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GNDU Question Paper-2022
Bachelor of Commerce
(B.Com) 5
th
Semester
DIRECT TAX LAWS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Write notes on :-
(a) Person
(b) Assessment Year.
2. Define Residential Status as per Income Tax Act 1961. Does the residential status of a
person impact the tax liability of the person? Discuss.
SECTION-B
3. What is Salary? Discuss its components. Also discuss the steps in, calculation of salary of
an individual.
4. Discuss the tax provisions related to income from House Property.
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SECTION-C
5. What is Long term capital gain? Discuss major taxation provisions related to long term
capital gain.
6. What is income from other sources? Show step by step calculation of income from
other sources of an individual.
SECTION-D
7. Discuss major types of deductions allowed from Gross Total Income of Individuals.
8. What is Tax Deduction at Source? Discuss.
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GNDU Answer Paper-2022
Bachelor of Commerce
(B.Com) 5
th
Semester
DIRECT TAX LAWS
Time Allowed: Three Hours Max. Marks: 50
Note: Attempt Five questions in all, selecting at least One question from each section. The
Fifth question may be attempted from any section. All questions carry equal marks.
SECTION-A
1. Write notes on :-
(a) Person
(b) Assessment Year.
Ans: Scene 1: Meeting Mr. Person
It’s a bright Monday morning in the “House of Income Tax,” and the receptionist smiles at
you. “Welcome, Rishabh! Before you can understand how we work, you need to meet our
most important guest — Mr. Person.”
You’re expecting one individual, but when the door opens, in walks a whole crowd. There’s a
shopkeeper, a company CEO, a school principal, a temple trustee, and even a small
partnership firm.
The receptionist whispers:
“That’s the thing — in the Income-tax Act, a ‘person’ is not just one human being. It’s a
whole category of entities that can earn income and be taxed.”
Definition of “Person” [Sec. 2(31) of the Income-tax Act, 1961]
Under the Act, “person” includes seven categories:
1. An Individual — A single human being. Example: You, me, your neighbour who runs
a bakery.
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2. A Hindu Undivided Family (HUF) — A family unit consisting of all persons lineally
descended from a common ancestor, including wives and unmarried daughters.
Example: A joint family in Punjab owning ancestral farmland.
3. A Company — Any company incorporated under Indian or foreign law. Example:
Infosys Ltd., or a foreign company like Microsoft Corporation.
4. A Firm — Includes partnership firms and LLPs (Limited Liability Partnerships).
Example: “Singh & Sons” Chartered Accountants.
5. An Association of Persons (AOP) or Body of Individuals (BOI) — A group of people
coming together for a common purpose, with or without profit motive. Example: A
group of artists organising an exhibition (AOP), or a group of co-owners earning rent
from property (BOI).
6. A Local Authority — Bodies like municipal corporations, panchayats, etc. Example:
Amritsar Municipal Corporation.
7. Every Artificial Juridical Person (AJP) — Entities not falling in the above categories
but recognised by law as having rights and duties. Example: A temple trust, a deity,
or a university.
Why “Person” Matters
The term “person” is the starting point in income tax because:
• Tax is charged on the total income of a person.
• Different categories of persons have different tax rates, exemptions, and filing
requirements.
• It helps the law cover every possible income-earning entity.
A Simple Analogy
Think of the Income-tax Act as a cricket tournament. The “players” are not just individual
cricketers — they include entire teams, clubs, associations, and even the stadium authority.
The law needs a word that covers all of them — and that word is “person”.
Scene 2: Meeting Mr. Assessment Year
After you’ve met Mr. Person, the receptionist says: “Now, let’s meet the timekeeper of the
tax world — Mr. Assessment Year.”
You walk into a room with a giant calendar on the wall. Mr. Assessment Year is flipping
through pages, marking April 1 to March 31 in bold red ink.
Definition of Assessment Year [Sec. 2(9) of the Income-tax Act, 1961]
Assessment Year (AY) means the period of 12 months starting from 1st April every year
and ending on 31st March of the next year.
• It is the year in which the income of the previous year is assessed and taxed.
• The AY is always after the year in which the income is earned.
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How It Works
1. Previous Year (PY): The year in which you actually earn the income. Example: 1 April
2024 to 31 March 2025.
2. Assessment Year (AY): The year immediately following the previous year, in which
the income is assessed and taxed. Example: AY 2025-26 for the above PY.
So, if you earn ₹10 lakh between April 2024 and March 2025, you will pay tax on it in AY
2025-26.
Why Not Tax in the Same Year?
The system allows the entire year to finish so that:
• You can calculate your total income for the year.
• You can claim deductions and exemptions.
• The tax department can apply the rates fixed for that AY by the Finance Act.
A Simple Analogy
Think of the Previous Year as the cricket season when you play matches and score runs. The
Assessment Year is the award ceremony the next year, when your total runs are counted
and prizes (or penalties!) are given.
Scene 3: How Mr. Person and Mr. Assessment Year Work Together
Now that you’ve met both, here’s how they interact:
• Mr. Person is the “who” — the entity earning the income.
• Mr. Assessment Year is the “when” — the time when that income is measured and
taxed.
Example:
• Who? A company (Person category: Company).
• When? AY 2025-26 (for income earned in PY 2024-25).
Extra Nuggets for Exam-Friendly Notes
Person — Key Points to Remember
• Defined in Sec. 2(31) of the Income-tax Act.
• Includes 7 categories: Individual, HUF, Company, Firm, AOP/BOI, Local Authority,
AJP.
• Covers both natural and artificial entities.
• Basis for determining tax liability, rates, and compliance.
Assessment Year — Key Points to Remember
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• Defined in Sec. 2(9) of the Income-tax Act.
• Always runs from 1 April to 31 March.
• Income of the previous year is taxed in the assessment year.
• Rates of tax are fixed for each AY by the Finance Act.
A Quick Comparison Table
Aspect
Person
Assessment Year
Meaning
Entity liable to pay tax
12-month period when income
is assessed
Defined in
Sec. 2(31)
Sec. 2(9)
Focus
“Who” earns the income
“When” the income is taxed
Examples
Individual, HUF, Company, Firm, AOP,
Local Authority, AJP
AY 2025-26, AY 2026-27
Importance
Determines liability and applicable
provisions
Determines timing and
applicable tax rates
A Human Story to Tie It Together
Imagine a farmer named Harjit Singh (Individual — a “Person” under the Act).
• Between April 2024 and March 2025, he earns income from selling wheat and also
rents out part of his land. This is his Previous Year.
• In April 2025, the new Assessment Year 2025-26 begins. The tax department now
looks at Harjit’s total income from the previous year, applies the rates for AY
2025-26, and calculates his tax.
If Harjit were a company, a temple trust, or even a municipal corporation, the process would
be the same — because all of them are “persons” in the eyes of the law.
Final Takeaway
• Person is the legal identity on which tax is levied — it could be a human, a family, a
company, or even a trust.
• Assessment Year is the fixed 12-month window when the income earned in the
previous year is assessed and taxed.
Together, they form the backbone of the income tax system:
First, identify who is earning (Person), then decide when to tax them (Assessment Year).
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2. Define Residential Status as per Income Tax Act 1961. Does the residential status of a
person impact the tax liability of the person? Discuss.
Ans: A Traveller Named Arjun
Meet Arjun. He’s an Indian citizen, but his life is a mix of airports, hotel rooms, and
conference halls. Some years he spends most of his time in India, other years he’s abroad
for work.
One day, while filing his income tax return, his CA says:
“Arjun, before we even talk about your income, we need to figure out your residential
status for this year. That will decide how much of your income India can tax.”
Arjun is puzzled. “But I’m an Indian citizen — doesn’t that mean I’m always taxed the same
way?”
The CA smiles:
“No, Arjun. In tax law, residential status is not the same as citizenship. You can be an Indian
citizen but a non-resident for tax purposes in a given year. Or you could be a foreign citizen
but a resident for tax purposes. It all depends on how many days you’ve been in India.”
Definition of Residential Status — Section 6 of the Income-tax Act, 1961
The Income-tax Act uses Section 6 to decide whether a person is:
1. Resident in India, or
2. Non-Resident (NR).
For individuals and Hindu Undivided Families (HUFs), there’s a further split:
• Resident and Ordinarily Resident (ROR)
• Resident but Not Ordinarily Resident (RNOR)
Step 1: Basic Conditions for an Individual to be Resident
An individual is Resident in India if any one of these is true in the previous year:
1. He/she is in India for 182 days or more during that year, OR
2. He/she is in India for 60 days or more during that year AND for 365 days or more
during the 4 years immediately preceding that year.
Special relaxations:
• For Indian citizens leaving India for employment abroad (or as crew of an Indian
ship), the 60-day condition becomes 182 days.
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• For Indian citizens or Persons of Indian Origin visiting India, the 60-day condition
becomes 182 days (with some exceptions for high-income cases from FY 2020-21
onwards).
Step 2: Additional Conditions for ROR vs RNOR
If a person is Resident, we check two more conditions:
1. Resident in India for at least 2 out of 10 previous years immediately before the
relevant year.
2. Stayed in India for 730 days or more during the 7 years immediately before the
relevant year.
• If both are satisfied → Resident and Ordinarily Resident (ROR).
• If not → Resident but Not Ordinarily Resident (RNOR).
Step 3: Non-Resident
If none of the basic conditions are met → Non-Resident (NR).
Residential Status for Other Entities
• HUF, Firm, AOP: Resident if control and management of affairs is wholly or partly in
India; Non-resident if wholly outside India.
• Company: Resident if it is an Indian company, or if its place of effective management
(POEM) is in India during the year.
• Every other person: Resident if control and management is wholly or partly in India.
Why This Matters — The Link to Tax Liability
Once Arjun’s CA knows his residential status, he can apply Section 5 of the Act, which
defines the scope of total income.
1. Resident and Ordinarily Resident (ROR)
Taxable on:
• Indian income (earned or received in India), AND
• Foreign income (earned outside India), whether received in India or abroad.
Example: If Arjun is ROR, his salary from a US job, interest from a UK bank account, and rent
from his Delhi flat — all are taxable in India.
2. Resident but Not Ordinarily Resident (RNOR)
Taxable on:
• Indian income, and
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• Foreign income only if it is from a business controlled in India or a profession set up
in India.
Example: If Arjun is RNOR, his US salary is not taxed in India unless it’s from a business
controlled from India.
3. Non-Resident (NR)
Taxable only on:
• Income earned in India, or
• Income received in India.
Example: If Arjun is NR, only his Delhi rent and any Indian bank interest are taxable in India
— his US salary is outside India’s tax net.
A Simple Table for Quick Recall
Residential
Status
Indian
Income
Foreign Income (from
business/profession in India)
Other Foreign
Income
ROR
Taxable
Taxable
Taxable
RNOR
Taxable
Taxable
Not Taxable
NR
Taxable
Not Taxable
Not Taxable
A Human Analogy — The Three Nets
Think of India’s tax system as three fishing nets:
• ROR Net: The biggest — catches all fish (income) from Indian and foreign waters.
• RNOR Net: Medium — catches all Indian fish and only foreign fish linked to India.
• NR Net: Smallest — catches only Indian fish.
Your residential status decides which net you’re caught in.
Case Study: Arjun’s Three Years
• Year 1: Arjun spends 200 days in India → ROR → Pays tax on worldwide income.
• Year 2: Arjun spends 100 days in India, meets 365-day rule in past 4 years, but fails
additional conditions → RNOR → Pays tax on Indian income + foreign income linked
to India.
• Year 3: Arjun spends only 40 days in India → NR → Pays tax only on Indian income.
Key Points to Remember
1. Residential status ≠ Citizenship — They are independent concepts.
2. Determined every year — You can be resident one year, non-resident the next.
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3. Impacts scope of taxation — Decides whether foreign income is taxed.
4. Based on physical presence — Count your days in India carefully.
5. Special rules for certain cases — Employment abroad, visiting Indians, high-income
NRIs.
Why the Law Works This Way
The logic is fairness and practicality:
• If you live in India most of the year, you use its infrastructure and services — so you
pay tax on your global income.
• If you live abroad most of the year, India taxes you only on income connected to
India.
It also prevents tax evasion by people who might try to shift income abroad while still living
in India.
Final Takeaway
Residential status is the gateway question in income tax.
• First, identify who the taxpayer is (Person).
• Then, decide where they “live” for tax purposes (Residential Status).
• Only then can you decide what income India can tax.
For Arjun — and for every taxpayer — it’s like the immigration stamp on your passport: it
decides which set of tax rules will apply to you for that year.
SECTION-B
3. What is Salary? Discuss its components. Also discuss the steps in, calculation of salary of
an individual.
Ans: Scene 1: The Appointment Letter
Meet Aman. He has just landed a job at a reputed company in Amritsar. On his first day, HR
hands him an appointment letter. It says:
“Your annual salary package will be ₹8,00,000, including basic pay, allowances, perquisites,
and other benefits.”
Aman smiles — but then wonders: What exactly counts as “salary” for tax purposes?
What is Salary? — As per the Income-tax Act, 1961
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Under Section 17(1) of the Income-tax Act, “salary” is a broad term. It’s not just the fixed
monthly pay you think of — it includes any payment received by an employee from an
employer, in cash, kind, or as a facility, due to the employer-employee relationship.
It covers:
• Wages (basic pay for work done)
• Annuity or pension
• Gratuity
• Fees, commission, perquisites
• Profits in lieu of salary (compensation, ex-gratia, etc.)
• Advance salary and arrears
• Leave encashment
• Employer’s contribution to certain funds (subject to limits)
The key point:
If there is an employer-employee relationship, and the payment is because of that
relationship, it’s “salary” for tax purposes.
Scene 2: Breaking Down Aman’s Pay Slip
At the end of his first month, Aman gets his pay slip. Let’s walk through the main
components of salary one by one.
1. Basic Salary
• The fixed core of Aman’s pay.
• Forms the basis for calculating many other benefits (like HRA, PF).
• Fully taxable.
2. Dearness Allowance (DA)
• Paid to offset inflation and cost of living.
• Often a fixed percentage of basic salary.
• If it forms part of retirement benefits, it’s fully taxable.
3. House Rent Allowance (HRA)
• Given if Aman lives in rented accommodation.
• Partially exempt under Section 10(13A) if conditions are met:
o Actual HRA received.
o Rent paid minus 10% of salary.
o 40% (non-metro) or 50% (metro) of salary.
• The least of the above three is exempt; the rest is taxable.
4. Other Allowances
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• Conveyance allowance (for travel to work) — taxable unless exempt under specific
rules.
• Special allowance — taxable unless specifically exempt (e.g., uniform allowance).
• Children’s education allowance — exempt up to ₹100 per month per child (max 2
children).
5. Perquisites
These are benefits in kind — not cash — provided by the employer. Examples:
• Rent-free accommodation.
• Company car for personal use.
• Free meals.
• Employer-paid club memberships.
Perquisites are valued as per Income-tax Rules and are taxable unless specifically exempt
(e.g., medical facilities in certain cases).
6. Bonus and Commission
• Paid as a reward for performance or as part of the contract.
• Fully taxable.
7. Retirement Benefits
• Gratuity — exempt up to limits under Section 10(10).
• Pension — commuted pension partly exempt; uncommuted pension fully taxable.
• Leave encashment — exemption available for non-government employees under
Section 10(10AA).
• Employer’s contribution to Recognised PF — exempt up to 12% of salary; excess is
taxable.
8. Profits in Lieu of Salary
• Compensation on termination.
• Payments from unrecognised provident funds.
• Voluntary retirement compensation (exempt up to limits under Section 10(10C)).
Scene 3: How Salary is Taxed — The Calculation Steps
Now Aman wants to know: How do I calculate my taxable salary?
Here’s the step-by-step process:
Step 1: Identify the Previous Year
• Salary is taxed on a due or receipt basis, whichever is earlier.
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• For PY 2024-25 (1 April 2024 to 31 March 2025), Aman’s salary for that period will be
considered.
Step 2: Add All Salary Components
• Basic salary
• Dearness allowance
• HRA (before exemption)
• All other allowances
• Perquisites (valued as per rules)
• Bonus, commission
• Retirement benefits (if received)
• Profits in lieu of salary
Step 3: Apply Exemptions
Deduct exemptions available under Section 10, such as:
• HRA exemption
• Leave travel concession (LTC)
• Children’s education allowance
• Hostel allowance
• Gratuity exemption
• Leave encashment exemption
• VRS compensation exemption
Step 4: Arrive at Gross Salary
Gross Salary = Total salary components – Exemptions under Section 10.
Step 5: Deduct Standard Deduction and Professional Tax
• Standard deduction: ₹50,000 (available to all salaried taxpayers).
• Professional tax: Deduct actual amount paid (if applicable in the state).
Step 6: Arrive at Taxable Salary
Taxable Salary = Gross Salary – Standard Deduction – Professional Tax.
Step 7: Add Income from Other Heads
If Aman has other income (interest, rent, etc.), add them to taxable salary to get Gross Total
Income.
Step 8: Apply Deductions under Chapter VI-A
From Gross Total Income, deduct eligible amounts under:
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• Section 80C (PF, LIC, ELSS, etc.)
• Section 80D (medical insurance)
• Section 80E (education loan interest)
• And others.
Step 9: Arrive at Total Taxable Income
This is the income on which tax rates are applied.
Step 10: Calculate Tax Liability
Apply the applicable slab rates (old or new regime) to compute tax, add cess, and subtract
TDS already deducted by the employer.
A Simple Example
Let’s say Aman’s annual pay is:
• Basic: ₹4,00,000
• DA: ₹50,000
• HRA: ₹1,20,000
• Special allowance: ₹60,000
• Bonus: ₹40,000
• Perquisites: ₹30,000
Step 1: Total before exemptions = ₹7,00,000. Step 2: HRA exemption (say) = ₹60,000. Step
3: Gross Salary = ₹7,00,000 – ₹60,000 = ₹6,40,000. Step 4: Less standard deduction ₹50,000
= ₹5,90,000. Step 5: Taxable salary = ₹5,90,000.
From here, add other incomes, apply deductions, and compute final tax.
Why Understanding Components Matters
• Tax Planning: Knowing which parts are taxable or exempt helps structure your salary
package efficiently.
• Compliance: Avoids under-reporting income.
• Negotiation: You can negotiate for more tax-efficient components (like HRA,
reimbursements).
4. Discuss the tax provisions related to income from House Property.
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SECTION-C
5. What is Long term capital gain? Discuss major taxation provisions related to long term
capital gain.
Ans: Scene 1: The Purchase
Meet Karan. In 2019, he bought:
• A small flat in Amritsar for ₹40 lakh.
• 500 shares of a listed company for ₹1,000 each.
• Some gold jewellery worth ₹5 lakh.
He didn’t buy them to sell immediately — he wanted to hold them for the long term, either
for investment or personal use.
Scene 2: The Sale Years Later
Fast forward to 2025. Karan decides to sell:
• The flat for ₹70 lakh.
• The shares for ₹1,800 each.
• The gold for ₹8 lakh.
He’s made a profit on all three. But before he celebrates, his CA says:
“Karan, these are capital gains — and because you’ve held them for a certain period, they
may be long-term capital gains. Let’s check.”
What is Long-Term Capital Gain?
Under the Income-tax Act, 1961, any profit or gain from the transfer of a capital asset is
taxed under the head “Capital Gains.” Capital gains are classified into:
• Short-Term Capital Gains (STCG)
• Long-Term Capital Gains (LTCG)
Long-Term Capital Gain means:
The profit arising from the transfer of a long-term capital asset — i.e., an asset held for
more than a specified minimum period before sale.
Period of Holding for LTCG (Post-Budget 2024 rules)
The asset is considered long-term if held for:
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• More than 12 months: Listed equity shares, units of equity-oriented mutual funds,
units of business trusts.
• More than 24 months: All other capital assets (immovable property like
land/building, unlisted shares, jewellery, debt mutual funds, etc.).
So in Karan’s case:
• Flat: Held for 6 years → Long-term.
• Listed shares: Held for 6 years → Long-term.
• Gold: Held for 6 years → Long-term.
Scene 3: How to Calculate LTCG
The CA explains the formula:
LTCG = Full Value of Consideration – (Expenses on Transfer + Indexed Cost of Acquisition +
Indexed Cost of Improvement)
Step 1: Full Value of Consideration
The sale price or fair market value received on transfer.
Step 2: Expenses on Transfer
Brokerage, stamp duty, legal fees, etc., directly related to the sale.
Step 3: Indexed Cost of Acquisition/Improvement
For most assets (except certain equity assets under Section 112A), you can use indexation
— adjusting the purchase price for inflation using the Cost Inflation Index (CII) notified by
the government.
Indexed Cost = Original Cost × (CII in year of sale ÷ CII in year of purchase)
This reduces the taxable gain by recognising inflation’s effect.
Special Note:
For listed equity shares, equity-oriented mutual funds, and units of business trusts covered
under Section 112A, indexation is not allowed — gains are taxed without it.
Scene 4: Taxation Provisions for LTCG
The CA now explains the two main sections:
1. Section 112A — For Certain Equity Assets
Applies to:
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• Listed equity shares
• Units of equity-oriented mutual funds
• Units of business trusts
Tax Rate:
• LTCG exceeding ₹1,25,000 in a financial year is taxed at 12.5% (earlier 10% before
Budget 2024) without indexation.
Conditions:
• Securities Transaction Tax (STT) must be paid on purchase and sale (for shares) or on
sale (for units).
2. Section 112 — For All Other Long-Term Capital Assets
Applies to:
• Immovable property (land/building)
• Unlisted shares
• Jewellery
• Debt mutual funds
• Any other capital asset not covered under Section 112A
Tax Rate:
• 12.5% without indexation (new option for individuals/HUFs from Budget 2024), or
• 20% with indexation (traditional method).
The taxpayer can choose whichever is more beneficial.
3. Exemptions to Save LTCG Tax
Karan’s CA reminds him that certain sections allow you to avoid or reduce LTCG tax if you
reinvest the gains:
• Section 54: Sale of residential property → reinvest in another residential property.
• Section 54EC: Invest in specified bonds (NHAI, REC) within 6 months.
• Section 54F: Sale of any asset other than residential property → invest in a
residential property.
These have conditions on time limits, amount, and holding period of the new asset.
Scene 5: Karan’s Calculation
Let’s do a quick example for the flat:
• Sale price: ₹70,00,000
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• Purchase price (2019): ₹40,00,000
• CII 2019-20: 289; CII 2024-25: 348
• Indexed cost = ₹40,00,000 × (348 ÷ 289) ≈ ₹48,18,000
• LTCG = ₹70,00,000 – ₹48,18,000 = ₹21,82,000
If Karan chooses 20% with indexation:
• Tax = 20% × ₹21,82,000 = ₹4,36,400
If he chooses 12.5% without indexation:
• Gain without indexation = ₹70,00,000 – ₹40,00,000 = ₹30,00,000
• Tax = 12.5% × ₹30,00,000 = ₹3,75,000
Clearly, the 12.5% option is better here.
For the shares:
• Sale price: ₹9,00,000
• Purchase price: ₹5,00,000
• Gain = ₹4,00,000
• Exemption: ₹1,25,000
• Taxable LTCG = ₹2,75,000
• Tax @ 12.5% = ₹34,375
Scene 6: Why LTCG Rules Exist
The CA explains:
• Encouragement for long-term investment: Lower tax rates reward holding assets
longer.
• Inflation adjustment: Indexation ensures you’re taxed on real gains, not just
inflationary increases.
• Fairness: Different assets have different holding periods and rates to reflect their
nature and market behaviour.
A Simple Analogy — The Fruit Orchard
Think of buying an asset like planting a fruit tree:
• If you sell the fruit quickly (short-term), you pay higher tax.
• If you wait years for the tree to grow and bear more fruit (long-term), you get a
lower tax rate — but you must follow the rules on how long to wait and how to
calculate the real profit after accounting for the years gone by.
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6. What is income from other sources? Show step by step calculation of income from
other sources of an individual.
Ans: A rainy Sunday, a shoebox of slips, and the “other” income story
Picture this: it’s a rainy Sunday in Amritsar. You sit with chai and a shoebox of bank slips,
dividend emails, a prize voucher you won at a fest, and a receipt from the flat you sub-let
for three months. You’ve already sorted salary, house property, capital gains, and there’s no
business income. What about the rest?
That pile — the interest, gifts, winnings, family pension, sub-letting — lives under the head
called “Income from Other Sources.” Once you see how it works, it stops feeling like a junk
drawer and starts looking like a neat mini-ledger you can master in minutes.
Meaning and scope in simple words
“Income from Other Sources” is the residuary head of income. If a receipt isn’t salary, house
property, business/profession, or capital gains — and it’s taxable — it usually falls here.
Think of it as the law’s way of saying: if it doesn’t fit elsewhere, we’ll tax it here.
Common items taxed under this head
• Interest incomes: Savings account, fixed/recurring deposits, bonds, interest on
compensation.
• Dividends: From shares or mutual funds (taxable in the hands of the investor).
• Family pension: Received by family members of a deceased employee.
• Winnings: Lotteries, crossword puzzles, card games, TV/game shows, betting, horse
races.
• Gifts of money or property: Taxable if aggregate value from non-relatives exceeds
the threshold.
• Sub-letting receipts: If you rent out a house you yourself rent (not owned).
• Director sitting fees/examiner fees: Professional honoraria not covered as business
income.
• Deemed incomes: Certain Keyman policy receipts; deemed dividend in specific
cases; interest from post-maturity PFs not exempt; etc.
• Letting out plant, machinery or furniture: When it doesn’t amount to business.
• Composite letting of building with plant/machinery/furniture: If inseparable from
the facility and not taxed as business.
Deductions allowed from this head
Under section 57, you can claim only specific, tightly-defined deductions:
• Interest expense against dividend:
o Allowed, but capped at 20% of dividend income. No other expenses against
dividend are allowed.
• Family pension standard deduction:
o Deduct the lower of 33⅓% of family pension or ₹15,000.
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• Interest on compensation:
o 50% deduction is allowed; balance 50% is taxable.
• Collection charges/necessary expenses:
o For sub-letting or interest/securities, expenses “wholly and exclusively” to
earn that income (e.g., rent paid to the owner when you sub-let) may be
allowed.
• What’s not allowed (important):
o Personal expenses; arbitrary “estimated” costs; and for winnings (lottery,
races, etc.), no expenses or deductions are allowed, nor can you set off any
loss against such winnings.
Special tax rate items you must separate
• Winnings from lotteries, card games, horse races, gambling, TV shows:
o Taxed at a flat rate of 30% plus cess.
o No deductions, no exemptions, and no set-off of losses against it.
• Everything else under “Other Sources” is typically taxed at normal slab rates (unless
there’s a specific special rate notified).
Gifts: what’s taxable and what’s not
• Cash or property from non-relatives:
o If the aggregate value in a year exceeds the prescribed threshold, the whole
amount/value becomes taxable.
• Exempt gifts:
o From “relatives” (as defined in the Act), on the occasion of marriage, under a
will/inheritance, or in contemplation of death, among others.
• Immovable property received at a low price:
o If stamp-duty value exceeds what you paid beyond the allowed
margin/threshold, the excess may be taxable.
• Movable property (like shares/jewellery) at a low price:
o Similar concept using fair market value and the threshold.
Tip: Keep a simple “gift register” — who, what, value, and why (occasion/relationship) — it
saves stress at filing time.
Step-by-step: compute income from other sources for an individual
Let’s compute for Neha for FY 2024-25 (PY 2024-25), filing in AY 2025-26.
Neha’s facts
• Savings interest: ₹9,500
• FD interest: ₹36,000
• Dividend from listed shares/mutual funds: ₹45,000
• Interest on loan taken to invest in those shares: ₹20,000
• Family pension (received by Neha): ₹1,80,000
• Lottery winning: ₹50,000
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• Gift in cash from a friend (non-relative): ₹80,000
• Sub-letting of a flat she herself rents: Received ₹60,000; she paid the original
landlord ₹40,000 for that period
We’ll compute in clean blocks.
1) Interest incomes
• Savings + FD interest:
o 9,500 + 36,000 = ₹45,500
o No specific deduction here (beyond allowable collection charges; assume nil)
o Taxable under slab rates.
• Note: She may later claim section 80TTA/80TTB at the Gross Total Income stage (not
in this head’s computation) if eligible.
2) Dividend income
• Dividend: ₹45,000
• Less: Interest expense allowed (capped at 20% of dividend):
o 20% of ₹45,000 = ₹9,000 (the loan interest is ₹20,000, but cap applies)
• Taxable dividend: 45,000 − 9,000 = ₹36,000
• Taxed at slab rates (dividend is not at special 30%).
3) Family pension
• Received: ₹1,80,000
• Less: Standard deduction (lower of 33⅓% or ₹15,000):
o 33⅓% = ₹60,000; lower of ₹60,000 and ₹15,000 is ₹15,000
• Taxable family pension: 1,80,000 − 15,000 = ₹1,65,000
4) Winnings from lotteries, etc.
• Lottery winning: ₹50,000
• No deduction/expense allowed; no set-off.
• Taxed at a special rate of 30% plus cess.
5) Gifts
• Cash gift from friend (non-relative): ₹80,000
• Exceeds threshold → entire ₹80,000 taxable under “Other Sources.”
• Taxed at slab rates.
• Gifts from relatives or on marriage, inheritance, etc., would be exempt — but not
this one.
6) Sub-letting income
• Gross receipts: ₹60,000
• Less: Rent paid to the owner (wholly and exclusively to earn this): ₹40,000
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• Net taxable sub-letting income: 60,000 − 40,000 = ₹20,000
• Taxed at slab rates.
• Keep rent agreements and bank proofs handy.
7) Summarise the head-wise figure
• Items taxed at slab rates under “Other Sources”:
o Interest: ₹45,500
o Dividend (after 20% interest cap): ₹36,000
o Family pension (after ₹15,000 deduction): ₹1,65,000
o Taxable gift: ₹80,000
o Sub-letting (net): ₹20,000
o Subtotal (slab-rate bucket): 45,500 + 36,000 + 1,65,000 + 80,000 + 20,000 =
₹3,46,500
• Items taxed at special rate:
o Lottery winnings (flat 30%): ₹50,000
8) Put it into your return
• Income from Other Sources (slab-rate part): ₹3,46,500 goes to the normal
computation and combines with your other heads (salary, etc.) to form Gross Total
Income.
• Apply Chapter VI-A deductions (like 80C, 80D, 80TTA/80TTB) at the Gross Total
Income level.
• Lottery ₹50,000 is taxed separately at 30% + cess. The portal/utility will keep it in a
special-rate bucket automatically when you choose the correct nature of income.
Practical tips to avoid mistakes
• Separate “special rate” winnings early in your working — never mix them with
slab-rate items.
• Cap dividend interest at 20% — the rest is simply ignored (not carried forward).
• Use the family pension standard deduction — people forget the ₹15,000 or 33⅓%
rule.
• Track gifts carefully — maintain a simple list: date, giver, relationship, nature
(cash/property), amount/value, occasion.
• Sub-letting needs support — preserve the original rent agreement, sub-lease
agreement, and rent payment proofs.
• Interest on compensation — remember the 50% deduction rule if applicable.
• TDS is not the tax — it’s a pre-payment. Report the full income, then claim TDS
credit.
• Don’t claim random expenses — only those “wholly and exclusively” for earning that
specific income are allowed, and some (like against winnings/dividends) are
specifically restricted.
Quick memory map
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• What it is: Residual head for taxable receipts not fitting other heads.
• Big buckets: Interest, dividend, family pension, winnings, gifts, sub-letting, certain
lettings of plant/machinery/furniture, deemed items.
• Deductions allowed: Tight list under section 57 (20% cap on dividend-interest;
₹15k/33⅓% on family pension; 50% on interest on compensation; necessary earning
expenses like rent for sub-letting).
• Special rate: Winnings at 30% (no deductions, no set-off).
• Everything else: Slab rates after legitimate deductions and then Chapter VI-A at GTI
stage.
Final takeaway
Income from Other Sources looks messy only until you give each item its “home”: slab-rate
vs special-rate, and allowed vs disallowed deductions. Once you separate the piles and apply
the precise rules (20% cap here, ₹15,000/33⅓% there, 30% flat for winnings), the numbers
click into place.
SECTION-D
7. Discuss major types of deductions allowed from Gross Total Income of Individuals.
Ans: Scene 1: Entering the Tax Savings Mall
It’s the end of the financial year. You’ve calculated your Gross Total Income — the sum of
all your taxable income from salary, house property, capital gains, business/profession, and
other sources.
Before you pay tax, the law says:
“Wait! You can reduce this amount by claiming certain deductions under Chapter VI-A
(Sections 80C to 80U).”
Think of GTI as your shopping bill, and deductions as discount coupons — they reduce the
bill before tax is calculated.
Floor 1: The 80C Family — The Most Popular Store
The first and busiest floor is Section 80C and its “siblings” 80CCC and 80CCD(1). Together,
they have a combined limit of ₹1,50,000.
What’s on the shelves?
• Life Insurance Premiums (for self, spouse, children)
• Employee’s contribution to Provident Fund (PF)
• Public Provident Fund (PPF)
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• 5-year fixed deposits with banks/post office
• National Savings Certificates (NSC)
• Equity Linked Savings Schemes (ELSS) — tax-saving mutual funds
• Tuition fees for up to 2 children
• Principal repayment of home loan
• Sukanya Samriddhi Yojana deposits
80CCC — Contributions to certain pension funds (LIC/others).
80CCD(1) — Employee’s contribution to National Pension System (NPS) — within the ₹1.5
lakh cap.
Floor 2: The NPS Bonus Counter
Right next to 80C is a special counter:
• 80CCD(1B) — Additional deduction of ₹50,000 for NPS contributions (over and above
the ₹1.5 lakh limit).
• 80CCD(2) — Employer’s contribution to NPS (up to 10% of salary for private sector,
14% for government employees) — no monetary ceiling here; it’s over and above
80C limits.
Floor 3: Health & Wellness Zone
Here, the focus is on medical insurance and health expenses.
80D — Medical Insurance Premiums
• Self + family (below 60 years): Up to ₹25,000
• Parents (below 60 years): Additional ₹25,000
• If insured person is a senior citizen: Limit rises to ₹50,000
• Preventive health check-up: Included within the above limits (max ₹5,000)
• Medical expenses for senior citizens without insurance: Allowed up to ₹50,000.
Floor 4: Fighting Critical Illness — 80DD, 80DDB, 80U
80DD — Maintenance (including medical treatment) of a dependent with disability.
• Deduction: ₹75,000 (disability ≥ 40%), ₹1,25,000 (severe disability ≥ 80%).
80DDB — Medical treatment for specified diseases (self or dependent).
• Deduction: Up to ₹40,000 (non-senior), ₹1,00,000 (senior/super senior), reduced by
any reimbursement.
80U — For a taxpayer with disability.
• Deduction: ₹75,000 (disability ≥ 40%), ₹1,25,000 (severe disability ≥ 80%).
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Floor 5: Education & Skill Development
80E — Interest on Education Loan
• For higher education (self, spouse, children, or student for whom you’re a legal
guardian).
• Deduction: Entire interest paid (no cap) for up to 8 years.
Floor 6: Housing & Affordable Living
80EE — Interest on home loan for first-time buyers (conditions apply).
• Deduction: Up to ₹50,000 (over and above 24(b) house property interest).
80EEA — Interest on home loan for affordable housing (loan sanctioned between
specified dates).
• Deduction: Up to ₹1,50,000 (over and above 24(b)).
Floor 7: Savings & Investments Beyond 80C
80TTA — Interest on savings account (non-senior citizens).
• Deduction: Up to ₹10,000.
80TTB — Interest on deposits (senior citizens).
• Deduction: Up to ₹50,000 (covers savings + fixed deposits).
Floor 8: Donations & Social Responsibility
80G — Donations to specified funds/charitable institutions
• 100% or 50% deduction, with or without qualifying limit (10% of adjusted GTI),
depending on the fund.
80GGA — Donations for scientific research or rural development (for non-business
assessees).
80GGC — Contributions to political parties/electoral trusts (non-cash).
Floor 9: Rural Development & Infrastructure
80IA, 80IAB, 80IB, 80IC, etc.
• These are more for businesses/entrepreneurs — deductions for infrastructure, SEZ
development, certain industries in specified states.
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For individuals, these are less common unless they run eligible businesses.
Floor 10: Special Situations
• 80QQB — Royalty income of authors (up to ₹3,00,000, conditions apply).
• 80RRB — Royalty on patents (up to ₹3,00,000, conditions apply).
How the “Mall” Works — Step-by-Step in Calculation
Let’s walk through an example for Anita, a salaried individual:
Gross Total Income (GTI): ₹10,00,000
Step 1: 80C family
• PPF: ₹60,000
• ELSS: ₹40,000
• Life insurance premium: ₹30,000
• Tuition fees: ₹20,000 Total: ₹1,50,000 (maxed out)
Step 2: 80CCD(1B)
• NPS: ₹40,000 (extra over 80C) → Deduct ₹40,000
Step 3: 80D
• Mediclaim for self/family: ₹20,000
• Mediclaim for senior citizen parents: ₹45,000 (capped at ₹50,000) Total: ₹65,000
Step 4: 80E
• Education loan interest: ₹25,000
Step 5: 80TTA
• Savings account interest: ₹8,000 (deduct ₹8,000)
Step 6: 80G
• Donation to PMNRF: ₹10,000 (100% deduction, no limit)
Total Deductions:
• 80C: ₹1,50,000
• 80CCD(1B): ₹40,000
• 80D: ₹65,000
• 80E: ₹25,000
• 80TTA: ₹8,000
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• 80G: ₹10,000 Grand Total: ₹2,98,000
Step 7: Taxable Income = GTI – Deductions = ₹10,00,000 – ₹2,98,000 = ₹7,02,000
Now Anita’s tax will be calculated on ₹7,02,000 instead of ₹10,00,000 — a big saving.
Why This Matters
• Encourages good habits: Saving for retirement, buying insurance, investing in
education.
• Supports social causes: Donations, rural development.
• Protects vulnerable groups: Deductions for disability, critical illness.
• Promotes national goals: Affordable housing, infrastructure.
8. What is Tax Deduction at Source? Discuss.
Ans: Scene 1: The Salary Day Story
It’s the first of the month. Aman, an employee at BrightTech Pvt. Ltd., opens his bank app
and sees his salary credited — but it’s a little less than the amount mentioned in his
appointment letter.
He calls HR:
“Why is my salary less? Did you make a mistake?”
HR smiles:
“No mistake, Aman. We’ve deducted TDS — Tax Deducted at Source — and deposited it
with the government on your behalf. You’ll get credit for it when you file your return.”
What is TDS?
Under the Income-tax Act, 1961, Tax Deducted at Source is a system where the person
making certain payments (the deductor) deducts tax at the time of making the payment to
the recipient (the deductee) and deposits it with the Central Government.
The idea is simple:
• Tax is collected at the very source of income.
• The recipient gets the payment net of tax, but the gross amount is considered for
calculating total income.
• The deducted tax appears in the deductee’s Form 26AS / Annual Information
Statement (AIS) and can be adjusted against their final tax liability.
Why TDS Exists — The Logic
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Think of TDS as the government’s way of:
• Ensuring steady cash flow into the treasury throughout the year.
• Reducing the risk of tax evasion — since tax is collected before the income even
reaches the recipient.
• Spreading the tax burden over the year instead of collecting it all at once at
year-end.
Scene 2: The Rent Example
BrightTech also rents an office from Mr. Sharma for ₹80,000 per month. Under Section 194I,
they must deduct 10% TDS on rent for land/building if annual rent exceeds ₹2,40,000.
So:
• Rent payable: ₹80,000
• TDS @ 10%: ₹8,000
• Net paid to Mr. Sharma: ₹72,000
• ₹8,000 is deposited with the government against Mr. Sharma’s PAN.
When Mr. Sharma files his return, he declares the full ₹80,000 per month as income and
claims credit for the ₹8,000 per month already paid as TDS.
Key Players in TDS
• Deductor: The person/organisation making the payment and responsible for
deducting tax.
• Deductee: The person receiving the payment, from whose income tax is deducted.
• Income-tax Department: Receives the TDS and credits it to the deductee’s account.
When is TDS Applicable?
TDS applies to various types of payments, such as:
• Salary (Section 192)
• Interest on securities (Section 193)
• Interest other than securities (Section 194A)
• Rent (Section 194I)
• Commission or brokerage (Section 194H)
• Professional/technical fees (Section 194J)
• Payments to contractors (Section 194C)
• Dividends (Section 194)
• Purchase of immovable property (Section 194-IA)
• Winnings from lotteries, horse races (Sections 194B, 194BB)
Each section specifies:
• Threshold limit (minimum amount before TDS applies)
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• Rate of deduction
• Time of deduction
How TDS Works — Step by Step
1. Identify the transaction — Is it covered under TDS provisions?
2. Check the threshold — Has the payment crossed the limit for deduction?
3. Apply the correct rate — As per the relevant section or Finance Act.
4. Deduct TDS at payment or credit time — Whichever is earlier.
5. Deposit TDS — To the Central Government within the due date (usually by the 7th of
the next month; for March, by 30th April).
6. File TDS return — Quarterly, in prescribed forms (Form 24Q for salary, 26Q for
non-salary, etc.).
7. Issue TDS certificate — Form 16 (salary) or Form 16A (other payments) to the
deductee.
Special Cases
• No TDS if income is below taxable limit: Individuals can submit Form 15G/15H (for
senior citizens) declaring their income is below the taxable threshold, so the payer
doesn’t deduct TDS.
• Lower or Nil TDS: If a deductee’s total income justifies a lower rate, they can apply
to the Assessing Officer in Form 13 for a certificate under Section 197.
• Non-residents: Payments to non-residents may have different rates, and Double
Taxation Avoidance Agreements (DTAAs) may apply.
TDS Rates — A Few Examples
Section
Nature of Payment
Threshold
Rate
192
Salary
N/A
As per slab
194A
Interest
(non-securities)
₹40,000 (₹50,000 for
seniors)
10%
194C
Contractor payment
₹30,000 (single) /
₹1,00,000 (annual)
1% (individual/HUF) / 2%
(others)
194H
Commission/brokerage
₹15,000
5%
194I
Rent (land/building)
₹2,40,000
10%
194J
Professional fees
₹30,000
10%
Scene 3: The Credit and Refund
At year-end, Aman’s total tax liability is calculated:
• If TDS deducted > tax liability → He gets a refund.
• If TDS deducted < tax liability → He pays the balance tax.
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This is why TDS is not an extra tax — it’s an advance payment of your actual tax.
Benefits of TDS
For the Government:
• Regular inflow of revenue.
• Easier tracking of income.
For the Taxpayer:
• Tax is paid in instalments, reducing year-end burden.
• Automatic credit in Form 26AS / AIS.
Penalties for Non-Compliance
If the deductor:
• Fails to deduct TDS → Liable to pay the amount plus interest.
• Deducts but doesn’t deposit → Interest + penalty + prosecution possible.
• Delays filing TDS returns → Late fees under Section 234E.
A Simple Analogy — The Cake Slice
Imagine the income as a cake. Before giving you the cake, the payer cuts a small slice (TDS)
and sends it to the government. You still declare the full cake size in your return, but you get
credit for the slice already sent. If the slice was too big, the government gives you back the
extra; if too small, you give them the difference.
“This paper has been carefully prepared for educational purposes. If you notice any mistakes or
have suggestions, feel free to share your feedback.”
