CU-BCOM-SEM-V-Income Tax Law And Accounts-Second Draft

BACHELOR OF COMMERCE SEMESTER V INCOME TAX LAW AND ACCOUNTS

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event, Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 2 CU IDOL SELF LEARNING MATERIAL (SLM)

CONTENT Unit 1 - Basic Concepts......................................................................................................... 4 Unit 2 - Gross Total Income ................................................................................................ 24 Unit 3 - Tax......................................................................................................................... 57 Unit 4 – Exempted Incomes ................................................................................................ 72 Unit 5 – Income Heads Part I .............................................................................................. 85 Unit 6 – Income Heads Part II ........................................................................................... 106 Unit 7 – Income Heads Part III.......................................................................................... 121 Unit 8 – Retirement Benefits ............................................................................................. 141 Unit 9 – Retirement........................................................................................................... 159 Unit 10 – Capital Gain ...................................................................................................... 177 Unit 11 – Set Off Carry Forward Of Losses....................................................................... 197 Unit 12 – Deductions U/S 80 From Gross Totalincome ..................................................... 214 Unit 13 – Tax On Income Part I ........................................................................................ 225 Unit 14 – Tax On Income II .............................................................................................. 236 3 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 1- BASIC CONCEPTS STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Income 1.3 Agriculture Income 1.3.1 Income connected with land but not agricultural income 1.3.2 Agricultural Income and Tax Liability 1.3.3 Procedure for computation of Tax-payable a non-agricultural income after Integration 1.3.4 Instances of Agricultural (Agro) Income 1.3.5 Instances of Non-agricultural (Non-agro) Income 1.3.6 Treatment of Partly Agricultural & Partly Non-Agricultural Income 1.3.7 Impact of agricultural income on tax computation 1.4 Casual Income 1.5 Assessment year 1.6 Previous Year 1.7 Summary 1.8 Keywords 1.9 Learning Activity 1.10 Unit End Questions 1.11 References 1.0LEARNING OBJECTIVES After studying this unit, you will be able to:  Describe the concept of Agriculture Income.  Illustrate the Income connected with land but not agricultural income.  Explain the Instances of Non-agricultural (Non-agro) Income. 4 CU IDOL SELF LEARNING MATERIAL (SLM)

1.1INTRODUCTION An income tax is a tax imposed on individuals or entities in respect of the income or profits earned by them. Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income. The tax rate may increase as taxable income increases. The tax imposed on companies is usually known as corporate tax and is commonly levied at a flat rate. Individual income is often taxed at progressive rates where the tax rate applied to each additional unit of income increases. Most jurisdictions exempt local charitable organizations from tax. Income from investments may be taxed at different rates than other types of income. Credits of various sorts may be allowed that reduce tax. Some jurisdictions impose the higher of an income tax or a tax on an alternative base or measure of income. Taxable income of taxpayer’s resident in the jurisdiction is generally total income less income producing expenses and other deductions. Generally, only net gain from sale of property, including goods held for sale, is included in income. Income of a corporation's shareholders usually includes distributions of profits from the corporation. Deductions typically include all income producing or business expenses including an allowance for recovery of costs of business assets. Many jurisdictions allow notional deductions for individuals and may allow deduction of some personal expenses. Most jurisdictions either do not tax income earned outside the jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Non-residents are taxed only on certain types of income from sources within the jurisdictions, with few exceptions. Most jurisdictions require self-assessment of the tax and require payers of some types of income to withhold tax from those payments. Advance payments of tax by taxpayers may be required. Taxpayers not timely paying tax owed are generally subject to significant penalties, which may include jail for individuals or revocation of an entity's legal existence. The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records. For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production were all common. Practices such as tithing, or an offering of first fruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase. The first income tax is generally attributed to Egypt. In the early days of the Roman Republic, public taxes consisted of modest assessments on owned wealth and property. The tax rate under normal circumstances was 1% and sometimes would climb as high as 3% in 5 CU IDOL SELF LEARNING MATERIAL (SLM)

situations such as war. These modest taxes were levied against land, homes and other real estate, slaves, animals, personal items, and monetary wealth. The more a person had in property, the more tax they paid. Taxes were collected from individuals. In the year 10 AD, Emperor Wang Mango of the Xin Dynasty instituted an unprecedented income tax, at the rate of 10 percent of profits, for professionals and skilled labour. He was overthrown 13 years later in 23 AD and earlier policies were restored during the re- established Han Dynasty which followed. One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade. The tithe demanded that each layperson in England and Wales be taxed one tenth of their personal income and moveable property. The inception date of the modern income tax is typically accepted as 1799, at the suggestion of Henry Beke, the future Dean of Bristol. This income tax was introduced into Great Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War. Pitt's new graduated (progressive) income tax began at a levy of 2 old pence in the pound (1/120) on incomes over £60 (equivalent to £6,400 in 2019) and increased up to a maximum of 2 shillings in the pound (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million a year, but actual receipts for 1799 totalled only a little over £6 million. Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities with France recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. Opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchequer, but copies were retained in the basement of the tax court. In the United Kingdom of Great Britain and Ireland, income tax was reintroduced by Sir Robert Peel by the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150 (equivalent to £14,225 in 2019), Although this measure was initially intended to be temporary, it soon became a fixture of the British taxation system. A committee was formed in 1851 under Joseph Hume to investigate the matter but failed to reach a clear recommendation. Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, and extended it to cover the costs of the Crimean War. By the 1860s, the progressive tax had become a grudgingly accepted element of the United Kingdom fiscal system. 6 CU IDOL SELF LEARNING MATERIAL (SLM)

1.2 INCOME Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. For households and individuals, income is a sum that includes any wage, salary, profit, interest payment, rent, or other form of earnings received in eachperiod. Net income is defined as the gross income minus taxes and other deductions (e.g., mandatory pension contributions), and is usually the basis to calculate how much income tax is owed. In the field of public economics, the concept may comprise the accumulation of both monetary and non-monetary consumption ability, with the former (monetary) being used as a proxy for total income. For a firm, gross income can be defined as sum of all revenue minus the cost of goods sold. Net income nets out expenses: net income equals revenue minus cost of goods sold, expenses, depreciation, interest, and taxes. The theoretical generalization to more than one period is a multi-period wealth and income constraint. For example, the same person can gain more productive skills or acquire more productive income-earning assets to earn a higher income. In the multi-period case, something might also happen to the economy beyond the control of the individual to reduce (or increase) the flow of income. Changing measured income and its relation to consumption over time might be modelled accordingly, such as in the permanent income hypothesis. \"Full income\" refers to the accumulation of both the monetary and the non-monetary consumption-ability of any given entity, such as a person or a household. According to what the economist Nicholas Barr describes as the \"classical definition of income\" \"income may be defined as the sum of the market value of rights exercised in consumption and the change in the value of the store of property rights...\" Since the consumption potential of non- monetary goods, such as leisure, cannot be measured, monetary income may be thought of as a proxy for full income. As such, however, it is criticizedbeing unreliable, i.e., failing to accurately reflect affluence of any given agent. It omits the utility a person may derive from non-monetary income and, on a macroeconomic level, fails to accurately chart social welfare, According to Barr, \"in practice money income as a proportion of total income varies widely and unsystematically. Non-observability of full-income prevents a complete characterization of the individual opportunity set, forcing us to use the unreliable yardstick of money income. Income is money or the equivalent value that an individual or business receives, usually in exchange for providing a good or service or through investing capital. Income is used to fund day-to-day expenditures. For most individuals, income is often received in the form of wages or salary. Investments, pensions, and Social Security are also sources of income and are normally primary income sources for retirees. Business income can refer to a company's remaining revenues after paying all expenses and taxes. In this case, 7 CU IDOL SELF LEARNING MATERIAL (SLM)

income is referred to as earnings. Most forms of income are subject to taxation by local, state, and federal governments. Individuals receive income through earning wages by working and making investments in financial assets such as stocks, bonds, and real estate. For instance, an investor’s stock holding may pay income in the form of an annual dividend. In most countries, earned income is taxed by the government before it is received. The revenue generated by income taxes finances government actions and programs as determined by federal and state budgets. The Internal Revenue Service (IRS) calls income from sources other than a job, such as investment income, unearned income. Income from wages, salaries, interest, dividends, business income, capital gains, and pensions received during a given tax year are considered taxable income in the United States. Other taxable income includes annuity payments, rental income, farming, and fishing income, unemployment compensation, retirement plan distributions, and stock options. Lesser-known types of taxable income include gambling income, bartering income, and jury duty pay. The types of income listed above would be classified as ordinary income, which is composed mainly of wages, salaries, commissions, and interest income from bonds. Ordinary income is taxable using ordinary income rates. This type of income differs from capital gains or dividend income in that it can only be offset with standard tax deductions, while capital gains can only be offset with capital losses Disposable income is money that remains after taxes are paid. Individuals spend disposable income on necessities, such as housing, food, and transportation. Discretionary income is the money that remains after paying all necessary expenses. People spend discretionary income on items like vacations, restaurant meals, cable television, and movies. In a recession, individuals tend to be more prudent with their discretionary income. For example, a family may use its discretionary income to make extra payments on a mortgage or save it for an unexpected expense. Disposable income is typically higher than discretionary income within the same household because expenses of necessary items are not removed from the disposable income. Both measures can be used to project the amount of consumer spending. However, either measure must also consider the willingness of people to make purchases. 1.3 AGRICULTURE INCOME Agricultural Income is exempt from the levy of Income Tax in India. However, when a taxpayer has agricultural income, the rate at which the assessee pays tax on non-agricultural income depends on the quantum of agricultural income, As per Entry no. 46 in the State List of the right to collect taxes on agricultural income lies with the states. Hence, the implication is that the Central Government does not have the power to levy taxes on agricultural income. 8 CU IDOL SELF LEARNING MATERIAL (SLM)

The Government of India observed that taxpayers were earning a massive amount of agricultural income which was exempt from taxation under the Act. At the same time, the taxpayers were having other income, which was also availing of exemption under the Act on account of availability of the basic exemption limit. To address the situation, the Government introduced an alternative method of taxing agricultural income. Under the method, agricultural income is used to determine the tax slab which applies to the taxpayer. The method should be used irrespective of the accounting methods used by the assessee. In this article, the method of calculating the tax liability of an assessee who has agricultural income has been explained. Figure 1.1: Agriculture Income Agricultural Income is exempt from the levy of Income Tax in India. However, when a taxpayer has agricultural income, the rate at which the assessee pays tax on non-agricultural income depends on the quantum of agricultural income, As per Entry no. 46 in the State List of the right to collect taxes on agricultural income lies with the states. Hence, the implication is that the Central Government does not have the power to levy taxes on agricultural income. The Government of India observed that taxpayers were earning a massive amount of agricultural income which was exempt from taxation under the Act. At the same time, the taxpayers were having other income, which was also availing of exemption under the Act on account of availability of the basic exemption limit. To address the situation, the Government introduced an alternative method of taxing agricultural income. Under the method, agricultural income is used to determine the tax slab which applies to the taxpayer. The method should be used irrespective of the accounting methods used by the assessee. In this 9 CU IDOL SELF LEARNING MATERIAL (SLM)

article, the method of calculating the tax liability of an assessee who has agricultural income has been explained. The definition of agriculture income is given under section 2(1A) of the Income Tax Act. The section mentions that any income from the following sources will be treated as agriculture income:  Any revenue from the land which is situated in India, and which is used for agricultural purposes is exempt. Further, the rent received from the land will be treated as agricultural income. However, to satisfy this condition, the person to whom the land is given on rent should use the land for exclusively agricultural purposes.  Any revenue received by the cultivator or the owner of the land which falls under the category of income derived from the agricultural produce from that agriculture land is also exempt.  Any revenue from the farm building is also exempt, but only if the following conditions are satisfied:  The land is used for the purpose of storage or as a dwelling house.  The land should be occupied by the cultivator or the assessee should be in ownership of it.  The farm building should be in the immediate vicinity of the agricultural land and should not be distant from the agricultural land.  The farm building must be assessed to land revenue in India. Agricultural Income is exempt from the levy of Income Tax in India. However, when a taxpayer has agricultural income, the rate at which the assessee pays tax on non-agricultural income depends on the quantum of agricultural income, As per Entry no. 46 in the State List of the right to collect taxes on agricultural income lies with the states. Hence, the implication is that the Central Government does not have the power to levy taxes on agricultural income. The Government of India observed that taxpayers were earning a massive amount of agricultural income which was exempt from taxation under the Act. At the same time, the taxpayers were having other income, which was also availing of exemption under the Act on account of availability of the basic exemption limit. To address the situation, the Government introduced an alternative method of taxing agricultural income. Under the method, agricultural income is used to determine the tax slab which applies to the taxpayer. The method should be used irrespective of the accounting methods used by the assessee. In this article, the method of calculating the tax liability of an assessee who has agricultural income has been explained. Meaning of Agricultural Income 10 CU IDOL SELF LEARNING MATERIAL (SLM)

The definition of agriculture income is given under section 2(1A) of the Income Tax Act. The section mentions that any income from the following sources will be treated as agriculture income: 1. Any revenue from the land which is situated in India, and which is used for agricultural purposes is exempt. Further, the rent received from the land will be treated as agricultural income. However, to satisfy this condition, the person to whom the land is given on rent should use the land for exclusively agricultural purposes. 2. Any revenue received by the cultivator or the owner of the land which falls under the category of income derived from the agricultural produce from that agriculture land is also exempt. 3. Any revenue from the farm building is also exempt, but only if the following conditions are satisfied:  The land is used for the purpose of storage or as a dwelling house.  The land should be occupied by the cultivator or the assessee should be in ownership of it.  The farm building should be in the immediate vicinity of the agricultural land and should not be distant from the agricultural land.  The farm building must be assessed to land revenue in India. Examples of Agricultural Income  Income from the sale of replanted trees.  Rent received from sub-letting agricultural land.  Income from growing flowers and creepers.  Share of profit of a partner from a firm engaged in agricultural operations.  Interest on capital received by a partner from a firm engaged in agricultural operations.  Income derived from the sale of seeds. Examples of Non-Agricultural Income  Income from poultry farming.  Income from bee hiving.  Income from the sale of spontaneously grown trees.  Income from dairy farming.  Purchase of standing crop. 11 CU IDOL SELF LEARNING MATERIAL (SLM)

 Dividend paid by a company out of its agriculture income.  The income derived from salt produced by flooding any portion of the agricultural land with seawater.  Royalty income from mines.  Income from butter and cheese making.  Receipts from a television serial shooting in a farmhouse. Procedure for Tax Computation Although agricultural income is fully exempt from tax, the Finance Act, 1973, introduced a scheme whereby agricultural income is included with non-agricultural income in the case of non-corporate assesses who are liable to pay tax at specified slab rates. The process for income tax computation for such assesses is as follows:  Income tax is first calculated on the net agricultural income plus the assessor’s total income from non-agricultural sources.  Income tax is then calculated on the basic exemption slab increased by the assessee’s net agricultural income.  The difference between (a) and (b) is the amount of tax payable by the assessee. This process of computation is, however, followed only if the assessee’s non-agricultural income is more than the basic exemption slab. Clearly, despite agricultural income being tax-exempt, assessees should be cautious while dealing with such income. Taxpayers must make sure that they aggregate agricultural income with their total income to avoid interest payments and possible penalties for concealment of income. Assessees must also maintain credible records to provide the tax authorities with proof of ownership of agricultural land and evidence of having earned agricultural income. 1.3.1 Income connected with land but not agricultural income The following incomes are not derived from land used for AgriculturalPurposes; hence they are treated as non-agricultural income: -  Income from markets  Income from stone quarries  Income from mining royalties  Income from land used for storing agricultural produce  Income from the supply of water for irrigation purposes from tube-well or well  Income from self –grown grass, trees, or bamboos VII. Income from fisheries 12 CU IDOL SELF LEARNING MATERIAL (SLM)

 Income from the sale of the earth for brick-making  Remuneration received as manager of an agricultural farm  Dividend from a company engaged in agriculture  Income of the buyer of a ripe crop  Income from dairy farming, poultryfarming, etc.; and  Income from interest on arrears of rent of agricultural land 1.3.2 Agricultural Income and Tax Liability Though agricultural income is exempt, and it is not included in computation of total income of an assessee but from tax calculation point of view it is added to total income. The agricultural income is integrated with non-agricultural income in those cases where assessee has both incomes. Such integration is done only in the case of individual, HUF, AOP/BOI and Artificial juridical person. Condition for Integration - When the following two conditions are satisfied-  Non-agricultural income of the assessee exceeds the maximum exemption limit which for the assessment year 2015-16 is Rs. 2.5 LAKH in the case of an individual, Women and HUF in case of Senior citizen it will be Rs. 3,00,000 and Super senior citizen Rs. 5,00,000 instead of Rs. 2,50,000/-.  Net agricultural income exceeds Rs. 5,000 1.3.3 Procedure for computation of Tax-payable a non-agricultural income after Integration  Aggregate the Agricultural income with non-Agricultural income and determine the tax payable on such amount.  Aggregate the Agricultural income with basis exemption limit and determine the tax payable on such amount.  The difference between the tax computed in step (a) and step (b) will be the tax payable in respect of non-agricultural income. 1.3.4 Instances of Agricultural (Agro) Income Article 366of the Constitution provides that the expression ‘agricultural income’ in the Constitution means agricultural income as defined for the purpose of enactments relating to Indian Income Tax. As per section 2(1A) of the Income Tax Act, 1961 (the Act) ‘agricultural income’ means Any rent or revenue derived from land which is situated in India and is used for agricultural purposes; Any income derived from such land by agricultural operations including processing of agricultural produce so as to render it fit for market or sale of such produce; Any income attributable to a farm house subject to fulfilment of conditions 13 CU IDOL SELF LEARNING MATERIAL (SLM)

specified in the Act; and Any income derived from saplings or seedlings grown in a nursery. As per section 10 of the Income Tax Act, 1961, agricultural income is exempted from tax. Taxes on agricultural income fall under Entry 46 in “State List” under the Constitution of India. Thus, only the State Governments are competent to enact legislations for taxation of agricultural income. The Central Government cannot levy income tax on agricultural income. However, agricultural income is considered for rate purposes while determining the income tax liability viz. the rate91 of tax applicable to other taxable income of Individuals, Hindu Undivided Families (HUF), Association of Persons (AOP), Bodies of individuals (BOI) and artificial juridical persons. Exemption under the Income Tax law may be claimed as agricultural income, income from sale of agriculture land, income earned as compensation received from government for acquiring the agriculture land etc. 1.3.5 Instances of Non-agricultural (Non-agro) Income As mentioned earlier, certain agriculture-related works and the income thus generated, is categorised as non-agricultural income and is taxable. When an agricultural produce undergoes a process to become marketable, the final product is categorised as non-agricultural, for example, the production of tea, coffee, rubber, etc. Also, if a farmer sells processed items without carrying out any agricultural or processing operations, the income would be categorised as business income. This includes dairy animals, fishery and poultry farming on agricultural land. Trees grown on farmland only to be used as timber, fall in the non-agriculture category, as no active agricultural business has been concluded in the entire process. Those who earn their income by trading agricultural produce, must pay standard taxes on their income. Income earned from the export of agricultural produce, could be exempt from IT if certain conditions are satisfied. If a farmer is generating agricultural income, along with non-agricultural income, he will have to calculate the taxable income. The need to do so would arise, only if his net agricultural income is greater than Rs 5,000 during the year and his non-agricultural income is higher than the maximum amount not chargeable to tax under the tax slab. This means that the non-agricultural income should be more than Rs 2.50 LAKHS for individuals below 60 years. It should be more than Rs 3 LAKHS for farmers aged between 60 and 80 years. For people aged over 80 years, the non-agricultural income should be over Rs 5 LAKHS, to be taxable.  Income from poultry farming.  Income from bee hiving.  Any dividend that an organization pays from its agriculture income. 14 CU IDOL SELF LEARNING MATERIAL (SLM)

 Income from the sale of spontaneously grown trees.  Dividend received by shareholder from a company carrying agricultural operations  Commission earned by broker from selling agricultural produce  Income from salt produced after the land has flooded with sea water.  Purchase of standing crop.  Royalty income from mines.  Income from butter and cheese making.  Receipts from TV serial shooting in farm house. 1.3.6 Treatment of Partly Agricultural & Partly Non-Agricultural Income An assessee may have composite business income which is partially agricultural and partially non-agricultural, for example, where XYZ Ltd. grows potatoes and further processes its produce to sell them as wafers. In this case the company has composite income i.e., from agriculture and from business. The composite income must be disintegrated and for computing business income the market value of any agricultural produce raised by the assessee or received by him as rent in kind and utilised as raw material in his business is deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent in kind. For computing agricultural income, the market value of agricultural produce will be total agricultural receipt on account of potatoes. From such agricultural receipts, expenses such as cultivation expenses etc. incurred in connection with such receipt will be deducted and balance will be agricultural income which will be exempt. For example, in the above case, if the market value of the potatoes grown by the company, which have been used for the purpose of making its own wafers, is Rs. 5 LAKHS and the cost of cultivation of such potatoes is Rs. 4 LAKHS, the agricultural income shall be Rs. 1 LAKHS. This agricultural income of Rs. 1 LAKHS shall be exempt. Further for the purpose of computing business income from the sale of wafers produced from such potatoes, the company shall be allowed deduction of `5 LAKHS as the cost of potatoes, being the market value of potatoes grown by it.  Income derived from the sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes (such as estate brown crepe, re-milled crepe, smoked blanket crepe or flat bark crepe) or technically specified block rubbers manufactured or processed from field latex or coagulum obtained from rubber plants grown by the seller in India shall be computed as if it were income derived from business, and 35% of such income shall be deemed to be income liable to tax. 15 CU IDOL SELF LEARNING MATERIAL (SLM)

 In computing such income, an allowance shall be made in respect of the cost of planting rubber plants in replacement of plants that have died or become permanently useless in an area already planted, if such area has not previously been abandoned, and for the purpose of determining such cost, no deduction shall be made in respect of the amount of any subsidy which, under the provisions of section 10(31), is not includible in the total income.  Income derived from the sale of coffee grown and cured by the seller in India, shall be computed as if it were income derived from business, and 25% of such income shall be deemed to be income liable to tax.  Income derived from the sale of coffee grown, cured, roasted, and grounded by the seller in India, with or without mixing chicory or other flavouring ingredients shall be computed as if it were income derived from business, and 40% of such income shall be deemed to be income liable to tax. 1.3.7 Impact of agricultural income on tax computation Agricultural income is exempt from Income Tax under section 10(1) of the Income Tax Act, 1961. However, its included, for rate purposes, in computing the Income Tax Liability if following two conditions are cumulatively satisfied: 1. Net Agricultural income exceeds INR 5,000/- for P.Y. 2019-20, and 2. Total income, excluding net Agricultural income, exceeds INR 2, 50,000/-. Kindly note that the condition at Serial No.2 shall change to INR 3, 00,000/- in case if the Assessee is an individual who falls in the age bracket of 60 to 79 Years during the P.Y. 2019- 20, and to INR 5, 00,000/- in case if the Assessee is an individual who is of the age of 80 Years or more during the P.Y. 2019-20. Steps to Calculate Tax on Agricultural income Once the conditions are satisfied then we shall compute the Tax liability in the following manner:  First, include the Agricultural income while computing your income Tax liability. Example – Let us say that an Individual Assessee has a Total income of INR 7,50,000/- (excluding Agricultural income) and a Net Agricultural income of INR 100,000/-. Then, per this step, Tax shall be computed on INR 7, 50,000/- + INR 1, 00,000/- = INR 8, 50,000/-. Thus, income Tax amount as per this step shall be INR 82,500/- for an individual who is below the age of 60 Years during the P.Y. 2019-20.  Second, add the applicable basic Tax slab benefit, as applicable, to the Net Agricultural income. Thus, per our example mentioned above we shall add INR 2,50,000/- to INR 1,00,000/- as the applicable Tax slab benefit available to an individual below 60 Years of age is INR 2,50,000/-. Now we will compute income 16 CU IDOL SELF LEARNING MATERIAL (SLM)

Tax on INR 3, 50,000/- (Tax slab benefit 2, 50,000 + Net Agricultural income 1, 00,000). The amount of Tax shall be INR 10,000/-.  Third, subtract the Tax computed in Second step from the Tax computed in First step = INR 72,500/-. Thus, this is the income Tax liability subject to deductions, Education cess etc., as applicable. 1.4 CASUAL INCOME Causal Income means such income the receipt of which is accidental and without any stipulation. It is the nature of an unexpected windfall. Casual income means income in winning from lotteries, crossword puzzles, races including horse races, card games and other games of any sort, gambling, betting etc. Such winnings are chargeable to tax at a flat rate of 30% under section 115BB.Though causal income is fully taxable, but it is necessary to clear this meaning from the following point of view –  Causal income like lottery, race income is taxable at special rate of 30%  Causal income cannot be set off against other causal income as well as casual income cannot be used for setting off loss of other head.  No expenditure or allowance can be allowed from such income.  Deduction under Chapter VI-A is not allowable from such income.  Adjustment of unexhausted basic exemption limit is also not permitted against such income. 1.5 ASSESSMENT YEAR It means the period of twelve months commencing on 1st of April every year. In other words, period of 12 months – 1st April to 31st March is called assessment year. As per S.2(9) of the Income Tax Act, 1961, unless the context otherwise requires, the term ‘assessment year’ means the period of twelve months commencing on the 1st day of April every year. Therefore, basically the Assessment year is a 12-month period starting from April 1, during which an assessee is required to file the return of income (ITR) for the previous year and the ITO must initiate assessment proceedings for such returned income and tax thereon. Since Income Tax is on income of a financial/ previous year or period, so tax filings and assessment can start thereafter. Probably, that’s why it’s called assessment year/ period. For example, Assessment Year 2021-22 is a period of 12 months starting from 01/04/2021 and ending with 31/03/2022. 17 CU IDOL SELF LEARNING MATERIAL (SLM)

1.6 PREVIOUS YEAR As per Section 3 of the Income Tax Act, 1961, Previous Year is the Year immediately preceding the assessment year. Previous year is also known as Financial Year. It basically means the period starting from April 1 and ending on March 31 of the next year. For the income earned in the previous/financial year, tax is paid in the assessment year. However, in those cases, where a new business/profession/ new source of income, is set up in a particular previous/financial year, then in such cases, the previous/financial year will not begin/calculated from 1st April but will begin/ calculated from the date when the new business/profession/ new source of income was set up. For the year 2020-21, if it is the previous year, then in this case, the previous year begins on 1st April 2020 and will end on 31st March 2021. And the assessment year for this previous/financial year will be 2021-22, i.e., will be from 1st April 2021 to 31st March 2022. Similar if the year 2020-21 was the assessment year, then the year 2019-20 would have been the previous / financial Year. Tax on Income earned in the previous year is paid in the assessment year. However, there are a few exceptions where the tax on Income earned in the previous year is paid in the previous year itself.  As per Section 172 of the Income Tax Act, 1961, the income earned by a non- resident from a shipping business in India, must be taxed in the previous year itself. The non-resident in this case either must own the ship or must charter the ship. The ship in this case should carry passengers/livestock/mail/goods, which are shipped to Indian Port. The rationale behind this provision is that the person /non-resident may or may not have agent in India, and once he leaves India, it will get difficult to recover tax from him. In these cases, it is mandatory for the Assessment Officer to charge Tax.  As per Section 174 of the Income Tax Act, 1961, probable income up-till the probable date of departure of the person leaving, is taxable. Again, the rationale behind this provision is that once the person leaves the country it might get very difficult to recover the tax from him. In these cases, it is mandatory for the Assessment Officer to charge Tax.  As per Section 174A of the Income Tax Act, 1961, the tax on income from those bodies which are formed for a very short period are collected in the previous year itself. The rationale behind this is that these bodies may be dissolved before the beginning of the assessment year and then collection of tax from them might get difficult. In these cases, it is mandatory for the Assessment Officer to charge Tax. 18 CU IDOL SELF LEARNING MATERIAL (SLM)

 As per Section 175 of the Income Tax Act, 1961, those people who are suspected to transfer their property before the beginning of the assessment year, to avoid tax, the income of those people are collected in the previous year itself. In these cases, it is mandatory for the Assessment Officer to charge Tax.  As per Section 176 of the Income Tax Act, 1961, the tax on Income from a business which has been discontinued in that previous year can be collected in that previous year itself. However, this is completely on the discretion of the Assessment Officer, and it is not mandatory for him to charge in the previous year itself. 1.7 SUMMARY  The international tax system is a complex system of interlocking principles deriving its sustenance from both domestic tax law and a patchwork of bilateral DTAAs. The domestic-international hybrid of rules presents taxpayers with a complex and occasionally impossible challenge of compliance but also provides taxpayers with an opportunity to arrange their commercial affairs in such a way that they can exploit the chinks in the complex armours of international tax rules.  Taxpayers, particularly multinational companies took advantage of the inherent flexibility afforded by contractual relationships (sale, purchase, lease, incorporation, restructuring) to minimise their taxes worldwide. Tax law might want to impose a certain taxable status over the commercial activities of companies, but the intricate tax planning developed through ingenious contracting by taxpayers has outsmarted frequently the reach of tax legislation.  The history of international tax law has so far been a history of the trump of contracts over status. In the international tax arena, the contract v status trope extends to two peculiarities of the system: much tax planning by companies is meant to deny states nexus over their activities, and allied nexus denial is the equally important issue of the manipulation of prices for services and products exchanged between constituent units of the same multinational group (transfer pricing).  The issue of nexus is unique to international tax law as each country attempts to extend its territorial nexus over the activities of companies that are not resident in that country. The idea of a source-based nexus depends on rules that identify when a non- resident person can be said to have a territorial connection to Indian that entitles India to tax the income of the non-resident.  When it comes to business income, the Indian rules are subservient to the double tax treaties that India has signed with most of its major trading partners, consequent to which the reigning marker for the taxation of business income in India is that the non- resident person must have a permanent establishment in India. 19 CU IDOL SELF LEARNING MATERIAL (SLM)

 The concept of a permanent establishment has taken on a wide-ranging form in Indian tax treaties with various kinds of physical presences recognised as a territorial connection adequate for the assertion of tax jurisdiction by the host country. However, the PE rules have also created opportunities for multinationals to undertake tax planning designed to take advantage of the host country resources while at the same time avoiding PE status. Usually this is accomplished through an adroit use of subsidiaries in the host country.  The foreign parent will outsource some of its business functions to its Indian subsidiary and achieve significant cost reductions and efficiency because of the lower costs of skilled manpower in India. The subsidiary is usually trained in the business processes through a limited time deputation in India of the foreign parent’s employees. PE rules in Indian tax treaties, following the OECD model, specify explicitly that subsidiaries will not form PEs of their parent companies, merely by virtue of their status as subsidiaries. 1.8 KEYWORDS  Taxable: Taxable income or gross income or adjusted gross income includes salaries, wages, bonuses, etc. along with unearned income and investment income.  Jurisdiction: The Income Tax Department issues intimations, notices and other orders to the taxpayers in the addresses based on their jurisdiction.  Deduction:A deduction is an expense that can be subtracted from a taxpayer's gross income in order to reduce the amount of income that is subject to taxation.  Public Tax: Tax revenues are used for public services and the operation of the government, as well as for Social Security and Medicare.  Profit: A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something. 1.9 LEARNING ACTIVITY 1. Create a session on Treatment of Partly Agricultural & Partly Non-Agricultural Income. ___________________________________________________________________________ ___________________________________________________________________________ 2. Create a survey on Income connected with land but not agricultural income. ___________________________________________________________________________ ___________________________________________________________________________ 20 CU IDOL SELF LEARNING MATERIAL (SLM)

1.10 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Agriculture Income? 2. Define the term Income? 3. Define Tax Liability? 4. What do you mean by Non-Agriculture Income? 5. Define the term Casual Income? Long Questions 1. Explain the Income connected with land but not agricultural income. 2. Discuss the Agricultural Income and Tax Liability. 3. Examine the Instances of Agricultural (Agro) Income. 4. Illustrate the Instances of Non-agricultural (Non-agro) Income. 5. Describe the Impact of agricultural income on tax computation. B. Multiple Choice Questions 1. What is Financial Year 2018-19 shall be considered as? a. Assessment Year for the P.Y. 2017-18 and previous year for the A.Y. 2018-19 b. Assessment Year for the P.Y. 2017-18 and previous year for the A.Y. 2019-20 c. Assessment Year for the previous year 2018-19 d. Previous year for the assessment year 2018-19 2. What is the purpose of levying tax on income other than agricultural income, Union List contained entry? a. 82 b. 92C c. 92D d. None of these 3. Which of the following is not a head of income? 21 a. Income from House Property b. Salaries CU IDOL SELF LEARNING MATERIAL (SLM)

c. Income from Interest on securities d. None of these 4. What if total income of a person is ` 2,67,888.34, it shall be rounded off to? a. 2,67,888/- b. 2,67,890/- c. 2,67,880/- d. 2,67,810/- 5. What is Income tax is known as? a. Indirect Tax b. Entertainment Tax c. Direct Tax d. Sales tax Answers 1-b, 2-a, 3-c, 4-b, 5-c 1.11 REFERENCES References book  Smith, Adam (2009). The theory of moral sentiments. Oxford: Clarendon.  Friedman, Benjamin M (2006). The moral consequences of economic growth. New York.  Case, K. & Fair, R. (2007). Principles of Economics. Upper Saddle River, NJ: Pearson Education. Textbook references  Barr, N. (2004). Problems and definition of measurement. In Economics of the welfare state. New York.  Webster's new modern English dictionary, illustrated. Webster, Noah. 1922. Income is defined as \"the gain which proceeds from labour, business, property or capital; annual receipts of a person or corporation.\"  Smith's financial dictionary. Smith, Howard Irving. 1908. Income is defined as, \"Revenue; the amount of money coming to a person or a corporation (usually 22 CU IDOL SELF LEARNING MATERIAL (SLM)

interpreted as meaning annually) whether as payment for services or as interest or other profit from investment.\" Website  https://www.caclub.in/meaning-of-assessment-year-previous-year-under-income-tax/  http://incometaxmanagement.com/Pages/Tax-Ready- Reckoner/Assessment/Agricultural-Income/5-Partly-Agricultural-and-Partly-Non- agricultural-Income.html  https://housing.com/news/taxation-of-income-from-agricultural-land/ 23 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 2 - GROSS TOTAL INCOME STRUCTURE 2.0 Learning Objectives 2.1 Introduction 2.2 Gross Total Income 2.2.1 Deductions in relation to various investments 2.2.2 Sections 80C to 80GGC 2.2.3 Deduction in respect of incomes earned from specific source Sections 80HH to 80RRB 2.2.4 Deduction in respect of other incomes – section 80TTA 2.2.5 Deduction in respect of persons with disability – Section 80U 2.2.6 Relief and Rebate in respect of Income-tax 2.2.7 Relief when salary is paid in arrears or in advance Section 89 2.3 Total Income 2.4 Person 2.5 Scope of total income 2.5.1 Scope of total income based on residential status 2.5.2 Income received in India 2.5.3 Income deemed to be received 2.5.4 Income accrued in India 2.5.5 Income deemed to accrue or arise in India 2.6 Income which does not form part of Total Income 2.7 Summary 2.8 Keywords 2.9 Learning Activity 2.10 Unit End Questions 2.11 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to: 24 CU IDOL SELF LEARNING MATERIAL (SLM)

 Describe the concept of Gross Total Income.  Illustrate the Deduction in respect of incomes earned from specific source Sections 80HH to 80RRB.  Explain the concept of Total Income. 2.1 INTRODUCTION A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC. Most countries have a tax system in place to pay for public, common, or agreed national needs and government functions. Some levy a flat percentage rate of taxation on personal annual income, but most scale taxes based on annual income amounts. Most countries charge a tax on an individual's income as well as on corporate income. Countries or subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, use taxes, payroll taxes and/or tariffs. In economic terms, taxation transfers wealth from households or businesses to the government. This has effects that can both increase and reduce economic growth and economic welfare. Consequently, taxation is a highly debated topic. The legal definition and the economic definition of taxes differ in some ways such that economists do not regard many transfers to governments as taxes. For example, some transfers to the public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by \"creating\" money and coins (for example, by printing bills and by minting coins), through voluntary gifts (for example, contributions to public universities and museums), by imposing penalties (such as traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector, levied on a basis of predetermined criteria and without reference to specific benefits received. In modern taxation systems, governments levy taxes in money; but in-kind and curve taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. Tax collection is performed by a government agency such as the Ghana Revenue Authority, Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, Her Majesty's Revenue and Customs in the United Kingdom or Federal 25 CU IDOL SELF LEARNING MATERIAL (SLM)

Tax Service in Russia. When taxes are not fully paid, the state may impose civil penalties or criminal penalties (such as incarceration) on the non-paying entity or individual. The levying of taxes aims to raise revenue to fund governing or to alter prices to affect demand. States and their functional equivalents throughout history have used the money provided by taxation to carry out many functions. Some of these include expenditures on economic infrastructure (roads, public transportation, sanitation, legal systems, public safety, education, health-care systems), military, scientific research, culture and the arts, public works, distribution, data collection and dissemination, public insurance, and the operation of government itself. A government's ability to raise taxes is called its fiscal capacity. When expenditures exceed tax revenue, a government accumulates debt. A portion of taxes may be used to service past debts. Governments also use taxes to fund welfare and public services. These services can include education systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. According to the proponents of the cartelist theory of money creation, taxes are not needed for government revenue, as long as the government in question is able to issue fiat money. According to this view, the purpose of taxation is to maintain the stability of the currency, express public policy regarding the distribution of wealth, subsidizing certain industries or population groups or isolating the costs of certain benefits, such as highways or social security. The income effect shows the variation of y good quantity given by the change of real income. The substitution effect shows the variation of y good determined by relative prices' variation. This kind of taxation (that causes the substitution effect) can be considered distortion. Another example can be the introduction of an income lump-sum tax, with a parallel shift downward of the budget constraint, can be produced a higher revenue with the same loss of consumers' utility compared with the property tax case, from another point of view, the same revenue can be produced with a lower utility sacrifice. The lower utility (with the same revenue) or the lower revenue (with the same utility) given by a distortion tax are called excess pressure. The same result, reached with an income lump-sum tax, can be obtained with these following types of taxes (all of them cause only a budget constraint's shift without causing a substitution effect); the budget constraint's slope remains the same. A tax effectively changes the relative prices of products. Therefore, most economists, especially neoclassical economists, argue that taxation creates market distortion and results in economic inefficiency unless there are (positive or negative) externalities associated with the activities that are taxed that need to be internalized to reach an efficient market outcome. They have therefore sought to identify the kind of tax system that would minimize this distortion. Recent scholarship suggests that in the United States of America, the federal government effectively taxes investments in higher education more heavily than it subsidizes 26 CU IDOL SELF LEARNING MATERIAL (SLM)

higher education, thereby contributing to a shortage of skilled workers and unusually high differences in pre-tax earnings between highly educated and less-educated workers. Taxes can even have effects on labour supply: we can consider a model in which the consumer chooses the number of hours spent working and the amount spent on consumption. Let us suppose that only one good exists, and no income is saved. Consumers have a given number of hours (H) that is divided between work (L) and free time (F = H - L). The hourly wage is called w and it tells us the free time's opportunity cost, i.e. the income to which the individual renounces consuming an additional hour of free time. Consumption and hours of work have a positive relationship, more hours of work mean more earnings and, if workers don't save money, more earnings imply an increase in consumption (Y = C = WL). Free time and consumption can be considered as two normal goods (workers must decide between working one hour more, that would mean consuming more or having one more hour of free time) and the budget constraint is negatively inclined (Y = w (H - F)). The indifference curve related to these two goods has a negative slope and free time becomes more and more important with high levels of consumption. This is because a high level of consumption means that people are already spending many hours working, so, in this situation, they need more free time than consume and it implies that they must be paid with a higher salary to work an additional hour. A proportional income tax, changing budget constraint's slope (now Y = w (1 - t) (H - F)), implies both substitution and income effects. The problem now is that the two effects go in opposite ways: the income effect tells us that, with an income tax, the consumer feels poorer and for this reason he wants to work more, causing an increase in labour offer. On the other hand, the substitution effect tells us that free time, being a normal good, is now more convenient compared to consume and it implies a decrease in labour offer. The Laffer curve depicts the amount of government revenue as a function of the rate of taxation. It shows that for a tax rate above a certain critical rate, government revenue starts decreasing as the tax rate rises, because of a decline in labour supply. This theory supports that, if the tax rate is above that critical point, a decrease in the tax rate should imply a rise in labour supply that in turn would lead to an increase in government revenue. Governments use different kinds of taxes and vary the tax rates. They do this in order to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as the business sector, or to redistribute resources between individuals or classes in the population. Historically, taxes on the poor supported the nobility; modern social-security systems aim to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy (a government's strategy for doing this is called its fiscal policy; see also tax exemption), or to modify patterns of consumption or employment within an economy, by making some classes of the transaction more or less attractive. 27 CU IDOL SELF LEARNING MATERIAL (SLM)

A state's tax system often reflects its communal values and the values of those in current political power. To create a system of taxation, a state must make choices regarding the distribution of the tax burden that will pay taxes and how much they will pay and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing or administering the tax system, these choices reflect the type of community that the public wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may reflect more closely the values of those in power. All large businesses incur administrative costs in the process of delivering revenue collected from customers to the suppliers of the goods or services being purchased. Taxation is no different, as governments are large organizations; the resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called the compliance cost and includes (for example) the labor cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism-rehabilitation centers, is called hypothecation. Finance ministers often dislike this practice since it reduces their freedom of action. Some economic theorists regard hypothecations as intellectually dishonest since money is fungible. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example, through highway tolls. Since governments also resolve commercial disputes, especially in countries with common law, similar arguments are sometimes used to justify a sales tax or value added tax. Some portray most or all forms of taxes as immoral due to their involuntary nature, the most extreme anti-tax view, anarcho-capitalism, holds that all social services should be voluntarily bought by the people using them. 2.2 GROSS TOTAL INCOME An individual’s gross income is used by lenders or landlords to determine whether said individual is a worthy borrower or renter. When filing federal and state income taxes, gross income is the starting point before subtracting deductions to determine the amount of tax owed. For individuals, the gross income metric used on the income tax return includes not just wages or salary but also other forms of income, such as tips, capital gains, rental payments, dividends, alimony, pension, and interest. After subtracting above-the-line tax deductions, the result is adjusted gross income (AGI). 28 CU IDOL SELF LEARNING MATERIAL (SLM)

Continuing down the tax form, below-the-line deductions are taken from AGI and result in a taxable income figure. After applying any allowed deductions or exemptions, the resulting taxable income can be significantly less than an individual’s gross income. There are income sources that are not included in gross income for tax purposes but still may be included when calculating gross income for a lender or creditor. Common nontaxable income sources are certain Social Security benefits, life insurance payouts, some inheritances or gifts, and state or municipal bond interest. 2.2.1 Deductions in relation to various investments Income tax department with a view to encourage savings and investments amongst the taxpayers have provided various deductions from the taxable income under chapter VI A deductions. 80C being the most famous, there are other deductions which are beneficial for the taxpayers to reduce their tax liability. Let us understand these deductions in detail: Section 80C – Deductions on Investments Section 80C is one of the most popular and favourite sections amongst the taxpayers as it allowsreducing taxable income by making tax saving investments or incurring eligible expenses. It allows a maximum deduction of Rs 1.5 LAKHS every year from the TAXPAYERSTOTALINCOM. The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership firms, LLPs cannot avail the benefit of this deduction. Section 80C includes subsections, 80CCC, 80CCD (1), 80CCD (1b) and 80CCD (2). It is important to note that overall limit including the subsections for claiming deduction is Rs 1.5 LAKHS except an additional deduction of Rs 50,000 allowed u/s 80CCD(1b) Section 80CCC – Insurance Premium /Section 80CCD – Pension Contribution Eligible investments for tax deductions 80 C 80C allows deduction for investment made in PPF, EPF, LIC premium, Equity linked saving scheme, principal amount payment towards home loan, stamp duty and registration charges for purchase of property, Sukanyasmriddhiyojana (SSY), National saving certificate (NSC), Senior citizen savings scheme (SCSS), ULIP, tax saving FD for 5 years, Infrastructure bonds etc 80CCC Deduction 80CCC allows deduction for payment towards annuity pension plans 29 CU IDOL SELF LEARNING MATERIAL (SLM)

for life insurance Pension received from the annuity or amount received upon surrender annuity plan. of the annuity, including interest or bonus accrued on the annuity, is taxable in the year of receipt. 80CCD (1) Employee’s contribution under section 80CCD (1) Maximum Deduction for NPS deduction allowed is least of the following  10% of salary (in case taxpayer is employee)  20& of gross total income (in case of self-employed)  Rs 1.5 LAKHS (limit allowed u/s 80C) 80CCD (1b) Additional deduction of Rs 50,000 is allowed for amount deposited Deduction for NPS to NPS account Contributions to Atal Pension Yojana is also eligible for deduction. 80CCD (2) Employers’ contribution is allowed for deduction up to 10% of basic Deduction for NPS salary plus dearness allowance under this section. Benefit in this section is allowed only to salaried individuals and not self-employed. Table 2.1: Deduction of Investment Tax Here are some investment options that are allowed as deduction u/s 80C. They not only help you with saving taxes but also help you grow your money. A quick comparison for the options is tabulated below: Investment options Average Lock in period for Risk Interest factor ELSS funds 12% – 15% 3 years High 30 CU IDOL SELF LEARNING MATERIAL (SLM)

NPS Scheme 8% – 10% Till 60 years of age High ULIP Medium Tax saving FD 8% – 10% 5 years Low 7% – 8% 5 years PPF 7.10% 5 years Low Senior citizen savings 7.4% 5years (can be extended for other 3 Low scheme years) National 6.8% 5 years Low SukanyaSamriddhiYojana 8.4% Till girl child reaches 21 years of Low age (partial withdrawal allowed when she reached 18 years) Table 2.2: Investments Options Get Savings on Income Taxes with a Tax Expert to Help You File Sometimes, you may have deductions or investments eligible for 80C, but haven’t submitted the proofs to your employer. This may cause to additional TDS deductions. You can still claim these deductions while e-filing if you have the proofs with you. Section 80 TTA – Interest on Savings Account Deduction from Gross Total Income for Interest on Savings Bank Account 31 CU IDOL SELF LEARNING MATERIAL (SLM)

If you are an individual or an HUF, you may claim a deduction of maximum Rs 10,000 against interest income from your savings account with a bank, co-operative society, or post office. Do include the interest from savings bank account in other income. Section 80TTA deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds. Section 80GG – House Rent Paid Deduction for House Rent Paid Where HRA is not received  Section 80GG deduction is available for rent paid when HRA is not received. The taxpayer, spouse or minor child should not own residential accommodation at the place of employment  The taxpayer should not have self-occupied residential property in any other place  The taxpayer must be living on rent and paying rent  The deduction is available to all individuals Deduction available is the least of the following:  Rent paid minus 10% of adjusted total income  Rs 5,000/- per month  25% of adjusted total income* *Adjusted Gross Total Income is arrived at after adjusting the Gross Total Income for certain deductions, exempt income, long-term capital gains and income related to non-residents and foreign companies. An online e-filing software like that of ClearTax can be extremely easy as the limits are auto- calculated. So, you do not have to worry about making complex calculations. From FY 2016-17 available deductions has been raised to Rs 5,000 a month from Rs 2,000 per month. Section 80E – Interest on Education Loan Deduction for Interest on Education Loan for Higher Studies A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse, or children or for a student for whom the taxpayer is a legal guardian. 80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed. 32 CU IDOL SELF LEARNING MATERIAL (SLM)

2.2.2 Sections 80C to 80GGC Section 80C is one of the most popular and favorite sections amongst the taxpayers as it allows to reduce taxable income by making tax saving investments or incurring eligible expenses. It allows a maximum deduction of Rs 1.5 lakh every year from the taxpayers total income. The benefit of this deduction can be availed by Individuals and HUFs. Companies, partnership firms, LLPs cannot avail the benefit of this deduction. Section 80C includes subsections, 80CCC, 80CCD (1), 80CCD (1b) and 80CCD (2). Section 80 TTA – Interest on Savings Account Deduction from Gross Total Income for Interest on Savings Bank Account If you are an individual or an HUF, you may claim a deduction of maximum Rs 10,000 against interest income from your savings account with a bank, co-operative society, or post office. Do include the interest from savings bank account in other income. Section 80TTA deduction is not available on interest income from fixed deposits, recurring deposits, or interest income from corporate bonds. Section 80GG – House Rent Paid Deduction for House Rent Paid Where HRA is not Received.  Section 80GG deduction is available for rent paid when HRA is not received. The taxpayer, spouse or minor child should not own residential accommodation at the place of employment  The taxpayer should not have self-occupied residential property in any other place  The taxpayer must be living on rent and paying rent  The deduction is available to all individuals Section 80E – Interest on Education Loan Deduction for Interest on Education Loan for Higher Studies A deduction is allowed to an individual for interest on loans taken for pursuing higher education. This loan may have been taken for the taxpayer, spouse, or children or for a student for whom the taxpayer is a legal guardian. 80E deduction is available for a maximum of 8 years (beginning the year in which the interest starts getting repaid) or till the entire interest is repaid, whichever is earlier. There is no restriction on the amount that can be claimed. Section 80EE – Interest on Home Loan Deductions on Home Loan Interest for First Time Homeowners 33 CU IDOL SELF LEARNING MATERIAL (SLM)

FY 2017-18 and FY 2016-17 This deduction is available in FY 2017-18 if the loan has been taken in FY 2016-17. The deduction under section 80EE is available only to homeowners (individuals) having only one house property on the date of sanction of the loan. The value of the property must be less than Rs 50 lakh and the home loan must be less than Rs 35 lakh. The loan taken from a financial institution must have been sanctioned between 1 April 2016 and 31 March 2017. There is an additional deduction of Rs 50,000 available on your home loan interest on top of deduction of Rs 2 lakh (on interest component of home loan EMI) allowed under section 24. FY 2013-14 and FY 2014-15 During these financial years, the deduction available under this section was first-time house worth Rs 40 lakh or less. You can avail this only when your loan amount during this period is Rs 25 lakh or less. The loan must be sanctioned between 1 April 2013 and 31 March 2014. The aggregate deduction allowed under this section cannot exceed Rs 1 lakh and is allowed for FY 2013-14 and FY 2014-15. Section 80D – Medical Insurance Deduction for the premium paid for Medical Insurance You (as an individual or HUF) can claim a deduction of Rs.25,000 under section 80D on insurance for self, spouse, and dependent children. An additional deduction for insurance of parents is available up to Rs 25,000 if they are less than 60 years of age. If the parents are aged above 60, the deduction amount is Rs 50,000, which has been increased in Budget 2018 from Rs 30,000. In case, both taxpayer and parent(s) are 60 years or above, the maximum deduction available under this section is up to Rs.1 lakh. Example: Rohan’s age is 65 and his father’s age is 90. In this case, the maximum deduction Rohan can claim under section 80D is Rs. 100,000. From FY 2015-16 a cumulative additional deduction of Rs. 5,000 is allowed for preventive health check. Section 80DD – Disabled Dependent Deduction for Rehabilitation of Handicapped Dependent Relative Section 80DD deduction is available to a resident individual or a HUF and is available on:  Expenditure incurred on medical treatment (including nursing), training and rehabilitation of handicapped dependent relative  Payment or deposit to specified scheme for maintenance of handicapped dependent relative. i. Where disability is 40% or more but less than 80% – fixed deduction of Rs 75,000. 34 CU IDOL SELF LEARNING MATERIAL (SLM)

ii. Where there is severe disability (disability is 80% or more) – fixed deduction of Rs 1,25,000. To claim this deduction a certificate of disability is required from prescribed medical authority. From FY 2015-16 – The deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000. Section 80DDB – Medical Expenditure Deduction for Medical Expenditure on Self or Dependent Relative a. For individuals and HUFs below age 60 A deduction up to Rs.40,000 is available to a resident individual or a HUF. It is available with respect to any expense incurred towards treatment of specified medical diseases or ailments for himself or any of his dependents. For an HUF, such a deduction is available with respect to medical expenses incurred towards these prescribed ailments for any of the HUF members. b. For senior citizens and super senior citizens In case the individual on behalf of whom such expenses are incurred is a senior citizen, the individual or HUF taxpayer can claim a deduction up to Rs 1 lakh. Until FY 2017-18, the deduction that could be claimed for a senior citizen and a super senior citizen was Rs 60,000 and Rs 80,000 respectively. This has now become a common deduction available up to Rs 1 lakh for all senior citizens (including super senior citizens) unlike earlier. c. For reimbursement claims Any reimbursement of medical expenses by an insurer or employer shall be reduced from the quantum of deduction the taxpayer can claim under this section. Also remember that you need to get a prescription for such medical treatment from the concerned specialist to claim such deduction. Read our detailed article on Section 80DDB. Section 80U – Physical Disability Deduction for Person suffering from Physical Disability A deduction of Rs.75,000 is available to a resident individual who suffers from a physical disability (including blindness) or mental retardation. In case of severe disability, one can claim a deduction of Rs 1,25,000. From FY 2015-16 – Section 80U deduction limit of Rs 50,000 has been raised to Rs 75,000 and Rs 1,00,000 has been raised to Rs 1,25,000. Section 80G – Donations Deduction for donations towards Social Causes 35 CU IDOL SELF LEARNING MATERIAL (SLM)

The various donations specified in u/s 80G are eligible for deduction up to either 100% or 50% with or without restriction. From FY 2017-18 any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2000 should be made in any mode other than cash to qualify for 80G deduction. Section 80GGB – Company Contribution Deduction on contributions given by companies to Political Parties Section 80GGB deduction is allowed to an Indian company for the amount contributed by it to any political party or an electoral trust. Deduction is allowed for contribution done by any way other than cash. Section 80GGC – Contribution to Political Parties Deduction on contributions given by any person to Political Parties Deduction under section 80GGC is allowed to an individual taxpayer for any amount contributed to a political party or an electoral trust. It is not available for companies, local authorities and an artificial juridical person wholly or partly funded by the government. You can avail this deduction only if you pay by any way other than cash. 2.2.3 Deduction in respect of incomes earned from specific source Sections 80HH to 80RRB Section 80H : Deduction in case of new industrial undertakings employing displaced persons, etc. Section : Deduction in respect of profits and gains from newly established 80HH industrial undertakings or hotel business in backward areas Section : Deduction in respect of profits and gains from newly established small- 80HHA scale industrial undertakings in certain areas Section : Deduction in respect of profits and gains from projects outside India 80HHB Section : Deduction in respect of profits and gains from housing projects in certain 80HHBA cases 36 CU IDOL SELF LEARNING MATERIAL (SLM)

Section : Deduction in respect of profits retained for export business 80HHC Section : Deduction in respect of earnings in convertible foreign exchange 80HHD Section : Deduction in respect of profits from export of computer software, etc. 80HHE Section : Deduction in respect of profits and gains from export or transfer of film 80HHF software, etc. Section 80I : Deduction in respect of profits and gains from industrial undertakings after a certain date, etc. Section 80IA : Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. Section : Deductions in respect of profits and gains by an undertaking or enterprise 80IAB engaged in development of Special Economic Zone Section : Special provision in respect of specified business. 80IAC Section 80IB : Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings Section : Deductions in respect of profits and gains from housing projects. 80IBA Section 80IC : Special provisions in respect of certain undertakings or enterprises in certain special category States Section 80ID : Deduction in respect of profits and gains from business of hotels and 37 CU IDOL SELF LEARNING MATERIAL (SLM)

convention centres in specified area Section 80IE : Special provisions in respect of certain undertakings in North-Eastern States Section 80J : Omitted Section 80JJ : Omitted Section : Deduction in respect of profits and gains from business of collecting and 80JJA processing of bio-degradable waste Section : Deduction in respect of employment of new employees 80JJAA Section 80K : Omitted Section 80L : Omitted Section : Deductions in respect of certain incomes of Offshore Banking Units and 80LA International Financial Services Centre Section 80M : Omitted Section : Omitted 80MM Section 80N : Omitted Section 80O : Deduction in respect of royalties, etc., from certain foreign enterprises Section 80P : Deduction in respect of income of co-operative societies 38 CU IDOL SELF LEARNING MATERIAL (SLM)

Section 80Q : Deduction in respect of profits and gains from the business of publication of books Section : Omitted 80QQ Section : Deduction in respect of professional income of authors of text books in 80QQA Indian languages Section : Deduction in respect of royalty income, etc., of authors of certain books 80QQB other than text-books Section 80R : Deduction in respect of remuneration from certain foreign sources in the case of professors, teachers, etc. Section : Deduction in respect of professional income from foreign sources in 80RR certain cases Section : Deduction in respect of remuneration received for services rendered 80RRA outside India Section : Deduction in respect of royalty on patents 80RRB 2.2.4 Deduction in respect of other incomes – section 80TTA This article is about claiming deduction on interest under Section 8oTTA. But first, what is 80TTA? Section 80TTA provides a deduction of Rs 10,000 on interest income. This deduction is available to an Individual and HUF. The maximum deduction is limited to Rs 10,000. If your interest income is less than Rs 10,000, the entire interest income will be your deduction. If your interest income is more than Rs 10,000, your deduction shall be limited to Rs 10,000. (You must consider your total interest income from all banks where you have accounts). 2.2.5 Deduction in respect of persons with disability – Section 80U  This deduction is allowed only for a Resident Individual. 39 CU IDOL SELF LEARNING MATERIAL (SLM)

 This is a standard deduction restricted to Rs. 75,000/- in case of normal disability as specified and Rs. 125,000/- in case of severe disability. Severe disability means a person with eighty per cent or more of one or more disabilities, as referred to in sub- section (4) of section 56 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996); or a person with severe disability referred to in clause (o) of section 2 of the National Trust. for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999). These details are generally mentioned by the medical authority who issues the certificate.  This deduction is available irrespective of the amount spent on medical treatment or nursing.  Disability shall have the meaning assigned to it in clause (i) of section 2 of the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 (1 of 1996) [4][and includes autism , cerebral palsy and multiple disability referred to in clauses (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999)]. The persons eligible are of minimum 40% of the disability or if 80% and above they will be classified as persons with Severe Disability.  A certificate issued by a medical authority is a must as a documentary evidence. This deduction is available only up to the validity of such certificate beyond which the same needs renewal. 2.2.6 Relief and Rebate in respect of Income-tax Tax relief is any government program or policy initiative designed to reduce the amount of taxes paid by individuals or businesses. It may be a universal tax cut or a targeted program that benefits a specific group of taxpayers or bolsters a particular goal of the government. An income tax rebate can simply be understood as a form of refund on taxes that you receive from the Income Tax Department under certain circumstances. An individual is liable to receive a tax rebate if he or she pays more taxes in a financial year than they owe to the government. To avail a tax rebate, you must make sure to accurately compute your tax liability and file your tax returns within a particular time. 2.2.7 Relief when salary is paid in arrears or in advance Section 89 Tax is calculated on the taxpayer’s total income earned or received during the year. If the assesseeshave received any portion of salary ‘in arrears or in advance’, or received a family pension in arrears, under the Income Tax Act it is allowed to claim tax relief under section 89(1). For a taxpayer, tax liabilities for a Financial Year are calculated from the income earned during that year. Sometimes, the income includes arrears (past dues paid in the current 40 CU IDOL SELF LEARNING MATERIAL (SLM)

year). Usually, tax rates increase with time which means that the assessees may have to pay higher taxes in such a case. However, the Income Tax Act provides assessees relief in those situations u/s 89(1). Relief under Section 89 (1) Relief under section 89(1) for arrears of salary are available in the following cases:  Salary received in advance or as arrears  Gratuity  Compensation on Termination of employment  Commutation of Pension Calculating Relief under Section 89 (1) Certain steps must be followed to calculate relief under section 89 (1). These steps are as follows:  Step 1: The taxpayer should find out the tax payable on his total income including arrears of the relevant previous year in which the same is received. (Ex: X)  Step 2: The taxpayer should then find out the tax payable on his total income excluding arrears. (Ex: Y)  Step 3: Subtract the value obtained in step 1 from the value obtained in step 2. (e., A- B) and keep the result value as Z.  Step 4: Find out the tax payable on the total income (including arrears) of the year to which the arrears are related. (Ex: “A”)  Step 5: Find out the tax payable on the total income (excluding arrears) of the year to which the arrears are related. (Ex: “B”)  Step 6: Subtract the value obtained in step 5 from the value obtained in step 4 (i.e., A – B). (Ex: “C”).  Excess of tax computed at step 3 over tax computed at step 7 is the amount of relief allowable under section 89. If tax computed at step 3 is less than tax computed at step 7 the taxpayer will not be eligible for any relief. As per the Income Tax Act 1961, the Income Tax Section 89(1) a taxpayer can receive relief of salary relevant to the previous year’s earning. Section 89(1) is prominent since the 6th Pay Commission of the Central Government. Previously, this section was applicable only for relief of salary arising from gratuity income. 41 CU IDOL SELF LEARNING MATERIAL (SLM)

2.3 TOTAL INCOME For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions (e.g., mandatory pension contributions). For a firm, gross income (also gross profit, sales profit, or credit sales) is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. This is different from operating profit (earnings before interest and taxes). Gross margin is often used interchangeably with gross profit, but the terms are different. When speaking about a monetary amount, it is technically correct to use the term gross profit; when referring to a percentage or ratio, it is correct to use gross margin. In other words, gross margin is a percentage value, while gross profit is a monetary value. In United States income tax law, gross income serves as the starting point for determining Federal and state income tax of individuals, corporations, estates, and trusts, whether resident or non-resident. Under the U.S. Internal Revenue Code, \"Except as otherwise provided\" by law, gross income means \"all income from whatever source derived,\" and is not limited to cash received. Federal tax regulations interpret this general rule. The amount of income recognized is generally the value received or the value which the taxpayer has a right to receive. Certain types of income are specifically excluded from gross income for tax purposes. The time at which gross income becomes taxable is determined under Federal tax rules, which differ in some cases from financial accounting rules. Individuals, corporations, members of partnerships, estates, trusts, and their beneficiaries (\"taxpayers\") are subject to income tax in the United States. The amount on which tax is computed, taxable income, equals gross income less allowable tax deductions. The Internal Revenue Code gives specific examples. The examples are not all inclusive. The term \"income\" is not defined in the statute or regulations. An early Supreme Court case stated, \"Income may be defined as the gain derived from capital, from labour, or from both combined, provided it is understood to include profit gained through a sale or conversion of capital assets.\"The Court also held that the amount of gross income on disposition of property is the proceeds less the basis (usually, the acquisition cost) of the property. Gross income is not limited to cash received. \"It includes income realized in any form, whether money, property, or services. United States persons (including citizens, residents (whether U.S. citizens or aliens residing in the United States), and U.S. corporations) are generally subject to U.S. federal income tax 42 CU IDOL SELF LEARNING MATERIAL (SLM)

on their worldwide income. Non-resident aliens are subject to U.S. federal income tax only on income from a U.S. business and certain income from United States sources. Source of income is determined based on the type of income. The source of compensation income is the place where the services giving rise to the income were performed. The source of certain income, such as dividends and interest, is based on location of the residence of the payer. The source of income from property is based on the location where the property is used. Significant additional rules apply. In business and accounting, net income (also total comprehensive income, net earnings, net profit, bottom line, sales profit, or credit sales) is an entity's income minus cost of goods sold, expenses, depreciation and amortization, interest, and taxes for an accounting period. It is computed as the residual of all revenues and gains less all expenses and losses for the period and has also been defined as the net increase in shareholders' equity that results from a company's operations.It is different from gross income, which only deducts the cost of goods sold from revenue. For households and individuals, net income refers to the (gross) income minus taxes and other deductions (e.g., mandatory pension contributions). Net income can be distributed among lots of holders of common stock as a dividend or can also be held by the firm as an addition to retained earnings. As profit and earnings are used synonymously for income (also depending on UK and US usage), net earnings and net profit are commonly found as synonyms for net income. Often, the term income is substituted for net income, yet this is not preferred due to the possible ambiguity. Net income is informally called the bottom line because it is typically found on the last line of a company's income statement (a related term is top line, meaning revenue, which forms the first line of the account statement). In simplistic terms, net profit is the money left over after paying all the expenses of an endeavour. In practice this can get very complex in large organizations. The bookkeeper or accountant must itemise and allocate revenues and expenses properly to the specific working scope and context in which the term is applied. Net income is usually calculated per annum, for each fiscal year. The items deducted will typically include tax expense, financing expense (interest expense), and minority interest. Likewise, preferred stock dividends will be subtracted too, though they are not an expense. For a merchandising company, subtracted costs may be the cost of goods sold, sales discounts, and sales returns and allowances. For a product company, advertising, manufacturing, & design and development costs are included. Net income can also be calculated by adding a company's operating income to non-operating income and then subtracting off taxes. Net profit is a measure of the fundamental profitability of the venture. \"It is the revenues of the activity less the costs of the activity. The main complication is when needs to be 43 CU IDOL SELF LEARNING MATERIAL (SLM)

allocated\" across ventures, “Almost by definition, overheads are costs that cannot be directly tied to any specific\" project, product, or division. \"The classic example would be the cost of headquarters staff.\" \"Although it is theoretically possible to calculate profits for any sub- (venture), such as a product or region, often the calculations are rendered suspect by the need to allocate overhead costs.\" Because overhead costs generally don't come in neat packages, their allocation across ventures is not an exact science. 2.4 PERSON A person (plural people or persons) is a being that has certain capacities or attributes such as reason, morality, consciousness or self-consciousness, and being a part of a culturally established form of social relations such as kinship, ownership of property, or legal responsibility. The defining features of personhood and, consequently, what makes a person count as a person, differ widely among cultures and contexts. In addition to the question of personhood, of what makes a being count as a person to begin with, there are further questions about personal identity and self: both about what makes any particular person that particular person instead of another, and about what makes a person at one time the same person as they were or will be at another time despite any intervening changes. The plural form \"people\", is often used to refer to an entire nation or ethnic group (as in \"a people\"), and this was the original meaning of the word; it subsequently acquired its use as a plural form of person. The plural form \"persons\" is often used in philosophical and legal writing. Personhood is the status of being a person. Defining personhood is a controversial topic in philosophy and law, and is closely tied to legal and political concepts of citizenship, equality, and liberty. According to common worldwide general legal practice, only a natural person or legal personality has rights, protections, privileges, responsibilities, and legal liability. Personhood continues to be a topic of international debate, and has been questioned during the abolition of slavery and the fight for women's rights, in debates about abortion, fatal rights, and in animal rights advocacy. Various debates have focused on questions about the personhood of different classes of entities. Historically, the personhood of women and slaves has been a catalyst of social upheaval. In most societies today, postnatal humans are defined as persons. Likewise, certain legal entities such as corporations, sovereign states and other polities, or estates in probate are legally defined as persons. However, some people believe that other groups should be included, depending on the theory, the category of \"person\" may be taken to include or not pre-natal humans or such non-human entities as animals, artificial intelligences, or extra- terrestrial life. 44 CU IDOL SELF LEARNING MATERIAL (SLM)

Personal identity is the unique identity of persons through time, That is to say, the necessary and sufficient conditions under which a person at one time and a person at another time can be said to be the same person, persisting through time. In the modern philosophy of mind, this concept of personal identity is sometimes referred to as the diachronic problem of personal identity. The synchronic problem is grounded in the question of what features or traits characterize a given person at one time. Identity is an issue for both continental philosophyand analytic philosophy.A key question in continental philosophy is in what sense we can maintain the modern conception of identity, while realizing many of our prior assumptions about the world are incorrect. Proposed solutions to the problem of personal identity include continuity of the physical body, continuity of an immaterial mind or soul, continuity of consciousness or memory, the bundle theory of self,continuity of personality after the death of the physical body,and proposals that there are actually no persons or selves who persist over time at all. In ancient Rome, the word persona or prosopon originally referred to the masks worn by actors on stage. The various masks represented the various \"personae\" in the stage play. The concept of person was further developed during the Trinitarian and Christological debates of the 4th and 5th centuries in contrast to the word nature. During the theological debates, some philosophical tools were needed so that the debates could be held on common basis to all theological schools. Since then, several important changes to the word's meaning and use have taken place, and attempts have been made to redefine the word with varying degrees of adoption and influence. According to Noller, at least six approaches can be distinguished: \"The ontological definition of the person as “an individual substance of a rational nature”, the self- consciousness-based definition of the person as a being that “can conceive itself as itself”,the moral-philosophical definition of the person as “an end in itself” (Immanuel Kant). In current analytical debate, the focus has shifted to the relationship between bodily organism and person, the theory of animalism states that persons are essentially animals and that mental or psychological attributes play no role in their identity. Constitution theory (Lynne Baker), on the other hand, attempts to define the person as a natural and at the same time self-conscious being: the bodily organism constitutes the person without being identical to it. Rather, it forms with it a “unity without identity”. Another idea] for conceiving the natural-rational unity of the person has emerged recently in the concept of the “person life” 2.5 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 the case of a person not ordinarily resident in India and person who is a non- resident which includes. Income can be Income from any source which is received or is deemed to be received in India in such year by or on behalf of such person; or accrues or 45 CU IDOL SELF LEARNING MATERIAL (SLM)

arises or is deemed to accrue or arise to him in India during such year;or accrues or arises to him outside India during such year. 2.5.1 Scope of total income on the basis of residential status According to Sub-section of Section 5 of the Act the total income of a resident and ordinarily resident assesses would consist of:  Income received or deemed to be received in India during the accounting year by or on behalf of such person.  Income which accrues or arises or is deemed to accrue or arise to him in India during the accounting year.  Income which accrues or arises to him outside India during the accounting year. It is important to note that under clause only income accruing or arising outside India is included. Income deemed to accrue or arise outside India is not includible Proviso to section 5 the total income in case of resident but not ordinarily resident in India  Income received or deemed to be received in India during the accounting year by or on behalf of such person.  Income which accrues or arises or is deemed to accrue or arise to him in India during the accounting year.  Income which accrues or arises to him outside India during the previous year if it is derived from business controlled in or a profession set up in India. 2.5.2 Income received in India Income received in India is taxable regardless of the assessee residential status therefore it has great significance.  The receipt contemplated for this purpose refers to the first receipt of the amount in question as the income of the assessee. For instance, if A receives his salary at Delhi and sends the same to his father, the salary income of A is a receipt for tax purposes only in the hands of A; his father cannot also be said to have received income when he receives a part of the income of A. In the hands of A’s father, it is only a receipt of a sum of money but not a receipt of income.  Method of Accounting: Although receipt of income is not the sole test of its taxability, the receipt of income would be the primary basis for determining the taxability of the amount in cases where the income would be the primary basis for determining the taxability of the amount in cases where the assessee follows the cash system of accounting; however, where the assessee follows the mercantile system of accounting the income would become taxable as the income of the accounting year in which it falls due to the assessee regardless of the date or place of its actual receipt. 46 CU IDOL SELF LEARNING MATERIAL (SLM)

 While considering the receipt of income for tax purposes both the place and the date of its receipt must be considered. The income in question should be not only received during the accounting year relevant to the assessment year but must also be received in India to constitute the basis of taxation. Thus, if an item of income is first received outside India and after a few years is brought into India the subsequent receipt of the same amount in India should not be taken as the basis of taxing the same since the same income cannot be received twice and it will be known as Remittances.  To taxation both actual and constructive receipt must be considered. Receipt by some other person on behalf of the assessee should be treated as receipt by the assessee for being taxed in his hands.  The question of taxability of a particular income received by the assessee depends upon the nature of income. For instance, income from salaries and interest on securities would attract liability to tax immediately when it falls due to the assessee regardless of its actual receipt by or on behalf of the assessee. 2.5.3 Income deemed to be received In addition to the income received by the assessee or on his behalf, certain other incomes not actually received by the assessee and/or not received during the relevant previous year, are also included in his total income for income tax purposes. Such incomes are known as income deemed to be received. Some of the examples of such income are:  All sums deducted by way of taxes at source.  Incomes of other persons which are included in the income of the assessee under Sections 60 to 64. Incomes of other persons which are included in the income of the assessee under Sections 60 to 64.  The amount of unexplained or unrecorded investments (Section 69).  The amount of unexplained or unrecorded moneys, etc. (Section 69A).  The annual accretion in the previous year to the balance standing at the credit of an employee participating in a Recognised Provident fund to the extent provided in Rule 6 of Part A of the Fourth Schedule. The contributions made by the employer to Recognised Provident Fund more than 12% of the employee’s salary and the interest credited to the Provident Fund account of the employee more than the prescribed rate i.e., 8.5% shall be included in the salary income of the employee. This amount is known as annual accretion. The transferred balance in a Recognised Provident Fund to the extent provided in Rule 11 of Part A - Fourth Schedule.  When provident fund is recognised for the first time in a particular year, the existing balance to the credit of an employee on the date of recognition, which is carried into the recognised provident fund, is called the transferred balance. The amount of the 47 CU IDOL SELF LEARNING MATERIAL (SLM)

transferred balance, less the employees own contributions included therein, is deemed to be the income of the year in which recognition takes place. The amount contributed by the employer to the provident fund and the interest on his contribution is included in the income under the head Salaries and the interest on the contributions made by the employee is included in the income under the head “Income from other sources”.  Any dividend declared by a Company or distributed or paid by it within the meaning of Section 2(22).  Any interim dividend unconditionally made available by the Company to the member who is entitled to it [Section 8(b)]. The Supreme Court verdict in Standard Triumph Motor Co. Ltd. v. CIT (1993) 201 ITR 391, seems to have made a lot of non-residents more vulnerable.  The Court in that case held that a credit entry in the books of the buyer of goods or services in favour of the supplier of goods or services tantamount to receipt of money by the latter. By equating credit entry with receipt, itself the judgment exposes non- residents to Indian tax liability where they were not all along liable based on mere credit entry. Because a resident is in any case liable to tax on his world income and therefore this judgment affects a non-resident more than it affects a resident. 2.5.4 Income accrued in India The accrual of income is different and distinct from the receipt of income discussed above. Sometimes in the context of accrual or arise the word earned is used. A person may be said to have earned his income in the context of accrual or arise the word earned is used. A person may be said to have earned his income in the sense that he has contributed to the production by rendering of goods or services. But in order that the income may be said to have accrued to him, an additional element is necessary, that is, he must have created a debt in his favour. Income is said to accrue when it comes into existence for the first time or at the point of time when the right to receive the income arises although the right may be exercised or exercisable at a future date. Income is said to be received when it reaches the assessee. When the right to receive the income becomes vested in the assessee, it is said to accrue or arise. Income is said to accrue only to that person who is lawfully entitled to that income. Income accrues at the place where the source of the income is situated, which may or may not be the same as the place from which the business activities are carried on. Normally, income accrues at the place where the contract yielding the income is entered into and for this purpose the contract should be taken to have been entered into at the place where the offer is accepted. Income received or deemed to be received in India, regardless of the place of its accrual, and income which accrues or is deemed to accrue in India regardless of the place of its receipt. Thus, the accrual of income as the basis of taxation is more important in the case of non- residents than all other classes of assessees. Accordingly, a non-resident partner of a resident partnership firm carrying on its business outside India is taxable in India on the entire amount 48 CU IDOL SELF LEARNING MATERIAL (SLM)

of his share of the firm’s income from its foreign business; such a partner cannot claim tax exemption in respect of even a part of his share of the firm’s income corresponding to the firm’s foreign income. This is because, so far as the partner is concerned, the source of his income is situated in India and the income consequently arises in India. 2.5.5 Income deemed to accrue or arise in India According to section 9 of the Act, certain incomes are deemed to accrue or arise in India which is discussed below: Income by virtue of business connection Income arising through or from business connection to any assessee is deemed to accrue or arise in India where a business connection exists whether with or without a regular agency, branch, or India where a business connection exists whether with or without a regular agency, branch, or other type of commercial association. For purposes of deeming income to accrue or arise in India, the expression ‘business connection’ must be taken to have wider scope that what is commonly understood by it. It is entirely different from the carrying on of a business although business connection may have some direct or indirect relationship with the business carried on. The Supreme Court has held that business does not necessarily mean trade or manufacture only, it is being used as including within its scope professions, vocations, and callings. If income accrues to any person outside India by virtue of his business connection in India, whether directly or indirectly, that income must be deemed to accrue or arise in India for purposes of income-tax assessment. In cases where all the operations or activities of a business are not carried on in India but a part of them arise by virtue of the business connection in India, the income, which is deemed to accrue or arise in India, should be taken to be only that part which could reasonably by attributed to the operations carried on in India. Rule 10 of the Income-tax Rules contains the basis on which the income attributable to the operations carried out in India could be deemed to accrue or arise in India. However, where a substantial part of a non-residents output is sold in the Indian market through brokers to various customers in India, or mere rendering of services outside India to a person carrying on business in India does not amount to a business connection in India. Similarly, where an Indian exporter selling goods through non-resident selling agents, receives sale price in India, credits commission on sales to non-resident agents in his books of account and remits the amount to them later, such commission to non-residents is neither received or deemed to be received in India nor deemed to accrue or arise in India. 2.6 INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME Incomes Which Do Not Form Part Of Total Income Are Exempt Income. • Thus Income, To The Extent They Are Exempt, Are Not Included In The Total Income For Computation Of His Total Income. As Per Section 10 To 13a, Certain Incomes Are Totally Exempt From Tax 49 CU IDOL SELF LEARNING MATERIAL (SLM)

Or Exempt Upto A Certain Amount, Section 10aa Section 11-13 Section 13a (Income Of Political Parties) Section 13b (Income Of An Electoral Trust) Incomes Not To Be Included In Total Income Of Any Person Section 10(1) Agriculture Income Section 10(2) Sum Received By A Member From HUF Section 10(2a) Profit Of A Partner From A Firm Section 10(4) Interest On NonResident Account Section 10(5) Travel Concession From An Employer (A) Incomes Not To Be Included In Total Income Of Any Person Section 10(6) Remuneration To A Non-Citizen Section 10(7) Allowances/ Perquisites Outside India Section 10(10) Gratuity (Death Cum Retirement) Section 10(10a) Pension Section 10(10aa) Leave Encashment Section 10(6) Remuneration To A Non-Citizen Means Individual Who Is Not A Citizen Of India. Remuneration Received By: Diplomats, Foreign National As An Official, Whatever Names Called As An Embassy, High Commission, and Legation, Trade Representative Of A Foreign State Or As A Staff Of These Members. Foreign National as Employee of A Foreign Enterprise. Services Rendered During His Stay In India. Non-Resident Employed On Foreign Ship. Provided His Stay In India Should Not Exceed 90 Days In The Previous Year. Employee of Foreign Government during His Training In India. Incomes Not To Be Included In Total Income Of Any Person Section 10(10b) Retrenchment Compensation Section 10(10c) Amount Voluntary Retirement Section 10(10cc) Non-Monetary Perquisites Section 10(10d) Amount On Maturity Of Lic Section 10(11) Provident Fund Section 10(10d) Amount On Maturity Of LICAmount On Maturity + Bonus On Such Policy Excludes: Not An Exempt  Policy U/S 80dd (3) Or 80dda (3)  KEYMAN Insurance Policy  An Insurance Policy Issued On Or After 01.04.2003 But Before 31.03.2012, If Premium Exceeds 20% Of The Actual Capital Sum Assured. But If Received After Death Of A Person Is Fully Exempt.  An Insurance Policy Issued On Or After 01.04.2012 If Premium Exceeds 10% Of Sum Assured.  An Insurance Policy On Or After 01.04.2013 On The Life Of Any Person Who Is I) Disable As Per Section 80u Ii) Suffering From Disease As Per Section 80ddb If Premium Payable Exceeds 15% Of The Actual Capital Sum Assured. Incomes Not To Be Included In Total Income Of Any Person Section 10(12) Payment From RPF Section 10(13) Any Payment From An Approved SAF Section 10(13a) HRA Section 10(14) Special Allowances Section 10(15) Interest, Premium & Bonus On Specified Investments Section 10(15) Interest, Premium & Bonus On Specified Investments • Interest. Interest Of Any Assesee On Deposits, Securities, Certificates And Bonds Issued By Cg. Subject To Limits & Conditions. On Gold Deposits, Bonds Issued By A Local Authority Deposits With Offshore Banking Unit. Premium or Bonus or Other Payment On • Securities • Bonds • Annuity Certificates • Saving Certificates or • Other Certificates Issued By Cg • Subject To Conditions and Limits. Incomes Not To Be Included In Total Income Of Any 50 CU IDOL SELF LEARNING MATERIAL (SLM)