How to study Direct Tax in CA IPCC

Whether it is IPC or Final, Tax is always a scoring subject until and unless you are not proper with your studies. You can score high on this subject but there is a need for proper planning and guidance to score such.

Taxation in IPC is divided into two sections one is Direct Tax i.e. Income Tax and another is Indirect Tax i.e. GST and Customs each consisting 50 marks.

Finance Act, 2017 will be applicable in your Nov 2019 Examinations.

In this article we will share some strategy through will you can score exemption in Direct Tax.

Step- 1 Selection of Study Material.

Plenty of time students, could not decide correct study material for them. Even at the end moments they often run for some other teachers notes which are a big blunder they are playing with themselves.

You can purchase the Institute Study Material or either refer some reference book to study but don’t forget to cover the Practice manual as it is considered a Bible for the Chartered Accountancy course.

As well as stick to one material which is best suitable for you and revise it at least two to three times.



Step – 2 Cover the Five Heads of Income

Make a proper timetable and allocate your time genuinely between five heads of income and the remaining part. Five Heads are Income from Salaries, Income from House Property, Income under the head PGBP, Income from Capital Gain and Income from other Sources.

All the five heads are an important part of your syllabus but at the IPCC level Income from Salaries is considered most important.

You can start with Income from House Property as it is short and easy to cover as well as Institute often combines the question from House Property with other heads. You can revise House property in just one or two Hours.

Thereafter pick up Income from Salaries as this is the most important chapter at the IPCC level as well as bit lengthy. Hence, covering this chapter at the start will boost your confidence which motivates you to complete the entire syllabus.

Capital Gain and Profit & Gain from Business and Profession need good time as well as detailed understanding of concepts. So take them after House Property and Salaries. Prepare some short notes while reading these chapters as it will help you to summarise them.

Don’t skip Income from other sources as this is equally important with the other heads.

Read below how to study each chapter effectively and efficiently.

Step – 3 Cover Other Small Topics

Income Tax is not limited to these five heads as this is a vast subject and besides the Five Heads, it has other topics like TDS, Advance Tax, Provisions relating to filing of returns, Residential Status and Exempt Income u/s 10.

Cover each and every topic and revise it thoroughly. These topics are small as well as easy as compared to five heads.

The important thing for scoring high in Direct Tax is conceptual understanding. At the IPCC level, you are not much expected to write the names of case studies. However, provision and conclusion regarding the same must be correct.

Step – 4 Prepare your own handwritten notes

No doubt you are studying from the best reference book but still own handwritten notes are the most effective material to study. You can either prepare them in Paragraph forms or chart forms or you can either draw them on charts and paste them on your room walls to revise it daily.

Preparation as per Heads

Capital Gain

The most important part of the Capital Gain is Exemption starting from Section 54. The best way to remember the provision of these sections along with the section number is by preparing their tabular presentation.

Thereafter cover the definition of Capital Gain and transfer under the Capital Gain Head. Also write separately the points which are not considered transfer such as Points covered in Sec 13.

Thoroughly understand LTCG, STCG, cost of acquisition, improvement and also practice Indexation. Thereafter cover Sec 50C.

There are plenty of amendments in the Capital Gain introduced in May 2018 and very important for your upcoming Exams.

After completing the chapter don’t just put your books aside. You have to revise it regularly. Every time you read it, you will find something new.

Income from Business and Profession

Business and Profession is lengthy but most interesting topic. It covers around 15 marks from which 8 marks will be a compulsory question.

Well, you have to thoroughly read the chapters but still, there are some mistakes which most of the students commit while attempting the PGBP question.

Here is a list of some important points

  1. Carefully read Sec 43B (Deduction on actual payment basis) as it always covers a point in your Question and most of the students often make a mistake to forget Sec 43B while attempting the question. Revise it at least 3 times.
  2. Thoroughly read depreciation under Sec 32, Sec 32 AD, Sec 32 AC and revise the rates because the rates of Dep. for May 2018 Exams has amended. Hence, there is a high probability that you will find a question in your exam related to this.
  3. Similar to sec 50C there is a Sec 50CA in PGBP which deals with the sale of land by the builders or property developers. Read it properly and don’t get confused between Sec 50C and Sec 50CA.
  4. Before starting the question, it is very important to check the status of assessee i.e. whether it is firm or company or Individual or HUF as provisions as well as tax rates are different for them. Due dates are also different.
  5. Remember Penalty for the negligence of Law and  Income Tax are not allowed as deduction. Return of Income Tax is also not taxable but interest on such is taxable. There is a deduction for the bank interest under sec 80TTA but interest on FD, company deposits are fully taxable without any limit.
  6. TDS is required to be deducted only when assessee was required to get his books of accounts audited in the previous year.
  7. If the Opening stock is undervalued then it is required to be deducted from the Net profit while calculating the income under the Head PGBP and Vice versa. However, if closing stock remained undervalued then it is required to be added to the Net profit while calculating the Income under PGBP and vice versa.
  8. Sometimes, the employer pays the tax on Non-monetary perquisites which are given to the employee, these are not allowed as a deduction to Employer.
  9. Finance Act, 2017 has revised the cash payment in a single day made to a single person and it reduced the limit of such up to Rs 10000.
  10. Expenses related to Amalgamation and Demerger are not allowed in a single year, they are allowable in 5 equal installments.
  11. The limit for the Tax Audit has increased from 1 Cr. to 2 Cr. under Sec 44AB.

Read these points carefully as it covers some general mistakes which most of the students commit while attempting there exams.

Income from House Property

Start with the charging section 22 and learn how to compute income under House Property. Look at the below-given chart.

ParticularsAmount
Gross Annual ValueXXX
Less – Municipal Taxes (Paid)XXX
Net Annual ValueXXX
Less- Standard Deduction at 30% (Section 24 (a))XXX
Less – Interest on Borrowed Capital (Sec 24 (b))XXX
Income under House PropertyXXX

GAV – Higher of Expected Rent or Rent actually received.

(Loss incurred due to the vacancy shall be deducted and remaining amount shall be deemed to be GAV).

Municipal Taxes are allowed only when it is actually paid by the owner.

Income under the Head Salaries

First of all, understand the charging section 15 and thereafter cover –

  1. Tax Treatment of different types of Salaries.
  2. Retirement Benefits
  3. Allowances
  4. Perquisites
  5. Deductions under sec 16.
  • Any amount received by the employee from his employer in relation to his services would be taxable as Salaries.
  • The amount received by the Partners from the Firm by the way of salary will not taxable as salaries, rather it would be taxable as income from PGBP.
  • It is taxable on due or receipt basis whichever is earlier.
  • Salary includes all types of payment received by an employee in the form of wages, annuity or pension, gratuity, fees, commission, perquisite, or profit in lieu of salary, advance salary, leave salary etc.

This head is most important at the IPCC level so cover it thoroughly. Revise it at least 3-4 times and practice as many questions as you can.

Income from Other Sources

You can complete this head within 2 – 3 hours as this is the smallest head. Sec 56(2)(x) replaced Sec 56(2)(vii) so read it twice, important for Nov 2018 Exams.

Hope you will find this article helpful.

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7 Tested Habits of IPCC toppers.