INCOME TAX -II

UNIT- I
1. Write short note on:
A) 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”.

B) Cost of acquisition:

Cost of acquisition of an asset is the amount paid by the assesse to acquire it.
All the capital expenses paid for acquiring the title to the property are termed as
the cost of acquisition.

C) Cost of improvement:

Cost of improvement includes all expenditure of capital nature incurred in

making any addition / alteration to the capital asset by the assesse.

D) Cost inflation index:

Cost inflation index in relation to a previous year means such index as the
central government having regard to 75% of average rise in the consumer price
index for the immediately preceding previous year to such previous year
(Notified by central government)

2. Explain the kinds of capital Gain with its computation.

3. Compute the taxable capital gain from particulars given below:

a. Net sale consideration of a residential house Rs. 15, 00,000 (2.6.2021) [CII =
317].
b. Cost of acquisition of this house Rs. 3, 00,000 (1.5.2003) [CII=109].

c. New house acquired on 1.9.2022 for Rs. 2, 00,000.

Solution:
Computation of LTCG for the A.Y 2022-23.

Particulars Rs Rs.
.

Sale value 15,00,000

Less: Indexed cost:

Cost acquisition 8,72,477

3,00,000x317
109

LTCG 6,27,523

Less: Exemptions U/s 54:

Investment (or) LTCG

whichever is Less 15,00,000

(or)

Cost of new house 2,00,000

Chargeable LTCG 4,27,523

4. Mr. Ram purchased a house on 1.11.2004 for Rs.2, 00,000 and it was improved in
2012 – 13 at a cost of Rs. 1, 00,000. What will be indexed cost during 2021-22 if CII
for 2004 – 05 is 113; for 2012 – 13 is 200 and for 2021-22 is 317.
Solution:
Computation of Indexed cost:
317
Cost of Acquisition = Rs. 2, 00,000 x = Rs.5, 61,062
113
Cost of Improvement = Rs.1, 00,000 x 317 = Rs.1, 58,50
200

Indexed cost Rs. 7,19,562

5. Agricultural land situated in Agra purchased in 2003 - 04 for Rs.46, 400, sold for
Rs.3, 80,000 on 1.5.2021. The assessee purchased another piece of agricultural land
on 1.8.2021 for Rs.70, 000 and deposited Rs. 30,000 on 24.6.21 in capital gain
amount scheme. Find out the capital gain chargeable to tax for the AY 2022-23. The
cost inflation index in 2003 – 04 was 109 and in 2021-22 it was 317.
Solution:

Computation of LTCG for the A.Y 2022-23.

Particulars Rs. RS.

Sale proceeds 3,80,000

Less: Index cost of acquisition 1,34,943

317
( 46,400 x )
109

2,45,057

Less: Exemption u/s 54B

Investment in agriculture land 70,000

Deposit 30,000

1,00,000

(OR)

LTCG whenever is least 2,45,057 1,00,000

Chargeable LTCG 1,45,057

6. Miss. Saranya acquired Property on 15.12.1999 for Rs. 5, 00,000 which was sold
on 15.5.21 for Rs. 38, 00,000. Expenses on transfer were Rs. 20,000. She invested
Rs. 6, 00,000 in the bonds of NHAI of on 16.10.21 compute the capital gain for
the A.Y. 2022-23.
[CII 2001-02: 100; 2021-22:317]
Solution:
Computation of capital gain for the A.Y. 2022-23.

Particulars Rs. RS.

Sale Value 38,00,0000

Less: Expenses on sale 20,000

Net sale consideration 37,80,000

Less: Indexed cost of acquisition

5,00,000 x 317
100 15,85,000

LTCG 21,95,000

Less: Exemption u/s 54EC

Investment on bonds of NHAI 6,00,000

Chargeable LTCG 15,95,000

 UNIT-II
Income From Other Sources
1. What is casual income? And What are the incomes chargeable under income from
other sources?

Casual income:

Casual incomes include winnings from lotteries, crossword puzzles, horse races,
card games, and other games of any sort or from gambling or betting of any form or
nature whatsoever, is taxable under section 56 under the head “income from other
sources”.

Incomes chargeable under income from other sources:

• Dividends from foreign companies and dividends from cooperatives is

taxable.
• Casual Income

• Income by maintenance of horses

• Income by letting out of plant and machinery along with furniture and building

• Interest on securities

• Family Pension

• Agricultural Income

• Income from subletting

• Royalty income

• Directors fee, remuneration for writing articles, remuneration for evaluation

• Salary and allowances of MPS

• Cash gifts received from unrelated persons

• Cash gifts received from relatives

2. Ganesan furnishes the following particulars of his income for the previous
year 2021-22. Compute his income from the other sources for the
assessment year 2022-23.
(a) Dividend (Gross) from Ashok Leyland Ltd. Rs.25,000

(b) Dividend from co-operative society Rs. 5,000

(c) Interim dividend from Rane (Madras) Ltd. Rs.6,000

(d) Dividend from foreign company. Rs. 26,000

 (e) Dividend from U.T.I Rs. 3,000

Solution:
Computation of Income from other sources of Ganesan previous year:2021
-22; Assessment year:2022-23.

Particulars Rs.

Dividend Income:

Dividend from Ashok Leyland ltd. Exempte

d

Dividend from a co-operative society 5, 000

Interim dividend from Rane (Madras) Ltd. Exempte

d

Dividend from a Foreign company 26,000

Dividend from U.T.I Exempte

d

Income From Other sources 31,000

Note: Dividends from Indian companies and UTI units are not taxable

3. Mr.Basu received the following incomes during the year 2021-2022. Compute
Taxable income under the head ‘Income from other sources’, separately for
each case.

Rs.

(A) Winning received from Sikkim 70,000

Lottery

Winning from Horse Races 2,000

Winnings from crossword Puzzles 4,000

(B) Winning from Lottery 2,000

Winnings received from Horse Races 56,000

Computation of Income from other sources of Mr.Basu for previous year:2021-22.

Particulas Rs.

(A) Winnings received from Sikkim Lottery: 1,00,000

 Net: Rs. 70, 000
Gross: 70,000 X 100
100-30

Winning from Horse Races

(Less than Rs.5,000: No T.D.S) 2,000

Winning from Crossword puzzle 4,000

(Less than Rs.10,000: No T.D.S)

1,06,000
Income From Other sources.

(B) Winning from Lottery 2, 000

(Less than Rs.10,000: No T.D.S)

Winnings received from Horse Races: 80, 000

Net: Rs. 56,000
Gross: 56,000 X 100
100-30

Income From Other sources. 82,000

4. Kanagasabapathy of Salem constructed a factory with Building, Plant,

Machinery, Furniture etc. However, he decided to lease out the factory on a
hire charge of Rs.25, 000 per month.
During the previous year 2021-22, he spent Rs.15, 000 for repairs and Rs.10, 000
for insurance on the assets. Allowable depreciation is Rs. 35, 000 P.A. Ascertain
his ‘Income from other Sources’ from the above details.

Solution:

Computation of Income from other sources of

Mr. Kanagasabapathy For previous year: 2021-22.

Particulars Rs. Rs.

Income from letting out on hire of plant, 3, 00, 000

Machinery, Furniture along with building.
25, 000 X 12

Less: Deductions:
 Repairs 15, 000

Insurance 10, 000

35, 000 60 ,000

Depreciation

2, 40, 000
Income from other sources

5. From the following details, ascertain the taxable interest income of Miss.
Gayathri for the previous year 2021-22.
Investments in Tax free 10% Debentures in ‘X’ Ltd. (Unlisted) Rs.1,
40,000. Interest received on Debentures in ‘Y’ Ltd. (Listed) Rs. 45,000.

Solution:
Computation of Interest Income of Miss. Gayathri For previous year: 2021-22
Particulars Rs. Rs.

Interest on Tax free 10% Debentures in ‘X’ 15, 555

Ltd:
(Unlisted) (1, 40, 000 X 10% = 14,000)

Net :14,000
Gross: 14, 000 × 100
100-10

Interest on Debentures in Y Ltd: (Listed) 50, 000

Net Rs. 45, 000
Gross: 45, 000× 100/(100-10)

Interest on securities 65, 555

Note: 1) ‘Interest received’ indicates the net amount and it should be grossed up.

Rates for grossing up Net Income from:

Unlisted companies: 10%

Listed Companies: 10%

2) Interest on Tax free debentures should always be grossed up.

 6. Mrs. Jacob, an ordinary resident of India, received the following income as
interest on investments in securities during the year ended 31st March 2022.
i. Rs, 1, 000 as interest on Central Government Bonds;

ii. Rs. 7,200 as interest on Debentures issued by a local

authority.
iii. Rs. 5,600 as interest on Debentures of ‘A’ Ltd.
(unlisted)
iv. Rs. 2,700 as interest on Debentures of ‘B’ Ltd. (Listed)

v. Rs. 4,800 as interest on Tax Free Debentures of ‘C’ Ltd (Unlisted)

Determine Mrs. Jacob’s interest on securities under the head ‘Income from
other sources’ for the Assessment year 2022-23.

Solution:

Computation of Income from other sources of Mrs. Jacob

For the Assessment year: 2022-23.

Particulars Rs.

Interest on Central government bonds ( No T.D.S) 1, 000

Rs. 7,200 as interest on debentures issued by a local 8, 000

authority.
= 7, 20 0 × 100
100-10

Interest on Debentures of ‘A’ Ltd. (Unlisted) 6, 222

= 5, 60 0 × 100
100-10

Interest on Debentures of ‘B’ Ltd. (Listed) 3, 000

= 2, 700× 100
100-10

Interest on Tax free Debentures of ‘C’ Ltd (Unlisted) 5, 333

= 4, 800×
100/100 -10

Total Interest on Securities 23, 555

Note: 1. Interest received on Debentures of local authority and listed companies
should be grossed up at the rate of 10% and interest received from unlisted
companies is grossed up at 10%
2. since the word, ‘interest received’ is given, grossing up interest is required.
 UNIT III
CLUBBING OF INCOME AND DEEMED INCOME
SET OFF AND CARRY FORWARD OF LOSSES

1. Write a short note on

A) Clubbing of incomes
B) Minor income
C) Deemed income
D) Set off losses
E) Carry forward of losses:

A) Clubbing of incomes

● Clubbing of income means including the income of any other person in

assessee's total income.

● For Example, if a husband diverts some part of his income to his wife to
reduce his tax burden. Then, such transferred income of a wife is added and
taxed as income of husband only and not his wife.

● Section 64 of the Income Tax Act, 1961 deals with clubbing of income.
Clubbing of income ensures that taxpayers do not circumvent their tax
liability by transferring their incomes and assets within the family.

B) Minor income:
● Income of a minor child on account of any activity involving application
of skill, talent or specialized knowledge and experience is not be clubbed
with parents income.
● The income of minor will be included with the income of the parents
whose total income is greater and his mother shall be entitled to
exemption of Rs. 1500 in respect of the minor child.

C) Deemed income

Some assesses may cover up income by not disclosing investments, cash,

bullion, Jewelry or other valuable articles and amount spent on
unexplained expenditure. These amounts are treated as deemed income of
the assesses.

D) Set off losses

Set off of losses means adjusting the losses against the profit or income
of that particular year.

E) Carry forward of losses:

After making the appropriate and permissible intra-head and inter-head
adjustments, there could still be unadjusted losses. These unadjusted losses can be
 carried forward to future years for adjustments against income of these years.

2. Determine the Net income in following cases for the assessment year 2022-
2023
Case – 1
Mr. X furnished the following details as follows:

Rs.
Salary income 42000
Income from house property:
House A 38000 (Income)
House B 17000 (Loss)
House C 21000 (Loss)

Case – 2
Mr. Prakash submits the following information:
Rs. Salary income computed 50000
Income from house property:
House A (Computed) 40000 (Income)
House B -70000 (Loss)

Solution:
Case 1:

Particulars Rs Rs

Salary income 42000

Income from house property:

House A (income) +38000

House B (loss) -17000

Nil
House A ( -21000
loss)

Net Income 42000

Case – 2

Particulars Rs Rs
 Salary income   50,000

Income from house

 
property:
 
House
40,000
A

House B -70,000 -30,000

Taxable income   20,000

3. Master Ajay of age 16 years receive the following incomes during 2021 to 22.
a) Interest on Bank deposits 75000
b) Interest on government securities 80000
c) Interest on debentures 40000
d) Income from acting in the film100000
e) Income from signing concert held by him 50,000
f) His father's total income 109000
g) His mother's total income 109100
Decide about the person in whose hands the above income is taxable what the
amount of income to be taxed is.

Solution:

Income of a Ajay to be clubbed with mothers income for the Assessment Year
2022-2023
Particulars Rs.

Interest on Bank deposits 75,000

Interest on government securities 80,000

Interest on debentures 40,000

Total amount to be taxed 1,95,000

Note:
(i) Income of a minor child on account of any activity involving application
of skill, talent or specialized knowledge and experience is not be clubbed
with parents income.
(ii) The income of minor will be included with the income of the parents
whose total income is greater and his mother shall be entitled to
exemption of Rs. 1500 in respect of the minor child.

4. From the following particulars calculate gross total income of an individual after
set-off losses for the current assessment year:
 Rs.

Income from house property A 50000

Loss from house property B 80000

Income from interest on securities 200000

Loss from a cycle business 200000

Profit from speculation business 200000

Gain from short term capital assest 250000

Long-term capital loss 60000

Long- term capital gain 210000

Solution:

Particulars Rs. Rs.

Income from house property A 50000

- Loss from house property B 80000 -30000

Income from interest on securities 200000

- Loss from cycle business 200000 -

Profit from speculation business 200000

Gain from short term capital asset 250000

Long term capital gain 210000

- Long term capital loss 60000 150000

Gross total income 570000

5. How are the following incomes treated under income tax act 1961?

a) Jaya Kumar transfers 2000 debentures of Rs. 100 each carrying 13 % interest to Mr
Ram and on 1st April 2021 on the condition that the price is not paid within one
year the debentures will revert back to Mr Jayakumar.

b) Arun transfers a house property to his relative Mahesh on 1st April 2008 on the
condition that house property will not revert back to Arun during the lifetime of
Mr Mahesh. The annual rental income is Rs 70000.
Solution:

a) Though Raman receives interest of Rs 26000 in 2021 to 22 it is taxable in the hands

of Jayakumar as the transfer is recoverable under section 61.

b) Since the transfer is not recoverable during the lifetime of the transferee it is an
irrevocable transfer. Hence annual rental income is transferee's income. It will not
be taxed in the hands of Arun, the transferor.

6. Determine the Net income in following cases for the assessment year 2022 – 2023

Case – 1

Mr. Rajan submits the following information relevant to previous year ending
March 31, 2022
Rs.

Income from house property -45000

Business Income 25000

Short-term capital gain 10,000

Case – 2

Mr. Sanjay submits the following information relevant to previous year ending
March 31, 2022
  Rs.

Salary income (Gross) 63000

Business income -80000

House property income -20000

Solution:

Case 1: Computation of Net income of Mr. Rajan

Particulars Rs Rs

Income from house property   -45000

Business income 25000  

 Short term capital gain 10,000 35000

House property loss C/F   10,000

Case 2: Computation of Net income of Mr. Sanjay

Particulars Rs Rs

Salary income (gross)   63000

House property income (loss)   -20000

Net Income   43000

Business income c/f   -80000

Hint:
1. Standard deduction under section 16 (i) cannot be reduced from gross salary.
2.Business laws cannot be set off against salary income.
3.House property loss can be set off against salary income.
 UNIT – IV

1. What are the savings or contributions eligible for tax – deductions u/a 80C of the
Income tax Act with respect to individuals
1. LIC Premium open racket (including payment made by government employees to
Central Government group Insurance Scheme and payment made by a person under
children’s deferred endowment policy) subject to a maximum of 10% of sum assured
shall not be taken into consideration.
2. Own contribution to statutory provident fund and public provident fund and
recognised provident fund.
3. Any amount contributed by an employee towards approved superannuation fund fully
qualifies
4. Any amount deducted from employee salary by the government for the purpose of
securing to him a deferred annuity for making provisions for his spouse or children
actual deduction or 20% of salary whichever is less.
5. Any amount invested by a person with LIC or UTI , ULIP( unit Limited insurance
plan) fully qualified.
6. Any amount invested in NSC VIII issue fully qualified
7. Any amount paid to LIC under Jeevan Dhara (Jeevan Akshay plan) fully-qualified.
8. Any Amount deposited under the mutual fund Pension Fund scheme fully qualified.
9. Any Amount deposited with nationalized bank under housing scheme of national
housing Bank fully qualified
10. Any amount Repaid under house building loan taken from government for LIC
or bank or HDFC or H U D C O (not from relatives or friends) fully qualified
11. Any payment towards development fee or donation or payment of similar type
whether paid in any university is college or schools or educational institution in
India for the purpose of full education of a maximum of two children shall qualify
12. Investment in debentures and equity shares of a public company engaged in
infrastructure development
13. Any Amount deposited in 5 year CTD ( Cumulative time deposit)of the post office.
14. Subscription to bonds of NABARD

2. How do you assess the tax liability of HUF?

An HUF is taxed on same slab rates which are applicable to an Individual

Income tax slab rate FY 2021-22 (AY 2022-23) – Applicable for New Tax regime
Income Tax Slab New Regime Income Tax Slab Rates FY
2021-22
(Applicable for All Individuals & HUF)

Rs 0.0 – Rs 2.5 lakh NIL

 Rs 2.5 lakh – Rs 3.00 5% (tax rebate u/s 87a is available)
lakh

Rs 3.00 lakh – Rs 5.00

lakh

Rs 5.00 lakh- Rs 7.5 lakh 10%

Rs 7.5 lakh – Rs 10.00 15%

lakh

Rs 10.00 lakhs – Rs 20%

12.50 lakh

Rs 12.5 lakhs – Rs 15.00 25%

lakh

> Rs 15 lakh 30%

NOTE:
● Please note that the tax rates in the New tax regime is the same for all categories of
Individuals, i.e Individuals & HUF upto 60 years of age, Senior citizens above 60 years
upto 80 years , and Super senior citizens above 80 years. Hence no increased basic
exemption limit benefit will be available to senior and super senior citizens in the New
Tax regime.
● Individuals with Net taxable income less than or equal to Rs 5 lakh will be eligible for
tax rebate u/s 87A i.e tax liability will be nil of such individual in both – New and
old/existing tax regimes.
● Basic exemption limit for NRIs is of Rs 2.5 Lakh irrespective of age.
● Additional Health and Education cess at the rate of 4 % will be added to the income tax
liability in all cases. (increased from 3% since FY 18-19)
● Surcharge applicable as per tax rates below in all categories mentioned above:
1. 10% of Income tax if total income > Rs.50 lakh
2. 15% of Income tax if total income > Rs.1 crore
3. 25% of Income tax if total income > Rs.2 crore
4. 37% of Income tax if total income > Rs.5 crore

3. Gross total income of Mr.Kaif is Rs.7,00,000 Investment/contribution for deduction u/s

80C:

Contribution to LIC pension fund Rs.90,000

Contribution to public provident fund:Rs.50,000
Compute the tax liability.

Solution:
Computation of Taxable income of Mr.Kaif

Particulars Rs Rs

Gross total income 7,00,000

 Less: contribution to LIC pension fund 90,000

Contribution to PPF 50,000 1,40,000

Taxable income 5,60,000

Computation of tax liability

Particulars Rs. Rs.

1- 2,50,000 Nil

5,00,000 – 2,50,000 = 2,50,000 @ 5% 12,500

560,000- 5,00,000 = 60,000 @ 10% 6,000

Total 18,500

Surcharge Nil

Tax+ surcharge 18,500

Health and Education cess @ 4% 740

Total tax 19,240

4. Compute the tax liability of Mr Sivakumar for the assessment year 2022- 23 From the
following details.
Net agricultural income Rs.50,000
Net non-Agricultural income Rs.3,00,000
Solution:
Computation of tax liability of Mr Shivakumar for the
assessment year 2022 to 23
Particulars Rs Rs

Step 1 Aggregate income/ Total income:

Agricultural income 50,000

Non Agricultural income 3,00,000

3,50,000

Step 2 Computation of tax on Total income

On first rs.2,50,000 nil -

On rs.2,50,000 to Rs.3,50,000 (5,00,000) = 1,00,000×5% 5000

5,000

Step 3 Total of agricultural income

with exempted limits of income:

 Agricultural income 50,000

Exempted limit of income

2,50,000

3,00,000

Step 4 tax on amount as arrived at in step 3

Nil
On first rs.2,50,000 Nil 2,500 2,500
On rs.2,50,000 to Rs.3,00,000(5,00,000)=rs.50,000×5/100

Step 5 Net tax ( Tax as per step 2 – tax as per step 4) 2,500

Less: Rebate U/a 87 A : least of Rs.2,500 or tax on income -2500

Total tax payable -

Note: Rebate under section 87 A is allowed if the taxable income does not exceed
rupees 350000

5. A Resident for income tax purposes, HUF had three members. ; Karta Shri Mukesh and
his two brothers-shri Rajesh and Sri Magesh. The family owned there factories-of
sugar, of oil and of textiles. On 1st April 2020, Rajesh separated from the family and he
got the textile mill on partition. The karta showed the following in the return of income
of the family for the assessment year 2022- 2023. Total income of rupees 14 lakh-profit
of sugar mill rupees 6 lakh and of Oil Mill rupees 800000 and claimed that partial
partition has taken place on 1st April 2021. Shri Rajesh is in his separate return for the
same year showed the total income of rupees 75000-from house property rupees 25000
and from textile mill rupees 50000.
Compute the tax payable by the family and also state who will be liable to pay it. Out
of the family assets, rupees 40000 is deposited in PPF.
Solution :
Computation of Total income of HUF PY: 2021-22 AY: 2022-23
Particulars Rs Rs

Profit from business:    

Sugar mill 600000  

Oil mill 800000  

Textile mill 50000 14,50,000

Income from other source:   Nil

     

Gross total income 14,50,000

 
Less: Deduction u/s 80C: PPF 40,000

Taxable income   14,10,000

Income tax on Rs.14,10,000

Nil 
First Rs.2,50,000-

Next Rs.2,50,000- 5,00,000@10% 25,000

Next Rs.5,00,000-10,00,000 @ 20% 1,00,000  

On income exceeding rupees 10,00,000 to

1,23,000
14,10,000 at 30%

Tax on income 2,48,000

Add: Cess @ 4% 9920  

Tax payable 2,57,920  

Note:
1. Education cess on tax is 4%.
2. Where partial partition takes place it is not regarded as partition and the family income is
assessed as though there is no partition.

6. A, B and C are partners in a firm assessed as AOP sharing profit and losses equally.
The following is a profit and loss account of the firm.

Particulars Rs. Particulars Rs.

To Manufacturing expenses 9,000 By Gross profit 50,000

To Establishment expenses 6,000 By Interest on  

To Depreciation 3,000
securities (gross) 3,000
To Sundry Expenses 4,000

To salary to A 6,000    

To commission to B 4,000    

To Interest on Capital:      

A 1,000    

B 2,000    

C 3,000    

To Net profit:      

A 5,000    

B 5,000    
C 5,000    

  53,000   53,000

Compute the Income of the firm and allocate it amongst its partners.
 Solution:
Computation of total income of AOP PY: 2021-22 AY: 2022-23
Particulars Rs Rs

Net profit   15,000

Add: Inadmissible Expenses:    

Salary to A 6,000  

Commission to B 4,000  

Interest on capital 6,000 16,000

  31,000

Less: Non Business income:    

Interest on securities 3,000

Business income 28,000

Add: Income from other sources:    

Interest on securities 3,000

Gross Total income   31,000

Allocation of income amongst partners

Total A B C
Particulars
Rs. Rs. Rs. Rs.

Remuneration 10,000 6,000 4,000 -

Interest on capital 6,000 1,000 2,000 3,000

Total 16,000 7,000 6,000 3,000

Balance income 15,000 5,000 5,000 5,000

Total Income 31,000 12,000 11,000 8,000

Note: in the case of AOP, salary and interest on capital is not allowed as business
expenditure.
 UNIT-5

1. Explain is the Central Board of Direct Taxes (CBDT), Functions and powers of
CBDT.
● It is a statutory body established as per the Central Board of Revenue Act, 1963.
● It is India’s official financial action task force unit.
● It is administered by the Department of Revenue under the Ministry of Finance.
To note is that originally there was a board called the Central Board of Revenue that functioned as
the apex body of the Income Tax Department. The said board was set up under the Central Board of
Revenue Act, 1924 and was in charge of both direct and indirect taxes. The Central Board of
Revenue got split in 1964 into two boards:
1. Central Board of Direct Taxes
2. Central Board of Excise and Customs
Learn about Taxation in India from the linked article.

Functions of CBDT
● It deals with matters related to levying and collecting Direct Taxes.
● Formulation of various policies.
● Supervision of the entire Income Tax Department
● Suggests legislative changes in Direct Tax Enactments
● Suggests changes in tax rates
● Proposes changes in the taxation structure in line with the Government policies.
Powers of CBDT
● power to make rules,
● power to issue orders, direction and instruction
● power to appoint IT authorities. Power to authorize IT authority‘s
● power to determine functions and jurisdiction
● power to issue general or special orders for collection of revenue
● power to entertain objections empowered to declare as a company
● power to issue directions
● granting authority regarding search and seizures.
● Furnishing of information officer to function co currently order to transfer

2. Explain POWER OF INCOME TAX AUTHORITIES.

The Income Tax Act prescribes certain powers to each level of income tax authorities for proper
functioning of the direct tax organization in India. The powers can be categorized as
POWER OF DIRECTOR GENERAL
1. POWER TO DISCOVER AND PRODUCE EVIDENCE
As per the civil procedure of 1908 the director general can ask any assessing officer, chief
commissioner, commissioner, or the joint commissioner to suit for the following • Discovery •
Inspection • Examination of individual on oath • Issue of commissions • Compelling the individual
to produce book of accounts and related document
2. POWER TO SEARCH AND SEIZURE In an unlikely scenario of tax evasion, the government
has given rights to the income tax authority to search and seize the evaded revenue under default in
taxes.
3. TAKE POSSESSION OF BOOK OF ACCOUNTS
4. TO MAKE AN INQUIRY
5. TO SURVEY
POWERS OF INCOME TAX COMMISSIONERS
1. HEAD INCOME TAX ADMINISTRATION
At any given time, they are designated with areas to foresee the functioning of direct taxes
2. POWER TO TRANSFER ANY CASE He enjoys the power to transfer a certain case from one
assessing officer to another
 3. POWER WITH REGARDS TO ORDERS He enjoys the powers to grant approval to an order
issued, or even revise an order passed by assessing officers
4. JUDICIAL AND ADMINISTRATIVE POWERS
POWER TO JOINT COMMISSIONERS
Main duty is to detect tax evasion and supervise the subordinate officers. They also get power to
adopt fair market value as full consideration and are given power to inspect company registers
POWER TO INCOME TAX OFFICERS
They are provided the
1. POWER OF SEARCH, SEIZURE.
2. POWER TO ASSESS AND CALL FOR INFORMATION from any individual
3. POWER OF SURVEY
POWER OF INCOME TAX INSPECTOR
They are given functional powers by the person under whom they are appointed. They work
specific to the task given to them by their seniors. Therefore, the powers given to the income tax
authorities can be read Section 131, Section 132, Section 132 A, 133,133A,133B, and Sec-134

3.Expound Deduction of tax at source TDS.

Deduction of tax at source (TDS)
Person responsible for making payment of such income.
In certain specified cases of income, tax should be deducted at source by the person responsible for
making payment of such income
The specified cases where Income tax is deductible at source are normally those cases where the
income can be calculated in advance, ie, the assessee. can know his income even before the expiry
of the 'previous year'
Sections 192 to 206 deal with deduction of tax at source from such incomes.
The specified cases where tax is deducted at source are as under:
(i) Salaries [Sec. 192]
(ii) Interest on securities [Sec. 193]
(iii) Interest other than interest on securities [Sec. 194A]
(iv) Dividends [Sec. 194]
(v) Winnings from lotteries, crossword puzzles, horse races and card games.
[Sec. 56(2) (ib) (194B)]
(vi) Payment to contractors [Sec. 194C]
(vii) Insurance commission [Sec. 194D]
(viii) Other sums chargeable under the Act, which are paid to non-residents.
[Sec. 194E]
(ix) Tax deduction at source from payments in respect of Deposit under
National Savings Scheme etc. [Sec. 194EE] :
(x) Tax deduction at source from payments on account of repurchase of units by Mutual Fund or
unit Trust of India [Sec. 194F]
(xi) Tax deduction at source on Commission etc. on sale of lottery tickets
[Sec. 194G]
(xii) Tax deduction at source on Commission and Brokerage [Sec. 194H]
(xiii) Tax deduction at source on Rent [Sec. 194-i]
(xiv) Tax deduction at source on fees for technical or professional services
[Sec. 194J]
(xv)Tax deduction at source on other sums [Sec.195]
(xvi) Tax deduction at source on interest or dividend etc. payable to government, RBI or certain
cooperation. [Sec. 196 ]

4. Elaborate TCS

Tax Collection at Source

Profits and Gains from the Business of Trading in Alcoholic Liquor, Forest- products, Scrap etc.
[Section 206C]:
Every person being a seller shall, at the time of debiting of the amount payable by the buyer to the
account of the buyer or at the time of receipt of such amount from the said buyer, whichever is
earlier, collect from the buyer as income tax, the sum specified as under:

S.N Nature of Goods Rate of tax collection at

o source

1 Alcoholic liquor for human consumption (other than 1

Indian made foreign liquors)

2 Tendu leaves from forests 5

3 Timber obtained from Forest under 2.5

forest lease

4 Timber obtained by any mode other than a forest lease. 2.5

5 Any other forest produce not being timber or tendu 2.5

leaves.

6 Scrap 1

7 Parking lot, toll plaza 2

mining and quarrying (other than mineral oil, petroleum
and natural gas).

8 Bullion / Jewellery 1

5. Discuss Penalties.

A timely and consistent paying of taxes and filing of returns ensures the government has money for
public welfare at any point of time. To make sure that the taxpayer does not default in paying taxes
or disclosing the information, there are several penalties prescribed under the Act. A penalty is a
punishment imposed on the taxpayer for being non-compliant. Listed below is a summary of some
of the important and most common penalties.

1.Default in making payment of tax

The amount of penalty leviable will be as determined by the Assessing Officer. However, the
amount will not exceed the amount of tax in arrears

2.Under-reporting of income

● If the income assessed/ re-assessed exceeds the income declared by the assessee, or in
cases where return has not been filed and income exceeds the basic exemption limit,
penalty at 50% of tax payable on such under reported income shall be levied.
● 200% of the tax is payable if under-reporting results from misreporting of income

3.Failure to maintain books of accounts and other documents

 ● Normally, the amount of penalty leviable is ₹25,000
● In case, the assessee is a person who has entered into international transaction, the
penalty will be 2% of the value of such international transactions or specified
domestic transactions

4.Penalty for false entry such as fake invoices

5.Undisclosed income

● Where the income determined includes undisclosed income, a penalty @10% is

payable. However, no such penalty will be leviable, if such income was included in
the return and tax was paid before the end of the relevant previous year.

6.Audit and Audit Report

● If the assessee fails to get his accounts audited, obtain audit report, or furnish report
of such auditor, a penalty will be leviable at the ₹1,50,000 or ½% of the total sale/
Turnover/ gross receipts whichever is lesser.
● Failure of assessee to furnish Audit report related to foreign transaction, a penalty @
₹1,00,000 will be payable

7.TDS/TCS

● Where a person fails to deduct tax at source, he will be liable to pay a penalty equal
to the amount of tax which he has failed to deduct/ pay.
● Where a person fails to collect tax at source, he will be liable to pay a penalty equal
to the amount of tax which he has failed to collect.
● Failure to furnish TDS/TCS statement or furnishing incorrect statements, shall attract
a penalty ranging from ₹10,000 to ₹1,00,000
● Failure to furnish information/ furnishing inaccurate information related to TDS
deduction related regarding Non residents shall attract a penalty of ₹100,000

8.Penalty for using modes other than Account payee cheque/ draft/ ECS

9.Failure to furnish statements/ information

● Failure to furnish a statement of financial transaction or reportable account shall

attract a penalty of ₹500 for each day of failure. And if the failure is in response to a
notice to report on specified financial transaction, the penalty shall be ₹1,000 for each
day of failure
● Non furnishing of report by any reporting entity which is obliged to furnish Country
by Country report will attract penalty as follows:
Period of delay Penalty
 Less than or equal to 1 month ₹5000 per day

Continuing default ₹50,000 per day from the beginning of service of order

Submission of inaccurate information ₹5,00,000

10.Others

● Failure to apply/quote/ intimate PAN/ quoting false PAN shall attract a penalty of
₹10,000
● Failure to apply/quote TAN/ quoting false TAN shall attract a penalty of ₹10,000
● In case of the following defaults, ₹10,000 will be the penalty leviable,
○ Refusal to answer questions put by the department
○ Refusal to sign statements made in income tax proceedings
○ Non compliance with summons to give evidence/ produce books of
accounts
○ Failure to comply with a notice

6. Layout the Computation of total income and tax liability for the year:
Computation of total income and tax liability for the year
Particulars Amount

Income from salary XXXXX

Income from house property XXXXX

Profits and gains of business or profession XXXXX

Capital gains XXXXX

Income from other sources XXXXX

Total of head wise income XXXXX

Set off of cosses XXXXX

Gross Total Income XXXXX

Less : Deductions under Chapter VI-A (i.e., (XXXXX)

under section 80C to 80U))

Total Income (i.e., taxable income) XXXXX

Tax on total income to be computed at the XXXXX

applicable rates (for rates of tax, refer "Tax
Rate" section)

Less : Rebate under section 87A (discussed in (XXXXX)

later FAQ)
Tax Liability After Rebate XXXXX

Add: Surcharge (discussed in later FAQ) XXXXX

Tax Liability After Surcharge XXXXX

Add: Health & Education cess @ 4% on tax XXXXX

liability after surcharge

Tax liability before rebate under sections 86, XXXXX

section 89, sections​90, 90A and 91 (if any) (*)

Less : Rebate under sections 86, section 89, (XXXXX)

sections​90, 90A and 91(if any) (*)

Tax liability for the year before pre-paid taxes XXXXX

Less: Prepaid taxes in the form of TDS, TCS (XXXXX)

and advance tax

Tax payable/Refundable XXXXX