Pooja Nahar

Advance Rulings

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Advance Rulings:-

Ruling means statement in writing by the tax authority to a taxpayer. Advance rulings given are binding on the tax authorities and application who had applied for such ruling.

Example: -ABC Ltd. a German company wants to do a technical collaboration with Indian company and ABC Ltd. wants to know the tax incidence in India, the answer of this problem will be given by authority for advance ruling .

As per section 245N(a) of Income-tax Act, 1961, Advance rulings means: –

Decision or Determination by the Authority :

  • in relation to a transaction and tax liability which has been undertaken or is proposed to be undertaken by a non–resident applicant and in case of tax liability, determination shall include the determination of any question of law or of fact specified in the application.
  • in respect of an issue relating to computation of total income :-
    • which is pending before any income-tax authority or the Appellate Tribunal and such determination and
    • decision shall include the determination or decision of any question of law or of fact
    • relating to such computation of total income specified in the application.
  • or decision by the Authority whether an arrangement, which is proposed to be undertaken
    • by any person being a resident or a non-resident,
    • is an impermissible avoidance arrangement as referred to in Chapter X-A or not

Applicant [Section 245N(b)] means any person who is: –

  • a non-resident
  • a resident
  • a resident who has undertaken or propose to undertake one or more transactions of value of 100 crores or more in total
  • a public sector company

Authority for Advance Rulings [Section 245-O]

Authority for advance rulings shall constitute by the Central Government.

Composition: – The Authority shall consist of a Chairman and such number of Vice-chairmen, revenue Members and law Members as the Central Government may, by notification, appoint.

Qualification:-

  • Chairman: – a person who has been a Judge of the Supreme Court or the Chief Justice of a High Court or for at least 7 years a Judge of a High Court.
  • Vice-chairman: – a person who has been Judge of a High Court.
  • A revenue Member from the Indian Revenue Service: – a person who is who is (or is qualified to be), a Member of the Board.
  • A revenue Member from the Indian Customs and Central Excise Service: -a person who is (or is qualified to be),
    • a Member of the Central Board of Excise and Customs, on the date of occurrence of vacancy.
  • A law Member from the Indian Legal Service: –
    • who is (or is qualified to be), an Additional Secretary to the Government of India on the date of occurrence of vacancy.
Section 184 of Finance Act, 2017
  • By notification, the Central Government may make rules regarding
    • qualifications, appointment, salaries and allowances, term of office, resignation, removal and
    • the other terms and conditions of service of the Chairman, Vice-chairman or member of the Authority.
  • Term of Chairman, Vice-Chairman or Member of the Authority:-
    • Not exceeding 5 years from the date on which he enters upon his office and shall be eligible for reappointment.
  • Age :-
In case of Age
Chairman70 years
Vice-Chairman or any other Member67 Years

Application for Advance Rulings : – As per section 245Q(2), the applicant shall make application in quadruplicate along with with a fee of ₹ 10,000 or prescribed, whichever is higher.

Rule 44 prescribes the fees: –
Category of applicantCategory of caseFee
A non-resident/ resident
Amount of transaction up to ₹ 100 crore ₹ 2,00,000
> ₹ 100 crore < ₹ 300 crore₹ 5,00,000
> ₹ 300 crore₹ 10,00,000
Any other in all cases₹ 10,000
Procedure on Receipt of Application: –
  • on receipt of an application, the authority will send a copy to the Principal Commissioner or Commissioner concerned if necessary.
  • Call upon the Principal Commissioner or Commissioner to furnish relevant records
  • The Authority may allow or reject the application.

Constitution of Board for Advance Rulings [section 245-OB]: –

The Central Government vide Notification No.96/2021 dated 01.09.2021 constituted 3 boards for Advance Rulings.

  1. Board for Advance Rulings-I – headquarters in Delhi
  2. Board for Advance Rulings-II – headquarters in Delhi
  3. Board for Advance Rulings-III – headquarters in Mumbai

Section 245Q(1) : – Applicant may make an application

Section 245Q(2) : – Application has to be made in Quadruplicate along with fee of ₹ 10,000 or prescribed whichever is higher.

Restriction on Appellate Authority: -According to section 245RR, Income-tax and Tribunal shall not take any decision in respect of issue which is for decision of Board for Advance Rulings.

Note:- a resident assessee cannot pursue both the remedies i.e., appeal or revision.

Note: – The Board shall not allow an application where question raised in the application is pending with income-tax/tribunal/court, determination of fair market value and transaction designed for avoidance of income-tax.

Time Limit for Pronouncement of Advance Ruling: – 6 months from the receipt of application.

Note: – Copy of advance ruling has to be sent to applicant and PCIT/CIT.

Power of the Board for Advance Rulings: – [Section 245U] – All the power of Civil Court.

Note: – Applicant may appeal to High Court against ruling or order of the Board for Advance Rulings within 60 days from the date of the communication of ruling order.

Suggestion for Readers: – for detailed study please refer any book.

Special Tax Provisions

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Deduction in respect of inter-corporate dividends: – As per section 80M of Income-tax Act, 1961, a domestic company is allowed to get deduction from gross total income if it receives any dividend income from any domestic company or a foreign company, or a business trust.

Least of the following would be deduction: –

  1. Dividend received.
    • OR
  2. Dividend distributed by domestic company before the due date.

Example:- XYZ Ltd. a domestic company received dividend of ₹ 12 Lakhs from ABC Ltd., a domestic company [100% subsidiary of XYZ Ltd.] during the previous year 2022-23. on 15th may, 2023, XYZ Ltd. declares and distributed dividend of ₹ 6 lakhs.

In above example, XYZ Ltd. would receive deduction under Section 80M in respect of dividend received from ABC Ltd. to the extent ₹ 6 lakhs.

Note: – No deduction will get by domestic company in any other previous year, if domestic company has already received deduction under this section in any previous year.

Note: – Meaning of due date– Due date means the date which comes prior to the date for furnishing the return of income under section 139(1).

Deduction in respect of profits and gains by an undertaking or enterprise engaged in development of Special Economic Zone Section 80-IAB

As per section 80-IAB of Income-tax Act, 1961, a developer whose gross total income includes any profits and gains derived by an undertaking or an enterprise from any business of developing a Special Economic Zone, notified on or after 01.04.2005 under the SEZ Act, 2005.

Further, the eligible assessee is the developer.

In addition, Developer means a person who has been granted a letter of approval by the Central Government or a State Government which has been granted a letter of approval by the Central Government under SEZ Act, 2005.

And, a developer includes an authority and a Co-developer [a person or State Government who has a letter of approval of Central Government under SEZ Act, 2005].

Deduction: – 100 % of the profits and gains derived from any business of developing a Special Economic Zone for 10 consecutive assessment years.

Lastly, Important note:- The assessee has option to claim deduction for any ten consecutive assessment years out of fifteen years beginning from the year in which a Special Economic Zone has been notified by the Central Government. And, If the developer transfers the operation and maintenance of such Special Economic Zone to another developer, then deduction shall allow to transferee developer for the remaining period in the 10 consecutive assessment years.

Deductions in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, etc. [Section 80-IA]

As per Section 80-IA of the Income-tax Act,1961, an assessee whose gross total income includes any profits and gains derived by an undertaking or an enterprise from the business mentioned below is eligible to avail the deduction of 100% of profits and gains from the gross total income for 10 consecutive assessment years

Infrastructure facility: – Any enterprise carrying on the business of: –

  1. developing or
  2. operates and maintains or
  3. develops, operates and maintains any infrastructure facility.

However, the enterprise must fulfill the following conditions: –

  1.  it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act.
  2.  it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i)developing or (ii)operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility.
  3.  it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995

Provided that where an infrastructure facility is transferred on or after 01.04.1999 by an enterprise which developed such infrastructure facility to another enterprise in accordance with  the agreement with the Central Government, State Government, local authority or statutory body, then transferee company can avail deduction for remaining period.

Further, Infrastructure facility means: –

(a) a road including toll road, a bridge or a rail system.

(b) a highway project including housing or other activities being an integral part of the highway project.

(c) a water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system.

(d) a port, airport, inland waterway, inland port or navigational channel in the sea.

Note: – Lastly, no deduction to any enterprise which starts the development or operation and maintenance of the infrastructure facility on or after the 01.04.2017.

Industrial Parks: –

Any undertaking which which develops, develops and operates or maintains and operates an industrial park after 31.03.1997 but before 01.04.2011 or special economic zone notified by the Central Government in accordance with the scheme framed and notified after 31.03.1997 but before 01.04.2006.

Further, where an undertaking develops an industrial park on or after 01.04.1999 or a special economic zone on or after 01.04.2001 and transfers the operation and maintenance of such industrial park or such special economic zone to another undertaking, then the transferee will get deduction for remaining period.

Generation and distribution of power: –

An undertaking which: –

(1) is set up in any part of India for the generation or generation and distribution of power if it begins to generate power after 31.03.1993 but before 01.04.2017.

(2) starts transmission or distribution by laying a network of new transmission or distribution lines after 31.03.1999 but before 01.04.2017

(3) undertakes substantial renovation and modernization of the existing network of transmission or distribution lines after 31.03.2004 but before 01.04.2017.

Furthermore, substantial renovation and modernization” means an increase in the plant and machinery in the network of transmission or distribution lines by at least 50% of the book value of such plant and machinery as on 01.04.2004.

an undertaking owned by an Indian company and set up for reconstruction or revival of a power generating plant is eligible for deduction if: –

  1. The Indian company forms before 30.11.2005 with majority equity participation by public sector companies for the purposes of enforcing the security interest of the lenders to the company owning the power generating plant and notified by the Central Government before 31.12.2005.
  2. The undertaking begins to generate transmit or distribute power before 31.03.2011
Quantum of deduction and period: – 100% of profits and gains for 10 consecutive assessment years and option to claim such deduction for 10 consecutive assessment years out of 15 years [20 years in case of infrastructure facility].

The deduction from profits and gains is allowed in respect of housing and other activities which are integral part of a highway project but the following conditions should be fulfilled.

  1. The profits has transferred to special reserve account.
  2. The profit is utilized for the highway project excluding housing and other activities before the expiry of 3 years from the year in which amount transferred to reserve account.
  3. The amount remaining unutilized is chargeable to tax as income.

Moreover,

Audit of accounts: – The undertaking is eligible to avail deduction only if accounts have audited by a chartered accountant and assessee furnishes the audit report in the prescribed form duly signed and verified one month prior to due date for filing return of income under section 139(1).

Lastly, the Central Government has power to deny any class of industrial undertaking or enterprise for deduction under this section.

Buy-back of Securities

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Buy-back of securities/Buy-back of shares:-

What is buy-back of shares?

Buy-back of shares means purchase of its own shares by the company from existing shareholders.

Buy-back represents cancellation of shares and decrease of share capital. It means when company buy back of its own shares then, the purpose is to cancel the already issued shares and decrease the share capital and company can not buy its own shares for the purpose of investment.

Advantages/Objectives of Buy-back

  1. To increase the earnings per share.
  2. To reduce the capital.
  3. To increase promoters holding.
  4. To enhance consolidation of stake in the company.
  5. To prevents others to make bid for take over the company.
  6. To support the share price on stock exchange.
  7. To improve return on capital and return on net worth.
  8. To return surplus cash to shareholders.
  9. To achieve optimum capital structure.
  10. To enhance the long-term value for shareholders.

According to section 68(1) of the Companies Act 2013, companies are allowed to buy-back their own shares and other specified securities out of: –

  1. Its free reserves: or
  2. the securities premium account; or
  3. the proceeds of the issue of any shares or other specified securities.

Note: – No buy-back of any kind of shares or other specified securities shall be made out of the proceeds
of an earlier issue of the same kind of shares or same kind of other specified securities.

The important conditions for buy back

According to section 68(2) of the Companies Act, 2013, following conditions must be satisfied if the companies purchase its own shares or other specified securities:

(a). The buy back must be authorized by its articles of association.

(b). A special resolution has been passed at a general meeting relating to the buy back.

however, the above conditions do not apply when the buy back is 10% or less of the paid up equity capital and free reserves and authorized by a board resolution.

(c). The buy back must be ≤ 25% of total paid up capital and free reserves of the company.

(d). The buy back must not be >25% of total paid up capital and free reserves in any financial year.

(e). After buy back, the debt equity ratio should be 2:1, it means the debt should not be more than twice of its equity [paid up capital and its free reserves].

(f). All the shares or other specified securities for buy-back are fully paid-up.

(g). The buy back of listed shares or other specified securities will be in accordance with the regulations made by the Securities and Exchange Board of India.

(h). Buy back in respect of shares or other specified securities other than those specified specified in (f) will be in accordance with the guidelines as may be prescribed.

Note: -The buy back can not be more than in one year.

Explanatory Statement

As per section 68(3), additional requirements are as follows: –

The notice of meeting at which the special resolution is supposed to be passed must be accompanied by an explanatory statement stating: –

  • (a) a full and complete disclosure of all material facts.
  • (b) the necessity for the buy-back
  • (c) the class of shares or securities intended to be purchased under the buy-back.
  • (d) the amount to be invested under the buy-back.
  • (e) the time-limit for completion of buy-back.

3. Every buy back shall be completed within 12 months from the date of passing the special resolution.

4. The buy back may be:

(a) from the existing shareholders or security holders on a proportionate basis; or

(b) from the open market; or

(c) by purchasing the securities issued to employees of the company pursuant to a scheme of stock
option or sweat equity.

5. Solvency declaration– Before making such buy-back, it has to be filed with the Registrar a declaration of solvency signed by at least two directors of the company, one of whom shall be the managing director, if any, and Form as may be prescribed and verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company, as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of one year from the date of declaration adopted by the Board of Directors.

Note: – Company whose shares are not listed on any recognized stock exchange shall not be filled declaration of solvency with Securities and Exchange Board of India.

6. When a company buys-back its own securities, it shall extinguish and physically destroy the shares or securities so bought back within seven days of the last date of completion of buy-back.

7. When a company completes a buy-back of its shares or other specified securities, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares or other specified securities within a period of six months except by way of:

a. issue of bonus ; or

b. in discharging of subsisting obligations, such as conversion of warrants, stock option schemes, sweat
equity or conversion of preference shares or debentures into equity shares.

8. When company buys-back its securities, company shall maintain a register of the shares or securities
so bought, the consideration paid for the shares or securities bought back, the date of cancellation of shares
or securities, the date of extinguishing and physically destroying the shares or securities.

9. A company shall, after the completion of the buy-back under this section, file with the Registrar a return containing such particulars relating to the buyback within thirty days of such completion.

Note: – Companies whose shares are not listed on any recognized stock exchange, no return shall be filled.

10. If a company makes a default in complying with the provisions of this section, company shall be punishable with a fine which shall not be less than one lakh rupees and which may extend to three lakh rupees and every officer of the company who defaults shall be punishable with imprisonment for a term which may extend to three years or with a fine which shall not be less than one lakh rupees and which may extend to three lakh rupees, or with both.

11. Where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserves account and details of such transfer shall be disclosed in the balance sheet.

12. Buy-back shares must be fully paid-up.

13. The capital redemption reserve account may be applied by the company, in paying up unissued
shares of the company to be issued to its members as fully paid bonus shares.

Default Tax Regime | Optional Tax Regime

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Tax rates under default tax regime: –

The slab rates for Assessment Year 2024-25 under default tax regime under section 115BAC of Income-tax Act, 1961

Note:- The basic exemption limit is ₹ 3,00,000 under the default tax regime.

Sr. No.Total income [in ₹]Rate of tax
1Up to ₹ 3,00,000Nil
2From ₹ 3,00,001 to ₹ 6,00,0005%
3From ₹ 6,00,001 to ₹ 9,00,00010%
4From ₹ 9,00,001 to ₹ 12,00,00015%
5From ₹ 12,00,001 to ₹ 15,00,00020%
6Above ₹ 15,00,00030%
Surcharge and Rebate under section 87A: –

Surcharge is an additional tax levied on income-tax.

The rates of surcharge for the Assessment Year 2024-25 for individual who pays tax under default tax regime under section 115BAC are as follows: –

Rates of Surcharge: –

Sr. No.ParticularsSurcharge
1.Total income >₹ 50 lakhs but ≤ ₹ 1 crore 10%
2. Total income >₹ 1 crore but ≤ ₹ 2 crore 15%
3. Total income >₹ 2 crore [including dividend income & capital gains taxable u/s 111A, 112 and 112A].15%
4. Total income >₹ 2 crore [excluding dividend income & capital gains taxable u/s 111A, 112 and 112A].25%
Note:- Rate of surcharge on the income-tax on portion of dividend income and capital gains chargeable u/s 111A, 112 and 112A would be 15% even if total income exceeds ₹ 2 crore in both regime.

Note:- Marginal relief would be available.
Rebate

Rebate under section 87A under default tax regime u/s 115BAC

An individual resident in India whose total income ≤ ₹ 7 lakhs, assessee shall be entitled to a deduction from the amount of income tax.

Least of the following would be rebate –

  1. Amount of income-tax
    • OR
  2. ₹ 25,000

If the total income of such individual >₹ 7 lakhs and income tax payable on such total income exceeds the amount by which total income is in excess of ₹ 7 lakhs, assessee shall be entitled to a deduction from the amount of income tax.

steps to calculate deduction :-

  1. Compute income-tax payable on total income [A]
  2. Total income (–) ₹ 7 lakhs [B]
  3. if A>B, then, rebate would be A-B.

Tax rates under optional tax regime: –

The slab rates for Assessment Year 2024-25 under optional tax regime under regular provisions of Income-tax Act, 1961

Sr. No.Total income [in ₹]Rate of tax
1Up to ₹ 2,50,000 [if age is below 60 years]
Up to ₹ 3,00,000 [ if age is 60 years or above but less than 80 years and resident in India]
Up to ₹ 5,00,000 [ if age is 80 years or above and resident in India]		Nil
2From ₹ 2,50,001 to ₹ 5,00,000 5%
3From ₹ 5,00,001 to ₹ 10,00,00020%
4Above ₹ 10,00,00030%
Rates of Surcharge: –
Sr. No.ParticularsSurcharge
1.Total income >₹ 50 lakhs but ≤ ₹ 1 crore10%
2.Total income >₹ 1 crore but ≤ ₹ 2 crore15%
3.Total income >₹ 2 crore [including dividend income & capital gains taxable u/s 111A, 112 and 112A].15%
4.Total income >₹ 2 crore but ≤ ₹ 5 crore25%
5.Total income >₹ 5 crore 37%
Note:- Marginal relief would be available.

Rebate under section 87A under optional tax regime under normal provisions of the Act.

An individual resident in India whose total income ≤ ₹ 5 lakhs, assessee shall be entitled to a deduction from the amount of income tax.

Least of the following would be rebate –

  1. Amount of income-tax
    • OR
  2. ₹ 12,500

Note:- Rebate under section 87A of the Income-tax Act, 1961 is not available from tax on long term capital gain u/s 112A.

Suggestion:- u/s represents under section.

Health and Education cess @4% on income-tax and surcharge, if applicable.

Amalgamation| Absorption| External Reconstruction

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Meaning of Amalgamation:-

Amalgamation means where two or more companies are merged to form a single entity.

Example: – Company X and Company Y merge to form Company Z. This is called as amalgamation. Here, company X and company Y are called transferor companies and company Z is called as transferee company. In addition to this, transferor company is also called as vendor company and transferee company is also called as vendee company.

Absorption:- When company takes over the other by outright purchase.

Example: – Company X taken over [purchased] by company Y. This is called as absorption. Here, Company X is called as transferor company and company Y is called as transferee company.

External Reconstruction:- When new company is formed to take over the business of an existing company which is wound-up.

Example: – Company Y is formed to take over the business of X. This is called as external reconstruction.

Note: – External reconstruction can be seen where company has been suffering from losses for past years.

Differences among Amalgamation, Absorption and External Reconstruction:-

Sr. No.BasisAmalgamationAbsorptionExternal Reconstruction
1.MeaningWhen two or more companies are combined to form a new company or entity.
Old companies are wound up.		When one existing company takes over the business of another existing company.
Old company is wound up and the new company will continue in business.		When new company is formed to take over the business of an existing company.
One company takes over the business of an existing loss making company.
2.ExampleX Company + Y Company = Z Company [New Company].X company taken over by Y company
Y company will continue in business. 		Y company is formed to take over the business of X.
3.Minimum number of companies requiredAt least three.At least two.only two.
4.ResultOne company is formed, two companies are wound up.No new company is formed.New company is formed to take over business of existing.
5.ReasonEliminate competition/Economies of large scale operations.Eliminate competition/Economies of large scale operations.Reorganize the financial structure of the company.

Types of Amalgamation:- As per AS 14, there are two types of amalgamation.

  1. Amalgamation in the nature of merger: – Amalgamation which satisfies the following conditions is called as ‘amalgamation in the nature of merger‘.
    • After amalgamation, all the assets and liabilities of transferor company become the assets and liabilities of the transferee company.
    • Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held by the transferee company or its subsidiaries or their nominees immediately before the amalgamation) become equity shareholders of the transferee company by virtue of the amalgamation.
    • The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares.
    • After the amalgamation, the intention of the transferee company is to be carried on the business of the transferor company.
    • No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.
  2. Amalgamation in the nature of purchase: – Amalgamation which doesn’t satisfy one one or more of the above conditions, then, such amalgamation is called as amalgamation in the nature of purchase.

Difference between amalgamation in the nature of merger and amalgamation in the nature of purchase

BasisAmalgamation in the nature of MergerAmalgamation in the Nature of Purchase
Transfer of Assets & LiabilitiesAll the assets and liabilities are to be transferred by transferor company to transferee company.No need to transfer all the assets & liabilities.
ShareholdersEquity shareholders holding at least 90% equity shares in transferor company become shareholders of the transferee company.Equity shareholders of transferor company need not become shareholders of the transferee company.
Same businessThe transferee company is intended to be carried on the same business of transferor company.The transferee company need not be intended to be carried on the business of the transferor company.
Purchase considerationPC is discharged wholly by issue of equity shares.PC need not be discharged wholly by issue of equity shares.
Recording of Assets & LiabilitiesAt net cost as reflected in a company’s book. [except where adjustment is required to bring uniformity].At net cost or fair values.
Method of AccountingPooling of interest method.Purchase method.
Methods of calculating Purchase Consideration: – these are the following methods to compute purchase consideration: –
  1. Lumpsum method:– as the name suggests, in this method, the transferee company agrees to pay a fixed/lumpsum amount to shareholders of the transferor company.
  2. Net payment method: – under this method, the transferee company makes payments to the equity and preference shareholders.
  3. Net asset method: – in this method, purchase consideration is calculated by subtracting the outside liabilities [except share capital and reserves] from the value of assets taken over by the transferee company [book value/agreed value].
  4. Intrinsic value: – Under this method, purchase consideration is calculated at the intrinsic value of shares.

Income Tax | Provident Funds and its types.

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Provident Fund: – It is a retirement saving scheme for employee to give substantial benefits at the time of retirement. Under this scheme, a specified sum is deducted from the salary of employee at every month as his contribution.

In addition to this, employer also contribute the same amount to the fund.

Components of balance in a provident fund of an employee are as follows:-

  1. Employee’s own contribution.
  2. Employer’s contribution.
  3. Interest on both employee and employer’s contribution.

At the time of retirement or resignation, accumulated balance of PF is paid to employee or his/her legal heirs.

Under section 80C of Income-tax Act, 1961, deduction is available on saving in a provident fund account.

Types of Provident Funds:-

ParticularsStatutory Provident Fund [SPF]Recognised Provident Fund [RPF]Unrecognised Provident Fund [URPF]Public Provident Fund [PPF]
Covered underProvident Funds
Act,1925		EPF and Miscellaneous Provisions Act, 1952
It is recognised by the Commissioner of Income-tax.		No Act
It is not recognised by the Commissioner of Income-tax.		Public Provident Fund Act,1968
Contributed byEmployer and
employee		Employer and
employee		Employer and
employee		Every individual
Employee’s contributionDeduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).Deduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).No eligibility for deduction.Deduction is available under section 80C, if the employee exercises the option of shifting out of the default tax regime under section 115BAC (1A).
Employer’s contributionFully exempt.Excess of 12% of salary is taxable salary under section 17(1).Not taxable N.A [only assesse can contribute].
Interest credited on employee’s contributionExempt upto certain limit of contribution. Excess of 9.5% p.a is taxable under salary under section 17(1).Not taxableFully exempt.
Interested credited in employer’s contributionFully exempt.Excess of 9.5% p.a is taxable under salary under section 17(1)Not taxableN.A

Amount withdrawn on retirement or termination:-

ParticularsStatutory Provident Fund [SPF]Recognised Provident Fund [RPF]Unrecognised Provident Fund [URPF]Public Provident Fund [PPF]
Amount withdrawn on retirement or termination or resignationExempt under section 10(11).Exempt under section 10(12) subject to certain conditions.1. Employee’s contribution is not taxable.
2. Interest on employee’s contribution is taxable under income from other sources.
3. Employer’s contribution and interest thereon is salary		Exempt under section 10(11)
Note:-Interest on employee’s contribution in any previous year in the fund mentioned below on or after 01.04.2021 would be exempt upto the limit as mentioned below.
Contribution under SPF and RPF is upto the exemption limit i.e., Rs. 2,50,000 [Rs. 5,00,000, in case of fund in which there is no employer’s contribution].

Note:- As per section 10(11) [fund covered under PF Act, 1925] & 10(12) [RPF], exemption would not be available in respect of income by way of interest on contribution [if contribution extends the exemption limit i.e., Rs. 2,50,000/5,00,000.

Salaries-Allowances

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Allowances are fixed periodic amounts which are paid by an employer to employees for the purpose of meeting some particular expenditure whether personal or for the performance of duties.

Allowances are taxable on due or receipt basis, whichever is earlier.

Treatment of allowances under default tax regime u/s 115BAC

Sr. No.Fully taxablePartly exemptfully exempt
1Dearness Allowance Travelling AllowanceAllowance to Government employee outside India [u/s 10(7)]
2City Compensatory Allowance Conveyance Allowance
3Fixed Medical AllowanceDaily Allowance
4Entertainment AllowanceTransport Allowance to blind/deaf and dumb/orthopedically handicapped employee
5Overtime Allowance
6Servant Allowance
7Project Allowance
8Interim Allowance
9Tiffin/Lunch/Dinner Allowance
10Warden Allowance
11Non-practicing Allowance
12Any Cash Allowance
13House Rent Allowance [u/s 10(13A)]
14Transport Allowance to employee other than blind/deaf and dumb/orthopedically handicapped employee
15Helper Allowance
16.Research Allowance
17Uniform Allowance
18Special Compensatory (Hill Areas) Allowance
19Special Compensatory [Border Area/Difficulty/Remote Locality/Disturb Area /Tribal/Schedule/Agency /Field /Modified Field Areas Allowance
20Any Special Allowance
21Underground Allowance
22Exempt only in Optional Tax Regime-
Allowance to Supreme Court/High Court Judges
Allowance received from UNO
Sumptuary Allowance

Deduction from Gross Total Income

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Deduction in respect of payments:-

SectionEligible AssesseePaymentsDeduction
80CIndividual or HUF1.      Life insurance premium Contribution. [Life insurance + Endowment policy]
2.      Contribution to SPF/RPF/PPF/Superannuation fund.
3.      Repayment of housing loan.
4.      Term deposit [FD]
5.      Notified bonds of NABARD.
6.      Senior Citizen’s Saving Scheme Account.
7.      Tuition fees.
8.      Contribution by CG employee to [Tier-II] A/c of NPS referred to u/s 80CCD.		Sum paid or deposited -maximum of Rs. 1,50,000
80CCCIndividualContribution to certain pension funds
Amount paid or deposited to keep in force a contract for any annuity plan of LIC or any other insurer for receiving pension from the fund.		Amount paid or deposited- maximum of Rs. 1,50000
80 CCDIndividualAny individual employed by the Central Government on or after the 1st day of January, 2004 or any other assessee, paid or deposited any amount in his a/c under a pension scheme [Tier-I A/c – NPS and Atal Pension].Employee’s contribution/Individual’s contribution
1.      In case of a salaried individual having own contribution is restricted to 10% of his salary [Basic + DA [If] under section 80CCD(1).
2.      In any other case 20% of gross total income under section 80CCD(1).
3.      Additional deduction of upto Rs. 50,000 under section 80CCD(1B).
Employer’s contribution under section 80CCD(2):-
In case of CG/SG, contribution is restricted to 14%
In case of any other employer, contribution is restricted to 10%
80CCE.Maximum deduction u/s 80C, 80CCC and CCD(1) is Rs. 1,50,000
 
Section 80CCE doesn’t apply to deduction u/s 80CCD(1B) and 80CCD(2).
 
80DIndividual or HUFMedical Insurance Premia
 
Any amount paid, otherwise than by way of cash, to keep in force an insurance on the health of: –
 
In case of an individual:-
Self and family [spouse and dependent children]
Parents
 
In case of HUF:-
Family member
 
Contribution, otherwise than by way of cash, to CGHS or other scheme notified by CG or payment on account of Preventive health check-up [Maximum deduction-Rs. 5000, subject to the overall limit of Rs. 25,000/50,000]
Note- Cash payment for preventive health check-up is allowed.
 
Important Note: – if any amount paid, otherwise than by way of cash, on account of medical expenditure on the health of the assessee or spouse, dependent children or parents who is senior citizen and no amount has been paid to effect or to keep in force an insurance on the health
 		 
 
 
 
 
Maximum Rs. 25,000
In case the individual or spouse is a senior citizen, the maximum limit is Rs. 50,000
 
 
 
 
 
 
 
 
 
 
 
Total deduction cannot exceed Rs. 50,000
 
 

Deduction in respect of payments:-

SectionEligible AssesseePaymentsDeduction
80DDResident Individual or HUFMaintenance including medical treatment of a disabled dependant
Any amount incurred for the medical treatment (including nursing), training and rehabilitation of a dependant or
Any amount paid or deposited under a scheme framed in this behalf by the Life Insurance Corporation or any other insurer or the Administrator or the specified company and approved by the Board.
 
Dependent means: –
In the case of: –
An individual– Spouse, children, parents, brothers and sisters
A HUF– Member
 
 
 
 		Flat deduction of Rs. 75,000
Flat deduction of Rs. 1,25,000 [in case of severe disability [person with 80% or more disability.
80DDBResident Individual or HUFMedical treatment of specified diseases or ailments 
Amount paid for the medical treatment for specified disease or ailment
In the case of: –
An individual– Self, spouse, children, parents, brothers and sisters wholly and mainly dependent for support and maintenance.
A HUF–Member
 
 		Actual amount paid or Rs. 40,000 [Rs. 1,00,000 for senior citizen]
       Whichever is less
                 Minus
Amount received from the insurance company or reimbursed by the employer.
 
       80EIndividualInterest on loan taken for higher education
Interest on loan taken from any financial institution or approved charitable institution for the purpose of pursuing his higher education or relative
 
Relative [spouse, children or the student for whom the individual is legal guardian].
Higher education- [after passing the Senior Secondary Examination or its equivalent]		Deduction is allowed for interest in the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the interest is paid by the assessee in full, whichever is earlier.
 
 80EEB IndividualInterest on loan taken from any financial institution for purchase of electric vehicle.Upto Rs. 1,50,000
 
Note- Loan has been sanctioned by financial institution during the period from 01.04.209 to 3.03.2023

Section 80G

80GAll AssesseesDonation to certain funds, charitable institution etc.
There are 4 categories of deductions: –
Category
Donee
100% without qualifying limit
1.      Prime Minister’s National Relief Fund.
2.      National Childre’s Fund.
3.      Swachh Bharat Kosh
4.      PM CARES Fund
5.      National Defence Fund etc.
100% with limit
Government or local authority, institution for promotion of family planning etc.
50% without qualifying limit
1.      Prime Minister’s Drought Relief Fund.
2.      Jawaharlal Nehru Memorial Fund.
3.      Indira Gandhi Memorial Trust.
4.      Rajeev Gandhi Foundation.
50 % with limit
Government or any local authority to be used for charitable purpose other than promotion of family planning, notified temple, church, gurudwara, Mosque etc.
 
 
Calculation of qualifying limit: –
Steps: –
1.      Computed adjusted total income
 
          GTI –
Deductions under Chapter VIA except section 80G
Short capital gains under section 111A
Long term capital gains under section 112 and 112A
 
2.      Calculate 10% of adjusted total income
3.      Actual donation subject to qualifying limit
4.      Lower of step 2 and 3 is the maximum permissible deduction.
5.      Deduction is adjusted first against donation qualifying for 100% deduction thereafter 50% of balances qualifies for deduction under this section 80G.
 
Note: – No deduction is allowed if it is paid in cash in excess Rs. 2,000
 
 
SectionEligible AssesseePaymentsDeduction
80GGIndividual who doesn’t receive HRARent paid for own residential accommodation [furnished or unfurnished]Least of the following is deductible: –
1.      Rs. 5,000 per month
2.      Rent paid minus 10% of total income
3.      25% of total income
 
Note: – No deduction is available, If any residential accommodation is owned by the assessee/his spouse/minor child/family [HUF] at the place where he ordinarily resides or perform the duties of his office or employment or carries on his business or profession.
80GGCAny Person [except local authority and artificial juridical person juridical person funded by Government]Contribution to political parties/electoral trustAmount of contribution
 
Note: – No deduction if contribution by way of cash
80QQBResident individualRoyalty income etc. of authors of certain books other than text-booksLeast of the following is deductible: –
1. Income derived in the exercise of his profession
Or
2. Rs. 3,00,000 
 
80RRBResident individualRoyalty on patentsRoyalty income or Rs. 3,00,000
 
whichever is lower.

Deduction in respect of Income

SectionEligible assesseeIncomeDeduction
80TTAIndividual or HUF [Resident senior citizen]
 
 		Interest on deposits in saving account Saving account with a bank, co- operative society [engaged in banking business] or a Post Office
Note: – not being time deposits
 		Actual interest or
Rs. 10,000
Whichever is less
 
80TTBResident senior citizenInterest on deposits [Fixed deposits and saving account]
Interest on deposits with a bank, co-operative society [engaged in banking business] or a Post Office
 
 		Actual interest
or
Rs. 50,000
Whichever is less
 
 
80UResident individualPerson with disability
 		Flat deduction of Rs. 75,000
Flat deduction of Rs. 1,25,000 [in case of severe disability [person with 80% or more disability]

Slab Rates for A.Y 2024-25 for Optional Tax Regime

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Slab rates applicable to an Individual/HUF/AOP/BOI/Artificial Juridical Person who has exercised the option of shifting out of the default tax regime.

Sr. No.Total IncomeRate of Tax
1. Upto Rs. 2,50,000Nil
2. From Rs. 2,50,001 to Rs. 5,00,0005%
3. From Rs. 5,00,001 to Rs. 10,00,00020%
4. Above Rs. 10,00,00030%
Slab rates for a senior citizen [resident individual whose age is 60 years or more but less than 80 years] at any time during the previous year.
Sr. No.Total IncomeRate of Tax
1.Upto Rs. 3,00,000Nil
2.From Rs. 3,00,001 to Rs. 5,00,0005%
3.From Rs. 5,00,001 to Rs. 10,00,00020%
4.Above Rs. 10,00,00030%
Slab rates for a super senior citizen [resident individual whose age is 80 years or more] at any time during the previous year.
Sr. No.Total IncomeRate of Tax
1.Upto Rs. 5,00,000Nil
2.From Rs. 5,00,001 to Rs. 10,00,00020%
3.Above Rs. 10,00,00030%
Note:- As per Circular No. 28/2016, dated on 27-07-2016 resident individual who attains the age of 60 years or 80 years at the date of his birth falls on 1st April would be consider that age of 60 years or 80 years has completed.

Example:-

  1. If a resident individual whose 60th or 80th birthday falls on 1st April, 2024, would be treated to have completed the age of 60 or 80 years in previous year 2023-24.

Default Tax Regime under Income Tax Act, 1961

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Default tax regime under section 115BAC of the Income tax Act, 1961

Under the default tax regime, income tax shall be computed at the following rates, subject to certain conditions under section 115BAC(2)(i).

Sr. No.Total IncomeRate of tax
1.Upto Rs. 3,00,000Nil
2.From Rs. 3,00,001 to Rs. 6,00,0005%
3.From Rs. 6,00,001 to Rs. 9,00,00010%
4.From Rs. 9,00,001 to Rs. 12,00,00015%
5.From Rs. 12,00,001 to Rs. 15,00,00020%
6.Above Rs. 15,00,00030%

Conditions:-

Total income shall be computed without certain exemptions or deductions:-

  1. Leave travel concession under section 10(5).
  2. House rent allowance under section 10(13A).
  3. Special allowance under section 10(14).
  4. Daily allowances or constituency allowance of MPs and MLAs under section 10(17).
  5. Income of minor child [section 10(32)].
  6. Interest on loan in respect of self-occupied property under section 24(b).
  7. Additional depreciation under section 32(1)(iia).
  8. Deduction in respect of contribution to notified approved research association/university/college/other institution for scientific research under section 35(1)(ii).
  9. Deduction in respect of contribution to approved Indian company for scientific research under section 35(1)(iia).
  10. Deduction in respect of contribution to notified approved research association/university/college/other institutions for research in social science or statistical research under section 35(1)(iii).
  11. Deduction in respect of contribution to approved National laboratory/university/IIT/specific person for scientific research undertaken under an approved programme under section 35(2AA).
  12. Deduction in respect of expenditure on specified business under section 35(AD).
  13. Deduction under Tea development account, coffee development account and rubber development account under section 33AB.
  14. Deduction under Site Restoration Fund under section 33ABA.
  15. Deduction in respect of expenditure on agricultural extension project under section 35CCC.
  16. Tax holiday for units established in Special Economic Zone under section 10AA
  17. Entertainment allowance under section 16(ii).
  18. Professional tax under section 16(iii).
  19. Deduction under Chapter VI-A other than Deduction in respect of employer’s contribution to NPS pension scheme of Central Government under section 80CCD(2).
    • Deduction in respect of contribution of Central Government to Agnipath Scheme under section 80CCH(2).
    • Deduction in respect of employment of new employees under section 80JJAA.

Note:- Losses are not allowed to be set-off.

  1. Carry forwarded or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to above.
  2. Under the head “Income from house property” with any other head of income.

Under this default tax regime:- individual/HUF/AOPs [other than a cooperative society]/BOIs or artificial juridical person are covered.