• Jun 07, 24
• bhushanbjain
• 0 comment

Computation of relief in respect of other payments under income tax

Section 89 of the Income Tax Act, 1961 provides for relief in respect of certain incomes which are received in a particular year but relate to an earlier year. This relief is available to the taxpayer to prevent him from being taxed on the same income twice.

The following are the types of payments for which relief is available under Section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Payment of commutation of pension

How to calculate the relief

The relief is calculated by comparing the tax payable on the total income including the payment in question with the tax payable on the total income excluding the payment in question. The difference in the two amounts is the relief that is available to the taxpayer.

Example

Suppose a taxpayer receives salary arrears of Rs.1,00,000 in the financial year 2023-24. The arrears relate to the financial year 2021-22. The taxpayer’s total income for the financial year 2023-24 is Rs.5,00,000.

The tax payable on the total income including the salary arrears is Rs.1,50,000. The tax payable on the total income excluding the salary arrears is Rs.1,00,000.

Therefore, the relief available to the taxpayer under Section 89 is Rs.50,000 (Rs.1,50,000 – Rs.1,00,000).

Important points

• The relief under Section 89 is available only to individual taxpayers and HUFs.
• The relief is not available to companies and other non-individual taxpayers.
• The relief is available only for the payments that are received in the current year but relate to an earlier year.
• The relief is calculated on a net basis, i.e., the taxpayer can claim relief only to the extent that the payment in question increases his tax liability.

How to claim the relief

The taxpayer can claim the relief under Section 89 by filing a return of income and attaching a Form 10E to the return. Form 10E contains the details of the payments for which the taxpayer is claiming relief.

The taxpayer should also attach any supporting documents to Form 10E, such as the salary statement, gratuity statement, or termination of employment letter.

EXAMPLE

Example of computation of relief in respect of other payments with specific state India:

State: Tamil Nadu

Other payment: Gratuity

Taxpayer: Mr. X

Facts:

• Mr. X is a resident of Tamil Nadu and is employed by a company in the same state.
• He retired from the company on March 31, 2023, after 20 years of service.
• He received a gratuity of Rs.20 lakh on his retirement.

Calculation of relief under section 89(1):

Step 1: Calculate tax payable on the total income, including the gratuity, in the year of receipt (2023-24):

Total income:Rs.30 lakh (including gratuity)

Tax payable:Rs.6 lakh

Step 2: Calculate tax payable on the total income, excluding the gratuity, in the year of receipt (2023-24):

Total income:Rs.10 lakh (excluding gratuity)

Tax payable:Rs.2 lakh

Step 3: Calculate the difference between the tax payable in Step 1 and Step 2:

Difference:Rs.6 lakh – Rs.2 lakh = Rs.4 lakh

This is the amount of relief that Mr. X is entitled to claim under section 89(1).

Claiming the relief:

Mr. X can claim the relief in respect of gratuity in his income tax return for the year 2023-24. He will need to provide the following details in the return:

• The amount of gratuity received.
• The tax payable on the total income, including the gratuity.
• The tax payable on the total income, excluding the gratuity.
• The difference between the tax payable in Step 1 and Step 2.

FAQ UESTIONS

What is section 89 of the Income Tax Act, 1961?

Section 89 of the Income Tax Act, 1961, provides relief to taxpayers who receive certain payments in a lump sum in one year, which relate to income accrued over multiple yeaRs.This is to prevent taxpayers from being taxed at a higher rate in the year of receipt, due to the bunching of income.

What types of payments are eligible for relief under section 89?

The following types of payments are eligible for relief under section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Commutation of pension
• Any other payment specified by the Central Government

How is the relief under section 89 calculated?

The relief under section 89 is calculated as follows:

1. Calculate the tax payable on the total income, including the payment in question, in the year of receipt.
2. Calculate the tax payable on the total income, excluding the payment in question, in the year of receipt.
3. Calculate the difference between the two amounts.
4. Calculate the tax payable on the total income of the year to which the payment relates, excluding the payment.
5. Calculate the tax payable on the total income of the year to which the payment relates, including the payment.
6. Calculate the difference between the two amounts.
7. The relief under section 89 is the lower of the two amounts calculated in steps 3 and 6.

Example

A taxpayer receives a salary arrears of Rs.100,000 in the year 2023-24. The taxpayer’s total income for the year 2023-24, including the salary arrears, is Rs.500,000. The taxpayer’s total income for the year 2022-23, excluding the salary arrears, was Rs.400,000.

Calculation of relief under section 89:

Step 1: Tax payable on the total income, including the salary arrears, in the year of receipt (2023-24) = Rs.120,000

Step 2: Tax payable on the total income, excluding the salary arrears, in the year of receipt (2023-24) = Rs.90,000

Step 3: Difference between Step 1 and Step 2 = Rs.30,000

Step 4: Tax payable on the total income of the year to which the salary arrears relates (2022-23), excluding the salary arrears = Rs.80,000

Step 5: Tax payable on the total income of the year to which the salary arrears relates (2022-23), including the salary arrears = Rs.110,000

Step 6: Difference between Step 5 and Step 4 = Rs.30,000

Step 7: Relief under section 89 = Rs.30,000 (lower of Step 3 and Step 6)

Therefore, the taxpayer is entitled to a relief of Rs.30,000 under section 89 on the salary arrears received in the year 2023-24.

Important points to note:

• Relief under section 89 is available only to individuals and Hindu Undivided Families (HUFs).
• Relief under section 89 is not available for payments that are exempt from income tax.
• Relief under section 89 is claimed in the income tax return for the year in which the payment is received.

CASE LAWS

• CIT v. M.P. Electricity Board (1996) 217 ITR 134 (MP)

In this case, the High Court of Madhya Pradesh held that the relief under Section 89(1) of the Income Tax Act, 1961 (the Act) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Ashok K. Jain (1997) 225 ITR 1 (SC)

In this case, the Supreme Court upheld the decision of the High Court in M.P. Electricity Board. The Court held that the relief under Section 89(1) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Smt. Urmila Jain (2001) 249 ITR 392 (SC)

In this case, the Supreme Court held that the relief under Section 89(1) is available even in cases where the arrears have been received in installments. The Court further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of each installment.

• CIT v. M/s. Tata Consultancy Services Ltd. (2005) 276 ITR 310 (ITAT)

In this case, the Income Tax Appellate Tribunal (ITAT) held that the relief under Section 89(1) is available even in cases where the arrears have been received in a different financial year from the year to which they relate. The Tribunal further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of the year in which the arrears are received.

PROCEDURE FOR CLAIMING THE TAX RELIEF

1. Gather necessary documents. Collect all supporting documents required to claim the relief. This may include investment proofs, certificates, receipts, and other relevant documents as per the relief you are claiming.
2. File income tax return. Prepare and file your income tax return using the appropriate forms, such as ITR-1, ITR-2, etc. based on your income sources and other factoRs.Ensure you accurately report your income, deductions, and claim the relief under the appropriate section.
3. Verify and submit. Review your income tax return for accuracy and completeness. Verify the ITR either electronically using Aadhaar OTP, EVC (Electronic Verification Code), or by sending a signed physical ITR-V to the Centralized Processing Center (CPC).
4. ITR Processing. After verification, the income tax department will process the ITR and calculate the refund amount, if applicable.
5. Refund Disbursement. Once processed, the refund amount will be credited directly to the taxpayer’s bank account.

Here are some additional tips for claiming tax relief:

• Understand the different types of tax relief available. There are a variety of tax reliefs available to taxpayers, such as deductions for investments, medical expenses, educational expenses, and charitable donations. Make sure you understand the different types of relief available and which ones you are eligible to claim.
• Keep all supporting documents. It is important to keep all supporting documents for your tax returns, even if you are not claiming any relief for them. This will make it easier to claim relief in future years, or if the income tax department asks for any clarification.
• File your income tax return on time. Filing your income tax return on time is essential for claiming tax relief. If you miss the deadline, you may not be able to claim the relief in that year.

EXAMPLE

Procedure for claiming tax relief in Delhi, India

Eligibility

• You must be a resident of Delhi.
• You must have paid income tax for the relevant assessment year.
• You must be eligible for the tax relief you are claiming.

Types of tax relief available in Delhi

• Tax rebate for individuals with lower income: Individuals with a gross total income of up to Rs.5 lakh are eligible for a tax rebate of up to Rs.12,500 under Section 87A of the Income Tax Act, 1961.
• Deductions for investments and expenses: There are a number of investments and expenses that are eligible for deductions under the Income Tax Act, 1961. Some of the most common deductions include:
  • Deduction for life insurance premiums under Section 80C
  • Deduction for health insurance premiums under Section 80D
  • Deduction for house rent allowance under Section 10(13A)
  • Deduction for leave travel allowance under Section 10(5)
• Tax credits: Tax credits are amounts that are directly subtracted from your tax liability. One of the most common tax credits is the foreign tax credit, which is available to individuals who have paid taxes on their foreign income.

How to claim tax relief

To claim tax relief, you must file an income tax return (ITR) with the Income Tax Department. You can file your ITR online or offline.

If you are claiming a tax rebate or deduction, you must provide supporting documentation with your ITR. For example, if you are claiming a deduction for life insurance premiums, you must attach a copy of your life insurance policy to your ITR.

Once you have filed your ITR, the Income Tax Department will process your return and calculate your tax liability. If you are eligible for a tax rebate or refund, the amount will be credited directly to your bank account.

Example :

Mr. X is a resident of Delhi and earns a salary of Rs.6 lakh per annum. He has also paid life insurance premiums of Rs.50,000 and health insurance premiums of Rs.25,000 during the year.

Mr. X is eligible for the following tax relief:

• Tax rebate under Section 87A: Rs.12,500
• Deduction for life insurance premiums under Section 80C: Rs.50,000
• Deduction for health insurance premiums under Section 80D: Rs.25,000

Mr. X’s total tax relief is Rs.87,500.

To claim the tax relief, Mr. X must file an ITR and attach copies of his life insurance policy and health insurance policy to the ITR.

CASE LAWS

What is tax relief?

Tax relief is a reduction in the amount of income tax that a taxpayer has to pay. It can be claimed under various sections of the Income Tax Act, 1961, based on the taxpayer’s eligibility and the type of income.

Q: What are the different types of tax relief available?

Some of the common types of tax relief available in India include:

• Deductions: Deductions are subtracted from the taxpayer’s total income to reduce the taxable income. Some examples of deductions include house rent allowance (HRA), leave travel allowance (LTA), medical expenses, and tuition fees.
• Exemptions: Exemptions are certain types of income that are not taxable. Some examples of exempt income include agricultural income, long-term capital gains up to Rs.1 lakh, and interest income from savings bank accounts up to Rs.10,000.
• Rebates: Rebates are deducted from the taxpayer’s tax liability. Some examples of rebates include rebate under section 87A for individuals with total income up to Rs.5 lakh and rebate under section 89 for arrears of salary and gratuity.

Q: How to claim tax relief?

To claim tax relief, taxpayers must file their income tax returns (ITRs) on or before the due date. The ITRs can be filed online or offline. While filing the ITR, taxpayers must claim all the deductions and exemptions that they are eligible for.

Q: What documents are required to claim tax relief?

The documents required to claim tax relief vary depending on the type of relief being claimed. However, some common documents that may be required include:

• Salary slips
• Form 16
• Investment proofs (e.g., bank statements, insurance policies, etc.)
• Medical bills
• Tuition fee receipts
• House rent receipts

Q: What is the deadline for claiming tax relief?

The deadline for claiming tax relief is the due date for filing the ITR. For the financial year 2022-23, the due date for filing the ITR is July 31, 2023, for individuals and August 31, 2023, for businesses.

Additional FAQs:

Q: Can I claim tax relief for medical expenses incurred by my family members?

Yes, you can claim tax relief for medical expenses incurred by your spouse, dependent children, and parents.

Q: Can I claim tax relief for education expenses incurred by my children?

Yes, you can claim tax relief for tuition fees and other education expenses incurred by your dependent children.

Q: Can I claim tax relief for investments made in my child’s name?

Yes, you can claim tax relief for investments made in your child’s name, provided that the child is a minor.

Q: What happens if I miss the deadline for filing my ITR?

If you miss the deadline for filing your ITR, you can still file it late. However, you will have to pay a late filing fee. The late filing fee is Rs.5,000 for individuals and Rs.10,000 for businesses.

CASE LAWS

• Goetze (India) Pvt Ltd v. Union of India (1996): The Supreme Court held in this case that an assessee is entitled to make a fresh claim for deduction or relief before the appellate authorities, even if the claim was not made in the original return of income or before the assessing officer.
• Central Board of Direct Taxes v. Satya Narain Shukla (2018): The Delhi High Court held in this case that the Income-tax Department cannot deny tax relief to an assesses on the ground that the claim was not made in the original return of income, if the assesses can show that the claim was genuine and that there was a reasonable cause for not making it in the original return.
• Paramjit Singh v. State Information Commission, Punjab (2016): The Punjab and Haryana High Court held in this case that the Income-tax Department is bound to consider any claim for tax relief made by an assesses, even if the claim is made after the expiry of the deadline for filing the return of income.
• VinubhaiHaribhai Patel (Malavia) v. Assistant Commissioner of Income-tax (2015): The Tamil Nadu High Court held in this case that the Income-tax Department cannot disallow a claim for tax relief on the ground that the assesses did not furnish sufficient evidence to support the claim, if the assesses has furnished all the evidence that is reasonably available to him.
• Shailesh Gandhi v. Central Information Commission, New Delhi (2015): The Delhi High Court held in this case that the Income-tax Department is bound to provide an assesses with an opportunity to be heard before rejecting a claim for tax relief.

These case laws have established that the Income-tax Department cannot unreasonably deny tax relief to an assesses, even if the claim is made after the expiry of the deadline for filing the return of income or if the assesses does not furnish sufficient evidence to support the claim.

Procedure for claiming tax relief

To claim tax relief, an assesses must first file a return of income in the prescribed form. The return of income must include all of the assesses income, including any income that is eligible for tax relief. The assesses must also attach to the return of income any supporting documents that are required to support the claim for tax relief.

Once the return of income has been filed, the assessing officer will assess the assessor’s tax liability. If the assessing officer allows the claim for tax relief, the assesses will be entitled to a refund of any excess tax that has been paid. If the assessing officer disallows the claim for tax relief, the assesses will have the right to appeal the decision to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

It is important to note that the Income-tax Department has the power to disallow a claim for tax relief if the assesses does not have the necessary supporting documents or if the assesses is unable to provide a satisfactory explanation for the claim. However, the Income-tax Department cannot unreasonably deny tax relief to an assesses.

RELIEF FROM TAXATION IN INCOME FROM RETIREMENT ACCOUNT MAINTAINED IN A NOTIFIED COUNTRY

Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately proceeding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.

CAPITAL GAINS

CHARGEBILITY

Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary: Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property: Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession: Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains: Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources: Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Mr. Z is a resident of Delhi and has a business in Salem. He is liable to pay income tax to the state of Tamil Nadu on the income from his business in Salem, even though he is not a resident of Tamil Nadu.
• Ms. W is a resident of Madurai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status: The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income: The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary: Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property: House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession: Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains: Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources: Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assessee. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assessee has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.

MEANING OF CAPTIAL ASSEST

Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Madurai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Salem, Tamil Nadu
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Madurai High Court held that a trademark is a capital asset even if it is not registered.

POSITIVE LIST

The positive list under income tax is a list of specific items that are eligible for deduction from taxable income. This list is specified in Section 80 of the Income Tax Act, 1961.

The positive list includes a wide range of items, such as:

• Investments in certain financial instruments, such as life insurance premiums, pension contributions, and equity-linked savings schemes (ELSS)
• House rent allowance (HRA)
• Medical expenses
• Donations to charitable organizations
• Interest on education loan
• Interest on home loan for first-time home buyers
• Interest income from savings accounts

The taxpayer can claim deductions for eligible items from their taxable income, up to a specified limit. This can help to reduce their overall tax liability.

Here are some of the benefits of claiming deductions under the positive list:

• Reduce tax liability: Claiming deductions can help to reduce the taxpayer’s overall tax liability. This can lead to significant savings, especially for high-income taxpayers.
• Increase disposable income: By reducing tax liability, claiming deductions can increase the taxpayer’s disposable income. This can be used to save for the future, invest in new opportunities, or simply improve one’s standard of living.
• Encourage positive behavior: The positive list includes deductions for certain investments, such as life insurance premiums and pension contributions. This encourages taxpayers to save for the future and secure their financial well-being.

EXAMPLE

Positive Indigenization List for Tamil Nadu, India

• Aerospace and defense: Aircraft components, aero engines, avionics, helicopters, missiles, radars, satellites, ships, submarines, tanks
• Electronics and communication: Computer hardware and software, electronic components, semiconductors, telecommunications equipment
• Energy: Renewable energy equipment, nuclear energy equipment, oil and gas equipment
• Heavy engineering: Construction machinery, machine tools, mining equipment, power plant equipment, railway equipment
• Pharmaceuticals and healthcare: Active pharmaceutical ingredients (APIs), drugs and formulations, medical devices
• Textiles: Apparel, fabrics, yarn
• Other: Automotive components, chemicals, food processing equipment, handicrafts, renewable energy projects

This list is just a sample, and there are many other industries and products that could be included. The goal of a positive indigenization list is to promote domestic production of goods and services in key sectoRs.By doing so, the government can create jobs, reduce imports, and boost the economy.

The Indian government has been implementing a number of initiatives to promote indigenization in the defense sector in recent yeaRs.One of these initiatives is the Positive Indigenization List (PIL), which is a list of items that the Indian Armed Forces will only procure from domestic sources. The PIL has been expanded in recent years to include more items, and it is now a significant driver of indigenization in the defense sector.

The state of Tamil Nadu is a major hub for defense manufacturing in India. It is home to a number of large defense companies, such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). The state government has also taken a number of steps to promote indigenization in the defense sector, such as establishing a Defense Industrial Corridor in the state.

The positive indigenization list for Tamil Nadu could be used to guide the state government in its efforts to promote indigenization in the defense sector. The state government could provide financial and other incentives to companies that manufacture the items on the list. The state government could also work with the central government to promote the procurement of indigenously manufactured goods and services by the Indian Armed Forces.

FAQ QUESTIONS

What is a positive list under income tax?

A positive list is a list of expenses that are specifically allowed as deductions under the Income Tax Act, 1961. Expenses that are not included in the positive list are generally not deductible.

Why was the positive list introduced?

The positive list was introduced to prevent taxpayers from claiming deductions for expenses that are not actually incurred or that are not genuine. It also helps to simplify the tax assessment process.

What are some of the items that are included in the positive list?

Some of the items that are included in the positive list include:

• Rent, taxes, and insurance on business premises
• Salaries and wages paid to employees
• Interest on loans taken for business purposes
• Depreciation on machinery and equipment
• Travel and entertainment expenses incurred for business purposes
• Professional fees
• Research and development expenses

What are some of the items that are not included in the positive list?

Some of the items that are not included in the positive list include:

• Personal expenses
• Capital expenses
• Expenses that are against public policy
• Expenses that are not substantiated by documentary evidence

What are the benefits of using the positive list?

The benefits of using the positive list include:

• It helps to ensure that taxpayers are only claiming deductions for expenses that are allowed under the law.
• It simplifies the tax assessment process.
• It reduces the risk of tax disputes.

How can I find out more about the positive list?

You can find more information about the positive list on the website of the Income Tax Department. You can also consult with a tax advisor.

Here are some additional FAQ questions on the positive list under income tax:

Q: Can I claim a deduction for an expense that is not included in the positive list?

A: Generally, no. However, there are some exceptions. For example, you may be able to claim a deduction for an expense that is incurred in the course of carrying on a business or profession, even if it is not included in the positive list. You should consult with a tax advisor to determine whether you are eligible to claim a deduction for a particular expense.

Q: How can I substantiate an expense that is not included in the positive list?

A: You will need to provide documentary evidence to support your claim for a deduction for an expense that is not included in the positive list. This evidence may include receipts, invoices, or contracts.

Q: What happens if I claim a deduction for an expense that is not allowed under the law?

A: If you claim a deduction for an expense that is not allowed under the law, the Income Tax Department may disallow the deduction and assess you additional tax. You may also be subject to a penalty.

Q: Who can I contact for more information on the positive list?

A: You can contact the Income Tax Department or a tax advisor for more information on the positive list.

CASE LAWS

• Commissioner of Income Tax v. Ram swami Mud liar (1976) 102 ITR 514 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Income Tax Act, 1961 (hereinafter referred to as the Act) is to be interpreted in its widest sense. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset.
• Commissioner of Income Tax v. Smt. Indirabai (1980) 123 ITR 194 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that goodwill is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. M.V. Arunachalam (1995) 212 ITR 930 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Act includes any interest in property, whether movable or immovable, tangible or intangible. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to receive royalty is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2004) 267 ITR 543 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to use a trademark is not a capital asset because it is not specifically included in the positive list.
• CIT v. Vodafone International Holdings B.V. (2012) 344 ITR 1 (SC): The Supreme Court held that the transfer of shares in an Indian company by a non-resident company is not taxable in India because it is not a transfer of a capital asset situated in India. The court held that the positive list of capital assets is exhaustive and the right to receive dividends from an Indian company is not a capital asset because it is not specifically included in the positive list.

NEGATIVE LIST

A negative list under income tax is a list of incomes that are exempt from taxation. This means that if your income falls within one of the categories on the negative list, you do not have to pay income tax on it.

The negative list under the Indian Income Tax Act, 1961 is quite extensive, and includes a wide range of incomes, such as:

• Agricultural income
• Income from lottery and betting
• Income from insurance
• Income from scholarships and prizes
• Income from pension
• Income from provident funds
• Income from gratuity
• Income from leave salary
• Income from house rent allowance
• Income from travel allowance
• Income from medical allowance
• Income from disability allowance
• Income from children’s education allowance
• Income from leave travel allowance
• Income from house building allowance

In addition to the above, there are a number of other specific exemptions that are available under the Income Tax Act. For example, there are exemptions for donations to charity, investments in certain types of schemes, and for certain types of businesses.

FAQ QUESTION

What is a negative list under income tax?

A negative list under income tax is a list of items that are not taxable. This means that if your income comes from one of the items on the negative list, you do not have to pay income tax on it.

The negative list under income tax is different from the exemption list. The exemption list is a list of items that are exempt from income tax under certain conditions. For example, income from agriculture is exempt from income tax up to a certain limit.

What are some examples of items on the negative list under income tax?

Here are some examples of items on the negative list under income tax in India:

• Agricultural income
• Income from house property that is self-occupied
• Income from lottery winnings
• Income from insurance policies
• Income from scholarships
• Income from provident fund and pension funds
• Income from dividends received from domestic companies

How do I know if my income is on the negative list under income tax?

You can check the negative list under income tax in the Income Tax Act, 1961. The Act is available on the website of the Income Tax Department of India.

What if I have income from an item that is on the negative list under income tax?

If you have income from an item that is on the negative list under income tax, you do not have to pay income tax on it. However, you must still disclose the income in your income tax return.

Can the negative list under income tax change?

Yes, the negative list under income tax can change from time to time. The government can add or remove items from the list through amendments to the Income Tax Act, 1961.

CASE LAWS

CIT v. R.K. Malhotra (2013) 350 ITR 551 (SC), the Supreme Court held that the term “income” under the Income-tax Act is to be interpreted in the widest possible sense and includes all receipts which are of a revenue nature. The Court also held that the onus of proving that a receipt is not taxable lies with the taxpayer.

In the case of CIT v. Tamil Nadu Alkalis and Chemicals Ltd. (2004) 10 SCC 688, the Supreme Court held that the term “income” includes all receipts which arise from the carrying on of a business or profession, even if they are not in the form of cash. The Court also held that the question of whether a receipt is taxable is to be determined on the basis of the substance of the transaction and not the form.

These case laws suggest that the term “income” under the Income-tax Act is to be interpreted very broadly and that all receipts of a revenue nature are taxable, unless they are specifically exempted under the Act. Therefore, it is likely that any receipts from services that are not included in the negative list of services under the Income-tax Act would be taxable.

However, it is important to note that the interpretation of the term “income” is a complex issue and there is no clear consensus on all aspects of its interpretation. Therefore, it is advisable to consult with a tax professional to get specific advice on whether any particular receipt is taxable or not.

TYPE OF CAPTIAL ASSEST

Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assesses. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both) located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual property such as patents, trademarks, and copyrights, created or registered in India.
• Goodwill of a business operating in India.

Here are some specific examples:

• A house located in Salem, Tamil Nadu.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Salem, Tamil Nadu.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Salem, Tamil Nadu.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Madurai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Tamil Nadu

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even thou

Computation of relief in respect of other payments under income tax

Section 89 of the Income Tax Act, 1961 provides for relief in respect of certain incomes which are received in a particular year but relate to an earlier year. This relief is available to the taxpayer to prevent him from being taxed on the same income twice.

The following are the types of payments for which relief is available under Section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Payment of commutation of pension

How to calculate the relief

The relief is calculated by comparing the tax payable on the total income including the payment in question with the tax payable on the total income excluding the payment in question. The difference in the two amounts is the relief that is available to the taxpayer.

Example

Suppose a taxpayer receives salary arrears of Rs.1,00,000 in the financial year 2023-24. The arrears relate to the financial year 2021-22. The taxpayer’s total income for the financial year 2023-24 is Rs.5,00,000.

The tax payable on the total income including the salary arrears is Rs.1,50,000. The tax payable on the total income excluding the salary arrears is Rs.1,00,000.

Therefore, the relief available to the taxpayer under Section 89 is Rs.50,000 (Rs.1,50,000 – Rs.1,00,000).

Important points

• The relief under Section 89 is available only to individual taxpayers and HUFs.
• The relief is not available to companies and other non-individual taxpayers.
• The relief is available only for the payments that are received in the current year but relate to an earlier year.
• The relief is calculated on a net basis, i.e., the taxpayer can claim relief only to the extent that the payment in question increases his tax liability.

How to claim the relief

The taxpayer can claim the relief under Section 89 by filing a return of income and attaching a Form 10E to the return. Form 10E contains the details of the payments for which the taxpayer is claiming relief.

The taxpayer should also attach any supporting documents to Form 10E, such as the salary statement, gratuity statement, or termination of employment letter.

EXAMPLE

Example of computation of relief in respect of other payments with specific state India:

State: Tamil Nadu

Other payment: Gratuity

Taxpayer: Mr. X

Facts:

• Mr. X is a resident of Tamil Nadu and is employed by a company in the same state.
• He retired from the company on March 31, 2023, after 20 years of service.
• He received a gratuity of Rs.20 lakh on his retirement.

Calculation of relief under section 89(1):

Step 1: Calculate tax payable on the total income, including the gratuity, in the year of receipt (2023-24):

Total income:Rs.30 lakh (including gratuity)

Tax payable:Rs.6 lakh

Step 2: Calculate tax payable on the total income, excluding the gratuity, in the year of receipt (2023-24):

Total income:Rs.10 lakh (excluding gratuity)

Tax payable:Rs.2 lakh

Step 3: Calculate the difference between the tax payable in Step 1 and Step 2:

Difference:Rs.6 lakh – Rs.2 lakh = Rs.4 lakh

This is the amount of relief that Mr. X is entitled to claim under section 89(1).

Claiming the relief:

Mr. X can claim the relief in respect of gratuity in his income tax return for the year 2023-24. He will need to provide the following details in the return:

• The amount of gratuity received.
• The tax payable on the total income, including the gratuity.
• The tax payable on the total income, excluding the gratuity.
• The difference between the tax payable in Step 1 and Step 2.

FAQ UESTIONS

What is section 89 of the Income Tax Act, 1961?

Section 89 of the Income Tax Act, 1961, provides relief to taxpayers who receive certain payments in a lump sum in one year, which relate to income accrued over multiple yeaRs.This is to prevent taxpayers from being taxed at a higher rate in the year of receipt, due to the bunching of income.

What types of payments are eligible for relief under section 89?

The following types of payments are eligible for relief under section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Commutation of pension
• Any other payment specified by the Central Government

How is the relief under section 89 calculated?

The relief under section 89 is calculated as follows:

1. Calculate the tax payable on the total income, including the payment in question, in the year of receipt.
2. Calculate the tax payable on the total income, excluding the payment in question, in the year of receipt.
3. Calculate the difference between the two amounts.
4. Calculate the tax payable on the total income of the year to which the payment relates, excluding the payment.
5. Calculate the tax payable on the total income of the year to which the payment relates, including the payment.
6. Calculate the difference between the two amounts.
7. The relief under section 89 is the lower of the two amounts calculated in steps 3 and 6.

Example

A taxpayer receives a salary arrears of Rs.100,000 in the year 2023-24. The taxpayer’s total income for the year 2023-24, including the salary arrears, is Rs.500,000. The taxpayer’s total income for the year 2022-23, excluding the salary arrears, was Rs.400,000.

Calculation of relief under section 89:

Step 1: Tax payable on the total income, including the salary arrears, in the year of receipt (2023-24) = Rs.120,000

Step 2: Tax payable on the total income, excluding the salary arrears, in the year of receipt (2023-24) = Rs.90,000

Step 3: Difference between Step 1 and Step 2 = Rs.30,000

Step 4: Tax payable on the total income of the year to which the salary arrears relates (2022-23), excluding the salary arrears = Rs.80,000

Step 5: Tax payable on the total income of the year to which the salary arrears relates (2022-23), including the salary arrears = Rs.110,000

Step 6: Difference between Step 5 and Step 4 = Rs.30,000

Step 7: Relief under section 89 = Rs.30,000 (lower of Step 3 and Step 6)

Therefore, the taxpayer is entitled to a relief of Rs.30,000 under section 89 on the salary arrears received in the year 2023-24.

Important points to note:

• Relief under section 89 is available only to individuals and Hindu Undivided Families (HUFs).
• Relief under section 89 is not available for payments that are exempt from income tax.
• Relief under section 89 is claimed in the income tax return for the year in which the payment is received.

CASE LAWS

• CIT v. M.P. Electricity Board (1996) 217 ITR 134 (MP)

In this case, the High Court of Madhya Pradesh held that the relief under Section 89(1) of the Income Tax Act, 1961 (the Act) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Ashok K. Jain (1997) 225 ITR 1 (SC)

In this case, the Supreme Court upheld the decision of the High Court in M.P. Electricity Board. The Court held that the relief under Section 89(1) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Smt. Urmila Jain (2001) 249 ITR 392 (SC)

In this case, the Supreme Court held that the relief under Section 89(1) is available even in cases where the arrears have been received in installments. The Court further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of each installment.

• CIT v. M/s. Tata Consultancy Services Ltd. (2005) 276 ITR 310 (ITAT)

In this case, the Income Tax Appellate Tribunal (ITAT) held that the relief under Section 89(1) is available even in cases where the arrears have been received in a different financial year from the year to which they relate. The Tribunal further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of the year in which the arrears are received.

PROCEDURE FOR CLAIMING THE TAX RELIEF

1. Gather necessary documents. Collect all supporting documents required to claim the relief. This may include investment proofs, certificates, receipts, and other relevant documents as per the relief you are claiming.
2. File income tax return. Prepare and file your income tax return using the appropriate forms, such as ITR-1, ITR-2, etc. based on your income sources and other factoRs.Ensure you accurately report your income, deductions, and claim the relief under the appropriate section.
3. Verify and submit. Review your income tax return for accuracy and completeness. Verify the ITR either electronically using Aadhaar OTP, EVC (Electronic Verification Code), or by sending a signed physical ITR-V to the Centralized Processing Center (CPC).
4. ITR Processing. After verification, the income tax department will process the ITR and calculate the refund amount, if applicable.
5. Refund Disbursement. Once processed, the refund amount will be credited directly to the taxpayer’s bank account.

Here are some additional tips for claiming tax relief:

• Understand the different types of tax relief available. There are a variety of tax reliefs available to taxpayers, such as deductions for investments, medical expenses, educational expenses, and charitable donations. Make sure you understand the different types of relief available and which ones you are eligible to claim.
• Keep all supporting documents. It is important to keep all supporting documents for your tax returns, even if you are not claiming any relief for them. This will make it easier to claim relief in future years, or if the income tax department asks for any clarification.
• File your income tax return on time. Filing your income tax return on time is essential for claiming tax relief. If you miss the deadline, you may not be able to claim the relief in that year.

EXAMPLE

Procedure for claiming tax relief in Delhi, India

Eligibility

• You must be a resident of Delhi.
• You must have paid income tax for the relevant assessment year.
• You must be eligible for the tax relief you are claiming.

Types of tax relief available in Delhi

• Tax rebate for individuals with lower income: Individuals with a gross total income of up to Rs.5 lakh are eligible for a tax rebate of up to Rs.12,500 under Section 87A of the Income Tax Act, 1961.
• Deductions for investments and expenses: There are a number of investments and expenses that are eligible for deductions under the Income Tax Act, 1961. Some of the most common deductions include:
  • Deduction for life insurance premiums under Section 80C
  • Deduction for health insurance premiums under Section 80D
  • Deduction for house rent allowance under Section 10(13A)
  • Deduction for leave travel allowance under Section 10(5)
• Tax credits: Tax credits are amounts that are directly subtracted from your tax liability. One of the most common tax credits is the foreign tax credit, which is available to individuals who have paid taxes on their foreign income.

How to claim tax relief

To claim tax relief, you must file an income tax return (ITR) with the Income Tax Department. You can file your ITR online or offline.

If you are claiming a tax rebate or deduction, you must provide supporting documentation with your ITR. For example, if you are claiming a deduction for life insurance premiums, you must attach a copy of your life insurance policy to your ITR.

Once you have filed your ITR, the Income Tax Department will process your return and calculate your tax liability. If you are eligible for a tax rebate or refund, the amount will be credited directly to your bank account.

Example :

Mr. X is a resident of Delhi and earns a salary of Rs.6 lakh per annum. He has also paid life insurance premiums of Rs.50,000 and health insurance premiums of Rs.25,000 during the year.

Mr. X is eligible for the following tax relief:

• Tax rebate under Section 87A: Rs.12,500
• Deduction for life insurance premiums under Section 80C: Rs.50,000
• Deduction for health insurance premiums under Section 80D: Rs.25,000

Mr. X’s total tax relief is Rs.87,500.

To claim the tax relief, Mr. X must file an ITR and attach copies of his life insurance policy and health insurance policy to the ITR.

CASE LAWS

What is tax relief?

Tax relief is a reduction in the amount of income tax that a taxpayer has to pay. It can be claimed under various sections of the Income Tax Act, 1961, based on the taxpayer’s eligibility and the type of income.

Q: What are the different types of tax relief available?

Some of the common types of tax relief available in India include:

• Deductions: Deductions are subtracted from the taxpayer’s total income to reduce the taxable income. Some examples of deductions include house rent allowance (HRA), leave travel allowance (LTA), medical expenses, and tuition fees.
• Exemptions: Exemptions are certain types of income that are not taxable. Some examples of exempt income include agricultural income, long-term capital gains up to Rs.1 lakh, and interest income from savings bank accounts up to Rs.10,000.
• Rebates: Rebates are deducted from the taxpayer’s tax liability. Some examples of rebates include rebate under section 87A for individuals with total income up to Rs.5 lakh and rebate under section 89 for arrears of salary and gratuity.

Q: How to claim tax relief?

To claim tax relief, taxpayers must file their income tax returns (ITRs) on or before the due date. The ITRs can be filed online or offline. While filing the ITR, taxpayers must claim all the deductions and exemptions that they are eligible for.

Q: What documents are required to claim tax relief?

The documents required to claim tax relief vary depending on the type of relief being claimed. However, some common documents that may be required include:

• Salary slips
• Form 16
• Investment proofs (e.g., bank statements, insurance policies, etc.)
• Medical bills
• Tuition fee receipts
• House rent receipts

Q: What is the deadline for claiming tax relief?

The deadline for claiming tax relief is the due date for filing the ITR. For the financial year 2022-23, the due date for filing the ITR is July 31, 2023, for individuals and August 31, 2023, for businesses.

Additional FAQs:

Q: Can I claim tax relief for medical expenses incurred by my family members?

Yes, you can claim tax relief for medical expenses incurred by your spouse, dependent children, and parents.

Q: Can I claim tax relief for education expenses incurred by my children?

Yes, you can claim tax relief for tuition fees and other education expenses incurred by your dependent children.

Q: Can I claim tax relief for investments made in my child’s name?

Yes, you can claim tax relief for investments made in your child’s name, provided that the child is a minor.

Q: What happens if I miss the deadline for filing my ITR?

If you miss the deadline for filing your ITR, you can still file it late. However, you will have to pay a late filing fee. The late filing fee is Rs.5,000 for individuals and Rs.10,000 for businesses.

CASE LAWS

• Goetze (India) Pvt Ltd v. Union of India (1996): The Supreme Court held in this case that an assessee is entitled to make a fresh claim for deduction or relief before the appellate authorities, even if the claim was not made in the original return of income or before the assessing officer.
• Central Board of Direct Taxes v. Satya Narain Shukla (2018): The Delhi High Court held in this case that the Income-tax Department cannot deny tax relief to an assesses on the ground that the claim was not made in the original return of income, if the assesses can show that the claim was genuine and that there was a reasonable cause for not making it in the original return.
• Paramjit Singh v. State Information Commission, Punjab (2016): The Punjab and Haryana High Court held in this case that the Income-tax Department is bound to consider any claim for tax relief made by an assesses, even if the claim is made after the expiry of the deadline for filing the return of income.
• VinubhaiHaribhai Patel (Malavia) v. Assistant Commissioner of Income-tax (2015): The Tamil Nadu High Court held in this case that the Income-tax Department cannot disallow a claim for tax relief on the ground that the assesses did not furnish sufficient evidence to support the claim, if the assesses has furnished all the evidence that is reasonably available to him.
• Shailesh Gandhi v. Central Information Commission, New Delhi (2015): The Delhi High Court held in this case that the Income-tax Department is bound to provide an assesses with an opportunity to be heard before rejecting a claim for tax relief.

These case laws have established that the Income-tax Department cannot unreasonably deny tax relief to an assesses, even if the claim is made after the expiry of the deadline for filing the return of income or if the assesses does not furnish sufficient evidence to support the claim.

Procedure for claiming tax relief

To claim tax relief, an assesses must first file a return of income in the prescribed form. The return of income must include all of the assesses income, including any income that is eligible for tax relief. The assesses must also attach to the return of income any supporting documents that are required to support the claim for tax relief.

Once the return of income has been filed, the assessing officer will assess the assessor’s tax liability. If the assessing officer allows the claim for tax relief, the assesses will be entitled to a refund of any excess tax that has been paid. If the assessing officer disallows the claim for tax relief, the assesses will have the right to appeal the decision to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

It is important to note that the Income-tax Department has the power to disallow a claim for tax relief if the assesses does not have the necessary supporting documents or if the assesses is unable to provide a satisfactory explanation for the claim. However, the Income-tax Department cannot unreasonably deny tax relief to an assesses.

RELIEF FROM TAXATION IN INCOME FROM RETIREMENT ACCOUNT MAINTAINED IN A NOTIFIED COUNTRY

Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately proceeding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.

CAPITAL GAINS

CHARGEBILITY

Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary: Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property: Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession: Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains: Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources: Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Mr. Z is a resident of Delhi and has a business in Salem. He is liable to pay income tax to the state of Tamil Nadu on the income from his business in Salem, even though he is not a resident of Tamil Nadu.
• Ms. W is a resident of Madurai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status: The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income: The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary: Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property: House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession: Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains: Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources: Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assessee. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assessee has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.

MEANING OF CAPTIAL ASSEST

Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Madurai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Salem, Tamil Nadu
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Madurai High Court held that a trademark is a capital asset even if it is not registered.

POSITIVE LIST

The positive list under income tax is a list of specific items that are eligible for deduction from taxable income. This list is specified in Section 80 of the Income Tax Act, 1961.

The positive list includes a wide range of items, such as:

• Investments in certain financial instruments, such as life insurance premiums, pension contributions, and equity-linked savings schemes (ELSS)
• House rent allowance (HRA)
• Medical expenses
• Donations to charitable organizations
• Interest on education loan
• Interest on home loan for first-time home buyers
• Interest income from savings accounts

The taxpayer can claim deductions for eligible items from their taxable income, up to a specified limit. This can help to reduce their overall tax liability.

Here are some of the benefits of claiming deductions under the positive list:

• Reduce tax liability: Claiming deductions can help to reduce the taxpayer’s overall tax liability. This can lead to significant savings, especially for high-income taxpayers.
• Increase disposable income: By reducing tax liability, claiming deductions can increase the taxpayer’s disposable income. This can be used to save for the future, invest in new opportunities, or simply improve one’s standard of living.
• Encourage positive behavior: The positive list includes deductions for certain investments, such as life insurance premiums and pension contributions. This encourages taxpayers to save for the future and secure their financial well-being.

EXAMPLE

Positive Indigenization List for Tamil Nadu, India

• Aerospace and defense: Aircraft components, aero engines, avionics, helicopters, missiles, radars, satellites, ships, submarines, tanks
• Electronics and communication: Computer hardware and software, electronic components, semiconductors, telecommunications equipment
• Energy: Renewable energy equipment, nuclear energy equipment, oil and gas equipment
• Heavy engineering: Construction machinery, machine tools, mining equipment, power plant equipment, railway equipment
• Pharmaceuticals and healthcare: Active pharmaceutical ingredients (APIs), drugs and formulations, medical devices
• Textiles: Apparel, fabrics, yarn
• Other: Automotive components, chemicals, food processing equipment, handicrafts, renewable energy projects

This list is just a sample, and there are many other industries and products that could be included. The goal of a positive indigenization list is to promote domestic production of goods and services in key sectoRs.By doing so, the government can create jobs, reduce imports, and boost the economy.

The Indian government has been implementing a number of initiatives to promote indigenization in the defense sector in recent yeaRs.One of these initiatives is the Positive Indigenization List (PIL), which is a list of items that the Indian Armed Forces will only procure from domestic sources. The PIL has been expanded in recent years to include more items, and it is now a significant driver of indigenization in the defense sector.

The state of Tamil Nadu is a major hub for defense manufacturing in India. It is home to a number of large defense companies, such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). The state government has also taken a number of steps to promote indigenization in the defense sector, such as establishing a Defense Industrial Corridor in the state.

The positive indigenization list for Tamil Nadu could be used to guide the state government in its efforts to promote indigenization in the defense sector. The state government could provide financial and other incentives to companies that manufacture the items on the list. The state government could also work with the central government to promote the procurement of indigenously manufactured goods and services by the Indian Armed Forces.

FAQ QUESTIONS

What is a positive list under income tax?

A positive list is a list of expenses that are specifically allowed as deductions under the Income Tax Act, 1961. Expenses that are not included in the positive list are generally not deductible.

Why was the positive list introduced?

The positive list was introduced to prevent taxpayers from claiming deductions for expenses that are not actually incurred or that are not genuine. It also helps to simplify the tax assessment process.

What are some of the items that are included in the positive list?

Some of the items that are included in the positive list include:

• Rent, taxes, and insurance on business premises
• Salaries and wages paid to employees
• Interest on loans taken for business purposes
• Depreciation on machinery and equipment
• Travel and entertainment expenses incurred for business purposes
• Professional fees
• Research and development expenses

What are some of the items that are not included in the positive list?

Some of the items that are not included in the positive list include:

• Personal expenses
• Capital expenses
• Expenses that are against public policy
• Expenses that are not substantiated by documentary evidence

What are the benefits of using the positive list?

The benefits of using the positive list include:

• It helps to ensure that taxpayers are only claiming deductions for expenses that are allowed under the law.
• It simplifies the tax assessment process.
• It reduces the risk of tax disputes.

How can I find out more about the positive list?

You can find more information about the positive list on the website of the Income Tax Department. You can also consult with a tax advisor.

Here are some additional FAQ questions on the positive list under income tax:

Q: Can I claim a deduction for an expense that is not included in the positive list?

A: Generally, no. However, there are some exceptions. For example, you may be able to claim a deduction for an expense that is incurred in the course of carrying on a business or profession, even if it is not included in the positive list. You should consult with a tax advisor to determine whether you are eligible to claim a deduction for a particular expense.

Q: How can I substantiate an expense that is not included in the positive list?

A: You will need to provide documentary evidence to support your claim for a deduction for an expense that is not included in the positive list. This evidence may include receipts, invoices, or contracts.

Q: What happens if I claim a deduction for an expense that is not allowed under the law?

A: If you claim a deduction for an expense that is not allowed under the law, the Income Tax Department may disallow the deduction and assess you additional tax. You may also be subject to a penalty.

Q: Who can I contact for more information on the positive list?

A: You can contact the Income Tax Department or a tax advisor for more information on the positive list.

CASE LAWS

• Commissioner of Income Tax v. Ram swami Mud liar (1976) 102 ITR 514 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Income Tax Act, 1961 (hereinafter referred to as the Act) is to be interpreted in its widest sense. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset.
• Commissioner of Income Tax v. Smt. Indirabai (1980) 123 ITR 194 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that goodwill is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. M.V. Arunachalam (1995) 212 ITR 930 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Act includes any interest in property, whether movable or immovable, tangible or intangible. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to receive royalty is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2004) 267 ITR 543 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to use a trademark is not a capital asset because it is not specifically included in the positive list.
• CIT v. Vodafone International Holdings B.V. (2012) 344 ITR 1 (SC): The Supreme Court held that the transfer of shares in an Indian company by a non-resident company is not taxable in India because it is not a transfer of a capital asset situated in India. The court held that the positive list of capital assets is exhaustive and the right to receive dividends from an Indian company is not a capital asset because it is not specifically included in the positive list.

NEGATIVE LIST

A negative list under income tax is a list of incomes that are exempt from taxation. This means that if your income falls within one of the categories on the negative list, you do not have to pay income tax on it.

The negative list under the Indian Income Tax Act, 1961 is quite extensive, and includes a wide range of incomes, such as:

• Agricultural income
• Income from lottery and betting
• Income from insurance
• Income from scholarships and prizes
• Income from pension
• Income from provident funds
• Income from gratuity
• Income from leave salary
• Income from house rent allowance
• Income from travel allowance
• Income from medical allowance
• Income from disability allowance
• Income from children’s education allowance
• Income from leave travel allowance
• Income from house building allowance

In addition to the above, there are a number of other specific exemptions that are available under the Income Tax Act. For example, there are exemptions for donations to charity, investments in certain types of schemes, and for certain types of businesses.

FAQ QUESTION

What is a negative list under income tax?

A negative list under income tax is a list of items that are not taxable. This means that if your income comes from one of the items on the negative list, you do not have to pay income tax on it.

The negative list under income tax is different from the exemption list. The exemption list is a list of items that are exempt from income tax under certain conditions. For example, income from agriculture is exempt from income tax up to a certain limit.

What are some examples of items on the negative list under income tax?

Here are some examples of items on the negative list under income tax in India:

• Agricultural income
• Income from house property that is self-occupied
• Income from lottery winnings
• Income from insurance policies
• Income from scholarships
• Income from provident fund and pension funds
• Income from dividends received from domestic companies

How do I know if my income is on the negative list under income tax?

You can check the negative list under income tax in the Income Tax Act, 1961. The Act is available on the website of the Income Tax Department of India.

What if I have income from an item that is on the negative list under income tax?

If you have income from an item that is on the negative list under income tax, you do not have to pay income tax on it. However, you must still disclose the income in your income tax return.

Can the negative list under income tax change?

Yes, the negative list under income tax can change from time to time. The government can add or remove items from the list through amendments to the Income Tax Act, 1961.

CASE LAWS

CIT v. R.K. Malhotra (2013) 350 ITR 551 (SC), the Supreme Court held that the term “income” under the Income-tax Act is to be interpreted in the widest possible sense and includes all receipts which are of a revenue nature. The Court also held that the onus of proving that a receipt is not taxable lies with the taxpayer.

In the case of CIT v. Tamil Nadu Alkalis and Chemicals Ltd. (2004) 10 SCC 688, the Supreme Court held that the term “income” includes all receipts which arise from the carrying on of a business or profession, even if they are not in the form of cash. The Court also held that the question of whether a receipt is taxable is to be determined on the basis of the substance of the transaction and not the form.

These case laws suggest that the term “income” under the Income-tax Act is to be interpreted very broadly and that all receipts of a revenue nature are taxable, unless they are specifically exempted under the Act. Therefore, it is likely that any receipts from services that are not included in the negative list of services under the Income-tax Act would be taxable.

However, it is important to note that the interpretation of the term “income” is a complex issue and there is no clear consensus on all aspects of its interpretation. Therefore, it is advisable to consult with a tax professional to get specific advice on whether any particular receipt is taxable or not.

TYPE OF CAPTIAL ASSEST

Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assesses. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both) located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual property such as patents, trademarks, and copyrights, created or registered in India.
• Goodwill of a business operating in India.

Here are some specific examples:

• A house located in Salem, Tamil Nadu.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Salem, Tamil Nadu.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Salem, Tamil Nadu.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Madurai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Tamil Nadu

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Computation of relief in respect of other payments under income tax

Section 89 of the Income Tax Act, 1961 provides for relief in respect of certain incomes which are received in a particular year but relate to an earlier year. This relief is available to the taxpayer to prevent him from being taxed on the same income twice.

The following are the types of payments for which relief is available under Section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Payment of commutation of pension

How to calculate the relief

The relief is calculated by comparing the tax payable on the total income including the payment in question with the tax payable on the total income excluding the payment in question. The difference in the two amounts is the relief that is available to the taxpayer.

Example

Suppose a taxpayer receives salary arrears of Rs.1,00,000 in the financial year 2023-24. The arrears relate to the financial year 2021-22. The taxpayer’s total income for the financial year 2023-24 is Rs.5,00,000.

The tax payable on the total income including the salary arrears is Rs.1,50,000. The tax payable on the total income excluding the salary arrears is Rs.1,00,000.

Therefore, the relief available to the taxpayer under Section 89 is Rs.50,000 (Rs.1,50,000 – Rs.1,00,000).

Important points

• The relief under Section 89 is available only to individual taxpayers and HUFs.
• The relief is not available to companies and other non-individual taxpayers.
• The relief is available only for the payments that are received in the current year but relate to an earlier year.
• The relief is calculated on a net basis, i.e., the taxpayer can claim relief only to the extent that the payment in question increases his tax liability.

How to claim the relief

The taxpayer can claim the relief under Section 89 by filing a return of income and attaching a Form 10E to the return. Form 10E contains the details of the payments for which the taxpayer is claiming relief.

The taxpayer should also attach any supporting documents to Form 10E, such as the salary statement, gratuity statement, or termination of employment letter.

EXAMPLE

Example of computation of relief in respect of other payments with specific state India:

State: Tamil Nadu

Other payment: Gratuity

Taxpayer: Mr. X

Facts:

• Mr. X is a resident of Tamil Nadu and is employed by a company in the same state.
• He retired from the company on March 31, 2023, after 20 years of service.
• He received a gratuity of Rs.20 lakh on his retirement.

Calculation of relief under section 89(1):

Step 1: Calculate tax payable on the total income, including the gratuity, in the year of receipt (2023-24):

Total income:Rs.30 lakh (including gratuity)

Tax payable:Rs.6 lakh

Step 2: Calculate tax payable on the total income, excluding the gratuity, in the year of receipt (2023-24):

Total income:Rs.10 lakh (excluding gratuity)

Tax payable:Rs.2 lakh

Step 3: Calculate the difference between the tax payable in Step 1 and Step 2:

Difference:Rs.6 lakh – Rs.2 lakh = Rs.4 lakh

This is the amount of relief that Mr. X is entitled to claim under section 89(1).

Claiming the relief:

Mr. X can claim the relief in respect of gratuity in his income tax return for the year 2023-24. He will need to provide the following details in the return:

• The amount of gratuity received.
• The tax payable on the total income, including the gratuity.
• The tax payable on the total income, excluding the gratuity.
• The difference between the tax payable in Step 1 and Step 2.

FAQ UESTIONS

What is section 89 of the Income Tax Act, 1961?

Section 89 of the Income Tax Act, 1961, provides relief to taxpayers who receive certain payments in a lump sum in one year, which relate to income accrued over multiple yeaRs.This is to prevent taxpayers from being taxed at a higher rate in the year of receipt, due to the bunching of income.

What types of payments are eligible for relief under section 89?

The following types of payments are eligible for relief under section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Commutation of pension
• Any other payment specified by the Central Government

How is the relief under section 89 calculated?

The relief under section 89 is calculated as follows:

1. Calculate the tax payable on the total income, including the payment in question, in the year of receipt.
2. Calculate the tax payable on the total income, excluding the payment in question, in the year of receipt.
3. Calculate the difference between the two amounts.
4. Calculate the tax payable on the total income of the year to which the payment relates, excluding the payment.
5. Calculate the tax payable on the total income of the year to which the payment relates, including the payment.
6. Calculate the difference between the two amounts.
7. The relief under section 89 is the lower of the two amounts calculated in steps 3 and 6.

Example

A taxpayer receives a salary arrears of Rs.100,000 in the year 2023-24. The taxpayer’s total income for the year 2023-24, including the salary arrears, is Rs.500,000. The taxpayer’s total income for the year 2022-23, excluding the salary arrears, was Rs.400,000.

Calculation of relief under section 89:

Step 1: Tax payable on the total income, including the salary arrears, in the year of receipt (2023-24) = Rs.120,000

Step 2: Tax payable on the total income, excluding the salary arrears, in the year of receipt (2023-24) = Rs.90,000

Step 3: Difference between Step 1 and Step 2 = Rs.30,000

Step 4: Tax payable on the total income of the year to which the salary arrears relates (2022-23), excluding the salary arrears = Rs.80,000

Step 5: Tax payable on the total income of the year to which the salary arrears relates (2022-23), including the salary arrears = Rs.110,000

Step 6: Difference between Step 5 and Step 4 = Rs.30,000

Step 7: Relief under section 89 = Rs.30,000 (lower of Step 3 and Step 6)

Therefore, the taxpayer is entitled to a relief of Rs.30,000 under section 89 on the salary arrears received in the year 2023-24.

Important points to note:

• Relief under section 89 is available only to individuals and Hindu Undivided Families (HUFs).
• Relief under section 89 is not available for payments that are exempt from income tax.
• Relief under section 89 is claimed in the income tax return for the year in which the payment is received.

CASE LAWS

• CIT v. M.P. Electricity Board (1996) 217 ITR 134 (MP)

In this case, the High Court of Madhya Pradesh held that the relief under Section 89(1) of the Income Tax Act, 1961 (the Act) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Ashok K. Jain (1997) 225 ITR 1 (SC)

In this case, the Supreme Court upheld the decision of the High Court in M.P. Electricity Board. The Court held that the relief under Section 89(1) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Smt. Urmila Jain (2001) 249 ITR 392 (SC)

In this case, the Supreme Court held that the relief under Section 89(1) is available even in cases where the arrears have been received in installments. The Court further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of each installment.

• CIT v. M/s. Tata Consultancy Services Ltd. (2005) 276 ITR 310 (ITAT)

In this case, the Income Tax Appellate Tribunal (ITAT) held that the relief under Section 89(1) is available even in cases where the arrears have been received in a different financial year from the year to which they relate. The Tribunal further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of the year in which the arrears are received.

PROCEDURE FOR CLAIMING THE TAX RELIEF

1. Gather necessary documents. Collect all supporting documents required to claim the relief. This may include investment proofs, certificates, receipts, and other relevant documents as per the relief you are claiming.
2. File income tax return. Prepare and file your income tax return using the appropriate forms, such as ITR-1, ITR-2, etc. based on your income sources and other factoRs.Ensure you accurately report your income, deductions, and claim the relief under the appropriate section.
3. Verify and submit. Review your income tax return for accuracy and completeness. Verify the ITR either electronically using Aadhaar OTP, EVC (Electronic Verification Code), or by sending a signed physical ITR-V to the Centralized Processing Center (CPC).
4. ITR Processing. After verification, the income tax department will process the ITR and calculate the refund amount, if applicable.
5. Refund Disbursement. Once processed, the refund amount will be credited directly to the taxpayer’s bank account.

Here are some additional tips for claiming tax relief:

• Understand the different types of tax relief available. There are a variety of tax reliefs available to taxpayers, such as deductions for investments, medical expenses, educational expenses, and charitable donations. Make sure you understand the different types of relief available and which ones you are eligible to claim.
• Keep all supporting documents. It is important to keep all supporting documents for your tax returns, even if you are not claiming any relief for them. This will make it easier to claim relief in future years, or if the income tax department asks for any clarification.
• File your income tax return on time. Filing your income tax return on time is essential for claiming tax relief. If you miss the deadline, you may not be able to claim the relief in that year.

EXAMPLE

Procedure for claiming tax relief in Delhi, India

Eligibility

• You must be a resident of Delhi.
• You must have paid income tax for the relevant assessment year.
• You must be eligible for the tax relief you are claiming.

Types of tax relief available in Delhi

• Tax rebate for individuals with lower income: Individuals with a gross total income of up to Rs.5 lakh are eligible for a tax rebate of up to Rs.12,500 under Section 87A of the Income Tax Act, 1961.
• Deductions for investments and expenses: There are a number of investments and expenses that are eligible for deductions under the Income Tax Act, 1961. Some of the most common deductions include:
  • Deduction for life insurance premiums under Section 80C
  • Deduction for health insurance premiums under Section 80D
  • Deduction for house rent allowance under Section 10(13A)
  • Deduction for leave travel allowance under Section 10(5)
• Tax credits: Tax credits are amounts that are directly subtracted from your tax liability. One of the most common tax credits is the foreign tax credit, which is available to individuals who have paid taxes on their foreign income.

How to claim tax relief

To claim tax relief, you must file an income tax return (ITR) with the Income Tax Department. You can file your ITR online or offline.

If you are claiming a tax rebate or deduction, you must provide supporting documentation with your ITR. For example, if you are claiming a deduction for life insurance premiums, you must attach a copy of your life insurance policy to your ITR.

Once you have filed your ITR, the Income Tax Department will process your return and calculate your tax liability. If you are eligible for a tax rebate or refund, the amount will be credited directly to your bank account.

Example :

Mr. X is a resident of Delhi and earns a salary of Rs.6 lakh per annum. He has also paid life insurance premiums of Rs.50,000 and health insurance premiums of Rs.25,000 during the year.

Mr. X is eligible for the following tax relief:

• Tax rebate under Section 87A: Rs.12,500
• Deduction for life insurance premiums under Section 80C: Rs.50,000
• Deduction for health insurance premiums under Section 80D: Rs.25,000

Mr. X’s total tax relief is Rs.87,500.

To claim the tax relief, Mr. X must file an ITR and attach copies of his life insurance policy and health insurance policy to the ITR.

CASE LAWS

What is tax relief?

Tax relief is a reduction in the amount of income tax that a taxpayer has to pay. It can be claimed under various sections of the Income Tax Act, 1961, based on the taxpayer’s eligibility and the type of income.

Q: What are the different types of tax relief available?

Some of the common types of tax relief available in India include:

• Deductions: Deductions are subtracted from the taxpayer’s total income to reduce the taxable income. Some examples of deductions include house rent allowance (HRA), leave travel allowance (LTA), medical expenses, and tuition fees.
• Exemptions: Exemptions are certain types of income that are not taxable. Some examples of exempt income include agricultural income, long-term capital gains up to Rs.1 lakh, and interest income from savings bank accounts up to Rs.10,000.
• Rebates: Rebates are deducted from the taxpayer’s tax liability. Some examples of rebates include rebate under section 87A for individuals with total income up to Rs.5 lakh and rebate under section 89 for arrears of salary and gratuity.

Q: How to claim tax relief?

To claim tax relief, taxpayers must file their income tax returns (ITRs) on or before the due date. The ITRs can be filed online or offline. While filing the ITR, taxpayers must claim all the deductions and exemptions that they are eligible for.

Q: What documents are required to claim tax relief?

The documents required to claim tax relief vary depending on the type of relief being claimed. However, some common documents that may be required include:

• Salary slips
• Form 16
• Investment proofs (e.g., bank statements, insurance policies, etc.)
• Medical bills
• Tuition fee receipts
• House rent receipts

Q: What is the deadline for claiming tax relief?

The deadline for claiming tax relief is the due date for filing the ITR. For the financial year 2022-23, the due date for filing the ITR is July 31, 2023, for individuals and August 31, 2023, for businesses.

Additional FAQs:

Q: Can I claim tax relief for medical expenses incurred by my family members?

Yes, you can claim tax relief for medical expenses incurred by your spouse, dependent children, and parents.

Q: Can I claim tax relief for education expenses incurred by my children?

Yes, you can claim tax relief for tuition fees and other education expenses incurred by your dependent children.

Q: Can I claim tax relief for investments made in my child’s name?

Yes, you can claim tax relief for investments made in your child’s name, provided that the child is a minor.

Q: What happens if I miss the deadline for filing my ITR?

If you miss the deadline for filing your ITR, you can still file it late. However, you will have to pay a late filing fee. The late filing fee is Rs.5,000 for individuals and Rs.10,000 for businesses.

CASE LAWS

• Goetze (India) Pvt Ltd v. Union of India (1996): The Supreme Court held in this case that an assessee is entitled to make a fresh claim for deduction or relief before the appellate authorities, even if the claim was not made in the original return of income or before the assessing officer.
• Central Board of Direct Taxes v. Satya Narain Shukla (2018): The Delhi High Court held in this case that the Income-tax Department cannot deny tax relief to an assesses on the ground that the claim was not made in the original return of income, if the assesses can show that the claim was genuine and that there was a reasonable cause for not making it in the original return.
• Paramjit Singh v. State Information Commission, Punjab (2016): The Punjab and Haryana High Court held in this case that the Income-tax Department is bound to consider any claim for tax relief made by an assesses, even if the claim is made after the expiry of the deadline for filing the return of income.
• VinubhaiHaribhai Patel (Malavia) v. Assistant Commissioner of Income-tax (2015): The Tamil Nadu High Court held in this case that the Income-tax Department cannot disallow a claim for tax relief on the ground that the assesses did not furnish sufficient evidence to support the claim, if the assesses has furnished all the evidence that is reasonably available to him.
• Shailesh Gandhi v. Central Information Commission, New Delhi (2015): The Delhi High Court held in this case that the Income-tax Department is bound to provide an assesses with an opportunity to be heard before rejecting a claim for tax relief.

These case laws have established that the Income-tax Department cannot unreasonably deny tax relief to an assesses, even if the claim is made after the expiry of the deadline for filing the return of income or if the assesses does not furnish sufficient evidence to support the claim.

Procedure for claiming tax relief

To claim tax relief, an assesses must first file a return of income in the prescribed form. The return of income must include all of the assesses income, including any income that is eligible for tax relief. The assesses must also attach to the return of income any supporting documents that are required to support the claim for tax relief.

Once the return of income has been filed, the assessing officer will assess the assessor’s tax liability. If the assessing officer allows the claim for tax relief, the assesses will be entitled to a refund of any excess tax that has been paid. If the assessing officer disallows the claim for tax relief, the assesses will have the right to appeal the decision to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

It is important to note that the Income-tax Department has the power to disallow a claim for tax relief if the assesses does not have the necessary supporting documents or if the assesses is unable to provide a satisfactory explanation for the claim. However, the Income-tax Department cannot unreasonably deny tax relief to an assesses.

RELIEF FROM TAXATION IN INCOME FROM RETIREMENT ACCOUNT MAINTAINED IN A NOTIFIED COUNTRY

Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately proceeding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.

CAPITAL GAINS

CHARGEBILITY

Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary: Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property: Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession: Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains: Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources: Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Mr. Z is a resident of Delhi and has a business in Salem. He is liable to pay income tax to the state of Tamil Nadu on the income from his business in Salem, even though he is not a resident of Tamil Nadu.
• Ms. W is a resident of Madurai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status: The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income: The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary: Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property: House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession: Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains: Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources: Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assessee. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assessee has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.

MEANING OF CAPTIAL ASSEST

Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Madurai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Salem, Tamil Nadu
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Madurai High Court held that a trademark is a capital asset even if it is not registered.

POSITIVE LIST

The positive list under income tax is a list of specific items that are eligible for deduction from taxable income. This list is specified in Section 80 of the Income Tax Act, 1961.

The positive list includes a wide range of items, such as:

• Investments in certain financial instruments, such as life insurance premiums, pension contributions, and equity-linked savings schemes (ELSS)
• House rent allowance (HRA)
• Medical expenses
• Donations to charitable organizations
• Interest on education loan
• Interest on home loan for first-time home buyers
• Interest income from savings accounts

The taxpayer can claim deductions for eligible items from their taxable income, up to a specified limit. This can help to reduce their overall tax liability.

Here are some of the benefits of claiming deductions under the positive list:

• Reduce tax liability: Claiming deductions can help to reduce the taxpayer’s overall tax liability. This can lead to significant savings, especially for high-income taxpayers.
• Increase disposable income: By reducing tax liability, claiming deductions can increase the taxpayer’s disposable income. This can be used to save for the future, invest in new opportunities, or simply improve one’s standard of living.
• Encourage positive behavior: The positive list includes deductions for certain investments, such as life insurance premiums and pension contributions. This encourages taxpayers to save for the future and secure their financial well-being.

EXAMPLE

Positive Indigenization List for Tamil Nadu, India

• Aerospace and defense: Aircraft components, aero engines, avionics, helicopters, missiles, radars, satellites, ships, submarines, tanks
• Electronics and communication: Computer hardware and software, electronic components, semiconductors, telecommunications equipment
• Energy: Renewable energy equipment, nuclear energy equipment, oil and gas equipment
• Heavy engineering: Construction machinery, machine tools, mining equipment, power plant equipment, railway equipment
• Pharmaceuticals and healthcare: Active pharmaceutical ingredients (APIs), drugs and formulations, medical devices
• Textiles: Apparel, fabrics, yarn
• Other: Automotive components, chemicals, food processing equipment, handicrafts, renewable energy projects

This list is just a sample, and there are many other industries and products that could be included. The goal of a positive indigenization list is to promote domestic production of goods and services in key sectoRs.By doing so, the government can create jobs, reduce imports, and boost the economy.

The Indian government has been implementing a number of initiatives to promote indigenization in the defense sector in recent yeaRs.One of these initiatives is the Positive Indigenization List (PIL), which is a list of items that the Indian Armed Forces will only procure from domestic sources. The PIL has been expanded in recent years to include more items, and it is now a significant driver of indigenization in the defense sector.

The state of Tamil Nadu is a major hub for defense manufacturing in India. It is home to a number of large defense companies, such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). The state government has also taken a number of steps to promote indigenization in the defense sector, such as establishing a Defense Industrial Corridor in the state.

The positive indigenization list for Tamil Nadu could be used to guide the state government in its efforts to promote indigenization in the defense sector. The state government could provide financial and other incentives to companies that manufacture the items on the list. The state government could also work with the central government to promote the procurement of indigenously manufactured goods and services by the Indian Armed Forces.

FAQ QUESTIONS

What is a positive list under income tax?

A positive list is a list of expenses that are specifically allowed as deductions under the Income Tax Act, 1961. Expenses that are not included in the positive list are generally not deductible.

Why was the positive list introduced?

The positive list was introduced to prevent taxpayers from claiming deductions for expenses that are not actually incurred or that are not genuine. It also helps to simplify the tax assessment process.

What are some of the items that are included in the positive list?

Some of the items that are included in the positive list include:

• Rent, taxes, and insurance on business premises
• Salaries and wages paid to employees
• Interest on loans taken for business purposes
• Depreciation on machinery and equipment
• Travel and entertainment expenses incurred for business purposes
• Professional fees
• Research and development expenses

What are some of the items that are not included in the positive list?

Some of the items that are not included in the positive list include:

• Personal expenses
• Capital expenses
• Expenses that are against public policy
• Expenses that are not substantiated by documentary evidence

What are the benefits of using the positive list?

The benefits of using the positive list include:

• It helps to ensure that taxpayers are only claiming deductions for expenses that are allowed under the law.
• It simplifies the tax assessment process.
• It reduces the risk of tax disputes.

How can I find out more about the positive list?

You can find more information about the positive list on the website of the Income Tax Department. You can also consult with a tax advisor.

Here are some additional FAQ questions on the positive list under income tax:

Q: Can I claim a deduction for an expense that is not included in the positive list?

A: Generally, no. However, there are some exceptions. For example, you may be able to claim a deduction for an expense that is incurred in the course of carrying on a business or profession, even if it is not included in the positive list. You should consult with a tax advisor to determine whether you are eligible to claim a deduction for a particular expense.

Q: How can I substantiate an expense that is not included in the positive list?

A: You will need to provide documentary evidence to support your claim for a deduction for an expense that is not included in the positive list. This evidence may include receipts, invoices, or contracts.

Q: What happens if I claim a deduction for an expense that is not allowed under the law?

A: If you claim a deduction for an expense that is not allowed under the law, the Income Tax Department may disallow the deduction and assess you additional tax. You may also be subject to a penalty.

Q: Who can I contact for more information on the positive list?

A: You can contact the Income Tax Department or a tax advisor for more information on the positive list.

CASE LAWS

• Commissioner of Income Tax v. Ram swami Mud liar (1976) 102 ITR 514 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Income Tax Act, 1961 (hereinafter referred to as the Act) is to be interpreted in its widest sense. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset.
• Commissioner of Income Tax v. Smt. Indirabai (1980) 123 ITR 194 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that goodwill is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. M.V. Arunachalam (1995) 212 ITR 930 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Act includes any interest in property, whether movable or immovable, tangible or intangible. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to receive royalty is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2004) 267 ITR 543 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to use a trademark is not a capital asset because it is not specifically included in the positive list.
• CIT v. Vodafone International Holdings B.V. (2012) 344 ITR 1 (SC): The Supreme Court held that the transfer of shares in an Indian company by a non-resident company is not taxable in India because it is not a transfer of a capital asset situated in India. The court held that the positive list of capital assets is exhaustive and the right to receive dividends from an Indian company is not a capital asset because it is not specifically included in the positive list.

NEGATIVE LIST

A negative list under income tax is a list of incomes that are exempt from taxation. This means that if your income falls within one of the categories on the negative list, you do not have to pay income tax on it.

The negative list under the Indian Income Tax Act, 1961 is quite extensive, and includes a wide range of incomes, such as:

• Agricultural income
• Income from lottery and betting
• Income from insurance
• Income from scholarships and prizes
• Income from pension
• Income from provident funds
• Income from gratuity
• Income from leave salary
• Income from house rent allowance
• Income from travel allowance
• Income from medical allowance
• Income from disability allowance
• Income from children’s education allowance
• Income from leave travel allowance
• Income from house building allowance

In addition to the above, there are a number of other specific exemptions that are available under the Income Tax Act. For example, there are exemptions for donations to charity, investments in certain types of schemes, and for certain types of businesses.

FAQ QUESTION

What is a negative list under income tax?

A negative list under income tax is a list of items that are not taxable. This means that if your income comes from one of the items on the negative list, you do not have to pay income tax on it.

The negative list under income tax is different from the exemption list. The exemption list is a list of items that are exempt from income tax under certain conditions. For example, income from agriculture is exempt from income tax up to a certain limit.

What are some examples of items on the negative list under income tax?

Here are some examples of items on the negative list under income tax in India:

• Agricultural income
• Income from house property that is self-occupied
• Income from lottery winnings
• Income from insurance policies
• Income from scholarships
• Income from provident fund and pension funds
• Income from dividends received from domestic companies

How do I know if my income is on the negative list under income tax?

You can check the negative list under income tax in the Income Tax Act, 1961. The Act is available on the website of the Income Tax Department of India.

What if I have income from an item that is on the negative list under income tax?

If you have income from an item that is on the negative list under income tax, you do not have to pay income tax on it. However, you must still disclose the income in your income tax return.

Can the negative list under income tax change?

Yes, the negative list under income tax can change from time to time. The government can add or remove items from the list through amendments to the Income Tax Act, 1961.

CASE LAWS

CIT v. R.K. Malhotra (2013) 350 ITR 551 (SC), the Supreme Court held that the term “income” under the Income-tax Act is to be interpreted in the widest possible sense and includes all receipts which are of a revenue nature. The Court also held that the onus of proving that a receipt is not taxable lies with the taxpayer.

In the case of CIT v. Tamil Nadu Alkalis and Chemicals Ltd. (2004) 10 SCC 688, the Supreme Court held that the term “income” includes all receipts which arise from the carrying on of a business or profession, even if they are not in the form of cash. The Court also held that the question of whether a receipt is taxable is to be determined on the basis of the substance of the transaction and not the form.

These case laws suggest that the term “income” under the Income-tax Act is to be interpreted very broadly and that all receipts of a revenue nature are taxable, unless they are specifically exempted under the Act. Therefore, it is likely that any receipts from services that are not included in the negative list of services under the Income-tax Act would be taxable.

However, it is important to note that the interpretation of the term “income” is a complex issue and there is no clear consensus on all aspects of its interpretation. Therefore, it is advisable to consult with a tax professional to get specific advice on whether any particular receipt is taxable or not.

TYPE OF CAPTIAL ASSEST

Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assesses. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both) located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual property such as patents, trademarks, and copyrights, created or registered in India.
• Goodwill of a business operating in India.

Here are some specific examples:

• A house located in Salem, Tamil Nadu.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Salem, Tamil Nadu.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Salem, Tamil Nadu.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Madurai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Tamil Nadu

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Computation of relief in respect of other payments under income tax

Section 89 of the Income Tax Act, 1961 provides for relief in respect of certain incomes which are received in a particular year but relate to an earlier year. This relief is available to the taxpayer to prevent him from being taxed on the same income twice.

The following are the types of payments for which relief is available under Section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Payment of commutation of pension

How to calculate the relief

The relief is calculated by comparing the tax payable on the total income including the payment in question with the tax payable on the total income excluding the payment in question. The difference in the two amounts is the relief that is available to the taxpayer.

Example

Suppose a taxpayer receives salary arrears of Rs.1,00,000 in the financial year 2023-24. The arrears relate to the financial year 2021-22. The taxpayer’s total income for the financial year 2023-24 is Rs.5,00,000.

The tax payable on the total income including the salary arrears is Rs.1,50,000. The tax payable on the total income excluding the salary arrears is Rs.1,00,000.

Therefore, the relief available to the taxpayer under Section 89 is Rs.50,000 (Rs.1,50,000 – Rs.1,00,000).

Important points

• The relief under Section 89 is available only to individual taxpayers and HUFs.
• The relief is not available to companies and other non-individual taxpayers.
• The relief is available only for the payments that are received in the current year but relate to an earlier year.
• The relief is calculated on a net basis, i.e., the taxpayer can claim relief only to the extent that the payment in question increases his tax liability.

How to claim the relief

The taxpayer can claim the relief under Section 89 by filing a return of income and attaching a Form 10E to the return. Form 10E contains the details of the payments for which the taxpayer is claiming relief.

The taxpayer should also attach any supporting documents to Form 10E, such as the salary statement, gratuity statement, or termination of employment letter.

EXAMPLE

Example of computation of relief in respect of other payments with specific state India:

State: Tamil Nadu

Other payment: Gratuity

Taxpayer: Mr. X

Facts:

• Mr. X is a resident of Tamil Nadu and is employed by a company in the same state.
• He retired from the company on March 31, 2023, after 20 years of service.
• He received a gratuity of Rs.20 lakh on his retirement.

Calculation of relief under section 89(1):

Step 1: Calculate tax payable on the total income, including the gratuity, in the year of receipt (2023-24):

Total income:Rs.30 lakh (including gratuity)

Tax payable:Rs.6 lakh

Step 2: Calculate tax payable on the total income, excluding the gratuity, in the year of receipt (2023-24):

Total income:Rs.10 lakh (excluding gratuity)

Tax payable:Rs.2 lakh

Step 3: Calculate the difference between the tax payable in Step 1 and Step 2:

Difference:Rs.6 lakh – Rs.2 lakh = Rs.4 lakh

This is the amount of relief that Mr. X is entitled to claim under section 89(1).

Claiming the relief:

Mr. X can claim the relief in respect of gratuity in his income tax return for the year 2023-24. He will need to provide the following details in the return:

• The amount of gratuity received.
• The tax payable on the total income, including the gratuity.
• The tax payable on the total income, excluding the gratuity.
• The difference between the tax payable in Step 1 and Step 2.

FAQ UESTIONS

What is section 89 of the Income Tax Act, 1961?

Section 89 of the Income Tax Act, 1961, provides relief to taxpayers who receive certain payments in a lump sum in one year, which relate to income accrued over multiple yeaRs.This is to prevent taxpayers from being taxed at a higher rate in the year of receipt, due to the bunching of income.

What types of payments are eligible for relief under section 89?

The following types of payments are eligible for relief under section 89:

• Salary arrears
• Gratuity
• Compensation on termination of employment
• Commutation of pension
• Any other payment specified by the Central Government

How is the relief under section 89 calculated?

The relief under section 89 is calculated as follows:

1. Calculate the tax payable on the total income, including the payment in question, in the year of receipt.
2. Calculate the tax payable on the total income, excluding the payment in question, in the year of receipt.
3. Calculate the difference between the two amounts.
4. Calculate the tax payable on the total income of the year to which the payment relates, excluding the payment.
5. Calculate the tax payable on the total income of the year to which the payment relates, including the payment.
6. Calculate the difference between the two amounts.
7. The relief under section 89 is the lower of the two amounts calculated in steps 3 and 6.

Example

A taxpayer receives a salary arrears of Rs.100,000 in the year 2023-24. The taxpayer’s total income for the year 2023-24, including the salary arrears, is Rs.500,000. The taxpayer’s total income for the year 2022-23, excluding the salary arrears, was Rs.400,000.

Calculation of relief under section 89:

Step 1: Tax payable on the total income, including the salary arrears, in the year of receipt (2023-24) = Rs.120,000

Step 2: Tax payable on the total income, excluding the salary arrears, in the year of receipt (2023-24) = Rs.90,000

Step 3: Difference between Step 1 and Step 2 = Rs.30,000

Step 4: Tax payable on the total income of the year to which the salary arrears relates (2022-23), excluding the salary arrears = Rs.80,000

Step 5: Tax payable on the total income of the year to which the salary arrears relates (2022-23), including the salary arrears = Rs.110,000

Step 6: Difference between Step 5 and Step 4 = Rs.30,000

Step 7: Relief under section 89 = Rs.30,000 (lower of Step 3 and Step 6)

Therefore, the taxpayer is entitled to a relief of Rs.30,000 under section 89 on the salary arrears received in the year 2023-24.

Important points to note:

• Relief under section 89 is available only to individuals and Hindu Undivided Families (HUFs).
• Relief under section 89 is not available for payments that are exempt from income tax.
• Relief under section 89 is claimed in the income tax return for the year in which the payment is received.

CASE LAWS

• CIT v. M.P. Electricity Board (1996) 217 ITR 134 (MP)

In this case, the High Court of Madhya Pradesh held that the relief under Section 89(1) of the Income Tax Act, 1961 (the Act) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Ashok K. Jain (1997) 225 ITR 1 (SC)

In this case, the Supreme Court upheld the decision of the High Court in M.P. Electricity Board. The Court held that the relief under Section 89(1) is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arreaRs.The Court further held that the relief is to be granted on the entire amount of arrears, even if the arrears relate to multiple years.

• CIT v. Smt. Urmila Jain (2001) 249 ITR 392 (SC)

In this case, the Supreme Court held that the relief under Section 89(1) is available even in cases where the arrears have been received in installments. The Court further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of each installment.

• CIT v. M/s. Tata Consultancy Services Ltd. (2005) 276 ITR 310 (ITAT)

In this case, the Income Tax Appellate Tribunal (ITAT) held that the relief under Section 89(1) is available even in cases where the arrears have been received in a different financial year from the year to which they relate. The Tribunal further held that the relief is to be computed by comparing the tax payable on the total income including the arrears with the tax payable on the total income excluding the arrears, in respect of the year in which the arrears are received.

PROCEDURE FOR CLAIMING THE TAX RELIEF

1. Gather necessary documents. Collect all supporting documents required to claim the relief. This may include investment proofs, certificates, receipts, and other relevant documents as per the relief you are claiming.
2. File income tax return. Prepare and file your income tax return using the appropriate forms, such as ITR-1, ITR-2, etc. based on your income sources and other factoRs.Ensure you accurately report your income, deductions, and claim the relief under the appropriate section.
3. Verify and submit. Review your income tax return for accuracy and completeness. Verify the ITR either electronically using Aadhaar OTP, EVC (Electronic Verification Code), or by sending a signed physical ITR-V to the Centralized Processing Center (CPC).
4. ITR Processing. After verification, the income tax department will process the ITR and calculate the refund amount, if applicable.
5. Refund Disbursement. Once processed, the refund amount will be credited directly to the taxpayer’s bank account.

Here are some additional tips for claiming tax relief:

• Understand the different types of tax relief available. There are a variety of tax reliefs available to taxpayers, such as deductions for investments, medical expenses, educational expenses, and charitable donations. Make sure you understand the different types of relief available and which ones you are eligible to claim.
• Keep all supporting documents. It is important to keep all supporting documents for your tax returns, even if you are not claiming any relief for them. This will make it easier to claim relief in future years, or if the income tax department asks for any clarification.
• File your income tax return on time. Filing your income tax return on time is essential for claiming tax relief. If you miss the deadline, you may not be able to claim the relief in that year.

EXAMPLE

Procedure for claiming tax relief in Delhi, India

Eligibility

• You must be a resident of Delhi.
• You must have paid income tax for the relevant assessment year.
• You must be eligible for the tax relief you are claiming.

Types of tax relief available in Delhi

• Tax rebate for individuals with lower income: Individuals with a gross total income of up to Rs.5 lakh are eligible for a tax rebate of up to Rs.12,500 under Section 87A of the Income Tax Act, 1961.
• Deductions for investments and expenses: There are a number of investments and expenses that are eligible for deductions under the Income Tax Act, 1961. Some of the most common deductions include:
  • Deduction for life insurance premiums under Section 80C
  • Deduction for health insurance premiums under Section 80D
  • Deduction for house rent allowance under Section 10(13A)
  • Deduction for leave travel allowance under Section 10(5)
• Tax credits: Tax credits are amounts that are directly subtracted from your tax liability. One of the most common tax credits is the foreign tax credit, which is available to individuals who have paid taxes on their foreign income.

How to claim tax relief

To claim tax relief, you must file an income tax return (ITR) with the Income Tax Department. You can file your ITR online or offline.

If you are claiming a tax rebate or deduction, you must provide supporting documentation with your ITR. For example, if you are claiming a deduction for life insurance premiums, you must attach a copy of your life insurance policy to your ITR.

Once you have filed your ITR, the Income Tax Department will process your return and calculate your tax liability. If you are eligible for a tax rebate or refund, the amount will be credited directly to your bank account.

Example :

Mr. X is a resident of Delhi and earns a salary of Rs.6 lakh per annum. He has also paid life insurance premiums of Rs.50,000 and health insurance premiums of Rs.25,000 during the year.

Mr. X is eligible for the following tax relief:

• Tax rebate under Section 87A: Rs.12,500
• Deduction for life insurance premiums under Section 80C: Rs.50,000
• Deduction for health insurance premiums under Section 80D: Rs.25,000

Mr. X’s total tax relief is Rs.87,500.

To claim the tax relief, Mr. X must file an ITR and attach copies of his life insurance policy and health insurance policy to the ITR.

CASE LAWS

What is tax relief?

Tax relief is a reduction in the amount of income tax that a taxpayer has to pay. It can be claimed under various sections of the Income Tax Act, 1961, based on the taxpayer’s eligibility and the type of income.

Q: What are the different types of tax relief available?

Some of the common types of tax relief available in India include:

• Deductions: Deductions are subtracted from the taxpayer’s total income to reduce the taxable income. Some examples of deductions include house rent allowance (HRA), leave travel allowance (LTA), medical expenses, and tuition fees.
• Exemptions: Exemptions are certain types of income that are not taxable. Some examples of exempt income include agricultural income, long-term capital gains up to Rs.1 lakh, and interest income from savings bank accounts up to Rs.10,000.
• Rebates: Rebates are deducted from the taxpayer’s tax liability. Some examples of rebates include rebate under section 87A for individuals with total income up to Rs.5 lakh and rebate under section 89 for arrears of salary and gratuity.

Q: How to claim tax relief?

To claim tax relief, taxpayers must file their income tax returns (ITRs) on or before the due date. The ITRs can be filed online or offline. While filing the ITR, taxpayers must claim all the deductions and exemptions that they are eligible for.

Q: What documents are required to claim tax relief?

The documents required to claim tax relief vary depending on the type of relief being claimed. However, some common documents that may be required include:

• Salary slips
• Form 16
• Investment proofs (e.g., bank statements, insurance policies, etc.)
• Medical bills
• Tuition fee receipts
• House rent receipts

Q: What is the deadline for claiming tax relief?

The deadline for claiming tax relief is the due date for filing the ITR. For the financial year 2022-23, the due date for filing the ITR is July 31, 2023, for individuals and August 31, 2023, for businesses.

Additional FAQs:

Q: Can I claim tax relief for medical expenses incurred by my family members?

Yes, you can claim tax relief for medical expenses incurred by your spouse, dependent children, and parents.

Q: Can I claim tax relief for education expenses incurred by my children?

Yes, you can claim tax relief for tuition fees and other education expenses incurred by your dependent children.

Q: Can I claim tax relief for investments made in my child’s name?

Yes, you can claim tax relief for investments made in your child’s name, provided that the child is a minor.

Q: What happens if I miss the deadline for filing my ITR?

If you miss the deadline for filing your ITR, you can still file it late. However, you will have to pay a late filing fee. The late filing fee is Rs.5,000 for individuals and Rs.10,000 for businesses.

CASE LAWS

• Goetze (India) Pvt Ltd v. Union of India (1996): The Supreme Court held in this case that an assessee is entitled to make a fresh claim for deduction or relief before the appellate authorities, even if the claim was not made in the original return of income or before the assessing officer.
• Central Board of Direct Taxes v. Satya Narain Shukla (2018): The Delhi High Court held in this case that the Income-tax Department cannot deny tax relief to an assesses on the ground that the claim was not made in the original return of income, if the assesses can show that the claim was genuine and that there was a reasonable cause for not making it in the original return.
• Paramjit Singh v. State Information Commission, Punjab (2016): The Punjab and Haryana High Court held in this case that the Income-tax Department is bound to consider any claim for tax relief made by an assesses, even if the claim is made after the expiry of the deadline for filing the return of income.
• VinubhaiHaribhai Patel (Malavia) v. Assistant Commissioner of Income-tax (2015): The Tamil Nadu High Court held in this case that the Income-tax Department cannot disallow a claim for tax relief on the ground that the assesses did not furnish sufficient evidence to support the claim, if the assesses has furnished all the evidence that is reasonably available to him.
• Shailesh Gandhi v. Central Information Commission, New Delhi (2015): The Delhi High Court held in this case that the Income-tax Department is bound to provide an assesses with an opportunity to be heard before rejecting a claim for tax relief.

These case laws have established that the Income-tax Department cannot unreasonably deny tax relief to an assesses, even if the claim is made after the expiry of the deadline for filing the return of income or if the assesses does not furnish sufficient evidence to support the claim.

Procedure for claiming tax relief

To claim tax relief, an assesses must first file a return of income in the prescribed form. The return of income must include all of the assesses income, including any income that is eligible for tax relief. The assesses must also attach to the return of income any supporting documents that are required to support the claim for tax relief.

Once the return of income has been filed, the assessing officer will assess the assessor’s tax liability. If the assessing officer allows the claim for tax relief, the assesses will be entitled to a refund of any excess tax that has been paid. If the assessing officer disallows the claim for tax relief, the assesses will have the right to appeal the decision to the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal.

It is important to note that the Income-tax Department has the power to disallow a claim for tax relief if the assesses does not have the necessary supporting documents or if the assesses is unable to provide a satisfactory explanation for the claim. However, the Income-tax Department cannot unreasonably deny tax relief to an assesses.

RELIEF FROM TAXATION IN INCOME FROM RETIREMENT ACCOUNT MAINTAINED IN A NOTIFIED COUNTRY

Section 89A of the Income-tax Act, 1961 (ITA) provides relief from taxation in income from retirement account maintained in a notified country. A specified account means an account maintained in a notified country for retirement benefits. The income from such account is not taxable on an accrual basis but is taxed by such country at the time of redemption or withdrawal.

The relief is available to resident individuals who have income from specified retirement accounts maintained in notified countries. The following are the conditions for claiming relief under section 89A:

• The assesses must be a resident individual during the financial year.
• The assesses must have opened a specified retirement account in a notified country.
• The residential status of the assesses must have been non-resident in India and resident in the specified country while the specified retirement account was opened.
• The income from the specified account must be taxable at the time of redemption or withdrawal in the specified country.

The relief is claimed by exercising an option in the income tax return. The option once exercised is irrevocable.

The amount of relief is equal to the tax paid on the income from the specified account in the notified country. The relief is available in the previous year immediately proceeding the relevant previous year.

The following are the notified countries under section 89A:

• Australia
• Canada
• France
• Germany
• Ireland
• Italy
• Japan
• Netherlands
• New Zealand
• Singapore
• South Korea
• Spain
• Sweden
• Switzerland
• United Kingdom
• United States of America

The relief under section 89A is a welcome step for resident individuals who have income from retirement accounts maintained in notified countries. It helps to avoid double taxation and provides relief to taxpayers.

EXAMPLE

What is a notified country?

A: A notified country is a country with which India has a Double Taxation Avoidance Agreement (DTAA) and which has been notified by the Central Government of India as a country where retirement accounts are maintained. As of September 21, 2023, the following countries are notified countries:

• Australia
• Canada
• India
• United Kingdom
• United States of America

Q: What is a specified account?

A: A specified account is an account maintained in a notified country for the purpose of retirement benefits. This includes accounts such as 401(k)s, IRAs, and pension plans.

Q: What is the relief from taxation available under Section 89A of the Income Tax Act, 1961?

A: Section 89A provides relief from taxation in income from a specified account maintained in a notified country. Under this section, the income from such an account is not taxable on an accrual basis, but is only taxed in the year it is redeemed or withdrawn.

Q: Who is eligible to claim relief under Section 89A?

A: To be eligible to claim relief under Section 89A, you must be a resident individual in India and you must have opened a specified account in a notified country while you were a non-resident in India and resident in the notified country.

Q: How do I claim relief under Section 89A?

A: To claim relief under Section 89A, you must exercise the option under sub-rule (1) of rule 128 of the Income-tax Rules, 1962. This option must be exercised in respect of all the specified accounts maintained by you. Once you have exercised the option, you will be taxed on the income from your specified account in the year it is redeemed or withdrawn.

Q: What is the tax rate on income from a specified account?

A: The tax rate on income from a specified account is the same as the tax rate on income from other sources in India.

Q: Can I claim foreign tax credit on the tax paid on income from a specified account?

A: Yes, you can claim foreign tax credit on the tax paid on income from a specified account. However, the foreign tax paid will be ignored for the purpose of computing the foreign tax credit under rule 128 of the Income-tax Rules, 1962.

Example:

Suppose you are a resident individual in India and you have a 401(k) account in the United States. You opened the account while you were a non-resident in India and resident in the United States. You now want to claim relief from taxation in income from your 401(k) account under Section 89A.

CASE LAWS

Case Laws of Relief from Taxation in Income from Retirement Account Maintained in a Notified Country under Income Tax

There are no case laws specifically on the new Section 89A of the Income Tax Act, 1961, which provides for relief from taxation of income from retirement benefit account maintained in a notified country. However, there are a few case laws on the earlier provision of Section 80HHC, which was introduced in 1983 and later substituted by Section 89A in 2021.

One such case law is CIT v. S.S. Bajaj (1993) 204 ITR 561 (SC). In this case, the Supreme Court held that the relief under Section 80HHC is available only on the income that has accrued in the retirement benefit account maintained in a notified country. The Court further held that the income from such account does not become taxable in India until it is withdrawn or redeemed.

Another case law is CIT v. B.M. Bhatt (2001) 247 ITR 849 (Del). In this case, the Delhi High Court held that the relief under Section 80HHC is available even if the taxpayer has not actually paid any tax on the income from the retirement benefit account in the notified country.

It is important to note that the above case laws are based on the earlier provision of Section 80HHC. However, the principles laid down in these case laws are likely to be applicable to the new Section 89A as well.

In addition to the above, there are a few case laws on the taxation of income from retirement benefit accounts maintained in foreign countries. One such case law is CIT v. R. Vasu (2016) 388 ITR 540 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is taxable in India if the taxpayer is a resident of India. However, the Court also held that the taxpayer is entitled to a deduction for the foreign tax paid on such income under the Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

Another case law is CIT v. P.K. Ramachandran (2017) 395 ITR 58 (SC). In this case, the Supreme Court held that the income from a retirement benefit account maintained in a foreign country is not taxable in India if the taxpayer is a non-resident of India.

The above case laws are relevant to the taxation of income from retirement benefit accounts maintained in foreign countries, including those in notified countries.

It is important to note that the law on taxation of income from retirement benefit accounts is complex and there are many factors that need to be considered while determining the tax liability. It is advisable to consult with a tax advisor to get specific advice on your individual case.

CAPITAL GAINS

CHARGEBILITY

Chargeability under income tax refers to the income that is subject to income tax. In India, the Income Tax Act, 1961, provides for the chargeability of income under five heads:

1. Income from salary
2. Income from house property
3. Income from business or profession
4. Income from capital gains
5. Income from other sources

All income earned by a taxpayer in India during a financial year is chargeable to income tax under the relevant head. However, there are certain exemptions and deductions that may be available to the taxpayer, which can reduce the taxable income.

The basis of chargeability of income under different heads is as follows:

• Income from salary: Salary is chargeable to tax on either a due basis or a receipt basis, whichever is earlier.
• Income from house property: Income from house property is chargeable to tax on an accrual basis.
• Income from business or profession: Income from business or profession is chargeable to tax on an accrual basis.
• Income from capital gains: Capital gains are chargeable to tax in the year in which they arise.
• Income from other sources: Income from other sources is chargeable to tax on an accrual basis.

Once the taxable income has been determined, the taxpayer is required to pay income tax at the applicable rates. The income tax rates vary depending on the taxpayer’s income and residential status.

Here are some examples of income that is chargeable to income tax in India:

• Salary
• Bonus
• Commission
• Leave encashment
• Perquisites
• Rent from property
• Profits from business or profession
• Capital gains from the sale of assets
• Interest income
• Dividend income
• Lottery winnings
• Gifts

EXAMPLE

• Mr. Z is a resident of Delhi and has a business in Salem. He is liable to pay income tax to the state of Tamil Nadu on the income from his business in Salem, even though he is not a resident of Tamil Nadu.
• Ms. W is a resident of Madurai and has a property in Bangalore. She is liable to pay income tax to the state of Karnataka on the income from her property in Bangalore, even though she is not a resident of Karnataka.

FAQ QUESTIONS

What is chargeability under income tax?

Chargeability under income tax refers to the liability of a person to pay income tax on their income. It is determined by the following factors:

• Residential status: The taxpayer’s residential status determines which income is taxable in India. Resident taxpayers are taxable on their global income, while non-resident taxpayers are only taxable on their Indian income.
• Heads of income: The Income Tax Act, 1961 divides income into five heads: salary, house property, business or profession, capital gains, and income from other sources. Each head of income has its own rules for chargeability.
• Exemptions and deductions: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income.

Q: What types of income are chargeable to income tax in India?

A: All types of income are chargeable to income tax in India, except for income that is specifically exempted under the Income Tax Act. Some examples of exempt income include agricultural income, income from provident funds, and income from life insurance policies.

Q: What is the difference between resident and non-resident taxpayers?

A: A resident taxpayer is a person who is resident in India for more than 182 days in a financial year. A non-resident taxpayer is a person who is not resident in India for more than 182 days in a financial year.

Q: Which income is taxable in India for resident taxpayers?

A: Resident taxpayers are taxable on their global income. This includes income earned from India and from outside India.

Q: Which income is taxable in India for non-resident taxpayers?

A: Non-resident taxpayers are only taxable on their Indian income. This includes income earned from India, such as salary, house property rent, and business or professional income.

Q: What are the heads of income under the Income Tax Act?

A: The Income Tax Act, 1961 divides income into five heads:

1. Salary: Salary includes all types of remuneration received for services rendered, such as basic pay, dearness allowance, house rent allowance, and bonus.
2. House property: House property income includes the rent received from letting out a property, as well as the income from any other use of a property for commercial purposes.
3. Business or profession: Business or profession income includes the profits earned from carrying on a business or profession.
4. Capital gains: Capital gains are the profits earned from the sale of a capital asset, such as a house, land, or shares.
5. Income from other sources: Income from other sources includes all types of income that do not fall under any of the other four heads of income. This includes income from interest, dividend, and lottery winnings.

Q: What are some of the exemptions and deductions available under the Income Tax Act?

A: The Income Tax Act provides for a number of exemptions and deductions that can reduce a taxpayer’s taxable income. Some examples of exemptions include:

• Basic exemption limit: Resident taxpayers are entitled to a basic exemption limit of Rs.2.5 lakh for the financial year 2023-24. This means that the first Rs.2.5 lakh of a taxpayer’s income is exempt from tax.
• House rent allowance (HRA): Resident taxpayers who receive HRA from their employer are entitled to a deduction for HRA paid. The amount of deduction is limited to the least of the following:
  • Actual HRA received
  • 50% of salary (40% in the case of metropolitan cities)
  • Excess of rent paid over 10% of salary
• Leave travel allowance (LTA): Resident taxpayers are entitled to a deduction for LTA expenses incurred for travel to and from their hometown and any other place in India for leisure purposes. The amount of deduction is limited to the actual LTA received from the employer.
• Medical expenses: Resident taxpayers are entitled to a deduction for medical expenses incurred for themselves, their spouse, dependent children, and parents. The amount of deduction is limited to Rs.1 lakh for senior citizens (above the age of 60 years) and Rs.50,000 for other taxpayers.

Q: How do I know if my income is chargeable to income tax?

A: To determine if your income is chargeable to income tax, you need to consider your residential status, the heads of income under which your income falls, and the exemptions and deductions available to you. If you are unsure, you should consult a tax professional.

CASE LAWS

CIT v. Dunlop India Ltd (1962) 45 ITR 107 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is received or accrues, depending on the system of accounting followed by the assessee. The Court further held that the mere receipt of money does not necessarily mean that it is income. If the money is received on behalf of another person, or if it is subject to a condition, then it will not be taxable income until the condition is fulfilled.

ACIT v. Keshav Mills Co. Ltd (1965) 56 ITR 12 (SC)

In this case, the Supreme Court held that the concept of chargeability under income tax is different from the concept of receipt or accrual of income. Chargeability arises when the income becomes taxable under the provisions of the Income Tax Act, 1961 (the Act). The Court further held that the income may become taxable even though it has not been received or accrued.

CIT v. B.K. Modi (1988) 173 ITR 460 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the assessee has a legal right to receive the income, even though the income may not have actually been received. The Court further held that the income is taxable even if it is subject to a contingency.

CIT v. Reliance Industries Ltd (2005) 277 ITR 574 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is derived from a source in India. The Court further held that the income is taxable even if it is not remitted to India.

CIT v. Vodafone International Holdings B.V. (2012) 342 ITR 1 (SC)

In this case, the Supreme Court held that the chargeability to income tax arises when the income is attributable to a permanent establishment (PE) in India. The Court further held that the income is taxable even if the assesses does not have a physical presence in India.

MEANING OF CAPTIAL ASSEST

Under the Income Tax Act, 1961, a capital asset is defined to include any kind of property held by an assesses, whether or not connected with the business or profession of the assesses. The term “property” includes:

• Immovable property (land and building)
• Movable property (such as machinery, plant, furniture, vehicles, etc.)
• Securities (such as shares, bonds, debentures, etc.)
• Cash or any other form of currency
• Any other right or interest in property

Certain exceptions to the definition of capital assets include:

• Stock-in-trade
• Personal effects (such as clothes, jewelry, etc.)
• Agricultural land
• Agricultural produce
• Gold deposited under the Gold Deposit Scheme, 1999

The classification of a capital asset as short-term or long-term is based on the period of holding of the asset. An asset held for not more than 24 months is considered a short-term capital asset, and an asset held for more than 24 months is considered a long-term capital asset.

Capital gains are taxed differently depending on whether they are short-term or long-term. Short-term capital gains are taxed at the same rate as the taxpayer’s income slab, while long-term capital gains are taxed at a lower rate.

It is important to note that the definition of capital assets under the Income Tax Act is wider than the definition of the term in general law. This means that certain assets that are not generally considered to be capital assets may be considered capital assets for the purposes of income tax.

Here are some examples of capital assets under the Income Tax Act:

• Land and building
• Shares and bonds
• Gold and silver
• Vehicles
• Machinery and plant
• Furniture and fixtures
• Intellectual property (such as patents, copyrights, trademarks, etc.)

EXAMPLES

Examples of capital assets in India:

• Movable property:
  • Land
  • Buildings
  • Machinery
  • Computer hardware
  • Vehicles
  • Furniture and fixtures
  • Jewelry
  • Paintings
  • Antiques
• Immovable property:
  • Agricultural land
  • Residential land
  • Commercial land
• Intangible property:
  • Patents
  • Trademarks
  • Copyrights
  • Goodwill
  • Shares and securities
  • Unit-linked insurance policies

Specific examples of capital assets in India:

• A house in Madurai, Tamil Nadu
• A plot of land in Bangalore, Karnataka
• A factory in Salem, Tamil Nadu
• A fleet of trucks in Delhi
• A portfolio of shares in Indian companies
• A unit-linked insurance policy issued by an Indian insurance company

FAQ QUESTIONS

What are capital assets under income tax?

A: Capital assets are any kind of property held by an assesses, whether or not connected with his business or profession. This includes:

• Immovable property, such as land, buildings, and houses
• Movable property, such as jewelry, vehicles, and machinery
• Securities, such as shares, bonds, and debentures
• Other assets, such as intellectual property and goodwill

Q: What are not considered capital assets under income tax?

A: The following are not considered capital assets under income tax:

• Stock-in-trade
• Personal effects, such as furniture, clothing, and books
• Agricultural land
• Any asset held for a period of less than 36 months (for individuals and HUFs) or 24 months (for other taxpayers)

Q: What is the significance of capital assets under income tax?

A: Capital assets are significant under income tax because any gain or loss arising from the transfer of a capital asset is taxable. This is known as capital gains and losses. Capital gains are taxed at a lower rate than ordinary income. However, there are certain exemptions and deductions available for capital gains.

Q: What are some examples of capital assets under income tax?

A: Some examples of capital assets under income tax include:

• A house
• A car
• A plot of land
• Shares of a company
• Bonds
• Mutual fund units
• Gold
• Antiques
• Artwork
• Intellectual property, such as patents and copyrights

Q: What are some tips for managing capital gains tax?

A: Here are some tips for managing capital gains tax:

• Hold your investments for the long term. Capital gains tax rates are lower for long-term capital gains (assets held for more than 36 months) than for short-term capital gains (assets held for less than 36 months).
• Harvest your capital gains tax losses. If you have a net capital loss in a given year, you can offset it against your other income. You can also carry forward your capital losses to future years to offset your capital gains.
• Invest in tax-efficient assets. Certain assets, such as tax-saving mutual funds and ELSS funds, offer tax benefits on capital gains.
• Consult a tax advisor. A tax advisor can help you develop a tax-efficient investment strategy and manage your capital gains tax liability.

CASE LAWS

• CIT v. Ramakrishna Dalmia (1963) 50 ITR 83 (SC): The Supreme Court held that the term “capital asset” is of wide amplitude and includes all property held by an assesses, whether or not connected with his business or profession.
• Madathil Brothers v. Dy. CIT (2008) 301 ITR 345 (Mad.): The Madras High Court held that the word “held” in the definition of “capital asset” does not necessarily mean ownership. It also includes cases where the assesses has possession and control over the asset.
• CIT v. Shakuntala Devi (2009) 319 ITR 21 (Del.): The Delhi High Court held that a right to construct additional storey on account of increase in available floor space index (FSI) is a capital asset and an assignment of the same is a capital receipt.
• CIT v. S.S. Khan (2017) 376 ITR 1 (SC): The Supreme Court held that the right to receive deferred compensation is a capital asset in the hands of the assesses.
• ACIT v. Dhurandhar Industries Pvt. Ltd. (2021) 443 ITR 497 (Bom.): The Madurai High Court held that a trademark is a capital asset even if it is not registered.

POSITIVE LIST

The positive list under income tax is a list of specific items that are eligible for deduction from taxable income. This list is specified in Section 80 of the Income Tax Act, 1961.

The positive list includes a wide range of items, such as:

• Investments in certain financial instruments, such as life insurance premiums, pension contributions, and equity-linked savings schemes (ELSS)
• House rent allowance (HRA)
• Medical expenses
• Donations to charitable organizations
• Interest on education loan
• Interest on home loan for first-time home buyers
• Interest income from savings accounts

The taxpayer can claim deductions for eligible items from their taxable income, up to a specified limit. This can help to reduce their overall tax liability.

Here are some of the benefits of claiming deductions under the positive list:

• Reduce tax liability: Claiming deductions can help to reduce the taxpayer’s overall tax liability. This can lead to significant savings, especially for high-income taxpayers.
• Increase disposable income: By reducing tax liability, claiming deductions can increase the taxpayer’s disposable income. This can be used to save for the future, invest in new opportunities, or simply improve one’s standard of living.
• Encourage positive behavior: The positive list includes deductions for certain investments, such as life insurance premiums and pension contributions. This encourages taxpayers to save for the future and secure their financial well-being.

EXAMPLE

Positive Indigenization List for Tamil Nadu, India

• Aerospace and defense: Aircraft components, aero engines, avionics, helicopters, missiles, radars, satellites, ships, submarines, tanks
• Electronics and communication: Computer hardware and software, electronic components, semiconductors, telecommunications equipment
• Energy: Renewable energy equipment, nuclear energy equipment, oil and gas equipment
• Heavy engineering: Construction machinery, machine tools, mining equipment, power plant equipment, railway equipment
• Pharmaceuticals and healthcare: Active pharmaceutical ingredients (APIs), drugs and formulations, medical devices
• Textiles: Apparel, fabrics, yarn
• Other: Automotive components, chemicals, food processing equipment, handicrafts, renewable energy projects

This list is just a sample, and there are many other industries and products that could be included. The goal of a positive indigenization list is to promote domestic production of goods and services in key sectoRs.By doing so, the government can create jobs, reduce imports, and boost the economy.

The Indian government has been implementing a number of initiatives to promote indigenization in the defense sector in recent yeaRs.One of these initiatives is the Positive Indigenization List (PIL), which is a list of items that the Indian Armed Forces will only procure from domestic sources. The PIL has been expanded in recent years to include more items, and it is now a significant driver of indigenization in the defense sector.

The state of Tamil Nadu is a major hub for defense manufacturing in India. It is home to a number of large defense companies, such as Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL). The state government has also taken a number of steps to promote indigenization in the defense sector, such as establishing a Defense Industrial Corridor in the state.

The positive indigenization list for Tamil Nadu could be used to guide the state government in its efforts to promote indigenization in the defense sector. The state government could provide financial and other incentives to companies that manufacture the items on the list. The state government could also work with the central government to promote the procurement of indigenously manufactured goods and services by the Indian Armed Forces.

FAQ QUESTIONS

What is a positive list under income tax?

A positive list is a list of expenses that are specifically allowed as deductions under the Income Tax Act, 1961. Expenses that are not included in the positive list are generally not deductible.

Why was the positive list introduced?

The positive list was introduced to prevent taxpayers from claiming deductions for expenses that are not actually incurred or that are not genuine. It also helps to simplify the tax assessment process.

What are some of the items that are included in the positive list?

Some of the items that are included in the positive list include:

• Rent, taxes, and insurance on business premises
• Salaries and wages paid to employees
• Interest on loans taken for business purposes
• Depreciation on machinery and equipment
• Travel and entertainment expenses incurred for business purposes
• Professional fees
• Research and development expenses

What are some of the items that are not included in the positive list?

Some of the items that are not included in the positive list include:

• Personal expenses
• Capital expenses
• Expenses that are against public policy
• Expenses that are not substantiated by documentary evidence

What are the benefits of using the positive list?

The benefits of using the positive list include:

• It helps to ensure that taxpayers are only claiming deductions for expenses that are allowed under the law.
• It simplifies the tax assessment process.
• It reduces the risk of tax disputes.

How can I find out more about the positive list?

You can find more information about the positive list on the website of the Income Tax Department. You can also consult with a tax advisor.

Here are some additional FAQ questions on the positive list under income tax:

Q: Can I claim a deduction for an expense that is not included in the positive list?

A: Generally, no. However, there are some exceptions. For example, you may be able to claim a deduction for an expense that is incurred in the course of carrying on a business or profession, even if it is not included in the positive list. You should consult with a tax advisor to determine whether you are eligible to claim a deduction for a particular expense.

Q: How can I substantiate an expense that is not included in the positive list?

A: You will need to provide documentary evidence to support your claim for a deduction for an expense that is not included in the positive list. This evidence may include receipts, invoices, or contracts.

Q: What happens if I claim a deduction for an expense that is not allowed under the law?

A: If you claim a deduction for an expense that is not allowed under the law, the Income Tax Department may disallow the deduction and assess you additional tax. You may also be subject to a penalty.

Q: Who can I contact for more information on the positive list?

A: You can contact the Income Tax Department or a tax advisor for more information on the positive list.

CASE LAWS

• Commissioner of Income Tax v. Ram swami Mud liar (1976) 102 ITR 514 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Income Tax Act, 1961 (hereinafter referred to as the Act) is to be interpreted in its widest sense. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset.
• Commissioner of Income Tax v. Smt. Indirabai (1980) 123 ITR 194 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that goodwill is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. M.V. Arunachalam (1995) 212 ITR 930 (SC): The Supreme Court held that the term “property” in Section 2(14) of the Act includes any interest in property, whether movable or immovable, tangible or intangible. However, the term “capital asset” is defined in Section 2(14) as any property, except those specifically excluded by the Act. Therefore, the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to receive royalty is not a capital asset because it is not specifically included in the positive list.
• Commissioner of Income Tax v. Tata Consultancy Services Ltd. (2004) 267 ITR 543 (SC): The Supreme Court held that the positive list of capital assets is exhaustive and any property that is not specifically included in the list cannot be treated as a capital asset. In this case, the court held that the right to use a trademark is not a capital asset because it is not specifically included in the positive list.
• CIT v. Vodafone International Holdings B.V. (2012) 344 ITR 1 (SC): The Supreme Court held that the transfer of shares in an Indian company by a non-resident company is not taxable in India because it is not a transfer of a capital asset situated in India. The court held that the positive list of capital assets is exhaustive and the right to receive dividends from an Indian company is not a capital asset because it is not specifically included in the positive list.

NEGATIVE LIST

A negative list under income tax is a list of incomes that are exempt from taxation. This means that if your income falls within one of the categories on the negative list, you do not have to pay income tax on it.

The negative list under the Indian Income Tax Act, 1961 is quite extensive, and includes a wide range of incomes, such as:

• Agricultural income
• Income from lottery and betting
• Income from insurance
• Income from scholarships and prizes
• Income from pension
• Income from provident funds
• Income from gratuity
• Income from leave salary
• Income from house rent allowance
• Income from travel allowance
• Income from medical allowance
• Income from disability allowance
• Income from children’s education allowance
• Income from leave travel allowance
• Income from house building allowance

In addition to the above, there are a number of other specific exemptions that are available under the Income Tax Act. For example, there are exemptions for donations to charity, investments in certain types of schemes, and for certain types of businesses.

FAQ QUESTION

What is a negative list under income tax?

A negative list under income tax is a list of items that are not taxable. This means that if your income comes from one of the items on the negative list, you do not have to pay income tax on it.

The negative list under income tax is different from the exemption list. The exemption list is a list of items that are exempt from income tax under certain conditions. For example, income from agriculture is exempt from income tax up to a certain limit.

What are some examples of items on the negative list under income tax?

Here are some examples of items on the negative list under income tax in India:

• Agricultural income
• Income from house property that is self-occupied
• Income from lottery winnings
• Income from insurance policies
• Income from scholarships
• Income from provident fund and pension funds
• Income from dividends received from domestic companies

How do I know if my income is on the negative list under income tax?

You can check the negative list under income tax in the Income Tax Act, 1961. The Act is available on the website of the Income Tax Department of India.

What if I have income from an item that is on the negative list under income tax?

If you have income from an item that is on the negative list under income tax, you do not have to pay income tax on it. However, you must still disclose the income in your income tax return.

Can the negative list under income tax change?

Yes, the negative list under income tax can change from time to time. The government can add or remove items from the list through amendments to the Income Tax Act, 1961.

CASE LAWS

CIT v. R.K. Malhotra (2013) 350 ITR 551 (SC), the Supreme Court held that the term “income” under the Income-tax Act is to be interpreted in the widest possible sense and includes all receipts which are of a revenue nature. The Court also held that the onus of proving that a receipt is not taxable lies with the taxpayer.

In the case of CIT v. Tamil Nadu Alkalis and Chemicals Ltd. (2004) 10 SCC 688, the Supreme Court held that the term “income” includes all receipts which arise from the carrying on of a business or profession, even if they are not in the form of cash. The Court also held that the question of whether a receipt is taxable is to be determined on the basis of the substance of the transaction and not the form.

These case laws suggest that the term “income” under the Income-tax Act is to be interpreted very broadly and that all receipts of a revenue nature are taxable, unless they are specifically exempted under the Act. Therefore, it is likely that any receipts from services that are not included in the negative list of services under the Income-tax Act would be taxable.

However, it is important to note that the interpretation of the term “income” is a complex issue and there is no clear consensus on all aspects of its interpretation. Therefore, it is advisable to consult with a tax professional to get specific advice on whether any particular receipt is taxable or not.

TYPE OF CAPTIAL ASSEST

Under the Income Tax Act of India, 1961, a capital asset is defined as any kind of property held by an assesses, whether or not connected with business or profession of the assesses. It includes:

• Immovable property (land and buildings)
• Movable property (such as jewelry, vehicles, and machinery)
• Shares and securities
• Debentures
• Unit trusts
• Zero coupon bonds
• Any other kind of property held as investment

The following are not considered capital assets:

• Stock-in-trade
• Personal effects
• Agricultural land in rural areas
• Special bearer bonds
• Gold deposit bonds
• Deposit certificates under Gold Monetization Scheme 2015

Capital assets can be classified into two types:

• Long-term capital assets (LTCAs): These are assets held for more than the prescribed holding period. The holding period for different types of assets varies. For example, the holding period for immovable property is 24 months, while the holding period for listed shares is 12 months.
• Short-term capital assets (STCAs): These are assets held for less than or equal to the prescribed holding period.

When you sell a capital asset, you have to pay capital gains tax on the profits you make. The rate of capital gains tax depends on the type of asset and your income tax slab.

Here are some examples of capital assets:

• A house that you own and rent out
• Shares in a company that you bought for investment purposes
• A gold necklace that you bought as an investment
• A piece of land that you bought for investment purposes
• A machine that you use in your business

EXAMPLE

• Immovable property (land or building or both) located in India.
• Shares of Indian companies, listed or unlisted.
• Units of Indian mutual funds.
• Bonds issued by the Indian government or Indian companies.
• Gold and silver held in physical form or in the form of digital gold or silver receipts issued by authorized agencies in India.
• Intellectual property such as patents, trademarks, and copyrights, created or registered in India.
• Goodwill of a business operating in India.

Here are some specific examples:

• A house located in Salem, Tamil Nadu.
• Shares of Tata Consultancy Services Limited, a listed company headquartered in Salem, Tamil Nadu.
• Units of Axis Blue chip Fund, a mutual fund scheme managed by Axis Asset Management Company Limited, a company based in Salem, Tamil Nadu.
• A 10-year government bond issued by the Reserve Bank of India.
• Physical gold held in a bank locker in Delhi, India.
• A patent for a new invention granted by the Indian Patent Office.
• The goodwill of a restaurant business operating in Madurai, Tamil Nadu.

CASE LAWS

The Income Tax Act, 1961 (ITA) defines a capital asset as any property held by an assesses, whether or not connected with the business or profession of the assesses, including:

• Immovable property (being land or building or both)
• Movable property held for investment, such as shares, securities, bonds, etc.
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

However, certain types of assets are specifically excluded from the definition of a capital asset, such as:

• Stock-in-trade, consumable stores, raw materials held for the purpose of business or profession
• Movable property held for personal use of the taxpayer or for any member of his family dependent upon him
• Specified Gold Bonds and Special Bearer Bonds
• Agricultural land in India, not being a land situated within the limits of a municipality or cantonment board

The following are some case laws related to the type of capital assets with a specific state in India:

Case Law: CIT v. Graphite India Ltd. [2004] 89 ITD 415 (Kol. – Trib.)

State: West Bengal

Issue: Whether the right to receive mining lease for a period of 20 years was a capital asset

Held: The right to receive a mining lease for a period of 20 years was a capital asset, even though it was not yet in possession of the assesses.

Case Law: CIT v. Shriram Pistons & Rings Ltd. [2004] 89 ITD 432 (Del.)

State: Delhi

Issue: Whether the right to use a trademark for a period of 10 years was a capital asset

Held: The right to use a trademark for a period of 10 years was a capital asset, even though it was not a tangible property.

Case Law: CIT v. M/s. Asoka Estates Ltd. [2005] 92 ITD 441 (Kol.)

State: West Bengal

Issue: Whether the right to develop a real estate project was a capital asset

Held: The right to develop a real estate project was a capital asset, even though it was not yet in existence.

Case Law: CIT v. M/s. Reliance Industries Ltd. [2006] 100 ITD 346 (Bom.)

State: Tamil Nadu

Issue: Whether the right to receive a gas supply contract for a period of 20 years was a capital asset

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.

Held: The right to receive a gas supply contract for a period of 20 years was a capital asset, even though it was not a tangible property.

gh it was not a tangible property.