How To File Your Own Income Tax Return With Due Attention & Care by Shiv N

Gain Complete Control on Your Income Tax:
File Your Own Income Tax Returns, Like A Pro…in 22 Minutes

By: Shiv N. Majumdar, F.C.A. (shiv22@gmail.com )
Gain Complete Control

On Your Income Tax
File Your Own

Income Tax Returns
Like A Pro,
……in 22 Minutes
Shiv N. Majumdar, F.C.A.
1
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This eBook reflects the law and requirements existing on 1 May 2006
and is current for filing of returns in 2006-07. We shall appreciate
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shiv22@gmail.com
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2
Table Of Contents
Page No.
Introduction………………………………………….…….……5
Part One: All You Must Know About Your Tax Return
1. Different Modes of Preparing Your Return………...……7
2. Only You Remain Accountable…...……………………...8
3. Presumptions on Your Attached Certificates Can Cause

You A Loss. …………………………...…………………...8
4. Much More Than Just A Compliance: What Your Tax

Return Can Do For You………………………………….10
5. How to Prevent Any Glaring Omission…………………11
6. Traps on Your Path: Obvious Items Most Often

Missed……………………………………………………..12
7. Standing Up To A Prima Facie Scrutiny…...…………..13
8. How Your Salary Components are Variously Taken Into

Account……………...……………..………………….…..14
9. Do You Have To Set Off An Earlier Year’s Loss?…….15
10. Did You Sell An Asset This Year?……...………………15
11. Considerations on Advance Tax………………………..16
12. How to Simplify Your Future Returns…………………..17
13. Setting Up the Job: What All You Must Have Ready At
Hand…………..……………….…………………………..17
14. How You Can File Your Own Tax Returns Flawlessl...21
3
Part Two: Step-by-step Guide to Filling Returns with Action

Pointers, Key Information and Explanations
General..………………..………………………………………22
Summary Sheet…………...…………………….…..…………26
Salaries………………………………..…….………….………27
Income from House Property……………………………...….35
Capital Gains…………………………………...….…………...41
Income from Other Sources……………………………......…50
Set-off of Losses………………………………...……………..53
Statement of Total Income…………………………………....54
Others’ Income Includible in Your Income………………......59
Statement of Taxes…………………………………………….60
Part Three: Your Likely Doubts and Queries Answered.
Doubt/Query No. 1 to 56:

General…..……………………………………………………..64
Salaries.………..……………………………………………....70
Income from House Property………………..…………….....78
Capital Gain……………………..………………………….….79
Income from Other Sources………………..………………...85
Others’ Income Included in Your Income…..……………….86
Total Income……...…………………………………………….87
Tax ………………………………………………………………91
Appendix 1: Ready Reckoner

For Quick Tax Calculation……………….…………………...92
Appendix 2: Accrued Interest on National Savings
Certificate, VIII Issue………………………...……………….96
Appendix 3: Important Amendments
Through Budget 2006…………………………………...…...97
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Simple Tax, Sure Steps: Ready Knowhow

Introduction
Filing your own income tax return is just like driving your own
car. It requires some attention, but is certainly not unduly
difficult.
Who prepares and files your income tax return?
If you have been doing it yourself, we appreciate your spirit. But

we can certainly help you to be more comfortable with your
effort.
If you have always avoided filing on your own, have you ever
stopped to think as to what exactly makes it intimidating to you?
Let us consider the possibilities:

Filling up a form is boring,
Involves complicated legal terminology,
In absence of an earlier background, it is inconvenient to
handle,
Far from your area of expertise,
Shiver at the thought of having to deal with a none-too-
pleasing government official.
You may choose more than one out of these possibilities.
Now let us consider these.
We cannot avoid physical filing of papers till digital signatures of

citizens are accepted for the purpose of returns. However,
indications are that this is very much on the way.
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We also cannot avoid entering personal data in a form whether
on paper or on a computer. Even your consultant would
certainly require your personal information.
But we can win over the other challenging aspects- with a step-
by-step list of instructions, by providing you relevant position as
per applicable law and by explaining the concerned matters in a
concise and lucid manner.
To keep it simple, this book does not cover those having

business income.
This book has three parts.
First Part discusses the general considerations applicable to

preparing an income tax return.
Second Part guides you step-by-step through your return

preparation process in a manner which is useful and which you
can easily follow.
Third Part deals with your likely doubts and queries in a

Question-Answer format, so that you can refer to it at any point.
Three Appendices provide you with a Ready Reckoner for

Quick Tax Calculation, Accrued Interest for your past
investments in National Savings Certificates and a Summary of
Important Amendments through Budget 2006 which concern
you.
If you have picked up this book, you will not be disappointed.

We believe that anyone who has made up his mind to prepare
his income tax return on his own and can follow simple English
will be able to do so very efficiently and with complete
confidence.
The simplicity and ease of the effort will enable you to enjoy this
activity for the first time ever.
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Part One
1. Different Modes of Preparing Your Return
Today, you have six different ways in which you can prepare
your tax return:
• By opting to file your returns with your employer, if you fulfill

the required conditions.
• By opting to file e-return through an authorized intermediary
like banks, financial institutions, chartered accountants, etc,
• By availing private online return filing services like
indiatimes.com or filemyreturns.com, etc,
• By preparing your return on your computer by using a
downloaded free software SAMPARK made available by the
Income Tax Department,
• By the traditional method of filling your own return forms
manually on paper,
• By giving details to a professional consultant to prepare
return on your behalf.
A seventh and the most looked for: paperless return with digital
signature is coming up soon.
All this boils down to preparing your return on your own (with or
without help of Information Technology) or through a consultant.
At the moment, though, you need to deal with paper returns and
documents, which have to be physically filed at the income tax
office either by your consultant, intermediary or yourself.
The productive advantage of today’s tools will be fully at

work for you, if you can have a reliable and simple
resource, which can guide you, step-by-step through every
one of the many steps to filing your return.
Finally, only a human check is the most reliable. It is only YOU,

who can best serve your own interests.
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And to equip you specifically for this task, we have designed
this book. It will painlessly take you through various steps in
plain English, cutting out all complicated legal language, lucidly,
in a conversational, simple and easy-to-understand style.
2. Only You Remain Accountable

All returns filed by you in any mode carry your verification and
signature. This is what the verification reads like:
“I…solemnly declare that to the best of my knowledge and

belief, the information given in this return and the schedules and
statements accompanying it, is correct and complete and the
total income, and other particulars shown therein are truly
stated and…”
Most importantly, your employer, authorized intermediary or

online facilitator is not responsible for your tax return. For any
delay or an oversight or a mistake committed, the liability will
still rest only with you and Only You.
3. Presumptions on Your Attached Certificates Can

Cause You A Loss
Believe it or not, with dependence on computer systems, the
number and types of mistakes in Tax Computation and in
Deduction Certificates have actually gone up.
With wide spread computerization of payroll and tax deduction

systems at companies, laborious systems have given way to a
new dependence on new age tools. Recent years have seen a
number of unusual errors in Tax Deduction Certificates issued
by companies. Many employees have unknowingly lost money
through such mistakes. Alert employees have even obtained
refunds from Income Tax Authorities when such errors were
rectified. A powerful modern technology, thus, is a slave to the

systems that run them and to the people who manage and
validate those systems.
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There is one more very important reason why such errors are
coming up. These areas are likely to get less audit attention
because these mistakes hurt employees personally, but they
are not going to make any difference to the correctness of the
employer’s assets and liabilities or income and expenditures.
Here are some examples.
Suresh approaches us for filing his tax return. He worked for

two companies A (first 3 months) and B (the next nine months)
during the year. On scrutiny of the two ‘Forms 16’s, we observe
that the tax deducted at A was much higher per month
compared to the deduction at B. On enquiring with Suresh, we
gather that he has joined B at a much higher salary.
Subsequent follow up revealed that A’s deductions were higher
than required and the company A which normally straightens
such things towards the year end could not do so in the case of
Suresh since he left after only three months in the year.
But for our scrutiny, he would suffer higher tax of about Rs

15,000.
Or let us take the case of Ramesh, where the employer charged

him much higher value for his company provided
accommodation. The company’s definition of salary for the
purpose of perquisite valuation was wrong and this resulted in
higher valuation and a higher tax deduction for Ramesh.
Similarly, A Ltd did not accept the view that a particular item
was not taxable, since the matter was under consideration of
Courts.
Subsequently, the view of High Courts came in favour of

employees. Employees of A Ltd were not aware that favourable
judgement should have resulted in lower tax deduction in their

relevant cases.
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An employee could get a refund caused by this wrong

application of law only when he claimed this excess deduction
through his return.
As you see from these, it would be practical to accept that a

computer-generated statement can contain mistakes, both due
to faulty designing of systems as well as poor administration.
Most of all, you must ensure that you have suffered the correct
tax.
We would recommend that even if you take professional

help, it would be in your interest to check the correctness
of your certificates on your own.
4. Beyond Compliance: What Your Tax Return Can Do For You
Filing your tax return is a compliance job. Most people take it as

an unavoidable and an unpleasant task. Tax returns are
understood to be like a ticket valid for a single travel. There is
always the next round to take up again.
But tax returns reflect your transactions and over a period also
tell the story of your financial growth. Even though salary
earners do not need to file their balance sheets from year to
year, your tax returns would imply how much you can save,
what you have invested, what you have spent, etc.
Thus carefully made tax returns over the years can help you
explain your assets and investments, as well as your liabilities.
A tax scrutiny in a future year will be greatly helped, if your tax

returns have been clean over the years. There are various
items, which can be linked to your earlier year’s tax returns.
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Tax returns are taken note of by lenders in sizing you up.
Copies of your tax returns, your bank statement, assets and
liabilities will influence the decision to extend a loan to you.
There has been a case where an unreasonable employer has

accused an employee of amassing wealth by unfair means. The
employee’s tax record has defended him in establishing the
source of his existing investments and the fact that the
employee owned the resources prior to joining the employer.
Moreover, shortly all your major transactions through bank,

credit card, in mutual funds, in buying or selling shares, foreign
travel, purchase of houses and cars, etc are getting correlated
with reference to your PAN. The interactive systems, we are
told, are in place. It will, therefore, be suicidal not to be careful
in preparing and filing your tax return.
5. How to Prevent Any Glaring Omission
We are now in an interconnected information age.
Shortly, all Income Tax Offices across the country are getting
connected on computers so that data across locations are
quickly available.
The Income Tax Department is also collecting data on chosen

transactions from various points in the country. Initially, it is
likely that only larger assessees will be in focus. But the
massive database would not be created, if it were not to be
used.
Suppose you have bought a car and paid for it from a separate
bank account, which you forgot to take into account for tax
purpose. With information available on car purchases, it is likely
that this omission will get noticed and you may face queries on
this.
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Or, take the similar case of a bank account from which your
Credit Card payments are being made. The assessing officer in
these circumstances may add these expenses to your income
even though funds in the other bank account might have flowed
from your salary account.
Omissions of bank accounts, bank deposits, post office

deposits, shares or mutual funds transactions and the like can
unnecessarily create hassles for you. The pay off would be
insignificant comparatively.
6. Traps on Your Path: Obvious Items Most Often Missed
How do you receive your salary? Most likely, it would be in your

bank. Except for a very few, it is unlikely that you will not have a
bank account. Are you aware that your balances in the bank
invariably earn you some interest income? You have most likely
ignored this in the past and may do so yet again.
Bank interest, however small, needs disclosure as Income from

Other Sources. This otherwise would be a glaring omission.
Have you been investing to save tax from year to year? If so,
you may be earning some interest on these investments.
Except interest on Public Provident Fund, others are income,
which you need to include. Thus, interest on the bond that you
have invested in last year or earlier is includible in your income.
Your claim for Tax Rebates in earlier years and your income
declaration now need to be in line. The omission will be an
obvious mistake or mis-statement.
This applies even to interest on your National Savings

Certificates, which get automatically re-invested during the
period of investment. Imagine the fact that you declare to your
employer that accrued interest on NSC’s, which you have
purchased in the past, also is to be counted for your tax rebate.
Your employer includes them forgetting to add the same
amount also as income. Now consider this. Can you invest an
amount without receiving? If the scheme allows you accrued
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interest as notional investment, it is logical that you will also

have to have a notional income.
In general it would be practical to check all your assets and

property to ensure that no earnings connected to an asset is
omitted.
7. Standing Up To A Prima Facie Scrutiny
Prima facie your income must cater to your known items of

expenses. The following common expenses are likely to apply
to all:
• House rent or housing society maintenance charges,
• Household electricity charges,
• Telephone charges,
• Education expenses of children,
• Expenses through credit cards,
• Vehicle running and maintenance expenses, etc.
If your gross earnings as declared, reduced by applicable tax, is

sufficiently above these normal commonly found expenses and
your tax-related investments made during the year, it would
satisfy a prima facie scrutiny.
If you invest for tax out of past savings, this situation may differ.
But you can satisfy a scrutiny only if you keep proper records.
8. How Your Salary Components are Variously Taken Into

Account
We set out below for your easy understanding your various

elements of salary compensation and how they get treated for
the purpose of your tax:
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Component How Considered

Basic Salary As salary
Dearness Allowance As salary
City Compensatory Allowance As salary, remote
locations enjoy
exemption.
House Rent Allowance As salary, but rent
payments exempt as
per a formula
Conveyance Allowance As salary, Rs 800 per
month exempt for all.
Children’s Education Allowance Rs 100 per month for
up to 2 children exempt.
Other Allowances As salary
Medical Allowance Exempt up to Rs
15,000, if bills of actual
expense incurred is
submitted
Reimbursement of Books, Periodicals Not taxable, if required
for work
Reimbursement of Cost of Uniform Exempt
Reimbursement of Uniform Washing Exempt
Charges
Reimbursement of Business Not taxable, if required
Entertainment for work
Reimbursement of Car Expenses Not included
Reimbursement of Cost of Driver’s Not included
Salary
Reimbursement of Gas, Electricity for Taxable
Household
Leave Travel Concession/ Allowance Partially exempt if
conditions are met
Bonus/ Commission/ Incentives Taxed as salary
Employees’ Stock Options If qualified, i.e. after
1999 and as per
approved scheme,
taxed only at time of
sale of shares.
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Component How Considered
Pre-joining Bonus As salary
Other perquisites/ benefits Added to salary as
prescribed for each item
Reimbursement of Cost of Driver’s Not included
Salary
9.Do You Have To Set Off An Earlier Year’s Loss?
If you had a loss under any head other than ‘Salaries’ in an

earlier year, like on house property, on a capital asset sold or
transferred or any other item, which could not be fully set off
against income till last year, then you must include that item in
this year’s return. However, a business loss cannot be set off
against salary.
Why? There are two possibilities. Your taxable income for this
year may come down after setting off that loss. Alternatively, by
including that unabsorbed loss, and then if the loss could not be
fully setoff against this year’s income, you can further carry it
forward to next year (if permissible) for getting the benefit of set-
off.
However, there is an important requirement for that. You must

have filed your returns within due dates on all these years, so as
not to lose your claim for subsequent set-off.
10. Did You Sell An Asset This Year?
If you have by any chance sold an asset, which is a capital

asset, and have made a gain, do not forget to include it. Your
omission may invite unnecessary trouble for you. Moreover, your
tax liability may not amount to much.
15
Even if you have made a loss, including this will also give you a
benefit of set-off from an income or gain either this year or in a
subsequent year.
11. Considerations on Advance Tax
Income Tax Law requires us to pay tax as we earn. Thus tax is

deducted from salaries, etc. as they are earned.
However, the deducted tax does not entitle us to ignore the

related income in any way. Tax Deduction at Source is only an
interim or on-account collection of our tax. Our tax liability will be
determined after considering all sources of our income.
So, if we earn an income on which law has not called for tax
deduction, or if the actual amount of further tax we have to pay
over and above the tax deducted is substantial, then we are
required to pay advance tax during the course of the year of
earning itself.
Now what is substantial for advance tax? If this tax due is Rs

5000 or more. The amount of advance tax that must be paid is
90% of the dues.
Typically, rent from property, capital gains and income from other
sources, like interest received, can make you liable to pay
advance tax.
If you fail to pay this required amount of advance tax, you will be
required to pay interest as penalty.
12. How to Simplify Your Future Returns
If you are a salary earner, you can include every other item of
income as well as Tax Deducted at Source thereon, besides
salary, also in your Form 16 by declaring the details of such
other income to the employer.
You will have to provide these particulars to the employer in plain
paper, which should include verification as under:
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“Form of Verification
I, ……….(name of employee), do declare that what is stated
above is true to the best of my information and belief.
Signature of Employee”
This will enable you to avoid bothering about paying of advance

tax or self-assessment tax at the time of filing your return.
Interestingly, this declaration can actually reduce tax deducted

by an employer, if items included is a loss under the head
Income from House Property, which qualify for adjustment with
salary income. If you have a housing loan interest payment
because of which you have a loss computed as Income from
House Property, declaration will enable reduced deduction of tax
by employer. You would not have to wait for claiming a refund
only at the time of making of your return.
You will also have only one document to attach with your tax
return, that is your Form 16, unless some particular document
like housing loan certificate is specifically called for.
Now if you have declared all items of income to your employer

and no tax is due from you after the tax is deducted from your
salary, then you need not even file a return if your income is up
to Rs 1,50,000 in a year.
13. Setting Up the Job: What All You Must Have Ready At Hand
In a desk job, the maximum inefficiency comes from delays in

finding the connected papers or related information and also
from inadequate attention while doing the job. These would
result in re-work and waste of your time.
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We provide you the checklist of items of information that needs

to be kept handy and the documents, which you would require
for preparing your income tax return.
INFORMATION REQUIRED
1. Name: Surname
First Name
Middle Name
2. Is there any change in your name? If yes, give old name

and documentary proof of change in name
3. Father’s Full Name:
4. Address: Residence/ Office Please specify.
5. In case of any change in address furnish new address:

Res./ Office
6. Telephone No.
7. Sex: M/F
8. Date of Birth (DD-MM-YY)
9. Any change in address from last year? If so, in office or

in residential address?
10. Ward/Circle/ Special range:
11. Ward/ Circle/Special range last year:
12. Is this your first return?
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13. Particulars of all bank accounts starting with the account

where refund, if any, is to be credited:
Name of the bank Address of the Branch Code A/c No.
Bank Branch (Nine digits after
your cheque
number on your
MICR cheque)
14. Particulars of credit cards, if any:
Name of Credit Card Held Issued By
15. Do you have a house property? If so,

Is it self-occupied? If you have more than one self-
occupied house property, you will have to opt for one
of them for which you can get a nil valuation for
annual value.
Is it let out?
Is it lying vacant?
What is the area in square meters of your house
property and adjoining land?
Address of each of the property
16. Is there a housing loan? How much interest and
principal did you pay for the loan? Is it obtained before or
after 1st April 1999?
17. Is there any pre-construction interest paid by you on

your housing loan? If so how much?
18. Did you transfer any capital asset during the year? If so,
how long has it been held by you?
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Note down the following for each asset:
1) Particulars or details of assets transferred,

2) Date of Acquisition: Date-Month-Year,
3) Date of Transfer: Date-Month-Year,
4) Mode of transfer: By agreement, delivery, etc.,
5) Full value of ‘consideration’: your sales proceeds,
6) Cost of acquisition, including stamp duty costs,
registration charges, etc.,
7) Cost of any improvement to the asset during the
period of holding,
8) Indexed cost of acquisition, including stamp duty
costs, registration charges, etc., (Refer to Part Two
for more)
9) Indexed cost of any improvement to the asset during
the period of holding, (Refer to Part Two for more)
DOCUMENTS NEEDED:
1) You need your PAN number. If you have not
received the PAN number in spite of applying for it,
a photocopy of your PAN application.
2) The certificate in Form16 issued to you by your
employer in original. In addition, in the case of
employees whose salary is more than Rs 1,50,000,
Form 12BA if any issued to you by the employer.
3) Original receipt in respect of any medical insurance
premium you have paid during the year. (If not
considered in your Form 16)
4) If you are in a rented accommodation, you can claim
a part of House Rent Allowance as a deduction from
your HRA on production of rent receipt. (If not
considered in Form 16)
5) If you live in a self-occupied owned house, you can

avail benefits on the amount of interest and principal
on any housing loan that have been repaid during
the year. We need the address of the Property and
Certificate from the lenders certifying the loan
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repayments made along with the split between the
principal and interest.
6) Copy of proof of payment of
investments/contributions made (PPF, NSC, LIC,
donations etc) to claim rebate/deduction, e.g. copies
of PPF challan/ pass book, copy of NSC Certificate,
copy of LIC premium receipt, (If not considered in
your Form 16).
7) Any TDS Certificates on items other than Salary,
Advance tax challan, Self-Assessment Tax challan.
8) Copy of acknowledgement for income tax return for
the year ending 31st March 2005. (the previous
financial year)
14. How You Can File Your Own Tax Returns Flawlessly
A flawless return must take into account all your transactions
and avail for you, every possible tax advantage as per law.
Most of the times, the correct approach is less costly in terms
of hassles and waste of time.
What would it involve? Thorough knowledge about how this

needs to be done and clearly understanding what the
implications of various steps and various relevant aspects
would mean for you.
Many changes are taking place every year. The thrust is

towards simplification of requirements and in course of time,
much tighter tax administration.
We lay out in front of you the current choices available and

the present status of the legal position. This book would help
you in making independent and confident decisions, thereby
giving you complete control over your income tax matters.
Part Two: Step-by-step Guide to Filling Returns with Action

Pointers, Key Information and Explanations.
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General:
1. Do you need to file a return at all?
If you have gross total income in a year

exceeding Rs 1,00,000, then you are required
to file an Income Tax Return. In the case of
women below 65 years of age, this amount is
Rs 1,35,000 and for people who are 65 years
or more this amount is Rs 1,85,000. An
important change for this year is that it is
the gross total income after adding incomes
from various heads of income before available
deductions that is to be considered, not the
total income after these available
deductions, as in earlier years.
For this purpose, items of income, which are

totally exempt from tax, are not counted. For
example, agricultural income, voluntary
retirement compensation up to Rs 5 lacs, etc
will not be considered for this purpose,
since they fall in the list of exempt items
of income.
Similarly deductions available under

different heads of income like Tax on
Employment or Interest on housing loans are
to be reduced for considering income level of
Rs 1,00,000 or Rs 1,35,000 or Rs 1,85,000 as
applicable.
2. Do you have to file a return, if your salary

income is up to Rs 1,50,000?
Effective the year 2004, some salary earners

with salary income up to Rs 1,50,000 can file
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their return with their employer by
confirming Tax Deduction Certificate given by
employer in Form 16AA. There are ten
conditions, which need to be met.
More important of these are:
• You must be an employee as on 31st March
of the year,
• You must have worked for only one
employer during the year,
• Your Total Income should not include
Profits and Gains from Business or
Profession, Capital gains and
agricultural income (although exempt
from tax).
• Your employer should have deducted all
tax due and your tax deduction
certificate should contain all your
sources of income,
• Your tax deducted by the employer must
be the only tax deducted on your income.
Tax deducted on your bank interest, etc
will make you ineligible.
3. Do you have to file a return if you are a

pensioner?
Pensioners not having an income above Rs

100,000 but fulfilling economic criteria like
owning telephone, etc need not file their
income tax returns from financial year 2004-
05.
4. If you have to file a return, do you have a

PAN?
If you are required to file a return, you are

also required to have your PAN (Permanent
Account Number). PAN is the common
23
identification of a person for all tax
purposes. If for any reason, you do not have
a PAN, please apply for one through an
authorized agency for PAN like UTI Investor
Services Ltd.
5. Do you own a house property, and or, have you

transferred any asset?
If you are a salaried employee, your employer

has already deducted the tax deductible on
your salary income. However, unless you have
submitted the details of income other than
salary to your employer, your Form 16 cannot
be the only basis of preparation of your
return.
Check the following:

• Do you own a residential house, whether
self-occupied or not?
• Have you transferred any agricultural
land, vacant plot, residential house,
jewellery, bonds, shares, stocks,
debentures, or any other property or
asset during the year?
• Do you have any other income? For
example,
1. have you received any interest

(including re-invested accrued
interest on National Savings
Certificate which are notionally
received by you), dividends, income
from units,
2. family pension amount,
3. income by way of winnings from
lotteries, crossword puzzle, etc.,
4. receipts from Keyman insurance
policy including bonus,
24
5. rent for plant, machinery, or

furniture with or without building,
6. royalty from foreign enterprises,
7. remuneration from foreign sources as
a teacher, professor, etc.,
8. remuneration from foreign sources
for rendering other services,
9. professional income from foreign
sources as an author, playwright,
artist, etc?
If you have any of these items of income,

your Form 16 cannot be the only basis of your
income tax return and you will need to
consider any of these items, which relate to
you.
6. Which Form should you use to file your

return?
If you do not have income under the head

‘Capital Gains’ (resulting from transfer of
assets), then you can very conveniently file
your return in Form 2E (one-page Saral). You
can also use Form 2D or Form 3.
If you have capital gains (resulting from
transfer of assets), then you will need to
file your return in either Form 2D (two-page
Saral) attaching an additional page for
Computation of Capital Gains or in Form 3
(which contain Annexures) filling up only
relevant pages and marking the rest as ‘Not
Applicable’.
However, if your income is over Rs 5 lakhs,

it would be advisable to use Form 3 to avoid
common queries.
7. Where would you get the forms?
25
These forms are freely available at all
income tax offices. You can also buy them at
specialist stationers. Moreover, you can
download all these forms at:
http://incometaxindia.gov.in/it%20forms.asp
8. Now please read and follow the respective

sections below, which are relevant to you.
Step-by-step Instructions with reference to Return Form

No.3 with Key Information and Explanations
Form No. 3 is the most detailed. Form 2D and 2E

(if applicable) are brief, but will need
attaching Annexures for details of workings.
We explain here with reference to Form No. 3,
since even if you file in Form No. 2D or 2E,
reference to applicable parts in Form No. 3
will help you.
Summary Sheet: (First two identical pages)
This should be filled up after the rest of the Sections are

complete, since only final amounts from those Sections find
place here.
Hints on some specific items:
Your jurisdictional Ward/ Circle/ Special Range would be

available from the respective Income Tax Office. Your returns
will be in the jurisdiction involving your employer (i.e. where
your salary is disbursed and tax is deducted) or the place of
your residence.
Residential Status:
Resident 01
Non-resident 02
26
If you are filing your return in 2006 relating to your income for
the period ended 31st March 2006, the Assessment Year for you
is 2006-07.
Normal returns are filed u/s 139.
Original Returns are the first return filed for a year. Subsequent
returns are revised returns.
Housing loan interest deduction will be valid only if you attach a

Certificate from the lender.
SECTION A: Salaries
Check Before You Fill in the Return Form- This is with reference
to standard Form 16 format prescribed. Your Form 16 format may
be slightly different.
1. If you have worked for one employer throughout the year,

pick up the Form 16 and refer to the amount shown against
item 1(a) as Salary as per provisions contained in section
17(1).
Check its correctness. This should tally with the total of all gross
receipts shown in your monthly salary slips, like:
• Basic wages, pay or salary,
• Dearness allowance,
• Any other allowance,
• Any annuity or pension,
• Bonus, commission, incentives, etc by whatever name
called,
• Advance salary,
• Encashment of any leave not availed of,
• Leave travel assistance or concession,
27
• Any gratuity payment.
However, it will not include:

• Any benefit or amenity not provided in
cash, i.e. perquisites,
• Pre-joining bonus,
• Post-separation payment,
• Any compensation in connection with
termination of employment or
modification of terms of employment,
e.g. Voluntary Retirement (VRS)
Compensation.
2. If your salary is more than Rs 150,000 then

your employer will also issue you a Form 12BA
detailing the perquisites enjoyed by you and
their values. If your employer has not issued
you a Form 12BA, then the details of your
perquisites and values would be available in
your Form 16.
3. In Form 16 now check item no. 1(c), mentioned as profits in

lieu of salary under section 17(3).
It will include:
• Any benefit or amenity not provided in
cash, i.e. perquisites,
• Pre-joining bonus,
• Central government’s contribution to its
employee’s account in a specified
Pension Fund,
• Any compensation in connection with
termination of employment or
modification of terms of employment,
e.g. Voluntary Retirement (VRS)
Compensation,
• Sum received under a Keyman insurance
policy (including on account of bonus),
compensation in connection with
28
termination or modification of terms and
conditions of employment.
4. Now check the Total in item no. 1(d) in Form 16.
5. If you have worked for more than one employer, you will
have to check the item no. 1(a), 1(b), 1(c), 1(d) for each of
the Forms 16 as above.
6. Now check for allowances to the extent exempt under

section 10.
The following allowances are exempt to the

indicated extent:
House rent allowance (i.e. an allowance

specifically granted to meet expenditure on
rent for your residential accommodation)
if,
i. you are not the owner of the
accommodation, and
ii. you have actually incurred
expenditure on rent.
The prescribed amount exempt is the minimum

of the three following amounts-
a. The actual amount of the
allowance,
b. Excess of rent paid over
10% of salary, and
c. 50% of salary for
accommodation in Mumbai,
Kolkata, Delhi or Chennai;
40% of salary for accommodation
at any other place.
For this purpose, ‘salary’ includes

dearness allowance, but excludes all other
allowances and perquisites.
29
Allowances to meet expenses in performance

of duties to the extent incurred, as
prescribed and listed below are exempt:
o For meeting the cost of travel or

transfer,
o For meeting ordinary daily charges on
account of absence from normal place
of duty, while on tour or period of
journey on transfer,
o For meeting conveyance expenses, if
conveyance is not provided by
employer,
o For meeting expenses on a helper
engaged for performance of duty,
o For expenses on academic, research and
training pursuits in an educational or
research institution,
o For purchasing and maintaining uniform
for wear during duties.
Allowances related to place of posting or

residence are exempt to the extent
incurred, as prescribed, are as follows:
• For meeting transport expenses between

place of residence and place of duty: up
to Rs 800 per month
• For blind and orthopaedically
handicapped with disability of lower
extremities, transport expenses to and
from work up to Rs 1600 per month,
• For employees working in a transport
system, for meeting personal expenses
while running such a system: 70% of
allowance up to Rs 6,000 per month,
• Children’s education allowance: Rs 100
per month per child for up to 2
children,
30
• For meeting hostel expenditure of
children: Rs 300 per month per child for
up to 2 children
• Other specific exempt allowances for
remote areas and defence personnel.
Medical expenses incurred for self and

family when reimbursed by employer up to Rs
15,000 per year is exempt.
Travel allowance or concession or

assistance on leave or retirement or
termination to any place in India for you
and your family (defined as spouse,
children, and wholly or mainly dependent
parents, brothers and sisters; only two
children allowed if born on or after 1st
October 1998) are exempt if following
condition are met:
Exemption is allowed for 2 journeys in
blocks of four calendar years, current
block is calendar years 2003-2006,
Unavailed travel in a block can be
availed in the first year of following
four year block,
Only journey expenses are allowed,
Expense limits are:

• If travelled by air: air economy
fare of National Carrier by
shortest route,
• If not travelled by air and the
origin and destination are
connected by rail, then air-
conditioned first class rail fare
by shortest route,
31
• If not travelled by air and the
origin and destination are not
connected by rail, then cost of
first class or deluxe class journey
fare by any other mode if
recognised public transport system
exists or the equivalent air-
conditioned first class rail fare
for same distance.
Any allowances and perquisites paid or

allowed by Government to an Indian citizen
for rendering services abroad.
If you are a member of a Scheduled Tribe
and reside in specified areas in the
covered by North-Eastern Region or in
Ladakh, then income from any source in the
region and from dividend and interest on
securities (from any where in India) are
exempt.
If you are a government servant or an

employee of a local authority, then death-
cum-retirement gratuity received is fully
exempt.
If you are a private sector employee,

gratuity received on retirement or on
termination of service is exempt, if:
a. it is calculated at not more than one-
half month’s salary for each year of
completed service,
b. it is calculated on the basis of the
average salary for 10 previous months,
c. it does not exceed Rs 3,50,000.
Amount received in commutation of pension,

if it does not exceed commuted value of
32
one-third of the pension if gratuity is
also received, otherwise commuted value of
one-half of pension.
Leave encashment received by a government

servant at the time of retirement or
resignation.
Leave encashment received by a private

sector employee at the time of retirement
or resignation, if:
1. Leave entitlement does not exceed 30
days for a year’s service,
2. The period of leave does not exceed
10 months,
3. It is calculated based on average
salary for the last 10 months,
4. The amount does not exceed Rs

3,00,000.
5. If any leave encashment has been

received by you from previous
employers in the same or earlier
years and were exempt under this
provision, then the limit will
reduce to that extent.
Workmen’s compensation received under

Industrial Disputes Act, 1947 subject to
limits.
Compensation received on voluntary

separation, voluntary retirement or
termination of service up to Rs 5 lakhs.
Tax on perquisites paid by employer on

behalf of the employee.
33
Payments received from a Provident Fund

including a recognised provident fund.
Payments received from an approved

superannuation fund:
a. On death of beneficiary,
b. On commutation of annuity,
c. As refund of contributions on death of
beneficiary,
d. As refund of contributions on leaving
the service.
7. Now check item 4(a) in your Form 16 mentioned as standard

deduction.
This item is no longer available.
8. Now check item no.4(c) for tax on employment.

The actual amount of professional tax paid by
you/ deducted from you is eligible here.
Now, You Can Fill the Return Form-
Item 1: Fill the amount shown against item 1(a) in Form 16.
Item 2: Here fill the amounts by referring to amounts shown

against item 2 in Form 16.
Item 3: Fill the total of amounts in 2 above.
Item 4: Balance (1-3) – Fill by deducting

Item 5: Here fill by referring to item no. 1(b) and 1(c) of Form
16.
Item 6: Fill total of 5 by adding.
Item 7: Total (4+6) – Fill by adding
Item 8: Fill by referring to item no. 4 of Form 16

34
Item 9: Fill total of 8 above by adding
Item 10: INCOME CHARGEABLE UNDER THE HEAD

“SALARIES” (7-9) Fill by deducting.
SECTION B: ‘Income from House Property’:
9. Consider whether you have:

• a self-occupied property (if you have
more than one, only one of them will
qualify as self-occupied at your
option), or
• a let-out property, or
• an unoccupied property.
You will compute income of each of your

property separately following the steps below
(as applicable).
10. If you have only a share in property, then

income from the full property will be
computed and thereafter only your share will
be included in income.
11. What is the address and built up area (in sq meters) and
what is the area of land appurtenant to the building (in sq
meters)?
Write the complete address of the property and the area.
12. How is Income from A Self-Occupied House Property

Computed?
Step 1: ‘Gross’ Annual Value- Nil
Note: A self-occupied house property is defined

as one which is either occupied by you for
35
purposes of your own residence or it cannot be

occupied by you for reason of employment,
business or profession carried on at any other
place, and you have to reside at that other
place in a building not belonging to you.
Step 2: Deduct Property Tax for the Property- Nil, in case of a

self-occupied property, even if you have paid any property tax.
Step 3: ‘Net’ Annual Value: Nil, in case of a self-occupied

property.
Step 4: Deduct Statutory deduction: Nil, for a self-occupied

property
Step 5: Deduct Interest paid on any loan borrowed for

acquisition, construction, reconstruction etc.- Actual amount
paid (limited to Rs 30,000 for loan obtained
before 1st April, 1999, limited to Rs 1,50,000
for loan obtained on or after 1st April, 1999)
for the period from the financial year of acquisition or
completion of construction of property.
Step 6: Deduct 20% of Pre-construction Interest: (if any)
Any interest, if any, paid by you up to the

financial year prior to the year in which
property was acquired or construction of
property was completed will be allowed here.
The deduction will be at one-fifth or 20% of
the amount so paid, for the year of acquisition
or completion and 4 succeeding years.
Step 7: Amount of Rent received relating to an earlier year,

which was allowed as Unrealised Rent in computing your
income.
Did you receive any rent on a house property

relating to an earlier year?
36
If yes, was this amount a part of any amount
claimed and allowed as deduction towards
Unrealised Rent in computing your Income from

House Property in an earlier year?
If yes, then the whole of this amount is to be
considered.
Step 8: Amount of Rent received relating to an earlier year, not

being any amount claimed as Unrealised Rent earlier.
The amount received.
Deduct 30% for statutory deduction.
Net amount, i.e. 70% of the amount received
will be considered.
Step 9: Income from House Property equals Amount at Step 3

less the Total of Amounts at Steps 4, 5, 6,plus the amounts at 7
and 8.
If in your case, it is negative, it will be a

loss under the head ‘Income from House
Property’.
13. How is Income from A Let Out House Property

Computed?
Step 1: ‘Gross’ Annual Value- It is the higher of Municipal

Valuation and the actual rent receipts.
If due to the house remaining vacant for part of a year, the rent
receipt is lower, then take this lower figure.
Note: Any self-occupied house property, which

is not considered as self-occupied due to your
exercising the option, will be treated as Let
Out Property.
Step 2: Deduct Property Tax for the Property.
37
Step 3: ‘Net’ Annual Value: Nil, reducing the Amount at Step 2
from the Amount at Step1 arrives at this Amount.
Step 4: Deduct Statutory Deduction: 30% of ‘Net Annual Value’

in Step 3.

acquisition, construction, reconstruction etc.-
Actual amount paid for the period from the

financial year of acquisition or completion of
construction of property.
Step 6: Pre-construction Interest: (if any)


income.



considered.

38

will be considered.

less the Total of Amounts at Steps 4, 5, 6,plus the amounts at 7
and 8.

Property’.
14. How is Income from An Unoccupied House Property

Computed?
Step 1: ‘Gross’ Annual Value- It is the Municipal Valuation. (If it

is not considered as self-occupied)
Step 2: Deduct Property Tax for the Property.
Step 3: ‘Net’ Annual Value: Nil, reducing the Amount at Step 2

from the Amount arrived at in Step1 arrives at this Amount.
Step 4: Deduct Statutory Deduction: 30% of ‘Net Annual Value’

in Step 3.

acquisition, construction, reconstruction etc.-
Actual amount paid for the period from the
financial year of acquisition or completion of
construction of property.
Step 6: Pre-construction Interest: (if any)

39

income.


considered.

will be considered.

less the Total of Amounts at Steps 4, 5, 6, plus the amounts at
7 and 8.
Property’.
SECTION C: Capital Gains
15. Do you need to include “Capital Gains”?
Have you transferred any agricultural land in

urban areas, vacant plot, residential house,
jewellery, bonds, shares, stocks, debentures,
or any other property or asset during the year?
40
If so, you will have to fill details of income

under this head.
Also, if you have an unabsorbed loss under this
head to carry forward and set off in this or
later years, you will need to fill details
under this head.
16. Most importantly, check whether the

property or asset you have transferred is at
all a capital asset (to result in any capital
gain).
The following assets are not considered as

capital asset:
i. Stock-in-trade, consumable stores,
stores items, raw materials, etc.
held for business purposes,
ii. Agricultural land in a rural area,
iii. Personal effects, like wearing
apparel, furniture, motor car, etc.,
but not jewellery (like ornaments,
precious metals, precious or semi-
precious stones etc),
iv. Certain bonds like Gold Deposit
Bonds, etc.
17. Further, there are three important

general exemptions to consider while
computing Capital Gains:
1) Any income received from transfer of a
capital asset, which is units of Unit
Scheme, 1964 of UTI and the transfer is
made after 1st April 2002 is totally exempt
under Sec 10(33).
2) Long-term capital gains from transfer of
equity shares in a company or a unit of an
equity-oriented mutual fund scheme (and on
which securities transaction tax has been
paid) made after September 2004 after being
41
held for 12 months or more are exempt.

Section 10(38).
3) Long-term capital gains from transfer of
eligible equity shares purchased on or
after 1st March 2003 but before 1st March
2004 after being held for 12 months or
more.
Eligible shares are shares forming part of
BSE-500 Index purchased and sold through a
recognised stock exchange and a share
allotted through a public issue and listed
in a stock exchange after 1st March 2003
but before 1st March 2004 and sold in a
recognised stock exchange. Sec 10(36).
18. Method of computation of capital gains from transfer of

assets require you to segregate them into two categories:
• Short-term capital assets,
• Long-term capital assets.
Make a list of your short-term capital assets transferred

during the year and similarly a list of long-term assets.
Financial assets held for more than 12 months

and all other assets held for more than 36
months are Long-term in nature.
Financial assets mean shares, securities listed
in the stock exchange, units of UTI or any
mutual funds.
All other assets are of short-term nature.
19. You will make separate computation for each of your

assets transferred.
All these will get summarized in your computation of Capital
Gains.
42
20. Short-term capital gains resulting from transfer of equity
shares in a company or units of an equity oriented mutual
fund scheme after September 2004 is chargeable to a
special lower tax rate of 10% (Section 111A). Therefore, this
needs to be kept in mind at every step and the total of such
gains entered where required in the Form.
21. For each short-term asset, fill in the left side column with
heading “A. Short-term Asset”
Step 1: Note down the following:
a. Particulars or details of assets transferred,

b. Date of Acquisition: Date-Month-Year,
c. Date of Transfer: Date-Month-Year,
d. Mode of transfer: By agreement, delivery, etc.,
e. Full value of ‘consideration’: your sales proceeds,
f. Cost of acquisition, including stamp duty costs,
g. Cost of any improvement to the asset during the period of
holding,
h. Any expenditure on transfer.
Step 2: Difference between e. and the total of f. , g. and h.

above is to be computed as balance for this item.
Step 3: If the asset transferred is agricultural

land or industrial undertaking and the sales
proceeds are used to buy another agricultural
land or industrial undertaking within the
prescribed period, you will be entitled to an
exemption. You can also deposit the sales
proceeds in a notified bank account and put to
the prescribed use subsequently as required.
You can get partial or full exemption as
applicable.
Please refer to the Section Your Likely Doubts or Queries for
more detailed information.
Please fill the exempt amount with reference to these details.
43
Step 4: Compute the amount at Step 2 above less the amount

of exemption at Step 3.
Step 5: If you have transferred an asset (which

you were required to hold for a specified
minimum period for an exemption you availed
earlier) before the stipulated period, you will
be liable for additional deemed capital gains
under sections 54, 54B, 54D or 54G.
Please refer to the Section Your Doubts or
Queries for more detailed information.
Please fill the deemed capital gains amount with reference to
these details.
Step 6: Compute the amount at Step 4 above plus the deemed

capital gain at Step 5 above.
22. Similarly compute for each short-term asset.
23. If this is your only item of capital asset transferred, then the
amount at Step 6 above will be your Income chargeable
under the head ‘Capital Gains’.
24. For each long-term asset, fill in the right side column with
heading “B. Long-term Asset”.
Step 1: Note down the following:
1) Particulars or details of assets transferred,

2) Date of Acquisition: Date-Month-Year,
3) Date of Transfer: Date-Month-Year,
4) Mode of transfer: By agreement, delivery, etc.,
5) Full value of ‘consideration’: your sales proceeds,
6) Cost of acquisition, including stamp duty costs,
7) Cost of any improvement to the asset during the period of
holding,
44
8) Indexed cost of acquisition, including stamp duty costs,

9) Indexed cost of any improvement to the asset during the
period of holding,
10) Any expenditure on transfer.
For more on items no. 8) and 9) refer the following.
Step 2: You will have to compute the indexed

costs as under:
Indexed cost of acquisition or

improvement= Cost of acquisition x Cost
Inflation Index for the year of transfer
/ Cost Inflation Index for the year of
acquisition or improvement.
For example,
Date of Transfer: 11 Feb 2005
Date of Acquisition: 22 Mar 1990
Cost of acquisition: Rs 1,00,000
Cost Inflation Index for 2004-05: 480
Cost Inflation Index for 1989-90: 172
Then,
Indexed cost of acquisition
= Rs 1,00,000 x 480/ 172
= Rs 2,79,070
25. Long-term capital gains are charged to

tax at a flat rate of 20%.
If you have transferred long-term assets
other than listed securities (like shares,
debentures, etc) or mutual fund units, then
you can restrict your capital gains tax
liability by replacing cost of acquisition
and cost of any improvement by Indexed cost
45
of acquisition and Indexed cost of
improvements.
You are allowed some benefit for inflation.
26. However, if you have transferred long-

term assets being listed securities, not
being shares or units of equity-oriented
mutual funds, then you can restrict your
capital gains tax liability to 10% of capital
gains without taking the benefit of indexed
cost of acquisition and improvements.
You will have to make the less expensive
choice.
Step 3: If you have transferred assets other than listed

securities or mutual fund units, then compute the difference
between 5) and the total of 8), 9) and 10).
However, if you have transferred long-term

assets being listed securities not being
shares, or mutual fund units of other than
equity-oriented funds, then you will have to
compute both:
a) Difference between 5) and the total of 8), 9)
and 10) above is to be computed as balance
for this item.
b) Difference between 5) and the total of 6), 7)
and 10) above is to be computed as balance
for this item.
You will have to choose between 20% of a) and
10% of b).
If first alternative is lower then opt for
indexation and if the second alternative is
cheaper for you, then ignore indexation.
46
27. You are entitled to a part or full

exemption of capital gains on transfer of
some assets, if you acquire similar or
prescribed assets immediately or within the
prescribed period.
The new assets will have to be held for a
minimum period of 3 years.
These may be summarized as under:
Under Original Asset Quantum to New Asset Time Limit

Section Invest
54 Residential Capital gains Residential Within 1
house property house year before
property or 2 years
after to
acquire or
within 3
years to
construct
54 B Agricultural Capital gains Agricultural Within a
land land period of 2
years
54 D Industrial Capital gains Industrial Within a
undertaking undertaking period of 2
years to
purchase
land and or
building or
to construct
a building
for
shifting,
re-
establishing
or setting
up another
industrial
undertaking
54EC Long-term Capital gains Bonds for 3 Within 6
capital assets years issued months
by National
Housing Bank
54 ED Listed Capital gains Long-term Within 6
47
securities specified months
(like shares or shares, being
debentures) or shares
mutual fund forming part
units of a public
issue by a
public
company
registered in
India
54 F Assets other Net Residential Within 1
Than consideration house year before
residential property or 2 years
house property after to
acquire or
within 3
years to
construct
The quantum of exemption is in proportion

that the invested amount bears to the total
capital gains or net consideration that is
required to be invested.
Till the capital gains or net consideration
is put to prescribed use, this can be
deposited in a notified bank account.
However, if the new asset is not held for the
prescribed period, then the capital gains
being exempted now will get included as
deemed capital gains in the year of transfer
of the new asset.
Step 4: Now compute the amount of exemption applicable to

you.
Step 5: If you have transferred an asset (on

which an exemption was allowed earlier) within
the prescribed holding period, then you will
have a deemed capital gain equivalent to the
amount of exemption allowed earlier.
Compute the amount of deemed capital gains.
Step 6: Now compute the Income chargeable under the head

‘Capital Gains’ as the amount computed at Step 3 above less
the amount at Step 4 above plus the amount if any at Step 5
above.
48
28. If you have transferred other long-term assets,

similarly compute for each.
Step 7: Compute your Total Income chargeable under the head

‘Capital Gains’ by totaling the amounts relating to all the assets.
If computation for some of the assets were
negative, then the total would be the net
amount.
29. If the total comes to negative, you

would have a loss against Long-term Capital
Gains, which can only be carried forward and
set off against Long-term capital gains in
next and subsequent years.
However, the period is restricted to a total
of 8 subsequent years.
SECTION D: Income from Other Sources:
30. First, take note of the following

exemptions available to you:
Any sum received under a life insurance

policy including bonus but not the
following:
a. An amount paid earlier for a policy
for providing an annuity to a
handicapped dependent’s benefit on
which benefit under Sec 80 DD has been
allowed,
b. An amount received under a Keyman
policy,
c. A sum received under a policy issued
on or after 1st April 2003 on which
annual premium exceeds 20% of actual
capital sum assured in any year.
49
Dividend from a domestic company declared,
paid or distributed after 1st April 2003.
Income from units of a mutual fund (not on

transfer of units)
Interest on Post Office National Savings

Certificates
Interest on Post Office Savings Account
Interest on Post Office Cumulative Deposit

Scheme
Interest on 7% Savings Bonds 2002 issued

before 1st March 2003
Interest on 8% Relief Bonds issued before

1st March 2003
Interest on 6.5% Relief Bonds 2003
Interest on balances in Public Provident

Fund Account
Interest on Deposit Scheme for Retiring

Government Employees
Interest on Deposit Scheme for Retiring

Employees of Public Sector companies
Interest on Gold Deposit Bonds 1999
Interest on notified bonds of local

authorities
31. Have you received any dividends on which dividend tax

has not already been paid?
If so, consider and include this amount in the first item.
50
32. Have you received any interest?
If you have any interest received from banks, post offices,

debentures, bonds, etc, which are not exempt, it will be
considered and included here in the second item.
33. Have you received any rental income from machinery,

plant, and furniture with or without building?
This amount will be considered and included here, if not

included as business income.
However, depreciation, maintenance expenses and
any other expenses wholly and exclusively
incurred in this connection can be deducted.
34. Have you received any family pension?
Family pension amounts received by wife or family members

relating to an employee’s employment are considered and
included here.
35. Have you (not being an employee) received any sum

from a Keyman insurance policy including bonus?
Receipts under a Keyman policy including bonus is to be

included here where you never had an employer-employee
relationship with the organization.
36. Have you received a gift of more than Rs 25,000 during

the year?
If you have received more than Rs 25,000 without

consideration, or simply speaking as a gift, it will be includible
as your income under Income from Other Sources. However a
gift is not taxable if it is received from a relative or on the
occasion of your marriage, or under a will or by way of
inheritance or in contemplation of death of the payer. Now
relative for this purpose means:
• your spouse,
51
• your brother or sister,
• brother or sister of your spouse,
• brother or sister of either of your parents,
• any of your lineal ascendant or descendant,
• any lineal ascendant or descendant of your wife,
• spouse of any of the above.
37. Do you have any of the following:

• Royalty from foreign enterprises, or
• Remuneration received from foreign sources by teachers,
professors, etc, or
• Remuneration received from foreign sources for rendering
other services, or
• Professional income from foreign sources of an author,
playwright, artist, etc.?
Amount received as per Form 10H or 10HH as applicable will

be includible here.
38. Do you own and maintain racehorses?
If so, include income related to this and deduct the related

expenses.
39. Do you have any winnings from lotteries, crossword

puzzles, gambling, betting etc.?
The gross amount of receipts is to be included here.
SECTION E.1: Statement of Set-off of Current Year’s Loss

under Sec 71:
40. If you do not have any loss computed under any head
of income, then write “N.A.” boldly at the top of the
section.
41. However, if you have any loss in any item, fill the
columns up to (iii) with relevant amounts.
52
Then, fill column (iv) by deducting the loss from column

(ii) or (iii) as applicable from the positive income figures
of column (i).
You may refer to relevant questions of Part

Three, if in doubt.
SECTION E.2- Set off of Unabsorbed Losses and

Allowances Brought Forward from Preceding Assessment
Years and Carried Forward
This is a part, which needs utmost care in

filling up, since it may have much impact in
this as well as future years.
42. If we are filing return for assessment

year 2006-07, our 8th preceding year is 1998-
99 and the 1st preceding year is 2005-06.
Since loss from owning race horses can be

carried forward to 4 subsequent years for set-
off, while other items for 8 such years, loss
from owning race horses of assessment year
2001-02 and loss from other heads of assessment
year 1997-98 cannot be carried forward for set
off beyond this year.
You may refer to relevant questions of Part

Three, if in doubt.
Fill in the table keeping the above in mind.
53
SECTION F: Statement of Total Income:
Item No.1 –
1A. Salaries : Here fill the amount from the particular Section
1B. Income from House Property : Here fill the amount from
the particular Section
1C. Capital Gains :
(i) Short term : Here fill the amount from the
particular Section
(ii) Long term : Here fill the amount from the
particular Section
1D. Income from Other Sources : Here fill the amount from
the particular Section
2. Total: Total the above figures
3. Brought forward unabsorbed losses from earlier years

a. Gross Total Income (2-3): Fill this by deducting.
b. Deduction under Chapter VIA (wherever admissible):
Fill this table by referring to the following

eligible items, -
They are:
• Following investments qualify as specified

investments up to a total of Rs 1,00,000 in
aggregate:
• Life insurance premium covering
self, spouse or child,
• Purchase of deferred annuity on the
life of self, spouse or child,
• Deductions from salary by or on
behalf of government for securing a
deferred annuity,
• Contribution to Provident Fund,
• Contribution to Public Provident
Fund in the name of self, spouse or
54
child (this item is limited to Rs
70,000 by Public Provident Fund Act),
• Employee’s contribution to an
approved superannuation fund,
• Deposit into a 10-year or 15-year
Post Office CTD Account in the name of
self, spouse and child,
• Subscription to any notified
government security or deposit scheme,
• Subscription to National Savings
Certificate Scheme (VI Issue) or
National Savings Certificate Scheme
(VII Issue), Accrued Interest also is
eligible, (Refer Appendix 2 for your
eligible amount),
• Subscription to any notified
Government Savings Certificate,
• Contribution in the name of self,
spouse or child in Unit Linked
Insurance Plan of Unit Trust of India,
• Contribution in the name of self,
spouse or child in Unit Linked
Insurance Plan of LIC Mutual Fund,
• Payment for a contract for annuity
plan of any insurance company,
• Amount paid to subscribe to a
notified scheme of any mutual fund,
• Contribution to any notified pension
plan of any mutual fund,
• Contribution to any notified pension
plan or any notified deposit scheme of
National Housing Bank,
• Subscription to any notified deposit
scheme of any authority or public
company providing housing finance
provided that the interest does not
qualify for deduction under Sec 80L,
• Tuition fees excluding development
fees and donation for two children,
55
• Principal payments of housing loans,

• Stamp duty, registration fees and
other expenses on transfer of house
property to assessee,
• Subscription to eligible public
issue of shares, debentures or capital
by an infrastructure company or public
financial institution,
• Subscription to units of eligible
issue of approved mutual fund schemes.
• Amount up to Rs 10,000 paid or deposited in
a pension scheme of an insurance company
(Sec 80CCC),
• Central Government’s contribution to an
employee’s account in a specified pension
fund not exceeding 10% of salary (Section
80CCD),
• From this year, there is an overall limit
of Rs 1,00,000 covering Sections 80C, 80CCC
and 80CCD mentioned above.
• Medical insurance premium paid to cover
self, spouse, dependent children and
parents up to Rs 10,000 (Sec 80D),
• Amount paid for medical treatment of a
dependant with a disability and into any
prescribed scheme of insurance companies or
UTI for benefit of a dependant with a
disability, up to Rs 50,000, in case of
severe disability Rs 75,000, (Sec 80DD),
• Amount paid for prescribed disease of self
or dependents or a member of HUF up to Rs
40,000 (Sec 80DDB),
• Any amount paid towards interest on loan
taken from financial institutions or
approved charitable institution for higher
education for a maximum of 8 years starting
with the year when repayment starts (Sec
80E),
56
• Donation to listed national funds in full,
other prescribed purposes items: 50% of
amount donated provided the deduction does
not exceed 10% of Gross Total Income as
reduced by any other deduction allowable
(Sec 80G),
• If you do not get income by way of House
Rent Allowance, but pay a rent for your
residential accommodation, then the rent
paid in excess of 10% of total income can
be deducted up to Rs 2000 per month or 25%
of your ‘total income’, (Sec 80GG),
• Income of royalty or for grant of
copyright of authors of books of literary,
artistic or scientific nature up to Rs
300,000 (Sec 80QQB),
• 15% of remuneration received by a
citizen of India, from a University or
educational institution abroad in the
capacity of a professor, teacher or research
worker if the amount is brought into India in
convertible foreign currency (Sec 80R),
resident of India, from a Foreign government
or nonresident abroad in the capacity of an
author, playwright, artist, musician, actor
or sportsman if the amount is brought into
India in convertible foreign currency (Sec
80RR),
citizen of India, from any employer for any
services rendered outside India if the amount
is brought into India in convertible foreign
currency (Sec 80RRA),
• royalty on patents, up to Rs 300,000
(Section 80RRB),
• For a resident Indian assessee who is
certified by stipulated medical authority to
having a physical disability, Rs 50,000;
incase of severe physical disability defined
57
as 80% disability- Rs 75,000. A copy of
certificate from medical authority needs to
be attached (Section 80U).
c. Total Income (5-6): Fill this figure by deducting.
6. Total Income (as rounded off to nearest

multiple of ten): Consider the last two
digits. If the last digit is 0 to 5,
make it 0 and if last digit is 6 to
9, make the ten’s place one higher
and put 0 as last digit. For
example, 26 will become 30, 24 will
become 20 and 30 will remain 30.
8.NET AGRICULTURAL INCOME FOR RATE PURPOSES:

Fill, if applicable.
9. Income in Schedules A to D arising to spouse/

minor child / son’s wife:
Others’ Income Includible in Your Income:
Does your minor child have any income?
If yes, then is it earned by the child by

manual work or application of any special
skills?
If the answer is no, then the minor child’s
income is includible in your income. Income
falling in this category will be computed under
different heads as detailed above but added to
your income under a separate heading.
However, there is a deduction available to you
(of Rs 1500 per child), which will partially or
fully nullify the liability.
Typically, bank interest or any other passive
income would fall in this category.
58
Have you transferred any asset to your wife or

husband or daughter-in-law for inadequate
consideration (or price or value)?
If so, income from such asset will be included

in your income.
Income falling in this category will be
computed under different heads as detailed
above but added to your income under a separate
heading.
Typically transfer of money to wife or husband
or daughter in law will come within this
clause.
However transfers in connection with agreement
to live apart with spouse will not come within
this requirement.
State Name and Relationship and fill the amounts.
10. INCOME INCLUDED IN SCHEDULE A TO D WHICH IS

CHARGEABLE TO TAX AT SPECIAL RATES:
Please refer to the Section on Capital Gains.

Long-term Capital Gains are normally
chargeable at 20% flat rate; at your option it
may be 10% in respect of financial assets,
where indexation benefit is not taken.
In respect of Short-term capital gains from
equity shares or units in an equity-oriented
mutual fund scheme transferred after 9th
September 2004 a special rate of 10% is
applicable.
Similarly, there is a special rate of 30% for
any winnings from lotteries, crossword
puzzles, gambling, betting etc.
Please fill this portion keeping these in mind.
11. Total Income chargeable at special rate: Now fill this

figure referring to item no. 10 above.
59
12. Total Income chargeable at normal rate: Fill by deducting

amount against 11 from amount against 7 above.
SECTION G: Statement of Taxes:
Item No. 1:
(a) Tax at special rates: Calculate and fill.
(b) Tax at normal rates:
Your normal income tax payable would be:
a. for your total income up to Rs 1,50,000
(for total income less Rs 1,00,000) at
10% or a maximum of Rs 5,000,
b. for your total income above Rs 1,50,000
and up to Rs 2,50,000 (for total income
less Rs 1,50,000) 20% plus Rs 5,000, or
a maximum of Rs 25,000,
c. for your total income exceeding Rs
2,50,000, 30% plus Rs 25,000.
Calculate with reference to above. You can also refer to

Appendix 1 for easy and fast calculation.
Item No. 2: Tax on Total Income:[1(a) + 1(b)] – Fill by adding.
Item No. 3: Rebate on Sec 88, 88B and 88C – Fill by referring
to the following, -
There is only one kind of rebate available now:
• With respect to security transaction tax

for Profits and Gains from Business and
Profession which is outside the scope of
this book (Section 88E).
Item No. 4: Total Rebate [3(a)+ 3(b) + 3(c)] – Fill by adding
Item No. 5: Balance (2-4): Fill by deducting.
Item No. 6: Surcharge on 5 above: Up to Rs 10,00,000- Nil.
60
Above Rs 10,00,000-
10% of income tax
(from the first rupee
of income tax, but
marginal relief
applies between Rs
10,00,010 to Rs
10,37,310 so that
addl. tax + surcharge
for income above Rs
10,00,000 cannot
exceed additional
income above Rs
10,00,000).
Item No. 7: Tax Payable [(5) +(6)]: Fill by adding
Item No. 8: Relief u/s 89: If you have received salary

in arrears, because of which you have become
liable to higher average tax rate, then relief
to the extent of difference in average tax
rates is available.
You will need to fill and attach Form 10E to claim this relief.
Item No. 9: Balance tax payable [7-8]: Fill by deducting.

Item No. 10:
(a) Late/ non-filing of return u/s 234A – Interest on tax
due (if any) from 31st July to date of filing
return on calendar months basis at the rate of
10% per annum
(b) Default in payment of Advance Tax u/s 234B – If the
tax due after computation was Rs 5000 or less
which is paid as Self-Assessment Tax, or if the
difference is up to 10% of the total tax
payable after deducting TDS, then this item is
not applicable.
Otherwise, tax is payable from 1st April to 31st
July (or the actual date of filing return) at
10% per annum on calendar month basis.
61
(c) Deferment of Advance Tax u/s 234C – If you have

not paid Advance Tax at specified percentages
(30% by 15th September, 60% by 15th December and
100% by 15th March) on due dates then interest
on shortfall on each date will be calculated at
10% per annum.
Please note that deferment, default and late
filing interest together take into account the
periods of delay and the due amounts, from the
due dates till date of filing return.
Item No. 11: Total of 10 – Fill by adding
Item No. 12: TOTAL TAX AND INTEREST PAYABLE (9+11) –

Fill by adding
Item No. 13: Prepaid Taxes: If no tax is payable, write “Not

Applicable”.
(A) Advance Tax (Attach Challans)- Fill the table if you have
paid any advance tax, Write “Not Applicable” at the top of the
table, if not applicable to you.
(B) Tax Deducted/ Collected at Source: [Attach Certificates]
– Fill this table from your TDS Certificates from employer, bank,
etc. All information are available in the certificates.
(C) Tax on Self-Assessment (attach challan) – Fill the details,
if you have paid the difference of tax payable after calculating
your exact liability.
Please note that filing of a return without
payment of the tax due as per return would make
the return invalid.
(D) Other prepaid taxes, if any.

Please specify and attach proof.
Item No. 14: TOTAL [13(A) + 13(B) +13(B)+13(D)] – Fill by

adding
62
Item No. 15: TAX AND INTEREST PAYABLE (12-14) – Fill by

deducting
Item No. 16: REFUND DUE, IF ANY (12-14) – Fill by deducting
Part Three: Your Likely Doubts and Queries Answered.
General:
1. Who Needs to File An Income Tax Return?
You need not pay tax if your total income is up to Rs 100,000.

But you may still need to file your income tax return, if your
gross total income (sum of income under different heads before
availing overall applicable deductions) is Rs 1,00,000 or more.
For women below 65 years this figure is Rs 1,35,000 and for
persons 65 years or older it is Rs 1,85,000.
For this purpose, items of income, which are totally exempt from
tax, are not counted. For example, agricultural income, leave
encashment at the time of retirement, etc will not be considered
for this purpose, since they fall in the list of exempt items of
income.
Salaried employees with salary income up to Rs 1,50,000 can

avoid filing returns if the employer has taken all items of income
into account. This is effective year 2004-05. In such a case,
your tax declaration to employer will be considered as the
return. However, unless you have declared income other than
salary (everybody is likely to have at least some bank interest),
it will not be possible to take advantage of this provision in the
current year.
63
There are some important conditions for this. More important
ones are:
• You must be an employee as on 31st March of the year,
• You must have worked for only one employer during the
year,
• Your Total Income should not include Profits and Gains from
Business or Profession, Capital gains and agricultural
income (although exempt from tax).
• Your employer should have deducted all tax due and your
tax deduction certificate should contain all your sources of
income,
• Your tax deducted by the employer must be the only tax

deducted on your income. Tax deducted on your bank
interest, etc will make you ineligible.
2. Do You Need to File A Return, Even If No Tax is Payable?
Yes.
If your gross total income exceeds Rs 1,00,000, then, even if
you do not have a tax due, or, even if your tax dues have
become nil, because of available deductions on eligible
investments that you have already made, you need to file your
Income Tax Return.
3. By When Must You File Your Tax Return?
For salary earners, and, all other persons not requiring

mandatory audited accounts to be attached to their returns the
due date for filing your tax return is 31st July every year.
However, you’ll only include your income for the financial year
just ended. For example, you need to include your income for
the financial year 1st April 2005 to 31st March 2006 for your tax
return due on 31st July 2006.
This mandatory date is crucial if you have to take advantage of
set-off of loss under any head relating to a year in a later year. If
your return is not filed in time, the loss computation of that
return does not get the set-off advantage later.
64
Otherwise, you can file your tax return even after this due date,
till the following 31st March without any damage if there is no tax
due (with penal interest on due tax, if any tax is due).
However if you file the return after the next 31st March, you may
expose yourself to a penalty up to Rs 5,000. Thus, for income
for the period 1st April 2005 to 31st March 2006, the return can
be filed without penalty (but with penal interest on dues) up to
31st March 2007 and beyond 31st March 2007 till 31st March
2008 with penalty.
After a further period of one year that is, in our example, after
31st March 2008 you cannot file your tax return at all, as it
becomes time-barred.
4. What if One Doesn’t File A Tax Return?
If you fail to file your tax return for any financial year after the
next 31st March, or if the tax due on your income, after adjusting
Tax Deducted at Source (TDS) and any Advance Tax paid by
you, exceeds Rs 3,000, then you can face imprisonment for 3
months to 3 years, with fine.
If the tax evaded exceeds Rs 100,000 the punishment is
rigorous imprisonment for 6 months to 7 years, with fine.
5. What are Your Different Options for Filing Your Return?
Traditionally Chartered Accountants/ Tax Consultants help you

file your Tax Returns.
Now, the law, forms and arrangements have been simplified for
you to file returns on your own in prescribed form available in
the Income Tax Offices and in the market.
With spread of internet, the government has also made
available a software called SAMPARK which is available at a
website to help you prepare your returns.
This however came after the launch of some online services
making tax return preparation and filing easy for you on the net.
65
Lately, the government is trying to promote filing of returns with
your employer and the employer in turn filing them with the
Authorities in a computerized format in bulk. This facility called
SUVIDHA is at present available in select cities only.
However, the responsibility for timeliness and correctness
entirely lies with you. Even if your employer or other agencies
make mistakes or omission, the liability lies only with you, just
like in the case of Chartered Accountants or Tax Consultants
who act as your agent.
6. Which option should you choose?
You can choose whichever option you find convenient.

However, you will do well to assure yourself that any major
mistakes or omission or excess tax due does not result.
7. Where Should You File Your Return?
You should file your return either at the place where tax on your
salaries have been deducted or at the place where you reside.
You will have to file your return at the jurisdictional Income tax
Office.
8. What is Exempt Income?
Exempt income falls within the definition of income. However,

no tax is to be charged on them. The law lists specific items as
fully exempt or partially exempt (up to a limit) incomes.
Exempt incomes do not count for ‘total income’ (under the
Income Tax Act) on which tax is levied.
9. What is a Deduction?
You are entitled to deduct prescribed items either fully or to a

limited extent from your income. This allows you to reduce both
your income and the tax liability. This deduction can be at the
stage of determining your income under a head of income or at
66
the stage of determining your total income (as it has been

prescribed for specific items). For example, you are entitled to a
deduction from your income from house property towards
housing loan interest while computing income under the head
‘Income from House Property’, whereas deduction for medical
insurance premium up to Rs 10,000 is available to you while
computing your ‘total income’.
10. What is a Rebate?
Currently only one type of rebate is available which applies to

Profits and Gains from Business or Profession and therefore not
discussed.
11. What is Surcharge?
Income tax surcharge is a temporary additional levy which is

applicable from year to year according to the year’s Finance Act
as legislated from year to year. Currently, you would be liable
for surcharge if your ‘total income’ exceeds Rs 10,00,000.
12. What is Education Cess?
Effective September 2004, you need to pay an additional 2%

over and above your Income Tax Liability (including Surcharge,
where applicable) as Education Cess. If your net tax due is Rs
100, then another Rs 2 will be payable as Education Cess.
13. How Much Tax Do You Pay?
You need to pay your income tax payable plus income tax
surcharge, if any. Your income tax payable would be:
67
a. 10% on your total income up to Rs 1,50,000 (for total
income less Rs 1,00,000), plus
b. 20% on your total income up to Rs 2,50,000 (for total
income less Rs 1,50,000), plus
c. 30% of your total income exceeding Rs 2,50,000.
The amount of income tax surcharge would be 10% of your

income tax liability only if your income exceeds Rs 10,00,000.
For special rates on Long Term Capital Gains and Short Term
Capital Gains refer in more details under Capital Gains.
In every case an additional 2% levy on your tax will go towards
Education Cess.
14. Where Do You Pay Your Tax?
If your tax hasn’t been deducted at source, or you have

additional items on which your tax liability exceeds the amount
of tax deducted, then you have to pay your tax through a
challan in cash or in cheque into any designated branch of
Reserve Bank of India, State Bank of India or any notified bank.
15. Can You File Your Returns Without Paying All Tax Due?
No. You need to pay all due tax before filing your tax return.
You would need to provide Name of the Bank Branch, BSR
Code of Bank Branch, Date of Deposit, Serial No. Of Challan
and Amount paid for each tax payment.
16. What If You’ve Overpaid Your Tax?
If you’ve overpaid your tax or excess amounts over what is due

from you has been deducted from you, then you can get a
refund of the excess tax deducted or paid on your account.
17. Does Interest Come Into the Picture?
Yes. If any refund is paid to you, then you’ll also be entitled to

interest on this amount at prescribed rate, which changes from
time to time.
68
18. By When Will My Tax Assessment Be Over?
The Authorities will complete your assessment within 2 years

from the assessment year for which you filed your return. For
example, you will file return for income during the period of 1
year ended 31st March 2006 within July 2006. Your assessment
year is 2006-07. Your assessment will be completed before 31st
March 2009.
However, most returns are assessed within 1 year from the date
of filing.
19. How Will Tax Refunds Come To You?
It normally comes to you by post. However, the Department is

making arrangements to credit your bank account declared to
them through ECS (Electronic Clearing System).
Salaries:
20. What “Salary” Means For Income Tax?
You must have an employer-employee relationship to claim

your receipts as Salary. Merely providing a service would not
result in a salary. There has to be a contract of service, not a
contract for service.
‘Salary’ for income tax includes:
• Wages,
• Any annuity or pension,
• Gratuity,
• Fees, commissions, perquisites or profits in lieu of or in
addition to salary or wages,
• Advance salary,
• Encashment of any leave not availed of,
• Central Government’s Contribution to an employee’s
pension fund account, on which employee’s contribution
qualifies for deduction from income,
• Credit to Provident Fund above specified amounts.
69
21. What is “Perquisite”? When is it taxable?
“Perquisite” means employee benefits given in kind. Perquisites

(other than concessional or rent-free accommodation and
employees’ stock options) are included as salary only if cash
salary exceeds Rs 50,000 in a year. Fringe benefits or amenity
provided by an employer, which is chargeable to Fringe
Benefits Tax in the hands of the employer, is not a perquisite in
the hands of an employee. Moreover, there are specific
valuation rules for different perquisites.
22. Which items are chargeable to Fringe Benefits Tax in the

hands of the employee?
Fringe Benefits Tax is not payable by an employer who is an

individual or sole proprietor. Following items are included in
items chargeable to Fringe Benefit Tax:
• Any privilege, service, facility or amenity, directly provided
to employees or former employees; these include
reimbursements
• Any free or concessional tickets for private journeys
provided to employees or their family members
• Employers contribution to approved superannuation fund
• Entertainment expenses
• Hospitality expenses other than food and beverage
provided at office or factory or non-transferable paid
vouchers usable only at eating joints or outlets
• Conference expenses
• Employees’ welfare expense
• Conveyance, tour and travel including foreign travel
• Use of hotel, boarding and lodging
• Motor car expenses
• Use of telephone and mobile phones
• Guest house maintenance other than for training
• Festival celebrations
• Use of health club and similar facilities
• Use of any other club facilities
70
• Gifts
• Scholarships
23. How Perquisites are valued for Income Tax?
The following are the major items of perquisites:
i. Accommodation – Accommodation includes

house, flat, farmhouse, hotel accommodation,
motel, service apartment, guesthouse, a
caravan, mobile home, ship, etc.
If accommodation is provided at a remote area
at a mining site or an offshore oil exploration
site or a project execution site or an offshore
site it is not a perquisite.
Value of accommodation provided to a
government employee is equivalent to the
licence fee charged.
In respect of non-government employees, if
employer owns the accommodation, its
value is 20% of salary in a city with 4 lakhs or
more population as per 2001 census. It would
be 15% in other places. If the employee has
paid any rent the value will be reduced to that
extent.
In respect of non-government employees, if
the accommodation is taken on lease or
rent, the value is the actual lease rental paid. If
the employee has paid any rent the value will
be reduced to that extent.
On transfer to a new place, an employee may
occupy accommodation at two places for a
maximum period of 90 days without any
additional valuation in perquisite.
ii. Gas, electricity, water –
The values of these benefits will be the actual

charges paid to any outside agency or if
71
supplied from own resources, the actual
manufacturing cost.
iii. Interest-free or concessional loans –
Value of this benefit will be calculated with a

reference rate of interest in mind at simple
interest. For housing loan, the reference rate
may be 13%. Thus if employer charges 7% on
a housing loan, the perquisite value will be 6%
of outstanding amounts.
However, the reference rate will be the rate
charged by State Bank of India on similar loan
on the first day of the financial year, i.e. April 1
2005 in relation to a return to be filed in July
2006.
iv. Holiday expenses – Holiday expenses for

self and family members by way of costs of
traveling, touring, accommodation and any
other expenses will be equal to the sum of
expenditure actually incurred by the employer.
Where the employer maintains such facility and
the facility is not available uniformly to all
employees, the value will be with reference to
similar facilities offered to public by other
agencies.
Where a member of his household

accompanies an employee on an official tour
and the employer incurs expenditure with
respect to such member, the amount so
incurred will be the value of perquisite.
Where an official tour is extended as a
vacation, the value of perquisite will be limited
to expenses of such extended period.
In all these situations, the value will be reduced
by the amount paid by or recovered from the
employee.
72
v. Free or concessional travel – This relates to

any undertaking engaged in the carriage of
passengers or goods. No perquisite value is
considered for a railway employee enjoying
free or concessional rail travel.
With respect to others, the value of benefit will
be the value at which such facility is offered to
public as reduced by any amount paid by or
recovered from the employee.
vi. Free education – If the educational institution

is not maintained and owned by the employer,
the value of expenditure incurred by the
employer will equal the value of the benefit.
If free or concessional education is available in
an institution to a member of employee’s
household by reason of the employment, the
value of the benefit will be with reference to cost
of similar education in a similar institution in or
near the locality. However, if the cost does not
exceed Rs 1000 per month, the value will be nil.
If the educational institution is maintained and

owned by the employer, the value of the benefit
will be with reference to cost of similar education
in a similar institution in or near the locality.
However, if the cost does not exceed Rs 1000
per month, the value will be nil.
vii. Gifts, vouchers, etc. – If gift, voucher or

token in lieu of gift is received by an employee
or a member of his household, then the value
of benefit will be equal to the amount of such
gift. However, if aggregate value of such gifts
does not exceed Rs 5000 in a year, the value
will be nil.
73
viii. Credit card expenses – The value will equal

expenditure paid or reimbursed by employer
on amount of expenses (including
membership fees and annual fees) incurred by
an employee or a member of his household
including on add-on cards.
The value will be nil, if incurred for official
purposes, but certain conditions need to be
fulfilled.
ix. Club expenses – In respect use of health

club, sports and similar facilities made
available uniformly to all employees, the value
of perquisite is considered as nil.
In the case of corporate membership of clubs
obtained by the employer, the initial fee of
corporate membership will not be considered for
valuation of perquisites.
If an employee incurs club expenses, wholly and
exclusively for business purposes, the perquisite
value will be nil. However, necessary certification
requirements will have to be fulfilled.
In any other case, amount of expenditure

incurred as club expenses by an employee or a
member of his family and paid or reimbursed by
the employer will be considered for the value of
perquisite.
x. Use of movable assets by employees – If

an employee or any member of his family
uses any moveable asset owned or hired by
the employer, the value of the benefit will be
10% of cost of asset or the actual hiring
charges paid by the employer. This does not
apply to a laptop or computer.
xi. Transfer of assets to employees – If the

employer transfers any moveable asset
74
directly or indirectly to an employee or a
member of his household, the value of benefit
will be the actual cost of the asset reduced by
10% per annum for every completed year of
use by employer on account of normal wear
and tear and any sum paid by or recovered
from the employee as consideration for
transfer.
If the asset is a computer or an electronic item,
the rate for wear and tear will be 50% per annum
instead of 10%; similarly for a motor car the rate
for wear and tear will be 20% per annum.
xii. Value of any other benefit/ amenity/

service/ privilege – If an employer pays
telephone including mobile phone expenses
on behalf of the employee, the value of benefit
is nil.
Similarly, if the employer provides books or
journals for discharge of his work, the value of
the benefit is nil.
However, in general, value of any benefit,

amenity, service, right or privilege will be equal to
the cost to the employer for the same.
xiii. Stock options (non-qualified options) –

Stock options are right of an employee to
subscribe to shares of the employer company
at special reduced prices compared to the
market value.
Qualified options are stock options granted to
employees as per Central government guidelines
effective 1st April 2001. These are taxed only at
the time of sale of shares.
Non-qualified stock options are taxed at two
stages, as perquisite when granted and as capital
gains at the time of transfer. The value of a non-
75
qualified option is the difference between the

market price on the exercise date and the
exercise price of the option to the employee.
24. What are “Profits in lieu of Salary”?
This would include items like pre-joining bonus, sum received

under a Keyman insurance policy (including on account of
bonus), compensation in connection with termination or
modification of terms and conditions of employment.
25. How reimbursements allowed by employer are considered

for tax?
Reimbursements of amounts spent by the employees to meet

expenses “wholly, necessarily and exclusively incurred in the
performance of duties” are exempt, if the amounts are actually
spent.
Any other reimbursements would normally be included as
perquisite.
26. Exemptions on Certain Cash Receipts (Including

Allowances)
Conveyance costs for travel to work and back reimbursed are

exempt up to Rs 800 per month. Any amount reimbursed in
excess would be included as salary to the extent of the excess.
Charges for telephones at residence reimbursed by employer
are chargeable to the extent of personal call charges incurred
by the employee.
Medical expenses incurred up to Rs 15,000 for self and
dependants and reimbursed are exempt. Any excess amount
reimbursed would be chargeable.
27. What is ‘Income Chargeable under the Head Salaries’?
76
This is the sum total of all items of salary as per income tax law,
but excludes fully or partially exempt items to the extent of the
exemption.
This is not necessarily the amount on which your tax is
calculated. It is important to understand that you may be entitled
to some more deductions, which are allowed after “Gross Total
Income” is calculated.
‘Income from House Property’:
28. What is a “House Property”?
Any building, and land appurtenant thereto, not used for a

business or profession carried on by you, is considered as a
house property. If you have a number of house properties and
income from house properties are the major sources of income,
then it would constitute a business and therefore get assessed
under the head Profits and Gains from Business or Profession.
But if your income from house property is minor, then it would
be assessed under this head.
29. Who is Assessable for a House Property?
The owner of a house property is assessed for income from that

property.
30. What is ‘Income from House Property’?
Whether you have any receipts from your house property or not,
you would be assessed to tax under this head if you own a
house property. You would be assessed for income tax on a
‘notional’ amount of income, based on annual value of property.
31. What is ‘Annual Value’?
77
‘Annual Value’ is either the value at which the house can be let
or the actual rent receipts. If the house is vacant for a part of the
year, then the rent received for a part of the year will only be
considered.
However in respect of one property, you can opt to have the
value as nil if you self-occupy it. However, if you own more than
one house and if you have kept it for your own use, then you
can get this benefit of nil value for only one house of your
choice.
You can also deduct any municipal taxes paid on the property in
arriving at the ‘Annual Value’.
32. What are the Deductions Available on A “House Property”

from ‘Annual Value’?
The following deductions are available from ‘annual value’:

• A flat 30% of annual value,
• Any interest paid on borrowed capital used to acquire,
construct, repair, renew or reconstruct the house property.
If the loan is taken after 1st April 1999, the interest
deducted will be restricted to Rs 1,50,000.
33. What about a loss under the Head ‘Income from House
Property’?
Any loss computed under this head can be set off against
income from any other head during the same year. Any loss not
fully absorbed by income from other sources can be carried
forward to subsequent years. In later years it can be set off only
against income from house property. This carry forward of
unabsorbed losses can be done for 8 years from the first year.
Capital Gain:
34. What is “Capital Gain”?
“Capital Gain” is one of the heads of income for the purpose of

charging income tax to you. It means the change in value of
your “capital asset” realised at the time of its transfer. For
example if you had spent Rs 100,000 to acquire a capital asset
78
and you realise Rs 150,000 at the time of its transfer, then Rs
150,000 less Rs 100,000 i.e. Rs 50,000 is the capital gain. It is
possible to have a loss instead of profits as well under this
head.
Cost of acquisition of a capital asset deducted to arrive at
capital gains can include costs related to the acquisition like
stamp duty and registration charges of a property but it will not
include securities transaction tax.
35. What is and What is Not A “Capital Asset”?
‘Capital asset’ means property of any kind held by you. But the
following are not considered as capital asset, implying no
capital gains will arise from them:
• Stock-in-trade held for the purposes of business or
profession,
• Personal effects,
(It includes all moveable property held for personal use of self
or dependants, like wearing apparel and furniture other than
jewellery.)
• Agricultural land in India in rural areas,
• Specific government bonds, like Special Bearer Bonds,
Gold Deposit Bonds, etc.
36. How is “Capital Gains” Taxed?
“Capital Gains” is taxed in two different ways depending on

whether it is resulting from Short-term or Long-Term Capital
Assets. Short-term capital gains are taxed at normal tax rates
except in the case of equity shares and units of an equity-
oriented mutual fund transferred after September 2004 (where
there is a special rate), but there are special rates applicable for
Long-term capital gains. Long-term capital gains arising after
September 2004 from equity shares and units of an equity-
oriented mutual fund are exempt.
37. What About A Loss Instead of A “Capital Gain”?
79
It is possible that there can be a loss arising to you on transfer
of a capital asset instead of a gain. If this loss arises from
transfer of a short-term capital asset, i.e. if there is a short-term
loss then this loss can be set off against either short-term or
long-term capital gains from any other assets transferred. In
other words you will have a lower “Gross Total Income” and
“Total Income” as a result of a short-term capital gain, if the
whole loss can be absorbed by capital gains from any other
asset, whether short-term or long-term. However, long-term
capital loss, i.e. loss arising out of transfer of a long-term capital
asset, can be set off only against long-term capital gains.
38. What are Long Term and Short Term for Capital Gains?
For determining whether an asset is short-term or long-term,

holding period of the asset is the key factor. If you hold the
asset for more than 36 months (in case of financial assets being
shares, securities listed in the stock exchange, units of UTI or
any mutual funds, 12 months), then the asset is long-term.
Otherwise, it is short-term. Thus for a share the period is more
than 12 months, but for a house property the period of holding
needs to be more than 36 months to qualify as a long-term
capital asset.
39. How is Capital Gains computed?
Capital Gains is the difference between (A) full value of

consideration on transfer of the capital asset and (B) cost of
acquisition plus cost of improvement to the asset.
In the case of a long-term asset (except in case of bonds or
debentures other than capital indexed bonds), indexed cost of
acquisition and indexed cost of improvements are considered at
your option.
40. What is Indexed Cost Of Acquisition?
80
Indexation is a method of compensating for inflation cost of the
asset. Cost Inflation Index for the financial year 1981-82 is
taken as 100. Every year the government, on the basis of
Consumer Price Index, declares this index. Index for any year
prior to 1981-82 is taken as 100.
Indexed cost of acquisition or improvements is cost of
acquisition multiplied by index for the year of transfer divided by
the index for the year of acquisition. For example if an asset is
acquired for Rs 1,00,000 in 1986-87 when index was 140 and is
transferred in 1995-96 when the index is 281, then the indexed
cost of acquisition will be Rs 100,000 multiplied by 281 divided
by 140,
that is Rs 2,00,714.28. Thus indexation gives you a benefit of

Rs 100,714.28 by way of considering the cost higher on
account of inflation.
41. How Much is the Cost Inflation Index and What is Its
History from year to year?
Cost Indexes for various years are as under:
Financial Year Cost Inflation Index

1981-82 100
1982-83 109
1983-84 116
1984-85 125
1985-86 133
1986-87 140
1987-88 150
1988-89 161
1989-90 172
1990-91 182
1991-92 199
1992-93 223
1993-94 244
1994-95 259
1995-96 281
1996-97 305
1997-98 331
81
1998-99 351
1999-00 389
2000-01 406
2001-02 426
2002-03 447
2003-04 463
2004-05 480
2005-06 497
42. How much tax is payable on Capital Gains?
Short-term capital gains are charged the same tax as any other
income. Long-term capital gains are charged tax at a flat rate of
20%.
Short-term capital gains arising from sale of equity shares or a
unit of an equity-oriented mutual fund are chargeable at a rate
of 10%.
But, if you transfer long-term assets being listed securities (like
shares, debentures, etc) or mutual fund units, capital gains are
exempt.
43. What are the exemptions available from Capital Gains?
Income from transfer of a long-term capital asset being an

equity share in a company or a unit of an equity-oriented mutual
fund is exempt from tax.
In the following situations exemptions are also available to you

from capital gains:
• Residential house property: The amount of capital gains

arising on sale of a residential house property, being a
long-term asset, used within 1 year before or 2 years after
to acquire or within 3 years to construct another house
property is exempt. However, the new property will have
to be held for a period of 3 years.
If by the date of submission of your return, you do not use the
sales proceeds for the acquisition, then it will have to be
82
deposited in a notified bank or institution. If not used for 3 years

as required, it will be included as capital gain at the end of 3
years. (Sec 54)
• Agricultural land: The amount of capital gains arising on
sale of agricultural land, (which was used in previous 2
years by you or your parents for agriculture,) utilised
within a period of 2 years to purchase any other
agricultural land is exempt. However, the new property will
have to be held for a period of 3 years.
sales proceeds for the purchase, then it will have to be
years. (Sec 54B)
• Industrial undertaking: The amount of capital gains
arising from compulsory acquisition of land and buildings
which were part of your industrial undertaking, (which was
used in previous 2 years by you for the industrial
undertaking,) utilised within a period of 2 years to
purchase land and or building or to construct a building for
shifting, re-establishing or setting up another industrial
undertaking is exempt. However, the new property will
have to be held for a period of 3 years.
sales proceeds for the purchase, then it will have to be
years. (Sec 54D)
• Long-term capital assets: The amount of capital gains
arising from transfer of long-term capital assets invested
in long-term specified assets, currently being bonds for 3
years issued by National Housing Bank, is exempt.
However, if partly invested proportionate capital gains will be
charged. (Sec 54EC)
• Listed securities (like shares or debentures) or mutual
fund units: The amount of capital gains arising from
transfer of long-term capital assets being listed securities
(like shares or debentures) or mutual fund units invested
in acquiring long-term specified shares, being shares
83
forming part of a public issue by a public company
registered in India, is exempt.
However, if partly invested proportionate capital gains will be
charged. (Sec 54ED)
• Other Than Residential house property: The amount of
net consideration, i.e. net sale proceeds, arising on sale of
a long-term asset other than a residential house property,
used within 1 year before or 2 years after to acquire or
within 3 years to construct another house property is
exempt. However, the new property will have to be held
for a period of 3 years.
However, if partly invested, proportionate capital gains will be
charged. This exemption will not be available if you already
have more than one house property or buy or construct any
more house property thereafter within specified periods (Sec
54F).
44. What if your loss computed under capital gains cannot be

set off against any gains in the same year?
Any loss that cannot be set off against capital gains can be
carried forward for setting off in the similar way wholly or
partially over one or more subsequent years. However, the
period is restricted to 8 subsequent years.
Income from Other Sources:
45. What is ‘Income from Other Sources’?
Any item which falls within the definition of income and arises
from a source which does not fall in any of the following:
• Salaries,
• Income from house property,
• Profits and Gains from Business or Profession,
• Capital Gains
would be taxed under the head ‘Income from Other Sources’.

84
46. What are the items commonly falling under this head?
Most common items falling under this head are interest received
from banks, post offices, debentures, bonds, etc. Rent received
other than from a house property and which is not a business,
for example rent for a machine for the owner would also come
under this head. Dividends, which are not exempt, will also fall
under this head.
Your other income will also include any receipt of money over
Rs 25,000 received without any consideration other than
wedding gifts, gifts from a relative as specified, gifts through a
will or in contemplation of death.
47. How is it computed?
It is computed after allowing the eligible deductions from gross

receipts.
48. What are the Available Deductions from ‘Income from Other
Sources’?
There is a provision to deduct expenses directly related to the

particular receipt. For example if interest is paid on borrowed
money on which interest is earned, then interest paid can be
deducted from interest received. Depreciation and repairs and
maintenance expenses related to the machine can reduce
machinery rental value that will be included as income.
Others’ Income Included in Your Income:
49. Does your minor child have any income?
If yes, then is it earned by the child by manual work or

application of any special skills?
85
If the answer is no, then the minor child’s income is includible in

your income. Income falling in this category will be computed
under different heads as detailed above but added to your
income under a separate heading.
However, there is a deduction available to you (of Rs 1500 per
child), which will partially or fully nullify the liability.
Typically, bank interest or any other passive income would fall
in this category.
50. Have you transferred any asset to your wife or husband or

daughter-in-law for inadequate consideration (or price or
value)?
If so, income from such asset will be included in your income.

Income falling in this category will be computed under different
heads as detailed above but added to your income under a
separate heading.
Typically transfer of money to wife or husband or daughter in
law will come within this clause.
However transfers in connection with agreement to live apart
with spouse will not come within this requirement.
51. Under which heads of income will others’ income be

included?
Income of others includible in your income will get included

under respective heads of income in the same way, as it would
be included in their respective total income.
Total Income:
52. What is “Gross Total Income”?
“Gross Total Income” is the sum total of incomes calculated

under all the heads:
• Salaries,
• Income from house property,
• Profits and Gains from Business or Profession,
86
• Capital Gains,
• Income from Other Sources.
In other words, it is the total income before allowing overall
available deductions from income.
53. What Deductions Are Available from “Gross Total Income”?
There is a large number of items which can be deducted to the

extent it is included in “Gross Total Income”.
They are:
• Specified investments up to a total of Rs 1,00,000 in
aggregate in the following:
• Life insurance premium covering self, spouse or
child,
• Purchase of deferred annuity on the life of self,
spouse or child,
• Deductions from salary by or on behalf of
government for securing a deferred annuity,
• Contribution to Provident Fund,
• Contribution to Public Provident Fund in the
name of self, spouse or child (this item is limited to Rs
70,000 by Public Provident Fund Act),
• Employee’s contribution to an approved
superannuation fund,
• Deposit into a 10-year or 15-year Post Office
CTD Account in the name of self, spouse and child,
• Subscription to any notified government security
or deposit scheme,
• Subscription to National Savings Certificate
Scheme (VI Issue) or National Savings Certificate
Scheme (VII Issue), Accrued Interest also is eligible,
(Refer Appendix 2 for your eligible amount),
• Subscription to any notified Government Savings
Certificate,
• Contribution in the name of self, spouse or child
in Unit Linked Insurance Plan of Unit Trust of India,
• Contribution in the name of self, spouse or child
in Unit Linked Insurance Plan of LIC Mutual Fund,
87
• Payment for a contract for annuity plan of any

insurance company,
• Amount paid to subscribe to a notified scheme of
any mutual fund,
• Contribution to any notified pension plan of any
mutual fund,
• Contribution to any notified pension plan or any
notified deposit scheme of National Housing Bank,
• Subscription to any notified deposit scheme of
any authority or public company providing housing
finance provided that the interest does not qualify for
deduction under Sec 80L,
• Tuition fees excluding development fees and
donation for two children,
• Principal payments of housing loans,
• Stamp duty, registration fees and other expenses
on transfer of house property to assessee,
• Subscription to eligible public issue of shares,
debentures or capital by an infrastructure company or
public financial institution,
• Subscription to units of eligible issue of approved
mutual fund schemes.
• Amount up to Rs 10,000 paid or deposited in a pension
scheme of an insurance company (Sec 80CCC),
• Central Government’s contribution to an employee’s account
in a specified pension fund not exceeding 10% of salary
(Section 80CCD),
• There is an overall limit of Rs 1,00,000 covering Sections
80C, 80CCC and 80CCD mentioned above.
• Medical insurance premium paid to cover self, spouse,
dependent children and parents up to Rs 10,000 (Sec 80D),
• Amount paid for medical treatment of a dependant with a
disability and into any prescribed scheme of insurance
companies or UTI for benefit of a dependant with a disability,
up to Rs 50,000, in case of severe disability Rs 75,000, (Sec
80DD),
• Amount paid for prescribed disease of self or dependents or
a member of HUF up to Rs 40,000 (Sec 80DDB),
88
• Any amount paid towards interest on loan taken from

financial institutions or approved charitable institution for
higher education for a maximum of 8 years starting with the
year when repayment starts (Sec 80E),
• Donation to listed national funds in full, other prescribed
purposes items: 50% of amount donated provided the
deduction does not exceed 10% of Gross Total Income as
reduced by any other deduction allowable (Sec 80G),
• If you do not get income by way of House Rent Allowance,
but pay a rent for your residential accommodation, then the
rent paid in excess of 10% of total income can be deducted
up to Rs 2000 per month or 25% of your ‘total income’, (Sec
80GG),
• Income of royalty or for grant of copyright of authors of books
of literary, artistic or scientific nature up to Rs 300,000 (Sec
80QQB),
• 15% of remuneration received by a citizen of India, from a
University or educational institution abroad in the capacity of
a professor, teacher or research worker if the amount is
brought into India in convertible foreign currency (Sec 80R),
• 15% of remuneration received by a resident of India, from a
foreign government or nonresident abroad in the capacity of
an author, playwright, artist, musician, actor or sportsman if
the amount is brought into India in convertible foreign
currency (Sec 80RR),
• 15% of remuneration received by a citizen of India, from any
employer for any services rendered outside India if the
amount is brought into India in convertible foreign currency
(Sec 80RRA),
• royalty on patents, up to Rs 300,000 (Section 80RRB),
• For a resident Indian assessee who is certified by stipulated
medical authority to having a physical disability, Rs 50,000;
incase of severe physical disability defined as 80% disability-
Rs 75,000. A copy of certificate from medical authority needs
to be attached (Section 80U).
54. What is “Total Income”?
89
The amount of income arrived at after deducting all eligible
deductions from “Gross Total Income” is “Total Income”, NOT
Net Total Income.
Tax:
55. What is Net Agricultural Income? Why is it relevant?
Agricultural Income is not taxed by the Central Government. It

comes under the State Government and varies from state to
state. However, the scheme of Income Tax determination
involves adding Net Agricultural Income to Total Income
determined as mentioned above solely for deciding on the
applicable tax rate. For example, if you have Rs 190,000 of
‘total income’ and Rs110,000 of Net Agricultural Income, then
the total is Rs 300,000. Tax on Rs 300,000 less tax on an
income of Rs 110,000, which is exempt will be your tax payable.
In other words, you are paying income tax on your income
above the tax on first Rs 110,000, which is exempt. In effect
your non-agricultural income will suffer higher tax than
otherwise.
56. Is there a Refund Due to You?
If you have an income tax due against which the tax deducted
at source and tax paid on self-assessment are in excess in
total, then refund would be due to you. Refund would be
available to you plus the prescribed interest only after an
assessment is made of your income included in your tax return.
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Appendix 1
READY RECKONER FOR QUICK TAX CALCULATION
Income Tax:
Part 1- For Total Income Between Rs 1,00,010 to Rs 1,50,000

If your Total Income is from Rs 100010 to Rs 150000, Compute your Income
Tax from the following table by adding applicable amounts from A, B, C and
D given below.
For example, if your Total Income is Rs 1,12,670, you should add the figures as
under:
Income Tax corresponding to Taxable Income Rs 1,10,000, (ie Rs 1000),

Income Tax corresponding to Taxable Income Rs 2,000, (ie Rs 200),
Income Tax corresponding to Taxable Income Rs 600, (ie Rs 60),
And, Income Tax corresponding to Taxable Income Rs 70, (ie Rs 7)
so that
Income Tax for Taxable Income of Rs 1,12,670= Rs (1000+200+60+7)= Rs 1267
A B C D
Taxable Income Taxable Income Taxable Income Taxable Income
Income Tax Income Tax Income Tax Income Tax
110000 1000 1000 100 100 10 10 1
120000 2000 2000 200 200 20 20 2
130000 3000 3000 300 300 30 30 3
140000 4000 4000 400 400 40 40 4
150000 5000 5000 500 500 50 50 5
6000 600 600 60 60 6
7000 700 700 70 70 7
8000 800 800 80 80 8
9000 900 900 90 90 9
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Part 2- For Total Income Between Rs 1,50,010 to Rs 2,50,000
If your Total Income is from Rs 1,50,100 to Rs 2,50,000, Compute your Income

Tax from the following table by adding applicable amounts from A, B, C and
D given below.
For example if your Total Income is Rs 172670, you should add the figures as
under:
so that Income Tax for Taxable Income of Rs Rs 172670= Rs

(9000+400+120+14)= Rs 9534
A B C D
Taxable Income Taxable Income Taxable Income Taxable Income
Income Tax Income Tax Income Tax Income Tax
160000 7000 1000 200 100 20 10 2
170000 9000 2000 400 200 40 20 4
180000 11000 3000 600 300 60 30 6
190000 13000 4000 800 400 80 40 8
200000 15000 5000 1000 500 100 50 10
210000 17000 6000 1200 600 120 60 12
220000 19000 7000 1400 700 140 70 14
230000 21000 8000 1600 800 160 80 16
240000 23000 9000 1800 900 180 90 18
250000 25000
92
Part 3- For Total Income Above Rs 2,50,000
If your Total Income is from Rs 2,50,010 and above, Compute your Income Tax
from the following table by adding applicable amounts from A, B, C, D and E
given below.
For example if your Total Income is Rs 20,12,670, you should add the figures as
under:
Income Tax corresponding to Taxable Income Rs 20,00,000, (ie Rs 5,55,000),
Income Tax corresponding to Taxable Income Rs 10,000, (ie Rs 3000),
so that, Income Tax for Taxable Income of Rs 20,12,670

= Rs (5,55,000+3000+600+180+21)= Rs 5,58,801
A B C D
E
Taxable Taxable Income Taxable Income Taxable Income Taxable Income
Income Income Tax Income Tax Income Tax Income Tax Income Tax
260000 28000 1000 300 100 30 10 3
270000 31000 2000 600 200 60 20 6
280000 34000 3000 900 300 90 30 9
290000 37000 4000 1200 400 120 40 12
300000 40000 10000 3000 5000 1500 500 150 50 15
400000 70000 20000 6000 6000 1800 600 180 60 18
500000 100000 30000 9000 7000 2100 700 210 70 21
600000 130000 40000 12000 8000 2400 800 240 80 24
700000 160000 50000 15000 9000 2700 900 270 90 27
800000 190000 60000 18000
900000 220000 70000 21000
80000 24000
90000 27000
1000000 250000 100000 30000

2000000 550000 200000 60000
3000000 850000 300000 90000
4000000 1150000 400000 120000
5000000 1450000 500000 150000
6000000 1750000 600000 180000
700000 210000
800000 240000
900000 270000
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Income Tax Surcharge:
Amount of Income Tax Surcharge applicable for Taxable Income up to Rs

10,00,000 is Nil.
Amount of Income Tax Surcharge applicable for Taxable Income from Rs

10,00,010 to Rs 10,37,310 is arrived at as under:
Your Taxable Income Less Rs 10,00,000= Income Tax As Applicable + Income

Tax Surcharge,
i.e., Income Tax Surcharge= (Your Taxable Income Less Rs 10,00,000) less
Income Tax As Applicable,
(This formula ensures that you do not get a Net of tax income less than if your
income was Rs 10,00,000)
Amount of Income Tax Surcharge applicable for Taxable Income up above

Rs 10,37,310 is 10% of Your Income Tax.
Educational Cess:
After arriving at the sum of Total Income Tax and Surcharge Amount, you have to
add 2% of the total sum as Educational Cess.
94
Appendix 2
Accrued Interest on National Savings Certificate, VIII Issue
All Figures in Rs.
Year Year Year Year Year Year Total

1 2 3 4 5 6
Purchased 12.40 13.90 15.60 17.50 19.70 22.40 101.50
between 1/04/89 &
31/12/98- Rs 100
Purchased 2,480 2,780 3,120 3,500 3,940 4,480 20,300
between 1/04/89 &
31/12/98- Rs
20,000
Purchased 11.83 13.23 14.80 16.54 18.51 20.69 95.60
between 1/01/99 &
14/01/00- Rs 100
Purchased 2,366 2,646 2,960 3,308 3,702 4,138 19,120
between 1/01/99 &
14/01/00- Rs
20,000
Purchased 11.30 12.58 14.00 15.58 17.35 19.31 90.12
between 15/01/00
& 28/02/01- Rs
100
Purchased 2,260 2,516 2,800 3,116 3,470 3,862 18,024
between 15/01/00
& 28/02/01- Rs
20,000
Purchased 9.72 10.67 11.71 12.85 14.10 15.47 74.52
between 1/03/01 &
28/02/02- Rs 100
Purchased 1,944 2,134 2,342 2,570 2,820 3,094 14,904
between 1/03/01 &
28/02/02- - Rs
20,000
Purchased 9.20 10.05 10.97 11.98 13.09 14.29 69.59
between 1/03/02 &
28/02/03- Rs 100
Purchased 1,840 2,010 2,194 2,396 2,618 2,858 13,918
between 1/03/02 &
28/02/03- - Rs
20,000
Purchased after 8.16 8.83 9.55 10.33 11.17 12.08 60.10
1/03/03- Rs 100
Purchased after 1,632 1,766 1,910 2,066 2,234 2,416 12,020
1/03/03- Rs
20,000
95
Appendix 3
Important Amendments Through Budget 2006
Changes brought about by Union Budget of 2006 are relevant in

planning your tax for this financial year and for filing your return in
2007.
Highlights of these proposals are:
1. The one-by-six scheme for filing return, which required

people not having taxable income but satisfying any of the
six criteria (like having house, phone, credit card, etc.) to file
tax is now omitted.
2. You can now buy a pension policy of an insurance company
for a premium amount exceeding Rs 10,000 (the current
limit) and get a deduction from your income. However, the
overall limits of Rs 1,00,000 for all such deductions remain
unchanged.
3. Fixed deposits with scheduled banks for periods of 5 years
or more will also qualify for deductions along with other
eligible investments for the overall limit of Rs 1,00,000.
4. You can now buy medical insurance policies from private
insurance companies too to get the available deduction for
premium paid up to Rs 10,000.
5. Capital gains from transfer of a long-term capital asset is
exempt from tax if the capital gains are invested in any long-
term specified asset under Section 54EC. The specified
assets are now restricted to only bonds of National Highways
Authority of India or Rural Electrification corporation Ltd.
6. Capital gains exemption under Section 54ED is removed.
This had become irrelevant.
96

How To File Your Own Income Tax Return With Due Attention & Care by Shiv N

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Gain Complete Control on Your Income Tax:

File Your Own Income Tax Returns, Like A Pro…in 22 Minutes

Gain Complete Control

File Your Own

Shiv N. Majumdar, F.C.A.

1. Different Modes of Preparing Your Return………...……7

2. Only You Remain Accountable…...……………………...8

3. Presumptions on Your Attached Certificates Can Cause

4. Much More Than Just A Compliance: What Your Tax

5. How to Prevent Any Glaring Omission…………………11

6. Traps on Your Path: Obvious Items Most Often

7. Standing Up To A Prima Facie Scrutiny…...…………..13

8. How Your Salary Components are Variously Taken Into

9. Do You Have To Set Off An Earlier Year’s Loss?…….15

10. Did You Sell An Asset This Year?……...………………15

11. Considerations on Advance Tax………………………..16

12. How to Simplify Your Future Returns…………………..17

Part Two: Step-by-step Guide to Filling Returns with Action

Part Three: Your Likely Doubts and Queries Answered.

Doubt/Query No. 1 to 56:

Appendix 1: Ready Reckoner

Simple Tax, Sure Steps: Ready Knowhow

Who prepares and files your income tax return?

If you have been doing it yourself, we appreciate your spirit. But

Let us consider the possibilities:

You may choose more than one out of these possibilities.

Now let us consider these.

We cannot avoid physical filing of papers till digital signatures of

To keep it simple, this book does not cover those having

This book has three parts.

First Part discusses the general considerations applicable to

Second Part guides you step-by-step through your return

Third Part deals with your likely doubts and queries in a

Three Appendices provide you with a Ready Reckoner for

If you have picked up this book, you will not be disappointed.

• By opting to file your returns with your employer, if you fulfill

The productive advantage of today’s tools will be fully at

Finally, only a human check is the most reliable. It is only YOU,

2. Only You Remain Accountable

“I…solemnly declare that to the best of my knowledge and

Most importantly, your employer, authorized intermediary or

3. Presumptions on Your Attached Certificates Can

With wide spread computerization of payroll and tax deduction

rectified. A powerful modern technology, thus, is a slave to the

Here are some examples.

Suresh approaches us for filing his tax return. He worked for

But for our scrutiny, he would suffer higher tax of about Rs

Or let us take the case of Ramesh, where the employer charged

Subsequently, the view of High Courts came in favour of

judgement should have resulted in lower tax deduction in their

An employee could get a refund caused by this wrong

As you see from these, it would be practical to accept that a

We would recommend that even if you take professional

4. Beyond Compliance: What Your Tax Return Can Do For You

Filing your tax return is a compliance job. Most people take it as

A tax scrutiny in a future year will be greatly helped, if your tax

There has been a case where an unreasonable employer has

Moreover, shortly all your major transactions through bank,

5. How to Prevent Any Glaring Omission

We are now in an interconnected information age.

The Income Tax Department is also collecting data on chosen

Omissions of bank accounts, bank deposits, post office