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CONTENTS

S.no. particulars
1 Introduction
2 History of income tax in India
3 Basic concepts
4 Residential status
5 Income exempt from tax
6 Income from salaries
7 Income from house property
8 Profit and gain from business or profession
9 Capital gains
10 Income from other sources
11 Clubbing of incomes/ Deemed income
12 Set off & carry forward of losses
13 Deductions
14 Return of income
15 Advance tax
16 Assessment of individual
INTRODUCTION
The government should collect the taxes
in the same way as the honey bee collects nectar from the
flower without harming it.
-Kautilya in Arthashastra

“It was only good of his subjects that he


collected taxes from them, just as the sun draws moisture
from the earth to give it back a thousand fold”
-Kalidas
Indian Income Tax Model

Why Tax?
 To raise resources
 Cost of civilization
Tax treasury is the basis of governance
Whom to tax
 Person
What to tax
 Income(total income)
When to tax
 Annually
 Previous year
 Assessment Year
At What Rate?
 Finance Act
 Income tax act
What is income tax?

Income tax is a tax on the TOTAL INCOME of a PERSON.


It is charged on the income of the PREVIOUS YEAR and is
assessed and paid in the next succeeding year (assessment
year) at the rates prescribed by the Annual Finance Act.
Income tax is a tax on yearly taxable income of a person
levied by the central govt. at prescribed rate. Taxable income
means income calculated under the provision of Income Tax
Act.
Silent features of income tax

1. Central tax- Income tax is a central tax. It is levied and


collected by the Central government of India. This right
has been given to the Central govt. within constitution.

2. Direct tax- According to the tax incidence this is a direct


tax. The burden of taxation lies on the person who pays it.
The taxpayer cannot realize it from any other person.

3. Tax on taxable income- Tax is imposed on the taxable


income of a person. Taxable income means income
calculated under the income tax act.

4. Scope of taxation- Not only an individual but also a


firm, a company, HUF is taxed. So the scope of income tax
is very wide.

5. Administration of income tax- The administration is


done by a special department called the INCOME TAX
DEPARTMENT. This department work under the control of
CENTRAL BOARD OF DIRECT TAXES.
BRIEF HISTORY OF INCOME TAX IN INDIA

1) Beginning of income tax-Income tax was first introduced


by Sir James Wilson in 1860 in India. It was levied with a view to
meet the financial crises caused by the Freedom Movement
1857.

2) Income tax act 1886- Income tax act 1886 was based on
the British Income tax act. A number of amendments were
made in this act time to time. This act can be treated as the
foundation stone of Income tax in India.

3) Income tax act 1918- A new income tax act 1918 was
passed as income tax was an important source of revenue to
meet financial crises caused after the World War I.

4) Income tax act 1922- The govt. of India act was passed in
1919 due to which income tax was included in the schedule of
income of the centre. According to this act tax was assessed for
the current year on the income of previous year.

5) Income tax amendment act 1939-The most important


amendment was made in 1939 according to which the slab
system was introduced in place of classification.
6) Income tax act 1961- The income tax act 1961 is in force at
present. Several amendments have been made in this act time
to time.
NEW ECONOMIC POLICY AND INCOME TAX

The govt. of India has adopted a policy of


liberalization for the rapid economic development since
1991.under these policy rapid changes have been made in
respect of income tax. Due to this following changes have been
made-

a) Tax exemption limit is continuously increased.


b) Rates of taxation were reduced.
c) Special concessions to female taxpayers, senior citizen,
and disabled persons.
d) Concessions to non-residents.
e) Process for filing returns are simplified etc.

Assessment years and exemption


Assessment year Exemption
2010-11 Rs. 160000
2011-12 Rs. 160000
2012-13 Rs. 180000
2013-14 Rs. 180000
2014-15 Rs. 200000
The sources/ components of income tax Law:
1. The income tax act 1961-IT extends to the whole of
India and come into force on 1st April 1962.This Act
amended time to time to implement the fiscal policies of
the Government.

2. The income tax rules, 1962-Parliament cannot provide


for all the circumstances and issues that may arise in
the course of implementation of Income tax act. Hence
the legislature has left many issues to be decided by the
Department. CBDT central board of direct taxes looks
after the administration of all the direct taxes.

3. Circulars, Notifications issued by the CBDT-In addition


to the above, the board issues from time to time certain
circulars and notifications for the direction of the
departmental officials.

4. The Finance Act-To give effect to the various fiscal


proposals of the Govt. a Finance Act is enacted annually.

5. Case Law-Apart from the above, innumerable disputes


arise between the assessee and the department while
implementing the provisions of Income-tax Act. The
judgments of courts also form part of the law of income
tax.
Income

The expression income according to the directory


means “a thing that comes in”. Generally speaking,
there are 4 features of income viz.:
a. It must be a return
b. It must be received with certain regularity
c. It must come in periodically; and
d. It must come through a definite source;
Gross total income

Gross Total Income (GTI)

Means total income computed in accordance with the


provisions of the act before making any deductions under sec.
80c to 80u.

Income
Deduct Exemption

U/s 10, 10A, 11, 12, 13,13A

House Business & Capital Income


Salary
Property profession Gains from Other
Sources

Gross total income


Total income

Total income of an assessee is GTI


reduced by the amount permissible as deduction u/s 80CCC
to 80U.Total income is calculated in accordance with the
provisions of the income tax act as they stand on first day
on April in any assessment year.

Gross total income xxx


Adjustment for set off and carry forward of xxx
losses
Less: deductions u/s 80C to 80U xxx
Total Income xxx
Tax on Total income xxx
a. Tax payable without surcharge xxx
b. Add surcharge xxx
c. Tax + surcharge (a+b) xxx
d. Education cess including secondary and xxx
higher education cess @ 3% of C
Total tax payable xxxx
PERSON
Person Includes
I. An individual
II. A HUF
III. A company
IV. A firm
V. An AOP or BOI
VI. A local authority
VII. Every artificial judicial person

Individul

Artificial judicial
Person HUF

Person
Local Authority Company

AOP or BOI Firm


RESIDENTIAL STATUS

The income liable to tax in the hands of an


assessee is determined on the basis of Residential Status.

Residential status of
individual

Resident Non-resident

R & OR R but NOR


Conditions for Residential Status

Basic Conditions:-

a. He must be in India for at least 182 days during the


previous year.

b. He must be in India for 60 days during the previous year


and 365 days during 4 years immediately preceding the
previous year.

Additional Conditions:-

a. Resident in India in at least 2 out of 10 years


immediately preceding the previous year.

b. Present at least 730 days in India during 7 years


immediately preceding the previous year.
Ordinarily resident in India
A. Any one out of two basic conditions.
B. Both the additional conditions.

Not Ordinarily resident in India


A. Any one out of two basic conditions.
B. None or any one additional condition.

Non- resident
Not fulfilling any basic conditions.

Exceptions
In the following two exceptional cases the
residential status of an individual shall be determine as
follows-
I. An individual who is a citizen of India leaving India for
the purpose of employment or as a member of the crew
of an Indian ship is considered resident in India if he has
been in India in that year for 182 days or more.
II. A citizen of India or a person of Indian origin who is
residing outside India and comes to India on a visit in
any previous year is required to stay in India for 182 to
be resident.
Residential status of an individual

Conditions R & OR R but NOR NR

Basic Conditions:-
Y Y N
a. He must be in India
for at least 182 days
during the previous
year. Y Y N
b. He must be in India
for 60 days during
the previous year
and 365 days during
4 years immediately
preceding the
previous year.

Additional Conditions:-

a. Resident in India in
at least 2 out of 10 Y N -
years immediately
preceding the
previous year. Y N -
b. Present at least 730
days in India during
7 years immediately
preceding the
previous year
RESIDENTIAL STATUS OF HUF

 Ordinarily resident-The HUF will be ordinarily


resident if-
I. The control and management of the affairs of the
HUF is wholly or partly situated in India.
II. The Karta of the HUF satisfies both the additional
conditions.

 Not ordinarily resident-The HUF will be not ordinarily


resident if-
I. The control and management of the affairs is
wholly or partly in India.
II. The Karta of the HUF does not satisfy any one or
both additional conditions.

 Non- resident-The HUF will be not resident if the control


and management of its affairs situated wholly outside
India.
RESIDENCE OF FIRM OR AOP
A Firm or AOP can be-

 A resident-A firm or AOP and every other person other than a


company is considered as resident if the control and
management is wholly or partly situated in India.

A non-resident- A firm or AOP and every other person


other than a company is considered as resident if the control
and management is wholly situated outside India.

Residence of company
I. Resident company- A company is resident in India if in the
previous year-
 It is an Indian company
 During the year the control and management of its affair
situated wholly in India.

II. Non-resident company- A company is non-resident in India if


in the previous year-
 It is not an Indian company
 During the year the control and management of its affair
situated wholly or partly outside India.
Incidence of Tax

Particulars R &OR R but NR


not OR
 Income received or T T T
deemed to be
received in India
 Income accrued or
deemed to be accrued T T T
in India
 Income from business
outside India
a. If controlled from
India T T NT
b. If controlled outside
India T NT NT
 Other foreign income
T NT NT
 Past untaxed foreign
income bought in
India during the NT NT NT
previous year

 T- Taxable
 NT - Not taxable
Assessment year and previous year

Assessment year-Assessment year means the period of 12


months commencing on 1st of April every year. In other words period
of 12 months-1st April to 31st March is called Assessment year.

Previous year- Previous year means the financial year


immediately preceding the assessment year e.g. for the
assessment year 2014-15 previous year will be 2013-14.
Agriculture income Sec.10 (1)
Under the income tax act agriculture
income is exempt from taxation from central govt. Agriculture
Income means-

 Any rent or revenue derived from land which is situated


in India and is used for agricultural purpose.
 Any income derived from such land by agriculture or by
the process employed to render the produce fit for the
market or by sale of such produce by a cultivator or
receiver of rent in kind.
 Any income from saplings or seeding grown in a Nursery
shall be deemed to be agriculture income.

Composite income
In case the assessee has composite activity of growing &
manufacturing certain produce. The ratio of agricultural
& business income shall be-
Produce Agriculture income Business income
Rubber 65% 35%
Coffee grown 75% 25%
manufactured & cured
Coffee grown 60% 40%
manufactured cured
& roasted
Tea 60% 40%
Tax free incomes

S.No. Particulars
1 Agriculture income
2 Sum received by member from HUF
3 Share of profit from partnership firm
4 Travel concession to employees
5 Death cum retirement gratuity
6 Commutation of pension
7 Payment for Bhopal leak disaster
8 Payment from SPF & PPF
9 Payment from RPF
10 House Rent Allowance
11 Educational Allowance
12 Long term capital gain on which STT paid
13 Subsidy from tea board
14 Subsidy for growing rubber
15 Awards etc.
16 Pension to gallantry award winners
17 Income of a local authority
18 Income of a news agency
19 Income of a mutual fund
20 Income of medical institution
Heads of income
Income from salaries
There are four components of salary income-

1. Salary proper
2. Allowances
3. Perquisites
4. Profit in lieu of salary

Salary includes-
1. Wages
2. Any annuity or pension
3. Any gratuity
4. Any fees, commission, perquisites or profit in lieu of salary
5. Any advance salary
6. Encashment of leave

Allowances
An allowance is a fixed monetary
amount paid by the employer to the employee, for meeting
particular expenses. Allowances are part of salary. All
allowances are taxable except they are specifically exempt.

Perquisites
Perquisites are the benefits fee or profit
attached to the office or position in addition to salary. For e.g. Rent
free accommodation.
Profits In Lieu Of Salary

A. Compensation received in connection with termination


of employment
B. Payment from an unrecognized provident fund
C. Any sum received under a key man insurance policy
including bonus
D. Any amount received prior to employment or after
cessation of employment.

Computation of salary income

Particulars Amount
Salary xxx
Allowances xxx
Perquisite(only taxable value) xxx
Profit in lieu of salary xxx
Gross salary xxx
Less: Entertainment allowance xx

Less: Professional tax xx

Income under the head salary xxx


Fully Taxable Allowances
a. Dearness allowance
b. City compensatory allowance
c. House rent allowance
d. Entertainment allowance
e. Fixed medical allowance
f. Overtime allowance
g. Servant allowance
h. Housekeeping allowance

Allowance exempt up to they spent


a. Travelling allowance
b. Daily allowance
c. Conveyance allowance
d. Helper allowance
e. Academic & Research allowance
f. Uniform allowance

Allowance exempt up to certain amount


Children education allowance Rs. 100 p.m. per child for
2 children
Hostel expenditure allowance Rs. 300 p.m. per child for
2 children
Tribal area allowance Rs. 200 p.m.
Transport allowance Rs. 800 p.m. (1600 in case
of handicapped)
House rent allowance
Exempt from tax to the extent of the least of following-
a. 50% of salary in Delhi, Mumbai, Chennai, Kolkata or 40%
of salary in other cases.
b. House Rent Allowance
c. The excess of Rent Paid over 10% of salary

Exemption is denied if employee lives in own house, or in


a house for which he has not pay any rent.

Salary here means-

 Basic salary
+
 DA(if forming part of retirement benefit)
+
 Commission (as fixed % of Turnover)
Entertainment allowance
In case of govt. employees, least of the following is exempt from tax:

a. Rs. 5000/-
b. 20% of salary
c. Entertainment allowance actually received.

For entertainment allowance, Salary means basic


salary; it excludes all benefits and allowances.

Tax treatment of provident funds


SPF RPF UPF

Employer’s Exempt Exempt up to Exempt


Contribution 12% of salary
Employees
contribution Available Available Not Available
deduction u/s
80 C
Interest on PF Exempt Exempt up to Exempt
9.5%
Lump sum Exempt Exempt a. Own contribution
payment on exempt
retirement b. Employer
contribution &
interest thereon is
taxable
c. Interest on own
contribution is
taxable as income
from other sources
Residential accommodation
A. Central & state govt. employees-

Unfurnished accommodation Furnished accommodation


License fee determined by Union (a+b)
or State Govt. a. Value of unfurnished
Less-Rent actually paid by accommodation
employee b. 10% p.a. of cost of furniture
or actual hire charges
payable if hired from a third
party.

Other employees
Where accommodation is owned by the Taken on lease or rent
employer
Population(2001 census) % of salary  Actual amount of
lease rental paid
 Exceeding 25 lacs 15% OR
 Exceeding 10 lacs but 10%  15% of salary
not exceeding 25 lacs 7.5%
 In case of others (Whichever is lower)
Furnished- same as in case of govt. Less- rent; if any payable
Employees. by the employee.

Salary means-Basic pay + DA (If consider for retirement) + all


taxable allowances + bonus + Commission Any monetary
payment.
Various types of employees & impact on taxability

s.no. Items Specified Non - specified


employees employees
1 Free education in Taxable in Exempt
employers school excess of
Rs.1000 p.m.
per child
2 Payment of medical Exempt up to Fully exempt
bills by the employer Rs. 15000
3 Gas, electricity & water Taxable Tax free
facility
4 Servant facility Taxable Tax free
5 Motor car facility Taxable Tax free

Tax free perquisites

 Tea & snacks in working hours.


 Free telephone incl. mobile phone.
 Gift in kind to employee up to Rs.5000.
 Computer / laptop given for official & personal purpose.
 Recreational facilities to groups of employees.
 Perquisites to govt. employees posted abroad etc.
Income From House Property

The basis of charge is the ANNUAL VALUE of house


property. It is taxable under this head subject to the satisfaction
of following three conditions-

a) The property should consist of any buildings or lands


appurtenant thereto.
b) The assessee should be the owner of the property.
c) The house property should not be occupied by the
assessee for the purpose of his business or profession the
profit of which is chargeable to income tax.

ANNUAL VALUE

Annual value is a notional figure


representative of the income, which a property is capable
of generating. Annual value is determined by taking into
account the following factors-
a. Rent received or receivable
b. Municipal valuation of property
c. Fair rent of property
d. Standard rent under rent control act.
Property Income Not Chargeable To Tax
Income from the following house property is
exempt from tax-

a. Farm building
b. Annual value of any one place of ex-ruler.
c. Property income of a local authority/trade union /marketing
authority
d. Property used for own business or profession
e. One self- occupied property

House property

LET - OUT SELF- OCCUPIED

One house- self More than one house


occupied house SOP
One house – SOP

Other house- deemed


to be let out
Computation Of Taxable Income Of Let –Out Property
Gross annual value (GAV) XXXX

Less- Municipal taxes paid by landlord XXXX


(Deduction is allowed on actual payment basis)
Net Annual value (NAV) XXXX

Less-Deduction U/S 24
a. 30% of NAV XXXX
b. Interest on housing loan XXXX
(Deduction on accrual basis)
Income From House Property XXXX

Gross annual value (GAV) - GAV will be higher of the following two-

 Reasonable expected Rent (RER) - municipal value or fair rent


whichever is higher subject to standard rent.
 Actual rent received or receivable- after excluding unrealized
rent and rent pertaining to vacancy period.

COMPUTATION OF TAXABLE INCOME OF SELF OCCUPIED PROPERTY

Annual value as per sec.23(2) NIL

Less-interest on loan borrowed XXX

Loss from house property XXX


INTEREST ON HOUSING LOAN FOR SOP

Interest

Repairs/
construction
/aquisition Reconstructio
n

On or After
Before 1.4.99- up to Rs.
1.4.99-Rs.
Rs.30000 30000
150000

Interest on loan taken for let-out property


There is no limit to the interest amount
for let out property.

Interest Of Pre- Construction Period


It is deductible in 5 equal annual
installments. The first installment is deductible in the year in which
construction of property is completed or in which property is
acquired. Pre construction period means the period commencing on
the date of borrowing and ending march 31st immediately prior to the
date of completion of the construction or the date of repayment of
loan whichever is earlier.
Income Under The Profit And Gain From Business &
Profession

 Profits and gains from any business or profession


 Any sum received under a key man insurance policy
 Any interest, salary, bonus, commission or remuneration
received by a partner from firm
 Income derived by a trade professional or similar association
from specific services performed for its members
 Export incentive available to exports-
a. Profit on sale of import license
b. Cash assistance against exports
c. Duty drawback
 Any sum received or receivable under an agreement for –
a. Not carrying out any activity in relation to any
business ( non compete fee)
b. Non sharing of any know how, patent, copyright,
trademark etc.
 Income from speculative transaction is taxable under business
income.
 The value of any benefit or perquisite whether convertible into
money or not arising from business or the exercise of a
profession.
Computation of income from business or profession

Rs. Rs.
Net profit or loss as per profit & loss A/C -

Add: Item Disallowed


1. Capital losses/ capital expenditure
2. Household expenses/ personal -
expenses
3. Income tax , wealth tax, gift tax
-
4. Charity & Donation -
5. Gifts & presents to others
6. All reserves/provisions -
7. All expenses related to other heads
of income -
8. Depreciation (taken separately)
9. Expenses not related to current year -
but debited to P & L a/c
-
10. Any tax penalty, penal interest,
fine etc. -
- -

Deduct-
1. Income not taxable as business
income -
2. Expenses not debited but allowed
3. Depreciation as per income tax
-
4. Income tax refunds -
Add :income not credited to P&L a/c but -
chargeable under this head
Taxable profit………. -
CAPITAL GAINS

Capital gain is the gain arising from


transfer of a capital asset. It may arise from the following
transactions-

 Capital gain arising from insurance claim received for damage


or destruction of a capital asset.
 Capital gain on conversion of a capital asset into stock – in –
trade.
 Capital gain on enhanced compensation.
 Capital gain on transfer by a firm of any capital asset on its
dissolution.

Capital asset means


 Land, building, flat, plot etc. immovable property.
 Furniture, machinery, plant etc.
 Gold, silver, precious metal, precious stone etc.
 Goodwill, patent, interest in firm.
 Shares, securities, bond etc.
 Urban agricultural land situated in the local limits of
municipality or cantonment board or notified area populated
not less than 10000.
Types of Capital Gain & Capital Asset

1. Short term capital asset- Asset held by the assessee for


not more than 36 months immediately preceding to the
date of transfer is a short term capital asset.
2. Long term capital asset- Long term asset means asset
which is held for more than 36 months.

However in the following cases instead of 36 months only


12 months will be taken for the purpose-

a) Shares (quoted or not)


b) Listed securities (like debentures/ Govt. securities)
c) Units of UTI or Mutual funds

Procedure for computation of long term capital gain / loss

Full value of consideration ---


Less-Total of the following-
a) Transfer expenses -
b) Indexed cost of acquisition
-
c) Indexed cost of improvement
- (---)
Long term capital gain or loss ---

Indexed cost means-Original cost or fair market value on 1.4.81 X


index for the year in which asset is transfer/ cost inflation index for
1981-82 i.e. 100
Capital gain or loss on short term capital asset

Full value of consideration ---


Less-Total of the following-
a) Transfer expenses -
b) Cost of acquisition ( actual)
-
c) Cost of improvement
- (---)
Short term capital gain or loss ---

When the benefit of indexation is not allowed-

1. In case of debentures & bonds


2. In case of depreciable asset
3. Slump sale
4. In case of non residents on transfer of shares acquired in foreign
currency in an Indian company
5. GDR purchased in foreign currency
INCOME FROM OTHER SOURCES
The income tax act lays down that-

a) Income of every kind which is not to be excluded from the total


income and
b) Which is not chargeable under any of the head shall be
chargeable to income tax under the residuary head “income
from other sources”

Specified incomes includible under income from other


sources
a) Dividends
b) Winning from lotteries
c) Winning from cross word puzzles, races card and games.
d) Income from interest on securities
e) Income from machinery, plant or furniture let on hire
f) Any sum received under a key man insurance policy if not taxable
as salary or business income
g) Gift
h) Interest received on delayed compensation or enhanced
compensation
i) Interest on bank deposits and loan
j) Director’s fee from a company
k) Income from ground rent or rent of plot or subletting
l) Family pension
m) Salary & allowances received by an MLA
n) Interest on Indira vikas patra and Kisan vikas patra
o) Deemed income, income from undisclosed source
COMPUTATION OF INCOME FROM OTHER SOURCES

Receipts falling under income from other sources XXX

Deductions-

General deductions: Any expenditure incurred wholly &


exclusively for the purpose of earning income from XXX
other sources.

Special deductions :

a) Commission for realizing interest XXX


b) Deduction & restriction on family pension XXX
c) Deduction of repairs, insurance premium, XXX
depreciation if let on hire

Income from other sources XXX


Deductions to be made from “Income from Other Sources”
 In respect of Dividends & interest on securities-

a. Collection charges-commission or remuneration paid for


realizing dividend or security interest.
b. Interest on loan taken for purchasing shares & securities.

 In respect of income from machinery, plant, or furniture-

a. Current repairs of buildings, machinery, or plant let out


b. Insurance premium
c. Depreciation

 In respect of interest on compensation or enhanced


Compensation- A deduction of a sum equal to fifty percent of
such income shall be allowed. No other deduction will be
available.

 In respect of employee’s contribution towards staff welfare


schemes-Deduction shall be allowed to the extent of the
amount is credited by the tax payer to the employee’s account
before the due date.
Amount not deductible
1. Personal expenses
2. Wealth tax
3. Expenditure in respect of winnings from lotteries
4. Interest paid outside India on which TDS has not been
deducted
5. Excessive payment to relatives, payment more than Rs.
20000 in cash.
CLUBBING OF INCOME/ DEEMED INCOME
Sometimes the assessee in order to avoid tax
liability may dispose of their property or income into different hands.
Such income of other person is included in the assessee’s total
income & referred as Deemed Incomes.

1. Transfer of income without transfer of asset- if any person


transfers income without transferring the ownership of the
asset such income is taxable in the hands of the transferor.

2. Transfer of income by revocable transfer of assets-a transfer


deemed to be revocable if-
a. It contains any provision for the re-transfer directly or
indirectly of the whole or any part of the income or assets
to the transferor
b. It gives any right to reassume power over the whole or
any part of the income or assets.

3. Income of individual to include income of spouse-


a. Salary, commission etc. of spouse in a firm in which the
assessee has substantial interest
b. Income to spouse from the asset transfer
c. Asset transfer to son’s wife
d. Income from asset transferred to a person for the benefit
of spouse
e. Income from asset transferred for the benefit of Son’s wife

4. Conversion of self acquired property into joint family property


and subsequent partition.-when an individual member transfers
his self acquired property directly or indirectly to the family
otherwise than for adequate consideration.
CLUBBING OF INCOME OF MINOR
In computing the total income of any
individual there shall be included all such income as arises or accrues
to his minor child. Provided that in the following cases income of
minor will not be clubbed-

a. Income of minor child on account of manual work done by him


b. Income of minor child on account of activity involving
application of his skill, talent or specialized knowledge and
experience.
c. Income of minor child suffering from any disability of the nature
specified U/S 80U is not subject to clubbing provision.

When the marriage of his parent


subsists income of the minor shall be included in the income of
that parent whose total income is greater. Where however the
marriage of his parent does not subsist it shall be included in
the income of that parent who maintains the minor child in the
previous year.

Exemption under 10 (32)-


In case of income of individual
includes the income of his minor child such individual shall be entitled
to exemption of Rs. 1500 in respect of each minor child if the income
of such minor as includible exceeds that amount.
Set Off And Carry Forward Of Losses
Heads of income and set off of losses-

S.no. Heads of income Set off of losses during


current previous year
1 Loss from house Firstly set off against another
property ( whether house property income & if
SOP or let out) required from another heads
of income.

2 Non speculation Firstly set off against another


business loss business income and if
required from other heads of
income except salary.

3 Speculative business loss Only against another


speculation profit if any.
4 Short term capital loss Either from STCG or LTCG

5 Long term capital loss Only against LTCG

6 Loss from the activity of Only against income from the


owing and maintaining activity of owing and
horses race maintaining horses race.
7 Unabsorbed Except salary head
depreciation
Carry Forward Of Losses

S.no. Heads of income Set off in subsequent years

1 Loss from house property Any income under the head


( whether SOP or let out) house property for 8 years
2 Non speculation business Any income under head
loss PGBP for 8 years

3 Speculative business loss Only against speculative


income for 4 years

4 Short term capital loss Any type of capital gain for


8 years
5 Long term capital loss Only against LTCG for 4
years

6 Loss from the activity of Only against the income


owing and maintaining from the activity of owing
horses race and maintaining horses race
For 4 years

7 Unabsorbed depreciation Any head of income except


salary. There is no time limit
for set off.
Deductions from gross total income for individuals
(Chapter VI-A of Income Tax Act, 1961)

i. Deductions in respect of certain payments-

a. 80C-deduction in respect of certain investment like LIC, PPF


etc.
b. 80CCC-deduction in respect of pension fund
c. 80CCC-deduction in respect of notified pension scheme (NPS)
d. 80D- deduction in respect of medical insurance premium-
Mediclaim policy
e. 80DD-deduction in respect of maintenance including medical
treatment of handicapped disabled
f. 80DDB-deduction in respect of medical treatment of specified
diseases
g. 80E-deduction in respect of repayment of loan taken for higher
education
h. 80G-deduction in respect of donations to certain funds, charitable
institutions
i. 80GG-deduction in respect of rent paid
j. 80GGA-donation for scientific research or rural development etc.
k. 80GGC-donation to political parties or electoral trust.
ii. Deductions in respect of certain income

a. 80RRB-deduction for royalty on patents. The amount of


deduction is 100%of such income or Rs. 300000 whichever is
lower.

b. 80QQB-deduction for royalty income of authors of certain


books. The quantum of deduction is 100% of such income or
Rs. 300000 whichever is lower.

c. 80U-deduction in case of permanent physical disability. An


individual who is a resident & who is certified by medical
authority to be a person with disability at any time during the
previous year shall be entitled to deduction of Rs. 50000.If it is
a case of severe disability i.e. having disability for more than
80% deduction shall be Rs. 100000.
FILING OF RETURN OF INCOME
RETURN OF INCOME
In income tax act there is a
provision of voluntary filing of return of income.
Voluntary return sec. 139 (1)
S.no. Who has to file the return conditions

1 Partnership firm or company Any income or loss

2 Individual, HUF, AOP, BOI If the income without


claiming the deduction
exceeds the exemption
limit

3 A person in receipt of income If the income before


derived from a property held under claiming exemption u/s
trust or CEO of any political party 11, 12, 13A exceeds the
maximum exemption
limit

4 By certain association, institution,If income without giving


etc. exemption u/s 10
exceeds exemption limit
5 Any university or other educational Return to be submitted
institution whether income or loss
Exemption limits for the assessment year 2014-15

S.no. Assessee Amount (Rs.)


1 Individual (male or female), HUF, AOP, 2,00,000
BOI

2 Senior citizen( male or female) 2,50,000


Age -60 years or more

3 Super senior citizen (male or female) 5,00,000


Age- 80 years or more

Due dates for filing voluntary return


of income for the assessment year 2014-15-
If the assessee is- Due dates
a) A company 30th sep.
b) If it is an individual or a firm 30th sep.
whose accounts are required to
be audited
c) Assessee is the working partner of 30th sep.
a firm whose accounts are
required to be audited
d) In any other cases 31st July
Loss return sec. 139 (3)
If an assessee fails to file his return
of loss on or before the due date of furnishing of return as prescribed
by sec. 139 (1) then the following losses cannot be carried forward-

 Loss of a speculative or non speculative business


 Short or long term capital loss
 Loss from owing or maintaining of race horses.

Belated return sec. 139 (4)


If an assessee has not furnished
a return of income under sec 139 (1) he may furnish the 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
whichever is earlier. This return cannot be revised.

Revised Return Sec. 139 (5)


If after furnishing a return any
omission or wrong statement is discovered a revised return can be
filed at any time before the expiry of one year from the end of the
relevant assessment year or before completion of assessment
whichever is earlier.

Defective Return Sec. 139 (9)


A return of income shall be
regarded as defective in the following cases-

 Return form has not been duly filed


 Statement, accounts are not accompanied with return
Signing of return sec. 140

 In case of individual- individual himself or duly authorized

person or by his guardian if he is mentally incapacitated.


 In case of HUF-Karta/if he is absent from India by adult
member of family.
 In case of company-by the managing director, any director if
there is no managing director, liquidator if company is under
liquidation.
 In case of firm-by the managing partner or any partner except
minor.
 In case of local authority-by the principal officer.

Consequences for failure to furnish return of income

 If a person fails to furnish return of income he shall liable to pay


a penalty of Rs. 5000. No penalty shall be levied if he proves
that there is a reasonable cause for such failure.
 Interest @ 1% for every month or part of month of the delay in
filing return will be levied.
 If return is not filed best judgment assessment can be made.
 Willful failure to furnish return will also attract prosecution.
NEW RETURN FORMS
Forms Subjects
ITR-1 For individual having income from salary, house
Sahaj property & other sources except income from race
horses
ITR-2 For individual & HUF not having business or professional
income
ITR-3 For individual & HUF being partner in firms and not
having business or professional income
ITR-4 For individual & HUF having income from a proprietary
business or profession
ITR-4S For individual & HUF having income from a business
Sugam and such income is computed u/s 44AD & 44AE
ITR-5 For firms, AOPs, BOIs
ITR-6 For companies other than companies claiming
exemption under sec. 11
ITR-7 For assessee who have to furnish return in case of
income or loss

ITR-8 Fringe benefits

ITR-V Electronically filing of return


Permanent Account Number (PAN)
PAN is a taxpayer identification
number allotted to a person by the income tax department. It is a
number allotted under the new series having ten alphanumeric
characters issued on laminated cards .once a PAN is allotted it would
remain valid forever unless cancelled or modified. For example-

1 2 3 4 5 6 7 8 9 10
A B I P J 1 8 6 1 H

Every person will have to quote PAN-

a. In his income tax return.


b. In any correspondence with income tax authorities
c. In challans for payment of any sum
d. In the document pertaining to prescribed transactions like-
 Sale or purchase of any immovable property valued at Rs.
5 lakh or more
 Sale or purchase of securities exceeding Rs. 1 lakh
 Application for credit card to any bank.
 Purchase of debenture or bonds of any company for Rs.
50000 or more during the previous year.
 Payments to hotel or restaurants of an amount Rs. 25000
or more at any one time etc.
ASSESSMENT OF INDIVIDUALS
Computation of tax liability-
Income from salaries -
Income from house property -
Income from business or profession -
Income from capital gains -

Income from other sources -


Deemed incomes -
Gross total income -
Less –deductions under chapter VI A -

Total income -
Tax on total income-
a. At special rates -
b. At normal rates -
Less-Rebate -
Tax payable -

Add-Surcharge (if any) -

Add-education cess @ 3% -

Total tax payable -

Less-TDS -
Less- Advance tax paid -
Less- Self assessment tax paid -
Balance tax payable/ refundable -
Advance tax
The scheme of advance payment of
tax ensures the regular flow of revenue to the govt. & lightens the
intensity of the burden of taxes. Under this scheme the assessee is
required to pay tax on current income by installments during the
financial year itself. Therefore the scheme of advance payment of tax
is also known as “PAY AS YOU EARN”.

Table showing the installments & due dates of payments of advance


tax-

FOR NON-COMPANY ASSESSEE

Installment Due date Particulars Amount


1st 15 Sep. 30 % of advance tax payable
Less- advance tax paid in XXX
earlier installments

2nd 15 Dec. 60 %of advance tax payable


Less- advance tax paid in XXX
earlier installments

3rd 15 March 100 %of advance tax payable


Less- advance tax paid in XXX
earlier installments
FOR COMPANY ASSESSEE

Installment Due date Particulars Amount

1st 15 June 15 % of advance tax payable XXX

2nd 15 Sep. 45 % of advance tax payable XXX


Less- advance tax paid in
earlier installments

3rd 15 Dec. 75 %of advance tax payable XXX


Less- advance tax paid in
earlier installments

4th 15 March 100 %of advance tax payable XXX


Less- advance tax paid in
earlier installments

Total advance tax XXX


Deduction Of Tax At Source
Levy & collection of tax at the very source of income is called TDS. The
person responsible for making payment deducts tax at source from
the income of the recipient. Thus the income tax is collected from the
assessee’s in the previous year itself through TDS / Advance tax. TD
so collected is required to be deposited with the central govt. within
prescribed time.

SUMMARY OF IMPORTANT TDS RATES

Nature of payment TDS on amount TDS rate


exceeding
Interest on securities 2500 10 % on listed
securities & unlisted
securities
Interest on monies 5000 10%
borrowed or deposits

Payment to 30000 in a single 1% if the recipient is


contractor / sub- payment or Rs. 50000 individual / HUF
contractor in the aggregate otherwise 2 %

Payment of 5000 10 %
commission or
brokerage
Rent 180000 For plant, machinery
or equipment – 2 %
For land or building
or furniture or fittings
for all – 10 %
Professional fees 30000 10 %
Assessment of individual
Dr. Bajaj is running a clinic. His
income and expenditure account for the year ending March 31 is
given below:

Rs. Rs.

Staff salary 430000 Fees receipts 1263240


Consumables 9250 Dividend from 9500
Medicine consumed 364800 Indian companies
91000
Depreciation Winning from
146000
Administrative expenses 15000 lotteries net of
Donation to prime TDS Rs. 12000 28000
minister’s relief fund 247440 Income tax refund
Excess of income over
expenditure
2390
1303490 1303490

 Depreciation in respect of all assets has been ascertained at Rs.


50000 as per income tax rules.
 Medicines consumed include medicine of (cost) Rs. 16000 used
for his family.
 Fees receipts include Rs. 14000 honorarium for valuing medical
examination answer books.
 He has also received Rs. 80000 on account of agriculture
income which had not been included in the above income &
expenditure account.
 He has also received Rs. 57860 on maturity of one LIC policy not
included in the above income & expenditure account.

 He received Rs. 6000 per month as salary for a city care centre.

This has not been included in the fees receipts credited to income
& expenditure account.

 He has sold land in June 2013 for Rs. 800000 (valuation as per
stamp valuation authority Rs. 1500000). The land was acquired
by him in October 1998 for Rs. 450000
 He has paid Rs. 2500 for purchase of lottery tickets.
 He has paid premium of LIC policy of Rs. 12000 (sum assured Rs.
50000)
Computation Of Income Of Dr. Bajaj

Rs.

Income from salary (Rs. 6000X 12) 72000


Income from profession 265550
Capital gains 296154
Income from other sources 54000

Gross total income 687704


Less – deduction u/s 80 C 10000
Less – deduction u/s 80 G 15000 25000
Net income (rounded off) 662700
Agriculture income 80000
Computation of tax
Tax on (non- agricultural income) + (agricultural income) 91885
Less –tax on (agricultural income) + exempted slab Rs. 8000
200000 ( 280000)

Balance 83885

Add – Education cess @ 3% of tax 2517


Tax 86402
Less –TDS on lottery income 12000
Balance tax payable (rounded off) 74400
Computation of income from profession
Income as per income & expenditure account 247440
Adjustments –
Add –donation to prime minister’s Relief fund 15000
Medicines consumed by family 16000
Depreciation 91000
Less- dividend from Indian companies(exempt) (9500)
Winning from lotteries
Income tax refund (28000)
Depreciation as per income tax (2390)
Examination honorarium (50000)
(14000)
Income from profession 265550

Income from capital gains


Consideration ( stamp value) 1500000
Less – Indexed cost of acquisition (Rs. 450000X 939
/351) (1203846)

Long term capital gains 296154

Income from other sources


Lottery winnings (Rs.28000 + Rs. 12000 ) 40000
Examination honorarium 14000
Dividend from Indian companies (exempt from tax) Nil
Maturity value of LIC policy (capital receipt not Nil
chargeable to tax)
Total 54000
Computation of tax on (non-agriculture income + agriculture
income)

Tax on winning from lottery @30 % on 40000 12000


Tax on LTCG @ 20 % on 296154 59230
Tax on the balance 20655

Total 91885

Rate of income tax for individual assessee for the


assessment year 2014-2015

First 200000 Nil

Next 300000 10 %
Next 500000 20 %

Above 1000000 30 %