Income tax details and notes for students

Taxation notes

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UGC Net Commerce Examination
Unit : Income Tax Law (Part I)
Revision of Important Topics

2. Glimpse of Unit as per Latest Syllabus
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Basic concepts, Residential status and tax incidence, exempted incomes.
Computation of taxable income of individuals and firms.
Deduction of tax, filing of returns, types of assessment; Defaults and penalties
Tax Planning, Tax Management, Tax evasion and Tax avoidance
Tax considerations in specific business decisions
Computer Application in Income tax and Tax planning
6-8 Questions
can be asked in
Examination

3. FavouriteTopics of Examiner
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Tax Planning vs. Tax Evasion Determining Residential Status
Basic Definitions & Concepts Exempted Incomes (including Agriculture Income)
Calculation of Tax Liability Deductions from Taxable Income
Chargeability under Different Heads
Misc. Topics –Imp. Sections, Due Dates, ITR forms,
Assessments and Penalties etc.
Exemptions from Capital Gains
Simple Problems on Income from House Property
& Capital Gains

4. Tax Planning, Evasion, Management & Avoidance
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Tax planning
Taxplanningcanbedefinedasanarrangementofone’sfinancialandeconomicaffairsby
takingcompletelegitimatebenefitofalldeductions,exemptions,allowancesandrebatesso
thattaxliabilityreducestominimum.
Tax Evasion
Allmethodsbywhichtaxliabilityisillegallyavoidedaretermedastaxevasion.Taxevasion
mayinvolveanuntruestatementknowingly,submittingmisleadingdocuments,suppression
offacts,notmaintainingproperaccounts,omissionofmaterialfactsetc.
Tax Avoidance
Taxavoidanceisreducingornegatingtaxliabilityinlegally
permissiblewaysandhaslegalsanction.Thiscanbedonewithin
thelegalframeworkevenbytakinghelpofloopholesinthelaw.
Tax
Management
Taxmanagementrelatestopast(i.e.,assessmentproceedings,
rectification,revision,appealsetc.),present(filingofreturnof
incomeontimeonthebasisofupdatedrecords)andfuture
(correctiveaction).

5. Computing the Tax Liability
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Determine the category of person
Determine the residential status of the person
Calculate the Total income
Calculate the tax on income
Income Tax is levied on the Total Income of the
previous year of every person. Important Steps are:
Income tax Act, 1961
Income Tax Rules, 1962
Relevant Finance Act
Notifications, Circulars and
Clarification issued by CBDT
Judicial pronouncements

6. Some Important Definitions
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Person Sec. 2(31)
“Person"includes-(i)anindividual,(ii)aHinduundividedfamily,(iii)acompany,(iv)afirm,(v)
anassociationofpersonsorabodyofindividuals,(vi)alocalauthority,and(vii)every
artificialjuridicalperson,notfallingwithinanyoftheprecedingsub-clauses;
Previous Year
[Sec. 3] &
Assessment Year
[Sec. 2(9)]
Previousyearmeansthefinancialyearimmediatelyprecedingtheassessmentyear.In
simplewords,itcanbesaidthattheyearinwhichincomeisearnedisknownaspreviousyear
andthenextyearinwhichthisincomeistaxableisknownasassessmentyear.
Example of P.Y. and
A.Y.
IfincomeisearnedduringtheyearApril1,2016toMarch31,
2017.Itwillbetaxableinthenextyear.Therefore,year2016-
17isknownaspreviousyearandyear2017-18isknownas
assessmentyearforthepreviousyear2016-17.
Exemption and
Deduction
Ifanincomeisexemptfromtax,itisnotincludedinthe
computationofincome.Deductionisgenerallygivenfrom
incomechargeabletotax.

7. Cases when Income taxed in Previous Year
•Incomeofnon-residentfromshipping.
•IncomeofpersonsleavingIndiaeitherpermanentlyorforalongperiodoftime.
•Incomeofassociationofpersonsorabodyofindividualsorartificialjuridical
personsformedforshortduration.
•Incomeofapersontryingtoalienatehisassetswithaviewtoavoidingpaymentof
tax.
•Incomeofadiscontinuedbusiness.
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PREVIOUS
YEAR
ASSESSMENT
YEAR

8. Determining the Residential Status [Section 6]
Anindividualbecomesaresidentonsatisfyinganyoftheconditions:
a)HeisinIndiainthepreviousyearforaperiodof182daysormore;or
b)HeisinIndiaforaperiodof60daysormoreduringthepreviousyearand365days
ormoreduring4yearsimmediatelyprecedingthepreviousyear.
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An Indian citizen who leaves India during the previous
year for the purpose of employment outside India; or as a
member of crew of an Indian ship.
An Indian citizen or a person of Indian origin who comes
on a visit to India during the previous year.
Condition (b) not applicable if:

9. Resident and Ordinarily Resident (ROR)
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Resident satisfying bothof the conditions becomes ROR:
He has been resident in India in at least 2 out of 10
previous yearsimmediately preceding the relevant
previous year.
He has been in India for a period of 730 days or more
during 7 years immediately preceding the relevant
previous year.
AfirmandHUFwouldberesidentinIndiaifthecontroland
managementofitsaffairsissituatedwhollyorpartlyinIndia.
Residential Status
of Firm / HUF
AcompanyshallbesaidtoberesidentinIndiainanyprevious
year,ifitisanIndiancompany;oritsplaceofeffective
management,inthatyear,isinIndia.
Residential Status
of Company
Residential Status of Other than Individuals

10. Significance of Residential Status
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Incomes deemed to accrue or arise in India
From Business Connection /
Property / Asset in India
Salary paid for services rendered in
India
Salary Payable by Govt. to Indian
Citizen for services o/s India
Dividend paid by a Indian company
Interest / Royalty / Fees for
Technical Services by Indian Govt.
/ Indian Resident etc.

11. Incomes Exempted from Tax
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As per section 10(2A), share of profit received by a partner from a firm is exempt from tax in the hands of the partner.
An employeecan claim exemption under section 10(5)in respect of Leave Travel Concession. Exemption is available in
respect of travel concession from his employer.
As per section 10(6)(ii), in case of an individual not a citizen of India,remunerationreceived as an official of Embassy,
High Commission etc. is exempt from tax, if corresponding Indian official in that foreign country enjoys similar exemption.
As per section 10(7), any allowances or perquisites paid or allowed as such outside India by the Government to a citizen
of India for rendering service outside India is exempt from tax.
As per section 10(10B), compensation received at the time of retrenchment is exempt
from tax subject to certain limits. Maximum exemption limit is Rs. 5,00,000/-
As per section 10(10C), any compensation received at the time of voluntary retirement
or termination of service is exempt from tax, if certain conditions are satisfied.
Maximum exemption limit is Rs. 5,00,000/-

12. Incomes Exempted from Tax
As per section 10(10D), any amount received under a life insurance policy, including bonus is exempt from tax.
Any amount received as educational scholarship (i.e., scholarship to meet the cost of education) is exempt from tax in
the hands of recipient. [Section 10(16)]
Daily allowance received by a Member of Parliament or by a Member of State Legislature or by member of any
committee thereof are exempt from tax in the hands of a MP or a MLA. [Section 10(19)]
Family pension received by the widow or children or nominated heirs, of a member of armed forces (including
paramilitary forces) of the Union, is exempt from tax. [Section 10(19)]
Income of an institution constituted as a public charitable trust or society which is
established for the development of khadi and village industries (not for profit purpose)
is exempt from tax, if certain conditions are satisfied. [Section 10(23B)]
If the income of an individual includes any income of his/her minor child, then such
individual can claim exemption (in respect of each minor child) uptomaximum amount
of Rs. 1,500 per minor child. [Section 10(32)]

13. Taxation of Agriculture Income
•AnyrentorrevenuederivedfromlandwhichissituatedinIndiaandisusedfor
agriculturalpurposes.
•Anyincomederivedfromland(whichissituatedinIndiaandisusedforagricultural
purposes)byagriculturaloperations.
•Incomefromrentingorleasingfarmbuilding(house)ifoccupiedbycultivatoror
farmeroruseasaresidentialplace,storeroom.
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Meaning of Agricultural Income [Section 10(1)]
FollowingarenotAgriculturalIncome:
•Capitalgainarisingfromthetransferof
agriculturalland.
•Incomefrompoultryfarming/beehiving/
dairyfarmingetc.
•Dividendpaidbyacompanyoutofits
agricultureincome.

14. Taxability of Agricultural Income
Agriculturalincomeistotallyexemptfromtax.However,
agriculturalincomeistakenintoconsiderationwhile
computingthetaxonnon-agriculturalincomeofanassessee.
Thisisknownasschemeofpartialintegration.
Theschemeofpartialintegrationisapplicableif:
1.Thetaxpayerisanindividual,aHUF,abodyofindividual,
anassociationofpersonsoranartificialjuridicalperson.
2.Thetaxpayerhasnon-agriculturalincomeexceedingthe
amountofexemptionlimit.
3.TheagriculturalincomeofthetaxpayerexceedsRs.5,000.
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15. Partly Agriculture Income and Partly Business Income
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16. Computation of Income
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Note the difference between Gross Total Income and Total Income.

17. Computation of Tax Liability
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Net taxable income as
well as tax should be
rounded off to the
nearest multiple of Rs. 10.

18. Tax rates for A.Y. 2018-19 (F.Y. 2017-18)
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Resident Individual of the age below 60 years and Non Residents Individual
Resident individual of the age of 60 years or more but less than eighty years at any time during the previous year
Note: For Resident Individual of 80 years or more, 5% slab rate is not applicable & income uptoRs. 5 lacs is exempt.

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Entity or individual other than a
company whose adjusted total
income exceeds Rs. 20 lakhs is
liable to pay Alternate Minimum
tax @18.5%. A company is liable
to pay MAT @ 18.5%.
Surcharge is an additional tax
imposed on certain cases.It is
imposed over the basic tax
calculated on the income.

20. Other Important Points
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Levy of Cess
EducationCessandSeniorandHigherEducationCessareadditionallevyonthebasictax
liability+surcharge,ifapplicable.RateofEducationCessis2%.RateofSHECis1%.FromF.Y.
2018-19,4%educationandhealthcesswillbelevied.
Rebate u/s 87A
Residentindividualwhosetotalincomedoesnotexceedthreelakhfiftythousandrupees
canclaimarebateofRs.2500ortheincometaxwhicheverisless.
Relief u/s 89
Ifyouhavereceivedanyportionofyoursalaryinarrearsorin
advance,oryouhavereceivedthefamilypensioninarrearsor
gratuityetc.,youareallowedsometaxreliefundersection89(1)
Interest u/s 234
A/B/C
•InterestfordefaultinfurnishingReturnofIncome[Section234A]
•InterestfordefaultinpaymentofAdvanceTax[Section234B]
•InterestfordefermentofAdvanceTax[Section234C]

21. Special Rates of Tax on Certain Incomes
1.Longtermcapitalgainistaxableataflatrateof
20%.(Section112)
2.Shorttermcapitalgaincoveredundersection
111A(Transferoflistedequityshares,unitsofequity
orientedfund,ifSTThasbeenpaidonsuchsale)is
taxableataflatrateof15%.
3.Casualincomes(viz.,gambling,lottery,betting,
etc.)istaxableataflatrateof30%.(Section115BB)
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22. Deductions from Taxable Income (Chapter VIA)
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Section 80C –Deductions for Individual/HUF –uptoRs. 1.5 lacs.
•PremiumpaidonlifeInsurancepolicytakenonthelifeofanindividualassesseeorspouseandany
childofsuchindividual.
•ContributionmadebyanindividualtoaRecognisedprovidentfund;anapprovedsuperannuation
fund;publicprovidentfund.
•Purchaseofnotifiedsecuritiesordepositscheme(SukanyaSamriddhiAccount)oftheCentral
Government.
•ContributionsmadeinthenameofanindividualorHUFforparticipationinanynotifiedUnit-Linked
InsurancePlanoftheLICMutualFund.
•Tuitionfeespaidbyanindividualtoanyuniversity,college,schoolorothereducationalinstitution
situatedinIndia,forfulltimeeducationofany2ofhis/herchildren.
•Anyinstallmentorpartpaymentoftheamountduetowardsthecostofthehousepropertyor
paymentofanyloantakenforthepurposeofpurchaseorconstructionofresidentialhouse.
•Termdepositsforafixedperiodofnotlessthan5yearswithascheduledbankorpostoffice.
•DepositinanaccountundertheSeniorCitizenSavingsSchemeRules,2004.

23. Deductions under Chapter VIA
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80D
Amountpaid(inanymodeotherthancash)byanindividualorHUFtoLICorotherinsurertoeffect
orkeepinforceaninsuranceonthehealthofspecifiedpersonuptoRs.25,000(Rs.30,000for
seniorcitizens).
80DD
DeductionofRs.75,000(Rs.1,25,000incaseofseveredisability)toaresidentindividual/HUFfor
expensesincurredformedicaltreatment(includingnursing),trainingandrehabilitationofa
dependent,beingapersonwithdisability
80DDB
Expensesactuallypaidformedicaltreatmentofspecifieddiseasesandailmentssubjecttocertain
conditions.
80E
Interestonloantakenfromfinancialinstitution/approvedcharitableinstitutionforpursuinghigher
education.
80G
Donationstocertainapprovedfunds,trusts,charitableinstitutions/donationsforrenovationor
repairsofnotifiedtemples,etc.

24. Deductions under Chapter VIA
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80GG
Individuals not receiving any house rent allowance can claim deduction for house rent paid subject
to maximum of Rs. 5,000 p.m.
80QQB
Royalty income of resident individual author of certain specified category of books (up to Rs.
3,00,000).
80RRB
Resident individuals who is a patentee and is in receipt of income by way of royalty in respect of a
patent registered on or after 1-4-2003 can claim deduction on royaltyuptoRs. 3,00,000.
80TTA Interest on deposits in savings bank accounts (up to Rs. 10,000 per year) of Individual / HUF.
80U
Resident individuals who, at any time during the previous year, is certified by the medical authority
to be a person with disability can claim deduction of Rs. 75,000 (in the case of a person with severe
disability, allowable deduction is Rs. 1,25,000.)

25. Some More Deductions
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26. Key Due Dates under Income Tax Law
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Payment of Advance Tax
Anassessee(whodeclareshisincomeinaccordancewithpresumptivetaxation
regimeundersection44AD/44ADA)shallalsobeliabletopayadvancetaxinone
instalmentonorbeforeMarch15ofthefinancialYear.
AdvanceTaxoncapitalgainsandcasualincomelikeincomefromlotteries,
crosswordpuzzlesetc.canbepaidintheremaininginstallmentsofadvancetax
whicharedue.
Tax is to be computed
at the prevailing rate
on the current income
of the assessee, in a
financial year.

27. Key Due Dates under Income Tax Law
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Filing of Return of Income [Section 139]
Where the assessee is a company, a person, other than a company whose
accounts are required to be audited or a working partner of a firm whose
accounts are required to be audited.
30
th
Sept. of
A.Y.
In the case of any other assessee(General Due Date).
31
st
July of
A.Y.
FilingofreturnontimeisessentialforCarryforwardandsetoffoflossesin
subsequentyears.
Anypersonwhohasnotfiledthereturnwithinthetimeallowedmayfilea
belatedreturnatanytimebeforetheendoftherelevantassessmentyear.
Revisedreturnmakingamendments,additionsorchangescanbefiledby
theassesseeatanytimebeforetheendoftherelevantassessmentyear.

28. Fees for Delay in Furnishing Return of Income [Section 234F]
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IfReturnofincomeisfiledaftertheduedatebutonorbefore31st
DecemberoftheAssessmentYear.
Rs. 5000/-
Incasereturnisnotfiledup-to31stDecemberoftheAssessmentYear. Rs. 10,000/-
MaximumfeeswherethetotalincomedoesnotexceedRs5,00,000. Rs. 1,000/-

29. Relevant ITR forms (A.Y. 2018-19)
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30. Practice Questions
Themaximumamountofexemptionofcompensationreceivedatthe
timeofvoluntaryretirementU/S10(10C)oftheIncomeTaxAct,1961,
is:
(1)`1,00,000
(2)`2,50,000
(3)`5,00,000
(4)`10,00,000
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Question 1
July
2018

31. Practice Questions
Themaximumamountofexemptionofcompensationreceivedatthe
timeofvoluntaryretirementU/S10(10C)oftheIncomeTaxAct,1961,
is:
(1)`1,00,000
(2)`2,50,000
(3)`5,00,000
(4)`10,00,000
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Question 1
July
2018

32. Practice Questions
UndertheIncomeTaxAct,1961theeducationcessof(2%+1%)is
calculatedontheamountof:
(1)IncomeTax
(2)IncomeTaxPlussurcharge(ifany)
(3)GrosstotalIncome
(4)TaxableIncome
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Question 2
Nov.
2017

33. Practice Questions
UndertheIncomeTaxAct,1961theeducationcessof(2%+1%)is
calculatedontheamountof:
(1)IncomeTax
(2)IncomeTaxPlussurcharge(ifany)
(3)GrosstotalIncome
(4)TaxableIncome
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Question 2
Nov.
2017

34. Practice Questions
Ifanassesseeisengagedinthebusinessofgrowingand
manufacturingteainIndia,theportionofagriculturalincomeinthat
caseshallbe:
(1)100%
(2)60%
(3)50%
(4)40%
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Question 3
Jan.
2017

35. Practice Questions
Ifanassesseeisengagedinthebusinessofgrowingand
manufacturingteainIndia,theportionofagriculturalincomeinthat
caseshallbe:
(1)100%
(2)60%
(3)50%
(4)40%
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Question 3
Jan.
2017

36. Practice Questions
AspertheIncomeTaxAct,1961fortheassessmentyear2015-16,a
deductionu/s80QQBforauthorsofbooksofliteracy,artisticor
scientificnatureisallowedupto:
(1)`1,00,000
(2)`2,00,000
(3)`2,40,000
(4)`3,00,000
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Question 4
July
2016

37. Practice Questions
AspertheIncomeTaxAct,1961fortheassessmentyear2015-16,a
deductionu/s80QQBforauthorsofbooksofliteracy,artisticor
scientificnatureisallowedupto:
(1)`1,00,000
(2)`2,00,000
(3)`2,40,000
(4)`3,00,000
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Question 4
July
2016

38. Practice Questions
Assertion(A):Taxevasionisundertakenbyemployingunfairmeans.
Reasoning(R):Paymentoftaxisavoidedthroughillegalmeansor
fraudfortaxevasion.
Codes:
(1)Assertion(A)iscorrectandReasoning(R)istherightexplanationof
(A).
(2)Assertion(A)iscorrectbutReasoning(R)isnottherightexplanation
of(A).
(3)BothAssertion(A)andReasoning(R)arecorrectindependentlyand
(R)maybeconsideredasanexplanationof(A).
(4)BothAssertion(A)andReasoning(R)areincorrect.
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Question 5
Dec.
2015

39. Practice Questions
Assertion(A):Taxevasionisundertakenbyemployingunfairmeans.
Reasoning(R):Paymentoftaxisavoidedthroughillegalmeansor
fraudfortaxevasion.
Codes:
(1)Assertion(A)iscorrectandReasoning(R)istherightexplanationof
(A).
(2)Assertion(A)iscorrectbutReasoning(R)isnottherightexplanation
of(A).
(3)BothAssertion(A)andReasoning(R)arecorrectindependentlyand
(R)maybeconsideredasanexplanationof(A).
(4)BothAssertion(A)andReasoning(R)areincorrect.
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Question 5
Dec.
2015

40. The End
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Revision of Income Tax Unit
UGC –NET Commerce

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