Tax

 Distribution of assets (to equity or preference shareholders) – Section 2(22)(a)  Distribution of debentures (to equity or preference shareholders) or bonus shares (to preference shareholders) – Section 2(22)(b)  Distribution at the time of liquidation (to equity shareholders) – Section 2(22)(c)  Distribution on reduction of share capital (to equity shareholders) – Section 2(22)(d) Notes: 1. On above said dividends, company (widely held or closely held) is required to pay Corporate Dividend Tax (CDT) @ 15%. Also called Dividend Distribution Tax (DDT) or tax on distributed profits – Section 115-O. CDT rate of 15% shall be applied in such a manner that it is 15% of (distributed profits + CDT). Same shall be increased by surcharge @ 15% and cess @ 3%. 2. Said dividend is exempt in the hands of shareholder – Section 10(34). Tax on certain dividends received from domestic companies [Section 115BBDA] [w.e.f. A.Y. 2017-18] (1)Dividend in aggregate exceeding ₹10,00,000 received by certain persons to be taxed at the special rate of 10% [Section 115BBDA(1)]:Not withstanding anything contained in this Act, where the total income of an assesse, being— (i) an individual, or (ii) Hindu undivided family or (iii) a firm Resident in India, includes any income in aggregate exceeding ₹10,00,000, by way of dividends declared, distributed or paid a domestic company, the income tax payable shall be the aggregate of– (a) the amount of income tax calculated on the income by way of such dividends in aggregate exceeding ₹10,00,000, @10%; and (b) the amount of income tax with which the assesse would have been chargeable had the total income of the assesse been reduced by the amount of income by way of dividends. (2) No deduction to be allowed from dividend taxable at special rate under section 115BBDA(1) [Section 115BBDA(2)]: No deduction in respect of any expenditure or allowance or set off of loss shall be allowed to the assesse under way provision of this act in computing the income by way of dividends referred to in section 115BBDA(1)(a). 3. Said dividend or taxes thereon are not expenses for the company. 4. Similar treatment shall be applied for income on units paid by Mutual Fund Companies {Section 115R & 10(35)}. 290

5. Amounts distributed to the shareholders in above said cases shall be treated as dividend to the extent of company possess accumulated profits. 6. In case of liquidation, assets distributed by the company to shareholders shall not be treated as transfer and hence no capital gains in the hands of company – Section 46(1) On the other hand, shares in the hands of the shareholder shall be treated as transfer & liable to capital gains – Section 46(2). (a) FVC in the hands of shareholder shall be: Money received + FMV of assets received Less: Deemed dividend u/s 2(22)(c) (b) POH & indexation shall be counted till the date of liquidation. Period between date of liquidation and date of distribution shall not be counted. (c) Capital gains shall be treated as income of the PY in which money and/or assets are received by the shareholder. (d) If later on, shareholder transfers the asset received on liquidation, its CoA shall be the FMV considered above and POH/Indexation shall start from the date on which asset received by the shareholder. 7. It may be noted that above said provisions are applicable only for domestic companies. If any dividend is received by a person from a foreign company, then same shall be taxable u/h IOS. Illustration-3 Ms. Vasumathi purchased 10,000 equity shares of Rejesh Co. Pvt. Ltd. on 28.2.2009 for ₹1,20,000. The company was wound up on 31.7.2017. The following is the summarized financial position of the company as on 31.7.2017: Liabilities ₹ Assets ₹ 60,000 Equity shares 6,00,000 Agricultural lands 42,00,000 General reserve 40,50,000 Cash at bank 4,50,000 46,50,000 46,50,000 The assets were distributed to the shareholders in the proportion of their shareholding. The market value of 6 acres of agricultural land (in an urban area) as on 31.7.2017 is ₹10,00,000 per acre. The agricultural land received above was sold by Ms. Vasumathi on 28.2.2018 for ₹15,00,000. Discuss the tax consequences in the hands of the company and Ms. Vasumathi. Solution: 291

Company – no tax issues 10,00,000 Ms. Vasumathi 75,000 Land Cash 1075000 6,75,000 - reserve ₹ 4,00000 FVC for shares 2,38,248 - ICOA (1,20,000 x 272 / 137) 1,61,752 LTCG Exempt Dividend Sale of land 1500000 FVC 1000000 - cost STCG 500000 Buy-back of shares 8. In case company buy-back its unlisted shares at more than issue price, company is required to pay tax on distributed profits @ 20% + surcharge @ 15% + cess @ 3% (i.e. 23.69%). Capital gains arising from such buy back shall be exempt in the hands of shareholder – Section 10(34A). In this case accumulated profits of the company shall not matter. 9. Buy-back of other securities (e.g. listed shares, units, etc.) shall result into taxable capital gains in the hands of shareholder. Section 2(22)(e) 10. Advance or loan given by a closely held company to its equity shareholder, holding ≥ 10% voting power, shall be treated as dividend to the extent of accumulated profits. 11. On such dividend, company is not required to pay tax, but same is taxable in the hands of shareholder u/h IOS. (4) Other Incomes Taxable u/h IOS Nature of Income Remarks 1. Interest on  Not taxable on accrual basis but taxable in the hands of securities person receiving the interest in the year of receipt. E.g. debenture purchased by assessee on which interest is 292

payable half yearly on 30/06 and 31/12 of every year. Now 6 months interest (receivable on 31/12/2016) shall be taxable in the hands of assessee if debentures were purchased by him any time before 31/12/2016  Any commission or remuneration payable to any person for realising the interest shall be allowed as expenses. 2. Other interest  e.g. interest on loan, interest on FD, interest on saving bank a/c, etc.  Interest on Post Office Saving Account – exempt to the extent of ₹3,500.  Interest on PPF – fully exempt 3. Interest on  Taxable u/h IOS in the year of receipt. refund of taxes  Refund of tax itself – income-tax & wealth-tax not taxable since not allowed as expense.  Refund of tax itself – other taxes shall be taxable u/h PGBP only. 4. Hire charges  Depreciation as per section 32 shall be allowed of plant &  Other expenses like repair, insurance, etc. shall be allowed machinery 5. Family  Family pension means a regular monthly amount payable pension by the employer to the family of an employee in the event of his death.  ₹15,000 or 1/3rd of such pension, whichever is lower, is exempt. 6. Income from sub-letting a house 7. Director‘s sitting fee (for attending board meetings) 8. Rent of vacant land 9. MP & MLA‘s salary 10. Fees for setting or checking of papers 11. Agricultural income from land outside India 12. Advance money for field 13. Interest on compensation enhance – 50% Taxable 50% deductible (5) Expenses Allowed – Section 57 Any expenditure incurred to earn such incomes shall be allowed as an expense except expenses of capital nature. 293

(6) Expenses Not Allowed – Section 58 1. Personal expenses 2. Interest or salary paid outside India on which TDS is not deducted or is not deposited 3. Income-tax and Wealth-tax 4. Section 40A(2) – payment to relatives more than reasonable and section 40A(3) – payment in cash in a single day > ₹20,000, shall apply u/h IOS also. 5. Expenditure incurred to earn any exempt income shall not be allowed under any of the provisions – Section 14A. Such expenses shall be exempt (i.e. cannot be claimed from other expenses) whether any such exempt income has been actually earned or not during the year. Illustration-4 Compute income under head Income from Other Sources of Mr. Z from the following information: (a) Director‘s sitting fees – ₹4,000 Taxable (b) Income from agricultural land in Haryana – ₹10,000 Exempt (c) Income from agricultural land in Burma – ₹20,000 Taxable (d) Ground Rent for land in J&K – ₹11,000 Taxable (e) Interest on Postal Savings Bank A/c – ₹500 Exempt (f) Interest on Deposits with IFCI – ₹600 Taxable (g) Dividend from a foreign company – ₹700 Taxable (h) Rent from sub-letting a house – ₹25,000 Taxable Rent payable by Mr. Z for sub-let house – ₹11,000 Expense Other expenses for sub-let house incurred by Mr. Z – ₹1,100 Expense (i) Winnings from KBC (net) ₹1,05,000 Taxable 150000 (j) Interest on securities (gross) – ₹1,200 taxable Illustration-4 Compute income u/h Income from Other Sources from the following information of a senior citizen: (a) Director‘s meeting fees from Z Ltd. (public substantially Taxable interested) – ₹15,000 Taxable (b) Agricultural income from land situated in Afghanistan – 294

₹20,000 (c) Interest (i) on Fixed Deposit with Bank (net of TDS @ 10%) – ₹13,500 Taxable 15000 (ii) on Post Office Saving Account – ₹4,000 Taxable 500 (iii)on Government Securities – ₹5,500 Taxable (iv) on PPF – ₹10,000 Exempt (v) on National Saving Certificates VIII issue – ₹11,000 Taxable (d) Dividend from B Ltd. – ₹21,000 Exempt (e) Lottery prize (net) – ₹23,100 Taxable 33000 He spent ₹1,650 for purchasing 330 tickets of lottery, out of which Not allowed he won abovesaid prize on one of the tickets. 2.5.2. Clubbing of Income (1) Clubbing in case of an Individual Assessee – Section 64 Nature of Income Provisions 1. Income from  Any asset other than house property (for house property, assets section 27 – deemed owner shall apply) transferred by  Exceptions (in following cases, income shall not be an individual clubbed, but taxable in the hands of spouse only): (husband/wife)  Transfer for adequate consideration to his spouse  Transfer in connection with an agreement to live apart (e.g. divorce)  Transfer before marriage (e.g. fiancée)  Relationship of husband & wife ceases to exist  Death of the individual  Clubbing shall take place forever.  If amount gifted by the individual is invested by the spouse in the sole proprietorship business, following PGBP head income shall be clubbed: Income from x Investment in business on 1st day of RPY out of business gift received Total investment in the business on 1st day of the RPY 295

 Similar provision shall apply for interest from partnership firm if such gifted amount is invested in partnership firm. 2. Income from  Salary and profit from such firm shall not be clubbed. assets  Any asset including house property Exceptions (in following cases, income shall not be transferred by clubbed, but taxable in the hands of son‘s wife only):  Transfer for adequate consideration an individual to  Transfer before son‘s marriage (e.g. son‘s fiancée)  Relationship of father/mother-in-law & son‘s wife his son‘s wife ceases to exist   Death of the individual  Clubbing shall take place forever. In case gifted amount is invested by the son‘s wife in sole- 3. Income from  proprietorship business or partnership firm business, abovesaid provisions will apply in the same manner. assets Income arising from such assets shall be clubbed in the transferred to  hands of individual transferring the asset. 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 not take place. spouse/son‘s All incomes of minor child shall be clubbed, except the wife following incomes:  All incomes of minor who is covered up u/s 80U 4. Income of minor  child (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. 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 296

 to the extent of ₹1,500 (per minor child)  5. Salary of spouse  Clubbing shall take place even if minor child (son/daughter) is married.  Section 27 shall override Section 64 i.e. section 64 shall be  applied only if section 27 does not apply. 6. Income from  If spouse receives any salary, commission, fees, etc. from an organisation in which individual has substantial assets  interest, then such salary etc. shall be clubbed in the hands of individual. transferred to 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. HUF Illustration-5 A proprietary business was started by Smt. Savita in the year 2013. As on 1.4.2017 her capital in business was ₹4,00,000. Her husband gifted ₹3,00,000 on 15.4.2017, which amount Smt. Savita invested in her business on the same date. Smt. Savita earned profits from her proprietary business for the Financial year 2017-2018, ₹2,30,000 and Financial year 2018-2019 ₹4,65,000. Compute the income, to be clubbed in the hands of Savita‘s husband for the Assessment year 2018-2019 & 2019-2020. 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 ₹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: 297

Particulars Smt.Savita‟s Capital Total Capital Contribution Capital as at 1.4.2017 ₹ Investment on 15.04.2017 out of gift Contribution out of gift 4,00,000 received from her husband ₹ from husband 3,00,000 7,00,000 Profit for F.Y. 2017-18 to be 4,00,000 ₹ 2,30,000 apportioned on the basis of capital -- employed on the first day of the 4,00,000 9,30,000 previous year i.e. on 1.4.2017 [Acc. To 2,30,000 3,00,000 4,65,000 Explanation 3 of Section 64(1)] Capital employed as at 1.4.2018 6,30,000 3,00,000 Profit for F.Y.2018-19 to be 3,15,000 apportioned on the basis of capital 3,00,000 employed as at 1.4.18 (i.e. 63: 30) 1,50,000 Illustration-6 Mr. Ghose has 4 minor children consisting 2 daughters & 2 sons. The annual income of 2 daughters was ₹7,500 and ₹5,000 and of sons was ₹5,500 and ₹1,250 respectively. The daughter who was having income of ₹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 ( ₹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 ( ₹5,500 + ₹1,250) 2,750 Less: Income exempt u/s 10(32) ( ₹1,500 + ₹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. 298

Illustration-7 Compute the total income of Mr. &Mrs. Shah from the following information for the Assessment Year 2018-19: Particulars ( ₹) (i) Income from profession of Mr. Shah 4,80,000 3,00,000 (ii) Salary income (computed) of Mrs. Shah 2,20,000 (iii) Long term capital gain (computed) of Mrs. Shah (through sale of land which has been gifted by Mr. Shah on their wedding anniversary) (iv) Income of minor son ‗A‘ who suffers from disability specified in 95,000 Section 80U (v) Income of minor daughter ‗B' from a music talent show 75,000 5,000 (vi) Interest from bank received by ‗B‘ on deposit made out of income earned from a music talent show (vii) Income of minor married daughter ‗C‘ from company deposit 25,000 Solution: Computation of Total Income of Mr. &Mrs.Shah for the A.Y. 2018-19 Particulars ₹ Mr. Mrs. Shah Shah Salaries --- 3,00,000 Profits and gains of business or profession 4,80,000 Long term capital gains (See Note-1) 2,20,000 7,00,000 3,00,000 Income from other sources 5,000 3,500 Interest from bank received by B (See Note 2 & 4) 1,500 Less: Exemption u/s 10(32) 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 23,500 7,27,000 Total Income 3,00,000 299

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 ₹7,00,000 and income of Mrs. Shah is ₹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, ₹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, ₹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 300

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. 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- C/F If yes, then can Time off with other allowed be set-off with limits 1. Salaries or not 2. Income from incomes of same year House Property Practically loss under this head is not possible Loss u/h IHP can be Yes – IHP only 8 years set-off with any S.71B income of the assessee. W.e.f. AY 18-19 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 years 301

against Income from House Property only. 3. Profits & Gains of Business or Profession (a) Loss from Can be set-off with Yes – Income from No specified income of specified S.73A Specified time business businesses only, and business only limit referred u/s not from any other 35AD PGBP head income. (b) Loss from Can be set-off with Yes – S.73 Income from 4 years speculative business income of speculative Speculative businesses only, and business only not from any other PGBP head income. (c) Any other Cannot be set-off Yes – S.72 Income from any 8 years business/professi business / from Income u/h on profession loss Salaries. (d) Unabsorbed Can be set-off with Yes – Income from any No depreciation any income including S.32(2) Income u/h Salaries head time limit 4. Capital Gains (a) Long-term Can be set-off with Yes – S.74 LTCG only 8 years Capital Loss Long-term Capital (LTCL) Gains only. (b) Short-term Can be set-off with Yes – S.74 STCG & LTCG 8 years Capital Loss STCG & LTCG only, only (STCL) and not from income under any other head. 5. Income from Other Sources (a) Loss from Can be set-off from Yes – Income from 4 years activity of income of such S.74A owning & activities only. such activity only maintaining race horses (b) Winnings from Loss from such activity is not possible because no expenses lotteries, etc. are allowed from such income. Further, no loss can be set- off from such income. 302

(c) Any other IOS Can be set-off with No. i.e. dead loss, shall have no tax loss any income 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. In case any income is exempt under any of the provisions of the Act {e.g. LTCG u/s 10(38)}, then any loss of similar nature shall also be exempt. i.e. same cannot be set off with any of the incomes of the assessee or in other words, same shall be a dead loss which shall have no tax treatment. 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. 303

(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 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 31.3.2018: ₹ 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 1,10,000 exchange (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.2018-19 304

Particulars ₹₹ 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 40,000 Income from other sources 2,10,000 Income from betting Gross total income 45,000 Less: Deduction u/s 80C (life insurance premium paid) 1,15,000 Total income 30,000 Losses to be carried forward 85,000 (1) Loss from cloth business (2,40,000-30,000-2,10,000) (2) Loss from specified business covered by section 35AD Nil (3) Loss from house property 1,90,000 20,000 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 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 ₹2,10,000 ( ₹2,40,000 – ₹30,000 set-off against income from 305

speculation business) can be set-off against long-term capital gains of ₹2,50,000 from sale of urban land. Consequently, the taxable long-term capital gains would be ₹40,000. (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 to ₹30,000 [i.e., Gross Total Income of ₹1,15,000 – ₹40,000 (LTCG) – ₹45,000 (Casual income)]. (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 ₹50,000 Mr. Bhushan submits the following information for the A.Y. 2018-19. ₹40,000 Salary income ₹30,000 House property: ₹(25,000) House 1 Income ₹85,000 House 2 loss Textile Business (discontinued on 10.10.2016) ₹30,000 Brought forward loss of textile business - A.Y 2014-15 ₹20,000 Chemical Business (discontinued on 15.3.2016) ₹45,000 ₹70,000 - b/f loss of previous year 2015-16 ₹18,000 - unabsorbed depreciation of previous year 2015-16 - Bad debts earlier deducted recovered in July 2016 Leather Business Interest on securities held as stock in trade Determine the gross total income for the assessment year 2018-19 and also compute the amount of loss that can be carried forward to the subsequent years. Computation of Gross Total Income for Assessment year 2018-19 Particulars Amount Amount ( ₹) ( ₹) 306

(i) Income from Salary 45,000 40,000 50,000 Salary (30,000) (30,000) 10,000 (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 88,000 (a) Textile business loss 78,000 (b) Chemical business - 78,000 Bad debts recovered taxable u/s 41(4) Less: Set off of brought forward loss of PY 2015-16 (c) Leather Business Income 70,000 18,000 (d) Interest on securities held as stock- in-trade Less: B/f loss of textile business ₹85,000 restricted to Total Less: Unabsorbed depreciation of ₹20,000 Gross Total Income Note:The unabsorbed loss of ₹7,000 ( ₹85,000- ₹78,000) of Textile business can be carried forward to A.Y. 2017-18 for set-off u/s 72, even though the business is discontinued. 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. 307

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 (1) Deduction u/s 80C shall be limited to or HUF ₹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 308

Annexure 1. (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 --- 10,000 NSC VIII issue 6 year for ₹10,000 2012-13 Interest 800 800 accrued ₹800 2013-14 Interest 900 900 accrued ₹900 2014-15 Interest 1,000 1,000 accrued ₹1,000 2015-16 Interest 1,100 1,100 309

accrued ₹1,100 2016-17 Interest 1,200 1,200 accrued ₹1,200 2017-18 Received 1,300 --- lump sum ₹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. (f) Repayment of principal portion of loan taken for 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 310

2. 80CCC Individual  Interest taxable u/s IOS on yearly basis or 3. 80CCD Individual 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 ₹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, 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 311

4. 80D Individual taxable u/h IOS for assessee/nominee. or HUF Note: Section 80CCE Aggregate of deductions u/s 80C, 80CCC & 80CCD (excluding deduction on account of employer‘s contribution) shall not exceed ₹1,50,000. 80CCD(1B) – Extra deduction of 50,000 on account of individual‘s combination to NPS. (1) Deduction is allowed for (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 ₹25,000 (in case payment for senior citizen, then additional ₹5,000) (b) Payment/contribution for parents – maximum ₹25,000 (in case payment for senior citizen, then additional ₹5,000). It is in addition to abovesaid deduction under point (2)(a). (3) Deduction to HUF  Payment/contribution for members – maximum ₹25,000 (in case payment for senior citizen, then additional ₹5,000) (4) Payment for preventive health check-up for self, spouse, dependent children and parents shall not exceed ₹5,000 In case of a person who is 80 years of age, Actual medical expenditure up to 30,000 can be claimed as deduction provided such person has no mediclaim policy. This is within the overall limit mentioned above and not extra 30,000 312

5. 80U Resident (1) It‘s a status based deduction and is not 6. 80DD Individual dependent upon any payment/contribution by the assessee 7. 80DDB (2) If assessee is a person with disability (i.e. ≥ 40%), deduction of ₹75,000 (3) If assessee is a person with severe disability (i.e. ≥ 80%), deduction of ₹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 Resident (a) Expenditure for medical treatment, training and 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 ₹75,000 (in case of disability i.e. ≥ 40%) and ₹1,25,000 (in case of severe disability i.e. ≥ 80%)  Deduction is in absolute terms, i.e. even if expenditure incurred is ₹4,000, deduction shall be ₹75,000 or ₹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 Individual treatment of specified diseases or 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 313

8. 80E Individual case of individual assessee 9. 80EE Individual  Any member in case of HUF assessee (3) Deduction shall be maximum ₹40,000 and in case of treatment of senior citizen, maximum ₹60,000& very Sr. Citizen 80,000 (4) In case any amount is received under medical insurance or from employer, same shall be reduced from deduction calculated as above (1) Deduction is for interest on loan taken for higher education of himself or of his relative (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 ≤ ₹35 lacs. (5) House value ≤ ₹50 lacs. (6) Loan from financial institutions only. (7) Deduction is allowed on accrual basis. (8) Deduction is allowed subject to maximum of ₹50,000. 314

10. 80G Any (9) Interest deduction is also allowed u/s 24 u/h assessee Income from House Property. Hence, first ₹2,00,000 of interest can be claimed u/s 24 and balance, if any, can be claimed u/s 80EE. (1) Donation in money form shall only be counted (2) Any donation in cash > ₹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 315

11. 80GGB Any planning 80GGC assessee 3. any corporation establish for promoting 12. 80GGA Any interest of members of minority assessee 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 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 (1) Donations to political parties or electoral trust (2) Donations may be in any mode other than cash (3) No monetary limits prescribed (1) Assessee must not be carrying on any business or profession (2) Any donation in cash > ₹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 316

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% 13. 80TTA Individual (1) Deduction shall be of interest on saving 14. 80CCG or HUF account with Resident (a) Bank Individual (b) Co-operative society (c) Post Office (2) Deduction shall be maximum ₹10,000 (3) It may be noted that interest on Post Office Savings Bank Account is exempt to the extent of ₹3,500. From balance interest, if any, deduction of ₹10,000 shall be available. Indirectly, in case of Post Office Savings Bank Account, ₹13,500 gets exempt. (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) ₹25,000. (3) Other conditions: (a) GTI ≤ ₹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 317

15. 80GG Individual income u/h IOS of the previous year in which 16. 80RRB investment is sold Resident Individual (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 for fresh 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) ₹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-out) (d) There is no house anywhere in the world owned by assessee declared to be self- occupied (1) Deduction is allowed for royalty on patents included in GTI (2) Deduction shall be actual royalty income or ₹3,00,000, whichever is lower (3) Assessee himself must be the true & first 318

17. 80QQB Resident inventor of the invention 18. 10AA Individual (1) Deduction is allowed for royalty on books Any included in GTI assessee (2) Deduction shall be (a) In case of lump-sum royalty – actual royalty income or ₹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 ₹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. ANNEXURE 1 319

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 ≥ ₹1,00,000. Section Assessee Provisions 80-IA Any (1) These all are income based deduction i.e. incomes first shall 80-IAB assessee be included u/h PGBP, and then deduction shall be 80-IB 80-IC allowed of such 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 manufacturing/production of article/thing) for first 5 years and then 25% for in J&K next 5 years (b) Commercial production or refining of mineral 100% of profits of such business 320

oil or natural gas for first 7 years (c) Business of processing, preservation and 100% of profits of such business packaging of fruits or vegetables or meat and for first 5 years and then 25% for meat products or poultry or marine or dairy next 5 years products or business of handling, storage and transportation of foodgrains (d) Business of operating and maintaining a 100% of profits of such business hospital (atleast 100 beds) located anywhere for first 5 years in India, other than the excluded area (e) business of (i) developing or (ii) operating 100% of profits of such business and maintaining or (iii) developing, operating for first 10 years and 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 and operates an industrial park or special for first 10 years economic zone (h) generation or generation and distribution of 100% of profits of such business power for first 10 years (i) Mfr./Prodn. business in notified areas of Sikkim & North-Eastern States - Sikkim, Himachal Pradesh, Uttaranchal & 100% of profits of such business North-Eastern States (items other than 13th for first 10 years Schedule items) Himachal Pradesh & Uttaranchal (j) Mfr./Prodn. business in any area of Sikkim, - 100% of profits of such business Himachal Pradesh, Uttaranchal & North- for first 5 years and then 25% for Eastern States (items covered up under 14th next 5 years Schedule items) (k) Hotel ≥ 2star in Delhi + NCR or at places 100% of profits of such business having World Heritage Site for first 5 years (l) building and operating a convention centre in Delhi + NCR (m)Business in North-Eastern States of 100% of profits of such business mfr./prodn. or any eligible business like for first 10 years hotel, leisure sports, old-age home, hospital ≥ 321

25 beds, etc. Illustration-11 Mr. A made the following payments during the year. Compute deduction u/s 80C for AY 2018-19. Nature of In name of Particulars Amount Deduction payment 1. Life Self Sum assured ₹30,000, policy 7,000 6000 Insurance issued on 08/11/2010, Premium payment by cash 2. Life Spouse Sum assured ₹40,000, policy 4,500 4000 Insurance issued on 04/05/2013, Premium payment by cheque 3. Life Major son Sum assured ₹20,000, policy 1,700 1700 Insurance issued on 05/06/2014, Premium payment by credit card 4. Life Minor Sum assured ₹18,000, policy 2,000 1800 Insurance handicappe issued on 07/08/2013 Premium d son 5. Life Dependent Sum assured ₹35,000, policy 5,000 - Insurance father issued on 12/12/2011 Premium 6. PPF Spouse Payment by cash 10,000 10000 7. PPF Married Payment by cheque 15,000 15000 daughter 8. NSC Self Subscribed NSC VIII issue 8,000 8000 9. NSC Self Interest accrued during the 1,500 1500 year for NSC acquired two years back 10. NSC Spouse Subscribed NSC VIII issue 12,000 - 11. Housing Self Repayment to Bank, includes 15,000 7000 Loan interest of ₹8,000 12. Housing Self Repayment to brother, 11,000 - Loan includes interest of ₹2,000 Illustration-12 Compute total income of Mr. Z from the following information: 322

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 ₹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 ₹4,000 each Paid tuition fees of 3 children 8,000 each Particulars 3,60,000 Amount Basic Salary 72000 DA 20,000 625000 Bonus 25,000 168000 House Rent Allowance (taxable portion) 1,00,000 Perquisites (computed) 48000 Employer contributes towards Central Government Pension Scheme 240000 Rent from House Property 72000 - deduction @ 30% 2,00,000 Long-term Capital Gains on sale of land 60,000 Short-term Capital Gains covered up u/s 111A 323

Short-term Capital Gains on sale of jewellery 1,00,000 360000 Winnings from Crossword Puzzles 20000 Interest on debentures 15000 46000 Interest accrued on NSC during the year 11,000 1199000 GTI Less: Deductions 12000 79320 16000 40320 80C – LIC Premium 11000 1079360 80C – Tution fees 39000 80C – interest NSC 40320 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 ₹1,20,000 in public provident fund. He has paid life insurance premium of ₹15,000 on the policy taken on 1.5.2013 to insure his life (Sum assured – ₹1,20,000). He has deposited ₹30,000 in a five year term deposit with bank. He has also contributed ₹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.2018-19. 80C – PPF 120000 LIC 12000 FD 30000 162000 150000 80CCD – EE 150000 80CCD (B) 70000 50000 270000 Restricted to 80CCD – ER 120000 80CCD (B) Total deductions 50000 320000 324

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 3,000 Deduction 15000 18000 21000 19000 19000 Illustration-15 Calculate deduction u/s 80G which can be claimed by the assessee from the following information: GTI ₹6,00,000 (includes LTCG ₹40,000, Winnings from lotteries ₹20,000) Donation to local authority for promoting family planning ₹20,000 Donation to a notified temple for renovation & repair ₹28,000 Solution:34000 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 ₹60,000, policy issued on 08/04/2014) 5,000 Donations 11,000 - Prime Minister‘s National Relief Fund 8,000 - National Children‘s Fund (cash) - Prime Minister‘s Drought Relief Fund 325

- Rajiv Gandhi Foundation 3,000 - Local authority for promoting family planning 16,000 - Renovation/repair of ―mohalla‖ temple 11,000 - Renovation/repair of Golden Temple, Amritsar 15,000 - 80G(5) organisation 8,000 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 435000 GTI Less: Deductions 19000 50000 80C 33300 80U 332700 80G TI Category Donations Eligible %age deduction A 5000 5000 100 5000 B 8000 + 3000 11000 50 5500 C 16000 16000 100 16000 D 15000 + 8000 13600 50 6800 33300 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 equity PY 2016-16 PY 2017-18 PY 2017-18 ₹ ₹ ₹ Mr. X 20,000 45,000 32,000 Investment in listed shares 326

Investment in units of equity- 40,000 - 11,000 oriented fund Gross Total Income (computed) 11,25,000 11,15,000 12,50,000 25000 22500 - Deduction u/s 80CCG Illustration-18 Mr. Gurnam, aged 62 years, earned professional income (computed) of ₹5,50,000 during the year ended 31.03.2017. He has earned interest of ₹14,500 on the saving bank account with State Bank of India during the year. Compute the total income of Mr. Gurnam for the assessment year 2018-19 from the following particulars: (i) Life insurance premium paid to Birla Sunlife Insurance in cash amounting to ₹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 is ₹1,25,000. (ii) Life insurance premium of ₹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 ₹1,75,000 and the life insurance policy was taken on 18.04.2011. (iii) Life insurance premium paid by cheque of ₹22,500 for insurance of his life. The insurance policy was taken on 08.09.2012 and the sum assured is ₹2,00,000. (iv) Premium of ₹16,000 paid by cheque for health insurance of self and his wife. (v) ₹1,500 paid in cash for his health check-up and ₹4,500 paid in cheque for health check-up for his parents. (vi) Paid interest of ₹6,500 on loan taken from bank for MBA course pursued by his daughter. (vii) Contribution ₹10,500 made by cheque to an electoral trust. Computation of total income of Mr. Gurnam for the Assessment Year 2018-19 Particulars ₹₹ ₹ Professional Income (computed) 5,50,000 Interest on saving bank deposit 14,500 Gross Total Income 5,64,500 Less: Deduction under Chapter VIA U/s 80C 25,000 Life insurance premium paid for life insurance of: - major son 327

- self ₹22,500 restricted to 10% of ₹2,00,000 20,000 45,000 16,000 U/s 80D 21,000 5,000 6,500 Premium paid for health insurance of self and wife 10,500 by cheque 10,000 93,000 Payment made for health check-up: 4,71,500 - Self ₹1,500 - His Parents ₹4,500 ₹6,000 restricted to 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 U/s 80TTA Interest on savings bank account ₹14,500 restricted to 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 210000 300000 300000 190000 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 2017-18: ( ₹in lakhs) Total Sales Unit in SEZ Unit in Domestic Tariff Area Export Sales (DTA) 200 Net Profit 150 100 40 80 10 328

Compute the quantum of eligible deduction u/s 10AA for the assessment year 2018- 19 in the following situations: (i) Both the units were set up and began manufacturing from 25-07-2011. (ii) Both the units were set up and began manufacturing from 10-04-2013. 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 25-07-2011: 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 10.04.2013: 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 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 ≤ ₹2,50,000 Nil 5% > ₹2,50,000 ≤ ₹5,00,000 20% > ₹5,00,000 ≤ ₹10,00,000 30% > ₹10,00,000 (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. 329

Total Income Tax ≤ ₹3,00,000 Nil 5% > ₹3,00,000 ≤ ₹5,00,000 20% > ₹5,00,000 ≤ ₹10,00,000 30% > ₹10,00,000 Rebate (Section 87A): An assessee, being an individual resident in India, whose total income does not exceed ₹3,50,000, 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 ₹2,500, whichever is less. ANALYSIS 1. Rebate shall be allowed to individual resident in India. 2. Resident includes both ROR & RNOR. 3. Total income shall be ≤ ₹5,00,000. 4. Reasons for having total income ≤ ₹3,50,000 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 ₹2,500. 7. Stage of rebate is before EC & SHEC. (III) Individual resident in India, who is of the age of 80 years or more at any time during the previous year, - Total income Tax ≤ ₹5,00,000 Nil 20% > ₹5,00,000 ≤ ₹10,00,000 30% > ₹10,00,000 Surcharge: In case total income exceeds ₹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 ICR surcharge shall be @15%. (2) Firm, LLP, Local Authority Tax rate: flat 30% of total income 330

Surcharge: If total income of the assessee exceeds ₹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. (3) Company Person Tax Rate Surcharge if Surcharge if TI > 1 cr. TI > 10 cr. Domestic Company 30% Company other than domestic company 40% 7%* 12%* 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 ₹10,000 10% ₹10,000 – ₹20,000 20% ₹20,000 - ∞ 30% Surcharge: If total income of the assessee exceeds ₹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) EC & SHEC Education Cess 2%* Secondary & Higher Education Cess 1%* * 2% & 1% shall be of tax + surcharge (if any) (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 4. HUF, AOP, BOI, Artificial Person 2,50,000 5. Firm, LLP, Local Authority Nil 6. Company (whether domestic or foreign) Nil 331

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% 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 EC & SHEC 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 (8) Computation of Total Income of Mr. X for AY 2018-19 Particulars Amt. Amt. Amt. 1. INCOME UNDER HEAD SALARIES --- Basic Salary 332

Allowances --- Less: Exempt --- --- Perquisites --- Retirement Benefits --- --- --- Less: Exempt Gross Salary --- Less: Deductions u/s 16 --- (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 --- 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 333

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 --- --- ---- 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. Amt. Amt. TOTAL INCOME Total Income (R/o) [to the nearest multiple of ten] (9) Computation of Tax liability of Mr. X for AY 2018-19 Particulars 334

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 (other than units), assessee has --- --- --- option to calculate tax on LTCG @ 10%, but in that case --- --- indexation benefit shall not be available. Assessee may be resident or non-resident. Tax on other income @ slab rates  In case of resident Individual & resident HUF, exemption of ₹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.) 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] 335

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 – exempt ₹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 ₹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. 336

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 ₹2 lakh from his friends on the occasion of his marriage on 22.2.18 and ₹1 lakh from the brother of his father-in-law on 31.3.18.A‘s income includible under ―other sources‖ for the previous year 2017-18 would be ₹3 lakh . Question-2 Check the taxability of the following gifts received by Mrs. Rashmi during the previous year 2017-18 and compute the taxable income from gifts for Assessment Year 2018-19: (i) On the occasion of her marriage on 14.8.17, she has received ₹90,000 as gift out of which ₹70,000 are from relatives and balance from friends. (ii) On 12.9.17, she has received gift of ₹24,000 from cousin of her mother. (iii) A cell phone of ₹21,000 is gifted by her employer on 15.8.2017. (iv) She gets a gift of ₹25,000 from the elder brother of her husband's grandfather on25.10.2017. (v) She has received a gift of ₹2,000 from her friend on 14.4.2017. 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 2018-2019: (i) Family pension Gross ₹ (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 Question-4 Mr. Ketan acquired a land at Mumbai from Mr. Agarwal for a purchase consideration of ₹1 crore on 01.01.2018. The assessable value of the property for stamp duty purposes is ₹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 ₹49,000. Advise on the taxability of these transactions. 337

Question-5 Ms. Reshmi, who draws a salary of ₹15,000 p.m. received the following gifts during the PY- (i) Gift of ₹2,00,000 on 17-6-2017 from her best friend. (ii) Gift of gold jewellery worth ₹5,00,000 on 14-7-2017 from her fiancée. (iii) Gifts of ₹75,000 each received from her 3 friends on the occasion of her marriage on 13- 11-2017. (iv) Gift of ₹60,000 on 14-11-2017 from her mother's brother. (v) Gift of ₹50,000 on 15-11-2017 from her father's sister. (vi) Gift of ₹50,000 from her husband's friend on 1-12-2017. (vii) Gift of ₹11,000 on 2-12-2017 from her father's friend. (viii) Gift of ₹15,000 on 2-12-2017 from her sister's mother-in-law. (ix) Gift of ₹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 2017-18. Compute his total income for the A.Y. 2018-19 assuming that his income from house property (computed) is ₹62,000. (i) Gift from his sister in Amsterdam on 30.9.2017 ₹2,30,000 (ii) Gift from his friend on 15.12.2017 on his birthday ₹10,000 (iii) Dividend from shares of various Indian companies ₹12,600 (iv) Gift from his mother‘s friend on 5.7.2017 on his engagement ₹25,000 (v) Gift from his fiancée on 1.1.2018 ₹75,000 (vi) Interest on fixed deposits ₹25,000 Question-7 Mr. Ram, who follows the accrual system of accounting, purchased land for ₹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 ₹80,00,000. However, Mr. Ram disputed the compensation and an enhanced compensation of ₹25,00,000 was awarded to him by the court in November 2015. Interest accrued on this compensation as on 31st March, 2017 was ₹5,00,000. The enhanced compensation was received by him in May, 2017 along with an interest of ₹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. 338

Question-8 Mr. Murali provides the following information for the year ending 31.03.2018. (i) Sales (retail trade in garments) (no books of account maintained) ₹20,00,000 (ii) Rent from house property at Chennai ₹10,000 per month (iii) Vacant site lease rent ₹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, 2017 for ₹1,20,000 (v) Received ₹50,000 on 12.2.17, 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.2016-17 and allowed as deduction. Murali‘s father died in August, 2016. (vi) Brought forward business loss relating to discontinued automobile business of Murali relating to A.Y.2016-17 ₹2,00,000 (vii) B/fwd depreciation relating to discontinued automobile business of Murali ₹1,50,000 (viii) Murali contributed ₹15,000 to Prime Minister‘s National Relief Fund and ₹10,000 to Heritage Charitable Trust enjoying exemption u/s.80G Compute taxable income of Mr.Murali for the previous year ended 31.03.2018. (A.Y.2018-19) Question-9 Compute the tax liability of Mr. Madhavan for the Assessment year 2018-19 from the following particulars: (i) Net house property income as computed under the head ―Income from house ₹ 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 2017-18, the assessee has donated ₹35,000 to an approved local authority for the promotion of family planning and purchased NSC IX issue for ₹1,00,000 339