INTRODUCTION TO INCOME TAX

In Income Tax we need to study

1. How to calculate total taxable income.

2. And how to calculate tax payable on total taxable income.

Basically Income Tax is tax on the income of a Person.

First Income is earned and then tax is paid on the income so earned.

There are 2 types of tax, namely Direct Tax & Indirect Tax.

DIRECT TAX INDIRECT TAX

Direct Tax is a tax on the income of a Person Indirect Tax is tax on Service & Commodities.
Burden of Direct Tax cannot be shifted Burden of Indirect Tax can be shifted.
It is Progressive in nature It is Regressive in nature
It considers Previous year & Assessment year for It considers Financial Year for computation
computation
Examples of Direct Tax is Examples of Indirect Tax
Gift Tax Service Tax
Income Tax Excise Duty
Wealth Tax Customs Duty
MVAT / CENVAT [& Now G.S.T]
IMPORTANT POINTS

1. Calculation of Income tax is governed by Income Tax Act and Income Tax Rules.
2. Income Tax is chargeable on the world income [meaning income earned from any part of the world is
taxable]
3. Income is taxable even if it is earned through legal Sources or Illegal Sources.
4. Income earned may be actually received or deemed to be received or receivable.
5. Income can be received in cash or in kind.

DEFINITIONS

There are 2 types of definitions as per Income Tax Act 1961.

1. Inclusive definition &
2. Exclusive definition

Person Section 2 (32) :-

It includes any
1. Individual
2. HUF
3. Company
4. Firm
5. AOP/BOI
6. Local Authourity
7. Artificial Juridical Person

What is a Previous Year ?

Previous Year is the year in which income is earned.
It consists of 12 Months.
It starts of 1st April every year and ends on 31st March of succeeding year.
Current Previous Year applicable is 2022 – 2023.
What is Assessment Year ?
Assessment Year is a year in which income is charged or taxable.
It consists of 12 Months.
It starts of 1st April every year and ends on 31st March of succeeding year.
Current Assessment Year applicable is 2023 – 2024.
Thus Income earned in the Previous year is taxable or charged in the Assessment year.

What are Exemptions ?

Exemptions are concessions or discount allowed by the government on the Income
earned.

What are Deductions ?

Deductions are concession or discounts allowed by the government due to expenses
incurred.

Thus Exemptions are applicable on the income earned and deductions are applicable
on expenses incurred.

Who is an Assessee ?
Assessee is the Person who is liable to pay Income Tax.

Heads of Income as per Income Tax

There are 5 Heads of Income [Sources of Income as per Income Tax Act] namely
1. Income from Salary
2. Income from House Property
3. Income from Business or Profession
4. Income from Capital Gains
5. Income from Other Sources

1. How does Income from Salary arise?

Ans :-
When the relationship between the payer and the receiver is that of an Employer and
Employee, income received in the hands of the employee is taxable under the head
Income from Salary.

2. How does Income from House Property arise?

Ans :-
When a House Property is Let out by the Landlord to the Tenant, the income [inform of
Rent] in the hands of the Landlord taxable under the head income from House
Property.

3. How does Income from Business / Profession arise?

Ans :-

Any profits earned by a business person due to operations of business or undertaking

any business activity is taxable under the head income from Business.
Any income earned by a professionals like Lawyer, Doctors, Chartered Accountants
etc. is taxable under the head Income from Profession.

4. When Shall Income from Capital Gain arise?

Ans:-
Income from Capital Gains shall arise when there is a Transfer of Capital Asset.
5. When shall Income from Other Sources arise?

Ans:-
If any income is not taxable in any other heads of income it will be taxable under the
head Income from Other Sources.

Once the taxable income is ascertained from all possible sources [5 Heads] then we
need to compute total taxable income as follows:

COMPUTATION OF TOTAL TAXABLE INCOME OF AN ASSESSEE

PARTICULARS AMT IN ₹ AMT IN ₹
* Income from Salary XXX
* Income from House Property XXX
* Income from Business / Profession XXX
* Income from Capital Gains XXX
* Income from Other Sources XXX
AGREGATE GROSS TOTAL INCOME [A.G.T.I] XXX
Less :- Deductions Under Chp. VI A
80 – C Investment XXX
80 – CCC Pension XXX
80 – D Mediclaim XXX
80 – U Handicap Person XXX
80 – DD Dependent Handicap Relative XXX
80 – E Interest on Higher Education Loan XXX
80 – TTA Interest on Savings XXX [XXX]
NET TAXABLE TOTAL INCOME XXX
 TOLANI COLLEGE OF COMMERCE [AUTONOMOUS]

INCOME FROM SALARY

When the relationship between the payer and the receiver is that of an employer and employee, the
income received by the employee will be taxable under the head Income from Salary.
HOW TO CALCULATE TAXABLE INCOME FROM SALARY?
Income from Salary is calculated by preparing a format. In this format all the taxable amounts are
recorded in the outer column. Taxable income from salary can never be a negative figure.
Anything (cash, kind or facility) received by the employee from the employer will be taxable and
recorded in the outer column provided it is not fully exempt.

STATEMENT OF INCOME FROM SALARY

PARTICULARS AMOUNT AMOUNT
• Basic Salary [Gross] XXX
• Dearness Allowance
- In Terms XXX
- Not in Terms XXX XXX
• Commission XXX
• Bonus XXX
• Arrears of Salary XXX
• Advance Salary XXX
• Allowances [3 Types] XXX
• Perquisite XXX
XXX
• Gratuity
XXX
• Pension
XXX XXX
- Commuted
XXX
- Un-commuted
XXX
• Provident Fund XXX
• Leave Salary XXX
• Commission XXX
• Voluntary Retirement Compensation XXX
GROSS TAXABLE SALARY XXX
Less: - Deduction Under Section 16
A] Standard Deduction 50,000
B] Entertainment Allowance XXX
C] Profession Tax XXX [XXX]
NET TAXABLE SALARY XXX
NOTE: - Amount in bracket should be deducted from Gross Taxable Salary.
BASIC SALARY - Basic Salary is always fully Taxable, however if Net Basic Salary is provided in
the question it should be converted into Gross Basic Salary.
Net Basic Salary is converted into Gross Basic Salary by either adding back the amounts deducted
or by cross multiplication as case may be.
DEARNESS ALLOWANCE - Dearness Allowance whether in terms or not in terms are fully
taxable.
COMMISSION - Commission received by the employee is always fully taxable whether received or
outstanding.
BONUS - Bonus is fully taxable provided if it is received. Bonus of earlier years received in the
Previous year is also fully taxable. If the bonus is only promised or is outstanding, then it should
be completely IGNORED.

NOTES COMPILED:- By Prof. Mubeen Y. Shaikh

 TOLANI COLLEGE OF COMMERCE [AUTONOMOUS]
ARREARS OF SALARY – When the employee gets an increment in his salary and the employer is
unable to pay this incremented amount, He promises to pay the balance of the incremented salary
[which keeps accumulating until fully paid] at a later date. So whenever the employers pay the
accumulated amount of incremented salary it becomes taxable in that particular previous year.

ADVANCE SALARY – Advance Salary is fully taxable provided it not utilized for the purpose of
purchasing a Fixed Asset. In case if Advance Salary is utilized for the purchase of fixed asset then
it should be completely IGNORED since it will be considered as a loan from the employer. And loan
is not an income as it is to be repaid.
If only the word Advance is mentioned in the problem, then too it is considered as a Loan.

ALLOWANCES – Allowances are purely monetary benefits paid by the employer to his employee
for official or personal purpose.
Basically Allowances are divided into 3 parts
ALLOWANCES

Special Allowance Exempt Allowance Taxable

[Amount Spent = Amount Exempt] Allowance Any
Entertainment Allowance T = Travelling Allowance Allowance not in
[Fully Taxable] C = Conveyance Allowance the category of
However, if the person U = Uniform Allowance Exempt Allowance
Is a Government employee D = Daily Allowance will be fully taxable.
then following deduction H = Helper Allowance e.g.
will be applicable. R = Research Allowance Medical Allowance
Servant Allowance
1/5th of Basic Salary [Fixed Amount = Exempt Amount] Tiffin Allowance
TC3H Lunch Allowance
OR Tribal Area Allowance City Compensatory
[₹ 200 per month] Allowance
Actual Amt Received etc.
Commutation Allowance
OR [₹ 1,600 for any employeed
and for Visual & Physically
₹ 5,000 Challenged ₹ 3,200 per
month]

Children Education Allowance

[₹.100 per month per child
Maximum 2 Children]

Children Hostel Allowance

[₹ 300 per month per child
Maximum 2 Children]

House Rent Allowance

[Exempt or Taxable amount to be
specified in the problem as per
Section 10(13A)]

NOTES COMPILED:- By Prof. Mubeen Y. Shaikh

 INCOME FROM SALARIES

Q.1. From the following details, Calculate taxable salary of Mr. Raj Kumar for P.Y. 2022 – 2023.
1] Basic Salary [NET] ₹ 10,000 per month.
2] Professional Tax Deducted ₹ 200 per month.
3] Income Tax deducted at source Rs. 2,000 per month.
4] Arrears of Salary [Taxed earlier] ₹ 90,000.
5] Arrears of Salary [After settlement of dispute] ₹ 72,000.
6] Advance Salary ₹ 58,000.
7] Advance for purchase of furniture worth ₹ 1,20,000.
8] He also took Advance Salary of ₹ 80,000 on account of his daughter’s marriage.
9] Bonus received ₹ 85,000 [for P.Y. 2021 – 2022]
10]Bonus received ₹ 38,000 [Net TDS ₹ 12,000]

Q.2. Mr. Ajay, who is employed with Government of Maharashtra, gives the following details for the
previous year P.Y. 2022 – 2023.
1] Basic Salary ₹ 64,000 per month.
2] Dearness Allowance [in terms] ₹ 10,000 per month.
3] Uniform Allowance ₹ 6,000 [Amount spent ₹ 4000].
4] Research Allowance ₹ 1,500 p.m. [Amount spent ₹ 1,200 p.m.]
5] Children Education Allowance ₹ 14,400 [3 Children].
6] Entertainment Allowance ₹ 5,000 per month.
7] Commutation Allowance ₹ 9,000 per month [Amount spent ₹ 7,000 per month]
8] House Rent Allowance ₹ 20,000 p.m. [Amount Exempt u/s 10(13A)] ₹ 5,000 p.m.
9] Medical Allowance ₹ 30,000 [Fully Spent].
10]Bonus Receivable ₹ 3,00,000.
You are requested to calculate his Taxable income from Salaries.

Q.3. Mr. Vinay is employed with Jagdish Ltd provides

following details of his salary income for P.Y. 2022 – 2023.
Basic Salary ₹ 30,500 p.m.
Dearness Allowance ₹ 12,500 p.m.
Travelling Allowance ₹ 3,000 p.m.
[Amount spent ₹ 20,000]
Expenses on Lunch reimbursement ₹ 1,500 p.m. in cash.
Uniform Allowance ₹ 1,000 p.m.
[Amount spent on Uniform ₹ 6,000]
Project Allowance ₹ 12,000 p.m.
Overtime Allowance ₹ 2,000 p.m.
Servant Allowance ₹ 70,500 [Amount spent ₹ 40,000]
Medical Allowance ₹ 40,000 [Amount spent on Medical treatment ₹ 10,500]
Children Education Allowance ₹ 500 p.m. per child [Mr. Vinay has 3 Children]
Helper Allowance ₹ 700 p.m.
Profession Tax paid during the year ₹ 2,400
Other expenses incidental to employment ₹ 98,000.
Calculate Taxable Salary for P.Y. 2022 – 2023 and A.Y. 2023 – 2024.
Q. 4.
Mr. Ravi provides following details for computation
of his taxable Income from Salary for A.Y. 2023 – 2024.
a] Basic Salary ₹ 1,00,000 per month.
b] Installment on Home loan deducted at source ₹ 1,20,000.
c] Dearness Allowance ₹ 12,000 per month.
d] Mediclaim Insurance premium paid by the employer ₹ 24,000.
e] Telephone bills reimbursed by Employer ₹ 80,000.
f] Electricity bills reimbursed by employer ₹ 1,80,000.
g] Free refreshment in office premises ₹ 15,000.
h] Mr. Ravi was provided car for office and personal use [Perquisite Value ₹ 6,20,000]
i] Gift of watch from employer on birthday valued at ₹ 15,000.
j] Free meals worth ₹ 180 per meal for 200 days.
k] Free watchman at employee’s residence valued at ₹ 30,000.

Q.5. Mr. Amol provides you the following information

Basic Salary ₹ 45,000 per month.
Dearness Allowance ₹ 20,000 per month.
Bonus ₹ 2,00,000.
Turnover Commission 2% [Turnover being ₹ 40,00,000]
Mr. Amol’s Contribution to Provident Fund [₹ 10,000 per month.]
Employer’s Contribution to Provident Fund [₹ 10,000 per month].
Interest Credited to Provident Fund @ 11% ₹ 55,000.
He has paid Profession Tax ₹ 200 per month.
Calculate his Income from Salary for A.Y. 2023 – 2024,
if the Provident Fund is
A] S.P.F
B] R.P.F
C] U.P.F
 TOLANI COLLEGE OF COMMERCE [AUTONOMOUS]
PERQUISITE
Perquisites are personal or official benefits given by the employer to his employee. Perquisite can be
in cash as well as in kind. The following words will indicate that it is a perquisite.
1. Free / Facility
2. Benefit / Fringe Benefit
3. Provided by Employer
4. Paid by Employer
5. Reimbursed by Employer
PERQUISITE

EXEMPT TAXABLE
MRS TC GE2L Any other perquisite apart from Exempt
perquisites will be Fully Taxable
M = Medical

Treatment in GRE Hospital Fully Exempt

Treatment in Other Hospital Exempt up to ₹15,000.
G = Government
R = Recognized by Government
E = Employers Hospital
NOTE: -
Any medical Insurance premium / accidental insurance premium / health insurance premium
paid by the employer is FULLY EXEMPT.
Group insurance policy premium paid by the employer is also FULLY EXEMPT.
However, life insurance policy premium paid by the employer will be Taxable.
Treatment includes treatment of employee’s spouse, children, dependent parent brothers & sisters.

R = Refreshment
Any kind of refreshments provided by the employer during office hours is FULLY EXEMPT.
S = Scholarship
Scholarship provided by the employer to the employee’s children is FULLY EXEMPT
T = Telephone
Telephone / Mobile facilities provided by the employer is FULLY EXEMPT.
C = Car Facility
1. Car facility provided only for official purpose is FULLY EXEMPT.
2. Car facility provided for commuting from office to residence & vice versa is FULLY EXEMPT.
3. Car facility provided partly for official & partly for personal purpose is FULLY TAXABLE.
4. Car facility provided fully for personal purpose is FULLY TAXABLE.
G = Gift from Employer
Gift in Kind or Gift Voucher is exempt up ₹ 5000. Cash Gifts are FULLY TAXABLE.
E = Employee’s Training & E.S.O.P
Expenses of employee’s training paid by the employer is FULLY EXEMPT.
E.S.O.P. stands for Employee’s stock of option plan. Any benefit derived by the employee under this
scheme is FULLY EXEMPT.
L = Leave Travel Allowance \ Assistance \ Concession & Lunch provided by Employer.
Amount Spent = Amount Exempt
Lunch or Meal provided by the employer. Exempt up to ₹ 50 per meal.

NOTES COMPILED:- By Prof. Mubeen Y. Shaikh

FORMAT FOR SOLVING THE PROBLEM
NO. SATISFIED
CONDITIONS OF OR NOT REASON
DAYS SATISFIED
BASIC CONDITION
1. Stay of 182 days or more in
India in previous year.
OR
2. [a] Stay of 60 days or more in
India in previous year.
&
[b] Stay of 365 days or more
in India in last 4 previous
years.
ADDITIONAL CONDITION
1. Resident in India in at least 2
out of last 10 previous years
AND
2. Stay of 730 days or more in
India in last 7 previous years

SPACE FOR WORKING ANS:-

YEAR DAYS CONCLUSION:
2012 – 2013
2013 – 2014
2014 – 2015
2015 – 2016
2016 – 2017
2017 – 2018
2018 – 2019
2019 – 2020
2020 – 2021
2021 – 2022

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days
 RESIDENTIAL STATUS OF AN ASSESSEE
An assessee can be either a Resident ( ‘R’ ) or a Non Resident ( ‘NR’ ) as per income tax. Further if the
assessee is a Resident ( ‘R’ ) than he can either be a ‘R-OR’ or ‘R-NOR’ depending on fulfilment of 2
additional conditions.
ASSESSEE

RESIDENT NON RESIDENT

ORDINARILY NOT AN ORDINARILY

Q.1. How to determine the residential status of an assessee ?

Ans: Residential status of an assessee depends on the number of days of stay in India. For this the
assessee needs to full fills any one of the basic condition to be considered as a Resident in India. However
if the assessee also full fills both the additional condition then he will be considered as Resident and
Ordinarily Resident [‘R-OR’].

Q. 2. What condition needs to be fulfilled by an assessee to be considered as a Resident ?

Ans: An assessee needs to fulfil any one of the following basic conditions:

1. Stay of 182 days or more in India in previous year.

OR
2. a] Stay of 60 days or more in India in previous year.
&
b] Stay of 365 days or more in India in last 4 previous years.

Q.3. How will be an assessee be considered as a Non Resident ?

Ans. If the assessee fails to satisfy any of the basic condition then he is considered a Non Resident.

Q.4. How is an Assessee considered as R-OR or R-NOR ?

Ans. After fulfilling any of the basic condition the assessee is considered as a Resident. After that if the
assessee also satisfies both the additional conditions, he/she considered as Resident and Ordinarily
Resident [R-OR]. However if the assessee fails even one additional conditional he will be considered as
Resident but not an Ordinarily Resident [R-NOR].

Q.5. What are the additional condition that a Resident needs to fullfill in order to become R-OR ?
Ans. A resident needs to fullfill both the additional conditions in order to become R-OR
1. Resident in India in at least 2 out of last 10 previous years. and
2. Stay of 730 days or more in India in last 7 previous years.

Q.6. What are the exceptions for Basic condition wherein only the first basic condition will be
applicable ?
Ans. In case of the following exception only the first basic condition will be applicable.
1. An Indian citizen who leaves the country for employment in previous year.
2. An Indian citizen who visits the country for vacation in previous year.
3. A person of Indian origin who visit the country in previous year.
4. An Indian citizen who is a member of crew of an Indian vessel that departs from an Indian port in
the previous year.

Q.7. Who is a person of India origin?

Ans. A person whose either maternal or paternal grand parents [any one] were born in undivided India [i.e.
before 1947] will be considered as person of India Origin.
FORMAT FOR SOLVING THE PROBLEM
NO. SATISFIED
CONDITIONS OF OR NOT REASON
DAYS SATISFIED
BASIC CONDITION
1. Stay of 182 days or more in
India in previous year.
OR
2. [a] Stay of 60 days or more in
India in previous year.
&
[b] Stay of 365 days or more
in India in last 4 previous
years.
ADDITIONAL CONDITION
1. Resident in India in at least 2
out of last 10 previous years
AND
2. Stay of 730 days or more in
India in last 7 previous years

SPACE FOR WORKING ANS:-

YEAR DAYS CONCLUSION:
2012 – 2013
2013 – 2014
2014 – 2015
2015 – 2016
2016 – 2017
2017 – 2018
2018 – 2019
2019 – 2020
2020 – 2021
2021 – 2022

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days

Month April May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar
Days
 RESIDENTIAL STATUS OF AN ASSESSEE

1. Mr. Bret Lee an Australian Citizen came to India for the first time on 1st April 2018 and started a
Business in Mumbai. He went out of India on 1st April 2022 and came back to India on 1st January
2023 and was in India thereafter. Find out his Residential Status for Assessment Year 2023-2024.
(T.Y.B.Com April 2010 Modified).

2. Mr. Charlie Farande who is an Indian citizen went for employment to Dubai on 1st April 2016 and
came on a visit to India on 1st July 2022 and left for Dubai on 15th December 2022.
Determine his residential status for A.Y. 2023 - 2024. (T.Y.B.Com Mumbai Oct., 2010 Modified)

3. Shri. Ramesh an Indian citizen, left India for the first time on 22/09/2022 for employment in U.K.
and did not return till 31st March 2023.
Determine his residential status for A.Y. 2023 - 2024 (T.Y.B.Com Mumbai April 2011 - Modified)

4. Shri Praveen Kumar came to India from Australia for the first time on 10/11/2021. He returned to
Australia after staying in India up to 6/10/2022.
Determine his Residential Status for Assessment Year 2023-2024.
(T.Y.B.Com October 2011 - Modified)

5. Mr. Charles D’Souza an Indian Citizen went to employment in Oman on 1st April, 2014 and came
on a visit to India on 8/1/2023 and left for Oman on 15/01/2023. Determine his Residential Status for
Assessment Year 2023-2024. (T.Y.B.Com October 2012 - Modified)

6. Mr. Aniket Vijaykumar Agrahari, is a Citizen of BURMA. His grandmother was born in a village near
Karachi in 1945. He came to India for the first time on 08 – 06 – 2022 for a visit and stayed up to 100
days. Find the Residential Status of Mr. Aniket Vijaykumar Agrahari for P.Y. 2022 – 2023 and A.Y. 2022
– 2023.

7. Ms. Shruti Shreedhar Aher a foreign national visited India during P.Y. 2022 – 2023 as follows:-
From 01 – 05 – 2022 to 20 – 06 – 2022 [Stay at New Delhi]
From 07 – 12 – 2022 to 11 – 01 – 2022 [Stay at Mumbai]
Determine her Residential Status for P.Y. in 2022 – 2023 on the basis of the following information
She did not come to India in P.Y. 2018 – 2019 & 2019 – 2020.
During 2020 – 2021 she was in Hong Kong.
During 2021 – 2022 she was in India for 200 days.

8. Mr. Mohd Tauheed Mohd Fareeduddin, an Indian citizen who is appointed as taxation officer by
Government of Japan leaves India for the first time on 26 – 09 – 2019 for joining duty in Japan. During
the P.Y. 2022 – 2023 he comes back to India for a vacation for 176 days.
Determine his Residential Status for P.Y. 2022 – 2023 and A.Y. 2023 – 2024.
9. Ms. Divya Dilip Bamane an American Citizen came to India for the first time on 1st April 2019 and
started a business in Mumbai. She went out of India on 1st October 2022 and came back to India on
21st Jan 2023 & is staying in India till date.
Find out her Residential Status for P.Y. 2022 – 2023 and A.Y. 2023 – 2024.

10. Mr. Yash Vijay Pitale, an Indian Citizen, went out of India for the first time for the purpose of
employment. He went out of India on 1st May 2022 and came back on 31st December 2022. Find out
his Residential Status for P.Y. 2022 – 2023 and A.Y. 2023 – 2024.
TOLANI COLLEGE OF COMMERCE S.Y.BBI/S.Y.BAF/T.Y.BMS/T.Y.BFM

PROVIDENT FUND
Provident Fund is a saving scheme that benefits the empl oyee at the time of retirement. In this
scheme a certain amount is deducted from employee’s salary and is considered as employee’s
contribution towards provident fund. Some amount is also contributed by the employer [Usually the
same amount as that of employee’s contribution] and is considered as employer’s contribution
towards his employee’s provident fund.
Both the employee’s contribution and employer’s contribution is invested by the employer or
deposited in a bank account. This investment fetches interest (or dividend).
Whole amount inclusive of Employee’s contribution, Employer’s contribution, interest on
Employee’s contribution and interest on Employer’s contribution is received on retirement.
STATUTORY RECOGNIZED UNRECOGNIZED
PARTICULARS PROVIDENT PROVIDENT PROVIDENT
FUND FUND FUND
Employee’s contribution to
IGNORE IGNORE IGNORE
provident fund
Employer’s contribution to Exempt up to 12% of
Exempt Exempt
provident fund (BAS+DAT+TOC)
Interest credited to Exempt up to Interest
Exempt Exempt
provident Fund rate of 9.5% p.a.
Lump Sum payment on Refer the Chart
Exempt Exempt
Retirement below
BAS : Basic Salary
DAT : Dearness Allowance [in terms]
TOC : Turnover Commission

LUMPSUM PAYMENT RECEIVED ON RETIREMENT

Employee’s Employer’s Interest on Interest on

Contribution Contribution is Employee’s Employer’s
should be FULLY TAXABLE Contribution is Contribution is
IGNORED under IFS taxable under IFOS FULLY TAXABLE
under IFS

NOTES COMPILED:- By Prof. Mubeen Y. Shaikh

 SCOPE OF TOTAL INCOME
Section -5 of Income Tax Act, 1961 provides Scope of total Income in case of person who is a resident in
India as well as ordinarily resident [R – OR], a Resident in India but not an ordinarily resident [R – NOR] in
India and a person who is a non-resident [NR].
Income can be earned from any source however, how much is the tax liability depends on the status of an
Assessee.
Income earned by an Assessee can be categorized in following manner.
(a) Income is received or accrues in India or both or is deemed to be received or accrued in India.
(b) Income from Business outside India but controlled from India.
(c) Income accrues or arises as well as is received outside India.
SN PARTICULARS R-0R R-NOR NR
1 Income received in India Taxed Taxed Taxed
2 Income Deemed to be receive in India Taxed Taxed Taxed
3 Income accrues or arises in India Taxed Taxed Taxed
4 Income deemed to accrues or arises in India Taxed Taxed Taxed
5 Income accrues/arises as well as received outside India Taxed No No
Income accrues or arises outside India from
6 business/profession controlled/set up in India Taxed Taxed No
7 Income Other than Above (No Relation In India) Taxed No No
NOTE-
1. Residential status is as per section 6 of Income Tax Act, 1961.
2. Deemed income is not actually accrued but is supposed to be accrued notionally.
3. The income accrued is when the assessee obtains the rights to receive it.
4. Previous year means the financial year immediately preceding the assessment year.
EXPLANATION 1 & 2:-
Income accruing or arising outside India shall not be deemed to be received in India within the meaning of
this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Income which has been included in the total income of a person on the basis that it has accrued or arisen or
is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or
deemed to be received by him in India.
Certain Examples of incomes which treated as incomes deemed to have accrued or arisen in India:
• If Mr. X Transfer his Residential Property situated in Delhi, then Capital gain arising on transfer of
such Capital Asset is deemed to accrue in India. It means Capital gain arising on transfer of property
situated in India.
• Income from business connection in India.
• Dividend paid by an Indian company.
• Income from any property, asset or other source of income located in India.
• In respect of services rendered in India.
• Indian national from Government of India in respect of service rendered outside I ndia. However,
allowances and perquisites are exempt in this case.
INTEREST INCOME: -
• Received from Government of India.
• Received from a resident is treated as income deemed to have accrued or arisen in India in all cases,
• Except where such interest is earned in respect of funds borrowed by the resident and used by
resident for carrying on business/profession outside India or is in respect of funds borrowed by the
resident and is used for earning income from any source outside India.
• Received from a non-resident is treated as income deemed to accrue or arise in India if such interest
is in respect of funds borrowed by the non-resident for carrying on any business/profession in India.
ROYALTY: -
• Received from Government of India.
 • Received from resident is treated as income deemed to have accrued or arisen in India in all cases,
except where such royalty/fees relates to business/profession/other source of income carried on by
the payer outside India.
• Received from non-resident is treated as income deemed to have accrued or arisen in India if such
royalty/fees is for business/profession/other source of income carried by the payer in India.
INDIA:
As per Section. 2(25A) of the Income Tax Act, 1961, the term “India” means the territory of India as
referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such
waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the
Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and
the air space above its territory and territorial waters.
Income is defined u/s 2(24) of the Act.
As per section 2(13) business includes……..
Trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or
manufacture
Profits arising from an isolated transaction are taxable as business profits, if it is treated as an adventure
in the nature of trade, commerce or manufacture.
In this connection it is not necessary that there should be a series of transactions in a business and also
it should be carried on permanently. Neither repetition nor continuity of similar transactions is necessary.
As already defined under section 2(13), the income derived from any adventure in the nature of trade is
also treated as business income.
As per Section 2(36) profession” includes vocation.
A profession is an occupation requiring purely intellectual skill or manual skill e .g., lawyer, CA, engineer,
surgeon, author etc.
Extract of Section 5 of Income Tax Act, 1961
Scope of total income.
5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a
resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or
(c) accrues or arises to him outside India during such year:
Provided that, in the case of a person not ordinarily resident in India within the meaning of sub -section
(6)* of section 6, the income which accrues or arises to him outside India shall not be so included unless
it is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non -
resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.—Income accruing or arising outside India shall not be deemed to be received in India
within the meaning of this section by reason only of the fact that it is taken into account in a balance
sheet prepared in India.
Explanation 2.—For the removal of doubts, it is hereby declared that income which has been included in
the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or
arisen to him shall not again be so included on the basis that it is received or deemed to be received by
him in India.

SN PARTICULARS R-OR R-NOR NR

1 Income accrues/arises/received from/in India or both. XXX XXX XXX
Income from business/profession outside India but is controlled
2 XXX XXX .-
from/set up in India.
3 Income accrues/arises as well as received outside India. XXX .- .-
 PROBLEM ON SCOPE OF TOTAL INCOME
Q.1. Mr. Rohan, an India Citizen left India for Employment on 31 – 08 – 2022. Before this he
was always in India.
Find his Residential Status for P.Y. 2022 – 2023 and A.Y. 2023 – 2024 Also calculate his total
Income from the following Information.
1. Dividend from foreign company ₹ 5,000.
2. Rent from property in New York ₹ 20,000.
3. Sale of property in Japan, amount received in Mumbai ₹ 3,000.
4. Dividend from Indian Company ₹ 5000.
5. Agricultural Income from India ₹ 10,000.
6. Gift from brother ₹ 5,000.
7. Interest on Debentures ₹ 12,000 of European Companies received in London.
8. Rent from plot of land in Ceylon ₹ 20,000.

Q.2. Ms. Raksha an Indian Citizen, furnishes the following particulars of her income earned
during the previous year relevant to A.Y. 2023 – 2024
a] Pension from an Indian employer received in Sudan ₹ 36,000.
b] Profit from business at Pune & Managed from Britain ₹ 48,000.
c] Income earned from business in Kuwait which is controlled from Mumbai ₹ 54,000
d] Past untaxed profit brought to India ₹ 1,00,000.
e] Income from agricultural land in Sri Lanka ₹ 10,000 received in India.
f] Profit from sale of plant at Bhopal ₹ 38,000 [Half received in U.S.A].
g] Dividend from German company received in India ₹ 5,000
h] Income from Business in Nairobi which was set up in India received there ₹ 12,000.
i] Gift from friend ₹ 95,000
Determine the Gross Total Taxable Income of Ms Raksha for the Assessment year 2023 – 2024.

Q.3. From the following details furnished by Ms. Lisa determine her total income if she is a
A. Resident & Ordinarily Resident
B. Resident But not an Ordinarily Resident
C. Non Resident

1. Agricultural Income from Punjab ₹ 10,000.

2. Salary earned & received in U.S.A. ₹ 20,000.
3. Asset Sold in Nepal & amount received in Bhopal ₹ 5000.
4. Dividend from an Italian Company received in India ₹ 8000.
5. Rent from House Property in Nepal, received there & then sent to India ₹ 12,000
6. Interest on Debenture of a foreign company received in Mumbai ₹ 3,000.
7. Dividend from German company [Half received in India] ₹6000.
8. Income from business in Pakistan controlled from Afghanistan ₹ 10,000.
9. Income from business in China, controlled from Delhi [Half received in India] ₹ 5000.
10. Income from Business in Mumbai, controlled from Dubai ₹ 3000.
11. Salary earned & received in Africa ₹ 8000.
Q.4. Ms. Akshata furnished the following particulars of Her income earned during the previous
year ended 31 – 03 – 2023
1. Interest on U.K. Development Bonds [Received in India] ₹ 42,000.
2. Profit on Sale of Plant in Malaysia [Received in Mumbai] ₹ 92,000.
3. Profit on Sale of property at Mumbai [Received in Dubai] ₹ 1,04,000.
4. Income from Business in Sri Lanka controlled from India ₹ 20,000.
5. Rental Income from property in New York deposited there ₹ 25,000.
6. Pension from Employer in Indian Bank deposited there ₹ 60,000.
You are required to compute Her Total Income taxable in India if Her Residential Status during the
previous year 2022 – 2023 is R-OR, R-NOR & NR.

Q.5. From the following particulars, compute the taxable income of Mr. Ayush when his
residential status is [i] R – OR [ii] R – NOR [iii] NR
a] Interest for Debentures in an Indian Company received in London ₹ 5,000.
b] Interest on a company deposit in India but received in Germany ₹ 22,000.
c] Interest on U.K. Development Bond, 50% of Interest received in India ₹ 40,000.
d] Profit on sale of shares of an Indian company received in London ₹24,000.
e] Dividend from British Company received in London ₹ 10,000.
f] Profits on sale of plant at Germany 50% of profits are received in India ₹ 60,000.
g] Income earned from business in Germany which is controlled from Delhi of which ₹ 40,000
received in India. Total amount of income ₹ 70,000.
h] Profits from a Business in Delhi but managed entirely from London ₹ 45,000.
i] Rent from property in London deposited in a Indian Bank at London, brought to India ₹ 50,000
j] Interest received in London on money lent to a resident in India in London but the same money
was used in India ₹ 46,000

Q.6. Ms. Saloni a Foreign national, furnished the following particulars of her income for the
previous year relevant to assessment year 2023 – 2024.

a] Profit from sale of plant in London [Half received in India] ₹ 40,000.

b] Profit from sale of plant at Delhi [Half received in London] ₹ 52,000.
c] Interest on UK Development Bonds [Entire amount received in London] ₹ 40,000.
d] Interest on Bank Account in India ₹ 5,000.
e] Dividend from British Company received in India ₹ 2,000.
f] Income from Property in London ₹ 3,000.
g] Dividend received in London from a Company registered in India but mainly operating in U.K. ₹
18,000.
i] Profit from business in Delhi managed from India ₹ 30,000.

Determine the Gross Total Income of Ms. Saloni for the Assessment year 2023 – 2024 if She is
i] R – OR
ii] R – NOR
iii] N.R.
 HP

LOP TAXABLE SOP

DLOP PLOP SOP[R] SOP[B]

TAXABLE TAXABLE DEDUCTION IGNORE

INTEREST
ON
HOUSING
LOAN

LOP – LET OUT PROPERTY SOP – SELF OCCUPIED PROPERTY DLOP – DEEMED TO BE LET OUT
PROPERTY
PLOP – PARTLY LET OUT PROPERTY SOP[R] – SELF OCCUPIED PROPERTY SOP[B] – SELF OCCUPIED PROPERTY
FOR RESIDENTIAL PURPOSE FOR BUSINESS PURPOSE
NOTE: - If there are more than one house properties and none of them are let out then, the house property which
has maximum GAV is considered as SOP[R] and the rest of the house property are considered as DLOP.
STATEMENT OF INCOME FROM HOUSE PROPERTY
PARTICULARS LOP PLOP DLOP SOP [R]
Municipal Value XX XX XX –
Fair Rent XX XX XX –
Whichever of the above is Higher XX XX XX –
Standard Rent XX XX XX –
Expected Rent XX XX XX –
Actual Rent Received XX XX XX –
GROSS ANNUAL VALUE XX XX XX –
Less :- Municipal Tax paid by Landlord [XX] [XX] [XX] –
NET ANNUAL VALUE XX XX XX –
Less :- DEDUCTION U/s 24
A] Standard Deduction – 30% of NAV [XX] [XX] [XX] –
B] Interest on Housing Loan [XX] [XX] [XX] [XX]
TAXABLE INCOME FROM HOUSE PROPERTY XX XX XX [XX]

XX
RECEIPT OF [Previous Years] Rent if any
Add :- Arrears of Rent less 30% XX
Add :- Recovered Rent less 30% XX
TOTAL TAXABLE INCOME FROM HOUSE PROPERTY XX
NOTE:-
Arrears of Rent refers to rent unpaid by the tenant but not considered as Bad Debt.
Recovered Rent refers to unpaid rent considered as Bad Debt recovered later.
IMPORTANT POINTS

1. Municipal Value means rent as per municipal records or Local Authority. It is also known as ‘Rateable
Value’.
Fair Rent is the rent from a similar house property in a similar locality and is also known as ‘Reasonable
Letting Value’ or ‘Reasonable Rent’.
Standard Rent means maximum rent which can be legally recovered as per ‘Rent Control Act’.

EXPENSES

Municipal Tax paid by Landlord Interest on Loan on housing Loan Any Other Expenses

DEDUCT DEDUCTION [U/s 24] IGNORE

Municipal Taxes

a) Deduction is allowed on ‘payment basis’ [Meaning if municipal tax is paid by the Landlord – it is allowed, but
if not paid by the landlord – it is not allowed. If rent payable by the landlord is Outstanding, Due, in Arrears,
remaining to be paid, Unpaid – it will not be allowed. Further it should be paid by Landlord only and not by
the tenant or any other person]
An y amount paid in cash as municipal tax by the landlord will be allowed whether such cash is paid for past
previous year, current previous year or future years to come [i.e. paid in advance].

b) Municipal Tax is calculated as a percentage of Municipal Value.

c) The following taxes paid by the landlord are also considered as is Municipal Tax.
E.g. Water Tax
Local Tax
Property Tax
Corporation Tax
Sewerage Tax
Assessment Tax etc.

2. INTEREST ON HOUSING LOAN

a] Deduction is allowed on Due Basis. [Allowed whether paid or outstanding but should
be related to the current P.Y.]

b] Loan should be taken for House [Purchase/Construction/Repairs/Renovation etc].

c] Deduction is allowed whether the Housing Loan is taken from Banks/Financial

Institution or any others lending institution.
HOUSING LOAN
DEDUCTION U/s 24 – Calculation of Taxable DEDUCTION U/s 80 C – at the time of Computation
Income from House Property of Total Income
Deduction will be allowed on Interest Deduction will be allowed on Principal
Allowed even if Loan can be taken from any one. Allowed only if the loan is taken from Banks and
recognized Financials Institution
 d] LIMIT FOR DEDUCTION
Interest on Housing Loan

LOP/DLOP/PLOP SOP [R]

NO LIMIT LIMIT

LOAN TAKEN FOR

LOAN TAKEN LOAN TAKEN FOR REPAIRS
PURCHASE/CONSTRUCTION
Loan taken before 1-4-99 Maximum Rs. 30,000 Maximum Rs. 30,000
Loan taken on or after 1-4-99 Maximum Rs. 2,00,000 Maximum Rs. 30,000

3. A House Property is treated as SOP[R] only if it is self occupied for FULL 12 MONTHS. If the house
property is let out even for some time it should be treated as LOP. In other word for some time the
house property was LET out and the same house property was also self occupied for residential purpose
for the remaining period.

4. No Standard Deduction of 30% on NAV is allowed if the NAV is negative.

5. Interest paid on Housing Loan outside India without TDS is not allowed.

6. Penalty in respect of Municipal Tax and Interest on Loan is not allowed. If such information is provided in
the problem it should be IGNORED.
Q.1. From the following details of Ms. Shital, Calculate her Income from House Property for P.Y. 2022-
2023
PARTICULARS H1 H2 H3
Municipal Value 80,000 1,20,000 2.00,000
Reasonable Rent 90,000 1,10,000 2,10,000
Standard Rent 84,000 - 2,20,000
Rent Receivable 78,000 1,32,000 2,20,000
Municipal Tax
- Paid 6,000 10,000 2,000
- Outstanding 2,000 - 15,000
Insurance Premium [Paid in cash] 1,000 2,000 3,000
Annual Charge [Paid in cash] 3,000 - 6,000
Interest on Loan
For Construction 12,000 28,000 -
For Repairs/Renovation - 12,000 -
For Brother’s Marriage - - 16,000

Q.2. Ms. Neha request you to Calculate her income from House Property for the P.Y. 2022-2023 from
following details.
PARTICULARS H1 H2
Municipal Value 1,00,000 2,00,000
Reasonable Letting Value 1,20,000 1,80,000
Annual Rent Received 1,08,000 2,16,000
Municipal Tax paid by
- Owner 4,000 -
- Tenant - 6,000
Repairs 6,000 -
Land Revenue 4,000 8,000
Ground Rent 3,000 6,000
Interest on Loan
- Paid 4,000 6,000
- Outstanding 3,000 -
Q.3. Ms. Naila owns a House at Pune. During the P.Y. 2022-2023 it was Let out for residential
purpose from 01 – 08 – 2022 to 31 – 12 – 2022 and for remaining period it was self occupied by
owner. Rent ₹ 8,000 per month.
Other particulars pertaining to the house property is as follows :-
Municipal Value 60,000
Municipal Tax 6,000
Interest on Loan for Renovation 20,000
Preconstruction Interest [Total] 5,000
Calculate the Income from House Property for Assessment Year 2023 - 2024.

Q.4. From the following details Calculate Taxable Income from House Property of Ms. Meenu for P.Y.
2022-2023.
PARTICULARS H1 H2
Rent Received 40,000 p.m. -
Reasonable Letting Value 5,25,000 4,00,000
Municipal Value 4,90,000 4,25,000
Municipal Tax 10% 15%
Interest on Loan 2,50,000 -
House No. 2 was purchased out of funds borrowed by mortgaging House No. 1. Housing Loan was
taken on 01 – 08 – 2020.

Q.5. Ms. Deepika provides you following information for previous year 2022-2023.
PARTICULARS H1 H2
Municipal Valuation 3,00,000 4,00,000
Fair Rent 3,25,000 4,50,000
Standard Rent 3,10,000 4,60,000
Rent per annum 3,36,000 -
Unrealized Rent 36,000 -
Total Municipal Tax 10% 40,000
MUNICIPAL TAX
Paid by the Landlord 75% -
Paid by the Tenant 25% -
Annual Charge 20,000 35,000
Interest on Loan 40,000 42,000
Calculate Taxable Income from House Property.
Problem No. ________

STATEMENT OF INCOME FROM HOUSE PROPERTY

PARTICULARS

1.Municipal Value
2.Fair Rent
3.Whichever of the above is Higher
4.Standard Rent
5.Expected Rent
6.Actual Rent Received
GROSS ANNUAL VALUE
Less :- Municipal Tax paid by Landlord
NET ANNUAL VALUE
Less :- DEDUCTION U/s 24
A] Standard Deduction – 30% of NAV
B] Interest on Housing Loan
TAXABLE INCOME FROM HOUSE PROPERTY

TOTAL TAXABLE INCOME

FROM HOUSE PROPERTY
House Property 1
House Property 2
House Property 3
House Property 4
House Property 5
TOTAL

SPACE FOR W ORKING

 INCOME FROM CAPITAL GAINS

Q.1. How does income from Capital Gains arise?

Ans :- Income from Capital Gains Shall arise when there is a Transfer of Capital Asset.

Q.2. What are Capital Assets ?

Ans :- Capital Asset means asset of any kind. Whether Movable or Immovable. Whether Tangible or Intangible
But excluding ‘MRS GS’
M = Movable Personal Effects [Except DJ S2AAP]
R = Rural Agricultural Land in India.
S = Stock in Trade
G = Gold Deposit Bonds 1999
S = Special Bearer Bonds

Q.3. When will there be a transfer of capital assets in case Capital Gains as per income tax?
Ans : The following are considered as transfer of capital asset as per income tax. [SEREC2]
1. Sale
2. Exchange
3. Relinquishment
4. Extinguishment
5. Conversion into Stock in Trade
6. Compulsory Acquisition

Q.4. Which exceptional movable personal effects are considered as Capital Asset?
Ans :- The following movable personal effects are considered as Capital Assets. [DJ S2AAP]
1. Drawings
2. Jewelry
3. Sculpture
4. Shares and Securities
5. Archeological Collections
6. Art Work
7. Paintings

Q.5. What are Short Term Capital Gains?

Ans :- Any capital asset held for less than 3 Years and is transferred then it will be considered as Short Term
Capital Gains. However Shares and Securities held for less than 1 Year are considered as Short Term.

Q.6. What are Long Term Capital Gains?

Ans :- Any capital asset held for More than 3 Years and is transferred then it will be considered Long Term
Capital Gains.
Q.7. How is Short Term Capital Gains determined?
Ans:- Short Term Capital Gains is determined by preparing following Statement
STATEMENT OF INCOME FROM SHORT TERM CAPITA GAINS
PARTICULARS AMOUNT AMOUNT
Full Value of Consideration [Sales Price] XXX
Less :- Cost of Transfer XXX
Net Value of Consideration XXX
Less :- Cost of Acquisition -XXX
XXX
Less:- Cost of Improvement -XXX
SHORT TERM CAPITAL GAINS XXX
Q.8. How is Long Term Capital Gains determined?
Ans:- Long Term Capital Gains is determined by preparing following Statement
STATEMENT OF INCOME FROM LONG TERM CAPITA GAINS
PARTICULARS AMOUNT AMOUNT
Full Value of Consideration [Sales Price] XXX
Less :- Cost of Transfer XXX
Net Value of Consideration XXX
Less :- Indexed Cost of Acquisition -XXX
XXX
Less:- Indexed Cost of Improvement -XXX
LONG TERM CAPITAL GAINS XXX

Q.9. What is the formula for ascertaining Indexed cost of Acquisition?

Ans:- Indexed Cost of Acquisition = Index of the Year of Transfer X Cost of Acquisition
Index of Year of Acquisition

Q.10. What is the formula for ascertaining Indexed cost of Improvement?

Ans:- Indexed Cost of Improvement = Index of the Year of Transfer X Cost of Improvement
Index of Year of Improvement
 INCOME FROM CAPITAL GAINS

SHORT TERM CAPITAL GAINS AMT AMT LONG TERM CAPITAL GAINS AMT AMT
Full Value of Consideration XXX Full Value of Consideration XXX
Less :- Cost of Transfer [XXX] Less :- Cost of Transfer [XXX]
Net Value of Consideration XXX Net Value of Consideration XXX
Less :- Cost of Acquisition [XXX] Less :- Indexed Cost of Acquisition [XXX]
XXX XXX
Less:- Cost of Improvement [XXX] Less:- Indexed Cost of Improvement [XXX]
STCG XXX LTCG XXX

COST OF INFLATION INDEX TABLE

FIN. YEAR C.I.I. FIN. YEAR C.I.I.
2001-02 100 2013-14 220
2002-03 105 2014-15 240
2003-04 109 2015-16 254
2004-05 113 2016-17 264
2005-06 117 2017-18 272
2006-07 122 2018-19 280
2007-08 129 2019-20 289
2008-09 137 2020-21 301
2009-10 148 2021-22 317
2010-11 167 2022-23 331
2011-12 184 2023-24 348
2012-13 200 2024-2025

Q.1. Mr. Asim purchased a Flat as on 1st May 2019 for ₹ 35,00,000 he also paid Stamp Duty and Registration
charges of ₹ 2,00,000 and paid a brokerage of ₹ 35,000. He renovated his flat on 1st January 2021 and spent ₹
3,00,000. On 31st July 2022 he sold his flat for Rs, 1,00,00,000. He had to pay ₹ 1,00.000 as brokerage for selling
his flat. You are required to Calculate the Taxable income from Long Capital Gains of Mr. Asim for P.Y. 2022 -
2023.

Q.2. Miss. Gurupyari purchased a shop worth ₹ 50,00,000 on 1st April 2021 after paying brokerage of ₹ 50,000
and also paid registration and stamp duty of ₹ 3,00,000.
She sold her shop as on 25th December 2022 for ₹ 1,20,00,000 and paid Rs 1,20,000 as brokerage.
Calculate Taxable Income of Miss. Gurupyari from Short Term Capital Gain for P.Y. P.Y. 2022 - 2023.
Q.3. Miss Ragini purchased a Flat as on 1st June 2010 for ₹ 15,00,000. She also paid Stamp Duty and Registration
charges of ₹ 15,000 and paid a brokerage of ₹ 3,500. She renovated her flat on 1st July 2014 and spent ₹ 50,000.
She again renovated her Flat again on 5th November 2018 and Spent ₹ 1,20,000.
On 31st October 2022, She sold her flat for ₹ 1,00,00,000. She had to pay ₹ 1,00,000 as brokerage for selling
her flat. You are required to Calculate the Taxable income from Long Capital Gains of Miss Ragini for P.Y. 2022
– 2023.

Q.4. Miss Maithili purchased a flat worth ₹ 90,00,000 on 1st August 2021 after paying brokerage of ₹ 90,000
and also paid registration and stamp duty of ₹ 2,00,000.
She sold her flat as on 25th February 2023 for ₹ 1,20,00,000 and paid ₹ 2,00,000 as brokerage.
Calculate Taxable Income of Miss Maithili from Short Term Capital Gains.
 INCOME FROM OTHER SOURCES
Q.1. How does income from other sources arise?
Ans:- Those incomes which do not fall under the head of income from salaries, Income from House
Property, Incomes from Business or Profession, Income from Capital Gain are taxable as Income from other
sources.

Following are the Income from Other Sources.

DW RAM2U F2AKIR2 G Etc.…

D
Dividend Income from

Indian Company Foreign Company Co-operative Society

Taxable Taxable Taxable

Note: Any Expenses incurred to generate the Dividend Income should be deducted from the Income.
(For E.g. Collection Charges of Dividend Charged by bank for collection of dividends)

Winning Income / Casual Income

Income from Winning of Lottery, Gambling, Betting, Puzzles, Electronics Games, Card Games, Horse Race,
Camel race. Fully Taxable
Note: Ignore any expenses spent to generate the income (e.g. Cost of Lottery Tickets)

Rental Income
There are basically 3 types of Rental Income

1. Renting of Assets
2. Subletting
3. Composite Rent

Rent of Assets other than House Property e.g. Machinery (including Rent from Open plot of Land)
Rent from Sub-letting (Subletting = Rent Paid — Rent Received)
Composite Rent is the rent of Building along with other Assets (deduct expenses related to assets such as
deprecation, repairs from rent received) (Composite Rent = House Property + Facilities)

Agricultural Income

From India From Foreign Country

Exempt Taxable
M

Income of MP/MLA/MLC

Salary Daily Allowance

Taxable Exempt

Income of Minor Child

• Taxable in the hands of Parents
• Parents will get exemption of Maximum of Rs. 1,500 per annum per minor child.

Income from Units of UTI or Mutual Funds - Fully Exempt

Director Board meeting Fees - Fully Taxable

Family Pension Received by Family member after death of employee.
Family Pension
Less: Standard Deduction 1/3rd of Actual Amount Received
Or
15,000 (Whichever is less)

Award Received

From Government From Private Institute

Exempt Taxable

Keyman Insurance Policy Amount Received Taxable.

Note: Amount received from LIC Policy on Maturity Fully Exempt.

Interest Income (Refer Note 1)

Royalty Income Taxable

Remuneration received from Non-Employer is Taxable

Gift Income (Refer Note 2)

Note 1:
I
Interest Income

G NP TP KRC Other
Taxable
DSP SCC
Exempt
G = Gold Deposit Bond/Scheme 1999
N = National
Defense Gold Bond
Saving Annuity Certificate
Plan Certificate
P = Post office
Savings Bank Account
Cumulative Time Deposit Account
Cash Certificate
T = Treasury Saving Deposit Certificate
P = Public Provident Fund
K = Konkan Railways Corporation Bond
R = Relief Bond (National /State/RBI)
C =Capital Investment Bond

Note 2:
Gift Income
1. If gift is received from Employer it is taxable in the hands of the employee as it is regarded as
Perquisite from the Employer. Hence is taxable under the head Income from Salary.
2. Gift received from clients & other businessman or professions, it is taxable in the hands of
Businessman or professions. It is taken care in Income from Business or Profession .
3. Any other Gift other than 1 & 2 is taxable as Income from Other sources Gifts.

Gift Income

IM DR HUT Lo Others
EXEMPT Up to Rs. 50,000 Not Taxable
Above Rs. 50,000 Fully Taxable

I = Inheritance
M= Marriage
D = Death
R = Relatives
H = Hospital/ Approved Charitable Institution
U = University/Educational Institution
T = Trust
L = Local Authourity
 INCOME FROM OTHER SOURCES

Q.1. From the following Information given by Ms. Priyanka Chopra, Calculate her taxable Income from
other sources for previous year 2022 – 2023.
1. Dividend from Indian Company ₹ 8,000 [Dividend collection Charges ₹ 500].
2. Dividend from a Foreign Company ₹ 10,000. Bank Charges ₹ 1,000 as collection charges. Interest on
Loan borrowed for purchasing shares ₹ 500.
3. Winnings from Lotteries ₹ 5,000 [Lottery Tickets purchased ₹ 500]
4. Interest on Debentures ₹ 1,500 from Indian Company.
5. Income of a Minor Child ₹ 500.
6. Rent from Plant & Machinery ₹ 1,500 p.m. Expense incurred ₹ 1,000 for repairs ₹ 2,000 as
depreciation and other expenses ₹ 500.
7. Gross Salary ₹ 5000 from A Ltd.
8. Agricultural Income from India ₹ 8,000.
9. Income Tax Refund [including interest ₹ 10,000] ₹ 25,000.

Q.2. Ms. Aliya Bhat requests you to Calculate Her income from Other Sources for the P.Y. 2022 – 2023.
Details of Income & Expenses is as follows: -
1. Ms. Aliya Bhat retired from XYZ Ltd on 31 – 12 – 2022.
She received monthly pension of ₹ 2,000 after Her retirement from the Company.
2. She owns a House Property, which She has let out on hire to Ms. Katrina Kaif on a monthly rent of ₹
6,000. She also paid Municipal Taxes of ₹ 1,000.
3. Interest on Debentures of Indian Company ₹ 3,000.
4. Income of Minor son Master Dinu from acting in T.V. Advertisement ₹ 3,000.
5. Ms. Aliya Bhat is also a MLC in Maharashtra. Her Salary as MLC is ₹ 7,000 per month & she also
received a daily allowance of ₹ 3,000.
6. Refund of Share Application money ₹ 5,000.
7. Interest on Bonds issued by Bajaj Auto. Face value ₹ 10,000. Interest rate 10% per annum.

Q.3. Mr. Shahrukh Khan provides you the following information for the year ended on 31st March 2023.
1. Gross Salary ₹ 48,000 from Fast Food Pvt Ltd [Profession tax deducted from salary ₹ 600]
2. Income from units of Unit Trust of India ₹ 2,000.
3. Family Pension received on death of wife ₹ 60,000.
4. Interest on deposit with ₹ 2,200.
5. Interest on deposit with Hindustan Lever Ltd. ₹ 3,000.
6. Winning from Lottery ₹ 8,000 and expenses incurred to realize the Lottery prize of ₹ 200.
7. Refund of Share Application money ₹ 10,000.
8. Received ₹ 10,000 from L.I.C. on maturity of policy.
9. Interest on PPF account with State Bank of India ₹ 125.
10. Accrued Interest on NSC ₹ 1,400.
11. Interest on Gold Deposit Scheme 1999 ₹ 5,400.
12. Private Tuition Fees ₹ 5,000 [Conveyance Expense 20%]
You are required to Compute his Income Chargeable under the Head Income from Other Sources for the
Assessment year 2023 - 2024.
Q.4. Mr. Ae May Le Netaji is a Member of Parliament. During the previous year, he had the following
incomes:
1. As a member of parliament, he received a salary of ₹ 1,00,000 per month and daily allowance of
₹ 5,000 for attending various sessions.
2. He received dividend of ₹ 50,000 from a Co-operative society and ₹ 5,00,000 from ABC Ltd.
3. He has won ₹ 9,00,000 in Crossword Puzzle.
4. On 1st September, 2021 he purchased a plot of Land for constructing his house on account of
shortage of funds, he could not get this house constructed and hence let out the plot at ₹ 15,000
per month since1st October, 2022.
5. He has let out Machinery & Furniture and also building to Mr. Wagle at a monthly rent of ₹ 60,000.
He spent ₹ 4,500 on the repairs of Machinery, Furniture & Building during the previous year.
Depreciation allowed in respect of these assets for the previous year was ₹ 18,000.
6. Gift from Girl Friend ₹ 51,000 and from wife ₹ 90,000 received on wedding anniversary on
21/12/2022.
Compute the Income from Other Sources of Mr. Ae May Le Netaji for P.Y. 2022 – 2023.

Q.5. Following are the particulars furnished by Mr. Ricky Ponting for the year ending on 31st March,
2022. Compute the Income under the head ‘Income from Other Sources’ for the Assessment year 2023
- 2024.
1. Dividend on Preference Shares ₹ 5,000.
Collection charges in respect of dividends ₹ 100.
2. Rent from Letting of a Building along with Plant, Machinery & Furni ture fitted therein ₹ 20,000.
Depreciation on Building, Furniture etc. ₹ 6,000.
Insurance Premium paid in respect of the Building ₹ 1,000.
Office & Establishment expenses related to Building ₹ 2,000.
3. Fixed Deposit with Bajaj Finserv Ltd placed on 1st July 2014 for ₹ 2,00,000 carrying simple
interest @ 15% per annum.
4. Rent from sub – Letting a Flat ₹ 12,500. Rent paid to the land lord ₹ 2,500.
5. Dividend from Units of Unit Trust of India ₹ 2,500.
6. Amount received on Maturity of Life Policy ₹ 60,000.
7. Received Gold valued at ₹ 5,00,000 as a gift from his girlfriend.
8. Winnings [Net ₹ 70,000] after TDS of ₹ 30,000.
9. Interest on Post Office monthly income account ₹ 1,000.

Q.6. Ms. Katrina Kaif, a Technical Director of a reputed concern, gives you the following information for
the previous year ended March 31, 2022.
1. Interest on Fixed Deposits with Bank of India ₹ 36,000 Net [TDS 10%]
2. Agricultural Income ₹ 24,000.
3. Interest on Company Deposit ₹ 1,500.
4. Interest on Deposit in Post Office Saving Bank account ₹ 1,250.
5. Dividend received from Reliance Textiles Ltd ₹ 10,000.
6. Directors Board Meeting fees ₹ 200 per meeting. During the previous year Ms. Katrina Kaif
attended 5 meetings including annual general meeting.
7. Family pension received after the death of Mr. Kaif ₹ 2,500 per month.
8. Interest on Konkan Railway Corporation Bonds ₹ 2,000.
9. Income from units of SBI Mutual Fund ₹ 1,000.
10. Gift ₹ 1,00,000 received from a Charitable Trust.
You are required to Calculate her Income from Other Sources for A.Y. 2023 - 2024.
Q.7. Shri Vidhayak holds following Securities and Shares as on 01 – 04 – 2021:
₹ 40,000 7.5% Bihar Government Securities
₹ 85,000 12% Debentures of ABC Ltd.,
₹ 10,000 9% National Relief Bonds.
₹ 20,000 10.5% Konkan Railway Corporation Bonds.
₹ 15,000 10% Preference Shares in PQR Ltd.
Shri Vidhayak is a Member of Parliament. Salary & Daily Allowance from this source amounted to ₹ 36,000
& ₹ 10,500 respectively.
Following information is given regarding his Minor Children’s Income.
First Son’s Income ₹ 5,600
Second Son’s Income ₹ 1,200
Daughter’s Income ₹ 25,600
[Received as First Prize in Singing Competition]
Rent from Subletting ₹ 35,000
Rent paid to Landlord ₹ 10,000
Calculate the Income from Other Sources for the A.Y. 2021 - 2022.
 INCOME FROM BUSINESS OR PROFESSION
Q.1. How does income from business or profession arise?
Ans: - Income from business shall arise through operations of business activities. In other words, the net profit
earned by a business shall be considered as his income from business.

Q.2. What is given in the problem?

Ans: - Profit and Loss Account or Income & Expenditure Account and certain information or adjustments.

Q.3. What we have to do?

Ans: - We have to prepare a Statement indicating Taxable Income from business.

Q.4. How to prepare the Statement of Taxable Income from Business?

Ans: - Following is the format of Statement of Income from Business

STATEMENT OF INCOME FROM BUSINESS AS PER INCOME TAX

PARTICULARS AMOUNT AMOUNT
Net Profit as per Profit & Loss Account XXX
Add:- Disallowed Business Expenses
1. XXX
2. XXX
3. XXX XXX

Less:- Non Business Income

1. XXX
2. XXX XXX
XXX
Less:-Unrecorded Business Expense
1. XXX
2. XXX XXX

Add:- Unrecorded Business Income

1. XXX
2. XXX XXX
TAXABLE PROFIT AS PER INCOME TAX XXX

Q.5. What are Disallowed Business Expense?

Ans: - Disallowed Business Expense are Non-Business Expense or those Expense which are not considered as
Business Expense as per Income Tax.

Q.6. What are Non Business Income?

Ans: - All Income which are not earned through operations of business are Non-Business Income. E.g. Income
from Salary, Income from House Property, Income from Capital Gains & Income from other sources.
Q.7. What are Unrecorded Business Expenses?
Ans: - Unrecorded Business Expense are those business expense which are forgotten to be recorded by the
business man on the profit and loss account debit side. Or have been omitted by mistake.

Q.8. What are Unrecorded Business Incomes?

Ans: - Unrecorded Business Expense are those business Income which are forgotten to be recorded by the
business man on the profit and loss account credit side. Or have been omitted by mistake.

Q.9. Where to find Disallowed Business Expenses?

Ans: - Disallowed Business Expenses appear on the Debit of Profit and Loss Account.

Q.10. What to do if we locate Disallowed Business Expense on the Debit Side of Profit and Loss account?
Ans: - On the Debit side of Profit and Loss account we need to mark them as Cross ‘X’. These expenses marked
as Cross ‘X’ are to be added back to Net profit as per Profit and Loss Account.

Q.11. What to do if we locate Non-Business Income on the Credit Side of Profit and Loss account?
Ans: - On the Credit side of Profit and Loss account we need to mark them as Cross ‘X’. These incomes marked
as Cross ‘X’ are to be deducted from Net profit as per Profit and Loss Account.

Q.12. How to locate Unrecorded Business Expenses?

Ans: - Unrecorded Business Expenses are usually specified in the adjustment or information. However 2 items
namely Depreciation [If Depreciation as per Income tax is provided separately] and Scientific Research [25%]
are always Unrecorded Business Expense.
Note :- When depreciation as per income tax is provided in the adjustment then the depreciation in the profit
and loss account is considered as Disallowed Business Expense and depreciation provided in the adjustment is
the Unrecorded Business Expenses.

Q.13. How to locate Unrecorded Business Income?

Ans: - Unrecorded Business Expenses are specified in the adjustment or information.

Q.14. Which expenses are allowed as business expense as per Income Tax
Any expenditure incurred for the purposes of business or profession, provided it satisfies the following
conditions:
a) Such expenditure is not of the nature as described u/s 30 to 36.
b) Such expenditure is not in the nature of capital expenditure or personal expenses of the assessee.
c) Such expenses are wholly and exclusively incurred for the purposes of business or profession.
d) It should be in respect of business carried on by the assessee.
e) If such expenditure incurred for the purpose which is an offence or which is prohibited by law, shall not be
deemed to have been incurred for the purpose of business or profession and hence shall not be allowed.
f) Such expenditure incurred by an assessee should not be in relation to corporate social responsibility,
expenditure applicable to companies under the Companies Act, 2013.

EXAMPLES OF EXPENSES THAT ARE USUALLY ALLOWED AS BUSINESS EXPENSES AS PER INCOME TAX
[Unless otherwise specifically mentioned in the problem as Disallowed or Non Business Expenses]
1. Purchases of Materials.
2. Royalties.
3. Freights & Carriages.
4. Wages.
5. Salaries.
6. Pension paid to employees on retirement.
7. Premium for insurance against loss of profit.
s. Technical Fees.
9. Legal expenses. .
10. Loss due to Theft.
11. Loss on sale of Investments.
12. Embezzlement of cash etc.
13. Discounts.
14. Staff Welfare expenses.
15. Travelling expenses.
16. Fees and subscription
17. Telephone expenses
18. Damages.
19. Commission and Brokerage.
20. Audit Fees.
21. Directors’ Remuneration.
22. Profession Tax.
23. Expenses on Local Festivals such as Diwali, Muhurat, etc.
24. Provision for sales tax payable.
25. Expenses on registration of trade marks.
26. Cash shortage found in business at the end of the day.
27. Expenditure on special advertisement campaign at the time of opening of new branches.
28. Expenditure, incurred to secure overdraft facilities for the business purpOSeS.
29. Expenditure on training of employees.
30. Compensation paid to a worker in order to dismiss him in the interest of business.
31. Remuneration tO family members.
32. Loss caused by standing surety for others.
33. Loss due to failure to recover advance.
34. Loss by white ants.
35. Loss by fire.
36. Sales tax, excise duty etc.
37. Demurrage paid to the Railways.

Q.15. Which expenses are disallowed as business expense as per Income Tax
EXPENSES EXCLUSIVELY DISALLOWED AS BUSINESS EXPENSES AS PER INCOME TAX
1. Donations.
2. Charity and Presents.
3. Income Tax, advance income tax, wealth tax, estate duty.
4. Legal expenses incurred to defend criminal liability.
5. Fines, penalty, resulting from contravention of any law.
6. Drawings by the proprietor including self-use of goods.
7. Depreciation in excess of the prescribed limits.
8. Fines paid for violation of the provisions of Factories Act or P.F. Act or any other law.
9. Expenses of a capital nature.
10. Expenses incurred for the purpose which is an offence or which is prohibited by any law.
 INCOME FROM BUSINESS AND PROFESSION

Q.1. Mr. Ritik Kumar has a small Soap factory at Nagpur. Following are the particulars of the Profit & Loss account
prepared by him for the accounting year 2021-2022. Compute his taxable income from business for A.Y. 2023 - 2024.
PARTICULARS ₹ PARTICULARS ₹
To Preliminary Expense 2,000 By Gross Profit b/d 98,000

To R.D.D. 5,000 By House Property Income 15,000

To Scientific Research 12,500 By Interest on Deposit under

To Commission 2,000 National Deposit Scheme 20,000

To Depreciation 6,000 By Bad Debt Recovery 6,500

To Donation to National By Sales Tax Refund 5,000

Defense Fund 11,000 By Income Tax Refund 5,000

To Income Tax 1,000 By Income from Units of UTI 12,000

To Wealth Tax 500

To Sales Tax 500

To Profession Tax 5,000

To Salary to Staff 22,000

To Office Expenses 7,000

To Municipal Tax of H.P. 3,000

To Life Insurance Premium 5,000

To Net Profit c/d 79,000

1,61,500 1,61,500

ADDITIONAL INFORMATION :
1. Advertising Expenses of ₹ 5,000 not recorded.
2. Depreciation as per Income Tax rules is ₹ 8,000.
3. Discount received but not recorded ₹ 5,000

Q.3. Ms. Saini Jaspreet Kaur has prepared the following Profit & Loss Account for the year ending 31st March, 2023.
PARTICULARS ₹ PARTICULARS ₹
To Trade Expenses 11,800 By Gross Profit b/d 60,000

To Establishment Charges 12,000 By Dividend for Co-op Society 2,600

To Rent, Rates & Taxes 11,600 By Rent from property 15,000

To Household Expenses 10,800 By Bad Debts recovered

To Discount Allowed 11,200 [Disallowed Earlier] 10,000

 To Income Tax 7,000 By Bad Debts recovered

To Advertisement Expenses 4,500 [Allowed Earlier] 12,200

To Postage & Telegram 1,100 By Salary from Partnership F. 16,000

To Fire Insurance Premium 1,200 By Bad Debts recovered

To Gifts to Customers 2,000 [Only ₹ 3,000 allowed earlier] 15,000

To Charities & Donation 2,400 By Personal Bad Debts 5,000

To Repairs & Renewals 4,000 [Recovered]

To Loss on Sale of Car 1,400 By Commission received 8,000

To Depreciation 7,000 By Interest on Capital from

To Life Insurance Premium 2,000 Partnership Firm 16,000

To Wealth Tax 7,000 By Share of Net Profit from

To Interest on Capital 1,900 Partnership Firm 1,10,000

To Audit Fees 1,850 By Compensation for Loss of

To Scientific Research 4,000 Stock by Fire 12,000

To Loss by Fire 15,000 By Sale of Packing Material 3,200

To Cash Shortage as per By Reserve for Discount on

Cash Book 1,150 Creditors 7,000

To Entertainment Expenses 8,000 By Sundry Income from

To I. Tax. appeal Expenses 7,000 Business 4,000

To Commission for raising By Agricultural Income from

Business Loan 2,100 Allahabad 88,000

To R.D.D 7,000 By Interest on belated

To Reserve for Discount 3,000 Payment by Customers 10,000

To General Expenses 4,000 By Profit on Sale of Personal

To Net Profit c/d 2,62,000 Television 20,000

4,14,000 4,14,000

ADDITIONAL INFORMATION
1. Depreciation charged in the books is in excess of depreciation according to I.T. Rules by ₹ 1,000.
2. Fire Insurance premium belongs to property let out.
3. Sundry Income from Business outstanding but not accounted ₹ 2,000.
Compute the Income Taxable
Q.4. Ms. Prachi Vishwas Pawar is the owner of Reliance & co. Following is the Trading and Profit and Loss account
for the year ended on 31st March 2023.
PARTICULARS ₹ PARTICULARS ₹
To Opening Stock 40,000 By Sales 6,90,000

To Purchases 2,06,500 By Closing Stock 30,000

To Salaries & Wages 54,000 By Custom Duty Drawback 6,000

To Stationery 11,500 By Sale of Import License 2,000

To Sales Tax 37,500 By Cash Compensation

To Advertisement 36,000 Subsidy for Expert 5,000

To Electricity 18,500 By Amount received under

To Depreciation on Endowment Life Insurance 17,000

Plant & Machinery 32,000 [Including Bonus ₹ 7,000]

To Salary to Son 20,000

To Scientific Research on

- Land 10,000

- Plant & Machinery 10,000

- Building 10,000

- Salary 19,000

- Material 5,000

To Entertainment Expenses 12,000

To Purchase of New Machine 1,00,000

To Interest on Capital 40,000

To Income Tax 10,000

To Net Profit c/d 78,000

7,50,000 7,50,000

1. Purchase include ₹ 20,000 paid in cash for goods purchased from Mr. Ranveer [Supplier] on 15 – 09 – 2015.
2. Advertisement bill of ₹ 36,000 was paid in cash.
3. Income Tax of ₹ 10,000 was paid in cash.
4. Full Amount of Stationary was paid in cash.
5. Reasonable salary of son is ₹ 10,000.
6. WDV of the Old Plant and Machinery as on 01 – 04 – 2022 is ascertained at
₹ 3,00,000. Depreciation rate as per Income Tax Rules is 15%.
On the basis of the above information you are required to compute the income taxable under the head Income from
Business or Profession.
Q.5. Miss Prathama Chandrashekar Shetty is a practicing Chartered Accountant in Delhi. She deposits all receipts
in her bank account and pays all expenses by cheque. Following is the analysis of her bank account for the year
ending 31 – 03 – 2023.
RECEIPTS ₹ PAYMENTS ₹
To Balance b/d 7,250 By Salaries 14,000

To Professional Receipts 1,40,000 By Rent of Office 4,500

To Dividend from U.T.I. 8,000 By Professional Expenses 3,000

To House Rent 22,500 By Telephone Expenses 1,000

To Horse Race Income 12,000 By Misc. Office Expenses 5,500

To Loan from Friend for By Motor Car Expense 8,000

Purchase of Car 1,00,000 By Purchase of Car 1,15,000

To Share of Income in H.U.F. 6,750 By Advance Income Tax 40,000

By Donation to Delhi

University 10,000

By Personal Expenses 45,500

By Balance c/d 50,000

2,96,500 2,96,500
Compute the Taxable Income from Business of Miss Prathama Chandrashekar Shetty after taking into account the
following :
[i] ¼th of the Motor Car expenses relate to personal use.
[ii] Car was purchased on 15 – 10 – 2022 and rate of depreciation on car is 15%.