CA Intermediate - Study Notes
Subject: Taxation
Contents
Part I: Income Tax
1. Chapter 1: Basic Concepts & Residential Status
○ Person, Assessee, Previous Year, Assessment Year
○ Residential Status & Scope of Total Income
2. Chapter 2: Heads of Income - An Overview
○ Salaries (Sec 15-17)
○ Income from House Property (Sec 22-27)
○ Profits and Gains from Business or Profession (PGBP) (Sec 28-44DB)
○ Capital Gains (Sec 45-55A)
○ Income from Other Sources (Sec 56-59)
3. Chapter 3: Clubbing, Set-off & Carry Forward of Losses
○ Clubbing Provisions
○ Inter-source and Inter-head set-off
○ Carry Forward of Losses
4. Chapter 4: Deductions & Computation of Total Income
○ Deductions under Chapter VI-A (80C, 80D, 80G, 80TTA)
○ Computation of Total Income and Tax Liability
5. Chapter 5: TDS, TCS, and Advance Tax
○ Key TDS sections (192, 194C, 194H, 194I, 194J)
○ Advance Tax provisions
Part II: Goods and Services Tax (GST)
6. Chapter 6: GST Basics & Levy
○ Concept of GST
○ Levy and Collection of GST (Sec 9 of CGST Act)
○ Composition Levy
7. Chapter 7: Time and Value of Supply
○ Time of Supply (Goods & Services)
○ Value of Supply
8. Chapter 8: Input Tax Credit (ITC)
○ Eligibility and Conditions for taking ITC (Sec 16)
○ Blocked Credit (Sec 17(5))
Page 2
Part I: Income Tax
Chapter 1: Basic Concepts & Residential Status
1.1 Key Definitions
● Previous Year (PY): The financial year in which income is earned.
● Assessment Year (AY): The financial year immediately following the PY, in which the
income earned in the PY is taxed.
● Person [Sec 2(31)]: Includes an Individual, HUF, Company, Firm, AOP/BOI, Local
Authority, and every Artificial Juridical Person.
● Assessee [Sec 2(7)]: A person by whom any tax or any other sum of money is payable
under the Act.
1.2 Residential Status (Sec 6)
This determines the scope of taxable income for an individual.
Flowchart: Determining Residential Status of an Individual
[Is the individual in India for >= 182 days in the PY?]
|
+---- YES ----> [Resident]
|
+---- NO -----> [Check Basic Condition 2: In India for >= 60 days in PY AND >= 365 days in
4 preceding PYs?]
|
+---- YES ----> [Resident]
|
+---- NO -----> [Non-Resident (NR)]
[If Resident, check if Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily
Resident (RNOR)]
[Is the individual a Non-Resident in 9 out of 10 preceding PYs?]
|
+---- YES ----> [RNOR]
|
+---- NO -----> [Check Additional Condition 2: In India for <= 729 days in 7 preceding
PYs?]
|
+---- YES ----> [RNOR]
|
+---- NO -----> [Resident and Ordinarily Resident (ROR)]
● Exception to 60 days rule: The 60 days limit becomes 182 days for an Indian citizen
leaving India for employment, or an Indian citizen/Person of Indian Origin visiting India.
Scope of Total Income (Sec 5)
Type of Income ROR RNOR NR
1. Income Taxable Taxable Taxable
received/deemed to
be received in India
2. Income Taxable Taxable Taxable
accruing/arising/de
emed to accrue or
arise in India
3. Income accruing Taxable Taxable Not Taxable
or arising outside
India from a
business controlled
from India
4. All other income Taxable Not Taxable Not Taxable
accruing or arising
outside India
Page 3
Chapter 2: Heads of Income - Quick Overview
2.1 Salaries (Sec 15-17)
● Chargeable if: Employer-employee relationship exists.
● Computation:
○ Gross Salary (Basic + DA + Bonus + Allowances + Perquisites)
○ Less: Deductions u/s 16
■ Standard Deduction: ₹50,000
■ Entertainment Allowance (Govt employees only)
■ Professional Tax
○ = Taxable Salary
● Key Allowances: HRA exemption u/s 10(13A).
● Key Perquisites: Rent-Free Accommodation (RFA), Motor Car.
2.2 Income from House Property (Sec 22-27)
● Chargeable on: Annual value of property consisting of any buildings or lands
appurtenant thereto, of which the assessee is the owner.
● Computation:
○ Gross Annual Value (GAV)
○ Less: Municipal Taxes paid
○ = Net Annual Value (NAV)
○ Less: Deductions u/s 24
■ Standard Deduction @ 30% of NAV [Sec 24(a)]
■ Interest on Borrowed Capital [Sec 24(b)]
○ = Income from House Property
Important for Exams
Interest on Borrowed Capital [Sec 24(b)]
● For Let-out Property: Actual interest paid/payable without any limit.
● For Self-occupied Property (SOP):
○ Max limit is ₹2,00,000 if loan is taken on/after 1-4-1999 for purchase/construction.
○ Max limit is ₹30,000 in all other cases (e.g., loan for repairs, or loan taken before
1-4-1999).
Page 4
2.3 PGBP (Sec 28-44DB)
● Computation:
○ Net Profit as per P&L Account
○ Add: Expenses disallowed
○ Less: Incomes credited to P&L but taxable under other heads
○ Less: Expenses allowed but not debited to P&L
○ Add: Incomes taxable under PGBP but not credited to P&L
○ = PGBP Income
● Key Disallowances:
○ Sec 40(a)(ia): 30% of any sum payable to a resident on which TDS has not been
deducted/paid.
○ Sec 40A(2): Excessive payment to relatives.
○ Sec 40A(3): Cash payment exceeding ₹10,000 in a single day to a single person.
○ Sec 43B: Certain expenses allowed only on payment basis (e.g., taxes, bonus,
interest to bank).
● Depreciation (Sec 32): Allowed on block of assets, WDV method.
2.4 Capital Gains (Sec 45-55A)
● Chargeable on: Profits or gains arising from the transfer of a capital asset.
● Capital Asset: Property of any kind, but excludes stock-in-trade, personal effects
(except jewellery, drawings, paintings, etc.).
● Short-term (STCG) vs. Long-term (LTCG):
○ Shares/Securities listed in India: Long-term if held for > 12 months.
○ Immovable Property: Long-term if held for > 24 months.
○ Other assets: Long-term if held for > 36 months.
● Computation:
○ LTCG = Full Value of Consideration - Indexed Cost of Acquisition - Indexed Cost of
Improvement - Expenses on Transfer.
○ STCG = Full Value of Consideration - Cost of Acquisition - Cost of Improvement -
Expenses on Transfer.
● Key Exemptions (Sec 54 series): Reinvestment of capital gains in specified assets.
2.5 Income from Other Sources (Sec 56-59)
● Residuary head of income. Any income that is not taxable under the other four heads is
taxed here.
● Examples:
○ Dividends.
○ Interest income (from savings bank, FD, etc.).
○ Winnings from lotteries, crosswords, etc. (taxed at flat 30%).
○ Gifts received > ₹50,000 from non-relatives.
○ Family pension (standard deduction available).
Page 5
Chapter 3: Set-off & Carry Forward of Losses
Flowchart: Setting off Losses
[Step 1: Intra-head Set-off (within the same head)]
(e.g., Loss from Business A can be set off against Profit from Business B)
*Exceptions: Speculation loss only against speculation profit. Long-term capital loss only
against long-term capital gain.*
|
V
[Step 2: Inter-head Set-off (against other heads in the same year)]
(e.g., Business loss can be set off against House Property income)
*Exceptions: Business loss cannot be set off against Salary income. Capital loss cannot be set
off against any other head.*
|
V
[Step 3: Carry Forward of Remaining Losses]
(Losses that could not be set off are carried forward to future years)
Carry Forward Rules:
Type of Loss Can be set off against Max Period
House Property Loss Income from House 8 AYs
Property
Business Loss PGBP Income 8 AYs
(Non-speculative)
Speculation Business Loss Speculation Business Profit 4 AYs
Short-term Capital Loss STCG or LTCG 8 AYs
(STCL)
Long-term Capital Loss Long-term Capital Gain 8 AYs
(LTCL) (LTCG) only
Page 6
Chapter 4: Deductions & Computation of Total Income
Deductions under Chapter VI-A (Gross Total Income to Total Income)
Section Particulars Limit
80C Investments in LIC, PPF, Overall limit of ₹1,50,000
NSC, ELSS, repayment of (including 80CCC &
housing loan principal, etc. 80CCD(1))
80D Medical Insurance Premium Self, Spouse, Children:
₹25,000 <br> Parents:
₹25,000 <br> (Limit is
₹50,000 if person is a
senior citizen)
80E Interest on loan taken for Full interest paid. No
higher education. principal. No time limit.
80G Donations to specified Some donations have
funds/institutions. 100% deduction, some
50%, with or without
qualifying limits.
80TTA Interest on savings bank Max ₹10,000.
account (for individuals
other than senior citizens).
80TTB Interest on deposits (for Max ₹50,000.
senior citizens).
Computation of Total Income (Individual)
1. Compute income under each of the 5 heads.
2. Apply clubbing provisions.
3. Set off losses (intra-head, then inter-head).
4. The result is Gross Total Income (GTI).
5. Claim deductions under Chapter VI-A (80C to 80U).
6. The result is Total Income (rounded off to nearest ₹10).
7. Compute tax on Total Income at applicable slab rates.
8. Add Surcharge (if applicable).
9. Add Health & Education Cess @ 4%.
10.Less: Rebate u/s 87A (if applicable), TDS, Advance Tax.
11.= Net Tax Payable / Refundable.
Page 7
Part II: Goods and Services Tax (GST)
Chapter 6: GST Basics & Levy
6.1 What is GST?
● A destination-based tax on consumption of goods and services.
● A dual GST model is followed in India:
○ CGST: Central GST (levied by Centre)
○ SGST / UTGST: State / Union Territory GST (levied by State/UT)
○ IGST: Integrated GST (levied by Centre on inter-state supplies)
Flowchart: GST Levy
[Is it a "Supply" of "Goods" or "Services"? (Sec 7)]
|
+---- YES ----> [Is it an Inter-State Supply?]
| |
| +---- YES ----> [IGST is levied]
| |
| +---- NO ----> [It is an Intra-State Supply]
| |
| +-----> [CGST + SGST/UTGST is levied]
|
+---- NO -----> [Not subject to GST]
6.2 Composition Levy (Sec 10)
● A simplified scheme for small taxpayers.
● Eligibility: Registered person whose aggregate turnover in the preceding FY did not
exceed ₹1.5 Crores (₹75 Lakhs for specified states).
● Key Features:
○ Pay tax at a fixed, lower rate on turnover.
○ Cannot collect tax from customers.
○ Cannot claim Input Tax Credit (ITC).
○ Must issue a "Bill of Supply" instead of a tax invoice.
Rates for Composition Scheme:
● Manufacturers: 1% (0.5% CGST + 0.5% SGST)
● Restaurants (not serving alcohol): 5% (2.5% CGST + 2.5% SGST)
● Other Suppliers (Traders): 1% (0.5% CGST + 0.5% SGST)
Page 8
Chapter 7: Time and Value of Supply
7.1 Time of Supply (TOS)
● The point in time when the liability to pay tax arises.
TOS for Goods (Forward Charge)
● Earliest of:
1. Date of issue of invoice by the supplier.
2. The last date on which he is required to issue the invoice.
3. Date on which the supplier receives the payment. (Note: This point is not applicable
for goods as per notification).
○ So, effectively for goods, it's the date of invoice or the due date of invoice.
TOS for Services (Forward Charge)
● Earliest of:
1. If invoice issued within time: Date of issue of invoice OR date of receipt of
payment, whichever is earlier.
2. If invoice not issued within time: Date of provision of service OR date of receipt of
payment, whichever is earlier.
○ (Time limit to issue invoice for services is 30 days from provision of service).
7.2 Value of Supply (Sec 15)
● The value on which GST is levied.
● Normally, it is the transaction value.
● Transaction Value: The price actually paid or payable for the supply, where the supplier
and recipient are not related and price is the sole consideration.
● Inclusions in Value:
○ Any taxes, duties, fees (other than GST).
○ Any amount that the supplier is liable to pay but which has been incurred by the
recipient.
○ Incidental expenses (e.g., packing, commission).
○ Interest or late fee for delayed payment.
○ Subsidies directly linked to the price (except government subsidies).
● Exclusion: Discount given before or at the time of supply, if shown on the invoice.
Page 9
Chapter 8: Input Tax Credit (ITC)
8.1 What is ITC?
● It is the credit of GST paid on inputs (goods/services) which can be used to set off the
output tax liability.
● ITC is the backbone of GST, as it avoids cascading of taxes (tax on tax).
8.2 Conditions for taking ITC (Sec 16)
All four conditions must be satisfied:
1. The recipient is in possession of a tax invoice or debit note.
2. The recipient has received the goods or services.
3. The tax charged has been actually paid to the government by the supplier.
4. The recipient has furnished the return (GSTR-3B).
8.3 Blocked Credit (Sec 17(5)) - ITC NOT Available
ITC is not available on certain supplies, even if they are used for business purposes. This is an
important list.
Important for Exams
List of Blocked Credits u/s 17(5):
● Motor vehicles for transportation of persons with seating capacity ≤ 13 (including
driver), except when used for making further taxable supply of such vehicles,
transportation of passengers, or imparting driving training.
● Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and
plastic surgery (except when used for making an outward taxable supply of the same
category).
● Membership of a club, health, and fitness center.
● Life insurance and health insurance (except when notified by Govt.).
● Works contract services when supplied for construction of an immovable property (other
than plant and machinery).
● Goods or services used for personal consumption.
● Goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.
Page 10
Final Revision Checklist
Income Tax:
[ ] Residential Status: Conditions for ROR, RNOR, NR and their tax implications.
[ ] 5 Heads: Standard format for computation for each head.
[ ] HP: Deduction for interest on borrowed capital (₹2L / ₹30k limit for SOP).
[ ] PGBP: Key disallowances (40A(3), 43B).
[ ] Capital Gains: Difference between STCG & LTCG, calculation with indexation.
[ ] Set-off: Rules for intra-head, inter-head, and carry forward.
[ ] Deductions: Key limits for 80C, 80D, 80TTA.
[ ] TDS: Know the common sections and their rates/thresholds.
GST:
[ ] Basics: Dual GST model (CGST, SGST, IGST).
[ ] Supply: Understand what constitutes a supply.
[ ] Composition Scheme: Eligibility and key features.
[ ] TOS & VOS: Basic rules for determining time and value.
[ ] ITC: 4 conditions for claiming ITC (Sec 16) and the list of blocked credits (Sec 17(5)).
End of Notes
