Agricultural Income - agricultural income" means—(a) any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such;

b) any income derived from such land by—(i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause.

Allowance - Allowance is defined as a fixed quantity of money or other substance given regularly in addition to salary for meeting specific requirements of the employees. As a general rule, all allowances are to be included in the total income unless specifically exempted.

Exemption in respect of following allowances is allowable to the exent mentioned against each :-

1.House Rent Allowance:- Provided that expenditure on rent is actually incurred, exemption available shall be the least of the following :

(i) HRA received.

(ii) Rent paid less 10% of salary.

(iii) 40% of Salary (50% in case of Mumbai, Chennai,Kolkata, Delhi) Salary here means Basic +

Dearness Allowance, if dearness allowance is provided by the terms of employment.

2.Leave Travel Allowance: The amount actually incurred on performance of travel on leave to any

place in India by the shortest route to that place is exempt. This is subject to a maximum of the air

economy fare or AC 1st Class fare (if journey is performed by mode other than air) by such route,

provided that the exemption shall be available only in respect of two journeys performed in a block of

four calendar years.

3. Certain allowances given by the employer to the employee are exempt u/s 10(14). All these exempt

allowance are detailed in Rule 2BB of Incometax Rules and are briefly given below:

For the purpose of Section 10(14)(i), following allowances are exempt, subject to actual expenses incurred:

(i) Allowance granted to meet cost of travel on tour or on transfer.

(ii) Allowance granted on tour or journey in connection with transfer to meet the daily charges incurred by the employee.

(iii) Allowance granted to meet conveyance expenses incurred in performance of duty, provided no free conveyance is provided.

(iv) Allowance granted to meet expenses incurred on a helper engaged for performance of official duty.

(v) Academic, research or training allowance granted in educational or research institutions.

(vi) Allowance granted to meet expenditure on purchase/maintenance of uniform for performance of official duty.

Assessee - Assessee means a person by whom any tax or any other sum of money ( i.e. penalty or interest) is payable under the Income Tax Act.

Assessment Year - The next year of earning/income year in which income is taxable is known as Assessment Year. e.g. if Income year is 2014-15 then Assessment Year is 2015-16.

Belated Return - Section 139(4) provides that a return which has not been furnished by the due date may still be furnished as a belated return before the expiry of one year from the end of the assessment year or before the completion of assessment, whichever is earlier. However, on any return of income that has not been filed by the end of the relevant assessment year, penalty of Rs.5000/- u/s 271F shall be levied.

Capital Asset - Capital asset is defined to include: (a) Any kind of property held by an assessee , whether or not connected with business or profession of the assesse . (b) Any securities held by a FII which has invested in such securities in accordance with the regulations made under the SEBI Act, 1992. However, the following items are excluded from the definition of “capital asset”:

i. any stock-in-trade (other than securities referred to in (b) above),consumable stores or raw materials held for the purposes of his business or profession ;

ii. personal effects, that is, movable property (including wearing apparel and furniture) held for personal use by the taxpayer or any member of his family dependent on him, but excludes—

jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art.

Capital Gain - Profits or gains arising from transfer of a capital asset are called “Capital Gains” and are charged to tax under the head “Capital Gains”.

Carry Forwar of Loss - Carrying Forward of unadjusted losses to be set-off in subsequent years is called Carry Forward.

Many times it may happen that after making intra-head and inter-head adjustments, still the loss remains unadjusted. Such unadjusted loss can be carried forward to next year for adjustment against subsequent year(s)’ income. Separate provisions have been framed under the Income-tax Law for carry forward of loss under different heads of income.

If loss of any business/profession (other than speculative business) cannot be fully adjusted in the year in which it is incurred, then the unadjusted loss can be carried forward for making adjustment in the next year. In the subsequent year(s) such loss can be adjusted only against income charged to tax under the head “Profits and gains of business or profession” Loss under the head “Profits and gains of business or profession” can be carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1). Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred.

Loss from the business of owning and maintaining race horses cannot be set off against any income other than income from the business of owning and maintaining race horses. Such loss can be carried forward only for a period of 4 years.

If loss of any speculative business cannot be fully adjusted in the year in which it is incurred, then the unadjusted loss can be carried forward for making adjustment in the next year. In the subsequent year(s) such loss can be adjusted only against income from speculative business (may be same or any other speculative business).

Loss from speculative business can be carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

Such loss can be carried forward for four years immediately succeeding the year in which the loss is incurred. 

Above provisions are not applicable in case of unabsorbed depreciation of speculative business (provisions relating to unabsorbed depreciation are discussed later).

If loss under the head “Income from house property” cannot be fully adjusted in the year in which such loss is incurred, then unadjusted loss can be carried forward to next year. In the subsequent years(s) such loss can be adjusted only against income chargeable to tax under the head “Income from house property”. Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred. Loss under the head “Income from house property” can be carried forward even if the return of income/loss of the year in which loss is incurred is not furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

If loss under the head “Capital gains” incurred during a year cannot be adjusted in the same year, then unadjusted capital loss can be carried forward to next year.

In the subsequent year(s), such loss can be adjusted only against income chargeable to tax under the head “Capital gains”, however, long-term capital loss can be adjusted only against long-term capital gains. Short-term capital loss can be adjusted against long-term capital gains as well as short-term capital gains. Such loss can be carried forward for eight years immediately succeeding the year in which the loss is incurred. Such loss can be can carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

Cost of Acquisition - Cost of acquisition of an asset is the sum total of amount spent for acquiring the asset. Where the asset was purchased, the cost of acquisition is the price paid.

Where the asset was acquired by way of exchange for another asset, the cost of acquisition is the Fair Market Value of that other asset as on the date of exchange.

Any expenditure incurred in connection with such purchase, exchange or other transaction eg. brokerage paid, registration charges and legal expenses etc.., also forms part of cost of acquisition.

If advance is received against agreement to transfer a particular asset and it is retained by the tax payer or forfeited for other party’s failure to complete the transaction, such advance is to be deducted from the cost of acquisition.

Cost of Improvement - The cost of improvement means all expenditure of a capital nature incurred in making additions or alterations to the capital asset. However, any expenditure which is deductible in computing the income under the heads Income from House Property, Profits and Gains from Business or Profession or Income from Other Sources (Interest on Securities) would not be taken as cost of improvement.

Cost of improvement for Goodwill of a business, right to manufacture, produce or process any article or thing or right to carry on any business is NIL.

Defective Return - Section 139(9) provides the list of situations in which the return of income filed by the taxpayer can be treated as defective return. If the Assessing Officer finds the return of income to be defective under section 139(9), then he may intimate such defect to the taxpayer and may give an opportunity to him to rectify such defect.

The taxpayer shall rectify such defect in the return of income within a period of 15 days of such intimation or within such further period as the Assessing Officer may allow. If the defect is not rectified within the period of 15 days or the further period so allowed (as the case may be), then, notwithstanding anything contained in any other provision of the Act, the return shall be treated as an invalid return and the provisions of the Act shall apply as if the taxpayer had failed to furnish the return.

Financial Year - The year in which income is earned is known as Financial Year.

Income from House Property - House property consists of any building or land appurtenant thereto of which the assessee is the owner. The appurtenant lands may be in the form of a courtyard or compound forming part of the building. But such land is to be distinguished from an open plot of land, which is not charged under this head but under the head „Income from Other sources? or „Business Income?, as the case may be. Besides, „house property? includes flats, shops, office space, factory sheds, agricultural land and farm houses. Further, house property includes all type of house properties, i.e., residential houses, godowns, cinema building, workshop building, hotel building, etc.

Essential conditions for taxing income under this head Income from house property is taxable in the hands of its legal owner in whose name the property stands. „Owner? for this purpose means a person who can exercise the rights of the owner not on behalf of the owner but in his own right. A person entitled to receive income from a property in his own right is to be treated as its owner, even if no registered document is executed in his name.

The following three conditions must be satisfied before the income of the property can be taxed under the head “Income from House Property”:

1.The property must consist of buildings and lands appurtenant thereto;

2.The assessee must be the owner of such house property; 

3.The property may be used for any purpose, but it should not be used by the owner for the purpose of any business or profession carried on by him, the profit of which is chargeable to tax. If the property is used for own business or profession, it shall not be chargeable to tax.

Ownership includes both free-hold and lease-hold rights and also includes deemed ownership.

Taxable Income from House Property :- 

Rent and other income from any flat, building or land appurtenant thereto are generally taxed under the head „Income from house property?. As per Sec. 22 “House Property” does not include vacant land. Income derived from a vacant land is charged either under the head „Income from Business or Profession” or under the head “Income from other sources”, depending upon its nature. However, if the owner occupies the house property for the purposes of his own business or profession, no tax is to be paid under this head in respect of such property.

Income from Other Sources - “Income from other sources” is the last and residual head of income. Hence, any income which is not specifically taxed under any other head of income will be taxed under this head. Further, there are certain incomes which are always taxed under this head. These incomes are as follows:  

1.As per section 56(2)(i), dividends from domestic company are always taxed under this head. However, dividends other than those covered by section 2(22)(e) are exempt from tax under section 10(34).

2.Winnings from lotteries, crossword puzzles, races including horse races, card games and other game of any sort, gambling or betting of any form whatsoever, are always taxed under this head.

3.With effect from the assessment year 2010-11, income by way of interest received on compensation or on enhanced compensation shall be chargeable to tax under the head “Income from other sources”, and such income shall be deemed to be the income of the year in which it is received, irrespective of the method of accounting followed by the assessee. Further, such interest income shall be charged to tax under the head “Income from other sources”; however, deduction of a sum equal to 50% of such income shall be allowed from such income (apart from this, no other deduction shall be allowed from such an income). · 4.Gifts are also taxed under this head.

5.In addition to above, following incomes are charged to tax under this head, if not taxed under the head “Profits and gains of business or profession”.

(a) Any contribution to a fund for welfare of employees received by the employer [Section 56(2)(ic)].

(b) Income by way of interest on securities [Section 56(2)(id)].

(c) Income from letting out or hiring of plant, machinery or furniture [Section 56(2)(ii)].

(d) Income from letting out of plant, machinery or furniture along with building and both the lettings are inseparable [Section 56(2)(iii)].

(e) Any sum received under a Keyman Insurance Policy including bonus [Section 56(2)(iv)].

Indexation - Indexation is a process by which the cost of acquisition is adjusted against inflationary rise in the value of asset. For this purpose, Central Government has notified cost inflation index. The benefit of indexation is available only to long-term capital assets. For computation of indexed cost of acquisition following factors are to be considered:
• Year of acquisition/improvement
• Year of transfer
• Cost inflation index of the year of acquisition/improvement
• Cost inflation index of the year of transfer

Indexed cost of Acquisition - (Cost of acquisition × Cost inflation index of the year of transfer of capital asset)/ Cost inflation index of the year of acquisition

Indexed cost of Improvement - (Cost of improvement × Cost inflation index of the year of transfer of capital asset)/Cost inflation index of the year of improvement

Long-term Capital Asset - Any capital asset held by the taxpayer for a period of more than 36 months immediately preceding the date of its transfer will be treated as long-term capital asset. However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months.

Long-term Capital Gain - Gain arising on transfer of long-term capital asset is termed as long-term capital gain. However, there are few exceptions to this rule like gain on depreciable asset is always taxed as short-term capital gain.

Generally, long-term capital gains are charged to tax @ 20% (plus surcharge and cess as applicable), but in certain special cases, the gain may be (at the option of the taxpayer) charged to tax @ 10% (plus surcharge and cess as applicable). The benefit of charging long-term capital gain @ 10% is available only in respect of long-term capital gains arising on transfer of any of the following asset: (a) Any security (*) which is listed in a recognised stock exchange in India; (b) Any unit of UTI or mutual fund (whether listed or not) ($); and (c) Zero coupon bonds.
[As amended by Finance Act, 2015]
(*) Securities for this purpose means “securities” as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956. This definition generally includes shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable securities of a like nature in or of any incorporated company or other body corporate, Government securities, such other instruments as may be declared by the Central Government to be securities and rights or interest in securities. ($) This option is available only in respect of units sold on or before 10-7-2014. In other words, in case of long term capital gain arising on account of aforesaid assets, the taxpayer has following two options:
a. Avail of the benefit of indexation; the capital gains so computed will be charged to tax at normal rate of 20% (plus surcharge and cess as applicable).
b. Do not avail of the benefit of indexation; the capital gain so computed is charged to tax @ 10% (plus surcharge and cess as applicable).
The selection of the option is to be done by computing the tax liability under both the options, and the option with lower tax liability is to be selected.

PAN CARD  - P.A.N. or Permanent Account Number is a number allotted to a person by the Assessing Officer for the purpose of identification. P.A.N. of the new series has 10 alphanumeric characters and is issued in the form of laminated card. 

Section 139A of the Income Tax Act provides that every person whose total income exceeds the maximum amount not chargeable to tax or every person who carries on any business or profession whose total turnover or gross receipts exceed Rs.5 lakhs in any previous year or any person required to file a return of income u/s 139(4A) shall apply for PAN. Besides, any person not fulfilling the above conditions may also apply for allotment of PAN.With effect from 01.06.2000, the Central Government may by notification specify any class/classes of person including importers and exporters, whether or not any tax is payable by them, and such persons shall also then apply to the Assessing Officer for allotment of PAN.

TRANSACTIONS IN WHICH QUOTING OF PAN IS MANDATORY

1.Purchase and sale of immovable property.

2.Purchase and sale of motor vehicles.

3.Transaction in shares exceeding Rs.50,000.

4.Opening of new bank accounts.

5.Fixed deposits of more than Rs.50,000.

6.Application for allotment of telephone connections.

7.Payment to hotels exceeding Rs.25,000.

8.Provided that till such time PAN is allotted to a person, he may quote his General Index register Number or GIR No.

Revised Return - If a person having filed his return within the due date, discovers any omission or wrong statement therein, he may file a revised return before the expiry of one year from the end of the assessment year or completion of assessment whichever is earlier. It should be noted that only a return filed under section 139(1) [i.e., return filed before the due date] or return filed in pursuance of a notice under section 142 can be revised. In other words a belated return cannot be revised.

Salary - Salary is the remuneration received by or accruing to an individual, periodically, for service rendered as a result of an express or implied contract. The actual receipt of salary in the previous year is not material as far as its taxability is concerned. The existence of employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head “salaries”. For instance, the salary received by a partner from his partnership firm carrying on a business is not chargeable as “Salaries” but as “Profits & Gains from Business or Profession”. Similarly, salary received by a person as MP or MLA is taxable as “ Income from other sources”, but if a person received salary as Minister of State/ Central Government, the same shall be charged to tax under the head “Salaries”. Pension received by an assessee from his former employer is taxable as “Salaries” whereas pension received on his death by members of his family (Family Pension) is taxed as “Income from other sources”.

Section 17(1) of the Income tax Act gives an inclusive and not exhaustive definition of “Salaries” including therein (i) Wages (ii) Annuity or pension (iii) Gratuity (iv) Fees, Commission, perquisites or profits in lieu of salary (v) Advance of Salary (vi) Amount transferred from unrecognized provident fund to recognized provident fund (vii) Contribution of employer to a Recognised Provident Fund in excess of the prescribed limit (viii) Leave Encashment (ix) Compensation as a result of variation in Service contract etc. (x) Contribution made by the Central Government to the account of an employee under a notified pension scheme.

Set-Off Loss - Set-Off means adjustment of certain losses against the income under other sources in the same assessment year.

If income from a particular source is exempt from tax, then loss from such source cannot be set off against any other income which is chargeable to tax. E.g., Agricultural income is exempt from tax, hence, if the taxpayer incurs loss from agricultural activity, then such loss cannot be adjusted against any other taxable income.

Step - 1

 The process of adjustment of loss from a source under a particular head of income against income from other source under the same head of income is called intra-head adjustment, e.g. Adjustment of loss from business A against profit from business B.

Following restrictions should be kept in mind before making intra-head adjustment of loss:

1) Loss from speculative business cannot be set off against any income other than income from speculative business. However, non-speculative business loss can be set off against income from speculative business.

2) Long-term capital loss cannot be set off against any income other than income from long-term capital gain. However, short-term capital loss can be set off against long-term or short-term capital gain.

3) No loss can be set off against income from winnings from lotteries, crossword puzzles, race including horse race, card game, and any other game of any sort or from gambling or betting of any form or nature.

4) Loss from the business of owning and maintaining race horses cannot be set off against any income other than income from the business of owning and maintaining race horses.

5) Loss from business specified under section 35AD cannot be set off against any other income except income from specified business (section 35AD is applicable in respect of certain specified businesses like setting up a cold chain facility, setting up and operating warehousing facility for storage of agricultural produce, developing and building a housing projects, etc.).

Step – 2.

After making intra-head adjustment (if any) the next step is to make inter-head adjustment. If in any year, the taxpayer has incurred loss under one head of income and is having income under other head of income, then he can adjust the loss from one head against income from other head, E.g., Loss under the head of house property to be adjusted against salary income.

Following restrictions should be kept in mind before making inter-head adjustment:

1) Before making inter-head adjustment, the taxpayer has to first make intra-head adjustment.

2) Loss from speculative business cannot be set off against any other income. However, non-speculative business loss can be set off against income from speculative business.

3) Loss under head “Capital gains” cannot be set off against income under other heads of income.

4) No loss can be set off against income from winnings from lotteries, crossword puzzles, race including horse race, card game, and any other game of any sort or from gambling or betting of any form or nature.

5) Loss from the business of owning and maintaining race horses cannot be set off against any other income.

6) Loss from business specified under section 35AD cannot be set off against any other income (section 35AD is applicable in respect of certain specified businesses like setting up a cold chain facility, setting up and operating warehousing facility for storage of agricultural produce, developing and building housing projects, etc.)

7) Loss from business and profession cannot be set off against income chargeable to tax under the head “Salaries”.

Short-term Capital Asset - Any capital asset held by the taxpayer for a period of not more than 36 months immediately preceding the date of its transfer will be treated as short-term capital asset.

However, in respect of certain assets like shares (equity or preference) which are listed in a recognised stock exchange in India (listing of shares is not mandatory if transfer of such shares took place on or before July 10, 2014), units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds, the period of holding to be considered is 12 months instead of 36 months.

Short-term Capita Gain - Gain arising on transfer of short-term capital asset is termed as short-term capital gain.

Section 111A is applicable in case of STCG arising on transfer of equity shares or units of equity oriented mutual-funds (*) or units of business trust, which are transferred on or after 1-10-2004 through a recognised stock exchange and such transaction is liable to securities transaction tax (STT). (*) Equity oriented mutual fund means a mutual fund specified under section 10(23D) and 65% of its investible funds, out of total proceeds are invested in equity shares of domestic companies. If the conditions of section 111A as given above are satisfied, then the STCG is termed as STCG covered under section 111A. Such gain is charged to tax at 15% (plus surcharge and cess as applicable).

Adjustment of Short-term Capital Gain against Exemption Limit : Only a resident individual and resident HUF can adjust the exemption limit against STCG covered under section 111A. Thus, a non-resident individual/HUF cannot adjust the exemption limit against STCG covered under section 111A. A resident individual/HUF can adjust the STCG covered under section 111A against the basic exemption limit but such adjustment is possible only after making adjustment of other income. In other words, first income other than STCG covered under section 111A is to be adjusted against the exemption limit and then the remaining limit (if any) can be adjusted against STCG covered under section 111A.

Computation of Short-Term Capital Gains

Short-term capital gain arising on account of transfer of short-term capital asset is computed as follows :

Securities Transaction Tax(STT) - Securities Transaction Tax (STT) is levied on purchase or sale of an equity share, unit and derivative, under such circumstances as specified in section 98 of the Finance (No. 2) Act, 2004.

Securities Transaction Tax(STT) is applicable on :

1. Purchase and sale of equity shares on the stock exchange @ 0.01% for delivery based transactions and 0.025% by seller in case of an intra-day transaction.

2. Sale of option in securities @0.01 payable by the seller.

3. In case of an option in securities , where option is exercised @0.125 payable by the purchaser and 0.017% by seller on premium value.

4. Sale of futures in securities @0.01% payable by the seller.

5. Redemption and switch of units from equity-oriented schemes @ 0.01%.

STT is applicable irrespective of the tax status of investors.

Tax Return Preparer(TRP) - To assist small and medium taxpayers in preparation of their return of income and other income tax related issues, the Government of India has designed the Tax Return Preparer Scheme (TRP Scheme). Under the TRP Scheme, the Government of India authorizes tax professionals called as the Tax Return Prepares (TRPs). The Scheme is managed by the Income Tax Department. The Tax Return Preparer Scheme (TRPS) was launched by the Government during the year 2006-07 to train unemployed and partially employed graduates from select disciplines such as, Law, Economics, Statistics, Mathematics, Commerce and Management/Business Administration.

Any Individual/Hindu Undivided Family (HUF), who is resident in India and whose accounts are not required to be audited under section 44AB of the Income-tax Act, 1961, or under any other law for the time being in force can furnish his Income Tax Return after getting it prepared through a TRP.

A revised return under section 139 (5) can be furnished through a TRP only if Original return was furnished through same or any other TRP.

Returns in response to notice under section 142(1)(i) or section 148 or section 153A cannot be furnished through a TRP.

you can avail the service of a TRP by relaxing at your home. You can request the TRP to visit at your home and to provide you his valuable service. TRP Home Visit is presently available in 70 cities across India. You need to just follow the following steps:

  i.        Contact the TRP help desk at 18001023738 and briefly indicate the assistance required by you.

 ii.        specify a convenient date and time for the visit of the TRP.

iii.        The Help Desk will forward your query to the nearest available TRP and fix the appointment telephonically.

iv.        TRP will visit you and render assistance to you.

v.        TRP can collect a nominal fee from the taxpayers subject to a maximum of Rs. 250 per return prepared by him.