01 INCOME FROM SALARY

# Section 15:-Charging Section

- Income is taxable under the head salary if there is Employee - Employer relationship.
(master - servant relation).
- Salary is taxable even in case of part time job like employee work with 2 employer's
simultaneously.
- Salary is taxable on the basis of due or received whichever is earlier.
- Salary received by partner from partnership firm shall be taxable under the head
PGBP.
- Salary received by MP, MLA, MLC shall be taxable under the head IFOS.

- Contract of service salary.

Contract for service PGBP.

- Salary forgone is always taxable since it is merely application of income. Salary

surrendered to central Govt, shall not to be treated as salary.
- Any amount received before joining employment or after cessation of employment with
that person is treated as “ Profit in lieu ” of salary & it is taxable.
- In this topic we have to find out salary income of employee.

Shankar Krishnan (2012) (Bom.)

Rent free accommodation perquisite is computed based on “actual” hire charges paid by the
employer or 15% of Salary of employee. Notional interest on Interest free Security deposit
given to landlord by the employer shall not be included while calculating perks value.

Director, Delhi Public School (2011) (Punj. & Har.)

Education facility provided by ER to the children of EE is fully exempt if value of such facility
is upto 1000 per month per child. Limit of 1000 is not a standard deduction so if value is more
than 1000 it is fully taxable for EE.

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# Statement of salary. Name of the Assessee P.Y. 2022-23 A.Y. 23-24

Computation of salary.
Particulars D
Basic Salary (Note-1) xxx
Dearness Allowance (D.A.) (Note - 2) xxx
Commission (Note-3) xxx
Bonus (Note-4) xxx
Advance Salary / Arrears salary (Note-5) xxx
Gratuity (Note-6) xxx
Pension (Note-7) xxx
Leave salary (Note-8) xxx
Allowances (Note-9) xxx
Provident Fund (Note-10) xxx
Voluntary Retirement Compensation (VRS) (Note-11) xxx
Super Annuation fund (Note -12) xxx
Retrenchment Compensation (Note-13) xxx
Perquisite (Note-14) xxx
Gross Salary xxxx
Less: Deduction uls 16 :
1. Professional Tax (Note-15) (xxx)
2. Entertainment Allowance (Note-16) (xxx)
3. Standard deduction (Note-17) (xxx)
Net Salary xxxx

# Note 1 : Basic salary

It is fully taxable.
# Note 2 : Dearness Allowance (DA)
DA is fully taxable whether it is 'in terms'or not in terms'.
DA in terms means DA which is forming part of retirement benefit calculation. In all
the formulas, DA is considered only if it is 'in terms'. If nothing is given about DA then
assume it is ‘not in terms.'

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# Note 3 : Commission - Commission is fully taxable whether it is Turnover commission or

any other commission.

# Note 4 : Bonus - It is taxable on receipt basis. It only declared is given then it should
be ignored.

# Note 5 : Advance & Arrears Salary

(A) Advance Salary : Advance salary is taxable on receipt basis. It advance against
salary is given or only advance is given then it should be ignored because it is treated as
loan.
(B) Arrears Salary : It means salary under dispute or increase of salary
retrospectively. It is taxable in the year in which it is received.

# Note 6 : Gratuity
(A) Gratuity received during the employment - fully taxable for all employees
(Government as well as non-government employees).
(B) Gratuity received at te time of retirement-
Exempt u/s 10(10)

Govt Employee Other Employee

Fully Exempt POGA Employee Non - POGA employee

[EE coved under POGA, 1972)

Exempt Amount Exempt Amount

(¡)15/26 x salary p.m.* x No. of years (¡) 1/2 x Average salary p.m*. x No. of
of completion of years of completion
service of service
[rounding off allowed] [ Rounding off not allowed]
(ii) Actual amount received (ii) Actual amount received
(iii) Maximum D 20 lakhs (iii) Maximum D20 lakhs

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# Salary p.m* Average Salary p.m *

(Don't include month of retirement)
Latest Basic salary p.m xx Avg Basic salary of last 10 months xxx
(+) Latest D.A (both) xx (+) Avg DA(T) of last 10 months xxx
xx (+) Avg T/O comm of last 10 months xxx
xxx
Notes :
1. In case of POGA employee if fraction is more than 6 months, it should be rounded off.
e.g. 30 years 4 months = 30 years
30 years 6 months = 30 years
30 years 9 months = 31 years
2. In case of Non-POGA employee fraction should be ignored.
eg: 30 years 3 months = 30 years
30 years 11 months = 30 years

# Note 7 : Pension
- Uncommuted pension (monthly pension) - Taxable for All employees

- Commuted pension (lumpsum pension)

Exempt u/s 10 (10A)

Govt. Employee other Employee

Fully Exempt Gratuity also received Gratuity not received

Exempt = Total X 1 Exempt = Total X 1

amount pension 3 amount pension 2

Total Pension = Full value of pension.

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# Note -8: Leave Salary

It means en-cashment of un-utilised leave.
1. Leave salary during employment - Fully taxable for all employees.
2. Leave salary at the time of retirement,
Exempt u/s 10 (10AA)

Govt. Employee Other Employee

Fully Exempt Exempt amount

(i) Leave credit x Avg. salary p.m.
(ii) 10 months x Avg. salary p.m.
(iii) Actual amount received
(iv) Maximum D 3,00,000
(whichever is lower)
[Avg of last 10 months upto date of Retirement]
# Average salary p.m
Avg. Basic salary of last 10 months xxx
Avg. DA (in terms) of last 10 months xxx
Avg. Turnover Commission of last 10 months xxx
xxx
# Leave Credit
Leave credit = Leave allowed - Leave taken

[Max. 30 days for every completed year]

# Note 11 : VRS - Exempt u/s 10(10C)

(¡)Salary p.m. x 3 months x No. of years of completion of service.
(Fraction IGNORED)
(ii) Salary p.m. x No. of remaining months of service;
(iii) Actual amount received.
(iv) Maximum D 5,00,000
Salary p.m. = Basic + DA(T) + T/O Commission.

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# Note 13: Retrenchment Compensation.

Exempt u/s 10 (10B)
(¡) * Compensation as per Industrial Disputes Act.
(ii) Maximum D 5,00,000
* 15 /26 X Avg salary of X No. of years of completion of
last 3 months service (if fraction is more than 6 months,
(Basic + DA(T) +T/O Commission) then round off)

# Note - 9: Allowances
Allowance Exempt uls 10 (14)
1. Commutation / Transport allowance Max D 3200 p.m (in case of blind/deaf &
(office Ghar) (Ghar office) dumb or handicapped)
2. Children Education Allowance Max D 100 p.m. per child (Max 2 child.)
3. Children Hostel Allowance Max D300 p.m. per child (Max 2 child.)
4. Underground Allowance (Mines) Max D 800 p.m.
5. Tribal area Allowance Max D 200 p.m.
6. Allowance to employees of Transport Amount received x 70% OR
undertaking 10000 P.m
7. Traveling or Tour allowance
8. Conveyance allowance
9. Uniform allowance Exempt amount = Amount spent
10. Daily allowance
11. Helper allowance (for office Purpose)
12. Research allowance/ Academy allowance
13. HRA - House Rent Allowance
Exempt u/s 10(13A)
(¡) 40% / 50%* of salary [BS + DA(T) + T/O Commission]
(ii) Actual Amount received
(iii) Rent paid -10% of salary [BS + DA (T) + T/O Commission]
*50% if metro cities (Mumbai/Delhi/Chennai/Kolkata), 40% for other cities.
14. All other allowances are fully taxable.
*[Entertainment allowance explained separately in Note-16]

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# Note 10: Provident Fund

a. Statutory Provident Fund (SPF)
Interest
(exempt)
Employee Contribution Employer's Contribution
(Ignore) (Exempt)
SPF
Deduction u/s 80 C
allowed
Lumpsum amount received by Employee
on retirement

Exempt u/s 10 (11)

b. Recognised provident Fund (RPF)
Interest (Exempt upto 9.5 % p.a.)

Employee Contribution Employer's Contribution

(Ignore) RPF (Exempt upto 12 % of salary)
Deduction u/s 80 C Basic + DA (T) + T/O Commission
allowed
₹ Lumpsum amount received by Employee
on retirement

Exempt u/s 10 (12)

Note: Lumpsum amount received from RPF is exempt uls 10(12) if employee has
rendered service of 5 years or more, If employee rendered service less than 5 years
then exemption allowed in respect of employer's contribution and interest shall be
withdrawn. However in the following 3 cases exemption shall not be withdrawn even
though service is less than 5 years:
1. Employee retired due to ill health
2. Employee retired due to shut down of employer's business.
3. Employee has retired with the instruction that his balance in RPF should be
transferred to new employer, or to NPS A/C referred u/s 80CC D

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Amendment by FA-21 : Interest on EE's Contribution towards SPF/RPF

Exemption u/s 10(11) or 10(12) not available for interest accrued during the PY to the
extent it relates to the contribution made by that person/employee exceeding
₹ 2,50,000 in any PY in that fund, on or after 01/04/21.
If in that fund employer not made any contribution, then, a higher limit of ₹ 5,00,000
would be applicable.
It may be noted that interest accrued on contribution to such funds upto 31/03/21
would be exempt without any limit, even if the accrual of income is after that date.
(Also refer rule 9D at the end of topic)
C. Unrecognised Provident Fund (URPF).
Interest (Exempt)

Employee Contribution Employer's Contribution

URPF
(Ignore) (Exempt)

Lumpsum amount received on retirement.

EE contn Int on EE contn ER contn Int on ER contn

Ignore Taxable under IFOS Taxable under salary

# Note 12: Super annuation Fund

a. Approved super annuation fund
Interest (Exempt)

Employee Contribution Employer's Contribution

(Ignore) ASF (Exempt upto D 7,50,000 p.a.)
{Sec. 17(2)(vii)}
lumpsum amount received on retirement
Exempt u/s 10(13)

b. Unapproved super annuation fund - Treatment same as URPF.

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# Note 14: Perquisites sec 17(2)

It means extra benefit offered by employer to employee. It may be monetary or
non- monetary.

Difference between allowance & perquisites.

a. Allowance - It means monthly fixed amount received by employee from employer
whether actual expenditure is incurred or not. It is part of salary, e.g. HRA, Medical
Allowance etc.

b. Perquisites - It means benefits or facility provided by employer. It is received when

actual expenditure is incurred e.g. Medical facility, car facility etc.

1. Leave Travel Concession (LTC)

Exempt u/s 10(5)

Travel by Air Travel by any other mode

Exempt Railway facility Railway facility

(i) Actual Exps. xx Available not available
(ii) Economy class fare xx Exempt
(Air India) (¡) Actual Exp xx
(ii) 1st class Railway Alc fare xx

Recognised transport Recognised transport facility

facility available Not available
Exempt Exempt
(i) Actual Exp. xx (¡) Actual Exp. xx
(ii) Deluxe class bus fare xx (ii) 1st class railway
fare of similar distance xx

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Note:
1. LTC exemption is available for the travel of employee, his spouse, children* &
dependent relative - (Mother, Father, Brother, Sister)
* Exemption of LTC is available only for 2 children born on or after 1/10/1998.
1) 1st time = 1 child 2nd time = Twins
Total 3 children = Exemption Allowed to all 3 children.
2) 1st time = Twins 2nd time = 1 child
Total 3 children = Exemption allowed to only 2 children.

2. LTC exemption is available for 2 years during the block of 4 years (current block is
2018 - 21)

2. Medical Facility
a. Treatment in India

Treatment in Govt. Hospital Otherwise

Treatment in Employer's Own Hospital
Treatment in Govt. Recognised Hospital Fully Taxable

Fully Exempt

b. Treatment Outside India

Benefit of treatment Benefit of stay Benefit of Travel

Exempt upto limit It is fully exempt if

prescribed by RBI GTI is upto D 2,00,000
otherwise it is
Fully Taxable

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Notes :
(¡) Medical insurance premium is fully exempt.
(ii) Exemption for treatment is allowed for employee, spouse , children & d e p e n d e n t
relative (Mother, Father, Brother, Sister)
(iii) Exemption of stay & travel is allowed only for one patient & one attendant.
(iv) Exemption allowed in respect of any illness relating to COVID-19 subject to such
conditions as the CG may notify.
The employee shall submit the following documents to the employer, –
(i) The COVID-19 positive report of the employee or family member;
(ii) all necessary documents of medical treatment of the employee or his family member
for COVID-19 or illness related to COVID-19 suffered within 6 months from the date
of being determined as COVID-19 positive; and
(iii) a certification in respect of all expenditure incurred on the treatment.
3. "Loan ” given by Employer to Employee at concessional rates of interest or without
rate of interest.
Taxable amount = Loan amt. x (SBI Interest rate - Actual Interest rate )
Notes:-(I) Loan amount is upto D20,000 then interest benefit is not taxable.
(ii) If loan is taken for treatment of specified disease then interest benefit is not
taxable even loan amt is more than D20,000
4. Gift
a. Gift in cash = Taxable
b. Gift in kind = if FMV of Gift is less than D5000 p.a. then it is fully exempt otherwise
fully taxable.
5. ESOP: Employee stock option plan
It means Company offers shares to employee at concessional rates.
Taxable amount: - FMV of shares - Issue price
FMV should be taken on the date on which option is exercised by employee.

6. Use of Moveable asset

a. Computer / Laptop - Fully exempt
b. Other asset (TV, AC, etc)
Owned by Employer Hired by Employer
Taxable amount = 10% of cost Taxable amount = Hire charges paid by Employer

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7. Transfer of Movable Assets

Computer / Laptop Car Any other asset

Taxable amount Taxable amount Taxable amount

= WDV - Consideration = WDV - Consideration = WDV - Consideration

Dep n @ 50% on Dep n @ 20% on Dep n @ 10% on

WDV Method WDV Method SLM Method
Note: Dep n should be computed for every completed for year.

8. Lunch Facility
It is exempt upto D50 per meal, if lunch is provided in office premises or through Paid
voucher.
NOTE: (i) Tea, coffee, or breakfast provided in office - Not taxable.
(ii) Lunch is provided in remote area is Not taxable

9. Sec 17(2)(vii) : Employer contribution towards Recognized Provided Fund (RPF), New
Pension Scheme (NPS) referred u/s 80CCD, Approved Superannulation Fund (ASF) in
excess of 7,50,000 is treated as perquisite in hands of EE and Taxable.

10. Sec 17(2)(viia): Annual Accretion by way of Interest/dividend/similar amount on

contribution of more than 7,50,000 by ER also treated as perquisite in hands of EE and
Taxable. (Added by FA-20 w.e.f. AY 21-22)
Calculation of Annual Accretion of Interest, dividend etc in PY
TP = (PC/2)*R + (PC1 + TP1)*R
TP : Taxable perquisite under section 17(2)(viia)for the current PY.
PC : Amount or aggregate of amounts of ER's contribution in excess of ₹ 7.5 lakh to
RPF, NPS and ASF during the PY.
PC1 : Amount or aggregate of amounts of ER's contribution in excess of ₹ 7.5 lakh to
RPF, NPS and ASF for the PY or years commencing on or after 01/04/20 other
than the current PY.

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TP1 : Aggregate of taxable perquisite u/s 17(2)(viia) for the PY or years commencing on
or after 01/04/20 other than the current PY.
R : I/ Favg
I : Amount or aggregate of amounts of income accrued during the current PY in RPF,
NPS and ASF.
Favg : (Amount or aggregate of amounts of balance to the credit of RPF, NPS and ASF
on 01/04/22 + Amount or aggregate of amounts of balance to the credit of RPF,
NPS and ASF on 31/03/23)/2
Note : Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount
or aggregate of amounts of balance to the credit of the specified fund or scheme on
01/04/22, then, the amount in excess of the amount or aggregate of amounts of the said
balance shall be ignored for the purpose of computing the amount or aggregate of
amounts of TP1 and Pc1.
Example:
Mr. Bala is appointed as a CFO of ABC Ltd. in Mumbai from 1.5.2021. His basic salary is
₹ 5,50,000 p.m. He is paid 10% as D.A. He contributes 11% of his pay and D.A. towards
his RPF and the company contributes the same amount. The accumulated balance in RPF
as on 1.4.2022 and 31.3.2023 is ₹15,35,000 and ₹33,55,000. Compute the perquisite
value chargeable in the hands of Mr. Bala u/s 17(2)(vii) and 17(2)(viia) for the P.Y. 2022-23.
Solution:
1. Perquisite value taxable u/s 17(2)(vii) = ₹7,98,600, being employer's contribution to
RPF during the P.Y. 2022-23 – ₹7,50,000 = ₹48,600
2. Annual accretion on perquisite taxable u/s 17(2)(vii) = (PC/2)*R + (PC1 + TP1)*R
= (48,600/2)*0.091 + 0 = ₹2,211
PC : ABC Ltd.'s contribution in excess of ₹ 7.5 lakh to RPF during P.Y.2022-23
= ₹ 48,600
PC1 : Nil since employer's contribution is less than ₹7.5 lakh to RPF in P.Y. 2021-22.
TP1 : Nil
R : I/Favg = 2,22,800/24,45,000 = 0.091
I : RPF balance as on 31.3.2023 – employee's and employer's contribution during the
year – RPF balance as on 1.4.2022 = ₹2,22,800 (₹33,55,000 – ₹7,98,600– ₹ 7,98,600
– ₹ 15,35,000)

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Favg : Balance to the credit of RPF as on 1 April, 2022 + Balance to the credit of RPF as
on 31 March, 2023)/2 = (₹15,35,000 + ₹33,55,000)/2 = ₹ 24,45,000

Note – Since the employee's contribution to RPF exceeds ₹2,50,000 in the P.Y.2022-23,
interest on ₹ 5,48,600 (i.e., ₹ 7,98,600 – ₹2,50,000) will also be chargeable to tax.

10. Rent Free Accommodation (House Facility )

Govt. Employee Other Employee

Taxable as per Owned by Employer Hired by Employer

Licence fees Taxable amount = Taxable amount =
decided by Govt * 7.5% / 10% / 15% of (i) 15% of salary
Salary (BDBACM) (ii) Hire charges paid
by Employer

Furniture also provided

Owned by Employer Hired

10% of cost Hire charges paid by Employer

Notes :
1. Population upto 10 lakhs = 7.5%
> 10 Lakhs upto 25 lakhs = 10%
> 25 Lakhs = 15%
2. Meaning of Salary - BDBACM
B - Basic salary A - Taxable Allowances
D- Dearness Allowance C - Commission (All)
B- Bonus M - Other monetary income excluding perks.
3. For computing BDBACM perks should not be considered.
4. BDBACM should be calculated on due basis , means salary of current period should be
considered. Advance salary, arrears salary should be ignored.

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5. For computing BDBACM, retirement benefit should not be considered i.e. gratuity,
Pension, leave salary , VRS , Retrenchment compensation, lump sum amount from P.F.
etc.
6. BDBACM should be considered for the time for which assessee had accupied such
house.
7. Employer contribution towards PF & interest on PF should also be not considered.

11. Hotel Benefit

Taxable amount = (i) 24 % of salary (BDBACM)
(ii) Hire (Rent) charges paid by Employer.
Notes :
1. If hotel facility is provided at the time of transfer of employee & if it is upto 15
days, then it is not taxable.
2. In house facility & hotel facility if employer recover any rent from employee then
such rent should be deducted from above taxable amount.

12. Car Facility

a. Car is used for fully office purpose - Fully Exempt.
If Employer maintains record of each journey & Employer issue a certificate that
car is used exclusively for office purpose.

b. Car is used for fully personal purpose.

Car is owned by Employer = 10% of cost
OR
Hired by Employer = Hire charges paid
+ by Employer
Driver's salary (If paid by Employer) = xxxx
+
Running & maintenance charges = xxxx
(If paid by Employer)
xxxx

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C. Car is used for partly office & partly personal purpose (POPP).
POPP

Car owned by Employee Car owned by Employer

Running & maintenance charges paid by Running & maintenance charges paid by

Employee Employer Employee Employer

Taxable amount Taxable amount
No benefit
Not Taxable 600 pm / 900p.m 1800p.m. / 2400 p.m.

(upto 1600cc) (>1600 cc) (upto 1600cc) (>1600 cc)

Taxable amount
Running & Maintenance charges
paid by Employer xx
(-) 1800 p.m. / 2400 p.m. (xx)
[upto 1600cc] [>1600cc] xx

Notes:
1. If employer also provided driver, then D900 pm, should be added to above taxable
amount.
2. If more than one car is provided for POPP then one car is taxable according to
above standard amount & other car shall be taxable on the assumption that it is
fully used for personal purpose.

13. Transport facility for Transport Employee (Free tickets)

(¡) For airlines & railway employee - Airlines & Railway facility is fully exempt fully.
(ii) For other employees - It is fully taxable

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14. Education Facility

(¡) For employee - Fully exempt
(ii) For children - It is exempt if value of education is upto D1000 p.m. per child &
education is provided in employer's own institution or institution where employer
have tie-ups, otherwise fully taxable.
(iii) For other relatives - Fully taxable.

15. Gas, Electricity & Water Supply Fully taxable

16. Free Servant Fully Taxable

17. Any other Perquisite Fully taxable

# Following perquisites are Fully Exempt :

1. Telephone / mobile bill paid or re-imbursed by Employer.
2. Scholarship to employee's children.
3. Goods sold by employer to employee at reasonable price.
4. Tax on Non- monetary perquisites paid by employer.

# Note 15: Professional Tax.

It means tax on employment. If it is paid by employer on behalf of employee, then first it
should be taxable and there after deduction allowed u/s 16. If it is paid by employee
then only deduction is allowed.
Paid by Employer Employee

Add to statement (Taxable) _

then deduction u/s 16 Deduction u/s 16

# Note 16: Entertainment allowance

It is fully taxable for all employees. But deduction is allowed to government employees
u/s 16 as follows:

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(¡) 20% of Basic Salary

(ii) Actual amount received
(iii) Maximum D 5000
# Note : 17 A standard deduction of D50,000 or the amount of salary , whichever is lower.

# Concept of Pay Scale*

Eg:- MS. Priyal joined Railways as on 1/7/2018 on a pay scale of 10000 - 1000 - 13000
-1500 - 16000 - 2000 - 20000 - 3000. Compute basic salary for A.Y. 2023-24
1/7/18 30/6/19 10000
1/7/19 30/6/20 11000
1/7/20 30/6/21 12000
1/7/21 1.4.22 30/6/22 13000
1/7/22 31.3.23 30/6/23 14500

P.Y. 2022-23
1/4/22 31/3/23
Salary for P.Y. 2022-23 = (13000 x 3m) + (14500 x 9m)
= 39000 + 130500
= 169500
# Salary Definition

Entertainment Gratuity Gratuity House &

Allowance (POGA) (Non POGA) Hotel facility
Leave Salary
Only Basic Basic + DA (Both) HRA BDBACM
Salary Contn to RPF
VRS
Retrenchment Compensation.

Basic + DA (T) + T/O Commission

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# Rebate u/s 89 for Arrears of salary

To calculate the relief, the following steps should be taken :
Step 1 : Firstly, calculate the tax due in the current year by including the arrears in
your total income.
Step 2 : Now calculate the tax due in the current year by excluding the arrears from
your total income.
Step 3 : Compute the difference of the two figures of Step 1 & 2 and let's call that
difference as 'X'.
Step 4: Now Calculate your tax due in the year for which the arrears have been
received by including the arrears in your total income.
Step 5 : Then Calculate your tax due in the year for which the arrears have been
received by excluding the arrears from your total income.
Step 6 : After that compute the difference of the two figures of Step 4 & 5 and let's
call the difference as 'Y'.
Step 7: Lastly subtract X (Step 3) from Y (Step 6) and you will get the relief amount.

# Rule 9D: Calculation of taxable interest relating to contribution in a SPF or RPF,

exceeding specified limit
Separate accounts within the PF account shall be maintained during the PY 21-22 and all
subsequent PY's for taxable contribution and non-taxable contribution made by a person.
(a) Non-taxable contribution account shall be the aggregate of the following, namely:-
(i) closing balance in the account as on 31/03/21;
(ii) any contribution made by the person in the account during the PY 21-22 and
subsequent PY's, which is not included in the taxable contribution account; and
(iii) interest accrued on (i) and (ii), as reduced by the withdrawal, if any, from such
account;
(b) Taxable contribution account shall be the aggregate of the following, namely:-
(i) contribution made by the person in a PY in the account during the PY 21-22 and
subsequent PY's, which is in excess of 2,50,000/5,00,000; and
(ii) interest accrued on sub- clause (i)

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HOUSE PROPERTY

# Sec 22 : Charging Section

Rental income ( Annual value ) is taxable under the head income from house
property if following two conditions are satisfied:
1. There should be House property **
2. Assessee should be owner of that house property.
** House property means building or land appurtenant thereto

# Type of house property.

LOP SOP

Always Taxable SOP (Residence) SOP (Business & Profession)

Two SOP More than Two SOP Ignore

Exempt Two SOP Remaining SOP

Exempt D LOP

Taxable
LOP : Let Out Property.
SOP : Self Occupied Property.
DLOP : Deemed to be Let Out Property.

Amendment by F.A. 2019

Where the house property is held as stock-in-trade and the property or any part of the
property is not let during the whole or any part of the previous year, the annual value of
such property or part of the property, for the period up to Two Years from the end of
the financial year in which the certificate of completion of construction of the property
is obtained from the competent authority, shall be taken to be NIL.

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HOUSE PROPERTY

# Computation of income from House property

P.Y.2022-2023 A.Y.2023-24

SOP (Res) LOP DLOP

Municipal value - xx xx
Fair Rent - xx xx
whichever is higher - xx xx
Standard Rent - xx xx
Expected Rent - xx xx
Actual Rent - xx -
Gross Annual Value (GAV) - xx xx
(-) Municipal taxes paid - (xx) (xx)
Net Annual value (NAV) - xx xx
(-) Deduction u/s 24
(i) standard deduction @ 30% of NAV - (xx) (xx)
(ii) interest on loan (xx) (xx) (xx)
Income From house property -/(xx) xx xx

1. Municipal value: It means value of property as per municipality record.

2. Fair Rent: It means rent of similar property in same locality. It is also known as
reasonable rent/reasonable letting value.
3. Standard Rent: It means rent as per rent control Act, It is the maximum amount of rent
that can be legally recovered by Owner from tenant.
4. Actual Rent: Actual Rent = Rent received (+) Rent receivable (-) unrealised rent.
5. Municipal Taxes.
a. It means tax which is recovered by Municipality, local Authority, gram panchayat
b. It is also known as house Tax, property tax, local tax etc.
c. It is allowed on payment basis [paid - Allowed; o/s - Not allowed]
d. It is allowed only if it is paid by owner.
e. If municipal taxes are given on % age basis then it should be calculated on municipal
value.

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6. Interest on Loan.
a. Interest on loan is allowed as deduction, if loan is taken for the purpose of house
property i.e. purpose, construction, repair, renovation.
b. Loan may be taken from banks, financial institutions trusts, friends, family etc.
c. Interest is allowed on due basis [ paid - Allowed; o/s - Allowed)
d. Interest on Interest (Penal interest) is not allowed as deduction
e. Limit :

LOP / DLOP SOP (upto 2 houses)

No limit Special case Normal case

(total int allowed)
(1) loan is taken on or after 1.4.1999 max D30,000
+
(2) loan taken for purchase or construction of
house property.
+
(3) If loan is taken for construction then construction
should be completed within 5 years from the end of
the year in which loan was taken

Max. D2,00,000

6. Any fresh loan is taken for repayment of earlier loan & earlier loan was taken for the
purpose of house property then interest of fresh loan shall be allowed as deduction.
7. Interest paid outside India shall not be allowed as deduction if TDS not deducted on
such interest.
8. Pre-construction/Acquisition interest : It means interest paid before the year in
which construction was completed. It is allowed in Five equal instalments from the
year in which construction was completed.

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Example: Tanzila taken a loan from SBI Housing Ltd, for D12,00,000 on 1/12/2019,
She made principal repayment as follows :
1.4.2020 3,00,000
1.10.2021 4,00,000
1.1.2023 2,50,000
Calculate interest deduction u/s 24 for P.Y. 2022-23. Construction completed on
14/02/2023. Rate of interest @ 12%.
Solution:
P.Y.
2019-20 12,00,000 x 12% x 4/12 = 48,000 2,40,000 = D 48,000
2020-21 900000 x 12% x 12/12 = D 108000 5
2021-22 [900000 x 12% x 6/12] + [500000 x 12% x6/12]
= 54000 + 30000 = D 84000
2022-23 [5,00,0000 x12% x9/12] + [2,50,000 x 12% x 3/12] = D 52,500
= 45,000 + 7,500
= D 48,000
Total interest for A.Y. 23-24 D 1,00,500

# Un-realised Rent and recovery of un-realised Rent.

Actual Rent = Rent received + Receivable - unrealised rent.
Unrealised rent : It means rent which is not recovered by owner from tenant. It is like
Bad debts of rent, it is deductible while calculating actual rent if following four
conditions of Rule 4 are satisfied.
1. Tenancy should be bonafide.
2. Tenant should have vacated that house property.
3. Such tenant should not occupy any other house property of same assessee.
4. Reasonable step should have been taken for recovery of unrealised rent.

Note: As per ITR forms unrealised rent is deductible from Gross annual value so
students can deduct UR from GAV instead of Actual Rent.

# Arrears of rent : It means rent under dispute.

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Sec 25A : Recovery of un-realised rent & arrears of rent.

Recovery is taxable in the year in which it is recovered, under the head house property,
whether the assessee is the OWNER of the property or not is that Financial year. Any
expenditure incurred for such recovery shall be Ignored
Taxable Amt = Recovery x 70% [ 30% std deduction].
Example:
1) Unrealised rent = D 60,000 (for P.Y. 2010 - 11)
Allowed by AO = D 35,000.
Recovery during P.Y. 2022-23 = D 52,000
Taxable amount = Recovery - Disallowed easier
= 52,000 - 25,000
= 27,000 x 70%
= D 18,900/-
2) Unrealised rent = D 50,000 (for P.Y. 2010-11)
Disallowed earlier by A.O. = D 22,000
Recovery during P.Y. 2022-23 = D 45,000
Taxable amount = D 45,000 - ₹ 22000
= D 23,000 x 70%
= D 16,100/-
3) Unrealised rent = D 50,000 (for P.Y. 2010-11)
Allowed by A.0. = D 20,000
Recovery during P.Y. 2022-23 = D 18,000
Taxable amount = NIL

# Other Expenses.
Repair & Maintenance
Society charges
Parking charges Not allowed because 30 %
Insurance charges Standard deduction on NAV
Electricity & water charges is allowed
Lift charges, etc

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# Concept of Vacancy
ER ≤ AR + VR ER > AR + VR

GAV GAV
Example :
1) Monthly Rent = D 20,000 p.m.
Expected Rent = D 1,92,000
Vacancy = 3 months.
ER AR + VR
D 1,92,000 ≤ 1,80,000 + 60,000
D 2,40,000
GAV
2) Monthly Rent = D 3,000 p.m
Expected Rent = D 1,95,000
Vacany = 2 months
ER AR + VR
D 1,95,000 > 30,000 + 6,000

GAV
3) Expected Rent = D 3,00,000
Monthly Rent = D 25,000 p.m
Vacancy = 3 months
ER AR + VR
D3,00,000 ≤ 2,25,000 + 75,000
D 3,00,000
GAV
# Concept of Partly Let out property (Area wise)
If some area of House property is let out & remaining is self occupied then let out
portion is treated as LOP & self occupied portion is treated as SOP. In this case,
Municipal value, fair rent, standard rent, municipal taxes, interest on loan should be
divided between SOP & LOP on area basis.
Actual rent should never divided because it is always for LOP.

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# Concept of Partly Let out property (Time wise)

If property is let out for some period of time & self-occupied for remaining time then
such property is treated as LOP only. If property is let out for even 1 day then, also
that property is treated as LOP.

# Assessee owns more than Two SOP.

Two of such house properties (at the option of Assessee) treated as SOP & remaining
be treated as DLOP.

# Concept of Joint ownership.

Joint ownership (co-ownership) means property is owned by more than one owner, in
this case, income from house property is calculated normally & thereafter it should be
divided between co-owners in their ownership ratio.
Interest on Loan

LOP /DLOP SOP

Full interest D 30,000/ D2,00,000

allowed X No. of co-owner

# Concept of composite Rent

Composite rent = Rent of House property + Rent of other assets & amenities.

Agrement is separable Agreement not separable

Rent of HP Rent of other assets Total rent taxable

under IFOS/PGBP
Taxable Taxable under
under IFHP IFOS/PGBP
Note : If let out of property not feasible without other asset then total rent is
taxable under the head income from Business / Profession or income from other
sources whether agreement is separable or not. Eg. Hotel.

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# Section 27 : Deemed owner

1. If any individual transfers any house property to his / her spouse for without
consideration or inadequate consideration then such individual is treated as Deemed
owner of such property.
Exception : Transfer in connection of live apart.
2. If any individual transfers any house property to a minor child (other than minor
married daughter) for without consideration or inadequate consideration then such
individual is treated as deemed owner.
3. In case of a co-operative society, shareholder is treated as deemed owner of such
property.
4. Holder of an impartible estate.

New Delhi Hotels Ltd. (2014) (Delhi)

Rental income derived from unsold flats which were shown as stock-in-trade in the books of
the assessee should be assessed under the head “IFHP” and not under the head “PGBP”.

NDR Warehousing P Ltd (2015) (Mad)

The assessee engaged in the business of warehousing, handling and transport business
claimed income from letting out of buildings and godowns as business income. HC held Income
earned by the assessee from letting out of godowns and provision of warehousing services is
chargeable to tax under the head “PGBP” and not under the head “HP”.

Hariprasad Bhojnagarwala (2012) (Guj.)

HUF is a group of individuals related to each other, HUF cannot consist of artificial persons,
it cannot be said to be a fictional entity. HUF is entitled to claim benefit exemption of self-
occupation of house property u/s 23(2).

Asian Hotels Ltd. (2010)(Del.)

Notional interest on interest-free deposit received by an assessee in respect of a shop let
out on rent can neither be taxed as business income nor income from house property.

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# Sec 159 : Legal Representative (when a person dies)

1. Whenever a person dies, his legal representative/ heir shall be liable to pay the tax which
deceased was liable to pay, if he had not died.
2. Any proceeding which was taken up against the deceased prior to his death and remain
pending on the date of death, shall be continued on his legal representative, for the
purpose of making an assessment or reassessment or for the purpose of levying any sum
under the income tax Act. (Including any penalty proceeding)
3. All the provisions of the income-tax Act shall apply to the legal representative in as much
as they would have been applicable to deceased had he not died.
4. The legal representative shall be deemed to be an assessee under the Income-tax Act.
5. Every such person who is consider to be the legal representative of another person, shall
be personally liable if he disposes off the personal asset/ property of the deceased
without discharging the outstanding liability of the deceased under the income-tax Act.
6. The liability of the legal representative shall be restricted to the maximum of the value
of estate inherited by him from deceased. (in simple words, the legal heir shall not be
liable to pay, anything from their own pocket.)
7. A legal representative may be penalized for a default committed by the deceased prior
to his death. However, he cannot be prosecuted for the Offences committed by the
deceased,
# Sec. 160 : Representative Assessee
In case of certain assessee, the assessment may be made on some other person. Such
other persons are called as "Representative Assessee". As per this section, the
following persons shall act as a representative assessee for other persons:
Persons Representative Assessee
(a) Minor child, Lunatic or an Idiot Guardian or manager, who is in receipt of income
on behalf of minor child, lunatic or an idiot.
(b) Non-resident Agent of such Non-resident (including deemed
agent u/s 163)
(c) Trust/ Oral trust Trustee of such trust
(d) Any person in respect of whom Such Official trustee /Court of Wards/Court
Official trusteel Court of Wards/Court Receiver/ Manager is appointed by the Court
Receiver/ Manager is appointed by the Court

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Every Representative Assessee shall be deemed to be an assessee for the purposes of

income-tax Act. [Sec. 160(2)]

# Sec. 161 : Liability of a Representative Assessee

The representative assessee has the same duties, responsibilities and liabilities under the
income-tax Act, as are applicable to the Assessee. The tax shall be levied upon and
recovered from the Representative Assessee in the same manner and to the same extent,
as it would have been levied upon and recovered from the person represented by him. [Sec.
161(1)].
If a particular income as already been taxed in the hands of a particular person in his
capacity as a Representative Assessee, then the same amount of income shall not be taxed
in the hands of that person again in his personal capacity. (sec. 161(2)]

# Sec. 162 : Rights of a Representative Assessee

Every person who claims that he is liable to be assessed to tax in respect of another person
as a representative assessee, then such person will be authorized to retain with him any
money or any asset, which is belonging to such other person. In case of any disagreement,
the Representative Assessee may secure a certificate from the A.O., certifying the
maximum estimated tax liability of the assessee. The certificate shall be treated as a
warrant authorizing retention of money or assets. However in such situation, the A.0,
cannot recover an amount more than the amount so certified by A.0. in his certificate.

# Sec. 163 : Person who may be deemed to be agent of Non-resident

Apart from a person, who is specifically appointed by Non-resident person to be his agent
in writing the following person(s) may be deemed as agent of Non-resident in India:
A person -
(a) who is employed by or on behalf of Non-resident; or
(b) who has any business connection with the Non-resident; or
(c) from or through whom Non-resident is in receipt of any income, whether directly or
indirectly ; or
(d) who is the trustee of Non-resident; or
(e) who has acquired by way of transfer any capital asset in India from such non-resident.

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Note: No person shall be deemed to be an agent of non-resident unless such person had
been given an opportunity of being heard.

# Sec. 168 : Liability of legal executor/ administrator in case of death of the assessee
This section shall apply only in a situation, where assessee had specifically appointed
someone as his executor/ administrator by way of making a will prior to his death. If no
such person was appointed by the deceased or in a case where the deceased died without
any will, then the provisions of this section shall not apply. Such situation will then be
governed by the provisions of sec.159, i.e., the Legal Heirs/ Legal Representative of
deceased will be responsible. According to this section:
(a) The legal executor/ administrator of deceased will be responsible to file the ROI of the
deceased as well to pay taxes of the deceased.
(b) Executor/ administrator shall have the same residential status as in case of the deceased
in the year of death.
(c) The legal executor, administrator will be assessed to tax in their dual capacity, firstly in
their capacity as legal executor/ administrator of the deceased and secondly in their
personal capacity. Therefore, if an income which has already been taxed in their hands in
their representative capacity shall not be assessed their hands again in their personal
capacity.
(d) If any amount is paid by such legal executor/ administrator on behalf of the deceased,
then he shall be entitled to recover the same from the estate of such deceased person.
(e) In any case the legal executor/ administrator will be responsible only till the date of
complete distribution of all the assets of the deceased. Thereafter, the legal heirs of the
deceased shall be responsible,
(f) In some part of the income or the estate of the deceased was distributed to the legal
heirs or beneficiaries then part of such income shall be excluded from the hands of legal
executor/ administrator, but shall then be included in the income of the respective
recipient (legatee).
Section 169
Every executor, who pays any amount under the income-tax Act on behalf of another so
paid by him. Alternatively, if executor has any money belonging to such person lying in his
possession, then he can retain such amount with him to the extent found necessary.
(same as sec. 162)
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# Sec. 170 : Liability of a successor, where predecessor could not be found or taxed etc.,
cannot be recovered from the predecessor
When a person carrying on business/ profession (predecessor) is succeeded by another
person (successor otherwise than by death and such person carries on that business/
profession, then;
(a) Two separate assessment will be made for the year of succession;
(1) one on the predecessor (upto the date of succession) and
(2) second on the successor (for the period, after the date of succession)
(b) If the predecessor cannot be found, then the assessment of predecessor will be made on
the successor
(c) If the predecessor cannot be found, then the tax, interest, penalty etc., of the predecessor
for the year of succession as well as for any earlier year will be recover from the successor.
(However, successor shall be entitled to recover from the predecessor any such sum so paid)
Note: where there is succession, the proceedings, made or initiated on the predecessor during the
course of pendency of such succession, shall be deemed to have been made or initiated on
the successor and all the provisions of this Act shall, so far as may be, apply accordingly.
Explanation—the term "pendency" means the period commencing from the date of filing of
application for such succession of business before the HC or tribunal or the date of
admission of an application for corporate insolvency resolution by the Adjudicating
Authority (AA) in IBC, 2016 and ending with the date on which the order of such HC or
tribunal or such AA, as the case may be, is received by CIT/PCIT.

# Sec 170A: Effect of order of tribunal or court in respect of business reorganisation

In a case of business reorganisation, where prior to the date of order of a HC or tribunal or
an AA, as the case may be, any return of income has been furnished by the successor u/s 139
for any AY relevant to the PY to which such order applies, such successor shall furnish,
within a period of 6 months from the end of the month in which the said order was issued, a
modified return in such form and manner, as may be prescribed, in accordance with and
limited to the said order.
Explanation.—In this section, the expressions—
(i) "business reorganisation" means the reorganisation of business involving the amalgamation
or demerger or merger of business of one or more persons;

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(ii) "successor" means all resulting companies in a business reorganisation, whether or not
the company was in existence prior to such business reorganisation.

# Sec. 171 : Assessment of a HUF after its partition

(a) At the time of making an assessment u/s 143/144, if it is claimed by any member of
HUF, that a partition has taken place in HUF, then AO shall inquire into the matter
by issuing a notice in this regard to all the members of HUF.
(b) If AO is satisfied about partition having taken place, he shall record his findings to
that effect.
(c) In such a case, HUF shall be assessed to tax only upto the date of the partition.
(d) Every person who was the member of HUF immediately before partition, shall be
jointly and severally liable for the liabilities of the HUF.
(e) Several (individuals) liability of the members shall be in the ratio in which the
assets of HUF are received by them.

# Sec. 171 (9) : Partial partition of HUF (taking place after 31.12.1978)
If partial partition has taken place after 31.12.1978, such partition shall be
deemed to have never taken place, in simple language, partial partition of HUF after
31.12.1978, is not regarded as partition or is not recognised and HUF shall be deemed
to have continued.
Each member of HUF, who was the member immediately before such partial
partition, shall jointly and severally be liable to any liability of HUF under this Act.
Several liability of each member shall be worked out in the ratio in which the assets of
HUF are received by them

# Sec. 178 : Company in liquidation

(a) Every person who has been appointed as a liquidator/ receiver of any company,
which has been wound up, shall give notice of his appointment as liquidator to the
concerned AO having jurisdiction over the company, within 30 days from the date
of his appointment as a liquidator.

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(b) Within 3 months from the date of receipt of such notice, AO shall after making
necessary inquiry notify the liquidator, the amount, which in the opinion of AO
would be sufficient to meet the tax which is likely to be payable by the company.
(c) Once, notified by AO, the liquidator shall set a side an amount equivalent to the
amount notified.
(d) The liquidator shall not part with any of the assets of the company, till he is so
notified by AO or till he sets a side the amount as notified, except with the leave of
CCIT/ CIT.
(e) Otherwise, he himself shall be personally liable for paying the tax, which the
company would have been liable for. (However, his personal liability in such situation
shall not exceed the amount notified by A0) (+) He may be prosecuted under sec
276A with an imprisonment ranging between 6 months to 2 years.
(f) If there are more than one liquidator, then liability of all of them shall be joint and
several.
(g) Nothing contained in this section shall debar the liquidator from making payment of
the following:
Payment of tax payable by the company;
Payment to secured creditors
Meeting costs and expenses of winding up (as are found reasonable to CCITI
CIT)
(h) The provisions of this section shall apply, notwithstanding anything to the contrary
contained in any other law.

# Sec, 179 Liability of a director of a private company

Irrespective of anything contained in the Companies Act, 1956, if tax due from a
private company cannot be recovered, then every person who was director of such
private company at any time during the relevant Py, shall jointly and severally be liable
for the payment of tax, interest and fees.
However, if such director proves that the non-recovery cannot be attributed to gross
neglect misfeasance, or breach of duty on his part, then he shall not be liable to pay.

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