Taxmann's Direct Tax Laws & International Taxation (Set of 2 Vols.)

About the Author #! 2AVI #HHAWCHHARIA IS AN !LL )NDIA 2ANK HOLDER IN #HARTERED

3ECRETARIES

)#3) AND #OST AND !CCOUNTANCY )#!) #OMPANY

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OF $IRECT 4AXES

&INANCIAL

-ANAGEMENT

#OSTING EXPERIENCE

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-ANAGEMENT AND OF (CA, CS, CMA, B.Com., LL.B.,

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IN A SIMPLIlED

MANNER

EXPERTISE AND EFFECTIVE

I-5

Preface About Direct Taxes: 4HE SUBJECT OF $IRECT 4AXES IS UNDOUBTEDLY TECHNICAL INTRICATE AND VAST %SPECIALLY IN )NDIA IT IS THE GOVERNMENT

TRIES TO MAKE THE DIRECT TAX LAWS SIMPLE

MORE

SAID THAT MORE IT GETS COMPLICATED

4HUS THE COMPLEX NATURE OF DIRECT TAX LAWS MAKES THE SUBJECT MORE DIFlCULT FOR THE STUDENTS

TO COMPREHEND

"UT ONCE A PERSON GETS A RIGHT

TO DEAL WITH THE AND PRACTITIONERS APPROACH

INTEREST IN IT

SUBJECT

HE WILL NATURALLY DEVELOP GREAT

4HE PAPER OF $IRECT 4AX ,AWS IN #! &INAL IS BASED ON THE PRACTICAL APPLICATION OF THE SUBJECT IN

AND TESTS THE ANALYTICAL

SKILLS OF THE STUDENTS

MANY STUDENTS JUST GO ON A HOLISTIC APPROACH "UT

READING THE VAST CONTENTS WITHOUT TAKING OUT THE CRUX WHICH COULD BE USED IN THEIR EXAMINATION IN PROFESSIONAL

CAREER 3O A BALANCED

COMPLETE

UPDATED KNOWLEDGE

ANALYTICAL AND FURTHER WITH

IN DEPTH WRITING IS MUST FOR GETTING SUCCESS IN THE EXAMINATION $IRECT TAXES REQUIRE ANALYSIS

AND LOGICAL STUDY

4HIS BOOK GIVES A PHENOMENAL STUDY OF THE ENTIRE SYLLABUS FOR THE STUDENTS OF #! &INAL AND PROFESSIONAL

COURSES ON THE SUBJECT

OF $IRECT

AND )NTERNATIONAL 4AXATION

OTHER 4AX ,AWS

4HE MAIN IDEA BEHIND THIS BOOK WAS TO STRIKE A PERFECT BALANCE BETWEEN DETAILED STUDIES AND

APPROACH

SUMMARISED

Content of this book: 4HIS BOOK HAS BEEN DESIGNED IN SUCH A MANNER THAT RATHER THAN A BURDEN A STUDENT CAN ENJOY

OF LEARNING

TAXES IN A SMOOTH mOW

THE PLEASURE $IRECT

Detailed Index: 'IVEN AT THE BEGINNING OF THE BOOK THE DETAILED INDEX WILL HELP READERS TO EASILY THE ARRANGEMENT

AND OTHER DETAILS

GIVEN IN THE WHOLE BOOK

NAVIGATE THROUGH OF THE SECTIONS

Provisions: 4HE MOST IMPORTANT FEATURE OF THIS BOOK IS THE WAY THE PROVISIONS HAVE BEEN

LANGUAGE

PROVISIONS

HAVE BEEN WRITTEN

IN AN ELUCIDATED +EEPING IN TACT THE TECHNICAL THE

EXHAUSTIVE BUT BRIEF MANNER ) WILL STRONGLY RECOMMEND STUDENTS TO ALSO REFER THE BARE )NCOME

4AX !CT ALONG WITH THIS BOOK

Judicial Decisions: 4HE PROVISIONS ARE FOLLOWED BY LANDMARK JUDGMENTS AND ALSO THE LATEST

JUDGMENTS COVERED BY )#!)

FOR #! &INAL

!TTENTION

Judicial

Decisions WHICH ARE EITHER landmark or prescribed by ICAI BEEN HIGHLIGHTED NAME

FACTS AND IN "OLD 5NDERLINE AND THE OF SUCH CASE LAWS ARE MENTIONED BEFORE THE

DECISION OF THE CASE

)N OTHER Judicial Decisions, WHERE ONLY THE POINT DECIDED IS RELEVANT BUT STUDENTS ARE NOT

TO REMEMBER THE NAMES

SUCH CASES

CASE NAMES

AFTER DISCUSSING

EXPECTED OF THE ARE GIVEN HAVE

BEEN

THE POINT OF THE CASE AND NOT HIGHLIGHTED

I-7

Acknowledgement 7RITING BOOK ON SUCH A MAMMOTH SUBJECT ALWAYS NEED SUPPORT AND INSPIRATION ) AM GRATEFUL

FAMILY

AND COLLEAGUES FOR THEIR

TO MY PARENTS

SUPPORT AND INSPIRATION

I acknowledge the sincere efforts of CA Nozer Shroff and CA Yash Doctor for their valuable inputs for this book. ) AM ALSO GRATEFUL TO MY STUDENTS WHO HAVE ALWAYS BEEN INSTRUMENTAL IN CONTINUOUS IMPROVE IN THIS BOOK

MENT

(OPE READERS WILL lND THIS BOOK HELPFUL 9OUR COMMENTS AND SUGGESTIONS ARE ALWAYS WELCOME

7ISH YOU A HAPPY LEARNING EXPERIENCE

CA Ravi Chhawchharia 0LACE 3URAT

$ATE *ANUARY

I-9

Chapter-heads Page No. About the Author

I-5

Preface

I-7

Acknowledgement

I-9

DIRECT TAX LAWS Chapter 1 "ASIC #ONCEPTS OF )NCOME 4AX ,AW AND 4AX 2ATES

Chapter 2

1.3

2ESIDENTIAL 3TATUS ;3EC =

Chapter 3

2.1

)NCOMES 7HICH DO NOT &ORM 0ART OF 4OTAL )NCOME ;3EC TO 3EC =

Chapter 4

3.1

)NCOME &ROM 3ALARIES ;3EC TO 3EC TO 2ULE =

Chapter 5

4.1

)NCOME &ROM (OUSE 0ROPERTY ;3EC TO 3EC =

Chapter 6

5.1

0ROFITS AND 'AINS OF "USINESS OR 0ROFESSION ;3EC TO 3EC $"=

Chapter 7

6.1

#APITAL 'AINS ;3EC TO 3EC !=

Chapter 8

7.1

)NCOME &ROM /THER 3OURCES ;3EC TO 3EC =

Chapter 9

8.1

4AX ON #ONVERSION OF 5NACCOUNTED -ONEY ;3EC x viib 3EC 3ECS TO $ ""%=

3EC

Chapter 10

9.1

)NCOME #OMPUTATION AND $ISCLOSURE 3TANDARDS

Chapter 11

10.1

)NCOME OF OTHER 0ERSONS )NCLUDED IN !SSESSEE S 4OTAL )NCOME #LUBBING OF )NCOME

;3EC TO 3EC =

Chapter 12

11.1

3ET OFF OF ,OSSES OR #ARRY &ORWARD AND 3ET OFF OF ,OSSES ;3EC TO 3EC =

I-11

12.1

I-12

#(!04%2 (%!$3

Page No. Chapter 13 $EDUCTIONS &ROM 'ROSS 4OTAL )NCOME ;#HAPTER 6) ! 3EC # TO 3EC 5=

Chapter 14

13.1

4AXATION OF #O OPERATIVE 3OCIETIES

Chapter 15

14.1

$EDUCTION &OR 3PECIAL %CONOMIC :ONE ;3EC !!=

Chapter 16

15.1

4AXATION OF &ILM 0RODUCERS $ISTRIBUTORS

Chapter 17

16.1

4AXATION OF "ONDS ;#IRCULAR .O DT =

Chapter 18

17.1

%XPENDITURE ON %XEMPT )NCOME ;3EC ! AND 2ULE $=

Chapter 19

18.1

!GRICULTURAL )NCOME )TS 4AX 4REATMENT ;3EC ! AND 3EC =

Chapter 20

19.1

4AXATION OF 0OLITICAL 0ARTIES %LECTORAL 4RUST

Chapter 21

20.1

4AXATION OF #HARITABLE 2ELIGIOUS 4RUSTS ;3EC TO 3EC 3EC ""# 3EC !

3EC # =

Chapter 22

21.1*

4AXATION OF -UTUAL #ONCERNS ;3EC ! AND 3EC III

Chapter 23

22.1*

-INIMUM !LTERNATE 4AX -!4 ;#HAPTER 8)) " 3EC *" AND 3EC *!! =

Chapter 24

23.1*

4AXATION OF &IRMS ,,0 !.$ !/0 "/) ;3EC b 3EC !

3EC " 3EC =

Chapter 25

24.1*

!LTERNATE -INIMUM 4AX !-4 ;#HAPTER 8)) "! 3ECS *# *%% =

Chapter 26

25.1*

4AXATION OF "UY "ACK ;#HAPTER 8)) $! 3ECS 1! TO 1# =

Chapter 27

26.1*

4AX ON )NCOME OF 3ECURITISATION 4RUST ;#HAP 8)) %! 3EC 4#!=

Chapter 28

27.1*

4AXATION OF "USINESS 4RUSTS 2%)4S )NV)4S AND )NVESTMENT &UNDS !)& ;#HAPTER 8))

8)) &" 3EC 5"=

&! 3EC 5!

AND #HAPTER

Chapter 29

28.1*

4ONNAGE 4AXATION 3CHEME ;#HAPTER 8)) ' 3EC 6! TO 3EC 6:#=

Chapter 30

29.1*

!PPLICATION VS $IVERSION OF )NCOME

3EE 6OLUME

30.1*

#(!04%2 (%!$3

I-13 Page No.

Chapter 31 !SSESSMENT 0ROCEDURES ;3EC 3EC 3EC 3EC 3ECS TO

3EC !=

Chapter 32

31.1*

!PPEALS AND 2EVISIONS ;3EC ! TO 3EC 3EC ! TO 3EC AND 3EC "

3EC ! AND 3EC !!

3EC TO 3EC "=

3EC !

Chapter 33

32.1*

3URVEY 3EARCH AND 3EIZURE ;3EC !

3ECS TO " 3ECS TO !

3ECS !

TO $=

Chapter 34

33.1*

0ENALTIES AND 0ROSECUTIONS ;#HAPTER 88) 3ECS ! TO #HAPTER 88)) 3ECS !

TO $=

Chapter 35

34.1*

3ETTLEMENT OF #ASES ;#HAPTER 8)8 ! 3ECS ! TO , 3ECS !! !" #HAPTER -!=

8)8 !! 3EC

Chapter 36

35.1*

,IABILITY IN 3PECIAL #ASES ;#HAPTER 86 3EC TO 3EC =

Chapter 37

36.1*

!SSESSMENT OF (5& ;3EC =

Chapter 38

37.1*

!SSESSMENT OF &IRMS AND ,,0 ;#HAPTER 86) 3EC TO 3EC =

Chapter 39

38.1*

4AX $EDUCTION AND #OLLECTION AT 3OURCE ;#HAPTERS 86)) " AND 86)) "" 3ECS TO

##!=

39.1*

Chapter 40 !DVANCE 4AX ;#HAPTER 86)) # 3EC TO 3EC 3ECS =

Chapter 41

40.1*

#OLLECTION AND 2ECOVERY OF 4AX ;3EC AND #HAPTER 86)) $ 3EC TO 3EC =

Chapter 42

41.1*

)NTEREST ;3ECS ! # #HAPTER 86)) & 3ECS ! TO $ 3EC !=

Chapter 43

42.1*

-ISCELLANEOUS 4/0)#3 344 #44 AND )&3# ;3ECS 33 34 35 4 3EC

""

#

""&

!

3EC !!

3ECS "

! "!

$

""'=

43.1*

Chapter 44

4AX 0LANNING 4AX !VOIDANCE AND 4AX %VASION INCLUDING '!!2

INTERNATIONAL TAXATION

44.1*

Chapter 45

4AX )NCIDENCE IN )NDIA ;3EC 3EC TO 3EC !

3EC *( 3EC AND 3EC !=

3EE 6OLUME

45.3*

I-14

#(!04%2 (%!$3

Page No. Chapter 46 4AXATION OF .ON 2ESIDENTS ;3ECS ! TO !$ 3EC ""! AND #HAP 8))!

TO )=

3ECS #

Chapter 47

46.1*

$OUBLE 4AXATION 2ELIEF $4!! ;#HAPTER )8 3ECS ! AND =

Chapter 48

47.1*

4RANSFER 0RICING ;#HAPTER 8 3EC TO 3EC & 3ECS ! " # AND 3EC =

Chapter 49

48.1*

!DVANCE 2ULINGS ;#HAPTER 8)8 " 3EC . TO 3EC 5=

Chapter 50

49.1*

%QUALISATION ,EVY ;#HAPTER 6))) OF &INANCE !CT 3ECS AND a ib =

Chapter 51

50.1*

/VERVIEW OF -ODEL 4AX #ONVENTIONS

Chapter 52

51.1*

!PPLICATION AND )NTERPRETATION OF 4AX 4REATIES

Chapter 53

52.1*

&UNDAMENTALS OF "ASE %ROSION AND 0ROFIT 3HIFTING "%03

-/$%, 4%34 0!0%2 3/,6%$

3/,6%$ 0!0%2 $%#%-"%2 .%7 39,,!"53

53.1*

3EE 6OLUME

M.1* P.1*

Contents Page No. About the Author

I-5

Preface

I-7

Acknowledgement

I-9

Topics

1 BASIC CONCEPTS OF INCOME-TAX LAW AND TAX RATES )NCOME

4AX ,AW

#HARGE OF )NCOME 4AX ;3EC =

!SSESSMENT 9EAR ;3EC =

0REVIOUS 9EAR ;3EC =

0ERSON ;3EC =

!SSESSEE ;3EC =

#ERTAIN 0RINCIPLES RELATING TO )NCOME UNDER THE )NCOME 4AX !CT

)NCOME ;3EC =

(EADS OF )NCOME ;3EC =

4OTAL )NCOME AND #OMPUTATION OF 4AX ,IABILITY

%XEMPTION AND $EDUCTION IN RESPECT OF INCOME

2OUNDING OFF OF )NCOME ;3EC !=

2OUNDING OFF OF 4AX ;3EC "=

$EFINITION OF g,IABLE TO 4AXg ;3EC ! =

$EFINITION OF g#OMPANYg ;3EC =

$EFINITION OF g#OMPANY IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTEDg ;3EC =

$EFINITION OF g0ERSON HAVING SUBSTANTIAL INTEREST IN THE COMPANYg ;3EC =

$EFINITION OF g)NDIAg ;3EC ! =

$EFINITION OF g)NDIAN #OMPANYg ;3EC =

$EFINITION OF g$OMESTIC #OMPANYg ;3EC ! =

$EFINITION OF g&OREIGN #OMPANYg ;3EC ! =

$EFINITION OF g!MALGAMATIONg ;3EC " =

$EFINITION OF g$EMERGERg ;3EC !! =

I-15

1.3 1.4 1.4 1.4 1.4 1.5 1.5 1.5 1.6 1.7 1.8 1.8 1.8 1.9 1.9 1.9 1.10 1.10 1.10 1.10 1.10 1.10 1.11

I-16

#/.4%.43

Topics

Page No.

Income Tax Rates )NTRODUCTION

1.12

4AX

1.12

RATES FOR .ON #ORPORATE !SSESSEE ;&OR !SESSMENT 9EAR =

-AXIMUM -ARGINAL 2ATE ;3EC # =

-ARGINAL 2ELIEF FOR .ON CORPORATES

/PTIONAL TAX SCHEME FOR INDIVIDUALS AND (INDU UNDIVIDED FAMILY ;3EC "!#=

2EBATE OF )NCOME TAX FOR 2ESIDENT )NDIVIDUALS HAVING TAXABLE INCOME NOT EXCEEDING

`

;3EC !=

/PTIONAL TAX SCHEME FOR 2ESIDENT #O OPERATIVE 3OCIETIES ;3EC "!$=

4AX RATES FOR #OMPANY !SSESSEE

-ARGINAL 2ELIEF FOR #OMPANIES

/PTION TO TAX FOR CERTAIN $OMESTIC -ANUFACTURING #OMPANIES ;3EC "!=

/PTION TO TAX FOR CERTAIN $OMESTIC #OMPANIES ;3EC "!!=

/PTION TO TAX FOR CERTAIN .EW $OMESTIC -ANUFACTURING #OMPANIES ;3EC "!"=

1.14 1.14 1.16 1.21 1.22 1.24 1.24 1.25 1.27 1.28

2 RESIDENTIAL STATUS $ETERMINATION

OF 2ESIDENTIAL 3TATUS OF )NDIVIDUAL ;3EC =

2ESIDENTIAL STATUS OF @3TATELESS 0ERSON ;3EC ! =

2ESIDENT AND /RDINARILY 2ESIDENT OR 2ESIDENT BUT .OT /RDINARILY 2ESIDENT ;3EC =

2ESIDENTIAL 3TATUS OF (5& ;3EC =

2ESIDENTIAL 3TATUS OF A #OMPANY ;3EC =

2ESIDENTIAL 3TATUS OF &IRM !/0 "/) ,OCAL !UTHORITIES ;3EC =

!SSESSEE DEEMED TO BE RESIDENT IN )NDIA IN RESPECT OF HIS OTHER SOURCES OF INCOME

;3EC =

2.1 2.3 2.3 2.3 2.3 2.4 2.4

3 INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME )NCOMES

3.1

%XEMPT FROM TAX ;3EC TO =

#IRCUMSTANCES IN WHICH REMUNERATION RECEIVED BY PERSONS WHO ARE NOT CITIZENS OF )NDIA =

WILL BE EXEMPT ;3EC

!MOUNT PAID ON LIFE INSURANCE POLICY ;3EC $ =

!MOUNT RECEIVED FROM 00& 30& 20& AND 520& ;3EC =

0AYMENT RECEIVED FROM APPROVED SUPERANNUATION FUND ;3EC =

)NTEREST ON 3ECURITIES ;3EC =

%DUCATIONAL SCHOLARSHIP OR THE SCHOLARSHIP GRANTED TO MEET COST OF EDUCATION ;3EC

=

3.10

!WARD

3.12

AND 2EWARD GIVEN BY #ENTRAL OR 3TATE 'OVERNMENT ;3EC ! =

)NCOME OF 3OVEREIGN 7EALTH &UNDS ;3EC &% =

0RACTICAL 1UESTIONS

3.8 3.9 3.11 3.11 3.12 3.12 3.15

#/.4%.43

Topics

I-17 Page No.

4 INCOME FROM SALARIES "ASIC

#ONCEPTS FOR TAXABILITY OF 3ALARY )NCOME

"ASIS OF #HARGE ;3EC =

0LACE OF !CCRUAL OF 3ALARY ;3EC =

$EFINITION OF 3ALARY ;3EC =

(OUSE 2ENT !LLOWANCE ;3EC ! READ WITH RULE !=

%NTERTAINMENT !LLOWANCE ;3EC ii =

!LLOWANCES %XEMPT TO THE EXTENT OF %XPENDITURE INCURRED ;3EC i =

!LLOWANCES %XEMPT TO THE EXTENT OF !MOUNT 3PECIFIED ;3EC ii =

!LLOWANCES WHICH ARE EXEMPT FOR CERTAIN CATEGORIES OF PERSONS

#ERTAIN !LLOWANCES &ULLY 4AXABLE

$EFINITION OF 0ERQUISITE UNDER )NCOME 4AX !CT ;3EC =

6ALUATION OF 0ERQUISITES

0ERQUISITES AND TAXABILITY FOR 3PECIFIED EMPLOYEES

&ACILITY OF 3WEEPER 'ARDENER 7ATCHMAN #OOK ETC ;2ULE =

3UPPLY OF GAS ELECTRICITY OR WATER ;2ULE =

%DUCATION &ACILITIES ;2ULE =

,EAVE 4RAVEL #ONCESSION ;3EC =

-EDICAL &ACILITIES ;0ROVISO TO 3EC =

5SE OF -OTOR #AR &ACILITY ;2ULE =

&REE TRANSPORT PROVIDED BY A 4RANSPORT 5NDERTAKING TO ITS EMPLOYEES ;2ULE =

2ENT FREE 5NFURNISHED !CCOMMODATION ;2ULE =

2ENT FREE &URNISHED !CCOMMODATION ;2ULE =

!CCOMMODATION IN (OTEL

,IFE )NSURANCE 0REMIUM ;3EC v =

)NTEREST FREE OR #ONCESSIONAL ,OANS ;2ULE i =

6ALUE OF 4RAVELLING 4OURING !CCOMMODATION AND OTHER EXPENSES FOR (OLIDAY AVAILED

[other than LTC u/s 10 5 ] ;2ULE ii =

BY THE EMPLOYEE

&REE &OOD .ON !LCOHOLIC BEVERAGES ;2ULE iii =

6ALUE OF ANY 'IFT VOUCHERS OR TOKEN ;2ULE iv =

%XPENSES ON #REDIT #ARDS ;2ULE v =

#LUB %XPENDITURE ;2ULE vi =

5SE OF -OVABLE !SSETS ;2ULE vii =

4RANSFER OF ANY -OVABLE !SSET ;2ULE viii =

4AXABILITY OF %3/0 AS 0ERQUISITES

6ALUATION OF ANY OTHER 0ERQUISITE

0ERQUISITES WHICH ARE .OT 4AXABLE

0ROFITS IN LIEU OF 3ALARY ;3EC =

+EYMAN )NSURANCE 0OLICY

4.1 4.2 4.2 4.3 4.3 4.4 4.4 4.4 4.5 4.5 4.5 4.8 4.8 4.9 4.9 4.9 4.10 4.12 4.13 4.15 4.15 4.16 4.17 4.18 4.18 4.19 4.19 4.19 4.19 4.19 4.20 4.20 4.21 4.23 4.23 4.23 4.23

I-18

#/.4%.43

Topics

Page No.

'RATUITY

;3EC =

0ENSION ;3EC ! =

,EAVE 3ALARY ;3EC !! =

2ETRENCHMENT #OMPENSATION ;3EC " =

6OLUNTARY 2ETIREMENT 3CHEME ;623= ;3EC # =

'UIDELINES FOR CLAIMING EXEMPTION OF 623 ;2ULE "!=

4AX ON .ON MONETARY PERQUISITES PAID BY EMPLOYER ;3EC ## =

0ROVIDENT &UNDS

!PPROVED 3UPERANNUATION &UND

$EDUCTIONS FROM 3ALARIES ;3EC =

2ELIEF FOR 3ALARIED %MPLOYEES ;3EC WITH 2ULE !=

0RACTICAL 1UESTIONS

4.24 4.25 4.26 4.27 4.28 4.28 4.28 4.28 4.29 4.30 4.30 4.33

5 INCOME FROM HOUSE PROPERTY "ASIS

OF #HARGE ;3EC =

!NALYSIS OF 3EC

#OMPOSITE 2ENT

)NCOME FROM (OUSE 0ROPERTY SITUATED /UTSIDE )NDIA

#ASES WHERE INCOME FROM HOUSE PROPERTY IS NOT CHARGEABLE TO TAX

$ETERMINATION OF !NNUAL 6ALUE ;3EC =

$EDUCTION OF 5NREALIZED RENT ;%XPLANATION TO 3EC =

0ROPERTY 4AXES -UNICIPAL 4AXES

$EDUCTIONS FROM !NNUAL VALUE ;3EC =

$EDUCTION OF )NTEREST ON "ORROWED #APITAL FOR 3ELF /CCUPIED (OUSE PROPERTY

#OMPUTATION OF )NCOME FROM (OUSE 0ROPERTY IN CASE OF LET OUT PROPERTY

!RREARS OF RENT AND UNREALISED RENT RECEIVED SUBSEQUENTLY ;3EC !=

0ROPERTY OWNED BY #O OWNERS ;3EC =

$EEMED OWNERSHIP ;3EC =

0RACTICAL 1UESTIONS

5.1 5.1 5.4 5.4 5.5 5.5 5.7 5.7 5.8 5.8 5.10 5.12 5.12 5.13 5.14

6 PROFITS AND GAINS OF BUSINESS OR PROFESSION #HARGING

3ECTION ;3EC =

3UBSIDY TAXABLE AS )NCOME U S XVIII

-ETHOD OF !CCOUNTING ;3EC =

-ETHOD OF !CCOUNTING FOR 6ALUATION OF 0URCHASE AND 3ALE OF 'OODS AND )NVENTORY

;3EC !=

)NCOME FROM 0'"0 HOW TO COMPUTE ;3EC =

2ENT 2ATES 4AXES 2EPAIRS AND )NSURANCE 0REMIUM OF "UILDINGS ;3EC =

2EPAIRS AND )NSURANCE PREMIUM OF -ACHINERY 0LANT AND &URNITURE USED FOR THE PURPOSE

OR PROFESSION ;3EC =

OF BUSINESS

6.1 6.3 6.4 6.4 6.5 6.6 6.6

#/.4%.43

Topics $EPRECIATION

;3EC =

#ONDITIONS FOR CLAIMING $EPRECIATION

7$6 FOR CHARGING g$EPRECIATIONg ;3EC =

h!CTUAL COSTv OF ASSET ;3EC =

2ATES OF $EPRECIATION FOR 7$6 ;2ULE !PPENDIX ) TO )NCOME TAX 2ULES =

$EPRECIATION ON )NTANGIBLE !SSETS

$EPRECIATION RESTRICTED TO OF THE NORMAL DEPRECIATION

!DDITIONAL $EPRECIATION ON NEW PLANT OR MACHINERY ;3EC iia =

3,- $EPRECIATION FOR ASSESSEE ENGAGED IN 0OWER SECTOR ;3EC i =

4ERMINAL DEPRECIATION ;3EC iii =

"ALANCING #HARGE ;3EC =

5NABSORBED $EPRECIATION ;3EC =

!SSETS NOT EXCLUSIVELY USED FOR "USINESS 0ROFESSION ;3EC =

$ETERMINATION OF !CTUAL #OST IN 3PECIAL #ASES ;%XPLANATIONS TO 3EC =

%FFECTS OF #HANGES IN 2ATE OF %XCHANGE OF #URRENCY ON THE !CTUAL #OST OF THE !SSET

;3EC !=

0ROPORTIONATE $EPRECIATION ; TH PROVISO TO 3EC =

7$6 OF THE BLOCK OF ASSET ;%XPLANATIONS TO # OF 3EC =

$EPRECIATION PROVIDED IN THE BOOKS OF ACCOUNT DEEMED TO BE DEPRECIATION ACTUALLY

ALLOWED ;%XPLANATION TO 3EC =

$EPRECIATION ALLOWANCE ON COMPOSITE INCOME ;%XPLANATION TO 3EC =

$EDUCTION OF !CTUAL COST OF INVESTMENT IN .EW 0LANT AND -ACHINERY IN NOTIFIED

BACKWARD AREAS IN CERTAIN STATES ;3EC !$=

4EA #OFFEE AND 2UBBER $EVELOPMENT ! # ;3EC !"=

3ITE 2ESTORATION &UND ;3EC !"!=

3CIENTIFIC 2ESEARCH ;3EC =

3ALE OF !SSETS USED FOR 3CIENTIFIC RESEARCH ;3EC =

)N (OUSE 2ESEARCH $EVELOPMENT ;3EC !" =

#ONTRIBUTION TO .ATIONAL ,ABORATORY ))4 5NIVERSITY 0ERSONS APPROVED BY 0RESCRIBED !! =

!UTHORITY ;3EC

/UTSIDE #ONTRIBUTION ;3EC =

#ONTRIBUTION TO )NDIAN #OMPANIES ENGAGED IN 3CIENTIFIC 2ESEARCH ;3EC iia =

!MORTIZATION OF 4ELECOM 3PECTRUM &EES ;3EC !"!=

!MORTIZATION OF 4ELECOM ,ICENSE &EES ;3EC !""=

)NVESTMENT LINKED TAX INCENTIVE TO @3PECIFIED "USINESS ;3EC !$=

%XPENDITURE BY PAYMENT TO ASSOCIATION INSTITUTION FOR 2URAL DEVELOPMENT PROGRAMME

2$0 ;3EC ##!=

%XPENDITURE ON !GRICULTURAL %XTENSION 0ROJECT ;3EC ###=

%XPENDITURE ON 3KILL $EVELOPMENT 0ROJECT ;3EC ##$=

!MORTIZATION OF 0RELIMINARY %XPENDITURE ;3EC $=

!MORTIZATION OF %XPENDITURE OF !MALGAMATION OR $EMERGER ;3EC $$=

!MORTIZATION OF 623 %XPENDITURE ;3EC $$!=

I-19 Page No. 6.6 6.7 6.9 6.11 6.11 6.14 6.14 6.17 6.19 6.19 6.20 6.20 6.21 6.21 6.25 6.26 6.26 6.29 6.30 6.30 6.31 6.33 6.34 6.35 6.35 6.35 6.35 6.36 6.36 6.38 6.39 6.44 6.44 6.44 6.44 6.47 6.47

I-20

#/.4%.43

Topics

Page No.

!MORTIZATION OF %XPENDITURE ON 0ROSPECTING ETC OF MINERALS LISTED IN TH SCHEDULE ;3EC

%=

#ERTAIN

$EDUCTIONS U S

'ENERAL $EDUCTIONS ;3EC =

!DVERTISEMENT TO POLITICAL PARTIES ;3EC " =

*UDICIAL $ECISIONS ON 3EC

!MOUNTS NOT DEDUCTIBLE IN THE CASE OF ANY ASSESSEE ;3EC a =

0AYMENT MADE TO 2ELATIVES 3PECIFIED 0ERSONS ;3EC ! =

$ISALLOWANCE OF OF EXPENDITURE IF PAYMENT IS MADE BY ANY MODE OTHER THAN !CCOUNT OR $RAFT ;3EC ! =

0AYEE #HEQUE

0AYMENTS MADE BY !CCOUNT 0AYEE #HEQUE IN VIOLATION OF CONTRACT ;3EC ! =

$ISALLOWANCE IN RESPECT OF -ARKED TO -ARKET LOSS ;3EC ! =

4AXATION OF FOREIGN EXCHANGE FLUCTUATIONS ;3EC !!=

!MOUNT NOT DEDUCTIBLE IN RESPECT OF CERTAIN UNPAID LIABILITIES ;3EC "=

0ROVISION FOR PAYMENT OF GRATUITY TO THE EMPLOYEES ;3EC ! =

0AYMENT FOR FORMATION OF OR CONTRIBUTION TO ANY FUND TRUST ETC ;3EC ! =

3PECIAL 0ROVISION FOR #OST OF !CQUISITION IN #ERTAIN #ASES ;3EC #=

3PECIAL PROVISION FOR &ULL VALUE OF CONSIDERATION FOR 4RANSFER OF !SSETS /THER THAN #!=

CAPITAL ASSETS ;3EC

#OMPUTATION OF INCOME FROM CONSTRUCTION AND SERVICE CONTRACTS ;3EC #"=

)NTEREST INCOME ON PRESCRIBED CATEGORIES OF "AD OR $OUBTFUL $EBTS ;3EC $=

-AINTENANCE OF !CCOUNTS ;3EC !!=

#OMPULSORY !UDIT OF !CCOUNTS ;3EC !"=

3PECIAL PROVISION FOR #OMPUTING 0ROFITS AND 'AINS OF ANY "USINESS ON 0RESUMPTIVE BASIS

;3EC !$=

3PECIAL PROVISION FOR #OMPUTING 0ROFITS AND 'AINS OF ANY 0ROFESSION ON 0RESUMPTIVE

BASIS ;3EC !$!=

3PECIAL PROVISION FOR #OMPUTING 0ROFITS AND 'AINS OF "USINESS OF PLYING HIRING OR LEASING

!%=

GOODS CARRIAGES ;3EC

3PECIAL PROVISIONS FOR COMPUTING 0ROFITS OF 3HIPPING BUSINESS OF NON RESIDENTS ;3EC

"= 2ECOVERY

OF 4AX ON THE 3HIPPING BUSINESS OF .ON RESIDENTS ;3EC =

3PECIAL PROVISIONS FOR COMPUTING PROFITS OF EXPLORATION ETC OF MINERAL OILS ;3EC ""=

3PECIAL PROVISIONS FOR COMPUTING PROFITS AND GAINS OF BUSINESS OF OPERATION OF AIRCRAFT

IN THE CASE OF NON RESIDENTS ;3EC ""!=

3PECIAL PROVISIONS FOR COMPUTING PROFITS AND GAINS OF FOREIGN COMPANIES ENGAGED IN THE OF CIVIL CONSTRUCTION

IN CERTAIN

TURNKEY POWER PROJECTS ;3EC """=

BUSINESS ETC

4AXATION OF "RANCHES OF &OREIGN #OMPANY (EAD OFFICE %XPENDITURE ;3EC #=

3PECIAL PROVISION FOR COMPUTING DEDUCTIONS IN THE CASE OF BUSINESS REORGANISATION OF

;3EC

CO OPERATIVE BANKS $"=

$EEMED 0ROFITS ;3EC =

0RACTICAL 1UESTIONS

6.48 6.49 6.56 6.57 6.57 6.63 6.66 6.67 6.69 6.70 6.70 6.71 6.73 6.73 6.74 6.76 6.77 6.77 6.78 6.79 6.80 6.83 6.84 6.85 6.85 6.88 6.88 6.89 6.89 6.90 6.91 6.93

#/.4%.43

Topics

I-21 Page No.

7 CAPITAL GAINS "ASIS

OF #HARGE ;3EC =

$EFINITION OF h#APITAL !SSETv ;3EC =

$ETERMINING WHETHER AN ASSET IS 3TOCK IN TRADE OR #APITAL ASSET

)TEMS OF PRECIOUS METALS TO WHAT EXTENT CONSTITUTES *EWELLERY

3HORT 4ERM #APITAL !SSET ;3EC ! =

,ONG 4ERM #APITAL !SSET ;3EC !! =

4YPES OF #APITAL 'AINS

4AX ON 3HORT 4ERM #APITAL 'AINS WHERE 344 IS CHARGED ;3EC !=

4AX ON ,ONG 4ERM #APITAL 'AINS ;3EC =

/PTION TO 4AX ,4#' WITHOUT )NDEXATION FOR 3PECIFIED 3ECURITIES &IRST PROVISO

TO 3EC

$EDUCTIONS UNDER #HAPTER 6) ! NOT ALLOWED AGAINST ANY ,4#' ;3EC =

4AX ON ,4#' ON TRANSFER WHERE 344 IS CHARGED ;3EC !=

$EFINITION OF 4RANSFER ;3EC =

4RANSACTIONS NOT REGARDED AS 4RANSFER ;3ECS =

#OMPUTATION OF #APITAL 'AINS ;3EC =

#APITAL 'AINS ON TRANSFER OF SHARES DEBENTURES OF AN )NDIAN COMPANY BY A .ON 2ESIDENTS

3EC

[ ST 0ROVISO TO 48]

ND )NDEXATION ; PROVISO TO 3EC =

.O INDEXATION ON LONG TERM CAPITAL GAINS REFERRED TO IN 3EC ! ; RD 0ROVISO TO 3EC =

.O )NDEXATION ON "ONDS $EBENTURES ; TH 0ROVISO TO 3EC =

'AINS FROM APPRECIATION OF RUPEE AGAINST A FOREIGN CURRENCY ON REDEMPTION OF 2$" IGNORED

TO 3EC =

SHALL BE ; TH 0ROVISO

-ARKET VALUE DEEMED TO BE THE FULL VALUE OF CONSIDERATION ON TRANSFER OF SHARES DEBENTURES

%3/0 ; TH 0ROVISO

OR WARRANTS ALLOTTED UNDER TO 3EC =

TH 344 NOT TO BE ALLOWED AS $EDUCTION ; 0ROVISO TO 3EC =

7ITHDRAWAL OF EXEMPTION UNDER CLAUSES iv AND v OF 3EC ;3EC ! =

7ITHDRAWAL OF EXEMPTION UNDER CLAUSES xiii OR xiv OF 3EC ;3EC ! =

7ITHDRAWAL OF EXEMPTION UNDER CLAUSE xiiib OF 3EC ;3EC ! =

#APITAL 'AINS ON )NSURANCE #LAIMS FOR $AMAGE OR $ESTRUCTION OF #APITAL !SSET ;3EC

! = #APITAL 'AINS ON AMOUNT RECEIVED UNDER UNIT LINKED INSURANCE POLICY WHICH IS NOT EXEMPT

" =

U S $ ;3EC

#APITAL 'AIN ON #ONVERSION OF #APITAL !SSETS INTO 3TOCK IN TRADE ;3EC =

4RANSFER OF 3ECURITY THROUGH $EPOSITORY ;3EC ! =

#APITAL 'AIN ON TRANSFER OF #APITAL !SSET BY A 0ARTNER -EMBER TO &IRM !/0 "/) ;3EC

=

7.1 7.1 7.2 7.3 7.4 7.4 7.4 7.5 7.5 7.6 7.7 7.7 7.9 7.10 7.16 7.17 7.19 7.19 7.19 7.20 7.20 7.20 7.21 7.22 7.25 7.25 7.27 7.27 7.28 7.29

I-22

#/.4%.43

Topics )NCOME

ON RECEIPT OF CAPITAL ASSET OR STOCK IN TRADE BY SPECIFIED PERSON FROM SPECIFIED "=

ENTITY ;3EC

#APITAL GAIN ON TRANSFER OF CAPITAL ASSET ON RECONSTITUTION OF SPECIFIED ENTITY ;3EC =

#APITAL GAIN ON TRANSFER BY WAY OF #OMPULSORY !CQUISITION OF #APITAL !SSET ;3EC =

#APITAL GAIN ON TRANSFER OF ,AND OR "UILDING OR BOTH UNDER A 3PECIFIED !GREEMENT *OINT

!GREEMENT

;3EC ! =

$EVELOPMENT

#APITAL 'AIN ON REPURCHASE OF UNITS OF -UTUAL &UND OR 54) ;3EC =

#APITAL 'AINS ON $ISTRIBUTION OF !SSETS BY #OMPANIES IN ,IQUIDATION ;3EC =

#OST OF !CQUISITION ;3EC =

#OST OF !CQUISITION OF !SSETS ACQUIRED BEFORE ;3EC b =

#OST OF !CQUISITION OF 3ELF 'ENERATED !SSETS

#OST OF !CQUISITION OF 2IGHT 3HARES ;3EC aa =

#OST OF !CQUISITION OF "ONUS 3HARES OR ANY OTHER FINANCIAL ASSET ALLOTTED WITHOUT PAYMENT

;3EC aa iiia =

#OST OF !CQUISITION OF EQUITY SHARES ALLOTTED TO THE SHAREHOLDER OF A RECOGNISED STOCK ON CORPORATISATION

;3EC ab =

EXCHANGE

#OST OF !CQUISITION OF CAPITAL ASSET REFERRED TO IN 3EC ! ACQUIRED BEFORE

;3EC ac =

#OST OF )MPROVEMENT ;3EC b =

#OST TO THE PREVIOUS OWNER ;3EC =

#OST OF SHARES IN THE )NDIAN !MALGAMATED #OMPANY ;3EC =

#OST OF ACQUISITION IN THE CASE OF SHARES DEBENTURES ACQUIRED ON CONVERSION OF DEBENTURES ;3EC ! =

"ONDS

#OST OF ACQUISITION OF SPECIFIED SECURITY OR SWEAT EQUITY SHARES ALREADY TAXED AS PERQUISITE HANDS

;3EC !! =

IN THE OF THE EMPLOYEE

#OST OF !CQUISITION OF SHARES ACQUIRED ON REDEMPTION OF '$2S ;3EC !"" =

#OST OF ACQUISITION OF UNIT OF BUSINESS TRUST ACQUIRED U S xvii ;3EC !# =

#OST OF !CQUISITION OF 5NITS ACQUIRED IN #ONSOLIDATED 3CHEME OF -UTUAL &UND U S ;3EC !$ =

xviii

#OST OF !CQUISITION OF EQUITY SHARES ACQUIRED ON CONVERSION OF PREFERENCE SHARES

;3EC !% =

#OST OF !CQUISITION OF 5NITS ACQUIRED IN #ONSOLIDATED 0LAN OF -UTUAL &UND 3CHEME U S ;3EC !& =

xix

#OST OF !CQUISITION OF 5NITS ACQUIRED IN 3EGREGATED PORTFOLIO OF -UTUAL &UND 3CHEMES

;3EC !' =

#OST OF ACQUISITION OF THE ORIGINAL UNITS IN THE -AIN 0ORTFOLIO ;3EC !( =

#OST OF ACQUISITION OF THE SHARES IN THE RESULTING COMPANY ;3EC # =

#OST OF ACQUISITION OF ORIGINAL SHARES IN DEMERGED COMPANY ;3EC $ =

#OST OF ACQUISITION TO 4RANSFEREE #OMPANY WHERE SECTION ! IS APPLICABLE ;3EC =

#OST OF ACQUISITION OF PROPERTY ACQUIRED IN A MANNER GIVEN UNDER SECTION vii ;3EC =

viia x

#OST OF ACQUISITION OF AN ASSET DECLARED UNDER THE )NCOME $ECLARATION 3CHEME

THE ASSET

ON

;3EC =

SHALL BE THE &-6 OF AS

Page No. 7.30 7.31 7.36 7.38 7.39 7.39 7.40 7.41 7.41 7.42 7.42 7.43 7.43 7.44 7.45 7.47 7.48 7.49 7.49 7.49 7.49 7.49 7.50 7.50 7.51 7.51 7.51 7.52 7.52 7.52

#/.4%.43

Topics #OST

OF !CQUISITION OF 3PECIFIED #APITAL !SSET TRANSFERRED AFTER EXPIRY PERIOD SPECIFIED

U S ! ;3EC =

#OST OF !CQUISITION OF 3HARE IN THE FORM OF ,AND OR "UILDING OR BOTH U S ! ;3EC

= #OST

OF !CQUISITION OF !SSET IN RESPECT OF WHICH !CCRETED INCOME HAS BEEN COMPUTED #HAPTER

;3EC =

UNDER 8)) %"

#OST OF !CQUISITION OF INVENTORY WHICH IS CONVERTED INTO OR TREATED AS CAPITAL ASSET AS TO IN 3EC via

REFERRED ;3EC =

#APITAL GAINS IN CASE OF $EPRECIABLE !SSETS &OR BLOCK OF !SSET U S ;3EC =

#OMPUTATION OF CAPITAL GAINS IN CASE OF $EPRECIABLE !SSETS OF 0OWER 3ECTOR 5NITS

;3EC !=

3PECIAL PROVISIONS FOR CAPITAL GAINS IN 3LUMP 3ALE ;3EC "=

$ETERMINATION OF &AIR -ARKET 6ALUE U S " ;2ULE 5!%=

3PECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR COMPUTATION OF CAPITAL GAINS IN REAL

;3EC

#=

ESTATE TRANSACTIONS

3PECIAL PROVISION FOR FULL VALUE OF CONSIDERATION FOR TRANSFER OF UNLISTED SHARES

;3EC #!=

&-6 TO BE THE &ULL VALUE OF CONSIDERATION IN CERTAIN CASES ;3EC $=

4REATMENT OF !DVANCE -ONEY 2ECEIVED ;3EC =

#APITAL 'AINS %XEMPT ON COMPULSORY ACQUISITION OF 5RBAN !GRICULTURAL ,AND ;3EC =

%XEMPTION IN RESPECT OF #APITAL 'AINS IN CASE OF 3PECIFIED #APITAL !SSET ;3EC ! =

#ASES WHERE THE BENEFIT OF )NDEXATION OF COSTS IS NOT AVAILABLE FOR DETERMINATION OF GAINS

CAPITAL

2EFERENCE TO 6ALUATION /FFICER ;3EC ! AND 2ULE !!=

Exemptions from Capital Gains u/s 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA, 54GB and 54H #APITAL

'AIN ON 4RANSFER OF ,ONG TERM 2ESIDENTIAL (OUSE 0ROPERTY ;3EC =

#APITAL 'AIN ON 4RANSFER OF ,AND USED FOR !GRICULTURAL 0URPOSES ;3EC "=

#APITAL 'AIN ON #OMPULSORY !CQUISITION OF ,AND "UILDINGS FORMING PART OF AN )NDUSTRIAL

;3EC

5NDERTAKING $=

#APITAL GAIN ON TRANSFER OF ,ONG TERM #APITAL !SSETS BEING LAND OR BUILDING OR BOTH NOT

ON )NVESTMENT IN #ERTAIN "ONDS ;3EC %#=

TO BE CHARGED

#APITAL GAIN ON TRANSFER OF ,ONG TERM #APITAL !SSETS NOT TO BE CHARGED ON )NVESTMENT UNITS ;3EC %%=

IN #ERTAIN

#APITAL 'AIN ON 4RANSFER OF ,4 #APITAL !SSET other than Residential House ;3EC &=

#APITAL 'AIN ON 4RANSFER OF !SSETS IN CASES OF 3HIFTING OF )NDUSTRIAL 5NDERTAKING FROM '=

5RBAN !REAS ;3EC

%XEMPTION OF #APITAL 'AIN ON 4RANSFER OF !SSETS OF 3HIFTING OF )NDUSTRIAL 5NDERTAKING !REA

3%: ;3EC '!=

FROM 5RBAN TO ANY

%XEMPTION OF ,ONG TERM #APITAL 'AINS TAX ON TRANSFER OF 2ESIDENTIAL 0ROPERTY IF INVESTED

3-% #OMPANY

;3EC '"=

IN A .EW -ANUFACTURING

%XTENSION OF 4IME ,IMIT FOR ACQUIRING .EW !SSET OR $EPOSITING OR )NVESTING !MOUNT OF IN CASE OF #OMPULSORY

(=

#APITAL 'AIN !CQUISITION ;3EC

I-23 Page No. 7.53 7.53 7.53 7.53 7.53 7.56 7.57 7.61 7.62 7.65 7.65 7.65 7.67 7.68 7.69 7.69

7.70 7.73 7.75 7.76 7.78 7.79 7.83 7.85 7.85 7.87

I-24

#/.4%.43

Topics

Page No.

3NAPSHOTS

OF %XEMPTION U S " $ %# %% & ' '!

0RACTICAL 1UESTIONS

7.88 7.89

8 INCOME FROM OTHER SOURCES "ASIS

OF #HARGE ;3EC =

Deemed Dividends

8.1

$ISTRIBUTION

8.2

OF !SSETS ;3EC a =

$ISTRIBUTION OF "ONUS SHARES TO 0REFERENCE 3HAREHOLDERS AND $EBENTURES TO ANY b =

SHAREHOLDER ;3EC

$ISTRIBUTION OF !SSETS IN THE %VENT OF ,IQUIDATION ;3EC c =

2EDUCTION OF 3HARE #APITAL ;3EC d =

,OANS AND !DVANCES BY #LOSELY (ELD #OMPANY ;3EC e =

#ASES NOT TO BE TREATED AS DEEMED DIVIDEND AS PER 3EC e

9EAR OF CHARGEABILITY OF $IVIDEND INCOME ;3EC =

$IVIDENDS RECEIVED BY )NDIAN COMPANIES FROM 3PECIFIED &OREIGN #OMPANIES ENTITLED TO

TAX ;3EC ""$=

#ONCESSIONAL RATE OF

!MOUNTS $EDUCTIBLE UNDER )NCOME FROM /THER 3OURCES ;3EC =

!MOUNTS .OT $EDUCTIBLE ;3EC =

$EEMED 0ROFITS ;3EC =

0RACTICAL 1UESTIONS

8.2 8.3 8.3 8.4 8.6 8.7 8.8 8.8 8.9 8.10 8.11

9

TAX ON CONVERSION OF UNACCOUNTED MONEY 'IFTS

RECEIVED BY ANY PERSON ;3EC x =

0REMIUM ON )SSUE OF 3HARES BY #LOSELY HELD #OMPANY ;3EC viib =

$ETERMINATION OF &AIR -ARKET 6ALUE &-6 ;2ULE 5!=

"OND WASHING TRANSACTIONS ;3EC =

)NTEREST 3TRIPPING ;3EC =

"ONUS 3TRIPPING ;3EC =

#ASH #REDITS ;3EC =

5NEXPLAINED )NVESTMENTS ;3EC =

5NEXPLAINED -ONEY OR OTHER 6ALUABLES ;3EC !=

!MOUNT OF )NVESTMENTS ETC NOT FULLY DISCLOSED IN BOOKS OF ACCOUNT ;3EC "=

5NEXPLAINED %XPENDITURE ;3EC #=

!MOUNT BORROWED OR REPAID ON HUNDI ;3EC $=

4AXATION OF #ASH #REDITS 5NEXPLAINED -ONEY )NVESTMENTS ETC ;3EC ""%=

0RACTICAL 1UESTIONS

9.1 9.9 9.11 9.13 9.13 9.14 9.15 9.16 9.17 9.17 9.17 9.17 9.18 9.19

10 INCOME COMPUTATION AND DISCLOSURE STANDARDS [ICDS] )NTRODUCTION

TO )NCOME #OMPUTATION AND $ISCLOSURES 3TANDARDS )#$3

10.1

I-25

#/.4%.43

Topics

Page No.

)#$3 )

!CCOUNTING 0OLICIES

)#$3 )) 6ALUATION OF )NVENTORIES

)#$3 ))) #ONSTRUCTION #ONTRACTS

)#$3 )6 2EVENUE 2ECOGNITION

)#$3 6 4ANGIBLE &IXED !SSETS

)#$3 6) %FFECTS OF #HANGES IN &OREIGN %XCHANGE 2ATES

)#$3 6)) 'OVERNMENT 'RANTS

)#$3 6))) 3ECURITIES

)#$3 )8 "ORROWING #OSTS

)#$3 8 0ROVISIONS #ONTINGENT ,IABILITIES AND #ONTINGENT !SSETS

#LARIFICATIONS MADE BY THE #"$4 ON CERTAIN ISSUES ARISING OUT OF THE NOTIFIED )#$3S

10.2 10.3 10.6 10.10 10.12 10.14 10.16 10.17 10.19 10.21 10.23

11 INCOME OF OTHER PERSONS, INCLUDED IN ASSESSEE’S TOTAL INCOME )NTRODUCTION

11.1

4RANSFER

11.1

OF INCOME WITHOUT TRANSFER OF !SSETS ;3EC =

2EVOCABLE TRANSFER OF !SSETS ;3EC =

4RANSFER IRREVOCABLE FOR A SPECIFIED PERIOD ;3EC =

@2EVOCABLE 4RANSFER DEFINED ;3EC =

)NCOME OF )NDIVIDUAL TO INCLUDE INCOME OF 3POUSE ;3EC ii =

)NCOME FROM !SSETS TRANSFERRED TO THE 3POUSE ;3EC iv =

)NCOME FROM !SSETS TRANSFERRED TO THE 3ON S WIFE ;3EC vi =

)NCOME FROM ASSETS TRANSFERRED TO ANY PERSON OR !/0 FOR THE BENEFIT OF THE SPOUSE ;3EC vii viii =

SON S WIFE

#LUBBING WHEN TRANSFERRED ASSET IS INVESTED IN BUSINESS BY THE SPOUSE OR SON S WIFE

3EC =

;%XPLANATION TO

#LUBBING OF )NCOME OF -INOR #HILD ;3EC ! =

)NCOME FROM SELF ACQUIRED PROPERTY CONVERTED TO JOINT FAMILY PROPERTY ;3EC =

,IABILITY OF THE 4RANSFEREE IN RESPECT OF CLUBBED INCOME ;3EC =

0RACTICAL 1UESTIONS

11.1 11.1 11.2 11.2 11.4 11.4 11.4 11.5 11.6 11.7 11.8 11.8

12 SET-OFF OF LOSSES OR CARRY FORWARD AND SET-OFF OF LOSSES )NTRODUCTION

12.1

3ET OFF OF LOSS FROM ONE 3OURCE AGAINST INCOME FROM /THER 3OURCE UNDER THE SAME HEAD

12.1

)NTRA

=

OF INCOME HEAD ADJUSTMENTS ;3EC

3ET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD )NTER HEAD ADJUSTMENTS =

;3EC

#ARRY FORWARD AND 3ET OFF OF ,OSS FROM (OUSE 0ROPERTY ;3EC "=

#ARRY &ORWARD AND 3ET OFF OF "USINESS ,OSSES ;3EC =

2EHABILITATION OF "USINESS $ISCONTINUED DUE TO .ATURAL #ALAMITIES ;0ROVISO TO 3EC =

12.2 12.4 12.4 12.5

I-26

#/.4%.43

Topics

Page No.

3ET

OFF AND #ARRY &ORWARD AND 3ET OFF OF 3PECULATION "USINESS ,OSS ;3EC =

-EANING OF 3PECULATIVE 4RANSACTION ;3EC =

#OMPANIES CARRYING ON BUSINESS OF BUYING AND SELLING OF SHARES ;%XPL TO 3EC =

3ET OFF AND #ARRY FORWARD SET OFF OF LOSS OF SPECIFIED BUSINESS REFERRED TO IN 3EC !$ !=

;3EC

#ARRY FORWARD OF LOSSES UNDER THE HEAD g#APITAL GAINSg ;3EC =

,OSS FROM THE ACTIVITY OF /WNING AND -AINTAINING RACE HORSES ;3EC !=

,OSSES CAN BE SET OFF ONLY BY THE ASSESSEE WHO HAS INCURRED LOSS ;3EC =

%XCEPTIONS TO SECTION )NHERITANCE

!MALGAMATION ;3EC ! =

$EMERGER ;3EC ! =

3UCCESSION OF PROPRIETARY CONCERN OR A FIRM BY A COMPANY ;3EC ! =

3UCCESSION OF A PRIVATE COMPANY UNLISTED PUBLIC COMPANY BY AN ,,0 ;3EC ! ! =

$EFINITION OF !CCUMULATED ,OSS FOR THE PURPOSE OF 3ECTION ! ;3EC ! =

#ARRY &ORWARD AND 3ET /FF OF !CCUMULATED ,OSS AND 5NABSORBED $EPRECIATION IN CASE

;3EC !

=

OF !MALGAMATION

#ARRY FORWARD AND SET OFF OF ACCUMULATED LOSS AND UNABSORBED DEPRECIATION ALLOWANCE

IN CERTAIN CASES ;3EC

IN SCHEME OF AMALGAMATION !!=

$EFINITION OF !CCUMULATED ,OSS FOR THE PURPOSE OF 3EC !!

#ARRY &ORWARD AND 3ET /FF OF !CCUMULATED ,OSS AND 5NABSORBED $EPRECIATION IN CASE

OF #O OPERATIVE "ANKS ;3EC

OF "USINESS 2E ORGANISATION !"

=

#ARRY &ORWARD AND 3ET OFF OF ,OSSES OF #LOSELY (ELD #OMPANIES ;3EC =

,OSSES OF &IRMS

#ARRY FORWARD OF ,OSSES IN CASE OF #HANGE IN #ONSTITUTION OF &IRMS ;3EC =

0RACTICAL 1UESTIONS

12.6 12.6 12.7 12.8 12.9 12.9 12.11 12.11 12.11 12.12 12.12 12.12 12.13 12.13 12.16 12.17 12.17 12.17 12.19 12.20 12.21

13 DEDUCTIONS FROM GROSS TOTAL INCOME )NTRODUCTION

13.1

$EDUCTION

13.1

IN RESPECT OF PAYMENTS FOR LIFE INSURANCE PREMIUM DEFERRED ANNUITY

FUND SUBSCRIPTION

TO UNITS OF MUTUAL FUND

SHARES

CONTRIBUTIONS TO PROVIDENT EQUITY

ETC ;3EC #=

$EDUCTION ALLOWED U S # SUBSEQUENTLY TAXED IF CERTAIN INVESTMENTS WITHDRAWN

$EDUCTION FOR #ONTRIBUTION TO CERTAIN 0ENSION &UNDS ;3EC ###=

$EDUCTION FOR #ONTRIBUTION TO .ATIONAL 0ENSION 3CHEME .03 ;3EC ##$=

,IMIT ON $EDUCTION UNDER 3ECTIONS # ### ##$ ;3EC ##%=

$EDUCTION IN RESPECT OF -EDICAL )NSURANCE 0REMIUM ;3EC $=

$EDUCTION FOR MAINTENANCE INCLUDING MEDICAL TREATMENT OF A DEPENDENT RELATIVE WITH $$=

DISABILITY ;3EC

$EDUCTION IN RESPECT OF -EDICAL 4REATMENT ;3EC $$"=

$EDUCTION IN RESPECT OF )NTEREST PAID ON %DUCATION ,OAN ;3EC %=

$EDUCTION IN RESPECT OF LOAN TAKEN FOR RESIDENTIAL HOUSE PROPERTY ;3EC %%=

13.3 13.6 13.6 13.7 13.9 13.13 13.14 13.16 13.16

#/.4%.43

Topics $EDUCTION

IN RESPECT OF LOAN TAKEN FOR CERTAIN HOUSE PROPERTY ;3EC %%!=

$EDUCTION IN RESPECT OF PURCHASE OF ELECTRIC VEHICLE ;3EC %%"=

$EDUCTION FOR $ONATION TO CERTAIN &UNDS #HARITABLE )NSTITUTIONS ;3EC '=

$EDUCTION IN RESPECT OF 2ENT 0AID ;3EC ''=

$EDUCTION FOR $ONATIONS FOR 3CIENTIFIC 2ESEARCH OR 2URAL $EVELOPMENT ;3EC ''!=

$EDUCTION FOR #ONTRIBUTIONS GIVEN BY #OMPANIES TO 0OLITICAL 0ARTIES OR %LECTORAL 4RUST

;3EC ''"=

$EDUCTION FOR #ONTRIBUTIONS TO 0OLITICAL 0ARTIES OR %LECTORAL 4RUST ;3EC ''#=

$EDUCTION IN RESPECT OF PROFITS AND GAINS FROM UNDERTAKINGS OR ENTERPRISES ENGAGED IN DEVELOPMENT

)!=

INFRASTRUCTURE ;3EC

0ROFITS OF HOUSING OR OTHER ACTIVITIES WHICH ARE AN INTEGRAL PART OF THE (IGHWAY 0ROJECT

;3EC )! =

$EDUCTION IN RESPECT OF 0ROFITS AND 'AINS FROM 5NDERTAKING OR %NTERPRISE ENGAGED IN OF 3PECIAL %CONOMIC

$EVELOPMENT :ONE ;3EC )!"=

3PECIAL PROVISION IN RESPECT OF SPECIFIED BUSINESS ;3EC )!#=

$EDUCTION OF 0ROFITS AND 'AINS FROM )NDUSTRIAL 5NDERTAKING OTHER THAN )NFRASTRUCTURE 5NDERTAKINGS

;3EC )"=

$EVELOPMENT

4EN YEAR TAX HOLIDAY FOR APPROVED COMPANIES CARRYING ON 3CIENTIFIC 2ESEARCH AND

;3EC )" ! =

$EVELOPMENT

)NDUSTRIAL UNDERTAKING 0RODUCING OR 2EFINING -INERAL OIL IN THE .ORTH %ASTERN 2EGION

OR IN ANY PART OF )NDIA ;3EC )" =

5NDERTAKING ENGAGED IN $EVELOPING AND "UILDING (OUSING 0ROJECTS ;3EC )" =

5NDERTAKING ENGAGED IN THE BUSINESS OF 0ROCESSING 0RESERVATION AND 0ACKAGING OF

PRODUCTS

ETC OR INTEGRATED BUSINESS OF HANDLING

FRUITS OR VEGETABLES

MEATS STORAGE

AND TRANSPORTATION OF FOOD GRAINS ;3EC )" ! =

$EDUCTION IN RESPECT OF OPERATING AND -AINTAINING A (OSPITAL LOCATED ANYWHERE IN )NDIA

AREA ;3EC )" # =

OTHER THAN EXCLUDED

$EDUCTION IN RESPECT OF PROFITS AND GAINS FROM (OUSING 0ROJECTS ;3EC )"!=

3PECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS OR ENTERPRISES IN CERTAIN SPECIAL 3TATES ;3EC )#=

CATEGORY

$EDUCTION IN RESPECT OF 0ROFITS AND GAINS FROM "USINESS OF (OTELS AND #ONVENTION #ENTERS !REA ;3EC )$=

IN 3PECIFIED

3PECIAL PROVISIONS IN RESPECT OF CERTAIN UNDERTAKINGS IN .ORTH %ASTERN 3TATES ;3EC )%=

$EDUCTION IN RESPECT OF PROFITS AND GAINS FROM BUSINESS OF COLLECTING AND PROCESSING OF WASTE ;3EC

BIO DEGRADABLE **!=

$EDUCTION IN RESPECT OF %MPLOYMENT OF .EW %MPLOYEES ;3EC **!!=

$EDUCTION IN RESPECT OF CERTAIN INCOMES OF /FFSHORE "ANKING 5NITS AND )NTERNATIONAL

;3EC ,!=

&INANCIAL 3ERVICES #ENTRE

$EDUCTION IN RESPECT OF CERTAIN INTER CORPORATE DIVIDENDS ;3EC -=

$EDUCTION IN RESPECT OF 2OYALTY INCOME OF AUTHORS OF BOOKS ;3EC 11"=

$EDUCTION IN RESPECT OF 2OYALTY ON 0ATENTS ;3EC 22"=

$EDUCTIONS U S )! TO 22" AND 3EC !! NOT TO EXCEED THE 0ROFITS ;3EC !=

$EDUCTION NOT TO BE ALLOWED UNLESS RETURN FURNISHED ;3EC !#=

I-27 Page No. 13.17 13.17 13.18 13.23 13.25 13.25 13.26 13.26 13.30 13.30 13.30 13.31 13.34 13.35 13.35 13.36

13.37 13.37 13.39 13.41 13.41 13.45 13.45 13.47 13.48 13.49 13.50 13.51 13.52

I-28

#/.4%.43

Topics

Page No.

$EDUCTION

OF )NTEREST ON $EPOSITS IN 3AVINGS !CCOUNTS ;3EC 44!=

$EDUCTION OF )NTEREST ON $EPOSITS FOR 3ENIOR #ITIZEN ;3EC 44"=

$EDUCTION IN CASE OF A PERSON WITH DISABILITY ;3EC 5=

0RACTICAL 1UESTIONS

13.52 13.52 13.53 13.53

14 TAXATION OF CO-OPERATIVE SOCIETIES $EFINITION

OF h#O OPERATIVE 3OCIETYv ;3EC =

$EDUCTION IN RESPECT OF )NCOME OF #O OPERATIVE 3OCIETIES ;3EC 0=

4AX RATES APPLICABLE FOR #O OPERATIVE 3OCIETIES

$EDUCTION IN RESPECT OF )NCOME OF 0RODUCER #OMPANIES ;3EC 0!=

0RACTICAL 1UESTIONS

14.1 14.1 14.2 14.2 14.2

15

DEDUCTION FOR SPECIAL ECONOMIC ZONE [SEC. 10AA] 3PECIAL

0ROVISIONS IN RESPECT OF .EWLY %STABLISHED 5NITS IN 3PECIAL %CONOMIC :ONES

3%: ;3EC !!=

$EFINITION FOR THE PURPOSE OF 3EC !!

#OMPUTATION OF $EDUCTION U S !!

#OMPUTATION OF 0ROFITS FOR 3EC !!

%SSENTIAL CONDITIONS TO CLAIM DEDUCTION U S !!

#ONVERSION OF %0: &4: INTO @3PECIAL %CONOMIC :ONE ; ND 0ROVISO TO 3EC !!=

%XTRACTS FROM THE CLARIFICATION ON ISSUES RELATING TO %XPORT OF #OMPUTER 3OFTWARE

DT =

;#IRCULAR .O

0RACTICAL 1UESTION

15.1 15.2 15.3 15.3 15.4 15.4 15.5 15.6

16 TAXATION OF FILM PRODUCERS/DISTRIBUTORS $EDUCTION

OF EXPENDITURE ON PRODUCTION OF FEATURE FILMS FOR &ILM 0RODUCER ;2ULE !=

$EDUCTION OF EXPENDITURE ON ACQUISITION OF DISTRIBUTION RIGHTS OF &ILMS FOR $ISTRIBUTOR

;2ULE "=

3UMMARIZED PROVISIONS OF 2ULE !

3UMMARIZED PROVISIONS OF 2ULE "

$EDUCTION IN RESPECT OF @#OST OF PRODUCTION ALLOWABLE U S IN CASE OF !BANDONED ;#"$4 #IRCULAR

.O

DATED =

&EATURE &ILMS

0RACTICAL 1UESTION

16.1 16.1 16.2 16.2 16.3 16.3

17

TAXATION OF BONDS $EEP

$ISCOUNT "OND

"ACKGROUND OF 4AXATION OF $EEP $ISCOUNT "OND

17.1 17.1

#/.4%.43

Topics

I-29 Page No.

4AX

17.1

4AX

17.2

TREATMENT OF INCOME FROM $EEP $ISCOUNT "ONDS $$" ;#IRCULAR .O DT

=

$EDUCTED AT 3OURCE ON $$"

/PTION TO SMALL )NVESTORS

$EFINITION OF :ERO #OUPON "OND ;3EC =

4AX TREATMENT IN THE HANDS OF THE COMPANY ISSUING :ERO #OUPON "ONDS

4AX TREATMENT IN THE HANDS OF THE INVESTOR

17.3 17.3 17.3 17.4

18 EXPENDITURE ON EXEMPT INCOME 3ECTION

!

-ETHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE

IN TOTAL INCOME ;2ULE $=

18.1 18.1

19 AGRICULTURAL INCOME AND ITS TAX TREATMENT !GRICULTURAL

)NCOME %XEMPT ;3EC =

$EFINITION OF !GRICULTURAL )NCOME ;3EC ! =

)NCOME FROM &ARM "UILDING ;0ROVISO TO SEC ! C =

)NSTANCES OF !GRICULTURAL )NCOME

)NSTANCES OF .ON !GRICULTURAL )NCOME

#OMPUTATION OF !GRICULTURAL AND .ON !GRICULTURAL )NCOME OF 2UBBER #OFFEE 4EA !

" " !

=

"USINESS ;2ULE

#OMPUTATION OF !GRICULTURAL )NCOME AND .ON !GRICULTURAL )NCOME FROM ANY PRODUCT RUBBER

=

OTHER THAN TEA

AND COFFEE ;2ULE

4AX ON .ON AGRICULTURAL INCOME IF THE ASSESSEE EARNS !GRICULTURAL INCOME ALSO

19.1 19.1 19.1 19.2 19.3 19.3 19.4 19.5

20 TAXATION OF POLITICAL PARTIES & ELECTORAL TRUST %XEMPTION

TO )NCOMES OF 0OLITICAL 0ARTIES ;3EC !=

#ONTRIBUTIONS RECEIVED BY %LECTORAL 4RUST %XEMPT ;3EC "=

%EXEMPTION OF )NCOME OF -0S AND -,!S ;3EC =

)NCOMES OF ,OCAL !UTHORITY %XEMPT ;3EC =

20.1 20.2 20.3 20.5

Tax on Conversion of Unaccounted Money

C H A P T E R

[Sec. 56(2)(x), (viib); Sec. 94; Secs. 68 to 69D & Sec. 115BBE]

Gifts received by any person: [Sec. 56(2)(x)] 7HERE ANY PERSON RECEIVES THE FOLLOWING IN ANY PREVIOUS YEAR FROM ANY PERSON OR PERSONS ON OR AFTER ST !PRIL IT SHALL BE TAXABLE UNDER THE HEAD @Income from Other Sources’:

(1) Any sum of money: Without consideration, THE !''2%'!4% 6!,5% OF WHICH EXCEEDS `

THE WHOLE OF THE AGGREGATE VALUE OF SUCH SUM

(2) Any immovable property: a Without consideration, the stamp duty value OF WHICH EXCEEDS `

THE STAMP DUTY VALUE OF SUCH PROPERTY ;3INGLE 4RANSACTION 7ISE= b For inadequate consideration, if the stamp duty value EXCEEDS THE CONSIDERATION BY MORE THAN higher of ` OR 10% OF THE CONSIDERATION THE DIFFERENCE OF 3TAMP DUTY VALUE AND THE CONSIDERATION ;3INGLE 4RANSACTION 7ISE= Provided that in case of a property being referred to in the 2nd proviso to Sec. 43CA(1), the limit shall be 20% instead of 10%. [Inserted by Finance Act, 2021 w.e.f. A.Y. 2021-22] Reason for Amendment: )N ORDER TO PROVIDE CONSEQUENTIAL RELIEF TO BUYERS OF RESIDENTIAL UNITS WHO HAD ACQUIRED AS PER THE ND PROVISO TO 3EC #!

THE &INANCE !CT HAS INCREASED THE SAFE HARBOUR LIMIT FROM EXISTING TO

(3) Any property, other than immovable property: (a) Without consideration, THE !''2%'!4% FMV OF WHICH EXCEEDS `

THE WHOLE OF THE AGGREGATE &-6 OF SUCH PROPERTY (b) For inadequate consideration, IF THE !''2%'!4% $)&&%2%.#% BETWEEN THE &-6 AND CONSIDERATION EXCEEDS `

THE DIFFERENCE OF &-6 AND CONSIDERATION Further this clause shall NOT APPLY to any sum of money or any property received: i &ROM ANY 2ELATIVE OR ii /N THE OCCASION OF THE -ARRIAGE OF THE )NDIVIDUAL OR iii 5NDER A 7ILL OR BY WAY OF )NHERITANCE OR iv )N CONTEMPLATION OF $EATH OF THE 0AYER OR v &ROM ANY ,OCAL !UTHORITY AS DEFINED IN 3EC OR vi &ROM ANY &UND &OUNDATION 5NIVERSITY %DUCATIONAL )NSTITUTION OR (OSPITAL OR OTHER MEDICAL )NSTITUTION OR 4RUST OR )NSTITUTION REFERRED U S # OR vii &ROM OR BY ANY 4RUST )NSTITUTION REGISTERED U S !! OR !" OR viii "Y ANY &UND 4RUST )NSTITUTION 5NIVERSITY %DUCATIONAL )NSTITUTION OR (OSPITAL OR OTHER MEDICAL )NSTITUTION REFERRED UNDER SUB CLAUSE iv v vi OR VIA OF 3ECTION 23C OR 9.1

9.2

$)2%#4 4!8 ,!73

ix /N TOTAL OR PARTIAL PARTITION OF (5& U S i TRANSFER OF CAPITAL ASSET BY HOLDING COMPANY TO ITS

)NDIAN SUBSIDIARY COMPANY U S iv TRANSFER OF CAPITAL ASSET BY SUBSIDIARY TO ITS

)NDIAN HOLDING COMPANY U S v IN THE SCHEME OF AMALGAMATION DEMERGER U S vi (vib)

RECEIPT OF SHARES HELD IN )NDIAN COMPANY IN THE SCHEME OF AMALGAMATION OR DEMERGER OF FOREIGN

COMPANY U S via vic IN A SCHEME OF AMALGAMATION OF BANKING COMPANY U S viaa ON

BUSINESS REORGANIZATION OF COOPERATIVE BANK U S vica vicb TRANSFER OR ISSUE OF SHARES BY

RESULTING COMPANY TO DEMERGED COMPANY U S vid RECEIPT OF SHARES ON THE AMALGAMATION OF

A COMPANY U S vii transfer of capital asset by original fund to resulting fund in relocation

u/s 47(viiac); transfer of share/unit/interest in the original fund in consideration of share/unit/ interest in resultant fund u/s 47(viiad); transfer of capital asset by India Infrastructure Finance Company Ltd. to institution established for financing the infrastructure and development u/s 47(viiae); transfer of capital asset by public sector company to another public sector company u/s 47(viiaf).

[Inserted by Finance Act, 2021 w.e.f. A.Y. 2022-23]

x &ROM AN INDIVIDUAL BY A TRUST CREATED OR ESTABLISHED SOLELY FOR THE BENEFIT OF RELATIVE OF INDIVIDUAL

xi &ROM SUCH CLASS OF PERSONS AND SUBJECT TO SUCH CONDITIONS AS MAY BE PRESCRIBED

Notification No. 96/2019 dated 11.11.2019: Prescribed class of persons for the purpose of clause (xi) of proviso to Sec. 56(2)(x): [Rule 11UAC] 4HE PROVISIONS OF 3EC x SHALL NOT APPLY TO

ANY IMMOVABLE PROPERTY BEING LAND OR BUILDING OR BOTH RECEIVED BY A RESIDENT OF AN UNAUTHORISED

COLONY IN THE .ATIONAL #APITAL 4ERRITORY OF $ELHI WHERE THE #ENTRAL 'OVERNMENT REGULARISED THE

TRANSACTIONS OF SUCH IMMOVABLE PROPERTY BASED ON THE LATEST 0OWER OF !TTORNEY !GREEMENT TO

3ALE 7ILL POSSESSION LETTER AND OTHER DOCUMENTS INCLUDING DOCUMENTS EVIDENCING PAYMENT OF

CONSIDERATION FOR CONFERRING OR RECOGNISING RIGHT OF OWNERSHIP OR TRANSFER OR MORTGAGE IN REGARD

TO SUCH IMMOVABLE PROPERTY IN FAVOUR OF SUCH RESIDENT

‘Resident’ MEANS A PERSON HAVING PHYSICAL POSSESSION OF PROPERTY ON THE BASIS OF A REGISTERED

SALE DEED OR LATEST SET OF 0OWER OF !TTORNEY !GREEMENT TO 3ALE 7ILL POSSESSION LETTER AND OTHER

DOCUMENTS INCLUDING DOCUMENTS EVIDENCING PAYMENT OF CONSIDERATION IN RESPECT OF A PROPERTY

IN UNAUTHORISED COLONIES AND INCLUDES THEIR LEGAL HEIRS BUT DOES NOT INCLUDE TENANT LICENSEE OR

PERMISSIVE USER

ANY MOVABLE PROPERTY BEING UNQUOTED SHARES OF A COMPANY AND ITS SUBSIDIARY AND THE SUBSIDIARY

OF SUCH SUBSIDIARY RECEIVED BY A SHAREHOLDER WHERE

i THE 4RIBUNAL ON AN APPLICATION MOVED BY THE #ENTRAL 'OVERNMENT HAS SUSPENDED THE "OARD

OF $IRECTORS OF SUCH COMPANY AND HAS APPOINTED NEW DIRECTORS NOMINATED BY THE #ENTRAL

'OVERNMENT AND

ii SHARE OF COMPANY AND ITS SUBSIDIARY AND THE SUBSIDIARY OF SUCH SUBSIDIARY HAS BEEN RECEIVED

PURSUANT TO A RESOLUTION PLAN APPROVED BY THE 4RIBUNAL AFTER AFFORDING A REASONABLE

OPPORTUNITY OF BEING HEARD TO THE JURISDICTIONAL 0RINCIPAL #OMMISSIONER OR #OMMISSIONER

ANY MOVABLE PROPERTY BEING EQUITY SHARES OF THE RECONSTRUCTED BANK RECEIVED BY THE INVESTOR OR

THE INVESTOR BANK AS THE CASE MAY BE WHERE THE SAID SHARE HAS BEEN ALLOTTED BY THE RECONSTRUCTED

BANK UNDER THE SCHEME AT A PRICE SPECIFIED IN THE SCHEME

‘Scheme’ MEANS 9ES "ANK ,IMITED 2ECONSTRUCTION 3CHEME

ANY MOVABLE PROPERTY BEING EQUITY SHARES OF THE PUBLIC SECTOR COMPANY RECEIVED BY A PERSON

FROM THE #ENTRAL 'OVERNMENT OR ANY 3TATE 'OVERNMENT UNDER STRATEGIC DISINVESTMENT

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

9.3

PCIT v. Dr. Ranjan Pai (2021) 431 ITR 250 (Kar) The bonus shares received by shareholders shall not be taxable u/s 56(2)(x) under the head ‘Income from other sources’ as per section 56(2)(x).

4HE +ARNATAKA (IGH #OURT OBSERVED THAT THE ISSUE OF BONUS SHARES BY CAPITALIZATION OF RESERVES IS

OF THE COMPANYgS FUNDS 4HERE

FUNDS

IN THE CAPITAL

MERELY A REALLOCATION IS NO INFLOW OF FRESH OR INCREASE AND THE TOTAL FUNDS AVAILABLE WITH THE COMPANY REMAIN THE SAME

THE OTHER HAND

WHEN A EMPLOYED /N

SHAREHOLDER GETS BONUS SHARES THE VALUE OF THE ORIGINAL SHARES HELD BY HIM GOES DOWN AND THE MARKET

VALUE AS WELL AS INTRINSIC VALUE OF THE TWO SHARES PUT TOGETHER WILL BE THE SAME OR NEARLY THE SAME AS OF ORIGINAL

BEFORE THE ISSUE OF BONUS

SHARES 4HUS

ANY PROFIT

THE VALUE SHARE DERIVED

BY THE ASSESSEE

SHAREHOLDER ON ACCOUNT OF RECEIPT OF BONUS SHARES IS ADJUSTED BY DEPRECIATION IN THE VALUE OF EQUITY HELD BY HIM

SHARES ORIGINALLY

!CCORDINGLY THE (IGH #OURT HELD THAT SECTION X WOULD NOT BE ATTRACTED IN THE HANDS OF THE RECIPIENT OF BONUS

SHARES

SHAREHOLDERS ON RECEIPT

For the purpose of section 56(2)(x): Meaning of ‘Relative’ for Individual: i 3POUSE OF THE )NDIVIDUAL

ii "ROTHER OR 3ISTER OF THE )NDIVIDUAL

iii "ROTHER OR 3ISTER OF THE 3POUSE OF THE )NDIVIDUAL

iv "ROTHER OR 3ISTER OF EITHER OF THE 0ARENTS OF THE )NDIVIDUAL

v !NY LINEAL ASCENDANT OR DESCENDANT OF THE )NDIVIDUAL

vi !NY LINEAL ASCENDANT OR DESCENDANT OF THE 3POUSE OF THE )NDIVIDUAL

vii 3POUSE OF THE PERSONS REFERRED ABOVE EXCEPT IN CLAUSE i

Meaning of ‘Relative’ for HUF: !NY MEMBER OF THE (5&

Meaning of ‘Gift in Contemplation of Death of Payer’:

! GIFT IS SAID TO BE MADE IN CONTEMPLATION OF DEATH WHERE A PERSON WHO IS ILL AND EXPECTS TO DIE SHORTLY TO HIS ILLNESS

DELIVERS TO ANOTHER THE POSSESSION

OF ANY MOVABLE PROPERTY TO KEEP

IN CASE

DUE AS GIFT THE

PAYER GIVER SHALL DIE DUE TO HIS ILLNESS

3UCH A GIFT MAY BE RESUMED BY THE GIVER FROM THE PERSON TO WHOM IT WAS MADE AND SHALL NOT TAKE EFFECT

THE ILLNESS DURING WHICH

MADE OR IF HE SURVIVES

IF HE RECOVERS FROM IT WAS

Property MEANS THE FOLLOWING ASSETS being ‘Capital Assets’ for the assessee:

)MMOVABLE 0ROPERTY BEING ,AND OR "UILDING OR BOTH

3HARES AND 3ECURITIES

*EWELLERY

"ULLIONS

$RAWINGS

0AINTINGS

!RCHAEOLOGICAL COLLECTIONS

3CULPTURES

!NY WORK OF !RT

*EWELLERY INCLUDES

/RNAMENTS MADE OF GOLD SILVER PLATINUM OR ANY OTHER PRECIOUS METAL OR ANY ALLOY CONTAINING ONE

OR MORE OF SUCH PRECIOUS

METALS

WHETHER OR NOT CONTAINING

PRECIOUS OR SEMI PRECIOUS STONE

ANY WHETHER OR NOT SEWN INTO ANY WEARING APPAREL

AND

9.4

$)2%#4 4!8 ,!73

0RECIOUS OR SEMI PRECIOUS STONES WHETHER OR NOT SET IN ANY FURNITURE UTENSIL OR OTHER ARTICLE OR WORKED OR SEWN

INTO ANY WEARING

APPAREL

Note: 0ROVISIONS OF 3EC x ARE ATTRACTED IN RELATION TO THE PROPERTIES RECEIVED ONLY WHEN THEY ARE

ASSET AS DEFINED

OF THE )NCOME 4AX !CT FOR THE RECIPIENT

IN THE NATURE OF CAPITAL U S

Where the Date of Agreement and the Date of Registration are not same:

7HERE THE DATE OF AGREEMENT FIXING THE VALUE OF CONSIDERATION AND THE DATE OF REGISTRATION OF THE TRANSFER ARE NOT SAME THE STAMP DUTY VALUE as on the date of the agreemenT

may be taken

PROVIDED

OF THE ASSET THE AMOUNT OF consideration

has been received BY WAY OF AN ACCOUNT PAYEE CHEQUE THAT or part thereof

OR AN ACCOUNT PAYEE BANK DRAFT OR BY USE OF ELECTRONIC CLEARING SYSTEM %#3 THROUGH A BANK ACCOUNT

OTHER ELECTRONIC

MODE AS MAY BE PRESCRIBED

the date of the agreement.

OR THROUGH SUCH on or before

Meaning of FMV: FMV OF A PROPERTY other than an immovable property, FOR THE PURPOSE OF SECTION

PER THE PRESCRIBED METHOD UNDER Rule 11UA

Date of x MEANS THE VALUE DETERMINED AS ON THE

receipt OF SUCH PROPERTY

Note: As per Section 49(4), WHERE ON THE ACQUISITION OF A CAPITAL ASSET INCOME IS CHARGED U S vii OR x the cost of acquisition

OF SUCH

SHALL BE THE VALUE WHICH HAS BEEN TAKEN

OR (viia) CAPITAL ASSET INTO

CONSIDERATION FOR THE PURPOSE OF SECTION vii OR (viia) OR x

ANALYSIS of Gifts received without consideration Nature of Property Gifted

Capital Gains for Transferor

Income from other sources for transferee u/s 56(2)(x)

Cost of acquisition of such gift for transferee u/s 49(4)

Period of holding of such gift for transferee

Immovable property being land or building

%XEMPT U S iii

3TAMP VALUE OF

IF IT

THE PROPERTY

EXCEEDS `

&ROM THE DATE OF OF SUCH

TRANSFER

ASSET AS SEC

IS NOT APPLICABLE

Shares & securities, bullion, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art.

%XEMPT U S iii

&-6 OF SUCH IF IT ASSET

EXCEEDS `

3TAMP VALUE

OF SUCH PROPERTY TAKEN FOR THE

PURPOSE OF TAXATION

U S x *

&-6 OF THE ASSET FOR THE TAKEN

PURPOSE OF TAXATION

* U S x

Any other assets

%XEMPT U S iii

.),

&ROM THE DATE OF OF SUCH

TRANSFER

ASSETS AS SEC

IS NOT APPLICABLE

#OST OF ACQUISITION OF &ROM THE DATE ON

WHICH THE PREVIOUS

THE PREVIOUS OWNER U S

U S

OWNER

ASSET

ACQUIRED SUCH

* )F THE STAMP VALUE OF PROPERTY OR &-6 OF ASSETS DOES NOT EXCEED `

THEN IT WILL THE SAME

THAT OF ‘Any other

TREATMENT AS ABOVE assets’.

Note: )F SUCH ASSET OR ASSETS ARE ACQUIRED OR RECEIVED without consideration FROM ANY RELATIVE OR ON THE

OF THE MARRIAGE

ETC THEN OCCASION OF THE INDIVIDUAL

NO CAPITAL GAINS FOR THE TRANSFEROR AS GIFT IS EXEMPT U S iii

NO INCOME FROM OTHER SOURCES FOR TRANSFEREE AS SEC x SHALL NOT BE APPLICABLE,

THE COST OF ACQUISITION FOR THE TRANSFEREE WILL BE THE COST AT WHICH THE PREVIOUS OWNER REFERRED IN

SEC ACQUIRED

ASSET AND

SUCH

PERIOD OF HOLDING AS PER %XPLANATION TO 3EC !

SHALL INCLUDE THE PERIOD DURING WHICH SUCH

ASSET WAS HELD BY THE PREVIOUS

OWNER

9.5

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

ANALYSIS of Sale of Assets for inadequate consideration Nature of property Sold

Capital Gains or Business Income for Transferor

Income from other sources for transferee u/s 56(2) (x)

Immovable property 3TAMP VALUE n

being land or #OST OF ACQUISITION

building ;3EC # OR #!

FOR APPLICABLE

TRANSFEROR=

COA of such gift for transferee u/s 49(4)

3TAMP VALUE $IFFERENCE BETWEEN

THE STAMP VALUE AND OF PROPERTY

SALE CONSIDERATION IF TAKEN FOR THE

OF EXCEEDS THE HIGHER OF PURPOSE

` OR TAXATION

OF SALE CONSIDERATION U S x *

Shares and 3ALE CONSIDERATION $IFFERENCE BETWEEN &-6 OF THE ASSET n #OST OF

TAKEN

securities, jewellery, THE &-6 AND SALE

archaeological ACQUISITION CONSIDERATION IF FOR THE PURPOSE

TAXATION

collections, EXCEEDS `

OF

drawings, paintings, U S x *

sculptures, any work of art, bullion Any other assets

3ALE CONSIDERATION n #OST OF

ACQUISITION

Period of holding of such gift for transferee &ROM THE DATE OF OF TRANSFER SUCH ASSET

&ROM THE DATE OF OF TRANSFER

SUCH ASSETS

.),

#OST AT WHICH IT &ROM THE DATE

BY OF WAS RECEIVED OF TRANSFER

THE TRANSFEREE SUCH ASSETS

* If the difference BETWEEN THE STAMP VALUE OF PROPERTY AND THE SALE CONSIDERATION does not exceed 10%/20%

of sale consideration

THEN

THE TREATMENT WILL BE SAME AS the higher of ` 50,000 or

THAT OF ‘Any other assets’.

* If the difference BETWEEN THE &-6 OF ASSETS AND THE SALE CONSIDERATION does not exceed ` 50,000

SAME

THAT

THEN THE TREATMENT WILL BE AS OF ‘Any other assets’.

Note: )F SUCH ASSET OR ASSETS ARE PURCHASED without adequate consideration FROM ANY RELATIVE OR ON THE OF THE MARRIAGE

OCCASION OF THE INDIVIDUAL ETC THEN

SAME TREATMENT AS ABOVE FOR TRANSFEROR BUT

NO INCOME FROM OTHER SOURCES FOR TRANSFEREE [as sec. 56 2 x shall not be applicable].

Practical Question: -R 3AMKIT A PROPERTY DEALER SOLD A BUILDING IN THE COURSE OF HIS BUSINESS TO HIS FRIEND 2AJ WHO

IS A DEALER IN AUTOMOBILE PARTS FOR ` LAKHS ON WHEN THE STAMP DUTY VALUE WAS ` LAKHS 4HE AGREEMENT

WAS HOWEVER ENTERED INTO ON WHEN THE STAMP DUTY VALUE WAS ` LAKHS -R 3AMKIT HAD RECEIVED A DOWN

PAYMENT OF ` LAKHS BY A C PAYEE CHEQUE FROM 2AJ ON THE DATE OF AGREEMENT $ISCUSS THE TAX IMPLICATIONS IN THE

HANDS OF 3AMKIT AND 2AJ ASSUMING THAT -R 3AMKIT HAD PURCHASED THE BUILDING FOR ` LAKHS ON

7OULD YOUR ANSWER BE DIFFERENT IF 3AMKIT WAS A SHARE BROKER INSTEAD OF A PROPERTY DEALER

7HAT WOULD BE THE CASE IF THE STAMP DUTY VALUE ON THE DATE OF AGREEMENT WAS ` LAKHS AND -R 3AMKIT IS THE

PROPERTY DEALER

Solution: Case 1: Tax implications if Mr. Samkit is a property dealer In the hands of Mr. Samkit

In the hands of Mr. Raj

4HE PROVISIONS OF SECTION 43CA WOULD BE ATTRACTED

THE BUILDING REPRESENTS

AND IT SINCE HIS stock-in-trade

HAS BEEN TRANSFERRED FOR A CONSIDERATION LESS THAN THE

VALUE ON THE DATE

AND ALSO

STAMP DUTY OF AGREEMENT

VALUE EXCEED

OF THE CONSIDERATION

THE STAMP DUTY

4HEREFORE DIFFERENCE BETWEEN THE STAMP DUTY VALUE OF AGREEMENT

THE ON THE DATE I E ` LAKHS AND

3INCE -R 2AJ IS A DEALER IN AUTOMOBILE SPARE PARTS THE purchased

is a capital

4HE asset IN HIS HANDS BUILDING

PROVISIONS OF SECTION x WOULD BE ATTRACTED IN THE 2AJ AS HE RECEIVED

HANDS OF -R IMMOVABLE PROPERTY

BEING A CAPITAL ASSET FOR INADEQUATE CONSIDERATION AND DUTY VALUE EXCEEDS

THE STAMP THE CONSIDERATION

BY MORE

THAN HIGHER OF ` OR OF THE CONSIDERATION

9.6

$)2%#4 4!8 ,!73

PURCHASE PRICE I E ` LAKHS ` LAKHS WOULD BE 4HEREFORE DIFFERENCE BETWEEN THE STAMP DUTY VALUE AS business

income FOR -R 3AMKIT

OF THE PROPERTY

AND THE ACTUAL CHARGEABLE I E ` LAKHS

WOULD

CONSIDERATION I E ` LAKHS ` LAKHS, BE

TAXABLE AS )NCOME FROM OTHER SOURCES U S x IN OF -R 2AJ

THE HANDS

Case 2: Tax implications if Mr. Samkit is a stock broker In the hands of Mr. Samkit

In the hands of Mr. Raj

4HERE WOULD BE no difference IN THE TAXABILITY IN THE WHETHER -R 3AMKIT

HANDS OF -R 2AJ

IS A PROPERTY

DEALER OR A STOCK BROKER

4HEREFORE THE PROVISIONS OF SECTION 56(2)(x) WOULD IN THE HANDS OF -R 2AJ WHO

BE ATTRACTED HAS RECEIVED

IMMOVABLE PROPERTY BEING A CAPITAL ASSET FOR

AND THE STAMP DUTY

OF INADEQUATE CONSIDERATION VALUE

WHICH EXCEED THE CONSIDERATION BY MORE THAN HIGHER

OF ` OR OF THE CONSIDERATION

4HEREFORE DIFFERENCE BETWEEN THE STAMP DUTY VALUE

AND THE ACTUAL OF THE PROPERTY i.e ` LAKHS

` LAKHS ` LAKHS

WOULD

CONSIDERATION i.e

BE

TAXABLE AS )NCOME FROM OTHER SOURCES U S x IN OF -R 2AJ

THE HANDS

Case 3: Tax implications if stamp duty value was ` 94 lakhs and Mr. Samkit is a property dealer )N CASE -R 3AMKIT IS A STOCK BROKER AND NOT A PROPERTY

THE BUILDING would

be his capital

asset

DEALER

AND

NOT STOCK IN TRADE THEREBY PROVISIONS OF SECTION 50C

WOULD BE ATTRACTED

3INCE THE CONSIDERATION IS LESS THAN THE STAMP DUTY

AND ALSO THE STAMP

VALUE ON THE DATE OF AGREEMENT EXCEED

AS PER DUTY VALUE OF THE CONSIDERATION

#

THE DIFFERENCE

THE THE PROVISIONS OF SEC BETWEEN

STAMP DUTY VALUE ON THE DATE OF AGREEMENT i.e `

PRICE i.e.

` LAKHS AND THE PURCHASE ` LAKHS

LAKHS WOULD BE CHARGEABLE AS SHORT TERM CAPITAL GAINS

In the hands of Mr. Samkit

In the hands of Mr. Raj

4HE PROVISIONS OF SECTION 43CA WOULD BE ATTRACTED 7HERE THE STAMP DUTY VALUE DOES NOT EXCEED THE

BY MORE

OF THE CONSIDERATION

THE BUILDING REPRESENTS

stock-in-trade

THAN

SINCE HIS AND CONSIDERATION

IT HAS BEEN TRANSFERRED FOR A CONSIDERATION LESS THAN THE PROVISIONS OF SECTION x WOULD NOT BE ATTRACTED

THOUGH THE DIFFERENCE

STAMP

THE DATE OF AGREEMENT

"UT EVEN

THE STAMP

THE DUTY VALUE ON BETWEEN DUTY

IF THE STAMP DUTY VALUE DOES NOT EXCEED OF THE VALUE AND ACTUAL CONSIDERATION IS MORE THAN `

THEN THE CONSIDERATION

SHALL

CONSIDERATION

SO RECEIVED 4HEREFORE THERE WILL BE NO TAXABILITY IN THE HANDS OF

BE DEEMED TO BE THE FULL VALUE OF CONSIDERATION

DIFFERENCE BETWEEN THE STAMP

-R 2AJ SINCE

THE DUTY

3INCE HERE THE STAMP DUTY VALUE i.e ` LAKHS DOES VALUE AND ACTUAL CONSIDERATION ;i.e ` LAKHS ` LAKHS = DOES NOT EXCEED

THE ACTUAL

OF CONSIDERATION

i.e ` LAKHS

THE LAKHS ` NOT EXCEED

OF

ACTUAL CONSIDERATION i.e ` LAKHS SHALL BE DEEMED CONSIDERATION ;i.e ` LAKHS ` LAKHS X =

TO BE THE FULL VALUE OF CONSIDERATION

4HEREFORE THE DIFFERENCE BETWEEN THE SALE CONSIDERATION AND THE PURCHASE

PRICE i.e.

` LAKHS i.e ` LAKHS LAKHS

BE CHARGEABLE AS business

` WOULD income

FOR -R 3AMKIT

Note: (ERE THE ND PROVISO TO 3EC #! SHALL NOT BE APPLICABLE SINCE THE CONDITIONS ARE NOT SATISFIED

Practical Question: -R 8 SELLS HIS BUILDING TO -R 9 ON FOR `

WHICH WAS ACQUIRED BY -R 8 ON

FOR `

7HAT WILL BE THE TAX TREATMENT OF THE ABOVE TRANSACTIONS IF THE STAMP VALUE OF SUCH BUILDING

IS a `

OR b `

7HAT WILL BE TAX TREATMENT IF SUCH BUILDING WAS GIVEN AS GIFT i.e TRANSFERRED

WITHOUT CONSIDERATION BY -R 8 TO HIS WIFE AND THE STAMP VALUE OF THE BUILDING IS `

#)) 9EAR 9EAR

Solution: (a) Capital gains for Mr. X: 3ALE CONSIDERATION .OTE

,ESS )NDEXED COST OF ACQUISITION ;`

X =

,ONG 4ERM #APITAL 'AIN

`

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

9.7

Note: !S PER 3EC # WHERE THE STAMP DUTY VALUE DOES NOT EXCEED OF THE ACTUAL CONSIDERATION THE

ACTUAL CONSIDERATION SHALL BE DEEMED AS THE FULL VALUE OF CONSIDERATION (ERE THE STAMP DUTY VALUE DOES NOT

EXCEED OF THE ACTUAL CONSIDERATION AND THEREFORE THE ACTUAL CONSIDERATION SHALL BE TAKEN AS THE FULL VALUE

OF CONSIDERATION

For Mr. Y: 3EC x WILL NOT BE ATTRACTED HERE AS THE STAMP DUTY VALUE DOES NOT EXCEED THE CONSIDERATION BY MORE

THAN HIGHER OF ` OR OF THE CONSIDERATION

#OST OF ACQUISITION FOR -R 9 WILL BE COST AT WHICH IT WAS ACQUIRED BY HIM I E `

AND THE PERIOD OF

HOLDING SHALL BE FROM THE DATE WHEN THE BUILDING WAS ACQUIRED BY HIM i.e.

b) Capital gains for Mr. X: `

3ALE CONSIDERATION .OTE

,ESS )NDEXED COST OF ACQUISITION ;`

X =

,ONG 4ERM #APITAL 'AINS

Note: !S PER 3EC # THE STAMP DUTY VALUE SHALL BE TAKEN AS FULL VALUE OF CONSIDERATION ONLY WHEN IT EXCEEDS

OF THE ACTUAL CONSIDERATION (ERE THE STAMP DUTY VALUE EXCEEDS OF THE ACTUAL CONSIDERATION AND

THEREFORE THE STAMP DUTY VALUE SHALL BE TAKEN AS THE FULL VALUE OF CONSIDERATION

For Mr. Y:

)N THIS CASE SEC x WILL BE ATTRACTED SINCE THE STAMP DUTY VALUE EXCEEDS THE CONSIDERATION BY MORE THAN

HIGHER OF ` OR OF THE CONSIDERATION 4HE AMOUNT CHARGEABLE TO TAX UNDER THE HEAD @)NCOME FROM

OTHER SOURCES WILL BE `

`

n `

ND PROVISO TO 3EC #! SHALL NOT BE APPLICABLE

SINCE THE CONDITIONS ARE NOT SATISFIED AND THEREFORE THRESHOLD LIMIT OF SHALL ONLY BE CONSIDERED

#OST OF ACQUISITION FOR -R 9 WILL BE THE STAMP VALUE WHICH WAS TAKEN FOR THE PURPOSE OF TAXATION U S x

i.e `

AS PER SEC AND THE PERIOD OF HOLDING SHALL BE FROM THE DATE ON WHICH SUCH BUILDING WAS

ACQUIRED BY HIM i.e

)F THE ABOVE BUILDING WAS GIFTED BY -R 8 TO HIS WIFE THEN THE CAPITAL GAINS FOR -R 8 WILL BE EXEMPT U S iii

&URTHER AS THE GIFT WAS MADE TO HIS WIFE i.e. A RELATIVE SEC x WILL NOT BE ATTRACTED FOR THE WIFE 4HE COST OF

ACQUISITION FOR -RS 8 WILL BE THE COST OF ACQUISITION TO -R 8 AS PER SEC AND THE PERIOD OF HOLDING SHALL INCLUDE

THE PERIOD DURING WHICH SUCH BUILDING WAS HELD BY -R 8 I E THE PREVIOUS OWNER

Practical Question: -R " RECEIVED THE FOLLOWING GIFTS AMOUNTS DURING THE PREVIOUS YEAR

a 'IFT OF "ULLION WORTH ` ON HIS "IRTHDAY FROM HIS FRIEND

b 2ECEIVED A CAR FROM HIS COUSIN ON PAYMENT OF ` ,AKHS &-6 OF WHICH WAS ` ,AKHS

c 2ECEIVED CASH GIFT OF ` EACH FROM THREE OF HIS FRIENDS 8 9 : ON

d )N RESPECT OF LAND OF -R " COMPULSORILY ACQUIRED BY 2AILWAYS IN THE YEAR HE RECEIVED THE FOLLOWING

AMOUNT ON AS )NTEREST ON ENHANCED COMPENSATION ON THE ORDER OF THE #OURT

2ELATING TO 0REVIOUS 9EAR

`

`

`

e SHARES OF 2AJA ,TD THE &-6 OF WHICH WAS `

ON HIS MARRIAGE ANNIVERSARY FROM HIS COUSIN (E

ALSO RECEIVED SHARES OF 2AGHU ,TD THE &-6 OF WHICH WAS ` ON THE DATE OF TRANSFER 4HIS GIFT WAS

RECEIVED ON THE OCCASION OF $IWALI 4HE ORIGINAL COST OF SUCH SHARES WAS `

f /N TH *ANUARY

HE SOLD THE SHARES OF 2AGHU ,TD FOR `

9OU ARE REQUIRED TO COMPUTE THE )NCOME OF -R " UNDER THE HEAD @)NCOME FROM /THER 3OURCES AND #APITAL GAINS

IF ANY FOR THE !SSESSMENT 9EAR ASSUMING THAT HE HAS NO OTHER )NCOME

9.8

$)2%#4 4!8 ,!73

Solution:

Income from Other Sources 'IFT OF "ULLION WORTH ` ON HIS BIRTHDAY FROM HIS FRIEND

2ECEIPT OF #AR ;.OTE =

#ASH 'IFT ` X ;.OTE =

)NTEREST ON %NHANCED #OMPENSATION ;.OTE =

3HARES OF 2AJA ,TD AND 2AGHU ,TD ;.OTE =

Short Term Capital Gain: ;.OTE =

3ALE #ONSIDERATION

Less: #OST OF !CQUISITION

Gross Total Income

`

`

.IL

6,90,000

Notes:

"ULLION IS RECEIVED WITHOUT CONSIDERATION AND AGGREGATE &-6 EXCEEDS ` AND HENCE FULL VALUE OF THE

BULLION IS TAXABLE U S x

#AR IS NOT INCLUDED IN THE DEFINITION OF @PROPERTY AS SPECIFIED IN THE Explanation to Section 56 2 x AND THEREFORE

NOTHING SHALL BE TAXABLE

!NY SUM OF MONEY RECEIVED WITHOUT CONSIDERATION AND AGGREGATE VALUE IF EXCEEDS ` IS TAXABLE

U S x

)NTEREST ON %NHANCED #OMPENSATION IS TAXABLE IN THE YEAR OF RECEIPT AFTER A DEDUCTION OF AS PROVIDED BY

SECTION i.e `

`

)F SHARES OF ANY COMPANY ARE RECEIVED WITHOUT CONSIDERATION AND AGGREGATE &-6 OF SHARES EXCEEDS `

THE WHOLE OF SUCH AGGREGATE &-6 OF SHARES IS TAXABLE U S x !LTHOUGH THE &-6 OF SHARES OF 2AJA ,TD

DOES NOT EXCEED `

BUT THE AGGREGATE OF THE &-6 OF THE SHARES OF 2AJA ,TD AND 2AGHU ,TD IS `

WHICH EXCEEDS ` (ENCE THEIR AGGREGATE VALUE SHALL BE TAXABLE #OUSINS ARE NOT INCLUDED IN THE DEFINITION

OF RELATIVES FOR THE PURPOSE OF SEC x AND SO SHARES RECEIVED WITHOUT CONSIDERATION FROM THEM SHALL BE

TAKEN FOR THE PURPOSE OF TAXABILITY UNDER THIS SECTION

3ECTION PROVIDES THAT WHERE THE CAPITAL GAIN ARISES FROM THE TRANSFER OF SUCH PROPERTY WHICH HAS BEEN

SUBJECT TO TAX U S x THE COST OF ACQUISITION SHALL BE DEEMED TO BE THE VALUE TAKEN FOR THE PURPOSE OF

SECTION x 4HEREFORE ` WOULD BE THE COST OF ACQUISITION IN THIS CASE

Practical Question: -OHIT TRANSFERRED 3HARES OF '% 0VT ,TD TO +, 0VT ,TD ON FOR `

WHEN

THE MARKET PRICE WAS `

4HE INDEXED COST OF ACQUISITION FOR -OHIT WAS COMPUTED AT `

4HE TRANSFER

WAS NOT SUBJECTED TO 344 $ETERMINE THE TAXABLE INCOME IN HANDS OF -OHIT AND +, 0VT ,TD BECAUSE OF ABOVE SAID

TRANSACTION &URTHER IF -OHIT TRANSFERRED SHARES OF 2ELIANCE )NDUSTRIES ,TD INSTEAD OF '% 0VT ,TD THEN WHAT WILL

BE TAXABLE INCOME IN THE HANDS OF +, 0VT ,TD

Solution: &OR -OHIT

` 3ALE #ONSIDERATION AS PER 3EC #!

AS SHARES ARE UNQUOTED

,ESS %XPENSES ON 4RANSFER

.ET 3ALE #ONSIDERATION

,ESS )NDEXED #OST OF !CQUISITION !S GIVEN

,ONG 4ERM #APITAL 'AIN

.),

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

9.9

&OR +, 0VT ,TD

!S PER 3EC x WHERE ANY ASSESSEE RECEIVES ANY SHARES FROM ANY PERSON OR PERSONS FOR INADEQUATE CONSIDERATION

AND THE DIFFERENCE BETWEEN THE &AIR -ARKET 6ALUE OF THE SHARES AND THE CONSIDERATION EXCEEDS `

THEN SUCH

DIFFERENCE SHALL BE TAXABLE AS @)NCOME FROM /THER 3OURCES )N THIS CASE +, 0VT ,TD HAS ACQUIRED SHARES OF '%

0VT ,TD FROM -OHIT FOR `

WHICH IS LESS THAN THE &-6 OF THE SHARES i.e. `

AND THEREFORE `

`

n `

BEING THE DIFFERENCE BETWEEN THE &-6 OF THE SHARES AND CONSIDERATION PAID WOULD BE

CHARGEABLE TO TAX IN THE HANDS OF +, 0VT ,TD U S x

"Y INSERTING CLAUSE x TO 3EC THE SITUATION OF DOUBLE TAXATION ARISES IN RESPECT OF TRANSFER OF UNQUOTED SHARES

LOWER THAN THE &-6 4AKING A VIEW OF ABOVE QUESTION IT CAN BE SEEN THAT THE DIFFERENCE OF `

IS TAXABLE IN THE

HANDS OF BOTH TRANSFEROR i.e -OHIT AS WELL AS TRANSFEREE I E +, 0VT ,TD 4O AVOID THIS -OHIT SHOULD HAVE TRANSFERRED

HIS SHARES FOR CONSIDERATION OF `

AS THIS WILL RESULT INTO NO CHANGE IN LIABILITY OF -OHIT BUT IT WILL REDUCED

THE TAX LIABILITY OF +, 0VT ,TD TO .),

)F -OHIT TRANSFERRED THE SHARES OF 2ELIANCE )NDUSTRIES ,TD THEN THERE WILL BE NO CHANGE IN LIABILITY IN THE HANDS OF

+, 0VT ,TD AS THERE IS NO DIFFERENCE IN TAXABILITY U S x FOR SHARES OF LISTED COMPANIES OR UNLISTED COMPANIES

(OWEVER THE TAX LIABILITY OF -OHIT WILL CHANGE IN THE SENSE THAT THE SALE CONSIDERATION SHALL BE TAKEN AS `

INSTEAD OF `

AS 3EC #! IS NOT APPLICABLE IN RESPECT OF QUOTED SHARES

Premium on Issue of Shares by Closely held Company: [Sec. 56(2)(viib)] 7HERE A closely held company

RECEIVES IN ANY PREVIOUS YEAR FROM ANY PERSON BEING A resident,

ANY CONSIDERATION FOR ISSUE OF SHARES

WHICH exceeds the face value of such shares; THEN

the aggregate consideration received by the company as reduced by the FMV of the shares shall be ‘Income from other sources’ in the hands of the company.

Provided THAT THIS CLAUSE shall not apply WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED

a BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND OR a

SPECIFIED

OR

FUND

b BY A COMPANY FROM A CLASS OR CLASSES OF PERSONS AS MAY BE NOTIFIED BY THE #ENTRAL 'OVERNMENT

Notification No. 13/2019 dated 05.03.2019 [w.e.f. 09.02.2019]: )N EXERCISE OF THE POWERS PROVIDED IN CLAUSE b ABOVE THE #ENTRAL 'OVERNMENT HAS NOTIFIED THAT THIS

NOT APPLY

WHICH FULFILS

SECTION SHALL TO SUCH 3TARTUPS THE FOLLOWING CONDITIONS

i )T HAS BEEN RECOGNIZED BY THE $EPARTMENT FOR 0ROMOTION OF )NDUSTRY AND )NTERNAL 4RADE AS STARTUP

ii !GGREGATE OF PAID UP CAPITAL AND SHARE PREMIUM AFTER ISSUE OR PROPOSED ISSUE OF SHARES SHALL NOT

EXCEED ` CRORES

EXCLUDING

THE PAID UP CAPITAL AND SHARE PREMIUM

OF SHARES ISSUED

IN RESPECT

TO

a

b

c

NON RESIDENT

VENTURE CAPITAL COMPANY OR VENTURE CAPITAL FUND

3PECIFIED #OMPANY i.e A COMPANY WHOSE SHARES ARE FREQUENTLY TRADED AND WHOSE NET WORTH

DATE OF FINANCIAL

YEAR IN WHICH SHARES ARE ISSUED EXCEEDS

ON THE LAST YEAR PRECEDING THE

` CRORES OR TURNOVER FOR THE FINANCIAL YEAR PRECEDING THE YEAR IN WHICH SHARES ARE ISSUED

CRORES

EXCEEDS `

iii )T HAS NOT INVESTED IN ANY OF THE FOLLOWING ASSETS FOR YEARS FROM THE END OF THE LATEST FINANCIAL

YEAR IN WHICH

ARE ISSUED

AT PREMIUM

SHARES

a BUILDING OR LAND APPURTENANT THERETO BEING A RESIDENTIAL HOUSE OTHER THAN THAT WHICH IS

USED RENTING OR TO BE HELD AS STOCK IN TRADE

IN THE ORDINARY COURSE OF BUSINESS

9.10

$)2%#4 4!8 ,!73

b LAND OR BUILDING OR BOTH NOT BEING A RESIDENTIAL HOUSE OTHER THAN THAT OCCUPIED FOR BUSINESS OR USED FOR RENTING OR TO BE HELD AS STOCK IN TRADE

COURSE

IN THE ORDINARY OF BUSINESS

c LOANS AND ADVANCES OTHER THAN LOANS OR ADVANCES EXTENDED IN THE ORDINARY COURSE OF BUSINESS

WHERE THE LENDING OF MONEY

THE BUSINESS

IS SUBSTANTIAL PART OF

d CAPITAL CONTRIBUTION MADE TO ANY OTHER ENTITY

e SHARES AND SECURITIES

f MOTOR VEHICLE AIRCRAFT YACHT OR ANY OTHER MODE OF TRANSPORT THE ACTUAL COST OF WHICH EXCEEDS

` LAKHS

THAN THAT

FOR THE PURPOSE

OF PLYING HIRING

LEASING OR AS STOCK IN TRADE

OTHER HELD

IN THE ORDINARY COURSE OF BUSINESS

g JEWELLERY OTHER THAN THAT HELD AS STOCK IN TRADE IN THE ORDINARY COURSE OF BUSINESS

h ANY OTHER ASSET WHETHER IN THE NATURE OF CAPITAL ASSET OR OTHERWISE OF THE NATURE SPECIFIED IN

SECTION

i.e

ARCHAEOLOGICAL

COLLECTIONS

PAINTINGS

SCULPTURES

vii d iv TO ix DRAWINGS

ANY WORK OF ART OR BULLION

Meaning of Startup:

! COMPANY WOULD BE CONSIDERED AS 3TART UP IF IT SATISFIES THE FOLLOWING CONDITIONS

)T WOULD BE CONSIDERED AS STARTUP UPTO YEARS FROM THE DATE OF INCORPORATION REGISTRATION IF IT

IS INCORPORATED

LIMITED COMPANY

AS A PRIVATE

4URNOVER FOR ANY OF THE FINANCIAL YEARS SINCE INCORPORATION REGISTRATION HAS NOT EXCEEDED ` CRORES

4HE COMPANY IS WORKING TOWARDS INNOVATION DEVELOPMENT OR IMPROVEMENT OF PRODUCTS OR PROCESSES OR SERVICES

IF IT IS A SCALABLE

BUSINESS MODEL

POTENTIAL OF EMPLOYMENT

GENERATION

OR WITH A HIGH

OR WEALTH CREATION

(OWEVER A PRIVATE LIMITED COMPANY SHALL NOT BE CONSIDERED A @3TARTUP IF IT FORMED BY SPLITTING UP

AN EXISTING

4HIS NOTIFICATION

BE DEEMED TO HAVE COME INTO EFFECT

OR RECONSTRUCTION OF BUSINESS SHALL

FROM

Non-fulfilment of conditions specified in notification:

Provided further THAT WHERE THIS CLAUSE HAS NOT BEEN APPLIED TO A COMPANY ON ACCOUNT OF FULFILMENT OF IN THE NOTIFICATION

ABOVE

SUCH COMPANY

ANY OF THOSE

CONDITIONS SPECIFIED ISSUED AND FAILS TO COMPLY WITH

CONDITIONS THEN ANY CONSIDERATION RECEIVED FOR ISSUE OF SHARE THAT EXCEEDS THE &-6 OF SUCH SHARE SHALL COMPANY CHARGEABLE

IN WHICH

SUCH BE DEEMED TO BE THE INCOME OF THAT TO TAX FOR THE PREVIOUS YEAR

FAILURE HAS TAKEN PLACE AND IT SHALL ALSO BE DEEMED THAT THE COMPANY HAS UNDER REPORTED THE INCOME IN

OF MISREPORTING

REFERRED

TO IN 3EC !

AND ! OF THE SAID PREVIOUS YEAR

CONSEQUENCE

FMV OF THE SHARES SHALL BE THE higher VALUE OF FOLLOWING:

(i 6ALUE DETERMINED IN ACCORDANCE WITH THE PRESCRIBED METHOD OR

ii 6ALUE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE !SSESSING /FFICER BASED ON THE VALUE

(on the date of issue of shares)

INCLUDING INTANGIBLE

KNOW HOW

OF ITS ASSETS

ASSETS BEING GOODWILL

PATENTS COPYRIGHTS TRADEMARKS LICENSES FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS NATURE

OF SIMILAR

‘Specified fund’ MEANS A FUND ESTABLISHED OR INCORPORATED IN )NDIA IN THE FORM OF A TRUST OR A COMPANY

WHICH HAS BEEN GRANTED A CERTIFICATE

OF REGISTRATION

AS A #ATEGORY

OR A ,,0 OR A BODY CORPORATE ) OR A

#ATEGORY )) !LTERNATIVE )NVESTMENT &UND AND IS REGULATED UNDER THE 3%") !LTERNATIVE )NVESTMENT &UND

2EGULATIONS MADE UNDER THE 3%") !CT

@6ENTURE CAPITAL COMPANY @VENTURE CAPITAL FUND AND @VENTURE CAPITAL UNDERTAKING SHALL HAVE THE MEANINGS

RESPECTIVELY ASSIGNED TO THEM IN SECTION &"

Note: 4HE SECTION APPLIES ONLY IF A CLOSELY HELD COMPANY ISSUES SHARES AT A PREMIUM 4HIS SECTION DOES HELD COMPANY ISSUES SHARES

4HE REASON IS THAT 3%")

APPROVES THE NOT APPLY IF A WIDELY AT A PREMIUM

PRICE AT WHICH SHARES ARE ISSUED BY A WIDELY HELD COMPANY

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

9.11

Determination of Fair Market Value (FMV): [Rule 11UA] For the purposes of section 56 of the Act, the FMV of a property, other than immovable property, shall be determined in the following manner, namely:

a) Valuation of Jewellery: i &-6 OF JEWELLERY SHALL BE ESTIMATED TO BE THE PRICE WHICH SUCH JEWELLERY WOULD fetch if sold in the open

ON THE VALUATION DATE

market

ii IN CASE THE JEWELLERY IS RECEIVED BY WAY OF PURCHASE ON THE VALUATION DATE FROM A REGISTERED DEALER

THE invoice value OF THE JEWELLERY

SHALL BE THE &-6

iii )N CASE THE JEWELLERY IS RECEIVED BY ANY OTHER MODE AND THE VALUE OF THE JEWELLERY EXCEEDS `

THEN ASSESSEE MAY OBTAIN THE report of registered

valuer IN RESPECT

PRICE IT OF THE

WOULD FETCH IF SOLD IN THE OPEN MARKET ON THE VALUATION DATE

!LTHOUGH THIS 2ULE HAS NOT BEEN AMENDED AFTER &INANCE !CT

YET BULLION SHOULD ALSO BE VALUED IN THE SAME MANNER

AS JEWELLERY

Practical Question:

i !N ASSESSEE PURCHASED DIAMOND FROM A JEWELLER REGISTERED UNDER '34 FOR ` LAKHS !CCORDING TO THE

!SSESSING /FFICER THE &-6 OF THE $IAMOND IS ` LAKHS 7HETHER ` LAKHS SHALL BE TAXABLE IN THE HANDS

OF THE ASSESSEE

ii 7OULD YOUR ANSWER CHANGE IN CASE IF THE DIAMOND IS PURCHASED FROM A JEWELLER WHO IS NOT REGISTERED

UNDER THE '34

Solution:

i .O AS PER 2ULE 5!

IF THE ASSESSEE PURCHASES DIAMOND FROM THE JEWELLER REGISTERED UNDER '34 THEN

THE invoice value shall be considered as the FMV 4HEREFORE &-6 SHALL BE ` LAKHS AND SINCE ASSESSEE

PURCHASED THE JEWELLERY FOR ` LAKH NO INCOME WILL BE CHARGED UNDER SECTION x

ii 9ES IF ` LAKHS IS THE PRICE THAT THE DIAMOND WILL FETCH IF SOLD IN THE OPEN MARKET THEN ` LAKHS SHALL

BE TAKEN AS THE &-6 )F ASSESSEE PURCHASED DIAMOND FOR ` LAKHS THEN ` LAKHS SHALL BE CHARGED AS

@)NCOME FROM OTHER SOURCES U S x 4HE ASSESSEE CAN DETERMINE THE &-6 OF DIAMOND HIMSELF OR

OBTAIN REPORT OF REGISTERED VALUER

(b) Valuation of archaeological collections, drawings, paintings, sculptures or any work of art:

i &-6 OF ARCHAEOLOGICAL COLLECTIONS DRAWINGS PAINTINGS SCULPTURES OR ANY WORK OF ART HEREINAFTER

SHALL BE ESTIMATED TO BE THE PRICE WHICH

REFERRED AS ARTISTIC WORK IT WOULD

fetch if sold in the open market ON THE VALUATION DATE

ii IN CASE THE ARTISTIC WORK IS RECEIVED BY WAY OF PURCHASE ON THE VALUATION DATE FROM A

REGISTERED

DEALER,

invoice value OF THE ARTISTIC WORK SHALL BE THE &-6

the

iii IN CASE THE ARTISTIC WORK IS RECEIVED BY ANY OTHER MODE AND THE VALUE OF THE ARTISTIC WORK

EXCEEDS `

THEN ASSESSEE MAY OBTAIN THE report of registered valuer IN RESPECT OF THE PRICE

IT WOULD FETCH IF SOLD

THE OPEN MARKET

IN ON THE VALUATION DATE

(c) Valuation of shares and securities:

(a)

i

FMV of quoted shares AND SECURITIES SHALL BE DETERMINED IN THE FOLLOWING MANNER NAMELY

IF THE QUOTED SHARES AND SECURITIES ARE RECEIVED BY WAY OF TRANSACTION CARRIED OUT THROUGH ANY

OF SUCH SHARES

AND SECURITIES SHALL BE THE transaction

RECOGNIZED STOCK EXCHANGE

THE &-6

value AS RECORDED IN SUCH STOCK EXCHANGE

ii IF SUCH QUOTED SHARES AND SECURITIES ARE RECEIVED BY WAY OF TRANSACTION CARRIED OUT OTHER THAN

ANY RECOGNIZED

&-6 OF SUCH SHARES

THROUGH STOCK EXCHANGE

THE AND SECURITIES

SHALL BE

9.12

$)2%#4 4!8 ,!73

a THE LOWEST PRICE OF SUCH SHARES AND SECURITIES QUOTED ON ANY RECOGNIZED STOCK EXCHANGE

ON THE VALUATION DATE AND

b THE LOWEST PRICE OF SUCH SHARES AND SECURITIES ON ANY RECOGNIZED STOCK EXCHANGE ON

A DATE IMMEDIATELY PRECEDING THE VALUATION DATE WHEN SUCH SHARES AND SECURITIES

WERE TRADED ON SUCH STOCK EXCHANGE IN CASES WHERE ON THE VALUATION DATE THERE IS

NO TRADING IN SUCH SHARES AND SECURITIES ON ANY RECOGNIZED STOCK EXCHANGE

b FMV of unquoted equity shares SHALL BE THE VALUE ON THE VALUATION DATE OF SUCH UNQUOTED

EQUITY SHARES DETERMINED AS UNDER

! " # $ , X 06 4HE &-6 OF UNQUOTED EQUITY SHARES

0%

WHERE

! Book value of ALL the assets (other than jewellery, artistic work, shares, securities

and immovable property) IN THE BALANCE SHEET as reduced by

ANY AMOUNT OF INCOME TAX PAID IF ANY LESS THE AMOUNT OF INCOME TAX REFUND

CLAIMED IF ANY

ANY AMOUNT SHOWN AS ASSET INCLUDING THE UNAMORTIZED AMOUNT OF DEFERRED

EXPENDITURE WHICH DOES NOT REPRESENT THE VALUE OF ANY ASSET

" 4HE PRICE WHICH THE JEWELLERY AND ARTISTIC WORK WOULD FETCH IF SOLD IN THE OPEN

THE VALUATION

REPORT OBTAINED

A REGISTERED

VALUER

MARKET ON THE BASIS OF FROM

# &-6 OF SHARES AND SECURITIES AS DETERMINED IN THE MANNER PROVIDED IN THIS RULE

$ 4HE VALUE ADOPTED OR ASSESSED OR ASSESSABLE BY ANY AUTHORITY OF THE 'OVERNMENT

OF THE IMMOVABLE

PROPERTY FOR THE PURPOSE OF PAYMENT OF STAMP DUTY IN RESPECT

, "ook value of liabilities SHOWN IN THE BALANCE SHEET but not including THE FOLLOWING

AMOUNTS NAMELY

i THE PAID UP EQUITY CAPITAL

ii THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PREFERENCE SHARES AND EQUITY

SHARES WHERE SUCH DIVIDENDS HAVE BEEN DECLARED IN THE !'- AFTER THE DATE OF

TRANSFER iii RESERVES AND SURPLUS

BY WHATEVER NAME CALLED EVEN IF THE RESULTING FIGURE IS

NEGATIVE OTHER THAN THOSE SET APART TOWARDS DEPRECIATION

iv ANY AMOUNT REPRESENTING PROVISION FOR TAXATION other than THE AMOUNT OF

INCOME TAX PAID IF ANY LESS THE AMOUNT OF INCOME TAX CLAIMED AS REFUND IF

ANY TO THE EXTENT OF THE EXCESS OVER THE TAX PAYABLE WITH REFERENCE TO THE BOOK

PROFITS IN ACCORDANCE WITH THE LAW APPLICABLE THERETO

v ANY AMOUNT REPRESENTING PROVISIONS MADE FOR MEETING LIABILITIES OTHER THAN

ASCERTAINED LIABILITIES

vi ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHER THAN ARREARS OF DIVIDENDS

PAYABLE IN RESPECT OF CUMULATIVE PREFERENCE SHARES

PE total amount of paid up equity share CAPITAL AS SHOWN IN THE BALANCE SHEET

PV THE PAID UP VALUE OF EQUITY SHARES RECEIVED AS PER PROVISIONS OF SECTION x

c &-6 OF unquoted shares and securities OTHER THAN EQUITY SHARES IN A COMPANY WHICH ARE

NOT LISTED IN ANY RECOGNIZED STOCK EXCHANGE SHALL BE ESTIMATED TO BE THE PRICE IT WOULD fetch

if sold in the open market ON THE VALUATION DATE AND THE ASSESSEE MAY OBTAIN REPORT FROM

A MERCHANT BANKER IN RESPECT OF SUCH VALUATION

9.13

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

Bond Washing Transactions: [Sec. 94(1), (2)] ! BOND WASHING TRANSACTION IS A TRANSACTION WHERE SECURITIES ARE SOLD SOME TIME BEFORE THE DUE DATE OF

THE DUE DATE IS OVER

INTEREST AND REACQUIRED AFTER

4HIS PRACTICE MAY BE ADOPTED BY AN ASSESSEE IN THE HIGHER TAX SLAB TO AVOID TAX BY TRANSFERRING THE

IN THE LOWER TAX SLAB JUST BEFORE

THE DUE DATE OF PAYMENT

SECURITIES TO THEIR RELATIVES FRIENDS OF INTEREST

)N ORDER TO DISCOURAGE SUCH PRACTICE section 94(1) PROVIDES THAT WHERE THE OWNER OF A SECURITY TRANSFERS SECURITY JUST BEFORE THE DUE DATE OF INTEREST AND BUYS BACK

SAME IMMEDIATELY

AFTER THE DUE DATE THE THE

OF THE AND INTEREST IS RECEIVED BY THE TRANSFEREE SUCH INTEREST INCOME WILL BE DEEMED TO BE THE INCOME

WOULD BE TAXABLE IN HIS HANDS

TRANSFEROR AND

)N ORDER TO PREVENT THE PRACTICE OF SALE OF SECURITIES CUM INTEREST section 94(2) PROVIDES THAT IF AN

WHO HAS BENEFICIAL

IN SECURITIES

IN SUCH A MANNER

EITHER NO ASSESSEE INTEREST SELLS SUCH SECURITIES THAT

INCOME IS RECEIVED OR INCOME RECEIVED IS LESS THAN THE SUM HE WOULD HAVE RECEIVED IF SUCH INTEREST HAD

ACCRUED FROM DAY TO DAY THEN INCOME FROM SUCH SECURITIES FOR THE WHOLE YEAR WOULD BE DEEMED TO BE

THE INCOME OF THE ASSESSEE

(OWEVER SEC PROVIDES THAT THE SEC OR ARE NOT APPLICABLE IF THE OWNER PROVES THAT

a THERE HAS BEEN NO AVOIDANCE OF INCOME TAX OR

b THE AVOIDANCE OF INCOME TAX WAS EXCEPTIONAL AND NOT SYSTEMATIC AND THAT THERE WAS NO AVOIDANCE

OF INCOME

THE THREE PRECEDING YEARS

TAX BY SUCH A TRANSACTION IN ANY OF

Interest Stripping: [Sec. 94(7)] 7HERE n

a ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNITS WITHIN A PERIOD OF MONTHS PRIOR TO THE RECORD DATE

b SUCH PERSON SELLS OR TRANSFERS SUCH SECURITIES OR UNITS WITHIN A PERIOD OF MONTHS MONTHS FOR UNITS AFTER THE RECORD DATE

c THE INCOME ON SUCH SECURITIES OR UNITS RECEIVED OR RECEIVABLE BY SUCH PERSON is exempt

THEN THE LOSS IF ANY ARISING ON ACCOUNT OF SUCH PURCHASE AND SALE OF SECURITIES OR UNITS TO THE EXTENT EXCEED

AMOUNT

RECEIVED OR RECEIVABLE

ON SUCH SECURITIES

OR UNITS

SHALL SUCH LOSS DOES NOT THE OF INCOME

BE IGNORED FOR THE PURPOSE OF COMPUTING HIS INCOME CHARGEABLE TO TAX

Practical Question: 6ISHAL PURCHASED ON *UNE

BONDS OF ` EACH IN 8 ,TD ` (E ON .OVEMBER

AND REMAINING

BONDS ARE TRANSFERRED

TRANSFERS BONDS ` PER SHARE

TH ` PER SHARE )NTEREST IS PAYABLE EVERY YEAR ON 3EPTEMBER AND ON $ECEMBER

HAD

6ISHAL RECEIVES INTEREST OF ` WHICH IS TAX FREE $URING THE YEAR HE LONG TERM CAPITAL

GAIN OF ` ON SALE OF SILVER $ETERMINE THE TAX IMPLICATIONS

Solution:

1,600 Bonds (`) 400 bonds (`) 3ALE CONSIDERATION

Less #OST OF ACQUISITION

3HORT TERM CAPITAL LOSS

)NTEREST

9ES

.O

7HETHER SECTION IS APPLICABLE

Computation of income:

` ,ONG TERM CAPITAL GAIN ON SALE OF SILVER

,ESS 3HORT TERM CAPITAL LOSS ON SALE OF BONDS ;` n ` =

3HORT TERM CAPITAL LOSS ON SALE OF BONDS

,ONG TERM CAPITAL GAIN

9.14

$)2%#4 4!8 ,!73

Bonus Stripping: [Sec. 94(8)] 7HERE a ANY PERSON BUYS OR ACQUIRES ANY UNITS WITHIN A PERIOD OF MONTHS PRIOR TO THE RECORD DATE

b SUCH PERSON IS ALLOTTED ADDITIONAL UNITS WITHOUT ANY PAYMENT ON THE BASIS OF HOLDING OF SUCH UNITS

ON SUCH

DATE

c 3UCH PERSON SELLS OR TRANSFERS ALL OR ANY OF THE UNITS REFERRED TO IN CLAUSE a WITHIN A PERIOD OF

MONTHS

SUCH DATE WHILE CONTINUING

TO HOLD ALL OR ANY OF THE ADDITIONAL

UNITS REFERRED

AFTER TO IN

CLAUSE b

THEN THE LOSS IF ANY ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF ALL OR ANY OF SUCH UNITS SHALL FOR THE PURPOSES

OF COMPUTING

CHARGEABLE TO TAX AND NOTWITHSTANDING

ANYTHING

BE IGNORED HIS INCOME

CONTAINED IN ANY OTHER PROVISIONS OF THIS !CT THE AMOUNT OF LOSS SO IGNORED SHALL BE DEEMED TO BE THE

OR ACQUISITION

ADDITIONAL

UNITS REFERRED

TO IN CLAUSE b AS ARE HELD BY HIM ON COST OF PURCHASE OF SUCH OF SUCH SALE OR SUCH TRANSFER

THE DATE

Explanation:

@2ECORD DATE MEANS SUCH DATE AS MAY BE FIXED BY

A -UTUAL &UND OR THE !DMINISTRATOR OF THE SPECIFIED UNDERTAKING OR THE SPECIFIED COMPANY AS

REFERRED

TO IN THE Explanation

(35) OF SECTION

FOR THE PURPOSES

OF ENTITLEMENT

TO CLAUSE OF THE THE UNITS TO RECEIVING INCOME

OR ADDITIONAL

WITHOUT

ANY CONSIDERATION

HOLDER OF UNIT OR

A COMPANY FOR THE PURPOSES OF ENTITLEMENT OF THE HOLDER OF THE SECURITIES TO RECEIVE INTEREST INCOME

Analysis of Section 94(7) and Section 94(8) Avoidance of Tax By

)NTEREST 3TRIPPING ;3EC =

"ONUS 3TRIPPING ;3EC =

,OSS FROM PURCHASE AND SALE OF ALL

UNITS

SHALL

OR ANY OF THE ORIGINAL

BE IGNORED AND TO BE CONSIDERED PART OF COST OF PURCHASE

AS OR

ACQUISITION OF ADDITIONAL UNITS

,OSS FROM PURCHASE AND SALE

OR UNITS UPTO THE OF SECURITIES AMOUNT OF INCOME

SHALL BE IGNORED

Practical Question: 0RANAY PURCHASED UNITS OF 3") MUTUAL FUND $EBT BASED ;&ACE 6ALUE ` = ON

` PER UNIT (E GETS BONUS UNITS ON RECORD DATE $ATE OF ALLOTMENT OF BONUS UNITS RECORD DATE

IN THE RATIO OF i.e. A PERSON HOLDING UNITS WILL GET "ONUS UNIT

#OMPUTE THE CAPITAL GAINS FOR THE ! 9 AND ! 9 FOR EACH OF THE BELOW SEPARATE CASES

Separate Transfer of Original units Transfer of Bonus Units Cases No. of Units Date of Transfer Rate ` No. of Units Date of Transfer Rate ` A

B

C

D

9.15

4!8 /. #/.6%23)/. /& 5.!##/5.4%$ -/.%9

Solution:

Case A `

Case B `

Case C `

Case D `

. ! ;.OTE =

. ! ;.OTE =

.IL

.IL

5,600

1,600

10,400

5,360

Transfer of Original Units 3ALE #ONSIDERATION

Less: #OST OF !CQUISITION

3HORT 4ERM #APITAL 'AIN ,OSS

Short term capital loss to be ignored for set-off (a)

"ONUS UNITS HELD AFTER ABOVE TRANSACTION (b)

Cost of acquisition of Bonus units (per unit)

(a)/(b) .),

.),

Transfer of Bonus units 3ALE #ONSIDERATION

Less: #OST OF !CQUISITION

Short Term Capital Gain taxable in A.Y. 2023-24

Note 1: #APITAL GAIN SHALL NOT BE CONSIDERED FOR THE ABOVE PURPOSE

Note 2: !S THE ORIGINAL UNITS ARE TRANSFERRED AFTER MONTHS FORM THE RECORD DATE PROVISION OF SECTION SHALL NOT

BE APPLICABLE AND THE LOSS ARISING ON TRANSFER CAN BE SET OFF AGAINST ANY OTHER CAPITAL GAIN IN ! 9 OR CARRY

FORWARD IF COULD NOT BE SET OFF

Cash Credits: [Sec. 68] 7HERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR AND

a THE ASSESSEE OFFERS NO EXPLANATION ABOUT THE NATURE AND SOURCE THEREOF OR

b THE EXPLANATION OFFERED BY HIM IS NOT IN THE OPINION OF THE !SSESSING /FFICER SATISFACTORY

THE SUM SO CREDITED MAY BE CHARGED TO INCOME TAX AS THE INCOME OF THE ASSESSEE OF THAT PREVIOUS YEAR

Provided THAT WHERE THE ASSESSEE IS A COMPANY not being a company in which the public are substantially THE SUM SO CREDITED CONSISTS OF share application money, share capital, share premium interested AND

ANY EXPLANATION OFFERED BY SUCH ASSESSEE COMPANY SHALL OR ANY SUCH AMOUNT BY WHATEVER NAME CALLED

BE deemed to be not satisfactory unless:

a THE PERSON BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY

ALSO OFFERS AN EXPLANATION

THE NATURE AND SOURCE OF SUCH SUM SO CREDITED

AND

ABOUT

b SUCH EXPLANATION IN THE OPINION OF THE !SSESSING /FFICER AFORESAID HAS BEEN FOUND TO BE SATISFACTORY

Provided further THAT NOTHING CONTAINED IN THE FIRST PROVISO SHALL APPLY IF THE PERSON IN WHOSE NAME THE IS RECORDED

CAPITAL

OR A VENTURE CAPITAL

REFERRED

SUM REFERRED TO THEREIN IS A VENTURE FUND COMPANY AS

TO IN SECTION &"

Note: 4HE ABOVE PROVISO TO SECTION IS not applicable to money received

FROM 6ENTURE #APITAL #OMPANY AND 6ENTURE #APITAL &UND SINCE THEY ARE REGULATED BY 3%") AND

FROM NON RESIDENTS SINCE MONEY RECEIVED FROM NON RESIDENTS IS REGULATED BY &%-! AND RULES

OF 2")

CIT v. M. Venkateswara Rao (2015) 370 ITR 212 (T & AP) Capital contribution of the individual partners credited to their accounts in the books of the firm cannot be taxed as cash credit in the hands of the firm, even where the partners admitting their capital contribution failed to explain satisfactorily the source of receipt in their individual hands.

Facts: 4HE ASSESSEE FIRM S EXPLANATION THAT THE FIRM HAS RECEIVED AMOUNTS TOWARDS CAPITAL CONTRIBUTION WAS NOT ACCEPTED

of income

OF PARTNERS

SINCE THE source for the partners was not explained 4HE

#OMMISSIONER !PPEALS OBSERVED THAT THE AMOUNTS CREDITED IN THE NAMES OF FOUR PARTNERS WERE VALID OF THE FIRM WERE

ACCOUNTS OF SIX OTHER PARTNERS

BOOKS

AND THAT CASH CREDITS IN THE IN THE TO BE CONSIDERED

Direct Tax Laws & International Taxation Set of 2 Volumes AUTHOR PUBLISHER DATE OF PUBLICATION EDITION ISBN NO PAGE NO. BINDING TYPE

: : : : : : :

RAVI CHHAWCHHARIA TAXMANN DECEMBER 2021 3RD EDITION 9789393656148 1210 PAPERBACK

Rs. 1550 | USD 66

Description Direct Tax Laws & International Taxation provides practical application of Direct Tax Laws & International Tax in a holistic approach while testing the analytical skills of the reader. The crux of this book is to strike a perfect balance between ‘detailed studies’ and ‘summarised approach’. This book covers the entire new syllabus as prescribed by ICAI, and it is written with an explanatory & analytical approach.

This book will be helpful for the students of CA-Final, CS-Professional, CMA-Final, M.Com/MBA/LL.B./LL.M. & other professional exams.

7KH 3UHVHQW 3XEOLFDWLRQ DXWKRUHG E\ &$ 5DYL &KKDZFKKDULD LV WKHb rdb(GLWLRQ IRU 1HZ 6\OODEXV 8SGDWHG WLOO 2021), with the following noteworthy features: X

[Detailed Index] given at the beginning of the book helps the students navigate through the arrangement of sections and other details.

X

[Provisions] have been elucidated thoroughly yet briefly throughout the book, keeping the technical language intact.

X

[Judicial Decisions] are covered for the following:

X

Landmark/Prescribed by ICAIb Õ KDYH EHHQ KLJKOLJKWHG LQ %ROG 8QGHUOLQHG DORQJ ZLWK QDPH RI VXFK case laws are mentioned before the facts and decisions of the case

Other Judicial DecisionsbÕ ZKHUH RQO\ SRLQW GHFLGHG L H UDWLR RI WKH FDVH LV UHOHYDQW VWXGHQWV DUH QRW expected to remember the names of such cases, are also covered in this book

[Practical Questions along with Updated Solutions] are covered throughout the book, in two formats:

[Questions based on a Particular Section] are given below the provisions

[Questions based on more than one Section] are given at the end of the chapter under the ‘Practical Questions’ segment

X

[Amended] Law stated in this book is as amended up to 31 stb2FWREHU &RYHUV WKH ODWHVW DSSOLFDEOH provisions and amendments applicable for May/Nov. 2022 Exams

X

[Judicial Decisions, Circular & Notifications] are covered

X

[Past Exam Questions & Answers] including December 2021 Exam along with Solved Model Test Papers

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