CONTENTS

Module 1: Basic Concepts and Tax Management

1.1. 1.1.1. 1.1.2. 1.1.3. 1.1.4. 1.2. 1.2.1. 1.2.2. 1.2.2.1. 1.2.2.2. 1.2.3. 1.2.4. 1.2.5. 1.2.6. 1.2.7. 1.2.8. 1.2.9. 1.2.10. 1.2.11. 1.2.12. 1.2.13. 1.2.14. 1.2.15. 1.3. 1.3.1. 1.3.2. 1.3.3. Concepts & Framework of Taxation Meaning and Definition of Tax Nature/Characteristics/Elements of Tax Objectives/Aims of Taxation Principles of Direct Taxation Basic Concepts: TERM used in Income Tax Act Assessment Year [Section 2 (9)] Previous Year [Section 3] Provision Regarding Previous Years Exceptions to the Rule of Previous Year Person [Section 2(31)] Assessee [Section 2(7)] Income [Section 2(24)] Charges on Income [Section 4] Heads of Income [Section 14] Exempted Incomes [Section 10 & Section 86] Deductions from Income [Section 80C to 80U] Gross Total Income [Section 80B(5)] Total Income [Section 2(45)] Agricultural Income [Section 2(1A)] Assessment [Section 2(8)] Capital and Revenue Receipts Rates of Tax for Financial Year 2009-10(Assessment Year 2010-2011) Residential Status and Tax Liability Residential Status of Individuals [Section 6(1)] Residential Status of Hindu Undivided Family (HUF) [Section 6(2)] Residential Status of Firm, Association of Persons (AOP), Body of Individuals (BOI) [Section 6(2)] and of Other Persons (Excepting Companies) Residential Status of a Company [Section 6(3)] Receipt and Accrual of Income Connotation of Income Deemed to Accrue or Arise and Received in India Incidence of Tax/ Total Income on The Basis of Residence Tax Planning and Management Tax Planning Tax Avoidance Tax Evasion Difference between Tax Planning and Tax Evasion Tax Management 3 3 3 5 7 8 9 9 9 10 12 13 14 14 15 15 15 15 15 15 16 16 18 20 20 23 24

1.3.4. 1.3.5. 1.3.6. 1.3.7. 1.4. 1.4.1. 1.4.2. 1.4.3. 1.4.4. 1.4.5.

24 24 28 30 35 35 45 47 50 50

Module 2: Income from Salary and Other Sources

2.1. 2.2. 2.2.1. 2.2.2. 2.2.3. 2.2.4. 2.2.5. 2.2.5.1. 2.2.5.2. 2.2.5.3. Heads of Income Income form Salary Meaning of Salary Basis of Charge of Salary Income [Section 15] Some Important Rules with Regard to Salaries Tax Treatment of Different Forms of Salary Allowances Fully Taxable Allowances Partly Taxable Allowances Fully Exempt Allowances 58 58 58 59 60 63 69 69 71 82

2.2.6. 2.2.6.1. 2.2.6.2. 2.2.6.3. 2.2.6.4. 2.2.6.5. 2.2.7. 2.2.8. 2.2.9. 2.3. 2.3.1. 2.3.2. 2.3.3. 2.3.4. 2.3.5. 2.3.6. 2.4. 2.5. 2.5.1. 2.5.2. 2.5.3. 2.5.4. 2.5.5. 2.5.6. 2.5.7. 2.5.8. 2.5.9. 2.5.10. 2.5.11. 2.5.12. 2.5.13. 2.5.14.

Perquisites Types of Perquisites General Perquisites (Taxable in the Hands of Every Employee) Specific Perquisites (Taxable in the Hands of Specified Employees) Tax-Free Perquisites Valuation of Perquisites Provident Fund Approved Superannuation Fund Permissible Deduction from Salary Income Income from House Property Basis of Charge Some Important Factors for Consideration Income from House Property Exempt from Tax Annual Value Deductions from Income from House Property [Section 24] Computation of Taxable Income from House Property Income from Other Sources Description of Some Important Incomes Dividend Winning from Lotteries, Crossword Puzzles, Horse Races, and Card Games Interest on Securities [Section 56(2)(i)(d)] Income from Letting Out of Machinery, Plant or Furniture Income Includes Gift of Money from Unrelated Persons [Section 56(2)(vi)] Family Pension Payments Received by the Legal Heirs of a Deceased Employee Contribution of the Employee Towards Welfare Fund, Deducted/Received by the Employer [Section 56(2)(ic)] Interest on Kisan Vikas Patra Interest on Indira Vikas Patra Interest on National Savings Certificates Receipt under Keyman Insurance Policy Interest on Social Security Certificates Deemed Income Chargeable to Tax [Section 59] Specific Deductions

82 83 85 86 87 91 103 105 106 111 111 113 114 116 120 121 125 127 127 129 130 133 133 134 135 135 135 135 135 136 136 136

Module 3: Income under Capital Gain

3.1. 3.1.1. 3.1.2. 3.1.3. 3.1.4. 3.1.5. 3.1.6. Income Under Capital Gain Introduction Basic of Charge [Section 45(1)] Inclusion and Exclusion from Capital Assets (Meaning of Capital Assets) Transfer of Capital Asset Types of Capital Assets and Gains Capital Gain should Arise in the Previous Year in which Transfer Took Place 3.1.7. Capital Gain Computation [Section 48] 3.1.8. Computation of Tax on Capital Gains 3.1.9. Capital Gain in Special Cases 3.1.10. Slump Sale 3.1.11. Exemptions from Capital Gains 3.1.12. Security Transaction Tax [Section 88E] 3.2. Miscellaneous Problems Module 4: Income under Head Profit & Gain of Business / Professions Income under the Head Profit and Gains of Business or Professions Meaning of Business or Profession 141 141 141 141 143 144 145 145 150 152 155 157 163 164

4.1. 4.1.1.

171 171

4.1.2. General Principles for Assessing Business or Profession Income 4.1.3. Principles for Computing Profits and Gains 4.1.4. Basis of Charge [Section 28] 4.1.5. Methods of Accounting [Section 145] 4.1.6. Computation of Taxable Profits of Business or Profession 4.1.6.1. Methods of Calculating Taxable Profits 4.1.7. Scheme of Business Deductions/ Allowances 4.1.8. Specific Deductions/Expenses Which are Expressly Allowed as a Deduction 4.1.8.1. Rent, Rates, Taxes, Repairs & Insurance for Buildings [Section 30] 4.1.8.2. Repairs and Insurance of Machinery, Plant & Furniture [Section 31] 4.1.8.3. Depreciation [Section 32] 4.1.8.4. Site Restoration Fund [Section 33ABA] 4.1.8.5. Expenditure on Scientific Research [Section 35] 4.1.8.6. Amortization of Preliminary Expenses [Section 35D] 4.1.8.7. Amortization of Expenditure in Case of Amalgamation or Demerger 4.1.8.8. Amortization of Expenditure Incurred under Voluntary Retirement Scheme 4.1.8.9. Deduction for Expenditure on Prospecting, etc., for Certain Minerals 4.1.8.10. Insurance Premium [Section 36 (1) (i)] 4.1.8.11. Premium on Lives of Cattle [Section 36(1)(ia)] 4.1.8.12. Premium on Insurance of Health of Employees [Section 36(1)(ib)] 4.1.8.13. Bonus or Commission to Employees [Section 36(1)(ii)] 4.1.8.14. Interest on Borrowed Capital [Section 36(1)(iii)] 4.1.8.15. Employers Contribution to Recognized Provident Fund or Approved Superannuation Fund [Section 36(1)(iv)] 4.1.8.16. Employers Contribution to Approved Gratuity Fund [Section 36(1)(v)] 4.1.8.17. Employees Contribution towards Provident Funds and other Funds of Staff Welfare [Section 36(1)(va)] 4.1.8.18. Loss on Animals [Section 36(1)(vi)] 4.1.8.19. Bad Debts [Section 36(1)(vii)] 4.1.8.20. Revenue Expenditure Incurred by a Corporation or a Body Corporate 4.1.8.21. Banking Cash Transaction Tax [Section 36(1)(xiii)] 4.1.8.22. Contribution towards Credit Guarantee Fund Trust [Section 36(1)(xiv)] 4.1.8.23. Securities Transaction Tax [Section 36(xv)] 4.1.8.24. Commodities Transaction Tax [Section 36(xvi)] 4.1.8.25. General Deduction [Section 37(1)] 4.1.9. Specific Disallowances/Expenses Specifically Disallowed as a Deduction 4.1.9.1. Certain Deductions Allowable only on Actual Payment Basis 4.1.10. Deemed Profits 4.1.11. Undisclosed Income and Investments 4.1.12. Maintenance of Books(Section 44AA) 4.1.13. Compulsory Audit of Accounts(Section 44AB) 4.1.14. Special Provisions [Sections 43C, 44AD, 44AE, 44AF] 4.1.14.1. Special Provision for Computation of Cost of Acquisition of Certain Assets] 4.1.14.2. Special Provision for Computing Profits and Gains of Business of Civil Construction, etc. [Section 44AD] 4.1.14.3. Special Provision for Computing Profits and Gains of Business of Plying, Hiring or Leasing Goods Carriages [Section 44AE] 4.1.14.4. Special Provisions for Computing Profits and Gains of Retail Business 4.2. Problems on Computation of Income From Business/ Profession

172 173 175 177 178 179 182 184 185 185 185 197 197 200 200 201 201 202 202 202 202 202 203 203 203 203 204 204 204 205 205 206 207 207 213 214 220 221 222 222 223 223 224 225 226

Module 5: Setoff and Carry Forward of Losses

5.1. 5.1.1. 5.1.2. 5.1.3. Set-Off and Carry Forward of Losses Introduction Meaning of Set-off and Carry Forward of Losses Set-Off of Losses 235 235 235 235

5.1.4. 5.1.5. 5.1.6. 5.1.7. 5.1.8. 5.1.9. 5.1.10. 5.2. 5.2.1. 5.2.2. 5.2.3. 5.2.4. 5.2.4.1. 5.2.4.2. 5.2.4.3. 5.2.4.4. 5.2.5. 5.2.6. 5.2.7.

Carry Forward of Losses to Set-Off Carry-Forward & Set-off of the Accumulated Losses & Unabsorbed Depreciation Allowance in Amalgamation of Demerger, etc., [Section 72A] Carry-Forward and Set-off of Losses in case of Change in Constitution of Firm [Section 78(1)] Carry-Forward and Set-off of Losses on Succession of any Person Carry-Forward and Set-off of Losses in case of Certain Companies Carry-Forward and Set-off of Losses in Brief Problems on Set-off and Carry-Forward of Losses Permissible Deductions From Gross Total Income [Section 80C to 80U] Introduction Basic Rules for Deductions Persons Entitled to Deductions Categories of Deduction Deduction to Encourage Savings Deductions for Certain Personal Expenditure Deductions for Socially Desirable Activities Deduction in Respect of Certain Income Income from Newly Established Industrial Undertakings in Free Trade Zone, etc. (Section 10A) Income from Newly Established 100% Export Oriented Undertaking Special Provisions in Respect of Export of Certain Articles or Things

238 242 243 243 243 244 244 247 247 247 248 248 249 253 256 260 266 268 269

Module 6: Taxable Income of a Firm, Partners and Company

6.1. 6.1.1. 6.1.2. 6.1.3. 6.1.4. 6.1.5. 6.1.6. 6.1.7. 6.1.8. 6.1.9. 6.1.10. 6.1.11. 6.2. 6.2.1. 6.2.2. 6.2.3. 6.2.4. 6.2.5. 6.3. 6.3.1. 6.3.2. 6.3.3. 6.3.4. Computation of Total Income of A Firm and Partners Partnership Scheme of Taxation of Firms Condition for Assessment as a firm [Section 184] Assessment When Section 184 not Complied With [Section 185] Computation of Income from Business or Profession of the Firm Computation of Income of a Partner from the Firm Treatment of Firm Losses Computation of Book Profit Computation of Tax Liabilities of Firm Change in the Constitution of a Firm Assessment of Dissolved or Discontinued Firm [Section 189] Computation of Taxable Income of Company Introduction Types of Companies Corporate Dividend Tax [Section 115O to 115Q] Computation of Total Income and Tax Liabilities Minimum Alternative Tax/ Special Provision for Payment of Tax by Certain Companies/MAT (Section 115JB) Fringe Benefit Tax (FBT) Meaning of Fringe Benefit Tax [Section 115W(b)] Fringe Benefits/Deemed Fringe Benefit Taxable in the Hands of an Employer Fringe Benefits or Amenities which shall be Taxable Perquisites in the Hands of all Employees Fringe Benefits or Amenities which shall be Taxable Perquisites in the Hands of Employees provided the Employer is not Liable to pay FBT 271 271 271 271 272 273 276 277 278 279 279 280 285 285 286 287 290 291 300 301 301 303 303

Module 7: Central Sales Tax

7.1. 7.1.1. Central Sales Tax (CST), 1956 Concepts 305 305

7.1.2. 7.1.3. 7.1.4. 7.1.5. 7.1.6. 7.1.7. 7.1.8. 7.1.9. 7.1.10. 7.1.11. 7.1.12. 7.1.13. 7.1.14. 7.1.15. 7.1.16. 7.2. 7.2.1. 7.2.2. 7.2.3. 7.2.4. 7.2.5. 7.2.6.

Charging Section of CST Objects of CST Act Basic Term used in CST Basic Scheme of the CST Act Categories of Sales Inter State Sale [Section 3] Intra State Sale [Section 4] Sale in Course of Export/Import [Section 5] Liability to Tax on Inter-State Sales [Section 6] Burden of Proof Rates of Tax on Inter-State Trade or Commerce [Section 8(1)] Calculation of Sales Turnover Exemptions and Exclusion from CST Source of Procedures under CST Act Registration under CST Act [Section 7] Value Added Tax (VAT) Concept Variants of VAT Computation of VAT Advantages of VAT Disadvantages of VAT Difference between VAT and Sales Tax

306 306 306 308 309 310 312 314 316 317 318 318 319 319 320 323 323 324 324 325 327 329

Module 8: Central Excise and Custom Acts

8.1. 8.1.1. 8.1.2. 8.1.3. 8.1.4. 8.1.5. 8.1.6. 8.1.7. 8.1.8. 8.1.9. 8.1.10. 8.1.11. 8.1.12. 8.2. 8.2.1. 8.2.2. 8.2.3. 8.2.4. 8.2.5. 8.2.6. 8.2.7. 8.2.8. 8.2.9. 8.2.10. 8.2.11. 8.2.12. 8.2.13. Central Excise Act, 1944 Introduction Chargeability of Excise Duty Objects of Central Excise Duty Definition and Concepts of Important Terms Laws Relating to Central Excise Goods Marketable Excisable Goods/Excisability of Goods Section 2(d) Types of Excise Duties Person Liable to Pay Excise Duty Classification of Excisable Goods Valuation of Excisable Goods Provisions of Central Excise Section 9(C): Presumption of Culpable Mental State Section 9(D): Relevancy of Statements under Certain Circumstances Section 11: Recovery of Sums due to Government Section 11(B): Claim for Refund of Duty Section 11(BB): Interest on Delayed Refunds Section 11(C): Power not to Recover duty of Excise not Levied or ShortLevied as a Result of General Practice Section 11(D): Duties of Excise Collected from the Buyer to be Deposited with the Central Government Section 12: Application of the Provisions of [Act No. 52 of 1962] to Central Excise Duties Section 12(A): Price of Goods to Indicate the Amount of Duty Paid Thereon Section 12(B): Presumption that the Incidence of Duty has been Passed on to the Buyer Section 12(C): Consumer Welfare Fund Section 12(D): Utilization of the Fund Section 12(E): Powers of Central Excise Officers 331 331 332 332 333 335 336 337 338 339 340 341 346 353 353 353 354 354 356 356 357 358 358 358 359 359 359

8.2.14. Section 14: Power to Summon Persons to Give Evidence and Produce Documents in Inquiries under this Act 8.2.15. Section 15: Officers Required to Assist Central Excise Officers 8.2.16. Section 35(F): Deposit, Pending Appeal, of Duty Demanded or Penalty Levied 8.2.17. Section 35(G): Appeal to High Court 8.2.18. Section 35(L): Appeal to the Supreme Court 8.2.19. Section 35(Q): Appearance by Authorized Representative 8.2.20. Section 36(A): Presumption as to Documents in Certain Cases 8.2.21. Section 37(A): Delegation of Powers 8.2.22. Section 37(B): Instructions to Central Excise Officers 8.2.23. Section 37(C): Service of Decisions, Orders, Summons, etc. 364 8.2.24. Section 37(D): Rounding-Off of Duty, etc. 365 8.2.25. Section 40: Protection of Action taken under the Act 8.3. CENVAT (Central Value Added Tax) 8.3.1. Concept 8.3.2. Meaning of Value-Added Tax (VAT) 8.3.3. CENVAT Scheme 8.3.4. General Highlight of CENVAT Scheme 8.3.5. Type of Duty on which CENVAT Credit can be Taken 8.3.6. Conditions for Allowing CENVAT Credit 8.3.7. Utilization of CENVAT Credit 8.4. Customs Act, 1962 8.4.1. Introduction 8.4.2. Basic Definition 8.4.3. Charging Section 12/Nature of Customs Duty 8.4.4. Objectives of Customs Duty 8.4.5. Law Relating Customs Duty 8.4.6. Procedure Relating to Levy 8.4.7. Types of Duty 8.4.8. Valuation and Collection of Duty

359 360 360 360 361 362 363 363 364

365 365 365 366 367 367 370 371 372 372 372 373 375 376 376 377 380 382