TAXATION- Concept Book

3. Income from  provisions will apply in the same manner. assets Income arising from such assets shall be clubbed in the hands of individual transferring the asset. transferred to  any person for Income shall be clubbed to the extent of benefit receivable by the spouse/son’s wife benefit of  In case of transfer for adequate consideration, clubbing shall spouse/son’s not take place. wife All incomes of minor child shall be clubbed, except the following incomes: 4. Income of minor  child  All incomes of minor who is covered up u/s 80U (physically handicapped, blind, etc.)    Income earned by minor child from his manual work, or talent or skill, or specialised knowledge or experience   Income of minor child shall be clubbed in the hands of that  parent whose personal income is greater.  5. Salary of spouse  In case both father and mother are dead, no clubbing shall take place. In that case, income shall be taxable in the hands of  minor only. In case of attainment of majority during the year, proportionate  income shall be clubbed Income clubbed in the hands of individual shall be exempt to 6. Income from  the extent of Rs.1,500 (per minor child) assets  Clubbing shall take place even if minor child (son/daughter) is married. transferred to Section 27 shall override Section 64 i.e. section 64 shall be HUF applied only if section 27 does not apply. If spouse receives any salary, commission, fees, etc. from an organisation in which individual has substantial interest, then such salary etc. shall be clubbed in the hands of individual. No such clubbing in case spouse possesses technical or professional qualifications/experience. Substantial interest means voting power (or profit sharing ratio) > 20%. Any asset No clubbing in case asset transferred for adequate consideration. CFP Level 2 - Module 2 – Taxation - India Page 395

Illustration-5 A proprietary business was started by Smt. Savita in the year 2013. As on 1.4.2019 her capital in business was Rs.4,00,000. Her husband gifted Rs.3,00,000 on 15.4.2019, which amount Smt. Savita invested in her business on the same date. Smt. Savita earned profits from her proprietary business for the Financial year 2019-2020, Rs.2,30,000 and Financial year 2020-2021 Rs.4,65,000. Compute the income, to be clubbed in the hands of Savita’s husband for the Assessment year 2020-2021 & 2021-2022. Solution: Section 64(1) of the Income-tax Act, 1961 provides for the clubbing of income in the hands of the individual, if the income earned is from the assets transferred directly or indirectly to the spouse of the individual, otherwise than for adequate consideration. In this case Smt. Savita received a gift of Rs..3,00,000 from her husband which she invested in her business. The income to be clubbed in the hands of Smt. Savita’s husband is computed as under: Particulars Smt. Savita’s Capital Total Capital Contribution out Rs. Contribution of gift from 4,00,000 husband 3,00,000 Capital as at 1.4.2019 Rs. Investment on 15.04.2019 out of gift 4,00,000 Rs. received from her husband 4,00,000 -- Profit for F.Y. 2019-20 to be apportioned 2,30,000 on the basis of capital employed on the 3,00,000 first day of the previous year i.e. on 6,30,000 1.4.2019 [Acc. To Explanation 3 of Section 3,15,000 3,00,000 7,00,000 64(1)] 2,30,000 Capital employed as at 1.4.2020 Profit for F.Y.2020-21 to be apportioned on 3,00,000 9,30,000 1,50,000 4,65,000 CFP Level 2 - Module 2 – Taxation - India Page 396

the basis of capital employed as at 1.4.20 (i.e. 63: 30) Illustration-6 Mr. Ghose has 4 minor children consisting 2 daughters & 2 sons. The annual income of 2 daughters wasRs.7,500 andRs.5,000 and of sons wasRs.5,500 andRs.1,250 respectively. The daughter who was having income of Rs..5,000 was suffering from a disability specified u/s 80U. Work out the amount of income earned by minor children to be clubbed in the hands of Mr. Ghose. Solution: Income earned by minor children to be clubbed with the income of Mr. Ghose (i) Income of two daughters ( Rs.7,500 + Nil) 7,500 Less: Income exempt u/s 10(32) 1,500 Total (A) 6,000 6,750 (ii) Income of two sons ( Rs.5,500 + Rs.1,250) 2,750 Less: Income exempt u/s 10(32) ( Rs.1,500 + Rs.1,250) 4,000 Total (B) 10,000 Total Income to be clubbed as per section 64(1A) (A+B) The income of daughter suffering from disability specified u/s 80U is not to be clubbed with the income of Mr. Ghose. Illustration-7 Compute the total income of Mr. &Mrs. Shah from the following information for the Assessment Year 2020-21: Particulars ( Rs.) (i) Income from profession of Mr. Shah 4,80,000 (ii) Salary income (computed) of Mrs. Shah 3,00,000 CFP Level 2 - Module 2 – Taxation - India Page 397

(iii) Long term capital gain (computed) of Mrs. Shah (through sale of land which 2,20,000 has been gifted by Mr. Shah on their wedding anniversary) 95,000 (iv) Income of minor son ‘A’ who suffers from disability specified in Section 80U 75,000 (v) Income of minor daughter ‘B' from a music talent show 5,000 (vi) Interest from bank received by ‘B’ on deposit made out of income earned 25,000 from a music talent show (vii) Income of minor married daughter ‘C’ from company deposit Solution: Computation of Total Income of Mr. & Mrs. Shah for the A.Y. 2020-21 Particulars Rs. Mr. Shah Mrs. Shah Salaries --- 3,00,000 Profits and gains of business or profession 3,00,000 Long term capital gains (See Note-1) 4,80,000 2,20,000 3,00,000 Income from other sources 7,00,000 Interest from bank received by B (See Note 2 & 4) 5,000 3,500 Less: Exemption u/s 10(32) 1,500 23,500 7,27,000 Income by way of interest from company deposit earned by minor married daughter C [See Note-2 & 5] 25,000 Less: Exemption u/s 10(32) 1,500 Total Income Notes: (1) Since long term capital gain arising to Mrs. Shah is out of land gifted by Mr. Shah on their marriage anniversary, it is includible in the income of Mr. Shah as per section 64(1)(iv). (2) As per the provisions of section 64(1A), all such income accruing or arising to a minor child has to be clubbed in the hands of that parent whose total income (excluding the income of the minor) is greater. The income of Mr. Shah is Rs.7,00,000 and income of CFP Level 2 - Module 2 – Taxation - India Page 398

Mrs. Shah isRs.3,00,000. Since the income of Mr. Shah is greater than that of Mrs. Shah, the income of the minor children have to be clubbed in the hands of Mr. Shah. (3) The income of a minor child suffering from any disability of the nature specified in section 80U shall not be included in the hands of the parents. Hence,Rs.95,000, being the income of minor son ‘A’ who suffers from disability specified u/s 80U, shall not be included in the hands of either of his parents. (4) The income derived by the minor from manual work or from any activity involving exercise of his skill, talent or specialised knowledge or experience will not be included in the income of his parent. Hence, in the given case, Rs.75,000 being the income of the minor daughter ‘B’ from music talent show shall not be clubbed in the hands of the parents. However, interest from bank deposit received by B has to be clubbed even if the deposit is made out of income arising from music talent show. (5) The clubbing provisions are attracted even in respect of income of a minor married daughter. Therefore, income of minor married daughter ‘C’ from company deposit is includible in the income of Mr. Shah. (2) Clubbing in Case of all Assessees – Sections 60 to 63 1. Transfer of income without transfer of corresponding asset from which such income arises, shall be clubbed in the hands of person transferring the income – Section 60. 2. In case of revocable transfer of an asset, income arising from such asset shall be clubbed in the hands of transferor – Section 61 Revocable transfer means – Section 63 • a transfer where asset is not transferred for the lifetime of the transferee, or • transferor has right to reassume control over asset or income, or • transferor derives direct or indirect benefit from such income In case of irrevocable transfer, clubbing shall take place as soon as power to revoke arises (e.g. on death of the transferee) – Section 62 (3) General Law Applicable to Clubbing of Income 1. Clubbing shall continue to apply even if transferred asset is converted into some another form. 2. Loss shall also be clubbed. 3. Even capital gain arising from transfer of transferred assets shall also be clubbed. 4. Income arising from clubbed income shall not be clubbed, except in case of minor child. CFP Level 2 - Module 2 – Taxation - India Page 399

5. Income shall be clubbed in the same head to which it pertains. Deductions available under five heads shall be allowed and after that income shall be clubbed. 6. Clubbing shall take place even if transfer is indirect or is through cross-transfers. 7. Clubbing shall not be applicable in case of loan, even if loan is interest-free. (4) Set-off, or Carry Forward & Set-off Nature of loss Restrictions in set-off with other incomes of same year C/F allowed or not If yes, then can be set-off with Time limits 1. Salaries Practically loss under this head is not possible 2. Income from House Property Loss u/h IHP can be set-off with any income of the assessee. W.e.f. AY 20-21 Loss from house property up to 2,00,000 can only be set off against other income of the PY. Excess of HP loss can be carried forward for set off in subsequent 8 years against Income from House Property only. Yes – S.71B IHP only 8 years 3. Profits & Gains of Business or Profession (a) Loss from specified business referred u/s 35AD Can be set-off with income of specified businesses only, and not from any other PGBP head income. Yes – S.73A Income from Specified business only No time limit (b) Loss from speculative business Can be set-off with income of speculative businesses only, and not from any other PGBP head income. Yes – S.73Income from Speculative business only 4 years (c) Any other business / profession loss Cannot be set-off from Income u/h Salaries. Yes – S.72 Income from any business/profession 8 years (d) Unabsorbed depreciation Can be set-off with any income including Income u/h Salaries Yes – S.32(2) Income from any head No time limit 4. Capital Gains (a) Long-term Capital Loss (LTCL)Can be set-off with Long-term Capital Gains only. Yes – S.74 LTCG only 8 years (b) Short-term Capital Loss (STCL) Can be set-off with STCG & LTCG only, and not from income under any other head. Yes – S.74 STCG & LTCG only 8 years 5. Income from Other Sources (a) Loss from activity of owning & maintaining race horses Can be set-off from income of such activities only. Yes – S.74A Income from such activity only 4 years CFP Level 2 - Module 2 – Taxation - India Page 400

(b) Winnings from lotteries, etc. Loss from such activity is not possible because no expenses are allowed from such income. Further, no loss can be set-off from such income. (c) Any other IOS loss Can be set-off with any income No. i.e. dead loss, shall have no tax treatment. Notes: 1. “Speculative transaction” means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips – Section 43(5). 2. Losses of an assessee may be set-off with income clubbed in the hands of the assessee. 3. Losses need to be set-off with incomes of immediate next year’s income otherwise losses to the extent of income of immediate next year shall not be allowed to be carried forward. 4. LTCG from equity where STT paid is now taxable W.e.f 1.4.2018 @10% as per section 112A. Set off of losses is allowed only against LTCG 5. There is a general rule that losses goes with the assessee and not with the source of income. In other words, even if in any subsequent year source of income is transferred by the assessee, he will be still eligible to carry forward the losses and may set-off with other sources of income as per provisions stated above. There are some exceptions to this rule: (a) Succession of business by inheritance (Section 78(2))– in this case, losses u/h PGBP of predecessor can be carried forward by the successor for balance number of years for which predecessor could have carried forward. This provision is not applicable for losses under other heads and unabsorbed depreciation of predecessor i.e. they shall be dead loss and shall have no tax treatment. (b) Amalgamation (Section 72A) – in this case losses u/h PGBP and unabsorbed depreciation of amalgamating company shall be deemed to be losses and depreciation of amalgamated company for the year in which amalgamation takes place. That means, in the year of amalgamation, amalgamated company may set-off business losses of amalgamating company from income under any head and then may carry forward for afresh 8 years. (c) Conversion of sole-proprietorship/partnership firm into company or conversion of company into LLP in terms of section 47 – same provision as that in case of amalgamation CFP Level 2 - Module 2 – Taxation - India Page 401

6. Change in constitution of firm – Section 78(1) In case of retirement or death of a partner, losses under any head proportionate to the share of such partner shall not be allowed to be carried forward by the firm. Even such losses cannot be carried forward by such partner. This provision is not applicable for unabsorbed depreciation i.e. unabsorbed depreciation may be carried forward by the firm in full. 7. Change in shareholding of closely held companies – Section 79 Losses under any head of a particular previous year of a closely held company can be set-off with incomes of such company of any other subsequent year, only if voting power ≥ 51% is held by same persons on two dates viz.; last day of the previous year (i.e. particular year) to which losses belong to and last day of the previous year (i.e. subsequent year) in which such losses are required to be set-off. Illustration-8 The following are the details relating to Mr. Srivatsan, a resident Indian, aged 57, relating to the year ended 31.3.2020: Rs. Income from salaries 2,30,000 Loss from house property 3,90,000 Loss from cloth business 2,40,000 Income from speculation business 30,000 Loss from specified business covered by section 35AD 20,000 Long-term capital gains from sale of urban land 2,50,000 Long-term capital loss from sale of listed shares in recognized stock exchange 1,10,000 (STT paid) Loss from card games 32,000 Income from betting 45,000 Life Insurance Premium paid 90,000 Compute the total income and show the items eligible for carry forward. Computation of total income of Mr. Srivatsan for the A.Y.2020-21 CFP Level 2 - Module 2 – Taxation - India Page 402

Particulars Rs. Rs. Salaries Income from salaries 2,30,000 30,000 Less: Loss from house property 2,00,000 Profits and gains of business or profession Income from speculation business 30,000 Less: Loss from cloth business set off 30,000 Capital gains Nil Long-term capital gains from sale of urban land Less: Loss from cloth business set off 2,50,000 NIL Less: LTCL from equity 2,10,000 Income from other sources 40,000 Income from betting Gross total income 45,000 Less: Deduction u/s 80C (life insurance premium paid) 75,000 Total income 30,000 45,000 Losses to be carried forward Nil (1) Loss from cloth business (2,40,000-30,000-2,10,000) 20,000 (2) Loss from specified business covered by section 35AD (3) Loss from house property 1,90,000 (4) LTCL from equity 70,000 Notes: (i) Long-term capital gains from sale of listed shares in a recognized stock exchange is exempt u/s 10(38). Loss from an exempt source cannot be set off against profits from a taxable source. Therefore, long-term capital loss on sale of listed shares cannot be set- off against long-term capital gains from sale of urban land. (ii) Loss from specified business covered by section 35AD can be set-off only against profits and gains of any other specified business. Therefore, such loss cannot be set off against CFP Level 2 - Module 2 – Taxation - India Page 403

any other income. The unabsorbed loss has to be carried forward for set-off against profits and gains of any specified business in the following year. (iii) Business loss cannot be set off against salary income. However, the balance business loss of Rs..2,10,000 (Rs.2,40,000 –Rs.30,000 set-off against income from speculation business) can be set-off against long-term capital gains of Rs..2,50,000 from sale of urban land. (iv) Loss from card games can neither be set off against any other income, nor can it be carried forward. (v) For providing deduction under Chapter VIA, gross total income has to be reduced by the amount of long-term capital gains and casual income. Therefore, the deduction u/s 80C in respect of life insurance premium paid has to be restricted toRs.30,000 (vi) Income from betting is chargeable at a flat rate of 30% u/s 115BB and no expenditure or allowance can be allowed as deduction from such income, nor can any loss be set-off against such income. (vii) Loss from house property up to 2,00,000 can be set off. Excess to be carried forward. Illustration-9 Mr. Bhushan submits the following information for the A.Y. 2020-21. Salary income Rs.50,000 House property: House 1 Income Rs.40,000 House 2 loss Rs.30,000 Textile Business (discontinued on 10.10.2018) Rs.(25,000) Brought forward loss of textile business - A.Y 2016-17 Rs.85,000 Chemical Business (discontinued on 15.3.2018) Rs.30,000 - b/f loss of previous year 2017-18 Rs.20,000 - unabsorbed depreciation of previous year 2017-18 Rs.45,000 - Bad debts earlier deducted recovered in July 2018 Rs.70,000 Leather Business Rs.18,000 Interest on securities held as stock in trade CFP Level 2 - Module 2 – Taxation - India Page 404

Determine the gross total income for the assessment year 2020-21 and also compute the amount of loss that can be carried forward to the subsequent years. Computation of Gross Total Income for Assessment year 2020-21 Particulars Amount Amount ( Rs.) ( Rs.) (i) Income from Salary 45,000 50,000 Salary (30,000) 40,000 10,000 (30,000) (ii) Income from House property (25,000) Nil House 1 Income 60,000 House 2 loss 15,000 20,000 (10,000) 40,000 (iii) Profits and Gains of Business or Profession (a) Textile business loss 88,000 (b) Chemical business - 78,000 Bad debts recovered taxable u/s 41(4) 78,000 Less: Set off of brought forward loss of PY 20117-18 (c) Leather Business Income 70,000 18,000 (d) Interest on securities held as stock-in- trade Less: B/f loss of textile business Rs.85,000 restricted to Total Less: Unabsorbed depreciation of Rs.20,000 Gross Total Income Note: The unabsorbed loss of Rs..7,000 (Rs.85,000-Rs.78,000) of Textile business can be carried forward to A.Y. 2019-20 for set-off u/s 72, even though the business is discontinued. CFP Level 2 - Module 2 – Taxation - India Page 405

2.5.3. Deductions Under Chapter VI-A Conditions: 1. Deductions under chapter VI-A (Sections 80C to 80U) cannot exceed GTI of the assessee. 2. GTI for this purpose shall not include LTCG (any), STCG u/s 111A and Winnings from Lotteries, etc. i.e. Deductions u/c VI-A cannot be subtracted from incomes which are taxable at special rates of tax. 3. In case aggregate of deductions u/c VI-A exceeds the GTI, then excess shall have no treatment under Income-tax Act. In any case, balance amount of deductions cannot be carried forward to claim benefit in subsequent year(s). Section Assessee Provisions 1. 80C Individual or (1) Deduction u/s 80C shall be limited to HUF Rs.1,50,000. (2) Deduction is allowed on actual payment basis. (3) Deduction is allowed to individual and HUF both, except in case wherever specifically meantioned. Further payment shall be made in the name of self only, except wherever specifically mentioned. (4) Deduction shall be allowed for following payments or deposits (a) Life Insurance Premium of self, spouse or any of his child (minor/major, dependent/independent, married/unmarried, etc.) in case of an individual assessee, and of any member in case of a HUF assessee.  Life Insurance Policy may be of any insurance company, whether in India or outside India.  Restrictions on Premium  Policy issued ≤ 31/03/2013 – 20% of sum assured  Policy issued during FY 2013-14 – 10% of sum assured  Policy issued ≥ 01/04/2014 – 10% of sum assured, but in case of insured being person suffering from disability covered u/s 80U or person suffering from specified disease specified u/s 80DDB, it shall be 15% of sum assured.  For treatment of amount received on maturity or in case of death, see Annexure 1. CFP Level 2 - Module 2 – Taxation - India Page 406

(b) Deposit in PPF in the name of self, spouse or any of his child in case of an individual assessee, and of any member in case of a HUF assessee.  Interest of PPF is fully exempt.  Amount received on maturity of PPF is also fully exempt. (c) Contribution by an employee (i.e. deduction only to individual assessee) to Recognised Provident Fund or Statutory Provident Fund (d) Subscription to NSC VIII series (6 & 5 years) & NSC IX series (10 years)  Interest on NSC is taxable u/h IOS on accrual basis, but same is allowed as deduction u/s 80C (it is deemed to be reinvested in NSC only)  Last year interest is taxable u/h IOS, but same is not allowed as deduction u/s 80C because it is actually received by the assessee.  Example: PY Particulars IOS Dedn. 80C 2011-12 Subscribed NSC --- 10,000 VIII issue 6 year for Rs.10,000 2012-13 Interest accrued 800 800 Rs.800 2013-14 Interest accrued 900 900 Rs.900 2014-15 Interest accrued 1,000 1,000 Rs.1,000 2015-16 Interest accrued 1,100 1,100 Rs.1,100 2016-17 Interest accrued 1,200 1,200 Rs.1,200 2017-18 Received lump 1,300 --- sum Rs.16,300 (e) Tuition fees of university, college or school (within India) for any two children of individual assessee for full time education.  Tuition fees shall not include donations, development fee or alike. CFP Level 2 - Module 2 – Taxation - India Page 407

2. 80CCC Individual (f) Repayment of principal portion of loan taken for 3. 80CCD Individual purchase/construction of residential house property (whether self-occupied or let-out)  Loan taken from CG or SG, bank, Life Insurance Corporation, National Housing Bank, public company providing long-term housing loans, etc.  If principal amount is paid before completion of construction, same shall not be allowed as deduction u/s 80C. (g) Fixed Deposit (also called term deposit) with bank for ≥ 5 years  Interest taxable u/h IOS on yearly basis or on maturity, as per choice of assessee. No deduction u/s 80C on account of Interest. (h) Senior Citizen Savings Scheme – only for Individual  Interest taxable u/h IOS on yearly basis or on maturity, as per choice of assessee. No deduction u/s 80C on account of Interest. (i) Post Office Time Deposit for ≥ 5 years – only for Individual  Interest taxable u/s IOS on yearly basis or on maturity, as per choice of assessee. No deduction u/s 80C on account of Interest. (j) Contribution by an employee (i.e. deduction only to individual assessee) to Approved Superannuation Fund (1) Deduction shall be limited to Rs.1,50,000 (2) Deduction shall be for payment to create an annuity plan of LIC or any other insurer for receiving pension. (3) Amount received on surrender of plan or pension received from such plan shall be taxable u/h IOS for assessee/nominee. (1) Deduction is allowed for contribution to notified pension scheme (Central Govt. Pension Scheme) to receive pension, whether private employee or government employee. (2) For contribution by assessee in capacity other than employee, deduction shall be limited to 20% of GTI or Rs 1,50,000, whichever is lower. (3) For contribution by assessee in capacity of employee, deduction shall be limited to 10% of salary (basic salary + DA forming part of retirement benefits), or Rs 1,50,000, whichever is lower. (a) In case of employer’s contribution in pension scheme, CFP Level 2 - Module 2 – Taxation - India Page 408

4. 80D same shall be taxable for employee u/h Salaries (without any limit), but then same shall be allowable as deduction u/s 80CCD (maximum 10% of salary) 80CCD(2) (b) This 10% of salary for employer’s contribution is separate from and is in addition to deduction on account of employee’s own contribution (c) Employer’s contribution shall be treated as PGBP expense for employer but maximum 10% of salary of employee. (4) Amount received on closure of scheme and pension received from such scheme shall be taxable u/h IOS for assessee/nominee. Note: Section 80CCE Aggregate of deductions u/s 80C, 80CCC & 80CCD (excluding deduction on account of employer’s contribution) shall not exceed Rs.1,50,000. 80CCD(1B) – Extra deduction of 50,000 on account of individual’s combination to NPS. Individual or (1) Deduction is allowed for HUF (a) Payment of medical/health insurance premium (any mode other than cash) (b) Contribution towards Central Govt. Health Schemes or notified State Govt. Health Schemes (any mode other than cash) (c) Payment for preventive health check-up (any mode including cash) (2) Deduction to individual (a) Payment/contribution for self, spouse & dependent children – maximum Rs.25,000 (in case payment for senior citizen, then additional Rs.25,000) (b) Payment/contribution for parents – maximum Rs.25,000 (in case payment for senior citizen, then additional Rs.25,000). It is in addition to abovesaid deduction under point (2)(a). (3) Deduction to HUF  Payment/contribution for members – maximum Rs.25,000 (in case payment for senior citizen, then additional Rs.25,000) (4) Payment for preventive health check-up for self, spouse, dependent children and parents shall not exceed Rs.5,000 CFP Level 2 - Module 2 – Taxation - India Page 409

In case of a person who is Senior Citizen, Actual medical expenditure up to 50,000 can be claimed as deduction provided such person has no mediclaim policy. This is within the overall limit mentioned above and not extra 50,000 5. 80U Resident (1) It’s a status based deduction and is not dependent upon 6. 80DD Individual any payment/contribution by the assessee 7. 80DDB (2) If assessee is a person with disability (i.e. ≥ 40%), deduction of Rs.75,000 (3) If assessee is a person with severe disability (i.e. ≥ 80%), deduction of Rs.1,25,000 (4) Disability means blindness, low vision, leprosy-cured, hearing impairment, locomotor disability, mental retardation, mental illness, autism, cerebral palsy, etc. Resident (1) Deduction shall be allowed for Individual or (a) Expenditure for medical treatment, training and Resident rehabilitation of person with disability, or HUF (b) Deposit in scheme of LIC or any other insurer for maintenance of person with disability in case of death of the assessee (2) Deduction shall be Rs.75,000 (in case of disability i.e. ≥ 40%) and Rs.1,25,000 (in case of severe disability i.e. ≥ 80%)  Deduction is in absolute terms, i.e. even if expenditure incurred is Rs.4,000, deduction shall be Rs.75,000 or Rs.1,25,000 (3) Person with disability shall be dependent upon assessee, and shall be (a) Spouse, child, parent, brother or sister in case of individual assessee (b) Any member in case of HUF assessee (4) In case assessee claims deduction u/s 80DD, then person with disability cannot claim deduction u/s 80U. Resident (1) Deduction shall be allowed for medical treatment of Individual or specified diseases Resident (2) Treatment shall be of HUF (a) assessee himself or (b) person who is dependent upon assessee and shall be  Spouse, child, parent, brother or sister in case of individual assessee CFP Level 2 - Module 2 – Taxation - India Page 410

 Any member in case of HUF assessee (3) Deduction shall be maximum Rs.40,000 and in case of treatment of senior citizen, maximum Rs.1,00,000. (4) In case any amount is received under medical insurance or from employer, same shall be reduced from deduction calculated as above 8. 80E Individual (1) Deduction is for interest on loan taken for higher education 9. 80EE Individual of himself or of his relative 10. 80EEA (2) Relative means spouse, child and any student for whom assessee is legal guardian (3) Higher education means any course after 12th class from anywhere in world (4) Loan must be taken from any bank or charitable institution (5) Deduction is allowed on actual payment basis & not on accrual basis (6) There is no limit on deduction under this section (7) Deduction shall be allowed for 8 consecutive years starting from the year in which interest was first paid. Deduction shall be allowed for only those years in which interest is actually paid. (1) Deduction is allowed for interest on loan taken for acquisition of residential house property (self-occupied) (2) Loan must have been sanctioned during PY 2016-17 i.e.01- 04-16 to 31-03-2017 (3) Assessee does not own any house on the date of sanction of loan (4) Loan sanctioned ≤ Rs.35 lacs. (5) House value ≤ Rs.50 lacs. (6) Loan from financial institutions only. (7) Deduction is allowed on accrual basis. (8) Deduction is allowed subject to maximum of Rs.50,000. (9) Interest deduction is also allowed u/s 24 u/h Income from House Property. Hence, first Rs.2,00,000 of interest can be claimed u/s 24 and balance, if any, can be claimed u/s 80EE. (1) Individual not eligible for 80EE (2) The loan sanction from financial institution between 1.4.2019 to 31.3.2020 (3) House value not exceeds 45 lakh CFP Level 2 - Module 2 – Taxation - India Page 411

11. 80G Any (4) First residential house assessee (5) Deduction upto Rs.1,50,000. (1) Donation in money form shall only be counted (2) Any donation in cash > Rs.2,000 shall not be allowed (3) Deduction is for donations made to specified funds/institutions Category A – Deduction allowed @ 100% of amount of donations made (without any qualifying limit) 1. National Defence Fund 2. Prime Minister’s National Relief Fund 3. National Children’s Fund 4. Swachch Bharat Kosh 5. Clean Ganga mission etc. Category B – Deduction allowed @ 50% of amount of donations made (without any qualifying limit) 1. Jawaharlal Nehru Memorial Fund 2. Prime Minister’s Drought Relief Fund 3. Indira Gandhi Memorial Trust 4. Rajiv Gandhi Foundation Category C – Deduction allowed @ 100% of amount of donations made (donations subject to qualifying limit) 1. Government, local authority or approved institution to be utilised for the purpose of promoting family planning Category D – Deduction allowed @ 50% of amount of donations made (donations subject to qualifying limit) 1. Any fund/institution approved u/s 80G(5) 2. Government or local authority, to be utilised for any charitable purpose other than the purpose of promoting family planning 3. any corporation establish for promoting interest of members of minority community 4. for renovation or repair of temple, mosque, gurdwara, church or other place notified by the Central Government to be of historic, archaeological or artistic importance or to be a place of public worship of renown throughout any State or States (4) Qualifying limit - 10% of adjusted total income shall be the qualifying limit which shall be applied on cumulative CFP Level 2 - Module 2 – Taxation - India Page 412

amount of donations made to persons under category C & D, and then qualified donations shall be eligible for deduction @ 100% or @ 50%, as the case may be. Adjusted total income =Gross Total Income Less: LTCG Less: STCG u/s 111A Less: All deduction u/c VI-A except Section 80G 12. 80GGB Any (1) Donations to political parties or electoral trust 80GGC assessee (2) Donations may be in any mode other than cash (3) No monetary limits prescribed 13. 80GGA Any (1) Assessee must not be carrying on any business or 14. 80TTA assessee profession (2) Any donation in cash > Rs.10,000 shall not be allowed (3) Deduction shall be 100% of donations made (4) Donation must be made to (a) Section 35 entities viz. Research association, university, college, other approved institution for scientific/social science/statistical research (b) Section 35AC entities viz. Public sector company, Local authority, Association or institution approved by National Committee for eligible project or scheme (promoting the social & economic welfare of or the upliftment of the public) (c) Section 35CCA entities - Association/institution having object of undertaking rural development programme, Association/institution engaged in training of persons for implementing rural development programmes, Rural Development Fund set up by the CG, National Urban Poverty Eradication Fund set up and notified by the CG. (5) In PGBP head, deductions on account of such donations vary from 100% to 200% Individual or (1) Deduction shall be of interest on saving account with HUF (a) Bank (b) Co-operative society (c) Post Office (2) Deduction shall be maximum Rs.10,000 (3) It may be noted that interest on Post Office Savings Bank Account is exempt to the extent of Rs.3,500. From balance interest, if any, deduction of Rs.10,000 shall be available. Indirectly, in case of Post Office Savings Bank Account, CFP Level 2 - Module 2 – Taxation - India Page 413

15. 80TTB Resident Rs.13,500 gets exempt. 16. 80CCG Individual (1) Senior Citizen to be allowed a deduction 17. 80GG Individual (2) deposit with Bank, Post office, co-operatice society doing banking business, post office (3) Maximum of Rs.50000 (inclusive of 80TTA) G (1) Deduction is allowed for investment in notified listed equity shares or units of equity oriented fund specified in a scheme (Rajiv Gandhi Equity Savings Scheme, 2013) (2) Deduction shall be lower of (i) 50% of investment made or (ii) Rs.25,000. (3) Other conditions: (a) GTI ≤ Rs.12,00,000 (b) New retail investor (defined in scheme) (c) Such investment shall not be transferred for 3 years from the date of acquisition, otherwise deduction allowed shall be deemed to be the income u/h IOS of the previous year in which investment is sold (d) Deduction shall be allowed for 3 consecutive years starting from the year in which first time investment was made. Deduction shall be allowed in future years only if fresh investment is made in those years. (e) Deduction u/s 80 CCG shall not be available forfresh Investments made after 01-04-2017 9i.e. AY 18-19) (1) Deduction is allowed for payment of rent of residential house (2) Deduction shall be the least of: (a) Rs.5,000pm (b) Rent paid less 10% of Adjusted TI (c) 25% of Adjusted TI (3) Adjusted total income = Less: LTCG Less: STCG u/s 111A Less: All deduction u/c VI-A except Section 80GG (4) Other conditions: (a) Individual is not receiving any HRA from employer (b) Individual does not get RFA from employer, but deduction available if concessional accommodation provided by employer. (c) There is no house in the same city owned by assessee, spouse, minor child or HUF (whether self-occupied or let- CFP Level 2 - Module 2 – Taxation - India Page 414

out) (d) There is no house anywhere in the world owned by assessee declared to be self-occupied 18. 80RRB Resident (1) Deduction is allowed for royalty on patents included in GTI 19. 80QQB Individual Resident (2) Deduction shall be actual royalty income or 20. 10AA Individual Rs.3,00,000, whichever is lower Any (3) Assessee himself must be the true & first inventor of the assessee invention (1) Deduction is allowed for royalty on books included in GTI (2) Deduction shall be (a) In case of lump-sum royalty – actual royalty income or Rs.3,00,000, whichever is lower (b) In case of royalty other than lump-sum – actual royalty income (ignoring royalty in excess of 15% of value of books sold) or Rs.3,00,000, whichever is lower (3) Assessee himself must be the author of the book (4) Book shall be a work of literary, artistic or scientific nature (but shall not include brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text- books for schools, etc.) (1) Unit set up in SEZ (2) Income from manufacturing or production of articles or goods or from provision of services (including computer software) which are exported. (3) Deduction shall be 100% of profits of such business for first 5 years and then 50% for next 5 years (4) In case total turnover includes both export turnover & domestic turnover, then profits of such unit shall be divided in the ratio of export turnover & domestic turnover for the purposes of deduction. CFP Level 2 - Module 2 – Taxation - India Page 415

ANNEXURE 1 Treatment of amount received on account of Life Insurance Policy Amount received on account of death of the insured or on account of maturity of the policy shall be fully exempt, except in the following cases (Section 10(10D)): 1. If premium payable for any year was > 20% or 10% or 15%, then amount received on account of maturity of the policy shall be fully taxable u/h IOS. 2. Keyman Insurance Policy – whether received on death or on maturity (a) “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is the employee of the first-mentioned person or is connected in any manner with the business of the first-mentioned person (b) Premium paid on such policy is allowed as business expense to the organisation paying the premium (c) Any amount received on death/maturity of such policies and retained by the organisation shall be taxable in the hands of organisation u/h PGBP. (d) If such amount is paid to the keyman only, then same shall be taxable in the hands of keyman only either u/h Salaries (if he is working as an employee) or u/h IOS (if he is not working as an employee e.g. chairman, director). Note: In case of taxable Life Insurance Policy proceeds, insurance company shall deduct TDS @ 2% at the time of payment if aggregate of such payments made during the year is ≥Rs.1,00,000. Section Assessee Provisions 80-IA Any (1) These all are income based deduction i.e. incomes first shall be 80-IAB 80-IB assessee included u/h PGBP, and then deduction shall be allowed of such 80-IC incomes from GTI 80-ID 80-IE (2) Accounts must be audited by a CA. (3) Return has been filed on or before due date specified u/s 139(1) (4) Business must be new business (5) Second hand P&M shall not be used Business Deduction (a) Industrial undertaking (business of 100% of profits of such business for first manufacturing/production of article/thing) in 5 years and then 25% for next 5 years J&K CFP Level 2 - Module 2 – Taxation - India Page 416

(b) Commercial production or refining of mineral 100% of profits of such business for first oil or natural gas 7 years (c) Business of processing, preservation and 100% of profits of such business for first packaging of fruits or vegetables or meat and 5 years and then 25% for next 5 years meat products or poultry or marine or dairy products or business of handling, storage and transportation of foodgrains (d) Business of operating and maintaining a 100% of profits of such business for first hospital (atleast 100 beds) located anywhere in 5 years India, other than the excluded area (e) business of (i) developing or (ii) operating and 100% of profits of such business for first maintaining or (iii) developing, operating and 10 years maintaining any infrastructure facility (toll road, bridge, highway project, water supply project, sewerage system, port, airport, etc.) – only company assessee (f) telecommunication services 100% of profits of such business for first 5 years and then 30% for next 5 years (g) develops, develops and operates or maintains 100% of profits of such business for first and operates an industrial park or special 10 years economic zone 100% of profits of such business for first (h) generation or generation and distribution of 10 years power (i) Mfr./Prodn. business in notified areas of Sikkim & North-Eastern States - 100% of Sikkim, Himachal Pradesh, Uttaranchal & profits of such business for first 10 years North-Eastern States (items other than 13th Schedule items) Himachal Pradesh & Uttaranchal - 100% of profits of such business for first 5 (j) Mfr./Prodn. business in any area of Sikkim, years and then 25% for next 5 years Himachal Pradesh, Uttaranchal & North- Eastern States (items covered up under 14th Schedule items) (k) Hotel ≥ 2star in Delhi + NCR or at places having 100% of profits of such business for first World Heritage Site 5 years (l) building and operating a convention centre in Delhi + NCR (m)Business in North-Eastern States of mfr./prodn. 100% of profits of such business for first or any eligible business like hotel, leisure 10 years sports, old-age home, hospital ≥ 25 beds, etc. CFP Level 2 - Module 2 – Taxation - India Page 417

Illustration-12 Compute total income of Mr. Z from the following information: Particulars Amount Basic Salary 30,000pm DA (60% forming part of retirement benefits) 6,000pm Bonus 20,000 House Rent Allowance (taxable portion) 25,000 Perquisites (computed) 1,00,000 Employer contributes Rs.4,000pm towards Central Government Pension Scheme, to which employee contributes an equal amount per month Rent from House Property 20,000pm Long-term Capital Gains on sale of land 2,00,000 Short-term Capital Gains covered up u/s 111A 60,000 Short-term Capital Gains on sale of jewellery 1,00,000 Winnings from Crossword Puzzles (net of TDS) 14,000 Interest on debentures (net of TDS @ 10%) 13,500 Interest accrued on NSC during the year 11,000 Paid life insurance premium of self, spouse, major child, and father Rs.4,000 each Paid tuition fees of 3 children 8,000 each Particulars Amount Basic Salary 3,60,000 DA Bonus 72000 House Rent Allowance (taxable portion) 20,000 Perquisites (computed) 25,000 1,00,000 CFP Level 2 - Module 2 – Taxation - India Page 418

Employer contributes towards Central Government Pension 48000 Scheme Deduction Section 16(ia) 240000 625000 Rent from House Property 72000 50,000 - deduction @ 30% 2,00,000 168000 Long-term Capital Gains on sale of land 60,000 Short-term Capital Gains covered up u/s 111A 1,00,000 360000 Short-term Capital Gains on sale of jewellery 20000 Winnings from Crossword Puzzles 15000 46000 Interest on debentures 11,000 11,49,000 Interest accrued on NSC during the year GTI 12000 79320 Less: Deductions 16000 40320 11000 1029360 80C – LIC Premium 39000 80C – Tution fees 40320 80C – interest NSC 80CCD – EE Contribution (48,000 or 10% of 4,03,200) 80CCD – ER Cont TI Illustration-13 Mr. A, employed with ABC Ltd., has deposited Rs.1,20,000 in public provident fund. He has paid life insurance premium of Rs.15,000 on the policy taken on 1.5.2013 to insure his life (Sum assured – Rs.1,20,000). He has deposited Rs.30,000 in a five year term deposit with bank. He has also contributed Rs.1,20,000, being 10% of his salary, to the notified pension scheme of the Central Government. A matching contribution was made by ABC Ltd. Compute the deduction available to him under Chapter VI-A for A.Y.2020-21. CFP Level 2 - Module 2 – Taxation - India Page 419

80C – PPF 120000 150000 LIC 12000 50000 FD 30000 200000 162000 120000 80CCD – 1 1200000 320000 80CCD (1B)(exempt 50K) Restricted to 80CCD2 Total deductions Illustration-14 Mrs. A, aged 58 years, paid medical insurance premium by cheque for herself and for her husband (age 62 years). Compute deduction u/s 80D in the following cases: Payment for Case 1 Case 2 Case 3 Case 4 Case 5 Herself 16,000 --- 14,000 8,000 16,000 Husband --- 18,000 7,000 11,000 33,000 Deduction 16000 18000 21000 19000 49000 Illustration-15 Calculate deduction u/s 80G which can be claimed by the assessee from the following information: GTIRs.6,00,000 (includes LTCGRs.40,000, Winnings from lotteriesRs.20,000) Donation to local authority for promoting family planningRs.20,000 Donation to a notified temple for renovation & repairRs.28,000 Solution: 34000 CFP Level 2 - Module 2 – Taxation - India Page 420

Illustration-16 Compute total income from the following information of an individual (partially blind): Particulars Amount Income u/h Salaries 1,40,000 Income u/h Income from House Property 90,000 Income u/h Capital Gains 40,000 - LTCG – Jewellery 30,000 - STCG – 111A 90,000 - STCG - Land Income u/h Income from Other Sources 21,000 - Winnings from lotteries (net of TDS) 15,000 - Interest on debentures (gross) 12,000 Deposit in PPF 7,000 LIC Premium of self (sum assured Rs.60,000, policy issued on 08/04/2014) Donations 5,000 - Prime Minister’s National Relief Fund 11,000 - National Children’s Fund (cash) 8,000 - Prime Minister’s Drought Relief Fund 3,000 - Rajiv Gandhi Foundation 16,000 - Local authority for promoting family planning 11,000 - Renovation/repair of “mohalla” temple 15,000 - Renovation/repair of Golden Temple, Amritsar 8,000 - 80G(5) organisation Particulars Amount Income u/h Salaries 1,40,000 Income u/h Income from House Property 90,000 Income u/h Capital Gains 40,000 - LTCG – Jewellery 30,000 - STCG – 111A 90,000 - STCG - Land Income u/h Income from Other Sources 30,000 - Winnings from lotteries 15,000 - Interest on debentures Page 421 CFP Level 2 - Module 2 – Taxation - India

GTI 435000 Less: Deductions 19000 80C 50000 80U 33300 80G 332700 TI Category Donations Eligible %age deduction A 5000 5000 100 5000 B 11000 50 5500 C 8000 + 3000 16000 100 16000 D 16000 13600 50 6800 33300 15000 + 8000 Adjusted TI = 435000 – 19000 – 50000 – 40000 – 30000 = 296000 Illustration-17 Mr. X, a new retail investor, has made the following investments in equity shares/units of equity oriented fund of Rajiv Gandhi Equity Savings Scheme for the P.Y.2016-17, P.Y.2017-18& P.Y.2017-18 as below: Particulars PY 2016-16 PY 2017-18 PY 2017-18 Mr. X Rs. Rs. Rs. Investment in listed equity shares 20,000 45,000 32,000 Investment in units of equity-oriented 40,000 - 11,000 fund Gross Total Income (computed) 11,25,000 11,15,000 12,50,000 Deduction u/s 80CCG 25000 22500 - Illustration-18 Mr. Gurnam, aged 62 years, earned professional income (computed) of Rs..5,50,000 during the year ended 31.03.2019. He has earned interest of Rs..14,500 on the saving bank account with State Bank of CFP Level 2 - Module 2 – Taxation - India Page 422

India during the year. Compute the total income of Mr. Gurnam for the assessment year 2020-21 from the following particulars: (i) Life insurance premium paid to Birla Sunlife Insurance in cash amounting to Rs.25,000 for insurance of life of his dependent parents. The insurance policy was taken on 15.07.2012 and the sum assured on life of his dependent parents isRs.1,25,000. (ii) Life insurance premium of Rs..25,000 paid for the insurance of life of his major son who is not dependent on him. The sum assured on life of his son is Rs.1,75,000 and the life insurance policy was taken on 18.04.2011. (iii) Life insurance premium paid by cheque of Rs..22,500 for insurance of his life. The insurance policy was taken on 08.09.2012 and the sum assured isRs.2,00,000. (iv) Premium of Rs..16,000 paid by cheque for health insurance of self and his wife. (v) Rs.1,500 paid in cash for his health check-up andRs.4,500 paid in cheque for health check-up for his parents. (vi) Paid interest of Rs..6,500 on loan taken from bank for MBA course pursued by his daughter. (vii) ContributionRs.10,500 made by cheque to an electoral trust. Computation of total income of Mr. Gurnam for the Assessment Year 2020-21 Particulars Rs. Rs. Rs. Professional Income (computed) Interest on saving bank deposit 5,50,000 Gross Total Income Less: Deduction under Chapter VIA 14,500 5,64,500 U/s 80C Life insurance premium paid for life insurance of: - major son 25,000 - self Rs.22,500 restricted to 10% of Rs.2,00,000 20,000 45,000 U/s 80D Premium paid for health insurance of self and wife by 16,000 cheque Payment made for health check-up: - Self Rs.1,500 CFP Level 2 - Module 2 – Taxation - India Page 423

- His Parents Rs.4,500 Rs.6,000 restricted to 5,000 21,000 6,500 U/s 80E For payment of interest on loan taken from bank for MBA course of his daughter U/s 80GGC Contribution to electoral trust 10,500 U/s 80TTA Interest on savings bank account Rs.14,500 restricted to 10,000 93,000 4,71,500 Total Income Illustration-19 Compute deduction u/s 80QQB in the following cases: Particulars Case 1 Case 2 Case 3 Case 4 Books sold 28,00,000 28,00,000 14,00,000 14,00,000 Actual royalty 3,50,000 4,50,000 1,90,000 2,90,000 Deduction 300000 300000 190000 290000 Illustration-20 MNO Ltd. has one undertaking at Special Economic Zone (SEZ) and another at Domestic Tariff Area (DTA). Following are the details given to you for the financial year 2019-20: (Rs. in lakhs) Total Sales Unit in SEZ Unit in Domestic Tariff Area (DTA) Export Sales 200 100 Net Profit 150 80 40 10 CFP Level 2 - Module 2 – Taxation - India Page 424

Compute the quantum of eligible deduction u/s 10AA for the assessment year 2020-21 in the following situations: (i) Both the units were set up and began manufacturing from 25-07-2013. (ii) Both the units were set up and began manufacturing from 10-04-2015. As per section 10AA, in computing the total income of MNO Ltd. from its unit located in a Special Economic Zone (SEZ), which begins to manufacture or produce any article or thing on or after 1.04.2005, there shall be allowed a deduction of 100% of the profit derived from export of such article or thing for the first five year period commencing from the year of manufacture or production of articles or things by the Unit in SEZ and 50% of such profits for further five years subject to fulfilment of other conditions specified in section 10AA. (i) If Unit in SEZ were set up and began manufacturing from 25-07-2013: Since it is the 6th year of operation of the eligible unit, it shall be eligible for deduction upto 50% of the profit of such unit assuming all the other conditions specified in section 10AA are fulfilled. = [Profits of Unit in SEZ x Export turnover of Unit in SEZ / Total turnover of Unit in SEZ] x 50% = [40 lakhs x 150 lakhs / 200 lakhs] x 50% = 15 lakhs (ii) If Unit in SEZ were set up and began manufacturing from 10.04.2015: Since it is 4th year of operation of the eligible unit it shall be eligible for deduction upto 100% of profit of such unit. = [Profits of Unit in SEZ x Export turnover of Unit in SEZ / Total turnover of Unit in SEZ] x 100% = 40 lakhs x 150 lakhs / 200 lakhs x 100% = 30 lakhs CFP Level 2 - Module 2 – Taxation - India Page 425

2.5.4. Taxable Income & Tax Liability (1) Tax rates for Individual, HUF, AOP, BOI, Artificial Person (I) Individual (except mentioned below), HUF, AOP/BOI, Artificial Person Total Income Tax ≤ Rs.2,50,000 Nil > Rs.2,50,000 ≤ Rs.5,00,000 5% > Rs.5,00,000 ≤ Rs.10,00,000 20% > Rs.10,00,000 30% (II) Individual resident in India, who is of the age of 60 years or more but less than 80 years at any time during the previous year. Total Income Tax ≤ Rs.3,00,000 Nil > Rs.3,00,000 ≤ Rs.5,00,000 5% > Rs.5,00,000 ≤ Rs.10,00,000 20% > Rs.10,00,000 30% Rebate (Section 87A): An assessee, being an individual resident in India, whose total income does not exceedRs.5,00,000, shall be entitled to a deduction, from the amount of income-tax on his total income with which he is chargeable for any assessment year, of an amount equal to 100% of such income-tax or an amount of Rs..12,500, whichever is less. CFP Level 2 - Module 2 – Taxation - India Page 426

ANALYSIS 1. Rebate shall be allowed to individual resident in India. 2. Resident includes both ROR & RNOR. 3. Total income shall be ≤Rs.5,00,000. 4. Reasons for having total income ≤Rs.5,00,000 shall not matter. e.g. because of deductions, brought forward losses, etc. 5. Even if total income comprises of income which are leviable to special rate of tax, rebate is allowed. Even rebate of tax can be claimed from tax on winnings from lotteries. 6. Rebate shall be maximum of Rs..12,500. 7. Stage of rebate is before H&EC. (III) Individual resident in India, who is of the age of 80 years or more at any time during the Total income Tax ≤ Rs.5,00,000 Nil > Rs.5,00,000 ≤ Rs.10,00,000 20% > Rs.10,00,000 30% Surcharge: In case total income exceedsRs.50 lakh but does not exceed 1 cr., then tax calculated above shall be increased by surcharge @ 10% of tax calculated above. Same shall be subject to marginal relief. If TI exceeds 1CR but less than 2 Cr surcharge shall be @15%. From 2 Cr to 5 Cr. Surcharges shall be 25% and above 5 Cr it shall be 37%. Marginal relief is allowed. (2) Firm, LLP, Local Authority Tax rate: flat 30% of total income Surcharge: If total income of the assessee exceedsRs.1 crore, then tax calculated above shall be increased by surcharge @ 12% of tax calculated as above. But same shall be subject to marginal relief. Marginal Relief: The total amount payable as income tax and surcharge on total increase exceeding Rs.1 crore shall not exceed the total amount payable as income tax on a total income of Rs.1 crore by more than the amount of income exceeding Rs.1 crore. CFP Level 2 - Module 2 – Taxation - India Page 427

(3) Company Person Tax Rate Surcharge if TI Surcharge if TI 25% Domestic Company: if total turnover or gross > 1 cr. > 10 cr. receipts of the PY 2017-18< Rs.400Cr 7%* 12%* In all other cases Company other than domestic company 30% 7% 12% 40% 2%* 5%* * Same shall be subject to marginal relief For SME (i.e Turnover of comp ≤250 cr.) 25% (4) Co-operative Society Total Income Tax Rate Upto Rs.10,000 10% Rs.10,000 –Rs.20,000 20% Rs.20,000 – 00 30% Surcharge: If total income of the assessee exceedsRs.1 crore, then tax calculated above shall be increased by surcharge @ 12% of tax calculated as above. But same shall be subject to marginal relief. (5) Health &Education Cess Education Cess 4%* Plus surcharge 12% if total income increase Rs.1 Crore (6) Certain Terms Maximum amount which is not chargeable to tax: (in practical parlance, this is referred as basic exemption limit or threshold limit) Assessee Amount 1. Resident Individual, age ≥ 60yrs. 3,00,000 2. Resident Individual, age ≥ 80yrs. 5,00,000 3. Other individuals 2,50,000 CFP Level 2 - Module 2 – Taxation - India Page 428

4. HUF, AOP, BOI, Artificial Person 2,50,000 5. Firm, LLP, Local Authority Nil 6. Company (whether domestic or foreign) Nil 7. Co-operative Society Nil Normal rate of tax: Tax rates referred above are called normal rates of tax. Normal rates of tax are dependent on nature of assessee. Normal rates of tax are applied on total income of the assessee after subtracting incomes on which special rates of tax are applicable. Special rates of tax: They are dependent on nature of income. i.e. in case of incomes which are chargeable to special rates of tax, nature of assessee does not matter at all. Even residential status of the assessee does not matter. Following incomes are chargeable to special rates of tax: Nature of Income Tax Rate LTCG 20% STCG u/s 111A 15% LTCG u/s 112A 10% Winnings from lotteries, etc. 30% Dividends in excess of 10L 10% Note: First of all tax is calculated by applying normal rate and special rate of tax on total income, and then rebate is allowed or surcharge is levied. In other words, stage of rebate and surcharge is after applying rates of tax. Stage of H&EC is after rebate and surcharge. (7) Rounding off of income, amount payable and refund due – Section 288A/288B Total income, amount payable to Government or amount refundable from Government shall be rounded off to the nearest multiple of 10. Amount Amount (R/o) (a) 20,728.57 20,730.00 (b) 20,722.57 20,720.00 (c) 20,725.65 20,730.00 (d) 20,725.24 20,730.00 (e) 20,725.00 20,730.00 (f) 20,724.38 20,720.00 (g) 20,724.96 20,720.00 CFP Level 2 - Module 2 – Taxation - India Page 429

(8) Computation of Total Income of Mr. X for AY 2020-21 Particulars Amt. Amt. Amt. 1. INCOME UNDER HEAD SALARIES Basic Salary --- Allowances --- --- --- Less: Exempt Perquisites --- Retirement Benefits --- --- --- Less: Exempt Gross Salary --- Less: Deductions u/s 16 --- (ia) Standard Deduction --- (i) Professional Tax --- --- ---- (ii) Entertainment Allowance 2. INCOME FROM HOUSE PROPERTY --- Gross Annual Value --- Less: Municipal Taxes --- Annual Value/Net Annual Value --- Less: Deductions u/s 24 --- --- (i) Standard Deduction (ii) Interest on borrowed capital --- --- ---- Add: Recovery u/s 25AA & 25B 3. INCOME UNDER HEAD PGBP --- Net Profit as per P&L A/c Add: Expenditure debited to P&L A/c but not --- --- allowed under Income-tax Act Less: Expenditure allowed under Income-tax Act CFP Level 2 - Module 2 – Taxation - India Page 430

but not debited to P&L A/c Add: Income not recorded in P&L A/c --- Less: Income credited to P&L A/c but not --- --- ---- chargeable under this head 4. INCOME UNDER HEAD CAPITAL GAINS --- Short-term capital gain --- - Non-depreciable asset --- Sale consideration --- --- Less: Cost of acquisition Cost of improvement Expenses on transfer - Depreciable asset --- Sale consideration --- Less: Opening WDV --- --- --- Cost of additions Expenses on transfer Long-term Capital Gain --- Sale consideration --- Less: Indexed cost of acquisition --- --- --- Indexed cost of improvement Expenses on transfer Less: Exemptions u/s 54 to 54H --- ---- 5. INCOME FROM OTHER SOURCES --- Winning from lotteries, etc. --- Other income --- --- ---- Less: Expenses Page 431 CFP Level 2 - Module 2 – Taxation - India

Add: Clubbed income under relevant heads --- --- ---- Less: Set off and carry forward & set off from relevant heads GROSS TOTAL INCOME ---- Less: Deductions under chapter VI-A --- 80C --- 80CCD --- ---- 80U, etc. TOTAL INCOME ---- Total Income (R/o) [to the nearest multiple of ten] ---- (9) Computation of Tax liability of Mr. X for AY 2020-21 Particulars Amt. Amt. --- Page 432 Tax on winning from lotteries, etc. @ 30% --- --- Tax on STCG u/s 111A @ 15% --- Tax on Long-term capital gains @ 20% Tax on dividends exceeding 10 lakh, excess amount @10%  In case of listed securities and units of equity MF where STT is paid, assessee has to calculate tax on LTCG @ 10 %( u/s 112A) in excess of Rs.1 lakh, but in that case indexation benefit shall not be available. Assessee may be resident or non-resident.  In other case listed securities has option to calculate tax on LTCG @10%, but in that case indexation benefits shall not be available. Tax on other income @ slab rates  In case of resident Individual & resident HUF, exemption of Rs.2,50,000/3,00,000/5,00,000 first shall be claimed from other incomes and balance, if any, shall be claimed from LTCG and then from STCG u/s 111A. In any case, it cannot be claimed from winning from lotteries, etc.) CFP Level 2 - Module 2 – Taxation - India

Less: Rebate u/s 87A, if applicable OR --- Add: Surcharge @ 10% / 15%, if applicable --- Add: Education Cess @ 2% and Secondary & Higher Education --- Cess @ 1% --- --- Total tax payable Less: TDS --- --- Advance Tax --- NET TAX PAYABLE/(REFUNDABLE) Net tax payable (R/o) [to the nearest multiple of ten] CFP Level 2 - Module 2 – Taxation - India Page 433

SUMMARY Income u/h Income from Other Sources 1. Winnings from lotteries, etc. – taxable @ 30%. No expenses, deduction, losses, chapter VI-A deductions allowed. Even shortfall in slab rates cannot be adjusted. 2. Dividend – company liable to CDT @ 15%. Dividend in the hands of shareholders is exempt up to 10,00,000 excess amount taxable @10%. Section 2(22)(e) – loan/advance given by a closely held company to shareholding (holding voting power ≥ 10%) shall be taxable in the hands of shareholder. 3. Unlisted shares buy-back by a company – company liable to pay tax @ 20% on difference between buy back price & issue price. Capital gains are exempt in the hands of shareholder. 4. Family pension – exemptRs.15,000 or 1/3rd of pension, whichever is lower. 5. Al revenue nature expenses are allowed. But must not be personal. Further, section 32, 40(A)(2) & 40(A)(3) shall apply equally. Clubbing of Income 1. Income from assets transferred to spouse or son’s wife shall be clubbed in the hands of transferor. 2. All incomes of minor child shall be clubbed in the hands of parent whose income is greater before clubbing. Exemption of Rs..1,500/child is available. In case disabled minor child, nothing shall be clubbed. Income earn by minor child by his skill or talent shall not be clubbed. 3. Income from property converted into HUF property shall be clubbed in the hands of transferor. 4. Remuneration to spouse from organisation in which individual has substantial interest shall be clubbed in the hands of individual. 5. Transfer of income without transfer of asset shall be clubbed in the hands of transferor. 6. In case of revocable transfer of asset, income arising from such asset shall be taxable in the hands of transferor. 7. Income from clubbed income shall not be clubbed except in case of income of minor child. 8. Loss shall also be clubbed. CFP Level 2 - Module 2 – Taxation - India Page 434

PRACTICE QUESTIONS Question-1 State whether True/False with proper reasons of the following statements with regard to provisions of Income-tax Act, 1961: “A” receives Rs.2 lakh from his friends on the occasion of his marriage on 22.2.20 and Rs.1 lakh from the brother of his father-in-law on 31.3.20.A’s income includible under “other sources” for the previous year 2019-20 would be Rs.3 lakh . Question-2 Check the taxability of the following gifts received by Mrs. Rashmi during the previous year 2019-20 and compute the taxable income from gifts for Assessment Year 2020-21: (i) On the occasion of her marriage on 14.8.19, she has receivedRs.90,000 as gift out of whichRs.70,000 are from relatives and balance from friends. (ii) On 12.9.19, she has received gift of Rs..24,000 from cousin of her mother. (iii) A cell phone of Rs..21,000 is gifted by her employer on 15.8.2019. (iv) She gets a gift of Rs..25,000 from the elder brother of her husband's grandfather on25.10.2019. (v) She has received a gift of Rs..2,000 from her friend on 14.4.2019. Question-3 From the following particulars, you are required to work out the tax payable by Mrs. Pinto, aged 70 years in respect of Assessment Year 2020-2021: (i) Family pension Gross Rs. (ii) Income from House Property (Net) 75,000 (iii) Income from other sources: 24,000 (a) Interest on Fixed Deposits (b) Income from horse racing 15,000 (iv) Capital gains on transfer of Land – Long term 20,000 (v) Agricultural Income 15,000 25,000 1,74,000 CFP Level 2 - Module 2 – Taxation - India Page 435

Question-4 Mr. Ketan acquired a land at Mumbai from Mr. Agarwal for a purchase consideration of Rs.1 crore on 01.01.2020. The assessable value of the property for stamp duty purposes is Rs.1.30 crore. Subsequently, in a different transaction he was gifted with a land near Indore by his friend, the assessable value of which for stamp duty purpose is Rs.49,000. Advise on the taxability of these transactions. Question-5 Ms. Reshmi, who draws a salary of Rs..15,000 p.m. received the following gifts during the PY- (i) Gift of Rs..2,00,000 on 17-6-2019 from her best friend. (ii) Gift of gold jewellery worthRs.5,00,000 on 14-7-2019 from her fiancée. (iii) Gifts of Rs..75,000 each received from her 3 friends on the occasion of her marriage on 13-11- 2019. (iv) Gift of Rs..60,000 on 14-11-2019 from her mother's brother. (v) Gift of Rs..50,000 on 15-11-2019 from her father's sister. (vi) Gift of Rs..50,000 from her husband's friend on 1-12-2019. (vii) Gift of Rs..11,000 on 2-12-2019 from her father's friend. (viii) Gift of Rs..15,000 on 2-12-2019 from her sister's mother-in-law. (ix) Gift of Rs..51,000 from her husband's sister. Compute her gross total income for the assessment year. Question-6 Karan’s bank account shows the following deposits during the financial year 2019-20. Compute his total income for the A.Y. 2020-21 assuming that his income from house property (computed) is Rs.62,000. (i) Gift from his sister in Amsterdam on 30.9.2019 Rs.2,30,000 (ii) Gift from his friend on 15.12.2019 on his birthday Rs.10,000 (iii) Dividend from shares of various Indian companies Rs.12,600 (iv) Gift from his mother’s friend on 5.7.2019 on his engagement Rs.25,000 (v) Gift from his fiancée on 1.1.2020 Rs.75,000 (vi) Interest on fixed deposits Rs.25,000 CFP Level 2 - Module 2 – Taxation - India Page 436

Question-7 Mr. Ram, who follows the accrual system of accounting, purchased land for Rs.26,00,000 in June 2006. This asset was transferred to the Government by way of compulsory acquisition in September, 2012 for an immediate compensation of Rs..80,00,000. However, Mr. Ram disputed the compensation and an enhanced compensation of Rs..25,00,000 was awarded to him by the court in November 2015. Interest accrued on this compensation as on 31st March, 2019 was Rs.5,00,000. The enhanced compensation was received by him in May, 2019 along with an interest of Rs..6,00,000, which has accrued till date. Discuss the year of chargeability and appropriate heads of income under which the above transactions would be taxed. Question-8 Mr. Murali provides the following information for the year ending 31.03.2020. (i) Sales (retail trade in garments) (no books of account maintained)Rs.20,00,000 (ii) Rent from house property at ChennaiRs.10,000 per month (iii) Vacant site lease rentRs.12,000 (iv) Murali purchased 20,000 shares of X Co Ltd who declared 1:1 bonus on 1.01.2012. Murali sold 1000 bonus shares in September, 2019 forRs.1,20,000 (v) ReceivedRs.50,000 on 12.2.19, being amount due from Mr. X relating to electronic goods supplied by Murali’s father, which was written off as bad debt by his father in A.Y.2018-19 and allowed as deduction. Murali’s father died in August, 2018. (vi) Brought forward business loss relating to discontinued automobile business of Murali relating to A.Y.2018-19Rs.2,00,000 (vii) B/fwd depreciation relating to discontinued automobile business of MuraliRs.1,50,000 (viii) Murali contributedRs.15,000 to Prime Minister’s National Relief Fund andRs.10,000 to Heritage Charitable Trust enjoying exemption u/s.80G Compute taxable income of Mr.Murali for the previous year ended 31.03.2020. (A.Y.2020-21) CFP Level 2 - Module 2 – Taxation - India Page 437

Question-9 Compute the tax liability of Mr. Madhavan for the Assessment year 2020-21 from the following particulars: (i) Net house property income as computed under the head “Income from house Rs. property” 2,70,000 (ii) Income from business before adjusting the following 90,000 (a) Carried forward business loss 70,000 (b) Current depreciation 30,000 (c) Carried forward unabsorbed depreciation 1,40,000 (iii) Short term capital gain – jewellery 1,60,000 (iv) Long term capital loss – shares – 10(38) 40,000 (v) Long term capital gains – Debentures 2,00,000 (vi) Dividend on shares held as stock in trade 10,000 (vii) Divided from a company carrying on agricultural operation 12,000 (viii) Income from growing and manufacturing coffee (cured and roasted) 1,00,000 During the previous year 2019-20, the assessee has donatedRs.35,000 to an approved local authority for the promotion of family planning and purchased NSC IX issue forRs.1,00,000 Deductions under chapter VI-A (Sections 80C to 80U) Question-10 Mr. Prasad is the Karta of Hindu undivided family. The family declares gross total incomeRs.4,00,000 for the assessment year 2020-21. The gross total income includes taxable long term capital gainRs.65,000 and short term capital gainRs.35,000 which is taxable @ 15% u/s 111A of the Income-tax Act, 1961. The details of HUF fund investment made during the year 2019-20 are: CFP Level 2 - Module 2 – Taxation - India Page 438

(i) Amount deposited in public provident fund in the name of members of HUF Rs. Rs. (ii) Medical insurance premium paid by cheque – 10,000 (a) in the name of Karta 4,000 9,000 (b) in personal name “Prasad” 5,000 (iii) Contribution made to – 75,000 (a) Indira Gandhi Memorial Trust 7,000 (b) Delhi University (declared as an institution of national eminence) 3,000 (c) Zila Saksharta Samiti 5,000 (d) An approved charitable institute 30,000 (e) Government for the purpose of promoting family planning 10,000 (f) Hanuman Temple in Mohalla 20,000 Compute the total income of HUF chargeable to tax for the Assessment year 2020-21. Question-11 Mr. Abhik, an individual, made payment of health insurance premium to GIC in an approved scheme. Premium paid on his health isRs.10,000 and his spouse’s health is Rs.15,000 during the year 2019-20. He also paid health insurance premium of Rs..25,000 on his father’s health who is a senior citizen and not dependent on him. The payments have not been made by cash. Compute the amount of deduction under Chapter VI - A of the Act, available to Mr. Abhik from his gross total income for the assessment year 2020-21. Question-12 Shree, a tax practitioner, derivesRs.1,85,000 as taxable professional income. Income of Shree from other sources isRs.9,000. He pays Mediclaim insurance premium of Rs..5,000 for insuring the health of his non - dependent parents;Rs.5,000 for self and spouse andRs.8,000 for his brother. He incursRs.15,000 expenditure on medical treatment of his dependent mentally retarded (severe disability) sister in approved hospital duly certified. He pays rent of Rs..3,000 per month. Calculate his total income for assessment year 2020-21 after claiming deductions under Chapter VI-A. CFP Level 2 - Module 2 – Taxation - India Page 439

Question-13 Ramesh a resident individual, submits the following particulars of his income for FY 2019-21: Business income Rs. Interest on debentures 85,000 Long-term capital gains on transfer of gold 50,000 Short-term capital gain on sale of shares taxable u/s 111A 4,20,000 Other short-term capital gain 25,000 Contribution towards public provident fund 15,000 Payment of medical insurance premium on own life 45,000 Donation to the Swach Bharat Kosh 5,000 Donation to the fund Clean Ganga Fund for providing relief to victims of 6,000 earthquake in Gujarat 5,000 Donation to Rajiv Gandhi Foundation Donation to the Prime Minister's Drought Relief Fund 2,000 Donation to approved public charitable institution 7,000 Donation to a poor boy for higher education 12,000 Donation of clothes to an approved institution 7,000 Donation to a charitable Institution for construction of a rest house only for 15,000 particular religious community 9,000 Determine the total income of Ramesh for the assessment year 2020-21. Question-14 Mr. Verma furnishes the following particulars for the year ending 31.03.2020: (a) Life Insurance Premium paid -Rs.70,000, capital sum of the policy assured forRs.3,00,000, policy was issued in FY 2011-12; (b) Contribution to Public Provident Fund -Rs.40,000 in the name of mother; (c) Tuition fee payment -Rs.15,000 each for 3 daughters pursuing full time graduation course in Mumbai; Tuition fee for son pursuing MBA in Harvard Business School -Rs.1,50,000; (d) Housing loan principal repayment -Rs.25,000 to HDFC bank. This property is under construction at Mumbai as on 31.03.2016; CFP Level 2 - Module 2 – Taxation - India Page 440

(e) Principal repayment of Housing loan taken from friend -Rs.60,000, property is self-occupied situated at Chennai; (f) Investment in National Savings Certificate -Rs.60,000; (g) Subscription to bonds issued by NABARDRs.50,000; Compute the deduction eligible u/s 80C for A.Y. 2020-21. CFP Level 2 - Module 2 – Taxation - India Page 441

ANSWERS Answer-1 False - Where any sum of money is received without consideration on or after 1.4.2006 by an individual or a Hindu undivided family from any person or persons and the aggregate value of all such sums received during the previous year exceeds Rs.50,000/-, the whole of the aggregate value of such sum shall be included in the total income of such individual or Hindu undivided family under the head “Income from other sources”. However, in order to avoid hardship in genuine cases, certain sums of money received have been exempted, which includes, inter-alia, any sum received on the occasion of the marriage of the individual and any sum received from any relative. As such, Rs.2 lakh received from friends on the occasion of marriage is exempt. However, brother of father-in-law is not included in the definition of relative. Hence, Rs.1 lakh is taxable under the head “Income from other sources”. The statement that Rs.3 lakh is includible in A’s income is, therefore, false Answer-2 Computation of taxable income of Mrs. Rashmi from gifts for A.Y.2020-21 Particulars Taxable Reason for taxability or otherwise of each amount gift Relatives and friends ( Rs.) Gifts received on the occasion of marriage Cousin of Mrs. Rashmi’s mother Nil are not taxable. Cousin of Mrs. Rashmi’s mother is not a Elder brother of husband’s 24,000 relative. Hence, the gift is taxable. grandfather Brother of husband’s grandfather is not a Friend 25,000 relative. Hence, the gift is taxable. Aggregate value of gifts Gift from friend is taxable. 2,000 51,000 CFP Level 2 - Module 2 – Taxation - India Page 442

Since the aggregate value of gifts received by Mrs.Rashmi during the previous year exceedsRs.50,000, the whole of the amount is chargeable to tax u/s 56(2) of the Income-tax Act, 1961. Gift received from employer shall be taxable under head salaries amounting toRs.16,000 (Rs.21,000 lessRs.5,000). Answer-3 Total income of Mrs. Pinto for the Assessment year 2020-21 Income from house property (Net) Rs. Income from other sources: 24,000 Family Pension gross Less: Deduction u/s 57(iia) 75,000 60,000 Interest from Fixed deposits 15,000 Less deduction u/s 80TTB 15,000 NIL Income from horse racing 15,000 20,000 Long term capital gain 15,000 Total Income 1,19,000 Agricultural income 25,000 Answer-4 Where an immovable property is acquired for a consideration which is less than the assessable value, by more thanRs.50,000, then difference between assessable value and purchase price if taxable u/h IOS u/s 52(2)(vii). It needs mention that as a seller, Mr. Agarwal shall be subject to the provisions of Section 50C in order to determine the full value of sale consideration for the purpose of computation or taxable capital gains. Further, in the second transaction, the taxability does not arise as the assessable value of land is less thanRs.50,000 though the land is received without consideration. Answer-5 Computation of gross total income of Ms. Reshmi for the A.Y. CFP Level 2 - Module 2 – Taxation - India Page 443

Particulars Rs. Rs. Salary Salary 15,000 × 12 1,80,000 Income from other sources (i) Gift from best friend is includible 2,00,000 (ii) Gift of gold jewellery is taxable as it is in kind 5,00,000 (iii) Gifts received from her 3 friends are exempt as they have been received --- on the occasion of her marriage (iv) Gift from her mother's brother is exempt as the donor is covered in the --- definition of relative (v) Gift from her father's sister is exempt as the donor is covered in the --- definition of relative (vi) Gift from her husband's friend on 1-12-2019 is taxable 50,000 (vii) Gift from her father's friend is taxable 11,000 (viii) Gift from her sister's mother-in-law is taxable the donor is not covered in 15,000 the definition of relative (ix) Gift from her husband's sister is exempt as the donor is covered in the --- 7,76,000 definition of relative Gross Total Income 9,56,000 Answer-6 Rs. Rs. 62,000 Computation of total income of Karan for the assessment year 2020-21 25,000 Particulars --- Income from house property Income from other sources - Interest on fixed deposits - Gift from sister (not taxable since relative) CFP Level 2 - Module 2 – Taxation - India Page 444