CA-FINAL

DIRECT TAX & INTERNATIONAL TAXATION

SMART NOTES
BY CA YASH KHANDELWAL

Applicable for May 23 Exams

As per Finance Act 22
2nd Edition: December 22

For CA Final

Direct Tax Laws &

International Taxation


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 Preface for 2nd Edition
Ruko Ruko Ruko. Padho Pehle YE
After the Unimaginable Success of 1st Edition, It gives me immense pleasure to
present 2nd Smart Notes of C.A. Final Direct Tax & International Tax. This
edition has updated syllabus which is applicable from May 23 Exam and onwards.

This book has everything which student may require to understand & remember.
The book has been developed keeping in the mind the technicality of the subject
to bring it at a students grasping level. Efforts have been made to keep the book
in simplest form to understand without compromising on the integral topics.
Please note this book must be used as a summary book. Students should refer to
the Module/Study Material provided by the Institute.

Students need to understand the concepts and logical reasoning of the Chapter.
Only mugging-up shall not suffice to score in this subject. Also, students should
practice as many illustrations as possible.

For all revisions, updates and notes, students are requested to join the Telegram
Channel:
Main Channel (CA Yash Khandelwal – Direct Tax )

I have worked tirelessly day & Night for past 2 years to make this book happen.
It was my dream to write a Book & its Coming true again. This Book has all my
blood and sweat in it. Just want to tell you that anything & Everything is
possible, just take a first step.

Every effort has been made to avoid any errors and omissions in this book. Despite
all the effort we believe some errors might have crept in. The students are
welcome to point out any errors/suggestions.

Best wishes,
Yash Khandelwal
([email protected])
 ACKNOWLEDGEMENT

I would like to thank my Parents (Gopal & Radhika), Krrish (My
Brother), Rupal (My Sister) & MAA(My Grandmother) for all their
support towards my studies, career and various aspects of my life.
This Book is dedicated to them.

Special Thanks to “CA Aakash Kandoi” for his valuable support &
guidance throughout the making of this book.

I would also like to Thank “Radhika” for her constant support and
motivating me to make this book.

A Big Thanks to my brother “Krrish” for designing the template of

this book & pushing me always.

Above all, a big Thank You to all my students for showering so much love in
such a short span of time. We will make it big together.

A wise man once said “ SAB KAR LUNGA MAIN”

 INDEX
Direct Tax
Sr No. Chapter Page No.
1. Tax Rates & 115BAA BAB BAC 1.1-1.9
2. Profit & Gains of Business & Profession 2.1-2.35
3. Capital Gains 3.1-3.23
4. Income from other sources 4.1-4.9
5. Taxation of Various Entities 5.1-5.17
6. Minimum Alternate Tax 6.1-6.7
7. Alternate Minimum Tax 7.1-7.2
8. Taxation of Trust 8.1-8.11
9. Exit Tax 9.1-9.3
10. Chapter VI-A Deduction 10.1-10.31
11. Deduction u/s 10AA 11.1-11.2
12. TDS & TCS 12.1-12.25
13. Return Filing & Assessment Procedure 13.1-13.28
14. Search & Seizure 14.1-14.8
15. Appeals & Revision 15.1-15.10
16. Advance Tax & Interest u/s 234ABC 16.1-16.3
17. Penalties 17.1-17.5
18. Deemed Dividend 18.1-18.4
19. Tax Planning, Tax Avoidance & Tax Evasion 19.1-19.2
20. Miscellaneous Provisions 20.1-20.2
21. Dispute Resolution 21.1-21.10
22. Virtual Digital Assets 22.1-22.11

International Taxation
1. Transfer Pricing 1.1-1.24
2. Non-Resident Taxation 2.1-2.26
3. Double Taxation Avoidance Agreement 3.1-3.4
4. Equalisation Levy 4.1-4.5
5. Advance Ruling 5.1-5.3
6. Tax Treaties, MTC & BEPS 6.1


Chapter 1: TAX RATES

SLAB RATES:

(1) Individual/ HUF/AOP/BOI/AJP (Resident/Non-Resident)

Total Income upto 2,50,000 Nil

Total Income > 2,50,000 upto 5,00,000 5%

Total Income > 5,00,000 upto 10,00,000 20%

Total Income > 10,00,000 30%

(2) Senior Citizen (Resident Individual of Age 60 or more)

Total Income upto 3,00,000 Nil

Total Income > 3,00,000 upto 5,00,000 5%

Total Income > 5,00,000 upto 10,00,000 20%

Total Income > 10,00,000 30%

(3) Super Senior Citizen (Resident Individual of Age 80 or more)

Total Income upto 5,00,000 Nil

Total Income > 5,00,000 upto 10,00,000 20%

Total Income > 10,00,000 30%

Note: A Resident Individual whose 60th/80th birthday falls on 1st April, 2023, would

be treated as 60/80 years in the P.Y.2022-23, and would be eligible for higher basic

exemption limit of 3 lakh/5 lakh in computing his tax liability for A.Y.2023-24.

(4) FIRM / LLP / LOCAL AUTHORITY

ON THE WHOLE OF TOTAL INCOME - 30%

(5) CO-OPERATIVE SOCIETY

Total Income upto 10,000 10%

Total Income > 10,000 upto 20,000 20%

Total Income > 20,000 30%

1.1

(6) COMPANY - DOMESTIC

25%

(i) If TOTAL T/0 or Gross Reciepts

in P.Y. 2020-21 is upto Rs. 400 cr

(ii) In any other case 30%

(7) COMPANY - FOREIGN 40%

SURCHARGE:

1) Individual/HUF/AOP/BOI/AJP

→ WHEN TOTAL INCOME (TI) DOES NOT INCLUDE INCOME u/s 111A, 112A &

DIVIDEND & 112

Total Income> 5o lakh upto 1 crore 10%

Total Income> 1 cr upto 2 cr 15%

Total Income> 2 cr upto 5 cr 25%

Total Income> 5 cr 37%

→ WHEN TOTAL INCOME (TI) INCLUDES INCOME u/s 111A, 112A & DIVIDEND & 112
Total Income> 5o lakh upto 1 crore 10%

Total Income> 1 cr upto 2 cr 15%

If Total Income> 2 cr

• On Tax computed on Income u/s 111A, 112A,112 & Dividend 15%

• On Other Income if

(Total Income- 111A,112A,112 & Dividend)> 2cr upto 5cr 25%

If Total Income> 5 cr

• On Tax computed on Income u/s 111A, 112A,112 & Dividend 15%

• On Other Income if

(Total Income- 111A,112A,112 & Dividend)> 5cr 37%

2) FIRM/LLP/LOCAL AUTHORITY

→ When the TOTAL INCOME exceeds Rs. 1cr. 12%.

3) CO-OPERATIVE SOCIETY:

If Total Income>1 cr upto 10 cr 7%

If Total Income>10 cr 12%

1.2

4) COMPANY

TOTAL INCOME Foreign Co. Domestic Co.

If Total Income>1 cr upto 10 cr 2% 7%

If Total Income>10 cr 5% 12%

If Exercised option u/s 115BAA & 115 BAB → 10%

5) AOPs having only Companies as Members:

Total Income> 5o lakh upto 1 crore 10%

Total Income> 1 cr 15%

SPECIAL RATES OF TAX

1) Sec 112

LTCG (Other than section 112A) 20%

2) Sec 112A

LTCG >Rs. 1 lakh 10%

on transfer of

• Eq. shares in a company

• Units of an Eq. oriented fund

• Units of business trust

3) Sec 111A 15%

STCG

on transfer of

• Eq. shares in a company

• Units of an Eq. oriented fund

• Units of business trust

4) Sec 115 BB 30%

Tax on Winnings, lotteries, Card game, Horse Race

5) Sec 115 BBE

UNEXPLAINED money, investment, exp etc.(sec 68 - 69D) Tax 60%

- No basic Exemption, No expenditure allowed. + Surcharge 25%

- No set off of loss allowed against such income + cess 4%

Effective Rate 78%

1.3

6) Sec 115 BBF 10%

Royalty Income from Patent developed & registered in India

• Developed in India- 75% Exp incurred in India

• No expense allowed.

7) Sec 115 BBG 10%

Income from transfer of Carbon Credits

• No Exp Allowed

8) Rebate u/s 87A Rs. 12,500 or Tax

When Total Income does not exceed Rs. 5,00,000 w.e. is lower

9)Health & Education cess 4%

Notes:

→ Deduction u/s VI-A not available against above special Income

→ Basic Exemption not available against above Income except 112,112A,111A

in case of resident Individual & HUF.

Sec 115 BAA,BAB,BAC,BAD

Sec 115BAC: New Tax Regime

APPLICABLE TO- Individual /HOF (R, NR-Both)

NORMAL SLAB RATES SLAB RATES u/s 115 BAC

O - 2,50,000 - Nil O - 2,50,000 Nil

2,50,000 - 5,00,000 - 5% 2,50,000 - 5,00,000 5%

5,00,000 - 10,00,000 - 20% 5,00,000 - 7,50,000 10%

Above 10,00,000 - 30% 7,50,000 - 10,00,000 15%

10,00,000 - 12,50,000 20%

12,50,000 - 15,00,000 25%

Above 15,00,000 30%

Note: For Individual above 60/80 yrs of age,

same slab rate shall be applicable.

↳ Benifit of 3L/5L Not available.

1.4

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1.5

Some Notes for Sec 115BAC

→ Every year, before filing Return, you will have an option, between Normal Slab

rates and Section 115 BAC.

→ If you have opted 115BAC for 1 year, then next year → You can opt Normal Slab

rates.

Exception → If you have PGBP Income, and you have opted 115 BAC, then in

subsequent years also → You have to Opt 115BAC.

If in any year, if you have opted out of 115BAC, then

you can not opt 115BAC for lifetime.

→ How will Employer deduct TDS of Employees?

↳ Employee will give declaration to Employer in the begining of the year.

Declaration given- 115 BAC . Return filed- Normal Slab Rates

Is It Possible?

YES

1.6

SEC 115BAA & BAB

Particulars SEC 115BAA SEC 115BAB

1) Applicable to Domestic Companies New Domestic

Manufacturing Companies

2) Set up date Any time On or after 01/10/2019

before 31/03.2024

3) Tax Rate 22% 15%

4) Surcharge 10%(mandatory) 10%(mandatory)

5) Effective Tax Rate 25.168% 17.16%

6) Exempt from MAT? YES YES

7) Tax Rates for Special Rate Special Rate

Special Rates Income + l0% Surcharge + l0% Surcharge

(111A,112, 112A) + 4% cess + 4% cess

8) Tax Rates for 25.168% 25.168%

House property (22% + 10% + 4%) (22% + 10% + 4%)

& IFOS Income

9) when option On or before due date of On or before due date of

Under this section 139(1) for relevant P.Y. 139(1) for First P.Y.

can be exercised?

10) Company cannot 80 JJAA 80 JJAA

claim deduction under 80 LA 80M

chapter VI-A except 80 M

Common Deductions under above 2 Section which Company can not claim:

• Sec 10AA → SEZ

• Additional Depreciation- Sec 32(1)(iia)

• Sec 32 AD- Investment allowance

• Sec 33AB/33ABA - Tea Coffee Rubber scientific

• Scientific Research:- Donation to 35(1)(ii) Institute, Research Asso., Research.

35(1)(iia) College, University

Social/

35(iii) Indian Co. eng. in R&D Statistical

35 (2AA) IIT & National laboratory.

1.7

• MAT is not applicable so MAT Credit will lapse.

• Sec 35C2AB) → Company engaged in Biotech or Mfg. Business(In-house research)

• Sec 35AD → Specified Business.

• Sec 35CCC Agriculture Extension Project

• Sec 35CCD- Skill Development project.

• No Deduction under chapter Vl-A except → cheek point 10

Tax Rates u/s 115BAB

Income from Manufacturing 15%

Income from Non- manufacturing Activity 22%

STCG on Depreciable Assets 15%

STCG an Non- depreciable Assets 22%

Special Tax Income special rates

Some Notes for Sec 115BAB

→ Co. should be set up on or after 1st Oct 2019

→ Co. should have commenced manufacturing on or before 31/03/2024

→ shall not be formed by splitting up a reconstruction of existing business.

→ Company shall use New Plant & Machinery. 20% Old is allowed

Imported is considered New

→ Company shall not use Building which was previously used as Hotel or a convention

centre.

→ Businesses which are not considered as manufacturing for 115BAB:

• Development of Computer Software • Mining

• Printing of Books • Bottling of Gas into Cylinder

• Conversion of Marble Blocks into Slabs • production of Films

See 115 BAD:. Tax on Income of Co-op Societies

→ Tax @ 22% + surcharge 10% + cess 4% (Effective Rate - 25.168%)
→ Assessee can not claim certain deductions → as given above
→ Any deduction under chapter Vl-A not available except Sec 80JJAA & Sec 80LA.
→ Tax on Special Rates of Income - Special Rates(111A,112,112A) + surcharge 10%
+ 4% Cess.
→ AMT not applicable, Hence AMT Credit will lapse.
→ Assessee can exercise this option on or before due date of ROI u/s 139(1).

1.8

Some Important Notes:

→ Any Unabsorbed loss of above sections for which deduction is not allowed will

lapse on Opting 115BAA,BAC,BAD.

→From Unabsorbed Depreciation, the portion of Additional depreciation can not be

set off.

↳ The additional depreciation will be added to WDV of 1st April of F.Y. in

which option is exercised.

→ If assessee opts any of the above section 115BA, 115 BAA, 115BAB, 115BAC,

115BAD then Maximum Depreciation allowed will be @40%

Note: Section 115BA is no more relevant for exam, thats why it is not included

in the book. Please refer Pg. from ICAI study mat if you want to read it.

Concept of Marginal Relief

• Applicable to all Assessees.

• Applicable Where Surcharge is Applicable

• This Concept is applicable when Income is Slightly higher than the threshold for

Surcharge.

• For Eg:

For Ind/HUF/AOP/BOI/AJP Firm/Local Auth/Co-op Society Company

> 50L, 1Cr, 2Cr, 5Cr > 1Cr > 1Cr/10Cr

1.9

Chapter 2: Profits & Gains of Business & Profession

Sec 28 : Charging Section:

All the following Income shall be taxable under the head PGBP:
(i) Any profits or gains of Business, Profession or vocation
(ii) Any amount received by employer (being assessee), under Keyman Insurance Policy.
(iii) Any gift or benifit or perquisite received due to Business or profession.

(iv) Some Import Incentives:.

Profit on Any cash Any Duty Profit on

Sale of Assistance Drawback sale of DEPB
Import Received Received. & DFRC
Entitlement
license *DEPB= Duty Entitlement Passbook Scheme
DFRC= Duty Free Replenishment Certificate

(v) Any Non-compete Fees received:

For not carrying For not sharing

out any Business any know-how,
patent, copyright etc.
(Note: The person who has paid non-compete fees can treat it as intangible asset
and claim depreciation @25%.)

(vi) FMV of stock in trade on the date it is converted into capital Asset.
(vii) Any compensation received or receivable:

for termination or modification of any terms & conditions of contract relating to

its business → Always PGBP Income whether Revenue or Capital.
(viii) Any Interest, salary, bonus commission received by Partner from partnership
firm which is allowed to firm u/s 40(b)

(ix) Income derived by a trade, professional or similar association from specific services
performed for its members.

2.1
 Speculative Business:

Transaction in which Purchase or sale of any & is settled otherwise

a contract for commodity including Stock than by actual delivery
& Shares. or transfer of commodity
or scrips.
Transactions not deemed to be speculative:

Hedging contract forward Derivatives Trading through

of Raw material/ contract Recognized Stock Exchange.
shares/ Merchandise

Speculative business for a company:

If Company's part Purchase & Sale of that PART of
of Business consists of Shares of Other the Business is
companies speculative Business.

Business not deemed to be Speculative (for Company):

Company whose Income (GTI) Company whose principal Business is:

mainly consists of:. → Trading in Shares
→ HP Income, Interest on → Banking.
Securities, capital Gain, IFOS. → Granting of loans & Advances.

Note:
Revenue Receipt → Taxable in PGBP
→ Receipt
Capital Receipt → Not Taxable → This is generally not taxable
unless it is taxable under specific
provisions of Act.

Space for Notes:

2.2
 Section 30: Rent, Rates, Taxes, Repairs & Insurance of Building
& 31: Insurance & Repair of Plant & Machinery & Furniture
Sec 30 Sec 31
Building Plant & Furniture
• Rent Allowed Allowed
• Insurance Allowed Allowed
• Revenue Repairs Allowed Allowed
• Rates & Taxes Allowed xxx
• Capital Repairs Not Allowed Not Allowed
Added to
Notes: Cost of Asset
• Rent: Only allowed to Tenant →Not allowed to Owner on notional Basis
• Other Expenses: Same for owner/tenant (Allowed to Both)
• Capital Repairs by Tenant → Deemed Building → Depreciation is allowed to tenant.
• If as per the rent agreement, tenant is not under any obligation to incur
Revenue repairs but he incurs such expenditure for carrying on his Business
efficiently, then that expense will be allowed u/s Sec 37.
• Firm pays Rent to Partner → Allowed if Reasonable, Excessive rent will be disallowed.

Sec 32- Depreciation

Depreciation Method

SLM WDV
Business of Generation of Power Applicable
or Generation & Distribution of Power to everyone

They have option of choosing

between SLM & WDV
(once in a lifetime option)

Have to opt before due date

of first return.

2.3
 CLASSIFICATION OF BLOCK OF ASSET

Building Furniture Plant & Machinery Intangible asset

Includes: Know how,
patent, copyright,
Tangible Asset license, franchise,
Non-compete fees.
Does not Include:
Goodwill of Business
& Profession.

Conditions to Claim Depreciation:

• Claim of Depreciation is mandatory.
• Asset must be USED for the purpose of Business & Profession(active
or passive.)
Put to Use → Allowed
Ready to Use → Not allowed generally.
(Allowed in Special Circumstances
Eg. Stand by machine, Emergency spars, fire
extinguisher etc.)

• Assessee should be Owner of Such Asset → Wholly or partly.

Registered ownership is not mandatory, If partial ownership, proportionate

Beneficial owner can also claim depreciation. depreciation allowed.

• Lease and Hire Purchase

In case of LEASE In Case of Hire Purchase

LESSOR Always Ownership: Transferred after

claims Depreciation. last payment of Installment.

Depreciation: can be claimed by Hire

purchaser from beginning of Hire Purchase.

2.4
 Rates of Depreciation
10% 15% 20% 25% 30% 40%

Building Plant & Machinery, Computer/Laptop

Furniture Motor Vehicle(Normal) SHIPS Intangible Motor

Aircraft
Oil wells Assets Books-any
Vehicle
Windmills installed used for Pollution control
before 1- 4. 14. Hire equipments
Temporary Building
Windmills inst.
on or after 1.4.14.

Notes:

(i) Motor Vehicles:

• Business of running them on hire → 30%
Acquired & put to use between 23/08/19- 31.3.20 → 45%.
• Other Vehicles → 15 %
Acquired & put to use between 23/08/19- 31.3.20 → 30%.

(ii) Buildings: Residential → 5%

General → 10%
Temporary → 40%.
(iii) Mobile/ EPABx → Not computer - 15%
(iv) UPS/ Printer/Scanner & other Accessories (Computers) - 40%
(v) Plant & machinery

Includes Does not include

Ships, Vehicles, Books, Scientific Tea Bushes, livestock,
Appliances and surgical equipments. Building, Furniture.

(vi) If Asset is used for less than 180 days → Half Rate depreciation is allowable
→ cut off date:- 03rd october → Asset purchased on or after 4th Oct , half rate
of depreciation will be allowable.

2.5
→ This proviso is applicable for First Year only. Even if asset is used for less than
Eg. If Asset is Acquired in P.Y. 21-22, 180 days in P.Y. 22-23,
and Put to Use in P.Y. 22-23 Full Rate Depreciation will be allowed

(vii)Unabsorbed Depreciation can be set off against any head of Income except salary
and can be c/f Indefinitely.

Additional Depreciation:
• Only Allowed on Plant & Machinery. Manufacture or production
• Applicable to: Assessee engaged in the business of of article or things
• Rate of Additional Depreciation: 20%.
Generation or Distribution
Notes: or transmission of power

(i) Additional Depreciation is allowed only in the FIRST YEAR.

10% Allowed → Current Year
(ii) If used less than 180 days, Half rate applicable.
Balance 10% → Allowed
(iii) Not allowed on SLM method. in Next Year

(iv) Additional Depreciation is allowed on → Printing or Printing and Publishing of

Books (Considered as mfg. or production) [Note: 115BAB not allowed on this]

(v) Additional Depreciation not allowed on:.

2nd Hand Pl & M Pl & M. Ships, Pl & M on which

installed in Aircraft, & 100% Deduction
office or residence Transportation is Allowed.
vehicles.

(v) Forklifts truck used in Factory → Not a transport vehicle → Additional Depreciation Allowed

Special cases of Depreciation

Depreciation in case of: Amalgamation/Demerger
Conversion of Company into LLP
Succession of firm/Proprietorship by company

2.6
→ Depreciation is calculated for the whole year as if nothing has happened

Then, that depreciation is distributed between predecessor and successor in the

ratio of no. of days assets were used.

Sec 43(1) ACTUAL COST

Actual Cost of the Asset is calculated as follows:-

xxx
Purchase price
xxx
(+) Installation, Transportation & Trial Run Expense
xxx
(+) Interest on loan upto put to use
xxx
(+) Taxes & duties (If ITC not available)
(-) Subsidy/Govt. grant received (xxx)

(-) Amount Earned by selling trial run production (xxx)

Actual cost of the Asset xxx

→ If payment for purchase/Exp of Asset > Rs. 10000 by cash/Bearer Cheque/

to a single person in a single day Crossed Cheque etc.

then such payment/Expenditure

shall not form part of Actual Cost
of Asset.

Special cases and their Actual Cost:

Cases Actual Cost

• Asset used in Scientific Research

NIL
• Sec 35 AD Asset

• Asset acquired by Gift/will

• Asset Transferred by: WDV of Previous/Preceeding owner
Holding Co. → Subsidiary Co.
Amalgamating Co. → Amalgamated Co.
Demerged Co. → Resulting co.

2.7
 • Stock converted into Capital → FMV on the date of Conversion
Asset and used in Business

• Building used for personal → Original cost xxx

purpose then Brought into Business (-) Notional Depreciation till date xxx
(at current depreciation rate)
(Note: Only Applicable for Building, Other Assets → original Cost)

• Asset brought into India by NR → Original cost xxx

Depreciation till now xxx
(at respective year rates)

• Re-purchase of Asset Sold → (i) WDV at the time of sale xxx w.e.

(ii) Re-purchase price xxx lower

• Asset purchased & leased Back → WDV of previous owner (lessee)

to the same person

Section 43A: Asset purchased in Foreign Currency

Profit/loss due to Foreign Exchange Fluctuations At the

time of PAYMENT Shall be adjusted to the cost of Asset

Profit Loss
Reduce from cost of Asset Add to cost of Asset

Space for Notes:

2.8
 Section 33AB/33ABA

Section 33AB Section 33ABA

• Assessee engaged in: Growing & Mfg. of Prospecting/extraction
Tea, coffee, Rubber of Natural Gas petroleum

• Deduction Amount: Actual Amount deposited Actual Amount deposited

OR OR
40% of PGBP 20% of PGBP
w.e. is lower w.e. is lower

• Deposit: for deduction, deposit should for deduction, deposit

be made in NABARD A/c should be made in special
before DD of 139(1) account in SBI before end of
P. Y.
Notes:
→ Amount deposited must be used for prescribed purposed by the board or Ministry in
the year of withdrawl only.
→ If mis-utilized, then deduction allowed earlier shall be reversed and taxable as PGBP.

→ If Expense Allowed as per scheme:

Revenue Expense: not allowed in PGBP Capital Expense - Depreciation will
if allowed here be allowed
→ If Amount utilized for these Assets,
then deductions not allowed : • Home or Office appliances(not computers)
• Pl & M on which 100% deduction is allowed.
Space for Notes:

2.9
 Depreciation on Goodwill of Business & Profession
Goodwill of Business & Profession → Not eligible for Depreciation from P.Y. 20-21
As on I.4.20

→ If WDV of the block Intangible Assets has goodwill included in it

(depreciation is
taken upto 31.3.20)

we will deduct WDV of goodwill

from the block.

How to Calculate Purchase Price - depreciation upto 31.3.20

WDV of goodwill?

depreciation will be calculated assuming that

goodwill is the only asset in the block

WDV of the goodwill calculated above will be taken as CoA of

goodwill in the books.

→ At the time of deducting G/W from the block, If:.

WDV of goodwill > WDV of block
↳ then excess shall be STCG

→ If G/W is sold in future - then STCG/LTCG can arise.

POH &
CII → will be taken from year of purchasing G/W.

→ If Intangible Asset contains only goodwill, & If:

WDV of goodwill > WDV of block

↳ No CG will arise
↳ No PGBP Income will arise

Excess will lapse

2.10
 SECTION 35 - Scientific Expenditure

In-House Research Contribution to others

→ In-House Research:
(1) Expenditure before commencement → Allowed for Max 3 preceding Years before
date of commencement

Capital Expenditure Revenue Expenditure

Land Other Expenditure • Salary (Except perqs) Other

xxx ✓✓✓ • Material Expenses
Not Allowed Allowed ✓✓✓ xxx
Allowed Not allowed

(2) Expenditure after commencement of business

All Assessees Sec 35C2AB)

Company Engaged in

Sec 35(1)(i) Sec 35(1)(iv) Manufacturing or Biotech Business

Revenue Capital
100% Allowed 100% Allowed Revenue Capital
(except land) 100% allowed All Expenses
(Except land & Building)

Building allowed in 35(1)(iv)

→ Scientific Contribution to others(100% allowed):

IIT or National Approved Indian Co. Approved: College,Institute,University

laboratory engaged in R&D Research Association.
See 35(2AA) [Sec 35(1)(i)(a)]
Scientific Research Social & Statistical
[Sec 35(1)(ii)] Research [Sec 35(1)(iii)]

2.11
 Notes:
→ Deduction u/s 35 allowed → Depreciation will not be allowed.
→ If L&B is purchased in a composite Agreement
Cost will be bifurcated on the basis of FMV.

→ When assessee gives contribution to others for Scientific Research and later on if
approval of that institution is withdrawn → Assessee will not be denied exemption.

Sec 35CCC: Agriculture Extension Project Sec 35CCD Skill Development Project

→ Applicable to all assessees → Applicable to only Company

→ All expenditure allowed except → All expenditure allowed except
Land & Building land & Building
→ Minimum Expenditure Should → If any amount is reimbursed by
be 25 lakhs employee, deduction will not be allowed.
Sec 35 DDA: Expenditure in Voluntary Retirement Scheme
→ Allowed to All Assessees.
→ Allowed in 5 equal installments.
→ If there is amalgamation/demerger in the period of 5 years.

Remaining deduction will be allowed to New Formed Company → For Balance period.
[In the balance period → the Year of Amalgamation and demerger is also included.]

Section 35 ABB : Expense for obtaining telecommunication license

Deduction is allowed :
FROM → Year of Commencement of Business TILL → The year in which
OR License Expires.
Year in which license fees is paid
w.e. is later

2.12
 → Tax Treatment if license is Sold:.
Full license sold:
Cost of License - 50 Life of License - 10 years
Suppose License is sold in 3rd year:
Cost of License → 50
- (5) : For 1st year
45
- (5) : For 2nd year
40 → Now, if License is sold, what will be the tax treatment?

Full or Part If It is Sold at a Price of

35-40= (5) 46-40= 6 53-40= 13

(i) If Full License is Sold (5) will be allowed 6 will be Taxable 10 will be taxable
as deduction in as PGBP as PGBP
Sec 35ABB 3 will be taxable
as Capital Gain

(ii) If Part license is Sold (5) will be allowed 6 will be Taxable 10 will be taxable
for remaining as PGBP as PGBP
period of 8 yrs 3 will be taxable
as Capital Gain

Sec 35AD- Specified Business

Deduction u/s 35AD(100%) is allowed on all Capital Expenditure in following Businesses:
[Except Land, Goodwill, Financial Instrument]

(1) Agriculture

Setting up & Setting up & Operating Production of

Operating a a warehouse facility for fertilizer in India.
Cold chain facility Agriculture produce & Sugar
[Edible Oil not allowed]

2.13
 (2) House/ Ghar + Hotel + Hospital
188 13
Developing and Building Building & Building and Operating a
a Housing project under Operating a Hospital of minimum 100
Hotel of beds
Slum Affordable 2 Star &
Redevelopment Housing above
Scheme Scheme

(3) Iron + Wafer + Infrastructure + Honey

Laying and Setting up & Developing, maintaining Bee keeping

Operating a operating a Semi- & operating a new and production
Slurry pipeline Conductor wafer Infrastructure facility. of Bee Honey
of Iron Ore. fabrication unit (Notes) and Wax.

Notes:
→ Business should be new, it should not be formed by splitting up or re-construction of
Business.
→ Pl & M should be new
Exceptions:

20% Old Imported 2nd hand Pl & M is allowed

is allowed On which depreciation has not been claimed in India.

→ Deduction is allowed on all Capital expenses except Land, Goodwill & Financial
Instrument.
→ Depreciation is not allowed if deduction u/s 35 AD is taken.
→ Deduction u/s 10AA & 80IA - 80RRB also not allowed.
→ Unabsorbed loss of specified Business can be carried forward indefinitely.

→ Loss of specified Business can be only set off against specified Business Income.
No matter even if the Other specified Business
has taken deduction u/s 35AD or not.

2.14
 → In case of Hotel (2 Star & Above), if assessee transfers operation to another person
then Assessee shall be deemed to be carrying on the Specified Business.

And Deduction u/s 35AD will be allowed

→ Sec 40A(3) is applicable for all capital expenditure done u/s 35 AD

↳ i.e. All Capital expenses above 10,000 shall be
through any mode of ECS or A/c payee cheque only.
→ Infra facility means:
Road including Highway Water supply project, Airport,
Toll, Bridge Project Treatment project Inland
or Rail system. waterways etc

→ Asset bought under this section should be exclusively used for specified business for
8 years from the date of acquisition.

If used for non- specified Business If Sold before expiry of 8 Years

before expiry of 8 years
Whole Amount of Sale
Amount of Deduction Claimed xxx consideration will be taxable
(-) Depreciation that would be xxx as PGBP Income
allowable if 35AD not taken Even if Sale consideration is
This will be added in PGBP xxx more than deduction claimed

Also, this amount will be

actual cost for non-specified
business

2.15
 Sec 35 D - Preliminary Expenses

Allowed:- Only allowed to Resident.

Market
Engineering survey Legal
services
fees

Preparation Preliminary Drafting &

of feasibility Expenses Printing of
Study or MOA/AOA
Project Report
Expenses of Public
issue of Shares &
Debentures
→ Amount of Deduction:

Indian Co.
Other Assessee
(i) Actual Expenses (i) or (ii)
(i) Actual Expenses
(ii) 5% of : w.e. is lower
(ii) 5% of Cost of Project.
(a) Cost of project w.e. is lower
(b) Capital Employed
w.e. is higher
→ This deduction is allowed in 5 equal installments.
→ Cost of project: Amount invested in the Fixed Asset for new project.
→ Capital Employed= Shares + Debentures + long term borrowings for new project
(Reserves & Surplus not included)

Section 36: Other Deductions

(1) Insurance Premium

Sec 36(1)(i) Sec 36(1)(ia) Sec 36(1)(ib)

Premium for Premium paid by Premium for
Insurance of Fedrel Milk co-operative Insurance of
stock in Trade society → for insurance of cattle Employees

2.16
 (2) Employees Welfare Payment

Sec 36(1)(ii) Sec 36(1)(iva) Sec 36(1)(iv/v) Sec 36(1)(va)

Bonus/ Pension SPF EMPLOYEES
Commission Scheme RPF contribution
NPS 8OCCD AGF towards welfare
Fund

Sec 43B Applicable

Sec 43B
(3) Sec 36 (1)(ii) Not Applicable
→ Bonus or commission paid to Employees is allowed. Due date of that
→ It should not be paid as profit or dividend Act shall be applicable
→ It can be more than prescribed under POBA, 1965 e.g. PF Act due date
15th of Next month

(4) Sec 36 (1)(iva) Clarified by

Employer Contribution towards National Pension Scheme F.A. 2021

u/s 80 CCD is allowed as Deduction upto:-

(i) Actual contribution
w.e. is lower
(ii) 10% of Salary (Basic + DA (Terms)]

(5) Sec 36(1)(iv)/(v)

→ Deduction allowed for EMPLOYER'S Contribution in

Statutory Provident Fund (SPF) Note:- Deduction under

Recognized Provident Fund (RPF) any Unrecognized or
Approved Gratuity Fund (AGF) Unapproved Fund
Any Provident Fund not allowed.

(6) Sec 36(1)(va)

EMPLOYEES Contribution towards welfare Fund
→ Any amount received by EMPLOYER from EMPLOYEES as contribution to provident
fund, superannuation fund etc. is allowed only if it is paid to the Govt. before due date
of the respective Act. → Clarified by F.A. 21

2.17
 → If paid after due date of the respective act → it will not be allowed as deduction
& will be included in Income.

Eg: The due date of PF Act is 15th of Next month of the month in which PF is received.
Employees PF contri. for the month of July should be paid by the Employer to the
govt/govt A/c till 15th August.
Note: If deposit before 15th August → Allowed
If not deposited before 15th August → Added to Income.

(7) Sec 36 (1)(vi)

→ Animals Used in Business other than Stock in Trade:

→ Deduction under this section will be allowed in the year in which animals become
permanently useless or die.
Amount of Deduction= Cost of Animal - Sale value.

(8) Sec 36(1)(vii) - BAD DEBTS

Actual Bad Debts Provision for Bad Debts

Allowed Not Allowed

But Allowed to Banks u/s 36 (1)(viia)

Related to Business- Allowed

→ Actual Bad debts
Related to Loan- Not allowed.

Except: Lending Business

In Lending Business, Bad Debt Related to loan is allowed.
Notes:
→ Bad Debts must be written off in BOA in the year in which it is decided. There is no
need to prove it.
→ Provision for Bad Debts is only allowed to Banks Us 36 (1)(viia).

2.18
 Sec 41(4): Bad Debt Recovery:
→ Any Bad debts allowed in the preceding year or this year, if it is recovered in P. Y.,
it will be added to PGBP Income.
→ Bad Debts will be taxable in the year of Recovery even if Business is not in existence.

Eg: Firm allowed Bad debt

→ Successor will be allowed to claim Bad
Firm dissolved
debts deduction even if predecessor has
Partner recovered Bad debt included relevant debt in its income
and successor write off it as Bad Debt.
See 41(4) not applicable,
as assessee who claimed Bad
debt and assessee who recovered
i
are not same.
(9) Sec 36(1) (viia):. Provision for Bad Debts of Banks

Notes:
→ Deduction is allowed for provision for Bad debts.
→ No deduction is allowed for actual Bad debts us 36 (1)(vii) for this provision amount,
as it is debited in Provision Account.
But if

Actual Bad Debts > Provision for Bad debts

Actual Bad debts - Provision = Difference

will be allowed as deduction

u/s 36(1)(vii)
→ Only one A/c will be made In Provision for Bad Debts of Rural & Non-Rural Branches.

Eg:- Provision for Bad debts vis 36(1)(viia) = 100

If Actual Bad debts is 130, 100 will be debited in the provision, 30 will be allowed u/s 36(1)(vii).

2.19
 (10) Sec 36(1)(viii) - Transfer to Special Reserve
→ Allowed to financial corporation engaged in providing long term finance (> 5 years)

Actual Amount Transferred 20% of PGBP 200% of (Sh. Cap + Gen Reserve]
to Special Reserve - opening Bal of Special Reserve

w.e. is lower

(11) Expenses on promotion of Family Planning Sec 36(1)(ix)

→ Allowed to only companies : Amount of Deduction

Capital Revenue
Allowed in 5 Fully Allowed
equal instalments

(12) Sec 36(1)(xvii) Purchase of Sugar Cane

Expenditure Co-operative Society Engaged in Mfg.

Incurred by of sugar

Price fixed Equal to

At a price For purchase of
by Govt. OR
sugar cane
less than

(13) Sec 36(1)(xv) → STT Allowed as deduction if Assessee has held Shares,
Sec 36(1)(xvi) → CTT Securities & Commodities as Stock in Trade.

(14) Sec 36(1)(xviii) Marked to Market loss/Expected loss

As per ICDS Other

Allowed (✓) Not allowed (x)

2.20
Colour code for this Section
Blue- Allowed Red- Not Allowed

Sec 37 - General Deduction/ Residuary Expenses

Conditions:
Revenue Expense Allowed (✓) Capital Expense Not allowed (X)
→ Must be incurred wholly or Exclusively for Business
→ PERSONAL EXPENSES - NOT ALLOWED profession
→ Expenses must be LEGAL. vocation
It should not be 'prohibited by law' [ILLEGAL]
→ BREACH Breach of Contract - Allowed

Breach of LAW → Not allowed

→ It must be incurred in the Accounting Year
→ Only Post-Commencement Expense allowed. → PRE- Commencement not allowed.
→ The expenditure should not be of the nature specified in Sec 30-36
→ Only Business Expenses allowed (✓) Business losses not allowed. (x)

Notes:

Few Expenses specifically Allowed Few Expenses Specifically Disallowed

(1) Expenses incurred on (1) Expenses incurred on IPO, FPO,Right

Buy Back of Shares,Bonus shares issue, Shares, Increasing Authorized Sh. Cap. of

Debenture issue → Allowed Company → Not Allowed

(2) Indirect Taxes (GST) (2) Direct Tax

Tax Interest Penalty Tax Interest Penalty
Allowed Allowed Not Allowed
Not Allowed
→ Interest on loan taken for
payment of Income Tax- Not Allowed

(3) Legal Expenses- Allowed (3) Illegal Expenses → Not Allowed

(4) Breach of Contract- Allowed (4) Breach of laws → Not Allowed
(5) Expense incurred on feasibility Study (5) Expense incurred a project
conducted for Existing Business & not related to existing Business
project was abandoned without creation & the project was abandoned-Not Allowed
of New Asset- Allowed

2.21
(6) Retrenchment compensation on (6) Retrenchment Compensation
closure of some of Business Units On Closure of Entire Business
Revenue Exp - Allowed Capital Exp- Not allowed
(7) In case of abandoned film, the (7) Advertisement in Brochure, Souvenir,
cost of film shall be treated as newspaper, pamphlet published
Revenue Expenditure- Allowed by political party - Not Allowed
(8) Donation to any political party
(8) Expenses incurred on Road/Highways - Not Allowed
in Build-Operate-Transfer Agreement (7)→ is allowed as deduction to
↳ Allowed over life of Agreement. companies u/s 80GGB
Companies-80GGB

(9) Gift to Employees - Allowed (8)→ is allowed to

Other Assessee 80GGC
(10)Customary expenses - Allowed
↳ Diwali pooja exp.
(11) Expenses incurred by CAs (9) CSR Expenditure- Not allowed

for attending CPE Seminars-Allowed

(12) Tax audit fees or litigation exp- Donation to PM Donation made to
Allowed cares fund or Clean ganga Fund or
PM relief fund. Swath Bharat Kosh.
(13) Premium paid on keyman Insurance
Policy (10) Dividend - Not allowed
(11) Provision

paid by co. for Paid by firm

insurance of its for insurance of For loss of For deferred For diminution For Un-

Subsidiary Tax in value of ascertained

keyman its partner
Asset liability
Allowed Allowed
Not Allowed
(14) Cash Embezzlement, Theft, Decoity,
if incidental to Business- Allowed. (12) Salary to director exceeding limit
prescribed by companies Act.
(15) Prior period exp only allowed ↳ Excess Salary shall be disallowed.
if- liability to pay arises during P. Y. (13) Freebies, gifts given by Pharma
companies to Doctor - Not allowed
(16) Expense on Glow sign Board (14) Referral commission paid to
Allowed - Revenue Expense doctors - Not allowed.

2.22
(17) Any payment made to Security (15) Expenditure incurred on
Agency for obtaining security heart surgery of a lawyer
Personnel - Allowed. ↳ Not allowed as it is personal exp.
(16) Payment/Bribes to police
and Bhai-log- Not allowed

(17) Regularization fees for violating

Bye-laws - Not allowed as it is Breach of
law.
(18) Compounding fees paid to
Municipal Corporations - Not allowed

Explaination Added by Finance Act 22

These Expenses shall be treated as illegal and thus shall not allowed as deduction,

-For any purpose To provide any benefit or perquisite, in To compound

which is an offence/ any form to → a person, whether or not an offence
prohibited by law carrying on a business or profession, under any law
and
in India or outside acceptance of such benefit or perquisite by in India or
India; or such person is → in violation of any law/ outside India.
rule/regulation/guideline

Space for Notes:

2.23
 Sec 40- Amounts Specifically Not Deductible
Royalty,
Int, FTS etc.

Sec 40(a)(i): Payment made to NR or Foreign Co. and

TDS not Deducted TDS Deducted but not paid

to Govt. upto Due date of 139(1)

100% Disallowed
Note: Such amount should be taxable in the hands of NR or Foreign co. under the act.

Sec 40(a)(ia): Any payment made to Resident and

TDS not Deducted TDS Deducted but not paid to Govt.

upto Due date of 139(1)

30% Disallowed
Notes for 40(a)(i) & 40(a)(ia):
→ In the subsequent year, if TDS is deducted & paid to Govt. or paid to Govt. (if
deducted earlier), then 100%/30% disallowed earlier shall be allowed in the subsequent
year.
Sec 201(1) - Bachne Ka Tarika
→ If any amount paid to Resident/NR without deduction of TDS & Such PAYEE (RINR):-

Has furnished Takes into A/c paid Tax on

ROI u/s 139(1) such Income Such Income

2.24
→ And the payer furnishes a certificate in this regard from a CA to the AO. →
that tax has been paid on such Income

→ The amount will be allowed in the subsequent year & will remain disallowed
in current year because it is assumed that TDS has been deducted
on the date of Return filed by such payee.
20.7.23
I 1 I
1.4.22 31.3.23 Return filed by payee 31.7.23

TDS deducted in P. Y. 23-24

→ Payer has to pay interest on late deduction of TDS from :

the date on which TDS was deductible TO the date on which return has been filed
by payee.
Interest applicable u/s 201(1A) @ 1% per month or part of the month.

→ Sec 40(a)(ii): Any tax paid outside India → which is eligible for
Relief under DTAA
Note: Tax always includes Tax,
Cess & Surcharge is not allowed as deduction
under PGBP

→ Sec 40(a)(ib): → same as 40 (a)(i), but refers to Equalisation levy. -

Discussed in Chapter Eq. levy - International tax.

→ Sec 40(a)(iii): TDS on Salary payable outside India,

Outside India
→ And Salary payable OR
To NR in India
TDS must be deducted.

7th of Next
If not deducted OR Deducted but not month.
paid to Govt A/c upto n
due date of TDS payment.

2.25
→ Such Salary will not be allowed as Deduction.

This will never be allowed again on payment after due date.

Sec 40(a)(iv): Any contribution to Provident fund or any other fund made for employees

And if any payment is made from the fund to employees which is taxable
under the head Salaries in hands of employees

If assessee does not deducts tax, the amount paid will be disallowed.

Sec 40(a)(v): Tax on Non-monetary perquisite

If employer pays Non-monetary perquisites To Employees

such non-monetary
perquisites are taxable
in the hands of EMPLOYEE

But if
EMPLOYER pays such tax on non-monetary perqs
On behalf of Employee

Then such tax paid is not As it is exempt in the hands of

allowed as Deduction to Employee u/s 10(10CC)
EMPLOYER

Space for Notes:

2.26
See 40A(2) :. Payment to specified Persons (Relative) in excess of Reasonable amount

If payment of expenditure is made to Relatives, in excess of Reasonable payment

Then AO can disallow

Unreasonable or Excessive payment.
Relatives:
• Individual - Spouse, Mother, Father, Brother, Sister, lineal Ascendent, lineal Descendent.
• HUF/AP/Pol - Member & their Relatives
• Firm/LLP - Partner & their Relatives
• Company - Director & their Relatives
• Substantial Interest: a person shall be deemed to have substantial Interest in Business
or profession if:
20% or more shareholding in → Company
If a person has
20% or more PSR in → Firm/AOP/BOI

Sec 40A(3):

→ If Payment or Aggregate → It should always be done by: A/c payee

payment made to a person > Rs. 10,000 Cheque,Demand Draft,Use of Electronic
by the Assessee in a Day. Clearing System,UPI/NEFT/RTGS/ Debit
card/ credit card

Sec 40A(3A)
→ If expenditure is allowed & If such expenditure is subsequently
in earlier year on accrual Basis paid in cash/ crossed/Bearer cheque
> Rs. 10,000 in a day

Then deduction allowed

earlier will be disallowed.

(Note: When Payment is made to transporter, limit of 10,000 will become 35,000.)

2.27
 Exceptions to sec 40A(3)[Rule 6DD]:

Government
→ Payment made to LIC
Banks
→ Payment done by adjustment in Book entries.
→ Payment made in village/town - where there is no Bank
→ Payment of Retirement benefits to employees or their family upto Rs. 50,000

payment

→ Not applicable to of principal part of loan transactions.

repayment
However, it is applicable for interest payments exceeding Rs.10,000.

does not have a

Bank A/c there

→ Payment to employee who is posted to a different place Other than his normal place
of duty for 15 days or more
agri or forest produce

→ Payment made for the purchase of livestock/meat/dairy/poultry farming

fish or fish products
horticulture, apiculture products
To the cultivator/ producer/ grower
of such product
[If payment is made to Trader/Broker/Middleman - Not allowed]

→ Payment made to money changer/authorized dealer for purchasing currency.

See 40A(7) - Disallowance of provision of Gratuity

Provision for Gratuity → Disallowed Actual gratuity paid-Allowed
Gratuity provision made as per actuarial valuation → Disallowed

2.28
 Section 41- Deemed PGBP Income

Sec 41(1) - Remission or Cessation of Trading liability

If assessee has taken During Current year, if:

expediture/deduction of any • Assessee gets refund or
expenditure in earlier P.Y. • Creditor waives off/gives discount
• There is remission or cessation of such
liability.

Then Such Remission/Cessation/refund/discount/waiver

is deemed as PGBP Income u/s 41

Eg:- we recorded purchase Rs. 12000,

creditor took only 8000 - 4000 shall be PGBP Income.

→ Waiver of working capital loan will also be covered.

→ In case of succession of Business - The successor will be liable to tax when he receives
any benefit during subsequent previous year.

Section

41(2) 41(3) 41(4)

Balancing Sale of Scientific Recovery of
charge research Asset Bad debts

Sec 41(5)- If there is any recovery in case of defunct Business which is chargeable to
tax, then B/f losses will be allowed to set off even after expiry of 8 years.

2.29
 Section 43B- Certain Expenses allowed on Actual payment Basis

Deduction in case of following payments is allowed only if paid before due date of ROI:-
• Any tax, duty, cess, Interest on tax
• Employer's contribution towards
RPF SPF ASF AGF NPS u/s 80CCD,Any other fund
• Bonus or Commission to Employees
• Leave Salary Encashment to Employees
• Interest on loan to any Bank/NBFC/ Financial Institution
• Amount payable to railways for use of Railways assets

Notes:
→ Interest includes pre-payment premium.
→ lump sum payment of interest if paid in a year is also allowed as deduction
→ Furnishing of Bank guarantee- Not actual payment
→ If Interest payable Debenture Due to which, Liability is delayed
on loan is or any other or deferred to future date
converted into Instrument
Then, It will not be treated
as Actual Payment

Section 43CA - Sale Consideration of Land & Building held as Stock in Trade
Sale Consideration → Sale price
OR w.e. is higher
Stamp Duty value

→ If Stamp duty value < 110% of Sale Price.

then SC= Sale price.
Sale price 1,00,000 Then SC - 1,00,000
SDV 1,09,000 (as it is up to 110%)

Imp Note: Between period 12.11.20- 30.6.21

Sale a Residential Unit & sale is upto → Then 120% will be taken
by Builder Rs. 2 cr instead of 110%.

Eg. Sale of Residential Unit by seller

Sale price 1,00,000 → SC= 1,00,000 (as it is upto 120%)
SDV 1,18,000

2.30
 → If date of registration and date of agreement are not same,

THEN

SDV on Date of agreement only If any amount is received on or before the

will be considered date of agreement by A/c payee cheque/DD/Any
mode of ECS/UPI/BHIM/Debit card/Credit Card/
NEFT/RTGS
In Other Case - SDV on the date of registration will be considered

Section 43CB - Income from Construction and Service Contracts

Construction Contract → Income is recognized on percentage of Completion method

Service contract: less than → Project → Income is recognized on

completion completion of project

90 days
Depends upon → Duration method
of contract
More than → Percentage of → Income recognized
90 days Completion on % of Completion
method

→If in Service contract, there are indeterminate number of Acts →Straight line Method.

→ Retention amount is also included in Income.

Section 44A- Special provisions for Trade, Professional or Similar Association

If expenditure > Subscription Income from
of Such Association Members

first set-off against PGBP Income

Then deficiency is
If no PGBP Income, then Set-off can be
made against other Income

→ Max deficiency that can be set off → 50% of Total Income of Association &
Deficiency can't be carried forward.

2.31
 Sec 44AB- Tax Audit of Books of A/cs

→ Tax Audit is compulsory in following cases:

In Case of Business In Case of Profession

If T/0> Rs. 1 crore in P. Y. If Gross Receipts> Rs. 50 lakhs in P. Y.

But limit of sec 44AB is Rs. 10 crore if: Total Receipts/payments includes all
↳ if aggregate payments/receipts during the payments & receipts by the
the P. Y. received in cash/Bearer cheque, Assessee during the P. Y. It can be
crossed cheque does not exceed more than Turnover
Receipts
5% of Total &
Payments

Due date of furnishing Tax Audit Report → 1 month prior to due date of return filing
Due date of ROI - 31st oct Due date of Tax Audit report - 30th Sept

In case of Transfer pricing:

Due date of ROI - 30th Nov Due date of Tax Audit report - 31st Oct

→ if Assessee is covered by 44AD/44ADA & assessee claims

Income < 6%/8% of Turnover Income < 50% of Gross Receipts

and his Total Income> Basic Exemption limit.
then he has to get his accounts audited.

2.32
 PRESUMPTIVE TAXATION - 44AD/44ADA /44AE

Sec 44AD
Eligible Assessee- Resident Individual/HUF or partnership Firm (not LLP)

Having T/0 upto Rs. 2 crores

See 44AD not applicable to:

A person carrying A person having A person A person Assessee

on profession commission or having having section claiming
Brokerage Business Agency Business 44AE Business dedn u/s 10AA
or chap. VI-A 'C'

Presumptive : 6% of Total T/0 received through A/c payee cheque/Bhim UPI/any

Income other mode of ECS
received before Due date of 139(1)

8% of Total T/0 received through cash/bearer cheque/crossed cheque.

→ If any amount is received after due date of 139(1), then 8% of total T/O will be
taken even if it is received through A/c payee cheque, any other mode of ECS etc.
→ No deduction of Expenses From Section 30-38 will be allowable
→ Assessee does not need to maintain books of Accounts as per section 44AA
→ Advance Tax payment → shall be done in 1 instalment before 15th March of P.Y.
→ Due date of ROI → 31st July.

→ If Assessee opts for section 44AD → then he has to opt 44AD for next 5
for any Previous Year consecutive P.Ys.

Then he will not be eligible for If in any of those 5 P.Ys,

sec 44AD for 5 years subsequent he opts out of 44AD.
to year in which he does not declare
income as per sec 44AD

2.33
 Sec 44ADA

Eligible Assessee- Resident Individual/HUF or partnership Firm(not LLP)

Engaged in Notified profession(44AA)
Legal, Medical, Engineering, Film Artist, CS, Architect,
Accountancy, Technical Consultancy,IT professionals.
Profession whose gross Receipt is upto Rs. 50 lacs in P. Y.

Presumptive: 50% of Gross Receipts

Income

→ No deduction of Expenses From Section 30-38 will be allowable

→ Assessee does not need to maintain books of Accounts as per section 44AA
→ Advance Tax payment → shall be done in 1 instalment before 15th March of P.Y.
→ Due date of ROI → 31st July.

Section 44AE

Eligible Assessee: Any assessee Engaged in Transportation Business

Plying, Hiring,

Ownership will be counted Leasing goods carriage

from when vehicle was
purchased, not when it was
who owns not more than 10 goods
put to use
carriages at any time during the PY.

Presumptive :
Income

Heavy goods vehicle: Rs. 1000 per ton x No. of months x no. of vehicles
vehicle is owned

Other Vehicle: Rs. 7500 x No. of months x No. of vehicles

Vehicle is owned

(Heavy Goods Vehicle: Vehicle having Gross Weight > 12000 Kgs)

2.34
 → No deduction of Expenses From Section 30-38 will be allowable
→ Assessee does not need to maintain books of Accounts as per section 44AA
→ Due date of ROI → 31st July.
→ Advance Tax Payment - 4 Instalments

→ In case of firm: Salary & paid to partners is

Interest deductible subject to sec 40(b)
very Important

different than
44AD/44ADA

Section 44AA

→ Following person shall maintain prescribed Book of Accounts

Maintainance of Books of Accounts

In Case of Notified Profession In case of Business

If GR> Rs. 1,50,000 Other Individual/HUF Other Person

in All 3 preceeding PYs. Maintain such Books T/O > Rs. 25 Lacs T/O > Rs. 10 Lacs
which would enable AO OR OR
OR to Compute Total Income
PGBP Income> Rs. 2.5 lacs PGBP Income>

likely to exceed in Current P. Y. Rs. 1.2 lacs

[New Business]

In any 1 of 3 Preceding P.Ys.

Maintain Prescribed Books

Prescribed Books → Cash Book, Journal, Ledger, Carbon Copies of Bills> Rs. 25,
Daily Cash & Stock Register (Medical)

Notified profession → Legal, Medical, Engineering, Film Artist, CS, Architect,

Accountancy, Technical consultancy, IT professionals.

2.35
Chapter 3: Capital Gains

Charging Section [Section 45]

→ If there is a Transfer of Capital Asset during the Previous Year,

then Gains/Profit on such transfer is taxable under the head capital Gains.

Short term Long term

in the Previous year in which Transfer took place.

L J
What is a Transfer? What is a Capital Asset? Is capital Gains Taxable in
section 2(47) Section 2 (I4) any Year other than
the year of transfer?
4 Cases

3.1
 Definition of Transfer - Sec 2(47)

TRANSFER INCLUDES:

Sale, Extinguishment Compulsory Redemption/ Giving possession

Exchange of any Acquisition Maturity of of an immovable
Relinquishment right of property Zero Coupon Bond property for
of Asset consideration
in part
Conversion of Capital Asset
performance
into stock in Trade
of contract.

Transfer which has effect of Eg:. Becoming member

→
Transferring/enabling the of Housing co-operative society/
enjoyment of immovable property. company and getting possession of
House on paying consideration.

Year of chargeability of Capital Gains

Generally, Capital Gains is chargeable in the year in Which Transfer Takes place,

But in these 4 cases, Year of Changeability is different from Year of Transfer

Exceptions to sec 45(1)

Conversion of Compulsory Insurance claims for Joint Development
capital Asset into Acquisition of Damage or Destruction Agreement
stock in Trade asset of capital Asset

Taxability: Year in which Year in which Year in which Year in which

stock is sold compensation is Insurance claim CC is issued
received is received by competent
Authority

3.2
 Exceptions to Sec 45(1)

→ Conversion of capital Asset into stock in Trade [see 45(2)]

Capital into Stock in
Asset Trade
Year of Calculating Capital Gain = Year of conversion
& applying Indexation
Year of Taxability = Year in which Stock in Trade is sold.

Capital Gain PGBP Income

FVOC = FMV on conversion date Sale Value= Sale Price
-CoA/ICOA = cost of Acquisition - Cost = FMV
Capital Gain= xxx PGBP Income

By applying
Indexation of
year of conversion
Conclusion: In the year when stock in Trade is Sold, 2 Incomes will be taxable:.

PGBP Capital Gain

→ Compulsory Acquisition of Capital Asset [See 45(5)]

Year of Calculating Capital Gains = Year of compulsory

and applying Indexation Acquisition
Year of Taxability = Year in which Compensation
is received
Initial Compensation Enhanced Compensation
Compensation Amount Compensation Amount
FVOC
(-) COA/ICOA xxx _
xxx _
(-) COI/ICOI
_ XXX
(-) Litigation Expenses
STCG/ LTCG xxx xxx

3.3
 Initial Compensation Enhanced Compensation

If Compensation is Full Amount is taxable Taxable in the respective

received in Instalments when first Installment years when different
was received. Installments are received.

Enhanced Compensation _ Taxable in the year

received due to interim when Final Order is
order of Court Passed

→ Interest received on delay of compensation - Taxable under IFOS & 50% deduction
is allowed u/s 57

→ If Initial Compensation LTCG → Enhanced - LTCG

STCG → Enhanced- STCG

→ For Ind/HUF, Compulsory Acq. → Fully Exempt u/s 10(37)

of urban Agriculture land

If such land is used by him/ his

parents/HUF for Agri. purpose in
preceeding 2 years before Transfer.

Insurance Claims for Damage or Destruction of Capital Assets [Sec 45(1A)]

Year of Calculating Capital Gains → Year of Destruction
and applying Indexation

Year of Taxability → Year in which Claim is received.

When Cap. Asset is : Fire, Flood, Earthquake, Tsunami, Riot, Civil Disturbance.
Damaged due to

Capital Gains in case of Joint Development Agreement:

Assessee : Individual/HUF
Year of Calculating Capital Gains → Year in which possession is Transferred
and applying Indexation in JDA

Year in which completion Certificate

Year of Taxability →
is issued by competent Authority.

3.4
FVOC= Stamp Duty value of share in Project on the date of issue + any amt received.
Types of Capital Assets

Short Term Capital Asset Long Term Capital Asset

Section 48: Computation of Capital Gain

SHORT TERM CAPITAL GAIN LONG TERM CAPITAL GAIN

Full Value of Consideration xxx Full Value of Consideration xxx
(-) Transfer Expenses (xxx) (-) Transfer Expenses xxx
Net Sale Consideration xxx Net Sale Consideration xxx
(-) Cost of Acquisition (xxx) (-) Indexed Cost of Acquisition (xxx)
(-) Cost of Improvement (xxx) (-) Indexed Cost of Improvment (xxx)
Short Term Capital Gain/(loss) xxx Long Term Capital Gain/(loss) xxx
(STT not allowed in Transfer Expenses) (STT not allowed in Transfer Expenses)
2nd Proviso to Section 48 : CII For F.Y. 01-02 - 100
INDEXATION For F.Y. 22-23 - 331
If Asset is purchased before
1.4.2001. CII will be 100.

Indexation is not available in following Cases

Slump Section Depreciable Bonds or Debentures

Sale 112A Asset Except
Capital Index Bonds
Always short Term
& Sovereign Bonds

3.5
 1st Proviso to Section 48 : Capital Gain in Case of Non-Resident
Method of Conversion(Rule 115A):
FVOC Avg of TTBR & TTSR date of Trf.
Trf Exp Avg of TTBR & TTSR date of Trf.
COA Avg of TTBR & TTSR date of acq.
Capital Gain TTBR for Re-conversion date of Trf.

Assessee: NR/Foreign Co.

Asset : Share Debenture of Indian Co. Acq in Foreign Currency

3rd Proviso to Sec 48: 1st & 2nd Proviso not available on Sec 112
4th 5th & 6th Proviso : To be written in class & YT

3.6
 Tax Rates on Capital Gains:
→ Equity shares
→ Units of Equity Oriented Fund
→ Units of Business Trust

Short Term Cap. Gain Long term Cap. Gain

Taxable u/s sec 111A Taxable uls 112A

Taxable @ 15% Taxable @10% in excess of 1,00,000

Other STCG → Normal Tax Rates Other LTCG (Other than 112A)
Taxable u/s 112 - Taxable@20%

Full value of Consideration:

→ Amount Received or Accruing as a result of Transfer of Capital Asset
Section 112A LTCG on Long Term Capital Assets
LTCG on → Equity shares
→ Units of Equity oriented fund 1st & 2nd proviso not
→ Units of Business Trust available(3rd proviso)

STT - Equity shares Others

STT shall be paid at the time STT shall be paid at
of purchase & sale both. the time of Transfer
Taxable at → 10% in excess of Rs.1,00,000
No Indexation
Cost of Acquisition → If purchased before 31.1.18
(i) Purchase price
(i) or (ii) (ii) (a) Sale Consideration (a) or (b)
w. e. is higher ↳ (b) FMV as on 31.1.18 w. e. lower
How to find FMV as on 31.1.18?

Shares Units

Highest Trading Price Listed on 31.1.18 Unlisted on 31.1.18

on RSE on 31.1.18 Highest Trading Price Net Asset Value on
on RSE on 31.1.18 31.1.18

3.6
 Sec 50C- Deemed full Value of consideration in case of Land & Building
When Land or Building or Both is transferred then:
FVOC → Sale price w.e. is higher
OR shall be deemed to be
Stamp Duty value Full Value of Consideration

→ If Stamp duty value < 110% of Sale Price.

then FVOC= Sale price.

Eg: Sale price 1,00,000 Deemed FVOC 1,15,000

SDV 1,15,000 (w.e. higher)

Sale price 1,00,000 Deemed FVOC - 1,00,000

SDV 1,09,000 (as it is up to 110%)

→ If date of registration and date of agreement are not same,

THEN
whole/part

SDV on Date of agreement only If any amount is received on or before the

will be considered date of agreement by A/c payee cheque/DD/Any
mode of ECS/UPI/BHIM/Debit card/Credit Card/
NEFT/RTGS

If Assessee does not agree with the SDV, then Assessee can give application to A.O.
for reference to Valuation Officer.

A. O. can refer the case to the valuation for

If Value by V.O. < SDV If value by VO > SDV

then Valuation officer value

OR w.e. higher Then SDV will be Taken
Sale price

3.7
 Silly doubt note: After value by V.O. is considered, 110% will
not be checked for value by valuation officer.

2 more Special Cases of FVOC

Sec 50CA Sec 50D

Sale Consideration of unlisted Shares Sale Consideration When
Sale price is not ascertainable
FMV
OR w.e. is higher FMV on the date
sale Price of transfer.

Cost of Acquisition (Sec 55)

Purchase price + all exp. incurred on purchase

STT will not be added.

→ Any amount paid for obtaining clear title of property shall be included in cost of
Acquisition.

For Intangible Assets:

[Goodwill of Business, Profession, Self Generated → COA=Nil
Brand Name, Trademark, Copyright]
If purchased → Purchase price

For goodwill of Business or profession, on which → COA = Purchase price-Deprecation

depreciation has been taken (upto P.Y. 19-20) till date

→ COA of Asset obtained by way of → COA = Cost to the Previous owner

Transactions which are Not regarded COI= Cost of Improvement of previous

as transfer + present owner is considered

There are 2 views with regards

to indexation in this case.

As per provisions: CII will be taken for the year in As per CIT vs Manjula J Shah: CII will be taken for
which assessee (present owner) first held the asset. the year in which previous owner bought the asset.

3.8
 COA of Assets Acquired before 1.4.2001
Cost of Acquisition
or w.e. is higher
F.M.V. As on 1.4.2001

Imp Note: For land and Building, FMV as on 1.4.2001 can not exceed SDV as an
1.4.2001. → CoA: FMV
or w.e. is lower
SDV

BONUS SHARES
Date of Allotment

BEFORE 1.4.2001 AFTER 1.4.2001

FMV as on 1.4.2001 NIL

RIGHT SHARES

If Right Shares are purchased If Right Shares Renounced

Purchase price of Right Share Nil

If Right shares are sold to other person, then

In the hands of purchaser In the hands of seller

CoA = Cost of share Proceeds from sale of Rights
+ Price of Rights will be taxable as Short Term
capital Gains(POH<3 yrs)

Sweat Equity shares Depreciable Asset

FMV on the date on which WDV
option is exercised.

3.9
 Indexed Cost of ACQUISITION/ IMPROVEMENT

COA CII for the year of Transfer

x
CII for the year in which
assessee first held the asset

COl x CII for the year of Transfer

CII for the year of Improvement.

→If asset is long term, COl will always be indexed.

→ Cost incurred on Improvement before 1.4.2001 Shall be ignored.
→ CII will always be given in the question.
you only have to remember 2 CIIs.
CII for P.Y. 01-02 - 100
CII for P.Y. 22-23 - 331

Sec 51 - Advance Money Forfeited

Note: Advance forfeited by previous owner will not be deducted while computing COA.

3.10
 SPECIAL CASES of TRANSFER

Securities held SLUMP Transfer between Maturity of

in DEMAT formm SALE Firm & Partner ULIP

→ Transfer of Securities held in Demat form

The Cost of Acquisition and Period of Holding will be determined on FIFO Basis

→ Maturity of ULIP [Unit linked Insurance Plan] - Sec 45(1B) → Explained later
not exempt us 10(10D)

Any Amount received by any person under ULIP issued on or after 01.02.2021

Shall be taxable as capital Gains Income if

premium paid> Rs. 2,50000 Aggregate premium paid by a person

for any year for more than one P.Y.s > Rs. 2,50,000

SLUMP SALE [Sec. 50B]

Slump Sale means Sale of Undertaking/Unit/division for Lump Sum Consideration.

If unit/ undertaking is held for more than 3 years

Long term capital Gain will arise

Otherwise short term
→ Indexation not allowed in Slump sale

Full Value of Consideration Cost of Acquisition

FMV 1 a Net worth of Unit Transferred

or FMV 2 w.e. is higher

3.11
 Full value of consideration
Jo Assts ki value
FMV 1
n nahi badhti - Book value.
or w.e. is higher Jo Assets kii value

FMV 2 Badhti hai- FMV/SDV/OMV

Liabilities - Book value
↳ same as exit tax
FMV 1 = A + B + C + D - L

A = Book Value Of All Assets Except Jwellery, artistic work- B

(-) [TDS/Advance Tax Less Refund] Some Shares & Securities - C
(-) Un-amortized deffered expenditure Assets Immovable property - D

B = Open Market Value of Jwellery, Artistic work.

C = FMV of shares & securities
D = SDV of Immovable properties
L=Book value of all the liabilities shall be taken Excluding:
→ Any provision of Income Tax
→ Paid up capital
→ any contingent liability other than arrears of dividend on cumulative pref. shares
→ any unascertained liability
→ any reserve or surplus
→ any provision for dividend which were not declared before date of transfer

FMV 2 = E + F + G + H
E = Amount received from Transfer Jo paise mile for transfer
+ Jo Assets mile
F = FMV of shares & securities received
unki - FMV/SDV/OMV
G = SDV of Immovable property Received
H = Open Market Value of Other Assets received
→ for all the above assets, Valuation date is date of slump sale.

Cost of Acquisition = Net worth of the Undertaking

Total Value of Assets Transferred Depreciable Assets = WDV
(-) Book Value of liabilities Sec 35 AD Assets =Nil
Net worth of Unit Self generated goodwill= Nil
Other Assets = Book value
Note: For Revalued Assets, Remove the effect of Revaluation i.e. take the original value without revaluation.

3.12
 TRANSFER BETWEEN FIRM & PARTNER

as a capital contribution
Cap Asset
Partner/member Firm/AOP/BOI → Sec 45(3)

Taxable in the hands of partner

FVOC= Amount credited in Partner/Member's Capital A/c

Cap Asset
Cap Asset
Firm/AOP/BOI Partner/Member or SIT
SIT
Sec 9B → Dissolution or
Taxable in the hands of firm Reconstitution

Sec 45(4) → Reconstitution

↳ only cap Asset.

Note: In case of Reconstitution, both sections are applicable section 9B & 45(4)

Sec 9B:- Capital Asset/Stock in trade distributed on Dissolution or

Reconstitution of firm
Where a partner receives an Dissolution/Reconstitution

Capital Asset Stock in Trade

Taxability in the Capital Gains PGBP

hands of firm : Taxable in the Taxable in the
year in which year in which
partner, member partner, member
receives Cap Assets. receives Such Stock

FVOC/Value at which → FMV on the date of receipt by partner

it is Taxable

Sec 45(4): Capital Gain on Transfer of capital Asset by Firm/AOP/BOI to Partner

on Reconstitution
If Capital Asset distributed on To Partners
Reconstitution
then Capital Gains will be taxable in the hands of Firm.

3.13
 Computation of capital gain → A = B+C-D
B = Value of any money received by partner/member from Firm/AOP/BOI
C= FMV of Capital Assets Received by partner/member
D= Partner/member's Capital A/c Balance at the time of Reconstitution.

If A=negative, then CG=O Capital A/c Balance will not include

any value increased due to
Cap Gain will always Self Generated Goodwill
be taken as STCG Depreciable Asset Revaluation Self-generated
case of 3 Assets Other STCA of any Asset goodwill or any
Other Asset.

Rule 8AB:. Capital Gain is bifurcated into LTCG & STCG in the ratio of → change in
value of remaining Assets.
i.e. increase in value due to Fmv.
BV FMV Increase due to FMV
eg: Land 50 100 50
Self Gen. Goodwill 0 80 80

LTCG = Cap Gain x 50 STCG= Cap Gain x 80

130 130
Dissolution
Calculate Cap Gain u/s 9B A → This Capital Gain is attributed
to remaining Assets
Reconstitution
Calculate CG u/s 9B LTCG & STCG are calculated in
the ratio of increase in value due to FMV
We Calculate Book profit (less tax)
While selling the remaining Assets, this
Divide it between partners already attributed LTCG & STCG
is deducted from FVOC of Asset.
Calculate Partner's capital-D

Then Calculate CG u/s 45(4)

A= B+C-D
Capital Gain
3.14
 Taxation of ULIP

Before on or after
1.2.21 1.2. 21
Conditions to check Premium →upto 10% premium → upto 2,50,000
for Exemption: of sum assured premium → upto 10% of sum assured

In Case of Single ULIP issued on or after 1.2.21:

If Premium Paid on such policy is upto 2,50,000, then the maturity is exempt u/s 10(10D).
If Premium Paid on such policy is > 2,50,000, then the maturity is taxable.

In Case if Multiple ULIPs issued on or after 1.2.21:

The ULIPs in respect of which aggregate Premium is upto 2,50,000, those ULIPs'
Maturity will be exempt u/s 10(10D).
Other ULIPs maturity will be taxable.

In Case of Death of Insured, Maturity will be Exempt u/s Sec 10(10D)

Sec 45(1B):
Where any person receives any amount under ULIP which is not exempt u/s 10(10D),
then any profit or gain arising from such amount shall be taxable as Capital Gain

Rule 8AD:
A-B is taxable as Capital Gain
A= Any Amount from Policy Received Jo Paisa mila - Jo
B= Premium Paid till Now paisa Diya

C-D

C= Balance Maturity Amount Received Jo Baad me Paisa Mila-

D= Premium paid on this amount Jo Extra Premium Diya

Iska Example YK sir class me or YT

3.15 pe karwa denge, don't worry
 EXEMPTIONS FROM CAPITAL GAINS
Sec 54:

1 year 2 Years
Before After
→ 1 residential HP

in India
Transfers & Purchase
Individual/
HUF Residential
or construct
House within 3 years
s → If CG is upto 2 crore
property then 2 Houses allowed
y Date of transfer

Exemption : Capital Gains W.e. is lower

Amount OR Amount Invested
u
Lock in period- 3 Years
↳ If transferred within 3 years

Exemption will COA of - Exemption

be withdrawn New Asset Amount
Note: Investment in 2 adjacent flats are treated as 1 Residential House
Construction Cost includes cost of land and Building

Sec 54EC

LTCA

Building
o d
Any Transfers Invests in Bonds of
g
Person within 6 months NHAI/RECL
is I s
y Land
y Date of Transfer
Exemption : Amt invested MAX - 50 Lacs
w.e. is lower
Amount OR Capital Gains

Lock in period: 5 years → If transferred within 5 years

Amt Exempted earlier → will be Taxable

3.16
 Note: When Cap Asset converted Stock in Trade
into

Time limit of 6 months for 54EC will be conidered from the date of sale of stock in
Trade.

Sec 54F

1 year 2 Years
Before After
LTCA
T
T
Any Cap Asset
Individual/ Transfer Other than
& Purchase 1 residential HP
HUF
s
Residential or Construct y in India
house
within 3 years
property

y Date of
Transfer

Exemption: Amount Invested

LTCG x
Amount Net Sale Consideration

Lock in period. - 3 Years

↳ If transferred within 3 years

v
Amt Exempted earlier → will be Taxable
Note: Assessee should not own more than 1 residential property at the time of transfer

Particulars Sec 54G Sec 54GA

• Eligible Assessee Any Person Any Person
• Activity Shifting Industrial Unit Shifting Industrial Unit

Urban Rural Urban SEZ

Area Area Area
• Assets Transferred L&B/ Pl&M L&B/ Pl&M
and purchased

1 year 3 years

Time limit : before After

Date of Transfer
y
3.17
Exemption Amount: Capital Gains
OR w.e. is lower
Amount Invested

Lock in period- 3 Years

↳ If transferred within 3 years

Exemption will COA of - Exemption

be withdrawn New Asset Amount

Sec 54GB
LTCA
A
Individual/ Transfers Residential Invests 25% equity shares of eligible
HUF Property in startup u/s 80-IA before
due date of ROI.
House or land

That Startup
company should

Amt Invested in New Pl&M Exemption Purchase New Plant & Machinery
LTCG x
Net Sale Consideration within 1 years from subscription
Amount
of equity shares.
Lock in period- 5 years
↳ If transferred within 5 years

Amt Exempted earlier → will be Taxable

New Pl&M does not include

2nd Hand Pl&M installed Computer & Any Any Pl&M whose
Pl&M in office or Computer Vehicle 100% deduction is
residence software allowed in PGBP

3.18
 Sec 54B
used to
2 years

Individual/ Transfers Urban Agri purchases Agri land

I Rural or Urban
HUF land
within
2 years

Capital Gain w.e. is

or lower lock in period- 3 years
Amt Invested

Sec 54D

used for
2 years

purchases
Any On Compulsory L&B for
person Acq. of L&B of Industrial Unit
Industrial within 3 years
undertaking

Capital Gain
or w.e. is Lock in period- 3 years
Amt Invested lower

CGAS: Capital Gains Account Scheme

For all the above sections If Investment is not made

s
except 54EC before due date of ROI

Then amount shall be deposited

in CGAS before due date of
139(1) for claiming exemption.

3.19
 Sec 47: Transcations not regarded as Transfer
47(i) Any distribution on the total or partial partition of a HUF
47(iii) Any transfer under a gift or will or an irrevocable trust
47(iv) Any transfer by a company to its subsidiary company
47(v) Any transfer by a subsidiary company to the holding company
47(vi) Any transfer by the amalgamating company to the amalgamated
company, in a scheme of amalgamation.
47(via) Any transfer by the amalgamating foreign companyto the amalgamated
foreign company, in a scheme of amalgamation of two foreign companies.
47(viaa) Any transfer by a banking company to banking institution, in a scheme of
amalgamation of the banking company with the banking institution, sanctioned and
brought into force by the Central Government under section 45(7) of the Banking
Regulation Act, 1949.
47(viab) Any transfer by the amalgamating foreign companyto the amalgamated
foreign company, in a scheme of amalgamation of two foreign companies.
47(vib) Any transfer, in a demerger, by the demerged company to the resulting
company
47(vic) Any transfer by the demerged foreign company to the resulting foreign
company, in a scheme of demerger of a foreign company.
47(vica) Any transfer by the predecessor co-operative bank to the successor co-
operative bank or to the converted banking company, in a business reorganization
of co- operative bank.
47(vicb) Any transfer by a shareholder of predecessor co-operative bank, in a
business reorganization.
47(vicc) Any transfer by the demerged foreign company to the resulting foreign
company, in a scheme of demerger of a foreign company
47(vid) Any transfer or issue of shares by the resulting company, in a scheme of
demerger to the shareholders of the demerged company.
47(vii) Any transfer by a shareholder of amalgamating company, in a scheme of
amalgamation of companies
47(viia) Any transfer by a non- resident to another non- resident outside India.

3.20
 47(viiaa) Any transfer, made outside India, by a non-resident to another non-resident.
47(viiab) Any transfer of specified capital assets by a non- resident on a recognised
stock exchange located in any International Financial Services Centre (IFSC)
47(viiac) Any transfer, in a relocation, of a capital asset by the original fund to the
resulting fund
47(viiad)Any transfer by a shareholder or unit holder or interest holder of original
fund, in a relocation of fund.
47(viiae) Any transfer by India Infrastructure Finance Company Limited to an
institution established for financing the infrastructure and development.
47(viiaf) Any transfer by a public sector company to another public sector company
notified by the Central Government for this purpose or to the Central Government or
to a State Government.
47(viib) Any transfer of a capital asset made outside India by a non- resident to
another non- resident.
47(viic) Any transfer by way of redemption by an individual
47(ix) Any transfer to the Government or to a University or the National Museum,
National Art Gallery, National Archives or any other public museum or institution
notified by the Central Government to be of national importance or to be of renown
throughout any State
47(x) Any transfer by way of conversion of bonds or deben- tures, debenture-stock or
deposit certificates in any form, of a company into shares or debentures of that
company

47(xa) Any transfer by way of conversion of bonds into shares or debentures of any
company
47(xb) Any transfer by way of conversion of preference shares of a company into
equity shares of that company
47(xii) Any transfer under a scheme prepared and sanctioned under section 18 of the
Sick Industrial Companies (Special Provisions) Act, 1985, by a sick industrial company
which is managed by its workers’ co- operative
47(xiii) - Transfer of a capital asset or intangible asset by a firm to a company on
succession of the firm by a company in the business carried on by the firm
- Transfer of a capital asset by AOP/ BOI to company consequent to
demutualisation or corporatisation of a recognised stock exchange in India

3.21
47(xiiia) Any transfer of a membership right by a member of recognised stock exchange
in India for acquisition of shares and trading or clearing rights acquired by such member
in that recognised stock exchange in accordance with a scheme for demutualisation or
corporatisation approved by SEBI
47(xiiib) - Transfer of capital asset or intangible asset by private company or unlisted
public company to LLP
- Transfer of shares held in the company by the shareholder as a result of
conversion of the company into a LLP
47(xiv) Transfer of capital asset or intangible asset by sole proprietary concern to a
company on succession of the sole proprietary concern by the company
47(xv) Any transfer in a scheme for lending of any securities under an agreement or
arrangement which the assessee has entered into with the borrower of such securities
and which is subject to the guidelines issued by SEBI or the RBI
47(xvi) Transfer of capital asset under Reverse Mortgage
47(xvii) Any transfer of a capital asset to a business trust
47(xviii) Any transfer by a unit holder in the consolidating scheme of a mutual fund
47(xix) Any transfer by a unit holder in the consolidating plan of a mutual fund
scheme

3.22
Chapter 4 : Income From Other Sources

Any income which is not taxable under head of salary, house property,
business &
profession or capital gain, that income shall be taxable under IFOS.

Items that are taxable under the head “IFOS”

(i) Casual Income in the nature of winning from lotteries, crossword
puzzles, races including horse races, card games and other games of
any sort, gambling, betting etc. Such winnings are chargeable to tax at
a flat rate of 30% under section 115BB.
(ii) Dividend received on Shares
(iii) Interest on bank deposits & loan given.
(iv) Royalty Income
(v) Directors Sitting fees (if there is ER-EE relationship and receiving
remuneration in terms of salary, then taxable under head of salary)
(vi) Agriculture Income if agriculture land located outside India.
(vii) Income from Sub-letting of house property.
(viii) Salary of MP/MLA/MLC taxable under head of IFOS because there is
no ER-EE relationship.
(ix) Interest on Income Tax refund.
(x) Income on Any investment made.
(xi) Amount received as family pension taxable under head IFOS.
Amount allowed as deduction u/s 57-
- 1/3rd of family pension, or whichever is
- 15,000 per annum. Less
(xii) Interest on compensation of compulsory acquisition of capital asset
50% deduction allowed u/s 57.
(xiii) Taxability of Gifts u/s 56(2)(x) (Annexure-1)
(xiv) Compensation or any other payment received in connection with
termination of his employment u/s 56(2)(xi)
Compensation received from
Employer- Taxable under Others- Taxable under
head
head of salary of IFOS

4.1
 (xv) If any closely held Company issues share to any resident shareholder
On premium then- [ issue price of share - fmv of such shares ] shall
be taxable in hands of company under IFOS. (Annexure-2)

® Items that are taxable under the head “IFOS” only if not chargeable
under head of “PGBP”
(i) Any sum received by an employer-assessee from his employees as
contributions to any provident fund, superannuation fund or any other
fund for the welfare of the employees.
(ii) Rent income from letting out of plants, machinery, furniture
(iii) Where letting out of buildings is inseparable from the letting out of
machinery, plant or furniture, the income from such letting.
(iv) Interest on securities

TAXATION OF GIFT : [Sec-56(2)(x)]

Nature of asset Taxable value

1 Money The whole amount if the same exceeds Rs. 50,000.
2 Movable
property Without consideration: Inadequate consideration:
The aggregate FMV of the (FMV-Consideration)=
Property > 50,000. if such difference > 50,000
3 Immovable
property Without consideration: Inadequate consideration:
The SDV of the property (a) (SDV-Consideration) per
property > 50,000
and 10% of consideration.
[Note- if (SDV-Consideration)is more than higher of 50,000
and 20% of consideration, 50,000 and 20% of consideration,
in case the immovable property is a residential unit which is
held as stock-in-trade by the seller and the transfer is during
the period between 12.11.2020 and 30.6.2021 by way of
first time allotment to the buyer and the consideration for
transfer ≤ 2 crores.]

4.2
 ANNEXURE-1
Non-applicability of section 56(2)(x) :
(a) However, any sum of money or value of property received in the following
circumstances would be outside the ambit of section 56(2)(x) -
(i) from any relative; or
(ii) on the occasion of the marriage of the individual; or
(iii) under a will/by way of inheritance; or
(iv) in contemplation of death of the payer or donor, as the case may
be; or
(v) from any local authority as defined in the Explanation to section
10(20); or
(vi) from any fund/foundation/university/other educational institution/
hospital/other medical institution/any trust/institution referred to
in section 10(23C); or
(vii) from/by any trust/institution registered u/s 12A or 12AA or
12AB; or
(viii) by any fund or trust or institution or any university or other
educational institution or any hospital or other medical institution
referred to in Section 10(23C)(iv)/(v)/ (vi)/(via).
(ix) by way of transaction not regarded as transfer under section
47(i)/(iv)/(v)/(vi)/(via)/(viaa)/(vib)/(vic)/(vica)/(vicb)/(vid)/(vii)/(vii
ac)/ (viiad)/(viiae)/(viiaf).
(x) from an individual by a trust created or established solely for the
benefit of relative of the individual.
(xi) From such class of persons and subject to such conditions, as may be
prescribed.

- Accordingly, CBDT has, vide Notification No. 40/2020, dated 29th

4.3
 June, 2020, notified that the provisions of section 56(2)(x) would not
be applicable to the following transactions –

S.No. Property Received Condition

by

1. Any movable Shareholder Where,

property, (i) the Tribunal, on an application moved
being by the Central Government under
unquoted section 241 of the Companies Act,
shares, of a 2013, has suspended the Board of
company and Directors of such company and has
its subsidiary appointed new directors nominated by
and the the Central Government under section
subsidiary of 242 of the said Act;
such and
subsidiary (ii) share of company and its subsidiary
and the subsidiary of such subsidiary
has been received pursuant to a
resolution plan approved by the
Tribunal under sec-242 of the
Companies Act, 2013 after affording a
reasonable opportunity of being heard
to the jurisdictional Principal
Commissioner or Commissioner.

2. Any movable Investor or where the said share has been allotted by
property, investor the reconstructed bank (Yes Bank) under
being equity bank (SBI) the Yes Bank Limited Reconstruction
shares, of the Scheme, 2020 at 10 per share (Face value
reconstructed 2 per share; Premium 8 per share).
bank

4.4
 3. Any movable a person It should be received from the Central
property, Government or any State Government
being equity under strategic disinvestment.
shares, of the
public sector
company

ANNEXURE-2
SHARES ISSUED ON PREMIUM [Sec-56(2)(viib)]

Basic If any closely held company issues shares to any resident share
holder on premium then,
Issue price of share xxx
(-) FMV of such shares xxx
Shall be taxable under IFOS
Not apply a. By venture capital undertaking from a venture capital
to company or a venture capital fund
b. from Non Resident
c. Specified-fund (see definition) *
d.Persons notified by CG - Start-up company (see definition) **

* Specified fund means

- a fund established or incorporated in India in the form of a
trust or a company or a LLP or a body corporate
- which has-been granted a certificate of registration as a
Category I or a Category II Alternative Investment Fund
and is regulated under the SEBI (Alternative Investment Fund)
Regulations, 2012

** Meaning of Start- up
A company would be considered as Start-up if the following
conditions are satisfied:

4.5
 a. It would be considered as Start-up up to a period of 10
years from the date of incorporation/ registration, if it is
incorporated as a Pvt Ltd Company (as defined in the
Companies Act, 2013) in India.
b. Turnover of the company for any of the financial years since
incorporation/registration has not exceeded 100 crore rupees.
c. The company is working towards innovation, development
or improvement of products or processes or services, or if it is a
scalable business model with a high potential of employment
generation or wealth creation

Note - Pvt Ltd Co. shall not be considered a "Start- up", if it

formed by splitting up or reconstruction of an existing business.

Condition 1. For startup

a. Aggregate amount of paid up capital and share premium of
the start-up after issue or proposed issue of shares, does not
exceed, 25 crore rupees.
b. However, in computing the aggregate amount of paid up share
capital, in respect of shares issued to any of the following
persons shall not be included:
- a non-resident
- venture capital company or a venture capital fund
- a specified company

Condition 2. For startup

- . Building or land appurtenant thereto, being a residential
house. [Allowed if Start-ups business is renting or held by it
as Stock in trade)
- Land or building, or both, not being a residential house.
[Allowed if Start-ups business is renting or held by it as
Stock in trade)
- Loans & advances. [Allowed if Start-up business is lending
of money]

4.6
 - Capital contribution made to any other entity.
- Shares and securities
- Motor vehicle, aircraft, yacht or any other mode of
transport, the actual cost of which exceeds 10 lakh rupees.
[Allowed if Start-up business is plying, hiring, leasing]
- Jewellery. [Allowed if it held as stock-in-trade in the
ordinary course of business]
- Any other asset, whether in the nature of capital asset or
otherwise, of the nature specified in section 56(2)(vii)(d)(iv)
to (ix) i.e., archaeological collections, drawings, paintings,
sculptures, any work of art or bullion.
- However, the Start-up should not invest in any of the
assets mentioned above for the period of 7 years from the
end of the latest FY in which shares are issued at premium.
Proviso If company fails to comply with above conditions then, any
added by consideration received for issue of share that exceeds the FMV of
FA 2019 - such share shall be deemed to be the income of that company
If fails to chargeable to income-tax for the PY in which such failure has
comply taken place
Deemed mis-reporting u/s 270A Penalty - 200% of Tax

4.7
 Term Meaning
Property A capital asset of the assessee, namely,-
(a) immovable property being land or building or both,
(b) shares and securities,
(c) jewellery,
(d) archaeological collections,
(e) drawings,
(f) paintings,
(g) sculptures,
(i) virtual digital asset
(h) any work of art or bullion.
Relative (a) In case of an individual –
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the
individual;
(vii) spouse of any of the persons referred to above.
(b) In case of Hindu Undivided Family, any member thereof.
Resident Resident means a person having physical possession of property on the basis of a
registered sale deed or latest set of Power of Attorney, Agreement to Sale, Will,
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.
Unauthor Means a colony or development comprising of a contiguous area, where no
ised permission has been obtained for approval of layout plan or building plans and
colony has been identified for regularisation of such colony in pursuance to the
notification number S.O. 683(E), dated the 24th March, 2008, of
the Delhi Development Authority.
Strategic Sale of shareholding by the Central Government or any State Government in a
disinvest public sector company which results in reduction of its shareholding to below
ment 51% along with transfer of control to the buyer.

4.8
Amendment by FA 2022 w.e.f. AY 20-21
Section 56(2)(x) not applicable in the following cases; -
(xii) an individual, from any person, in respect of any expenditure actually incurred by
him on his medical treatment or treatment of any member of his family, for any
illness related to COVID-19 subject to conditions notified by the Central Government.
Accordingly, the Central Government has, vide Notification No. 91/2022 dated
5.8.2022, specified the following conditions -
The individual has to keep a record of the following documents, namely:-
(a) the COVID-19 positive report of the individual or his family member, or medical
report if clinically determined to be COVID-19 positive through investigations in a
hospital or an in-patient facility by a treating physician for a person so admitted;
(b) all necessary documents of medical diagnosis or treatment of the individual or
family member due to COVID-19 or illness related to COVID-19 suffered within 6
months from the date of being determined as a COVID-19 positive;
The details of the amount so received in any financial year has to be furnished in Form
No. 1 to the Income-tax Department within 9 months from the end of such financial
year or 31.12.2022 whichever is later.
(xiii) a member of the family of a deceased person -
(A) from the employer of the deceased person (without any limit); or
(B) from any other person or persons to the extent that such sum or aggregate of
such sums ≤ 10 lakhs,
where the cause of death of such person is illness related to COVID-19 and the
payment is -
(i) received within 12 months from the date of death of such person; and
(ii) subject to such other conditions notified by the Central Government.

Accordingly, the Central Government has, vide Notification No. 92/2022 dated
5.8.2022, specified the following conditions -
1. (i) the death of the individual should be within 6 months from the date of testing
positive or from the date of being clinically determined as a COVID-19 case, for which
any sum of money has been received by the member of the family;

4.9
(ii) the family member of the individual has to keep a record of the following documents,

(a) the COVID-19 positive report of the individual, or medical report if clinically
determined to be COVID-19 positive through investigations in a hospital or an inpatient
facility by a treating physician;
(b) a medical report or death certificate issued by a medical practitioner or a
Government civil registration office, in which it is stated that death of the person is
related to corona virus disease (COVID-19).
2. The details of such amount received in any financial year has to be furnished in Form
A to the Assessing Officer within 9 months from the end of such financial year or
31.12.2022 whichever is later.
Meaning of “Family” -
Family, in relation to an individual,
(i) the spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly
dependent on the individual.


Chapter 5: Taxation of Various Entities

Taxation in the case of Buy Back:

IN CASE OF FOREIGN COMPANY IN CASE OF DOMESTIC CO.

(LISTED or UNLISTED)

In hands In hands of

of company Shareholders In hands In hands

of company of Shareholders

No Tax Sec 46A:. Capital Gain

Treatment is applicable in hands Domestic co. shall Exempt u/s

of shareholders pay tax @ 23.296% 10(34A)

(20% + 12% + 4 %)

FVOC(Buy Back Price) xxx on distributed Income

(-) COA/ICOA xxx (Sec 115QA)

STCG/LTCG xxx Distributed Income=

POH= Date of Acquisition to Date of Buy Back Buyback Price-Issue Price(incl. premium)

Notes:

• Redemption of preference shares → also amounts to Buy Back of Shares

• Tax on Buyback shall be paid to Govt → within 14 days of Buy Back

• Sec 115 QB/QC:- Interest @1% pm or part From 15th day Till

Actual payment of Tax

Issue price can be different in certain cases

Following issue prices can be taken as follows:-

CASES ISSUE PRICE

→ Normal case Issue price including Premium

→ If before Buy Back, Amount received by Co. - Returned Amount

any amount returned

by company

→ Esop shares or a) FMV of shares xxx

Sweat Equity shares b) Amt recd incl. premium xxx

w.e. lower

5.1

Amount received by Amalgamating co.

→ Shares issued by Amalgamated

Company in Amalgamation.

→ Shares issued by Resulting Amt. recd. Net Book Value of Assets

Company in Demerger by Demerged Co. x Transferred in Demerger

Net worth of Demerged Co.

Taxation in Case of Liquidation

In hands of Company
In hands of Shareholder

As per sec 46(1) Distribution of Profits

by Company

Distribution of Assets

by Company Deemed Dividend us 2(22)(c)

Not treated as transfer, Distribution of Assets by Company

Capital Gains Not Taxable

Capital Gain applicable

in hands of Shareholder

Computation of Capital Gains:-

Money received xxx

+ FMV of asset on that date xxx

(-) Amount taxable as deemed dividend xxx

Full Value of Consideration xxx

(-) COA/ICOA Of Shares xxx

STCG/LTCG XXX

Period of Holding = Date of Acquisition TO date of liquidation of Shares of Company

COA of Assets = FMV of Assets on date of Liquidation

5.2

Taxation in Case of Amalgamation

Amalgamation:

Merger of one or more companies in a way that:

All Assets & liabilities Shareholders holding minimum 75%

of Amalgamating co. value of Shares of Amalgamating co.

Becomes Becomes

Assets & liabilities Shareholders of Amalgamated Co.

of Amalgamated Co.

Taxation

In the hands of Shareholders In the hands of Company

No capital Gain in Amalgamating Amalgamated

hands of Shareholders Co. Co.

COA = Cost of shares in Amalgamating Co. No capital Gain CoA= Cost to

on Transfer previous owner

POH= POH of Shares in

Amalgamating Co. + Amalgamated Co. POH= POH of Previous

+ Current Owner

Taxation in Case of Demerger

Demerger:

Transfer of One or more Undertaking/Unit by

Demerged Co. -> to Resulting co.

Conditions

All Assets & Liabilities All Assets & liabilities should Resulting Co. issues its

of Demerged unit be transferred at Book Value shares to shareholders of

becomes (Note:Book value condition not Demerged Co. -> on

Assets & liabilities applicable if value is changed proportionate Basis

of Resulting Co. due to Ind AS)

5.3

The Shareholders Transfer of undertaking/unit

holding minimum 75% is on going concern Basis.

Value of shares in the

demerged Co.

becomes

Shareholders of Resulting Co.

Taxability

In the hands of Shareholders In the hands of Company

Resulting co. Demerged Co

COA= COA to No capital Gains

Previous Owner

COA of Shares in Resulting Co. =

COA of Shares held in Demerged Co × Net Book Value of Assets transferred in Demerger

Net worth of demerged Co. before demerger

→ PGBP losses & Unabsorbed depreciation OF Transferred Undertaking can be set off

by Resulting Co.

5.4

Taxation of Political Parties

3 Incomes of Political Parties are EXEMPT under Section 13A

• Income from House property

• Income from Capital Gain

• Income from Other sources including donation

Income from Salary -> NOT POSSIBLE

Income from PGBP -> Fully Taxable

There are Certain conditions for EXEMPTION:

1) Political Party must maintain its Books of accounts & get it Audited.
2)For Every donation received above Rs. 20000, party must maintain record of
Name & Address of the donor.
3)Every donation received > Rs. 2000 must be taken by A/c payee cheque, A/c payee
DD, any mode of ECS etc.
4)For claiming exemption, Political parties need to file return before Due date

of 139(1).

→ Deduction will be available to the donor against above donation

u/s 80GGB-> Company
80GGC-> Others
(Note: Not available for donation made in Cash)

Sec 13B Taxation of Electoral Trust

Any Voluntary Contribution received by Electoral trust shall be exempt if 2 condition

are satisfied:

i) 95% or more aggregate donation given to political party.

ii) functions in accordance with CG Rules

Notes:

• 80GGB/GGC same as political party.

• Only Donation Income exempt, other Income taxable.

• It should not recieve money from Govt. Co., Other Electoral Trust & Foreign source.

• It should not receive donation in Cash

5.5

Taxation of BUSINESS TRUST

UNIT Invest BUSINESS TRUST Invest SPECIAL PURPOSE VEHICLE

HOLDER REIT/INVIT INDIAN COMPANY

Interest & Dividend Interest & Dividend

from SPV.

Pass Through

Status

Unit Holders Rental Income Rental Income Real Estate Assets

REIT
Owned by REIT

Taxability:

Only 3 Income are taxable in the hands of Unit Holders:

Interest, Dividend from SPV & Rent (from REIT) .

All Other Income will be Exempt.

All Other Income are Taxable in the hands of Business Trust.

5.6

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5.7

Notes: → Taxability on Transfer of Business Units

Listed Units Unlisted Units

LTCG [POH> 36 months] STCG LTCG u/s 112 STCG

Taxable @ 10% u/s 112A Taxable @ 15% Taxable @ 20% Normal Tax Rates
in excess of Rs. 1,00,000. u/s 111A

→ Any other Income other than Interest, Dividend and Rent(REIT) received by unit
Holders shall be EXEMPT in the hands of Unit Holders u/s 10(23FD).

Shares of SPV

→ Any person Business Trust

Units of Business trust

Not a Transfer u/s 47(xvii). Capital Gain will not apply.

COA of Units = COA of shares in SPV

Period of Holding = Period of Shares in SPV + Period of Units of Business Trust

5.8

Taxation of Investment Fund

All Income Taxable except PGBP

In the Hands of UNIT HOLDERS

In the Hands of INVESMENT FUND Only PGBP Taxable.

All Other Income Exempt.

Only PGBP Income is taxable in the hands of Investment fund, all other Income is
taxable in the hands of Unit Holders

↳ PGBP loss- Inv. Fund will carry forward

Other losses - Unit holders will carry forward only if Unit

is held by them for 12 months or more

→ Before carrying forward the losses, it will be first set off against other heads in the
Investment fund.
→ Investment fund is required to file its return compulsorily u/s 139 (4F).

Tax Rates for Investment fund:

Company- 25%/30% (Based on Turnover)

If Investment Fund is:

Firm → 30%

Others- MMR

Unit Holders -> Normal Tax Rates

→ Investment fund has to deduct TDS u/s 194LBB while paying to Unit Holder:

Resident- 10%

NR/FC- Rate in force

5.9

Taxation of Securitisation Trust

In the hands of Securitization Trust → All Income EXEMPT

In the hands of Unit Holders → All Income TAXABLE

Securitization Trust has to deduct TDs u/s 194LBC while paying to Unit

Holders:

Resident: Ind/HUF - 25%

Others - 30%

NR/FC → Rates in force

Common Points for Investment Fund & Securitisation Trust:

• If Income earned by → Has not been paid/credited → It shall be deemed to be

Fund/Trust during P.Y. to the Unit holders credited to the Unit Holders
on the last day of P.Y.

Common Points for Business Trust,Investment Fund & Securitisation Trust:

• Income distributed by → Same Nature → In the hands of

Fund/Trust will be in Same Proportion Unit holders

e. g. 100 lakhs 10 lakh to unit Holder

CG IFOS CG IFOS

70 lacs 30 lakhs 7 lakhs 3 lakhs

5.10

• They shall provide Break-up to the unit Holders & IT Authority regarding Nature &

proportion:

Unit Holders -> upto 30th June of A.Y.

Income Tax Authority->Upto 30th Nov of A.Y.

TONNAGE TAXATION:

Sec 115UG: COMPUTATION OF TONNAGE INCOME

Income = Daily Tonnage Income x No. of days ship is operated in a P. Y.

We have to calculate this now.

QUALIFYING SHIP DAILY TONNAGE

INCOME

HAVING NET TONNAGE

Tonnage upto 1000 Rs. 70 for each 100 tons

> 1000 upto 10,000 Rs. 700 + Rs. 53 for each 100 tons

> 10,000 upto 25000 Rs. 5470 + Rs. 42 for each 100 tons

> 25000 Rs. 11,770 + Rs. 29 for each 100 tons

Notes:

• Tonnage shall be rounded off to nearest multiple of 100

• Tax Rate will be @ 30% + surcharge + cess (if applicable)

• MAT not applicable

• No Deductions/set off of losses allowed against Tonnage Income.

Tonnage Tax Reserve A/c

→ Minimum 20% of Book Profit shall be transferred to Tonnage Tax Reserve A/c in

every P.Y.

Purchase of ship within 8 years

→ Reserve Amount should be utilised for

Business of operating ships

Shortfall in Reserve

Taxable Amount = Relevant Shipping Income x Shortfall

Minimum Reserve to be created

5.11

Mis-utilization/ Non-Utilization of Reserve

Amount Mis-utilized/Un-utilized
Taxable Amount = Relevant Shipping Income x

Total Reserve created during Year

Note:- Relevant Shipping Income =

Profit from Core-Shipping Activity + Profit from Incidental Activity

5.12

TAXATION OF AOP/BOI

(1) When Shares of Members are Known: -

All members having NTI One or more members have

upto Basic Exemption NTI> basic exemption

Tax at slab Rate Tax on Entire Income @ MMR i.e.

42.744%(30+37+4)

→ If Income of any member is taxable at Rate higher than MMR, then:

• His Share of Income will be taxable at Higher Rate

• Balance Income of AOP/BOI will be taxable at MMR

(2) When Shares of Members are UNKNOWN:-

Tax Entire Income @MMR i.e. 42.744%

If Income of One Member is taxable at rate higher than MMR, then whole Income of

AOP/BOI will be taxable at such higher rate.

Note: While calculating NTI (Net Total Income) of member share from AOP/BOI will
not be included.

If AOP/BOI has paid tax at MMR, then share from AOP/BOI will be Exempt in

the hands of members

Sec 40 (ba)
Interest, Salary, Bonus/Commission paid by AOP/BOI → shall be disallowed
While Computing PGBP Income OF AOP/BOI.

Interest

IF AOP/ BOI Members

paid Interest too

Only Net Interest paid by AOP/BOI shall be disallowed

→ Loss OF AOP/BOI shall be carried/forward by AOP/BOl only.

5.13

Sec 67A- Computation Of Member's share in AOP/BOI

→ Compute Net Total Income of AOP/BOI

↳ After disallowing Salary & Interest paid to members.

→ Now we will calculate Member's share in profit of AOP/BOI:.

Net Total Income of AOP/BOI xxx

(-) Interest & Salary paid to members xxx

xxx → This amount will be

distributed to members in PSR

→ Therefore members will recieve 2 kinds of Amount from AOP/BOI:

Interest Salary + Share in profit = Share of member received from AOP/BOI.

→ Share from AOP/BOI will be included in Member's Total Income, but members will
get Rebate u/s 86.
Share from AOP/BOI xxx

(+) Other Income of Member xxx

Total Income xxx → Tax will be calculated on this

income first, then Rebate will be

Tax+surcharge+cess on Total Income - xxx allowed.

(-) Rebate u/s 86 =

Tax Amount x Share from AOP/BOI xxx

Total Income

Net Tax payable by members xxx

→ Rebate u/s 86 only available when Tax has been paid by AOP/BOI
→ If any member is member in Individual Capacity and he receives Interest in
Representative capacity, then that Interest will not be considered for sec 40(ba).

→ If any member is member in Representative Capacity and he receives Interest

in Individual capacity, then that Interest will not be considered for sec 40(ba).

Conclusion: Interest will only be considered for sec 40(ba) when a member
receives it in the same capacity in which he is a member.

5.14

Taxation of Firm/LLP

Sec 40(b): While Calculating the Business Income of Firm/LLP, following amounts shall
not be deducted:
i) Remuneration to a non-working partner
ii) Remuneration to a working partner not authorized by deed.

iii) Remuneration to a working partner or interest to a partner authorized by deed

but relates to an earlier period.

iv) Interest to any partner in excess of 12% p.a.

v) Remuneration to a working partner in excess of prescribed limits

Prescribed Limits for Book Profit:

Book Profits Quantum of deduction

On the first Rs. 3 lakh of book profit 1,50,000 or 90% of book

or in case of loss profit, whichever is higher

on the balance of book profit 60% of book profit

Notes:
1) Book Profit: PGBP Income before allowing Remuneration
Calculation:
Net Profit under PGBP xxx
(+) Remuneration(if debited to P&L A/c) xxx
(+) Disallowances under PGBP xxx

(-) Current Year + b/f Depreciation xxx

Book Profit xxx
2) Interest over and above 12% shall be added back to calculate Book Profit.(RTP Nov
22 Q.)

Tax Rate for Firm/LLP: 30% Surcharge: 12% if NTI> 1 Cr.

STCG u/s 111A & LTCG u/s 112A shall be applicable to firm also.

5.15

Sec 44AD/ADA/AE for Firm LLP

Sec 44AD/ADA Sec 44AE

→ LLP not eligible for 44AD/ADA → No such restriction for 44AE

→ Int & Remuneration to partners not → Int & Remuneration to partners will

allowed while calculating Income. be allowed while calculating Income.

Explaination to Sec 40(b):

→ If any partner is partner in Individual Capacity and he receives Interest in

Representative capacity, then that Interest will not be considered for sec 40(b).

→ If any partner is partner in Representative Capacity and he receives Interest

in Individual capacity, then that Interest will not be considered for sec 40(b).

Conclusion: Interest will only be considered for sec 40(b) when a partner

receives it in the same capacity in which he is a partner.

Note: This Explaination is only applicable on Interest and not on Remuneration.

Sec 78: Set off & Carry Forward of Losses

Losses & Unabsorbed Depreciation of Firm → can be c/f by Firm Only.

On Retirement/Death of Partner → Share of B/f Loss of Deceased/Retired Partner can

not be Carried Forward.

2 Exceptions:

• If After Death of Partner, His Legal Heir

becomes partner of firm, then his share will be

c/f by firm

• Unabsorbed Depreciation of Deceased/Retired

partner can be carried forward

Sec 188A: Joint & Several Liability of Partners

Every person who is a partner of the firm at any time during P.Y. shall be

jointly & Severally Liable along with firm for tax, penalty etc.

Even Liability of partners of LLP is not limited for Income

Tax Act purposes.

5.16

Change in Constitution & Succession

Sec 187: Change in Constitution Sec 188: Succession of firm

→ Where all the partners continue with → Where a firm is succeeded by another
a change in respective PSR firm.

→ when atleast one person continues as → 2 Returns are filed for year of succession:
partner after the retirement/death of
one or more person. one by predecessor one by successor

5.17

Chapter 6: Minimum Alternate Tax

→MAT provisions are applicable to All COMPANIES Domestic Co.

Foreign Co.

Sec 115JB: Govt/Non-Govt. Co.

Companies have to pay tax at:

(i) Tax computed as per Normal provisions of Income tax

OR

(ii) 15% of Book Profit (MAT)

WHICHEVER IS HIGHER

Note: If Company is located in IFSC, MAT Rate is 9% instead OF 15%.

Income of Co. must be in Convertible Foreign Exchange

→ MAT is Not Applicable to Companies Opting Sec 115BAA & 115BAB

→ Surcharge & Cess is applicable on MAT(Same as Normal Companies) :

TOTAL INCOME Foreign Co. Domestic Co.

1 cr < Total Income < 10 cr 2% 7%

Total Income > 10 cr 5% 12%

+ Cess@ 4%

Computation of BOOK PROFIT as

i per Sec 115 JB

Profit as per Profit & loss A/c as per Companies Act, 2013 xxx

Add: Less:

1) Any amount Transferred to Any 1) Any Amount withdrawn from any

Reserve A/c Reserve A/c

(Only reduced if it was added in

the Book profit in the Year of

making reserve.)

2) Expenses incurred for earning Such 2)Income Exempt u/s Sec 10,Sec 11,

Exempt Income (See 10/11/12) & Sec 12

3) Depreciation Debited to P&L A/c 3) Depreciation excluding depreciation

on Revalued Assets
as per companies act as per

companies act

4) Deferred Tax debited to P & L 4) Deferred Tax credited to P & L

6.1

Colour code for this Section

Blue- Less Red- Add

4a) Income Tax Paid

Provision

↳ includes interest, surcharge, Cess

but Not penalty → Means Penalty Already taxed in

will not be added back. the hands of AOP/BOI

5) Expenditure incurred relating to share 5) Share of Company in the Income of

in Income of AOP/BOI AOP/BOI

6) Expenses incurred by foreign Co. 6) Income Of Foreign Co. from:

for earning such income: → Capital Gain on securities

→ Capital Gain on securities → Interest If Tax rates on

→ Interest → Dividend* these income is less

Sec

→ Dividend* → Royalty or FTS than 15% CMAT Rate)

→ Royalty or FTS 115A

7) Expenditure incurred on Earning 7) Royalty Income on Patent Taxable

Royalty Income u/s 115BBF @10%

8) Balance in Revaluation Reserve on 8) Transfer from Revaluation Reserve (to

Retirement or Disposal of Assets the extent of depreciation on Revalued

if not credited to P&L assets)

9) Business Trust Units

9) Business Trust Units

Notional Actual GAIN Notional Actual LOSS

Loss on transfer gain on transfer

→ Notional Gain on:

→ Notional Loss on:

• Shares of Units of • Shares of Units of

SPV Business Trust SPV

Exchange
Business Trust

• Change in Carrying value • Change in Carrying value

→ Loss on Transfer of such units → Gain on Transfer of such units

→ Amount of Actual GAIN on → Amount of Actual LOSS on

Transfer of units of Business Trust Transfer of units of Business Trust

[Selling price of units- Cost/Carrying [Selling price of units- Cost/Carrying

value of shares of SPV] value of shares of SPV]

6.2

PAID

10) Dividend 10) Profit of Sick Industrial Company

11) B/F losses/Unabsorbed Depreciation

PROPOSED

11) Provision for Contingent/ i) B/F Losses i) B/F Losses

Unascertained liability OR AND

ii) Unabsorbed ii) Unabsorbed

12) Provision for Dimunition in the Depreciation Depreciation

value of Assets. Whichever is lower

[eg. Provision for Bad Debts]

13) Provision for losses of Subsidiary

company. Normal Companies

In case of 2 Companies

Company against Company & its

whom corporate subsidiaries whose

Insolveny Resolution BOD has been

Process has been suspended &

admitted Under New BOD is

IBC 2016 appointed by CG

→ B/f losses & Unabsorbed depreciation

As per companies Act Not Income Tax Act

✓ xx

Space for Notes:

6.3

Computation of Book Profit of Ind-AS compliant Companies

In case of companies which are required to Comply with Ind-As, then following

additional adjustments is required to be done after above adjustments

ADD:- LESS:-

1) Items CREDITED to Other 1) Items DEBITED to Other

Comprehensive Income (OCI) Comprehensive Income (OCI)

which will never be classified to P&L which will never be classified to P&L

Except Except

Revaluation Gain or Loss Revaluation Gain or Loss

Surplus from From Investment Surplus from From Investment
Asset as per in Equity Instruments Asset as per in Equity Instruments
IndAs 16 & 38 designated at IndAs 16 & 38 designated at
Fair value through Fair value through
OCI as per Ind As 109 OCI as per Ind As 109

2) GAIN from: 2) LOSS from:

• Change in fair value of • Change in fair value of
Equity instruments through OCI & Equity instruments through OCI &

• Revaluation surplus from Assets on • Revaluation surplus from Assets on

Retirement, Disposal, Realization Retirement, Disposal, Realization
or Transfer. or Transfer

3) Amount DEBITED to Profit & loss on 3) Amount CREDITED to Profit & loss on

Distribution of Non-Cash assets to Distribution of Non-Cash assets to

Shareholder in a demerger as per Shareholder in a demerger as per

Appendix A of Ind As-10. Appendix A of Ind As-10.

4) I/5th of Transition Amount(Credit)* 4) I/5th of Transition Amount(Debit)*

Space for Notes:

6.4

→ Transition Amount: Aggregate Amount adjusted in Other Equity but Excludes:-

Capital Reserve Amount adjusted in Revaluation Surplus Gain or loss

& Securities OCI but subsequently from Assets on in fair value of
Premium reclassified to P&L convergence date Equity instrument
through OCI

Adjustments

relating to

Investments in Cummulative PPE &

Subsidiary/JV/Associate Translation Intangible

through OCI difference Assets

of foreign

Operation

→ All the above amounts are to be taken at convergence date.

1st day of 1st Ind-As Reporting Year

→ For All Companies - Net profit shall be computed as per Companies Act 2013

Electricity co. Profit shall be calculated as

→ For Banking Co.

per respective Act.

General Insurance Co.

↳ For Life Insurance Co, MAT not applicable

Provision for Gratuity

→ If Leave Salary → If Made as per actuarial valuation,

Provision for warranty then Not to be added Back.

[Note: In PGBP, only gratuity paid is allowed]

→ Advance Tax These provisions will be applicable

Int u/s 234ABC to MAT following companies

→ MAT not applicable to companies opting 115BAA or 115BAB

6.5

MAT for foreign companies:

→ Point No. 7) from Deductions (Less) Side. 44B

→ MAT not applicable to foreign Cos. which have opted 44BB presumptive

→ MAT not applicable to 44BBA

44BBB

Foreign Co. is of Country Foreign Co. is of country

with which India has DTAA with India does not have DTAA

Foreign country DTAA India Foreign country

No DTAA
India

& Foreign Co. does not have PE in & Foreign Co. is not required to

take any registration under any law

India.

in India.

Sec 115JJAA: MAT Credit

MAT credit arises when: MAT payable> Tax as per normal provision

MAT Credit = MAT payable - Tax as per normal provisions

→ It can be carried forward for 15 years.

→ MAT credit can be utilized in the year in which Allowed to the extent

Tax as per Normal provisions > MAT payable Normal Tax exceeds MAT

→ If Unlisted Co. Converts to LLP, MAT credit shall not be allowed to LLP.

eg. P.Y. 21-22 P.Y. 22-23

MAT = 100,000 MAT = 1,10,000

Normal Tax = 80,000 Normal Tax = 1,20,000

MAT credit = 20,000 Tax payable = 1,10,000 MAT credit of 10,000

will be utilised.

Space for Notes:

6.6

→ Amendment F. A. 2021 Due to Change in Income of Past year

If there is increase in Book Profit included in Book profit

APA or Sec Adj.

of current P.Y. on Account

of

Advance pricing Agreement

or Secondary Adjustment

Then Assessee can apply to AO to recompute Book profit and tax payable by assessee

for past year or years.

Rule 10RB:

(A-B) – (D-C)
A= tax payable by the assessee company under section 115JB(1) on the book profit of
the previous year including the past income.

B =tax payable by the assessee company under section 115JB(1) on the book profit of
the previous year after reducing the book profit with the past income.

C =Aggregate of tax payable by the assessee company under section 115JB(1) on the
book profit of those past year or years to which the past income belongs.

D=Aggregate of tax payable by the assessee company under section 115JB(1) on the
book profit of past year or years, referred to in item C, after increasing the book profit
with the relevant past income of such year or years.
It may be noted that if the value of (A-B)-(D-C) in the formula is negative, its value
would be deemed to be zero.

Meaning of past income [Rule 10RB(2)]

Past income means the amount of income of past year or years included in the book
profit of the previous year on account of an APA entered into by the assessee under
section 92CC or on account of secondary adjustment required to be made under section
92CE.

6.7

Chapter 7: Alternate Minimum Tax

ALTERNATE MINIMUM TAX

Sec 115JC:-

→ AMT is applicable to all Assessees except Companies

→ AMT shall not be applicable if ATI is upto 20 lakhs

Individual/HUF/AOP/BOI/AJP

Income Tax payable:

→ Income Tax payable as per Normal provisions or whichever is

→ 18.5% of Adjusted Total Income Higher

Calculation of Adjusted Total Income

Total Income as per Normal provisions xxx

(+) Dedn u/s 10AA xxx

(+) Dedn u/s Vl-A 'C' xxx

(+) Dedn u/s 35AD xxx

(-) Depreciation allowable on 35AD Assets xxx

if deduction u/s 35AD was not allowed

Adjusted Total Income (ATI) xxx

→ The provisions of AMT apply only if assessee is claiming deduction u/s 10AA,
chapter VIA-'C' or 35 AD.

→ If unit is located in IFSC, AMT is applicable at 9% → Instead of 18.5 %

→ All provisions of Income Tax Act like Advance Tax, Int u/s 234A/B/C shall apply to
the assessee.
→ AMT is not applicable to Assessees opting 115BAC & 115 BAD, AMT credit
unutilized on the day of opting above sections will LAPSE.
→ AMT is not applicable to Specified fund u/s 10(4D)

AMT Credit

When AMT payable > Tax as per normal provision

AMT credit arises when → AMT Credit = AMT payable - Tax as per Normal provisions

It can be carried forward for 15 years.

7.1

AMT credit can be utilized in the year in which Allowed to the extent

Tax as per Normal provisions > AMT payable Normal Tax exceeds AMT

Eg. P.Y.-19-20 P.Y. 20-21

AMT = 1,00,000 AMT = 1,10,000 AMT credit of

Normal Tax = 80,000 Normal Tax = 1,20,000 10,000 will be

AMT credit- 20,000 Tax payable = 1,10,000 utilised.

→ In Case of Co-operative Society, AMT Applicable @ 15% instead of 18.5%

7.2

Chapter 8: Taxation of Trust

Relief of

Preservation of Monuments/ Poor Medical

Places/objects of Artistic or Relief

historic Interest CHARITABLE

Education

PURPOSE

Preservation

of Environment Yoga se hi Hoga

Advancement of

any other object of

General Public Utility

→ Advancement of any other Object of GPU:

If it involves any activity related to TRADE, COMMERCE or BUSINESS

is a Charitable purpose only if Not more than 20%

→
Aggregate Receipts from of Total Reeiepts.

Business Activity

→ If it exceeds 20%, Exemption will be denied for that particular year,

Registration will not be cancelled.

SECTION 11(1) : INCOME OF TRUST

Following income of Trust are Exempt:-

i) Corpus donation (exempt only if invested in 11(5) modes)

ii) 15% of Gross Income

iii) Income applied for charitable or Religious purposes in India - From remaining 85%

Notes:

→ Applied Means:

- Capital + Revenue Exp.

corpus donation - Donation to other trust regd. u/s 12AA/12AB

will not be - Repayment of loan taken for acquisition capital Assets.

considered as

applied.

→ Cost of Asset - Taken in applied.

↳ Then depreciation will not be taken in applied.

8.1

→ 40(a)(ia), 40A(3) , 40A(3A) is applicable in case of Trust

If expense is disallowed in

TDS not cash payment cash payment these 3 Sections, it will not

deducted >10k >10K of last Year be taken in applied.

(30%)

→ If 85% not applied, it can still be taken in applied:

How?

If its Outstanding Any Other Reason

• Trust will give declaration • Assessee will give declaration

to A.0. that the amount is still to AO. that we will apply in

outstanding. Next P.Y.

• Till when: Should submit it • Till when: Should submit it

before Due date of ROI before Due date of ROI.

• If not applied:

• Assessee will apply it when received:

when? It will become Income of next P.Y.

In the year Next Year after

or
of Receipt receipt (Bonus)

• If Not applied : It will become

Income of this year

Explanation-3A (Added by FA 22 w.e.f. AY 21-22)

If trust is having any temple,

& it has received any donation for
mosque/gurdwara/church or
repair or renovation of such places

any place notified u/s 80G(2)(b)

then such donation may be treated by trust as

Corpus if following conditions are satisfied; -

• Such amount should be applied only for repair or renovation

• Such amount should not be donated to any other person or trust,
• Such corpus must be separately identifiable, &
• Such amount must be Invested/deposited in Safe modes u/s 11(5).

8.2


Note:

If any condition mentioned in Exp. 3A above is violated

then such sum shall be deemed as income of the PY in which violation takes place.

Explanation added section 11 by FA-22 w.e.f. AY 22-23

→ Any sum payable by any trust

Method of

or institution shall be considered

accounting Irrelevant

as application of income → in the P.Y.

in which → trust has actually paid the sum.

However, where during any Preceeding P.Y., Trust/Inst.

has already claimed any amount as application,

such sum shall not be allowed as

application again in any subsequent

P.Y based on actual payment due to

this explaination.

Sec 11(2) : Exemption if Income Accumulated for specific Purpose

Conditions:

i) Assessee will tell period & purpose to A.O.

ii) Max period - 5 years

iii) This Amount must be invested in Sec 11(5) Safe Investment modes

iv) This amount can not be donated to Other Trust.

Note: After 5 Years period, One bonus year(6th Year) will be given.
If accumulated Amount is not applied in the 6th year, it will become Income of 6th year.

→ If this amount is applied for any purpose other than the purpose for which it was
accumulated - the amount will become the income of the year in which it is applied.
[Sec 11(3)]

8.3

Sec 13(9) : Exemption u/s 11(2) will not be given if:

→ Statement to A.O. is. not given upto Due Date of ROI

→ ROI not filed upto due date of ROI.

Sec 11(4)/(4A): Business Income of Trust:

→ If Business is Incidental to the main object of the Trust & separate BOA is
maintained, Exemption of Sec 11(1) & 11(2) will be allowed.
→ If A.O. finds any concealed Income, no exemption will be allowed on such concealed
Income, whole Concealed Income will be taxable.

Sec 11(7):
If Trust takes exemption u/s 11/12, Exemption under Section 10 will not be allowed.
2 Exceptions: i) Section 10(1)
ii) Section 10(23C)

Provided that registration of Trust will become inoperative from the date on

which trust or institution is approved u/s

10 (23C)(iv),10 (23C)(v),10(23C)(vi),10(23C)(via) or notified us 10(46)

or the date on which this proviso has come into force, whichever is later

(Added by FA 2020 W.e.f. 01.06.20)

Sec 12A: Conditions for applicability of Sec 11&12

→ Trust shall be registered u/s 12AA/12AB

→ Exemption will be available from the P.Y. in which application is given.

→ If Total Income (Before Claiming Exemption) > Basic Exemption limit then trust has

to submit audit report with ROI.

Notes:

→ Exemption is available from P.Y. in which application was made but,

If on the date of registration, no case is pending for earlier A. Ys:

In which activities of Trust are same

on the basis of which registration is granted

then Exemption u/s 11 & 12 will be available for such earlier A.Y.s also.

8.4

→ 147 - Re-assesment proceedings can not be done on the basis that Trust was not

registered in any preceding A.Y.

The above benifit of earlier A.Y is not available if:

→ Trust had applied for registration & CIT had rejected it.

→ Trust had Registration but it got cancelled.

See 13(1):- Exemption us 11/12 not available in following cases:

The Exemption of Trust shall not be available in the following cases:

(a) Income from Property of trust for Private Religious Purpose

(b) Income from trust established for the benefit of particular religious caste or

community.

(c) Income of trust ensuring for the benifit of any person referred in Sec 13(3)

(Related persons)

(d) Funds invested in any modes other than 11(5) modes.

Person referred in sec 13(3):

• Author/founder of Trust .

• Member of HUF if founder/donor is HUF .

• Trustee or manager of Trust

• People who made donation> 50k

• Relative of any one above

→ If education/Medical facility is given to above referred person, then Value/FMV

of such service shall be treated as Income of the Trust.

Sec 11(1A): Capital Gain is deemed to be applied for charitable purpose → If new Asset is

purchased on transfer of Old asset

→ If whole Net consideration is utilized- Fully exempt

→If Net Consideration is partly utilized → [Cost of New Asset - Cost of Old Asset]

shall be exempt

8.5

ANONYMOUS DONATION

Sec 115 BBC: Taxable @ 30%

Whole Anonymous donation is not taxable @ 30%,

some amount is deducted from it →

Higher of:-

(i) 5% of TOTAL DONATION → All donation.- corpus,

(ii) Rs. 1,00,000 anonymous, govt. grant

→ Anonymous donation received by wholly Religious trust - Not Taxable

→ The amount which is deducted from anonymous donation → This is added with normal

donation - and it is taxed at normal rates.

Section 115BBI: Tax on Specified Incomes

Tax Rate: 30% Deductions Allowed: No Deduction allowed

of any expense/loss.
Following specified Incomes are taxable @ 30%: -
(I) Income accumulated or set apart in excess of 15% where such accumulation
is not allowed under any specific provision of IT Act.

(ii) Deemed Income on Violation of use of Accumulated Income u/s 11(3)

eg: used for some other purpose donated to other trust

(iii) Deemed Income on account of deemed application provisions u/s 11(1B).

Eg: Not able to apply Income in this year, gave declaration to AO that

we will apply in next year or year of receipt but could not apply.

(iv) Any Income applied for the benefit of Specified prohibited person(Relative) u/s 13(1).

(v) Income which is not deposited/invested in modes specified in 11(5).

(vi) Income from property held by trust to promote International Welfare.

If Income is Applied for If Income is Applied for

Charitable purposes in India Charitable purposes Outside India

Not a Specified Income Specified Income

8.6

Section 13(10): Calculation of Income in case of certain violations

In Case of Following Violations:

• Where Commercial receipts › 20% of Total receipts in case of Advancement of

any object of GPU; or

• Prescribed BOA not maintained by Trust; or

• Return not filed or BOA not audited before due date of ROI.

The Income Shall be Computed in following manner:

Conditions for Allowance of Expenditure Disallowances

• Revenue Exp Allowed • Capital Expense Not Allowed

• Such Exp is not incurred Out of the Closing • Disallowance of 40(a)(ia) &
Corpus Balance of Preceeding PY; 40A(3)/(3A) would be attracted.
• Such expenditure is not from any loan or • No Deduction/Allowance/set-off
borrowing; of loss shall be allowed under any
• Where Cost is Already Applied, Depreciation provision of act.
will not be allowed;
• Such expenditure is not in the form of any

contribution or donation to any person.

Sec 12AB: New Procedure of Registration (w.e.f. 1.4.21)

→ CIT/PCIT on receipt of application can give registration in different situations:

Without Enquiries With Enquiries

• New applicants Provisional Registration CIT may call for record & docs to
• Existing Trust (12A/12AA) - Registration satisfy himself about:.
in I2AB - Genuineness of activity of trust
- Compliance of any other law
by trust:-

(1) & (2) • Provisional to final

• Re-registration after 5 years.

• Trusts adopting Modification

• Trust inoperative u/s 11(7)

(3), (4),(5),(6)

8.7

[OOBH- Opportunity of Being heard]

→ All applications u/s 12 AA, pending on 01.04.21 → Shall be deemed to be applied

u/s 12AB as new application.

→ After satisfying himself, He can either Accept

or

within prescribed time limit. Reject.

Cancellation of Registration:
→ Registration or provisional registration granted u/s 12 AB can be cancelled in
following conditions: -

The CIT/PCIT noticed The CIT/PCIT has received a Case has been

occurrence of 1 or reference from the AO under selected as per risk

more specified violations 2nd proviso of section 143(3) management

during any PY; for any PY to withdraw strategy of CBDT,

approval of trust; or for any PY:

Procedure of Cancellation:
(i) To Satisfy himself, CIT/PCIT shall Call for such documents or information, or make
such inquiry as he thinks necessary.

If he is satisfied that 1 or more If he is satisfied that specified

specified violation took place violation has not taken place

After Giving OOBH, He Shall refuse to cancel the

he shall cancel the registration Registration

for that P.Y & All Subsequent PYs

By Passing an Order in Writing

within 6 months from end of quarter in

which the first notice is issued by CIT/PCIT

A.O

CIT/PCIT shall Forward a copy of the order to &

Trust

8.8

Meaning of Specified Violation:

(a) Any Income from property under trust → has been applied, other than for the .
objects of the trust or institution; or
(b) the trust or institution has income from PGBP which is not incidental to the main
object or separate BOA are not maintained by such trust or institution; or
(c) the trust or institution has applied its income for private religious purposes; or
(d) the trust or institution has applied its income for the benefit of any particular n
religious community or caste; or
(e) any activity being carried out by the trust or institution—
(i) is not genuine; or
(ii) is not being carried out in accordance the conditions; or
(f) the trust or institution has not complied with the requirement of any other law.

Time limits u/s 12AB:

[Time limits- 1,2,3,4

is same for Institute regd u/s

10(23C)]

WITHOUT ENQUIRIES:

CASE Time limit of Time limit for Period of Validity

application grant of Registration from:.

Registration by CIT

(1) Existing Trusts 3 months from 3m. from the A.Y. from
regd. u/s 12A/ the date of end of month 5 Years which approval
12AA this amendent. in which appl. was earlier
i. e. till 30.06.21 was recd. granted.
↳ same for 10(23C)

(2) New Trust. 1 month prior 1m. from the A.Y. from which
First time to the P. Y. end of month 3 Years application is
Applicant for which of receipt of made.
(Provisional Regn) regn is applied application

↳ same for 10(23C)

WITH ENQUIRIES:

Time limit of Time limit for Period of Validity

CASE

application grant of Registration from:.

Registration by CIT

(3) Provisional 6m from 6 m from the 5 years A.Y. from

Regn to commencement end of month which
Final Regn. of activity in which starting provisional
or application from AY. regn was
↳ same for 10(23C)
6m prior to was received for which granted
expiry of it was
provisional regn granted

w. e. earlier provisional

regn.

8.9

(4) Renewal of 6 months 6m from

A.Y. from
Trusts regd. prior to the end 5 years which
u/s 12AB expiry of of mouth appln was
after 5 years regn. in which appl. made.

was recd.

↳ same for 10(23C)

(5) Trust has 30 days 6m from

A.Y. from
adopted from date the end 5 years which
modifications of modification of month in appln was
(which violates which appln made.
was recd

conditions of Regn)

6 months 6m from

(6) Trust becomes AY. from

prior to the the end
inoperative 5 years which
commencement of month
under Sec 11(7) appln was
of A.Y. for in which
which regn application made

is sought to was received

be made operative

Sec 10(23C) → Time limits are indicated in above table

Income of Certain Universities, Hospitals, Educational Institutions

(iiiab/iiiac) (iiiad/iiiae) (iv)/(v)/(vi)/(via)

Universities, Hospital Universities, Hospitals Any fund, Trust,

and Other Edu. Inst. & Other Edu Inst. Inst. registered

wholly or substantially for Religious or

Medical or

financed by Charitable purposes

which exists edu. purposes

approved by CIT
Govt. (Govt Grant> 50%) solely for & Not for profit

Medical or

which exists edu. purposes & their aggregate which exists Medical or

solely for & Not for profit annual receipts solely for edu. purposes

are upto Rs. 5 crore & Not for profit

Income fully Exempt Income exempt subject

from Tax Income Fully Exempt to certain conditions,

from Tax same as Sec 11/12

8.10

Some Additional Points:

1) Amount applied out of → It shall not be treated

Corpus Fund as application.

It shall be considered as applied in the year

in which the amount is invested or deposited back.

P.Y. 21-22

Eg: Corpus Fund= 20 lakh. Amt applied → 5 lakhs not considered

out of corpus as applied in PY. 21-22.

Corpus Balance: 15 lakhs.

P.Y. 22-23

Corpus fund -15 lakhs Now this amount of Rs.5 lakh will be

+ Amt deposited 5 lakh back considered as applied in PY-22-23.

in corpus= 20 Lakhs

2) Application out of loans and borrowings → not considered as applied

It will be treated as applied in the

year of Repayment of loan.

3) When expenditure is more than Income of the trust it can not be carried forward and

taken as applied in next P. Y., it just lapses.

8.11

 Chapter 9: EXIT TAX

115TD: Tax on Accreted Income

The 'Accreted Income' of trust registered u/s 12AA/12AB/10(23C) shall be taxable

at MMR- 34.944% (30%+12%+4%) in 3 Cases:.

Conversion of Trust, Merger with other Non-distribution of assets

Institution in a trust having different within 12 months from the end
non- eligible form object of dissolution to other trust/
Inst. regd. u/s 12AA/12AB/
10(23C) on Dissolution.
Registration granted Objects of the
has been cancelled trust has been It has not applied for fresh registration
modified and or
It has applied for fresh registration but
application rejected.
→ Accreted Income means:
Aggregate FMV of Total Assets xxx
(-) Total liability of Trust (xxx)
Accreted Income xxx

→ Following assets shall not be considered in accreted Income:

Assets bought Assets purchased by trust Assets transferred

out of agriculture before registration became to other Inst. within 12
Income effective u/s 12AA/12AB months of dissolution.

Basically, Trust has not

claimed exemption on this
Income.

9.1
 Calculation of FMV of Assets

ASSETS LIABILITIES

FMV of all assets should be taken excluding: Book value of all the liabilities shall be
- any amount of TDS, TCS, Advance Tax taken excluding:
(reduced by refund if taken) - Any provision of income Tax
- any unamortised amount of deferred - any Corpus fund or Capital fund
revenue expenditure - any contingent liability
- any unascertained liability
- any reserve or surplus.

FMV of Assets
1) Quoted Shares & Securities (listed):
Average of lowest & Highest price on valuation date
If Shares are not Traded on
Valuation date, One day preceeding
to Valuation date will be taken for
highest & lowest price.

2) Unquoted Equity Shares:

A+B-L
x PV → Discussed later
PE

3) Unquoted shares & securities (other than Shares):

FMV/ NRV of Securities

4) Immovable property
SDV on Valuation date
or FMV/NRV on that date
w.e. is higher.

5) A Business Undertaking: (A+B-L)

6) Any Other Assets: FMV/NRV on valuation date
Notes:
• Exit Tax should be paid within 14 days from prescribed date.
• Interest @ 1% pm or part from 15th day till payment of tax.

9.2
(2) Unquoted Equity shares: (A+B-L) × PV
where, PE
A = Book value of all the assets in the balance sheet (other than bullion,
jewellery, precious stone, artistic work, shares, securities, and immovable
property) as reduced by-
(i) any amount of income-tax paid as TDS, TCS or as advance tax payment as .
reduced by the amount of refund; and
(ii) any amount of unamortised deferred expenditure
B = Fair market value of bullion, jewellery, precious stone, artistic work, shares,
securities and immovable property
L= Book value of liabilities shown in the balance sheet, but not including :
(i) Contingent liabilities other than arrears of dividends payable in respect of the
paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity
shares;
(iii) reserves and surplus, other than those set apart towards depreciation;
(iv) Any amount of provision for taxation, reduced by refund under the Act
(v) any amount of provision for unascertained liabilities;
(vi) any amount 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 such equity share.

9.3
 Deduction under Chapter VI-A

Part A & Part B- Expenditure based deduction

Part C – Deduction in respect of certain income

Common Points:

1. As per Sec 80AC –

Deduction u/s 80-IA to 80RRB (Part C Deduction) is not allowed unless

assesses furnishes Return of Income within due date u/s 139(1).

2. Deduction under chapter VI-A is Not Allowed against

- LTCG u/s 112 and 112A,

- STCG u/s 111A &

- Special tax rate income.

Part-A & B Deduction: Expenditure based deduction

1) 80C- Specified Investment

Assessee Individual & HUF

Max Deduction 1,50,000

Eligible Amount • Life Insurance Premium for Individual- Self, Spouse,

for deduction Children

• Life Insurance Premium for HUF- Any member of HUF

• Contribution in Unit-linked Insurance Plan (ULIP) 1971

& plan of LIC Mutual Fund - individual - Self, Spouse,
Children
- HUF - Any member of HUF
• Premium paid in respect of a contract for deferred
annuity
• Any sum deducted from the salary payable of a
Government employee for securing a deferred annuity
• Contribution to SPF/PPF/RPF
Other Points to be • Any sum received under a life insurance policy,

1o.1
 noted including the sum allocated by way of bonus on such
policy are exempt u/s 10(10D) if
Policies issued before 01/04/12-
(a) Premium paid or W.E.L
(b) 20% of sum assured

Policies issued after 01/04/12 but before

01/04/2013-
(a) Premiumpaid or W.E.L
(b) 10% of sum assured

Policies issued after 01/04/13-

(a) Premium paid or W.E.L
(b) 10% of sum assured
(c) 15% of sum assured in case where the
insurance is on the life of a person with
disability or severe disability as referred to in
section 80U or a person suffering from
disease or ailment as specified under section
80DDB.

Notes regarding Exemption u/s 10(10D)

• Exemption u/s 10(10D) wouldn’t be available Premium
payable in one or more ULIP(issued on or after
01/02/2021) exceeds 2,50,000.
(this 2,50,000 limit wouldn’t applicable in case of sum
received on death of person)
• Any sum received under section 80DD(3) shall not be
exempt under section 10(10D)
• Any sum received under a Keyman insurance policy
shall also not be exempt.
• Contribution to SPF/PPF/RPF (maximum limit for
deposit in PPF is 1,50,000 in a year)

1o.2
 Other deduction u/s 80C
• Contribution to approved superannuation Fund
• Any sum paid or deposited in Sukanya Samridhi
Account (for any girl child)
• Subscription to National Savings Certificates VIII
• Contribution to approved annuity plan of LIC
• Subscription towards notified units of mutual fund or
UTI
• Subscription to any units of any mutual fund referred
to in section 10(23D) and approved by the Board on an
application made by such mutual fund in the prescribed
form.
• Investment in five year Term Deposit in scheduled bank
(The maximum limit for investment in term deposit is
1,50,000)
• Contribution to National Housing Bank (Tax Saving)
Term Deposit Scheme, 2008
• Contribution to notified pension fund set up by mutual
fund or UTI
• Subscription to notified deposit scheme (for example,
public deposit scheme of HUDCO)
• Subscription to notified bonds issued by NABARD
• Deposit in Senior Citizens Savings Scheme Rules, 2004
• Investment in five year Post Office time deposit
• Contribution to additional account under NPS
• Payment of tuition fees to any university, college,
school or other educational institutions within India
for full-time education for maximum 2 children (for
full-time education of any two children)
• Subscription to certain equity shares or debentures
• Repayment of housing loan including stamp duty,
registration fee and other expenses towards the cost of
purchase or construction of a new residential house

1o.3
 property.
(But do not include cost of any addition or alteration or
renovation or repair of the house property after the
issue of completion certificate)

Repayment of amount borrowed by the assessee

from:
® The Central Government or any State
Government;
® Any bank including a co-operative bank;
® The Life Insurance Corporation;
® The National Housing Bank;
® Any public company formed and registered in
India with the main object of carrying on the
business of providing long-term finance for
construction or purchase of houses in India for
residential purposes which is eligible for deduction
under section 36(1)(viii);
® Any company in which the public are
substantially interested or any cooperative
society engaged in the business of financing the
construction of houses;
® The assessee’s employer

2) 80CCC- Deduction in respect of pension fund

Assessee Individual & HUF

Max Deduction 1,50,000

1o.4
 3) 80CCD- Contribution to pension scheme notified by the Central

Government

80CCD(1)- 80CCD(2)- Employer's contribution to NPS

80CCD(1)- Contribution to Pension 80CCD(1B)- Additional

Scheme / Contribution to Pension deduction other than Sec 80CCD(1)
Scheme / ATAL Pension Yojna / NPS

80CCD(1)

Assessee Individual

Max Deduction Deduction for Salaried Employee

(a) EE own Contribution

W.E.L

(b)10% of salary

Deduction for any other Individual

(a) EE own Contribution
W.E.L
(b)20% of GTI
(Salary = Basic salary+ DA (In terms)

80CCD(1B)

Assessee Individual
Max Deduction Additional Deduction upto 50,000- allowed other
than contributions covered u/s 80CCD

1o.5
 80CCD(2)

Assessee Individual (Salaried)

Max Deduction Deduction for Salaried Employee

(a) ER’s Contribution W.E.L

(b)10% of salary

Deduction for Government Salaried Employee

(a) ER’s ContributionW.E.L
(CG)
(b)14% of salary

4) 80CCE- Limit on deductions under sections 80C, 80CCC & 80CCD(1)

® This section restricts the aggregate amount of deduction under

section 80C, 80CCC and 80CCD(1) to 1,50,000

® 80CCE limit does not apply to 80CCD(2)

5) 80D- Deduction in respect of medical insurance premium

Assessee Individual & HUF

Max Deduction Individual (self, spouse, dependent children &
parents) (S+S+C & P)
HUF (Any member of HUF)

Particular S+S+C S+S+C Parent Parent

Age age >60 age <60 age >60
<60
Medical Insurance Premium 25,000 50,000 25,000 50,000
CG. Health Scheme (CGHS) 25,000 25,000 - -
Preventive Health check-up 5,000 5,000 5,000 5,000
[Cash allowed]
Maximum Allowed 25,000 50,000 25,000 50,000
Medical Expenditure of senior - 50,000 - 50,000

1o.6
 citizen*
Final Deduction 25,000 50,000 25,000 50,000**
* Medical Expenditure is allowed if no amt has been paid towards health

insurance.

** If parent has age more than 60, but if he is NR, then max deduction

allowed only 25,000.

6) 80DD- Deduction in respect of Medical treatment & Maintenance of

Handicapped dependent relative [For others]

Assessee Individual- Spouse, Children, Brother, Sister, Mother

HUF- Any Member
Max Eligible Amount
Deduction - Incurred for medical treatment, training,
rehabilitation of dependent person being with
disability
- Amount paid/deposited under a scheme for the
maintenance of dependent person being with
disability.
Flat Deduction – Normal Disability- 75,000
Severe Disability (Person with
80% or more disability)- 1,25,000

7) 80DDB- Deduction in respect of medical treatment etc.

Assessee Individual- Spouse, Children, Brother, Sister, Mother

HUF- Any Member

Max Deduction Eligible Amount

- Incurred for medical treatment, training,

rehabilitation of dependent person being with

1o.7
 disability

- Amount paid/deposited under a scheme for the

maintenance of dependent person being with

disability.

Deduction – (a) Actual Exp

(b) 40,000 W.E.L

In case of senior citizen

(a) Actual Exp

(b) 1,00,000 W.E.L

Any Amount received under insurance from insurer, or

reimburse by ER for medical treatment shall be
reduced from deduction.
Condition No deduction shall be allowed unless the assessee obtains
the prescription for such medical treatment from a
neurologist, an oncologist, a urologist, a hematologist,
an immunologist or such other specialist, as may be
prescribed.

8) 80E- Deduction in respect of interest loan taken for higher education

Assessee Individual

Deduction Amount of Interest Paid towards Higher Education

Amo loan

unt

Condition • The loan must have been taken for the purpose
of pursuing his higher education or for the
purpose of higher education of his or her
relative.
• The loan must have been taken from any
financial institution or approved charitable

1o.8
 institution.
Period of Earlier of
dedu (a) First 7 assessment years or
ction (b) Until the interest pain fully

9) 80EE- Deduction for interest on loan borrowed for acquisition of house

property by an individual

Assessee Individual
Maximum 50,000
Deduction (first deduction of 2,00,000 u/s 24B is allowed in
IFHP, and then additional of it is allowed as
deduction here u/s 80EE after fulfilling the below
condition)
Condition • Loan should be borrowed for acquiring
residential property.
• Value of house ≤ 50 lakhs
• Loan sanctioned ≤ 35 lakhs
• Loan should be sanctioned during the PY 2016-
17
• The assessee should not own any residential
house on the date of loan sanctioned.

10) 80EEA- Deduction for interest on loan borrowed for acquisition of

house property

Assessee Individual

Maximum 1,50,000

Deduction (first deduction of 2,00,000 u/s 24B is allowed in

IFHP, and then additional of it is allowed as

deduction here u/s 80EE after fulfilling the below

condition)

1o.9
 Condition • Loan should be borrowed for acquiring

residential property.

• Stamp duty Value of house ≤ 45 lakhs

• Loan should be sanctioned by a FI during period

from 01/04/19 to 31/03/2022

• The individual should not own any residential

house on the date of loan sanctioned.

• The individual should not be eligible to claim

deduction u/s 80EE

11) 80EEB- Deduction in respect of Interest on Electric Vehicle Loan

Assessee Individual
Maximum 1,50,000
Deduction (first deduction of 2,00,000 u/s 24B is allowed in
IFHP, and then additional of it is allowed as
deduction here u/s 80EE after fulfilling the below
condition)
Condition • Loan should be borrowed for purchase of electric
vehicle.
• Loan should be sanctioned by a FI during period
from 01/04/19 to 31/03/2023
• Loan should be sanctioned by a FI (Bank or
Specified NBFCs)
• The individual should not be eligible to claim
deduction u/s 80EE

12) 80G- Deduction in respect of donations to certain funds,

charitable institutions etc.

1o.10
 Assessee All Assessee
Eligible Donation 10% of Adjusted GTI

Maximum Deduction

Notes
- No deduction shall be allowed in respect of donation of any sum

exceeding Rs. 2,000 unless

such sum is paid by any mode other than cash.

- Donation In kind shall not be Qualify as deduction

Steps for Computation of Qualifying limit

Step 1: Compute adjusted total income i.e., the GTI as reduced by the
following:
(i) Deductions under Chapter VI-A, except under section 80G
(ii) Short-term capital gain taxable under section 111A
(iii) Long-term capital gains taxable under sections 112 &
112A
(iv) Any income on which income-tax is not payable
(v) Income referred to in section 115A(1)(a), 115AB,
115AC,115AD and 115D
Step 2: Calculate 10% of adjusted total income
Step 3: Calculate the actual donation, which is subject to qualifying limit
(Total of Category III and IV donations, shown in the table above)
Step 4: Lower of Step 2 or Step 3 is the maximum permissible
deduction.
Step 5: The said deduction is adjusted first against donations qualifying

1o.11
 for 100% deduction (i.e., Category III donations). Thereafter, 50%
of balance qualifies for deduction under section 80G.

13) 80GG- Deduction in respect of Rent paid of house property (if

HRA not received).

Assessee Individual & HUF

Maximum a) Rs. 5000 p/month
Deduction b) 25% of Adjusted GTI
c) [Rent paid – 10% of adjusted GTI]
Condition for • Assessee should not receive any HRA which is
availing deduction exempt u/s 10(13A).
• Assessee, Spouse, Minor child or any member of
HUF should not own any accommodation at the
place of his duty

14) 80GGA- Deduction in respect of Donation for scientific research

or rural development.

Assessee Any assessee not having PGBP Income

Maximum 100% deduction
Deduction
Condition for No deduction shall be allowed in respect of
availing donation of any sum exceeding Rs. 2,000 unless
deduction such sum is paid by any mode other than cash.

15) 80GGB- Deduction in respect of Donation to Political Party or

Electoral trust by Compnies

Assessee Indian Co.

Maximum 100% deduction
Deduction

1o.12
 Condition for No deduction shall be allowed in respect of
availing donation of any sum is paid by cash.
deduction

16) 80GGC- Deduction in respect of Donation to Political Party or

Electoral trust by any person

Assessee All assessee (except LA & AJP)

Maximum 100% deduction
Deduction
Condition for No deduction shall be allowed in respect of
availing donation of any sum is paid by cash.
deduction

Part-C Deduction: Deduction in respect of certain income

1) 80-IA Profits from enterprises engaged in infrastructure development,

etc.

Applicability Section 80-IA(1) provides a 10 year tax holiday to

an assessee, whose GTI includes any profits and

gains derived by an undertaking or enterprise from

an eligible business

1o.13
 Maximum

Deduction Eligible Business Deduction period

Infrastructure 100% of 10 / 20 year
Facility profit
Industrial Park, 100% of 10 / 15 year
SEZ, Power profit
Generating
Condition for (1) Infrastructure Facility

availing Carrying business of – developing

deduction - developing operating &

maintaining

– operating
& maintaining
commence on or after 01/04/1995 but not
later than 01/04/2017.
® Of road, including toll road, bridge or rail

system

® A port, airport, inland water way or

navigation channel in the sea

® Highway project

® Water Supply project, irrigation, sanitation

and sewerage system or solid waste

management system.

(2) Industrial park

Undertaking – Develops
- Develops and operates

– Maintain & operates

Which is Notified by CG for period of

01/04/1997 & ending on 31/03/2011

(3) Power Undertaking

Undertaking – which set up in any part of

1o.14
 india for
- generation or generation &
distribution of power (set up
between 01/04/1993 to
31/03/2017)
- Transmission or distribution
Lines (start transmission
during 01/04/1999 to
31/03/2017)
- Renovation and modernization
of existing Network (Undertake
between 01/04/2004 to
31/03/2017)
(4) Undertaking owned by an Indian Co. set up for

reconstruction or revival of power generating

Plant.

- Company formed on or before

30/11/2005 and
- begins to genetate transmission or
distribute power before 31/03/2011
and
- notified before 31/12/2005 by CG

2) 80-IAB Profits from enterprises engaged in development of SEZ.

Applicability An assessee being developer whose GTI Includes any

profit and gain from business of developing a SEZ on
or after 01/04/2005.

Note : No deduction would be available, where

development of SEZ on or after 01/04/2017
Maximum
Deduction Eligible Business Deduction period

1o.15
 SEZ Developer 100% of 10 / 15 year
profit

3) 80-IAC Tax incentive for new Startup

Eligible Start-up means- Company or LLP Engaged in eligible Business

Incorporated during Total turnover ≤ 100 cr

Holds a certificate

The period between in P.Y relevant to A.Y.of eligible business

01/04/2016 to 31/03/22 for which deduction is Claimed.

from the notified IMBC

Applicability Business of Innovation/ Development/ Improvement

of products/ processes
Maximum Deduction- 100% of profit
Deduction Period- 3/10 years
Condition Meaning of eligible Business
- Startup engaged in Innovation, development or
improvement of product, process or services
- Scalable business model with high potential of
employment generation or wealth creation.

Condition
• It is not formed by splitting up, or the
reconstruction, of a business already in existence.
BUT, if splitting up, reconstruction, re-
establishment or revival of business is due to any
natural calamity or any other unforeseen
circumstances, and business revived within 3
years, then allowed.

1o.16
 • It is not formed by the transfer to a new
business of machinery or plant previously used
for any purpose. (20% of total value of old plant
and machinery is allowed in new start up
business)
Exception
- In following circumstances, machinery/plants
shall be consider as new.
(i) Such plant & machinery was not used in
India, at any time previous to the date of
installation by assessee
(ii) Such machinery/plants is imported into
India.

4) 80-IB Industrial Undertaking in Jammu & Kashmir

Applicability All Assessee whose GTI Includes any profit and gain

derived from any following business activities.

- Industrial Undertaking including a SSI in J&K

- Undertaking which begins commercial production

of mineral oil or natural gas

- Undertaking deriving profit from business of

processing, preservation and packaging of fruits,

vegetables, meat or meat products, poultry, marine

or dairy products or business of handling, storage

and transportation of food grains.

Maximum

Deduction Particulars Quantum of Deduction

Industrial -for the first 5 initial years à
Undertaking 100% of profit
including a -thereafter years à 25% of such
SSI in J&K profit

1o.17
 Notes:
Total period for deduction should not
exceed 12 consecutive AY in case of
co-op society begins mfg or
production of article or operation of
cold storage plant between
01/04/1993 to 31/03/2012
Undertaking -for 7 consecutive AY à 100% of
which begins profit
commercial
production of Notes
mineral oil or No deduction would be available u/s
natural gas 80-IB, where production of mineral
oilcommence on or after
01/04/2017
Undertaking -for the first 5 initial years à
deriving profit 100% of profit
from business -thereafter years (Others)à 25% of
of processing, such profit
preservation -thereafter years (Company)à 25%
and packaging of such profit
of fruits,
vegetables, Notes
meat or meat - It should begin to operate such
products, business on or after 01/04/2001
poultry, - Commencement date shall be
marine or consider 01/04/2009 in case of
dairy business of processing, preservation
products or and packaging of fruits, vegetables,
business of meat or meat products, poultry,
handling, marine or dairy products
storage and
transportation

1o.18
 of food grains.

Subsidies Transport, Power, Interest, Insurance subsidy received

eligible for by an industrial undertaking are eligible for deduction
deduction u/s 80-IB & 80-IC

5) 80-IBA Deduction in respect of profit & gain from housing project/

rental housing project.

Applicability All Assessee

Maximum 100% of profit & gain deriving from such business of

Deduction developing and building of Housing projects

Condition • Project is approved by competent authority between

01/06/2016 to 31/03/2022
• Project shall be complete within 5 years from date of
approval.
(When approval is taken more than once, first approval
shall be deemed to be consider as Approved date. And
project deemed to be have been completed when
completion certificate is obtained from authority.)
• Upto 3% carpet area allowed for shops & Commercial
establishment.
• Not more than one residential unit in the housing project
is allotted to any person not being an individual
• It should not be a mere work contract.
• Maintain separate Books of accounts in respect of housing
project.
• Where residential unit in the housing project is allotted
to an individual, no other residential
• units shall be allotted to that individual / his spouse /
minor children

Notes

1o.19
 Before 01/09/2019 ---Metro City--- Delhi, Mumbai, Kolkata,

Chennai

After 01/09/2019 ---Metro City--- Delhi (includes Noida,

Gaziabad, Gurugram, Faridabad),

Mumbai(Whole), Kolkata, Chennai, Hyderabad,

Bengaluru

Additional Condition to be fulfilled when project approved before

01/09/2019

• Project Plot limit

Particular 4 Metro City Other places

Minimum size of Plot of 1000 sq 2000 sq Meter

Land Meter
Residential Unit Carpet Area Max 30 sq Max 60 sq
Meter Meter
Minimum % of permissible Not less than Not less than
floor area 90% 80%
Shop, commercial Max- Higher of 3% of
establishment aggregate carpet
area
5000 sq foot

Additional Condition to be fulfilled when project approved After

01/09/2019

• The stamp duty value of residential unit in the housing project ≤ 45

lakh rupees.

• Project Plot limit

Particular 4 Metro City Other

1o.20
 places

Minimum size of Plot of Land 1000 sq 2000 sq Meter

Meter
Residential Unit Carpet Area Max 60 sq Max 90 sq
Meter Meter
Minimum % of permissible Not less than Not less than
floor area 90% 80%
Shop, commercial Max- Higher of 3% of
establishment aggregate carpet
area
5000 sq foot

6) 80-IE Tax Holiday in respect of profit & gain from eligible business of

certain undertaking in North Eastern State

Applicability All Undertake substantial expansion to Manufacture /

process any eligible article /Carry eligible business In North
Eastern State like the Arunachal Pradesh, Assam, Manipur,
Nagpur, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim
and Tripura)
eligible article : the article or thing other than –
® Tobacco and manufactures of tobacco
substitutes
® Pan Masala
® Plastic carry bags of <20 microns
® Goods produce by petroleum oil or gas
refineries

eligible business : Business of –

® hotel (not below two star category);

1o.21
 ® adventure and leisure sports including
ropeways;
® providing medical and health services in
the nature of nursing home with a
minimum capacity of 25 beds;
® running an old-age home;
® operating vocational training institute for
hotel management, catering and food
craft, entrepreneurship development,
nursing and para- medical, civil aviation
related training, fashion designing and
industrial training;
® running information technology related
training centre;
® manufacturing of information technology
hardware; and
® Bio-technology.
Max 100% of profit and gain derived from such business for 10
Deduction consecutive assessment years
Condition • Such Business Commence on or before 31/03/2017
• Increase in investment in Plant & Machinery by at least
25% of book value for Substantial Expansion

7) 80JJA Deduction in respect of profits and gains from business of

collecting and processing of bio-degradable waste

Applicability All Assessee who is carrying eligible business

eligible business : Business of –

® for generating power, or
® producing bio-fertilizers, bio-pesticides or
other biological agents,
® for producing bio-gas, or

1o.22
 ® Making pellets or briquettes for fuel or organic
manure.
Maximum 100% of profit and gains from this business
Deduction

8) 80JJAA Deduction in respect of employment of new employees

Applicability - Applicable to whom Sec 44AB applies whose T/O

more than 1 cr

- All Assessee carrying eligible business (Any business

but not profession)

Maximum 30% of additional employee cost

Deduction Period : 3/10 years

Calculation of Additional Employee Cost

Existing Business

The additional employee cost shall be Nil, if—

- No increase in number of employee than last Year

- emoluments are paid by cash

New Business

The Emoluments paid or payable to employees employed during the

P.Y. shall be deemed to additional employee cost.

1o.23
 Condition Additional employee does not includes;

® Employee whose total emoluments are > Rs. 25,000 per

month; or

® Employee does not participate in RPF; or

® Employee employed for a period of <240 days during the

previous year (In case of apparel manufacturing business

footwear or leather products – 150 days)

® Emoluments are paid in Cash [otherwise than by an

account payee cheque or account payee bank draft or by

use of electronic clearing system through a bank account]

® Employee for whom the entire contribution is paid by the

Govt. under the Employees' Pension

® Scheme notified in accordance with the provisions of the

EPF Act, 1952

9) 80LA Deduction in respect of certain income of Offshore Banking

Units and International Financial Services Centre (IFSC)

Eligible - Schedule Bank having Offshore banking Unit in SEZ

Assesse - Any bank incorporated outside india having Offshore
e Banking unit in SEZ
- IFSC
Maximum
Deduction Eligible Business Deduction period
Banking unit in 100% of Initial 5 years
SEZ profits
50% of Next 5 years
profits

1o.24
 IFSC 100% of 10/15 years
Profit
Condition • Report of Chartered Accountant in prescribed form
certifying that deduction has been correctly claimed.
• A copy of Permission or registration obtained from
IFSC should be along with the return of income.

10) 80M Deduction in respect of Inter Corporate Dividends

If Company receiving Dividend Distributed one month prior to the Due

date of Furnishing return u/s 139(1)
Eligible Domestic Company only
Assessee ( If Income of Domestic company any by way of dividend
received from any other domestic company or foreign
company or business trust)
Maximum Deduction shall not exceeds As per Sec 80A(2), It shall
Deduction not exceed the amount included in Gross Total Income.
Condition • Deduction shall be allowed only if the dividends are

distributed and not

just declared on or before the due-date.

Note • Sec 80M shall also allowed for Dividend u/s 115BBD,
Deemed Dividend
u/s 2(22)(a)/(b)/(c)/(d)/(e).
• Deduction u/s 80M will be available even if the
Company has opted for
section 115BAA / 115BAB.

1o.25
 11) 80P Deduction in respect of Income of Co-Operative Socities

Eligible Co-Operative Societies

Assessee
Maximum 100% of profits
Deduction
Condition 100% of profit to thr co-operative societies engaged in
engaged in
- carrying on the business of banking or providing credit
facilities to its members; or
- a cottage industry; or
- the marketing of the agricultural produce grown by
its members; or
- the purchase of agricultural implements, seeds,
livestock or other articles intended for agriculture
or for the purpose of supplying them to its
members; or
- the processing without the aid of power, of the
agricultural produce of its members; or
- the collective disposal of the labour to its member

Deduction to the Activity of Co-operative society other

than above
- Rs. 50,000 to the co-operative society engaged in
business other than above mentioned.
- This limit is limited to 1,00,000 in case of consumer
co-operative society.

1o.26
 Deduction in respect of Interest or dividend income
- Deduction in full Under this section

Deduction in respect of letting-out income for certain

purpose
- The income derived by a co-operative society from the
letting out of godowns or warehouses for storage,
processing or facilitating the marketing of
commodities is fully allowable as deduction

12) Section 80PA Deduction in respect of certain income of Producer

Companies

Eligible Producer Co. having t/o less than 100 cr in AY 2019-

Assessee 2020 to 2024-2025
Maximum 100% of the profits and gains attributable to following
Deduction eligible businesses

- The marketing of agricultural produce grown by the

members; or
- The purchase of agricultural implements, seeds, livestock
or other articles intended for agriculture for the purpose
of supplying them to the members; or
- The processing of the agricultural produce of the
members

13) Section 80QQB Deduction in respect of royalty income, etc., of

authors of certain books other than text books

1o.27
 Eligible Resident Individual
Assessee
Maximum Actual royalty Income derived
Deduction Or
W.E.L
Rs. 3,00,000
Notes This deduction shall not, however, be available in respect
of royalty income from brochures, commentaries, diaries,
guides, journals, magazines, newspapers, pamphlets,
textbook for schools, tracts and other publications of
similar nature.

Condition • For claiming the deduction, the assessee shall have to

furnish a certificate in the prescribed manner in the
prescribed format
• Where the assessee earns any income from any source
outside India, he should bring such income into India in
convertible foreign exchange within a period of six
months

14) Section 80RRB Deduction in respect of royalty on patents

Eligible Resident Individual who is registered as the true and first

Assessee inventor in respect of an invention under the Patents Act,
1970, including the co-owner of the patent and earning
income by way of royalty of a patent registered on or
after 1.4.2003.
Maximum Actual royalty Income derived
Deduction Or
W.E.L
Rs. 3,00,000
Condition • For claiming the deduction, the assessee shall have to

furnish a certificate in the prescribed manner in the

1o.28
 prescribed format

• Where the assessee earns any income from any source

outside India, he should bring such income into India in

convertible foreign exchange within a period of six

months

Deduction In respect of Other Income

1) Section 80TTA Deduction in respect of interest on deposits in savings

accounts

Eligible Invidual + HUF

Assessee
Maximum Max 10,000 on interest on Saving Bank
Deduction Account

2) Section 80TTB Deduction in respect of interest on deposits in savings

accounts to Senior Citizdens

Eligible Resident Senior

Assessee
Maximum Max 50,000 on interest on Saving Bank
Deduction Account & Interest on Fixed deposit with
• a banking company to which Banking
Regulation Act, 1949 applies
• a co-operative society engaged in carrying

on the business of banking (including a co-

operative land mortgage bank or a co-
operative land development bank)
• a Post Office

1o.29
 Non- - to partner/member, where deposit held by
availability of
firm/AOP/BOI:
deduction
- Where interest income is derived from any
deposit held by, or on behalf of, a firm, an
AOP or a BOI, the partner of the firm or
member of AOP/BOI would not be allowed
deduction in respect of such income while
computing their total income.

Other Deduction

1) Section 80U Deduction in the case of a person with disability

Section 80U harmonizes the criteria for defining disability as existing

under the Income-tax Rules with the criteria prescribed under the

Persons with Disability

Eligible - Resident individual, certified by the

Assessee medical authority to be a person with
disability.
- Benefit of this deduction also extended to
persons suffering from autism, cerebral
palsy and multiple disabilities.
Maximum Flat Deduction
Deduction Normal Disability- 75000
Severe Disability- 125000
Condition - Shall furnish a copy of the certificate issued
by the medical authority in the form and
manner, with the ROI u/s 139.

1o.30
Chapter 11 - Sec 10AA Deduction

Assessees who are Assessee who derive any profits or gains from an
eligible for exemption undertaking, being a unit, engaged in the manufacturing
or production of articles or things or provision any service
in a Special Economic Zone(SEZ)
Conditions to claim (i) It has begun to manufacture or produce articles or things
DEDUCTION or provide any service in any SEZ during P.Y 05-06 or any
subsequent P.Y. but not later than 31.3.21. ( Approval must
be taken before 31.3.20)

(ii) It has furnished report of CA atleast 1 month prior to

due date of ROi u/s 139(1)

Period For First 5 A.Y. 100% of export Profit

For Next 5 A.Y. 50% of Export Profit
For Next 5 A.Y. LOWER OF
-Amount debited to P/L &
credited to SEZ reinvestment
Allowance reserve a/c OR
- 50% of export profit.

Export Profit PGBP of unit located in SEZ x Export Turnover

Total Turnover

Export Turnover Consideration in respect of export brought into India in

convertible foreign currency within time permitted by RBI.

Note - Sales proceeds deemed to have been received in

India if such amount is credited to a separate A /c
maintained by assessee outside India with approval of RBI.

Export Turnover & Freight, Telecommunication Cash Compensatory Support,

Total Turnover does charges, Insurance or Expenses Duty drawback and profit on
not include for providing service outside sale of import entitlement
India. licenses.

11.1
 Utilization of SEZ -Should be utilized for acquiring new Pl & M put to use
Investment Reserve within 3 yrs from the end of P.Y. in which reserve was
A/c created.
-If amount mis-utilized / Non-utilized then deduction
claimed earlier shall be taxable as PGBP.
SEZ Investment (i) distribution by way of dividends or profits
Reserve A/c should (ii) for remittance outside India as profits
not be utilized for (iii) for the creation of any asset outside India

Deemed Income If Reserve has not been utilized till the expiry of time limit:
of the year immediately following the period of 3 years.

Restriction on other -During the period of deduction, depreciation is deemed to

tax benefits have been allowed on assets. WDV shall accordingly be
reduced.
-No deduction u/s 80IA/IB shall be allowed to the profits/
gains of undertaking.
- Any unabsorbed Dep u/s 32(2) or Business Loss u/s 72(1)
or loss under “capital Gain” u/s 74 of Undertaking, shall be
allowed to carry forward and set off in subsequent years.

11.2


Chapter 12: TDS & TCS

SECTION RATES LIMITS/ CONDITIONS

Sec 192 Slab Rates TDS deducted at the time of payment

Salary

192A 10% Service < 5 yrs, Amount > 50K - TDS

PF Accumulated NO PAN - MMR Applicable.

Balance Service> 5 yrs - NO TDS

194I P&M - 2% NO TDS If Aggregate Rent is upto Rs.

Rent BUILDING - 10% 2,40,000

Rent kaun deta hai?- Main TDS is applicable on Non- refundable Deposits

194 C Ind/HUF - 1% NO TDS if:

• Single Payment is upto Rs. 30,000

C- Contractor Others - 2%

• Aggregate amt. during F. Y. is upto 1lac

• Contract is for Personal Purpose of

Ind/HUF

194 J - JANHIT Operation of • NO TDS if

Professional Fees Call Centre - 2% < 30,000

Fees for Non

FTS Royalty
Others - 10% compete

professional

FTS services Fees

Being a Professional The Limit of 30,000 is for each

Others

service

2% payment

10%

ROYALTY • Commission/sitting Fees Paid to

Non-Executive/Independent Directors.
sale, Distribution Others

of films 2% ↳ No Threshold limit

2%

• No TDS on personal payments by

Ind/HUF for FPS

194H- Hafta. 5% NO TDS if Amt is upto Rs. 15000.

Commission/Brokrage 5 takka NO TDS on Underwriting Commission

or brokrage on Public issue

12.1

194M- Man Se 5% KAUN KAATEGA - Individual/HUF

Payment of not covered in 194C, 194J, 194H

• Contract KISKA KATEGA - Any Resident Person

• Professional fees

LIMIT- Agg. Amt.> Rs. 50 lakh

• Commission/Brokrage

paid. in the P.Y.

Sec 194G- Gamble 5% NO TDS if Amt is upto Rs. 15000.

Lottery sale If Lottery seller wins lottery on unsold

Commission tickets, it will be taxable@30%

194D 5% NO TDS if Amt is upto Rs. 15000.

Insurance Commission

194B- Lottery, Puzzles • NO TDS if Amt is upto RS. 10,000

Badi lottery

30% • Deducted at the time of payment only

194BB - Horse Race

• If winning is in kind, the payer shall

Bhag Bhag release winnings only after ensuring

that TDS is paid to Govt

194E → Payment to NR 20% Sportsperson & Entertainer

Sportsman, Association, shall be NR+ Non-Citizen
+ cess 4%

ENTERTAINER (eff. 20.8%)

Refer Sec 115 BBA

in NR chapter.

→ TDS only applicable if amt. recd. by

Sec 195 Rate in Force

Payment made to NR or foreign Co. is taxable in India.

(given in finance

NR or Foreign co. at every year) → If Rates given in DTAA are lower,

then those Rates will apply.

194 10% Deducted at the time of payment only

TDS on Kaun kaatega- Payment made by

Dividend Domestic Company

Kiska Katega -

Cash
Any Resident Person any other Mode

No limit

No TDS upto Rs.

5000

12.2

193 10% No TDS:

Interest on Securities Int payable on CG or SG Securities

Int paid to LIC, GIC

194A- Alag wala Interest 10% LIMIT for Int paid by:

Interest other than -Banks/co-op bank/ Post off. - Rs. 40,000

Int. on securities -Others 5000
50,000 for senior citizens

194DA 5% On Income Component

(After 1.9.19)
Maturity Proceeds (Maturity less premium paid)

of LIP

NO TDS if:-
DA- DAULAT

• If amount less than Rs. 1,00,000

• If Sum is Recd. on death of Insured.

• If Maturity exempt u/s 10(10D)

194IA 1% of Sale Price • No TDS on Rural Agri land

Sale of Immovable or SDV • Consideration < 50L → NO TDS

Property w.e. is higher ↳ TDS on 50 lacs or more

Not

SDV

• Consideration includes maintainance fees,

parking fees & all other similar charges

194IB 5% • NO TDS IF RENT per month is upto

TDS on Rent NO PAN - 20% Rs. 50,000

of Immovable

• Deducted at the time of payment/

Property

credit of rent of last month w.e. earlier

• Deduction not to exceed Rent for

Last month

194 IC - Indira Colony.

10% IF CONSIDERATION IN KIND → NO TDS

Consideration for

agreement as per Sec

45(5A)

Joint development

Agreement

12.3

194 LA 10% of Amount upto Rs. 2,50, 000 → NO TDS

Compulsory Sale Price Rural or Urban Agri land-NO TDS

Acq of Immovable

Property

194K 10% NO TDS if payment is

TDS on Income KAUN KAATEGA - UTI/MF
upto Rs. 5000 in a P.Y.

KISKA KATEGA- Resident person
in respect of units.

194LB 5% KAUN KAATEGA - Inf. Debt Fund

TDs on Interest KISKA KATEGA - NR/FC.

on Infrastructure

Debt fund

194N- Nahi Denge When limit is 1 cr: → TDS only applicable on excess

amount over and above limit.

TDS on Cash Rate- 2%

withdrawls in Eg- withdrawal 1.20 cr

When limit is 20 lacs:.

excess of Rs. I crore TDS applicable on 0.20 Cr only.

20 lakhs to 1 crores- 2%

Above 1 crores-5%
Limit will be checked separately for

different banks

→ If assessee has not filed ROI for all 3

preceding P. Ys for which Due Date u/s

139(1) is expired, Limit will be Rs. 20

lakhs

1940 1% NO TDS if all the following conditions

are satisfied:
TDS on payment KAUN KAATEGA-E-Commerce

by E-commerce operator
KISKA KATEGA - E-Commerce i) E- comm. participants Ind/HUF

Operator participant (resident person)

ii) Gross amount of Sale/Services

during P.Y. is upto Rs. 5 lakh

206 AA -

If No PAN- 5% iii) PAN or aadhaar furnished.

12.4

194P TDS rate- Slab Rate → Section only applicable if

Senior citizen has ONLY:.

Pairi Pauna

Payer-Specified Bank

TDS by Bank in
Payee- Individual

case of Senior Citizen Pension Interest in any

Resident aged

Income Account in which

75 yrs or more

he receives pension

→ That Alc should be with

the same Bank only.

Rate- 0.1%
194Q → Only applicable on excess amount over

NO PAN- 5% 50 lakhs, not whole amount.

Purchase of Goods

of more than Rs. 50 → TDS under this section not

Kaun Kaatega:.

lakhs during P.Y. applicable if:.

Any Buyer whose

last year

TDS already TCS already

T/O> Rs. 10 crore

deducted collected

under any u/s 206C(1H)

Kiska Katega:

other section

Seller
eg. 1940

Notes:

→ Where both 194Q & 206C (1H) applies, TDS has to be deducted u/s 194Q

→ Where TDS u/s 194Q & TCS u/s 206(1)/(1F)/(1G) applies, TCS has to be collected

under above sections.

→ TDS u/s 194Q,194O, 206C(1H) not applicable on securities transactions through RSE.

→ TDS u/s 194Q not applicable on GST/VAT/Excise component. But It will be applicable on whole

amount of any Advance payment.

→ If Buyer is NR- 194Q not applicable But it will be applicable if

If Seller is NR - 206C(1H) not applicable NR has PE in India

→ For 1st Year of Business, TDS u/s 194Q not applicable since last year T/O is zero.

→ If Whole Income of Seller is Exempt- 194Q not applicable

If Whole Income of Buyer is Exempt - 206C(1H) not applicable

→ For Sec 194Q, Dept. of CG/SG can become buyer, but they can not be seller

12.5

Sec 194R Rate- 10% Payer - HIJACR Assessee

Added by F.A. 22 Payee- Any Resident Person

w.e.f. 1/7/22
NO TDS If:

Any Benifit or Amt of benifit/perq provided to a person

Perquisite, whether is upto Rs. 20,000 in a Day

converted into

money or not,

arising from Business

or Profession

Notes:

12.6

12.7

To whom HIJACR are applicable?

HIJACR (1) Assessee other than Individual/HUF

(2) Ind/HUF whose last year T/O> 1 cr in case of Business

G/R > 50 lacs in case of profession.

Master Chart for Remembering all limits

→ NO TDS if amount is upto →TDS is applicable starting

↳ No TDS If Amounts < Threshold limit from this Amount

Which means TDS is only applicable if Sec 194IA → TDS applicable if

Amount paid is more than the Amt is 50 lakhs or more

threshold Limit

→ NO TDS till Rs. 49,99,999

All Other sections Sec 194DA → TDS applicable if

Amt is 1,00,000 or more

→ No TDS till Rs. 99,999

Sec 192A → TDS applicable if

Amt is Rs. 50,000 or more

→ No TDs till Rs. 49,999.

12.8

Sec 206AB/ 206CCA: TDS/TCS Rate for Non- Filers (F. A 2022)

In case of TDS, if payee has not of last Year, for which due date has expired

Filed Returns (P.Y. 20-21)

& TDS deducted is 50,000 or more, then TDS Rate shall be:

- Twice the TDS/TCS Rate

- or 5% w.e.is higher

→ This section is not applicable on 192,

192A NR payee not having

&

194B PE in India

194BB

194LBC

194N

→ In case payee/collectee did not furnish PAN: Rate as per Sec 206AA/206CC

or

5%

w.e. is higher.

Refund For Denying Liability to Deduct Tax u/s 195 [SECTION 239A]

(i) Application for refund of tax - Where the tax deductible on any income, other

than interest, under section 195 is to be borne by the Payer, and such person

having paid such tax to the credit of the Central Government, claims that no tax

was required to be deducted on such income, he may file an application before the

Assessing Officer for refund of such tax in prescribed form and manner

(ii) Time limit for filing application - Such application may be filed within

30 days from the date of payment of such tax.

(iii) Passing of order by Assessing Officer - The Assessing Officer has to, by an

order in writing, allow or reject the application. However, no application would

be rejected unless an OOBH has been given to the applicant. The A.O., may, before

passing an order make such inquiry as he considers necessary

(iv) Time limit for passing order - The order has to be passed within 6 months

from the end of the month in which application for refund is received.

12.9

TAX COLLECTED AT SOURCE

TCS RATES

Sec 206C(1)

(a) Alcoholic liquor for human consumption 1%

(b) Tendu leaves 5%

(c) Timber obtained under a forest lease 2.5%

(d) Timber obtained by any mode other than (c) 2.5%

(e) Any other forest produce not being timber or tendu leaves. 2.5%

(f) Scrap 1%

(g) Minerals, being coal or lignite or iron ore 1%

Note : No TCS shall be collected if Resident Buyer gives declaration that above goods

are to be utilised for the purpose of manufacturing, processing or producing articles

or things or for generation of power and not for trading purposes, But Still Buyer

have to deduct TDS u/s 194Q if conditions apply.

Sec 206C(1C) : Lease or a licence of parking lot, toll plaza or mine or a quarry

TCS Rate - 2%.

TCS shall be collected by every person who grants a lease or a licence or enters into a

contract or otherwise transfers any right or interest in any -

- parking lot or

- toll plaza or

- a mine or a quarry

to another person (other than a public sector company) for the use of such parking

lot or toll plaza or mine or quarry for the purposes of business.

Note – Mining and quarrying excludes mining and quarrying of mineral oil i.e. mining

and quarrying of petroleum and natural gas.

Sec 206C(1F): Sale of motor vehicle of value exceeding 10 lakhs

TCS shall be collected by seller, on sale of a motor vehicle of the value > Rs. 10

lakhs, from the buyer @1% of the sale consideration.

Note: TCS under this section is not applicable when Manufacturer sells cars to the

dealers. Only applicable on Retail Sale

→ Limit of Rs. 10 Lacs has to be checked at each purchase, not on aggregate sale

made during the P.Y.

12.10

Sec 206C(1G)

TCS on Remittance outside India

OR Sale of Tour Package.

In case of authorized dealer, In case of Sale of an

who receives an amount Overseas tour program package,

of more than 7 lacs in p y. if seller receives any amount, Seller

from a buyer → who is is required to collect TCS @5%.

remitting amount outside

India under LRS of RBI,

the Auth. dealer is required to

collect TCS @ 5% in excess of Rs. 7 Lacs.

Note: If remitted amount is remitted out

of educational loan taken from Financial

Institution, TCS Rate shall be @ 0.5%

Note: But TCS u/s 206C(1G) is not applicable to a Non-Resident who has

visited India during the P.Y.

Sec 206C(1H)

Sale of goods of value exceeding 50 lakh

Sells goods exceeding

Seller Buyer

value 50 Lacs in a P.Y.

Having T/0 > 10Cr

in Last P.Y.

TCS shall be collected @ 0.1% at the time of receipt

of amount in excess of 50 Lacs

→ TCS is not required to be collected under this section if already collected u/s

206C(1)/(1F)/(1G) or if Goods are exported.

→ Where both 194Q & 206C (1H) applies, TDS has to be deducted u/s 194Q

→ TCS u/s 206C(1H) shall be calculated on whole amount including GST.

→ If Collectee did not provide PAN, TCS shall be collected @ 1%

→ In case of Sale of Fuel to NR Airlines, TCS u/s 206C(1H) not applicable

12.11

Additional Points

Due Date of Payment of TDS/TCS

TDS TCS

For Other Months 7th of Next month 7th of Next month

For March 30th April of Next F.Y. 7th April of Next F.Y.

For Sec 194M,194IA, 194IB:

→ TAN not required as TDS under these sections are deducted ocassionally

Due Date of Return : 194 IA - Form 26QB

& Payment 194 IB - Form 26QB 30 Days from the end of

194 M - Form 26QB month in which deducted

Due Date of Return of TDS/TCS

Quarter Ended TCS Return TDS

30th June 15th July 31st July

30th September 15th October 31st October

31st December 15th January 31st January

31st March 15th May 31st May

Late Fees: Rs. 200 per day of delay in filing of TDS/TCS Returns

If TDS/TCS Return is filed after 1 year of Due Date → Penalty u/s 271H shall be

leviable - 10,000 to max 1,00,000.

12.12

Interest for Late Deduction/Collection of TDS/TCS

TDS TCS

1% per month
Late Deduction/Collection 1% per month

or part or part

Period Date on which TDS was
Date on which TCS was

deductible to date on

collectible to date on

which it is deducted
which it is actually paid

Late Payment 1.5 % per month -

or part

Period Date on which TDS was

deducted to date on

which it is actually paid

Time of Collecting TCS

(a) at the time of debiting the party or But for Sec 206C(1F) & 1(H),

(b) receipt of consideration TCS is collected only at the time of

w.e. is earlier receipt of consideration.

Section 206CC

If Collectee has not provided PAN or Aadhar, TCS Rate shall be:

Twice the TCS Rate

In case of Sec 206C(1H), It is 1%

OR

5%

w.e. is higher

Sec 201: Assessee in Default

If TDS is not deducted then, Assessee is treated as assessee in

OR deducted but not paid to Govt. default.

Penalty u/s 221 is attracted → which can be upto 100% of TDS Amount

12.13

Payer is not treated as Assessee in Default if :

filed return u/s 139(1)

paid tax on such income PayEE Has taken into account such

income

And Payer has furnished a certificate from his CA

in this regard to AO

Some Additional Points:

12.14

CBDT Circular for 194R

ensure that tax has been deducted in respect of such benefit or perquisite @10% of the

value or aggregate of value of such benefit or perquisite.

(2) Meaning of “Person responsible for providing” [Explanation to section 194R]

“Person responsible for providing” means the person providing such benefit or perquisite. In

case of a company, it means the company itself including the principal officer thereof

(3) Cases where benefit or perquisite is wholly in kind or partly in kind and partly in cash

[First Proviso to section 194R(1)]

Where the benefit or perquisite, as the case may be, is wholly in kind or partly in cash and

partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in

respect of whole of such benefit or perquisite, the person responsible for providing such

benefit or perquisite has to, before releasing the benefit or perquisite, ensure that tax

required to be deducted has been paid in respect of the benefit or perquisite.

(4) Cases where no tax is required to be deducted under section 194R [Second and Third

Proviso to section 194R(1)]

No tax is required to be deducted under section 194R in the following cases –

- In case of a resident, where the value or aggregate of value of the benefit or

perquisite provided or likely to be provided to such resident during the financial year

does not exceed ` 20,000; or

- Where a person responsible for providing such benefit or perquisite is an individual

or HUF, whose total sales, gross receipts or turnover from business or profession

does not exceed ` 1 crore in case of business or ` 50 lakhs in case of profession,

during the financial year immediately preceding the financial year in which such

benefit or perquisite, as the case may be, is provided by such person.

(5) Power of CBDT to issue guidelines [Section 194R(2)/(3)]

In case any difficulty arises in giving effect to the provisions of this section, the CBDT may

issue guidelines for the purpose of removing the difficulty with the previous approval of the

Central Government.

Every guidelines issued by the CBDT would be laid before each House of Parliament, and would

be binding on the income-tax authorities and on the person providing such benefit or perquisite.

Accordingly, the CBDT has, with the prior approval of the Central Government, vide

Circular no. 12/2022 dated 16.6.2022 and Circular no. 18/2022 dated 13.9.2022, issued

the following guidelines –

Question 1: Is it necessary that the person providing benefit or perquisite needs to

check if the amount is taxable under section 28(iv), before deducting tax under

section 194R?

12.15

133

Answer No. The deductor is not required to check whether the amount of benefit or

perquisite that he is providing would be taxable in the hands of the recipient under section

28(iv). The amount could be taxable under any other section like section 41(1) etc. Section

194R casts an obligation on the person responsible for providing any benefit or perquisite to

a resident, to deduct tax at source @10%. There is no further requirement to check whether

the amount is taxable in the hands of the recipient or under which section it is taxable.

In the context of section 195 it is a requirement to know whether the payment made by the

deductor is income in the hands of the non-resident recipient as section 195 requires

deduction on any other sum chargeable under the provisions of this Act at the rates in force.

Thus, there is requirement that deductor needs to verify if the “sum is chargeable under the

Income-tax Act”. The term “rate in force” is defined under section 2(37A) and it allows

benefit of agreement under section 90 or section 90A, if eligible, in determining the rate of

tax at which the tax is to be deducted at source. Hence, there is further requirement of

checking if the amount is taxable under tax treaty and if yes, at what rate. Such a

requirement is not there in section 194R, in the absence of these two terms in this section.

Hence, there is no requirement for deductor to verify whether the amount is taxable in the

hands of the recipient or section under which it is taxable.

These two terms are also not there in section 194E and the Supreme Court in the case of

PILCOM vs. CIT West Bengal, held that tax is to be deducted under section 194E at a

specific rate indicated there in and there is no need to see the taxability or the rate of

taxability in the hands of the non-resident.

Question 2: Is it necessary that the benefit or perquisite must be in kind for section

194R to operate?

Answer Tax under section 194R is required to be deducted whether the benefit or

perquisite is in cash or in kind.

First proviso to section 194R(1) clearly indicates the intent of legislature that there could

also be situations where benefit or perquisite is in cash or the benefit or perquisite is in kind

or partly in cash and partly in kind. Thus, section 194R clearly brings in its scope the

situation where the benefit or perquisite is in cash or in kind or partly in cash or partly in

kind.

Question 3: Is there any requirement to deduct tax under section 194R, when the

benefit or perquisite is in the form of capital asset?

Answer As has been stated in answer to question no 1, there is no requirement to check

whether the perquisite or benefit is taxable in the hands of the recipient and the section

under which it is taxable.

Further, Courts have held many benefits or perquisites to be taxable even though one can argue

that they are in the nature of capital asset. The following judgments illustrate this point:

12.16

134

Assessee entered into an agreement with “J” for purchase of a plot of land and

certain amount was paid as earnest money. However, possession of land was not

given to assessee and seller entered into another agreement with a third party to

develop the said plot. Assessee filed suit in which a consent decree was passed and

in pursuance of same certain amount as paid to assessee. On appeal it was held

that such sum received in pursuance of consent decree was liable to tax as business

income under section 28(iv). Ramesh Babulal Shah v CIT (2015) 53 taxmann.com

277(Bom).

The amount representing principal loan waived by bank under one time settlement

scheme would constitute income falling under section 28(iv) relating to value of any

benefit or perquisite, arising from business or exercise of profession. CIT v

Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289 (Mad).

Value of rent free accommodation, furniture and fixtures given to director was held

as taxable under section 28(iv). CIT v Subrata Roy (2016) 385ITR 547 (All).

Where a car was given to an assessee by his disciple, who had been benefited from

his preaching, the value of car was held to be taxable in the hands of the assessee

being a receipt from the exercise of the vocation carried on by him. CIT (Addl) v Ram

Kripal Tripathi (1980) 125 ITR 408 (All)

The assessee was a director of a company. In terms of an agreement with the

promoters, shares were allotted to the director. On these facts, it was held that the

shares received by the director were benefit or perquisite received from a company

by the director and it was a benefit assessable to tax. D. M. Neterwala v CIT (1986)

122 ITR 880 (Bom).

Value of gift of land was held as a receipt by the assessee in carrying on of his

vocation and was held as taxable. Amarendra Nath Chakraborty v CIT (1971) 79 ITR

342 (Cal)

Thus, the asset given as benefit or perquisite may be capital asset in general sense of the

term like car, land etc but in the hands of the recipient it is benefit or perquisite and has

accordingly been held to be taxable. In any case, as stated earlier, the deductor is not

required to check if the benefit or perquisite is taxable in the hands of recipient. Thus, the

deductor is required to deduct tax under section 194R in all cases where benefit or

perquisite (of whatever nature) is provided.

If loan settlement/waiver by a bank is to be treated as benefit/ perquisite, it would

lead to hardship as the bank would need to incur the additional cost of tax deduction

in addition to the haircut that he has taken. Will section 194R apply in such a

situation?

As per the judgment of CIT v. Ramaniyam Homes (P) Ltd (2016) 68 taxmann.com 289

12.17

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(Mad) mentioned above, the amount representing principal loan waived by bank under one

time settlement scheme would constitute income falling under section 28(iv) relating to

value of any benefit or perquisite, arising from business or exercise of profession

However, it has been clarified, vide circular no. 18/2022 dated 13.9.2022, that one-time loan

settlement with borrowers or waiver of loan granted on reaching settlement with the borrowers
by the following would not be subjected to tax deduction at source under section 194R:

(i) Public Financial Institution

(ii) Scheduled Bank

(iii) Cooperative bank (other than a primary agricultural credit society)

(iv) Primary co-operative Agricultural and Rural Development Bank

(v) State Financial Corporation

(vi) State Industrial Investment Corporation being a Government company, engaged in

the business of providing long-term finance for industrial projects;

(vii) Deposit taking Non-Banking Financial Company

(viii) Systemically Important Non-deposit Taking Non-Banking Financial Company

(ix) Public company engaged in providing long term finance for construction or purchase

of houses in India for residential purpose and which is registered in accordance with

the guidelines/ direction issued by the National Housing Bank formed under National

Housing Bank Act 1987;

(x) Registered Asset Reconstruction Companies

This clarification is only for the purposes of section 194R. The treatment of such settlement/

waiver in the hands of the person who had got benefitted by such waiver would not be

impacted by this clarification. Taxability of such settlement/ waiver in the hands of the

beneficiary will be governed by the relevant provisions of the Act.

Question 4: Whether sales discount, cash discount and rebates are benefit or

perquisite?

Answer Sales discounts, cash discount or rebates allowed to customers from the listed

retail price represent lesser realization of the sale price itself. To that extent purchase price

of customer is also reduced.

These are also benefits though related to sales/purchase. Since TDS under section 194R is

applicable on all forms of benefit/perquisite, tax is required to be deducted. However,

subjecting these to tax deduction would put seller to difficulty. To remove such difficulty it

has been clarified that no tax is required to be deducted under section 194R on sales

discount, cash discount and rebates allowed to customers.

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Where a seller is selling its items from its stock in trade to a buyer, the seller offers two

items free with purchase of 10 items. In substance, the seller is actually selling 12 items at

a price of 10 items. Let us assume that the price of each item is ` 12. In this case, the

selling price for the seller would be ` 120 for 12 items. For buyer, he has purchased 12

items at a price of 10. Just like seller, the purchase price for the buyer is ` 120 for 12 items

and he is expected to record so in his books.

In such a situation, again there could be difficulty in applying section 194R provision.

Hence, to remove difficulty it has been clarified that on the above facts no tax is required to

be deducted under section 194R.

It has been clarified that situation is different when free samples are given and the above

relaxation would not apply to a situation of free samples.

Similarly, this relaxation should not be extended to other benefits provided by the seller in

connection with its sale. To illustrate, the following are some of the examples of

benefits/perquisites on which tax is required to be deducted under section 194R (the list is

not exhaustive):

When a person gives incentives (other than discount, rebate) in the form of cash or

kind such as car, TV, computers, gold coin, mobile phone etc.

When a person sponsors a trip for the recipient and his/her relatives upon achieving

certain targets

When a person provides free ticket for an event

When a person gives medicine samples free to medical practitioners.

The above examples are only illustrative. The relaxation provided from non-deduction of tax

for sales discount and rebate is only on those items and should not be extended to others.

It has been further clarified that these benefits/perquisites may be used by owner/ director/

employee of the recipient entity or their relatives who in their individual capacity may not be

carrying on business or exercising a profession. However, the tax is required to be

deducted by the person in the name of recipient entity since the usage by owner/ director/

employee/ relative is by virtue of their relation with the recipient entity and in substance the

benefit/perquisite has been provided by the person to the recipient entity.

To illustrate, the free medicine sample may be provided by a company to a doctor who is an

employee of a hospital. The TDS under section 194R is required to be deducted by the
company in the hands of hospital as the benefit/perquisite is provided to the doctor on

account of him being the employee of the hospital. Thus, in substance, the

benefit/perquisite is provided to the hospital. The hospital may subsequently treat this

benefit/perquisite as the perquisite given to its employees (if the person who used it is his

employee) under section 17 and deduct tax under section 192. In such a case it would be

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first taxable in the hands of the hospital and then allowed as deduction as salary

expenditure. Thus, ultimately the amount would get taxed in the hands of the employee and

not in the hands of the hospital. Hospital can get credit of tax deducted under section 194R

by furnishing its tax return. It has been further clarified that the threshold of ` 20,000 is also

required to be seen with respect to the recipient entity.

Similarly, the tax is required to be deducted under section 194R if the benefit or perquisite

is provided to a doctor who is working as a consultant in the hospital. In this case the

benefit or perquisite provider may deduct tax under section 194R with hospital as recipient

and then hospital may again deduct tax under section for providing the same benefit or

perquisite to the consultant. To remove difficulty, as an alternative, the original benefit or

perquisite provider may directly deduct tax under section 194R in the case of the consultant

as a recipient.

The provisions of section 194R would not apply if the benefit or perquisite is being provided

to a Government entity, like Government hospital, not carrying on business or profession.

Question 5: How is the valuation of benefit/perquisite required to be carried out?

Answer: The valuation would be based on fair market value of the benefit or perquisite

except in following cases:-

Situation Value for such benefit/perquisite

(i) The benefit/perquisite provider has purchased purchase price

the benefit/perquisite before providing it to the

recipient

(ii) The benefit/perquisite provider manufactures the price that it charges to its

such items given as benefit/perquisite customers for such items

It has been further clarified that GST would not be included for the purposes of valuation of

benefit/perquisite for TDS under section 194R.

Question 6: Many a times, a social media influencer is given a product of a

manufacturing company so that he can use that product and make audio/video to

speak about that product in social media. Is this product given to such influencer a

benefit or perquisite?

Answer: Whether this is benefit or perquisite will depend upon the facts of the case.

In case of benefit or perquisite being a product like car, mobile, outfit, cosmetics etc. and if the

product is returned to the manufacturing company after using for the purpose of rendering

service, then it will not be treated as a benefit/perquisite for the purposes of section 194R.

However, if the product is retained then it would be in the nature of benefit/perquisite and

tax is required to be deducted accordingly under section 194R.

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Question 7: Whether reimbursement of out of pocket expense incurred by service

provider in the course of rendering service is benefit/perquisite?

Answer: Any expenditure which is the liability of a person carrying out business or

profession, if met by the other person is in effect benefit/perquisite provided by the second

person to the first person in the course of business/profession.

For example, a consultant is rendering service to a person “X” for which he is receiving

consultancy fee. In the course of rendering that service, he has to travel to different city from

the place where is regularly carrying on business or profession. For this purpose, he pays for

boarding and lodging expense incurred exclusively for the purposes of rendering the service

to “X”. Ordinarily, the expenditure incurred by the consultant is part of his business

expenditure which is deductible from the fee that he receives from company “X”. In such a

case, the fee received by the consultant is his income and the expenditure incurred on travel

is his expenditure deductible from such income in computing his total income.

If this travel expenditure is met by the company “X”, it is benefit or perquisite provided by

“X” to the consultant.

However, sometimes the invoice is obtained in the name of “X” and accordingly, if paid by

the consultant, is reimbursed by “X”. In this case, since the expense paid by the consultant

(for which reimbursement is made) is incurred wholly and exclusively for the purposes of

rendering services to “X” and the invoice is in the name of “X”, then the reimbursement

made by “X” being the service recipient will not be considered as benefit/perquisite for the

purposes of section 194R.

If the invoice is not in the name of “X” and the payment is made by “X” directly or

reimbursed, it is the benefit/perquisite provided by “X” to the consultant for which deduction

is required to be made under section 194R.

However, it has been clarified, vide circular no. 18/2022 dated 13.9.2022, that in case of a

supplier who is a “pure agent” fulfilling the following conditions, the reimbursement would

not be treated as benefit/ perquisite for the purpose of section 194R -

i. the supplier acts as a pure agent of the recipient of the supply, when he makes

payment to the third party on authorization by such recipient;

ii. the payment made by the pure agent on behalf of the recipient of supply has been

separately indicated in the invoice issued by the pure agent to the recipient of

service; and 12.14

iii. the supplies procured by the pure agent from the third party as a pure agent of the

recipient of supply are in addition to the services he supplies on his own account.

In case these conditions are not satisfied, such expenditure incurred is included in the value

of supply under GST. However, in the abovementioned case of "pure agent", if all the

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conditions are satisfied, the GST input credit is allowed to the recipient and it is not

considered as supply of the pure agent. In such a case, it is clarified that amount incurred

by such "pure agent" for which he is reimbursed by the recipient would not be treated as

benefit/perquisite for the purpose of section 194R.

Meaning of “Pure Agent” – A "pure agent" means a person who

a) enters into a contractual agreement with the recipient of supply to act as his pure agent

to incur expenditure or costs in the course of supply of goods or services or both;

b) neither intends to hold nor holds any title to the goods or services or both, so

procured or provided as pure agent of the recipient of supply;

c) does not use for his own interest such goods or services so procured; and

d) receives only the actual amount incurred to procure such goods or services in

addition to the amount received for supply he provides on his own account.

Tax deduction under section 194C and 194J is required to be made from the gross

amount of bill including the reimbursement. A person has provided service to a

company and out of pocket expenses are charged by him to the company along with

service fee in the same bill. Company deducts tax under section 194J on both service

fee component as well as on out of pocket expense. Is there a noncompliance with

the provision of section 194R?

If out of pocket expenses (reimbursement) are already part of the consideration in the bill

on which tax is deducted under the relevant provisions of the Act, other than section 194R,

it is clarified, vide circular no. 18/2022 dated 13.9.2022, that there will not be further liability

for tax deduction under section 194R.

In the above example, out of pocket expense is part of the consideration in the bill for

professional fee that is charged to the company and the tax is deducted under section 194J

on the entire consideration including on out of pocket expense. In such a case, the out of

pocket expense is already included as part of professional fee. Hence, there is no further

benefit/perquisite which requires tax deduction under section 194R.

Question 8: If there is a dealer conference to educate the dealers about the products

of the company - Is it benefit/perquisite?

Answer: The expenditure pertaining to dealer/ business conference would not be

considered as benefit/ perquisite for the purposes of section 194R in a case where dealer/

business conference is held with the prime object to educate dealers/customers about any

of the following or similar aspects:

(i) new product being launched

(ii) discussion as to how the product is better than others

(iii) obtaining orders from dealers/customers

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(iv) teaching sales techniques to dealers/customers

(v) addressing queries of the dealers/customers

(vi) reconciliation of accounts with dealers/customers

However, such conference must not be in the nature of incentives/ benefits to select

dealers/customers who have achieved particular targets.

Further, in the following cases the expenditure would be considered as benefit or perquisite

for the purposes of section 194R -

(i) Expense attributable to leisure trip or leisure component, even if it is incidental to the

dealer/ business conference.

(ii) Expenditure incurred for family members accompanying the person attending dealer/

business conference

(iii) Expenditure on participants of dealer/ business conference for days which are on

account of prior stay or overstay beyond the dates of such conference. However, a

day immediately prior to actual start date of conference and a day immediately

following the actual end date of conference would not be considered as over stay.

If there is a dealer conference to educate the dealers about the products of the

company - (i) is there a requirement that all dealers must be invited in the conference,

(ii) how to identify benefit against individual dealers in a group activity?

It has been clarified, vide circular no. 18/2022 dated 13.9.2022, that it is not necessary that

all dealers are required to be invited in a dealer/business conference for the expenses to be

not considered as benefit/perquisite for the purposes of tax deduction under section 194R.

There may be expenses during such dealer/business conference which need to be

classified as benefit/perquisite and tax is required to be deducted under section 194R.

However, there may be practical difficulties in identifying such benefit/perquisite to actual

recipient due to the fact that it is a group activity and reasonable allocation is not possible.

Non compliance of the provision of section 194R, in such a case, would not only result in

disallowance under section 40(ia) but may also result in treating the benefit/perquisite

provider as assessee in default under section 201 with all other consequences.

In order to remove these practical difficulties, it has been clarified that if benefit/perquisite is

provided in a group activity in a manner that it is difficult to match such benefit/perquisite to each

participant using a reasonable allocation key, the benefit/perquisite provider may at his option

not claim the expense, representing such benefit/perquisite, as deductible expenditure for

calculating his total income. If he decides to opt so, he will not be required to deduct tax under

section 194R on such benefit/perquisite and therefore he will not be treated as assessee in

default under section 201. Thus, in such a case he must add back the expenditure, representing

such benefit/perquisite, to calculate his total income if such expenditure is debited in the

account.

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Question 9: Section 194R provides that if the benefit/ perquisite is in kind or partly in

kind (and cash is not sufficient to meet TDS) then the person responsible for

providing such benefit or perquisite is required to ensure that tax required to be

deducted has been paid in respect of the benefit or perquisite, before releasing the

benefit or perquisite. How can such person be satisfied that tax has been deposited?

Answer: The requirement of law is that if a person is providing benefit in kind to a recipient

and tax is required to be deducted under section 194R, the person is required to ensure

that tax required to be deducted has been paid by the recipient. Such recipient would pay

tax in the form of advance tax. The tax deductor may rely on a declaration along with a copy

of the advance tax payment challan provided by the recipient confirming that the tax

required to be deducted on the benefit/perquisite has been deposited. This would be then

required to be reported in TDS return along with challan number. This year Form 26Q has

included provisions for reporting such transactions.

In the alternative, as an option to remove difficulty if any, the benefit provider may deduct

the tax under section 194R and pay to the Government. The tax should be deducted after

taking into account the fact the tax paid by him as TDS is also a benefit under section 194R.

In the Form 26Q he will need to show it as tax deducted on benefit provided.

Company “A” gifts a car to its dealer “B” and deducted tax on this benefit under section

194R. Dealer “B” uses this car in his business. Will he get deduction for depreciation in

calculating his income under the head “profits and gains of business or profession”?

It has been clarified, vide circular no. 18/2022 dated 13.9.2022, that once Company “A” has

deducted tax on gifting of car in accordance with section 194R (or released the car after

dealer “B” showed him payment of tax on such benefit) and dealer “B” has included this

benefit as income in his income tax return, it would be deemed that the "actual cost" of the

car for the purposes of section 32 shall be the amount of benefit included by dealer “B” as

income in his income-tax return. Hence, dealer “B” can get depreciation on fulfilment of

other conditions for claiming depreciation.

Question 10: Section 194R would come into effect from 1st July 2022. It provides that

the provision of this section does not apply where the value or aggregate of value of

the benefit or perquisite provided or likely to be provided to a resident during the

financial year does not exceed ` 20,000. It is not clear how this limit of ` 20,000 is to

be computed for the Financial Year 2022-23?

Answer: It has been clarified that,-

(i) Since the threshold of ` 20,000 is with respect to the financial year, calculation of

value or aggregate of value of the benefit or perquisite triggering deduction under

section 194R shall be counted from 1st April, 2022. Hence, if the value or aggregate

value of the benefit or perquisite provided or likely to be provided to a resident

12.24 exceeds ` 20,000 during the financial year 2022-23 (including the period up to

142

30th June 2022), the provision of section 194R shall apply on any benefit or

perquisite provided on or after 1st July 2022.

(ii) The benefit or perquisite which has been provided on or before 30th June 2022,

would not be subjected to tax deduction under section 194R.

Question 11: Whether Embassy/High Commissions are required to deduct tax under

section 194R?

Answer: It has been clarified, vide circular no. 18/2022 dated 13.9.2022, that the provision

of section 194R is not applicable on benefit/perquisite provided by, an organization in scope

of The United Nations (Privileges and Immunity Act) 1947, an international organization

whose income is exempt under specific Act of Parliament (such as the Asian Development

Bank Act 1966), an embassy, a High Commission, legation, commission, consulate and the

trade representation of a foreign state.

Question 12: Whether issuance of bonus share/right share is a benefit or perquisite if

issued by a company in which the public are substantially interested and whether tax

is required to be deducted under section 194R?

Answer: In case of bonus shares which are issued to all shareholders by a company in

which the public are substantially interested as defined in clause (18) of section 2 of the

Act, it has been represented that this does not result in any benefit to shareholders as the

overall value and ownership of their holding does not change. Further cost of acquisition of

bonus share is taken as nil for capital gains computation when this share is sold. Similar

representations have been received seeking clarity on issuance of right shares.

It has been clarified, vide circular no. 18/2022 dated 13.9.2022, that the tax under section

194R is not required to be deducted on issuance of bonus or right shares by a company in

which the public are substantially interested, where bonus shares are issued to all

shareholders by such a company or right shares are offered to all shareholders by such a

company, as the case may be.

INTEREST LIABILITY ON ASSESSEE IN DEFAULT [SECOND PROVISO TO SECTION

201(1A)]

A person deemed to be an assessee-in-default under section 201(1), for failure to deduct tax or to

pay the tax after deduction, is liable to pay simple interest as computed under section 201(1A).

However, where any order is made by the Assessing Officer for the default under section
201(1), the interest shall be paid by the person in accordance with such order.

Note – The above amendment in section 201(1A) has to be read with the provisions of section 201

discussed in the Study Material.

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l

Chapter 13: Return Filing

Sec 139(1) → Filing of ROI

For Company &

Other Assessees

Partnership Firm (incl. LLP)

If Gross Total Income* > Basic Exemption Limit

Return Filing Compulsory Return Filing Compulsory

[* GTI → Income before claiming

VI-A deduction & before claiming

exemption u/s 54,54B,54D,54EC,

54F,54G,54GA,54GB.]

↳ capital Gain exemptions

→ Other than these assesses, few other assessees are required to file ROI:.

1) Resident and Ordinarily Resident CROR)

• Benificial Owner of any asset (incl. financial asset) located outside India.

• Has signing authority in any Account outside India.

OR

Benificiary of Any Asset (incl. financial interest) located outside India

Note: If Beneficial Owner has filed Return, then Beneficiary is not required to file

the return.

2) If Any Assessee other than Company or Firm → who is not required to file ROI u/s

139(1) → will be required to file ROI if :

(a) has deposited an amount (b) has incurred expenditure (c) has incurred

or aggregate > 1 crore in of an amount or expenditure of an

one or more current aggregate > 2 lakh for amount or aggregate

accounts maintained with himself or any other person > 1 lakh towards

a banking company or a for travel to a foreign electricity bill.

co-operative bank country

13.1


→ Due-Dates for Return filing:-

• Company Assesses required Other

• Assessees who gets their Assessee

to furnish

Accounts Audited Transfer Pricing

• Partner of firm which Report u/s 92E

gets its Accounts Audited

31st Oct of A.Y. 30th Nov of A.Y. 31st July of A.Y.

See 139(3) Loss Return

Sec 80:

If you want to Carry Forward these Losses → PGBP loss, Capital Gains(Loss),Loss from

owning & maintaining race Horses

Then you have to file Return of Income

Before due date of 139(1)

Notes:

→ These Losses Can't be carried forward,

but can they be set-off in the current year? → Yes

→ Sec 35AD Loss Can't be Carried forward if Return is filed beyond due date of

139(1)

→ Sec 35AD Loss, Sec 10AA Deduction, Chapter VI-A 'C' Deductions can't be

availed if Return is filed beyond due date.

→ But House property & Unabsorbed Depreciation

↳ can be carried forward even after filing Belated Return.

→ Sec 80 conditions are applicable for the year in which loss is incurred.

For Next year(2nd year), that Loss can be carried forward even after filing Belated
Return.

13.2


Sec 139(4) - Belated Return

If any Assessee has not filed Return of Income before due date u/s 139(1), he

may furnish return of P.Y. any time:

Before 3 Months prior to end of Relevant A.Y.

OR

Before Completion of Assessment

whichever is earlier

If you have filed Belated Return:

• Late Fees of Rs. 5000 u/s 234F will be levied.

• Certain losses can't be carried forward.

• Certain Deductions can't be claimed.

Sec 139(5) → Revised Return

Any return filed u/s 139(1), 139(3) or 139(4) can be revised if → Assessee finds

any omission or wrong statement.

Time Limit:

Before 3 Months prior to end of Relevant A.Y.

OR

Before Completion of Assessment

whichever is earlier

Notes:

• Revised Return changes everything except date of the Original return.

Changes made in the Revised Return shall be deemed to be made on Original date .

of return only.

• Return can be revised for any number of times.

• Assessee can claim anything before A.O. only by filing Revised return.

Sec 139(9) - Defective Return

Return can become defective in these 3 cases:

Return not filed Tax Audit report Proof of Tax payment

in prescribed form not submitted not attached with return

13.3


Notes:

→ If Return has become defective, A.O. will intimate the assessee & will give time of

15 days to rectify the defect.

→ If Assessee does not rectify the defect within 15 days, the return will be deemed to

be invalid → as if Return has not been filed.

Return of Various Entities:

All the provisions of Income Tax Act shall apply to these returns as if these returns are

filed u/s 139(1).

These entities will be required to file their ROI if:

Sec 139(4A)

Return of Trust

If Income before giving exemption

u/s 11 & 12> Basic exemption

Sec 139(4B) 139(4C)

Return of Political Party Return of Return of Hospitals

If Income before Various Institutions regd. u/s 10 etc.

giving exemption Entities If Income before giving exemption

u/s 10 > Basic exemption

u/s 13A> Basic exemption

Sec 139(4D) 139 (4E) 139 (4F)

Sec 35 University, Edu. Business Trust Investment Fund

Institution, College etc. Return filing is Return filing is

Return Filing is mandatory mandatory mandatory

Author's Note: The Theory of PAN & Aadhar is not covered in these notes. It

will be given as Addendum by YK sir on his telegram channel

13.4


Rule 12AB: Following Persons shall also be required to file their Reurn of Income u/s

139(1)

13.5


(iv) the deposit in one or more savings bank account of the person, in aggregate, is ` 50 lakh

or more.

Note – This amendment has to be read along with the other provisions of section 139(1) discussed

in the Study Material.

EFFECT OF ORDER OF TRIBUNAL OR COURT IN RESPECT OF BUSINESS

REORGANISATON [SECTION 170A]

(1) Requirement to file Modified Return in ITR-A - In a case of business reorganisation,

where prior to the date of order of a High Court or Tribunal or an Adjudicating Authority as

defined in section 5(1) of the Insolvency and Bankruptcy Code, 2016, as the case may be,

any return of income has been furnished by the successor under the provisions of section

139 for any assessment year relevant to the previous year to which such order applies,

such successor has to furnish, within a period of six months from the end of the month in

which the said order was issued, a modified return in Form ITR-A in accordance with

and limited to the said order. The said return of income has to be furnished electronically

under digital signature.

This provision will apply notwithstanding anything contained in section 139.

(2) Meaning of “business reorganization” – Business reorganization” means the

reorganization of business involving the amalgamation or demerger or merger of business

or one or more persons.

(3) Meaning of “successor” – “Successor” means all resulting companies in a business

reorganization, whether or not the company was in existence prior to such business

reorganization.

Example: If A Ltd. merges with B Ltd. with effect from 1.4.2021 vide order of the High Court

dated 1.11.2022, and B Ltd. has already filed its return of income for the A.Y.2022-23 on

30th October, 2022, then, B Ltd. has to file a modified return for A.Y.2022-23 in accordance

with and limited to the Order of the High Court on or before 31 st May, 2023.

(4) Assessment on the basis of modified return [Rule 12AD(3) & (4)]

Status of Assessment or Completion of Assessment by the

reassessment proceedings for an A.Y. A.O. on the basis of modified return

relevant to a P.Y. to which the order of

the business reorganisation applies

(i) Completed proceedings - If the The A.O. has to pass an order

proceedings have been completed on the modifying the total income of the

date of furnishing of the modified return relevant A.Y. determined in such

in accordance with the provisions of assessment or reassessment

section 170A proceedings in accordance with the

order of the business reorganisation

and the modified return so furnished.

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(ii) Pending proceedings - If the The A.O. has to proceed to complete

proceedings are pending on the date of the assessment or reassessment

furnishing of the modified return in proceedings in accordance with the

accordance with the provisions of section order of the business reorganisation

170A and the modified return so furnished.

PERMANENT ACCOUNT NUMBER (PAN) [SECTION 139A]

(1) Persons mandatorily required to apply for allotment of PAN: Section 139A(1) requires

the certain persons, who have not been allotted a permanent account number (PAN), to

apply to the Assessing Officer within the specified time for the allotment of a PAN.

Further, for widening the tax base, every person who has not been allotted a PAN and

intends to enter into such transaction as prescribed by the CBDT is also required to

apply to the Assessing Officer for allotment of PAN.

Accordingly, Rule 114BA inserted w.e.f. expiry of 15 days from 10.5.2022 to prescribe

the following transactions:

(i) Every person, who intends to deposit cash Atleast 7 days before the date on

in his one or more accounts with a banking which he intends to deposit cash over

company, co-operative bank or post office, the specified limit, i.e., ` 20 lakh or

if the aggregate amount of cash deposit in more.

such accounts during a financial year is

` 20 lakh or more

(ii) Every person, who intends to withdraw Atleast 7 days before the date on

cash from his one or more accounts with a which he intends to withdraw cash

banking company, co-operative bank or over the specified limit, i.e., ` 20 lakh

post office, if the aggregate amount of or more.

cash withdrawal from such accounts

during a financial year is ` 20 lakh or

more

(iii) Any person, who intends to open a current Atleast 7 days before the date on

account or cash credit account with a which he intends to open such

banking company or a co-operative bank, account.

or a Post Office

(2) Quoting and authentication of PAN or Aadhaar number

(a) Every person entering into such prescribed transactions is required to quote his PAN

or Aadhaar number, as the case may be, in the documents pertaining to such

transactions. Such persons are also required to authenticate such PAN or Aadhaar

number in the prescribed manner [Sub-section (6A)].

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(b) Every person receiving such document relating to transactions referred to in (a) has

to ensure that PAN or Aadhaar number has been duly quoted in such document.

They also have to ensure that such PAN or Aadhaar number is so authenticated.

[Sub-section (6B)].

Accordingly, Rule 114BB has been inserted (w.e.f. expiry of 60 days from 10.5.2022) to
prescribe that every person has to, at the time of entering into a transaction specified in

column (2) of the Table below, quote his permanent account number or Aadhaar number,

as the case may be, in documents pertaining to such transaction, and every person

specified in column (3) of the said Table, who receives such document, has to ensure that

the said number has been duly quoted and authenticated:

(1) (2) (3)

S. No. Nature of transaction Person

1. Cash deposit or deposits aggregating to A bank or a co-operative bank or

` 20 lakhs or more in a financial year, in Post Master General of a Post

one or more account of a person with a Office.

bank or a co-operative bank or Post

Office.

2. Cash withdrawal or withdrawals A bank or a co-operative bank or

aggregating to ` 20 lakhs or more in a Post Master General of a Post

financial year, in one or more account of Office.

a person with a bank or a co-operative

bank or Post Office

3. Opening of a current account or cash A bank or a co-operative bank or

credit account by a person with a bank or Post Master General of a Post

a co-operative bank or Post Office Office.

Note – Quoting of PAN or Aadhaar number is, however, not required in case where the

person depositing money as per Sl. No.1 or withdrawing money as per Sl. No.2 or opening

a current account or cash credit account as per Sl. No.3 is the Central Government, the

State Government or the Consular Office [Notification No. 105/2022 dated 1.9.2022]

Note – The above amendments in relation to section 139A has to be read along with the other

provisions of section 139A discussed in the Study Material.

QUOTING OF AADHAAR NUMBER [SECTION 139AA]

(1) Mandatory quoting of Aadhar Number

Every person who is eligible to obtain Aadhar Number is required to mandatorily quote

Aadhaar Number, on or after 1st July, 2017:

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However, the tax payer would be liable to pay a fee in accordance with section 234H read

with Rule 114(5A).

(5) Provision not to apply to certain person or class of persons

The provisions of section 139AA relating to quoting of Aadhar Number would, however, not

apply to such person or class or classes of persons or any State or part of any State as may

be notified by the Central Government [Sub-section (3)].

Accordingly, the Central Government has, vide Notification No. 37/2017, dated 11.05.2017, effective

from 01.07.2017, notified that the provisions of section 139AA relating to quoting of Aadhar Number

would not apply to an individual who does not possess the Aadhar number or Enrolment ID and is:

(i) residing in Assam, Jammu & Kashmir and Meghalaya;

(ii) a non-resident as per Income-tax Act, 1961;

(iii) of the age of 80 years or more at any time during the previous year;

(v) not a citizen of India

UPDATED RETURN OF INCOME [SECTION 139(8A)]

(1) Option to furnish updated return: Any person may furnish an updated return of his

income or the income of any other person in respect of which he is assessable, for the

previous year relevant to the assessment year at any time within 24 months from the end of

the relevant assessment year.

This is irrespective of whether or not he has furnished a return under section 139(1) or

belated return under section 139(4) or revised return under section 139(5) for that

assessment year.

For example, an updated return for A.Y. 2023-24 can be filed till 31.3.2026.

(2) Non applicability of the provisions of updated return: The provisions of updated return

would not apply, if the updated return of such person for that assessment year –

(i) is a loss return; or

(ii) has the effect of decreasing the total tax liability determined on the basis of return

furnished under section 139(1) or section 139(4) or section 139(5); or

(iii) results in refund or increases the refund due on the basis of return furnished under

section 139(1) or section 139(4) or section 139(5)

(3) Updated return can be filed if original return is a loss return and updated return is a

return of income: If any person has a loss in any previous year and has furnished a return

of loss on or before the due date of filing return of income under section 139(1), he shall be

allowed to furnish an updated return if such updated return is a return of income.

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For example, if Mr. X has furnished his return of loss for A.Y. 2022-23 on 31.5.2022

consisting of ` 5,00,000 as business loss, he can furnish an updated return for A.Y. 2022-

23 upto 31.3.2025, if such updated return is a return of income.

(4) Updated return to be furnished for subsequent previous year in case (3) above - If the

loss or any part thereof carried forward under Chapter VI or unabsorbed depreciation

carried forward under section 32(2) or tax credit carried forward under section 115JD is to

be reduced for any subsequent previous year as a result of furnishing of updated return of

income for a previous year, an updated return is required to be furnished for each such

subsequent previous year.

(5) Circumstances in which updated return cannot be furnished: No updated return shall

be furnished in the following scenarios –

S.No. Scenarios updated return can not be

furnished

(i) In case of a person

Where a search has been initiated

under section 132 or books of account or

other documents or any assets are

requisitioned under section 132A .

Where a survey has been conducted - for the Assessment

under section 133A (other than survey Year relevant to the

conducted in relation to TDS or TCS) Previous Year in which

Where a notice has been issued to the the search is initiated

effect that: or survey is

- any money, bullion, jewellery or valuable conducted, or

article or thing, seized or requisitioned requisition is made

under section 132 or section 132A in and

case of any other person belongs to -

for any A.Y.

such person; or preceding such

- any books of account or documents, assessment year.

seized or requisitioned under section

132 or section 132A in the case of any

other person, pertain or pertains to, or

any other information contained therein,

relate to, such person.

(ii) Where a person has furnished an updated return

under this sub-section for the relevant assessment

year.

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(iii) Where any proceeding for assessment,

reassessment, recomputation, or revision of

income under this Act is pending or has been

completed for the relevant assessment year.

(iv) Where the Assessing Officer has information in his

possession for the relevant assessment year in

respect of a person under the Smugglers, and for such relevant

Foreign Exchange Manipulators (Forfeiture of Assessment Year.

Property) Act, 1976 or the Prohibition

of Benami Property Transactions Act, 1988 or the

Prevention of Money-laundering Act, 2002 or the

Black Money (Undisclosed Foreign Income and

Assets) and Imposition of Tax Act, 2015 and the

same has been communicated to him, prior to the

date of furnishing of updated return.

(v) Where information for the relevant assessment

year has been received under an agreement

referred to in section 90 or section 90A in respect

of such person and the same has been

communicated to him, prior to the date of

furnishing of updated return.

(vi) If any prosecution proceedings under the Chapter

XXII have been initiated for the relevant

assessment year in respect of a person prior to the

date of furnishing of return under this sub-section.

(6) Updated return for the relevant assessment year cannot be furnished by such person or

belongs to such class of persons, as may be notified by the Board in this regard.

TAX ON UPDATED RETURN [SECTION 140B]

(1) Payment of tax, additional tax, interest and fee before furnishing updated return of

income

(a) In a case where no return is furnished earlier [Section 140B(1)]

(I) Tax to be paid along with interest and fee before furnishing of updating return:

Where no return of income under section 139(1) or 139(4) has been furnished by an

assessee and tax is payable, on the basis of updated return to be furnished by such

assessee under section 139(8A), the assessee would be liable to pay such tax together

with interest and fee payable under any provision of this Act for any delay in

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furnishing the return or any default or delay in payment of advance tax, along with the

payment of additional income-tax computed under section 140B(3), before furnishing the

return.

The updated return shall be accompanied by proof of payment of such tax, additional

income-tax, interest and fee.

(II) Manner of computation of tax payable on the basis of updated return

The tax payable is to be computed after taking into account the following -

(i) the amount of tax, if any, already paid as advance tax;

(ii) any tax deducted or collected at source;

(iii) any relief of tax claimed under section 89;

(iv) any relief of tax or deduction of tax claimed under section 90 or section 91 on

account of tax paid in a country outside India;

(v) any relief of tax claimed under section 90A on account of tax paid in any specified

territory outside India referred to in that section; and

(vi) any tax credit claimed to be set off in accordance with the provisions of section

115JAA or section 115JD.

(III) Interest under section 234A if no earlier return has been furnished

In a case, where no earlier return has been furnished, the interest payable under section

234A has to be computed on the amount of the tax on the total income as declared in the

updated return under section 139(8A), in accordance with the provisions of section

140A(1A).

(b) In a case where return is furnished earlier [Section 140B(2)]

(I) Tax to be paid along with interest before furnishing updated return:

Where, return of income under section 139(1) or 139(4) or 139(5) has been furnished by an

assessee and tax is payable, on the basis of updated return to be furnished by such

assessee under section 139(8A), the assessee would be liable to pay such tax together with

interest payable under any provision of this Act for any default or delay in payment of

advance tax, along with the payment of additional income-tax computed under section

140B(3) (as reduced by the amount of interest paid under the provisions of this Act in

the earlier return) before furnishing the return.

The updated return shall be accompanied by proof of payment of such tax, additional

income-tax and interest

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(II) Manner of computation of tax payable on the basis of updated return:

The tax payable has to be computed after taking into account the following -

(i) the amount of relief or tax referred to in section 140A(1), the credit for which has

been taken in the earlier return;

(ii) tax deducted or collected at source, in accordance with the provisions of Chapter

XVII-B, on any income which is subject to such deduction or collection and which is

taken into account in computing total income and which has not been included in

the earlier return;

(iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on

account of tax paid in a country outside India on such income which has not been

included in the earlier return;

(iv) any relief of tax claimed under section 90A on account of tax paid in any specified

territory outside India referred to in that section on such income which has not been

included in the earlier return;

(v) any tax credit claimed, to be set off following the provisions of section

115JAA or section 115JD, which has not been claimed in the earlier return; and

The aforesaid tax would be increased by the amount of refund, if any, issued in respect of

such earlier return.

(III) Interest under section 234B where earlier return has been furnished [Section

140B(4)]

In a case where an earlier return has been furnished, interest payable under section

234B has to be computed on the assessed tax or, as the case may be, on the amount by

which the advance tax paid falls short of the assessed tax.

“Assessed tax” means the tax on the total income as declared in the updated return to be

furnished under section 139(8A), after taking into account the following:

(i) the amount of relief or tax referred to in section 140A(1), the credit for which has

been claimed in the earlier return;

(ii) tax deducted or collected at source, in accordance with the provisions of Chapter

XVII-B, on any income which is subject to such deduction or collection and which is

taken into account in computing such total income, which has not been included in

the earlier return;

(iii) any relief of tax or deduction of tax claimed under section 90 or section 91 on

account of tax paid in a country outside India on such income which has not been

included in the earlier return;

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(iv) any relief of tax claimed under section 90A on account of tax paid in any specified

territory outside India referred to in that section on such income which has not been

included in the earlier return;

(v) any tax credit claimed, to be set off in accordance with the provisions of section

115JAA or section 115JD, which has not been claimed in the earlier return; and

The aforesaid tax would be increased by the amount of refund, if any, issued in respect of

such earlier return.

(IV) Interest under section 234C if earlier return has been furnished

Interest payable under section 234C, where an earlier return has been furnished, has to be

computed after taking into account the total income furnished in the updated return as

returned income.

(2) Additional income-tax payable at the time of updated return [Section 140B(3)]

The additional income-tax payable at the time of furnishing the updated return under section

139(8A) would be –

S.No. Time of furnishing updated return Additional Income-tax

Payable

(i) If such return is furnished after expiry of the time 25% of aggregate of tax

available under section 139(4) or 139(5) of the and interest payable, as

assessment year and before completion of the determined in (1) above

period of 12 months from the end of the relevant

assessment year;

(ii) If such return is furnished after the expiry of 12 50% of aggregate of tax

months from the end of the relevant assessment and interest payable, as

year but before completion of the period of 24 determined in (1) above

months from the end of the relevant assessment

year.

Computation of Additional income-tax

For the purpose of computation of Additional income-tax -

- tax would include surcharge and cess, by whatever name called, on such tax.

- the interest payable would be interest chargeable under any provision of the Act, on

the income as per updated return furnished under section 139(8A), as reduced by

interest paid in the earlier return, if any.

However, the interest paid in the earlier return would be considered to be nil, if no earlier

return has been furnished.

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Note - An updated return furnished under section 139(8A) would be regarded as defective

return as referred u/s 139(9) unless such return of income is accompanied by the proof of

payment of tax as required under section 140B.

(3) Power to CBDT to issue guidelines

In case of any difficulty arises in giving effect to the provisions of this section, the CBDT

may issue guidelines for the purpose of removing the difficulty, with the approval of the

Central Government. Every guideline issued shall be laid before each House of Parliament.

ILLUSTRATION

Mr. X would like to furnish his updated return for the A.Y. 2021-22. In case he furnished his

updated return of income, he would be liable to pay ` 2,50,000 towards tax and ` 35,000 towards

interest after adjusting tax and interest paid at the time filing earlier return. You are required to

examine whether Mr. X can furnish updated return

(i) as on 31.3.2023

(ii) as on 28.2.2024

(iii) as on 31.5.2024

If yes, compute the amount of additional income-tax payable by Mr. X at the time of filing his

updated return.

Would your answer be different with respect to filing of updated return in case of (ii) above, where

he has received a notice under section 147 for the said A.Y. 2021-22 on 23.7.2023

SOLUTION

Mr. X may furnish an updated return of his income for A.Y. 2021-22 at any time within 24 months

from the end of the relevant assessment year i.e., 31.3.2024.

Accordingly, Mr. X can furnish updated return for A.Y. 2021-22 as on 31.3.2023 and on 28.2.2024.

However, he can not furnish such return as on 31.5.2024, since such date falls after 31.3.2024.

Mr. X would be liable to pay additional income-tax

- @25% of tax and interest payable, if updated return is furnished after the expiry of the time

limit available under section 139(4) or 139(5) i.e., 31st December 2022 and before the expiry

of 12 months from end of relevant assessment year i.e., 31.3.2023

- @50% of tax and interest payable, if updated return is furnished after the expiry of 12

months from end of relevant assessment year i.e., 31.3.2023 and before the expiry of 24

months from end of relevant assessment year i.e., 31.3.2024.

Accordingly, Mr. X is liable to pay additional income-tax in case he furnished his updated return as on

(i) 31.3.2023 - ` 71,250 [25% of 2,85,000, being tax of ` 2,50,000 plus interest of ` 35,000]

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(ii) 28.2.2024 of ` 1,42,500 [50% of 2,85,000, being tax of ` 2,50,000 plus interest of ` 35,000]

He cannot furnish updated return where he has received notice u/s 147, since proceeding for

income escaping assessment for the A.Y. 2021-22 are pending.

FACELESS INQUIRY & VALUATION [SECTION 142B]

The Central Government may, for the purpose of giving effect to the Faceless Inquiry and

Valuation Scheme, by notification in the Official Gazette, direct that any provision of this Act shall

not apply or shall apply with such modification, exceptions and adaptations as necessary [Section

142B(2)].

Accordingly, Central Government has issued Notification no. 19/2022 dated 30.3.2022, to

provide that the Faceless Inquiry and Valuation for the purpose of -

(a) issuing notice under section 142(1) or

(b) making inquiry to obtain full information in respect of the income or loss of any person under

section 142(2) or

(c) directing the assessee to get the accounts audited by an accountant under section 142(2A)

or

(d) making a reference to the valuation officer to estimate the value of any asset, property or

investment under section 142A

shall be made in a faceless manner, through automated allocation, in accordance with and

to the extent provided in section 144B with reference to making the faceless assessment of

total income or loss of assessee.

“Automated allocation” means an algorithm for randomised allocation of cases by using

suitable technological tools, including artificial intelligence and machine learning, with a

view to optimise the use of resources.

Every such notification issued by the Central Government either under section 142B has to be laid

before each House of Parliament as soon as possible [Section 142B(3)].

Note – The above amendment has to be read along with the other provisions of section 142B

discussed in the Study Material.

REGULAR ASSESSMENT/SCRUTINY ASSESSMENT [SECTION 143(2)/(3)]

If the Assessing Officer or the prescribed income-tax authority [i.e., an income-tax authority not

below the rank of an Income-tax Officer who has been authorised by the CBDT to act as income-

tax authority] considers it necessary or expedient to ensure that the assessee has not understated

his income or has not computed excessive loss or has not underpaid his tax in any manner he can

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Chapter 13A: ASSESSMENT PROCEDURE

Sec 143(1)- Summary Assessment

(Section 143(1)(a) provides for computation of the total income of an assessee after

making the following adjustments to the returned income:-

(a) any arithmetical error in the return;

(b) an incorrect claim, if such incorrect claim is apparent from any information in

the return;

(c) Disallowance of loss claimed, if return of the previous year for which set-off is

claimed was filed beyond due date u/s 139(1);

(d) Disallowance of expenditure or increase in income indicated in the audit report

but not taken into account in computing the total income in the return;

(e) Disallowance of deduction u/s section 10AA or under Chapter VI-A 'C'.(80-IA,80-

IB, 80-IC, 80IAB, 80 IAC etc), if return is filed beyond due date u/s 139(1);

Notes:

• Summary assessment u/s 143(1) is possible only if Return u/s 139(1) or 142(1) is

filed

• Intimation is generated →For payable, refund or loss return.

• If No Adjustment → Acknowledgement is deemed Intimation

• If there is a Refund hai → It will be Granted.

• If Any Amount is Payable → Intimation is considered as demand order u/s 156.

• Before making any adjustments → intimation is given to the assessee requiring him

to respond to such adjustments within 30 days.

Any response received is considered before making any adjustment. However, if no

response is received within 30 days of issue of such intimation, the processing shall

be carried out incorporating the adjustments.

→ Time limit:- 9 months from the end of F. Y. in which ROI was filed.

→ Remedies Available:

* Rectification us 154

* Appeal to CIT(A) u/s 246A

* Revision u/s 264 → (Intimation is considered as Order for the purpose of Sec 264)

→ Sec 241A: A.O. for the interest of Revenue → can stop the refund of the Assessee if
the assessee is a habitual tax offender.

13.1

See 142(1) → INQUIRY BEFORE ASSESSMENT

Sec 142(1)

(i) (ii)

• File ROI → If not filed u/s 139(1) Submit Information

(Return in response to notice) • Any Details relevant to return can be

• This Return is deemed Normal. asked for.

143(1) is also done with this return. • Current year + Prior 3 P.Ys

• If ROI not filed: • For Details other than detais

10,000 Penalty - For non-compliance mentioned in ROI/BS(personal assets),

of AO's Order Prior approval of JC will be required

BJA us 144 JC → Highest AO.

Sec 142A :- REFERENCE TO VALUATION OFFICER

→ when A. O. has issues in Valuation of any ASSET, PROPERTY or INVESTMENT,
then he can refer case to Valuation officer.

→ Time limit: 6 months from the end of month in which reference was made.

This time will be excluded from Time limit of completing Assessment

→ V. O. Order- Not binding- because it is for reference.

13.2

→ AO. can make a reference to Valuation officer whether or not he is satisfied about

the correctness or completeness of the A/cs.

Sec 142(2A): SPECIAL AUDIT

→ A.O. directs for Special Audit in case of the following issues:

Who Conducts: Department appointed CA - nominated by CIT/PCIT.

Who will bear Expenses: Department will Bear → Sahara case.

Time Limit: Max 180 days → Total period

Time period will be mentioned in notice.

Approval Before Audit : Approval of CIT/PCIT is required.

→ OOBH must be given before Audit.

→Audit is done Already → Then also special Audit will be done.

→ Refused for Special Audit:

10,000 penalty

BJA u/s 144

Search can also be initiated.

13.3

Sec 143(2) : NOTICE OF SCRUTINY

Notice u/s 143(2) is mandatory: Assessment Invalid if Notice is not given.

Time Limit: shall be served within 3 months from the end of F.Y. in which ROI was filed.

Non-Compliance: 10,000 ki penalty

& BJA u/s 144.

Time Barred Notice: If Notice is Time Barred & Assessee replies & cooperates with the
notice & appears in the proceeding → then Assessee can't raise objection
later that Notice was time barred or notice was not given to him.[Sec 292BB]
But he can still raise objection before completion of assessment.

See 143(3): REGULAR ASSESSMENT/ SCRUTINY ASSESSMENT

→ A.O. or prescribed ITO shall ensure that: → A. O. may order:

• Income is not understated • Amount payable or

• Loss is not overstated • Refund due or

• Reduce loss or

• Tax is not underpaid

• Increase the Returned Income

→ In 143(3) A.O. can increase or descrease Income.

→ A.O. also has the power to reject Exemption or Deduction.

→In case of Charitable Trust (whose Object is Advancement of any other object of

General public Utility), Commercial receipts>20% of Total Receipts

A. O. shall not grant Exemption u/s Il or 12 for the P.Y.

→ For Trusts registered under Section 10 (21), (22B), (23A), (23B), sub-clauses

(iv), (v), (vi) and (via) of clause (23C)

the A.O. cannot deny exemption u/s 10 without intimating

Central Government or prescribed authority of the contravention of the provisions

and till the approval granted to these funds, trusts, institutions, hospitals etc has been

withdrawn or notification is rescinded.

The time period for completing the assessment in such cases will exclude the period

between the date on which the A.O. gives the intimation of the default and date on

which copy of the order withdrawing the approval is received by the A.O.

13.4

→ Where the AO is satisfied that any trust or institution referred u/s 10(23C) or 11,

has committed any violation specified in Sec 12AB(4),

he shall send a reference to the PCIT/CIT → to withdraw the approval or

registration

& no order of Assessment of Income or Loss shall be passed

without giving effect to the order passed by the PCIT/CIT u/s 12AB(4).

Remedies:

Appeal- 246 A, Rectification - 154, Revision - 264

Space for Notes:

13.5

Sec 144 - BEST JUDGEMENT ASSESSMENT/EX-PARTE ASSESSMENT

A.O. shall make an assessment to the best of his judgement and knowledge if Assessee:

• Fails to furnish ROI - 139(1), 139(4), 139(5), 139(8A)

• Fails to comply notices - 142(1)

• Fails to comply direction - 142(2A) COMPULSORY

• Fails to comply with scrutiny Notice- 143(2)

→ Income can only be increased u/s 144. It can never be decreased.

Sec 145(3) - Discretionary Best Judgement Assessment

→A.O. has doubts about correctness & completeness of A/cs
& documents of the assessee. DISCRETION
→Method of Accounting not regularly employed by the assessee. OF A.O.
→ Income not computed by following ICDS.

Sec 144A- Power of JC to issue direction

On his
own motion

Joint Commissioner

on Application may call to On reference

examine record
of assessee made by A.O.

of any pending

assessment proceeding.

• If JC thinks fit, he may give directions to A.0. → These directions are Binding on AO.
• OOBH must be given to the assessee → If direction is prejudicial to assessee.

Space for Notes:

13.6

REASSESSMENT

Reassessment Chart:

For doing → Sec 147, You have to follow this procedure:

Enquiry 132, 132A

148A 00BH Exeptions Other person ke pas aapke assets mile

148 Other person ke pas aapki books mili

AO ko info mili Sec 135A me

Sec 148

Information flagged

Information

Final Objection of CAG

Deemed to have Information

132 Other person Other person 133A

ke pas aapke ke pas aapki survey

132A

assets mile books mili

Sec 147: Re-assessment/Income Escaping Assessment

If any Income changeable to tax has escaped assessment for any A.Y. in case of an

assessee, he shall assess or re-assess such Income and any other Income which comes

to his notice, subsequently.

→ AO. may assess any income which has escaped assessment and subsequently comes

to his notice during the course of his proceedings. The procedure of 148A is not

required in this case.

→ Income can only be increased & never decreased.

Assessor Re-assess?-What does that mean?

143(3) is done already → 147 POSSIBLE

143(3) not done → 147 POSSIBLE

144 is done earlier → 147 POSSIBLE

147 is done earlier → 147 POSSIBLE

13.7

Section 148A- Conducting Inquiry, Providing OOBH before 148 notice

• Inquiry

• OOBH

• Considering Reply

• Decide

(i) Conducting Enquiry: Inquiry shall be done with prior approval of specified

Authority w.r.t. any info that has escaped assessment.

(ii) Providing OOBH: OOBH shall be given by serving a show cause notice as to why

148 Should not be done in your case.

(iii) Time given: 7- 30 days from the date of issue of notice

(iv) Decide: A.O. has to decide weather it is a fit case for issuing Sec 148

notice by passing an order.

with the approval of specified Authority

Time of Passing Order by A.O.

If reply is received If reply is not received

One month from the One month from the

end of month in which

end of month in which

reply was received. allowed time expires.

→ 148A is not required in following cases:

Search u/s 132 A.0. is satisfied with prior approval of CIT/PCIT A.O. has received

is initiated that BOA or ASSET faceless collection

OR seized under 132 or requisitioned u/s 132A of info. u/s 135A

BOA or any in case of other person → Belongs to the Assessee. for tax escaping

asset is requisitioned assessment for

u/s 132A in case any A.Y.

of the assessee.
Note : Basically in above 3 cases, OOBH is not given,

directly notice us 148 can be given.

13.8

*(R.A.Y- Relevant Assessment Year)

Sec 148: Notice for assessment u/s 147

For making Assessment us 147, A.O. has to serve notice to the assessee u/s 148, to file

his return for period mentioned in the notice.

This return is considered as return filed u/s 139 and all the

provisions of the act shall apply.

→ Conditions: Notice can only be issued when:

A.O. has INFORMATION that Income Prior approval of specified

has escaped assessment for R.A.Y. Authority is received by A.O.

INFORMATION

Any Information flagged Any Final Objection Any info. Any Info. Any info.
in case of the assessee raised by CAG in case received received by AO received due
which suggests that Income of the assessee. under u/s 135A to order of
has escaped Assessment. DTAA court or
tribunal

→ Cases Where AO shall be deemed to have INFORMATION

Search u/s 132 A Survey A.0. is satisfied with prior approval of CIT/PCIT
is initiated u/s 133A that BOA or ASSET
OR is conducted seized under 132 or requisitioned u/s 132A in
BOA or any on or after case of other person → Belongs to the Assessee.
asset is requisitioned 1.4.21 in case
u/s 132A in case of the assessee.
of the assessee.

Sec 148B: Prior approval for assessment, reassessment or recomputation in certain cases
Where Search u/s 132 is initiated then assessment or reassessment
or Survey is conducted u/s 133A in shall not be made by AO below the
case of assessee (other than TDS/ rank of JC,

TCS survey)

except with the approval of JC/JD/

Add.CIT/Add. DIT.

13.9

Sec 149 - TIME LIMIT TO SEND THE NOTICE

NEW PROVISION OLD PROVISION

Normal → Upto 3 years from the end of

Case Relevant Assessment Year Normal Case → 4 years

Income Escaped → Upto 10 years from Escaped Income>1 Lac → 6 years

50 Lacs or more the end of R.A.Y.

V. Imp. Note: No Notice u/s 149 Shall be issued on or after 1.4.21 if:

It could not be issued as per the old provision because of expiry of the time limit.

i.e. 6 Years from the end of Relevant Assesment year.

This note is not applicable where notice u/s section 153A or 153C is issued

in relation to search u/s 132 or requisition 132A

↳ On or before 31.3.21

[Sec 149(1A)]
→ Where the income in the form has escaped the assessment and the
of an asset or expenditure in investment in such asset or expenditure in
relation to an event or occasion relation to such event or occasion has been
of the value of Rs. 50 lakhs or made or incurred, in more than one PY's,
more, a notice u/s 148 shall be issued for every

such AY for assessment or reassessment.

Sec 151: Meaning of Specified Authority

In case where

In case where 3 years

or less than 3 years more than 3 years

have elapsed from

have elapsed from the

end of Relevant A.Y. the end of Relevant AY.

CIT DIT CCIT DGIT

PCIT PDIT

PCCIT PDGIT

13.10

Sec 150: Assessment by the order of Court/Tribunal

→ There will be no time limit for issue of notice u/s 148 if:

Notice is in consequence of order of:

Any court Any authority

under any in an appeal,

other law. revision or reference.

Sec 152: Tax Rates will be taken of the Respective Assessment Year in which Income
is earned.

Sec 153: TIME LIMIT FOR ASSESSMENT

Case Time Limit

For Sec 143(3)/144

AY. 19-20 & → 12 months from end of A.Y. in which Income was assessed.

AY. 20-21

A-Y. 21-22 & → 9 months from the end of A.Y. in which Income was assessed.

thereafter

Sec 147 → 12 months from end of F.Y. in which notice was served:

+ 1 Year if reference is made to T.P.O.

Note: Where updated return u/s 139(8A) is furnished, Assessment Order u/s 143(3)/
144 shall be made within 9 months from end of F.Y. in which such return was
furnished.
Sec 156: Demand Notice

Where any tax/interest/fees/penalty or any other sum payable under the act due

to any order, then A.O. Serves Demand Notice for Recovering the payment.

Sec 156A: Modification and Revision of notice in Certain Cases

Where demand notice has & demand is reduced due to order of the
been issued u/s 156 Adjudicating Authority(AA) under IBC, 2016,

then AO shall modify demand payable as per order of AA and

shall thereafter serve a revised notice of demand on the assessee.

13.11

Where the order of AA is the modified notice of demand as

modified by the NCLT or the referred above, issued by the AO shall

Supreme Court be revised accordingly.

13.12

Chapter 14 : Search Seizure Survey

v u v r

Sec 131 Sec 132 Sec 133 Income Tax

Powers Search Power + Survey Authorities

Basics

Sec 131: POWERS of IT Authority

Sec 131(1):- IT Authority shall have all the powers vested in a civil court under

code of Civil Procedure Code, 1908:

•Discovery & Inspection.

•Enforcing the attendance of any person & examining such person on Oath.

•Compelling the production of Books of A/cs & Documents.

•Issuing Summons

Sec 131(2) :- IT Authority (not below the rank of AC) has power in relation to DTAA,

for making an inquiry or investigation.

Sec 131(3) :- Impounding of Books of A/cs or Other docs produced before them
(Max- 15 working days) → after recording reasons.
If he wants to retain to more than 15 days, he has to take permission from:

CCIT DGIT
+ their principal
CIT DIT

CBDT

Investigation Wing
Assessment Wing

PDGIT/DGIT
PCCIT/CCIT INCOME

PCIT/CIT PDIT/DIT TAX

JC JD
AUTHORITIES

Only These 3 can be A.O. AC/DC AD/DD

ITO

TRO

Inspector of Income Tax

CIT(A)- It is an Income Tax Authority. ITAT- Not an Income Tax Authority

14.1

Section 133: POWER + SURVEY (133A)

Sec 133: Sec 133B: Sec 133C:

POWER TO CALL POWER TO COLLECT POWER TO COLLECT INFO

FOR INFORMATION FROM INCOME TAX

INFORMATION

DEPARTMENT

→IT Authority can call for → IT Authority can visit → Case is given to Central

Information which will be Business Premises for cell or Central ward for

useful or relevant for any collecting info. Inquiry by Department.

proceeding under the Act. ↳ only Business

premises not Home.

→ Rent, Interest, Commission, →Department processes
Royalty, Brokerage. this info & make available
→ Whether it is a principal the outcome.
place of Business or not.
IT Authority can ask for
name & address of →to use for Assessment by

people to whom these → IT Authority can collect the Income Tax Authority.

amounts are paid. info. from proprietor,

employee or any other

person.

→ Generally in questionnaire

form.

→ No physical presence → only at Business hours

required.

→ No Impounding of Books

of A/cs, only collection of

→ IT Authority can also ask for Information.

info from Brokers & Bankers.

→ No Impounding of any

stock, Cash, valuable

→If no Proceeding is articles.

pending: See Note Below

14.2

NOTE for Sec 133: If No proceeding is pending:

(a) CIT & Above: IT Auth. of CIT & above can call info without any permission.

(b) Below CIT: IT auth. below the rank of ClT has to take prior permission from
Senior Authority for calling any info.

(c) JD AD & DD: However, JD AD & DD can exercise this Power without any
permission.

133A- POWER OF SURVEY:

Normal Survey TDS/TCS Survey

Expenditure Survey

NORMAL SURVEY:

Where it can be done: • Any place where BOA are kept.

• Business premises ✓

• Any House where BOA are kept ✓

• Any 3rd place where BOA are kept ✓

Timing : • Business Place - Only during Business Hours.

• Other place - After sunrise before sunset.

(This is time of Entering & not leaving.)

Powers:

→ Books of Accounts & Other Documents -> IT Authority can Impound for 15 Days.

For retaining beyond 15 days, IT Authority has to take permission from:

CCIT DGIT + their principals

CIT DIT

14.3

→Stock, cash or other valuable other articles -> Can only Value them,

Can not Impound.

→ IT Authority can record statement of any person.

→Survey can be done on Charitable Institutions. (Eg. School, Colleges, Hospitals.)

→ But Survey can't be done on Wholly Religious Trust.

→ Survey can be be done by an Income Tax Authority with prior permission of:

CCIT + P, DGIT + P

TDS/TCS SURVEY:

→ Conducted by Income tax Authority to verify whether TDS/TCS has been

deducted/collected & paid.

→ After sunrise before Sunset.

→ Impounding of Books of Accounts can not be done.

→ Making of Inventory can't be done.

EXPENDITURE SURVEY:

→ IT Authorities keep eyes on big events as payments are mostly made in cash in

such big events.

→ can only be done after the ceremony is over.

→ can require any person to furnish info and statement can be recorded.

SECTION 132: SEARCH & SEIZURE(RAID)

JD/ JC/
Who Authorises Search: DGIT+P/ DIT+P CCIT+P/CIT+P
Additional Commissioner/
(Authorising Officer)
Additional Director
(If empowered by CBDT)

Who conducts Search: Additional Additional

(Authorized Offer) Director/ Commissioner/ AD/DD/ AC/DC/ITO
JD/ AD/DD JC/AC/DC/ITO

14.4

When Search is Conducted → The above authorities has REASON To BELIEVE that:

Reason 1: • Summon of Section 131 Both these notices were issued &

• Notice of Section 142(1)

I Assessee failed to Reply/Respond.

Notices under both the Assessee might fail to

sections issued but Assessee follow above notices.

failed to follow notices. (PROBABLE)

(PAST)

Reason 2: Money, Bullion, Jwellery & other Valuable articles:

Assessee possess it → But has not disclosed or would not disclose for

Income Tax Purpose.

What are the Powers: IT Authority can:

→ Enter any Building, Place, Vessel, Vehicle, Aircraft or any other place.

→ Break open the Lock if keys are not provided.

→ can search any person who is entering or going out if he suspects that the person

has secreted any info about BOA & Assets.

→ can ask for password if BOA is in Electronic form, from the person in control.

→ Can seize any BOA, docs, money, Bullion, jwellery etc found under search.

(Exception- Stock can not be seized.)

→ Place Identification marks or make copies of Books of Accounts.

→ Authorized officer may also requisition service of police officers of Central Gov to

assist him during search.

→ Powers Outside Jurisdiction & without warrant:

• Outside Jurisdiction: IT Authority can exercise powers outside Jurisdiction if delay

would be prejudicial to the interest of Revenue.

• Without Warrant: IT authority can search in other place also which was not

specified in the warrant -> He can take permission from CIT+P /CCIT+P before

doing that.

14.5

SOME IMPORTANT NOTES:

→ Deemed/Constructive Seizure:

Where it is not possible to take physical possession of any asset due to volume/weight
/nature etc, then Authorised Officer may serve an order on the owner of the asset
that he shall not remove/deal with/part with such asset without the approval of
authorised officer. Not applicable to Stock in Trade

→ Prohibitory Order/Order of Restraint:

Volume there is any other reason due to which, it is not possible to

If except Weight take physical possession of any BOA or Other Assets, then

Nature the Authorised Officer may serve an order on the owner of

the asset that he shall not remove/deal with/part with such

asset without the approval of authorised officer.

This Order is valid for Max 60 Days.

→Presumptions during search:

Where BOA + documents + Assets + Money + Bullion + Jwellery is found in the

possession of Assessee during course of search us 132 or Survey u/s 133A, then It

may be presumed that:

a) It belongs to the assessee.

b) Content of the books/documents are true.

c) Signature or any part of the book or handwriting belongs to the assessee.

14.6

Sec 132(9A):

→ Where the authorised officer has No Jurisdiction over the person whose BoA, asset,

money, bullion, jewellery is found during search,

He shall transfer/ hand it over to the officer who has jurisdiction over such assessee.

Within 60 Days from Completion of Search

→ Sec 132(9B)Provisional Attachment:

During the search or within 60 days from completion of Search, the Authorised Officer

can Provisionally attach the properties of the Assessee if:

• Interest of Revenue is Involved.

• Reasons have been recorded in writing

The Provisional Attachment is Operational for 6 Months,

after which it gets automatically vacated.

→Sec 132A:Power of Requisition:

→If Already Search is going on under any other Act.

Eg. FEMA, Gst etc.

Then Authorised officer can make a requisition to other

officer/ authority under any other law to deliver/hand over

the BOA/Assets after their Search is Over.

It is deemed that these BOA & assets are seized by Authorised

Officer u/s 132 and all other provisions of search & seizure

shall apply.

14.7

→Sec 132B : Application of Seized Assets:

Explained Assets:

If assessee makes an application within 30 days from the end of the month in which

asset was seized.

And explains The nature and source of such asset to the satisfaction of the AO.

Then the AO can release the asset with the prior approval of CCIT/CIT after adjusting
any existing liability. Such Release shall be made within 120 days from the conclusion
of search under section 132.

BOA & Docs:

BOA and Other Docs under Sec 132 Shall not be retained beyond a
period of 30 days from the date of Order of assessment u/s 147.

If Auth Officer wants to retain for more than 30 Days:

• Reasons have to be recorded.
• Approval of CCIT/CIT +P is required.

Other Assets:
→Seized Assets can be utilized to recover EXISTING liability & NEW liability(on
completion of assessment)

→ First, Seized Money If Money Falls short, If Assets still left after
shall be used to Assets can be Sold to recovering liabilty, it
recover liability. recover liability. shall be given back to
the assessee.

a) The CG shall pay Interest of 0.5% per month or part on the amount given back
to the assessee.

b) Existing liability does not include Advance Tax payable.

14.8
Author's Note: Do Income Tax Authority Basics from Study Mat, Sec 116-123 &
Question Bank


Chapter 15: Appeals & Revision

Appeals Revision Rectification

CIT (A) ITAT HC SC 263 264 154 254

30 days 60 days 120 days 90 days IT Authority ITAT

Department Assessee

applies for applies for

Revision Revision

→ Appellate Authority hierarchy

SC

90 days → Only question of law

HC

120 days → Only question of law

ITAT

60 days

CIT (A)

30 days

Against order Of A.O.

→ No Right of Appeal against these orders:

Order levying

Int u/s 234ABC

Order of ITSC No Right of Revision order by

& AAR appeal against

CIT u/s 264

these Orders

Order of ITAT

on question of fact.

15.1

[Abbreviations: DRP-Dispute Resolution panel,

ALP- Arm's Length Price, APA- Advance Pricing agreement]

APPEAL TO CIT(Appeals)

→ Orders which can be appealed against to CIT(A) Generally orders of A.O.

Assessment Order Intimation Rectification Order Any Other

Order of A.0.

143(3), 144, 147 143(1) Sec 154 - Denial by A.O. to

Except, Order 200A - TDS approve tonnage Scheme.

passed by A.O. due 206CB-TCS - ALP computation

to GAAR & DRP. order as per APA.

- Any Order Imposing

penalty.

→ Time limit of : 30 days from the date of receiving Order of A.O.. However,
filing appeal Delay can be condoned by CIT(A).

by Assessee.

30 days are calculated from

Assessment/Penalty Any Other Order

Sec 248

Date of Payment Date of service of Date on which

notice of Demand order sought to

of Tax

be appealed against

was served.

→ Time limit of passing : I year from end of year in which appeal was filed.
judgement by CIT (A)

→ Recovery of Demand(Tax):
can still be done by IT Authorities even if appeal is filed.
But assessee can apply to Stay of Demand to

A.O. under Appellate Authority

section 220(6) before whom appeal

is pending.

15.2

Notes:

→ CIT(A) can enhance/reduce/ confirm the assessment but can never refer

back to A.O. for fresh Assessment. But ITAT can.

→ CIT(A) can rectify its order u/s 154. But ITAT can not, because ITAT is not an

Income Tax Authority. ITAT can rectify u/s 254.

FEES:

Total Income upto 1Lac = Rs. 250

Total Income> 1Lac upto 2 lac = Rs. 500

Total Income> 2 Lac = Rs. 1000

Any other case = Rs. 250

→ Sec 248: Appeal by person denying to deduct tax u/s 195:

If a Resident Assessee pays any amount(except interest) to NR & TDS was deducted
u/s 195 and paid to Government.

But such tax was actually not deductible, & it is borne by the assessee himself.

Then Assessee(Resident) can apply to CIT(A) for a declaration that No Tax

was deductible on such Income.

APPEAL TO Income Tax Appellate Tribunal

generally orders of CIT & above

→ Orders which can be appealed against to ITAT.

Order of CIT(A) Order of A.O. Revision order Penalty Any other

u/s 143(3)/147 u/s 263. u/s 270A order of

due to DRP & & 272A CIT

GAAR Rectification of CCIT

263 order DIT

u/s 154 DGIT

Space for Notes:

15.3

→ Time limit of filing : 60 days from the date of receipt of copy of order.

appeal to ITAT

Time limit of filing

Memorandum → The Other party (Respondant) can file MOCO

of Cross objection within 30 days of receipt of notice of appeal.

(MOCO)

Note: However, ITAT can accept even after expiry of 30 days if he is satisfied that delay

is due to sufficient cause.

→ Time limit of passing : 4 years from the end of year in which appeal was received.

order by ITAT

Notes: One Judicial Member

→ ITAT appeal is heard by a bench, a panel of 2 members having One Accounting

→ If Total Income of Assessee is upto Rs. 50 lacs: Member

Then appeal can be heard by a single member .

→ Decision is always taken by Majority.

In case of any conflict → Case is referred to President

President calls other members for the case &

decision is again taken by Majority of all members

including members who first heard it.

→ ITAT is the final fact finding authority.

STAY OF DEMAND
→ Assessee can apply for Stay of Demand. → ITAT may grant stay after
considering merits for 180 days.

→ only if assessee deposits atleast

20% of (Tax + Interest + Penalty+ fees)

→ Can This period be extended? → Yes, if ITAT fails to give judgement within 180 days
& delay is not attributable to the assesseee.

Max period-365 days (original + extended)

15.4

→ After 365 days, he stay shall stand vacated automatically, even if delay is

not attributable to the assessee.

Case Law- DCIT v/s Pepsi Foods Ltd(2021)

Conclusion: If the appeal is not disposed off by ITAT the even after expiry of 365

days, then

When delay is attributable When delay is not attributable

to the assessee. to the assessee.

Stay shall Stay Shall

vacate automatically. not vacate

FEES:

Filing of MOCO
Total Income upto 1Lac = Rs. 500

Total Income> 1Lac upto 2 lac = Rs. 1500 No Fees

Appeal filed by AO
Total Income> 2 Lac = 1% of Assessed Income

Any other case = Rs. 500 in direction of

ClT/PCIT

→ Sec 254 : Rectification of Mistake by ITAT

Own motion on application of AO/Assessee

6 months from the

end of month in even after 6 months

which order was passed.

But the application must be

made within 6 months from

the end of month in which order

was passed.

Power to review its own Order

CIT(A) ITAT HC SC

X X ✓ ✓

15.5

Admission of Additional Evidence

CIT(A) ITAT

→ Assessee produced, but A.O. Rejected. → If ITAT thinks that

→ A.O. completed assessment without IT Authority has completed

considering evidence. assessment without giving

→ A.O. demanded but Assessee did not sufficient opportunity to

produce for sufficient cause. assessee.

→ Where A. O. didn't demand for evidence.

→ If ITAT requires

additional evidence/docs

APPEAL TO HIGH COURT

Appeal against order of ITAT can be filed before High Court if HC is satisfied that it

involves Question of law.

→ Who can file appeal: CCIT+P/CIT+P or Assessee

→ Bench Strength: The appeal shall be heard by bench of not less than 2 Judges of
High Court.
→ How Decision is taken: The appeal should be decided according to the decision of
majority.

In case of any conflict, they should bring more

Judges and decide by majority of all Judges including those who first heard it.

→ The high court may determine any issue which

Has not been Has been wrongly

determined by ITAT determined by ITAT

APPEAL TO SUPREME COURT

→ Appeals can be filed to Supreme Court against order of High Court within 90 days.

→ Both High Court & Supreme court has power to review its order.

15.6

See 268A- Special Provision of Appeal by Department

CBDT has fixed a monetary limit → For Appeal by Department.

→ Dept can only file appeal if Tax Effect is more than:

For Appeal to:

ITAT > 50 lakh

HC > 1 Crore

SC > 2 Crore

Note: If Department did not file an appeal against any assessee for a particular year,

It can not stop department from In case of same assessee

filing appeal on the same issue. for another year.

In case of another assessee

for any year.

REVISION

Revision u/s 263 Revision u/s 264

• Passed by- CIT+P/CCIT+P • Passed by- CIT+P/CCIT+P

• Orders prejudice to the interest of • Orders prejudical to Assessee

Revenue.

(Erroneous as well as prejudicial)

• On his own motion • On his own motion

OR

On application of Assessee.

• Income always Increases. • Income may decrease.

• Time limit of passing order: • Time limit of passing Order:

2 years from the end of FY in

which order of A.O. was passed. on his own on application

motion of assessee

1 year from end of F.Y.

1 year from

in which application

date of order

was made
of A.O.

15.7

• Time limit for Assessee can

application by → apply within 1

Assessee year from the

date of receiving

order of A. O.

• ClT/CCIT can not revise MATTERS • If any ORDER is under appeal, it

involving appeal u/s 263. can not be revised u/s 264.

Doctrine of Partial Merger applies Doctrine of Total Merger applies.

• Order of 263 can be appealed to ITAT • Order of 264 can't be appealed to

ITAT as it is final Order.

• Order of 263 cannot be revised u/s 264.

• Assessee can apply for Revision only if:

Time limit of filing Assessee has

appeal is expired OR waived off his

right of filing

appeal.

Sec 154: Rectification of Mistake

→ Income Tax Authority (Sec 116) can rectify any mistake apparent from record in:

Any Order passed by Intimation u/s 143(1) TDS Intimation-200A

an IT Authority TCS Intiation-206 CB

→ It can be done by IT Authorities on its own motion or on application of the assessee

If done on own motion If done on application of Assessee

4 years from the end of F.Y. 6 months from the end of month

in which order was passed. in which application is received by

IT Authority.
→ Assessee has to apply for Rectification within 4 years from the end of F.Y. in which order is passed.

15.8


→ If the assessment is enhanced or refund is reduced → 00BH shall be given to the

Assessee.

→ Appeal to ClT(A) can be filed against order of 154.

Mistake Apparent from Record:

Mistake Apparent From Record Mistake not apparent from Record

• Subsequent decision of SC Mere change in opinion of A.O.

• Retrospective amendment in law. can't be basis for Rectification.

eg: Expense is allowed earlier.

Later, It has been disallowed by S.C.

retrospectively. Then it will be disallowed.

Some Extra Points:

→ For section 154, Doctrine of Partial Merger Applies.

→ Rectification: Sec 154 → IT Authorities including CIT(A)

Sec 254 → ITAT

DOCTRINE OF TOTAL MERGER & DOCTRINE OF TOTAL MERGER

15.9

Example: In case of Assessee Example: In case of Assessee:

Income 1- In appeal Income 1- In appeal

Income 2- not in appeal. Income 2- Not in appeal.

For Income 1- 154 & 263 not possible For Income 1 - 264 not possible

For Income 2- 154 & 263 are possible for Income 2 - 264 not possible

only partial effect For both matter, 264 not possible,

on single matter. total effect on the Order.

Special Provisions for Avoiding Repetitive Appeals

Sec 158A - By Assessee Sec 158AB - By Department

• If Appeal is pending in case of • If case is pending on Question of law in

Assessee → Before HC/SC case of Assessee → Before HC or SC

for any earlier AY

Against order of ITAT or HC in favour of Assessee.

• And Identical point is pending for

subsequent A.Y. in case of Same And On Same question of Law,

Assessee before A.O./CIT(A)/ITAT decision of CIT(A)/ITAT is given in

favour of assessee.

• Then assessee can furnish declaration

before A.O./CIT(A)/ITAT Then on decision of Collegium, CIT/PCIT

directs A.O. to make an application to

that if you apply decision of HC/SC in →ITAT/HC within 120 days from order of

the current case, then I will not file the CIT(A)/ITAT stating that

appeal appeal to ITAT/HC may be filed after

may accept decision of first case

AO/CIT(A)/ITAT OR

But CIT/PCIT can do this only if

Reject

Assessee accepts it.

If assessee - File appeal to ITAT/HC

denies: right now.

→ If decision of SC comes in favour of

department, then CIT/PCIT will direct

A.O. → to file appeal to ITAT within 60

days or HC within 120 days against

order of CIT(A)

Collegium: means a collegium

15.10
comprising 2 or more CCIT/PCIT/CIT

Chapter 16: Advance Tax & Interest u/s 234ABC

Section 208: Obligation to pay Advance Tax arises → in every case where the

advance tax payable is 10,000 or more.

Note - An assessee who is liable to pay advance tax < Rs. 10,000 → will not be liable

u/s 234B and 234C. However, Interest u/s 234A - Interest for belated filing of

return would be attracted.

Exemption from payement of Advance Tax

Senior citizens(Resident) of age 60 or more → who have passive income like

interest, rent, etc., & doees not have PGBP Income is exempt from payment of

advance tax

How to calculate :

Estimated Total Income xxx

Tax Calculation xx

Less: TDS/TCS** (xx)

Relief u/s 89 (xx)

MAT/AMT (xx)

Relief u/s 90/90A/91 (xx)

Advance Tax Liability xx

** TDS/TCS can be reduced while calculating advance tax liability only if it has been

actually deducted/collected.

TDS/TCS deductible/collectible but not actually deducted/collected can not be reduced

while calculating such liability.

Due Dates for payment of Advance Tax

Due date of instalment Amount payable

On or before 15th June ≥ 15% of advance tax liability

On or before 15th September ≥ 45% of advance tax liability

On or before 15th December ≥ 75% of advance tax liability

On or before 15th March ≥ 100% of advance tax liability

Note: Any Amount paid on or before 31st march, shall be consider as Advance

Tax paid during financial year.

Sec 44AD & 44ADA Assessee: Whole amount payable in 1 installment on or before
15th March of Financial year

16.1


234A 234B 234C

Interest for delayed Interest for non/short Interest on delay in

filing of Return payment of advance tax Installments

Tax as per ROI Adv. Tax Short Deferred Amount

[after adj. of TDS,TCS,adv paid/not paid

tax etc]

1% per month or
x x

part

1% per month or 1% per month or x

part part
month

x x 15/06 15% 3M

15/09 45% 3M
From due date u/s From 1st April of A.Y

139(1) to actual date 15/12 75% 3M

to Date of Assessment

of filing retun 15/03 100% 1M

u/s 143(1)/143(3)

Note: No Interest u/s 234C if Assessee paid 12% & 36% in 1st & 2nd Installments Respectively

234D :INTEREST ON EXCESS REFUND GRANTED AT THE TIME OF SUMMARY

ASSESSMENT

Applicability: Levies on excess refund granted.

-Where no refund is due on regular assessment and yet amount of

refund paid.

-Amt refunded u/s 143(1) > amount refundable on regular assessment.

Rate : 0.5% per month or part

Period of Int: From the date of grant of Refund to the date of such regular assessement.

234E : FEE FOR DEFAULT IN FURNISHING TDS/TCS STATEMENT.

Fees: Rs. 200 everyday for late filing

[However, the amount of fees shall not exceed the the amt of TDS/TCS

filed in TDS/TCS statement]

Penalty u/s 271H – minimum 10,000 to 1,00,000

Fees & penalty
Where TDS/TCS statement furnished within one year - Only Fees of 234E levied
-if filed beyond one year- Both Fess & penalty of 271H levied.

16.2


234F: FEE FOR DEFAULT IN FURNISHING RETURN OF INCOME

Income < 5,00,000 = Rs. 1000

Income > 5,00,000 = Rs. 5000

234H :FEE FOR DEFAULT RELATING TO INTIMATION OF AADHAR No. u/s 139AA(2)

Penalty Amount shall be Rs. 1000

Sec 234G: Fees for default in Filing Statement

Donee Trust/institution referred u/s 35(1)(i)/(iia)/(ili) or 80G(5) fails to submit

statement to PDGIT(System) or certificate of donation to donor upto 31st May of

next FY then such institution/Trust required to pay fees of Rs. 200 per day during

which failure continues.

Provided this fees shall not exceeds amount in respect of which failure occurred.

Sec 234H: Fees for default in Linking Aadhar with PAN

If such person fails to intimate his Aadhar Number on or before the date notified in

section 139AA(2) i.e., 31st March, 2022, then, at the time of subsequent

intimation of his Aadhaar number to the prescribed authority, such person would be

liable to pay, by way of fee, an amount equal to,—

(a) 500, in a case where such intimation is made within three months from the

date referred in section 139AA(2) i.e., by 30.06.2022; and

(b) 1,000, in all other cases.

However, if a person fails to link Aadhaar with PAN on or before 31.3.2022, his

PAN shall become inoperative after the said date in the prescribed manner [Proviso

to section 139(2)]

16.3
 Chapter 17: Penalties

Tax Audit Transfer pricing

271A, 271B, 271AA, 271BA,
221(1)
271

Cash loan/Advance G GA GB
271 Under-reporting/Undisclosed

D DA E 270A, 271

SS ST T AAB AAC AAD

269 SFT
271FA, 271FAA

1) Cash Loan & Advances

loan or Any Transaction loan/deposit
deposit taken received paid

269 SS ST T
20,000 2,00,000 20,000

271 D DA E
Penalty 100% of 100% of 100% of
amount amount amount
of loan received of loan

2) Under reporting/ Undisclosed

270 A - Under-reporting/ Mis-reporting of Imcome

Penalty 50% of Tax 200% of

on URI Tax on URI

17.1 URI= Under-reported Income

 271AA

271AAB 271AAC 271AAD

Undisclosed Income Unaccounted False entry or Omission
found in Search Income 68-69D to evade tax liability.

30%/ 60% of 10% of Tax on 100% of such

Undisclosed Income unaccounted false or omitted
Income u/s 115BBE entry.

(3) Tax Audit

271A 271B
Failure to keep & maintain Failure to get Books of
books as per section 44AA. Accounts audited u/s 44AB

Rs. 25,000 0.5% of Turnover or Gross Receipts

Max 1,50,000
Note: If Assessee has not maintained BOA, penalty shall only be leviable u/s 271A & not 271B
because if BOA are not maintained, the question of getting them audited doesn't arise

221(1) Failure to pay any tax - Self Assessment Tax, TDS, TCS, tax demand

Penalty → Maximum: Amount of Tax in Arrears

4) Transfer pricing
271AA 271BA
Failure to furnish report
Failure to
of CA u/s 92CE
keep & maintain Report such maintain/ Rs. 1,00,000
docs as per docs. when Furnish
sec 92D required Correct info.

2% of Transaction Value

17.2
 271

G GA GB

Failure to furnish/
Failure to 2% of Rs.5,00,000 Inaccurate reporting
furnish info Transaction in respect of International
as per sec 92D Value Group.

2% of value of Rs. 5000 per Rs.15000

International day upto one per day
Transaction month thereafter

Failure to Failure to
furnish u/s furnish report
285A or furnishing
inaccurate report
u/s 285A
Where transaction
has effect of transferring
right of management

Notes:
30%/60% - 271AAB

assessee admits the

Income during search

Assessee explains the nature

Discloses 30%
& source of such Income
it in return

pays Tax + Interest

on such Income

60%- If even 1 condition is not satisfied, 60% penalty will be leviable.

17.3
Note: Please watch video of Yash Sir's Penalties on Youtube

270A Calculation Order of

Penalty amount- 50%/200% of Tax as calculated below Assessment

If Return is filed: 143(1)

Tax on Baad - Tax on pehle

Wali Income Wali Income 143(3)

At the time of:

Scrutiny Tax on Income 147
_ Tax on Income
Assessment u/s 143(3) u/s 143(1)

Re-assessment Tax on Income _ Tax on Income

u/s 147 u/s 143(3)

Under Reported Income =Income u/s [143(3) - 143(1)]

Income u/s [147 - 143(3)]

If Return is not filed: Tax On Assessed Income

URI = Company/firm - Assessed Income

Other Cases = Assessed Income u/s 144 - Basic Exemption

If there is loss: Tax on Difference in loss (Reduction of loss/Increase in Income)

Penalty = Underreporting - 50 % of Tax
Misreporting - 200% of Tax

270A(6): Cases which are not considered as under-reporting

• The amount of income in respect of which the assessee offers an explanation

• The amount of under-reported income determined on the basis of an estimate

• The amount of under-reported income represented by any addition made in

conformity with the ALP determined by the TPO.
• The amount of undisclosed income on account of a search operation

17.4
 Statement of Financial Transactions(SFT)

Due Date for filing SFT: 31st May of the year immediately following
the F.Y. in which the Transaction is recorded.

See 271FA- PENALTY FOR NON-FILING OF SFT

→ On failure to furnish SFT or Reportable Accounts

Penalty is Rs.500 per day till the period of Notice

→ On failure to pay the same till expiry of notice:

Penalty would be Rs. 1000 per day after expiry of notice.

Sec 271FAA: Inaccurate Info in SFT or Reportable A/cs

Penalty = Rs. 50,000

Where any College

Sec 271K - regd. u/s 35
University
Research Association
Institution regd u/s 80G

Fails to deliver a prescribed → Penalty:

statement in prescribed time Rs. 10,000- 1,00,000

Sec 272A- Penalty on non- compliance of AO's Order.

Sec 271 AAE- Penalty

Any Trust regd. u/s 11/10(23C) gives any 1st Violation : 100% of the Amount
Subsequent Violation: 200% of the
benefit to related person u/s 13(1)
Amount
(eg.Benefit to trustee, founder etc.)

17.5
Chapter 18: Deemed Dividend

® Deemed dividend covered by section 2(22)(a) to 2(22)(e):

According to section 2(22), the following receipts are deemed to be dividend.

(1) Section 2(22)(a) - Distribution of accumulated profits, entailing the release

of company’s assets
Any distribution of assets by a company to each shareholders to the extent
the company possesses accumulated profit ( capitalized or not ).
Notes-
(i) In case of bonus shares there is no release of assets hence issue of
bonuses is not deemed as dividend.
(ii) When assets are distributed under section 2(22)(a)/(c)/(d), the FMV
of the asset on the date of distribution has to be taken for computing
the dividend.

(2) Section 2(22)(b) - Distribution of debentures, deposit certificates to

shareholders and bonus shares to preference shareholders
(i) Any distribution to its shareholder by company of debentures,
debentures stock or deposit certificates, and
(ii) Any distribution to its preference share holders of shares by way of
Bonus.
To the extent to which company possesses accumulated profit (capitalized
or not)

(3) Section 2(22)(C) - Distribution of Assets on liquidation.

Any distribution of assests by company on liquidation to the extent to
which company possesses accumulates profits (capitalized or not).

(4) Section 2(22)(d) - Distribution on reduction of capital

Any distribution to its shareholder by company on reduction of its capital
to the extent to which company possesses accumulates profits (capitalized
or not).

18.1
(5) Section 2(22)(e) - Advance or loan by a closely held company to its
shareholder/ specified concern/ Any Person.
® ShareHolder:

Closely held co. / unlisted co. in which public are not substantially interested.

Advance any loan to shareholders who is beneficial

owner of >10% of voting power.

will be deemed to be dividend to the extent of the accumulated profits.

® Specified concern:

Closely held co. / unlisted co. in which public are not substantially interested.

Advance any loan to any concern (i.e. HUF, Firm, AOP, BOI,
company) shareholders have beneficial ownership of >10% of Eq.
Share is member/partner in which he has substantial interest.

will be deemed to be dividend to the extent of the accumulated profits.

® Following should not be consider as deemed dividend.

(i) If the loan is granted in the ordinary course of its business and
lending of money is a substantial part of the company’s business,
then it is not deemed to be dividend.
(ii) Any dividend paid by a company which is set off by company
against the loan which has been deemed as dividend u/s 2(22)(e).
(iii) Payment on buyback of shares won’t be consider as deemed
dividend.
(iv) Shares allotted to shareholders of demerged company by resulting
company under scheme of demerger.
(v) Any distribution made u/s 2(22)(c)/(d), in respect of preference
share, then it should not be consider as deemed dividend.

18.2
 ® Points to be noted.
- Loans or advance is treated as deemed dividend to the extent to which
company possesses accumulated profit.
- Substantial interest means 20% or more voting power or share in profit
at any time during the PY.
- Loan is repaid/ company charges market rate of interest doesn’t nake
any difference in applicability of sec-2(22)(e). [matalb market rate se
jyada rate me interest pay kr rhe hai, tb bhi, it will consider as deemed
dividend].
- Sec-2(22)(e) is not applicable in case where trade advance means
advance which is in the nature of commercial transaction.
- If loan and advance given to concern then it is treated as deemed
dividend in hands of concernbut as per some court judgements’, it is
taxable in hands of Shareholders.
- Some illustrations /examples of trade advances/commercial transactions
held to be not covered under section 2(22)(e) are as follows:
(a) Advances by a company to a sister concern and adjusted against the
dues for job work done by the sister concern. It was held that
amounts advanced for business transactions do not to fall within the
definition of deemed dividend under section 2(22)(e).
(b) Advance by a company to its shareholder to install plant and
machinery at the shareholder's premises to enable him to do job
work for the company so that the company could fulfil an export
order. It was held that as the assesses proved business expediency,
the advance was not covered by section 2(22)(e).
(c) A floating security deposit given by a company to its sister concern
against the use of electricity generators belonging to the sister
concern. The company utilised gas available to it from GAIL to
generate electricity and supplied it to the sister concern at
concessional rates. It was held that the security deposit made by the
company to its sister concern was a business transaction arising in

18.3
 the normal course of business between two concerns and the
transaction did not attract section 2(22)(e).
- Interim dividend – Interim dividend would be deemed to be the income
of the previous year in which such dividend is unconditionally made
available by the company to the members who is entitled to it.

18.4
Chapter 19: TA TP TE & GAAR

TP- Tax Planning

TA- tax Avoidance
TE- Tax Evasion
GAAR- General Anti Avoidance Rule

® These are the methods of reducing Tax liability-Tax Planning, Tax

Evasion, Tax Avoidance

® Tax Planning
- Tax planning may be defined as an arrangement of one’s financial
affairs in such a way that, without violating in any way the legal
provisions, full advantage is taken of all tax exemptions, deductions,
concessions, rebates, allowances and other reliefs or benefits
permitted under the Act so that the burden of taxation on the
assesses is reduced to the minimum.
- In Short, Availing tax exemptions or tax privileges offered by the
Government, strictly in accordance with law.
- Example:
(i) Choosing the suitable form of assessable entity (individual, firm,

company).

(ii) Choosing suitable forms of investment (share capital, loan capital,

lease) considering deductions available in respect of interest,
exemption available in respect of dividend etc.
(iii) Diversification of the business activities.

® Tax Evasion
- Tax evasion refers to any attempt to avoid payment of taxes by using
illegal means.
- Manoeuvre involving an element of deceit, misrepresentation of facts,
and falsification of accounting calculations or downright fraud. In
simple terms, tax evasion refers to any attempt to avoid payment of
taxes by using illegal means.
Note: GAAR has to be covered from study Mat.

19.1
 Miscellaneous Provisions

® Taxation in case of ESOP

Basic As per sec-17(2) ESOPs/Sweat equity shares are taxable as perquisite
in hands of employee in the year in which shares allotted to
employee.
Taxable FMV of shares on the date on which option Exercised xxx
Amount (-) Amount paid by Employee for ESOP's xxx
Taxable Amount xxx
Calculation (1) On the date of exercising option, company is listed on recognized
of FMV as stock exchange.
per Rule Company listed on - FMV shall be Average of Opening +
3(8) recognized stock Closing of share on that date on said
exchange stock exchange
Company listed on - FMV shall be Average of Opening +
more than one stock Closing of the share on the recognised
exchange stock exchange which records the
highest volume of trading in the share.
Provided further that where, on the date of exercising of the
option, there is no trading in the share on any recognized stock
exchange, the fair market value shall be :
(i) the closing price of the share on any recognised stock exchange
on a date closest to the date of exercising of the option and
immediately preceding such date; or
(ii) the closing price of the share on a recognised stock exchange,
which records the highest volume of trading in such share, if
the closing price, as on the date closest to the date of
exercising of the option and immediately preceding such date,
is recorded on more than one recognized stock exchange.

(2) On the date of exercising the option - Company is not listed on

recognised stock exchange
FMV shall be such value of the share in the company as determined

1o.1
 Miscellaneous Provisions
by a merchant banker on the specified date.

Sale of Computation of capital gain

Shares by Full value of consideration xxx (sale value of consideration)
Employee (-)Cost of acquisition xxx (FMV of shares as per rule 3(8)
Capital Gain xx

Period of holding as per sec 2(42A)

From Date of allotment of ESOPs to the date of transfers of shares
by employee.
Taxability Eligible Start-up require to deduct TDS on salary in case of ESOPS
of ESOPS within 14 days from:
in case of (i) After expiry of 48 months from the end of the relevant AY; or
Start-ups (ii) From the date of sale of such specified security/ sweat equity
referred share by the assessee; or
u/s 80- (iii) From the date of the assessee ceasing to be the employee of the
IAC start-up

- whichever is the earliest,

- on the basis of rates in force for the financial year in which the said
specified security or sweat equity share is allotted to employee.

1o.2
 19.2 DIRECT TAX LAWS

19.1 INTRODUCTION
Income-tax Settlement Commission (ITSC) constituted by the Central Government for settlement
of cases ceases to operate with effect from 1st February, 2021. Consequently, no application
under section 245C for settlement of cases before the Settlement Commission can be made on
or after 1st February, 2021. In order to dispose off the pending settlement applications as on
31.01.2021, the Central Government has constituted seven Interim Boards for Settlement vide
Notification No. 91 of 2021 dated 10.08.2021.
While pending disputes are being resolved or adjudicated through the Interim Boards for
Settlement, it is also necessary to prevent tax disputes in future and settle the issues at initial
stage. Therefore, in order to provide early tax certainty to small and medium taxpayers, with
effect from 1 st April, 2021, new scheme of Dispute Resolution has been formulated for
constitution of one or more Dispute Resolution Committee(s) (DRC).

19.2 DISPUTE RESOLUTION COMMITTEE [SECTION

245MA]
(1) Constitution of Dispute Resolution Committee: The Central Government is empowered
to constitute, one or more Dispute Resolution Committees, in accordance with the rules
made under this Act. Dispute Resolution Committee would resolve dispute in the case of
such persons or class of persons, as may be specified by the CBDT, who opt for
dispute resolution under Chapter XIX-AA in respect of dispute arising from any variation in
the specified order in his case and who fulfils the specified conditions.
(2) Meaning of Specified order: Specified order means such order, including draft order, as
may be specified by the CBDT, and,
(i) aggregate sum of variations proposed or made in such order does not exceed ` 10
lakhs.
(ii) such order is not based on
- search initiated under section 132 or
- requisition under section 132A in the case of assessee or any other person or
- survey under section 133A or
- information received under an agreement referred to in section 90 or section
90A.
(iii) where return has been filed by the assessee for the assessment year relevant to
such order, total income as per such return does not exceed ` 50 lakh.
 DISPUTE RESOLUTION 19.3

(3) Specified Conditions: Specified conditions in relation to a person means a person who
fulfils the following conditions:
(I) He should not be a person,
(A) in respect of whom an order of detention has been made under the provisions
of the Conservation of Foreign Exchange and Prevention of Smuggling
Activities Act, 1974.
Such order of detention should not have been revoked before the expiry of the
time stipulated under the relevant provisions of such Act, either on the basis
of report of Advisory Board or review under the relevant provisions of that Act.
Further, such order of detention should not have been set aside by a court of
competent jurisdiction.
The proviso to clause (a)(I)(A) of Explanation to section 245MA reads as
follows -
(i) such order of detention, being an order to which the provisions of section
9 or section 12A of the said Act do not apply, has been revoked on the
report of the Advisory Board under section 8 of the said Act or before the
receipt of the report of the Advisory Board; or
(ii) such order of detention being an order to which the provisions of section
9 of the said Act apply, has not been revoked before the expiry of the
time for, or on the basis of, the review under section 9(3), or on the
report of the Advisory Board under section 8, read with section 9(2), of
the said Act; or
(iii) such order of detention, being an order to which the provisions of section
12A of the said Act apply, has not been revoked before the expiry of the
time for, or on the basis of, the first review under sub-section (3) of the
said section, or on the basis of the report of the Advisory Board under
section 8, read with section 12A(6), of the said Act; or
(iv) such order of detention should not have been set aside by a court of
competent jurisdiction;
Note - Conservation of Foreign Exchange and Prevention of Smuggling
Activities Act, 1974 provide for preventive detention in certain cases for the
purposes of conservation and augmentation of foreign exchange and
prevention of smuggling activities and for matters connected therewith. Under
this Act, the Central and State Government are empowered to detain a person
(including a foreigner) to prevent such a person from smuggling of goods or
acting in a manner prejudicial to conservation of foreign exchange. For
detailed understanding of the above-referred provisions of the said Act, refer
https://www.incometaxindia.gov.in/pages/acts/conservation-foreign-exchange-
prevention-smuggling-activities-act.aspx
 19.4 DIRECT TAX LAWS

(B) in respect of whom prosecution for any offence punishable under the
provisions of the Indian Penal Code, the Unlawful Activities (Prevention) Act,
1967, the Narcotic Drugs and Psychotropic Substances Act, 1985, the
Prohibition of Benami Transactions Act, 1988, the Prevention of Corruption
Act, 1988 or the Prevention of Money-laundering Act, 2002 has been
instituted and he has been convicted of any offence punishable under any of
those Acts;
(C) in respect of whom prosecution has been initiated by an income-tax authority
for any offence punishable under the provisions of this Act or the Indian Penal
Code or for the purpose of enforcement of any civil liability under any law for
the time being in force, or such person has been convicted of any such
offence consequent upon the prosecution initiated by an income-tax authority;
(D) who is notified under section 3 of the Special Court (Trial of Offences Relating
to Transactions in Securities) Act, 1992;
(II) He should fulfill such other conditions, as may be prescribed.
(4) Powers to reduce or waive any penalty imposable under this Act or grant immunity
from prosecution: The Dispute Resolution Committee, subject to such conditions, as may
be prescribed, shall have the powers to reduce or waive any penalty imposable under the
Income-tax Act, 1961 or grant immunity from prosecution for any offence punishable under
the Act in case of a person whose dispute is resolved under Chapter XIX-AA.
(5) Faceless Scheme for Dispute Resolution: The Central Government may make a scheme,
by notification in the Official Gazette, for the purposes of dispute resolution under this
Chapter, so as to impart greater efficiency, transparency and accountability by -
(a) eliminating the interface between the Dispute Resolution Committee and the
assessee in the course of dispute resolution proceedings to the extent
technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional
specialization;
(c) introducing a dispute resolution system with dynamic jurisdiction.
The Central Government may, for the purposes of giving effect to the scheme by notification
in the Official Gazette, direct that any of the provisions of this Act will not apply or will apply
with such exceptions, modifications and adaptations as may be specified in the said
notification. However, no such direction shall be issued after the 31st March, 2023.
Every notification issued shall, as soon as may be after the notification is issued, be laid
before each House of Parliament.
50 FINAL EXAMINATION: NOVEMBER, 2022

the due date for furnishing the return of income for the relevant previous year (due date for II
P.Y. 2024-25).
Chapter 19: Dispute Resolution
Dispute Resolution Committee and E-Dispute Resolution Scheme, 2022 [Notification No.
26/2022 and 27/2022 dated 05.04.2022]
In order to provide early tax certainty to small and medium taxpayers, a new scheme of
Dispute Resolution has been formulated with effect from 1 st April, 2021 for constitution of one
or more Dispute Resolution Committees (DRCs). Under section 245MA, the Central
Government is empowered to constitute one or more dispute resolution committees, in
accordance with the Rules made under the Act.
Accordingly, Part IX-AA Dispute Resolution Committee has been inserted in the Income-tax
Act, 1961, which comprises of Rules 44DAA, 44DAB, 44DAC and 44DAD.
Rule 44DAA Constitution of Dispute Resolution Committee HarPCCIT
ke region
(1) Constitution of DRC - The Central Government would constitute a Dispute Resolution
Committee (DRC) for every region of Principal Chief Commissioner of Income-tax for
dispute resolution. meele
(2) Composition of DRC - Each DRC would consist of 3 members, as under:- Istituto
i. 2 members would be retired officers from the Indian Revenue Service (Income-tax), Kastehai
who have held the post of Commissioner of Income-tax or any equivalent or higher
post for five years or more; and 2 members RetiredIRS CHforatleast 5years
ii. 1 serving officer not below the rank of Principal Commissioner of Income -tax or
Commissioner of Income-tax as specified by the Board.
1 Serving 421047
(3) Time period - The members would be appointed by the Central Government for a period
of 3 years.
(4) Fee to be paid to member - The Central Government may fix a sum to be paid as fee to
a member, who is retired officer, on a per case basis, along with a sitting fee, so decided
by the Board.
Ch fix Karefa hot
(5) Decision of DRC - The decision of the DRC shall be by majority. majority me decision
(6) Removal of member - The Central Government may remove any member from the DRC
after recording reasons in writing and after giving an opportunity of being heard.
Rule 44DAB Application for resolution of dispute before the DRC
Such persons or class of persons, as may be specified by the Board, and who fulfill the
specified conditions may opt for dispute resolution under Chapter XIX-AA in respect of dispute

Application KaunKarSanta hai

person who fulfillthe specifiedconditions
Fees E 1.000
 DRC

specified specified specified

conditions
person order
t t t
conditions
applyKar Agarisme
salitaher Koivariation fulfill
how to houri
charge
arising from any variation in the specified order in his case. Such person has to make an
application for resolution of dispute before the DRC in the prescribed form accompanied by a
fee of ` 1,000.
Meaning of specified condition - Person fulfilling the specified conditions means
(i) a person in respect of whom the conditions mentioned in (I) specified in pages 19.3 and
19.4 of the Study Material are satisfied; and
(ii) proceedings under the Black Money (Undisclosed Foreign Income and Assets) and
Imposition of Tax Act, 2015 have not been initiated for the assessment year for which
resolution of dispute is sought.
Time limit for filing application - Such application has to be filed
Case Time limit
(i) In cases where appeal has already within such time from the date of constitution of
been filed and is pending before the Dispute Resolution Committee, as may be
the Commissioner (Appeals) specified by the Board
(ii) in any other case within one month from the date of receipt of
specified order

Meaning of specified order

(a) a draft order as referred to in section 144C(1) in respect of a person in whose case
variation arises as a consequence to order of the TPO passed under section 92CA(3) or
a non-corporate non-resident;
(b) an intimation under section 143(1) after processing income-tax returns or under section
200A(1) after processing of TDS statements or section 206CB(1) after processing of TCS
statements, where the assessee or the deductor or the collector objects to the
adjustments made in the said order;
(c) an order of assessment or reassessment, except an order passed in pursuance of
directions of the Dispute Resolution Panel;
(d) a rectification order made under section 154 having the effect of enhancing the
assessment or reducing the loss; or
(e) an order made under section 201 or an order made under section 206C(6A) deeming a
person as an assessee-in-default for failure to deduct/collect tax at source or remit the
same as required under the Act, after deduction/collection [the variation in the specified
 specifiedorder
c
aggregate
total
Income
variations
as per ro
52 FINAL EXAMINATION: NOVEMBER, 2022
doesnot furnished
exceed not
Ables
101 does
exceedElotatik
order relating to default in deduction or collection of tax at source would refer to the
amount on which tax has not been deducted or collected in accordance with the Act]
and in respect of which the following conditions are satisfied, namely:
(A) the aggregate sum of variations proposed or made in such order does not exceed ` 10
lakh;
(B) the return has been furnished by the assessee for the assessment year relevant to such
order and the total income as per such return does not exceed ` 50 lakhs; and
(C) the order in the case of the assessee is not based on,
(I) search initiated under section 132 or requisition made under section 132A in the
case of the assessee or any other person; or
(II) survey carried out under section 133A; or
(III) information received under an agreement referred to in section 90 or 90A.
Screening of application by DRC
(i) Examination of application - The DRC has to examine the application with respect to
the specified conditions and criteria for specified order. Upon such examination, where
the DRC considers that the application for dispute resolution should be rejected, it has to
serve a notice calling upon the assessee to show cause as to why his application sho uld
not be rejected, specifying a date and time for filing a response.
(ii) Provision of opportunity of being heard - The assessee can request for an opportunity
of being heard. If the DRC receives a request from the assessee, it has to provide him an
opportunity of being heard through video telephony or video conferencing facility, to the
extent technologically feasible.
(iii) Furnishing response to SCN within the specified date -The assessee has to furnish a
response to the show-cause notice referred to in (i) above within the specified date and
time or such extended time as may be allowed on the basis of application made in this
behalf, to the DRC;
(iv) Rejection of application by DRC - The DRC may, after considering the response
furnished by the assessee, reject the application or proceed to decide the application on
merits in accordance with the procedure laid out in (v) and (vi) below. Where no such
response is furnished by the assessee, the DRC may reject the application [In such a
case, the assesee may file an appeal to the Commissioner (Appeals). The period taken
by the DRC in deciding on the admission has to be excluded from the period available to
file such appeal].
Screening q Application by
DRC
DRC
application Fir DRC FirAssent pre accept Kanga
0013hdega response DRC anence ko
examine on
Karta hai Mas mmmm
pre reject Kary v
Application admithone
ke 30 days me

Assesses
proofsubmit Kary
 Noappeal ahhlication
is pending beforeDRP
withdraw
hogayiher

(v) Communication of decision of DRC to assessee - The decision of the DRC that the
application for dispute resolution should be allowed to be proceeded with or rejected, has
to be communicated to the assessee on his registered e-mail address;
(vi) Submission of proof of withdrawal of appeal/application before DRP - Within 30
days of receipt of the communication that the application is admitted, the assessee is
required to submit a proof of withdrawal of appeal filed under section 246A or withdrawal
of application before the Dispute Resolution panel, if any, to the DRC or convey th at
there is no aforesaid proceeding pending in his case. If the assessee fails to do so, the
DRC may reject the application.
Procedure to be followed by the DRC
(i) Calling for records for further examination - Upon admission of the application and
DRC records subsequent to the receipt of the response of the assessee, the DRC may call for records
from the income-tax authority and further examine, as it may deem fit, with respect to the
marywaega
issues covered in the application;
v
(ii) Seeking report from Assessing Officer - The DRC may seek a report from the
Ao se bhi report Assessing Officer on the issues covered in the application or on any other issue arising
manywa Sattaha during the course of proceedings;
v (iii) Calling for further information - The DRC may before disposing off the application, call
ore info for further information from the assessee or any other person by sending an email to his
many wa Sattaher registered email address;
further
(iv) Submission of response within specified time - The assessee has to electronically
fir anesseeholehue submit its response to the DRC, within the time specified or such time as may be
extended by the DRC on the basis of an application in this behalf;
time pe response
de defa (v) Decision of DRC - After considering the material available on record, including any
further information or evidence received from the assessee, income-tax authority or any
u other person, the DRC may decide
decide
fir DRC (a) to make modifications to the variations in specified order, which are not
Karya to not
prejudicial to the interest of the assessee, and decide for waiver of penalty and
immunity from prosecution in accordance with the provisions of rule 44DAC, and
maceration
u pass an order of resolution, accordingly; or

o make Tonot(b) to not make modifications to the variations in the specified order. However, the
modifications
Make DRC may decide to waive penalty and grant immunity from prosecution provisions
Variation modification in accordance with the provisions of rule 44DAC, and pass an order of resolution
in specified tovariations accordingly. Such an order will be treated as an order not prejudicial to the interest
Order specified of the assessee; or
in
order
order not prejudicial to
Boththese will be considered as
within 6 months orders interest athe arena
from the endof
month in which
ahhlication fordispute
resolution is admitted
 54 FINAL EXAMINATION: NOVEMBER, 2022

(c) to not make any modification to the specified order, and pass an order
disposing off the application
prejudicial to the interest of the as
within six months from the end of the month in which application for dispute
resolution is admitted by the DRC. The order of the DRC for the resolution of a dispute
has to be in accordance with the provisions of the Act.
(vi) Serving copy of order to AO and assessee - The DRC has to serve a copy of the order
Ao our assume of resolution or order disposing off the application, as the case may be, upon the
ko copyq order assessee and also the Assessing Officer for giving effect to the same, if so required;
dega (vii) No appeal or reference will lie against the modified order - Where the specified order
is an order of the eligible assessee as referred to in section 144C(1), the assessee will
modified order d not be eligible to file any reference to the DRP or an appeal to the Commissioner
be againstappeal (Appeals) against the modified order.
possible nahiher (viii) Serving copy of modified order to assessee The Assessing Officer has to serve a
I copy of the modified order along with notice of demand upon the assessee specifying a
Ao Arsene to date for making payment of demand. No appeal or revision would lie against the modified
order hi copy order.

Alfa aler (ix) Assessee to furnish proof of payment of demand -The assessee has to furnish proof
demand order of payment of the said demand to the DRC and also to the Assessing Officer.
dega d (x) Grant of immunity from prosecution and waiver of penalty The DRC shall, on
Assessespaybarge receipt of confirmation of payment of demand, by an order in writing, grant immunity from
prosecution and waiver of penalty if applicable, in accordance with the provisions of rule
demand 44DAC.
immunity
Pir Dre Termination of dispute resolution proceedings
grantKarya The DRC may, at any stage of the dispute resolution proceedings, if considered necessary, for
waiver a penaltyreasons to be recorded in writing and after giving an opportunity of being heard to the assessee,
Karya decide to terminate the dispute resolution proceedings if, -
(i) the assessee fails to cooperate during the course of dispute resolution proceedings; or operate
hahha
(ii) the assessee fails to respond to, or submit any information in response to, a notice issued
to him; or anence respond aalii Karta
(iii) the Committee is satisfied that the assessee has concealed any particular material to the
proceedings or had given false evidence. amerceconceal Kar ration Koi info
(iv) the assessee fails to pay the demand as required in notice of demand.

unencedemand Wahi pay

Karta
 Where the dispute resolution proceedings are terminated, the DRC has to intimate the income -
tax authority for taking necessary action as per the provisions of the Act.
Rule 44DAC Power to reduce or waive penalty imposable or grant immunity from
prosecution or both under the Income-tax Act, 1961
Conditions for grant of waiver of penalty or immunity from prosecution - The DRC, upon
receipt of confirmation from the assessee of payment of demand, should grant to the person
who made the application for dispute resolution under section 245MA, waiver of penalty
imposable or immunity from prosecution or both, in respect of the order which is the subject
matter of resolution, if it is satisfied that such person has,
penaltymay
paid the tax due on the returned income in full if available; and
Hojaggi agar
co-operated with the DRC in the proceedings before it.
y
Reasons to be recorded in writing - The DRC would grant such waiver of penalty or paise
immunity from prosecution or both, subject to such conditions as it may think fit to impose for bhardige
the reasons to be recorded in writing.
No immunity if prosecution proceedings were initiated before application - No immunity Baatmean
Agarpelle would, however, be granted by the DRC in a case where the proceedings for the prosecution
life
prosecution for an offence have been initiated before the date of receipt of the application for dispute
wi resolution from the assessee fulfilling the specified conditions.
hogaga
Chale penalty Withdrawal of immunity - An immunity granted to a person would stand withdrawn, if such Conditions
haitonow
person fails to comply with any of the conditions subject to which the immunity was granted.
On such withdrawal, the provisions of the Income-tax Act, 1961 would apply as if such nahi
waive immunity or waiver had never been granted. maanoge
no Sakti PART II: INTERNATIONAL TAXATION to withdraw
Chapter 2: Non-resident Taxation Karlenge
Computation of exempt income of specified fund, attributable to the investment division
of an offshore banking unit for the purposes of section 10(4D) [Notification No. 6/2022
dated 14.01.2022]
Section 10(4D) provides an exemption to a specified fund on certain income accrued or arisen
to or received by it to the extent such income accrued or arisen to, or is received, inter alia, is
attributable to the investment division of offshore banking unit computed in the prescribed
manner.
Accordingly, Rule 21AJA has been inserted to provide for the manner of computation of
exempt income of specified fund, attributable to the investment division of an offshore banking
 DISPUTE RESOLUTION 19.5

TEST YOUR KNOWLEDGE

Question 1
What is the need for constitution of Dispute Resolution Committee (DRC)? Can an assessee make
an application before DRC against an order which is based on information received under an
agreement referred to in section 90 or section 90A?
Answer
In order to provide early tax certainty to small and medium taxpayers, with effect from 1st April,
2021, new scheme of Dispute Resolution has been formulated for constitution of one or more
Dispute Resolution Committee(s) (DRC).
Specified order inter alia does not include an order which is based on information received under
an agreement referred to in section 90 or section 90A. Thus, an assessee can not opt for dispute
resolution before DRC in respect of an order which is based on information received under an
agreement referred to in section 90 or section 90A.
Question 2
Can an assessee opt for dispute resolution before DRC if prosecution for any offence punishable
under the provisions of the Indian Penal Code has been instituted against him and he has been
convicted in respect of the same under the said Act?
Answer
Dispute Resolution Committee would resolve dispute in the case of such persons or class of
persons, as may be specified by the Board, who may opt for dispute resolution under this Chapter
in respect of dispute arising from any variation in the specified order in his case and who fulfils the
specified conditions.
Specified conditions in relation to a person means a person who inter alia is not a person in
respect of whom prosecution for any offence punishable under the provisions of the Indian Penal
Code has been instituted and he has been convicted of any offence punishable under the said Act.
Thus, a person in respect of whom any prosecution has been instituted and who is convicted of
any offence punishable under the Indian Penal Code, cannot opt for resolution of dispute in
respect of specified order before DRC.
In order to provide parity in the tax treatment in case of dividends received by Indian
companies from specified foreign companies vis-à-vis dividend received from domestic
companies, the concessional rate of 15% provided under section 115BBD would not be
applicable with effect from A.Y. 2023-24. Accordingly, dividend received by an Indian
company from foreign companies would also be chargeable to tax at normal rates
applicable to such company.
Note – On account of withdrawal of section 115BBD, students are advised to ignore the content
discussed in Page No. 7.40 and 1st para in Page no. 7.15 of Chapter 7: Fundamentals of Base
Erosion and Profit Shifting in Module 4 [Part II - International Taxation].

TAXATION OF VIRTUAL DIGITAL ASSETS

There has been a phenomenal increase in transactions in virtual digital assets. Further, a market
is emerging where payment for the transfer of a virtual digital asset can be made through another
such asset. Accordingly, for the taxation of virtual digital assets, a scheme has been introduced by
the Finance Act, 2022.
Meaning of virtual digital asset [Section 2(47A)]
It means -
(a) any information or code or number or token (not being Indian currency or foreign currency),
- generated through cryptographic means or otherwise, by whatever name called,
- providing a digital representation of value exchanged with or without consideration,
- with the promise or representation of having inherent value, or
- functions as a store of value or a unit of account including its use in any financial
transaction or investment, but not limited to investment scheme; and
- can be transferred, stored or traded electronically;
(b) a non-fungible token or any other token of similar nature, by whatever name called;
The non-fungible token means such digital asset as may be notified by the Central
Government.
Accordingly, the Central Government has, vide notification no. 75/2022 dated 30.6.2022,
specified a token which qualifies to be a virtual digital asset as non-fungible token.
However, it shall not include a non-fungible token whose transfer results in transfer of
ownership of underlying tangible asset and the transfer of ownership of such underlying
tangible asset is legally enforceable.
(c) any other digital asset, as may be notified by the Central Government.

42
However, the Central Government may, by notification, exclude any digital asset from the definition
of virtual digital asset subject to specified conditions.
Accordingly, the Central Government has, vide notification no. 74/2022 dated 30.6.2022, notified
that the following virtual digital assets would be excluded from the definition of virtual digital asset–
(i) Gift card or vouchers, being a record that may be used to obtain goods or services or a
discount on goods or services;
(ii) Mileage points, reward points or loyalty card, being a record given without direct monetary
consideration under an award, reward, benefit, loyalty, incentive, rebate or promotional
program that may be used or redeemed only to obtain goods or services or a discount on
goods or services;
(iii) Subscription to websites or platforms or application
Taxability of income from transfer of virtual digital assets [Section 115BBH]
(1) Tax rate on transfer of virtual digital asset – Where the total income of an assessee
includes any income from the transfer of any virtual digital asset, such income would be
taxed @30% under section 115BBH.
(2) No deduction allowed – In computing the income from transfer of virtual digital asset, no
deduction would be allowed under any provisions of the Act in respect of any expenditure or
allowance except cost of acquisition, if any. Further, no set off of any loss is allowed to the
assessee from such income.
(3) Set off or carry forward of loss from transfer of virtual digital asset not allowed – Loss
from transfer of virtual digital asset would not be allowed to be set off against income
computed under any provision of this Act to the assessee and such loss would not be
allowed to be carried forward to succeeding assessment years.
(4) Virtual digital asset need not to be a capital asset - The definition of “transfer” under
section 2(47) would apply to any virtual digital asset, whether it is a capital asset or not.
Taxability of receipt of virtual digital asset as gift or for inadequate consideration
[Section 56(2)(x)]
In order to tax gift of virtual digital asset in the hands of the recipient, section 56 has been
amended to include virtual digital asset within the definition of “property”. For this purpose, it is
immaterial whether the virtual digital asset is a capital asset or not.
Accordingly, if virtual digital asset is received by any person from any person
(i) Without consideration: The aggregate fair market value of such virtual digital asset on the
date of receipt would be taxed as the income of the recipient, if it exceeds ` 50,000.
(ii) For inadequate consideration: If the difference between the aggregate fair market value
and such consideration exceeds ` 50,000, such difference would be taxed as the income of
the recipient.

43
However, the exclusions from the applicability of section 56(2)(x) will apply to gift virtual digital
asset also. For example, if virtual digital asset is received as a gift by an individual from his
relative, the value of the same would not be treated as income.
TDS on payment on transfer of virtual digital asset [Section 194S] [w.e.f. 1.7.2022]
(1) Applicability and rate of TDS – Section 194S requires any person who is responsible for
paying to any resident any sum by way of consideration for transfer of a virtual digital asset
to deduct tax @1% of such sum.
(2) Time of deduction – The deduction is to be made at the time of credit of consideration to
the account of the resident or at the time of payment of such sum by any mode, whichever
is earlier.
Where consideration is credited to any account in the books of account of the person liable
to pay such sum, such credit of the sum is deemed to be the credit of such sum to the
account of the payee and tax has to be deducted at source. The account to which such sum
is credited may be called “Suspense Account” or by any other name.
(3) Cases where the consideration for transfer of virtual digital asset is wholly in kind or
partly in kind and partly in cash – In a case where the consideration for transfer of virtual
digital asset is
- wholly in kind or in exchange of another virtual digital asset, where there is no part in
cash; or
- partly in cash and partly in kind but the part in cash is not sufficient to meet the
liability of deduction of tax in respect of whole of such transfer,
the person responsible for paying such consideration has to, before releasing the
consideration, ensure that tax required to be deducted has been paid in respect of such
consideration for the transfer of virtual digital asset.
(4) Non applicability of TDS under section 194S – No tax is required to be deducted under
section 194S, where the consideration is payable by the person referred to in column (2) of
the table below and aggregate value of such consideration during the financial year does
not exceed the threshold limit in the corresponding row of column (3) of the table below:
(1) Consideration is payable by Threshold limit
(2) (3)
(i) Specified person, being an individual or a Hindu undivided family ` 50,000
- whose total sales, gross receipts or turnover from his
business or profession does not exceed ` 1 crore in case of
business or ` 50 lakhs in case of profession, during the
financial year immediately preceding the financial year in
which such virtual digital asset is transferred; or

44
 - not having any income under the head “Profits and gains of
business or profession”.
(ii) Other than specified person mentioned in (i) above ` 10,000
(5) Due date of remittance to Government Account [Rule 30] and Furnishing statement
and certificate of TDS u/s 194S [Rules 31A and 31]
Sl. (1) (2) (3) (4)
No.
Particulars Specified Person Exchange Any other person
(i) Rule 30 – Time of 30 days from the end In case of tax deducted in March, on or
payment to of the month of before 30th April.
Government deduction
In any other case, on or before 7 days
Account
from the end of the month of deduction.
(ii) Rule 31A –
Furnishing of
Statement of TDS
u/s 200(3)
Form Form 26QE Form 26QF Form 26Q
Time Within 30 days from Common for Exchange and any other
the end of the month person
of deduction Qtr ending Due date
30th June 31st July
30th Sep 31st Oct
31st Dec 31st Jan
31st March 31st May
(iii) Rule 31 – TDS Form 16E to be Form 16A to be furnished within 15
Certificate furnished within 15 days from the due date of furnishing
days from the due TDS statement in Form 26QF/Form
date of furnishing 26Q.
TDS statement in
Form 26QE.

ILLUSTRATION 1
Compute the income-tax payable by Mr. Abhinav, aged 32 years, who has the
following income for the A.Y.2023-24:
(i) Interest on fixed deposits with SBI (Gross) ` 1,10,000

45
(ii) Interest on savings bank account with SBI ` 15,000
(iii) Consideration received for transfer of VDA ` 62,000
(iv) Cost of acquisition ` 21,000
(v) Expenses on transfer of VDA ` 1,000
Assume that the transfer of VDA took place on 1st October, 2022.
SOLUTION
Total income (excluding Income from transfer of VDA) is below the basic exemption limit of
` 2,50,000. Therefore, tax on income, other than income from VDA, is Nil. Income of
` 41,000 (` 62,000 – ` 21,000) from transfer of VDA would be taxable@30% (plus cess of
4%), even if the total income including income from transfer of VDA is less than the basic
exemption limit. The tax on income from transfer of VDA would be ` 12,792, being 31.2% of
` 41,000. The expenses on transfer of VDA is not allowable as deduction.
Section 194S provides for deduction of tax on payment on transfer of virtual digital asset to
a resident at the rate of 1% of consideration. Hence, the transferor would have deducted tax
of ` 620, being 1% of ` 62,000.
Tax@10% under section 194A would have been deducted by SBI from ` 1,10,000. TDS
u/s 194A = ` 11,000
Net tax payable by Mr. Abhinav would be ` 1,172 (` 12,792 – ` 11,000 (TDS u/s 194A) –
` 620 (TDS u/s 194S).
ILLUSTRATION 2
Compute the income-tax payable by Mr. Siddhanth, aged 24 years, who has the
following income for the A.Y.2023-24
(i) Income from Salaries (computed) ` 4,50,000
(ii) Interest on savings bank account with Axis Bank ` 12,000
(iii) Consideration received on transfer of VDA to Mr. Harsh ` 50,000
(iv) Cost of acquisition of VDA transferred ` 5,000
Mr. Harsh is employed with ABC Ltd. on a monthly salary of ` 50,000. In addition, he has
interest on savings bank account with Bank of India.
Assume that the transfer of VDA took place on 1st October, 2022.
SOLUTION
Total income (excluding income from transfer of VDA) is ` 4,52,000 (i.e., ` 4,50,000 +
` 12,000 – Deduction u/s 80TTA ` 10,000). Tax on income, other than income from VDA,
would be ` 10,504 [i.e., ` 10,100 (being 5% of ` 2,02,000 (` 4,52,000 – ` 2,50,000)) plus

46
` 404, being cess@4%]. Income of ` 45,000 (` 50,000 – ` 5,000) from transfer of VDA
would be taxable@30% (plus cess of 4%). The tax on income from transfer of VDA would
be ` 14,040, being 31.2% of ` 45,000. Tax liability of Mr. Siddhanth is ` 24,544 (i.e.,
` 10,504 + ` 14,040).
Section 194S provides for deduction of tax on payment on transfer of virtual digital asset to
a resident at the rate of 1% of consideration. However, TDS u/s 194S is not attracted where
consideration is payable by a specified person and the consideration payable does not
exceed ` 50,000. Mr. Harsh is a specified person since he does not have income under the
head “Profits and gains of business and profession” and the consideration payable by him
does not exceed ` 50,000. Accordingly, Mr. Harsh need not deduct tax u/s 194S on
consideration payable to Siddhanth.
Net tax payable by Mr. Siddhanth would be ` 24,544
ILLUSTRATION 3
Compute the income-tax payable by Mr. Raj, aged 32 years, who has the following
income for the A.Y.2023-24
(i) Business loss (` 3,18,000)
(ii) Interest on fixed deposits with HDFC Bank ` 18,000
(iii) Consideration received on transfer of VDA ` 4,20,000
(iv) Cost of acquisition of VDA transferred ` 20,000
Assume that the transfer of VDA took place on 1st October, 2022.
SOLUTION
As per section 71, business loss of the current year can be set off against income from
other sources of that year. Therefore, business loss of ` 3,18,000 can be set off against
interest of ` 18,000 from fixed deposits.
As per section 115BBH, business loss cannot be set of against income from transfer of
VDA. Therefore, balance business loss of ` 3,00,000 cannot be set off against Income from
VDA of ` 4,00,000 (` 4,20,000 – ` 20,000). The same has to be carried forward to
A.Y.2024-25 for set-off against business income of that year.
Tax on Income from VDA would be ` 1,24,800 (i.e., 31.2% of ` 4 lakh).
Section 194S provides for deduction of tax on payment on transfer of virtual digital asset to
a resident at the rate of 1% of consideration. Hence, the transferor would have deducted tax
of ` 4,200, being 1% of ` 4,20,000.
Net tax payable by Mr. Raj = ` 1,24,800 – ` 4,200 = ` 1,20,600.

47
(6) Non-applicability of section 203A and 206AB on specified person - The provisions of
section 203A containing the requirement of obtaining TAN and section 206AB requiring
higher rate of TDS for non-filers of income-tax return would not be applicable in case of
specified person referred in 4(1).
(7) Cross application of section 194-O and section 194S - In case of a transaction where tax
is deductible under section 194-O along with the section 194S, then, the tax shall be
deducted under section 194S and not section 194-O.
(8) Power of the CBDT to issue guidelines – In case any difficulty arises in giving effect to
the provisions of this section, the CBDT is empowered to issue guidelines, with the prior
approval of the Central Government, for the purposes of removing the difficulty.
Every guideline issued by the CBDT shall be laid before each House of Parliament, and
shall be binding on the income-tax authorities and on the person responsible for paying the
consideration on transfer of such virtual digital asset.
Accordingly, the CBDT has, with the prior approval of the Central Government, vide Circular
no. 13/2022 dated 22.6.2022, issued the following guidelines. These guidelines would apply
only in cases where transfer of virtual digital asset is taking place on or through an
Exchange. In other cases (like peer to peer and others) provisions of section 194S would
apply and so far as these guidelines are concerned clarifications provided only in Question
6 shall apply.
Question 1: Who is required to deduct tax when the transfer of virtual digital asset is
taking place on or through an Exchange and payment is made by the purchaser to the
Exchange (directly or through broker) and then from the Exchange it goes to seller
directly or through the broker?
Answer: According to section 194S, any person who is responsible for paying to any
resident any sum by way of consideration for transfer of virtual digital asset is required to
deduct tax.
Thus, in a peer to peer (i.e. direct buyer to seller) transaction, the buyer (i.e person paying
the consideration) is required to deduct tax under section 194S. The tax so deducted is
required to be deposited with Government in accordance with the time and procedure
prescribed in the Act read with the relevant provisions of the Income-tax Rules, 1962.
After deduction, the deductor is required to furnish a quarterly statement (in Form No. 26Q)
for all such transactions of the quarter on or before the due date prescribed in the Income-
tax Rules, 1962. For specified person Form 26QE has been introduced.
It may be clarified that the TDS shall be on consideration for transfer of virtual digital asset
less GST. [Clarified by the CBDT vide circular no. 14/2022 dated 28.6.2022 for all other
transactions not conducted on or through Exchange]

48
However, if the transaction is taking place on or through an Exchange, there is a possibility
of tax deduction requirement under section 194S at multiple stages. Hence, in order to
remove difficulties for transactions taking place on or through an Exchange, the following
clarifications have been issued by CBDT :-
(i) In a case where the transfer of virtual digital asset takes place on or through an
Exchange and the virtual digital asset being transferred is owned by a person
other than the Exchange: In this case, buyer would be crediting or making payment
to the Exchange (directly or through a broker). The Exchange, then, would be
required to credit or make payment to the owner of virtual digital asset being
transferred, either directly or through a broker. Since there are multiple players, to
remove difficulty it has been clarified that:
1. Tax may be deducted under section 194S only by the Exchange which is
crediting or making payment to the seller (owner of the virtual digital asset
being transferred). In a case where broker owns the virtual digital asset, it is
the broker who is the seller. Hence, the amount of consideration being
credited or paid to the broker by the Exchange is also subject to tax deduction
under section 194S.
2. In a case where the credit/ payment between Exchange and the seller is
through a broker (and the broker is not seller), the responsibility to deduct tax
under section 194S shall be on both the Exchange and the broker. However,
if there is a written agreement between the Exchange and the broker that
broker shall be deducting tax on such credit/ payment, then broker alone may
deduct the tax under section 194S. The Exchange would be required to
furnish a quarterly statement (in Form 26QF) for all such transactions of the
quarter on or before the due date prescribed in the Income-tax Rules, 1962.
(ii) In a case where the transfer of virtual digital asset takes place on or through an
Exchange and the virtual digital asset being transferred is owned by such
Exchange: In this case, there are no multiple players. The buyer is required to
deduct tax under section 194S. However, there may be a practical issue as the buyer
may not know whether the virtual digital asset being transferred is owned by the
Exchange or not. Hence, there may be genuine doubt in the mind of buyer with
regard to its responsibility to deduct tax under section 194S. This difficulty would
also be there if the buyer is buying virtual digital asset from an Exchange through a
broker.
To remove this difficulty, it has been clarified that while the primary responsibility to
deduct tax under section 194S, in this case, remains with the buyer or his broker, as
an alternative the Exchange may enter into a written agreement with the buyer or his
broker that in regard to all such transactions, the Exchange would be paying the tax
on or before the due date for that quarter. The Exchange would be required to

49
 furnish a quarterly statement (in Form 26QF) for all such transactions of the quarter
on or before the due date prescribed in the Income-tax Rules, 1962. The Exchange
would also be required to furnish its income tax return and all these transactions
must be included in such return. If these conditions are complied with, the buyer or
his broker would not be held as assessee in default under section 201 for these
transactions.
Meaning of certain terms:
(i) The term “Exchange” means any person that operates an application or
platform for transferring of virtual digital assets, which matches buy and sell
trades and executes the same on its application or platform.
(ii) The term “Broker” means any person that operates an application or platform
for transferring of virtual digital assets and holds brokerage account/accounts
with an Exchange for execution of such trades.
Question 2: Question no 1 was with respect to transactions where the consideration
for transfer of virtual digital asset is not in kind. How will this operate in a situation
where it is in kind or in exchange of another virtual digital asset?
Answer: In the above situation, the buyer will release the consideration in kind after seller
provides proof of payment of such tax (e.g. Challan details etc.). In a situation where virtual
digital asset “A” is being exchanged with another virtual digital asset “B”, both the persons
are buyer as well as seller. One is buyer for “A” and seller for “B” and another is buyer for
“B” and seller for “A”. Thus both need to pay tax with respect to transfer of virtual digital
asset and show the evidence to other so that virtual digital assets can then be exchanged.
This would then be required to be reported in TDS statement along with challan number.
Form 26Q has included provisions for reporting such transactions. For specified persons,
Form 26QE has been introduced. [Also clarified by the CBDT vide circular no. 14/2022
dated 28.6.2022 for all other transactions not conducted on or through Exchange]
However, if the transaction is through an Exchange there is practical issue in implementing
this provision. In order to address this practical issue and to remove difficulty, it is clarified
that in such a situation, as an alternative, tax may be deducted by the Exchange. Such an
alternative mechanism can be exercised by the Exchange based on written contractual
agreement with the buyers/sellers.
If such an alternative mechanism is exercised,
(i) the Exchange would be required to deduct tax for both legs of the transactions and
pay to the Government. In the Form 26Q it will need to report it as tax deducted on
both legs of the transaction.

50
(ii) the buyer and seller would not be independently required to follow the procedure
prescribed under proviso to section 194S(1) i.e., to ensure that the tax required to be
deducted has been paid by the other person, before releasing the consideration.
(iii) The tax withheld in kind under section 194S and converted into INR shall be
deposited in the Government Account as per the time line and process given in the
Income-tax Rules 1962.
It has been clarified that there would not be any further TDS for converting the tax withheld
in kind in the form of virtual digital asset into INR or from one virtual digital asset to another
virtual digital asset and then into INR.
Question 3: Whether the provision of section 194Q is also applicable on transfer of
virtual digital asset?
Answer: Without going into the merit whether virtual digital asset is goods or not, it is
clarified that once tax is deducted under section 194S, tax would not be required to be
deducted under section 194Q. [Also clarified by the CBDT vide circular no. 14/2022
dated 28.6.2022 for all other transactions also not conducted on or through
Exchange]
Question 4: Whether the consideration for transfer of virtual digital asset shall be on
Gross basis after including GST/commission or it shall be on “net basis” after
exclusion of these items.
Answer: In order to remove difficulty, it is clarified that the tax required to be withheld under
section 194S shall be on the “net” consideration after excluding GST/charges levied by the
deductor for rendering service.
Question 5: In transactions where payment is being carried out through payment
gateways, there may be tax deduction twice. To illustrate that a person “XYZ” is
required to make payment to the seller for transfer of virtual digital asset. He makes
payment of ` 1,00,000 through digital platform of “ABC”. On these facts liability to
deduct tax under section 194S may fall on both “XYZ” and “ABC”. Is tax required to
be deducted by both?
Answer: In order to remove this difficulty, it is provided that in the above example, the
payment gateway will not be required to deduct tax under section 194S on a transaction, if
the tax has been deducted by the person (“XYZ”) required to make deduction under section
194S. Hence, in the above example, if “XYZ” has deducted tax under section 194S on
` 1,00,000, “ABC” will not be required to deduct tax under section 194S on the same
transaction. To facilitate proper implementation, “ABC” may take an undertaking from “XYZ”
regarding deduction of tax.
Question 6: Section 194S shall come into effect from the 1St July 2022. The liability to
deduct tax under section 194S applies only when the value or aggregate value of the

51
 consideration for transfer of virtual digital asset exceeds ` 50,000 during the financial
year in case of consideration being paid by specified person and ` 10,000 in other
cases. It is not clear how this limit of ` 50,000 (or ` 10,000) is to be computed?
Answer: It is clarified that,-
(i) Since the threshold of ` 50,000 (or ` 10,000) is with respect to the financial year,
calculation of consideration for transfer of virtual digital asset triggering deduction
under section 194S shall be counted from 1 st April, 2022. Hence, if the value or
aggregate value of the consideration for transfer of virtual digital asset payable by a
person exceeds ` 50,000 (or ` 10,000) during the financial year 2022-23 (including
the period up to 30th June 2022), the provision of section 194S shall apply on any
sum, representing consideration for transfer of virtual digital asset, credited or paid
on or after 1st July 2022.
(ii) Since the provision of section 194S applies at the time of credit or payment
(whichever is earlier) of any sum, representing consideration for transfer of virtual
digital asset, such sum which has been credited or paid before 1 st July 2022 would
not be subjected to tax deduction under section 194S.

REDUCED ALTERNATE MINIMUM TAX RATE FOR CO-OPERATIVE SOCIETIES

[SECTION 115JC(4)]
Under section 115JC, a person other than a company is required to pay alternate minimum tax at
the rate of 18.5% of adjusted total income, if the regular income-tax payable is less than alternate
minimum tax. In such a case, adjusted total income shall be deemed to be the total income of the
person.
Levy of AMT @9% of Adjusted Total Income in case of a unit located in IFSC: Where the
person subject to AMT is a unit located in an International Financial Services Centre (IFSC)
deriving its income solely in convertible foreign exchange, AMT would be leviable @9% of
Adjusted Total Income, instead of 18.5%.
Levy of AMT @9% of Adjusted Total Income in case of a co-operative society: Where the
person subject to AMT is a co-operative society, AMT would be leviable @15% of Adjusted
Total Income, instead of 18.5%.
Note – This amendment has to be read along with the provisions of section 115JC discussed in
the Study Material.

RELIEF FROM TAXATION IN RESPECT OF INCOME FROM RETIREMENT BENEFIT

ACCOUNT MAINTAINED IN A NOTIFIED COUNTRY [SECTION 89A]
Where a specified person has income accrued in a specified account, such income shall be taxed
in such manner and in such year as may be prescribed.

52


Chapter 1: Transfer Pricing

TRANSFER PRICING SMART CHART

Transfer pricing Kya hai?

2 Associated Enterprises ke bich me galat price pe transactions

hue hai, Uski Correct Pricing nikaalna.

ASSOCIATED ENTERPRISES Kaunse TRANSACTIONS CORRECT PRICING

Kya hote hai? hote hai ye!? kaise nikaalenge?

Sec 92A

Sec 92B Sec 92 BA we have to calculate

International Specified Domestic

10 Conditions ARM'S LENGTH PRICE

Transactions Transactions

Arm's length Price (correct Price) Kaise Nikaalenge?

Sec 92C Sec 92 CA Sec 92CC

5 methods se Reference Pehle se

calculate Kar lo: to TPO hi Decide Kar

CUP, RPM, CPM, (Transfer Pricing officer) lo → APA

PSM, TNMM (Advance Pricing

Agreement)

Kuch cases me

ALP A.O. determine Jis Saal decide Kiya

Karta hai → Sec 92C(3) Uske pehle ke 4 saal pe

bhi apply ho Sakta hai.

(Roll-Back Provisions)

1.1

ALP calculate Kar liye.

But More than 1 ALP aa gayi.

If No. of ALP is If No. of ALP is

less than 6 6 or more

AIRTHMATIC MEAN RANGE CONCEPT

Sec 92C(2) Rule 10CA

Ab ALP nikaal liye to Compare Kar lenge

Actual Price se and difference nikaal lenge.

Agar Income Kam hui hai Hamari, To

Difference ko Income me add Kar do

and assesssee & uske AE Ke Books me

adjust Kar do.

Primary Secondary

Adjustment Adjustment

Sec 92CE

Jo paisa India se bahar gaya hai (Excess Money)

Usko India me leke aane ka Intezaam Karo. (Repatriation).

Agar Paisa (Excess money) India me

nahi laaye to 2 options hai.

Interest add hoga Income me

OR

tax pay Karo

(Non-repatriation)

1.2

Agar Interest nahi Bharna hai

Agar prescribed time

me India me paisa nahi laaya to Additional Tax pay Kar do

To Advance Maan liya jayega aur 18 % + 12% + 4%

Interest Income me add Karenge. Tax surcharge cess

Sec 92CE(2A)

Agar Apai AE se loan liya hai aapne to

pura Interest allow nahi hoga as a deduction.

Excess Interest disallow hota hai Sec 94B

Agar aapki alag alag countries me

organisation faili hui hai to kuch

documents and reports file Karna padta hai

Master File, CBC reporting etc.

Nahi file Karoge to penalties pay Karna padega

1.3

Transfer Pricing Provisions are applicable when

The Transaction is between The Transaction is The Transaction is not at

2 or more Associated an International Arm's length Price.

Enterprises. or Specified Domestic

Transaction

Sec92: Computation of Income from International Transaction with regards to ALP

→ Income In relation to International Transaction or Specified

→ Expenditure Domestic transaction

→ Interest

→ Allocation of cost shall be computed with regard to ARM'S LENGTH PRICE

Note: If on applying ALP, Income is reduced or loss is increased, Transfer Pricing

Provisions will not apply.

Sec 92B: Meaning of International Transaction

(1) It means:

• Atleast one must be Non-Resident (NR)

• The transaction between 2 or more Associated Enterprises(AE)

(2)Transaction between an Enterprise and Unrelated person shall be deemed to be a

transaction between Associated Enterprises if:-

(i) There exists a prior agreement between Unrelated party and AE

(ii) Terms of transaction are determined by AE.

(R/NR)

Prior

Agreement

1.4

Notes:

1) Transaction can be in the nature of:

• Sale, Purchase, lease of Tangible, Intangible property

• Provision of services lending/Borrowing/guarantee

• Business restructuring or reorganization

2) R – R x

R – NR ✓

NR – NR ✓ → Transfer pricing will apply only if Income of

one NR is taxable in India.

Sec92A: Meaning of ASSOCIATED ENTERPRISES

Two Enterprises shall be deemed to be AE, if at any time during the P. Y. :-

i) One enterprise holds (directly or indirectly) at least 26% voting power (shares) in

other enterprise or in each of such (two) enterprise.

ii) One Enterprise appoints more than half of Board of Directors or 1 or more

executive directors in other enterprise or each of such enterprise.

iii) Loan given by one Enterprise is 51% or more of Total assets of other enterprise.

↳ Book value

iv) One Enterprise guarantees not less than 10% of borrowings of other enterprise.

v) Business, Mfg. or processing of goods of one enterprise is wholly dependent on

knowhow, copyright, patent, trademark, franchisee etc. of other enterprise.

vi) 90% or more raw materials required by one enterprise is supplied by other

enterprise & Seller is defining terms.

vii) Goods mfg. and sold by one enterprise to other enterprise & price and

other conditions are influenced by other enterprise.

↳ Buyer is influencing the price.

viii) One enterprise is controlled by an individual & other enterprise is also

controlled by such Individual or relative or jointly by them

ix) One Enterprise is controlled by HUF & other enterprise is controlled by Member

of HUF, or relative of member or jointly by them.

x) One Enterprise holds atleast 10% interest in other enterprise being a partner in

Firm , AOP or BOI.

1.5

Sec 92C : Computation of Arm's Length Price

The arms length price shall be computed as per the most appropriate method of the

following:

1. Comparable uncontrolled priceI method

2. Resale price method

3. Cost plus method

4. Profit split method

5. Transactional net margin method

6. Any other method prescribed by the board

→ Can two methods be appropriate? – No, only one method can be most appropriate.

1) Comparable Uncontrolled Price Method

Price charged by independent party in similar uncontrolled transaction xxx

(+/-) Adjustments on account of functional differences xxx

(eg. warranty, discount, cif/fob)

Arm’s length Price xxx

2) Resale Price Method

Resale Price method is used when we purchase goods from a AE and sell it to

unrelated party in the market.

Resale price charged to unrelated party xxx

(-) Normal Gross profit margin in similar transaction xxx

(-) Expenses on purchase of goods xxx
(Freight, insurance & customs duty)
Arm’s length price xxx

3. Cost Plus Method

Direct cost + Indirect Cost of production xxx
(+) Normal GP margin (on Cost) in similar transactions xxx
(+/-) Adjustment on account of functional differences xxx
in gross profit margin
Arm’s length Price. xxx
Note : Cost plus method is generally used when goods are manufactured by Indian
enterprise and sold to its Foreign AE.

1.6
 4. Profit Split Method
This method is applicable mainly in international transactions of joint venture between
associated enterprises. These enterprises are so interrelated that they can not be
evaluated separately. So we have to calculate the profit of total group/joint-venture
and then divide it in the ratio of functions performed, assets employed and risk
assumed by such enterprises.

5. Transactional net margin method

In this method, Net profit margin charged by other enterprise in a similar
uncontrolled transaction is computed and applied to compute Arm’s length price
subject to functional differences between international transaction and comparable
uncontrolled transaction.

See 92C(3):. Determination of ALP by AO.

ALP is not computed as per sec 92C

i
Data used for When the A.O. Assessee has failed
computing ALP is of the to furnish information
is not reliable or opinion that within prescribed time
not correct. as per Sec 92D.
Documents not
maintained by the
Assessee as per Sec.92D
* provided that OOBH shall be given to the assessee.

Sec 92C(4) : Effect of ALP on Total Income

When AO determines ALP under section 92C(3), he may compute total income of the
assessee having regard to the following:

- Deduction under Section 10AA and - When AO increase income of one

chapter VI-A will not be allowed on enterprise, the income of other enterprise
increased amount of income. will not be computed for the purpose of TDS,
i.e. other party cannot claim refund of TDS.

1.7
 After applying ALP ALP=60
Royalty=100 Unilever
Eg. 1. Income = 100 130 Eg. 2 Unilever
India TDS=10 UK
- Dedn u/s 10AA = 50 50
Income 50 80

On increased income of 30, Deduction u/s After applying TP, TDS will not be
10AA will not be allowed. recomputed to 6, it will remain 10.

Sec 92D: Maintainance & keeping of Information & Documents

• Any person who has entered into International transaction shall keep and maintain
such records & documents as may be prescribed. - TP Study Report
↳ not applicable if value of International Transaction is upto Rs. 1 CR

• Info is required to be kept for 8 years

• A.O. or CIT(A) may require any assessee to furnish such info. or docs. within 30 days
from date of receipt of notice. (may be extended by 30 days on application of the
assessee).
• Constituent entity of an international group shall maintain info. & docs as prescribed
(Master File). It shall be applicable even when there is no International transaction
undertaken by such constituent entity.

Sec 92CA :Reference to Transfer Pricing Officer (TPO)

• A.O. with prior approval of CIT/PCIT, may refer the calculation of ALP to TPO.
• TPO for determining ALP, may call for Info & require assessee to produce evidence.
• TPO has the power to compute ALP of an International transaction noticed by him in
the course of proceedings, even if:-

It is not referred by A.O. It is not reported by

taxpayer in TP report.
• The order of TPO shall be binding on A.O.
• On the basis of material & evidence, TPO shall compute ALP & pass an order
computing ALP before 60 days prior to the last date for completion of Assessment
allowed u/s 153.

1.8
 • When any case is referred to TPO, then time limit allowed Us 153 is increased by
1 year.

Sec 92C(2) More than One ALP? What to do?

When we determine ALP using the most appropriate method & more than one ALP is
determined then:

If the values are less than 6 If the values are 6 or more

Arithmetic Mean of the values Range Concept Rule 10CA

shall be ALP

Note: If the difference between ALP & Actual Transaction price is upto 3% (1% in case
of wholesale trading) of Actual transaction price, then ALP determined shall be ignored.

Rule 10CA Range Concept

→ Not applicable on Profit split method.

→ Arrange the dataset in the ascending order.
→ A Range from 35th percentile to 65th percentile of the dataset shall be constructed.

If actual transaction price falls If actual transaction Price does not

between the range (35%- 65%) fall between the range (35%-65%)

Then Actual Transaction Price Median (50%) of the

shall be ALP data set shall be ALP.

If 35%, 65%, 50% are If 35%, 65%, 50% are

not whole numbers whole numbers

we have to consider value at next We have to consider mean of

whole number for range/ median. values at that number & next number.

1.9
 Example 1-
Given: Actual Transaction Price = 100
S no. ALP cc Arrange it in Ascending order
1. 102 94
2. 105 97
3. 108 102
4. 105 105
5. 97 108
6. 94 105
7. 115 115

Construct range by calculating 35th & 65th percentile:

7×35% = 2.45 Next whole numbers 3
7×65% = 4.55 will construct range 5

Range will be from 3rd value to 5th value. i.e. 102 to 108.
Now we will check if Actual transaction price falls within 102 to 108

If Yes If No
Actual Trans. price will be ALP Median will be ALP.

In this case Actual Transaction price is 100, it does not fall within range,
Therefore 105 will be ALP.
7 x 50% = 3.5 -> we will take next higher number here i.e. 4th value.
4th value is -> 105
Therefore 105 will be ALP.
Example 2:
Actual Transaction price = 125
SR No. 1 2 3 4 5 6 7 8 9 10
Values 94 98 102 106 109 115 118 121 125 130

SR No. 11 12 13 14 15 16 17 18 19 20
Values 132 134 135 137 139 141 144 148 150 153

1.10
 Total values = 20 -> construct range by calculating 35th & 65th percentile
35th percentile = 20 × 35% = 7 since both are whole numbers, Avg. of
65th percentile = 20 × 65% = 13 these values& next value shall be taken

7&8 13 & 14
118+121= 119.5 135+137 = 136
2 2

Range is from 119.5 to 136.

Since Actual Transaction price (125) falls between this range , Actual Transaction price
is ALP i.e. 125
Suppose, if Actual Transaction Price is 118, then Median 50% will be ALP i.e. 10th
value.

20 × 50% =10 since 10 is a whole number, we will take avg. of 10th & 11th value.
130 +132/2 = 131. 131 will be ALP of transaction

Range Concept, if multiple years data is given:

In case of RPM, CPM and TNMM, if data is given for multiple years, then we have to
take Weighted Average of multiple years data.

Example:

1.11
1.12
 Sec 92E: Report of CA
Every person who has entered into an International Transaction is required to file
report of CA in Form No. 3CEB upto 31st Oct. of A.Y.

Penalties:

Sec 271AA Penalty

(1) Failure to → Keep & Maintain Info & docs

Report Transactions → 2% of Transaction value
Maintain/furnish correct info./docs.

(2) Failure to → Furnish Master File → Rs. 5,00, 000

[Sec92D(4)]

Sec 271G:
Failure to furnish any info required → 2% of Transaction value
by AO as per Sec 92D(3)

Sec 271BA
Failure to furnish report of CA as per Sec 92E → Rs. 1,00,000

Sec 270A
Failure to report any transactions that → Penalty is 200%
would amount to Misreporting of Income of Tax.

See 92CC - ADVANCE PRICING AGREEMENT (APA)

Not applicable an specified Domestic Transaction.

→ CBDT may enter into APA with any person, with the approval of Central
Government determining: -
• ALP, or specifying the manner of calculation of ALP in relation to an
international transaction to be entered by that person.
• Income referred to in section 9(1)(i), or specifying the manner in which such
income is to be determined, as is reasonably attributable to activities carried
out in India by a non- resident or its PE.

1.13
• The manner of determination may include methods given in section 92C or any
other method, with variations on adjustments.
→ APA shall be binding on:

the person who has entered into the ClT and AO in relation to said
APA in relation to a transaction. person and said transaction.

→ If there is a change in law or facts -> APA shall not be binding.

→ APA shall be valid for Max 5 consecutive years.
→ CBDT may, by order declare an APA to be void ab initio, if it finds that APA
has been obtained by fraud or misrepresentation of facts.
→ APA is entered into, for transactions to be entered i.e. future transactions [5 years]
but APA can also be entered into for international transactions already entered by
assessee in the past i.e. past transactions [4 years]. This is called Roll Back.

ROLL BACK PROVISION

When Assessee enters into APA, he can apply for Roll Back for preceding 4 Previous
years.
• He can either opt for all 4 years or none.
• Roll Back is only possible for those previous years whose return has been filled as per
section 139(1) & report of CA has been submitted as per form 3CEB.
• Roll Back is not possible for year for which order has been passed by ITAT- on
question of fact.
• Income after applying roll back can never go below Returned Income.

eg. ROI=10 crore Income assessed by TPO = 12 Crore

After applying Roll Back provisions → If Income is 11 crore ✓
→ If Income is 9 crore x
In this case, Income of that year shall be
taken as 10 Crore only as it can never be
less than ROI Income.

• If the asessee has filed revised return u/s 139(5) of return filed u/s 139(1) of a
particular year, he would be eligible for rollback in that year as revised return
replaces the original return.

1.14
 → Merger & Demerger - Provisions of Roll Back will apply or will be available to only
that entity which also existed before Merger/Demerger.

→ Roll Back is optional.

Example:
Merger DEmerger

Reliance ltd B ltd

Jio Ltd A ltd

Mukesh ltd C ltd

In this can Jio ltd. will not be eligible for In this case as none of B Ltd & C ltd
Roll Back provisions. existed before Demerger, no one shall be
eligible for Roll back.

Reliance ltd NesTea Itd

Jio Ltd Nescafe Itd

Jio Ltd Nescafe Itd

Now if Jio ltd applies for APA, it will also Now if Nescafe Ltd applies for APA, it
be eligible for Roll Back provisions as it would also be eligible for Roll back as it
existed before merger. existed before demerger.

Sec 92CD: Effect of APA

RETURN ASSESSMENT
Pending on the Completed on the
Where any person enters into
date of modified return date of modified return
APA and prior to such date,
return has already been filed A.O. shall complete such
A.O. shall pass an order
u/s 139 for the previous year to assessment as per APA,
modifying the total Income.
taking into consideration,
which such APA applies, then
the modified return
furnished. within 1 year from the end
The person shall file a MODIFIED of financial Year in which
modified return was furnished
RETURN within 3 months The time of completion
from the end of month in of Assessment u/s 153
will be extended by 12 months The A.O. shall not re-assess
which such APA was entered.
the income again.

1.15
u
 PRIMARY ADJUSTMENT & SECONDARY ADJUSTMENT
Primary Adjustment : “Primary adjustment” to a transfer price means the
determination of transfer price in accordance with the arm’s length principle resulting
in an increase in the total income or reduction in the loss, as the case may be, of the
assessee.

Secondary Adjustment: "Secondary adjustment" means an adjustment in the books of

accounts of the assessee and its associated enterprise to reflect that the actual
allocation of profits between the assessee and its associated enterprise are consistent
with the transfer price determined as a result of primary adjustment, thereby
removing the imbalance between cash account and actual profit of the assessee.

Cases Where Secondary Cases Where Secondary Adjustment is

Adjustments has to be made not required

When primary adjustment: Such secondary adjustment, however,

(a) has been made suo motu by the shall not be carried out if, the amount of
assessee in his ROI; or primary adjustment made in any previous
(b) made by the AO & has been is upto Rs. 1 crore or the primary
accepted by the assessee; or adjustment is made for A.Y.2016-17 or

(c) is determined by an APA entered an earlier assessment year.

on or after the 1.4.2017; or

(d) is made as per the safe harbour rules
(e) is arising as a result of the mutual
agreement procedure under DTAA u/s 90
or 90A

Excess Money

1.16
 Non-Repatriation of money to India
In simple words, when there is increase in Income or reduction of loss due to
Primary adjustment to transfer price, is not repatriated to India within prescribed
time, it shall be treated as Advance
i
and interest on such advance shall be added
to Income of the assessee.

What Choices Assessee has to Repatriate Money?

OPTION 1 OPTION 2 OPTION 3

The AE, with whom assessee Any other AE If Option 1 & Option 2
has carried out the iof the Assessee is not opted, and AE doesn't
international Transaction who is a NR repatriate the excess money,
Can Repatriate within 90 can repatriate the assessee can pay additional
days from the prescribed within 90 days tax at 18% +12% surc.+4% cess
date. from the prescribed effectively 20.9664%
date.

Notes relating to option 3:-

• This is final payment of Tax & no credit is allowed against such payment.
• Assesses can't claim the tax paid as revenue expenditure
• Assesses shall not be required to make secondary adj & pay interest from the date
of payment tax.

Interest rate to be changed if excess money not repatriated:

(i)Where the international transaction is denominated in Indian rupee:

At the one year marginal cost of fund
i lending rate of SBI as on 1st April of the
relevant P.Y. + 3.25%

(ii) Where the international transaction is denominated in foreign currency:

At six month London Interbank Offered Rate (LIBOR) as on 30th September of
the relevant P.Y. + 3.00%

1.17
 Excess Money shall be repatriated to India within:-

CASE DATE PERIOD OF INTEREST

(i) If primary adjustment 90 days from due from due date of
is made suo-motu by date of ROI u/s 139(1) filing of ROI u/s 139(1)
the assessee in his ROI.

(ii) If primary adjustment

is made by AO or the 90 days from From date of

appellate authority & date of order of order of AO or

accepted by the assessee AO or App. Authority App. Authority

(iii) If primary adjustment is

determined by APA u/s 92CC
for a P.Y.

• If the APA has been entered 90 days from DATE

From due date of
on or before the due date of of Filing of ROI u/s 139(1)
ROI u/s 139 (1)
ROI for the P.Y.

• If the APA has been entered 90 days from the From the end of
after the due date of ROI end of month in which month in which
for the P.Y. APA was entered APA was entered.

(iv) If Assessee has opted 90 days from due from due date of
safe harbour rules u/s 92CB date of ROI u/s 139(1) ROI u/s 139(1)

(v) If primary adjustment 90 days from date of from the date of

is determined under giving effect of MAP giving effect of MAP
Mutual Agreement by A.O. by AO.
Procedure (MAP)

Sec 92 BA: Specified Domestic Transactions

• Any of the following transactions where the aggregate value of such transactions in
the P. Y. > Rs. 20 Cr.
• Any transaction referred to in see 80IA(8) or 80IA(10)
• Any transaction referred in see 80A
• Any business transaction between the persons referred to in Sec 115 BAB (4)

1.18
• Any transactions referred in any other section under chapter Vl-A or Sec 10AA
to which provision of see 80IA(8) /80IA (IO) applies.

Section 94A- Notified Jurisdictional Area

Section 94A allows the Indian Government to notify the non-cooperative countries or
islands, i.e. those locales that abstain from sharing information, as Notified
Jurisdictional Area (NJA)

• All parties → Deemed to be Associated Enterprises.

• All Transactions → Deemed to be an International Transaction
• All provisions of Transfer Pricing shall apply except variance of 1%/3%.
• Payment to any person in NJA -> TDS rate will be 30%
• If Assessee recieves any funds from a person located in NJA, then assessee have
to offer explaination about the source of funds in the hands of that person.
If Assessee does not give satisfactory explanation, then that funds will
be taxable as Income in the hands of the assessee.

See 94B: Excess Interest

BEPS Action Plan 4 suggests → For Removal of Thin Capitalization→ That's
why Sec 94B was introduced.
• Applicable to Indian Co. or PE of Foreign Co. in India.
• Enterprise who takes loan from NR/AE who pays Interest more than 1 crore
• Interest allowed → 30% of EBITDA

Excess Interest:-
i. Total Interest - 30% of EBITDA
ii. Interest paid to AE w.e. is lower

Excess Interest can be c/f for 8 years

• This section is not applicable if interest is paid for debt issued by a lender which is a
PE in India of a NR, being a person engaged in Business of Banking

• Where the debt is issued by a Unrelated lender(not AE) but an Associated Enterprise
either:
a) provides an implicit or explicit guarantee to such lender or

1.19
 b) deposits a corresponding and matching amount of funds with the lender,
such debt shall be deemed to have been issued by an associated enterprise.

Country by Country Reporting:

CBC Report has to be submitted by → Parent entity of an International Group

to prescribed authority in its Country of Residence.

→ MNEs have to report annually → MNEs also have to report

• Amount of revenue • Total employment
• Profit before Income Tax • Capital
• Income Tax paid & accrued. • Accumulated earnings Capital
• Tangible assets

See 286- Furnishing of Report in respect of International Group.

Parent Entity If it is is required to furnish within 12 months

of International Resident report to DGIT from the end of
Group in India year

If total Group revenue for

last A/cing year as per
CfS is Rs. 6,400cr or more

→ If Constituent Entity(CE) is from India -> whose Parent Entity(PE) is NR.

Then, the constituent entity has to Report these 2 things->atleast 2 months
prior to due date of CBC Report:

If CE is an Alternate OR Details of PE & Alternate

Reporting Entity Reporting Entity

1.20
→ Constituent Entity Resident in India has to furnish CBC report in India if :

If Parent Entity is If Parent Entity is There is a systematic Failure

Resident of a country Resident of a Country
which doesn't require which doesn’t share CBC
CBC Reporting Report with India

Master File

→ The master file provides a high-level overview in order to place the MNE
group's transfer pricing practices in their global economic, legal, financial and tax
context.
→ The master file would provide an overview of the MNE groups business,
including:
(1) the nature of its global business operations,
(2) its overall transfer pricing policies, and
(3) its global allocation of income and economic activity
in order to assist tax administrations in evaluating the presence of significant
transfer pricing risk.
→ Information in master file would be more comprehensive than the existing
regular transfer pricing documentation.
→ The master file shall be furnished by each entity to the tax authority of the
country in which it operates.

1.21
 Transfer Pricing Examples

CUP Method Example

Unilever India Ltd. Sold Shampoo Unilever UK (AE)

1000 units @ Rs. 700 p.u.

200 units
@ Rs. 900 p.u.

similar
uncontrolled Zandu UK
Transaction (Unrelated party)

→ Functional differences

1) Unilever UK → CIF Zandu UK → FOB

Ins & Freight cost → Rs. 50

2) Sales to Unilever Uk is in Bulk

Discount given → Rs. 150 p.u.

3) Unilever India gave warranty to AE → Unilever UK for 9 months. .

Cost of warranty Rs. 120 p.a.

Solution:
Price charged in comparable Uncontrolled Transaction 900
Add/less Functional adjustments
+ cost of Ins & freight 50
- Discount (150)
+ Warranty (120 x 9/12) 90
ALP 890
Increase in Income of Unilever India Itd = 1000×[890-700]
= 1000 X 190
= 190,000

1.22
 Cost plus method example

Wipro India Ltd Wipro UK (AE)

Software sold @ 45,00,000
cost of Software = 30,00,000

same software
sold

Normal
GP margin =50% Yash Khandelwal
Classes

unrelated
party.
→ Functional differences
1) Wipro UK gives technical support to
Wipro India, YKC doesn't give.
value - 5% of GP margin

2) Wipro India gives credit period to Wipro UK but not to YKC

Value - 3% of GP margin

3) Work for Wipro Uk is in bulk, so quantity discount of 8% is given.

Solution: G.P. 30,00,000 x 45

Calculation of ALP 55
Cost of software 30,00,000 = 24,54,545
GP margin 50 % Cost - 30,00,000
Add/less Functional adjustments 24,54,545
(-) Technical support [50% ×5%] (2.5) 54,54,545
+ Credit period [50%×3] 1.5
(-) Quantity discount [50×8%] 4 Increase in Income of WIPRO India =

45 54,54,545- 45, 00,000 = 9,54,545.

1.23
Indian → Sale → Sale → ALP → Income → Income → Add in Income
Enterprise Price Tax

Indian → purchase/ → Sale price → Income → Income → Add In Income

Enterprise Exp. Tax

Resale Price Method example

Purchased from AE
@ 50,000
Unilever UK Unilever India Zandu Ltd
(AE) Expenses Ltd. sold Unrelated
20,000 @ 80,000 party
Normal
GP Margin
= 20%

Price changed from unrelated party = 80,000

(-) Normal GP Margin (20%) = (16,000)
(-) Expenses = (20,000)
44,000
Purchase = 50,000
ALP = (44000)
Diff = 6000 → To be added in Income

TNMM Example
cost of products - 25 lakhs
products sold @ 30 lakhs
Apple India Apple Inc USA
(AE) (AE)
Samsung India
Operating profit margin = 40%
Calculation of ALP:
Cost of products to Apple India = 25 lakhs
+ op. profit margin of Samsung India[25 lakhs X 40%] = 10 lakhs
ALP 35 lakhs

Increase in Income
1.24 of Apple India 35- 30 lakhs = 5 lakhs


Chapter 2: Non-Resident Taxation

Things we will study

Residential status Section 9 Special Tax Rates

Income deemed to 115AB, AC, AD,

Individual Company accrue or arise in India 115 BBA, Chap XII-A- NRI

POEM

Business Interest, Royalty

connection FTS,Dividend

Residential Status

2 Basic Conditions → Resident, even if 1 Basic Condition Satisfied

Yes- ROR

2 Additional Conditions → Both Conditions Satisfied?

No - R-NOR

Basic Conditions:

Stay in India 182 days or OR Stay in India for 60 days or more in a P.Y.

more in a P. Y. And 365 days or more in last 4 P.Y.s.

Additional Conditions:

Resident for 2 P.Ys in last Stay in India for 730 days or

10 P. Ys more in last 7 P. Y,

Note: Day of entering India &Day of leaving India - is added while calculating Stay

in India.

2.1

Basic condition no. 2 not applicable

→ 3 Cases where only Basic Condition No.1 is applicable:

Indian citizen leaving Indian, Citizen being Indian citizen or

India during the a crew member of Person of Indian origin

P.Y. for Employment Indian Ship, leave India

outside India during the P. Y. * (note)

whose employment &

Business is set up outside

India & visit India during

P. Y. and his total Income

(other than Foreign Source)

is upto Rs. 15 lakhs.

He can be ROR

*Note: In this case, stay in India is calculated by excluding:.

Date on which Continuous Discharge To Date on which Continuous Discharge

Certificate is signed on Joining Ship Certificate is signed on Leaving ship.

Amendment (F. A. 20) : Very Important

An Indian citizen or Person of Indian origin having total Income (other than foreign

source) more than 15 lakh can be resident in India in 2 Cases:

Normal New Section

He stays in India for more He Stays in India for

than 182 days or more 120 days or more

in a P. Y. in P. Y. and 365 days or

more in last 4 P.Y.s.

Check additional conditions

No need to check

can be ROR Additional conditions

Always R-NOR

2.2

Note: Income from foreign Source means:.

Income which accrue or arise outside India but shall not include:.

Income which are Income derived Income derived

deemed to accrue abroad from abroad from

or arise in India Business Controlled a profession

(Sec 9) from India set up in India

Section 6(1A) Deemed Resident

If any Indian citizen

whose Total Income (other than foreign Source) during P.Y. is > 15 lakhs

If he is not liable to tax in any country or territory

by reason of domicile orresidence

He will be deemed to be Resident and his He will always be

Income will be taxable in India. R-NOR

Residential Status of HUF

If Control & Management of its affairs is

Wholly or Partly in India Wholly Outside India

Resident Non- Resident

YES → HUF -> ROR

Note: If Karta Satisfies both the additional conditions

NO → HUF -> RNOR

Residential Status of Firm/AOP/BOI/ Local Authority/Artificial Juridical Person

If Control & Management of its affairs

wholly or Partly in India Wholly Outside India

Resident Non- Resident

2.3

RESIDENTIAL STATUS OF COMPANY

Indian Co. → Always Resident

Other Co. → If its Place of Effective management:

Is in India → Resident

If not → Non-Resident

How to determine POEM? (Applicable only if Turnover> 50 crore)

1. Companies satisfying ABOI Test

2. Companies not satisfying ABOI test

1) Companies satisfying ABOI Test

2 conditions to determine if POEM is outside India.

If Co. has active Business Majority meetings of Board

outside India held outside India

ABOI → 4 conditions
1. If passive Income is not more than 50% of its total Income.
2. Less than 50% of its total Assets are situated in India
3. Less than 50% of its total Employees are situated in India or are resident in India

4. The payroll expenses on such employees is less than 50% of its total payroll Expenses.

Notes:

(1) Passive Income:

(i) Royalty, Dividend, Capital Gain, Rental Income, Interest (not for Banking Company)

(ii) Purchase and Sale → Both is with AE.

Eg: HUL purchase HUL Sale HUL

UK India Japan

(2) Income → If other country has tax law → Income as per law.

If not -> Income as per Books of Accounts.

(3) Value of Asset → Depreciable Asset: WDV as per Income tax law of that country

Other Asset: Value as per Books of Accounts.

2.4

(4) Number of Employees: Average of employees at the beginning & at the end of

the year → Shall include contract employees.

(5) Pay Roll : Salaries, bonus, wages and all other employee compensation.

No. of Board Meetings

If majority meetings of BOD are held outside India but Board is not exercising its

powers, and the powers are actually exercised by

Holding Co. resident any other person

OR

in India Resident in India

Then POEM will be in India

(2) Companies not Satisfying ABOI Test

First stage Second Stage

Identify the persons who take Determine the places where

key management or Commercial Decisions are taken.

Decisions

Note: Place where Management decisions are

taken would be more important than the

place where those decisions are implemented.

Note:- For determining POEM, Substance would be conclusive over form.

Note:. There are different guiding principles, which decides where the POEM of the
company is, according to different situations. Students can refer the situations from
Pg. No. 2.711 (ICAI Study MAT)

2.5

2.6

Scope of Total Income in case of Individual & HUF

ROR -> World Income is Taxable in India

RNOR -> Indian Income & Foreign Income

From Business & profession controlled from India

NR-> Only Indian Income.

Scope of Total Income in case of Other Assessee

Resident -> World Income taxable in India.

Non- Resident -> Only Indian Income taxable in India.

Sec 7 → Income deemed to be received in India

SECTION 9

Sec 9(1) (i) Business connection

(ii) Property

(iii) Asset or Source of Income.

(iv) Transfer of Capital Asset (vodafone Case)

Space for Notes:

2.7

Sec 9(1)(i): BUSINESS CONNECTION

Business Connection means a person acting on behalf of NR:.

have authority to habitually conclude contracts OR

1) He must habitually concludes contracts OR On Behalf

plays principal role in concluding contracts of NR

2) Habitually maintains a stock- from which he regularly delivers on behalf of NR

3) Habitually Secures order in India → Mainly or wholly for NR.

Note : Agent having Independent status

If any agent, broker, general commission agent is working in Independent

capacity → Not wholly for NR

Then No Business Connection

Space for Notes:

2.8

Now we will discuss

What is Business connection? What is not a Business connection?

i) Significant Economic Presence

ii) Income attributable to the

operations carried out in India.

Export
News Diamond Not

Films

Discussed later views attributable

1) Purchase of goods in India for Export

2) Collection of News & views in India

for transmission out of India.

3) Shooting of cinematographic films in

India by Individual/firm/Company

Not a citizen partner shareholder

of India
not a citizen of India.

4) Display of Uncut/Unassorted diamonds in

Special zones notified by CG

By Foreign Co. having Mining Business

5) Income not attributable to operations

carried out in India.

What is Business Connection?

i) Significant Economic Presence

Transaction of any Goods/services/property, Systematic and Continous

download of data or software Soliciting of Business Activities

By NR → with any person in India OR

Engaging in interaction with

Having aggregate payment> 2 crores users in India

Users → Aleast 3 lakhs

2.9

Note:-significant economic presense is not affected by following factors

• Place of entering agreement whether

• Residence or place of Business weather in India or not. in India

• Rendering of Services or not.

Note: If Business Connection is establish only income attributable to these transactions

will be deemed to accrue or arise in India.

ii) Income attributable to operations carried out in India:

Sec 9(1)(ii) &(iii) → Income from Property situated Is deemed to accrue

Asset in or arise in India.
source of income India

Sec 9(1)(iv) : Income through Transfer of Capital Asset situated in India. (Vodafone Case)

Income through Transfer of Capital Asset situated in India

is deemed to accrue or arise in India, irrespective of:

• Place of Asset Within

• Consideration on Transfer of Asset India or Not

• Asset-Tangible/ Intangible/ movable/Immovable.

2.10

Explaination 5:

A Capital Asset

Being Any Share or interest is deemed to be If the Share or Interest

in foreign Company situated in India of Foreign Co. derives

its value substantially.

From Assets located in India.

→ Shares of foreign co. will be deemed to be situated in India if it derives value

substantially from Indian Asset.

If anyone transfers such shares of foreign co.,

Capital Gains will be taxable in India.

Note: Explanation 5 not applicable to Foreign Institutional Investors and Foreign

Portfolio Investors.

Note: Declaration of Dividend by such Foreign Company Outside India is not

deemed to accrue or arise in India as per Sec 9(1)(i).

Explanation 6:

Substantial value means:

It represents 50% of Value of total Asset, Held by Foreign company

AND

FMV of Indian Assets held> 10 crores

Explaination 7

Income shall not be deemed to Accrue or Arise in

India in the hands of a Non-resident if:

Transferor does not hold → Directly or Indirectly

Right of management or Control 5% of Total Voting power/Shares

at any time during the last 12 months.

2.11

INTEREST, ROYALTY,FTS, DIVIDEND

Sections We will Study:-

Section 9 → Income deemed to accrue or arise in India.
Sec 115A → Tax on Royalty,FTS, Interest, Dividend in case of NR/FC
Sec 44DA → Special provisions for Computing Income by Royalties etc. in case of NR/
FC(PE)
Sec 9 - Income Deemed to Accrue or Arise in India

(i) Any Income earned through any Business connection in India. (Discussed above)

(ii) Income earned under the head SALARIES if it is earned in India. It includes:-

→ Salary payable by Government of India to Indian citizen for service outside India. (iii)

→ Salary payable for services rendered in India.

→ Salary payable for rest period/leave period preceeded & succeeded by services

rendered in India and forms part of service of employment.

If any NR is working in India & he gets Salary for Rest period/leave period

preceded or succeeded by the period of service in India, then salary received for

such rest period/leave period will also be taxable in India

Note: Any allowance or perquisite paid or allowed as such outside India by the Govt.

to Citizen of India for rendering services outside India shall be exempt from tax.

(iv) DIVIDEND paid by Indian Company Outside India

(V) Income by way of INTEREST payable by:-

→ Government of India

→ a person who is Resident, for debt incurred or money borrowed, and used for

Business or profession Earning any Income from any

carried on in India. source in India.

→ a person who is Non-Resident for debt incurred or money borrowed, and used for

Business or profession Earning any Income

carried on in India. from any source

in India.

2.12

Note: If one NR takes loan from another NR, for any purpose other than Business or

profession, then that Interest paid by NR will not be deemed to accrue or arise in India.

Eg:- If a Non-Resident 'Mr. Iron Man' takes loan from another Non- Resident

'Mr. Thor' and invests the amount in shares of Indian Company, then Interest payable

by Iron Man to Thor will not be deemed to accrue or arise in India.

(vi) Income by way of ROYALTY payable by:-

→ Government of India
→ a person who is Resident, when the royalty is payable for rights, property or
information used to

Business or profession Earning any income from any

carried on in India. source in India.

→ a person who is Non-Resident when the royalty is payable for rights,property or

information used for

Business or profession Earning any Income from any

carried on in India. source in India.

(Vii) Income by way of FEES for TECHNICAL Services payable by:-

→ Government of India
→ a person who is Resident, where the fees is payable for services utilized in a:

Business or profession Earning any Income from any

carried on in India. source in India.

→ a person who is Non-Resident where the fees is payable for services utilized in a

Business or profession Earning any Income

carried on in India. from any source in India.

viii) Income arising Outside India, being any sum of Money referred to in Sec
56(2)(x) paid by a person Resident in India to a Non-Resident or foreign company.

Which means this section is only applicable on Sum of Money,

any other gift(in kind) will not come under this section.

2.13

Sec 115A → Tax on Interest in case of NR/FC

Particulars Rate of Tax

(I) Interest Recieved from Indian Government

or Indian concern other than II,III,IV,V below 20%

[Money Borrowed in foreign Currency]

(II) Interest recieved u/s 194LB from an

Infrastructure Debt fund referred in sec 10(47) 5%

[No condition of Investment in Foreign Currency]

(III) Interest payable by Indian Company

or Business Trust on:- 5%

→ Loan Agreement, Rupee Denominated Bonds.

Any other long term Bard

→ When any RDB or Other long term Bond 4%

is listed only on recognised Stock exchange in IFSC

[Money Borrowed in foreign Currency]

(IV) Interest Payable to Foreign Institutional Investor 5%

or Qualified Foreign Investor for Investment in:

• RDB of Indian Co.

• Govt. Security

• Municipal Debt Security

[No condition of Investment in Foreign Currency]

(V) Distributed Income in the nature of Interest 5%

from SPV recieved from Business Trust
[No condition of Investment in Foreign Currency ]

Notes:

(1) As per sec 10(15), Interest payable to NR/FC by a unit in IFSC on moneys

borrowed by it on or after 1.9.2019 is completely EXEMPT FROM TAX.

(2) As per section 10(4C) , Interest on RDB issued by Indian co. or Business Trust

during the period 17.9.2018 - 31.3.2019 is completely EXEMPT FROM TAX.

2.14

Explaination to sec 9: Interest

DBS Bank Loans

(head office in Singapore)

Loans to

DBS Bank
PE Different

outside
DBS Bank (Branch in India) Industry &

India

(Branch in USA) consumers in

India
Loans

Interest

→ The Interest paid by Indian Branch(PE) of Foreign Bank to → its Head Office &

Other foreign branches is deemed to accrue or arise in India & taxable in the hands of

Foreign Bank(HO) & Foreign Branches.

→ Indian PE shall be treated as separate PE and its Income is taxable in India.

Interest paid to H.O. and other foreign branch is deductible as an expense in India as

per DTAA.

→Indian Branch will get deduction of Interest Expese & it has to deduct TDS on

such Interest.

If not deducted:

• Such Interest shall be disallowed in hands Indian PE.

• Interest & penalty shall be levied for non-deduction of TDS.

INTEREST

Interest received Interest received from Int payable by

from Govt. an Infra Debt fund Indian co. or Bus. Trust

20% 5%

Normally Listed in IFSC

5% 4%

Int payable to Int. recd

FII/QFI from Bus. Trust

5% 5%

2.15

Sec 115A:. Tax On Dividends & Income recieved on Units in case of NR/FC.

Rate of Tax on Dividend Income given below- 20%.

Where the total Income of a foreign Co. or NR includes any Income by way of:-

1) Dividend Income on shares weather purchased in Indian currency or

Foreign Currency.

2) Income recieved in respect of Units of Mutual fund purchased in Foreign Currency

specified via 10(23FD) or of UTI.

Note:
Units of UTI means:
• Units of Specified Company

• Units of Administrator of Specified Undertaking

Sec 115A → Tax on Royalty and FTS in case of NR/FC

Royalty or Fees for Technical Services other than Income referred in Section 44DA:-

a) Recieved from Government of India

b) Recieved from an Indian concern in persuance of an agreement approved by

Central Government.

Rate of Tax - 10% or rate as per DTAA, whichever is lower.

Notes:

1) Royalty Includes:.

Rent, Hire Charges, Lease charges of machinery and equipment

But Does not include:-

Hire charges of Oil rigs covered by section 44BB.

2) Royalty includes consideration recieved for transfer of any rights, license in

respect of:

Copyright, literary, scientific or artistic work including films or video tapes for use in

connection with radio broadcasting.

2.16

3) Few Deduction under chapter Vl-A are available if any, in respect of Income above:

Deduction is allowed u/s 80GGB 80GGC and 80G &

you know very well where this money goes.

4) Explaination 4 to sec 9

Payment recieved by NR from a resident for transfer of rights or license of using a

software is always treated as Royalty.

5) Explaination 5 to Sec 9:

Every credit card swipe transaction is verified by server situated outside India.

Payment made by Indian Banks to Foreign server situated outside India is treated

as Royalty.

6) Explaination 6 to sec 9:

Indian TV channels make payment to foreigners for use of satellite to transmit their

TV serials outside India. This payment is also treated as Royalty.

7) CIT v/s Alcatel Lucent Canada (Delhi)

High Court held that: If payment is made for hardware, in which software is embedded

& software does not have independent functional existence.

No amount can be attributed to Royalty for software.

Some Important Notes on Sec 115A:

(Common for Interest,Royalty,FTS,Dividend)

1) The assessee is not required to file ROI if:-

• Total Income consists only if Income u/s 115A

• TDS has been deducted at rate not less than u/s II5A.

(2) No deduction of any expenditure us 28-44C & sec 57 is deductible while

computing above Income.

(3) Deduction under chapter VI-A is not allowed on above Income.

Exception:

But deduction u/s 80LA shall be available to the unit of NR/FC located in an IFSC.

→ Dividend & Interest recieved by that unit will be allowed as deduction u/s 80LA.

[Sec 80LA- Deduction is allowed on profits of 10 A.Y.s out of Block of 15 A.Ys,

which means 100% deduction will be available on dividend Income.]

2.17

(4) Unabsorbed Depreciation can't be set off against above Income - current as well

as Brought Forward.

(5) Set-off & carry forward of losses is Allowed against above Income.

(6) Deduction of payment is allowed to the payer only if TDS is deducted and paid,

otherwise disallowance u/s 40(a)(i) will be attracted.

(7) Special Rate is applicable to above Income only, Other Income is taxable at

Normal Tax Rates.

See 44DA:- Special Provisions for computing Income by way of Royalties, FTS in
case of NR/FC

Taxability of Royalty & FTS in hands of NR/FC

Sec 115A Sec 44DA

where NR/FC does not Where NR/FC has PE in India or

have any PE or fixed performs professional services through

place of Business or a fixed place in India & Royalty-FTS is

profession in India. effectively connected with such PE.

Tax Rate:- 10% Tax Rate:- Normal Tax Rates

+ surcharge (2% or 5%)+ cess 4% Foreign Co. 40%

Foreign Firm 30%

→No need to maintain BoA Compulsory maintenance of

& documents. BoA & other Documents.

→ No Audit requirement Compulsory Audit requirement.

→ Deduction under chapter VI-A allowed. Deduction under chapter Vl-A allowed.

→ Losses of Other Business in India → Losses of Other Business in

can be set-off India can be set-off

→ No deduction of Expenses is allowed All expenses will be allowed as deduction

while computing such Income. while computing Income under PGBP.

2.18


No deduction shall be allowed:

• For any expenditure which is not wholly

& exclusively incurred for business of such

PE or fixed place.

• For any amount paid by PE to its head

office or other offices

Note: Deduction shall be allowed for

reimbursement of Actual Expenses incurred

by HO or other offices if such expenses are

incurred for such PE in India.

Sec 44C : Deduction in case of Head office Expenses in Case of Non - Resident.

2.19

NR - SPECIAL RATES OF TAX

Sec 115AB Sec 115AC Sec 115AD

1) Applicable to: Overseas Non- Resident Foreign Institutional

Financial incl. Foreign Investor or
Organisation co. specified Fund

2) Applicable on: Units of UTI & Bonds of Indian co. Securities Other than

Mutual fund or GDR acquired in Units of UTI &

acquired in Foreign Currency. Mutual fund.

Foreign Currency

LTCG - 10 %

3) Tax Rates: LTCG → 10% LTCG → 10% STCG - 30 %

Dividend→10% Dividends→10% Interest & Dividend:

Interest→10% FII→ 20%

Specified fund→10%

LTCG u/s 112A: 10%

in excess of Rs.100,000

STCG u/s 111A:- 15%

4) TDS 10% on LTCG & 10% on LTCG, Interest & Dividend:

Dividend Dividend FII → 20%

(Sec 196B) & Interest Specified Fund→ 10%

(See 196C)

Sec 115AB- Tax on Income of OFO on units of UTI/MF purchased in Foreign Currency

Overseas Financial Organisation means any fund, Institution , association or body,

whether Incorporated or not, established under the laws of a country outside India,

which has entered into an agreement for investment in India with any public sector

bank or public financial institution or a mutual fund specified u/s 10 (23D). Such

agreement should be approved by SEBI.

Rate - 10%

→ LTCG @ 10% excess of Rs.1 lakh on units of Equity oriented fund u/s 112A.

→ STCG @ 15% on units of Equity oriented Fund u/s 111A.

2.20

Notes on Sec 115 AD:-

Specified fund means:

• A fund which is registered as Category III Alternative Investment Fund regulated

by SEBI.

• which is located in any IFSC

• of which all the units are held by non-residents other than units held by sponsor

or manager.

→ In case of Specified fund, the provisions of this section shall apply to the extent

of Income that is attributable to the units held by NR. (not being PE of NR in India)

→ Higher Surcharge of 25%,37% will not apply in case if NR is a foreign fund in

case of dividend, capital Gain u/s 111A & 112A.

Sec 115BBA :Income of NR Sportsperson, Sports Association & Entertainer

Tax Rate - 20% →TDS u/s 194E

a) A Sportsman - Non-Resident & not a citizen of India Any Income recieved or

recievable by way of:

• Participation in India in any game (other than sec 115BB)

• Advertisement

• Contribution to articles for any game in India in newspapers, magazines or Journals.

b) A NR Sports Association or Institution

Any amount paid or payable to such association or institution in relation to any

sports(other than sec 115BB)

c) An Entertainer - Non-Resident & not a citizen of India.

Any Income received or receivable from his performance in India.

Note:- Umpire or Referee does not come under this section.

Some Common points about see 115A, 115BBA, 115 AB, 115 AC and 115AD
• Sec 28 to 44C & section 57 not available. • These provisions
• Chapter VI-A deductions not available. are mandatory.
• Indexation benifit not available.
• Other Income Taxable at Normal Tax Rates
• Benefit of Basic Exemption limit not available.

2.21

Special Provisions for NRI → Chapter XII-A

Section 115C- 115I

In case of NRI, there is an option to choose:.

Specific Provisions General Provisions

Chapter XII-A - see 115C- 115I. ie. Sec 112&115 A

• See 115F is available. • See 115 F is not available.

• Exemption of Rs. 100,000 not available • Exemption of Rs.100,000 is available
on CG u/s 112A on CG u/s112A
• 2nd proviso to sec 48(indexation) not • 2nd proviso to sec 48(indexation) not
available available

• First proviso to sec 48:- • First proviso to see 48:-

Unlisted Shares- Available Unlisted Shares: Not available
Listed shares sold in: Listed shares sold in:
Stock Exchange- Available Stock Exchange → Not available

Off Market - Available Off Market - Available.

Section 115C

NRI means:- NR + Indian Citizen / Person of Indian Origin

Foreign Exchange Assets- Any of the following assets purchased in Convertible

Foreign Exchange:

• Shares of Indian Company - Private or Public.

• Debentures of Public Ltd. Indian Co.

• Deposits of Public Ltd. Indian Co

• Government Securities.

LTCG - LTCG from foreign Exchange Assets

Investment Income: Dividend and Interest from Foreign Exchange Assets.

Section 115E: Tax Rates:-

• LTCG - 10%

• Investment Income- 20%

• Other Income - Normal Tax Rates

2.22

Section 115D

(1) Investment Income:- Section 28 to 44D,

Section 57, Not available

Chapter VI-A

(2) Long Term Capital Gains - Chapter Vl-A not available

(a) 1st proviso to sec 48(TTBR/TTSR) - Available

(b) 2nd proviso to sec 48(Indexation) - Not available

(3) Other Income - Normal Provisions

Sec 115 F:

LTCG on Forex asset shall be exempt if:-

• Net consideration is utilized for purchasing another forex Asset.

• It is purchased within 6 months of transfer

Exempt Amount = LTCG x Cost of New Asset

Net Consideration

Lock in period = 3 Years, if sold before 3 years, Exempt LTCG shall be taxable.

Sec 115G:- Exemption from Filing ROI

ROI is not required to be filed if:.

• Total Income includes only Investment Income and/or LTCG.

• TDS has been deducted.

Sec 115H: Chapter to apply even if NRI becomes Resident.

When NRI becomes Resident, he can choose the option to be Governed by this chapter.

• Investment Income will be taxed @ 20%

• Dividend Income & LTCG will be taxed normally.

Sec 115I: This chapter is Optional

2.23

Presumptive Taxation for Non-Residents

44B 44 BBA 44BB 44BBB

Shipping Business Operation of Aircraft Services for prospecting/ services for

extraction/production of Turnkey

mineral oils Projects.

7.5% of 5% of 10% 0f 10% 0f

1) Freight(Money) received in India- Gross Amt. recieved or Amount

Irrespective of from where goods/passenger is recievable in India recieved
loaded. for Services. or recievable
2) Freight on Goods/Passengers loaded for Such
from India- Irrespective of where money is services
received

Exempt Income of Non-Resident

Sec 10(4D) Income accrued or arising to or received by specified fund -
(i) on transfer of a capital asset, being a bond of an Indian Company or a public sector company (sold
by the Government and purchased by the specified fund in foreign currency), GDR or RDB of an Indian
company or derivative or any other notified security, on a recognized stock exchange located in any
IFSC and where the consideration is paid or payable in convertible foreign exchange; or
(ii) on transfer of securities (other than shares in a company resident in India); or
(iii) from securities issued by a non- resident (not being a permanent establishment of a non-resident
in India) and where such income otherwise does not accrue or arise in India; or
(iv) from a securitisation trust which is chargeable under the head "Profits and gains of business or
profession", A specified fund to the extent such income accrued or arisen to, or is received, is
attributable to units held by non-resident (not being the permanent establishment of a non- resident in
India) or is attributable to the investment division of offshore banking unit, as the case may be,
computed in the prescribed manner.
Sec 10(4E) Any income accrued or arisen to, or received by, a non-resident as a result of transfer of
non-deliverable forward contracts entered into with an offshore banking unit of an IFSC as referred to
in section 80LA(1A), which fulfils prescribed conditions.
Sec 10(4F) Any income of a non-resident by way of royalty or interest, on account of lease of an
aircraft in a previous year, paid by a unit of an IFSC referred to in section 80LA(1A), if the unit has
commenced its operation on or before 31.3.2024.
"Aircraft", here, means an aircraft or a helicopter, or an engine of an aircraft or a helicopter, or any
part thereof.

2.24

10(23FE) Dividend, interest or long-term capital gains arising to specified person from an Investment
made by it in India, whether in the form of debt or share capital or unit, if such investment
(i) is made between 1.4.2020 and 31.3.2024;
(ii) is held for at least 3 years
(iii) is in a business trust, a company/ enterprise/ entity in developing/ operating/ maintaining an
infrastructure facility or

(iv) a SEBI Category I or II AIF having not less than 50% investment in one or more of the

company or enterprise or entity referred to in (iii) or in (v) or in (vi) or in an Infrastructure

Investment Trust or

(v) a domestic company, set up and registered on or after 1.4.2021, having minimum 75%

investments in one or more of the companies or enterprises or entities referred to in (iii) or

(vi) a NBFC registered as an Infrastructure Finance Company or in an Infrastructure Debt Fund,

having minimum 90% lending to one or more of the companies or enterprises or entities referred to

in (iii).

Specified person, being

(i) a wholly owned subsidiary of the Abu Dhabi Investment Authority

(ii) a sovereign wealth fund

(iii) Pension fund

satisfying the prescribed conditions

10(23FF) Income of the nature of capital gains on account of transfer of share of a company resident

in India, by the resultant fund or a specified fund to the extent attributable to units held by non-

resident (not being a PE of a non- resident in India) in such manner as may be prescribed, and such

shares were transferred from the original fund, or from its wholly owned special purpose vehicle, to

the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if

that relocation had not taken place.

Remuneration received by officials of Embassies etc. of Foreign States [Section 10(6)(ii)]

The remuneration received by an individual, who is not a citizen of India, for services as an official by

whatever name called of an embassy, high commission, legation, commission, consulate or trade

representation of foreign state, or a member of staff of any of these official, for service in such

capacity is exempt.

Conditions:

(a) The remuneration received by our corresponding Government officials resident in such foreign

countries should be exempt.

(b) The above-mentioned member of the staff of such officials should be the subjects of the respective

countries and should not be engaged in any other business or profession or employment in India.

2.25

Remuneration received for services rendered in India by a Foreign National employed by Foreign

Enterprise [Sec 10(6)(vi)]

The remuneration received by a foreign national as an employee of a foreign enterprises, for services

rendered by him during his stay in India is exempt from tax.

Conditions

(a) The foreign enterprise is not engaged in any business or trade in India:

(b) The employee’s stay in India does not exceed in the aggregate a period of 90 days in such previous

year, and

(c) The remuneration is not liable to be deducted from the income of the employer chargeable under

the Income-tax Act, 1961.

Salary received by a non-citizen for services rendered in connection with employment on foreign ship

[Sec 10(6)(viii)]

Any income chargeable under the head “Salaries” received by or due to, non-citizen, India who is also

a non-resident as remuneration for services rendered in connection with his employment on a foreign

ship is exempt provided his total stay in India does not exceed 90 days during the previous year.

Remuneration received by Foreign Government employees during their stay in India for Specified

Training [Sec 10(6)(xi)]

Any remuneration received by employee of the Government of a foreign state from their respective

Government during his stay in India, is exempt from tax, if remuneration is received in connection

with training in any establishment or office of or in any undertaking owned by,-

(a) the Government; or

(b) any company owned by the Central Government or any State Government or partly by the

Central Government and partly by one or more State Government; or

(c) any company which is subsidiary of a company referred to in (b) above, or

(d) any statutory corporation; or

(e) any society registered under Societies Registration Act, 1860 or under any law and wholly

financed by the Central Government or any State Government(s) or partly by the Central

Government and partly by one or more State Governments.

Note: Only the important Income Exempt for NR is taken in these notes. Students can refer page

2.45 to 2.63 from ICAI Study MAT for other Income.

2.26

Chapter 3: DOUBLE TAXATION RELIEF

Double Taxation - Taxation of 1 Income 2 Times

→ All countries tax the Income as per 2 rules i.e. Residence Rule & Source Rule.

→ Where a person is resident in one country but has a source of Income in another

country, it leads to double taxation.

→ There are 2 types of Relief for such Double Taxation:

Bilateral Relief [Sec 90] Unilateral Relief [Sec 91]

Countries enter into DTAA with When there is no agreement(No DTAA)

each other. between 2 countries, only,Country of

It can be given through 2 Residence provides relief

methods.

Sec 90: Agreement with foreign Countries (DTAA)

Central Govt. may enter into agreement with Govt. of any country or specified territory

→ For avoidance of Double taxation, without creating opportunities for non-taxation/

tax evasion/tax-avoidance (including through treaty shopping).

→ For exchange of Information.

→ For Recovery of Income Tax.

Notes:

(1) If there is a conflict between DTAA & Income Tax Act, DTAA provisions shall

prevail to the extent they are more benificial to the assessee.

So basically,For Assessee:- Provision of DTAA Whichever is more benificial to

OR the assessee shall apply.

Provision of Income Tax

However, Provision of GAAR overrides DTAA provisions. Provisions of GAAR

will apply even if such provision are not benificial to Assessee.

3.1

(2) The charge of tax in respect of Foreign Company at a higher rate than

domestic Company shall not be considered less favourable.

(3) If a NR to whom DTAA applies wishes to claim relief , he has to furnish Tax

Residency Certificate, of his being resident in any foreign country or specified territory.

In addition to TRC , the assessee would be required to provide the following documents:

• PAN of Assessee

• Status of Assessee

• Nationality (Individual)

• County of Incorporation (In case of others)

• Assessee Tax Identification number outside India

• Period for which residential status is applicable, as mentioned in the certificate.

Sec 91: Countries with which DTAA does not Exist

If there is a country with which India does not have DTAA and the Assessee:-
• Is Resident in India.
• His Income accrue or arise from outside India.

• Has paid Income tax in Foreign country as well as India,

then he shall be entitled to deduct an amount of relief us 91

From Income Tax payable in India on such Doubly Taxed Income

→ Amount of Relief:

(a) Compute Net Total Income(NTI) = Indian Income + Foreign Income

(After claiming deduction u/s Chapter Vl-A)

(b) Compute Tax + surcharge + Cess on Total Income

(Do not claim TDS/TCS/MAT/ AMT/Self Assessment Tax/ Advance Tax)

(c) Find Average Rate of tax in India=

Gross Tax (Tax + cess + surcharge)

X 100
NTI

(d) Find out rate at which tax paid/deducted in foreign country.

(e) Find out lower rate of (c) & (d)

(f) Relief u/s 91- Foreign Doubly Taxed Income x Lower Rate.

3.2

→ Concept of Permanent Establishment(PE)

PE means a Fixed Place of Business -> Through which Business of Enterprise is

wholly or partly carried on.

→ Every DTAA has a Speific clause for PE.

→ Business Income of NR will be taxed in India only if he has a PE in India.

Income of Non-Resident

Taxability under Income Tax Act Taxability under the DTAA

Governed by Sec 9 Governed by DTAA

On the basis of Business On the basis of Permanent

Connection Establishment

→ Does Liason Office Constitute a PE?

Liason office as Remittance Service or as Communication Channel:

It does not constitute a PE because only activity of anciliary, preparatory or

auxiliary nature are carried on from such Liason office. No Core-Business activity is

taking place.

3.3

Taxation of BPO units

→Business Process Outsourcing Unit of NR in India:

• If there is a Business Connection: BPO will be considered PE of NR in India.

• No Business Connection: BPO will be treated as separate Entity.

→ NR/FC will be liable to tax only if: IT enabled BPO constitutes its PE

→ If BPO is PE of NR in India → Profit attributable to such PE shall be taxable in India.

→ Transactions between PE- Head Office will be undertaken at Arm's length Price.

3.4

Chapter 4 :EQUALISATION LEVY

Applicable to NR advertisement portals → Who do not have PE in India

Resident Assessee pay to → Advertisement Portals

these portals

Not having PE in India

Not taxable in India

That's why equalization levy came.

Extends to whole of India except

the state of Jammu & Kashmir.

specified service means:.

a) Online advertisement

b) Any provision of digital adv.

Sec. 165

space or any other facility

→ Taxable @6% if amount> I lakh

or online advertisement

applicable if payment for specified service (ads) received/receivable by NR from:

A person Resident Non- Resident

in India & carrying OR having PE in India.

on Business or Profession

→ Equalisation levy not applicable if:.

NR is having Where payment is Aggregate amt.

P. E in India & made not for received by NR

service is connected the purpose of is upto Rs. 100,000

with such PE Business or profession in P.Y.

→ Eq. levy under this section has to be deposited up to 7th of Next month.

4.1

Sec 165A:

Charge of Equalisation levy on e-commerce supply of service:

Taxable @2% on consideration received or receivable by an e-commerce operator for

e-commerce supply or services made or provided or facilitated by it:.

To a person To a person who buys

To a NR on

Resident in such goods or services

India or both using IP address Sale of adv. Sale of Data

located in India. which targets collected

customer resident from a person

in India or resident in

a person who India or a

orders through person who

IP Address uses IP address

located in India. located in India

→ Equalisation levy under this section is not applicable

where the E-commerce Where Eq. levy is Sales T/O or Gross

operator has a PE leviable u/s 165 Reeiepts of ECO from

in India such Services is less

than Rs. 2 crores

during the P. Y.

Eq Levy Leviable if

Value is 2 cr. or more

→ Eq. levy us 165A by e-commerce operator is payable quarterly on 7th of July/

October/January & 31st March for last quarter.

4.2

Amendments (FA. 2021)

E-commerce Services

→ Consideration received for

Specified Services (Advt)

shall not include the consideration

which are taxable as Royalty or FTS

→ Consideration received for E-commerce Services shall not include:

Sale of Goods

Consideration for or

provision of Services

If such goods → are owned

services → are provided

By a person Resident in India

or PE of NR in India.

Eg: Resident goods goods

eBay Resident

OR

services services

PE of NR

4.3

4.4

4.5
 Chapter 5: Advance Rulings

Advance Ruling:.

Ruling decided in advance by Authority of Advance Ruling (AAR) for a future

transaction or a transaction already undertaken, which may be related to question
of law/fact.
Sec 245Q: Application to AAR
(1) Non-Resident: A transaction already undertaken or proposed to be undertaken
by him.

(2) Resident: Tax liability of NR in respect of Transaction (future or past) with

him. It can be question of law or fact

(3) Resident entering: Tax liability of Resident in such transactions or transactions

in transaction valuing (past or future).It can be question of law or fact.
100 cr or more

(4) Resident (PSU): Any issue relating to computation of Total Income which is
pending before any IT Authority or ITAT. It can be question of
law or fact

(5) Resident or NR: wheather an arrangement, which is proposed to be undertaken by

such applicant is an Impermissible Avoidance Agreement.(GAAR)

Notes:
→ Application to AAR should be made in prescribed form and manner & in
quadripulate.
→ Application can be withdrawn within 30 days from the date of application.

Fees for Application:

Other assessee based on Transaction value

PSU
Rs. 10,000
upto Rs. 100 cr > 100cr upto Rs. 300 Cr > Rs. 300cr
Rs. 2,00,000 Rs. 5,00,000 Rs. 10,00,000

5.1
 Appeal is pending:- Can Assessee apply for Advance Ruling?
Normal Assessee PSU
IT Authority x ✓
ITAT x ✓
HC x x
SC x x

Sec 245R: Procedure of Advance Ruling

1. AAR shall forward a copy to PCIT/CIT to check wheather case is pending in

Appeal or not, & call for records if required.

2. AAR shall reject the application for Advance Ruling in following cases:.

In Case where Question involves Question in the application

appeal is pending determination for transaction which is
of Fmv of prima facie designed for
PSU Other Assessee any property avoidance of Tax.
Before HC IT Auth./ITAT 2 exceptions

or SC HC/SC
Application to If application
confirm wheather made by
it is Impermissible PSU
Avoidance Agreement
or not.

3. AAR will pronounce its ruling within 6 months from the date of receipt of
application by the assessee
Assessee
4. Copy of order shall be forwarded to

CIT/PCIT
5. The Advance Ruling shall be binding on:.

The applicant To the Transaction Income Tax Authority

for which ruling is taken. upto level of CIT.

5.2
[SECTION 245P] VACANCIES, ETC. NOT TO INVALIDATE PROCEEDINGS
No proceeding before, or pronouncement of advance ruling by, the Authority shall be
questioned or shall be invalid on the ground merely of the existence of any vacancy or
defect in the constitution of the Authority.

ADVANCE RULING TO BE VOID IN CERTAIN CIRCUMSTANCES [SECTION 245T]

Advance Rulings shall be void if it has been obtained by the applicant by fraud or
misrepresentation of facts. Its effect will be such that if such advance ruling had never
been made.
Sec 245-OB Board For Advance Rulings
• One or more Boards for Advance Rulings, as may be necessary, shall be constituted
by the Central Government for giving advance rulings w.e.f. 01/09/21
• BAR shall consist of 2 members, each being an officer not below the rank of Chief
Commissioner, as may be nominated by the Board.
• Vacancies in the BAR, shall not make the Rulings void.
• Application will be in quadripulate & fess will be Rs. 10,000.
• Application pending on 1.9.21 which was made before AAR, shall be transferred
to BAR.
• The order of BAR shall not be Binding

Appeal to High Court [Section 245W(1)]

• The applicant who is aggrieved by any ruling pronounced or order passed by BAR
or the Assessing Officer, may appeal to the High Court against such ruling or order.
• He has to do so within 60 days from the date of the communication of that ruling
or order, in the prescribed form and manner. But HC can give extension of 30 days
for filing such appeal.

5.3