Principles of Taxation Law

Book Details

Detailed Contents

Preface	vii
Contents at a Glance	ix

Part 1 Direct Taxation

Chapter 1 Introduction to Tax Law	3
1.1 History behind Taxation in India	3
1.2 Meaning of Tax?	3
1.3 Uses of Tax	4
1.4 Components of Tax	5
1.5 What makes a good tax system?	5
1.6 Other Canons of Taxation in Modern World	6
1.7 Types of Taxes	6
1.8 Organisational setup for Tax Administration in India	7
1.9 Central Board of Direct Taxes (CBDT)	8
1.10 Central Board of Indirect taxes, and Customs	8
1.11 Other Types of Levy	8

Chapter 2 Taxes and Constitution	10
2.1 Constitutional Background [Pre-GST]	10
2.1a Taxes levied by the Central Government	11
2.1b Taxes levied by the State Government	11
2.2 Tax and Freedom to Trade, Commerce and Intercourse (Part XIII of the Constitution of India)	12

Chapter 3 Interpretation of Tax Statute	14
3.1 Principles of Interpretation	14

Chapter 4 Basic Concepts of Direct Taxation	24
4.1 Sources of Income Tax Law	24
4.2 Scheme of Taxation	26
4.3 Important Concepts	27
4.3a Person [Section 2(31)]	27
4.3b Assessment year [Section 2(9)]	29
4.3c Previous year [Sections 3]	29
4.3d Maximum amount which is not chargeable to income-tax	32
4.3e Rates of income-tax for assessment year 2024-25	33
4.3f Rate or Rates of Tax	36
4.3g Assessee [Section 2(7)]	37
4.3h Charge of income-tax [Section 4]	38
4.3-i Total Income	38
4.3j Rounding off of Total Income [Section 288A]	49
4.3k How to compute tax liability on Total Income	50
4.3-l Rounding off of tax, etc. [Section 288B]	50
4.4 Method of Accounting [Section 145]	50

Chapter 5 Scope of Total Income & Residential Status [Sections 5 to 9B]	51
5.1 Definition of Total Income [Section 2(45)]	51
5.2 Scope of Total Income/Incidence of tax [Section 5]	51
5.2a In the case of Resident in India (resident and ordinarily resident in case of individual or HUF) [Section 5(1)]	51
5.2b In the case of a Resident but not Ordinarily Resident in India (In the case of individuals and HUF only) (including an individual who is deemed to be resident in India) [Section 5(1) and its proviso]	52
5.2c In the case of Non-Resident [Section 5(2)]	52
5.3 Need to determine Residential Status?	53
5.4 Basic rules for determining residential status of an assessee	53
5.5 Rules for determining the residential status of an individual [Sections 6(1) & 6(1A)]	53
5.5a When an individual is said to be resident in India?	54
5.5b Citizen of India shall be deemed to be resident in India in certain cases [Section 6(1A) w.e.f. A.Y. 2021-22]	55
5.5c When an individual is said to be resident but "not ordinarily resident in India"?[Section 6(6)]	56
5.5d When an individual is said to be resident and ordinarily resident in India?	57
5.5e When an individual is said to be non-resident in India [Section 2(30)]	57
5.6 Residential Status of Hindu Undivided Family (HUF) [Section 6(2)]	65	�
5.6a When is HUF said to be a resident in India?	65
5.6b When is HUF said to be a Non-Resident?	65
5.6c When is HUF said to be a resident and ordinarily resident in India?	66
5.6d When is HUF said to be resident but "not ordinarily resident in India"? [Section 6(6)(b)]	66
5.7 Residential Status of Firm, Association of Persons (AOP), Body of Individuals (BOI) and of other persons (except companies) [Sections 6(2) and 6(4)]	67
5.7a When is a Firm, AOP, BOI, etc., said to be resident in India?	67
5.7b When is a Firm, AOP, BOI, etc., said to be Non-Resident in India?	67
5.8 Residential Status of a Company [Section 6(3)]	67
5.8a When is a company said to be resident in India?	67
5.8b When is a company said to be Non-resident in India?	67
5.9 Incomes received or deemed to be received in India [Section 7]	71
5.10 Incomes which accrue or arise in India or are deemed to accrue or arise in India[Section 9]	72
5.11 Income on receipt of capital asset or stock in trade by specific person from specified entity [Section 9B inserted w.r.e.f. Assessment Year 2021-22]	86
5.12 The provisions regarding incidence of tax above may be summarised in the following table	86

Chapter 6 Computation of Total Income and Tax Liability [Sections 14, 14A, 288A and 288B]	91
6.1 Heads of Income [Section 14]	91
6.2 No deduction for expenditure incurred in respect of exempt income against taxable income [Section 14A]	91
6.3 What is Gross Total Income [Section 80B(5)]	92
6.4 What is Total Income [Section 2(45)]	92
6.5 How to Compute Total Income	92

Chapter 7 Income under the Head "Salaries" [Sections 15 to 17]	94
7.1 Computation of Income under the head Income from "Salaries"	94
7.1a Employer and employee relationship	94
7.1b Incentive bonus to Development Officers of LIC is salary income	96
7.1c Surrender of Salary	96
7.1d Place of Accrual [Section 9(1)]	96
7.1e Tax Free Salary	96
7.1f Foregoing of Salary	96
7.1g Salary paid by Foreign Government/Enterprises	97
7.2 Basis of Charge [Section 15]	97
7.2a Arrears of Salary	98
7.2b Applicable rate of tax if an employee does not opt to be taxed under the old regime and hence by default he is under the new regime, i.e., section 115BAC(1A)	98
7.3 Meaning of Salary	99
7.4 Wages	100
7.5 Annuity	100
7.6 Retirement benefits	100
7.7 Treatment of Bonus	100
7.8 Salary in lieu of notice period	101
7.9 Fee and Commission	101
7.10 Overtime Payments	101
7.11 Meaning and Type of Allowances	101
7.12 House Rent Allowance [Section 10(13A) and Rule 2A] (exemption under section 10(13A) allowed, only when the employee opts to be taxed under the old regime)	101
7.13 Prescribed allowances which are exempt to a certain extent [Section 10(14)]	102
7.13a Special allowances which are exempt to the extent of actual amount received or the amount spent for the performance of the duties of an office or employment of profit, whichever is less	103
7.13b Allowances to meet personal expenses	104
7.14 Treatment of Entertainment Allowance	105
7.15 Allowances which are exempt in case of certain persons if such person opts to be taxed under the old regime	106
7.16 Allowances which are fully taxable under both regimes 106
7.17 What are perquisites?	106
7.18 Definition of 'Perquisite' as per section 17(2)	107
7.19 Perquisites which are taxable in the hands of all categories of employees	109
7.20 Perquisites which are taxable only in the case of specified employees	110
7.20a Who is a specified employee [Section 17(2)(iii)]	111
7.21 Rent free accommodation or accommodation provided at concessional rate	112
7.22 Valuation of monetary obligation of the employee discharged by the employer	112
7.23 Valuation of Life Insurance premium/deferred annuity premium paid/payable by the employer	113
7.24 Fringe benefits or amenities which shall be taxable perquisite in the hands of all employees	113
7.24a Treatment of any other benefit, amenity, etc. provided by the employer [Rule 3(7)(ix)]	117
7.25 Valuation of motor car/other vehicles [Rule 3(2)]	117
7.26 Provision by the employer of services of a sweeper, a gardener, a watchman or personal attendant [Rule 3(3)]	120
7.27 Value of benefit to the employee resulting from the supply of gas, electric energy or water for household consumption [Rule 3(4)]	120
7.28 Valuation in respect of free or concessional educational facilities to any member of employees' household [Rule 3(5)]	121
7.29 Free or concessional journey given to the transport employees and their family members [Rule 3(6)]	121
7.30 Value of any specified security or sweat equity shares	122
7.31 Contribution made by the employer in a recognised provident fund, in the scheme referred to in section 80CCD(1); and in an approved superannuation fund exceeding `7,50,000 [Section 17(2)(vii)]	123
7.32 Annual Accretion to the balance at the credit of the fund or scheme referred to in section 17(2)(vii) [Section 17(2)(viia) inserted w.e.f. A.Y. 2021-22]	123
7.33 Contribution made by the Central Government in the previous year, to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 80CCH.	124
7.34 Tax-free Perquisites (for all employees)	124
7.35 Treatment of medical facilities [Proviso to section 17(2)]	126
7.36 Treatment of Leave Travel Concession or Assistance (LTC/LTA) [Section 10(5)][Exemption will not be available if the employee opts to be taxed under section 115BAC]	127
7.37 Profits in lieu of salary [Section 17(3)]	129
7.38 Gratuity	130
7.38a Meaning of Salary/Average Salary, etc.	132
7.38b Completed years of service	132
7.39 Treatment of Pension [Section 17(1)(ii)]	132
7.40 Treatment of Leave Salary	133
7.41 Retrenchment Compensation [Section 10(10B)]	135
7.42 Compensation received on Voluntary Retirement [Section 10(10C)]	135
7.43 Contribution by the employer to recognised provident fund	136
7.44 Interest credited to recognised provident fund	136
7.45 Amount comprised in the transferred balance	136
7.46 Standard deduction [Section 16(ia)]	136
7.47 Entertainment Allowance [Section 16(ii)]	136
7.48 Tax on Employment (Professional Tax) [Section 16(iii)]	137
7.49 Treatment of Provident Fund	137
7.49a Kinds of Provident Funds: At present there are 4 types of Provident Funds	137
7.49b Treatment of Provident Fund for Income-tax Purposes	138
7.50 Deduction from gross total income	141

Chapter 8 Income under the Head "Income from House Property" [Sections 22 to 27]	142
8.1 Chargeability [Section 22]	142
8.2 Basis of Charge	142
8.3 Essential conditions for taxing income under this head	143
8.4 Cases of Composite Rent	146
8.5 When income from house property is not charged to tax	147
8.6 What is Annual Value?	147
8.7 Computation of annual value of a property [Section 23(1)]	148
8.8 Treatment of unrealised rent [Explanation to section 23(1)]	151
8.9 Deductions from income from house property [Section 24]	152
8.10 Computation of Income of a property which is self-occupied for residential purposes or which could not actually be self occupied owing to employment [Section 23(2), (3) & (4)]	153
8.10a Where the annual value of such house shall be nil [Section 23(2)(a) & (b)]	153
8.10b Where the annual value of such house shall not be nil [Section 23(3)]	154
8.10c Where assessee has more than two houses for self-occupation [Section 23(4)]	154
8.10d Deduction in respect of one or Two self-occupied houses where annual value is nil	154
8.11 Computation of income of house property which is partly let and partly self occupied	155
8.12 No notional income for house property held as stock-in-trade for a period upto two years [Section 23(5)]	155
8.13 Interest when not deductible from "Income from House Property" [Section 25]	156
8.14 Special provision for arrears of rent and unrealised rent received subsequently [Section 25A]	156
8.15 Property owned by Co-owners [Section 26]	156
8.16 Can Annual Value (Net Annual Value) be negative?	156
8.17 Can there be any loss under the head income from house property? 156

Chapter 9 Income under the Head "Profits and Gains of Business or Profession"[Sections 28 to 44D]	158
9.1 Business or Profession	158
9.2 General and specific provisions of chargeability of tax under section 28(i) to (vii)	159
9.2a Speculative business to be distinct and separate from any other business[Explanation 2 to section 28]	161
9.3 Profits and gains of business	162
9.4 Business must be carried on during the previous year	162
9.4a Exceptions	163
9.5 Business loss	163
9.5a Losses which are not deductible from business income	164
9.6 Legal business v illegal business	164
9.7 Cases where income from certain business is not taxable under the head 'Profits and gains of business'	164
9.8 Income from business or profession — how to be computed	164
9.9 General principles for allowability of deductions	165
9.10 Distinction between business expense and business loss	165
9.11 Method of Accounting [Section 145]	165
9.11a Income Computation and Disclosure Standards	166
9.12 Expenses which are expressly allowed as a deduction [Sections 30 to 37]	166
9.13 Rent, rates, taxes, repairs and insurance for buildings [Section 30]	167
9.13a Deductions	167
9.13b Current Repairs	167
9.14 Repairs and insurance of machinery, plant and furniture [Section 31]	167
9.15 Depreciation [Section 32]	168
9.15a What is 'block of assets'	169
9.15b Written down value for charging depreciation [Section 43(6)]	172
9.15c Written down value of the block of intangible asset which included goodwill of a business or profession before AY 2021-22	173
9.15d Actual cost [Section 43(1)]	174
9.15e Notional Actual Cost [Explanations to section 43(1)]	175
9.15f Computation of depreciation	177
9.15g Steps for computing depreciation	177
9.15h Depreciation on asset in the previous year of acquisition if the asset is put to use for less than 180 days during that previous year	177
9.15i Cases where WDV of a block at the end of the year shall be reduced to Nil and hence no depreciation	178
9.16 Special provisions for depreciation in certain cases	178
9.16a Special provisions for depreciation in case of assets of an undertaking engaged in generation or generation and distribution of power [Section 32(1)(i) and Rule 5(1A)]	178
9.16b Proportionate depreciation allowed in certain cases [Fifth Proviso to section 32]	179
9.16c Additional depreciation on new machinery or plant [Section 32(1)(iia)]	180
9.16d Is it mandatory to claim depreciation [Explanation to section 32]	180
9.17 Carry forward and set off of unabsorbed depreciation [Section 32(2)]	181
9.18 Tea Development Account, Coffee Development Account and Rubber Development Account [Section 33AB]	181
9.19 Site Restoration Fund [Section 33ABA]	184
9.20 Expenditure on Scientific Research [Section 35]	186
9.20a In-house Scientific Research	186
9.20b Sale of an asset used for scientific research	187
9.20c Unabsorbed capital expenditure on scientific research	187
9.20d Payment to outside agencies	187
9.20e Deduction on in house research and development to a company assessee in certain cases [Section 35(2AB)]	189
9.21 Expenditure for obtaining licence to operate telecommunication services and amortisation of spectrum fee for purchase of spectrum	189
9.22 Deduction in respect of expenditure on specified business [Section 35AD]	192
9.23 Expenditure by way of payments to associations and institutions for carrying out Rural Development Programmes [Section 35CCA]	194
9.24 Deduction for expenditure incurred on agricultural extension project [Section 35CCC]	194
9.25 Deduction for expenditure incurred by a company on skill development project [Section 35CCD]	195
9.26 Amortisation of certain preliminary expenses [Section 35D and Rule 6AB]	195
9.27 Amortisation of expenditure in case of amalgamation or demerger [Section 35DD]	197
9.28 Amortisation of expenditure incurred under voluntary retirement scheme [Section 35DDA]	197
9.29 Deduction for expenditure on prospecting, etc., for certain minerals [Section 35E and Rule 6AB]	197
9.30 Other deductions [Section 36]	198
9.30a Insurance premium of stocks [Section 36(1)(i)]	198
9.30b Insurance premium of cattle [Section 36(1)(ia)]	198
9.30c Insurance on health of employees [Section 36(1)(ib)]	199
9.30d Bonus or Commission to employees [Section 36(1)(ii)]	199
9.30e Interest on borrowed capital [Section 36(1)(iii)]	199
9.30f Discount on issue of zero coupon bonds to be allowed as deduction on pro rata basis [Section 36(1)(iiia)]	199
9.30g Employer's Contribution to a recognised Provident Fund or Approved Superannuation Fund [Section 36(1)(iv)]	200
9.30h Employers' contribution towards a pension scheme [Section 36(1)(iva)]	200
9.30-i Employer's contribution to an approved gratuity fund [Section 36(1)(v)]	200
9.30j Sums received from employees towards certain welfare schemes if credited to their accounts before the due date [Section 36(1)(va)]	200
9.30k Allowance in respect of dead or permanently useless animals [Section 36(1)(vi)]	201
9.30-l Bad debts [Section 36(1)(vii)]	201
9.30m Provision for bad and doubtful debts of certain banks and financial institutions[Section 36(1)(viia)]	202
9.30n Amount carried to special reserve credited and maintained by special entity[Section 36(1)(viii)]	202
9.30-o Expenditure on promoting family planning amongst the employees [Section 36(1)(ix)]	203
9.30p Securities Transaction Tax paid to be allowed as deduction [Section 36(1)(xv)]	203
9.30q Commodities Transaction Tax to be allowed as a deduction [Section 36(xvi)]	203
9.30r Marked to market loss or other expected loss to be allowed [Clause (xviii) inserted in section 36(1)]	203
9.31 General Deductions [Section 37(1)]	203
9.31a Conditions for allowance under section 37(1)	204
9.31b Examples of expenditure allowable as a deduction u/s 37(1)	205
9.31c Examples of expenditure not allowable as deduction under section 37(1)	206
9.32 Advertisement to political parties [Section 37(2B)]	206
9.33 Building, plant and machinery or furniture not exclusively used for the purpose of business or profession [Section 38]	206
9.34 Amounts not deductible [Section 40]	207
9.35 Expenses or payments not deductible in certain circumstances: [Section 40A]	209
9.35a Expenses or payments not deductible where such payments are made to relatives [Section 40A(2)]	209
9.35b Disallowance of 100% of expenditure if payment is made by any mode other than account payee cheque or draft [Section 40A(3)(a)]	210
9.35c Disallowance in respect of provision for gratuity [Section 40A(7)]	212
9.36 Disallowance in respect of contributions to non-statutory funds [Section 40A(9)]	212
9.37 Marked to market loss or other expected loss not to be allowed except provided in section 36(1)(xviii) [Section 40A(13) inserted]	213
9.38 Certain deductions to be allowed only on actual payment [Section 43B]	213
9.39 Special provision for full value of consideration for transfer of assets other than capital assets in certain cases [Section 43CA]	215
9.40 Computation of income from construction and service contracts [Section 43CB inserted] 216
9.41 How to compute the income from business or profession	216
9.42 Undisclosed income and investments taxed as deemed income	217
9.42a Cash credits [Section 68]	217
9.42b Unexplained investments [Section 69]	218
9.42c Unexplained money, etc. [Section 69A]	218
9.42d Amount of investments, not fully disclosed in books of account [Section 69B]	218
9.42e Unexplained expenditure, etc. [Section 69C]	218
9.42f Amount borrowed or repaid on hundi [Section 69D]	218
9.42g Taxation of cash credits, unexplained money, unexplained investments etc.covered under section 68, 69, 69A, 69B, 69C & 69D [Section 115BBE]	218
9.43 Deemed profits chargeable to tax	219
9.44 Maintenance of accounts by certain persons carrying on profession or business [Section 44AA and Rule 6F]	222
9.44a Person carrying on certain professions [Section 44AA(1)]	222
9.44b Person carrying on a non-specified profession or carrying on business [Section 44AA(2)]	223
9.44c When maintenance of books of account is not necessary	224
9.44d Consequences of failure to keep accounts, etc.	225
9.45 Compulsory audit of accounts [Section 44AB]	225
9.45a Is tax audit under section 44AB compulsory even if the accounts are audited under any other law or any other provisions of Income-tax Act	226
9.45b Report of Audit of Accounts [Rule 6G]	227
9.46 Special provisions for computing profits and gains of any business (excluding the business covered under section 44AE) [Section 44AD]	227
9.47 Special provision for computing profits and gains of profession on presumptive basis [Section 44ADA]	229
9.48 Special provisions for computing profits and gains of business of plying, hiring or leasing goods carriages [Section 44AE]	230
9.49 Special provisions for computing profits and gains [Sections 44B, 44BB, 44BBA and 44BBB]	232

Chapter 10 Income under the Head "Capital Gains" [Sections 45 to 55A]	235
10.1 Basis of Charge [Section 45(1)]	235
10.2 (A) There must be a capital asset	235
10.2a What is a capital asset [Section 2(14)]	235
10.2b Types of capital assets	240
10.3 Capital gain arises only when there is a transfer of capital asset. If the capital asset is not transferred or if there is any transaction which is not regarded as transfer (See para 10.3b), there will not be any capital gain. However, in case of profits or gains from insurance claim due to damage or destruction of property, there will be capital gain although no asset has been transferred in such case.	244
10.3a What is transfer [Section 2(47)]	244
10.3b Transactions not regarded as transfer [Sections 46 and 47]	250
10.4 Capital gain should arise in the previous year in which transfer took place	253
10.5 Computation of capital gains [Section 48]	253
10.6 Full value of consideration	255
10.7 Expenses on transfer	257
10.8 Cost of acquisition [Section 55(2)]	257
10.8a Deemed cost of acquisition	258
10.8b Cost of acquisition of assets acquired before 1.4.2001 [Section 55(2)(b)]	262
10.8c Cost of acquisition of goodwill of a business or profession or a trade mark or brand name associated with business or profession or any other intangible asset or a right to manufacture, produce or process any article or things or right to carry on any business or profession, tenancy rights, stage carriage permits or loom hour or any other right [Section 55(2)(a)]	263
10.8d Cost of acquisition of right shares [Section 55(2)(aa)]	264
10.8e Cost of acquisition of bonus shares or any other financial asset allotted without payment [Section 55(2)(aa)(iiia)]	264
10.8f Cost of acquisition for purpose of computing long-term capital gain under section 112A [Section 55(2)(ac)]	265
10.8g Cost of acquisition of depreciable assets [Section 50]	265
10.9 Treatment of advance money received [Section 56(2)(ix), w.e.f. A.Y. 2015-16]	270
10.10 Cost of improvement [Section 55(1)(b)]	271
10.11 Indexed cost of acquisition (Explanation (iii) to section 48)	271
10.11a Computation of indexed cost of acquisition	272
10.11b Indexation of cost not allowed in certain cases	275
10.12 Indexed cost of improvement [Explanation (iv) to section 48]	276
10.13 Computation of capital gain in certain cases	277
10.13a Taxation of zero coupon bonds	277
10.13b Capital gain in case of amount received from an insurer on account of damage or destruction of any capital asset [Section 45(1A)]	278
10.13c Profits or gains arising from receipt of the amount on maturity of high premium unit linked insurance policy chargeable to tax under the head Capital gains [Section 45(1B) inserted w.e.f. A.Y. 2021-22]	279
10.13d Capital gain on conversion of capital asset into stock-in-trade or stock-in-trade into capital asset	279
10.13e Capital gain on transfer of capital asset by a partner/member to a firm/AOP/BOI as capital contribution [Section 45(3)]	280
10.13f Capital Gain at the time of dissolution or reconstitution of specified entity	280
10.13g Capital gain on transfer by way of compulsory acquisition of an asset[Section 45(5)]	288
10.13h Special provisions for computation of capital gains in case of joint development agreement [Section 45(5A)]	290
10.13i Capital gain on conversion of debentures into shares [Section 47(x), 49(2A) and rule 8AA]	291
10.13j Conversion of preference shares into equity shares [Section 47(xb), 49(2AE),Explanation 1 to section 2(42A)]	291
10.13k Capital gains on distribution of assets by companies in liquidation [Section 46]	291
10.13l Capital gain on sale of goodwill of a business or profession/trademark or brand name/associated with the business or profession or any other intangible asset or a right to manufacture or right to carry on any business or profession/tenancy rights/business route permits or loom hour, or any other right	292
10.13m Capital gain on transfer of depreciable assets [Section 50]	293
10.13n Cost of acquisition and capital gain in case of depreciable assets of electricity companies [Section 50A]	294
10.13o Special provision for taxation of capital gains in case of a unit of a Specified Mutual Fund acquired on or after 1-4-2023 or Market Linked Debentures [Section 50AA] [w.e.f. Assessment Year 2024-25]	295
10.13p Special provisions for computation of capital gains in case of slump sale [Section 50B]	295
10.13q Computation of capital gains in real estate transactions [Section 50C]	296
10.13r Special provision for full value of consideration for transfer of share other than quoted share [Section 50CA]	297
10.13s Fair Market Value to be full value of consideration in certain cases [Section 50D]	297
10.13t Capital gains on purchase by company of its own shares or other specified securities [Section 46A]	298
10.13u Computation of capital gain in case of transfer of Electronic Gold Receipt	298
10.13v Capital gain on sale of land and building to be computed separately in case of building constructed by the assessee	299
10.13w Capital gain on transfer of units of consolidated scheme of mutual fund on merger of similar schemes of mutual funds	299
10.13x Consolidation of mutual fund 'plans' within a 'scheme' of mutual fund[Section 47(xix)]	300
10.14 Transfer of securities by depository [Section 45(2A)]	300
10.15 Withdrawal of exemption in certain cases [Section 47A]	301
10.16 Capital gain in the case of transfer of shares/debentures by non-residents (Proviso 1 to section 48 and rule 115A)	303
10.16a Exemption of long-term capital gains arising to non-resident Indian on transfer of 'foreign exchange asset' [Section 115F]	304
10.16b Option not to avail of the provisions of section 115F [Section 115-I]	304
10.17 Types of exemption of capital gains	304
10.18 Profit on transfer of house property used for residence [Section 54]	305
10.19 Capital Gain on transfer of land used for agricultural purposes [Section 54B]	310
10.20 Capital Gain on compulsory acquisition of land and buildings forming part of an industrial undertaking [Section 54D]	312
10.21 Capital gain on transfer of long-term capital assets being land or building or both not to be charged on investment in certain bonds [Section 54EC]	314
10.22 Capital gain not to be charged on investment in units of a specified fund [Section 54EE](This section has no significance as no long-term specified asset has been notified till date)	316
10.23 Capital Gain on transfer of asset, other than a residential house [Section 54F]	316
10.24 Capital gain on transfer of assets in cases of shifting of industrial undertakings from urban areas [Section 54G]	320
10.25 Exemption of capital gain on transfer of assets of shifting of industrial undertaking from urban area to any Special Economic Zone [Section 54GA]	322
10.26 Exemption of long-term capital gains tax on transfer of residential property if invested in a new manufacturing SME company [Section 54GB]	323
10.27 Extension of time limit for acquiring new asset or depositing or investing amount of capital gain, in case of compulsory acquisition [Section 54H]	326
10.28 Tax on short-term capital gains in case of equity shares and units of equity oriented fund [Section 111A]	326
10.29 Computation of tax on long-term capital gains other than referred to in section 112A [Section 112]	327
10.30 Rate of tax on long-term capital gain (other than referred to in section 112A) in certain cases	329
10.31 Tax on long-term capital gains in certain cases [Section 112A]	329

Chapter 11 Income under the Head "Income from Other Sources" [Sections 56 to 59]	335
11.1 Chargeability	335
11.2 Method of Accounting	335
11.3 Specific incomes included under 'Income from Other Sources' [Section 56(2)]	335
11.4 Other incomes which are normally included under the head 'Income from Other Sources'	337
11.5 Taxability of Dividend [Section 56(2)(i)]	338
11.5a What is dividend	338
11.5b Deductions for expenses from dividend income [Section 57(i) and 57(iii)]	341
11.6 Winnings from Lotteries, Crossword Puzzles, Horse Races and Card Games [Section 56(2)(ib)]	341
11.6a Special rate of Income-tax in case of winnings from lotteries, crossword puzzles, races, etc. [Section 115BB] 341
11.6b Grossing up of lottery income, etc. 342
11.7 Special rate of income-tax in case of winnings from online games [Section 115BBJ inserted by the Finance Act, 2023, w.e.f. A.Y. 2024-25]	342
11.8 Interest on Securities [Section 56(2)(id)]	342
11.8a Chargeability of Interest on Securities	342
11.8b Accrual of Interest	343
11.8c Deductions for expenses from Interest on Securities [Section 57(i) and (iii)]	343
11.9 Income from letting out of machinery, plant or furniture [Section 56(2)(ii)]	343
11.9a Income from composite letting of machinery, plant or furniture and buildings[Section 56(2)(iii)]	343
11.9b Deductions permissible from letting out of machinery, plant or furniture and buildings [Section 57(ii) and (iii)]	343
11.10 Income of any person to include not only gift of money from any person(s) but also the gift of property (whether movable or immovable) or property acquired for inadequate consideration [Section 56(2)(x)]	344
11.11 Share premium in excess of the fair market value to be treated as income in the hands of closely held company [Section 56(2)(viib)]	346
11.12 Interest on compensation or enhanced compensation [Section 56(2)(viii)]	346
11.13 Forfeiture of advance received for transfer of a capital asset to be taxed under the head "income from other sources" [Section 56(2)(ix)]	347
11.14 Any sum received, including the amount allocated by way of bonus, at any time during a previous year, under a life insurance policy, which is not exempt under Section 10(10D) [Section 56(2)(xiii) inserted by the Finance Act, 2023 w.e.f. A.Y. 2024-25]	347
11.15 Family pension payments received by the legal heirs of a deceased employee	348
11.16 Contribution of the employee towards his welfare fund, deducted/received by the employer [Section 56(2)(ic)]	348
11.17 Any other income taxable under this head	348
11.18 Amounts not deductible in computing the income under the head 'Income from Other Sources' [Section 58]	348
11.19 Deemed income chargeable to tax [Section 59]	350

Chapter 12 Income of Other Persons Included in Assessee's Total Income (Clubbing of Income) [Sections 60 to 65]	351
12.1 Transfer of income where there is no transfer of assets [Section 60]	352
12.2 Revocable transfer of assets [Section 61]	352
12.2a When a transfer is revocable [Section 63]	352
12.2b Section 61 not applicable, if the transfer is irrevocable for a specified period [Section 62]	352
12.3 Income of an individual to include income of spouse, minor child, etc. [Section 64]	353
12.3a Remuneration of spouse from a concern in which the other spouse has substantial interest [Section 64(1)(ii)]	353
12.3b Income from assets transferred to the spouse [Section 64(1)(iv)]	355
12.3c Income from assets transferred to son's wife [Section 64(1)(vi)]	357
12.3d Income from assets transferred to any person for the benefit of the spouse of the transferor [Section 64(1)(vii)]	357
12.3e Income from assets transferred to any person for the benefit of son's wife [Section 64(1)(viii)]	357
12.4 Clubbing of income of a minor child [Section 64(1A)]	358
12.5 Income from self-acquired property converted to joint family property [Section 64(2)]	359
12.6 Under which head of income will the clubbed income be assessed	360
12.7 Liability of person i.e. the transferee in respect of income included in the income of another person i.e. transferor [Section 65]	360

Chapter 13 Set off or Carry Forward and Set off of Losses [Sections 70 to 80]	361
13.1 Set off of loss from one source against income from another source under the same head of income [Section 70]	361
13.2 Set off of loss from one head against income from another head (Inter-head adjustment) [Section 71]	362
13.3 Carry forward and set off of losses	364
13.3a Compulsory filing of loss returns [Section 80]	365
13.4 Carry forward and set off of loss from house property [Section 71B]	365
13.5 Carry forward and set off of business losses [Section 72]	366
13.6 Set off and Carry forward and Set off of Speculation Loss [Section 73]	370
13.7 Set off and carry forward and set off of loss of a specified business referred to in section 35AD [Section 73A]	370
13.8 Carry forward of losses under the head 'capital gains' [Section 74]	371
13.9 Set off and carry forward and set off of loss from activity of owning and maintaining race horses [Section 74A]	371
13.10 Brought forward losses must be set off in the immediately succeeding year/years 372
13.11 Special provisions of set off of losses in case of an individual or HUF or AOP/BOI or Artificial Juridical Person who is taxable under section 115BAC(1A)	372
13.12 Carry forward and set off of the accumulated business losses and unabsorbed depreciation allowance in amalgamation or demerger, etc. [Section 72A]	373
13.12(A) Carry forward of business loss and unabsorbed depreciation as per section 72A	373
13.12(A)(i) Carry forward and set off of accumulated business loss and unabsorbed depreciation in case of amalgamation [Section 72A(1), (2) and (3)]	373
13.12(A)(ii) Carry forward of and set off of accumulated losses and unabsorbed depreciation in case of demerger [Section 72A(4) and (5)]	373
13.12(A)(iii) Carry forward and set off of accumulated losses and unabsorbed depreciation in case of reorganisation of business [Section 72A(6) & (6A)]	373
13.12(B) Provisions relating to carry forward and set off of accumulated losses and unabsorbed depreciation allowance in business reorganization of co-operative banks [Section 72AB]	374
13.13 Losses of firms	374
13.14 Carry forward and set off of losses on succession of any person [Section 78(2)]	374
13.15 Carry forward and set off of losses in case of certain companies [Section 79]	374

Chapter 14 Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]	377
14.1 Basic rules of deductions [Sections 80A/80AB/80AC]	377
14.2 Deduction on account of certain payments are allowed from sections 80C to 80GGC.Deduction in respect of Life Insurance Premium, deferred annuity,contributions to provident fund,subscription to certain equity shares or debentures, etc. [Section 80C]	378
14.3 Deduction in respect of contribution to certain pension funds [Section 80CCC]	382
14.4 Deduction in respect of contribution to pension scheme of Central Government by Central Government or any other employer [Section 80CCD]	383
14.5 Limit on deductions under sections 80C, 80CCC and 80CCD [Section 80CCE]	384
14.6 Deduction in respect of Medical Insurance premia [Section 80D]	384
14.7 Deduction in respect of maintenance including medical treatment of a dependant who is a person with disability [Section 80DD]	387
14.8 Deduction in respect of medical treatment, etc. [Section 80DDB]	388
14.9 Deduction for interest paid on loan taken for pursuing higher education [Section 80E]	389
14.10 Deduction in respect of interest on loan taken for residential house property[Section 80EE]	389
14.11 Deduction in respect of interest on loan taken for certain house property [Section 80EEA]	390
14.12 Deduction in respect of purchase of electric vehicle [Section 80EEB]	391
14.13 Deduction in respect of donations to certain funds, charitable institutions, etc.[Section 80G]	392
14.14 Deductions in respect of rent paid [Section 80GG]	394
14.15 Deduction in respect of certain donations for scientific research or rural development [Section 80GGA]	395
14.16 Deduction in respect of contributions given by companies to political parties[Section 80GGB]	396
14.17 Deduction in respect of contribution given by any person to political parties[Section 80GGC]	396
14.18 Deduction in respect of royalty income, etc., of authors of certain books other than text books [Section 80QQB]	396
14.19 Deduction in respect of royalty on patents [Section 80RRB]	397
14.20 Deduction in respect of interest on deposits in savings accounts to the maximum extent of ₹10,000 [Section 80TTA]	399
14.21 Deduction in respect of interest on deposits in case of senior citizens [Section 80TTB]	399
14.22 Deduction in case of a person with disability [Section 80U]	400

Chapter 15 Agricultural Income & its Tax Treatment [Sections 2(1A) and 10(1)]	401
15.1 Summarised definition of Agricultural Income [Section 2(1A)]	401
15.1a Any rent or revenue derived from land which is situated in India and is used for agricultural purposes [Section 2(1A)(a)]	402
15.1b Any income derived from such land by agricultural operations including processing of the agricultural produce, raised or received as rent in kind,so as to render it fit for the market, or sale of such produce [Section 2(1A)(b)]	403
15.1c Any income attributable to a building (a farm house) is treated as agricultural income provided the following conditions are satisfied [Section 2(1A)(c)]	403
15.2 What does agriculture include?	404
15.3 Agricultural income	404
15.4 Non-agricultural income	405

Chapter 16 Return of Income [Sections 139 to 140A]	406
16.1 Submission of return of income [Section 139(1)]	406
16.1a Resident person to file return of income in certain cases even though not required otherwise	407
16.1b Due date of furnishing return of income	408
16.1c Central Government empowered to exempt any person from the requirement of furnishing a return of income [Section 139(1C)]	408
16.2 Mandatory to file return before due date if certain losses are to be carried forward [Section 139(3)]	408
16.3 Belated return [Section 139(4)]	409
16.4 Form and manner of furnishing return of income [Rule 12]	410
16.5 Revised return [Section 139(5)]	411
16.5a Completion of assessment	411
16.5b Can a belated return under section 139(4) be revised	412
16.5c Can revised return be further revised	412
16.5d Revised return substitutes the original return	412
16.6 Updated return [Section 139(8A) and Section 140B]	412
16.7 Defective return [Section 139(9)]	414
16.8 Power of Board to dispense with furnishing documents, etc. with the return [Section 139C]	414
16.9 Filing of return in electronic form [Section 139D]	414
16.10 Permanent account number [Section 139A] 415
16.10a Time limit for submitting application for allotment of PAN	416
16.10b Transactions where quoting of PAN made compulsory [Section 139A(5)(c) and Rule 114B]	416
16.11 Quoting of Aadhaar number [Section 139AA]	419
16.12 Return by whom to be verified [Section 140]	420
16.13 Self assessment and tax on updated return	421
16.14 Processing of return [Section 143(1)]	425
16.15 Assessment after hearing evidence/scrutiny assessment [Section 143(3)]	426
16.16 New scheme for scrutiny assessment [Section 143(3A)/(3B)/(3C)]	426
16.17 Best judgment assessment [Section 144]	427

Chapter 17 Appeals and Revision [Sections 246 to 264]	428
17.1 Remedy available against the order of the Joint Commissioner (Appeals) or the Commissioner (Appeals)/ Revision orders of CIT	429
17.2 Remedy against orders of Appellate Tribunal	429
17.3 Appeal against order of High Court to Supreme Court	429
17.4 First appeal	430
17.4a Appealable orders before Joint Commissioner (Appeals)[Section 246 inserted by Finance Act, 2023, w.e.f. 1-4-2023]	430
17.4b Appeal by person denying liability to deduct tax [Section 248]	432
17.4c Procedure in hearing appeal [Section 250]	432
17.4d Powers of the Joint Commissioner (Appeals) or the Commissioner (Appeals) [Section 251]	434
17.4e Stay of disputed demand [Section 220(6)]	434
17.5 Appellate Tribunal [Section 252]	435
17.6 Appeals to Appellate Tribunal [Section 253(1) and (2)]	435
17.6a Procedure for filing appeal to Appellate Tribunal [Section 253(3), (3A) (4), (5) and (6)]	437
17.6b Procedure for filing and disposal of stay-petition	438
17.7 Orders of Appellate Tribunal [Section 254]	438
17.7a Tax to be paid notwithstanding reference, etc. [Section 265]	439
17.7b Amendment of assessment on appeal[Section 267]	439
17.8 Remedy against the order of Appellate Tribunal	439
17.8a Direct Appeal to High Court [Section 260A]	439
17.8b Case before High Court to be heard by not less than two Judges [Section 260B]	441
17.9 Appeal to the Supreme Court [Section 261]	441
17.10 Revision by the Principal Commissioner or Commissioner	443
17.10a Revision of orders prejudicial to Revenue [Section 263]	443
17.10b Power of revision involves 4 steps to be taken under section 263	445
17.10c Revision of orders in favour of assessee [Section 264]	445

Chapter 18 Penalties	448
18.1 Penalties	448
18.2 Certain penalties discussed in detail	449
18.3 Penalty for under-reporting and misreporting of income [Section 270A]	452
18.4 Penalty not to be imposed in certain cases [Section 273B]	455

Chapter 19 Income Tax Authorities [Sections 116 to 119]	457
19.1 Authorities constituted [Section 116]	457
19.2 Appointment of Income-tax authorities [Section 117]	457
19.3 Central Board of Direct Taxes	458
19.4 Taxpayer's Charter [Section 119A]	460
19.5 Jurisdiction of Income-tax authorities [Section 120]	460
19.6 Powers of Director-General/Director of Income-tax	461
19.7 Powers of Principal Commissioner or Commissioner/Principal Chief Commissioner or Chief Commissioner	462
19.8 Powers of Joint Commissioner (Appeals) or Commissioner (Appeals)	462
19.9 Powers of Joint Commissioner of Income-tax	463
19.10 Jurisdiction/Powers of the Assessing Officer	463
19.10a 'Assessing Officer' means	463
19.10b Jurisdiction of Assessing Officers [Section 124]	463
19.10c Power to transfer the case of an assessee from one Assessing Officer to another Assessing Officer [Section 127]	465
19.10d Assessee can make an application for transfer of income tax records	466
19.11Inspectors of Income-tax	467

Part 2 International Taxation

Chapter 20 Double Taxation Relief [Sections 90, 90A and 91]	471
20.1 Double Taxation Relief	471
20.2 Bilateral relief	471
20.3 Unilateral relief	472
20.4 Where there is agreement with foreign countries [Section 90] [Bilateral relief]	472
20.4a Effect of double taxation avoidance agreement	475
20.4b Various models of treaties	476
20.4c Types of agreements	476
20.5 Adoption by Central Government of agreements between specified association for double taxation relief [Section 90A]	477
20.6 Certificate for claiming relief under an agreement referred to in sections 90 and 90A [Rule 21AB]	479
20.7 Countries with which no agreement exists [Section 91] [Unilateral Relief]	481
20.8 Procedure for giving effect to the terms of any agreement for the granting of relief in respect of double taxation [Section 295(2)(h)]	485
20.8a Application seeking to give effect to the terms of any agreement under section 295(2)(h) and the procedure for giving effect to the decision under the Agreement [Rule 44G]	486

Chapter 21 Tax Avoidance and Tax Evasion	488
21.1 Tax Planning, Tax Avoidance and Tax Evasion: Meaning and Differences	488
21.1a Tax Planning	488
21.1b Tax Evasion	488
21.1c Tax Avoidance	489
21.2 Perception of Courts on Tax Avoidance	489
21.3 Difference between Tax Avoidance and Tax Evasion	490
21.4 General Anti-Avoidance Rule [Chapter X-A]	490

Chapter 22 Special Provisions Relating to Avoidance of Tax Introduction to Transfer Pricing (Transfer Pricing Provisions for International Transactions and Other Provisions relating to Avoidance of Tax)[Chapter X, Sections 92 to 92F, 93, 94A, 94B]	499
22.1 Transfer pricing provisions relating to avoidance of tax in case of an international transaction	500
22.2 Computation of income from international transaction having regard to arm's length price [Section 92]	501
22.2a Income to be computed at arm's length price [Section 92(1)]	501
22.2b Sharing/contribution of cost or expenses of any benefit, etc., shall also be at arm's length price [Section 92(2)]	502
22.2c Provisions of arm's length price not to apply if these result into reduction of income or increase of loss [Section 92(3)]	502
22.3 Meaning of associated enterprise [Section 92A]	503
22.3a Associated enterprise [Section 92A(1)]	503
22.3b Various situations under which two enterprises shall be deemed to be associated enterprises [Section 92A(2)]	503
22.3c Meaning of enterprise for the above purpose [Section 92F(iii)]	507
22.3d Meaning of permanent establishment [Section 92F(iiia)] 508
22.4 Meaning of international transaction [Section 92B]	508
22.5 Meaning and Computation of arm's length price	512
22.5a Meaning of arm's length price [Section 92F(ii)]	512
22.5b Computation of arm's length price [Section 92C]	512
22.5c Methods of Determination of arm's length price under section 92C [Section 92C and Rule 10B]	513
22.6 Most appropriate method [Section 92C(2) and Rule 10C]	520
22.6a Arm's length price may be determined by the Assessing Officer in certain cases [Section 92C(3)]	521
22.6b Computation of total income where arm’s length price is determined by the Assessing Officer [Section 92C(4)]	522
22.7 Reference to Transfer Pricing Officer (TPO) [Section 92CA]	523
22.7a Reference to Transfer Pricing Officer (TPO) [Section 92CA(1)]	523
22.7b Procedure to be followed by TPO when reference is made to him	524
22.7c Steps to be taken by the Assessing Officer on receipt of order of the TPO [Section 92CA(4)]	525
22.7d New scheme for determination of arm's length price by TPO [Section 92CA(8) to (10)] [Inserted by The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.e.f. 1.11.2020]	529
22.8 Power of Board to make safe harbour rules [Section 92CB, w.e.f. 1.4.2009]	529
22.9 Board with the approval of Central Government allowed to enter into Advance Price Agreement [Section 92CC]	531
22.10 Effect of Advance Price Agreement [Section 92CD, w.e.f. 1.7.2012]	534
22.11 Maintenance, keeping of information and document by persons entering into an international transaction [Section 92D and Rule 10D]	535
22.12 Report from an accountant to be furnished by persons entering into international transaction [Section 92E and Rule 10E]	538
22.13 Penalty provisions applicable to the above Chapter	540

Part 3 Goods and Services Tax

Chapter 23 Introduction of Goods and Services Tax (GST)	545
23.1 Comparative constitutional provisions of pre-GST regime and GST regime in respect of indirect taxes	549
23.2 Need for GST	550
23.3 Taxes subsumed in GST	550
23.4 Taxes not subsumed into GST	551
23.5 Benefits of GST	551
23.6 Historical perspective	553
23.7 Salient Features of GST	555
23.8 Acts and Rules passed for implementation of GST	557
23.9 Provisions of Central Goods and Service Tax Act, 2017 are also applicable to IGST Act and UTGST Act	558

Chapter 24 Levy and Collection (Taxable Event)	561
24.1 Kinds of supply on which tax is leviable under GST	561
24.2 Levy of GST on Intra-State supply	562
24.3 Levy of GST on Inter-State supply	563
24.4 Zero Rated Supply [Section 16 of IGST Act, 2017]	564
24.5 Levy and Collection under CGST Act, IGST Act and UTGST Act	565
24.6 Tax payable on reverse charge basis [Section 9(3) of CGST Act, section 5(3) of IGST Act and section 7(3) of the UTGST Act]	566
24.6a Reverse charge in respect of supply of goods as per various Notifications issued	566
24.6b Reverse charge in respect of supply of services as per Notification No.13/2017 Central Tax (Rate), dated 28.6.2017 as amended by various Notifications issued thereafter	567

Chapter 25 Supply under GST	571
25.1 Meaning of the word "supply" [Section 7 of the CGST Act, 2017]	571
25.2 Activities or transactions which constitute a "supply" to be treated as either supply of goods or supply of services as referred to in Schedule II [Section 7(1A)]	578
25.3 Necessary elements that constitute supply under CGST/SGST Act	583
25.4 Types of supply	587
25.5 Activities which shall be treated neither as a supply of goods nor a supply of services [Section 7(2) CGST Act]	587

Chapter 26 Taxability of Composite and Mixed Supply	591
26.1 Tax liability on composite and mixed supplies [Section 8 of CGST Act, 2017]	591
26.1a Meaning of composite supply [Section 2(30) of the CGST Act, 2017]	591
26.1b Meaning of mixed supply [Section 2(74) of the CGST Act, 2017]	592
26.1c Buy one get one free offer (Circular No. 92/11/2019-GST Dated 7.3.2019)	593
26.1d Differences between composite supply and mixed supply	593

Chapter 27 Composition Levy (Composition Scheme)	595
27.1 Composition levy (Composition Scheme) [Section 10(1) of CGST Act, 2017]	595
27.1a Threshold limit for Registration under Composition Scheme	595
27.2 Restrictions on the registered person availing composition levy [Section 10(2) of CGST Act, 2017]	596
27.2a All registered persons having the same PAN must opt for composition levy [Proviso to section 10(2)]	597
27.3 Composition scheme primarily for supplier of services Section 10(2A) of CGST Act, 2017]	597
27.4 Lapse of the option of composition scheme [Section 10(3) of CGST Act, 2017]	598
27.5 Person who opts for composition scheme shall not collect any tax and shall not be eligible for input tax credit [Section 10(4) of CGST Act, 2017]	598
27.6 Consequences of wrongful availment of composition scheme [Section 10(5) of CGST Act, 2017]	598
27.7 Inclusion in and exclusion from “aggregate turnover� for determining the eligibility to pay tax under composition levy — Inserted with effect from 01.01.2020 — Explanation 1 to Section 10 of the CGST Act	598
27.8 Exclusions from the “turnover in State/Union territory� for determining the tax payable under composition levy- — Explanation 2 to Section 10 of the CGST Act	599
27.9 Meaning of "Aggregate turnover" –Section 2(6) of the CGST Act, 2017	599
27.10 Meaning of registered person	599
27.11 Relevant rules for composition levy	599
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27.12 Benefits of composition scheme	603
27.13 Statement of payment of self-assessed tax to be filed on quarterly basis	603
27.14 Annual furnishing of return	603
Gist of Landmark Judicial Decisions	604