STUDY OF INCOME TAX WITH REFERENCE TO HOSE PROPERTY & CAPITAL GAIN

T.Z.A.S.P MANDAL’S
PRAGATI COLLEGE OF ARTS & COMMERCE, DOMBIVALI (E)
A PROJECT ON
“STUDY OF INCOME TAX WITH REFERENCE TO HOSE
PROPERTY & CAPITAL GAIN”
In the Subject Direct & Indirect Taxes
SUBMITTED TO
UNIVERSITY OF MUMBAI
For Semester – III of
Master of Commerce
By
MISS. SAYALI SUBHASH MAHAJAN
ROLL NO. 17
UNDER THE GUIDANCE OF
Prof. ManojMakwana
YEAR 2016 – 2017

This is certify that Miss. SayaliS. Mahajan of M.com,
Semester III (2016–2017) has successful completed the project on “Study
of Income Tax With Reference To Hose Property & Capital Gain” under
the guidance of Prof.ManojMakwana.
Course Coordinators Principal
Internal Examiner External Examiner

RE-ACCREDITED BY NAAC WITH ‘B+’ GRADE
DECLARATION BY THE STUDENT
I, Miss. SayaliSubhashMahajan student of M.Com Part – 2, Roll
Number – 17, hereby declare that the project for the Paper “Direct &
Indirect Taxes” titled “Study of Income Tax With Reference To Hose
Property & Capital Gain” submitted by me for Semester – III during the
academic year 2016-2017, is based on actual work carried out by me under
the guidance and supervision of Prof. ManojMakwana.
I further state that this work is original & not submitted anywhere else
for any examination.
Signature of the Student
MAHAJAN SAYALI SUBHASH

RE-ACCREDITED BY NAAC WITH ‘B+’ GRADE
EVALUATION CERTIFICATE
This is certifying the undersigned have accessed and evaluate
the project on “Study of Income Tax With Reference To Hose Property &
Capital Gain” submitted by Miss. SayaliSubhashMahajan student of
M.com Part – 2.
This project is original to the best of our knowledge and has been accepted
for Internal Assessment.
Internal Examiner External Examiner Principal
Prof. ManojMakwana Dr. A.P.Mahajan

Internal Assessment: Project 40 Marks
Name of the Student Class Division Roll No.
First Name : Sayali
Father’s Name : Subhash
Sir Name : Mahajan
M.Com
(Part 2)
Sem.III
- 17
Subject :Direct & Indirect Taxes
Topic for the Project:
“Study of Income Tax With Reference To Hose Property & Capital Gain”
DOCUMENTATION Marks
Awarded
Signature
Internal Examiner
(Out of 10)
External Examiner
(Out of 10)
Presentation
(Out of 10)
Viva & Interaction
(Out of 10)
Total Marks (Out of 40)

ACKNOWLEDGEMENT
At the Outset, I would like to ThanksAlmighty GOD for this
shower of blessings. The desire of completing this dissertation was given
by myguide Prof. ManojMakwana. I am very much thankful to him for
the guidance, support and for sparing his precious time from a busy and
hectic schedule.
I am thankful to Dr. A. P. Mahajan, Principal of Pragati College
of Arts & Commerce. My Sincere thanks to our Co-ordinator Prof.
ManojMakwana who always motivated me and provided a helping hand
for conceiving higher education.
I would fail in my duty if I don’t thank my parents who are
pillars of my life and my friends who have always supported and motivated
me. Finally, I would express my gratitude to all those persons who directly
and indirectly helped me in completing my dissertation.
MAHAJAN SAYALI SUBHASH

Index
Serial No. Particular Page No.
Chapter 1 INTRODUCTION OF INCOEM TAX
1.1 Introduction of Income Tax 1
1.2 History 2
1.3 Definition 3
1.4 Total Type Income of an individual Assessee 3
1.5 Objectives of the study 3
Chapter 2 COMPUTATION OF TOTAL TAXABLE INCOME IN
DETAILS
2.1 Introduction & Performa 4
2.2 Income Under the Head Salary 7
2.3 Income from House Property 10
2.4 Income form Capital Gain 13
2.5 Chapter VIA Deduction 15
Chapter 3 HOUSE PROPERTY DEDUCTION U/S 24 AND
CALCULATION OF GROSS ANNUAL VALUE
3.1 Introduction of House Property 19
3.2 House Property Deduction U/s 24 19
3.2 Calculation of GAV (Gross Annual Value) 21
Chapter 4 NOTE ON RETURN ON INCOME
4.1 Introduction 23
4.2 Return on Income 23

Chapter 5 BASIC CONCEPTS OF CAPITAL GAIN & COST OF
ACQUISITION
5.1 Basic Concepts of Capital Gain 28
5.2 Important to understand the Capital Gain 31
5.3 Cost of Acquisition (Section 55) 33
Chapter 6 CONCLUSION 36
Chapter 7 BIGLIOGRAPHY & WEBLIOGRAPHY 37

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CHAPTER – 1
INTRODUCTION OF INCOME TAX
1.1 Introduction of Income Tax :
A tax may be defined as a "pecuniary burden laid upon individuals or property owners to
support the government, a payment exacted by legislative authority. A tax "is not a
voluntary payment or donation, but an enforced contribution, exacted pursuant to
legislative authority". In general, tax can be defined as a levy or other type of a financial
charge or fee imposed by state or central governments on legal entities or individuals.
Local authorities like local governments, provincial governments, counties and municipal
corporations also have the right to impose taxes. The rates, rules, and regulations of
taxation differ from one country to another and they are complex in character.
A country’s tax laws determine who should bear the tax burden, or who should pay tax.
The imposed as a certain percentage of the income earned. Taxation policies play an
important role in the financial and of a country. The default or partial payment of taxes
attracts penalties. The penalties can be civil or criminal penalties.

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Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour
equivalent (often but not always unpaid labour). India has a well developed taxation
structure. The tax system in India is mainly a three tier system which is based between
the Central, State Governments and the local government organizations. In most cases,
these local bodies include the local councils and the municipalities. According to the
Constitution of India, the government has the right to levy taxes on individuals and
organizations. However, the constitution states that no one has the right to levy or charge
taxes except the authority of law.
Taxes in India are levied by the central government and the stage governments. Some
minor taxes are also levied by the local authorities such as the Municipality The authority
to levy a tax is derived from the constitution of Indiawhich allocates the power to levy
various taxes between the Central and the State. An important restriction on this power is
Article 265 of the Constitution which states that "No tax shall be levied or collected
except by the authority of law".
1.2History :
Income tax is today an Important Source of revenue for Government in all the countries.
More than 3,000 years ago, the inhabitants of ancient Egypt and Greece used to pay
income tax, consumption taxes and custom duties
Income Tax was first introduced in India 1860 by James Wilson who becomes Indian’s
first Finance Member.
Income Tax Authorities.
1. Central Government : -Income Tax, Excise Duty & Customs Duty
2. State Government :- Sales Tax, VAT, Excise and Tax on agricultural income.
3. Municipalities :- Octroi & House Property Tax.

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1.3Definition :
1. Income :- Income means some monetary returns periodically received from some
definite source.
2. Assesses :- A person liable to pay any tax or any other sum of money under this Act.
3. Person :- According to law an assessee is a person by whom any tax is payable.
Person includes - An individual - A firm - A HUF - A local authority - A company.
4. Assessment years :-It is a year in which the income of the Previous year is to be
assessed. The current assessment year is 2017-2018.
5. Previous years :-Previous years means financial year immediately preceding the
assessment year. Previous years for this assessment year would be 2015-2016.
1.4 Total Type Income of an individual Assessee.
 Salary Income
 House Property
 Business or Profession
 Capital Gain
 Income from other Source
1.5 Objectives of the study:
1. To understand the concept of Tax.
2. To study about various allowable expenditures.
3. To study the Income & Computation of tax under the head ―Profits & Gains from
Business/Profession.‖
4. To study the various Sections covering under the head Profits & Gains from
Business/Profession.‖

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CHAPTER – 2
COMPUTATION OF TOTAL TAXABLE INCOME IN DETAILS
2.1 Introduction & Performa:
Total Income of an individual Assessee.
 Salary Income
 House Property
 Capital Gain
 Income from other Source
PROFORMA OF COMPUTATION OF TOTAL INCOME
Name of Assesse :
Previous Year : 01/04/2016 To 31/03/2016
Assessment Year : 2017-2018
COMPUTATION OF TOTAL INCOME
Particular Rs.
A) INCOME FROM SALARY
1. Gross Taxable Income
2. Deduction U/s 16
(a) Profession Tax
(b) Entertainment Allowance ( Govt )
(c) Total Deduction [a+b]

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3. Net Taxable Salary XXX
B) INCOME FROM HOUSE PROPERTY
(a) Municipal Valuation
(b) Fair Rent
(c) Higher of (a & b)
(d) Standard Rent
(e) RLV (Lower of c & d)
(f) Actual Rent
(g) Gross Annual Value (Higher of e & f)
Less : Municipal Tax paid
Net Annual Value
Less: Deduction Us /24
i) Standard Deduction 30% of Net Annual Value (NAV)
ii) Interest on Loan Borrowed
iii) Pre construction Interest
Income form House Property XXX
C) INCOME FROM BUSINES / PROFESSION
I] Receipt & Payment Account
(a) Business Receipt vide R & P A/c
(b) Less : Payment Vide R & P A/c
(c) Net Business Income [a-b]
XXX
II] Profit & Loss Account
(a) Net Profit vide Profit & loss A/c
(b) Total Addition

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(c) Total Deduction
(d) Net Business Income [a+b-c]
XXX
D) SHORT TERM CAPITAL GAIN
1.Consideration
2. Transfer Expenses
3. Cost (Original + Expenses)
4. Short Term Capital Gain (1-2-3) XXX
E) INCOME FROM OTHER SOURCES
1. Lottery / Races / Betting / Game Prizes
2. Interest on NSC (Eligible U/s 80)
3. Other Interest
4. Miscellaneous Income
5. Income From Other Sources XXX
E) GROSS TOTAL INCOME (Excluding LTCG)
F) DEDUCTION UNDER CHAPTER VIA
1. Deduction U/s 80C
2. Deduction U/s 80D
3. Deduction U/s 80E
4. Deduction U/s 80U
5. Deduction U/s 80TTA
6. Total Deduction U/Ch VIA XXX
H) NET INCOME (GTI less Deductions)
I] Add : Long Term Capital Gain
1.Consideration
2. Transfer Expenses
3. Indexed Acquisition Cost
4. Indexed Improvement Cost
5. Long Term Capital Gain [1-2-3-4] XXX

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J) NET TAXABLE INCOME (H+I) XXX
1) Tax on Income Charged at Special Rate
(a) LongTerm Capital Gain
(i) With Indexation @ 20%
(ii) Or, in some cases, without indexation @ 10%
(b) Short Term Capital Gain, Subject to STT @ 10%
(c) Lottery, Crossword, Races, Card Games etcs.@ 30% XXX
2) Tax on Income Charged at Normal rates.
(a) Tax on (Normal Income + Agricultural Income)
(b) Tax on (Exempt Slab + Agricultural Income)
XXX
3) Tax on Total Income (a-b ) XXX
4) Education Cess @ 3% on (3) XXX
5) Tax Payable (3+4) XXX
6) Less Pre-paid Tax
(a) Advance Tax
(b) Tax Deducted at Sources
(c) Tax paid on Self-Assessment
XXX
Total Pre-Paid Taxes
7) TAX DUE OR REFUND RECEIVED [6-7] XXX
2.2Income Under the Head Salary :
Any person employed gets compensated by way of remuneration for services rendered.
This is called Salary. It is received in cash or in kind – by way of amenities, benefits,
perquisites. Which emoluments are salary how to value perquisites and what deductions
are available from salary has been dealt which under this head of income. Certain tax-free

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item of remuneration has been enumerated under section 10 and is discussed in this
chapter.
Statement Showing Taxable Income from Salary
Particular Rs. Rs.
Basic Salary XX
Bonus XX
Commission XX
Allowances XX
Perquisites XX
Gross Salary XX
Less :- Specific Deduction XX
Taxable Income from Salary XXX
 Salary : Any person employed gets compensated by way of remuneration for
services rendered. This is called Salary. It is received in cash or in kind – by way of
amenities, benefits, perquisites.

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 Allowances : Allowances is a fixed monetary amount paid by the employer to the
employee for meeting some particular expenses, whether personal or for the
performance of his duties. These allowances are generally taxable and are to be
included in the gross salary unless specific exemption has been provided in respect
of any such allowances.
 Specific Deduction :
Following allowances that are fully exempt in the hand of employees
Sr. No Allowances Conditions to claim fully exemption
1 Travelling
Allowance
Should be provided by the employer and spent
by the employee to meet the cost of official tour
or transfer expenses.
2 Daily Allowance Should be spent by the employee for meeting
the daily charges incurred on a tour or transfer.
3 Conveyance
Allowance
Should be used by the employee to meet the
expenditure on conveyance in performance of
official duties.
4 Helper Allowance Should be used by an employee to meet the
expenditure on a helper who assists him in the
performance of official duties.
5 Academic
Allowance
Should be used by the employee for his
academic research and training pursuits.
6 Uniform Allowance Should be spend by employee ofr
purchasing/maintaining office uniform for
official duties.

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2.3Income From House Property :
House property consists of any building or land appurtenant thereto of which the assessee
is the owner. The appurtenant lands may be in the form of a courtyard or compound
forming part of the building. But such land is to be distinguished from an open plot of
land, which is not charged under this head but under the head. Income from Other
sources‟ or Business Income‟, as the case may be.
Besides, House property‟ includes flats, shops, office space, factory sheds, agricultural
land and farm houses. Further, house property includes all type of house properties, i.e.,
residential houses, godowns, cinema building, workshop building, hotel building, etc.
Income from house property is defined as the income earned from a property by the
assessee. House property includes the building itself and any land attached to the
building. Property refers to any building (house, office building, warehouse, factory, hall,
shop, auditorium, etc.) and/or any land attached to the building (compound, garage,
garden, car parking space, playground, gymkhana, etc.).
Income form House Property Format
Sr.
No.
Particular Letout
Property
(LOP)
Deemed to
be Letout
Property
Self
Ocupied
Property
a Municipal Valuation XX XX 0
b Fair Rent XX XX 0
c Higher of (a & b) XX XX 0
d Standard Rent XX XX 0
e RLV (Lower of c & d) XX XX 0
f Actual Rent XX XX 0
g Gross Annual Value (Higher of e & f) XX XX 0
Less : Municipal Tax paid XX XX XX

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Net Annual Value XXX XXX XX
Less: Deduction Us /24
i) Standard Deduction 30% of Net
Annual Value (NAV)
XX XX XX
ii) Interest on Loan Borrowed XX XX XX
iii) Pre construction Interest XX XX XX
Income form House Property XXX XXX XXX
There are many intricacies and types of house property which is calculated in different
ways. Taxability may not necessarily be on actual rent or income received. If the property
is not let out, the tax will be charged on the potential income the property is capable of
yielding.
Important to understand the terminology.
1. Annual Value: This is the capacity of a property to earn income is its annual value.
2. Municipal Value:This is the value of your property as evaluated by municipal
authorities on which they charge municipal tax. Municipal authorities have a host of
factors that they consider before assigning a municipal value.
3. Fair Rental Value:The rent which a similar property with similar features in the
same (or similar) area would fetch is the fair rental value.
4. Standard Rent:Under the Rent Control Act, a standard rent is fixed and owners
cannot receive rent higher than that specified in the Rent Control Act. This Act
ensures that owners are paid fair rent, tenants are not exploited and are protected
from eviction.

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5. Actual Rent received/receivable:This is the actual amount received by the owner
from the tenant as rent, depending on who pays the water, electricity and other utility
bills.
6. Gross Annual Value (GAV): This is the highest among:
Rent received or receivable
Fair Market Value
Municipal Valuation
If the Rent Control Act is applicable, the GAV is highest among:
 Standard Rent
 Rent Received
Net Annual Value (NAV): NAV = GAV – Municipal Taxes Paid
1. Deductions: To arrive at the actual taxable income from house property, two
deductions are allowed, under Section 24
2. Statutory Deduction:30% of the NAV is allowed as a deduction towards repairs,
rent collection, etc. irrespective of the actual expenditure incurred. This deduction is
not allowed if the Annual Value is nil.
3. Interest on borrowed capital:is allowed as a deduction on accrual basis if the
money was borrowed to buy/construct the house. Deduction is allowed on whichever
is lesser between Rs.1,50,000 or the actual interest amount (in case the construction
was completed within 3 years of taking the loan, on or after 1-April-1999.) In other
cases, it’s between Rs.30,000, and the actual interest, whichever is less.
 Annual Value: Annual Value = NAV – Deductions.
 Owner/deemed owner: Income from house property is taxable to the owner of
the property. The owner is the person who is entitled to receive income from
property. This means that income is chargeable to the person who receives

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financial benefit from the property, even if the property is not registered to him,
i.e. deemed owner. A deemed owner is an owner by implication and not
necessarily documented registration.
2.4 Income Form Capital Gain
1. Meaning:
Any Income derived from a Capital asset movable or immovable is taxable under
the head Capital Gains under Income Tax Act 196.
2. Basic of Charges:
 Profit or gain arising from the transfer of capital assets during previous year is
chargeable under the head capital gains if following conditions are full filed;
 Theirshould be capital assets.
 Their should be transfer of capital assets.
 Transfer should take place in previous year.
 Their should be profit or gains.
3. There must be a capital assets [S2(14)] :
 Capital Assets is defined to means property of any kind, held by the assessee,
whether or not connected with his business or profession
 Property may be tangible or intangible.
 Land, buildings, vehicles, goodwill, tenancy rights, leasehold rights, licenses,
patents, trademarks, etc. are some examples of capital assets.
4. Capital Assets must be transferred 4[S.2(47)
 The extinguishment of any rights therein
 The sale, exchange or relinquishment of the asset;
 Conversion of capital assets into stock in trade
 The compulsory acquisition of any capital assets by the government;

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5. Types of Capital Asset
There are 2 types of capital asset
 Short Term Capital Gain :It means a capital assets held by an assessee for not
more than 36 months immediately prior to its date of transfer. Tax is calculated
as per Income Tax Act.
 Long Term Capital Gain :A Asset is not a short term capital gain is long term
capital gain. 20 % is taxable.
Computation of Short Term Capital Gain
Particular Rs.
Full Value of Consideration XX
Less : Cost of Acquisition XX
Less : cost of Improvement XX
Short term capital gain XX
Less : Exemption U/s 52(b),54(d), & 54(g) XX
Net Short Term Capital Gain XXX
Computation of Long Term Capital Gain
Particular Rs.
Less : Cost of Improvement XX
Long term capital gain XX
Net Long Term Capital Gain XXX

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Important to understand the terminology
1. Full Value of Consideration: It means what the transferor or is entitled to receive
as consideration for the sale of property/Asset. This Value may be in cash or in
kind i.e. in exchange for an asset.
2. Cost of Acquisition : It is the price which the assessee has paid or the amount
which the assessee has incurred for acquiring the property/Asset
3. Cost of Improvement: It is capital expenditure incurred by am assessee in making
any addition/Improvements to the capital asset.
4. Index Cost of Acquisition (ICOA) :Cost of acquisition * Cost of the year in
which asset is transferred.
Cost inflation index of the first year in which asset was first hold by the assessee or
Cost inflation index of the year beginning on 1st april,1981.(which Every is later).
5. Index Cost of Investment :Cost of acquisition * cost Inflation Index of the year in
Cost of Inflation Index of the year in which improvement took place.
2.5ChapterVIADeduction:
1. Section 80C :
The maximum tax exemption limit under Section 80C has been retained as Rs 1.5 Lakh
only. The various investment avenues or expenses that can be claimed as tax deductions
under section 80c are as below;
 PPF (Public Provident Fund)

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 EPF (Employees’ Provident Fund)
 Five year Bank or Post office Tax saving Deposits
 NSC (National Savings Certificates)
 ELSS Mutual Funds (Equity Linked Saving Schemes)
 Kid’s Tuition Fees
 SCSS (Post office Senior Citizen Savings Scheme)
 Principal repayment of Home Loan
 NPS (National Pension System)
 Life Insurance Premium
 SukanyaSamriddhi Account Deposit Scheme
2. Section 80CCC :
Contribution to annuity plan of LIC (Life Insurance Corporation of India) or any other
Life Insurance Company for receiving pension from the fund is considered for tax
benefit. The maximum allowable Tax deduction under this section is Rs 1.5 Lakh.
3. Section 80D:
Deduction u/s 80D on health insurance premium is Rs 25,000. For Senior Citizens it is Rs
30,000. For very senior citizen above the age of 80 years who are not eligible to take
health insurance, deduction is allowed for Rs 30,000 toward medical expenditure

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4. Section 80U :
This is similar to Section 80DD. Tax deduction is allowed for the tax assessee who
is physically and mentally challenged.
5. Section 80G :
Contributions made to certain relief funds and charitable institutions can be
claimed as a deduction under Section 80G of the Income Tax Act. This deduction
can only be claimed when the contribution has been made via cheque or draft or in
cash. But deduction is not allowed for donations made in cash exceeding Rs
10,000. In-kind contributions such as food material, clothes, medicines etc do not
qualify for deduction under section 80G.

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6. Section 80E
If you take any loan for higher studies (after completing Senior Secondary Exam),
tax deduction can be claimed under Section 80E for interest that you pay towards
your Education Loan. This loan should have been taken for higher education for
you, your spouse or your children or for a student for whom you are a legal
guardian. Principal Repayment on educational loan cannot be claimed as tax
deduction.
There is no limit on the amount of interest you can claim as deduction under
section 80E. The deduction is available for a maximum of 8 years or till the
interest is paid, whichever is earlier.
7. Section 87A :
If you are earning below Rs 5 lakh, you can save an additional Rs 3,000 in taxes.
Tax rebate under Section 87A has been raised from Rs 2,000 to Rs 5,000 for FY
2016-17 (AY 2017-18).
In case if your tax liability is less than Rs 5,000 for FY 2016-17, the rebate u/s
87A will be restricted up to income tax liability only.
8. Section 80 TTA :
Deduction from gross total income of an individual or HUF, up to a maximum of
Rs. 10,000/-, in respect of interest on deposits in savings account with a bank, co-
operative society or post office can be claimed under this section. Section 80TTA
deduction is not available on interest income from fixed deposits.

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CHAPTER – 3
HOUSE PROPERTY DEDUCTION U/S 24 AND CALCULATION OF
GROSS ANNUAL VALUE
3.1 Introduction of House Property :
House property consists of any building or land appurtenant thereto of which the assessee
is the owner. The appurtenant lands may be in the form of a courtyard or compound
forming part of the building. But such land is to be distinguished from an open plot of
land, which is not charged under this head but under the head. Income from Other
sources‟ or Business Income‟, as the case may be.
Besides, House property‟ includes flats, shops, office space, factory sheds, agricultural
land and farm houses. Further, house property includes all type of house properties, i.e.,
residential houses, godowns, cinema building, workshop building, hotel building, etc.
3.2 House Property Deduction U/s 24
1. Standard Deduction u/s 24 (a): Standard deduction of 30% of NAV ( Net Annual
Value) shall be allowed to the assessee in respect of
(i)Maintenance charges,
(ii) repairs

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(iii) collection charges
(iv) electricity
(v) fire insurance premium
(vi) ground rent
(vii) depreciation
2. Interest on Loan U/s 24 (b) :
(i) Purpose of Loan :The loan shall be borrowed for the purpose of acquisition,
construction, repairs, renewal or reconstruction of the house property.
(ii) Accrual Basis :The interest will be allowed as a deduction on accrual basis,
even though it is not paid during the financial year.
(iii) Interest on Interest : Interest on unpaid interest shall not be allowed as a
deduction.
(iv) Brokerage : Any brokerage or commission paid for acquiring the loan will not
be allowed as a deduction.
(v) Prior Period Interest : Prior Period Interest shall be allowed in five equal
installments, commencing from the financial year in which the property was
acquired or construction was completed.
Note :Prior Period Interest means the interest from the date of borrowed of the loan
up to the end of the financial year immediately preceding the financial year in which
acquisition was made or construction was completed.
(vi) Interest on fresh loan to repay existing loan :Interest on any fresh loan taken
to repay the existing loan shall be allowed as a deduction [Circular 28/20.09.1969].

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(vii) Inadmissible Interest :Interest payable outside India without deduction of tax
at source and respect of which no person in India is treated as an Agent U/s 4163
shall not be an allowable expenditure.
(viii) Certificate : The assessee should furnished a certificate from the person from
whom the amount is borrowed.
(ix) Maximum Ceiling :
a) In case of self occupied house property : Interest on borrowed capital (of
current year & pre-construction period) is deductible subject to maximum
ceiling given below:
 Condition 1 – Capital is borrowed on or after April 1, 1991 foracquisition or
construction a property.
 Condition 2 – TheAcquisition or construction should be completed within 3
years, form the end of the financial year in which the capital was borrowed.
 Condition 3 – The person extending the loan certifies that such interest is
payable in respect of the amount advance for acquisition or construction of
the house or as re-finance of the principle amount outstanding under an
earlier loan taken for such acquisition or construction.
b) In case of let-out house property or deemed let-out house property –
Deduction of interest borrowed capital is not subjected to maximum ceiling.
3.3 Calculation of GAV (Gross Annual Value)
1. Gross Annual Value (GAV) [Section 23(1)]:
Tax under the head : Income from house Property‖ is not a tax upon rent of
property. It is taxed on inherent capacity of a building ti yield income. The Standard
sectioned as a measure of the income to be taxed is ―Annual Value‖.

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Gross Annual Value is determined as follows :-
Step I Find out reasonable expected rent of the property.
Step II Find out rent actually received or receivable after excluding unrealized
rent but before deducting loss due to vacancy
Step III Find out which one is higher – amount computed in step I or Step II
Step IV Find out loss because of vacancy
Step V Step III minus Step IV is Gross Annual Value.
Sr.
No.
Particular Letout
Property
(LOP)
Deemed to
be Letout
Property
Self
Ocupied
Property
a Municipal Valuation XX XX 0
b Fair Rent XX XX 0
c Higher of (a & b) XX XX 0
d Standard Rent XX XX 0
e RLV (Lower of c & d) XX XX 0
f Actual Rent XX XX 0
g Gross Annual Value (Higher of e & f) XX XX 0

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CHAPTER – 4
NOTE ON RETURN ON INCOME
4.1 Introduction:
The starting point for assessment of income is furnishing of return of income. Filing of
return of income is mandatory for certain category of assesses. Incidental provisions for
accompaniments to the return of income, error correction and belated returns have been
made. Now filing of the return electronically has been made mandatory for certain
category of assesses. Return of income is the format in which the assessee has to furnish
information as to his total income and tax payable. The format for filing of returns by
different assesses is notified by the CBDT.
4.2 Return of Income:
1. Compulsory Filing of Return of Income [Section 139(1)]
(1) As per section 139(1), it is compulsory for companies and firms to file a return of
income for every Previous Year.
(2) In case of a person other than a company or a firm, filing of return of income is
mandatory, if his total income or the total income of any other person in respect of which
he is assessable under this Act during the Previous Year exceeds the basic exemption
limit.
(3) Such persons should, on or before the due date, furnish a return of income in the
prescribed form and verified in the prescribed manner and setting forth such other
particulars as may be prescribed.

24
(4) Further, every person, being an individual or a HUF or an AOP or BOI or an artificial
juridical person– – whose total income or the total income of any other person in respect
of which he is assessable under this Act during the Previous Year
2. Return of Loss [Section 139(3)]
(1) This section requires the assessee to file a return of loss in the same manner as in the
case of return of income within the time allowed under section 139(1).
(2) Under section 80, an assessee cannot carry forward or set off his loss against income
in the same or subsequent year unless he has filed a return of loss in accordance with the
provisions of section 139(3).
(3) A return of loss has to be filed by the assessee in his own interest and the non-receipt
of a notice from the Assessing Officer requiring him to file the return cannot be a valid
excuse under any circumstances for the non-filing of such return.
(4) In particular, a return of loss must be filed by an assessee who has incurred a loss
under the heads ―Profits and Gains from Business or Profession‖, ―Capital Gains‖, and
income from the activity of owning and maintaining race horses taxable under the head
―Income from Other Sources‖.
(5) However, loss under the head ―Income from House Property‖ under section 71B and
unabsorbed depreciation under section 32 can be carried forward for set-off even though
return of loss has not been filed before the due date.
3. Belated Return [Section 139(4)]
(1) Any person who has not furnished a return within the time allowed to him under
section 139(1) or within the time allowed under a notice issued under section 142
(1) may furnish the return for any Previous Year at any time –

25
(i) before the expiry of one year from the end of the relevant Assessment Year; or
(ii) before the completion of the assessment, whichever is earlier.
(2) Interest is required to be paid under section 234A, as stated earlier.
(3) A penalty of ` 5,000 may be imposed under section 271F if belated return is
submitted after the end of Assessment Year.
4. Revised Return [Section 139(5)]
(1) If any person having furnished a return under section 139(1) or in pursuance of a
notice issued under section 142(1), discovers any omission or any wrong statement
therein, he may furnish a revised return at any time before the expiry of one year from
the end of the relevant Assessment Year or before completion of assessment, whichever
is earlier. In other words : Such return can be submitted at any time :-
(a) before the expiry of one year from the end of the relevant Assessment Year; or (b)
before the completion of assessment Whichever is earlier
(2) It may be noted that a belated return cannot be revised. It has been held in Kumar
Jagdish Chandra Sinha vs. CIT 1996 86 Taxman 122 (SC) that only a return furnished
under section 139(1) or in pursuance of a notice under section 142(1) can be revised. A
belated return furnished under section 139(4), therefore, cannot be revised.
5. Defective Return [Section 139(9)]
(1) Under this sub-section, the Assessing Officer has the power to call upon the assessee
to rectify a defective return.
(2) Where the Assessing Officer considers that the return of income furnished by the
assessee is defective, he may intimate the defect to the assessee and give him an
opportunity to rectify the defect within a period of 15 days from the date of such

26
intimation. The Assessing Officer has the discretion to extend the time period beyond
15 days, on an application made by the assessee.
(3) If the defect is not rectified within the period of 15 days or such further extended
period, then the return would be treated as an invalid return. The consequential effect
would be the same as if the assessee had failed to furnish the return.
(4) Where, however, the assessee rectifies the defect after the expiry of the period of 15
days or the further extended period, but before assessment is made, the Assessing
Officer can condone the delay and treat the return as a valid return.
(5) A return can be treated as defective if it is not properly filled in or the necessary
enclosures are not accompanying the return or it is filed without payment of self-
assessment tax. Specific defects are only illustrative and not exhaustive - CIT vs.
RaiBahadurBissesswarlalMotilalMalwasie Trust 195 ITR 825.
6. Permanent Account Number (PAN) [Section 139A]
.(1) Where any person in the following category has not been allotted a Permanent
Account Number (PAN), he should apply to the Assessing Officer within the prescribed
time for allotment of a PAN –
(i) Every person whose total income or the total income of any other person in respect
of which the person is assessable under this Act during any Previous Year exceeded the
basic exemption limit; or
(ii) Every person carrying on any business or profession whose total sales, turnover or
gross receipts exceeds or is likely to exceed `5 lakhs in any Previous Year; or
(iii) Every person who is required to furnish a return of income under section 139(4A);
or

27
(2) The CBDT had introduced a new scheme of allotment of computerized 10 digits
PAN. Such PAN comprises of 10 alphanumeric characters and is issued in the form of a
laminated card.
(3) All persons who were allotted PAN (Old PAN) earlier and all those persons who
were not so allotted but were required to apply for PAN, shall apply to the Assessing
Officer for a new series PAN within specified time.
(4) Once the new series PAN is allotted to any person, the old PAN shall cease to have
effect. No person who has obtained the new series PAN shall apply, obtain or process
another PAN. (5) On receipt of allotment of PAN it must be mentioned on all tax
payment challans, returns, correspondence.
(6) Where TDS or TCS is made, the person from whom it is made must communicate
his PAN to the person deducting or collecting tax.
(7) Every person receiving any document relating to a transaction prescribed under
clause (c) of subsection
(8) shall ensure that the Permanent Account Number or the General Index Register
Number has been duly quoted in the document.

28
CHAPTER – 5
BASIC CONCEPTS OF CAPITAL GAIN & COST OF ACQUISITION
5.1 Basic Concepts of Capital Gain :
1. Meaning:
Any Income derived from a Capital asset movable or immovable is taxable under
the head Capital Gains under Income Tax Act 196.
2. Basic of Charges:
 Profit or gain arising from the transfer of capital assets during previous year is
chargeable under the head capital gains if following conditions are full filed;
 Theirshould be capital assets.
 Their should be transfer of capital assets.
 Transfer should take place in previous year.
 Their should be profit or gains.
3. There must be a capital assets [S2(14)] :
Positive list - It includes the following –
(i) ―Property‖ includes any rights in or in relation to an Indian company,
including rights of management or control or any other rights whatsoever.
(ii) Property of any kind held by an assessee (whether or not connected with his
business or profession).

29
(iii) Any securities held by a Foreign Institutional Investor which has invested
in such securities in accordance with the regulations made under the SEBI Act
(applicable with effect from assessment year 2015-16). Negative list - The
following assets are excluded from the definition of ―capital assets‖—
(a) any stock-in-trade [other than securities referred to in sub-clause
(b)], consumable stores or raw material held for the purpose of business or
profession;
(b) personal effects of the assessee, that is to say, movable property including
wearing apparel and furniture held for his personal use or for the use of any
member of his family dependent upon him (jewellery, archaeological
collections, drawings, paintings, sculptures; or any work of art are treated as a
capital asset even though it is meant for personal use of the assessee);
(c) agricultural land in rural area in India;
(d) per cent Gold Bonds, 1977 or 7 per cent Gold Bonds, 1980 or National
Defence Gold Bonds, 1980 issued by the Central Government;
(e) Special Bearer Bonds, 1991; and
(f) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999.
4. Capital Assets must be transferred 4[S.2(47)
 The extinguishment of any rights therein
 The sale, exchange or relinquishment of the asset;
 Conversion of capital assets into stock in trade
 The compulsory acquisition of any capital assets by the government;

30
5. Types of Capital Asset
There are 2 types of capital asset
 Short Term Capital Gain :It means a capital assets held by an assessee for not
more than 36 months immediately prior to its date of transfer. Tax is calculated
as per Income Tax Act.
 Long Term Capital Gain :A Asset is not a short term capital gain is long term
capital gain. 20 % is taxable.
Computation of Short Term Capital Gain
Particular Rs.
Less : cost of Improvement XX
Short term capital gain XX
Net Short Term Capital Gain XXX
Computation of Long Term Capital Gain
Particular Rs.
Less : Cost of Improvement XX
Long term capital gain XX
Net Long Term Capital Gain XXX

31
5.2 Important to understand the Capital Gain
i. Full Value of Consideration: It means what the transferor or is entitled to receive
as consideration for the sale of property/Asset. This Value may be in cash or in kind
i.e. in exchange for an asset.
ii. Cost of Acquisition : It is the price which the assessee has paid or the amount
which the assessee has incurred for acquiring the property/Asset
iii. Cost of Improvement: It is capital expenditure incurred by am assessee in making
any addition/Improvements to the capital asset.
iv. Index Cost of Acquisition (ICOA) :Cost of acquisition * Cost of the year in which
asset is transferred.
Cost inflation index of the first year in which asset was first hold by the assessee or
Cost inflation index of the year beginning on 1st april,1981.(which Every is later).
v. Index Cost of Investment :Cost of acquisition * cost Inflation Index of the year in
Cost of Inflation Index of the year in which improvement took place.
6. Indexed Cost of Acquisition (ICA) And Index cost of Improvement (ICI)
[Section48]
When Asset is acquired by assessee himself
i. Acquired prior to 01.04.1981
Fair market Value on 01.04.1981 or cost of acquisition whichever is higher X Cost
of Inflation index for the year of transfer / 100

32
ii. Acquired after 01.04.1981.
Index Cost of Acquisition (ICOA) =
Cost of Acquisition X CII for the year of transfer
CII for the year of Acquisition
Index Cost of Investment (ICOI) =
Cost of Investment X CII for the year of transfer
CII for the year of Improvement
When Asset is acquired by assessee himself
iii. Asset Acquired prior to 01.04.1981 by previous owner and received by the assessee
prior to 01.04.1981
ICA = FMV on 01.04.1981 Or Cost of acquisition by previous owner whichever is
higher X CII for the year of Transfer / 100
iv. Asset Acquired prior to 01.04.1981 by previous owner and received by the assessee
after 01.04.1981
ICA =
FMV on 01.04.1981 or Cost of acquisition by previous owner whichever is higher X
CII for year of transfer
CII of year in which the asset is first held by the assessee

33
v. Asset Acquired prior to 01.04.1981 by previous owner and received by the assessee
after 01.04.1981
Index Cost of Acquisition =
Cost of acquisition by previous owner X CII for year of transfer
Index Cost of Acquisition =
Cost of Improvement X CII for year of transfer
5.3 Cost of Acquisition (Section 55) :
Cost of Acquisition (COA) means any capital expense at the time of acquiring capital
asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring
date in the form of registration, storage etc. expenses incurred on completing transfer.
5.4 Cost of Acquisition with Reference to Certain Modes of Acquisition (Section –
49)
1. Where the capital asset became the property of the assessee:
a. on any distribution of assets on the total or partial partition of a Hindu undivided
family;
b. under a gift or will;
c. by succession, inheritance or devolution;

34
d. on any distribution of assets on the dissolution of a firm, body of individuals, or other
association of persons, where such dissolution had taken place at any time before
1.04.1987;
e. on any distribution of assets on the liquidation of a company;
f. under a transfer to a revocable or an irrevocable trust;
g. by transfer from its holding company or subsidiary company;
h. by transfer in a scheme of amalgamation;
i. by an individual member of a Hindu Undivided Family giving his separate property to
the assessee HUF anytime after 31.12.1 969,
In all above cases, the cost of acquisition of the asset shall be the cost for which the
previous owner of the property acquired it, as increased by the cost of any improvement
of the asset incurred or borne by the previous owner or the assessee, as the case may be,
till the date of acquisition of the asset by the assessee.
If the previous owner had also acquired the capital asset by any of the modes above, then
the cost to that previous owner, who had acquired it by mode of acquisition other than the
above, should be taken as cost of acquisition.
2. Where shares in an amalgamated Indian company became the property of the assessee
in a scheme of amalgamation the cost of acquisition of the shares of the amalgamated
company shall be the cost of acquisition of the shares in the amalgamating company.
3. Where a share or debenture in a company, became the property of the assessee on
conversion of bonds or debentures the cost of acquisition of the asset shall be the part
of the cost of debenture, debenture stock or deposit certificates in relation to which
such asset is acquired by the assessee.

35
4. Where shares, debentures or warrants are acquired by the assessee under Employee
Stock Option Plan or Scheme and they are taken as perquisites u/s 1 7(2) the Cost of
Acquisition would be the valuation done u/s1 7(2).
5. Cost of Acquisition of shares in the Resulting Company, in a demerger.The cost of
acquisition of the original shares held by the share holder in the demerged company
will be reduced by the above amount.
6. Where Capital Gains is not levied on a transfer of capital asset between a Subsidiary
Company and a Holding Company or vice-versa but the conditions laid down are
violated subsequently and Capital Gains is to be levied, the cost of acquisition to the
transferee company would be the cost for which such asset was acquired by it.
7. Where the capital asset is goodwill of a business or a Trade Mark or Brand Name
associated with a business, right to manufacture, produce or process any article or
thing, right to carry on any business, tenancy rights, stage carriage permits or loom
hours, the cost of acquisition is the purchase price paid by the assessee and in case no
such purchase price is paid it is nil.
8. Where the cost for which the previous owner acquired the property cannot be
ascertained, the cost of acquisition to the previous owner means the Fair Market
Value on the date on which the capital asset became the property of the previous
owner.
9. Where the capital asset became the property of the assessee on the distribution of the
capital assets of a company on its liquidation cost of acquisition of such asset is the
Fair Market Value of the asset on the date of distribution.

36
CHAPTER – 6
CONCLUSTION
 From the overall information, it is concluding that the various Taxes plays vital role
in generating revenue to the government. This revenue used by the government for
growth and development of the country.
 However taxes are collected from various heads of incomes such as Income from
Salary, Income from House Property, Income from Business/Profession, Capital
Gains & from Other Sources which are the part of Direct Taxes. But in case of
Income from Business/Profession, tax is calculated by considering Sec.28 to Sec.43B.
In this project covers section 28 to section 36.
 These sections deals with various aspects like chargeability, deductions expressly
allowed, depreciation etc.After considering all these aspects accurate tax may be
calculated which is mandatorily paid by the assesse.
 Income tax generally is computed as the product of a tax rate time’s taxable income.
The tax rate may increase as taxable income increases (referred to as graduated rates).
 There are certain expenses which are disallowed while calculating Net Income
for the purpose of Tax. These are disallowed due late payment of certain
payments.

37
CHAPTER – 7
BIGLIOGRAPHY & WEBLIOGRAPHY
1) Dr. VarshaAinapure (MananPrakashan)
2) www.incometax.gov.in
3) http://icmai.in/upload/Students/Syllabus-2012/Study_Material_New/Inter-Paper7-
Revised.pdf
4) http://www.slideshare.net/neelimakogta/income-tax-introduction
5) http://www.taxdose.com/any-other-capital-asset-under-cost-of-acquisition-section-
55-income-tax-capital-gain
6) http://incometaxmanagement.com/Pages/Tax-Ready-Reckoner

STUDY OF INCOME TAX WITH REFERENCE TO HOSE PROPERTY & CAPITAL GAIN

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