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PREFACE
Lack of awareness amongst taxpayers is often cited as the
main reason for low level of compliance towards tax laws. It hasbeen a constant endeavour of the Directorate of Income Tax (PR,
PP & OL) to increase the awareness of the taxpayers about the
provisions of tax laws and the steps taken by the government to
reduce the complexities of tax laws and improve Tax Payer Service.
The booklets published under the Tax Payers Information Series
have proved to be an effective and convenient tool to educate the
tax payers in discharging their tax liabilities relating to Direct Taxes.
Taxation of Salaried Employees, Pensioners and Senior
Citizens is one of the most popular booklets among the taxpayers.
Its last edition was brought out in the year 2008. The present edition
incorporates further amendments made upto the Finance Act, 2010?
This edition has been updated by Smt. Garima Bhagat, Add. CIT,
New Delhi.
It is hoped that this publication will prove to be more usefulfor the readers. The Directorate of Income Tax (Public Relations,
Printing & Publications and Official Language) would welcome
any suggestion to further improve this publication.
New Delhi
Dated : November 11, 2010
(Amitabh Kumar)
Director of Income Tax (PR, PP & OL)
This publication should not be construed as an
exhaustive statement of the Law. In case of doubt,
reference should always be made to the relevant
provisions of the Income Tax Act, 1961, Income Tax
Rules, 1962, Wealth Tax Act, 1957 and Wealth TaxRules, 1957, and, wherever necessary, to Notifications
issued from time to time.
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CHAPTER 1
AN INTRODUCTION TO TAXATION
1.1 INTRODUCTION
Income tax is an annual tax on income. The Indian Income
Tax Act (Section 4) provides that in respect of the total income of
the previous year of every person, income tax shall be charged
for the corresponding assessment year at the rates laid down by
the Finance Act for that assessment year. Section 14 of the Income-
tax Act further provides that for the purpose of charge of incometax and computation of total income all income shall be classified
under the following heads of income:
A. Salaries
B. Income from house property
C. Profits and gains of business or profession.
D. Capital gains
E. Income from other sources.
The total income from all the above heads of income is
calculated in accordance with the provisions of the Act as they
stand on the first day of April of any assessment year.
In this booklet an attempt is being made to discuss the various
provisions relevant to the salaried class of taxpayers as well as
pensioners and senior citizens.
1.2 FILING OF INCOME TAX RETURN
Section 139(1) of the Income-tax Act, 1961 provides that
every person whose total income during the previous year
exceeded the maximum amount not chargeable to tax shall furnish
a return of income. The Finance Act, 2003 has introduced Section
139(1B) which provides for furnishing of return of income on
computer readable media, such as floppy, diskette, magnetic
CONTENTS
Topic Page No.
Chapter 1 An Introduction to Taxation 1
Chapter 2 Salary Income, Perquisites & Allowances 13
Chapter 3 Overview of Income from House Property 27
Chapter 4 Overview of Capital Gains 30
Chapter 5 Deductions under Chapter VIA 36
Chapter 6 Tax Rebate & Relief 46
Chapter 7 Permanent Account Number 50
Chapter 8 Taxability of Retirement Benefits 52
Chapter 9 Pensioners & Senior Citizens 58
Chapter 10 Taxation of Expatriates 61
Chapter 11 Income tax on Fringe Benefits 67
Chapter 12 Some relevant Case laws 70
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one house property excluding b/f losses/
income from other sources excluding
winning from lottery or income from race
horses.ITR 2 ITR 2 For individuals and HUFs not having income
from Business or Profession.
ITR 3 ITR 3 For Individuals and HUFs being partners in
firms and not carrying out business or
profession under any proprietorship.
ITR 4 ITR 4 For individuals & HUFs having income from
a proprietary business or profession
ITR 5 ITR 5 For firms, AOPs and BOIs
ITR 6 ITR 6 For Companies other than companies
claiming exemption under section 11
ITR 7 ITR 7 For persons including companies required
to furnish return under Section 139 (4A) or
Section 139 (4B) or Section 139 (4C) or
Section 139 (4D).
ITR 8 N.A. Return for Fringe BenefitsITR V ITR V Where the data of the Return of Income/
Fringe Benefits in Form ITR-1, ITR-2,
ITR-3, ITR-4, ITR-5, ITR-6, ITR-7 &
ITR-8 is transmitted electronically without
digital signature.
Acknow Acknowl- Acknowledgement for e-Return and non
ledge ledge e-Return.
ment ment
CHALLAN FORMS:- The following are the new computerized
challan forms:-
Challan No. Nature of Payment
ITNS 280 (0020) Income Tax on Companies
(Corporation Tax)
(0021) Income Tax (Other than Companies)
ITNS 281 (0020) Tax Deducted/Collected at Source from
Company Deductees
(0021) Non-Company Deductees
ITNS 282 (0034) Securities Transaction Tax(0023) Hotel Receipts Tax
(0024) Interest Tax
(0028) Expenditure/other Tax
(0031) Estate Duty
(0032) Wealth Tax
(0033) Gift Tax
ITNS 283 (0036) Banking Cash Transaction Tax(0026) Fringe Benefits Tax
All the columns in the challan form should invariably be
filled in, details such as PAN, assessment year, Assessing Officer
and his code, status and full address of the assessee in capital
letters, the relevant columns of tax, interest etc., should also be
filled in properly.
1.5 RATES OF INCOME TAX :-(A) The rates for charging income tax for A.Y. 2010-11 shall
be as follows :-
I. In the case of every individual other than those covered under
II and III below:-
Rates of Income Tax
(1) Where the total income Nil
does not exceed
Rs. 1,60,000
(2) Where the total income 10 per cent of the amount by
exceeds Rs. 1,60,000 but which the total income
does not exceed exceeds Rs. 1,60,000/-.
Rs. 3,00,000
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(3) Where the total income Rs. 14,000 plus 20 per cent of
exceeds Rs. 3,00,000 but the amount by which the total
does not exceed income exceeds Rs. 3,00,000.
Rs. 5,00,000(4) Where the total income Rs. 54,000 plus 30 per cent of
exceeds Rs. 5,00,000 the amount by which the total
income exceeds Rs. 5,00,000.
II. In the case of every individual, being a woman resident of
India, and below the age of sixty five years at any time during the
previous year:-
Rates of Income Tax
(1) Where the total income Nil
does not exceed
Rs. 1,90,000
(2) Where the total income 10 per cent of the amount by
exceeds Rs. 1,90,000 but which the total income exceeds
does not exceed Rs. 1,90,000/-.
Rs. 3,00,000
(3) Where the total income Rs. 11,000 plus 20 per cent of
exceeds Rs. 3,00,000 but the amount by which the total
does not exceed income exceeds Rs. 3,00,000.
Rs. 5,00,000
(4) Where the total income Rs. 51,000 plus 30 per cent of
exceeds Rs. 5,00,000 the amount by which the total
income exceeds Rs. 5,00,000.
III. In the case of every individual, being a resident in India, who
is of the age of sixty-five years or more at any time during the
previous year:-
Rates of Income Tax
(1) Where the total income Nil
does not exceed
Rs.2,40,000
(2) Where the total income 10 per cent of the amount by
exceeds Rs. 2,40,000 which the total income
but does not exceed exceeds Rs. 2,40,000/-.
Rs. 3,00,000
(3) Where the total income Rs. 6,000 plus 20 percent of
exceeds Rs. 3,00,000 the amount by which the total
but does not exceed income exceeds Rs. 3,00,000.Rs. 5,00,000
(4) Where the total income Rs. 46,000 plus 30 percent of
exceeds Rs. 5,00,000 the amount by which the total
income exceeds Rs. 5,00,000.
Further, No surcharge on income tax is now leviable in case
of individual/HUF. However, Education cess and higher education
cess is leviable @ 2% and 1% respectively on tax.
(B) The rates for charging income tax for F.Y. 2010-11 i.e.
A.Y. 2011-12 will be as follows:-
Upto Rs. 1,60,000/- NIL
Rs. 1,60,001/- to Rs. 5,00,000/- 10 per cent.
Rs. 5,00,001/- to Rs. 8,00,000/- 20 per cent.
Above Rs. 8,00,000/- 30 per cent.
In the case of every individual, being a woman resident in
India, and below the age of sixty-five years at any time during the
previous year, the new rates of income-tax on total income in such
cases shall be as under:-
Upto Rs. 1,90,000/- NIL
Rs. 1,90,001/- to Rs. 5,00,000/- 10 per cent.
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1.7.10 Interest on refunds u/s 244A: If the refund due to
the assessee is more than 10% of the tax payable
by him, he shall be entitled to receive simple
interest thereon at rate of 0.5% per month
(substituted in place of 0.67% per month w.e.f.
8.9.2003) or part thereof, from 1st April of the
assessment year to the date on which the refund is
granted.
1.7.11 Tax Return Preparers Scheme:- For enabling
specified classes of tax payers in preparing and
furnishing income tax returns, the Board has
notified the Tax Return Preparer Scheme underwhich specially trained and authorized Tax Return
Preparers will provide assistance to tax payers in
this regard. Details of the Scheme may be viewed
at www.incometaxindia.gov.in.
CHAPTER-2
SALARY INCOME, PERQUISITES
& ALLOWANCES
2.1 WHAT IS SALARY
Salary is the remuneration received by or accruing to an
individual, periodically, for service rendered as a result of an
express or implied contract. The actual receipt of salary in the
previous year is not material as far as its taxability is concerned.
The existence of employer-employee relationship is the sine-qua-non for taxing a particular receipt under the head salaries. For
instance, the salary received by a partner from his partnership
firm carrying on a business is not chargeable as Salaries but as
Profits & Gains from Business or Profession. Similarly, salary
received by a person as MP or MLA is taxable as Income from
other sources, but if a person received salary as Minister of State/
Central Government, the same shall be charged to tax under the
head Salaries. Pension received by an assessee from his former
employer is taxable as Salaries whereas pension received on
his death by members of his family (Family Pension) is taxed as
Income from other sources.
2.2 WHAT DOES SALARY INCLUDE
Section 17(1) of the Income tax Act gives an inclusive and
not exhaustive definition of Salaries including therein (i) Wages
(ii) Annuity or pension (iii) Gratuity (iv) Fees, Commission,perquisites or profits in lieu of salary (v) Advance of Salary (vi)
Amount transferred from unrecognized provident fund to
recognized provident fund (vii) Contribution of employer to a
Recognised Provident Fund in excess of the prescribed limit (viii)
Leave Encashment (ix) Compensation as a result of variation in
Service contract etc. (x) Contribution made by the Central
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Type of Allowance
(i) Special Compensatory
Allowance for hilly
areas or high altitudeallowance or climate
allowance.
(ii) Border area allowance
or remote areaallowance or a difficult
area allowance or
disturbed area
allowance.
(iii) Tribal area/Schedule
area/Agency area
allowance available in
M.P., Assam, U.P.,Karnataka, West
Bengal, Bihar, Orissa,
Tamilnadu, Tripura
(iv) Any allowance granted
to an employee
working in any
transport system tomeet his personal
expenditure during duty
performed in the course
of running of such
transport from one
place to another place.
Amount exempt
Rs.800 common for various
areas of North East, Hilly areas
of U.P., H.P. & J&K and Rs.7000 per month for Siachen area
of J&K and Rs.300 common
for all places at a height of 1000
mts or more other than the
above places.
Various amounts ranging from
Rs.200 per month to Rs.1300per month are exempt for
various areas specified in
Rule 2BB.
Rs.200 per month.
70% of such allowance upto a
maximum of Rs.6000 per
month.
(v) Children education
allowance.
(vi) Allowance granted to
meet hostel expenditureon employees child.
(vii) Compensatory fieldarea allowanceavailable in various
areas of ArunachalPradesh, ManipurSikkim, Nagaland,
H.P., U.P. & J&K.
(viii) Compensatory modified
field area allowanceavailable in specifiedareas of Punjab,
Rajsthan, Haryana,U.P., J&K, H.P., WestBengal & North East.
(ix) Counter insurgencyallowance to membersof Armed Forces.
(x) Transport Allowancegranted to an employeeto meet his expenditurefor the purpose of
commuting between theplace of residence &duty.
(xi) Transport allowancegranted to physically
disabled employee forthe purpose of
Rs.100 per month per child upto
a maximum 2 children.
Rs.300 per month per child upto
a maximum two children.
Rs.2600 per month.
Rs.1000 per month
Rs.3900 Per month
Rs.800 per month.
Rs.1600 per month.
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commuting betweenplace of duty and
residence.
(xii) Underground allowancegranted to an employeeworking in under ground
mines.
(xiii) Special allowance in the
nature of high altitudeallowance granted to
members of the armed
forces.
(xiv) Any special allowancegranted to the members
of the armed forces inthe nature of special
compensatory highly
active field areaallowance
(xv) Special allowance
granted to members of
armed forces in thenature of island duty
allowance.
(in Andaman & Nicobar
& Lakshadweep Group
of Islands)
Rs.800 per month.
Rs. 1060 p.m. (for altitude of9000-15000 ft.) Rs.1600 p.m.
(for altitude above 15000 ft.)
Rs. 4,200/- p.m.
Rs. 3,250/- p.m.
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CHAPTER-3
OVERVIEW OF INCOME FROM
HOUSE PROPERTY
3.1 INTRODUCTION
Under the Income Tax Act what is taxed under the head
Income from House Property is the inherent capacity of the
property to earn income called theAnnual Value of the property.
The above is taxed in the hands of the owner of the property.
3.2 COMPUTATION OF ANNUAL VALUE
(i) GROSS ANNUAL VALUE(G.A.V.) is the highest of
(a) Rent received or receivable
(b) Fair Market Value.
(c) Municipal valuation.
(If however, the Rent Control Act is applicable, the G.A.V.is the standard rent or rent received, whichever is higher).
It may be noted that if the let out property was vacant for
whole or any part of the previous year and owing to such vacancy
the actual rent received or receivable is less than the sum referred
to in clause(a) above, then the amount actually received/receivable
shall be taken into account while computing the G.A.V. If any
portion of the rent is unrealisable, (condition of unrealisability of
rent are laid down in Rule 4 of I.T. Rules) then the same shall notbe included in the actual rent received/receivable while computing
the G.A.V.
(ii) NET VALUE (N.A.V.) is the GAV less the municipal taxes
paid by the owner.
Provided that the taxes were paid during the year.
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shares forming part of an eligible issue of capital is made
within six months from the date of transfer, then exemption
would be available as computed in Sec. 54EB. As per the
Finance Act 2006 it has been provided that with effect from
assessment year 2007-08, no exemption under this Section
shall be available.
4.6 LOSS UNDER CAPITAL GAINS
Can not be set off against any income under any other head
but can be carried forward for 8 assessment years and be set off
against capital gains in those assessment years.
4.7 EXEMPT INCOMEThe Finance Act 2003 has introduced S.10(33) w.e.f.
01.04.2003 which provides that income arising from certain types
of transfer of capital assets shall be treated as exempt income.
S.10(33) provides for exemption of income arising from transfer
of units of the US 64 (Unit Scheme 1964). S.10(36) inserted by
the Finance Act, 2003 w.e.f. 1.4.2004 provides that income arising
from transfer of eligible equity shares held for a period of 12
months or more shall be exempt.
The Finance Act, 2004 has introduced section 10(38) of the
I.T. Act which provides that no capital gains shall arise in case of
transfer of equity shares held as a long term capital asset by an
individual or HUF w.e.f. 01.04.2005 provided such transaction is
chargeable to securities transaction tax.
COST INFLATION INDEX:
The Central Government has notified the Cost Inflation
Index for the purpose of long term Capital Gain as follows:
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 1501988-89 161
1989-90 172
1990-91 182
1991-92 199
1992-93 223
1993-94 244
1994-95 259
1995-96 2811996-97 305
1997-98 331
1998-99 351
1999-2000 389
2000-2001 406
2001-2002 426
2002-2003 447
2003-2004 4632004-2005 480
2005-2006 497
2006-2007 519
2007-2008 551
2008-2009 582
2009-2010 632
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CHAPTER-5
DEDUCTIONS UNDER CHAPTER VIA
5.1 INTRODUCTION
The Income Tax Act provides that on determination of the
gross total income of an assessee after considering income from
all the heads, certain deductions therefrom may be allowed. These
deductions detailed in chapter VIA of the Income Tax Act must
be distinguished from the exemptions provides in Section 10 of
the Act. While the former are to be reduced from the gross total
income, the latter do not form part of the income at all.
5.2 The chart given below describes the deductions allowable
under chapter VIA of the I.T. Act from the gross total income of
the assessees having income from salaries.
SECTION
80CCC
NATURE OF
DEDUCTION
Payment of premium forannunity plan of LIC or
any other insurer
Deduction is available
upto a maximum of
Rs.10,000/-
REMARKS
The premium must bedeposited to keep in
force a contract for an
annuity plan of the LIC
or any other insurer for
receiving pension from
the fund.The Finance
Act 2006 has enhanced
the ceiling of deductionunder Section 80CCC
from Rs.10,000 to
Rs.1,00,000 with effect
from 1.4.2007.
3736
80CCD
80CCF
80D
Deposit made by an
employee in his pension
account to the extent of
10% of his salary.
Subscription to long term
infrastructure bonds
Payment of medical
insurance premium.
Deduction is available
upto Rs.15,000/ for self/
family and also upto Rs.
15,000/- for insurance in
Where the Central
Government makes any
contribution to the
pension account,
deduction of such
contribution to the
extent of 10% of salary
shall be allowed.
Further, in any year
where any amount is
received from the
pension account such
amount shall be charged
to tax as income of that
previous year. The
Finance Act, 2009 has
extended benefit to any
individual assesse, not
being a Central
Government employee.Subscription made by
individual or HUF to the
extent of Rs. 20,000 to
notified long term
infrastructure bonds is
exempt from A.Y. 2011-
12 onwards.
The premium is to be
paid by any mode of
payment other than cash
and the insurance
scheme should be
framed by the General
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Insurance Corporation
of India & approved by
the Central Govt. or
Scheme framed by any
other insurer and
approved by the
Insurance Regulatory &
Development Authority.
The premium should be
paid in respect of health
insurance of the
assessee or his familymembers. The Finance
Act 2008 has also
provided deduction upto
Rs. 15,000/- in respect of
health insurance
premium paid by the
assessee towards his
parent/parents. W.e.f.01.04.2011, contributions
made to the Central
Government Health
Scheme is also covered
under this section.
The handicapped
dependant should be a
dependant relativesuffering from a
permanent disability
(including blindness) or
mentally retarded, as
certified by a specified
physician or psychiatrist.
respect of parent/
parents of the assessee.
Deduction of Rs.40,000/
- in respect of (a)
expenditure incurred onmedical treatment,
(including nursing),
training and
rehabilitation of
handicapped dependant
relative. (b) Payment or
80DD
3938
deposit to specified
scheme for maintenance
of dependant
handicapped relative.
W.e.f. 01.04.2004 the
deduction under this
section has been
enhanced to Rs.50,000/
-. Further, if the
dependant is a person
with severe disability a
deduction of
Rs.1,00,000/- shall be
available under this
section.
Deduction of Rs.40,000
in respect of medical
expenditure incurred.
W.e.f. 01.04.2004,
deduction under thissection shall be
available to the extent of
Rs.40,000/- or the
amount actually paid,
whichever is less. In
case of senior citizens, a
deduction upto
Rs.60,000/- shall beavailable under this
Section.
Deduction in respect of
payment in the previous
year of interest on loan
Note: A person with
severe disability means
a person with 80% or
more of one or more
disabilities as outlined in
section 56(4) of the
Persons with
Disabilities (Equal
opportunities, Protection
of Rights
and Full Participation)
Act.,
Expenditure must be
actually incurred by
resident assessee on
himself or dependent
relative for medicaltreatment of specified
disease or ailment. The
diseases have been
specified in Rule 11DD.
A certificate in form 10
I is to be furnished by
the assessee from a
specialist working in aGovernment hospital.
This provision has been
introduced to provide
relief to students taking
80DDB
80E
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loans for higher studies.
The payment of the
interest thereon will be
allowed as deduction
over a period of upto 8
years. Further, by
Finance Act, 2007
deduction under this
section shall be available
not only in respect of
loan for pursuing higher
education by self but
also by spouse or
children of the assessee.
W.e.f.01.04.2010 higher
education means any
course of study pursued
after passing the senior
secondary examination
or its equivalent from
any recognized school,
board or university.
The various donations
specified in Sec. 80G
are eligible for
deduction upto either
100% or 50% with or
without restriction asprovided in Sec. 80G
(1) Assessee or his
spouse or minor
child should not
own residential
taken from a financial
institution or approved
charitable institution for
higher studies.
Donation to certain
funds, charitable
institutions etc.
Deduction available is
the least of
(i) Rent paid less 10% of
total income
80G
80GG
4140
80U
80RRB
(ii) Rs.2000 per month
(iii) 25% of total income
Deduction of Rs.50,000/
- to an individual who
suffers from a physicaldisability (including
blindness) or mental
retardation.Further, if the
individual is a person
with severe disability,
deduction of Rs.75,000/
- shall be available u/s
80U. W.e.f. 01.04.2010this limit has been raised
to Rs. 1 lakh.
Deduction in respect of
any income by way of
royalty in respect of a
patent registered on or
after 01.04.2003 under
the Patents Act 1970
shall be available as :-Rs.
3 lacs or the income
received, whichever is
less.
accommodation at the
place of employment.
(2) He should not be in
receipt of house rent
allowance.
(3) He should not have
a self occupied
residential premises in
any other place.
Certificate should be
obtained on prescribed
format from a notifiedMedical authority.
The assessee who is a
patentee must be an
individual resident in
India. The assessee must
furnish a certificate in
the prescribed form duly
signed by the prescribed
authority alongwith the
return of income.
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The following investments/payments are inter alia eligible
for deduction u/s 80C:-
NATURE OF
INVESTMENT
Life Insurance Premium
Sum paid under contract for
deferred annuity
Sum deducted from salary
payable to Govt. Servant for
securing deferred annuity for
self, spouse or child
Contribution made under
Employees Provident Fund
Scheme
Contribution to PPF
Contribution by employee to a
Recognised Provident Fund.
Subscription to any notified
securities/notified deposits
scheme.
REMARKS
For individual, policy must be
in the name of self or spouse or
any childs name. For HUF, it
may be on life of any member
of HUF.
For individual, on life of self,
spouse or any child of such
individual.
Payment limited to 20% of
salary.
For individual, can be in the
name of self/spouse, any child
& for HUF, it can be in the
name of any member of the
family.
4342
80QQB
80C
Deduction in respect of
royalty or copyright
income received in
consideration for
authoring any book of
literary, artistic or
scientific nature other
than text book shall be
available to the extent
of Rs. 3 lacs or income
received, whichever is
less.
This section has been
introduced by the
Finance Act, 2005.
Broadly speaking, this
section provides
deduction from total
income in respect of
various investments/expenditures/payments
in respect of which tax
rebate u/s 88 was
earlier available. The
total deduction under
this section is limited to
Rs.1 lakh only.
The assessee must be
an individual resident in
India who receives
such income in
exercise of his
profession. To avail of
this deduction, the
assessee must furnish
a certificate in the
prescribed form along
with the return of
income.
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Tuition fees paid at the time of
admission or otherwise to any
school, college, university or
other educational institution
situated within India for the
purpose of full time education.
Any term deposit for a fixed
period of not less than five
years with the scheduled bank.
Subscription to notified bonds
issued by NABARD
Payment made into an account
under the Senior Citizens
Savings Scheme Rules, 2004
Payment made as five year time
deposit in an account under the
Post Office Time DepositRules, 1981
Available in respect of any two
children.
This has been included in
Section 80C by the Finance Act
2006.
This has been included in
Section 80C by the Finance Act
2007 and has come into effectfrom 1.4.2008.
This has been introduced by
Finance Act, 2008 and shall
come into effect from 1.4.2009.
This has been introduced by
Finance Act, 2008 and shall
come into effect from 1.4.2009.
It may be noted that the aggregate amount of deductions under
sections 80C, 80CCC and 80CCD are subject to an overall ceiling
of Rs.1 lakh.
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Subscription to any notified
savings certificates.
Contribution to Unit Linked
Insurance Plan of LIC MutualFund
Contribution to notified deposit
scheme/Pension fund set up by
the National Housing Bank.
Certain payment made by way
of instalment or part payment
of loan taken for purchase/construction of residential
house property.
Subscription to units of aMutual Fund notified u/s
10(23D)
Subscription to deposit scheme
of a public sector company
engaged in providing housing
finance.
Subscription to equity shares/debentures forming part of any
approved eligible issue of
capital made by a public
company or public financial
institutions.
e.g. NSC VIII issue.
e.g. Dhanrakhsa 1989
Condition has been laid that in
case the property is transferred
before the expiry of 5 yearsfrom the end of the financial
year in which possession of
such property is obtained by
him, the aggregate amount of
deduction of income so allowed
for various years shall be liable
to tax in that year.
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Contribution by employee to a
Recognised Provident Fund.
Sum deposited in 10 year/
15year account of Post OfficeSavings Bank
Subscription to any notified
securities/notified deposits
scheme.
Subscription to any notified
savings certificates
Contribution to Unit LinkedInsurance Plan of LIC Mutual
Fund
Contribution to notified deposit
scheme/Pension fund set up by
the National Housing Bank.
Certain payment made by way
of instalment or part payment ofloan taken for purchase/
construction of residential
house property.
Contribution to notified annuity
Plan of LIC(e.g. Jeevan Dhara)
or Units of UTI/notified Mutual
Fund.
Subscription to units of a
Mutual Fund notified u/s
10(23D)
e.g. NSC VIII issue.
e.g. Dhanrakhsa 1989
Qualifying amount limited
to Rs.10,000. The limit hasbeen raised to Rs.20,000
w.e.f. assessment year
2001-2002.
If in respect of such
contribution, deduction u/s
80CCC has been availed of,
rebate u/s 88 would not be
allowable.
Subscription to deposit scheme
of a Public Sector Company/
Authorised Authority providing
long term house financing.
Subscription to equity shares/
debentures forming part of any
approved eligible issue of
capital made by a public
company or public financial
institutions.
(w.e.f. 01.04.2004) Tuition fees
paid at the time of admission orotherwise to any school,
college, university or other
educational institution situated
within India for the purpose of
full time education of any two
children.
In respect of it, a higher limit
of qualifying investment of
Rs.70,000 (Rs.80,000 w.e.f.
A.Y. 2001-2002) is available as
against Rs.60,000 in case of
other investments.
The qualifying amount limited
to Rs.12,000/- in respect ofeach child.
It is important to note that no tax rebate u/s 88 shall beavailable from A.Y.2006-07 onwards. Similarly, sections 88B and
88C providing special rebates to senior citizens and ladies, stand
omitted w.e.f. 01.04.2006.
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6.3 RELIEF UNDER SECTION 89 (1):-
It is available to an employee when he receives salary in
advance or in arrear or when in one financial year, he receives
salary of more than 12 months or receives profits in lieu of salary.
W.e.f. 1.6.89, relief u/s 89(1) can be granted at the time of TDS
from employees of all companies, co-operative societies,
universities or institutions as well as govt./public sector
undertakings, the relief should be claimed by the employee in
Form No. 10E and should be worked out as explained in Rule
21A of the Income Tax Rules.
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the above, the accumulated balance due and becoming payable to
an employee participating in a Recognised Provident Fund is also
exempt to the extent provided in Rule 8 of Part A of the Fourth
Schedule of the Income Tax Act.
8.8 PAYMENT FROM APPROVED SUPERANNUATION
FUND (Sec.10(13)):
Payment from an Approved Superannuation Fund will be
exempt provided the payment is made in the circumstances
specified in the section viz. death, retirement and incapacitation.
8.9 DEPOSIT SCHEME FOR RETIRED GOVT/PUBLIC
SECTOR COMPANY EMPLOYEES:
Section 10(15) of the Income Tax Act incorporates a number
of investments, the interest from which is totally exempt from
taxation. These investments may be considered as one of the
options for investing various benefits received on retirement. One
among them, notified u/s 10(15)(iv)(i), is the DEPOSIT SCHEME
FOR RETIRED GOVT/PUBLIC SECTOR COMPANY
EMPLOYEES which is a particularly attractive option for retiring
employees of Govt. and Public Sector Companies. W.e.f.assessment year 1990-91, the interest on deposits made under this
scheme by an employee of Central/State Govt. out of the various
retirement benefits received is exempt from Income-tax. This
exemption was subsequently extended to employees of Public
Sector companies from assessment year 1991-92 vide notification
No. 2/19/89-NS-II dated 12.12.1990. Salient features of the
scheme are discussed below:
Rate of Return Tax free interest @ 9% P.A. payable half
yearly on 30th June and 31st December
Limit of Investment Minimum Rs.1000.
Maximum not exceeding the total
retirement benefits.
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Liquidity Entire balance can be withdrawn after
expiry of 3 years from the date of
deposit. Premature encashment can be,
made after one year from the date of
deposit in which case interest on amountwithdrawn will be payable @ 4% from
the date of deposit to the date of
withdrawal.
Other considerations: Only 1 account can be opened in own
name or jointly with spouse. Account is
to be opened within 3 months of
receiving retirement benefits. Schemeis operated through branches of SBI and
its subsidiaries and selected branches of
nationalised banks.
[This scheme has been discontinued w.e.f. 10.07.2004 vide
notification F. No.15-01/2004-NS-2, dated 09.07.2004.]
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10.8 INCOME TAX CLEARANCE CERTIFICATE
An expatriate before leaving the territory of India is required
to obtain a tax clearance certificate from a competent authority
stating that he does not have any outstanding tax liability. Such a
certificate is necessary in case the continuous presence in India
exceeds 120 days. An application is to be made in a prescribed
form to the Income Tax Authority having jurisdiction for
assessment of the expatriate to grant a tax clearance certificate.
This is to be exchanged for final tax clearance certificate from the
foreign section of the Income Tax Department. Tax Clearance
certificate is valid for a period of 1 month from the date of issue
and is necessary to get a confirmed booking from an airline or
travel agency and may be required to be produced before the
customs authorities at the airport.
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CHAPTER- 11
INCOME TAX ON
FRINGE BENEFITS
11.1 INTRODUCTION :-
The Finance Act 2005 has introduced a new tax called
Income-tax on fringe benefits w.e.f. 01.04.2006. This shall be
in the form of additional income tax levied on fringe benefits
provided or deemed to have been provided by an employer to his
employees during the previous year.11.2 RATE OF TAX :-
The tax on fringe benefits shall be levied at the rate of 30%
on the value of fringe benefits provided.
11.3 LIABILITY TO PAY :-
The liability to pay this tax is to be borne by the employer
including
i) a company
ii) a firm
iii) an association of persons or body of individuals
excluding any fund or trust or institution eligible for
exemption u/s 10(23C) or 12AA.
iv) a local authority
v) an artificial juridical person
11.4 WHAT IS INCLUDED IN FRINGE BENEFITS :-
Fringe benefits have been defined as including any
consideration for employment provided by way of
a) any privilege, service, facility or amenity provided by an
employer directly or indirectly including reimbursements.
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b) any free or concessional ticket provided by the employer for
private journeys of his employees or their family members.
c) any contribution by the employer to an approved
superannuation fund for employees.
d) any specified security or sweat equity shares allotted/
transferred, directly or indirectly by the employers free of
cost or at concessional rate to his employees. The detailed
provisions in respect of this are included in Chapter XII H of
the I.T. Act.
Further, fringe benefits shall be deemed to have been
provided if the employer has incurred any expenses or made any
payments for various purposes namely, entertainment, provision
of hospitality, conference, sales promotion including publicity,
employees welfare, conveyance, tour & travel, use of hotel,
boarding & lodging etc.
Various provisions relating to income tax on fringe benefits
have been modified by the Finance Act, 2006. Exceptions in
respect of certain expenditures have been introduced including
expenditure incurred on distribution of free/concessional samplesand payments to any person of repute for promoting the sale of
goods or services of the business of the employer. Similarly, it
has been proposed that expenditure incurred on providing free or
subsidized transport or any such allowance provided by the
employer to his employees for journeys from residence to the place
of work shall not be part of fringe benefits. Another significant
amendment is regarding the contribution by an employer to an
approved superannuation fund to the extent of Rs.1 lakh peremployee which shall not be liable to fringe benefit tax. Further,
in the case of some other expenses incurred such as expenses
incurred on tour and travel, lower rates for valuation of fringe
benefits @ 5% have been provided for. The Finance Act 2008
has introduced further exemption in respect of certain expenditures
from the purview of Fringe Benefit Tax. These include payments
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through non-transferable electronic meal cards, provision of crche
facility, organizing sports events or sponsoring a sportsman being
an employee. These provisions shall come into effect from A.Y.
2009-10 onwards.
The Finance act, 2009 has withdrawn the Fringe Benefit Tax.
Thus, the FBT stands abolished w.e.f. A.Y. 2010-11 and now such
perquisites are taxable in hands of employees.
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CHAPTER- 12
SOME RELEVANT CASE-LAWS
12.1 EMPLOYER-EMPLOYEE RELATIONSHIP:
The nature and extent of control which is the basic requisite
to establish employer- employee relationship would vary from
business to business. The test which is uniformly applied in order
to determine the relationship is the existence of a right to control
in respect of the manner in which the work is to be done.
(Dharangadhra Commercial Works v State of Saurashtra 1957SCR 152)
12.2 LEAVE ENCASHMENT (S.10(10AA)):
Retirement includes resignation. What is relevant is
retirement: how it took place is immaterial for the purpose of this
clause. Therefore, even on resignation, if an employee gets any
amount by way of leave encashment, S.10(10AA) would
apply.(CIT v D.P. Malhotra (1997) 142 CTR 325(Bom)).(CIT v R.J. Shahney(1986) 159 ITR 160(Mad))
12.3 HOUSE RENT ALLOWANCE (S.10(13A)):
When commission is paid to a person based upon fixed
percentage of turnover achieved by the employee it would amount
to Salary for the purpose of Rule 2 (h) of part A of IV Schedule
(Gestetner Duplicators v CIT 117 ITR 1 (SC)).
12.4 PERQUISITE (S. 17):
12.4.1 One can not be said to allow a perquisite to an
employee if the employee has no vested right to
the same.
(CIT v L.W. Russel (1964) 531 ITR 91 (SC)).
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12.4.2 Reimbursement of expenses incurred by the
employee has been intended to be roped in the
definition of Salary by bringing it as part of
Profit in lieu of salary.
(I.E. I Ltd. v CIT (1993) 204 ITR 386(Cal)
12.5 RENT FREE ACCOMMODATION:
A rent free accommodation was provided to the assessee by
his employer but he never occupied it. Held that, unless the
employee expressly forgoes his right to occupying it, the perk
value would be taxable even though he never occupies it.
(CIT v B.S. Chauhan 150 ITR 8(Del)).12.6 DEDUCTION UNDER S.80G:
By the very nature of calculation required to be made u/s
80G(4) it is necessary that all deduction under chapter VIA be
first ascertained and deducted before granting deduction u/s 80G
(Scindia Steam Navigation Co v CIT (1994) 75 Taxman
495(Bom))
12.7 DEDUCTION U/S 80RRA:
Fees received by a consultant or technical for rendering
services abroad would also come within the purview of S. 80RRA
(CBDT v Aditya V. Birla (1988) 170 ITR 137(SC))
12.8 RELIEF U/S 89:
Where arrears of salary are paid under orders of court, the
employee would be entitled to relief u/s 89.
(K.C. Joshi v Union of India (1987) 163 ITR 597(SC).
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12.9 REVISED RETURN:
A belated return filed u/s 139(4) can not be revised u/s 139(5).
(Kumar J.C. Sinha v CIT (1996) (86 Taxman 122(SC)).
12.10 Return showing income below taxable limit is a valid return.
(CIT v Ranchhoddas Karosands (1959) (361 ITR 869 (SC)).