DEFINITION
Income tax is Annual tax levied by the Federal government, moststates, and
some local governments, on an individual's or corporation's net profit.”
INTRODUCTION:
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.
Income Tax has been in force in different forms since years. If we go through the history
of India, we get relevant information regarding the taxation system of India. In ancient
history, it is mentioned about such system which was imposed on the income,
expenditure and other subject. Even information of the same is given in Manu Smriti and
Arthasatra which confirms its existence at that time.
In modern India, Income Tax came into existence in 1860 with the implementation of
first Income Tax Act. After implementation of this Act, people became aware of the
actual meaning of Income Tax. This act was in force for first five years. After this, in
1865, second Act came into force. There were major changes in this Act relative to the
first. It proved itself as a good factor for the growth of our economy. With this Act a new
concept of Agriculture Income came into existence.
After this, different new Act was also implemented. The most important of them is the
Income Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose
salary from any source of income is more than the maximum limit of unchangeable
amount will be liable to pay Income Tax. There is also a provision of deduction and
exemptions in Income Tax, depending upon the type of assessee, source of income,
residential status and investment in saving schemes. Income tax rates are a matter of
change, which is declared by Ministry of Finance, Government of India regularly, usually
on annual basis.
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.
According to Section 14 of Income Tax Act, 1961, there are following heads of income
under which total income of a person is calculated:
What is Salary?
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 conditions where all such remuneration
are chargeable to income tax:
• When due from the former employer or present employer in the previous year,
whether paid or not
• 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.
• When arrears 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.
What is Annuity?
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.
What is Gratuity?
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.
What is Allowance?
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
condition where they are entitled of deduction/ exemptions.
Entertainment Allowance:
It is the amount paid by employer for availing entertainment services. Under section
16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this
case deduction is given to his gross salary which also includes entertainment allowance.
Deduction in tax against this allowance can be divided into two parts :
What is Perquisite?
Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:
• Amount paid for the rent-free accommodation provided to the assessee by his
employer
• Any concession in the matter of rent respecting any accommodation provided to
the assessee by his employer
• Any benefit or amenity granted or provided free of cost or at concessional rate in
any of the following cases:
1. By a company to an employee, who is a director thereof
2. By a company to an employee being a person who has a substantial
interest in the company
3. By any employer to an employee whose income under the head 'Salaries'
exceeds Rs.24000 excluding the value of non monetary benefits or
amenities
4. Any sum paid by the employer in respect of any obligation which, but for
such payment, would have been payable by the assessee
5. Any sum payable by the employer whether directly or through a fund,
other than a recognised provident fund or EPF, to effect an assurance on
the life of the assessee or to effect a contract for an annuity
• Medical facility
• Medical reimbursement
• Refreshments
• Subsidised Lunch/ Dinner provided by employer
• Facilities For Recreation
• Telephone Bills
• Products at concessional rate to employee sold by his/ her employer
• Insurance premium paid by employer
• Loans to employees by given by employer
• Transportation
• Training
• House without rent
• Residence Facility to member of Parliament, judges of High Court/ Supreme
Court
• Conveyance to member of Parliament, judges of High Court/ Supreme Court
• Contribution of employers to employee's pension, annuity schemes and group
insurance
House Property
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:
• Profits and gains of assessee from any business or profession during assessment
year
• Any payment or compensation due or received by a person for his services to
organization as a part of his business
• Making profit in trade Income of professional or organization against services
provided by that professional/ organization
• Profits on sale of a license granted under the Imports (Control) Order, 1955,
(EXIM control Act, 1947)
• Cash received or due by any person against exports under government schemes
• Any benefit whether it is not in cash coming from business/ profession
• Any profit, salary, bonus or commission received by company partners
Capital Gains
• Stock of goods and raw materials used by assessee for his business or profession
• Those property 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
• Agricultural property in India. But agriculture land coming under municipal limits
(in area having population ore 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
• Few Gold Bonds issued by government
• Few special bonds issued by central government like Special Bearer Bonds, 1991
Other Sources
Every type of income comes under a specified heads. But there are few incomes, which
don't come under any of following heads:
• Salary
• House Property
• Profit In Business/ Profession
• Capital Gains
So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of
income. There are following incomes which are taxed under this heads
Income Tax Return is an important part of Income Tax. It is the way by which an
assessee process for paying his tax to Income Tax Department. As per the provisions of
Income Tax Act, 1961, filing of Income Tax return is a legal obligation of every
Individual whose income exceeds the maximum limit of non-taxable income for the full
financial year i.e. from 01 April to March 31 of the following year, for example for the
year 2007-2008 (which is also called the Assessment Year) the period is 01 April 2007 to
31 March 2008. In case of salaried class assessee the information about the income in the
particular financial year supported with the form 16 (the certificate for tax deducted at
source), which is issued by the employer at the end of the financial year.
Transforming itself with the changing times, the Income Tax Department of India has
launched an easy to use online facility for filing Income Tax Returns using the Internet.
The filing of Income Tax Returns Online offers great convenience, fast in processing and
hassle-free option to the assessees. Income Tax Return has several part or phases which
we follow for paying tax. To know Income Tax Return in an easy way, it is divided into
the following sub sections:
Authorised Signatory
"Income Tax Return" is a term which is often used when we talk about income tax. It is a
way by which we pay this tax. When total annual income of a person, including all
sources, is more than maximum unchargeable limitation ( At present it is Rs. 1,50,000/-)
then that person is liable to pay income tax.
Late Return
Any person not filing the return within the time mentioned is allowed to file a late return
at any time before the expiry of one year from the end of the relevant assessment year or
before the completion of the assessment year, whichever is earlier.
Penalty
Penalty for delay filing of return is calculated as a percentage of the shortfall of tax. In
case where tax has been deducted at source, or advance tax has been duly paid, no
penalty is leviable.
Defective Return
If the return of income furnished by the assessee is defective according to assessing
officer, it is intimated to the assessee and given an opportunity to rectify the defect within
15 days from the date of such intimation or within such further period as may be allowed
by the assessing officer on the request of the assessee. If this is not rectified by the
assessee within the aforesaid period then the return shall be deemed invalid and further it
shall be deemed that the assessee had failed to furnish the return.
Under section 139(1) of the Income Tax Act, there are additional six conditions, which
forces a person to file his income tax return. These condition are:-
3 For those who is not a company and those deriving income from property held
for charitable and religious purposes claiming exemption under section 11 and
whose total income does not include "profits and gains of business or profession
61 For those whose source of income is agriculture and not any other, chargeable
tax mentioned under clauses mentioned above
Income Tax Return Filing
There are following steps that must be followed for income tax return filing: -
• See the Heads of Income and decide which type of assessee you are
• Select return form according to the type of assessee from the list
• Before filing form pls. read the form carefully
• Use black ball pen or other as instructed in form
• There should not be any overwriting on the form
• Fill name, father's name, date of birth as mentioned in your educational
certificates
• Put signature of authorized person (pls. see the list of authorised signatory) on the
form at right place
• Use your own PAN/TAN/GIR number for filing the income tax return
• Use correct options/code to show your status in the income tax return form
• Assessment year must be mentioned on return form clearly. Assessment year is
the last financial year for which tax has to pay
• Mention your all source of income with income amount clearly and correctly
• Calculate your taxable amount including surcharges and deducting rebate from
your income
• Attached all required documents for getting deduction/ rebate or exemption in tax
• After filling form pls. recheck that all the information given by you is correct and
on proper place
• Don't give any wrong information in the form
• Go to income tax department and submit the form to concerning income tax
assessing officer
• File your income tax return before the last date of return filing. Last date for an
individual having only salary income is 30th June as well as last date for
individual having business income (if auditing not required) is 31st august.
Income Tax Dates
It is very important to file income tax return before the last date of return filing. Last date
for an individual having only salary income is 30th June as well as last date for individual
having business income (if auditing not required) is 31st august. For those filing non-
auditable accounts. the deadline for filing tax returns has been extended to October 31
from July 31. Salaried class and those deriving income from properties and capital gains
will have to file returns by July 31 or pay the interest on taxes due on them.
15th March
In case of other than company - Payment of 3rd installment of advance for the financial
year
In case of a company - Payment of 4th installment of advance for the financial year
14th April
Submission of statement of tax deduction against interest, dividend or amount paid to
non-resident during 1st, January - 31st, March. Form No: 27
30th April
(i) Certificates of such taxes which are deducted due to payment given to employees as
their salary. From No: 16
(ii) Certificates of such taxes, which are deducted due to amount, paid as insurance
commissions. Form No: 16A
(iii) Certificate of tax deducted other than salary Form No: 16A
(iv) filing annual return of dividend and income in terms of units under section 206 of
Income Tax Act 1961. Form No: 26
31st May
(i) filing of annual return against earning from prize, lottery. Form No: 26B
(ii) filing of annual return against earning from horse races. Form No: 26BB
(iii) filing of annual return against salary paid. Form No: 24
15th June
In case of company - Payment of 1st installment of advance for the financial year
30th June
(i) filing of income tax return if assessee is not a corporate/ cooperative and having no
source of income from business/ profession. Form No: 3/2A
(ii) filing of income tax return against insurance commissions/ commission paid without
deduction of tax. Form No: 26D, 26E
(iii) filing of income tax return against interest either on securities or on any other. Form
No: 25, 26A
(iv) filing of income tax return against payment to contractors Form No: 26C
(v) filing of income tax return against deposits under national saving schemes Form No:
26F
(vi) filing of income tax return against payment for purchasing of Mutual Funds Form
No: 26G
(vii) filing of income tax return against payment of commission on sale of lottery Form
No: 26H
(viii) filing of income tax return against payment of rent Form No: 26J
14th July
Submitting date for the statement of tax deducted from interest on amount paid to non
residents during 1st, April - 30th, June Form No: 27
31st August
filing of income tax return if
(i) Assessee is not a corporate/ cooperative
(ii) There is no need of auditing accounts under any law
(iii) Total income includes income through business or other profession.
Form No: 2
15th September
In case of other than company/ corporate: Payment of 1st installment of advance income
tax
In case of a company/ corporate: Payment of 2nd installment of advance income tax
14th October
Submitting date for the statement of deduction of tax interest, dividend and other amount
paid to non resident during 1st July - 30th September. Form No: 27
31st October
(i) In case of non corporate: Submitting auditing report under section 44AB of Income
Tax Act. Form No: 3CA, 3CB, 3CC, 3CD, 3CE
(ii) In case of cooperative/ non corporate: filing of income tax return of the relevant
assessment year if it require to get his account audited under Income Tax Act. Form No:
2
filing of half yearly return against tax collected during 1st April - 30th September Form
No: 27EA, 27EB, 27EC, 27ED
Date of submission of annual audited account for approved programs under section 35
(2AA) of Income Tax Act 1961.
30th November
In case of a company - filing of annual return with auditing report under section 44AB
For annual return filing: Form 1 For submitting auditing report: Form 3CA & 3CD
15th December
In case of other than company - Payment of 2nd installment of advance for the financial
year
In case of a company - Payment of 3rd installment of advance for the financial year
Under section 80DD and 80U of Income Tax Act, physical disability must be one of the
following:
• The excess of actual rent paid over 10% of the total income (excluding long term
capital gain & income, as per section 115A or 115D of Income Tax Act, 1961)
• Deduction will not be allowed to an assessee who owns an residential
accommodation at a place where he is temporarily residing
• Deduction will not be allowed to an assessee who owns an residential
accommodation at any place and has also claimed for deduction in respect of self
occupied property
According to Chapter III of the Income Tax Act, 1961 there is a provision of exemptions
in income tax. There are few types of specified income on which a person can get
exemption. It means that at the time of calculating annual income, this type of income
will not be added. For claiming any of these exemptions, it is necessary to furnish
documents which shows that your income comes under this list. If a person doesn't
furnish required documents then he/ she will not be entitled for this
Income of any person from the property held under trust wholly or 11
in part for charitable or religious purposes as specified in detail
and subject to the provisions of sections 60 to 63.
Dividend
National Savings Certificates (NSC)
National Saving Schemes (NSC) is one of the popular Income Tax Saving schemes
which is available throughout the year. It can be operated singly, jointly, or by a minor
with his/her parent or guardian. There is a return on this scheme at interest rate of 8%.
The minimum investment limitation of the scheme is Rs.100/- and with no upper limit.
Other investments can be done in multiple of Rs. 100/-. This scheme has a maturity
period of 6 years. It is transferable and also there is a provision of loan on the basis of this
scheme. Under section 88 of the Income Tax Act, 1961 any person can take benefit in
income tax on amount invested in this scheme and under section 80L of Income Tax Act,
1961 there is a provision of benefit on interests coming from scheme.
• Monthly Deposit
• Saving Deposit
• Time Deposit
• Recurring Deposit
Public Sector Employees: Under this scheme there is a return of 9.5% payable half-yearly
on 30th June and 31st December respectively. There is a minimum investment limitation
of Rs.1000/- and the maximum limitation is the amount equal to total retirement benefit.
It can be operated by retired PSU employees in his/her own name or with the spouse,
jointly. In this scheme, there is a facility of premature encashment. Entire balance or part
thereof can be withdrawn after the expiry of three years from the date of deposit.
Maturity period of this scheme is 3 years. According to Income Tax Act, 1961 interest on
this scheme is tax free.
Dividend
According to Income Tax Act,1961 there is a provision benefit in Income Tax if assessee
has an income as a dividend on investment in any of the following:
• Shares
• Mutual Funds
• Unit of UTI
Note:-
Infrastructure bonds are available through issues of ICICI and IDBI, brought out in the
name of ICICI Safety Bonds and IDBI Flexibonds. These provide tax-saving benefits
under Section 88 of theIncome Tax Act, 1961, for the investor. You can reduce your tax
liability by upto Rs 16,000 per annum
Fixed deposits in companies that earn a fixed rate of return over a period of time are
called Company Fixed Deposits. Financial institutions and Non-Banking Finance
Companies (NBFCs) also accept such deposits.
3. Life Insurance:
Life insurance saving schemes for government owned Life Insurance Corporation of
India and other private life insurance companies like Bajaj Allianz, Birla Sun Life
Insurance, HDFC Life Insurance, ICICI Prudential
Section 80 CCE
Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000.
( One Lac)
Under This section, a deduction up to Rs 10,000 (Rs 15,000 in case of senior citizens) is
allowed in respect of premium paid by cheque towards health insurance policy, like
“Mediclaim”. Such premium can be paid towards health insurance of spouse, dependent
parents as well as dependent children.
Under this section, Interest on borrowed capital for the purpose of house purchase or
construction is deductible from taxable income up to Rs. 1,50,000 with some conditions
to be fulfilled.
Under section 139A of Income Tax Act, 1961, PAN number is required for following
persons:
• Whose total annual income is more than the amount which is not chargeable
under income tax act
• Whose income through business or other profession is more than Rs. 5 lakhs
• Who is filling income tax return
PAN number is an important part of Income Tax Return filing. According to the Income
Tax Act, 1961 every person must have a PAN for filing an Income Tax Return. Under
section 139A of Income Tax Act, 1961, PAN number is required for the following
persons:-
• Whose total annual income is more than the amount which is not chargeable
under income tax act
• Whose income through business or other profession is more than Rs. 5 lakhs
• Who is filling income tax return
The application form requesting for the allotment of PAN (PAN Card) is given in the
undermentioned link. Download it
There is a provision of Income Tax Complaint in Income Tax Act, 1961. According to
the act, one can file a complain against any person who is not fulfilling the Income Tax
Act to his assessing officer or other officer incharge like CIT or CCIT or DGIT
(investigation), responsible for its further processing. The person who is filing the
complain can also submit proof/ evidence for his/ her own interest. On the basis of his/her
complaint, if the IT department collects more tax from such person, then he/she will be
rewarded monetarily from the department.
The following information would come handy while computing your Income Tax:
• For individual tax payers, there is no tax charged for income below Rs 1.6 lakhs.
• For Women tax payers, no tax for income below Rs 1.9 lakhs.
• For Senior Citizens, there is no tax for income below Rs 2.40 lakhs.
Bibliography:
www.surfindia.com