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Chapter 1

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Short-Term Capital Gain (STCG)

Topic: Capital GainsChapter: Chapter 1
STCG=Full Value of Consideration−(Cost of Acquisition+Cost of Improvement+Expenditure on Transfer)\text{STCG} = \text{Full Value of Consideration} - (\text{Cost of Acquisition} + \text{Cost of Improvement} + \text{Expenditure on Transfer})
This formula is used to calculate the capital gain when a capital asset is transferred after being held for a period not exceeding the prescribed limit (e.g., 36 months for most assets, 24 months for immovable property, 12 months for listed shares/securities). Indexation benefit is not available for STCG.

Long-Term Capital Gain (LTCG)

Topic: Capital GainsChapter: Chapter 1
LTCG=Full Value of Consideration−(Indexed Cost of Acquisition+Indexed Cost of Improvement+Expenditure on Transfer)\text{LTCG} = \text{Full Value of Consideration} - (\text{Indexed Cost of Acquisition} + \text{Indexed Cost of Improvement} + \text{Expenditure on Transfer})
This formula applies when a capital asset is transferred after being held for a period exceeding the prescribed limit. It allows for the benefit of indexation to adjust the cost of acquisition and improvement for inflation, thereby reducing the taxable gain.

Indexed Cost of Acquisition (ICOA)

Topic: Capital GainsChapter: Chapter 1
ICOA=Cost of Acquisition×CII of the year of transferCII of the year of acquisition or 2001-02, whichever is later\text{ICOA} = \text{Cost of Acquisition} \times \frac{\text{CII of the year of transfer}}{\text{CII of the year of acquisition or 2001-02, whichever is later}}
This formula is used to adjust the cost of acquiring a long-term capital asset for inflation. CII stands for Cost Inflation Index, which is notified by the government annually. If the asset was acquired before April 1, 2001, the cost of acquisition can be taken as the actual cost or the fair market value as of April 1, 2001, whichever is higher, and then indexed from 2001-02.

Indexed Cost of Improvement (ICOI)

Topic: Capital GainsChapter: Chapter 1
ICOI=Cost of Improvement×CII of the year of transferCII of the year of improvement\text{ICOI} = \text{Cost of Improvement} \times \frac{\text{CII of the year of transfer}}{\text{CII of the year of improvement}}
This formula adjusts the cost incurred on improving a long-term capital asset for inflation. Improvements made before April 1, 2001, are generally ignored for indexation purposes, and the cost of improvement is indexed from the year the improvement was made.

Exemption under Section 54 (Residential House)

Topic: Capital GainsChapter: Chapter 1
Exemption=Lower of [LTCG on sale of old house,Cost of new house purchased/constructed]\text{Exemption} = \text{Lower of } [\text{LTCG on sale of old house}, \text{Cost of new house purchased/constructed}]
This formula determines the amount of exemption available under Section 54 for individuals or HUFs who sell a residential house and invest the capital gain in purchasing or constructing another residential house within specified time limits.

Exemption under Section 54F (Other Assets)

Topic: Capital GainsChapter: Chapter 1
Exemption=LTCG×Cost of new residential houseNet Sale Consideration\text{Exemption} = \text{LTCG} \times \frac{\text{Cost of new residential house}}{\text{Net Sale Consideration}}
This formula is for individuals or HUFs who sell any long-term capital asset (other than a residential house) and invest the net sale consideration in purchasing or constructing a residential house within specified time limits. If the entire net sale consideration is invested, the entire LTCG is exempt.

Exemption under Section 54EC (Specified Bonds)

Topic: Capital GainsChapter: Chapter 1
Exemption=Lower of [LTCG,Amount invested in specified bonds (max. ₹ 50 lakhs)]\text{Exemption} = \text{Lower of } [\text{LTCG}, \text{Amount invested in specified bonds (max. \text{₹} 50 lakhs)}]
This formula applies to individuals, HUFs, or other assessees who invest the long-term capital gain from the sale of any long-term capital asset in specified bonds (e.g., NHAI, REC bonds) within six months from the date of transfer. The maximum investment eligible for exemption is \text{₹}50 lakhs.

Cost of Acquisition for assets acquired before 01.04.2001 (for LTCG)

Topic: Capital GainsChapter: Chapter 1
COApre-2001=Max(Actual Cost,Fair Market Value as on 01.04.2001)\text{COA}_{\text{pre-2001}} = \text{Max}(\text{Actual Cost}, \text{Fair Market Value as on 01.04.2001})
This rule specifies how to determine the 'Cost of Acquisition' for assets acquired before April 1, 2001, when calculating Long-Term Capital Gains. The taxpayer has the option to choose the higher of the actual cost of acquisition or the fair market value of the asset as on April 1, 2001, as the base cost for indexation.

Penalty for Under-reporting of Income (Section 270A)

Topic: Penalties and ProsecutionsChapter: Chapter 1
PUR=50%×TURIP_{UR} = 50\% \times T_{URI}
This formula calculates the penalty for under-reporting income as per Section 270A of the Income Tax Act, 1961. The penalty (P_UR) is 50% of the tax payable on the under-reported income (T_URI). The tax payable on under-reported income is determined by comparing the tax on the total income assessed with the tax that would have been payable had the under-reported income not been included in the assessment.

Penalty for Misreporting of Income (Section 270A)

Topic: Penalties and ProsecutionsChapter: Chapter 1
PMR=200%×TMRIP_{MR} = 200\% \times T_{MRI}
This formula calculates the penalty for misreporting income as per Section 270A of the Income Tax Act, 1961. The penalty (P_MR) is 200% of the tax payable on the misreported income (T_MRI). Misreporting includes cases such as misrepresentation or suppression of facts, failure to record investments, claiming false deductions, etc. The calculation of T_MRI is similar to T_URI, based on the tax impact of the misreported amount.

Penalty for Failure to Deduct/Collect Tax at Source (Section 271C/271CA)

Topic: Penalties and ProsecutionsChapter: Chapter 1
PTDS/TCS=100%×AND/NCP_{TDS/TCS} = 100\% \times A_{ND/NC}
This formula calculates the penalty for failure to deduct tax at source (TDS) under Section 271C or failure to collect tax at source (TCS) under Section 271CA. The penalty (P_TDS/TCS) is 100% of the amount of tax that was not deducted or not collected (A_ND/NC).

Penalty for Failure to Get Accounts Audited (Section 271B)

Topic: Penalties and ProsecutionsChapter: Chapter 1
Penalty=min⁡(0.005×S,INR 1,50,000)\text{Penalty} = \min(0.005 \times \text{S}, \text{INR } 1,50,000)
Calculates the penalty for failure to get accounts audited. S\text{S} represents the total sales, turnover, or gross receipts of the business or profession. The penalty is the lower of 0.5% of S\text{S} or INR 1,50,000.

Penalty for Failure to Comply with Section 269SS (Accepting Cash Loan/Deposit/Specified Sum)

Topic: Penalties and ProsecutionsChapter: Chapter 1
Penalty=AmountAccepted\text{Penalty} = \text{Amount}_{Accepted}
Calculates the penalty for accepting any loan, deposit, or specified sum in cash in contravention of Section 269SS. AmountAccepted\text{Amount}_{Accepted} represents the amount of such loan, deposit, or specified sum accepted.

Penalty for Failure to Comply with Section 269T (Repaying Cash Loan/Deposit/Specified Sum)

Topic: Penalties and ProsecutionsChapter: Chapter 1
Penalty=AmountRepaid\text{Penalty} = \text{Amount}_{Repaid}
Calculates the penalty for repaying any loan, deposit, or specified sum in cash in contravention of Section 269T. AmountRepaid\text{Amount}_{Repaid} represents the amount of such loan, deposit, or specified sum repaid.

Penalty for Failure to Furnish Information/Document for International Transactions (Section 271G)

Topic: Penalties and ProsecutionsChapter: Chapter 1
Penalty=0.02×VIT/SDT\text{Penalty} = 0.02 \times \text{V}_{IT/SDT}
Calculates the penalty for failure to furnish information or document under Section 92D for international transactions or specified domestic transactions. VIT/SDT\text{V}_{IT/SDT} represents the value of the international transaction or specified domestic transaction for which information was not furnished.

Corporate Tax Liability (Normal Provisions)

Topic: Assessment of Companies and MATChapter: Chapter 1
Corporate Tax=Taxable Income×Applicable Tax Rate\text{Corporate Tax} = \text{Taxable Income} \times \text{Applicable Tax Rate}
This formula calculates the tax liability under the normal provisions of the Income Tax Act. The 'Taxable Income' is computed after considering all heads of income, deductions, and set-off of losses. The 'Applicable Tax Rate' varies based on whether the company is domestic or foreign, its turnover in a preceding financial year, and if it has opted for special tax regimes under Section 115BAA or 115BAB. Surcharge and Health & Education Cess are applied on this amount.

Book Profit (for MAT under Section 115JB)

Topic: Assessment of Companies and MATChapter: Chapter 1
\text{Book Profit} = \text{Net Profit as per P&L A/c} \pm \text{Adjustments as per Sec. 115JB}
This formula is used to determine the 'Book Profit' for the purpose of Minimum Alternate Tax (MAT). It starts with the 'Net Profit as per Profit & Loss Account' prepared in accordance with Schedule III of the Companies Act, 2013. Specific additions (e.g., income tax paid/payable, provisions for unascertained liabilities, depreciation exceeding that allowed under Companies Act) and deductions (e.g., income exempt under Section 10/11/12, brought forward loss/unabsorbed depreciation as per books) are then made as prescribed under Section 115JB of the Income Tax Act, 1961.

Minimum Alternate Tax (MAT) Liability

Topic: Assessment of Companies and MATChapter: Chapter 1
MAT=Book Profit×MAT Rate (e.g., 15% + Surcharge + Cess)\text{MAT} = \text{Book Profit} \times \text{MAT Rate (e.g., 15\% + Surcharge + Cess)}
This formula calculates the Minimum Alternate Tax (MAT) liability. The 'Book Profit' is the amount determined as per Section 115JB. The 'MAT Rate' is currently 15% for most domestic companies (10% for companies in IFSC or certain foreign companies), to which applicable surcharge and Health & Education Cess are added. This is the minimum tax a company must pay if its normal tax liability is lower.

Final Tax Payable by Company

Topic: Assessment of Companies and MATChapter: Chapter 1
Tax Payable=Higher of (Normal Tax Liability, MAT Liability)\text{Tax Payable} = \text{Higher of (Normal Tax Liability, MAT Liability)}
This formula determines the final tax liability of a company. The company is required to pay the higher of the tax calculated under the normal provisions of the Income Tax Act (including surcharge and cess) and the Minimum Alternate Tax (MAT) calculated on its Book Profit under Section 115JB (including surcharge and cess).

MAT Credit Available

Topic: Assessment of Companies and MATChapter: Chapter 1
MAT Credit=MAT Paid−Normal Tax Liability (in the year MAT was paid)\text{MAT Credit} = \text{MAT Paid} - \text{Normal Tax Liability (in the year MAT was paid)}
MAT credit arises when a company pays MAT because its MAT liability is higher than its normal tax liability. The excess amount paid (MAT Paid minus Normal Tax Liability) is allowed as MAT credit. This credit can be carried forward for 15 assessment years immediately succeeding the assessment year in which the credit becomes available and can be set off against normal tax liability in future years.

MAT Credit Utilisation Limit

Topic: Assessment of Companies and MATChapter: Chapter 1
MAT Credit Utilisation=Normal Tax Liability (in current year)−MAT Liability (in current year)\text{MAT Credit Utilisation} = \text{Normal Tax Liability (in current year)} - \text{MAT Liability (in current year)}
This formula defines the maximum amount of MAT credit that can be utilized in any subsequent assessment year. MAT credit can only be set off in a year when the normal tax liability of the company exceeds its MAT liability for that year. The maximum set-off is limited to this difference.

Calculation of Book Profit for MAT

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Book Profit} = \text{Net Profit as per P\&L A/c} \pm \text{Adjustments as per Explanation 1 to Section 115JB} $$
This formula represents the starting point for calculating Book Profit for Minimum Alternate Tax (MAT). It begins with the Net Profit as shown in the Profit & Loss Account prepared in accordance with the Companies Act, and then specific additions and subtractions are made as prescribed under Explanation 1 to Section 115JB of the Income Tax Act, 1961. These adjustments include items like income tax paid/payable, provisions for deferred tax, provisions for losses of subsidiaries, depreciation (excluding revaluation), income exempt under certain sections, etc.

Minimum Alternate Tax (MAT) Liability (before Surcharge & Cess)

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{MAT Liability} = \text{Book Profit} \times \text{MAT Rate} $$
This formula calculates the basic Minimum Alternate Tax (MAT) liability before surcharge and cess. The MAT Rate is currently 15% for domestic companies and 9% for companies located in an International Financial Services Centre (IFSC) and deriving income solely in convertible foreign exchange, as per Section 115JB.

Normal Taxable Income

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Normal Taxable Income} = \text{Gross Total Income} - \text{Deductions under Chapter VI-A} $$
This formula calculates the taxable income of a company under the normal provisions of the Income Tax Act, 1961, after allowing for various deductions specified in Chapter VI-A.

Normal Tax Liability (before Surcharge & Cess)

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Normal Tax Liability} = \text{Normal Taxable Income} \times \text{Applicable Normal Tax Rate} $$
This formula calculates the tax liability of a company under the normal provisions of the Income Tax Act, 1961, before considering surcharge and health & education cess. The Applicable Normal Tax Rate varies based on factors like turnover, nature of business (e.g., new manufacturing company under Section 115BAA/BAB), etc.

Total Tax Payable (including Surcharge & Cess)

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Total Tax Payable} = (\text{Basic Tax Liability} + \text{Surcharge}) \times (1 + \text{Health \& Education Cess Rate}) $$
This formula calculates the final tax payable by a company, whether under normal provisions or MAT, after adding applicable surcharge and Health & Education Cess. Surcharge rates vary based on the company's total income, and the Health & Education Cess is currently 4%.

Final Tax Payable (Higher of Normal Tax or MAT)

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Final Tax Payable} = \text{Max}(\text{Total Tax (Normal Provisions)}, \text{Total Tax (MAT Provisions)}) $$
A company is liable to pay the higher of the tax calculated under normal provisions of the Income Tax Act (including surcharge and cess) or the tax calculated under the Minimum Alternate Tax (MAT) provisions (including surcharge and cess).

Maximum MAT Credit Utilisation in a Subsequent Year

Topic: Assessment of Companies and MATChapter: Chapter 1
$$ \text{Maximum MAT Credit Utilisation} = \text{Tax Payable under Normal Provisions (Current Year)} - \text{MAT Liability (Current Year)} $$
This formula determines the maximum amount of MAT credit that can be utilized by a company in a subsequent assessment year. MAT credit can only be utilized in a year when the tax payable under normal provisions is higher than the tax payable under MAT provisions for that year. The utilization is limited to the difference between the normal tax liability and the MAT liability for that subsequent year, subject to the available MAT credit balance.
Chapter 1 Formulas — CA Final | Kartavvya