PGBP, Ifos, Deduction, Nti Ay 2018-19-1

CA KUNAL S CHANDIKA SYBBI AND TYBMS OM SAI RAM
HEADS OF INCOME.
III. PROFITS AND GAINS FROM BUSINESS OR PROFESSION
A. Introduction
The third head of income under which the total income is computed and assessed under the Act is “ The
Profit and Gains of Business or Profession”. In Practical life this is the most important head of income.
Major Portion of income tax revenue is generated from business/profession
In Simple Words the term business means some real, systematic activity with the object of earning Profit
Definition of Business Section 2(13)

According to Section 2(13) “Business includes any trade, commerce or manufacture or any adventure or concern
in the nature of trade, commerce or manufacture”
The definition of business also is an inclusive definition and not an exhaustive one
The activities specifically included in the definitions are explained below:
a) Trade
Trade means buying and selling of goods for earning profit
b) Commerce
Commerce means regular activity of trading on a large scale. It also includes related activities i.e. aids to
trade like Banking, insurance, transport and communication
c) Manufacture
Manufacture means the process of conversion of raw material into finished goods
d) Adventure or concern
Any transaction with a profit motive can be called an adventure. The expression ‘any adventure or concern in
the nature of trade, commerce or manufacture’ implies that even a single and isolated transaction may
constitute a business.
e) Profession or Vocation
Profession means an occupation involving intellectual work requiring special knowledge and personal
qualifications, such as that of lawyer, chartered accountant, doctor, engineers and so on.
Vocation means an occupation involving manual or technical work such as tailoring, hair cutting, typing etc
Income Chargeable Under The Head “ Profit& Gains of Business or Profession. Sec 28”
Under Section 28 the following incomes are chargeable to tax under the head ‘Profit and Gains from Business or
Profession’
1) Export incentives available to exporters
2) Profit on transfer of duty entitlement passbook
3) Drawback of customs or excise duty against exports
4) Profit & Gains of any business or profession which was carried on by the assessee
5) Any compensation for loss of agency received by certain specified persons
6) Income derived by a trade, professional or similar association for rendering specific service to its members
7) Profit on sale of import license
8) Profit on transfer of duty free replenishment certificate
9) Value of any benefit or perquisite whether convertible into money or not arising from the business or
profession E.g. presents received by a lawyer from his clients on completion of assignment work
10) Any interest, salary, bonus, commission, or remuneration due to or received by a partner from firm
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11) Any sum received under key man insurance Policy including the sum allocated by way of bonus on such policy
12) The following sums received or receivable in cash or kind under an agreement for
a. Not carrying out any activity in relation to any business, or
b. Not sharing any know how, patent, copyright, trade mark, license franchise or any other business rights.
Certain principles for computation of Business Income

The following principles should be kept in mind while computing income taxable under this Head
1) Business Profession to be carried on by assessee
Business or profession should be carried on usually by the assessee but it can also be carried out through an
agent
2) Business or Profession should be carried on during the previous year
Income from business or Profession is chargeable to tax under this head only if the business or profession is
carried on by the assessee at any time during the previous year. It is Therefore, not essential that business or
profession should be carried throughout the previous years or at the end of the previous year
3) Tax is chargeable on the aggregate income from all the business
If the assessee carries on more than one business then income of each business is computed separately but
tax is chargeable on the aggregate income from all the business. So if an assessee earns profits in one
business and sustains loss in another business income chargeable to tax on the balance after setting off loss
against income
4) Tax on real Profits Only
Tax is to be charged under this head on the real profits only i.e. only profits actually earned or received in the
previous year. There can be no tax on profits expected to arise in future
5) Speculative Business
Profits and losses of speculative business are kept separate
6) No Profit in dealing with self
No Can earn profit through his dealings with himself. In fact in a transactions of sale the seller and the buyer
should have separate identities
7) Capital receipts excluded
Capital Receipts are not taxable under this head even though the capital asset. Which has been sold,
belonged to the business
8) Illegal Business
The Income Tax Act makes no distinction between legal and illegal business
9) Recovery of sum already allowed as a deduction
Any sum recovered by the assessee in previous year which was earlier allowed as deduction is taxable as
business income in the year of recovery.
10) Commercial Principles
General commercial principles are to be kept in mind while determining the real and true profits of business
or profession
11) Methods of Accounting
There are two methods of accounting recognized under Income Tax Act 1961 they are
a) Cash System or b) Mercantile System
If the accounts are kept on cash basis income received in cash during the previous year is taxable, after
deducting expenditure paid on cash during the year. If the accounts are kept on mercantile basis income
which has accrued during the previous year is taxable after deducting expenses which too have accrued
during the year
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Deductions Allowed from the Income from Business or Profession
Following are various deductions which are specifically allowed as deductions while computing the income from
business or profession. These deductions are –
(1) Depreciation Section 32
(i) Conditions for claiming depreciation
In order to claim depreciation, the assessee must fulfill the following five conditions
1) Assets Eligible
Depreciation can be claimed in respect of the following assets:
a) Tangible Assets such as buildings, machinery, plants or furniture
b) Intangible Assets such as Know-how, patents, copyrights, trademarks, etc acquired on or after 1-4-1998
2) Ownership
The assets must be owned by the assessee i.e. he must have the right to enjoy the asset as his own i.e. if the
asset is taken on rent by the assessee he cannot claim depreciation since he is not the owner of the asset.
3) Use
The assets must have been used for the purpose of assessee business or profession. If the assets is partly used
for the purpose of business and partly for private use only a proportionate amount of depreciation used for
business is allowed.
4) 50% Depreciation if Assets used for less than 180 days
If any assets is used for less than 180 days in the year of acquisition depreciation rate will be only 50% of normal
rate. The restrictions is applicable only during the year of acquisition and not to subsequent year
5) No Depreciation on Foreign Car
No depreciation is allowed on a foreign car acquired between 1-3-1975 and 31-3-2001
6) No Depreciation on Scientific Research Assets
Under Sec 35 the entire cost of assets used for scientific research can be deducted subject to certain conditions
so no depreciation Is allowed on such assets
(ii) Computation of Depreciation
Depreciation is computed in respect of each ‘Block of assets ‘at the prescribed percentage on the written down
value
a) Block of Assets
‘Block of Assets’ means group of assets being tangible assets or intangible assets in respect of which the same
percentage of depreciation has been prescribed
Different rates of depreciation are prescribed for different items even falling within the same class. The items
within a class eligible for the same rate of depreciation form a separate group which is known as a Block of
assets. For example, four rates of depreciation (5%,10%,20% or 100%) are prescribed for assets falling under
‘Building’ depending on use (as factory or as office etc) So, there will be four blocks of buildings for
calculating depreciation.
b) Written Down Value
W.D.V. for each ‘Block of assets’ means:
Opening written down value xxx
Add: actual cost of any assets purchased during the year
Within the block xxx
Less Sale proceeds of any assets of that block which is sold,
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Discarded, demolished or destroyed during the previous year xxx
Closing Written down value of Block of assets xxx
As a result of this deduction, if written down value becomes negative figure, it will be treated as NIL
c) Prescribed Percentage
Depreciation rates in respect of different categories of assets such as building, furniture, Plant and Machinery
are prescribed in Income Tax Rule. These Rates are applied to the closing written down value of the assets
The following two important points may be noted there

1) No depreciation when the written down value of a block becomes negative
When sale value of any asset(s) is more than the total opening W.D.V and the cost os additions to that block,
the W.D.V of the block is taken as NIL and not negative. Since the W.D.V. of the block is taken as NIL. No
depreciation will be claimed on that block
2) No Depreciation When Block becomes Empty

When a block of assets becomes empty i.e. when all the assets in a block are sold or destroyed. No
depreciation can be claimed on suck block whether it has any written down value or not
Additional Depreciation of 20% on new machinery and Plant (other than ships and aircrafts)
Additional depreciation @ 20% of actual cost of such machinery or plant acquired and installed after 31-3-2005
i) An assessee in the previous year in which it begins to manufacture or produce any article or thing
However, no deduction shall be allowed if,
a) Such machinery or plant is used earlier by any other person either within or outside India; or
b) Such machinery or plant is installed in office or residence including guesthouse or
c) Any such office appliances or road transport vehicles or
d) Any such machinery or plant, the whole or actual cost of which is allowed as a deduction in any one
previous year
(Note: Additional Depreciation should be computed only if question specifically requires it. It should not be
assumed that all additions are eligible for this claim)
Rate of Additional Depreciation

Additional depreciation can be claimed @ 20% of the actual cost. if however the assets is put to the use less than
180 days in the year in which it is acquired, the rate of additional depreciation will be 10%
Unabsorbed Depreciation (Section 32(2))

Unabsorbed depreciation means the excess of depreciation over the profits for the year. In such case the
depreciation amount is more than the profit for the relevant business i.e. profit earned by the business or
profession is not sufficient to absorb the amount of depreciation then such amount of depreciation to the extent
not absorbed is known as Unabsorbed Depreciation. Such unabsorbed deprecation can be deducted from the
income chargeable to tax under different heads of income of the assessee for the same assessment year. If such
amount of depreciation still remains unabsorbed it is allowed to be carried forward to set off against future
taxable income for indefinite period.
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Section 35 : Expenditure on Scientific Research
The Term ‘Scientific Research’ is defined by Section 43(4) of the income tax Act as “any activity for the extension
of knowledge in the field of natural or applied sciences including agriculture, animal husbandry and fisheries
As per this section weighted deduction is as under
150% of expenditure incurred by the assessee for its own business (i.e. in house research) towards scientific
research incurred during the year. This covers both revenue and capital expenditure (other than cost of
acquisition of land). It also provides that any expenditure incurred during the 3 years immediately preceding the
year of commencement of business, being salary to an employee, or purchase of materials used in scientific
research or any capital expenditure (except cost of acquisition of any land) shall be allowed as deduction
1) Weighted deduction equivalent to 150% of the sum paid to a scientific research purposes to any scientific
research association or to a university, college or other institution is approves and notified by the central
government
2) Weighted deductions equivalent to 100% of the sum paid for scientific research purposes to an approved
company registered in India and which has its main object as scientific research and development
3) Weighted deduction equivalent to 100% of sum paid for research in social science or statistical research or
any other research to a university, college or other institutions
4) Weighted deduction equivalent to 150% of the expenditure incurred on scientific research (other than
expenditure on cost of land or building) by a company engaged in the business of bio-technology or in the
business of manufacture or production of any drugs, pharmaceuticals, electronic equipments, computers,
telecommunication equipments, chemicals or any other article or things as notified or to a national
laboratory
It is also provided that

i) If a company avails weighted deductions of 100% by contributing the sum to any other company
which is engaged in scientific research, such scientific research company cannot claim further
weighted deduction in respect of expenditure it incurs for scientific research
ii) Where deductions is allowed under this section for expenditure incurred on any capital asset, no
deduction for depreciation shall be allowed to the assessee
Section 35D : Amortization of Preliminary Expenses

An assessee being an Indian company or a resident non-corporate assessee is eligible for this deduction.
Expenditure eligible for deduction under this section is that incurred before commencement of business (i.e.
preliminary expenses) or that incurred for extension of existing undertaking or setting up of new unit. The
Section allows amortization of eligible expenditure over 5 years i.e. 20% of the expenditure incurred is allowed
for a period of 5 years starting from the previous year in which the business commences or the extension is
completed or the new unit commences production
The Following expenditure is eligible for amortization under this section
i) Legal expenditure for preparation of an agreement for the setting up or for conduct of business
ii) Cost of preparation of feasibility report, project report, expenditure incurred for conducting any survey
including market survey and engineering services relating to the business or undertaking
iii) Legal expenditure incurred for preparation of Memorandum and Articles of Association
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iv) Cost of printing Memorandum and Articles of Association
v) Registration fees paid for incorporation
vi) Expenses incurred in connection with public issue of shares and debentures being underwriting
commission, brokerage and charges for drafting, typing, printing, and advertisement of the prospectus
It is provided that for non-corporate assessee the total amount to be considered for the above amortization
would be restricted to 5% of cost of project (i.e. cost of fixed assets) as on the last day of the relevant previous
year. In the case of companies it is restricted to 5% of cost of project or 5% of capital employed at the option of
the company
It is also provided that to claim the above deduction, the accounts of the assessee have to be audited
Section 36 : Other Deductions

1) Insurance of Stocks (Section 36(1)(i))
Any premium in respect of insurance against risk of damage or destruction of stocks or stores used in the
business or profession is allowed as deduction
2) Insurance on health of employees (Section 36(1)(ib))

Any premium paid by cheque in respect of insurance on the health of his employee under an approved scheme is
allowed as deductions
3) Bonus or commission to employees (Section 36(1)(ii))

Bonus or commission paid to an employee for services rendered is allowed as a deduction. However, the bonus
or commission should not have been paid to employees as profit or dividend
4) Interest on Borrowed Capital (Section 36(1)(iii))

Interest paid on capital borrowed for the purposes of business or profession is allowed as a deduction
5) Employer’s contribution to Various Funds (Section 36(1)(iv)&(v))

Contribution made by the employer towards the following funds is allowed as a deduction –
a) Recognized Provident Fund
b) Approved Super annuation Fund
c) Approved Gratuity Fund
Subject to the prescribed conditions and the provisions of section 43B
6) Contribution of Employees to Various Funds Paid in Time (Section 36(1)(va))

Any Sum received by the employer form his employees as per section 2(24)(x) will be allowed as deduction if
such sum is credited by the employer to the account of employee in the relevant fund on or before the due date
7) Bad Debts(Section 36(1)(vii))

Any Debt of a business which Is established to have become a bad debt in the previous year is allowed as a
deduction subject to the following conditions
i) The debt must be incidental to the business or profession carried on by the assessee
ii) The amount of debt must have been taken into account while calculating total income of the assessee
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iii) Debt must have been written off as irrecoverable in the books of accounts by assessee
8) Expenditure on Family Planning (Section 36(1)(ix))

Only a company can claim this deduction . Any bonafide expenditure incurred by a company to promote family
planning among its employee is allowable deduction. Such expenses must be revenue in nature. If such
expenditure is of capital in nature 1/5th of such expenditure every year is allowable as deduction for the period of
5 years from the previous year in which such capital expenditure is incurred
9) Banking Cash transaction Tax (Section 36(1)(xiii))

Banking cash transaction tax (BCTT) paid by an assessee during the previous year on taxable banking transactions
entered into by him will be allowed as deduction while calculating his income from business or profession. It is
charged on the withdrawal of cash on any single day from an account (other than saving bank account)
maintained with any scheduled bank or receipt of cash from any scheduled bank on any single day on
encashment of one or more term deposits exceeding Rs 25000 in case of any individual or hindu undivided family
or Rs 10000 in case of any other person. BCTT is applicable to whole of India except the state of Jammu &
Kashmir
10) Other Expenses (Section 37(1))

Any other expenditure not specifically covered by the provision of Act but incurred for the purpose of business or
profession shall be allowed as deduction if it satisfies the following conditions:
i) It is not in the nature of capital expenditure
ii) It is not in the nature of personal expenses of the assessee
iii) It is wholly and exclusively incurred for the purpose of business or profession of assessee
iv) It should not for the purposes which is an offence or which is prohibited by law (e.g. Bribe paid)
v) Expenditure should be related to the type of business or profession carried on by the assessee
vi) It Should not be contingent liability or an anticipated loss.
vii) Expenses before commencement of business cannot be deducted
Examples of Expenses allowed as deduction

1) Audit Fees
2) Director’s Remuneration
3) Discount
4) Staff welfare expenses
5) Purchase of Materials
6) Royalties
7) Freight and Carriage
8) Wages
9) Salaries
10) Pension paid to employees on retirement
11) Legal Expenses
12) Expenditure on training of employees
13) Loss of stock by theft or fire
14) Technical Fees
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15) Premium for insurance against loss
16) Commission for securing orders
17) Professional Tax
18) Travelling Expenses
19) Reasonable remuneration paid to the working family members
20) Expenditure for registration of trade marks
21) Embezzlement of cash and goods by the employees
22) Transport and Marketing charges
23) Expenses for promotion of export market
24) Cash shortage found in business at the end of the day
25) Loss due to theft or fire
26) Loss by white ants
27) Irrecoverable expenses
28) Expenses on local festivals such as Diwali etc
29) Expenditure on special advertisement campaign at the time of opening of new branches
30) Sales tax, excise duty, etc
31) Demurrage paid to the railways
32) Loss caused by standing surety for others
33) Compensation paid to employees for injury during working hours
34) Damage paid to customers
35) Telephone deposits paid under OYT (own your Telephone) Scheme is allowed as deduction in the year of
payment
36) Guest House expenses
37) Periodical payment for the use of goodwill
38) Compensation paid to worker in order to dismiss him in the interest of business
39) Expenditure incurred to secure overdraft facility for the business purposes
40) Litigation expenses for protecting assets or for the purposes of business
41) Premium paid on ‘Loss of Profit’ insurance Policies
42) Expenses on registration of trade marks
43) Loss due to negligence or dishonesty of employee
44) Loss due to insolvency of banker with which assessee has a current a/c
45) Contribution to municipality for repairs or re-routing of pipelines in assessee’s area; for setting up health
centre near assessee’s factory; to electricity board for laying new lines in assessee’s area
The above list of expenses is not exhaustive; any other expenditure satisfying the above conditions can be
claimed under this section
Examples of Expenses not Deductible

1) Donations
2) Penalty and damages paid in connection with infringement of law
3) Income tax, advance income tax, wealth tax, estate duty
4) Charity and Present
5) Drawings by proprietor including self use of goods
6) Expenses of capital nature
7) Expenses incurred by an assessee which is an offence or which is prohibited by law are not allowed as
deduction
8) Expenses on shifting a registered office
9) Difference in trail balance debited to Profit and Loss A/c
10) Expenses related with other heads of income
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11) Provisions in respect of contingent liability
12) Provisions for doubtful debts
13) Anticipated future losses
14) Loss relating to new business not ultimately set up
15) Loss due to damages or destruction in respect of capital assets
Expenses Expressly Disallowed

The following expenses are expressly disallowed while computing business income. Thus, if these expenses are
debited to the Profit & Loss A/c, they should be added back to the net Profit to arrive at the Taxable income
1) Advertisement in Political Souvenir (Section 37(2B))

Expenditure on advertisement in any souvenir, brochure, tract, pamphlet, or the like published by any
political party is fully disallowed
2) Certain Payments made to non resident (Section 40(a)(i))

Any interest, royalty, fees for technical services or other sums taxable under the Act and payable outside
India on which tax is not deducted at source, will not be allowed as deduction
However, if the tax in respect of such payment is paid or deducted in a subsequent year, it will be allowed as
deduction in such subsequent year
3) Certain Payments made to resident (Section 40(a)(ia))

Any interest, royalty, fees for technical services or other sums taxable under the Act and payable to Resident
Assessee on which tax is not deducted at source, will not be allowed as deduction to the extent of 30%
However, if the tax in respect of such payment is paid or deducted in a subsequent year, it will be allowed as
deduction in such subsequent year
4) Rates or taxes based on Profits (Section 40(a)(ii))

Any rate or tax levied or assessed at a proportion of or on the basis of the profit of the business or the
profession is not allowable as a deduction (e.g. income Tax, interest, penalty under the act)
5) Wealth Tax (Section 40(a)(iia))

Any amount paid as wealth tax, charged under the Wealth Tax Act, 1957 or a similar tax, paid with reference
to the value of assets or the capital employed in the business or profession is not allowable as a deduction
6) Certain Salaries (Section 40(a)(iii))

Any ‘Salaries’ if it is payable outside India and no tax has been deducted therefore will not be allowed as a
deduction
7) Payment to certain funds (Section 40(a)(iv))

Any Payment to any provident or other funds, established for employees benefits, will not be allowed as a
deduction if effective arrangements have not been made to deduct taxes due from any payments therefore
which are chargeable to tax
8) Tax on perquisites
Tax on non monetary perquisites of employees actually paid by the employer is not allowed as deduction
9) Securities Transaction Tax (Section 40(a)(ib))

Securities transaction tax is not deductible while calculating business income
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10) Remuneration paid by firm to partners (Section 40(b))

a) Non – Working Partner
Any remuneration paid to non working or sleeping partner is not allowable expenditure
b) Working Partner
Remuneration paid to a working partner is allowed subject to the following conditions
a) Partnership deed
It should be mentioned in partnership deed
b) Maximum allowable
The Total amount of remuneration paid to all the working partners during the previous year exceeding the
allowable amounts shown in the following table, is disallowed
Allowable Remuneration
In the case of Loss or Book Profit up to Rs Rs 150000 or 90% of the book profit
300000 for the year whichever is more
In the Case of Book Profit exceeding Rs Rs 150000 plus 60% of the sum excess over Rs
300000 for the year 300000
Note
Book Profit means the net profit as per the Profit and Loss A/c computed in the manner laid down under section
28 to 44d of the income tax act. The remuneration paid or due to partners if debited to the profit and loss A/c
will have to be added back to the net profit for computing the book profit
11) Interest paid by firms to partners (Section 40(b))

a) Interest by firm to any partner not authorized by or not in accordance with the terms of partnership deed
is disallowed
b) Interest exceeding the amount calculated at simple rate of 12% p.a. is to be disallowed
12) Unreasonable or Excessive Payments to relatives etc (Section 40 A (2))

Any expenditure incurred, whereby payment is made or to be made to a “specified Person” or Relatives and
the assessing officer feels that such an expenditure is excessive or unreasonable then that amount is
disallowed
13) Expenses Exceeding Rs 10000 paid in Cash (Section 40 A (3))

When
a) Payment is made in excess of Rs 10000
b) .otherwise than by a account payee or a account payee bank draft
c) In respect of revenue expenditure
d) 100% of such expenditure is not allowed as deduction thus, 100% of expenses paid in cash or by bearer
cheques are disallowed. This provisions applies only to deductible revenue expenses including purchase of
goods
e) For Payment of freight the limit is Rs 35000 (w.e.f. 1-10-2009)
14) Provision for Gratuity on Retirement (Section 40 A (7)

A mere Provision in the account for gratuity is not allowed as deduction
15) Contribution to Non- Statutory Funds (Section 40 A (9))

No deduction for employers contribution to Non statutory funds
16) Unpaid Statutory Liability / Certain Deduction to be allowed only on actual Payment ( Section 43(B))
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Section 43(B) of the income tax Act, give a list of expenses allowed as deductions only on payment basis, for
computing income under the head Profit and Gains form business or Profession. These deductions are
allowed irrespective of the previous year in which the liability to pay such sum was incurred by the assessee
according to the method of accounting regularly employed by him
a) Any sum payable by the assessee by way of Tax, duty, cess or fee by whatever name called under any law for
the time being in force
b) Any sum payable by employer by way of contribution to any provident fund or superannuation fund, gratuity
or any other fund for welfare of employees
c) Any sum payable by employer as bonus or commission to employees for services rendered
d) Any sum payable as interest on any loan or borrowings from any public financial institutions, a state financial
corporation, or state industrial Corporation ( Financial institutions such as ICICI,IFCI,IDBI,LIC,UTI)
e) Any sum payable as interest on loans and advances taken from scheduled bank
f) Any sum payable by an employer in lieu of leave at the credit of this employee
However in case of payments referred above which are outstanding during the previous year but are paid before
the due date of filing the return of income the same will be allowed on as deduction, if evidence of such
payments is submitted along with the return of income
Due Date of Filing Returns

For the current assessment year 2018-19 are as follows
a) September 30,2018
i) A company
ii) Any other assessee whose accounts have to be audited
iii) A working partner ( of a firm whose accounts have to be audited)
iv) A person required to file return under one-by-six category (i.e. owning a house, car etc)
b) July 31, 2018
Any other Person
Methods of Computing “Income from Business or Profession.”

The Manner in which “Income from Business or Profession” is computed depends on whether Profit &
Loss A/c is given or “Receipt & Payment A/c is given”
1) When Profit & Loss A/c or Income & Expenditure A/c is Given
a) Net Profit/ Net Loss shown by the Profit and Loss A/c or surplus / Deficit shown by the income & Expenditure
A/c is the starting Point, net loss or deficit is to be shown as negative profit
b) The debit side of the profit & Loss A/c should be Scrutinized first. The debits pertaining to business expenses
for the year should be examined on the basis of provisions of section 30 to 37 explained above. Examine each
and every item appearing on the debit side of Profit & Loss A/c and mark the items of expenses and losses
which are not allowed as deductions
c) Add to the net profit the items which are disallowed
d) Examine each and every item of income or credit side of Profit & Loss A/c and deduct from Profit incomes
which are credited to the Profit and loss A/c which are not taxable under this head for e.g. rent from house
property
e) Consider the additional information as provided by the assessee. If the Profit & Loss A/c is debited by certain
expenses and losses which are not deductible then add them back to the net profit. If certain items of income
are chargeable under ‘Business’ but not shown then add them to the profit.
f) Any income chargeable under other heads should be taken under respective heads

2) When Profit & Loss A/c is not Given
If Profit & Loss A/c is not given But receipts & Payment A/c is given the following procedure is to be adopted
a) As a starting point, we take only receipts which arise out of business or profession. Receipt of capital in
nature is not taxable receipt under the head ‘income from business or Profession’ e.g. Money received on
sale of machinery
b) On the payment side various payments are given irrespective of the fact whether they are pertaining to the
business or not. From the receipts, payments are deducted as ‘ allowable expenses’ which are incurred for
the purposes of business or profession
c) Those payments which are not pertaining to the business or profession are not considered for computation
of ‘Business Income’ Some of the payments may be totally disallowed and hence they are ignored
d) See the additional information provided by the assessee and make necessary adjustments
e) Depreciation allowable is also to be deducted at appropriate rates, though this items is not given on the
payment side of Receipts & Payments A/c, it is allowable deduction under section 32
CLASS WORK SHEET

1) The written down value on 1-4-2017 of a Block of Plant and Machinery is Rs 150000, Rate of depreciation is
25%. During the Year, part of the machinery is sold for Rs 30000 (original cost was Rs 50000 and depreciation
allowed thereon till last year was Rs 40000) and new machinery was purchased for Rs 80000 on 1-4-2017.
Calculate the depreciation allowable for Assessment year 2018-19
2) Mr Chandka submits the following details-

Assets Rate of Written Down Purchased during Sold during the
Depreciation Value 1-4-2017 the year year
Building 5% 200000 50000 -
Furniture 10% 40000 100000 30000
Machinery 25% 200000 - 60000
Compute the depreciation allowable for the assessment year 2018-19
3) Written down value of block of machinery as on 1-4-2017 is Rs 500000 on the same date new machinery is
purchased for Rs 250000. Machinery having Written down value of Rs 250000 are sold during the year for Rs
1000000. Rate of Depreciation is 25%
What is the depreciation allowable for the assessment year 2018-19
4) The Written down value of Machinery on 1-4-2017 was Rs 200000 The Prescribed rate of depreciation is 20%.
On 1-5-2017 the machinery is sold for Rs 50000 Calculate the depreciation
5) Calculate the amount deductible under the head ‘income from Business or Profession’ for A.Y.2018-19 after
considering the provisions of section 43B
Items Debited to Profit and Loss A/c Amount(Rs) Due Date of Actual Date Amount
Payment of Payment Paid (Rs)
i) Excise duty 10,50,000 10-4-2018 10-4-2018 8,00,000
ii) Sales Tax 3,15,000 7-4-2018 6-4-2018 3,15,000
iii) Bonus Payable to employees 1,47,000 30-9-2018 15-10-2018 1,25,000
iv) Interest payable to ICICI Ltd 75,600 30-4-2018 30-4-2018 75,600
v) Interest payable on cash credit A/c
of Dena Bank 95,800 5-4-2018 10-4-2018 95,800
vi) Leave encashment payable to

employees 36,350 30-6-2018 Not paid Nil
The Return of income was filled on 20-10-2018. The balance amounts were not paid till that date
6) Mr Patel is the owner of Patel Stores. He Provides you the following information for the year ended 31st March 2018
Dr Profit & Loss A/c for the year ended 31st March 2018 Cr
Particulars Rs Particulars Rs
To salaries 75,000 By Gross Profit 3,80,000
To Travelling Expenses 1,500
To Advertisement 35,500
To Interest on Capital 18,000
To Depreciation 17,500
To Bad debts 12,500
To Misc Expenses 40,000
To Net Profit 1,80,000
3,80,000 3,80,000
Following further information has been provided
a) Depreciation allowed as per income taxes rules is Rs 21,000
b) Advertisement expenses includes Rs 25,500 spent for advertisement in souvenir of a political party
c) Rs 10,000 paid as penalty imposed by income tax officer has been wrongly included in salaries
Compute the taxable income of Mr Patel for the assessment year 2018-19
7) Following is the Profit & Loss A/c of Hotel Kailash owned by Mr Vijay for the year ended 31st March 2018
To Salaries (including Rs 36,000 Vijay’s 66,000 By Gross Profit 1,43,250
Salary) 1,500 By Refund of income Tax 2,000
To Profession Tax 7,500
To income Tax 11,200
To Cash Embezzled 1,300
To Conveyance Exps 2,500
To Printing & Stationery 3,000
To Interest on capital 12,000
To Trading Expenses 1,000
To Depreciation on furniture 1,750
To Depreciation on Crockery’s 2,000
To Donation to Sports Club 15,500
To Personal Drawings 20,000
To Net Profit
1,45,250 1,45,250
Compute the taxable income of Mr Vijay for the assessment year 2018-19
8) Mr Shah is the owner of Patel Stores. Following is the profit and loss account for the previous year ended 31st march
2018. On the basis of this information compute the income from business or profession
To Opening Stock 7,500 By Sales 1,90,000
To purchases 52,500 By Closing Stock 60,000
To Salaries 6,000 By Gift from father 15,000
To Insurance of Shop 750 By Winning from Lotteries 5,000
To Electricity Charges 3,250
To Bonus to Staff 300
To Embezzlement of cash by cashier 3,700
To Penalty for Breach of Weights &
Measure Rules 4,500
To Reserve for Bad Debts 4,500

2,70,000 2,70,000
9) Following is the profit & Loss A/c of M/s Patel Traders owned by Mrs Patel for the year ended 31st march 2018
To Salaries 31,400 By Gross Profit 1,38,000
To Advance Tax 1,100 By dividend from Indian Cos 2,500
To Provision for Bad Debts 3,600 By Dividend from foreign Cos 1,500
To Insurance of shop 4,000 By Bad Debts Recovered 3,000
To Insurance of own life 1,250 BY Winnings from lotteries 5,000
To General Expenses 2,400
To Free Distribution of Samples 1,750
To Wealth Tax 1,850
To Stationery 950
To Bonus to Staff 1,000
To Net Profit 88,500
1,50,000 1,50,000
Salaries include Rs 1,900 paid as salary to staff for conducting market research. Bad debts recovered were not allowed
as deduction in the earlier year during which it was written off.
Compute the taxable income of mrs.patel under the head income from business or profession for the AY 2018-19
10) From the following profit and loss account of Mr Sharma for the year ending 31st March 2018 compute the business
income
To office salaries 15,000 BY Gross Profit 1,30,000
To general expenses 8,500 By Interest on bank deposits 4,100
To interest on Capital 3,000 By interest on company deposits 7,600
To Bad Debts Reserve 5,000 By Refund of income tax for AY 2007-08 1,000
To Advertisement 9,000
To Fire insurance premium 1,200
To Donation 5,000
To advance income tax 4,000
To sales tax paid 5,000
To income tax for 2013-14 3,000
1,42,700 1,42,700
Following additional information is given
a) Allowable depreciation was rS 10,000
b) General expenses includes furniture purchased worth Rs 2,500
c) Office salaries includes salaries paid to mrs Sharma Rs 3,000. Mrs Sharma, BCOM writes the accounts of the business
d) Advertisement includes Rs 2,500 for the advertisement in souvenir of a political party
11) Mr Shah owns a soap factory at Pune. Following is the Profit & Loss Account prepared by him for the accounting year
2017-18
To Sales Tax (incurred during the year) 2,000 By Gross Profit 75,000
To Advertising 5,000 BY House Property Income 5,000
To Bonus 8,000
To Commission 2,000
To Donation to National Defense fund 1,000

To Embezzlement by an employee 2,000
To General Expenses 5,000
To Salary to staff 10,000
To Office Expenses 5,000
To Discount to retailers 3,000
To Sundry Expenses 5,000
80,000 80,000
Compute his business income for the assessment year 2018-19. Further particulars
a) Sales Tax paid during the year was Rs 400. Total bonus paid during the year was Rs 8,000 debited in the book and
Rs 11,000 provided for in preceding year but paid in the current year
b) Office expenses include Rs 1050 as bride
c) General expenses include Rs 1,000 being the municipal taes in respect of house property
12) From the profit & Loss A/c of Mr Beta for the year ending March 31,2018, compute his taxable income from business
for the assessment year 2018-19
To Bad Debts 4,000 By Gross Profit 1,50,000
To Provision for Bad Debts 5,000 By Commission 30,000
To Salary to staff 64,000 By Brokerage 17,000
To salary to Mr Beta 20,000 By Profit on sale of import license 45,000
To Interest on Loan from Banks 13,000 By Export cash assistance 60,000
To interest to Mrs Beta 40,000 By duty drawback 10,000
To interest on capital 10,000
To depreciation 15,000
To general expenses 12,000
To travelling expenses 3,000
To rent & Electricity 8,000
To entertainment expenses 16,000
3,12,000 3,12,000
Further information
a) Depreciation allowable as per income tax rules Rs 10,200
b) Income of RS 1,000 accrued during the previous year but not actually received is not recorded in the profit & Loss A/c
c) General expenses include personal drawings Rs 2,000
d) Interest is paid to mrs Beta on loan given by her for the business; however at market rate of interest; interest payable
would be Rs 30,000
e) Travelling expenses allowable as per income tax rules are Rs 1,700
f) Rs 3500 of the interest on loan from bank is in respect of money raised to invest in securities
13) Mr Mandar is an eminent lawyer of Bombay high court. His receipt & payments account is given as under
Receipts Rs Payments Rs
To Balance b/f By drawings 1,45,500
Cash in hand & Bank 3,000 By Salaries 1,08,000
To professional fees 4,90,000 By investment in NSC VIII issue 2,25,000
To LIC (amount received on maturity) 3,50,000 By telephone Expenses 13,685
To gift from a client on successfully By Conveyance 21,445
completing a legal complicated case 5,000 By Rent 36,000
To interest on bank A/c 12,000 BY Subscriptions 11,370
By Purchase of Electronic Typewriter 30,000
BY Stationery 42,000
By donations to jain sahitya prakashan
sanstha 25,000

By advance income tax 65,000
By bonus & gifts to staff 21,000
By Balance C/f 1,16,000
8,60,000 8,60,000
Depreciation allowable on typewriter and furniture amounts to Rs 13,500 as per the income tax rules
Determine the taxable income under the head income from business or profession of Mr Mandar for the assessment year
2018-19
14) Following is the Receipts & Payments account for the year ended March 31,2018 of Mr. Chirag a practicing lawyer
Receipts Rs Payments Rs
To Balance B/f 8,500 By salaries 25,000
To Professional Fees 2,10,000 By Office rent 6,000
To Salary as a Law Lecturer 900 By subscriptions for legal publications 3,000
To Lottery Prize 6,000 By printing & Stationery 7,200
To Received from his father’s HUF being By Advance tax 60,000
his share 9,500 By Purchase of Type writer 5,000
To Gifts received from clients 20,000 By personal drawings 35,000
By purchase of car(15/10/2017) 90,000
BY Office Expenses 12,000
By Balance c/f 11,700
2,54,900 2,54,900
Other relevant particulars are
a) Depreciation on car is allowed at 20%
b) 1/3 of the car use has been for personal purposes
c) Depreciate typewriters by 12.5%
Determine the taxable business income of Mr Chirag for the assessment year 2018-19

HEADS OF INCOME
V. INCOME FROM OTHER SOURCES(Section 56 to 59)
A. Introduction:
Income from other sources is the last head of income under which the total income is computed and assessed
Income of every kind which is not exempt from tax must be charged to tax by classifying under a proper head of income.
Any such income if it can not be classified or cannot be included under the head salaries, income from house property,
profit or gains from business or profession and capital gains shall be included under the head “Income from other sources”
as a matter of last resort. Thus, this is a residual head of income.
B. Basis of Charge u/s 56(1)

This section lays down that income of every kind which is not to be excluded from the total income and which is not
chargeable under any of the specified heads u/s 14 shall be chargeable to income tax under the head “income from other
Sources”
C. Income Chargeable to Tax u/s 56(2)

Incomes which are specifically stated under this section are chargeable to tax under the head “Income from Other
Sources”. These Incomes are-
1) Dividends
Dividend received from a domestic company or from unit trust of India or any other recognized mutual fund are exempt
u/s 10(33). Dividend received from foreign company or from a co-operative society are taxed under this head
2) Winnings from lotteries etc

Any winnings from lotteries , crossword puzzles, races including horse races, card games and other games of any sort or
from gambling or betting of any form or nature whatsoever
3) Employees contribution to Staff welfare Scheme

Any sum received by the assessee from his employees as the contribution to any staff welfare scheme such as Provident
Fund, super annuation fund, etc is taxable under this head, if the employer is not businessman such contribution are
included under this residuary head of income
4) Interest on Securities
If a person is a dealer in securities income there form is taxed as business income otherwise interest from securities is
taxable under this head of income. Securities refer to bonds, debentures etc. The following points should be noted in this
connection
Interest from securities is taxed on receipt basis if the assessee maintains his book on cash basis. If the assessee maintains
the books on mercantile basis or maintains no books of accounts it is charged on accrual basis. The amount taxable is the
gross interest i.e. the net interest received plus the tax deducted at sources
5) Income from machinery, plant or Furniture Let Out

Income from machinery, plant or furniture belonging to the assessee and let on hire if such income is not chargeable to
income tax under the head “Profits and gains of Business or Profession”
6) Income from machinery etc with building Let out

Where an assessee lets on hire, machinery, plant or furniture belonging to him and also buildings and the letting of the
building is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not
chargeable to income tax under the head Profit and Gains from Business or Profession. E.g. An auditorium or Cinema
theatre let along with seating facilities, air conditioners, equipments, security etc
7) Key man insurance policy

Any sum received under a key man insurance policy shall be treated as income chargeable to tax under this head if such
income is not chargeable to tax under the head Profit and Gains from business or profession or under the head Salaries
Example of income chargeable under the head “Income from Other Sources”
1. Examiner ship fees received by a professor
2. Director’s Fees
3. Interest on bank deposits
4. Interest on private loans
5. Income from sub-letting of property
6. Ground rent
7. Royalty received by an author
8. Salary payable to MP and MLA
9. Rent from a plot of land
10. Interest on National Saving Certificate
11. Interest on deposits with companies
12. Agricultural income from a place outside India
13. Family pension received by legal heirs after death of an employee
14. Interest on Income Tax Refund
15. Casual Income
16. Income from undisclosed source
17. Director’s commission for standing as a guarantor to bank or for underwriting shares of a new company
18. Insurance commission
D. Deductions Allowable while computing “income From Other Sources u/s57

1) In case of income by way of dividend and interest on securities
I. Collection Charges
Any reasonable sum paid for the collection or realization of taxable dividend or interest e.g. bank charges or bank
commission or where a person hold a number of investment, salary paid to a person in charge of collecting or banking
dividends or interest
It should be noted that the expenses so claimed as deduction should be reasonable
II. Interest on borrowed capital

Interest on loans borrowed for purchasing shares and securities is allowed as a deduction
2) In case of income from hire

Where the assessee gives on hire machinery, plant or furniture belonging to him, where if is not his regular business, such
hire income is taxable under this head. Similarly where an assessee lets on hire these things along with building, and the
entire rent income is inseparable, such hire income is also taxed under this head. If the hiring activity is a regular business,
the income would be dealt with, not under this head but under the head “Profit and Gains from business”
If it is assessed as “Income from other sources” the following deductions are allowable-
i. Rent, rates and taxes in respect of buildings
ii. Current repairs to building and plant, machinery or furniture
iii. Premium for insurance of building, plant, machinery or furniture
iv. Depreciation
3) Deduction in respect of employees contribution towards staff welfare schemes

The employees contribution to provident fund, superannuation fund, employees state insurance scheme etc is to be
included in the income of the employer. The employer is in turn allowed deduction only in respect of such sums actually
credited to the employees accounts before or on the due date. Thus the employer failing to deposits within due date such
contributions collected from the employees its taxed on such amounts
4) Standard deduction in the case of family pension

Family pension means a regular monthly amount paid by employer to a family members of an employee in the event of
employee’s death. In the case of income in the nature of family pension, a deduction of 1/3 rd of such income or Rs 15,000
whichever is less
5) Any other expenses for earning income

Any other expenditure is deductible under section 57 if the following three conditions are satisfied
i. The expenditure must be incurred wholly and exclusively for the purpose of earning income for example
a) Expenses incurred by an author for preparation of manuscript or the book
b) Rent paid in respect of a building or premises sub let
c) Salary paid to clerks etc for maintain accounts in respect of income taxable under this head
ii. The expenditure must not be in the nature of capital expenditure
iii. It must not be in the nature of personal expenses of the assessee
E. Amount not Deductible u/s 58

This Section states the following amounts which shall not be deductible in computing the income chargeable under the
head. “Income from other sources”
In case of any assessee
a) Personal expenses of the assessee
b) Any interest paid outside India on which tax has not been deducted at source in such cases, interest paid or payable
will not be allowed as deduction
c) Any amount of taxable salary, paid outside India without deduction of tax at source or no tax has been paid thereon
will not be allowed as deduction
d) Any expenditure or allowance in connection with income by way of winnings from lotteries, crossword puzzles, races
including horse races, card games or other games of any sort or from gambling or betting of any form or nature will
not be allowed as deduction however in case of income from horse races, the expenditure incurred to maintain the
horses shall be allowed as deduction to the expenditure incurred to maintain the horses shall be allowed as deduction
to the assessee being the owner of the horses maintained by him for running in horse races
e) Amounts not deductible in accordance with the provisions of Sec 40A so far as may be applicable to income from
other sources as they apply to computation of business profits e.g.
i. Unreasonable or excessive payments to specified persons
ii. Expenses exceeding Rs 10,000 paid in cash
F. Profits Chargeable to Tax u/s 59

The provisions of section 41(1) under the head “ Profit and Gains of Business or Profession” Shall be applicable so far as it is
applicable in computing the income under the head “Income from other sources”. These provisions are related to the
recovery against any deduction. If any deduction is allowed in respect of loss, expenditure etc during any previous year and

in subsequent year such amount of deduction allowed was recovered, shall be treated as income chargeable to tax. (e.g.
recovery of bad debts deducted earlier)
G. Exempt Income/ Income Not Taxable
1) Income from units (Section 10(35))

Income from units received by a unit holder from unit trust of India will not be chargeable to tax
2) Receipts without consideration u/s 56(2)

When a sum of money / property is received by a individual or HUF without consideration on or after 1st October 2009 (i.e.
gift) under the following categories is chargeable to tax in the hands of recipients under the head income from other
sources
No Nature of Asset Consideration Taxable value
1 Money Without Consideration The whole amount if the sum exceeds Rs 50,000 in
aggregate
2 Movable Property Without Consideration The aggregate fair market value of the property, if
it exceeds Rs 50,000
3 Movable Property Inadequate The difference between the aggregate fair market
Consideration value and the consideration if such difference
exceeds Rs 50,000
4 Immovable Property Without Consideration The Stamp value of the property if it exceeds Rs
50,000
5 Immovable Property Inadequate The difference between the stamp duty value and
Consideration the consideration, if such difference exceeds Rs
50,000
Exceptions
This clause shall not apply to any sum of money or any property received from any relative or
a) From any relative or
b) On the occasion of the marriage of the individual or
c) Under a will or by way of inheritance or
d) In consideration of death of the payer or donor, as the case may be or
e) From any local authority
f) From any fund or foundation or university or other educational institution or hospital or other medical institution or
any trust or institution referred to in clause 23 C of section 10 or
g) From any trust or institution registered under Section 12AA
Meaning of Relative:
The Term “ Relative” Means
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 the person referred to in (ii) to (vi)

3) Pension to family members of Gallantry Award Winners (Section 10(18))

This exemption is in respect of the family pension received by any member of the family of an employee of the
central or state government who has been awarded “ Param Vir Chakra” or “ Maha Vir Chakra” or Vir Chakra”
or such other notified gallantry award
CLASS WORK SHEET

PROBLEM NO.01 Mr Tendulkar submits the following particulars for computation of his income chargeable under
the head Income from other sources. The particulars of his income for the year ended 31-3-2018 are as follows
1) Dividend from World Cup Ltd a foreign company Net Rs 10,000. Tax deducted at Source Rs 2,000. Interest paid on loan
taken for the purpose of investment in shares of World Cup Ltd Rs 1500. Collection charges debited by bank for
realisation of the dividend cheque Rs 100
2) Rent for letting plant and machinery on hire – Rs 60,000. Collection charges in respect of rent – Rs 3,000. Fire insurance
premium – Rs 4,000. Repairs and maintenance- Rs 2,500. Depreciation as per income tax rules Rs 10,000
3) Winnings from Horse Races- Rs 5,000
PROBLEM NO.02 Mr Sai is a professor of law in MK College. The particulars of his income for the year ending 31-3-
2018 are as follows
1) Salary Rs 32,000 pm
2) Royalty from books – Rs 25,000. Expenses on typing etc were Rs 2,000
3) Honorarium received from a management institute as a visiting lecturer- Rs 3,000. Conveyance for visiting the institute
Rs 200
4) Examiner ship fees from university of Mumbai – Rs 1,000
5) Family pension of Rs 42,000
6) He received the ‘ Dronacharya ‘ Award of Rs 10,000 for the ‘Best Teacher of the year’ from State Government
Compute Gross Taxable Income of Mr Sai for the assessment year 2018-19
PROBLEM NO.03 From the following information, compute the income under “ Income from other sources” of Mr
Dilip
1) Income from agricultural land in India – Rs 12,000
2) Income form agricultural land in Nepal- Rs 10,000
3) Mr Dilip is a tenant of Mr Sunil in respect of a bungalow in Goa. Mr Dilip has in turn rented the Bungalow to Kapil for a
rent of Rs 1,000 per month. Dilip pays rent of Rs 500 per month to Mr Sunil
4) Interest earned a) interest on deposits with banks- Rs 500. B) interest on public provident fund rs 1,000 c) interest on
government securities (Net- Rs 12,000, tax deducted at source Rs 1,200)
5) Lottery prize- (Net Rs 50,000, tax deducted at source Rs 20,000). He had purchased lottery ticket worth Rs 3,000
6) He received a refund from the income tax department pertaining to the assessment year 2007-08 amounting to excess
income tax Rs 2,000 and interest Rs 500
PROBLEM NO.04 Mr Sarthak submits the following details for the year ending 31-3-2018
1) He has rented his factory building along with plant and machinery, and furniture for a lumpsum hire charge of Rs
1,00,000 per year
2) The following expenses were incurred – a) repairs to building Rs 10,000. B) repairs to machinery. C) furniture purchases
Rs 3,000
3) Depreciation on building, machinery and furniture amounted to Rs 8,000 as per income tax rules
4) Salaries paid to maintenance staffs were Rs 20,000. Employee’s contribution to provident fund deducted from salaries
during the year – Rs 2,000. Out of which Rs 1,800 was paid within the due date to the credit of the employee’s
accounts
5) Salaries included payment to a close relative, which was excessive to the extent of Rs 2,000

6) One of the ex-employees had embezzled Rs 10,000 cash in the past, which was allowed as deduction in the assessment
year 2013-14. The police had caught the employee and recovered Rs 5,000, which was handed over to Mr Sarthak in
October 2017
PROBLEM NO.05 Mr vaibhav is a non-resident. He has earned following amounts during the previous year ended 31st
march 2018
1) Income from agricultural land in Sri Lanka Rs 1,50,000 received in Srilanka
2) Dividend from foreign companies received Rs 5,000
3) Dividend from Indian companies received Rs 15,000
4) Interim dividend from reliance ltd Rs 12400 was actually paid by the company on 30th June 2018
5) Winnings from lotteries Rs 1,00,000(TDS Rs 35,000)
6) Dividend from nationalised Banks Rs 5,000
7) As on 1st April 2017 his investment was as follows
a) 10% Mumbai municipal debentures Rs 50,000
b) 15% debentures in Telco Ltd of Rs 1,00,000
c) 8% Port Trust bonds of Rs 30,000
d) 9% Maharastra Govt Bonds loans of Rs 40,000
Compute his Gross Total income of Mr vaibhav for the assessment year 2018-19
PROBLEM NO.06 Professor Patel of Bombay University has received following receipts during the year ended 31st
march 2018
1) Salary income Rs 842000 Gross
2) Interest on National Savings certificate VIII Issues Rs 770
3) Rs 3185 as interest on post office savings Bank
4) Received Rs 30,000 from LIC on maturity of policy
5) Examiner ship fees Rs 3350 received from the institute of chartered accountants of India new delhi
6) Income by way of a dividends from Indian Companies Rs 1,750
7) Winning from crossword puzzles Rs 8,880
Compute the gross taxable income of Mr Patel for the assessment year 2018-19
PROBLEM NO.07 Mr Sunil is the owner of M/s Hotel Trupti he informs you that
1) Income from business Rs 1,15,000
2) Recovered Rs 5,000 which was allowed as a deduction on embezzlement of cash by cashier in earlier previous year. This
has not been accounted in books of Hotel Trupti
3) Income by way of interest on debentures amounted to Rs 12,000. He paid Rs 6,000 as interest on amount borrowed for
purchase of debentures to Mr Raj an American resident. No tax has been deducted at source not there is any
representative assessee in India
4) Received Rs 35,000 royalty from Deepak Prakashan for writing a book on Hotel management. He incurred the expenses
for preparing manuscripts and purchase of certain books for reference Rs 12,000. These expenses are bonafide and
reasonable
5) Mr Sunil took Anand Bhavan on rent of Rs 2,000 pm he subletted this property to mr Sanjay at Rs 2500 per month
w.e.f. 1st April 2017
6) Accrued interest on indira vikas putra amounts to Rs 15,000
7) Directorship fees from impel associates pvt ltd received Rs 12,000
8) Interest on deposits with ACC Ltd Rs 12,000
Compute his total income for the assessment year 2018-19
PROBLEM NO.08 Miss Bharti is a social worker. She owns a house property at vashi- navi Mumbai which is let out at
an annual rent of RS 25,000. She Incurred following expenses in respect of house property
Ground Rent 600
Repairs 2,000
Insurance 400
Municipal Taxes Paid 1,000
Her Other Income is as follows
1) Interest on Bank Deposits Rs 12,500
2) Dividend on shares of Indian companies Rs 2,750. She paid Rs 25 for collection charges and Rs 2,000 as interest on loan
borrowed for purchase of shares
3) Dividend from unit trust of India Rs 47,000
4) Accrued interest on NSC Rs 17,800
5) Dividend from foreign companies Rs 14,500
Compute Miss Bharti’s Gross Total income for the assessment year 2018-19
PROBLEM NO.09 Mr Shah owns three residential units. Unit no 1 is self occupied whereas unit no 2 and 3 let out.
Unit no 2 is let out on a monthly rent of Rs 500 pm. Municipal taxes are to be borne by tenant. Expenses incurred for this
unit are:
Insurance 200
Collection charges 150
Ground Rent 100
Unit no 3 is fully furnished with furniture and electrical appliances (including Refrigerator, television etc) this unit is let out
on a monthly rent of Rs 10,000. All expenses including municipal tax are to be borne by tenant ( income of building and
appliances is inseparable)
Annual interest due on 31st March 2018 on the investment in 10% Maharashtra State Loan of Rs 15,000 which was received
in April 2018. Interest of Rs 1000 is credited to the public provident fund account with SBI. He received Rs 4,500 as dividend
from unit trust of India
You are required to compute the gross total income of Mr Shah for the assessment year 2018-19
PROBLEM NO.10 Mr Paras provides you the following information for the financial year 2017-18
1) Salary @ rs 6,000 pm
2) Bonus for the year Rs 2,000 was declared
3) Honorarium for playing cricket from mulund gymkhana Rs 5,000
4) Received an award of Man of the Match of Rs 5,000
5) Arjun Award of Rs 10,000 instituted in the public interest by Govt of Maharashtra for showing proficiency in sports
6) He owns the following securities on 1/4/2017
15% Mumbai Port Trust Bonds Rs 15,000
10% Bonds of Narmada Cements Ltd- Rs 7,500
7) Interest on Fixed Deposits with statebank of India Rs 12,800
8) Interest accrued on indira Vikas Patra Rs 11,200
Compute Mr Paras Total Income for the assessment year 2018-19

CHAPTER NO 5
DEDUCTION FROM GROSS TOTAL INCOME
A. Introduction
Chapter VIA of the income tax act 1961, provides for certain deductions to be made in computing the total income.
The deductions are to be made from gross total income. The basic purpose of the deduction is to encourage
savings and increase contribution to national fund which is utilized for the national cause
B. Distinguish between exemption and deductions

‘Exemptions’ cover all those categories of incomes which are fully and totally exempt from income tax. They are
not to be included in the computation of Gross Total Income at all. Such exemption incomes are given in Section
10. The instances are agricultural income, share of profit from firm, income of minor etc
On the other hand, the deductions consist of all those items which are allowed to be deducted from Gross Total
Income while computing the total income. In other words the allowable deductions there from, to arrive at the
total taxable income. These deductions are given in Chapter VIA. All these deductions are contained in Section 80,
in various sub-sections and hence these deductions are also called as Section 80 deductions
Gross Total Income

1) ‘Gross Total Income’ is defined by section 80B(5), as the total income computed in accordance with the
provisions of this Act, before making any deduction under this Chapter VIA of the Act
2) Thus Gross Total Income is the total of the income computed under different heads such as salaries, income
from House Properties, Business , Capital Gains and other sources
3) For the purpose of deduction it excludes long term capital gains
4) Gross Total Income does not include the incomes specifically exempt under Section 10 of the Act
5) Adjusted Gross Total Income = Gross Total Income – Long term capital gains – Winning for lotteries & races etc.
C. Principle of deductions (section 80A)

Section 80 A lays down the following basic principles regarding deduction from income.
1. Deduction as specified in Section 80C to 80U

The deductions specified in section 80C to 80U will be allowed to be deducted from the Gross Total Income of
the assessee while computing his total income, subject to the various conditions and limits laid down in the
provisions
2. Deduction can not exceeds Gross Total income

The total amount of deductions under this Chapter VIA shall not in any case exceeds the Gross Total Income of
the assessee. Thus, the deductions can not result in a loss. For e.g. if the Gross Total income of the assessee is
Rs 1,00,000 and the Total Deduction is Rs 1,20,000 the assessee will be allowed to deduct only Rs 1,00,000
from his Gross Total Income so as to reduce it to Nil. The balance deduction of Rs 20,000 will neither be
allowed in the current assessment year nor to be allowed to be carried forward to the next year. Gross Total
income for this purpose does not include long term capital gains and winning from lotteries and races etc
3. Payment out of Taxable income

Deductions in respect of certain payment are allowed only if made out of the taxable income of the assessee
Deductions
1) Deduction in respect of savings Section 80 C
2) Deduction in respect of contribution to certain pension fund u/s 80CCC
3) Deduction in respect of medical insurance premium u/s 80D
4) Deduction in respect of maintenance of handicapped dependent u/s 80DD
5) Deduction in respect of interest on loan for Higher Education u/s 80E
6) Deduction in respect of interest on deposits in savings account u/s 80TTA
7) Deduction in the case of totally blind or physically handicapped resident individual u/s 80U
D. Deduction in respect of savings Section 80 C
a) To whom allowed
Tax Deduction under section 80C is available only to the following
An Individual &
Hindu Undivided Family
b) Qualifying investments
The total of the following amounts paid or deposited in the previous year by the assessee out of his taxable income
qualify for deduction u/s 80C (called as the Gross qualifying amount)
1) Life Insurance Premium

Life Insurance premium LIP for insuring the life of –
a) In the case of individual, the individual, the wife or husband and any child of such individual and
b) In the case of a Hindu Undivided Family (HUF) any member of the HUF
Payment of premium which is in excess of 20% of the actual capital sum assured shall not be included in gross qualifying
amount. From the Assessment year 2014-15, the above limit of 20% is reduced to 10% for policies issued on or after 1-4-
2012
The above limit of 10% is enhanced to 15% in case of insurance policy on the life of person who is :
A person with disability or person with a severe disability as referred to in Section 80U
Suffering from a disease or ailment as specified in the rules made u/s 80DDB
2) Deferred annuity
Payment by a person in respect of non commutable deferred annuity on the life of-
a) In the case of individual, the individual, the wife or husband and any child of such individual and
b) In the case of a Hindu Undivided Family (HUF) any member of the HUF
3) Deferred annuity by government

Any sum deducted from salary payable by the government to an individual for securing to him a deferred annuity or
making provision for his wife or children provided. The sum so deducted does not exceeds of 20% of salary
4) Contribution to Statutory Provident Fund

Contribution made by an individual towards statutory Provident Fund
5) Contribution to Public Provident Fund

Contribution made by a person towards the 15 years public provident fund set up by the government under the public
provident fund scheme 1968. In the accounts of the following persons (a) in the case of an individual, such individual, the
wife or husband and any child of such individual and (b) in case of a Hindu Undivided Family (HUF) any member of the HUF
6) Contribution to Recognized Provident Fund

Contribution made by an individual towards any recognized provident fund
7) Contribution to Superannuation Fund

Contribution by an individual towards an approved superannuation fund
8) Post Office Cumulative time Deposits (CTD)

Deposits in a 10 year or 15 year account under the Post office saving Bank (CTD) rules 1959 in the account of the following
persons – (a) in the case of an individual such individual or a minor of whom he is a guardian (b) in the case of a Hindu
Undivided Family (HUF) any member of the HUF
9) National Savings Scheme (NSS)

Subscription to any notified government security or any notified deposit scheme i.e. NSS, 1992
10) National Savings Certificate (NSC) VI & VII

Any sum paid as subscription to National Saving certificate VI and VII issues. An individual can claim deduction in respect of
certificates purchased in the joint Names or even in the name of spouse / minor child, provided that the money has came
out of the subscriber’s taxable income
11) National Savings Certificate (NSC) VIII

Any subscription to notified saving certificates (i.e. National Savings Certificate VIII Issue) these are cumulative certificates
where interest is added back, accumulated and paid along with face value only at the end of the six year term of such NSC.
The interest on these NSC accrues to the holder at the end of each year. such annual interest is
i) Taxed under the head “ income from other sources” on the basis of annual accrual and
ii) Deemed to be reinvested in such certificates and hence eligible for deduction u/s 80C up to the end of the 5th year
(interest for the 6th year is paid on maturity and is not reinvested)
12) Unit Linked Insurance Plan (ULIP)

Contribution made by an individual in respect of the ULIP of Unit Trust of India, in the name of the following persons – (a)
in the case of an individual such individual, wife or husband and any child of such individual, and (b) in the case of an hindu
undivided family any member of the HUF
13) Dhanaraksha
Contribution by an individual in respect of the unit linked insurance plan of LIC of India (i.e. Dhanaraksha Plan of LIC) in the
name of (a) in the case of an individual such individual, the wife or husband and any child of such individual and (b) in the
case of a Hindu Undivided Family (HUF) any member of the HUF
14) Jeevan – Dhara/ Jeevan Akshay

Contribution towards a contract for notified annuity plan of the Life insurance corporation of India (i.e. Jeevan Dhare /
Jeevan Akshay ) or of any other notified insurance company
15) Equity Linked Saving Scheme (ELSS)

Contribution to notified equity linked saving scheme (ELSS) of a mutual Fund / UTI
16) Pension Fund of MF / UTI

Contribution by an individual to any notified pension fund set up by a notified mutual fund or by the unit trust of India (i.e.
retirement benefit unit scheme of UTI / Kothari pioneer pension plan of Kothari Mutual Fund)
17) Home Loan Account of National Housing Bank

Any sum paid as subscription to Home Loan account scheme of the National Housing bank or notified pension fund of the
national housing bank (interest accrued thereon is also eligible for deduction as it Is treated as re invested)
18) Housing Finance Deposit

Any sum paid as subscription to a notified deposits scheme of
a) A public sector company engaged in providing long term finance for construction or purchase of houses in India for
residential purpose or
b) Any authority constituted in India by or any law enacted either for the purpose of dealing with satisfying the need for
housing accommodation or for the purpose of planning, development or improvement of cities, towns , villages or for
both
19) New Residential House

Any payment made for the purpose of purchase or construction of a residential house property the income from which is
chargeable to tax under the head income for house property
Following payments made towards the cost of purchase / construction of new residential house property
Any installment or part, payment of the amount due under any scheme of any development authority
Stamp duty, registration fees & other expenses for the purpose of transfer of such house property to the assessee
However the following payments does not qualify for rebate
Cost of any addition, alteration, renovation or repairs of the house property carried out after completion
20) Tuition Fees

Any sum paid as tuition fees whether at the time of admission or thereafter to any university, college, school or other
educational institution situated within India for the purpose of full time education of any two children of an assessee shall
qualify for rebate. However, the eligible amount shall not include any payments towards any development fees or donation
or payment of similar nature
21) Infrastructure Debentures / Shares / Units

Amount invested in
a) Debentures or equity shares of a public company engaged in infrastructure or power or telecommunication sector
b) Eligible issue of capital by a public financial institutions in turn invested in infrastructure/ power/ telecom sector (e.g.
infrastructure bonds by ICICI or IDBI)
c) Units of a mutual funds notified u/s 10(23D) approved by he board and in turn invested in infrastructure/ power/
telecom
22) Bank Fixed Deposits

Term deposit for 5 years or more with a scheduled bank in accordance with prescribed scheme by individual or HUF
23) NABARD Bonds

Subscription to notified bonds of the nationalization Bank for Agricultural & Rural Development (NABARD)
24) Senior Citizen Saving Scheme (SCSS)
25) Post Office Five year time deposit scheme (PO-TD)
c) Amount of deduction
Amount invested in these investment would be allowed as deduction as per follows
Amount deductible under Section 80C is equal to 100% of the qualifying Investment
OR
Rs 1,50,000 whichever is lower
However the maximum amount of deductions under section 80C, 80CCC, 80CCD can not exceeds Rs 1,50,000 as laid down
under Section 80CCEE
E. Deduction in respect of contribution to certain pension fund u/s 80CCC
1) To whom allowed
This deduction is available to an individual only
2) Amount of deduction
The amount of deductions is equal to –
a) Actual amount paid or deposited or
b) Rs 1,50,000
Whichever is less
3) Conditions

This deduction is in respect of amount paid or deposited by an individual out of his taxable income to effect or to keep in
force a contract for any annuity plan of life insurance corporation of India or any other insurance company for receiving
pensions from the fund set up In this regards
4) Other important points

i) The amount received out of the balance to the credit of such account (including interest, bonus etc) either on
premature or surrender (whole or part) of such plan or as a pension from such plan shall be taxed as income in the
year of such receipt
ii) Once a deduction is claimed under this provision no deduction u/s 80C can be claimed in respect of same deposit /
payment
iii) Total deduction u/s 80C + 80 CCC cannot exceeds Rs 1,50,000
F. Deduction in respect of medical insurance premium u/s 80D
a) To whom Allowed
This deduction is allowed to
i. An individual
ii. An HUF
b) Conditions (limit of Deduction)

i. This deduction is in respect of insurance premium paid by the assessee in accordance with the scheme framed in this
behalf by the General Insurance Corporation of India and approved by the Central Government. This scheme is known
as Mediclaim insurance policy
ii. The premium is paid by any mode of payment (other than cash)
iii. It is paid out of income chargeable to tax
iv. Mediclaim policy is taken
 In case of an individual, on his health or on the health of his spouse or parent or dependent children
 In case of a hindu undivided family on the health of any member of the family
c) Amount of Deduction
The amount of deduction is Rs 25,000 for self, spouse, dependent children. Further deduction of Rs 25,000 is available for
parents. Additional deduction of Rs 5,000 is available in case of insurance on an individual being a resident of India
attaining the age of 60 years anytime during the previous year
d) Important note
 An individual can make a claim for self, spouse and dependent children up to Rs 25,000 plus claim for
parents (whether dependent or not) up to Rs 25,000 i.e. total deduction of Rs 50,000
 If an individual or spouse or any parents is senior citizen there will be an additional claim of Rs 5,000.
For example if the individual’s father is a senior citizen, claim will be Rs 25,000 + Rs 5,000 = Rs 30,000
 In a rare case for example where the individual himself as well as say his mother is a senior citizen, the
maximum claim will be for Rs 30,000 + Rs 30,000 = Rs 60,000
 Deduction for expenditure on preventive health check up
The above deduction can also include any payment made by the assessee on account of preventive
health check up of self, spouse, dependent children or parents during the previous year. The deduction
on account of expenditure on preventive health check up shall not exceeds in the aggregate of Rs
5,000. The payment for expenditure on preventive health check up can be made in any mode including
cash payment
 The general claim by an individual of Rs 25,000 for self, spouse and dependent children is also available
in respect of contribution by an individual to the Central Government Health Scheme (CGHS)
G. Deduction in respect of maintenance of handicapped dependent u/s 80DD
1) To whom is the deduction allowable

This deduction is available to individuals and HUF who are resident in India
2) Payment eligible for deduction

Any expenditure incurred for medical treatment, including nursing, training and rehabilitation of a dependent with
disability
Amount paid or deposited by the assessee under any scheme of LIC or any other insurer as approved by CBDT for the
maintenance of dependent with disability
3) Actual deduction allowable

The deductions allowed is for a lumpsum of Rs 75,000 irrespective of the questions of expenditure incurred or deposit
made. If however, the dependent is a person with severe disability, the deductions is Rs 1,25,000 here severe disability
means person with 80% or more disability
4) Dependent
The term dependent has been defined to include in the case of an individual, the spouse, children, parents, brothers and
sisters of the individual and in case of an HUF a member thereof, who is wholly or mainly dependent on the assessee and
has not claimed any deduction under section 80U in the computation of his income
5) Handicapped
Dependent must be a handicapped person with a disability of not less than 40%
6) Certificate
For the claim of above deductions the assessee has to furnish a copy of the certificate issued by the medical authority along
with the return of income filed in respect of the assessment year for which the deduction is claimed
H. Deduction in respect of interest on loan for Higher Education u/s 80E
1) To whom is the deduction available

The deduction is available to all individuals
2) Payment eligible for deduction

Any amount paid towards interest on loan borrowed from any financial institution or any approved charitable institution
for the purpose of pursuing higher education is deductible. The higher education to be pursued is by the assessee himself
or any relative of the assessee. Relative for this purpose includes spouse and children of the individual. It also includes the
student for whom the individual is the legal guardian. Further, the amount paid should be paid out of the income of the
assessee chargeable to tax during the previous year
3) Actual deduction allowable

The entire amount of interest paid as above is deduction. The deduction is allowed for the initial year and immediately
succeeding 7 assessment years or until the loan is paid in full whichever is earlier i.e. the deduction is available for
maximum period of 8 years
I. Deduction in respect of interest on deposits in savings account u/s 80TTA
Section 80TTA provides that in case the gross total income of an assessee being an individual or a hindu undivided family,
includes any income by way of an deposits in a saving account (not being time deposits, which are deposits repayable on
expiry of fixed periods) deduction upto Rs 10,000 in aggregate shall be allowed while computing the total income of such
assessee. Such deduction shall be allowed in case the saving account is maintained with
- A banking company to which the banking regulation act 1949, applies (including any bank or banking institution
referred in section 51 of that Act)
- A co-operative society engaged in carrying on the business of banking or
- A post office
In effect the deduction under this section shall be allowed only in respect of the income derived in form of interest on the
saving bank deposit (other than time deposits) made by the individual or hindu undivided family directly. Interest on Post
office Savings A/c is exempt u/s 10(15) upto Rs 3,500. Excess over Rs 3,500 is eligible for deduction u/s 80TTA
J. Deduction in the case of totally blind or physically handicapped resident individual u/s 80U
i. To whom Allowed
The deduction is allowable only to resident individual who at any time during the previous year is certified by the medical
authority to be a person with disability or severe disability
a) Person with disability
He is a person suffering from not less than 40% of the prescribed disability
b) Person with severe disability

He is a person suffering from over 80% of the prescribed disability
ii. Actual deduction Allowable

The deduction allowed is Rs 75,000 in case of normal disability. Whereas in case of a severe disability the deduction
allowed is Rs 1,25,000. This is an outright lumpsum deduction without any reference to either income or payments. The
deduction is allowed, once the conditions are fulfilled
iii. Conditions to be fulfilled

For qualifying for this deduction the assessee must file a copy of the certificate issued by the prescribed medical authority
in the prescribed form

CHAPTER NO 6
COMPUTATION OF NET TAXABLE INCOME
1) Mr Vijay Joshi, a Director of Goodluck Construction Ltd gives you the following information for the year ended 31 st
March, 2018
Particulars Rs
Basic Salary per annum 4,80,000
Dearness Allowance per annum 2,88,000
Ex Gratia received 1,20,000
Arrears of salary received (not taxed earlier) 30,000
House rent Allowance per annum 72,000
Exempt upto Rs 40,000 per annum
Club expenses of mr Vijay Joshi Paid by Employer 7,500
Professional Tax deducted from salary per annum 2,500
Provident fund deducted from salary per annum 48,000
Particulars of owned house Let out
Fair Rent Per annum 2,40,000
Rent received per annum 2,50,000
Municipal tax paid (including Rs 5,000 for 13-14) 25,000
Interest on borrowed capital for construction of property
(loan taken in 2008-09)
Paid during the year 22,000
Due but not paid 11,000
Other information
He had taken a loan from bank of Maharashtra for higher education of his daughter, who is pursuing MBA course in
mumbai university. On which he paid interest of Rs 52,000 during the year
Compute the taxable income of Mr Vijay Joshi for the Assessment year 2018-19
2) Mr vijay parkar is partially blind (75% disability). He works with Maharashtra furnitures for the year ended 31st March
2018 he gives you the following information
Particulars Rs
Basic salary per annum 4,80,000
Commission received per annum 3,00,000
House rent allowance per annum 1,20,000
Exempt house rent allowance Rs 42,900
Servant salary allowance per annum 60,000
Transport allowance exempt allowance Rs 19200 39,600
Reimbursement of medical expenses 30,000
Professional Tax Deducted 2,500
Particulars of owned House
Let out
Municipal valuation per month 80,000
Rent received per month 1,00,000
House was vacant for three months
Municipal taxes paid
By owner 50,000
By tenant 10,000

Interest on capital borrowed for purchase of house
Paid during the year 1,20,000
Interest outstanding on 31st March 2018 60,000
Other information:
He had taken loan from bank of Maharashtra for higher education of his son studying for engineering degree in dehradun.
During the year he paid Rs 40,000 as interest on this loan. Compute his taxable income for assessment year 2018-19
3) Mr Anshuman Bansode works with the government of Maharashtra. He gives you the following information for the
year ended 31st March 2018
Particulars Rs
Basic salary Gross Per annum 3,00,000
Dearness Allowance per annum 1,45,500
House rent allowance exempt u/s 10 Rs 30,000 per annum 60,000
Entertainment allowance (spent on entertainment of Rs 12,000) 12,000
Conveyance Allowance (Spent on conveyance for official purpose
Rs 28,000) per annum 48,000
Arrears of salary not taxed earlier 2,00,000
Professional tax deducted from salary per annum 2,500
Employees provident fund deducted from salary per annum 30,000
Other information
He received Rs 20,000 from LIC of India as maturity value of life insurance policy taken on his life. He had taken a loan from
state bank of India for higher education of his daughter pursing an engineering degree course of delhi university. During the
year, he had paid Rs 50,000 as principal and Rs 7,000 as interest
Compute his taxable income for assessment year 2018-19
4) Mr Ravindra is employed with Victory enterprises. He provides you with following information for the year ended 31st
March, 2018
Particulars Rs
Net salary (after deducting income tax, profession tax, installment of
loan from employer) 25,000p.m.
Income tax deducted from salary 1,800 p.m.
Professional tax deducted from salary 200p.m.
Installment of loan deducted from salary 2,000 p.m.
Bonus received from employer 30,000
Loan taken from employer for higher education of son 1,50,000
Reimbursement of medical expenses incurred 27,400
He received dividend from NKGSB Co-op bank 8,000
He received net interest Rs 10,764 on fixed deposits with Bank (TDS Rs
1236)
He paid Life Insurance Premium for his son 24,000
Compute his total taxable income for the Assessment year 2018-19
5) Dr miling desmukh is employed with BKC College, pune. He gives you the following information for the year ended 31 st
march 2018
Particulars Rs
Basic salary 4,00,000
Dearness allowance 2,00,000
Perquisite value of rent free house 12,000
Arrears of salary not taxed earlier 1,80,000
SYBCom examination remuneration Received from college 10,500
Professional tax deducted from salary 2,500
Remuneration received from pune university for PHD Guide 10,000

He spent Rs 6,000 on purchase of books useful for the purpose of
his employment
He received best teacher award from govt of Maharashtra 11,000
He received gift from father 75,000
He paid lic premium for his son by cash 60,000
He had taken loan from state bank of India for higher education of his son pursuing Mumbai university engineering degree
course. For which he paid interest of Rs 50,000 during the year
Compute his taxable income for the Assessment year 2018-19
6) Mr santosh bhosale who is physically disabled person 50% disability as certified by medical authority is employed with
Roshan College of Commerce. He furnishes the following information for the previous year 2017-18 compute his
taxable income for the AY 2018-19
Particulars Rs
Basic salary 10,000 p.m.
DA 3,500 p.m.
Arrears of salary not taxed earlier 10,000
Medical expenses reimbursement 12,000
Leave salary received 14,000
Examiner ship fees received from college 2,000
Fees for setting TYBCOM papers for Mumbai university 4,000
Royalty received from Chetna Publications for writing books on
Accountancy 20,000
Expenses incurred for writing manuscript of this book 4,000
Professional tax paid 2,5000
7) Mr DInesh Karnik Senior citizen a severely handicapped person 89% took voluntary retirement on 1st January 2018 after
completing 20 years of services in a private company. He furnishes the following information for the year ended 31st
march 2018
a) Basic salary Rs 25,000 pm
b) Dearness allowance @ 50% of Basic Salary
c) House rent allowance received Rs 1,000 pm (exempt Rs 4,000)
d) Voluntary retirement compensation received Rs 8,00,000
e) Gratuity received (fully exempt) Rs 2,00,000
f) Commuted pension (1/3rd exempt) Rs 90,000
g) Uncommuted pension Rs 5,000 p.m.
h) Leave encashment 2 months basic (exempt up to 10 months)
i) Professional tax paid Rs 2,500
j) He had given a loan of Rs 2, 00,000 to his friend. During the previous year 14-15 he received Rs 15,000 as interest on
loan
k) He paid medical insurance premium on 1st February 2018 of Rs 22,000 by cheque
Compute the net taxable income of Mr DInesh Karnik for AY 2018-19
8) Mr sachin abhyankar is an employee of godrej ltd. He furnishes the following information for the year ended 31st march
2018
a) Basic salary (net of professional tax and TDS)
01-04-2017 to 30-11-2017 Rs 24,000 p.m.
01-12-2017 to 31-03-2018 Rs 30,000 p.m.
b) Tax Deducted at source
01-04-2017 to 31-11-2017 Rs 1,000 p.m.
01-12-2017 to 31-03-2018 Rs 2,000 p.m.
c) Professional tax Rs 2500
d) Bonus received on OCT 2017 Rs 48,000

e) Conveyance allowance received (exempt u/s 10 RS 800 pm) Rs 2,000 p.m.
f) Dearness Allowance @ 65% of Basic Salary
g) Loan from employer for daughter’s marriage Rs 1,00,000
h) Interest received on bank saving account Rs 3,000
i) Interest received on government securities Rs 7,000
j) LIC premium paid by Mr Abhyankar Rs 10,000 in cash
k) He paid medical premium of Rs 5,000 in cash
Compute his net taxable income for Assessment year 2018-19
9) Mr rahul deshmukh works with the central railway. He gives you the following information for the year ended 31st
March 2018
Particulars Rs
Basic salary 50,000 p.m.
Dearness allowance 15,000 p.m.
Received arrears of salary 40,000
Conveyance allowance received (amount spent Rs 18,000) 25,000
Reimbursement of medical expenses in govt hospital 48,000
Professional tax deducted from salary 2,500
Other information
Dividend received from bank of India 10,000
Interest received from government securities 25,000
Royalty received 60,000
He paid by cheque mediclaim premium of Rs 18,000 on health of himself, spouse and children
He had taken loan from SBI for higher education of his son who is pursuing MBA with Mumbai university during the year
2017-18, he paid Rs 60,000 as interest on this loan
Compute his taxable income for the AY 2018-19
10) Mr Ojas kothare is a physically disabled person 90% disability he is employed with Mumbai printers. He gives you the
following information for the year ended 31st March 2018
Particulars Rs
Basic salary 6,00,000
Bonus 1,25,000
Entertainment Allowance 48,000
House rent allowance (exempt Rs 17,900) 1,20,000
Conveyance allowance (amount spent on official conveyance Rs
21,600) 24,000
Perquisite value of subsidized meal at workplace 24,000
Profession tax deducted 2,500
Particulars of owned house
Let out
Municipal valuation per month 75,000
Rent received per month 60,000
Municipal taxes paid during the year
For PY 2017-18 24,000
For PY 2016-17 12,000
Interest paid on borrowed capital for construction of House 1,70,000
Other information
a) he completed his graduation in engineering in 2008
b) for this he had taken education loan from corporation bank in 2006
c) during the year he paid Rs 80,000 as interest on this loan
compute his taxable income for Assessment year 2018-19

11) Shri Prateek is a severally handicapped person 86% is the proprietor of PK & co. following is the Profit & Loss A/c for
the year ended 31st March 2018
To salaries 2,85,200 By gross profit 10,38,200
To conveyance 66,100 By interest accrued on national savings
To general expenses 45,950 certificate 12,500
To interest paid 1,16,100 By gift from friend 51,000
To MVAT 46,250 By duty drawback received 1,28,300
To advertising expenses 31,000
To provision for doubtful debts 15,000
To contribution to PPF 60,000
To net profit 5,19,400
12,30,000 12,30,000
Additional information
a) Depreciation charged is found excess of Rs 6,000 as per income tax laws
b) Advertising expenses of Rs 31,000 are paid in cash to M/s Bright Advertising
c) General expenses include Rs 7,500 being medical expenses incurred for shri prateek
d) MVAT includes Rs 15,000 paid towards penalty for delay in filing the return
Compute the Net Taxable Income of Shri Prateek for assessment Year 2018-19
12) Mr Surendra , proprietor of S & Co. furnishes you the following information for the year ended 31/03/2018
Profit & Loss A/c for the year ended 31st march 2018
To conveyance 30,000 By income from mutual fund 10,000
To printing expenses 20,000 By interest on bank fixed deposit 19,000
To staff welfare 60,000 By gift from friend 21,000
To investment in PPF 70,000
To income tax 40,000
To motor car expenses 25,000
To advertisement 15,000
To accounting charges 10,000
8,30,000 8,30,000
a) Salaries includes salary to proprietor Rs 36,000
b) Depreciation as per income tax rules Rs 31,000
c) 1/5th of motor car expenses are considered personal
d) He paid mediclaim insurance premium by cheque Rs 10,000
You are required to compute his taxable income for Assessment year 2018-19
13) From the following Profit & Loss A/c of Mr Shaswat Hegde, a senior citizen compute his total taxable income for the
assessment year 2018-19
To salaries 76,000 By gross profit b/d 3,32,000
To fire insurance premium 11,000 By interest on deposits with state bank
To staff welfare expenses 18,000 of India (gross interest Rs 20,000) 18,000
To postage and telegram 3,000 By amount received on maturity of LIC
To interest on proprietors capital 4,000 Policy 50,000
To travelling expenses 37,000
To miscellaneous expenses 21,000

To repairs and maintenance 7,000
To donation 5,000
To advertisement 20,000
To reserve for doubtful debts 5,000
To sales tax paid 4,000
To advance income tax 3,000
To income tax paid for PY 2013-14 1,000
4,00,000 4,00,000
Depreciation as per income tax rules Rs 15,000
Mr Shaswat paid for self medical insurance premium of Rs 16,000 by cheque
Advertisement expenses include Rs 15,000 spent on advertising in a magazine published by a political party
Repairs and maintenance include personal expenses of Rs 2,000
14) Mr Rajaram Raje, proprietor of RR & Co. you the following information for the year ended 31st March 2018
To bad debts written off 10,000 By income tax refund (including interest
To printing expenses 11,000 Rs 2000) 18,000
To conveyance 30,000 By UTI Dividend 40,000
To general expenses 43,000 By gift from a friend 10,000
To sales tax penalty 9,000
To fire insurance premium 4,000
To wealth tax 6,000
To repairs and maintenance 8,000
5,75,000 5,75,000
a) Depreciation as per income tax rules Rs 22,000
b) General expenses include payment of labour charges for business Rs 23,000 paid in cash on 16/08/2013
c) Salaries include salary to proprietor Rs 48,000
d) Printing expenses include Rs 8,000 for printing of marriage invitation cards for his son
e) He paid tuition fees to a school of Rs 15,000 for his school going daughter
f) He paid interest of Rs 45,000 on education loan taken from bank of India for his son, pursuing post graduate degree in
medicine from university of Mumbai
You are required to compute his total taxable income for the assessment year 2018-19
15) Mrs. Alka Avhad is a physically disable person (85% disability), she gives you the following information for previous year
2017-18
Particulars House I (SOP) House II(LOP)
Municipal valuation per month 20,000 30,000
Rent received per month(house II was vacant for 2 months) NA 32,000
Municipal taxes
Paid by owner 26,000 NIL
Paid by tenant NA 30,000
Other expenses
Repairs 12,500 NIL
Details of borrowed capital
(both loans taken on 1/4/2005)
Interest paid during the year 1,60,000 1,44,000

Principal repaid 20,000 36,000
Other information
She received Rs 48,000 as family pension during the year. She received bank fixed deposit interest of Rs 2,27,000
during the year
Compute her taxable income for Assessment year 2018-19
16) Mrs Bharati Bhagat is partially blind (60% disability) she gives you the following information for previous year 2017-18
Particulars House I (SOP) House II(LOP)
Rent received per month (house 2 was vacant for 2 months) NA 28,000
Municipal taxes outstanding on 31-03-2018 12,000 14,000
Other expenses maintenance charges 6,000 6,000
Interest on borrowed capital (both loan taken on 1-4-1999)
Paid during the year 30,000 36,000
Outstanding on 31-03-2018 6,000 NIL
Other information
a) She received a gift from her brother Rs 80,000 on her birthday
b) Interest accrued on NSC Rs 1,20,000
Compute her taxable income for the Assessment year 2018-19
17) Mrs Gayatri Soman owns two houses in Mumbai. The particulars of her income from properties for the year ended 31 st
march 2018 is as follows
Particulars House I (SOP) HouseII(LOP)
Fair rent 4,00,000 6,00,000
Municipal valuation 4,20,000 6,10,000
Rent received NA 6,50,000
Municipal taxes paid on 15/03/2018 30,000 40,000
Fire insurance premium paid 8,000 10,000
Rent collection charges 0 8,000
Land revenue payable 2,000 3,000
Interest paid on loan taken for construction of house property 1,60,000 1,50,000
Date on which loan taken 26-11-2005 22-10-2004
Repayment of principal amount of loan 30,000 NIL
Mrs Gayatri soman also received the following other income
Dividend from Mafatlal Industries Rs 10,000
Interest on fixed deposits with Bank of India Rs 20,000
Mrs Gayatri Soman paid Medical insurance premium of RS 18,000 for self by cheque
Compute her net taxable income for the Assessment year 2018-19
18) Mr kedar Patwardhan owns two house properties. Following are the details regarding these houses for the year ended
31/03/2018
(a) house Property I- SOP
i. Annual value Rs 4,00,000
ii. Municipal taxes paid Rs 20,000
iii. Loan from ICICI Bank of Rs 15,00,000 for acquiring the house property in 2004
iv. Interest paid on the above loan Rs 1,80,000 for the year
v. Repayment of principal amount on housing loan during the year Rs 30,000
(b)House Property II : LOP
i. Fair rent Rs 3,25,000
ii. Actual rent received Rs 30,000 per month
iii. Municipal taxes paid Rs 18,000
iv. Collection charges paid Rs 500
v. Interest paid on loan for construction of house property Rs 40,000

(c) his other income was as follows
i. Interest on Public provident fund Rs 6,000
ii. Dividend from reliance industries Ltd RS 3,000
iii. Mr Kedar is physically handicapped up to 30%
Compute his Net Taxable income of Mr Kedar for the Assessment Year 2018-19
19) Mr Dilip Raje Senior Citizen has let out his house property situated at pune for residential purpose, the details of which
for the year ended 31st march 2018 are as follows
Particulars Rs
Fair rent 2,75,000
Gross municipal valuation 2,60,000
Actual rent received 3,00,000
Municipal taxes paid by the tenant 10,000
Collection charges incurred 5,000
Repairs expenses 4,500
Insurance premium paid for insuring the property 2,800
Interest paid on funds borrowed for purchasing the 35,000
property (loan was taken in MAY 1998)
Following are the details of his other income
Interest accrued on Fixed Deposits with Bank 10,000
Interest accrued on Public Provident Fund 2,000
Dividend from saraswat co-op bank ltd 5,000
Dividend from raymonds Ltd Indian Company 4,000
During the previous year 2017-18
He made following investments and payments
Investments in NSC 70,000
Investments in Public Provident Fund 60,000
Paid by cheque as premium towards medical premium 25,000
Compute the Net Taxable Income of Mr Dilip for AY 2018-19
20) Mr Arjun Waingankar gives you the following information for previous year 2017-18
Particulars House I (SOP) HouseII(LOP)
Fair rent per month 20,000 20,000
Rent received per month NA 25,000
House II was vacant for three months
Municipal taxes paid by owner 25,000 25,000
Other expenses
Ground rent 6,000 6,000
Interest on borrowed capital 2,00,000 2,00,000
(loan taken on 1-4-2002)
Other information
Rent received from hiring of machinery 4,00,000
Repairs to machinery 10,000
Mediclaim insurance paid by cheque for his depend and mother
(senior citizen) 20,000
Compute his taxable income for the assessment year 2018-19

PGBP, Ifos, Deduction, Nti Ay 2018-19-1

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Droits d'auteur :

PGBP, Ifos, Deduction, Nti Ay 2018-19-1

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CA KUNAL S CHANDIKA SYBBI AND TYBMS OM SAI RAM

Definition of Business Section 2(13)

DIRECT TAXES Page 1

Certain principles for computation of Business Income

DIRECT TAXES Page 2

Deductions Allowed from the Income from Business or Profession

(i) Conditions for claiming depreciation

(ii) Computation of Depreciation

DIRECT TAXES Page 3

The following two important points may be noted there

2) No Depreciation When Block becomes Empty

Rate of Additional Depreciation

Unabsorbed Depreciation (Section 32(2))

DIRECT TAXES Page 4

Section 35 : Expenditure on Scientific Research

It is also provided that

Section 35D : Amortization of Preliminary Expenses

The Following expenditure is eligible for amortization under this section

Section 36 : Other Deductions

2) Insurance on health of employees (Section 36(1)(ib))

3) Bonus or commission to employees (Section 36(1)(ii))

4) Interest on Borrowed Capital (Section 36(1)(iii))

5) Employer’s contribution to Various Funds (Section 36(1)(iv)&(v))

6) Contribution of Employees to Various Funds Paid in Time (Section 36(1)(va))

7) Bad Debts(Section 36(1)(vii))

DIRECT TAXES Page 6

8) Expenditure on Family Planning (Section 36(1)(ix))

9) Banking Cash transaction Tax (Section 36(1)(xiii))

10) Other Expenses (Section 37(1))

Examples of Expenses allowed as deduction

DIRECT TAXES Page 7

Examples of Expenses not Deductible

DIRECT TAXES Page 8

Expenses Expressly Disallowed

1) Advertisement in Political Souvenir (Section 37(2B))

2) Certain Payments made to non resident (Section 40(a)(i))

3) Certain Payments made to resident (Section 40(a)(ia))

4) Rates or taxes based on Profits (Section 40(a)(ii))

5) Wealth Tax (Section 40(a)(iia))

6) Certain Salaries (Section 40(a)(iii))

7) Payment to certain funds (Section 40(a)(iv))

9) Securities Transaction Tax (Section 40(a)(ib))

DIRECT TAXES Page 9

10) Remuneration paid by firm to partners (Section 40(b))

11) Interest paid by firms to partners (Section 40(b))

12) Unreasonable or Excessive Payments to relatives etc (Section 40 A (2))

13) Expenses Exceeding Rs 10000 paid in Cash (Section 40 A (3))

14) Provision for Gratuity on Retirement (Section 40 A (7)

15) Contribution to Non- Statutory Funds (Section 40 A (9))

DIRECT TAXES Page 10

Due Date of Filing Returns

Methods of Computing “Income from Business or Profession.”

DIRECT TAXES Page 11

CLASS WORK SHEET

2) Mr Chandka submits the following details-

DIRECT TAXES Page 12

DIRECT TAXES Page 13

DIRECT TAXES Page 14

DIRECT TAXES Page 15

DIRECT TAXES Page 16

B. Basis of Charge u/s 56(1)

C. Income Chargeable to Tax u/s 56(2)

2) Winnings from lotteries etc

3) Employees contribution to Staff welfare Scheme

5) Income from machinery, plant or Furniture Let Out

6) Income from machinery etc with building Let out