under an agreement
for—not carrying out any activity in relation to any business; or not sharing any
know-how, patent, copyright, trade-mark, license, franchise or any other business or
commercial right of similar nature or information or technique likely to assist in the
manufacture or processing of goods or provision of services.
The profit and gains of any business of insurance carried on by a mutual
insurance company or by a co-operative society, computed in accordance with

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 section 44 or any surplus taken to be such profits and gains by virtue of provisions
contained in the first schedule.

Any winnings from lotteries, crossword puzzles, races including horse races,
card games and other games of any sort or from gambling or betting of any form
or nature whatsoever.

Any sum received by the assesse as his employers’ contributions to any provident
fund or superannuation fund or any fund set up under the provisions of the
Employee’s State Insurance Act, 1948 or any other fund for the welfare of’ such
employees
Any sum received under a key man insurance policy including the sum allocated
by way of bonus on such policy.

An aggregate amount of gift or gifts received (whether in cash or in the form of

property) exceeding Rs. 50,000 in a previous year by an individual or Hindu
undivided family from non-relatives shall be treated as income which will be taxable
in the hands of the recipient. (For details, please refer to chapter on Other Sources)

Gifts received by a firm or closely held company as provided in Section 56(2)

(viia).

Any consideration for issue of shares by a closely held company as exceeds the
fair market value of shares as provided in Section 56(2) (viib)

Previous Year and Assessment Year: Previous year means the financial year
immediately preceding the Assessment Year. Income earned in a year is assessed in
the next year. The year in which income is earned is known as Previous Year and
the year in which income is assessed is known as Assessment Year.

Ques) The general rule is that the income of the previous year alone should be taxed
in the immediately following assessment year” What are the exceptions to this rule?

Ans: The general rule is that the income of the previous year of an assesse is charged to
tax in the immediately following assessment year. However, there are exceptions to the
rule that income will be charged in the same previous year in which it is earned.

Income of non-resident assessee arising from shipping business (Sec 172).

Income of person leaving India either permanently or for a long period (Sec 174).
Income of bodies formed for short duration. (Sec 174A).
Income of a person who is likely to transfer his properties to avoid tax. (Sec. 175)
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Income of a discontinued business (Sec 176)

Reason for implementing this exception is to trace the taxpayer who may take advantage
of postponed tax assessment procedure.

Person: Person [Sec 2(31)]

The term person includes the following:

An individual
A Hindu Undivided Family
A Company
A firm
An Association of Person (AOP) [group of persons (whether individuals, HUF, company,
etc.] or Body of Individuals [group of individuals only like legal heirs coming together]
A local Authority; and Artificial Judicial person [ Ex: University, the God in Temple]

Assesse: As per Sec 2(27) of Income Tax Act, 1961 “assesse” means Any person by
whom any tax or any other sum of money in form of penalty or interest is payable.

Any person who is assessed (judged) for his income, the income of another person for
which he is assessable, or the profit and loss he has sustained.

Assesse are of four types:

1. Normal Assesse: An assesse who is liable to pay taxes for the income earned by
him during the previous year. Example: A salaried individual, Doctor, Lawyer,
gain on sale of fixed asset by owner of the property, etc.
2. Representative Assesse: A person liable to pay taxes for the income or losses
incurred by a third party. A third party may be a non-resident, minor, etc. Example:
Mr. Z is a non-resident of India and he earns income from a property situated in
India. Mr. Z has assigned a person (Mr. Mehta who takes care of the property and
collects rent. So, at the time of any investigation Mr. Mehta will be investigated
and asked to provide necessary documents as he is the guardian of the property and
represents Mr. Z. Here, Mr. Mehta is a Representative Assesse.
3. Deemed Assesse: An individual paying taxes of his legal authorities are deemed
assesse.
Example: Legal heir of a deceased person is a deemed assesse.
4. Assessee-in-default: A person who has failed to fulfil his statutory obligations as
per the income tax act either failed to deposit tax or file income tax return.
Example: A employer who has failed to deposit the tax deducted from the salary of
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 his employees will be treated as Assesse-in-default.

Heads of Income:
1. The income of a person is classified under following five heads:
Salaries
2. Income from House Property
3. Profits and Gains of Business or Profession
4. Capital Gains
5. Income from other sources. (Residual head).

Gross Total Income and Total Income:

Gross total income is the sum of all incomes earned under five heads of income after
adjusting the set-off and carry forward of all losses.

Total Income is arrived after providing Deductions under chapter VI A from Gross Total
Income.

Computation of Total Income for the A.Y.

Particulars Amount
Salaries xxxx
Income from House Property xxxx
Profits and gains of business or profession xxxx
Capital Gains xxxx
Income from Other Sources xxxx
Total xxxx
Less: Adjustment on set-off and carry forward of losses (xxx)
Gross Total Income xxxx
Less: Deductions under Chapter VI A (xxx)
Total Income xxxx

Important Points to be remember:

1. Tax Liability is charged on Total Income after rounding off of Income (u/s 288A)
to nearest ₹10.
2. Rebate u/s 87A is allowed on Tax Liability computed above if income of Resident
Individual does not exceed ₹500,000. Rebate allowed should be lower of ₹ 12,500
or Tax Liability.
3. Add: Health and Educational Cess @ 4% on tax liability after rebate.

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 4. TDS, TCS and Advance Tax paid shall be reduced from tax liability to ascertain
tax payable.
5. Rounding off Tax Liability (u/s 288B) to nearest ₹10.

Residential Status
The term residential status has been coined under the income tax laws of India and must
not be confused with an individual’s citizenship in India. The taxability of an individual
in India depends upon his residential status in India for any particular financial year.

An individual may be a citizen of India but may end up being a non-resident for a
particular year. Similarly, a foreign citizen may end up being a resident of India for
income tax purposes for a particular year.

Residential Status of an assesse determines the scope of chargeability of his income.

Residential Status of an Individual

Resident of India Non Resident of India

Ordinary Resident Resident but Not Ordinary Resident

Basic Condition [Sec 6(1)]

An individual is said to be resident in India, if he satisfies any one of the following

condition:
a. He is in India in the previous year for a period of 182 days or more [Sec 6(1)(a)]
b. He is in India for a period of 60 days or more during the previous year and for 365 or
more days during 4 preceding previous year. [Sec 6(1)(c)]
Exceptions to the above rule

In the following cases, condition (ii) of Sec 6(1) is irrelevant:

a. An Indian citizen, who leaves India during previous year for employment purpose.
b. An Indian citizen, who leaves India during the previous year as a member of crew of
an Indian ship.
c. An Indian citizen or a person of Indian origin, who normally resides outside India,
comes on a visit to India during previous year.

Additional Condition
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He has been resident in India [as per sec 6(1)] in at least 2 out of 10 previous years
immediately preceding the relevant previous year;

AND

He has resided in India for a period of 730 days or more during 7 previous years
immediately preceding the relevant previous year.

Hindu Undivided Family [Sec 6(2)]

An HUF can be either a resident or non-resident in India. Again, a resident HUF can
further be classified as 'Ordinarily resident' and 'Not ordinarily resident.

Resident HUF: When the control & management of affairs of HUF is wholly or partly
situated in India during the relevant previous year, then it is treated as resident in India.

Non-resident HUF: An HUF is non-resident in India if the control & management of its
affairs is wholly situated outside India.

Ordinarily resident in India: If the 'karta’ or manager of a resident HUF satisfies both
additional conditions given u/s 6(6), HUF is said to be an ordinarily resident.

Control & management means:

a. Controlling & directive power;
b. Actual control & management (mere right to control & manage does not amount to
control & management);
c. Central control & management and not the carrying out of day to day affairs.
Company [Sec 6(3)]

Resident Company: An Indian Company is always a resident in India.

A Non-Indian company is said to be a resident in India, if its place of effective

management, in that year, is in India. "Place of effective management" means a place
where key management and commercial decisions that are necessary for the conduct of
the business of an entity as a whole, are in substance made.

Non-Resident Company: If place of effective management, in that year, is not in India,

the said company is non-resident in India for the relevant previous year.

Stress: In case of company, there is no sub-division like 'Ordinarily resident' or Not

ordinarily resident'.
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Firm or an Association of Persons (AOP) or Body of Individuals (BOI) [Sec. 6(4)]

Resident: A firm or an AOP or BOI is said to be a resident in India, if control &

management of its affairs are wholly or partly situated in India during the relevant
previous year.
Non-resident: If control & management of its affairs are situated wholly outside India,
then it is a non-resident in India.

Any other Person

Resident: Any other assesse will be treated as resident in India if the control and
management of its affairs is situated wholly or partly in India.

Non Resident: If Control and management of affairs of the assesse, are situated wholly
outside India, it is a non-resident in India.

Incidence of Tax [Sec 5]

Resident and Resident but Non
Nature of Income Ordinarily not ordinarily Resident
Resident resident
Income accrued or deemed to be accrued
and received or deemed to be received in Taxable Taxable Taxable
India
Income accrued or deemed to be accrued
outside India but received or deemed to be Taxable Taxable Taxable
received in India.
Income accrued or deemed to be accrued
in India but received or deemed to be Taxable Taxable Taxable
received outside India
Income accrued and received outside India
from a business controlled or profession Taxable Taxable Not
set up in India. Taxable
Income accrued and received outside India
from a business controlled or profession Taxable Not Taxable Not
set up outside India Taxable
Income accrued and received outside India
in the previous year (it makes no Taxable Not Taxable Not
difference if the same is later remitted to Taxable
India)

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Income accrued and received outside India
in any year preceding the previous year Not Taxable Not Taxable Not
and later on remitted to India in current Taxable
year

1. Sunil provides following details of income, calculate the income which is liable to be
taxed in India for the A.Y. 2021-22 assuming that:
a. He is an ordinarily resident.
b. He is not an ordinarily resident.
c. He is a non-resident.

Particulars Amount (₹)

Salary received in India from a former employer of London 1,40,000
Income from tea business in Nepal being controlled from India 10,000
Interest on Company deposit in Canada(1/3rd received in India) 30,000
Profit from a Business in Mumbai controlled from China 100,000
Profit for the year 2010-11 from a business in Tokyo remitted to India 200,000
Income from a property in India but received in USA 45,000
Income from a property in London but received in Patna 1,50,000
Income from a property in London but received in Bangkok 2,50,000
Income from a business in Italy but controlled from Turkey 10,000

Solution:

Particulars OR RNOR NRI

Salary received in India from a former employer 1,40,000 1,40,000 1,40,000
of London
Income from tea Business in Nepal being 10,000 10,000 10,000
controlled from India
Interest on company deposit in Canada 10,000 10,000 10,000
1/3rd received in India
2/3rd received outside India 20,000 Nil Nil

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 Profits from a business in Mumbai controlled 1,00,000 1,00,000 1,00,000
from China
Profits of earlier year from a business in Tokyo Nil Nil Nil
remitted to India
Income from a property in India but received in 45,000 45,000 45,000
USA
Income from a property in London but received in 150,000 150,000 150,000
Patna
Income from a property in London but received in 250,000 Nil Nil
Bangkok
Income from a business in Italy but controlled 10,000 Nil Nil
from Turkey
Taxable Income 7,35,000 4,55,000 4,45,000
2. Mr Ajnabi provides following information regarding his income of PY 2020-21.
Compute income liable to be charged in India in the following cases:
(a) Ordinarily Resident (b) Not Ordinarily resident (c) Non-Resident

Particulars Amount (₹)

Business income from USSR received in India 10,000
Business income earned in India received in Pakistan 20,000
Salary received from a company of UK situated in India 15,000
Interest on German Bond(2/5th received in India) 60,000
Income from agriculture in Nepal received there but later on 181,000
remitted to India
Income from property in Jakarta received outside India 86,000
Income earned from business in UAE which is controlled from 65,000
Delhi (15,000 received in Delhi)
Past untaxed profit of 05-06 10,43,000
brought to India during previous year
Profit from a business in Madras and managed from outside India 27,000
Profit on a sale of a building in India but received in Sri Lanka 14,80,000

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 Pension from a former employer in India received in USSR 36,000

Solution:

Particulars OR RNOR NRI

Business income from USSR received in 10,000 10,000 10,000
India
Business Income earned in India received in 20,000 20,000 20,000
Pakistan
Salary income from a company of UK 15,000 15,000 15,000
situated in India
Interest on German Development Bond
2/5th received in India 24,000 24,000 24,000
3/5th Received outside India 36,000 - -
Income from agriculture in Nepal 181,000 - -
Income from property in Jakarta received 86,000 - -
outside India
Income earned from Business in UAE being
controlled from Delhi 15,000 15,000 15,000
Received in India 50,000 50,000 -
Received outside India
Past Untaxed Profit brought to India - - -
Profit from a Business in Madras and 27,000 27,000 27,000
managed from outside India
Profit on a sale of a Building in India 14,80,000 14,80,000 14,80,000
Pension from a former employer in India 36,000 36,000 36,000
received in USSR
Taxable Income 19,80,000 16,77,000 16,27,000

3. A French national came to India for the first time on 1st July, 2014. For the period
from that date to 31st March, 2020, he stayed in India from 1st July, 2014 to 31 st
October, 2015 and from 1st May 2016 to 31st October, 2016, from 1st November, 2018

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to 31st December 2018 and from 1st July, 2019 to 31st August, 2019. During the previous
year ended on March, 2020 his income consisted of
1. Business income in India ₹ 1,00,000;
2. Dividend from Indian companies ₹ 30,000.
3. Dividend from non-Indian companies received in France but remitted to India ₹
70,000.
4. Business in France (but controlled from India) ₹ 90,000.
5. Income from house property in France ₹ 40,000.

Determine, giving full reasons, the gross total income of Mr. X for the assessment year
2021-22 after ascertaining his residence for the purpose of income tax.

Ans: Gross Total Income ₹ 300,000. Assessee is Resident and Ordinarily Resident

4. Kanak, a Bangladeshi national discloses the following particulars of his income during
the previous year 2020-21:
(i) Income from house property in Bangladesh, remitted by tenant to him in India
through State Bank of India 1,00,000
(ii) Income from business in Singapore, controlled and managed from Singapore and
profit received in Singapore 5,00,000.
(iii) Profit from business in Bangladesh, controlled and managed from India but profit
being received in Bangladesh 10,00,000.
(iv) Net dividends received from Bangladeshi companies outside India 1,35,000 (tax
deducted at source 15,000).
(v) Interest received on bonds of U.K. companies outside India 45,000

Determine income liable to be taxed in India for the previous year 2020-21 in the
following cases:
(a) He is resident and ordinarily resident in India during the previous year;
(b) He is resident but not ordinarily resident in India during the previous year.

[Ans: (a) 17,95,000; (b) 11,00,000]

5. The following are the particulars of income of Sri Arun Singh for the previous year
2020-21:

(a) Profit of 50,000 from a business in Nepal deposited in a bank therein. The business is
controlled from India.
(b) Income from house property in London but received in India 1,00,000.
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(c) Income from agriculture in Bangladesh received therein 75,000.
(d) Income of 60,000 from a business in Sri Lanka received in India. The business is
controlled from Sri Lanka.
(e) 80,000 brought into India out of the past untaxed profit earned in USA. Compute
income liable to be taxed in India for the Assessment Year 2021-22 if he is a
(i) Resident but not ordinarily resident in India and
(ii) Non-resident in India.
[Ans: (i) 2,10,000; (ii) 1,60,000]
6. During the financial year 2020-21, Sri Avirup Acharya had the following incomes.
Compute the income liable to be taxed in India of Sri Acharya if he is
(i) Not Ordinarily resident and
(ii) Non-resident in India.

i. Income from profession in India but received in USA ₹1,00,000

ii. Agricultural income accrued and received in Australia ₹20,000
iii. Income from business in Indonesia not brought into India ₹3,00,000. The business
controlled from India.
iv. Property income accrued and received in London (out of which ₹40,000 was remitted
to India) ₹1,30,000
v. Interest from deposits with an African company but received in India ₹75,000.
[Ans: (i) 4,75,000; (ii) 1,75,000]
7. Joseph, a foreign citizen (not being a person of Indian origin), came to India for the
first time on 2nd January, 2021 for a visit of 210 days. He had the following income
during the previous year ended 31-3-2021:

Salary received in India for 3 months 90,000

Income from house property in London (received there) 2,69,200
Interest on saving bank deposit in Standard Chartered Bank, New 40,000
Delhi
Amount brought into India out of the past untaxed profit earned in 80,000
Germany
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Income from agriculture in Sri Lanka being invested there 12,324
Income from business in Nepal, being controlled from India 30,240
Gift in foreign currency from a relative received in India 80,000
Income from house property in USA received in USA (76,000 is 86,000
used in 86,000 Canada for meeting the educational expenses of his
daughter and Rs. 10,000 is later on remitted to India)
You are required to compute his gross total income and total income for the A.Y. 2021-
22.
[Ans: Rs. 70,000]

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 Previous Year Question
1. What are the different categories of assesses with regard to residential
status under Indian Income Tax Law? How is the residential status of an
individual assessee determined under the Indian Income Tax Law?
[1996]
2. Income-tax is charged on total income depending on the residence of an
assessee. Explain.
What are criteria for determining the residence of an individual and
company? Can a man be resident in two countries, though he has one
domicile?
[1990]
3. Mr. X, a French national, came to India for the first time on 1st July, 2015.
For the period from that date to 31 March, 2021, he stayed in India from
1st July, 2015 to 31st October, 2016, from 1st May, 2017 to 31st October,
2017, from 1st November, 2019 to 31st December, 2019 and from July,
2020 to 31st August, 2020. During the previous year ended on 31st March,
2021, his income consisted of:
1. Business income in India Rs. 1,00,000;
2. Dividend from Indian companies Rs. 30,000.
3. Dividend from non-Indian companies received in France but remitted to
India Rs. 70,000.
4. Business in France (but controlled from India) Rs. 90,000.
5. Income from house property in France Rs. 40,000.
Determine, giving full reasons, the gross total income of Mr. X for the
assessment year 2021-22 after ascertaining his residence for the purpose of
income tax.
[1990]
4. Define residential status. Examine the incidence of taxes based on
residential status.
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 [1997]
5. State the basic conditions of Income-Tax Act to determine the residential
status of an individual, a company and all other persons.
[2014]
6. "Residential status has its effect on computation of taxable income under
the Income Tax Act, 1961." Discuss.
[2017]
7. In what way does the liability of tax of a "not ordinarily resident" person
differ from that of a "resident" person under the Income Tax Act?
[2018]

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INCOME EXEMPT FROM TAX (Sec 10)
Income which do not form part of total income are exempted from tax either partially or
completely.
a. Agricultural Income [Sec 10(1)]
b. The income earned from agricultural land situated in India is totally exempted from
tax. The reason behind the total exemption is Central Government has no power to
levy tax on agricultural income as per the Constitution.
c. Income may be any rent or revenue derived from a land, which is situated in India and
is used for agricultural purposes.
Note: Rent may be in cash or kind and assessee may be the owner or tenant of such
land.
d. Amount of share received by a member from the income of the HUF. [Sec 10(2)]
e. Any sum received by an individual as a member of a Hindu Undivided family and such
sum has been received out of the income of the family or out of the income of the
impartible estate belonging to the family.
f. Share of profit of partner from a firm [Sec 10(2A)]
g. Income earned by partner from the total income of a firm is exempted from tax.
h. Interest on notified securities and bonds issued to non-residents, including premium on
redemption of such bonds is exempted [Sec 10(4)]
i. Interest on savings certificate to non-residents [Sec 10(4B)]
j. Interest on Rupee denominated Fund[Sec 10(4C)]
k. Income received by specific fund [Sec 10(4D)]
l. Leave Travel Concession [ Sec 10(5)]
m. Remuneration to person who is not a Citizen of India in certain cases. [Sec 10(6)]
n. Individual assesse who are not citizens of India are entitled to certain exemptions:
o. Remuneration received by officials of Embassies of Foreign States.
p. Remuneration received for services rendered in India by a Foreign national employed
by foreign enterprise.
q. Salary received by a non-citizen for services rendered in connection with employment
in foreign ship
r. Remuneration received by Foreign Government employees during their stay in India
for specific training.
s. Tax paid by Government on Royalty or Fees for technical service [Sec 10(6A)]
t. Tax paid by Government on Income of a Non-Resident or a Foreign Company [ Sec
10(6B)]
u. Tax paid on Income from Leasing of Aircraft [Sec 10(6BB)]
v. Fees for technical services in Project connected with security of India
w. Dividend Income
x. Infrastructure Debt Fund
y. Income of SAARC Fund
z. Awards and Rewards from CG, SG or any other approved body
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 Previous Year Question
1. Discuss the provision of Income Tax regarding incomes which are
neither included in total Income nor tax is payable to them ?
2. Discuss the provisions of Income-Tax Act, 1961 relating to the
exemption from Income Tax of the following: (i) Casual Income; (ii)
House Rent Allowance.
3. Write a brief note on incomes which are totally exempt from income tax
under Section 10 of the Income-Tax Act.
4. Write a short note on deductions allowed in computing taxable income
5. What are the deductions that are to be made in computing total income?
6. Prepare a note on deductions from gross total income in respect of
certain incomes and certain payments for individuals.
What are the various deductions made from Gross Total Income?

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 Salaries

Salary means a fixed regular payment generally paid on a monthly basis. A form of
payment made by employer to an employee. It also means “compensation for rendering
some sort of services”. The basic element of salary is that payer and payee must have
employer and employee relationship.

Salary at a glance

Computation of Taxable Salary of ..... for the A.Y.

Particulars Details Amount
Basic Salary *****
Fees *****
Commission *****
Bonus *****
Gratuity *****
kLeave Encashment *****
Pension *****
Allowances:
Dearness Allowance ****
House Rent Allowance ****
Children Education Allowance ****
Children Hostel Allowance ****
Entertainment Allowance ****
Medical Allowance ****
City Compensatory Allowance ****
Uniform Allowance ****
Transport Allowance ****
Other Allowance **** *****
Perquisites u/s 17(2)
Rent Free Accommodation ****
Motor Car Facility ****
Gas, Electricity & Water ****
Any Obligation of Employee paid by employer **** *****
Contribution of Employer to Provident Fund *****
Interest on Recognized Provident Fund *****
GROSS SALARY *****
less: Deduction u/s 16
Standard Deduction ****
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 Entertainment Allowance ****
Tax on employment/Professional Tax **** ( *****)
Taxable Salary ******

We will discuss about each and every items individually which will help you to
understand clearly.

Basic Salary/ Basic Pay: A sum paid by employer to employee as salary. (Fully
Taxable)
Pay-Scale/ Grade System: A system of payment in where increment scale is already
known to employee.

Example: Mr. Raj was appointed on 1.1.2015 in the scale of ₹10,000-2000-14,000-3000-

20,000-5000
Compute his basic pay for the assessment year 2021-22.

Solution: Mr. Raj has joined with an initial payment of ₹ 10,000p.m. It will increase by ₹
2,000 every year until it reaches ₹14,000. Once salary reaches to ₹ 14,000 again an
increment of ₹ 3000 every year till it reaches to ₹ 20,000 and so on.

Period
From 1/1/2015 to 31/12/2015 10,000 p.m.
From 1/1/2016 to 31/12/2016 12,000 p.m.
From 1/1/2017 to 31/12/2017 14,000 p.m.
From 1/1/2018 to 31/12/2018 17,000 p.m.
From 1/1/2019 to 31/12/2019 20,000 p.m.
From 1/1/2020 to 31/12/2020 25,000 p.m.

Basic Salary for the Previous Year 2019-20 will cover period from 1/4/2019 to
31/3/2020.
Salary for the period of 1/4/2019 to 31/12/2019 is (₹ 20,000*9 months) and from
1/1/2020 to 31/3/2020 is (₹ 25,000 *3 months) = ₹ 180,000 + ₹ 75,000 = ₹255,000.

Fees: Fully Taxable

Commission: It may be as a percentage of turnover or as a percentage of profit. (Fully
taxable)

Bonus: Voluntary Bonus is taxable as perquisite whereas Contractual Bonus is taxable as

bonus. (Fully taxable)

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Gratuity: Gratuity is a retirement benefit for an employee in which employer makes a
lump sum payment in consideration of his past services at the termination of service.
Treatment:

Gratuity received during continuation of service (Any employee)- Fully taxable

Gratuity received on Termination of service:
Government Employee- Fully Exempted
Non-Government Employee:

Covered by the Payment of Gratuity Act

Not covered by the payment of Gratuity Act.
Gratuity received after death of employee – Fully exempted
Lets discuss in detail:
Covered by the payment of Gratuity Act:

Minimum of the following is exempted:

Actual Gratuity Received
Statutory Limit (₹ 20,00,000)
15/26 * Completed year of Service * Last drawn Salary p.m.
Note: Completed year of service includes any fraction in excess of 6 months will be
treated as a completed year.

(Ex: 10 years 8 months will be considered as 11 completed years whereas 10 years 4

months will be considered as 10 completed years)
Salary here means Basic + DA

Not Covered by the payment of Gratuity Act:

Minimum of the following is exempted:

1. Actual Gratuity Received.
2. Statutory Limit (₹ 20,00,000) .
3. 1/2 * Completed year of Service * Average Salary p.m.
Note: Completed year of service ignores any fraction. (Ex: 10 years 8 months will be
considered as 10 completed years as well as 10 years 4 months will be considered as 10
completed years).

Average Salary here means last 10 months average of Basic + DA + Commission on

Turnover.

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Pension: It means a periodical payment received by an employee after his retirement.
Pension are of two types Uncommuted (received at regular interval) and Commuted
(received in lump sum).

Treatment:
Uncommuted Pension - Fully Taxable (All Employees)
Commuted Pension
Government Employee: Fully Exempted

Non- Government Employee:

Employee has also received Gratuity (One-third of total pension shall be exempted)
Employee has not received Gratuity (Half of total pension shall be exempted)
Note: Pension received by a widow or legal heir of a deceased employee shall be taxable
as Income from other sources.

ALLOWANCES: A fixed quantum of money given regularly in addition to salary to

meet particular requirements like Inflation, Medical, House Rent, etc.

Dearness Allowance: Fully taxable

Children Education Allowance: Exemption allowed up to ₹100 p.m. for maximum two
children

Children Hostel Allowance: Exemption allowed up to ₹300 p.m. for maximum two
children.
Two Children: “ Hum Do Hamare Do”

Transport Allowance: Exemption of ₹3200 p.m. allowed to only physically handicapped

employees.

Truck Driver’s Allowance: Minimum of the following is exempted:

70% of Allowance received
₹10,000 per month

House Rent Allowance: Minimum of the following is exempted:

Actual House Rent Allowance received
50%/40% of Salary
Rent Paid – 10 % of Salary

Note: Salary means Basic plus Dearness Allowance (forming part of retirement benefit)
plus Commission on Turnover
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Metro Cities: 50% and for Non-Metro Cities: 40%.

Entertainment Allowance: Fully Taxable for Non-Government Employees but certain

exemption to government employees. (Discussed Later)

ALLOWANCE

FULLY TAXABLE PARTIALLY

TAXABLE/PARTIALLY EXEMPTED
Entertainment Allowance House Rent
Allowance
Dearness Allowance Children
Education Allowance
Overtime Allowance Children
Hostel Allowance
Medical Allowance Truck
Driver Allowance
Tiffin Allowance Transport
Allowance
City Compensatory Allowance
(allowance paid to meet increased cost of living in cities)
Servant Allowance
Tiffin Allowance
Lunch Allowance
Warden Allowance

Illustration 2:
Mrs. Sonia working for Sunshine Ltd in Delhi has furnished following details of her
salary:

Particulars Amount
Basic Pay 20,000p.m
Dearness Allowance 8,000 p.m. (60% forming part of retirement
Education Allowance benefit)
Hostel Allowance 1000 p.m. (She has 2 son and 2 daughter)
Medical Allowance 2000p.m. (none of the children is sent to hostel)
Transport Allowance 2000p.m. (Expenditure incurred ₹15,000)

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 City Compensatory 2,000 p.m. (amount used for office to residence
Allowance and vice-versa)
Servant Allowance 1,000 p.m.
Assistant Allowance 5,00 p.m.
House Rent Allowance 1,500 p.m. (paid to assistant ₹12,000)
Bonus 10,000p.m (Rent Paid 8,000 p.m.)
Commission on profit 50,000
50,000

Compute her gross taxable salary.

Solution:

Computation of Gross Taxable Salary of Mrs. Sonia for the Assessment year 2021-
22

Amount
Particulars Details (₹) Amount
(₹) (₹)
Basic Salary 2,40,000
Bonus 50,000
Commission 50,000
Allowances:
Dearness Allowance 96,000
Education Allowance 12,000
Less: Exemption (100*2*12) (2,400) 9,600
Hostel Allowance 24,000
Less: Exemption (300*2*12) (7,200)
Medical Allowance 24,000
Transport Allowance 24,000
Servant Allowance 6,000
Assistant Allowance 18,000
Less: Exemption (Being Actual (12,000) 6,000
Expenditure)
House Rent Allowance 120,000
Less: Minimum of the following is
exempted

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 Actual House Rent Allowance
120,000 (67,200) 52,800 218,400
50% of Salary
144,000
Rent Paid- 10% of Salary (96,000-
28,800) 67,200
Gross Taxable Salary 558,400

Working: Salary = Basic + DA

240,000 + 96,000 (50%) Allowances which depends on actual expenditure
=288,000

Allowance which depends on actual expenditure incurred

Travel Allowance
Daily Allowance
Conveyance Allowance
Assistant/Helper Allowance
Professional Development Allowance/ Research Allowance
Uniform Allowance

Perquisites [Sec. 17(2)]

Perquisite means an extra benefit given to specified employees in addition to salary.
Some perquisites are exempted while some are taxable.

Exempted Perquisite:
Computer Facility/Laptop
Mobile/Telephone Expenses
Tea or Snacks
Food
Training
Medical Facility (However, Medical Allowance is taxable)
Loans (Loans at nil or concessional rate of interest and amount of loan does not exceed ₹
20,000)
Conveyance Facilities (Provided for journey between office and residence and vice versa)
Free Education Facility (Maximum of ₹ 1000 p.m. provided for education facility to the
children of employees without any restrictions on number of children as in case of
Children Education Allowance)
Recreational Facility

Taxable Perquisite:

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Rent Free Accommodation (Unfurnished)

Case 1: Accommodation is owned by employer.

15 % of Salary [if population of city is more than 25 Lacs]
10 % of Salary [for population between 10 lacs and 25 lacs]
7.5% of Salary [for Population less than 10 lac]

Case 2: Accommodation is hired by employer.

Rent Paid by employer or
15% of Salary, whichever is lower

Rent Free Accommodation (Furnished) [Accommodation+ Furniture]

Accommodation: Calculation of Accommodation will be same as above

Furniture: If Furniture is owned by employer- 10% of Cost of Furniture and if hired by

employer- Hired Charges paid

Note: Furniture includes AC, Refrigerator, Bed, etc.

Salary here means Basic + Bonus + Fees + Commission + Dearness Allowance (only
retirement benefit) + All Other Taxable Allowances.

Chit-Chat: RFA me salary ke liye Perquisite ke pehle ka sab lelenge except koi v
lumpsum payment like gratuity, pension, leave encashment (wo jo termination of service
me milta hain use ni lenge).

If Employee pays any rent for the above accommodation, then taxable perquisite will be
Value of Rent Free Accommodation less Rent Paid by Employee.

Valuation of perquisites in respect of Motor Car

Motor Car is owned by Employer

Maintained by Employer Maintained by Employee

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 Used forTaxable Perquisite
OfficeNot a perquisite
PersonalDepreciation of car +
Maintenance Charges
Both Purpose ₹1800 p.m. (Less than
(Office + 1600cc)
Personal) ₹2400 p.m. (More than
1600cc)

Used for Taxable Perquisite

Office Not a perquisite
Personal Depreciation of car
Both Purpose ₹600 p.m. (Less than
(Office + 1600cc)
Personal) ₹900 p.m. (More than
1600cc)

Motor Car is owned by Employee

Maintained
by Employer Maintained by Employee

Used for Taxable Perquisite Not a Perquisite

Office Not a perquisite
Personal Maintenance Charges
Both Purpose ₹1800 p.m. (Less than
(Office + 1600cc)
Personal) ₹2400 p.m. (More than
1600cc) Trick to remember: Perquisite wo
hota hain jo employer ke pocket se
jae, so agar employer ka car h to depreciation perquisite hoga aur agar maintenance cost
employer ka hain to maintenance cost hoga and agar employer ka kuch v pocket se ni
laga to perquisite hi ni hua qki employer ne kuch v ni diya.

Chauffeur/Driver Facility:

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If Driver is provided along with Car then salary of driver paid by employer will be
taxable perquisite if used for personal purpose and if used for both the purpose ₹900 per
month will be taxable perquisite (irrespective of car capacity).

Valuation of Perquisite in respect of Interest Free Loan or Concessional rate of

Interest.
Perquisite in respect of interest free loan or loan at concessional rate of interest to the
employee or any member of his household is not taxable if aggregate amount of loan does
not exceed ₹ 20,000.

Important Notes:
Loan provided for medical treatment (specified diseases) is not taxable if the loan amount
has not been reimbursed from Insurance Company.

The difference between interest charged as per law (Bank interest rate) and interest
charged by employer will be taxable perquisite.
(e.g. Car loan of ₹ 500,000 provided to employee at 5% p.a. SBI interest rate for Car loan
is 15% p.a.
So taxable perquisite will be ₹500,000 x (15%-5%): ₹50,000.

Interest for loan amount greater than ₹ 20,000 will be charged for total loan amount and
not the difference amount.

Valuation of Perquisite in respect of free education.

Education provided to employee is fully exempted.
Education provided to employee’s family member.

Child of the assessee: Cost of such education subject to an exemption of ₹1000 p.m. per
child shall be taxable.
Other Family Member: Cost of such education is taxable.

Note: Child includes adopted child, stepchild of the assessee, but does not include
grandchild. [No restrictions on number of children]

Gift, Voucher or Token given by employer:

Gift, Voucher or Token given by employer to the employee or any member of his
household shall be taxable.
Gift, voucher or token up to ₹ 5000 in aggregate shall be exempted.
When worth of gift is in excess of ₹ 5,000 then amount in excess of ₹ 5,000 shall be
taxable.
Cash gift is fully taxable.
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Provident Fund:
It is a retirement benefit scheme in which a stipulated sum is regularly deducted from the
salary of the employee as his contribution towards the fund. The employer also, generally
contributes a similar amount out of his pocket to the fund.

The employer and employee’s contribution are together invested and interest is earned
thereon which is credited to provident fund account. On termination of service or
retirement, employee receives the whole accumulated fund.

Provident fund are of four types:

1. Statutory Provident Fund (SPF):
These are maintained by Government, Semi Govt bodies, Railways, Universities, Local
Authorities etc.

The contributions made by the employer are exempted from income taxes in the year in
which contributions are made.

The contributions made by the employee can be claimed as tax deductions under section
80c.

Interest amount credited during the financial year is not treated as income and hence it is
exempted from income tax. The redemption amount at the time of retirement is exempted
from tax.

If an employee terminates the PF account, the withdrawal amount too is exempted from
taxes.

2. Recognized Provident Fund (RPF):

Any establishment (business entity) which employs 20 or more employees can join RPF.
Most of the individuals (who are salaried) generally contribute to this type of Provident
Fund. This is one of the popular types of Employee Provident
Fund (EPF). (Organizations which employ less than 20 employees can also join RPF if
the employer and employees want to do so).

The business entity can either join the Govt. scheme set up by the PF Commissioner (or)
the employer himself can manage the scheme by creating a PF Trust. All Recognized
Provident Fund Schemes must be approved by The Commissioner of Income Tax
Employer’s contribution in excess of 12% of salary is treated as income of the employee
and is taxable. In excess of 12%, the contributions are taxable in the year of contribution.

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Tax Deduction u/s. 80C is available for amount invested by the employee (up to Rs 1.5
Lakh in a Financial Year).

Interest amount earned (up to 9.5% interest rate) on PF balance (employee’s +

employer’s contributions) is tax free. In excess of 9.5%, the interest on contributions is
taxable as ‘salary’ in the year in which it is accrued.

Accumulated funds redeemed by the employee at the time of retirement / resignation are
exempt from tax if he/she continues the service for 5 years or more.

3. Unrecognized Provident Fund (URPF):

These are not recognized by Commissioner of Income Tax.
Employer’s contribution is not treated as income in the year of investment and hence not
taxable in that specific year. So, it is tax free in the year of contribution.
Tax deduction under section 80c is not available on Employees contributions.
Interest earned is not treated as income in the year it is credited and hence not taxable in
the year of accrual.

At the time of redemption/retirement, the employer’s contributions and interest thereon is

treated as ‘salary income’ and chargeable to tax. However, employee’s contribution is not
chargeable to tax. Interest on Employees contribution will be charged under income from
other sources.

4. Public Provident Fund (PPF):

Under PPF any individual from public, whether is in employment or not may contribute
to this fund.

The minimum contribution is ₹ 500 p.a. & maximum is ₹1,50,000 p.a. The amount is
repayable after 15 years.

PPF can serve as an excellent retirement planning / savings tool, for those who do not
come under any pension scheme.

The PPF offers tax benefit under section 8OC and the interest earned is also exempt from
tax. All the eligible withdrawals are exempted from taxes.

Tax Treatment:
SPF RPF PPF
Particulars URPF
Employer’s Not Taxable Exempted up Not Not

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 Contribution to 12% of Taxable Applicable
Salary
Employee’s Eligible for Eligible for Not Eligible for
Contribution deduction u/s deduction u/s eligible deduction
80C 80C for u/s 80C
deduction
Interest Not Taxable Exempted @ Not Not
9.5% p.a. Taxable Taxable

Salary here means Basic + Dearness Allowance (forming part of retirement benefit)
+ Commission on turnover.

Deduction from Gross Salary [Sec 16]:

Standard Deduction [Sec 16 (ia)]: All employees are eligible for a standard deduction
of ₹50,000 or Gross Salary whichever is lower.

Entertainment Allowance [Sec 16(ii)]: All government employees are eligible for
deduction whereas non-government employees are not eligible and fully taxable to them.
Minimum of the following is allowed as deduction for Entertainment Allowance:
Actual Entertainment Allowance
₹ 5,000/-
20% of Basic Salary/Basic Pay.

Professional Tax or Tax on Employment [Sec 16(iii)]

If Professional Tax is paid by employer on behalf of employee:
Firstly, Add/Include as Taxable Perquisite
Secondly, Deduct/Allow as Deduction u/s 16(iii)
If Professional Tax is paid by employee, then only allow it as deduction u/s 16(iii)

Conversion of Net Salary into Gross Salary:

Gross Salary: Net Salary + Employee’s Contribution to provident fund + TDS + Loan
Repayment by employee + Any other deduction from Salary.

RECAP

Meaning of Salary for Different Purpose

Gratuity (covered by the
Payment of Gratuity Act) Basic + DA
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Gratuity (not covered by the
Payment of Gratuity Act) Basic + DA + Commission on T/O
HRA Basic + DA + Commission on T/O
Rent Free Accommodation Basic + DA + Commission on T/O
+ Bonus + Fees+ Any other
Taxable Allowances)
Provident Fund Basic + DA + Commission on T/O
Entertainment Allowance Basic Only

Illustration 1:

Mr. D submits the following particulars of his income for the previous year 2020-21
₹
Basic Pay
16,500
p.m.
Dearness allowance (20 % of basic pay) -
Bonus (one month’s basic pay) -
Transport allowance 500 p.m.
Education allowance for two children 400 p.m.
Hostel allowance for one child 500 p.m.
Medical allowance (actual expenditure ₹1,000) 200 p.m.
Encashment of annual leave 20,000
House Rent allowance (Rent paid by Mr. D for a house at 800 p.m.
Ranaghat ₹1,000p.m.)
Both own and employer’s contribution to recognized provident 2,000
fund (each) p.m.
Interest credited to Recognized Provident Fund @ 15% p.a. 3,000
During the previous year Mr. D paid professional tax 1,600

Compute his income from salary for the A.Y.2021-22.

Solution:
Computation of Taxable Salary of Mr. D for the A.Y. 2021-22
Particulars Details Details Amount
Basic pay 1,98,000

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Bonus 16,500
Encashment of annual leave 20,000
Allowances:
Dearness allowances [20% of ₹1,98,000] 39,600
House rent allowances 9,600
Less: Exempted u/s 10(13A) being min. of
the following:
Actual amount received
9,600
40% of salary (₹1,98,000 + ₹39,600) 95,040
Rent paid over 10% of salary (₹12,000 - Nil 9,600
₹23,760)
NIL
Medical allowance [₹200*12] 2,400
Transport allowance [₹500*12] 6,000
Education allowance [₹400* 12] 4,800
Less: Exempted (₹100*2*12) 2,400 2,400
Hostel allowance [₹500*12] 6,000
Less: Exempted [₹300*1*12] 3,600 2,400 62,400
Employer’s contribution to provident fund 24000
[₹2,000*12]
Less: Exempted [12% of ₹(1,98,000 28,512 Nil
+₹39,600)]
Interest on provident fund @ 15% 3,000
Less: Exempted upto 9.5% [₹3,000/15% 1,900 1,100 1,100
*9.5%]
Gross Taxable Salary 2,98,000
Less: Deduction u/s
16(ia) Standard Deduction
50,000
16(iii) Professional Tax 51,600
1,600
Taxable Salary 2,46,400

Illustration 2:
Mr. Khanna submits the following information of his income for the previous year 2020-21:
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Net salary ₹1,20,000
Amount deducted from salary at source ₹ 10,000 for employee’s contribution to R.P.F.
and for rent ₹ 500 p.m.
Bonus ₹10,000
Dearness allowance ₹12,000
Conveyance allowance ₹5,000
Medical allowance ₹ 4,000
Employer’s contribution to R.P.F. @ 13% on basic plus D.A.
Interest on R.P.F @14% is ₹ 5600
He has provided rent-free accommodation at Kolkata including furniture costing ₹50,000
Compute the income from salary for the assessment year 2021-22
Solution:
Computation of Taxable Salary Mr. Khanna for the A.Y. 2021-22

Particulars Details Details Amount

Basic [₹1,20,000+₹10,000+₹6,000] 1,36,000
Bonus 10,000
Allowances:
Dearness allowance 12,000
Conveyance Allowance 5,000
Medical Allowance 4,000 21,000
Perquisites u/s 17(2)
Rent free accommodation [Min. of 15% 25,050
salary]
Less: Rent paid [₹500*12] 6,000
19,050
Add: Value of furniture [10% of ₹50000] 5,000 24,050
Employer’s contribution to provident fund 19,240
Less: Exempted upto 12% of salary 17,760 1,480
Interest on provident fund 5,600
Less: Exempted upto 9.5% 3,800 1,800 3,280
[(₹5,600/14)*9.5]
Gross Taxable 1,94,330
Salary
Less: Standard Deduction u/s16(ia) 50,000 Working:
Taxable salary 1,44,330 Salary
for the
purpose of RPF and RFA

Particulars RFA RPF

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Basic 1,36,000 1,36,000
Bonus 10,000 Nil
Dearness allowances 12,000 12,000
Conveyance Allowances 5,000 Nil
Medical Allowances 4,000 Nil
Total 1,67,000 1,48,000
Illustration 3:
Mrs. Paramita is the Chief Account of a Limited Company. From the following
particulars of her income for the previous year 2020-21, compute her income from salary
for the assessment year 2021-22.
Basic Pay on 01-04-2020, - ₹18,000 p.m. (Annual increment of ₹ 500 falls due on 1 st July
each year)
Dearness Allowances – 20% of basic pay
Medical Allowance - ₹ 500 p.m.
House Rent Allowance -₹ 2,500 p.m.
(actual rent paid ₹3,200 p.m. for a house in Kolkata).
Own contribution to RPF -₹6,000.
(Employer contributed on equal amount).
Interest credited to RPF @ 14% p.a. - ₹9,100.
Professional tax paid by her employer - ₹ 1,600

Solution:
Computation of Taxable Salary of Mrs. Paramita for the A.Y. 2021-22
Particulars Details Details Amount
Basic Salary [ ₹ 18,000 * 3 + ₹18,500 * 9] 2,20,500
Allowances:
Dearness allowances [20% of ₹2,20,500] 44,100
House rent allowances [₹2,500*12} 30,000
Less: Exempted u/s 10(13A) being min. of
the following
Actual amount received
30,000
50% of salary (₹2,20,500 +₹44,100)
1,32,300
Rent paid over 10% of salary ( ₹38,400 - 11,940 18,060
₹26,460) 11,940
Medical allowances [₹500*12] 6,000 68,160
Perquisites
LIP Paid by employer 6,000
Professional tax paid by employer 1,600 7,600
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 Employer’s contribution to provident fund 6,000
Less: Exempted [Max of ₹ 6,000 or 12% of 6,000 Nil
(₹2,20,500 +₹44,100)]
Interest on provident fund @ 14% 9,100
Less: Exempted upto 9.5% 6,175 2,925 2,925
[₹9,100/14%*9.5%]
Gross Taxable 2,99,185
Salary
Less: Deduction u/s
16(ia) Standard Deduction 50,000
16(iiii) Professional Tax 1,600 51,600
Taxable Salary 2,47,585

Illustration 4:
Sri Gautam Gupta, a resident Indian, is an executive in Kolkata based partnership firm.
He furnishes the following particular of his income for the year ended on 31st march,
2020.
Net salary received ₹32,400.
Income tax deducted at source ₹1,400.
Own contribution to recognized provident fund, employer also contribution a similar
amount to the provident fund ₹4,000
Professional tax deducted from salary ₹200
Sri Gupta salary also included house rent allowance @ ₹600 p.m. while he paid actual
house rent ₹700 p.m. in Kolkata
His employer provided him with the free use of the car with engine capacity exceeding
1.6cc.
The running and, maintenance expenses including wages of the driver were met by the
Employer. The car was used for both and personal purpose.
Leave travel assistance for a trip to Kashmir ₹2,200 for his whole family was received for
the block of four years commencing in 2018.
Club bills reimbursed by the employer ₹2,000.
You are required to complete Sri Gupta’s income under the head “Salaries” for the
assessment year 2021-22.

Solution:

Computation of Taxable Salary of Sri Gautam Gupta for the A.Y. 2021-22
Particulars Details Details Amount
Basic (working 1) 30,800
Allowance: House Rent Allowances 7,200
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Less: Exempted u/s 10(13A) [Minimum of the
following]
Actual HRA 7,200
50% of Basic Salary 15,400
Rent paid – 10% of basic salary (being 8,400 – 5,320 5,320 1,880
3,080)
Perquisites u/s 17(2)
Car facility Nil
Club expenditure 2,000
Leave Travel Assistance [Exempted] Nil 2,000
Contribution to RPF 4,000
Less: Exempted upto 12% of basic salary 3,696 304
Gross Taxable Salary 34,984
Less: Deduction u/s
16(ia) Standard Deduction (Maximum limit) 34,784
16(III) Professional tax 200 34,984
Taxable Salary Nil

Workings

Computation of basic salary

Net salary drawn 32,400
Add:
Income tax 1,400
Own contribution to RPF 4,000
Professional Tax 200 5,600
38,000
Less: House Rent Allowance (₹600*12) 7,200
Total 30,800

As he is not a specified employee, car facility is not taxable.

Leave travel assistance is exempt for 2 journeys performed in the block of 4
calendar years. [Sec.10 (5)]

Illustration 5
From the following particulars of Miss Malika, an employee of X Ltd., compute taxable
salary for the assessment year 2021-22

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She was appointed on 1.1.2016 in the scale of ₹5,000-1,000-8,000-
1,500-14,000
Dearness allowance ₹500 per month
City compensatory allowance 10% of basic
Lunch allowance ₹300 per month
Own contribution to Recognized Provident Fund 15% of Basic and
D.A.
Her employees also contributes the same amount to R.P.F.
Interest credited to R.P.F.@ 15% ₹4,500
Free supply of gas and electricity by the employer of ₹1,500
Which market value is

Entertainment allowances ₹500 per

month
Professional tax paid by the employer to W.B.Govt ₹480(after
deducting from salary)
She was provided by her employer a rent- free furnished house in Kolkata for
which employer is paying rent ₹80,000 and the cost of furniture to employer is
₹24,000
Solution:
Computation of Taxable Salary of Miss Maliaka for the A.Y. 2021-22
Particulars Details Details Amount Amount
Basic 9 months *₹ 8000+3 1,00,500
months* ₹9,500(WN 1)
Allowance
Dearness allowance 6,000
City compensatory 10,050
allowance
Lunch allowance 3,600
Entertainment 6,000 25,650
allowance
Perquisites u/s 17(2)
Rent free 15% of salary² or actual 18,923
accommodation rent paid by employer,
whichever is lower

39 | Rahul Singh
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 Furniture 10% of cost of furniture 2,400 21,323
Gas and electricity 1,500 22,823
Employer’s 15% salary 15,975
contribution to RPF
Less: Exempted 12% salary 12,780 3,195
Interest on RPF In excess of 1,650 4,845
9.5%[(4,500*5.5)/15
Gross Taxable Salary 1,53,818
Less: Deduction u/s
16(ia) Standard 50,000
Deduction
16(ii) Entertainment As non- government 50,000
allowances employee
16(iii) Professional 480 50,480
Tax
Taxable Salary 1,03,338

Notes:
5,000-1,000-8,000-14,000
The data indicate the increment schedule. As per this schedule, initial payment is ₹5,000
p.m
This will increase by ₹1,000 every year till salary reaches to ₹8,000. Once salary reaches
to
₹8000, then increment will be ₹1,500 p.a. till salary reaches the scale of ₹ 14,000.

Period Basic salary

p.m.
From 1/1/2016 to 31/12/2016 5,000
From 1/1/2017 to 31/12/2017 6,000
From 1/1/2018 to 31/12/2018 7,000
From 1/1/2019 to 31/12/2019 8,000
From 1/1/2020 to 31/12/2020 9,500

Salary for purpose of:

Particulars Accommodation RPF

Basic Salary 1,00,500 1,00,500
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 Dearness Allowances 6,000 6,000
City Compensatory 10,050 -
Allowance
Lunch Allowance 3,600 -
Entertainment Allowance 6,000 -
Total 1,26,150 1,06,500

Professional tax is not taxable as paid out of employee’s pocket.

Illustration 6:
Miss Sen joined A.M.C. Ltd. on 1.8.2016 in the scale of ₹8,000-200-10,000. She
furnished the following information for the year ended 31 st March, 2020.
Dearness allowance ₹4,000 p.m.
City compensatory allowance ₹2,000 p.m.
Children education allowance ₹500 p.m.(she has one adopted child)
House rent allowance of ₹2000 p.m. She paid rent ₹3,000 p.m. for a house in Kolkata.
Her employer contributes 13% of Basic salary and dearness allowance to a recognized
provident fund. Interest credited @ 16% to the said fund ₹4,800
She is provided with a motor car of 1.6cc along with a driver. The facility is used for
official and private use. Entire expenses are borne by the employer.
She is provided with a sweeper and a domestic servant at a salary of ₹ 300 p.m. and ₹600
p.m. respectively (the payment for which is made by employer)
Income tax of ₹3,000 and professio9nal tax of ₹1,200 are deducted from her salary.
Before she joined AMC Ltd. she was employed with VCC Ltd. for three years and was a
member of the recognized fund. During the year, she received the balance from the said
fund amounting to ₹7,360 consisting of own contribution ₹4,000, interest thereon ₹200.
Employer’s contribution ₹3,000 and interest thereon ₹160.
Compute total taxable salary of Miss Sen for the assessment year 2021-22

Solution:

Computation of Taxable Salary of Miss Sen for the A.Y.2021-22

Particulars Workings Details Amount Amount
Basic (WN-1) [(8,400*4) + 1,02,400
(8,600*8)]
Allowances
Dearness allowances 48,000
City compensatory Fully taxable 24,000
allowance
Children education Adopted child is 6,000

41 | Rahul Singh
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allowance eligible
Less: Exemption 100*1*12 1,200 4,800
House rent allowance 24,000
Less: Exemption u/s
10(13A)
Actual HRA 24,000
50% of salary 75,000
Rent paid – 10% of 20,960 20,960 3,040 79,840
salary(wn2)
Perquisites u/s 17(2)
Car facility (1800+900)*12 32,400
Domestic servant facility (600+300)*12 10,800 43,200
Employer contribution to 13% of salary 19,552
RPF
Less: Exempted upto 12% 12% of 18,048 1,504
salary(wn2)
Interest om RPF in excess (4,800/16)*6.5 1,950 3,454
of 9.5%
Amount received from RPF Note3 3,160
Gross Taxable 2,32,054
Salary
Less: deduction u/s
16(ia) Standard Deduction 50,000
16(iii)Professional Tax 1,200 51,200
Taxable Salary 1,80,854

NOTES:
Calculation of basic salary per month
Period Basic salary
p.m.
From 1/8/2016 to 31/7/2017 8,000
From 1/8/2017 to 31/7/2018 8,200
From 1/8/2018 to 31/7/2019 8,400
From 1/8/2019 to 31/7/2020 8,600

Salary for the purpose of

Particulars HRA RPF
Basic Salary 1,02,400 1,02,400
Dearness allowances 48,000 48,000
Total 1,50,400 1,50,400
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 Particulars Taxable as Taxable as
Salaries Income from
other sources
Employee’s contribution - -
Interest on employee’s contribution - 200
Employer’s contribution 3,000 -
Interest on employer’s contribution 160 -
Total 3,160 200

Practice:
1. Mr. Mugal joined Star Ltd. on 1/4/2020. Details regarding his salary are as follows:
Particulars Amount
Basic 5,000 p.m.

Dearness 2,000 p.m. (50% considered for retirement benefit)

Allowance

Education 1,000 p.m. (he has 1 son and 3 daughters)

Allowance

Hostel 2,000 p.m. (none of the children is sent to hostel)

Allowance

Medical 1,000 p.m. (total medical expenditure incurred 3,000)

Allowance

Transport 1,800 p.m. (amount being used for office to residence &
Allowance vice versa)

Servant 1,000 p.m.

Allowance

City 2,000 p.m.

compensatory
Allowance

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Entertainment 1,000 p.m.
Allowance

Assistants 3,000 p.m. (paid to assistant 2,000

Allowance p.m.)

Profession 2,000 p.m. (actual expenses for the purpose 8,000 p.m.)
Development
Allowance

Bonus 24,000 p.a.

Commission 9,000 p.a.

Fees 5,000 p.a.

Compute his gross taxable salary for the assessment year 2021-22
[Ans:- Gross Taxable Salary- Rs. 2,42,000]

2. Miss Sonal, being a citizen of India and government employee has following salary
details:
Basic salary 2,000 p.m.

Dearness allowance 3,000 p.m.

Dearness Pay 1,000 p.m.

Fees 50,000 p.a.

House rent allowance 5,000 p.m. (Rent paid for Kolkata house 4,000
p.m.)

Children Education Allowance 3,000 p.m. (She is having one adopted child)

Children Allowance 1,000 p.m.

Hostel Allowance 2,000 p.m.

44 | Rahul Singh
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Dress Allowance 5,000 p.m. (actual expenditure 10,000 p.m.)

Uniform Allowance 2,000 p.m. (actual expenditure 1,000 p.m.)

Tiffin Allowance 1,000 p.m.

Education Allowance for her own 2,000 p.m. (actual expenditure

Education 1,500 p.m.)

Compute her gross salary for the assessment year 2021-22.

[Ans: Gross Taxable Salary- Rs. 3,03,000]

3. Lara, a resident of India, furnishes the under noted particulars for the purpose of
assessment:
(i) He received basic salary of 7600 p.m. and dearness allowance @ 50% of basic salary.
(ii) A bonus of 4 month's basic salary was also received by him, out of which one
month's bonus was gratuitous and three months was as per agreement with employer.
(iii) He contributes 10% of his basic salary to a recognised provident fund. His employer
also contributed an equal amount. Interest @ 15% p.a., amounting to ₹3,000 was credited
to his provident fund account.
(iv) He was provided with rent-free furnished accommodation at Kolkata for which his
employer paid a rent of ₹4,000 per month. The employer purchased furniture for him
costing ₹55,000.
(v) Lara was paid a conveyance allowance of 500 per month. He owned a motor car,
which was, used by him for employment purpose also. The expenses for running and
maintenance of the car were ₹1,200 per month on an average, of which 50% is
attributable to his employment.
(vi) He is allowed education allowance @ 500 p.m. for his only son who is studying in
Purulia Sainik School.
(vii) His employer being pleased with his work, presented to him a refrigerator market
value of such is 4,500. Compute his salary income for the assessment year 2021-22.
[Ans: Taxable Salary- ₹1,53,260]
4. From the following particulars of income of Mr. Amar for the previous year ended
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 31.3.2021 compute his taxable salary for the assessment year 2021-22.

a. Salary (basic) - 5,000 per month, Entertainment allowance - 500 per month
b. Children's education allowance - 300 p.m. per child for children.
c. Director's fees (from the employer company) - 5,000 per annum.
d. Mr. Amar contributes 14% to recognised provident fund and his employer contributes
equal amount. Interest credited to fund @ 13% p.a. is ₹7,800. The employer has
provided a car of 1.7 cc.

[Taxable Salary- 60,100]

5. Compute net taxable salary of Mr. Arun, a director of Kanaka Ltd., with the following
particulars of his income during the year ended 31st March, 2021.

(a) He was appointed in this company at a basic salary of 13,300 1,000 - 23,300 on 1st
April, 2017.

(b) Dearness allowance of 1,000 per month.

(c) House rent allowance of 8,000 per month; he took a house in Mumbai for his
residential accommodation at a rent of ₹9,000 per month.

(d) The employer provided a motor car of 1.4 cc. for use by him partly in the
performance of his duties and partly for his personal purposes but he meets the
expenses on maintenance and running.

(e) The company paid premium 6,000 on an insurance policy of 50,000 on his life.

(f) Mr. Arun and his employer both contribute 12.5% of the salary inclusive of dearness
allowance to a recognised provident fund.

[Ans: Taxable Salary- 1,80,598]

6. Shri Ashoka, a resident of India, furnishes following particulars for the previous year
2020-21:
a) Net salary drawn ₹80,000

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Deductions made trom salary bills:
i) Income tax ₹5,200
ii) Own contribution to RPF ₹4,000
iii) Repayment of loan ₹5,800
b) Dearness allowance ₹500 p.m.
c) Children education allowance ₹150 p.m. (He has 2 children including 1 adult)
d) Conveyance allowance ₹800 p.m.
e) He uses his personal car for official purposes also. The average cost of running and
maintenance is ₹1,000 p.m. 60% of the expenses of the car can be attributed to private
use
f) He is provided with a rent-free furnished accommodation in Kolkata for which the
employer pays rent ₹6,000 p.m. including hire charges of furniture ₹1,500 p.m. and with
a sweeper for which the employer pays ₹500 p.m.
g) He is provided with telephone by his employer which is used both for private purpose.
The company paid the telephone bills of ₹4,800 for the year.
h) His employer paid professional tax ₹480 and income tax penalty ₹1,000.
[Ans: Taxable Salary- 1,16,700]
7. Compute taxable salary of Mr. Patel, a government employee, with following data:
Particulars Amount

Basic 3,000 p.m.

Dearness allowance 2,000 p.m.

Education allowance for 1st child 780 p.m. and for 2nd child 120 p.m.

House rent allowance ₹2,500 p.m. (rent paid by

employee ₹3,000

.p.m. in Kolkata)

Advance Basic salary received for April 2021 33,000

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Entertainment allowance 500 p.m.

Gas & electricity bill reimbursed by employer 10,000

Car (of 1.7 cc) facility provided as on 4th June with chauffeur

Education bill of children of Mr. Patel 800

reimbursed by employer

Mr. Patel and his employer contributes equal 10,000

amount to provident fund

Interest on such fund @ 15% 4,000

Gift voucher received from employer 2,800

Professional tax paid by employer for 800

employee

Professional tax paid by employee 600

LIC premium paid by employer on behalf of 8,000

employee

[Ans: Taxable Salary: 92,140]

8. Miss Minu, a resident has furnished the following particulars. Compute her total
taxable salary for the assessment year 2021-22.

a. She was appointed on 1.1.2016 in the scale of 16,000-1,000 - 19,000 -2,000 -

25,000.
b. Dearness allowance received - 50% of basic pay.
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 c. Project allowance received - 10,000 p.a.
d. Tax deducted at source - 5,000
e. Professional tax deducted at source – 300
f. Interest credited to R.P.F. @ 15% p.a. - 3,000
g. She encashed accumulated earned leave of past years and received 40,000.
h. She contributes 15% of her basic pay and dearness allowance to a Recognised
Provident Fund. Her employer also contributes an equal amount.
i. She is provided with a rent-free furnished accommodation at Kolkata for which her
employer pays a rent of 20,000 per month. The employer has provided her
furniture - costing 30,000.
j. Miss Minu receives 1,500 every month by way of conveyance allowance. She has a
motor car which she uses for employment purpose also. During the previous year,
she spent on an average 1,200 per month for the purpose of running and
maintenance of the car; 60% of that expense is attributable to employment.
k. Her employer, being pleased with her work presented to her a ring costing 3,000. I.
Life insurance premium of 30,000 on a policy on her life was paid by her
employer, the sum assured being 5,00,000.

[Ans: Taxable Salary: 4,91,224]

9. The following are the particulars of income of Mr. Rahman, employee of X & Co., a
sole proprietorship concern, for the year ended 31.3.2021:

a. Basic salary received (after deduction of tax 4,000) 1,20,000

b. Dearness allowance 4,000 p.m.
c. Medical allowance 5,000 (actual expenditure 5,700) and travelling allowance 7,200
(actual expenditure (7,500)

d. Commission @2% on sales achieved by him. During the previous year 2020-21,
sales achieved by Mr. Rahaman amounted to 5,00,000.
e. He and his employer both contributed to Recognised Provident Fund @ 14% of
salary. Interest credited to R.P.F. @ 13% was 2,600.
f. He is provided with a rent free unfurnished accommodation, which is owned by
employer, having fair rental value 30,000.
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 g. He is provided with a motor car of 1.6 cc both for official and private purposes. His
employer paid an expense relating to his private use amounting to 3,000.
h. During the previous year, he spent 18,000 for medical treatment of himself in an
unrecognised private nursing home and his employer reimbursed the entire amount.
i. He is provided with free gas and electricity, market value of such facility is 6,000.
j. He appointed domestic servant (gardener) at a salary of 500 p.m. which is paid by
the employer.

Compute the taxable salary of Mr. Rahman for the assessment year 2021-22.
[Ans: Taxable Salary: 2,14,990]
10. Miss Roy joined A.M.C Ltd. on 01.08.2017 and furnished the following information
for the year ended 31 March, 2021:
• Basic salary 15,000 p.m.
• Dearness Allowance 4,000 p.m.
• Medical allowance 2,000 p.m.
• Children education allowance 500 p.m. (she has one child).
• House rent allowance of 2,000 p.m. She paid rent 3,000 p.m. for a house in
Kolkata. Her employer contributes 13% of basic salary and dearness allowance to a
recognized
• Provident fund. Interest credited @ 16% to the said fund 4,800.
• She is provided with a motor car of 1.6 litres owned by the employer along with a
driver. The facility is used both for official and private purpose. Entire expenses
are borne by the employer.
• She is provided with sweeper and a domestic servant at a salary of 300 p.m. and
600
p.m. respectively (the payment for which is made by employer).
• Income tax of 3,000 and professional tax of 1,200 are deducted from her salary!
• Her personal electricity bill of 5,000 paid by employer.

Compute income from salary of Miss Roy for the assessment year 2021-22

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[Ans: Taxable Salary: 2,68,830]
11. Mrs. Bindhani, is working with T Ltd. receives the following emoluments during the
previous year 2020-21:

(a) Basic pay on 01.04.2020 24,000 (increment of 1,000 p.m. falls due on 1st July
each year).
(b) Dearness Allowance (forming part of salary) @ 100% of basic pay.
(c) Children Education Allowance 600 p.m. (she has one child).
(d) Remuneration from Calcutta University as examiner 1,400.
(e) Medical Allowance 1,000 p.m. and bonus 15,000 p.a.
(f) The employer provided a free furnished accommodation in Kolkata. Fair rental
value of the house was 4,500 p.m. and furnished with furniture costing 50,000.
She was provided with a sweeper and a watchman whose monthly salaries were
3,000 and 4,500 respectively. A free telephone was also provided by employer
at her residence, which was used by her both for personal and official purposes.
(g) She is a member of a recognished provident fund and contributed 14% of
employer also contributed 14% of her salary to the provident fund.
(h) Interest credited at 13% p.a. credit balance of provident fund 6,500.
(i) She had taken a life policy for 5,00,000 on her own life for which she paid a
premium of 15,000 during the previous year. (Policy was taken on 01.08.19.)
(j) Employer paid her professional tax of 1,000 p.m.
(k) She is provided with a 14 H. P. car owned by employer and has been used both
for purpose of her employment and personal use. Entire expenses was borne by
them employer.
Compute income from salary of Mts. Bindhani for the assessment year 2021-22.
[Ans: Taxable Salary:8,01,280]
12. Mr. Rahul Agarwała is the employee of BPL India Ltd. He furnishes the under-noted
particulars of his income for the previous year 2020-21. Compute his income from
salary for the assessment Year 2021-22: [2016]
• Basic salary drawn in March, 2021 60,000 (last increment was in January, 2021,
5,000)

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 • Dearness Allowance @ 80% of Basic Salary (40% forming part of retirement
benefits)
• House Rent allowance 10% of Basic Salary. He resides in his own house.
• Transport allowance paid 400 p.m.
• He and his employer each contributed 14% of Salary to a Recognized Provident
Fund (RPF).
• Interest credited to this fund @ 11% is 12,100 during the year.
• His personal electric bill amounts to 20,000 p.a. out of which he paid 5,000 and
balance paid by his employer.
• He used his own car (1.8 litres) both for Private and official use. All expenses are
met by him. (Expenses related to Private use calculated at 80,000).
• He took a new life insurance policy of LIC during the year and premium was paid
by his employer 40,000.
• Profession tax was paid by his employer 2,400.
• His employer has provided him with a Laptop for official and private use (original
cost 45,000).

[Ans: Taxable Salary: 13,11,770]

13. Mr. Biswas is employed in a Private Limited Company. Compute his Total Income
for the Assessment Year 2021-22 from the following details:

a. Basic pay 10,000 p.m.

b. Dearness allowance 6,000 p.m.
c. Children education allowance 80 p.m. for each of 3 children 240 p.m.
d. Medical allowance (Actual expenditure 28,000) 1,000 p.m.
e. He and his employer both contributed 15% of basic and D.A. to a RPF. Interest
credited to the said fund @ 10% 5,000 p.a.
f. He is provided with a rent free furnished accommodation in Kolkata having
municipal value of 72,000 and furnished with furniture of 25,000.

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 g. On 01.06.2020, he took a loan of 3,00,000 from his employer at an interest of 3%
per annum for purchase of a flat. (SBI charged interest @ 9% p.a. for similar loan.)
h. His employer pays servant's salary of 1,200 p.m. and gas bill of 3,000.
i. He receives 12,000 as interest on Bank fixed deposits and dividend worth 10,000
from an Indian Company.
j. He paid 15,000 as premium of Mediclaim insurance on the health of his wife,
k. During the previous year he purchased National Savings Certificate (VIII Issue) of
10,000. Accrued interest on NSC (VIII Issue) 2,500 (including 6th year's interest of
1,000).

[Ans: Total Income: 2,24,610]

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 Previous Year Questions
1. Mr Mayank Jain, a chartered accountant, is working as Director (Finance)
in Indo-Quantas Ltd. At New Delhi. For the assessment year 2021-22, he
furnished the following particulars:
(a)Salary for 12 months: Rs. 5,50,000.
(b) Out of the above salary, Mr. Jain drew Rs. 1,00,000 at Sydney
being the salary for about 2 months where he was on an official
assignment.
(c)Directors sitting fees: Rs. 25,000.
(d) Company’s contribution to recognized provident fund is Rs.
50,000. Interest on Provident fund at 12% comes out to be Rs.
2,10,000.
(e)Assessee’s contribution to provident fund Rs. 50,000 (included in
the sum of Rs.5,50,000) shown in (1) above.
(f) Life insurance premium on the joint life of his and his wife is Rs.
65,000.
(g) Entertainment allowance paid since 1961 by the employer is Rs.
1,00,000 p.a
(h) Investments in equity shares, units in PNB mutual-fund and the UT
Rs. 80,000 covered under section 80C.
(i) The company has provided him a rent-free unfurnished house owned
by it of the annual valuation of Rs. 2,00,000. Besides the company
has incurred the following expenses on the house and establishment:
a. Repairs – Rs. 1,50,000.
b. Pay part-time cook and bearer Rs. 30,000 appointed by the company.
c. Pay of Mali Rs. 16,000 appointed by the Company
Compute the total taxable income of Mr. Mayank Jain giving explanatory
notes for the inclusion and exclusion of different items.

2. Gopal is a College lecturer in Delhi University. During the year 2020-21,

he gets basic salary of Rs. 23,000 upto June 30, 2020 and Rs. 23,500
afterwards. Besides, he gets 15% of basic salary as house rent allowance.
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 He also gets Rs. 4,300 per month as dearness allowance (not forming part
of his salary). He is a member of recognized provided fund to which both
the employer and employee contribute 8 percent of basic salary. Apart from
the minimum contribution, he makes an additional contribution of Rs.
3,000 per month to the provident fund. During the previous year 2020-21,
he has received Rs. 94,500 for checking answer sheets of different
universities. Determine the taxable income and tax liability of Gopal for the
assessment year 2021-22 on the assumption that he resides in his father’s
house without incurring any expenditure in the nature of rent.

3. X, a college lecturer in Delhi, gets the following emoluments during the

previous year ending March 31, 2021:
a. Basic Salary: Rs. 24,000 per month;
b. Dearness allowance (part of salary): Rs. 2,000 per month.
c. Additional dearness allowance (not forming part of salary): Rs. 4,500
per month
d. House rent allowance: Rs. 3,000 per month. However, rent paid by him
is Rs. 7,300Per month;
e. Special allowance: Rs. 1,000 per month.
f. While his employer contributed Rs. 3,000 per month towards recognized
provident fund, he himself contributed Rs. 6,000 per month.
g. Interest credited on September 10, 2018 at the rate of 8 percent in the
provident fund account is Rs. 50,000.
h. His income from other sources is Rs. 4,90,000.
i. During the year X pays insurance premium of Rs. 10,000 on insurance
policy taken on the life of his mother and Rs. 30,000 premium on his
own life insurance policy of Rs. 2,50,000. Premium of Rs. 3,000 on
insurance policy on the life of his wife falls due on March 23, 2021,
though he pays the same on April 13, 2021. Determine the total income
and tax liability of X for the assessment year 2021-22

4. Dr. Raj Kumar is a director of ABC Ltd. He furnishes the following

particulars of his income for the assessment year 2021-22:
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 A. Salary: Rs. 5,000 p.m
B. Bonus: Rs. 7,500 p.m.
C. House Rent Allowance Rs. 900 p.m. He resides in the house
belonging to his H.U.F. and pays rent @ Rs. 900 p.m.
D. The company has provided him with a car but recovers Rs. 100 p.m.
from him for possible personal use.
E. Medical reimbursement for treatment in a government hospital Rs.
16,000.
F. Car purchased from the company on 1.9.18 at a book value of Rs.
20,000; he sold Car after 3 months for Rs. 32,000.
G. 500 shares of Rs. 14 each given to him by the company in
appreciation of his loyal services.
H. The company has taken a personal accident policy for him, the annual
premium being 1,300.
I. He contributes premium of Rs. 5,000 to the LIC and pays provident
fund Rs. 8,400.He also contributes Rs. 1,200 as a premium on a
policy with peerless General Insurance.
You are required to compute Dr.Rajkumar’s income from salary.
5. What relief is available to an individual under Section 89 of Income-tax
Act, 1961 in respect of gratuity received from a public company after
rendering services for more than 20 years? How shall the relief be
calculated?

6. X, a regular employee of A Ltd. Gets the following emoluments during the

previous year 2020-21: Basic Salary: Rs. 6,000 per month (which has been
increased to Rs. 7,000 per month from January 1, 2019); dearness
allowance Rs. 4,000 p.m. (72% of which is part of salary for computing
retirement benefits); education allowance Rs. 550 p.m. per child for 4
children; medical allowance Rs. 400 p.m.; transport allowance Rs. 1,950
p.m. (out of which Rs. 1,700 p.m. is used for covering the journey between
office and residence and Rs. 250 p.m. is used for other purposes). Besides,
he gets Rs. 4,500 p.m. as house rent allowance up to November 30, 2020

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 (Rent paid at Ghaziabad, Rs. 5,500 p.m.). With effect from December 1,
2020, he has been provided a furnished flat by the Employer at Delhi (rent
paid by employer Rs. 7,500 p.m.; rent of furniture provided Rs. 500; rent
recovered from X Rs. 900 p.m.). Find out the salary chargeable to tax for
the assessment year 2021-22. With effect from January 1, 2021, he joins a
part-time employment with B Ltd. (Salary: Rs. 2,000 p.m.) with the
permission of A Ltd. Without leaving the job of A Ltd.

7. What deductions and other exemptions are available to a salaried person in

the computation of his taxable income? What are the tax rates for the salary
income earned during the previous year 2020-21?

8. The following are the particulars of salary income of Shri Ram Prakash
who is employed at Kanpur:
A. Salary Rs. 20,000 p.m.
B. DA @ 40% of salary
C. CCA @ Rs. 2,000 p.m.
D. HRA @ Rs. 4,000 p.m. and he pays rent of Rs. 5,000 p.m.
E. A compensation of Rs. 80,000 received from the previous employer
for termination of employment.
F. He contributes Rs. 2,500 p.m. towards Recognized Provident Fund.
His employer also contributed the same amount.
G. Professional tax paid during the year Rs. 2,000.
H. He owns a car which he uses for official as well as personal work.
Compute his taxable income.

9. What is meant by “perquisites”? What are tax-free perquisites?

10. Mr. X is an executive in a company in Mumbai. He received a monthly

salary of Rs. 25,000. He gets Rs. 250 per month as dearness salary and Rs.
500 per month as dearness allowance. His employer paid directly Rs.
45,000 as his medical expenses to an approved hospital. The employer

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 incurred an expenditure of Rs. 30,000 on his treatment by a private medical
practitioner. Mr. X incurred medical expenses of Rs. 50,000 in a hospital
approved by the Chief Commissioner of Income-Tax, which were
reimbursed by the employer. Mr. X travelled abroad with an attendant,
which cost him Rs. 1,50,000. The employer also undertook an expenditure
of Rs. 2,00,000 on Mr. X’s stay and treatment abroad. On this item half of
the amount is to be exempted from tax. Mr. X was paid by his employer a
sum of Rs. 8,000 for the eye-surgery of his maternal uncle dependent upon
him. Mrs. X suffered from cancer and was treated at the Tata Memorial
Hospital, Mumbai which is approved by the Chief Commissioner of
Income-Tax. The employer paid a sum of Rs. 1,50,000 for the treatment.
Compute Mr. X’s income from salary on the basis of the above details,
assuming the transactions having taken place in the assessment year 2021-
22.

11. Discuss the relevant provisions of Income Tax concerning “Salary”.

12. Mr. S is employed by A Ltd. At Delhi throughout the financial year

ended on 31st March, 2019. He furnishes the following particulars for
computation of his income for the assessment year 2021-22:
(a) Basic Salary @ Rs. 50,000 per month
(b) Personal Pay @ Rs. 30,000 per month
(c) Conveyance Allowance @ Rs. 3,000 per month
(d) Uniform Allowance @ Rs. 2,000 per month
(e) Knowledge update Allowance @ Rs. 2,500 per month
(f)Medical Allowance @ Rs. 5,000 per month
(g) Entertainment Allowance @ Rs. 1,000 per month
(h) He is provided with gift vouchers of @ Rs. 15,000 per year
(i) His employer contributes 15% of the basic salary to his recognized
provident fund account. Similar amount is deducted from his salary as
his contribution to the fund.
(j) He gets house rent allowance @ Rs. 20,000 per month against a rent of
Rs. 25,000 per month paid by him for his residential accommodation.
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 (k) His employer paid electricity and telephone bills of his residential house
amounting to Rs. 70,000 and Rs. 20,000 respectively for the whole year.
(l) During the year he made the following payments:
a. Lifeurance premium Rs. 1,20,000 (sum assured is Rs. 10 lakhs)
b. Life insurance premium on the life of his major son Rs. 25,000
c. Mediclaim policy premium paid in cash Rs. 30,000
d. Donation of Rs. 2,00,000 to an approved charitable trust Compute his
taxable income for the assessment year 2021-22.
13. Mr. Shan is a salaried employee. During the year ended on 31st March,
2021, the details of his income and other information were as follows:
He owns a house which has been let out on annual rent of ₹96,000, paid
municipal charges on house property, ₹ 6,000.
Determine the total income of Mr. Shan and the tax payable by him as per the
rates applicable for the assessment year 2021-22.

Particulars ₹
Annual salary (₹ 35,000*12) 4,20,000
Pay Arrears 80,000
Leave travel concession provided by employer 21,000
HRA Rs. 10,000 per month
Dividend on investment in Shares 1,500
LIC Premium paid on his life by employer 18,000
Medical Allowance @ ₹1,200 p.m. 14,400
Mr. Shan invested in NSC 25,000
Investment in Mutual Fund (ELSS) 10,000
Deposit in Public Provident Fund 15,000
Admission fees of the child 6,000
Donation to a local private school 1,000

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14.. Define perquisite. How are rent free accommodation and medical facility
valued under income tax rules?
15. Mr. X is a Government employee at Ludhiana and is getting following
emoluments:
(i) Salary 30,000 per month
(ii) Dearness Allowance (enters) - 60% of salary
(iii) Contribution in Notified Pension Scheme 3,000 per month
(iv) Employer's contribution to Pension Scheme - 3,000 per month
(v) Transport Allowance for commuting between home and office
2,800 p.m.
(vi) Deputation Allowance (for 2 months) 3,000 per month
(vii) Entertainment Allowance 2,000 per month (During the year, he
spent 12,000 on entertainment of official guests)
(viii) He has been provided with a rent-free accommodation. The licence
fee for the accommodation has been fixed at 2,000 per month. The
government has also provided him with furniture items costing
1,00,000 (WDV-75,000) for his personal use.
(ix) He has been provided with the facility of a servant and watchman
w.e.f. 01.10.2018 and the government is paying 3,000 per month to
each of these servants.
(x) A laptop costing 50,000 has been given to him for his official as
well as personal purposes.
(xi) On 01.10.2018 he took a loan of 2,00,000 from his employer to
buy a car at a concessional rate of interest of 6-25%. The
repayment of loan started w.e.f. 01.01.2019 @ 10,000 per month.
SBI rate of interest as on 01.04.2018 was 9-25%.
(xii) During the year savings made by Mr. X were:
(b) LIC Premium :
For Self 10,500 (sum assured 2,00,000)
For Spouse 12,000 (sum assured 1,00,000)
For Mother 8,000 (sum assured 1,00,000)
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 For Major Son 8,000 (not dependent on him but is suffering from
disability) (sum assured 50,000)
All life insurance policies were taken in the previous year 2014-15.
(c) PPF Deposits: 5000
(d) Tuition Fees of Second Son studying in a College ₹ 6,000 (d)
Repayment of Housing Loan from LIC (Principal Portion) - 36,000
Calculate :
(i) Salary Income
Qualifying amount for deduction U/S 80 C

INCOME FROM HOUSE PROPERTY

Meaning: The term house property or building is not defined in Income Tax Act, 1961.
However, various case laws have construed the term building as any land surrounded by
wall having roof or not. A house property could be your home, an office, a shop, a
building or some land attached to the building like a parking lot but could not be a vacant
land. The Income Tax Act does not differentiate between a commercial and residential
property. All types of properties are taxed under the head ‘income from house property’
in the income tax return. An owner for the purpose of income tax is its legal owner,
someone who can exercise the rights of the owner in his own right and not on someone
else’s behalf.

When a property is used for the purpose of business or profession or for carrying out
freelancing work – it is taxed under the ‘income from business and profession’ head.
Expenses on its repair and maintenance are allowed as business expenditure.

Computation of Income:
The chapter is divided into following categories for the purpose of computation:
Let out Property [Sec 23(1)]
Self-Occupied property [Sec 23(2)(a)]
Property not actually occupied by the owner [Sec 23(2)(b)]
Partly let out and partly self-occupied property [Sec 23(3)]
Deemed to be let out property [Sec 23(4)]
Recovery of arrear rent and unrealized rent [ Sec 25A]

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Let out Property [Sec 23(1)]: A house property which is rented for the whole or a part
of the year is considered a let-out house property for income tax purposes. It is irrelevant
that property is let out for residential or commercial purpose.
Computation of Income from a House Property of …. for the Assessment
Year 2019-20
Particulars Details Amount
Gross Annual Value xxxxx
Less: Municipal Tax (xxxx)
Net Annual Value xxxxx
Less: Deduction u/s
24(a) Standard Deduction xxxxx
24(b) Interest on Loan xxxxx (xxxx)
Income from House Property xxxxx
Let’s discuss each item separately:

Gross Annual Value (GAV)

Normally, income tax is charged on income, but under the head “Income from House
Property”, tax is not charged on the rent earned from house property but on the inherent
earning capacity of the house property. Such earning capacity is termed as Annual Value.

Annual Value is determined considering the following factors:

1. The municipal valuation of the property (Municipal value)
2. The fair rental value (market value of a similar property in the same area)
3. The Standard rent payable under the Rent Control Act.
4. The rent payable by the tenant (Actual rent)

Gross Municipal Value: It means the annual value of the property decided by
municipality on which they charge municipal tax. In metro cities, municipal authorities
charge tax on Net Municipal Value after giving a deduction for repairs (being 10% on
Gross Municipal Value) and an allowance for service taxes (like sewerage tax, water tax
etc. as a % of Net Municipal Value).

Relation between Gross Municipal Value and Net Municipal value can be simplified as
under:
In Metro Net Municipal Value = Gross Municipal Value –
Cities Sewerage/Water Tax etc. (as a % of Net Municipal Value)
In non- Gross Municipal Value = Net Municipal Value
metro cities

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Note: If only Municipal Value is given in the problem then assume it as Net Municipal
Value. Always make a habit of checking the city in which House Property is located
because if city is metro, we have to calculate gross municipal value. [GMV=
NMV/90%]

Fair rent/ Notional rent [FR]– It is the rent, a similar property in the same or similar
locality can fetch.
Standard Rent [SR] – It is fixed under the Rent Control Act where a higher rent than the
standard rent cannot be expected by the owner.

Reasonable Expected Rent [RER] – Higher value between Gross municipal value and
fair rent subjected to a maximum of Standard rent is Reasonable Expected rent.
Chit-Chat: GMV or FR me jo v bada hoga usko standard rent se compare karenge
and unme jo chota hoga wahi RER hoga.

Gross Annual Value: Higher of Reasonable expected rent and Actual Rent
Receivable
Actual Rent receivable can be computed considering the following situation:
When there is neither unrealized rent nor vacancy period.
When there is unrealized rent but no vacancy period. [ARR – UR]
When there is vacancy period but no unrealized rent. [Calculate rent receivable for the let
out period only]
When there is unrealized rent as well as vacancy period. [Calculate rent receivable for the
let-out period and then deduct unrealized rent.]

Note: If ARR is less than RER due to vacancy then GAV will be Actual Rent
Received (i.e. after adjusting vacancy period]

Example:
Particulars House House 2 House 3 House 4 House 5
1
Situated at Patna Jaipur Kolkata Delhi Surat
Municipal Value 100,000 200,000 900,000 540,000 400,000
Fair Rent 85,000 220,000 800,000 575,000 350,000
Standard Rent 120,000 180,000 9,50,000 580,000 Not
Applicable
Actual Rent 110,000 180,000 8,40,000 720,000 420,000
Receivable p.a.
Unrealized Rent - 10,000 - 10,000 -
Vacancy Period - - 1 month 2 1 month
months
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Solution:
Particulars House House House House 4 House 5
1 2 3
Reasonable 100,000 180,000 950,000 580,000 400,000
Expected Rent (WN 1)
(Step 1)
Actual Rent 110,000 180,000 770,000 600,000 385,000
Receivable (for the (WN 2)
let-out period only)
Unrealized Rent - 10,000 - 10,000 -
ARR – UR (Step 2) 110,000 170,000 770,000 590,000 385,000
Gross Annual 110,000 180,000 950,000 590,000 385,000
Value (Higher of (WN 3)
Step 1 and Step 2)

Working Note:
House 3 is situated in a metro city and thus GMV will be (NMV/90%)
= ₹900,000/90%
= ₹10,00,000

RER will be higher of GMV and FR subject to SR.

i.e. Higher of ₹10,00,000 and ₹800,000 but less than ₹950,000 = ₹950,000

Actual Rent Receivable for the let-out period will be ₹840,000 * (12 – vacancy)/12
= ₹840,000 * 11/12
= ₹770,000

In House 5 ARR is less than RER due to vacancy thus ARR-UR will be GAV.

Municipal Tax:
Taxes charged by the municipality or local authority is to be computed as a % on Net
Municipal Value.

It is to be allowed as deduction and thus deducted from Gross Annual Value.

It must be paid by assessee i.e. Municipal Tax paid by tenant is not allowed as deduction.
It should be actually paid during the previous year.

Municipal Tax paid in advance shall not be allowed as deduction in the previous year .

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Municipal Tax not yet paid shall not be allowed as deduction in the previous year
however, will be allowed as deduction in the year of payment.

Deductions [Sec 24]

Standard Deduction [24(a)]: 30 % on Net Annual Value will be allowed as deduction. If
NAV is Nil or Negative, Standard Deduction will be Nil.

Interest on Loan [24(b)]: Interest payable on amount borrowed for the purpose of
purchase, construction, extension, reconstruction, repairing, etc. of house property can be
claimed as deduction on accrual basis.

Calculation of Interest on Loan is divided between Pre-Construction and Post

Construction.
Pre-Construction: Interest for pre-construction period will be computed as below
Step 1: Date of Borrowing of Loan OR Date of Commencement of Construction,
whichever is later.
Step 2: March 31 immediately prior to the year of completion of construction.
Step 3: Step 1 – Step 2

Example: X has taken loan on 1/7/1995 for construction of house property. Construction
started on 1/1/1996 and completed on 25/10/2016.

Solution: 1/7/1995 or 1/1/1996 whichever is later i.e. 1/1/1996.

March 31 immediately prior to the year of completion – 31/3/2016.
Pre-Construction period will be 1/1/1996 – 31/3/2016 i.e. 20 years 3 month.

Thus, Interest for pre-construction period will be: Loan Amount * Rate of Interest *
Step 3 (i.e. Pre period).

Note: Interest for pre period commences from 1st April of the year of completion of
construction over a period of 5 continuous years in equal installments.
Ex: Interest for pre period of the above example will be allowed as deduction in PY
2016-17, 17-18, 18-19, 19-20, 20-21.

Post Construction: It means the period starting from the beginning of the year in which
construction is completed and continues until the loan is repaid.

Interest for Post Construction: Outstanding Loan Amount * Rate of Interest.

Self-Occupied Property [ Sec 23(2)(a)]

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Computation of taxable income of Self-Occupied property: Net Annual Value of Self-
occupied property will be taken as Nil. As a consequence, deduction u/s 24a will be nil.
Interest on Loan u/s 24b shall be allowed subject to following limits:
1. ₹200,000: When loan is borrowed on or after 1/4/1999 for acquiring or
constructing a property. Such acquisition or construction is completed within 5
years from the end of the financial year in which the capital is borrowed.
2. ₹30,000: When loan is borrowed before 1/4/1999 for acquiring or constructing a
property. When loan is borrowed for reconstruction, repairs or renewals of a
property. Such acquisition or construction is not completed within 5 years.
Computation at a glance
Particulars Amount
(₹)
Net Annual Value xxxxx
Less: Interest on borrowed capital u/s 24b (xxxx)
Income from House Property (xxxxx)

Property not occupied by the Owner [Sec 23(2)(b)]

As per section 23(2)(b), the value of the house shall be taken as nil (i.e., house is treated
as self-occupied for tax purposes) if the said house could not be occupied by
the owner due to his employment, business or profession at any other place and he has to
reside at that place in a building not belonging to him.

Note: Benefit u/s 23(2)(a) and 23(2)(b) can be taken for maximum of TWO houses
properties. Earlier the benefit was for only one house property but after 2019 Budget it
has been increased to TWO houses.

Partly Self occupied and Partly Let out [Sec 23(3)]

A house or part of the house, which is self-occupied and is also let out during any part of
the previous year will be treated as Partly Self occupied and Partly Let out. Division of
property can be done either Area wise, Time wise or Area as well as Time.

Note: Self Occupied and Let out portion shall be treated as two separate houses [say Unit
A and Unit B] [Area Division].

Common Value like municipal value, fair rent, standard rent, municipal tax and interest
shall be proportionately divided.

Income of both units shall be computed separately. If a property is self-occupied for a

part of the year and let out for other part of the year then property is taxable as let-out
property.

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Example: Suman Saha is the owner of a house in Pune. The house is divided in two
equal residential units. One unit is used for own residential purpose and the other unit is
rented for ₹ 8000 p.m. The rented unit was vacant for two months during the previous
year. The particulars of house for the previous year 2020-21 are as under:

Standard Rent ₹ 162,000 p.a.

Municipal Value ₹ 190,000 p.a.
Fair rent ₹ 185,000 p.a.
Municipal Tax 15% of Municipal
Value
Light and Water charges ₹ 500 p.m.
Interest on Borrowed capital ₹ 2,500 p.m.
Repairs ₹ 32,000 p.a.

Compute income from house property of Mr. Saha for the AY 2020-21.

Solution:

Computation of Income from House Property of Suman Saha for the AY 2020-21.
Particulars Details Amount Amount
Self-Occupied Property (Unit A)
Net Annual value Nil
Less: Interest on Borrowed capital (15,000)
(1:1)
Income from Self Occupied (15,000)
Property (A)
Let-Out Property (Unit B)
Gross Annual Value (Working Note 80,000
1)
Less: Municipal tax [ 15% of (14,250)
Municipal Value]
Net Annual Value 65,750
Less: Deduction u/s 24
24(a) Standard Deduction [ 30% of 19,725
NAV]
24(b) Interest on Borrowed Loan 15,000 (34,725)
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[1:1}
Income from Let out property (B) 31,025
Income from House Property 16,025
(A+B)

Working Note 1:
Particulars Working Unit A Unit B
Gross Municipal 1:1 95,000 95,000
value
Fair Rent 1:1 92,500 92,500
Standard Rent 1:1 81,000 81,000
RER Higher of GMV Nil (As it is S/O) 81,000
and FR subject to
SR
ARR 8000*10 - 80,000
GAV - 80,000

ARR is less than RER due to vacancy (otherwise ARR would have been ₹ 96,000).
Thus, ARR will be GAV.
Deemed to be Let-out [Sec 23(4)]
When the assessee occupies more than two house property as self-occupied [u/s 23(2)(a)]
or has more than two unoccupied property [u/s 23(2)(b)], then for any two of then benefit
can be claimed by the assessee at his choice and remaining property or properties will be
treated as deemed to be let out. Here GAV is equals to expected rent.

Recovery of unrealized rent and Arrears rent [Sec 25A]

When assessee has received an arrears of rent received or the unrealized rent from a
tenant then 70% of amount so received will be taxable under the head Income from
House Property.

Illustration 1:

Mr. Raj owns two properties both of which are let out. Details are as follows:

Particulars H1 H2
Situated at Surat Kolkata
Gross Municipal Value 1,00,000 2,00,000
Fair rent 95,000 2,10,000
Standard rent 90,000 2,00,000
Actual rent receivable 1,00,000 1,80,000
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 Unrealized rent of current year 8,000 2,000
Municipal tax 10% 1,000
Fire insurance 1,000 2,000
Repairs Nil 2,000
Loans for construction @ 10% 1,00,000 Nil

Other information:
a. Loan taken for construction is still unpaid.
b. Municipal tax of H1 is still unpaid, while, that of H2 is half paid by tenant.

Compute income from house property for the A.Y.2021-22.

Solution:

Computation of income from House Property of MR. Raj for the A.Y. 2021-22
Particulars Details Amount Amount
H1 Let out
Gross Annual Value* 92,000
Less: Municipal tax Nil
Net Annual Value 92,000
Less: deduction u/s 24
Standard deduction (30% of NAV) 27,600
Interest on loan 10,000 37,600 54,000
H2: Let out
Gross Annual Value* 2,00,000
Less: Municipal tax 500
Net Annual Value 1,99,500
Less: Deduction u/s 24
Standard Deduction (30% of NAV) 59,850
Interest on loan Nil 59,850 1,39,650
Income from House Property 1,94,050

NOTE: Unpaid municipal Tax and municipal tax paid by tenant is not allowed.

#. Computation of Gross Annual Value

Particulars Details H1 H2
Reasonable Expected Rent Higher of GMV 90,000 2,00,000
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 or FR subject to
SR
Actual Rent Receivable – 92,000 1,78,000
Unrealized Rent
Gross Annual Value Higher of above 92,000 2,00,000

Illustration 2:
Mr. X is the owner of two houses, one is occupied by him for his own residence and the
municipal valuation of the house is ₹1,000. The other he lets out at ₹200 p.m. and its
municipal valuation is ₹1,600. The expenses for both the houses for the previous year
2020-21 are as follows:

Municipal taxes- 260; Land revenue for the house let out- ₹100; Fire insurance premium
for the house- ₹200; Interest on loan taken to repair the house let out ₹300. His income
for the other sources for the same previous year - ₹15,000.

Solution:

Computation of Income from House Property of Mr. X for the A.Y. 2021-22

Particulars Details Details Amount

House1: Self Occupied
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on loan Nil Nil
House 2: Let out
Gross Annual Value (WN1) 2,400
Less: Municipal Tax (WN2) 160
Net Annual Value 2,240
Less: Deduction u/s
24(a) Standard Deduction (30% of NAV) 672
24(b) Interest on Loan 300 972 1,268
Income from House 1,268
Property

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No other expenditure is deductible.

Working 1: computation of GAV

RER(Municipal Value) ₹1,600
Rent received ₹2,400
GAV(Higher of above) ₹2,400

Working2: Calculation of Municipal Tax:

Municipal tax is proportionate to municipal value of both houses. Hence,
Municipal tax for let out property = (₹260* ₹1,600)/ ₹2,600 = ₹160

Illustration 3:
Shri Sudipta Saha Roy owns three houses, the particulars of which for the year ended
31ST March,2020 are as follow:
House No.1 House No. II House No.III
Let out for Self- occupied for Let out for
How
Residence residence Business
used
Kolkata ₹ Kolkata ₹ Durgapur
Situated at
₹
Municipal tax paid (12% - - -
p.a.)
Municipal value (Net) 81,000 1,08,000 90,000
Life Insurance Premium 3,000 5,000 2,000
Interest on loan paid (10% - - -
p.a.)
Standard Rent 80,000 - -
Rent received 80,000 99,000
Vacancy period 2 months - 1 month
Loan taken for the purpose 1,20,000 1,00,000 1,40,000
of
House property (on 1.1.17) (on 1.7.18) (on 1.1.19)

Compute Income from House Property of Sudipta Saha Roy for the assessment year
2021-22.
Solution:

Computation of Income from House Property at Shri Sudipta Saha Roy for the
A.Y.2021-22
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Particulars Detail Detail Amount
House I: Let out
Gross Annual Value(Working 1) 80,000
Less: Municipal Tax 9,720
Net Annual Value 70,280
Less: Deduction u/s
24(a) Standard Deduction 21,084
24(b) Interest on Loan 12,000 33,084 37,196
House III: Let out
Gross annual Value(Working 1) 99,000
Less: Municipal tax 10,800
Net Annual Value 88,200
Less: Deduction u/s
24(a) Standard Deduction 26,460
24(b) Interest on Loan 14,000 40,460 47,740
House II: Self occupied
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on Loan (Note) 10,000 (10,000)
Income from House Property 74,936

Computation of Gross Annual Income

Step Particulars Working H1 H3

1st Calculation of RER Being Gross Municipal Value 90,000 90,000
2nd ARR For the period actually let out 80,000 80,000
3rd Higher of above Higher of Step 1 & Step 2 90,000 99,000
4th Gross Annual Value 80,000* 99,000

Gross municipal value of H 1 = Net Municipal Value/90% = ₹90,000

# ARR id less than RER due to vacancy (otherwise ARR would have been ₹96,000 i.e
₹80,000/10*12). Therefore, GAV (due to step 4) will be the ARR computed in step 2

It is assumed that there is no interest for pre- construction period in either of the house.

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Illustration 4:
Mr. Sudipto Roy is the owner of two houses in Kolkata, particulars in respect of which
are given below:
House No. 1 House No. 2
Fair Rent 80,000 70,000
Gross Municipal 70,000 80,000
Standard Rent 60,000 65,000
Annual Rent 90,000 Vacant Period
2 Months -
Municipal Tax 3,000 2,000
(Paid) (Due)
Repairs and Maintenance Expenses 2,500 1,500

On 1.7.2016, Mr. Roy took a loan of ₹10,00,000 @12% p.a. for construction of House
No,2 and the construction was completed on 1.6.2018. As on 31.03.2020, the loan
remained unpaid. He also paid ₹5,000 as interest on loan taken for Purchasing House
No.1. House No.1 is let out to a tenant for business purpose while House No. 2 is used by
Mr. Roy for his own residence.

Compute Income from House Property of Mr. Roy for the assessment year 2021-22.

Solution:
Computation of Income from House Property of Mr. Roy for the A.Y.
year 2020-21
Particulars Details Details Amount
House I: Let out
Gross Annual Value (working 1) 75,000
Less: Municipal Tax 3,000
Net Annual Value 72,000
Less: Deduction u/s
24(a)Standard Deduction 21,600
24(b) Interest on loan 5,000 26,600 45,400
House II: Self occupied
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on loan (Working 2) 1,62,000 (1,62,000)
Income from House (1,16,600)
Property
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Working 1: Computation of Gross Annual Value

Step Particulars Working House I

st
1 Calculation of Higher of Gross Municipal Value or Fair 60,000
RER Rent, subject of maximum of Standard
Rent
nd
2 ARR For the period actually let out [₹90,000/ 75,000
12*10]
rd
3 Gross Annual Value [Higher of step 1 & step2] 75,000

Working 2: Calculation of Interest to be deducted in respect of House 2

Previous Year Month Interest
Pre-construction Interest
2016-17 9 90,000
2017-18 12 1,20,000
Total 2,10,000
th
1/5 of pre-construction (a) 42,000
Post-construction interest(b) 12 1,20,000
Total Interest Allowed (a) + (b) 1,62,000

Illustration 5:
Mr. Abul Hasan owns three houses at Ranchi. He furnishes the following particulars for
the previous year 2020-21:

House No. I: The house was constructed in 2018 and let out to a friend at a monthly rent
of ₹10,000 upto 31.1.2020 and thereafter, it was let out at its fair rent of 15,000 per
month. He has; paid ₹15,000 as municipal taxes @ 10% of Municipal Value. He has also
paid fire insurance premium of ₹2,000.

House No II: Ground floor is let out @ ₹20,000 p.m. first floor, identical to ground floor,
is occupied by him for his residence. Municipal taxes paid @ 20% amounted to ₹80,000.

House No. III: The house was constructed in 2009 and is used for his business. The
annual value of this house is ₹ 1,00,000 and he spent ₹ 5,000 as municipal taxes and
₹2,000 for repairs.

Other information:
A loan of ₹40,00,000 has been taken on 01-6-20127 for construction of House No. II.
Construction of the house was completed on 01-6-2018. He repaid the entire loan on 31-

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12-2019. Interest on loan is payable @ 12% p.a. Compute his income from house
property for the A.Y. 2021-22.

Solution:

Computation of Income from House Property of Mr. Abul Hasan for the A.Y. 2021-22
Particular Details Details Amount
House 1: Let out
Gross Annual Value 1,80,000
Less: Municipal Tax 15,000
Net Annual Value 1,65,000
Less: Deduction u/s
24(a) Standard Deduction 49,500
24(b) Interest on Loan Nil 49,500 1,15,500
House 2 : Ground Floor (Let out)
Gross Annual Value 2,40,000
Less: Municipal Tax[50%] 40,000
Net Annual Value 2,00,000
Less: Deduction u/s
24(a) Standard Deduction 60,000
24(b) Interest on Loan 2,20,000 2,80,000 (80,000)
House 2: First Floor (Self occupied)
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on Loan 2,00,000 (2,00,000)
House 3: Used in own business Nil
Income from, House (1,64,500)
Property

Workings
Fair rent: Since 1st house is let out by assessee to his friend @ ₹10,000 p.m. and the
same property is let out to other tenant @ ₹ 15,000 p.m., this signifies that 2nd house has
fair rent ₹15,000 * 12 = ₹1,80,000.

Calculation of Interest to be deducted in A.Y.2021-22

Previous Year Month Interest
Pre-construction Interest
2017-18 10 4,00,000
th
1/5 pre-construction (a) 80,000
Post- construction interest(b)[₹40,00,000 x 12% x 9 3,60,000
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9/12]
Total interest charged (a) + *(b) 4,40,000
50% for Ground Floor 2,20,000

Illustration 6:
Sri Manik Bhowmik is the owner of three house properties in Kolkata. From the
following information compute Income from House Property of Sri Bhowmik relating to
the assessment year 2021-22:

House 1 House 2 House 3

Date of commencement of 01.04.2015 05.06.1996 07.05.1992
construction
Date of completion of 01.04.2018 15.02.1999 16.07.1998
construction
How used For residential For Occupied
purpose of business for own
tenant purpose of residence
tenant
Rent received (₹) 1,60,000 2,00,000 -
Gross Municipal value 1,80,000 1,00,000 8,0000
Municipal Tax 12% 12% 12%
Repair Expense (₹) 5,000 8,000 7,000
Vacancy period 2 Months - -

Additional Information:
₹7,50,000 was borrowed by Shri Bhowmik on 01.04.2015 @ 10% p.a. for HDFC for
construction of the 1st house. The loan is still pending.

During the previous year 2019-20, Sri Bhowmik recovered ₹ 10,000 as arrear rent in
respect of the second house. Such receipt is not included in rent received for the year.

Solution:

Computation of income from House Property of Sri Manik Bhowmik for the A.Y.
Particulars Details Details Amount
House 1: Let out
Gross Annual Value(working1) 1,60,000
Less: Municipal Tax 19,440
Net Annual Value 1,40,560
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 Less: Deduction u/s
24(a) Standard Deduction 42,168
24(b) Interest on Loan 1,20,000 1,62,168 (21,608)
House2 : Let out
Gross Annual Value(Working 1) 2,00,000
Less: Municipal Tax 10,800
Net Annual Value 1,89,200
Less: Deduction u/s
24(a) Standard Deduction 56,760
24(b) Interest on Loan Nil 56,760 1,32,440
House 3: Self occupied u/s 23(2)(a)
Net Annual Value Nil
Less: Deduction u/s
24(b) Interest on Loan Nil Nil
Arrear rent received 10,000
Less: Standard Deduction @ 30% 3,000 7,000
Income from House Property 1,17,832
Working:
Computation of GAV
Step Particulars House 1 House 2
1 RER 1,80,000 1,00,000
2 Actual rent received 1,60,000 2,00,000
3 Higher of RER and ARR 1,80,000 2,00,000
4 GAV 1,60,000* 2,00,000

Till step 3, ARR id less than RER due to vacancy [ otherwise ARR would have been ₹
1,92,000 (being ₹16,000*12). Therefore, GAV (due to step 4) will be the ARR computed
in step 2.

Computation of Net Municipal Tax and Municipal Tax

Property NMV=GMV- 10% Municipal Tax = 12% of

OF GMV NMV
House 1 ₹1,62,000 ₹ 19,440
House 2 ₹ 90,000 ₹10,800

Calculation of interest to be deducted in A.Y.2021-22

Previous Year Month House 1

Pre- construction interest
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2015-16 12 75,000
2016-17 12 75,000
2017-18 12 75,000
Total 2,25,000
th
1/5 of pre-construction (a) 45000
Post-construction interest(b) 75,000
Total Interest charged (a)+(b) 1,20,000

Illustration 7:
Mr. Debanghsu Moulick furnished the following information for the P.Y. 2020-21
House 1 House 2
Where situated Kolkata Durgapur
How used Let-out Self-occupied
Constructed started on 05-04-2012 1-04-2017
Constructed completed on 15-03-2013 20-03-2018
Gross Municipal Value(₹) 30,000 25,000
Fir Rent(₹) 60,00 40,000
Annual Rent(₹) 72000 -
Standard Rent(₹) 55,000 -
Vacancy Period 3 Months -
Municipal Tax 10% of municipal value 1200
Repairs Paid 2,500-
Loan taken for construction @ 8% p.a.(₹) 1,00,000 2,00,000
(Date of taking the loan) (30-9-2011) (01-6-2017)

Other information:
In case of House 1, Municipal tax for last quarter remains unpaid while unpaid municipal
tax ₹475 for the year 2020-21, was paid during 2021-22.

Compute the Income House Property for Mr. Moulick for the A.Y. 2021-22

Solution:

Particulars Details Amount Amount

Income from House Property
House 2: Self Occupied u/s 23(2)(a)
Net Annual Value Nil
Less: Deduction U/s
24(b) Interest on Loan 16,000 (-)16,000
House 1: Let Out
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 Gross Annual Value(Working 1) 54,000
Less: Municipal Tax 2,500
Net Annual Value 51,500
Less: Deduction u/s
24(a) Standard Deduction 15,450
24(b) Interest on Loan (Working 1) 8,000 23,450 28,050
Income From House Property 12,050

Working:

Computation of GAV
Step Particulars Explan . House 1
1 RER[being higher of GMV or, FR, 55,000
sub. to max. of SR]
2 Actual Rent 54,000
Received[₹72000/12*3]
3 Higher of Step 1 and Step 2 55,000
4 GAV a) 54,000

Explanation:
Till step 3 ARR is less than RER due to vacancy [otherwise ARR would have been
₹72000. Therefore, GAV (due to step 4) will be the ARR computed in step 4
Municipal Tax is required to be Calculated on Net Municipal Value.
Net Municipal Value =Gross Municipal Value – 10% of Gross Municipal Value
Net Municipal Value = ₹27,000
Thus, Municipal Tax = ₹ 2,700(i.e., 10% of ₹27,000)
Allowable Municipal Tax = (₹2,700*3/4 ) + ₹ 475 = ₹2,500

Find out the income from property chargeable to tax for the assessment year 2021-22 in
the following cases:
X Y
Municipal value 1,20,000 1,20,000
Fair rent 1,30,000 1,30,000
Standard rent under the Rent Control Act 1,10,000 1,10,000
Actual rent if property is let out throughout the previous year1,26,000 1,26,000
Unrealized rent of the previous year 2018-19 10,500 Nil
Period when the property remains vacant (in number of month) One Nil

Municipal tax of the year 2018-19 18,000 18,000

Paid by X and Y during 2018-19 17,000 8,000
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Paid by X and Y after March 31, 2019 1,000 1,000
Paid by tenants during 2018-19 ----- 9,000

Ans: Income from House Property X 61,600 and Y 82,600

Unsolved:
1. Mr. Pandey, owner of three houses in Chennai, furnished the following information.
Com pute his income from house property for the assessment year 2021-22:
House No. House No. House No.
1 2 3
Let Out Self occupied Self occupied

Standard rent under 36,000 63,500 --

Rent Control Act

Gross municipal value 34,000 56,500 30,000

Rent received 37,500 -- --
Fair rent 45,000 67,500 45,000
Repairs 2,000 Nil 3,000
Municipal tax (10% of 40% Due Fully Paid Fully Paid
municipal value)

Interest on loan taken 2,000 4,000 3,000

for the construction of
house
Brokerage for 500 1,000 750
arranging loan

Vacancy period 2 months 6 months 6 months

Collection charges 3,000 -- --
Recovery of unrealised 5,000 -- --

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rent (previously
allowed)
Legal charges for 200 -- --
recovery of arrear rent

Fire insurance premium 1,000 (due) 1,500 1,000

[Ans:- Income from HP- 19,465]
2. Mr. Mehra is the owner of three houses. From the following particulars of the
houses, com pute his income from house property for the Assessment year 2021-
22:
First House: The house is situated in Delhi. It was let-out with effect from 1-4-2019 for
₹20,000 p.m. which was vacated by tenant on 31-01-2021 remained vacant for 2 months.
Mu nicipal valuation of the house is 1,80,000. Municipal taxes @ 20% of municipal
value has been paid by him. The fair rent and standard rent of the house are 2,20,000 and
$2,00,000 respectively.
Interest paid by him on money borrowed for the purchase of house property was 60,000.
Construction of the house was completed on 31-12-2014.
In the previous year 2020-21, ₹15,000 has been recovered for unrealized rent, relating to
the previous year 2015-16.
Second House: The house is situated in Kolkata, which he has transferred to his wife in
1997 without any consideration. The municipal value of the house is 5,00,000. He,
however uses this house for his own residence. Municipal tax paid for the house was
18,750. He took a loan for the purpose of repairing of the house. The loan amount is still
outstanding. The in terest on loan due for the previous year 2020-21 was 1,65,000, out of
which he paid ₹1,45,000 during the previous year 2020-21.
Third House: The house consists of two identical flats and situated in Kolkata. One flat
has been used by him for his own business and other one has been let out to a tenant.
He received 30,000 as rent from the house. Net municipal value of the house is 90,000.
Municipal tax @ 10% has been paid by him. He paid 17,500 as interest on loan
borrowed for the purpose of the house.
[Ans: Gross Total Income:- 58,400]

3. Sri Mani Bhowmik is the owner of three house properties in Kolkata. From the
following in formation compute income from house property of Sri Bhowmik
relating to the assessment year 2021-22:
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 House 1 House 2 House 3
i) Date of 01.04.2016 05.06.1996 07.05.1992
commencement of
construction

ii) Date of completion of 01.04.2019 15.02.1999 16.07.1998

construction

iii) How used For residential For business Occupied for

purpose of tenant purpose of tenant own
residence

iv) Rent received (₹) 1,60,000 2,00,000 --

v) Gross Municipal Value 1,80,000 1,00,000 80,000

(₹)

vi) Municipal Tax 12% 12% 12%

vii) Repair expense (₹) 5,000 8,000 7,000

viii) Vacancy period 2 Months -- --

Additional Information:

i) ₹7,50,000 was borrowed by Shri Bhowmik on 01.04.2016 @ 10% p.a. for HDFC
for con struction of the 1st house. The loan is still pending.

ii) During the previous year 2020-21, Sri Bhowmik recovered ₹10,000 as arrear rent
in respect of the second house. Such receipt is not included in rent received for the year.
[Ans: Income from HP:- 1,17,832]
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 4. Mr. De owns two houses in Kolkata. The first one is occupied by him for his
residence and the second house, consisting of two flats of equal sizes, is let out to
tenants @ ₹7,000 per month per flat for residential purpose.

Following are the particulars regarding his Houses for the financial year ended 31st
March, 2021
First house Second house

Construction started 18-08-2016 30-11-2015

Construction completed 15-06-2019 30-10-2016
Municipal Tax @ 15% ₹40,500 ₹ 21,600
Insurance Premium ₹ 6,000 ₹ 4,000
Vacancy period -- One flat for one
month
Mr. De borrowed ₹6,00,000 for the construction for first house @ 10% p.a. on 1-9-
2017. He also borrowed ₹8,00,000 for the construction of second house @ 12% on 01-
03-2016. He paid interest regularly but loans remain unpaid on 31-03-2021.
Compute Mr. De's income from house property for the assessment year 2021-
22. [Ans:- Income from HP: (-)79,020]

5. Mini owns three houses in Kolkata. The particulars for the year ended 31.3.2021
are given below:
House I ₹ House II ₹ House III ₹

Purpose of use Let out for residence Self occupied For own
business

Municipal tax 5,000 3,500 4,000

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Fire Insurance premium 3,000 2,500 3,600

Interest on loan paid 3,200 3,600 12,000

Repairs 7,000 5,400 6,000

Standard Rent 40,000 -- --
Rent received 35,000 -- --
Vacancy period 2 months -- --
Municipal value 36,000 35,000 48,000
Compute income from house property for the A.Y. 2021-22 after considering the
following additional information:

(i) Municipal tax of 1,500 in respect of House-I was in arrear.

(ii) Interest on loan of 1,400 in respect of House-II was in arrear.

[Ans:- Income from HP: 15,250]

6. Mr. Mrinal Chakraborty and his family members have occupied three houses for
their resi dential purpose. The particulars of the house, which were constructed by
Mr. Chakraborty, are as follows:
House 1₹ House II₹ House III ₹
Municipal Valuation 8,00,000 15,00,000 22,50,000
Fair Rent 18,00,000 22,50,000 27,50,000
Standard Rent 15,00,000 18,00,000 30,00,000
Municipal tax paid 1,20,000 1,50,000 2,70,000
Fire Insurance
Premium

(a) Paid 80,000 1,20,000 --

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(b) Due -- -- 90,000
Interest on loan (Taken for 75,000 1,10,000 --
the purpose of
constructions)

Repairs Nil 1,50,000 3,00,000

7. Mr. Chakraborty borrowed ₹10,00,000 @ 12% p.a. for the purpose of construction
of House III. The amount was borrowed on 1.6.2010 and repaid on 17.9.2021:
Construction of the house were completed on 1.4.2019. Construction of House I
and II was completed in the year of 1996.
You are required to compute taxable income of Mr. Mrinal Chakraborty for the
Assessment Year 2021-22 on the assumption that he treats the second and third house as
self-occupied. [Ans:- Gross Total Income: 8,61,000]

8. Mr. B. Poddar, a resident of India, owns a house in Kolkata, 50% of the house was
let out for the residential purpose on a monthly rent of 5,000. However, this portion
remained vacant for one month during 2020-21, 25% of the house was used by the
owner for the purpose of his own business, while the remaining 25% of the house
was used for the purpose of his residence. The following are the particulars in
respect of the house property:

Fair rent (for let out part) 48,000 p.a. Municipal tax paid for the house @ 10% 9,000. Re
pairs
17,500, a loan of 1,50,000 was taken on 1st April 2016 @ 10% p.a. as interest for the
construction of the house which was completed on 30th June 2018. Nothing was repaid
on loan account so far.
Compute his income from house property for the assessment year 2021-22.
[Ans:- Income from HP: 19,600]

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 Previous Year Questions
1. Find out the income from property chargeable to tax for the assessment
year 2021-22 in the following cases:
X(₹) Y (₹)
Municipal value 1,20,000 1,20,000
Fair rent 1,30,000 1,30,000
Standard rent under the Rent Control Act 1,10,000 1,10,000

Actual rent if property is let out throughout the 1,26,000 1,26,000

previous year
Unrealized rent of the previous year 2020-21 10,500 Nil

Period when the property remains vacant (in (1) (Nil)

number of month)
Municipal tax of the year 2020-21 18,000 18,000
Paid by X and Y during 2020-21 17,000 8,000
Paid by X and Y after March 31, 2021 1.000 1,000

Paid by tenants during 2020-21 ----- 9,000

[2003]
2. How do you calculate annual value of house property?
[2004]
3. How will you compute taxable income from house property? Give
example.
[2005]

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4. Mention the cases where valuation of house property for purpose of income
tax shall be NIL. Also mention the exceptions to such rules.
[2003]
5. Mr. 'X' owns two house properties, 'A' and 'B'. Property 'A' is used by him
for his own residential purpose, whereas property 'B' is let out to a tenant
for a monthly rent of Rs. 15,000 throughout the financial year 2020-21. The
other particulars in respect of the properties are as under:
Particulars Property 'A' Property 'B'
(Rs.) (Rs.)
Municipal Valuation 30,000 50,000
Standard rent under Rent Control Act 40,000 1,00,000
Municipal Taxes paid by Mr. 'X' 8,000 24,000
Maintenance charges paid 6,000 18,000
Date of completion of construction 31.03.2013 31.08.2016
Interest on home loans for construction of 70,000 1,20,000
properties from Nationalized Bank
Fire Insurance Premium Payable 1,500 3,000

The following further information is available:

i. Out of interest of Rs. 1,20,000 on home loan taken for construction of
property 'B', an amount of Rs. 30,000 was outstanding on 31.3.2021.
ii. Mr. 'X' was employed by ABC Ltd. on a monthly salary of Rs. 50,000 plus
monthly travelling allowance of Rs. 10,000.
iii. He donated during the year Rs. 1,50,000 to a charitable trust approved
under Section 80G of the Income Tax Act, 1961.
iv. He spent Rs. 7,500 for his health check-up during the year.

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You are required to compute Total Taxable Income of Mr. 'X' for the
Assessment Year 2021-22.
[2017]
6. What do you understand by the term Annual Value of house property?
How would you determine the annual value of let out house property which
remained vacant for part of previous year?
[2019]
7. Y has two houses in Chennai. He has self-occupied both the houses. The
particulars of the houses are as follows:
House (I) House (II)
₹ ₹
Municipal value per year 1,20,000 1,15,000
Fair rent per annum 1,50,000 1,75,000
Standard rent per year 1,00,000 1,65,000
Date of completion of construction 31.3.2009 31.3.2009
Municipal taxes payable during the year 12% 8%
Interest on amount borrowed for repair of both the Nil 55,000
houses during the current year
Y has paid the municipal taxes for House II only. It is due for House I.
Compute the house property income of Y for the assessment year.
Advice:
(i) Which house should be opted by Y to be assessed as self-occupied ? and
(ii) State the reasons for it.
[2020]
8. What do you understand by term Annual Value of House Property? How
would you determine the annual value of let out house property which remain
vacant for part of previous year?
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9. Y has two houses in Chennai. He has self- occupied both the houses. The
particulars of the house are as follows:
House I (Rs) House II (Rs)
Municipal value per year 1,20,000 1,15,000
Fair rent per annum 1,50,000 1,75,000
Standard rent per year 1,00,000 1,65,000
Date of completion of construction 31.3.2009 31.3.2009
Municipal taxes payable during the year 12% 8%
Interest on amount borrowed for repair of nil 55,000
both the houses during the current year
Y has paid the municipal taxes for house II only. It is due for House I.
complete the house property income of Y for the assessment year
Advice:
(i) Which house should be opted by Y to be assessed as self occupied?
State the reason fot it.

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PROFITS AND GAINS OF BUSINESS AND PROFESSION

As per section 28, income from any Business / Profession shall be taxable under the head
Business / Profession.

Business – “Business” includes any Trade, Commerce or manufacture or any adventure

or concern in the nature of trade, commerce or manufacture
Profession – “Profession” includes Vocation

Income chargeable under the head PGBP (Sec 28)

 Profits and gains of any business or profession
 Compensation received for termination or modification of contract by
 A person in respect of service to manage an Indian Company
 Any person in respect of agency
 Any person in respect of service to Government.
 Profit on sale of Import Entitlement Licence
 Cash Compensatory Support and Duty Drawback
 Sum received under a key man insurance policy.
 Value of any benefit or perquisite arising from any business or profession
 Fair Market value on the date of its conversion into capital asset
 Any interest, salary, bonus, commission or remuneration, by whatever name called,
due to or received by a partner of a firm from such firm to the extent allowed.
 Income derived by a trade professional or similar association from specific services
performed for its members.
 Any profit on the transfer of the Duty Entitlement Pass Book Scheme.
 Income from speculation business shall be taxable under head Business / Profession.

Speculative Business
Meaning: A Speculative transaction is defined under Section 43(5) to mean a transaction
in which a contract for purchase or sale of a commodity including stocks or shares is
periodically or ultimately settled otherwise than by actual delivery or transfer of the
commodity or scrip.

The following shall not be treated as speculative transaction (Exceptions):

A contract in respect of Raw material or merchandise entered in the normal course of
business to guard against loss due to price fluctuations.
A contract in respect of stocks and shares entered into by a dealer or investor to guard
against loss through price fluctuations.

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A contract entered into by a member of forward market or a stock exchange in the course
of jobbing or arbitrage to guard against loss in the ordinary case.

Computation of Income under the head ‘Profits & Gains of Business or Profession’
Profit for income tax purpose is different from profit as per books of account. The profit
as per books of account needs to be converted into profit for the purpose of income tax.
The conversion can be made in two methods:

Direct Method: Computation of New Profit and Loss statement considering the
provisions of Income tax Act.

Particulars Amount Amount

Income as per sec 28
Consultation Fees *****
Audit Fees *****
Other Revenue income ***** ******
Less: Expenditure allowed u/s 30 to 43D
Office Rent *****
Repairs of plant and machinery *****
Depreciation as per IT act *****
Sundry Expenditure ***** (*****)
Profits or Gains of Business or Profession ******

The above format is illustrative and not exhaustive.

Indirect Method: Computation of Profit or Loss as per Income tax act after adjusting the
profit or loss as per books of account.

Particulars Amount Amount

Net Profit/(Loss) as per books of Account *****
Add: Expenditure specifically disallowed but debited to
P/L Account
Advertisement in Political party *****
Depreciation as per books of account *****
Provision for Bad Debts *****
Penalty paid *****
Donations ***** *****
Less: Income not taxable but credited to P/L Account
Dividend from Indian Company ***** *****
Less: Income not taxable under this head but credited to
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P/L Account
Bank Interest (Taxable under IFOS) *****
Profit on Sale of Machinery (Taxable under CG) ***** *****
Less: Expenditure allowed but not debited to P/L Account
Depreciation as per IT Act *****
+/- Adjustment for change in valuation of stock ***** *****
Profits and Gains of Business or Profession *****

Specific Deductions (Sec 30 to 43DB)

Rent, Repairs, Taxes and Insurance for:

Building (Sec 30) – Allowed as deduction if the Building is used for the purpose of
Business or Profession and the area not used for Business no deduction to be allowed.
Rent paid to proprietor is disallowed but rent paid by firm to its partner for using his
premises is an allowed expenditure.

Plant and Machinery (Sec 31) – Allowed as deduction.

Depreciation (Sec 32)

Depreciation under Income Tax Act is allowed on the basis of W.D.V. only (SLM is not
applicable)

Computation of Depreciation
Purchased and “Put to use” for less than 180 days: Depreciation shall be allowed at half
the normal rate.

Purchased and “Put to use” for more than 180 days: Depreciation shall be allowed at full
rate.

Purchased and is not “Put to use” at all: No depreciation is allowed and if the asset is put
to use in the subsequent year full depreciation shall be allowed without calculation of
days.

Example: Mr. X has purchased one asset on 1-4-2007 and has put to use on 31-3-2009 in
that case, no depreciation shall be allowed in the P.Y. 07-08, however in the P.Y. 08-09
full depreciation is allowed even it is used for a single day.

Asset sold During the year: No depreciation is allowed on such particular asset.

NOTE: “Put to use” do not mean actual use rather it means making an asset ready for
use.
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Block of Asset
Depreciation under Income Tax Act is not allowed on the basis of individual asset rather
depreciation is allowed on the basis of block of assets which means a group of similar
type of assets having same rate of depreciation.

Depreciation on the basis of block of assets shall be computed in the manner given
below:
Take opening W.D.V. of the block.

Add purchases during the same year of that particular block.

Deduct Sale price / Insurance Claim / Scrap Value of all the assets sold during the year
relating to the same block.

Depreciation shall be charged on the balance at the end of the year.

Example: ABC Ltd. has Plant P1, P2, P3, and P4 as on 1/4/2007 and the combined W.D.V.
is. Rs.70 Lac. The company has purchased Plant P5 on 1/7/2007 and it was put to use on
the same date & it was purchased for Rs. 20lac & the company has sold Plant P1 on
1/1/2008 for Rs. 15 Lac.
W.D.V. as on 1/4/2007 70 Lac Add: P5 20 Lac
Less: P1 (15 Lac) 75 Lac
Less: Depreciation @ 15% (11.25 Lac)
Closing W.D.V. as on 31/3/2008 63.75 Lac

If any asset was purchased during the year and was put to use for less than 180 days, in
that case depreciation shall be allowed at half the normal rate for that particular asset.
If any asset was put to use for less than 180 days & the balance left at the end of the year
is less than the value of such asset, in that case, depreciation shall be charged at half the
normal rate on such balance.

If all the asset have been sold but still there is some balance (i.e. No physical existence of
asset) It will be called as Short Term Loss under Section 50 & no depreciation is allowed.
If there is Negative Balance, it will be Short Term Gain under Section 50 and no
depreciation is allowed

Additional Depreciation (Sec 32(1)(iia))

Additional Depreciation is allowed @ 20% to all assesses & further it is allowed if all the
given conditions are satisfied:
 It should be Plant and Machinery which has been acquired and installed after the
31.03.2005.
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 Such Plant and Machinery should be used for the purpose of manufacturing.
 It will be allowed only once.
 Additional Depreciation is not allowed in the following cases:
 Second Hand Plant and Machinery.
 Plant and Machinery used in office building or residential building.
 When plant and machinery is sold in the year of acquisition
 Any Machinery or Plant, the whole of the actual cost of which is allowed as a
deduction (whether by way of depreciation or otherwise) in computing the income
chargeable under the head Business / Profession of any one previous year.
 If the Plant and Machinery is being put to use for less than 180 days than additional
depreciation shall be allowed @ 10%, and the remaining 10% shall be allowed in the
subsequent year.

Note: Additional Depreciation shall be allowed even if the block has nil or negative value

Scientific Research [Sec 35]

If any assessee has incurred expenditure in connection with scientific research, such
expenditure is allow to be debited to the P&L A/c provided the research is related to the
Business / Profession of the assessee and further even capital expenditure can be debited
to P&L Account but expenditure on land is not allowed.

If any assessee has given any donation or contribution to any approved scientific
research, university, college, Indian Company etc, deduction is allowed equal to 1.25
times of the donation or contribution & further there is no condition that the research
should be related to the Business / Profession of the assessee.

Capital expenditure (after commencement of business) in connection with scientific

research is allowed to be debited only to the extent income is available under the head
Business / Profession & unadjusted expenditure shall be allowed to be set off & carry
forward just like unabsorbed depreciation.

If any assessee has incurred any expenditure before commencement of business in

connection with scientific research, but within 3 years before the commencement, such
expenditure shall be allowed in the year in which the business has commenced. However,
revenue expenditure shall be allowed only to the extent it has been permitted by the
prescribed authority.

If any perquisite has been allowed to the employees before commencement of business, it
will not be allowed.

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Amortization of Preliminary Expenses [Sec 35D]
Expenses incurred before commencement of business shall be allowed to be debited in 5
annual equal installments starting the year in which the business has been commenced &
further expenditure is allowed only to the resident assesses and to Indian Companies.

Total eligible expenditure in case of Indian Company shall not exceed 5% of the “Cost of
project” or “capital employed” [at the option of such company] whereas in case of non-
corporate assessee it shall not exceed 5% of the “cost of project”.

The expenses which are allowed under Section 35D are as given below:
Expenditure in connection with project report, feasibility report, engineering services,
conducting market survey provided the work has been taken up by the assessee himself
or by any organization approved by the board.

Expenses incurred in connection with legal agreements relating to the business or

profession.
Expenses being incorporation fee of the company.
Expenses on drafting & printing of memorandum & articles of association.

Expenses on issue of share capital & debentures including expenses on drafting and
printing of prospectus and also expenses being commission paid to the underwriters.
Any other expense prescribed for this purpose.

EXPENDITURE IN CONNECTION WITH AMALGAMATION/DE MERGER

SECTION 35DD
Expenditure is allowed only to Indian Company and allowed for the expenditure incurred
in connection with amalgamation / de merger & expenditure is allowed in 5 annual equal
installments.

EXPENDITURE IN CONNECTION WITH VOLUNTARY RETIREMENT SECTION

35DDA
Deduction shall be allowed to all the assesses with regard to the expenditure incurred in
connection with Voluntary Retirement & expenditure shall be allowed in 5 annual equal
installments.
[In case of amalgamation / de merger, remaining installments shall be allowed to the
amalgamating or the resulting company]

PREMIUM FOR INSURANCE OF STOCKS SECTION 36(1)(i)

If any assessee has paid premium for the insurance of Raw Material, Finished Goods etc,
premium paid is allowed.

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PREMIUM FOR INSURANCE OF CATTLE SECTION 36(1)(ia)
If any Cooperative Society has paid premium for insurance of cattle owned by the
members of society, such premium shall be allowed to be debited.

PREMIUM FOR MEDICLAIM POLICY SECTION 36(1)(ib)

If any assessee has paid premium in connection with Mediclaim Policy taken in the name
of employees, premium shall be allowed to be debited. However payment should be made
in cash.

PAYMENT OF BONUS / COMMISSION TO EMPLOYEES SECTION 36(1)(ii)

Bonus / Commission to the employees is allowed but subject to the provision of Section
43B. Such Bonus / Commission should not have been payable to the employees
otherwise as share out of profits.

INTEREST ON LOAN TAKEN FOR BUSINESS / PROFESSION SECTION 36(1)(iii)

If any assessee has taken a loan for the purpose of Business / Profession, in such case
interest is allowed without any restriction.

[No interest is allowed to the proprietor on his capital]

If the loan has been taken for the purpose of capital asset, interest up to the date of putting
the asset to use shall be capitalized & depreciation shall be allowed on capitalized amount
& interest for the subsequent period shall be debited to the P&L Account as per Section
43(1).

Bad Debts [Sec 36(1)(vii)]

Any debt or part thereof, which becomes bad shall be allowed as deduction
Provision for Bad Debt is not allowed as deduction.

Recovery of Bad Debts [Sec 41(4)]

If any amount was allowed as bad debt and subsequently it was recovered in the
subsequent years, in such cases the amount so recovered shall be considered to be income
under the head Business / Profession of the year in which the amount has been recovered.

Taxable Bad Debt Recovery: Amount Recovered less (Bad Debt Claimed – Bad Debt
Allowed as Deduction)

Note: Such recovery shall be taxable irrespective of the fact whether the business is
continued or not.

Certain Expenditure Allowed Only On Actual Payment Basis [Sec 43B]

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Write a short note on method of accounting as per Section 145

As per Section 145 every assessee has the option to maintain the books of accounts either
on the basis of mercantile system of accounting or on the cash basis. If the books are
maintained on the basis of mercantile basis of accounting, all the expenses are allowed on
due basis and all incomes are taxable on accrual basis. If the books are maintained on
cash basis, all expenditures are allowed on actual payment basis & all incomes are
taxable on actual receipt basis.

Any system of accounting once adopted has to be followed consistently & it can be
changed with the permission of assessing officer. If any assessee has violated the
provisions of Section 145, in such cases assessing officer may complete assessment in the
manner given under Section 144.

If any assessee is maintaining books of accounts on the basis of mercantile system of

accounting, all expenditures are allowed on due basis, however expenses listed below
shall be allowed only on actual payment basis: -
 Sales tax, Custom Duty, Excise Duty, Service Tax, Municipal tax or License Fee Etc.
 Employer’s Contribution to RPF, approved superannuation fund, statutory provident
fund, approved gratuity fund or any other approved fund for employee’s welfare.
 Bonus or Commission to the employees.
 Leave salary to the employees.
 Interest on loan taken from Public Financial Institutions, State Financial Corporations,
State Industrial Investment Corporation.
 Interest on loan or advance from Banks.
The expenses listed above shall be allowed only on actual payment basis. However,
payment can be made till the last date of filing of return of income, otherwise expenditure
shall be allowed in the year in which the payment has been made.

Books Of Accounts [Sec 44AA Rule 6F]

In case of Specified Profession

Any person having specified profession has to maintain any books of accounts which
may help the assessing officer in computing his income but if the gross receipt has
exceeded ₹ 1,50,000 during all the 3 years immediately preceding the relevant P.Y., in
such cases assessee should maintain prescribed books of accounts.

“Prescribed Books of Accounts” shall include Cash Book, Journal, Ledger, Bills
Received, Copies of Bills issued etc.

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If any person is required to maintain prescribed books of accounts, such person must
retain such books of accounts for a period of at least 6 years from the end of the relevant
A.Y.

“Specified profession” shall include:

 Medical Profession
 Architectural Profession
 Legal Profession
 Profession of Accountancy
 Interior Decoration
 Technical Consultancy
 Authorized representative
 Film artist.

If any person has started specified profession during the year, he must maintain
prescribed books of accounts if the gross receipts are likely to exceed ₹1,50,000
In case of Business or Non-Specified Profession.

If any assessee has Business or Non-Specified Profession, in such cases no books of

accounts are required. However, if the gross receipt is exceeding ₹10 Lac or the income is
exceeding ₹1,20,000 in any of the 3 years immediately preceding the relevant P.Y., in
such cases the assessee should maintain any books of accounts which may help the
assessing officer in computing his income. (Prescribed Books are required only if the
Books are required to be Audited).

If the Business or the Non-Specified Profession has been setup during the year, in that
case assessee should maintain any books of accounts if the Gross Receipt is likely to
exceed ₹ 10 Lac or the income is likely to exceed ₹1,20,000.

If income of any person is to be computed on presumptive basis under Section 44AD,

44AE and 44AF and such person has rejected presumptive income, in that case, such
person should maintain any books of accounts which may help the assessing officer in
computing his income.

If any assessee has violated the provisions of Section 44AA, penalties may be imposed
amounting to ₹25,000.

Tax Audit/ Compulsory Audit [Sec 44AB]

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If any person is engaged in a business and his turnover during the year has exceeded ₹100
Lac, in such cases such person must get his accounts audited in that particular year.

If any person is engaged in specified or non-specified profession and his gross receipt
during the year has exceeded ₹50 Lac, in such cases, such person must get his accounts
audited in that particular year.

If income of any person is to be computed on presumptive basis under Section 44AD,

44AE and 44AF but such person has rejected the presumptive income, in such cases such
person shall be required to get his accounts audited.

If any person is required to get his accounts audited, such person must submit the audit
report maximum up to the last date of filing of return of income.

If any assessee has violated the provision of Section 44AB, in that case penalties shall be
imposed equal to 0.5% of the turnover but subject to a maximum of ₹ 1.50,000.
Summarized Points to be remembered while solving Illustrations:
 Expenditures to be disallowed
 Expenses not in respect of business or profession. (i.e. Personal Expenses)
 Payment of LIC premium.
 Depreciation as per books of account
 Income tax paid by proprietor
 Any Capital expenditure. (i.e. Car purchased)
 Any anticipated loss is not allowed as deduction
 Charity and donation. (Donation eligible for deduction u/s 80G)
 Goods withdrawn for personal purpose. (Cost of Goods)
 Penalty and Fines.
 Bad Debt disallowed. (Ex: Bad Debt of ₹ 5000 debited in P/L Account and 60% of
Bad Debt allowable as per IT Act. Thus, Bad Debt Disallowed will be ₹5000*40% =
₹2000)
 Interest on Capital is disallowed (in excess of 12%)
 Any expenditure incurred in cash in excess of ₹ 10,000 shall be disallowed.

INCOMES
DISALLOWED
Income not taxable under any Income not taxable under this head
head
Dividend from Indian Bank Interest (Taxable under IFOS)
Company
Bad Debt Recovery Dividend from foreign company (under
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 IFOS)
Sales to himself (Sales Price) Profit on Sales of Fixed Assets (under
Capital Gain)
Coaching Fees (under IFOS)
Interest on Late refund from IT
Department

Illustration1:
From the following profit and loss account of Mr. X for the year ending 31 st March, 2020.
Compute his Gross Total Income for the Assessment Year 2021 – 22:

Particulars ₹ particulars ₹
To opening stock 400000 By sales 4000000
To purchases 3000000 By closing stock 480000
By income from house
To salaries 800000 property 80000
By dividend from an
To rent , rates and taxes 120000 Indian co. 9000
To legal charges 40000
To miscellaneous
expenses 20000
To provision for bad
debts 30000
To provision for income
tax 40000
To salary to Mrs. X 36000
To depreciation 40000
To Net Profit 43000
4569000 4569000

Purchase includes ₹100000 paid in cash to a cultivator for purchase of agriculture

produce.

Purchase also includes ₹100000 paid by way of compensation to the supplier as the
assessee was unable to take delivery of goods due to lack of storage, space and finance.

Opening stock was overvalued by 25% and closing stock was undervalued by 25%.
Salary includes ₹15000 paid as bonus on the occasion of Diwali over and above the
bonus payable under the payment of bonus Act 1965.

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Rent, rates and taxes include ₹ 10000 on account of disputed sales tax demand, ₹3000 on
account of municipal taxes for let out property. It also includes ₹ 5000 as custom penalty
paid during the year.

An amount of ₹ 20000 due from customer was written off from the provision for bad
debts.
Mrs. X is a law graduate and is actively working in the assessee’s firm.

Solution:

Computation of total income of X for the A.Y 2021 – 22

Particulars Notes Details Amount Amount
Income from house property
Gross annual value (actual rent ) 80000
Less : municipal tax 3000
Net annual value 77000
Less : deduction u/s
24(a)standard deduction @30% of NAV 23100 53900

Profit and gains from business and

profession
Net profit as per books of account 43000
Add: expenditure disallowed but debited in
P/L a/c
Provision for bad debts 1 30000
Provision for income tax 2 40000
Municipal tax paid on property 3 3000
Penalty 4 5000 78000
121000

Less: expenditure allowed but not debited to

p/l a/c
Bad debts written off 5 20000
Less: income not taxable wrongly credited to
p/l a/c
Dividend from UTI 6 9000
Less: income taxable under other head
credited to p/l a/c
Income from house property 80000 109000
12000
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Adjustment for valuation of stock
Add: undervaluation of closing stock 7 160000
Add: overvaluation of opening stock 8 80000 240000 252000
305900

Notes:
 Any anticipated loss is not allowed as deduction
 Income tax is specifically disallowed u/s 40[a]
 Municipal tax paid on let out property shall be deducted income from house property
 Any payment for infringement of law is not allowed as deduction
 Bad debt written off is allowed u/s 36[1][vii]
 Dividend is exempted u/s10[34]
 Under valuation of closing stock [₹480000/75%] = ₹640000 [25% of ₹640000] =
160000
 Over valuation of opening stock [₹400000/125%] = ₹320000 [25% of ₹ 320000] =
₹80000

As Mrs. X is actively engage in business, it is assumed that salary paid to her is not in
excess

Cash payment to cultivator is covered under rule 6DD, thus such payment does not hit by
provision of sec. 40A[3]

Illustration 2:
From the following profit and loss account and other relevant information, compute total
income of shri rattan for the assessment year 2021 – 22.
Particulars ₹ Particulars ₹
To opening stock 110000 By sales 520000
To purchases 250000 By closing stock 66000
To salaries 50000 By bad debt recovery 35000
By dividend from a foreign
To income tax 8500 co. 4000
To legal charges 7500 By bank interest on FDR 15000
To donation 10000
To provision for bad
debts 8000
To fines paid to GST
dept. 12000
To GST 17000
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To depreciation 27000
To travelling expenses 5000
To advertisement 15000
To Net Profit 120000
640000 640000

ADDITIONAL INFORMATION:
 Both opening and closing stock have been valued at 10% above cost
 Depreciation as per income tax rule is ₹22000
 Donations comprise ₹8000 donated to PM’s Drought Relief Fund and ₹ 2000 to
National Children Fund
 GST amounting to ₹ 12000 were paid on July 14, 2020
 Purchases include a payment of ₹40000 made in cash
 Salaries paid include ₹24000 paid to Shri Ratan
 Purchase of scientific research asset worth ₹70000 included in purchases

Particulars Notes Details Amount Amount

Profit and gains from
business and profession
Net profit as per books of
account 120000
Add: expenditure
disallowed but debited
in p/l a/c
Income tax 1 8500
Fines paid to gst dept. 2 12000
Provision for bad debt 3 8000
Excess depreciation
charged 4 5000
Donations 5 10000
Unpaid gst 6 5000
Cash purchase 7 40000
Own salary 8 24000 112500
232500
Less: income not taxable
wrongly credited to p/l
a/c
Bad debt recovery(earlier
not allowed) 9 35000
Less: income taxable
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 under other head
credited to p/l a/c
Bank interest on FD 15000
Dividend from foreign
company 4000 54000
178500
Adjustment for
valuation of stock
Less: undervaluation of
closing stock 11 6000
Add: overvaluation of
opening stock 10 10000 4000 182500

Income from other

sources
Bank interest on FD 15000
Dividend from foreign
company 4000 19000
Gross total income 201500
Less: deduction u/s
80g(donation)[50%of
₹10000] 5000
196500
SOLUTION:
Computation of total income of shri rattan for the a.y.2021 – 22

NOTES
 Income tax is specifically disallowed u/s 40.
 Any payment for infringement of law is not allowed as deduction.
 Any reserve or provision are not allowed as deduction.
 Depreciation is allowed as per IT act not as per books.
 Donation is not allowed as it is not related to business. However, donation shall be
allowed u/s 80G
 As per sec. 43B, GST paid within due date of furnishing return shall be allowed. It is
assumed that ₹ 5000 is still unpaid.
 Any expenditure incurred in cash in excess of ₹ 10000 shall be disallowed u/s40A[3]
 Salary to proprietor is not allowed as no can earn from himself.
 Bad debt recovery is taxable only if it is earlier allowed.
 Over valuation of opening stock[₹110000/110 % =100000] [10% of 100000] = 10000
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 Over valuation of closing stock [₹66000/110 % = 60000][10% of 60000] = 6000

Illustration 3:
Discuss the allowbility or otherwise of the following expenditure in computing income
from the business of an assessee for the assessment year 2021 -22.
 Interest on funds borrowed for income tax
 Legal charges were paid for the registration of trademark
 Legal expenses including lawyer’s fee for raising loan from financial institution.
 Lump sum paid to an employee in lieu of regular pension
 Ex- gratia paid to the dependents of an employee who died in accident while coming
to the factory
 ₹700 was considered as bad debts. The debtors were declared insolvent having no
asset. The amount was however not written off as irrecoverable in the accounts of the
assessee.
 A compensation of ₹10000 paid to the party for non - delivery of goods as per terms
of the contract

SOLUTION:
Interest on fund borrowed for income tax is disallowable expenditure.
Legal charges paid for the registration of trademark is an allowed expenditure u/s 37[1]

Legal expenses including lawyer’s fee for raising loan from financial institution is an
allowed expenditure u/s 37[1]

Lump sum paid to an employee in lieu of regular pension is an allowed expenditure u/s
37[1]

Ex – gratia is an allowed expenditure u/s 37[1]

As debt has not been written off, such amount shall not be allowed
Compensation for non – delivery of goods is an allowed expenditure u/s 37[1]

Illustration 4:
Mr. Rupam Goswami (45 years) is a medical practitioner of kochi. His income and
expenditure account for the year ending 31st March,2020 is as under:

Particulars ₹ Particulars ₹
Medicine consumed 672000 Consultation fee 800000
Staff salary 340000 Medical charges 880000
Dividend from indian
Clinic consumables 124000 companies 34800
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Rent paid 96000 Winning from lottery 28000
Rent from property let
Administrative expenses 200000 out 43200
Payment to IIT delhi for Approved
scientific research 80000
Depreciation on clinical
equipment’s 40000
To net profit 234000
1786000 1786000

Other information:
Clinic equipments are – April1,2019 , opening WDV : ₹360000. New acquisition on
October 1,2019: ₹80000
Rent paid includes ₹28800 paid by cheque towards rent for his residence
Rent received relates to property let out at kochi. The municipal tax of ₹7200 paid in
January 2020 has been included in “administrative expenses”.
Rate of depreciation on clinic equipment is 15%
Compute income from profession of Mr. goswami for the A.Y.2021 – 22.

Solution:
Computation of profit & gains of business or profession of Mr. Rupam Goswami for the
A.Y.2021 – 22

NOTES:
Rental income from house property is taxable under the head ‘income from house
property’
Winning from lottery is taxable under the head’ income from other sources’
Dividend from Indian companies is exempt u/s 10[34]

Illustration 5:
Mr. Pinka Mukherjee submits the following profit and loss account of his business for the
year ended 31.03.2020
Particulars ₹ particulars ₹
To opening stock 45000 By sales 490000
To purchases 350000 By closing stock 50000
To salaries 21000 By bad debt recovered 3000
To depreciation 22000 [disallowed in earlier year]
By bank interest on fixed
To advertisement 30000 deposit 10000
To provision for income 10000

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tax
To life insurance
premium 5000
To GST 6000
To provision for bad debt 1000
To bad debt 5000
To interest on capital 2000
To legal expenses 6000
To Net Profit 50000
553000 553000

Other information:
Depreciation as per income tax rule ₹25000
Salary include ₹6000 paid to Mr. Mukherjee
Closing stock overvalued by ₹5000
Sales include ₹ 20000 being the value of goods withdrawn by the proprietor, cost of
which is ₹18000
Legal charges include ₹ 2000 paid as penalty for infringement of GST laws.
Compute income from business for the assessment year 2021 -22.

Solution:

Computation of profits and gains of business or profession for the A.Y.2020 – 21

Particulars Notes Details Amount
Profit and gains from business and profession
Net loss as per books of account 50000
Add: expenditure disallowed but debited in p/l a/c
Provision for income tax 1 10000
Life insurance premium 2 5000
Provision for bad debt 3 1000
Interest on capital 4 2000
Depreciation 5 22000
Salary to himself 4 6000
Goods withdrawn for personal use 4 18000
Penalty 6 2000 66000
116000

Less: expenditure allowed but not debited in p/l a/c

Depreciation as per it rules 5 25000
Less: income not taxable but credited to p/l a/c
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Bad debt recovered 3000
Overvaluation of stock 5000
Sales to himself 4 20000
Less: income taxable under other heads of income
Interest on fixed deposit 10000 63000
Profit and gains of business or profession 53000

Notes:
Income is specifically disallowed u/s 40[a]
Personal expenditure is not allowed as deduction
Any anticipated loss is not allowed as deduction
Sales, salary to himself and interest on capital to proprietor is not allowed as no one can
earn from himself
Depreciation as per IT shall be followed
Fines paid in contravention of law is disallowed.

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 Previous Year Question
1. Income-tax is levied on income actually earned by the assesses'.
Critically examine.
2. State the powers of the Commissioner under the Income-tax Act.
3. What are the powers of Commissioner of Income Tax?
4. Give the hierarchy of Appellate Authorities, and the powers of Appellate
Assistant Commissioner in disposing of an appeal under Section 251.
5. The Income-tax Act gives absolute exemptions in respect of certain
incomes while some incomes are included in the total income for
determining the rate only. Explain the statement with appropriate
examples.
6. Write a note on the powers of Income-Tax authorities relating to search
and seizure.
7. Discuss briefly the powers of the Income-Tax Officer.
8. Discuss the powers of income tax officers?
9. What do you understand by "Tax Holiday"? Who is entitled to it and
what are the provisions of the Income Tax Act in this connection?
10. What are the various 'Heads of Income'? Explain briefly each head
of income.
11. What is agricultural income? How is the income treated for
income-tax purposes?
12. Explain the provisions of the Income-tax act relating to taxation of
agricultural income.
Discuss agricultural income

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 CAPITAL GAIN

As per section 45(1), profits or gains arising on transfer of a capital asset shall be
chargeable under the head “Capital Gains”.

Conditions to be satisfied to charge any income under the head “Capital Gains” are
There must be a Capital Asset
The assessee transfers such capital asset.

There must be profit or gain (including negative profit or gain) on such transfer.

CAPITAL WHEN TRANSFER RESULTS TO

GAIN
CAPITAL GAIN

“Capital asset” means –

a) Property of any kind held by an assessee, whether or not connected with his business
or profession;
b) Any securities held by Foreign Institutional Investor (if such investment is in
accordance with regulations under the SEBI Act).

Exceptions of Capital Asset:

Stock-in-trade [other than the securities held by foreign institutional investor as per the
SEBI Act].

Personal movable effects i.e. any movable assets held for personal use by the assessee or
any dependent family member.

EXCLUSIONS OF PERSONAL EFFECT (means, following shall always be treated as

capital asset):
a) Jewellery (i.e. ornaments made of precious metal or precious stones like diamonds,
etc.);
b) Archaeological collections;
c) Drawings;
d) Paintings;
e) Sculptures;
f) Any work of art.

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IMPORTANT RULINGS regarding personal effects: -
If anything (like Gold Coin, etc.) placed before God / Goddess, at the time of Puja – will
NOT constitute personal effect.

Silver utensils, subject to nature of article and in a reasonable quantity – will constitute
personal effect by virtue of tradition in Indian families.

Gold utensils – will never constitute personal effect, means, shall always be treated as
capital asset.

Note: An immovable property held for personal use are not personal effect and hence are
Capital assets.

Agricultural Land in rural areas is not a Capital Asset. Non-Agricultural land is a Capital
Asset and any agricultural land situated outside India is also a Capital Asset.

Gold Bonds, Special Bearer Bond and Gold Deposit Bond: Bond issued by the Central
Government or Gold Deposit Scheme or Gold Monetisation Scheme are not a Capital
Assets.

Types of Capital Asset:

Capital Assets may be –
Short Term Capital Asset.
Long Term Capital Asset.

In following Cases Period of Holding

Short Term Long Term
Capital Asset Capital Asset
Listed Equity/ Preference Shares
Other Listed Securities unit Less than or More than 12
Units of Unit Trust of India or equals to 12 months
Equity Oriented Fund months
Zero Coupon Bond
Shares of Unlisted Company Less than or More than 24
Immovable Property equals to 24 Months
months
Others Less than or More than 36
equals to 36 months
months

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 TRANSFER [Sec 2(47)]

Includes the following transaction Do not Includes or Transactions not

regarded as Transfer
Sale Distribution of capital asset on total or
Exchange partial partition of Hindu undivided
Relinquishment of the asset family.
(Surrender/withdraw of asset) Transfer of capital asset under a gift or
Extinguishment of any right in an will or an irrevocable trust.
asset Transfer of a capital asset by a holding
Compulsory acquisition of an company to its 100% subsidiary
asset under any law company (i.e. Indian co.). [This
Conversion of asset into stock-in- exemption shall not be available if the
trade capital asset is transferred as stock in
Any transaction of immovable trade]
property Transfer of a capital asset by a 100%
Maturity or redemption of a zero- subsidiary company to its holding
coupon bond. company (i.e. Indian co.). This
exemption shall not be available if the
capital asset is transferred as stock in
trade.
Transfer of capital assets by
amalgamating company to the
amalgamated company (i.e. Indian
company) in the scheme of
amalgamation.
Transfer of capital assets in a scheme
of amalgamation of a banking
company with a banking institution, as
brought into force by the Central
Government.
Transfer in a demerger of a capital
asset by the demerged company to
resulting company (i.e. Indian
Distribution of assets in kind by a
company to its shareholders on its
liquidation.
Conversion of Preference Shares of a
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 company into Equity shares of that
company.

Methods of Computation of Capital Gain:

Calculation of Short-Term Capital gain

Particulars Amount Amount

Sales Consideration ******
Less: Expenses on transfer (****)
Net Sales Consideration ******
Less: Cost of Acquisition ******
Cost of Improvement ****** (******)
Short Term Capital Gain *******
Less: Exemption u/s 54B, 54D, 54G & 54GA (******)
Taxable Short Term Capital *******
Gain
Calculation of Long Term Capital gain

Particulars Amount Amount

Sales Consideration ******
Less: Expenses on transfer (****)
Net Sales Consideration ******
Less: Indexed Cost of Acquisition ******
Indexed Cost of Improvement ****** (******)
Long Term Capital Gain *******
Less: Exemption u/s 54, 54B, 54D, 54EC, 54ED, (******)
54EE,54F, 54G, 54GA & 54GB
Taxable Long Term Capital *******
Gain

Indexed Cost of Acquisition: Adjusting proportionately according to the price level of the
sale.
= Cost of Acquisition * Index of the year of Sale
Index of the year of Acquisition

Indexed Cost of Improvement: Cost of Improvement * Index of the year of Sale

Index of the year of Improvement

When an Asset is acquired before 1/4/2001, following points to be considered:

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Indexation benefit shall be available from the year 2001-02. (Index of the year of
Acquisition will be 100 i.e. Indexation of year 2001-02)

Cost of Acquisition will be higher of Actual Cost of Acquisition or Fair Market Value.
Cost of Improvement incurred before 1/4/2001 shall be ignored.

Cost of Acquisition in Special Cases

Self-Generated Assets:
Cost of Cost of
Nature of Asset Acquisition improvement
Self- Generated Goodwill of Business,
Right to manufacture/ produce or Nil Nil
process any article/right to carry on
business
Self-Generated Tenancy Rights, route
permits, Loom Hours, Trade Marks, Nil Actual Cost
Brand name associated with a Incurred
business
Note: In case goodwill is purchased then its cost of acquisition shall be taken as actual
cost of acquisition. However, cost of improvement will be NIL whether purchased or
self-generated.

Bonus Shares: Cost of Acquisition will be nil if bonus shares are allotted on or after
1/4/2001 whereas Fair Market Value on 1st April, 2001 will be considered if bonus shares
are allotted before 1/4/2001.

Right Shares and Right Entitlement: Cost of Acquisition for Right shares will be the price
paid for such Right Issue and Cost of Acquisition for Right Entitlement will be nil.

Advance Money Forfeited: If Amount received and forfeited before 1/4/2014 then it is
reduced from Cost of Acquisition (Before Indexation) charged under the head Capital
Gain. However, if amount received and forfeited after 1/4/2014 it will be taxable under
the head Income from other sources.

Depreciable Assets: Capital Gain (Short Term) arises only in the following cases:
The Block of Asset is empty. [Net Sales Consideration > WDV, STCG = Net Sales –
WDV and when WDV > Sales Consideration it is STCL: WDV- Net Sales]
When Block of asset remaining is Nil. [Net Sales – WDV: STCG]

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Cases where Indexation benefit is not available even on transfer of Long Term Capital
Asset:
Debenture or Bond
Slump Sale
Equity Shares and Equity oriented fund

Transactions by a non-resident: On Transfer of shares in or debentures of an Indian

Company acquired in foreign currency.
Transfer of Global Depository Receipt.

Deduction from Capital gain on Sale of Residential House Property [Sec 54]:
Conditions:
 Assessee must be an Individual or HUF
 Assessee must have transferred a long term residential house (whether Self-occupied
or Let-out)
 Assessee must have purchased one Residential house.
 Time Limit
 Purchase: Within a period of 1 year before transfer or 2 years after the date of transfer.
 Construction: Within a period of 3 years construction must start from the date of
transfer.

Deduction: Minimum of the following:

 Investment in the new asset, or
 Capital Gain.

Deduction from Capital gain on Sale of Urban Agricultural Land [Sec 54B]
Conditions
 Assessee must be an Individual or HUF
 Assessee must have transferred an Agricultural Land situated in Urban area. (Rural
agricultural land is not a capital asset)
 Assessee must have purchased one Agricultural Land (whether in Urban or Rural
area)
 Time Limit: New Land should be purchased within 2 years from date of transfer.

Deduction: Minimum of the following:

 Investment in the new asset, or
 Capital Gain.

Compulsory Acquisition of land and building of an industrial undertaking [Sec 54D]

Conditions:
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 Applicable to all assessee
 There must be compulsory acquisition of Land and Building of an Industrial
Undertaking and assessee must have been used in the last two years preceding the date
of transfer
 Assessee must have purchased or constructed any building for shifting or setting up a
new industrial undertaking.
 Time Limit: Purchased or constructed new building within 3 years from date of
transfer.
Deduction: Minimum of the following:
 Investment in the new asset, or
 Capital Gain.

Long Term Capital Gain from transfer of Land or Building or Both [Sec 54EC]
Conditions:
 Applicable to all assessee
 Long Term Capital Asset being Land or Building or both are transferred.
 Capital Gain should be invested in Long Term Specified Assets like NHAI Bonds,
RECL Bonds, PCFL redeemable after 3 years.
 Time Limit: Within 6 months from the date of transfer.

Deduction: Minimum of the following:

 Investment in LTSA, (Restricted to ₹ 50,00,000 in any Financial Year) or
 Capital Gain.

Long Term Capital Gain from transfer of Long Term Capital Assets [Sec 54EE]
Conditions:
 Applicable to all assessee
 Any Long Term Capital Asset is transferred.
 Capital Gain should be invested in Long Term Specified Assets (notified units or
specified units) issued before 1/4/2019.
 Time Limit: Within 6 months from the date of transfer.

Deduction: Minimum of the following:

 Investment in LTSA, (Restricted to ₹ 50,00,000 in any Financial Year) or
 Capital Gain.

Capital Gain from transfer of Long Term Capital Asset other than Residential
House. [Sec 54F]
Conditions:
 Applicable to only Individual and HUF.
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 Transfer of any Long Term Capital Asset other than Residential House.
 Capital gain should be invested to purchase/construct 1 residential house.
 Time Limit: [Same as 54]
 Purchase: Within a period of 1 year before transfer or 2 years after the date of
transfer.
 Construction: Within a period of 3 years construction must start from the date of
transfer.
Deduction:
If Investment is more than or equals to Net Consideration then total Capital Gain is
exempted else exemption will be proportionately [(Capital Gain * Actual Investment)/
Net Consideration]

Illustration 1:
Lucky has a house property acquired on 18/08/2009 for 6,00,000. He used the house for
his own residential purpose. On 18/08/2012 he incurred capital expenditure on re-
construction of house 3,00,000. On 15/05/2019, he brought office goods (inflammable)
worth 1,00,000 at home to be delivered to a party staying near to his home. At the night
of that day accidental fire took place and damaged the whole house property, furniture
worth 5,00,000 and business stock.

Insurance claim received on 18/08/2019 –

1. for the house 1,00,000 in cash & a new house allotted to him (fair market value of
which is 44,00,000 on 18/08/2019);
2. for house-hold furniture ` 2,00,000; and
3. for stock ` 80,000.

State – Tax-treatment under the head Capital gains. - How shall your answer differ if
such compensation is received by the assessee on 15/04/2020.

Solution:

As the damage occurred due to accidental fire, such case is governed by the provision of
sec. 45(1A)

Computation of capital gain in the hands of Lucky for the A.Y. 2021-22

Particulars Workings Details Amount

Sale
consideration of 1,00,000 + ` 45,00,000
house 44,00,000

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 Less: Expenses Nil
on transfer
Net sale 45,00,000
consideration
Less: i) Indexed 6,00,000 * 12,20,270
cost of 301/148
acquisition
ii) Indexed cost 3,00,000 * 4,51,500 16,71,770
of improvement 301/200
Long Term 28,28,230
Capital Gain

For Furniture: No capital gain liability arises as furniture is a personal asset of the
assessee and hence not a capital asset. Compensation received on loss of furniture shall
be treated as capital receipt and hence not liable to tax.

For Stock: Compensation received on loss of stock shall be liable to tax u/s 28. In the
given case, loss of 20,000 (1,00,000 – 80,000) shall be allowed under the head “Profits &
gains of business or profession” In case such compensation is received on 15/04/2020
then the capital gain of ` 28,94,878 as computed above shall be taxable in the Assessment
year 2021-22

Illustration 2:
Sunil has a house property acquired on 7/07/1995 for 3,00,000. He incurred improvement
expenditure on such property 70,000 on 16/08/2000 and 50,000 on 17/07/2010. Market
value of such property as on 1/04/2001 is 4,50,000. On 16/08/2013, such property is
compulsorily acquired by the Government and compensation decided at 11,50,000. 20%
of the compensation received on 31/03/2020 and balance on 2/04/2020. On further
appeal, on 16/08/2020 enhanced compensation is declared by the Government 2,00,000.
Expenditure incurred to get enhanced compensation is 11,000. Such compensation
received on 18/08/2021. Compute income under the head Capital Gains of Sunil for the
assessment year 2021-22, 2021-22 and 2022-23.

Solution

Computation of capital gains of Sunil for the A.Y. 2021-22

Particulars Working Details Amount
Sale consideration 11,50,000
Less: Expenses on transfer Nil
Net sale consideration 11,50,000

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Less: i) Indexed cost of 4,50,000 * 220 9,90,000
acquisition /100
ii) Indexed cost of 50,000 * 220 /167 65,868 10,55,868
improvement
Long Term Capital Gain 94,132

1. The initial compensation (i.e. 11,50,000) decided by the Government shall be treated
as sale consideration.
2. Cost of acquisition is the original cost of acquisition (i.e. 3,00,000) or Fair market
value as on 1/04/2001 (i.e. 4,50,000) whichever is higher.
3. Cost of improvement incurred before 1/04/2001 is to be completely ignored.
4. Though the property was compulsorily acquired by the Government in the P.Y 2013-
14 but the compensation was received in the P.Y.2020-21, therefore the amount shall
be taxable in the P.Y. 2020-21, however indexation benefit shall be available till the
previous year 2013-14.

Computation of capital gains of Mr. Sunil for the A.Y. 2021-22: As the assessee has not
received enhanced compensation during the P.Y.2020-21, hence nothing is taxable in the
A.Y. 2021-22.

Computation of capital gains of Mr. Sunil for the A.Y. 2022-23

Particulars Working Details Amount
Sale Consideration Enhanced compensation 2,00,000
Less: Expenses on transfer 11,000
Net Sale Consideration 1,89,000
Less: i) Indexed cost of acquisition Nil
ii) Indexed cost of improvement Nil Nil
Long Term Capital Gain 1,89,000

In case of enhanced compensation, the cost of acquisition shall be taken as nil and the
nature of capital gain shall be same as that of initial compensation.

Illustration 3:
Liza transferred the following assets on 2-05-2020, determine capital gain for the A.Y.
2021-22
Particulars Cost MV Sale value
1/04/2001
Land acquired in 1956 25,000 1,00,000 30,00,000
Goodwill of business Nil 40,000 2,00,000

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[Business commenced on
1-05-1955]
Tenancy right Nil 30,000 3,00,000
Goodwill of profession Nil 15,000 1,50,000
[Profession commenced on
1-05-1996]
Brokerage paid on transfer @ 2%

Solution:

Computation of capital gains in the hands of Liza for the A.Y. 2021-22
Particulars Workings Land Goodwill Tenancy
of right
business
Sale consideration 30,00,000 2,00,000 3,00,000
Less: Expenses on 2% of above 60,000 4,000 6,000
transfer consideration
Net Sale 29,40,000 1,96,000 2,94,000
Consideration
Less: Indexed cost 1,00,000* 3,01,000 - -
of acquisition 301/100
As per sec - Nil Nil
55(2)(a)
Less: Indexed cost Nil Nil Nil
of improvement
Long Term Capital Gain 26,39,000 1,96,000 2,94,000

Transfer of goodwill of a profession, even if it is a self-generated asset, is not covered by

sec. 55(2)(a), hence shall not be charged to tax.

Illustration 4:

Mr. X has sold following assets during the year 2019-20

Items Cost of acquisition Sale consideration Year of acquisition
Land 10 lacs 150 lacs 1998-99 Jewellery 30
lacs 120 lacs 2008-09

On 31/03/2020, he has purchased a residential house of 30,00,000 for self occupation as

he had no other house till date.
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Compute capital gain.
Solution:
Computation of capital gains in the hands of Mr. X for the A.Y. 2021-22
Particulars Details Land Jewellery
Sale Consideration 1,50,00,000 1,20,00,000
Less: Expenses on transfer Nil Nil
Net Sale Consideration 1,50,00,000 1,20,00,000
Less: Indexed cost of 10,00,000 * 301 30,10,000 -
Acquisition / 100
Less: Indexed cost of 30,00,000 * 301/ - 65,91,241
Acquisition 137
Less: Indexed cost of Nil Nil
improvement
Long Term Capital Gain 1,19,90,000 54,08,759
Less: Exemption u/s 54F Working 1 23,98,000 Nil
Long Term Capital Gain 95,92,000 54,08,759

Working 1: In the given case assessee can claim benefit u/s 54F, for any of the LTCG
(land or jewellery). A Comparative study is made under to decide from which LTCG
such deduction should be claimed:
Particulars Working Land Jewellery
Long Term A 1,19,90,000 54,08,759
Capital Gain
Net sale B 1,50,00,000 1,20,00,000
consideration
Benefit u/s 54F A/B * 30,00,000 23,98,000 13,52,190

Since deduction is higher in case of Land hence the deduction u/s 54F is 23,98,000

Illustration 5:
Mr Sardar acquired an inherited property on 30.8.2006 from his grandfather who
purchased it at 210,000 on 30.6.2000. The Market Value of the property as on 1.4.2001
was 510,000. On 1.7.2005, he purchased gold valued 150,000 the Market Value of which
was 147,000 as on 1.4.2005. He sold both the assets on 30.11.2019 for 60,00,000 and
21,00,000 respectively. Calculate the amount of Capital Gain of Mr Sardar for the
Assessment Year 2021-2022.

Solution:
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 Computation of Capital Gain of Mr Sardar for the AY 2021ytt-2022
Particulars Building Gold
Sales Consideration 60,00,000 21,00,000
Less: Expenses on Transfer Nil Nil
Net Sale Consideration 60,00,000 21,00,000
Less: Indexed Cost of Acquisition
510,000 * 301/122 12,58,279
150,000* 301/117 3,85,897
Less: Indexed Cost of Improvement Nil Nil
Taxable Long Term Capital Gain 47,41,721 17,14,103

Illustration 6:
Sonu has jewellery acquired on 17/07/2010 for ₹5,00,000. On 18/08/2013 Sonu incurred
improvement expenditure on such jewellery by adding diamond to it worth ₹3,00,000. On
18/08/2018, he transferred such jewellery to his friend Monu for ₹40,00,000.
Sonu already has a self-occupied house property in Lucknow, however on 17/03/2019 he
purchased another residential house property for ₹30,00,000 for the purpose of letting
out.
As on 5/04/2020, his friend offered him house worth ₹25,00,000 (Value for Stamp duty
purpose is only ₹ 14,00,000/-) for ₹15,00,000 only Sonu purchased the same.
On 7/04/2021, Sonu sold the new house acquired from his friend for ₹19,00,000. Value
determined for the purpose of stamp duty purposes ₹22,00,000 and market value as on
the date of transfer is ₹ 26,00,000. Compute capital gain in hands of Sonu for several
years.

Solution:

Computation of capital gain of Sonu for the A.Y. 2021-22

Particulars Workings Details Amount
Sale consideration of 40,00,00
jewellery 0
Less: Expenditure of Nil
transfer
Net sale consideration 40,00,00
0
Less: Indexed cost of ₹ 5,00,000*280/167 8,38,32
acquisition 3
Less: Indexed cost of ₹ 3,00,000*280/220 3,81,81 12,20,14
improvement 8 2

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Long term capital gain 27,79,85
8
Less: Exemption u/s 54F (₹ 30,00,000/₹ 40,00,000 x 27,79,858) 20,84,89
4
Taxable Long term Capital gain 6,94,965

Computation of capital gain of Sonu for the A.Y. 2021-22: Since the assessee acquired
another house property therefore the earlier exemption availed u/s 54F shall be revoked
and shall be liable to long term capital gain. Hence taxable long-term capital gain for the
A.Y. 2021-22 is ₹ 20,84,894.

Computation of capital gain of Sonu for the A.Y. 2021-22

Particulars Details Amount
Sale consideration Value determined for stamp duty [Sec. 22,00,000
50C]
Less: Expenditure on Nil
transfer
Net sale consideration 22,00,000
Less: Cost of acquisition 15,00,000
Less: Cost of improvement Nil 15,00,000
Short term capital gain 7,00,000

Illustration 7:
Mr. Mitra furnishes the following particulars for the previous year 2019-20:
He sold his residential house on December 15, 2019 for ₹ 7,70,000. He purchased the
house on March 2, 1998 at a cost of ₹ 75,000 (Fair market value on April 1, 2001 was
₹1,50,000).
He sold the shares of AB Co. Ltd. on February 12, 2020 for ₹ 18,700 (purchased on
March 21, 2019 for ₹ 15,300). Compute his income from capital gain/loss for the A.Y.
2021-22.

Solution:

Computation of Capital Gains of Mr. Mitra for the A.Y. 2021-22

Particulars Amount
House
Sale Proceeds 7,70,000
Less: Expenses on transfer Nil

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Net sale consideration 7,70,000
Less: Indexed Cost of acquisition [(₹ 1,50,000*301)/100] 4,51,500
Long Term Capital Gain 3,18,500
Shares
Sale Proceeds 18,700
Less: Expenses on transfer Nil
Net sale consideration 18,700
Less: Cost of acquisition 15,300
Short Term Capital Gain 3,400

Illustration 8:
Mr. Bablu acquired a Jewellery for ₹ 60,000 as on 01.07.1995. On 01.07.2005, Mr. Bablu
has sewn a diamond worth ₹ 25,000 in such jewellery. As on 01.06.2019, Mr. Bablu sold
the jewellery for ₹ 8,00,000. Brokerage @ 1% of sale value was paid by him. The Fair
Market value of the jewellery as on 01.04.2001 ₹ 2,00,000. Compute capital gain/loss in
hands of Mr. Bablu.

Solution:

Computation of Capital Gain in the hands of Mr. Bablu for the A.Y. 2021-22
Particulars Working Details Amount
Sale consideration 8,00,000
Less: Expenses on transfer 1% of ₹ 8,00,000 8,000
Net sale consideration 7,92,000
Less: i) Indexed cost of ₹2,00,00*(301/100) 6,02,000
acquisition
ii) Indexed cost of ₹ 25,000*(301/177) 75,250 6,77,250
improvement
Long Term Capital Gain 1,14,750

Note: Cost of acquisition shall be taken as cost of acquisition in the hands of owner or
fair market value as on 1/4/2001, whichever is higher.
INCOME FROM OTHER SOURCES

Income from other sources is the last and residual head of income. It covers any income
which do not fall under any other heads of income. The following condition should be
satisfied for the income to be taxable under this head:
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Such income is not exempted
Such income does not specifically fall under any one of the other four heads of income
(i.e. Salaries, Income from House Property, Profits and gains of Business or Profession or
Capital Gains)
Examples: Interest earned from Bank, Winning from Lottery or Game shows, etc.

Income specifically chargeable under this head [Sec 56(2)]

Dividends
Casual Income
Gift.
Share premium in excess of fair market value of shares.
Income by way or interest received on compensation or on enhanced compensation
Sum of money received as an advance or otherwise in the course of negotiations for
transfer of a capital asset, if:
(a) Such sum is forfeited; and
(b) The negotiations do not result in transfer of such capital asset

Income chargeable under this head if not charged under the head Profit and Gains of
Business or Profession
Interest on securities
Income from letting of machinery, plant or furniture.
Composite Rent.

Other Incomes taxable under IFOS

1. Income from sub-letting of a house property.
2. Interest on bank deposits.
3. Interest on company deposits, interest on loans, etc.
4. Remuneration received from a person other than his employer for evaluation of
answer scripts. However, if such remuneration is received from employer, then the
same will be taxable under the head “Salaries”.
5. Rent from a vacant land.
6. Insurance commission.
7. Income from undisclosed sources
8. Income from private tuition.
9. Interest on income tax refund. [Tax point: Income tax refund itself is not an
income]
10.Family pension received by the family members of a deceased employee
[discussed later]
11.Dividend received from a co-operative society.
12.Directors’ sitting fee for attending Board Meetings.
13.Income from activity of owning and maintaining race-horses.
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 14.Stipend to trainee.
15.Interest on employee’s contribution towards unrecognized provident funds at the
time of payment of lump sum amount

Casual Income
Winnings from -
1. Lotteries;
2. Crossword puzzles;
3. Races including horse races;
4. Gambling and betting of any nature or form; or
5. Card games, game show or entertainment program on television or electronic mode
and any other game of any sort- are taxable under this head.
Lottery includes winnings from prizes awarded to any person by draw of lots or by
chance or in any other manner whatsoever, under any scheme or arrangement by
whatever name called.
Card game and other game of any sort includes any game show, an entertainment
program on television or electronic mode, in which people compete to win prizes or any
other similar game.
Exemption/deduction: Such income shall be fully taxable & no deduction shall be
allowed.
Tax rate: Tax is charged at a flat rate of 30%.
Gross Lottery Income = Lottery Income Received/70%

Pension
Meaning: Family pension means a regular monthly amount payable by the employer to a
person belonging to the family of a deceased employee (e.g. widow or legal heirs of a
deceased employee)
Tax Treatment: It is taxable under the head “Income from other sources” after allowing
standard deduction.
Standard Deduction [Sec. 57(iia)]
Minimum of: 1/3rd of such pension; or 15,000.
Gifts

Nature of Asset Taxable Value

Gift by way of Money(Cash or Fully Taxable if exceeds 50,000
Cheque or draft )
Movable Property(Without The aggregate fair market value of the property if it

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 Consideration) exceeds 50,000

Movable Property(Inadequate The difference between the aggregate fair market

Consideration) value and the consideration if such difference is
more than 50,000.
Immovable Property(without The stamp value of the property if it exceeds 50,000
consideration)
Immovable The difference between the stamp value and the
Property(Inadequate consideration, if such consideration is more than the
Consideration) higher of 50,000 and 5% of consideration

Non-applicability: However, any sum of money or value of property received, in the

following circumstances would be outside the ambit of Gift -
from any relative; or
a) on the occasion of the marriage of the individual; or
b) under a will or by way of inheritance; or
c) in contemplation of death of the payer or donor, as the case may be; or
d) from any local authority; or
e) from any fund or foundation or university or other educational institution or hospital
or other medical institution or any trust or institution; or
f) from or by any trust or institution registered; or
g) by any fund or trust or institution or any university or other educational institution or
any hospital or other medical institution
h) by way of transaction not regarded as transfer
i) from an individual by a trust created or established solely for the benefit of relative of
the individual.
j) from such class of persons and subject to such conditions, as may be prescribed.

Income by way or interest received on compensation or on enhanced compensation

Interest received by an assessee on compensation or on enhanced compensation, as the
case may be, shall be deemed to be the income of the year in which it is received.
Tax Treatment: It is taxable under the head “Income from other sources” after allowing
standard deduction of 50% of such income.
E.g., During the previous year 2019-20, Mr. X received 65,000 (` 45,000 pertaining to the
previous year 2018-19) as interest on delayed compensation. Such interest after allowing
standard deduction shall be considered as an income of the previous year 2019-20
(irrespective of previous year to which such interest pertains). Thus, ` 32,500 (i.e., 65,000

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– 32,500 being standard deduction @ 50%) shall be considered as income of the previous
year 2019-20.

Compute taxable income under the head Income from other sources of Mrs. X from the
following data:
Particulars Amount
Private tuition fee received 10,000
Winning from lottery 2,000
Award from KBC (a TV show) [Gross] 3,20,000
Pension from employer of deceased husband 25,000
Interest on bank deposit 25,000
Directors fee (Gross) 5,000
Letting out of vacant land 25,000
Remuneration for checking the examination copy of employer’s school 10,000
Remuneration for checking the examination copy of C.A 10,000
Income tax refund 5,000
Interest on income tax refund 100
Composite rent (related expenditures are ` 5,000)10,000
Rent on sub-letting of house property (rent paid to original owner 12,000) 20,000
Income tax paid 2,000
Payment made for personal expenses18,000
Payment made to LIC as premium 2,000

CLUBBING OF INCOME

Introduction – Generally an assessee is taxed in respect of his own income and he is not
liable to tax for income of another person. But sometimes in some exceptional
circumstances this basic principle is deviated and the assessee may be taxed in respect of
income which legally belongs to somebody else. Earlier the taxpayers made an attempt to
reduce their tax liability by transferring their assets in favour of their family members or
by arranging their sources of income in such a way that tax incidence falls on others,
whereas benefits of income is derived by them. So, to counteract such practices of tax
avoidance, necessary provisions have been incorporated in sections 60 to 64 of the
Income Tax Act Hence, a person is liable to pay tax on his own income as well as income
belonging to others on fulfillment of certain conditions.

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Inclusion of others Incomes in the income of the assessee is called Clubbing of Income
and the income which is so included is called Deemed Income. It is as per the provisions
contained in Sections 60 to 64 of the Income Tax Act.
A. Transfer of Income Without Transfer of Asset (Sec. 60)
Section 60 is applicable if the following conditions are satisfied:
1. The taxpayer owns an asset
2. The ownership of asset is not transferred by him.
3. It is immaterial whether the transfer is revocable or irrevocable and whether the
transactions is effected before or after the commencement of this act.
4. The income from the asset is transferred to any person under a settlement, or
agreement.

If the above conditions are satisfied, the income from the asset would be taxable in the
hands of the transferor
Example1: Mr Salman Khan owns 10%, Preference Shares worth ₹ 1,500,000 of Star
Ltd. On April 1, 2019 he transfers interest income to his friend Vivek Oberoi without
transferring the ownership of these shares. Although during 2019-20, interest of ₹
1,50,000 is received by Vivek Oberoi, it is taxable in the hands of Salman Khan as
ownership is not transferred as per provisions of Section 60.

B. Clubbing of Income for Revocable Transfer Of Assets (Sec 61)

‘Revocable transfer, means a transfer in which the transferor of asset assumes a right to
re-acquire asset or income from such an asset, directly or indirectly, either whole or in
parts at any time in future, during the lifetime of transferee. It also includes a transfer
which gives a right to re-assume power of the income from asset or asset during the
lifetime of transferee.

If the following conditions are satisfied section 61 will become applicable.

 An asset is transferred under a “revocable transfer”,
 The transfer for this purpose includes any settlement, or agreement
 Then any income from such an asset is taxable in the hands of the transferor and not
the transferee (owner).

Cases when Sec 61 is not applicable [Exceptions]

As per section 62(1), the provisions of revocable transfer, discussed in section 61, shall
not apply in certain circumstances. Such circumstances are—
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  In the case of transfer by way of trust, the transfer is not revocable during the life time
of the beneficiary;
 In the case of any other transfer, the transfer is not revocable during the life time of
the transferee;
 In case the transfer is made before 1.4.1961, the transfer is not revocable for a period
exceeding 6 years.
The above exceptions are applicable provided the transferor derives no direct or indirect
benefit from such income.
In the above cases, the income shall be taxable in the hands of the transferee.

C. Clubbing of Income of Spouse Sec 64(1) (ii)

The following incomes of the spouse of an individual shall be included in the total
income of the individual:
1. Remuneration from a Concern in which Spouse has Substantial Interest [Sec 64 (1) (ii)]
Remuneration: It includes salary, fees, commission or any other remuneration (whether
in cash or kind)
Concern – Concern could be any form of business or professional concern. It could be a
sole proprietor, partnership, company, etc.
Substantial interest– An individual is deemed to have substantial interest, if he /she
(individually or along with his relatives) beneficially holds equity shares carrying not less
than 20 per cent voting power in the case of a company or is entitled to not less than 20
percent of the profits in the case of a concern other than a company at any time during the
previous year.
If the following conditions are fulfilled this section becomes applicable.
 If spouse of an individual gets remuneration from a concern
 The individual has a substantial interest in such concern
 The remuneration paid to the spouse is not due to technical or professional knowledge
of the spouse.

Then such salary, commission, fees, etc shall be considered as income of the
individual and not of the spouse.
Example: X has a substantial interest in A Ltd. and Mrs. X is employed in A Ltd.
without any technical or professional qualification to justify the remuneration. In this
case, salary income of Mrs. X shall be taxable in the hands of X.

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2. When both husband and wife have substantial interest
Where both the husband and wife have a substantial interest in a concern and both are in
receipt of the remuneration from such concern both the remunerations will be included in
the total income of husband or wife whose total income, excluding such remuneration, is
greater.
Example: Mr. Mathur is an employee of ABC ltd at a salary of ₹ 60,000 p.m. and holds
30% equity of that company. Mrs. Mathur who is an Arts Graduate working as a chief
accountant at a salary of ₹ 40,000 p.m. in ABC ltd. Compute the gross taxable salary of Mr.
and Mrs. Mathur for the AY 2021-22.

Solution: By the virtue of the clubbing provisions of Income tax Act, Salary of Mrs.
Mathur will be taxable in the hands of Mr. Mathur as Mr. Mathur holds more than 25% of
Equity of ABC Ltd. and Mrs. Mathur is working without any professional qualifications
for the same.
Computation of Taxable Income of Mr. Mathur for the AY 2021-22
Particulars Amount
Salary received by Mr. Mathur 720,000
Salary received by Mrs. Mathur 480,000
Gross Total Income 12,00,000

Gross taxable Income of Mrs. Mathur is Nil.

D. Income from Assets Transferred to Spouse [Sec. 64(1) (iv)]
Income from assets transferred to spouse becomes taxable under provisions of section 64
(1) (iv) as per following conditions:
a) The taxpayer is an individual
b) He/she has transferred (directly/indirectly) an asset (other than a house property) The
asset is transferred to his/her spouse
c) The asset is transferred without adequate consideration. Moreover, there is no
agreement to live apart.
If the above conditions are satisfied, any income from such asset shall be deemed to
be the income of the taxpayer who has transferred the asset.
Example: X transfers 500 debentures of IFCI to his wife without adequate
consideration. Interest income on these debentures will be included in the income of
X.

When Section 64(i) (iv) is not applicable. [Exceptions]

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On this basis of the aforesaid discussion and judicial pronouncements, section 64 is not
applicable in the following cases:
a) If assets are transferred before marriage.
b) If assets are transferred for adequate consideration.
c) If assets are transferred in connection with an agreement to live apart.
d) If on the date of accrual of income, transferee is not spouse of the transferor.
e) If property is acquired by the spouse out of pin money (i.e. an allowance given to the
wife by her husband for her dress and usual household expenses).

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

E. Clubbing of Income from Assets Transferred to Son’s Wife [SEC. 64 (1) (VI)]
Income from assets transferred to son’s wife attract the provisions of section 64 (1) (vi) as
per conditions below:
a) The taxpayer is an individual.
b) He/she has transferred (directly/indirectly) an asset after May 31, 1973. The asset is
transferred to son’s wife.
c) The asset is transferred without adequate consideration.

In the case of such individuals, the income from the asset is included in the income of the
taxpayer who has transferred the asset.
F. Clubbing of Income from Assets Transferred to a Person for the benefit of
Spouse [SEC. 64(1) (VII)]
Income from assets transferred to a person for the benefit of spouse attract the provisions
of section 64 (1) (vii) on clubbing of income. If the following conditions are satisfied:
a) The taxpayer is an individual.
b) He/she has transferred (directly/indirectly) an asset to a person or an association of
persons. Asset is transferred for the benefit (immediate or deferred) of spouse.
c) The transfer of asset is without adequate consideration.

In case of such individuals, income from such an asset is taxable in the hands of the
taxpayer who has transferred the asset.

G. Clubbing of Income from Assets Transferred to a Person for the benefit of son’s
wife [sec. 64 (1) (viii)]

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Income from assets transferred to a person for the benefit of son’s wife attract the
provisions of section 64 (1) (vii) on clubbing of income. If the following conditions are
satisfied:
a) The taxpayer is an individual.
b) He/she has transferred (directly/indirectly) an asset after May 31, 1973.
c) The asset is transferred (directly/indirectly) to any person or an association of persons.
d) The asset is transferred for the benefit (immediate/deferred) of son’s wife.
e) The asset is transferred without adequate consideration.

In case of such individual, the income from the asset is included in the income of the
person who has transferred the asset.

H. Clubbing of Income of Minor Child (Sec. 64 (1A)

All income which arises or accrues to the minor child shall be clubbed in the income of
his parent, whose total income (excluding Minor’s income) is higher. However, in case
parents are separated, the income of minor will be included in the income of that parent
who maintains the minor child in the relevant previous year.

Exemption to parent [Sec 10(32)]

In case income of a minor child is clubbed in hands of parent as per provision of sec
64(1A), the assessee (parent) can claim exemption of an amount being minimum of the
following:
a) ₹1500 or
b) Income so clubbed.
Exemption: Section 64(1A) is not applicable
In case of income of minor child from following sources, the income of minor child is not
clubbed with the income of his parent.
a) Income of minor child on account of any manual work.
b) Income of minor child on account of any activity involving application of his skill,
talent or specialized knowledge and experience.
c) Income of minor child (from all sources) suffering from any disability specified u/s
80U

I. Clubbing of Income of HUF [Sec. 64 (2)]

Where, in the case of an individual being a member of a Hindu undivided family, at any
time after the 31st day of December, 1969, has converted his self-acquired property into
property of HUF through the act of impressing such separate property with the character
of property belonging to the family or throwing it into the common stock of the family or
been transferred by the individual, directly or indirectly, to the family otherwise than for

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adequate consideration (the property so converted or transferred being hereinafter
referred to as the converted property), the income arising from such converted/transferred
property shall be dealt with in the following manner:
a) The entire income from converted/transferred property shall be taxable in the hands of
the individual (transferor)
b) If the converted/transferred property is subsequently partitioned amongst the members
of the family, the income derived from such converted/transferred property as is
received by the spouse of the transferor will be taxable in the hands of the transferor
Other Points for Clubbing of Income under Income Tax Act, 1961
Can negative income be clubbed?
If clubbing provisions are applicable and income from such a source is negative it will
still be clubbed in the income of assessee. Head of income under which an income
belonging to somebody else would be clubbed?
The other person’s income is taxable under the head under which it would have been
taxable if it is the income of the asses see himself.

Example: Mr. X gifts Mrs. X Rs 2 lakhs from which she starts a business. Now as per
clubbing provisions whatever is the profit from this business it will be taxable in the
hands of Mr. X. Since it is an income taxable under the head ‘Profits & gains of Business
& profession, that is why it will be taxable under the same head and income will be
calculated as if it is the business of Mr. X.
Conclusion: Sometimes an individual is taxed in respect of others income. The income
legally belongs to somebody else but it is clubbed with the income of some other person
in some special circumstances. These provisions are contained in sections 60 to 64.
Illustration 1
Mr Singh is a trader. Particulars of his income and those of the members of his family are
given below. These income relate to the previous year ended 31 st March, 2020:

Particulars Amount
Income from business (Mr Singh) 90000
Salary derived from an educational institutional by Mrs. Singh.
She is the
principal of the institution 50000
Interest on company deposits derived by Master Deep Singh[
minor son].
These deposit were in the name of Deep Singh by his father's
father about 6
years ago 12000
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Receipts from sale of paintings and drawings made by minor
Dipali Singh
(minor daughter of Mr. and Mrs. Singh and noted child artist 60000
Income by way of lottery earnings by master dipander
singh(minor son of Mr.singh) 6000

Discuss whether the above will form part of the assessable income of any individual and
also compute the assessable income of Mr.singh

Solution:

Computation of total income for the A.Y.2021 – 22

Amount
Particulars Details Mr Mrs. Minor
Singh Singh Daughter
Salaries
Salary of mr.singh 50000
Profit and gains of business and profession
Business income 90000
Sale of painting and drawing(made by 60000
daughter)
Income from other sources
Interest income of 1st minor son 12000
Less: exemption u/s10(32) 1500 10500
Lottery income of 2nd minor 6000
Less: exemption u/s10(32) 1500 4500
Gross total income 10500 50000 60000
0
Less: deduction under chapter VI A NIL NIL NIL
Total income 10500 50000 60000
0

Illustration 2:
Balu is the karta of HUF, whose member derive income as given below. Explain how the
above will be taxed.
Particulars Amount
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Income from balu's own business 50000
Mrs.balu a dermatologist(taxable salary) 80000
Minor son deepak (earning interest on fixed deposit with ABC
ltd., which were gifted to him by his grandfather) 15000
Minor daughter priya gave a dance performance and received
remuneration 100000
Deepak got winning from lottery(gross) 200000

Solution:

Computation of total income for the A.Y.2021 – 22

Amount
Particulars Details
Balu Mrs.balu Priya
Salaries
Salary of mrs. Balu 80000
Profit and gains of business and profession 50000
Income from other sources
Interest on fixed deposit 15000
Less: exemption u/s 10(32) 1500 13500
Winning from lotteries 200000
Remuneration from dance performance 100000
Gross total income 50000 293500 100000
Less:deduction under chapter VI A NIL NIL NIL
Total income 50000 293500 100000
Note - interest income of minor son deepak will be taxable in the hands of his parents
and not in hands of his grandfather

Illustration 3:
In whose hand the following income will be taxable?
A. Interest on debenture of ABC ltd. received by Mrs. Y when the debentures were
transferred by Mr. X to Mrs. Y assuming that:
 Such transfer was made before marriage
 Such transfer was made at a time when there is husband - wife relationship
between Mr.X and Mrs. Y

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B. Mr.P held 22% shares of star Ltd. where Mrs. Q wife of Mr. P, is employed as
finance manager at a salary of ₹50000 p.a. Mrs. Q is a chartered Accountant and
also holds a MBA (finance) degree.
C. Nipa is the minor child of Mr. and Mrs. Bose has salary income of ₹ 400000 and Mrs.
Bose has income from other sources of ₹500000. Nipa earns income of ₹ 50000
from a TV reality show and ₹10000 interest on fixed deposit with a bank.

Solution:
A. Interest shall be taxable in hands of Mr. X; (ii) (i) interest shall be taxable in hands of
Mrs.X
B. Remuneration shall be taxable in hands of Mrs. Q
C. Income from TV reality show shall be taxable in hands of Nipa and interest on Fixed
deposit shall be taxable in hands of Mrs. Bose

Illustration 4
From the particulars given below, compute the total income of Mr.Balram Mahato for
the assessment year 2021 – 22

Inccome from business 108000

Income of minor son(singer by profession) 15000
Winning from lottery(gross)(ticket purchased in the name of the
Mr.Mahato's minor daughter) 8500
Mr. Mahato's wife is a government servant and her income
computed under the head salaries 70000
Interest on fixed deposit with SBI in the name of the minor 22500
daughter

Solution:
Computation of total income for the A.Y. 2021 – 22
Amount
Particulars Details Mr. Minor
Mrs.mahato
Mahato Son
Salaries

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Salary of mrs. Mahato 70000
Profit and gains of business and profession
Business income 108000
Income from singing 15000
Income from other sources
Interest income of minor daughter 22500
Lottery income 8500
31000
Less: exemption u/s 10(32) 1500 29500
Gross total income 137500 70000 15000
Less: deduction under chapter VI A NIL NIL NIL
Total income 137500 70000 15000

Mr. Ashok and his wife are partners in a trading firm. Their respective shares of profit for
the financial year 2019-20 were ₹ 50,000 and ₹ 30,000 respectively.
Their minor son has been admitted to the benefits of another firm manufacturing toys
from which he received ₹ 45,000 as share of profit and ₹1,20,000 as interest on capital.
The capital was invested out of the minor's own fund gifted to him by his uncle
amounting to ₹10,00,000.
A house in the name of Mr. Ashok was transferred to his wife on 01.12.2019 for adequate
consideration. The property has been let out throughout the financial year 2019-20 at a
monthly rent of ₹50,000.
Non-convertible debentures of a limited company of ₹2,00,000 and ₹2,64,000 were
purchased three years ago in the names of Mr. Ashok and his wife respectively, on which
interest is payable at 10% p.a. Mrs. Ashok had in the past transferred ₹ 1,00,000 out of
her income to Mr. Ashok for purchase of debentures in Mr. Ashok's name.
Mr. Ashok had transferred ₹ 1,50,000 to Mrs. Ashok in the year 2016-17 without any
consideration, which she lent out to one Mr. X. Mrs. Ashok earned ₹ 60,000 as
consolidated interest during earlier financial years, which was also given on loan to Mr.
X.
During the financial year 2019-20, Mrs. Ashok received interest 10% p.a. on the loan
amounting to ₹2,10,000.
Mr. Ashok transferred ₹1,50,000 to a trust. The income accruing from its investment
amounted to ₹15,000, out of which ₹ 10,000 shall be utilized for the benefit of his elder
son's wife and ₹ 5,000 for the benefit of his minor grandchildren.

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Calculate gross taxable income of Mr. Ashok and Mrs. Ashok for the financial year 2019-
20.

Solution:
Computation of gross total income of Mr. Ashok and Mrs. Ashok for the assessment year
2021-22:

Particulars Mr. Mrs.

Ashok () Ashok
Income from house property 2,80,000 1,40,000

Income from business:

Share of profit from a firm Exempt
[exempt from tax under section 10(2A) Exempt
Minor son's share in another firm -----
(exempt from tax under section 10(2A)]
Interest on minor son's capital with the firm Exempt ------
[1,20,000-1,500 exempt under section 10(32)]

1,18,500
Income from other sources
Gift from Uncle
Interest income on debentures Exempt 26,400
Interest income on debentures taken in the name of 10,000 10,000
Mr. Ashok [clubbing is applicable as debentures are -----
purchased from the funds transferred by Mrs. Ashok] -----
Interest on ₹ 1,50,00010% received by Mrs. Ashok 15,000 6,000
Interest on ₹ 60,000 @ 10% ------ ----
Interest income from trust 10,000 1,82,400
Total Income 433,500

Notes:
1. Mr. Ashok transferred the house property on December 01, 2018 to Mrs. Ashok with
adequate consideration. Thus, during April 2018 to November 2018, Mr. Ashok was
the owner and during December 2018 to March 2019, Mrs. Ashok was the owner.
So, rental income of 8 months i.c., ₹ 4,00,000 after giving a standard deduction of
30% would be chargeable to tax in the hands of Mr. Ashok and rental income of 4
months i.e., ₹ 2,00,000 after giving a standard deduction of 30% would be chargeable
to tax in the hands of Mrs. Ashok.
So. the income ofhouse property has been computed as follows:
Mr. Ashok (₹) Mrs. Ashok(₹)
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 Gross/net annual value 4,00,000 2,00,000
Less: Standard deduction@ 30% 1,20,000 60.000 2,80,000 1,40,000
However, it is to be noted that had this property been transferred without adequate
consideration, provisions of "deemed ownership" would have become applicable
where rental income would have been taxable in the hands of transferor i.e.,
Mr.Ashok.
2. It is assumed that this gift is received during the current previous year. Further, it is
assumed that Uncle is minor's father's brother and thus, covered in the definition of
relative. Gift of ₹ 10,00,000, thus, received by minor from Uncle is exempt from tax
in his hands.
3. Out of ₹ 2,00,000 debentures purchased by Mr. Ashok in his own name, ₹ 1.00.000 have
been purchased from the amount given by Mrs. Ashok. Thus, interest income on such
amount would be taxable in the hands of Mrs. Ashok by virtue of section 64(1)(iv). On
remaining ₹1,00,000 debentures, interest income is taxable in the hands of Mr. Ashok.
So, out of ₹ 20,000 [₹ 2,00,000* 10%] interest income earned by Mr. Ashok, ₹ 10,000 is
taxable in the hands of Mr. Ashok and ₹ 10,000 is taxable in the hands of Mrs. Ashok.
4. Interest income on ₹ 1,50,000 received by Mrs. Ashok will be clubbed in the income
of Mr. Ashok by virtue of section 64(1)(iv) because ₹ 1,50,000 have been transferred
by Mr. Ashok to his wife without any consideration. However, interest income on
₹60,000 will not be clubbed in the hands of transferor because though income arising
to the transferee from the property transferred by the transferor is taxable in the hands
of transferor but income arising to the transferee from the accretion of such property
or from accumulated income of such property is, however, not includible in the total
income of the transferor. Thus, interest income on ₹1,50,000 will be taxable in the
hands of Mr. Ashok and interest income on ₹ 60,000 will be taxable in the hands of
Mrs. Ashok.
5. Interest income of ₹ 10,000 from trust will be clubbed in the hands of Mr Ashok as the
income from trust would be utilized for the benefit of son's wife. However, interest
income of ₹ 5,000 from trust utilized for the benefit of Mr. Ashok's minor
grandchildren would be taxable in the hands of Mr. Ashok's son or daughter-in-law
whose total income, excluding the income taxable under section 64(1A) is higher.
SET OFF AND CARRY FORWARD OF LOSSES

While compute Gross Total Income, income from various sources is computed under the
five heads of income. When all the heads and their sources have positive income then it
can be simply be added to compute GTI. However, if certain sources or certain head(s)
have negative income (i.e. loss) then such loss needs to be adjusted with other heads or
sources.
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

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the subsequent years for set off against income of those years. A set-off could be of two
types:
 An intra-head set-off [ under the same head]
 An inter-head set-off [ with different head]

Intra-Head/ Intra Source Adjustment or Set Off [Sec 70]

When the losses from one source of income can be set off against income from another
source under the same head of income.
Ex: 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
“Profits and Gains of Business or Profession”.

Exceptions to an intra-head set off:

1. 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.
2. 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.
3. 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.
4. 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.
5. No loss can be set off against winning from lotteries, crossword puzzles, races, card
games, gambling or betting, etc

Inter-Head Adjustment/Set Off [Sec 71]

After the intra-head adjustments, the taxpayers can set off remaining losses against
income from other heads.
Ex: Loss from house property can be set off against salary income
Exceptions:
Loss under the head Capital Gains cannot be set off against income under any other head
Business loss other than speculative business can be set off against any head of income
except income from salary.
Loss of a specified business covered u/s 35AD cannot be set off against income taxable
under other head. However, loss from other head can be set off against income from
specified business.
Losses from an activity of owning and maintaining race-horses cannot be set off against
any other income except profit from activity of owing and maintaining race-horses.

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Loss under the head Income from House Property in excess of ₹200,000 cannot be set off
with income under other heads of income.
Example: Income from Business ₹350,000 and Loss from House Property ₹250,000.
Loss from HP can be maximum adjusted to ₹200,000. Thus, Gross Total Income
₹(350,000-200,000): ₹150,000
Balance Loss of ₹ 50,000 to be carried forward.

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. These have been discussed here:
Loss under the head “Income from House Property”:
Carry forward of Loss up to next 8 assessment years from the assessment year in which
the loss was incurred
It has to be adjusted only against Income from house property
Can be carried forward even when a belated return is filed.
Losses from Non-speculative Business (Regular business i.e. other than speculation
business) Loss:
Can be carry forward up to next 8 assessment years from the assessment year in which
the loss was incurred
It can be adjusted only against Income from business or profession
It is not necessary to continue the business at the time of set off in future years
Cannot be carried forward if the return is not filed within the original due date.

Speculative Business Loss:

Can be carry forward up to next 4 assessment years from the assessment year in which
the loss was incurred
Can be adjusted only against Income from speculative business.
Cannot be carried forward if the return is not filed within the original due date.
Not necessary to continue the business at the time of set off in future years

Specified Business Loss under 35AD:

There is no time limit to carry forward the losses from the specified business under 35AD
It is not necessary to continue the business at the time of set off in future years
Cannot be carried forward if the return is not filed within the original due date
Can be adjusted only against Income from specified business under 35AD

Capital Losses:
Can be carry forward up to next 8 assessment years from the assessment year in which
the loss was incurred
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Long-term capital losses can be adjusted only against long-term capital gains.
Short-term capital losses can be set off against long-term capital gains as well as short-
term capital gains
Cannot be carried forward if the return is not filed within the original due date

Losses from owning and maintaining race-horses:

Can be carry forward up to next 4 assessment years from the assessment year in which
the loss was incurred
Cannot be carried forward if the return is not filed within the original due date
Can only be set off against income from owning and maintaining race-horses only

Unabsorbed Depreciation
Can be carried forward for any number of years
Can be set off against any income except Income under the head “Salaries” and Winning
from Lotteries, cross word puzzles, etc.
Can be carried forward even if the business is not continued.
Can be carried forward even if the return of income has not been filled within time.

Points to note:
1. 1.A taxpayer incurring a loss from a source, income from which is otherwise exempt
from tax, cannot set off these losses against profit from any taxable source of Income
2. Losses cannot be set off against casual income i.e. crossword puzzles, winning from
lotteries, races, card games, betting etc.
Illustration 1:
From the following information compute Total Income of Mr. Ranti Nag for the
Assessment year 2021-22:
Particulars ₹
Income from Business A 50,000
Income from Business B (-)
95,000
Income from House Property 40,000
Interest on Bank Fixed Deposit 12,000
Income from Speculative Business (-)
12,000
Long-term capital loss 25,000
Short-term capital gain 10,000
Brought forward loss from house property 10,000

Solution:

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 Computation of gross total income of Mr. Ranti Nag for the A.Y. 2021-22
Particulars Details Amount
Income from house property 40,000
Less: Brought forward loss from house 10,000 30,000
property
Profits and gains of business or profession
-Profit from textile business 50,000
-Loss from stationery business (-) 95,000 (-) 45,000
Speculative Business (-) 12,000
Capital gains
-Short term capital gain 10,000
-Long term capital gain (-) 25,000
Income from Others sources
Interest on bank fixed deposit 12,000
Gross Total Income 7,000
Loss to be carried forward for subsequent assessment years:
Speculation loss of ₹ 12,000 shall be carried forward to next year.
Long term capital loss of ₹ 25,000 shall be carried forward to next year.

Illustration 2:
Amal furnished the following information for the previous year 2020-21:
₹
Income from Business A (Speculative) 50,000
Loss from Business B (Speculative) 75,000
Income from Business C (Non-Speculative) 40,000
Income from House Property 20,000
Short term Capital gain 15,000
Long term Capital loss 10,000
B/f loss from Business C 25,000
B/f loss from House Property 23,000
Compute total income of Amal and the losses to be carried forward.

Solution:
Computation of Total Income of Mr. Amal for the A.Y. 2021-22
Particulars Details Amount
Income from house property 20,000
Less: Brought forward loss from house property (20,000)
Profits and gains of business or profession
Non-speculative Business
-Profit from Business C 40,000
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Less: Brought forward loss (25,000) 15,000
Speculative Business
Business A 50,000
Less: Loss from Business B (75,000)
Loss to be carried forward (25,000)
Capital gains
-Short term capital gains 15,000
Total Income 30,000
Loss to be carried forward for subsequent assessment years:
Speculation loss of ₹25,000 shall be carried forward to next year
Long term capital loss of ₹10,000 shall be carried forward to next year.
Brought forward house property loss ₹3,000 shall be carried forward to
next year.

ILLUSTRATION 3:
From the following information, compute income of Ms. Tewari for the P.Y. 2020-21:
Particulars Amount
Income from house 1 (let out) 2,00,000
Loss from house 2 (elf-occupied) 50,000
Salary Income 5,00,000
Loss from non-speculative Business 3,00,000
Income from speculative Business 1,00,000
Short Term Capital Loss 60,000
Long Term Capital gain 50,000

Solution:

Computation of total income of Ms. Tewari for the A.Y. 2021-22

Particulars Amount Amount
Salaries 5,00,000
Income from House Property
Income from house 1 (let out) (assumed it is 2,00,000
computed)
Less: Loss from house 2 (self occupied) (50,000)
1,50,000
Less: Loss under the Profits and Gains of Business (1,50,000) Nil
or Profession
Profits and Gains of Business or Profession

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Income from speculative Business 1,00,000
Less: Loss from non-speculative Business (3,00,000)
(2,00,000)
Less: Adjusted with Income from House Property 1,50,000 Nil
(₹ 50,000 shall be carried forward)
Capital Gains
Long term Capital gain 50,000
Less: Short Term Capital Loss (50,000) Nil
(Short term capital loss of ₹ 10,000/- shall be
carried forward)
Total Income

Illustration 4:
A Ghosh submits the following particulars of his incomes and losses for the A.Y. 2021-22:
Income from house property ₹ 12,800
Income from textile business ₹ 35,700
Loss from stationery business ₹ 10,000
Speculation loss ₹ 2,000
Long term capital gains ₹ 25,000
Short term capital gains ₹ 10,000
Income from the activity owning and maintaining race ₹ 13,000
horses
Winning from lottery ₹ 12,000
The losses of A Ghosh brought forward from the assessment year 2019-
20 are as follows:
Loss from house property ₹ 8,000
Loss from stationery business ₹ 7,000
Loss under the head capital gains ₹ 4,300
Loss from the activity of owning an maintaining race ₹ 14,700
horses
All the above losses were first computed in the assessment year 2019-20.
Compute his total income for the A.Y. 2021-22.

Solution:

Computation of Gross Total Income of Mr. A Ghosh for the A.Y. 2021-22
Particulars Details Amount
Income from house property 12,800
Less: Brought forward loss from house 8,000 4,800

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property
Profits and gains of business or profession
-Profit from textile business 35,700
-Loss from stationery business (10,000)
25,700
Less: Brought forward loss from stationery (7,000)
business
Speculative Business (2,000)
Capital gains
-Short term capital gain 10,000
-Long term capital gain 25,000
Less: Brought forward capital loss 4,300 20,700
Income from Other sources
Income from activity of owning & maintaining 13,000
race horses
Less: Brought forward loss from such activity 13,000 Nil
Winning from lottery (Gross) 12,000
Gross Total Income 66,200
Loss to be carried forward for subsequent assessment years:
Speculation loss of ₹ 2,000 shall be carried forward to next year.
Brought forward loss from activity of owning & maintaining race-horses
of ₹ 1,700 (i.e. ₹ 14,700 - ₹ 13,000) shall be carried forward to next year.

Illustration 5:
From the following information, compute Mr. Rahaman’s total income and the amount
of loss to be carried forward for the assessment year 2021-22:
₹
Income from the house -1 40,000
Loss from house – 2 30,000
Income from garment business 50,000
Loss from Jute business 25,000
Loss from speculative business 15,000
Long term capital gain 30,000

From the assessment year 2019-20, the balance of following losses were brought
forward:
Loss from the garment business ₹
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 10,000
Long-term capital loss ₹
10,000
Loss from house property ₹
10,000

Solution:

Computation of Total Income of Mr. Rahaman for the A.Y. 2021-22

Particulars Details Amount
Income from house property
Income from house - 1 40,000
Less: Set off of Business Loss (30,000)
10,000
Less: Set off of brought forward loss from house (10,000) Nil
property
Profits and gains of business or profession
Income from garment business 50,000
Less: Loss from Jute business (25,000)
25,000
Less: Set off of brought forward loss from the (10,000) 15,000
garment business
Loss from speculative business (to be carried (15,000)
forward)
Capital gains
Long term capital gain 30,000
Less: Set off of brought forward Long-term 10,000 20,000
capital loss
Gross Total Income / Total Income 35,000

UNSOLVED

Problem 1:

Compute Gross Total Income for the assessment year 2021-22 and losses to be carried
forward.
Particulars Amount
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 Net profit from cotton business 1,60,000
Net loss from automobile business (90,000)
Loss from house property in Kolkata (75,000)
Income from house property in Mumbai 70,000
Loss from Speculative business (1,20,000)
Income from salary 72,000
Short term capital loss on jewellery (1,20,000)
Long term capital gain on Shares 90,000

[Ans: Gross Total Income- 1,37,000]

Problem 2:
From the following information of Sri Ganguly computes total income and balance to be
carried forward to the assessment year 2021-22:
Profit earned in Delhi from owning and maintaining of race ₹80,000
horses
Loss from non-speculative business ₹20,000
Income from salary ₹40,000
Loss incurred in Chennai from owning and maintaining of horse ₹1,80,000
race
Brought forward loss under the head long-term capital gains for ₹36,000
the assessment year 2017-18
Short-term capital loss ₹20,000
Long-term capital gain ₹60,000
[Ans: Total Income- 40,000]

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DEDUCTION UNDER CHAPTER VI A (Sec 80)

Deduction in respect of certain payments

Eligible Permissible
Section Assessee Eligible Payments Deduction
80C Individual Contribution to PPF, Payment of LIC Sums paid or
or HUF premium, etc. deposited,
Sums paid or deposited in the previous year subject to a maximum
by way of - of
- Life insurance premium ₹ 1,50,000
- Contribution to PPF/SPF/RPF and
approved superannuation fund
- Repayment of housing loan taken from
Govt., bank, LIC, specified employer
etc.(Only Principal)
- Tuition fees to any Indian university,
college, school for full-time education of
any two children
- Term deposit for a fixed period of not less
than 5 years with a scheduled bank
- Subscription to notified bonds of
NABARD
- Five year post office time deposit
- Senior Citizen’s Savings Scheme
Account, etc.
80CCC Individual Contribution to certain pension funds Amount paid or
Any amount paid or deposited to keep in deposited, subject to a
force a contract for any annuity plan of LIC maximum of
of India or any other insurer for receiving ₹ 1,50,000
pension from the fund.
80CCD Individual Contribution to Pension Scheme of Central In case of a salaried
Govt. individual, deduction
An individual employed by the Central of own contribution
Govt. on or after 1.1.2004 or any other u/s 80CCD(1) is
employer or any other assessee, being an restricted to
individual, who has paid or deposited any 10% of his salary.
amount in his account under a notified In any other case,
pension scheme [National Pension Scheme deduction u/s
& Atal Pension Yojana]. 80CCD(1) is
restricted to 20% of
GTI.
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 Further, additional
deduction upto ₹
50,000 is available u/s
80CCD(1B).
80D Individual Medical Insurance Premium Premium paid and/or
or HUF (1) Any premium paid, otherwise than by amount contributed to
way of cash, CGHS subject to a cap
to keep in force an insurance on the health of
of – ₹25,000 (₹ 50,000, in
in case of an individual self, spouse and case the person insured
dependent children is a senior citizen).
In case of a HUF Any member of HUF Premium paid subject
(2) In case of an individual, contribution to to a cap of
CGHS or such other scheme as notified by ` 25,000 (50,000, in
Central Govt. case either or both
(3) Any premium paid, otherwise than by of the parents are
way of cash, to keep in force an insurance senior citizen(s)
on the health of parents, whether or not
dependent on the individual.

80DD Resident Maintenance including medical treatment Flat deduction of `

Individual of a dependent disabled. Any amount 75,000.
or HUF incurred for the medical treatment
(including nursing), training and In case of severe
rehabilitation of a dependent disabled and / disability (i.e. person
or Any amount paid or deposited under the with 80%
scheme framed by the LIC or any other or more disability),
insurer or Administrator or Specified the flat deduction
Company and approved by Board. shall be
Meaning of Dependent: ` 1,25,000.
In case of Dependent
An Individual Spouse, children, parents,
brothers, sisters
A HUF Any member

Such persons should not have claimed

deduction u/s 80U in computing TI of that
year.
80DDB Resident Deduction for medical treatment of Actual sum paid or `
Individual specified diseases or ailments. 40,000 (` 100,000,
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 or HUF Amount paid for specified diseases or where the
ailment payment is for
Assessee Relative medical treatment of a
An Spouse, children, parents, resident
Individual brothers or sisters wholly senior citizen,
or mainly dependent on whichever is less,
the individual for support minus the amount
and maintenance received from the
A HUF Any member insurance company or
reimbursed by the
employer.
80E Individual Interest on loan taken for higher education The deduction is
Interest on loan taken from any financial available for interest
institution or approved charitable payment in the initial
institution. Such loan is taken for pursuing A.Y. (year of
his higher education or higher education of commencement of
his or her relative i.e., spouse or children of interest payment) and
the individual or the student for whom the seven AYs
individual is the legal guardian. immediately
succeeding the initial
A.Y.
(or)
Until the interest is
paid in full by the
assessee, whichever is
earlier.
80EE Individual Deduction for interest on loan borrowed Deduction of upto `
from any financial institution 50,000 would be
(bank/housing finance company) for allowed in respect of
acquisition of residential house property. interest on loan taken
In case the property is self-occupied, the from a financial
deduction would be over and above the institution.
deduction of ` 2 lakhs u/s 24; Conditions:
In case the property is let-out, entire (1) Loan should be
interest can be claimed sanctioned during
as deduction u/s 24 while computing P.Y.2016-17
income from house property. (2) Loan sanctioned ≤
` 35 lakhs
(3) Stamp Duty Value
of house ≤ 50 lakhs
(4) The assessee
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 should not own any
residential house on
the date of sanction of
loan.
80EEA Individual Deduction for interest on loan taken for Deduction of upto
acquisition of residential house property 150,000 would be
from any financial institution allowed in respect of
interest on loan taken
from a financial
institution.
Conditions:
(1) Loan should be
sanctioned during
P.Y.2019-20
(2)Stamp Duty Value
of house ≤ 45 lakhs
(3) The assessee
should not own any
residential house on
the date of sanction of
loan
(4) The assessee is not
eligible for deduction
u/s80EE and under
any other provisions of
the Act
80EEB Individual Deduction for the loan taken for purchase Deduction of upto
of an electric vehicle from any financial 150,000 would be
institution allowed in respect of
Interest on loan
payable for the
previous year.
Conditions: The loan
has been sanctioned
during 01/04/2019
and 31/03/2023.
80G Donations to certain funds, charitable
institutions etc.
There are four categories of deductions -

Category Donee
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 100% PM’s National Relief
deduction of Fund, National
amount Children’s Fund,
donated, Swachh Bharat Kosh,
without any National Defence Fund
qualifying etc.
limit
50% PM’s Drought Relief
deduction of Fund, Jawaharlal Nehru
amount Memorial Fund, Indira
donated, Gandhi Memorial
without any Trust, Rajiv Gandhi
qualifying Foundation.
limit
100% Govt. or local authority
deduction of or institution for
amount promotion of family
donated, planning etc.
subject to
qualifying
limit

50% Govt. or any local

deduction of authority to be used for
amount charitable purpose,
donated, other than promotion of
subject to family planning,
qualifying notified temple, church,
limit gurudwara, mosque etc.

Calculation of Qualifying limit for

Category III & IV donations:
Step 1: Compute adjusted total income, i.e.,
the GTI as reduced by the following:
1. Deductions under Chapter VI-A, except
u/s 80G
2. STCG taxable u/s 111A
3. LTCG taxable u/s 112
Step 2: Calculate 10% of adjusted total
income.
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 Step 3: Calculate the actual donation,
which is subject to qualifying limit [Total
of Category III and IV
donations, shown in the table above]
Step 4: Lower of Step 2 or Step 3 is the
maximum permissible deduction
Step 5: The said deduction is adjusted first
against donations qualifying for 100%
deduction (i.e., Category III donations).
Thereafter, 50% of balance qualifies for
deduction u/s 80G.
Note - No deduction shall be allowed for
donation paid in cash in excess of ` 2,000
and donation in kind.
80GG Individual Rent paid for residential accommodation Least of the following
not in is allowable as
receipt of deduction:
house (1) 25% of total
rent income;
allowance (2) Rent paid – 10%
of total income
(3) 5,000 p.m.
No deduction if any
residential
accommodation is
owned by
assessee/spouse/minor
child/HUF at the
place where he
ordinarily resides or
performs the duties of
his office or
employment or carries
on his business or
profession.
80GGB Indian Contributions to political parties. Any sum Actual contribution
Company contributed by it to a registered political (otherwise than by
party or an electoral trust. way of cash)
80GGC Any Contributions to political parties Actual contribution
person, Amount contributed to a registered political (otherwise than by
other party or an electoral trust. way of cash)
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 than local
authority
and an
artificial
juridical
person
funded by
the
Govt.

Deduction in Respect of Certain Income

Section Eligible Eligible Payments Permissible
Assessee Deduction
80QQB Resident Royalty income, etc., of authors of certainIncome derived for
individual, books exercise of
being other than text books profession or
an author Consideration for assignment or grant of any 3,00,000, whichever
of his interests in the copyright of any book,
is less.
being a work of literary, artistic or scientific
In respect of royalty
nature or royalty or copyright fee received as
or copyright fee
lump sum or otherwise. received
otherwise than by
way of lump sum,
income
to be restricted to
15% of value of
books sold
during the relevant
P.Y.
80RRB Resident Royalty on patents Whole of such
individual, Royalty in respect of a patent registered on income or 3,00,000,
being a or after whichever is less.
patentee 1.4.2003

Deduction in respect of Other Incomes

Section Eligible Eligible Payments Permissible
Assessee Deduction
80TTA Individual Interest on deposits in savings account Actual interest
or HUF Interest on deposits in a savings account with subject to a
a bank/a co-operative society engaged in maximum of
banking business or a post office (not being 10,000.
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 time deposits, which are repayable on expiry
of fixed periods)
80TTB Resident Interest on deposits in savings account and Actual interest
Senior fixed deposit subject to a
Citizen maximum of 50,000

Other Deductions
Section Eligible Eligible Payments Permissible Deduction
Assessee
80U Resident Deduction in case of a person Flat deduction of 75,000, in
Individual with disability case of a person with
Any person, who is certified by disability.
the medical authority to be a Flat deduction of 1,25,000, in
person with disability. case of a person with severe
disability (80% or more
disability).

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 Previous Year Question
1. Explain the provisions of Indian Income Tax Act, 1961 relating to set off
and carry forward of losses.
2. State the provision of the law relating to set off and carry forward of
losses.
3. Discuss the relevant provisions concerning set off and carry forward of
losses.
4. In what situations are business losses allowed to be set off and carried
forward by persons other than those who actually suffered the losses?
5. Explain the provisions of the Income-tax Act, 1961 with regard to set-off
and carry forward of loss under the head Income from Business and
Profession and Capital Gains.
6. State the provision of law relating to carry forward and set off of
business loss?

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 TOTAL INCOME And TAX LIABILITY

Illustration 1
Mr. Sarkar is employed in a private limited company in Kolkata. He furnished the
following information for the P.Y. 2020-21:
1. Basic Pay ₹80,000 p.a.
2. Dearness Allowance ₹20,000 p.a.
3. City Compensatory Allowances ₹36,000 p.a.
4. House Rent Allowances ₹24,000 p.a. He paid rent ₹ 3,000 p.a. accommodation at
Kolkata
5. His employer contributes 13% of the basic pay & Dearness Allowance to recognized
Provident fund. Interest credited @ 12% p.a. to the said provident fund ₹ 1,800
6. He is provided with a motor car of 1.8 CC along with a driver for both official purpose
& private use. Entire expense are borne by employer.
7. He is provided with a sweeper & a domestic servant at a salary of ₹300 p.a. & ₹600
p.a. respectively, the payment of which is made by employer.
8. Income tax ₹3,000 & Professional Tax ₹1200 are deducted from his salary.
9. Before the joining the company, Mr. Sarkar was employed with another company and
was a member of unrecognized Provident Fund. During the PY, he receives the
balance from the said fund amounting to ₹7,350 consisting of own contribution of ₹
4,000 & interest thereon ₹200, employer contribution ₹3,000 & interest thereon ₹ 150.
10.His employer Agreed a lot 100 equity share to him on 01-04-2019 @ ₹10 (Market
value on that day ₹20) with an option to acquire share within 3 months. Mr. Sarkar
exercised the option on May 20, 2019 when the market value of per share was ₹25.
11.He receives₹4000 as dividend from an Indian Company and ₹5,000 as dividend from
a foreign company & saving bank interest of ₹2,500.
12.During the previous year he paid premium of ₹ 22,000 on the health of the father
having 75 years of age. He donated ₹ 10,000to PM National Relief Fund & ₹5,000 to
Indra Gandhi memorial trust.

Compute total income of Mr. Sarkar for the A.Y.2021-22.

Solution

Computation of Taxable Income of Mr. Sarkar for the A.Y. 2021-22

Particulars Workings Details Details Amount Amount

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Salaries
Basic 80,000
Allowances:
Dearness 20,000
Allowances
City Compensatory 36,000
Allowances
House Rent 24,000
Allowances
Less: Exempt u/s
10(13A) [Min]
Actual amount 24,000
50% Salary 50,000
Rent paid – 10% of
salary
[₹36,000-₹10,000] 26,000 24,000 Nil 56,000
Perquisites u/s 17(2)
Car Facility ₹(2400 + 900)*12 39,600
Concessional issue ₹(25-10) * 100 1,500
of shares
Sweeper & ₹(600+300)*12 10,800 51,900
Domestic Servant
Employer’s 13% of ₹1. Lakh 13,000
contribution to RPF
Less: Exempted u/s 12,000 1,000
10(12)
Interest on RPF 1,800
Less: Exempted ₹1,800/12*9.5 1,425 375
upto 9.5%
Amount recd. From 3,150 4,525
URPF
Gross Salary 1,92,425
Less: Deduction u/s
16(ia) Standard 50,000
Deduction
16(iii) Professional 12,00 51,200 1,41,225
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Tax

Income from other

sources
Bank Interest 2,500
Interest on own 200
contribution to
URPF
Dividend from Exempt u/s 10(34) Nil
Indian co.
Dividend from 5,000 7,700
foreign co.
Gross Total 1,48,925
Income
Less: Deduction u/s
80D [Medical 22,000
Insurance]
80G [Donation] 12,500
80TTA Bank Interest 2,500 37,000
Total Income [Rounded off u/s 288A] 1,11,930

Notes:
1. Taxable amount received previous URPF.
Particulars Taxable Salary Taxable as income
from other sources
Employer’s contribution - -
Interest on employee’s - 200
contribution
Employer’s contribution 3,000 -
Interest on employer’s 150 -
contribution
Total 3,150 200

2. Salary for the purpose of

Particulars HRA RPF
Basic salary 80,000 80,000
Dearness Allowance 20,000 20,000
Total 1,00,000 1,00,000
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3. Calculation of amount of Deduction u/s 80G
Donee Amount donated Rate Qualifying for
80G
P.M. National Relief 10,000 100% 10,000
Fund
Indra Gandhi Memorial 5,000 50% 2,500
Trust
Deduction u/s 80G 12,500
Illustration 2
Mr. Mitra attains the age of 65 years on 26.10.2019. From the following information
compute total income and tax payable by Mrs. Mitra relating to the previous year 2020-
21.
1. Pension ₹15,000 per month
2. Dividend from TATA Motors 14,000
3. Dividend from ZTE Telecommunications (a foreign company) ₹70,000
4. Agriculture income from Bangladesh ₹56,000
5. Interest from Bank Fixed Deposit ₹80,000
6. Winning from lottery (net) ₹35,000[Tax Deducted at Source @ 30%]
7. Interest from government securities ₹50,000

Mrs. Mitra has made a following payments during the previous year:
1. Premium of Life Insurance (own life) paid ₹ 24,000 (Policy Value 2,00,000)
2. Mediclaim premium on son’s heath ₹6000
3. Paid ₹20,000 to Rama Krishna Mission.
4. Paid ₹15,000 to Prime Minister’s National Relief Fund.
5. Incurred ₹ 30,000 for treatment of dependent father aged 88 years old suffering from
cancer.

Solution

Computation of Taxable Income of Mrs. Mitra for the A.Y. 2021-22

Particulars Amount Amount
Salaries
Pension 1,80,000
Less: Standard Deduction u/s 16(ia) 50,000 1,30,000
Income from other sources
Dividend from TATA Motors [Exempted] Nil
Dividend from ZTE Telecommunication [A Foreign 70,000
Company]

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Agriculture Income from Bangladesh 56,000
Interest from Bank Fixed Deposit 80,000
Interest from Govt Securities 50,000
Winning From Lottery [₹35000/70%] 50,000 3,06,000
Gross Total Income 4,36,000
Less: Deduction u/s
80C [LIP paid subject to max. of 10% of sum assured] 20,000
80D[Mediclaim] (Assuming son is dependent on Mrs. 6,000
Mitra)
80DDB[Expenditure on medical treatment of father] 30,000
80G [Donation]
Donation to Prime Minister’s National Relief Fund 15,000
Donation to Rama Krishna Mission[50% of ₹20,000] 10,000 81,000
Total Income 3,55,000
Computation of Deduction u/s 80G
Calculation of Adj.GTI for qualifying amount:
Particulars Amount
Salaries 1,30,000
Income From Other Sources 3,06,000
Gross Total Income 4,36,000
Less: other deduction 56,000
Adjusted Gross Total Income 3,80,000
Limit(being 10% of above) 38,000

Computation of Tax liability of Mrs. Mitra for A.Y. 2021-22

Particulars Rate On Details Amount
Casual Income
₹50,000 30% 15,000
Other Income
Upto ₹3,00,000
From ₹ 3,00,001 to 5% 5,000 250 250
₹3,05,000
Tax 15,250
Less: Rebate u/s 87A 15,500
2,750
Add: Health & ₹2,750 x 110

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 Education cess 4%
Final Tax Liability 2,860
Less: TDS 15,000
Tax Refundable 12,140

Illustration 3
For the previous year 2020-21, Mr. Swarup Sen has furnished the following information:
₹
Income from salary (computed) 5,20,000
Income from house property 95,000
Bank Interest on Fixed Deposit 18,000
Long terms capital gains 30,000
Short- term capital loss 5,000

He made the following payments

₹
LIP on own life (sum assured ₹2,00,000) 22,000
LIP on wife’s life (sum assured ₹ 1,00,000) 10,000
Deposit in PPF 18,000
Paid for Mediclaim (on own health) 12,000
Medical Expenses on treatment of dependent
(Physically handicapped brother) 25,000
Donation to Prime Minister’s National Relief Fund 10,000
Donation to Ramakrishna Mission 12,000

Determine his total income and tax payable for the A.Y. 2021-22

Solution:
Computation of total income of Mr. Swarup Sen for the A.Y. 2021-22
Particulars Amount Amount Amount
Income from salary 5,20,000
Income from House Property 95,000
Capital Gains
Long- term capital gains 30,000
Short term capital loss 5,000 25,000
Income from other sources
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Bank interest on fixed deposit 18,000
Gross Total Income 6,58,000
Less: Deduction
-u/s 80C
LIP on own life (subject to max .of 10% of sum 20,000
assured)
LIP on wife’s life 10,000
Deposit in PPF 18,000 48,000
u/s 80D (mediclaim) 12,000
u/s 80DD ( Medical expenses on treatment of 75,000
dependent)
us 80G
Donation to Prime Minister’s National Relief Fund) 10,000
Donation to Ramakrishna Mission (50%*) 6,000 16,000 1,51,000
Total Income 5,07,000
Tax on above (Rounded off) 17,260
[104% of {(₹25,000*20%)} + {(₹2,50,000 *0% ) + (₹2,32,000* 5%)}]

*As payment is within limit.

Illustration 4
Ms. Suparna Roy (Age 46 years), a resident individual of India, finished the following
details of her income during the Previous year 2020-21. Compute her Total Income and
Tax payable for the assessment year 2021-22.
1. Gross Salary ₹5,41,000(Professional Tax Paid ₹2,000)
2. Income from business owned by her ₹ 2,10,000 and Allowable expenses 1,20,000
3. Received Family pension ₹ 10,000 p.m. w.e.f. 1.04.2019.
4. Long Term Capital Gain on sale of building ₹80,000
5. She received her share of income from Hindu Undivided Family (HUF) as member
₹40,000.
6. She deposit to PPF ₹ 80,000 during the year.
7. Donation to National Defense Fund ₹25,000.
8. Repayment of house building loan from HDFC bank (purchase during 2019-20) ₹
2,50,000 (of which ₹ 50,000 is for principle repayment )
9. Paid Premium on Medical Insurance Policy on own health by cheque ₹16,000

Solution

Computation of National Income of Ms. Suparna Roy for the A.Y. 2021-22.
Particulars Amount Amount Amount
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 Salaries
Gross Salaries 5,41,000
Less: Standard Deduction 50,000
Less: Professional Tax 2,000 52,000 4,89,000
Income from house property
Net annual value of self- Nil
occupied property
Less: Deduction u/s 24(b)(interest 2,00,000 (2,00,000)
on loan )
Profits & and gains of business
profession
Income from business 2,10,000
Less: Allowable expense 1,20,000 90,000
Capital Gains
Long term capital gain 80,000
Income from other sources
Family pension 1,20,000
Less: std. Deduction [Lower of 15,000 1,05,000
1/3rd of pension or ₹ 15,000]
Gross Total Income 5,64,000
Less: Deductions
-u/s 80c
PPF 80,000
Repayment of Housing Loan 50,000 1,30,000
-u/s 80D (mediclaim) 16,000
-u/s 80G [Donation to National 25,000 1,71,000
Relief Fund]
Total Income 3,93,000

Computation of Tax liability of Ms. Suparna Roy for the A.Y.2021-22

Particulars Rate On Details Amount
Long Term Capital 20% 16,000
Gain ₹80,000
Other Income (note)
Upto ₹ 2,50,000

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 From ₹ 2,50,001 to ₹ 5% 63,000 3,150 3,150
3,13,000
Tax liability 19,150
Less: Rebate u/s 87A 12,500
6,650
Add: Health $& 4% of ₹ 6,650 266
Education cess
Final tax liability 6,916
Rounded off u/s 288B 6,920

Illustration 5
Mr. Bardhan a resident in India, is employed in a public limited company. He received
net salary of ₹ 1,37,200 during the year ended 31st March,2020 after deduction of tax at
source ₹1,800 and own contribution to RPF ₹1,000. His employer contributes an equal
amount to this fund. His other incomes in the previous year 2020-21 are:
₹
Income from house property 40,750
Profit from business A 2,36,000
Interest on fixed deposit with SBI 4,200
th
Interest on National Saving certificate (including 6 year interest ₹1,250) 2,250
Loss from Business B 13,200
He claims deduction in respect of the following donation and contribution :
a) Premium paid on wife’s life insurance (Policy Value of ₹ 42,000) 4,000
b) National saving certificate (VIII th issue ) purchased 7,500
c) Donation to National Defence Fund 3,000

Compute the total income and tax liability or the assessment year 2021-22.

Solution

Computation of Taxable Salary of Shri S Bardhan for the A.Y. 2021-22.

Particulars Details Amount Amount
Salaries
Basic [₹1,37,200+₹ 1,40,000
1,800 +₹1,000]
Contribution to RPF 1,000
Less: Exempted 1,000 NIL
Gross Salary 1,40,000
Less: Standard 50,000 90,000
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Deduction u/s 16(ia)
Income from house 40,750
property
Profits and gains of
business or
profession
Profits from 2,36,000
Business A
Loss from business (13,200) 2,22,800
B
Income from other
sources
Interest on fixed 4,200
deposit
Interest on NSC 2,250 6,450
Gross Total Income 3,60,000
Less: Deduction u/s
80C 13,500
80G 3,000 16,500
Taxable income 3,43,500

Statement showing amount of deduction u/s 80C

Particulars Amount
Own contribution to RPF 1,000
Life insurance premium 4,000
NSC purchased 7,500
Interest on NSC (excluding 6th year) 1,000
Deduction u/s 80C 13,500

Computation of Tax Liability of Shri S Bardhan for A.Y. 2021-22

Particulars Rate On Details Amount
Upto ₹2,50,000 - - -
From ₹ 2,50,001 to 5% 93,500 4,675 4,675
₹ 3,43,500
Tax 4,675
Less: Rebate u/s 87 4,675
A
NIL
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 NIL
Add: Health & Nil
Education cess
Tax and cess NIL
payable

Illustration 6:
A retired from service on September 30, 2019. His salary certificate as on March 31,
2019 contains the following:
1. Gross Salary: ₹ 5,62,640;
2. HRA component of gross salary: ₹ 69,300;
3. Tax deduction at Source: ₹ 42,000;
4. Provident Fund: ₹ 76,670;
5. Group Insurance Scheme: ₹ 7,000;
6. Provident Fund Loan: ₹ 15,000;
7. House Construction Loan: ₹ 8,100;
8. Marriage Loan: ₹ 3,000;
9. Staff Club: ₹ 600;
10. Professional Tax: ₹ 1,400;
11. Association Fees: ₹ 1,500;
12. Pension October 1, 2018 to March 31, 2019: ₹ 60,330;
13. Gratuity Paid on November 14, 2018: ₹ 3,00,000;
14. Provident Fund Paid on November 14, 2019: ₹ 4,47,200;
15. Commutation of Pension on January 7, 2020: ₹ 3,92,390;
16. LIC Premium: ₹ 49,620;
17. Fire Insurance: ₹ 980;
18. LIC Mortgage Loan Interest: ₹ 55,890;
19. National Savings Certificates: ₹ 40,000;
20. Magnum Equity Linked Savings Scheme on February 22, 2020: ₹ 10,000.

You are required to prepare Taxable Income and Tax Statement of Mr. X for the
assessment year 2021-22 making necessary assumptions, where required. Indicate
sections of Income Tax Act, 1961 as amended from time to time wherever necessary.

Answer: Taxable Income: ₹ 496,970(Round off) and Tax Refund ₹29,160

Illustration 7:
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Compute the taxable income of X (40 years) for the assessment year 2021-22 from the
following information:

Particulars Amount (Rs.)

Net income from trading business 8,00,000
Long-term capital gain on transfer of debentures 6,00,000
(if computed without indexation)
X does not want to pay tax @ 10% on Rs. 6,00,000
Long-term capital gain on transfer of listed debentures 2,50,000
(computed after indexation)
X wants to pay tax at the rate of 20% on Rs. 2,50,000
Share of income from HUF in which he is a member 82,000
Winning from horse races (net of TDS of 30 per cent) 70,000

Interest on bank fixed deposits:

a. Deposit in his own name 1,17,000
b. In the name of minor son 1,450
c. In the name of minor daughter 8,000
d. In the name of major unmarried daughter 70,000 196,450

Expenditure incurred for medical treatment of his 67 years old elder 8,000 brother
(dependent of X, being a person with disability)
Repayment of loan taken for part-time studies of major daughter for 6,90,000 graduate
course in management (loan is taken from a notified charitable institute)
Payment of interest from the aforesaid loan 76,000
Donation to the aforesaid notified charitable institute 5,000
Brought forward loss of a discontinued business pertaining to the
assessment year 2016-17 26,000
Purchase of a work of art on November 10, 2018 from a friend for 115,000 1,15,000
(market value is, however, Rs. 1,70,000)
Deposit in Public Provident Fund account and purchase of NSC IX issue 1,63,000

Answer: Gross Taxable Income 19,02,500; Taxable Income 16,75,000 [Hint: Income
from Business 774,000;
Income from Capital Gains 8,50,000; Income from Other Sources 278,500; Allowable
Deduction: 80C 150,000;
80DD 75,000; 80E Nil; 80G 2,500]

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 Previous year question
1. The particulars of income of an individual for the previous year ended
March 31, 2021, are as follows:
a. Net profit from business (after charging Rs. 1,00,000 paid as charitable
donation to a hospital and Rs. 50,000 as life insurance premium on a
policy on his own life) Rs. 6,10,000;
b. One-half share in profits of an unregistered firm in which he is a partner
- Rs.1,00,000;
c. One-fourth share in income from a Hindu undivided family of which he
is a member - Rs. 20,000;
d. Interest on Tax-free Government Securities - Rs. 20,000;
e. Profit from sale of domestic furniture which was held for 10 years - Rs
1,00,000
f. Agricultural Income from Nepal - Rs. 80,000.
He is living in Allahabad in his own bungalow.
Compute his total income for the assessment year 2021-22.
2. Mr. X retired from service on September 30, 2020. His salary certificate
as on March 31, 2021 contains the following:
 (i)Gross Salary: Rs. 5,62,640;
 HRA component of gross salary: Rs. 69,300;
 Tax deduction at Source: Rs. 00;
 Provident Fund: Rs. 76,670:
 Group Insurance Scheme: Rs. 7,000;
 Provident Fund Loan: Rs. 15,000;
 House Construction Loan: Rs. 8,100;
 Marriage Loan: Rs. 3,000;
 Staff Club: Rs. 600;
 Professional Tax: Rs. 1,400;
 Association Fees: Rs. 1,500;
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  Pension October 1, 2018 to March 31, 2021: Rs. 60,330;
 Gratuity Paid on November 14, 2020: Rs. 3,00,000;
 Provident Fund Paid on November 14, 2020: Rs. 4,47,200;
 Commutation of Pension on January 7, 2021: Rs. 3,92,390;
 LIC Premium: Rs. 49,620;
 Fire Insurance: Rs. 980;
 LIC Mortgage Loan Interest: Rs. 55,890;
 National Savings Certificates: Rs. 40,000;
 Magnum Equity Linked Savings Scheme on February 22, 2021:
Rs. 10,000.
You are required to prepare a statement of Tax due from Mr. X for the
assessment year 2021 -22 making necessary assumptions, where required.
Indicate sections of Income Tax Act, 1961 as amended from time to time
wherever necessary.
3. Mr. Y is a resident and ordinary resident employed as a Manager in a
private company in Patna. The following particulars are furnished by
him for the previous year ending 31st March, 2021: Salary received Rs.
86,000; Dearness allowance Rs. 88,500; House rent allowance Rs.
22,500. Mr. Y owns a house in Delhi consisting of two portions. The fair
rental value of the house is Rs. 60,000 per annum. One portion of the
house is let out to his friend on a monthly rent of Rs. 4,000 and another
portion is kept for his self-occupation in which his son studying in IIT
Delhi is residing. He paid municipal taxes amounting to Rs. 10,500 and
incurred Rs. 8,000 on repairs during the previous year. However, he
resides in a rented house in Patna by paying a monthly rent of Rs. 3,000.
The company advanced him an amount of Rs. 1,00,000 free of interest
which he invested in shares. The company had paid Rs. 6,000 as interest
on the loan. The dividends received from these shares during the
previous year were Rs. 14,500. He paid Rs. 15,000 towards life
insurance premium on a life insurance policy of Rs. 1,00,000. During the
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 previous year, he received Rs. 16,000 being % share from a registered
firm. Compute the total income of Mr. Y for the assessment year 2021-
22.
4. Following are the particulars given by Mr. A of Delhi working in some
private organization for the previous year ended on 31st March, 2021.
Compute the taxable income and tax liability for the assessment year
2021-22:
(i) Basic salary Rs. 50,000 per month
(ii) DA @ Rs. 10,000 p.m. which forms part of salary.
(iii) House Rent Allowance @ 30% of basic salary out of which he
spent Rs. 10,000 p.m. on account of rental accommodation.
(iv) Contribution to recognized provident fund @ 10% of salary.
(v) Leave travel allowance received Rs. 1,20,000 but he spent Rs.
1,00,000 on travel to his home.
(vi) His other incomes are: Interest on deposits Rs. 1,00,000 (gross),
Dividend from UTI Rs. 1,60,000, Rent received from let out house
property Rs. 96,000 (local tax paid) during the year were Rs
20,000
5. Shri Manoj submits the following particulars as to his income and
expenditure for the previous year 2020-21:
Rs
Basic Salary 84,000
Special Allowance 16,000
Helper's Allowance @ Rs. 500 P.M. 6,000
(Salary to helper paid by Manoj being
Rs. 600 P.M.)
Bonus 40,000
Employer's contribution to RPF 13,200
Interest on accumulated balance in 17,400
P.F. a/c credited on 31-12-20 @
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14.5%
Reimbursement of education expenses 12,000
of two children
Shri Manoj owns two residential houses, one at Hyderabad which is occupied
by his parents and the other at Delhi which is let to a foreign embassy on a
rental of Rs. 96,000 per annum. The municipal valuation of the houses is Rs.
72,000 and Rs. 80,000 respectively. Municipal taxes in respect of the first
house Rs. 7,200 is borne and paid by him and in regard to the second house,
Rs. 16,000, only 50% payment has been made by him during the previous
year. The embassy has undertaken to bear the cost of repairs which in the
previous year amounted to Rs. 48,000.
On June 1, 2020, Shri Manoj borrowed Rs. 1,00,000 from a financier at 24%
to acquire 1,000 shares of Rs. 100 each of an Indian Company. No dividend
was declared during the year though the share was quoted at BSE at Rs. 160
as on 31st March, 2021.
Other investments made during the year by him include: Contribution to RPF:
Rs. 30,000; Purchase of National Saving Certificates (VIII) Rs. 30,000;
Insurance premium in respect of policy on his own life: Rs. 10,000; Donations
to recognized institutions: Rs. 3,000. Compute the total income of Shri Manoj
of the assessment year 2021-22.
6. From the following particulars, compute total income and tax payable by
Mr. A who is disabled and is of 68 years on 31st March, 2021 for the
assessment year 2021-22:
(i) Salary received from employer: Rs. 6,30,000
(ii) Annual value of let out house: Rs. 30,000
(iii) Interest on loan to purchase another house which is self-occupied:
Rs. 20,000
(iv) He sold another house on 1.4.2020 for Rs. 9 lakhs. Its fair market
value on 1.4.2003 was Rs. 2,00,000. He invested on 30-7-2020 in
the bonds of NHAI (Cost inflation index for 2020-21 is 280).
(v) He won Rs. 42,000 in racecourse betting.

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 (vi) He paid Rs. 12,000 by cheque to secure the health insurance of
GIC for his wife.
(vii) He spent on treatment of his mother Rs. 20,000, who is suffering
from cancer.
(viii) He got agricultural income of Rs. 20,000.
(ix) His minor son is disabled on whose special education he spent Rs.
15,000.
(x) He donated Rs. 10,000 to Gujarat State Chief Minister Relief
Fund.
7. Mrs. Ganga received the following amounts during the financial year
2020-21:
Rs
Gross Salary 6,00,000
Family pension @ Rs. 1,500 p.m. 18,000
Income of a minor child 6,000
Accumulated balance in provident 1,00,000
fund of her husband after his death
Gratuity received after the death of 80,000
her husband
Calculate taxable income and tax liability of Mrs. Ganga for the assessment
year 2021-22.
8. Dr. Sharma is a Chief Medical Officer. He receives a salary of Rs.
15,000 per month and Dearness Allowance @ 25%. He contributes 15%
of his salary to a Recognized Provident Fund. The employer also
contributes an equal amount. He is provided with a rent-free house in a
city with a population of 5 lakhs. Fair rental value of the house is Rs.
6,000 per month. He receives hostel allowance of Rs. 500 per month for
his child. He has let out his own house at Rs. 500 per month and paid Rs.
2,000 for municipal tax of the house. He has the following incomes also:
i. Dividend from a domestic company: Rs. 5,000
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 ii. Interest on debentures of a cooperative society: Rs. 3,000
iii. Dividend from a foreign company: Rs. 1,000
iv. Share in the profits of AOP: Rs. 2,000
He paid Rs. 12,000 for his own medical health insurance by cheque. He
donated Rs. 1,500 to a national fund and Rs. 1,500 for promoting family
planning programmes. Compute total income for the assessment year 2021-
22.
9. Compute the taxable income of X (40 years) for the assessment year
2021-22 from the following information:

Amount (Rs)
Net income from trading business 8,00,000
Long-term capital gain on transfer of 6,00,000
debentures (if computed without
indexation) X does not want to pay
tax @ 10% on Rs. 6,00,000
Long-term capital gain on transfer of 2,50,000
listed debentures (computed after
indexation) X wants to pay tax at the
rate of 20% on Rs. 2,50,000
Share of income from HUF in which 82,000
he is a member
Winning from horse races (net of 70,000
TDS of 30 per cent)
Interest on bank fixed deposits:
a. Deposit in his own name 1,17,000
b. In the name of minor son 1,450
c. In the name of minor daughter
d. In the name of major unmarried 8,000
daughter 70,000

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Expenditure incurred for medical 8,000
treatment of his 67 years old elder
brother (dependent of X, being a
person with disability)
Repayment of loan taken for part-time
studies of major daughter for graduate
course in management (loan is taken
from a notified charitable institute)
6,90,000
Payment of interest from the aforesaid 76,000
loan
Donation to the aforesaid notified 5,000
charitable institute
Brought forward loss of a 26,000
discontinued business pertaining to
the assessment year 2017-18
Purchase of a work of art on 1,15,000
November 10, 2020 from a friend for
Rs. 1,15,000 (market value is,
however, Rs. 1,70,000)
Deposit in Public Provident Fund 1,63,000
account and purchase of NSC IX
issue.

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