DT Bullet (Summary) Sample Dec 20 Exams CA CS CMA Exec Inter

2020 - 21
CS Executive
DT Bullet (Your Last Moment Saviour)
For June 20 & December 20 Exams
(New & Old Syllabus)
CA Saumil Manglani (CA, B.Com)

Coverage
 Cover all provisions in 180 pages approx.
 670+ Past Exam Questions Till Dec 19
Exams Covered apart from provisions
 All Amendments of Finance Act 2019
 Amendments through Ordinance
 Supplementary issued by ICSI
 Accidental Points
 Mnemonics
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PS – Watch Amendment lectures on for June 20 & December 20 Exams
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CA Saumil Manglani
Index
Topics Topic Name Page Number of

Numbers Past Exam
MCQ’s
1 Basic Concepts 1.1 – 1.09 2
2 Residential Status and Scope of Total 2.1 – 2.26 90

Income
3 Exempted Income 3.1 – 3.09 13
4 Salaries 4.1 – 4.29 65
5 House Property 5.1 – 5.08 22
6 PGBP 6.1 – 6.48 124
7 Capital Gains 7.1 – 7.31 50
8 IOS 8.1 -8.13 37
9 Clubbing 9.1 – 9.05 9
10 Set off - Carry Forward 10.1 – 10.10 21
11 Deductions 11.1 – 11.15 48
12 PAN - Return Filing - Self 12.1- 12.17 31

assessment
13 TDS - TCS - Advance Tax 13.1 – 13.22 53
14 Various entities 14.1 – 14.18 32
15 Tax incidence on companies 15.1 – 15.18 32
16 Assessment – Appeals – Revision - 16.1 – 16.23 43

Penalties
Total MCQ’s 672
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1. Direct Taxes at a Glance 1.1
___________________________________________________________________________________
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Introduction
The word tax is based on the Latin word “taxo” which is derived from the word “Taxo” which
means “Charge”.
To tax means to impose a financial charge or other levy upon a taxpayer
Characteristics of Taxes
1. Tax is compulsory –
2. Tax is contribution –A tax is the duty of every citizen to bear their due share for support
to government to help it to face its expenditures.
3. Tax is for public benefit
4. No direct benefit –absence of a direct quid-pro-quo between the taxpayer and the public
authority.
5. Tax is paid out of income of the tax payer
6. Government has the power to levy tax –
7. Tax is not the cost of the benefit –
8. Tax is for the economic growth and public welfare –
Canons of Taxation
Canons of taxation refer to the administrative aspect of a tax.
Canon of
Equity
Canon of Canon of Canon of

economy Taxes Certainty
Canon of
Convenie
nce

1. Canon of equity: This canon implies that any tax system should be based on the
principle of social justice. Equity refers to both horizontal and vertical equity.
2. Canon of Certainty : The tax rules should clearly specify when the tax is to be paid, how
it is to be paid, and how the amount to be paid is to be determined. Objective of this
canon is to create trust between two parties,.
3. Canon of Convenience: A tax should be due at a time or in a manner that is

most likely to be convenient for the taxpayer. Convenience in paying a tax helps
to ensure compliance.
4. Canon of Economy: This canon implies that decreasing the administrative cost
of collection of the tax at the lowest level. This principle considers the number of
revenue officers needed to administer a tax. This principle is closely related to
the principle of simplicity.
Objectives
Objectives of taxes have been developed when the functions of the Government are developed.
The Objectives of taxation in brief are as under:-
• Revenue -
• Social objectives
• Economic significance of taxes-
• Economic growth:
• Enforcing government policy:
• Directing limited scarce resources into effective and essential channels:
• Economic stability:
Direct Vs Indirect Tax
GST

Direct and Indirect taxes

Point of Direct Tax Indirect Tax
difference
Incidence & on one and same person. impact of tax is on one person and
Impact incidence (burden) on the another,
Burden burden of tax cannot be allows the tax burden to shift.
shifted
Viability of Direct taxes are lesser burden Indirect taxes are borne by the
payment then Indirect taxes to people as consumers of commodities and
direct taxes are based on services Irrespective of financial
Income earning ability of ability as the MRP Includes all taxes.
people.
Administrativ The administrative cost of Cost of collecting Indirect taxes is
e viability collecting direct taxes is more very less .
Penalty It is levied on the assessee. It is levied on supplier of Goods &

Services.

Merits of DT Demerits of DT
1. Equity: - depend upon the volume of 1. Evasion: -

income - based on the principle of
2. Uneconomical.:-
progressive, so rates of tax increase as the
level of income of a person rises. 3. Unpopular:-Direct tax is required to be
2. Elasticity and productivity: - Direct taxes paid in lump sum for the whole year, so
have elasticity because when the the tax payers feel the painful
government faces some Emergency, like payment, these taxes are therefore
earthquake, floods and famine the unpopular.
government can collect money for facing 4. Little incentive to work and save
those Problems by direct tax.
5. Not suitable to a poor country: -
3. Certainty: - The tax- payers are aware of 6. Arbitrary:-
the quantity of tax.
4. Reduce inequality Demerits of Indirect Tax
5. Good instrument in the case of inflation. - 1. Regressive in effect:- No distinction is
6. Simplicity made between the rich and poor
Merits of Indirect Tax people.
2. Uncertainty in collection
1. High revenue production:
3. Discourage savings-
2. No evasion.
4. Increased inflation
3. Convenient: -Indirect taxes are small
amount and indirect taxes are hidden in
the price of goods and service,
4. Economy -
5. Wide coverage
6. Elasticity:-

Background of Income tax in India
(From here starts the most important part for exams (apart from
this, canons are important)
Income Tax Act, 1860
 Consequent upon the financial difficulties created by the events of 1857.
 Income Tax was introduced in India for the first time by the British in the year 1860.
The Act of 1860 was passed only for five years and therefore it lapsed in 1865.
 It was replaced 1867 by a licence tax on professions and trades and the latter was
converted into a certificate tax in the following year.
 It was latter abolished in 1873.
 Licence tax traders remained in operation till 1886 when it was merged in the income
tax Act of that year.
 The Act of 1886 levied a tax on the income of residents as well as non residents in
India.
 The Act defined agricultural income and exempted it from tax liability in view of the
already existing land revenue a kind of direct taxes.
 The Act of 1886 exempted life insurance premiums paid by assesse policies of his
own life.
 Another important provision of this Act Hindu undivided family was treated as a
distinct taxable entity.

 The Act of 1918 brought under change also receipts of casual or non recurring nature
pertaining to business or professions.
 It was in the Act of 1918 that specific provisions were inserted for the first time
pertaining to business deductions for the purpose of computing net income.
 The Act of 1918 remained in force for a short period and was replaced by new Act
(Act XI of 1922) in view of the reforms introduced by the Govt. of India Act, 1919.
 The organizational history of the income tax department dates back to the year 1922.
 “one of the important aspects of the 1922 Act was that, it laid down the basis, the
mechanism of administering the tax and the rates

 Before 1922 the tax rate were determined by the Income tax act itself and to revise the
rates, the act itself had to be amended. The Income tax Act, 1922 gave for first time a
specific nomenclature to various income tax authorities and laid the foundation of a
proper system of administration
 Is amended from time to time by the annual finance Act
 The act which came into force on April 1, 1962, replaced the Indian income tax Act,
1922, which had remained in operation for 40 years.
 Furthermore, A set of rules known as Income Tax Rules, 1962 have been framed for
implementing the various provisions of the Act.
Tax Structure in India
Constitution of India
• Article 265– No tax shall be levied or collected except by the Authority of Law.
• Article 246- Distributes legislative powers including taxation, between the Parliament of
India and the state legislature
Schedule VII- Enumerates powers under three lists
o Union List – Powers of Central Government
o Legislative List- Powers of State Government
o Concurrent List- Both Central and state Government have powers, in case of conflict; law
made By Union Government prevails.
Some of the major taxes under respective lists are:-
Central Government
• Customs including export duties
• Excise on Tobacco and other goods manufactured in India except alcoholic liquors for human
consumption, opium, narcotic drugs
• Corporation Tax
• Taxes on interstate trade of goods
• Taxes on interstate consignment of goods
• Any other matter not included in List II or III

State Government
• Excise duty on alcoholic liquors, opium and narcotics
• Octroi or Entry Tax
• Tax on intra state trade of goods other than newspapers
• Tax on advertisements other than that in newspapers
• Tax on goods and passengers carried by road or inland waterways
• Tax on professionals, trades, callings and employment

Administration
 The Central Board of Revenue or Department of Revenue is the apex body

charged with the administration of taxes.
 It is a part of Ministry Of Finance which came into existence as a result of the
Central Board of Revenue Act, 1924.
 Initially the Board was in charge of both direct and indirect taxes.
 However Board was split up into two, namely the Direct Taxes (CBDT) and Central
Board of Excise and Customs (CBEC) now CBIC Central Board of Indirect Taxes
and Customs.
 This bifurcation was brought about by constitution of the two Boards under
Section 3 of the Central Boards of Revenue Act, 1963.
CBDT
 Provides essential inputs for policy and planning
 The CBDT is a statutory authority functioning under the Central Board of

Revenue Act, 1963.
 It is India’s official Financial Action Task Force (FATF) unit.
Organizational Structure
 The CBDT is headed by CBDT Chairman and also comprises six members.
 The Chairperson holds the rank of Special Secretary to Government of India while
 the members rank of Additional Secretary to Government of India.

• Member (Income Tax)
• Member (Legislation and Computerization)
• Member (Revenue)
• Member (Personnel & Vigilance)
• Member (Investigation)
• Member (Audit & Judicial)
The CBDT Chairman and Members of CBDT are selected from Indian Revenue Service
(IRS), a premier civil service of India, whose members constitute the top management of Income
Tax Department.
Income Tax Department
 Income Tax Department is also responsible for enforcing Double Taxation Avoidance
Agreements & international taxation such as Transfer Pricing & General Anti Avoidance
Rules.
CBIC
 Central Board of Indirect Taxes and Customs (CBIC) is a part of the Department of
Revenue under the Ministry of Finance, Government of India.
 The Board is the administrative authority for its subordinate organizations, including
Custom Houses, Central Excise Commissionerates and the Central Revenues
Control Laboratory.
Past Exam Questions
(1) The Central Board of Direct Taxes (CBDT) is headed by Chairman and also comprises of six
members. The Chairman and all the Members of the CBDT are being selected : ((Dec 19 –NS)
(a) By Finance Minister (b) From IRS
(c) By Prime Minister (d) By Chief Justice of India Ans.(b)
(2) The Central Board of Direct Taxes (CBDT) provides essential inputs for policy and planning of
direct taxes in India and is a ____________functioning under the Central Board of Revenue Act, 1963.
((Dec 19 –NS)
(a) Constituted Authority (b) Revenue Administration Authority
(c) Statutory Authority (d) Central Authority Ans.(c)

CA Saumil Manglani
Why do we even try when the barriers are so high and the odds are too low?
Why don’t we just pack it in and go home? It would be so so much easier.
It’s BECAUSE in the end, there’s no glory in easy. No one remembers

easy. They remember the blood and the bones and the long, agonizing
fight to the top. And that is how you become LEGENDARY
ALL THE VERY VERY BEST !!!

2. Residential Status & Scope of Total Income 2.2
Chapter 2 – Part 1 - BASIC CONCEPTS
 Entry 82 of the Union List i.e., List I in the Seventh Schedule to Article 246 of the
Constitution of India has given the power to the Parliament to make laws on taxes on
income other than agricultural income.
 Tax is a tax levied on the TOTAL INCOME of the PREVIOUS YEAR (P.Y.) of every PERSON.
 Previous Year (P.Y.) is the F.Y. immediately preceding- the Assessment Year (A.Y.) A.Y. is the
period of 12 months commencing on 1st April every year [2(9)].
 Income tax rates are given in Finance Act
Generally, P.Y is a period of 12 months but in following cases P.Y can be of less than 12 months -
a. Business or profession newly set up during the financial year

b. A new source of Income comes into existence during the financial year.
1. Assessee [2(7)] - is a person

 By whom any tax or any other sum of money is payable under the act.
 in respect of whom any proceeding under Income Tax Act has been taken
 Who is deemed to be an assessee.
 Who is deemed to be an assessee in default.
2. Circular 18/2016 – A person born on 1st April would be considered to have attained a particular age
on 31st March. (For Understanding only- Income Tax dept. is celebrating your birthday 1 day in
Advance)
Dates –
a. Person born on or before 1st April 1940 -> Very Senior for AY 20-21
b. Person born during 2nd April 1940 up to 1st April 1960 – Senior citizen for AY 20-21
RATES OF INCOME TAX [A.Y. 2020-21] – INDIVIDUALS/ HUF / AOP/BOI/ AJP

Individual (Other than a resident Individual of age of 60 yrs. Or more) [And same rates are
also applicable for HUF/AOPs/ BOIs/Artificial Juridical Person]
I “Means these rates are applicable to NR Sr. Citizen and Very Sr. Citizen as well)”
Total Income (TI) Income-tax payable
(i) ≤ Rs. 2,50,000 Nil
> Rs. 2,50,000 but
(ii) 5% of the amount by which the total income exceeds Rs. 2,50,000
≤ Rs. 5,00,000
> Rs. 5,00,000 but Rs. 12,500 plus 20% of the amount by which the total income exceeds
(iii)
≤ Rs. 10,00,000 Rs. 5,00,000
Rs. 1,12,500 plus 30% of the amount by which the total income exceeds
(iv) > Rs. 10,00,000
Rs. 10,00,000
R Sr. Citizen - Resident individual of the age of 60 years or more but less than 80 years at
II
any time during the previous year 2019-20
(i) ≤ Rs. 3,00,000 Nil
> Rs. 3,00,000 but
≤ Rs. 5,00,000
> Rs. 5,00,000 but Rs. 10,000 plus 20% of the amount by which the total income exceeds
(iii)
≤ Rs. 10,00,000 Rs. 5,00,000
(iv) > Rs. 10,00,000
Rs. 10,00,000
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R Very Sr. Citizen - Resident individual of the age of 80 years or more at any time during the
III
previous year 2019 - 20
(i) ≤ Rs. 5,00,000 Nil
> Rs. 5,00,000 but
≤ Rs. 10,00,000
(iii) > Rs. 10,00,000
Rs. 10,00,000
3. Rebate u/s 87A – Only and only to Resident Individual if Total Income is upto Rs 5,00,000.
Maximum rebate Rs. 12,500.
AY 20-21
AY 20-21
Firm/LLP 30%
AY 20-21
Rates for Firms
- LLP's and Foreign 40%
Cos. (AY 20-21)
Company Where TO/ GR

in PY 17-18
25%
is"upto" 400
Domestic Cr.
In any other
30%
case
Special Tax rates for Companies
Section 115BA – Certain manufacturing companies may chose to pay taxes @ 25%
Section 115BAA - Certain manufacturing companies may chose to pay taxes @22% (plus
surcharge@10% and HEC@4%)
Section 115BAB - Certain manufacturing companies may chose to pay taxes @15% (plus
surcharge@10% and HEC@4%)
Note – Tax Rates for companies in detail will be discussed in Chapter 15 – Taxation of
Companies
(1) ABC Ltd., a domestic company having a turnover of Rs. 450 crore has computed its total
income for the year 2019-20 of Rs. 102 lakh. The tax payable by the company on such income in
A.Y. 2020-21 shall be : (Dec 19 –NS)
(a) Rs. 34,05,168 (b) Rs. 29,70,240
(c) Rs. 33,28,000 (d) Rs. 33,30,968 Ans.(c)
(2) PQ Ltd. is a domestic company whose turnover for the assessment year 2018-19 was Rs. 250
crore and for the assessment year 2019-20 Rs. 80 crore. Its turnover for the previous year 2019-
20 is Rs. 110 crore. The rate of tax (excluding cess) applicable for the assessment year 2020-21
would be : (Dec 19 –OS)
(A) 40% (B) 30%
(C) 29% (D) 25% Ans.(d)

4. Note – Income-tax has to be computed on TI. Surcharge is computed on such

income-tax. Health & Education Cess has to be computed @ 4% on income-tax plus
surcharge, if applicable.
AY 20-21
5. Marginal Relief – It is available to all assesses. Available when Surcharge is applicable

and the Total income is a bit higher than 50Lacs/ 1 cr. / 2Cr./ 5 Cr. / 10 cr. wherever
applicable.
6. 5 cases where income is earned in the same year in which it is earned i.e. PY and
AY are the same
a. Income of Non-Resident from Shipping business in India (172)

b. Income of persons leaving India either permanently or for long duration (174) –
Taxable at 7.5%
c. Income of bodies formed for short duration (174A)
d. Income of person trying to alienate his assets with a view to avoid tax (175)
e. Income of discontinued business during the year (176)
MCQ’s
1. The tax rate applicable for a non-resident engaged in shipping business in India shall be :
(December 17)
(A) 5%
(B) 7.5%
(C) 20%
(D) 10% Answer – (b)

(2) X Marine Lines Inc., a Singapore company engaged in shipping business collected Rs. 150
lakh towards carrying goods from Chennai Port. Its presumptive income chargeable to tax in
India would be - (Dec. 2015)
(a) Rs. 15 lakh (b) Rs.11.25 lakh
(c) Rs.12 lakh (d) Nil Ans.(b)
(3} Income of a non-resident from shipping business in India is computed at the rate of - (Dec. 2016)
(a) 5% (b) 7.5%
(c) 10% (d) 30% Ans.(b)
(4) The income of non-resident from the business of operation of aircraft in respect of carrying
of cargo or passenger in India shall be taxable as per section 44BBA @ - (Dec. 2015)
(a) 5% of the amount received/receivable (b) 10% of the amount received/receivable
(c) 15% of the amount received/receivable (d) 7.5% of the amount received/receivable
Ans.(a)
(5) The basic exemption limit in the case of a non-resident individual being super senior citizen is : (Dec
19 –OS)
(A) Rs. NIL
(B) Rs. 2,50,000
(C) Rs. 3,00,000
(D) Rs. 5,00,000
Ans.(b)
(6) Ginger Shippers is owned by a non-resident engaged in shipping business. It received Rs. 120
lakh for carriage of goods shipped from Mumbai, India to Durban, South Africa. The presumptive
income of the assessee under section 44B would be : (Dec 19 –OS)
(A) Rs. 9,60,000
(B) Rs. 12,00,000
(C) Rs. 6,00,000
(D) Rs. 9,00,000
Ans – D
7. Undisclosed sources of Income taxable at higher rates (Section 115BBE)

Note – No expenditure is allowed in respect of above or from above incomes.
Amount
borrowed or
repaid on
hundi
[Section 69D]
Unexplained
Cash Credits
expenditure
[Section 68] [Section 69C]
Undisclosed sources of
income
Unexplained Investment
Investments etc not fully
disclosed
[Section 69]
[Section 69B]
Unexplained
money
[Section 69A]

Implication of
unexplained income
(Sec 115BBE)
Detected by AO
Self declaration (10% penalty of tax
also applicable)
Total Tax 84 %
Tax (60% Tax+25%
(60% Tax+25% Surcharge+4%
Surcharge+4% HEC) HEC+10% penalty on
60% Tax amount)
8. Rounding off –
a. Section 288A – Total Income rounded off to next multiple of 10 (>=5, next multiple of 10)
b. Section 288B – Final tax amount rounded off to next multiple of 10 (>=5, next multiple of 10)
9. Income [Section 2(24)] [From AY 19-20] – 2 new clauses added in the definition of
Income
a. FMV of inventory which is converted into, or treated as a capital asset [Section 28(iva)].
[Repeated reference in IOS Chapter]
b. Any compensation or other payment, due to or received by any person, in connection
with termination of his employment or the modification of the term and conditions relating
thereto [Section 56(2)(xi)]. [Repeated reference in IOS Chapter]
ICSI Question regarding Capital and Revenue Receipt
Question1: State whether the following are capital or revenue receipts/expenses and give your reasons:
1. ABC & Co. received Rs. 5,00,000 as compensation from XYZ & Co. for premature termination of
contract of agency.
2. Sales-tax collected from the buyer of goods.
3. PQR Company Ltd. instead of receiving royalty year by year, received it in advance in lump sum.
4. An amount of Rs. 1,50,000 was spent by a company for sending its production manager abroad to
study new methods of production.
5. Payment of Rs. 50,000 as compensation for cancellation of a contract for the purchase of
machinery with a view to avoid an unnecessary expenditure.
Solution
1. Receipt in substitution of a source of income is a capital receipt. Therefore, the amount received
by ABC & Co. from XYZ & Co. for premature termination of an agency contract is a capital receipt
though the same is taxable under Section 28.

2. Sales-tax is the liability of a seller to pay to the Government on the sale of goods made by him,
which is allowed as deduction as revenue expenditure. If any part of Sales-tax is collected from the
buyer of goods that may be treated as a revenue receipt. Thus the sales-tax collected from the
buyer of goods is a revenue receipt.
3. Receipt of lump sum royalty in lieu of future royalties is a revenue receipt, as it is an income from
royalty.
4. Amount spent by a company for sending its production manager abroad to study new methods of
production is revenue expenditure to be allowed as a deduction. Because the new knowledge and
exposure of that manager will assist the company in improving its existing methods of production
etc.
5. This is a capital expenditure, as any expenditure incurred by a person to free himself from a
capital liability is a capital expenditure. In the given case, the payment of Rs. 50,000 for
canceling the order for purchase of the machinery, has helped the assessee to become free from
an unnecessary capital liability.
ICSI Module Case Laws
1. What is the nature of liquidated damages received by a company from the supplier of plant for failure
to supply machinery to the company within the stipulated time – a capital receipt or a revenue receipt?
CIT v. Saurashtra Cement Ltd. (2010) 325 ITR 422 (SC)
Supreme Court’s Decision – Capital Receipt (Asked in Dec 19 Exams)
2. Can capital contribution of the individual partners credited to their accounts in the books of the firm be
taxed as cash credit in the hands of the firm, where the partners have admitted their capital
contribution but failed to explain satisfactorily the source of receipt in their individual hands? CIT v. M.
Venkateswara Rao (2015) 370 ITR 212 (T & AP)
High Court’s Decision - No
Past Examination MCQ’s
(1) Income-tax in India is charged at the rate(s) prescribed by — (Dec. 2009)
(a) The Finance Act (b) The Income-tax Act
(c) The Central Board of Direct Taxes (d) The Ministry of Finance. Ans.(a)
(2) As per section 2(31), the following is not included in the definition of 'person' - (Dec. 2014)
(a) An individual (b) A Hindu undivided family
(c) A company (d) A minor Ans.(d)
(3) The year in which the income is earned is known as - (June, 2015)
(a) Previous year (b) Financial year
(c) Both (A) or (b) (d) None of the above. Ans.(a)
(4) Under the Income-tax Act, 1961 the term 'assessee' means a person - (Dec. 2016)
(a) Who is an assessee in default (b) From whom tax is due
(c) Against whom any proceeding under the Act (d) All of the above has been taken
Ans.(d)
(5) Dr. Ashok commenced medical practice on 1st September, 2019. The previous year for the
profession for the assessment year 2020-21 would be -(June 2016)

(a) 1st April, 2019 to 31st March, 2020 (b) 1st September, 2019 to 31st March, 2020
(c) 1st June, 2019 to 31st March, 2020 (d) 1st September, 2019 to 31st January, 2020
Ans.(b)
(6) Income-tax in India is charged at the rates prescribed by - (Dec. 2014)
(a) The Finance Act of the assessment year (b) The Income-tax Act, 1961
(c) The Central Board of Direct Taxes (d) The Finance Act of the previous year.
Ans.(a)
(7) A new business was set-up on 1st July, 2019 and trading activity was commenced from 1st
September, 2019, the previous year would be the period commencing from - (Dec. 2015)
(a) 1st April, 2019 to 31st March, 2020 (b) 1st July, 2019 to 31st March, 2020
(c) 1st September, 2019 to 31st March, 2020 (d) 1st October, 2019 to 31st March, 2020.
Ans.(b)
(8) Normal rates of income-tax are prescribed in the - (Dec. 2016)
(a) Income-tax Act, 1961 (b) Income-tax Rules, 1962
(c) Finance Act of the current year (d) CBDT circulars Ans.(c)
(9) According to section 2(24) definition of 'income' is - (Dec. 2014)
(a) Inclusive (b) Exhaustive
(c) Exclusive (d) Descriptive. Ans. (a)
(10) 'Income' under section 2(24) includes - (June, 2015)
(i) The profits and gains of a banking business carried on by a co-operative society with its members.
(ii) Any advance money forfeited in the course of negotiations for transfer of capital asset.
Choose the correct option with reference to the above statements -
(a) Both (i) and (ii) (b) Only (i)
(c) Only (ii) (d) Neither (i) nor (ii). Ans.(a)
11. ABC Pvt. Ltd. has a business loss of Rs. 10 lakh. There is unexplained share application money
to the tune of Rs. 25 lakh. The total income of the company will be:
(A) Rs. 15lakh
(B) Rs. 35lakh
(C) Rs. 25lakh
(D) None of the above
Ans C
(12) The term 'income' includes the following types of incomes — (June, 2010)
(a) Legal (b) Illegal
(c) Legal and illegal both (d) None of the above. Ans.(c)

(13) AB & Co. received Rs. 2,00,000 as compensation from CD & Co. for premature termination
of contract of agency. Amount so received is - (Dec. 2014)
(a) Capital receipt and taxable (b) Capital receipt and not taxable
(c) Revenue receipt and taxable (d) Revenue receipt and not taxable
Ans.(a)
(14) Which of the following is not included in taxable income - (Dec. 2014)
(a) Income from smuggling activity (b) Casual income
(c) Gifts of personal nature subject to a maximum (d) Income received in kind.
of Rs. 50,000 received in cash Ans. (c)
CHAPTER 2 – Part 2 - RESIDENTIAL STATUS

AND SCOPE OF TOTAL INCOME
RESIDENCE IN INDIA [SECTION 6]
(I) INDIVIDUAL
The residential status of an individual is determined on the basis of the period of his stay in
India.
Basic conditions:
(i) He must be present in India for a period of 182 days or more during the P.Y.; or
(ii) He must be present in India for a period of 60 days or more during the P.Y. and 365 days or
more during the 4 years immediately preceding the P.Y.
Cases where condition (ii) is not applicable:
(a) Where an Indian citizen leaves India in any P.Y. for the purpose of employment outside
India or as a member of the crew of an Indian ship;
(b) Where an Indian citizen or a person of Indian origin who, being outside India, comes on a
visit to India during the P.Y.
For the above exception of Crew member of an Indian Ship while calculating the number of days
of stay –
Period to be excluded
Period commencing from Period ending on

the date entered into the Continuous and the date entered into the Continuous
Discharge Certificate in respect of Discharge Certificate in respect
of
joining the ship by the said individual signing off by that individual from
for the eligible voyage the ship in respect of such voyage.
Additional conditions:
(1) He is a resident in at least 2 out of 10 PYs preceding the relevant P.Y.; “And”
(2) His stay in India in the last 7 years preceding the relevant P.Y. is 730 days or more.
Resident and ordinarily Resident but not ordinarily resident Non-resident (NR)
resident (ROR) (RNOR)
Must satisfy at least one of Must satisfy at least one of the basic Must not satisfy either of the
the basic conditions [(i) or (ii)] conditions [(i) or (ii)] and one or none basic conditions [Neither (i)
and both the additional of the additional conditions [(1) or (2) nor (ii)].
conditions [(1) & (2)]. or neither].

 Points to Note -
1. Residential status may change every year.
2. Period of stay need not be continuous
3. If the time of arrival in India/ departure from India is not known, it is considered that the stay for that day
was in India only. (This is the by default assumption if time is not given in the question).
4. If the time of arrival and departure is known then completion of 24 hours is considered as 1 day else the
day is ignored.
5. Person of Indian Origin – means the assessee himself or any of his parents or any of his
grandparents (Maternal + Paternal) were born in Undivided India. “Spouse” not covered here.
6. Indian Citizen means – the person was born in India or the person has applied for the citizenship of
India.
7. Number of Days in Leap Year  366

(1) Atul is a foreign citizen. His father was bom in Delhi in 1952 and mother was bom in
England in 1951 His grandfather was bom in Delhi in 1923. Atul visited India to see Taj Mahal
and visit other historical places. He came to India on 1st November, 2019 for 200 days. He has
never come to India before. His residential status for assessment year 2020-21 will be -
(Dec. 2014)
(a) Non resident in India (b) Not ordinarily resident in India
(c) Resident in India (d) None of the above Ans.(a)
(2) The following additional conditions are to be satisfied by a person to be resident and ordinarily
resident in India - (Dec. 2014)
(a) He is a resident in at least two out of the ten previous yearprevious years immediately preceding
the relevant
(b) He has been in India for 730 days or more during the seven previous years immediately preceding
the relevant previous year
(c) Both (a) and (b) (d) None of the above Ans.(c)
(3) X, an Indian citizen, who is living in Delhi since 1981, left for Japan on 1st July, 2018 for
employment. He came back to India on 1st January, 2020 on a visit and stayed for 4 months.
His residential status for the assessment year 2020-21 would be - (Dec.2014)
(a) Resident and ordinarily resident (b) Not ordinarily resident
(c) Nonresident (d) Resident. Ans.(c)
(4) Paresh, a software engineer at ABC Ltd. left India on 10th August, 2019 for the treatment of his
wife. For income-tax purpose, his residential status for the assessment year 2020-21 will be - (June,
2015)
(a) Resident (b) Non-resident
(c) Not ordinarily resident (d) Cannot be determined from the given
information. Ans.(a)
(5) Ritesh, an Indian citizen, left India for U.K. on 1st September, 2019 to take up a job there. His
residential status for the assessment year 2020-21 would be - (Dec.
2016)
(c) Non-resident (d) None of the above. Ans.(c)
(6) Mr. Rajiv, brnm and brought up in India left for employment in Belgium on 15-10-2018. He
has never gone out of India, previously. What is his residential status for the assessment year
2019-20? (June, 2017)
(a) Non-resident (b) Not ordinarily resident
(c) Resident (d) Indian citizen Ans.(c)
(7) Mr. Ramji (age 55) is Karta of HUF doing textile business at Nagar. Mr. Ramji is residing in
Dubai for the past 10 years and visited India for 20 days every year for filing the income tax
return and taking policy decisions of HUF. His two major sons take care of the day to day
affairs of the business in India. The residential status of HUF for the assessment year 2020-21
is : (June, 2017)
(a) Non-resident (b) Resident

(c) Not ordinarily resident (d) None of the above Ans.(c)
(8) If Karta is resident and ordinarily resident in India but control and management of HUF is situated
partly outside India in the previous year, the HUF is - (Dec. 2014)
(c) Non resident (d) Resident. Ans.(a)
(9) An individual is said to be resident in India in a previous year (in which the February month has
29 days) if he is in India in that year for a period or periods amounting in all to : (June, 2008)
(a) 182 Days or more (b) 60 Days or more
(c) 183 Days or more d) 150 Days or more Ans.(a)
(10) Ram who was born and brought up in India left for employment in Dubai on 20th August, 2019.
His residential status in respect of the assessment year 2020-21 would be - (Dec. 2015)
(a) Resident and ordinarily resident (b) Non-resident
(c) Not ordinarily resident (d) None of the above. Ans.(b)
(11) HUF of Ashwin consisting of himself, his wife and 2 sons is assessed to income-tax. The
residential status of HUF would be non-resident, when - (Dec. 2015)
(a) The management and control of its affairs is (b) The management and control of its affairs is
wholly in India wholly outside India
(c) The status of karta is non-resident for that year (d) When majority of the members are
nonresident.
Ans.(b)
(12) Total income of a person is determined on the basis of his — (June 2013)
(a) Residential status in India (b) Citizenship in India
(c) Both (a) and (b) above (d) None of the above. Ans.(a)
13. Mr. Alok Chatterjee born and brought up in India since 1970, left for Singapore on 10-10-2019 for
the purpose of employment. His residential status would be : (Dec 17)
(A) resident
(B) not ordinarily resident
(C) non-resident
(D) none of the above (Answer – A)
14. John is a foreign citizen born in USA. His father was born in Delhi in 1960 and his grand-
father was born in Lahore in 1935 but his mother was born in UK in 1963. John came to India
for the first time on 1st June, 2019 and stayed in India for 183 days and then left for USA. His
residential status for the A.Y. 2020-21 shall be: ( June 18)
(A) Resident
(B) Resident but not ordinary resident
(C) Non-resident

(D) Foreign national Ans. B
15. The income earned during the previous year is subject to tax under the Act on the basis of
residential status of an assessee. However, the residential status of an assessee
........................ every year.
(A) will not change
(B)will certainly change
(C)may change
(D) None of the above Ans. C
(16) Every year, the residential status of an assessee - (June 2010)
(a) May change (b) Will certainly change
(c) Will not change (d) None of the above.

Ans.(a)
(17) Thomas, an Indian citizen is living in Kerala since birth in 1955 and left for UAE on 13 th June
2015 for a salaried employment contract for 4 years and came back on 7th July, 2019 to India and
settled at Kerala. His residential status for the Assessment Year 2020-21 shall be : (Dec 19 –NS)
(c) Resident & Not Ordinary Resident (d) Resident & Ordinary Resident Ans.(d)
(18) A person is deemed to be of Indian origin if he, or either of his parents or any of his grandparents,
was born in ____________.(Dec 19 –NS)
(a) India (b) India other than J&K
(c) Undivided India (d) Greater India Ans.(c)
(19) Ms. Kapoor born in UK came to India for the first time on 10-5-2019 and remained in India till 31-
08-2019. Her maternal grandparents were born in Dhaka in the year 1941. Her residential status for
the assessment year 2020-21 would be : (Dec 19 –OS)
(A) Resident and ordinarily resident
(B) Non-resident
(C) Resident but not ordinarily resident
(D) None of the above
Ans.(b)

Company
Indian Company Foreign Company
Always Resident
T.Over/ Gross Receipt > 50 T.Over/ Gross Receipt is upto
Crores during the year 50 Crores during the year
POEM is in India ?
Non
Resident
Yes No
Resident Non Resident
We need to understand the guiding principles for POEM but before it we need to understand the Phrase
Active Business Outside India –
Active Business outside India - A company shall be said to be engaged in “active business outside India”
(i) if the passive income is upto 50% of its total income; and
(ii) less than 50% of its total assets are situated in India; and
(iii) less than 50% of total number of employees are situated in India or are resident in India;
and
(iv) the payroll expenses incurred on such employees is less than 50% of its total payroll
expenditure.
Explanation : For the aforesaid purpose
the number of employees the number of employees shall be the average of the
number of employees as at the beginning and at the
end of the year and shall include temporary employees
(Contractors/ Labors)
Passive income “Passive income” of a company shall be aggregate of,

income from the transactions where both the purchase
and sale of goods is from / to its associated
enterprises; and income by way of royalty, dividend,
capital gains, interest or rental income;
Note: any income by way of interest shall not be
considered to be passive income in case of a
company which is engaged in the business of
banking or is a public financial institution,
Module Question
Active Business Outside India
Example 1: Company A Co. is a sourcing entity, for an Indian multinational group, incorporated in country
X and is 100% subsidiary of Indian company (B Co.). The warehouses and stock in them are the only
assets of the company and are located in country X. All the employees of the company are also in country
X. The average income wise breakup of the company’s total income for three years is,

i. 30% of income is from transaction where purchases are made from parties which are non-
associated enterprises and sold to associated enterprises;
ii. 30% of income is from transaction where purchases are made from associated enterprises and sold
to associated enterprises;
iii. 30% of income is from transaction where purchases are made from associated enterprises and sold
to non-associated enterprises; and
iv. 10% of the income is by way of interest.

Interpretation : In this case passive income is 40% of the total income of the company. The passive
income consists of :
i. 30% income from the transaction where both purchase and sale is from/to associated enterprises;
and
ii. 10% income from interest.

The A Co. satisfies the first requirement of the test of active business outside India. Since no assets or
employees of A Co. are in India the other requirements of the test is also satisfied. Therefore company
is engaged in active business outside India.
Example 2 : The other facts remain same as that in example 1 with the variation that A Co. has a
total of 50 employees. 47 employees, managing the warehouse, storekeeping and accounts of the
company, are located in country X. The Managing Director (MD), Chief Executive Officer (CEO) and
sales head are resident in India. The total annual payroll expenditure on these 50 employees is of Rs.
5 crore. The annual payroll expenditure in respect of MD, CEO and sales head is of Rs. 3 crore.
Interpretation: Although the first condition of active business test is satisfied by A Co. as only 40% of
its total income is passive in nature. Further, more than 50% of the employees are also situated
outside India. All the assets are situated outside India. However, the payroll expenditure in respect of
the MD, the CEO and the sales head being employees resident in India exceeds 50% of the total payroll
expenditure. Therefore, A Co. is not engaged in active business outside India.
Example 3 : The basic facts are same as in example 1. Further facts are that all the directors of the
A Co. are Indian residents. During the relevant previous year 5 meetings of the Board of Directors is
held of which two were held in India and 3 outside India with two in country X and one in country Y.
Interpretation : The A Co. is engaged in active business outside India as the facts indicated in
example 1 establish. The majority of board meetings have been held outside India. Therefore, the
POEM of A Co. shall be presumed to be outside India.

Now Determination of POEM if -
Determination
ABOI Outside India ABOI Not outside India
Majority Board Meetings outside India Majority Board Meetings Not outside India Identify persons who make the key
Then POEM in India management and key commercial
Then POEM outside India
decisions
and
Non Resident Resident
Determine the place where decisions are
being made
If location is India -> then POEM in India
then Resident
SCOPE OF TOTAL INCOME [SECTION 5]: Whether the following income are to be included in TI?
Particulars ROR RNOR NR
Income received or deemed to Yes Yes Yes
be received in India during the
relevant P.Y.
Income accruing or arising or Yes Yes Yes
deeming to accrue or arise in
India during the relevant P.Y.
Income accruing or arising Yes, even if such income is Yes, but only if such income is No
outside India during the not received or brought into derived from a business
relevant P.Y. India during the P.Y. controlled from or profession
set up in India; Otherwise, No.
Clarification [Circular No.13/2017, dated 11.04.2017 and Circular No.17/2017, dated 26.04.2017]
 Salary, received by NR seafarers
 Services rendered outside India on a
 Foreign going ship with
 Indian flag or foreign Flag) &
 Received into the NRE bank account, maintained with an Indian bank shall
 Not be included in the total income.

Section 9
Income deemed to accrue or arise
in India [Section 9(1)]
Income Salary earned Salary Dividend Interest, if Fees for Royalty, if

accruing for services payable by paid by India payable by technical payable by
or arising rendered in Government Company service, if
outside India, India to India Outside payable by
directly or Citizen for India
indirectly services
through rendered
or from outside India Person resident Government A non
in India resident
Any Business Any property transfer of

Connection in asset or source capital asset Exception
India of income situated in
in India India
If the money borrowed for technical service If money borrowed If technical service or
or royalty service is utilized for business or Is used for royalty service is utilised
profession or for making income from any business or for business or
source outside India profession in India profession in India or
making income from
any source in India
Section 9(1) The following incomes shall be deemed to accrue or arise in India: —
(i) Income accruing or arising through -
a) Any Business connection in India.
(Only for Understanding - In proportion to the activities taking place in India)
b) Any asset or source of income in India.
c) Transfer of a capital asset situated in India.

 Exceptions to the business connection - In case of Non-Residents (Means in the following cases
the business connection is not formed for purpose of taxing the income)–
1. Operations confined to purchase of goods from India for Export.
2. Person engaged in the business of running a news agency or of publishing
newspapers, magazines or journals and the activities are confined to the collection
of news and views in India for transmission out of India.
3. In the case of a foreign company engaged in the business of mining of diamonds
no income shall be deemed to accrue or arise in India to it through or from the
activities which are confined to the display of uncut and unassorted diamond in
any special zone notified by the Central Government in the Official Gazette in this
behalf.

AY 19-20 Amendment
(a) What is Business Connection? Purpose of this amendment is alignment with the provisions
of the Double Taxation Avoidance Agreement (DTAA).
Explanation 2 to section 9(1)(i)
For a Business connection to be established, the person acting on behalf of the non-resident –
Or
Or
&
Or
Such contract should be
Or
Or
b. [Explanation 2A to section 9(1)(i)] – Added by Finance Act 2018

Clarified that Significant economic presence of a non-resident in India shall also
constitute business connection in India.
Significant economic presence means-
Nature of transaction Condition
(a) In respect of any Aggregate of payments arising from such
 Goods transaction or transactions during the
 services or previous year exceeds such amount as
 property may be prescribed
 including provision of download of
data or software
in India
(b) systematic and continuous soliciting of The users should be of such number as
business activities may be prescribed
or
engaging in interaction with users in India
through digital means

Above transactions or activities shall constitute significant economic presence in India,

whether or not,—
(i) the agreement for such transactions or activities is entered in India;
(ii) the NR has a residence or place of business in India; or
(iii) the NR renders services in India:

Reason behind amendment  To take care of new business models such as digitized businesses,
which do not require physical presence of itself or any agent in India.
(ii) Income from Salary which is earned in India.
Amount earned for the rest period or leave period which is preceded and succeeded by services
rendered in India and forms part of the service contract of employment.
(iii) Income chargeable under the head "Salaries" payable by the Government to a citizen of India
for service outside India (Other than Perquisites and allowances)
(iv) Dividends paid by an Indian company outside India.
(v) In Case of interest, royalty and technical fees following things should be kept in mind –
a) In case it is paid by Government of India, it shall always accrue in India.

b) In case it is paid by resident, it shall always accrue in India except where money borrowed is
used for
- The purpose of business or profession carried outside India or
- For making or earning income from any source outside India.
c) In case it is paid by the Non-Resident person, where such person uses the money borrowed
for a business or profession carried on or in India.
(vi) Section 9(1) The following incomes shall be deemed to accrue or arise in India :—
Income arising outside India, being any gifts paid on or after the 5th day of July, 2019 by a person resident in
India to a non-resident, not being a company, or to a foreign company.”
AY 20-21
Past Exam Questions

(1) Which of the following may be a 'not ordinarily resident' in India - (Dec. 2012)
(a) Partnership firm (b) Joint stock company
(c) Association of persons (d) Hindu Undivided Family. Ans.(d)
(2) Residential status of an Indian company is resident and ordinarily resident for the year 2020-21 -
(Dec. 2015)
(a) If the entire control and management is wholly (b) If part of the control and management is in
in India India
(c) Regardless of the place of control and management (d) If it is listed on recognised stock exchange.
Ans.(c)

(3) Alpha Ltd. is an Indian company, It carries its business in Delhi and London. Total control and
management of the company is situated in London. More than 85% of its business income is from the
business in England. If so, its residential status will be - (June 2016)
(c) Not ordinarily resident (d) Foreign company Ans.(a)
(4) A company incorporated outside India having its control and management fully situated in India in
the previous year will be treated as - (Dec. 2016)
(a) Resident (b) Not ordinarily resident
(c) Non-resident (d) None of the above Ans.(a)
INCIDENCE OF TAX
(5) Satish brought into India, in the previous year, past untaxed income which was earned in
U.K. The income will be taxable if Satish is - (Dec. 2016)
(a) An ordinarily resident (b) A not-ordinarily resident
(c) Anon-resident (d) None of the above Ans.(d)
(6) Abhay earns the following income during the previous year ended 31st March, 2020 : (Dec
2014)
> Interest on U.K. Development Bonds (l/4th being received in India): Rs. 2,00,000;
> Profits on sale of a building in India but received in Holland : Rs. 2,00,000.
The income liable to tax for the assessment year 2020-2021 if Abhay is resident and not ordinarily
resident in India, is –
(a) Rs. 2,50,000 (b) Rs. 4,00,000
(c) Rs. 2,00,000 (d) Rs. 50,000. Ans.(a)
(7) Thomas Inc. of Australia borrowed money from various companies in Australia for doing
business in India by name ANS Co. Ltd. Mumbai. Thomas Inc. paid interest of Rs. 500 lakhs
(converted) to various lenders. The amount of interest paid : (June' 2017)
(a) Has accrued in India (b) Is exempt from tax
(c) Does not accrue in India (d) Is taxable in Australia Ans.(a)
(8) Income accruing in India in previous year is taxable for - (Dec 2009)
(a) Resident (b) Not ordinarily resident
(c) Non-resident (d) All of the above. Ans.(d)
(9) Income accruing from agriculture in a foreign country is taxable in the case of an assessee
who is — (Dec. 2010)
(a) Resident (b) Not-ordinarily resident
(c) Non-resident (d) None of the above. Ans.(a)
(10) Foreign income received in India during the previous year is taxable in the case of — (Dec. 2010)

(a) Resident (b) Not-ordinarily resident
(c) Non-resident (d) All of the above. Ans.(d)
(11) Income earned and received outside India but later on remitted to India, is taxable in the
case of- (June, 2012) [Assumed here – Later on means in the later years]
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident (d) None of the above. Ans.(d)
(12) Past untaxed profit of the financial year 2006-07 brought to India in 2019-20 is chargeable to tax
in the assessment year 2020-2021 in the hands of — (June 2013)
(a) All the assessees (b) Resident and ordinarily resident in India
(c) Non-resident in India (d) None of the above. Ans.(d)
13. In the case of an individual being not ordinarily resident the following income is chargeable to tax
: (Dec 17)
(A) business income accruing outside India
(B) property income accruing outside India
(C) income accruing outside India if it is derived from a business controlled in India
(D) interest income accruing outside India Ans.(c)
14. The following income of Ms. Nargis who is a non-resident shall be included in her total income :
(Jun 18)
 Salary for 2 months received in Delhi Rs. 40,000.
 Interest on Savings Bank Account in Mumbai Rs.2,100.
 Agricultural income in Bangladesh and Invested in shares in Bangladesh.
 Amount brought into India out of past non-taxed profits earned in USA.
A. (i), (iii) and(iv)
B. (i) and(ii)
C. (i), (ii) and(iv)
D. All the four above Ans. B
15. A domestic company whose turnover for the previous year 2017-18 Rs. 4.20 crore; for
previous year 2018-19 Rs. 8 crore and for previous year Rs. 2019-20 Rs. 12 crore. Its total
income (computed) for the assessment year 2020-2021 is Rs. 3 crores. The rate of income tax
applicable for such company (without cess) would be : (Dec 17)
(A) 30%
(B) 40%
(C) 29%
(D) 25% (Ans : D)
16. The basic exemption limit in case of a non- resident individual being a senior citizen for
assessment year 2020-2021 is: (Jun 18)
(A) Rs.5,00,000
(B) Rs.3,00,000
(C) Rs.2,50,000
(D) Rs.1,80,000 Ans C

17. Total income-tax including Health and education cess payable in case of a resident individual aged
58 years, whose computed total income is 3,40,000 for assessment year 2020-2021 shall be : (Jun 18)
(A) Rs 4,500
.
(B) Rs 2,000
.
(C) Rs 2,080
.
(D) Rs Nil
.
Ans. D
18. A domestic company has total income of Rs. 120 lakhs. The rate of surcharge is applicable on
income-tax would be - (Dec 17)
(A) 2%
(B) 5%
(C) 7%
(D) 12% ( Ans c)
19. A resident individual can avail the benefit of rebate of Rs. 12,500 or 100% of Income Tax
whichever is less under section 87A of Income Tax Act, 1961 for the assessment year 2020-2021 on
fulfilling the condition that total income does not exceed: (Jun 18)
(A)Rs.2,50,000
(B)Rs.3,50,000
(C)Rs.5,00,000
(D)Rs.3,00,000 Ans C
20. Surcharge on the amount of tax is to be levied at specified percentage when an individual is having
income exceeding specified limits: (Jun 18)
A. 7% having income exceedingRs.1 crore and @ 12% if the income exceeds Rs. 10crores
B. 2% having income exceedingRs.1 crore and @ 12% if the income exceeds Rs. 10crores
C. 15% having income exceeding Rs. 1 crore but does not exceed 2 crores and @ 10% if the income
exceedsRs.50lakh but does not exceedRs. 1 crore
D. None of the above Ans C
21. The basic exemption limit in case of a non- resident individual being a senior citizen for
assessment year 2020-2021 is: (Dec 18)
(A) Rs.5,00,000
(B) Rs.3,00,000
(C) Rs.2,50,000
(D) Rs.1,80,000 Ans C
22. Total income-tax including Health and education cess payable in case of a resident individual aged
58 years, whose computed total income is 3,40,000 for assessment year 2020-2021 shall be : (Dec 18)
(A) Rs. 4,500
(B) Rs. 2,000
(C) Rs. 2,080
(D) Rs. Nil Ans. D

23. Which out of the following criteria determines the Place of Effective Management (POEM) in order
to treat a foreign company as resident in India (resident company) during the previous year as per
guidelines issued by CBDT and the provisions contained under the Income Tax Act, 1961 ............... (Dec
18)
A. General Meeting held in India

B. Research and Development work is done in India
C. Board Meetings are held in India
D. None of the above Ans. C
24 Lalit, a resident individual of 81 years works as a consultant. If his taxable income is Rs. 5,20,000,
the tax payable by him would be— (June, 2015)
(a) Rs. 22,880 (b) Nil
(c) Rs. 2,080 (d) Rs. 4,160

Ans.(d)
25 For the previous year 2019-20, taxable income of B Ltd., a domestic company (Turnover in 2017-
18 was Rs. 399 crores) is Rs. 10,86,920. Its tax liability would be — (June, 2015)
(a) Rs. 2,71,730 (b) Rs. 27,17,300
(c) Rs. 2,82,600 (d) Rs. 3,35,860
Ans.(c)
26. As per Income Tax Act, 1961 surcharge @ 12% is payable by a domestic company if the total
income exceeds : (Jun 19)
(A) Rs. 10 lakh
(B) Rs. 1 crore
(C) Rs. 10 crore
(D) Rs. 100 crore. Ans C
27. The total income of Mrs. Rose for the financial year 2019-20 is Rs. 3,40,000. Her tax liability for
A.Y. 2020-2021 on the income of Rs. 3,40,000 shall be :(Jun 19)
(A) Rs. 2,080
(B) NIL
(C) Rs. 2,500
(D) Rs. 4,700. Ans B
28. In the case of a non-resident, which of the following income is not taxable in his hand :
(Jun 19)
(A) Interest received from Government of India
(B) Capital gain on transfer of capital assets situated in India
(C) Interest received from a person resident in India on money borrowed and used outside India for
carrying a business
(D) Royalty received from a person resident in India for the patent rights used in India.
Ans C
29. In the case of an individual who is not an ordinarily resident in India, the income chargeable to tax
in India out of the following shall be : (Jun 19)

(A) Rental income in foreign country

(B) Interest income in foreign country
(C) Income from outside India from a business controlled in India
(D) All the three above in A, B & C. Ans C
30 . Agriculture income from agriculture land located in a foreign country is taxable in the case of :
(Jun 19)
(A) Non-resident
(B) Not ordinarily resident
(C) Resident
(D) In all cases stated in A, B & C. Ans D
(31) Metro Ltd., a domestic company, is assessed with a total income of Rs. 11.25 crore. The
surcharge payable by the company shall be at the rate of - (June 2016)
(a) 2% (b) 7%
(c) 15% (d) 12% Ans.(d)
(32) The tax exemption limit for a resident senior citizen is - (Dec. 2014)
(a) Upto Rs. 2,00,000 (b) Upto Rs. 5,00,000
(c) Upto Rs. 1,80,000 (d) Upto Rs. 3,00,000 Ans.(d)
(33) The amount of Health and Education cess to be collected along with income-tax for AY 2020-
2021 shall be - (June, 2009)
(a) 1% (b) 2%
(c) 4% (d) 3% Ans.(C
(34) In respect of a resident assessee, who is of the age of 60 years or more at any time during the
previous year but less than 80 years on the last day of Previous Year relevant to Assessment Year
2020-2021: (June, 2008)
(a) Rebate of tax payable subject to a maximum of Rs. 20,000.(b) Higher basic exemption of. 1,50,000.
(c) Higher basic exemption of. 3,00,000. (d) Higher basic exemption of . 1,35,000.
Ans.(c)
(35) Arun, a non-resident of India celebrated his 80th birthday on 10th October 2019. If his
total income for the previous year is Rs. 6,00,000, his income-tax liability for the previous year
2019-20 is - (June 2016)
(a) Rs. 33,800 (b) Rs. 41,600
(c) Rs. 20,800 (d) Nil Ans.(A)
(36) An assessee, being an individual resident in India, is entitled to a deduction, from the amount of
income-tax on his total income which is chargeable for an assessment year, of an amount equal to
100% of such income-tax or a lesser amount. The maximum amount of total income qualifying for
such deduction and the maximum amount of deduction so available is - (Dec. 2014)
(a) Rs. 5 lakh and Rs. 12,500 respectively (b) Rs. 3 lakh and Rs. 2,000 respectively

(c) Rs. 3.5 lakh and Rs. 2,500 respectively (d) Rs. 3 lakh and Rs. 5,000 respectively
Ans.(a)
(37) For a individual, the minimum amount of total income liable for surcharge and the rate of
surcharge applicable therein are- (Dec. 2014)
(a) Rs. 50 lakhs and 10% respectively (b) Rs. 1 crore and 15% respectively
(c) Rs. 1 crore and 7% respectively (d) Rs. 10 crore and 12% respectively
Ans.(a)
(38) For a domestic company, the minimum amount of total income liable for surcharge and the rate
of surcharge applicable therein are - (Dec. 2014)
(a) Rs. 10 crore and 7% respectively (b) Rs.1 crore and 7% respectively
(c) Rs. 1 crore and 12% respectively (d) Rs. 10 crore and 12% respectively
Ans.(b)
(39) The total income of Atul, a resident individual, is Rs. 2,65,000. The rebate allowable u/ s 87A
would be - (June, 2015)
(a) Rs. 2.000 (b) Nil
(c) Rs. 750 (d) Rs. 1,545. Ans.(c)
(40) For the previous year 2019-20, taxable income of A Ltd., a domestic company (Turnover in FY
2017-18 was Rs. 401 crores) is Rs. 10,86,920. Its tax liability would be - (June, 2015)
(a) Rs. 2,82,600 (b) Rs. 4,47,811
(c) Rs. 3,32,770 (d) Rs. 3,39,120 Ans.(d)
41. Employer’s contribution to Recognized Provident Fund (RPF) in excess of 12% of salary income of
an employee shall be treated as (June 19)
(A) Taxable income from salaries
(B) Deemed income from salaries
(C) Exempted income
(D) Income of other sources. Ans B
(42) The Apex Court in the case of CIT v. Saurashtra Cements Ltd. (2010) 233 CTR 209 (Gujarat)
has held that liquidated damages received from the supplier on account of delay in the supply of plant
and machinery shall be treated in the nature of: (Dec 19 –NS)
(a) Capital Receipt
(b) Revenue Receipt
(c) Not a receipt but to be reduced from the cost of Plant & Machinery
(d) Compensation
Ans.(a)
(43) Which of the following income is not chargeable to tax in the case of Suresh who is resident but not
ordinarily resident ? (Dec 19 –OS)
(A) Income accruing outside India but received in India

(B) Income earned in India

(C) Past untaxed profit
(D) Income from business outside Indiabut controlled from India
(44) Central Board of Direct Taxes (CBDT) vide Circular No. 8 of 2017 dated 23rd February, 2017 has
clarified that the Place of Effective Management (POEM) provisions shall not apply to a company having
turnover or gross receipts in a financial year of ____________.
(a) Rs. 30 crore or less (b) Rs. 10 crore or less
(c) Rs. 50 crore or less (d) Rs. 5 crore or less Ans.(c)
Few Amendment Based Questions (Can ignore if already done in amendment notes)
(1) The income-tax payable by a Mr Bansal Resident Individual (aged 25 years) for A.Y. 2020-21 if his
total income is 4.50.000 will be:?
(a) Nil (b) Rs. 10,400
(c) Rs. 20,800 (d) Rs. 10,000
Ans.(a)
Hint – Rebate upto Rs. 12,500
(2) The income-tax payable by a Non Resident Individual (aged 32 years) for assessment year 2020-
21 if his total income is Rs. 5,00,000 will be :
(a) Rs. 25,750 (b) Rs. 13,000
(c) Rs. 12,875 (d) Nil
Ans.(b)
(3) The income-tax payable by a Resident Individual (aged 72 years) for AY 2020-21 if his total
income is Rs. 5,10,000 will be :
(a) Rs. 12,480 (b) Rs. 12,360
(c) Rs. 9,880 (d) Nil
Ans.(a)
(4) For the previous year 2019-20, taxable income of B Ltd., a domestic company (Turnover in FY
2017-18 was Rs. 452 crores) is Rs. 10,86,920. Its tax liability would be - (June,
2015)
(a) Rs. 2,82,600 (b) Rs. 4,47,811
(c)3,32,770 (d)3,39,120
Ans.(d)
(5) If a resident Individual's (41 years of age) wherein his total Income is Rs. 2,00,50,000, the
marginal relief available to the him is -
(a) Rs. 6,00,000 (b) Rs. 5,50,000
(c) Rs. 18,750 (d) Nil
Ans.(b)
(6) If a resident Individual's (45 years of age) wherein his total Income is Rs. 5,01,00,000, the tax
payable by him is -
(a) Rs. 1,93,60,250 (b) Rs. 1,92,56,250
(c)1,85,15,625 (d)2,11,47,594
Ans.(a)

3. Exempt Income 3.1
Chapter 3 – Exempt Income

Exempt Income
Fully Exempted Partially Exempted

Income Income
Agricultural Amount received by

Gratuity Leave travel
Income a member from the concession
income of the HUF
Interest on NRE A/c of Encashment of
a person resident Commutation
Share of profit unutilized earned
outside India of a partner of pension
leave on retirement
Exemption in respect Allowances payable Retrenchment

Voluntary Retirement
of remuneration to outside India by compensation
Receipts
individuals, who are the Government
not citizens of India to a citizen of India
Payment from NPS Trust
Receipts
Compensation received Royalty or fees for
to an assessee (AY 19-20) on
from LIC
on account of Disaster technical services closure of his account
arising to non-resident or on his opting out
for services rendered to of the pension scheme House rent
Payments from Sukanya
NTRO (AY 19-20) allowance
Samriddhi Account
Payment from NPS
Payment to Bhopal
Education Trust to an Special Allowance
Gas Victims
scholarships/ employee on or benefit
Awards by the Payments from partial withdrawal
Government Provident Fund/
Superannuation Interest income arising Income of member
fund to certain persons of a Scheduled tribe
Pension received
by recipient of
Family pension received
gallantry awards
by widow/children/ Exemption of income Exemption in
nominated heirs of of a Sikkimese respect of clubbed
Tea Board subsidy/ armed forces members Individual income of minor
others subsidies
Tax on non-monetary Dividends referred
Capital gain on Specified allowances
perquisites paid by the to in section 115-O
transfer of a unit and perquisites paid
employer for employee
of Unit Scheme to chairman or a
retired chairman
Income from units from Certain payments to or any other
Administrator of specified MPs & MLAs member of UPSC
undertaking/specified
company/mutual fund Income received on
buy-back of
Capital gain on shares of domestic
compulsory acquisition company
of agricultural land
within specified urban Income received in
limits transaction of
reverse mortgage
Unique Academy - 8007916622 CA Saumil Manglani - Contact 9921051593

1. Agricultural Income (Few Aspects)
Broadly 3
sources
Farm
Rent or Revenue Through agriculture building
derived from land
or required for
situated in India
agricultural
and used for Process ordinarily employed by a
operations
agricultural cultivator or receiver of rent in kind
purposes to render the produce fit to be
taken to the market
or
The sale of such agricultural
produce in the market.
a. Agriculture includes 2 operations -

Basic Subsequent
Operations Operations
Those operations by Operations to be performed after the
agriculturists which are produce sprouts from the land (e.g.,
absolutely necessary for weeding, digging etc.) are subsequent
the purpose of effectively operations. These subsequent
raising produce from the operations would be agricultural
land are the basic operations only when taken in
operations. conjunction with and as a

continuation of the basic operations.
Whether income from nursery constitutes agricultural income?
Yes, as per Explanation 3 to section 2(1A), income derived from saplings or

seedlings grown in a nursery would be deemed to be agricultural income, whether
or not the basic operations were carried out on land.
Reference Case Law - Dy. CIT v. Best Roses Biotech (P) Ltd., 49 SOT 277.
Assessee started growing of rose flowers / plants on bridge of plastic trays erected with help of a
stand 2.3 ft. above land. Mother plant was otherwise reared on earth, subsequently saplings were
planted on plastic trays which were kept at height of 2-3 ft. placed on a stand. Court haled the
income generated will be agricultural income.

b. Calculating Agricultural Income – General - Rule 7 (Understanding with illustration)

Illustration
Mr. A grows sugarcane and uses the same for the purpose of manufacturing sugar in his factory.
 30% of sugarcane produce is sold for Rs. 10 lacs, and the cost of cultivation of such sugarcane is
Rs. 5 lacs.
 The cost of cultivation of the balance sugarcane (70%) is Rs. 14 lacs and the market value of the
same is Rs. 22 lacs.
 After incurring Rs. 1.5 lacs in the manufacturing process on the balance sugarcane, the sugar was
sold for Rs. 25 lacs.
Compute A’s business income and agricultural income
Solution
Income from sale of sugarcane gives rise to agricultural income and from sale of
sugar gives rise to business income.
Business income = Sales (–) Market value of 70% of sugarcane produce (–)
Manufacturing expenses
= Rs. 25 lacs – Rs. 22 lacs – Rs. 1.5 lacs = Rs. 1.5 lacs.
Agricultural income = Market value of sugarcane produce – Cost of cultivation
= [ Rs.10 lacs – Rs. 5 lacs] + [ Rs. 22 lacs – Rs.14 lacs]
= Rs. 5 lacs + Rs. 8 lacs = Rs. 13 Lacs
0 Lacs 14L 22L 25
Agricultural Income Story of Non-agricultural

Income
c. Specified types of agricultural Incomes

Rule Apportionment of income in certain cases Agricultural Business
Income Income
7A Income from growing and 65% 35%
manufacturing of rubber
7B Income from growing and
manufacturing of coffee
• Income derived from the sale of 75% 25%
coffee grown and cured
• Income derived from the sale of coffee 60% 40%
grown, cured, roasted and grounded
8 Income from growing and 60% 40%

manufacturing of tea

Illustration
Mr. B manufactures latex from the rubber plants grown by him in India. These are then sold in the market for
Rs. 30 lacs. The cost of growing rubber plants is Rs. 10 lacs and that of manufacturing latex is Rs. 8 lacs.
Compute his total income.
Solution
The total income of Mr. B comprises of agricultural income and business income. Total profits from the sale
of latex= Rs.30 lacs – Rs. 10 lacs – Rs. 8 lacs = Rs.12 Lacs
Agricultural income = 65% of Rs.12 lacs. = Rs. 7.8 lacs
Business income = 35% of Rs.12 lacs. = Rs. 4.2 lacs
d. Indirect connection of agricultural income – Not an agricultural Income
S. No. Cases Reasons
1 Butter made by the societies from cream sold to Separate operations of the company
them by farmers
2 Remuneration of agent calculated with reference to Remuneration was received under a
income of the company, part of which was contract for personal service
agricultural income. calculated on the amount of profits
earned by the company.
3 Agricultural land maintained for manuring and other Regularity with which the sales of milk
purposes connected with agriculture, a part of which were affected and quantity of milk sold
was used as pasture for cows. Only the surplus milk showed that the assessee carried on
after satisfying the assessee’s needs was sold. regular business.
Whether income from such sale of milk was

agricultural income?
4 shareholder in certain tea companies, 60% of whose Dividend is derived from the investment
income was exempt from tax as agricultural income made.
5 Forest trees of spontaneous growth which grow on Operations performed by the assessee
the soil unaided by any human skill and labour. may have the effect of nursing and
fostering the growth of such forest trees,
it cannot constitute agricultural
operations.
e. Few examples
Agricultural Income Non-Agricultural Income
Income derived from the sale of seeds Income from breeding of livestock.
Income from growing of flowers and Income from poultry farming.
creepers.
Rent received from land used for grazing Income from fisheries.
of cattle required for agricultural
activities.
Income from growing of bamboo Income from dairy farming.

2.
Section Particulars of Exempt Income

10(1) Agricultural income is exempt under section 10(1).
Scheme of Partial Integration
However, agricultural income has to be aggregated with non-agricultural income for
determining the rate at which non-agricultural income would be subject to tax, in case of
individuals, HUFs, AOP & BOIs etc., where the –
• agricultural income > Rs. 5,000 p.a. &
• non - agricultural income > basic exemption limit.
The following are the steps to be followed in computation of tax –
Step 1: Tax on non-agricultural income plus agricultural income
Step 2: Tax on agricultural income plus basic exemption limit
Step 3: Tax payable by the assessee = Step 1 – Step 2
Step 4: Add Surcharge/Deduct Rebate under section 87A, if applicable.
Step 5: Add Health & Education cess @ 4 %
Example
Particulars Case 1 Case 2

Suppose Assessee is a Resident Individual aged 42 years
(Given)
Agricultural Income 10,00,000 1,00,000
Non Agricultural Income 4,00,000 3,10,000
Tax Calculation
Step 1 - Tax on
Agri. + Non Agri. Income (on Rs 14 lacs & Rs. 4,10,000) 232500 8,000
Step 2 - Tax on
Basic Exemption Limit (2.5 lacs) + Non Agricultural Income i.e.
(On Rs. 12,50,000 & Rs. 3,50,000) 187500 5,000
Difference (Step 1 - Step 2) 45000 3000
Less : Rebate u/s 87A 12,500 3000
(Available (Available as the TI is
as the TI is Rs. 3,10,000 i.e. within
Rs. 4,00,000 limits of Rs. 5,00,000)
i.e. within
limits of Rs.
5,00,000)
Tax amount before cess 32,500 Nil
add - HEC @ 4% 1300 Nil
Tax Payable 33,800 Nil

Section Particulars of Exempt Income
10(6D) [AY Income arising to non-corporate (i.e. other than company) non-residents and foreign
19-20] companies, by way of royalty from or fees from technical services rendered in or outside
India to, the National Technical Research Organisation (NTRO) is exempt.
10(17A) Awards for literary, scientific and artistic works and other awards by the Government are
exempt.
10(18) Pension received by individual  awarded “Param Vir Chakra” or “Maha Vir Chakra” or
“Vir Chakra” such other gallantry award as the CG notifies is exempt from tax. Family
pension received in case of death of the awardee is also exempt from tax.
10(26AAA) Income from any source in the state of Sikkim, dividend income and interest on securities
is exempt in the hands of a Sikkimese individual.
This exemption is not available to a Sikkimese woman who, on or after 1st April, 2008,
marries a non-Sikkimese individual.
10(30) Subsidy received by any assessee engaged in the business of growing and manufacturing tea
in India through or from the Tea Board will be wholly exempt from tax.
10(31) Subsidy received by an assessee engaged in the business of growing and manufacturing
rubber, coffee, cardamom or other specified commodity in India from or through the
Rubber Board, Coffee Board, Spices Board or any other will be exempt.
10AA Tax holiday for newly established units in Special Economic Zones (SEZs), which has begun
or begins to manufacture or produce articles or things or computer software or provide any
service on or after 1.4.2005 in any SEZ for 15 consecutive assessment years in respect of
its profits from exports.
Amount of exemption =
Export turnover of Unit SEZ
Profits of Unit in SEZ x -----------------------------------
Total turnover of Unit SEZ
 100% of such profits would be exempt in the first five years,
 50% in the next five years and
 In the last five years, 50% subject to transfer to special reserve.
Few points
 The business is to be established between 1.4.2005 to 31.3.2020
 Not be formed by splitting up or reconstruction of a business already in existence
 P& M should be new but out of Total value of P&M, 20% can be second hand.
 P&M used outside India
and Which is not used before in India
and which is now imported into India
and on which no deduction on account of depreciation has been allowed
earlier,
is not to be treated as 2nd Hand
 The deduction of last 5 years is available only if Reserve Account is utilized

(a) For the purposes of acquiring machinery or plant within next 3 years.
(b) For the purposes of the business of the undertaking until the acquisition of the
machinery or plant is done.
(c) If 10AA claimed, 35AD not allowed.

[Circular No. 4/2018, Dated 14-8-2018 Computation of admissible deduction u/s 10AA of the
Income-tax Act, 1961
Issue
a. Whether Freight, Telecommunication charges and Insurance expenses if any, are to
be excluded from both "export turnover"' and "total turnover' on the ground that
they are attributable to delivery of articles or things outside India.
b. Similarly, the issue whether charges for rendering services (including computer
software) incurred in foreign exchange outside India are to be excluded both from
"Export Turnover" & "Total Turnover".
Controversy settled by court
The Hon'ble Supreme Court settled the controversy vide its judgment dated
24.4.2018 in the case of Commissioner of Income Tax Vs. M/s HCL Technologies
Ltd. in relation to section 10A
CBDT Clarification
In line with the above decision of the Supreme Court, Freight, telecommunication
charges and insurance expenses & expenses incurred in foreign exchange for
rendering services outside India are to be excluded both from "export turnover"
and "total turnover', while working out deduction admissible under section 10AA
to the extent they are attributable to the delivery of articles or things outside India.
Though this CBDT Circular is issued in relation to erstwhile section 10A, the same is also relevant
in the context of section 10AA.
3. Post Office Savings Bank Account be exempt from tax for any assessment year only to
the extent of:
i. Rs. 3,500 in case of an individual account.
ii. Rs. 7,000 in case of a joint account.
4. Section 14A - No deduction shall be allowed in respect of expenditure incurred for earning
exempted income.
5. Exemption on receipts from Life insurance policy (LIP) [Section 10(10D)]: Any sum received
under a life insurance policy, including the sum allocated by way of bonus on such policy shall not be
included in the total income of a person.

Policy issued Exemption u/s 10(10D) Deduction u/s 80C
before 1.4.2003 Any sum received including bonus. Premium paid to the
Between 1.4.2003 Exempt if premium payable for any of the years extent of 20% of “actual
capital sum assured”.
and 31.3.2012 during the term of the policy does not exceeds 20%
of “actual capital sum assured”.
Between 1.4.2012 Exempt Premium paid to the
and 31.3.2013 however, exemption would not be available if the extent of 10% of “actual
(for all premium payable for any of the years during the capital sum assured”.
employees term of the policy exceeds 10% of “actual capital sum
including assured”.
disabled
employees)
For Disabled employee (80U or 80DDB)
Premium paid to the
extent of 15% of “actual
Exempt if premium payable for any of the years
during the term of the policy does not exceeds 15%
On or after Premium paid to the
1.4.2013 For other than Disabled employee extent of 10% of “actual
Exempt if premium payable for any of the years
during the term of the policy does not exceeds 10%
Note - Amount received on death of the person will continue to be exempt without any condition.
Past Exam Questions
(1) Which of the following income is not exempt under section 10 - (Dec. 2011)
(a) Share in total income of firm (b) Income from agriculture in Lahore
(c) Bonus on life insurance (d) Income from mutual funds. Ans.(b)
(2) A member of Parliament received Rs. 1,50,000 per month as salary and Rs. 4,50,000 as daily allowances
during previous year 2019-20. The taxable amount will be - (Dec. 2016)
(a) Salary Rs. 18,00,000
(b) Income from profession Rs. 22,50,000
(c) Income from other sources Rs. 18,00,000
(d) Nil Ans.(c)
(3) Mr. Sankar received Rs. 50,000 as educational scholarship from Nehru Memorial Trust (a charitable trust). The
scholarship is to assist Mr. Sankar for pursuming M.A. (History) at Jawaharlal Nehru University, New Delhi. The
amount of scholarship liable to tax is : (June, 2017)
(a) Rs. 50,000 (b) Rs. 10,000
(c) Rs. 25,000 (d) Nil Ans.(d)
(4)Any payment in commutation of pension received from a pension fund setup by the Life Insurance
Corporation of India in terms of section 10(23AAB) of the Income Tax Act, 1961, is : (June 2019)
(a) Liable for tax (b) Fully exempt from tax Ans.(b)
(c) Partly liable for tax (d) Taxable @ 10%
(5) Find out from the following income derived from house property which is being exempt from Income Tax
: (June 2019)
(a) Income from property of a trust for charitable or religious purposes
(b) Income from property of a housing society
(c) Income from property of a trade association
(d) Income from property of a sports association Ans.(b)

(6) Raghu traced a missing girl by spending Rs. 20,000. For this, he was awarded with a sum of Rs. 1,20,000. In
this case the award is taxable to the extent of - (June 2016)
(a) Rs. 1,00,000 (b) Rs. 1,20,000
(c) Rs. 1,15,000 (d) Nil. Ans.(a)
(7) A registered trade union earned Rs. 1,00,000 by way of interest on bank deposits and Rs. 1,80,000 by way
of rent from let-out of its premises. Total income of the trade union chargeable to tax would be - (Dec.
2016)
(a) Rs. 2,24,000 (b) Rs. 2,80,000
(c) Rs. 1,80,000 (d) Nil Ans.(d)
(8) Tax holiday under section 10AA in respect of newly established units in SEZ is allowed for a total period of -
(Dec. 2016)
(a) 5 Years (b) 10 Years
(c) 15 Years (d) 20 Years Ans.(c)
(9) A registered political party have income during the year 2019-20 of banks interest Rs. 5,00,000, rent from
letting of building Rs. 3,00,000 and voluntary contribution by cheque Rs. 8,00,000. Total income chargeable to
tax under section 13A of the Income Tax Act, 1961 for the A.Y. 2020-21 of the political party shall be :
(June 2019)
(a) Rs. 5,00,000 (b) Rs. 8,00,000
(c) Rs. 16,00,000 (d) NIL Ans.(d)
(10) Yadav leased his agricultural land in Meerut to Kailash. There is one dwelling house and storehouse in the
immediate vicinity of the land. He received lease rent for land Rs. 50,000. He also received Rs. 12,000 as rent for
dwelling house occupied by the tenant/cultivator and Rs. 18,000 as rent for the store house. The amount of
income to be treated as agricultural income would be : (Dec 19 –OS)
(A) Rs. 80,000
(B) Rs. 68,000
(C) Rs. 62,000
(D) Rs. 50,000
Ans.(A)
(11) Which of the following activity is an agricultural activity ? (Dec 19 –OS)
(A) Supply of water for irrigation purposes
(B) Production of salt from seawater
(C) Spontaneous growth of grass
(D) Cultivation of flowers
Ans.(D)
(12) Agricultural income of an assessee is aggregated for computing tax liability when it exceeds : (Dec 19 –OS)
(A) Rs. 50,000
(B) Rs. 20,000
(C) Rs. 5,000
(D) Rs. 2,000
Ans.(C)
(13) Which of the following income of registered trade union is liable to tax ? (Dec 19 –OS)
(A) Income from house property
(B) Income from other sources
(C) Capital gains
(D) All of the above
Ans.(C)

4. Salary 4.1
Chapter 4 – Salaries
Proforma for computation of income under the head “Salaries”
Particulars Amt
(i) Basic Salary XXX
(ii) Fees/Commission XXX
(iii) Bonus XXX
(iv) Allowances:
(a) Dearness Allowance XXX
(b) House Rent Allowance (HRA) xx
Less: Least of the following is exempt [Section 10(13A)] xx XXX
HRA actually received xxx
Rent paid (-)10% of salary for the relevant period xxx
50% of salary, if accommodation is located in
Mumbai, Kolkata, Delhi or Chennai or 40% of
salary in any other city for the relevant period xxx
(c) Children Education Allowance xx

Less: Rs. 100 per month per child upto maximum of two xx XXX
children
(d) Children Hostel Allowance xx
Less: Rs. 300 per month per child upto maximum of two xx XXX
children
(e) Transport allowance xx
Less: Rs. 3,200 per month in case of blind/ deaf and XXX
dumb/ orthopedically handicapped employee only xx
(f) Entertainment Allowance XXX
(g) Other Allowances including overtime allowance, city compensatory XXX
allowance etc.
(v) Taxable
Perquisit
es
(a) Valuation of rent free accommodation* XXX
I) Where the accommodation is provided by the Govt. to its
employees
License fee determined by the Govt. xx
Less: Rent actually paid by the employer xx
II) Where the accommodation is provided by any other employer
If accommodation is owned by the employer
(i) Cities having population > 25 lakh as per 2001
census
15% of salary in respect of the period of occupation
(–) rent recovered from employee xx

4. Salary 4.2
(ii) Cities having population >10 lakh < 25 lakh as

per 2001 census
10% of salary in respect of the period of occupation
(iii) In other cities

7.5% of salary in respect of the period of occupation
If accommodation is taken on lease by the employer

Lower of lease rental paid or payable by the employer xx
(or) 15% of salary
Less: Rent actually paid by the employee xx
(b) Obligation of employee discharged by employer. For XXX
e.g. Professional tax paid by the employer
(c) Any sum payable by the employer to effect an assurance on the life XXX
of the employee or to effect a contract for annuity: Actual expenditure
incurred by the employer
(d) Value of use of motor car XXX

(e) Any other perquisite: For example, XXX
(1) Provision of services of a sweeper, gardener, watchman or
personal attendant : Actual cost to employer by way of salary paid or
payable for such services (-) amount paid by the employee
(2) Gas, electricity, or water supplied by employer for household

consumption of the employee : Amount paid on that account by the
Specified employer to the agency supplying gas etc. (-) amount paid by the
employees – employee
a. Director (3) Provision of free or concessional education facilities for any
b. Employee member of employee’s household : Sum equal to the expenditure
having incurred by the employer (-) amount paid or recovered from the
substantial employee
interest (i.e. Where educational institution is maintained and owned by employer:
minimum 20% Cost of such education in similar institution in or near the locality (-)
share holding amount paid or recovered from employee [However, there would be
no perquisite if the value of benefit per child does not exceed Rs.
c. Income
1,000 p.m.]
under the head
Salaries > Rs. Note: Above perquisites including Motor car are taxable only in case
50,000 of specified employees.
excluding (4) Interest-free or concessional loan exceeding
perquisites Rs. 20,000 : Interest computed at the rate charged by SBI as on 1st
day of relevant PY in respect of loans for similar purposes on the
maximum outstanding monthly balance (-) interest actually paid by
employee
(5) Value of gift, voucher: Sum equal to the amount of such gift
[If value of gift, voucher is below Rs. 5,000, there would be
no perquisite]
(6) Use of moveable assets

4. Salary 4.3
Asset given Value of benefit

a) Use of laptops and computers Nil
b) Movable assets, other than - 10% p.a. of the actual cost of
(i) laptops and computers; and such assets, or the amount of
(ii) assets already specified rent or charge paid or payable
by the employer, as the case
may be
(-)
amount paid by/recovered from
an employee
(7) Transfer of movable assets: Actual cost of asset to employer – cost of
normal wear and tear – Amount paid or recovered from employee.
Assets transferred Computation of cost of normal wear and
tear
Computers and electronic items @ 50% on WDV for each completed year of
usage
Motor cars @ 20% on WDV for each completed year of
usage
Any other asset @ 10% of actual cost of such asset to
employer for each completed year of usage [on
SLM basis]
(vi) Leave travel concession xxx
Less: Exempt u/s 10(5) xxx XXX
(vii) Gratuity
(a) Received during the tenure of employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10) xxx XXX
(viii) Uncommuted pension (fully taxable) Commuted pension xxx
(ix) Less: Exempt u/s 10(10A) xxx
XXX
(x) Leave encashment
(a) Received during the employment (fully taxable) xxx
(b) Received at the time of retirement or otherwise xxx
Less: Exempt u/s 10(10AA) xxx XXX
(xi) Voluntary retirement compensation xxx
Less: Exempt u/s 10(10C) - Least of the following: xxx XXX
(a) Compensation received/ receivable on voluntary xxx
retirement
(b) Rs. 5,00,000 xxx
(c) 3 months’ salary x completed years of service xxx
(d) Last drawn salary x remaining months of service left xxx
(xi) Retrenchment compensation etc. xxx

Less: Exempt u/s 10(10B)] – Least of the following: xxx XXX
(a) Compensation actually received xxx
(b) Rs. 5,00,000 xxx

4. Salary 4.4
(c) 15 days average pay x completed years of service and

part thereof in excess of 6 months xxx
Gross Salary XXX
Less: Deduction under section 16
Standard deduction u/s 16(ia) upto Rs. 50,000 AY 20-21 XXX
Entertainment allowance u/s 16(ii) (only for Govt. employees) xxx
Least of the following is allowable as deduction: xxx XXX
(a) Rs. 5,000 xxx
(b) 1/5th of basic salary xxx
(c) Actual entertainment allowance received xxx
Professional Tax (paid by employer/ employee) under section 16(iii) XXX
Income under the head salary XXX
1. Basics
Basis of Charge [Section 15]
(i) Salary is chargeable to tax either on ‘due’ basis or on ‘receipt’ basis, whichever is earlier.
(ii) However, where any salary, paid in advance, is assessed in the year of payment, it cannot
be subsequently brought to tax in the year in which it becomes due.
(iii) If the salary paid in arrears has already been assessed on due basis, the same cannot be
taxed again when it is paid.
2. Employer includes –
o Former
o Present
o Multiple employers
3. Computation of Salary in Grade system – varying Pay Scale
In this concept the person gets an increment in Salary after every completion of
duration of 12 months in employment.
Example – A person joined ABC ltd. On 1st July 2016 on a pay scale of monthly salary of Rs
30,000 – 3000 – 39000 – 5000 – 49000. The salary gets due on last day of every month. Find the
taxable salary of this person for P.Y 17 – 18 and PY 20 – 21.
Solution
Working Note
Cycle of 12 months Per month Salary (INR)

July 16 to June 17 30,000.00
July 17 to June 18 33,000.00
July 18 to June 19 36,000.00
July 19 to June 20 39,000.00
July 20 to June 21 44,000.00
July 21 to June 22 49,000.00

4. Salary 4.5
Therefore, for PY 17 -18 i.e. April 17 to March 18 = Rs 30,000 * 3 months and 33,000* 9 months =
Rs. 3,87,000
And for PY 20-21 i.e. April 20 to March 21 = Rs. 39,000 * 3 months and 44,000* 9 months = Rs.
5,13,000
MCQ’s
Basics
(1) Which of the following income is taxable under the head 'income from salary' - (Dec. 2011)
(a) Salary received by a partner from firm (b) Salary received by a Member of Parliament
(c) Salary of a Government Officer (d) None of the above. Ans.(c)
(2) Pankaj joins service on 1st April, 2015 in the grade of 15,000 - (1,000) - 18,000 - (2,000) - 26,000. He shall
be paying tax for the year ended on 31st March, 2020 on the total salary of - (Dec. 2015)
(a) Rs. 1,76,000 (b) Rs. 1,90,000
(c) Rs. 2,24,000 (d) Rs. 1,40,000 Ans.(b)
Answer Hint: Standard deduction is allowed amounting Rs. 50,000 from Gross salary.
(3) Anjan joins a service is the grade of Rs. 15,600 - 39,100 plus grade pay of Rs. 6,000 on 01-08-2019. He also
gets dearness allowance @ 107% of salary. His tax liability for assessment year 2020-21 will be - (Dec. 2014)
(a) Rs. 3,520 (b) Rs. 920
(C) Nil (d) Rs. 5,600 Ans.(C)
Note - Gross salary is 3,57,696. Standard deduction is allowed - Rs. 50,000. [Taxable salary Rs. 3,07,700 and tax
liability is nil after tax rebate of Rs. 2,885
(4) What will be the amount of gross salary which shall be required to be declared in the return of income to be
filed for the previous year 2019-20 by Harun, who joined services as Manager Accounts on the salary of Rs.
17,000 p.m. In XYZ Ltd. on 1st April, 2017 in the grade of 15,000 - 2000 -19,000 - 3,000 - 28,000? ((Dec 19 –NS)
(a) Rs. 3,00,000 (b) Rs. 2,28,000
(c) Rs. 2,64,000 (d) Rs. 2,52,000 Ans.(c)

4. Salary 4.6
Retirement Benefits
4. Leave Encashment [Section 10 (10AA)
Leave Encashment
Received during Received on

the period of retirement whether
Service on Superannuation
or otherwise
Full Taxable
By a Government By any other

employee employee
Full Exempt Least of the

following
is exempt
Rs. 3,00,000 Leave salary 10 months’ salary (Total leaves allowed/ 10 months
actually received (on the basis of Earned – Total leaves average
average salary of Availed)  monthly
last 10 months)
salary
30
Earned leave entitlement cannot

exceed 30 days for every year of
actual service
Points to note - Mnemonics
 पिछले 10 महीने में average 4- 4 पिन की छु ट्टी ली है (Means 4 amounts to compare)

 हर पिन important है (for calculating preceding 10 months, start counting from immediately
preceding day)
 तो साल ignore (Means Total leaves allowed = Completed number of years of service *
max. 30 days per year)
Salary
Basic Conditional D.A Commission fixed

% of T.O
V. Imp - “Salary” is defined as above at total 4 calculations in this Chapter

a. Leave Encashment c. Not Covered by POGA – Gratuity payment
b. H.R.A d. Provident Fund

4. Salary 4.7
5. Gratuity 10(10)
Gratuity
Received during Received at the time of

service retirement/Death
Fully Taxable
Government Non-Government
Employees Employees
Fully Exempt
Covered under Not covered
Payment of underpayment of
Gratuity Act, 1972 Gratuity Act, 1972
Least of the following Least of the following

would be exempt: would be exempt:
- Rs 20 lakh - Rs. 20 lakhs

- Gratuity received - Gratuity received
- 15/26 * Last drawn

- ½ * Salary *
Salary * Number of
years of service completed number
(where > 6 moths = 1 years of service (ignore
year. fraction of years
Covered by POGA – Points to Note
 Last Drawer (means Drawn) में Salary रखी है

 Covered है तो चीज़ें ज़रा specific (i.e. 15/26 and > 6 month = 1 year)
 Full Drawer खोलो तो िो चीज़ें पमली ( FULL DA and Basic Salary)
Not covered by POGA –
Salary

% of T.O

4. Salary 4.8
6. Pension 10 (10A)
Pension
Commuted Uncommuted
Lumpsum)d (Monthly)
Employees of the Non-Government Fully taxable

Central Employees
Government/local
authorities/Statutory
Corporation/Members
of the Defence Services If the If the employee
employee is does not
in receipt of receive any
gratuity gratuity
1/3  (commuted ½  (commuted

pension received pension received
 commutation  commutation
%)  100, would %)  100, would
be exempt be exempt
Points to Note
 If nothing is given in question – assume that the person is not in receipt of Gratuity
 Family Pension received – Head IOS – 1/3rd of amount received or Rs. 15,000 per year
(Lower one) is the deduction allowed.
 Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
For example – The assessee was receiving Rs 10,000 p.m. as monthly pension for PY 19-
20.
Now on 31st Jan 20 the assessee got 60% of pension commuted, so now for Feb and
March monthly pension will be Rs. 4.000 for each month.
1. The maximum exemption under section 10(10AA) in case of leave encashment is - (1 marks, CS June, 2011)
(a) 13,50,000 (b) Rs. 3,00,000
(c) Rs. 10,00,000 (d) Rs. 5,00,000 Ans.(b)
2. Salary received in lieu of unavailed leave during service shall be - (Dec. 2012)
(a) Fully taxable (b) Fully exempted
(c) Partially taxable (d) None of the above. Ans.(a)
3. An employee of a public limited company received Rs. 3,00,000 as encashment of leave salary at the time of
retirement. He has 18 months' leave to his credit at the time of retirement and his average salary for last 10
months is Rs. 24,000. The taxable amount of leave encashment would be - (Dec. 2016)
(a) Rs. 2,40,000 (b) 13,00,000
(c) Rs. 60,000 (d) Nil Ans.(c)
4. Bimal is employed in a factory at a salary of Rs. 2,400 per month. He also gets dearness allowance @ Rs. 600
per month and bonus @ Rs. 200 per month. He retired on 31st December, 2019 and received Rs. 75,000 as
gratuity under the Payment of Gratuity Act, 1972 after serving 31 years and 4 months in that factory. The
amount of gratuity exempt under the Income- tax Act, 1961 will be - (Dec. 2014)

4. Salary 4.9
(a) Rs. 75,000 (b) Rs. 53,654
(c) Rs. 21,346 (d) Rs. 10,00,000. Ans.(b)
5. Akash is entitled to get a pension of Rs. 6,000 per month from a private company. He gets 60% of the
pension commuted and receives 13,60,000. He also receives Rs. 2,00,000 as gratuity from the same employer.
The taxable portion of commuted value of pension will be - (Dec. 2014)
(a) Rs. 1,60,000 (b) Nil
(c) Rs. 3,60,000 (d) Rs. 60,000 Ans.(a)
6. Anand is entitled to get a pension of Rs. 600 per month from a private company. He gets three-fifth of the
pension commuted and received Rs. 36,000. He did not receive gratuity. The taxable portion of commuted value
of pension is- (June, 2012)
(a) Rs. 16,000 (b) Rs. 6,000
(c) Rs. 18,000 (d) Rs. 12,000. Ans.(b)
7. An employee of a company, who was entitled for a gratuity of Rs. 8,00,000, also received Rs. 12,00,000 by
commuting 40% of his pension. The taxable amount of commuted pension is - (June 2016)
(a) Rs. 2,00,000 (b) Rs. 4,00,000
(c) Rs. 12,00,000 (d) Rs. 22,00,000 Ans.(a)
8. Rohan retires from private service on 30th April, 2019 and his pension has been fixed at Rs. 1,500 p.m. He gets
1/2 of his pension commuted during January, 2020 and receives Rs. 75,000. He also gets Rs. 60,000 as gratuity.
The total pension taxable including commuted value will be (Dec. 2015)
(a) Rs. 16,500 . (b) Rs. 41,500
(c) Rs. 39,250 (d) Rs. 14,250 Ans.(c)
9.The maximum amount of compensation received at the time of voluntary retirement exempt from tax is -
(June 2013)
(a) Rs. 2,00,000 (b) Rs. 5,00,000
(c) Rs. 10,00,000 (d) The actual amount received as compensation.

Ans.(b)
10. Mr. Vijay employed in ABC Ltd opted for voluntary retirement and received Rs. 12 lakhs by way of gratuity.
The Payment of Gratuity Act, 1972 is applicable in his case. The monetary limit for exemption under Section
10(10) is - (Dec 17)
(A) Rs. 3,50,000
(B) Rs. 20,00,000
(C) Rs. 10,00,000
(D) Rs. 3,00,000 Ans.(b)
11.The maximum amount eligible for exemption in respect of encashment of earned leave on
retirement is : (Dec 17)
(A) Rs. 3,00,000
(B) Rs.10,00,000
(C) Rs. 50,000
(D) Rs. 5,00,000 Ans.(a)
12. The maximum amount of gratuity exempt and the maximum amount of leave encashment exempt under the
Act respectively are : (June 17)
(A) Rs. 10,00,000 and Rs.3,00,000
(B) Rs. 20,00,000 and Rs.3,00,000

4. Salary 4.10
(C) Rs. 5,00,000 and Rs.2,50,000

(D) None of the above Ans. B
13. .Mohan, retried from Y & Company Ltd. on 31-08-2019 after rendering services for 31 years and 7 months.
He was paid Rs. 11 lakhs as gratuity under the Payment of Gratuity Act, 1972. His last drawn salary was Rs.
52,000. How much of the amount of gratuity would be exempt ?
(June 19)
(A) Rs. 10,00,000
(B) Rs. 20,00,000
(C) Rs. 9,30,000
(D) Rs. 9,60,000. Ans D 14.
John, who recently retired from service of a company on 31st March, 2019 is eligible
for a monthly pension of Rs. 20,000. He has received gratuity on his retirement also. He wants to commute 50%
of his pension for 6.00 lakh. How much amount of this commuted pension shall be subject to tax in A.Y. 2020-
21 ? (June 19)
(A) Rs. 6,00,000
(B) Rs. 2,00,000
(C) Rs. 3,00,000
(D) Rs. 3,50,000. Ans B
15. The maximum amount of any death-cum-retirement gratuity received by an employee not covered under the
payment of Gratuity Act, 1972 on Superannuation from the employer exempt from tax is of ____________. ((Dec 19
–NS)
(a) Rs. 20 lakh (b) Rs. 10 lakh
(c) Rs. 5 lakh (d) Rs. 15 lakh Ans.(a)
16. Malik retired from Mehbooba Ltd. after rendering service for 27 years and 8 months. His 15 days salary is Rs.
26,000. He received Rs. 11,50,000 as gratuity from the employer. He is covered under the Payment of Gratuity Act,
1972. The amount of gratuity eligible for exemption under section 10(10) would be : (Dec 19 –OS) [Good Que]
(A) Rs. 10,00,000
(B) Rs. 7,28,000
(C) Rs. 11,50,000
(D) Rs. 7,02,000
Ans.(b)
7. Allowances
7A. Allowance partially taxable
House Rent Allowance 10(13A)
Section Allowance Exemption

10(13A) House Rent Least of the following is exempt:
Allowance (a) HRA actually received
(b) Rent paid less 10% of salary
(c) 50% of salary, if accommodation is
located in Mumbai, Kolkata, Delhi or
Chennai
40% of salary, if the accommodation is
located in any other city.

4. Salary 4.11
Points
 Salary means -> Basic + Conditional D.A + Commission fixed % of Turnover
 Exemption is given only for that period during which the house is occupied by the
assessee.
 If any of the given elements change, the calculation also needs to be done accordingly –
Actual HRA received, rent paid, Salary, Location of the house taken on rent.
7B. Allowance exemption depends upon the actual expenditure
Mnemonics - (Daily Uniform िहन के Helper साथ Research करने पनकलता है और C.T.T बजाता है )
1. Daily allowance – to meet the ordinary daily charges incurred by an employee on account
of absence from his normal place of duty
2. Uniform allowance.
3. Helper allowance – Helper for official duties (But Servant allowance fully taxable)
4. Research allowance - encouraging the academic research and training pursuits in research
institutions
5. Conveyance allowance - performance of duties of an office
6. Travelling Allowance - cost of travel on tour one city to another – Official tour
7. Transfer allowance – Shifting city - transfer, packing and shifting of personal effects on such
transfer
7C. Allowance exemption does not depend upon the actual expenditure
S. Name of Allowance Extent to which

No. allowance is exempt
1 Special Compensatory (Tribal Areas / Schedule Areas / Agency Rs. 200 per month.
Areas) Allowance
2 Any allowance granted to an employee working in any transport 70% of such allowance
system to meet his personal expenditure during his duty upto a maximum of
performed in the course of running such transport from one place Rs. 10,000 per month.
to another, provided that such employee is not in receipt of
daily allowance
3 Children Education Allowance Rs. 100 per month per
child upto a maximum of
two children.
4 Any allowance granted to an employee to meet the hostel Rs. 300 per month per
expenditure on his child child upto a maximum of
two children.
5 Any transport allowance granted to an employee to meet his Rs. 1,600 per month
expenditure for the purpose of commuting between the place of Withdrawn
his residence and the place of his duty from AY 19-20
6 Any transport allowance granted to an employee who is blind or Rs. 3,200 per month.
deaf and dumb or orthopedically handicapped with disability of
the lower extremities of the body, to meet his expenditure for
commuting between his residence and place of duty
7 Underground Allowance would be granted to an employee who Rs. 800 per month
is working in uncongenial, unnatural climate in underground
mines. This is applicable to whole of India.

4. Salary 4.12
7D. Allowances Fully Exempt
a. Allowance to High Court Judges and Supreme court Judges

b. Allowance received from United Nations Organisation (UNO): Allowance
paid by the UNO to its employees is not taxable
c. Allowances payable outside India [Section 10(7)] - By the Government to a citizen of India
for services rendered outside India.
7E. Allowances Fully Taxable
Dearness Allowance Non-Practicing allowance
City compensatory allowance Family allowance
Medical allowance (From AY 19-20, specified Special allowance
medical perquisite is also fully taxable)
Tiffin/ Lunch/Dinner allowance Secret allowance
(But if perquisite – Exempt upto Rs. 50 per
meal)
Overtime allowance Deputation allowance
Servant allowance Interim allowance
Warden/ Proctor allowance Any other cash allowance
ALLOWANCES
1. Murali employed in Megha Ltd., Delhi. He is paid house rent allowance of Rs. 9,000 per month in financial
year 2019-20. His salary for the purpose of computation of house rent allowance relief may be taken as Rs.
20,000 per month. Murali pays actual rent of Rs. 10,000 per month. How much of the house rent allowance is
tax-free - (June 2016)
(a) 1108,000 (b) Rs. 1,20,000
(c) Rs. 96,000 (d) Rs. 60,000 Ans.(c)
2. Children education allowance received by an employee from his employer is Rs. 80 per month per child for 3
children. Taxable education allowance will be - (Dec. 2014)
(a) Rs. 960 (b) Rs. 480
(c) Nil (d) Rs. 1,200 Ans.(a)
3.Chandan, a handicapped employee receives Rs. 1,500 per month as transport allowance from his employer.
His actual expenditure on transport is Rs. 1,000 per month. The amount of transport allowance taxable under
the head income from salaries will be - (Dec. 2 014)
(a) Rs. 18,000 (b) Nil
(c) Rs. 6,000 (d) Rs. 8,000. Ans.(b)
Answer Hint : Transport allowance granted to an employee, who is blind or deaf and dumb or orthopaedically
handicapped for commuting between the place of residence and the place of duty is exempt upto Rs. 3,200 p.m.
4. Raman purchased a residential house property in Ahmedabad on loan for which he paid an interest of Rs.
50,000 during the previous year. He is working in Delhi and getting an HRA of Rs. 4,000 per month. He can
claim exemption/deduction for - (June, 2 015)
(a) Only HRA (b) Only interest paid

4. Salary 4.13
(c) Either interest paid or HRA but not both (d) Both HRA and interest paid. Ans.(d)
5. Arun, a resident of Meerut, receives Rs. 38,000 per annum as basic salary. In addition, he gets Rs. 12,000 p.a.
as dearness allowance, which does not form part of basic salary, 5% commission on turnover achieved by him
(turnover achieved by him during the relevant previous year is Rs. 6,00,000) and Rs. 7,000 per annum as house
rent allowance. He, however, pays Rs. 8,000 per annum as house rent. The quantum of house rent allowance
exempt from tax is - (June 2007)
(a) Nil (b) Rs. 8,000
(c) Rs. 7,000 (d) Rs. 1,200 Ans.(d)
6. The maximum exemption in respect of transport allowance granted to an employee to meet his expenditure
for the purpose of commuting between the place of his residence and the place of his duty shall be - (June,
2009)
(a) Rs. 1,200 per month (b) Rs. 1,400 per month
(c) Nil (d) Rs. 1,800 per month Ans.(c)
7. The maximum exemption in respect of transport allowance granted to an blind employee to meet his
expenditure for the purpose of commuting between the place of his residence and the place of his duty shall be
- (June, 2009)
(a) Rs. 1,600 per month (b) Nil
(c) Rs. 3,200 per month (d) Rs. 20,000 per month Ans.(c)
8. Pawan, employed in Magie Ltd., was eligible for transport allowance of Rs. 2,000 per month to meet his travel
expenses from residence to office. He actually incurred Rs. 1,200 per month towards travel. The amount of
travel allowance chargeable to tax as perquisite would be - (Dec. 2016)
(a) Rs. 24,000 (b) Rs. 14,400
(c) Rs. 4,800 (d) Nil Ans.(a)
Answer Hint: Transport allowance granted to meet the expenditure incurred on commuting between residence
and office has been made fully taxable w.e.f. AY 2019-20.
9. Rajesh an employee of transport company receives Rs. 25,000 p.m. as basic salary. In addition, he gets Rs.
12,000 p.m. as transport allowance to meet his personal expenditure incurred in course of his official duty of
running the transport from one place to another. He has expended Rs. 60,000 for the said purpose during the
previous year. He is not in receipt of daily allowance. The quantum of transport allowance taxable is -
(a) Rs. 43,200 (b) Rs. 24,000
(c) Rs. 1,44,000 (d) Rs. 84,000 Ans.(a)
9. Manav receives 50,000 as basic salary from the government during the financial year 2019-20 and receives
Rs. 9,000 by way of entertainment allowance which he spends in full for official purposes. The amount
deductible under section 16(ii) in respect of the allowance will be — (Dec. 2010)
(a) Rs. 5,000 (b) Rs. 9,000
(c) Rs. 10,000 (d) None of the above. Ans.(a)
10. Mr. Murthy is employed in ABC Management Institute, Pune. He is eligible for Rs. 24,000 as allowance for
the year towards academic and research work. The amount of academic and research allowance chargeable to
tax is : (Dec 17)
(A) Rs. 10,000
(B) Rs. 24,000

4. Salary 4.14
(C) Nil
(D) Rs. 9,000 Ans.(c)
11. Mr. Amit employed in X Co Ltd, Salem received Rs. 10,000 per month as house rent allowance in the year
2019-20. His total salary is Rs.4 lakhs consisting of Basic pay +DA. He paid rent of Rs. 8,000 per month. How
much of HRA is exempt from tax ? (Dec 17)
(A) Rs. 40,000
(B) Rs. 56,000
(C) Rs. 1,20,000
(D) Rs. 1,60,000 Ans.(b)
12. Rohan, an employee of State Government received Rs. 1,000 per month as entertainment allowance during
the financial year 2019-20. His salary excluding any allowance, benefit or other perquisite for the year is Rs.
8,40,000. The amount of entertainment allowance eligible for deduction is (June 19)
(A) Rs. 12,000
(B) 1% of salary of Rs. 8,400
(C) Rs. 5,000
(D) (12000 – 8400) = 3600. Ans C
13. Ms. Bhavani, a blind employee, working in Beta Ltd. was paid transport allowance of Rs. 2,000 per month
from April, 2019 to September, 2019. She was paid Rs. 3,000 p.m as transport allowance from October, 2019 to
March, 2020. The amount of transport allowance eligible for exemption u/s 10(14) would be : (Dec 19 –OS)
(A) Rs. 7,200

(B) Rs. 9,600
(C) Rs. 38,400
(D) Rs. 30,000
Ans.(d)
8. Perquisites
8A. Rent free accommodation (Reduce recovery from employer wherever done)
8A.1. Valuation of accommodation only (Excluding furniture)
Rent Free Accommodation
Govt. Employee (Central/State) Non-Govt. Employee
License fee determined by

Govt. would be the value of Accommodation Accommodation not
perquisite Owned by employer Owned by employer
Population# of Population# of City Population# of 15% of Salary*

City upto 10 Lac > 10 lac to 25 lacs City > 25 Lac or
Rent paid
Whichever
7.5% of Salary* 10% of Salary* 15% of Salary* is lower
Note – Calculate for only that number of months for which the house is occupied by the
employee.

4. Salary 4.15
*Salary means
Basic Salary
 DA (forming part of the retirement benefits)
 Bonus
 Fee
 Commission (also includes fixed commission)
Taxable allowances
# Population of the i.e.
cityonly taxable
as peer 2011portion of allowances
census.
 Monetary payment not being
Accommodation may beperquisites
provided:(e.g. Leave encashment) i.e. “Ignore ALL
types(1)
of perquisites in this calculation”)
Rent free; or
(2) At concessional rate.
Note: In case the house is provided at concessional rate, the value determined above
shall be reduced by the rent, if any, actually paid by the employee.
8A.2. Value of Furniture provided (To Govt. + Non - Govt. Employees)
1. Owned by employer – 10% p.a of actual cost.
2. Rented by employer – Actual rent paid
8A.3. Accommodation in a hotel
 Lower of 24% of Salary or actual hotel charges
8A.4. Where RFA is not taxable – Exceptions
a. Hotel accommodation provided for a period of maximum 15 days on his transfer from one
place to another.
b. Any accommodation provided to an employee working at a mining site or an on-shore oil
exploration site or a project execution site, or a dam site or a power generation site or an
off-shore site
c. Accommodation provided at new place of posting (New City) while retaining the
accommodation at the other place (Old city). Only 1 accommodation will be taxable up to
a period of 90 days at the option of the Assessee, thereafter both the accommodations will
be taxable.
RFA
1. Kapil gets salary of Rs. 12,000 p.m. and is provided with rent-free unfurnished accommodation at Pune
(population 20 lakh). House is owned by employer, fair rental value of which is Rs. 1,400 p.m. House was
provided with effect from 1st July, 2019. Value of the perquisite of rent-free accommodation will be - (Dec.
2015)
(a) Rs. 21,600 (b) Rs. 10,800
(c) Rs. 16,200 (d) Rs. 12,600 Ans.(b)
2. Satish is employed as chief enginer in Gama Ltd., Chennai w.e.f. 1st April, 2019 for a consolidated salary of
Rs. 60,000 per month. He is provided with rent-free unfurnished accommodation owned by the employer from
1st July, 2019 onwards. The value of taxable perquisite is - (June 2016)

4. Salary 4.16
(a) Rs. 1,08,000 (b) Rs. 81,000
(c) Rs. 72,000 (d) Rs.54,000 Ans.(b)
3. Mr. Arjun employed in KI (P) Ltd. at Mumbai was provided rent-free accommodation by the employer who
owned such accommodation. The salary income of Mr. Arjun for the purpose of computing the perquisite value
is Rs. 8 lakhs. The perquisite value of rent-free accommodation in the hands of Mr. Arjun is: (June, 2017)
(a) 10% of salary i.e. Rs. 80,000 (b) 7.5% of salary i.e. Rs. 60,000
(c) Nil (d) 15% of salary i.e. Rs. 1,20,000 Ans.(d)
4. Ramesh, an employee of Gauri & Co. of Delhi, received the following payments during the previous year
ended 31st March, 2020: Basic salary : Rs. 2,40,000 and dearness allowance : 40% of basic salary (40% forming
part of salary). Rent-free unfurnished accommodation provided by employer for which rent paid by employer
being Rs. 50,000. The value of taxable perquisite in the hands of Ramesh will be - (Dec. 2014)
(a) Rs. 41,760 (b) Rs. 50,000
(c) Rs. 36,000 _ (d) Rs. 52,500. Ans.(a)
5. The employee is provided with furniture costing Rs. 1,50,000 along with house w.e.f. 1-7-2019. The value of
the furniture to be included in the valuation of unfurnished house shall be : (June, 2017)
(a) Rs. 11,250 (b) Rs. 15,000
(c) Rs. 22,500 (d) Rs. 16,875 Ans.(a)
6. Balan is employed in SS Ltd at Madurai. He is provided with a rent free accommodation owned by the
employer. The percentage of salary to be adopted for the purpose of valuation of perquisite would be : (Dec 17)
(A) 15%
(B) 10%
(C) 7.5%
(D) 20% Ans.(b)
8B. Leave Travel Concession 10(15)
 This clause exempts leave travel concession (LTC) received by employees from their
employers for proceeding to any place in India,
 The benefit is available for assessee, spouse, children and (dependent) parents/
brother/sister
 Exemption will be available in respect of 2 journeys performed in a block of 4 calendar
years. Current block 2018 to 2021 calendar years)
 Where such travel concession or assistance is not availed by the individual during any
block of 4 calendar years, one such unavailed LTC will be carried forward to the
immediately succeeding block of 4 calendar years and will be eligible for exemption if
used in the first year of the block.
 Monetary limits – For comparison Amount not exceeding the shortest route by first class rail
fare or amount not exceeding the air economy fare of the National Carrier (Generally Air

4. Salary 4.17
India).
 The exemption referred to shall not be available to more than two surviving children of
an individual on or after 1.10.1998. This restrictive sub-rule shall not apply in respect
of children born before 1.10.1998 and also in case of multiple births after one child.
Calculation
Case Amount Amount Compariso Amount Amount Taxable
actually actually n amount - exempt
received spent Rail/ Flight
I 40,000.00 35,000.00 50,000.00 35,000.00 5000 (40,000 - 35,000)
(As amount sent is less than the amount
received from employer)
II 40,000.00 42,000.00 50,000.00 40,000.00 Nil
(As whole amount received is spent)
III 40,000.00 45,000.00 38,000.00 38,000.00 2000 (40,000 - 38000)
(As the amount given to employee is more
than the maximum limit regarding Rail/
Flight)
IV 50,000.00 43,000.00 42,000.00 42,000.00 8000 (50,000 - 42000)
(As amount given to employee is more than
the maximum limit regarding Rail/ Flight)
V 50,000.00 30,000.00 43,000.00 30,000.00 20,000
8C. Motor Car

4. Salary 4.18
Motor Car
1. Mr. Gupta is given a motor car with chauffeur by the employer which is used for both official
and personal purpose. The entire running expenses of the car amounting to Rs. 64,800 was met by
the employer in the previous year 2019-20. The cubie capacity of the engine of the motor car exceeds
1.6 liters. The perquisite value of motor car taxable in the hands of Mr. Gupta is : (June, 2017)
(a) Rs. 19,200 (b) Rs. 39,600
(c) Rs. 28,800 (d) Rs. 64,800 Ans.(b)
8D. Medical Facilities
Medical
Facilities
Outside
India
In India
Travel Stay Treatment Maintained Princi. CC/ Other

Expenditure Maintained clinics/
Expenditure (For 1 by Comm.
by Govt./ LA hospitals
(For 2 (For 2 person) employer approved +
persons) persons) Specified
diseases
Exempt if GTI Exempt Exempt upto Rs

Exempt Exempt 15,000
before subject to
incuding subject (This is allowed Withdrawn from
RBI limits irrespective of AY 19-20
travel exp. to RBI at which place I
upto Rs 2 lacs limits incurr medical
expenditure)
Points
1. Family means – Spouse, Children, Dependent Parents, Brothers & Sisters
2. Health/ Medical insurance policy premium paid by the employer for employee/
employee’s family members is exempt
3. Payment of premium on personal accident insurance policies of employees is exempt.
4. Medical Allowance and Perquisite

1. Himalaya Ltd. reimburses the following expenditure on medical treatment of the son of an employee Karan.
The treatment was done at UK: (June 2005)
(i) Travelling expenses Rs. 1,15,000.
(ii) Stay expenses at UK permitted by RBI Rs. 45,000 (Actual expenses Rs. 70,000).
(iii) Medical expenses permitted by RBI Rs. 50,000 (Actual expenses Rs. 70,000).
2. The taxable perquisites in the hands of Karan, if his annual income from salary was Rs. 1,56,000 will be –
(a) Rs. 2,55,000 (b) Rs. 45,000
(c) Rs. 1,60,000 (d) Nil Ans.(c)
3. During the previous year, the employee was rembursed Rs. 24,000 as medical expenses incurred by him
which includes Rs. 7,000 spent in Government hospital. The taxable perquisite in this case shall be : (June,
2017)
(a) Rs. 9,000 (b) Nil
(c) Rs. 17,000 (d) Rs. 24,000 Ans.(c)

4. Salary 4.19
4. Ravi is receiving Rs. 10,000 as medical allowance from his employer. Out of this, he spends Rs. 5,000 on his
own medical treatment, Rs. 2,000 on the medical treatment of his dependent wife and another Rs. 3,000 for the
medical treatment of his major son who is not a dependent on him. The amount of medical allowance taxable in
his hand is - (June 2016)
(a) Rs. 10,000 (b) Rs. 5,000
(c) Rs. 3,000 (d) Nil Ans.(a)
5. Sridhar employed as general manager in LMN Ltd. received Rs. 30,000 as medical
reimbursement from the employer by producing bills of a Government hospital. The amount of
medical reimbursement taxable as perquisite is : (Dec 19 –OS)
(A) NIL
(B) Rs. 30,000
(C) Rs. 15,000
(D) Rs. 18,000

Ans.(a)
8E. Other Perquisites

Nature of Perquisite Taxable Value of Note
Perquisite
Free Domestic Servant Actual cost of the
Service of sweeper, employer Less: Amount
gardener or watchman or paid by employee
personal attendant
Supply of gas, electricity or The amount determined shall be
water for household reduced by the amount, if any
consumption recovered from the employee for
a) Procured from outside Amount paid to outside such benefit.
agency agency
b) Resources owned by Manufacturing cost per
employer himself unit
Education Facilities for 1. Amount paid for free training
Children of the employee is not taxable
a) Free education to Cost to the Employer 2. Payment or reimbursement of
employee's own children school fee is taxable in all
Less: Rs. 1,000 per
in the school cases
month
owned/maintained by the 3. No restriction on number of
Less: Amount recovered children
employer or the school
from employee
sponsored by the
employer
b) Other Schools Cost to the Employer
Less: Amount
recovered from
employee

4. Salary 4.20
c) For others (other than Cost of education to

assessees children i.e., Employer
grandchildren and other Less: Amount recovered
household members) from employee
Education Perquisite
1. Ashraf is an employee of Moon Public School. His daughter, Zara, is studying in the said school at a
concessional fees of Rs. 600 per month (Actual fee : Rs. 4,000 per month). The amount taxable in the hands of
Ashraf will be - (June, 2015)
(a) Rs. 48,000 (b) Rs.7,200
(c) Nil (d) Rs. 40,800. Ans.(d)
2. Mr. Bobby employed in PQR Ltd was permitted to admit his only son in the school run by the employer. No
fee was charged on such education provided to the son of Mr. Bobby. The cost of such education for other
children is Rs. 1,800 per month. The perquisite value of free education in the hands of Mr. Bobby would be :
(Dec 17)
(A) Rs. 21,600
(B) Rs. 12,000
(C) Rs. 36,000
(D) Rs. 9,600

Ans.(d)
Interest Free Loan
Interest free or Concessional outstanding Balance for Note taxable if -
Loan each loan on last day of 1. Loan < 20,000
Provided to Employee or each month  Rate of 2. Loan for diseases specified in
household members Interest charged by SBI on the rule 3A (Cancer, TB, AIDS,
1st day of the relevant PY. Disease requiring surgical
Less: Interest charged operation, mental disorder,
caesarean operation). However,
not applicable to so much of the
loan as has been reimbursed to
the employee under medical
insurance scheme.
3. Ashok took an interest-free loan of Rs. 15,000 from B Ltd. (the employer). Assuming that the market rate of
interest on similar loan is 10%. the taxable value of the perquisite in the hands of Ashok will be - (June, 2015)
(a) Rs. 150 (b) Rs. 1,500
(c) Nil (d) None of the above. Ans.(c)
4.Ms. Janhvils provided with an interest free loan by her employer for the purchase of a house. The value of the
perquisite shall be- (June 2016)
(a) Simple interest computed at the rate charged by the Central Government to its employees on 1st April of the
previous year
(b) Simple interest computed at the rate charged by State Bank of India on 1st April of the previous year
(c) Simple interest computed at the rate charged by RBI
(d) Simple interest computed at the rate National Housing Bank on 1st April (b)

4. Salary 4.21

Perquisite
Travelling, Touring, The amount
Accommodation determined shall be
a) Where such facility is It will be the value at reduced by the
maintained by the which such facilities are amount, if any
employer, and is not offered by other agencies recovered from the
available uniformly to all to the public. employee for such
employees. benefit
b) Where the employee is The amount of

on official tour and the expenditure so incurred.
expenses are incurred in
respect of any member
of his household
accompanying him.
c) Where any official tour is The value will be limited
extended as a vacation. to the expenses incurred
in relation to such
extended period of stay
or vacation
d) In any other case, where A sum equal to the
such facility is given to amount of expenditure
the employee or any incurred by the employer.
member of his
household. (Facility
available uniformly to all
employee)
Free food and Non-Alcoholic Working hours
Beverages include extended
office hours (like
working on holidays,
over time)
a) Tea or snacks provided Nil
during working hours
b) Free food and non- Nil
alcoholic beverages
during working hours
provided in a:
(i) Remote area; or
(ii) An offshore
installation.

4. Salary 4.22

Perquisite
c) Free food and non- Cost to the employer in excess of
alcoholic beverages Rs. 50 per meal
provided by the Less: Recovery from the
employer during working employee
hours:
(i) at office or business
premises; or
(ii) Through paid
vouchers which are
not transferable and
usable only at eating
joints.
d) In any other case Actual amount of expenditure
incurred by the employer
Less: Recovery from the
employee
Value of any Gift, Voucher or Gifts made in cash
Token or convertible into
The value of any gift, or Amount over and above of Rs. money (like gift
voucher, or token received by 5,000 only shall be taxable cheques) are not
the employee or by member of [CircularNo.15/2001 dated exempt.
his household on ceremonial 12.12.2001]
occasions or otherwise from Alternative view  proviso to
the employers Rule 3(7)(iv)
If amount > Rs. 5,000, full
amount taxable.
Where the value of such gift, The value of perquisite shall
voucher or token, as the case be nil. As per proviso to Rule
may be, is upto Rs. 5,000 in the 3(7)(iv)
aggregate during the previous
year.
Expenses on Credit Cards
Expenses including The amount paid for or
membership fees and annual reimbursed by the employer.
fees are incurred by the Less: Expenditure on use for
employee or any member of official purpose
his household, which is Less: Amount recovered from
charged to a credit card, employee
provided by the employer or
otherwise are paid for or
reimbursed by the employer
Gift from Employer

4. Salary 4.23
1.During the previous year 2019-20, Barun received a watch worth Rs. 20,000 from his employer. The taxable
value of the watch will be - (June, 2015)
(a) Rs. 15,000 (b) Rs. 20,000
(c) Nil (d) None of the above. Ans.(a)

Perquisite
Club Membership
The payment or The actual amount of expenditure
reimbursement by the incurred or reimbursed by the
employer of any employer.
expenditure incurred Less: Expenditure on use for
(including the amount of official purpose
annual or periodical fee) in Less: Amount recovered from
a club by the employee or employee
by any member of his
household
Use of Moveable Assets
a) Use of laptops and Nil The amount
computers determined shall be
reduced by the reduced
b) Moveable assets other i) If owned by employer than
by the amount, if any
than Laptops and 10% per annum of the actual
paid or recovered from
computers cost of such asset, or
the employee for such
ii) If taken on hire by employer
benefit.
the amount of rent or charge
paid, or payable by the
employer as the case may be.
Transfer of any Moveable
Assets
a) Computers and Actual cost of such asset to the The amount determined
Electronic Items employer as reduced by 50% for shall be reduced by the
each completed year during amount, if any paid or
which such asset was put to use recovered from the
by the employer, on the basis of employee for such
reducing balance method. benefit.
(Note – Completed year
b) Motor Cars Actual cost of such asset to the
means ignore fraction of
employer as reduced by 20% for
the year)
each completed year during
which such asset was put to use
by the employer, on the basis of
reducing balance method.
c) Any other Assets Actual cost of such asset to the
employer as reduced by 10%

4. Salary 4.24
SLM of the actual cost to the

employer for each completed
year during which such asset was
put to use by the employer.
Use of Movable Asset and Sale of Movable assets

1. A company has provided laptop worth Rs. 50,000 to its employee for official as well as personal purposes.
The taxable amount of perquisite will be - (Dec. 2016)
(a) Rs. 5,000 (b) Rs. 25,000
(c) Rs. 10,000 (d) Nil Ans.(d)
2. A company acquired a motor car for Rs. 8 lakh on 30th June, 2018. It sold the and motor car to its employee.
Jayant, for Rs. 6 lakh on 10th June, 2019. The company claimed depreciation @ 15% for the year ended 31st
March, 2020. The perquisite value in the hands of Jayant on sale of motor car would be - (Dec- 2016)
(a) Rs. 80,000 (b) Nil
(c) Rs.2,00,000 (d) Rs. 1,40,000
Ans.(c)
Other Points –
1. Amount of contribution to Superannuation fund by employer – Exempt up to Rs 150,000
2. Perquisites exempt in all cases
a. Telephone d. Transport Facility by employer engaged on
transportation of goods/ passengers
b. Employer’s contribution e. Refreshment during working
to staff group insurance hours in office premises
scheme
c. Recreational facilities if f. Rent-free official Residence to a Judge of a High
provided to all Court, the Supreme Court, Officer of Parliament,
employees Union Minister and a Leader of Opposition in
Parliament.
Superannuation
1. The amount of any contribution to an approved superannuation fund by the employer in respect of the
employee is exempt from tax upto — (June, 2009)
(a) Rs. 1,00,000 (b) Rs. 1,50,000
(c) Rs. 2,00,000 (d) Nil Ans.(b)
2. Mr. Ravi employed in Cotton India Ltd as accounts manager. The employer paid Rs. 1,60,000 as contribution
to approved superannuation fund to benefit the employee Ravi. The amount of such contribution liable to tax as
perquisite in the hands of Mr. Ravi is : (Dec 17)
(A) Nil
(B) Rs. 10,000
(C) Rs. 1,60,000
(D) Rs. 60,000 Ans.(b)
3. ESOP

4. Salary 4.25
Vesting Period ExercisePeriod
1st year 2nd year 3rd year 4th year 5th year
Date of
Date of Date of
Option Acquired Exercise
Allotment
MP = Rs. 175 MP = Rs.
100 shares @ 20 200
MP = Rs. 100
Vesting Date
MP = Rs. 150
Solution :
Perquisite = MV on the date of Exercise - Amount recovered from employee
= 100 Shares X Rs. 175 - 100 Shares X Rs. 20
= Rs. 17,500 - Rs. 2,000
But taxable in the year of allotment (i.e. 5 year).
9. Provident Fund
Particulars Statutory Recognized PF Unrecognized Public PF

PF PF
Employer’s Fully Amount in excess Not taxable N.A.
Contribution exempt of 12% of salary is yearly
taxable
Employee’s Eligible Eligible for Not eligible for Eligible for
Contribution for deduction u/s 80C deduction deduction
deduction u/s 80C
u/s 80C
Interest Fully Amount in excess Not taxable yearly Fully exempt
Credited exempt of 9.5%
p.a. is taxable
Amount Fully Exempt from tax Employer’s Fully
received on exempt if employee contribution and exempt u/s
retirement, u/s 10(11) served a interest thereon 10(11)
etc. continuous is
period of 5 taxable as salary.
years or more Employee’s
or retires before contribution
rendering 5 is not taxable.
years of service Interest on
because of employee’s
reason beyond contribution is
the taxable under
control of the income from
employee. In other source.
other case, it will
be taxable.
For PF, Salary means – Basic + Conditional DA + Fixed % commission on Turnover

4. Salary 4.26
MCQ’s
1. Mrs. Meena retired from service with Sky Ltd. on 31st January, 2020. She received the following amounts from
unrecognised provident fund : (i) Own contribution Rs. 1,50,000; (ii) Interest on own contribution Rs. 21,000; (iii)
Employer's contribution Rs. 1,10,000; and (iv) interest on employer's contribution Rs. 15,000. 2. 2. How much of the
receipt from provident fund is chargeable to tax as income from salary - (June 2016)
(a) Rs. 21,000 ... (b) Rs. 15,000
(c) Rs. 1,25,000 (d) Rs. 1,71,000 Ans.(c)
3. For the year ended 31st March, 2020 Paresh receives a salary of Rs. 2,80,000. Paresh's contribution to employee's
recognised provident fund account is Rs. 59,000 and matching contribution has been made by employer. Taxable
income of Paresh will be- (Dec. 2014)
(a) Rs. 1,96,400 (b) Rs. 2,55,400

(c) Rs. 2,89,000 (d) Rs. 2,06,400 Ans.(a)
4.When interest on employee’s own contribution from unrecognized provident fund is received, it is : (Dec 17)
(A) taxable as income from other sources
(B) taxable as income from salary
(C) exempt from tax
(D) taxable if the interest exceeds Rs. 10,000 Ans.(a)
5. Employer’s contribution to Recognized Provident Fund (RPF) in excess of 12% of salary income of an employee
shall be treated as : (June 19)
(A) Taxable income from salaries
(B) Deemed income from salaries
(C) Exempted income
(D) Income of other sources.
Ans B
10.Deductions under the Head Salary
Deductions from gross salary [Section 16]

a. Standard Deduction - Section 16(ia) -
AY 20-21
A standard deduction of ₹ 50,000 or the amount of salary, whichever is lower, is

to be provided to “ALL” employees (Govt. Non Govt., Handicapped etc.)
b. Entertainment allowance (allowable only in the case of government
employees) [Section 16(ii)]
Least of the following is allowed as deduction:
(1) Rs. 5,000
(2) 1/5th of basic salary
(3) Actual entertainment allowance received
c. Profession tax [Section 16(iii)]
Any sum paid by the Assessee on account of tax on employment is allowable
as deduction.
In case profession tax is paid by employer on behalf of employee, the amount
paid shall be included in gross salary as a perquisite and then deduction can
be claimed.

4. Salary 4.27
Module - Case Laws
1. Can notional interest on security deposit given to the landlord in respect of residential premises taken on rent by
the employer and provided to the employee, be included in the perquisite value of rent-free accommodation given
to the employee? CIT v. Shankar Krishnan (2012) (Bom.)
Decision - No
2. Can the limit of INR 1,000 per month per child be allowed as standard deduction, while computing the perquisite
value of free or concessional education facility provided to the employee by the employer?
CIT (TDS) v. Director, Delhi Public School (2011) (Punj. & Har.)
Decision – More than 1,000 – Fully taxable
Miscellaneous
1. Government of India paid salary of Rs. 5 lakh and allowances/perquisites valued at Rs. 2.20 lakh to a person
who is citizen of India for the services rendered by him outside India for 5 months during the previous year. His
total income chargeable to tax would be— (Dec. 2015)
(a) Rs. 6,80,000 (b) Rs. 4,60,000
(c) Rs. 5,70,000 (d) Nil Ans.(b)
2. Anil is employed in a company with annual salary of Rs. 8,60,000 (computed). The company paid income-tax
of Rs. 37,000 on his non-monetary perquisites. He paid Rs. 1,20,000 to recognised provident fund during the
year 2019-20. His total income would be - (Dec. 2015)
(a) Rs. 7,77,000 (b) Rs. 7,40,000
(c) Rs. 7,97,000 (d) Rs. 7,60,000 Ans.(b)
3. Allowances and perquisites allowed to an employee for services outside India are tax free in case of - (Dec.
2016)
(a) All types of employees (b) Government employees only
(c) Non-government employees only (d) None of the above Ans.(b)
4. Total income of Nand Kishore under the Head 'Salary' for the financial year 2019-20 of whose basic salary and
DA per month was of Rs. 40,000 and Rs. 3,000 respectively and who was also paid leave salary of Rs. 6,000 and
Rs. 1,000 of professional tax by the employer shall be ((Dec 19 –NS) .
(a) Rs. 4,72,000 (b) Rs. 4,76,000
(c) Rs. 5,23,000 (d) Rs. 5,16,000 Ans.(a)
5. A Central Government Officer received during the year 2019-20 salary excluding all allowances of Rs. 9,00,000
and amount of entertainment allowance of Rs. 12,000 @ Rs. 1,000 p.m. The maximum amount of entertainment
allowance so received by him being exempt under section 16(ii) of the Act is ____________. ((Dec 19 –NS)
(a) 1/5th of salary (b) Rs. 1,000 p.m.
(c) Rs. 5,000 (d) Rs. 10,000 Ans.(c)
(6)Philip who retired from Central Government service on 28-2-2019, received monthly pension of Rs. 42,000
up to 30-9-2019 and Rs. 44,100 thereafter. His income from salary after standard deduction would be : (Dec
19 –OS)
(A) Rs. 5,16,600
(B) Rs. 5,01,600
(C) Rs. 4,76,600
(D) Rs. 4,66,600
Ans.(d)

4. Salary 4.28
Accidental Points
1. While computation of Salary in Grade system – Change the salary after the completion of 12
months period and not from the beginning of the new Financial Year.
2. Remember “Salary” is differently defined in different calculations –
a.
Salary

% of T.O
“Salary” is defined as above at total 4 calculations in this Chapter
c. Leave Encashment c. Not Covered by POGA – Gratuity
payment
d. H.R.A d. Provident Fund
b. Covered under POGA – Salary means  Basic + Full DA

c. Entertainment allowance - Salary means  Only Basic Salary
d. Rent Free Accomodation  Salary means
 Basic Salary
 DA (forming part of the retirement benefits)
 Bonus
 Fee
 Commission (also includes fixed commission)
 Taxable allowances i.e. only taxable portion of allowances
 Monetary payment not being perquisites (e.g. Leave encashment) i.e. “Ignore ALL types of
perquisites in this calculation”)
3. Remember the mnemonics given in the chapter for different provisions like retirement benefits
calculations, allowances etc. This will make the retention of minute points very easy.
4. Read the beginning of any question very carefully. It may give you the hints regarding –
a. Who is the Person – Individual, Company, Firm etc.
b. Age of the person
c. City of stay of the person
d. Type of employee – Government/ Non Govt. Employee
e. Indian Citizen/ Person of Indian Origin etc.
5. In Pension calculate 1/2 or 1/3 of the (amount received/ commutation %). Generally, students
multiply 1/2 or 1/3 with the amount received and the whole calculation goes wrong.
6. Don’t forget to reduce monthly pension amount if the assessee is getting the amount
commuted during the year.
7. Need to mandatory remember the names and categories of the allowances.
8. Check carefully whether the House/ Furniture/ Car/ movable asset given to the employee for use
is “Owned” or “Rented” by the employer?

4. Salary 4.29
9. For Medical reimbursements and LTC, spouse, children can be dependent/ Independent but
parents/ brother/sister needs to be dependent to claim the benefit.
10. LTC restriction on Number of children (i.e. Maximum 2 ) is applicable only for those children who
are born 1.10.1998 onwards.
11. In Motor Car, Recovery from the employee is deducted from the value of the perquisite only and
only in the Second Category i.e. car/ expenses provided for “Fully Personal Use”.
The recovery is not to be deducted from Third Category i.e. Car provided for “Partly Official +
Partly Personal Use”
12. Calculation is different for below mentioned category of Motor Car –
Particulars Office + Personal purpose
3. Only Expenditure provided Total Expenditure
(-) 1800/2400 p.m
(-) 900 p.m for Driver (If any)
--------------------------------------
x x x  Taxable perquisite
(If higher amount to claim as expense, then

maintain documents)
13. Regarding reimbursement of Medical Expenses (Perquisite) now is taxable.
14. In Children’s Education allowance, there is a limit on the Number of Children (Max. 2) but for
Perquisite of education there is no limit on the number of Children.
15. For interest free or Concessional Loan – Consider the interest Rate of SBI only & that too of 1st
Day of the relevant Year. Don’t get confused with the rates given of RBI, CG etc. and rate of
interest of different dates of the year.
16. Lunch/ Dinner perquisite provided at normal place of duty or paid vouchers provided – Taxable
but with the exemption limit of Rs. 50 per meal.
17. Lunch/ Dinner perquisite provided at offshore sites etc. – Fully exempt i.e. Taxable Value of
Perquisite is Nil
18. Lunch Dinner/ Meal allowance – Fully Taxable
19. Gift from Employer gets taxable under the head Salary (Exemption limit can be taken as Rs. 5000)
and from other than employer gets taxable under the head “I.O.S” (Exemption limit can be taken
as Rs. 50,000)
20. If movable assets are transferred to the employee (i.e. sold 2 nd Hand) follow the rates of
depreciation given as per valuation rules only –
a. Computers and Electronic Items - 50% w.d.v method
b. Motor Cars – 20% w.d.v method
c. Any other Assets – 10% SLM method.
Never get confused if the question specifies any other depreciation rate. Other rates if given, have
to be ignored.
21. Telephone perquisite – Not Taxable
Telephone allowance – Fully taxable
22. Specifically remember the category of the allowances where actual expenditure is relevant for
calculation and in which category it is irrelevant.
23. RPF category is most important for exams as this is the only category which contains limits if 12%
of Salary and 9.5% of interest.
24. Entertainment allowance is “FULLY TAXABLE” for Non Govt. employee. Deduction is provided
only to the Govt employee.

5. House Property 5.1
Chapter 5 – Income from House Property

1. Basis of Charge (Section 22)
a. Property should consist of any building or land appurtenant thereto.
Income from letting out of vacant land - Income from other sources.
b. Assessee must be the owner of the property
c. Property not to be used by the owner for the purpose of any business or profession
carried on by him.
2. Deemed Ownership
(i) Transferor of the property without adequate consideration, where the property is
transferred to the spouse or to minor child except minor married daughter or to spouse
due to an agreement to live apart
(ii) Holder of an impartible estate
(iii) Member of a co-operative society, Company, AOP etc.
(iv) Person in possession of a property as per TOPA.
(v) Person having right in a property for a period of minimum 12 years. If applicable,
Renewal of rights also needs to be of > 1 year.
3. Business of Renting properties and Stock in Trade.

3.1 Assessee engaged in the business of letting out of properties on rent - would be taxable as
business income (Supreme Court’s decision in case of Rayala Corp (P) ltd.) & also in
Chennai Properties and Investments Ltd. v. CIT (2015) (SC). Intention can be checked
from the MOA of the companies.

3.2 Property held as stock-in-trade - Income from house property.
However, the annual value of property being held as stock in trade would be treated as NIL for a
period of 2 years from the end of the financial year in which certificate of completion of construction
of the property is obtained from the competent authority
NAV = Nil
AY 20-21 Example
1 April 19 31st March 20 31st March 22

On 15th July
19 Certificate 1st April 22 onwards treated
received as Deemed Let out if not
sold by the contractor
4. Calculating GAV and NAV – Section 23 + Deductions u/s 24 – Pro forma
Sr No. Particulars Amount
(i) Municipal value xxx
(ii) Fair rent xxx
(iii) Higher of (i) & (ii)
(iv) Standard rent xxx

(v) Expected rent [Lower of (iii) & (iv)
(vi) Annual/Actual rent received/ receivable xxx
(vii) GAV [Higher of (v) & (vi)] xxx
(viia) After above step – Deduct “Element of Vacancy”
Less Municipal taxes paid/ Sewerage Tax in the current year (xxx)
(It may be of the previous years as well but paid in the current year & It must
be paid by the owner)
Municipal taxes paid outside India also allowed as deduction

(viiI) NAV xxx
Less Deductions u/s 24
(a) Standard Deduction @ 30% (xxx)
(b) Interest on borrowed Capital (xxx)
(ix) Income from house property xxx
Note – Always before comparing with expected rent - First deduct Unrealized rent from actual/
annual rent
5. Calculation of GAV
Step 1 : Compare fair rent with municipal value
whichever is higher
Step 2 : Compare step 1 value with standard rent
whichever is lower is expected rent
Step 3 : Compare the Expected rent determined

above with actual rent
Actual rent > Actual rent <

Expected Rent Expected Rent
Actual rent < Actual rent <

Actual rent is Expected Rent Expected Rent Expected Rent
GAV because of because of any is GAV
vacancy other reason
Points to Note (Very very Imp.)

1. MV – FR – SR is taken for the period for which the property is held.
Exceptions – Property purchased/ Sold during the mid of the year
2. Annual/ Actual rent is taken for the period for which the property is available for letting out.
Exceptions –
 Property purchased/ Sold during the mid of the year
 SOP for part of the year
3. Annual Value means the inherent capacity of a building to yield income

4. Municipal Taxes - The taxes including service taxes (fire tax, conservancy tax, education,
water tax, etc.) levied by any municipality or local authority and include enhanced
municipal tax finally determined & also in cases where enhanced with retrospective effect.
5. This benefit of SOP is for Individual / HUF only [CIT v. Hariprasad Bhojnagarwala (2012) (Guj.)]
6. In Deemed let out properties Expected Rent becomes the Gross Annual Value
7. Actual rent is to be considered after deducting the Unrealized rent
Unrealized Rent
(Rule 4)
Steps taken to
Property vacated or Tenant not in
institute legal
Bona fide tenacy steps taken to compel occupation of other
proceedings for the
to vacate property
recovery or satisfy AO
Example – Compute GAV in the following Cases.
Particular A B C D E F
Expected Rent 100 100 100 120 100 100
Annual Rent 108 48 120 120 108 108
Unrealized Rent - - - - 10 4
Loss due to vacancy 9 4 10 10 9 9
Solution:
Particular A B C D E F
Step 1: Expected Rent 100 100 100 120 100 100
Step 2: Actual Rent = Annual Rent - 108 48 120 120 98 104
Unrealized Rent
Step 3: Higher of Both AR ER AR Equal ER AR
Step 4: GAV (Step 3 - Loss due to vacancy) 99 96 110 110 91 95
6. If assessee have only two house properties which are self-occupied then the Net
Annual Value of that property is considered as “Nil” AY 20-21
7. Where the assessee has more than 2 Self Occupied Property then - Only two
houses (any) will be considered as Self Occupied and others will be considered as
Deemed to be Let Out
AY 20-21

8. Deductions at a Glance
Deductions
Allowed from NAV
Let out/deemed Self-occupied

Iet out properties
properties
Interest on
borrowed
Standard Interest on capital u/s 24(b)
deduction borrowed
u/s 24(a) capital u/s
24(b)
loan for repair, loan for
30% renewal or acquisition or
Fully reconstruction construction of
Allowed of house house property
property
loan taken loan taken

Maximum
before 1.4.99 on or after
Rs.30,000
1.4.99
Maximum
Rs.30,000 acquisition or construction
completed within 5 years
from the end of the FY in
which the capital was
borrowed
+
certificate from lender
specifying interest payable
No Yes
Maximum Maximum
Rs.30,000 Rs.2,00,000
Note – 1. Interest allowable on accrual basis 0
2. New loan taken for repayment of old loan then interest on new loan is allowed.
9. Pre-Construction period interest

Interest payable on borrowed capital for the period prior to the previous year in which the property
has been acquired or constructed (Pre-construction interest), can be claimed as deduction
over a period of 5 years in equal annual installments commencing from the year of
acquisition or completion of construction.
Maximum interest allowed in one year In short

1. Cons. – Purchase -> Current year Cons. + Pre-cons. int. = Maximum Rs. maximum Rs.
2,00,000 2 lacs only will
2. Only repairs - Max 30,000 be allowed in
3. Repairs + cons - 2,00,000 any year.

Note - Interest on borrowed capital in terms of Section 24(1)(vi) but subject to a ceiling of
Rs. 30,000 or Rs. 2,00,000 as the case may be.
The aggregate of amount allowed as deduction for both the houses (SOP) cannot exceed Rs.
30,000/ Rs. 2,00,000 AY 20-21
10. Arrears of Rent / Unrealized Rent
Section 25A
Arrears of Rent / Unrealized Rent
(i) Taxable in the year of receipt/realization
(ii) Deduction@30% of rent received/realized
(iii) Taxable even if assessee is not the owner of the property in the
financial year of receipt/realization.
11. Composite Rent

Renting out house property + Other services/ articles (Furniture, security etc.)
Renting out house

property + Other
services/ articles
(Furniture, security etc.)
Letting out Letting out

Inseperable separable
Attributable to Attributabletoo
Tax as PGBP/
Building - House assets - IOS or
IOS
property PGBP
12. Different situations which may arise (Very important – See the treatments on next page)
Different kind
of situations
House not let Periodically Area wise

out Co owned
SOP Let out property (Partly SOP + (Partly SOP + property
(Deemed let Partly Let out) Partly Let out)
out)
For whole time

Element of
when available
Vacancy
1. SOP for letting out
 Take care regarding Interest deduction and upper amount restrictions.

 Deduction of Municipal tax paid not allowed.
2. Deemed Let out

No restrictions on interest deduction
3A. Let out for whole time when available
No restrictions on interest deduction
3B. Let out with element of vacancy
Deduct element of Vacancy
4. Periodically partly SOP + Partly let out
 No restrictions on interest deduction
 No restrictions on deduction of Municipal tax
5. Areawise Partly SOP + Partly Let out
 Interest and Municipal tax to be calculated proportionately
 Municipal tax deduction not allowed from SOP
 Interest deductions limits applicable to SOP and No limits for Let out portion.
6. Co-owned property
a. Self-occupied property: The annual value of the property of each co-owner will be Nil and each
co-owner shall be entitled to a deduction of Rs. 30,000 / Rs.2,00,000, as the case may be, on
account of interest on borrowed capital.
b. Let-out property: The income from such property shall be computed as if the property is owned
by one owner and thereafter the income so computed shall be apportioned amongst each co-
owner as per their specific share.
Past Exam Questions
(1) Narendra engaged in retail trade let out his fully furnished house with lift, air conditioners, fridge, security
staff and gardener at a rent of Rs. 1,00,000 per month. The agreement did not provide for separate rent for
various facilities but is a composite agreement. The amount received by him would be chargeable to tax under
the head : (June 2019)
(a) Other Sources (b) Business Income
(c) Income from House Property (d) Capital Gains Ans.(a)
(2) Rohit owns a house property in Delhi which he wants to give on rent. He seeks your help to determine the
reasonable expected rent when monthly municipal value is Rs. 20,000, fair rent Rs. 25,000 and standard rent Rs.
22,000. The reasonable expected rent will be computed with reference to following amount per month -
(June, 2015)
(a) Rs. 22,000 (b) Rs. 20,000
(c) Rs. 25,000 (d) None of the above. Ans.(a)
(3) X is the owner of a house, the details of which are given below :(June, 2009)
(a) Municipal value : Rs. 30,000 (b) Actual rent: Rs. 32,000
(c) Fair rent: Rs. 36,000 (d) Standard rent: Rs. 40,000.
The gross annual value would be —
(a) Rs. 36,000 (b) Rs. 35,000
(c) Rs. 30,000 (d) Rs. 40,000. Ans.(a)
(4) Ramesh let-out his house on 1st April, 2019 on rent of Rs. 15,000 p.m. The fair rent and the municipal value
of house are Rs. 13,500 p.m. and Rs. 16,000 p.m. respectively. Municipal taxes paid for the year were Rs. 12,000.
Income from house property for the assessment year 2020-21 will be - (Dec.
2015)
(a) Rs. 1,26,000 (b) Rs. 1,76,000
(c) Rs. 1,05,000 (d) None of the above. Ans.(a)
(5) Municipal value : Rs. 14,000; Fair rent : Rs. 14,500; Standard rent : Rs. 14,200. Actual rent as property let-out
throughout the previous year : Rs. 16,800. Unrealized rent of the previous year : Rs. 7,000. The annual value of
the house property shall be ___________ (June 2007)

(a) Rs. 9,800 (b) Rs. 7,200
(c) Rs. 14,200 (d) Rs. 7,500 Ans.(c)
(6) The construction of a house was completed on 31st January, 2020. The owner of the house took a loan of Rs.
20,00,000 @ 6% p.a. on 1st May, 2020. In this case the deduction allowable for the previous year 2019-20
towards interest on borrowings is (June 2016)
(a) Rs. 22,000 (b) Rs. 24,000
(c) Rs. 1,10,000 (d) None of the above Ans.(c)
(7) Sandeep purchased a house for his residential purpose after taking a loan in January, 2018. During the
previous year 2019-20, he paid interest on loan Rs. 2,17,000. While computing income from house property,
the deduction is allowable to the extent of — (Dec. 2009)
(a) Rs. 30,000 (b) Rs. 1,00,000
(c) Rs. 2,17,000 (d) Rs. 2,00,000. Ans.(d)
(8) Mr. Ahmed acquired two properties in April, 2019 for self-residential use. The loan interest payable to State
Bank of
India for the financial year 2019-20 amounts to Rs. 2,10,000. The amount eligible for deduction u/ s 24 is :(June,
2017)
(a) Rs. 30,000 (b) Rs. 2,00,000
(c) Rs. 2,10,000 (d) Rs. 1,50,000 Ans.(b)
(9) A borrowed Rs. 5,00,000 @ 12% p.a. On 1-4-2015 for construction of house property which was completed
on 15-3-2019. The amount is still unpaid. The deduction of interest for Previous Year 2019-20 shall be : (June,
2017)
(a) Rs. 60,000 (b) Rs. 96,000
(c) Rs. 1,80,000 (d) Rs. 2,40,000 Ans.(b)
(10) When a house property is let-out throughout the year for a monthly rent of Rs. 22,000 and municipal tax
paid for current year is Rs. 24,000 and for the earlier year paid now is Rs. 16,000, the income from house property
would be - (Dec. 2015)
(a) Rs. 1,68,000 (b) Rs. 1,56,800
(c) Rs. 1,84,800 (d) Rs. 2,24,000 Ans.(b)
(11) Ms. Padmaja let out a property for Rs. 20,000 per month during the year 2019-20. The municipal tax on the
let-out property was enhanced retrospectively. Hence, she paid Rs. 60,000 as municipal tax which included
arrears of municipal tax of Rs. 45,000. Her income from house property is - (June
2016)
(a) Rs. 1,80,000 (b) Rs. 1,57,500
(c) Rs. 1,26,000 (d) Rs. 1,36,500 Ans.(c)
(12) Suresh owns two house properties. First property was used half for running his business and the other half
was let-out at Rs. 4,000 per month. The second property was wholly used as a residence by Suresh. Municipal
value of the two properties were the same at Rs. 72,000 each per annum and local taxes @ 10%. Suresh's income
from house property for the previous year 2019-20 will be - (Dec. 2014)
(a) Rs. 33,600 (b) Rs. 31,080
(c) Rs. 28,560 (d) Rs. 62,160. Ans.(b)
(13) When share of each co-owner in a house property is not definite, the income from such property shall be -
(Dec. 2015)
(a) Taxed equally (b) Exempt from tax
(c) Taxed as association of persons (d) Taxed as body of individuals. Ans.(c)
(14) Composite rent of let-out house property is taxable as - (Dec. 2014)
(a) Profits and gains from business or profession
(b) Capital Gains
(c) Income from house property
(d) Either (a) or (c) above depending upon certain conditions. Ans.(d)
(15) Sajal is the owner of a house property covered under the Rent Control Act. Municipal value Rs. 30,000,
actual rent Rs. 25,000 fair rent Rs. 36,000 and standard rent is Rs. 28,000. The gross annual value of the house
property will be -(Dec. 2014)

(a) Rs. 30,000 (b) Rs. 25,000
(c) Rs. 36,000 (d) Rs. 28,000 Ans.(d)
(16) The municipal value of a property to Rs. 2,10,000; fair rant is Rs. 1,90,000; standard rant is 11,80,000 and
the actual rent is Rs. 2,40,000. The gross amount value of the property would be -(Dec. 2016)
(a) Rs. 1,80,000 (b) Rs. 1,90,000
(c) Rs. 2,40,000 (d) Rs. 2,10,000 Ans.(c)
(17) Compute her income chargeable to tax under the head 'Income from House Property'.(Dec. 2002)
(a) Rs. 84,000 (b) Rs. 1,04,000
(c) Rs. 1,25,000 (d) Rs. 1,19,000 Ans.(d)
18) Rajendra a non-resident Indian in the previous year 2019-20 was in receipt of rent of house
property located in Dubai of Rs. 27,50,000. The amount of rent was transferred and credited in the bank
account of Rajendra maintained with SBI. Vadodara by the tenant quarterly. The Annual Letting Value
(ALV) of the house located in Dubai subject to tax under the head Income from house property in A.Y.
2020-21 shall be ____________. ((Dec 19 –NS)
(a) Rs. 16,50,000
(b) Rs. 19,25,000
(c) Rs. 27,50,000
(d) Not taxable as property is in Dubai and he is non-resident
Ans.(b)
Note: Since the same is received in India.
(19) What will be the Gross Annual Value (GAV) of a house owned by Ramesh covered by Rent Control
Act remained let out during the year 2019-20 of which; ((Dec 19 –NS)
(i) Municipal value is Rs. 3,50,000
(ii) Actual (De Facto) Rent is Rs. 3,20,000
(iii) Fair Rent is Rs. 3,00,000
(iv) Standard Rent is Rs. 3,60,000
(a) Rs. 3,60,000 (b) Rs. 3,20,000
(c) Rs. 3,50,000 (d) Rs. 3,00,000 Ans.(c)
(20) Santhnam purchased in October, 2018 with the financial assistance by way of housing loan
provided by PNB Housing Finance Ltd. a flat in Chennai to be used exclusively for his own residential
purposes. Interest on the housing loan till March, 2020 paid by him was of Rs. 2,18,780. He wants to
know the amount of deduction to be available to him in respect of interest so paid on the housing loan
while computing his income for A.Y. 2020-21. ((Dec 19 –NS)
(a) Rs. 30,000 (b) Rs. 2,18,780
(c) Rs. 1,50,000 (d) Rs. 2,00,000 Ans.(d)
(21) House owned by Suresh was sold on 1st January, 2020 and till the date of sale, the house was on
rent of Rs. 7,000 p.m. The other relevant details of this house are (i) municipal value Rs. 72,000 p.a. (ii)
fair rent Rs. 66,000 p.a. And standard rent Rs. 60,000 p.a. The income chargeable under the head House
Property in A.Y. 2020-21 of this house shall be : ((Dec 19 –NS)
(a) Rs. 63,000 (b) Rs. 50,400
(c) Rs. 46,200 (d)Rs. 44,100 Ans.(d)
(22)Goel completed the construction of a residential house properties on 30-6-2019. He already owns
two properties in the same town which is self-occupied. The new construction is also self-occupied by
him. He wants to treat the new construction as deemed let out property. The relevant details of the
new property are : (i) municipal value Rs. 3,00,000; (ii) fair rent Rs. 3,60,000; and (iii) standard rent
Rs. 2,80,000. The gross annual value of the property would be : (Dec 19 –OS)
(A) Rs. 2,80,000
(B) Rs. 2,10,000
(C) Rs. 3,00,000
(D) Rs. 3,60,000 Ans - A

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2020 - 21

CA Saumil Manglani (CA, B.Com)

Topics Topic Name Page Number of

2 Residential Status and Scope of Total 2.1 – 2.26 90

4 Salaries 4.1 – 4.29 65

5 House Property 5.1 – 5.08 22

6 PGBP 6.1 – 6.48 124

7 Capital Gains 7.1 – 7.31 50

8 IOS 8.1 -8.13 37

9 Clubbing 9.1 – 9.05 9

10 Set off - Carry Forward 10.1 – 10.10 21

11 Deductions 11.1 – 11.15 48

12 PAN - Return Filing - Self 12.1- 12.17 31

14 Various entities 14.1 – 14.18 32

15 Tax incidence on companies 15.1 – 15.18 32

16 Assessment – Appeals – Revision - 16.1 – 16.23 43

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Unique Academy - 8007916622 CA Saumil Manglani - Contact: 9921051593

Canons of taxation refer to the administrative aspect of a tax.

Canon of Canon of Canon of

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3. Canon of Convenience: A tax should be due at a time or in a manner that is

Direct Vs Indirect Tax

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Direct and Indirect taxes

Penalty It is levied on the assessee. It is levied on supplier of Goods &

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1. Equity: - depend upon the volume of 1. Evasion: -

4. Reduce inequality Demerits of Indirect Tax

5. Good instrument in the case of inflation. - 1. Regressive in effect:- No distinction is

6. Simplicity made between the rich and poor

Merits of Indirect Tax people.

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Background of Income tax in India

Income Tax Act, 1886

Income Tax Act, 1918

Income Tax Act, 1922

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Income Tax Act, 1961

 Is amended from time to time by the annual finance Act

Schedule VII- Enumerates powers under three lists

o Union List – Powers of Central Government

o Legislative List- Powers of State Government

Some of the major taxes under respective lists are:-

• Customs including export duties

• Taxes on interstate trade of goods

• Taxes on interstate consignment of goods

• Any other matter not included in List II or III

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• Excise duty on alcoholic liquors, opium and narcotics

• Octroi or Entry Tax

• Tax on intra state trade of goods other than newspapers

• Tax on advertisements other than that in newspapers

• Tax on goods and passengers carried by road or inland waterways

• Tax on professionals, trades, callings and employment

 The Central Board of Revenue or Department of Revenue is the apex body

 It is a part of Ministry Of Finance which came into existence as a result of the

Central Board of Revenue Act, 1924.

 Provides essential inputs for policy and planning