MF 0012 TaxatIon Management Set- 1

Q.1 Tax evasIon Is a menace to tbe peopIe, economy and tbe country. In tbe
wake oI recent SwIss bank account scandaI gIve your vIews on tbe IoIIowIng:
a. How does It aIIect tbe IndIan economy and tbe growtb prospects?

Ans. In vicw of iIc facis sci oui so far, ii lccomcs ncccssary io lool ai iIc cicni of
comliancc of ia laws in India. TIougI many csiimaics of llacl moncy Iavc lccn
coming foriI, an aiicmi was madc io dcicrminc iIc cicni of ia cvasion in iIc
Mumlai Incomc Ta cIargc, wIicI collccicd aloui 35% of iIc Incomc Ta collcciions
of iIc couniry and 43% of iIc cororaic ia collcciions. TIc siudy was madc on iIc
lasis of rcsulis of iIc survcy and scarcI cascs for all iIc ycars covcrcd ly sucI cascs.
Ii camc io ligIi iIai nonc of iIc iaaycrs conccrncd dcclarcd for iaaiion uroscs
anyiIing morc iIan 25% of iIcir iruc incomcs aficr 1999. TIc figurc arrivcd ai was
givcn io iIc rcss sccifying iIc lasis on wIicI ii was so calculaicd. Noi a singlc
roicsi was rcccivcd from any of iIc iaaycr, including comanics. TIc said figurc
was iIcrcaficr ciicd for somc morc iimc, and cvcn iIcrcaficr no roicsi was rcccivcd.
TIcrc was, iIcrcforc, cvcry rcason io lclicvc iIis csiimaic. Howcvcr, iIcrc acars 10
io lc IigIcr ia cvasion in iIc casc of comanics. Somc of iIc comanics Iavc sIown
iIcir cniirc caiial as Iaving comc from iIc counirics rcgardcd as Ta Havcns.
Considcring iIc cicni of Indian monics siaclcd in Swiss Danl Accounis, and lanl
accounis of iIc dcvclocd counirics, and comaring iIc samc wiiI iIc annual incomc
ia collcciions of iIc Ccniral Covcrnmcni, ii acars iIai iIc rcal incomc admiiicd for
iaaiion uroscs is lcss iIan 25% . TIc cicni of cvasion acars io lc vcry mucI
IigIcr in iIc casc of comanics as iIc comanics Iavc rcsoricd io cvoluiion of ia
cvasion dcviccs in iIc accounis and sucI mciIods Iavc noi yci lccn rocrly
invcsiigaicd ly iIc Incomc Ta Dcarimcni. TIcrc arc comanics wIicI Iavc
camouflagcd iIcir caiial invcsimcnis and sIown ii in iIc lools as if ii is claincd
caiial for incomc ia uroscs.

Tbe IndIan ScenarIo - PecuIIar probIems oI tax evasIon : Ii will lc aroriaic ai
iIis siagc io IigIligIi somc of iIc lcy rollcms from iIc vicw oini of
comuicrisaiion in India .

(a) Investments In ReaI Estate : TIc onc ficld wIcrc llacl monics Iavc lccn
invcsicd on iIc largcsi scalc is iIai of rcal csiaic rocriics. Lands wcrc sold for only
20% of iIcir rcal valucs and iIc lalancc 80% givcn in casI oui of iIc ia cvadcd
monics, cvcr sincc 1947. Dui laicr on wIcn iIc ia raics wcrc lowcrcd io 30% for
individuals and 35% for comanics, iIc llacl oriion goi rcduccd io 40% . Ii may lc a
difficuli iasl io iracc sucI llacl iransaciions iIrougI iIc comuicr sysicm,
suggcsicd for adoiion on iIc U.S. aiicrn for India. Dui ii is common lnowlcdgc iIai
iIc llacl monics invcsicd in land Iavc lccn rcinvcsicd in lanl accounis, sIarcs and
in oiIcr rocriics, aari from rcal csiaic rocriy. Ii is now confirmcd lnowlcdgc iIai
in rcgard io luildings consirucicd, only 40% of iIc cosi is sIown io incomc ia. Ii is
ossillc io dcicci sucI invcsimcni ly analysis of iIc daia oliaincd from iIc iradc and
indusiry govcrning commodiiics uscd for consiruciion of luildings. FuriIcr, as all iIc
iransaciions rclaiing io salc of rcal csiaic rocriics arc now rccordcd in comuicrs
mainiaincd ly iIc Fcgisiraiion Officcs all ovcr iIc couniry, and if iIc samc daia is
lrougIi on iIc comuicrs of iIc Incomc Ta Dcarimcni, ii sIould lc ossillc io
lnow many owncrs of rocriy wIo Iavc noi filcd iIcir ia rciurns ai all so far. In
India, iIcrc arc only 3 crorcs of ia asscssccs ai rcscni, and iIus a largc numlcr of
colc wiiI iaallc incomc Iavc cvidcnily cIoscn noi io filc incomc ia rciurns.

(b) GoId and JeweIIery HoIdIngs : India is Iaving iIc largcsi rivaic Ioldings of gold
and diamond jcwcllcry among all iIc counirics of iIc world. In iIc scarcIcs conducicd
ly iIc Incomc Ta Dcarimcni, Iugc unaccounicd casI lalanccs and gold and
diamond jcwcllcry Iavc lccn found in iIc lanl loclcrs mainiaincd ly ia aycrs in
logus namcs and in iIcir own namcs. Ai currcni marlci raics, urcIascs of gold,
silvcr and diamonds may now rcacI aloui Fs. 80,000 crorcs a ycar. Cold and
diamond iradcrs arc mosily lccing iIcir iransaciions ouisidc lanl accounis. TIcy
arc also giving voucIcrs io iIc cffcci iIai raw gold Ias lccn givcn ly iIc cusiomcrs,
iIougI, in faci, ii would Iavc comc from iIc iradcrs iIcmsclvcs. TIcrcforc, ii is
ncccssary io iniroducc a law rcquiring iIcm io iransaci only iIrougI lanl cIcqucs
and issuc comuicrizcd lills, io faciliiaic rocr flow of informaiion io iIc comuicr
sysicm of iIc ia dcarimcni.

(c) Sbares, MutuaI Funds, etc : TIcrc arc vasi invcsimcnis in sIarcs and
dclcniurcs, iravclcrs' cIcqucs, muiual funds and iIc rimary londs issucd ly iIc
Fcscrvc Danl of India. TIc daia rcgarding comany sIarcs and oiIcr invcsimcnis
mcniioncd can lc casily iransfcrrcd io iIc comuicr sysicm of iIc Incomc Ta
Dcarimcni. TIc Mumlai Siocl EcIangc is Iaving a scaraic comuicr sysicm wiiI
comlcic daia on daily iransaciions and iIc Incomc Ta Dcarimcni Ias so far noi
madc usc of sucI daia. TIcrc is also iIc daia gcncraicd in iIc comuicrs of iIc
organizaiions in cIargc of dcmai of sIarcs. Lilc-wisc, iIc daia on osi officc savings
and oiIcr accounis is casy io lc lrougIi on iIc comuicrs of iIc ia dcarimcni for
vcrificaiion wiiI iIc individual rciurns, wIicI arc availallc wiiI iIc Covcrnmcni iisclf.

d) UndIscIosed Stock In-trade beId by companIes and traders : Many firms and
individuals Iavc also a icndcncy io lcc undiscloscd lusincss asscis lilc cars and
rivaic asscis, unaccounicd casI Ioldings cic., TIcy Iavc aliliiy io givc cicnsivc
lrilcs io roicci lusincss and oiIcr inicrcsis. All sucI raciiccs would varnisI oncc
fcar is causcd among iIc ia aycrs aloui iIc usc of comuicrizcd daia for iaaiion
uroscs.

(e) BenamI Investments : Dcnami invcsimcnis arc iyical of iIc Indian cconomy.
Evcn lig comanics Iavc indulgcd in sucI raciiccs io imari ioial sccrccy io iIcir
undiscloscd accounis. Ii may lc difficuli io dcicrminc wIciIcr iIc invcsimcni found
in iIc comuicrs of iIc incomc ia dcarimcni is lcnami or noi, and lcnami sIarcs
will Iavc io lc iraccd somciimcs ly cicnsivc siudics io lc conducicd ly icams of
rcvcnuc officcrs. TIis rollcm rcquircs comrcIcnsivc siudy lccausc ii is cculiar io
iIc Indian Taaiion Sysicm.

(I) SwIss Bank and otber undIscIosed bank accounts beId abroad: Swiss Danl
Accounis arc sIroudcd in sccrccy and Icncc no informaiion will lc availallc io iIc
comuicr sysicm of iIc Incomc Ta Dcarimcni. TIc amounis in Swiss Danl
Accounis, wIicI arc Icld in forcign currcncy, Iavc lccn uiiliscd ly lig comanics and
oiIcr iaaycrs in India io imori Iugc macIincrics ai vasily undcrinvoiccd riccs.
SucI raciiccs cnallc aymcni of sccrci iradc commissions in forcign currcncy and
unaccounicd funds in Indian currcncy io iIosc conicsiing gcncral clcciions. Scvcral
major comanics Iavc convcricd Swiss Accouni Ioldings inio lcnami sIarcs and
dclcniurcs. TIc largc amounis of Swiss Danl dcosiis Iavc, iIus, lccn uiilizcd and
cvcry ycar, iIcrc arc addiiions io iIc Swiss Danl Accouni Ioldings.

b. Does bIack money cause InIIatIon?
Ans. Illcgally carncd moncy is callcd llacl moncy. Ii is iIc rcsuli of Ioarding,
smuggling, ia cvasion and dcaling in immovallc rocriy for wIicI iIc considcraiion
is aid in llacl. Ii Ias lccn lcyond iIc conirol of iIc Covcrnmcni. TIc llacl moncy
Ias alrcady crcaicd a scrious rollcm in our couniry.
TIc Indian cconomy siands ladly sIaiicrcd lccausc of iIc Iugc amouni of iIis
iainicd wcaliI lying in iIc coffcrs of iIc ricI. Ii Ias givcn risc io arallcl cconomy
ocraiing in iIc couniry. As a rcsuli, iIc riccs coniinuc io risc in siic of all
govcrnmcni cfforis io conirol iIcm. TIc oor go on lccoming oorcr wIilc iIc ricI go
on lccoming ricIcr. TIc ga lciwccn iIc Iavcs and iIc Iavc nois is widcning cvcry
day.
Dlacl moncy is uscd ly iIc ricI in various cvil aciiviiics. TIcy usc iIis moncy for
corruiing and dcmoralizing social and oliiical lifc. TIcy dislay ii in osicniaiious
living and wasicful luurics. TIcy lrilc Covcrnmcni officcrs and lcad iIcm io
corruiion and disIoncsiy. TIcy urcIasc oliiical losscs and conirol iIc sirings of
iIc Covcrnmcni. TIus iIc cniirc social siruciurc comcs io lc ladly olluicd. Ii is
difficuli io form an caci idca of iIc amouni of llacl moncy in circulaiion in iIc
couniry. ScarcIcs and raids ly Incomc Ta auiIoriiics arc conducicd from iimc io
iimc. SucI raids yicld crorcs of ruccs. Dui iIc colc arc, ai iimcs, clcvcrcr iIan iIc
Covcrnmcni. TIcy sccl iIc aid of iIc lcsi lcgal lrains and gci iIc law iwisicd in iIcir
favour. Mosi of iIc offcndcrs usc all iIcir moncy and influcncc and go scoi frcc
wIcncvcr iIcy arc caugIi. TIc Covcrnmcni Ias, ai various iimcs, announccd somc
voluniary disclosurc scIcmcs for uncariIing iIc llacl moncy. TIcsc scIcmcs Iavc
rovcd succcssful io a vcry limiicd cicni. WIai Ias comc io iIc surfacc is lclicvcd
only io lc iIc ii of iIc Iugc icclcrg lying Iiddcn undcrncaiI. TIc 1997 Voluniary
Disclosurc ScIcmc announccd ly iIc Covcrnmcni of India uncariIcd a lig amouni of
llacl moncy as iIc ia raic in iIis scIcmc Iad lccn rcduccd io iIiriy cr ccni.
TIc llacl moncy, according io somc rcliallc csiimaics Ias gonc u io Fs. 10,000
crorcs in our couniry. Ii is io a grcai cicni rcsonsillc for a grcai risc in riccs
lccausc iIc urcIasing owcr of iIc colc Ias incrcascd. Pcolc Iaving llacl moncy
arc lcading a lifc of luury wIcrcas iIc oor colc arc lcadinng a miscrallc lifc. Somc
lcading cconomisis of iIc couniry Iavc suggcsicd siringcni mcasurcs io iIc
govcrnmcni io uncariI llacl moncy lui succcssivc govcrnmcnis Iavc lccn rcjcciing
iIosc mcasurcs. TIc vcsicd inicrcsis always siand in iIc way of cffcciivc mcasurcs
and gci iIcm diluicd.
TIc govcrnmcni of iIc day acars io lc doing iis lcsi io uncariI llacl moncy. A
numlcr of sics Iavc lccn ialcn. Taaiion siruciurc and sysicm Iavc lccn madc
casicr. Ai diffcrcni iimcs, iIc govcrnmcni Ias lrougIi forward scvcral scIcmcs and
aslcd iIc colc io dcclarc iIcir wcaliI. TIcrc Ias lccn somc succcss. A loi soil
rcmains io lc donc.
Ii musi lc clcar io all iIai iIc naiion cannoi sIui Icr cycs io iIis siaic of affairs.
Smugglcrs and llacl-marlciccrs can no longcr lc iolcraicd. TIcy arc siriling ai iIc
vcry roois of our dcmocraiic siruciurc. All sics io wccd iIc llacl nonc oui of
circulaiion musi lc ialcn as carly as ossillc.TIc govcrnmcni musi comc down wiiI
a Icavy Iand on smugglcrs, ia cvadcrs, llacl-marlciccrs and Ioardcrs. Dlacl
moncy is a cursc. Ii musi lc rooicd oui from ullic lifc.
Q.2 DetaII deatb cum retIrement gratuIty under Sec 1?(1) III oI IT Act. Is
commutatIon oI pensIon a vIabIe optIon In terms oI tax pIannIng?

Ans. Deatb-cum-retIrement gratuIty or any oiIcr graiuiiy wIicI is ccmi io iIc
cicni sccificd from inclusion in comuiing iIc ioial incomc undcr clausc (10} of
Scciion 10. Any dcaiI-.:n-rciircmcni graiuiiy rcccivcd undcr iIc rcviscd Pcnsion
Fulcs of iIc Ccniral Covcrnmcni or, as iIc casc may lc, iIc Ccniral Civil Scrviccs
(Pcnsion} Fulcs, 1972, or undcr any similar scIcmc alicallc io iIc mcmlcrs of iIc
civil scrviccs of iIc Union or Ioldcrs of osis connccicd wiiI dcfcncc or of civil osis
undcr iIc Union (sucI mcmlcrs or Ioldcrs lcing crsons noi govcrncd ly iIc said
Fulcs} or io iIc mcmlcrs of iIc all-India scrviccs or io iIc mcmlcrs of iIc civil
scrviccs of a Siaic or Ioldcrs of civil osis undcr a Siaic or io iIc cmloyccs of a local
auiIoriiy or any aymcni of rciiring graiuiiy rcccivcd undcr iIc Pcnsion Codc or
Fcgulaiions alicallc io iIc mcmlcrs of iIc dcfcncc scrvicc. Craiuiiy rcccivcd in
cascs oiIcr iIan alovc on rciircmcni, icrminaiion cic is ccmi u io iIc limii as
rcscrilcd ly iIc Doard. Undcr iIc rovisions of Scciion 10(10} of iIc IT Aci, any
dcaiI-cum-rciircmcni graiuiiy of a govcrnmcni scrvani is comlcicly ccmi from
incomc ia. Howcvcr, in rcscci of rivaic sccior cmloyccs graiuiiy rcccivcd on
rciircmcni or on lccoming incaaciiaicd or on icrminaiion or any graiuiiy rcccivcd ly
Iis widow, cIildrcn or dccndanis on Iis dcaiI is ccmi suljcci io ccriain
condiiions.
TIc maimum amouni of ccmiion is Fs. 3,50,000;. Of coursc, iIis is furiIcr suljcci
io ccriain oiIcr limiis lilc iIc onc Ialf-moniI's salary for cacI ycar of comlcicd
scrvicc, calculaicd on iIc lasis of avcragc salary for iIc 10 moniIs immcdiaicly
rcccding iIc ycar in wIicI iIc graiuiiy is aid or 20 moniIs' salary as calculaicd.
TIus, iIc lcasi of iIcsc iicms is ccmi from incomc ia undcr Scciion 10(10}.
Any aymcni in commutatIon oI pensIon rcccivcd undcr iIc Civil
Pcnsion(Commuiaiion} Fulcs of iIc Ccniral Covcrnmcni or undcr any similar scIcmc
alicallc io iIc mcmlcrs of iIc civil scrviccs of iIc Union, or Ioldcrs of civil
osis/osis connccicd wiiI dcfcncc, undcr iIc Union,or civil osis undcr a Siaic, or
io iIc mcmlcrs of iIc All India Scrviccs/Dcfcncc Scrviccs, or, io iIc cmloyccs of a
local auiIoriiy or a cororaiion csiallisIcd ly a Ccniral,Siaic or Provincial Aci, is
ccmi undcr sul-clausc (i} of clausc (10A} of Scciion 10. As rcgards aymcnis in
commuiaiion of cnsion rcccivcd undcr any scIcmc of any oiIcr cmloycr, ccmiion
will lc govcrncd ly iIc rovisions of sul-clausc (ii} of clausc (10A} of scciion 10. Also,
any aymcni in commuiaiion of cnsion rcccivcd from a Fcgimcnial Fund or Non-
Pullic Fund csiallisIcd ly iIc Armcd Forccs of iIc Union rcfcrrcd io in Scciion
10(23AAD} is ccmi undcr sul-clausc (iii} of clausc (10A} of Scciion 10. TIc cniirc
amouni of any aymcni in commuiaiion of cnsion ly a govcrnmcni scrvani or any
aymcni in commuiaiion of cnsion from LIC |Cci Quoic| cnsion fund is ccmi from
incomc ia undcr Scciion 10(10A} of IT Aci.
Howcvcr, in rcscci of rivaic sccior cmloyccs, only iIc following amouni of
commuicd cnsion is ccmi, namcly. (a} WIcrc iIc cmloycc rcccivcd any graiuiiy,
iIc commuicd valuc of onc-iIird of iIc cnsion wIicI Ic is normally cniiilcd io
rcccivc; and (l} In any oiIcr casc, iIc commuicd valuc of Ialf of sucI cnsion. Ii may
lc noicd Icrc iIai iIc moniIly cnsion rcccivallc ly a cnsioncr is liallc io full
incomc ia lilc any oiIcr iicm of salary or incomc and no siandard dcduciion is now
availallc in rcscci of cnsion rcccivcd ly a ia aycr.

Q.3 ExpIaIn tbe essentIaI condItIons to be satIsIIed by a IIrm to be assessed as
IIrm under SectIon 1S4.
Ans. PosItIon oI FIrm under tbe Income Tax Act Lcgally, a arincrsIi firm docs
noi Iavc a scaraic cniiiy from iIai of iIc arincrs consiiiuiing iIc firm as iIc
arincrs arc iIc owncrs of iIc firm. Howcvcr, a firm is ircaicd as a scaraic ia cniiiy
undcr iIc Incomc Ta Aci. Salicni fcaiurcs of iIc asscssmcni of a firm arc as undcr.
1. A firm is ircaicd as a scaraic ia cniiiy.

2. WIilc comuiing iIc incomc of iIc firm undcr iIc Icad Profiis and gains of
lusincss or rofcssion", lcsidcs iIc dcduciions wIicI arc allowcd u/ss 30 io 37,
sccial dcduciion is allowcd io iIc firm on accouni of rcmuncraiion io worling
arincrs and inicrcsi aid io iIc arincrs. Howcvcr, ii is suljcci io ccriain limiis laid
down u/s 40 (l}.
3. SIarc of rofii wIicI a arincr rcccivcs from iIc firm (aficr dcduciion of
rcmuncraiion and inicrcsi allowallc} sIall lc fully ccmi in iIc Iands of iIc arincr.
Howcvcr, only iIai ari of iIc inicrcsi and rcmuncraiion wIicI was allowcd as a
dcduciion io iIc firm sIall lc iaallc in iIc Iands of iIc arincrs in iIcir individual
asscssmcni undcr iIc Icad 'rofiis and gains of lusincss or rofcssion.'
4. TIc firm will lc iacd ai a flai raic of 30% lus cducaiion ccss 3% lus for iIc
financial ycar 2010-11.
S. TIc firm will lc asscsscd as a firm rovidcd condiiions mcniioncd undcr Scciion
184 arc saiisficd. In casc iIcsc condiiions arc noi saiisficd in a ariicular asscssmcni
ycar, iIc firm will lc asscsscd as affirm, lui no dcduciion ly way of aymcni of
inicrcsi, salary, lonus, commission or rcmuncraiion, ly wIaicvcr namc callcd, madc
io iIc arincr, sIall lc allowcd in comuiing iIc incomc cIargcallc undcr iIc Icad
rofiis and gains of lusincss or rofcssion" and sucI inicrcsi, salary, lonus,
commission or rcmuncraiion sIall noi lc cIargcallc io incomc ia in iIc Iands of iIc
arincr.
Assessment oI IIrm From oini (5} siaicd alovc, ii can lc concludcd iIai for iaaiion
uroscs, a firm can lc of iwo iycs.
1. Firm asscsscd as firm (rovidcd condiiions mcniioncd u/s 184 arc saiisficd}.and
iIc firm sIall lc cligillc for dcduciion on accouni of inicrcsi, salary cic wIilc
comuiing iis incomc undcr iIc Icad lusincss and rofcssion}. Howcvcr, ii will lc
suljcci io iIc maimum of iIc limii sccificd undcr Scciion 40(l}
2. If iIc rcscrilcd condiiions arc noi saiisficd, no dcduciion sIall lc allowcd io iIc
firm on accouni of sucI inicrcsi, salary, lonus cic.
Esscniial condiiions io lc saiisficd ly a firm io lc asscsscd as firm (Scciion 184}
1. 1n 1e ]1rs1 ossessmen1 geor: TIc firm will lc asscsscd as a firm, also lnown as
'Firm Asscsscd as SucI' (FAAS} if iIc following condiiions arc saiisficd.
(a} ParincrsIi is cvidcnccd ly an insirumcni i.c. iIcrc is a wriiicn documcni giving
iIc icrms of arincrsIi.
(l} TIc individual sIarc of iIc arincrs is sccificd in iIai insirumcni.
(c} Ccriificd coy of arincrsIi dccd musi lc filcd. A ccriificd coy of iIc said
insirumcni of arincrsIi sIall accomany iIc rciurn of incomc in rcscci of iIc
asscssmcni ycar for wIicI iIc asscssmcni as a firm is firsi sougIi.
WIcrc ccriificd coy is noi filcd wiiI iIc rciurn iIcrc is no rovision for condonaiion
of dclay. Howcvcr wIcrc iIc rciurn iisclf is filcd laic iIcn iIcrc is no rollcm if iIc
ccriificd coy is filcd along wiiI sucI rciurn as iIc condiiion iIai ii sIall accomany
iIc rciurn of incomc is saiisficd. FuriIcr DclIi ITAT in iIc casc of IsIu Duss SuIn
Sons u CIT Icld iIai wIcrc unccriificd PIoiosiai coy of iIc insirumcni of arincrsIi
is sulmiiicd along wiiI iIc rciurn of incomc and iIc ccriificd coy is roduccd ai iIc
iimc of asscssmcni, ii will saiisfy iIis condiiion.
2. 1n 1e subsequen1 ossessmen1 geors: If iIc alovc iIrcc condiiions arc saiisficd
iIc firm will lc asscsscd as sucI (FAAS} in iIc firsi asscssmcni ycar. Oncc iIc firm is
asscsscd as firm for any asscssmcni ycar, ii sIall lc asscsscd in iIc samc caaciiy for
cvcry sulscqucni ycar if iIcrc is no cIangc in iIc consiiiuiion of iIc firm or iIc sIarc
of iIc arincrs. WIcrc any sucI cIangc Iad ialcn lacc in iIc rcvious ycar, iIc firm
sIall furnisI a ccriificd coy of iIc rcviscd insirumcni of arincrsIi along wiiI iIc
rciurn of incomc for iIc asscssmcni ycar rclcvani io sucI rcvious ycar. Fcad iIc lo
for somc imoriani oinis io lc considcrcd in iIis rcgard.

Circumsiancc wIcrc iIc firm will lc asscsscd as a firm lui sIall noi lc cligillc for
dcduciion on accouni of inicrcsi, salary, lonus, cic. |Scciion 184(5}|
TIc firm will lc asscsscd as a firm lui sIall noi lc cligillc for any dcduciion on
accouni of inicrcsi, salary and lonus cic if iIcrc is failurc on iIc ari of iIc firm as is
mcniioncd in Scciion 144 (rclaiing io Dcsi Judgmcni Asscssmcni} and wIcrc iIc firm
docs noi comly wiiI iIc iIrcc condiiions mcniioncd undcr Scciion 184.
Q.4 LIst out tbe steps to compute totaI Income.

Ans. Step 1 - DetermInatIon oI resIdentIaI status TIc rcsidcniial siaius of a
crson Ias io lc dcicrmincd io asccriain wIicI incomc is io lc includcd in comuiing
iIc ioial incomc. TIc rcsidcniial siaiuscs as cr iIc Incomc-ia Aci arc sIown lclow
In iIc casc of an individual, iIc duraiion for wIicI Ic is rcscni in India dcicrmincs
Iis rcsidcniial siaius. Dascd on iIc iimc scni ly Iim, Ic may lc (a} rcsidcni and
ordinarily rcsidcni, (l} rcsidcni lui noi ordinarily rcsidcni, or (c} non-rcsidcni. TIc
rcsidcniial siaius of a crson dcicrmincs iIc iaaliliiy of iIc incomc. For c.g., incomc
carncd ouisidc India will noi lc iaallc in iIc Iands of a non-rcsidcni lui will lc
iaallc in casc of a rcsidcni and ordinarily rcsidcni.

Step 2 - CIassIIIcatIon oI Income under dIIIerent beads TIc Aci rcscrilcs fivc
Icads of incomc. TIcsc arc sIown lclow
HEADS OF INCOME
SALAFIES INCOME FFOM PFOFITS AND CAINS CAPITAL INCOME
HOUSE PFOPEFTY OF DUSINESS OF CAINS FFOM OTHEF
PFOFESSION SOUFCES
TIcsc Icads of incomc cIausi all ossillc iycs of incomc iIai can accruc io or lc
rcccivcd ly iIc ia aycr. Salary, cnsion carncd is iaallc undcr iIc Icad Salarics".
Fcnial incomc is iaallc undcr iIc Icad Incomc from Iousc rocriy". Incomc
dcrivcd from carrying on any lusincss or rofcssion is iaallc undcr iIc Icad Profiis
and gains from lusincss or rofcssion". Profii from salc of a caiial assci (lilc land} is
iaallc undcr iIc Icad Caiial Cains". TIc fifiI Icad of incomc is iIc rcsiduary Icad
undcr wIicI incomc iaallc undcr iIc Aci, lui noi falling undcr iIc firsi four Icads,
will lc iacd. TIc ia aycr Ias io classify iIc incomc carncd undcr iIc rclcvani Icad
of incomc.

Step 3 - ExcIusIon oI Income not cbargeabIe to tax TIcrc arc ccriain incomc wIicI
arc wIolly ccmi from incomc-ia c.g. Agriculiural incomc. TIcsc incomc Iavc io lc
ccludcd and will noi form ari of Cross Toial Incomc. Also, somc incomcs arc
ariially ccmi from incomc-ia c.g. Housc Fcni Allowancc, Educaiion Allowancc.
TIcsc incomcs arc ccludcd only io iIc cicni of iIc limiis sccificd in iIc Aci. TIc
lalancc incomc ovcr and alovc iIc rcscrilcd ccmiion limiis would cnicr
comuiaiion of ioial incomc and Iavc io lc classificd undcr iIc rclcvani Icad of
incomc.

Step 4 - ComputatIon oI Income under eacb bead Incomc is io lc comuicd in
accordancc wiiI iIc rovisions govcrning a ariicular Icad of incomc. Undcr cacI
Icad of incomc, iIcrc is a cIarging scciion wIicI dcfincs iIc scoc of incomc
cIargcallc undcr iIai Icad. TIcrc arc dcduciions and allowanccs rcscrilcd undcr
cacI Icad of incomc. For camlc, wIilc calculaiing incomc from Iousc rocriy,
municial iacs and inicrcsi on loan arc allowcd as dcduciion. Similarly, dcduciions
and allowanccs arc rcscrilcd undcr oiIcr Icads of incomc. TIcsc dcduciions cic.
Iavc io lc considcrcd lcforc arriving ai iIc nci incomc cIargcallc undcr cacI Icad

Step S - CIubbIng oI Income oI spouse, mInor cbIId etc. In casc of individuals,
incomc-ia is lcvicd on a slal sysicm on iIc ioial incomc. TIc ia sysicm is
rogrcssivc i.c. as iIc incomc incrcascs, iIc alicallc raic of ia incrcascs. Somc
iaaycrs in iIc IigIcr incomc lraclci Iavc a icndcncy io divcri somc oriion of iIcir
incomc io iIcir sousc, minor cIild cic. io minimizc iIcir ia lurdcn. In ordcr io
rcvcni sucI ia avoidancc, clulling rovisions Iavc lccn incororaicd in iIc Aci,
undcr wIicI incomc arising io ccriain crsons (lilc sousc, minor cIild cic.} Iavc io
lc includcd in iIc incomc of iIc crson wIo Ias divcricd Iis incomc for iIc urosc
of comuiing ia lialiliiy.

Step 6 - Set-oII or carry Iorward and set-oII oI Iosses An asscsscc may Iavc
diffcrcni sourccs of incomc undcr iIc samc Icad of incomc. Hc migIi Iavc rofii from
onc sourcc and loss from iIc oiIcr. For insiancc, an asscsscc may Iavc rofii from Iis
iciilc lusincss and loss from Iis riniing lusincss. TIis loss can lc sci-off againsi
iIc rofiis of iciilc lusincss io arrivc ai iIc nci incomc cIargcallc undcr iIc Icad
Profiis and gains of lusincss or rofcssion". Similarly, an asscsscc can Iavc loss
undcr onc Icad of incomc, say, Incomc from Iousc rocriy and rofiis undcr anoiIcr
Icad of incomc, say, Profiis and gains of lusincss or rofcssion. TIcrc arc rovisions
in iIc Incomc-ia Aci for allowing inicr-Icad adjusimcni in ccriain cascs. FuriIcr,
losscs wIicI cannoi lc sci-off in iIc currcni ycar duc io inadcquacy of cligillc rofiis
can lc carricd forward for sci-off in iIc sulscqucni ycars as cr iIc rovisions
coniaincd in iIc Aci.

Step ? - ComputatIon oI Gross TotaI Income. TIc final figurcs of incomc or loss
undcr cacI Icad of incomc, aficr allowing iIc dcduciions, allowanccs and oiIcr
adjusimcnis, arc iIcn aggrcgaicd, aficr giving cffcci io iIc rovisions for clulling of
incomc and sci-off and carry forward of losscs, io arrivc ai iIc gross ioial incomc.

Step S - DeductIons Irom Gross TotaI Income TIcrc arc dcduciions rcscrilcd from
Cross Toial Incomc. TIcsc dcduciions arc of iIrcc iycs.'

Step 9 - TotaI Income TIc incomc arrivcd ai, aficr claiming iIc alovc dcduciions
from iIc Cross Toial Incomc is lnown as iIc Toial Incomc. Ii is also callcd iIc Taallc
Incomc. Ii sIould lc roundcd off io iIc ncarcsi Fs. 10.

Step 10 - AppIIcatIon oI tbe rates oI tax on tbe totaI Income TIc raics of ia for
iIc diffcrcni classcs of asscsscs arc rcscrilcd ly iIc Annual Financc Aci. Taaiion
For individuals, HUFs cic., iIcrc is a slal raic and lasic ccmiion limii. Ai rcscni,
iIc lasic ccmiion limii is Fs. 1,00,000 for individuals. TIis mcans iIai no ia is
ayallc ly individuals wiiI ioial incomc of u io Fs. 1,00,000. TIosc individuals
wIosc ioial incomc is morc iIan Fs. 1,00,000 lui lcss iIan Fs. 1,50,000 Iavc io ay
ia on iIcir ioial incomc in cccss of Fs. 1,00,000 10% and so on. TIc IigIcsi raic
is 30%, wIicI is aiiracicd in rcscci of incomc in cccss of Fs. 2,50,000. For firms
and comanics, a flai raic of ia is rcscrilcd. Ai rcscni, iIc raic is 30% on iIc
wIolc of iIcir ioial incomc. TIc ia raics Iavc io lc alicd on iIc ioial incomc io
arrivc ai iIc incomc-ia lialiliiy.

Step 11 - Surcbarge SurcIargc is an addiiional ia ayallc ovcr and alovc iIc
incomc-ia. SurcIargc is lcvicd as a crccniagc of incomc-ia. Ai rcscni, iIc raic of
surcIargc for firms and domcsiic comanics is 10% and for forcign comanics is
2.5%. For individuals, surcIargc would lc lcvicd 10% only if iIcir ioial incomc
ccccds Fs. 10 lalIs.

Step 12 - EducatIon cess TIc incomc-ia, as incrcascd ly iIc surcIargc, is io lc
furiIcr incrcascd ly an addiiional surcIargc callcd cducaiion ccss2%. TIc
Educaiion ccss on incomc-ia is for iIc urosc of roviding univcrsaliscd qualiiy
lasic cducaiion. TIis is ayallc ly all asscsscs wIo arc liallc io ay incomc-ia
irrcscciivc of iIcir lcvcl of ioial incomc.

Step 13 - Advance tax and tax deducted at source AliIougI iIc ia lialiliiy of an
asscsscc is dcicrmincd only ai iIc cnd of iIc ycar, ia is rcquircd io lc aid in
advancc in ccriain insiallmcnis on iIc lasis of csiimaicd incomc. In ccriain cascs, ia
is rcquircd io lc dcducicd ai sourcc from iIc incomc ly iIc aycr ai iIc raics
rcscrilcd in iIc Aci. SucI dcduciion sIould lc madc ciiIcr ai iIc iimc of accrual or
ai iIc iimc of aymcni, as rcscrilcd ly iIc Aci. For camlc, in iIc casc of salary
incomc, iIc olligaiion of iIc cmloycr io dcduci ia ai sourcc ariscs only ai iIc iimc
of aymcni of salary io iIc cmloyccs. SucI ia dcducicd ai sourcc Ias io lc rcmiiicd
io iIc crcdii of iIc Ccniral Covcrnmcni iIrougI any lrancI of iIc FDI, SDI or any
auiIorizcd lanl. If any ia is siill duc on iIc lasis of rciurn of incomc, aficr adjusiing
advancc ia and ia dcducicd ai sourcc, iIc asscsscc Ias io ay sucI ia (callcd sclf-
asscssmcni ia} ai iIc iimc of filing of iIc rciurn Taaiion

Q.S DetaII tbe Important provIsIons under WeaItb tax Act.
Ans. WcaliI ia is noi a vcry imoriani or IigI rcvcnuc ia in vicw of various
ccmiions. WcaliI ia is a socialisiic ia. Ii is noi on incomc lui ayallc only
lccausc a crson is wcaliIy. WcaliI ia is ayallc on nci wcaliI on 'valuaiion daic'.
As cr Scciion 2(q}, valuaiion daic is 31si MarcI cvcry ycar. Ii is ayallc ly cvcry
individual, HUF and comany. Ta raic is 1% on amouni ly wIicI 'nci wcaliI'
ccccds Fs 30 lalIs from AY 2010-11. (Till 31-3-2009, iIc limii was Fs 15 lalIs}. No
surcIargc or cducaiion ccss is ayallc. No wcaliI-ia is cIargcallc in rcscci of nci
wcaliI of any comany rcgisicrcd undcr scciion 25 of iIc Comanics Aci, 1956; any
co-ocraiivc sociciy; any social clul; any oliiical ariy; and a Muiual fund sccificd
undcr scciion 10(D} of iIc Incomc-ia Aci |scciion 45|
et weaItb Valuc of asscis |as dcfincd in scciion 2(ca| lus dccmcd asscis (as
dcfincd in scciion 4} lcss ccmicd asscis (as dcfincd in scciion 5}, lcss dcli owcd |as
dcfincd in scciion 2(m}|. Dcli sIould Iavc lccn incurrcd in rclaiion io iIc asscis
wIicI arc includcd in nci wcaliI of asscsscc. Only dcli owcd on daic of valuaiion is
dcduciillc.
In casc of rcsidcnis of India, asscis ouisidc India (lcss corrcsonding dclis} arc also
liallc io wcaliI ia. In casc of non-rcsidcnis and forcign naiional, only asscis locaicd
in India including dccmcd asscis lcss corrcsonding dclis arc liallc io wcaliI ia
|scciion 6|. Nci wcaliI in cccss of Fs. 30,00,000 is cIargcallc io wcaliI-ia 1 cr
ccni (on surcIargc and cducaiion ccss}.
Assessment year - Asscssmcni ycar mcans a criod of 12 moniIs commcncing from
iIc firsi day of Aril cvcry ycar falling immcdiaicly aficr iIc valuaiion daic [SectIon
2(/)] All.}.
1-1 Assets Asscis arc dcfincd in Scciion 2(cu} as follows.
ues1 ouse, res1/en11o1 ouse or oommero1o1 bu11/1ng - TIc following arc ircaicd
as asscis" - (a} Any luilding or land auricnani iIcrcio wIciIcr uscd for
commcrcial or rcsidcniial uroscs or for iIc urosc of gucsi Iousc (l} A farm Iousc
siiuaicd wiiIin 25 lilomcicrs from iIc local limiis of any municialiiy (wIciIcr lnown
as a municialiiy, municial cororaiion, or ly any oiIcr namc} or a canionmcni
loard |Scciion 2(ca}(i}| A rcsidcniial Iousc s noi assci, if ii is mcani cclusivcly for
rcsidcniial uroscs of cmloycc wIo is in wIolc-iimc cmloymcni and iIc gross
annual salary of sucI cmloycc, officcr or dirccior is lcss iIan Fs. 5,00,000. Any
Iousc (may lc rcsidcniial Iousc or uscd for commcrcial uroscs} wIicI forms ari of
siocl-in-iradc of iIc asscsscc is noi ircaicd as assci". Any Iousc wIicI iIc asscsscc
may occuy for iIc uroscs of any lusincss or rofcssion carricd on ly Iim is noi
ircaicd as assci". A rcsidcniial rocriy wIicI is lci oui for a minimum criod of 300
days in iIc rcvious ycar is noi ircaicd as an assci". Any rocriy in iIc naiurc of
commcrcial csiallisImcnis or comlc is noi ircaicd as an assci".
o1or oors - Moior car is an assci", lui noi iIc following - (a} moior cars uscd ly
iIc asscsscc in iIc lusincss of running iIcm on Iirc (l} moior cars ircaicd as siocl-
in-iradc |Scciion 2(ca}(ii}|. In iIc casc of a lcasing comany, moior car is an assci.
eue11erg, bu111on, u1ens11s o] go1/, s11ver, e1o. |Scciion 2(ca}(iii}| - Jcwcllcry,
lullion, furniiurc, uicnsils and any oiIcr ariiclc madc wIolly or arily of gold, silvcr,
laiinum or any oiIcr rccious mcial or any alloy coniaining onc or morc of sucI
rccious mcials arc ircaicd as asscis" |Scciion 2(ca}(ii}| For iIis urosc, jcwcllcry"
includcs ornamcnis madc of gold, silvcr, laiinum or any oiIcr rccious mcial or any
alloy coniaining onc or morc of sucI rccious mcials, and also rccious or scmi-
rccious sioncs, wIciIcr or noi sci in any furniiurc, uicnsils or oiIcr ariiclc or
worlcd or scwn inio any wcaring aarcl. WIcrc any of iIc alovc asscis (.c.,
jcwcllcry, lullion, uicnsils of gold, cic.} is uscd ly an asscsscc as siocl-in-iradc, iIcn
sucI assci is noi ircaicd as asscis" undcr scciion 2(cu}(}.
oo1s, boo1s on/ o1roro]1s - YacIis, loais and aircrafis (oiIcr iIan iIosc uscd ly
iIc asscsscc for commcrcial uroscs} arc ircaicd as asscis" |Scciion 2(ca}(iv}|
Urbon 1on/ - Urlan land is an assci" |Scciion 2(ca}(v}| Urlan land mcans land
siiuaicd in iIc arca wIicI is comriscd wiiIin iIc jurisdiciion of a municialiiy and
wIicI Ias a oulaiion of noi lcss iIan 10,000 according io iIc lasi rcccding ccnsus.
Land occuicd ly any luilding wIicI Ias lccn consirucicd wiiI iIc aroval of iIc
aroriaic auiIoriiy is noi 'assci'. Any unuscd land Icld ly iIc asscsscc for
indusirial uroscs for a criod of 2 ycars from iIc daic of iis acquisiiion ly Iim is
noi an assci. Any land Icld ly iIc asscsscc as siocl-in-iradc for a criod of 10 ycars
from iIc daic of iis acquisiiion ly Iim is also noi an assci.
Cos 1n on/ - In casc of individual and HUF, casI in Iand on iIc lasi momcni of
iIc valuaiion daic in cccss of Fs. 50,000 is an 'assci'. In casc of comanics, any
amouni noi rccordcd in lools of accouni is 'assci' |Scciion 2(ca}(vi}|
1-2 Deemed assets Oficn, a crson iransfcrs Iis asscis in namc of oiIcrs io rcducc
Iis lialiliiy of wcaliI ia. To sio sucI ia avoidancc, rovision of 'dccmcd assci' Ias
lccn madc. In comuiing iIc nci wcaliI of an asscsscc, iIc following asscis will lc
includcd as dccmcd asscis u/s 4.
sse1s 1rons]erre/ bg one spouse 1o ono1er - TIc assci is iransfcrrcd ly an
individual aficr MarcI 31, 1956 io Iis or Icr sousc, dirccily or indirccily, wiiIoui
adcquaic considcraiion or noi in conncciion wiiI an agrccmcni io livc aari will lc
'dccmcd assci' |Scciion 4(1}(a}(i}| If an assci is iransfcrrcd ly an individual io Iis/Icr
sousc, undcr an agrccmcni io livc aari, iIc rovisions of scciion 4(1}(u}(} arc noi
alicallc. TIc crcssion io livc aari" is of widcr connoiaiion and cvcn iIc
voluniary agrccmcnis io livc aari will fall wiiIin iIc ccciions of iIis sul-clausc.
sse1s e1/ bg m1nor o11/ - In comuiing iIc nci wcaliI of an individual, iIcrc
sIall lc includcd iIc valuc of asscis wIicI on iIc valuaiion daic arc Icld ly a minor
cIild (including sic cIild/adoicd cIild lui noi lcing a marricd daugIicr} of sucI
individual |Scciion 4(1}(a}(ii}| TIc nci wcaliI of minor cIild will lc includcd in iIc nci
wcaliI of iIai arcni wIosc nci wcaliI |ccluding iIc asscis of minor cIild so
includillc undcr scciion 4(1}| is grcaicr.
sse1s 1rons]erre/ 1o o person or on ossoo1o11on o] persons - An assci
iransfcrrcd ly an individual aficr MarcI 31, 1956 io a crson or an associaiion of
crson, dirccily or indirccily, for iIc lcncfii of iIc iransfcror, Iis or Icr sousc,
oiIcrwisc iIan for adcquaic considcraiion, is 'dccmcd assci' of iransfcror |Scciion
4(1}(a}(iii}| '
sse1s 1rons]erre/ un/er revooob1e 1rons]ers - TIc assci is iransfcrrcd ly an
individual io a crson or an associaiion of crson aficr MarcI 31, 1956, undcr a
rcvocallc iransfcr is 'dccmcd assci' of iransfcror |Scciion 4(1}(a}(iv}|
sse1s 1rons]erre/ 1o son's u1]e |Scciion 4(1}(a}(v}| - TIc assci iransfcrrcd ly an
individual aficr May 31, 1973, io son's wifc, dirccily or indirccily, wiiIoui adcquaic
considcraiion will lc 'dccmcd assci' of iransfcror |Scciion 4(1}(a}(iv}|
sse1s 1rons]erre/ ]or 1e bene]11 o] son's u1]e - If iIc assci is iransfcrrcd ly an
individual aficr May 31, 1973, io a crson or an associaiion of iIc immcdiaic or
dcfcrrcd lcncfii of son's wifc, wIciIcr dirccily or indirccily, wiiIoui adcquaic
considcraiion, ii will lc ircaicd as 'dccmcd assci' of iIc iransfcror |Scciion 4(1}(a}(vi}|.
1n1eres1 o] por1ner- WIcrc iIc asscsscc (may or may noi lc an individual} is a
arincr in a firm or a mcmlcr of an associaiion of crsons, iIc valuc of Iis inicrcsi in
iIc asscis of iIc firm or an associaiion sIall lc includcd in iIc nci wcaliI of iIc
arincr/mcmlcr. For iIis urosc, inicrcsi of arincr/mcmlcr in iIc firm or
associaiion of crsons sIould lc dcicrmincd in iIc manncr laid down in ScIcdulc III
io iIc WcaliI-ia Aci |Scciion 4(1}(l}|. Admission of minor io lcncfiis of iIc
arincrsIi firm - If a minor is admiiicd io iIc lcncfiis of arincrsIi in a firm, iIc
valuc of Iis inicrcsi in iIc firm sIall lc includcd in iIc nci wcaliI of arcni of minor
in accordancc wiiI iIc rovisions of scciion 4(1}(u}(} |scc ara 546.2|. Ii will lc
dcicrmincd in iIc manncr sccificd in ScIcdulc III.
Convers1on bg on 1n/1v1/uo1 o] 1s se1]-ooqu1re/ proper1g 1n1o ]o1n1 ]om11g
proper1g - If an individual is a mcmlcr of a Hindu undividcd family and Ic convcris
Iis scaraic rocriy inio rocriy lclonging io Iis Hindu undividcd family, or if Ic
iransfcrs Iis scaraic rocriy io Iis Hindu undividcd family, dirccily or indirccily,
wiiIoui adcquaic considcraiion, iIc convcricd or iransfcrrcd rocriy sIall lc dccmcd
io lc iIc rocriy of iIc individual and iIc valuc of sucI rocriy is includillc in Iis
nci wcaliI |Scciion 4(1A}| If iIcrc was sucI iransfcr and if iIc convcricd or
iransfcrrcd rocriy lccomcs iIc suljcci-maiicr of a ioial or a ariial ariiiion among
iIc mcmlcrs of iIc family, iIc convcricd or iransfcrrcd rocriy or any ari iIcrcof,
wIicI is rcccivcd ly iIc sousc of iIc iransfcror, is dccmcd io lc iIc assci of iIc
iransfcror and is includillc in Iis nci wcaliI.
1]1s bg booK en1r1es - WIcrc a gifi of moncy from onc crson io anoiIcr is madc ly
mcans of cnirics in iIc lools of accouni mainiaincd ly iIc crson maling iIc gifi, or
ly an individual, or a Hindu undividcd family, or a firm or an associaiion of crsons,
or a lody of individuals wiiI wIom Ic Ias lusincss conncciion, iIc valuc of sucI gifi
will lc includcd in iIc nci wcaliI of iIc crson maling iIc gifis, unlcss Ic rovcs io
iIc saiisfaciion of iIc WcaliI-ia Officcr iIai iIc moncy Iad aciually lccn dclivcrcd io
iIc oiIcr crson ai iIc iimc iIc cnirics wcrc madc |Scciion 4(5A}|
1mpor11b1e es1o1e - For iIc urosc of iIc WcaliI-ia Aci, iIc Ioldcr of an
imariillc csiaic sIall lc dccmcd io lc iIc owncr of all iIc rocriics comriscd in
iIc csiaic |Scciion 4(6}|

Proper1g e1/ bg o member o] o ous1ng soo1e1g - WIcrc iIc asscsscc is a mcmlcr
of a co-ocraiivc Iousing sociciy and a luilding or ari iIcrcof is alloiicd or lcascd io
Iim, iIc asscsscc is dccmcd io lc iIc owncr of sucI luilding and iIc valuc of sucI
luilding is includillc in comuiing Iis nci wcaliI. In dcicrmining iIc valuc of sucI
luilding, any ouisianding insialmcnis, ayallc ly iIc asscsscc io iIc sociciy iowards
iIc cosis of sucI Iousc, arc dcduciillc as dcli owcd ly iIc asscsscc. TIc alovc rulcs
arc also alicallc if iIc asscsscc is a mcmlcr of a comany or an associaiion of
crsons |Scciion 4(7}|
Proper1g e1/ bg o person 1n por1 per]ormonoe o] o oon1roo1 [Seo11on 4(S)j - A
crson wIo is allowcd io ialc or rciain osscssion of any luilding or ari iIcrcof in
ari crformancc of a coniraci of iIc naiurc rcfcrrcd io in scciion 53A of iIc
Transfcr of Procriy Aci, 1882. Similarly, a crson can acquirc any rigIis, ccluding
any rigIis ly way of a lcasc from moniI io moniI or for a criod noi ccccding onc
ycar, in or wiiI rcscci io any luilding or ari iIcrcof, ly viriuc of iransaciion as is
rcfcrrcd io in scciion 269UA(f} of iIc Incomc-ia Aci.
In alovc cascs, iIc asscis arc iaallc in iIc Iands of lcncficial owncrs, in iIc samc
manncr in wIicI iIcy arc iacd undcr iIc Incomc-ia Aci .
1-3 Assets wbIcb are exempt Irom tax TIc following asscis arc ccmi from wcaliI-
ia, as cr scciion 5.
Proper1g e1/ un/er o 1rus1 - Any rocriy Icld ly an asscsscc undcr a irusi or
oiIcr lcgal olligaiion for any ullic urosc of cIariiallc or rcligious naiurc in India
is ioially ccmi from ia. |Scciion 5(i}|.
Bus1ness osse1s e1/ 1n 1rus1, u1o ore eemp1 - TIc following lusincss asscis
Icld ly as asscsscc undcr a irusi for any ullic cIariiallc/rcligious irusi arc ccmi
from ia - (a} wIcrc iIc lusincss is carricd on ly a irusi wIolly for ullic rcligious
uroscs and iIc lusincss consisis of riniing and ullicaiion of lools or ullicaiion
of lools or iIc lusincss is of a lind noiificd ly iIc Ccniral Covcrnmcni in iIis lcIalf
in iIc Official Cazciic (l} iIc lusincss is carricd on ly an insiiiuiion wIolly for
cIariiallc uroscs and iIc worl in conncciion wiiI iIc lusincss is mainly carricd on
ly iIc lcncficiarics of iIc insiiiuiion (c} iIc lusincss is carricd on ly an insiiiuiion,
fund or irusi sccificd in scciions 10(23D} or 20(23C} of iIc Incomc-ia Aci. Any oiIcr
lusincss asscis of a ullic cIariiallc/rcligious irusi is noi ccmi.
Coporoenorg 1n1eres1 1n o H1n/u un/1v1/e/ ]om11g - If iIc asscsscc is a mcmlcr of
a Hindu undividcd family, Iis inicrcsi in iIc family rocriy is ioially ccmi from ia
|Scciion 5(ii}|.
Res1/en11o1 bu11/1ng o] o ]ormer ru1er - TIc valuc of any onc luilding uscd for iIc
rcsidcncc ly a formcr rulcr of a rinccly Siaic is ioially ccmi from ia |Scciion 5(iii}|
Former ru1er's ]eue11erg - Jcwcllcry in osscssion of a formcr rulcr of a rinccly
Siaic, noi lcing Iis crsonal rocriy wIicI Ias lccn rccogniscd as a Icirloom is
ioially ccmi from ia |Scciion 5(iv}| TIc jcwcllcry sIall lc crmancnily lci in India
and sIall noi lc rcmovcd ouisidc India ccci for a urosc and criod arovcd ly
iIc Doard. Fcasonallc sics sIall lc ialcn for lccing iIai jcwcllcry sulsianiially in
iis original sIac. Fcasonallc faciliiics sIall lc allowcd io any officcr of iIc
Covcrnmcni, or auiIoriscd ly iIc Doard, io caminc iIc jcwcllcry as and wIcn
ncccssary.
sse1s be1ong1ng 1o 1e 1n/1on repo1r1o1es - Asscis (as givcn lclow} lclonging io
asscsscc wIo is a crson of Indian origin or a ciiizcn of India, wIo was ordinarily
rcsiding in a forcign couniry and wIo Ias rciurncd io India wiiI inicniion io
crmancnily rcsidc in India, is ccmi. A crson sIall lc dccmcd io lc of Indian origin
if Ic, or ciiIcr of Iis arcnis or any of Iis grand-arcnis, was lorn in undividcd India.
Aficr Iis rciurn io India, following sIall noi lc cIargcallc io ia for scvcn succcssivc
asscssmcni ycars -
(a} moncys lrougIi ly Iim inio India (l} valuc of assci lrougIi ly Iim inio India (c}
moncys sianding io iIc crcdii of sucI crson in a Non-rcsidcni (Eicrnal} Accouni in
any lanl in India on iIc daic of Iis rciurn io India and (d} valuc of asscis acquircd
ly Iim oui of moncy rcfcrrcd io in (u} and (.} alovc wiiIin onc ycar rior io iIc daic of
Iis rciurn and ai any iimc iIcrcaficr |Scciion 5(v}|
ne ouse or por1 o] o ouse - In iIc casc of an individual or a Hindu undividcd
family, a Iousc or a ari of Iousc, or a loi of land noi ccccding 500 sq. mcicrs in
arca is ccmi. A Iousc is qualificd for ccmiion, rcgardlcss of iIc faci wIciIcr iIc
Iousc is sclf-occuicd or lci oui. In casc a Iousc is owncd ly morc iIan onc crson,
ccmiion is availallc io cacI co-owncr of iIc Iousc |Scciion 5(vi}|

Q.6 Wbat Is meant by FuII vaIue oI consIderatIon? How sbort term capItaI gaIns
and Iong term capItaI gaIns are computed usIng IuII vaIue oI consIderatIon?

Ans. Full valuc of considcraiion mcans & includcs iIc wIolc/comlcic salc ricc or
ccIangc valuc or comcnsaiion including cnIanccd comcnsaiion rcccivcd in rcscci
of caiial assci in iransfcr. TIc following oinis arc imoriani io noic in rclaiion io full
valuc of considcraiion.
O TIc considcraiion may lc in casI or lind.
O TIc considcraiion rcccivcd in lind is valucd ai iis fair marlci
O valuc.
O Ii may lc rcccivcd or rcccivallc.
O TIc considcraiion musi lc aciual irrcscciivc of iis adcquacy.

COST OF ACQUISITION Cosi of Acquisiiion (COA} mcans any caiial ccnsc ai iIc
iimc of acquiring caiial assci undcr iransfcr, i.c., io includc iIc urcIasc ricc,
ccnscs incurrcd u io acquiring daic in iIc form of rcgisiraiion, sioragc cic.
ccnscs incurrcd on comlciing iransfcr. In oiIcr words, cosi of acquisiiion of an
assci is iIc valuc for wIicI ii was acquircd ly iIc asscsscc. Ecnscs of caiial
naiurc for comlciing or acquiring iIc iiilc arc includcd in iIc cosi of acquisiiion.
Indccd Cosi of Acquisiiion COA X CII of Ycar of iransfcr
CII of Ycar of acquisiiion
Tbe IndIces Ior tbe varIous prevIous years are gIven beIow:
S.o. FIn. Year Cost
InIIatIon
Index
S.o. FIn. Year Cost
InIIatIon
Index
1 1981-82 100 15 1995-96 281
2 1982-83 109 16 1996-97 305
3 1983-84 116 17 1997-98 331
4 1984-85 125 18 1998-99 351
5 1985-86 133 19 1999-2000 389
6 1986-87 140 20 2000-01 406
7 1987-88 150 21 2001-02 426
8 1988-89 161 22 2002-03 447
9 1989-90 172 23 2003-04 463
10 1990-91 182 24 2004-05 480
11 1991-92 199 25 2005-06 497
12 1992-93 223 26 2006-07 519
13 1993-94 244 27 2007-08 551
14 1994-95 259

If caiial asscis wcrc acquircd lcforc 1.4.81, iIc asscsscs Ias iIc oiion io Iavc
ciiIcr aciual cosi of acquisiiion or fair marlci valuc as on 1.4.81 as iIc cosi of
acquisiiion. If asscsscs cIooscs iIc valuc as on 1.4.81 iIcn iIc indcaiion will also lc
donc as cr iIc CII of 1981 and noi as cr iIc ycar of acquisiiion.

COST OF IMPFOVEMENT Cosi of imrovcmcni is iIc caiial ccndiiurc incurrcd ly
an asscsscc for maling any addiiion or imrovcmcni in iIc caiial assci. Ii also
includcs any ccndiiurc incurrcd in roicciing or curing iIc iiilc. In oiIcr words,
cosi of imrovcmcni includcs all iIosc ccndiiurcs, wIicI arc incurrcd io incrcasc
iIc valuc of iIc caiial assci.


Indccd Cosi of imrovcmcni COA X CII of Ycar of iransfcr
CII of Ycar of imrovcmcni

Any cosi of imrovcmcni incurrcd lcforc 1si Aril 1981 is noi considcrcd or ii is
ignorcd. TIc rcason lcIind ii is iIai for carrying any imrovcmcni in assci lcforc 1si
Aril 1981, assci sIould Iavc lccn urcIascd lcforc 1si Aril 1981. If assci is
urcIascd lcforc 1si Aril wc considcr iIc fair marlci valuc. TIc fair marlci valuc of
assci on 1si Aril 1981 will ccriainly includc iIc imrovcmcni madc in iIc assci.

ProvIsIons Ior computatIon oI CapItaI GaIn ProvIsIons under sectIon 4S TIc
incomc undcr iIc Icad Caiial Cains" sIall lc comuicd ly dcduciing iIc following
from iIc full valuc of iIc considcraiion rcccivcd or accrucd as a rcsuli of iIc iransfcr
of iIc caiial assci .

O Ecndiiurc incurrcd wIolly and cclusivcly in conncciion wiiI sucI iransfcr.
O TIc cosi of acquisiiion of iIc assci and iIc cosi of any imrovcmcni iIcrcio.

ComputatIon oI Sbort Term CapItaI GaIns From full valuc of considcraiion, dcduci
O Ecndiiurc incurrcd wIolly and in cclusivcly
O Cosi of acquisiiion
O Cosi of any imrovcmcni of assci

ComputatIon oI Long Term CapItaI GaIns From full valuc of considcraiion, dcduci
O Ecndiiurc incurrcd wIolly and in cclusivcly conncciion wiiI iIc iransfcr
O Indccd cosi of acquisiiion of assci
O Indccd cosi of any imrovcmcni of assci