Volume – 1

INCOME TAX
CONTENTS
CHAPTER 1 : BASIC CONCEPTS
1.1 Overview of Income-tax law in India .................................................................1.1
1.2 Charge of income-tax ....................................................................................... 1.2
1.3 Rates of tax .................................................................................................... 1.3
1.4 Concept of income ........................................................................................... 1.6
1.5 Total income and tax payable ........................................................................... 1.7
1.6 Important definitions ..................................................................................... 1.12
1.7 Other basic concepts .................................................................................... 1.27

CHAPTER 2 : RESIDENCE AND SCOPE OF TOTAL INCOME

2.1 Residential status ........................................................................................... 2.1
2.2 Scope of total income ..................................................................................... 2.6
2.3 Deemed receipt and accrual of income in India ................................................ 2.7
2.4 Meaning of “Income received or deemed to be received” .................................2.8
2.5 Meaning of income “accruing” and “arising” .................................................... 2.8
2.6 Income deemed to accrue or arise in India ....................................................... 2.9

CHAPTER 3 : INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

3.1 Introduction ..................................................................................................... 3.1
3.2 Incomes not included in total income ............................................................... 3.1
3.3 Tax holiday for industrial units in FTZ ............................................................ 3.57
3.4 Tax holiday for newly established units in SEZ ............................................... 3.62
3.5 Tax holiday for 100% EOUs .......................................................................... 3.66
3.6 Charitable or religious trusts and institutions ................................................. 3.69
CHAPTER 4 : INCOME FROM SALARIES
4.1 Salary ............................................................................................................. 4.1
4.2 Definition of salary ........................................................................................... 4.2
4.3 Basis of charge ................................................................................................ 4.3
4.4 Place of accrual of salary ................................................................................. 4.3
4.5 Profits in lieu of salary ..................................................................................... 4.4
4.6 Advance salary ................................................................................................ 4.5
4.7 Loan or advance against salary ........................................................................ 4.5
4.8 Salary arrears ..................................................................................................4.5
4.9 Annuity ............................................................................................................ 4.5
4.10 Gratuity ........................................................................................................... 4.6
4.11 Pension ........................................................................................................... 4.6
4.12 Leave salary .................................................................................................... 4.6
4.13 Retrenchment compensation ........................................................................... 4.6
4.14 Compensation received on voluntary retirement .............................................. 4.6
4.15 Provident fund .................................................................................................4.6
4.16 Approved superannuation fund ....................................................................... 4.11
4.17 Salary from United Nations Organisation ........................................................ 4.11
4.18 Allowances .................................................................................................... 4.12
4.19 Perquisites .................................................................................................... 4.13
4.20 Valuation of perquisites.................................................................................. 4.20
4.21 Deductions from salary .................................................................................. 4.36
4.22 Deduction under section 80C ......................................................................... 4.38
4.23 Relief under section 89 ………………………………………………………………….4.38

CHAPTER 5 : INCOME FROM HOUSE PROPERTY

5.1 Chargeability ...................................................................................................5.1
5.2 Conditions for chargeability .............................................................................. 5.1
5.3 Composite rent ................................................................................................ 5.2

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5.4 Income from house property situated outside India ........................................... 5.3
5.5 Determination of annual value .......................................................................... 5.3
5.6 Deductions from annual value ......................................................................... 5.7
5.7 Computation of income from house property for different categories
of property ....................................................................................................... 5.9
5.8 Inadmissible deductions ................................................................................. 5.19
5.9 Taxability of recovery of unrealised rent and arrears of rent received .............. 5.19
5.10 Treatment of income from co-owned property ................................................. 5.19
5.11 Treatment of property owned by a partnership firm ......................................... 5.20
5.12 Deemed ownership ........................................................................................ 5.20
5.13 Cases where income from house property is exempt from tax ......................... 5.21

CHAPTER 6 : PROFITS AND GAINS OF BUSINESS OR PROFESSION

6.1 Meaning of “Business”, “Profession” and “Profits” ............................................ 6.1
6.2 Income chargeable under this head .................................................................6.2
6.3 Speculation business ...................................................................................... 6.5
6.4 Computation of income from business ............................................................. 6.7
6.5 Admissible deductions .................................................................................... 6.8
6.6 Inadmissible deductions ................................................................................ 6.64
6.7 Expenses or payments not deductible in certain circumstances ..................... 6.68
6.8 Profits chargeable to tax ............................................................................... 6.75
6.9 Deduction in case of business for prospecting etc. for mineral oil ................... 6.76
6.10 Changes in rate of exchange of currency ....................................................... 6.78
6.11 Deductions allowable only on actual payment ................................................ 6.79
6.12 Computation of cost of acquisition of certain assets ....................................... 6.81
6.13 Income of Public Financial Institutions ........................................................... 6.82
6.14 Insurance business ....................................................................................... 6.82
6.15 Special provisions in the case of certain associations .................................... 6.83
6.16 Compulsory maintenance of accounts ........................................................... 6.83

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6.17 Compulsory audit of accounts ....................................................................... 6.85
6.18 Profits and gains of civil construction etc. ...................................................... 6.87
6.19 Profits and gains of business of plying, hiring or leasing goods carriages ....... 6.89
6.20 Profits and gains of retail trade business ....................................................... 6.91
6.21 Profits and gains of shipping business of non-residents ................................. 6.91
6.22 Taxable income from exploration of mineral oil .............................................. 6.92
6.23 Profits and gains from operation of aircraft by non-residents .......................... 6.92
6.24 Profits and gains of foreign companies engaged in the business of civil
construction etc. in certain turnkey power projects ......................................... 6.94
6.25 Special provisions for computing income by way of royalties etc. in case
of non-residents ........................................................................................... 6.94
6.26 Method of computing deduction in the case of business
reorganisation of co-operative banks ............................................................. 6.95
6.27 Computation of business income where income is partly agricultural and
partly business in nature ................................................................................ 6.99

CHAPTER 7 : CAPITAL GAINS

7.1 Introduction ..................................................................................................... 7.1
7.2 Capital asset.................................................................................................... 7.1
7.3 Short-term and long-term capital assets ........................................................... 7.3
7.4 Transfer: what it means.................................................................................... 7.5
7.5 Scope and year of chargeability ...................................................................... 7.6
7.6 Capital gains on distribution of assets by companies in
liquidation ..................................................................................................... 7.10
7.7 Capital gains on buyback, etc. of shares ....................................................... 7.11
7.8 Transactions not regarded as transfer ............................................................ 7.11
7.9 Important definitions ...................................................................................... 7.15
7.10 Withdrawal of exemption in certain cases ....................................................... 7.17
7.11 Mode of computation of capital gains ............................................................. 7.18
7.12 Ascertainment of cost in specified circumstances ........................................... 7.20
7.13 Cost of improvement ...................................................................................... 7.23
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7.14 Cost of acquisition ......................................................................................... 7.26
7.15 Computation of capital gains in case of depreciable asset .............................. 7.32
7.16 Capital gains in respect of slump sales........................................................... 7.33
7.17 Special provision for full value of consideration in certain cases ..................... 7.34
7.18 Advance money received ............................................................................... 7.35
7.19 Exemptions of capital gains............................................................................ 7.37
7.20 Reference to valuation officer......................................................................... 7.46
7.21 Short term capital gains tax in respect of equity shares/units of an
equity oriented fund ....................................................................................... 7.46
7.22 Tax on long-term capital gains ....................................................................... 7.47
7.23 Exemption of long term capital gains on sale of equity shares/units
of an equity oriented fund............................................................................... 7.48
7.24 Securities lending and borrowing scheme ...................................................... 7.49

CHAPTER 8 : INCOME FROM OTHER SOURCES

8.1 Introduction ..................................................................................................... 8.1
8.2 Incomes chargeable under this head ............................................................... 8.1
8.3 Bond washing transactions and dividend stripping ............................................ 8.6
8.4 Applicable rate of tax in respect of casual income ........................................... 8.7
8.5 Deductions allowable ....................................................................................... 8.7
8.6 Deductions not allowable ................................................................................. 8.8
8.7 Deemed income chargeable to tax.................................................................... 8.9
8.8 Method of accounting ...................................................................................... 8.9

CHAPTER 9 : INCOME OF OTHER PERSONS INCLUDED IN ASSESSEE’S TOTAL

INCOME
9.1 Clubbing of income - An introduction ................................................................ 9.1
9.2 Transfer of income without transfer of the asset ............................................... 9.1
9.3 Income arising from revocable transfer of assets .............................................. 9.1
9.4 Exceptions where clubbing provisions are not attracted even in case
of revocable transfer ........................................................................................ 9.2
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9.5 Clubbing of income arising to spouse ............................................................... 9.2
9.6 Transfer of assets for the benefit of the spouse ................................................ 9.5
9.7 Income arising to son’s wife from the assets transferred without
adequate consideration by the father-in-law or mother-in-law ........................... 9.6
9.8 Transfer of assets for the benefit of son’s wife ................................................. 9.6
9.9 Clubbing of minor’s income .............................................................................. 9.6
9.10 Cross transfers ................................................................................................ 9.7
9.11 Conversion of self-acquired property into the property of a HUF ....................... 9.8
9.12 Income includes loss........................................................................................ 9.8
9.13 Distinction between section 61 and section 64 .................................................. 9.8
9.14 Liability of person in respect of income included in the income
of another person............................................................................................. 9.8

CHAPTER 10 : AGGREGATION OF INCOME, SET-OFF AND CARRY FORWARD OF

LOSSES
10.1 Aggregation of income ................................................................................... 10.1
10.2 Concept of set off and carry forward of losses ................................................ 10.1
10.3 Inter source adjustment.................................................................................. 10.1
10.4 Inter head adjustment .................................................................................... 10.2
10.5 Set-off and carry forward of loss from house property ..................................... 10.4
10.6 Carry forward and set-off of business losses .................................................. 10.4
10.7 Carry forward and set-off of accumulated business losses and
unabsorbed depreciation allowance in certain cases of
amalgamation/demerger, etc. ......................................................................... 10.6
10.8 Set-off of losses of a banking company against the profits of a banking
institution under a scheme of amalgamation ................................................... 10.9
10.9 Carry forward and set-off of accumulated losses and unabsorbed
depreciation in business reorganisation of co-operative banks ........................ 10.9
10.10 Losses in speculation business .................................................................... 10.11
10.11 Carry forward and set-off of losses by specified business ............................. 10.12
10.12 Losses under the head ‘capital gains’ ........................................................... 10.12

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10.13 Losses from the activity of owning and maintaining race horses ................... 10.13
10.14 Carry forward and set off of losses in case of change in
constitution of firm or succession ................................................................. 10.15
10.15 Carry forward and set-off of losses in case of closely held companies........... 10.15
10.16 Order of set-off of losses.............................................................................. 10.16

CHAPTER 11 : DEDUCTIONS FROM GROSS TOTAL INCOME

11.1 General Provisions ........................................................................................ 11.1
11.2 Deductions in respect of payments ................................................................ 11.3
11.3 Deductions in respect of incomes ................................................................ 11.22
11.4 Other deductions ......................................................................................... 11.54

CHAPTER 12 : INTER-RELATIONSHIP BETWEEN ACCOUNTING AND TAXATION

12.1 Recognition of accounting principles by judicial forums while
settling tax disputes ....................................................................................... 12.1
12.2 Accounting Standards and Income-tax law - Convergence and divergence ...... 12.3
12.3 Treatment of income-tax expense under Accounting Standards ...................... 12.9
12.4 Relevance of method of accounting under the Income-tax Act .................... 12.17
12.5 Valuation of inventory [Section 145A vs. AS-2] ............................................. 12.23
12.6 Requirement of compulsory maintenance of prescribed books of account
under the Income-tax law ............................................................................. 12.25
12.7 Relevance of profit and loss account prepared as per Companies Act
for computing book profit for levy of MAT ..................................................... 12.27
12.8 Conclusion................................................................................................... 12.27

CHAPTER 13 : ASSESSMENT OF VARIOUS ENTITIES

13.1 Assessment of individuals .............................................................................. 13.1
13.2 Assessment of Hindu Undivided Families ....................................................... 13.6
13.3 Assessment of local authority ....................................................................... 13.14
13.4 Assessment of firms/LLPs and their partners ................................................ 13.15
13.5 Assessment of companies ............................................................................ 13.28

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13.6 Assessment of co-operative societies ........................................................... 13.70
13.7 Assessment of mutual concerns ................................................................... 13.71
13.8 Liability in special cases .............................................................................. 13.73

CHAPTER 14 : TAX PLANNING AND ETHICS IN TAXATION

14.1 Basic concepts ............................................................................................. 14.1
14.2 Tax planning considerations in respect of salary income .............................. 14.26
14.3 Tax planning considerations in relation to business ..................................... 14.29
14.4 Ethics in Taxation ........................................................................................ 14.57

CHAPTERS 15 – 28 of Income Tax and CHAPTERS 1 – 3 of Wealth Tax are available

in Volume – 2.

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