Challenge Pathway -Prep Book

["Commuted value of pension (subject to rules) Pension is of two types - Commuted and Uncommuted, Taxable under the Head \u2018Income from Salary\u2019. Uncommuted Pension - pension received periodically, is fully taxable for both government and non- government employees. Commuted pension - A. For government-employees\/local authorities\/Statutory Corporation is fully exempt from tax. B. For non-government employees commuted pension is taxed in the following manner: For employee receiving gratuity, exemption = 1\/3 of the amount of pension which he would have received had he commuted the whole of the pension. For employee not receiving gratuity, exemption = \u00bd of the amount of pension which he would have received had he commuted the whole of the pension. Leave Encashment including on retirement (subject to rules) If a leave is not taken within a year it may lapse or it may be encashed or it may be accumulated. Encashment of leave by surrendering leave standing to one's credit is known as \\\"leave salary\\\". Government employees [Sec. 10(10AA)(i)]Cash equivalent of leave salary in respect of period of earned leave at the time of retirement is exempt. Non-Government employees [Sec. 10(10AA)(ii)] Least of the following is exempt: No. of leave balance [see Note 1] x Average monthly salary 10 x Average monthly salary Actual leave encashment received Amount specified by Government (presently Rs. 3,00,000) Note 1: Leaves in credit, at the time of retirement or leaving the job, are calculated as below: Step (a) - Find number of years of service (ignore any fraction of year) International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 447","Step (b) - Find number of days leave credited for each year of service (cannot exceed 30 days for every year of service). Step (c) - Find earned leave actually taken or encashed during the service. Number of Leave Balance (days) = [[Step (a) X Step (b)] minus Step (c)] Leave Balance (number of months) = [[Step (a) X Step (b)] minus [Step (c)]] \u00f7 30 Voluntary retirement\/separation compensation (subject to rules and limits) Amount received on voluntary retirement is exempt up to Rs. 5,00,000 (subject to conditions). Such amount will not exceed: \uf0b7 Amount equivalent to three months' salary for each completed year of service, or \uf0b7 (salary at the time of retirement) X (balance months of service left before the date of retirement on superannuation). \uf0b7 Salary includes basic, dearness allowance and commission. Life insurance policy proceeds Section 10(10D) Money received under a life insurance policy (other than a Keyman insurance policy), on the death of a person, is exempt from income tax. The sum insured is not considered as \u2018income\u2019 and exempt from tax subject to: o a) Policyholder should either be an HUF or an individual o b) Payment of premium should not be in cash Where money is not received on account of death: Exempt from tax if policy is issued up to March 31, 2003, Exempt from tax only when premium is not more than 20% of sum assured for policy issued between April 1, 2003 and March 31, 2012, Exempt from tax only when premium is not more than 10% of sum assured for policy issued between April 1, 2012 and March 31, 2013, International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 448","For policy issued from April 1, 2013 onwards, exempt only when premium is not more than 10% of sum assured for a normal individual and 15% of sum assured when policy is on the life of any person who is disabled or suffering from disease\/ailment. Amount received on maturity from Public Provident Fund, statutory Provident Fund, Sukanya Samriddhi Scheme Public Provident Fund (PPF) PPF provides income tax deduction under section 80C for the amount invested (subject to a limit of Rs 1,50,000 a year).Interest received is exempt from tax and there is no tax on the amount received on maturity of the account. Employees' Provident Fund is of the following types: 1. statutory Provident Fund; 2. recognized Provident Fund; or 3. unrecognized Provident Fund. Tax Treatment Statutory Provident Recognized Provident Fund Unrecognized Fund Provident Fund 12 34 Exempt from tax if rate of interest does not Interest credited to Exempt from tax exceed notified rate of interest, [i.e. 9.5 %] Exempt Provident Fund excess of interest over notified rate of interest is taxable Lump sum payment at Exempt from tax Exempt from tax in some cases; when not the time of retirement exempt the Provident Fund will be treated or termination of as an unrecognized fund from the service beginning International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 449","Sukanya Samridhhi Scheme (Sec. 10(11A)) Account can be opened in the name of a girl child till she attains the age of 10 years. Only one account can be opened in the name of a girl child, for a maximum of 2 girl child. Account can be opened in any post office or any bank branches with a minimum of Rs. 250 and thereafter any amount in multiple of Rs. 100 can be deposited. A minimum of Rs. 250 must be deposited in a financial year. Maximum Rs. 1,50,000 can be deposited in a financial year. Interest as may be notified by the government from time to time is calculated on yearly compounding basis and credited to the account (presently 8.4% per year). Salient features of the scheme are as below: One withdrawal is allowed on attaining the age of 18 years of account holder to meet education expenses upto 50 % of the balance at the credit of preceding financial year. The account can be transferred anywhere in India from one post office\/bank to another. The account shall mature on completion of 21 years from the date of opening of account or on the marriage of account holder, whichever is earlier. In the event of Death of the account holder (i.e. the girl child), the account shall be closed immediately. Interest and withdrawals from such account are exempt from tax under section 10(11A). House Rent Allowance (subject to rules and limits) \uf0b7 (Sec. 10(13A)): HRA exemption is regulated by rule 2A. \uf0b7 The least of the below three is exempt from tax: Actual HRA received --------- Excess of rent paid over 10% of salary --------- 40% or 50% of salary (depending on place of stay of the employee)--------- International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 450","Income of minor child (subject to limits) As per Sec. 64(1A), income which arises or accrues to the minor child shall be clubbed in the income of the parent whose total income [excluding the income includible] is greater. Clubbing provisions are not applicable in case of: Income of minor child suffering from any disability is not subject to clubbing provision given above. Income of minor child on account of any manual work. Income of minor child on account of any activity involving application of his skill, talent or specialised knowledge and experience. Key Notes: 1. A is minor child of X and Mrs. X. During the previous year 2019-20, income of A is Rs. 2,500 (this is the first income of A during his life time). During the previous year 2019-20 income of X is higher than that of Mrs. X. Consequently, income of A will be included in the income of X for the previous year 2019-20. In the subsequent years (during the minority of A), income of A will be included in the income of X, even if income of Mrs. X is higher than that of X in any of the subsequent years. 2. Where the marriage of the parents does not subsist, the income of minor will be includible in the income of that parent who maintains the minor child in the relevant previous year. 3. The minor's income, in case both the parents are not alive, cannot be assessed in the hands of the grandparents or any other relatives or even in the hands of minor. 4. In case the income of an individual includes an income of his or her minor child such individual shall be entitled to an exemption of Rs. 1,500 in respect of each minor child. Dividends from domestic companies and Units of Mutual Fund schemes (on or after April 1, 2003, subject to limits w.e.f. April 1, 2018) Dividend income from domestic companies is exempt from income tax in the hands of the recipient shareholders under Section 10(34). The companies paying such dividend on shares will have to pay dividend distribution tax on the income distributed as dividend to its shareholders. Income in respect of units of a mutual fund is not chargeable to tax for the recipient investor under Section 10(35). International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 451","From AY 2017-18, the aggregate dividend from all domestic companies, in excess of Rs. 10,00,000 is taxable on gross basis @10% (section 115BBDA). From AY 2019-20, deemed dividend shall be exempt in the hands of the recipient. Any amount received in a transaction of reverse mortgage (lump-sum or installments) Under the reverse mortgage scheme, The borrower can receive the loan either in lump-sum, or in monthly payments or through a line of credit. No repayment of the mortgage loan amount (principal or interest) is required until the borrower dies or the home is sold. The loan amount can be either repaid by the borrower or his legal heirs upon his death. On the borrower's death, the property is sold and the loan is repaid along with accumulated interest; alternatively the borrower or the legal heir can repay without resorting to sale. Taxability of money received Receiving money from the lender: As per Section 10(43) of the Income Tax Act, 1961, any amount received from banks, whether lump sum or instalment, is fully exempt from tax. No tax liability at the time of mortgaging the property. Section 47(16) provides that the act of mortgaging the property for reverse mortgage will not be treated as a transfer. When property is disposed of by the lender or the borrower or his legal heirs: Property sold by the lender Capital gains liability shall not fall on the lender but would have to be discharged by the borrower if he is alive or by his legal heirs. Property not sold Borrower pay the dues fully, no tax implications will arise as redemption of the property also does not amount to transfer. Receiving money from the life insurance company: the annuity received shall be taxable in the hands of the borrower. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 452","Capital gains arising from transfer of residential property (long-term) In acquiring another housing property (in terms of Section 54) Exemption under section 54 is available to the assessee only on purchase or construction of one residential house property from the sale proceeds of the existing residential house property. Construction of the residential house should be completed within 3 years from the date of transfer. Construction may be commenced even before the transfer of house, allotment of flat under the self- financing scheme of DDA is treated as construction of house for this purpose. If the taxpayer pays full consideration or substantial portion of it, within the period given above, the exemption is available. Purchase of tenancy right in a building, does not amount to purchase of a house property and exemption under section 54 is not available. A taxpayer may sell two house properties and he may purchase one house property for the purpose of availing the exemption. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 453","In acquiring Equity shares in an \u2018eligible company\u2019 (in terms of Section 54GB) until March 31, 2021 Net sale consideration = sale consideration minus expenditure on transfer incurred by the transferor. Eligible company means a company which satisfies the following conditions: o Incorporated on or after April 1 of the year in which residential property is transferred but on or before the due date of submission of return of income under section 139(1) by the assessee i.e. the transferor of residential property. o Engaged in the business of manufacture of any article or thing or in an eligible business. o The assessee has more than 50% share capital after subscription in shares by the assessee. o The company qualifies to be a SME or is an eligible start-up. \uf0b7 New asset means new plant and machinery. \uf0b7 Eligible business means a business which involves innovation, development of new products. Capital gains deposit account scheme is utilized to park funds to be used in specified time limits When new asset is not acquired up to the due date of submission of return of income, the taxpayer is required to deposit the money in \\\"Capital gain deposit account scheme\\\" with a nationalized bank. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 454","Exemption will then be given to the taxpayer on the basis of actual investment and the amount deposited in the deposit account. The taxpayer can acquire the new asset by withdrawing from the deposit account. The new asset should be acquired within the time-limit mentioned in the relevant sections. If the deposit account is not fully utilized for acquiring the new asset, the unutilized amount will become chargeable to tax in the previous year in which the specified time-limit for making investment in the new asset expires. taxable as short-term\/ long-term capital gain depending upon the original capital gain. can be withdrawn by the taxpayer after the expiry of the aforesaid time limit. If the taxpayer dies before the expiry of specified time limit, unutilized amount paid to the legal heirs is not taxable in the hands of the recipient. Capital gains arising from transfer of any long-term In acquiring certain specified bonds (in terms of Section capital 54EC) asset In acquiring certain long-term specified assets (in terms of Section 54EE) The provisions of section 54EE are: The assessee has transferred a long-term capital asset. The assessee has invested the whole (or any part) of capital gains in long-term specified assets. Such investments can be made at any time within 6 months from the date of transfer of original asset. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 455","Amount of such investment, made on or after April 1, 2016, by an assessee during any financial year cannot exceed Rs. 50 lakhs. Amount of exemption is Amount of capital gain or amount invested in long-term specified assets, whichever is lower. In acquiring the first residential property (in terms of Section 54F) Permissible Deductions from Gross Total Income Gross Total Income = Aggregate of income computed under each head, after considering the provisions for clubbing of income and set-off of losses. Deductions allowed under sections 80C to 80U from the Gross Total Income in computing total income of assessee. Deductions of two types: 1. Deductions on account of payments\/investments covered under section 80C to 80GGC. 2. Deductions on account of incomes which are already included under the Gross Total Income covered under sections 80-IA to 80U. Total Income (Taxable Income) = Gross Total Income - above deductions. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 456","Standard Deduction To provide relief to the salaried taxpayers, standard deduction has been reintroduced with effect from financial year 2018-19 by inserting clause (ia) in section 16. Amount of Standard Deduction \u2013 Rs. 40,000 or the amount of the salary, whichever is less. The limit of Rs. 40,000 increased to Rs. 50,000 in 2019. Professional Tax As per section 16 (iii), a deduction of any sum paid by the assessee, on account of a tax on employment, shall be allowed. The deduction will be allowed in the year in which the tax is actually paid by the employee. Employer contributions (forming part of Employee cost to company) to statutory and recognized Provident Funds, National Pension System (subject to approved limits) Employer\u2019s contribution to the statutory provident fund of an employee is exempt from tax. Recognized provident fund of an employee is exempt from tax only up to 12% of salary. National Pension System (NPS) applicable to new entrants to Government service or any other employer. As per the scheme, mandatory for persons entering the Government service on or after January 1, 2004, to contribute 10% of their salary, every month, towards NPS. A matching contribution is required to be made by the employer to the said account. Tax treatment under the national pension scheme is as follows: o Contribution by the employer to NPS is first included under the head \\\"Salaries\\\" in the hands of the employee. o Such contribution is deductible (to the extent of 10% of the salary of the employee) under section 80CCD(2). Approved investments, PF\/NPS employee contributions, insurance premium, repayment of borrowed capital in housing loans, etc. (subject to limits of Section 80CCE) Deductions in respect of Life Insurance Premium, Deferred Annuity, Provident Funds etc. (Sec. 80C). Deduction under Section 80C is available only to an individual or a Hindu undivided family. Deduction is available on the basis of actual payments made by the taxpayer during the previous year. Such investment, deposit, etc. can be made out of the taxable income or otherwise. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 457","Gross qualifying amount is the aggregate of the following, amongst others: o Life insurance premium, unit-linked insurance plan , annuity plans of LIC or any other insurer o Payment in respect of non-commutable deferred annuity o Contribution towards statutory provident fund and recognized provident fund, Public Provident Fund, approved superannuation fund o Subscription to National Savings Certificates, VIII or IX Issue; Sukanya Samriddhi Account o Payment units of Mutual Funds, pension funds of Mutual Funds o Any sum paid as tuition fees o Any instalment or part payment towards the cost of purchase\/construction of a residential property o Amount deposited as term deposit for a period of 5 years or more o Amount deposited under Senior Citizens Saving Scheme. o Amount deposited in five-year time deposit scheme in post office. Net qualifying amount = Gross qualifying amount or Rs. 1,50,000, whichever is lower. Deductions in respect to contribution to Pension Fund (Sec. 80CCC) o Deduction is available only to an individual. o Amount should be paid or deposited under an annuity plan of the LIC of India or any other insurer for receiving pension. o Amount should be paid or deposited out of income chargeable to tax. o The maximum amount deductible under Section 80CCC is Rs. 1,50,000. Deductions in respect to contribution to National Pension System (Sec. 80CCD) \uf0b7 NPS covers New Pension Scheme and Atal Pension Yojana. \uf0b7 Employee's contribution to NPS is deductible in the year in which contribution is made (Section 80CCD (1)). \uf0b7 Deduction on account of employee\u2019s contribution to NPS is limited to 10% of salary of the employee. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 458","\uf0b7 Contribution by the employer to NPS is deductible in the hands of the employee (Section 80CCD (2)) limited to 10% of salary of the employee. 80CCE - Limit on deductions under sections 80C, 80CCC and 80CCD \uf0b7 The aggregate amount of deductions under section 80C, section 80CCC and section 80CCD(1) shall not, in any case, exceed Rs. 1,50,000. \uf0b7 Employer\u2019s contribution (to the extent of 10% of the employee\u2019s salary) shall not be considered for the ceiling of Rs. 1,50,000. Additional contribution under NPS (subject to limits of Section 80CCD[1B]) From AY 2016-17, the employee, or any other individual, who has joined NPS, can contribute an additional amount up to Rs. 50,000 towards NPS and claim the same as deduction under section 80CCD(1B). Such a contribution under section 80CCD(1B) is not covered by the cumulative ceiling of Rs. 1,50,000 given under sections 80C, 80CCC and 80CCD(1). Interest on borrowed capital in housing loans (subject to limits of Section 24b) Interest allowable as a deduction if the capital is borrowed for: acquisition, construction, renovation, repairing or reconstruction of the property. o If capital is borrowed for purchasing a plot of land, interest is deductible even if construction is financed from own funds. o Interest is deductible on an \\\"accrual\\\" basis; can be deducted yearly, even if interest is not actually paid during the year. o Self-occupied residential house property o interest allowed as a deduction up to Rs. 2 lakhs (provided capital is borrowed on or after 01-04-1999 and acquisition or construction is completed within 5 years). o interest for reconstruction, repairs or renewals allowed as a deduction up to Rs. 30,000. From AY 2020-21, deduction allowed in respect of two self-occupied house properties. However, the aggregate amount of deduction shall remain Rs. 30,000 or Rs. 2,00,000, as the case may be. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 459","o Interest for the years prior to the year of acquisition\/construction allowed as deduction in five equal instalments, starting from the year in which the property was acquired \/ constructed. o Interest on a fresh loan, taken to repay the original loan, is allowable as deduction. o Interest on unpaid interest not deductible. o No deduction allowed for any brokerage or commission for arranging the loan. o Interest on a fresh loan, taken to repay the original loan, is allowable as deduction. o For a let-out property - interest deductible fully without any maximum ceiling. Medical Insurance premium (Section 80D) \uf0b7 Deduction under this Section is available subject to the following conditions: o The taxpayer is an individual (resident\/non-resident, Indian citizen\/foreign citizen or a Hindu undivided family (resident or non-resident)). o Payment of premium should be made out of income chargeable to tax. o Payment of premium should be made by any mode other than cash. However, payment on account of preventive health check-up can be made by any mode (including cash). Medical treatment (Section 80DD\/Section 80DDB) Deduction in respect of maintenance, including medical treatment, of a dependant who is a person with disability [Section 80DD] \uf0b7 The provisions under this section are given as below: o A resident individual\/HUF can claim deduction, if he has incurred expenditure for the medical treatment, training and rehabilitation of a dependent relative (being a person with a disability). o Deduction can also be claimed, if the resident individual\/HUF has paid or deposited under any approved scheme of LIC (or any other insurer) for the maintenance of such a dependent relative. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 460","o Fixed deduction of o Rs. 75,000 from gross total income is available. o A higher deduction of Rs. 1,25,000 is available if such a dependent relative is suffering from a severe disability. o Deduction under this section is available regardless of actual expenditure. Deduction in respect of medical treatment [Section 80DDB] \uf0b7 The provisions under this section are given as below: o A resident individual\/HUF to actually incurred expenditure for the medical treatment of a specified disease or ailment as prescribed by the Board, under Rule 11DD. o Expenditure to be incurred for medical treatment of self or wholly\/mainly dependent husband\/wife, children, parents, brothers and sisters of the individual (any member of the family in the case of HUF). o Actual expenditure on medical treatment or Rs. 40,000 (Rs. 100,000 in the case of a senior citizen), whichever is lower. o Deduction shall be reduced by the amount received, from an insurer, or reimbursed by an employer, if any. o To obtain a prescription from a specialist doctor for the purpose of availing this deduction. Where, \\\"dependant\\\" means: (a) in the case of an individual, the spouse, children, parents, brothers and sisters of the individual or any of them, who are wholly and mainly dependent upon the individual, (b) in the case of a Hindu undivided family, any member of the Hindu undivided family, dependent wholly or mainly on such individual or Hindu undivided family for his support and maintenance and who has not claimed any deduction under section 80U in computing his total income for the assessment year relating to the previous year. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 461","Approved Donations (Section 80G) \uf0b7 Deductions available to: resident or non-resident individual, company, firm, or any other person. \uf0b7 Conditions: o Donation should be a sum of money and not in kind. o Donation should be made only to the specified funds\/institutions. o Donation exceeding Rs. 2,000 should not be in cash. o proper proof of payment. o Deduction available to a qualifying limit in some cases and others without any qualifying limit. o Deduction allowed 100% of the donation, in some cases allowed 50% of the donation. Rent paid by self-employed individuals (subject to rules and limit under Section 80GG) \uf0b7 Deduction allowed to an individual. \uf0b7 The person can be o Employee who does not get HRA from the employer nor a rent-free accommodation; o Can also be a self-employed person. \uf0b7 The individual should pay rent for his residential accommodation, whether furnished or unfurnished, and give a declaration in Form no. 10BA. \uf0b7 The individual, his spouse or minor child or, where such assessee is a member of a Hindu undivided family, does not own any residential accommodation at the place where he ordinarily resides or performs duties of his office or employment or carries on his business or profession. \uf0b7 Quantum of deduction: o The deduction shall be the least of the following: o Excess of rent paid over 10% of \u2018Total Income\u2019 o 25% of the \u2018Total Income\u2019 o Rs. 5,000 per month International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 462","Interest on deposits in savings bank account (subject to limit under Section 80TTA) \uf0b7 Where the gross total income of an assessee, being an individual or a Hindu undivided family, whether a resident or non-resident, \uf0b7 Includes any income by way of interest on deposits in a savings account with a bank, or a co- operative society engaged in carrying on the business of banking, or a Post Office, \uf0b7 Deduction of such interest to the maximum of Rs. 10,000 shall be allowed. \uf0b7 Where the interest is derived from any deposit in a savings account held by, or on behalf of, o a firm, an association of persons or a body of individuals, o no deduction shall be allowed under this section in respect of such interest income. Rebate under Section 87A \uf0b7 An assessee, being an individual resident in India, whose total income does not exceed Rs. 5,00,000 shall be entitled to a deduction. \uf0b7 Deduction is allowed from the amount of income-tax on his total income with which he is chargeable for any assessment year. \uf0b7 Amount of deduction is equal to hundred percent of such income-tax or an amount of Rs. 12,500, whichever is less. Profits and Gains of Business or Profession Meaning of business, profession or vocation \uf0b7 As per Section 2(13) \u2013 o \u2018Business\u2019 includes trade, commerce or manufacture. o The activities may even consist of rendering services to others. o The definition of business is an inclusive definition and not exhaustive. o It covers every facet of an occupation carried on by a person with a view to earning profit. o Profession involves some special qualification of a person, apart from skill and ability, required in carrying on any activity which can be considered as a profession. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 463","o Vocation refers to any activity on which a person spends a major part of his time in order to earn his livelihood. \uf0b7 Income from all such activities is taxable under \u2018Profits and gains of business or profession\u2019. The basis of charge \uf0b7 Following incomes chargeable under \\\"Profits and gains of business\/profession\\\": o The profits and gains of any business or profession carried any time during the previous year; o Compensation or payment received, managing the whole or substantially the whole of the affairs of an Indian company; o Income derived by a trade, professional or similar association from specific services performed for its members; o Perquisite\/benefit arising from business or profession, whether convertible into money or not; o Interest, commission, salary, remuneration, bonus received by a partner of a firm; o Sum received under Keyman insurance policy; o Income from speculative transactions; o Any sum receivable, in cash or kind, under an agreement for: o Not carrying out any activity in relation to any business; or o Not sharing any know-how, patent, copyright, trade-mark, license. Business income, profits, compensation received, etc. \uf0b7 Business income - money a person\/company receives from doing business, \uf0b7 Includes income received from sale of products or services, \uf0b7 Any interest, salary, bonus, commission or remuneration, received by a firm\/company, \uf0b7 Profits and gains and compensation or other payment received by the company. \uf0b7 Gross income is the total income from all sources before subtracting adjustments, exemptions, or deductions allowed by law. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 464","Principles for arriving at business income \uf0b7 Principles while calculating business income: o Business or profession should be carried on by the assessee. o Business or profession should be carried on during the previous year. o Tax incidence arises on aggregate income from all businesses or professions. o Profits and losses of a speculative business are kept separately. o Anticipated or potential profits or losses, which may occur in future, are not considered. o Sum recovered for an expense, earlier allowed as deduction, is taxable as business income of the year in which it is recovered. o Legality or illegality of a business or profession is immaterial. Exclusions from business income \uf0b7 Rent from House Property o income derived in business of owning and letting of residential houses is taxable under \u201cIncome from house property\u201d. \uf0b7 Dividend Income o income earned by carrying on a business of dealing in shares and securities by way of dividend on such business assets shall be taxable under \u201cIncome from other sources\u201d. \uf0b7 Winnings from Lotteries, Races, etc. o taxable under \u201cIncome from other sources\u201d even if derived as a regular business activity. \uf0b7 Interest received on compensation\/enhanced compensation o taxable in the year of receipt under the head \u2018Income from other sources\u2019. Methods of Accounting \uf0b7 Two methods of accounting - o Mercantile system o Net profit\/loss is calculated after considering all income and expenditure, irrespective whether income is not received\/expenditure is not actually paid during the accounting period. 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