Income tax chapters 1 to 3 pdf

INCOME-TAX-II NOTES Dr.T.G.UMA Assistant Professor, Department of Commerce and Management
Maharani Women’s Arts, commerce and Management College Bengaluru
1
UNIT-1
PROFITS AND GAINS FROM BUSINESS OR PROFESSION
INTRODUCTION
The profit/Gains from business or profession carried on by the assesse at any time during the P.Y
are assessed to tax under the head income from business or profession.
BUSINESS [SECTION 2[13]]
According to section 2[13] of the Income Tax Act ,the term business means any trade,
commerce or manufacture or any adventure or concern in the nature of the trade, commerce or
manufacture.
Profession [section 2[36]]
According to section 2[36] profession refers to an occupation, where intellectual skill and
technical expertise in a specified field is accrued for earning a livelihood. Lawyer, Doctor,
Auditor are some of the example of profession. Further, Profession includes Vocation.
Vocation means an activity upon which a person spend the major portion of his time and out of
which he makes his living. Music, dancing , writing books and contribution of articles to journals
constitute the vocation of an assesse.
Format for Computation Taxable Income from Business
Assesse: Previous Year: 2019-20
Status: Assessment Year: 2019-20
Particulars Amount Amount
Net profit or loss as per P & L A/C xxx
Add: 1. Inadmissible expenses debit to P & L A/C xxx
2. Business income not credited to P & L A/C xxx
3. Overvaluation of the opening stock xxx
4. Undervaluation of closing stock xxx xxxx
Less: 1. Admissible expense not debit to P /L A/C xxx
2. Tax-free income in credited to p/l account xxx
3. Non-business income credited to p/l a/c xxx
4. Under valuation of opening stock xxx
5. Overvaluation of closing stock xxx xxxx
Taxable income from business

2
INADMISSABLE EXPENESES
Inadmissible expenses are those expenses which are not allowed under the Act. If such expenses
are debited to profit and loss account by the assesse, they should be added back to the net profit.
Following are some of the example of inadmissible expenses;
1. Family planning expenses
2. Fines and penalties
3. Fringe benefit tax
4. Interest on capital
5. Illegal expenses
6. Legal expenses to acquire a title or to cure defect in the assesses title of assets
7. Loss from discontinued business
8. Gifts and presents [non publicity]
9. GST, customs duty, local taxes of the premises used for business not paid on or before the due
date
10. Any business expenses paid in cash exceeding Rs 10,000, 100% of such payment shall be
disallowed (the monetary limit of Rs 10,000 has been raised to Rs 35000 in the case of payment
made for plying ,hiring or leasing goods carriage)
11. Salary or interest on loan payable outside India without TDS
12. Speculation losses
13. Bad debts still recoverable
14. Betterment charges paid to corporation under town planning act
15. Employer’s contribution to the provident funds not paid on or before the due date of filling
returns
16. Expense relating to other heads of income like municipal taxes of house property let out
17. Excess depreciation
18. Expense incurred to earn tax-free income like cultivation expenses
19. Excessive and unreasonable payment made to the relative

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20. Direct taxes like income tax advance income tax, wealth tax, interest on loan taken for the
payment of income tax etc.
21. Difference in Trial Balance
22. Capital losses like loss on sale machinery, loss on sale of car etc.
23. Charities and donation
24. Capital expenses like purchase of machinery, extension of building, cost of permanent sign
board fixed on office premises
25. Contribution to staff welfare fund.
26. Unapproved or unrecognized fund contribution
27. Patent/Copy right /Technical know –how purchases;
Assesse can claim depreciation u/s 32@ 25% for Patents/ Copy rights/ Technical know- how
Purchased during the previous year
28. Personal expenses or losses like life / Medical insurance premium paid on own life or any
member of assesses family ,Amount invested in NSS, PPF ,Proprietor’s salary , Proprietor
bonus, Drawing , Theft from residence, Rent paid for self, Casual help , House hold
expenses, expenses for arranging personal party etc.
29. Preliminary expenses;
Preliminary expenses( i.e. expenses relating to the preparation of feasibility report, project report,
conducting market survey relating to assesses ‘s business ) or 5% of cost not the project ,which
ever less , is deductible in equal installments over the period of five year commencing from the
previous year in which such expenses were incurred
30. Provision and Reserve like reserve for future losses, provision for bad and doubtful debts
etc.
BUSINESS INCOMES
If business incomes are not credited to P/L account, such incomes should be added to net profit,
to get income taxable under the head business. Following are some of the example of business
incomes:
1. Rent received from employees
2. Interest from debtors for delayed payment

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3. Profit on sale of import license
4. Sale/ Commission /Sundry receipts/ Discount received
5. Speculation income
6. Cash assistance received by the assessee against export under any scheme of government of
India or export incentives.
7. Custom / excise duties recovered but earlier allowed as dedication
8. Amount of liability foregone by the creditor
9. Bad debts recovered but allowed earlier
ADMISSIBLE EXPENSES
Admissible expenses are those expenses, which are allowed under the act. If such expenses are
not debited to P/L account by the assesse, hey should be dedicated from the net profits .
Following are some of the example of admissible expenses:
1. Advertisement expenses (advertisement given in magazines or souvenir of a political party is
Inadmissible)
2. Audit fees
3. Bank Commission
4. Bad debts
5. Bank Cash Transaction Tax
6. Contribution towards rural development program and conservation of natural resources
7. Cost of Khacha well, bore well (but cost of pucca well inadmissible)
8. Commodity transaction tax
9. Demurrage paid to railways
10. Discount and allowances as per IT act
11. Depreciation allowable
12. Establishment expenses

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TAX FREE INCOMES
If incomes, which are exempted from tax, are credited to P/L account, such incomes should be
deducted from net profit, to get income taxable under the head income from business. Following
are some of the examples of tax free income:
1. Dividend from an Indian company / UTI.
2. Dharmada Mandir and Gaushala receipts
3. Refund from LIC
4. Withdrawal from PPF
5. Interest from PO saving banks bank account
6. Income tax refunds
7. Gifts from father / on occasion of grihapravesam / relative
8. Custom duty / excise duty recovered but disallowed earlier
9. Agricultural income
10. Bad debts recovered but disallowed earlier
Business income not taxable under the head profit and gains of business or profession
1. Rental income in the case of dealer in property
2. Dividend on shares in the case of a dealer in Shares
3. Winnings from lotteries etc.
4. Interest received on compensation or enhanced compensation
Speculation Transaction (section 34(5)
Speculative transaction is one where profit is earned by fluctuation in prices of securities or
commodities.

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Rates of tax for depreciation for assessment year 2020-21
Assets Rates
A) Buildings:
a) Residential building excepts hotels and boarding houses 5%
b) Non-residential buildings like office, factory, or godown Buildings 10%
c) Building acquired for installing machinery and plant forming part of water
supply project or water treatment system and which is put to use for the of
business of providing infrastructure facilities u/s 80IA(4)
40%
d) Purely temporary erections such as wooden structures 40%
B) Furniture:
Neon sign board 10%
Any furniture and fitting including electric installation 10%
C) Plant and Machinery :
1. General machinery and plant 15%
2. Motor car other than those used in business of running them on hire
3. a) Aero plane – Aero engines
15%
b) Motor bus motor lorries and motor taxies used in business of running them on
hire
30%
c) Ships and Vessels 20%
d)Plant and machinery used in semi- conductor industry 30%
e)Air pollution control equipment ; water pollution control equipment solid waste
control equipment ,recycling and resources recovery system, etc.
40%
D) Computer [including computer software] 40%
E) Books
a) Books owned by assesses carrying on a profession;
(1) Annual Publication 40%
(2) Other books 40%
b) Books owned by assesses carrying on lending business 40%
F) Intangible assets
Patents, Technical know-how, Copy right, Trademarks, Licenses 25%
Type Writer 15%
Surgical equipment, X –ray machines 15%

7
Format for Computation of Income from Profession
In case of Doctor or Medical Practitioner
Particulars
Professional Receipts : xx
1. Operation fees xx
2. Consultation fees xx
3. Visiting fees xx
4 Sale of medicines xx
5 Gifts received from patients for profession services rendered xx
6 Examiner’s fees xx
7 Remuneration received for writing articles in Professional journals xx
Total professional receipts xxx
Less: Professional Expenses:
1 Rent , Light , Water charges , salary to staff ,telephone expenses of
clinic or hospital
xx
2 Cost of medicines are determined in two ways ;
a) If account are maintained on cash basis;
Cost of actual medicines purchased during the P.Y.
OR
b) if account are maintained on mercantile basis :
Opening stock + New purchases – Closing stock
xx
3 Depreciation on surgical equipment and X-ray machinery etc. xx
4 Depreciation of books at prescribed rates xx
5 Motor car expenses (Depreciation on motor car relating to
profession work)
xx
6 Expenditure incurred to increase professional knowledge xx
7 Professional tax xx
8 Any other expenditure incurred during the year pertaining to
profession
xx
9 Depreciation on computer xx
10 Depreciation on furniture xx xxx
Income from profession xxx

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In case of Chartered Accountant
Professional Receipts:
1 Audit fees xx
2 Gain from accountancy work xx
3 Institute fees xx
4 Examiners fees xx
5 Gifts from clients xx
6 Consultancy i
services xx
7 Remuneration received for writing articles in profession journals xx
Total profession receipts xxx
Less : Profession Expenses
1 Audit office expenditure xx
2 Institution expenses xx
3 Depreciation on book at prescribed rates xx
4 Motor car expenses relating to professional work xx
5 Membership fees xx
6 Depreciation on office equipment or vehicle xx
7 Any other expenditure incurred to increase profession knowledge xx
8 Stipend to trainees xx
9 subscriptions xx
10 Depreciation on office furniture and computer xx
11 Professional tax xx xxx

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In case of Lawyer or an Advocate
Professional Receipts:
1 Audit fees xx
2 Gain from accountancy work xx
3 Institute fees xx
4 Examiners fees xx
5 Gifts from clients xx
6 Consultancy ii
services xx
7 Remuneration received for writing articles in profession journals xx
Total profession receipts xxx
Less : Profession Expenses
1 Audit office expenditure xx
2 Institution expenses xx
3 Depreciation on book at prescribed rates xx
4 Motor car expenses relating to professional work xx
5 Membership fees xx
6 Depreciation on office equipment or vehicle xx
7 Any other expenditure incurred to increase profession knowledge xx
8 Stipend to trainees xx
9 subscriptions xx
10 Depreciation on office furniture and computer xx
11 Professional tax xx xxx

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Illustration -1 (Taxable Income from Business)
Following is the Profit and Loss A/c of Mr. Sajib (resident) for the year ending 31.3.20.
Particulars Amount Particulars Amount
To Office expenses 4500 By Gross profit 1,50,000
To Fire insurance premium 5600 By bad debts recovered but allowed
earlier
5000
To Bad Debts 800 By interest from securities 6000
To Salary to Staff 78000 By Rent received from employees 12000
To Audit fee(in cash) 22250 By rent received from employees 12000
To Proprietor’s bonus 13000 By interest from debtors for delayed
payment
3000
To Interest on capital 3000 By amount received from LIC on
maturity of policy
3000
To Tax income 1900
To Depreciation 2500
To Sale tax (due) 3000
To Advance income tax paid 1200
To Charities 900
To Motorcar expenses 750
To Municipal taxes of quarters let to
employees
6000
To Net profit 35600
1,79,000 1,79,000
Additional Information:
1) Office expenses include Rs 3,000 paid as compensation to an old employee whose services
were terminated in the interest f the business and Rs 1200 by way of help to a poor student.
2) WDV of plant and machinery Rs 10,000. A new machinery costing Rs20,000 was purchased
on 16.12.2018 and put into use on 16.01.2019.
3) 60% of motor car expenses are for proprietor’s personal use.
Compute business income for the A.Y. 2019-20.

11
UNIT-2
Capital Gains
_________________________________________________________________
Basis of Charge
An income shall be taxable as “Capital Gains” on the fulfillment of the following conditions:
1 There must be a capital asset
2 The capital assets must have been transferred
3 The transfer must have been taken place during the P.Y
4 The transfer of such capital asset must give rise to profit or gain
Capital Asset – 2(14)
Capital asset is defined to include property of any kind held by assessee, whether connected with
his business/ profession or not. It includes all kinds of property, movable or immovable, tangible
or intangible, fixed or circulating. Thus, land and building, plant and machinery, motor car,
furniture, jewellery, route permits, goodwill, tenancy right, patent, trademarks, shares,
debentures, securities, units, mutual funds, Zero coupon bonds etc. are capital assets. However,
the following assets are excluded from the definition of capital assets:
1 Any stock in trade : Consumable stores or raw material held for the purpose of business /
profession
2 Any movable property : Any movable assets (excluding jewelry made out of gold, silver,
precious stones and drawing , painting , sculptures, archeological collection etc. ) used for
personal use by the assesse. for example , wearing apparel , furniture , car/ scoter, TV,
refrigerator, musical instrument , gun, revolver , etc. . are the examples of personal effects.
3 Agricultural land situated in rural area in India.
4 Gold deposit bonds issued under gold deposit scheme, 1999.
Types of Capital Assets
Capital Assets Nature of Capital Assets
1 Financial Assets
Listed shares, listed debentures/ government
securities, units of UTI/ mutual funds and zero
coupon bonds
1 If CA is held for _< 1 year = it is a STCA
2 If CA is held for > 1year= it is a LTCA
2 Depreciable Assets Always treated as STCA
3 Other Assets 1 If CA is held for _< 3year = it is a STCA
2 If CA is held for > 3year = it is a LTCA

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Meaning of Short Term Capital Assets and Long Term Capital Assets
If financial assets held by the assessee for a period of more than 12 months (from the date of
acquisition to the date of sale) are treated as long term Capital assets.
If the period of holding is 12 months or less, such financial Assets are treated as Short Term
Capital Assets.
If other assets held by assesse for a period of more than 36 months (from the date of acquisition
to the date of sale), are treated as Long Term Capital Assets. On the other hand, if he period of
holding is 36 months or less, such assets are treated as short term capital assets.
Transfer of Capital Assets
The term transfer of capital assets including sale, exchange, relinquishment , extinguishment,
compulsory, acquisition of asset under any law.
Types of Capital Gains
The Capital gain will be taxable based on the following –
1 Short term Capital gain [ STCG]
2 Long term Capital gain [LTCG]
1 Short Term Capital Gain
Any profit or gain arising from the sale or transfer of Short term Capital asset is known as Short
term Capital Gain
2 Long Term Capital Gain
Any profit or gain arising from sale or transfer of long term Capital Asset is known as term
Capital Gain
Format for Computing Taxable Income from Capital Gains
Nature Of Capital Asset Short Term Capital Asset Long Term Capital Asset
Gross sale consideration xxx xxx
Less: Realization expenses xx xx
Net sale consideration (1-2) xxx xxx
Less: Actual cost of acquisition of capital assets xx -
Less: Indexed cost of acquisition of capital assets - xx
Less: Actual cost of improvement of capital assets xx -
Less: Indexed cost of improvement of capital
assets
- xxx
Gross Capital Gain / Loss xxx xxx
Less: Exemption from capital gain U/S-54D, U/S-54D, U/S-54, U/S- 54 B,
U/S-54G, U/S-54GA U/S-54D, U/S-54EC.
U/S-54F, U/S-54G,
U/S-54GA
Net Capital Gain xxx xxx

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1 Realization Expenses
Brokerage or commission, stamp duty, registration fee and any travelling expenses incurred in
connection with transfer are deductible from gross sale consideration. Legal expenses incurred
for getting compensation for compulsory acquisition of asset are also deductible as they are
incurred in connection with the transfer.
2 Actual Cost of Acquisition
Actual cost of acquisition refers to the value at which the capital asset is acquired by the assesse.
It also includes the expenses incurred for acquiring the asset. For example, interest paid on loan
borrowed for the purchases of capital asset would constitute part of actual part. Legal expenses
incurred in curing the defect in the title of the property of capital nature and hence to be included
in cost of acquisition.
3 Actual Cost of Improvement
Cost of Improvement means expenditure of capital nature incurred in making any addition or
alteration to the capital asset. Similarly, Betterment charges paid the municipal corporation is the
cost of improvement.
Note: cost of improvement incurred by the assesse before 1.4.2001 shall be fully ignored, while
computing taxable income from capital gains.
4 Indexed Cost of Acquisition and Indexed Cost of Improvement
Indexed cost of acquisition and indexed cost of Improvement may be computed under any of the
following situations:
Note: 1 ICOA= Indexed cost of acquisition
2 ICOI= Indexed cost of Improvement
3 COA= Cost of Acquisition
4 COI = Cost of Improvement
5 FMV= Fair market Value
6 CIT= Cost Inflation Index

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Exemptions From Capital Gains
Section-54
Condition for Exemption Amount for Exemption
1 Only individual or HUF can claim exemption
under this section
Gross capital gain
Or
Cost of new residential house(+)
2 The capital asset which is sold should be a
residential house property (self-occupied or let out),
whose income / loss is chargeable under the head
income from house property
Amount deposited in capital gains account
scheme, W.E.L
3 Such residential house property should be a long
term capital asset
4 New residential house should be purchased within
one year prior or two year after or construct a
residential house within three year after the date of
transfer or deposit in bank under the capital gains
account scheme on or before the due date
Section-54B
1 Only individual can claim exemption under this
section
Gross capital gain
Or
Cost of new agriculture land (+)
2 He capital asset which is sold be a long used for
agriculture purpose by the assesse or his parents at
least for 2 years prior to transfer
scheme, W.E.L
3 Such agriculture land can be a short term or long
term capital asset
4 New agriculture land should be purchased within 2
years after the date of transfer or deposit in bank
under the capital gains account scheme on or before
the due date
Section-54D
1 All assesses can claim exemption under this
section
Gross capital gain or cost of new asset
purchased
(+)
Amount deposited in capital gains
scheme W.E.L
2 Land/ building which is compulsory acquired by
the govt., should be used for industrial purpose by the
2 year before its acquisition

15
3 Such land / building can be short term or long term
capital asset
4 New land/ building should be purchased within 3
year from the date of receipt of compensation and
such assets should be used for industrial purpose or
deposit in bank under the capital gains account
scheme on or before the due date
Section-54EC
1 All assesses can claim exemption under this
section
Gross capital gain
Or
Cost of the bonds purchased
Or
50,00,000
W.E.L
2 The capital asset which is sold can be any long
term capital asset
3 New bonds redeemable after 3 year issued by
national highways authority of India or rural
electrification corporation limited Indian railway
finance corporation should be purchased within 6
months after the date of transfer
Section -54EE
Any taxpayer assets sold can be any long term capital
asset
Investment in long term specified asset (to be notified
by the central government to finance startups) within
6months after the date of transfer
Gross capital gain or investment in
specified asset
Or
50,00,000
W.E.L
Section -54F
1 Only individual or HUF can claim exemption
under this section
1 If the cost of new residential house is
residential house is more than the net
sale consideration , entire gross capital
gain is exempted from tax

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2 The capital asset which is sold can be
any long term capital asset (LTCA) other than a
residential house property
2 If the cost of the new residential
house is less than the net sale
consideration , the amount of
exemption is allowed proportionately as
below:
GCG X Cost of new house
NSC
Section -54G
1 All assessees can claim exemption under this
section
Gross capital gain
Or
Cost of land building ,plant or machinery
+
scheme WEL`
2 Land or building ,plant or machinery is sold
on account of shifting industrial undertaking
from urban area to rural area
3 Such Land or building ,plant or machinery
can be short term or long term capital asset
4 New land or building ,plant or machinery
should be purchased 1 year before or within 3
years after the date of sale and such assets
should be used for industrial purpose or deposit
in bank under the capital gains account scheme
on or before the due date

17
UNIT-3
INCOME FROM OTHER SOURCES
Chargeability
An income is changeable under this head , if the following condition are satisfied:
1 The income must not be an exempted income
2 The income must not be chargeable under any other head of income
Format for Computing Taxable Income From Other Source
Assesse: Previous Year:
Residential Status: Assessment Year:
1 Dividends xxx
2 Interest on securities xxx
3 Bank interest on fixed deposits xxx
4 Casual income xxx
5 Income from Family pension xxx
6 Composite rent xxx
7 income from subletting xxx
8 Rental income from machinery ,plant or furniture xxx
9 Gifts xxx
10 Insurance commission xxx
11 Deemed incomes xxx
12 Mining rent/ Royalties/Ground rent xxx
13 Withdrawal from National saving scheme Fully taxable
14 Agriculture income from a place outside India Fully taxable
15 Directors fees or commission Fully taxable
16 Salaries received by a member of parliament or MLA or MLC Fully taxable

18
17 Rent from land Fully taxable
18 Examination fees received by a teacher (not from the employer) Fully taxable
19 Remuneration received for writing short stories/poems Fully taxable
20 Honorarium for checking answer books Fully taxable
21 Interest on employees contribution to URPF Fully taxable
Less: Exemption U/S 57
Any expenditure incurred wholly for the purpose of earing the income is
deductible provided such expenditure is neither of capital nature nor of
personal nature xxx
Taxable Income from Other Sources xxx
Rules for Grossing up of Interest
1) In case of less tax government securities tax is not deducted at source. Therefore, interest from
such securities should not be grossed up.
2) In case of less tax commercial securities if the amount of given in the problem such interest
shall assumed to be net interest. Therefore such interest should be grossed up. On the other hand,
if the amount of investment and rate of given in the problem , gross interest can be calculated
straightaway
3) In case of tax free commercial securities, the interest should be always grossed up,
irrespective of the fact, whether the amount of interest or amount of investment and rate interest
is given in the problem, gross interest the problem.
4) The formula for grossing up of interest : Gross interest =Net Interest X 100
100-tax rate
Interest on the following securities is fully exempt from tax
1 National Defense Gold Bonds, 1980
2 National Plan Certificates (10 years)
3 National Plan Saving Annuity Certificates
4 12 years National saving annuity certificates
5 Treasury Saving Deposit Certificates

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6 Post Office Cash Certificates (5 years)
7 Post Office National Saving Certificates
8 Post office saving bank account to the extent of Rs 3,500 in case of individual accounts Rs
7,000 in case of joint account
9 Post Office Cumulative Time Deposit account
10 Public Account in post office (upto Rs.5000)
11 Special bearer bonds, 1991.
12 Capital Investment Bonds
13 Interest on tax-free Government Securities
No TDS is made for the following
1 Interest on less tax government securities
2 4 ¼ % of national defence bond
3 National development bonds
4 8th
issue national savings certificates
5 Debentures issued by the co-operative society
6 6 ½ % gold bonds, 1977 or 7% gold bonds,1980
7 Post office time deposits
8 Post office recurring deposits
10 Indira Vikas Patra and Kissan Vikas Patra
Bond Washing Transactions [sec. 94(1) ]
A bond washing transaction is narrated as a transaction which consists of selling securities (to a
friend or relative ) some time before the due date and acquiring back the same (or similar)
securities after the due date of interest is over . This practice generally adopted by the high –
income class assesses to evade the tax
Deductions U/S 57
1 Commission paid to the bank or remuneration payable to any person for realizing the interest
on behalf of the assesse is deductible. It the assesse himself collects the interest, he cannot charge
for his own labor.

20
2 Interest on loan borrowed for purchasing securities is fully deductible. However, interest on
loan payable outside India without TDS is not deductible
3 Bank Interest on fixed deposit
It is fully taxable. The Bank/Co-operative society/ Post-office should deduct TDS, If the
following conditions are satisfied
(i) There should a fixed deposit
(ii) The interest should be credited annually
(iii) The interest exceeds Rs 10,000
If net interest is given in the problem ,it shall be grossed up . The formula for grossing up of
interest : Gross interest =Net Interest x 100 /100- tax rate
4 Casual Income
Winnings from lottery, crossword puzzle, TV game shows. Tax at source is deducted, if such
winnings exceed Rs 10,000. However, in case of winnings from horse race, tax is deducted at
source, if the amount of winning exceed Rs 5,000 .Further , in case of winning from other races,
gambling and betting, car games etc. Tax is not deducted at source. No expenditure is allowed
to be deducted out of these incomes
If net winning are given in the problem, it shall be grossed up. The formula for grossing up of
winnings : Gross winning = Net Winning x 100 / 100 – tax rate
Income from maintenance of race horses is taxable under the head income from other sources .If
there is any loss (I.e. if stake money is less than expenses) from activity any other income.
5 Income from Family Pension
Family pension payable by the employer to heir of deceased employee shall be computed after
allowing standard deduction .Such deduction is to be allowed either at 33.33% of family pension
or Rs 15,000, WEL
6 Composite Rent
If the assesse receives composite rent from his tenant, the portion of the rent attributable to the
building should be assessed as income from house property and the remaining portion
attributable to the amenities / services must be assessed as income from other sources. On the
other hand , if the composite rent is in separation , then the entire rent should be assessed as
income from other source or income from business
7 Income from Subletting

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Rental Income from sublet portion of the house shall be assessed as income from other sources .
The taxable amount of such rent is be computed as follows :
Particulars Amount
Rent from sublet portion xxx
Less: expenditure sublet portion xxx
Taxable Income xxx
8 Rental income from machinery, plant or furniture
Rental income derived from letting out of machinery without building ,is to be computed after
making the following deductions:
1 The amount incurred by the assessee on account of current repairs of the asset hired out
2 The amount of insurance premium paid by assessee against damage of the assets hired out
3 Depreciation in respect of asset hired out
9 Gifts
If aggregate amount of gifts, received from non-relatives exceeds Rs 50,000 in the previous year,
it is fully taxable in the hands of the recipient of such gifts. This rule is however not applicable,
if gifts are received from a relative or at the time of marriage or by will.
10 Insurance Commission
If resident individual receives insurance commission in the previous year, such commission is
taxable under the head income from other sources. Further, if the amount of such commission s
more than Rs 20,000 tax is deducted at source If net insurance commission is given in the
problem, it shall be grossed up . The formula for grossing up of insurance commission :
Gross insurance commission =Net Amount x 100 / 100- tax rate
11 Interest on Compensation or enhanced Compensation
Deduction U/S 57: Any expenditure incurred wholly for the purpose of earing the income
deductible provided such expenditure is neither of nature nor of personal nature
Rate of TDS
Income %
1 Interest on security issued by statutory bodies or local authority 10
2 Listed Securities 10
3 Unlisted securities 10
4 Bank Interest 10
5 Casual Income 30

22
6 Insurance Commission 5
7 Commission on sale of lottery tickets 5
8 Rent of plant and machinery 2
9 Rent of land/building/furniture/fittings 10
11 Deemed Incomes
Deemed incomes are not incomes, but as per the IT act ,they are regarded as incomes and
included in the taxable income from other source/business . The following are considered to be
deemed incomes : cash credit , unexplained expenditure ,unexplained investment , unexplained
money etc.

Income tax chapters 1 to 3 pdf

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