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Advance Payment of Tax

INTRODUCTION

c  is the tax paid in advance (In between the financial year) in respect of the estimated
income for the whole year. It¶s like paying tax in installments.

There is no separate form for Advance Tax. Challan No if the form for both advance tax and self
assessment tax. We have to select the code 100 for advance
tax in the form. There is No Penalty for not payment of Advance Tax.
However we have to pay INTEREST on the short fall of amount. The rate of Interest is 1 %. The
relevant sections are

Section 208
 

  
 

Section 209 and 210.




 

Section 211ccc cc c


Section 215!"c#c$$#c

The capital gains winning from lottery are liable for payment of advance tax. It is
obligatory to pay advance tax in every case where the advance tax payable is Rs
10,000.

The assessee who has opted for computed business income ,on presumptive basis
at 8 % turnover shall be exempted from payment of advance tax with effect from
assessment year 2011-2012.

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Advance tax shall be payable during a financial year in every case where the amount of such tax
payable by the assessee during that year, as computed, is five thousand rupees or more.Under the
existing provisions of section 208 the Income-tax Act, liability for payment of advance tax
during a financial year arises when the amount of such taxes payable during that year
are Rs. 5,000/-or more.

However, It is proposed in the Union Budget 2009-10 to raise the threshold limit for payment of
advance tax from the present Rs. 5,000/- to Rs. 10,000/-.
The recommended amendment take impact from the 1st April, 2009. Hence, advance-tax for
the financial year 2009-2010 would be payable only if the advance tax liability is Rs. 10,000/- or
more

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An assessee who is liable to pay advance tax should estimate his current income
and pay advance tax thereon without having to submit any estimate to the
assessing authorities.

After making payment of first/second installment of advance tax,an assessee can


revise the remaining installment with his revised estimate of current income and
pay tax accordingly

Tax is computed on the current income at the rates in force during the financial
year.


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Up to 1,60,000 NIL

Up to 1,90,000 (for women)

Up to 2,40,000 (for resident individual of 65 years or


above)
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1,60,001 ± 5,00,000

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5,00,001 ± 8,00,000
8,00,001 upwards 30

p Rs. 20,000 tax exemption will be provided for investments in certain investment bonds. This
is in addition to the already allowed exemption (Rs. 1,00,000) in certain savings instruments.
p Tax Exemption will be given for contribution to the - 0
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Tax deductible at source is to be excluded from tax payable while computing the
advance tax liability even if tax had not been deducted.



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If any assessee does not pay on the date specified , any instalment of advance tax that he is
required to pay by an order of the Assessing Officer and does not, on or before the date on which
any such instalment as is not paid becomes due, send to the Assessing Officer an intimation or
does not pay on the basis of his estimate of his current income the advance tax payable by him ,
he shall be deemed to be an assessee in default in respect of such instalment or instalments.
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If an assessee who is liable to pay advance tax has failed to pay such tax or, where the advance
tax paid by such assessee is less than ninety per cent of the assessed tax, the assessee shall be
liable to pay simple interest at the rate of one and one-fourth per cent for every month or part of a
month comprised in the period from the 1st day of April next following such financial year to the
date of determination of total income


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the assessee shall be liable to pay simple interest at the rate of one and one-half per cent. for
every month or part of a month comprised in the period commencing on the date immediately
following the due date, and, -
(a) Where the return is furnished after the due date, ending on the date of furnishing of the
return; or

(b) Where no return has been furnished, ending on the date of completion of the assessment





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Where in any financial year, the company which is liable to pay advance tax has failed to pay
such tax or -

(i) The advance tax paid by the company on its current income on or before the

15th day of June is less than fifteen per cent of the tax
15th day of September is less than forty-five per cent of the tax
15th day of December is less than seventy-five per cent of the tax

due on the returned income, then, the company shall be liable to pay simple interest at the rate of
one and one-half per cent per month for a period of three months on the amount of the shortfall
from fifteen per cent or forty-five per cent. or seventy-five per cent, as the case may be, of the
tax due on the returned income;

(ii) The advance tax paid by the company on its current income on or before the 15th day of
March is less than the tax due on the returned income, then, the company shall be liable to pay
simple interest at the rate of one and one-half per cent on the amount of the shortfall from the tax
due on the returned income :

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Advance Tax is Payable as follow


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Before 15 june - upto 15 % of advance tax

Before 15 Sept - upto 45 % of advance tax

Before 15 Dec - upto 75 % of advance tax

Before 15 March - upto 100 % of advance tax


-

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Before 15 Sept - upto 30 % of advance tax

Before 15 Dec - upto 60 % of advance tax

Before 15 March - upto 100 % of advance tax

Any payment of advance tax before March 31 is advance tax paid during the
financial year.

If the last day for the payment of advance tax is on the day on which the receiving
banks are closed then the assessee can pay the advance tax on next day of
working.No interest shall be charged

The corporate and other assessee can make electronics payment of tax through
internet banking facilitated by the authorized banks.

It is not necessary for the assessee to make the payment from his own account.An
assessee can make payment from account of other person also but pan no. should
be of the assessee.


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Cases when tax is paid by order of assessing officer

1.p Inspite of legal obligations , assessee has not paid tax.

2. The assessing officer may pass an order requiring assessee to pay advance
tax on his current year¶s income

3. The order must specify the different installment in which the advance tax
is to be paid.

4. Such order must be passed during the previous year but not later than last
day of feburary.

5. Taxpayer is one who has been assessed to income tax.


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On receipt of notice from assessing officer to pay the advance tax , assessee can submit
his own estimate of lower current income.IN such a case the assessee has to send an
information to assessing officer in form no. 28A.

An estimate by assessee can not be rejected by the departmental authorities.However care


must be taken by assessee in every such case as estimate (by due date of making such
payment of advance tax) for failure in this regard will prompt the assessing officer to
make legally permissible coercive recovery under law.

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If estimate of the assessee is likely to be higher than the amount estimated by assessing
officer,the assessee shall pay higher than the amount estimated by the assessing
officer,the assessee shall pay higher tax according to his own calculation .No intimation
to the assessing officer is required.

Assessing officer will have to find out the income of current year.It is calculated as:-
a. Total income of the last previous year in respect of which the assessee has been
assessed by way of regular assessment.

b.Total income returned by assessee for any subsequent year.

Whichever of the above is higher.

Tax liability on the income of the current year is calculated according to the rate
applicable.

p
 6 State whether Mr. X is liable to pay advance tax and if yes then what amount should
be paid by what date. The income of Mr. X is
Rs. 2, 00,000.

Solution: The tax is Rs. 15,300 on income of Rs. 2, 00,000. Since, tax is more than Rs. 5,000,
therefore, advance tax is payable. The advance tax is payable as under:

Since Mr. X is a non-corporate assessee therefore, the first installment will be due on 15th
September.

Date installment total tax

15th September first 30% of Rs. 15,300 = Rs. 4,590 Rs.4,590

15th December next 30% of Rs. 15,300 = Rs. 4,590 Rs.9,180

15th September balance 40% of Rs. 15,300 = Rs. 6,120 Rs.15,300

All persons whose tax liability is Rs. 5,000 or more pay advance tax. Advance
payment of tax is made in installments. The first installment is paid on 15th June
by corporate assessee while non-corporate assessee pays the first installment on
15th September. The whole of advance tax is paid by 15th March by both corporate and non-
corporate assessee. The payment of advance tax is thus made in

The previous year itself and therefore, it helps government to speed up payment of tax and earn
interest on it. Since advance tax is paid simultaneous to earning of
income therefore the scheme of advance payment of tax is also known as pay as you earn
scheme.

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aim at collection of revenue at the very source of income. It is essentially an indirect method of
collecting tax which combines the concepts of ³pay as you earn´ and ³collect as it is being
earned.´ Its significance to the government lies in the fact that it prepones the collection of tax,
ensures a regular source of revenue, provides for a greater reach and wider base for tax. At the
same time, to the tax payer, it distributes the incidence of tax and provides for a simple and
convenient mode of payment.
The concept of TDS requires that the person, on whom responsibility has been cast, is to deduct
tax at the appropriate rates, from payments of specific nature which are being made to a specified
recipient. The deducted sum is required to be deposited to the credit of the Central Government.
The recipient from whose income tax has been deducted at source gets the credit of the amount
deducted in his personal assessment on the basis of the certificate issued by the deductor.
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Here we shall discuss Indian Income Tax Deducted at Source on Salaries as per Section 192 of
the Indian Income Tax Act.

Vp Any person responsible for paying any income chargeable under the head ³Salary´ is
required to deduct tax at source on the amount payable.
Vp Person responsible for paying: the employer himself. If the employer is a company, the
company itself including the principal officer thereof. If the employees are of
Central/State Governments, the person responsible for paying would be the concerned
disbursing officer.
Vp No tax is required to be deducted at source unless the estimated salary exceeds the
maximum amount not chargeable to tax for the financial year in which the salary is paid.
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Vp Tax is required to be deducted from salary income only when it is actually paid to the
employee. No need to deduct tax at the time of making a provision.

Vp If a person is employed by more than one employer during the financial year, tax will be
deducted on the aggregate salary by one of the employers chosen by the employee by
submitting the information in Form No.12B.
Vp In respect of salary payments to an employee of the Government, Public Sector
Undertaking, company, co-operative society, local authority, university, institution,
association or body, tax deduction at source is to be made after allowing relief under
section 89, if any. To avail this benefit, the concerned employee should furnish
particulars in Form No. 10E to the employer.
Vp If the employee has income under any other head, he may choose to declare to the
employer. He can do so by providing information about his other sources of income on a
plain paper to the employer.
Vp If the employee has declared details of his income under any other head, the employer
has to take into account the other incomes also in computation of tax to be deducted from
such employee. But, this should not result in reducing the tax deductible from the
employee except in the case where loss under the head ³Income from House Property´
has been taken into account.
Vp For the purposes of deduction of tax at source on salary payable in foreign currency, the
value in rupees of such salary shall be calculated at the prescribed rates of exchange.
Vp If tax is deducted at source, TDS certificate in Form No.16 is to be issued to the
employee within one month from the close of the financial year. If the income from
salaries does not exceed Rs.1,50,000/-, the employer can issue TDS certificate in Form
No.16AA.
Vp If the salary payable during the financial year exceeds Rs.1,50,000/-, the person
responsible for payment shall furnish to the employee the complete particulars of
perquisites or profits in lieu of salary provided to him in Form No. 12BA. This is in
addition to the Form No.16 given to the employee. If the salary does not exceed
Rs.1,50,000/-, such information can be provided in Form No.16 itself.
Vp The liability of the employer to deduct and pay tax is absolute. Failure to do so would
attract interest and penal provisions under the Act. (F.No.237/4/75-A & PAC dt.23-11-
1976).
Vp The tax deducted shall be remitted within 7 days from the last day of the month in which
the tax is deducted.
Vp Failure to deduct tax at source would also attract penalty u/s 271C of an amount equal to
the amount of tax not deducted.
Vp Failure to remit the tax deducted at source would attract imprisonment and fine as per
section 276B.

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Where any payment is made in the nature of ³Interest on Securities,´ the person responsible for
making such payment of income or credit has to make deduction of tax at source before making
such payment or crediting to the account of the payee.

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1.p National Defence Bonds 1972 (4.25%), ia) National Defence Loan 1968, or National
Defence Loan 1972 (4.75%), ib) National Development Bonds,
2.p 7 year (IV Issue) National Savings Certificates,
3.p Any interest payable on debentures issued by any institution or authority or any Public
Sector Company or any Co-operative socieity, including a Co-operative Land Mortgage
Bank or Cooperative Land Development Bank, as may be notified by Central
Government in Gazette,
4.p Gold Bonds, 1977 (6.1/2%), Gold Bonds 1980 (7%),
5.p Interest on any Security of Central Government or State Government,(However w.e.f.
1.6.07 exemption will not be available if interest payment exceeds rupees ten thousand
during the F.Y. on 8% savings(Taxable) Bonds 2003.
6.p Any interest payable to an individual, resident of India, on debentures issued by a Public
Limited Company where the debentures are listed in a recognised stock exchange, if the
interest is paid by an account payee cheque and its amount does not exceed Rs. 2500/-
during the financial year,
7.p Any interest payable to LIC,
8.p Any interest payable to GIC or any of its four companies,
9.p Any interest payable on any security issued by a company, where the security is in
dematerialized form and is listed in recognized stock exchange in India(Inserted by
Finance Act 2008).
10.pAny interest payable to any insurer in respect of any securities owned by it or in which it
has full beneficial interest.

    
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Where any amount is payable in the nature of ³Dividends´ by an Indian Company or a Company
that has made arrangement for declaration and payment of dividend within India (including
dividend on preference shares).


A.p Exemption from T.D.S. is granted in case of a shareholder who is an individual
and the company pays dividend of Rs.2500/- or less in one financial year and it is
paid by account payee cheque (Rule 28).
B.p Further If the Assessing Officer gives a certificate in writing that total income of
the share-holder is below taxable limit then the person paying the dividend to
share holder is not to deduct tax at source (Rule 28 and Rule 29).
C.p Further no TDS to be done in respect of dividends referred to in Section 115-O.

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The µInterest¶ other than µInterest on Securities¶ is subject to tax deduction at source as per rates
in force under Section 194A. However an individual or Hindu Undivided family is not obliged to
deduct tax at source. But w.e.f. 1.6.2002, an HUF or an individual whose total sales, gross
receipts or turnover from the business or profession ,carried on by him exceeded monetary limit
specified in clause (a) or clause (b) of section 44AB(Rs. 40 lakh), are also liable to deduct tax
under this Sections. However, any other person (i.e company, firm, Association of persons, Trust
etc.) who is responsible for paying Interest (other than µInterest on Securities¶) is responsible for
deduction of tax at source.


1.p Such interest income is credited or is paid to a banking companyor co-operative Society
engaged in banking, or a Financial Corporation or, LIC, or UTI, or company or
cooperative society carrying on insurance business, or any other institution, association or
body notified by the Central Government for reasons recorded in writing.
2.p Any financial corporation set up under Central, State or Provincial Act
3.p Life insurance corporation of India
4.p Unit trust of India
5.p Any company or cooperative society engaged in the business of insurance
6.p Any other institution, association or body so notified by Central Government
7.p Interest income credited, or paid, by co-operative society to its members account, or to
another co-operative society.
8.p Interest income on deposits under any scheme framed and notified in Gazette by Central
Government.
9.p Income credited or paid in respect of deposits other than time deposits, such time deposits
made on or after 1-7-1995, with banking company including any bank nor banking
institution referred to in Section 51 of the Banking Regulation Act, 1949.
10.pInterest earned on deposits with;
Vp a primary agricultural credit society.
Vp a primary credit society.
Vp a Co-operative land mortgage bank.
Vp a Co-operative land development bank
Vp a Co-operative society engaged in banking business (other than time deposits on
or after 1-7-1995)

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Under Section 194B, winnings from lottery or crossword puzzle or card game and other game of
any sort exceeding Rs. 10000/- are also subject to deduction of tax at source, as per rates in force
. In cases where the winnings are wholly in kind or where they are partly in cash and partly in
kind but the part in cash is not sufficient to meet the tax liability for tax deduction in respect of
the whole of the winning, the person responsible for paying shall, before releasing the winning
either in cash or in kind, ensure that tax is paid in respect of the winnings.

Rate of TDS= 30% ( no surcharge & no education Cess)

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Any person who is responsible for paying to any person any income by way of winning from any
horse race an amount exceeding Rs. 5000 shall, at the time of payment, deduct tax at the rate
prescribed for such year. 

Rate of TDS= 30% ( no surcharge & no education Cess)

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Under the Indian Income Tax Act, the following provisions relate to the Tax Deduction at Source
from payments to Contractors and Subcontractors under section 194C. Person responsible for
paying any sum for carrying any work to any -,  contractor should deduct tax at source. 

Tax should be deducted at source only if the contract is between the contractor and the
following specified persons:

1.p The Central Government or any State Government.


2.p Any local authority.
3.p Any corporation established by or under a Central, State or Provincial Act
4.p A company
5.p Any Co-operative Society.
6.p Any authority, constituted in India by or under any law, engaged either for the
purpose of dealing with and satisfying the need for housing accommodation or for
the purpose of planning, development or improvement of cities, towns and
villages, or for both.
7.p Any Society registered under the Societies Registration Act, 1960 or any law
corresponding to that Act in any part of India.
8.p Any Trust.
9.p Any University established by or under any Central, State or Provincial Act or
any institution declared to be a University under the University Grants
Commission Act.
10.pAny firm.
11.pAny individual or Hindu Undivided Family whose books are required to be
audited under section 44AB during the immediately preceding financial year.
[The turnover from business/profession exceeds the limits specified u/s 44AB
during the immediately preceding financial year]
12.pAssociation of persons or Body of Individuals, whether incorporated or not,
whose books are required to be audited under section 44AB during the
immediately preceding financial year.

Individual or HUF need not deduct tax if the contract is exclusively for personal purposes.
Income Tax should be deducted at the time of payment or credit to the account of the contractor
whichever is earlier. Income Tax is to be deducted at source @ 1% if the contractor/sub
contractor payee is an individual or HUF. Payment of amounts to persons other than
Individual/HUF would attract TDS rate of 2%.
Provisions of Section 194C are applicable only where the contract is either a ³contract for
carrying out any work´ or a ³contract for supply of labour for works contract´. Hence, these
provisions are not applicable for payments made under the contract of sale of goods.

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Any person, who is responsible for paying to a resident any remuneration or reward, whether
called commission or by any other name, for soliciting or procuring insurance business
(including continuance, renewal or revival of policies of insurance), is enjoined upon to deduct
tax at source at the time of credit of such income to the account of the payee or at the time of
payment thereof in cash or by issue of a cheque or draft or any other mode, whichever is earlier.
Deduction is to be done as per rates in force. However, if the aggregate of such account, credited
or paid during one financial year is Rs.20000/- or less, then no tax is required to be deducted at
source.

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If a payment is to be made to a non-resident sportsman (including an athlete) who is not a citizen
of India or nonresident sports association and the income is covered by Section 115BBA,
then income-tax is to be deducted at source @ 10% of such payment.

 

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Sec. 194EE has been inserted with effect from 1-10-91. Where any payment is made by a person
of an amount referred to in clause (a) of sub section (2) of sec. 80CCA, then such person will
deduct tax @20% there on at the time of making such payment. The amount standing to the
credit of an assessee under National Saving Scheme 1987 and the interest accrued thereon is
covered under this provision. However in following cases no tax is deductible:
Vp where amount so payable in a financial year is less than Rs.2500/- or
Vp where payment is made to heirs of a deceased assessee or
Vp where in case of resident individual, tax on his estimated total income of the previous
year including such withdrawal would be nil and a declaration by him is furnished to that
effect in form 15-G and verified in prescribed manner by the person responsible for such
payment.´


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Deduction of tax at source is to be done on payment on account of repurchase of units by mutual
fund or UTI @20% at the time of making any payment, by the person responsible for paying any
amount referred to in Sec. 80 CCB to any person.


 

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The person responsible for paying any income by way of commission, remuneration or Prize on
lottery ticket has to deduct tax @ 10% at the time of credit to the recipient account, or at the time
of payment in cash or issue of cheque/draft any other mode, whichever is earlier.


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The liability to deduct Income tax at source is on any person except individual and HUF.
However, individual and HUF are also covered by liability to deduct tax at source if their books
are required to be audited under section 44AB during the immediately preceding financial year.

Tax is to be deducted at source at the time of payment or credit whichever is earlier. Tax has to
be deducted at the rate of 10%. There is no requirement of deduction of tax at source as per
Indian Income Tax Act if the aggregate amounts of commission or brokerage paid/credited or
likely to be paid/credited during the financial year to the payee does not exceed Rs.2,500/-. No
deduction shall be made by BSNL or MTNL to their PCO franchisees.


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1.p In case any amount of rent is paid by other than an individual or HUF ( other than those
covered u/s 44AB ) the person responsible for deducting tax will be at the rate of:
a)p 15% if the payee is individual or HUF
b)p 20% in all other cases.

The provision will not be applicable if the total rent credited or likely to be credited does not
exceed Rs. 1,80,000.


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1.p This provision is applicable on all those persons except individuals and HUF ( other than
those covered u/s 44AB ) who make any payment by way of
a)p Fees for professional services or
b)p Fees for technical services
2.p It provides for TDS at the rate of 10% but payment must be made in cash, cheque or
draft.
3.p No tax shall be deducted in these cases:
a)p Any amount credited or paid before 1-7-2005.
b)p Any amount credited pr paid is such amount does not exceed Rs.30,000
4.p If Assessing Officer is satisfied that total income of a person is justified deductions at
lower, he will be issued a certificate to this effect on application by such person.
5.p Term professional services means services rendered by a person in the course of carrying
on legal, medical, engineering, architectural or advertising or such other profession as is
notified by the board.

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TDS deducted at the rate of 10.5% on any icome distributed or credited by the UTI or MF,
payment shall be bycash, cheque or draft or any other mode.

No TDS in these cases:

a)p If the amunt of income does not exceed Rs. 2500 or


b)p If amount is paid to a person whose total income including this income does not exceed
Rs. 50,000 and who is an individual or HUF and submits a declaration in form 15H or
c)p If Assessing Officer issues a certificate allowing no TDS.

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Any person responsible for paying a resident any sum, being in form of compensation on account
of compulsory acquisition, under any law for the time being in force, of any immovable property
other than agricultural land shall at the time of payment ,deduct an amount equal to 10% of such
sum as Income-tax. No deducation shall be made where the amount of such payment does not
exceed one hundred thousand rupees.

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Any person responsible for paying to a non-resident, not being a company, or to a foreign
company, any interest (not being interest on securities) or any other sum chargeable under the
provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time
of credit of such income to the account of the payee or at the time of payment thereof in cash or
by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax
thereon at the rates in force.

Provided that in the case of interest payable by the Government or a public sector bank within
the meaning of clause (23D) of section 10 or a public financial institution within the meaning of
that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the
issue of a cheque or draft or by any other mode. Provided further that no such deduction shall be
made in respect of any dividends referred to in section 115-O.

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In case income is paid net of tax i.e tax-free interest and tax is borne by the issuing authority,
such net interest hass to be grossed up by multiplying the net interest by 100/(100-rate of tax).

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No tax shall be deductable at source by any person on interest or dividend payable to-
a)p The government
b)p The RBI
c)p A corporation established by or under central act which is, under any law for the time
being in force, exempt from income tax
d)p A mutual fund specified under section 10(23D)

Where such sum is payable to it by way of interest or dividend in respect of any securities or
shares owned by it, in which it has full interest.


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In case of income is paid in these respects, income tax at the rate of 10% shall be deducted at
source.


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Tax at the rate of 10% will be deducted on interest and dividend on GDR¶s.

 


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If the Assessing officer is satisfied that the total income of the recipient justifies deduction at any
lower rate or no deduction, the officer can give him a certificate to such lower deduction. Such
application has to be made by the assessee.

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All sums deducted under the foregoing provisions shall for the purpose of computing the income
of an assesse, be deemed to be income received.

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a)p Any deduction made in accordance with these provisions is deemed to have been on
behalf of the assessee or the person from whom income-tax was deducted and he is given
credit for it in his regular assessment.
b)p Any amount deducted at source and paid to Central Gov. shall be deemed as a tax paid on
behalf of the person out of whose income tax hass been deducted and paid and credit
shall be given for such amount.
c)p Where deduction are made with these provisions on or after 1st april, 2008 and paid to the
Central gov., the amount of tax deducted and specified in the statement shall be treated as
a tax paid on behalf of the person referred above the credit shall be given to him .


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Any person deducting any sum in accordance with the foregoing provisions shall pay within the
prescribed time, the sum so deducted to the credit of the Central Government or as the Board
directs. Any person being an employer, referred to in sub-section (1A) of section 192 shall pay,
within the prescribed time, the tax to the credit of the Central Government or as the Board
directs.

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Where a statement of tax deduction at source has been made by a person deducting any sum
(hereafter referred to in this section as deductor) under section 200, such statement shall be
processed in the following manner, namely:²

(a) The sums deductible under this Chapter shall be computed after making the following
adjustments, namely:²
(i) Any arithmetical error in the statement; or
(ii) an incorrect claim, apparent from any information in the statement;

(b) The interest, if any, shall be computed on the basis of the sums deductible as computed in the
statement;

(c) the sum payable by, or the amount of refund due to, the deductor shall be determined after
adjustment of amount computed under clause (b) against any amount paid under section 200 and
section 201, and any amount paid otherwise by way of tax or interest;

(d) an intimation shall be prepared or generated and sent to the deductor specifying the sum
determined to be payable by, or the amount of refund due to, him under clause (c); and

(e) The amount of refund due to the deductor in pursuance of the determination under clause
shall be granted to the deductor provided that no intimation under this sub-section shall be sent
after the expiry of one year from the end of the financial year in which the statement is filed.
p

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Tax planning is concerned with an arrangement of one¶s financial and tax matters in a way so as
to reduce or avoid the tax burden without violation of law of the land. Such planning is
legitimated, provided it is within the provisions of law. Colorable devices cannot be part of tax
avoidance through tax planning. Tax reduction or avoidance trough proper planning is not
illegal, what constitutes a crime is tax evasion by resorting to dubious methods.

Tax planning lies in taking maximum advantage of the exemption, deductions, rebates, reliefs
etc. by the tax payer so as to achieve his goals of tax reduction or avoidance. One can and is
entitled to arrange his affairs as not to attract taxes imposed by the state. Tax planning is an
important arrangement of tax management. Following are the main points in the concept of tax
planning and management for your consideration.

(1)pCompliance of tax laws by minimizing tax incidence.


(2)pTaking advantage of tax concession.
(3)pKeeping the incidence of tax or paying zero tax by planning location, nature of business,
form of business organization and availing maximum advantage of various exemptions ,
deductions etc.
(4)pAvoiding penalties and prosecutions.
(5)pCreating a cell n the organization which is entrusted with the job of tax planning.
(6)pMaintenance of tax records.



  56

Tax planning being before setting up of an organization .It is integral part of tax management
broadly speaking, the area of tax planning covers the following.

(1)pChoice of form of organization by considering the benefit available to each type of


person.
(2)pTaking advantage of location and availing exemptions and deductions under section
10A, 80 1A etc.
(3)pTax planning s exercised while raising finance through shares or debentures or other
source of finance.
(4)pPlanning of capital structure also depends upon tax consideration. Debt equity ratio in
an structure depends upon tax advantage
(5)pOther areas tax planning includes dividend policy, M&A. Many decisions taken by
management are based on tax considerations.



-
"  56

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   6

The first and foremost unction of tax planning is reduction in tax liability and tax planning helps
the tax payer to reduce his tax liability by enabling him to claim the various exemptions and all.
Since tax constitutes cash outflows therefore tax planning helps tax payer to make savings and to
feel a lesser pinch of taxation.

%   ;

  5
6

Taxation laws being so complicated and cumbersome have always been a cause of litigation. By
resorting to tax planning a tax payer can avoid litigation and also save a considerable amount of
money and time which otherwise get wasted in litigation cases.

91 25-
42

6

As we know that tax revenues constitute a major portion of government revenues. Any effort by
the government to provide deduction, exemption etc. to tax payer leads to the fall n the revenue
of the government. But in spite of this government deliberately provides such exemptions to the
tax payers. As most of the times these deductions or exemptions are for the socio-economic
development of the economy of the country. For example deduction for investment in
Infrastructure bonds.

:1 , 2  


-
6

Tax Planning helps a lot in capital formation of a nation. Most of the times tax laws encourage
tax payers to invest money in government instruments. Many tax benefits can be availed by
investing money in the government owned undertakings or by depositing money in the state
sponsored saving schemes. For example deduction for Investment in NSC¶s.

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As we know cash balance is the main constituent of working capital and is regarded as life blood
of business. It is required for meeting day to day expenses purchasing assets etc. Effective tax
planning helps in conserving this important constituent of working capital. In the absence of
proper tax planning much of the cash will go out of business thus leaving lesser cash for other
important purposes.

F2- 
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Boast to capital markets, coat effectiveness, employment generation etc.

c

In the words of A,  2 ! ß   
 
    
  
  
  

The, 


  B has defined Tax avoidance as:

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Thus tax avoidance is an attempt to manage financial affairs by using colorable devices with the
intention of reducing the tax liability. Many a time tax avoidance involves an attempt to reduce
tax burden by taking advantage of certain loopholes or weaknesses in tax laws.

In India before the decision of Supreme Court in McDowell & Co. Ltdvs. CTO, Tax avoidance
was regarded as a lawful act. But after the pronouncement of the case it was held that tax
avoidance is illegal because of following reasons:

(1)pThere is substantial loss of public revenue required for the economic development of the
nation
(2)p It Results in the creation of black money economy which results into inflation
(3)p It results into lot of litigation which results into huge amount of tax arrears busy courts
and wastage of time and money
(4)p It results into injustice and inequality caused by the tax avoidance for the honest tax
payers
(5)pIt results into an unethical practice of transferring the incidence of tax liability from the
tax dodgers to the honest tax payers who have to pay tax at higher rates.

Till now the rules settled under above case act as guiding principle for unpinning cooked tax
planning.

,

It is an illegal method of saving tax and makes the person liable to penalties and prosecution.
³Tax evasion´ refers to an exercise by a tax payer for not paying the tax legally becoming due. It
is the general term for efforts by assesses to evade taxes by illegal means. Tax evasion usually
involves assesses deliberately misrepresenting or concealing the true state of their economic
affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting. Tax
evasion typically involves failing to report income or improperly claiming deductions that are
not allowed or authorized. The methods of tax evasion are:-

(1)pUnder disclosure of income


(2)pInflating the expenses and thus reducing the real income
(3)pManipulation of accounts to reduce the real income
(4)pViolation of rules and regulations of laws with the intention to save the tax
(5)pBenami transactions

Although tax evasion leads to lower cash outflow on account of taxes yet such saving of money
may not be real and absolute. In fact tax evaded remains liability of the evader. If trapped he will
have pay the tax evaded along with penalties.

 -4"  5 ,


6

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1) It is an exercise aimed at reducing tax 1) It is an exercise of reducing tax liability
liability by availing maximum benefits of either (a) by showing lesser income than the
various deductions, exemptions, rebates, reliefs
actual or (b) by hiding the very source of any
etc. provided under tax laws. income.
2) It is completely within the framework of 2) It is willful disobedience of law and
law. involves an element of deceit.
3) It is legal and accepted by Judiciary. 3) It is illegal and is prohibited.
4) It is based on principle of disclosure. 4) It involves hiding the facts regarding
incomes and expenditures.
5) It is deliberate creation of law for wealth 5) It is a white collar crime and is seen as an
creation trough encouraged savings and offence.
investments.
6) Tax planning is an honest effort of the tax 6) It requires a dishonest nature and courage to
payer to benefit him and economy as a whole. violate the law.
7) Tax Planning lead to socio economic 7) It leads to generation and accumulation of
development of the economy. black money which is great hurdle in the
progress of an economy.

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6
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1) It is an exercise of reducing tax liability by 1) It is an exercise of reducing tax liability by
staying within the four corners of law. exploiting some loopholes of the law.
2) It involves fair obedience of law with an 2) It involves foul play with law.
honest attitude.
3) It is legal and acceptable by judiciary 3) It is unethical, illegal and is prohibited.
4) Transactions are real and natural. 4) transactions are sham and fabricated
artificially
5) It is dependable. 5) It is not dependable because as and when the
ingenuity is exposed tax avoider has to pay tax
retrospectively.

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6

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1) Act of minimizing tax liability by locating 1) An act of bringing down the tax liability by
some weaknesses of law. disclosing less income than the actual or by
concealing the source of income or by claiming
deductions that are not allowed otherwise.
2) It may be within the framework of law but it 2) The evasion is gross violation and disrespect
is against the basic intent of the legislative of law.
provisions.
3) It can be curbed by introducing anti 3) It can be curbed by implementing the law
avoidance provisions or clubbing provisions. effectively.


4 <, ,! -6

In McDowell and company Ltd vs. CTO 1995 the facts were that that the assesse company ,
manufacturer or liquor holding D2 license sold liquor to buyers who themselves paid the excise
duty there own directly. The department sought to include the amount representing the excise
duty paid directly by the appellant¶s turnover, for the purpose of determining its liability for sales
tax under Andhra Pradesh general sales Act 1957.

It is important to note after the decision of the SC in one of the previous judgments, involving
the same appellants,McDowell& Co. Ltd. vs. CTO. In this 1977 case the question before the SC
was as to whether excise duty paid directly to the excise authorities or deposited directly in the
state exchequer in respect of Indian Liquor by the buyers before removing the same from the
distillery could be said to form part of the taxable turnover of the appellant company? The SC
came to this conclusion that excise duty didn¶t go into the ³common till´ of the appellant
company and, therefore, didn¶t become a part of the circulating capital hence, the sales ax
authorities were not competent to include in the turnover of the appellant company the excise
duty which was paid directly by the buyers to the department.

As fermentation after this 1977 Judgment the relevant rules were amended. The amended rules
76(a) provided.

³No spirit or Liquor manufactured or stored shall be removed unless the excise duty specified in
rule 6 has been paid by a holder of a D2 license before such removal´

The amended rule 79(i) provided ³On payment of the excise duty by the holder of D2 License a
distillery pass for the removal of spirit fit for the human consumption may be granted in favor of
any of the following persons only´

The 4 kinds of persons are specified of whom the holder of license for sale of spirit by wholesale
or retail was one such person.

Thus, the question of liability towards the payment of excise duty acquired new dimensions. In
the connection it is very much pertinent as to how the SC commended upon its earlier decision of
1977 it observed as under that:

³That intending purchaser of the Indian liquor who seeks to obtain distillery passes is also legally
responsible for payment of excise duty is too broadly stated. The duty was primarily a burden
which the manufacturer had to bear enabling didn¶t give rise to any legal responsibility or
obligation for meeting the burden´

Furthermore, theSupreme Court held that this aspect does not need any further explanation, for
the change in rule 76 clearly a firm the position that liability for the payment of excise duty was
of the manufacturer

The appellant company reliedheavily on the observation of Hidayatullah speaking for the
Supreme Court in George oaks private ltd vs. state of madras where it was said

³In laws dealing with sale tax turnover has in England and American also been held to include
the tax. The reason for such inclusion is stated to be that the dealer who realizes the tax does not
hand it over forth with to government but keeps it with him and turns it over in his business
before he parts with it .thus the tax becomes for the time being a part of the circulating capital of
the trades man and is turned over in his business

Thus the main contention of the appellant company was that the excise duty paid by the buyers
directly to the excise department never came in to the hands of the appellant it could never be
consideration as a part of its turnover not forming a part of its circulating capital.
Thiscontestation was rejected by the supreme court.Ranganathnath Mishra (judge) delivering the
judgment of the court observed as follows:

³If we accept the observation of hidayatullah (j) as lying down the test for general application it
would be vary prejudicial to the revenue as between the seller and the buyer by special
arrangement a part of what ordinarily would constitute consideration proper could even be kept
out and the turnover could be reduced and tax liability would be avoided .we are of the view that
the conclusion reached in the appellants case in McDowell¶s And co ltd on the second aspect of
the matter namely when the excise duty does not go in to the common till of the assesse and it
does not become a part of the circulating capital it does not constitute turnover is not the decisive
test for determining whether such duty constituteturnover ´

The definition of ³Turnover´ clearly indicates that the total amount charged as the consideration
for the sale to be taken into account for determining the turnover. Where a bill of sale is issued
the total amount set out there in s to be taken into account. Excise duty through paid by the
purchaser to meet the liability of the manufacturer, is part of the consideration for the sale and is
includable in the turnover of the manufacturer. The purchaser has paid the tax because the law
asks him to pay it on the behalf of manufacturer.

The fact that excise duty doesn¶t go into the common till of the manufacturer and it doesn¶t
become a part of circulating capital is not the decisive test for determining whether such duty
would constitute such turnover.

The tax planning may be legitimate provided it is within the framework of law. Colorable
devices can¶t be part of the tax planning it is wrong to encourage or entertain the believe that it is
honorable to avoid the payment of tax by resorting to dubious method. It is the obligation of
every citizen to pay the taxes honestly without resorting to subs refuges.

Before proceeding further with the issue of tax evasion the SC developed upon the conceptual
methodology of excise duty. In R.C.Jail vs. Union of India it was observed:

³The excise is primarily a duty on production or manufacture of goods produced or


manufactured within the country. Subject always to the legislative competence of the taxing
authority, the said tax can levy at the convenient stage so long as the character of the imposed is
not lost. The method of collecting doesn¶t effect the essence of the duty but only relates to the
machinery of collection of administrative convenience´

In Guru Swami&Co. vs. State of Mysore, spoke for majority and stated the ratio thus:

³These cases establish that in order to be in excise duty the levee must be upon goods and the
taxable event must be the manufacturer or production of goods. Further the levy need not to be
imposed at the stage of production or manufacturer but may be imposed later´
The SC was of the view that the conclusion of this court in1977 cases that intending purchase of
the Indian liquors who seek to obtain distillery passes are also legally responsible for payment of
excise duty is to broadly stated. The duty was primarily a burden which the manufacturer has to
bear and even if the purchaser paid the same under the distillery rules the provisions were merely
enabling and didn¶t give rise to any illegal responsibility or obligation for meeting the burden.

On an intelligent reading of the following passage extracted from SC judgment in


HindustanSugar mills vs. Rajasthan State. One court find as to how the element of tax evasion
crept into McDowell¶s case. The apex court observed in Hindustan sugar as under:

³Take for example excise duty payable by a dealer who s a manufacturer, when he sells good
manufactured by him he always passes on the excise duty on the purchaser. Ordinarily it is not
shown as a separate item in the bill , it is included n the precise charged by him. The sale price in
such a case could be the entire price inclusiveof excise duty because that would be the
consideration payable by the purchaser for the sale of good´

Further more the position is not different when under a prior agreement the legal liability of the
manufacturer dealer for payment of excise duty is satisfied by the purchaser by direct payment to
the excise authorities or to the state exchequer.

Therefore the apex court observed in McDowell¶s case that as a fact in the hands of buyer the
cost of liquor is what is charged by the appellant under its bill together with the excise duty
which the buyer has directly paid on sellers account, the consideration for the sale is thus the
total amount and not what is reflected in the bill.

Support was also sought besides Shah J observation in Raman¶s case by the learned council,
Mr.Soli Sorabji on behalf of the appellant company from the observation of same leaned judge J
in the CIT Gujarat vs. BM Kharwar.

³The taxing authority is entitled and is ended bond to determine the true legal relation resulting
from a transaction, if the parties has chosen to conceal by defuse the legal relation it is open to
taxing authority to unravel the devise and to determine the true character of relationship but the
legal effect of transaction can¶t be displaced by promoting into substances of transaction.

The observation of Vicount Simon in Natilla vs. IRC may be recalled in the connection:

³On the contrary, one result of such method if they succeed is off Corse to the increase pro tan to
the load of the tax on the shoulders of the great body of great citizens who don¶t desire, or don¶t
know how to adopt these Maneuvers. Another consequence is that the legislator has made
amendments to our income tax code which aim at nullifying the effectiveness of such schemes.

Tax planning may be legitimate provided it is within the framework of law colorable devices
can¶t be part of tax planning.
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Management decision should be based on careful consideration of all the factors, including
implication as regard to tax liability. Keeping view various tax implications that are relevant
while taking some specific management decision under different provision of Income tax Act
have dealt with:

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One of the vital investment subject to the influence of tax factor is ³Make or buy decision´. Most
of the companies have to decide sometimes or the other whether they should buy a part from a
market and stop making it themselves or whether they should stop buying it and start making it.
There are various consideration affecting this decision, chief of which is cost. In other words, in
making this sort of decision the various cost of making the product or part component of product
is compared with its purchase price in market. A host of other consideration such as capacity
utilization, supply position of the article to be bought, terms of purchase, ill effect of layoffs etc.
are kept in view while taking such decision. Tax planning can be helpful in decision as regards
making or buying a particular product, component etc.

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Vp Utilization of Capacity
Vp Inadequacy of funds
Vp Latest Technology
Vp Dependence of Supplier
Vp Labor problem in the factory

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Vp Variable Cost

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Vp Buying cost
Vp Inventory cost

Comparision of both the cost shall determine which decision the company shall follow,
therefore tax saved in both the cases are same.

ƒp 
, -


Vp , ,2 54 6 If the decision to manufacture a part or a component involves
a setting up separate industrial unit than tax incentives available u/s 10a,10b, 32, 80 IA,80
IB should be considered.

Vp 
-6 If ³Make or Buy´ decision is taken for exporting goods then tax incentives
available under section 80 HHC depends upon whether goods manufactured by tax player
himself are exported or goods manufactured by others are exported by tax players.
Vp  
  2 -6If buying is cheaper than manufacturing and the assessee
decides to buy parts or components for a long period of time, he may like sell the existing
plant and machinery. Tax implications as specified by section 50 has to be considered.
If the decision is taken to produce a part, then any other industrial unit to be established. When a
separate industrial unit is established then the company may get tax benefits and also deductions
under various sections to a company which decides to produce a part, are:

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A tax players deriving a profits and gains from a new small scale industries undertaking
set up in rural area will entitled to deduction of an amount equal to 20% of such profits
and gains. The deduction will be admissible for a period of 10 previous years in which
the small scale industrial undertaking commences production of any article.

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Under sction-80-1, a deduction will be allowed in respect of profits and gain derived
from industrial undertakings, ship or hotel established after a certain date. The deduction
will be of an amount equal to 30% of such industrial undertakings or Ship or Hotel, If its
company and 25% in categories of assesses.

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All assesses are entitled to a deduction of 20% of the profit derived by them for new
industrial undertakings and Hotel setup in backward area. The deduction will be allowed
in respect of the ten assessment year relevant to previous year in which the industrial
undertaking begins to manufacture or produce articles.

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A company which produce a part or a component will be allowed an allowance in respect
of depreciation of buildings, machinery, plant or furniture owned and used the assesee for
the purpose of business and profession.

ƒp Two primary factors which have a decisive influence on the choice of make or buy are
the cost and availability of production capacity. Facilities are made available and other
things being equal cost consideration assumes primacy. If the cost of making an item in-
house is going to be higher than the cost of acquiring it from an outside supplier, the
choice is to buy it. On the other hand, if the cost of making the item in ones own plant is
cheaper than buying it from the supplier, the choice is to make it. A good make-or-buy
decision, nevertheless, requires the evaluation of several less tangible factors in addition
to the two basics ones.

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1. Cost considerations less expensive to make the part

2. Desire to integrate plan operations

3. Productive use of excess plant capacity to help absorb fixed overheads.

4. Needs to exert direct control over production and/or quality

5. Design secrecy.

6. Unreliable suppliers.

7. No suitable supplier quotation

8. Desire to maintain a stable workforce in periods of declining sales


, -
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1. Cost considerations less expensive to buy the part

2. Suppliers research and specialized know-how

3. Small volume requirements

4. Limited production facilities

5. Desire to maintain stable workforce in periods of rising sales.

6. Desire to maintain multiple source policy.

7. Government policy favoring ancillary industries.

8. Monopoly items which are rationed by the government and on which, the buyer has no option.

2-
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Some companies, by tradition, prefer to make almost every component of their products. Others
prefer to buy as much as possible from outside suppliers. In general, an aggressive company in
an industry that is expanding rapidly with many technological changes (e.g. electronics), will
prefer to buy many of its components from outside suppliers. In such industries, the company has
many opportunities to employ its capital profitably through horizontal diversification, expanding
its line of finished products.


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Before commencing a new project a vital managerial decision regarding selecting the right type
of capital structure has to be taken. An optimum capital structure is one which maximizes
shareholders¶ returns. The advantages of having an optimum capital structure are two-fold. It
maximizes the value of the assets of the company and wealth of its owners and minimizes the
cost of capital which, in turn, raises the ability to find inbuilt additional investment opportunities.
Problem of planning capital structure is of crucial importance and has its long term implications.
The tax planner should properly balance risk, cost, control and tax considerations. In capital
structure decisions, the cost of capital is an important consideration along with the risk factor.
One of the main reasons for raising finance through borrowing is to increase earning on equity
share capital. But excessive use of debt capital increases the financial risk of the company.

Under the tax laws, dividend on shares is not deductible and distributed profit is subject to
dividend tax. On the other hand, interest paid on borrowed capital is allowed as deduction under
section 36(1)(iii). Cost of raising finance through borrowing is deductable in the year in which it
is incurred. Cost of issue of shares is allowed as deduction in five years under section 35D.
because of the above provisions, corporate taxation plays an important role in determining the
choice between different sources of financing.
c06

Section 2(22) gives the definition of ³deemed dividend´. However, the definition laid down by
Section 2(22) is inclusive and not exhaustive. If, therefore, a particular distribution is not
regarded as dividend within the extended meaning of the expression in section 2(22), it may still
be dividend for the purpose of the Income-tax act.

Under section 2(22), the following payments or distributions by a company to its shareholders
are deemed to the accumulated profits of the company:

a)p Any distribution entailing the release of company¶s assets.


b)p Any distribution of debenture, debenture stock, deposit certificates and bonus to
preference shareholders.
c)p Distribution on liquidation of a company.
d)p Distribution on reduction of capital.
e)p Any payment by the way of loan or advance by a closely held company to a shareholder
holding substantial interest provided the loan should not have been made in the ordinary
course of business and money lending should not be a substantial part of the company¶s
business.

If dividend comes under (a) to (d), then the payer company will pay dividend tax under section
115-O and in the hands of recipient shareholders, it is not chargeable to tax.

On the other hand, if dividend comes under (e), then it is taxable in the hands of shareholder. In
such a case, the payer company will not pay the dividend tax.

The following shall 


 treated as ³dividend´:-

a)p Any payment made by a company on purchase of its own shares in accordance with the
provisions contained in section 77A of the Companies Act; or
b)p Any distribution of shares made in accordance with the scheme of demerger by the
resulting company to the shareholders of the demerged company whether or not there is a
reduction of capital in the demerged company.
Any payment or distribution under the abovementioned clauses is treated as dividend.
However, the payment or distribution under the abovementioned clauses can be treated as
dividend only to the extent of accumulated profits of the company.

Vp It is expressly provided that it does not include capital gains arising before April 1,
1946 and after March 31, 1948 but before April 1, 1956.
Vp In case of a company, which is not in liquidation, it includes all profits of a company
up to the date of distribution or payment.
Vp In the case of a company in liquidation, it includes all profits of the company up to
the date of liquidation. Where, however, the liquidation is consequent on the
compulsory acquisition of a company¶s undertaking by the Government or a
Government company, accumulated profits do not include any profits of the company
prior to the three successive years immediately preceding the previous year in which
the acquisition took place.

c  c"!6

Accumulated profits include all profits (accumulated or current) up to the date of distribution
or payment (or up to the date of liquidation in case of liquidation).

In a number of cases it has been held that accumulated profits are computed on the basis of
accumulated profits.

 ,- 

c  "-
,6

Under the sub- clause (a) of section 2(22), any distribution by a company of its accumulated
profits (whether capitalized or not) is dividend if it entails the release of company¶s assets.
The clause provides for two conditions; first, distribution should be from accumulated profits
(not from capital) and secondly, such distribution must result in the release of the assets of
the company.
As no specific mode of distribution is prescribed by the clause, distribution may be in the
form of payment in cash or kind.

$ 1c!6

One of the conditions laid down in sub clause (a) of section 2(22) is that distribution must
entail the release of assets by the company to its shareholders. When, therefore, a company
distributes ordinary or equity bonus by capitalizing its profits, then there is no release of
assets and, consequently, bonus shares are not taxable as dividend. If however, bonus shares
are issued to preference shareholders, it amounts to distribution of dividend by virtue of sub-
clause (b) of section 2(22).

Under this clause the following two distributions are treated as dividend to the extent of
accumulated profits (whether capitalized or not) of the company:

a)p Distribution by a company to its shareholders (whether equity shareholders or


preference shareholders) of debentures, debenture stock or deposit certificates in any
form, whether with or without interest; and
b)p Distribution by a company to its preference shareholders of bonus shares.

Under the above said conditions, distribution amounts to dividend in the hands of recipient even
if there is no release of assets at the time of distribution.
Under sub-clause (c) any distribution made by a company to its shareholders on its liquidation is
treated as dividend to the extent to which such distribution is attributable to the accumulated
profits of the company immediately before its liquidation.

Under sub-clause ( c), the following are however, not treated as dividend:

a)p Any distribution in respect of preference shares issued for full cash consideration; and
b)p Any distribution insofar as such distribution is attributable to the capitalized profits of the
company representing bonus shares allotted to the equity shareholders after March 31,
1964, but before April 1, 1965.

Any distribution by a company to its shareholders on the reduction of capital is treated as


dividend to the extent the company possesses profits (whether capitalized or not). However, the
following are not treated as dividend under this clause:

a)p Any distribution out of accumulated profits which arose up to the previous year 1932-33
or up to the previous year ending during 1932-33
b)p Any distribution in respect of preference shares issued for full cash consideration; and
c)p Any distribution insofar as such distribution is attributable to the capitalized profits of the
company into two companies, and there is no reduction of capital in the aggregate,
section 2(22)(d) would not apply.
Under sub-clause (e), any loan or advance to a shareholder or concern is treated as dividend in
certain cases.

c* c%
1. Loan or advance is given by closely held 1. Loan or advance is given by a closely held
company company (say X Ltd.)
2. Such loan is given to a registered 2. Such loan is given to a ³concern´ (say Y)
shareholder [see Note 3]
3. The shareholder (getting the loan) 3. One of the shareholders beneficially holding
beneficially holds 10 percent or more of the 10 percent equity shares capital in X Ltd. has a
equity shares in the company (giving the loan) substantial interest [see Note 4] in Y
4. Such loan or advance is treated as dividend 4. Such loans or advance is treated as
in the hands of the shareholder dividends in the hands of Y

Ô (

1. Such loan or advance is treated as dividend to the extent of accumulated profits [excluding
capitalized profit]

2. Loan or advance for the above purpose may be given to a shareholder (in case 1) directly or it
may be given for the benefit of the shareholder or on the behalf of the shareholder.

3. ³Concern´ for this purpose may be a HUF, sole proprietorship, firm, AOP, BOI or company.

4. A person shall be deemed to have a substantial interest in a concern, if he is (at any time
during the previous year), beneficially entitled to atleast 20 percent of income of such concern (if
such concern is company). Shares held by a person in two different capacities i.e. as an
individual and as an HUF, cannot be clubbed or amalgamated for the purpose of deciding
whether a person has substantial interest in a concern.

5. Where money lending is a substantial part of business of the company giving loan the above
provisions are not applicable. For this purpose the factual position as it stands during the relevant
previous year alone is supposed to be take into consideration to decide the issue whether the
lending of money is indeed a substantial part of business of the concerned company.
6. If after giving advance to a shareholder, the company declares normal dividend and such
dividend is set off against outstanding load/advance, the amount so set off will not be taken as
³dividend´.

c!cc36

If dividend is covered by section 2(22) [not by clause (e) of section 2(22)] and declared,
distributed or paid during April 1, 1997 and March 31, 2002 or after March 31, 2003, then it is
not taxable in the hands of shareholders by virtue of section 10(33) or 10(34).On such dividend
the company declaring dividend will pay dividend tax under section 115-O.

If a loan or advance is given after May 31, 1997 which is deemed as dividend under section
2(22)(e) then such a loan or advance is taxable under section 56 as dividend in the hands of
recipient.

c !c0$36

The table given below highlights the tax consequences ±

 c c!c1 c !c  1


1c  1 1c  1
"c#  0 1c!1!
$ 1c!
1. At the time of issue of
No tax liability No tax liability
bonus shares
2. At the time of sale of
No tax liability See para cL
shares by shareholder
3. At the time of Under section 2(22)(a) or Out of the amount received at the
redemption of bonus share 2(22)(c), it will be treated as time of redemption or
or at the time of liquidation dividend distribution to the liquidation, amount treated as
of the company extent of accumulate profits ³dividend´ under section
and, consequently, the payer 2(22)(a)/(c) will be exempt in the
company will pay dividend tax hands of shareholders. Balance
will be safe consideration to
compute capital gains

cL Section 55 specifies that the cost of acquisition of any additional financial asset as bonus
shares or security or otherwise which is received without any payment by the assessee on the
basis of his holding any financial asset shall be taken to be NIL.

Moreover, in the case of capital asset being a share, security or unit which is allocated without
any payment on the basis of holding of any other financial asset, the period of treating such
share, security or unit as a short term capital asset shall be calculated from the date of allotment
of such share, security or unit, as the case may be.

Effect of the above provision may be summarized as follows :

  c M   !0c


c$ 1c!
1. If original shares and bonus shares are - 5   ,2-, ± Actual cost or fair market
acquired before April 1, 1981 value on April1, 1981, whichever is more
$
,,2-, ± Fair market value on April 1,
1981
2. If original shares are acquired before April - 5   ,2-, ± Actual cost or fair market
1, but bonus shares are allotted after April 1, value on April 1, 1981, whichever is more
1981 $
,2-, ± Nil
3. If original and bonus shares are acquired - 5  2-, ± Actual cost
after April 1, 1981 $
,2-, ± Nil
4. Period of holding bonus shares The period of holding shall be determined
from the date of allotment of bonus shares (and
not from the date of acquisition of original
shares)

Ô (

1. The above rules given in the table are also applicable in respect of shares, securities,
debentures, bonds, units allotted without any payment on the basis of building of any other
financial assets.

2. If securities transaction tax is applicable at the time of transfer, long term capital gain is not
chargeable to tax and short term capital gain is taxable @ 15 percent! Plus surcharge plus
education cess plus secondary and higher education cess.

p
p
p
p
p
p

"  5N5-   ,
,($
,2-,+

"  5!, $
,2-,

The concept of bonus shares has emerged as a result of Ploughing>


-
,policy often
adopted by companies. These shares are issued by a company to its existing shareholders in the
process of conversion of reserves & surpluses into capital. These shares are issued out of
accumulated profits of the company and are given to existing shareholders in proportion of their
shareholding in the company. Since nothing goes out of pocket of shareholders in getting these
shares, these are called ³$ 1c!O
-P!1c!´

The process of conversion of reserves & surpluses into share capital is also called
³ c"cQc!!c !" ´  it has following two effects:

1)p It reduces accumulated reserves & surpluses of the company


2)p There is a corresponding increase in the paid up capital of the company.
The issue of bonus shares enables a company to bring the amount of its paid-up capital
line with the real capital employed so as to show real earning capacity of the company
and brings down the apparent abnormal high rate of dividend.

"-
 ,
,

 ,c*8DF!, $
,2-,

1) Sec. 205 of the Companies Act prohibits a company to issue bonus shares in lieu of
dividend by providing that no dividend can be paid except cash.

2) The bonus shares could be issued out of the following reserves:-


I.p General Reserve
II.p Balance on P & L A/c or P & L Appropriation A/c
III.p Reserve Fund
IV.p Capital reserve or profit realised in cash
V.p Balance in Sinking fund created for redemption of debentures after the
debentures have been redeemed
VI.p Dividend equalization fund
VII.p Capital Redemption Reserve(CRR)
VIII.p Security Premium received in cash
3)p Bonus shares cannot be issued out of:-
Rp Reserves created for some specific purpose
Rp Capital Reserve appearing as a result of revaluation of assets and liabilities

In addition to above, a company is also required to follow the guidelines issued by


SEBI from time to time regarding the issue
Pc,,O P$
,2-,O
The tax aspects of bonus shares can be studied from the following two angles.
lp Tax aspects for company issuing bonus shares
lp Tax aspects for shareholders receiving bonus shares

c+p ,,
-
 ,, 5
,,2-,
The issue of bonus shares is not regarded as distribution of the
dividend to the company. This can be drawn from clause (a) of sec.
2(22) which defines ³dividend´. The said clause reads as:
³Dividend includes any distribution by the company to its shareholders
to the extent of the accumulated profits whether capitalized or not
resulting in the release of all or any part of assets of the company´
Since the issue doesn¶t involve the release of any asset of the
company, hence it is not treated as distribution of dividends by
company
However clause (b) of Sec. 2(23) provides that distribution will be
treated as distribution of the dividend by the company though it
doesn¶t involve release of any asset of the company.

c*) 
,,2-,- ,, 
C ,2-2
-,

There are four occasions which necessitate the understanding of tax implications for
issuing company. These are:

*+c2 
,,6)

Since issue of bonus shares to equity shareholders doesn¶t amount to dividend, hence the
company is saved from paying dividend tax u/s 115-O in the year of distribution of such
bonus shares

%+c2 
- 
6)

When such bonus shares are redeemed it is treated as dividend distributed by the
company to the extent of Accumulated Profits u/s 2(22) (a) because there is release of
asses from the company. In case, bonus such have been redeemed during the period

I.p On or after 1-6-97 to 31-3-02


II.p On or after 1-4-03,the company will be required to pay dividend tax u/s 115-O at
prescribed dates
RATES OF TAX U/S 115-0 FOR PREVIOUS YEAR

Period Rate Surcharge Education Cess Total


i.p From 1-4-2007 onwards 15 % 10 % 3% = 16.995%

9+c2 
 C 

 ,, 5
6-
On such occasion any distribution made to equity shareholders, to the extent of
accumulated profits, shall be treated of dividend u/s 2(22).Then any sum
distributed to equity shareholders against bonus shares as well as other shares.
:+ 2,2-2
-, ,
,,2-,6)
Then it does not involve any tax liability for the company issuing bonus shares.

$ 1c!c! "!! 1c!)1!

(*+pc2 
 ,,6) Clause (b) of sec.2 (22) specially provides that distribution of
bonus shares to preference share-holders shall be treated as distribution of dividend by
the company. In case, such bonus shares have been issued during the period
(i)p On or after 1-6-97 to 31-03-02 and
(ii)p On or after 1-4-03, the company shall be required to pay dividend tax u/s 115-0. The
rates of dividend tax u/s 115-0 have already been shown earlier.
(%+pc2 
- 
6) No tax liability
(9+pc2 
 C 


 :- No tax liability
(:+p 2,2-2
-, ,
,,2-,6) Then it does not involve any tax liability on
company

!c" ! $ 1c!

The decision to issue bonus shares often necessitates the incurring of certain expenses by the
company. These expenses may be

i.p Expenses incurred for increasing the authorized capital of the company
ii.p Other expenses related to bonus issue such as printing, postage, fees etc.



!c  "  !! !  !c0 1 c 1!


c"c
As we know that the issue of bonus shares implies the issue of fresh shares to the shareholder
free of cost. Thus, if the existing company has already exhausted its authorized share capital by
issuing to the shareholders in the past, then it will have to increase its authorized share capital.
For this purpose, company may have to incur certain expenses. It is important to note that such
expenses shall be treated as capital expenditure in view of the authoritative pronouncements by
the Supreme Court.

!c1!" 1c"!0Nc!#E
"c0E 

For a long time, the treatment of these expenses remained as subject matter of judicial
controversies due to conflicting judgment by various courts. However , this controversy has been
put to rest by the Supreme Court¶s judgment dated September 25 , 2006 , in the case of CIT V¶s
General Insurance Corporation (2006) 205 CTR 280 , wherein it has been held that these
expenses incurred on issue of bonus shares is revenue expenditure.

c!c11c1c!1!

In the hands of equity shareholder

1.p At the time of receipt :- Since the receipt of bonus shares by equity shareholders-does not
amount to receipt of dividend , therefore the shareholder is not required to treat the values
of bonus shares as his income from other source.
2.p At the time of redemption: - When bonus shares held by equity shareholders are
redeemed by the company at a later stage, it is treated as receipt of dividend by
shareholders. If shares are redeemed during the period.
a)p On or after 1-6-97 to 31-3-02 and
b)p On or after 1-4-03, then, any such amount shall be fully exempt in hands of shareholders.

3.p At the time of liquidation of company: - Amount received by shareholders on bonus


shares as well as on other shares is treated as receipt of dividends. On such occasion,
occurring during the period (a) on or after 1-6-97 to 31-3-02 and: (b) on or after 1-4-03,
any amount received shall be fully exempt in the hands of shareholder.

4.p At the Time of Sale

On sale of bonus shares, a shareholder is required to pay tax on any gain arising there from.
Such gain will be long term or short term depending upon the period of holding of such
bonus shares. The period of holding shall be counted from the date of issue of the bonus
shares.
For calculating capital gain, the cost of acquisition of bonus shares shall be taken as follows:-

i.p If bonus shares were received before 1-4-81 :

In such a case the market value of bonus shares as on 1-4-81 shall be treated as cost of
acquisition.

ii.p If bonus shares were received on or after 1-4-81:

In such a case, the cost of acquisition of bonus shares shall be taken as nil and entire amount
received on sale shall be chargeable to capital gain tax.

 !c: Assessed A is the investor in shares and held 1,000 shares of Rs. 10 each
in a company. On 31st March, 2007 he was allotted 1000 Bonus Shares of the face value of
Rs 10 each. The cost of acquisition of original shares was Rs. 12 each. During the previous
year ending 31st March, 2010 assessee sold 500 shares out of his Bonus Shares @14 per
share. Compute the capital gain for the assessment year 2010-11 if the cost inflation index for
1991-92 is 199 and 2009-10 is 632.

Solution:

Shares (STCA)

Sale price of 500 shares @ 14 per share 7000

Less: Cost o 500 Bonus Shares Nil

Short Term capital gain 7000

c!c11c"!! 1c!1!

1.p At the time of receipt: - When bonus shares are received by preference shareholders
then it is treated as dividend received by them. If bonus shares are received during the
periods (a) on or after 1-6-97 to 31-3-02 and (b) on or after 1-4-03, then such
distribution shall be fully exempt in the hands of preference shareholders.

If the bonus shares were received during P.Y. 2002-2003 then preference shareholders
are required to include the market value of bonus shares in their individual income as
income under the head other sources.
2.p At the time of redemption :- It shall not be treated as dividend in the hands of
preference shareholders because the market value of said bonus shares , when issued
to them , was treated as dividend received by them.
3.p At the time of liquidation of company: - It shall also not be treated as dividend in the
hands of preference shareholders.
4.p At the time of sale: Same as discussed for equity shareholders.


















  5 5-   ,


(
 

-
,-+
p
-



Ups and downs are a part and parcel of business life. In an up situation, a business flourishes,
earns profits and brings cheers to businessman. A number of factors play an important role in
placing a business in such a situation. Some of these factors are as follows :

(1)pHigh demand of product


(2)pCost effectiveness
(3)pGovt. support
(4)pTax incentives available etc.

In a down situation, a business shrinks, generates losses and causes tension to owners. Such a
situation occurs when any/ some/ all of the above factors go against the business. i.e.

(i)p Low demand/ falling demand of product


(ii)pFalling profit margin
(iii)Withdrawl of government support
(iv)pNo encouraging future prospects etc.

Such situations are normally described as industrial sickness.

Generally under such a situation, a business house faces a problem whether the business should
be continued or shut down.

 5
H2
4<
-H ,
 
, ,,
-
-
,,

It refers to a complete cessation or closing down of the business. It involves :-

lp No buying or selling
lp No manufacturing
lp Assets to be sold or disposed off
lp Returning capital to owners etc.

"
,,2
4 ,
Before deciding for closing a business, two aspects should be understood clearly :-

(A)pvarious tax provisions to be complied with after deciding to shut down a business
(B)ptax implications of shut down decision

(c+-
 ,
,

  4 242  ,
  5, ,,

(1ë ) 
 
   

  
* +,-ë *   ë

(1)in case of any discontinued business in any assessment year, the income of the period from
the expiry of the previous year for that assessment year up to the date of such discontinuance
may, at the discretion of the Assessing Officer, be charged to tax in that assessment year.
(2) The total income of each completed previous year or part of any previous year included in
such period shall be chargeable to tax at the rate or rates in force in that assessment year, and
separate assessments shall be made.
(3) notice of discontinuing of any buisness or profession is reqiured to be given to assessing
officer within fifteen days thereof.
(3A) in case of discontinued buisness in a year, any sum received after the discontinuance shall
be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt,
if such sum would have been included in the total income of the person who carried on the
business had such sum been received before such discontinuance.
(4) Where any profession is discontinued in any year on account of the cessation of the
profession by, or the retirement or death of, the person carrying on the profession, any sum
received after the discontinuance shall be deemed to be the income of the recipient and charged
to tax accordingly in the year of receipt, if such sum would have been included in the total
income of the aforesaid person had it been received before such discontinuance.
(5) assessment made under the provisions of this section, the Assessing Officer may serve on the
person whose income is to be assessed or, in case of a firm, or any person who was a partner of
such firm at the time of its discontinuance or, in the case of a company, or the principal officer
thereof, a notice containing all or any of the requirements which may be included in a notice
under clause () of sub-section (1) of section 142 and the provisions of this Act shall, so far as
may be, apply accordingly as if the notice were a notice issued under clause () of sub-section (1)
of section 142.
(6) The tax chargeable under this section shall be in addition to the tax, if any, chargeable under
any other provision of this Act.
(7) Where the provisions of sub-section (1) are applicable, any notice issued by the Assessing
Officer under clause () of sub-section (1) of section 142 or section 148 in respect of any tax
chargeable under any other provisions of this Act may, notwithstanding anything contained in
clause () of sub-section (1) of section 142 or section 148, as the case may be, require the
furnishing of the return by the person to whom the aforesaid notices are issued within such
period, not being less than seven days, as the Assessing Officer may think proper.
(2) ) 
 
   
   
   
* +,,ë

(1) in case of discotinuance of buisness or profession or dissolution of association of persons


carrying a buisness , the Assessing Officer is required to make an assessment of the total income
of the association of persons as if no such discontinuance or dissolution had taken place, and all
the provisions of this Act, including the provisions relating to the levy of a penalty or any other
sum chargeable under any provisions of this Act, shall apply, so far as may be, to such
assessment.

(2) Without prejudice to the generality of the foregoing sub-section, if the Assessing Officer or
the Commissioner (Appeals) in the course of any proceeding under this Act find that association
of persons was guilty of any of the acts specified in Chapter XXI, he may impose or direct the
imposition of a penalty in accordance with the provisions of that Chapter.

(3) any person who was a member of association of persons at the time of discontinuance of
buisness or dissolution and the legal representative of any such person who is deceased, shall be
jointly and severally liable for the amount of tax, penalty or other sum payable, provisions of this
Act, or imposition of penalty or other sum.

(4) Where such discontinuance or dissolution takes place after any proceedings in respect of an
assessment year have commenced, the proceedings may be continued against the persons
referred to in sub-section (3) from the stage at which the proceedings stood at the time of such
discontinuance or dissolution, and all the provisions of this Act shall, so far as may be, apply
accordingly.

(5) Nothing in this section shall affect the provisions of sub-section (6) of section 159.

(3) ) 
 
  
 
. 
* 
+,/ë

(1) Every person -

(a) Who is the liquidator of any company which is being wound up, whether under the orders of
a court or otherwise; or

(b) a person who has been appointed as a receiver of the assets of a company should give notice
to the assessing officer about his appointment within thirty days of his appointment (liquidator).

(2) The Assessing Officer after making required inquiries, or checking information whether it is
fit, issue notice to the liquidator within three months from the date on which he receives notice of
the appointment of the liquidator the amount which, in the opinion of the Assessing Officer,
would be sufficient to provide for any tax which is then, or is likely thereafter to become,
payable by the company.

(3) The liquidator -

(a) Shall not, without the leave of the Chief Commissioner or Commissioner, part with any of the
assets of the company or the properties in his hands until he has been notified by the Assessing
Officer within three months and

(b) On being so notified, shall set aside an amount equal to the amount notified and, until he so
sets aside such amount, shall not part with any of the assets of the company or the properties in
his hands :

Provided that nothing contained in this sub-section shall debar the liquidator from parting with
such assets or properties for the purpose of the payment of the tax payable by the company or for
making any payment to secured creditors whose debts are entitled under law to priority of
payment over debts due to Government on the date of liquidation or for meeting such costs and
expenses of the winding up of the company as are in the opinion of the Chief Commissioner or
Commissioner reasonable.

(4) If the liquidator fails to give the notice of his appointment within thirty days to assessing
officer or fails to set aside the amount as required by sub-section (3) or parts with any of the
assets of the company or the properties in his hands in contravention of the provisions of that
sub-section, he shall be personally liable for the payment of the tax which the company would be
liable to pay :

Provided that if the amount of any tax payable by the company is notified under sub-section (2),
the personal liability of the liquidator under this sub-section shall be to the extent of such
amount.

(5) in case of more than one liquidators , the obligations and liabilities attached to the liquidator
under this section shall be aplicable to all the liquidators jointly and severally.
(6) The provisions of this section shall have effect notwithstanding anything to the contrary
contained in any other law for the time being in force.

(4)'      


 
. 
* 
+,0ë

(1)pNotwithstanding anything contained in the Companies Act, 1956 (1 of 1956), directors of


the private companies are severally and jointly liable for the payment of taxes due during
their tenure in respect of any income of any previous year or from any other company in
respect of any income of any previous year during which such other company was a
private company cannot be recovered, unless he proves that the non-recovery cannot be
attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the
affairs of the company.

(2) When a private company is converted into a public company and the tax assessed in respect
of any income of any previous year when company was a private company cannot be recovered,
then,director of such private company is not liable in relation to any tax due in respect of any
income of such private company assessable for any assessment year commencing before the 1st
day of April, 1962.

($+  
,
= - ,
 
, ,,

*+ë  
   
  
   

  
(

W.e.f. A.Y. 2000-2001, the business losses of the discontinued business can be set off against the
future profits of the other business. The business losses of discontinuous business may relate to :-

(a) the previous year in which the business is discontinued

However, as per sec 71(3), business losses can be carried forward for upto a maximum period of
8 assessment years immediately succeeding the assessment year for which the loss was
computed.

*1ë 
  
   
 
   

  
(
W.e.f. assessment year 2001-2002, unabsorbed depreciation can be set off in future year against
business profit. The unabsorbed depreciation of discontinued business can also be set off against
future business profits of other business. Such unabsorbed depreciation may relate to :

(a)the previous year in which the business is discontinued ; or

(b)previous year/years prior to the previous year in which business is discontinued

*2ë)   
      

  

*ë         

(a) If sale proceeds > W.D.V. of block :- then such excess shall be treated as short term capital
gain.

(b) If sale proceeds< W.D.V. of block :- then such short fall shall be treated as short term capital
loss.

*ë    

     (

(a)p Sold at a profit :- Such profit shall be treated as µ long term µ capital gain or µshort term
capital gain¶ depending upon the nature of asset i.e. whether short term asset or long term
asset.
(b)pSold at a loss :- then such loss shall also be long term capital or short tterm capital loss
depending upon the nature of asset.

*ë   3    :- any profit on sale of stock is treated as business income of the
assesses of the previous year in which it is sold

*ë       
   

*4ë    




  

Discontinuance of business may result in wthdrawl of certain incentive deductions already


claimed by business house. Such incentive deductions have been allowed to business houses
operating in certain specified business areas. A brief discussion of these incentive deductions is
given below:-

(i)pIncentive-deduction to tea-coffee/rubber business (Section 33AB)


Assesses engaged in growing and manufacturing tea, coffee and rubber have been provided
special deduction after profit. For claiming this deduction,these assesses are required to
deposit certain amount to µ Special Deposit Account¶ namely :-

Tea Development Account- In case of coffee business

Rubber Development Account- In case of rubber business

The amount deposited in above µSpecial Accounts¶ is to be used for specific business
purposes including purchase of business assets. The assets so acquired cannot be sold before
the expiry of 8 years.

ð # 


  
    
5

Now at the time of shutting down of business the following two possibilities can be there :-

(a)p Unutilised amount in special accounts :-

Assessee can withdraw such amount but such withdrawn amount shall be deemed to be
the profits of the business of the previous year in which amount is withdrawn.

(b)pSale of assets acquired before 8 years :-

The deduction allowed earlier shall be withdrawn & shall be treated as business profits of
the previous year in which such asset is sold or otherwise transferred.

(ii) Incentive deduction to petroleum or natural gas business (Sec 33ABA)

Assesses engaged in the business of prospecting for, or extraction or production of petroleum or


natural gas or both in India by entering into agreement with the Central Govt. have been allowed
deduction u/s 33ABA.

For claiming this deduction, above assesses are required to deposit certain amount with SBI in a
µSpecial Account¶ as per approved scheme of Govt.

Further, assets acquired by withdrawing amount from such µ Special Account¶ are not to be
sold/transferred before the expiry of 8 years from the end of previous year in which such assets
were acquired.

ð # 


  
    
5
(Same as discussed u/s 33AB in pt. (i)

(iii) Incentive deduction to shipping business (Sec 33AC)

This deduction is allowed to a government company or an Indian public limited company which
is engaged in the business of operation of ships. For claiming this deduction, such assesses are
required to deposit certain amount in µShipping Reserve¶ can be used for certain specified
business purpose including for acquiring new ship within 8 years next following the previous in
which the amount was credited to reserve.

The new ship so acquired cannot be be sold/transferred before the expiry of 3 years from the end
of year in which the ship was acquired.

ð # 


  
    
5

(a)p Unutilised amount in shipping reserve :-

(Same as discussed u/s 33AB in pt. (i)

(b)pSale new ship before 3 years :-

(Same as discussed u/s 33AB in pt. (i)

(c)p Consequences in the new ship in transferred after the expiry of three years

On sale of such ship after 3 years, the sale proceeds is required to be used for requiring a
new ship within a period of one year from the end of previous year of such sale.
Otherwise the deduction will be withdrawn & amount shall be treated as the business
income of the A.Y. in which the ship in sold.

*6ë 
  

    


(

Such expenses are not allowed as deduction against business income because such expenses are
not incurred for the purpose of carrying of business or profession. Thus, retrenchment
compensation paid to staff after liquidation of Co. is not allowed as deduction (P.N. Ganesan (P)
Ltd. V.C.II. (1990) 52 TAXMANN 461 Madras HC

"  5


-,2
4
-
 

(*+p ,
-  5
-
)- 5, ,,
*ëp) 

  

    

   

It is never advisable to shut down or discontinue such a business.

*ëp) 

  
    

   

If possible, such a business should be continued till the past losses and unabsorbed
depreciation are not fully set off.

(%+p
,,5- 5, ,,

If the occurrence of loss is a temporary phenomenon and financial position of the business
allows the business house to bear such losses for some years then such a business should be
continued. The business, in this case, can be continued at reduced level of activity. Later on,
when the business restarts earning profit, then past business losses and unabsorbed
depreciation can be set off.

However, if the occurrences of losses is expected to be for a long period then business should
be discontinued at the earliest.

(9+p1
4=
=--, ,,2
,
24 2 -4 
  
   
=,99c$R

Following tax planning can avoid withdrawl of deduction claimed u/s 33AB:-

(i)p If assets acquired by withdrawing amount from µSpecial Account¶ are to be sold
before the expiry of stipulated period of 8 years then, if possible, such assets should
be sold to any of the following persons :-
(a)p Government (Central or state)
(b)pLocal Authority
(c)p A corporation established by or under a Central, State or Provincial Act
(d)pA government company as defined in Sec 617 of the Companies Act, 1956

If this is done, then the incentive deduction shall not be withdrawn and hence assessee shall
not be liable to pay tax on deemed business profits.

(ii)p In case of firm :- If assets acquired u/s 33AB are required to be sold before the expiry
of 8 years then such a firm is advised to sell/ transfer such assets to a company in
connections with succession of firm by company arrangement subject to fulfillment
of prescribed conditions given for this. These conditions are :
(a)p All the properties of the firm relating to the business or profession immediately
before the succession become the properties of the company;
(b)pAll the liabilities of the firm relating to the business or profession immediately
before the succession become the liabilities of the company;
(c)p All the partners of the firm before succession become all the shareholders of
company.

(:+p1
4-

-- 5,, ,,2
,,
24 2 -4 
  

   =,99c$
Same as suggested for Tea/Coffee/Rubber business in pt(3)
(D+pc,,,,,55  ,2  5, ,,

24 2 -4 
  

   =,99c --,
- 5
  5
(F+p32  ,
  5
Ethe management is advised to see the possibility of its
amalgamation with some other company
(G+p322-, 5, ,,,H , < ,   
-
R
In case of slump sale, the entire business is sold/transferred for a lump sum price without
assigning values to individual assets Sec 50-B of income Tax Act provide the method of
computation of capital gain arising from slump sale.
Capital gain on slump sale = Sale proceeds-Net worth
 5
4
-26)Networth shall be the aggregate value of total assets of the
undertaking/division as reduced by the value of liabilities of such undertaking as
appearing in the books of account.
c55-5 

 ,,,6)
(a)p In case of appreciable assets, the W.D.V off the block
(b)pIn case of other assets, the book value of such assets.Thus management of
discontinued business has two options to sell assets i.e.
(i)p To sell the entire undertaking as slump sale or
(ii)p To sell assets individually or otherwise

So, it is advised that tax incidence under the two options should be analysed before hand.

If undertaking is being sold after having continued for more than three years then the
entire capital gain will be long term capital gain which is put to tax@20%(concessional
rate)





3 !c !cB0"Q

" c"!!" 
3#c$1 !cB0!!cQ? *&c@

Sec 10A provides a deduction of such profits and gains as are derived by an undertaking
from the export of articles or things or computer software for certain consecutive assessment
years.

Such undertakings are required to be set up in FTZ, Electronic hardware Technology


Park, software Technology Park or special economic zone etc.

c $ 

* 32
 -
--
R?*&c(%+( +@

 The undertaking must manufacture or produce articles or things or computer software etc.

 5

-,
4-

"Computer software" means-

(a)p Any computer programmed recorded on any disc, tape, perforated media
or other information storage services;
(b)p Any customized electronic data or any predict or service of service of
similar nature as may be notified by the Board, which is transmitted or
exported from India to any place outside India by any means.

2. 


  -> 5 Undertaking must be located in Free Trade zone. Electronic
hardware Technology Park, software Technology Park, or special Economic zone etc.

 5
-- Q
6)
-- ;
,26)

Öp Kandla Free Trade Zone;


Öp Santacruz Electronics Exports Processing Zone;
Öp Falta Export Processing Zone;
Öp Madras Export Processing Zone;
Öp Cochin Export Processing Zone;
Öp Noida Export Processing Zone;
Öp Or any other Processing Zone;


6 Out of the above, the followings have been converted into 'Special Economic
Zones:

(i)p Santacruz (Mumbai) Electronic Export Processing Zone.


(ii)p Kandla (Gujarat) free Trade Zone.
(iii)p Cochin (Kerala) Export Processing Zone.

 S
4- 2

5 "->S means any park set up in accordance with the Software
Technology, Park Scheme notified by the Government of India in the Ministry of Commerce and
Industry.

S   

  ;
S means a zone which the Central Government may, by
notification in the Official Gazette, specify as a special economic zone for the purpose of this
section.

 S -
 2- 4-2

5"->Smeans any park set up in accordance with the
Electronic Hardware Technology Park (EHTP) Scheme notified by the Government of India in
the Ministry of Commerce and Industry:

9


-
,?*&c(%+( +@




 -> 5 #-
,- 5
 - 5
-
-



(a) In any Free trade zone Previous year relevant to A.Y. 1981-82 or
thereafter

(b) In Electronic Hardware P.Y. relevant to A.Y. 1994-95 or thereafter


Technology park or software
technology park

(c) In any special economic zone P.Y. relevant to A.Y. 2001-02 or thereafter


6For the purpose of this section "manufacture or produce" shall include the cutting
and polishing of precious and semi-precious stones.

: 
-

 

 Undertaking must export out of India, the articles or things or computer software
manufactured or produced.

,  




-,
4-

The profits and gains derived from on-site development of computer software (including
services for development of software) outside India shall be deemed to be the profits and gains
derived from the export of computer software outside India. Thus, where a unit located in the
EPZIEOUISTP develops computer software at the site of client, abroad, such unit should not be
denied the tax holiday under section 10A on the ground that it was prepared on site, as long as
software is a product of the unit.

D  -> 5




- 2,  5
-2-
,-
?*&c(%+
( +@

Undertaking shall not be formed by the splitting up or the reconstruction of a business


already in existence.
However, this condition shall not apply in respect of any undertaking which is formed as
a result of the re-establishment, reconstruction or revival by the assesses of the business of any
such undertaking as is referred to in section 33B, in the circumstances and within the period
specified in that section.

F  -> 5



- -, -

2 -?*&c(%+( +@

Undertaking is not formed by the transfer to it the machinery or plant previously used for
any purpose.

32 ,
-5-  ,S-
, , 
--
,S

Any machinery or plant which was used outside India by any person other than the
assesses shall not be regarded as machinery or plant previously used for any purpose, if the
following conditions are fulfilled:-

(a)p such machinery or plant was not, at any time previous to the date of the installation by
the assessee, used in India;
(b)p such machinery or plant is imported into India from any country outside India; and
(c)p no deduction on account of depreciation in respect of such machinery or plant has
been allowed or is allowable under the provisions of this Act in computing the total
income of any person for any period prior to the date of installation of the machinery
or plant by the assessee.

Thus, if an assessee imports second hand foreign machinery then it shall be treated at par
with purchase of new plant or machinery if certain conditions given above are fulfilled.

 "NT%&/

  
"N
 -> 5

Where old plant or machinery transferred to new undertaking is less than or equal to 20%
of total value of plant or machinery of new undertaking, the benefit of section 10A shall not be
denied to the undertaking. In other words the usage of old plant and machinery upto 20% of total
value of plant and machinery is allowed.
G !   =!- 

 

-  
- 525?*&c(9+@

The sale proceeds of articles or things or computer software exported out of India must
be received in India and if not received in India, then must be brought into India, in convertible
foreign exchange for the purpose of the Foreign Exchange Regulation Act 1973 and any rule
made there under or any other corresponding law for the time being in force.

 5
 
-  
- 5 256) Convertible foreign exchange means
foreign exchange which is for the time being treated by the Reserve Bank of India as convertible
foreign exchange for the purpose of the Foreign Exchange Regulation Act 1973 and any rules
made there under or any other corresponding law for the time being in force.

 5
S
2
- 6[Explanation 1 to Sec 10A (3)]

"Competent authority" means the Reserve Bank of India or such other authority as is
authorized under any law for the time being in force for regulating payments and dealings in
foreign exchange.

-  5
, -
 ,
U  c
U
,  

( 
%
*&c(9++

If sale proceeds are credited to a separate account with any bank outside India with the
approval of the Reserve Bank of India, such amount shall be deemed to have been received in
India.

' !
-
 2-- c
?*&c(D+@

 W.e.f. A.Y. 2001-02, assessee claiming this deduction must furnish, in the prescribed
form No. 56F. Along with the return of income, the report of chartered accountant, as defined in
the explanation below sub-section (2) of section 288, certifying the correctness of the deduction
claimed.

 5

? 
*
%''(%+@
"Accountant' means a 'Chartered accountant within the meaning of the Chartered
Accountants Act, 1949 and includes, in relation to any Sate, any person who by virtue of the
provision of subsection (2) of section 226 of the Companies Act, 1956, is entitled to be appointed
to act as an auditor of companies registered in that State.

8 c

  


   -> 5 !


  
 "-

  


1. (a) Set up in any 100% of profit and gains The deduction is available
FTZ derived by an for a period of 10
undertaking from Export consecutive assessment
of articles Or things years beginning with the
computer Software assessment year relevant to
the previous years in which
undertaking begins to
manufacture or produce
such articles or things or
computer software

2. Undertakings (i) 100% profits by an For a period of 5


which begin undertaking from consecutive A.Y.s
operations on or export. beginning with A.Y.
after 1-4-05 in relevant to P.Y. in which
any special the undertaking begins to
economic zone manufacture articles things
or computer software.

For next 2 consecutive


A.Y.s
(ii) 50% of the profits

(iii) 50% of the profits For next 3 consecutive A.Y.


if certain conditions are
fulfilled*


 
,
-   5    

-9-,

(i)p - 
 2 
 
    c
 The deductions @ 50% of profits will be
available if equivalent amount is debited to profit and loss account and credited to a "Special
Economic Zone Reinvestment Allowance Reserve Account".
(ii)p  ;

 !,-6) The amount credited to the above special account is to be
utilized-
(a)p For the purposes of acquiring new machinery or plant which is first put to use
before the expiry of a period of three years next following the previous year in
which the reserve was created; and
(b)p Until the acquisition of new machinery or plant as aforesaid, for the purposes
of the business of the undertaking other than for distribution by way of
dividend or profits or for remittance outside India as profits or for the creation
of any asset outside India.
(iii)p - ,2 5 -  -,
 4 "  N 2 -6) The assessee is required to
furnish the particulars in respect of new machinery or plant along with the return of
income for the assessment year relevant to the previous year in which such plant or
machinery was first put to use.
3 2 -4 
 

(i)p ,
 !,-
- 
),   -
,6) Where any amount credited to the
'Special Economic Zone Re-investment Allowance Reserve Account" has been used
for any purposes other than those specified above, the amount so utilized shall be
deemed to be the profits of the previous year in which the amount was so utilized.
( +p 
  ;

!,-6)Where the amount transferred to Special Account has
not been used for specified purposes before the expiry of 3 years as stated above the
amount not so utilized shall be deemed to be the profits of the previous year
immediately following the previous year in which the period of 3 years expires.

*& - ,2 5


--



-
-  (c  4 c#%&&F)
&G+

 W.E.F.A.Y. 2006-07, an assessee will be allowed deduction U/S 10A only if the return of
income is filed on or before the due date specified under section 139 (1). In other words,
deduction U/S 10A shall not be available to any undertaking, which does not furnish return of
income on or before the due date.

  

-
 -

-,?*&c(:+@

Profits of the undertaking eligible for benefit u/s 10(A) shall be:-

Profit of the business of the undertaking X Export turnover


Total turnover


P4  ,-   -> 5 O


" c "!  !"   3# c$1 *&&/ "!
! !cB0? *&$@

This section was introduced with effect from A.Y 1989-90. Prior the introduction of this
section, the deduction was available only to those undertaking which were situated in certain
specified areas such as free trade zones etc.

Thus to give a boost to export, government of India introduced the scheme of 100%
export-oriented units and at the same time provided 10 years tax holiday u/s 10B to such
undertakings these 100% EOUs have also been given many other incentives as discussed below:-

a)p Custom duty free import of raw material and other capital equipment required for
production or manufacturing.
b)p Refund of excise duties.
c)p Refund of central sales tax.
d)p Assured regular supply of power, water etc.


-

-5 ;
6)

Deduction u/s 10B is available to a 100% EOU from export of article etc. this section does not
provide any particular form of organization for undertaking. Thus undertaking can be operated as
sole proprietorship, partnership firm, company etc.

c $ 6)

*+p 32
 -=-
?,*&$(%+( +@6)2 -> 5, -
-
-
,-  ,
-2 5,
-
-,
4-
Meaning of computer software:-

-,
4-,-
a)p Any computer program recorded on any disc, tape, perforated media or other information
storage device etc.
b)p Any customized electronic data or any product or service of similar nature as may be
notified by the board, which is transmitted or exported from India to any other place
outside India by any means.
%+p *&&/ 
-)
-    , ?, *& $ (*+@6) 2  -> 5 ,   *&&/
-

-   -> 5
 5
 *&&/ 
-)
-    -> 5: - this means an undertaking which has
been approved as a hundred percent export oriented undertaking by the board appointed in
this behalf by the central government in exercise of the powers conferred by section14 of the
industries (development and regulation) Act, 1951 and rules made under that Act.

,  




-,
4-6)
The profits and gains derived from onsite development of computer soft ware
(including services for development of soft ware) outside India shall be deemed to be the
profit and gain derived from the export of computer soft ware outside India.

9+p  -> 5




- 2,  5=
-2-
,-
?,*&$(%+( +@
Undertaking shall not be formed by the splitting up or the reconstruction of a business
already in existence.
:+p  -> 5

- -, -

2 -?,*&$(%+( +@
Undertaking is not formed by the transfer of machinery or plant previously used for any
purpose.

32 ,
-5-  ,-
, , 
--
,6)
Any machinery or plant which was used outside India by any person other than the assessee
shall not be regarded as machinery or plant previously used for any purpose if the following
conditions are fulfilled:-
i)p Such machinery or plant was not, at any time previously to the date of installation by
the assessor used in India.
ii)p Such machinery or plant is imported into India from any country outside India.
iii)pNo deduction on account of depreciation in respect of such machinery or plant has
been allowed or is allowable under the provision of Act in computing the total income
of any person for any period to the date of installation of machinery or plant by
assesses.
Thus, if an assessee imports second hand foreign machinery then it shall be treated as
par with purchase of new plant or machinery if certain conditions given above are
fulfilled
D+p !   =-- 

 

-  
- 525?,*&$(9+@
The sale proceeds of articles or things or computer soft ware exported out of India must be
received in India and if not received in India then must be brought into Indian convertible
foreign exchange within 6 months from the end of relevant previous year. This period can be
extended by the competent authority.

 5

-  
- 5256)
Convertible foreign exchange means for foreign exchange which is for the time being treated
by the RBI as convertible foreign exchange for the purpose of the foreign exchange
regulation act 1973 and any rules made there under or any other corresponding law for the
time being in force.

 5
H
2
- <6)
Competent authority means the RBI or such other authority as is authorized under any law
for the time being in force for regulating payments and dealings in foreign exchange.
F+p !
-2-- 
?,*&$(D+@
-We & AY 2001-02, assessee claiming this deduction must furnish in the prescribed form no.
56G, along with return of income, the report of chartered below sub section (2) of section
288, certifying the correctness of deduction claimed.

 5

6)
Accountant means a chartered accountants act within the meaning of the chartered
accountants ACT, 1949 and includes in relation to any state, any person who by virtue of the
provision of sub section (2) of section 226 of the companies ACT,1956, is entitled to be
appointed to act is an auditor of companies registered in that state.

G+p - ,2 5


--
 


-
-  (  4 c#%&&F)&G+
W.e.f. A.Y. 2006-07 an assessee will be allowed deduction U/S 10B only if the return of
income is field on or before the due date specified under section 139(1). In other words
deduction U/S 10A shall not be available to any undertaking, which does not furnish return
of income on or before the due date.

c

  
(
-c#%&*&)**+
100% of the profits and gains of the business of the undertaking.
"-

  
6)
The deduction is available for a period of 10 consecutive assessment years beginning with
the assessment year relevant to the previous year in which the undertaking being to
manufacture or produce such articles or things or computer software
(No deduction u/s 10B shall be allowed to an undertaking for the assessment year 1012-13
and subsequent years)




"  5c 5

p

c 5


Amalgamation is a blending of two or more existing undertakings into one undertaking. The
shareholders of each blending company become substantially the shareholders in the company
which is to carry on the business of the blended undertakings. There may be amalgamation either
by transfer of two or more undertakings to a new company, or by the transfer of one or more
undertakings to an existing company.

 5
c 5
 -2
c?%(*$+@

"Amalgamation", in relation to companies, means the merger of one or more companies with
another company or the merger of two or more companies to form one company (the company or
companies which so merge being referred to as the amalgamating company or companies and the
company with which they merge or which is formed as a result of the merger, as the
amalgamated company) in such a manner that -

a)p All the property of the amalgamating company or companies immediately before the
amalgamation becomes the property of the amalgamated company by virtue of the
amalgamation;

b)p All the liabilities of the amalgamating company or companies immediately before the
amalgamation become the liabilities of the amalgamated company by virtue of the
amalgamation;

c)p Shareholders holding not less than three-fourths in value of the shares in the
amalgamating company or companies (other than shares already held therein immediately
before the amalgamation by, or by a nominee for, the amalgamated company or its
subsidiary) become shareholders of the amalgamated company by virtue of the
amalgamation.

lp Actual cost and written down value when assets are transferred in scheme of amalgamation
[Sec 43]:

When a capital Asset [Sec 43(1)]: 

Where, in a scheme of amalgamation, any capital asset is transferred by the


amalgamating company to the amalgamated company and the amalgamated company is
an Indian company, the actual cost of the transferred capital asset to the amalgamated
company shall be taken to be the same as it would have been if the amalgamating
company had continued to hold the capital asset for the purposes of its own business.

When a Block of Asset is transferred [Sec 43(6)]:

Where in any previous year, any block of assets is transferred, by the amalgamating
company to the amalgamated company in a scheme of amalgamation, and the
amalgamated company is an Indian company, the actual cost of the block of assets in the
case of the transferee-company or the amalgamated company, as the case may be, shall
be the written down value of the block of assets as in the case of the transferor-company
or the amalgamating company for the immediately preceding previous year as reduced by
the amount of depreciation actually allowed in relation to the said preceding previous
year.

The expenditure incurred in connection with the amalgamation is allowed to be written


off in 5 successive years, beginning with the previous year in which the amalgamation
takes place.

lp Transfer of capital assets in amalgamation-when not treated as transfer [Sec 47]

Transfer of capital assets to amalgamated Indian company [Sec47 (vi)]:

Any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company


to the amalgamated company is not taken as a transfer

a)p If the amalgamated company is an Indian company;

b)p The scheme of amalgamation satisfies the condition of section 2(1B).

lp Transfer of shares in an Indian company held by a foreign company to another foreign


company in a scheme of amalgamation [Sec 47 (via)]

Any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in
an Indian company, by the amalgamating foreign company to the amalgamated foreign
company, if ±

a)p At least twenty-five per cent of the shareholders of the amalgamating foreign company
continue to remain shareholders of the amalgamated foreign company, and

b)p Such transfer does not attract tax on capital gains in the country, in which the
amalgamating company is incorporated;

lp Allotment of shares in amalgamated company to the shareholders of amalgamating company


[sec 47 and 49(2)]
Any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share
or shares held by him in the amalgamating company, if -

a)p The transfer is made in consideration of the allotment to him of any share or shares in the
amalgamated company, and

b)p The amalgamated company is an Indian company;

In the aforesaid cases, the cost of acquisition of the asset shall be deemed to be the cost of
acquisition to him of the share or shares in the amalgamating company.

lp --
-4-  ,)


,,,?G%c@

The accumulated loss and unabsorbed depreciation of the amalgamating company


shall be deemed to be loss/depreciation of the amalgamated company subject to
following conditions:

1.p Amalgamation of a company owning industrial undertaking, public sector


company or companies engaged in the business of operation of aircraft,
shipping business, hotel business or a banking company.
2.p The amalgamating company has been engaged in the business for three or
more years.
3.p The amalgamating company has continuously held 75% of the book value of
fixed assets for two years prior to the date of amalgamation.
4.p The amalgamated company continues to hold 75% of the book value of fixed
assets of amalgamating company for five years.
5.p The amalgamated company should continue the business the business of the
amalgamating company for a period of five years.
6.p The amalgamated company fulfils such other conditions as may be prescribed
to ensure the revival of the business of the amalgamating company or to
ensure that the amalgamation is for genuine business purpose.
7.p The amalgamated company should achieve level of production of at least 50%
before the end of four years.
8.p The amalgamated company shall furnish certificate about particulars of
production.

2

4 5,),
(Fc+,2  ,-  -,),
(F+
,
G%c2
 cE%&*&E4 *):)%&**6

(6A) Where there has been reorganisation of business whereby a private company or
unlisted public company is succeeded by a limited liability partnership fulfilling the
conditions laid down in the proviso to clause (xiiib) of section 47, then, notwithstanding
anything contained in any other provision of this Act, the accumulated loss and the
unabsorbed depreciation of the predecessor company, shall be deemed to be the loss or
allowance for depreciation of the successor limited liability partnership for the purpose of
the previous year in which business reorganisation was effected and other provisions of
this Act relating to set off and carry forward of loss and allowance for depreciation shall
apply accordingly.

³c  
,,´ means so much of the loss of the predecessor firm or the proprietary
concern or the private company or unlisted public company before conversion into
limited liability partnership or the amalgamating company or the demerged company, as
the case may be, under the head ³Profits and gains of business or profession´ (not being a
loss sustained in a speculation business) which such predecessor firm or the proprietary
concern or the company or amalgamating company or demerged company, would have
been entitled to carry forward and set off under the provisions of section 72 if the
reorganisation of business or conversion or amalgamation or demerger had not taken
place

³ ,-   -> 5´ means any undertaking which is engaged in²
(i)p the manufacture or processing of goods; or
(ii)p the manufacture of computer software; or
(iii)p the business of generation or distribution of electricity or any other form of
power; or
(iv)p mining; or
(v)p the construction of ships, aircrafts or rail systems
2

4 5 ,(+,2 ,,  
-2 , 5 ,(+
,),
(G+

,
G%c2 cE%&*&E4 *):)%&**6

³Unabsorbed depreciation´ means so much of the allowance for depreciation of the


predecessor firm or the proprietary concern or the private company or unlisted public
company before conversion into limited liability partnership or the amalgamating
company or the demerged company, as the case may be, which remains to be allowed and
which would have been allowed to the predecessor firm or the proprietary concern or the
company or amalgamating company or demerged company, as the case may be, under the
provisions of this Act, if the reorganisation of business or conversion or amalgamation or
demerger had not taken place

"-
 ,
, -  5 
 --
-4-    ,)

   
,,   ,
- 
- 

4 ,2
 5

> 5
 - ,,
G%ccNotwithstanding anything contained in sub-clauses (i) to (iii) of clause (1B) of section 2
or section 72A, where there has been an amalgamation of a banking company with any other
banking institution under a scheme sanctioned and brought into force by the Central Government
under sub-section (7) of section 45 of the Banking Regulation Act, 1949 (10 of 1949) , the
accumulated loss and the unabsorbed depreciation of such banking company shall be deemed to
be the loss or, as the case may be, allowance for depreciation of such banking institution for the
previous year in which the scheme of amalgamation was brought into force and other provisions
of this Act relating to set-off and carry forward of loss and allowance for depreciation shall apply
accordingly.
c 5

,2  5
 ,6)
**D# Where there has been an amalgamation of a company with another company or
companies, then, subject to the other provisions of this section, the provisions relating to the
tonnage tax scheme shall, as far as may be, apply to the amalgamated company if it is a
qualifying company:
"-
  that where the amalgamated company is not a tonnage tax company, it shall exercise
an option for tonnage tax scheme under sub-section (1) of section 115VP within three months
from the date of the approval of the scheme of amalgamation:
"-
   -2- that where the amalgamating companies are tonnage tax companies, the
provisions of this Chapter shall, as far as may be, apply to the amalgamated company for such
period as the option for tonnage tax scheme which has the longest unexpired period continues to
be in force:
"-
   ,
that where one of the amalgamating companies is a qualifying company as on the
1st day of October, 2004 and which has not exercised the option for tonnage tax scheme within
the initial period, the provisions of this Chapter shall not apply to the amalgamated company and
the income of the amalgamated company from the business of operating qualifying ships shall be
computed in accordance with the other provisions of this Act.
M  5
6)
**D For the purposes of this Chapter, a company is a qualifying company if²
() it is an Indian company;
() the place of effective management of the company is in India;
( ) it owns at least one qualifying ship; and
( ) the main object of the company is to carry on the business of operating ships
³
5  ,2´ means a scheme for computation of profits and gains of business of
operating qualifying ships under the Special Provisions Relating To Income Of Shipping
Companies
**DFor the purposes of this Chapter, a ship is a C  5,2  if²
() it is a sea going ship or vessel of fifteen net tonnage or more;
() it is a ship registered under the Merchant Shipping Act, 1958 (44 of 1958), or a ship
registered outside India in respect of which a license has been issued by the Director-
General of Shipping under section 406 or section 407 of the Merchant Shipping Act,
1958 (44 of 1958); and
( ) a valid certificate in respect of such ship indicating its net tonnage is in force

There are many tax incentives for amalgamation to the amalgamating company, shareholders as
well as to the amalgamated company which are as under.

$ 
2 5 5
: -

1- Exemption from capital gain: - amalgamating company has no liability of capital gain tax if
the amalgamated company is an Indian company on the transfer of the capital assets under
section 47(vi).

2- Tax concession to foreign company: - no capital gain tax on transfer of shares of an Indian
company to a foreign company to another foreign company if these conditions are fulfilled.

- 25% or more shareholders of the amalgamating foreign company become the


shareholders of the foreign amalgamated company.

- In this transfer no capital gain tax will be charged.

No tax liability on transfer of license:- no tax liability on transfer of the license in


communication, gas, power etc fields if the amalgamating as well as amalgamated company is an
Indian company

$ ,
2,2-2
-,-, -:-

1- Time frame of holding: - the shareholder has the right of share in the amalgamated
company in the time process of amalgamation.

2- Exchange: - no brokerage as well as exchange will attract in case of amalgamation.

$ ,
2 5 
-,- 42 2-, -:-

1- Capital expenditure on scientific research (Section 35(5)): - if the company before claiming
full deduction on capital expenditure amalgamated, the amalgamated company can claim the
remaining part of deduction.

2- Expenditure on license (Section 35 ABB (6)): - if the company before claiming full
deduction on obtaining license of telecommunication, the amalgamated company can claim the
remaining installments on such deduction.

3- Preliminary expenses (Section 35D (5)): - if the company before claiming full deduction of
preliminary expenses amalgamated, the amalgamated company can claim the remaining part of
deduction.
4- Capital expenditure on patent and copyright (Section 35A(6)):- if the company before
claiming full deduction on capital expenditure on patent or copyright amalgamated, the
amalgamated company can claim the remaining part of deduction

5- Amalgamation expenses (Section 35DD(1)): - if an Indian company does expenses on


amalgamation, the company is allowed a deduction of 20% per year for the time frame of five
year starting from the year in which the amalgamation is done.

6- Voluntary retirement scheme expenses (Section 35DDA): - if the company before claiming
full deduction on voluntary retirement scheme expenses amalgamated, the amalgamated
company can claim the remaining part of deduction.

7- Prospecting of mineral expenses (Section 35E (7)): - if the company before claiming full
deduction on prospecting or extraction or production of such minerals amalgamated, the
amalgamated company can claim the remaining part of deduction.

8- Capital expenses on family planning(Section 36(1)(ix)):- if the company before claiming


full deduction on capital expenditure on family planning amalgamated, the amalgamated
company can claim the remaining part of deduction.

9- Bad debts: - if the amalgamating company has some bad debts, they are automatically
become the bad debts of amalgamated company and such company are entitled to claim
deduction on it.

SEZ or 100% export unit: - if a company in SEZ or 100% export unit undertaking transferred to
another Indian company, such company is entitled to claim the benefits of SEZ and 100% export
unit without any formalities and for unexpired period

-
, ,,
,,,  - 

2 5 5
6)

If there are some losses of amalgamating company or the value of depreciation for the previous
year in the field of banking company as well as the aviation or ship, hotel etc, the amalgamated
company can treat these losses and value of depreciation of their own and can set- off and carry
forwarding accordingly. Amalgamated company has the right to carry forward and set off
business losses of amalgamating company to eight years from the year in which the
amalgamation done. These are few points which should be fulfilled for this set off and carry
forward.

- The loss should be the business loss and not the speculative losses.

- There should be regular flow of give and take in the business and not only single or

double entry of exchange of goods in which the business loss occurs.

- The loss should be notified to the central government of India.


- The amalgamated company should use at least fifty percent of the production of the

sources of amalgamating company before claiming such deduction.

- There should be a written application to the central government of India for the

deduction and carry forward.

   5  2 


-,
  5
6 ) 2, ,, ,2
  >    
-
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 2 4
 5
.

1- If there are some assets or liabilities which are not taken by the merging company, these
assets should be sold and liabilities should be paid before any process of amalgamation.

2- If the shareholders holding more than 25% shares of the company not willing to be a
shareholder to the new company after merging, they should be paid off for fulfilling the
condition of 75% shares must for the amalgamation.

3- It¶s always better that the loss making company merges in a good profit making company
for claiming the set off and carry forward losses and depreciation.

4- Shares of the new company should be given to the shareholder in contrast of amalgamation
for claiming the deduction 47(vii) of income tax. If shares +debentures + cash are given to the
shareholder, the deduction is not available.









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8&+

Section 90 of the Income Tax Act, 1961, empowers the central government to enter into
agreements with the Government of any country for the grant of relief against double taxation or
for the avoidance of double taxation. This section also empowers the Central Government to
make such provisions as may be necessary for implementation of such agreement and such
provisions may be published in the Official Gazette. Under this section, the central government
may enter into agreement with foreign countries:

1.p For the granting of relief in respect of income on which have been paid both income-tax
under this act and income-tax in that country , or
2.p For the avoidance of double taxation of income under this act and under the
corresponding law in force in that country , or
3.p For exchange of information for the prevention of evasion or avoidance of income-tax
chargeable under this act or under the corresponding law in force in that country, or
investigation of cases of such evasion or avoidance, or
4.p For recovery of income-tax under this act and under the corresponding law in force in
that country.
The Central government has so far entered into agreements for relief against or avoidance
of double taxation with many countries and these agreements are in operation.
These agreements may be classified into two parts:
(a)p Agreement for relief from Double taxation
(b)pAgreement for avoidance of Double taxation

c0!!!! $cc

Under this category assessments provide for payment of tax in both the countries under the
respective laws of those countries but later on rebate of tax is given in both the countries on
doubly assessed income. In such case assessee must show that the identical income has been
doubly taxed and that he has paid tax both in India and in the foreign country.

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Under these agreements the assessee has first to pay the tax and then apply for relief in the form
of a refund. Each country recovers tax only on that portion of income which accrued within that
country and takes into account the income accruing in other country only for rate purposes. In
such cases no refund arises.

 8*-
 ,6

(+p c!c !  !"   !0   c


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Subject to following conditions unilateral relief is granted in cases where section 90 is not
applicable:

(a)p Assessee should be resident of India in the previous year


(b)pThe income , in fact , should have accrued outside India and should not be deemed under
any provision of this Act to accrue in India
(c)p The income should be taxed both in India and a foreign country with hich India has no
agreement for relief against or avoidance of double taxation; and
(d)pThe assessee should have paid the tax in such foreign country by deduction or otherwise.
(+p!  c  c0!  !c   !
"cBc( 8*(%++

In case a resident of India has paid any tax on agricultural income which accrued or arose to
him during that previous year in Pakistan, he shall be entitled to a deduction from the Indian
income tax payable by him of the amount of tax paid in Pakistan or sum calculated at the
Indian rate of tax whichever is less.

(+p ! c1c!1!0 c!0!


!( 8*(9++
An assesse receiving share in foreign income of a registered firm shall be entitled to the
relief of tax on such share provided the firm receives income from a foreign country with
which no agreement exists under Section 90 and assessee has paid tax in that foreign
country.
Relief will be allowed only on doubly assessed income at the rate of the said country or
Indian rate of tax, whichever is lower.

0-  ,


- ,- ,

100% deduction of profits and gains for ten years is available in respect of the following:

i)p Development or operation and maintenance of ports, airports, roads, highways,


bridges, rail systems, inland waterways, inland ports, water supply projects, water
treatment systems, irrigation projects, sanitation and sewage projects, solid waste
management systems.
ii)p Generation, distribution and transmission of power which commence before
31.3.2006.
iii)p Development, operation and maintenance of an Industrial Park or Special Economic
Zone before 31.3.2006.

Following tax exemptions are available in different sectors:


Deduction of 100% of the profit from business of
a)p Development or operation and maintenance of ports, air ports, roads, highways, bridges
etc.
b)p Generation, distribution and transmission of power
c)p Development, operation and maintenance of an Industrial Park or SEZ
d)p By undertakings set up in certain notified areas or in certain thrust sector industries in the
North-eastern states and Sikkim.
e)p By undertakings set up in certain notified areas or in certain thrust sector industries in
Uttaranchal & Himachal Pradesh
f)p Derived from export of articles or software by undertakings in FTZ / EHTP / STP
g)p Derived from export of articles or software by undertakings in SEZ
h)p Derived from export of articles or software by 100% EOU
i)p An offshore banking unit situated in a SEZ from business activities with units located in
the SEZ.
j)p Derived by undertakings engaged in the business of developing and building housing
projects. Deduction of 50% of profits derived from the business of building, owning and
operation of multiplex theatres of convention centre is also available.
k)p Derived by an undertaking engaged in the integrated business of handling, storage and
transportation of food grains.
l)p Derived by an undertaking engaged in the commercial production or refining of mineral
oil
m)p Derived by an undertaking from export of woodbased handicraft

ҏ100% deduction for seven years for undertakings producing or refining mineral oil.

1ҏ 00% deduction from income for first five years and 30% (for persons other than Companies)
25% in subsequent five years is available in respect of the following:
a)p ҐҏCompany which starts providing telecommunication services whether basic or cellular
including radio paging, domestic satellite service, network or trunking, broad band
network and internet services before 31.3.2003.
b)p ҏIndustrial undertakings located in certain specified industrially backward states and
districts.
c)p ҐҏUndertakings which begin to operate cold chain facilities for agricultural produce before
31.3.2003.
d)p ҐҏUndertakings engaged in the business of handling, storage, transportation of food grains.

5ҏ 0% deduction for a period of five years is available to undertakings engaged in the business of
building, owning and operating multiplex theatres or convention centres constructed before
31.3.2005.

ҏTax exemption of 100% on export profits for ten years upto F.Y. 2009-10, for new industries
located in EHTPs and STPs and 100% Export Oriented Units. For units set up in Special
Economic Zones (SEZs), 100% deduction of export income for first five years followed by 50%
for next two years, even beyond 2009-10.

ҏ ax exemption of 100% of Export profits for ten years for new industries located in Integrated
T
Infrastructure Development Centres or Industrial Growth Centres of the North Eastern Region.

ҏDeduction of 50% of export profits from the gross total income. The deduction would be
restricted to 30% for financial year 2003-04 and no deduction is allowable subsequently.
ҏ eduction from the gross total income of 50% of foreign exchange earnings by hotels and tour
D
operators. The deduction would be restricted to 30% for financial year 2003- 04 and no
deduction is allowable subsequently.

ҏ50% deduction of export income due to export of computer software or film software,
television software, music software, from the gross total income. Deduction in respect of certain
inter-corporate dividends to the extent of dividend declared.

ҏExemption of any income by way of dividend, interest or long term capital gains of an
infrastructure capital fund or an infrastructure capital company from investment made by way of
shares or long term finance in any enterprises carrying on the business of developing,
maintaining and operating infrastructure facility.














$, ,
- 

 
p $p
1. Service tax is a tax on service.
2. Service means value addition to a product that is intangible.
3. If there no service, there no tax.
4. Service tax is imposed by amending chapter V of finance act 1994 from time to time.
5. There is also no provision of deduction of tax at source from service tax and therefore the
service receiver does not deduct tax from the payment to service provider and deposit it to
department.
6. Service tax is payable on taxable service only.

 
-- 
1. Services Constitute a very heterogeneous spectrum of economic activities
2. With the increasing role of service sector and its contribution to GDP, the government felt that
this sector should not go untaxed.
3. The growth of service sector at higher rate offers opportunities as well as challenges to bring
under tax net, hitherto uncovered services which in turn offer revenue to the government.
4. Service tax will reduce burden on the international trade (custom duty) and domestic
manufacturing sector (excise duty).
5. Service tax in India Made a humble beginning from July 1, 1994 with only three services
being covered in the organized sector, i.e. telephone, general insurance & stock broking.
6. Since, 1994 it has been amended every year to add more services into tax net.


 --
2,
,- 
There are 2 type of approaches :-
1. Comprehensive approach: - All services are taxable and a negative list is specified for services
which are not taxable.
2. Selective approach:-It includes only selective services which are subject to service tax . India
follows a selective approach of taxing selected services only. Service Tax is levied on specified
services and paid by the service provider.

-,
,- 6)
1.  -:- It is a source of revenue for the government in form of indirect taxes.
2. 
,-c:-Central Government has the power to make rules to carry out the provisions
of the Act.
3. c   ,- $ $ : - It is administered by central board of excise and customs.
4. 
--:-Currently it is 10 %.
5. 

 
:- Services falling under two or more sub clauses cannot be taxed twice if
service is provided only once.
6. 
  
ANB,2 -:- It is extended to whole of India except the state of
J&K.
7.   
 ,- ,:- Service Tax is leviable on taxable services (i.e. those services
in respect of which charge of tax has been created under the act at the prescribed rates.
8.  ,- -
 -,   :- a threshold limit of Rs 10 lakhs has been prescribed up to
which value of all taxable services provided by a service provider during financial year is fully
exempted from tax.
9.  ,- = 2-
:- for this purpose , the taxable service and the value of taxable
service have been specifically defined.
10.  ,5-  2,- -
 -:- The act makes the person providing the
service to pay service tax in such a manner except in the situations provided in rule
2 (1)( d) of the service tax rules.
11.  ,,,,:-Provision have been made for self assessment ,rectifications, revisions
,appeals, penalties etc as well as for registration of persons liable to pay tax.
*%

 
6)power have been given to the government to grant exemptions
from service tax in appropriate cases , by means of specific notifications.
*9
-
,6)Under service tax ,there is reliance on collection of primarly
through voluntary compliance.

  
(F:+
Service Tax introduced by virtue of chapter V of the finance act 1994 extends to the whole of
India except to the state of J & K .service tax is not payable if the services are provider in the
state of J & K irrespective of the fact whether the service provider is residing in or outside J & K.
Services provided by a resident of J & K to a client residing in other parts of the country would
be liable for payment of service tax . Services provided in the state of J & K from any other state
are not subject to payment of service tax


-   

1. Advertising agency.
2. Airport services.
3. Air travel agent.
4. Architect.
5. Asset management including portfolio management.
6. ATM operation & management.
7. Auctioneer¶s service.
8. Banking & financial services.
9. Beauty treatment
10. Broadcasting.
11. Business auxiliary & support services & CS services & cost accounting services.
12. Chartered accountant services
13. Cleaning activity
14. Club or association services
15. Commercial training or coaching
16. Construction
17. Courier
18. Legal consultancy
19. Stock exchange, broking
20. Franchise, intellectual property

"-
 -
,- 

"-
 -   ,2

4 56
1. !5 ,-
:-the application for the registration of is required to be made in duplicate in form
ST -1 prescribed under the rules. The following documents shall be enclosed along with
registration from :-
c

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"-


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The department /applicant deposit self certified copies and department is required to issue
registration certificate within 7 days of the receipt of application. In case of failure to issue
registration certificates within 7 days the registration applied for is deemed to have been granted
& the assesse can carry on with his activities
% 
-
- ,6)
a. 
:- Every person providing taxable service shall issue an invoice
/bill/challan not later than 14 days from the date of completion of taxable service or receipt of
payment whichever is earlier. Bill /invoice challan should include :-
i. Name & address & registration number of the person providing taxable services.
ii. Name & address of the person receiving taxable services.
iii. Service description & classification.
iv. Bill /invoice should be serially numbered & signed by authorized person.
3. "
,- :- The assesses has to pay tax in the bank designated by CBEC in
form TR -6 or in any other manner as prescribed by CBEC. The list of Bank is available in every
commissioner ate of central excise. Some banks provide the facility of e payment or cheque can
also be deposited in the bank.
4.  5
--6)Every person liable to pay tax needs to self assess the tax on the service
provided by him. Further a return must be furnished to superintendent of central excise . The
return is to be furnished in form ST-3 Under rule 7(1) the return is to be filed on half year basis
& should be filed in triplicate on or before 25th of month following particulars half year. There
can be e filing of return also.

"  -,- 


 ,-  ,
 
-  -    
, 6)
a) Rs 200 per day during which the failure continues.
b) 2 percent per month during which the failure continues whichever is higher.

0- 
, -
,- 
The central government can grant total or partial exemptions to taxable services under section
93. The following general exemptions are available to service provider from payment of whole
amount of service tax :
a) Services provided to the united nation and any other International organization.
b) Services provided to a developer or units of special economic zones.
c) Goods & material sold by services provider to recipient of service provided value of
taxable service does not exceeds 10 lakhs.
d) Exemption of small service providers.
e) Services provided by Reserve bank of India.
f) Exemptions to technology business indicator (TBI), sciences & technology entrepreneurship
parks & incubates provided that business of incubates does not exceed Rs 50 lakhs.
g) Services provided by a digital cinema services provider.
h) Services provided by resident¶s welfare associations where the monthly contribution does not
exceed Rs 3000.
i) Technical testing & analysis services including vaccines & herbal remedies on human
participants by a clinical research organization.


 ,
- 5
$ 56)%&**- 
1 52 52
2 , 56
+Service tax will be payable on accrual basis from 1.04.2011. So the moment a service
provider will book any invoice in his books the tax will become payable.
b) Service tax is being levied on all services provided by a medium sized hospital (having more
than 25 beds) irrespective of whether the patient has insurance or not.
c) Service tax on Hotels have been introduced in a big way:
i) Room rentals above a declared rate of Rs. 1000 will be chargeable to service tax ± with an
optional abatement of 50%.
ii) Services provided by air-conditioned restaurants having a license to serve alcoholic
beverages ± this service will get optional 70% abatement.
d)p Penal provisions are made harsher with introduction of penalties even when tax is being
paid under audit.
e)p Introduction of prosecution provisions wherein the assesses evading tax payments for
more than 6 months may face imprisonment of upto 3 years.


 ,
c ,  , 5 4

*+p No change in the rate of service tax ± it remains at 10.30 %
%+p Two new services are being brought under the tax net:
a)p !c !c
Services provided by air-conditioned restaurants having a license to serve alcoholic
beverages ± this service will get optional 70% abatement.
b)p 1
Hotels and guesthouses giving rooms for accommodation for a continuous period less
than 3 months ± this service brings into the tax net only rooms having a declared
(Rack) rate of more than Rs. 1000 (chargeable rate may be less). This service will get
an optional 50% abatement.
9+p Scope of certain existing services is being changed and in almost all cases the changes
are drastic :
a)p  $!c c! 
 '" (
Services provided by a club or association to ITS MEMBERS were only taxable
Ô ( Services provided to NON MEMBERS will also become taxable
ëp c 1!! c
 '" (Services provided by AUTHORISED SERVICE STATION were only
taxable
Ô Services provided by ANY PERSON will be taxable so all small mechanics
provided services for more than 10 lacs in a year will become taxable.
ëp c3#!
 '" ( Services provided by a firm of lawyers to any individual were not taxable.
Secondly legal representational services like appearing in court of law for a client
were also not taxable
Ô Services provided by a firm of lawyers to any person shall become taxable and
legal representation services provided by any person (including individuals) to any
business entity shall also become taxable.   -25 , 


-
2-- 
, 
,-- ,Arbitration services are also
brought into the tax net but still if the same are provided to individuals the same shall
not be taxable.
ëp ! c!c0! c 10! 
The memorandum issued along-with the Budget says that ³The definition of
commercial or training service is being amended to bring all unrecognised courses
within the tax net, irrespective of the fact that such courses are conducted by an
institute.´ But the consequent change in the section does not reflect the said change ±
on the contrary ± the amended section says that all courses offered by a coaching
centre WITH OR WITHOUT ISSUANCE of certificate will be taxable This anomaly
needs to be looked into an corrected before enactment of the Finance Act.
ëp 1"c! Major change has been made in this entry
 '" ( 2 Services provided by a hospital were ONLY taxable:
!p Services provided to patients wherein the payment was to be paid by thE
insurance company
!p Services of health check up or preventive care provided to an employee of a
company wherein the company paid the charges to the hospital
Ô ( The whole section is changed and the new entry provides that
!p ALL services provided by a CENTRALLY AIR-CONDITIONED (wholly
or partially) hospital having more than 25 beds for in-patient treatment
during any part of the year. (The insurance company is completely brought
out from the picture)
!p If an independent doctor (not being an employee of the hospital) provides
his services using the premises of the said hospital will also now become
taxable ±so now all visiting doctors of a hospital will be taxable.
!p Diagnostic services provided by the said hospital with the aid of a
laboratory or other medical equipments.

4ëp Full exemption is being provided under the works contract service for providing
construction or finishing of new residential complex under JNNURM and Rajiv Awaas
Yojana and within a port or airport. (Earlier this exemption was provided only under the
category of Construction of residential complex and commercial construction service.
6ëp Rates of Service tax on air travel are being increased as under Domestic Travel - From
flat Rs. 100 to 150 International Travel - From flat Rs. 500 to 750
-ëp Penal provisions are changed in big way in this budget ± following is the gist of them:
A)p Section 73 (1A) is deleted wherein benefit of reduced penalty of 25% even
in case of fraud, collusion etc shall not be available.
B)p Instead a new section 73 (4A) is being introduced wherein it has been
provided that if during an audit, verification or investigation by the
department it is found that the assessee has short paid any tax than a
penalty of 1% per month upto a maximum of 25% shall be levied. If the
same is paid than no show cause notice shall be issued. So now penalty
will become compulsory the moment an audit party finds any short
payment of tax which was not so earlier.
C)p Penalty under section 76 for delayed payment of tax has been reduced
from Rs. 200 per day or 2% per month to Rs. 100 or to 1% per month ±
whichever is higher subject to a maximum penalty of 50% of the tax
amount. Earlier it was 100%.
D)p Maximum penalty for non submission of records etc under section 77 has
been increased from Rs. 5000 to 10000.
E)p Penalty for late filing of returns has been increased from a maximum of
Rs. 2000 to 20000.
F)p Power to authorise a Search has now been given to a Joint commissioner
(Earlier it was with Commissioner) and power to execute the search has
been given to a Superintendent (earlier it was Assistant or deputy
commissioner)
G)p Certain section of the Central Excise Act which deal with prosecution are
now made applicable to Service tax.
H)p Section 89 is being introduced to bring prosecution provisions:
*ëp The prosecution shall apply in the following cases:
!p Provision of service without invoice
!p Availment and utilisation of credit without receipt of
inputs or input services
!p Submitting false information
!p 
)"

 

,- 
-
-


-2F
2,
*ëpThe term of the imprisonment shall be from 6 months to a maximum of 3
years.
*ëThe sanction for the prosecution will be granted at the level of chief
commissioner
,ëp The Board has issued 18 notifications to being some more changes which are as under:
a)p New Rule 2A has been introduced in Works contract Composition rules whereby
Service providers availing the Composition scheme shall now be eligible to take only
40% of the credit of the following 3 input services availed by them:
!p Erection commissioning and installation Services
!p Commercial Construction Services
!p Construction of Residential Complex Services
b)p In the earlier budget notification nos. 28/2010, 38/2010 & 42/2010 were issued
wherein exemption to Construction of complex & Commercial construction service
was given respectively for providing services to JNNURM and Rajiv Awaas Yojana
schemes but a similar exemption was not provided to Works contract service. This
anomaly has now been corrected by introducing notification no. 6/2011, 10/2011 and
11/2011.
c)p Export Rules have been tweaked a bit :
i)p Preferential Location services offered by builders has been shifted from
customer location based criteria to immovable property criteria
ii)p Following services have been shifted from the performance based criteria to
location based:
!p Credit Rating Agency
!p Goods Transport Agency
!p Market Research Agency
!p Opinion Poll Agency
!p Technical Testing and analysis
!p Transport of Goods by air
!p Transport of Goods in containers by railways
iii)p Following Services have been shifted from Location based criteria to
performance based:
!p Rail Travel Agent
!p Health/Hospital Services
d)p Import Rules have also been amended. Amendments similar to the ones made in
Export rules are made in import rules.
e)p Interest on delayed payment which was 13% p.a. earlier has now been increased to
18% p.a. w.e.f. 1.04.2011.
f)p New Notification no. 17/2011 is introduced which supersedes the earlier notification
no. 9/2009 which deals with SEZ refunds. It simplifies the refund rules and
procedures related to SEZ¶s.
g)p Point of Taxation Rules has been introduced whereby specific rules as to when a
particular transaction would become taxable have been prescribed (at the time of
invoicing or at the time of receipt of payment). A detailed note on the same is under
process and will be mailed very soon.

8)p CENVAT credit rules have been amended in a big way and following changes are made
to it:
a)p Definition of Capital goods has been amended. Now credit of capital goods used
outside the factory of the manufacturer for generation of electricity for captive use
within the factory will be available.
b)p Major change has been brought about in the definition of exempted services. Effect of
2 changes made in the definition are as under:
!p Services on which a service provider has claimed abatement will now be
considered as exempted services
!p Value of trading in goods shall now be treated as exempted services.
c)p Definition of Inputs (goods) has been changed and now credit of goods used for
construction of building or a civil structure or laying of foundation will not be
available except if the goods are used for providing following services:
!p Port Services
!p Airport Services
!p Commercial Construction Services
!p Residential Construction Services
!p Works Contract Services
d)p Definition of Input Services has been amended and following changes are
incorporated:
!p Credit for setting up of an office, factory or premises of service provider shall
not be available
!p The words ³activities relating to business´ have now been deleted from the
definition so now credit of ALL services procured for doing the activity of
business will not be available on A-la-carte basis.
!p Credit of services falling in the category of Architect, Port, Other port,
Airport, Commercial Construction, Residential construction and Works
Contract (Specified services) shall not be available if the same are used for
construction of building or a civil structure or laying of foundation. If these
services are used to provide the same specified services than the service
provider can claim the credit thereof.
!p Services falling in the category of General Insurance business, Cab operator,
Authorised Service Station and supply of tangible goods so far as they relate
to motor vehicle except when used by a service provider falling in the
category of courier, Cab operator, Cargo handling, Transport of goods by
road, outdoor catering and pandal and shamiana keeper.
!p Credit of services falling in the category of outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery, membership of a club, health
and fitness centre, life insurance, health insurance and travel benefits extended
to employees on vacation such as Leave or Home Travel Concession, when
such services are used primarily for personal use or consumption of any
employee will not be available henceforth.
p






c cc(c+


c cc(c+

Value added tax means a tax on sale. It is another form of sales tax. It is collected on different
stages of transactions involving sales of goods, tax paid on purchase .VAT is applicable only in
case of sale of all taxable goods. It is a multipoint taxation system which means tax is payable at
each stage.VAT has been applicable from 1st April 2005 in the state of Punjab with view to make
it convenient for the manufacturer and seller of goods.

$c "!

Vp 
( - +6 At present the set off is available on the goods locally purchased
within the State only. No set off would be available to the goods purchased in the course
of interstate trade and commerce. It will be necessary to produce the tax invoice to claim
set off. The tax should have been charged in the invoice.
Vp  0

,6 Goods termed as exempted by the State Government under the


proposed VAT Act. As per guide lines issued by the State Governments, no set off would
be allowed on the exempted goods. It means that the tax suffered on the raw material for
manufacture of exempted goods would not be refunded.
Vp  --6 The manufacturer is required to purchase raw material after paying full
tax on the rate applicable on such material. Unlike the present system wherein the
manufacturer can purchase the goods at a concessional rate of tax against declaration
form no declaration form will be required to be issued by the Manufacturer. The input tax
suffered by him would be adjusted \ set off from the sale of the finished product. The tax
adjustment of input credit of the goods purchased within the State would be available on
the sales made within the State and also on the interstate sales subject to the tax payable.
No adjustment would be available of the input credit in case of branch transfer,
consignment sale.
Vp - -6 The trader would be required to collect tax on the sales made by him and the tax
liability would be set off \ adjusted from the purchase \ input tax credit of the goods
locally purchased in that State.
Vp ,,

6 Under Value Added Tax Act issue of invoice is mandatory. No set off \
input credit would be allowed unless the original tax invoice is produced wherein tax is
clearly charged separately in the invoice.
Vp  -

-6 Use of declaration form of purchase of goods on concessional rate of
tax or NIL rate of tax under the State Act is completely finished. There is no requirement
of declaration form under the proposed Value Added Tax. However the Road Permits
like ST 18 A and ST 18 C declaration forms would continue. Declarations forms of CST
Act would also continue.
Vp c
 56 The basic account books required for the purpose of VAT Act are Purchase
and Sale Register. Both the registers would be the basis on which the calculation of
payment of tax would be made. The normal practice of entering the gross value of
Purchase bill would be changed. The assesse is required to enter the value of goods in the
goods A\c and the amount of tax in the Tax A\c separately.
Vp 
>,6Stock statement are required to be furnished as prescribed for the quarter ending
and then monthly from January to March. Set off of tax paid stocks would be given. Tax
paid stocks as on March ending would be the basis for claiming set of under the new
VAT Act. No set off would be available for the tax paid stock purchased prior to
1.4.2005.
Vp   0

,6 Set off would also be available on the tax paid goods at the time of
purchase of capital goods under the VAT Act. Basis of set off is yet to be declared.
However, it is presumed that set off would be available within a span of 3 years from the
date of commercial production.
Vp 
-6Export would be zero rated. Tax paid on raw material used in manufacture of
goods for export would be refunded by the State Government in cash \ adjustment. The
exports would became more competitive in the world market as there would be no tax
henceforth on raw material used for manufacture of goods for export.
Vp !5 ,-
6 All Importers, Manufacturers, Exporters and Dealers having CST
registration would be required to seek mandatory registration under the new VAT Act.
The existing registered dealers are required to fill a FACT SHEET as notified by the
department within a stipulated time which is at present 15.02.2006 and then they would
not be required to seek fresh registration. There would be two types of registration. The
first is VAT dealer¶s registration and the second is composition scheme dealer
registration. The dealers opting under composition scheme would not be able to charge
tax in the invoice and he would pay lump sum fee as composition amount. It is apparently
for retail traders and the expected limit of turn over for option under composition scheme
is maximum Rs. 15 lacs.
Vp - c
6 Security amount for seeking registration is likely to be increased
many fold in VAT Act. The security for registration under the present Act is Rs.10, 000
which is increased to Rs. 25,000.00 for small scale industry, Rs. 1,00,000formedium
scale industry and Rs. 5,00,000.00 for large scale industry. Apart from it, the assessing
authority would have a right to seek additional security equal to 25% of the tax liability.
Vp c 
c
6 Every dealer having a turnover of over Rs. 40.00 lacs would be
required to get his account audited by a Chartered Accountant and submit the audit report
within the stipulated time. Failure to do so would attract penalty proceedings.

"  ,6

Penalties have been increased many folds in the new VAT Act. As per discussion draft on VAT
Act circulated, there is more emphasis on penalties.
Works Contract and Leasing: No clarification, provision or guide lines had been issued by the
department till date on works contract and leasing transaction. The continuation of existing
composition scheme or by what method they would be taxed in future has not been informed.
Under VAT, the tax is levied at each point of sale. The tax paid on purchasepoint is allowed to
be set off, also referred to as input tax credit under VAT.

A following simple example can be considered for understanding the concept.


( +A sells to B
(Rate of tax is assumed to be 10%)
Sales price + Tax = Total
100 + 10 = 110
Tax Payment to Govt.
A will pay tax at Rs.10
(The input credit available to A is not
considered here for simplicity).
Rs.10
( +B sells to C
Sales price + Tax = Total
150 + 15 + 165
B will pay tax to Govt. as under:
Tax on sale 15
Less: Tax paid on Purchase (-) 10
" &D
Rs.5
( +C sells to D
Sales price + Tax = Total
200 + 20 = 220
C will pay tax to Govt. as under:
Tax on sale 20
Less: Tax paid on Purchase (-) 15
" &D
Rs.5
( +D sells to Consumer
Sales price + Tax = Total
250 + 25 = 275
D will pay tax to Govt. as under:
Tax on sale 25
Less: Tax paid on Purchase (-) 20
" &D
Rs.5

 "!,%D

$ ,
c

*+p
-5)If the tax is considered on a retail level, it offers all the economic advantages
of a tax of the entire retail price within its scope. The direct payment of tax spreads out
over a large number of firms instead of being concentrated only on particular groups,
such as wholesalers & retailers.
2)p ! -  ) Under VAT only buyers at the final stage have an interest in
undervaluing their purchases, as the deduction system ensures that buyers at earlier stages
are refunded the taxes on their purchases. Therefore, tax losses due to undervaluation will
be limited to the value added at the last stage.
3)p Under VAT, if the payment of tax is avoided at one stage nothing will be lost if it is
picked up at later stage. Even if it is not picked up later, the government will at least have
collected the VAT paid at previous stages. Whereas if evasion takes place at the final/last
stage the state will lose only tax on the value added at that particular point.
:+p    )VAT is selectively applied to specific goods & business entities. In addition,
VAT does not burden capital goods because of the consumption-type. VAT gives full
credit for tax included on purchases of capital goods.
D+p
)
- 

 c 4 2 - 
 ) Most taxpayers cheat on sales not to
evade VAT but to evade their personal and corporate income taxes. Operation of VAT
resembles that of the income tax and an effective VAT greatly helps in income tax
administration and revenue collection.




  
,
c


1)p 
0"-
- the implementation of Vat is closely related to other indirect
tax administration and impacts the tax to GDP ratio; this is why several countries
have taken a long time to implement Vat.
2)p ,,!
5
-- In some cases the VAT is collected by dealer and no
paid to government. As a result the set off of such Vat paid by the purchaser may not
be allowed to the purchasers. A strong mechanism has to be devise to tackle such
situations.
3)p
    -   -
 -- A situation of refund would arise if no vat is
payable on the final scale. As a result the set off cannot be availed. Hence, the tax
paid becomes the cost or the same has to be claimed as refund. A suitable mechanism
has to be framed for early refund.
:+p    -,
)vat may also contain multiple rates of tax due to multiple types
of items. In countries like India wherein sales tax already covers a wide range of
commodities, replacement of those taxes by a revenue neutral vat may lead to no
inflammatory consequences. 
D+p  
 - -
- ,) The dealers would have to maintain upto date
records of purchase and sales in order to claim set off. Many dealers prepare only
primitive accounts which may not be accepted by the department.
6)p
 
)Since central sales tax continues to remain in force, there can be conflict
between VAT and CST

p
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-  ,)-



The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
Besides, all imports are sought to be subject to a duty with a view to affording protection to
indigenous industries as well as to keep the imports to the minimum in the interests of securing
the exchange rate of Indian currency.

Duties of customs are levied on goods imported or exported from India at the rate specified
under the customs Tariff Act, 1975 as amended from time to time or any other law for the time
being in force. For the purpose of exercising proper surveillance over imports and exports, the
Central Government has the power to notify the ports and airports for the unloading of the
imported goods and loading of the exported goods, the places for clearance of goods imported or
to be exported, the routes by which above goods may pass by land or inland water into or out of
Indian and the ports which alone shall be coastal ports

In order to give a broad guide as to classification of goods for the purpose of duty liability, the
central Board of Excises Customs (CBEC) bring out periodically a book called the "Indian
Customs Tariff Guide" which contains various tariff rulings issued by the CBEC. The Act also
contains detailed provisions for warehousing of the imported goods and manufacture of goods is
also possible in the warehouses.

For a person who do not actually import or export goods customs has relevance in so far as they
bring any baggage
Excise duty is a tax on manufacture of goods within the country . it is a duty levied upon goods
manufactured and not upon sales or proceeds of sales of goods. Therefore the duty of excise is
levied on a manufacturer or producer in respect of the commodities produced or manufactured by
him.

Excise duties are levied under the central excise and salt act 1944 , the excise tariff act 1985 ,and
the modified value added tax scheme(MODVAT) scheme.

The rates of excise duty leviable vary depending inter alia on nature of item the item
manufactured , the nature of manufacturing concern and the place of ultimate sale.

Central excise revenue is the biggest single source of revenue for government of India. The
union government tries to achieve different socio-economic objectives by making suitable
adjustments in the scope and quantum of levy of central excise duty. The scheme of central
excise levy is suitably adapted and modified to serve different purposes of price control ,
sufficient supply of essential commodities , industrial growth and promotion of small scale
industries.

Article 265 0f constitution of India has laid down that both levy and collection of taxes shall be
under the authority of law. The excise duty is levied in pursuance of entry 45 of the central list in
the government of India act, 1935 as adopted by the entry 84of list 1 of the seventh schedule of
the constitution of India . the charging section is section 3 of the central excise and salt act,1944 .

The duty rate are either ad valorem (a fixed percentage of cost of production ) , specified (a fixed
rate depending upon the nature of manufactured item , or a combination of both.

The MODVAT scheme , introduced in 1986 , applies to certain specific items. The objective of
this scheme is to limit the cascading of duty incidence on a number of goods , subject to excise
which are further used as inputs for other excise able goods from abrod


-
 -  ,

Central excise revenue is the biggest single source of revenue for the Government of India. The
Union Government tries to achieve different socio-economic objectives by making suitable
adjustments in the scope and quantum of levy of Central Excise duty. The scheme of Central
Excise levy is suitably adapted and modified to serve different purposes of price control,
sufficient supply of essential commodities, industrial growth, promotion of small scale industries
and like Authority for collecting the Central Excise duty.

Article 265 of the Constitution of India has laid down that both levy and collection of taxes shall
be under the authority of law. The excise duty is levied in pursuance of Entry 45 of the Central
List in Government of India Act,1935 as adopted by entry 84 of List I of the seventh Schedule of
the Constitution of India. Charging section is Section 3 of the Central Excises and Salt
Act,1944.

  
 -  ,

Section 3 of the Central excises and Salt Act,1944 provides that there shall be levied and
collected in such manner as may be prescribed, duties of excise on all excisable goods other than
salt which are produced or manufactured in India at the rates set forth in the schedule to the
Central excise Tariff Act,1985.it is therefore clear that as soon as the goods in question are
produced or manufactured, they will be liable to payment of Excise duty. However for
convenience duty is collected at the time of removal of the goods. While Section 3 of the Central
Excises and salt Act,1944 lays down the taxable event, Rules 9 and 49 of the Central excise
Rules,1944 provides for the collection of duty.

,
 , ,
There are three types of Central Excise duties collected in India namely
1.p $,  ,

This is the duty charged under section 3 of the Central Excises and Salt Act,1944 on all
excisable goods other than salt which are produced or manufactured in India at the rates
set forth in the schedule to the Central Excise tariff Act,1985.

2.p c 
 
 ,

Section 3 of the Additional duties of Excise (goods of special importance) Act,1957


authorises the levy and collection in respect of the goods described in the Schedule to this
Act. This is levied in lieu of sales Tax and shared between Central and State
Governments. These are levied under different enactment's like medicinal and toilet
preparations, sugar etc. and other industries development etc.

3.p    ,

As per the Section 37 of the Finance Act,1978 Special excise Duty was attracted on all
excisable goods on which there is a levy of Basic excise Duty under the Central Excises
and Salt Act,1944.Since then each year the relevant provisions of the Finance Act
specifies that the Special Excise Duty shall be or shall not be levied and collected during
the relevant financial year.

 ,  ,  5%&**)%&*%6

Union Excise Duty: .Revised Estimate of Union Excise Duties for 2010-2011 is..`137777.52
crore as against the Budget Estimate of..`132000 crore. Budget Estimate for 2011-2012
is..`164115.66 crore...

1. Basic and Special Excise Duty :.Basic Excise Duty and Special Excise Duty are leviable under
the Central Excise Act at the rates specified in the Central Excise Tariff Act, 1985. The mean
CENVAT rate was increased from 8% to 10% w.e.f. 27.02.2010. Excise duty on Motor Spirit
(MS) and High Speed Diesel (HSD) was increased by Re.1 per litre.

2. Additional Duty of Excise on Motor Spirit:.Additional Duty of Excise on Motor Spirit is


leviable by the Finance Act (No.2), 1998. This is commonly known as road cess. Receipt
Budget, 2011-2012 5 Tax Revenue
3. Additional Duty of Excise on High Speed Diesel Oil: .Additional Duty of Excise on High
Speed Diesel Oil is leviable by the Finance Act, 1999. This is commonly known as road cess.

4. National Calamity Contingent Duty (NCCD):.National Calamity Contingent Duty was levied
on pan masala and certain specified tobacco products vide the Finance Act, 2001. The Finance
Act, 2003 extended this levy to: (a) polyester filament yarn, motor car, two wheeler and multi-
utility vehicle @ 1% and (b) crude petroleum oil @..`50 per metric tonne...

5. Special Additional Duty of Excise on Motor Spirit: .Special Additional Duty of Excise on
Motor Spirit is leviable by the Finance Act, 2002. This is commonly known as surcharge.

6. Surcharge on Pan Masala and Tobacco Products: .An Additional Duty of Excise has been
imposed on cigarettes, pan masala and certain specified tobacco products, at specified rates in the
Budget 2005-06. Biris are not subjected to this levy.

7.01. Education Cess: .Education Cess is leviable @ 2% on the aggregate of duties of Excise.

7.02. Secondary and Higher Education Cess: .Secondary and Higher Education Cess is leviable
@ 1% on the aggregate of duties of Excise.

Arrear Collection: RE 2010-11 and BE 2011-12 include collection of arrears of Central Excise
Duties amounting to..`1323 crore and..`1100 crore respectively...

8. Clean Energy Cess: .Clean Energy Cess was imposed under section 83 of Finance Act 2010 on
coal, lignite and peat produced in India @..`50 per tonne. The cess has come into force w.e.f.
01.07.2010 and is to be collected as duty of excise...

$

-  , 4

Central excise law includes

1.p Central excise act 1944

2.p Central excise rules 2002

3.p Cenvat credit rules 2004

4.p Central excise (appeal) rules 2001


5.p Central excise (advance ruling) rules 2002

6.p Central excise(settlement of cases)rules 2001

7.p Central excise valuaton(determination of prices of excisable goods)rules 2000

8.p Central excise tariff act 1985

  
" ,
Goods themselves cannot pay duty so the person who create the taxable event must discharge the
liability which he had created. The liability to pay tax excise duty is always on the manufacturer
or producer if goods. There are three types of parties who can be considered as manufacturers-

Vp Those who personally manufacture the goods in question

Vp Those who get the goods manufactured by employing hired labour

Vp Those who get the goods manufactured by other parties

2

4 522 
-  --,6

Vp In case where the factories are leased out, duty liability is on the lessee as he is the person
who actually manufactures the said goods

Vp When goods are manufactured from others by supplying raw material, the duty liability
will rest on the person who actually carried out the manufacturing activity and not on the
person who supplied the material.

Vp In the manufacturer is a mere dummy of the customer or supplier of raw material, then
the goods are said to be manufactured on behalf of the customers / suppliers and the latter
is liable to duty.
,
  
The ,
  is one of the most important tariffs. The custom duty in India is
regulated by the Customs Act of 1962. The main purpose of the custom duty in India is the
prevention of the illegal export and import of goods. The rates of the custom duty levied on the
imported and exported goods are assigned in the Custom Act, 1962.

The duties of custom are levied on goods that are imported or exported from India ,at the rate
specified under the custom tariff act 1975,as amended from time to time ,or by another law for
the time being in force .for the purpose of exercising proper surveillance over imports and
exports ,the central government has the power to notify the ports and airports for the unloading
of the imported goods and loading of the exported goods ,the place for clearances of goods
imported or to be exported ,the routs by which the above goods may pass by land or inland water
into or out of India , and the ports which alone should be coastal ports .

The customs duties are levied on imports at rates specified in the annual budget. the finance act
1994 has witnessed a general reduction in the duty on capital goods ,steel, chemical drugs,
pesticides and project imports.

2c, -2,
   6

Vp Foreign Trade (Exemption from application of Rules in certain cases) Order, 1993
Vp Customs Act, 1962

2!5 ,--,

 ,  -,,2  56

Vp Customs Tariff Act, 1975


Vp Foreign Trade (Development and Regulation) Act, 1992
Vp Taxation Laws (Amendment) Act, 2006
Vp Provisional Collection of Taxes Act, 1931
Vp Central Excise Tariff Act, 1985
Vp Foreign Trade (Regulation) Rules, 1993
Vp Central Excise Act, 1944

2- , -5 


, -2,
   6

Vp Foreign Privileged Persons (Regulation of Customs Privileges) Rules, 1957


Vp Denaturing of Spirit Rules, 1972
Vp Customs (Attachments of Property of Defaulters for Recovery of Government Dues)
Rules, 1995
Vp Accessories (Condition) Rules, 1963

Vp Specified Goods (Prevention of Illegal Export) Rules, 1969

Vp Re-Export of Imported Goods (Drawback of Customs Duties) Rules, 1995

Vp Notice of Short-Export Rules,1963

Vp Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on


Subsidized Articles and for Determination of Injury) Rules, 1995

Vp Customs and Central Excise Duties Drawback Rules,1995

Vp Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on


Dumped Articles and for Determination of Injury) Rules, 1995

Vp Customs Valuation (Determination of Price of Imported Goods) Rules, 1988

Vp Customs Tariff (Determination of Origin of Goods under the Agreement on SAARC


Preferential Trading Arrangement) Rules,1995

Vp Notified Goods (Prevention of Illegal Import) Rules, 1969

Vp Customs Tariff (Determination of Origin of Goods under the Bangkok Agreement) Rules,
1976

Vp Customs Tariff (Determination of Origin of the U.A.R. and Yugoslavia) Rules, 1976

Vp Customs (Settlement of Cases) Rules, 1999

Vp Customs( Import of Goods at Concessional Rate of Duty for Manufacture of Excisable


Goods) Rules, 1996

Vp Customs (Publication of Names) Rules,1975

Vp Rules of Determination of Origin of goods under the Agreement on South Asian Free
Trade Area (SAFTA)

Vp Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997

Vp Baggage Rules, 1998 Customs Tariff (Determination of Origin of Other Preferential


Areas) Rules,1977

Vp Customs Tariff (Determination of Origin of Goods under the Free Trade Agreement
Between the Democratic Socialistic Republic of Sri Lanka and the Republic of India)
Rules, 2000
2 -  , -,
   6

Vp Basic Duty: This is the general kind of duty levied under the Customs Act, 62

Vp Additional Duty (Countervailing Duty): This duty is levied under the Custom Tariff Act,
section 3 (1)

Vp Anti-dumping Duty: This duty prevents the dumping of foreign goods by the transnational
companies

Vp Protective Duty: This duty protect the interests of the Indian industrial sector

Vp Export Duty: This duty is levied on the export of goods

$, ,
 ,
,

,
, 
 Customs duty is on imports into India and export out of India. Section 12

-,  of Customs Act, often called 
 
, provides that duties of

-, customs shall be levied at such rates as may be specified under µThe
Customs Tariff Act, 1975', or any other law for the time being in force,  

m
m 
.
  -  There are many common provisions and/or similarities in provisions
4 , Central Excise and customs Law. Administration, Settlement Commission
 ,
, and Tribunal are common. Provisions of Tariff, principles of valuation,
refund, demands, exemptions, appeals, search, confiscation and appeals
are similar.
   In case of imports, taxable event occurs when goods mix with landmass of

-, India - M



  v. $$ 1999(113) ELT 753 = AIR 2000 SC
3448 (SC 3 member bench).

In case of warehoused goods, the goods continue to be in customs bond.


Hence, 'import' takes place only when goods are cleared from the
warehouse - confirmed in & " v.  ) '  112 ELT 3 = 1999(6) SCC
118 = AIR 1999 SC 2515 (SC 3 member bench).- followed in M




  v. $$1999(113) ELT 753 = AIR 2000 SC 3448 (SC 3
member bench).
   In case of exports, taxable event occurs when goods cross territorial

-, waters of India - & " v. 7
 # 
 
)

  (2005) 10
SCC 187 = 180 ELT 433 (SC).
-- 
-   Territorial waters of India extend upto 12 nautical miles inside sea from
4-,  baseline on coast of India and include any bay, gulf, harbour, creek or
 ,  tidal river. (1 nautical mile = 1.1515 miles = 1.853 Kms). Sovereignty of


 ;
 India extends to the territorial waters and to the seabed and subsoil
underlying and the air space over the waters.

µ   
 8
' extends to 200 nautical miles from the base-
line. Area beyond that is µhigh seas¶.
  ,
, Indian Customs waters extend upto 12 nautical miles beyond territorial
3-, waters. Powers of customs officers extend upto 12 nautical miles beyond
territorial waters.


 ,
, ,

$, ,
,  Basic customs duty levied u/s 12 of
Customs Act is generally 10% of non-
agricultural goods, w.e.f. 1-3-2007.

- 5 CVD equal to excise duty is
( + payable on imported goods u/s 3(1)
of Customs Tariff Act to
counterbalance impact of excise duty
on indigenous manufactures, to
ensure level paying field.

CVD is payable equal to excise


duty payable on like articles if
produced in India. It is payable at
effective rate of excise duty.

General excise duty rate is


10.30% w.e.f. 27-2-2010 (10% basic
plus 2% education cess and SAH
Education cess of 1%).

CVD is payable on assessable


value plus basic customs duty. In
case of products covered under MRP
provisions, CV duty is payable on
MRP basis as per section 4A of
Central Excise.

CVD can be levied only if there


is µmanufacture¶.

CVD is neither excise duty nor


basic customs duty. However, all
provisions of Customs Act apply to
CVD.

    Special CVD is payable @ 4% on imported


goods u/s 3(5) of Customs Tariff Act. This
is in lieu of Vat/sales tax to provide level
playing field to Indian goods. Traders
importing goods can get refund. CVD is not
payable if goods are covered under MRP
valuation provisions/
 
 ,, Education cess of customs @ 2% and SAH
Education cess of 1% is payable.

   Total import duty considering all duties plus
education cess on non-agricultural goods is
generally 26.85%
2-  , NCCD has been imposed on a few articles.
In addition, on certain goods, anti-dumping
duty, safeguard duty, protective duty etc.
can be imposed. Cess is payable on some
goods imported/exported.
 5-   Safeguard duty can be imposed if large
imports are causing serious injury to
domestic industry. In addition, product
specific safeguard duty on imports from
China can be imposed.
c   5  Antidumping duty is leviable u/s 9A of
Customs Tariff Act when foreign exporter
exports his good at low prices compared
to prices normally prevalent in the
exporting country.
Dumping is unfair trade practice and the
anti-dumping duty is levied to protect
Indian manufacturers from unfair
competition.
Margin of dumping is the difference
between normal value (i.e. his sale price
in his country) and export price( price at
which he is exporting the goods).
Price of similar products in India is not
relevant to determine µmargin of
dumping¶.
µInjury margin¶ means difference between
fair selling price of domestic industry and
landed cost of imported products.
Dumping duty will be lower of dumping
margin or injury margin.
Benefits accruing to local industry due to
availability of cheap foreign inputs is not
considered. This is a drawback.
CVD is not payable on antidumping duty.
Education cess and SAH education cess is
not payable on anti-dumping duty.
In case of imports from WTO countries,
antidumping duty can be imposed only if
it cause material injury to domestic
industry in India.
Dumping duty is decided by Designated
Authority after enquiry and imposed by
Central Government by notification.
Provisional antidumping duty can be
imposed. Appeal against antidumping
duty can be made to CESTAT.

  
,
,
, 

General customs duty rate for non-agricultural goods s 10%. Total customs duty payable w.e.f.
27-2-2010 is 26.85% as excise duty rate is generally 10%
Assessable value = CIF Value of imported goods converted into Rupees at exchange rate
specified in notification issued by CBE&C plus landing charges 1% (plus some additions often
arbitrarily and whimsically made by customs).

Calculation of customs duty payable is as follows -



/ c
 
 
(A) Assessable Value Rs 10,000
(B) Basic Customs Duty 10 1,000.00 1,000.00
(C) Sub-Total for calculating CVD '(A+B)' 11,000.00
(D) CVD 'C' x excise duty rate 10 1,100.00 1,100.00
(E) Education cess of excise - 2% of 'D' 2 22.00 22.00
(F) SAH Education cess of excise - 1% of 'D' 1 11.00 11.00
(G) Sub-total for edu cess on customs 'B+D+E+F' 2,133.00
(H) Edu Cess of Customs ± 2% of 'G' 2 42.66 42.66
(I) SAH Education Cess of Customs - 1% of 'G' 1 21.33 21.33
(J) Sub-total for Spl CVD 'C+D+E+F+H+I' 12,196.99
(K) Special CVD u/s 3(5) ± 4% of 'J' 4 487.88 487.88
(L) Total Duty %EF':'G
(M
) Total duty rounded to Rs 2,685


,.$-42
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   - 
EE
 B

c-E42
 ,,- -
 -E , 5  
   - 
E 


c- -42
, , 
- 5

,   -2-5 5 


=, ,5-  
   
:/ HB<
 





-,
0
p

32 ,0R

GST is abbreviation for Goods and Service Tax. GST is levied on all the transactions of goods
and services made for a consideration. This new levy replaces almost all of the indirect taxes. In
particular, it replaces the following indirect taxes:

 $
   
Vp Central Excise Duty
Vp Service Tax
Vp Additional Excise Duties
Vp CVD (levied on imports in lieu of Excise duty)
Vp SAD (levied on imports in lieu of VAT)
Vp Excise Duty levied on Medicinal and Toiletries preparations,
Vp Surcharges and cesses
Vp Central Sales Tax.

    
Vp VAT/Sales tax
Vp Entertainment tax (unless it is levied by the local bodies)
Vp Luxury Tax
Vp Taxes on lottery, betting and gambling
Vp Entry tax not in lieu of Octroi
Vp Cesses and Surcharges
#   ß    
 ß   
 
 
   

-
,,
0R

There are two types of GST


1.p Unified or Single GST and
2.p Dual GST.
In India, dual GST is implemented wherein Centre and State levy on the transactions of the
value of Goods or Service. Under dual GST, it is levied by both the - called as Central
Goods and Service Tax (CGST) and called as State Goods and Service tax (SGST).




0-,
The tax will be collected in three tiers rates.

1.p Goods at lower rate


2.p Goods at standard rate
3.p Services.

During the first and second year 0


5

, will charged in two rates. i.e. 0

,
4-
- for necessary items and goods of basic importance ,Goods at , - - for goods in
general. Rates of 0
,-  will remain same from the beginning.

#- 5
- , Central GST State GST Total Tax
Liability
2011 April Goods at lower rate 6 6 12
Goods at standard rate 10 10 20
Services 8 8 16
2012 April Goods at lower rate 6 6 12
Goods at standard rate 9 9 18
Services 8 8 16

And from third year i.e. April 2013, if everything is going according to planning, and there is not
much burden of compensation (to state govt) on central government the tax rate will be reduced
and there will be only two rates for Goods and services.

1.p Goods at standard rate


2.p Services

#- 5
- , Central GST State GST Total Tax
Liability
2013 April Goods at standard rate 8 8 16
Services 8 8 16

In GST taxable events are supply of Goods and supply of services, any economic events which
is not supply of goods is considered as supply of services. a service provider or trader has to
collect tax in two element called CGST( For cental government) SGST ( for state government)
and paid separately.

 
m


The exemption limit of GST has been proposed to 10 Lakh Both for services and Goods. So any
business with a turnover below 10 lakh will be exempted from levying GST. Current threshold
for excise duty is 1.5 crore, so more manufacturers liable for GST this will help to compensate
state government lose to an extent.



3
-> 5
0
The idea of Goods and Services Tax (GST) also known as Value Added Tax (VAT) is a tax on
each financial contribute in the distribution chain. The taxable event is µsupply of goods¶ and
µsupply of services¶. Any transmit of right to utilize goods will comprise supply of goods, and,
any supply not engaging goods will treat as supply of service. On the other hand, the tax is
exercised on the value-added component of the supply. This is accomplished by working tax on
the full fundamental value of the goods or service and giving set off/credit of tax undergo at
previous stage, identified as input stage, to keep away from cascading effect. Thus, the entire
supply chain up to final consumer gets taxed with in-built mechanism of input stage credit. In
this system, the final consumer ends up bearing the full burden of tax without any set off benefit.

"
 
  
 (

2-5 56
The dealers including (Manufacturers, Wholesalers and Retailers and Service Providers)
registered under GST need to charge GST on goods and services delivered to customers at the
specified rate of tax. The GST payable is comprised in the price borne by the purchaser of the
goods and the service buyer. The supplier including Seller and service provider should deposit
this GST amount to the Government.

0 5 - 
06
If the recipient of goods or services belongs to a registered dealer (Manufacturers, Wholesalers
and Retailers and Service Providers) and has got an appropriate tax invoice then he can claim a
credit for the payment of GST amount. This ³input tax credit´ is setoff against any GST (Out
Put), charged on goods and services by the dealer to his customers.
 $- 

, ,
-6
As the last and final consumer of the goods and services obtains no credit for the GST paid to the
sellers or service providers, the ultimate burden of the tax drop to him.

!5 ,-
6
Dealers including the suppliers, manufacturers, service providers, wholesalers and retailers must
be register for GST falling which he normally unable to charge GST and claim credit for the
GST he pays. Besides he can not also issue a tax invoice.

"-
6
The tax period should be calculated by the respective law and normally for monthly and/or
quarterly. The concerned dealer has to deposit the tax on a particular tax period applicable to him
if his output credit is more than the input credit after considering the opening balance, if any, of
the input credit.

!  ,6
The dealer is entitled to get refund subject to the provisions of law applicable in this respect if
the input credit of a dealer is more than the output credit for a tax period. Depending on the
provision of law the excess amount need to be brought forward to next period or should be
refunded with immediate effect.

 0

, - ,6


Some particular goods and services may be marked as exempted goods and services and the
input credit should not be claimed on the GST paid for purchasing the raw material in this regard
or GST paid on services used for providing such goods and services.

Q-
! 0

, - ,6


Normally, export of goods and services treated as zero-rated and the GST paid by the exporters
of these goods and services is refunded in this regard. This is the fundamental distinction
between Zero rated and exempted goods and services.


6
Tax invoice is the most vital & basic document in the GST. A dealer registered under GST can
issue a tax invoice and with that invoice the credit (Input) can be claimed. Usually a tax invoice
should includes the name of supplying dealer, his tax identification nos., address and tax invoice
nos. coupled with the name and address of the purchasing dealer, his tax identification nos.,
address and description of goods sold or service provided.





!,
,2    

0

A product or service passes through many stages till it reaches the final consumer. Governments
at Central and State level have, as and when the need arose, introduced many indirect taxes on
various taxable events in this value chain (such as Excise duty on manufacture, VAT on sale etc).
As these taxes are levied on different taxable events they have their limitations. To illustrate
further, let¶s take an example of Excise Duty. Excise duty is levied on µmanufacture¶ and it fails
to tax the value addition at distribution level. Additionally, at present, µgoods¶ suffer two levies
(Excise and VAT) whereas µtaxable services¶ suffer only one levy i.e. service tax. This leads to
distortion: distortion arises because the relative prices of services would be lower as compared to
goods. Even, as tax system treated goods and services differently, in certain cases there is
double taxation (software being one of such case where the industry has taken conservative stand
and both VAT and Service Tax is being currently levied). Also, there were restrictions on
availment of credit such as a service provider cannot avail credit of VAT and a trader cannot
avail credit of Service tax.
The above lacunas affect free flow of goods and services. Additionally, it brings uncertainty in
the trade which is not good for the economy as a whole. GST is therefore projected as a solution
to all these problems.


0

, - ,


There are two types of GST exclusions: tax-free and tax-exempt

³)´ exclusions consist of goods and services that are charged with GST at the
production and distribution stages but not at the final retail stage. Manufacturers, wholesalers,
and retailers can¶t claim an Input Tax Credit. As such, some GST is embedded in the final price
of the good or service; however, it is lower than it would otherwise be under the regular GST
regime. Examples of tax-exempt exclusions include residential rents, health and dental care, and
educational services.

³) -´ exclusions cover goods and services that are not with GST throughout the life of the
product. Final consumers are not charged GST while purchasing these products from
distributors. Moreover vendors get Input Tax Credits at the production and distribution stages.
As a result, the good or service becomes completely free from taxation relating to the GST.
Examples of tax-free exclusions include basic groceries, prescription drugs, and medical devices.

 ,
5

, ,- ,   6

Vp Goods transported by rail.


Vp Supply of transport vehicles (goods carriage) to a goods transport agency (GTA) to be
used for transport of goods by road.
Vp Transport of essential goods such as foodgrains, fertilisers and petroleum products.
Vp Edible oilseeds and edible oil, foodgrains (cereals and pulses) and flour, petroleum and
petroleum products and defence and military equipment.
Vp Transport of parcels containing newspapers (registered with the Registrar of
Newspapers).
Vp Raw jute and jute textile, seeds for food crops and fruits and vegetables, seeds for cattle
feed, jute seeds, medicine/ pharmaceutical products and relief materials meant for victims
of natural or other disasters.





-,
0

 
     9      (

Vp Consistent with the federal structure of the country, the GST will have two components:
one levied by the Centre (hereinafter referred to as Central GST), and the other levied by
the States (hereinafter referred to as State GST). This dual GST model would be
implemented through multiple statutes (one for CGST and SGST statute for every State).
However, the basic features of law such as chargeability, definition of taxable event and
taxable person, measure of levy including valuation provisions, basis of classification etc.
would be uniform across these statutes as far as practicable.

Vp The Central GST and the State GST would be levied simultaneously on every transaction
of supply of goods and services except the exempted goods and services, goods which are
outside the purview of GST and the transactions which are below the prescribed
threshold limits. Further, both would be levied on the same price or value unlike State
VAT which is levied on the value of the goods inclusive of CENVAT. While the location
of the supplier and the recipient within the country is immaterial for the purpose of
CGST, SGST would be chargeable only when the supplier and the recipient are both
located within the State.

Vp The Central GST and State GST are to be paid to the accounts of the Centre and the
States separately.

Vp Since the Central GST and State GST are to be treated separately, in general, taxes paid
against the Central GST shall be allowed to be taken as input tax credit (ITC) for the
Central GST and could be utilized only against the payment of Central GST. The same
principle will be applicable for the State GST.

Vp Cross utilisation of ITC between the Central GST and the State GST would, in general,
not be allowed.

Vp To the extent feasible, uniform procedure for collection of both Central GST and State
GST would be prescribed in the respective legislation for Central GST and State GST.
Vp The administration of the Central GST would be with the Centre and for State GST with
the States.

Vp The taxpayer would need to submit periodical returns to both the Central GST authority
and to the concerned State GST authorities.

Vp Each taxpayer would be allotted a PAN linked taxpayer identification number with a total
of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing
PAN-based system for Income tax facilitating data exchange and taxpayer compliance.
The exact design would be worked out in consultation with the Income-Tax Department.

Vp Keeping in mind the need of tax payers convenience, functions such as assessment,
enforcement, scrutiny and audit would be undertaken by the authority which is collecting
the tax, with information sharing between the Centre and the States.

p
p
p
p
p
p
p
p
p
p
 ÷p
p p p
 p
p
 p
p



1.p Set off loss from one source against income from another source within the same head of
income ( sec. 70 ). However there are six exceptions to this rule that a loss can be set off
against any income under the same head:

A.p Speculation loss (73(1))

B.p Long term capital loss

C.p Loss from owning and maintenance of horses

D.p Loss from an exempted source of income

E.p Loss in respect of casual income falling under section 56(2)(ib)

F.p Any loss cannot be set off against casual incomes falling under section 56(2)(ib)

2.Set off losses of one head against the income of another head in same assessment year, Inter-
head setoff ( sec. 71 )


,6

A.p Speculation loss

B.p Expenses on maintenance of horses for race purposes

C.p Loss under head capital gains

D.p Business loss not to be setoff from salary income

E.p Set off of losses from casual incomes falling u/s 56(2)(ib)

F.p Loss in respect of casual incomes falling under section56(2)(ib)

G.p Loss from a source whose income is exempted

H.p Share of loss from firm/AOP

--
-4-  ,


,,,

!p Provisions:

I.p Carry forward of loss under the head house property (section 71 b)
a.p Time limit to carry forward : 8 assessment years

b.p Mode of set of: can be set off only against income under the head house property

Important points:

1.House property loss prior to assessment year 1999-2000: not allowed

2.Filing of return of house property loss on or before due date is not a necessity

II. Carry forward of non speculation ³business loss´ section 72(1)

a.p Time limit to carry forward : 8 assessment years

b.p Mode of set off: income falling under head ³business and profession´ (including
speculation business profit)

Important points:

1.Who can carry forward and set off business loss?

2.Continuity of loss generating business is not necessary

3.Timely filing of return of loss

4.Closure of business due to specified reasons

Carry forward of speculation business loss(section 73)

a.p Time limit: 4 assessment years

b.p Mode of set off: against the profits of any speculation business carried on by the assessee

Important points:

1. Who can carry forward and set off speculation business loss?

2.Continuity of loss generating speculation business not necessary

3. Timely filing of return of loss

. Carry forward and set off of loss of a specified business referred to in section 35 AD

a.p Time limit to carry forward : indefinite period

b.p Mode of set off : against profits and gains of any specified business

Carry forward of loss under head capital gains(section 74)


a.p Time limit : 8 assessment years

b.p Mode of set off:

i)p B/F long term capital loss : against long term capital gain

ii)p B/F short term capital loss : against any capital gain

Important points

Timely filing return of loss

Carry forward of loss from activity of owning and maintaining race horses (falling under head
other sources) section 74 A

a.p Time limit to carry forward: upto 4 assessment years

b.p Mode of set off : against income from activity of owning and maintaining of race horses

Important notes:

1.Timely filing of return of loss

2.Continuity of such activity is necessary

Unabsorbed depreciation

Depreciation which remains unadjusted as either there is no income or less income in relevant
prev. year, it can be carried forward till it is fully adjusted from any income during succeeding
previous years. It shall be treated as depreciation of succeeding previous years.

c"cc""!  !

  0 6

A capital gain is income derived from the sale of an investment. A capital investment can be a
home, a farm, a ranch, a family business, or a work of art, for instance. In most years slightly less
than half of taxable capital gains are realized on the sale of corporate stock. The capital gain is
the difference between the money received from selling the asset and the price paid for it.

Profits or gains arising from the transfer of a capital asset made in a previous year are taxable as
capital gains under the head "Capital Gains". The important ingredients for capital gains are,
therefore, existence of a capital asset, transfer of such capital asset and profits or gains that arise
from such transfer.

  ,,

a) Stock-in-trade, consumable stores or raw-materials held for the purpose of business or


profession.

b) Personal effects like wearing apparel, furniture, motor vehicles etc., held for personal use of
the tax payer or any member of his family. However, jewellery, even if it is for personal use, is a
capital asset.

c) Agricultural land in India other than the following:

Vp Land situated in any area within the jurisdiction of municipality, municipal corporation,
notified area committee, town area committee, town committee, or a cantonment board
which has a population of not less than 10,000 according to the figures published before
the first day of the previous year based on the last preceding census.
Vp Land situated in any area around the above referred bodies upto a distance of 8
kilometers from the local limits of such bodies as notified by the Central Government
(Please see Annexure 'A' for the notification).

d) 6 1/2 per cent Gold Bonds, 1977, 7 per cent Gold Bonds, 1980, National Defense Gold Bonds,
1980 and Special Bearer Bonds, 1991 issued by the Central Government.

e) Gold deposit bonds issued under the Gold Deposit Scheme 1999 notified by the Central
Government.

-, -

Transfer includes:

i) Sale, exchange or relinquishment of a capital asset.


ii) Extinguishment of any rights in a capital asset.

iii) Compulsory acquisition of the capital asset under any law.

iv) Conversion of a capital asset into stock-in-trade

v) Part performance of a contract of sale

vi) Transfer of rights in immovable properties through the medium of co-operative societies,
companies etc

vii) Transfer by a person to a firm or other or Body of a person to a Association of Persons


(AOP) Individuals (BOI)
viii) Distribution of capital assets on Dissolution.

ix) Distribution of money or other assets by a Company on liquidation

Profits or Gains
The incidence of tax on Capital Gains depends upon length for which the capital asset transferred
was held the transfer. Ordinarily a. capital asset held for 36 or less is called a 'short-term capital
asset' and if the period exceeds 36 months, the asset is known as term capital asset'. However,
shares of a Company, the of Unit Trust of India or any specified Mutual Fund or security listed
in any recognized Stock Exchange are to considered as short term capital assets if held for 12 or
less and long term capital assets if held for more 12 months.

Transfer of a short term capital asset gives rise to "Short Term Capital Gains' (STCG) and
transfer of a long capital asset gives rise to 'Long Term Capital Gains' LTCG). Identifying gains
as STCG and LTCG is a very important step in computing the income under the head Gains as
method of computation of gains and tax on the gains is different for STCG and LTCG.

2
--   0 ( 0)
Short Term Capital Gains is computed as below :

Computation of short - term Capital Gains

1.p Find out full value of consideration


2.p Deduct the following :
a.p expenditure incurred wholly and exclusively in connection with such transfer
b.p cost of acquisition; and
c.p cost of improvement
3.p From the resulting sum deduct the exemption provided by sections 54B, 54D, 54G
4.p The balancing amount is short-term capital gain.


5 -    0 , ( 0+

Long Term Capital Gains is computed as below :

Computation of long - term Capital Gains

1.p Find out full value of consideration


2.p Deduct the following :
a.p expenditure incurred wholly and exclusively in connection with such transfer
b.p indexed cost of acquisition; and
c.p indexed cost of improvement
3.p From the resulting sum deduct the exemption provided by sections 54, 54B, 54D, 54EC,
54ED, 54F and 54G
4.p The balancing amount is long-term capital gain

The following table is all about capital gain exemption, under what section you can avail it,
Conditions to be satisfied, quantum of exemption. You can     5 

 easily with the help of following table.

Under Allowed Conditions to be satisfied Quantum of exemption


Section Assessee
54 Individual/HUF 1. Transfer should be of a residential Actual amount
house invested in new
income of which is chargeable under the asset or the capital
gain whichever is less.
head µIncome from house property¶.

2. It must be a long-term capital asset.

3. Purchase of another residential house

should be within one year before or 2

years after, or construction should be

within three years after the date of

transfer.

54B Individual 1. Transfer should be of agricultural ²do²


land.
2. It must have been used in the 2 years

immediately preceding the date of

transfer for agricultural purposes either

by the assessee or his parent.

3. Another agricultural land should be


purchased within 2 years after the date of

transfer.

See : Factor determine when an agricultural


land is capital asset or not for calculation of
capital gain tax.
54D Any assessee 1. There must be compulsory Actual amount
which is an acquisition. invested in new asset
industrial 2. The property compulsorily acquired or the capital gain
undertaking whichever is less.
should be land and building forming part

of an industrial undertaking.

3. The asset must have been used in the 2

years immediately preceding the date of

transfer of the assessee for the purpose of

the business of the undertaking.

4. Within a period of 3 years after the


date

of compulsory acquisition any other land

or building should be purchased or

constructed for the use of existing or

newly set up industrial undertaking.

54EC Any assessee 1. The asset transferred should be a long- Actual amount
term capital asset invested in new asset
or the capital gain
2. Within a period of 6 months after the whichever is less.
However, maximum
amount which can be
invested in any
date of transfer, the capital gain must he financial year cannot
exceed Rs. 50,00,000
invested in the specified assets i.e. bonds

redeemable after 3 years issued by NHAl

or RECL.

54F Individual/HUF 1. The asset transferred should be a long- If the cost of the new
term capital asset, not being a residential residential house is not

house. less than the net

2. Within a period of I year before or 2 consideration then the

years after the date of transfer, a whole of the capital


gain.
residential house should be purchased or
Otherwise,
constructed within a period of 3 years
Ami. invested
after the date of transfer.
ITCG x²²²²²±
3. The assessee should not own more :²²-
than
Net consideration price
one residential house on the date of

transfer.

4. The assessee should not within a


period

of one year purchase or should not

within a period of 3 years construct any

residential house other than the new


asset.

54G Any assessee 1. Machinery, plant, building, or land If the cost of the new
being an used assets and expenses
industrial for the business of an industrial incurred for shifting
undertaking are greater than the
undertaking situated in an urban area capital gain, the whole
of such capital gain.
Otherwise capital gain
should have been transferred. to the extent

2. Transfer should be due to shifting to


any

area other than an urban area.

3. Within a period of 1 year before or 3 of the cost of the new


years after the date of transfer purchased asset.
machinery, plant or acquired building or
land or constructed building and
completed shifting to the new area.
54GA Any assessee 1. Machinery, plant, building, or land used If the cost of the new
being an for the business of an industrial assets and expenses
industrial incurred for shifting
undertaking undertaking situated in an urban area are greater than the
capital gain, the whole
of such capital gain.
should have been transferred. Otherwise capital gain
to the extent of the cost
2. Transfer should be due to shifting to of the new asset.
any

Special Economic Zone whether

developed in any urban area or any other

area.

3. Within a period of 1 year before or 3

years after the date of transfer purchased


machinery, plant or acquired building or

land or constructed building and

completed shifting to the new area.


,6 Capital Gain Scheme.²If the new asset is not acquired under sections 54, 54B, 54D,
54F, 54G and 54GA or the full amount could not be invested upto the  
 - ,2 5
2--
 
, the assessee can deposit the desired amount under the Capital Gain
Scheme on or before the due date of return and thus can acquire the asset within the stipulated
time out of money withdrawn from such scheme at a later date. In the case of section 54EC the
Capital Gain Scheme is not applicable.
Consequences if the new asset acquired is transferred within 3 years of its acquisition Under
sections 54, 54B, 54D, 5->G and 54GA.²For computation of new Capital Gain (which will be
short-term), the cost of acquisition of such new asset shall be reduced by the amount of Capital
Gain exempt under sections 54, 54B, 54D and 54G earlier.
 -,
D:.²Besides the new Capital Gain (which will be short-term), the Capital Gain
exempt earlier under section 54F, shall be long-term capital gain of the previous year in which
new asset is transferred.
 -,
D: ²If such security acquired is converted into money or any loan is taken
against such securities within 3 years, the Capital Gain exempt under section 54EC for such
securities earlier shall be long-term Capital Gain of the previous year in which such conversion
takes place or the loan is taken.
Consequences if the amount deposited in Capital Gain Scheme is not utilised within the
stipulated time of 3 years (2 years in case of section 54B).²The unutilised amount shall be
Capital Gain (short-term or long-term depending upon original transfer) of the previous year in
which such period has expired. However, in case of section 54F, proportionate amount shall be
taxable.






 $$0 

CLUBBING OF INCOME UNDER THE INCOME TAX ACT, 1961

 5
 
,


2--,
     ,,,,<,
  
E for
example: Income of husband which is shown to be the income of his wife is clubbed in the
income of Husband and is taxable in the hands of the husband. Under the Income Tax Act a
person has to pay taxes on his income. A person cannot transfer his income or an asset which is
his one of source of his income to some other person or in other words we can say that a person
cannot divert his income to any other person and says that it is not his income. If he do so the
income shown to be earned by any other person is included in the assessee¶s total income and the
assessee has to pay tax on it.


lp !c! 31 !c!c( F&+

Section 60 is applicable if the following conditions are satisfied:
‡ The taxpayer owns an asset
‡ The ownership of asset is not transferred by him.
‡ The income from the asset is transferred to any person under a settlement, or agreement.

If the above conditions are satisfied, the income from the asset would be taxable in the
hands of the transferor

 ,-
6 Mr. X owns Debentures worth Rs 1,000,000 of ABC Ltd., (annual) interest
being Rs. 100,000. On April 1, 2005, he transfers interest income to Mr. Y, his friend
without transferring the ownership of these debentures. Although during 2005-06, interest
of Rs. 100,000 is received by Mr. Y, it is taxable in the hands of Mr. X as per Section 60.

lp ! c$!c!c( F*+



µRevocable transfer¶ means the transferor of asset assumes a right to re-acquire asset or
income from such an asset, either whole or in parts at any time in future, during the
lifetime of transferee. It also includes a transfer which gives a right to 144re-assume
power of the income from asset or asset during the lifetime of transferee. If the following
conditions are satisfied section 61 will become applicable.
‡ An asset is transferred under a ³revocable transfer´,
‡ The transfer for this purpose includes any settlement, or agreement
Then any income from such an asset is taxable in the hands of the transferor and not the
transferee (owner).

 ,-
6 If A transfers house property to his close relative B. the condition of
transfer was that B can enjoy the income of the said property for himself for any such
time till he is the owner of such property but A reserves the right to take the property
back from B in case he is in financial problem in the event of which has to surrender the
income as well as the asset to A.

lp ! !c ! c  !  31 1 "  1c


 $cc!? F:(*+( +@

If the following conditions are fulfilled this section becomes applicable.


‡ If spouse of an individual gets any salary, commission, fees etc (remuneration) from a
concern
‡ The individual has a substantial interest in such a concern
‡ The remuneration paid to the spouse is not due to technical or professional knowledge
of the spouse.

Then such salary, commission, fees, etc shall be considered as income of the individual
and not of the spouse.

 ,-
6 X has a substantial interest in A Ltd. and Mrs. X is employed by A Ltd.
without any technical or professional qualification to justify the remuneration. In this
case, salary income of Mrs. X shall be taxable in the hands of X.

lp  !c!c!!" ? F:(*+(+@



Income from assets transferred to spouse becomes taxable under provisions of section 64
(1) (iv) as per following conditions:-

‡ The taxpayer is an individual


‡ He/she has transferred an asset (other than a house property)
‡ The asset is transferred to his/her spouse
‡ The asset is transferred without adequate consideration. Moreover there is no agreement
to live apart.
If the above conditions are satisfied, any income from such asset shall be deemed to be
the income of the taxpayer who has transferred the asset.

 ,-
6 X transfers 500 debentures of IFCI to his wife without adequate
consideration. Interest income on these debentures will be included in the income of X.

lp  !c!c!!<3? F:(*+(+@

Income from assets transferred to son¶s wife attracts the provisions of section 64 (1) (vi)
as per conditions below:-

‡ The taxpayer is an individual.


‡ He/she has transferred an asset after May 31, 1973.
‡ The asset is transferred to son¶s wife.
‡ The asset is transferred without adequate consideration.

In the case of such individuals, the income from the asset is included in the income of the
taxpayer who has transferred the asset.

 ,-
6 Mr. X the father-in-law of transfers a bank deposit to Ms. Y the daughter-
in-law of Mr. X any income which will accrue to the said deposit would be considered as
income of Mr. X and not Ms. Y.

lp  !c!c!!c"!!1$
" ? F:(*+(+@

Income from assets transferred to a person for the benefit of spouse attract the provisions
of section 64 (1) (vii) on clubbing of income. If:

‡ The taxpayer is an individual.


‡ He/she has transferred an asset to a person or an association of persons.
‡ Asset is transferred for the benefit of spouse.
‡ The transfer of asset is without adequate consideration.

In case of such individuals income from such an asset is taxable in the hands of the
taxpayer who has transferred the asset.
 ,-
6 If X transfers a house property to a trust formed by him with the condition
that the entire income of the house property which was been received should be given to
the wife of Mr. X. In this case the income of this house property would not be taxed in
the hands of Mrs. X but would be taxed in the hands of Mr. X.

lp  !c!c!!c"!!1$
<3? F:(*+(+@

Income from assets transferred to a person for the benefit of son¶s wife attract the
provisions of section 64 (1) (vii) on clubbing of income. If,

‡ The taxpayer is an individual.


‡ He/she has transferred an asset after May 31, 1973.
‡ The asset is transferred to any person or an association of persons.
‡ The asset is transferred for the benefit of son¶s wife.
‡ The asset is transferred without adequate consideration.

In case of such individual, the income from the asset is included in the income of the
person who has transferred the asset.

lp  ! 1( F:(*c+NF:(%++

 ,-
6 X transfers his self acquired property yielding an annual income of Rs.
100000 to his Hindu Undivided Family, consisting of X, Mrs. X, his major son Y and
minor son Z. Income of Rs. 100000 will be included in the income of X by virtue of this
section. If however the property is partitioned among the family members, income
derived from converted property by Mrs. X will be included in the income of X under
section 64(2), share of minor Z will be included in the income of X by virtue of section
64 (1A) after allowing exemptions under section 10(32) Rs. 1500 or the income clubbed,
whichever is less on the assumption that X¶s income is more than income to the
transferee also.

  c !  $$ = " !c


!cc  1  !!
 1c 


1. Income for
the purpose of
Irrespective of: Section 64
Transfer of Transferor 1. Whether such transfer is includes
Income without who revocable or not. losses.
60
transfer of transfers 2. Whether the transfer is 2. Section 60
Assets. the income. effected before or after the does not apply
commencement of IT Act. if corpus itself
is transferred.

Transfer held
as revocable

1. If there is
provision to
re-transfer
Clubbing not applicable if:
directly or
1. Trust/transfer irrevocable indirectly
during the lifetime of whole/part of
beneficiaries/transferee or income/asset
Transferor to transferor;
Revocable 2. Transfer made prior to 1-4-
who
61 transfer of 1961 and not revocable for a 2. If there is a
transfers
Assets. right to
the Assets. period of 6 years.
reassume
Provided the transferor derives power,
no direct or indirect benefit directly or
from such income in either indirectly, the
case. transfer is held
revocable and
actual exercise
is not
necessary.
3. Where no
absolute right
is
given to
transferee and
asset
can revert to
transferor in
prescribed
circumstances,
transfer is held
revocable.

1. The
relationship of
husband and
Salary, wife must
Commission, subsist at the
Spouse time of accrual
Fees or Clubbing not applicable
whose total
remuneration if:Spouse possesses technical or of the income.
income
paid to spouse professional qualification and 2. Income
64(1)(ii) (excluding
from a concern in remuneration is solely other than
income to
which an attributable to application of salary,
be clubbed)
individual has a that knowledge/qualification. commission,
is greater.
substantial* fees or
interest. remune-
ration is not
clubbed under
this clause

Income from 1. Income


Clubbing not applicable if:
assets transferred earned out of
The assets are transferred;
directly or Individual Income arising
1. With an agreement to live
64(1)(iv) indirectly to the transferring apart. from
spouse without the asset. transferred
adequate 2. Before marriage. assets not
consideration. liable for
3. Income earned when relation
clubbed.
does not exist.

4. By Karta of HUF gifting co- 2. Cash gifted


parcenary property to his wife. to spouse and
he/she invests
to earn
5. Property acquired out of pin interest.
money.
3. Capital gain
on sale of
property
which was
received
without
consideration
from
spouse

4. Transaction
must be real.

Cross transfers
Income from the Individual Condition:
are also
64(1)(vi) assets transferred transferring The transfer should be without
covered
to son¶s wife. the Asset. adequate consideration.

Transfer of assets 1. Transferor


by an individual need not
to a person or necessarily
AOP for the have taxable
Individual Condition: 1. The transfer income of his
64(1)(vii),(viii immediate or
transferring should be without adequate own.
) deferred benefit
the Asset. consideration.
of his: 2. Wife means
(vii) ± Spouse. legally
(viii) ± Son¶s wedded
wife. wife.

64(1A) Income of a 1. If the Clubbing not applicable for:² 1. Income out


minor child marriage 1. Income of a minor child of property
[Child includes subsists, in suffering any disability transferred for
step child, the hands specified u/s. 80U. no
adopted child and of the consideration
minor married parent 2. Income on account of manual to a minor
daughter]. whose total work done by the minor child. married
income is 3. Income on account of any daughter, shall
greater; or; activity involving application of not
skills, talent or specialized be clubbed in
2. If the the parents¶
marriage knowledge and experience.
hands.
does not
subsist, in 2. The parent
the hands in whose
of the hands
person who the minor¶s
maintains income is
the minor clubbed is
child. entitled to an
exemption up
3. Income to Rs. 1,500
once per child.
included in [Section
the total 10(32)]
income of
either of
parents, it
shall
continue to
be included
in the
hands of
some
parent in
the
subsequent
year unless
AO is
satisfied
that it is
necessary
to do so
(after
giving that
parent
opportunity
of being
heard)

Income is
Clubbing applicable even if: Fiction under
included in
Income of HUF The converted property is this section
the hands
from property subsequently partitioned; must
of
64(2) converted by the income derived by the spouse be extended to
individual
individual into from such converted property computation
& not in
HUF property. will be taxable in the hands of
the hands
of individual. income also.
of HUF.

* An individual shall deemed to have substantial interest in a concern for the purpose of Section
64(1)(ii)

1  !1!1cc
1  !c "c#
"c#

Person¶s beneficial shareholding should not be


Person either himself or jointly with his relatives
less than 20% of voting power either
is entitled in aggregate to not less than 20% of
individually or jointly with relatives at any
the profits of such concern, at any time during
time during the Previous Year. (Shares with
the previous year.
fixed rate of dividend shall not be considered)

Note: The clubbed income retains the same head under which it is earned.

p
p
p

ppppppppppppppppppppppppppppppppppppppppp
"-
 -
-



 

p

1 ,



Under chapter 4 of Income Tax Act, 1961 (Section 14), income of a person is calculated under
various defined heads of income. The total income is first assessed under heads of income and
then it is charged for Income Tax as under rules of Income Tax Act.

The direct tax which is paid by individual to the Central Government of India is known as
Income Tax. It is imposed on our income and plays a vital role in the economic growth &
stability of our country. For years the Government is generating revenue through this tax system.

The word 'Tax' originated from the 'Taxation.' which mean 'Estimate.' Hence, 'Income Tax' mean
'Income Estimate,' which helps the government to know the actual economic strength of a
person. It is also a way to set up an economic standard for general people. It helps the
Government to know the distribution of money among country's people.

According to Section 14 of Income Tax Act, 1961 there are following heads of income under
which total income of a person is calculated:

» Heads of Income: Salary( 15-17)


» Heads of Income: House Property(22-27)
» Heads of Income: Profit In Business/ Profession(28-44)
» Heads of Income: Capital Gains(45-55)
» Heads of Income: Other Sources(56-59)



 -
)1 ,

6 -

32 , -6
Income under heads of salary is defined as remuneration received by an individual for services
rendered by him to undertake a contract whether it is expressed or implied. According to Income
Tax Act there are following Sec 15 conditions where all such remuneration are chargeable to
income tax:

Vp When due from the former employer or present employer in the previous year, whether
paid or not
Vp When paid or allowed in the previous year, by or on behalf of a former employer or
present employer, though not due or before it becomes due.
Vp When arrears (sum unpaid) of salary is paid in the previous year by or on behalf of a
former employer or present employer, if not charged to tax in the period to which it
relates.

[For the removal of doubts, it is hereby declared that where any salary paid in advance is
included in the total income of any person for any previous year it shall not be included again in
the total income of the person when the salary becomes due.
Any salary, bonus, commission or remuneration, etc or received by, a partner of a firm from the
firm shall not be regarded as ³salary´ for the purposes of this section.]

32

,  -1 
 -6
Under section 17 of the Income Tax Act, 1961 there are following an income which comes under
head of salary:
*Salary (including advance salary) *Wages *Fees *Commissions *Pensions
*Annuity *Perquisite *Gratuity *Annual Bonus *Income from Provident Fund
*Leave Encashment *Allowance *Awards

32 ,,26
Leave encashment is the salary received by an individual for leave period. It is a chargeable
income whether he is a government employee or not. Under section 10(10AA) (i) there is also a
provision of exemption in case of leave encashment depending upon whether he is a government
employee or other employees

32 ,c 6


It is an annual income received by the employee from his employer. It may be paid by the
employer as voluntarily or on account of contractual agreement. It is not taxable until the right to
receive the same arises. Under section 56, Income Tax Act, 1961 other annuities come under a
will or granted by a life insurance company or accruing as a result of contract which comes as
income under from other sources.

32 ,0- 6


It is salary received by an individual paid by the employee at the time of his retirement or by his
legal heir in the case of death of the employee.

32 ,c
46
It is the amount received by an individual paid by his/her employer in addition to salary. Under
section 15 of the Income Tax Act, 1961 these allowance are taxable excluding few conditions
where they are entitled of deduction/ exemptions.

Under Income Tax Act following types of allowance are defined


1
,!c
46
Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by
an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is
no exemption in tax if he is living in his own house or house for which he is not paying rent.
There are following amount which are exempt from tax:
Actual house rent paid by that individual
Rent paid for the accommodation over 10% of the salary
50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40% of the salary
in it is placed in any other city

2-  c
4,
Children Education Allowance
Tribal Area Allowance
Hostel Expenditure Allowance
Remote Area Allowance
Counter Insurgency Allowance
Border Area Allowance
Allowances for there is provisions of exempt in income tax are:
Allowance given to a citizen of India, who is a government employee, for rendering services
outside India
Allowances given to Judges of High Courts & Judges of Supreme Court
Allowances received by an employee of UNO

 
, -
 - 
6
Certain deductions are available while determining the taxable salary income.

The income chargeable Sec 16 under the head ³Salaries´ shall be computed after making the
following deductions:
Vp a deduction in respect of any allowance in the nature of an entertainment allowance
specifically granted by an employer to the assessee who is in receipt of a salary from the
Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or
other perquisite) or five thousand rupees, whichever is less;]
Vp a deduction of any sum paid by the assessee on account of a tax on employment within
the meaning of clause (1) of article 276 of the Constitution, leviable by or under any law.

c+ -  





p$pp&')'*&'))p p 
p$pp&')'*&'))p p
+
"p p p #
"p p p
 
 (   
 (  
 !,+ !,+
 0 to 1,60,000 No Tax 0 to 1,90,000 No Tax
 1,60,001 to 3,00,000 10% 1,90,001 to 3,00,000 10%
 3,00,001 to 5,00,000 20% 3,00,001 to 5,00,000 20%
 Above 5,00,000 30% Above 5,00,000 30%
 p p


p$pp&')'*&'))p p


 p  ,
"p p p

 (  
!,+
0 to 2,40,000 No Tax
2,40,001 to 3,00,000 10%
3,00,001 to 5,00,000 20%









$+"-
,,
 
Professional tax, which is paid, is allowed as deduction.

+c---,(sum unpaid, amount overdue), -


If salary is received in arrears or in advance, it can be spread over the years to which it relates
and be taxed accordingly as per section 89(1) of the Income tax Act.




1 ,

61
,"-
-

32,1 ,
1
,"-
-6
According to Chapter 4, Section 22 - 27 of Income Tax Act, 1961 there is a provision of income
under head of house property. In every section from 22-27 there are detail specification of house
property income. It is defined as income earned by a person through his house or land.

32

,  -1 
1
,"-
-6,%%
Annual value of building or land owned by assessee. There is a charge on the potential of
property to generate income not on the rent received. But if property is used for making profit in
business then it will be taxable not under this head but will be taxable under head of profit in
business/ profession.

1
4
    
-
-6,%9
According to annual value, house property is calculated as

Vp Annual value of a house is zero if property is in the occupation of the owner for his
residence for the whole year & if no other benefit is availed by owner from his property.
There will be no deductions as given under section 24 except deduction interest on
borrowed capital
Vp If the owner lets out the house or a part thereof for any period of time during the previous
year the annual value of the property or part has to be calculated for the whole year and
the proportionate annual value of the period for which the house or any part thereof was
in the occupation of the owner for his own residence shall be deducted from the gross
annual value. The assessee in such cases cannot claim deduction under section 24 in
excess of the annual value so determined
Vp The assessee occupies more than one house for his residence; the above exemption is
applicable only to one such house at the option of the assessee. The annual value of the
other house or houses shall be computed as if the house or houses are let
Vp In case where the assessee has only one residential house but it cannot be occupied by the
owner by reason of that owing to his employment, business or profession carried out on
at any other place, he has to reside (exist) at that other place in a building not belonging
to him, the annual value of such house shall be taken to be nil if the house is not actually
let and no other benefit is derived by the owner from such house. The assessee cannot
claim any deduction in such case as allowable under section 24 of the Act except for
interest on borrowed capital subject to a maximum of Rs. 15,000/-

 
, -
 
 -
2
,-
-,%:
Income chargeable under the head ³Income from house property´ shall be computed after
making the following deductions, namely:²
Vp a sum equal to thirty per cent of the annual value;
Vp where the property has been acquired, constructed, repaired, renewed or reconstructed
with borrowed capital, the amount of any interest payable on such capital

m

:Where the property has been acquired or constructed with borrowed capital, the
interest, if any, payable on such capital borrowed for the period prior to the previous year in
which the property has been acquired or constructed, as reduced by any part thereof allowed as
deduction under any other provision of this Act, shall be deducted in equal installments for the
said previous year and for each of the four immediately succeeding previous years]

1 ,

6"-
 $, ,,="-
,,


According to Income Tax Act, 1961 income under this head is defined as the income earned by
assessee as a profit or gain in his business or profession. Income under this head must follow
these conditions: sec 28

Vp There must be a business/ profession


Vp Business/ profession is being carried by assessee
Vp Business/ profession have been carried out by assessee in assessment year for which
income tax is filling

32

,  -1 
"-
 $, ,,

Vp Profits and gains of assessee from any business or profession during assessment year
Vp Any payment or compensation due or received by a person for his services to
organization as a part of his business
Vp Making profit in trade Income of professional or organization against services provided
by that professional/ organization
Vp Cash received or due by any person against exports under government schemes
Vp Any benefit whether it is not in cash coming from business/ profession
Vp Any profit, salary, bonus or commission received by company partners


1 ,

6   0 ,

32 ,   0 6
According to Income Tax Act, 1961 heads of capital gain is defined as gains derived on transfer
of capital asset. Capital Gain is the profit or gain of an assessee coming from the transfer of a
capital asset effected during the previous year or assessment year. "Capital Asset" and transfer
are predefined in income tax act.

32 ,   c,,6
Under section 2(14) of the Income Tax Act,1961 Capital Asset is defined as property of any kind
held by assesse including property held for his business or profession. It includes all type real
property as well as all rights in property. It is also defined as gains on transfer of assets in which
there in no cost of acquisition like:

Vp Goodwill of business generated by assessee


Vp Tenancy rights
Vp Right to manufacture
Vp Processing & production of any article or things

c,,,32 2
U
  -1 ,
   c,,,
According to Income Tax Act,1961 there are few assets which don't form a part of Capital
Assets, which are as follows:

Vp Stock of goods and raw materials used by assessee for his business or profession
Vp Those properties which are movable like wearing apparel, furniture, automobile, phone,
household goods etc. held by assessee. But Jewelry which is also an movable assets
comes under heads of Capital Assets
Vp Agricultural property in India. But agriculture land coming under municipal limits (in
area having population more than 10,000) comes under Capital Assets. Agriculture lands
within 8 Km from municipal limit also comes under Capital Assets if it is notified by the
central government of India
Vp Few Gold Bonds issued by government
Vp Few special bonds issued by central government like Special Bearer Bonds, 1991

-, -
   c,,,
Under Section 2(47) of The Income Tax Act, 1961 transfer of capital assets is defined as:

Vp Sale, exchange and relinquishment of assets


Vp Extinguishment of any rights in capital assets
Vp Acquisition of capital assets or rights
Vp Conversion of capital asset by its owner as stock in trade of his business, it may also be a
term of transfer
Vp Any transaction by which an assessee become enable to act as a member of cooperative
society
Vp Any transaction by which an assessee acquire shares in cooperative society

1 ,

62-
-,

Every type of income comes under a specified heads. But there are few incomes, which don't
come under any of following heads:

Vp Salary
Vp House Property
Vp Profit In Business/ Profession
Vp Capital Gains

So under Section 56(2) of Income Tax Act, 1961 all such income comes in this heads of income.
There are following incomes which are taxed under this heads

Vp Income coming as a dividend paid by a company to an assessee


Vp Income coming from winning in lottery, crossword puzzles, races, card games, gambling
or other such sports
Vp Income coming as an amount received by assessee from his employer as a fund for
welfare of employee
Vp Income as an interest on securities
Vp Income coming by letting on hire machinery, plant, furniture, building or other goods
Income coming from insurance policy


 


Under the scheme of computation of total income under the Income Tax Act, the income falling
under each head is to be computed as per the relevant provisions of the Act relating to
computation of income under that head (Refer Chapter IV). The aggregate of income under each
head is known as 'Gross Total Income' out of which certain deductions are permitted to arrive at
the Total Income'. These deductions are explained in this Chapter.

Deduction is the amount, which is reduced from the gross total income before computing tax.
There are other deductions such as for donations, for repayment of loans taken for educational
purposes etc.

 
, -,
- ,

(+"-
  E  ,-- E,
" ,('& +
Premium paid upto Rs 10,000 and maximum amount of Rs. 1, 00,000/-in a year, in respect of
Savings like LIC, PF, NSCs, Tuition fee , Housing loan principals as shown below in tabular
form.

(+",
-  -
2    ,('& '&c+

Where an assessee being an individual or a Hindu Undivided family resident in India incurs any
expenditure for the medical treatment, nursing, training and rehabilitation of a handicapped
dependent, deduction of Rs. 40, 0007- is allowed from gross total income. The deduction
includes payment or deposit under an approved scheme of the L.I.C. or the U.T.I. providing for
payment of annuity or lump sum amount for the benefit of the handicapped dependent in the
event of assessee's death.

(+32- -,  -, -


-2  -

Where an Indian resident incurs any expenditure for the medical treatment of specified disease or
ailment for himself or a dependent relative, he is allowed a deduction of an amount actually
incurred subject to maximum of Rs. 40,000/-. If he or any dependent relative is senior citizen, the
deduction can go upto Rs. 60,000. The amount of deduction is to be determined after reducing
the amount received under medical insurance (Sec. 80DDB).

( +!

>,, 
--, 52 52-, ,('&+

Any repayment of the principal amount of loan taken from a financial institution or a recognized
charitable organization for higher studies and interest thereon is allowed as a deduction upto a
maximum amount of Rs. 40,000/- in a year. The relief is available to persons who have
undertaken graduate or post graduate courses in any branch of engineering, medicine or
management or post-graduate courses in any university in pure sciences, applied sciences,
mathematics or statistics. This deduction is allowed for a maximum period of 8 years beginning
with the year in which repayment starts

(+

,
-  ,E 2-  , 
,('&0+

Donations/contributions made to recognized charitable trusts/institutions and certain specified


Funds are allowed as deduction. Donations/contributions to other recognized charitable trusts
and specified funds qualify for deduction of 50% of the amount donated or contributed.
Deductions in respect of certain donations, such as donations to National Minorities
Development and Finance Corporation are subject to overall qualifying limit of 10% of the
'Gross Total Income'.

( +!('&00+

Expenditure in excess of 10% of total income incurred by an assessee (not in receipt of house
rent allowance) on payment of rent in respect of residential accommodation occupied by him for
his own residence is allowed deduction upto Rs. 2,0007- per month or 25% of total income,
whichever is less.


-
0-
,,
(+  2

4 5,c  6

80C Savings like LIC, PF, NSCs, Tuition fee , Housing Max of Rs. 1,00,000
loan principal, infra-structure bonds etc. alongwith Section 80CCC
80CCC Pension Fund premium paid Max of Rs. 10,000

80CCF Infra-Structure Bonds Max of Rs. 20,000

80D - Medical Insurance Premium on health for self and - Max of Rs.1 5,000
dependents - Max of Rs. 5,000
- Additional amount On dependent Senior Citizen
80DD Medical treatment of Handicapped dependent Max of Rs. 50,000

80DDB Actual Expenditure towards medical treatment for Actual Expenditure or


self and dependents Rs.40,000 and in case of
Senior Citizen it extends to
Rs.60,000/- whichever is less
80E Repayment of Loan taken for Higher Education of Max of Rs. 40,000
Self or Dependent
80GG House Rent Paid by employee 1. House rent paid @ Rs.2000
p.m.
2. 25% of (I) above
3.Actual Rent paid 10% of (I)
above
80U Employee who suffers from total blindness or Rs. 50,000
permanent physically handicapped *  
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 U/s 80G is restricted to 50% or 100% of Donation amount subject to a maximum of
10% of ()+V

  
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Salary or (Pension) u/s17(1) ***  

Perquisites excluding fringe benefits u/s 17(2) ***  

Profits in lieu of salary u/s 17(3) (+) * * *  

Gross salary JJJJ 

Deductions U/s 16 

Entrainment Allowance **** 


u/s 16 (ii)
Tax on employment (+) * * (-) * * * 
u/s 16 (iii)
*
 -
 _____ 
_______


 
 -
1
,"-
- **** 

Annual Rental Value **** 

Less Municipal Taxes _____ 

Net Annual Value **** 

Deductions -30% u/s24 **** 


Income from house property _____ 



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$, ,,
- !p 
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(+) or (-) !p * * * 
Net profit as per P &L account **

Add expenses debited but not allowed under
the Act (+) * * * * * 

Add Incomes taxable but not credited **** 

Less Expenses allowed but not debited 

Less Incomes credited but not taxable under (-) * * * * 


this head 
________
Business profit 

   0 , 

Short Term Capital Gain **** 

Long Term Capital Gain **** 

Income under the head µCapital Gains ______ 

CIF=551 

 
 -

2-,
-,

General Incomes u/s 56(1) ** * *

Specific Incomes u/s 56 !p * * *

Family Pension (2) _______

Less: expenses allowed (-) * * * *


Income from other sources u/s 57 _______

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2--,
, Xxxxxx

0!c  XXXXX

 DEDUCTIONS u/s 80 C (-)****


TOTAL INCOME to 80 U

XXXX


$ 0%&**)"c "!c

cc

ï   
 

The budget proposed for the year 2011-12 is moving towards the philosophy of Direct Tax
Code (DTC) which will come into force from 1st April 2012. With DTC, there may not be a
necessity to bring frequent amendments in the tax laws as Direct Taxes Code bill aims to
consolidate and rearrange various provisions in an orderly manner to make them consistent with
the general scheme of the tax laws and bring simplified procedures. Keeping the
implementation of DTC in mind, there is no relief for women taxpayers as the DTC proposes
the maximum limit of Rs. 2, 00,000 which is same for both men and women assesses
eliminating the gender discrimination. . The budget announced slight changes in the basic
exemption limit for individual men and senior citizen but also imposes additional service tax
on some items and also nominal central excise duty of 1 per cent imposed on 130 items entering
in the tax net, which will definitely affect the purchasing power of the common man.

4    
   

The budget proposal for the year 2011-12 in respect of the tax slabs are as under:-

(Figures in rupees)

c,,,,, !,  , 5 "-



,  2 5

    *EF&E&&& !,*E'&E&&&

 10% 1,60,000 ± 3,00,000 1,80,000 ± 5,00,000

 20% 3,00,001 ± 5,00,000 5,00,001 ± 8,00,000

 30% 5,00,001 and above 8,00,001 and above


3
  *E8&E&&& !,*E8&E&&&

 10% 1,90,000 ± 3,00,000 1,90,000 ± 5,00,000

 20% 3,00,001 ± 5,00,000 5,00,001 ± 8,00,000

 30% 5,00,001 and above 8,00,001 and above

-  ;(5  %E:&E&&& !,%ED&E&&&



- 2 F&
-,+

 10% 2,40,000 ± 3,00,000 2,50,000 ± 5,00,000

 20% 3,00,001 ± 5,00,000 5,00,001 ± 8,00,000

 30% 5,00,001 and above 8,00,001 and above

- ,
- Exempt Rs. 2,50,000 Rs 5,00,000
  ;(
-
2 '& -,

+

It may be noted that lowest slab of Rs. 1, 60,000 for individual is raised to Rs. 1, 80,000, Rs.1,
90,000 for women remained unchanged and Rs. 2.40,000 for senior citizen is increased to 2,
50,000. Also, a new category of super senior citizen is framed and their exemption limit is
increased to Rs 5, 00, 000.

å 
m


 
  

Salaried individual salary up to Rs. 5 Lacs (not yet confirmed via notification) having no other
income except salary income would be exempt from filing of return of income/ Income Tax
Returns, where the tax liability is fully deducted by their employers A new revised income tax
return form 'Sugam' to be introduced for small tax papers. Relaxation in e-filing norms for small
tax payers have been proposed in the budget. Maximum penalty for delay in filing of returns has
been increased from Rs.2, 000 to Rs 20,000.

Î     
   
Currently an assessee could avail deduction under 80C, upto an amount of Rs. 1,00,000 on
account of savings in pension scheme, housing loan principal repayment, savings in public
provident fund, payment towards life insurance premium, unit linked investment plan, national
savings certificates, national savings scheme, infrastructure bonds, equity linked savings scheme,
five year term deposit with banks, tuition fees etc. No change has been proposed on this and the
limit of Rs, 1, 00,000 is retained as it is. Contributions by the Central Government or the
employer to prescribed pension scheme excluded from the current bundled limit of Rs.1, 00,000
in computing the deductions from taxable income for employee thereby allowing additional
deduction to employees to that extent.

Under section 80 CCF, an individual assess can enjoy a deduction of an additional amount of Rs.
20,000 over and above the existing limit of Rs, 1,00,000 by investing in long term infrastructure
bonds notified by the Central Government. This provision was there in last year¶s budget and the
tenure has been increased to one more year.

'  
  m

Thegovernment proposed in the Union Budget 2011-12 that low-cost housing loans up to Rs 15
lacs will be eligible for 1% interest subsidy. The existing interest rate subsidy is on loans of Rs
10 lacs where cost of house was Rs 20 lacs. Under budget proposal, norms for cost of house have
been also raised to Rs 25 lacs. So, next year, home buyers will get 1% interest subsidy on loans
up to Rs 15 lacs where cost of house was up to Rs 25 lacs.

Vp 1% interest sop loans up to Rs 15 lacs

Vp Priority sector lending: housing loan limit raised to Rs 25 lacs for vs. Rs 20 lacs.

·     
     

The following table shows the deductions / rebate at a glance which exist viz a viz proposed in
the budget.

(



 
  

    
80C Maximum investment limit 1,00,000 1,00,000 0

80CCF subscription to long term notified 20,000 20,000 0


infrastructure bonds

80D Medical Premium (scope widened ± 15,000 15,000 0


any contribution to Central Health Scheme
is also included

80D Medical premium on the health of 15,000 15,000 0


parent / parents

80D Medical premium in case of parent / 20,000 20,000 0


parents being senior citizen

80DD Expenditure on dependent disabled 50,000 50,000 0


more than 40%

80DD Expenditure on dependent for severe 1,00,000 1,00,000 0


disability

80DDB 6expenditure for medical treatment 50,000 40,000 0


for diseases under rule 11DD for self or
dependent

80DDB expenditure for medical treatment 60,000 60,000 0


for diseases under rule 11DD for self or
dependent being senior citizen

80E Interest on education loan (for self / No limit No limit -


spouse and children)

80U Permanent disability benefit for self 50,000 50,000 0


(adhoc amount

80U disability exceeding 80% 1,00.000 1,00,000 0

80G deduction on donations made As per IT rules -




 
 !"

All taxes are subject to an education cess, which is 2% of the total tax payable. With effect
from assessment year 2008-09, Secondary and Higher Secondary Education Cess of 1% is
applicable on the sub total of taxable income and exists for the assessment year 2011-2012.

#"

- Disabilities: u/s 80DD: over 40% & also includes:- autism, cerebral palsy & multiple
disability & mental retardation under Disability Act 1995 and

- u/s 80DDB: Specified diseases are:- Neurological diseases being dementia, dystonia,
musculorum, deformans, motor neuron disease, ataxia, chorea, hemiballisums, aphasia &
Parkinsons disease, Cancer, AIDS, chronic renal failure, hemophilia & thalass aemia.

$ %    &

The deduction of Rs. 1, 50,000/- on home loan interest repayment in the financial year for self
0ccupied properties & the entire interest without ceiling for rented properties would qualify for
deduction under section 24 of the Income Tax. 1961.

' (



(

mm 

The existing exemption of Rs. 15,000 towards medical treatment reimbursement subject to
production of bills and medical treatment also continues.

) ! *   

Conveyance allowance up to Rs. 800 per month (Rs. 9,600 per year) is tax free if provided as
conveyance allowance by the employer. For getting this rebate no bills are required for this
amount pursuant to section 10 of the Income Tax Act, 1961. The budget proposal for the year
2011-12 did not alter this too.
ï  * *   

The current provision remains on this head which is as under:-

The rebate i.e. the exemption is available for the amount actually incurred on performance of
travel on leave to any place in India by the shortest route to that place. This is subject to a
maximum of the air economy fare or AC first Class fare (if journey is performed by mode other
than air) by such route, provided that the exemption shall be available only in respect of two
journeys performed in a block of 4 calendar years.

ïï !
  
   

The current provision remains on this head which is as under:-

Children education up to Rs.100 per month for two children (Rs. 2,400 per year) is tax free if
provided as children education allowance by the employer pursuant to section {10 (14(i)} of the
Income Tax Act, 1961.

Any allowance granted to an employee to meet the hostel expenditure on his child at Rs.300 per
child up to a maximum of two children is also exempt from tax.

ï4 
   
 

The current provision remains on this head which is as under:-

Special pay / technical pay granted by the employer for pursuit of specified purposes for which
the same is being spent, then the amount qualifies for deduction under the Income Tax Act of
1961 pursuant to section {10 (14(ii) }of the Income Tax Act, 1961. In case of Technical pay
provided by Government organization, by and large there is a Government order is issued in this
respect and the concerned employee has to claim it by getting the same certified by his higher
officials that the expenses in fact has been expended for the purpose specified.

The various allowances which are currently exempt under section 10 (14) of the Income Tax Act
of 1961 would continue such as:-
Vp Allowance granted to meet cost of travel on tour or transfer.

Vp Allowance granted on tour or journey in connection with transfer to meet the daily
charges incurred by the employee.

Vp Allowance granted to meet conveyance expenses incurred in performance of duty,


provided no free conveyance is provided.

Vp Allowance granted to meet expense incurred on a helper engaged for performance of


official duty.

Vp Academic, research or training allowance granted in educational or research institutions.

Vp Allowance granted to meet expenditure on purchase/maintenance of uniform.

ïå 
   m 

The current provision remain on this head which is as under

Most of the States in India collects ³tax on employment´ on a per-professional basis which is
known as professional tax and this is usually a slab amount based on gross income. Such
professional taxes paid are deductible from income tax pursuant to section 16(iii) of the Income
Tax Act 1961.

ïÎ &%   

The current provision remain on this head which is as under:-

When the employer pays house rent allowance to the employee as part of the salary and if the
same is utilized by the employee for his stay in a rental accommodation, then the income tax
rebate is available based on the criteria laid down by the Income Tax Act 1961.

The rebate on the house rent is calculated as under for rebate purposes pursuant to section 10
(13) (A) of the Income Tax Act, 1961:-

The income tax rebate on the house rent allowance received is one of the least of the following.
(a) actual house rent allowance received {section 2A(a)}, or

(b) rent paid in excess of one-tenth of salary {section 2A(b)}, or

(c) An amount equal to:-

- where such accommodation is situated at metro cities (i.e. Bombay, Calcutta, Delhi or
Madras) one half of the amount of salary due to the assessee in respect of the relevant
period, and

- where such accommodation is situated at non-metro cities (i.e. any other place than
Bombay, Calcutta, Delhi or Madras) one two- fifth of the amount of salary due to the
assessee in respect of the relevant period {Rule 2A(c)}

Salary for this purpose is basic+ dearness allowance if the terms of employment so provides (e.g.
where it is taken into account while calculating P.F and allowance etc.,) but excludes all other
allowances and perquisites.

ïÎ ï %  &%   


  *
 
 
 

The rebate on house rent allowance would not be available in the following circumstances:-

(i) residential accommodation occupied by the assessee is owned by him; or

(ii) The assessee has not actually incurred expenditure on payment of rent (by
whatever name called) in respect of the residential accommodation occupied by him.

The assessee shall be required to produce the rent receipts in proof of actual payment. However,
for the purpose of claiming deduction of house rent allowance at source, employees drawing
house rent allowance up to Rs. 3000/- per month are exempted from production of rent receipts.
For the purpose of regular assessment, the employees shall be required to produce the rent
receipts in all cases. (the above is on the basis of circular issued by CBTD bearing no. 798 dated
30th October 2000)
ï'  * m 

*


The provision of Leave encashment while in service is taxable would continue to be applicable
while the same is exempted at the time of retirement subject to fulfilment of certain conditions.

ï·  
  *
 
Service tax rate remains unchanged at 10 percent. Introduction of Two New Taxable Services
(effective from a date to be notified upon enactment of Finance Bill 2011)
‡ Services provided by air conditioned restaurants with licenses to serve liquor
‡ Services provided by hotels, guest houses, etc. with respect to providing accommodation.

, -
- (  *-2%&**+6
‡ Services rendered to exhibitors participating in an exhibition outside India have
been exempted from service tax
‡ Works contract services rendered within a port, or other port or airport have been
exempted from service tax (earlier the exemption was limited to services provided
in relation to the construction of ports)
‡ An abatement of 25 percent from the taxable value has been provided in respect
of services rendered in relation to the ³transport of coastal goods´ and goods
transported through ³national waterways´ or ³inland water´ (without claiming
Cenvat credit)
The limits for the maximum amount/ rate at which service tax can be levied on air
Travel services have been revised as follows (amounts in Rs.):
S. NO Type of Air travel Existing Revised
1 Domestic(economy) 100 150
2 International(economy) 500 750
3 Domestic(other than economy) 100 10%

ï$ 
 %  
 +#,
m m

 
*
-
1. Employment Visa
‡ The Government of India has removed the cap on the number of employment
Visas that may be granted to foreign nationals. Earlier the number of employment visas that
could be granted was restricted to 1 percent of the total workforce subject to a maximum of 20
and a minimum of five.s
‡ The Government of India has mandated that an employment visa may be granted to a foreign
national only if his/her salary is in excess of USD 25,000 per annum. However, the threshold
salary limit is not applicable to ethnic cooks, language (other than English) teachers/translators,
and staff working for a high commission/consulate in India.
2. Business Visa
In 2009, the Government of India directed all foreign nationals in India holding a business visa
and working on a project/contract based assignment to return to their home countries. The
Government of India also clarified in detail the purpose, duration and various scenarios under
which business visas may be granted. The following additional clarifications have been issued by
the Government of India regarding business visas:
‡ A business visa with a multiple entry facility can be granted for a maximum period of five
years and the in case of nationals from the USA, for a maximum period of 10 years.
‡ MHA, State Governments, Union Territories, Foreigner Registration Offices, etc. can grant
extension of business visas on a year-to-year basis up to a total period of five years from the date
of issue of the initial visa. However, the first extension of the business visa will only be granted
by the MHA.
3. Entry (X) Visa
Generally the spouse/dependents of a foreign national are granted an entry (X) visa if they intend
to accompany the foreign national to India. The following additional clarifications have been
issued by the Government of India on entry (X) visas:
‡ An entry (X) visa may be granted to the spouse/dependents of foreign national who is coming
to India/already in India on any other type of visa, i.e. business, employment, etc.
‡ An entry (X) visa may be granted to a foreign national of Indian origin and his/her
Spouse/dependents who wish to come to India for visiting relatives, holidays, Sightseeing, etc.
‡ The validity of the entry (X) visa shall be concurrent with the visa of the principal visa holder
or a shorter duration but limited to five years from the date of initial issue.
‡ Foreign nationals holding an entry (X) visa cannot accept any employment in India or
undertake/ indulge in any business/economic activity in India.
5. Conference Visa
The Indian immigration laws provide for grant of a special type of visa known as conference visa
to foreign nationals who intend to visit India to attend a conference, seminar or workshop
(µevent¶). The following additional clarifications have been issued by the Government of India
on the conference visa:
! 5  
The foreign national who intends to visit India with the sole objective of attending such event
must be of assured financial standing.
!"-
 -
- Along with the visa application the foreign national should submit an invitation letter from the
event organizer.
- Specified foreign nationals and foreign nationals who are required to visit µrestricted¶ or
µprotected¶ areas or any areas affected by terrorism, militancy, etc. should obtain a prior security
clearance from the MHA.
- If the organiser of the event is a ministry/department of the Central or State Government, the
request for security clearance needs to be submitted by the organiser at least 30 days prior to the
commencement of the event. In other cases, where the organiser is a Non-Governmental
Organisation or private institution, the request for security clearance needs to be submitted at
least 60 days in advance.
!-

- The µconference visa¶ would be issued for the duration of the event and the necessary travelling
time. However, if the foreign national wishes to combine tourism with attending the event, the
participant may be granted a maximum six-month visa and the visa would be subject to such
conditions as applicable to a µtourist visa¶.
- If security clearance is required from the MHA, the visa would not be granted for a duration
longer than that specifi ed by the Ministry of External Affairs/ MHA or the minimum period
required.
6. Tourist Visa
A tourist visa is generally granted to a foreign national whose primary objective of visiting India
is sightseeing, recreation, casual visit, etc. and does not involve any economic or business
activity. Key developments on the tourist visa front are as follows:
‡ The µvisa-on-arrival¶ has been extended to citizens of six more countries, namely Cambodia,
Laos, Vietnam, Philippines, Myanmar and Indonesia. This facility could earlier be availed by
citizens of fi ve countries, namely Japan, Singapore, Finland, Luxembourg and New Zealand.
‡ The Government of India has mandated that a foreign national holding a tourist visa, and who
intends to visit India within two months of his/her last departure, needs to obtain a specific
permission from the Indian consulate in his/her home country. On grant of permission, if the
foreign national visits India, it shall be necessary for him/her to register with the Foreigner
Registration Office within 14 days of arrival in India.

No doubt, the current budget proposal has widened the tax slab and it is a clear indication that
the Government is moving towards the Direct Tax Code bill of 2009 and this will leave more
money in the hands of the individual ± in turn the higher spending would take place and
economic growth also would take place. The widened tax slab change and more avenue of saving
through infrastructure bond up to an additional amount of Rs.20,000 might cheer most of the tax
payers but leaving the basic exemption limit untouched would be a great burden to the senior
citizens.









  ! '&
p
The Deductions under section 80C are divided under two categories:

A.p Deductions in respect of certain payments.


B.p Deductions in respect of certain income.

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,-5- 5-
 , 5, " ,-"- E
?
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Savings play a vital role in the fast economic development of any country. To encourage
savings, an incentive in the form of a deduction out of one`s taxable income has been
allowed. To chanelise those savings, various schemes have been framed and if the
assesses deposit those savings in these approved schemes, a deduction shall be allowed.
Deduction u/s 80C shall be allowed only to following assesses:
i)p An individual
ii)p A Hindu Undivided Family

!c 

Total amount deposited in various approved ssaving schemes or Rs. 1,00,000 p.a. w.e. is
less shall be allowed as deduction. This limit of Rs. 1,00,000 also includes the amount of
deduction allowed to the assessee u/s 80CCC and 80CCD.

M c#0c ! =,'& 

Amount saved and deposited by the employee or assessee in the following savings
schemes shall qualify for deduction u/s 80C

+p 
, ,  -
   ,
i.p Deposits in statutory provident Fund (S.P.F): Amount deposited by the
employee in this fund during the previous year fully qualifies for deductions.
ii.p Deposits in Recognised Provident Fund (R.P.F): amount deposited during the
previous year fully qualifies the deductions.
iii.p Deposits made by employee in Unrecognised Provident Fund (U.R.P.F): since
this fund is not recognised by the Commissioner if Income Tax, so any
amount deposited or saved by the employee in the fundwill not qualify for
any deduction.
iv.p Deposits made in Public Provident Fund (P.P.F): The Provident Fund account
can be opened in the name of the employee (assessee), spouse and children
and amount deposited by the assessee during the previous year in any of these
accounts shall qualify upto a maximum of Rs. 70,000.

+p "
 ,-"- 
Actual amount of premium deposited by the employee or on his behalf by his
employer or 20% of su, assured w.e. is less shall qualify for deduction. Life Insurance
policies can be obtained in the name of assessee, spouse and children in case of HUF
in the name of any or all the co-partners in the HUF.
The children means all the sons and daughter of the assessee whether minor or major,
whether dependent upon the assessee or independent or may be married or unmarried.
It also includes steps or adopted children.

+p c
   

0

W,, -
4- ,  --  
In case of any salary has been deducted out of salary of govt employeefor securing a
defee=rred annuity for him or making a provision for his spouse or children, the
amount so deducted but not exceeding 20% of his salary will qualify for deduction u/s
80C.

+p " 
4- ,5-
 ,-
Any amount deducted or deposited by employer towards employee`s group insurance
shall fully qualify for deduction.

+p 
, ,  -
 -
 
Term Deposits with certain banks with not less than 5 years duration and as per
scheme framed by central government shall also qualify for deduction.

+p c
 
,  
- ,  C  > , 5,2(+
Any amount invested in equity linked saving scheme qualifies upto actual amount
invested. In case any amount was invested in ELSS notified for rebate u/s 88 shall
also qualify for deductions under this section .

5+p "
  --  
Any payment made by the assessee to effect or keep in force contract for deferred
annuity will qualify for deduction u/s 80C.

2+p 
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Any amount deposited by the assessee in ULIP of UTI or LIC mutual fund shall fully
qualify for deduction. Amount can be deposited in the name of assessee, spouse and
children.

+p c
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Amount invested in the National Savings Certificates-VIII issues fully qualifies for
the deductions u/s 80C. Interest accrued on these certificates purchased earlier is
deemed to be re-invested, hence such interest also fully qualifies for deduction every
year.

7+p c
 
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Any amount paid to LIC under Jeevan Dhara, New Jeevan Dhara I, New Jeevan
Akshay, New Jeevan Akshay I, New Akshay II plans fully qualifies for this
deduction. Investment in these plans can be made in the name of assessee and in case
of HUF, in the name of any of its members.
>+p c
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Any amount invested by an individual in notified funds set up by Mutual Funds or
UTI shall be shall fully qualify for the deductions u/s 80C.

+p c
 
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, 5$>
Any amount deposited as a subscription to Home Loan Account Scheme of National
Housing Bank or contribution to any notified pension fund set up by the National
Housing Bank will fully qualify for deduction u/s 80C.

+pc,,- 
  
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-
Any subscription to any such security to central government or any such deposit
scheme as central govt may notify in Official Gazette, specifying in this behalf will
qualify the deduction u/s 80C.

+p !
1
,$ 5

Any amount repaid under house building loan taken from Govt., LIC, Bank, HDFC,
HUDCO, or other housing finance institutions or employer.
OR
Amount repaid as full price or instalment of price of a house purchased from govt. or
an approved agency shall qualify up to actual amount repaid.
The amount repaid must not include interest on loan or ground rent but shall include
stamp duty and registration charges.

+p "
 
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Any amount paid as tuition fees (excluding any payment towards any development
fees or donation or payment of similar nature) whether at the time of admission or
thereafter to:
a)p Any school, college or university or any other educational institution situated in
India,
b)p For the purpose of full time education of any two children of the individual

The amount which shall qualify under this section, shall not exceed actual amount
paid as tuition fee for two children only.

+p ,- 


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c$c!
Any subscription to bonds issued by National Bank Of Agriculture and Rural
Development as Central Govt. may notify in Official Gazette, will qualify for
deductions u/s 80C.



%p  
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- 

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a)p This deduction is allowed to individual only.
b)p This deduction is allowed if certain amount is paid or deposited in the relevant
previous year with LIC or any other insurer to effect a contract of annuity or pension
out of a fund set up u/s 10(23AAB)
c)p The rate of deduction is actual amount paid under this scheme (excluding any interest
or bonus accrued during the year ) or Rs. 1,00,000 w.e is less. The aggregate amount
of deduction allowed u/s 80CCC and 80CCD cannot exceed Rs. 1,00,000.
d)p In case any amount is received by the assessee or his nominee under this scheme as
pension or any amount is withdrawn by surrender of this plan either in full or in part
in any previous year whole of such amount shall become taxable in the year in which
such pension is received or withdrawal is made.

9p  
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a)p This deduction shall be allowed only to an assessee, being an individual employed by
the central government and employed by any other employer on or after 1-1-2004 if
he has in the previous year paid or deposited any amount in his account under a
pension scheme notified or as may be notified by the central government.
b)p The amount to be deducted shall be
i.p The whole of the amount so paid or deposited ; or
ii.p 10% of his salary in the previous year
Whichever is less
c)p In case central government make any contributions to his account as reffered above,
the assessee shall be allowed a deduction in the computation of his total income.
d)p Where any amount standing to the credit of the assessee in his account referred above
in respect of which deduction has been allowed as per above together with the amount
accrued thereon if any, is received by the assessee, or his nominee, in whole or in part
in any previous year:
i.p On account of closure or his opting out of pension scheme referred to above,
or
ii.p As pension received from annuity plan purchased or taken from such closure
or opting out

The whole of the amount of which deduction has been allowed as per above shall be
deemed to be the income of the assessee or his nominee, as the case may be, in the
previous year in which such amount is received and shall accordingly be charged to
tax as income of that previous year.

e)p Where any amount paid or deposited by the assessee has been allowed as a deduction
as per above such amount shall not qualify for rebate under Section 88.
f)p For the purpose of this section, ³salary´ includes dearness allowance, if the terms of
employment so provide, but excludes all other allowances and prerequisites.

:p !,- 


 

  
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The aggregate amount of deductions u/s 80C, section 80CCC and section 80CCD shall
not in any case, exceed one lakh rupees.

Dp  
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Any Insurance Ppremia paid by the individual or HUF by any mode other than cash for
an insurance on the health of self, spouse or any other member of the family or dependent
parents or dependent children of the assesse or Rs. 15,000 p.a. whichever is less shall be
allowed as deduction. Such insurance should be in accordance with schemes framed by
General Insurance Corporation such as Mediclaim or by any other insurer where sxheme
is approved by Insurance Regulatory Authority of India.
In case any amount is paid by an assessee to ensure the health of a person who is senior
citizen i.e who has attained the age of 65 yrs at any time during the previous year the rate
of deduction is the actual premium paid or Rs. 20,000 p.a. whichever is less.

Fp  
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a)p The deduction is allowed to an individual who is resident of India or HUF.
b)p The deduction is allowed if they have incurred.
c)p Any expenditure for the medical treatment (including nursing), training and
rehabilitation of a dependent, being a person with disability, or
d)p Paid or deposited ny amount under a schedule framed in this behalf by LIC or any
other insurer or administrator of UTI or the specified company for the maintenance of
the dependent being a person with disability.

!c 
i.p The assessee shall be allowed a fixed deduction of a sum of Rs. 50,000 from his
gross total income in respect of the previous year.
ii.p Where such dependent is a person with severe disability the deduction shall be
allowed for Rs. 75,000.



i.p The scheme as referred above provides for payment of annuity or a lumpsum
amount for the benefit of the dependent, being a person with disability, in the
event of death of the individual or a member of HUF in whose name subscription
of the scheme has been made.
ii.p The assessee nominates either the dependent, being a person with disability, or
any other person or a trust to receive the payment on behalf for the benefit of the
dependent, being a person with disability.
iii.p If the dependent, being a person with disability, predeceases the individual or the
member of HUF an amount equal to amount paid or deposited as per above shall
be deemed to be the income of the assessee of the previous year in which such
amount is received by the assessee and shall accordingly be chargeable to tax as
the income of that previous year.
iv.p The assessee, claiming a deduction under this section, shall furnish a copy of the
certificate issued by the medical authority in the prescribed form and manner,
along with the return of income under section 139, in respect of the assessment
year in which the deduction has been claimed.
v.p In case where the condition of disability requires reassessment of its extent after a
period stipulated in the aforesaid certificate, no deduction under this section shall
be allowed for any assessment year relating to any previous year beginning after
the expiry of previous year during which the aforesaid certificate of disability had
expired, unless a new certificate is obtained from medical authority in the form
and manner, as may be prescribed and a copy thereof is furnished along with the
return of income.
vi.p ³ , ´ shall have a meaning assigned to it in clause (i) of Section 2 of the
Persons with Disabilities(Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 and includes ³autism´, ³cerebral palsy´, ³multiple
disabilities´ referred to in clauses(a), (c) and (h) of section 2 of National Trust for
Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act 1999.
vii.p ³  c2
- ´ means the medical authority as referred to in clause (p) of
Section 2 of the Persons with Disabilities(Equal Opportunities, Protection of
Rights and Full Participation) Act, 1995 or such other medical authority as may,
by notification, be specified by the central govt for certifying ³autism´, ³cerebral
palsy´, ³multiple disabilities´, ³person with disability´ and ³severe disability´
referred to in clauses(a), (c), (h), (i) and (o) of section 2 of National Trust for
Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act 1999.
viii.p ³"-,
4 2 , ´ means a person referred to in clause (t) of section 2 the
Persons with Disabilities(Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 or clause (o) of section 2 of National Trust for Welfare of
Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act 1999.
ix.p ³"-,
4 2- , ´ means:
1)p A person with 80%, or more of one or more disabilities, as referred to in
sub-section 4 of section 56 of Persons with Disabilities(Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995.
2)p A person with severe disability referred to in clause (o) of section 2 of
National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities Act 1999.
x.p ³ ´ means :
1)p In case of an individual, dependent means the spouse, children, parents,
brothers and sisters of the individual or any of them.
2)p In case of HUF, a dependent means a member of HUF.
Such person is wholly or mainly dependent upon individual or HUF for
support and maintenance. Such person does not claimed any deductions
u/s 80U in that previous year.
Gp  
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a)p This deduction is allowed to an individual or HUF who is resident in India only.
b)p If they have incurred during the previous year, or actually paid the amount for the
medical treatment of such disease or ailment as may be specified in the rules made in
this behalf by the board.
c)p The expenditure must be incurred for himself or a dependent, in case the assessee is
an individual.
d)p The expenditure may be incurred for any member of a HUF, in case the assessee is a
HUF.

'p  
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Deduction u/s 80 E regarding interest paid on a loan taken to pursue higher education
shall be allowed if following conditions are fulfilled:
a)p Assessee is an individual
b)p Assessee has taken a loan to pursue higher education of his own, spouse or any of
his/her child.
c)p Loan has been taken from any financial institution or an approved charitable
institution.
d)p Assessee has paid interest on such loan during the previous year.
e)p Assessee has paid interest out of his taxable income of that year.

The deductions specified above all shall be allowed in computing the total income in
respect of initial assessment year and seven assessment years immediately succeeding the
initial assessment year or until the interest referred above is paid by the assessee in full,
whichever is earlier.[Section 80E(2)]


-2
,
2 ,,
6

a)p ³Approved Charitable Institution´ means an institution specified in, or, as the case
may be, an institution established for charitable purposes and notified by the central
govt under section 10(23C) or an institution referred to in section 80G(2)(a);
b)p ³financial institution´ means a banking company to which the Banking Regulation
Act, 1949 applies (including any bank or banking institution referred to in section 51
of that act) or any other financial institution which the central govt may, by
notification in Official Gazette, specify in this behalf;
c)p ³higher education´ means full time studies for any graduate or post-graduate course
in engineering, medicine, management or for post-graduate course in applied sciences
or pure sciences including mathematics and statistics;
d)p ³initial assessment year´ means the assessment year relevant to the previous year, in
which the assessee starts paying interest on loan.

8p  
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Section 80G grants partial deduction in respect of amount given as charitable donations
and it is allowed to all assesses. The sum paid to following as donations during the
previous year qualify under this section:
80G(20:
a)p any sum paid by the assessee in the previous year as donations to:
i.p The National Defence Fund set up by central govt. Or
ii.p The Prime Ministers Drought Relief Fund, or
iii.p The Prime Ministers National Relief Fund, or
iv.p The National Children Fund, or
v.p The Indira Gandhi Memorial Trust,
vi.p The National Foundational for Communal Harmony
vii.p A University or any educational institution of national eminence as may be
approved by prescribed authority
viii.p The Chief Minister`s Earthquake Relief Fund Maharashtra
ix.p Any fund set up by the State Govt. of Gujarat exclusively for providing relief
to the victims of earthquake in Gujarat
x.p The Zila Saksharta Samiti
xi.p The National Blood Transfusion Council or to any State Blood Transfusion
Council which has its sole object of control, supervision, regulation or
encouragement in India of the services related to operation and requirement of
blood banks
xii.p Any fund set up by the State Govt. to provide medical relief to poor
xiii.p Any Central Welfare Fund, The Indian Naval Benevolent Fund or the Airfore
Central Welfare Fund established by the armed forces of the union for the
welfare of the past and present members of such forces or their dependents
xiv.p The Andhra Pradesh Chief Minister`s Cyclone Relief Fund
xv.p The National Illness Assistance fund
xvi.p National Sports fund to be set up by the Central Govt
xvii.p National Cultural Fund to be set up by the Central Govt
xviii.p Technology Development and Application Fund to be set up by the Central
Govt
xix.p The National Trust for Welfare of Persons with Autism, Cerebral Palsy,
Mental Retardation and Multiple Disabilities constituted under sub-sectio (1)
of section 3 of the National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999
xx.p The Govt. or any local authority, to be utilised for any charitable purpose
other than the purpose of promoting family planning
xxi.p Any authority referred to in clause (20A) of Sec-10, for the purpose of
satisfying the need of housing accommodation or planning, development or
cities, towns or villages or both
xxii.p Any corporation referred to u/s 10 (26BB) i.e. a corporation set up to promote
the interest of the minorities
xxiii.p The Govt. or any such local authority, institution or association as may be
approved in this behalf by the Central Govt. to be utilised for the purpose of
promoting family planning.
b)p Any sum paid by the assessee in the previous year as donation for the renovation or
repair of any such temple, mosque, gurudwara, church or other place as notified by
the central govt in the Official Gazette to be of historic, archaeological or artistic
importance or to be a place of public worship of renown throughout any state or states
.
c)p Any sum paid by assessee being a company, in the previous year as donation to the
Indian Olympic Association or any other association or institution as notified by the
central govt u/s 10(23) for:
i.p The development of infrastructure for sports and games in india,
ii.p The sponsorship of sports and games in india.
iii.p Any sum paid by the assessee during the period beginning on the 26th day of
January 2001and ending on 30th day of September 2001

*&p 
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This deduction is allowed to individuals only for rent paid. The assessee must be living in
a rented house due to his employment, business or profession. He should not be getting
any HRA. He or his spouse should not have any self occupied house in india. He or his
spouse, minor child or HUF do not own a house at a place where the tax payer resides.

**p 
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The deduction shall be available to every such assessee, who during the previous has
made any payment:
a)p To the scientific research association which has as its object the undertaking of
scientific research, or to a university, college or any other institution, to be used for
scientific research and such bodies as are approved for the purpose of sec-35(i), (ii) ;
aa)pAny sum paid by the assessee in the previous to a university, college or institutions to
be used for research in Social Science or Statistical Research
b)p (i) to an association or institution which has its object the undertaking of any
programme or rural development, to be used for carrying out any programme of rural
development approved for the purpose of Sec-35CCA provided he furnishes the
certificate as mentioned in sec-35CCA from such association or institution; or
(ii) to an institution or association which has its object the training of persons for
implementing programmes of rural development and any such body is approved for
the purpose of sec-35CCA (2)
bb)pAny sum paid by the assessee to a public sector company or a local authority or to an
association or institution approved by the National Committee, for carrying out any
eligible project or scheme referred to in sec-35AC
c)p Any sum paid by the assessee in the previous year to a rural development fund to be
set up and notified by the Central Govt. for the purpose of clause (c) of sub-section
(1) of sec-35CCA
d)p National Poverty Eradication Fund (so notified)

This deduction will not be allowed in case of those assesses whose gross total income
includes income which is chargeable to tax under the head ³Profits and Gains of Business
or Profession´


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Section 80IA of the Income Tax Act, provides tax holiday for a certain period to an
industrial undertaking or enterprises carrying on the business of developing, maintaining
and operating any infrastructural facility, etc.

VARIOUS PROVISIONS
Where the gross income of the assessee includes any profits and gains derived by an
undertaking or an enterprise any eligible business; a deduction of an amount equal to
stated percentage of profits and gains derived from such business, shall be allowed for
statted consecutive assessment years. [80IA(1)]

ELIGIBLE BUSINESS
The deduction is allowed in undertakings engaged in:

Category I: Carrying on business of


[Section 80IA(4)(i)] a.p Developing;
b.p Operating and maintaining; or
c.p Developing, operating and maintaining any
infrastructural facility
Providing telecommunication services (whether basic
Category II: or cellular), radio, paging, domestic satellite services
[Section 80IA(4)(ii)] & internet services, etc.
Developing, operating and maintaining an industrial
Category III; park or Special Economic Zones notified by the
[Section 80IA (4)(iii)] Central Govt.
a.p Generation,
Category IV: b.p Generation & distribution of power,
[Section 80IA (4)(iv)] c.p Laying of new transmission lines for power
distribution,
d.p Undertakes substantial renovation and
modernisation of the existing transmission or
distribution lines
Undertaking set up for reconstruction of power
Category V: generating plant
[Section 80IA (4)(v)]
Undertaking laying and operating a cross country
Category VI: natural gas distribution network.
[Section 80IA (4)(vi)]

P -,--  O,6


a)p A road including toll road, a bridge or a rail system;
b)p A highway project including housing or other activities being an integral part of the
highway project;
c)p A water supply project, water treatment system, irrigation project, sanitation and
sewerage system or solid waste management system;
d)p A port, airport, inland waterway or inland port or navigational channel in the sea.

P 
 
- O,6

Any undertaking which has started or starts providing telecommunication services


whether basic or cellular, including radio paging, domestic satellite services, network of
trunking, broadband network and internet services on or after the 1st day of April, 1995,
but on before the 31st day of March, 2005.

lp -, -
$, ,,6 in case the undertaking or enterprise which is claiming this
deduction is transferred to another assessee, for transferee all the conditions shall
remain applicable in the same manner as if no transaction has taken place.
lp  
-

?
'&c(D+@6 Deduction for above mentioned
business shall be allowed as if it is the only source of income for the assessee.
lp
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'&c(G+@6For non company assesses it shall be
compulsory to get their accounts audited if they want to claim this deduction.

 
=,'&c6c4-
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cE%&&D

An undertaking owned by Indian Company and set up for reconstruction and revival
of power generating plant if:

a)p Such Indian Company is formed before 30-11-2005 with majority equity
participation by public sector companies for the purpose of enforcing the security
interests of the lenders to the company owning the power generating plant and
such Indian Companies is notified before 31-12-2005 by the Central Govt.; and
b)p Such company begins to generate or transmit or distribute power before31st
March, 2007.
lp -, -
0

,?'*c('+@6in case any goods are to be transferred


from eligible business to any other business or vice versa, it should be done at
market value. In case these are transferred at any other price the Assessing
Officer can adopt Fair Market value.
lp 
  
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2-,
?'&c(8+@6 in case an assessee
claims deduction under this section for any profits and gains, no deduction
shall be allowed under any other section for same profits and gains.
lp 1 52-"-
,?'&c(*&+@6 in case any arrangement is made to have
higher profits of eligible business the Assessing Officer shall allow the
deductions only on real profits.
lp "
4-
4 2 -4?'&c(**+@6 the Central Govt. has the power to
withdraw this deduction at any time from a class of undertakings or
enterprises by issuing a notification in the Official Gazette.
lp c 5

--5-?'&c(*%+@: in case of amalgamation or
demerger all the conditions shall apply to the amalgamating company of the
resulting company as if Amalgamation or demerger has not taken place.

*9p 
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) 5-  4,?
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 5  $, ,,6 collecting and processing or treating of bio-degradable wastes for
generating power or producing bio-fertilizers, bio-pesticides or making pellets or
briquettes for full or organic manure.

-
-5 ,
6 the deduction is available to all industrial undertakings /
enterprises whether in corporate or non-corporate sector i.e. sole proprietor, partnership
firm, etc.
!
  
6 100% of profits & gains from such business as included in gross total
income
"-

  
6 the deduction is available for a period of 5 yrs beginning with the
assessment year relevant to the previous year in which such business commences.

*:p 
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 5  $, ,,6 industrial undertaking engaged in the manufacture or production of


article or thing.

-
-5 ,
6 the deduction is allowed to Indian company only which implies
that foreign companies and non-corporate assessees cannot claim this deduction.
Conditions to be satisfied:
a.p No split up or reconstruction or amalgamation: the undertaking has not been
formed by splitting up or reconstruction of the business already in business or
amalgamation with another undertaking.
b.p Employment of a specified number of new regular workmen: the industrial
undertaking should employ more than 100 new regular workmen during the
previous year. However, an existing industrial undertaking must also employ new
workers to the tune of atleast 10% of existing number of workmen employed in
such undertaking as on the last day of the preceeding year.
c.p Submission of audit report: The assessee has to furnish with the return of Income
the report of accountant u/s 288(2) to claim this deduction.
d.p Rate of Deduction: 30% of additional wages paid to the additional new workmen.
Additional wages means the wages paid to new regular workmen in the excess of
100 workmen employed during the previous year. However, in the existing
undertaking, the additional wages shall be Nil, if the increase in the number of
regular workmen employed during the year is less than 10% of the existing
number of workmen employed in such undertaking as on last day of previous
year.
e.p Period of deduction: the deduction shall be allowed for a period of 3 previous
years including the previous year in which the employment is provided.
*Dp 
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i)p This deduction is allowed to an individual who is resident of India;
ii)p Who, at any time during the previous year, is certified by the medical authority to
be a person with disability;
iii)p Every individual claiming a deduction under this section shall furnish a copy of
the certificate issued by the medical authority along with the return of income u/s
139, on respect of the assessment year for which the deduction is claimed;
iv)p If the condition for disability requires reassessment of its extent after a period
mentioned in aforesaid certificate, no deduction under this section shall be
allowed for any assessment year relating to the previous year beginning after the
expiry of the previous year during which the aforesaid certificate of disability had
expired, until a new certificate is obtained from the medical authority in the form
and manner, as may be prescribed, and a copy thereof is to be furnished along
with the return of income under section 139;
+p !
  
6an individual fulfilling all above mentioned conditions shall
be eligible for a fixed deduction of Rs. 50,000. In case the individual suffers from
a severe disability (disability above 80%) then a higher deduction of Rs. 75,000
shall be allowed.
 +p P , O6 Shall have a meaning assigned to it in clause (i) of section 2 of the
Persons with Disabilities (Equal Opportunities, Protection and Rights and Full
Participation) Act, 1995, and includes ³autism´, ³cerebral palsy´ and ³multiple
disabilities´ referred to in clause(a), (c) and (h) of section 2 of the National Trust
for the Welfare of Persons With Autism, Cerebral Palsy, Mental Retardation and
multiple Disabilities Act, 1999.
 +p P  c2
- O6Means the medical authority as referred to in clause (p)
of section 2 of the Persons with Disabilities (Equal Opportunities, Protection and
Rights and Full Participation) Act, 1995, or such other medical authority as may
be, by notification, be specified by the Central Govt. for certifying ³autism´,
³cerebral palsy´, ³multiple disabilities´, ³disabilities´ and ³sever disability´
referred to in clause (a), (c), (h), (i) and (o) of section 2 of the National Trust for
the Welfare of Persons With Autism, Cerebral Palsy, Mental Retardation and
multiple Disabilities Act, 1999.
 +p P"-,
4 2 , O6 Means the person referred to in clause (t) of section 2
of the Persons with Disabilities (Equal Opportunities, Protection and Rights and
Full Participation) Act, 1995, or clause (O) of section 2 of the National Trust for
the Welfare of Persons With Autism, Cerebral Palsy, Mental Retardation and
multiple Disabilities Act, 1999.
+p P"-,
4 2- , O6 Means
a)p A person with 80%, or more of one or more disabilities, as referred to on
sub-section 4 of section 56 of the Persons with Disabilities (Equal
Opportunities, Protection and Rights and Full Participation) Act, 1995; or
b)p A person with severe disability referred to in clause (o) of section 2 of the
National Trust for the Welfare of Persons With Autism, Cerebral Palsy,
Mental Retardation and multiple Disabilities Act, 1999.

p
p
p
p
p
pp
Exempted income: Any Income which does not form part of total income is exempted income
and are given under sections10-13B. Such incomes are either wholly exempted from tax or
exempted upto a certain limit. Therefore such incomes, either whooly or up to the exempted
limit; are not included in the Total income of an assesses while computing his Total Income.

 
  -,
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c5-  -  
?,*&(*+@)Agricultural income received by assassee during previous year
is exempted. However, iit is defined under sec 2(1A).


-  -
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Any sum received by an individual of HUF either out of HUF¶s income or income of HUF¶s
estate is exempted from tax.

It is important to note that main objective of sec 10(2) is to avoid double taxation as HUF is a
taxable entity and it¶s income is taxable in its hand.
2-
-
-  -- -
--,2  -?,*&(%c+@

Share of profit received by a partner from a partnership firm is exempted from tax.

Again, main objective of sec 10(2A) is to avoid double taxation as firm is a taxable entity and
it¶s income is taxable in it¶s hand.

2  
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-  
 
   ?,*&(D+ ! %$@

The value of any travel concession or assistance received by an individual,or due to,him is
exempted in following cases:

(1)From his employer for himself and his family, in connection with his proceeding on leave to
any place in india(while in service)

(2) From his employer or former employer for himself and his family, in connection with his
proceeding to any place in india after retirement from service or after the termination of service.

Therefore journey may be perfomed while in service or after retirement.

c
,

6 It depends upon the mode of Transporation



-,
-
 c



Air
Amount of economy class air fare of national
carrier by the shortest route; or the amount
spent; whichever is less

Rail
Amount of air conditioned first class air fare by
the shortest route;or tee amount spent;
whichever is less

Any mode of transporation where; Amount of air conditioned first class air fare by
(a)p place of original journey and the shortest route;or tee amount spent;
destination are connected by rail whichever is less

(b) place of original journey and destination First class or deluxe class fare by shortest
are not connected by rail: route;or the amount spent; whichever is less
(1) where a recognized public transport system
exists
Amount of air conditioned first class air fare by
(2) where no recognized public transport the shortest route(as if journey had been
system exists performed by rail);or tee amount spent;
whichever is less




- 5-   ?,*&(F+@

Following income of a person who is not citizen of india is exempted:

(a)p Remuneration received by diplomats


(b)pRemuneration received by foreign national who is an employee of foreign enterprise
(c)p Non-resident employee of a foreign ship
(d)pRemuneration of an employee of foreign govt. during his stay in india


-
 
-2    
2 

- 5
 ,?,*&(Fc+@


 
,6Following conditions fulfilled for claiming exemption under sec10(6A)

(a)p Assessee must be a foreign company


(b)pIt must received income by way of royalty or technical fee
(c)p Such royalty or technical fee must be paid by govt. or concern
(d)pIt must be paid under an agreement entered in to on or after april,1976 but before june


-  
 
2 

)-, 
-
- 5
 ,?,*&(F$+

Where income other than salary, Royalty or technical fee is received by a Non-resident or a
foreign company from indian govt. and tax on such income is paid by the payer then such tax
will not be taxable in the hands of foreign company.


 
,6Following conditions fulfilled for claiming exemption under sec10(6A)

(a)p Assessee must be a foreign company


(b)pIt must received income other than salary, royalty or technical fee
(c)p Such income must be paid by govt. or concern
(d)pIt must be paid under an agreement entered in to on befor june 1,2002by the center govt.
of india with the govt. of a foreign state.

 
 
 -
 , 5
 -- ?,*&(F$$+@


 
,6Following conditions fulfilled for claiming exemption under sec10(6BB)

(a)p Assessee must be foreigngovt. Company or enterprise.


(b)pMust have given aircraft or an engine on lease to indian company engaged in the business
of operation of aircraft
(c)p Income must be given by indian company for lease of aircraft and not for providing
spares,facilities or services in connection with the operation of leased aircraft.
(e)p It must be paid under an agreement entered in to on or after april,1997 but before april
1,1999


 -
)
- 2  ,, ,-
5-,E?,*&('+@

(a) The remuneration received by him directly or indirectly from the govt of that foreign state for
such duties;and

(b) Any other income of such individual which accrues or arises outside india,and is not deemed
to accrue or arise in india, in respect of whichsuch individualis a required to pay any income or
social security tax to the govt. of that foreign state.

!-

- -  
, ?,*&('+ ! *F$@

Following incomes arising to a consultant is exempted:

(a)The remuneration received by him directly or indirectly, out of the funds made available to
an international organization under a technical assistance grant agreement between such
international and the govt. of that foreign state; and

(b) Any other income of such individual which accrues or arises outside India, and is not deemed
to accrue or arise in India, in respect of which such individuals a required to pay any income or
social security tax to the govt. of that foreign state

!-

-  -   
- 5 

 2 
, ?,*&('+  ! 
*F$@

(a)The remuneration received by him directly or indirectly, for such duties from any consultant
referred to in sub-section(8A);and

(b) Any other income of such individual which accrues or arises outside india,and is not deemed
to accrue or arise in india


    -
      
   - ,*&('+E*&('c+ 
*&('$+?,*&(8+@

The income of any family member of any individual mentioned under sec sec10 (8), 10(8A) and
10(8B) accompanying him to India, which accrues or arises outside India, and is not deemed to
accrue or arise in india, in respect of which such member is required to pay any income or social
security tax to the govt. of that foreign state or country or origine of such member is exempted.

2))- -5- ?,*&(*&+@

Any death- cum-retirement gratuity is exempted in following cases:

(a) Received by the govt. employee.

(b) Received under the payment of gratuity Act,1972 to the extent provided under the provision
of that Act.

(c) Received by any other employee on his retirement or on his becoming in capacited prior to
such retirement or on termination of his employment, or any gratuity received by his widow,
children or dependants on his death, is exempted to the extent it does not exceed one-half
month¶s salary for each year of completed service.

-
0-  : Tax treatment of gratuity depends upon the nature of employee:

(1)pGovernment employee [Section 10(10)(i)]

(2)pNon-government employee :

(a)p Non ±government employee covered under the payment of Gratuity Act, 1972
[Section 10(10)(ii(]

(b)pNon-government employee not covered under the Payment of Gratuity Act, 1972
[Section 10(10)(iii)]

(1)p0
-  
 ?,
 *&(*&+( + @ 6 Any death ±cum- retirement gratuity
received by the government employee is fully exempted. However , government
means central, state government or local authority but does not include statutory
corporations.

(2)pNon- government employee :

(+p
) 5
- 
 
-   - 2
 
 0-   c
*8G% ?
 *&(*&+( + 6 any death ±cum-payment gratuity received the Non-
government employee covered under the payment of Gratuity Act, 1972 is
exempted to the extent of permitted limit.
",
?
*&(*&)c+@

Any payment in commutation of pension is exempted if it is received by :

1.p Government Employee.


2.p A non govt. Employee
3.p From a fund under section 10(23AAB)

",
6
(+p
 ,

(+p 
 ,


-
2,
6
 -
 
  ",
 6 Uncommuted Pension is always taxable under
section 17(1)(ii).
-

 ",
6Tax Treatment of Commuted Pension depends upon
the nature of the employee.
(1)pThe government employee {Section [10(10A)(i)] Entire commuted pension received by
the government employee is exempted from the tax . It is immaterial whether assessee
has or not received any gratuity. Government means Central, state government or local
authority and statutory coporation. However, according to Government Rules full
pension can not be commuted. Therefore exemption under the law and uncommuted
pension will be taxable
(2)pNon government employee [Section 10(10A)(ii) ] : The amount of exemption depends
upon whether assessee had received gratuity or not during the relevant previous year i.e.:
(a)p where Non government employee receives gratuity also then one third of the
Commuted pension which he is normally entitled to recive is exempted from
tax , and
(+pwhere Non- government employee does not received any gratuity then one-
half Commuted Pension which he si normally entitled to receive is exempted
from tax.
(3)pAny Commuted Pension received from a fund under section 10(23AAB) e.g., fund set up
by LIC of India or any other insurer and approved by the prescribed authority is fully
exempted. However, here assessee (receiver of pension ) can be any person.



, -
- ,2?
*&(*&cc+@

Leave salary or leave encashment received government and non government employee at
the time of retirement is exempted.
 , -= ,26 An employee gets different leaves such as medical
leave, casual leave, etc. Another type of leave is earned . As name indicates employee has to
earn that leave after working for few days (depending upon services ). If earned leaves are not
utilized then depending upon the Services Rules, these may either lapse or are allowed to be
enchased every year or may be accumulated . The leaves accumulated throughout the service
period may encashed at the time of retirement or leaving the jobs. Such encashment of leaves
standing to the credit of employee is known as leaves or leave encashment.,

 -
  , -
-  ,2 6  Tax Treatment of Leave
salary or leave Encashment depends upon the nature of employee.

(1)pGovernment employee [Section 10(10AA)(ii)} Any payment received by the


Government employee as leave salary or leave encashment in respect of the period of
the earned leave standing to his credit at the time of his retirement on superannuation
or otherwise is fully exempted from tax. However Government or State Government
only and does not includes local authority statutory corporations.

(2)pNon-government employee [Section 10(10AA)(ii)] : Any payment received Non-


government employee as Leave salary or leave Encashment in respect of the earned
leave standing to his credit at the time of his retirement on superannuation or is
exempted to a permitted limit.

!-2
,
?
*&(*&$+@

Retrenchment compensation received by the workman under following is exempted :

1.p The Industrial disputes Act 1947 or


2.p Any other Act or rules order of the notification issued their under
3.p Any standing order or under any award, contract of service of otherwise

!-2
,
6 ,6

1.p Compensation received by a workman at the time of the closing down of the
undertaking in which he is employed ? 
(+

*&(*&$+@

2.p Compensation received by a workman , at the time of the transfer( whether by


agreement or by operation of law) of the ownership or management of the
undertaking( in which he is employed ) by the employer to a new employer where:

(a)p The service of the workman has been interrupted by the such transfer; or
(b)pThe term and condition of service applicable to the workman after such transfer
are in any way less favorable than those applicable to him immediately before the
transfer5; or

(c)p The new employer is under the terms of such transfer or otherwise , legally not
liable to pay to the workman , in the event of his retrenchment , compensation on
the basis that his service has been continuous and has not been interrupted by the
transfer [Explanation (b) to Section 10(10B).

!-2
,
-  
    6

Retrenchment Compensation received in excess of minimum of above mentioned


amount will be taxable under Head ³Salary´ Section 17(3) i.e profit in lieu of
salary. However, assessee can claim relief under section 89.


*&(*&$+,2 
  in respectof any compensation received by a
workman in accordance with any scheme approved by the Central Government


,

  
$2
 0,, ,,-X
*&(*&$$+@

Any payments made under the Bhopal Gas disaster Act 1985 and any scheme frame under this
Act is exempted.

However, any payment made to any assessee in connection with the Bhopal Gas leak is disaster
to the extend such assessee has been allowed as deduction under this Act on account of any loss
of damage cause to him by such disaster shall not be exempted


,

2
-- -?
*&(*& +=! %$c@

Any amount received by any employee of the following employer on his VRS or termination his
service in accordance with the scheme of VRS / Voluntary separation shall be exempted

1.p Public Sector Company


2.p Any other company
3.p An authority establish under a Central , State or Provincial Act or
4.p Local authority.
5.p Cooperative Society.
6.p University establish under Central State or provincial Act.
7.p Any State Government or Central Government.
0  ,
-
,6 Exemption can be claimed if following Guideline laid down under
rule 2BA of Income ±tax rules, 1962 are fulfilled :
(a)p Employee must have completed 10 years service or 40 years of age.
(b)pThe scheme applies to all employee including workers and executives of a company or
authority or co-operative society except directors company or co-operative society.
(c)p The scheme of voluntary retirement (VRS) or voluntary separation must be resulting I
overall reduction of existing strength of the employees;
(d)pThe vacancy caused by voluntary retirement (VRS) or voluntary separation must not be
filled up;
(e)p The retiring employee of a company shall not be employee in another company or
concern belonging to same management.
(f)p The amount receivable on account of voluntary retirement (VRS)or voluntary separation
must not exceed
 5
 -6For the purpose of HRA, salary means Basic last drawn by the employee
and includes dearness allowance if terms of employment so provide. However, it does not
include perquisites and any other allowance.

      
 
 6 this exemption can be claimed only once therefore ,
where exemption has been allowed to an employee under this Section for any assessment year,
no exemption shall be allowed to him in any other assessment year.


 -,2,

-- -
- -
6the Employer can frame
different schemes of voluntary retirement for different employees. However, these schemes
must be in conformity with the guidelines prescribed by the government in Rule2BA.


-
,
-  
    6 Voluntary compensation received
in excess of minimum of above mentioned amount will be taxable under Head ³Salary´.
However, assessee can claim relief under section 89 [State Bank of Travancore v CBDT (2006)
282 ITR 587 (Ker.),ITO v Chander Kant S. Dharma (2005) 149 Taxman 82 (Kar.); also see
Firturam Yadav v CIT (2007) 15 SOT 75 (Nag)]



.
--C , , 2 ,
-?
*&(*& +@

Where assessee is individual and received non monetary perquisites with in the meaning section
17(2) and the tax on such non monetary perquisites is actually paid by his employer than tax so
paid shall be exempted in the hands of the employee.

c,-   - 


?
*&(*&+@
Any sum including bonus received under LIC policy is excepted

c , -
2"-
  ?
*&(**+@

Any lump sum payment received by assessee from a PF to which the PF Act 1925 applies or
from any other PF set up and notified by the Central government is exempted

c , -
2"-
  ?
*&(*%+@

The accumulated balance due any becoming payable to an employee participating in a RPF, to
the extent provided in Rule 8 Part A of the fourth schedule Is exempted.

c -
-
 ,-
 ?
*&(*9+@

Any payment received by the assessee from an approved superannuation fund is exempted .

1!c?
*&(*9c+=! %c

HRA is received by an employee is exempted.

c


6Amount of exemption :under this Section is the list of the following 

Vp HRA actually received ; or

Vp Rent paid in excess of 1/10 of salary ;or

Vp « (50%) of salary where such rented residential accommodation is situated in


metropolitan cities (Delhi, Mumbai, Kolkata, Chennai); or

2/5(40%) of salary where such rented residential accommodation is situated at any other
place.

 5
  - 6 For the purpose of HRA salary means Basic salary last drawn by the
employee and including dearness allowance if terms of employment so provide. It is also
includes commission based on fixed percentage of turnover achieved by the employee as per the
term of contract. However it does not include perquisites and any7 other allowance.

 -
 -  
 , ,6Basic salary, dearness allowance and commission are
to be calculated on due basis in respect of the period when accommodation is occupied by the
assessee. The salary of any other period is not to included even if it is received and taxed in the
relevant previous year.

- 
-,
-1!c
6HRA exemption depends upon following factors :

(a)p HRA actually received

(b)pRent paid

(c)p Salary

(d)pPlace of residence

Therefore if there is no change in these factors in the relevant previous year then
HRA will be calculated annually. However where there is change in any of these
factors in the relevant previous year then HRA will be calculated monthly.

32
 ,

4 6No exemption is allowed in following cases :

(a)p Where assessee lives in the residential accommodation which is owned by him; or

(b)pWhere assessee does not pay rent ; or

(c)p Where rent paid is not excess of 1/10 of salary.

-,E"- 
-$
,
,   ,
*&(*D+@

Interest, premium or bonus specified investment received by the following person is exempted
under section 10 (15).

1.p Any assessee


2.p An individual or HUF
3.p NRI etc.

!
- , 5 -- ?
*&(*Dc+@


 
,6Following conditions fulfilled for claiming exemption under sec10(6BB)

(d)pAssessee must be foreign govt. Company or enterprise.


(e)p Must have given aircraft or an engine on lease to indian company engaged in the business
of operation of aircraft
(f)p Income must be given by indian company for lease of aircraft and not for providing
spares,facilities or services in connection with the operation of leased aircraft.
(f)p It must be paid under an agreement entered in to on or after april,1997 but before april
1,1999

c
4
",=c,
*&(*G+
1.p DA received by MP or of MLA or of any Committee
2.p Any allowance received by the MP under the member of the Parliament
Rule 1986
3.p Any constituency allowance received by the MLA.

c4- 
-!4- 
*&(*Gc+

Any payment made whether in cash or in kind shall be exempted from tax.

",
 -    5 - 4-  4 -
   ,
  2   -

*&(*'+

)-p Pension received by individual who was employee Central and State govt. has been
awarded ParamVir Chakra of Mahavir Chakra or other gallantry award as notified by
the Central Govt.
!p Family pension received by any member of the family of the individual.



2
 2
- 
*&(%&+

1.p Income from house property


2.p Capital Gains
3.p Income from the other sources



-
 ,  -,-2,,
 


Any income of the scientific research association from a time being approved for the purpose of
section 35(1) II is exempted



,  45
*&(%%$+

Any news agency setup in India for collection of the distribution of news as a Central govt. may
by notification in the official gazette , specify in this behalf is exempted.



2-
,,
 ,,
 
  , 

*&(%9c+

Income of an association or institution establish in India where object is control, supervision,


regulation of encouragement of the profession of law, medicine , accountancy ,engineering or
architecture of other profession as Central Govt. may specify in this behalf , time to time , by the
notification in the official gazette is exempted



2-
-,  
*&(%9cc+
An income received by any person on behalf of any regimental fund or non public fund establish
by the arm forces or their dependents is exempted.



2 ,
 
*&(%9cc+

Any income of a fund setup by the LIC of India on or after August 1, 1996 is exempted.



2-


 
 ,
*&(%9$$$+

Any income of this community derived in India by the way of the interest , dividends or capital
gains from investments made out of its fund is exempted.



2!c
*&(%9$$+

An income of the IRDA establish under section 3(1) of the IRDA Act 1999 is exempted .



2
-2,- 
   
-
-
 
*&(%9$$+

ncome of the north eastern development finical corporation Ltd formed and registered under
the companies Act 1956 is exempted



     -5 ,-   - 2 ,-  ,   25 
- 
 2  
cE
*&(%9+

Any income of mutual funds under this Act is exempted .



2 ,
--

  ,-
5 ; ,
>25  

*&(%9c+

Any contribution received, from recognized stock exchange and the member their of, by the
investor protection fund set up by recognized stock exchange in India either jointly or separately,
as notified by the Central govt. in his behalf is exempted.

,
-"-

  ,

25  
*&(%9 +

Any contribution received from commodity exchange and the members therfo, by the investor
protection fund set by commodity exchange in India either jointly or separately, as notified by
the Central govt. in his behalf is exempted



-    
*&(%9+

Any income by way or dividend or long term capital gains of venture fund is exempted.



-5 ,- 

*&(%&+
Any income chargeable to tax under the heads ³ Income from house property ³ and ³income
from other sources is exempted



-
 ,-
 5-   
*&(%D+

Any income received by the trustees on behalf of a recognized provident fund , approved
provident fund, approved superannuation fund , gratuity fund is exempted.



2
,-  
*&(%Dc+

Any income of the employee state insurance fund set up under the provision of the employees
state insurance Act, 1948 is exempted


-
2   - 
*&(%F+

Any income of a member of Scheduled tribe as defined in article 366(25) of the constitution,
residing in following area is exempted.

c 

-,   
 > ,- 
*&(%Fc+

Any income accruing or arising to ay person who is resident in the Ladak district from any
source in the said district of Ladak is exempted.



     5, >> ,

Any income of an individual who is sikkimese which accrues of arises to him in following
manner is exempted.

1.p For any source in the State Sikkim.


2.p By way of the dividends or security.




-
-

--

 52 -,
-
2 
-
->4- 
 ,,,,
*&(%F$+




-
-

--

 52 -,
2-,
 
- 
 

*&(%F$$+



 

-  ,
  -

 5 2 -,,
 2 -
 2  
- 
-

2
*&(%G+



2,

- , 2
-  ,,
*&(%8c+


4
,, -   -
2
- ,
*&(9&+- '(%+

I
4
,, -   -
2
--
- ,
*&(9*+


 
-2    5 2
  

-,
*&(9%+

Where income of minor child is included in the total income of a parent under section
64(1A), then assessee (parent) can claim exemption to the extent such income does not exceed
one thousand five hundred rupee in respect of each minor child child whose income is so
included.

In other words the amount of exemption under this Section, per minor child whose
income is so included.

Vp Income of minor child.

Vp Rs. 1500.

  5 ,- , 5 -



 ,
-C , 

5-  -  
*&(9G+


5-  5  -
,2-,
- ,
*&(9'+

   
- , 5 -
 -
 ,
- 5
*&(98+



 ,, - 
 -   -
    2
5 
 55   2
, ,,
5-

--, ,,
E
4-
*&(:&+

   5  -
 ,,
   -> 5 55   2 , ,,
 5-

-
-, ,,
E

4-
*&(:*+

   

,

, 2
-  ,,
*&(:%+


-       -,

--,
-55
*&(:9+

4,
,2 -,
*&(::+