STUDY MODULE (ICAN MEMBERS)

Study Material
(Modules 1 to 4)

PAPER 2
Direct Tax Laws and
International Taxation
Part – I: Direct Tax Laws
[As amended by the Finance Act, 2020]
Assessment Year 2021-22

MODULE – 1

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

© The Institute of Chartered Accountants of India

This study material has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to
enable them to obtain knowledge in the subject. In case students need any
clarifications or have any suggestions for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner
useful for the students. However, the study material has not been specifically
discussed by the Council of the Institute or any of its Committees and the views
expressed herein may not be taken to necessarily represent the views of the
Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this
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© The Institute of Chartered Accountants of India

All rights reserved. No part of this book may be reproduced, stored in a retrieval
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Edition : February, 2021

Website : www.icai.org

E-mail : [email protected]

Committee/ : Board of Studies

Department

ISBN No. :

Price (All Modules) : `

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SYLLABUS

PAPER – 2 : DIRECT TAX LAWS AND INTERNATIONAL TAXATION

(One paper ─ Three hours –100 Marks)

Part I : Direct Tax Laws (70 Marks)

Objective:
To acquire the ability to analyze and interpret the provisions of direct tax laws and recommend
solutions to practical problems.
Contents:
Law and Procedures under the Income-tax Act, 1961,
1. Basis of charge, residential status, income which do not form part of total income, heads of
income, income of other persons included in assessee’s total income, aggregation of income,
set-off and carry forward of losses, deductions from gross total income, rebates and reliefs
2. Special provisions relating to companies and certain persons other than a company 1
3. Provisions relating to charitable and religious trust and institutions, political parties and
electoral trusts

4. Tax Planning, Tax Avoidance & Tax Evasion

5. Collection & Recovery of Tax, Refunds

6. Income-tax Authorities, Procedure for assessment, Appeals and Revision

7. Settlement of Tax Cases, Penalties, Offences & Prosecution

8. Liability in Special Cases 2

9. Miscellaneous Provisions and Other Provisions 3

1 Including firms, LLPs, Trusts, AOPs, BOIs, Securitsation Trusts, Business Trusts, Investment Fund
etc.
2 Representative assessees, Executors etc.
3 The entire income-tax law is included at the Final level. Any residuary provision under the Income-tax

Act, 1961, not covered under any of the above specific provisions or under Part II: International
Taxation would be covered under “Other Provisions”. Further, if any new Chapter is included in the
Income-tax Act, 1961, the syllabus will accordingly include the provisions relating thereto.

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Part II: International Taxation (30 Marks)

Objective:

To develop an understanding of the concepts, principles and provisions of International Taxation

and acquire the ability to apply such knowledge to make computations and to address application-
oriented issues.

Contents:

1. Taxation of international transactions and Non-resident taxation

(i) The provisions under the Income-tax Act, 1961, including

a) Specific provisions relating to Non-residents

b) Double Taxation Relief

c) Transfer Pricing & Other Anti-Avoidance Measures

d) Advance Rulings
(ii) Equalisation levy
2. Overview of Model Tax Conventions – OECD & UN

3. Application and interpretation of Tax Treaties

4. Fundamentals of Base Erosion and Profit Shifting

Note: If any new legislation(s) are enacted in place of an existing legislation(s), the syllabus will
accordingly include the corresponding provisions of such new legislation(s) in the place of the
existing legislation(s) with effect from the date to be notified by the Institute. Similarly, if any
existing legislation(s) on direct tax laws ceases to be in force, the syllabus will accordingly exclude
such legislation(s) with effect from the date to be notified by the Institute.

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CONTENTS

PART I : DIRECT TAX LAWS

MODULE – 1
Chapter 1 : Basic Concepts
Chapter 2 : Residence and Scope of Total Income
Chapter 3 : Incomes which do not form part of Total Income
Chapter 4 : Salaries
Chapter 5 : Income from House Property
Chapter 6 : Profits and Gains of Business or Profession
Chapter 7 : Capital Gains
Chapter 8 : Income from Other Sources

MODULE – 2
Chapter 9 : Income of Other Persons included in assessee’s Total Income
Chapter 10 : Aggregation of income; set-off, or carry forward and set-off, of Losses
Chapter 11 : Deductions from Gross Total Income
Chapter 12 : Assessment of Various Entities
Chapter 13: Assessment of Charitable or Religious Trusts or Institutions, Political Parties and
Electoral Trusts
Chapter 14 : Tax Planning, Tax Avoidance & Tax Evasion
MODULE – 3
Chapter 15 : Deduction, Collection and Recovery of tax
Chapter 16 : Income-tax Authorities

Chapter 17 : Assessment Procedure

Chapter 18 : Appeals and Revision
Chapter 19 : Settlement of Tax Cases

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Chapter 20 : Penalties
Chapter 21 : Offences and Prosecution

Chapter 22: Liability in Special Cases

Chapter 23 : Miscellaneous Provisions

PART II: INTERNATIONAL TAXATION

MODULE – 4
Chapter 1 : Transfer Pricing & Other Anti-Avoidance Measures
Chapter 2: Non-resident Taxation
Chapter 3 : Double Taxation Relief
Chapter 4 : Advance Rulings
Chapter 5 : Equalisation levy
Chapter 6 : Application and Interpretation of Tax Treaties
Chapter 7 : Fundamentals of Base Erosion and Profit Shifting
Chapter 8 : Overview of Model Tax Conventions

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DETAILED CONTENTS: MODULE - 1

CHAPTER 1 – BASIC CONCEPTS

Learning Outcomes ............................................................................................................................ 1.1

Contents:
1.1 Overview of Income-tax law in India ....................................................................................... 1.2
1.2 Important definitions ............................................................................................................. 1.11
1.3 Previous year and Assessment year .................................................................................... 1.25
1.4 Charge of Income-tax ........................................................................................................... 1.30
1.5 Rates of Tax ........................................................................................................................ 1.31
1.6 Surcharge ............................................................................................................................. 1.37

1.7 Rebate of up to ` 12,500 for resident individuals having total income of

up to ` 5 lakh [Section 87A].................................................................................................. 1.50
Significant Select Cases ....................................................................................................... 1.51
Test Your Knowledge ............................................................................................................ 1.54

CHAPTER 2 – RESIDENCE AND SCOPE OF TOTAL INCOME

Learning Outcomes ............................................................................................................................ 2.1

Contents:

2.1 Residential status [Section 6] ................................................................................................. 2.2

2.2 Scope of total income ........................................................................................................... 2.10
Test Your Knowledge ....................................................................................................................... 2.15

CHAPTER 3 - INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME

Learning Outcomes ............................................................................................................................ 3.1

Contents:
3.1 Introduction ............................................................................................................................. 3.2
3.2 Incomes not included in total income [Section 10] .................................................................. 3.5

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3.3 Tax Holiday for units established in

Special Economic Zones [Section 10AA].............................................................................. 3.36
3.4 Restrictions on allowability of expenditure [Section 14A] ...................................................... 3.45
Significant Select Cases................................................................................................................... 3.47
Test Your Knowledge ....................................................................................................................... 3.49

CHAPTER 4-SALARIES

Learning Outcomes ............................................................................................................................ 4.1

Contents:
4.1 Introduction ........................................................................................................................... 4.2
4.2 Basis of charge (Section 15) ................................................................................................... 4.4
4.3 Salary, Perquisite and Profits in lieu of salary (Section 17) .................................................... 4.5
4.4 Deductions from salary ......................................................................................................... 4.69
4.5 Relief under section 89 .............................................................................................. 4.70
4.6 Salary from United Nations Organisation .................................................................... 4.73
Significant Select Cases ................................................................................................. 4.74
Test Your Knowledge ....................................................................................................................... 4.76

CHAPTER 5 – INCOME FROM HOUSE PROPERTY

Learning Outcomes ............................................................................................................................ 5.1

Contents:
5.1 Chargeability [Section 22] ....................................................................................................... 5.2
5.2 Conditions for chargeability .................................................................................................... 5.2
5.3 Composite rent ...................................................................................................................... 5.3
5.4 Income from house property situated outside India ................................................................ 5.4
5.5 Determination of Annual Value [Section 23] ........................................................................... 5.5
5.6 Deductions from Annual Value [Section 24] ......................................................................... 5.10
5.7 Computation of “Income from house property”
for different categories of property ........................................................................................ 5.14
5.8 Inadmissible deductions [Section 25].................................................................................... 5.24

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5.9 Provision for arrears of rent and unrealized

rent received subsequently [Section 25A]............................................................................. 5.24
5.10 Treatment of income from co-owned property [Section 26] .................................................. 5.25
5.11 Deemed ownership [Section 27] ........................................................................................... 5.27
5.12 Cases where income from house property is exempt from tax ............................................. 5.29
Significant Select Cases ................................................................................................. 5.30
Test Your Knowledge ....................................................................................................................... 5.37

CHAPTER 6 – PROFITS AND GAINS OF BUSINESS OR PROFESSION

Learning Outcomes ............................................................................................................................ 6.1

Contents:
6.1 Meaning of ‘Business’ and ‘Profession’ ................................................................................. 6.2
6.2 Method of Accounting ............................................................................................................ 6.3
6.3 Income chargeable under this head [Section 28] .................................................................. 6.16
6.4 Speculation business ............................................................................................................ 6.19
6.5 Computation of Profits and Gains from business
or profession [Section 29] ..................................................................................................... 6.22
6.6 Admissible deductions .......................................................................................................... 6.22
6.7 Inadmissible deductions [Section 40].................................................................................. 6.114
6.8 Expenses or payments not deductible
in certain circumstances [Section 40A] ............................................................................... 6.125
6.9 Profits chargeable to tax [Section 41] ................................................................................. 6.131
6.10 Other provisions.................................................................................................................. 6.132
6.11 Compulsory maintenance of accounts [Section 44AA] ....................................................... 6.144
6.12 Audit of accounts of certain persons
carrying on business or profession [Section 44AB] ............................................................ 6.148
6.13 Special provisions for computing profits and gains
of business on presumptive basis [Section 44AD/44ADA/44AE] ........................................ 6.151
6.14 Method of computing deduction in the case of business
re-organization of Co-operative Banks [Section 44DB]....................................................... 6.157

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6.15 Computation of business income in cases where income

is partly agricultural and partly business in nature .............................................................. 6.161
Significant Select Cases................................................................................................................. 6.165
Test Your Knowledge ..................................................................................................................... 6.183

CHAPTER 7- CAPITAL GAINS

Learning Outcomes ............................................................................................................................ 7.1

Contents:
7.1 Introduction ............................................................................................................................. 7.2
7.2 Capital Asset........................................................................................................................... 7.2
7.3 Short-term and long-term capital assets ................................................................................. 7.5
7.4 Transfer: What its means? [Section 2(47)] ........................................................................... 7.12
7.5 Scope and year of chargeability [Section 45]........................................................................ 7.13
7.6 Capital gains on distribution of assets by
companies in liquidation [Section 46].................................................................................... 7.20
7.7 Capital gains on buyback of shares or securities [Section 46A] ........................................... 7.21
7.8 Important definitions ............................................................................................................. 7.22
7.9 Transactions not regarded as transfer [Section 47] .............................................................. 7.25
7.10 Withdrawal of exemption in certain cases............................................................................. 7.37
7.11 Mode of computation of capital gains (Section 48) ............................................................... 7.38
7.12 Ascertainment of cost in specified circumstances [Section 49]............................................. 7.40
7.13 Cost of acquisition [Section 55]............................................................................................. 7.51
7.14 Cost of improvement [Section 55] ......................................................................................... 7.60
7.15 Computation of capital gains in case of
depreciable assets [Section 50 & 50A] ................................................................................. 7.63
7.16 Capital gains in respect of slump sale [Section 50B] ............................................................ 7.66
7.17 Deemed full value of consideration for computing capital
gains [Section 50C, 50CA & 50D] ......................................................................................... 7.69
7.18 Advance money received [Section 51].................................................................................. 7.72
7.19 Exemption of capital gain...................................................................................................... 7.75

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7.20 Reference to Valuation Officer [Section 55A] ....................................................................... 7.93

7.21 Tax on Short term capital gains tax in respect of equity
share/units of an equity oriented fund /unit of a business Trust [Section 111A] .................. 7.94
7.22 Tax on long term capital gains [Section 112] ........................................................................ 7.95
7.23 Tax on long term capital gains on certain assets [Section 112A]..................................... 7.97
7.24 Surplus on sale of shares and securities - whether taxable as capital gains
or business income? [Circular No. 06/2016, dated 29-2-2016] ................................... 7.104
Significant Select Cases................................................................................................................. 7.106
Test Your Knowledge ..................................................................................................................... 7.125

CHAPTER 8-INCOME FROM OTHER SOURCES

Learning Outcomes ............................................................................................................................ 8.1

Contents:
8.1 Introduction ............................................................................................................................. 8.2
8.2 Incomes chargeable under this head [Section 56] .................................................................. 8.2
8.3 Applicable rate of tax in respect of casual income [Section 115BB] ..................................... 8.27
8.4 Deductions allowable [Section 57] ........................................................................................ 8.27
8.5 Deductions not allowable [Section 58] .................................................................................. 8.29
8.6 Deemed income chargeable to tax [Section 59] ................................................................... 8.30
8.7 Method of accounting [Section 145]...................................................................................... 8.30
Significant Select Cases................................................................................................................... 8.31
Test Your Knowledge ....................................................................................................................... 8.38

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