BSSS-Institute of Advanced Studies

Study/Reading Material
Course Name: Taxation: Principles and Practices
Course Code: PFC-103 Batch: 2023-25
CEOs:
1. To provide students with the fundamental understanding of the concepts and principles of
income tax and GST regime.
2. To develop comprehension related to the application of tax laws, regulations, and
provisions that govern the calculation and reporting of income tax.
3. To build analytical skills for applying tax planning techniques and strategies to minimize
tax liability legally, both for individuals and businesses.
4. To develop evaluative skills for appreciating the latest developments and amendments in
Income tax and GST laws and regulations.
COs:
1. Demonstrate in-depth understanding of the relevant income tax and GST laws, regulations,
and provisions.
2. Determine taxable income and tax liability under various heads of income, for individuals
and businesses.
3. Comprehend the tax planning strategies to minimize tax liabilities for individuals and
businesses.
4. Appreciate the latest developments in tax regime and apply the information for tax planning
and management.
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COURSE CONTENTS:
Module – I: Concept of Taxable Total Income
Concepts of taxable Income under the head salaries, business & profession, Concepts of taxable
Income under the head salaries, business & profession, Concepts of taxable Income under the
head house property, capital gains and income from other sources.
INCOME FROM SALARY
 Income from salary is taxable u/s 22 to 27 of Income Tax Act 1961.
 Salary means any remuneration paid by the employer to his employee in consideration of
his/her services to the employer.
 Salary includes monetary benefits and facilities provided by the employer.
 The following income u/s15 are taxable under the head “Income from Salary”
 Wages
 Any annuity or pension
 Gratuity
 Any fees, commission, perquisites or profit in lieu of or in addition to any salary or
wages
 Any advance salary
 Encashment of earned leave
 Contribution of employer towards the R.P.F. over 12% of employee’s salary and
interest over 9.5%
 Contribution made by Central govt. or another employer, in the p.y. for the
employee, under the pension scheme.
 Salary = Basic Salary+ Allowances+ Perquisites + Profit in Lieu of Salary –
(Entertainment Allowance + Employment Tax)
 Important points to remember
 Foreign salary and pension is taxable under the head “Salaries”
 There should be employer employee relationship and not agency relationship
 Salaries for professional services shall be taxable under the head “Business and
Profession”
 Receipts from person other than employer is taxable under the head “Other sources”
 Payment made after the cessation of employment is also taxable under the head
“Salaries”
 Lump-sum payment to the widow or heirs (nominees) of the employee in event of
employee’s death is non-taxable
 Compensation against the accident met at the time of performing duty is non-taxable
 Pension on retirement is taxable salary
 Voluntarily foregoing salary does not attract tax as the salary does not becomes due,
however, if such arrangement is made to donate the salary than tax is levied as salary
becomes due, received and then applied by the person. Thus, it is considered
application of money and not foregoing.
 Salary of M.O.P is taxable under the head “Other sources”
 Salary of a partner is taxable under the head “Business and Profession”

ALLOWANCES
Allowances
S. S. Exempted upto a S. Fully Exempted
No. Fully Taxable No. specific limit No. Allowances
Dearness Allowance House Rent
1 or Dearness Pay 1 Allowance 1 Foreign Allowance
Sumptuary Allowance
to the High
Entertainment Court/Supreme Court
2 Medical Allowance 2 Allowance 2 Judges
Special Allowance u/s Allowances from
3 Tiffin Allowance 3 10 (14) (i) includes: 3 U.N.O.
Per-diem allowance
a) Travelling for the use of Hotel,
4 Servant Allowance Allowance 4 boarding and lodging
 Non- practicing
5 Allowance b) Daily Allowance
c) Conveyance
Allowance for
performance of
6 Hill Allowance official duty
7 Warden Allowance d) Helper Allowance
e) Academic
8 Proctor Allowance Allowance
9 Deputation Allowance f) Uniform Allowance
Special Allowance u/s
10 Over-time Allowance 4 10 (14) (ii) includes:
a) Special Hilly area
allowance, High
altitude Allowance,
Uncongenial Climate
Allowance, Snow
Bound Area
Others unless Allowance, and
11 specifically exempted Avalanche Allowance
b) Border Area
Allowance, Remote
Locality Allowance,
Difficulty Area
Allowance or
Disturbed Area
Allowance
c) Special
Compensatory Tribal
Area allowance,
Scheduled Area,
Agency Area
Allowance
d) Allowance to an
employee working in
any transport system
e) Children Education
Allowance
f) Children Hostel
Allowance
g) Transport
Allowance
h) Underground
Allowance
i) Special allowance to
the members of armed
forces
Income Tax Return (ITR) Forms
A salaried individual can file ITR 1, ITR 2, ITR 3, and ITR 4. Of course, the applicability of
ITR depends upon all the sources of income but salary income can be filed in all these ITRs.

Difference between CTC and Take-Home Salary -

CTC stands for Cost to Company, which is the cost company bears for an employee. CTC
includes the basic salary, all the allowances/ benefits and the employer’s contribution to
retirement benefits. Allowances and benefits include HRA, LTA, Special Allowance, Free
Meals, etc. and retirement benefits include the Employee Provident Fund (EPF), Gratuity, etc.
Additionally, the employer might offer you certain benefits in form of medical insurance, food
coupons, phone bills reimbursed, etc. Therefore, the total cost to the company includes all such
benefits along with your salary.

Here is the example of components of CTC mentioned in your offer letter:

Component Amount (in INR)

Basic salary 3,50,000

HRA 1,00,000

Special Allowance 80,000

Performance Bonus 50,000

Medical Insurance 5,000

PF (12% of Basic Pay) 30,000

6,15,000
Total CTC

However, your take-home salary shall include your gross salary minus allowable exemptions
minus income tax liability.

Your taxable salary will look like this for CTC mentioned above:
Component Amount (in INR)

Basic salary 3,50,000

HRA 1,00,000

Special Allowance 80,000

Performance Bonus 50,000

Total Salary 5,80,000

Less: PF (12% of Basic Pay) (30,000)

 Component Amount (in INR)

Less: Tax Liability (23,400)

5,26,600
Total Taxable Salary (Take home salary)

Salary Format and its Taxability

S.
Component Definition Taxability
No.

This is the fixed component of It is 100% taxable. And a

1 Basic salary your salary. It is also the basis part of your take-home
for other components of Salary. salary.

Only Government employees

get DA. DA is paid to counter It is 100% taxable. And a
Dearness Allowance
2 the inflation impact. It is part of your take-home
(DA)
calculated as a percentage of the salary.
Basic Salary.

The lower of the following

will be exempt from tax:
Granted to cover the cost of 1. INR 1600 per month or
Commutation/
3 travelling between home and 2. Conveyance received
Transport
Allowance work.
In the case of handicapped
employees’ exemption of
up to INR 3200 per month
is allowable.

The lower of the following

will be exempt from tax:
1. 40%/ 50%* of your Basic
Salary
HRA is paid to meet the house 2. Actual rent paid minus
rent expense. This may consist 10% of the Basic Salary
4 HRA of 40% – 50% of your basic 3. HRA received from the
salary. employer

In the case No rent is paid

then HRA will be 100%
taxable.
S.
Component Definition Taxability
No.

*50% if staying in a metro

city.

It allows an employee to take on The exemption is allowed

a trip within India. The for the actual expenditure
allowance is based on actual incurred for the trip subject
5 LTA to certain limits. Any
expenditure incurred. An
employee can take two trips in a expenditure incurred during
block period of four years. the trip for purposes other
than travel will not be
exempt LTA.

This allowance is granted to The amount of exemption

Children Education promote the education of will be a maximum of INR
6
Allowance children in India by the Income 100 per month per child
tax department. (Maximum allowable for 2
children)

To promote a higher literacy, The amount of exemption

Children Hostel rate this allowance is granted to will be a maximum of INR
7
Allowance individuals whose children stay 300 per month per child
in a hostel for education. (Maximum allowable for 2
children)

This allowance is granted to

8 Underground employees working in The amount of exemption
Allowance (Mines) underground mines. allowable is a maximum of
INR 800 per month.

This allowance is provided to

the residents of scheduled, hilly
Tribal area and agency areas such as An employee can get an
9
Allowance Madhya Pradesh, Tamil Nadu, exemption of a maximum of
Karnataka, Uttar Pradesh, INR 200 per month.
Odisha, Tripura and Assam.

This allowance is granted to

members of the armed forces The maximum amount of
10 Island Duty exemption allowed to such
Allowance who are assigned duties on
islands. employees is INR 3,250 per
month
S.
Component Definition Taxability
No.

The amount of exemption

allowable shall be least of
Allowance to This allowance is granted by following:
11 employees of roadways, railways and airways
Transport in place of the daily allowance. 1. 70% of the amount
undertaking received as allowance.

2. INR 10,000 per month.

Travelling or Tour
Allowance/ Conveya
nce Allowance/ These allowances are granted to
12 Uniform Allowance/ meet with the respective Total amount spent will be
Daily Allowance/ expenses. the exempt amount.
Helper Allowance
(for office Purpose)/
Research Allowance

These allowances are over and

Special Allowance above your Basic Salary. A
and Performance performance bonus is usually It is 100% taxable. And a
13
Bonus linked to your past performance part of your take-home
and is usually paid once or twice salary.
a year.

Deductions Component and its Taxability

S
Component Definition Taxability
No.

It is a tax on employment. This tax is

Professional Tax is
Professional deducted from your salary by the
1 allowed as a deduction
Tax employer and deposited to the state
from your salary income.
government.

This is a forced
Usually, 12% of your basic salary goes investment since every
Employee’s towards the Employee’s provident fund. company with over 20
Provident This amount is matched by the employees, has to
2
Fund (EPF) employer subject to certain limits which contribute towards PF. It
may vary as per company policies. is allowed as a deduction
from total income.
 S
Component Definition Taxability
No.

Based on your total taxable income,

This amount represents
your tax is calculated as per the
the tax deducted from
applicable slab rate. This tax is
Tax your salary and deposited
deducted from your salary by your
Deducted at to the government by
3 employer and deposited to the
Source your employer. This can
Government on your behalf. You can
(TDS) be lowered by utilizing
find your TDS from form 16, part A
the deduction limits
which is generated by TRACES and
optimally.
provided to you by your employer.

Standard Deduction:

The standard deduction is allowing salaried individuals to claim a flat deduction from income
irrespective of actual expenses incurred by the employees. It has been introduced to bring parity
between salaried employees and self-employed individuals. While self-employed individuals
can claim various business-related expenses as deductions that bring down their taxable
income, no such benefit could be claimed by most salaried individuals. It is a flat deduction of
INR 50,000/- from AY 2020-21 to your “Income taxable under the head salaries”. The
eligible amount for this deduction cannot exceed the salary amount. The maximum amount of
deduction will be INR 50,000/-

Note: This deduction is not available under New Tax Regime.

Retirement Benefits:

A) Pension

The employer pays a certain amount to its employee after retirement on a periodic basis for the
services rendered by them during their job. This is known as Pension and it is taxable under
the head Income from Salary.

There are mainly two types of pensions:

 Uncommuted Pension: A periodical payment of pension received by the employee after
retirement. Uncommuted pension is fully taxable to Government and Non-Government
employees under the head Income from Salaries.
 Commuted Pension: A lump sum payment received by the employee at the time of
retirement. In the case of Government employees commuted pension is fully exempt.
Whereas in the case of non-government employees it is as follows:
Particulars Tax Treatment

Gratuity Received by ⅓ of the pension which he is normally entitled to receive is

pensioner exempt from tax
 Gratuity Not Received by ½ of the pension which he is normally entitled to receive is
pensioner exempt from tax

Note that ‘pension’ and ‘family pension’ are two separate things. An employer receives a
pension after his/her retirement, and therefore, it is taxable under the head Salary. Whereas
family pension is received by the nominated family members of the employee after his death.
Additionally, for family members who receive a family pension, it is taxable under the
head Income from Other Sources.

B) Gratuity

Gratuity is a retirement benefit provided by employer to employee. An employee becomes

eligible for this compensation on completion of five years of service at that organisation.
However, it is paid only at the time of retirement or resignation and for that employees are
classified into two categories:
 Government employees: Gratuity received by a government (central/ state/ local)
employee is fully exempt from tax for himself or his family.
 Non-Government employees: In case of non-government employees the tax treatment is
different based on the applicability of the Payment of Gratuity Act to the employer.

Employee covered under the Payment of Gratuity Act:

Least of the following amount will be exempt from tax:

 Actual gratuity received

 INR 20 Lakhs
 Last drawn salary (Basic + DA+ Fixed Comm.) X number of years of completion of
service* 15/26

Note: While calculating number of completed years any fraction of year more than 6 months
should be taken as a full year. For instance, if the period served is 10 years and 7 months, the
number of years completed to be taken is 11.

Employee not covered under the Payment of Gratuity Act:

Least of the following amount will be exempt from tax:

1. Actual gratuity received

2. INR 20 Lakhs
3. Last 10 month’s average drawn salary (Basic + DA) multiplied by number of
years of completion of service* 1/2

Note: While calculating number of completed years any fraction of year has to be ignored. For
instance, if the period served is 10 years and 10 months, the number of years completed to be
considered will be 10.

C) Leave Encashment Salary

As the name suggests, it is the encashment of unutilised leaves. You need to check for the
company’s policy for leave encashment as some employers allow to carry forward a few leave
days and encash them while others prefer to finish them in the same year only. Leave
encashment salary received during employment is fully taxable for all employees. If it is
received at the time of retirement then the exemption for employees shall be as following:

1. Government employees: Leave encashment salary received shall be fully exempt from
tax.
2. Non- government employees:

Least of the following amount shall be exempt from tax:

1. Actual amount received

2. INR 3 Lakhs
3. Last 10 month’s average salary (Basic + DA + Turnover Commission)
4. Amount equal to salary earned as leave encashment earned (total earned leaves shall
not exceed 30 days for every year of service rendered)

As announced in the Budget 2023, the maximum limit of INR 3,00,000 has been increased to
INR 25,00,000 from FY 2023-24 (AY 2024-25) onwards.

D) Voluntary Retirement Scheme

Any compensation received at the time of voluntary retirement is exempt u/s. 10(10C) subject
to fulfilment of the following conditions:
As per this section, the amount that an employee receives for his/her service in;
 public sector or any other firms,
 authority established under the Central, State or Provincial Act,
 Co-operative Societies,
 Local Authority,
 Universities, IITs and Notified Management Institutes etc are considered to be exempt
to the lowest of the following:
 3 months’ salary (Basic + DA + Turnover Commission) for each completed year
of service (While calculating the number of completed years any fraction of the
year has to be ignored)
 Salary at the time of retirement multiplied by the balance months of service left
before the date of retirement
 INR 5,00,000
 Actual amount received
Note: Section 10(10C) and section 89 are mutually exclusive. It means that an individual can
only claim either exemption u/s 10(10C) or relief u/s 89. Moreover, if one claims an exemption
or relief in any assessment year then it cannot be claimed again in any other assessment year.

Who is Eligible to Claim VRS?

The list of eligible employees as per Sec 10(10C) who can claim VRS Exemption includes
employees of ‘any other company’. Thus, private sector employees can claim exemption
subject to the following conditions as per Rule 2BA:
  An employee has completed 10 years of service or completed 40 years of age (Does
not apply to public sector employees)
 Can be claimed by all employees including workers and executives except directors
 VRS Scheme is initiated for a reduction in the existing strength of the employees so
any vacancy caused by the VRS is not to be being filled up
 The retiring employee shall not be employed in another company belonging to the
same management.

Perquisites:
Any benefit, attached to an office or position in addition to the salary or wages is called
perks. It may be given in cash or kind.
Perquisites are taxable only in the hands of specified employee. A specified employee
means he/she should either be the director of the company, or holding 20% of voting power of
the company, or whose taxable income under the head salary is more than Rs. 50,000/-.
1. Leave Travel Concession: Exemption of the expenditure on fare by the shortest route to
the destination in respect of two journeys made in a block of 4 calendar years.
2. Valuation of Residential Accommodation:

A. For government employees

Rent as per government rules ---------

(+) 10% cost of furniture or hire purchase charges ---------
(if house is furnished)
(-) Amount paid by employee as rent ---------
(if house is given on concessional rent)

VALUE OF ACCOMMODATION XXXXX

B. For other employees

Rent as per city of residence ---------

(+) 10% cost of furniture or hire purchase charges ---------
(if house is furnished)
(-) Amount paid by employee as rent ---------
(if house is given on concessional rent)

VALUE OF ACCOMMODATION XXXXX

Note: Rule of rent as per city population: -
 Cities with population as 25 lacs as per 2001 census 15% of Salary
Cities with population more than 10 lacs but less than 25 lacs 10% of Salary
Other places 7.5% of salary
 Salary = Basic Salary + D.A. (if term) + Taxable part of Allowances+ Bonus +
Commission + Any other cash payments.

3. Accommodation in a hotel:
a) If the accommodation is provided at the time of transfer for not more than 15 days =
NIL
b) In any other case,
i. 24% of the salary (salary paid or payable for the period of stay), or
ii. Actual expenses paid or payable to the hotel
(Whichever is less)
4. Facility of Sweeper, Gardner, Watchman or personal attendant
Salary paid to the servant xxxxx
(-) Amount recovered from the employee xxxxx
xxxxx
5. Facility of Gas, Electricity and Water
Amount paid by the employer to the agency xxxxx
(-) Amount recovered from the employee xxxxx
xxxxx
6. Education Facility
a) If the education is provided in the institute owned by the employer and the cost is not
more than 1000 p.m. per child = NIL
b) If the education is provided in the institute owned by the employer and the cost
exceeds Rs. 1000 p.m. per child than the value shall be the cost o such education in a
similar institution in or near the locality.
c) Education for any other member of the family, value shall be as in case of (b)
8. Car Facility:

Particulars Owned/ hired by Employer Owned by

Employee
Used for only official
purpose, expenses are Nil Nil
borne by employer
Expense on running ****
+ Driver’s salary (if any) -----
Used for both personal
+ Depreciation @ 10% p.a. -----
and official purpose
(-) Amount charged from the
employee -----
Total Value xxx
In order to determine the (****) expenses on running of car, the following conditions
have to be considered:-
If expenses are borne by If the employer
employer reimburses expenses
 a. Small Car (upto 1.6 Ltr 1800 pm + 900 pm (if driver) 1800 pm + 900 pm
cc) (if driver)
b. Large Car (more than 2400 pm + 900 pm (if driver) 2400 pm + 900 pm
1.6 Ltr. cc) (if driver)
If expenses are borne by
employee
c. Small Car 600 pm + 900 pm (if driver)
d. Large Car 900 pm + 900 pm (if driver)

9. Free Food:
a. Tea and snacks during office hours = value = Nil
b. Free food and non-alcoholic beverages during office the hours in a remote or off-shore
area = value = Nil
c. Free food and non-alcoholic beverages during the office hours at any other place =
value exempted upto Rs. 50 per meal, per day.

INCOME FROM HOUSE PROPERTY

Introduction - Income is taxable under the head 'house property' if it arises from a property
consisting of any building or land appurtenant thereto. For the computation of income under
this head, a house property is classified into three categories:

 Let-out
 Self-occupied
 Deemed let-out house property.

The income from house property is computed based on its ANNUAL VALUE. The rental
Income (Annual Value) is taxable under the head income from house property if the
following two conditions are satisfied:

a. There should be a building and land appurtenant thereto; and

b. The assessee should be the owner of such property.
a) LET-OUT

GROSS ANNUAL VALUE is calculated as below –

Covered Under Rent Control Act NOT Covered Under Rent Control Act
STEP 1 STEP 1
Municipal Value xxxxxx Municipal Value xxxxxx
Fair Rent xxxxxx Fair Rent xxxxxx
Standard Rent xxxxxx
Whichever is high, but NOT higher than Whichever is high
STANDARD RENT
STEP 2 STEP 2
Value in STEP 1 xxxxxx Value in STEP 1 xxxxxx
Actual Rent xxxxxx Actual Rent xxxxxx
Whichever is high Whichever is high
** Actual Rent will NOT INCLUDE expenses paid by tenantson, fair rent, standard rent, and
actual rent are considered to arrive at an annual value.

FORMAT of calculating INCOME FROM HOUSE PROPERTY for the A.Y. 2023-24.

Particular Amount

Gross Annual Value of the property (A) xxx

Less: Unrealised rent (B) If applicable

Less: Municipal taxes (B1) (xxx)

Net Annual Value [C= A – B – B1] xxx

Less: Standard Deduction (D) (xxx)

Less: Interest on home loan (E) (xxx)

Income from house property [G= C- D – E ] xxx

Add: Arrear of rent or unrealized rent [H] xxx

Total Income from house property xxx

b) SELF-OCCUPIED PROPERTY

House property is considered self-occupied house property if it is in occupation of the owner

for his own residence or it cannot be occupied by the owner due to his employment, business,
or profession carried on at any other place and he has to reside at that other place in a building
not belonging to him.

ANNUAL VALUE of self-occupied house property shall always be NIL only if such property
is not actually let out at any time during the year and no benefit is derived therefrom by the
owner. Unlike let-out house property, no deduction is allowed towards municipal taxes and
standard deduction. However, interest on a housing loan can be claimed as a deduction to
the extent of Rs. 30,000/Rs. 2,00,000, depending upon the case.

Interest on housing loan

Any interest on a home loan taken for purchase, construction, renovation or repair, etc. of the
house is allowed as a deduction while computing the income from house property. For Self-
occupied property, deduction is allowed in following manner:

(a) Deduction up to Rs. 30,000

In respect of two self-occupied house properties, the assessee can claim aggregate amount of
deduction of up to Rs. 30,000 towards the interest paid or payable on the loan taken to purchase,
construct, renovation, repair or reconstruction of such properties.

(b) Deduction up to Rs. 2,00,000

In respect of two self-occupied house properties, the assessee can claim aggregate amount of
deduction of up to Rs. 2,00,000 towards the interest paid or payable on the loan taken to
purchase or construct such properties, if following conditions are satisfied:
a. The loan should be taken on or after 01-04-1999 for purchase or construction of the house;
b. The property is purchased or constructed within 5 years from the end of the financial year
in which the amount is borrowed;
c. The assessee furnishes a certificate, from the person to whom any interest is payable on
the capital borrowed, that the amount of interest is payable on the amount advanced to the
assessee for acquisition or construction of a property or as re-finance of the principal
amount outstanding under an earlier loan taken for such acquisition or construction.
If the house property is let-out for part of the year, even for a single day during the year, the
assessee cannot exercise this option to claim that such house property is a self-occupied house
property.

Pre-construction period interest

If the loan is taken to acquire a house property but the property is acquired or constructed in
the subsequent year, the interest for the pre-acquisition period shall be allowed to be deducted
in 5 annual instalments, commencing from the previous year in which the property is acquired
or constructed.

The pre-construction period begins from the date of borrowing and goes till 31st March,
immediately preceding the previous year in which the property is acquired or constructed, or
the date of repayment of the loan, whichever is earlier. This provision applies to every house
property, that is, let-out, deemed let-out, or self-occupied house property.

INCOME FROM CAPITAL GAINS

Any profit or gain that arises from the sale of a ‘capital asset’ is known ‘income from capital
gains. Such capital gains are taxable in the year in which the transfer of the capital asset takes
place. This is called capital gains tax. There are two types of Capital Gains: short-term capital
gains (STCG) and long-term capital gains (LTCG).
WHAT ARE CAPITAL ASSETS?
Land, building, house property, vehicles, patents, trademarks, leasehold rights, machinery, and
jewellery are a few examples of capital assets. This includes having rights in or in relation to
an Indian company. It also includes the rights of management or control or any other legal
right. The following do not come under the category of capital asset:
i. Any stock, consumables, or raw material, held for the purpose of business or profession
ii. Personal goods such as clothes and furniture held for personal use
iii. Agricultural land in rural* India
iv. 6½% gold bonds (1977) or 7% gold bonds (1980) or National Defence gold bonds
(1980) issued by the central government
v. Special bearer bonds (1991)
vi. Gold deposit bond issued under the gold deposit scheme (1999) or deposit certificates
issued under the Gold Monetisation Scheme, 2015

*Definition of rural area (effective from AY 2014-15) – Any area which is outside the
jurisdiction of a municipality or cantonment board, having a population of 10,000 or more is
considered a rural area. Also, it should not fall within a distance given below –
Types of Capital Assets
1. STCA (Short-term capital asset) - An asset held for a period of 36 months or less is a
short-term capital asset. The criteria for immovable properties such as land, building and house
property from FY 2017-18 is 24 months. So for the AY 2023-24 the holding period shall be
24 months or less.

Some assets are considered short-term capital assets when these are held for 12 months or less.
This rule is applicable if the date of transfer is after 10th July 2014 (irrespective of what the
date of purchase is). These assets are:

i. Equity or preference shares in a company listed on a recognized stock exchange in

India
ii. Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock
exchange in India
iii. Units of UTI, whether quoted or not
iv. Units of equity oriented mutual fund, whether quoted or not
v. Zero coupon bonds, whether quoted or not

2. LTCA (Long-term capital asset): An asset held for more than 36 months is a long-term
capital asset. They will be classified as a long-term capital asset if held for more than 36 months
as earlier. Capital assets such as land, building and house property shall be considered as long-
term capital asset if the owner holds it for a period of 24 months or more (from FY 2017-18).
So, for the AY 2023-24 the holding period shall be 24 months or more.

Whereas, below-listed assets if held for a period of more than 12 months, shall be considered
as long-term capital asset.

i. Equity or preference shares in a company listed on a recognized stock exchange in

India
ii. Securities (like debentures, bonds, govt securities etc.) listed on a recognized stock
exchange in India
iii. Units of UTI, whether quoted or not
iv. Units of equity oriented mutual fund, whether quoted or not
v. Zero coupon bonds, whether quoted or not

Tax Rates – Long-Term Capital Gains and Short-Term Capital Gains

Tax Type Condition Applicable Tax

Sale of:
- Equity shares 10% over and above Rs 1
Long-term capital
lakh
gains tax (LTCG) - Units of equity oriented mutual fund
Others 20%
When Securities Transaction Tax
Short-term capital Normal slab rates
(STT) is not applicable
gains tax (STCG)
When STT is applicable 15%.
Tax on Equity and Debt Mutual Funds
Gains made on the sale of debt funds and equity funds are treated differently. Any
fund that invests heavily in equities (more than 65% of their total portfolio) is
called an equity fund.

On or before 1 April 2023 Effective 1 April 2023

Funds
Short-Term Short-Term
Long-Term Gains Long-Term Gains
Gains Gains
10% without
Debt At tax slab rates indexation or 20% At tax slab rates At tax slab rates of
Funds of the individual with indexation of the individual the individual
whichever is lower
10% over and 10% over and
Equity
15% above Rs 1 lakh 15% above Rs 1 lakh
Funds
without indexation without indexation

How to Calculate Short-Term Capital Gains?

Step 1: Start with the full value of consideration

Step 2: Deduct the following:

 Expenditure incurred wholly and exclusively in connection with such transfer

 Cost of acquisition
 Cost of improvement

Step 3: This amount is a short-term capital gain

 Short-term capital gain can be calculated as -

Full value consideration xxxxx

Less: Expenses incurred exclusively for such transfer (xxxx)
Less: Cost of acquisition (xxxx)
Less: Cost of improvement (xxxx)

How to Calculate Long-Term Capital Gains?

Step 1: Start with the full value of consideration

Step 2: Deduct the following:

 Expenditure incurred wholly and exclusively in connection with such transfer

 Indexed cost of acquisition
 Indexed cost of improvement

Step 3: From this resulting number, deduct exemptions provided under sections 54, 54EC, 54F,
and 54B
  Long-term capital gain can be calculated as -

Full value consideration xxxxx

Less: Expenses incurred exclusively for such transfer (xxxx)
Less: Indexed cost of acquisition (xxxx)
Less: Indexed cost of improvement (xxxx)
Less: Expenses that can be deducted from full value for consideration* (xxxx)
* Expenses from sale proceeds from a capital asset, that wholly and directly relate to the sale
or transfer of the capital asset are allowed to be deducted. These are the expenses which are
necessary for the transfer to take place.

The indexed cost of acquisition is calculated as:

Indexed cost of acquisition = (Cost of acquisition X CII of the year in which the asset is
transferred) / CII of the year in which the asset was first held by the seller or FY 2001-
02, whichever is later
The cost of acquisition of the assets acquired before 1st April 2001 should be actual cost or
FMV as on 1st April 2001, as per taxpayer’s option.
The indexed cost of improvement is calculated as:

Indexed cost of improvement = Cost of improvement x CII (year of asset transfer) / CII
(year of asset improvement)
https://taxguru.in/income-tax/income-house-properties.html
https://cleartax.in/s/house-property
https://www.legalserviceindia.com/legal/article-1370-income-from-house-property.html
https://cleartax.in/s/capital-gains-income

REFERENCE ARTICLES –
 https://gacbe.ac.in/pdf/ematerial/18BCO52C-U2.pdf
 https://incometaxindia.gov.in/tutorials/12.%20income-from-house-property.pdf
 https://josephscollege.ac.in/lms/Uploads/pdf/material/IncomeTax2Notes.pdf
 https://static.careers360.mobi/media/uploads/froala_editor/files/Computation-of-Total-Income-
and-Tax-Payable.pdf
 https://www.lawctopus.com/academike/taxation-companies/
 https://www.bankbazaar.com/tax/gst-
calculator.html#:~:text=Step%201%3A%20Determine%20the%20GST,with%20the%20applicabl
e%20GST%20rate.
 https://timesofindia.indiatimes.com/business/faqs/gst-faqs/how-to-calculate-tax-under-
gst/articleshow/63376622.cms

SUGGESTED TEXT READING:

a. "Income Tax Law and Practice" by Girish Ahuja and Ravi Gupta, Wolters Kluwer India
Pvt. Ltd. Edition: 15th edition.

REFERENCE BOOKS:
a. "Guide to Indian Taxation" by Dr. Vinod K. Singhania and Dr. Monica Singhania,
 Taxmann Publications, Edition: 67th.
b. “Students' Guide to Income Tax Including GST” by Dr. Vinod K. Singhania and Dr.
Monica Singhania, Taxmann Publications, Edition: 68th.
c. "Income Tax: Law & Practice" by N.S. Govindan, Commercial Law Publishers (India)
Pvt. Ltd.
d. "Practical Approach to Direct & Indirect Taxes (including Income Tax & GST) by Dr.
Girish Ahuja and Dr. Ravi Gupta, Commercial Law Publishers. Edition: 43rd
e. "Practical Guide to Tax Planning" by Dr. Girish Ahuja and Dr. Ravi Gupta, Wolters
Kluwer India Pvt. Ltd. Edition: 42nd.