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CA Final Direct Tax Guide AY 2022-23

This document provides an overview of income tax law in India. It discusses the key sources of income tax law including the Income Tax Act of 1961, Income Tax Rules of 1962, the annual Finance Act, circulars and notifications from the Central Board of Direct Taxes, and Supreme Court and High Court decisions. It then covers basic concepts like the charge of income tax, assessment year, previous year, definitions of person and assessee. Finally, it outlines the income tax rates for the assessment year 2022-23 for individuals, HUFs, AOPs, BOIs and artificial judicial persons.

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0% found this document useful (0 votes)

499 views75 pages

CA Final Direct Tax Guide AY 2022-23

Uploaded by

Mars

We take content rights seriously. If you suspect this is your content, claim it here.

Available Formats

Download as PDF, TXT or read online on Scribd

CA FINAL

DIRECT
TAX
Vol. 01

CA Bhanwar Borana
INDEX
1 Basic Concepts & Tax Rates for AY 2022-23 1
2 Capital Gains 38
3 Income from Other Sources 158
4 Taxation of Dividend, Deemed Dividend,
Liquidation & Buyback 176
5 Bonus Stripping & Bond Washing Transactions 202
6 Profit & Gain from Business or Profession 208
7 ICDS 337
1
Basic Concepts & Tax Rates for Assessment
Year 2022-23
Income-tax is the most significant direct tax. Entry 82 of the Union List i.e., List I in the Seventh Schedule
to Article 246 of the Constitution of India has given the power to the Parliament to make laws on taxes on
income other than agricultural income.

Sources of Income Tax Law

1. Income Tax Act, 1961
IT Act is the main source of Income tax law. It’s provide determination of Total Income, Tax Liability &
Procedure of assessment etc. It extends to the whole of India. It came into force on 1st April, 1962. It contains
sections 1 to 298 and schedules I to XIV. It undergoes a change every year by the Annual Finance Act passed
by Parliament, and other legislations like the Taxation Laws (Amendment) Act.
2. Income Tax Rules, 1962
IT Act empowered Central Board of Direct Tax (CBDT) to make rules. All Forms, procedure, principles of
Valuation of perquisites are provided in the Rules.
3. Finance Act
(a) Presenting the Bill: Every year, the Finance Minister presents a Finance Bill in the parliament,
which contains various amendments proposed to be made in the direct and indirect taxes. Finance
Bill, 2021 presented by Nirmala Sitharaman on 1st February, 2021.
(b) Approval & Assent of Bill: As soon as the Bill passed by both the houses of the parliament and
thereafter receives the assent of President, in becomes the Finance Act. Finance Bill, 2021 became
Finance Act, 2021 on 28th March, 2021 after receive assent of president.
(c) Amendments: The amendments proposed therein are then incorporated in the Income Tax Act. The
FA brings amendments to Direct Tax Laws & it provides Tax rates also.
The First Schedule to the Finance Act contains four parts which specify the rates of tax -
Ø Part I of the First Schedule to the Finance Act specifies the rates of tax applicable to the current
Assessment Year.
Ø Part II specifies the rates at which tax is deductible at source for the current Financial Year.
Ø Part III gives the rates for calculating income-tax for deducting tax from income chargeable under the
head “Salaries” and computation of advance tax.
Ø Part IV contains the rules for computing net agricultural income.
4. Circulars/Notifications from CBDT
Circulars are issued by the CBDT to clarify the meaning & scope of certain provisions contained in the Act.
Notifications are issued by Central Govt./CBDT to give effect to the provision of The Act.
Circulars are binding to Assessing officer but not on Assessee and Courts. However Assessee can take
advantage of Circulars which are beneficial to them.

CA Bhanwar Borana 1
Basic Concepts & Tax Rates for Assessment Year 2022-23

5. Supreme Court & High Court Decisions

Various issues which are arise out of the provisions of the Act are decided by HC/SC. The SC is the Apex
Court of the Country and the law laid down by the SC is the law of the land. The decisions given by various
High Courts will apply in the respective states in which such High Courts have jurisdiction.
Charge of Income Tax Sec: 4
- Income Tax is charged for every Assessment Year
- It is charge on every person as define u/s 2(31).
- It is charge on the total income earned by the person during Previous Year.
- The tax is levied at the rates prescribed by Finance Act.
Assessment Year Sec: 2(9)
A.Y. means the period of twelve months commencing on the 1st day of April every year. Income earned in
Previous year is taxed in Assessment year. The A.Y. 2022-23 is a period of 12 months commencing from the
1st April 2022 and ending on 31st March 2023.
Previous Year Sec: 3
P.Y. means the financial year immediately preceding the assessment year.
For A.Y. 22-23, the PY shall be period from 1st April 2021 to 31st March 2022 & the total income earned in
PY 21-22 is assessed in the AY 22-23.
Provided that, in the case of a business or profession newly set up, or a source of income newly coming into
existence, in the said financial year, the previous year shall be the period beginning with the date of setting up
of the business or profession or, as the case may be, the date on which the source of income newly comes into
existence and ending with the said financial year.
Person Sec: 2(31)
Person includes—
- Individual
- Hindu Undivided Family (HUF)
- Company
- Firm (Includes LLP)
- Association of Person or Body of Individual (AOP/BOI)
- Local Authority
- Artificial juridical person
Assessee Sec: 2(7)
It means any person who is liable to pay any tax or any other sum under IT Act, 61
It includes-
- Every person in respect of whom any proceeding under the Act has been taken for the assessment of:—
(a) his income; or
(b) the income of any other person in respect of which he is assessable ; or
(c) the loss sustained by him or such other person ; or

2 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

(d) the amount of refund due to him or to such other person.

- Every Person who is deemed to be assessee under any provision of this Act. (Trustee of Trust are
representative assessee
- Every person who is deemed to be an assessee-in-default under any provision.

Certain cases where Income assessed to tax in PY itself Sec:172,174,174A,175,176

1. Shipping business of non-resident [Section 172]: Where a ship, belonging to or chartered by a non-
resident, carries passengers, livestock, mail or goods shipped at a port in India, the ship is allowed to
leave the port only when the tax has been paid or satisfactory arrangement has been made for
payment thereof. 7.5% of the freight paid or payable to the owner or the charterer or to any person on
his behalf, whether in India or outside India on account of such carriage is deemed to be his income
which is charged to tax in the same year in which it is earned.

2. Persons leaving India [Section 174]: Where it appears to the Assessing Officer that any individual
may leave India during the current AY or shortly after its expiry and he has no present intention of
returning to India, the total income of such individual for the period from the expiry of the respective
PY up to the probable date of his departure from India is chargeable to tax in that AY.

3. AOP/ BOI/ Artificial Juridical Person formed for a particular event or purpose [Section 174A] :
If an AOP/ BOI etc. is formed or established for a particular event or purpose and the Assessing
Officer apprehends that the AOP/ BOI is likely to be dissolved in the same year or in the next year,
he can make assessment of the income up to the date of dissolution as income of the relevant AY.

4. Persons likely to transfer property to avoid tax [Section 175] : During the current AY, if it
appears to the AO that a person is likely to charge, sell, transfer, dispose of or otherwise part with any
of his assets to avoid payment of any liability under this Act, the total income of such person for the
period from the expiry of the PY to the date, when the AO commences proceedings under this section
is chargeable to tax in that AY.

5. Discontinued business [Section 176] : Where any business or profession is discontinued in any
assessment year, the income of the period from the expiry of the previous year up to the date of such
discontinuance may, at the discretion of the AO, be charged to tax in that AY.

CA Bhanwar Borana 3
Basic Concepts & Tax Rates for Assessment Year 2022-23

Tax Rates for Assessment Year 2022-23

A. In case of every Individual, HUF, AOP, BOI, Artificial Juridical Person
1. In case of every Individual (other than the individual referred in 2 and 3) or in case of Hindu
Undivided Family, AOP, BOI, Artificial Juridical Person (Residential as well as non-residential):

Total Income Rates of Income-tax

Upto ` 2,50,000 NIL

> ` 2,50,000 upto ` 5,00,000 5%

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

2. In case of every individual, being a resident in India, who is the age of 60 years or more but less
than 80 years at any time during the PY:

Total Income Rates of Income-tax

Upto ` 3,00,000 NIL

> ` 3,00,000 upto ` 5,00,000 5%

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

3. In case of every individual, being a resident in India, who is the age of 80 years or more at any
time during the PY:

Total Income Rates of Income-tax

Upto ` 5,00,000 NIL

> ` 5,00,000 upto ` 10,00,000 20%

> ` 10,00,000 30%

ü Surcharge:
(a) 10% of the Income Tax, where taxable income is more than ` 50 lakhs and upto ` 1 crore.
(b) 15% of the Income Tax, where taxable income is more than ` 1 crore upto ` 2 crore.
(c) 25% of the Income Tax, where taxable income is more than ` 2 crore upto ` 5 crore.
(d) 37% of the Income Tax, where taxable income is more than ` 5 crore.

4 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

CIRCULAR: 28/2016, dated 27 July,2016

Issue: A Clarification regarding attaining prescribed Age of 60 years/80 years on 31st March itself, in
case of Senior/Very Senior Citizens whose date of birth falls on 1st April, for purposes of Income-tax
Act, 1961
Ø Higher tax exemption limits have been prescribed for resident senior citizen taxpayers who have
attained the age of sixty years. Even in such cases, the exemption limit is still higher for very senior
citizens who have attained the age of eighty years. A doubt has been raised about the attainment of
the aforesaid qualifying ages for availing higher exemption in cases of the persons whose date of
birth falls on 1st April of calendar year. In other words, the broader question under consideration is
whether a person born on 1st April of a particular year can be said to have completed a particular age
on 31st March, on the preceding day of his/her birthday, or on 1st April itself of that year.
Ø The matter has been examined. Although specific provision does not exist in this regard under the
Income-tax Act, 1961, the Hon'ble Supreme Court had an occasion to consider a similar issue in the
case of Prabhu Dayal Sesma v State of Rajasthan & another 1986, AIR, 1948 wherein it has dealt
with on the general rules to be followed for calculating the age of the person. In this judgment, Apex
Court observed that while counting the age of the person, whole of the day should be reckoned and it
starts from 12 o'clock in the midnight and he attains the specified age on the preceding, the
anniversary of his birthday.
Ø In view of the aforesaid judgment, the CBDT, in exercise of powers under section 119 of the Act,
hereby clarifies that a person born on 1st April would be considered to have attained a particular age
on 31st March, the day preceding the anniversary of his birthday. In particular, the question of
attainment of age of eligibility for being considered a senior/very senior citizen would therefore be
decided on the basis of above criteria.
B. In case of every Firms (including LLPs)/Local Authority ® 30% of the Total income.
ü Surcharge: 12% of the Income Tax, where taxable income is more than ` 1 crore.
C. In case of Co-operative societies

Total Income Rates of Income-tax

Upto ` 10,000 10%

> ` 10,000 upto ` 20,000 20%

> ` 20,000 30%

ü Surcharge: 12% of the Income Tax, where taxable income is more than ` 1 crore.
D. In Case of Domestic Company
(a) Where its Total Turnover or the gross receipts in the Previous Year 2019-20 doesn’t exceed ` 400
Crore rupees: 25% of Total Income
(b) Other than above: 30% of Total Income
(Amended by Finance Act, 2021)
ü Surcharge: 7% of such income tax, if the total income exceed ` 1 Crore but does not exceed ` 10
Crores. Where total income exceeds ` 10 Crores, surcharge shall be levied at 12% of such income tax

CA Bhanwar Borana 5
Basic Concepts & Tax Rates for Assessment Year 2022-23

E. In Case of Foreign Company : 40% of the Total Income

ü Surcharge: 2% of such income tax, if the total income exceed ` 1 Crore but does not exceed ` 10
Crores. Where total income exceeds ` 10 Crores, surcharge shall be levied at 5% of such income tax

Health & Education Cess

In All the above cases Health and Education Cess @ 4% of the Total of Income Tax & Surcharge

Rounding off of Income and Tax Sec. 288A/288B

Any amount of Income and Tax rounded off to the nearest ` 10
Rebate in case of certain Individuals Sec. 87A
An assessee, being an individual resident in India, whose total income does not exceed ` 5,00,000 shall be
entitled to a deduction, from the amount of income-tax on his total income with which he is chargeable for
any AY of an amount equal to 100% of such income-tax or an amount of ` 12,500 whichever is less.
Marginal Relief
If there is marginal increase in income over 50 Lakhs/1 Crore/2 Crore/5 Crore (in case of Ind/HUF/AOP/
BOI/AJP) or 1 Crore (in case of Company/Firm/local Authority/Co. op. society) or 10 Crore (in case of
Company), surcharge is applicable on entire amount of income tax and as a result increase in tax is more than
the increase in income. In order to remove this defect, assessee shall be allowed relief to the extent increase in
tax is more than the increase in income and it is called marginal relief and it can be shown in the manner
given below:

Compute Tax liability of Shivani Ltd., a domestic company, assuming that the total
EXAMPLE 1: income is ` 1,01,00,000. T/o of PY 2019-20 is ` 380 Crore.

_____________________________________________________________________________________

________________________________________________________________________________

6 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

Compute Tax liability of BB Ltd., a domestic company, assuming that the total income
EXAMPLE 2: is ` 10,01,80,000. T/o of PY 2019-20 is ` 480 Crore.

_____________________________________________________________________________________

Compute Tax liability of Ms. Preeti, an individual, assuming that total income is
EXAMPLE 3: ` 60,00,000

_____________________________________________________________________________________

CA Bhanwar Borana 7
Basic Concepts & Tax Rates for Assessment Year 2022-23

Compute Tax liability of Mr. Virat, an individual, assuming that total income is
EXAMPLE 4: ` 1,02,30,000

_____________________________________________________________________________________

Compute Tax liability of Mr. Yadav, an individual, assuming that total income is `
EXAMPLE 5: 5,07,30,000

_____________________________________________________________________________________

_____________________________________________________________________________________
8 CA Final Direct Tax - Vol. 01
Basic Concepts & Tax Rates for Assessment Year 2022-23

Compute Tax liability of Ms. Deepika, an individual, assuming that total income is
EXAMPLE 6: ` 2,04,40,000

_____________________________________________________________________________________

Compute Tax liability of Mr. Hashmukh, an individual, assuming that total income is
EXAMPLE 7: ` 4,30,000

_____________________________________________________________________________________

_____________________________________________________________________________________
CA Bhanwar Borana 9
Basic Concepts & Tax Rates for Assessment Year 2022-23

Compute Tax liability of Mr.BB, an individual, assuming that total income is `

EXAMPLE 8: 5,00,000 & ` 5,05,000

_____________________________________________________________________________________

10 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

Surcharge where Total Income includes Dividend, LTCG 112A & STCG 111A
Reliefs from enhanced surcharge to Individual, HUF, AOP, BOI and AJP assessees:

(i) No matter how high the total income level of assessee, the surcharge on Dividend Income,
Capital gains under section 111A & section 112A shall not exceed 15%.
(ii) Surcharge will be 10% on tax on Dividend Income, capital gains under section 111A & section
112A where the total income including such Dividend Income, Capital gains exceeds ` 50 Lakhs
but not ` 1 cr., Surcharge on tax on remaining total income will be 10%.
(iii) Surcharge will be 15% on tax on Dividend Income, Capital gains under section 111A & section
112A where the total income including such Dividend Income & Capital gains exceeds ` 1 cr but
not ` 2 cr., Surcharge on tax on remaining total income will be 15%.
(iv) Surcharge will be 15% on tax on Dividend Income, Capital gains under section 111A & section
112A where the total income including such Dividend Income & Capital gains exceeds ` 2 cr.,
Surcharge on tax on remaining total income will be 15%.
(v) Where total income without considering Dividend Income, Capital gains under section 111A &
section 112A exceeds ` 2 cr but not ` 5 cr, then assessee will pay surcharge of 25% (enhanced
surcharge) on tax on such total income and he will pay surcharge of 15% on such Dividend
Income & Capital gains.
(vi) Where total income without considering Dividend Income, Capital gains under section 111A &
section 112A exceeds ` 5cr, then assessee will pay surcharge of 37% (enhanced surcharge) on tax
on such total income and he will pay surcharge of 15% on such Dividend Income & Capital
gains.

In other words,
Ø Assessee will never be hit with a surcharge of 25% on tax on his income other than Dividend
Income, Capital gains u/s 111A & 112A merely because such Dividend Income, Capital gains push
his total income into 'exceeding ` 2 cr. but not ` 5 cr.' bucket and but other than such Dividend
Income, Capital gains his total income is less than ` 2 cr.
Ø Assessee will be hit with a surcharge of 25% on tax on his total income other than such Dividend
Income & Capital gains only if total income other than such Dividend Income & Capital gains
exceeds ` 2 cr. but not ` 5 cr.
Ø Likewise assessee will never be hit with a surcharge of 37% on tax on his income other than
Dividend Income, Capital gains u/s 111A &112A merely because such Dividend Income & Capital
gains push his total income into 'exceeding ` 5 cr' bucket and but other than such Dividend Income
& capital gains his total income is less than ` 5 cr.
Ø Assessee will be hit with a surcharge of 37% on tax on his total income other than such Dividend
Income & Capital gains only if total income other than such Dividend Income & Capital gains
exceeds ` 5 cr.
Ø In no case will surcharge on such Dividend Income & Capital gains exceed 15%.

CA Bhanwar Borana 11
Basic Concepts & Tax Rates for Assessment Year 2022-23

Summary
Conditions Surcharge - % of tax on
(i) Total Income upto 50 lac Total Income Nil
(ii) Total Income > 50 Lac but upto 1 Total Income 10%
Cr.
(iii) Total Income > 1 Cr. but upto 2 Cr. Total Income 15%
(iv) Dividend, Capital gain u/s > 2 Cr. Dividend, Capital gain u/s 15%
111A & 112A 111A & 112A

(v) Remaining Total Income > 2 Cr. but upto 5 Cr. Dividend, Capital gain u/s 15 %
(Total Income excluding 111A & 112A
Dividend, Capital gain u/s
111A & 112A) Remaining Total Income 25%

(vi) Remaining Total Income > 5 Cr. Dividend, Capital gain u/s 15 %
111A & 112A

Remaining Total Income 37%

“Amounts in Lakhs”
Sr. Total Income of Dividend & Total Income of Surcharge Surcharge
No. Individual/HUF/ Capital Individual/HUF/AO applicable on applicable on tax
AOP/BOI/AJP gains u/s P/BOI/AJP assessee Dividend Income, on total income
assessee before 111A/112A after including capital gains other than Dividend
including Dividend Dividend Income, under section Income & capital
Income, capital capital gains under 111A & section gains
gains u/s section 111A & 112A
111A/112A section 112A
(i) 20 25 45 NIL NIL
(ii) 45 50 95 10% 10%
(iii) 45 70 115 15% 15%
(iv) 45 300 345 15% 15%
(v) 45 600 645 15% 15%
(vi) 60 30 90 10% 10%
(vii) 60 70 130 15% 15%
(viii) 60 300 360 15% 15%
(ix) 60 700 760 15% 15%
(x) 150 45 195 15% 15%
(xi) 150 250 400 15% 15%
(xii) 150 500 650 15% 15%
(xiii) 300 100 400 15% 25%
(xiv) 300 250 550 15% 25%
(xv) 600 100 700 15% 37%

12 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

Example: 1
Mr. Hari is a resident, aged 42 years. His income details for PY 2021-22 are as follows:
(i) Capital gains u/s 112A - ` 25,00,000
(ii) Capital gains u/s 111A - ` 20,00,000
(iii) Other income - ` 70,00,000
Calculate his tax liability for AY 2022-23

Solution:
Particular Tax Rate Income Tax

LTCG 112A (in excess of 1,00,000) 10% 25,00,000 2,40,000

STCG 111A 15% 20,00,000 3,00,000

Balance NTI Normal Tax Rate 70,00,000 19,12,500

Total 1,15,00,000 24,52,500

Add: Surcharge on LTCG 112A & STCG 111A @15% 81,000

Add: Surcharge on Balance Tax @15% 2,86,875

28,20,375

Add: Health & Education Cess @ 4% 1,12,815

Net Tax Payable 29,33,190

Example: 2
Mr. Jay is a resident, aged 32 years. His income details for PY 2021-22 are as follows:

(i) Capital gains u/s 112A - ` 1,00,00,000

(ii) Capital gains u/s 111A - ` 2,00,00,000

(iii) Other income - ` 1,00,00,000

Calculate his tax liability for AY 2022-23

Solution:
Particular Tax Rate Income Tax

LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000

STCG 111A 15% 2,00,00,000 30,00,000

Balance NTI Normal Tax Rate 1,00,00,000 28,12,500
Total 4,00,00,000 68,02,500

CA Bhanwar Borana 13
Basic Concepts & Tax Rates for Assessment Year 2022-23

Add: Surcharge on LTCG 112A & STCG 111A @15% 5,98,500

Add: Surcharge on Balance Tax @15% 4,21,875

78,22,875

Add: Health & Education Cess @ 4% 3,12,915

Net Tax Payable 81,35,790

Example: 3
Mr. BB is a resident, aged 32 years. His income details for PY 2021-22 are as follows:
(i) Capital gains u/s 112A - ` 2,00,000
(ii) Capital gains u/s 111A - ` 4,00,000
(iii) Dividend – 13,00,000
(iv) Other income - ` 3,34,00,000
Calculate his tax liability for AY 2022-23

Solution:
Particular Tax Rate Income Tax

LTCG 112A (in excess of 1,00,000) 10% 2,00,000 10,000

STCG 111A 15% 4,00,000 60,000

Balance NTI Normal Tax Rate 3,47,00,000 1,02,22,500

Total 3,53,00,000 1,02,92,500

Add: Surcharge on LTCG 112A & STCG 111A @15% 10,500

Add: Surcharge on Tax on Dividend Income @15% (Refer Note for Tax on Dividend) 57,446

Add: Surcharge on Balance Tax @25% (98,39,524 x 25%) 24,59,881

1,28,20,327

Add: Health & Education Cess @ 4% 5,12,813

Net Tax Payable 1,33,33,140

Note: Tax on Dividend = 1,02,22,500/3,47,00,000 x 13,00,000 = 3,82,976

14 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

Example:4
Mr. BB is a resident, aged 31 years. His income details for PY 2021-22 are as follows:
(i) Capital gains u/s 112A - ` 1,00,00,000
(iii) Other income - ` 6,00,00,000
Calculate his tax liability for AY 2022-23

Solution:
Particular Tax Rate Income Tax

LTCG 112A (in excess of 1,00,000) 10% 1,00,00,000 9,90,000

STCG 111A 15% - -

Balance NTI Normal Tax Rate 6,00,00,000 1,78,12,500

Total 7,00,00,000 1,88,02,500

Add: Surcharge on LTCG 112A & STCG 111A @15% 1,48,500

Add: Surcharge on Balance Tax @37% 65,90,625

2,55,41,625

Add: Health & Education Cess @ 4% 10,21,665

Net Tax Payable 2,65,63,290

Example:5
Mr. Aadil is a resident, aged 26 years. His income details for PY 2021-22 are as follows:
(i) Capital gains u/s 112A - ` 90,000
(iii) Other income - ` 50,00,000
Calculate his tax liability for AY 2022-23

Solution:
Particular Tax Rate Income Tax

LTCG 112A (in excess of 1,00,000) 10% 90,000 -

STCG 111A 15% - -

Balance NTI Normal Tax Rate 50,00,000 13,12,500

Total 50,90,000 13,12,500

Add: Surcharge on LTCG 112A & STCG 111A @10% -

CA Bhanwar Borana 15
Basic Concepts & Tax Rates for Assessment Year 2022-23

Add: Surcharge on Balance Tax @10% 1,31,250

14,43,750

Above amount restricted to Tax on 50,00,000 + (NTI - 50 Lakhs) 13,75,500

13,75,500
Add: Health & Education Cess @ 4% 55,020

Net Tax Payable 14,30,520

16 CA Final Direct Tax - Vol. 01

Basic Concepts & Tax Rates for Assessment Year 2022-23

Alternate Taxation Regime

Tax on income of certain Manufacturing Domestic Companies Sec: 115BA

(1) Notwithstanding anything contained in this Act but subject to the other provisions of Chapter XII [other
than those mentioned u/s 115BAA and 115BAB], the income-tax payable in respect of the total income of a
person, being a domestic company, for any PY relevant to the AY beginning on or after the 1st day of April,
2017, shall, at the option of such person, be computed at the rate of 25% , if the conditions contained in sub-
section (2) are satisfied.
(2) For the purposes of sub-section (1), the following conditions shall apply, namely:—
(a) the company has been set-up and registered on or after the 1st day of March, 2016;
(b) the company is not engaged in any business other than the business of manufacture or production of
any article or thing and research in relation to, or distribution of, such article or thing manufactured or
produced by it; and
(c) the total income of the company has been computed,—
(i) without any deduction under the provisions of section 10AA or 32(1)(iia) or section
32AC or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia)
or sub-clause (iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section
35 or section 35AC or section 35AD or section 35CCC or section 35CCD or under any
provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes"
other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward from any earlier assessment year if such loss is
attributable to any of the deductions referred to in sub-clause (i); and
(iii) depreciation under section 32, other than clause (iia) of sub-section (1) of the said section, is
determined in the manner as may be prescribed.
(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been already
given full effect to and no further deduction for such loss shall be allowed for any subsequent year.
(4) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified under section 139(1) for furnishing the first of the returns of
income which the person is required to furnish under the provisions of this Act:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn
for the same or any other previous year:
Provided further that where the person exercises option under section 115BAA, the option under this section
may be withdrawn.
Analysis
1. In case of domestic company tax @ 25% if following conditions are satisfied,
a. Company setup & registered on or after 01/03/2016.
b. Company engaged in the business of manufacture or production of any article or things.
c. Company should not claim benefit of section 10AA, 32AC, 32AD, Additional depreciation,
33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AC, 35AD, 35CCC, 35CCD & any
deduction in respect of Income u/c VI-A except 80JJAA.
2. Option has to be exercised upto due date of ROI u/s 139(1).
3. Once option exercised, assessee cannot opt out for life time but if assessee exercise option u/s
115BAA then option under this section shall be withdrawn.

CA Bhanwar Borana 17
Basic Concepts & Tax Rates for Assessment Year 2022-23

Tax on income of certain Domestic Companies Sec: 115BAA

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, other than
those mentioned u/s 115BA and 115BAB, the income-tax payable in respect of the total income of a person,
being a domestic company, for any PY relevant to the AY beginning on or after the 1st day of April, 2020,
shall, at the option of such person, be computed at the rate of 22%, if the conditions contained in sub-section
(2) are satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any PY, the
option shall become invalid in respect of the assessment year relevant to that previous year and subsequent
assessment years and other provisions of the Act shall apply, as if the option had not been exercised for the
assessment year relevant to that previous year and subsequent assessment years.
(2) For the purposes of sub-section (1), the total income of the company shall be computed,—
(i) without any deduction under the provisions of section 10AA or section 32(1)(iia) or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of
sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section 35AD or section
35CCC or section 35CCD or under any provisions of Chapter VI-A other than the provisions of section
80JJAA or section 80M;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss
or depreciation is attributable to any of the deductions referred to in clause (i);
(iii) without set off of any loss or allowance for unabsorbed depreciation deemed so under section 72A, if
such loss or depreciation is attributable to any of the deductions referred to in clause (i); and
(iv) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) and clause (iii) of sub-section (2) shall be deemed to
have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any
subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to the assessment year beginning on the 1st day of April, 2020, corresponding adjustment
shall be made to the written down value of such block of assets as on the 1st day of April, 2019 in the
prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the
assessment year beginning on the 1st day of April, 2020.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in section
80LA(1A), which has exercised option under sub-section (5), the conditions contained in sub-section (2) shall
be modified to the extent that the deduction under section 80LA shall be available to such Unit subject to
fulfilment of the conditions contained in the said section.
(5) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified under section 139(1) for furnishing the returns of income for any
previous year relevant to the assessment year commencing on or after the 1st day of April, 2020 and such
option once exercised shall apply to subsequent assessment years:
Provided that in case of a person, where the option exercised by it under section 115BAB has been rendered
invalid due to violation of conditions contained in sub-clause (ii) or sub-clause (iii) of clause (a), or clause (b)
of sub-section (2) of said section, such person may exercise option under this section:
Provided further that once the option has been exercised for any previous year, it cannot be subsequently
withdrawn for the same or any other previous year.
(Added by Taxation Law Amendment Act, 2019)

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Analysis:
1. Tax @ 22% (effective rate is 25.168% - 22% + 10% Surcharge + 4% HEC) applicable in case of
domestic company if following conditions are satisfied ;
a. Company should not claim benefit of section 10AA, 32AD, Additional depreciation, 33AB,
33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AD, 35CCC, 35CCD & any deduction in u/c
VI-A except 80JJAA, 80LA & 80M.
b. The total income of company is calculated without adjusting b/f loss & depreciation from earlier
year (if such loss & depreciation pertains to any deduction under the aforesaid sections).
c. Where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to A.Y.2020-21, corresponding adjustment shall be made to the WDV of such
block of assets as on 1.4.2019 in the prescribed manner, if option for section 115BAA is
exercised for P.Y.2019-20 relevant to A.Y.2020-21.
Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that
PY and subsequent PY’s and normal provisions of IT, Act shall apply.

2. The beneficial provisions of this section would apply if option is exercised in the prescribed manner
on or before the due date u/s 139(1) for furnishing the return of income for any PY relevant to
A.Y.2020-21 or any subsequent A.Y.. Such option, once exercised, would apply to subsequent
assessment years. Further, once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.

3. Tax on other special rates of tax incomes (like 112A, 112, 111A): Taxable at such special rates plus
surcharge @10% & HEC @4%.

4. Tax rate on other Income (IFHP, IFOS etc): 25.168% (22%+10%+4%)

5. Company which opt for section 115BAA shall not be required to pay MAT. B/F MAT credit cannot
be set-off against income u/s 115BAA so if a company has b/f MAT credit, it can first exhaust the
MAT credit, and thereafter opt for section 115BAA in a subsequent PY.

6. If company opt section 115BAA then surcharge applicable @ 10% irrespective of Total income.

CA Bhanwar Borana 19
Basic Concepts & Tax Rates for Assessment Year 2022-23

Tax on income of New Manufacturing Domestic Companies Sec: 115BAB

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, other than
those mentioned under section 115BA and section 115BAA, the income-tax payable in respect of the total
income of a person, being a domestic company, for any previous year relevant to the assessment year
beginning on or after the 1st day of April, 2020, shall, at the option of such person, be computed at the rate of
15% , if the conditions contained in sub-section (2) are satisfied:
Provided that where the total income of the person, includes any income, which has neither been derived
from nor is incidental to manufacturing or production of an article or thing and in respect of which no specific
rate of tax has been provided separately under this Chapter, such income shall be taxed at the rate of 22%
and no deduction or allowance in respect of any expenditure or allowance shall be allowed in computing such
income:
Provided further that the income-tax payable in respect of the income of the person deemed so under second
proviso to sub-section (6) shall be computed at the rate of 30%:
Provided also that the income-tax payable in respect of income being short term capital gains derived from
transfer of a capital asset on which no depreciation is allowable under the Act shall be computed at the rate of
22% :
Provided also that where the person fails to satisfy the conditions contained in sub-section (2) in any
previous year, the option shall become invalid in respect of the assessment year relevant to that previous year
and subsequent assessment years and other provisions of the Act shall apply to the person as if the option had
not been exercised for the assessment year relevant to that previous year and subsequent assessment years.
(2) For the purposes of sub-section (1), the following conditions shall apply, namely:—
(a) the company has been set-up and registered on or after the 1st day of October, 2019, and has
commenced manufacturing or production of an article or thing on or before the 31st day of March,
2023 and,—
(i) the business is not formed by splitting up, or the reconstruction, of a business already in
existence:
Provided that this condition shall not apply in respect of a company, business of which is
formed as a result of the re-establishment, reconstruction or revival by the person of the
business of any such undertaking as is referred to in section 33B, in the circumstances and
within the period specified in the said section;
(ii) does not use any machinery or plant previously used for any purpose.
Explanation 1.—For the purposes of sub-clause (ii), any machinery or plant which was used
outside India by any other person shall not be regarded as machinery or plant previously used
for any purpose, if the following conditions are fulfilled, namely:—
(A) such machinery or plant was not, at any time previous to the date of the installation used
in India;
(B) such machinery or plant is imported into India from any country outside India; and
(C) no deduction on account of depreciation in respect of such machinery or plant has been
allowed or is allowable under the provisions of this Act in computing the total income of
any person for any period prior to the date of the installation of machinery or plant by the
person.
Explanation 2.—Where in the case of a person, any machinery or plant or any part thereof
previously used for any purpose is put to use by the company and the total value of such
machinery or plant or part thereof does not exceed twenty per cent of the total value of the
machinery or plant used by the company, then, for the purposes of sub-clause (ii) of this clause,
the condition specified therein shall be deemed to have been complied with;

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(iii) does not use any building previously used as a hotel or a convention centre, as the case may be,
in respect of which deduction under section 80-ID has been claimed and allowed.
(b) the company is not engaged in any business other than the business of manufacture or production of
any article or thing and research in relation to, or distribution of, such article or thing manufactured or
produced by it.
Explanation.—For the removal of doubts, it is hereby clarified that the business of manufacture or
production of any article or thing referred to in clause (b) shall not include business of,—
(i) development of computer software in any form or in any media;
(ii) mining;
(iii) conversion of marble blocks or similar items into slabs;
(iv) bottling of gas into cylinder;
(v) printing of books or production of cinematograph film; or
(vi) any other business as may be notified by the Central Government in this behalf; and
Explanation.—For the purposes of clause (b), the "business of manufacture or production of
any article or thing" shall include the business of generation of electricity.
(c) the total income of the company has been computed,—
(i) without any deduction under the provisions of section 10AA or section 32(1)(iia) or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause
(iii) of sub-section (1) or sub-section (2AA) or sub-section (2AB) of section 35 or section
35AD or section 35CCC or section 35CCD or under any provisions of Chapter VI-A other than
the provisions of section 80JJAA or 80M;
(ii) without set-off of any loss or allowance for unabsorbed depreciation deemed so under section
72A where such loss or depreciation is attributable to any of the deductions referred to in sub-
clause (i).
Explanation.—For the removal of doubts, it is hereby clarified that in case of an amalgamation,
the option under sub-section (7) shall remain valid in case of the amalgamated company only
and if the conditions contained in sub-section (2) are continued to be satisfied by such
company; and
(iii) by claiming the depreciation under the provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed.
(3) The loss referred to in sub-clause (ii) of clause (c) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss shall be allowed for any subsequent year.
(4) If any difficulty arises regarding fulfilment of the conditions contained in sub-clause (ii) or sub-clause (iii)
of clause (a) of sub-section (2) or clause (b) of said sub-section, as the case may be, the Board may, with the
approval of the Central Government, issue guidelines for the purpose of removing the difficulty and to
promote manufacturing or production of article or thing using new plant and machinery.
(5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament,
and shall be binding on the person, and the income-tax authorities subordinate to it.
(6) Where it appears to the Assessing Officer that, owing to the close connection between the person to which
this section applies and any other person, or for any other reason, the course of business between them is so
arranged that the business transacted between them produces to the person more than the ordinary profits
which might be expected to arise in such business, the Assessing Officer shall, in computing the profits and
gains of such business for the purposes of this section, take the amount of profits as may be reasonably
deemed to have been derived therefrom:

CA Bhanwar Borana 21
Basic Concepts & Tax Rates for Assessment Year 2022-23

Provided that in case the aforesaid arrangement involves a specified domestic transaction referred to
in section 92BA, the amount of profits from such transaction shall be determined having regard to arm's
length price.
Provided further that the amount, being profits in excess of the amount of the profits determined by the
Assessing Officer, shall be deemed to be the income of the person.
(7) Nothing contained in this section shall apply unless the option is exercised by the person in the prescribed
manner on or before the due date specified under section 139(1) for furnishing the first of the returns of
income for any previous year relevant to the assessment year commencing on or after 1st day of April, 2020
and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn
for the same or any other previous year.
Analysis:
1. Tax @ 15% (effective rate is 17.16% - 15% + 10% Surcharge + 4% HEC) applicable in case of new
manufacturing domestic company if following conditions are satisfied ;
(i) Company has been setup & registered on or after 1st Oct., 2019 & has commenced manufacturing
business upto 31st March, 2023.
(ii) It should not be formed by spitting up or reconstruction of existing business.
(iii) P&M should be New
Exception
(a) 20% of Total P&M can be second hand.
(b) Imported P&M shall be treated as new only for this section.
(iv) Company does not use any building previously used as Hotel or Convention Centre.
(v) The company is not engaged in any business other than the business of Manufacturing or
production of any article & research in relation to or distribution of such article.
Manufacturing does not include
ð Development of computer software in any form or in any media
ð Mining
ð Conversion of marble blocks or similar items into slabs
ð Bottling of gas into cylinder
ð Printing of books or production of cinematograph films
ð Any other business as may be notified by the Central Govt. in this behalf.
Note: Business of Generation of electricity is treated as manufacturing business.
(vi) Company should not claim benefit of section 10AA, 32AD, Additional depreciation, 33AB,
33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA),35(2AB), 35AD, 35CCC, 35CCD & any deduction in u/c
VI-A except 80JJAA & 80M.
(vii) The total income of company is calculated without adjusting b/f loss & depreciation from
earlier year (if such loss & depreciation pertains to any deduction under the aforesaid sections).

Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that PY
and subsequent PY’s and normal provisions of IT, Act shall apply. Where option exercised under
section 115BAB is rendered invalid due to violation of conditions stipulated in point no. (iii) to (v)]
above, such person may exercise option under section 115BAA.

2. Where it appears to the AO that, owing to the close connection between the person to which this
section applies and any other person, or for any other reason, the course of business between them is
so arranged that the business transacted between them produces to the person more than the ordinary
profits which might be expected to arise in such business, the AO shall compute the income of
company. Excess profit computed by AO shall be taxable @ 34.32% (30% +10%+4%). If
transactions is more than ` 20 Crores then it will be covered under specified domestic transactions
and transfer pricing provisions shall apply.

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3. Tax on other special rates of Tax income (like 112A, 112, 111A) : Taxable at such special rates +
10% surcharge & 4% HEC.
4. Tax Rates on other income (HP/IFOS) : 25.168% (22%+10%+4%) (However in respect of such
income, no deduction or allowance in respect of any expenditure or allowance shall be allowed in
computing such income.)
5. Tax on STCG derived from transfer of a capital asset on which no depreciation is allowable
under the Act: The applicable rate of tax is 25.168% (22%+10%+4%). There is, however, no
restriction regarding claiming of deduction or allowance in this regard.
6. Such company shall not be required to pay MAT.
7. If section 115BAB apply then surcharge rate is 10% on all types of income, irrespective of Total
Income.

Summary of Tax Rates u/s 115BAB

Income Tax Rate
Income from Manufacturing 15%
Income from Non-Manufacturing activity (If no specific rate is prescribed) 22%
STCG on transfer of Depreciable assets 15%
STCG on transfer of Non-depreciable assets 22%
Excess profit computed by AO u/s 115BAB(6) 30%
Special Tax rates Incomes u/c XII Special rate

Comparison of sections 115BA, 115BAA and 115BAB

S.N. Points of comparison Section 115BA New Section New Section
115BAA 115BAB
(1) Deals with Tax on income Tax on income of Tax on income of
of certain certain domestic new manufacturing
domestic companies domestic companies
manufacturing
companies
Benefit under the
When company must be set up
section is available
and registered to qualify for On or after On or after
(2) irrespective of date on
availing benefit under the 01-03-2016 01-10-2019
which company was
section
set up and registered
(3) Tax rate 25% 22% 15%
7% if company's
NTI > ` 1 Cr
(4) Surcharge applicable upto ` 10 Cr 10% 10%
12% if company's
NTI > ` 10 Cr.
Effective tax rate 26% or 27.82%
(5) 25.168% 17.16%
including surcharge and or 29.12%

CA Bhanwar Borana 23
Basic Concepts & Tax Rates for Assessment Year 2022-23

HEC depends on NTI

Whether condition regarding,
business of company not formed
(6) No No Yes
by splitting up existing business, is applicable
under the section
Whether stipulations regarding, non-use of
(7) second hand P&M, is applicable No No Yes
under the section
Whether stipulations regarding, non-use of
(8) building earlier used as hotel or No No Yes
convention centre, is applicable
(9) Exemption from MAT u/s115JB No Yes Yes
On or before the
due date u/s On or before the
139(1) for On or before the due due date u/s 139(1)
furnishing the date u/s 139(1) for for furnishing the
first of the return furnishing the return first of the return of
When option for benefits under
(10) of income which of income for any income which the
section should be exercised
the assessee is PY relevant to the assessee is required
required to AY commencing on to furnish under the
furnish under or after 01-04-2020. provisions of the
the provisions Act.
of the Act.
No, since option
to avail the No, since option to
section has to be avail the section has
exercised on or to be exercised on
before the due or before the due
Whether company can opt to
date specified date specified u/s
claim exemptions and pay tax at
u/s 139(1) for Yes. See point No. 139(1) for
pre-amended rate and can opt
(11) furnishing the (10) above in this furnishing the first
for the concessional tax regime
first of the return table of the return of
after expiry of their tax
of income which income which the
holiday/exemption period
the assessee is assessee is required
required to to furnish under the
furnish under provisions of the
the provisions of Act.
the Act.

(12) Whether existing company can Yes. Company which No. Company
migrate from section 115BA to — has opted for 115BA which has opted for

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the new section can irrevocably opt 115BA can't opt for
for 115BAA and 115BAB.
thereupon withdraw
the option exercised
for 115BA.
(13) What happens to existing Company can Unutilised credit can No question of
unutilised MAT credit? carry forward be c/f and set off if unutilised MAT
and utilise it as company opts for credit as section
per sec. 115JAA section 115BAA applies to new
companies.
Assessee-company
can opt for 115BAA
Option cannot be
if option exercised
availed for the
for 115BAB
AY in which the
Consequences if option exercised rendered invalid due
breach takes place &
(14) rendered invalid due to breach — to non-compliance
also subsequent AY’s.
of conditions with conditions in
Assessment shall be
clause (b) or sub-
done as if option has
clause (ii)/(iii) of
not been exercised.
clause (a) of sub-sec
(2) of 115BAB
(15) Tax rate applicable for income See (5) above 25.168% 25.168%
neither derived from nor
incidental to manufacture or
production for which no specific
tax rate provided u/c XII
No exit option.
Company can opt out Company can opt
once the option
by claiming deductions out by claiming
has been exercised
/reliefs not to be deductions/reliefs
for any PY,
claimed. not to be claimed.
(16) Opting out it cannot be
Once company opts Once company opts
subsequently
out in this manner, it out in this manner,
withdrawn for
can never ever again it can never ever
the same or any
avail 115BAA. again avail 115BAB.
other PY.

CA Bhanwar Borana 25
Basic Concepts & Tax Rates for Assessment Year 2022-23

Tax on income of Individual & HUF Sec: 115BAC

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, the income-
tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for
any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the
option of such person, be computed at the rate of tax given in the following Table, if the conditions contained
in sub-section (2) are satisfied, namely:—
TABLE

Sl. Total income Rate of tax

No.

1. Upto ` 2,50,000 Nil

2. From ` 2,50,001 to ` 5,00,000 5%

3. From ` 5,00,001 to ` 7,50,000 10%

4. From ` 7,50,001 to ` 10,00,000 15%

5. From ` 10,00,001 to ` 12,50,000 20%

6. From ` 12,50,001 to ` 15,00,000 25%

7. Above ` 15,00,000 30%

Provided that where the person fails to satisfy the conditions contained in sub-section (2) in any previous
year, the option shall become invalid in respect of the assessment year relevant to that previous year and other
provisions of this Act shall apply, as if the option had not been exercised for the assessment year relevant to
that previous year:
Provided further that where the option is exercised under clause (i) of sub-section (5), in the event of failure
to satisfy the conditions contained in sub-section (2), it shall become invalid for subsequent assessment years
also and other provisions of this Act shall apply for those years accordingly.

(2) For the purposes of sub-section (1), the total income of the individual or Hindu undivided family shall be
computed,—
(i) without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed
under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32),
of section 10 or section 10AA or section 16 or clause (b) of section 24 (in respect of the property
referred to in sub-section (2) of section 23) or clause (iia) of sub-section (1) of section 32 or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of
sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or clause (iia)
of section 57 or under any of the provisions of Chapter VI-A other than the provisions of sub-section
(2) of section 80CCD or section 80JJAA;
(ii) without set off of any loss,—
(a) carried forward or depreciation from any earlier assessment year, if such loss or depreciation is
attributable to any of the deductions referred to in clause (i);
(b) under the head "Income from house property" with any other head of income;

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(iii) by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-
section (1) of the said section, determined in such manner as may be prescribed; and
(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided
under any other law for the time being in force.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of assets which has not been
given full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding
adjustment shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in
the prescribed manner, if the option under sub-section (5) is exercised for a previous year relevant to the
assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-
section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in
sub-section (2) shall be modified to the extent that the deduction under section 80LA shall be available to
such Unit subject to fulfilment of the conditions contained in the said section.
(5) Nothing contained in this section shall apply unless option is exercised in the prescribed manner by the
person,—
(i) having income from business or profession, on or before the due date specified under sub-section (1)
of section 139 for furnishing the returns of income for any previous year relevant to the assessment
year commencing on or after the 1st day of April, 2021, and such option once exercised shall apply to
subsequent assessment years;
(ii) having income other than the income referred to in clause (i), alongwith the return of income to be
furnished under sub-section (1) of section 139 for a previous year relevant to the assessment year:
Provided that the option under clause (i), once exercised for any previous year can be withdrawn only once
for a previous year other than the year in which it was exercised and thereafter, the person shall never be
eligible to exercise option under this section, except where such person ceases to have any income from
business or profession in which case, option under clause (ii) shall be available.
(Added by FA 2020 w.e.f. AY 21-22)

Analysis:
1. Individual or HUF opting for taxation under the newly inserted section 115BAC of the Act shall not
be entitled to the following exemptions/ deductions:
(i) Leave travel concession u/s 10(5);
(ii) House rent allowance u/s 10(13A);
(iii) Allowance exempt u/s 10(14) (other than transport, conveyance, allowance to meet cost of travel
or daily allowance at place of duty);
(iv) Allowances to MPs/MLAs u/s 10(17);
(v) Allowance for income of minor u/s 10(32);
(vi) Deduction for SEZ unit u/s 10AA;
(vii) Standard deduction of ` 50,000, deduction for entertainment allowance and employment/
professional tax as contained in section 16;
(viii) Interest under section 24 in respect of self-occupied or vacant property u/s 23(2). (Loss under the
head income from house property for rented house shall not be allowed to be set off under any
other head and would be allowed to be carried forward as per extant law);
(ix) Additional deprecation u/s 32(1)(iia);
(x) Deductions under section 32AD, 33AB, 33ABA;
(xi) Various deduction for donation for or expenditure on scientific research u/s 35(1)(ii)/(iia)/(iii) or
35(2AA)

CA Bhanwar Borana 27
Basic Concepts & Tax Rates for Assessment Year 2022-23

(xii) Deduction u/s 35AD or section 35CCC;

(xiii) Deduction from family pension u/s 57(iia);
(xiv) Any deduction under chapter VIA (like section 80C, 80CCC, 80CCD, 80D, 80DD, 80DDB, 80E,
80EE, 80EEA, 80EEB, 80G, 80GG, 80GGA, 80GGC, 80IA, 80-IAB, 80-IAC, 80-IB, 80-IBA,
etc). However, deduction u/s 80CCD(2) (employer contribution on account of employee in
notified pension scheme) and u/s 80JJAA (for new employment) can be claimed.

Following allowances notified u/s 10(14) of the Act to the Individual or HUF exercising option under the
proposed section:
(a) Transport Allowance granted to a divyang employee to meet expenditure for the purpose of
commuting between place of residence and place of duty
(b) Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of
an office;
(c) Any Allowance granted to meet the cost of travel on tour or on transfer;
(d) Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence
from his normal place of duty.

2.Further, such an Individual or HUF opting for the aforesaid concessional rate of tax would also be:
Ø not allowed to set off any loss or depreciation attributable to any of the deductions referred above;
Ø not allowed to set off of any loss from “income from house property” against any other head;
Ø Depreciation u/s. 32 (except additional depreciation under section 32(1)(iia)) would have to be
claimed in such manner as may be prescribed; and
Ø He shall not be allowed to claim any exemption or deduction for allowances or perquisite provided
under any other law for the time being in force.

3. If subsequently, the individual or HUF not satisfied any of foregoing conditions, the option of
concessional rate shall become invalid and other provision of the Act shall apply.
An individual or HUF who does not have any business income would have an option to choose either
of the two tax regimes each year depending upon their tax liability under each one of them. However,
in respect of an individuals or HUFs having business income, the option once exercised cannot be
withdrawn. In such a case, an option once exercised would be applicable for all subsequent
assessment years and can be withdrawn only once for a previous year other than the year in which it
was exercised and thereafter, the individual or HUF shall never be eligible to exercise option under
this section, except where such individual or HUF ceases to have any business income.

4. Rebate u/s 87A is available even if assessee opt section 115BAC.

5. Tax on Special Rates Income (Like 112,112A) : Taxable at special rates only.

6. Surcharge : Surcharge applicability is depends on Total income of assessee. Surcharge @ 10%, 15%,
25%, 37% may apply depends on total income.

7. Health & Education cess : HEC @ 4% always apply.

8. If assessee opt section 115BAC then Alternate Minimum Tax (AMT) is not applicable. B/F AMT
credit cannot be set-off against income u/s 115BAC so if a assessee has b/f AMT credit, it can first
exhaust the AMT credit, and thereafter opt for section 115BAC in a subsequent PY.

9. CBDT Circular : C1/2020 – CBDT clarifies that an employee, having income other than the income
under the head "PGBP" and intending to opt for the concessional rate u/s 115BAC of the Act, may
intimate the deductor, being his employer, of such intention for each previous year and upon such

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intimation, the deductor shall compute his total income, and make TDS thereon in accordance with
the provisions of section 115BAC of the Act. If such intimation is not made by the employee, the
employer shall make TDS without considering the provision of section 115BAC of the Act.

It is also clarified that the intimation so made to the deductor shall be only for the purposes of TDS
during the previous year and cannot be modified during that year. However, the intimation would not
amount to exercising option in terms of sub-section (5) of section 115BAC of the Act and the person
shall be required to do so along with the return to be furnished u/s 139(1) of the Act for that previous
year. Thus, option at the time of filing of return of income u/s 139(1) could be different from the
intimation made by such employee to the employer for that previous year.

Further, in case of a person who has income under the head "PGBP" also, the option for taxation
under section 115BAC of the Act once exercised for a previous year at the time of filing of return of
income u/s 139(1) cannot be changed for subsequent PY except in certain circumstances.
Accordingly, the above clarification would apply to such person with a modification that the
intimation to the employer in his case for subsequent previous years must not deviate from the option
u/s 115BAC of the Act once exercised in a previous year.

CA Bhanwar Borana 29
Basic Concepts & Tax Rates for Assessment Year 2022-23

Tax on income of certain resident Co-operative Societies Sec: 115BAD

(1) Notwithstanding anything contained in this Act but subject to the provisions of Chapter XII, the income-
tax payable in respect of the total income of a person, being a co-operative society resident in India, for any
previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the
option of such person, be computed at the rate of 22%, if the conditions contained in sub-section (2) are
satisfied:
Provided that where the person fails to satisfy the conditions contained in sub-section (2) in computing its
income in any previous year, the option shall become invalid in respect of the assessment year relevant to that
previous year and subsequent assessment years and other provisions of the Act shall apply, as if the option
had not been exercised for the assessment year relevant to that previous year and subsequent assessment
years.
(2) For the purposes of sub-section (1), the total income of the co-operative society shall be computed,—
(i) without any deduction under the provisions of section 10AA or section 32(1)(iia) or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of
sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of
the provisions of Chapter VI-A other than the provisions of section 80JJAA;
(ii) without set off of any loss carried forward or depreciation from any earlier assessment year, if such loss
or depreciation is attributable to any of the deductions referred to in clause (i); and
(iii) by claiming the depreciation, if any, under section 32, other than clause (iia) of sub-section (1) of the
said section, determined in such manner as may be prescribed.
(3) The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given
full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year:
Provided that where there is a depreciation allowance in respect of a block of asset which has not been given
full effect to prior to the assessment year beginning on the 1st day of April, 2021, corresponding adjustment
shall be made to the written down value of such block of assets as on the 1st day of April, 2020 in such
manner as may be prescribed, if the option under sub-section (5) is exercised for a previous year relevant to
the assessment year beginning on the 1st day of April, 2021.
(4) In case of a person, having a Unit in the International Financial Services Centre, as referred to in sub-
section (1A) of section 80LA, which has exercised option under sub-section (5), the conditions contained in
sub-section (2) shall be modified to the extent that the deduction under the said section shall be available to
such Unit subject to fulfilment of the conditions contained in that section.
(5) Nothing contained in this section shall apply unless option is exercised by the person in such manner as
may be prescribed on or before the due date specified under sub-section (1) of section 139 for furnishing the
return of income for any previous year relevant to the assessment year commencing on or after the 1st day of
April, 2021 and such option once exercised shall apply to subsequent assessment years:
Provided that once the option has been exercised for any previous year, it cannot be subsequently withdrawn
for the same or any other previous year.

Analysis:
1. Tax @ 22% (effective rate is 25.168% - 22% + 10% Surcharge + 4% HEC) applicable in case of
resident co-operative society if following conditions are satisfied ;
a. Assessee should not claim benefit of section 10AA, 32AD, Additional depreciation,
33AB, 33ABA, 35(1)(ii)/(iia)/(iii)/, 35(2AA), 35AD, 35CCC & any deduction u/c VI-A
except 80JJAA & 80LA.

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b. The total income of company is calculated without adjusting b/f loss & depreciation from
earlier year (if such loss & depreciation pertains to any deduction under the aforesaid
sections).
c. Where there is a depreciation allowance in respect of a block of asset which has not been
given full effect to prior to A.Y.2021-22, corresponding adjustment shall be made to the
WDV of such block of assets as on 1.4.2020 in the prescribed manner, if option for
section 115BAD is exercised for P.Y.2020-21 relevant to A.Y.2021-22.

Note: If above conditions not satisfy in any P.Y. then option exercised would be invalid for that
PY and subsequent PY’s and normal provisions of IT, Act shall apply.

2. The beneficial provisions of this section would apply if option is exercised in the prescribed manner
on or before the due date u/s 139(1) for furnishing the return of income for any PY relevant to
A.Y.2021-22 or any subsequent A.Y.. Such option, once exercised, would apply to subsequent
assessment years. Further, once the option has been exercised for any previous year, it cannot be
subsequently withdrawn for the same or any other previous year.

3. Tax on other special rates of tax incomes (like 112A, 112, 111A): Taxable at such special rates plus
surcharge @10% & HEC @4%.

4. Co-operative society which opt for section 115BAD shall not be required to pay AMT. B/F AMT
credit cannot be set-off against income u/s 115BAD so if a assessee has b/f AMT credit, it can first
exhaust the AMT credit, and thereafter opt for section 115BAD in a subsequent PY.

5. If Co-operative society opt section 115BAD then surcharge applicable @ 10% irrespective of Total
income.

CA Bhanwar Borana 31
Basic Concepts & Tax Rates for Assessment Year 2022-23

Example:
Bala (37 years) is a businessman. His income for the previous year 2021-22 from business is ` 14,00,000.
Besides, he has interest on savings bank account of ` 21,000. He annually contributes ` 1,50,000 towards
public provident fund. X wants to know whether he should opt for alternative tax regime from the assessment
year 2022-23.

_____________________________________________________________________________________

Example:
X (44 years) is a businessman. His business income as per profit and loss account for the year ending March
31, 2022 is ` 71,88,000. Debit side of profit and loss account includes the following-
- Contribution given to National Laboratory (for claiming deduction under section 35(2AA)] : `
40,000.
- Revenue expenditure on scientific research related to the business of X [for claiming deduction under
section 35(1)(i) : ` 30,000
- Cash payment of a bill: ` 35,000.
Credit side of the profit and loss account includes the following-
- Dividend from Indian companies: ` 95,000.
- Refund of income-tax pertaining to the assessment year 2018-19 (without interest): ` 2,000.
X is entitled to claim the following deductions (which are not debited to profit and loss account) under
the existing tax regime of the current year-
- Additional depreciation: ` 60,000.
- Donation given to Prime Minister’s Relief Fund: ` 20,000.
- Deduction available under section 80JJAA: ` 80,000.

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- Deduction under section 80C, 80D, 80E, and 80EEB : ` 1,70,000

X wants to know whether he should opt for alternative tax regime from the assessment year 2022-23.
____________________________________________________________________________________

_____________________________________________________________________________________

CA Bhanwar Borana 33
Basic Concepts & Tax Rates for Assessment Year 2022-23

_____________________________________________________________________________________

____________________________________________________________________________________

_____________________________________________________________________________________

Example:
X (32 years) is a salaried employee, employed by A Ltd. as finance advisor. His income and tax incentives for
the previous year 2021-22 are as follows –
`
Basic Salary 40,00,000
House rent allowance [Out of ` 90,000, ` 60,000 is exempted u/s 10(13A)] 90,000
Leave travel concession (LTC) [out of ` 1,95,000, ` 1,80,000 is exempt u/s 10(5)] 1,95,000
NPS contribution by A Ltd. (12% of basic salary) 4,80,000
Payment of professional tax 2,000
Income from Property A (self-occupied) (-) 1,05,000
Income from Property B (let out) 60,000
Income from Property C (let out) (-) 80,000
Savings bank account interest received by minor son of X 800
Savings bank account interest received by minor daughter of X 2,000
Interest on saving bank account of X 28,000
Interest on public provident fund credited on March 31, 2022 3,55,000
Interest credited to Sukanya Samriddhi Account in the name of minor daughter 29,000
Deduction under section 80D, 80E, 80EEA and 80EEB and 80G 2,81,000
NPS contribution by X 4,00,000
PPF contribution by X 20,000

X wants to know whether he should opt for alternative tax regime from the assessment year 2022-23.

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_____________________________________________________________________________________

CA Bhanwar Borana 35
Basic Concepts & Tax Rates for Assessment Year 2022-23

_____________________________________________________________________________________

___________________________________________________________________________________

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Example
BB Ltd is incorporated on October 20, 2019 to commence manufacture of Bikes in Rajasthan. Manufacturing
activity is started on December 10, 2019. For the year ending March 31, 2022, income of BB Ltd. is as
follows –
Particulars `
Income from manufacturing of Bikes (computed as per provisions of section115BAB) 60,45,000
Bank FD interest 3,00,000
Short-term capital gain on transfer of land (Computed) 18,00,000
Short-term capital gain on transfer of a Depreciable Assets (Computed) 2,00,000
Rental Income from Commercial Property 7,00,000
BB ltd has donated Rs. 50,000 to a political party. BB Ltd. has opted for lower tax regime of section
115BAB. Necessary option was uploaded at the time of submission of first income-tax return of the
assessment year 2022-23. Find out the tax liability of BB ltd.

Solution:
Computation of Total Income PY 21-22 AY 22-23
Particular ` `
Income from House Property
Rental Income from Commercial Property 7,00,000
Deduction u/s 24 N/A 7,00,000
Profit & Gain from Business or Profession
Income from Manufacturing Activities 60,45,000
Capital Gain
STCG on Land 18,00,000
STCG on Depreciable Assets 2,00,000
Income from other sources
Interest on Bank FD 3,00,000
Gross Total Income 90,45,000
Deduction u/s 80GGB: Donation to Political Party N/A
Total Income(NTI) 90,45,000

Computation of Tax Liability

Particular Income Tax Rate `
(i) Tax on House Property Income 7,00,000 22% 1,54,000
(ii) Tax on Interest on FD 3,00,000 22% 66,000
(iii) STCG on Land 18,00,000 22% 3,96,000
(iv) Tax on Balance Income 62,45,000 15% 9,36,750
Total 90,45,000 15,52,750
Add: Surcharge @ 10% 1,55,275
17,08,025
Add: HEC @ 4% 68,321
Net Taxable Payable 17,76,346

CA Bhanwar Borana 37
2
Capital Gains

Charging Section Sec. 45(1)

Section 45(1) is the charging Section of capital gains and it provides as under:
“any profits and gains arising from transfer of a capital asset effected in the PY shall be chargeable to
income-tax under the head capital gains in the PY in which transfer took place.”
An income is chargeable to tax under this head of income only if following conditions are satisfied:
ü There must be a “CAPITAL ASSET”
ü The capital asset must be “TRANSFERRED”
ü Such capital asset must be transferred “DURING THE P.Y.”

Definition of Capital Asset Sec. 2(14)

“Capital asset” means—
(a) property of any kind (movable/immovable/tangible/intangible) held by an assessee whether or not
connected with his business or profession,
(b) any securities held by a Foreign Institutional Investor (FII) which has invested in such securities in
accordance with the regulations made under the Securities and Exchange Board of India Act, 1992,
(c) any unit linked insurance policy to which exemption under section 10(10D)does not apply on account
of the applicability of the fourth and fifth provisos thereof,
but does not include (Exceptions) –
(1) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession
[other than securities referred to in sub-clause (b)];
(2) personal effects, that is to say, movable property (including wearing apparel and furniture) held for
personal use by the assessee or any member of his family dependent on him, but excludes—
(a) jewellery;
(b) drawings;
(c) paintings;
(d) sculptures;
(e) archaeological collection; or
(f) any work of art.

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Explanation: For the purposes of this sub-clause, “jewellery” includes –

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or
more of such precious metals, whether or not containing any precious or semi-precious stone, and
whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or
worked or sewn into any wearing apparel;
(3) agricultural land in India (Rural Agriculture land in India),–
It means land outside the followings:
(a) in any area which is comprised within the jurisdiction of a municipality (whether known as
municipality, municipal corporation, notified area committee, town area committee, town committee,
or by any other name) or a cantonment board and which has a population 10,000 or more; or
(b) in following area within the distance, measured aerially,-

i Shortest aerial distance from the local Population according to the last
limits of a municipality or cantonment preceding census of which the relevant
board referred to in item (a) figures have been published before the
first day of the PY.

(1) 2 kilometers > 10,000 ` 1,00,000

(2) 6 kilometers > 1,00,000 ` 10,00,000

(3) 8 kilometers > 10,00,000

Explanation: “Population” means population according to last preceding census of which the relevant
figures have been published before the first day of the PY.

(4) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued
under the Gold Monetisation Scheme, 2015, notified by the Central Government.

Explanation – For the removal of doubts, it is hereby clarified that “Property” includes and shall be
deemed to have always included any right in or in relation to an Indian company, including right of
management and control or any other right whatsoever. (Added by Fin. Act, 12 to override SC
judgement in case of VODAFONE) (Will discuss with International Taxation)

CA Bhanwar Borana 39
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40 CA Final Direct Tax - Vol. 01

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NOTES:
± Personal effects are articles having some personal connection with the assessee, such as clothing,
furniture, utensils, vehicle, mobile etc. held for personal use of assessee or any dependent member of
family.
± The following has been excluded from personal effect and shall be regarded as capital asset :
(1) Jewellery
(2) archaeological collections,
(3) drawings,
(4) paintings,
(5) sculptures,
(6) any work of art
Accordingly these are capital assets and capital gains shall arise on sale of these assets. Therefore, if
an assessee sells jewellery, then capital gains shall arise on the sale of the same.
± Items of silverware including dinner plates of different size, finger bowls, jugs were held to be
personal effects [Benarshilal Kataruka (Cal)]. But at the same time, a large number of the same type of
silver articles cannot be treated as having been held for personal use and the assessing authority has to
find out as to what are the articles which should reasonably be held by assessee for personal use.
[Ramanathan Chettair (Mad)]
± Silver Bars, sovereign, bullion and silver coins were held not to be effects meant for personal use even
if they are placed before Goddess Lakshmi at the time of Puja. [Maharaja Rana Hemanth Singhji (SC)]
± Loose diamonds held by an assessee are not personal effects.
± Business assets are capital assets but stock-in-trade, consumable stores or raw materials held for the
purpose of business or profession are not capital assets. Car used in the business is treated as capital asset.
± Agriculture Land is situated in Urban Area or outside India shall be treated as Capital asset, even if it is
used for Agriculture purpose or not.
± Immovable Property in which the assessee resides is not a personal effect even though the assessee
uses the immovable property for his personal purposes. It shall be treated as a capital asset since personal
effects include only moveable property.

Definition of Transfer Sec. 2(47)

“Transfer”, in relation to a capital asset, includes,
(1) the sale, exchange or relinquishment of the asset; or
(2) the extinguishment of any rights therein; or
(3) the compulsory acquisition thereof under any law; or
(4) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-
trade of a business carried on by him, such conversion or treatment; or
(5) any transaction involving the allowing of the possession of any immovable property to be taken or
retained in part performance of a contract of the nature referred to in Section 53A of the Transfer of
Property Act, 1882; or

CA Bhanwar Borana 41
Capital Gains

(6) any transaction (whether by way of becoming a member of, or Acquiring shares in, a co-operative
society, company or other association of persons or by way of any agreement or any arrangement or in
any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of any
immovable property.
(7) the maturity or redemption of a Zero Coupon bond
Explanation: For the removal of doubts, it is hereby clarified that “transfer” includes and shall be
deemed to have always included disposing of or parting with an asset or any interest
therein, or creating any interest in any asset in any manner whatsoever, directly or
indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an
agreement (whether entered into in India or outside India) or otherwise, notwithstanding
that such transfer of rights has been characterised as being effected or dependent upon
or flowing from the transfer of a share or shares of a company registered or
incorporated outside India.
(Explanation Inserted by Finance Act, 2012, this explanation added for override S.C. Judgement in case of
VODAFONE)
Notes:
± Registration of immovable property in the name of buyer is not necessary, transfer takes place on the date
on which possession of immovable property is given in pursuance of agreement to sale.
± In case of Co-op Society and company a member can transfer the right to use and enjoy the property by
changing the membership of co-op society or by transferring the share in company.
± Capital gain on sale of immovable property was chargeable to tax in the year in which actual physical
possession of property is given to buyer even though the agreement is entered into in earlier year.
± Relinquishment means withdrawn from, abandoning or giving up anything. By relinquishment a person
ceases to own the asset concerned through some act on his part. In other words, the owner withdraws
himself from the property and abandons his right hereto. The property however, continues to exist and
will become the property of someone else.

Types of CAPITAL Assets

Short Term Capital Asset: Section 2(42A) defines a short term capital asset to mean a capital asset held by
an assessee for not more than 36 months immediately preceding the date of its transfer
Provided that in the case of a security (other than a unit) listed in a recognized stock exchange in India or a
unit of the Unit Trust of India or a unit of an equity oriented fund or a zero coupon bond, the provisions of
this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been
substituted
Provided also that in the case of a share of a company (not being a share listed in a recognised stock
exchange in India) or an immovable property, being land or building or both, the provisions of this clause
shall have effect as if for the words "thirty-six months", the words "twenty-four months" had been
substituted.
Long Term Capital Asset: As per section 2(29A), any asset, which is not a STCA is called Long term
capital Asset. In other words if a capital asset is held for a period of more than 36 months, then it called
“Long Term Capital Asset”

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Capital Gains

Equity oriented fund: a fund set up under a scheme of a mutual fund specified under section 10(23D) or
under a scheme of an insurance company comprising unit linked insurance policies to which exemption under
clause (10D) of the said section does not apply on account of the applicability of the fourth and fifth provisos
thereof and,—
(i) in a case where the fund invests in the units of another fund which is traded on a recognised stock
exchange,—
(A) a minimum of ninety per cent of the total proceeds of such fund is invested in the units of
such other fund; and
(B) such other fund also invests a minimum of ninety per cent of its total proceeds in the
equity shares of domestic companies listed on a recognised stock exchange; and
(ii) in any other case, a minimum of sixty-five per cent of the total proceeds of such fund is invested
in the equity shares of domestic companies listed on a recognised stock exchange:
Provided that the percentage of equity shareholding or unit held in respect of the fund, as the case may
be, shall be computed with reference to the annual average of the monthly averages of the opening and
closing figures:
Provided further that in case of a scheme of an insurance company comprising unit linked insurance
policies to which exemption u/s 10(10D) does not apply on account of the applicability of the fourth
and fifth provisos thereof, the minimum requirement of ninety per cent or sixty-five per cent, as the
case may be, is required to be satisfied throughout the term of such insurance policy.

_____________________________________________________________________________________

CA Bhanwar Borana 43
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44 CA Final Direct Tax - Vol. 01

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Computation of Capital Gains Sec. 48

The income chargeable under the head “Capital Gains” shall be computed as under:

Sale Consideration received or accruing as a result of transfer of capital asset. (FVOC) XXX

Less: Expenditure incurred wholly and exclusively in connection with such transfer XXX
(Transfer Expenses)

Less: The Cost of Acquisition of the asset (COA) XXX

Less: The Cost of any improvement to the asset (COI) XXX

Capital Gain / Loss XXX

First proviso to Sec. 48: Capital Gains in case of non-residents

In case of an assessee who is a non-resident, the capital gains arising from the transfer of shares or
debentures in an Indian company, shall be computed by converting
(1) the cost of acquisition of the asset
(2) the expenditure incurred wholly and exclusively in connection with such transfer and
(3) sale consideration received or accruing as a result of transfer of capital asset
into the same foreign currency as was initially utilised in the purchase of such shares or debentures. The
capital gains so computed in the foreign currency shall be reconverted into Indian currency.

i The above-said manner of computation of capital gains shall apply to capital gains arising
from every reinvestment thereafter in and the sale of, shares or debentures in Indian
company.

Rule 115A: Methods of Conversion

(a) COA Average of TTBR and TTSR on the date of acquisition

(b) Expenditure Average of TTBR and TTSR on the date of transfer

(d) CG into Indian Company TTBR on the date of transfer

CA Bhanwar Borana 45
Capital Gains

TEST YOURSELF
Sunny, a non-resident purchases shares of MB Ltd. On 01.01.2006 by remitting US$. The following data is
given:
COA : ` 5,50,000
Date of sale : 14.02.2022
Sale price : ` 21,00,000
Date of expenditure : 12.02.2022
Expenditure on transfer : ` 7,500
Exchange rates on various dates are as under:

1 US $ = ` TTBR TTSR

01.01.2006 38 40

12.02.2022 52 54

14.02.2022 56 58

_____________________________________________________________________________________

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46 CA Final Direct Tax - Vol. 01
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CA Bhanwar Borana 47
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Second proviso to Sec. 48: Indexation

(1) This proviso is not applicable where the first proviso applies.
(2) Where the capital gains arises from the transfer of a long term capital asset, then for the purposes of
computing capital gains:
(a) “Indexed Cost of Acquisition” shall be taken instead of “Cost of Acquisition” and
(b) “Indexed cost of any improvement” shall be taken instead of “cost of any improvement”.

Formulae for Indexation

(1) Indexed Cost of Acquisition
CII of the year in which asset was transfarred
= Cost of acquisition ×
CII for first year in which asset was held by assessee OR üï
ýWhichever is Later
The year beginning on 01/04/2001 ïþ

(2) Indexed Cost of any Improvement

CII of the year in which asset was transferred
= Cost of improvement ×
CII for the year in which the improvement to the asset took place

Cost Inflation Index (CII)

Financial Financial Financial
C.I.I. C.I.I. C.I.I.
Year Year Year

2001-02 100 2009-10 148 2017-18 272

2002-03 105 2010-11 167 2018-19 280

2003-04 109 2011-12 184 2019-20 289

2004-05 113 2012-13 200 2020-21 301

2005-06 117 2013-14 220 2021-22 317

2006-07 122 2014-15 240

2007-08 129 2015-16 254

2008-09 137 2016-17 264

CBDT on Shifting of Base Year

"As the base year for computation of capital gains has become more than three decades old, assessees are
facing genuine difficulties in computing the capital gains in respect of a capital asset, especially immovable
property acquired before 01.04.1981 due to non-availability of relevant information for computation of fair
market value of such asset as on 01.04.1981."
48 CA Final Direct Tax - Vol. 01
Capital Gains

Third proviso to Sec. 48 : NO 1st and 2nd Proviso in case of sec 112A
First and second proviso shall not apply to the capital gains arising from the transfer of a long-term capital
asset being an equity share in a company or a unit of an equity-oriented fund or a unit of a business trust
referred to in section 112A.

Fourth proviso to Sec. 48 : NO Index in Case of Debentures & Bonds

± The indexation under the second proviso to section 48 shall not apply to the capital gains arising
from the transfer of bonds and debentures.
± However, benefit of indexation is available for capital indexed bonds issued by the central government
or Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme,
2015.

i Benefit of indexation is available in respect of units of UTI and Units of Mutual Funds.

CBDT on Sovereign Gold Bonds (Memorandum Explaining)

The Government of India has introduced the Sovereign Gold Bond Scheme with the aim of reducing the
demand for physical gold so as to reduce the outflow of foreign exchange on account of import of gold. The
Gold Bond is a mode for substitution of physical gold and also provides security to the individual investor
who invests in Gold for meeting their social obligation. Accordingly, with a view to provide parity in tax
treatment between physical gold and Sovereign Gold Bond, section 47 of the Income-tax Act has been
amended so as to provide that any redemption of Sovereign Gold Bond under the Scheme, by an individual
shall not be treated as transfer and therefore shall be exempt from tax on capital gains.
Further, section 48 of the Income-tax Act has also been amended so as to provide indexation benefits to long
term capital gains arising on transfer of Sovereign Gold Bond to all assessees.
These amendments take effect from 1st of April, 2017 and will, accordingly, apply from assessment year
2017-18 and subsequent assessment years.

Fifth proviso to Sec. 48: Foreign Exchange Fluctuation Gain on RDB

Provided also that in case of an assessee being a non-resident, any gains arising on account of appreciation
of rupee against a foreign currency at the time of redemption of rupee denominated bond (RDB) of an
Indian company held by him, shall be ignored for the purposes of computation of full value of consideration
under this section. (Amended by FA 2017)
The above proviso has been amended with effect from assessment year 2018-19 by substituting the word
"held" in place of the word "subscribed". Thus, the benefit of the said proviso shall be available to any person
who holds the bonds, that is, even a secondary holder also.
CBDT on RDB (Memorandum Explaining)
The Reserve Bank of India permitted Indian corporates to issue rupee denominated bonds outside India as a
measure to enable the Indian corporates to raise funds from outside India. Accordingly, with a view to
provide relief to non-resident investor who bears the risk of currency fluctuation, section 48 of the Income-
tax Act has been amended to provide that the capital gains, arising in case of appreciation of rupee between
the date of issue/purchase and the date of redemption against the foreign currency in which the investment is
made shall be exempt from tax on capital gains.

CA Bhanwar Borana 49
Capital Gains

This amendment takes effect from 1st of April, 2017 and will accordingly apply in relation to assessment
year 2017-18 and subsequent assessment years.

EXAMPLE:
BB ltd (Indian company) issued RDB @ ` 10000 per bond on 14/02/2021. The Bounds redeemed at par on
13/1/2022. Mr. Sunny (NR) subscribed 100 bonds. He invested foreign currency.
Exchange Rate on 14/02/2021 13/01/2022
$1 ` 70 ` 62
COA (in Foreign Currency) = $14285.71
Redemption Price (In Foreign Currency) = $16129.03
Gain = $ 16129.03 - $14285.71 = $ 1843.32
The Gain of $ 1843.32 arising on account of appreciation in rupee is not taxable.
Suppose in above example if bonds redeemed at 10% premium @ ` 11000 per bond
Redemption Price $ 17,741.94
Cost of Acquisition $ 14,285.71
Gain $ 3,456.23

$1612.91 $1843.32
Ignore
Short Term Capital Gain Taxable Rupee Appreciation Not Taxable
Notes
1. For computation of capital gain First Proviso to Sec 48 applies.
2. If there is a loss due to rupee depreciation, then it shall be allowed as capital loss.
3. Exemption is not available if RDB is transferred before maturity.

Sixth proviso to Sec. 48: FVOC in Case of ESOP shares

Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section
47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be
deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this
section.

Seventh proviso to Sec. 48: STT Not Allowed

No deduction shall be allowed in computing the income chargeable under the head “Capital Gains” in
respect of any sum paid on account of securities transaction tax.
Accordingly the securities transaction tax (STT) paid on sale of shares/units shall not be reduced from the
sale price and the STT paid on purchase of shares/units shall not be added to the cost of acquisition.

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Cost of Acquisition Sec. 55

(1) In relation to a capital asset being
ð Goodwill of a business or Profession,
ð Trade mark or brand name associated with a business or profession, or
ð Tenancy rights, or
ð Stage carriage permits (Route Permits), or
ð Loom hours, or
ð A right to manufacture, produce or process any article or thing, or
ð A right to carry on any business or Profession
Cost of acquisition means
(a) In case such asset is acquired by the assessee: the amount of price paid and
(b) In any other case (Self-Generated): Nil
(Amended by FA, 21 w.e.f. AY 21-22)

i 1. In case of Intangible Assets, the option to take cost of acquisition as Fair market
value as on 01-04-2001 is not available even if such assets were acquired before
01.04.2001. This will apply irrespective of the fact whether such assets are self-generated
or have been purchased from someone.
2. Capital gain on transfer of self-generated goodwill of a profession or self-
generated trade mark/ brand name associated with a profession, is not
chargeable to tax up to the assessment year 2020-21.
3. Proviso added in section 55:
Provided that where the capital asset, being goodwill of a business or profession, in
respect of which a deduction on account of depreciation under section 32(1) has
been obtained by the assessee in any PY preceding the PY relevant to the AY year
commencing on or after the 1st day of April, 2021, the above provisions shall apply
with the modification that the total amount of depreciation obtained by the
assessee before the assessment AY 21-22 shall be reduced from the amount of
purchase price. (will discuss with PGBP) (Added by FA 21 w.e.f. AY 21-22)

CA Bhanwar Borana 51
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(2) In case of share/security

Capital Asset Cost of Acquisition Period of Holding

From the date of purchase or

Original Shares/ Securities Purchase Price
allotment

Right Shares/ Securities Price actually paid under the

From the date of allotment
right issue

Renouncement of right to
subscribe shares/ securities

§ in the hands of the person who From the date of offer (always
NIL
renounces the right short-term)

§ in the hands of the purchaser Price paid to the person who

of right. renounced the right and
From the date of allotment
amount paid to the company to
acquire the right shares

Bonus Shares/ Securities NIL From the date of allotment

i The option to take FMV as on 1-4-2001 is available.

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(3) Under a scheme for demutualization or corporatization approved by the SEBI in relation to a capital
asset, being:

Capital Asset Cost of Acquisition

Equity share or shares allotted to a member of a Cost of acquisition of his original membership
recognized stock exchange in India of the exchange

Trading or clearing rights of the recognized stock

NIL
exchange acquired by a shareholder

i The option to take FMV as on 1-4-2001 is Not available.

(4) in relation to other capital assets

1. Where the capital asset is acquired by the assessee or the previous owner before 1-4-2001:
(i) Cost of Acquisition to the assessee or the previous owner
(ii) FMV as on 01/04/2001
Whichever is higher
2. Where the capital asset is acquired by the assessee or the previous owner on or after 1-4-2001:
Cost of acquisition to the assessee or the previous owner.
Provided that in case of a capital asset, being land or building or both, the fair market value of such
asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp
duty value, wherever available, of such asset as on the 1st day of April, 2001.
Explanation.—For the purposes of this proviso, "stamp duty value" means the value adopted or assessed
or assessable by any authority of the Central Government or a State Government for the purpose of
payment of stamp duty in respect of an immovable property. (Added by FA 2020 w.e.f. AY 21-22)

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Cost of Improvement Sec. 55

(a) Cost of improvement of the following shall be taken to be NIL:
(1) Goodwill of business
(2) Right of manufacture, produce or process any article or thing
(3) Right to carry on any business or Profession
(b) In other capital asset, capital expenditures by assessee in PY on or after 01.04.2001

i Expenditure incurred before 01.04.2001 shall be IGNORED.

QUESTION 1
Mr. Bhavin purchased 100 shares of Hari Pvt. Ltd. on 1.1.1999 for ` 30 each. On 1.1.2000 Hari Pvt. Ltd.
announces the right shares. Mr. Bhavin applied for 100 shares and 100 Right shares were allotted to him for
` 40 each on 28.1.2000. On 1.12.2000 Hari Pvt. Ltd. announces bonus of 2:1. 400 Bonus shares have been
allotted to Mr. Bhavin on 1.1.2001. In the year 2008, Hari Pvt. Ltd. again announced the right shares. Mr.
Bhavin has applied for the right shares and has been allotted 400 Rights shares on 1.1.2008 for ` 60 each. In
the year 2010, Hari Pvt. Ltd. announces bonus of 1:1.
Mr. Bhavin has been allotted 1000 Bonus shares on 30.6.2010. Mr. Bhavin sold all shares of Hari Pvt. Ltd.
on 14.2.2022 for ` 950 per share. Compute Capital Gains in the hands of Mr. Bhavin. Fair Market value as
on 1.4.2001 is ` 85 per share.

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QUESTION 2
Mr. Raj sells the goodwill on 20-01-2022 for ` 38,00,000. It was self-generated by him on 02.01.2002 and he
incurred Cost of improvement thereof for ` 5,55,000 on 01.04.2005. Compute the taxable capital gain.
Also Compute capital gain in case goodwill was purchased by Raj on 20.01.2002 for ` 5,20,000

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Capital Gains on conversion of Capital Assets into Stock-in-trade Sec. 45(2)

Section 2(47): Transfer include conversion of a capital asset into stock in trade of the business carried on
by the assessee.
Section 45(2): Notwithstanding anything contained in section 45(1), the capital gains arising from the
transfer by way of conversion of a capital asset into stock-in-trade shall be charged to tax in
the PY in which the stock-in-trade is sold or otherwise transferred by the assessee. For the
purposes of computing the capital gains, the fair market value of the asset on the date of
conversion shall be deemed to be the sales consideration for the purposes of section 48.
Notes:
1. If any part of stock in trade is sold then only part capital gain shall arise in the year in which part
stock in trade is sold.
2. In case of conversion of capital asset into stock in trade and subsequent sale of stock in trade, the
period of 6 months shall calculate from the date of sale of stock in trade for the purpose of claiming
exemption u/s 54EC (CBDT Circular)

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QUESTION
A building has been acquired by the assessee on 1.06.2000 for ` 2,00,000. The assessee converts the building
into stock in trade of his property dealing business on 1.01.2008 when the fair market value of the building is
` 19,00,000. The stock in trade is sold by the assessee on 14.02.2022 for ` 29,00,000. (FMV as on 1.04.2001
was ` 2,70,000).

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QUESTION
Hema purchased a land at a cost of ` 10 lakhs in the financial year 1992-93 and held the same as her capital
asset till 31st March, 2010. Hema started her real estate business on 1st April, 2010 and converted the said
land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 150
lakhs. She constructed 20 flats of equal size, quality and dimension. Cost of construction of each flat is ` 8
lakhs. Construction was completed in December, 2021. She sold 15 flats at ` 20 lakhs per flat between
January, 2022 and March, 2022. Remaining 5 flats were held in stock as on 31st March, 2021. Compute the
amount of chargeable capital gain and business income in the hands of Hema arising from the above
transactions for Assessment Year 2022-23 indicating clearly the reasons for treatment for each item. FMV as
on 01.04.2001 of Land is ` 20,00,000.

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Conversion of Stock in trade into Capital Asset (Added by FA 2018)

Section 28 of PGBP
(via) The fair market value of inventory as on the date on which it is converted into, or treated as, a capital
asset determined in the prescribed manner
Section 2(24) Income
(xiia) the fair market value of inventory referred to in clause (via) of section 28
Section 49(9) Cost of Acquisition
Where the capital gain arises from the transfer of a capital asset referred to in clause (via) of section 28, the
cost of acquisition of such asset shall be deemed to be the fair market value which has been taken into
account for the purposes of the said clause.
Section 2(42A) Period of Holding
(ba) in the case of a capital asset referred to in clause (via) of section 28, the period shall be reckoned from
the date of its conversion or treatment;

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EXAMPLE
Yatish trading company acquired 10,000 shares BB Ltd. @20 each on 14/05/2020 as stock in trade. SIT not
sold upto 31/03/2021 and NRV on 31/03/2021 is 22 per share. Inventory of 10,000 shares converted into
Capital asset on 10/07/2021 and FMV on such date is 26 per share. Assessee transfer 2,000 shares on
19/03/2022 @ 45 each & balance 8,000 shares on 14/08/2022 @ 36 per share. Compute PGBP and Capital
Gain.
Solution
Computation of PGBP for PY 20-21 AY 21-22
Particular ` `
Opening stock -
Add: Purchase of Stock 2,00,000
Less: sale -
Closing Stock (10,000 × 20) 2,00,000
(Cost-20 or NRV-22, Lower)
PGBP Nil
2,00,000 2,00,000
Computation of PGBP for PY 21-22 AY 22-23
Particular ` `
Opening stock 2,00,000
Add: Purchase of Stock -
Less: FMV of stock on the date of conversion into
As per section 28(via) 2,60,000
Closing Stock -
PGBP 60,000
2,60,000 2,60,000
Computation of Capital Gain (assume shares are unlisted) PY 21-22 PY 22-23
AY 22-23 AY 23-24
Period of Holding (10/7/21-18/3/22) (10/7/21-13/8/22)
` `
Full value of Consideration 90,000 2,88,000
-COA (FMV on the date of conversion into capital asset) (52,000) (2,08,000)
STCG 38,000 80,000
Note: In this case the PGBP taxable in the year of conversion of SIT into Capital asset and capital gain
taxable in the year in which capital asset transferred but in section 45(2) conversion of capital asset into
stock in trade, capital gain and PGBP both taxable in the year in which stock sold.

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Rule: 11UAB: Determination of FMV of Stock in Trade

(a) Immovable Property: SDV (Stamp Duty Value) as per CG or SG authority on the date of
conversion.
(b) Jewellery, archaeological collections, drawings, paintings, sculptures, any work of art, shares
and securities: Value as per Rule 11UA on the date of conversion.
(c) Any other asset: Price in open market on the date of conversion.

Capital Gain on transfer by way of Compulsory Acquisition of Assets Sec. 45(5)

Notwithstanding anything contained in section 45(1), where a capital asset is compulsorily acquired under
any law or where the consideration for transfer of a capital asset is to be determined or approved by the
Central Government or Reserve Bank of India, then the capital gains arising from the transfer of the capital
asset shall be dealt with as under:
(a) The capital gains computed with reference to the original compensation (Initial) shall be chargeable
to tax as the income of the PY in which such compensation or part thereof is first received by the
assessee.
(b) The amount by which the compensation is enhanced (i.e. enhanced compensation) by the Court,
Tribunal or other authority shall be deemed as the income under the head Capital gains of the PY in
which such amount is received by the assessee.
Provided that any amount of compensation received in pursuance of an interim order of a
court, Tribunal or other authority shall be deemed to be income chargeable under the head
“Capital gains” of the previous year in which the final order of such court, Tribunal or other
authority is made.
Where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed
by taking the compensation referred to in clause (a) or, as the case may be, enhanced compensation referred
to in clause (b), and subsequently such compensation is reduced by any court, Tribunal or other authority,
such assessed capital gain of that year shall be recomputed by taking the compensation as so reduced by such
court, Tribunal or other authority to be the full value of consideration. [Rectification u/s 155(16)]

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NOTES ± For determining nature of capital gains, the period shall be taken from the date the asset was
acquired by the assessee to the date on which asset was acquired under any law or
transferred.
± The nature of capital gains computed with reference to the enhanced compensation shall be
the same as the nature of capital gains computed with reference to the original
compensation.
± For the purpose of computing the capital gains with reference to the enhanced
compensation, the cost of acquisition and the cost of improvement shall be taken to the NIL.
However, legal expenses incurred to obtain the enhanced compensation are deductible from
the enhanced compensation and balance shall be the capital gains.
± Any interest received on compensation is taxable under the head Income from Other
Sources in the year in which it is received and 50% deduction is allowed in the year in which
interest is received.
± CBDT clarified that compensation received in respect of award or agreement which has
been exempted from levy of income-tax vide Section 96 of the (Right to Fair Compensation
and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013)
RFCTLARR Act shall also not be taxable under the provisions of Income-tax Act, 1961
even if there is no specific provision of exemption for such compensation in the Income-tax
Act, 1961.

Capital Gains on Insurance Claim for damage or destruction of capital assets

Sec. 45(1A)
Notwithstanding anything contained in sub-section (1), where any person receives at any time during any PY
any money or other assets under an insurance from an insurer on account of damage to, or destruction of, any
capital asset, as a result of
(1) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature, (act of God) or
(2) riot or civil disturbance, or
(3) accidental fire or explosion; or
(4) action by an enemy or action taken in combating an enemy (whether with or without a declaration of
war),
then any profits or gains arising from receipt of such money or other assets shall be chargeable to tax under
the head “Capital gains” and shall be deemed to be the income of such person of the PY in which such money
or other asset was received and for the purposes of section 48, value of any money or the fair market value of
other assets on the date of such receipt shall be deemed to be the full value of the consideration received or
accruing as a result of the transfer of such capital asset.

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Notes ± Section 45(1A) is not attracted if an asset is destroyed and no insurance compensation is
received. Such a destruction of asset shall not be treated as transfer and thus there will be no
capital gains. The cost of the asset destroyed shall be a capital loss i.e. dead loss which has no
tax treatment.
± As per section 45(1A), the capital gains shall not be taxable in the year in which the asset is
destroyed but shall be taxable in the year in which the insurance money is received or an asset
is received from the insurance company. It is for this reason that section 45(1A) overrides
section 45(1) which provides that the capital gains shall be taxable in the year of transfer.
± Destruction of an asset resulting in receipt of insurance claim will now amount to a transfer
and for the purposes of computing the nature of capital gains, the date of transfer of the capital
asset destroyed should mean the date of destruction.
± The fair market value of such asset on the date on which it was received should be taken as its
cost of acquisition of that assets.

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QUESTION
An assessee purchased a land on 1.1.2002 for `1 lakh. The land is acquired by the Government on 1.1.2012
and the original compensation awarded is ` 12 lakhs which is received as under:
On 14.2.2013 ` 3 lakhs
On 14.2.2015 ` 6 lakhs
On 14.2.2016 ` 3 lakh.
On an appeal made by the assessee, the Court awards additional compensation of 20 lakhs on 31.12.2014
which is received as under:
On 1.1.2016 ` 2 lakhs
On 1:1.2017 `10 lakhs
On 1.1.2018 ` 4 lakhs
On 1.1.2019 ` 4 lakhs
The Court also awards interest @ 12% per annum for the period 1.1.2012 to 31.12.2016 amounting to
`3,80,000 which is received on 1.3.2022. Compute capital gain of the assessee.

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QUESTION
Mr A is an individual carrying on business. His stock and machinery were damaged and destroyed in a fire
accident. The value of stock lost (totally damaged) was ` 6,50,000. A certain portion of the machinery could
be salvaged. The opening written-down value (WDV) of the block as on April 1, 2021, was ` 10,80,000.
During the process of safeguarding machinery and in the fire-fighting operations, Mr A lost his gold chain
and a diamond ring, which he had purchased in April 2005 for ` 1,20,000. The market value of these two
items as on the date of the fire accident was ` 1,80,000.
Mr A received the following amounts from the insurance company:
(i) towards loss of stock, ` 4,80,000;
(ii) towards damage of machinery, ` 6,00,000;
(iii) towards gold chain and diamond ring, ` 1,80,000.
You are requested to briefly comment on the tax treatment of the above three items under the provisions of
the Income-tax Act, 1961.

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Capital Gain in Case of Joint Development Agreement Sec. 45(5A)

Notwithstanding anything contained in sub-section (1), where the capital gain arises to an assessee, being an
individual or a Hindu undivided family, from the transfer of a capital asset, being land or building or both,
under a specified agreement, the capital gains shall be chargeable to income-tax as income of the previous
year in which the certificate of completion for the whole or part of the project is issued by the competent
authority; and for the purposes of section 48, the stamp duty value, on the date of issue of the said certificate,
of his share, being land or building or both in the project, as increased by the consideration received in cash,
if any, shall be deemed to be the full value of the consideration received or accruing as a result of the transfer
of the capital asset.
Provided that the provisions of this sub-section shall not apply where the assessee transfers his share in the
project on or before the date of issue of said certificate of completion, and the capital gains shall be deemed to
be the income of the previous year in which such transfer takes place and the provisions of this Act, other
than the provisions of this sub-section, shall apply for the purpose of determination of full value of
consideration received or accruing as a result of such transfer.
Explanation.—For the purposes of this sub-section, the expression—
(i) "competent authority" means the authority empowered to approve the building plan by or
under any law for the time being in force;
(ii) "specified agreement" means a registered agreement in which a person owning land or
building or both, agrees to allow another person to develop a real estate project on such
land or building or both, in consideration of a share, being land or building or both in
such project, whether with or without payment of part of the consideration in cash;
(iii) "stamp duty value" means the value adopted or assessed or assessable by any authority of
Government for the purpose of payment of stamp duty in respect of an immovable
property being land or building or both.'.
(Added by Finance Act, 2017)
Section 49(7): Cost of Acquisition
Where the capital gain arises from the transfer of a capital asset, being share in the project, in the form of
land or building or both, referred to in section 45(5A), not being the capital asset referred to in the proviso to
the said sub-section, the cost of acquisition of such asset, shall be the amount which is deemed as full value
of consideration in that sub-section.
Aasaan Hai…
- In case of an assessee being Individual or HUF,
- who entered into a specified agreement for development of project,
- the capital gain on transfer of Land or Building or Both, shall be taxable in the year in which Certificate
of Completion (CC) for the whole or part of project issued by Competent Authority.
Year of Transfer = Year in which possession of immovable property is transfer in JDA
Year of Tax = Year in which CC issued by Competent Authority
FVOC = SDV on the day of issue of CC of his share in project + Consideration received in Cash
Note: Above provisions not apply if assessee transfer his share in project on or before the date of issue of CC
and capital gain will be taxable in the year in which transfer took place i.e. possession transfer in JDA.

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Section 49(7): COA of share received in JDA

COA = Amount Deemed as FVOC u/s 45(5A)
Meaning of Specified Agreement(JDA)
It means a registered agreement in which a person owning land or building or both, agrees to allow another
person to develop a real estate project on such land or building or both. The consideration, in this case, is a
share, being land or building or both in such project; Part of the consideration may also be in cash.

EXAMPLE 1
Mr. BB purchased a plot for ` 5,00,000 in PY 01-02. On 16/07/2018 he entered into a JDA with Omkar
Builders & handover the possession of plot to Builder on 16/07/2018. FMV of plot on such date is `
32,00,000.
As per JDA, BB is to receive 2 flats in developed project along with ` 40,00,000.
Mr. BB received money of ` 40,00,000 in PY 20-21. Completion certificate (CC) of project issued on
10/12/2021 & SDV on such date is ` 50,00,000 per flat. Mr. BB got possession of 2 flats on 30/06/2022.
Compute Capital Gain.
Solution:
MR. BB PY 2021-22 AY 2022-23
Computation Capital Gain `

FVOC [(50Lacs x 2 Flats) + 40 Lacs] 1,40,00,000

Less: ICOA [POH 01-02 to 15/7/2018]
5,00,000 x 280 (18-19) 14,00,000
100 (01-02)
LTCG 1,26,00,000

EXAMPLE 2
Suppose in above example if Mr. BB transfer 1 Flat for ` 92,00,000 on 14/02/2023. Compute capital gain.
Solution:
MR. BB PY 2022-23 AY 2023-24
Computation Capital Gain `
FVOC 92,00,000
Less: COA [POH 30/06/22 to 13/02/23] Sec. 49(7) 50,00,000 (Note-1)
STCG 42,00,000
Note-1: Alternative view
If we take rigid interpretation of section 49(7) then COA will be ` 70,00,000 (1,40,00,000/2 Flats) because as
per section 49(7) COA shall be FVOC u/s 45(5A) but if we take logical interpretation then COA should be
` 50,00,000.

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TAXATION OF ULIP (Applicable from AY 21-22)

Capital Asset Sec. 2(14)

“Capital asset” means—
- any unit linked insurance policy to which exemption under section 10(10D)does not apply on
account of the applicability of the fourth and fifth provisos thereof,
Exemption on maturity of Life Insurance Policy Sec. 10(10D)
any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy,
other than—
(a) any sum received under section 80DD(3); or
(b) any sum received under a Keyman insurance policy; or
(c) any sum received under an insurance policy issued on or after the 1st April, 2003 but on or before the 31st
March, 2012 in respect of which the premium payable for any of the years during the term of the policy
exceeds 20% of the actual capital sum assured; or
(d) any sum received under an insurance policy issued on or after the 1st April, 2012 in respect of which the
premium payable for any of the years during the term of the policy exceeds 10% of the actual capital sum
assured:
Provided that the provisions of sub-clauses (c) and (d) shall not apply to any sum received on the death of a
person:
Provided further that for the purpose of calculating the actual capital sum assured under sub-clause (c),
effect shall be given to the Explanation to sub-section (3) of section 80C or the Explanation to sub-section
(2A) of section 88, as the case may be :
Provided also that where the policy, issued on or after the 1st April, 2013, is for insurance on life of any
person, who is—
(i) a person with disability or a person with severe disability as referred to in section 80U; or
(ii) suffering from disease or ailment as specified in the rules made under section 80DDB,
the provisions of this sub-clause shall have effect as if for the words "ten per cent", the words "fifteen per
cent" had been substituted:
Provided also that nothing contained in this clause shall apply with respect to any unit linked insurance
policy, issued on or after the 1st February, 2021, if the amount of premium payable for any of the previous
year during the term of such policy exceeds two lakh and fifty thousand rupees:
Provided also that if the premium is payable, by a person, for more than one unit linked insurance policies,
issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to
those unit linked insurance policies, where the aggregate amount of premium does not exceed the amount
referred to in fourth proviso in any of the previous year during the term of any of those policies:
Provided also that the provisions of the fourth and fifth provisos shall not apply to any sum received on the
death of a person:
Provided also that if any difficulty arises in giving effect to the provisions of this clause, the Board may, with
the previous approval of the Central Government, issue guidelines for the purpose of removing the difficulty
and every guideline issued by the Board under this proviso shall be laid before each House of Parliament,
and shall be binding on the income-tax authorities and the assessee.
Explanation 1.—For the purposes of this clause, "Keyman insurance policy" means a life insurance policy
taken by a person on the life of another person who is or was the employee of the first-mentioned person or is
or was connected in any manner whatsoever with the business of the first-mentioned person and includes such

CA Bhanwar Borana 71
Capital Gains

policy which has been assigned to a person, at any time during the term of the policy, with or without any
consideration.
Explanation 2.—For the purposes of sub-clause (d), the expression "actual capital sum assured" shall have the
meaning assigned to it in the Explanation to sub-section (3A) of section 80C.
Explanation 3.—For the purposes of this clause, "unit linked insurance policy" means a life insurance policy
which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of
regulation 3 of the Insurance Regulatory and Development Authority of India (Unit Linked Insurance
Products) Regulations, 2019 issued by the Insurance Regulatory and Development Authority under the
Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999
Capital Gain on ULIP Sec. 45(1B)
Notwithstanding anything contained in sub-section (1), where any person receives at any time during any
previous year any amount under a unit linked insurance policy, to which exemption under clause (10D)
of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof, including
the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such
amount by such person shall be chargeable to income-tax under the head "Capital gains" and shall be
deemed to be the income of such person of the previous year in which such amount was received and the
income taxable shall be calculated in such manner as may be prescribed.

_____________________________________________________________________________________

72 CA Final Direct Tax - Vol. 01

Capital Gains

Example: 1

BB takes a ULIP on March 16, 2021 (information pertaining to sum assured and annual insurance premium is
given in table). He wants to know whether exemption will be available under section 10(10D) at the time of
maturity of ULIP. He does not have any other policy and does not intend to take any other ULIP in future.
(` in lakhs)

Particular Situation 1 Situation 2 Situation 3 Situation 4

Sum assured 30 15 30 25
Annual insurance premium 2.40 2 2.6 2.6

Solution:
Situation-1: As the annual insurance premium does not exceed 10% of sum assured and annual insurance
premium is not more than ` 2,50,000 section 10(10D) exemption will be available at the time of maturity of
ULIP.
Situation-2: Annual insurance premium does not exceed ` 2,50,000. Consequently, fourth proviso or fifth
proviso to section 10(10D) (as given above) is not applicable. In other words, exemption in this case cannot
be denied on the basis of fourth proviso or fifth proviso. In such a situation, section 45(1B) and section 112A
are not applicable.
As annual insurance premium is more than 10% of sum assured, exemption is not available by virtue of
section 10(10D)(d). Capital gain will be chargeable to tax u/s 45 and tax liability shall be calculated within
the parameters of section 112.
Situation-3: Annual insurance premium does not exceed 10% of sum assured. Exemption cannot be denied
because of operation of section 10(10D)(d). However, annual insurance premium is more than ` 2,50,000.
Consequently, by virtue of fourth and fifth proviso to section 10(10D), X cannot claim exemption. Capital
gain will be taxable under section 45(1B) and tax will be computed within the parameters of section 112A.

Situation-4:-Annual insurance premium exceeds 10% of sum assured. Exemption is not available by virtue of
section 10(10D)(d). Moreover, annual premium is more than ` 2,50,000. However, in this case, exemption is
denied not only because of fourth and fifth proviso. In such a case, capital gain will be chargeable to tax
under section 45 and tax liability shall be calculated within the parameters of section 112.

Example: 2
Ishan gives the following information pertaining to ULIPs taken by him (annual insurance premium in
these two cases does not exceed 10 per cent of sum assured)-

Year of No. of premium Annual insurance No. of Annual insurance

payment instalment premium (Policy No premium premium (Policy
1006) installment No. 1244)
2021-22 1st ` 2.40 lakh
2022-23 2nd ` 2.40 lakh
2023-24 3rd ` 2.40 lakh
2024-25 4th ` 2.40 lakh
2025-26 5th ` 2.40 lakh 1st ` 1.9 lakh
2026-27 - 2nd ` 1.9 lakh

CA Bhanwar Borana 73

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