Brief

₹
CA FINAL
P7 : DIRECT TAX LAWS

DESIGNED BY HARSH MAHESHWARI

CA – FINAL DESIGNED BY HARSH MAHESHWARI

कम ेवािधकार े मा फलेषु कदाचन ।

मा कमफलहे तुभुमा ते संगोऽ कमिण ॥

Translation-
You have a right to perform your prescribed duty, but you are not entitled to the fruits of action. Never consider yourself
to be the cause of the results of your activities, and never be attached to not doing your duty.
- Bhagavad Gita, Chapter II, Verse 47

PREFACE
Dear Readers,
It gives me immense pleasure to present this aid for Direct Taxes to you. This work was created unexpectedly & every letter of this
has been crafted with love & care. This material has been designed by me from CA Atul Agrawal’s lectures & the credit goes to him.
Every effort has been made to keep this error-free but nobody is infallible. Hence, if there is any error, please make sure you mail it
at [email protected]. I hope this makes your life easier & makes the subject less cumbersome.
“Live in your world. Learn in mine.”
Harsh Maheshwari
CA-FINAL I BASIC CONCEPTS DESIGNED BY HARSH MAHESHWARI
CHAPTER – 01 BASIC CONCEPTS
INTRODUCTION
Tax is a compulsory financial charge imposed by the Q. Why Income Tax is a Direct Tax?
government.
levy tax
DIRECT TAX INDIRECT TAX
pays tax
Income Tax GST
Black Money Tax Custom Duty
Assessee CG

JUST FOR KNOWLEDGE JUST FOR KNOWLEDGE CBDT

Finance Minister
Black Money Tax is for black money outside India while Smt. Nirmala Sitharaman Income Tax Dept.
Income Tax is applicable for Black Money inside India.
Chairman, CBDT
Shri Nitin Gupta Assessing Officer [AO]

CONSTITUTIONAL POWERS

Union List Entry 82: Tax on Income except Agricultural Income MCQ
TO ARTICLE 246
SCHEDULE VII

State List Entry 46: Tax on Agricultural Income

INCOME TAX ACT, 1961
Applicable to whole of India w.e.f 01.04.1962
Concurrent List

SOURCE OF INCOME TAX LAW

a) Income Tax Act, 1961 c) Annual Finance Act [Amendments] e) Notifications
b) Income Tax Rules, 1962 d) Circulars [For dept., not binding on assessee] f) Juridical Decisions

IMPORTANT DEFINITIONS

SECTION 1 SECTION 2(31) PERSON SECTION 2(7) ASSESSEE

 This Act may be called as the Income 1. An Individual It means any person who is liable
Tax Act, 1961. 2. A HUF to pay tax, interest or penalty
 It extends to whole of India. 3. A Company [Domestic & Foreign] under this Act; and
 It shall come into force on 1st April, 1962 4. A Firm [including LLP]  Deemed Assessee
5. AOP / BOI  Assessee in Default
JUST FOR KNOWLEDGE 6. A Local Authority
7. Every AJP not falling into any category SECTION 2(9) ASSESSMENT
No. of Chapters = 23 above YEAR: It is the year in which
No. of Schedules = 14
Income Tax is payable. It is a
No. of Sections = 298
NOTE: No requirement of more than 1 period of 12 months commencing
male to form HUF. on 1st April every year.

SECTION 3 PREVIOUS YEAR

 It is a year in which income is earned. CALCULATION OF PREVIOUS YEAR
 It is same as Financial Year. Existing Business – 1st April to 31st March
 The uniform PY has to be followed for all sources of income. New Business – Date of Commencement to 31st March

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CA-FINAL I BASIC CONCEPTS DESIGNED BY HARSH MAHESHWARI
GENERAL RULE
Income of PY is taxable in AY.

EXCEPTIONS TO GENERAL RULE

Taxable in PY itself Taxable in year which it comes to notice of dept. (AO)
a. Income of Non-Resident Shipping Business Section 68, 69, 69A, 69B, 69C & 69D
b. Income of person leaving India permanently or for long
duration [Indian Black Money]
c. Income of Discontinued Business
d. Income of person trying to transfer his assets for
avoiding tax
e. AOP / BOI / Artificial Judicial Person formed for
particular purpose for short period (< 1 year)

Section 68 Section 69, 69A Section 69B Section 69C

Cash Credit Unexplained Investments, Investment / Money not Unexplained Expenditure
Money etc. fully disclosed
Any sum found to be Assessee made investments Assessee made investments Assessee incurred any type
credited in Bank / Books of or found to be owner of any or found to be owner of any of expenditure.
Assessee asset, money, jewellery etc. asset, money, jewellery etc.
& not recorded in books. & not fully disclosed in [No deduction under any
books. head]
AND
Assessee has no explanation of source or explanation given is unsatisfactory as per AO
Section 69D Amount borrowed or Repaid on Hundi
Amount borrowed or Repaid on Hundi other than A/c payee cheque is deemed to be income of person borrowing / repaying
it. However if borrowed amount is deemed to be income earlier, same cannot be treated as income at the time of repayment
or vice-versa.

OTHER POINTS
1. Income u/s 68, 69, 69A, 69B, 69C & 69D is taxable at Special Rate u/s 115BBE i.e. 78% [60% Tax + 25% Surcharge +
4% Cess]
2. No Deduction, Set-off & Basic Exemption Limit allowed.

SECTION 4 BASIS OF CHARGE

Income Tax is payable for any Assessment Year at the rate specified in Annual Finance Act in respect of Total Income of any
person in the Previous Year.
SECTION 2(45)
Finance Act [Sch. I] Income Tax Act, 1961
General Tax Rate Special Tax Rate

SECTION 2(45) TOTAL INCOME

It is the income after reducing the deduction under Chapter VI A from the Gross Total Income. It is also known as taxable
income i.e. income on which tax has to be imposed.

STEPS FOR CALCULATION OF TOTAL INCOME

Step 1 : Determine the Residential Status of the assessee. Particulars ₹

Income from Salary (xxx)
Step 2 : Determine Income under each head
Income from House Property (xxx)
Step 3 : Clubbing of Income Income from PGBP (xxx)
Step 4 : Set-off & Carry-forward of losses Income from Capital Gains (xxx)
Income from Other Sources (xxx)
Gross Total Income (xxx)
(-) Deduction under Chapter VI A (xxx)
Total / Taxable Income (xxx)

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CA-FINAL I BASIC CONCEPTS DESIGNED BY HARSH MAHESHWARI
HOW TAX IS CALCULATED?
Particulars ₹
Total Income
General Tax (General Income x General Tax Rate) (xxx)
Special Tax (Special Income x Special Tax Rate) (xxx)
Tax (xxx)
Add: Surcharge (if any) (xxx)
(xxx)
Add: Cess @ 4% (always) (xxx)
Total Tax (xxx)
Less: TDS / TCS / Advance Tax (xxx)
Net Tax Payable / (Refund) (xxx)

GENERAL TAX RATES

Individual / HUF / AOP / BOI / AJP Resident Senior Citizen Resident Super Senior Citizen
Total Income Total Income Total Income
Upto ₹2.5L NIL Upto ₹3L NIL Upto ₹5L NIL
₹2.5L to 5L 5% ₹3L to 5L 5% ₹5L to 10L 20%
₹5L to 10L 20% ₹5L to 10L 20% Excess ₹10L 30%
Excess ₹10L 30% Excess of ₹10L 30%

NOTE:
1. Senior Citizen: Age is 60 years or more but not more than 80 years.
2. Super Senior Citizen: Age is 80 years or more.
3. Individual who has attained the age of 60/80 years on the 1st April would be eligible for higher Basic Exemption Limit.

REBATE U/S 87A

1. Assessee is Individual and is a resident in India.
2. His Total Income does not exceed ₹5 Lakh.
3. Rebate is lower of ₹12,500 or 100% of tax payable, whichever is lower.
4. It is not allowed for Capital Gain u/s 112A.
Co-operative Society
Total Income Tax Rate
Firm / Local Authority Upto ₹10,000 10%
Flat Rate ₹10,000 to ₹20,000 ₹1000 + 20% on Excess
30% Above ₹20,000 ₹3000 + 30% on Excess

Company
Domestic Company Foreign Company
If Turnover or Gross Receipt upto Otherwise
₹400 Crores in PY 19-20
25% 30% 40%

Q. Which company is considered as Domestic Company?

A.
1. Indian Company; or
a. Registered office in India; &
b. Registered under Indian Co. Act
2. Company which made arrangement for paying dividend from Income Taxable in India

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CA-FINAL I BASIC CONCEPTS DESIGNED BY HARSH MAHESHWARI
SURCHARGE

Individual / HUF / AOP / BOI / AJP Firm / Local Authority / Company

Co-op. Society
Total Income Total Income Domestic Foreign
Upto 50L NIL Total Income Upto 1 Crore NIL NIL
> 50L upto 1 Crore 10% Upto 1 Crore NIL > 1 Crore upto 10 Crore 7% 2%
> 1 Crore upto 2 Crore 15% > 1 Crore 12% > 10 Crore 12% 5%
> 2 Crore upto 5 Crore 25%
> 5 Crore 37%

NOTE:
1. Surcharge Rate of 25% & 37% is not applicable on STCG u/s 111A, LTCG u/s 112A & Dividend Income.
2. Health & Education Cess [HEC] @ 4% will be charged on Tax + Surcharge in all cases.

MARGINAL RELIEF
To avoid hardship in case of taxpayer whose income is slightly higher than the amount on which surcharge is applicable, a
provision has been made to provide for relief in marginal cases.

STEPS
Step 1: Calculate Tax on Original Total Income without HEC.
Step 2: Calculate Tax on Nearest Limit without HEC.
Step 3: Tax to be paid = Step 2 + Extra Income
Step 4: Marginal Relief = Step 1 – Step 3

AVERAGE RATE OF TAX [SEC 2(10)] MAXIMUM MARGINAL RATE [SEC 2(29C)]
Total Tax (including Surcharge & Cess) = Highest Tax Slab of Individual + Highest Rate of Surcharge + HEC
= x 100 = 30% + 37% of Tax + 4% of Tax & Surcharge
Total Income
= 42.744%
SPECIAL TAX RATES
COMPULSORY
Income Rate
Sec 111A : STCG on certain assets 15%
Sec 112A : LTCG on certain assets 10% (Beyond ₹1 Lakh)
Sec 112 : LTCG on other assets 20%
Sec 115BB : Lottery winning etc. 30%
Sec 115BBE : Indian Black Money 78%

OPTIONAL
Sec 115BAA Sec 115BAB Sec 115BAD
Income of Domestic Company Income of New Mfg. Domestic Co. / Income of Resident Co-operative
Electricity Generation Co. Society
Tax 22% Tax 15%* Tax 22%
Surcharge 10% Surcharge 10% Surcharge 10%
Cess 4% Cess 4% Cess 4%
25.168% 17.16% 25.168%

*Only for Section 115BAB : This rate of 15% will only be applicable on Mfg. Business Income. For other general income, tax
rate will be 22% only & that too without any deduction (No Standard Deduction will be provided).
Q. Who will be categorised as New Manufacturing Domestic Co.?
A. Any manufacturing domestic company which satisfies both the following conditions:
1. Company set on or after 01.10.2019; &
2. It was not formed by splitting up or reconstruction of existing business.

Q. Are there any exceptions to these New Manufacturing Domestic Co.?

A. Yes. It doesn’t include these companies:
a) Printing of Books b) Production of Films c) Mining d) Development of Computer Software
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CA-FINAL I BASIC CONCEPTS DESIGNED BY HARSH MAHESHWARI
Q. What are the benefits/deductions which will not be available under these options?
A.
1. Section 10AA : SEZ
2. Additional Depreciation
3. Section 33AB & 33ABA
4. Section 35: Scientific Research
5. Section 35AD: Specified Business
6. Section 35CCC: Agricultural Project
7. Section 35CCD: Skill Development Project
8. Chapter VI A – Deductions (Except Section 80JJAA & 80M)
NOTE: Option once exercised cannot be withdrawn.

Sec 115BAC : Income of any Individual / HUF Q. What are the benefits/deductions which will not be
Total Income available under these options?
Upto ₹2.5L NIL 1. Salary Allowance Exemption
₹2.5L to 5L 5% 2. Leave Travel Concession
₹5L to 7.5L 10% 3. Salary deductions u/s 16
₹7.5L to 10L 15% 4. Interest deduction on self-occupied house property
₹10L to 12.5L 20% 5. Additional Depreciation
₹12.5L to 15L 25% 6. Section 10AA, 33AB, 33ABA, 35, 35AD, 35CCC
7. Deductions under Chapter VI A [except Sec 80CCD(2) &
Above ₹15L 30% 80JJAA]

ROUNDING OFF
Sec 288A Round off of Total Income Round off to nearest ₹10
Sec 288B Round off of Total Tax Round off to nearest ₹10

CAPITAL RECEIPT VS REVENUE RECEIPT

Capital Receipt Revenue Receipt
1. Capital Gain: Taxable 1. It is receipt in ordinary course of business; &
2. Others: Generally not taxable 2. It is recurring in nature
3. Generally affects Balance Sheet. 3. It is taxable.
4. Generally affects P/L.

APPLICATION OF INCOME VS DIVERSION OF INCOME

Application of Income Diversion of Income
1. Income transferred by Assessee on own will, without 1. Income transferred by assessee under obligation
any obligation. created by deed or law.
2. It is taxable in the hands of assessee. 2. It is not included under Income of Assessee.

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CA – FINAL I EXEMPT INCOME DESIGNED BY HARSH MAHESHWARI
CHAPTER – 03 EXEMPT INCOME
SECTION 10 : CERTAIN INCOME WHICH ARE EXEMPT & WILL NOT BE INCLUDED FOR COMPUTING TOTAL INCOME
SECTION 10(1) : AGRICULTURAL INCOME IN INDIA
Q. What do you mean by Agricultural Income?
A.
Included Not Included
 Income from sale of Agricultural Produce  Breeding of livestock
 Rent from Agricultural Land / Farm Building used for Agricultural Produce  Poultry Farming
 Income from saplings & seedlings grown in a nursery  Fisheries
 Dairy Farming

APPORTIONMENT OF INCOME BETWEEN BUSINESS & AGRICULTURAL INCOME

In case of Growing & Manufacturing Tea / Coffee / Rubber
Business Income Agricultural Income
Tea 40% 60%
Rubber [Latex] 35% 65%
Coffee [Grown & Cured] 25% 75%
Coffee [Grown, Cured, Grounded & Roasted] 40% 60%

In case of Growing & Manufacturing Any Other Product

BUSINESS INCOME AGRICULTURAL INCOME
Sale Value of Product xxx MV of Agricultural Produce consumed in xxx
(-) MV of Agricultural Produce consumed in (xxx) manufacturing the product
manufacturing the product
(-) Manufacturing Expenses (xxx) (-) Cost of Cultivation (xxx)
Business Income xxx Agricultural Income xxx

PARTIAL INTEGRATION OF AGRICULTURAL INCOME WITH NON-AGRICULTURAL INCOME

 Applicable to Individual, HUF, AOP / BOI and AJP.
 Conditions of Applicability
a. Net Agricultural Income exceeds ₹5,000; and
b. Non-Agricultural Income [Taxable Income] exceeds Basic Exemption Limit
 Calculation of Tax
Step 1 : Calculate tax on [Agricultural Income + Non- Agricultural Income] without surcharge & cess.
Step 2 : Calculate tax on [Agricultural Income + Basic Exemption Limit] without surcharge & cess.
Step 3 : Tax Amount (Step 2 – Step 1)
Step 4 : Tax Payable [Step 3 + Surcharge (if any) + Cess]

E.g. Mr A has Taxable Income of ₹6,00,000 & Agricultural Income of ₹4,00,000.

Sol. Step 1 : Tax on [₹6,00,000 + ₹4,00,000] = ₹1,12,500
Sol. Step 2 : Tax on [₹4,00,000 + ₹2,50,000] = ₹42,500
Sol. Step 3 : Tax Amount = ₹70,000 (₹1,12,500 – ₹42,500)
Sol. Step 4 : Tax Payable = ₹72,800 (₹70,000 + 4% Cess)

2 Amount received by members from Income of HUF. [Section 10(2)]

3 Share Income received by Partners from Firm / LLP. [Section 10(2A)]
4 Compensation received by Individual / Legal Heirs on account of Disaster.
5 Pension received by recipient of Gallantry Awards
6 Income of Sikkimese Individual
 Income from any Source in the State of Sikkim.
 Income by way of Dividend or Interest on Securities.

Exception: Exception will not be available to sikkimese woman who on or after 01.04.2008 marries a non-sikkimese
individual.
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CA – FINAL I EXEMPT INCOME DESIGNED BY HARSH MAHESHWARI
SECTION 14A : RESTRICTIONS ON ALLOWABILITY OF EXPENDITURE
 Expenditure incurred in relation to Exempt Income is not allowed as deduction under any head of Income.
 AO can determine expenditure in relation to Exempt Income if:
 He is not satisfied with correctness of claim of assessee; or
 Assessee claims that no expenditure has been incurred by him in relation to Exempt Income.
 Expenditure in relation to Exempt Income shall be aggregate of:
a) Expenditure Amount directly relating to Exempt Income.
+
Average Value of Investment in Exempt Source
b) Common Expense x
Average Value of Total Investment/Assets
+
c) 1% of Average Value of Investment in Exempt Source

Note: This Section is not applicable for Deductions under Chapter VI-A.
SECTION 10AA : TAX HOLIDAY FOR UNIT ESTABLISHMENT IN SEZ
 Deduction is available to all assessee engaged in manufacturing or production of any article / thing or computer
software in SEZ.
 Period & Amount of Deduction
First 5 AY 100% of Export Profit from SEZ unit
Next 5 AY 50% of Export Profit from SEZ unit
Next 5 AY Lower of
 Amount credited to SEZ Reinvestment Reserve A/c; or
 50% of Export Profit from SEZ unit
 Export Profit from SEZ Unit
Export Turnover of SEZ Unit
PGBP of SEZ unit [As per Income Tax Act] x
Total Turnover of SEZ Unit

Note: Export Turnover means consideration in respect of export brought into India within time permitted by RBI.

OTHER POINTS
1. Amount which became irrecoverable shall be excluded from Export Turnover.
2. Following amount shall not be included in Export Turnover & Total Turnover:
a) Freight b) Telecommunication Charges c) Insurance or any other exp.
d) Cash Compensatory Support e) Duty Drawback f) Profit on sale of Import Entitlement
3. Onsite development of computer software outside India at client place is also eligible for deduction.
4. In case of Amalgamation / Demerger, remaining deduction shall be available to Amalgamated / Resulting unit [If
conditions are fulfilled].

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
CHAPTER – 06 PROFITS & GAINS FROM BUSINESS & PROFESSION
SECTION 28 CHARGING SECTION
Following income are taxable under this head:
1. Profits & Gains of any business or profession carried by assessee during PY.
2. Assistance, Grant or Subsidy received from Central / State Govt. relating to B&P.
3. Export Incentives
 Cash Assistance
 Duty Drawback
 Import Entitlements
4. Value of any gift, benefit or perquisite arising from B&P.
5. Amount received for
 Not carrying out any activity relating to B&P
 Not sharing Intangible Asset Non-Compete Fees
6. Amount received under Keyman Insurance Policy.
7. FMV of any stock on conversion into Capital Asset.
8. Interest, salary, bonus, commission or any remuneration received by partner from Firm / LLP upto deduction allowed to
firm u/s 40(b)

Speculative Business
1. Part of business consist of purchase / sale of shares & commodities other than by Actual Delivery.
2. Profit / Loss from Speculative Business is to be calculated separately.
3. Following are not speculative transactions
 Hedging Contract
 Forward Contract
 Trading in Derivatives / Commodity Derivatives

SECTION 29 : COMPUTATION OF INCOME FROM PGBP AS PER SECTION 30 TO 43D

Computation of PGBP Income
Profit / Loss as per P/L A/c xxx
Add: xxx
1. Depreciation debited to P/L A/c
2. Expenses debited to P/L A/c but not allowed as deduction under this head.
[Disallowed Expenses]
3. Income not credited to P/L A/c but taxable under this head.
xxx
Less: (xxx)
1. Depreciation as per Income Tax Act
2. Expenses not debited to P/L A/c but is allowed as deduction under this head.
3. Income credited to P/L A/c but not taxable under this head.
Income from PGBP xxx
SECTION 30 : RENT, RATES, REPAIRS & INSURANCE FOR SECTION 31 : REPAIRS & INSURANCE OF PLANT &
BUILDING USED IN B&P MACHINERY, FURNITURE
Deduction: Deduction:
Rent Allowed Repair Capital Nature Not Allowed
Rates [Municipal Allowed Revenue Nature Allowed
Tax, etc.] Insurance Allowed
Repairs Capital Nature Not Allowed
Revenue Nature Allowed The deduction of Rent is covered u/s 37 & there are no
Insurance Allowed rates on P&M and Furniture.

Note: The cost of repairs of capital nature is added to the cost of asset. [Sec 30 & 31]

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 32 : DEPRECIATION AS PER INCOME TAX ACT, 1961
CONDITIONS TO CLAIM DEPRECIATION
1. Asset must be used in B&P [Active or Passive]; and
2. Assessee must be owner of such asset [Wholly or Partly]
Note:
 Depreciation is allowed only when asset is put to use.
Exception: However in case of standby equipment, fire extinguishers & machinery spares – depreciation is allowed
even if they are kept ready for use.
 Depreciation is allowed to Beneficial Owner.
Exception: In case of lease asset, lessor is entitled for Depreciation.
 No depreciation on Land & Goodwill. [Imp.]
 It is mandatory to claim depreciation.

DEPRECIABLE ASSETS
Tangible Assets Intangible Assets [CLASS 4]
 Building [CLASS 1] Knowhow, Patent, Copyright, Trademark, Licenses,
 Furniture [CLASS 2] Franchises or any other Business or Commercial Right of
 Plant & Machinery [CLASS 3] similar nature [Except Goodwill]

DEPRECIATION RATES
CLASS 1: BUILDING CLASS 3: PLANT & MACHINERY
Block Type Rate Block Type Rate
1 Residential Building 5% 1 Aeroplanes, Pollution Control 40%
2 Commercial Building 10% Equipments, Medical Equipments,
3 Temporary Structures 40% Windmills, Energy Saving Devices,
If nothing specified: Assume Commercial Books & Annual Publications, Computers
Building. including Software & Accessories
2 Ships 20%
3 Motor Car [Taxis, Buses etc.] used in 30%
CLASS 2: FURNITURE business of running on hire
Block Type Rate 4 Other Motor Cars, Oil Wells, Office 15%
1 All furniture 10% Equipments / Appliances, EPABX &
Mobile Phones & other P&M
Note: If Motor Car purchased & put to use between 23.08.2019 to
CLASS 4: INTANGIBLE ASSETS 31.03.2020
Block Type Rate  Hire [Taxis, Buses] : 45%
1 All intangible assets 25%  Other Motor Car : 30%

BLOCK OF ASSET
 Same class of asset and same rate of depreciation.
 Depreciation shall be allowed on WDV of Block of Asset at prescribed rate.

CALCULATION OF WDV OF BLOCK & DEPRECIATION

Opening WDV of Block as on 1st day of PY xxx

(+) Actual Cost of Asset during PY xxx
a. Put to use for 180 days or more
b. Put to use for less than 180 days
c. Purchase but not put to use during PY
(-) Amount received on Asset Sale / Destroyed / Demolished / Discarded during PY (xxx)
WDV of Block for Depreciation xxx
(-) Depreciation (xxx)
Closing WDV as on last day of PY xxx

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
Depreciation on WDV of Block
On Cost of Asset which was purchased but not put to use during PY No Depreciation
On Cost of Asset which was put to use for less than 180 days [Put to use after 3rd October] Half Rate Depreciation
Balance WDV Full Rate Depreciation
Note: Half-Rate Depreciation is allowed only when purchase & put to use year is same. [Imp.]
E.g.
Purchase Put to Use Rate
2021-22 10.12.21 Half-Rate
2020-21 10.12.21 Full Rate

E.g.
Opening WDV of P&M (15%) as on 01.04.2021 – ₹5,00,000
Opening WDV of Computer (40%) as on 01.04.2021 – ₹1,00,000
Purchase & Put to use Car on 31.07.2021 – ₹2,00,000
Purchased Computer on 10.10.2021 – ₹50,000
Purchased & Put to use P&M on 01.11.2021 – ₹3,00,000
Purchased P&M on 01.01.2022 but not put to use upto 31.03.2022 – ₹1,00,000
Sale of 1 P&M on 02.02.2022 – ₹4,00,000

Calculate Depreciation for PY 21-22.

Sol.
P&M [15%]
Opening WDV of Block 5,00,000
(+) Actual Cost of Purchase 6,00,000
a. Put to use upto 3rd Oct – ₹2,00,000
b. Put to use after 3rd Oct – ₹3,00,000
c. Purchased but not put to use – ₹1,00,000
(-) Amount received on sale (4,00,000)
WDV of Block for Depreciation 7,00,000
(-) Depreciation (67,500)
a. Not Put to use – No Depreciation
b. Put to use after 3rd Oct – 3,00,000 x 7.5% = ₹22,500
c. Balance WDV– 3,00,000 x 15% = ₹45,000
Closing WDV as on 31.03.2022 6,32,500

P&M [40%]
Opening WDV of Block 1,00,000
(+) Actual Cost of Purchase 50,000
a. Put to use after 3rd Oct – ₹50,000
WDV of Block for Depreciation 1,50,000
(-) Depreciation (50,000)
a. Put to use after 3rd Oct – 50,000 x 20% = ₹10,000
b. Balance WDV – 1,00,000 x 40% = ₹40,000
Closing WDV as on 31.03.2022 1,00,000

CAPITAL GAIN / LOSS ON DEPRECIABLE ASSET

If WDV of Block for Depreciation is If all Assets of Block are sold
Negative WDV for Depreciation is positive WDV for Depreciation is negative
Short-term Capital Gain Short-term Capital Loss Short-term Capital Gain

No Depreciation

Note: The Short Term Capital Loss is treated as Dead Loss.

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
ADDITIONAL DEPRECIATION
 Assessee engaged in business of Manufacturing / Production of any article [Factory / Industry] or Generation /
Transmission / Distribution of Power
 Purchases New P&M during PY, then
 Additional Depreciation will be allowed as deduction.
If put to use on or before 3rd October 20% of Actual Cost
If put to use after 3rd October 10% of Actual Cost [Balance 10% in Next Year]
 Business of Printing & Publishing is also eligible.
 No Additional Depreciation in following P&M
a. Second Hand Plant & Machinery
b. Plant & Machinery installed in Office Premises or Residential Accommodation
c. Office Appliances / Equipments
d. Ships / Aircrafts / Road Transport Vehicles [Truck used in Factory is eligible]
e. Any Plant & Machinery on which 100% deduction is allowed under other section

E.g. A Ltd. Manufacturing Business

Opening WDV of P&M (15%) – ₹20,00,000
Purchased New P&M
 Put to use on 01.06.2021 – ₹8,00,000
 Put to use on 30.12.2021 – ₹5,00,000
Sale value received on sale of 1 Machine – ₹3,00,000
Calculate Closing WDV, Depreciation & Additional Depreciation for the PY 2021-22.

Sol.
P&M [15%]
Opening WDV of Block 20,00,000
(+) Actual Cost of Purchase 13,00,000
a. Put to use upto 3rd Oct – ₹8,00,000
b. Put to use after 3rd Oct – ₹5,00,000
(-) Amount received on sale (3,00,000)
WDV of Block for Depreciation 30,00,000
(-) Depreciation (4,12,500)
a. Put to use after 3rd Oct – 5,00,000 x 7.5% = ₹37,500
b. Balance WDV– 25,00,000 x 15% = ₹3,75,000
(-) Additional Depreciation (2,10,000)
a. Put to use upto 3rd Oct – 8,00,000 x 20% = 1,60,000
b. Put to use after 3rd Oct – 5,00,000 x 10% = 50,000
Closing WDV as on 31.03.2022 23,77,500

ACTUAL COST OF ASSET

Normal Case
Purchase Price xxx
(+) Installation, Transportation, Trial Run & Other Expenses [Upto the date of Put to use] xxx
(+) Taxes & Duties [If ITC is not available] xxx
(+) Interest on loan taken for Purchase of Asset [Upto the date of Put to use] xxx
(-) Subsidy / Govt. Grant received for Purchase of Asset (xxx)
Actual Cost of Asset Purchased xxx
Note: If payment / expenditure for asset to a single person in a single day exceeds ₹10,000 by Cash / Bearer Cheque / Cross
Cheque, then such payment / expenditure shall not form part of Actual Cost of Asset i.e. Ignore such amount.

Special Cases
Case Actual Cost of Asset
1 Asset is used in Scientific Research NIL
2 Stock converted into Capital Asset and used in B&P FMV on date of conversion
3 Asset acquired by Gift / Will WDV of Previous Owner

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
4 Reacquisition of Asset Sold Lower of Reacquisition Price &
WDV at the time of sale
5 Asset used for Personal Purpose brought into Business Building
Original Cost – Dep. upto yet

Other Asset
Original Cost
6 Asset transferred between Holding & 100% Subsidiary Company WDV of Transferor
7 Asset transferred by Amalgamating Company to Amalgamated Company WDV of Amalgamating Co.
8 Asset transferred by Demerged Company to Resulting Company WDV of Demerged Co.
9 Section 35AD Asset NIL

OTHER POINTS RELATING TO DEPRECIATION

1. Asset used for Partly Business & Partly Personal Purpose
Depreciation is allowed only for Business Use
2. Asset Purchased in Foreign Currency in Credit [Section 43A]
Profit / Loss due to Foreign Exchange Fluctuations at the time of payment shall be adjusted from cost of asset
If Profit Reduced from Cost of Asset
If Loss Added to Cost of Asset
Note: It also includes Profit / Loss from Hedging Contracts entered for such asset.
3. Depreciation in case of Amalgamation / Demerger / Conversion / Succession
 In case of Amalgamation / Demerger of Companies, Conversion of Company into LLP, Succession of Firm /
Partnership by Company
 Depreciation is calculated normally [For Predecessor]
 After that, depreciation shall be distributed between Predecessor & Successor in the ratio of no. of days for
which assets were used by them.
4. Depreciation for undertaking engaged in Generation of Power
Method 1 : WDV of Block
Method 2 : SLM for each asset In case of Sale of Asset:
separately a. If WDV > SP – Loss / Terminal Depreciation (Deduction Allowed)
[No Additional Depreciation] b. If SP > WDV – Profit / Balancing Charge (Taxable under PGBP)

5. Unabsorbed Depreciation [Section 32(2)]

Profit before charging depreciation as per Income Tax Act, 1961 xx
(-) Depreciation as per Income Tax Act, 1961 (xx)
Unabsorbed Depreciation xx
It can be set-off from any Head of Income except Salary and can be carried forward indefinitely.
SECTION 33AB : DEDUCTION FOR TEA / COFFEE / RUBBER BUSINESS
Eligible Assessee All assessee engaged in business of growing & manufacturing Tea / Coffee / Rubber in India.
Deposit Deduction is allowed if some amount is deposited in NABARD upto:
 Due Date of ROI; or
Earlier
 6 months from the end of PY
Deduction Amt.  Actual Amt. deposited; or
Lower
 40% of Profit from such business [As per Income Tax Act]
Utilisation of Deposit Deposited amount shall be used for purposes specified by Tea / Coffee / Rubber Board.
Misutilisation If amount is utilised for following purposes, then amount utilised shall be taxable under PGBP:
1. For P&M used in office premises or residential accommodation.
2. For Office Appliances [Other than Computer]
3. For P&M on which 100% deduction is allowed under PGBP.
Non-Utilisation Any amount withdrawn shall be utilised in PY of withdrawal, otherwise such unutilised amount is
taxable.
Sale of Asset When asset purchased is sold / transferred within 8 years from end of PY in which it was acquired,
then cost of such asset shall be taxable in the year of sale.
[If sale amount exceed deduction (Cost of Asset), the balance will be taxable as STCG]
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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
APPORTIONMENT OF INCOME
Income calculated above shall be further divided into: a) Taxable Business Income; and b) Agricultural Income as follows:
Income from Growing & Manufacturing in India Taxable Business Income Agricultural Income
Tea 40% 60%
Rubber [Latex] 35% 65%
Coffee [Grown & Cured] 25% 75%
Coffee [Grown, Cured, Grounded & Roasted] 40% 60%
FORMAT FOR SOLVING QUESTIONS
Computation of Taxable Business Income
Net Profit as per Income Tax Act before deduction u/s 33AB xxx
Less: Deduction u/s 33AB (xxx)
xxx
Add: xxx
a. Misutilised amount during the PY
b. Amount withdrawn but not utilised during PY
c. Deduction allowed (cost) on asset sold before 8 years during PY
xxx
Less: Agricultural Portion (xxx)
Taxable Income from PGBP xxx
Less: Brought forward business loss (if any) (xxx)
xxx
SECTION 33ABA : DEDUCTION FOR PETROLEUM & NATURAL GAS BUSINESS
Eligible Assessee All assessee engaged in business of prospecting, extraction or production of Petroleum or Natural
Gas in India.
Deposit Deduction is allowed if some amount is deposited in SBI Site Restoration A/c upto end of PY.
Deduction Amt.  Actual Amt. deposited; or
Lower
 20% of Profit from such business [As per Income Tax Act]
Utilisation of Deposit Deposited amount shall be used for purposes specified by Ministry of Petroleum & Natural Gas in
India.
Misutilisation If amount is utilised for following purposes, then amount utilised shall be taxable under PGBP:
1. For P&M used in office premises or residential accommodation.
2. For Office Appliances [Other than Computer]
3. For P&M on which 100% deduction is allowed under PGBP.
Non-Utilisation Any amount withdrawn shall be utilised in PY of withdrawal, otherwise such unutilised amount is
taxable.
Sale of Asset When asset purchased is sold / transferred within 8 years from end of PY in which it was acquired,
then cost of such asset shall be taxable in the year of sale.
[If sale amount exceed deduction (Cost of Asset), the balance will be taxable as STCG]
SECTION 35 : SCIENTIFIC RESEARCH EXPENDITURE
IN-HOUSE Within 3 years before Revenue Only Material & Salary
100% DEDUCTION

commencement of business Capital All allowed except land

After the commencement of Revenue All allowed
business Capital All allowed except land
To Indian Company engaged in R&D (Scientific Research)
OUTSIDE To approved Research Association / Institution / College / University (For Scientific as
CONTRIBUTION well as Social & Statistical Research)
To IIT / IIS / National Laboratory (Scientific Research)
OTHER POINTS
 Even if approval of Institution is withdrawn after payment – Deduction is allowed
 Unabsorbed Capital Expenditure on Scientific Research can be carried forward and set off same as Unabsorbed Dep.
 If Scientific Research Asset is sold
Taxable under PGBP: Lower of
a. Sale Amount; or b. Deduction Allowed

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SECTION 35ABA : EXPENSE FOR OBTAINING TELECOM SPECTRUM
SECTION 35ABB : EXPENSE FOR OBTAINING TELECOM LICENSE
 Any amount actually paid for obtaining Telecom Spectrum / License
 Shall be allowed as deduction
 In equal instalments
 During no. of years for which spectrum / license is in force.
If payment is made before commencement of business If payment is made after commencement of business
Deduction allowed from PY in which business commences till Deduction allowed from PY in which spectrum / license fees
PY in which spectrum / license expires. paid till PY in which spectrum / license expires.

E.g. Tata Telecom obtained telecom license of ₹12,00,000 for 5 years on 01.04.2019 which will expire on 31.03.2024. It
commenced the business on 01.04.2020. It paid license fee of ₹6,00,000 on 01.04.2019 and remaining ₹6,00,000 on
01.04.2021. Compute the deduction allowed u/s 33ABB for PY 21-22.
Sol. The license fee of ₹6,00,000 will be distributed equally from 01.04.2020 to 31.03.2024 i.e. ₹1,50,000 each year. And the
license fee of remaining ₹6,00,000 will be distributed equally from 01.04.2021 to 31.03.2024 i.e. ₹2,00,000 each year.
Hence, the deduction allowed in PY 21-22 will be ₹3,50,000.
OTHER POINTS
 Depreciation u/s 32 shall not be allowed on Telecom Spectrum / License.
 In case of Amalgamation / Demerger, remaining deduction shall be allowed to Amalgamated / Resulting Company.
SECTION 35AD : EXPENDITURE ON SPECIFIED BUSINESS
Deduction allowed on all Capital Expenses except Land, Goodwill & Financial Instrument.
AMOUNT OF DEDUCTION
If Capital Expenditure incurred before commencement of If Capital Expenditure incurred after commencement of
business business
100% deduction in year of commencement 100% deduction in year of expense
SPECIFIED BUSINESS
1. Cold Chain Facility 7. Honey Production
2. Hotel [2 Star or above] 8. Warehousing facility for storage of Sugar
3. Hospital [atleast 100 beds for patients] 9. Warehousing facility for storage of Agricultural Produce
4. Housing Projects 10. Cross Country Pipeline of Natural Gas / Oil
 Under Slum Development Scheme 11. Slurry Pipeline for transportation of Iron Ore
 Under Affordable Housing Scheme 12. Semi-Conductor Wafer Fabrication Manufacturing Unit
5. Production of Fertilisers in India 13. Developing, Maintaining & Operating New
6. In-Land Container Department Infrastructure Facility

OTHER POINTS
i. Business should be new i.e. not formed by splitting up or reconstruction of existing business.
ii. P&M should be new except
a. Imported old P&M
b. 20% of Total P&M can be old
iii. If payment / expenditure for capital asset to a single person in a single day exceeds ₹10,000 by Cash / Bearer Cheque /
Cross Cheque, then no deduction allowed for such payment / expenditure i.e. Ignore such amount.
iv. If deduction u/s 35AD is claimed, then deduction u/s 80IA to 80RRB & 10AA shall not be allowed from same business.
v. Loss from Specified Business is set off only from Profit of Any Other Specified Business only.
vi. Loss from Specified Business can be Carried Forward indefinitely.
vii. If Specified Business capital asset is sold: Amount received is taxable under PGBP.
viii. If Specified Business capital asset is converted / transferred to Non-Specified Business within 8 years
 PGBP Income = Deduction Allowed [Cost of Asset] – Depreciation for each full PY upto transfer
 Actual Cost of Asset for Non-Specified Business = Same as PGBP Income
SECTION 35CCC : DEDUCTION OF EXPENSES INCURRED SECTION 35CCD : DEDUCTION OF EXPENSES
IN NOTIFIED AGRICULTURAL EXTENSION PROJECT INCURRED BY COMPANY ON NOTIFIED SKILL
DEVELOPMENT PROJECT
 Deduction allowed to all assessee.  Deduction allowed only to company.
 100% of expenditure [except Land & Building]  100% of expenditure [except Land & Building]
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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 35D : PRELIMINARY EXPENSES
Eligibility Deduction allowed only to Resident Assessee who incurs Preliminary Expenses at the time of:
a. Commencement of Business
b. Extension of Business
c. Setting up New Unit
Maximum Limit Indian Company: 5% x [Higher of Cost of Project or Capital Employed]
of Deduction Other Resident Assessee: 5% of Cost of Project

Q. What do you mean by Cost of Project & Capital Employed?

A. Cost of Project = Amount invested in Fixed Assets of New Business / Extension / New Unit
A. Capital Employed = Share Capital [Except R&S, Share Premium] + Debentures + Long Term
A. Capital Employed = Borrowings of New Business / Extension / New Unit
Deduction Lower of:
Amount  Actual Preliminary Expenses; or
Deduction is allowed in 5 years in equal instalments.
 Maximum Limit

Note: In case of Amalgamation / Demerger, remaining deduction shall be allowed to Amalgamated /

Resulting Company.
SECTION 35DD : EXPENSES ON SECTION 35DDA : EXPENSES INCURRED UNDER VOLUNTARY
AMALGAMATION & DEMERGER RETUREMENT SCHEME [VRS]
 Deduction allowed only to Indian Company  Deduction allowed to All Assessee.
who incurred expenditure.  Deduction allowed in 5 years in equal instalments of Amount Paid.
 Deduction is allowed in 5 years in equal  Deduction for PY = 1/5 x Amount Paid for VRS
instalments.  In case of Amalgamation / Demerger / Succession / Conversion,
remaining deduction shall be allowed to successor.
SECTION 36 : OTHER DEDUCTIONS
Section Provision
Sec 36(1)(i) Insurance Premium of Stock
Sec 36(1)(ib) Health / Medical Insurance Premium of Employee other than Cash
Sec 36(1)(ii) Bonus / Commission to Employee [Subject to Sec 43B]
Sec 36(1)(iii) Interest on Loan for Business Purpose
For Depreciable Assets Interest upto Put to use Added to Cost of Asset
Interest after Put to use Allowed u/s 36
Other Cases Allowed u/s 36
Sec 36(1)(iiia) Discount on Zero Coupon Bonds : Amortised over the life of Zero Coupon Bond
Sec 36(1)(iv) Employer Contribution for benefit of Employees
a. Statutory Provident Fund
b. Recognised Provident Fund
c. Approved Super Annuation Fund Deduction u/s 36 [Subject to Sec 43B]
d. Approved Gratuity Fund
e. Any other fund as per law [ESI]

a. Unapproved / Unrecognised Provident Fund

b. Unapproved Super Annuation Fund No Deduction
c. Unapproved Gratuity Fund
d. Any Other Fund
Sec 36(1)(iva) Employer Contribution in Pension Scheme u/s 80CCD
Deduction u/s 36 [Subject to Sec 43B] is lower of:
 Actual Contribution
 10% of Salary [Basic + DA(if)]
Sec 36(1)(va) Employee Contribution towards PF / ESI / Super Annuation Fund
 Deduction allowed if amount deposited on or before due date of that fund.
 If not deposited by employer upto due date of that fund then amount will be deemed to be Income
under PGBP.
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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
Sec 36(1)(vi) Animals used in business [Other than Stock-in-Trade]
 Deduction allowed in year in which such animal becomes permanently useless or died.
 Deduction amount = Cost of Animal – Scrap Value
Sec 36(1)(vii) Bad Debts
Actual Bad Debts Sales Allowed
Loan Not Allowed [Except Money Lending Business]
PBD Not Allowed [Except Banks]

OTHER POINTS
 Bad Debts should be written off in the books in the PY in which deduction is claimed.
 Debt should be taken into account for computing income of PY or earlier years.
 Recovery of Bad Debts:
a. Taxable under PGBP in the year of recovery.
b. Amount Taxable = Bad Debts recovered in excess of not written off.

E.g. A Ltd. has debtors of ₹1,00,000. It took a deduction of ₹60,000 as Bad Debts written off and
₹40,000 were not written off. Now,
Case Recovery Taxable
A 35000 NIL [Nothing in excess of 40,000]
B 45000 5000 = 45000 - 40000

 Taxable only if Assessee who claims and who recovers is same.

ACTUAL BAD DEBTS DEDUCTION IN CASE OF BANKS

Total Actual Bad Debts written off – Provision upto yet
Sec 36(1)(viia) Provision for Bad Debts of Banks
Indian Bank [Scheduled / Non-Scheduled / Co- 8.5% of GTI + 10% of Aggregate Avg.
operative] Advance made by Rural Branches
 Foreign Banks
 State Financial Corporation
 State Industrial Investment Corporation 5% of GTI
 Public Financial Institution
 NBFC
Sec 36(1)(ix) Expenses on Promotion of Family Planning of Employees
Deduction allowed only to Companies.
Revenue Nature 100% Deduction
Capital Nature Allowed in 5 equal instalments in 5 years

Note:
 Unabsorbed Expenditure on Family Planning can be carried forward & set-off same as Unabsorbed
Depreciation.
 In case of Amalgamation / Demerger, remaining deduction shall be allowed to Amalgamated /
Resulting Company.

Sec 36(1)(xv) / Securities Transaction Tax [STT] / Commodities Transaction Tax [CTT]
(xvi) Deduction u/s 36 [ If shares / units / commodities held as stock-in-trade]

Sec 36(1)(xvii) Purchase of Sugarcane

Expenses incurred by Co-operative Society engaged in business of Manufacturing Sugar for purchase of
sugarcane at a price which is equal to or less than price fixed by government.

Sec 36(1)(xviii) Mark-to-Market Loss or Other Expected Loss

As per ICDS [On the basis of Actual Settlement]

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 37 : GENERAL DEDUCTIONS
Any expenditure [Other than Section 32-36] is allowed as deduction, if following conditions are satisfied:
Revenue in Nature [Not Capital] Incurred wholly & exclusively for B&P [Not Personal] Legal [Not prohibited by law]

S.No. Type of Expense Treatment

1 Corporate Social Expenditure [CSR] Not Allowed
2 Dividend & DDT Not Allowed
3 Secret Commission, Bribe, Payment to Gundas Not Allowed
4 Expenditure for Advertisement in Souvenir, Brochure, Pamphlet etc. published by Political Not Allowed
Party [Eligible for deduction u/s 80GGB to Companies]
5 Contribution to Electoral Trust, Other Donations [Eligible for deduction u/s 80] Not Allowed
6  Provision for Loss of Subsidiary  Provision for Diminution in Value of Assets Not Allowed
 Provision for Deferred Tax / Income Tax  Provision for Unascertained Liability
7 Provision based on fair estimate & reasonable certainty as per ICDS Allowed
8 Section 40A(7) : Provision for Gratuity [even based on Actuarial Valuation] Not Allowed
[Only Gratuity Paid is allowed]
9 Share Issue Expenses [Other than Preliminary]
 Incurred for IPO, FPO, Right Issue Not Allowed
 Other Cases [BuyBack, Bonus Issue] Allowed
10 Debenture Issue Expenses [Including Convertible Debentures] Allowed
11 Discount on Issue of Debentures Allowed over the
life of debentures
12 Regularisation / Compounding Fees Not Allowed
13 Expenditure incurred on project not related to existing business & project was abandoned Not Allowed
14 Payment to Consultant for Opinion on New Business Not Allowed
15 Expenditure incurred in Heart Surgery of Individual Assessee Not Allowed
16 Commission paid to doctors by a diagnostic centre for referring patients for diagnosis Not Allowed
17 Freebies [Gift etc.] provided by Pharmaceutical Company to Doctors Not Allowed
18 Section 40(a)(v) : Tax on Non-Monetary Perquisites of Employees paid by Employer Not Allowed
19 Expenditure incurred [Premium Paid] on Keyman Insurance Policy Allowed
20 Sponsorship Fees Allowed
21 Non-Compete Fees Allowed
22 Expenses on Glow Sign Board Allowed
23 Expenses incurred for grant of ISO Certificate Allowed
24 Loss due to theft if incidental to business Allowed
25 Tax, Interest & Penalties of Direct & Indirect Tax
Direct Tax Indirect Tax
Tax, Advance Tax, TDS Not Allowed Allowed
Interest [Including Interest on TDS & Advance Tax] Not Allowed Allowed
Penalty Not Allowed Not Allowed

Note:
1. Fees for delayed filing of TDS Statement u/s 234E : Allowed
2. Refund of Direct / Indirect Tax
 Income Tax Refund : Not Taxable;
 Indirect Tax Refund : Taxable [Net of Amt. Refunded to Customers]

26 Other Penalties
 For Infraction / Violation /Breach of Law Not Allowed
 For breach of contract [Revenue nature] Allowed

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 40 : AMOUNTS NOT DEDUCTIBLE
NON-DEDUCTION / DEPOSITION OF TDS NON-DEDUCTION / DEPOSITION OF
EQUALISATION LEVY [EL]
Section 40(a)(i) Section 40(a)(ia) Section 40(a)(ib)
Any amount paid or credited to NR or Any amount paid or credited to Resident on Any amount [consideration for
Foreign Co. on which TDS is which TDS is deductible but; specified service] paid or credited to
deductible but; TDS has not been deducted during PY; NR on which EL is deductible but;
TDS has not been deducted during or EL has not been deducted during
PY; or TDS deducted but not paid to govt. upto PY; or
TDS deducted but not paid to govt. due date of ROI EL deducted but not paid to govt.
upto due date of ROI upto due date of ROI
Disallowed: 30% in Current PY
Disallowed: 100% in Current PY Disallowed: 100% in Current PY
Allowed in PY of deposit to govt. [If TDS is
Allowed in PY of deposit to govt. [If deducted in subsequent year or deposited Allowed in PY of deposit to govt. [If it
TDS is deducted in subsequent year or after due date of ROI] is deducted in subsequent year or
deposited after due date of ROI] deposited after due date of ROI]
Note: If any amount paid / credited to payee without deduction of TDS and such payee
a. Furnish his ROI;
b. Considers such amount in his Total Income; and
c. Paid tax due on such amount
Then amount disallowed will be allowed in year in which payee files his ROI.
SECTION 40A(2) : PAYMENT TO SPECIFIED PERSONS
 If payment of expenditure is made to specified persons [Relatives], then AO can disallow excessive or unreasonable amt.
 Disallowed: Payment in excess of FMV

Q. Who are Specified Persons / Relatives?

A.
Assessee Specified Person [Relative]
Individual Spouse, Brother, Sister or any lineal ascendant or descendant of Individual
HUF Member of HUF & Relatives of Member
Firm Partners of Firm & Relatives of Partners
AOP / BOI Members of AOP / BOI & Relatives of Members
Company Directors of Company & Relatives of Directors
For all assessee [Imp.] Any person having substantial interest in Business of Assessee / Relatives of Assessee
[Substantial Interest = ≥ 20% of Voting Power / Profit Share]
SECTION 40A(3) : CASH PAYMENTS
 If aggregate payment for expenditure to a single person in a day exceeds ₹10,000 by Cash / Bearer Cheque / Cross
Cheque, then such payment is 100% disallowed.
Exception: If payment was made to transporter, then limit will be ₹35,000.
 If expenditure is claimed as deduction in earlier years on due basis and if such expenditure is subsequently paid in Cash /
Bearer Cheque / Cross Cheque in excess of ₹10,000 in a day, then deduction allowed earlier is taxable under PGBP.
[Section 40A(3A)]
 Non-Applicability:
a. If payment made by A/c Payee Cheque / DD / ECS / Any other electronic mode such as NEFT, RTGS, Debit /
Credit Card etc.
b. If payment made to Banks / LIC / Government
c. If payment made by Book Entry
d. If payment made in a village / town with no banking facility
e. If payment of Retirement Benefits to Employees / their family upto ₹50,000
f. If payment of salary to an employee who is posted to a place other than his normal place of duty for ≥ 15 days
g. If payment to Producers / Cultivators of Agricultural Product, Forest Product, Poultry / Dairy Product, Fish Product ,
Live Stock etc. [Not Middlemen or Trader]

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 40(b) : PAYMENT OF INTEREST & REMUNERATION [SALARY / BONUS / COMMISSION / ROYALTY] TO
SECTION 40(b) : PARTNERS BY FIRM / LLP
INTEREST PAID TO PARTNER ON LOAN / CAPITAL / CURRENT A/C
If not authorised by deed No deduction [100% disallowed]
If authorised by deed Maximum Interest upto 12% p.a. is allowed as deduction
Note:
 Interest shall relate to period falling after date of deed and not for any earlier period. [Not Retrospective]
 Interest on Loan [Special Points]
Case Deduction allowed
A If an Individual receives Interest in personal capacity & he is a partner in
the firm in representative capacity No Limit i.e. full interest is allowed
B If an Individual receives Interest on behalf of or for benefit of others & as deduction
he is a partner in personal capacity
REMUNERATION [SALARY / BONUS / COMMISSION / ROYALTY]
If not authorised by deed No deduction [100% disallowed]
If authorised by deed Paid to Non-Working Partner
No deduction [100% disallowed]

Paid to Working Partner

Lower of
a) Limit; or
b) Total Payment to all working partners (including representative partners)
Note:
 Remuneration shall not relate to period falling after date of deed and not for any earlier period. [Not Retrospective]
 Calculation of Limit
On first ₹3,00,000 Book Higher of
Profit or in case of Loss a) 1,50,000; or
b) 90% of Book Profit
On Balance Book Profit 60% of Book Profit
 Calculation of Book Profit
Profit as per Income Tax Act, 1961 [PGBP] xxx
(+) Remuneration to Partners [Salary / Bonus / Commission / xxx
Royalty] [If debited to P/L]
(-) Unabsorbed Depreciation (if any) (xxx)
Book Profit xxx
OTHER POINTS
 Section 40A(2) shall not attract in case of Interest & Remuneration to partners which is covered u/s 40(b).
 Share Income [Profit] received by Partner from Firm / LLP is exempt u/s 10(2A).
 Interest & Remuneration received by Partner from Firm / LLP is taxable under PGBP [upto deduction allowed to Firm].
 If stock-in-trade distributed by Firm on Dissolution / Reconstitution to Partner, then FMV of such stock on the date of
receipt by partner is taxable under PGBP in the hands of the Firm. [Section 9B]
SECTION 41 : DEEMED PGBP

SECTION 41(1) : REMISSION / CESSATION OF TRADING SECTION 41(2) Balancing Charge

LIABILITY SECTION 41(3) Sale of Scientific Research Asset
 If assessee has taken deduction of expenditure or SECTION 41(4) Recovery of Bad Debts
trading liability in earlier years; and
 Now during Current PY, assessee has obtained refund Note: Waiver of Working Capital Loan is also covered.
of such expenditure or there is remission / cessation of
such liability, E.g. Sales Tax Refund, Creditors written off, Less
Then such remission / refund shall be taxable under PGBP. Payment to Creditors etc.

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CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 43B : EXPENSES ALLOWED ON ACTUAL PAYMENT BASIS
Following expenses are allowed only if they are paid upto the due date of ROI:
1. Any Tax, Duty, Cess [Includes Interest on Tax]
2. Employer’s contribution towards:
a. SPF b. RPF c. Approved Superannuation Fund d. Approved Gratuity Fund
e. Any other fund as per law f. Pension scheme u/s 80CCD
3. Bonus / Commission to Employees
4. Interest on Loan to
a. Scheduled Banks b. Co-operative Banks c. Public Financial Institutions
d. State Financial Institutions e. State Industrial Investment Corp. f. NBFC
5. Leave Encashment (Leave Salay) to Employees
6. Amount payable to Indian Railways for use of Railway Assets
If paid upto due date of ROI Deduction in Current PY [Year of expense]
If paid after due date of ROI Deduction in the Year of Payment

OTHER POINTS
 Furnishing of Bank Guarantee upto due date of ROI cannot be treated as Actual Payment.
 Bonus is allowed even if amount is initially remitted to the trust created for avoiding late payment of bonus, provided
actual payment to employees is made upto due date of ROI.
 If Interest converted into loan, then such conversion cannot be treated as payment. However, when installment of such
converted interest is paid, deduction is allowed.
 Interest includes pre-payment premium, so it is also allowed on paid basis.
SECTION 43CA : SALE CONSIDERATION OF LAND & BUILDING [IF HELD IN STOCK-IN-TRADE]
Higher of:
 Stamp Duty Value; or
 Sale Price

Note:
a. If SDV is upto 110% of Sale Price, then Sale Consideration = Sale Price
Exception: Sale of Residential Unit from 12.11.2020 to 30.06.2021 and sale amount is upto ₹2 crores then consider
120% instead of 110%.
b. If Date of Agreement & Date of Registeration is not same:
If part / whole amount of consideration is received by Take Stamp Duty Value on Date of Agreement
A/c payee cheque, DD, ECS or any other electronic
mode on or before Date of Agreement
Otherwise Take Stamp Duty Value on Date of Registration
SECTION 43CB : INCOME FROM CONSTRUCTION & SERVICE CONTRACTS
CONSTRUCTION CONTRACTS
Percentage of Completion Method : Income is recognised on the basis of % of completion.

SERVICE CONTRACTS
If duration of contract is not more than 90 days If duration of contract is more than 90 days
Project Completion Method Percentage of Completion Method
Income is recognised when project is completed Income is recognised on the basis of % of completion

Note: Income also includes Retention Money.

SECTION 44A : SPECIAL PROVISIONS FOR TRADE, PROFESSIONAL OR SIMILAR ASSOCIATIONS
If expenditure of such association exceeds subscription income received from members:
1) The Deficiency shall be first set-off against PGBP income of such association.
2) If no PGBP Income, deficiency can be set-off against any other income

Maximum deficiency that can be set off is 50% of Total Income of such Association.

20
CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 44AA : COMPULSORY MAINTENANCE OF BOOKS OF ACCOUNTS
Maintenance of Books of Accounts by Notified Profession

NOTIFIED PROFESSION
Legal, Medical, Engineering, Architect, Accounting, Technical Consultancy, Interior Decoration, Film Artist, CS, IT Professionals

If Gross Receipt exceed ₹1,50,000 in all 3 preceding PY Maintain Prescribed Books

or likely to exceed in Current PY [New Business]
Other Cases Maintain such books which would enable AO to compute
Total Income
Prescribed Books:
a) Cash Book b) Journal c) Ledger
d) Carbon Copies of Bills exceeding ₹25 e) Daily Case Register & Stock Register [Only in Medical]

Maintenance of Books of Accounts by Other Business & Profession

Individual / HUF Required to Maintain  Turnover exceeds ₹25 Lacs; or
 PGBP Income exceeds ₹2.5 Lacs
In any 1 of the 3 preceding PY.
Not Required to Maintain Other cases
Other Persons Required to Maintain  Turnover exceeds ₹10 Lacs; or
 PGBP Income exceeds ₹1.2 Lacs
In any 1 of the 3 preceding PY.
Not Required to Maintain Other cases

Q. For how much period the Books of Accounts are to be maintained?

A. Minimum 6 years from the end of AY
SECTION 44AB : TAX AUDIT OF BOOKS OF ACCOUNTS
Tax Audit is compulsory in following cases:
1) In case of Business If Turnover exceeds ₹1 crore in PY
Exception: However limit will be ₹10 crores if
a) Aggregate Amount received for sales during PY in Cash / Bearer Cheque / Cross
Cheque does not exceed 5% of Total Amount received; and
b) Aggregate Payment made for expenses during PY in Cash / Bearer Cheque / Cross
Cheque does not exceed 5% of Total Payment made.
2) In case of Profession If Gross Receipts exceeds ₹50 Lacs during PY
3) If Assessee is covered by Section 44AD or 44ADA and assessee claims Income less than 8% / 6% or 50% of Turnover /
Gross Receipts and his Total Income is more than Basic Exemption Limit.
4) If Assessee is covered by Section 44BB, 44BBB, 44AE and assessee claims less Income than profit deemed under these
sections.

OTHER POINTS
1. Audit must be done by a CA.
2. Tax Audit Report shall be furnished in Form 3CA / 3CB / 3CD.
3. Due Date of furnishing Tax Audit Report : 1 month prior to due date of furnishing ROI u/s 139(1).
For PY 2021-22
ROI filing Due Date Due Date of furnishing Tax Audit Report
Normal Tax Audit 31st October 2022 30th September 2022
Transfer Pricing 30th November 2022 31st October 2022
Other Cases 31st July 2022 -

21
CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
PRESUMPTIVE TAXATION
Particulars Section 44AD Section 44ADA Section 44AE
Eligible Assessee Resident Individual, HUF, Firm [not Resident Individual, Firm [not Any Assessee engaged in
LLP] engaged in any business other LLP] engaged in Notified business of plying, hiring,
than: Profession. leasing, goods carriage
 Notified Profession [Transportation Business]
 Commission Business
 Agency Business
 Section 44AE Business
Eligible Business / Any Business whose Total Turnover Notified Profession whose Transportation Business in
Profession / Gross Receipts are upto ₹2 crores Gross Receipts are upto ₹50 which Assessee owns not
in PY Lacs in PY more than 10 Goods Carriage
at any time during PY
Presumptive PGBP If Turnover / Gross Receipts 50% of Gross Receipts If Heavy Goods Vehicle
Income received by A/c Payee Cheque / [Weight > 12 tonnes]
DD / ECS / Any other electronic ₹1000 x Weight in tonnes x
mode upto due date of ROI Ownership of vehicle in
6% of such Turnover / GR months / part of months [per
vehicle]
Others
8% of such Turnover / GR Other Vehicles
₹7500 x Ownership of
vehicle in months / part of
months [per vehicle]
Deductions No deduction of any expense u/s 30 No deduction of any expense No deduction of any expense
to 38 & 40(b) u/s 30 to 38 & 40(b) u/s 30 to 38
Maintenance of If Assessee opts If Assessee opts If Assessee opts
Books of A/c’s & Not Required Not Required Not Required
Audit
If Assessee does not opt & his If Assessee does not opt & If Assessee does not opt
Total Income exceeds Basic his Total Income exceeds Required
Exemption Limit Basic Exemption Limit
Required Required
Other Points  Advance tax payment only in 1  Advance tax payment is  Advance tax payment in
installment i.e. 15th March of only in 1 installment i.e. 4 installments.
FY. 15th March of FY.  ROI Filing Date:
 ROI Filing Date: 31 Julyst  ROI Filing Date: 31st July
 Assessee shall not claim 31st July
deduction u/s 10AA & 80IA to
80RRB.
 If assessee declares income for
any PY as per Section 44AD &
he does not declare income for
next 5 consecutive PY as per
44AD, then he will not be
eligible for 44AD for 5 years
subsequent to year in which he
does not declare income as per
44AD.

22
CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
SECTION 115BBF : ROYALTY INCOME IN RESPECT OF SECTION 115BBG : INCOME FROM TRANSFER OF
PATENT DEVELOPED IN INDIA CARBON CREDITS
Taxable under PGBP or OS @ 10%. Taxable under PGBP or OS @ 10%.

Note: Note: No deduction of any expenditure.

 No deduction of any expenditure.
 Applicable only to Resident Assessee.
 Applicable only if atleast 75% development expenses
incurred in India.
SECTION 145 : METHOD OF ACCOUNTING FOR PGBP & OS SECTION 145B
Income from PGBP & OS shall be computed as per  Claim for escalation of price in a contract deemed to
 Cash System ; or be income of PY in which reasonable certainty of its
 Mercantile System realisation is achieved.
 Subsidy / Grant from govt. is deemed to be income of
PY in which it is received.

23
CA – FINAL I PGBP DESIGNED BY HARSH MAHESHWARI
INCOME COMPUTATION & DISCLOSURE STANDARDS (ICDS)
 CG notified 10 ICDS. [Section 145(2)]
 ICDS are applicable for computation of Income under PGBP & OS [Mercantile System] and not for maintaining Books
of Accounts.
 They apply to all assessee [Except Individuals & HUF who are not liable for Tax Audit u/s 44AB]
 In case of Conflict
Conflict between Who will Prevail?
Income Tax Act, 1961 & ICDS Income Tax Act, 1961
Income Tax Rules, 1962 & ICDS Income Tax Rules, 1962
AS / IndAS & ICDS ICDS
 They also apply in case of Presumptive Taxation.
 They will not apply on MAT calculation, but apply on calculation of AMT.

ICDS I : ACCOUNTING POLICIES ICDS II : VALUATION OF INVENTORIES

 Does not recognise Prudence & Materiality Concept.  Lower of Cost or NRV.
 E.g. Mark to Market Loss / Expected loss on  In case of Dissolution of Firm: Inventory shall be
contract etc. to be recognised on Actual Basis. valued at NRV.
 Borrowing Cost shall be included only in cost of those
ICDS III : CONSTRUCTION CONTRACT inventories which requires 12 months or more to bring
Same as per Section 43CB them to saleable condition.
 Borrowing Cost which does not meet the recognition
criteria shall not be included in the Cost of Inventory.
ICDS V : TANGIBLE FIXED ASSETS
 Depreciation & Transfer: Same as per Income Tax
Act, 1961 ICDS IV : REVENUE RECOGNITION
 Revaluation of Asset is not permitted.
Service Contract Same as per Section 43CB
 Exchange of Asset: Actual Cost of Asset shall be
Interest on Tax Refund Received Basis
FMV of Asset Received.
Other Revenue Same as per AS

ICDS VII : GOVT. GRANTS

Related to Asset Reduced from Cost of Asset ICDS VI : EFFECT OF CHANGE IN FOREIGN EXCHANGE
Others Taxable under PGBP in the year RATES
of receipt*
*whether condition attached is fulfilled or not. Exchange difference arising on last day of PY
Monetary Items Recognised as Income / Exp.
Non-Monetary Items Not Recognised*
ICDS IX : BORROWING COST
*Recognised at the time of settlement.
Same as per Income Tax Act, 1961

ICDS X : PROVISION, CONTINGENT LIABILITIES & ICDS VIII : SECURITIES

CONTINGENT ASSETS  Covers only securities held as stock-in-trade.
 As per ICDS, valuation of securities shall be done
Provision Recognised only when fair category-wise and not security-wise:
estimate & reasonable certainty Lower of
Contingent Not Required  Cost of Category; or
Liabilities  NRV of Category
Contingent Recognised only when there is
Assets reasonable certainty [In case of AS-13, valuation is done as per security-wise]

24
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
CHAPTER – 07 CAPITAL GAINS
SECTION 45(1) CHARGING SECTION
There must be Capital Assets Capital Assets must be transferred Gain must arise in PY Such Gain is not exempt

CAPITAL ASSETS
SECTION 2(14) CAPITAL ASSET
Capital Asset means property of any kind Business or Personal, Movable or Immovable, Tangible or Intangible and

INCLUDES EXCLUDES

1. Securities held by Foreign Institutional Investor (whether as Investment / 1. Stock-in-Trade

Stock-in-Trade). 2. Personal Movable Property
2. Any Unit Linked Insurance Policy [ULIP] issued on or after 01.02.2021 on 3. Rural Agricultural Land in India
which premium payable exceeds ₹2,50,000 for any PY. 4. Specified Gold Bonds

NOTE:
1. Personal Movable Property excludes:
 Jewellery
 Archaeological Collections
 Drawings / Paintings It means these are Capital Assets. [JADPAS]
 Sculptures
 Any work of art
2. Rural Agriultural Land
a) Agricultural Land situated in area having population of < 10,000.
b) Agricultural Land situated more than 2 kms outside from area having population above 10,000 but upto 1L.
c) Agricultural Land situated more than 6 kms outside from area having population above 1L but upto 10L.
d) Agricultural Land situated more than 8 kms outside from area having population above 10L.

TYPES OF CAPITAL ASSETS

Type of Asset Short-Term Capital Asset Long-Term Capital Asset
Listed Shares & Securities
Zero Coupon Bonds If held upto 1 year / 12 months If held for more than 1 year / 12 months
Unit of Equity Oriented Funds
Unlisted Shares
Land & Building If held upto 2 years / 24 months If held for more than 2 years / 24 months
Other Capital Assets If held upto 3 years / 36 months If held for more than 3 years / 36 months

TRANSFER
SECTION 2(47) TRANSACTIONS INCLUDED IN TRANSFER
1. Sale / Exchange / Relinquishment of Capital Asset
2. Possession of immovable property in part performance of a contract
3. Redemption of Zero Coupon Bonds.
4. Capital Asset destroyed and amount / other asset is received from Insurance Co. [Section 45(1A)]
5. Capital Asset converted into stock-in-trade [Section 45(2)]
6. Capital Asset introduced / transfer to Firm/ AOP/ BOI by partner/ member as Capital Contribution [Section 45(3)]
7. Capital Asset distributed on dissolution to Firm/ AOP/ BOI to partner/ members [Section 45(4)]
8. Compulsory Acquisition of Capital Asset [Section 45(5)]
9. Possession of Immovable Property in case of Joint Development Agreement [Section 45(5A)]
10. Distribution on Liquidation of Company [Section 46]
11. Buy-Back of Shares & Securities [Section 46A]
12. Slump Sale [Section 50B]

25
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
SECTION 47 : TRANSACTIONS NOT REGARDED AS TRANSFER
1. Transfer under Gift / Will [Except ESOP]
2. Distribution on Total / Partition of HUF
3. Transfer under Amalgamantion / Demerger of Companies
Conditions
 Transfer of Capital Asset by Amalgamating Company to Amalgamated Indian Company.
 Transfer of Capital Asset by Demerged Company to Resulting Indian Company.
 Issue of shares of Amalgamated Company to shareholders of Amalgamating Company.
 Issue of shares of Resulting Company to shareholders of Demerged Company.
4. Transfer of Capital Asset between Wholly Owned Subsidiary & Indian Holding Co.
Conditions
 Transferee company must be Indian.
 Holding company must hold 100% share capital for atleast 8 years from date of transfer.
5. Conversion of Bond / Debentures into Shares
6. Conversion of Preference Shares into Equity Shares
7. Transfer of Capital Asset under Reverse Mortgage
8. Transfer of Capital Asset on succession of Firm / Sole Proprietorship by a Company
Conditions
 All assets / liabilities of Firm / Proprietorship becomes asset / liabilities of company.
 Proprietorship / Partner hold not less than 50% voting power in the company for atleast 5 years.
 Proprietor / Partner does not receive any type of consideration except allotment of share in the company.

9. Transfer of Capital Asset on conversion of Private Co. or Unlisted Public Co. into LLP
Conditions
 All assets / liabilities of company becomes asset / liabilities of LLP.
 Shareholders of company shall become partner in LLP in same proportion of shareholding.
 Shareholders of company shall receive atleast 50% profits of LLP for 5 years.
 No amount is paid to any partner from accumulated profits of the company for 3 years.
 Total Turnover or Gross Receipt of company doesn’t exceed ₹60L in preceding 3 PY.
 Total Book Value of Assets of company doesn’t exceed ₹5 Crores in preceding 3 PY.

PERIOD OF HOLDING ASSET [POHA]

NORMAL CASE
Date of Purchase to Date to Sale (Both included)

SPECIAL CASE
Case
A When Capital Asset becomes Property by way of transactions not Include period of previous owner /
regarded as transfer previous asset
B When Capital Asset gets destroyed Upto Date of Destruction
C Conversion of Capital Asset into Stock-in-Trade Upto Date of Conversion
D Compulsory Acquisition of Capital Asset Upto Date of Compulsory Acquisition
E Shares of a Company in Liquidation Upto the Date of Liquidation

26
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
SECTION 48 - COMPUTATION OF CAPITAL GAIN
Short Term Capital Gains (STCG) Long Term Capital Gains (LTCG)
Full Value of Consideration / Sale Value xx Full Value of Consideration / Sale Value xx
Less: Expenses on Transfer (xx) Less: Expenses on Transfer (xx)
Net Consideration xx Net Consideration xx
Less: Cost of Acquisition (xx) Less: Indexed Cost of Acquisition (xx)
Less: Cost of Improvement (xx) Less: Indexed Cost of Improvement (xx)
STCG xx LTCG xx
Less: Exemption u/s 54B/D/G/GA (xx) Less: Exemption u/s 54 to 54GB (xx)
Taxable STCG xx Taxable LTCG xx

NOTE: Indexation benefit is not available in

a) Bonds / Debenture [Except Capital Index Bond & Sovereign Bonds]
b) Slump Sale
c) Depreciable Assets [Always Short-Term]
d) Section 112A – LTCG on Specified Assets

FULL VALUE OF CONSIDERATION / SALE CONSIDERATION

Amount received or accruing from transfer of Capital Asset.

SECTION 50C - FULL VALUE OF CONSIDERATION OF LAND & BUILDING

In this case, sale consideration is higher of
a) Stamp Duty Value; &
b) Sale Price

Note:
1. If Stamp Duty Value is upto 110% of Sale Price, then consider Sale Price as Sale Consideration.
2. If Date of Agreement & Date of Registration is not same
If part / whole amount of consideration is received by A/c Take Stamp Duty Value on Date of Agreement
payee cheque, DD, ECS or any other electronic mode on or
before Date of Agreement
Otherwise Take Stamp Duty Value on Date of Registration
3. Reference to Valuation Officer
 If Assessee does not agree with Stamp Duty Value and not disputed that Stamp Duty Value in Court;
 Assessee can request AO to refer case to Departmental Valuation Officer.
 AO may refer that case to Valuation Officer
If Valuation Amount > Stamp Duty Value Sale Consideration = Stamp Duty Value
If Valuation Amount < Stamp Duty Value Sale Consideration = Higher of Valuation Amount or Sale Price

SECTION 50CA - FULL VALUE OF CONSIDERATION OF SECTION 50D – WHEN SALE PRICE CANNOT BE
UNLISTED SHARES DETERMINED
In this case, sale consideration is higher of Fair Market Value (FMV) on the date of transfer = Sale Price
a) Fair Market Value (FMV); &
b) Sale Price

TRANSFER EXPENSES
Expenses incurred by Assessee at the time of transfer of Capital Asset.
Note:
1. Expenses on acquisition are added to the cost of acquisition, hence not allowed as deduction here.
2. STT is not allowed as deduction.

27
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
COST OF ACQUISITION
It is the value which assessee has paid, or amount which he has incurred, for acquisition of the asset. It includes the amount
incurred for completing / acquiring the clear title.

SPECIAL CASES

Case
A When Capital Asset becomes Purchase Price of Previous owner / Previous asset
Property by way of transactions not
regarded as transfer
B Goodwill, Brand Name, Trade Mark, Self-Generated NIL
Right to Manufacture, Stage Permit, Purchase Purchase Price
Loom Hours
Note : If Depreciation is obtained on Goodwill by Assessee then COA = Purchase Price – Depreciation.
C Bonus Shares Allotted before 1.4.2001 FMV as on 1.4.2001
Allotted on or after 1.4.2001 NIL
D Sweat Equity Shares FMV on the date on which option is exercised
E Right Shares Purchased Purchase Price
Right Sold / Renounced NIL
F Depreciable Asset WDV [Written Down Value]
G If Asset acquired before 1.4.2001 Higher of
 FMV as on 1.4.2001; &
 Purchase Price of Assessee / Previous Owner

NOTE: In case of Land & Building, FMV as on 1.4.2001 shall not

exceed Stamp Duty Value as on 1.4.2001.
H Shares issued by Resulting
Company to shareholder of COA of shares held Net BV of Asset transferred to Resulting Co.
in Demerged Co. x
Demerged Company Net Worth of Demerged Co.

INDEXED COST OF ACQUISITION

Cost Inflation Index

Cost of Acquisition
x Index for Asset Transfer Year
Index for year in which asset is first held by assessee PY 2001-02 = 100
PY 2021-22 = 317
Note:
1. As per judgement of Bombay HC in the case of Manjula J. Shah, we can take Index for year in which asset is purchased
by previous owner.
2. If asset is purchased before 01.04.2001, Index for the first held year / purchase year is of year 2001 – 02 i.e. 100.

COST OF IMPROVEMENT INDEXED COST OF IMPROVEMENT

All expenditure of capital nature incurred on improvement
of capital asset by assessee / previous owner on or after
Cost of Improvement
1.4.2001. x Index for Transfer Year
Index for improvement year
Note: Ignore any expenditure incurred before 01.04.2001.

CAPITAL GAIN IN SPECIAL CASES

Section 45(1A) : Capital Asset destroyed and amount / other asset received from Insurance Company
 Sale Consideration = Amount received / FMV of asset received from Insurance Company
 Capital Gain is taxable in the year which asset is received.
 Index for Transfer Year = Year of Destruction
 If no claim is received = No Capital Gain & Loss will be considered as Dead Loss.

28
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
Section 45(2) : Capital Asset converted into Stock-in-Trade
 Sale Consideration = FMV of Capital Asset on the date of conversion
 Capital Gain is taxable in the year in which converted stock is sold.
 Index for Transfer Year = Year of Conversion
 Business Income (PGBP) = Sale Value of Stock – FMV of Capital Asset on the date of conversion
 If proportionate stock is sold, then proportionate amount is taxable.

Section 45(3) : Capital Asset introduced to Firm / AOP / BOI by Partner / Member as Capital Contribution
 Sale Consideration = Amount credited in Partner / Member’s Capital A/c
 Taxable in the hands of Partner / Member

Section 45(4) : Capital Asset / Money distributed on Reconstitution of Firm / AOP / BOI [Specified Entity] to Partner /
Member [Specified Person]
 Taxable / Income in the hands of Firm / AOP / BOI [Specified Entity]
 Taxable in year in which Money / Capital Asset received by Partner / Member [Specified Person]
 Capital Gains = A + B – C
where,
A = Money Received by Partner / Member
B = FMV of Capital Asset Received by Partner / Member
C = Balance in Capital Account of such Partner / Member [If balance is negative, treat as zero]
 Reconstitution includes
a. Retirement / Death of Partner / Member
b. Admission of Partner / Member
c. Change in PSR

Note:
Section 9B - Capital Asset distributed on dissolution of Firm / AOP / BOI [Specified Entity]
 Taxable in the hands of Firm / AOP / BOI [Specified Entity]
 Sale Consideration = FMV of Capital Asset received by Partner / Member [Specified Person]

Section 45(5) : Compulsory Acquisition of Capital Asset

Normal Compensation Enhanced Compensation
 Sale Consideration = Compensation Amount  Sale Consideration = Enhanced Compensation Amt.
 Taxable in the year in which compensation is received  Cost of Acquisition = Litigation Expenses
[Full compensation is taxable even if part is received]  Taxable in year in which it is received.
 Index for Transfer Year = Year in which asset is  Taxable only if received on basis of Final Order of
Compulsorily Acquired Court not Interim Order.

Note:
1. Interest on Compensation / Enhanced Compensation = Taxable under IFOS.
2. Exemption on Compulsory Acquisition of Urban Agricultural Land [Section 10(37)]
In case of Individual / HUF, Capital Gain on Compulsory Acquisition of Urban Agricultural Land is Fully Exempt if such
land is used for Agricultural Purposes in preceding 2 years before transfer.

Section 45(5A) : Capital Gain in case of Joint Development Agreement

 Sale Consideration = Stamp Duty Value of share in project on date of issue of completion certificate + Amt. Received
 Capital Gain is taxable in year in which completion certificate is issued.
 Index for Transfer Year = Year in which possession is transferred.

Section 46 : Capital Asset distributed on liquidation of company

 It is taxable in the hands of shareholders & not the company.
 Sale Consideration = FMV of Asset Received + Amount Received – Shareholder’s Interest in Accumulated Profits of
Company [As per Section 2(22)(c)]
 Cost of Acquisition = Purchase Price of Shares

29
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
Section 46A : Buyback of Shares
Domestic Company Foreign Company
Company Shareholders Company Shareholders
Taxable @ 23.296% [20% Tax + 12% Exempt u/s 10(34A) Not Taxable Taxable
Surcharge + 4% Cess] u/s 115QA

Section 50B : Slump Sale

It means sale of Unit / Undertaking / Division.
 Short – Term = If unit held upto 3 years
 Long – Term = If unit held for more than 3 years

Calculation of Capital Gains

Sale Consideration xx FMV of Capital Assets on the date of transfer
Less: Transfer Expenses (xx)
Net Sale Consideration xx
Less: Cost of Acquisition (xx) Net Worth of unit transferred
(No Indexation)
STCG / LTCG xx

FMV of Capital Assets on the date of transfer [Sale Consideration]

Higher of
 FMV 1; or
 FMV 2

FMV 1 = A + B + C + D – L FMV 2 = E + F + G + H
where, where,
A = Book Value of all assets transferred [except jewellery, E = Amount received from transfer [Sale Price]
artistic works, shares, securities & immovable property]
F = FMV of Shares & Securities received as a result of
B = Open Market Value of Jewellery & Artistic work as per transfer
Valuation Report of Merchant Banker or Accountant
G = Stamp Duty Value of Immovable Property received as a
C = FMV of Shares & Securities of unit transferred result of transfer

D = Stamp Duty Value of Immovable Property of unit H = Open Market Value of Other Assets received as a result
transferred of transfer

L = Book Value of liabilities of unit transferred except

 Capital / Paid up share capital
 Reserves & Surplus
 Dividend
 Provision for Tax
 Provision for Unascertained Liabilities
 Contingent Liabilities

Note: Valuation Date = Date of Slump Sale

Net Worth of Unit Transferred [Cost of Acquisition]

Value of Total Assets of Unit Transferred xx Depreciable Assets = WDV as per Income Tax Act
Less: Book Value of Liabilities of Unit Transferred (xx) Section 35AD Assets = NIL
Net Worth of Unit xx Self-Generated Goodwill = NIL
Other Assets = Book Value
Note: Ignore / Remove Revaluation of Assets.

30
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
Section 51 : Advance Money Forfeited
If Forfeited before 01.04.2014 If Forfeited on or after 01.04.2014
Deduct from Cost of Acquisition Taxable under IFOS
[When such asset is sold]

Note: If Forfeited by Previous Owner = Ignore.

EXEMPTIONS

Particulars Section 54 Section 54B Section 54D

Eligible Assessee Individual / HUF Individual / HUF Any Person
Asset Transferred Residential House Property Urban Agricultural Land (STCG Compulsory Acquisition of
(LTCG) / LTCG) Land & Building of Industrial
Unit (STCG / LTCG)
Asset in which Capital One Residential House in India Agricultural Land Land & Building for Industrial
Gain is invested [If CG is upto ₹2 cr, then 2 Unit
houses allowed]
Time Limit of Purchase: Within 1 year before Within 2 years from date of Within 3 years from date of
Investment or 2 years after the date of transfer transfer
transfer.

Construct: Within 3 years from

date of transfer.
Exemption Limit Lower of CG or Amount Lower of CG or Amount Lower of CG or Amount
Invested Invested Invested
Withdrawal of If New Asset is transferred If New Asset is transferred If New Asset is transferred
Exemption within 3 years. [Amount exempt within 3 years. [Amount exempt within 3 years. [Amount exempt
earlier would be deducted from earlier would be deducted from earlier would be deducted from
COA of New Asset] COA of New Asset] COA of New Asset]
Other Points 1. Payment for investment is 1. Asset transferred shall be 1. Asset transferred shall be
sufficient for exemption. used for agriculture for used for industrial unit for
2. Residential House can be atleast 2 years. atleast 2 years.
self-occupied or let-out. 2. Payment for investment is 2. Payment for investment is
3. Investment in 2 adjacent sufficient for exemption. sufficient for exemption.
flats is treated as 1 3. Investment in name of any
residential house. other person is also
4. Construction includes cost eligible for exemption.
of both land & building.
5. Investment in name of any
other person is also
eligible for exemption.

Particulars Section 54EC Section 54F

Eligible Assessee Any Person Individual / HUF
Asset Transferred Land or Building (LTCG) Any Capital Asset other than Residential
House Property (LTCG)
Asset in which Capital Gain is Bonds of NHAI / RECI redeemable after 5 One Residential House Property in India
invested years
Time Limit of Investment Within 6 months from the date of transfer Purchase: Within 1 year before or 2 years
after the date of transfer.

Construct: Within 3 years from date of

transfer.

31
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
Exemption Limit Lower of Amount Invested
 Capital Gain; or x LTCG
Net Sale Consideration
 Amount Invested; or
 ₹50 Lacs
Withdrawal of Exemption If bond is transferred within 5 years, amount If new asset is transferred within 3 years,
earlier exempted will be taxable as LTCG. amount earlier exempted will be taxable as
LTCG.
Other Points 1. Payment for investment is sufficient 1. Payment for investment is sufficient
for exemption. for exemption.
2. In case of conversion of Land & 2. Investment in name of any other
building into stock in trade, person is also eligible for exemption.
investment time limit of 6 months 3. Assessee does not own more than 1
shall be considered from sale of Residential House Property at the
stock in trade. time of transfer.

Particulars Section 54G Section 54GA Section 54GB

Eligible Assessee Any Person Any Person Individual / HUF
Asset Transferred Land & Building, Plant & Land & Building, Plant & Residential Property – House or
Machinery of Industrial Unit of Machinery of Industrial Unit of Land (LTCG)
Urban Area (STCG / LTCG) Urban Area (STCG / LTCG)
Asset in which Land & Building, Plant & Land & Building, Plant & Subscription in atleast 25% equity
Capital Gain is Machinery of Industrial Unit of Machinery of Industrial Unit of shares of eligible Startup u/s 80IAC
invested Rural Area. SEZ. before due date of ROI. Then,
[Shifting from Urban to Rural [Shifting from Urban Area to purchase new Plant & Machinery
Area] SEZ] by Startup.
Time Limit of Within 1 year before or 3 Within 1 year before or 3 Purchase within 1 year from
Investment years after the date of years after the date of subscription of equity shares.
transfer. transfer.
Exemption Limit Lower of CG or Amount Lower of CG or Amount Amount Invested in new P&M
Invested Invested
Net Sale Consideration
x
LTCG

Withdrawal of If New Asset is transferred If New Asset is transferred If new asset is transferred within 5
Exemption within 3 years. [Amount within 3 years. [Amount years, amount earlier exempted will
exempt earlier would be exempt earlier would be be taxable as LTCG.
deducted from COA of New deducted from COA of New
Asset] Asset]
Other Points Payment for investment is Payment for investment is New P&M doesn’t include:
sufficient for exemption. sufficient for exemption.  Second Hand P&M
 P&M installed in office or
residence
 Computer & Computer
Software
 Any Vehicle
 Any P&M whose 100%
deduction is allowed under
PGBP

CAPITAL GAIN ACCOUNT SCHEME [CGAS]

Under Section 54, 54B, 54D, 54F, 54G, 54GA & 54GB, if investment is not made before due date of ROI, then amount should
be deposited under CGAS on or before filing of ROI for claiming exemption.
32
CA – FINAL I CAPITAL GAINS DESIGNED BY HARSH MAHESHWARI
TAX RATES ON CAPITAL GAIN
Short – Term Capital Gain (STCG)
Section 111A : STCG on Certain Assets Otherwise
STCG on Taxable at General Rate
 Equity Shares
 Units of Equity Oriented Fund STT Paid (Listed)
 Units of Business Trust

Taxable @ 15%

Long – Term Capital Gain (LTCG)

Section 112A : LTCG on Certain Assets Section 112 : LTCG on other assets
LTCG on Resident / Domestic Company
 Equity Shares Taxable @ 20%
 Units of Equity Oriented Fund STT Paid (Listed)
 Units of Business Trust Non-resident / Foreign Company
 LTCG on Unlisted Securities of Private Company
Taxable @ 10% on amount in excess of ₹1,00,000 Taxable @ 10% [Without Indexation]
[No Indexation]  Other LTCG
Taxable @ 20%

Note for Section 112A:

1. For Equity Shares, STT should be paid both at the time of purchase & sale.
2. The exemption of ₹1,00,000 is aggregate of all transactions in a year and not per transaction.
3. Cost of Acquisition [if purchased before 31.01.2018]
Sale Consideration
or LOWER
FMV as on 31.01.2018
or HIGHER
Purchase Price

4. FMV as on 31.01.2018
Equity Shares Units of Equity Oriented Fund / Business Trust
Highest Trading Price as on 31.01.2018 If listed on 31.01.2018 If not listed on 31.01.2018
Highest Trading Price as on Net Assets Value as on
31.01.2018 31.01.2018

Other Points for Section 111A / 112 / 112A

1. No deduction under Chapter VI A from above sections income. First from Other Income
2. Benefit of Basic Exemption Limit : Available only to Resident Individual / HUF Then from Section 112 / 111A / 112A

33
CA – FINAL I IFOS DESIGNED BY HARSH MAHESHWARI
CHAPTER – 08 INCOME FROM OTHER SOURCES
SECTION 56 CHARGING SECTION
Income is taxable under this head if
Income is not taxable under any other head Income is not exempt under Income Tax Act, 1961

Following income are taxable under this head:

1) Dividend Income
2) Income from units of UTI / Mutual Funds
3) Casual Income
4) Interest Income
5) Interest received on Compensation / Enhanced Compensation
6) Advance Money Forfeited on or after 01.04.2014
7) Income from letting / renting P&M, Furniture [If not taxable under PGBP]
8) Family Pension
9) Salary Income of MP / MLA
10) Amount received in excess of FMV of shares issued by closely held company
11) Money or Property received without consideration or for inadequate consideration in excess of ₹50,000 [Sec 56(2)(x)]
12) Other Income not taxable under other heads & not exempt

1. Dividend Income

Actual / Deemed Deduction of Expense: Only Interest Expense, Maximum

Dividend
20% of such Income.
Company Shareholder

Exempt Taxable

Deemed Dividend
1. Distribution of Company Assets to shareholders to the extent of Accumulated Profits. [Sec 2(22)(a)]
2. Distribution of debentures, deposits certificates to shareholders & bonus shares to preference shareholders to the extent
of Accumulated Profits. [Sec 2(22)(b)]
3. Distribution on liquidation to shareholders to the extent of Accumulated Profits. [Sec 2(22)(c)]
4. Distribution on reduction of capital to shareholders to the extent of Accumulated Profits. [Sec 2(22)(d)]
5. Advance of loan by a closely held company to shareholders to the extent of Accumulated Profits. [Sec 2(22)(e)]

Any payment by a company in which public is not substantially interested [Private / Unlisted Public] by way of loan / advance
to:
a) Shareholder holding not less than 10% voting power [E.g. Share Capital]; or
b) Any concern / entity in which such shareholder has substantial interest [20% or more share in concern / entity]
to the extent of Accumulated Profits of the company shall be treated as Deemed Dividend.

Note:
 Any payment by a company on behalf of or for individual benefit of such shareholder is also deemed dividend.
 Repayment of loan / advance is irrelevant.
 Shareholder can be any person.
 Following are not deemed dividend [Non-Applicability]
i. If loan / advance is given in ordinary course of business.
ii. Trade Advance [Commercial Business Transaction]
iii. If loan / advance is given in return to benefit provided to the company by such shareholder.
34
CA – FINAL I IFOS DESIGNED BY HARSH MAHESHWARI
SECTION 115BBD : DIVIDEND RECEIVED BY DOMESTIC COMPANY FROM SPECIFIED FOREIGN COMPANY
 It is taxable @15% on Gross Basis [No deduction of any expenditure].
 Specified Foreign Company is a company in which domestic company holds 26% or more equity share capital.

2. Income from units of UTI / Mutual Fund 3. Casual Income

Taxable in the hands of unit holders. Taxable @30% u/s 115BB on Gross Basis
Deduction: Only Interest Expense, Maximum 20% of such
income. Other Points
 No deduction of any expenditure.
Casual Income includes winning from lotteries,  No deduction under Chapter VI A.
crossword puzzles, races including horse races, card  No Benefit of Basic Exemption Limit.
games, betting & gambling and any other games.  No Set-off of any loss.

4. Interest Income 5. Interest on Compensation / Enhanced Compensation

i. Interest on Securities Income of the previous year in which it is received.
 If not taxable under PGBP
 Deduction of Expense: Interest / Brokerage / Interest on Compensation / Enhanced xx
Any other Expense incurred [Same as PGBP Compensation received
Provisions] Less: 50% Deduction [No other deduction] (xx)
ii. Interest on Bank Deposits [Interest on FD/Savings a/c] Taxable Income xx
iii. Interest on Income Tax Refund [Income Tax Refund is
not taxable] 6. Advance Money Forfeited
If forfeited on or after 01.04.2014 – Taxable under IFOS
Exempt Interest Income:
a) Interest on PPF 7. Income from Renting of P&M / Furniture
b) Interest on Post Office Savings A/c If not taxable under PGBP
[Individual A/c – ₹3500, Joint A/c – ₹7000] Rent Amount xx
c) Interest on Gold Deposit Bonds Less: Deductions [Same as per PGBP Provisions] (xx)
 Repairs
8. Family Pension  Insurance Premium
Monthly Pension received by employee’s family from  Depreciation
employer after death of employee.  Other Expenses
xx
Deduction Limit: Lower of
 1/3rd of Family Pension received; or 9. Salary Income of MP / MLA
 ₹15,000 p.a.  Daily Allowance & Constituency Allowance is exempt.
 Other Salary Income is taxable under this head.
Note: Family pension received by widow / children of
member of Armed Forces / Para Military Forces is fully
exempt.

10. Amount received in excess of FMV of shares issued by closely held company [Pvt. Co. / Unlisted Public Co.]
 Shares issued to Resident Shareholders.
 Applicable only if shares are issued at a Premium.
 Income of company = Issue Price – FMV of shares
E.g.
Face Value Issue Price FMV Income of Company
1 100 120 110 120 – 110 = 10
2 100 100 70 Not Applicable
3 100 90 70 Not Applicable
4 100 130 90 130 – 90 = 40
5 100 110 120 -
Note: Above provision is not applicable if consideration is received by
1. Venture Capital Undertaking from Venture Capital Firm or Company.
2. Startup recognised by Department for Promotion of Industry & Trade and aggregate amount of paid-up capital & share
premium does not exceed ₹25 crores.
35
CA – FINAL I IFOS DESIGNED BY HARSH MAHESHWARI
11. Money or Property received without consideration or for inadequate consideration in excess of ₹50,000 / Taxability
of Gift [Section 56(2)(x)]
Applicable to all persons

TAXABILITY OF GIFT
Money If money received in aggregate > ₹50,000 : Entire amount is taxable
Movable Property Without Consideration If FMV > ₹50,000 : Entire FMV is taxable
Inadequate If Difference Amt. [FMV – Consideration] > ₹50,000 : Entire Difference
Consideration is taxable
Immovable Without Consideration If SDV > 50,000 : Entire SDV is taxable
Property Inadequate If Difference Amt. [SDV – Consideration] > ₹50,000; and
Consideration SDV is more than 110% of consideration
then,
Entire Difference amount is taxable.

Note:
1. For Money & Movable Property, the amount is checked in aggregate but for Immovable Property the amount is
checked per property. [Imp.]
2. SDV is taken as per Section 50C.
If part / whole amount of consideration is received by A/c Take Stamp Duty Value on Date of Agreement
payee cheque, DD, ECS or any other electronic mode on or
before Date of Agreement
Otherwise Take Stamp Duty Value on Date of Registration

Q. What is included in Property? Q. Who is relative?

A. It should be a Capital Asset for recipient [stock-in-trade x] A. For Individual
A. Immovable Property: Land & Building 1. Spouse
A. Movable Property: 2. Brother or Sister of Individual or Spouse or of either
1. Shares & Securities Parents
2. Jewellery 3. Any lineal ascendant or descendant of Individual or
3. Archaeological Collections Spouse
4. Drawings / Paintings 4. Spouse of any person referred in point 2 & 3 above.
5. Sculptures
6. Any work of art [Niece, Nephew, Fiancée, Girlfriend, Friends are not relative].
7. Bullion
A. For HUF : Any member of HUF

NON-APPLICABILITY OF SECTION 56(2)(x) [EXEMPTED GIFTS]

Gift received
1. From relative
2. On marriage of Individual
3. Under will or inheritance
4. Due to death of donor / payer
5. From Local Authority
6. From Institution / Trust registered / referred in Income Tax Act u/s 12AA / 12AB / 10(23C)
7. By Institution / Trust registered / referred in Income Tax Act u/s 12AA / 12AB / 10(23C)
8. From Individual by a Trust created for the benefit of Relative of Individual

Other Points
a) If Property [Gift] is taxable u/s 56(2)(x), then it’s
Cost of Acquisition = FMV / SDV taxed u/s 56(2)(x) [Ignore Cost of Previous Owner & POHA of Previous Owner]
b) Gift received by Employee from Employer is taxable under Salary.

12. Any other Income not taxable under other heads & not exempt
For example : Royalty Income, Agriculture Income from outside India etc.
36
CA – FINAL I CLUBBING OF INCOME DESIGNED BY HARSH MAHESHWARI
CHAPTER – 09 CLUBBING OF INCOME
GENERAL PROVISION
Section 60 Section 61
Transfer of Income without Transfer of Asset Revocable Transfer Irrevocable Transfer
Income is taxable in the hands of transferor. Income is taxable in the hands of Income is taxable in the hands of
[Clubbed] transferor. [Clubbed] transferee. [Not Clubbed]
SECTION 64 : CLUBBING OF INCOME OF SPOUSE

Case
A Remuneration to spouse from a concern in which individual has substantial interest. [Read Exception] Clubbed
B Income arising to spouse from asset transferred without consideration or for inadequate consideration Clubbed
C Income from asset transferred to other person without consideration or for inadequate consideration for Clubbed
the benefit of spouse

Exception to Case A: If spouse has Technical or Professional Qualification. [Model is covered under this exception]

Other Points to Case B

 Income earned by investing such income is not clubbed.
 Income from accretion of transferred asset is not clubbed.
 If transferred asset is invested by spouse in business / firm, then income / interest on capital to be clubbed is calculated
as follows:
Amt. of Transferred asset invested by spouse on 1st day of PY
Profit of Business / IOC x
Total Investment on 1st day of PY

Clubbing of Son’s Wife Income: Same as Case B & C.

SECTION 64(1A) : CLUBBING OF INCOME OF MINOR CHILD
Income of Minor Child is taxable / clubbed in hands of parent whose income is more.

Exceptions
In the following cases minor child’s income is not clubbed:
 Income is due to manual work.
 Income is due to skill & talent.
 Minor child is suffering from disability u/s 80U.

Other Points
1. Income earned by investing income due to manual work, skill & talent is also clubbed in hands of parent.
2. If Minor Child’s income is clubbed in hands of parent, then Exemption u/s 10(32) of maximum ₹1500 p.a. per child is
allowed to parent.
3. If marriage of parents does not subsist, income of minor child shall be clubbed in hands of parent who maintains the
minor child in relevant PY.
4. Clubbing Provisions are attracted even in respect of minor married daughter. [Except on income from transferred House
Property]

CROSS TRANSFER
 If there are two transactions and they are inter-connected and part of same transaction, they are considered to be device
of evasion of tax & clubbing provisions shall apply.
 Clubbing provisions will be applicable only to the extent of Income on Matching Amount of Cross Transfer / Cross Gift.
SECTION 64(2) : ASSET TRANSFER TO HUF OTHER POINTS RELATED TO CLUBBING
If any member transfer his personal asset to HUF without  Losses are also clubbed.
consideration or for inadequate consideration, then income  AO can also serve notice of demand [for tax payment]
from such asset is clubbed / taxable in the hands of to the person to whom asset is transferred in case of
transferor / member. clubbing. [Section 65]

37
CA – FINAL I SET-OFF & CARRY FORWARD OF LOSSES DESIGNED BY HARSH MAHESHWARI
CHAPTER – 10 SET-OFF & CARRY FORWARD OF LOSSES
SET-OFF OF LOSSES
BASICS
Inter Source Set-off Inter Head Set-off
Set-off from same Head of Income Set-off from different Head of Income
E.g. E.g.
1. Business Loss from Other Business Income 1. Business Loss from House Property Income
2. House Property from Other House Property Income 2. House Property Loss from Salary Income

SET-OFF OF CURRENT YEAR LOSSES SET-OFF OF EARLIER YEAR B/F LOSSES

 First Inter Source Only Inter Source set-off is allowed. [Same Head set-off]
 Then Inter Head
 Balance C/F
EXCEPTIONS IN INTER SOURCE [SAME HEAD] SET-OFF EXCEPTIONS IN INTER HEAD [DIFFERENT HEAD] SET-OFF
Losses which will only be set-off by same nature of income: 1. Loss from PGBP cannot be set-off from Salary.
1. Speculative Business 2. Speculative Loss, Sec 35AD Business Loss & Loss from
2. Long-Term Capital Loss (Only from LTCG) activity of owning & maintaining race horses cannot be
3. Section 35AD Business Loss set-off from any other Head of Income.
4. Loss from Activity of owning & maintaining race horses 3. Short-Term Capital Loss & Long-Term Capital Loss
cannot be set-off from any other Head of Income.
Note: STCL can be set-off by both STCG & LTCG but
LTCL can only be set-off by LTCG.
4. Loss from House Property can be set-off from other Head
of Income only upto ₹2 Lacs.
OTHER POINTS
1. Any loss under any head cannot be set-off from:
 Casual Income u/s 115BB
 Black Money Income u/s 68, 69, 69A, 69B, 69C & 69D
2. Losses which cannot be set-off & carried forward are:
 Section 115BB [Casual Losses]
 Loss from Exempt Source of Income [Agricultural Loss]
CARRY-FORWARD OF LOSSES
MAXIMUM PERIOD OF CARRY FORWARD OF LOSSES
Section Type of Loss Period
Section 71B House Property Loss 8AY
Section 72 Business Loss 8AY
Section 73 Speculative Business Loss 4AY
Section 73A Section 35AD Business Loss Unlimited Period
Section 74 STCL / LTCL 8AY
Section 74A(3) Loss from activity of owning & maintaining Race Horses 4AY
[Immediately succeeding AY in which Capital loss is computed]
SECTION 72A : C/F & SET-OFF OF ACCUMULATED BUSINESS LOSSES & UNABSORBED DEPRECIATION IN CASE OF
SECTION 72A :AMALGAMATION / DEMERGER / CONVERSION
AMALGAMATION
Business Loss [Except Speculative Business Loss] & Unabsorbed Dep. of Amalgamating Co. can be set-off & carried forward by
Amalgamated Co.

For Business Loss C/F = Fresh Period of 8 years is allowed to Amalgamated Co.

38
CA – FINAL I SET-OFF & CARRY FORWARD OF LOSSES DESIGNED BY HARSH MAHESHWARI
CONVERSION OF PROPRIETORSHIP / FIRM INTO COMPANY
Business Loss [Except Speculative Business Loss] & Unabsorbed Dep. of Proprietorship / Firm can be set-off & carried forward
by Company.

For Business Loss C/F = Fresh Period of 8 years is allowed to Company.

CONVERSION OF COMPANY INTO LLP

Business Loss [Except Speculative Business Loss] & Unabsorbed Dep. of Company can be set-off & carried forward by LLP.

For Business Loss C/F = Fresh Period of 8 years is allowed to Company.

DEMERGER
If Business Loss [Except Speculative Business Loss] & Unabsorbed Depreciation.
Directly relatable to unit transferred Fully C/F & Set-off by Resulting Co.
Not directly relatable to unit transferred Apportioned between Demerged Co. & Resulting Co. in the ratio of Value of
Asset retained & transferred by Demerged Co.
SECTION 78 : SET-OFF & C/F OF LOSSES IN CASE OF CHANGE IN CONSTITUTION OF FIRM OR SUCCESSION
In case of Change in Constitution of Firm
Unabsorbed Business Loss share of Retired / Deceased Partner shall not be allowed to be c/f by the Firm.
Note:
 Unabsorbed Depreciation can be fully c/f.
 Above provision is not applicable in case of Change in PSR among existing partners.

In case of Succession of Business

Succession by Inheritance  Legal Heirs are entitled to carry forward & set-off business loss of predecessor.
 If legal heirs constitute themselves as Partnership Firm, then the firm can carry
forward & set-off business loss of predecessor.
Others Successor is not entitled to carry forward & set-off business loss of predecessor.
SECTION 79 : SPECIAL PROVISION FOR CARRY FORWARD & SET-OFF OF LOSSES IN CASE OF CLOSELY-HELD
SECTION 79 : COMPANIES
Loss incurred in earlier years shall be carried forward & set-off in PY only if
 Atleast 51% voting power held by same shareholders
 On last day of year in which loss is incurred and on last day of PY in which loss will be set-off.

Non-Applicability
a) On Unabsorbed Depreciation.
b) Where change in shareholding is due to death of shareholder or by way of gift to relative.
c) Where change in shareholding is due to resolution plan approved under IBC, 2016.
ORDER OF SET-OFF OF LOSSES [IN CASE OF BUSINESS]
 Current Year Depreciation
 Brought Forward Business Loss
 Unabsorbed Depreciation
 Unabsorbed Capital Expenditure on Scientific Research
 Unabsorbed Family Planning Expenditure
SECTION 80 : SUBMISSION OF RETURN FOR LOSSES
Assessee must file loss return u/s 139(3) upto due date of ROI given u/s 139(1) to c/f & set-off following losses:
 Business Loss
 Speculative Loss NON-APPLICABILITY
 Section 35AD Business Loss i. House Property Loss
 Capital Loss ii. Unabsorbed Depreciation
 Loss from activity of owning & maintaining race horses

39
CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
CHAPTER - 11 DEDUCTIONS
INTRODUCTION
 Deductions under Chapter VI-A cannot exceed Gross Total Income.
 They are not available from Special Income i.e. income which are chargeable at special rates.

Types of Deductions

Payment / Investment based Deductions Income based Deductions

Section 80C to 80GGC Section 80TTA & TTB Heading C

Section 80IA to 80RRB

[only if ROI is filed upto due date u/s 139(1)]

PAYMENT / INVESTMENT BASED DEDUCTIONS

SECTION 80C : SPECIFIED INVESTMENTS
Eligible Assessee Individual / HUF
Amount of Deduction ₹1,50,000

Q. What are the Eligible Investments?

A.
1) Life Insurance Premium paid to any Insurance Company
Individual Self, Spouse & Children
HUF Any member of HUF

Policy Taken Amount of Deduction

Before 01.04.2012 Lower of
 Premium Paid; or
 20% of Policy Amount [Sum Assured]
Between 01.04.2012 to 31.03.2013 Lower of
 Premium Paid; or
 10% of Policy Amount [Sum Assured]
On or after 01.04.2013 Person suffering from Lower of
Disability or Disease  Premium Paid; or
 15% of Policy Amount [Sum Assured]
Normal Person Lower of
 Premium Paid; or
 10% of Policy Amount [Sum Assured]
2) Investment in Public Provident Fund [PPF]
Individual Self, Spouse & Children
HUF Any member of HUF
3) Employee’s contribution in SPF & RPF
4) Investment in NSC & interest thereon
5) Repayment of Housing Loan
 Loan for purchase or construction of House Property.
 Construction / Purchase shall be completed during PY.
 Loan shall be taken from Govt., Banks, Financial Institutions, Employer, Company
6) Fixed Deposit [FD] in Scheduled Bank or Post Office for 5 years or more
7) Tuition fees paid for education of children
 Maximum 2 children for education in India
 Not includes Donation / Development / Coaching Fees
8) Deposit in NABARD Bonds
40
CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
9) Deposit in Senior Citizen Saving Scheme
10) Deposit in Sukanya Samridhi Scheme
11) Stamp Duty, Registration Fees for purchase of House Property
12) Investment in Units of UTI / Mutual Funds
13) Investment in Pension Fund of UTI / Mutual Funds
14) Contribution by CG Employee to Tier-II A/c of Pension Scheme u/s 80CCD
SECTION 80CCC : CONTRIBUTION TO PENSION FUND / ANNUITY PLAN OF LIC OR OTHER INSURANCE COMPANY
Eligible Assessee Individual
Amount of Deduction ₹1,50,000
SECTION 80CCD : CONTRIBUTION TO PENSION SCHEME OF CENTRAL GOVT. / NEW PENSION SCHEME /
SECTION 80CCD ATAL:PENSION YOJANA
Eligible Assessee : Individual
Amount of Deduction :

Section 80CCD(1) Salaried Employee Lower of

 Employee’s Contribution; or
 10% of Salary
Other Individuals Lower of
 Assessee’s Contribution; or
 20% of GTI
Section 80CCD(1B) Balance contribution u/s 80CCD(1) can be claimed u/s 80CCD(1B) upto ₹50,000.
Section 80CCD(2) Employer’s Contribution for benefit of Employee
Employer’s contribution is first taxable under the head Salary in the hands of Employee, then he
gets deduction u/s 80CCD(2).

Lower of
 Employer’s Contribution; or
 10% of salary [14% if CG employee]

NOTE:
1) Salary = Basic Salary + DA(if)
2) Amount received from above scheme on closure of account
In case of Death Fully Exempt
Other Cases 60% Exempt
SECTION 80CCE
Aggregate deduction u/s 80C + 80CCC + 80CCD(1) shall be restricted to ₹1,50,000.
SECTION 80D : DEDUCTION IN RESPECT OF MEDICAL / HEALTH INSURANCE PREMIUM, CGHS &
SECTION 80D : PREVENTIVE:HEALTH CHECK-UP
Eligible Assessee : Individual / HUF
For whom :
Individual Self, Spouse, Dependent Children & Parents [whether dependent or not]
HUF Any member of HUF

Amount paid for Nature of Payment Amount of Deduction

Self, Spouse & Dependent  Health / Medical Insurance Premium Paid
Children other than cash. Lower of
 Contribution to Central Govt. Health  ₹25,000; or
Scheme [CGHS] other than cash.  Total Payment
 Preventive Health Check-up by any mode.
Parents [whether dependent  Health / Medical Insurance Premium Paid Note: If Resident Senior Citizen then
or not] other than cash. limit shall be ₹50,000.
 Preventive Health Check-up by any mode.

41
CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
OTHER POINTS
1) Aggregate payment for preventive health check-up for all cannot exceed ₹5,000.
2) If person is Resident Senior Citizen, then Medical Expenditure is also eligible.
Total Premium Paid
3) If premium is paid for more than 1 year, deduction for each year =
No. of years for which premium is paid
SECTION 80DD : DEDUCTION IN RESPECT OF MAINTENANCE AND MEDICAL TREATMENT OF
SECTION 80DD : DISABLED DEPENDENT RELATIVE
Eligible Assessee Resident Individual / HUF
For whom Individual Spouse, Children, Brother, Sister & Parents who are dependent on individual
HUF Any dependent member of HUF
Condition Assessee should incur expenses on medical treatment or deposit any amount for maintenance of
such Disabled Dependent
Amount of Deduction Normal Disability ₹75,000
[Flat Deduction] Severe Disability [≥ 80%] ₹1,25,000
SECTION 80DDB : DEDUCTION IN RESPECT OF MEDICAL TREATMENT OF SPECIFIED DISEASE
Eligible Assessee Resident Individual / HUF
For whom Individual Self, Spouse, Children, Brother, Sister & Parents who are dependent on individual
HUF Any dependent member of HUF
Amount of Deduction Lower of xxx
 Actual Expense on Treatment; or
 ₹40,000 / ₹1,00,000 (for senior citizen)
Less: Insurance Claim Received (xxx)
xxx
SECTION 80U : DEDUCTION FOR DISABLED ASSESSEE
Eligible Assessee Resident Individual
Amount of Deduction Normal Disability ₹75,000
[Flat Deduction] Severe Disability [≥ 80%] ₹1,25,000
SECTION 80E : DEDUCTION IN RESPECT OF INTEREST PAID ON LOAN TAKEN FOR HIGHER EDUCATION IN INDIA OR
SECTION 80E : ABROAD
Eligible Assessee Individual
Amount of Deduction Interest paid [Maximum for 8 years]
For whom Self, Spouse, Children & any student for whom assessee is a legal guardian
SECTION 80EEA : DEDUCTION IN RESPECT OF INTEREST ON LOAN FOR PURCHASE OF RESIDENTIAL HP
Eligible Assessee Individual
Limit of Deduction ₹1,50,000 [First deduction should be claimed under HP head upto ₹2,00,000 u/s 24(b)].
Conditions  Loan should be taken from Bank, Financial Institution, Housing Finance Co. [NBFC ]
 SDV of house does not exceed ₹45,00,000.
 Individual does not own any Residential House on the date of sanction of loan.
 Loan should be sanctioned between 01.04.2019 to 31.03.2022.
SECTION 80EEB : DEDUCTION IN RESPECT OF INTEREST ON LOAN TAKEN FOR PURCHASE OF ELECTRIC VEHICLE
Eligible Assessee Individual
Limit of Deduction ₹1,50,000
Conditions  Loan should be taken from Bank, Financial Institution, Housing Finance Co. or NBFC.
 Loan should be sanctioned between 01.04.2019 to 31.03.2023.

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CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
SECTION 80G : DONATIONS
Eligible Assessee : All Persons
Eligible Donations :

CATEGORY A CATEGORY C
1) Jawahar Lal Nehru Memorial Fund 1) Charitable Trust / Institutions
2) Indira Gandhi Memorial Trust 2) Donation for Renovation / Repair of Temple,
3) Rajiv Gandhi Foundation Gurudwara, Mosque, Church etc.
4) PM Drought Relief Fund 3) Donation for promoting interest of minority
community
50% Deduction [No Limit] 4) Donation to Housing Development Authority

50% Deduction [With Limit]

CATEGORY B
1) Other PM Fund
2) CM Funds CATEGORY D
3) National Fund 1) Donation for promoting Family Planning
4) Swachh Bharat Kosh 2) Donation by company to Indian Olympics
5) Clean Ganga Fund Association

100% Deduction [No Limit] 100% Deduction [With Limit]

CALCULATION OF LIMIT & DONATION UNDER CATEGORY C & D

Step 1 : Calculate Adjusted Total Income
GTI [Exclude Special Income] xxx
(-) Deduction under Chapter VI-A [Except Section 80G] (xxx)
Adjusted Total Income xxx

Step 2 :
Lower of
 Total Donation under Category C & D ; or
SEQUENCE OF DEDUCTION : Category D then Category C
 10% of Adjusted Total Income [ATI]

Note: No deduction is allowed in any category for donation paid in cash exceeding ₹2,000.
SECTION 80GG : DEDUCTION IN RESPECT OF RENT PAID OF HOUSE PROPERTY
Eligible Assessee Individuals [who do not received HRA]
Amount of Deduction Lower of
 ₹5,000 per month
 25% of Adjusted Total Income [ATI]
 Rent Paid – 10% of ATI
SECTION 80GGA : DEDUCTION IN RESPECT OF DONATION FOR SCIENTIFIC RESEARCH OR RURAL DEVELOPMENT
Eligible Assessee All persons who do not have PGBP income
Amount of Deduction 100% of Donation
Other Points No deduction is allowed for donation paid in cash exceeding ₹2,000.
SECTION 80GGB : DONATION GIVEN BY INDIAN COMPANY TO POLITICAL PARTIES OR ELECTORAL TRUST
Eligible Assessee Indian Company
Amount of Deduction 100% of Donation
Other Points  No deduction is allowed if donation is paid in cash.
 Expenditure incurred by Indian Company for advertisement in souvenirs, brochures,
pamphlets, newspapers etc. published by Political Party is also eligible for deduction.
.

43
CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
SECTION 80GGC : DONATION GIVEN BY ANY OTHER PERSON TO POLITICAL PARTIES OR ELECTORAL TRUST
Eligible Assessee Any person (other than Indian Company)
Amount of Deduction 100% of Donation
Other Points No deduction is allowed if donation is paid in cash.

INCOME BASED DEDUCTIONS

DEDUCTIONS IN RESPECT OF INTEREST ON DEPOSITS
Section 80TTA Section 80TTB
Eligible Assessee Individual / HUF Resident Senior Citizens
Amount of Deduction Lower of: Lower of:
 Total Interest on Savings A/c  Total Interest on Savings / FD A/c
 ₹10,000  ₹50,000
Other Points 1. Interest only on Savings A/c with Banking Co., Interest on Savings / FD A/c with Banking
Co-operative Bank or Post Office. Co., Co-operative Bank or Post Office.
2. Deduction not available to Resident Senior
Citizens eligible for deduction u/s 80TTB.
INCOME BASED DEDUCTIONS UNDER HEADING C
SECTION 80IA, 80IAB, 80IB, 80IC & 80IE : DEDUCTIONS IN RESPECT OF PROFITS OF CERTAIN ELIGIBLE BUSINESS
 Eligibility : Business commenced before 01.04.2017.
 Amount of Deduction : 100% of profits from Eligible Business for 10 AY.

OTHER POINTS
1) Profit shall be computed as if the eligible business is the only source of income of assessee.
2) Loss / Unabsorbed Depreciation of eligible business can be set-off from profit of non-eligible business.
Note : Deduction to the extent of set-off is not allowed in subsequent years.
3) If deduction is claimed u/s 10AA / 35AD then no deduction will be allowed in this section.
4) Deduction is allowed only for profit derived from eligible business activity:
Allowed Not-Allowed
 Profit from eligible business activity  Duty Drawback / Import Entitlements
 Transport / Power / Insurance Subsidy  Interest on Bank Deposits
5) Increase in eligible business income due to disallowance by AO u/s 40(a), 40A(3), 43B etc. also eligible for deduction.
6) In case of transfer of business, remaining deduction shall be allowed to transferee.
SECTION 80IAC : DEDUCTION FOR ELIGIBLE STARTUP
Eligible Startup  Company or LLP engaged in business which involves innovation or development of new
products, processes or services driven by technology or intellectual property.
 Incorporated during 01.04.2016 to 31.03.2022.
 Total turnover is upto ₹100 crores in PY in which deduction is claimed.
 Holds a certificate of eligible business from IMBC.
Amount of Deduction 100% of profits derived by startup
Deduction Period Any 3 consecutive PY out of 10 years from the year in which startup is incorporated.
SECTION 80IBA : DEDUCTION IN RESPECT OF BUSINESS OF DEVELOPING & BUILDING HOUSING /
SECTION 80IBA : RENTAL HOUSING PROJECTS
Conditions  Project is approved by competent authority after 01.06.2016 but upto 31.03.2022
 Project is completed within 5 years from date of approval
Amount of Deduction 100% of profits from such business
SECTION 80JJAA : DEDUCTION IN RESPECT OF NEW EMPLOYEES
Eligible Assessee Any assessee engaged in business & to whom Section 44AB is applicable.
Amount of Deduction 30% of Additional Employee Cost
Additional Employee Cost : Total Salary Paid / Payable to additional employees employed in PY
Deduction Period For 3 consecutive years

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CA – FINAL I DEDUCTIONS DESIGNED BY HARSH MAHESHWARI
OTHER POINTS
1) In case of existing business, deduction is allowed only if:
 There is increase in total no. of employees.
 Salary paid by A/c Payee Cheque / DD / ECS / Electronic Mode.
2) Additional Employees do not include:
 Employees whose total salary is more than ₹25,000 per month.
 Employee who does not participate in RPF.
 Employee for whom entire contribution is paid by govt. under Employee Pension Scheme.
 Employees employed for less than 240 days in PY.
Exception : In case of business of manufacturing of pparel / footwear / leather products, time limit is 150 days.
SECTION 80M : DEDUCTION IN RESPECT OF CORPORATE DIVIDEND
Eligible Assessee Domestic Companies
Amount of Deduction Lower of
 Dividend received from any other Company / Business Trust; or
 Dividend distributed by it upto 1 month before due date of ROI
SECTION 80QQB : DEDUCTION IN RESPECT OF ROYALTY INCOME FROM BOOKS OF LITERARY / ARTISTIC /
SECTION 80QQB : SCIENTIFIC NATURE

SECTION 80RRB : DEDUCTION IN RESPECT OF ROYALTY INCOME FROM PATENTS

Eligible Assessee Resident Individual
Amount of Deduction Lower of
 Net Royalty Income; or
 ₹3,00,000
Other Points If Royalty is earned outside India, then deduction is allowed only if such royalty amount is brought
to India in convertible foreign exchange within 6 months from end of PY or time allowed by RBI.
SECTION 80P : DEDUCTION IN RESPECT OF INCOME FROM CO-OPERATIVE SOCIETIES
Eligible Assessee : Co-operative Society
Eligible Income & Amount of Deduction:
Income from following business:
 Providing credit facilities to its members – Any interest income [Banking Business]
 Cottage Industry
BUSINESS INCOME

 Marketing of Agriculture Produce grown by members 100% DEDUCTION

 Processing of Agriculture Produce without aid of power
 Collective disposal of labour to members
 Fishing & other allied activities
Other Business Income
In case of Consumer Co-operative Society Maximum ₹1,00,000 deduction
Others Maximum ₹50,000 deduction
A

 Income from letting out of Godown / Warehouse for Storage of Commodities

OTHERS

 Interest / Dividend Income from investment with other Co-operative Societies

 Interest on Securities 100% DEDUCTION
Only if GTI does not exceed ₹20,000
 Income from House Property

Note: Deduction u/s 80P is not available to Co-operative Banks other than
1) Primary Agriculture Credit Societies (PACS)
2) Primary Co-operative Agriculture & Rural Development Banks.
SECTION 80PA : DEDUCTION IN RESPECT OF INCOME OF PRODUCER COMPANIES
Eligible Assessee Farm Producer Companies having turnover of less than ₹100 crores in PY
Amount of Deduction 100% of profits from eligible business
Eligible Business Processing & Marketing of Agricultural Produce grown by members

45
CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
CHAPTER – 12 TAXATION OF VARIOUS ENTITIES
TAXATION OF LOCAL AUTHORITIES
Taxable Income Exempt Income u/s 10(20)
Supply of Commodity or Service [Except Water or Electricity]  Income from House Property
outside its own jurisdiction area.  Income from Capital Gains
 Income from Other Sources
 Business Income
a) Supply of Commodity / Service within its
jurisdiction area.
b) Supply of Water or Electricity within or outside
its jurisdiction area.
TAXATION OF AOP / BOI & THEIR MEMBERS
TOTAL INCOME OF AOP / BOI
Calculation in the same manner as in case of any other assessee. However, in Section 40(ba) [PGBP] :
 Interest & Remuneration [Salary / Bonus / Commission] paid to member is not allowed as deduction.
Exception : If Interest paid by AOP / BOI to members & members also paid Interest to AOP / BOI, then only net
excess interest paid by AOP / BOI to members is disallowed.
SECTION 167B : TAX ON TOTAL INCOME OF AOP / BOI
Member’s share is not known Taxable @ MMR i.e. 42.744%
Member’s share is known Income of any member (except income from AOP / BOI) exceeds BEL
Taxable @ MMR i.e. 42.744%

Income of any member (except income from AOP / BOI) doesn’t exceed BEL
Taxable @ General Slab Rate
SECTION 86 : TREATMENT OF MEMBER INCOME FROM AOP / BOI IN THE HANDS OF MEMBER
Member’s Income from AOP / BOI
a) Share in Profit / Loss of AOP / BOI b) Interest c) Remuneration
If AOP / BOI paid tax @ MMR Member’s Income from AOP / BOI is exempt in hands of Member
If AOP / BOI paid tax @ Member’s Income from AOP / BOI will be included in Total Income of Member. However,
General Slab Rate Rebate is allowed to member from Total Tax

Rebate = Member’s Income from AOP / BOI x Average Rate of Tax

SECTION 115JC : ALTERNATE MINIMUM TAX [AMT]
 AMT is applicable to all Assessee except Company.
 Income Tax payable by any assessee (except company)
Higher of:
a) Tax Payable as per normal provisions of Income Tax Act; or
b) 18.5% of Adjusted Total Income [+ Surcharge (if any) & Cess] AMT
 Calculation of Adjusted Total Income
Total Income as per Normal Provisions of Income Tax Act xxx
ADD
1) Deduction u/s 10AA [SEZ] xxx
2) Deduction u/s 35AD [Specified Business Capital Expenditure] xxx
3) Deduction u/s 80IA to 80RRB [except 80P] xxx
LESS
Depreciation u/s 32 on Sec 35AD asset (xxx)
ADJUSTED TOTAL INCOME xxx

OTHER POINTS
1) If unit of assessee is located in International Finance Service Centre [IFSC], then AMT is applicable @ 9%.
2) If assessee is liable to AMT, then also Advance Tax provisions, Interest u/s 234A / B / C is applicable.
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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
NON-APPLICABILITY OF AMT
1) If assessee does not claim deduction u/s 10AA, 35AD, 80IA to 80RRB (except 80P).
2) If ATI is upto ₹20 lacs in case of Individual / HUF / AOP / BOI / AJP.
3) If assessee has exercised the option u/s 115BAC & 115BAD.

SECTION 115JD : AMT CREDIT

 If AMT > Normal Income Tax, then excess shall be treated as AMT Credit.
 AMT Credit can be set-off & c/f for 15 years.
 It can be set-off in the year in which Normal Income Tax > AMT upto the extent of difference between Normal Income
Tax & AMT in that year.
SECTION 115JB : MINIMUM ALTERNATE TAX [MAT]
 MAT is applicable only to Companies.
 Income Tax payable by company
Higher of:
c) Tax Payable as per normal provisions of Income Tax Act; or
d) 15% of Book Profit [+ Surcharge (if any) & Cess] MAT
 Computation of Book Profit [Explanation to Section 115JB]
Profit / Loss as per P/L A/c xxx
ADD : Following items [if debited to P/L A/c] xxx
1) Income Tax Paid / Provision [Includes Interest on Income Tax, DDT, Surcharge & Cess]
2) Deferred Tax
3) Dividend Paid / Proposed
4) Any amount transferred to any Reserve A/c
5) Loss / Provision for Loss of Subsidiary
6) Provision for Unascertained Liability / Contingent Liability
7) Provision for Diminution in Value of Asset
8) Notional Loss regarding Business Trust Unit
9) Expenses for earning income u/s 10, 11 & 12
10) Expenses relating to Share Income of AOP
11) Expenses relating to Income from Royalty u/s 115BBF
12) Expenses relating to Income of Foreign Company from:
 Capital Gain on Securities
 Interest, Dividend, Royalty, Fees from Technical Services
[If Tax Rate on above income is less than MAT Rate i.e. 15%]
13) Total Depreciation debited to P/L
OTHER ADDITION
14) Balance in Revaluation Reserve on retirement or disposal of asset
[If not credited to P/L A/c]
LESS : Following items [if credited to P/L A/c] (xxx)
1) Deferred Tax
2) Amount withdrawn from any reserve [If reserve made through P/L in earlier years]
3) Profit of Sick Industrial Company
4) Notional Gain regarding Business Trust Unit
5) Income exempt u/s 10, 11 & 12
6) Share Income from AOP
7) Royalty Income from Patents u/s 115BBF
8) Income of Foreign Company from:
 Capital Gain on Securities
 Interest, Dividend, Royalty, Fees from Technical Services
[If Tax Rate on above income is less than MAT Rate i.e. 15%]
9) Transfer of Revaluation Reserve [To the extent of depreciation on revaluation of assets]
OTHER DEDUCTIONS
10) Depreciation as per Books [Except on Revaluation of Assets]
11) Lower of:
 B/F Loss as per Books; or
 Unabsorbed Depreciation as per Books
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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
[However, B/F Loss & Unabsorbed Depreciation both will be deducted if:
 Company against whom application for Corporate Insolvency Resolution Process has
been admitted under IBC, 2016; or
 Company & its subsidiary of which BOD has been suspended by Tribunal u/s 241 & 242
of Companies Act, 2013.]
BOOK PROFIT xxx
If Company is required to comply with Ind AS, then following additional adjustments are to be made
Book Profit computed above xxx
ADD xxx
1) Items credited to OCI and not reclassified to P/L except
 Revaluation Surplus from Assets as per Ind-AS 16 & 38
 Change in Fair Value of Equity Instrument as per Ind-AS 109
2) Amount debited to P/L on distribution of Non-Cash Assets to shareholder in demerger.
3) 1/5th of Transition Amount on Convergence Date [if credit balance]
LESS (xxx)
1) Items debited to OCI and not reclassified to P/L except
 Revaluation Surplus from Assets as per Ind-AS 16 & 38
 Change in Fair Value of Equity Instrument as per Ind-AS 109
2) Amount credited to P/L on distribution of Non-Cash Assets to shareholder in demerger.
3) 1/5th of Transition Amount on Convergence Date [if debit balance]
FINAL BOOK PROFIT xxx

Note:
1) Convergence Date : Means first day of Ind-AS Reporting Period.
2) Transition Amount on Convergence Date
Means aggregate amount adjusted in Other Equity but does not include following:
 Capital Reserve & Securities Premium Reserve
 Amount adjusted in OCI but subsequently reclassified to P/L
 Revaluation Surplus from Asset
 Change in Fair Value of Equity Instruments
On Convergence Date
 Adjustments relating to
 PPE & Intangible Assets
 Investment in Subsidiary / Associate / Joint Venture
 Translation Difference of Foreign Operation

OTHER POINTS
1) For above adjustments, Net Profit should be computed as per Schedule III of Companies Act, 2013.
2) For Electricity / Banking / Insurance Companies, profit shall be computed as per respective Act.
3) Provision for Gratuity / Leave Salary / Warranty based on Actuarial Valuation is ascertained liability, so not to be added
back.
4) If unit of assessee is located in International Finance Service Centre [IFSC], then MAT is applicable @ 9%.
5) If Assessee is liable to MAT, then also Advance Tax provisions, Interest u/s 234A / B / C are applicable.

NON-APPLICABILITY OF MAT
 Life Insurance Companies
 Companies who have exercised the option u/s 115BAA or 115BAB.

SECTION 115JAA: MAT CREDIT

 If MAT > Normal Income Tax, then excess shall be treated as MAT Credit.
 MAT Credit can be set-off & c/f for 15 years.
 It can be set-off in the year in which Normal Income Tax > MAT upto the extent of difference between Normal Income
Tax & MAT in that year.
 In case of conversion of company into LLP, MAT Credit of company would not be allowed to LLP.

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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
SECTION 115QA : TAXATION ON BUYBACK OF SHARES BY DOMESTIC COMPANY
BUYBACK OF SHARES
By Domestic Company [Listed / Unlisted] By Foreign Company
Company Company
Taxable @ 23.296% [20% Tax + 12% Surcharge + 4% Cess] on distributed income u/s 115QA Not Taxable
Shareholder Shareholder
Capital Gain exempt u/s 10(34A) Capital Gain will arise
Q. What do you mean by Distributed Income?
A. Distributed Income = Buy Back Price – Issue Price
Note on Issue Price:
Case Issue Price
1 Normal Share Issue Amount [including premium] received by company
2 If prior to buyback, company returned any sum of Amount received reduced by sum so returned
money received
3 Shares issued under ESOP or Sweat Equity Lower of:
Shares  FMV of shares
 Amount credited to Share Capital & Premium A/c
4 Shares issued in Amalgamation by Amalgamated Amount received by Amalgamating Company
Company in lieu of shares of Amalgamating
Company
5 Shares issued in Demerger by Resulting Company
in lieu of shares of Demerged Company Amt. received by Net BV of Assets transferred in Demerger
x
Demerged Co. Net Worth of Demerged Company

6 Bonus Shares NIL

7 Shares issued on Conversion of Bonds, Deb. etc. Amount received in respect of such Bonds / Debentures
8 Any other case Face Value of Shares
OTHER POINTS
1. Tax on Buy Back shall be paid to the CG within 14 days from the date of payment of any consideration of Buy Back to
shareholders.
2. If tax on Buy Back is not paid within 14 days, interest is leviable @1% per month or part of month on amount of
such tax not paid from the date after 14 days till the date on which tax is actually paid.
3. Principal Officer of the company will also be deemed to be an Assessee-in-Default (if tax is not paid within 14 days).
SEC 115V - 115VZC : TONNAGE TAXATION / SPECIAL PROVISION RELATING TO INCOME OF INDIAN SHIPPING COs
Qualifying Company a) Indian Company [POEM in India] engaged in business of operating ships; and
b) Owns atleast 1 Qualifying Ship [Minimum Tonnage of 15 tonnes or more]
Q. What about PGBP Income of Qualifying Company from Shipping Business?
A. The company has 2 options:
 PGBP Provisions [Section 28 to 43D]; or
 Tonnage Income as per Tonnage Tax Scheme
Calculation of Daily Tonnage Income x No. of days on which ship is operated in PY
Tonnage Income Daily Tonnage Income
Qualifying Shipping Net Daily Tonnage Income
Tonnage [in tonnes]
upto 1000 ₹70 for each 100 tonnes
> 1000 but upto 10,000 ₹700 + ₹53 for each 100 tonnes exceeding 1000 tonnes
> 10,000 but upto 25,000 ₹5,470 + ₹42 for each 100 tonnes exceeding 10,000 tonnes
> 25,000 ₹11,770 + ₹29 for each 100 tonnes exceeding 25,000 tonnes
Note:
a) Tonnage shall be rounded off to the nearest multiple of 100 tonnes.
b) Deductions, Set-off of any loss shall not be allowed against Tonnage Income.
c) Tonnage Income shall not be liable to MAT.
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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
Conditions for 1) Minimum 20% of Book Profit shall be transferred to Tonnage Tax Reserve A/c in each PY.
Applicability of 2) Reserve Amount shall be utilised in:
Tonnage Tax Scheme  Purchase of ship before 8 years
 Business of operating ships
3) Shortfall in Reserve
Shortfall in Reserve
Taxable Amount = Relevant Shipping Income x
Minimum Reserve to be created

4) Consequences of Misutilisation / Non-Utilisation

Amount Misutilised / Non-utilised
Taxable Amount = Relevant Shipping Income x
Total Reserve created during the year

Q. What do you mean by Relevant Shipping Income?

A. Profit from Core Shipping Activity + Profit from Incidental Activity
SECTION 115UA : TAXATION OF BUSINESS TRUST
Basics
Registered & Regulated by SEBI

units listed in RSE

Invest Business Trust Invest SPV

Unit Holders REIT / INVIT Indian Company

Interest Taxable Interest

Dividend If SPV opts 115BAA EXEMPT
Dividend
Taxable
Otherwise
Exempt OTHER INCOME
Rental Income from Real Estate Property owned
Business Trust : It means Real Estate Investment Trust [REIT] by REIT
or Infrastructure Investment Trust [INVIT] which is registered & Business Trust Unit Holder
regulated by SEBI & units of which are listed on a RSE. Exempt Taxable
Any Other Income
SPV : It means an Indian Co. in which Business Trust holds Business Trust Unit Holder
≥ 50% shareholding. Taxable Exempt

Taxability of Income in the hands of Business Trust & Unit Holders

Dividend Income from SPV
Business Trust Unit Holders
Exempt u/s 10(23FC) If SPV opts 115BAA : Taxable
NR / FC 10%
Note : SPV is not required to deduct TDS. Others Normal Tax Rate

Otherwise : Exempt
Interest Income from SPV
Business Trust Unit Holders
Exempt u/s 10(23FC) Taxable
NR / FC 5%
Note : SPV is not required to deduct TDS. Others Normal Tax Rate

Note : Business Trust is required to deduct TDS u/s 194LBA

 NR / FC : 5%
 Others : 10%

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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
Rental Income from Real Estate Property owned by Business Trust [REIT]
Business Trust Unit Holders
Exempt u/s 10(23FCA) Taxable @ Normal Rates

Note : Payer is not required to deduct TDS. Note : Business Trust is required to deduct TDS u/s 194LBA
 NR / FC : Rates in Force
 Others : 10%
Any Other Income
Business Trust Unit Holders
Taxable Exempt u/s 10(23FD)
LTCG u/s 112 20%
STCG u/s 111A 15%
All Other Income Taxable @MMR [42.744%]

OTHER POINTS
 Income distributed by Business Trust to its Unit Holders shall be of the same nature & in same proportionin hands of
Unit Holders as it had been received by Business Trust.
 Taxability on Transfer of Units of Business Trust by Unit Holders
If units held for upto 3 years STCG u/s 111A, taxable @ 15%
If units held for more than 3 years LTCG u/s 112A, taxable @ 10% (in excess of ₹1,00,000)
 Business Trust is compulsorily required to file ROI u/s 139(4E).
SECTION 115UB : TAXATION OF INVESTMENT FUND
Basics
Investment in Fund
Unit holder [Investor] Investment Fund
Income received from Fund

All income is taxable in All income is exempt in

the hands of unit holder the hands of
[Except PGBP] Investment Fund
[Except PGBP]

Taxability of Income in the hands of Investment Fund & Unit Holders

PGBP Income of the Fund
Investment Fund Unit Holders
Taxable Exempt
Company 25% / 30%
Firm 30%
Others MMR [42.744%]
Any Other Income of Fund
Investment Fund Unit Holders
Exempt Taxable at Normal Rate
Note : Investment Fund is required to deduct TDS u/s
194LBB
 NR / FC : Rates in force
 Others : 10%

OTHER POINTS
 If Other Income earned by Fund during PY has not been paid / credited to Unit Holder, same shall be deemed to be
credited to Unit Holder on last day of PY & taxable in the hands of Unit Holder.
 Income distributed by Investment Fund to its Unit Holders shall be of the same nature & in same proportion in the
hands of Unit Holders as it had been received by Investment Fund.

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CA – FINAL I VARIOUS ENTITIES DESIGNED BY HARSH MAHESHWARI
 Carry Forward of Losses of Investment Fund
PGBP Loss Can be c/f only by Investment Fund
Other Loss If units held for ≥ 12 months by unit holder Can be c/f only by unit holder
If units held for < 12 months by unit holder Cannot be c/f
 Investment Fund is compulsorily required to file ROI u/s 139(4F).

SECTION 115TCA : TAXATION OF SECURITISATION TRUST

Basics
Investment
Investor Securitisation Trust
Income received from Trust

 All income is taxable in the hands of investor All income from activity of
at normal rate. securitisation is exempt.
 Securitisation Trust is required to deduct
TDS u/s 194LBC
NR / FC Rates in Force
Resident Individual / HUF OTHER POINTS
25% If Other Income earned by Securitisation Trust during PY has not been
Others paid / credited to Investor, same shall be deemed to be credited to
30% Investor on last day of PY & taxable in the hands of Investor.

COMMON POINTS FOR BUSINESS TRUST, INVESTMENT FUND & SECURITISATION TRUST
All of them shall provide breakup regarding Nature & Proportion of its income to:
Unit Holders [Investors] Upto 30th June of Next FY
Income Tax Authority Upto 30th Nov of Next FY

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CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
CHAPTER – 13 TAXATION OF CHARITABLE / RELIGIOUS TRUST
MEANING OF CHARITABLE
Charitable means
 Relief of poor
 Education
 Yoga
 Medical Relief
 Preservation of Environment [including Watersheds, Forest & Wildlife]
 Preservation of Monuments / Places / Objects of Artistic or Historic Interest
 Advancement of any other object of General Public Utility
Note : It shall not be treated as Charitable if Aggregate Receipts from Trade or Business Activity is
more than 20% of Total Receipts. [No Exemption for that year, no need to cancel registration]
SECTION 10(23C) : INCOME OF EDUCATIONAL INSTITUTION [SCHOOL, COLLEGE, UNIVERSITY] OR MEDICAL
INSTITUTION [HOSPITAL] WHICH EXISTS SOLELY FOR EDUCATIONAL OR MEDICAL PURPOSE & NOT-FOR-PROFIT
1. Wholly or substantially financed by Govt. [Govt. Grant > 50% of Total Receipts]
2. Aggregate Gross Annual Receipts upto ₹5 crores Fully Exempt
Note : Aggregate for both Educational (iiiad) & Medical Institutions (iiiae)
3. Other Educational & Medical Institutions
Exemption similar to
Note : Assessee shall make an application at least 1 month prior to commencement of PY for
Section 11(1) & 11(2)
Note : which exemption to be taken.
SECTION 11 : INCOME OF CHARITABLE / RELIGIOUS TRUST
Income of Trust includes:
 Donation [Voluntary Contribution]
a) Normal b) Corpus c) Anonymous [Section 115BBC]
 Government Grant
a) Normal b) Corpus
 Income from Property held under trust
a) Receipts from School / College / University / Hospital / Other Institutions
b) Capital Gains
c) House Property
d) Other Sources
 Income from Business which is incidental to attainment of main objective
 Income of nature u/s 10(1) & 10(23C)

TAXABILITY OF INCOME
 Corpus Donation [If deposited in Section 11(5) modes i.e. Safe Investments]
 Corpus Government Grant Fully Exempt
 Income of nature u/s 10(1) & Point 1 & 2 of 10(23C)
Anonymous Donations u/s 115BBC [Considered Separate] Taxable u/s 115BBC
Any other Income [Section 11(1) & 11(2)]
 15% - Exempt
 Remaining 85% [Exempt upto amount applied for Charitable & Religious Purpose in India]

Q. What do you mean by Amount applied for Charitable & Religious Purpose in India?
A. It includes
1) Revenue Expenses of Trust
2) Capital Expenses of Trust [Purchase / Construction of Land, Building etc.]
3) Donation to other trust / institution registered u/s 12AB & 10(23C)
4) Repayment of loan or borrowing taken for Acquisition / Construction of Capital Assets [However expenditure from
such loan is not treated as application]
A. Note:
 If cost of asset is already taken as applied, then depreciation on such asset shall not be considered as applied in any
PY.
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CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
 Any application from Corpus Donation shall not be treated as applied.
 Corpus Donation to other trust / institution registered u/s 12AB or 10(23C) shall not be treated as applied.
 In case of acquisition of Land / Building, then purchase price shall be considered as applied. [Ignore SDV]
 Provisions of Section 40(a)(ia), 40A(3), 40A(3A) also applies in case of Revenue Expenses.
Sec 40(a)(ia) TDS not deducted in case of Resident 30% of such sum shall not be treated as applied
Sec 40A(3) / (3A) Payment exceeding ₹10,000 by Cash / 100% of such sum shall not be treated as applied
Bearer / Cross Cheque
 No set-off / deduction of Loss of earlier years [i.e. Excess Application of Earlier Years]

Q. What do you mean by Deemed Application of Amount?

A. If 85% could not be applied due to following reasons:
CASE CONDITION
Income not received in PY [Outstanding] Declaration to AO upto due date of ROI that such income shall be applied in
the year of receipt or in immediately next year. Otherwise treat it as income of
Ignore if Trust follows Cash System such year.
Income received in last days of PY Declaration to AO upto due date of ROI that such income shall be applied in
next year. Otherwise treat it as income in next year.

SECTION 11(2) : EXEMPTION IF INCOME ACCUMULATED / SET APART FOR SPECIFIC PURPOSE
If 85% Income is not fully applied during PY but accumulated / set apart for specific purpose, then such accumulation shall be
treated as applied, if following conditions are satisfied :
a) Furnish statement to AO upto due date of ROI stating period & purpose for which such income is accumulated.
[Maximum period is 5 years]
b) Such amount shall be deposited in Section 11(5) modes [Safe Investments] upto end of PY.
c) Such amount shall not be donated to Other Trust.
d) ROI is to be filed upto due date.

SECTION 11(3) : DEEMED INCOME IN CASE OF MISUTILISATION / NON- UTILISATION

Misutilised Amount misutilised shall be deemed as income in the year of misutilisation
Unutilised within specific period + 1 year Amount unutilised deemed as income in next year after specific period
Donated to Other Trust Amount donated deemed as Income in year of Donation
Ceases to remain invested in Section 11(5) Amount ceased deemed as Income in year of violation
modes
SPECIAL PROVISIONS REGARDING CERTAIN INCOME OF TRUST
Business Income of Trust  If Business is incidental to attainment of main objective & separate Books of A/c’s are
maintained, then Exemption u/s 11(1) & 11(2) will be available.
 If AO finds any concealed income in respect of such business, then such concealed
income is fully taxable.
Exemption u/s 10 Section 10(1) & 10(23C) Exemption allowed
Others Exemption not allowed u/s 10
Capital Gains  Treated as Income of Trust.
 If any Capital Asset is transferred by Trust & Net Sale Consideration is used for
purchase of another Capital Asset, then Cost of New Asset – Cost of Old Asset shall
be treated as applied.
Anonymous Donation Means any donation where person receiving such donation does not maintain record of
donor.
Received By Taxability
Wholly Religious Trust Not Taxable u/s 115BBC [Fully treated as Normal Donation]
Charitable & Religious Received for Educational / Taxable u/s 115BBC
Trust Medical Institution
Others Not Taxable u/s 115BBC
Charitable Trust Taxable u/s 115BBC

54
CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
Taxable Anonymous Donation u/s 115BBC
Actual Amount of Anonymous Donation Received xxx
(-) Higher of (xxx)
 5% of Total Donation Received; or
 ₹1,00,000
[This amount will be treated as Normal Donation]
Anonymous Donation taxable u/s 115BBC @30% xxx
SECTION 12A : CONDITIONS FOR APPLICABILITY OF SECTION 11
 Trust shall be registered u/s 12AB.
 If Total Income [Before Exemption] exceeds Basic Exemption Limit, then Audit Report shall be furnished.
SECTION 12AB : PROCEDURE FOR REGISTRATION
PROCEDURE OF REGISTRATION
a) Application for registration to be filed online atleast 1 month prior to commencement of PY for which registration is
sought.
b) Principal Commissioner / Commissioner shall grant approval within 1 month from end of the month in which application
is made.
c) Provisional Registration is valid for 3 years.
d) Trust can apply for final registration at the earlier of
 Atleast 6 months prior to expiry of Provisional Registration; or
 Within 6 months of commencement of its activities
e) PCIT / CIT shall within 6 months from end of the month in which application is received, pass order
Register If satisfied about genuineness of activities & compliance of other laws
Refuse to Register Otherwise
f) Final Registration is valid for 5 years. [Can be renewed]

OTHER POINTS
1) After granting registration, CIT may cancel the registration, is he is satisfied that:
 Activities are not genuine
 Activities are not in accordance with objectives
 Trust did not comply with requirement of other laws
2) If Registered Trust modifies its objects which do not confirm to the conditions of registration, Trust shall be required to
take fresh registration within 30 days from date of such modification.
SECTION 13 : NON-APPLICABILITY OF EXEMPTION U/S 11
 Income from property held under Trust for Private Religious Purpose.
 Income of Trust established for benefit of particular religious caste or community.
 If any income applied / used for benefit of Specified Persons.
Explanation : Benefit means excess payment or receiving inadequate consideration.
 Funds not invested in Sec 11(5) modes [Safe Investments].

Q. Who are the Specified Persons?

A. Specified Persons :
a) Author / Founder of Trust
b) Trustee / Manager of Trust
c) Person who made donation > ₹50,000
d) Relative of any Founder, Donor, Trustee, Manager [Relative same as Sec 56(2)(x)]
e) Any concern in which any of the above persons have substantial interest.

Section 13(6) : Exemption u/s 11 is available to Educational / Medical Institution, if they applied Income for benefit of Specified
Person by way of providing free educational / medical facilities. However, value of such facility shall be treated as Income of the
Trust.

55
CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
FORMAT TO CALCULATE TOTAL INCOME OF TRUST
PARTICULARS ₹
Corpus Donation [If Deposited in Safe Investments] NIL
Corpus Govt. Grant, Income u/s 10(1) & Point 1 & 2 of Sec 10(23C) NIL
Gross Receipts from School / College / University / Hospital etc., Point 3 of Sec 10(23C) xxx
Capital Gains / House Property / Other Sources xxx
Income from Business which is incidental to attainment of main objective xxx
Government Grant xxx
Normal Donation [including limit of Anonymous Donation] xxx
xxx
(-) 15% (xxx)
xxx
(-) Amount applied for Charitable & Religious purpose in India (xxx)
(-) Deemed Applied (xxx)
 Income not received in PY [Ignore if Trust follows Cash System]
 Income received in last days of PY
(-) Income accumulated / set apart u/s 11(2) (xxx)
(-) Excess of expenditure over income in earlier years [Not allowed] -
(+) Deemed Income u/s 11(3) & 13(6) xxx
Total Income [Normal Rate] xxx
(+) Anonymous Donation Taxable u/s 115BBC @ 30% xxx
TOTAL INCOME xxx
SECTION 115TD : TAX ON ACCREDITED INCOME OF CERTAIN TRUST OR INSTITUTION [EXIT TAX]
Accredited Income of Trust / Institute registered u/s 12AA / 12AB shall be taxable @ MMR 34.944% [30% Tax + 12% Surcharge
+ 4% Cess] in following cases :
1) Conversion of Trust into Non-Eligible Form
 Registration Cancelled
 Modify Objects
 Not applied for fresh registration in that PY
 Applied for fresh registration but application rejected
2) Merger into Entity not having similar objects or not registered u/s 12AA / AB
3) Non-Distribution of Assets on Dissolution to any Trust / Institution registered u/s 12AA / 12AB / 10(23C) within 12
months from end of month of Dissolution.

EXIT TAX = Accredited Income x 34.944%

ACCREDITED INCOME :
Aggregate FMV of Total Assets of Trust xxx
(-) Total Liabilities of Trust (xxx)
Accredited Income xxx

Note 1 : Following Assets [& Liabilities in respect of them] shall not be considered in Accredited Income
 Assets acquired out of Agricultural Income.
 Assets acquired from Date of Creation of Trust to Date on which Registration becomes effective u/s 12AA / 12AB.
 Assets distributed on Dissolution to Other Trust / Institution registered u/s 12AA / 12AB / 10(23C) within 12 months
from end of month of Dissolution.

Note 2 : Valuation Date of Assets & Liabilities

Conversion of Trust into Non-Eligible Form Registration Cancelled Date of Order Cancellation
Modify Objects Date of Modification
Merger into Entity not having similar Date of Merger
objects or not registered u/s 12AA / 12AB
Non-Distribution of Assets on Dissolution Date of Dissolution
within 12 months
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CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
Note 3 : Valuation of Assets
Aggregate FMV of all Assets in Balance Sheet on Valuation Date but not include:
 3 Assets mentioned above.
 TDS / TCS / Advance Tax
 Deferred Revenue Expenditure

FMV OF ASSETS
Assets FMV
Quoted Shares & Securities Average of lowest & highest price on Valuation Date in RSE. [If no trading on Valuation
Date, then immediately preceding Valuation Date]
Unquoted Shares & Securities Unquoted Equity Shares
A+B-L
x PV
PE
Where,
A = Book Value of All Assets [other than covered in B]
B = FMV of Shares, Securities, Immovable Property, Bullion, Jewellery, Precious Stones
B = [Ignore TDS / TCS / Advance Tax / Deferred Revenue Expenditure]
L = Book Value of Liabilities but not include following:
a) Paid-up Equity Share Capital
b) Reserves & Surplus
c) Dividend
d) Provision for Tax
e) Provision for Unascertained Liabilities
f) Contingent Liabilities
PE = Total Paid-up Equity Share Capital of Company
PV = Paid-up Value of Equity Shares held by Trust

Other Unquoted Shares & Securities

Open Market Value as per Valuation Report of Merchant Banker or Accountant.
Immovable Property Higher of:
 Stamp Duty Value [SDV]
 Open Market Value
Any Other Asset Open Market Value

Note 4 : Valuation of Liabilities

Book Value of Liabilities in Balance Sheet of Trust on Valuation Date but not include following:
 Corpus / Capital / Accumulated Fund
 Reserves & Surplus
 Provision for Tax
 Provision for Unascertained Liabilities
 Contingent Liabilities

OTHER POINTS
1) Exit Tax shall be in addition to Normal Income Tax.
2) Exit Tax shall be paid to CG within 14 days from:
Conversion of Trust into Non- Registration ITAT Appeal Period Expires or ITAT Order Received
Eligible Form Cancelled
Modify Objects Application Rejected
Same as of Registration Cancelled

Not Applied for Fresh Registration

End of PY
Merger Date of Merger
Non-Distribution of Assets on Date of expiry of such period
Dissolution within 12 months

57
CA – FINAL I CHARITABLE / RELIGIOUS TRUST DESGINED BY HARSH MAHESHWARI
3) If Exit Tax is not paid within 14 days, Interest is leviable @1% per month or part of month on amount of such tax not
paid from Date after 14 days till the Date on which Tax is actually paid.
4) Principal Officer / Trustee & the Trust will also deemed to be Assessee in Default [If Tax not paid within 14 days]
SECTION 13A : TAXATION OF POLITICAL PARTIES
If all conditions satisfied Taxable Income from B&P
Exempt All others (including donations)
If any of the condition not satisfied All Income are Taxable

CONDITIONS
 Must maintain Books of A/c’s & Documents.
 Must get its Books of A/c’s Audited.
 Must file ROI upto due date.
 Must keep & maintain record of each voluntary contribution [Donation] exceeding ₹20,000 received by it. [Name &
Address of Donor]
 Must receive donation exceeding ₹2,000 only by A/c Payee Cheque / DD / ECS / Electronic Mode / Electoral Bond
SECTION 13B : TAXATION OF ELECTORAL TRUST
Voluntary Contribution [Donation] Exempt if atleast 95% of Aggregate Donation of CY along with surplus b/f from
earlier years is distributed to any Political Party
All other income All Income are Taxable

OTHER POINTS FOR DONATION

Can receive Donation from Cannot received Donation from
 Indian Citizen  Individual who is not a citizen of India
 Company registered in India  Foreign Entity
 Firm / HUF / AOP / BOI Resident in India  Any other Electoral Trust
 Government Company
 Foreign Source
Electoral Trust shall receive donations only by A/c Payee Cheque / DD / ECS / Electronic Mode.

58
CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
CHAPTER – 15 TDS, TCS & ADVANCE TAX
TAX DEDUCTED AT SOURCE [TDS]
BASICS OF TDS
1. TDS is deducted by the Payer.
2. It is deducted if the amount is taxable in hands of Payee / Receiver.
3. It is deducted at the time of payment or crediting the A/c of payee whichever is earlier.
Exceptions : However in following cases, it is deducted only at the time of payment:
a) Salary [Sec 192] d) Maturity of Policy [Sec 194DA]
b) EPF [Sec 192A] e) Compensation on Compulsory Acquisition [Sec 194LA]
c) Casual Income [Sec 194B & BB] f) Cash Withdrawal [Sec 194N]
4. It is deducted at fixed rates as given in respective sections.
Exceptions :
a) Salary
b) Payment to NR / FC Include Surcharge & Cess also
c) Income of Specified Senior Citizen [Sec 194P]
5. It is deducted both from payment for Commercial Purpose or Personal Purpose.
Exception : In Section 194C & 194J, where no TDS on payment made for Personal Purpose by Individual & HUF.
6. If payment is made by payer without deducting TDS, then payee is responsible for payment of tax directly.
Note : If TDS deducted by payer but not deposited with government, then payee cannot be liable to pay such tax.
7. No TDS if payee is Central Government, State Government, RBI, Statutory Corporation, Mutual Fund.
8. If GST on service is indicated separately on bill, then no TDS on GST Component.
SECTION 206AA : MANDATORY REQUIREMENT OF FURNISHING PAN
If Payee does not furnish PAN to the payer, TDS Rate shall be higher of Rate given in respective section or 20%.
SECTION 206AB : HIGHER RATE OF TDS FOR NON-FILING OF ITR
If Payee has not file his ROI for 2 preceding PY [for which ROI filing time limit expires] and Aggregate of TDS & TCS of such
Payee is ₹50,000 or more in each of these 2 PY, then TDS Rate shall be higher of:
 Twice of Rate given in respective section; or
 5%
NON-APPLICABILITY : In case of Section 192, 192A, 194B,194BB & 194N
Q. What if both Section 206AA & 206AB are applicable?
A. If both sections are applicable, then TDS Rate will be higher of both.
DUE DATES
Payment of TDS TDS Return / Statement
If TDS deducted Quarter Ended
During April – Feb By 7th of Next Month June 31st July December 31st Jan
March By 30th April September 31st Oct March 31st May
*For Section 194IA, IB & M : By 30th of Next Month
SECTION 201
If Assessee fails to deduct TDS or after deduction fails to pay TDS to govt., Assessee will be deemed to be an Assessee-in-
Default.
Note : He shall not be deemed to be Assessee-in-Default if such Payee:
 Furnished his ROI
 Taken such sum in Income
 Paid Tax on such sum
SECTION 201(1A) : INTEREST ON LATE DEDUCTION / PAYMENT OF TDS
Late Deduction Interest @1% per month or part of month on amount of TDS not deducted from date on which tax was
deductible till date on which tax is actually deducted.
Late Payment Interest @1.5% per month or part of month on amount of TDS not paid from date on which tax was
deducted till date on which tax is actually paid.

59
CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
Section No. Nature of Payment Payer Payee Rate Exemption Limit Other Points
192 Salary Any Person Any Person Slab Rate If Total Income of  Slab Rate means Total Tax Payable by Employee [reduced by
[Employer] [Employee Employee is upto TDS already deducted under other sections]
(R / NR)] Basic Exemption  Employer shall consider (if provided by employee)
Limit a) Other Income & Deductions of Employee
b) Not consider any loss except HP loss
 Employer shall obtain existence / proof of following claims made
by employee
HRA Name, Address, PAN of Landlord
(if Aggregate Rent exceeds ₹1,00,000)
LTC Evidence of Expenditure
HP Interest Name, Address, PAN
Deductions Evidence of Expenditure / Investment
Note : If proof not provided, then ignore all.
 Employee can take credit of tax on non-monetary perquisite paid
by Employer.
 In case of arrears of salary, TDS is deducted after considering
relief u/s 89.
 Tip paid to waiters [employee] : No TDS
 If employee opts 115BAC : Intimate to Employer
192A Accumulated Balance Any Person Any Person 10% If aggregate  TDS only if amount taxable in hands of Employee [If employee
of RPF [Employee] payment < renders 5 years of service]
₹50,000 for the  If PAN not furnished by Employee, TDS will be deducted @MMR.
year
193 Interest on Securities Any Person Any 10% - No TDS if Interest:
Resident a) Paid to LIC / GIC / Any other Insurer
Person b) Payable on Govt. Securities
c) Payable on DMAT Securities
194 Dividend Domestic Co. Resident 10% - No TDS if Dividend:
Shareholder a) Paid to LIC / GIC / Any other Insurer
s b) Paid to Individual, other than cash [If amount ≤ ₹5,000]

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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
194A Interest [other than Any Person [other Any 10% Interest Paid by If Bank is opting Core Bank Solutions [CBS] then limit will not be per
Interest on Securities] than Individual / HUF Resident Bank / Co- branch, it will be per bank.
whose Turnover / Person operative Bank /
Gross Receipt in Post Office No TDS if
Business / Profession ₹40,000 per year  Interest on Savings Bank A/c
is upto 1 crore / 50 [For Senior Citizen  Interest paid by Firm to Partner [Resident]
lacs in preceding FY] ₹50,000]  Interest on Income Tax
 Interest paid to any Bank, LIC, UTI or any Insurer
Other Person  Interest paid by Co-operative Society to its members or to
₹5,000 per year other Co-operative Society
 Interest on compensation amount awarded by Motor
Accidents Claim Tribunal [If amount ≤ ₹50,000 p.a.]
Note : It is on Paid Basis.
 Interest on FD made in name of Registrar General of Court

If Interest is credited by Bank to Provisioning A/c on daily basis for

macro monitoring only by use of CBS Software : No TDS
194B Casual Income [other Any Person Any Person 30% 10,000 for year If winning is in kind, then organiser will release winning only after
than Horse Race] ensuring that tax on winning is paid to the govt.
194BB Horse Race Any Person Any Person 30% 10,000 for year TDS will be deducted without set-off of loss
194C Contract Any Person [other Any If Contractor ₹30,000 for single  For purpose of contract work includes:
than Individual / HUF Resident Individual / payment and a) Advertisement, Broadcast, Telecast
whose Turnover / Person HUF – 1% aggregate b) Catering
Gross Receipt in ₹1,00,000 for c) Transport of Goods / Passengers [other than Railway]
Business / Profession Others – 2% year d) Mfg. / Supplying product as per customer specification
is upto 1 crore / 50 out of material supplied by such customer or its
lacs in preceding FY] associates i.e. Relatives u/s 40A(2) [Job Work]
 No TDS
a) If payment made for personal purpose by Individual / HUF.
b) If payment made to transporter & he does not own more
than 10 vehicles at any time during PY & furnish declaration
with PAN.
 In case of Job Work
a) If Material Value separately mentioned : TDS deducted
on Invoice Value [Excluding Material]
b) If not separately mentioned : TDS on Full Invoice Value
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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
 Payment by Client to Advertising Agency: TDS
Payment by Adv. Agency to TV Channel / Newspaper: No TDS
 Payment by TV Channel / Broadcasters to Production House
for Production of Program
a) If Program as per Specification : TDS
b) If already Produced Program acquired : NO TDS
 Payment for Gas Transportation Charges by Purchaser of
Natural Gas to Seller of Gas : NO TDS
 Services of Event Manager [other than Sports Activity] : TDS
 Contract also includes sub-contract.
194D Insurance Any Person Any 5% ₹15,000 for year -
Commission [Insurance Company] Resident
Person
[Agent]
194DA Life Insurance Policy Any Person Any 5% of [Maturity If Maturity Amount TDS only if Maturity Amount is taxable. [Taxable if premium paid
Amount [Insurance Company] Resident Amt. – Total is less than exceeds limit given in Section 80C]
Person Premium] ₹1,00,000 for
year
194E Payment to NR Any Person NR 20% + - TDS on Income Taxable u/s 115BBA:
Sportsmen / Sports Sportsmen / [Surcharge &  Participation in any game in India
Association / Sports Cess]  Advertisement
Entertainer Association /  Contribution of Article in Newspaper
Entertainer  Performance in India
Note : Umpire & Match Referee not covered.
194G Commission on Sale Any Person Any Person 5% ₹15,000 per year. -
of Lottery Tickets
194H Commission or Any Person Person Any 5% ₹15,000 per year. NO TDS:
Brokerage [other than Individual / Resident a) Commission / Brokerage is related to securities [Commission to
HUF whose Turnover Person Underwriters, Brokerage on Public Issue]
/ Gross Receipt in b) Discount given to Stamp Vendors on purchase of Stamp
Business / Profession Papers
is upto 1 crore / 50 c) Incentives given to Distributers
lacs in preceding FY]
Payment by Consignor to Consignee : TDS
Payment by Airlines to Agent : TDS on Commission Amount on
Minimum Fixed Commercial Price [No TDS on Difference Amount of
Maximum Published Price & Minimum Fixed Price]
62
CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
194I Rent Any Person [other Any P&M, Aggregate  If Property is owned by more than 1, then limit of ₹2,40,000
than Individual / HUF Resident Equipment ₹2,40,000 per applied to each co-owner.
whose Turnover / Person 2% year  In following cases, TDS is deducted u/s 194C & not 194I:
Gross Receipt in  Landing & Parking Charges paid by Airline Co. to
Business / Profession Land, Airport Authority
is upto 1 crore / 50 Building,  Payment for use of Mobile Towers
lacs in preceding FY] Furniture  Payment to contractors for Hiring Trucks
10%  Payment to Cooling Charges to Cold Storage Owners
 Lump Sum Lease Premium / One Time Upfront Lease Charges
paid for acquisition of Long Term Lease : NO TDS
194IA Purchase of Any Person [Buyer] Any 1% of Actual If Consideration Consideration includes all charges such as Maintenance Fees, Car
Immovable Property Resident Consideration per property is Parking Fees, Club Membership Fees, Electricity / Water Fees etc.
[other than Rural Person less than ₹50
Agricultural Land] [Seller] Lacs
[Actual
Consideration not
SDV]
194IB Rent of Immovable Individual & HUF Any 5% ₹50,000 per  TDS is deducted at the time of:
Property [other than covered Resident month Payment or Credit of Last Month Rent of PY
u/s 194I] Person Payment or Credit of Last Month Rent of Tenancy [If Property is
vacated during PY]
 If PAN not furnished by Payee, TDS = 20%; or
If Payee is covered u/s 206AB, TDS = 10%
But Maximum TDS is upto last month rent / vacancy month rent.
194IC Payment under Joint Any Person Any 10% - TDS on Money Consideration [Not on Kind]
Development Resident
Agreement Person
194J Professional Fees, Any Person [other Any Technical Professional  If payment made for Personal Purpose by Individual / HUF : NO
Technical Fees, than Individual / HUF Resident Fees (FTS), Fees, Technical TDS
Royalty, Non- whose Turnover / Person Royalty for Fees, Royalty,  NO TDS by Individual / HUF on Royalty & Non-Compete Fees
Compete Fees, Gross Receipt in Cinematogra Non-Compete [Even if Commercial]
Director Business / Profession phic Films, Fees
Remuneration is upto 1 crore / 50 Payment to 30,000 per year PROFESSIONAL SERVICES
lacs in preceding FY] Call Centres each  Services covered u/s 44AA
2%  Services in relation to Sports Activities rendered by
following persons :

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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
Other Cases Director’s Sports Persons, Umpires, Referees, Coaches, Trainers,
10% Remuneration Team Physicians, Event Managers, Commentators,
No Limit Anchors & Sports Columnists

FEES FOR TECHNICAL SERVICES

 Any consideration for rendering of Managerial, Technical or
Consultancy Services

Payment made by Third Party Administrators (TPA) on behalf of

Insurance Companies to Hospitals : TDS u/s 194J

Transaction charges paid by members to Stock Exchange for

availing online trading facility : NO TDS
194K Income from UTI / Any Person [UTI / Any 10% ₹5,000 per year -
Mutual Fund Units Mutual Funds] Resident
Person
194LA Compensation on Any Person Any 10% ₹2,50,000 per No TDS on Compensation on Compulsory Acquisition of Any
Compulsory Resident year Agricultural Land
Acquisition of Person
Immovable Property
194LB Interest on Infrastructure Debt NR / FC 5% + - -
Infrastructure Debt Fund [Surcharge &
Fund Cess]
194LC Interest on Foreign Indian Company or NR / FC 5% + - Section 206AA not applicable [even if PAN is not furnished, TDS rate
Currency Borrowings Business Trust [Surcharge & will be 5%]
made by Indian Co. Cess]
or Business Trust
194LD Interest to FII / QFI Any Person FII / QFI 5% + -  Interest on
[Surcharge & a) Government Securities
Cess] b) Rupee Denominated Bonds of Indian Company
c) Municipal Debt Security
 FII = Foreign Institutional Investors
 QFI = Qualified Foreign Investors
194M Contract, Individual / HUF [other Any 5% Aggregate ₹50 -
Commission / than covered u/s Resident Lacs for year
Brokerage, 194C, 194H, 194J] Person
Professional Fees

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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
194N Cash Withdrawal Banks, Co-operative Any Person 2% Cash Withdrawal  TDS applicable only on excess of amount over ₹1 crore.
Banks, Post-Office upto ₹1 crore for  If payee has not furnished ROI for preceding 3 years :
year Withdrawal more than ₹20 Lacs but upto ₹1 crore 2%
Withdrawal more than ₹1 crore 5%
 This section is not applicable if payee is Govt., Banks, Co-
operative Banks, Post Office, ATM Operator or any person
notified by RBI.
194O Certain payments by E-Commerce E- 1% of Gross -  If E-Commerce Participant is Individual / HUF and Gross Amount
E-Commerce Operator Commerce Amount of of Sale of Goods / Services does not exceed ₹5,00,000 in a year
Operator to E- Participant Sale of Goods No TDS
Commerce [Resident] / Services  Services include Professional Services & Technical Service.
Participant  If PAN is not furnished by Payee: TDS Rate is 5%
194P Income of Specified Specified Bank Specified Rates in Force -  Specified Senior Citizen
Senior Citizen [Scheduled Bank] Senior a) Resident Individual [Age ≥ 75 years]
Citizen b) Having Pension Income
c) No other Income except Interest from same specified
bank in which he is receiving Pension Income.
 Rates in Forces : Total Tax of Specified Senior Citizen
 Specified Senior Citizen is not required to file ROI.
194Q Purchase of Goods Buyer: Resident 0.1% of ₹50 Lacs per year  TDS is applicable only on excess amount over ₹50 Lacs.
[w.e.f. 01.07.2021]  Resident Seller Consideration  If PAN not furnished by Seller : TDS Rate is 5%.
 NR having PE in  If GST is indicated separately on bill, then no TDS on GST
India component.
[If Turnover from
Business exceeds
₹10 crores in
preceding FY]
195 Any sum payable to Any Person NR / FC Rates in Force -  TDS only if such sum is taxable in India.
NR / FC [Except  No TDS u/s 195 : Payment made to Overseas Agent for service
covered in other rendered outside India is not taxable in India.
sections]  TDS u/s 195 : Interest paid by Firm to NR Partner
 Person responsible for paying any sum to NR / FC [whether
taxable or not] shall require to furnish information relating to such
sum.
 If TDS is deducted in excess of rates given in DTAA, NR / FC
can claim refund of excess TDS.

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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
Note :
1. Payee can apply to AO to issue a certificate for No Deduction / Lower Deduction of TDS.
2. If Income of Payee is less than Basic Exemption Limit, Payee can give Self Declaration in Form 15G / 15H [for Senior
Citizen] for non-deduction of TDS. [Only for Section 192A, 193, 194DA, 194I & 194K]

TAX COLLECTED AT SOURCE [TCS]

BASICS OF TCS
1. TCS is collected by the seller from the buyer.
2. It is collected at the time of receipt of amount or debiting the a/c of buyer whichever is earlier.
Exception: Point B & E below.
3. No TCS, if seller is Individual / HUF and whose Total Turnover / Gross Receipts from Business / Profession in
preceding FY is upto ₹1 crore / ₹50 Lacs respectively.
4. No TCS if buyer is Government, Embassies, Consulates or High Commissions.

TCS RATES
[A] Specified Goods [C] Lease / License of Parking Lot, Toll Plaza, Mines & Quarry
Alcoholic Liquor for Human Consumption 1% 2%
Scrap [not usable or such] 1%
Minerals being coal, ignite or iron ore 1%
[D] Overseas Remittance or Overseas Tour Package
Timber & any other forest produce 2.5%
Overseas Remittance : 5% (in excess of ₹7,00,000)
Tendu Leaves 5%
Overseas Tour Package : 5%
Note: No TCS on specified goods
Note:
a) If goods purchased for personal consumption
a) No TCS, if Remittance upto ₹7,00,000 in a year.
b) If goods are used in manufacturing of any article b) If Remittance is out of a loan obtained from Financial
Institution u/s 80E for Education, then TCS Rate = 0.5%.
[B] Any Motor Vehicle
1% [E] Sale of Goods of value exceeding ₹50L
Note: No TCS on Motor Vehicle 0.1% of Sale Consideration in excess of ₹50L
a) If consideration per vehicle is upto ₹10L Note:
b) If sale is to Dealer / Distributor a) No TCS on Export of Goods & Goods covered in Point A.
b) Applicable only if Turnover exceeds ₹10 crores in
preceding FY.
Note : In point B & E, TCS shall be collected at the c) If TDS is applicable u/s 194Q, then no TCS under this point.
time of Receipt of Amount.
SECTION 206CC : MANDATORY REQUIREMENT OF FURNISHING PAN
If Collectee does not furnish his PAN to collector, TCS Rate shall be Higher of Double the Rate specified or 5% (1% in Point E).
SECTION 206CCA : HIGHER RATE OF TCS FOR NON-FILING OF ITR
If Collectee has not filed his ROI for 2 preceding PY [for which ROI filing time limit expires] and Aggregate of TDS & TCS of
such Payee is ₹50,000 or more in each of these 2 PY, then TCS Rate shall be higher of:
 Double the Rate specified; or
 5%
DUE DATES
Payment of TCS TCS Return / Statement
By 7th of Next Month Quarter Ended
June 15th July December 15th Jan
September 15th Oct March 15th May
SECTION 234E : FEES FOR DEFAULT IN FURNISHING TDS / TCS STATEMENTS
Fees is payable @ ₹200/day after due date till actual date of furnishing.

Note:
a) The total amount of fees should not exceed TDS / TCS Amount.
b) Above fees is not treated as penalty, so deduction is allowed under PGBP.

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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
ADVANCE TAX
BASICS OF ADVANCE TAX
1. Advance Tax means tax paid in PY on Estimated Total Income of PY.
2. Calculation of Estimated Advance Tax Liability
Tax on Estimated Total Income xx
Less: Estimated TDS / TCS / Relief / Credit (xx)
Estimated Advance Tax Liability xx
3. No requirement to pay Advance Tax
a) If Advance Tax liability is less than ₹10,000.
b) Resident Senior Citizen not having income under PGBP.
4. Due Date of payment of Advance Tax
Due Date Amount of Advance Tax to be paid
Upto 15th June of PY Upto 15% of Advance Tax Liability
Upto 15th September of PY Upto 45% of Advance Tax Liability
Upto 15th December of PY Upto 75% of Advance Tax Liability
Upto 15th March of PY Upto 100% of Advance Tax Liability

Note:
 If assessee opts for Section 44AD / 44ADA, then Due Date of Payment of Advance Tax is 15th March of PY [Single
Instalment].
 Tax paid upto 31st March of PY is treated as Advance Tax.
INTEREST U/S 234A / 234B / 234C
SECTION 234A : INTEREST FOR DELAY IN FILING ROI

Tax Payable on Self - x Rate x Period From Next day after Due Date of ROI till Actual Date of
Assessment Filing ROI

1% per month or part thereof

Tax Payable on TI as per ROI

(-) TDS / TCS / Relief u/s 89, 90, 91 / MAT, AMT Credit
(-)Advance Tax Paid

SECTION 234B : INTEREST FOR SHORT PAYMENT OF ADVANCE TAX

Advance Tax Short Paid x Rate x Period From 1st April of AY till Actual Date of Payment

1% per month or part thereof

Actual Advance Tax Liability – Advance Tax Paid

Q. How to calculate Actual Advance Tax Liability?

A. Tax Payable on Total Income as per ROI – TDS / TCS / Relief u/s 89, 90, 91 / MAT, AMT Credit
Note :
 Section 234B is not applicable if Advance Tax Paid by Assessee is ≥ 90% of Actual Advance Tax Liability.
 If there is change in Total Income due to Processing of Return u/s 143(1) or Assessment, then Tax Payable on Total
Income as per Section 143(1) / Assessment will be taken instead of Tax Payable on Total Income as per ROI.
[Applicable for Section 234A & B]

SECTION 234C : INTEREST FOR DEFERMENT OF ADVANCE TAX INSTALMENTS

I = [15% of Advance Tax Liability – Advance Tax Paid upto 15th June] x 3%
II = [45% of Advance Tax Liability – Advance Tax Paid upto 15th September] x 3%
III = [75% of Advance Tax Liability – Advance Tax Paid upto 15th December] x 3%
IV = [100% of Advance Tax Liability – Advance Tax Paid upto 15th March] x 1%
xx
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CA – FINAL I TDS, TCS & ADVANCE TAX DESIGNED BY HARSH MAHESHWARI
Note :
 In case of I & II Instalment, no interest if Assessee paid upto 12% & 36% respectively.
 If assessee opts for Section 44AD / ADA, then Interest u/s 234C will be:
[100% of Actual Advance Tax Liability – Advance Tax paid upto 15th March] x 1%

NON-APPLICABILITY OF INTEREST U/S 234C

 Capital Gains  First Time PGBP Income
 Casual Income  Dividend Income u/s 2(22)(a) / (b) / (c) / (d)
SECTION 234F : FEES FOR DEFAULT IN FILING ROI
 If any person who is required to file ROI u/s 139 fails to do so within time given u/s 139(1), Fees = ₹5,000.
 If Total Income of person is upto ₹5,00,000, then fees shall not exceed ₹1000.
SECTION 234H : FEES FOR DEFAULT RELATING TO INTIMATION OF AADHAR NO.
 If a person fails to intimate Aadhar No. upto 31.03.2022, he shall be liable to pay such fees as may be prescribed.
 However, such fees shall not exceed ₹1,000.
OTHER MODES OF RECOVERY OF TAX
By Assessing Officer
1. By way of serving Notice of Demand u/s 156.
2. Amount as specified in Notice shall be paid within 30 days of Notice. [Section 220]

By Tax Recovery Officer

1. Attachment & Sale of Assessee’s Movable / Immovable Properties.
2. Assessee’s Property includes any property transferred by Assessee to Spouse, Minor Child, Son’s Wife, and Son’s
Minor Child without consideration / inadequate consideration.
3. If Minor Child, Son’s Minor Child attain majority after transfer, then also treat as assessee’s property. [If recovery is
related to year before Minor Child attains majority]
REFUNDS
1. If Actual Tax paid is more than Tax Payable then Assessee is entitled to claim refund.
2. Interest on Refund
 Interest @ 0.5% per month or part of month will be paid by the Department on amount refunded.
 Period of Interest
If ROI is filed upto due date From 1st April of AY till Date of Grant of Refund
If ROI is filed after due date From Date of Filing of ROI till Date of Grant of Refund

68
CA – FINAL I INCOME TAX AUTHORITIES DESIGNED BY HARSH MAHESHWARI
CHAPTER – 16 INCOME TAX AUTHORITIES
CENTRAL BOARD OF DIRECT TAXES [CBDT]
ASSESSMENT WING INVESTIGATION WING
Principal Chief Commissioner of Income Tax [PCCIT] Principal Director General of Income Tax [PDGIT]
Chief Commissioner of Income Tax [CCIT] Director General of Income Tax [DGIT]
Principal Commissioner of Income Tax [PCIT] Principal Director of Income Tax [PDIT]
Commissioner of Income Tax [CIT] Director of Income Tax [DIT]

Additional Commissioner / Joint Commissioner [JC] Additional Director / Joint Director

Assistant Commissioner [AC] / Deputy Commissioner [DC] Assistant Director / Deputy Director
Income Tax Officer [ITO]

Tax Recovery Officer [TRO] ASSESSING OFFICER [AO]

Income Tax Inspector
Note : Commissioner of Income Tax (Appeals) / CIT(A) is also an Income Tax Authority.
CENTRAL BOARD OF DIRECT TAXES [CBDT]
 It is a statutory body.
 Exercises control & supervision over all officers of Income Tax Department by issue of Orders / Instructions / Circulars.
 CBDT may grant relief to the Assessee for genuine reasons under certain sections [139, 201(1A), 234A / B / C, 234E
etc.]
 It has no power to amend legislative provisions of the Act.
POWERS OF INCOME TAX AUTHORITIES
GENERAL POWERS
SECTION 131 : Income Tax Authorities have all the powers of a civil court:
 Discovery & Inspection  Enforcing attendance of any person & examining on oath
 Compelling Production of Books & Documents  Issuing commission (summons)

SPECIAL POWERS
SECTION 132 : POWER OF SEARCH & SEIZURE
Who can  CIT / DIT & higher authorities
authorise?  Additional / Joint Commissioner or Director [If authorised by CBDT]
To whom Assessing Officer
When If IT Authority has reason to believe that:
 Any person to whom notice u/s 142(1) or summon u/s 131 is issued to produce books or
documents & assessee failed to produce such books or documents.
 Any person to whom notice u/s 142(1) or summon u/s 131 might be issued to produce books or
documents & assessee will not produce such books or documents.
 Any person who is in possession of any money, bullion or jewellery or any other valuable articles
& such asset has not been disclosed / will not be disclosed.
Power of  Enter any building, place, vessel, vehicle or aircraft where he suspects that books, money etc. are kept.
Authorised  Power to break locks of any door, box, locker etc. if keys are not available.
Officer  Search any person there.
 Require to produce password, if books are in electronic form.
 Seize any books, documents, money, bullion, jewellery etc. found under search. [Stock cannot be
seized]
Special Deemed / Constructive Seizure Not possible to take physical possession due to volume,
Seizure weight or nature
Prohibitory Order / Order of Restraint Not possible to take physical possession due to any other
reasons
Authorised Officer may serve order to owner that he shall not deal with such asset without approval.
Presumption If any books, documents, money, bullion, jewellery etc. found in possession of any person it is presumed:
under Search  They belong to such person.
 Content of books or documents are true.
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CA – FINAL I INCOME TAX AUTHORITIES DESIGNED BY HARSH MAHESHWARI
 Signature & other part of books or documents which seems to be in handwriting of any particular
person are in that person’s handwriting.
 If Authorised Officer has no jurisdiction over the person searched by him or if he found books,
assets etc. of other person, then he shall handover the books, assets etc. to AO having jurisdiction
over such other person within 60 days from the date on which search was completed.

SECTION 132A : REQUISITION

If search conducted by any authority under other law, then Authorised Officer shall require such authority to deliver books,
assets etc. seized to him ASAP.

SECTION 132B : APPLICATION OF BOOKS & ASSETS SEIZED

Books & Documents shall be released within 30 days from date of completion of assessment u/s 147. For retention beyond this
period, permission of CIT is required.
MONEY, BULLION, JEWELLERY & OTHER VALUABLE ARTICLES
Explained Assets Unexplained Assets
Application made by assessee within 30 days from end of Can be utilised to recover any existing tax liability or any new
month in which such asset was seized explaining the nature liability u/s 147.
& source.
Asset released to assessee with prior approval of CIT after First utilise money. If it falls short, then sell assets or
adjusting any existing tax liability within 120 days from date discharging liabilities. If some assets remain, then hand them
of conclusion of search u/s 132. over to assessee.

SECTION 133 : POWER TO CALL FOR INFORMATION

 IT Authorities can call any information from any person which will be useful or relevant to any proceedings under the Act.
 If no proceeding is pending and authority is below the rank of CIT, he has to take prior approval of CIT.

SECTION 133A : POWER OF SURVEY

 IT Authority may enter any building or place at which business / profession is carried on.
 Prior approval of CCIT / DGIT is required.
 If books or assets relating to business / profession are kept at some other place, then such other place can also be
covered under survey.
 Upon entering, they can:
a. Inspect any books of accounts or documents.
b. Check or verify cash, stock or any other valuable articles.
c. Place identification marks on books of accounts & documents.
d. Record statement of any person.
e. Impound & retain books & documents after recording reasons. [Maximum 15 working days]
 Entry Restrictions
To the place of Business / Profession Only during those hours when such place is kept open for conducting B&P.
Any other place Only after sunrise but before sunset
Note : Restriction is only for entry & not for exit.
 IT Authority can also survey any function, ceremony or event but only after conclusion of such function, ceremony or event
& requires any person to furnish information & statement.
 TDS / TCS Survey : For verifying TDS / TCS has been deducted / collected as per the provisions of Income Tax Act.
However, in such survey, Income Tax Authority cannot
a. Impound Books & Documents
b. Make inventory of cash, stock & other valuable articles

SECTION 133B : POWER TO COLLECT INFORMATION

 IT Authority may enter any place at which B&P is carried on & collect information from there.
 Entry shall be made only during hours when such place us kept open for conducting B&P.
 No power to impound books & documents u/s 133B.

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CA – FINAL I ASSESSMENT PROCEDURE DESIGNED BY HARSH MAHESHWARI
CHAPTER – 17 ASSESSMENT PROCEDURE
RETURN FILING
SECTION 139(1) : FILING OF RETURN OF INCOME [ROI]
Following persons are compulsorily required to file ROI:
1) Company, Partnership Firm (including LLP)
2) Other Assessee : If GTI [before claiming exemption under any section of series 54] exceeds Basic Exemption Limit
3) Resident Individual (ROR)
 Beneficial Owner of any asset (including Beneficiary of any asset (including Financial Interest)
Financial Interest) located outside India located outside India
 Has signing authority in any bank account Note : If Beneficial Owner already includes income from
outside India such asset in his ROI, then beneficiary is not required to
file ROI
4) Person
 Deposited aggregate > ₹1 crore in current A/c of Bank / Co-operative bank; or
 Incurred Foreign Travel Expenditure of > ₹2,00,000 for himself / any other person; or
 Incurred Electricity Expenditure of > ₹1,00,000
 If his Total Sales / Turnover / Gross Receipts in Business > ₹60,00,000 during the PY; or
 If his Gross Receipts in Profession > ₹10,00,000 during the PY; or
 If the aggregate of TDS & TCS during the PY, in the case of the person, is ≥ ₹25,000 (& in case of Senior Citizen
≥ ₹50,000); or
 The deposit in one or more Savings A/c of the person, in aggregate, is ≥ ₹50,00,000 during the PY.

5) Other Entities
i. Trust [Section 139(4A)] : If Total Income before exemption u/s 11 exceeds Basic Exemption Limit
ii. Political Party [Section 139(4B)] : If Total Income before exemption u/s 13A exceeds Basic Exemption Limit
iii. Trade Unions, News Agencies, Institutions etc. u/s 10 [Section 139(4C)] : If Total Income before exemption
u/s 10 exceeds Basic Exemption Limit
iv. Research Institutions u/s 35 [Section 139(4D)] : Mandatory
v. Business Trust [Section 139(4E)] : Mandatory
vi. Investment Fund [Section 139(4F)] : Mandatory

DUE DATE OF FILING ROI

Assessee who is required to furnish Transfer Pricing Report u/s 92E & Partners of such Firm 30th Nov of AY
 Company 31st Oct of AY
 Audit Requirement under Income Tax Act or any law
 Partner of Firm where accounts are to be audited
Others 31st July of AY
SECTION 139(3) : LOSS RETURN
ROI is required to be filed upto due date given u/s 139(1) to carry forward following losses of current year:
a) Business Loss b) Capital Loss c) Loss from activity of owning & maintaining race horses
Note:
1) HP Loss& Unabsorbed Depreciation can be c/f even if ROI is filed late.
2) Loss can be c/f even if ROI is filed after due date due to genuine reasons & delay is condoned by
Loss upto 10 Lacs CIT / PCIT
Loss more than 10 Lacs but upto 50 Lacs CCIT / PCCIT
Loss more than 50 Lacs CBDT
SECTION 139(4) : BELATED RETURN
If ROI is not filed upto due date, Belated Return can be filed upto earlier of:
 3 months prior to end of relevant PY i.e. 31st December of AY; or
 Before completion of Assessment

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CA – FINAL I ASSESSMENT PROCEDURE DESIGNED BY HARSH MAHESHWARI
SECTION 139(5) : REVISED RETURN
If there is any omission or wrong statement in ROI filed u/s 139(1), 139(3) or 139(4), assessee can file Revised Return upto
earlier of:
 3 months prior to end of relevant AY i.e. 31st December of AY; or
 Before completion of Assessment

Note :
a. It substitutes original return in all aspects (except date).
b. Assessee can revise ROI any no. of times.
c. ROI can be revised even after receiving intimation u/s 143(1) or Refund.
d. Revising Original Return can be done only by the way of filing Revised ROI u/s 139(5) and not by filing plain letter or
Revised Statement of Income.
e. Fresh claim before AO can be made only by filing a revised ROI.
SECTION 139(9) : DEFECTIVE RETURN
 Return can be considered defective if
a. ROI not filed in prescribed form
b. Proof of Tax Payment not attached with ROI
c. Report u/s 44AB not submitted
 AO shall intimate defect to assessee and give opportunity to rectify the defect within 15 days or extended time.
 If assessee does not rectify the defect, then ROI shall be treated as Invalid [Void ab Initio].
SECTION 139A : PERMANENT ACCOUNT NUMBER [PAN]
Following persons are required to apply for allotment of PAN:
a) Every person who is assessable to tax [Required to file ROI]
b) Every person carrying on B&P & whose Total Turnover / Gross Receipts exceeds or likely to exceed ₹5,00,000 in any PY.
c) Trust
d) Resident Person (other than Individual) who enters into Financial Transactions of aggregate ₹2,50,000 or more & Director
/ Partner / Principal Officer of such Person.

Quoting of PAN is mandatory in:

 In all Returns
 In all Challans of Payment of Tax
 In all documents relating to specified transactions

Q. What do you mean by Specified Transactions?

A. Following are specified transactions:
1) Sale / Purchase of Motor Vehicle other than 2-wheelers
2) Opening a Current A/c with Bank or Co-operative Bank
3) Application for issue of Credit / Debit Card
4) Opening of Demat A/c
5) Payment to Hotel or Restaurant in cash exceeding ₹50,000
6) Payment for Foreign Travel or purchase of Foreign Currency in cash exceeding ₹50,000
7) Payment to Mutual Fund for purchase of units exceeding ₹50,000
8) Payment to Company / Institution for acquiring Debentures or Bonds exceeding ₹50,000
9) Cash Deposit with Bank / Co-operative Bank / Post Office exceeding ₹50,000 in a day
10) Payment of Life Insurance Premium exceeding ₹50,000 in FY
11) Sale or Purchase of any Immovable Property exceeding ₹10,00,000
12) Sale or Purchase of any Goods / Services exceeding ₹2,00,000 per transaction
SECTION 139AA : AADHAR NUMBER
Every person is required to quote Aadhar Number
a) In the application form for allotment of PAN
b) In ROI

Note :
 If Aadhar Number is not available, the person shall quote Enrolment ID of Aadhar Application Form.
 Every person shall link Aadhar Number with PAN upto 31.03.2022.

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CA – FINAL I ASSESSMENT PROCEDURE DESIGNED BY HARSH MAHESHWARI
NON-APPLICABILITY
1) Residing in Assam, J&K & Meghalaya.
2) Non-Resident
3) Age of 80 years or more at any time during PY
4) Not a citizen of India
SECTION 139B : TAX RETURN PREPARER [TRP]
Specified class of people can file their ROI through TRP.
Q. What do you mean by Specified Class of People?
A. It means any person other than:
 Company
 Audit requirement under Income Tax Act or any other law
Q. What do you mean by TRP?
A. It means an individual who is authorised to act as TRP by CBDT other than following:
 Chartered Accountant (CA)
 Legal Practitioner
 Officer of Scheduled Bank
 Employee of Specified Class of Persons
SECTION 140 : VERIFICATION OF RETURN
In case of Verified By
Individual Himself
If Individual not present in India / Mentally Incapacitated Person competent to verify on his behalf
HUF Karta
If Karta not present in India / Mentally Incapacitated Any adult member of HUF
Partnership Firm Managing Partner
If no Managing Partner Any Adult Partner
LLP Designated Partner
If no Designated Partner Any Partner
Company Managing Director
If no Managing Director Any other Director
Company under liquidation Liquidator
If Corporate Insolvency Resolution Process Application Admitted Insolvency Professional
Political Party CEO
Local Authority Principal Officer
Any Other Person Person competent to verify
SECTION 140A : SELF ASSESSMENT
 Assessee is required to pay due Tax before filing of ROI along with Interest & Fees.
 If there is short payment, then amount paid is first adjusted towards Fees, then Interest & balance towards Tax.
ASSESSMENT PROCEDURE BY DEPARTMENT
SECTION 142 : INQUIRY BEFORE ASSSESSMENT
NOTICE U/S 142(1)
If Assessee does not comply
Return If Assessee not file ROI within time u/s 139(1), AO may issue Best Judgment Assessment u/s 144
notice requiring him to furnish ROI
Books & Information For making Assessment, AO can issue notice to Search u/s 132
 Produce Books & Documents (Maximum 3 years
prior to relevant PY
 Furnish information including details of Assets &
Liabilities

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CA – FINAL I ASSESSMENT PROCEDURE DESIGNED BY HARSH MAHESHWARI
SPECIAL AUDIT U/S 142(2A) [AUDIT BY DEPARTMENT]
 AO may at any stage of proceeding can direct Special Audit having regards to
a) Complexities in Accounts
b) Volume of Accounts and It is in the Interest of Revenue [Dept.]
c) Doubts about Correctness of Accounts
d) Multiplicity of Transactions in the Accounts
 Direction can be issued with prior approval of CIT.
 Opportunity of being heard must be given to assessee before directing.
 Direction can be given even if Books of Accounts already audited u/s 44AB or any other law.
 Books of Accounts audited by CA nominated by CIT & remuneration of auditor shall be paid by CG.
 Audit Report has to be submitted within time allowed by AO which can be extended but maximum time shall not exceed
180 days from date of direction of Special Audit.
 If Assessee fails to get Special Audit done or fails to furnish Special Audit Report within time allowed, then AO can make
Best Judgment Assessment u/s 144.

REFERENCE TO VALUATION OFFICER [VO] U/S 142A

 AO may for purpose of assessment make a reference to VO to estimate value of any asset, property or investment.
 VO shall send a copy of Valuation Report to AO & Assessee within 6 months from end of the month in which reference
was made.
 AO may consider such report after giving opportunity of being heard to the Assessee.
SECTION 143(1) : PROCESSING OF RETURN / INTIMATION / SUMMARY ASSESSMENT
All returns shall be processed u/s 143(1) & following adjustments are made in Returned Income:
1) Arithmetical Errors
2) Incorrect Claims
 Items inconsistent with another entry
 Deduction exceeding limit
 Information not furnished
3) Disallowance of Loss Claim (if ROI of that year is filed after due date)
4) Disallowance of Expenditure or Increase in Income indicated in Audit Report but not taken into account in computing
Total Income in ROI.
5) Disallowance of Deduction u/s 10AA & Chapter VI-A Heading C if ROI is filed after due date.

After processing, intimation shall be sent to the Assessee for Demand / Refund. [Assessee has to respond within 30 days]
Final intimation shall be sent to the Assessee within 9 months from end of FY in which ROI was filed.
SCRUTINY ASSESSMENT
Section No. Provision
143(2) Notice of Scrutiny  For making Scrutiny Assessment, AO is required to serve notice.
 It has to be served within 3 months from end of FY in which ROI was
filed.

Note:
a) Processing of Return u/s 143(1) is necessary even if notice has been
issued u/s 143(2).
b) Issuance of Notice u/s 143(2) is mandatory for Scrutiny Assessment
u/s 143(3).
143(3) Order of Scrutiny Based on Material & Evidences furnished by Assessee in response to notice
Assessment u/s 143(2), AO shall determine the Income / Loss of Assessee along with
determination of Tax Payable / Refundable.
Time Limit for completion Assessment shall be completed [order shall be passed] within 9 months from
of Assessment the end of relevant AY.

Note: In case of Institutions etc. u/s 10, AO shall pass order u/s 143(3) without giving exemption u/s 10 only if he is of the view
that activities carried out in contravention of provisions and
 He has intimated the CG about contravention.
 Approval granted to such institution has been withdrawn.
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SECTION 144 : BEST JUDGEMENT ASSESSMENT
AO shall make an Assessment to the best of his judgement & knowledge in following cases:
1) Failure to furnish ROI u/s 139(1) / 139(4) / 139(5).
2) Failure to comply with Notice u/s 142(1).
3) Failure to comply with Special Audit Directions u/s 142(2A)
4) Failure to comply with Notice u/s 143(2).

Note:
 AO shall issue SCN giving an opportunity to be heard to the Assessee. [Except Point 2]
 Discretionary Best Judgement Assessment
In following cases also, Assessment may be completed as per Section 144
a) AO not satisfied about completeness / correctness of Books & Documents of Assessee.
b) Correct Method of Accounting was not followed by Assessee.
c) ICDS have not been followed by Assessee.
 Time Limit for Completion of Assessment u/s 144 : Assessment shall be completed [order shall be passed] within 9
months from the end of the relevant AY.
SECTION 144C : REFERENCE TO DISPUTE RESOLUTION PANEL [DRP]
 To facilitate expeditious resolution of disputes, a panel consisting of 3 Commissioner of Income Tax (CIT) is constituted.
 Eligible Assessee who can file objection to DRP
a) Non-Resident / Foreign Company
b) Any Person relating to Transfer Pricing Case [If variation arises due to TPO order]
 AO shall forward Draft Order to Eligible Assessee.
 Assessee shall within 30 days of receipt of Draft Order either Accept or File Objection to DRP.
 DRP may confirm, reduce or enhance variations of Draft Order.
 DRP shall issue directions within 9 months from end of month in which Draft AO order is forwarded to the Assessee.
 DRP shall issue directions after considering following:
a) Draft Order c) Evidence furnished by Assessee
b) Objections filed by Assessee d) Reports & Other Evidences
 Directions issued by DRP shall be binding on AO.
 Order passed by AO on the basis of directions of DRP shall be directly appealable before ITAT.

Note: Eligible Assessee has a choice

 File objection before DRP against Draft Assessment Order; or
 Not to exercise this option & file appeal later before CIT(A) against Final Assessment Order passed by AO.
SECTION 147 – 149 : INCOME ESCAPING ASSESSMENT
SECTION 147 : ASSESSMENT OF INCOME ESCAPING ASSESSMENT / REASSESSMENT / REOPENING OF CASES
 If any income chargeable to tax has escaped assessment for any AY,
 AO may assess or reassess such income or recompute loss / allowance / deduction for such AY
 AO may also assess any other income that comes to his notice subsequently during course of proceeding u/s 147.

Q. What is the time limit for completion of assessment u/s 147?

A. Assessment shall be completed (order shall be passed) within 12 months from end of FY in which notice is served u/s 148.

SECTION 148 : NOTICE FOR ASSESSMENT U/S 147

 AO has to serve notice to Assessee requiring him to furnish ROI within specified time in notice.
 Notice can be issued only when :
1) AO is in possession of following information which suggest that income chargeable to tax has escaped
assessment:
 Any information flagged for relevant AY as per Risk Management Strategy.
 Any objection raised by CAG that assessment for relevant AY has not been made as per the
provisions of this Act.
2) In following cases AO shall be deemed to have information which suggests that income chargeable to tax has
escaped assessment for 3 years:
 Search is initiated u/s 132 on or after 01.04.2021.
 Survey is conducted u/s 133A on or after 01.04.2021.

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 Any money, bullion, jewellery, books of accounts & documents belongs to other person found in
Search. [Deemed information of such other person]
 AO has to follow the following steps before issue of notice u/s 148
a) Conduct any inquiry (if required)
b) Provide an opportunity of being heard to Assessee by serving Show Cause Notice [SCN] as to why notice u/s
148 shouldn’t be issued. [Reply by Assessee should be within time specified in notice being 7-30 days.]
c) Consider the reply of assessee.
d) Decide by passing order whether it is a fit case to issue notice u/s 148.

 Non-Applicability of Section 148A

1) Search is initiated u/s 132 on or after 01.04.2021.
2) Any money, bullion, jewellery, books of accounts & documents belongs to other person found in Search.

SECTION 149 : TIME LIMIT FOR ISSUE OF NOTICE

If AO is in possession of Books, Documents or Evidence which reveals that income Within 10 years from end of
represented in the form of Asset which has escaped assessment is ₹50 lacs or more Relevant AY
for that year
Within 3 years from end of
Other Cases
Relevant AY

Q. What do you mean by Income represented in the form of Asset?

A. Immovable Property, Shares, Securities, Loans & Advances, Deposits in Bank A/c

Q. What is the meaning of Relevant Assessment Year [RAY]?

A. Relevant Assessment Year [RAY] means :
Normal Information Case AY for which information is flagged or CAG raised objection
Deemed Information Case 3 AY immediately preceding AY relevant to PY in which Search, Survey is initiated /
[Search, Survey etc.] conducted. [Notice will be issued for 3 preceding PY]

SECTION 151 : PERMISSION FROM SPECIFIED AUTHORITY

Within 3 years PCIT / CIT
After 3 years PCCIT / CCIT
SECTION 153 : TIME LIMIT FOR COMPLETION OF ASSESSMENT
Assessment u/s Time Limit
143(3) / 144 Within 9 months from end of relevant AY
147 Within 12 months from end of FY in which notice is served u/s 148

OTHER POINTS
1) If reference is made to TPO u/s 92CA, then additional 12 months’ time is available in all cases.
2) In computing above time limits, following period shall be excluded:
Case From Till
1 Contravention by institutions etc. u/s 10 Date on which AO informs Date on which govt. notification
& AO informs to govt. received by AO withdrawing
approval
2 Direction for Special Audit u/s 142(2A) Date on which AO directs Last date on which Assessee is
required to file report
3 Reference made to Valuation Officer u/s Dare on which AO makes Date on which report was
142A reference received by AO
4 Application made to AAR or Board for Date on which application Date on which Rejection Order /
Advance Ruling was made Advance Ruling received by
Commissioner
5 Where reference made for exchange of Date on which reference Date on which information is
information u/s 90 made received
6 If Assessment Proceeding stayed by any
Period of Stay
court
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CA – FINAL I ASSESSMENT PROCEDURE DESIGNED BY HARSH MAHESHWARI
SECTION 154 : RECTIFICATION OF MISTAKE
 Income Tax Authority [AO / CIT / CIT(A)] can rectify a mistake which is apparent on record in
a) Any order passed by such authority; or
b) Intimation u/s 143(1), TDS / TCS Intimation
 Rectification can be done by IT Authority either on own motion or application made by Assessee.
 No Fees & No Form for Rectification.
 Time Limit for Rectification
Own Motion Within 4 years from end of FY in which order containing mistake was passed
Application by Assessee Within 6 months from end of month in which application is received by IT Authority.
[Application has to be made within 4 years]
 If that year order has been decided in Appeal or Revision
Matters which are considered & decided in Cannot be Rectified or Amended
Appeal or Revision
Other Matters Can be Rectified or Amended [Doctrine of Partial Merger]
SECTION 156 : DEMAND NOTICE
If any Tax, Interest, Penalty or any other sum is payable / due, then AO shall serve Demand Notice specifying payment.
SECTION 292BB : NOTICE OF AO DEEMED TO BE VALID IN CERTAIN CASES
 If Assessee has appeared in any proceedings or co-operated in any inquiry
 It shall be deemed that notice has been duly served upon him
 He cannot raise objection after completion of Assessment that notice was not served or not served in time or served in
improper manner.
However, this deeming provision shall not apply if he raised objection about such defect before completion of Assessment.
Note : Non-issuance of Notice by Department is not a Curable Defect u/s 292BB.
SECTION 144B : FACELESS ASSESSMENT OF SECTION 143(3) & 144
ASSESSMENT CENTRES & UNITS
1) National E-Assessment Centre [NEC] : Centralised body at Delhi
2) Regional E-Assessment Centre [REC] : Regional Centres
 Assessment Unit [AU] : Assessment Function
 Verification Unit [VU] : Verification Function
 Technical Unit [TU] : Technical Assistance
 Review Unit [RU] : Review of Draft Order

PROCEDURE
1) NEC shall serve notice u/s 143(2) to Assessee; or
NEC shall intimate the Assessee [Section 144 case]
2) NEC shall assign case to any AU in any REC through Automated Allocation System [AAS]
3) AU may make request to NEC for
Obtaining information, documents & NEC will issue notice to Assessee or such other person
evidence from Assessee or any other person for submission of information & documents
Conducting Inquiry & Verification by VU NEC will assign to any VU through AAS
Technical Assistance from TU NEC will assign to any TU through AAS
4) On the basis of Material & Evidences, AU make Draft Assessment Order u/s 143(3) / 144 & send to NEC.
5) NEC will provide opportunity of being heard to Assessee, if variation is harmful to Assessee. NEC may assign Draft
Order to any RU through AAS.
6) NEC will finalise Draft Order & send copy of Final Order to Assessee along with Demand / Refund.

OTHER POINTS
 All communication between NEC, REC, AU, VU, TU, RU, Assessee or any other person shall be exclusively by
Electronic Mode.
 Personal Hearing is not allowed in NEC, REC or any unit. However, NEC may allow personal hearing through Video
Conferencing.
 NEC can transfer the case at any stage to jurisdictional AO.

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CA – FINAL I APPEALS & REVISION DESIGNED BY HARSH MAHESHWARI
CHAPTER – 18 APPEALS & REVISION
APPELLATE HIERARCHY

CIT(A) ITAT HIGH COURT SUPREME COURT

NO RIGHT TO FILE APPEAL AGAINST FOLLOWING ORDERS:

1. Order of Interest u/s 234A / B / C
2. Revision Order u/s 264
3. Order of Dispute Resolution Committee
4. Order of Advance Ruling Authority
SECTION 246A – 251 : APPEAL TO CIT(A)
Orders Appealable  Assessment Order of AO [Section 143(3) / 144 / 147]
 Rectification Order u/s 154
 Intimation u/s 143(1), TDS / TCS Intimation
 Any other order of AO
Who can file Only by Assessee
Time Limit Within 30 days from service of order [Delay can be condoned by CIT(A)]
Form Appeal shall be filed in Form No. 35 along with
 Statement of Facts
 Grounds of Appeal Memorandum of Appeal In Duplicate
 Copy of order of AO
Stay of Demand CIT(A) can grant stay on demand on application made by Assessee.
Power to admit CIT(A) can admit additional evidence by recording reasons in writing in following cases:
Additional Evidence  AO refused to admit evidence
 Assessee was prevented by sufficient cause to produce evidence
 AO made order without giving opportunity to produce evidence
Other Points  CIT(A) may confirm, reduce or enhance the assessment.
 CIT(A) can pass order within 1 year from the end of year in which appeal is filed, if possible.
SECTION 252 – 255 : APPEAL TO ITAT
Orders Appealable  Order of CIT(A) (Both Assessee or AO)
 Order u/s 144C
 Revision Order u/s 263
 Any other order of CIT / PCIT / CCIT / DIT / DGIT
Who can file Both AO & Assessee in case of Order of CIT(A) & Only by Assessee in all other cases
Time Limit Within 60 days from communication of order [Delay can be condoned by ITAT]
Form Appeal shall be filed in Form No. 36 along with
 Statement of Facts
 Grounds of Appeal Memorandum of Appeal In Triplicate
 Copy of order of AO
Stay of Demand  ITAT can grant stay of demand on application made by assessee for maximum 180 days.
 If ITAT fails to give judgment within 180 days & delay is not due to assessee, then ITAT can
extend stay period but [Original + Extension] shall not exceed 365 days.
 If such appeal is not disposed within 365 days, order of stay shall stand vacated only if delay
in disposing off appeal is attributable to the assessee.

Note : For stay of demand, assessee has to deposit atleast 20% of the demand.

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Power to admit ITAT can also admit additional evidence.
Additional Evidence
Memorandum of Respondent can file memorandum of cross objection within 30 days of receipt of notice of appeal.
Cross Objection There is no filing fees for it.
Rectification of ITAT can rectify a mistake in its order which is apparent on record
Mistake Own Motion Within 6 months from end of month in which ITAT order was passed
Application by Within 6 months from end of month in which application was made
Assessee / AO Note : Has to make application within 6 months from end of month in
which ITAT order was passed
Other Points  ITAT may confirm, reduce or set aside the assessment.
 ITAT can pass order within 4 years from the end of year in which appeal is filed, if possible.

Q. Who will head the appeal in ITAT & how will decision be taken?
A. In ITAT, appeal can be headed by:
Division Bench 2 Judges (1 Judicial & 1 Accountant Member)
Special Bench More than 2 Judges
Single Judge Bench 1 Judge [If TI is upto ₹50 Lacs]

A. Decision shall be taken based on opinion of majority. If members are equally divided on any point, then such point shall be
A. referred to ITAT President. He will further refer it to some other member.
APPEAL FILING FEES IN CIT(A) & ITAT
CIT(A) ITAT
Assessed Income upto ₹1,00,000 ₹250 ₹500
Assessed Income > ₹1,00,000 but upto ₹2,00,000 ₹500 ₹1500
Assessed Income > ₹2,00,000 ₹1000 1% of Assessed Income
[Maximum ₹10,000]
Other Cases ₹250 ₹500
Appeal filed by Department to ITAT - NO FEES
COMPARISION OF POWER OF CIT(A) & ITAT
CIT(A) ITAT
Power to make inquiries
Power to condone delay
Power to grant stay of demand
Power to admit additional grounds of appeal
Power to admit additional evidence
Power to confirm or reduce the assessment
Power to enhance the assessment
Power to set aside & refer back to AO for fresh assessment
Power of rectification of mistake
Power to recall
Power to review own order
Power to admit additional claims of Assessee [Even without filing revised ROI by assessee]
APPEAL TO HIGH COURT & SUPREME COURT
High Court [Sec 260A & 260B] Supreme Court [Sec 261 & 262]
Basis of Appeal Appeal against ITAT order can be filed to HC Appeal against HC order
only if there is Question of Law
Time Limit Within 120 days from date of receipt of order Within 90 days
Power to review own order HC have power to review its order if grounds SC have power to review its order
for review are:
 Discovery of new & important evidence
 Mistake apparent on record
 Any other sufficient reason

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SECTION 268A : SPECIAL PROVISION FOR APPEAL BY DEPARTMENT
 CBDT can fix mandatory limit to regulate appeal by department in order to avoid litigation in small cases.
 Department can file appeal only if the tax effect is more than following amount:
For appeal to ITAT > ₹50,00,000
For appeal to HC > ₹1 crore
For appeal to SC > ₹2 crore
 If department has not filed appeal on a particular issue in case of a particular assessee in a particular year due to above
limit, it shall not stop the dept. for filing appeal on the same issue
a) In case of same assessee in another year
b) In case of other assessee in any year
SECTION 263 : REVISION OF ORDERS PREJUDICIAL TO THE INTEREST OF REVENUE
Cases where order  Order is passed without making inquiries & investigation which should have been made
is prejudicial to  Order is passed allowing any relief without inquiry into claim
interest of revenue  Order was not made as per Instructions / Directions issued by CBDT
 Order was not passed as per decision given by HC / SC prejudicial to assessee
Procedure 1) Commissioner may call and examine all records which are available at the time of examination
by commissioner.
2) Opportunity of being heard must be given to Assessee before passing Revision Order.
3) Commissioner can enhance, modify or cancel the assessment & direct for fresh assessment.
4) Time Limit for passing Revision Order : Within 2 years from end of FY in which AO order was
passed.
Doctrine of Partial If AO order has been considered and decided in appeal
Merger Matters which are subject matter of appeal Cannot be revised
Other matters Can be revised
SECTION 264 : REVISION OF OTHER ORDERS
Cases when other CIT / PCIT / CCIT / PCCIT may on own motion or on application by assessee revise AO order
orders are revised which is prejudicial to Interest of Assessee.
Appeal to whom? Assessee can either prefer to appeal to CIT(A) or can apply to commissioner for revision u/s 264.
Note : Assessee can apply for revision u/s 264 only if the time limit to file CIT(A) has been
expired. Note : [30 days]
Time Limit for appeal Within 1 year from communication of AO order
Time Limit for passing Own Motion Within 1 year from date of passing of AO order
Revision Order Appeal by Assessee Within 1 year from end of FY in which application was made by assessee
Appeal against No appeal can be filed against Revision Order u/s 264
Revision Order
Doctrine of Total If AO order is in / has been decided in appeal, then Revision u/s 264 is not possible on any matter
Merger

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CA – FINAL I DISPUTE RESOLUTION DESIGNED BY HARSH MAHESHWARI
CHAPTER – 19 DISPUTE RESOLUTION
SECTION 245MA : DISPUTE RESOLUTION COMMITTEE [DRC]
CONSTITUTION OF DRC
Who will constitute? CG shall constitute a DRC for every region of PCCIT to resolve disputes of specified persons who
opts for dispute resolution in respect of dispute arising from variation in specified order.
Constitution Each DRC shall consist of 3 members, as under :
 2 members shall be retired IRS (Income-Tax) Officers, who have held the post of CIT or
equivalent for ≥ 5 years; and
 1 serving officer not below the rank of CIT / PCIT as specified by CBDT.
The decision of the DRC shall be by majority.
Time Period 3 years
Fee CG may fix a sum to be paid as fee to a member, who is retired officer, on a per case basis, along
with a sitting fee, so as decided by CBDT.
Removal of Members CG may, by recording reasons in writing & after giving ROBH, remove any member.

Q. What do you mean by Specified Order?

A. It means any order (including draft order)
i. Aggregate variations in order doesn’t exceed ₹10 Lacs.
ii. Such order is not based on
 Search u/s 132 or Requisition u/s 132A
 Survey u/s 133A
 Intimation received under agreement referred un Section 90 / 90A
iii. Total Income as per ROI for such year does not exceed ₹50 Lacs.

Q. What do you mean by Specified Person?

A. Any person who fulfils specified conditions, which are as follows:
1. He is not a person
a) Against whom deduction order has been made under Conservation of Foreign Exchange of Prevention of
Smuggling Activities Act.
b) Against whom prosecution has been initiated & is convicted for any offence under:
 Indian Penal Code
 Unlawful Activities (Prevention) Act
 NDPS Act
 Prevention of Benami Transactions Act
 Prevention of Corruption Act
 Prevention of Money Laundering Act
c) Against whom prosecution has been initiated by Income Tax Authority under this Act.
d) Who is notified u/s 3 of Special Court Act.
2. Such other conditions as may be prescribed

APPLICATION FOR RESOLUTION BEFORE DRC

 An application to the DRC shall be made in the Form 34BC by the person, who opts for dispute resolution u/s 245MA.
 Every application in connection with the dispute resolution shall be accompanied by a fee of ₹1,000.

POWERS OF DRC
 The DRC shall, upon receipt of intimation as per the e-Dispute Resolution Scheme, 2022, and subject to such
conditions as it may think fit, grant to the person, waiver of penalty or immunity from prosecution or both, if it is satisfied
that such person has :
a) Paid the tax due on the returned income in full (if available); and
b) Co-operated with the DRC in the proceedings.
 No immunity shall be granted in a case where the proceedings for prosecution have been initiated before the date of
receipt of application & immunity granted shall stand withdrawn if person fails to comply with condition(s) subject to
which the immunity was granted.
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CA – FINAL I PENALTIES & PROSECUTION DESIGNED BY HARSH MAHESHWARI
CHAPTER – 20 & 21 PENALTIES AND OFFENCES & PROSECUTION
PENALTIES
SECTION 270A : PENALTY FOR UNDER REPORTING OF INCOME
Under Reporting Addition / Increase in Income in Assessment or Reassessment
Quantum of Penalty Under Reporting (By Default) 50% of Tax on Under Reported Income
If Under Reporting is due to Misreporting 200% of Tax on Under Reported Income
Note : Tax includes Surcharge & Cess.
Calculation of Under Reported Income [URI] & Tax on URI
First-Time Assessment
Return Filed URI = Assessed Income – Income as per Section 143(1)
Return Not Filed Company / Firm / Local Authority URI = Assessed Income
Any Other Assessee URI = Assessed Income – Basic Exemption Limit
Tax on URI
Return Filed Tax on [URI + Income as per 143(1)] – Tax on Income as per 143(1)
Return Not Filed Tax on Assessed Income
Re - Assessment
URI Tax on URI
Re-Assessed Income – Income Assessed Earlier Tax on [URI + Income assessed earlier] – Tax on Income assessed
earlier
Loss Reduced or Converted into Income
First Time Assessment URI = Assessed Loss / Income – Loss as per 143(1) Tax on URI = Tax on URI as if
Re-Assessment URI = Reassessed Loss / Income – Loss assessed earlier it was TI of Assessee
Cases in which Under Reporting is a) Misrepresentation or Suppression of Facts
treated as Misreporting b) Fails to record Investment in Books of A/c’s
c) Claim of Expenditure not substantiated by any evidence
d) Recording of any False Entry in Books
e) Fails to record any receipt in Books having bearing on TI
f) Fails to report International Transaction / Specified Domestic Transaction
[Transfer Pricing Case]
Application for immunity from Penalty  If Assessee
u/s 270A & Prosecution u/s 276C a) Pays Tax & Interest Payable as per AO order within time specified
before AO and
b) Does not prefer an appeal against such order.
 He can file Application for Immunity from Penalty & Prosecution before AO.
 Immunity shall be granted by AO only if it is not a case of Misreporting.
OTHER PENALTIES
Sec. No. Nature of Default Quantum of Penalty Other Points
221 Fails to pay Tax, TDS, TCS, Demand etc. Maximum upto amount of -
within 30 days of Demand Notice tax in arrears
271A Fails to keep or maintain Books of A/c’s u/s ₹25,000 -
44AA
271AAB Undisclosed Income found in search 30% / 60% of 30%, If following conditions are
Undisclosed Income fulfilled:
 Assessee admits Undisclosed
Income in Statement.
 Specifies manner in which it
was earned.
 Pays Tax & Interest on such
income.

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 Furnish ROI declaring such
income upto due date.
271AAC Income u/s 68, 69, 69A to 69D 10% of Tax u/s 115BBE  If such income is declared in ROI
& Tax paid – NO PENALTY
 No Penalty u/s 270A
271AAD Making False Entry / Omission of Entry in Equal to Aggregate Amt. Penalty is levied on:
Books to evade Tax Liability of False Entry or Omitted  Person who makes False Entry or
Entry Omits Entry.
 Other Person who caused the
person to make false entry or
omit entry.
271B Fails to get accounts audited or to furnish 0.50% of Turnover / If Books are not maintained, Penalty
report upto due date u/s 44AB Gross Receipt [Maximum u/s 271A shall be levied & not u/s
upto ₹1.5 Lacs] 271B.
271C Fails to deduct TDS Equal to amount of TDS Penalty imposed by JC
not deducted
271CA Fails to collect TCS Equal to amount of TCS Penalty imposed by JC
not collected
271D Fails to comply with provision of 269SS Amount of Loan / Deposit Penalty imposed by JC
taken
271DA Fails to comply with provision of 269ST Amount Received Penalty imposed by JC
271E Fails to comply with provision of 269T Amount of Loan / Deposit Penalty imposed by JC
repaid
271FA Fails to furnish Statement of Financial ₹500 per day till period -
Transactions [SFT] or Reportable A/c’s specified in notice
within prescribed time [31st May of next FY] ₹1000 per day after that
period
271FAA Furnishing Inaccurate SFT or Reportable ₹50,000 If person informs about inaccuracy
A/c’s within 10 days – NO PENALTY
271J Furnishing of incorrect information in any ₹10,000 for each such -
report or certificate by CA / Merchant report or certificate
Banker / Registered Valuer
272A(1)  Fails to answer questions put by ITA ₹10,000 for each such -
 Fails to sign statement in proceeding default or failure
 Non-compliance with summon u/s 131
 Fails to comply with Notice u/s 142(1)
& 143(2)
 Fails to comply with Special Audit
Directions u/s 142(2A)
272A(2)  Fails to furnish information u/s 133 ₹100 per day till default -
 Fails to furnish ROI u/s 139(4A)/(4C) continues
272B Fails to quote PAN or quoting False PAN ₹10,000 for each such -
as per Section 139A default

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PROSECUTION

Sec. No. Nature of Default Rigorous Imprisonment Other Points

275B Fails to afford necessary facility to Upto 2 years + Fine -
Authorised Officer to inspect Books u/s 132
276B Fails to deposit TDS with govt. 3 months to 7 years + Fine -
276BB Fails to deposit TCS with govt. 3 months to 7 years + Fine -
276C Wilful attempt to evade payment of Tax, If Tax evaded exceeds: -
Penalty, Interest or Under Reports Income 25 Lacs : 6 months to 7 years + Fine
Other Cases : 3 months to 2 years + Fine
276CC Wilful fails to furnish ROI upto due date If Tax evaded exceeds: In case of a person
25 Lacs : 6 months to 7 years + Fine [other than Company]
Other Cases : 3 months to 2 years + Fine if Tax Payable is upto
₹10,000 :
NO PROSECUTION
276D Wilful fails to comply with requirement of Upto 1 year + Fine -
Section 142(1) & (2A)
In case of following persons, Individual who is deemed to be guilty of offence
Person Who is deemed to be guilty of offence
Company Every person in charge of affairs, Director, Manager, Secretary
Firm Partner
AOP / BOI Member
HUF Karta or Member
Note : If Individual proves that offence was committed without his knowledge or he exercised all due diligence to prevent such
Note : offence, then such Individual is not liable to any punishment.

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CA – FINAL I LIABILITY IN SPECIAL CASES DESIGNED BY HARSH MAHESHWARI
CHAPTER – 22 LIABILITY IN SPECIAL CASES
SECTION 159 : LEGAL REPRESENTATIVE
 If person dies, his legal representative / heir is deemed to be an Assessee under Income Tax Act.
 He shall be liable to pay any sum [Tax, Interest, Penalty, Fees] which deceased was liable to pay, if not died.
 Liability of legal representative shall be limited to the extent of estate of deceased.
 No prosecution can be initiated on legal representative for offence committed by deceased.
SECTION 160 : REPRESENTATIVE ASSESSEE
In certain cases, Assessment of one person can be made on other person i.e. Representative Assessee.
In respect of Representative Assessee
Minor Child, Lunatic, Idiot Guardian or Manager
Discretionary Trust Trustee of such Trust
Non-Resident Agent of NR (including Deemed Agent)

Q. What do you mean by Deemed Agent of NR?

A. It means any person in India
 who is employed by NR
 who has any Business Connection with NR
 through whom NR is in receipt of any income
 who is trustee of NR
 who has acquired any Capital Asset in India from such NR
Liability of Representative Assessee : Same duties, responsibilities & liabilities as applicable to Assessee.
SECTION 164 : TAXATION OF DISCRETIONARY TRUST

Trustee Beneficiaries Share known / unknown

TRUST INCOME
on sole discretion Allocate / Accumulate

TAXABLE AS AOP
If Beneficiaries Share Unknown Taxable @ MMR [42.744%]
If Beneficiaries Share Known Other Income of Beneficiary exceeds BEL
Taxable @ MMR [42.744%]

Other Income of Beneficiary not exceeds BEL

Taxable @ SLAB RATE
SECTION 171 : PARTITION OF HUF
Partial Partition Not regarded as partition, HUF is deemed to be continued.
Total Partition Every member of HUF immediately before partition shall be jointly & severally liable for any sum [Tax,
Interest, Penalty, Fees] of HUF.
SECTION 189 : DISSOLUTION / DISCONTINUANCE OF FIRM
Every person who was partner at the time of dissolution / discontinuance shall be jointly & severally liable for any sum [Tax,
Interest, Penalty, Fees] of Firm.
LIQUIDATION OF COMPANY
SECTION 178 : IN CASE OF ALL COMPANIES
 Person who was appointed as a liquidator of company shall give notice of his appointment as liquidator within 30 days of
his appointment to AO having jurisdiction over company.
 AO has to notify the liquidator about amount that would be sufficient to meet tax liability of company.
 Once notified, liquidator has to set aside an amount equal to amount notified.
 Liquidator shall not part / deal with any assets of company until he is notified by AO [except with approval of CIT]
 If liquidator contravenes above provisions, he shall be personally liable for payment of tax which company would be
liable to pay.

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CA – FINAL I LIABILITY IN SPECIAL CASES DESIGNED BY HARSH MAHESHWARI

SECTION 179 : LIABILITY OF DIRECTORS OF PRIVATE COMPANY

 If Tax due [includes Interest, Penalty or any other sum] from Private Company cannot be recovered, then every person
who was director of private company at any time during PY shall be jointly & severally liable for payment of tax.
 No need to issue separate notice to directors u/s 156.
 If such director proves that non recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on
his part, then he shall not be liable.

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CA – FINAL I OTHER PROVISIONS DESIGNED BY HARSH MAHESHWARI
CHAPTER – 23 OTHER PROVISIONS
SECTION 269SS : MODE OF TAKING OR ACCEPTING LOANS, DEPOSITS OR ADVANCE
Any person should take / accept Loan or Deposit or Advance in relation to Immovable Property only by A/c Payee Cheque, DD,
ECS or any Electronic Mode if the aggregate amount (including outstanding amount) exceeds ₹20,000.

NON-APPLICABILITY
1) If Loan / Deposit / Advance is taken from / by
 Government
 Banks / Co-operative Bank / Post Office
 Government Company
 Corporation established by Central / State / Provincial Act
2) Cases where persons involved in the transactions derives income only from Agriculture.

PENALTY
 If Assessee fails to comply with above provisions, penalty will be 100% of such Loan / Deposit / Advance.
 It shall be imposed by JC.
SECTION 269ST : MODE OF UNDERTAKING TRANSACTIONS
Any person shall receive amount of ₹2,00,000 or more
 In aggregate from a person in a day;
 In respect of a single transaction;
 In respect of transactions relating to one event
only by A/c Payee Cheque, DD, ECS or any Electronic Mode

NON-APPLICABILITY
1) Transactions covered u/s 269SS.
2) Any receipt by Government, Banks, Co-operative Bank or Post Office.
3) Cash withdrawals by any person from Bank, Co-operative Bank or Post Office.

PENALTY
 If Assessee fails to comply with above provisions, penalty will be 100% of such receipt.
 It shall be imposed by JC.
SECTION 269SU : PROVIDING FACILITY FOR ACCEPTANCE OF PAYMENT THROUGH PRESCRIBED ELECTRONIC
SECTION 269SU : MODES
Every person carrying on business shall provide facility for accepting payment through prescribed electronic modes in addition
to other electronic modes if Turnover / Gross Receipts in business exceeds ₹50 crores in preceding PY.

Prescribed Electronic Modes Penalty

 Debit Card powered by RuPay If Assessee fails to comply with above provisions, penalty will
 UPI / BHIM UPI be ₹5,000 per day during which failure continues.
 UPI QR Code / BHIM UPI QR Code
SECTION 269T : REPAYMENT OF LOANS, DEPOSITS OR ADVANCE
Any person should repay Loan / Deposit (with Interest) or Advance in relation to Immovable Property only by A/c Payee Cheque,
DD, ECS or any Electronic Mode if the aggregate amount (including outstanding amount) exceeds ₹20,000.

NON-APPLICABILITY
1) If Loan / Deposit / Advance is taken from / by
 Government
 Banks / Co-operative Bank / Post Office
 Government Company
 Corporation established by Central / State / Provincial Act

PENALTY
 If Assessee fails to comply with above provisions, penalty will be 100% of such Loan / Deposit / Advance.
 It shall be imposed by JC.
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CA – FINAL I OTHER PROVISIONS DESIGNED BY HARSH MAHESHWARI
SECTION 281 : TRANSFERS TO DEFRAUD REVENUE VOID
If Assessee transfers his asset during proceedings or after completion to defraud Revenue, such transfer shall be deemed to be
void.

NON-APPLICABILITY
Transfer shall not be void if:
 Tax or any other sum payable is upto ₹5,000; or
 Value of asset transferred is upto ₹10,000; or
 Transfer is made for adequate consideration; or
 Transfer is made with permission of AO.
SECTION 281B : PROVISIONAL ATTACHMENT TO PROTECT THE INTEREST OF REVENUE
 If Assessment / Reassessment Proceedings are pending before AO, then he can attach any property of Assessee by
order in writing if in opinion of AO such attachment is necessary for protecting the Interest of Revenue.
 Prior Approval of CIT shall be obtained by AO.
 Provisional Attachment shall be valid for 6 months from Date of such order.
 Period can be extended by CIT by recording reasons in writing. However, extension period shall not exceed the later of
 2 years; or
 60 days from completion of assessment
 AO shall revoke such Provisional Attachment of property if Assessee furnishes back guarantee from Scheduled Bank for
amount equal to FMV of Property.
 Circumstances where AO can invoke Bank Guarantee
a) Failure to pay amount specified in Demand Notice within specified time.
b) Failure to renew or fails to furnish new guarantee 15 days before expiry of such guarantee.

Note : Membership Card of Stock Exchange is not property of assessee, therefore cannot be attached u/s 281B.
SECTION 282 : SERVICE OF NOTICE
Service of Notice / Summon / Order can be made by delivering a copy
 By Post / Courier
 In manner provided in Code of Civil Procedure, 1908
 In form of any electronic record
 By any other means of transmission as provided by CBDT

Notice to be addressed & served upon

Assessee Addressee
Individual Individual Himself
Existing HUF Manager or any Adult Member
Partitioned HUF Last Manager (If Dead - All Adult Members)
Existing Firm Any partner
Dissolved Firm Any adult person who was partner immediately before dissolution
Company / Local Authority Principal Officer
Any other person Person in charge
SECTION 288 : APPEARANCE BY AUTHORISED REPRESENTATIVE
Proceedings before Income Tax Authorities can be attended by Assessee himself or through Authorised Representative.
However, assessee has to appear himself in case of Examination of an Oath.

Q. What do you mean by Authorised Representative?

A. Authorised Representative means a person authorised by assessee in writing to appear on his behalf. Persons who can be
A. authorised representatives are:
 Person who is relative or regular employee of Assessee
 Officer of Scheduled Bank
 Legal Practitioner
 CA in practice
 Any person who have passed any Accountancy Exam or acquired such qualification as specified by CBDT
 Any other person as may be prescribed

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CA – FINAL I OTHER PROVISIONS DESIGNED BY HARSH MAHESHWARI
SECTION 292B : ROI NOT TO BECOME INVALID
ROI, Notice, Summon, Assessment Order etc. shall not become invalid due to any clerical mistake.
SECTION 285BA : STATEMENT OF FINANCIAL TRANSACTION [SFT] OR REPORTABLE ACCOUNT
 This statement is obtained to cross verify the information in ROI etc.
 Due Date of Filing : Upto 31st May of next FY

Cases in which SFT or Reportable Account is required to be filed

Nature & Value of Transaction Reporting Person
1. Receipt from any person of aggregate ₹10,00,000 or more for acquiring Bonds Company or Institution issuing Bonds
or Debentures or Debentures
2. Receipt from any person of aggregate ₹10,00,000 or more for acquiring Company issuing Shares
Shares
3. Buy Back of Shares from any person of aggregate ₹10,00,000 or more Listed Company
4. Receipt from any person of aggregate ₹10,00,000 or more for acquiring Trustee of Mutual Fund
Mutual Fund Units
5. Receipt from any person of aggregate ₹10,00,000 or more for Sale of Foreign Authorised Dealer
Currency
6. Purchase / Sale of Immovable Property by any person of ₹30,00,000 or more Registrar
7. Receipt of cash payment exceeding ₹2,00,000 for sale of goods / services Seller / Service Provider who is liable
from any person for audit u/s 44AB
8.  Cash Deposits or Cash Withdrawals of aggregate ₹50,00,000 or more in Banking Company / Co-operative
Current A/c’s of a person Bank
 Cash Deposits or Cash Withdrawals of aggregate ₹10,00,000 or more in
Saving A/c’s of a person
 Fixed Deposits of aggregate ₹10,00,000 or more of a person

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