M.K. GUPTA CA EDUCATION
WELCOME METRO STATION
9811429230/9212011367
AMENDMENTS FOR MAY – 2017
P.Y. 2016-17
A.Y. 2017-18
FINANCE ACT, 2016
INCOME TAX
1. Slab Rates shall be the Same.
2. Surcharge Rate shall be 15% in case of Individual, HUF, AOP, BOI and Artificial Judicial Person (earlier
12%). No change in surcharge for Firm and Company.
e.g. Mr. X has total income of `110,00,000, in this case his tax liability shall be
Total Income
Tax at slab rate
Add: Surcharge @ 15%
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
If Mr. X has total income of `100,00,000, his tax liability shall be
Total Income
Tax at slab rate
Add: Surcharge
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
`
110,00,000.00
31,25,000.00
4,68,750.00
35,93,750.00
71,875.00
35,937.50
37,01,562.50
37,01,560.00
100,00,000
28,25,000
Nil
28,25,000
56,500
28,250
2
Tax Liability
29,09,750
Illustration 1:
Compute tax liability in the following cases for the assessment year 2017-18.
(i)
Mr. X (resident) has total income of `100,05,000
(ii) Mr. X (non-resident) has total income of `103,00,000
(iii) Mrs. X (resident) has total income of `104,00,000
(iv) Mrs. X (non-resident) has total income of `105,00,000
(v) Mr. X (resident), aged 60 years has total income of `106,00,000
(vi) Mrs. X (resident), aged 60 years has total income of `107,00,000
(vii) Mr. X (non-resident), aged 60 years has total income of `108,00,000
(viii) Mrs. X (non-resident), aged 60 years has total income of `104,50,000
(ix) Mr. X (resident), aged 80 years has total income of `104,25,000
(x) Mrs. X (resident), aged 80 years has total income of `104,10,000
(xi) Mr. X (non-resident), aged 80 years has total income of `105,22,380
(xii) Mrs. X (non-resident), aged 80 years has total income of `105,22,310
Solution:
(i) Computation of Tax Liability
Total Income
Tax on `100,05,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `100,05,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (4,25,475 – 5,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(ii) Computation of Tax Liability
Total Income
Tax on `103,00,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `103,00,000
Tax on income of `100,00,000
Increase in tax
`
100,05,000
28,26,500
4,23,975
32,50,475
(4,20,475)
32,50,475
(28,25,000)
4,25,475
5,000
4,20,475
28,30,000
56,600
28,300
29,14,900
103,00,000
29,15,000
4,37,250
33,52,250
(2,27,250)
33,52,250
(28,25,000)
5,27,250
3
Increase in income
Marginal Relief (5,27,250 – 3,00,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(iii) Computation of Tax Liability
Total Income
Tax on `104,00,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,00,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (5,61,750 – 4,00,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(iv) Computation of Tax Liability
Total Income
Tax on `105,00,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `105,00,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (5,96,250 – 5,00,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(v) Computation of Tax Liability
Total Income
Tax on `106,00,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
3,00,000
2,27,250
31,25,000
62,500
31,250
32,18,750
104,00,000
29,45,000
4,41,750
33,86,750
(1,61,750)
33,86,750
(28,25,000)
5,61,750
4,00,000
1,61,750
32,25,000
64,500
32,250
33,21,750
105,00,000
29,75,000
4,46,250
34,21,250
(96,250)
34,21,250
(28,25,000)
5,96,250
5,00,000
96,250
33,25,000
66,500
33,250
34,24,750
106,00,000
30,00,000
4,50,000
34,50,000
4
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `106,00,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (6,30,000 – 6,00,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(vi) Computation of Tax Liability
Total Income
Tax on `107,00,000 at slab rate
Add: Surcharge @ 15%
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
(vii) Computation of Tax Liability
Total Income
Tax on `108,00,000 at slab rate
Add: Surcharge @ 15%
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
(viii) Computation of Tax Liability
Total Income
Tax on `104,50,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,50,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (5,79,000 – 4,50,000)
Tax after marginal relief
Add: PEC @ 2%
(30,000)
34,50,000
(28,20,000)
6,30,000
6,00,000
30,000
34,20,000
68,400
34,200
35,22,600
107,00,000
30,30,000
4,54,500
34,84,500
69,690
34,845
35,89,035
35,89,040
108,00,000.00
30,65,000.00
4,59,750.00
35,24,750.00
70,495.00
35,247.50
36,30,492.50
36,30,490.00
104,50,000
29,60,000
4,44,000
34,04,000
(1,29,000)
34,04,000
(28,25,000)
5,79,000
4,50,000
1,29,000
32,75,000
65,500
5
Add: SHEC @ 1%
Tax Liability
(ix) Computation of Tax Liability
Total Income
Tax on `104,25,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,25,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (5,66,625 – 4,25,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(x) Computation of Tax Liability
Total Income
Tax on `104,10,000 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,10,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (5,61,450 – 4,10,000)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(xi) Computation of Tax Liability
Total Income
Tax on `105,22,380 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,10,000
Tax on income of `100,00,000
32,750
33,73,250
104,25,000.00
29,27,500.00
4,39,125.00
33,66,625.00
(1,41,625.00)
33,66,625
(28,00,000)
5,66,625
4,25,000
1,41,625
32,25,000.00
64,500.00
32,250.00
33,21,750.00
104,10,000
29,23,000
4,38,450
33,61,450
(1,51,450)
33,61,450
(28,00,000)
5,61,450
4,10,000
1,51,450
32,10,000
64,200
32,100
33,06,300
105,22,380.00
29,81,714.00
4,47,257.10
34,28,971.10
(81,591.10)
34,28,971.10
(28,25,000.00)
6
Increase in tax
Increase in income
Marginal Relief (6,03,971.10 – 5,22,380)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
(xii) Computation of Tax Liability
Total Income
Tax on `105,22,310 at slab rate
Add: Surcharge @ 15%
Tax before marginal relief
Less: Marginal Relief
Working Note:
Tax + surcharge on income of `104,10,000
Tax on income of `100,00,000
Increase in tax
Increase in income
Marginal Relief (6,03,946.95 – 5,22,310)
Tax after marginal relief
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
6,03,971.10
5,22,380.00
81,591.10
33,47,380.00
66,947.60
33,473.80
34,47,801.40
34,47,800.00
105,22,310.00
29,81,693.00
4,47,253.95
34,28,946.95
(81,636.95)
34,28,946.95
(28,25,000.00)
6,03,946.95
5,22,310.00
81,636.95
33,47,310.00
66,946.20
33,473.10
34,47,729.30
34,47,730.00
3. Rebate u/s 87A shall be allowed upto `5,000 (earlier `2,000).
E.g. Mr. X has total income of `4,96,000, his tax liability shall be
Computation of Tax Liability
Total Income
Tax on `4,96,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
If in the above case total income is `5,02,000, tax liability shall be
Computation of Tax Liability
Total Income
Tax on `5,02,000 at slab rate
Less: Rebate u/s 87A
4,96,000
24,600
(5,000)
19,600
392
196
20,188
20,190
5,02,000
25,400
Nil
7
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Rounded off u/s 288B
25,400
508
254
26,162
26,160
Illustration 2:
Mr. X has gross total income `5,50,000 and deduction allowed under section 80C to 80U are `60,000. Compute
his tax liability previous year 2016-17, assessment year 2017-18.
Solution:
Computation of Tax Liability
Gross Total Income
5,50,000
Less: Deduction u/s 80C to 80U
(60,000)
Total Income
4,90,000
Tax on `4,90,000 at slab rate
24,000
Less: Rebate u/s 87A
(5,000)
Tax before education cess
19,000
Add: PEC @ 2%
380
Add: SHEC @ 1%
190
Tax Liability
19,570
(b) Presume he is a resident and is aged 62 years.
Solution:
Computation of Tax Liability
Gross Total Income
5,50,000
Less: Deduction u/s 80C to 80U
(60,000)
Total Income
4,90,000
Tax on `4,90,000 at slab rate
19,000
Less: Rebate u/s 87A
(5,000)
Tax before education cess
14,000
Add: PEC @ 2%
280
Add: SHEC @ 1%
140
Tax Liability
14,420
(c) Presume he is a non-resident and is aged 62 years.
Solution:
Computation of Tax Liability
Gross Total Income
5,50,000
Less: Deduction u/s 80C to 80U
(60,000)
Total Income
4,90,000
Tax on `4,90,000 at slab rate
24,000
Less: Rebate u/s 87A
Nil
Tax before education cess
24,000
Add: PEC @ 2%
480
Add: SHEC @ 1%
240
8
Tax Liability
(d) Presume he is a non-resident and is aged 82 years.
Solution:
Computation of Tax Liability
Gross Total Income
Less: Deduction u/s 80C to 80U
Total Income
Tax on `4,90,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Illustration 3:
Compute tax liability in the following cases for the assessment year 2017-18.
(i)
Mr. X (resident) has total income of `5,00,000
(ii)
Mr. X (non-resident) has total income of `5,00,000
(iii)
Mrs. X (resident) has total income of `5,00,000
(iv)
Mrs. X (non-resident) has total income of `5,00,000
(v)
Mr. X (resident), aged 60 years has total income of `5,00,000
(vi)
Mrs. X (resident), aged 60 years has total income of `5,00,000
(vii) Mr. X (non-resident), aged 60 years has total income of `5,00,000
(viii) Mrs. X (non-resident), aged 60 years has total income of `5,00,000
(ix)
Mr. X (resident), aged 80 years has total income of `5,00,000
(x)
Mrs. X (resident), aged 80 years has total income of `5,00,000
(xi)
Mr. X (non-resident), aged 80 years has total income of `5,00,000
(xii) Mrs. X (non-resident), aged 80 years has total income of `5,00,000
Solution:
(i) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(ii) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Note: Rebate under section 87A is not allowed to non-resident.
(iii) Computation of Tax Liability
Total Income
24,720
5,50,000
(60,000)
4,90,000
24,000
Nil
24,000
480
240
24,720
`
5,00,000
25,000
(5,000)
20,000
400
200
20,600
5,00,000
25,000
500
250
25,750
5,00,000
9
Tax on `5,00,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(iv) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Note: Rebate under section 87A is not allowed to non-resident.
(v) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(vi) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Less: Rebate u/s 87A
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
(vii) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Note: Rebate under section 87A is not allowed to non-resident.
(viii) Computation of Tax Liability
Total Income
Tax on `5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
25,000
(5,000)
20,000
400
200
20,600
5,00,000
25,000
500
250
25,750
5,00,000
20,000
(5,000)
15,000
300
150
15,450
5,00,000
20,000
(5,000)
15,000
300
150
15,450
5,00,000
25,000
500
250
25,750
5,00,000
25,000
500
250
25,750
10
Note: Rebate under section 87A is not allowed to non-resident.
(ix) Computation of Tax Liability
Total Income
Tax Liability
(x) Computation of Tax Liability
Total Income
Tax Liability
(xi) Computation of Tax Liability
Total Income
Tax on`5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Note: Rebate under section 87A is not allowed to non-resident.
(xii) Computation of Tax Liability
Total Income
Tax on`5,00,000 at slab rate
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
Note: Rebate under section 87A is not allowed to non-resident.
5,00,000
Nil
5,00,000
Nil
5,00,000
25,000
500
250
25,750
5,00,000
25,000
500
250
25,750
4. Earlier Dividend from domestic company was exempt u/s 10(34) but w.e.f. previous year 16-17, Dividend in
excess of 10,00,000 shall be taxable @ 10% u/s 115BBDA. No Deduction or expenditure shall be allowed from
such dividend.
E.g. Mr. X has dividend of `15 lakh from a domestic company and he has deduction under section 80C to 80U
`1,00,000, in this case his tax liability shall be
Dividend Income
15,00,000
Less: Exempt u/s 10(34)
10,00,000
Income under the head Other Sources
5,00,000
Gross Total Income
5,00,000
Less: Deduction u/s 80C to 80U
Nil
Total Income
5,00,000
Computation of Tax Liability
Tax on` 5,00,000 @ 10% u/s 115BBDA
50,000
Less: Rebate u/s 87A
(5,000)
Tax before education cess
45,000
Add: PEC @ 2%
900
Add: SHEC @ 1%
450
Tax Liability
46,350
5. Installments of Advance Tax shall be same for all the assessees (earlier different in case of companies) Now
everyone has to pay advance tax in the manner given below:
11
As per section 211, all assessee has to pay advance tax in the manner given below:
Due date of installment
Amount payable
th
Upto 15 June of P.Y.
15% of tax payable
Upto 15th September of P.Y.
45% of tax payable
th
Upto 15 December of P.Y.
75% of tax payable
th
Upto 15 March of P.Y.
100% of tax payable
Example
For the previous year 2016-17, ABC Ltd. has estimated its tax payable to be `2,00,000, in this case advance tax
shall be paid by the company as given below:
Upto 15.06.2016
30,000
Upto 15.09.2016
90,000
Upto 15.12.2016
1,50,000
Upto 15.03.2017
2,00,000
th
th
If the advance tax paid by the assessee upto 15 June is 12% of the tax payable and upto 15 September, is
36% of the tax payable, in such cases no interest shall be charged for default in such instalment.
6. Interest on Refund section 244A
If any assessee is eligible for refund, he will be allowed interest @ 0.5% per month or part of the month from
the 1st April of the assessment year upto the date on which the refund is granted if return is filed upto the due
date however no interest is payable if the amount of refund is less than 10% of the tax liability.
If return is filed after the due date then interest shall be allowed from the date of furnishing of return of
income to the date on which the refund is granted.
Example
For the previous year 2016-17, ABC Ltd. has paid advance tax of `5,00,000 but actual tax liability of the
company is `3,00,000 and a refund of `2,00,000 was granted on 10.07.2017, return was filed on 25.04.2017, in
this case interest payable to the assessee shall be
2,00,000 x 0.5% x 4 = `4,000
If in the above case actual tax liability is `4,80,000, no interest is payable because the amount of refund is less
than 10% of the tax liability
7. Earlier section 25AA and 25B have been omitted and new section 25A has been introduced and is as given
below:
Recovery of unrealised rent Section 25A
If any assessee has recovered unrealized rent in subsequent years, rent so recovered shall be considered to be
income of the assessee under the head house property and it do not matter whether the assessee has any house
property in his name in that year or not. If assessee has received any interest, it will be considered to be income
of the assessee under the head other sources. If assessee has incurred any expenses on legal proceedings, it will
not be allowed to be deducted. A sum equal to thirty per cent of the unrealised rent shall be allowed as
deduction.
Tax liability in respect of arrears of rent Section 25A
Sometimes rent of a house property may be increased from retrospective effect i.e. from back date and the
12
assessee may receive arrear of rent, such arrears are taxable in the year in which arrears have been received,
however deduction shall be allowed @ 30% of such arrears and only the balance amount shall be taxable. It do
not matter that the assessee do not have any house property in his name in that year.
There is no specific provision given in the Income Tax Act relating to advance payment of rent.
Illustration 4: Mr. X has let out his house to State Bank @`20,000 p.m. The bank has increased the rent on 1st
July, 2016 to`27,000 p.m. retrospectively w.e.f. 01.11.2015. The assessee has paid municipal taxes of`7,000
during the previous year 2016-17.
Compute income under the head House Property for assessment year 2017-18.
Solution:
Computation of income under the head House Property
`
`
Gross Annual Value (27,000 x 12)
3,24,000
Less: Municipal Taxes
(7,000)
Net Annual Value
3,17,000
Less: 30% of NAV u/s 24(a)
(95,100)
Less: Interest on capital borrowed u/s 24(b)
Nil
2,21,900
Add: Arrears of rent (Sec 25A) (7,000 x 5)
35,000
Less: 30% of`35,000
(10,500)
24,500
Income under the House Property
2,46,400
8. In order to claim higher exemption of interest in case of self-occupied house, house should be completed
maximum within 5 years. (Earlier 3 years)
One house which is self-occupied Section 23(2)
If any person has one house which is self-occupied, its GAV shall be nil and municipal tax are not allowed to be
deducted and NAV shall also be nil and deduction under section 24(a) is not allowed but deduction under
section 24(b) is allowed but maximum `30,000 however it will be maximum `2,00,000 if loan has been taken
w.e.f 01st April 1999 onwards for purchase or construction and house has been purchased or constructed within
5 years from the end of the year in which the assessee has taken loan and also assessee should submit a
certificate from the lender certifying the amount of interest. If loan is taken for repairs / renovations etc.
maximum interest allowed shall be `30,000.
If the house is self-occupied as well as vacant, its income shall be computed as if it is self-occupied house. E.g.
Mr. X has one house which is vacant for 3 months and self-occupied for 9 months, its income shall be computed
considering it to be self-occupied house.
The ceiling prescribed for one self-occupied property as above in respect of interest on loan borrowed does not
apply to a deemed let-out property.
09. New Section 80EE has been introduced and is as given below:
Deduction in respect of interest on loan taken for residential house property Section 80EE
Deduction shall be allowed only to an individual in connection with interest on loan taken for purchase or
construction of residential house and loan has been taken from any notified organization like banks or
financial institution etc.
13
The amount of loan can be maximum upto `35 lakh and value of the house can be upto `50 lakh.
Assessee should not have any other residential house property on the date of sanction of the loan. Loan should
be sanctioned w.e.f. 01.04.2016 onwards. Assessee shall be allowed to claim deduction for interest but
maximum upto `50,000 (and it will be in addition to interest claimed under section 24(b))
Illustration 5: Mr. X has taken a loan for `30 lakh from State Bank on 01.05.2016 for purchase of one house @
10% per annum. The house remained self-occupied in previous year 2016-17 and he has paid municipal tax of
`40,000 and repaid `2,00,000 on 01.03.2017. He has income under the head salary `15,00,000. He has submitted
a certificate confirming the amount of interest. Compute his income and tax liability previous year 2016-17
assessment year 2017-18.
Solution:
GAV
Nil
Less: Municipal Tax
Nil
NAV
Nil
Less: 24(a)
Nil
Less : Interest on capital borrowed u/s 24(b)
(2,00,000.00)
30,00,000 x 10% x 10/12 = 2,50,000.00
28,00,000 x 10% x 1/12 = 23,333.33
= 2,73,333.33 but maximum`2,00,000
Loss under the head House Property
(2,00,000.00)
Income under the head Salary
15,00,000.00
Less: Loss from house property
(2,00,000.00)
Income under the head Salary
13,00,000.00
Gross Total Income
13,00,000.00
Less: Deduction under section 80C
(1,50,000.00)
Less: Deduction under section 80EE
(50,000.00)
(Under section 80EE, deduction shall be allowed for interest which
could not be claimed under section 24(b) but maximum`50,000)
Total Income
11,00,000.00
Computation of Tax Liability
Tax on`11,00,000 at slab rate
1,55,000.00
Add: EC @ 2%
3,100.00
Add: SHEC @ 1%
1,550.00
Tax Liability
1,59,650.00
10. Under section 80GG maximum deduction allowed shall be 5000 p.m. (earlier 2,000 p.m.)
Deduction in case of payment of rent Section 80GG
1. Deduction is allowed only to an individual.
2. He should not be getting any house rent allowance and also he is not being provided with Rent Free
Accommodation by his employer.
3. He should not have any house in his name or in the name of the spouse or in the name of minor child or
in the name of Hindu Undivided Family of which he is a member, at a place where he ordinarily resides or
performs duties of his office or carries on his business or profession.
14
4. The assessee may have house at any other place but it should not be self-occupied i.e. it may be let out or
vacant.
5. He has paid rent for the accommodation taken by him for his residence.
6. Deduction shall be allowed to such individual in case of payment of rent and deduction shall be allowed to
the extent of the least of the following:
(i) Rent paid over 10% of the adjusted gross total income
(ii) `5,000 p.m.
(iii) 25% of the adjusted gross total income
Adjusted Gross Total Income = Gross Total Income – Long term capital gains – Short term capital gains
u/s 111A – All Deduction of section 80C to 80U except section 80GG
 Deduction can be allowed even where the assessee is not an employee i.e. the persons having
business/profession can also avail deduction under section 80GG.
Illustration 6: Mr. X has income under the head Business/Profession `5,00,000 and LTCG of `2,00,000, STCG
u/s 111A `3,00,000 and casual income of `1,00,000.
He is paying rent for a house of `40,000 p.m. He has deposited `30,000 in home loan account scheme of
National Housing Bank.
He has complied with all the condition of section 80GG.
Compute income tax liability for A.Y. 2017-18.
Solution:
Income under the head Business/Profession
Computation of income under the head Capital Gain
Long Term Capital Gain
Short Term Capital Gain u/s 111A
Income under the head capital gain
Computation of income under the head Other Sources
Casual income
Income under the head Other Sources
Gross Total Income
Less:
Deduction u/s 80C
Deduction u/s 80GG
`
5,00,000
2,00,000
3,00,000
5,00,000
1,00,000
1,00,000
11,00,000
(30,000)
(60,000)
Working Note:
Least of the following:
1. 60,000
2. 25% x 5,70,000 = 1,42,500
3. `4,80,000 – 57,000 = 4,23,000
AGTI = GTI – LTCG – STCG 111A – Deduction u/s 80C to 80U
(except 80GG)
= 11,00,000 – 2,00,000 – 3,00,000 – 30,000
= 5,70,000
Total Income
10,10,000
15
Computation of Tax Liability
Tax on casual income `1,00,000 @ 30%
Tax on LTCG `2,00,000 @ 20%
Tax on STCG 111A `3,00,000 @ 15%
Tax on `4,10,000 at slab rate
Tax before Education Cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax Liability
30,000
40,000
45,000
16,000
1,31,000
2,620
1,310
1,34,930
11. Deduction in case of new employment Section 80JJAA
1. Deduction is allowed to all assessee whose accounts are required to be audited.
2. Deduction shall be allowed equal to 30% of additional employee cost incurred.
3. Deduction is allowed for 3 assessment years including the assessment year in which such employment is
provided.
4. It should be a new business.
5. “Additional employee cost” means total emoluments paid or payable to additional employees employed
during the previous year.
Provided that in the case of an existing business, the additional employee cost shall be nil, if there is no increase
in the number of employees from the total number of employees employed as on the last day of the preceding
year.
6. “Additional employee” means an employee who has been employed during the previous year and whose
employment has the effect of increasing the total number of employees employed by the employer as on the
last day of the preceding year, but does not include,—
(a) an employee whose total emoluments are more than twenty-five thousand rupees per month; or
(b) an employee employed for a period of less than two hundred and forty days during the previous year.
NOV-2016 (4 Marks)
Mr. Satya is a manufacturer of goods in a factory located in Navi Mumbai and commenced his business on 1 st
April 2016 and he employed 120 new work men during the previous year 2016-17 which included:
(a) 20 employee whose total emoluments paid @ `30,000 p.m. per employee;
(b) 40 worker employed on 01st April,2016
(c) 35 worker employed on 1st May,2016
(d) 25 worker employed on 5th October,2016
Compute the Deduction under Section 80JJAA, if available to Mr. Satya for Assessment year 2017-18, if wages
are paid to each worker @ `3,000 per month. His profit from the manufacture of goods for Assessment year
2017-18 is `9.50 lakhs.
The Assessee is liable to Audit his accounts.
Solution:
Mr. Satya is eligible for deduction under section 80JJAA since he is liable to Audit of his accounts in the
previous year 2016-17.
Calculation of Additional employee cost = (`3,000 x 12 x 40) + (`3,000 x 11 x 35) = `25,95,000
16
Deduction u/s 80JJAA = 30% of `25,95,000
=`7,78,500
Calculation of additional employee
Particulars
Total No. of workmen employed
Less: Employee Emoluments paid @ 30,000 p.m.
Less: Employee Employed for less than 240 days (employed on 05.10.2016)
Total No. of Additional Employee
No. of Employee
120
(20)
(25)
75
12. Deduction of tax at source in case of payment from recognized provident fund Section 192A
The person responsible for making payment of recognized provident fund to any person shall deduct tax at
source if the amount to be paid is taxable and tax shall be deducted at source @ 10% provided the amount paid
or payable during a particular year is `50,000 or more.
Payments received from recognised provident fund shall be exempt from income tax if the employee has
complied with any of the conditions given below:
(i) If the employee has rendered continuous service for a period of 5 years or more, or
(ii) If he has not rendered such continuous service, the service has been terminated by reason of the employee’s
ill-health, or by the contraction or discontinuance of the employer’s business or other cause beyond the
control of the employee, or
(iii) If the employee obtains employment with any other employer and the provident fund has been transferred
to such employer and the total service with the former employer and the current employer is of 5 years or
more.
If the employee has not complied with even a single condition, in that case amount received by him shall be
taxable but only the amount which was exempt earlier.
(To be discussed under the head Salary)
As per section 197A, assessee is allowed to give declaration in the prescribed form for not deducting tax at
source.
13. TDS in case of Winnings from Horse Race Section 194BB
Every person (including individual and HUF even if they were not required to get their accounts audited in the
preceding year), shall be required to deduct tax at source @ 30% in case of payment of winning from horse
races but tax shall be deducted at source only if amount paid or payable during a particular year to a particular
person is exceeding `10,000.
Example
ABC Ltd. has to pay winnings of horse race `3,00,000 to Mr. X, amount of TDS shall be `90,000 but if the
amount to be paid is `2,000, amount of TDS shall be Nil.
14. TDS in case of Payments to Contractors Section 194C
1. Every person responsible for making payment to a resident contractor in connection with any work shall
deduct tax at source @ 2% and in case of payment to individual or Hindu Undivided Family, the rate of TDS
shall be 1%. Tax shall be deducted at source only if the amount being paid is exceeding `30,000 or the amount
paid or payable during a particular financial year to a particular person exceeds `1,00,000.
17
Example
ABC Ltd. makes the following payments to Mr. X, a contractor, for contract work during the P.Y.2016-17 –
`15,000 on 01.05.2016
`25,000 on 01.08.2016
`30,000 on 01.12.2016
On 01.03.2017, a payment of `48,000 is due to Mr. X on account of a contract work.
Discuss whether ABC Ltd. is liable to deduct tax at source under section 194C from payments made to Mr. X.
Solution:
In this case, the individual contract payments made to Mr. X does not exceed `30,000. However, since the
aggregate amount paid to Mr. X during the P.Y.2016-17 exceeds ` 1,00,000 (on account of the last payment of
`48,000, due on 01.03.2017, taking the total from` 70,000 to ` 1,18,000), the TDS provisions under section 194C
would get attracted. Tax has to be deducted @ 1% on the entire amount of 1,18,000 from the last payment of `
48,000 and the balance of ` 46,820 (i.e. ` 48,000 – ` 1,180) has to be paid to Mr. X.
Example
(i) If DDA has to pay a sum of `5,00,000 to Mr. X in connection with a particular contract, amount of TDS
shall be `5,000.
(ii) If in the above case amount is to be paid to X Ltd. An Indian company, amount of TDS shall be `10,000.
An individual or Hindu Undivided Family shall be required to deduct tax at source only if they are liable to
auditing under section 44AB during the financial year immediately preceding the relevant year.
Example
If Mr. X is engaged in a business and turnover of business is `41,00,000 in the previous year 2015-16 and he has
to pay `1,10,000 to Mr. Y in the previous year 2016-17 in connection with a contract, amount of TDS shall be
Nil but if his turnover in previous year 2015-16 was `110,00,000, amount of TDS shall be `1,100 but if payment
is to given to Y Ltd., amount of TDS shall be `2,200.
2. No individual or HUF shall deduct tax at source if the amount is paid for personal purpose of such
individual or HUF.
Example
If in the above case, Mr. X has to pay `1,10,000 to Mr. Y in connection with a contract which is for personal
purpose of Mr. X, TDS shall be Nil.
3. Contract for this purpose shall include every type of contract e.g. Advertising contract/Broadcasting and
telecasting contract / Carriage of passenger by any mode of transport / Catering contract / Contract for
construction / Contract for courier services / Contract of maintenance of plant and machinery etc.
4. If any person making payment for purchase of goods, no tax shall be deducted at source but if such person
has supplied raw material etc. and contract is only for labour etc., tax shall be deducted at source e.g. ABC Ltd.
purchased furniture for `10 lakh and no tax shall be deducted at source but if ABC Ltd. has supplied raw
material like wood etc. and has paid `2 lakh for labour charges for making the furniture, tax shall be deducted at
source.
Example
ABC Ltd. has given orders to Mr. X to stitch uniform for their employees and Mr. X purchased material from
the market and has stitched uniform for ABC Ltd. and has charged `7,00,000, in this case amount of TDS shall
be nil but if material is supplied by ABC Ltd. and Mr. X has charged `1,10,000 as labour charge, tax shall be
deducted at source @ 1% i.e. `1,100.
18
5. No tax shall be deducted at source in case of payment to a contractor in connection with transportation of
goods where such contractor do not own more than 10 goods carriages at any time during the year and also
submitted a declaration in this regard and has also furnished permanent account number.
Example
ABC Ltd. has paid `5,00,000 to Mr. X for transportation of goods and Mr. X do not have more than 10 goods
carriages and he has furnished a declaration in this regard and has submitted permanent account number, in this
case no tax shall be deducted at source but if PAN has not been provided, tax shall be deducted at source @
20%.
15. TDS in case of payment of Insurance Commission Section 194D
Every person responsible for making payment for insurance commission to a resident insurance agent shall
deduct tax at source @ 10% provided the amount paid or payable during a particular year to a particular agent is
exceeding `15,000 e.g. If LIC has to pay commission of `5,00,000 to one of the agent Mr. X, amount of TDS
shall be `5,00,000 x 10% = 50,000
16. TDS in case of Commission, etc., on the Sale of Lottery Tickets Section 194G
Every person (including individual and HUF even if they were not required to get their accounts audited in the
preceding year) making payment of commission for sale of lottery tickets to any person resident or nonresident, shall deduct tax at source @ 5% provided the amount paid or payable to a particular person during a
particular year is exceeding `15,000.
17. TDS on payment of Commission or Brokerage Section 194H
Every person making payment of any commission or brokerage to a resident shall, deduct income-tax at the
rate of 5%, provided amount paid or payable during a particular year to a particular person is exceeding
`15,000.
An individual or Hindu Undivided Family shall be required to deduct tax at source only if they are liable to
auditing under section 44AB during the financial year immediately preceding the relevant year.
Example
Manoj trading limited rendered services in relation to sale of mustard oil to Ashish oils limited and commission
charged is `7,00,000, in this case, tax to be deducted at source by Ashish oils limited shall be 7,00,000 x 5%
=`35,000 and amount payable to Manoj trading limited shall be
Commission
7,00,000
Less: TDS (7,00,000 x 5%)
(35,000)
Amount Payable
6,65,000
18. TDS in case of Payment of Compensation on Acquisition of certain Immovable Property Section
194LA
If any land or building has been acquired by the government or other similar agency, tax shall be deducted at
source @ 10% provided the amount paid or payable to any resident is exceeding `2,50,000. No tax shall be
deducted at source if the payment relates to acquisition of agricultural land.
Example: If `3,00,000 is to be paid to Mr. X on 05.05.2016 by State Government on compulsory acquisition of
his urban land, amount of TDS shall be 3,00,000 x 10% = 30,000.
19. Filing of quarterly statement of TDS
Section 200 / Rule 31A
Every person deducting tax at source has to submit quarterly statement containing details of the tax deducted
at source. The statement should be submitted latest by 31st of the month succeeding the relevant quarter but
19
statement for the quarter ending March can be submitted upto 31st May. e.g. Statement for quarter ending
March, 2017 can be submitted upto 31st May, 2017.
20. Belated Return of Income Section 139(4)
Every person is required to file a return of income within the time allowed under section 139(1) however return
of income can be filed even after the due date but maximum upto the end of relevant assessment year. E.g. For
previous year 2016-17 ABC Ltd. has to file its return of income upto 30.09.2017. However, belated return is
allowed under section 139(4) but maximum upto 31.03.2018
If any person has not filed his return of income upto the due date and it has come to the notice of the Assessing
Officer, in that case, Assessing Officer may issue him a notice under section 142(1) and the assessee shall be
bound to file the return within the time allowed by the Assessing Officer otherwise Assessing Officer may do
best judgment assessment under section 144 i.e. Assessing Officer can fix the tax liability of the assessee on the
basis of his own judgment. Belated return shall not be accepted after completion of best judgment assessment.
Further under section 271(1)(b), if any person has failed to comply with a notice given under section 142(1),
Assessing Officer may direct such a person to pay a penalty of `10,000 for each such failure e.g. For previous
year 2016-17 ABC Ltd. has not filed its return of income upto 30.09.2017 and the Assessing Officer has issued
a notice under section 142(1) on 10.11.2017 directing the company to file its return upto 25.11.2017. In this
case, the company must file its return upto 25.11.2017 otherwise Assessing Officer may do best judgment
assessment under section 144 and after completion of best judgment assessment, belated return shall not be
accepted.
If in the above case the company has not filed the return upto 25.11.2017 and Assessing Officer has completed
best judgment assessment on 11.12.2017, belated return shall not accepted from 11.12.2017 onwards.
If return is filed after 25.11.2017 but before 11.12.2017, return will be accepted but with a penalty of `10,000.
21. Revised Return of Income Section 139(5)
If any person has furnished a return under section 139(1) or under section 139(4), discovers any omission or
any wrong statement, he may furnish a revised return at any time before expiry of one year from the end of the
relevant assessment year e.g. If ABC Ltd. has filed its return of income on 30.09.2017 for previous year 201617 and subsequently the company has detected any bonafide error, in this case, the company is allowed to revise
its return of income under section 139(5) but maximum upto 31.03.2019.
If the assessment on the return has already been completed, revision is not allowed after completion of
assessment e.g. For the previous year 2016-17 ABC Ltd. has filed its return of income on 30.09.2017. This
return was checked by the Assessing Officer on 01.03.2018 and the company wish to file a revised return on
10.04.2018. In this case, revised return shall not be accepted.
An assessee is allowed to revise the return of income any number of times, however, if the earlier return has
already being assessed, revised return shall not be allowed.
Revision is allowed only with regard to a return, which was filed under section 139(1) or 139(4), i.e. if the
return has been filed under any other section, its revision is not allowed.
However, the return filed under section 139(3) is considered to be return under section 139(1), its revision is
allowed.
20
22. Any income accruing or arising to a foreign company on account of storage of crude oil and sale of
crude oil 10(48A)
Any income accruing or arising to a foreign company on account of storage of crude oil in a facility in India and
sale of crude oil therefrom to any person resident in India:
Provided that —
(i) the storage and sale by the foreign company is pursuant to an agreement or an arrangement entered into by
the Central Government or approved by the Central Government; and
(ii) having regard to the national interest, the foreign company and the agreement or arrangement are notified by
the Central Government in this behalf.
23. Cost Inflation Index for the financial year 2016-17 – 1125
Illustration 7: Mr. X purchased one house on 01.07.1982 for `3,50,000. He constructed its first floor on
01.10.1991 by incurring `4,00,000 and constructed its second floor on 01.10.2000 by incurring `6,00,000 and
third floor on 01.10.2013 by incurring `7,00,000. Finally, sold the building on 01.01.2017 for `120,00,000 and
selling expenses were 2% of the sale price. He has deposited `1,00,000 in NSC.
Compute tax liability of the assessee for the assessment year 2017-18.
Solution:
`
Computation of Capital Gains
Full value of consideration
120,00,000.00
Less: Indexed cost of acquisition
= 3,50,000 / Index of 82-83 x Index of 16-17
= 3,50,000 / 109 x 1125 =` 36,12,385.32
(36,12,385.32)
Less: Indexed cost of improvement
Cost of constructing first floor
= 4,00,000 / Index of 91-92 x Index of 16-17
= 4,00,000 / 199 x 1125 =`22,61,306.53
(22,61,306.53)
Less: Indexed cost of improvement
Cost of constructing second floor
= 6,00,000 / Index of 00-01 x Index of 16-17
= 6,00,000 / 406 x 1125 =`16,62,561.58
(16,62,561.58)
Less: Indexed cost of improvement
Cost of constructing third floor
= 7,00,000 / Index of 13-14 x Index of 16-17
= 7,00,000 / 939 x 1125 =`8,38,658.15
(8,38,658.15)
Less: Selling Expenses
= 2% of `120,00,000 =`2,40,000
(2,40,000.00)
Long Term Capital Gain
33,85,088.42
Income under the head Capital Gain (LTCG)
33,85,088.42
Gross Total Income
33,85,088.42
Less: Deduction u/s 80C to 80U
Nil
Total Income (Rounded off u/s 288A)
33,85,090.00
21
Computation of Tax Liability
Tax on LTCG `31,35,090 (`33,85,090 –`2,50,000) @ 20%
Add: PEC @ 2%
Add: SHEC @ 1%
Tax liability
Rounded off u/s 288B
6,27,018.00
12,540.36
6,270.18
6,45,828.54
6,45,830.00
Illustration 8: Mr. X purchased one house property on 01.07.1972 for `3,00,000 and incurred `1,00,000 on its
improvement in 1975-76 and its market value as on 01.04.1981 was `7,00,000 and he incurred `5,00,000 on its
improvement in 1992-93 and sold the house on 01.11.2016 for `110,00,000.
He purchased one commercial building on 01.04.2015 for `50,00,000 and it was let out @ `2,00,000 p.m. to
XYZ Ltd. and XYZ Ltd. has deducted tax at source.
Mr. X has paid Municipal Tax of `20,000 p.m.
Compute Income Tax Liability/Payable for Assessment Year 2017-18 and also amount of tax deducted at
source by XYZ Ltd. and also tax deducted at source by the person who has purchased the house property.
Solution:
`
Computation of income from Capital Gain
Full value of consideration
110,00,000.00
Less: Indexed Cost of acquisition
= 7,00,000/Index of 81-82 x Index of 16-17
= 7,00,000/100 x 1125 =`78,75,000
(78,75,000.00)
Less: Indexed cost of Improvement
= 5,00,000/Index of 92-93 x Index of 16-17
= 5,00,000/223 x 1125 =`25,22,421.52
(25,22,421.52)
Long Term Capital Gain
6,02,578.48
Computation of income under head House Property
Gross Annual Value (2,00,000 x 12)
24,00,000.00
Less: Municipal Tax (20,000 x 12)
(2,40,000.00)
Net Annual Value
21,60,000.00
Less: 30% of NAV u/s 24(a)
(6,48,000.00)
Less: Interest on capital borrowed u/s 24(b)
Nil
Income under the head House Property
15,12,000.00
Computation of Gross Total Income
Income under the head House Property
15,12,000.00
Income from Long Term Capital Gain
6,02,578.48
Gross Total Income
21,14,578.48
Less: Deduction u/s 80C to 80U
Nil
Total Income
21,14,578.48
Normal Income
15,12,000.00
LTCG
6,02,578.48
Rounded off u/s 288A
6,02,580.00
Computation of Tax Liability
Tax on LTCG `6,02,580 @ 20%
1,20,516.00
22
Tax on normal income `15,12,000 at slab rate
Tax before education cess
Add: PEC @ 2%
Add: SHEC @ 1%
Tax liability
Less: TDS (10% of 24,00,000) under section 194-I
Less: TDS (1% of 110,00,000) under section 194-IA
Tax Payable
Rounded off u/s 288B
2,78,600.00
3,99,116.00
7,982.32
3,991.16
4,11,089.48
(2,40,000.00)
(1,10,000.00)
61,089.48
61,090.00
24. Special provision for full value of consideration in certain cases Section 50C
If any person has transferred land or building and full value of consideration claimed by him is less than the
stamp duty value, in such cases FVC shall be taken to be stamp duty value and capital gains shall be computed
accordingly but if the assessee has disputed such amount, assessing officer may refer the matter to the Valuation
Officer and value determined by Valuation Officer shall be taken into consideration but if the value determined
by Valuation Officer is more than the stamp duty value, in that case stamp duty value shall be considered to be
FVC and capital gains shall be computed accordingly. Valuation Officer means an expert employed by Income
Tax Department to determine the value.
If the date of agreement and date of registration are different, in that case value on the date of agreement shall
be taken into consideration provided some advance was given otherwise than in cash on or before the date of
agreement.
Example
Mr. X has one plot of 200 sq. yards which has been sold by him and he claims that it was sold at a rate of `1,000
per sq. yard but for the purpose of stamp valuation, value is considered to be `5,000 per sq. yard. In this case full
value of consideration for the purpose of section 48 shall be `5,000 per sq yard and if the assessee claims that
fair market value is less than `5,000 per sq. yard, Assessing Officer may refer the matter to the valuation officer.
25. Unlisted shares would be treated as a short term capital asset if it was held by an assessee for not more than
24 months (earlier it was 36 months)
26.Exemption in case of investment in units of mutual fund Section 54EE
1. Assessee: Exemption is allowed to all the assessee.
2. Asset: The assessee can transfer any capital asset.
3. Type of capital gain: It should be only long term capital gain.
4. Investment: Assessee can make investment within a period of six months after the date of transfer of
original asset and investment should be in Long-term specified asset.
“Long-term specified asset” means units of such fund as may be notified by the Central Government.
5. Amount of exemption: Maximum exemption allowed in a particular previous year shall be `50 lakh.
6. Withdrawal of exemption: If the long term specified asset is transferred or converted into cash within a
period of 3 years, exemption earlier allowed shall be considered to be long term capital gains of the year in
which such asset was transferred or converted into cash.
Converting into cash means taking a loan on the security of the specified asset.
23
7. Capital gains account scheme 1988: Capital gain account scheme shall not apply.
27. Payments for not pursuing any business activity or profession/non-compete fee
If any person has received any payment from any other person for not pursuing any business activity or
profession i.e. payment has been received for closing down the business or profession, it will also be
considered to be income under the head business/profession. Similarly if payment has been received for not
using any patent right or technical know-how or other similar right, it will also be considered to be income
under the head business/profession.
It is also called non-compete fee. The person making payment should deduct tax at source @ 10% as per section
194J.
Example
ABC Ltd. has received `30,00,000 for not carrying out a particular business activity, in this case, the amount so
received shall be considered to be income of the assessee.
Example
ABC Ltd. has received `10,00,000 for not sharing a particular patent, in this case, it will be considered to be
income under the head business/profession.
28. Additional Depreciation Section 32
Additional depreciation shall be allowed @ 20% to all the assessee in connection with plant and machinery for
the purpose of manufacturing and also to the assessee engaged in generation, transmission or distribution of
electricity. Additional depreciation shall be allowed only in the year in which asset has been put to use. It is
allowed only once i.e. it is not allowed every year.
Additional depreciation is not allowed in the following cases:
(i) Second hand plant and machinery i.e. plant and machinery should be brand new
(ii) Any machinery or plant installed in any office premises or any residential accommodation, including
accommodation in the nature of a guest-house or
(iii)Any office appliances or road transport vehicles or ships and aircraft
(iv) Any machinery or plant, the actual cost of which has been debited to profit and loss account.
If the asset is purchased and put to use for less than 180 days, additional depreciation shall be allowed at 10%
and remaining additional depreciation shall be allowed in the subsequent year.
Illustration 9: ABC Ltd. is engaged in manufacturing and has submitted information as given below:
1. Factory Building – Written down value on 01.04.2016 was`12,00,000.
2. Plant and Machinery (Rate 15%) – Written down value on 01.04.2016 is`8,70,000.
3. Purchase of new plant (eligible for additional depreciation) on 30.06.2016 (Put to use on 01.07.2016)
`1,20,000.
4. Purchase of new plant (eligible for additional depreciation) on 31.12.2016 (Put to use on 01.01.2017)
`1,10,000.
5. Sale of old Plant on 01.12.2016 `6,40,000.
6. Motor Car (Rate 15%) – Written down value on 01.04.2016 was `1,20,000.
7. Sale of Car on 30.09.2016 `1,50,000.
Compute depreciation allowed.
Solution:
`
24
Factory Building, Depreciation @ 10%
Written down value on 01.04.2016
Depreciation @ 10%
Plant and Machinery, Depreciation @ 15%
Written down value on 01.04.2016
Purchase on 30.06.2016, put to use on 01.07.2016
Purchase on 31.12.2016, put to use on 01.01.2017
Sale of old plant on 01.12.2016
Written down value on 31.03.2017
Depreciation @ 15% on `3,50,000
Depreciation @ 7.5% on`1,10,000
Additional depreciation
1,20,000 x 20%
1,10,000 x 10%
Motor Car, Depreciation @ 15%
Written down value on 01.04.2016
Sale on 30.09.2016
Short term capital gain
12,00,000
1,20,000
8,70,000
1,20,000
1,10,000
(6,40,000)
4,60,000
52,500
8,250
24,000
11,000
1,20,000
(1,50,000)
30,000
29. Expenditure for obtaining right to use spectrum for telecommunication services Section 35ABA
If any assessee has taken spectrum for telecommunication services, expenditure shall be allowed in installments
starting from the year in which payment was made and ending with the year in which license expires.
30. Section 35AD extended to include the business of developing, maintaining and operating a new
infrastructure facility. (100% expenditure shall be allowed to be debited in profit and loss account.)
31. Sector 43B, Any sum payable to Indian Railways for use of railway assets allowable as deduction in the
year in which the liability to pay such sum is incurred if payment is made on or before the due date of filing of
return.
32. Compulsory maintenance of accounts Section 44AA Rule 6F
Provisions regarding maintaining of books of accounts shall be as given below:
1. Persons having specified profession
The person having specified profession have to maintain any books of accounts as may enable the Assessing
Officer to compute his total income, however they have to maintain prescribed books of accounts if gross
receipt exceeds `1,50,000 in all the three years immediately preceding the previous year.
Example
Mr. X is engaged in medical profession and his gross receipt during the various years is asunder:
1. 2015-16
1,40,000
2. 2014-15
1,70,000
3. 2013-14
1,25,000
In this case, during the previous year 2016-17, Mr. X is not required to maintain prescribed books of accounts
because gross receipt has not exceeded `1,50,000 during all the three years immediately preceding the relevant
25
previous year. But if receipt during 2015-16 is `1,75,000 and during 2013-14 it is `1,55,000, he has to maintain
prescribed books of accounts during 2016-17.
If profession has been newly setup in the previous year and gross receipt are likely to exceed `1,50,000, he
should maintain prescribed books of accounts.
Specified Profession shall include
1. Legal profession 2. Medical profession 3. Engineering profession 4. Architectural profession 5. Profession of
accountancy 6. Technical consultancy 7. Interior decoration 8. Authorised representatives 9. Film artists 10.
Company Secretary 11. Information Technology.
Preservation of the books of accounts
The books of accounts are to be kept and maintained for the period of atleast 6 years from the end of the
relevant assessment year.
2. Persons carrying on business or any profession, not specified above
Such persons are not required to maintain accounts in general, however if their income from business or
profession exceeds one lakh twenty thousand rupees or their total sales turnover or gross receipts as the
case may be, in business or profession exceeds `10 lakhs in any one of the three years immediately
preceding the previous year, they will be required to maintain any books of accounts.
In case of business or profession newly set up in any previous year, obligation to maintain accounts will arise if
the income is likely to exceed `1,20,000 or total sales turnover or gross receipts as the case may be in business
or profession are likely to exceed `10 lakhs during such previous year.
3. Persons whose business income is to be computed on presumptive basis under section
44AD/44ADA/44AE
If income of any person is to be computed under section 44AD or 44ADA or 44AE on presumptive basis but
such person has rejected presumptive income, in such cases such person shall be required to maintain any books
of accounts (also audit is required as per section 44AB).
33. Compulsory Tax Audit
Audit of accounts of certain persons carrying on business or profession Section 44AB
The following persons have to get their accounts audited.
1. Every person carrying on business, if his total sales turnover or gross receipts, in business exceeds `100 lakh
during the previous year.
2. Every person carrying on profession if his gross receipts in profession exceed `50 lakh during the previous
year.
3. If income of any person is to be computed under section 44AD or 44ADA or 44AE on presumptive basis but
such person has rejected presumptive income, in such cases such person shall be required to get the accounts
audited.
The accounts should be audited by a Chartered Accountant and audit report should be submitted latest by the
last date of filing of return of income
Penalty for violating provisions of Section 44AB Section 271B
If any person fails to get his accounts audited or fails to submit audit report in time, penalties may be imposed
under section 271B equal to ½% of total turnover or gross receipt subject to a maximum of `1,50,000.
Example
26
Mr. X has turnover of his business `105 lakhs but he has failed to get his accounts audited, in this case penalties
may be imposed amounting to `52,500 but if his turnover was `400 lakhs, penalties imposable shall be
`1,50,000.
34. Special provision for computing profits and gains of business on presumptive basis. Section 44AD
1. If any assessee has turnover of his business upto`200 lakhs, such assessee is allowed to compute income on
presumptive basis and income under the head business/profession shall be presumed to be 8% of the turnover
and no further deduction is allowed under section 30 to 38.
2. Such option is allowed only to an Individual/ HUF / Firm who are resident but not to LLP or Company.
3. Section 44AD is applicable only to business and not to specified profession and also it is not applicable for
the persons having earning as commission or brokerage.
4. Such assessee shall be required to pay advance tax to the extent of 100% of tax liability on or before 15th
March of the relevant previous year otherwise interest shall be charged @ 1% for one month on the amount of
deposit default.
5. Brought forward business loss is allowed to be adjusted from such income but brought forward depreciation
is not allowed to be adjusted from such income.
6. The assessee shall be exempt from maintaining books of accounts or audit.
7. If an assessee has opted for presumptive income under section 44AD and in the subsequent 5 years he has
rejected presumptive income, in that case he will not be allowed to opt for presumptive income for next 5
years. If assessee has rejected the presumptive income, he will be required to maintain any books of accounts
and also audit is required. e.g. Mr. X has opted for presumptive income under section 44AD in the previous
year 2016-17, in this case he cannot reject 44AD during the subsequent 5 previous years i.e. previous year
2017-18, 2018-19, 2019-20, 2020-21, 2021-22. If he has rejected 44AD in any of these 5 years, he will not be
allowed to opt for 44AD in next 5 years. If he has rejected 44AD in previous year 2019-20, he cannot opt for
44AD during the previous year 2020-21, 2021-22, 2022-23, 2023-24, 2024-25.
MAY – 2011 (5 Marks)
Mr. X engaged in Retails Trade, reports a turnover of `58,50,000 for the financial year 2016-17. His income
from the said business as per books of account is computed at`2,90,000. Retail trade is the only source of
income for Mr. X.
(i) Is Mr. X eligible to opt for presumptive determination of his income chargeable to tax for the Assessment
Year 2017-18?
(ii) Is so, determine his income from retail trade as per the applicable presumptive provision.
(iii) In case, Mr. X does not opt for presumptive taxation of income from retail trade, what are his obligations
under the Income-tax Act, 1961?
(iv) What is the ‘due date’ for filing his return of income, under both the options?
Solution:
(i) Yes. Since his total turnover for the F.Y.2016-17 is below `200 lakhs, he is eligible to opt for presumptive
taxation scheme under section 44AD in respect of his retail trade business.
(ii) His income from retail trade, applying the presumptive tax provisions under section 44AD, would
be`4,68,000, being 8% of `58,50,000.
(iii) In case he does not opt for the presumptive taxation scheme under section 44AD, and claims that his
income is `2,90,000 (which is lower than the presumptive business income of `4,68,000), he has to maintain
books of account as required under section 44AA and also get them audited and furnish a report of such audit
under section 44AB, since his total income exceeds the basic exemption limit of `2,50,000. And he is not
eligible to claim the benefit of presumptive taxation for the five assessment year.
27
(iv) In case he opts for the presumptive taxation scheme under section 44AD, the due date would be 31st July,
2017.
In case he does not opt for the presumptive taxation scheme and claims that his income is `2,90,000 as per
books of account, then he has to get his books of account audited under section 44AB, in that case the due date
for filing of return would be 30th September, 2017.
35. Special provision for computing profits and gains of profession on presumptive basis Section 44ADA
(1) An Assessee having specified profession shall be allowed to have option to compute income on
presumptive basis provided gross receipt is not exceeding `50 lakh during that year and income under the head
Business/Profession shall be presumed to be 50% of gross receipt and no further deduction shall be allowed
under the head Business/Profession.
(2) The assessee shall be exempt from maintaining books of accounts.
(3) Such Assessee has the option to reject presumptive income but in that case the assessee shall be required to
maintain any books of accounts and also audit is required.
(4) Assessee can change the option on year to year basis.
(5) Brought forward business loss is allowed to be adjusted from such income but brought forward depreciation
is not allowed to be adjusted from such income.
Illustration 10: Mr. X is engaged in specified profession and has gross receipt `42,00,000. He has Long term
Capital Gain `7,00,000 and brought forward business loss `30,000 of A.Y. 2013-14. He donated `20,000 to
Prime Minister National Relief Fund (PMNRF) by cheque. Compute his Tax Liability for the Assessment Year
2017-18. He has opted for Section 44ADA.
Solution:
`
Gross Receipt
42,00,000
Presumptive Income u/s 44ADA 50% of 42,00,000
21,00,000
Income under the head Business Profession
21,00,000
Less: B/F business loss
(30,000)
Income under the head Business Profession
20,70,000
Income under the head Capital Gains
7,00,000
Gross Total Income
27,70,000
Less: Deduction u/s 80G
(20,000)
Total Income
27,50,000
Computation of Tax Liability
Tax on`20,50,000 at slab rate
4,40,000
Tax on LTCG`7,00,000 @ 20%
1,40,000
Tax before education cess
5,80,000
Add: PEC @ 2%
11,600
Add: SHEC @ 1%
5,800
Tax Liability
5,97,400
36. Deduction in respect of contribution to Pension Scheme of Central Government Section 80CCD
1. Deduction is allowed to an INDIVIDUAL.
2. In case of an employee deduction shall be allowed equal to the amount contributed by the employee towards
the Pension Scheme (also called New Pension System) but maximum to the extent of 10% of retirement
benefit salary. If the employer has contributed any amount towards Pension Scheme, it will be added to the
28
gross salary of the employee and also deduction shall be allowed for such contribution but maximum to the
extent of 10% of retirement benefit salary.
3. If the individual is not an employee and he has contributed to the Pension Scheme, deduction shall be
allowed for such contribution but maximum to the extent of 10% of gross total income.
Maximum deduction allowed under section 80C + 80CCC + 80CCD shall be`1,50,000. It can exceed
upto`50,000 because of contribution to NPS by an individual.
Limit of`1,50,000 can exceed because of employer contribution
4. Any pension received under this scheme shall be taxable.
5. Lumpsum payment received upto 40% of total amount payable shall be exempt from income tax.
6. Amount received by the nominee on the death of the assessee shall be exempt from income tax.
37. Some Accounting Standards have been released with regard to computation of Income under Income Tax
Act and are called Income Computation and Disclosure Standards (ICDS).
The ICDS is applicable for CA FINAL Examination however basic knowledge is required in case of
Intermediate (IPC) Examination May 2017 and is as given below:










ICDS I: Accounting Policies
ICDS II :Valuation of Inventories
ICDS III: Construction Contracts
ICDS IV: Revenue Recognition
ICDS V: Tangible Fixed Assets
ICDS VI: The Effects of changes in foreign exchange rates
ICDS VII: Government Grants
ICDS VIII: Securities
ICDS IX: Borrowing Costs
ICDS X: Provisions, Contingent Liabilities and Contingent Assets
38. Any contribution to an approved superannuation fund by the employer in respect of an employee
Section 17(2)(vii)
If the employer has to give pension to the employee, employer may create superannuation fund and can
contribute to such fund but maximum upto `1,50,000 p.a. otherwise excess over `1,50,000 shall be considered to
be income of the employee. (Earlier limit was `1,00,000 p.a.)
39. In section 55, Cost of acquisition of Self acquired intangible assets shall be taken to be nil in case of right to
carry on any business or profession. (earlier only business was allowed).
40. Section 139(3), Filing of return of loss before due date mandatory for carry forward of loss from specified
business (covered under section 35AD).
41. Section 197A: Provision for filing of self-declaration in form 15G & 15H by recipient of rental income is
applicable for non-deduction of tax at source u/s 194-I.
42. Section 139(1): Mandatory filing of return if total income before giving effect to exemption u/s 10(38)
exceeds basic exemption limit.
43. Section 139(9): Return not deemed to be defective if self-assessment tax is not paid before furnishing the
29
return.
INDIRECT TAXES
01. Annual Return under Excise.
30
Every manufacturer shall be required to file an annual return as per rule 12 and such return shall be filed upto
30th November of succeeding financial year. Such return can be revised within one month from the date of
submission of such return. In case of delay penalty shall be payable ` 100 per day but maximum `20,000.
Service Tax
01. Levy of Krishi Kalyan Cess on all services
As per section 66B (charging section) service tax shall be charged at a rate of 14% + Swachh Bharat Cess @
0.5% + Krishi Kalyan Cess @ 0.5% hence effective rate of service tax shall be 15% and every service provider
shall charge service tax from service recipient at the time of collecting the amount.
E.g. If a Chartered Accountant has issued a bill of `3,00,000, amount of service tax shall be
`
3,00,000
Service tax @ 14%
42,000
Swachh Bharat Cess @ 0.5%
1,500
Krishi Kalyan Cess @ 0.5%
1,500
45,000
02. Negative List
1. 66D(j) omitted
2. 66D(l) omitted
3. Services of transport of passengers with or without accompanied belonging by a stage carriage is omitted in
negative hence the same become taxable.
03. Option to pay service tax at a rate different from normal rate.
Answer: In the following 4 cases, the SP has the option to pay service tax at a rate different from normal rate.
1. In case of air travel agent [Rule 6(7)]
An air travel agent shall have the option to pay service tax on the amount of the commission received by him or
service tax can be paid as follows:
In case of domestic booking
Service Tax
0.7%
Add: SBC (0.5%/14% x 0.7%)
0.025%
Add: KKC (0.5%/14% x 0.7%)
0.025%
Total
0.75%
In case of international booking
Service Tax
Add: SBC (0.5 %/14% x 1.4%)
Add: KKC (0.5 %/14% x 1.4%)
Total
1.40%
0.05%
0.05%
1.50%
The above percentage shall be applied on basic fare. Such option can be changed from the beginning of
subsequent year.
Illustration 1: Compute the service tax liability of Mr. A, an air travel agent, for the quarter ended March 31,
2017 using the following details:-
31
Particulars
Amount (`)
Basic air fare collected for domestic booking of tickets
50,00,000
Basic air fare collected for international booking of tickets
80,00,000
Commission received from the airlines on the sale of domestic and international tickets
5,00,000
In the above case, would the service tax liability of Mr. A be reduced if he opts for the special provision for
payment of service tax as provided under rule 6(7) of the Service Tax Rules, 1994 instead of paying service tax
@ 15%.
Note: Mr. A is not eligible for the small service provider’s exemption and service tax has been charged
separately.
Solution: The service tax liability of Mr. A would be computed as under:
Commission received from the airlines on the sale of domestic and international tickets
Value of taxable service
Service tax @ 15%
`
5,00,000
5,00,000
75,000
However, if Mr. A opts for the special provision for payment of service tax as provided under rule 6(7) of the
Service Tax Rules, 1994, service tax liability would be computed as under:
`
0.75% of the basic air fare collected for domestic booking of tickets
37,500
[`50,00,000 × 0.75%]
1.50% of the basic air fare collected for international booking of tickets
[`80,00,000× 1.50%]
1,20,000
Service tax
1,57,500
No, the service tax liability of Mr. A would not be reduced in the aforesaid option.
2. Insurer carrying on life insurance business [Rule 6(7A)]
A person engaged in life insurance business shall have the option to pay service tax @ 15% of risk premium or
he has the option to pay service tax on the amount of gross premium in the manner given below:
First year
Service Tax
3.50%
Add: SBC (0.5%/14% x 3.5%)
0.125%
Add: KKC (0.5%/14% x 3.5%)
0.125%
Total
3.75%
Subsequent Year
Service Tax
Add: SBC (0.5%/14% x 1.75%)
Add: KKC (0.5%/14% x 1.75%)
Total
Option can be changed from the beginning of subsequent year.
1.75%
0.0625%
0.0625%
1.875%
32
Insurer carrying on life insurance business shall have the option to pay service tax @ 1.4% plus SBC 0.05%
(0.5/14 x 1.4 = 0.05) plus KKC 0.05% (0.5/14 x 1.4 = 0.05) i.e. 1.50% in case of single premium annuity
policy.
3. Sale/purchase of foreign currency including money changing [Rule 6(7B)]
A foreign exchange broker has the option to pay service tax on the amount of commission computed as per rule
2B of service tax (determination value) rules 2006 OR service tax can be paid on the exchange value in the
manner given below:
Upto `1,00,000
Service Tax
Add: SBC (0.5%/14% x 0.14%)
Add: KKC (0.5%/14% x 0.14%)
Total
0.14%
0.005%
0.005%
0.150%
If the total amount of service tax collected from any person is less than `35 in that case service tax
payable shall be
`
35.00
Add: SBC (0.5% /14% x 35 = 1.25)
1.25
Add: KKC (0.5% /14% x 35 = 1.25)
1.25
Total
37.50
Rounded off u/s 37B
38.00
Next `9,00,000
Service Tax
Add: SBC (0.5%/14% x 0.07%)
Add: KKC (0.5%/14% x 0.07%)
Total
0.07%
0.0025%
0.0025%
0.075%
Balance Amount
Service Tax
Add: SBC (0.5%/14% x 0.014%)
Add: KKC (0.5%/14% x 0.014%)
Total
0.014%
0.0005%
0.0005%
0.015%
If amount so computed is more than `7,000, service tax payable shall be
Add: SBC (0.5% /14% x 7000 = 250)
Add: KKC (0.5% /14% x 7000 = 250)
Total
`
7000.00
250.00
250.00
7500.00
33
Option can be changed from the beginning of subsequent year.
Illustration 2:
Miss Diya, an authorized dealer in foreign exchange, exchanged in the following gross amount of currency in
the month of December, 2016:`
Case-I
22,000
Case-II
26,000
Case-III
1,50,000
Case-IV
21,00,000
Case-V
600,00,000
Compute the amount of service tax liability in each of the aforesaid independent cases assuming that Miss Diya
has opted for option available for payment of service tax under Rule 6(7B) of the Service Tax Rules, 1994. Miss
Diya is not eligible for small service providers’ exemption.
Solution: Computation of service tax liability:I - `22,000
Service Tax
`22,000 ×0.14% = `30.8
Since amount of service tax is less than `35, service tax payable shall be
Service Tax
Add: SBC (0.5%/14% x 35)
Add: KKC (0.5%/14% x 35)
Total
Rounded off u/s 37D
`
35.00
1.25
1.25
37.50
38.00
II - `26,000
Service Tax (26,000 x 0.14%)
Add: SBC (0.5%/14% x 36.40)
Add: KKC (0.5%/14% x 36.40)
Total
36.40
1.30
1.30
39.00
III - `1,50,000
Service Tax (1,00,000 x 0.14% + 50,000 x 0.07%)
Add: SBC (0.5%/14% x 175)
Add: KKC (0.5%/14% x 175)
Total
Rounded off u/s 37D
175.00
6.25
6.25
187.50
188.00
IV- `21,00,000
Service Tax (1,00,000 x 0.14% + 9,00,000 x 0.07%+11,00,000 x 0.014%)
Add: SBC (0.5%/14% x 924)
924.00
33.00
34
Add: KKC (0.5%/14% x 924)
Total
V - `600,00,000
Service Tax (1,00,000 x 0.14% + 9,00,000 x 0.07%+590,00,000 x 0.014%)
Since amount of service tax is exceeding `7,000, service tax payable shall be
Service Tax
Add: SBC (0.5%/14% x 7000)
Add: KKC (0.5%/14% x 7000)
Total
33.00
990.00
9,030.00
`
7,000.00
250.00
250.00
7,500.00
4. Service of promotion, marketing or organizing/assisting in organizing lottery [Rule 6(7C)]
An optional mode of payment of service tax has been provided for the taxable service of promotion, marketing
or organizing/assisting in organizing lottery in the following manner instead of paying service tax at the rate of
15%:Where the guaranteed lottery
` 8,200/- on every ` 10 Lakh (or part of ` 10 Lakh) of aggregate face value
prize payout is > 80%
of lottery tickets printed by the organizing State for a draw.
Where the guaranteed lottery
` 12,800/- on every ` 10 Lakh (or part of ` 10 Lakh) of aggregate face
prize payout is < 80%
value of lottery tickets printed by the organizing State for a draw.
1. In case of online lottery, aggregate value of tickets sold shall be taken into consideration.
2. Option can be changed from the beginning of subsequent year.
3. Swachh Bharat Cess & Krishi Kalyan Cess shall be charged separately.
Effective Rate shall be:
Where the guaranteed lottery prize payout is > 80%
Service Tax
Add: SBC (0.5%/14% x 8200)
Add: KKC (0.5%/14% x 8200)
Total
Rounded Off u/s 37D
Where the guaranteed lottery prize payout is < 80%
Service Tax
Add: SBC (0.5%/14% x 12,800)
Add: KKC (0.5%/14% x 12,800)
Total
Rounded Off u/s 37D
`
8,200.00
292.86
292.86
8,785.72
8,786.00
12,800.00
457.14
457.14
13,714.28
13,714.00
Illustration 3: M/s Future Gaming Solutions India Private Limited is a distributor of lottery organized by State
of Sikkim provides following information:
35
Particulars
Diwali Bumper
Total No of Tickets
2,50,000
Face Value of Tickets
100
Value of Guaranteed Prize Payout
51.11%
Mode of conducting the scheme
Printed
Actual Number of ticket sold
2,00,000
Compute Service tax payable under Rule 6(7C) of service tax Rules, 1994.
Solution:
Printed Mode
2,50,000 x 100 x 13,714 =
10,00,000
On Line Mode
2,00,000 x 100 x 13,714
10,00,000
Service Tax
Diwali Dhamaka
2,50,000
100
51.11%
On line
2,00,000
`
3,42,850.00
2,74,280.00
6,17,130.00
Illustration 4: Mr. X is a distributor of lotteries organized by the State of Haryana. He is running two schemes
of lotteries as followedScheme A
Scheme B
Total No. of ticket proposed under the scheme
22,75,000
50,000
Face value per ticket
10
250
Value of guaranteed prize payouts
75%
85%
Mode of conducting the Scheme
Printed
Online
Actual no. of tickets sold
17,50,000
46,250
Compute service tax payable under Rule 6(7C) of Service Tax Rule, 1994.
Solution: Computation of Service Tax Liability of Mr. X
Statement showing computation of Service Tax liability under Composition Scheme (Rule 6(7C) of the STR,
1994) of Mr. X.
Particulars
Scheme A
Scheme B
Total no. of tickets
22,75,000
46,250
Face value per ticket
10
250
Aggregate value of lottery tickets
2,27,50,000
1,15,62,500
Value of guaranteed prize payouts
75%
85%
No. of units of 10 lakhs or part thereof
23
12
Service tax payable(for every 10 lakhs or part thereof)
13,714
8,786
Service tax payable
3,15,422
1,05,432
Total service tax Payable
4,20,854
04. Payment of Service Tax Section 68 Rule 6.
Service tax shall be payable on quarterly basis in case of following persons
36
1.
2.
3.
4.
Individual / Proprietary firm
Partnership firm
Hindu Undivided Family
one person company whose aggregate value of taxable service provided from one or more premises is
upto `50 lakh in the previous financial year
Service tax should be paid upto 6th of subsequent quarter but for the last quarter, service tax should be paid upto
31st March.
Service tax shall be payable on monthly basis in case of other service providers and service tax should be paid
on monthly basis upto 6th of next month and for the last month upto 31st March.
E-payment of service tax is compulsory for all the persons.
The service provider should fill in challan form GAR-7 to pay service tax.
Payment in case of multiple service provider
A multiple service provider (a service provider rendering more than one taxable service) can use single GAR-7
challan for payment of service tax on different services. However, amounts attributable to each such service
alongwith concerned accounting codes should be mentioned clearly in the column provided for this purpose in
the GAR-7 challan. Alternatively, separate GAR-7 challans may be used for payment of service tax for each
service provided by the service provider.
05. Annual Return under service tax
Every service provider shall be required to file an annual return as per rule 7(3A) and such return shall be filed
upto 30th November of succeeding financial year. Such return can be revised within one month from the date of
submission of such return. In case of delay penalty shall be payable ` 100 per day but maximum ` 20,000.
06. Interest for delayed payment of service tax Section 75
Every SP should pay service tax in time otherwise interest shall be charged for the period of delay in the manner
given below:
1. 24% rate of interest shall be charged in case collection of any amount as service tax but failing to pay the
amount so collected to the credit of the Central Government on or before the date on which such payment
becomes due.
If turnover of the service provider is upto `60,00,000 in the preceding year, interest rate shall be reduced by 3%
i.e. rate will be 21%.
2. 15% rate of interest in other cases.
If turnover of the service provider is upto `60,00,000 in the preceding year, interest rate shall be reduced by 3%
i.e. rate will be 12%.
Illustration 5: Vibha Ltd. is engaged in providing management consultancy services. It was liable to pay
service tax amounting to `10,000, electronically, for the month of August, 2016. However, due to some
unavoidable circumstances, it could not pay service tax on due date and paid the same on 30 th November, 2016.
You are required to compute the interest payable by Vibha Ltd. on delayed payment of service tax. Turnover is
70,00,000 in 2015-16.
Solution: Computation of interest payable on delayed payment of service tax by Vibha Ltd.
Due date of payment of service tax for a corporate
06.09.2016
assessee in case of e-payment
37
Actual date of payment
No. of days of delay (24+31+30)
Amount of service tax
Calculation of interest under section 75 @ 24% per annum
Amount of interest payable
Rounded off u/s 37D
30.11.2016
85
`10,000/10,000 x 24% x 85/365
`558.90
`559/-
07. As per Rule 6 of STR 1994, If aggregate value of taxable services is fifty lakh rupees or less in the
preceding year, the service provider shall have the option to pay service tax on receipt basis upto a value of
taxable services of `50 lakhs and thereafter rule 3 of POT Rule 2011 shall be applicable. Such option is
applicable only in case of following persons:
01. Individual
02. Partnership Firm
03. One Person Company.
08. Mega Exemptions
1. Educational services
Services provided by the education institution to its students, faculty and staff is exempt.
Services provided to educational institution shall be exempt from service tax but only the following services
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by the Government.
(iii) services of security / cleaning / house-keeping.
(iv) services relating to admission / conduct of examination.
e.g. ICAI has outsourced the work relating to admission and conduct of examination to outside agency which
has charged `10,00,000 from ICAI, in this case no service tax shall be payable.
If a transport operator has given a passenger vehicle on contract to a recognised college for traveling of students
and faculty and has charged `3,00,000, in this case no service tax is payable.
"Educational institution" means an institution providing services by way of:
(i) pre-school education and education up to higher secondary school or equivalent;
(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in
force;
(iii) education as a part of an approved vocational education course.
2. Legal Services
Services provided by
(i) If services have been provided by an individual as an advocate or a partnership firm of advocates other than a
senior advocate, it will be exempt if services have been provided to
(i) an advocate or partnership firm of advocates providing legal services ;
(ii) any person other than a business entity
(iii) to any business entity with turnover not exceeding `10,00,000 in the preceding financial year
38
It will be taxable if services have been provided to a business entity with a turnover more than rupees ten lakh
in the preceding financial year
(ii) A senior advocate by way of legal services to—
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year
(iii) Arbitral tribunal to any person shall be exempt from service tax but it will be taxable if services have been
provided to a business entity with a turnover more than rupees ten lakh in the preceding financial year and
reverse charge shall be applicable
Business entity means ‘any person ordinarily carrying out any activity relating to industry, commerce or any
other business or profession’. Thus, it includes sole proprietors as well. The provisions relating to arbitral
tribunal are also on similar lines.
Example of services by Arbitral Tribunal / Advocates
Sl.
Service Provider
Service Receiver
No.
01.
Arbitral Tribunal
Mr. A
02.
Arbitral Tribunal
ABC Ltd.
(Turnover `8 Lakh in the
preceding year)
03.
Arbitral Tribunal
ABC Ltd.
(Turnover `15 Lakh
preceding year)
04.
05.
06.
07.
Mr. A
(An individual
advocate)
Mr. A
(an individual
advocate)
Mr. A
(An individual
advocate)
XYZ
(Partnership firm of
Advocates)
Taxable/Exempt
Taxability
Exempt
Exempt
Taxable
Mr. B
(an individual advocate)
Exempt
Mr. B
Exempt
ABC Ltd.
(Turnover `7 Lakh in the
preceding year)
ABC Ltd.
(Turnover ` 33 Lakh
preceding year)
Exempt
Taxable
Reverse Charge
applicable and
Service Recipient
shall be liable to pay
service tax.
Reverse Charge
applicable and
Service Recipient
shall be liable to pay
service tax.
39
3. Services by an artist in folk or classical art forms of (i) music, or (ii) dance, or (iii) theatre shall be exempt
from service tax if the consideration charged for such performance is not more than `1,50,000 but if such artist
is working as brand ambassador, it will be taxable.
"Brand ambassador" means a person engaged for promotion or marketing of a brand of goods etc.
Whether the following activities are exempt under this head or taxable?
S. No. Activities
1.
Activities by a performing artist in folk or classical art forms of music,
dance, or theatre and amount charged is `50,000
2.
All other activities by an artist in other art forms e.g. western music or
dance, modern theatres, performance of actors in films or television
serials
3.
Services provided by an artist as brand ambassador.
Taxable or exempt
Exempt
Taxable
Taxable
4. Services by way of right to admission to
(i) a museum , national park, wild life sanctuary, tiger reserve or zoo.
(ii) exhibition of cinematographic film, circus, dance, or theatrical performance including drama or ballet.
(iii) recognised sporting event.
(iv) award function, concert, pageant, musical performance or any sporting event other than a recognised
sporting event, where the consideration for admission is not more than ` 500 per person.
5. Services provided by Government or a local authority to a business entity with a turnover up to rupees ten
lakh in the preceding financial year, shall be exempt from service tax but the following services shall be taxable
(a) services specified in section 66D (a) (i),(ii) and (iii).
(b) services by way of renting of immovable property.
6. Services provided by Government or a local authority where the gross amount charged for such services
does not exceed `5000, shall be exempt from service tax, but the services mentioned under section 66D(a)(i),(ii)
and (iii) shall be taxable.
In case of continuous supply of service provided by the Government or a local authority, the exemption shall
apply only where the gross amount charged for such service does not exceed `5000 in a financial year.
7. Services provided by Government or a local authority to another Government or local authority, shall be
exempt from service tax however the services mentioned under section 66D(a)(i),(ii) and (iii) shall be taxable.
8. Services provided by Government or a local authority by way of—
(a) Registration required under any law for the time being in force;
(b) testing, calibration, safety check or certification relating to protection or safety of workers, consumers or
public at large, required under any law for the time being in force;
(c) issuance of passport, visa, driving licence, birth certificate or death certificate
9. Services provided by Employees' Provident Fund Organisation (EPFO) to persons governed under the
Employees' Provident Funds and Miscellaneous Provisions Act, 1952;
40
The employer has to pay administrative charges to provident commissioner at a rate of 0.85% of salary of
employee for the services rendered by provident fund commissioner but service tax shall not be payable on such
amount.
10. Services provided to Government, a local authority or a governmental authority by way of (a) water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or
(b) repair or maintenance of a vessel;
11. Business facilitator or a business correspondent to a Banking company with respect to Basic Savings
Bank Deposit Account covered by Pradhan Mantri Jan Dhan Yojana in the banking company's rural area
branch.
12. If any person is travelling by non-air conditioned stage carriage, it will be exempt from service tax but if
he is travelling from air conditioned stage carriage, it will be taxable. (stage carriage means such vehicle which
carry passenger from one place to the other. for eg. DTC, Haryana Roadways or Punjab Roadways etc.
09. Abatement
Sl.
No.
1.
2.
3.
Description of taxable service
% of
abatement
Transport of passengers by a contract carriage/a radio taxi/a motorcab/ stage
carriage
Services of goods transport agency in relation to transportation of used house
hold goods
Services by a tour operator
60
% of
taxable
portion
40
60
40
70
30
10. CCR, 2004
1. Input" Rule 2(k) means
(i) all goods including capital goods used in manufacture of final product and also the goods used
for providing free warranty for final products.
(ii) all goods used for providing any output service;
(iii) all capital goods which have a value upto `10,000 per piece
However the following shall not be considered to be inputs.
(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;
(B) any goods used in construction of a building or a civil structure etc. (like cement, bricks etc.)
(C) any goods, such as food items, goods used in a guest house, residential colony, club/ recreation
facility and clinical establishment for the employees.
2. Duty or Tax for which tax credit is allowed Rule 3(1)
A manufacturer or service provider shall be allowed to take input tax credit of the following duty / tax.
1. Basic excise duty
41
2. Input CVD (also called additional custom duty)
3. Input SAD (also called special CVD) (but only to the manufacturer. Tax credit of SAD is not allowed to a
service provider. A trader is allowed refund of SAD after sale of the product)
4. Input service tax
No tax credit shall be allowed for BCD.
A service provider is allowed to take input tax credit of Krishi Kalyan Cess and it can be set off only from
Krishi Kalyan Cess.
Tax credit of Swachh Bharat cess is not allowed.
3. Utilization/Adjustment of CENVAT Credit Rule 3(4)
Utilization /Adjustment shall be in the manner given below:
(i) ITC of Service Tax can be adjusted from output Service Tax or Excise Duty.
(ii) ITC of Excise Duty can be adjusted from output Excise Duty or Service Tax.
(iii) Cenvat credit of SAD can be utilized from output excise duty and not from output service tax and a trader is
allowed to claim refund of SAD after selling the goods.
(iv) ITC of Krishi Kalyan cess can be adjusted from output Krishi Kalyan cess only.
4. Notional Payment of amount on exempted goods / services Rule 6(3)
A manufacturer who manufacture non exempted goods and exempted goods or a service provider who provides
non exempted services and exempted services they will be allowed to pay an amount equal to 6% of value of
the exempted goods or 7% of value of the exempted services subject to a maximum of the sum total of the
opening balance of the credit of input and input services available at the beginning of the period to which the
payment relates and the credit of input and input services taken during that period.
5. Cenvat credit for capital goods used for exempted goods/services Rule 6(4)
No CENVAT credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods
or in providing exempted services for a period of two years from the date of installation of such capital goods
other than the final products or output services which are exempt from the whole of the duty of excise leviable
thereon under any notification where exemption is granted based upon the value or quantity of clearances made
or services provided in a financial year.
E.g. ABC Ltd. has started manufacturing a particular product w.e.f 01.04.2016 and it is taxable but company
shall be getting exemption as an SSI, in this case tax credit on capital goods acquired shall be allowed.
E.g. ABC Ltd. purchased one machinery on 01.04.2016 and it is manufacturing a product which is exempt from
excise duty, in this case no tax credit is allowed on the plant and machinery but the product become taxable
w.e.f 01.11.2017, in this case company shall be eligible for tax credit in financial year 2017-18. If the product
has become taxable w.e.f 01.11.2018, tax credit of plant and machinery shall not be allowed.
6. Distribution of credit on inputs by warehouse of manufacturer Rule 7B
A manufacturer having one or more factories, shall be allowed to take credit on inputs received under the cover
of an invoice issued by a warehouse of the said manufacturer, who receives inputs under cover of documents
specified under rule 9, towards the purchase of such inputs.