Unit 1. Introduction tax.

(A) Basic Concepts and Definitions under IT Act

1. Define the term ‘Assessee’ as per the Income Tax Act, 1961.
Answer:
As per Section 2(7) of the Income Tax Act, 1961, an "Assessee" means a person by whom any
tax or any other sum of money is payable under this Act. It includes:
1. A person against whom any proceeding under the Act has been initiated.
2. A person who is liable to pay tax on behalf of another person.
3. A person deemed as an assessee-in-default under the Act.

2. Explain the difference between Previous Year and Assessment Year.

Answer:
1. Previous Year: It is the financial year in which income is earned. It starts from 1st
April and ends on 31st March of the next year.
2. Assessment Year: It is the financial year in which the income earned in the previous
year is assessed and taxed. It also starts from 1st April and ends on 31st March of
the next year.
Example: If income is earned in the financial year 2023-24 (Previous Year), it will be
assessed in the financial year 2024-25 (Assessment Year).

3. What do you understand by ‘Person’ under the Income Tax Act, 1961?
Answer:
As per Section 2(31) of the Income Tax Act, a ‘Person’ includes:
1. An Individual – Natural person.
2. Hindu Undivided Family (HUF) – A family consisting of all persons lineally descended
from a common ancestor.
3. Company – A legal entity registered under the Companies Act.
4. Firm – A partnership firm including LLPs.
5. Association of Persons (AOP) or Body of Individuals (BOI) – A group of individuals
carrying out activities jointly.
6. Local Authority – Example: Municipal Corporation.
7. Artificial Juridical Person – Example: Temple, Trust.

4. Explain the concept of ‘Gross Total Income’ and ‘Total Income’.

Answer:
1. Gross Total Income (GTI): It is the sum of all income earned under five heads of
income before deductions under Chapter VI-A (Section 80C to 80U). Formula:
GTI=Incomefromallsources−ExemptionsunderSection10GTI = Income from all sources
- Exemptions under Section
10GTI=Incomefromallsources−ExemptionsunderSection10
2. Total Income: It is the amount left after deducting permissible deductions from Gross
Total Income. It is the taxable income on which tax is calculated. Formula:
TotalIncome=GrossTotalIncome–DeductionsunderChapterVI−ATotal Income = Gross
Total Income – Deductions under Chapter VI-ATotalIncome=GrossTotalIncome–
DeductionsunderChapterVI−A

5. Differentiate between Short-Term and Long-Term Capital Gains.

Answer:

Basis Short-Term Capital Gains (STCG) Long-Term Capital Gains (LTCG)

Less than 36 months (12 months for More than 36 months (12 months for
Holding Period
listed shares & securities) listed shares & securities)

Normal slab rates (Except 15% for 20% (With indexation) or 10%
Tax Rate
STCG u/s 111A) (Without indexation for some assets)

Indexation
Not available Available
Benefit

Exemptions available under Sections

Exemptions Generally, no exemptions
54, 54F, etc.

(B) Residential Status and Incidence of Tax

6. Explain the different categories of Residential Status of an Individual as per the Income
Tax Act.
Answer:
As per Section 6 of the Income Tax Act, an individual can be classified as:
1. Resident and Ordinarily Resident (ROR) – If the individual satisfies both:
o Stay in India for 182 days or more in the previous year, OR
o Stay in India for 60 days or more in the previous year AND 365 days or more
in the last 4 years.
2. Resident but Not Ordinarily Resident (RNOR) – If the individual:
o Has been an NRI for 9 out of 10 preceding years, OR
 o Stayed in India for 729 days or less in the last 7 years.
3. Non-Resident (NR) – If the individual does not satisfy any of the above conditions.

7. What is the tax incidence based on Residential Status?

Answer:
The tax liability of an individual depends on their residential status:

Tax on Indian
Residential Status Tax on Foreign Income
Income

Resident & Ordinarily Resident (ROR) Taxable Taxable

Resident but Not Ordinarily Resident Taxable only if earned in

Taxable
(RNOR) India

Non-Resident (NR) Taxable Not taxable

Example:
 If Mr. X (Resident) earns ₹5,00,000 in India and ₹2,00,000 abroad, his total taxable
income is ₹7,00,000.
 If Mr. Y (Non-Resident) earns ₹5,00,000 in India and ₹2,00,000 abroad, only
₹5,00,000 is taxable.

(C) Incomes which do not form part of Total Income (Exempted Incomes Except Section
10AA)
8. Mention five incomes that are exempt from tax under Section 10 of the Income Tax Act.
Answer:
The following incomes are exempt under Section 10:
1. Agricultural Income (Sec 10(1)) – Income from agriculture is fully exempt.
2. Share of profit from a Partnership Firm (Sec 10(2A)) – Partner’s share in the firm's
profit is exempt.
3. Gratuity (Sec 10(10)) – Gratuity received by government employees is fully exempt;
for private employees, limits apply.
4. Leave Encashment (Sec 10(10AA)) – Leave encashment received at retirement is
partially or fully exempt based on conditions.
5. Scholarships (Sec 10(16)) – Any scholarship granted for education purposes is fully
exempt.

9. What is Agricultural Income? Is it taxable under the Income Tax Act?

Answer:
Agricultural Income (Sec 10(1)) includes:
1. Rent or revenue from agricultural land.
2. Income from agricultural produce.
3. Income from farm buildings.
Taxability:
 It is exempt from tax under Section 10(1).
 However, for tax calculation, it is considered under the partial integration method to
determine the tax slab if total income exceeds ₹5,00,000.

10. What is the tax treatment of Gratuity under Section 10(10)?

Answer:
Gratuity exemption depends on the employee category:
1. Government Employees: Fully exempt.
2. Private Sector Employees covered under the Payment of Gratuity Act: Exempt up to
the lowest of:
o ₹20,00,000,
o 15 days’ salary for each completed year, or
o Actual gratuity received.
3. Other Private Employees: Exempt up to the lowest of:
o ₹20,00,000,
o Half month’s salary × completed years of service, or
o Actual gratuity received.

Unit 2: Agricultural Income

1. Define Agricultural Income as per the Income Tax Act, 1961.

Answer:
As per Section 2(1A) of the Income Tax Act, agricultural income includes:
1. Rent or revenue derived from agricultural land situated in India.
2. Income from agricultural operations such as growing crops, tilling, sowing, or
harvesting.
3. Income from farm buildings required for agricultural purposes.
Example:
 Income from growing and selling wheat = Agricultural Income (Exempt).
 Income from leasing agricultural land = Agricultural Income (Exempt).

2. How is Agricultural Income determined?

Answer:
To determine whether an income is agricultural, it must satisfy these conditions:
1. Existence of land – The land must be used for agricultural purposes.
2. Cultivation or operations – Active efforts must be involved, such as sowing, tilling,
and harvesting.
3. Derivation of income from land – The income must be generated directly from
agricultural activities or rent from agricultural land.
Example:
 Sale of mangoes grown on agricultural land = Agricultural Income.
 Sale of processed mango pulp = Non-Agricultural Income.

3. Differentiate between Agricultural and Non-Agricultural Income.

Answer:

Basis Agricultural Income Non-Agricultural Income

Source Derived from agricultural land Derived from trade, industry, or services

Examples Sale of crops, rent from farmland Salary, business profits, dividends

Taxability Fully exempt under Section 10(1) Taxable as per Income Tax Act

Income from unprocessed farm Income from processed farm produce (like
Processing
produce sugar, tea)

Location Must be in India Can be within or outside India

Example:
 Selling raw potatoes = Agricultural Income (Exempt).
 Selling potato chips = Non-Agricultural Income (Taxable).

4. How is tax liability assessed when there is both Agricultural and Non-Agricultural
Income?
Answer:
Agricultural income is exempt from tax, but if a person has both agricultural and non-
agricultural income, partial integration method is used if:
1. Non-agricultural income > ₹5,00,000.
2. Agricultural income > ₹5,000.
Steps for Partial Integration:
1. Step 1: Add Agricultural Income to Non-Agricultural Income to compute tax.
2. Step 2: Compute tax on the combined amount.
3. Step 3: Compute tax on Agricultural Income + basic exemption limit.
4. Step 4: Final tax = Tax from Step 2 – Tax from Step 3.
Example Calculation:
 Agricultural Income = ₹2,00,000
 Non-Agricultural Income = ₹8,00,000
 Tax is calculated as per the above method.
This method ensures progressive taxation while keeping agricultural income exempt.

5. Give examples of incomes that are partially agricultural and partially non-agricultural.
Answer:
Some incomes have both agricultural and non-agricultural components, such as:
1. Tea Industry – 60% agricultural (exempt) & 40% non-agricultural (taxable).
2. Rubber Plantation – 65% agricultural (exempt) & 35% non-agricultural (taxable).
3. Coffee Plantation (Cured by Grower) – 75% agricultural (exempt) & 25% non-
agricultural (taxable).
4. Livestock Farming – Non-agricultural income (Taxable).
Example:
 Selling green tea leaves = Agricultural Income.
 Selling packaged tea = Partially Agricultural (60%) and Non-Agricultural (40%).

Unit 3: Income under the head Salaries and its Computation

1. What is ‘Income under the head Salaries’ as per the Income Tax Act, 1961?
Answer:
Income under the head "Salaries" refers to any remuneration received by an employee from
their employer for services rendered. It includes wages, annuities, pensions, gratuities, and
perquisites. As per Section 15 of the Income Tax Act, salary income is taxable when it is due
or received, whichever is earlier.
The essential conditions for an income to be classified under “Salaries” are:
1. There must be an employer-employee relationship.
2. Salary must be due or received in the relevant previous year.
3. It should not fall under other heads like "Profits & Gains from Business" or "Income
from Other Sources."

2. What are the different components included in salary income?

Answer:
Salary income includes the following components:
1. Basic Salary – Fixed component forming the base for other allowances.
2. Dearness Allowance (DA) – Given to compensate for inflation.
3. House Rent Allowance (HRA) – Given to meet rental expenses (partially taxable).
4. Bonus, Commission, and Incentives – Additional earnings based on performance.
5. Perquisites – Benefits like rent-free accommodation, car facility, medical
reimbursement.
6. Retirement Benefits – Such as pension, gratuity, and provident fund.
7. Allowances – Includes transport, medical, and special allowances (some are
taxable).
Each component has specific rules regarding taxation and exemptions under the Income Tax
Act.

3. How is House Rent Allowance (HRA) calculated for tax exemption?

Answer:
HRA is partially exempt under Section 10(13A) of the Income Tax Act. The exempt portion of
HRA is the least of the following:
1. Actual HRA received from the employer
2. 50% of Salary (for metro cities) or 40% of Salary (for non-metro cities)
3. Rent paid minus 10% of Salary
Salary for this purpose = Basic Salary + Dearness Allowance (if part of retirement benefits)
+ Commission (if based on sales turnover).
Example:
 Basic Salary = ₹50,000
  DA = ₹10,000
 Rent Paid = ₹20,000
 HRA Received = ₹15,000
Exemption = Least of:
1. ₹15,000 (Actual HRA)
2. ₹30,000 (50% of ₹60,000) – assuming a metro city
3. ₹14,000 (₹20,000 – 10% of ₹60,000)
So, the exempted HRA = ₹14,000, and ₹1,000 (₹15,000 - ₹14,000) is taxable.

4. What are perquisites? How are they taxed under the head ‘Salaries’?
Answer:
Perquisites are additional benefits provided by an employer to an employee beyond salary
and allowances. They can be taxable or exempt.
Taxable Perquisites:
1. Rent-free accommodation
2. Company car for personal use
3. Interest-free loan exceeding ₹20,000
4. Reimbursement of personal expenses
Exempted Perquisites:
1. Medical reimbursement (up to ₹15,000)
2. Free education for children in employer-maintained institutions
3. Free refreshments during office hours
4. Employer’s contribution to provident fund (up to 12% of salary)
The value of taxable perquisites is added to salary income and taxed as per applicable
income tax slabs.

5. How is Leave Encashment treated under the Income Tax Act?

Answer:
Leave encashment refers to the amount received by an employee in exchange for unutilized
leave. Tax treatment depends on whether the employee is government or non-government.
1. For Government Employees: Fully exempt under Section 10(10AA)(i).
2. For Non-Government Employees: Exemption under Section 10(10AA)(ii) is the least
of:
 o Actual leave encashment received
o ₹3,00,000 (lifetime limit)
o 10 months’ salary (Basic + DA)
o Average salary of last 10 months before retirement × Number of unutilized
leave days (Max: 30 days per year)
Example:
 Basic Salary = ₹50,000
 DA = ₹10,000
 Unused Leave = 200 days
 Encashment Received = ₹5,00,000
Exemption = Least of:
1. ₹5,00,000 (Actual Received)
2. ₹3,00,000 (Fixed limit)
3. ₹6,00,000 (10 months × ₹60,000)
4. ₹4,00,000 (200/30 × ₹60,000)
So, ₹3,00,000 is exempt, and ₹2,00,000 is taxable.

6. What are retirement benefits? How are they taxed?

Answer:
Retirement benefits include:
1. Pension:
o Uncommuted (Monthly Pension) → Fully Taxable
o Commuted Pension → Partially exempt under Section 10(10A)
2. Gratuity: Exempt under Section 10(10) up to the lowest of:
o ₹20,00,000 (for non-government employees)
o Half month’s salary per completed year of service
o Actual gratuity received
3. Provident Fund (PF):
o Statutory PF & Recognized PF → Exempt if withdrawn after 5 years
o Unrecognized PF → Employer’s contribution & interest taxable
4. Voluntary Retirement Scheme (VRS):
 o Exempt up to ₹5,00,000 under Section 10(10C)

7. How is Gross Salary computed for taxation purposes?

Answer:
The formula for Gross Salary is:
Gross Salary = Basic Salary + Allowances + Perquisites – Exemptions
Example Calculation:

Component Amount (₹)

Basic Salary 5,00,000

HRA Received 2,00,000

HRA Exempted (1,20,000)

Other Allowances 50,000

Perquisites 40,000

Gross Salary 6,70,000

From Gross Salary, deductions like Standard Deduction (₹50,000) and Professional Tax are
subtracted to get Net Taxable Salary.

Unit 4: Income under the head House Property and its Computation
1. What is ‘Income from House Property’ as per the Income Tax Act, 1961?
Answer:
Income from House Property refers to the income earned from owning a building or land
attached to it, under Sections 22 to 27 of the Income Tax Act, 1961. The essential conditions
for taxation under this head are:
1. The taxpayer must be the owner of the property.
2. The property must be a building or land appurtenant (attached) to it.
3. The property should not be used for the owner's business or profession.
Even if the property is vacant, not let out, or used by the owner for residential purposes,
taxability is determined based on Annual Value as per the Income Tax rules.

2. What are the different types of House Properties under the Income Tax Act?
Answer:
House Property is classified into three types:
 1. Self-Occupied Property (SOP):
o Used by the owner for personal residence.
o Annual Value = NIL (no tax liability).
o Deduction for interest on home loan allowed up to ₹2,00,000 under Section
24(b).
2. Let-Out Property (LOP):
o Given on rent.
o Taxable on the basis of Gross Annual Value (GAV) after deductions.
o Standard deduction of 30% of Net Annual Value under Section 24(a) is
allowed.
3. Deemed Let-Out Property (DLOP):
o If an owner owns more than two self-occupied properties, only two can be
treated as SOP, and the remaining will be considered as DLOP.
o Taxed in the same way as Let-Out Property.

3. How is Annual Value of House Property computed?

Answer:
Annual Value is calculated as per Section 23 of the Income Tax Act. It is the higher of the
following:
1. Municipal Value – Value determined by municipal authorities for tax purposes.
2. Fair Rent – Market rent of a similar property in the locality.
3. Standard Rent – Maximum rent as per the Rent Control Act.
4. Actual Rent Received – Rent received from the tenant.
Formula for Gross Annual Value (GAV):
For Let-Out Property:
GAV=Higher of Fair Rent, Municipal Value, or Standard Rent(subject to rent received)GAV =
Higher \,of \, Fair \, Rent, \, Municipal \, Value, \, or \, Standard \, Rent (subject \, to \, rent \,
received)GAV=HigherofFairRent,MunicipalValue,orStandardRent(subjecttorentreceived)
Less: Municipal Taxes Paid by Owner
Net Annual Value=GAV−Municipal TaxesNet \, Annual \, Value = GAV - Municipal \,
TaxesNetAnnualValue=GAV−MunicipalTaxes
For Self-Occupied Property, GAV = NIL.

4. What are the deductions allowed under the head ‘Income from House Property’?
Answer:
The following deductions are allowed under Section 24:
1. Standard Deduction [Section 24(a)]:
o 30% of Net Annual Value (NAV) is allowed for repair and maintenance.
o Not applicable for Self-Occupied Property.
2. Interest on Home Loan [Section 24(b)]:
o Self-Occupied Property: Deduction up to ₹2,00,000 if loan taken for
purchase/construction after April 1, 1999.
o Let-Out/Deemed Let-Out Property: Full interest paid on loan is deductible.
Example Calculation:

Particulars Amount (₹)

Gross Annual Value 5,00,000

Less: Municipal Taxes Paid (50,000)

Net Annual Value (NAV) 4,50,000

Less: Standard Deduction (30% of NAV) (1,35,000)

Less: Interest on Home Loan (1,50,000)

Income from House Property 1,65,000

5. How is Income from Self-Occupied House Property Computed?

Answer:
For Self-Occupied Property, the computation is as follows:

Particulars Amount (₹)

Gross Annual Value (GAV) NIL

Less: Municipal Taxes Paid NIL

Net Annual Value (NAV) NIL

Less: Standard Deduction (30% of NAV) NIL

Less: Interest on Home Loan (maximum ₹2,00,000) (2,00,000)

Income from House Property (-2,00,000) (Loss)

This loss can be adjusted against other incomes (salary, business, etc.) up to ₹2,00,000 per
year, and the remaining can be carried forward for 8 years.
6. What is Deemed to be Let-Out Property (DLOP)? How is it taxed?
Answer:
A property is classified as Deemed Let-Out if the owner owns more than two self-occupied
houses. The extra properties are assumed to be rented out, even if they are vacant.
Tax Treatment:
 GAV is determined using fair rent or municipal value.
 Standard deduction of 30% and interest on home loan (without limit) is allowed.
 Taxed as per normal slab rates.
Example:
If a taxpayer owns three houses and two are self-occupied, the third house will be deemed
let-out and taxed accordingly.

7. How is ‘Income from House Property’ treated in case of Co-ownership?

Answer:
If a house is co-owned, the income is divided among co-owners based on their ownership
percentage. Each co-owner can claim separate deductions for their share of:
1. Municipal taxes paid.
2. Standard deduction (30% of NAV).
3. Interest on home loan (₹2,00,000 each for self-occupied property).
Example:
 Two co-owners (A & B) have equal share (50%-50%) in a house with Net Annual
Value = ₹4,00,000.
 Their individual taxable income from house property = ₹2,00,000 each.

8. What is the tax treatment of unrealized rent and arrears of rent?

Answer:
1. Unrealized Rent: If rent is due but not received, it can be excluded from income,
provided:
o Tenant has vacated or is insolvent.
o Reasonable steps have been taken to recover rent.
2. Arrears of Rent [Section 25B]: If rent of past years is received later, it is fully taxable
in the year of receipt, after allowing a deduction of 30%.
Example:
  ₹1,00,000 received as arrears → Taxable Income = ₹70,000 (after 30% deduction).

9. What are the tax implications of vacant property?

Answer:
 If a self-occupied property remains vacant, GAV is NIL.
 If a let-out property remains vacant, the expected rent (GAV) is reduced by the
vacancy period.
Example:
 Expected Rent = ₹6,00,000 (₹50,000 per month)
 Property vacant for 3 months → Actual Rent Received = ₹3,50,000
 GAV = ₹3,50,000 (not ₹6,00,000).

10. What is set-off and carry forward of loss from House Property?
Answer:
1. Set-Off of Loss:
o Loss from house property (max ₹2,00,000) can be adjusted against any other
income (salary, business, etc.) in the same year.
2. Carry Forward of Loss:
o If the loss exceeds ₹2,00,000, the remaining amount can be carried forward
for 8 years, but can only be adjusted against house property income in future
years.
Example:
 Loss from house property = ₹3,00,000
 Allowed set-off = ₹2,00,000
 Remaining ₹1,00,000 is carried forward to future years.

Unit 5: Income from Profits and Gains of Business or Profession

1. What is Income from Business or Profession under the Income Tax Act, 1961?
Answer:
Income from business or profession is taxable under Section 28 to 44D of the Income Tax
Act, 1961. It includes:
1. Profits from Business or Profession: Any income earned from trading,
manufacturing, or services.
 2. Profits from Speculative Business: Income from share trading, derivatives, etc.
3. Professional Income: Income of professionals like doctors, lawyers, architects, etc.
4. Income from Undisclosed Sources: Any unexplained income linked to
business/profession.
5. Compensation or Insurance Claims related to the business.
6. Export Incentives & Government Subsidies.
All such income is calculated after allowing business expenses and deductions.

2. What are the essential conditions to tax income under ‘Profits and Gains of Business or
Profession’?
Answer:
For an income to be taxable under Section 28, the following conditions must be met:
1. Existence of Business or Profession: There should be a continuous activity like
trading, manufacturing, or service.
2. Profit Motive: The primary aim must be earning profits, even if actual profit is not
earned.
3. Ownership of Business: The taxpayer must own or control the business.
4. Regular Transactions: The income should come from regular or systematic
transactions.
5. Accounting Basis: It should be accounted for on mercantile or cash basis as per
accounting standards.

3. What are the deductions allowed under Section 30 to 37 for computing business
income?
Answer:
The following deductions are allowed:
1. Rent, Rates, Taxes, Repairs & Insurance (Section 30):
o Rent paid for business premises is deductible.
o Municipal taxes & insurance premiums on business property allowed.
2. Repairs & Depreciation (Section 31 & 32):
o Repair expenses for plant, machinery, or buildings.
o Depreciation on fixed assets like machinery, vehicles, furniture.
3. Expenses for Business (Section 37):
o Salaries, rent, telephone, electricity bills, legal expenses.
 o Advertisement & marketing expenses.
o Interest on business loans (except capital borrowed for personal use).
Example:
If a company has rent (₹1,00,000), salary (₹5,00,000), advertisement (₹50,000), and
business loan interest (₹2,00,000), all these expenses are deductible before computing
taxable business income.

4. What expenses are expressly disallowed while computing business income?

Answer:
Certain expenses are not allowed as deductions under Sections 40, 40A, and 43B:
1. Personal Expenses: Any expense for personal use is not deductible.
2. Income Tax Paid: Taxes paid on personal income cannot be deducted.
3. Penalty & Fines: Penalties imposed by any law are not allowed.
4. Cash Payments > ₹10,000 (Section 40A(3)): Any business payment exceeding
₹10,000 in cash is disallowed.
5. Illegal Expenses: Bribes, commissions, and expenses for unlawful activities are not
deductible.
Example:
If a businessman pays ₹1,20,000 rent in cash, only ₹10,000 is allowed, and ₹1,10,000 is
disallowed.

5. How is business income computed under the Income Tax Act?

Answer:
The net taxable income from business is computed as follows:

Particulars Amount (₹)

Gross Receipts (Sales, Services) 10,00,000

Less: Business Expenses (4,00,000)

Less: Depreciation (50,000)

Less: Interest on Business Loan (1,00,000)

Net Taxable Income 4,50,000

This amount is taxed as per income tax slab rates applicable to individuals or firms.

6. What is the Presumptive Taxation Scheme under Section 44AD, 44ADA, and 44AE?
Answer:
The Presumptive Taxation Scheme allows small businesses & professionals to pay tax on
estimated profits instead of maintaining books of accounts.
1. Section 44AD (For Businesses):
o For small businesses (turnover ≤ ₹3 crore).
o Taxable profit is 8% (or 6% for digital receipts) of turnover.
o No need to maintain books.
2. Section 44ADA (For Professionals):
o For specified professionals (lawyers, doctors, CA, engineers, etc.).
o 50% of total receipts are taxable as profits.
3. Section 44AE (For Transporters):
o For persons owning ≤ 10 goods vehicles.
o Income per heavy vehicle = ₹1,000 per ton per month.
o Income per light vehicle = ₹7,500 per month.
Example:
If a shopkeeper earns ₹50 lakh turnover, his taxable income under 44AD = ₹4 lakh (8% of
₹50 lakh).

7. How is Professional Income different from Business Income?

Answer:

Criteria Business Income Professional Income

Nature Regular trade or business Requires specialized knowledge

Retail shop, manufacturing, Doctor, Lawyer, Chartered

Examples
trading Accountant

Taxed under Profits & Gains of Taxed under Profits & Gains of
Tax Treatment
Business Profession

Presumptive
44AD (8% of turnover) 44ADA (50% of receipts)
Taxation

Books of Accounts Required if turnover > ₹3 Cr Required if income > ₹50 lakh

8. What is Depreciation under Section 32? How is it calculated?

Answer:
Depreciation is a deduction for wear & tear of assets used in business.
 1. Depreciation is allowed on:
o Building: 10% (commercial)
o Plant & Machinery: 15%
o Computers & Software: 40%
o Vehicles: 15% (30% for commercial vehicles)
2. Formula:
o WDV Method: Depreciation=Rate×OpeningWDVDepreciation = Rate \times
Opening WDVDepreciation=Rate×OpeningWDV
o SLM Method (Only for Power Companies):
Depreciation=(Cost−ResidualValue)/UsefulLifeDepreciation = (Cost - Residual
Value) / Useful LifeDepreciation=(Cost−ResidualValue)/UsefulLife
Example:
If a business buys machinery for ₹10 lakh and the depreciation rate is 15%, then
depreciation = ₹1,50,000.

9. What is the Treatment of Bad Debts under Section 36(1)(vii)?

Answer:
 Bad debts (money not recoverable from customers) are allowed as a deduction if:
o The debt was related to the business.
o It has been written off in accounts.
Example:
If a business sells goods worth ₹1,00,000 on credit and the customer does not pay,
₹1,00,000 can be claimed as bad debt.

10. What are the provisions of Section 43B regarding certain deductions?
Answer:
Under Section 43B, some expenses are allowed only on actual payment basis, like:
1. GST, Excise, Sales Tax (only if paid before the due date).
2. Interest on loans payable to banks.
3. Bonus & Commission to employees.
Example:
If GST liability = ₹50,000 but is not paid before the due date, it cannot be claimed as an
expense.