taxation

Student Handbook

Class

XII

Central Board of Secondary Education

Shiksha Kendra, 2, Community Centre, Preet Vihar, Delhi-110092
 Taxation

Student Handbook, Class XII

Price: `

First Edition: July 2018, CBSE

Copies:

“This book or part thereof may not be reproduced by

any person or agency in any manner.”

Published By : The Secretary, Central Board of Secondary Education,

Shiksha Kendra, 2, Community Centre, Preet Vihar,
Delhi - 110092

Designed & : India Offset Press, A-1, Mayapuri Indl. Area, Ph-I, N.D. - 110064
Layout by

ii
Taxation iii
iv
 Preface

T he economic and industrial development of any country depends upon the

implementation of taxation policy that ensures sufficient availability of funds required
for various activities. Tax is felt as one of the toughest concept to understand and work out
in practical. Direct and indirect tax occupies an important position in the taxation policy of
every nation.

In India Income tax is charged on the basis of the provisions and rules laid down by the
Income Tax Act, 1961. Income tax is a direct tax. The ultimate burden of income tax cannot be
shifted by one person to another whereas in case of indirect taxes it is shifted by one person
to another and the ultimate tax liability has to be paid by the consumer only. This book on
taxation for students of class XII is the outcome of the desires to present the provisions of
taxation (Direct Taxes and Goods and Service Taxes) in a simple and easy way to comprehend
language. All the relevant facts and provisions have been presented in such a way that
students may easily understand the provisions of taxation. A special attempt has been made
to make numerical questions easier to comprehend.

Chairperson, CBSE

Taxation v
 Acknowledgements
Advisor
• Smt. Anita Karwal, IAS, Chairperson, CBSE
• Sh. Anurag Tripathi, IRPS, Secretary, CBSE
• Dr. Biswajit Saha, Director (Skill Education & Training), CBSE
• Dr. Joseph Emmanuel, Director (Academics), CBSE

Content Developers and Editors

• Dr. Sunil Kumar Gupta, Professor, SOMS, IGNOU, New Delhi
• Dr. Bhavet, Visiting Faculty, FIMT, Kapashera, New Delhi
• Dr. Sambhavana Gupta, Visiting Faculty, FIMT, Kapashera, New Delhi
• Mr. Ritesh Gupta, Head of Management Department, FDDI, Rohtak
• Mr. Sanjay Sharan, Additional Director, NACIN,Govt. of India
• Mr. L. Gurumurthy, Senior Director, ICMAI

Value Adder, Curator and Co-ordinator

• Sh. Ravinder Pal Singh, Joint Secretary, Department of Skill Education, CBSE
• Ms. Moushumi Sarkar, Deputy Secretary, Department of Skill Education, CBSE

vi
 Contents
Unit 1: Deduction From Gross Total Income 1

Session 1: Introduction-Basic Rules Governing Deduction &

Deduction in Respect of Some Payments 3
Session 2: Basic Overview of Deductions in Respect of Certain
Incomes & Deduction 80Qqb, 80Rrb, 80Tta & 80U 21

Unit 2: Computation Of Tax Liability Of An Individual 35

Session 1: Introduction: Calculation of Tax Liability of Individual 36

Unit 3: Tds And Advance Payment Of Tax 65

Session 1: Tax Deducted at Source 69

Session 2: Advance Payment of Tax 85

Unit 4: GOODS AND SERVICE TAX (GST) 94

Session 1: Meaning of Direct Tax and GST 97

Session 2: Introduction to GST 98

Taxation vii
Unit 1
 DEDUCTION FROM GROSS TOTAL INCOME

Unit–1 DEDUCTION FROM GROSS TOTAL INCOME

Location: SESSION 1: INTRODUCTION : BASIC RULES GOVERNING DEDUCTION &
Classroom DEDUCTION IN RESPECT OF SOME PAYMENTS
Learning Knowledge Performance Teaching and
Outcome Evaluation Evaluation Training Method
1. Basic rules 1. What is gross 1. What Interactive
applicable to total income? constitutes Lecture:
deductions. 2. Name the items gross total Discussion related
from which income? to deduction.
deductions are 2. Name the
not allowed. deductions
which are
available only
if income tax
return is filed
on or before
the due date.
2. Deduction 1. Describe 1. Discuss the Interactive
in respect the various deduction 80C Lecture:
to certain deductions to 80GGC. Discussion of
payments. available to deduction 80C
an assessee to 80GGC with
regarding practical example.
certain
payments.
SESSION 2: BASIC OVERVIEW OF DEDUCTIONS IN RESPECT OF CERTAIN
INCOMES & DEDUCTION 80QQB, 80RRB, 80TTA & 80U
1. Deduction 1. Describe 1. Discuss the Interactive
in respect the various deduction Lecture:
to certain deductions 80IA Discussion of
incomes. available to to 80P. deduction 80IA to
an assessee 80P.
regarding
certain incomes.

Taxation 1
 2. Deduction 1. Explain the 1. Discuss the Interactive
80QQB, deduction provisions Lecture:
80RRB, 80TTA related to saving related to Discussion of
& 80U. bank interest deduction deduction related
and royalty and 80QQB, to disability,
patent. 80RRB, 80TTA royalty , patents
2. Explain the and 80U. and saving bank
deduction account interest.
related to
disability .

Learning Objectives:
After reading this unit, the students will be able to:
1. Understand the type of deductions allowable from gross total income.
2. Know what the permissible deductions in respect of payments are.
3. Learn the permissible deductions in respect of incomes.
4. Understand the deductions allowable in the case of a person with disability.

2
SESSION 1
INTRODUCTION-BASIC RULES GOVERNING DEDUCTION
& DEDUCTION IN RESPECT OF SOME PAYMENTS

Introduction
After computing the total income under each head and after giving effect to the provisions
for clubbing of income and set off of losses, which gives the Gross Total Income, deductions
described under this lesson are allowed i.e., deductions under section 80A to 80U of the
Income Tax Act are allowed to assesses.

At the end of this lesson you will learn about all the deductions allowed to an assessee in
respect of payments made and incomes received in the previous year.

You will also be able to calculate the total income by deducting all the deductions allowed to
a particular assessee under section 80C to 80U from the Gross Total Income.

Basic Rules Governing Deductions (80C to 80 U)

u Gross Total Income means income from all the heads namely income from salary,
house property, profits and gains from business or profession , capital gains and other
sources combined together after giving effects to provisions of clubbing of income
and set off of losses.
u Deductions from section 80C to 80U are deducted from Gross Total Income to arrive
at total income of the assessee which is also known as taxable income.
u However deductions are not allowed from the following items although they form
part of Gross Total Income:
a) Short term capital gain under sec 111A
b) Long term capital gain
c) Lotteries
d) Income under Sections 115A, 115AB, 115AC, 115ACA, 115AD, 115BBA, 115D.
Important Points:
1. Deductions from gross total income are available only to assessee when the gross
total income is a positive figure. If however, the gross total income is nil or is a loss, the
question of any deduction from the gross total income does not arise. In other words,
the total aggregate of deductions cannot exceed the gross total income.

Taxation 3
2. Deductions cannot be claimed twice in the same assessment year.
3. Deduction is allowed only to assessee.
4. Certain deductions like under 80-IA, 80-IAB, 80-IC, 80-ID, 80-IE can only be claimed
when income tax return is furnished for assessment year on or before the due date
specified under sec139(1).
Deductions in Respect of Certain Payments
u Allowed from sec 80C to 80GGC.

Deduction in Respect of Life Insurance Premium, Deferred Annuity, Contribution to

Provident Fund, Etc. (Section 80C)
Eligible: 1) Individual 2) HUF

Quantum: Deduction from gross total income equivalent to investment made of

Rs. 1,50,000 whichever is less.

Investment:
a) Life Insurance policy taken on the life of an individual assessee or spouse and any
child of such individual and any member of the Hindu Undivided Family subjected to
maximum limit of the premium paid on Life Insurance Policy if exceeds 10% of the
capital sum assured. However, where the policy, issued on or after the 1st day of April,
2013, is for insurance on life of any person, who is :
(i) A person with disability or a person with severe disability as referred to in
section 80U, or
(ii) Suffering from disease or ailment as specified in the rules made under section
80DDB. Deduction for premium shall be allowed only when such amount shall
not exceed 15% of the capital sum assured.
b) Amounts paid to effect or to keep in force a contract for a non-cumulative deferred
annuity not being an annuity plan referred to in clause (j) below on the life of in
the case of an individual, the individual, spouse or any child of such individual and
However, such contract should not contain a provision for exercise of an option by the
insured to receive cash payment in lieu of the payment of the annuity.
c) Deduction from the salary payable by or on behalf of the Government to any individual,
in accordance with the conditions of his service, for securing to him a deferred annuity
or making provision for his wife or children, to the extent of one-fifth of salary.
d) Any contribution made by an individual towards statutory provident fund and
recognized provident fund.
e) Contribution towards superannuation fund.
f) Subscription to the notified securities of the Central Government.
g) Any contribution to a PPF by individual or HUF.

4
h) Subscription to National Savings Certificates (VIII) issue and interest accrued deemed
to be reinvested also qualifies.
i) Contributions for participation in the Unit-Linked Insurance Plan, 1971.
j) Contributions made in the name of an individual or HUF for participation in any
notified Unit-Linked Insurance Plan of the LIC Mutual Fund.
k) Any contribution to effect or keep in force any notified annuity plan of the LIC or any
other insurer.
l) Any subscription, to any units of any Mutual Fund or the Unit Trust of India under any
notified plan formulated by the Central Government.
m) Any contribution to any pension fund set up by any Mutual Fund as notified by the
Central Government.
n) Subscription to the notified deposit scheme of or contribution to any such pension
fund set up by the National Housing Bank.
o) Only tuition fees (excluding any payment towards any development fees or donation
or payment of similar nature), whether at the time of admission or thereafter, to any
university, college, school or other educational institution situated within India for
full time education and allowed only for 2 children of such individuals.
p) Any installment or part payment towards the cost of purchase/construction of a
residential property to a housing board or co-operative society (or repayment of
housing loan taken from government, bank, cooperative bank, LIC, National Housing
Bank, assessor’s employer where such employer is public company/public sector
company/university/cooperative society).
q) Subscription to equity shares or debentures or units forming part of any eligible
issue of capital i.e. issue made by a company registered in india or a public financial
institution or an approved mutual fund for the purpose of developing, maintaining
and operating an infrastructure facility for generation and distribution of power or
for providing telecommunication services whether basic or cellular.
r) Fixed deposits for a minimum period of 5 years in any Scheduled Banks.
s) As subscription to such bonds issued by the National Bank for Agriculture
and Rural Development, as the Central Government may, by notification in the
Official Gazette specify in this behalf.
t) Amount deposited in account under the Senior Citizens Savings Scheme Rules, 2004.
u) Amount deposited in five year time deposit in an account under the Post Office Time
Deposit Rules, 1981.
Important Points:
u If the amount is actually paid by the assessee, only then this deduction will be allowed.
u Item no. b, c, d, m, e are allowed to only individual assesses.

Taxation 5
Question 1: Compute the net taxable income of Mr. Arvind from the following information
submitted by him for the assessment year 2015-16:

Gross salary 4, 50,000

LIP on his own life (sum assured Rs. 4000) policy issued 1,200
on 1-04-2013
LIP on the life of his dependent brother 400
LIP on his wife’s life 400
Term deposit for 5 years with a scheduled bank 4,000
Contribution to ULIP 600
Amount deposited in PPF 13,000
Contribution to RPF 4,000
Amount incurred on education of:
u Child A Rs. 2,800
u Child B Rs. 1,400
u Child C Rs. 1,000
5 year term deposit in post office 3,000
Subscription to NSC 5,000
Repayment of housing loan taken from LIC (principal) 10,600
Amount Rs. 4600 and interest (Rs. 6000)
Interest on fixed deposits with bank (gross) 2,600
He took loan from LIC for a residential house property for
self residence.

Solution:
Income from salaries 4, 50,000
Income from House Property
NAV (NIL)
Less: Deduction
Interest on money borrowed 6,000 (6,000)
Income from other sources (fixed deposit) 2,600
GROSS TOTAL INCOME 4,46,600
Less: Deductions u/s Chapter VIA (NOTE 1) (39,200)
NET TAXABLE INCOME 4, 07,400
NOTE 1: Deductions under 80C
• LIP on his own life 400

6
 • LIP on the life of his dependent brother NIL
• LIP on his wife’s life 400
• Term deposit for 5 years with a scheduled bank 4,000
• Contribution to ULIP 600
• Amount deposited in PPF 13,000
• Contribution to RPF 4,000
• Tuition fees for 2 children 4,200
• 5 year term deposit in post office 3,000
• Subscription to NSC 5,000
• Repayment of housing loan 4,600
39,200

Question 2: Mr. X has gross total income Rs. 4,90,000 for the assessment year
2015-16 which include Rs. 3,90,000 as long term capital gain? He has
deposited Rs. 1,40,000 in PPF during the year. Compute tax liability assuming
(i) he is Less than 60 years of age; (ii) more than 60 years of age.
Solution:
(i) Less than 60 years of age
Gross total income (excluding LTCG) 1,00,000
Less: Deduction u/s 80C subjected to GTI 1,00,000
NIL
Tax on total income exclusive of long term capital gain NIL
(NIL+ Rs. 2,50,000 shifted from LTCG)
Tax on LTCG @ 20% on Rs. 1,40,000 28,000
Less: Rebate under 87A (2,000)
26,000
Add: Cess 780

(ii) More than 60 years of age 26,780

Gross total income (excluding LTCG) 1,00,000
Less: Deduction u/s 80C subjected to GTI 1,00,000
NIL

Taxation 7
 Tax on total income exclusive of long term capital gain NIL
(NIL+ Rs. 3,00,000 shifted from LTCG)
Tax on LTCG @ 20% on Rs. 90,000 18,000
Less: Rebate under 87A (2,000)
16,000
Add: Cess 480
16,480

Deduction for Contribution to Pension Fund (Section 80CCC)

Eligible: 1) Individual
Quantum: Deduction from gross total income equivalent to investment made of
Rs. 1,50,000 whichever is less.
Investment:
An individual who deposits out of his taxable income to any pension fund of the LIC or any
insurer shall get a deduction from his gross total income of the amount so deposited subjected
to the limit prescribed.

Important Points:
u Deduction is available to non-resident also.
u If this deduction is claimed here, deduction for payment made for annuity plan will
not be given under 80C.
Deduction in Respect of Contribution to Pension Scheme of Central Government
[Section 80CCD]
Eligible: 1) Individual employed by central government or self employed.
Quantum:
u Contribution by Employer: Deductible amount is contribution made by the employer
to the employee during the year subjected to maximum of 10% of the salary of the
employee.
u Contribution by Employee: Deductible amount is contribution made by the employee
during the year subjected to maximum of 10% of the salary of the employee.
Important Points:
u Salary includes DA, if the terms of employment provide so, but excludes all other
allowances and perquisites.
u The amount which has been accumulated in the pension account for which the
assessee has claimed deduction will become taxable as the income of the year in

8
 which the assessee get the said amount, or his nominee on closure of the account or
for opting out of scheme.
u If amount is withdrawn from here to purchase an annuity plan, then it will not be
taxable.
u If this deduction is claimed here, deduction for such contribution will not be given
under 80C.
Question 3: Gross Total Income of R who is self employed is Rs. 8,90,000. He has
deposited Rs. 1,20,000 in PPF and Rs. 1,10,000 in pension scheme of the
central government. Compute his taxable income.
Solution:
Gross total income 8,90,000
Less: Deduction u/s 80C (1,20,000)
Deduction u/s 80CCD (89,000)
(Subjected to 10% of salary) (1,50,000)
7,40,000

Limit on Deductions Under Sections 80C, 80CCC and 80CCD (Section 80CCE)
The aggregate amount of deductions under Sections 80C, 80CCC and section 80CCD (excluding
contribution of employer to pension scheme) shall not in any case, exceed Rs. 1, 50,000.

Deduction in Respect of Investment Made Under an Equity Savings Scheme (Section

80CCG)
Eligible: 1) Individual who is resident in india

Quantum:

u Deduction will be allowed (a) to the extent of 50% of the amount invested in such
equity shares or units OR (b) Rs. 25,000 whichever is less.
u Deduction shall be allowed for 3 consecutive years starting from the year in which
investment is made first.
Conditions:
u Assessee income should not exceed Rs. 12, 00,000 for the concerned relevant year.
u Investment to be made in notified scheme.
u Assessee is resident individual.
u Assessee is a new retail investor.
u Investment is locked in for a period of 3 years from the date of acquisition in
accordance with a notified scheme.

Taxation 9
Deduction in Respect of Medical Insurance Premia (Section 80D)
Eligible: 1) Individual 2) HUF
Quantum:
Individual
Family Parents HUF
Self, Spouse Parents of Any Member
& Dependent Assessee of Family
Children (Dependent/
Independent)
a) Medi-claim Insurance Premium Available Available Available
b) Preventive Health Check-up Available Available Not Available

Maximum Amount:
u For point “(a)” Rs. 15,000 maximum to family and Rs. 15,000 for parents.
u For point “(b)” Rs. 5,000 maximum on family/ parent/ parents.

Additional Deduction: Applicable only on Medi-claim insurance policy Additional

Rs. 5,000 deduction in case of senior citizen (age 60 and above and resident in india).

Important Points:
u Allowed if paid to General Insurance Corporation (GIC) or any other insurer towards
medical health insurance premium.
u Contribution by individual can also be made to Central Government Health Scheme.
u For health insurance premium, the payment shall be in mode other than cash.
u For preventive health check-up it can be in cash also.
u Health Insurance should be according to the scheme as given by GIC and approved by
Central Government or any other insurer and approved by Insurance Regulatory and
Development Authority (IRDA).
Question 4: Suraj, his wife and two sons are independently employed persons. Suraj
and his wife is not senior citizens. Raj pays Medi-claim insurance of Rs 8,000
for self, Rs 12,000 for his wife, and Rs 8,000 each for both of his sons. He also
pays Rs 13,000 for each of his parents who are senior citizens. Calculate the
amount of deduction allowable u/s 80D.

10
Solution:
Amount of deduction u/s 80D
Premium in respect of wife Rs 12,000
Premium for himself Rs. 8,000
Premium in respect of children (not dependent) Nil
Total Rs 18,000 restricted to Rs 15,000
Add: Premium in respect of parents
(senior citizens) Rs 26,000 restricted to maximum Rs 20,000
Deduction available u/s 80D Rs 35,000

Deduction in Respect of Maintenance Including Medical Treatment of a Disabled

Dependent (Section 80DD)
Eligible: 1) Resident Individual 2) Resident HUF
Quantum: Deduction from gross total income irrespective of actual expenditure:-
Rs. 50,000 (1,00,000 in case of severe disability).
Important Points:
a) Deduction under 80DD can be claimed on expenditure made in the previous year for
the medical treatment (including nursing), training and rehabilitation of a disabled
dependent; dependent being:
u For individual: Spouse, any child, parent or sibling
u For HUF: Any member
The disabled person for whose treatment or maintenance the deduction is
claimed should be dependent on assessee for his/her support and should not
have claimed deduction under 80U.
b) Deduction under 80DD can also be claimed when money is paid to LIC (Life Insurance
Corporation of India), UTI (Unit Trust of India) or any other insurer for the purpose
of buying insurance or any specified scheme for the purpose of maintenance of the
above mentioned dependent in the previous year.
c) For claiming the deduction under this section, the assessee should furnish to the
Assessing Officer a copy of the certificate issued by the medical authority; whenever
asked for examining.
d) Where the condition of disability requires reassessment (when the medical certificate
is issued for a specific period), a fresh certificate shall have to be obtained soon after
the expiry of the period. No deduction shall be allowed if the medical certificate stands
expired in the year preceding the assessment year.

Taxation 11
e) Meaning of “Disability”: “Disability” include autism, cerebral palsy and multiple
disabilities as provided for in the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999.
f) Meaning of “Medical Authority”: “Medical Authority” means any hospital or institution
specified for the purpose of this act by notification by the appropriate government.
g) Meaning with “Person with Disability”: “Person with Disability” means a person
suffering from not less than 40% of any disability as certified by the medical authority.
h) Meaning of “Person with Severe Disability”: “Person with Severe Disability” means
any person with 80% or more of one or more disabilities.

Deduction in Respect of Medical Treatment (Section 80DDB)

Eligible: 1) Resident Individual 2) Resident HUF
Quantum: Rs. 40,000 or amount actually paid (Rs. 60,000 in case of a senior
citizen; person whose age is more than 60 years).
Important Points:
a) Deduction under 80DDB can be claimed on expenditure made in the previous year on
medical treatment for specified disease or ailment as prescribed of assessee himself
or of any person wholly/mainly dependent on him; dependent (for support and
maintenance) being :
u For individual: Spouse, any child, parent or sibling (brothers and sisters)
u For HUF: Any member
b) For claiming the deduction under this section, the assessee should furnish to the
Assessing officer a copy of the medical certificate in form no. 10-I from prescribed
specialist working in government hospital; whenever asked for examining.
c) “Government Hospital” means a departmental dispensary whether full-time or Part-
time established and run by a department of the government for medical attendance
and treatment of a class or classes of government servants and members of their
families, a hospital maintained by a local authority and any other hospital with which
arrangements have been made by the government for the treatment of government
servants.
Deduction in Respect of Interest Paid on Loan Taken for Pursuing Higher Education
(Section 80E)
Eligible: 1) Individual only
Quantum: The amount of interest paid on education loan during the previous
year

12
Important Points:
a) Deduction under 80E can be claimed on interest paid in the previous year on
education loan taken for pursuing higher education; regular course after clearing
Senior Secondary Examination; of Self or spouse or children or the student of whom
the individual is the Legal Guardian from any financial institution or any approved
charitable institution.
b) Deduction under this section is allowed to be claimed for a maximum period
of 8 years or until the interest is repaid by the individual in full (whichever is earlier),
starting from the assessment year in which the assess starts paying the interest on
loan.
c) Meaning of Higher Education: Higher Education means any course of study pursued
after passing the senior secondary examination or its equivalent from any school,
board or university recognized by the Central Government or State Government
or local authority or by any other authority by the Central Government or State
Government or local authority to do so.
Question 5: Gross Total Income of “R” for assessment year 2015-16 is Rs. 10,45,000. He
has taken a loan of Rs. 5,00,000 in 2014-15 from a bank for pursuing the
LLB from national law university. He repaid the 1st installment of loan of
Rs. 65,000 and interest of Rs. 80,000. Compute his total income for assessment
year 2015-16.

Solution:

Gross Total Income 10, 45,000

Less: Deduction u/s 80E 80,000
Total Income 9, 65,000

Deduction in Respect of Interest on Loan Taken for Residential House Property

(Section 80EE)
Eligible: 1) Individual only
Quantum: The amount of interest paid on house loan during the previous year
up to Rs. 1, 00,000 (the balance of the limit can even accrue in the next
financial year).
Important Points:
a) Deduction under 80EE can be claimed on interest paid in the previous year on home
loan taken up to Rs. 1, 00,000. If the amount of deduction so claimed is less than
1 lakhs, the balance can be claimed as deduction in the next year subject to that no
such deduction is claimed under any other section.

Taxation 13
b) Deduction under this section is allowed if the home loan is sanctioned in the previous
year and is sanctioned for the acquisition of a residential house property not exceeding
Rs. 40 lakhs; loan being of amount less than Rs. 25 lakhs.
c) The assessee should be the first time buyer of any house property and the loan should
be sanctioned from any financial institution or any housing finance company.
d) The interest deduction will be allowed under section 24(b) in case of property let out
under “Income from House Property”.
e) Meaning of “Financial Institution”: “Financial Institution” means banking company to
which the Banking Regulation Act, 1949 act applies.
f) Meaning of “Housing Finance Company”: “Housing Finance Company” means a public
company formed or registered in india whose main object is providing long-term
finance for construction or purchase of houses in india for residential purposes.

Question 6: Mr. Ram having salary income of Rs. 7,90,000, borrows from Indian Bank
@ 10% on 01.04.2014 a sum of Rs. 25,00,000 and purchased a house
property for Rs. 30,00,000 on 04.04.2014. Since its acquisition it has been
used as residential property for self. On date of loan, He does not have any
residential house property. He has made a total investment of Rs. 1,00,000
u/s 80C. Compute his total income.
Solution:
Income from salary 7,90,000
Less: Deduction u/s 80C 1,00,000
Deduction u/s 80EE 1,00,000 (2,00,000)
Taxable Income 5,90,000
Interest = 25, 00,000*10/100*1

Deduction in Respect of Donations to Certain Funds, Charitable Institutions, etc.

(Section 80G)
Eligible: 1) All Assessee
Quantum: Aggregate of all the deductions permissible under:
1) 100% deduction without qualifying limit.
2) 50% deduction without qualifying limit.
3) 100% deduction with qualifying limit.
4) 50% deduction with qualifying limit.
Important Points:
a) Donation should be in cash or money but not in kind. Also, any donation exceeding
Rs. 10,000 would be allowed as deduction if payment is made in any mode other than

14
 cash. Assessee has to produce the proof for claiming the deduction under this section,
otherwise it will not be available.
b) Donation should be made only to specified institutions and funds.
c) List of deduction included in 80G:
(A) 100% Deduction without any qualifying limit:
i) National Defence fund.
ii) Prime Minister’s National relief fund.
iii) Prime Minister’s Earthquake relief fund.
iv) Africa fund.
v) National Trust for welfare of persons with autism, cerebral palsy, mental
retardation and multiple disabilities.
vi) National cultural fund set up by the Central Government.
vii) The Chief Minister’s relief fund or the lieutenant Governor’s relief fund.
viii) National Illness assistance fund.
ix) The Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996.
x) The Army/Air force Central welfare fund or the Indian Naval Benevolent
fund.
xi) Any fund set up by a State Government to provide medical relief to poor.
xii) The National/State Blood transfusion Council.
xiii) Zila Saksharta Samiti constituted in any district.
xiv) Any fund set up by the State Government of Gujarat, exclusively for
providing relief to the victims of earthquake in Gujarat.
xv) Maharashtra Chief Minister’s Earthquake Relief Fund.
xvi) University/Educational Institute of National Eminence approved by the
prescribed authority.
xvii) National foundation for communal harmony.
xviii) Fund for technology development and application, set up by the Central
Government.
xix) National sports fund set up by the Central Government.
xx) National Children’s Fund.

(B) 50% Deduction without any qualifying limit:

i) Jawaharlal Nehru Memorial Fund.
ii) Indira Gandhi Memorial Trust.
iii) Rajiv Gandhi Foundation.
iv) Prime Minister’s Drought Relief Fund.

Taxation 15
 (C) 100% Deduction subject to qualifying limit:
i) Any sum to Government or any approved local authority, institution or
association to be utilized for promoting family planning.
ii) Any sum paid by the assessee, being a company, in the previous year
as donation to Indian Olympic Association or to any other Association
established in India and notified by the Central Government for:
I. Development of infrastructure for sports and games or
II. Sponsorship of sports and games in india.

(D) 50% Deduction subject to qualifying limit:

i) Donation to Government or any approved Local Authority, Institution
or Association to be utilized for any Charitable purpose other than
promoting family planning.
ii) Any other Fund or Institution, which satisfies the conditions of Section
80G (5).
iii) Notified Temple, Mosque, Gurudwara, Church or any other place notified
by the Central Government to be of historic, as chorological or artistic
importance, for renovation or repair of such place.
iv) Any corporation established by the Central or State Government
specified under Section 10(26BB) for promoting interests of the
members of a minority community.
v) Any authority constituted in India by or under any law for satisfying
the need for housing accommodation or for the purpose of planning
development or improvement of cities, towns and villages or for both.
For applying qualifying limit, all donations made to funds/institutions
covered under (C) and (D) above shall be aggregated and the aggregate
amount shall be limited to 10% of adjusted Gross Total Income:
Gross Total Income
Less: Long term capital gain
Short term capital gain (u/s 111A)
All deduction except 80G

Question 7: Mr. Sujit, an Indian citizen, has following particulars:

Income from business 8,00,500

Winning from puzzles 1,00,800
Contribution u/s 80C 80,000
Donation to Jawaharlal Nehru Memorial fund 30,000

16
Donation to charitable institute (approved) 1,00,000
Donation to National Defence Fund 50,000
Donation to government for family planning 35,000
Calculate his net total income

Solution:
Income from business 8,00,500
Winning from puzzles 1,00,800
Gross Total Income 9,01,300
Less: Deductions
Contribution u/s 80C 80,000
Donation u/s 80G* 1,18,565
Net Total Income 7,02,735

*Calulation of Deduction U/S 80G

Adjusted Total Income = Gross Total Income – Deductions = 9,01,300- 80,000 = 7,21,300
Qualifying Amount = 10% of Adjusted total income
= 10% of 7, 21, 300
= 72,130

WITHOUT QUALIFYING LIMIT

Donation to Jawaharlal Nehru Memorial fund (50%) 15,000
Donation to National Defence Fund (100%) 50,000
WITH QUALIFYING LIMIT
Actual Donation made (35,000+ 1, 00,000 = 1, and 35,000)
Donation to government for family planning 35,000
(100% with limit to Rs. 72,130)
Donation to charitable institute (approved)
(Balance Rs. 72,130- 35000 = 37, 130 @50%) 18,565
TOTAL 1,18,565

Deduction in Respect of Rent Paid (Section 80GG)

Eligible: Only to an individual (who is not entitled to House Rent Allowance).
Quantum: i) Rent paid minus 10% of the adjusted total income,
ii) Rs. 2,000 per month, or
iii) 25% of the adjusted total income, whichever is less.

Taxation 17
Important Points:
a) Deduction under 80GG can be claimed on the house rent paid in the previous year for
his accommodation (furnished or unfurnished) on a condition that he or his spouse or
any minor child or HUF of which he is a member does not own any house at the place of
assessee’s work or dwelling. If individual owns any residential accommodation at any
place, other than the place of residence or work of the assessee, then such property
should not be assessed in the hands of the individual as self-occupied property.
b) Deduction under this section is allowed to be claimed if the assesses is not entitled
to House Rent Allowance from his employer and he should furnish a copy of the
certificate in Form no. 10BA to the assessing Officer (whenever asked for examining).
a) “Adjusted total income” means
Gross Total Income
Less: Long term capital gain
Short term capital gain (u/s 111A)
All deduction except 80GG
Question 8: Mrs. Mohan, a businesswoman has following furnished information for
previous year 2014-15:
Business Income 80,000
Income from house property 1,30,000
Capital Gain (long term) 40,000
Capital Gain (short term) 20,000
Income from other sources: interest from bank 15,000
Deposit in PPF 10,000
She pays Rs. 5000 p.m. as rent for his residential accommodation in Delhi. Assuming, she
or her family has no other residential accommodation, calculate her total income for the
relevant assessment year.

Solution:
Income from house property 1,30,000
Business income 80,000
Capital Gain (long term) 40,000
Capital Gain (short term) 20,000
Income from other sources: interest from bank 15,000
Gross Total Income 2,85,000
Less: Deductions u/s 80C to 80U
80C 10,000
80GG 24,000 34,000
Total Income 2,51,000

18
*Adjusted Total Income = Gross Total Income- Long term Capital Gain- Deductions

= 2,85,000 – 40,000 – 10,000

= 2,35,000

Deduction u/s 80G

(i) Rent paid minus 10% of the adjusted total income 60,000-23,500 = 36,500
(ii) Rs. 2,000 per month 24,000
(iii) 25% of the adjusted total income 58,750

Deduction in Respect of Certain Donations for Scientific Research or Rural

Development (Section 80GGA)
Eligible: To an assessee who does not have income from business or profession.
Quantum: The amount of donation or contribution made (not more than
Rs. 10,000 in cash) in the previous year.
Important Points:
a) Deduction under 80GGA can be claimed on donations made to an approved research
association, university, college or other institution in the field of science, social science
or statistics.
b) Deduction under this section is also allowed on donations made for any rural
development program. Though the assessee should furnish a certificate to Assessing
officer in this regard.
c) Donations in the form of cash, cheque or draft are allowed but not more than
Rs. 10,000 in cash.

Deduction in Respect of Contribution to Political Party or Electoral Trust by an Indian

Company (Section 80GGB)
Eligible: To an Indian Company.
Quantum: The amount of donation or contribution made in the previous year.
(not made by cash).
Nature:
Deduction under 80GGB can be claimed on the contribution made by an Indian Company in
the previous year to any political party or an electoral trust.

Deduction in Respect of Contribution to Political Party or Electoral Trust by any Person

(Section 80GGC)
Eligible: Any person (except local authority and any artificial juridical person
wholly or partly funded by the Government).

Taxation 19
 Quantum: The amount of donation or contribution made in the previous year.
(not made in cash).
Nature:
Deduction under 80GGC can be claimed on the contribution made by any person
(except local authority and any artificial juridical person wholly or partly funded by
the Government) in the previous year to any political party or an electoral trust.

Exercise
1. Deduction under section 80E for interest on education loan taken for higher education
can be claimed for a maximum period of :
a) 8 years
b) 9 years
c) 10 years
d) 12 years
2. The quantum of deduction allowed under section 80D in case of HUF shall be limited :
a) Rs. 10,000
b) Rs. 15,000
c) Rs. 20,000
d) Rs. 50,000
3. Maximum qualifying limit for deduction under section 80C is :
a) Rs. 50,000
b) Rs. 1,50,000
c) Rs. 2,00,000
d) Rs. 3,00,000
4. Deduction under 80G on account of donation is allowed to :
a) A business assessee only
b) Any assessee
c) Individual or HUF only
d) Individual only
5. Deduction under section 80EE is allowed on interest on home loan, subject to that the
cost of the house property bought should not exceed :
a) 25 lakhs
b) 35 lakhs
c) 40 lakhs
d) 55 lakhs
Answer: 1. a, 2. b, 3. b, 4. b, 5. c

20
SESSION 2
BASIC OVERVIEW OF DEDUCTIONS IN RESPECT OF CERTAIN
INCOMES & DEDUCTION 80QQB, 80RRB, 80TTA & 80U

Deductions in Respect of Certain Incomes

Section Who Can Nature of Amount of
Claim Deduction Deduction
80IA All Assessee. Profits and gains 100% of such profit
from undertakings or for 10 consecutive
enterprises engaged assessment years out
in infrastructural of 15 years beginning
development etc. with the year in which
a) Enterprise engaged in undertaking engages
business of: in such business.
i) Developing. Enterprise engaged
in developing etc. of
ii) Operating and
any infrastructural
maintaining.
facility other than
iii) Developing, port, airport, inland
operating, and waterway or inland
maintaining any port or navigation
infrastructure channel in the sea,
facility. the period of 15 years
b) An undertaking which is shall be replaced by 20
engaged in generation, years.
transmission,
distribution of power
etc.
80IAB Special Profit and gain by an 100% of such profit
Economic Zone. undertaking or enterprise for 10 consecutive
engaged in development of assessment years out
SEZs. of 15 years beginning
from the year SEZ
has been notified by
central government.

Taxation 21
 Section Who Can Nature of Amount of
Claim Deduction Deduction
80IB All Assesses. Profits and gains from *
individual undertakings
other than infrastructure
development undertaking.
*80IB (9) Industrial undertaking producing or refining 100% for 7
mineral oil in north eastern region or in any assessment years
part of India. commencing from
initial assessment
years.
80IB (11A) Undertaking engaged in the business of
processing, Preservation and packaging of
fruits/ vegetables/ meat and meat products/
poultry/marine/dairy products.
Or
Integrated business of handling, storage and
transport of food grains.
Assessee Period of deduction (commencing from initial Percentage of profit
AY). eligible for deduction.
a) Owned by First 5 years. 100
a company Next 5 years. 30
b) Owned First 5 years. 100
by other Next 5 years. 25
assessee
80IC (11C) Undertaking operating and maintaining a 100% for 5
hospital located anywhere in india other than Assessment year
excluded area. consecutively.
80IC All Assessee. Profit and gain in respect 100% of such profit
of certain undertakings in for 5 assessment years
certain special category of and thereafter 25% of
states: profit or gain (30% in
i) Production/ Operation case of company).
of any article/thing in
notified specified area
in state of Himachal
Pradesh/Uttarakhand.
ii) Mention in schedule 14
in any area in said state.

22
 Section Who Can Nature of Amount of
Claim Deduction Deduction
80ID All Assessee. Profit in gains from 100% of profit gain
business of hotels and for 5 consecutive
reservation centres in assessment year
specified areas. commencing with
initial assessment year.
80IE All Assessee. Profit from certain 100% of such gain
undertaking in North for 10 consecutive
Eastern States. assessment years
commencing with
initial assessment year.
80JJA All Assessee. Profit or gains from the 100% of such gain
business of collecting for 5 consecutive
and processing of assessment year.
biodegradable waste.
80JJAA Indian Company. Employment of new 30% of additional
workmen. wages paid to new
regular workmen.
80 LA Offshore Income from 100% of such income
Banking Unit/ i) Offshore Banking Unit for 5 years, 50% such
International in SEZ. income for next 5
financial ii) Business with an years.
services Centre. undertaking located in
SEZ.
iii) Any Unit of ISC from its
business.
80P Co-operative Specified Income
society. AI) Profit attributable
to certain specified
activities :
i) Banking / credit.
ii) Cottage industry.
iii) Marketing of
agricultural produce
grown by its members.
iv) Fishing, allied activities.
II) Profits of co-operative
societies engaged in
supplying milk, oil
seeds, fruits, vegetables.

Taxation 23
 Section Who Can Nature of Amount of
Claim Deduction Deduction
III) Income from
investment with other
co-operative societies.
IV) Income from letting of
‘godowns’/ warehouse
for storage, processing,
etc.
B (1) Engaged in
other than those 100% is allowed.
mentioned in
(I) & (II) of (A).
(2) Income by way of 1) 1,00,000 (if concern
interest on securities is co-operative
/ house property of society).
gross total income of 2) 50,000 (other
co-operative society case) 100% is
does not exceed allowed in case
Rs. 20,000. of a co-operative
society not being
i) Housing
society.
ii) Urban
consumer
society.
iii) Transport
business.
iv) Engaged in
manufacturing
business with
aid of power,
provided gross
total income
does not exceed
20,000.

Deduction in Respect of Royalty Income of Authors (Section 80QQB)

Eligible: To a Resident Author (or Joint Author).
Quantum: (1) 100% of such income; or
(2) Rs. 3, 00,000; whichever is less.

24
Important Points:
a) Deduction under 80QQB can be claimed on the royalty or copyright fees (payable in
lump sum or otherwise) or lump sum consideration for transfer (or grant) of any
interest in the copyright of the book authored by him which is work of literacy, artistic
or scientific nature (excluding text-books for schools, tracts and other publications of
similar nature, by whatever name called).
b) Deduction under this section is also allowed if the assessee furnishes a copy of the
certificate in Form no. 10CCD to the Assessing Officer from the person responsible for
paying the income (whenever asked for examining).

Deduction in Respect of Royalty Income on Patents (Section 80RRB)

Eligible: To a Resident Individual
Quantum: 1) 100% of such income; or
2) Rs. 3, 00,000; whichever is less.

Important Points:
a) Deduction under 80RRB can be claimed on the royalty received on respect of patent
(he may be a co-owner of a patent) which is registered.
b) Deduction under this section is also allowed if the assessee furnishes a copy of the
certificate in Form no. 10CCE to the Assessing officer from the person responsible for
paying the income (whenever asked for examining).
c) When the eligible income is earned outside india, such income is brought into India
in convertible foreign exchange on or before September 30 of the assessment year in
order to avail deduction under this section. A certificate of foreign inward remittance
should be taken in Form no. 10H from a prescribed authority (i.e., RBI or an authorized
bank).
Deduction in Respect of Interest on Deposits in Savings Accounts (Section 80TTA)
Eligible: 1) Individual 2) HUF
Quantum: The total amount of interests on deposits in savings accounts
maximum up to Rs. 10,000.
Important Points:
a) Deduction under 80TTA can be claimed on interest on deposits of savings accounts
with a bank / co-operative bank / post office.
b) Interests on time deposits are not considered.
Deduction in the Case of a Person with Disability (Section 80U)
Eligible: Only to a Resident Individual with disability.
Quantum: Rs. 50,000 (1,00,000 in case of a person with severe disability).

Taxation 25
Important Points:
a) Deduction under 80U can be claimed by a person with disability.
b) For claiming the deduction under this section, the assessee should furnish to the
Assessing Officer a copy of the certificate issued by the medical authority; whenever
asked for examining.
c) Where the condition of disability requires reassessment (when the medical certificate
is issued for a specific period), a fresh certificate shall have to be obtained soon after
the expiry of the period. No deduction shall be allowed if the medical certificate stands
expired in the year preceding the assessment year.
Exercise
1. The maximum limit of deduction specified under section 80RRB for claim on
the royalty received in respect of patent is :
a) Rs. 50,000
b) Rs. 1,50,000
c) Rs. 2,00,000
d) Rs. 3,00,000
2. Deduction available under section 80QQB in respect of royalty income of authors shall
not exceed __________ in a previous year.
a) Rs. 50,000
b) Rs. 1,50,000
c) Rs. 2,00,000
d) Rs. 3,00,000
3. Deduction u/s 80-IC is allowed if the business of the assessee is situated:
a) In any state
b) In any Backward state
c) In the states of Sikkim, Himachal Pradesh and Uttaranchal
d) In the states of Himachal Pradesh or Uttaranchal
4. Mr. X receives Rs. 2,50,000 as royalty fees for writing a science book of class 8th He is
entitled to claim a deduction of Rs. 2,50,000 from his Gross Total Income.
5. Mr. M gets an interest of Rs. 10,855 as interest on his fixed deposits with a
co-operative bank. He is entitled to get a deduction of Rs. 10,855 under section TTA.

Answer: 1. d, 2. d, 3. d, 4. True, 5. False

26
Question 9: Mr. V, being a 52 year old Indian citizen, provides us the following information
for the year ending 31.03.2015

Income from salary 3,40,000

Income from house property 50,000
Long term capital gain 1,20,000
Short term capital loss 20,000
LIP on his own life (sum assured-5,000) 1,000
Amount incurred on education of younger child 1,200
5 year term deposit in post office 3,000
Premium of Medi-claim insurance taken for self 7,000
Payment for medical treatment of wife (60% disabled) 50,000
Interest on education loan taken (Loan taken for his elder son to 90,000
pursue B.Tech)
Interest on home loan paid (Loan taken in April 2013) 80,000
(Interest of 70,000 already claimed in 2014-15)
Deposited to PM’s Relief fund 10,000
He also pays a premium on Medi-claim of his father of Rs. 21,000 who is 78 years of age.
Calculate his total income for the relevant previous year.

Solution : According to the Particulars of Mr. V

Income from salary 3,40,000

Income from house property 50,000
Income from capital gains
Long term gain 1,20,000
less: Short term loss (20,000) 1,00,000
GROSS TOTAL INCOME 4,90,000
Less: Deduction under section 80C (4,700)
Less: Deduction under section 80D (27,000)
Less: Deduction under section 80DD (1,00,000)
Less: Deduction under section 80E (90,000)
Less: Deduction under section 80EE (30,000)
Less: Deduction under section 80G (10,000)
TOTAL INCOME 2,28,300

Taxation 27
Working Notes :
1. Deduction u/s 80C :
LIP on his own life (10% of amount assured) 500
Tuition fee of younger child 1,200
5 year term deposit in Post Office 3,000
Total 4,700
2. Deduction u/s 80D :
Premium paid on Medi-claim taken for self 7,000
Medi-claim premium for senior citizen father
Rs. 21,000 restricted to maximum 20,000
Total 27,000
3. Deduction u/s 80DD :
In case of severe disability of wife flat 1, 00,000
deductions provided irrespective of the amount paid
4. Deduction u/s 80E :
Interest on education loan taken for higher studies
5. Deduction u/s 80EE :
Interest on home loan is already claimed in 2014-15 of
Rs. 70,000, can be deducted up to 1, 00,000; the balance
of 30,000 can be accrued. Therefore, Rs. 30,000 is still
claimed.
6. Deduction u/s 80G :
Deposit to Prime Minister’s relief fund, being a 100%
without qualifying limit head is claimed fully.

Question 10: Mr. X, being an author and a businessman, provides us the following
information for the year ending 31.03.2015

Income from Business 4,20,000

Income from house property 80,000
Long term capital gain 2,10,000
Short term capital loss 70,000
LIP on his own life (sum assured-10,000) 1,000
LIP on his wife (sum assured-8,000) 400

28
Amount incurred on education of younger child 800
Deposit in PPF 13,000
Contribution to RPF 3,000
Premium of Medi-claim insurance taken for self 7,000
Premium of Medi-claim insurance taken for child (Independent) 8,000
Premium of Medi-claim insurance taken for wife 9,000
Payment for medical treatment of child (40% disabled) 20,000
Interest on home loan paid (Loan taken in May 2013) 1,00,000
(Interest of 1, 00,000 already claimed in 2014-15)
Deposited to Rajiv Gandhi Foundation 50,000
Royalty received on a novel written 50,000
Royalty received on a registered patent 3,20,000

Calculate his total income for the relevant previous year.

Solution : According to the Particulars of Mr. X

Income from business 4,20,000
Income from house property 80,000
Income from capital gains
Long term gain 2,10,000
less: Short term loss (70,000) 1,40,000
GROSS TOTAL INCOME 6,40,000
Less: Deduction under section 80C (18,200)
Less: Deduction under section 80D (15,000)
Less: Deduction under section 80DD (50,000)
Less: Deduction under section 80EE NIL
Less: Deduction under section 80G (25,000)
Less: Deduction under section 80QQB (50,000)
Less: Deduction under section 80RRB (3,00,000)
TOTAL INCOME 2,28,300

Taxation 29
Working Notes:

1. Deduction u/s 80C :

LIP on his own life 1,000
LIP on his wife 400
Tuition fee of younger child 800
Deposit in PPF 13,000
Deposit in RPF 3,000
Total 18,200
2. Deduction u/s 80D :
Premium paid on Medi-claim taken for self 7,000
Medi-claim premium for independent child NIL
Premium paid on Medi-claim taken for wife 9,000
Total 16,000
But restricted to a maximum of Rs. 15,000
3. Deduction u/s 80DD :
In case of 40% disability of dependent child flat
50,000 deduction provided irrespective of the
amount paid.
4. Deduction u/s 80EE :
1. Interest on home loan is already claimed in
2014-15 of
2. Rs. 1,00,000, can be deducted only up to
1,00,000 which is already claimed. Therefore
no deduction is allowed in this year
5. Deduction u/s 80G :
1. Deposit to Rajiv Gandhi Foundation, being a
50% without qualifying limit head is claimed
half i.e., 25,000 instead of 50,000
6. Deduction u/s QQB :
1. Royalty received in his work of literacy.
7. Deduction u/s RRB :
1. Royalty received in respect of patent
Rs. 3,20,000 but it is subject to a maximum of
Rs. 3, 00,000

30
Keywords
1. Disability : Include autism, cerebral palsy and multiple disabilities as provided for
in the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental
Retardation and Multiple Disabilities Act, 1999.
2. Medical Authority: Means any hospital or institution specified for the purpose of this
act by notification by the appropriate government.
3. Person with Disability: Means a person suffering from not less than 40% of any
disability as certified by the medical authority.
4. Person with Severe Disability: Means any person with 80% or more of one or more
disabilities.
5. Financial Institution: Means banking company to which the Banking Regulation Act,
1949 act applies.
6. Housing Finance Company: Means a public company formed or registered in India
whose main object is providing long-term finance for construction or purchase of
houses in india for residential purposes.
Summary
u Section 80C: Deduction on life insurance premia, contribution to provident fund, etc.
available to individual/HUF for a maximum amount of Rs. 1,50,000.
u Section 80CCC: Deduction for contribution to pension fund – available to individual
for maximum amount of Rs. 1,50,000.
u Section 80CCD: Deduction in respect of contribution to pension scheme of Central
Government available to individual.
u Section 80CCE: Limit on deductions under Sections 80C, 80CCC and 80CCD –cannot
exceed Rs. 1, 50,000.
u Section 80CCG: Deduction in respect of investment made under any equity
saving scheme – available to resident individual subject to maximum of
Rs. 25,000.
u Section 80D: Deduction in respect of medical insurance premia - available to
individual/HUF.
u Section 80DD: Deduction in respect of maintenance including medical treatment of a
dependant who is a person with disability – available to resident individual/HUF for
a fixed amount of Rs. 50, 000 and Rs. 1, 00,000.
u Section 80DDB read with Rule 11DD: Deduction in respect of medical
treatment, etc. available to resident individual/resident HUF for maximum of
Rs. 40,000.
u Section 80E: Deduction in respect of repayment of loan taken for higher education –
available to individual.
u Section 80G: Deduction in respect of donations to certain funds, charitable institutions,
etc. available to all assessee subject to maximum of 50% of qualifying amount, 100%
as the case may be.

Taxation 31
u Section 80GG: Deduction in respect of rent paid – available to individual for a
maximum of Rs. 24,000.
u Section 80GGA: Deduction in respect of certain donations for scientific research or
rural development.
u Section 80GGB: Deduction in respect of contributions given by companies to political
parties.
u Section 80GGC: Deduction in respect of contributions given by any person to political
parties.
u Section 80QQB: Deduction in respect of royalty income, etc., of authors of certain
books other than text books – available to resident individual, for a maximum
deduction of Rs. 3,00,000.
u Section 80RRB: Deduction in respect of royalty on patents – available to resident
individual, maximum of Rs. 3,00,000.
u Section 80TTA: Deduction in respect of interest on deposits in savings account –
available to individual/HUF up-to Rs.10,000.
u Section 80U: Deduction in case of a person with disability – available to Resident
individual subject to maximum of Rs. 100,000.

Exercise
I. Short Answer Questions
1. What are the basic rules governing deduction 80C to 80U?
2. What is the aggregate amount of deductions under Sections 80C, 80CCC and
section 80CCD?
3. Name any five investments in respect of Section 80C which can be claimed as
deduction under this section.
4. State the quantum of deduction in respect of Section 80D.

II. Long Answer Questions

1. Write short notes on:
a) Deduction u/s 80QQB in respect of royalty income of authors of certain
books.
b) Deduction u/s 80DDB in respect of medical treatment.
c) Deduction u/s 80U in respect of a person with disability.
d) Deduction u/s 80GG in respect of rent paid.
2. What are the provisions relating to deductions from Gross total income in
respect of donations to certain funds, charitable institutions etc. under section
80G of Income Tax Act?
3. What is the deduction available in respect of 80-IA & 80-IB?
4. Explain the deduction in respect of royalty on patents under section 80RRB.

32
III. Numerical Questions

Question 1: Mr. Vyapak, being a 40 year old Indian citizen, provides us the following
information for the year ending 31.03.2015

a. Income from salary 3,40,000

b. Income from house property 50,000
c. Long term capital gain 1,20,000
d. Short term capital gain 20,000
e. Income from other sources 30,000
f. LIP on his own life (sum assured-5,000) 1,000
g. Amount incurred on education of younger child 1,000
h. 5 year term deposit in post office 3,000
i. Contribution to PPF 4,000
j. Contribution to RPF 6,000
k. Premium of Medi-claim insurance (self) 10,000
l. Payment for medical treatment of wife (40% disabled) 30,000
m. Interest on education loan taken (Loan taken for his elder son to 80,000
pursue MBA)
n. Interest on home loan paid 80,000
(Loan amount – 25 lakhs)
(Cost of the house – 48 lakhs)
o. Donation to government for family planning 15,000

He also pays a premium on Medi-claim of his father of Rs. 30,000 who is 68 years of age.
Calculate his total income for the relevant previous year.
(Answer – Rs. 2,90,500)

Question 2: Mr. Aarav, being an author and a businessman, provides us the following
information for the year ending 31.03.2015
a. Income from business 5,20,000
b. Income from house property 30,000
c. Long term capital gain 2,10,000
d. Short term capital loss 10,000
e. Income from other sources 30,000
f. LIP on his own life (sum assured-10,000) 1,000
g. LIP on his wife (sum assured-8,000) 400

Taxation 33
h. Amount incurred on education of younger child 800
i. Deposit in PPF 15,000
j. Contribution to RPF 8,000
k. Preventive medical check-up of self 4,000
l. Preventive health check-up of independent child 2,000
m. Premium of Medi-claim insurance taken for wife 9,000
n. Payment for medical treatment of child (60% disabled) 20,000
o. Interest on home loan paid 50,000
(Loan amount being 30 lakhs)
(Cost of house being 40 lakhs)
p. Royalty received on a novel written 3,50,000
q. Royalty received on a registered patent 20,000
Calculate his total income for the relevant previous year.
(Answer – Rs. 3,71,800)

Question 3: Mr. Siddhartha, being 42 years old resident, provides us the following
information for the year ending 31.03.2015
a. Income from salary 2,20,000
b. Income from house property 28,000
c. Interest on saving bank account 1,000
d. Income from other sources 30,000
e. LIP on his wife (sum assured-8,000) 900
f. Amount spent on education of 3 children(each) 1000
g. Deposit in PPF 18,000
h. Contribution to RPF 5,000
i. Preventive medical check-up of self 4,000
j. Preventive health check-up of dependent child 2,000
k. Premium of Medi-claim insurance taken for self 9,000
l. Interest on home loan paid 50,000
(Loan amount being 25 lakhs)
(Cost of house being 40 lakhs)
m. Donation to family planning 20000
n. Donation to notified temple 15,000
Calculate his total income for the relevant previous year.

(Answer – Rs. 1,69,380)

34
Unit – 2
 COMPUTATION OF TAX LIABILITY OF AN INDIVIDUAL

Unit–2 COMPUTATION OF TAX LIABILITY OF AN INDIVIDUAL

Location: SESSION 1: INTRODUCTION : CALCULATION OF TAX LIABILITY OF INDIVIDUAL

Classroom

Learning Knowledge Performance Teaching and

Outcome Evaluation Evaluation Training Method

1. Basic rules 1. How total 1. Write the basic Interactive Lecture:

related to taxable steps to calculate Discussion related
computation income and tax liability. to rules related to
of tax liablity. tax liability is 2. List the rates of computation of tax
calculated for income tax for liability.
an individual? Assessment year
2015-16.

2. Practical 1. Calculation of 1. Calculation of Interactive Lecture:

illustration. tax liability tax liability and Discussion on
and taxable taxable income. Practical problems.
income.

UNIT: COMPUTATION OF TAX LIABILITY OF AN INDIVIDUAL

Learning Objectives:
After reading this unit, the students will be able to:
1. Understand the rules for computation of taxable income.
2. Calculate taxable income and tax liability of an individual.

Taxation 35
SESSION 1
INTRODUCTION – CALCULATION OF TAX LIABILITY
OF INDIVIDUAL

Introduction
An individual means a natural person i.e. human being. Individual includes a male, female,
minor child and a lunatic or an idiot.
In case of male/female who is a major, income tax will be levied on his/her Total
Taxable Income separately, unless the income is to be clubbed under provisions of section
60-64.
As regards a minor child, the income of a minor after giving exemption up to Rs. 1,500
per minor child will be clubbed with the income of that parent who’s Total Income, before
clubbing such income, is greater. However, there are certain incomes which are not to be
clubbed. Such income of the minor, which is not to be clubbed, will be assessable in the hands
of the representative assessee on behalf of the minor.
Income of a lunatic or an idiot will be assessed in the hands of the representative assessee.
u An individual is liable to pay tax in respect of the following incomes :
i) Income Earned By an Individual Himself: i.e. income earned by an individual
in his individual capacity.
ii) Income Earned as a Partner of a Firm or a Limited Liability Partnership:
Following types of incomes can be earned by an individual as partner of a firm
or limited liability partnership:
(a) Share of Profit of the Firm or Limited Liability Partnership: The
share of profit from a partnership firm or a limited liability partnership,
is exempt from tax at the time of individual assessment of the partner;
[Section 10(2A)];
(b) Remuneration from a Firm: The remuneration by way of salary, bonus,
commission, etc., received by a partner, is taxable as business income in
the hands of a partner [Section 28(v)];
(c) Interest on Capital or Loan: Interest on capital or loan to a firm or
limited liability partnership, in which he is a partner, is also assessed as
income from business.

36
iii) As a Member of an Association of Persons, Etc.: Where an individual is member of
an association of persons or body of individuals, his share of income from such AOP/
BOI shall be taxed as under:
a) Where the Income of Association of Persons or Body of Individuals is
Chargeable at Maximum Marginal Rate: Share of income of a member from
such AOP or BOI will not be included in his taxable income at all.
b) Where the Income of AOP or BOI is Taxed at Normal Rates i.e. The Rates
Applicable to an Individual: Share of income of a member from such AOP
or BOI will be included in the taxable income of the individual only for rate
purposes and a relief under section 86 shall be allowed.
c) Where No Income Tax is Chargeable on the Income of the AOP or BOI:
Share of income of a member from such AOP or BOI will be chargeable to tax
as part of his total income.
iv) Income of the Other Persons Included in the Income of the Individual [Section
60 to 65]: as already discussed under the chapter on ‘clubbing of income’, the income
of other persons will also be included in the individual’s total income under respective
heads of income.
u Computation of total income and tax liability
Step 1: Compute the income of an individual under 5 heads of income on the basis
of his residential status.
Step 2: Income of any other person, if includible under section 60 to 64, will be
included under respective heads.
Step 3: Set off of the losses if permissible, while aggregating the income under 5
heads of income.
Step 4: Carry forward and set off of the losses of the past years, if permissible,
from such income.
Step 5: The income computed under step 1 to 4 is known as Gross Total Income
from which deductions under section 80C to 80U (Chapter VIA) will be
allowed. However, no deduction under these sections will be allowed from
short term capital gain covered under section 111A, any long term capital
gain and winning of lotteries etc., though these incomes are part of gross
total income.
Step 6: The balance income after allowing the deductions is known as total income
which will be rounded off to the nearest Rs. 10.
Step 7: Compute tax on such total income at the prescribed rates of tax.
Step 8: Add education cess and secondary and higher education cess @ 3%.
Step 9: Allow relief under section 89, if any.
Step 10: Deduct the TDS and advance tax paid for the relevant assessment year. The
balance is the net tax payable which must be rounded off to the nearest

Taxation 37
 Rs. 10. This tax has to be paid as self-assessment tax before submitting the
income tax return.
u For the assessment year 2015-16 the following deductions are available to an
individual under Chapter VIA
Section Nature of Deduction To which
individual allowed
80C Deduction in respect of Life Insurance Premium, Resident and
Provident Fund, etc. Non-Resident
80CCC Contribution to certain pension funds Resident and
Non-Resident
80CCD Deduction in respect of contribution to pension scheme Individual employed
of Central Government by Central
Government
80CCE Limit on deduction under section 80C, 80CCC and 80CCD
80CCG Deduction in respect of investment made in an equity Resident individual
saving scheme
80D Payment of Medical Insurance Premium
80DD Maintenance including medical treatment of a disabled Resident only
dependent
80DDB Expenditure on medical treatment of certain diseases
80E Interest on loan taken for higher education Resident and Non
Resident
80EE Interest on loan sanctioned not before the financial year Individuals only
2013-14 for acquiring residential house property
80G Donations to certain funds or charitable institutions etc.
80GG Deduction in respect of rent paid
80GGA Certain donations for scientific research or rural
development
80GGC Deduction in respect of contribution given by any person
to political parties
80-IA Profits and gains of new industrial undertakings, etc. Resident and
Non-Resident
80-IB Profits and gains from certain industrial undertakings
other than infrastructure development undertakings.
80-IC Deduction in respect of certain undertakings or Resident and
enterprises in certain special category States Non-Resident

38
 Section Nature of Deduction To which
individual allowed
80-ID Deduction in respect of profits and gains from business of
hotels and convention centers in specified area
80-IE Special provisions in respect of certain undertakings in
North-Eastern States
80JJA Deduction in respect of profits and gains from business of Resident and Non-
collecting and processing of bio-degradable waste Resident
80QQB Deduction in respect of royalty income, etc., of authors of Resident Author
certain books other than text books
80TTA Deduction in respect of interest on deposits in saving Individual or HUF
account whether resident or
non-resident
80U Deduction in case of a person with disability Resident only

u Rates of income tax for assessment year 2015-16

Particulars Rate of Tax

i) Winnings from lotteries, crossword puzzles or races including horse 30%
races or card games and other games of any sort or from gambling or
betting of any form or nature whatsoever [section 115BB]
ii) Short term capital gains on equity shares in a company or units of an 15%
equity oriented fund where the transaction is chargeable to securities
transaction tax [section 111A]
iii) Long term capital gains [section 112] 20%
iv) The balance of total income in case of:-
a) An individual (man or woman), resident in India who is not more
than 60 years of age, a non-resident individual, HUF, AOP/BOI
(other than a co-operative society).
Up to Rs. 2, 50,000 Nil
Rs. 2, 50,010 to Rs. 5, 00,000 10%
Rs. 5, 00,010 to Rs. 10, 00,000 20%
Above Rs. 10,00,000 30%

Taxation 39
 Particulars Rate of Tax
b) An individual (man or woman), resident in India, who is of the age
of 60 years or more at any time during the previous year, but less
than 80 years of age.
Up to Rs. 3, 00,000 Nil
Rs. 3, 00,010 to Rs. 5, 00,000 10%
Rs. 5, 00,010 to Rs. 10, 00,000 20%
Above Rs. 10, 00,000 30%
c) An individual (man or woman), resident in India who is of the age
of 80 years or more at any time during the previous year.
Up to Rs. 5, 00,000 Nil
Rs. 5, 00,010 to Rs. 10, 00,000 20%
Above Rs. 10, 00,000 30%

u Rebate of maximum Rs. 2,000 for resident individuals having a total income up
to Rs. 5 lakhs [section 87A] [W.e.f. assessment year 2014-15]
With a view to provide tax relief to the individual tax payers who are in lower income
bracket, the Act has provided rebate for the tax payable by an assessee, if the following
conditions are satisfied:
i) The assessee is an individual,
ii) He is resident in India,
iii) His total income does not exceed Rs. 5, 00,000.
Quantum of Rebate: The rebate shall be equal to:

a) The amount of income tax payable on the total income for any assessment year, or,
b) Rs. 2,000,
Whichever is less.
u Alternate Minimum Tax (AMT) on all persons other than companies [section
115JC to 115JF]
Where the regular income tax payable for a previous year by a person (other than a
company) is less than the alternate minimum tax payable for such previous year, the
adjusted total income shall be deemed to be the total income of such person and he
shall be liable to pay income tax on such total income at the rate of 18.5%. [Section
115JC (1)]
Report from an accountant [section 115JC (3)]: Every person to whom this section applies
shall obtain a report, in such form as may be prescribed, from an accountant, certifying that

40
the adjusted total income and the alternate minimum tax have been computed in accordance
with the provisions of this Chapter and furnish such report on or before the due date of
furnishing of income tax return under section 139(1).

To whom AMT shall be applicable [section 115JEE (1)]:

The provisions of AMT shall apply to a person who has claimed any deduction under –

(a) Sections 80-IA to 80RRB other than section 80P; or

(b) Section 10AA.
To whom AMT shall not be applicable [section 115JEE (2)]:

The provisions of AMT under Chapter XII-BA shall not apply to –

(a) An individual; or
(b) A HUF; or
(c) An AOP or a BOI (whether incorporated or not); or
(d) An artificial juridical person referred to in section 2(31)(vii).
If the adjusted total income of such person does not exceed Rs. 20, 00,000.

Tax credit for AMT: Section 115JD provides the credit for tax (tax credit) paid by a person
on account of AMT under Chapter XII-BA shall be allowed to the extent of the excess of the
AMT paid over the regular income tax. This tax credit shall be allowed to be carried forward
up to the tenth assessment year immediately succeeding the assessment year for which such
credit becomes allowable. It shall be allowed to be set off for an assessment year in which
the regular income tax exceeds the AMT to the extent of the excess of the regular income tax
over the AMT.

No interest shall be payable on tax credit allowed under section 115JD.

With a view to enable an assessee who has paid AMT in any earlier previous year to claim
credit of the same, in any subsequent year, the Act has inserted section 115JEE (3) so as
to provide that the credit for tax paid under section 115JC shall be allowed in accordance
with the provisions of section 115JD, notwithstanding the conditions mentioned in section
115JEE (1) or (2).

For this purpose:

(a) “Adjusted total income” shall be the total income before giving effect to provisions of
sections 115JC to 115JF as increased by the deductions claimed under sections 80-
IA to 80RRB other than section 80P included in Chapter VI-A and deduction claimed
under section 10AA [section 115JC(2)].
(b) “Alternate minimum tax” shall be the amount of tax computed on adjusted total
income at a rate of 18.5% [section 115JF(b)].

Taxation 41
(c) “Regular income tax” shall be the income tax payable for a previous year by a person
other than a company on his total income in accordance with the provisions of Chapter
XII-BA (i.e. sections 115JC to 115JF). [Section 115JF (d)].
Exercise
1. Income tax is rounded off to :
a) Nearest ten rupees
b) Nearest one rupee
c) No rounding of tax
2. Education cess is leviable @ :
a) 2%
b) 3%
c) 5%
3. The maximum amount on which income tax is not chargeable for the
assessment year 2015-16 in case of an individual who is of age 60 years or above but
not resident of India is :
a) 2,00,000
b) 2,50,000
c) 5,00,000
4. Secondary and Higher Education Cess (SHEC) is leviable on :
a) Income tax,
b) Income tax, surcharge if applicable
c) Income tax, surcharge if applicable and education cess
5. Mrs. A, a resident of India, is 56 years old. Her total income for assessment year 2015-
16 is Rs. 7,26,500. Her tax liability shall be :
a) Rs. 72,410
b) Rs. 74,210
c) Rs. 70,410

Answer: 1. a, 2. a, 3. b, 4. b, 5. a

42
Question 1: Mr. X, being a 64 year old Indian citizen, provides us the following
information for the year ending 31.03.2015

a. Basic Pay 3,40,000

b. Education Allowance 13,800
(Rs. 350 per month for a son and Rs. 400 per month each for
2 daughters)
c. Transport Allowance 8,000
(For journey between office and residence)
d. Employer’s contribution towards UPF 4,000
e. Share of profit from a firm 50,000
f. X’s contribution towards UPF 8,900
(Unrecognized Provident Fund)
g. Premium of Medi-claim insurance policy
i) Self 15,000
ii) Wife’s 2,000
Donations made to PM’s relief fund 10,000
Donations made to Rajiv Gandhi Foundation 8,000

He purchased a house of Rs. 30 lakhs, taking a loan of 20 lakhs. The interest paid during the
year being Rs. 30,000. He does not own any other house property. Compute the total income
of X.

Solution : According to the particulars of Mr. X -

Income from salary 3,51,400

Income from profession Nil
GROSS TOTAL INCOME 3,51,400
Less: Deduction under section 80D 15,000
Less: Deduction under section 80G 14,000
Less: Deduction under section 80EE 30,000
TOTAL INCOME 2,92,400

Taxation 43
Working Notes :
1. Income from salary –
Basic Pay 3,40,000
Education Allowance 13,800
Exempt: (100×2×12) (2,400) 11,400
Transport Allowance Exempt
(Exempted maximum up to 9,600)
Employer’s contribution to UPF Nil
(Not taxable even if exceeds 12% of salary)
Total 3,51,400
2. Income from profession/business –
Profit from a firm is fully exempted.
3. Deduction u/s 80 D (15000+2000) subjected to a
maximum of Rs. 15,000)
4. Deduction u/s 80G
a) PM relief fund (100%) 10,000
b) Rajiv Gandhi Foundation (50%) 4,000

Question 2: Compute the total income of Mr. Varun from the following particulars for
the assessment year 2015-16.
a. Basic Pay 12,00,000
b. Free watchman 80,000
c. Free gardener 15,000
d. Share of profit from a firm 12,000
e. Winnings from horse race 12,000
f. Royalty income from patent 30,000
g. Contribution to PPF 30,000
h. Donation to Indira Gandhi Memorial Trust 80,000
i. Interest on Post Office saving account 20,000
j. Loss from a business 50,000
k. Purchase of a work of art from a friend for RS. 50,000; market value,
however being Rs. 90,000
l. Expenditure incurred for the medical treatment of his elder dependent
brother of Rs. 20,000; being a person with disability (80%).

44
Solution : According to the particulars of Mr. Varun -
Income from salary 12,95,000
Income from house property NIL
Income from profession/business (50,000)
Income from capital gains 40,000
Income from other sources 62,000
GROSS TOTAL INCOME 13,47,000
Less: Deduction under section 80C to 80 U 2,10,000
NET TOTAL INCOME 11,37,000

Working Notes :

1. Income from salary –

Basic Pay 12,00,000
Free watchman 80,000
Free gardener 15,000
12,95,000
2. Income from profession/business –
Profit from a firm is fully exempted
3. Income from capital gains –
Art work (90,000-50,000) 40,000
4. Income from other sources –
Winnings from horse race 12,000
Royalty income from patent 30,000
Interest on Post Office saving account 20,000
5. Deduction u/s 80C (PPF) 30,000
Deduction u/s 80 G (50% W/O limit)
-Indira Gandhi Memorial Trust (80,000) 40,000
Deduction u/s 80TTA (Rs. 20,000 subjected
To maximum of Rs. 10,000) 10,000
Deduction u/s RRB 30,000
Deduction u/s 80 U (disability 80%) 1,00,000
2,10,000

Taxation 45
Question 3: Mr. Harish, being an author and a businessman, aged 61 years, provides us
the following information for the year ending 31.03.2014. Compute total
taxable income.
a. Income from business 3,20,000
b. Income from house property (computed) 20,000
c. Long term capital gain 2,40,000
d. Short term capital loss 40,000
e. Income from other sources 50,000
f. LIP on his own life (sum assured-10,000) 2,000
g. LIP on his wife (sum assured-8,000) 1,000
h. Amount incurred on education of younger child 800
i. Deposit in PPF 18,000
j. Contribution to RPF 5,000
k. Preventive medical check-up of self 5,000
l. Preventive health check-up of independent child 3,000
m. Payment for medical treatment of child (60% disabled) 20,000
n. Interest on home loan paid 40,000
(Loan amount being 30 lakhs)
(Cost of house being 40 lakhs)

Solution : According to the particulars of Mr. Harish -

Income from business 3,20,000
Income from house property 20,000
Income from capital gains 2,00,000
Income from other sources 50,000
GROSS TOTAL INCOME 5,90,000
Less: Deduction under section 80C to 80U 80,600
NET TOTAL TAXABLE INCOME 5,09,400
TAX LIABILITY
Tax on total income of Rs. 5, 09,400
Up to 3, 00,000 NIL NIL
3, 00,000 to 5, 00,000 10% 20,000
Balance 9,400 20% 1880
21,880
Add: Education Cess @ 3% 656
22,536
Amount rounded off total liability amounts to Rs. 22,540.

46
Working Notes :
1. Income from Capital Gains
LTCG 2,40,000
STCL (40,000) 2,00,000
2. Deduction u/s 80C to 80U
--- 80 C LIP on self
(Rs. 10,000 sum assured subjected
(Rs. 10,000 sum assured subjected
to maximum of 10% of sum assured) 1000
LIP on wife (sum Assured- Rs. 8000) 800
Amt on education of child 800
Contribution to PPF 18,000
Contribution to RPF 5,000 25,600
--- 80 D Preventive health -check-up (Max. 5,000)
Self 5000
Independent child NA 5,000
--- 80 DD Payment for medical treatment of disable
(Irrespective of amt spent) 50,000
--- 80 EE Payment of interest on house loan
(Amount of loan exceeds Rs. 25 lakhs) NIL
80,600

Question 4: Mr. Aarav, being an author and a businessman, provides us the following
information for the year ending 31.03.2014.

a) Salary – Rs. 32,500 per month

b) D.A. – Rs. 8,000 per month
c) Commission on turnover achieved by him @ 5% of 20,00,000
d) He is provided a car of 1.8l engine capacity with chauffeur for his official and private
purposes
e) Bonus – Rs. 20,000
f) He is provided a rent free furnished house and the employer pays Rs. 10,000 per
month for the house and Rs. 5,000 per month for the furniture.
g) Premium of Medi-claim insurance taken for wife 9,000
h) Royalty received on a book written for school 3,50,000

Taxation 47
 Compute his total income taxable for the year.
Solution : According to the particulars of Mr. Aarav –
Income from salary 7,96,200
Income from other sources(royalty) 3,50,000
GROSS TOTAL INCOME 11,46,200
Less: Deduction under section 80D 9,000
Deduction under section 80QQB
(maximum subjected limit) 3,00,000
TOTAL TAXABLE INCOME 8,37,200

Working Notes :

Income from salary –

Basic salary 3,90,000
DA 96,000
Car facility with chauffeur 39,600
(2400 × 12 + 900 × 12)
Commission on turnover 1,00,000
(5% of 20, 00,000)
Bonus 20,000
Rent free accommodation 1,50,600
(15% of salary + rent of furniture)
(Salary = basic + DA + comm. + bonus)
Total 7,96,200

Question 5: Mr. J, a Government employee and a citizen of India, was sent to New Zealand
on official duty, on 1.8.2014. He stayed there up to 28.2.2015. The salary and
allowances drawn by him during this period are given below. Compute his
total income for the assessment year 2015-16.

5 months’ salary in India 4,50,000

7 months’ salary in New Zealand 6,30,000
Overseas Allowance 5,00,000
Free residence in New Zealand 3,50,000
(Rent Rs. 50,000 per month for 7 months)

48
 He has a house property in Mumbai which is self-occupied. During
his stay in New Zealand his wife and children were staying in this
property throughout the previous year. The fair rental value of the
house is Rs. 60,000. He has paid Rs. 8,000 as municipal taxes and
Rs. 2,000 as ground rent during the year.
He received dividend from an Indian company amounting to Rs.
5,000.
He has donated a sum of Rs. 10,000 to National relief fund of Prime
Minister as applicable under section 80G.

Solution : According to the particulars of Mr. J

Income from salary 10,80,000
Income from house property Nil
income from other sources Nil
GROSS TOTAL INCOME 10,80,000
Less: Deduction under section 80G 10,000
TOTAL INCOME 10,70,000

Working Notes :

1. Income from salary –

Salary in India 4,50,000
Salary in New Zealand 6,30,000
Overseas Allowances (exempt) Nil
Value of free residence in New Zealand (exempt) Nil
Total 10,80,000
2. Income from house property –
Self-occupied house is not taxable
3. Income from other sources –
Dividend from an Indian company is exempt from income tax
4. Deduction u/s 80G –
100% in respect of donation without qualifying limit

Question 6: Mrs. Rati, being 55 years old resident, is employed with R Ltd. She furnishes
us with the following details regarding the previous year. Compute her total
income for the assessment year 2015-16.

Taxation 49
a) Basic salary – Rs. 25,000 per month
b) D.A. (50% of which forms a part of salary for retirement purposes) – Rs. 8,000 per
month
c) Medical bills reimbursement (out of which Rs. 20,000 is in respect of treatment in a
Government hospital) – Rs. 40,000
d) Free electricity for personal use – Rs. 20,000
e) Free telephone at residence – Rs. 24,000
f) Free meals in office (Rs. 80 per day for 300 days) – Rs. 24,000
g) Medi-claim insurance premium reimbursed on spouse – Rs. 20,000
h) House rent allowance for 4 months – Rs. 10,000 per month
i) Rent paid for house in Mumbai – Rs. 15,000 per month
j) After 4 months he was provided rent free unfurnished house in Mumbai whose rent is
Rs. 18,000 per month.
k) R Ltd. Spent Rs. 20,000 for repairs of the house.
l) Amount deposited in PPF – Rs. 50,000
m) Income from other sources – Rs. 1,20,000

Solution : According to the particulars of Mrs. Rati -

Income from salary 4,64,800

Income from other sources 1,20,000
GROSS TOTAL INCOME 5,84,800
Less: Deduction under section 80C 50,000
TOTAL TAXABLE INCOME 5,34,800

Working Notes :

1. Income from salary –

Basic salary (25,000 × 12) 3, 00,000
D.A. (8,000 × 12) 96,000
Medical bills reimbursed 5,000
(40,000 - 20,000 - 15,000)
Free electricity 20,000
Free telephone at residence Tax free
Free meal (80-50=30; 30 × 300) 9,000
H.R.A received 40,000

50
 Less: exempt (see note below) (40,000) Nil
Rent free unfurnished house 34,800
(See note below)
Total 4, 64,800

u Calculation of H.R.A:-
1. Actual HRA received (10,000 × 4) 40,000
2. Rent paid-10% of salary 46,800
(60,000-13,200)
3. 50% of salary (29,000 × 4) 1,16,000
(Basic + 50% of DA)
Whichever is less
u Calculation of Rent free accommodation:-
15% of salary, where salary is basic + 50% of DA
i.e. 15% of (29,000 x 8) 34,800
2. Deduction u/s 80C –
Amount deposited to PPF 50,000

Question 7: Mr. Rahul in Mumbai High Court provides us with his Receipts and Payments
A/c for the year ending 31.3.2015, which is as follows:

Balance B/d 2,350 Subscription and 6,000

membership
Legal fees Purchase of legal books 10,000
2014-15 4,20,000 5,70,000 Rent 36,000
2013-14 1,50,000 Car Expenses 20,000
Special commission 8,000 Office expenses 10,000
Exam remuneration 8,000
Salary as part time lecturer 3,20,000 Electricity expenses 24,000
Income tax 12,000
Interest on saving bank deposit 12,000 Domestic expenses 60,000
Car purchased 6,40,000
Sale proceeds of residential property 3,20,000 Life insurance premium 80,000
Rent from house property 48,000
Agricultural income 38,000 Balance C/f 4,28,350
13,26,350 13,26,350

Taxation 51
Following information is available:-

i) The rent and electric expenses are related to a house, of which two-third portion is
used for self-residence and remaining one-third portion is used for office.
ii) Car is used for professional purposes.
iii) Outstanding legal fees is Rs. 20,000
iv) Rent has been paid for 6 months only.
v) Car was purchased on 31.12.2014. Law books purchased are annual publications
out of which books of Rs. 5,000 were purchased on 2.8.2014 and the remaining on
25.10.2014.
vi) The house was purchased in January 1999 for Rs. 35,000 and sold on 1.6.2014
vii) Rent of the property which has been sold was Rs. 8,000 per month. The property was
vacated by the tenant on 30.9.2014.
Solution:
Income from salary
Salary as part of lecturer 3,20,000
Income from House Property
(Gross Annual Value Rs. 8000 × 12 = 96,000
Proportionate for 6 months 96000x 6/12 = 48,000
(-) Municipal Taxes nil
Net Annual Value 48,000
(-) Standard Deduction @ 30% 14,400 33,600
Income from PGBP
(1) Legal Fees 5,70,000
Special Allowance 8,000 5,78,000
(2) Allowable Expenses
Subscription & membership 6,000
1/3 office rent 12,000
Car Expenses 20,000
1/3 Electric Charges 8,000
Office Expenses 10,000
Depreciation on Car (7.5%)
(less than 180 days) 48,000
Depreciation on books

52
 (100%+50%)
(More than 180 days 100%)
(less than 180 days 50%) 7,500 1,11,500 4,66,500
Income from Capital Gain
Sales Consideration 3, 20,000
(-) Indexed cost of acquisition
35,000 ×1024/ 161 2, 22,609 97,391
Income from other sources
Interest on saving bank 12,000
Exam Remuneration 8,000 20,000
TOTAL TAXABLE INCOME 9,37,491
Tax on Rs. 7,50,100(excluding LTCG)
2,50,000 NIL Nil
2,50,000 to 5, 00,000 10% 25,000
2,50,100 balance 20% 50,200
75,020
19,478
LTCG @ 20% Rs. 97,391 94,498
Add: education cess @ 3% 2,835
Total tax liability (rounded off) 97, 330

Question 8: Mr. Xavier, submits the following particulars of income for assessment year
2015-16:

1. Income from salary (computed) 2,50,000

2. Income from house property (computed) 30,000
3. Long term capital gain 40,000
4. Short term capital loss (15,000)
5. Interest on securities (Gross) 11,000
6. Interest on Bank Deposits 8,000
7. LIP on his own life 2,000
8. PPF 20,000
9. Donation to National children fund 5,000
10. Donations to PM’s Relief Fund 6,000

Taxation 53
 11. Donation to approved charitable institution 25,000
12. Donation to Government for family planning 15,000
13. Payment by cheque to GIC for incurring:
Health of his wife 9,000
Health of dependant son 9,000
Father not dependant who is 67 years old 25,000
14. Expenses on medical treatment of dependant being a 25,000
disable
15. Payment of interest on loan taken from charitable 30,000
institution for the education of his daughter pursuing
M. Tech.

Compute his total income & tax payable for mentioned assessment year.
Solution:

Income from salary 2,50,000

Income from House Property 30,000
Income from capital gain
Long term capital gain 40,000
Short term Capital gain (15,000) 25,000
Income from other sources
Interest on securities 11,000
Interest on Bank Deposits 8,000 19,000
Gross Taxable Income 3,24,000
Less: Deduction u/s 80C and 90U
80C (2,000+20,000) 22,000
80D – Insurance on life 9,000
-Insurance on dependent Son 9,000
18,000
(Limited to Rs. 15,000) 15,000
Insurance on father life Rs. 25,000

54
But limited to Rs. 20,000 20,000 35,000
U/s 80DD 50,000
U/s 80E 30,000
U/s 80G
National Relief Fund (100%) 5,000
PM’s Relief Fung (100%) 6,000
Approved charitable fund
(Rs. 25,000)
And Family Planning – Total
Rs. 40,000
but limited to 10% of Adjusted total
income.i.e.
(GTC--LTCG all deduction except 80G)
(Rs. 3, 24,000 – Rs. 25,000 – 1,37,000 = 1,
62,000)
Therefore Rs. 15,000 - 100% 15,000
Balance Rs. 1200 – 50% 600 15,600 1,63,600
1 60,400
Tax on Rs. 1,60,400 shall be

On Long Term Capital Gain NIL

(Rs.25, 000 - Rs. 25,000)
On other income (Rs. 1,35,400 NIL
- Rs. 25,000) shifted from LTCG
Tax Liability NIL

Question 9: Mr. Avijit, a business man submits the following details for the assessment
year 2015-16.

Taxation 55
Income from House Property (Computed) 8,000
Profit gain from personal business 25,000
Short term capital gain 68,000
Long term capital gain on sale of a building 17,000
The following items have been brought forward from the preceding
assessment year:
Business Loss 30,000
House Property Loss 10,000
Compute his gross total income & deals with carried forward losses.
Solution:
Income from House Property 8,000
(-) Loss of past year (10,000) NIL
To be carried forward (2,000)

Profit gains from personal business 25,000

(-) Business Loss (30,000) NIL
(5,000)
Income under Head Capital Gain
Short term capital gain 68,000
Long term capital gain 17,000
85,000

1. Balance house property loss of Rs. 2,000 shall be carried forward & set off only
against the income from House Property.
2. Brought forward business loss of Rs. 5,000 shall be carried forward and set off only
against business income.
Keywords
1. Individual: A natural person i.e. human being. Individual includes a male,
female, minor child and a lunatic or an idiot.

56
2. Adjusted Total Income: The total income before giving effect to provisions of sections
115JC to 115JF as increased by the deductions claimed under sections 80-IA to 80RRB
other than section 80P included in Chapter VI-A and deduction claimed under section
10AA.
Summary
u The taxable income of an individual is calculated by adding incomes from all
the 5 heads of income and income of any other person includible under Sec 60
to Sec 64 and then any loss is set off while calculating the aggregate income under 5
heads.
u Next, any carry forward loss of past year is settled if permissible and this gives us
Gross Total Income.
u From Gross Total Income, deductions under chapter VI is done to arrive at total taxable
income.
u Last, tax is computed on such total income at the prescribed rate. Education cess
@ 3% is then charged.
Exercise
I. Short Answer Questions
1. Who is an individual according to Income tax Act?
2. When is an individual liable to pay tax?
3. State the tax rate slabs for Indian citizen aged (i) 45 years (ii) 65 years (iii) 89
years.

II. Long Answer Questions

1. How is the total income of an individual computed?
2. Discuss in brief, the deductions available to an individual from Gross Total
Income.
3. State the incomes in respect of which an individual is liable to pay tax.

III. Numerical Questions

Question 1: Mr. Y, being a 61 year old Indian citizen, is an employee of M Ltd. Compute
his total income for the assessment year 2015-2016 from the following
particulars:

Taxation 57
(a) Basic Pay 8,00,000
(b) Free meals in office (290 working days) 15,000
(c) Contribution of Y to PPF 80,000
(d) Income from interest on securities 50,000
(e) Business Loss of Y 40,000
(f) Payment of premium on Medi-claim 8,000
(g) (Policy taken for independent son)
(h) Free car (1150cc) facility for Y’s official and private purposes, cost to the employer
being Rs. 28,000
(i) Y has taken a loan for the education of his major son. The loan was taken for
pursuing BBS course from University of Uttarakhand. Amount of interest for the
previous year 2014-15 is 30,000. However, he has paid Rs. 60,000 on account of
interest, i.e. Rs. 30,000 for the current year and 30,000 for the previous year.

Answer: (Rs. 6,76,900)

Question 2: Z, a lecturer (34 years) in Delhi University submits the following particulars
of incomes and payments for the Assessment year 2015-16:

(a) Basic salary : 32,500 per month

(b) Dearness allowance : 8,000 per month
(c) Examiner-ship remuneration – Rs. 8,000
(d) Royalty on books for school students textbook – Rs. 70,000
(e) Royalty on books of literature – Rs. 50,000
(f) Income from house property – Rs. 18,000
(Expenses being house tax of Rs. 12,000. He has received a sum of Rs. 40,000
being advance rent of April and May of the assessment year; municipal valuation –
Rs. 1,80,000; fair rent – Rs. 1,84,000; unrealized rent – nil; house remained vacant
for 2 months).
(g) Contribution to SPF – Rs. 20,000
(h) Contribution to PPF – Rs. 50,000
(i) Medical insurance premium on the health of spouse – Rs. 20,000
(j) Interest paid on education loan of daughter pursuing LLB – Rs. 50,000
(k) Medi-claim premium of father (aged: 52 years)– Rs. 18,000
(l) Donation to a research institute – Rs. 20,000
(m) Donation to government for family planning – Rs. 35,000
Compute his total taxable income and tax liability.

Answer: (Rs. 4,76,600, Rs. 23,340)

58
Question 3: Mr. B provides us the following information for the year ending 31.03.2015.
Compute his total income.

(a) Basic salary 6,00,000

(b) Bonus 50,000
(c) City Compensatory Allowance 30,000
(d) Winnings from lotteries 50,000
(e) Loss in betting 20,000
(f) House Rent Allowance 25,000
(House is at Hyderabad and rent actually paid amounts to Rs. 60,000)
(g) Winning from horse races 70,000
(h) Tuition fee of son 15,000
(i) Contribution to RPF 20,000
(j) Medical Insurance premium of self 30,000
(k) Medical treatment of a child 20,000
(80% disabled)
(l) He owns a 1510 cc car which is used for personal and official purposes. Expenditure
reimbursed by the employer – Rs. 2, 00,000 (Rs 1, 80,000 for official purposes).
(m) Donation of Rs. 50,000 given to a famous Gurudwara.

Answer: (Rs. 6,70,000)

Question 4: Mrs. Z, 82 years of age, is a resident Indian working in private company as a

Finance Head at Mumbai. She was appointed in the grade of Rs. 30,000 – 500
– 60,000 on April 1, 2010 (salary falls due on the last day of each month).
Besides, she gets Rs. 8,000 per month as Dearness Allowance. She has been
provided with the facility of a Gardner, watchman and driver who are paid
by the employer at the rate of Rs. 800, Rs. 1,000 and Rs. 3,000 per month
respectively. She owns a house property, which consists of 2 floors. One floor
is used by Mrs. Z for private residential purpose and one floor is let out to
a tenant for residential purpose at monthly rent of Rs. 15,000. Municipal
valuation of the house property is Rs. 3, 00,000; fair rent is Rs. 2, 70,000
and the standard rent of the house is Rs. 3, 20,000. During the previous year,
she contributes Rs. 80,000 to a RPF. She even donates Rs. 30,000 to Prime
Minister’s relief Fund. She even pays Rs. 800 per month as tuition fee of her
son. Compute his total taxable income and tax liability.

Answer: (Rs. 5,98,000, Rs. 20,190)

Taxation 59
Question 5: Mr. V (aged 62 years) provides us the following information for the year
ending 31.03.2015. Compute his total taxable income and tax liability.

(a) Basic salary 12,50,000

(b) Commission on sales @ 5% on turnover of Rs. 20,00,000
(c) Advance salary of April and May 2,00,000
(d) Rent free furnished house in Bhopal (rent of unfurnished
house paid by employee – Rs. 90,000 and rent of furniture – Rs. 30,000)
(e) Free services of cook (Rs. 2,000 per month) and of watchman
(Rs. 1,000 per month)
(f) Income from business 1,00,000
(g) Winning of lottery(gross) 30,000
(h) Long term capital gain 2,10,000
(i) Short term capital loss 70,000
(j) LIP on his own life (sum assured-10,000) 1,000
(k) LIP on his wife (sum assured-8,000) 400
(l) Amount incurred on education of younger child 800
(m) Premium of Medi-claim insurance taken for child (Independent) 8,000
(n) 5 year term deposit in post office 3,000
(o) Payment for medical treatment of wife (60% disabled) 50,000
(p) Interest on education loan taken 90,000
(Loan taken for his elder son to pursue B.Arch)
(q) Deposited to PM’s Relief fund 10,000

Answer: (Rs. 16,20,800, Rs. 3,01,010)

Question 6: Mr. K being a 45 year old Indian citizen, provides us the following information
for the year ending 31.03.2015. Compute his total income and tax liability.

(a) Income from salary 6,40,000

(b) Income from house property (computed) 30,000
(c) Long term capital gain 1,40,000
(d) Short term capital gain 30,000
(e) Income from other sources 40,000
(f) LIP on his own life (sum assured-5,000) 2,000
(g) Amount incurred on education of younger child 1,500
(h) 5 year term deposit in post office 5,000

60
 (i) Contribution to PPF 2,000
(j) Contribution to RPF 5,000
(k) Premium of Medi-claim insurance taken for self 12,000
(l) Payment for medical treatment of wife 20,000
(40% disabled)
(m) Interest on education loan taken 50,000
(Loan taken for his elder son to pursue MFC)
(n) Interest on home loan paid 80,000
(Loan amount – 25 lakhs)
(Cost of the house – 48 lakhs)
(o) Premium on Medi-claim of his father of
Rs. 30,000 who is 68 years of age.
(p) Donation to Rajiv Gandhi Foundation 20,000

Answer: (Rs. 7,24,000, Rs. 71,900)

Question 7: Mr. Siddhartha (non govt. employee) being 25 years old resident provides us
the following information for the year ending 31.03.2015. He lives in Delhi.
Compute his taxable income.
(a) Salary – Rs. 30,000 per month
(b) Convergence allowance spent for official purpose – Rs. 800 per month.
(c) Entertainment allowance at Rs 1000 per month.
(d) Received HRA of Rs. 5000 per month. But he paid a rent of Rs. 6000 per month.
(e) Personal preventive health-check up of Rs 18000.
(f) Contribution to PPF 30,000.
(g) Interest on saving bank deposits received Rs. 15000.
(h) Donation paid to PM’s Drought Relief Fund, Rs. 50,000
(i) LIP paid during the year – Rs. 8400

Answer: (Rs. 3,32,600)

Question 8: Mr. Utsav furnishes with the following information for the year ended
31.03.2015.
(a) Salary @ Rs. 40,000 p.m.
(b) Bonus equal to 3 month’s salary
(c) Conveyance allowance Rs. 2,400 p.m. for travelling from residence to office and back.
(d) House rent allowance @ Rs. 12,000 p.m. He paid Rs. 20,000 p.m. as rent of the house
where he resides.

Taxation 61
(e) The employer reimbursed his personal medical bills of Rs. 10,000 and he also gave
education allowance in respect of his four children @ Rs. 600 p.m.
(f) The employer contributed to Statutory Provident Fund @ 10%, whereas the assessee’s
contribution was 20%.
(g) Interest on Government securities Rs. 12,000
(h) Interest received on Bank fixed deposits Rs. 24,000
(i) Income from units of U.T.I. Rs. 8,000
(j) He paid premium of Rs. 16,000 on his life policy.
(k) He paid 1,000 as tax on employment.
Compute the total income of Mr. Utsav for the assessment year 2015-16.
Answer: (Rs. 5,55,000)
Question 9: R, General manager of a Private Ltd. Company retired on 31.3.2015 after
30 years of service. Compute his total for the assessment year 2015-16 on
the basis of following information indicating clearly the amount of gratuity
and leave salary, if any includible in salary income.
(a) Salary Rs. 7, 500 p.m. from 1.4.2014. House rent allowance Rs. 3500 p.m.
He lives in his own house.
(b) Medical expenses reimbursed by employer Rs. 11, 600.
(c) R went to his home town with his family and he was reimbursed Rs. 5,600
being the return fare by 1st class (train).
(d) A car of 1400cc is provided by the company for official and personal use and all
expenses of its running and maintenance including drivers salary are borne by the
Company.
(e) R contributes 20% of his salary to recognized provident fund which includes
8% additional voluntary contribution. The company matches his regular contribution, i.e.
12%.
(f) Reimbursement of personal club bills of R: Rs. 360.
(g) He has invested Rs. 30,000 in National Savings Certificate (VIII Issue) and
Rs. 18,000 in Public Provident Fund Account.
(h) Deposit under National Savings Scheme, 1992 Rs. 20,000.
(i) He received Rs. 75,000 as gratuity.
(j) He received Rs. 75000 for encashment of 10 months accumulated leave.

Answer: (Rs. 78,760)

62
Question 10: R is a lawyer of Punjab high court. He keeps his account on cash basis. His
receipts and payments A/c for the year ending 31.3.2014 is given below.

Rs. Rs.
Balance B/d 7,500 Subscription and membership 6,000
Legal fees Purchase of legal books 9,000
Rent 51,000
2014-15 1,80,000 Car Expenses 17,000
Special commission fees 7,000 Office expenses 7,500
Salary as part time lecturer 48,000 Electricity expenses 5,000
Exam salary 2,500 Income tax 9,000
Donation to approved institution 3,000
u/s 80G
Interest on saving bank deposit 6,000 Domestic expenses 27,000
Car purchased 2,30,000
Sale proceeds of residential property 2,95,000 Life insurance premium 7,000
Gift to daughter 15,000
Dividend from co-operative society 3,000
Dividend received from the units of
U.T.I. 6,000 Balance C/f 1,68,500
5,55,000 5,55,000

Following information is available:

(a) The rent and electric expenses are related to a house, of which half portion is used for
self-residence and remaining half portion is used for office.
(b) Car is used for professional purposes.
(c) Outstanding legal fees is Rs. 25,000
(d) Rent has been paid for 10 months only.
(e) Car was purchased on 25.9.2014. Law books purchased are annual publications out
of which books of Rs. 3,000 were purchased on 5.5.2014 and the remaining on
3.12.2014.
(f) The house was purchased in January 1989 for Rs. 40,000 and sold on 1.8.2014
(g) Rent of the property which has been sold was Rs. 6,000 per month. The property was
vacated by the tenant on 31.7.2014.
Compute his total income taxable for the concerned year and tax liability.

Answer: (Rs. 1,96,390, NIL)

Taxation 63
Question 11: Mrs. M, a salaried employee, furnishes the following information in respect
of the Previous year ending 31.3.2015:
(a) Salary income - Rs. 6,40,000
(b) Interest on debentures - Rs. 2,25,000
(c) Payment of medical insurance premium on the life of her grandfather - Rs. 4,000
(d) Donation to the Prime Minister’s Drought Relief Fund - Rs. 1,00,000
(e) Donations to a public charitable institution - 1,50,000
(f) Other income - 40,000
Determine the net income of Mrs. M for the assessment year 2015-16, assuming that
her income from long term capital gains is Rs. 25,00,000.
Answer: (Rs. 33, 09, 750)

Question 12: Mrs. Nika, 40 years old, is a Finance manager of a private company at
Chennai. She was appointed in the grade of 34,000-1,000-50,000; on
April 1, 2010(salary falls due on the last day of the month). Besides, she gets
Rs. 6,000 p.m. as dearness pay which does not form part of salary. She had
been provided with a rent free unfurnished house whose lease rental value
is Rs. 70,000 per annum, which is taken on lease by the employer. She has
also been provided with the facility of a gardener, watchman and personal
attendant who are paid by the employer at the rate of Rs. 12,000, Rs. 15,000
and Rs. 18,000 per annum respectively. She uses company’s car for
official purposes. Mrs. Nika and her employer contribute 16% of
salary towards the recognized provident fund. She gets prize of Rs.
90,000(being winning from camel race) and bank’s interest of Rs.
4,00,000(i.e., fixed deposit interest: Rs. 3,71,500 + saving bank: Rs.
28,500) during the previous year 2014-15. On January 20, 2014,
she transfers bonus equity in Tata chemicals (held since 1992) for
Rs. 8, 23,000. Besides brokerage @1%, she pays securities transaction tax
of Rs. 823. Determine the taxable income of Nika for the assessment year
2015-16.
Answer: (Rs. 10,66,680)

64
Unit 3
 TDS and advance payment of tax

Unit – 3
TDS and Advance Payment of Tax

Location:
SESSION 1: TAX DEDUCTED AT SOURCE
Classroom
Learning Knowledge Performance Teaching and
Outcome Evaluation Evaluation Training Method
1. Meaning of 1. State various 1. Analyse the Interactive
Tax Deducted ways for utility of Lecture:
at Source. collection and TDS in the Introduction of
recovery of taxation various ways
income-tax. system. for collection
2. Explain the and recovery of
meaning of income-tax and
tax deducted TDS.
at source.
3. Explain the
significance
of TDS to
government
and taxpayers.
2. Provisions 1. State and 1. Compare and Interactive
relating to explain differentiate Lecture:
deduction of various between the Discussion of
tax at source sections provisions the provisions
in respect relating to of sections relating to
of various deduction of 192 to 206 deduction of
incomes. tax at source relating to tax at source
in respect deduction of in respect
of different tax at source of different
incomes. in respect incomes.
of various
incomes.

Taxation 65
 2. State various Activity:
rates of TDS Collection and
applicable analysis of
to different TDS returns
incomes. of various
3. State when taxpayers such
the obligation as salaried
to deduct employee,
TDS shall corporate
arise in assessee, etc.
respect of
various
incomes.
3. Other 1. Explain the 1. State and Interactive
provisions provisions explain the Lecture:
related to tax related to conditions for Acquaint
deducted at lower or non- lower or non- with various
source. deduction deduction of provisions
of tax, tax, refund of related to
deposition of tax, etc. lower or non-
TDS, credit of deduction,
2. Explain the
TDS, refund duties of persons
prosecution
of TDS, deducting tax at
requirement proceedings
in case of source and rights
of E- TDS, etc.
defaults. of tax payers,
2. State
possible defaults
the form
and prosecution
numbers of
proceedings, etc.
certificates of
tax deducted
and form
numbers
of various
returns.
3. State the
various
duties of
persons
deducting tax
at source and
rights of tax
payers.

66
 4. State the
possible
defaults
on part of
persons
deducting
tax and tax
payers.
SESSION 2: ADVANCE PAYMENT OF TAX
1. Meaning 1. Explain the 1. Differentiate Interactive
of Advance meaning between TDS Lecture:
payment of of advance and Advance Acquaint with
tax. payment of Payment of the concept
tax. Tax. advance payment
2. State the of tax.
persons
liable to
pay and not
liable to pay
advance tax.
2. Provisions of 1. State the 1. Explain and Interactive
Presumptive Provisions of analyze the Lecture:
Taxation Presumptive Presumptive Discussion of
Scheme. Taxation Taxation provisions of
Scheme. Scheme. Presumptive
2. Determine the Taxation Scheme.
applicability of
Presumptive
Taxation
Scheme on
a particular
assessee.

Taxation 67
 3. Due dates for 1. State the 1. Calculating Interactive
payment of various due the liability of Lecture:
Advance Tax. dates for Advance Tax Discussion
payment of on various of method to
advance tax due dates calculate the
for corporate for different liability of
and non- assessees. advance tax on
corporate due dates.
assesses.
2. State the
percentage of
advance tax
to be paid by
the assesses
on due dates.
4. Role of 1. Explain 1. State under Interactive
Assessing the role of what condition Lecture:
Officer in Assessing AO can order Discussion of the
Relation to Officer in payment of role of AO.
Advance Relation to advance tax.
Payment of Advance 2. State when
Tax. Payment of can AO revise
Tax. his order.

(Note: The location would depend upon the topic under discussion. Major portion of the unit will be covered in
classroom. The students can visit different assesses to collect and analyze their TDS returns. The students may also
visit the website www.incometaxindia.gov.in to collect various forms and certificates required by different assesses.)

Learning Objectives:
After reading this unit, the students will be able to:
1. State various ways for collection and recovery of income-tax.
2. Explain the meaning of tax deducted at source.
3. Describe the Sources and applications of cash.
4. Explain various provisions relating to deduction of tax at source in respect of
various incomes.
5. Explain the meaning of advance payment of tax.
6. Explain the Presumptive Taxation Scheme.
7. Calculate the liability of advance tax on various due dates for different assesses.
8. Explain the meaning of certain keywords.

68
SESSION 1
TAX DEDUCTED AT SOURCE

The Income-tax Act provides for collection and recovery of income-tax in the following ways:
a) Advance Tax
b) Self Assessment Tax
c) Tax Deducted at Source (TDS)
d) Tax Collected at Source
e) Tax on Regular Assessment
The provisions relating to tax deduction at source and payment of tax in advance of assessment
are discussed in this chapter.

meaning of Tax Deducted at Source

Tax deducted at source (TDS) means collection of tax at the very source of income. The
concept of TDS requires that the person, on whom the responsibility has been cast by the
Act, is to deduct tax at the appropriate rates, from payments of specific nature which are
being made to a specified recipient. The person who deducts the amount of tax from the
payment has the responsibility to deposit such deducted amount to the credit of the Central
Government according to the prescribed rules and procedures. The recipient from whose
income, the tax has been deducted at source, gets the credit of the amount deducted in his
personal assessment on the basis of the certificate issued by the deductor.

Significance to Government
Its significance to the government lies in the fact that:
i) It pre-pones the collection of tax.
ii) Ensures a regular source of revenue to government.
iii) Provides for a greater reach and wider base for tax.
Significance to Tax Payer
It is also significant to the tax payer because:
i) It distributes the incidence of tax, and
ii) Provides for a simple and convenient mode of payment.
Provisions Related to Deduction of Tds
Sections 192 to 206 of the Income-tax Act lay down the provisions relating to deduction of
tax at source. The provisions in respect of different incomes are as follows:

Taxation 69
1. SALARY (Section 192)
1. This section casts an obligation on every person responsible for paying any
income (employer) which is chargeable under the head ‘salary’, to deduct
income tax on the amount payable.
2. The tax is required to be calculated at the average rate of income tax as
computed on the basis of the rates in force for the relevant financial year in
which the payment is made.
3. Average rate of income tax means the rate arrived at by dividing the amount of
income tax calculated on total income, by such total income.
4. The salary shall be computed in the same manner as discussed under the head
‘Salaries’.
5. Unlike the provisions of TDS, pertaining to payments other than salary where
the obligation to deduct tax arises at the time of credit or payment, whichever
is earlier, the responsibility to deduct tax from salaries arises only at the time
of payment.
6. It is provided that the assessee (employee) may furnish the details of the
losses under the head ‘Income from House Property’ to the employer who
shall adjust such loss in the salary income for the purposes of computing the
tax deductible from salaries. Thus, the TDS from salaries may be reduced in
such a case. No other loss from any other income shall be adjusted to reduce
the TDS deductible from the head salaries.
7. No tax will be required to be deducted at source in case the Gross Total income
does not exceeds limits prescribed Finance Act of relevant financial year.
8. The employer shall issue a certificate of deduction of tax to the employee in
Form No. 16. This certificate is to be furnished by the employee with his income
tax return after which he gets the credit of the TDS in his personal income tax
assessment.
9. The employer is required to furnish, to the employee, a statement giving correct
and complete particulars of perquisites or profits in lieu of salary provided to
him and the value thereof in prescribed form (Form 12BA) and manner.
10. Finally, the employer/deductor is required to prepare and file quarterly
statements in Form No.24Q with the Income-tax Department showing:
a) The name and address of every employee who is drawing such amount
as may be prescribed;
b) The amount of income so received by or so due to each such person;
and
c) The amount of tax deducted and deposited from the income of such
person.

70
Question 1:
Mr. Ram Kishore has a salary of Rs. 70,000 per month. He has claimed deductions of Rs.
1,00,000 during the previous year 2015- 2016. Calculate the average rate of TDS payable on
his salary and amount that would be deducted every month as TDS on salary.

Solution:
The normal tax rates for the Assessment Year 2016-17 applicable to an individual
below the age of 60 years are as follows:

u Nil up to income of Rs. 2,50,000

u 10% for income above Rs. 2,50,000 but up to Rs. 5,00,000
u 20% for income above Rs. 5,00,000 but up to Rs. 10,00,000
u 30% for income above Rs. 10,00,000

Surcharge: 12% of the Income Tax, where taxable income is more than Rs. 1 crore (subject
to marginal relief).

Education Cess: 3% of the total of Income Tax and Surcharge.

Calculation of TDS payable every month on salary

Monthly income Rs. 70,000

Annual income Rs. 8,40,000
Deductions Rs. 1,00,000
Net Taxable Income Rs. 7,40,000
Income Tax Rs. [ 25,000 + 20% of 7,30,000 – 5,00,000] Rs. 73000
Surcharge Nil
Education Cess Rs. 1,460
Secondary and higher education cess Rs. 730
Total Tax Liability Rs. 75,190

Average Rate of Tax on Salary = Total tax payable* 100 ÷ Total Annual Income
= 75,190* 100 ÷ 8,40,000
= 8.95%
Therefore, in case of Mr. Ram Kishore, 8.95% of Rs. 70,000 = Rs. 6,265 would be deducted
every month as TDS on salary.

2. Interest on Securities (Section 193)

1. Section 193 provides that the person responsible for paying to a resident any
income by way of interest on securities shall deduct income-tax at the rates in
force on the amount of the interest payable.

Taxation 71
 2. Such tax should be deducted at the time of:
a) Payment thereof in cash or by issue of a cheque or draft or by any other
mode, or
b) Credit of such income to the account of the payee, or
c) Transfer of such income to interest payable account or suspense
account, whichever is earlier.
3. However, payments from certain categories of bonds, debentures etc. are
exempt from TDS.
4. The rate of TDS on Interest on securities is 10%. The rate of TDS shall be 20%
if PAN is not quoted by the payee. No education cess and SHEC shall be added
to the rate from 1st October 2009.
3. Dividends (Section 194)
1. Where any amount is payable in the nature of “Dividends” by an Indian Company
or a Company that has made arrangement for declaration and payment of
dividend within India, the said company has to deduct tax at source as per
rates in force.
2. The deduction has to be done
a) Before the payment is made in cash or issue of cheque or dividend
warrant or
b) Before making any distribution or payment to the share holder of any
dividend u/s 2(22).
3. Exemption:
a) No such deduction shall be made in the case of a shareholder (being an
individual, who is resident in India), of a company, if:
i) The dividend is paid by such company by an account payee
cheque.
ii) The amount of dividend paid during the financial year by the
company to the shareholder does not exceed Rs. 2,500.
b) No such deduction shall be made in respect of any dividends referred to
in Section 115-O.
4. Interest other than Interest on Securities (Section 194A)
1. Section 194 A casts the obligation on any person not being an individual or
a H.U.F. who is responsible for paying to a resident any interest other than
interest on securities amounting to more than rupees Rs. 5,000 or Rs. 10,000
as the case may be to deduct tax at source.
2. Payments made to non-residents are also covered under TDS mechanism,
however, tax in such a case is to be deducted as per section 195.

72
 3. The obligation to deduct TDS shall arise at the time of:
a) Credit of such income to the account of the payee, or
b) At the time of payment thereof in cash or by issue of a cheque or draft
or by any other mode, or
c) Transfer of such income to interest payable account or suspense
account; whichever is earlier.
4. With effect from 1.6.2002, individuals and HUF covered under Section 44AB
(a) and (b) i.e. whose gross turnover of the business in the immediately
preceding financial year exceeds Rs. 1 crore (or receipts from the profession
Rs. 25 Lakhs), are also required to deduct tax at source.
5. Rate of Tax:
i) 10% plus education cess. No surcharge, education cess or SHEC shall be
added.
ii) When the payee does not furnish his PAN to deductor, tax will be
deducted 1st April 2010 @ 20%.
6. The obligation to deduct tax shall arise only if aggregate interest during the
financial year, does not exceed Rs. 5000 (Rs. 10,000 in case of banking company,
a co-operative society engaged in the business of banking or a post office).

5. Winning from Lotteries or Crossword Puzzles (Section 194B)

1. Under Section 194B, winnings from lottery or crossword puzzle or card game
and other game of any sort exceeding Rs. 10,000 are also subject to deduction
of tax at source as per rates in force.
2. The deduction is to be done at the time of payment of the winnings.
3. Rate of Tax: The prescribed rate is 30%. No surcharge, education cess or SHEC
shall be added.
4. When the prize is given partly in cash and partly in kind, income-tax will be
deducted from cash prize with reference to the aggregate amount of the cash
prize and the value of the prize in kind.
5. No income tax will be deducted from the prize given only in kind.
6. When the prize is given in installments, the tax will be deducted only at the
time of actual payment of each installment.

6. Winning from Horse Races (Section 194BB)

1. Section 194BB casts the obligation on the following persons to deduct tax at
source-
i) A book maker, or
ii) A person to whom a license has been granted by the Government under
any law for the time being in force;

Taxation 73
 a) For horse racing in any race course or;
b) For arranging for wagering or betting in any race course.
2. The obligation to deduct tax at source arises when the above mentioned
persons make payments by way of winnings from horse races in excess of Rs.
5,000.
3. Rate of Tax: The prescribed rate is 30%. No surcharge, education cess or
SHEC shall be added from 1st October 2009. When the payee does not furnish
his PAN to deductor, tax will be deducted with effect from 1st April 2010
@ 30%.
7. Insurance Commission (Section 194D)
1. Section 194BB casts the obligation on any person responsible for paying to
a resident any income by way of commission or otherwise for soliciting or
procuring insurance business (including continuance or renewal of policies).
2. Such person shall deduct income tax, at the time of crediting the account of the
payee or at the time of payment thereof, whichever is earlier.
3. No deduction shall be made from the amount of any sum credited or paid to, if
such sum does not exceed Rs. 20,000.
4. Rate of Tax:
a) The prescribed rate is 10%. No surcharge, education cess or SHEC shall
be added.
b) When the payee does not furnish his PAN to deductor, tax will be
deducted @ 20%.
8. Payment in Respect of Deposits Under National Savings Scheme Etc. (Section
194EE)
1. Where any payment is made by a person of an amount referred to in clause (a)
of sub section (2) of sec 80CCA, then such person is required to deduct tax
@20% there on.
2. Tax is to be deducted at the time of making such payment.
3. The amount standing to the credit of an assessee under National Saving
Scheme, 1987 and the interest accrued thereon is covered under this provision.
However, in following cases no tax is deductible:
a) Where amount so payable in a financial year is less than Rs. 2500/- or
b) Where payment is made to heirs of a deceased assessee.
4. Rate of Tax:
a) The prescribed rate is 20%. No surcharge, education cess or SHEC shall
be added.
b) When the payee does not furnish his PAN to deductor, tax will be
deducted @ 20%.

74
9. Commssion, Etc. on Sale of Lottery Tickets (Section 194G)
1. The person responsible for paying any income by way of commission,
remuneration or prize on lottery ticket has to deduct tax @ 10%.
2. Tax shall be deducted at the time of:
a) Credit of such income to the account of the payee, or
b) At the time of payment thereof in cash or by issue of a cheque or draft
or by any other mode, or
c) Transfer of such income to suspense account, whichever is earlier.
3. However, no tax is to be deducted, if the amount does not exceed Rs.1000.
4. Rate of Tax:
a) The prescribed rate is 10%. No surcharge, education cess or SHEC shall
be added.
b) When the payee does not furnish his PAN to deductor, tax will be
deducted @ 20%.
10. Commission or Brokerage (Section 194H)
1. Any person, not being an individual or a Hindu Undivided Family, who is
responsible for paying, to a resident any income by way of commission (not
being insurance commission referred to in Section 194D) or brokerage, shall
deduct income-tax thereon.
2. The obligation to deduct TDS shall arise at the time of:
a) Credit of such income to the account of the payee, or
b) At the time of payment thereof in cash or by issue of a cheque or draft
or by any other mode, or
c) Transfer of such income to suspense account, whichever is earlier.
3. Rate of Tax:
a) The prescribed rate is 10%. No surcharge, education cess or SHEC shall
be added.
b) When the payee does not furnish his PAN to deductor, tax will be
deducted @ 20%.
11. Rent (Section 194-I)
1. Any person not being an individual / HUF responsible for paying to a resident
any income by way of rent, has to deduct tax at source.
2. The obligation to deduct TDS shall arise at the time of:
a) At the time of payment thereof in cash or by issue of a cheque or draft
or by any other mode, or
b) Credit of such income to the account of the payee, or

Taxation 75
 c) Transfer of such income to suspense account, whichever is earlier.
3. The obligation to deduct TDS shall arise only if the amount paid as rent exceeds
Rs.1,80,000.
4. Essential features of rent are following :
a) Payment is made under any lease, sub-lease tenancy, or any other
agreement or arrangement.
b) Payment is made either for use of land or building (including factory
building) (together or separately) with or without furniture, fittings &
land appurtenant thereto.
c) Immaterial whether land or not of such building is owned by the person
to whom rent is paid.
5. Individuals and HUF covered under Section 44AB (a) and (b) i.e. whose gross
turnover of the business in the immediately preceding financial year exceeds
Rs. 1 crore (or receipts from the profession Rs. 25,00,000), are also required to
deduct tax at source.
6. Rate of Tax:
a) TDS has to be deducted at the following rates:
i) 2% for the use of any machinery, plant or equipment.
ii) 10% for use of any land or building (including factory building)
or land appurtenant to a building (including factory building or
furniture or fittings).
b) No surcharge, education cess or SHEC shall be added. When the payee does not
furnish his PAN to deductor, tax will be deducted @ 20%.
12. Professional and Technical Fees (Section 194J)
1. Any person other than an individual or a HUF is required to deduct tax @ 10%
on professional or technical fees or on any remuneration or fees or commission
by whatever name called, other than those on which tax is deductible under
section 192, to a director of a company, or royalty, or any sum referred to in
clause (va) of section 28 .
2. The obligation to deduct TDS shall arise at the time of payment or credit
whichever is earlier.
3. This obligation shall arise if the aggregate of such fees given to a person exceeds
Rs. 30,000 in a financial year.
4. Rate of Tax:
a) The prescribed rate is 10%. No surcharge, education cess or SHEC shall
be added.
b) When the payee does not furnish his PAN to deductor, tax will be
deducted @ 20%.

76
13. Interest or Dividend or any Sum Payable to Government / Rbi / Certain
Corporations (Sec. 196)
1. Section 196 provides that no deduction of tax is to be done from interest or
Dividend or any sum payable to :
a) Government or
b) RBI or
c) A Corporation established by or under any Central Act which is exempt
from income-tax on its income
d) A Mutual Fund specified under Section 10(23D).
2. Where such sum is payable by way of interest or any other income accruing or
arising to it or as dividend in respect of securities or shares owned by it or in
which it has full beneficial interest.
3. With effect from 1st January 2013, no tax shall be deducted on the following
payments made by a person to a bank listed in the Second Schedule to the
Reserve Bank of India Act, 1934, excluding a foreign bank;
a) Bank guarantee commission;
b) Cash management service charges;
c) Depository charges on maintenance of DEMAT accounts;
d) Charges for warehousing services for commodities;
e) Underwriting service charges;
f) Clearing charges (MICR charges);
g) Credit card or debit card commission for transaction between the
merchant establishment and acquirer bank.
14. Payments of other Sums to Non- Residents (Section 195)
1. Any person responsible for paying to a non-resident or foreign company any
interest or any other sum chargeable to income-tax in India, shall at the time
of payment, deduct tax at the rates in force. This sum should not be in nature
of salaries.
2. Tax is to be deducted at the time of actual payment or at the time of credit to
A/c of payee, interest payable a/c or suspense a/c, whichever is earlier.
3. In case of interest of mutual fund payable by Govt / public sector bank or in
financial institution, TDS is to be done only at the time of payment in cash or
issue of cheque/draft or any other mode.
4. No tax to be deducted in case of payment of dividend referred in Sec 115(O).
Question 2:
Mukesh Enterprises, a partnership firm took a loan of Rs. 9,60,000 from a non-resident.
Interest on loan for the financial year 2015-16 amounted to Rs. 96,000. Should the
firm deduct tax at source from the interest?

Taxation 77
Solution
Tax is to be deducted under section 194A on interest (other than interest on securities) if the
interest is paid to a resident. In this case, the firm has paid interest (other than interest on
securities) to a non-resident and hence, the firm is not liable to deduct tax at source under
section 194A. However, section 195 requires deduction of tax at source from payment made
to a non-resident. Hence, the firm is not required to deduct tax at source under section 194A
but it is required to deduct tax at source under section 195.

Lower Deduction/ Non- Deduction of Tax

Section 197 gives a right to the assessee to apply to the Assessing Officer for obtaining a
certificate that tax may not be deducted or be deducted at a lower rate in case of any sum
payable under Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J, 194K,194LA,
and 195.
1. For issue of a certificate u/s 197 the assessing officer should be satisfied that the non-
deduction/deduction of tax at a lower rate in the hands of recipient is justified.
2. The application u/s 197 has to be made in form No. 13 enclosing the documents and
furnishing particulars specified therein.
3. Where the Assessing Officer is satisfied that existing and estimated tax liability of
the person justifies the deduction of tax at lower rate or no deduction of tax, as the
case may be, he shall issue a certificate for deduction of tax at such lower rate or no
deduction of tax.
Deposition of Tax
Where tax has been deducted under Sections 193,194,194A,194B,194BB, 194C, 194D, 194E,
194EE, 194F, 194G, 194H, 194I, 194J, 194K, 195, 196A, 196B, 196C and 196D (these sections
relate to cases other than salary), it is duty of the person deducting tax at source to deposit
the amount of tax so deducted within the prescribed time in any branch of Reserve Bank of
India or State Bank of India or any authorised bank accompanied by prescribed Income-tax
challans as per the time limit and mode specified in Rule 30.

Credit of Tds
Where taxes have been deducted at source from any payment of income receivable by an
assessee, the amount of tax deducted at source would be included in the income of the
assessee while computing the income of the assessee and would be deemed to be the income
received (Section.198). Further credit will be given to the assessee while calculating the net
tax payable by him and the tax deducted at source will be treated as a payment of tax on his
behalf (Section 199).

Certificate of Tax Deducted (Section 203)

The person who deducts tax has to issue a certificate in the prescribed form to the person
from whose payments deduction has been made, showing therein the particulars of payment,

78
the date of tax deducted at source and the date of its credit to the Central Government. It is on
the basis of this certificate that the payee can claim credit for tax paid on his behalf and can
claim refund, if any, due to him on the basis of tax liability for the relevant year.

Following certificates have to be issued:

a) Form No. 16, if the deduction or payment of tax is under section 192 (case of salary);
and
b) Form No. 16A if the deduction is under any other provision of Chapter XVII-B (cases
other than salary).

The deductor is also required to specify the following in Form No. 16:

a) Valid Permanent account number (PAN) of the deductee;

b) Valid tax deduction and collection account number (TAN) of the deductor;
c) (i) Book identification number or numbers where deposit of tax deducted is
without production of challan in case of an office of the Government.
(ii) Challan identification number or numbers in case of payment through bank.
d) (i) Receipt number of the relevant quarterly statement of tax deducted at
source which is furnished in accordance with the provisions of rule 31A;
(ii) Receipt numbers of all the relevant quarterly statements in case the statement
referred to in clause(i) is for tax deducted at source from income chargeable
under the head “Salaries”.
Refund of Tds
In case of excess deduction of tax at source, claim of refund of such excess TDS can be made
by the deductor in prescribed format. The difference between the actual payment made by
the deductor and the tax deductible at source will be treated as the excess payment made.

E-Tds Return
E-TDS implies, filing of the TDS return in electronic media as per prescribed data structure in
either a floppy or a CD ROM. The aforesaid requirement is essentially a part of the process of
automation of collection, compilation and processing of TDS returns. Preparation of returns
in electronic forms or e-TDS will eventually be beneficial to the deductor by cutting down the
return preparation time, reducing the volume of documentation and thereby economizing
the compliance cost. At the same time, it will also facilitate the Government in better co-
relation of taxes deducted with the taxes finally deposited in the banks and credits of TDS
claimed by the deductees.

The following points should be considered with respect to E-TDS:

1. E-TDS return is prepared in the form Nos. 24Q, 26Q or 27Q in electronic media as per
prescribed data structure either in a floppy or in a CD-ROM. The floppy or CD-ROM

Taxation 79
 prepared should be accompanied by Form No. 27A should be signed and verified in
the prescribed manner.
2. The CBDT has appointed the Director General of Income Tax (Systems) as e-filing
administrator for the purpose of electronic filing of returns of TDS Scheme, 2003.
3. CBDT has also appointed National Securities Depository Limited (NSDL) as e-TDS
intermediary.
4. E-TDS return can be filed at any of the TIN Facilitation Centres (TIN FCs) opened by
the e-TDS intermediary for this purpose.
5. E-Filing of quarterly statement of TDS is mandatory for the deductors where;
a) The deductor is an office of the Government.
b) The deductor is the principal officer of a company.
c) The deductor is a person required to get his accounts audited under section
44AB in the immediately preceding financial year, or
d) The number of deductees records in a quarterly statement for any quarter of
the financial year are twenty or more.
6. However, for other deductors filing of e-TDS return is optional.
Tax Deduction and Collection Account Number (TAN)
A person who deducts tax at source, if not already allotted a TAN (or a tax collection account
number) should apply for allotment of TAN. The application has to be made in Form No. 49B
in duplicate to the Assessing Officer (AO) or to any particular Assessing Officer where this
duty is assigned by the Chief Commissioner or the Commissioner to that A.O. The assessee
has to file the application within one month from the end of the month in which the tax is
deducted for the first time

Duties of Persons Deducting Tax at Source

1. Deduct Tax at Correct Rate and Deposit in Government Account (Sec. 200) : Every
person responsible for deducting tax at source shall at the time of payment or credit
of income, whichever is earlier, must deduct such tax as per the prescribed rates and
deposit such tax deducted in the Central Government Account within the prescribed
time as specified in Rule 30.
2. Issue a TDS Certificate : Further, such person is required to issue a certificate of tax
deduction at source u/s 203 to the person from whose income the TDS has been done,
in the prescribed form, i.e., Form No.16A or 16 within prescribed time (as discussed
earlier).
3. File Prescribed Return/Quarterly Statement : A return of TDS is a comprehensive
statement containing details of payments made and taxes deducted thereon along
with other prescribed details. W.E.F. 01.04.2005, only Quarterly statements of T.D.S.
(and not annual returns) are to be submitted in form 26Q by the deductors.

80
4. Filing of Return on Computer Readable Media : Section 206(2) states that the
deductor may file the statement of TDS on computer readable media. However,
the Finance Act 2003 has provided that w.e.f. 01.06.2003, a statement in computer
readable media is to be filed only in accordance with such scheme and manner, as may
be specified by the Board.
Rights of Tax Payer
1. Credit of TDS : The person from whose income (payment) the tax has been deducted
i.e. Payee or assessee shall not be asked upon to pay the tax himself to the extent tax
has been deducted (Sec.205). Moreover such tax deducted at source shall be treated
as payment of tax on behalf of the payee (assessee).
2. TDS Certificate : U/s 203 payee (tax payer) is entitled to obtain a certificate from the
payer (tax deductor) in Form 16-A specifying the amount of tax deducted and other
prescribed particulars. This has been discussed in detail earlier.
3. Form 26 AS : As per section 203AA the prescribed income tax authority or the
person authorized by such authority will be required to deliver to the person from
whose income the tax has been deducted/ paid, a statement of deduction of tax in the
prescribed form (Form no.26AS) by the 31st July following the financial year during
which the taxes were deducted/ paid.
Penalties and Prosecution
Any default in compliance of various provisions of TDS can attract, levy of interest, penalty
and in certain cases initiation of prosecution proceedings. The possible defaults and the
consequential proceedings are as follows:

1. Failure to deduct tax : Where the employer has failed to deduct tax or when short
deduction of tax has been done, following statutory provisions are attracted:-
a) Interest u/s 201(1A) : The deductor is treated to be ‘assessee in default’ in
respect of the short deduction/non deduction of tax. He is liable to pay simple
interest @ 1% for every month or part of a month on the amount of tax in arrear
from the date on which such tax was deductible to the date on which such tax
is actually deducted. Further such interest shall be paid before furnishing the
quarterly statement of each quarter.

Charging of interest u/s 201(1A) is mandatory and there is no provision for its waiver.

b) Penalty
i) Penalty u/s 221 : The assessee in default is liable to imposition of
penalty where the assessing officer is satisfied that the defaulter has
failed to deduct tax as required without good and sufficient reason. The
quantum of penalty is not to exceed the amount of tax in arrear. Besides,
a reasonable opportunity of being heard is to be given to the assessee.

Taxation 81
 ii) Penalty u/s 271C : A penalty equivalent to the amount of tax the
deductor has failed to deduct, is leviable u/s 271C. Such penalty is
however, only leviable by a Joint Commissioner of Income Tax.
2. Failure to deposit tax in govt. account after deduction : Where the employer has
deducted the tax at source but failed to deposit wholly or partly, the tax so deducted
in government account, the following statutory provisions are attracted:-
a) Interest u/s 201(1A) : The deductor is treated as an assessee in default and
interest u/s 201(1A) is leviable @ 1.5% for every month or part of the month
on the amount of such tax from the date on which such tax was deducted to the
date on which such tax is actually paid. Further, the tax along with the simple
interest u/s 201(1A) becomes a charge upon all the assets of the deductor.
b) Penalty u/s 221 : Penalty to the extent of tax not deposited is leviable by the
A.O. as discussed earlier.
c) Prosecution Proceedings u/s 276 B : Where the deductor has failed to
deposit tax deducted at source, in Government account without a reasonable
cause then he is punishable with rigorous imprisonment for a term extends
from 3 months to 7 years and with fine.
3. Failure to apply for T.A.N or to quote T.A.N. (tax deduction and collection
account number) : Where a person who is responsible to deduct tax at source has
failed, without reasonable cause:-
a) To apply for T.A.N. within prescribed period or,
b) After allotment, failed to quote such TAN in challans for payment of tax or
TDS certificate or returns of TDS, then a penalty of a sum of Rs.10,000 and
is imposable by the assessing officer. However, a reasonable opportunity of
hearing must be given to the employer/ deductor.
4. Failure to furnish TDS certificate or returns/ statement of tax deduction at
source (penalty u/s 272A(2)) : Where the employer has failed to issue TDS certificate
(form 16) within one month of the end of financial year(by 31st of May of the next
F.Y. for F.Y. 2010-11 onwards) or has failed to furnish the quarterly statement of tax
in form 24Q, within the time prescribed u/s 200(3) (rule 31A), then a penalty of
Rs. 100 is leviable for each day during the period for which default continues. The
quantum of penalty is not to exceed the tax deductible and it is to be levied only by
a Joint Commissioner or Joint D.I.T. after giving the assessee an opportunity of being
heard.
5. Prosecution u/s 277 : Where a person, who is required to furnish statement u/s
200(3) (quarterly statements) makes a false statement in verification or, delivers an
account or statement which is false and which the person knows or believes to be
false, then he is punishable with rigorous imprisonment for a term which shall not
be less than 3 months but which may extend to 7 years along with fine. Where the
amount of tax, which would have been evaded if the statement or account had been

82
 accepted as true, is 1 lakh rupees or less, then rigorous imprisonment may be from 3
months to three years and with fine.
Exercise
1. Under Payment in respect of Deposits under National Savings Scheme, Section 194EE,
deduction shall not be made if the amount of payment or the aggregate of payment to
the payee during the financial year is less than__________.
a) Rs. 1,500
b) Rs. 2,500
c) Rs. 3,500
d) Rs. 4,500
2. The obligation to deduct TDS shall arise only if the amount paid as rent exceeds
a) Rs. 60,000
b) Rs. 90,000
c) Rs. 1,20,000
d) Rs. 1,80,000
3. Which of the following does not relate to the meaning of ‘rent’?
a) Payment under lease
b) Payment under purchase
c) Payment under sub-lease
d) Payment under tenancy
4. The responsibility to deduct tax from source arises only at the time of payment in
which of the following case:
a) Salary
b) Dividends
c) Insurance commission
d) Interest other than securities
5. Which of the following has been appointed as e-filing administrator for the purpose of
electronic filing of returns of TDS Scheme, 2003
a) CBDT
b) Director General of Income Tax
c) National Securities Depository Limited
d) Central Government

Taxation 83
6. Which of the following form is used, if the deduction or payment of tax is under
section 192 :
a) Form 16
b) Form 16A
c) Form 24Q
d) Form 26Q

Answers: 1. b, 2. d, 3. b, 4. a, 5. b, 6. a

84
SESSION 2
ADVANCE PAYMENT OF TAX

Section 207-219 of the Income Tax Act deals with the issues relating to advance payment
of tax. Advance tax payment is the payment of tax liability by an assessee before the end
of the financial year. As the name suggests, advance tax refers to paying a part of the taxes
before the end of the financial year. Also called ‘pay-as-you-earn’ scheme, it should be paid
in the year in which the income is received. It is kind of mandatory payment of tax, assessed
by the assessee himself on income before completion of the Financial Year. For instance: if
the advance tax liability of the assessee for the financial year 2015-16 is Rs. 70,000, he is
expected to pay it in FY15-16 itself.

Advance tax receipts help the government to get a constant flow of income throughout the
year so that expenses can be incurred rather than receiving all tax payments at the end of the
year.

Liability of Assessee to Pay Advance Tax

As per section 208, every person whose estimated tax liability for the year is Rs. 10,000 or
more, shall pay his tax in advance, in the form of “advance tax”.

Person Not Liable to Pay Advance Tax

Certain persons are not liable to pay advance tax even if their tax liability is Rs. 10,000 or
more:

1. A resident assessee 60 years or more, not having any income from business or
profession, need not pay advance tax and are allowed to discharge their tax liability
(other than TDS) by payment of self-assessment tax, and
2. An assessee who has opted for the Presumptive Taxation Scheme under section 44AD
on at the rate of 8 per cent of turnover, shall be exempted from payment of advance
tax related to such business w.e.f. from the assessment year 2011‐ 12.
Notes:
1. The scheme of section 44AD, commonly known as CC small taxpayers engaged in
a business (other than the business of plying, hiring or leasing of goods carriages
referred to in section 44AE).
2. A taxpayer adopting these provisions will not be required to maintain the regular
books of account and is also exempt from getting the books of account audited.

Taxation 85
3. This scheme can be opted for by the eligible assessee who is engaged in a
business (except the business of plying, hiring or leasing goods carriages referred
to in section 44AE), whose turnover or gross receipts from such business do
not exceed the limit prescribed (i.e., Rs. 1,00,00,000 from the previous year
2012-13).
4. The provisions of section 44AD are applicable to resident assessee who is an Individual,
Hindu Undivided Family and Partnership Firm but not an LLP.
5. The Presumptive Taxation Scheme under section 44AD cannot be adopted by an
assessee who is engaged in any profession as prescribed under section 44AA or is
carrying on an agency business or is earning income in the nature of commission or
brokerage.
6. If an assessee adopts this scheme, his income will be computed on an estimated
basis. The rate of computation of income on an estimated basis is 8% of turnover or
gross receipts of the eligible business for the previous year.
Adjustment of Advance Tax
Section 219 states that the total advance tax paid by an assessee other than for interest is to
be adjusted against the total tax liability computed under regular assessment.

If an assessee, who is liable to pay advance tax, under Section 208 has failed to pay such tax
or where the advance tax paid under Section 210 is less than 90% of the assessed tax, he shall
be liable to pay interest @ 1% for every month or part of the month.

Question 3: Mr. Pandey is running a departmental store. The turnover of the store for
the financial year 2015-16 amounted to Rs. 75,00,000. He wants to declare
income under section 44AD at 8% of the turnover. He does not have any
other source of income. Is he liable to pay advance tax?
Solution :
As Mr. Pandey satisfies the criteria of section 44AD in respect of departmental store business,
so he can opt for the provisions of section 44AD and declare income at 8% of the turnover.

An assessee who is adopting the provisions of section 44AD will not be liable to pay advance
tax in respect of business covered under section 44AD. Thus, if Mr. Pandey adopts the scheme
of section 44AD, he will not be liable to pay advance tax in respect of income generated from
business of departmental store.

Question 4: Mr. Gupta (age 45 years) is running an interior decoration business. His
turnover for the financial year 2015-16 amounted to Rs. 60,00,000. He has
not adopted the presumptive taxation scheme of section 44AD and has
maintained the books of accounts. The accounts revealed a net profit of Rs
6,00,000. Is he liable to pay advance tax?

86
Solution
Mr. Gupta has not adopted the provisions of section 44AD. Therefore, he will be liable
to pay advance tax in respect of income generated from his business if his
estimated tax liability for the financial year comes out to Rs. 10,000 or more.

The taxable income of Mr. Gupta is Rs. 6,00,000. His tax will be Rs. 46,350 which is more than
Rs. 10,00. Thus, Mr. Gupta will be liable to pay advance tax.

The normal tax rates for the Assessment Year 2016-17 applicable to an individual below the
age of 60 years are as follows:

u Nil up to income of Rs. 2,50,000

u 10% for income above Rs. 2,50,000 but up to Rs. 5,00,000
u 20% for income above Rs. 5,00,000 but up to Rs. 10,00,000
u 30% for income above Rs. 10,00,000.

Surcharge: 12% of the Income Tax, where taxable income is more than Rs. 1 crore (subject
to marginal relief).

Education Cess: 3% of the total of Income Tax and Surcharge.

Due Dates for Payment of Advance Tax

​Status By 15th June of By 15th By By 15th March
the previous September of the 15 December
th
of the previous
year previous year of the previous year
year
Corporate Upto 15% of Upto 45% of Upto 75% of Upto 100%of
advance tax due advance tax advance tax advance tax
due as reduced due as reduced due as reduced
by amount by amount by amount
paid in earlier paid in earlier paid in earlier
installments installments installments
Non-Corporate Nil Upto 30% of Upto 60% of Upto 100% of
the advance tax the advance tax the advance tax
payable payable as payable as
reduced by reduced by
amount paid amount paid
in earlier in earlier
installments installments

NOTES:
1. Any payment of advance tax payable made before March 31 shall be treated as advance
tax paid during the financial year.

Taxation 87
2. In case of public holiday or bank holiday, date of payment automatically falls in the
next working day. Interest is not charged for that delay.
3. Tax is to be computed at the prevailing rate on the current income of the assessee, in
a financial year.
Question 5: Mr. Khanna is a architect. His estimated tax liability for the financial year
2015-16 amounted to Rs. 2,00,000. By which dates he should pay advance
tax and how much?
Solution
Installments Due date Amount due to be paid Amount
paid
First 15th September, Upto 30% of the advance tax payable Rs. 60,000
installment 2015
Second 15th December, Upto 60% of the advance tax payable Rs. 60,000
installment 2015 as reduced by amount paid in earlier
installments, i.e., Rs. 1,20,000 – Rs. 60,000
Third 15th March, Upto 100% of the advance tax payable Rs. 80,000
installment 2016 as reduced by amount paid in earlier
installments

Mode of Payment of Advance Tax

It is mandatory for a corporate taxpayer (i.e., a company) and a tax payer under section 44AB
to pay taxes through the electronic payment mode using the internet banking facility of the
authorised banks.

Other taxpayers can pay tax either by electronic mode or by physical mode i.e. by depositing
the challan at the receiving bank.

Change in Tax Liability after Making Payment of First or Second Installment

If, after paying first or second installment of advance tax, there is a change in the tax liability,
then the taxpayer can revise the amount of advance tax in the remaining installments and
pay the tax according to revised tax liabilty.

Question 6: Mr. Sohan is a lawyer. His estimated tax liability for the year 2015-16 amounts
to Rs. 2,00,000. He has paid advance tax of Rs. 60,000 by 15th September. In
late September, a client paid him a fee of Rs. 3,60,000 after deducting tax
at source of Rs. 40,000 (Such fees of Rs. 3,60,000 was considered at earlier
occasion for estimating the tax liability of taxpayer). In this case how much
of advance tax he is required to pay in the remaining installments?

88
Solution :
First installment
The first installment becomes due on 15th September when Mr. Sohan has to pay 30% of his
estimated tax liability (30% of Rs. 2,00,000 = Rs. 60,000).
Second installment
The taxpayer can adjust the TDS from his income while computing the advance tax liability. In
this case, at the time of estimate of first installment there was no TDS credit with Mr. Sohan.
His estimated tax liability without TDS amounted to Rs. 2,00,000. But in late September he
received Rs. 3,60,000 after deduction of tax of Rs. 40,000 for which he can get a TDS credit
of Rs. 40,000. Therefore, his tax liability will decrease after granting the credit of TDS to Rs.
1,60,000.

In second installment, i.e., by 15th December he has to pay up to 60% of his revised tax liability.
Thus, he should pay up to Rs. 96,000 (i.e., 60% of Rs. 1,60,000) by 15th December. But he has
already paid Rs. 60,000 by 15th September and, hence, he will have to pay only the balance of
Rs. 36,000 by 15th December.
Third installment
In third installment, i.e., by 15th March he he has to pay 100% of his estimated tax liability.
Thus, he should pay Rs. 1,60,000 by 15th March. He has already paid Rs. 96,000 till
15th December. Therefore, he has to pay balance of Rs. 64,000 by 15th March (i.e., Rs. 1,60,000
– Rs. 96,000).

Role of Assessing Officer in Relation to Advance Payment of Tax

1. An Assessing Officer (AO) can order payment of advance tax if following conditions
are satisfied:
a) The assessee has already been assessed by way of regular assessment in
respect of total income of any previous year.
b) The assesse has failed to pay such tax.
c) The AO is of the opinion that such person is liable to pay advance tax on current
year’s income.
d) The order must specify the amount of advance tax and installments in
which advance tax has to be paid.
e) The order must be made in writing.
f) Such order may be passed during the previous year but not later than last day
of February.
2. The assessee can pay advance tax at a rate lower than assessment made by the AO,
after submitting his own estimate of income in Form No. 28A. However, for higher
estimate made by the assessee, Form 28A is not required to be furnished.

Taxation 89
3. The AO will find out the current income of the assessee on the following basis:
a) Total income of the latest previous year in respect of which the assessee has
been assessed by way of regular assessment.
b) The total income returned by the assessee for any previous year subsequent to
the previous year for which regular assessment is made, whichever is higher.
4. Section 210(4) provides that AO can revise his order issued to the taxpayer to
pay advance tax (as discussed above), if subsequent to the passing of an order
to pay advance tax but before 1st March of the relevant financial year, (i) a return
of income in respect of any later year has been furnished by the taxpayer or
(ii) any assessment for any later year has been completed, at a higher figure.
On receipt of such order, the procedure to be followed by the taxpayer will be same as
discussed earlier.
Exercise
State whether the following statements are true or false:
1. If a person responsible for deduction of tax at source fails to deduct the appropriate
tax, or after making the due deduction fails to deposit it into the Government treasury,
he is liable to prosecution.
2. It is obligatory for an assessee to pay advance tax where the amount of tax payable is
Rs. 5000 or more.
3. Presumptive Taxation Scheme is incorporated to give relief to a resident assessee of
60 years or more.
4. If an assessee, who is liable to pay advance tax, under Section 208 has failed to pay
such tax, he shall be liable to pay interest @ 5% for every month or part of the month.
5. It is mandatory for every assessee to pay taxes through the electronic payment mode.
6. A corporate tax payer must pay 15% of the advance tax due by 15th June of the
previous year.
Answers : 1. False, 2. False, 3. False, 4. False, 5. False, 6. True

Keywords
1. TDS : Tax deducted at source (TDS) means collection of tax at the very source of
income.
2. E-TDS : E-TDS implies, filing of the TDS return in electronic media as per prescribed
data structure in either a floppy or a CD ROM.
3. TAN : It is Tax Deduction and Collection Account Number. It is mandatory for every
person who deducts tax at source, to have a TAN.
4. Advance Payment of Tax : Advance tax payment is the payment of tax
liability by an assessee before the end of the financial year.

90
5. Presumptive Taxation Scheme : An assessee who has opted for the Presumptive
Taxation Scheme under section 44AD on at the rate of 8 per cent of turnover, shall
be exempted from payment of advance tax related to such business w.e.f. from the
assessment year 2011‐12.
Summary
u The Income-tax Act provides for collection and recovery of income-tax in the following
ways, namely :
l Deduction of tax at source in respect of income by way of salaries, interest on
securities, interest other than interest on securities, winnings from lotteries
and crossword puzzles, winnings from horse-race, insurance commission,
dividends, payment to contractors or subcontractors and payments to non-
residents.
l Advance payment of income-tax before the assessment by the assessee himself.
l Direct payment of income-tax by the assessee on self-assessment.
l After the assessment is made by the Assessing Officer.
l Tax collected at source.
u Sections 192 to 206 of the Income-tax Act lay down the provisions relating to deduction
of tax at source.
u Section 197 gives a right to the assessee to apply to the Assessing Officer for obtaining
a certificate that tax may not be deducted or be deducted at a lower rate in case of any
sum payable under Sections 192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194I, 194J,
194K,194LA, and 195.
u Certificate of tax deducted at source is to be issued by the person deducting TDS to
the assessee so that the latter can claim credit for tax paid on his behalf and can claim
refund, if any, due to him on the basis of tax liability for the relevant year.
u E-TDS implies, filing of the TDS return in electronic media as per prescribed data
structure in either a floppy or a CD ROM.
u Section 207-219 of the Income Tax Act deals with the issues relating to advance
payment of tax. In advance payment of tax, the assessee has to pay tax in a financial
year under estimated income which is to be taxed in the subsequent assessment year.
It follows the doctrine known as pay as you earn scheme.
u It is obligatory for an assessee to pay advance tax where the advance tax payable is Rs.
10,000 or more (Section 208).
Exercise
I. Short Answer Questions
1. What is Tax deducted at Source?
2. What is E- TDS? For which persons is e-filing of TDS mandatory?

Taxation 91
 3. What is Advance Tax payment? Which persons are not liable to pay advance
tax?
4. Differentiate between TDS and Advance Tax Payment.
5. Explain the benefits of tax deducted at source to government.
6. What is TAN? Which form is required to apply for TAN?
7. State which forms have to be issued as certificate of tax deducted at source.

II. Long Answer Questions

1. Explain the provisions of section 197 regarding lower deduction/non-
deduction of tax.
2. Explain the various duties of persons deducting tax at source and the rights of
taxpayers.
3. Explain the Presumptive Taxation Scheme under section 44AD.
4. Explain the role of Assessing Officer in relation to Advance Payment of Tax.
5. Explain the possible defaults in compliance of provisions of TDS and the
consequential proceedings.
6. State the provisions regarding deduction of tax at source in respect of the
following incomes:
a) Rent
b) Dividends
c) Professional or technical fees
d) Winning from horse races

III. Numerical Questions

1. Mr. Sharma is an architect. His estimated tax liability for the year 2016-
17 amounts to Rs. 3,00,000. He has paid advance tax of Rs. 90,000 by 15th
September. On 26th November, 2016, he got a contract after which the, his income
for the year increased and his revised tax liability for the year amounted to Rs.
4,00,000. In this case, how much advance tax he is required to pay in subsequent
installments?
(Answer: 15th December- Rs. 1,50,000; 15th March- Rs. 1,60,000)

2. Mr. Tondon (age 45 years) runs a furniture business. The turnover of the
business for the financial year 2015-16 amounted to Rs. 50,00,000. He has not
adopted the provisions of section 44AD and has maintained the regular books
of account as per the provisions of section 44AA. The accounts revealed a net
profit of Rs. 2,64,000. Will he be liable to pay advance tax?
(Answer: No)

92
 3. Sheela Enterprises, a partnership firm took a loan of Rs. 10,00,000 from a person
resident in India. Interest on loan for the financial year 2015-16 amounted to
Rs. 10,000. Should the firm deduct tax at source from the interest?
(Answer: Yes, under section 194A)

4. Mr. Umesh Kumar has a monthly salary of Rs. 80,000. Deductions claimed by
him are Rs. 50,000 during the previous year 2015- 2016. Calculate the average
rate of TDS payable on his salary and amount that would be deducted every
month as TDS on salary.
(Answer: Total tax liability- Rs. 110210, Average Tax Rate- Rs. 11.48%,
Rs.9184 would be deducted every month)

Annexure 1
List of forms of certificates to be issued and necessary form to be filed with Assessing Officer
by the persons deducting the tax at source.

Categories of payment Form No. of Form No. of return

Certificate to be filed with
Assessing Officer
1. Salaries 12BA, 16, 16AA 24Q
2. Interest on Securities (Government) 16A 26Q
3. Interest on Securities (Others) 16A 26Q
4. Interest other than Interest on Securities 16A 26Q
5. Dividends 16A 26Q
6. Winnings from Lotteries/Crossword
puzzles 16A 26Q
7. Winnings from Horse Races 16A 26Q
8. Insurance commission 16A 26Q
9. National Savings Scheme etc. 16A 26Q
10. Payment to non-resident 16A 27Q 16A 27Q
11. Rent 16A 26Q
12. Commission (not being insurance 26Q
commission) or brokerage
13. Fee for professional or technical services 16A 26Q

Taxation 93
Unit 4
 GOODS AND SERVICE TAX (GST)

Unit-4 Goods and Service Tax (GST)

Location: Meaning of Direct Tax and GST
Classroom Learning Knowledge Performance Teaching and
Outcome Evaluation Evaluation Training Method
1. Meaning of 1. Explain the 1. Differentiate Interactive
Direct and meaning of between Direct Lecture:
Indirect Taxes. Direct and and Indirect Introduction of
Indirect Taxes. Taxes. various types
2. Identify various of Indirect
taxes into Direct Taxes prior to
and Indirect tax. coming of GST on
01/07/2017
SESSION 2: INTRODUCTION TO GST
1. Previous (upto 1. Explain the 1. Understand the Interactive
30/06/2017) previous multiplicity of Lecture:
Indirect Tax indirect system taxes and other Discussion on the
Structure and of VAT, Central difficulties in various taxes and
its difficulties. Excise & the previous tax rates under the
Service Tax. taxation regime. pre - GST system.
2. Describe the
difficulties
of previous
system.
1. Meaning of GST 1. Explain the 1. Analyze the Interactive
& why GST. concept of GST. meaning of GST Lecture:
as an Indirect Discussion on
Tax. meaning and
objectives of GST.

94
 Classroom Learning Knowledge Performance Teaching and
Outcome Evaluation Evaluation Training Method
2. Understand the
importance of
Constitutional
Amendment for
introduction
of GST &
constitution of
GST Council.
1. Features of GST 1. Explain the 1. Analyze the Interactive
features of GST features of GST. Lecture:
(CGST/SGST/ 2. Understand 1. Discussion
UTGST/ IGST) the difference of various
2. State the between GST features of GST
advantages and previous Law (CGST Act
and challenges system of & SGST Act of
of introducing indirect taxation. any state).
GST regime. 3. Explain the 2. Discussion on
advantages and the advantages
challenges of and the
introducing GST. challenges of
GST.

1. Method of 1. Solve the Interactive

computing GST problems of Lecture:
liability in case calculating l Discussion
of intra-state GST liability on the dual
and inter-state in different GST and IGST
supplies. situations. calculation.
2. Registration in 2. Solve are explain l Discussion on
GST. due date of various types
3. Filling of GST registration and of Returns in
Returns. discussion on GST.
dates/eligibility
prescribed for
Registration
under Section
22 & 24 of CGST
Act, 2017.
3. Dates for Filing
of GST Returns.

(Note: The location for discussion will be the classroom for the theoretical interactions, the student will be required to
visit registered and unregistered dealers and also the websites of tax department of respective states like http://www.
gstindia.com/, http://finmin.nic.in, http://dor.gov.in/, http://www.cbec.gov.in/ and websites of respective states)

Taxation 95
 Learning Objectives:
After reading this unit, the students will be able to:
1. Understand the difference between direct taxes and Indirect taxes.
2. Explain the present indirect tax structure.
3. Explain the meaning of GST.
4. Explain the features of GST.
5. Identify the difference between GST and previous taxation system
(VAT/Central Excise & Service Tax).
6. Describe the advantages and disadvantages of GST.

96
SESSION 1
MEANING OF DIRECT Tax AND gst tax

A Direct tax is the tax whose burden is directly borne by the person on whom it is imposed,
i.e., its burden cannot be shifted to others. It is deducted at source from the income of person
who is taxed. For example: Income tax is a direct tax because the person, whose income
is taxed, is liable to pay the tax directly to the Government and bear the burden of the tax
himself. Other examples of direct tax are:

i) Corporation Tax: It is levied on profit of corporations and companies.

ii) Wealth Tax: It is imposed on property of individuals depending upon the value of
property.
iii) Gift Tax: It is paid to the Government by the recipient of gift depending on value of
gift.
iv) Estate Duty: It is charged from successor of inherited property.
It is not desirable to avoid payment of taxes. They are levied directly on income and
property of persons, who pay directly to the Government.
On the other hand when (i) liability to pay a tax is on one person and (ii) the burden
of that tax shifts on some other person, this type of tax is called an indirect tax. Thus,
Indirect Tax is a tax whose burden can be shifted to others. For example:
i) Sales Tax or VAT [up to 30/06/2017]
It is an indirect tax on sale of goods because liability to collect tax is that of shopkeeper
but the burden of that tax falls on the customer. The shopkeeper realizes the tax
amount from the customer by including it in the price of the commodity that he sells.,
ii) Central Excise duty:
It is paid by the producer (manufacturer) of goods, who recovers it from wholesalers
and retailers.
iii) Service Tax:
It is raised on provision of Service.

Taxation 97
SESSION 2
INTRODUCTION TO GST

PREVIOUS (upto 30/06/2017) INDIRECT TAX STRUCTURE AND ITS DIFFICULTIES

The history of Indian taxation goes back to ancient period. According to Arthashastra, the
book written by Kautilya, in ancient time taxes were levied and collected in both cash and
kind. The modern history of Indirect taxes starts from the early 20th century when Central
Excise Duty was imposed on Salt, Sugar, Motor Spirit, etc. Gradually the base of Excise
duties was widened. At the time of independence, the system of Central Excise Duty at the
national level and the Sales Tax at the State level was prevailing. After prolonged efforts and
amendments, VAT was introduced first in Indian State of Haryana in 2003 and thereafter in
24 States/UTs including Punjab, Chandigarh, HP, J&K and Delhi in 2005. If the VAT was a major
improvement over the pre-existing Sales Tax regime , then the Goods and Services Tax (GST)
is indeed an remarkable improvement and the next logical step towards realising perfection
in taxation system in the country. Initially, it was proposed that there would be a single and
national level GST. However, with the release of First Discussion Paper by the Empowered
Committee of the State Finance Ministers on 10.11.2009, it was made clear that there would
be a “Dual GST” in India, i.e., the taxation power will be in the hands of the Centre and the
States (both) to levy the taxes on the Goods and Services. Again, the decision to introduce
GST kept on getting delayed due to political, technical and administrative causes. However,
the GST tax regime has been finally implemented from 1st July, 2017 across India. Thus there
is a economic union of the country with ONE TAX, ONE MARKET AND ONE NATION.

EVOLUTION OF TAXATION SYSTEM IN INDIA

Previously, the powers to levy tax between the Centre and the States were clearly divided in
the Constitution with almost no overlap between the respective domains. The Constitution
empowered the Central Government to impose:

u Excise Duty on manufacture and production (except alcoholic liquor for human
consumption, opium, narcotics etc.), and
u Service Tax on the provision of services.
Further, constitution empowered the State Governments to impose sales tax or value added
tax (VAT) on the sale of goods.

98
This division of fiscal powers on goods and services had led to a multiplicity of indirect taxes
in the country with variable compliance system & rates etc. In case of inter-State sales, the
Centre had the power to impose a tax (the Central Sales Tax). However the tax was collected
and retained entirely by the consuming states where the goods were sold. Further, many
States imposed an entry tax / octroi on the entry/sale of goods in local areas. This had
resulted in the following difficulties:

u This multiplicity of taxes at the State and Central levels had resulted in a complex
indirect tax structure in the country with hidden costs for the trade and industry.
Also, there was no uniformity in various taxes and tax rates across States.
u Secondly, there was cascading effect of taxes due to ‘tax on tax’. No credit of excise duty
and service tax paid at the stage of manufacture/ provision of service was available to
the consumers while paying the State level sales tax or VAT and vice-versa.
u Further, no credit of taxes paid in one State could be availed in other States. Hence,
the prices of goods and services used to get inflated.
MEANING OF GOODS AND SERVICE TAX
GST is a destination based indirect tax on consumption of goods and services, i.e., the tax
would accrue to the taxing authority (State/Union Territory) which has jurisdiction over
the place of consumption, which is termed as place of supply. Under the GST scheme, no
distinction is made between goods and services for levying of tax. In other words, goods and
services attract the GST. It is imposed at all stages right from manufacture/supply of services
up to final consumption with credit of input taxes paid at each stage available as setoff in the
subsequent stage of taxation . In short, only value addition will be taxed and burden of tax is
to be borne by the final consumer.

SALIENT FEATURES OF GST UNDER MODEL GST LAW

GST Council
GST council is the main decision making body, which is formed to finalized the design of
Goods and Service Tax. It is a Governing body and Union Finance Minister is the chairman of
this council, it also includes the Minister of State (Revenue) and the State Finance / Taxation
Ministers. The GST council will make recommendation on:

u Taxes, cusses and surcharges to be subsumed under GST;

u Goods and services, which may be taxed to, or exempt from GST;
u The threshold limit of turnover for application of GST;
u Rates of GST;
u Model GST laws, principles of levy, apportionment if IGST and principles that governs;
u The place of supply;
u Rates including floor rates with bands of GST;

Taxation 99
u Special provisions with respect to the Assam, Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Jammu and Kashmir, and
Uttarakhand; and other related matters.
1. Supply Based Tax
GST is applicable on “supply” of goods or services as against the previous concept of
tax on the manufacture of goods or on sale of goods or on provision of services.
2. Destination- Based Consumption Tax
GST is a destination-based tax. This implies that all SGST (or UTGST) collected will
ordinarily accrue to the State (or Union Territory) where the consumer of the goods
or services receives supply.
3. Dual GST
Both Centre and States simultaneously have the power to impose GST across the
entire supply chain. Centre would levy and collect Central Goods and Services Tax
(CGST) and States would levy and collect the State Goods and Services Tax (SGST) on
all supplies within a State. (Intra-state supply).
Example:

Suppose Vikas, a dealer in Haryana sold goods to Anand in Haryana worth Rs. 10,000. If GST
rate applicable on those goods is 18%, it would comprise of of CGST 9% and SGST 9%. In
such a case, the dealer collects Rs. 1800 of which Rs. 900 will go to the Central Government
and Rs. 900 will go to the Government of Haryana.

4. INTER-STATE SUPPLIES AND IGST MECHANISM

The Centre would levy and collect the Integrated Goods and Services Tax (IGST) on:
u All inter-State supply of goods and services in India.
u Inter-state stock transfers of goods.
u Import of goods / services.
u Export of goods / services.
The IGST mechanism has been designed to ensure seamless flow of input tax credit from one
State to another. The inter-State supplier would pay IGST on the supply of his goods and/
or services to the Central Government, which will be collected by the Central Government as
IGST.

The importing consumer( dealer/manufacturer) will claim credit of IGST while discharging
his output tax liability (both CGST and SGST) in his own State. Centre will transfer to the
importing State the credit of IGST used in payment of GST.

5. REPLACEMENT OF EXISTING TAXES

The following taxes from previous taxation system have been subsumed under GST:

100
Central Taxes subsumed under CGST or IGST
i. Central Excise Duty.
ii. Additional Excise Duty.
iii. Excise Duty levied under the Medicinal and Toiletries Preparation Act.
iv. Service Tax.
v. Additional Customs Duty, commonly known as Countervailing Duty (CVD).
vi. Special Additional Duty of Customs (SAD).
vii. Cesses and surcharges in so far as they relate to supply of goods and services.
State Taxes to be subsumed under SGST-
i. VAT/Sales Tax.
ii. Central Sales Tax (levied by the Centre and collected by the States).
iii. Entertainment Tax (Except those levied by local bodies like Panchayat).
iv. Octroi and Entry Tax (all forms).
v. Purchase Tax.
vi. Luxury Tax.
vii. Taxes on lottery, betting and gambling.
viii. State cesses and surcharges in so far as they relate to supply of goods.
6. SCOPE OF GST
GST applies to all supplies of goods / services (as against manufacture, sale or
provision of service) made for a consideration except:
a. An agriculturist.
b. Exempted goods / services (0% tax).
c. Transactions below threshold limits (20 Laks or 10 Laks).
d. Goods / services outside the purview of GST - the taxes imposed on the following
products will continue as per the structure before GST implementation.
u Petroleum crude and four petroleum products (it will come in GST fold
later).
u Electricity.
u Alcoholic liquor for human consumption.
7. TAX SLABS OF GST
GST rates will be uniform across the country. Initially, the Government categorised
1211 items under five tax slabs, i.e., 0%, 5%, 12%, 18% and 28%. The list is not
exhaustive. Some of the items also attract Cess in addition to GST at the applicable
rates.

Taxation 101
8. EXPORTS (Zero Rated)
Zero Rating means that the tax payable on supply of a commodity is fixed at 0%.
Though apparently, it looks similar to an exempted transaction, there is a significant
difference between the two. While in an exempted transaction, the tax paid on input
lapses i.e. it cannot be set off, while under the Zero rated supplies, prior stage tax is
allowed to be set off and effectively the entire tax paid on inputs used in export is
eligible for refund. Thus, ‘Zero Rating’ is advantageous to the exporter as compared to
‘exempting’ of other supplies. Generally, export are zero rated and thereby, exporters
are granted refund of taxes paid by them on their inputs. Exporters gain significantly
due to the ‘Zero Rating’. Supply to SEZ/EOU are also zero-rated.
9. COMPOSITION SCHEME (Section 10)
Small taxpayers including start ups and many Small and Medium Enterprises may
find it difficult to have resources and expertise to meet the increased tax compliances
under GST regime. Thus, a taxpayer with an aggregate turnover in a financial year
up to Rs. One crore may register under composition scheme. (75 lakhs in case of
seven special category states). A dealer registered under composition scheme is not
required to maintain detailed records as in the case of a normal taxpayer and shall pay
tax as a percentage of his turnover during the year without the benefit of ITC (Input
Tax Credit). Such a dealer cannot issue a tax invoice as well. A buyer from composition
dealer will not be able to claim input tax on such goods. A Composition dealer shall
not collect any tax from his customers. Tax payers making inter- state supplies or
paying tax on reverse charge basis shall not be eligible for composition scheme.
The rates for this scheme are as follows:
Category of Registered Person Rate of Rate of Total
CGST SGST
Manufacturer (other than manufacturers of notified goods) 1% 1% 2%

Supplier of food and drinks for human consumption 2.5% 2.5% 5%

(except alcohol)
Other supplies like traders 0.5% 0.5% 1%
Service Providers (other than restaurants) Not eligible for composition scheme

10. Threshold Limit

Threshold exemption is built into a tax regime to free the small suppliers from
compliance cost and effort. Thus, suppliers below the threshold limit are not required
to register or pay tax. Moreover, it is difficult to administer small traders (suppliers)
and cost of administering of such traders (suppliers) is very high in comparison to the
tax paid by them.

102
 Under VAT regime, the threshold limits varied from state to state. Under the system of
GST, the threshold limit is Rs. 20 lakh (Rs. 10 lakh for north eastern states, Uttarakhand,
Sikkim and Himachal Pradesh).
11. Input Tax Credit
The basic concept of GST is based on providing the set-off for the tax paid on the
inputs used and this is given effect through the concept of input tax credit. This input
tax credit means setting off the amount of input tax by a registered dealer against the
amount of his output tax. The GST is based on the value addition to the goods and
the related tax liability of the dealer can be arrived at by the supplier by discharging
input tax credit from tax collected on supplies during the payment period.
The credit would be permitted to be utilized in the following manner:
u ITC of CGST allowed for payment of CGST & IGST in that order.
u ITC of SGST allowed for payment of SGST & IGST in that order.
u ITC of IGST allowed for payment of IGST, CGST & SGST in that order.
ITC of CGST cannot be used for payment of SGST and vice versa.

HIERARCHY OF UTILISATION OF INPUT TAX CREDIT (ITC)

Accounts would be settled periodically between the Centre and the States to ensure that the
credit of SGST used for discharge of IGST is transferred to the consumer state. Similarly the
IGST used for payment of SGST would be transferred by the Centre to the Importing State.
Further the SGST portion of IGST collected on B2C supplies would also be transferred by the
Centre to the destination State. The transfer of funds would be carried out on the basis of
information contained in the Returns filed by the taxpayers.

ITC cannot be availed on invoices more than one year old. The ITC of tax paid on goods
and/or services used for making taxable supplies by a taxable person (receiver) will be
allowed subject to four conditions:

u He is in possession of tax invoice.

u He has received the goods or services.
u Tax has been actually paid by supplier to Government.

Taxation 103
u The valid return is filed under section 39.

Illustration 1
Suppose goods worth Rs. 1,000 are sold with in Uttar Pradesh. The VAT applicable on goods
is 12% while CGST, SGST, or IGST applicable under the new regime are 6%, 6% or 12%
respectively.

Solution
Particulars Under VAT Under GST
Product sold within U.P 1,000 1,000
VAT- 10% 100
CGST- 6% 60
SGST- 6% 60
Product value 1,100 1,120
Profit 1,000 1,000
Selling Price 2,100 2,120
CST- 12% 252 -
GST- 12%(already levied above)
Final price of product 2,352 2,120

Note: Either IGST @ 12% will be applicable or CGST @6% and SGST 6% will be applicable.

Advantages of Introducing Gst

(A) For Government and Economy
1. Dual GST
The introduction of GST has marked an end to the scheme of distribution of
fiscal powers envisaged in the Constitution. The dual GST considers taxation of
the same taxable event, i.e., supply of goods and/or services, simultaneously by
both the Centre and the States. Therefore, both Centre and States will have the
power to impose GST across the supply chain from the stage of manufacture/
provision of service (supply) to consumption.
2. Effective Administration of Taxation
GST will simplify and harmonise the indirect tax regime in the country. The
complexity of the tax structure due to multiplicity of taxes and tax rates will be
reduced to a great extent. This will help in effective administration of taxation
system in the country.

104
 3. Increase in Competitiveness of Indian Industry
It is expected to reduce cost of production and inflation in the economy, thereby
making the Indian trade and industry more competitive, domestically as well
as internationally. It is also expected that introduction of GST will foster a
common or seamless Indian market and contribute significantly to the growth
of the economy.
4. Broaden Tax Base
GST will broaden the tax base, and result in better tax compliance due to a
robust IT and online infrastructure, seamless transfer of input tax credit from
one stage to another in the entire supply chain of value addition and decline in
number of tax on goods and services.

(B) FOR TRADERS AND MANUFACTURERS

1. Easy Compliance
A robust and comprehensive IT system would be the foundation of the GST
regime in India. Therefore, all tax payer services such as Registrations, Returns,
Payments, etc. would be available to the taxpayers online, which would also
make compliance easy and transparent.
2. Uniformity of Tax Rates and Structures
GST will ensure that indirect tax rates and structures are common across the
country, thereby increasing certainty and ease of doing business. In other
words, GST would make doing business in the country tax neutral, irrespective
of the choice of place of doing business.
3. Removal of Cascading
A system of seamless tax-credits throughout the entire supply chain, and
across boundaries of States, would ensure that there is no cascading of taxes.
This would reduce hidden costs of doing business.
4. Increase in Competitiveness
The new regime would reduce the cost of locally manufactured goods and
services. This will increase the competitiveness of Indian goods and services
in the international market and give boost to Indian exports. The uniformity in
tax rates and procedures across the country will also go a long way in reducing
the compliance cost.
(C) For Consumers
1. Reduction in Overall Tax Burden
From the consumer point of view, the biggest advantage would be in terms of
a reduction in the overall tax burden on goods and services.

Taxation 105
 2. Simpler Tax System
Life for a common man will get simpler as GST will replace a number of indirect
tax levies. Complexity of taxation will be reduced to a great extent and tax
compliance will become easier and cheaper.
3. Reduction in Prices of Goods & Services due to Elimination of Cascading
In the GST system, taxes for both Centre and State will be collected at the point
of supplies. Both will be charged on the manufacturing cost or service provision
cost. Also, the credit of GST paid on inputs at every stage of supply chain would
be available for the discharge of GST liability on the output, thereby ensuring
GST is charged only on the component of value addition at each stage. This
would ensure that there is no ‘tax on tax’ in the country.
4. Uniform Prices
Tackling with the problem of multiplicity of tax rates will help to approach
uniform prices throughout the country.
5. Transparency in Taxation System
Computerisation of the processes of Registration, Payment and Return to tax
payers and maintenance of electronic cash ledger and electronic ITC ledger
will ensure transparency in the taxation system.
6. Increase in Employment Opportunities
Augmentation of human resource in the field of accountancy, taxation and
information technology will lead to an increase in employment opportunities.
7. Returns
A return is a document, which is filed by the taxpayer according to law with
the tax Administrative authorities. Under Goods and Service Tax law a normal
taxpayer will be required to furnish three returns monthly and one annual
return. Similarly, there are separate returns for a taxpayer who have opted
the composition scheme, taxpayer registered as an Input Service Distributor, a
person’s is liable to deduct or collect the (TDS/TCS).
Type of Return or Persons Liable to File Due Date
Form No.

*GSTR-1 (Outward supply of taxable Registered Taxable Person 10th of Next Month
goods and/or services)
GSTR-2 (Inward supply of taxable Registered Taxable Person 15th of Next Month
goods and/or services)
GSTR-3 (Monthly Return) Registered Taxable Person 20th of Next Month
GSTR-9 (Annual Return) Registered Taxable Person 31st December of next
financial year

106
 Type of Return or Persons Liable to File Due Date
Form No.

GSTR-4 (Quarterly Return for Composition Supplier 18th of Month succeeding

compounding taxable person) quarter
GSTR-5 (Return for Non-Resident Non-Resident Taxable Person 20th of Next Month
foreign taxable person)
GSTR-6 (Return for Input Service Input Service Distributor 13th of the next month
Distributor)
GSTR-7 (Returns for authorities Tax Deductor 10th of Next month
deducted Tax at Source)
GSTR-8 (Details of supplies effected E-commerce operator 10th of Next month
through e-commerce operator)
GSTR-10 (Final Return) Taxable Person whose Within three months
registration has been of the date of
surrendered or cancelled cancellation or date of
order of cancellation,
whichever is later.

CHALLENGES
1. Establishment and upgradation of IT framework
The number of taxpayers is likely to go up significantly. Also, the process of tracking
inter (or intra) State transactions will be online. The type of clearing house mechanism
through GSTN considered in the dual model GST will handle large volumes of data.
For this purpose, the Goods and Service Tax Network (GSTN) has been set up by
the Government to create enabling environment for smooth introduction and
implementation of GST
2. Meeting Implementation Challenges
The implementation of GST systems and procedures would not be very lengthy and
complex process in a long run. A GST implementation Advisory Committee has been
constituted within CBEC for overall supervision and monitoring of progress towards
implementation of GST.
3. Tax Administration
The Central Board of Excise and Customs (CBEC) and the State Tax Administrations
will be responsible for implementing CGST and SGST respectively. For implementing
dual GST, a robust and integrated tax administration is required to efficiently track
supply of goods and services across the country as also to precisely account for the
taxes. Putting in risk management system will give meaningful results only when
there will be an efficient tax administration.

Taxation 107
4. Effective Coordination between Centre & State Tax Administrations
The assignment of concurrent jurisdiction to the Centre and the States for the levy of
GST would require a unique institutional mechanism that would ensure that decisions
about the structure, design and operation of GST are taken jointly by them. For it to be
effective, such a mechanism also needs to have Constitutional force. There is a need of
harmonization of processes & procedures between CGST / SGST & IGST Law.
5. Training of Officials and Trade & Industry
Until the people from trade and industry are adequately educated about the laws and
procedures related to GST, there is possibility of non-compliance and tax evasion.
Training / Familiarisation of trade industry on a large scale will also be required.
6. Spreading Accounting and IT Literacy
Augmentation of human resources would be necessary to handle large taxpayers
base in GST scattered all over the country. Capacity building, particularly in the field
of Accountancy and Information Technology, for the departmental officers has to be
taken up in a big way.
7. Reorganisation of Audit Procedures
The various rules and procedures of conducting audit will have to be modified in tune
with the GST laws as against the earlier systems of VAT / Central Excise/Service Tax.
Exercise
State whether the following statements are true or false:
1. Goods and Service tax is a direct tax.
2. The threshold limit for tax exemption is Rs. 10 lacks across India.
3. GST is an origin based tax.
4. Under GST regime, Constitution confers concurrent powers to both parliament and
state legislatures to make laws with respect to tax on intra state sales.
5. IGST will be levied by State Governments for the sales made in their states.
6. A taxpayer registered in Himachal Pradesh with an aggregate turnover of Rs. 75 lacks
in a financial year is eligible to get registered under composition scheme.
7. ITC of CGST shall first be utilized for payment of CGST and then for payment of IGST.
Answers: 1. False, 2. False, 3. False, 4. True, 5. False, 6. True, 7. True

Key Words
1. Direct Tax: A direct tax is the tax whose burden is borne by the person on whom it is
imposed, i.e., its burden cannot be shifted to others.
2. Indirect Tax: An indirect tax is a tax wherein (i) liability to pay a tax is on one person
and (ii) the burden of that tax falls on some other person.

108
3. Input Tax: Input tax means when a consumer / dealer buys goods or services from
another supplier, tax discharged on the initial supply is available for discharge of
output tax as Input Tax Credit.
4. Output Tax: Means when the supplier supplies its goods or services, it discharges tax
on supply, which is output tax.
5. CGST: Central GST (CGST) is the tax levied by Central Government on intra-State
supplies of goods / services in India.
6. SGST: State GST (SGST) is the tax levied by State Government on intra-State supplies
of goods / services in India.
7. IGST: IGST is levied & collected by the Centre and is applicable to :
u Inter-State supplies of goods / services in India.
u Inter-state stock transfers of goods.
u Import of goods / services.
u Export of goods / services (whenever applicable).
8. Destination Based Tax: This implies that all SGST collected will ordinarily accrue to
the State where the consumer of the goods or services consumed resides.
9. Zero- rating: Exports will be treated as zero rated supplies. No tax normally will be
payable on exports of goods or services. However credit of input tax credit used in the
export product will be available and same will be available as refund to the exporters.
Also goods / services may be supplied without levy of GST (here IGST).
10. Inter-state Sales: Means supplies made between two or more states.
11. Intra-state Sales: Means supplies made within a state.

Summary
u A direct tax is the tax whose burden is borne by the person on whom it is imposed,
i.e., its burden cannot be shifted to others. On the other hand when (i) liability to pay
a tax is on one person and (ii) the burden of that tax falls on some other person, the
tax is called an indirect tax.
u GST is a destination based indirect tax on consumption of goods and services. Under
the GST, goods and services attract the same rate of tax. Practically, value addition is
tax taxed and burden of tax is to be borne by the final consumer.
u Centre would levy and collect Central Goods and Services Tax (CGST), and States
would levy and collect the State Goods and Services Tax (SGST) on all transactions
within a State. (Intra state supplies).
u The Centre would levy and collect the Integrated Goods and Services Tax (IGST). A
part of IGST will be transferred to the State/UT, where the goods / services are
consumed / supplied.

Taxation 109
u Small taxpayers with an aggregate turnover in a financial year up to Rs. One Crore
(Rs. 75 lakhs for North-Eastern states, Himachal Pradesh and Sikkim) shall be eligible
for composition levy.
u GST will be payable by a taxable person only when his turnover crosses the threshold
exemption limit, i.e. Rs.20 lakhs (Rs.10 lakhs for NE States, Sikkim, Uttarakhand &
Himachal Pradesh.
u ITC of CGST will be allowed for payment of CGST & IGST in that order; ITC of SGST
will be allowed for payment of SGST & IGST in that order and ITC of IGST will be
allowed for payment of IGST, CGST & SGST in that order. ITC of CGST cannot be used
for payment of SGST and vice versa.

Exercise Questions
I. Short Answer Questions
1. Who is liable to pay GST under the proposed GST regime?
2. What is the concept of destination based tax on consumption?
3. What are the benefits available to small tax payers under the GST regime?
4. How will imports be taxed under GST?
5. How will Exports be treated under GST?
6. What is the taxable event under GST?
7. Which taxes have been subsumed under GST?

II. Long Answer Questions

1. Discuss the features of GST.
2. Why did introduction of GST require a Constitutional Amendment?
3. What are the benefits that will accrue to the country from GST?
4. What is the scope of composition scheme under GST? Whether the composition
scheme will be optional or compulsory?
5. Discuss the importance of Input Tax Credit.
6. Explain the challenges of introducing GST.

III. Numerical Question

1. A retailer or supplier in Tamil Nadu sold goods to a consumer within the
state worth Rs. 15,000. The GST rate applicable on these goods is 18%- CGST
@ 9% and SGST @ 9%. Calculate the total GST paid by the retailer and the tax
collected by Tamil Nadu Government and the centre.
(Answer: Total tax payable- Rs. 2,700, SGST- Rs. 1,350, CGST- Rs. 1,350).

110
Suggested Readings
1. Dr. V.K. Singhania: Students Guide to Income-Tax Taxmann Publications Pvt. Ltd., New
Delhi
2. Girish Ahuja and Ravi Gupta: Systematic Approach to Income-tax and Sales-tax; Bharat
Law House, New Delhi.
3. Dr. V.K. Singhania & direct Taxes Law & Practice; Taxmann Publications Pvt. Ltd.
Dr. Kapil Singhania, New Delhi

Taxation 111