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CONCEPT OF INCOME AND TOTAL INCOME
Section 2(24) of The Income- Tax Act, 1961 defines INCOME as:
Held: The term income simply means something which comes in. It is a periodical return with
regularity or expected regularity. It’s nowhere mentioned that income refers to only monetary
return. It includes value of benefits and perquisites. Anything which can reasonably and properly
be described as income is taxable under this Act unless specifically exempted under the various
provisions of this Act.
TOTAL INCOME
Total income of an assessee depends upon his residential status in India during the Previous Year
and depending upon residential status a person can be divided into following parts:
i. Resident in India
ii. Non-resident in India
Further, in the cases (Individual and HUF) a resident person is again divided into 2 parts:
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Total Income of an assessee who is Resident and ordinarily resident (ROR):
1. Any income which is received or deemed to be received in India in the relevant Previous
Year by him or on his behalf during that Previous Year
2. Any income which accrues or arises or deemed to accrue or arise in India to him in the
relevant Previous Year
3. Any income which accrues or arises outside India to him in the relevant Previous Year.
Total income of an assessee who is Resident and Not Ordinarily resident (RNOR):
In case of an assessee who is RNOR Income which accrues or arises outside India will not be
included except when it is derived from:
Therefore, total income of an assessee who is RNOR during the Previous Year includes:
1. Any income which is received or deemed to be received in India in the relevant Previous
year by him or on his behalf during that Previous Year
2. Any income which accrues or arises or deemed to accrue or arise in India to him in the
relevant Previous Year
3. Any income which accrues or arises outside India to him in the relevant Previous Year
provided it is derived from business wholly or partly controlled in India or profession
setup in India.
1. Any income which is received or deemed to be received in India in the relevant Previous
year by him or on his behalf during that Previous Year
2. Any income which accrues or arises or deemed to accrue or arise in India to him in the
relevant Previous Year
Not Included:
Any income which arises or accrues to him outside India will not be taxable in India in case
of NON-RESIDENT.
Gross Total Income means total income before giving deduction under section 80C-80U, which
is calculated as follows:
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Step I: Compute TOTAL INCOME (GTI):
Salary means any payment or remuneration or income received by a person from another person
for services rendered in favour of the other person.
Hence, relationship between employer-employee should be there between the payer and payee.
a) Due basis
b) Received basis
c) Arrears of salary
a) Wages
b) Annuity or pension
c) Gratuity
d) Fee, commission, perquisite and profit in lieu of salary or in addition to salary.
e) Advance Salary
f) Leave salary or leave encashment
g) Annual accretion standing to the credit of an employee in his Recognized Provident
Fund.
h) Transferred balance
i) Annual contribution made by the central govt. or any employer under the Notified
Pension Scheme.
Perquisites:
Important points:
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d) These should directly be dependent upon the service.
Perquisites given to family members of an employee would be taxable in the hands
of employee.
Perquisite may be regular and recurring or casual and non-recurring
Any benefit once allotted to an employee by his employer is taxable perquisite
whether or not used by the assessee.
Only authorized perquisite would be taxable
a) The amount of compensation due to or received by the employee from his employer
or previous employer at the time of termination of service
b) The amount of compensation due to or received by the employee from his employer
or previous employer in connection with modification of terms and conditions of
employment.
c) Any lump sum amount received prior to employment or after cessation of
employment.
d) The lump sum amount received by assessee from Unrecognized Provident Fund to
the extent of employer’s contribution and interest thereon.
e) Any amount (including bonus) received under a Keyman Insurance policy
Gross annual salary= Basic Salary+ Any amount under Section 17+ Allowances+ Any other
amount received by the employee from his employer and not exempted such as bonus, overtime
salary, etc.)
Allowances: Allowances are fixed monetary amount received by the employee from his
employer for specific purpose which may be official or personal. Allowances are always under
the contract of employment and the word “Allowance” is always attached to that amount.
Types of Allowances:
a) Exempted Allowances
b) Deducted Allowances
c) Partly taxable Allowances
d) Fully taxable Allowances
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Entertainment allowance also known as sumptuary allowance, which is received by the
employee from his employer to entertain guests, is deductible from Gross annual salary.
Important points:
The professional tax paid by assessee during previous year is deductible from Gross annual
salary.
Maximum professional tax according to Article 276 of Constitution which can be levied by
local authority is Rs. 2500
The annual value of House Property is chargeable to tax under this head.
ESSENTIALS OF SECTION: 22
Resident Taxable
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Non- Resident Non- Taxable
1. Farm house
Income from any building owned or occupied by an agriculturist or receiver of rent or
revenue of such land provided that-
Such Building is situated in the agricultural land
It is used for Agricultural purposes
2. Property used by Assessee for his own Business and Profession
3. Self- Occupied House Property
4. Property for Religious & Charitable Purposes
5. Property of Registered Trade Union or Local Authority
6. House Property (Palace) of Ex- Rulers
Gross Annual Value= Reasonable Expected Rent or Actual Rent received or receivable by
assessee
Gross Annual Value of Self Occupied Residential House Property [SORHP] [S-23(2)]
(a) Property is used by the assessee throughout the previous year for his own residential
purpose;
OR
(b) Such property could not be occupied by the assessee throughout the previous year for his
own residential purpose because either due to employment or business or profession
assessee is residing at some other place and no other benefit is derived from such
property
DEDUCTIONS
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2. Deductions regarding Self- Occupied House Property [SORPH]
Municipal taxes levied by local authority in respect of House Property will be deducted if
following conditions are fulfilled:
Where capital is borrowed by the assessee for the purpose of purchase or reconstruction of
House Property then assessee can claim deduction relating to interest of Pre- Construction Period
Where capital is borrowed by the assessee for the purpose of purchase or reconstruction of
House Property then assessee can claim deduction relating to interest of Pre- Construction
Period.
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C. COMPUTE INCOME UNDER HEAD PROFIT OR GAIN[Capital Gain-
Exemptions]
CAPITAL ASSET:
It means:-
a) Property of any kind held by an assessee, whether or not connected with his business
or profession which includes:
Immovable property
Jewellery ornaments etc.
Agricultural land in urban area in India
Work of art, drawing, sculptures and archeological collections.
b) Any securities held by a Foreign Institutional Investor which has invested in such
securities in accordance with the regulations made under SEBI, but does not include:
I. Any stock in trade [other than securities referred in sub-clause (b)]
II. Personal effects of the assessee i.e movable property of any kind
III. Agricultural land in rural area in India
ShortShort-term
Short-term CapitalCapital
Gain Gain= Full value of consideration - 1) Cost of acqusition
(received or receivable)
2) Cost of improvement
Received or receivable
Step II: Find out long-term capital gain which is taxable under Section 112
Long term capital gain under section 112 is taxable at a flat rate of 20 %
Step III: Find out short-term capital gain taxable under Section 111 A
Step IV: Find out gross total income from all sources excluding income given under Step II and
III
Step V: Find out ‘other net income’ i.e Other Net income= Value under Step IV-Deduction under
80C-80U
According to Section 28, following two categories of incomes are taxable under this head on
income:
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IV. The value of any perquisite or benefits [Section 28(iv)]
V. Any interest, salary, fee, bonus, etc received or receivable by a partner from a
partnership firm [Section 28(v)]
VI. Any amount received or receivable under special agreement[Section 28(va)]
VII. Amount including bonus received under Keyman Insurance Policy [Section 28(vi)]
VIII. Any sum received or receivable in cash or kind on account of any capital asset
IX. Income from speculative Business
Profits or Gains of business or profession carried on by assessee at any time during the Previous
Year is chargeable to tax under this head of income:
ESSENTIALS:
OBJECT: Sometimes the assessee makes an arrangement to avoid income tax such as
transferring income from an asset to another person or transferring an asset to another person.
Therefore, Section 60-65 are there to nullify such arrangements.Under such arrangements
income transferred or income arsising from asset transferred to transferee shall be clubbed
into the income of the transferor (ASSESSEE) and will be taxable in his hands.
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I. Transfer Of Income Without Transferring The Asset [Section 60]
Income transferred by an assessee to another person shall be clubbed into the income of assessee
if following conditions are fulfilled:
IV. Income From The Asset Transferred To Sons’ Wife: [Section 64(1)(iv)]:
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(e) The asset must be transferred without adequate consideration.
(f) The asset must be held by the transferee either in same or different form.
VI. Income From The Asset Transferred To A Person Or AOPs For Immediate Or
Deferred Benefit Of His/Her Sons’s Wife [Section 64(1)(viii)]
a) Assessee must be an individual.
b) Assessee should transfer an asset on or after May 31,1973.
c) It must be transferred to any person or AOPs.
d) Transfer must be for immediate or deferred benefit of his/her son’s wife.
e) Transfer may be direct/indirect
f) The asset must be transferred without adequate consideration.
(Where parents are living together then income of minor child is to be clubbed into total
income of that parent whose total income excluding the income of minor child is greater
than other)
VIII. Self Acquired Property Coverted Into Joint Family Property [Section 64(2)]
General principle under Income tax Act is that income of previous year is chargeable to tax
in the relevant assessment year. Under Income-tax Act, income includes loss also.
Therefore, before income is charged to tax in the relevant Assessment year loss is to be set-
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off (adjusted). Further, when there is no income to adjust loss, then such loss can be carried
forward to subsequent assessment year. Section 70-80 of Act deal with set-off, carry
forward and set off of losses.
If during any assessment Year assessee has loss from any source under any head of income then
this loss can be set off (adjusted) against income from any other source under same head of
income.
When net result of adjustment made, under one head of income, during as Assessment Year
under Section 70 is loss then loss can be adjusted against income from any other head of income
If due to inadequacy or absence of income in the relevant Assessment year, loss cannot be
adjusted under Section 71 then it can be carried forward by the assessee to the subsequent
Assessment Year and can be adjusted against Income of that year. Only following losses can be
carried forward by the assessee:
a. Loss under head “House Property” i.e. house property loss [Section 71B]
b. Loss under head “Profit or Gains of Business or Profession”.
i. Business Loss [Section 72]
ii. Speculative business loss [Section 73]
iii. Specified Business loss [Section 73A]
c. Loss under head “Capital Gain” i.e. capital loss [Section 74]
d. Loss from the activity of owning and maintaining race horses [Section 74A]
Step V: GROSS TOTAL INCOME= Step I+ Step II+ Step III+ Step IV
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DEDUCTIONS
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11 80GGA For donation to entities in scientific Only those tax payers who have no
research or rural development f business income can claim this deduction
.Maximum is equivalent to 100 % of
donation.
12 80GGC For contribution to political parties 100 % of donations
13 80QQB Allowed only to resident authors for Royalty income or Rs 3,00,000
royalty income for books other than text whichever is less.
book
14 80RRB For income receipt as royalty on patents Actual royalty or Rs 3,00,000 whichever
of resident individuals is less.
15 80U Deduction in respect of permanent RS 50,000 which goes to Rs 1,00,000 in
physical disability including blindness to case taxpayer is suffering from severe
taxpayer disability
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BIBLIOGRAPHY
BOOKS REFERRED
1. Gandhi, V.P., Some Aspects of India’s Tax Structure- An Economic Analysis, Vora &
Co. Publishers, Bombay, 1970.
2. Garg, H.R., Direct Tax Machinery in India – A Critical Evaluation,
3. Rattan Jyoti, Taxation Laws, 8th edition, Bharat Law House Pvt. Ltd.
WEBSITES REFERRED
1. http://www.simpleinterest.in/tax-deductions-under-section-80/
2. https://www.bankbazaar.com/tax/income-tax-deductions-under-section-
80c-to-80u.html
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