“IT’S MATTER OF LAW AND WELFARE”

DEFINITION

Tax Is a fee charged ("levied") by a government on a product,income, or activity. If tax is

levied directly on personal orcorporate income, then it is a direct tax. If tax is levied on the price of a

good or service, then it is called anindirect tax. The purpose of taxation is to finance government

expenditure. One of the most importantuses of taxes is to finance public goods and services, such as

street lighting and street cleaning. Since public goods  and services do not allow a non-payer to be

excluded, or allow exclusion by a consumer, there cannot be a market in the good or service, and so

theyneed to be provided by the government or a quasi-government agency, which tend to finance

themselves largely through taxes”

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received... in a given period of time." For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. In the field of public economics, it may refer to the accumulation of both monetary and non-monetary consumption ability, the former being used as a proxy for total income.

Income tax is Annual tax levied by the Federal government, moststates, and

some local governments, on an individual's or corporation's net profit.”

INTRODUCTION:

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

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

Income Tax has been in force in different forms since years. If we go through the history of India, we get relevant information regarding the taxation system of India. In ancient history, it is mentioned about such system which was imposed on the income, expenditure and other subject. Even information of the same is given in Manu Smriti and Arthasatra which confirms its existence at that time.

In modern India, Income Tax came into existence in 1860 with the implementation of first Income Tax Act. After implementation of this Act, people became aware of the actual meaning of Income Tax. This act was in force for first five years. After this, in 1865, second Act came into force. There were major changes in this Act relative to the first. It proved itself as a good factor for the growth of our economy. With this Act a new concept of Agriculture Income came into existence.

After this, different new Act was also implemented. The most important of them is the Income Tax Act, 1961. According to ruling of Income Tax Act, 1961, any person whose salary from any source of income is more than the maximum limit of unchangeable amount will be liable to pay Income Tax. There is also a provision of deduction and exemptions in Income Tax, depending upon the type of assessee, source of income, residential status and investment in saving schemes. Income tax rates are a matter of change, which is declared by Ministry of Finance, Government of India regularly, usually on annual basis.

Income Tax RefundIndian Tax payers can now heave a sigh of relief as tracking down their refund status has become easy. The tax authorities have simplified the process of tracking your refund cheque status. If you are a taxpayer looking for some information on your tax refund status you can simply track the exact status of your refund online.

Heads of Income

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

Heads of Income: Salary

Heads of Income: House Property

Heads of Income: Profit In Business/ Profession

Heads of Income: Capital Gains

Heads of Income: Other Sources

Salary

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

When due from the former employer or present employer in the previous year, whether paid or not

When paid or allowed in the previous year, by or on behalf of a former employer or present employer, though not due or before it becomes due.

When arrears of salary is paid in the previous year by or on behalf of a former employer or present employer, if not charged to tax in the period to which it relates.

What Income Comes Under Head of Salary?Under section 17 of the Income Tax Act, 1961 there are following incomes which comes under head of salary:

1. Salary (including advance salary)2. Wages3. Fees4. Commissions5. Pensions6. Annuity7. Perquisite8. Gratuity9. Annual Bonus10. Income From Provident Fund11. Leave Encashment12. Allowance13. Awards

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

What is Annuity?

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

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

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

Under Income Tax Act following types of allowance are defined

House Rent Allowance: Under sections 10(13A) of Income Tax Act, 1961 allowance is defined as an amount received by an employee paid by his/ her employer as a rent of his/her house. It is a taxable income. There is no exemption in tax if he is living in his own house or house for which he is not paying rent. There are following types of amount which are exempted from tax:

Actual house rent paid by that individual Rent paid for the accommodation over 10% of the salary 50% of the salary if house is placed at Delhi, Mumbai, Kolkata, Chennai or 40%

of the salary in it is placed in any other city

Entertainment Allowance:It is the amount paid by employer for availing entertainment services. Under section 16(ii) of Income Tax Act, 1961 it is entitled to deduction in tax from is salary. But in this case deduction is given to his gross salary which also includes entertainment allowance. Deduction in tax against this allowance can be divided into two parts :

In case of Government employee entitled to minimum deduction of Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 5000

In case of other employee entitled to minimum deduction of (a) Entertainment allowance received 20% of basic salary excluding any other allowance Rs. 7500 Entertainment allowance received during 1954-1955

Other Special Allowances Children Education Allowance Tribal Area Allowance Hostel Expenditure Allowance Remote Area Allowance Compensatory Field Area Allowance Counter Insurgency Allowance Border Area Allowance Hilly Area Allowance

Allowances for there is a provision of exempt in income tax are: Allowance given to a citizen of India, who is a government employee, for

rendering services outside India Allowances given to Judges of High Courts Allowance given Judges of Supreme Court Allowances received by an employee of UNO

What is Perquisite?Under section 17(2) of Income Tax Act, 1961 perquisite is defined as:

Amount paid for the rent-free accommodation provided to the assessee by his employer

Any concession in the matter of rent respecting any accommodation provided to the assessee by his employer

Any benefit or amenity granted or provided free of cost or at concessional rate in any of the following cases:

1. By a company to an employee, who is a director thereof2. By a company to an employee being a person who has a substantial

interest in the company3. By any employer to an employee whose income under the head 'Salaries'

exceeds Rs.24000 excluding the value of non monetary benefits or amenities

4. Any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee

5. Any sum payable by the employer whether directly or through a fund, other than a recognised provident fund or EPF, to effect an assurance on the life of the assessee or to effect a contract for an annuity

There are following perquisites which are tax free: Medical facility Medical reimbursement Refreshments Subsidised Lunch/ Dinner provided by employer Facilities For Recreation

Telephone Bills Products at concessional rate to employee sold by his/ her employer Insurance premium paid by employer Loans to employees by given by employer Transportation Training House without rent Residence Facility to member of Parliament, judges of High Court/ Supreme

Court Conveyance to member of Parliament, judges of High Court/ Supreme Court Contribution of employers to employee's pension, annuity schemes and group

insurance

House Property

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

What Income Comes Under Head of House Property?Annual value of building or land owned by assessee. There is a charge on the potential of property to generate income not on the rent received. But if property is used for making profit in business then it will be taxable not under this head but will be taxable under head of profit in business/ profession.

How to calculate annual value of property?According to annual value, house property is calculated as

1. Annual value of a house is zero if property is in the occupation of the owner for his residence for the whole year & if no other benefit is availed by owner from his property. There will be no deductions as given under section 24 except deduction interest on borrowed capital

2. If the owner lets out the house or a part thereof for any period of time during the previous year the annual value of the property or part has to be calculated for the whole year and the proportionate annual value of the period for which the house or any part thereof was in the occupation of the owner for his own residence shall be deducted from the gross annual value. The assessee in such cases cannot claim deduction under section 24 in excess of the annual value so determined

3. The assessee occupies more than one house for his residence, the above exemption is applicable only to one such house at the option of the assessee. The annual value of the other house or houses shall be computed as if the house or houses are let

4. In case where the assessee has only one residential house but it cannot be occupied by the owner by reason of that owing to his employment, business or profession carried out on at any other place, he has to reside at that other place in

a building not belonging to him, the annual value of such house shall be taken to be nil if the house is not actually let and no other benefit is derived by the owner from such house. The assessee cannot claim any deduction in such case as allowable under section 24 of the Act except for interest on borrowed capital subject to a maximum of Rs. 15,000/-

Profit in Business/ Profession

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

There must be a business/ profession Business/ profession is being carried by assessee Business/ profession have been carried out by assessee in assessment year for

which income tax is filling

What Income Comes Under Head of Profit in Business?

Profits and gains of assessee from any business or profession during assessment year

Any payment or compensation due or received by a person for his services to organization as a part of his business

Making profit in trade Income of professional or organization against services provided by that professional/ organization

Profits on sale of a license granted under the Imports (Control) Order, 1955, (EXIM control Act, 1947)

Cash received or due by any person against exports under government schemes Any benefit whether it is not in cash coming from business/ profession Any profit, salary, bonus or commission received by company partners

Capital Gains

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

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

Goodwill of business generated by assessee Tenacy rights Stage carriage permits Loom hours Right to manufacture Processing & production of any article or things

Assets Which Don't Come Under Heads of Capital Assets?According to Income Tax Act,1961 there are few assets which don't form a part of Capital Assets, which are as follows:

Stock of goods and raw materials used by assessee for his business or profession Those property which are movable like wearing apparel, furniture, automobile,

phone, household goods etc. Held by assessee. But Jewelry which is also an movable assets comes under heads of Capital Assets

Agricultural property in India. But agriculture land coming under municipal limits (in area having population ore than 10,000) comes under Capital Assets. Agriculture lands within 8 Km from municipal limit also comes under Capital Assets if it is notified by the central government of India

Few Gold Bonds issued by government Few special bonds issued by central government like Special Bearer Bonds, 1991

Transfer of Capital AssetsUnder Section 2(47) of The Income Tax Act,1961 transfer of capital assets is defined as:

Sale, exchange and relinquishment of assets Extinguishment of any rights in capital assets Acquisition of capital assets or rights Conversion of capital asset by its owner as stock in trade of his business, it may

also be a term of transfer Transfer of immovable property under Section 53A of Transfer of Property Act,

1882 Any transaction by which an assessee become enable to act as a member of

cooperative society Any transaction by which an assessee acquire shares in cooperative society

Other Sources

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

Salary House Property Profit In Business/ Profession Capital Gains

So under Section 56(2) of Income Tax Act,1962 all such income comes in this heads of income. There are following incomes which are taxed under this heads

Income coming as a dividend paid by a company to an assessee Income coming from winning in lottery, crossword puzzles, races, card games,

gambling or other such sports Income coming as an amount received by assessee from his employer as a fund

for welfare of employee Income as an interest on securities Income coming by letting on hire machinery, plant, furniture, building or other

goods Income coming from insurance policy

INCOME TAX RETURN

Income Tax Return is an important part of Income Tax. It is the way by which an assessee process for paying his tax to Income Tax Department. As per the provisions of Income Tax Act, 1961, filing of Income Tax return is a legal obligation of every Individual whose income exceeds the maximum limit of non-taxable income for the full financial year i.e. from 01 April to March 31 of the following year, for example for the year 2007-2008 (which is also called the Assessment Year) the period is 01 April 2007 to 31 March 2008. In case of salaried class assessee the information about the income in the particular financial year supported with the form 16 (the certificate for tax deducted at source), which is issued by the employer at the end of the financial year.

Transforming itself with the changing times, the Income Tax Department of India has launched an easy to use online facility for filing Income Tax Returns using the Internet. The filing of Income Tax Returns Online offers great convenience, fast in processing and hassle-free option to the assessees. Income Tax Return has several part or phases which we follow for paying tax. To know Income Tax Return in an easy way, it is divided into the following sub sections:

What Is Income Tax Return

Income Tax Return Form

Authorised Signatory

Income Tax Return Filing

Income Tax Return

"Income Tax Return" is a term which is often used when we talk about income tax. It is a way by which we pay this tax. When total annual income of a person, including all sources, is more than maximum unchargeable limitation ( At present it is Rs. 1,50,000/-) then that person is liable to pay income tax.

Late Return

Any person not filing the return within the time mentioned is allowed to file a late return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment year, whichever is earlier.

PenaltyPenalty for delay filing of return is calculated as a percentage of the shortfall of tax. In case where tax has been deducted at source, or advance tax has been duly paid, no penalty is leviable.

Defective ReturnIf the return of income furnished by the assessee is defective according to assessing officer, it is intimated to the assessee and given an opportunity to rectify the defect within 15 days from the date of such intimation or within such further period as may be allowed by the assessing officer on the request of the assessee. If this is not rectified by the assessee within the aforesaid period then the return shall be deemed invalid and further it shall be deemed that the assessee had failed to furnish the return.

Under section 139(1) of the Income Tax Act, there are additional six conditions, which forces a person to file his income tax return. These condition are:-

1. Owner of a Motor vehicle

2. Owner of immovable property3. Person who does foreign-travel4. Subscribers of a telephone5. Holder of a credit card6. Incurs expenses on himself

Income Tax Return Forms

Forms Used In Filling of Income Tax Return Are As Given Below:

Form No.

Assessee Type

1 For Companies

2 For those who have their own business income and claiming exemption u/s 11 of the I.T. Act, 1961

2A For those whose income source is neither business nor profession and income is not more than Rs. 2 lakhs

2B Return of Income for the block period like search & seizure cases

2C For those who ambit of one out of six scheme

2D This is also known as Saral Form. It is for non Corporate Assessees other than persons who claims exemption under Sec. 11

2E Nay Saral Form- For resident individual/Hindu undivided family not having income from business/profession/capital gains/agricultural income

3 For those who is not a company and those deriving income from property held for charitable and religious purposes claiming exemption under section 11 and whose total income does not include "profits and gains of business or profession

3A For assessees including companies claming exemption under section 11

16AA Certificate for tax deducted at source from income chargeable under the head "Salaries" - cum - Return of income

49A For allotment of Permanent Account Number under section of 139A of Income Tax Act

60 It is a declaration required to be filled by those persons who have neither a PAN nor a General Index Number (GIR) number & making payments in cash with respect to transactions in clauses (i) to (vii) of rule 114B, as given below:

Sale and purchase of vehicle Time deposit of amount more than Rs. 50000/- to any banking

institutions Contracts for sale or purchase of securities of amount more than Rs.

10,00,000 Sale & purchase of property worth Rs. 5,00,000/- or more Open an account (which is not a time deposit) with a banking

institutions Application for connection of phone (including cell phones)

Payment of hotel/ restaurants bills more than Rs. 25,000/- at a time

61 For those whose source of income is agriculture and not any other, chargeable tax mentioned under clauses mentioned above

Income Tax Return Filing

There are following steps that must be followed for income tax return filing: - See the Heads of Income and decide which type of assessee you are Select return form according to the type of assessee from the list Before filing form pls. read the form carefully Use black ball pen or other as instructed in form There should not be any overwriting on the form Fill name, father's name, date of birth as mentioned in your educational

certificates Put signature of authorized person (pls. see the list of authorised signatory) on the

form at right place Use your own PAN/TAN/GIR number for filing the income tax return Use correct options/code to show your status in the income tax return form Assessment year must be mentioned on return form clearly. Assessment year is

the last financial year for which tax has to pay Mention your all source of income with income amount clearly and correctly Calculate your taxable amount including surcharges and deducting rebate from

your income Attached all required documents for getting deduction/ rebate or exemption in tax After filling form pls. recheck that all the information given by you is correct and

on proper place Don't give any wrong information in the form Go to income tax department and submit the form to concerning income tax

assessing officer File your income tax return before the last date of return filing. Last date for an

individual having only salary income is 30th June as well as last date for individual having business income (if auditing not required) is 31st august.

Income Tax Dates

It is very important to file income tax return before the last date of return filing. Last date for an individual having only salary income is 30th June as well as last date for individual having business income (if auditing not required) is 31st august. For those filing non-auditable accounts. the deadline for filing tax returns has been extended to October 31 from July 31. Salaried class and those deriving income from properties and capital gains will have to file returns by July 31 or pay the interest on taxes due on them.

Here is a list of important dates for income tax return filing:14th JanuarySubmission of tax deduction against interest, dividend or any other amount paid to non-resident during 1st, October - 31st, December. Form No: 27

15th MarchIn case of other than company - Payment of 3rd installment of advance for the financial year In case of a company - Payment of 4th installment of advance for the financial year

14th April Submission of statement of tax deduction against interest, dividend or amount paid to non-resident during 1st, January - 31st, March. Form No: 27

30th April(i) Certificates of such taxes which are deducted due to payment given to employees as their salary. From No: 16 (ii) Certificates of such taxes, which are deducted due to amount, paid as insurance commissions. Form No: 16A (iii) Certificate of tax deducted other than salary Form No: 16A (iv) filing annual return of dividend and income in terms of units under section 206 of

Income Tax Act 1961. Form No: 26

31st May(i) filing of annual return against earning from prize, lottery. Form No: 26B (ii) filing of annual return against earning from horse races. Form No: 26BB (iii) filing of annual return against salary paid. Form No: 24

15th June In case of company - Payment of 1st installment of advance for the financial year

30th June (i) filing of income tax return if assessee is not a corporate/ cooperative and having no source of income from business/ profession. Form No: 3/2A (ii) filing of income tax return against insurance commissions/ commission paid without deduction of tax. Form No: 26D, 26E (iii) filing of income tax return against interest either on securities or on any other. Form No: 25, 26A (iv) filing of income tax return against payment to contractors Form No: 26C (v) filing of income tax return against deposits under national saving schemes Form No: 26F (vi) filing of income tax return against payment for purchasing of Mutual Funds Form No: 26G (vii) filing of income tax return against payment of commission on sale of lottery Form No: 26H (viii) filing of income tax return against payment of rent Form No: 26J

14th July Submitting date for the statement of tax deducted from interest on amount paid to non residents during 1st, April - 30th, June Form No: 27

31st August filing of income tax return if (i) Assessee is not a corporate/ cooperative (ii) There is no need of auditing accounts under any law (iii) Total income includes income through business or other profession. Form No: 2

15th September In case of other than company/ corporate: Payment of 1st installment of advance income tax In case of a company/ corporate: Payment of 2nd installment of advance income tax

14th October Submitting date for the statement of deduction of tax interest, dividend and other amount paid to non resident during 1st July - 30th September. Form No: 27

31st October (i) In case of non corporate: Submitting auditing report under section 44AB of Income Tax Act. Form No: 3CA, 3CB, 3CC, 3CD, 3CE (ii) In case of cooperative/ non corporate: filing of income tax return of the relevant assessment year if it require to get his account audited under Income Tax Act. Form No: 2

filing of half yearly return against tax collected during 1st April - 30th September Form No: 27EA, 27EB, 27EC, 27ED Date of submission of annual audited account for approved programs under section 35 (2AA) of Income Tax Act 1961.

30th November In case of a company - filing of annual return with auditing report under section 44AB For annual return filing: Form 1 For submitting auditing report: Form 3CA & 3CD

15th December

In case of other than company - Payment of 2nd installment of advance for the financial yearIn case of a company - Payment of 3rd installment of advance for the financial year

Income Tax Deductions

In Case of Donations For CharityUnder section 80-G of the Income Tax Act, there are following relief in case of Donations:

Donation to certain funds, approved education institutions of national importance, charitable institutions.

The deduction will be 50% of the amount. Deduction may be 100% if donation is given to Prime Minister Relief Funds,

National Foundation for Communal Harmony, Blood Transfusion Council, The Africa Fund, Earth-quake Relief Fund.

In Case of Physically Handicapped Persons A person who is suffering from permanent physical disability or mental

retardation is entitled to deduction upto Rs. 40,000. Handicapped must be certified by a physician, surgeon or a psychiatrist, working

in a government hospital.

Under section 80DD and 80U of Income Tax Act, physical disability must be one of the following:

1. Permanent or more than 50% disability in limb2. Permanent or more than 60% disability in 2 or more limb3. Permanent loss of voice4. Permanent blindness5. Mental Retardation in which mental intelligence is less than 50% of normal

required intelligence

In Case of Treatment of Handicapped DependentsAll the persons who are dependent on physically handicapped person comes under this category. There is provision of deduction in tax against expenditure on medical treatment, training & rehabilitation of handicapped dependents or amount paid in an approved scheme of LIC or UTI.

In Case of Repayment of Loan Taken For Higher EducationThere is deduction in income tax in respect of repayment of loan taken by a student from a bank or any other financial institutions for higher education in India or worldwide.

In Case of Contribution To Pension FundUnder section 80CCC there is a provision of deduction to an individual for any amount paid to keep in force annuity plan of the LIC for receiving pension from a fund set up by that corporation, as per section 10(23AAB) of Income Tax Act,1961. The amount received by assessee or his nominee will be taxable. There will be no rebate under section 88 to the persons whose deduction under this section has been approved.

In Case of Amount Paid as House RentUnder section 80GG of the Income Tax Act there is a provision of deduction in tax on amount paid by a person (not a salaried person getting housing allowance) for residential accommodation. Deduction in tax will be measured under following parameters :-

The excess of actual rent paid over 10% of the total income (excluding long term capital gain & income, as per section 115A or 115D of Income Tax Act, 1961)

Deduction will not be allowed to an assessee who owns an residential accommodation at a place where he is temporarily residing

Deduction will not be allowed to an assessee who owns an residential accommodation at any place and has also claimed for deduction in respect of self occupied property

In Case of Remuneration Received in Foreign Currency by EmployerUnder section 80RR an individual resident of India who is an author or writer or photographer or TV/ film cameraman or TV/ film director or musician or actor or sport person or other such artist whose source of income is foreign income and brings income to India according to foreign exchange regulation, then he is entitled to get a deduction of amount equal to 75% of such income as it is brought in India in convertible foreign

exchange. This amount will be deducted from his taxable income within the period 6 months or period allowed by Chief Commissioner of Income Tax Department. It is necessary to show the documents in favor of your claim.

In Case of Remuneration Received For Services Rendered Outside IndiaUnder section 80RRA of the income tax act, an individual who is getting remuneration in a foreign currency from an employer for his service in outside of India, will get a deduction of 75% of such income brought into India. This amount will be deducted from his taxable income within the period of 6 months or period allowed by Chief Commissioner of Income Tax Department. It is necessary to show the documents in favor of your claim.

In Case of Certain InvestmentUnder section of 80L of the Income Tax Act, there are few investments which are a matter of deduction in taxable amount. Here an assessee will get a deduction of amount upto Rs.12,000 - 15,000 from income on certain specified investments in government securities, UTI mutual funds, bonds and other tax saving schemes. An assessee will be entitled for deduction from his taxable income if he is getting interest or dividend on certain investment which are as follows :

Investment in Securities of central or state government Investment in National Saving Schemes Investment in Debentures or Bonds of an institution/ authority/ public sector

company/ cooperative society or other such organization notified by central government.

Investment in under National Deposit Schemes as notified by Central Government Investment in under other schemes which are notified by central government like

national saving schemes, time deposit schemes, recurring deposit schemes. Investment in under monthly income scheme of the post office Investment in units of UTI and Mutual Funds (under Section 10(23D) of the

Income Tax Act) Investment in with banking institutions Investment in financial institution working for Industrial Development of India Investment in a public company limited working for providing long term

financing of housing accommodation Investment in such authorities which are working for planning & development of

cities and villages Investment in co-operative societies

Income Tax Exemptions

According to Chapter III of the Income Tax Act, 1961 there is a provision of exemptions in income tax. There are few types of specified income on which a person can get exemption. It means that at the time of calculating annual income, this type of income will not be added. For claiming any of these exemptions, it is necessary to furnish documents which shows that your income comes under this list. If a person doesn't furnish required documents then he/ she will not be entitled for this

Income Type Under Section

Agriculture Income 10(1)

Receipts from a Hindu Undivided Family being paid out of family's income or in the case of an impartible estate belonging to family being paid out of such estate's income

10(2)

Share of partner in total income of a firm which is assessed separately as such.

10(2A)

Receipts being in the nature of casual and non-recurring nature not exceeding Rs. 5,000/- (Rs. 2500/- in the case of winnings from horse races, etc).

10(3)

Interest on securities and bonds including premium on redemption of bonds by Non Resident as notified by Central Government.

10(4)(i)

Interests on amounts in Non-resident (External) Account in any bank in India being maintained as per FERA, 1973 and rules thereunder by an individual..

10(4)(ii)

Interest on specified Central Government's Savings Certificates which were subscribed to, in convertible foreign exchange remitted from a country outside India as per FERA and rules thereunder by an individual citizen or a person of Indian Origin..

10(4B)

Value of Leave Travel Concession or assistance not exceeding the amount actually spent.

10(5)

Specified remuneration to a foreigner and non-resident individual for shooting of film in India who comes solely for such purpose.

10(5A)

Income-tax paid by the employer carrying on scientific research in respect of the salary income of certain technicians from abroad commencing from 1.4.93 subject to conditions stated therin.

10(5B)

Incomes of foreigners as passage money. 10(6)(i)

Remuneration received by an ambassador, diplomats, etc. as specified.

10(6)(ii)

Remuneration received by employees of foreign companies in respect of services rendered during stay in India subject to conditions as specified.

10(6)(vi)

Remuneration received from foreign philanthropic institutions etc. in respect of services rendered in India subject to both the institutions and the purposes thereof being approved by the Central Govt.

10(6)(via)

Income-tax paid by the employer carrying on scientific research in respect of the salary income of certain technicians from abroad commencing from 1.4.88 till 31.3.93 subject to conditions stated therein.

10(6)(viia)

Salaries to non-resident employed on a foreign ship subject to aggregate stay of not more than 90 days in the previous year.

10(6)(viii)

Salaries to non-resident professors or teachers. 10(6)(ix)

Income of individuals engaged in research work in India under duly approved research schemes.

10(6)(x)

Remuneration received from foreign government for training in a government office or undertaking as employee.

10(6)(xi)

Death-cum-retirement gratuity payable to specified members of civil or defence services.

10(10)(i)

Gratuity not exceeding Rs.3 ½ Lakhs payable under the Payment of Gratuity Act, 1972

10(10)(ii)

Any other gratuity not exceeding Rs. 2 ½ Lakhs received by employee on retirement or termination of his services or by legal heirs on death of employee limited to 15 days salary for each

10(10)(iii)

completed year of service.

Receipt in respect of commutation of pension as per specified limits.

10(10A)

Leave encashment not exceeding 8 months salary and subject to specified conditions & limits.

10(10AA)

Compensation paid to employees on account of retrenchment under Industrial Disputes Act, 1947: Ascertainment of amount to be either minimum Rs. 50,000 or as per the said Act whichever is less.

10(10B)

Payments made under Bhopal Gas Leak Disaster Act, 1985. 10(10BB)

Receipt of amount on voluntary retirement upto Rs. 5,00,000 subject to specified scheme and guidelines and necessary approval.

10(10c)

Payment on a Life Insurance Policy, including bonus thereon but excluding therefrom amounts received u/s 80DDA(3).

10(10D)

Receipt of Payment from Public Provident Fund or Statutory Provident Fund.

10(11)

Payment to employee from recognised provident fund in respect of accumulated balance standing to the credit thereof.

10(12)

Receipt of Payment from Superannuation Fund subject to specified conditions and limits.

10(13)

Special allowance to employee viz., house rent allowance. 10(13A)

Special benefit to employees within meaning of s.17(2) subject to conditions stated therein.

10(14)

Receipt of premium on account of Exchange risk from borrower of foreign currency.

10(14A)

Receipt of interest or premium on redemption etc. on notified securities, bonds etc. such as monthly payment on 15-year Annuity Certificates subject to specified condition and limits.

10(15)(i)

Interest on the new Capital Investment Bonds. 10 (15)(iib)

Interest income from notified Relief Bonds w.e.f., assessment year 1989-90.

10 (15)(iic)

Interest on notified bonds owned by a non-resident etc. and 10 (15)(iid)

bought in foreign exchange subject to certain conditions.

Interest on securities under the Ceylon Monetary Law Act, 1949 10 (15)(iii)

Interest payable to any bank incorporated outside India and approved by RBI.

10 (15)(iiia)

Receipt of interest from Govt. etc. on moneys lent to them from sources outside India.

10 (15)(iv)(a)

Receipt of interest from industrial undertaking in India being approved foreign financial institutions in respect of moneys lent to it.

10 (15)(iv)(b)

Receipt of interest from industrial undertaking in India in respect of moneys lent to it outside India for purchases of raw materials, plant & machinery, etc. from abroad.

10 (15)(iv)(c)

Receipt of interest from specified financial institution in India in respect of moneys lent to it from sources outside India.

10 (15)(uv)(d)

Receipt of interest from financial institution other than those covered by 15(iv)(d) above in respect of moneys lent to it from sources outside India for the purposes as specified.

10 (15)(iv)(e)

Receipt of interest from industrial undertaking in India in respect of moneys lent to it in foreign currency from sources outside India.

10 (15)(iv)(f)

Receipt of interest from scheduled bank in respect of deposits made in foreign currency subject to same being duly approved by the RBI.

10(15) (iv)(fa)

Receipt of interest from public company having been formed and registered in India to provide long-term finances for construction/purchase of houses in respect of moneys lent to it in foreign currency from sources outside India.

10 (15)(iv)(g)

Receipt of interest from public sector company in respect of bonds and debentures as notified.

10 (15)(iv)(h)

Receipt of interest from Government in respect of deposits made in its specified schemes from funds due on retirement.

10 (15)(iv)(i)

Receipt of interest on securities held by Welfare Commissioner, Bhopal Gas Victims as also on deposits made with RBI or Public Bank from 1-4-1994 for the benefit of such victims.

10 (15)(v)

Receipt of payment from an Indian company carrying on 10(15A)

business of operation of aircraft, to acquire an aircraft or aircraft engine excluding spares etc., on lease from foreign Govt. or enterprise under an agreement entered into before 1-4-1997 and being duly approved.

Scholarships granted to meet the cost of education 10(16)

Daily allowances received by MPs, MLAs and MLCs. 10(17)(ii)

Receipt of allowances by MPs under the Member of Parliament [Constituency Allowance] Rules, 1986.

10(17)(ii)

Receipt of allowances by MLAs under the limit of Rs. 2,000/- per month

10(17)(iii)

Receipt of any amount in connection with an award, including award in kind, for literary, scientific or artistic work etc. instituted by Government etc.

10(17A)(i)

Receipt of amount in connection with a reward including award in kind from Government in respect of public interest purposes.

10 (17A)(ii)

Receipt of ex-gratia payments from Government to ex-rulers in respect of abolition of their privy purses.

10(18A)

Amount calculated as annual value being the notional value in respect of any one palace to be treated for the purpose as residence by ex-ruler.

10(19A)

Income of a local authority as specified. 10(20)

Income of a development or housing improvement authority in a city and/or village.

10(20A)

Income of approved scientific and research association. 10(21)

Income of a university or other educational institution. 10(22)

Income of a hospital or other such institution working exclusively for philanthropic purposes and not for profit.

10(22A)

Income of news agency having been set up in India for the sole purpose of collection & distribution of news provided its income in any way is not distributed to its members.

10(22B)

Income of associations for promotion of sports, etc. as specified. 10(23)

Any income of associations or institutions for controlling professions of law, medicine, engineering, accountancy,

10(23A)

architecture, etc., except incomes derived from house property or for rendering any specified services or interest on/dividends from its investments.

Income of regiment Fund or Nonpublic fund of armed forces established for welfare of past and present members

10(23AA)

Income of a fund established for welfare of employees or their dependents, the employees being members thereof subject to fulfillment of conditions as to approval and otherwise.

10 (23AAA)

Income of fund set up by LIC from 1-4-1996 in respect of pension scheme subject to conditions as specified.

10 (23AAB)

Income of a charitable trust or registered society, etc. working exclusively for development of khadi & village industries and not for profit as per conditions specified.

10(23B)

Income of Khadi & Village Board, etc.. 10(23BB)

Income received by a statutory public religious or charitable trust or endowment.

10 (23BBA)

Income of European Economic Community derived in India in the shape of interest, dividends or capital gains arising out of investments from its funds under such schemes as notified.

10 (23BBB)

Any income of SAARC Fund having been established under Colombo Declaration dt. 21-12-91 by Heads of State or Government of member countries for the purposes of development of regional projects.

10 (23BBC)

Income on behalf of Prime Minister's National Relief Fund. 10 (23C)(i)

Income on behalf of Prime Minister's Fund (Promotion of Folk Art.)

10 (23C)(ii)

Income on behalf of Prime Minister's Aid to Students Fund. 10 (23C)(iii)

Income of National Foundation for Communal Harmony. 10 (23C) (iii)(a)

Income of any fund or institution established for charitable cause. 10 (23c)(iv)

Income of any trust or institution established wholly for public religious and/or charitable purposes subject to specified conditions.

10 (23c)(v)

Income of specified Mutual Funds registered and/or set up under /by SEBI Act, 1992; public-sector bank/financial

10(23D)

institution or RBI fulfilling such conditions as specified.

Income of Exchange Risk Administration Fund having been set up by public financial institutions either jointly or separately as per specified conditions.

10(23E)

Income in the shape of dividends or long-term capital gains derived by a venture capital fund/company from its investments in the equity of a venture capital undertaking

10(23F)

Income in the shape of dividends, interest or long-term capital gains derived by a infrastructure capital fund/company from its investments in the equity or long-term finance of any infrastructure facility oriented enterprise fulfilling such conditions as specified.

10(23G)

Income of registered trade-union relating to "income from house property" and "income from other sources" as specified.

10(24)

income received by trustees of Provident, Superannuation & Gratuity Funds relating to interest on securities and capital gains resulting from sale or exchange of such securities as specified.

10(25)

Income of Employees State Insurance Fund as specified. 10(25A)

Income of member of Scheduled tribes as specified. 10(26)

Income accruing to any person from any source of income in the district of Ladakh or outside India subject to the person being resident in the said district in the relevant previous year and satisfying other conditions as specified.

10(26A)

Income from winnings from lottery, agreement for draw in respect of which having been entered into upto 28-2-89 between Sikkim Govt. and organising agents of such lottery subject to fulfilling of such condition as specified. {to be omitted from 1-4-1998}

10(26AA)

Income of any statutory corporation formed for promoting the interests of Scheduled Castes or Scheduled tribes, etc., as specified.

10(26B)

Income of any statutory corporation formed for promoting the interests of the members of any minority community.

10(26BB)

income of any cooperative society formed for promoting the interests of members of Scheduled Caste & Tribes.

10(27)

Any amount adjusted or paid relating to Tax Credit Certificates. 10(28)

{To be omitted from 1-4-1998}

Income of an authority from letting of godowns/warehouses for storage, processing or facilitating marketing of goods as specified.

10(29)

Receipt by way of subsidy received from Tea Board as specified. 10(30)

Receipt by way of subsidy received from the concerned Board by an assessee growing or manufacturing rubber, coffee, cardamom and other notified commodities.

10(31)

Income relating to minor child if clubbed u/s 64(1A) in the hands of the assessee not exceeding Rs.1,500 in respect of each minor chid.

10(32)

Any income by way of dividends (whether interim or otherwise) declared, distributed or paid by a Domestic Company on or after 1-6-1997 as referred to in section 115-O.

10(33)

Any profits and gains of newly established industrial undertakings in free trade zones, electronic hardware/software technology parks for any five consecutive assessment years within a block of eight years from the assessment year corresponding to previous year in which production started subject to fulfilling all the conditions as specified.

10A

Any profits and gains of newly established 100% export-oriented units for any five consecutive assessment year within a block of eight years from the assessment year corresponding to previous year in which production started subject to fulfilling all the conditions as specified.

10B

Income of any person from the property held under trust wholly or in part for charitable or religious purposes as specified in detail and subject to the provisions of sections 60 to 63.

11

Receipt of any voluntary contributions by a trust/institution created/ established wholly for charitable or religious purposes excluding the contributions made to it with specific direction to form part of corpus: Such voluntary contributions be deemed to be income from property in terms of section 11.

12

Income of political party chargeable as income from house property or other sources or by way of voluntary contributions received by it from any person subject to conditions as specified.

13A

Income Tax Saving Schemes

National Savings Certificates (NSC)

Public Provident Fund (PPF)

Kisan Vikas Patra (KVP)

Post Office Scheme (POS)

Special Schemes For Retiring Person

Postal Life Insurance

Dividend

National Savings Certificates (NSC)National Saving Schemes (NSC) is one of the popular Income Tax Saving schemes which is available throughout the year. It can be operated singly, jointly, or by a minor with his/her parent or guardian. There is a return on this scheme at interest rate of 8%. The minimum investment limitation of the scheme is Rs.100/- and with no upper limit. Other investments can be done in multiple of Rs. 100/-. This scheme has a maturity period of 6 years. It is transferable and also there is a provision of loan on the basis of this scheme. Under section 88 of the Income Tax Act, 1961 any person can take benefit in income tax on amount invested in this scheme and under section 80L of Income Tax Act, 1961 there is a provision of benefit on interests coming from scheme.

Public Provident Fund (PPF)Under this scheme, there is a return at the interest rate of 8% p.a. The minimum investment limit is Rs. 500/- and maximum limitation is Rs. 70,000/-. It can be opened any time throughout the year. It can be operated either singly or jointly. In case of minor, with parent/guardian. There is also a facility of nomination in this scheme. This scheme has a maturity period of 15 years. The first loan can be taken in the third financial year from the date of opening of the account, or upto 25% of the amount at credit at the end of the first financial year. Loan amount can be returned in maximum of 36 installments. A person can withdraw an amount (not more than 50% of the balance) every year. Under Section 88 of Income Tax Act, 1961 there is a provision of tax benefit by investing in this scheme. Interest on this scheme is tax free.

Kisan Vikas Patra (KVP)Money invested in this scheme doubles in 8 years. There is a minimum investment limitation of Rs.100/- with no upper limit. This scheme is available throughout the year. It can be operated either singly or jointly. In case of minor, with parent/ guardian. Facility

for nomination is also available under this scheme. Currently there is no tax benefit on investment under this scheme.

Post Office Scheme (POS) It is one of the best Income Tax Saving Scheme. It can be operated by either singly or jointly. In case of minor, with parent/ guardian. It is available throughout the year. There are several types of post office schemes depending upon the type of investment and maturity period. Post office schemes can be divided into following catagories:

Monthly Deposit Saving Deposit Time Deposit Recurring Deposit

Special Schemes For Retiring PersonGovernment Employees : There is a return at the rate of 8% per annum. The minimum investment is Rs.1000/- and maximum amount equal to the total retirement benefit. Maturity period of this scheme is 3 years. According to Income Tax Act, 1961 interest on this scheme is tax free.

Public Sector Employees: Under this scheme there is a return of 9.5% payable half-yearly on 30th June and 31st December respectively. There is a minimum investment limitation of Rs.1000/- and the maximum limitation is the amount equal to total retirement benefit. It can be operated by retired PSU employees in his/her own name or with the spouse, jointly. In this scheme, there is a facility of premature encashment. Entire balance or part thereof can be withdrawn after the expiry of three years from the date of deposit. Maturity period of this scheme is 3 years. According to Income Tax Act, 1961 interest on this scheme is tax free.

Postal Life Insurance ForThis scheme is in operation for the last 117 years. This scheme started in 1884 as a welfare measure for the employees of Postoffices & Telegraphs Department under Government of India to the Secretary of State (having dispatch No. 299 dated 18-10-1882). But after few years, various departments of Central and State Governments were extended its benefits. Now it is open for employees of all departments of Central as well as State Government, Nationalized Banks, Public Sector Undertakings, Financial Institutions, Local Bodies like Municipalities and Zila Parisads, Educational Institutions aided by the Government. According to Income Tax Act there is also a provision of special relaxation in income tax on the basis of investment done in urban or rural areas.

DividendAccording to Income Tax Act,1961 there is a provision benefit in Income Tax if assessee has an income as a dividend on investment in any of the following:

Shares Mutual Funds

Unit of UTI

This dividend can be given by any company or coperative society.

Note:- Deduction of up to Rs 1 lakh on investments in specified instruments is available. All sectoral caps (except PPF) have been removed as per Assessment Year 2006-

07. ELSS provides the best hedge against inflation, besides tax brakes. PPF isn't a strain on the pocket - one can invest minimum of Rs 100 to keep the

account alive. Life insurance is good for risk cover, but is not a very great investment option.

Other Savings

1. Infrastructure Bonds,

Infrastructure bonds are available through issues of ICICI and IDBI, brought out in the name of ICICI Safety Bonds and IDBI Flexibonds. These provide tax-saving benefits under Section 88 of theIncome Tax Act, 1961, for the investor. You can reduce your tax liability by upto Rs 16,000 per annum

2. Company Fixed Deposits

Fixed deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits.

3. Life Insurance:

Life insurance saving schemes for government owned Life Insurance Corporation of India and other private life insurance companies like Bajaj Allianz, Birla Sun Life Insurance, HDFC Life Insurance, ICICI Prudential

Tax Rebates under Indian Income Tax Act

Specified Investment Schemes u/s 80C Life insurance premium payments Contributions to Employees Provident Fund/GPF Public Provident Fund (maximum Rs 70,000 in a year) Nattional Saving Certificates. [NSC] Unit Linked Insurance Plan (ULIP) Repayment of Housing Loan (Principal) Equity Linked Savings Scheme (ELSS)

Tuition Fees including admission fees or college fees paid for Full-time education of any two children of the assessee (Any Development fees or donation or payment of similar nature shall not be eligible for deduction).

Infrastructure Bonds issued by Institutions/ Banks such as IDBI, ICICI, REC, PFC etc.

Interest accrued in respect of NSC VIII issue.

Deduction under section 80 CCC(1)

This section allows a deduction of up to Rs. 10,000 to an individual in respect of contribution to ‘Pension’ scheme of LIC of India or any other Insurance Co.

Tax saving Pension plans available in market are LIC’s Jeevan Suraksha, ICICI Pru Life Time Pension, Aviva Life Pension Plus, Max Easy Life policy, Tata AIG’s Nirvana Plus etc.

Section 80 CCE

Aggregate deduction u/s 80 C, u/s 80 CCC and 80 CCD can not exceed Rs. 1,00,000. ( One Lac)

Deduction under section 80D.

Under This section, a deduction up to Rs 10,000 (Rs 15,000 in case of senior citizens) is allowed in respect of premium paid by cheque towards health insurance policy, like “Mediclaim”. Such premium can be paid towards health insurance of spouse, dependent parents as well as dependent children.

Deduction under section 24(b)

Under this section, Interest on borrowed capital for the purpose of house purchase or construction is deductible from taxable income up to Rs. 1,50,000 with some conditions to be fulfilled.

Permanent Account Number (PAN)

Permanent Account Number (PAN) is a number which is used by Income Tax Department as an identification of a person. Through this number income tax department can get every information about the assessee.

It is a 10 digit alphanumeric number which is printed on a laminated card, known as PAN card along with other details like PAN number, name of applicant, father's name, date of birth and passport size photo.

(PAN number is taking place of General Index Registrar (GIR) Number. GIR number is given by an assessing officer to assessee which also contain details of assessing officer.)

Under section 139A of Income Tax Act, 1961, PAN number is required for following persons:

Whose total annual income is more than the amount which is not chargeable under income tax act

Whose income through business or other profession is more than Rs. 5 lakhs Who is filling income tax return

PAN is necessary in case of following transactions :- Filing income tax return Any correspondence with income tax department Submitting challans for payment of any tax to the department At the time of verifications of identity of assessee in income tax department

PAN Application Form

PAN number is an important part of Income Tax Return filing. According to the Income Tax Act, 1961 every person must have a PAN for filing an Income Tax Return. Under section 139A of Income Tax Act, 1961, PAN number is required for the following persons:-

Whose total annual income is more than the amount which is not chargeable under income tax act

Whose income through business or other profession is more than Rs. 5 lakhs Who is filling income tax return

The application form requesting for the allotment of PAN (PAN Card) is given in the undermentioned link. Download it

Income Tax Complaint

There is a provision of Income Tax Complaint in Income Tax Act, 1961. According to the act, one can file a complain against any person who is not fulfilling the Income Tax Act to his assessing officer or other officer incharge like CIT or CCIT or DGIT (investigation), responsible for its further processing. The person who is filing the complain can also submit proof/ evidence for his/ her own interest. On the basis of his/her complaint, if the IT department collects more tax from such person, then he/she will be rewarded monetarily from the department.

Income Tax Calculator

How to calculate tax

The following information would come handy while computing your Income Tax: For individual tax payers, there is no tax charged for income below Rs 1.6 lakhs. For Women tax payers, no tax for income below Rs 1.9 lakhs. For Senior Citizens, there is no tax for income below Rs 2.40 lakhs.

Income tax slabs 2009-2010 (for Men) in India:

Income Tax Slab (in Rs.)

Tax

0 to 1,60,000 No Tax

1,60,001 to 3,00,000 10%

3,00,001 to 5,00,000 20%

Above 5,00,000 30%

Income tax slabs 2009-2010 (for Women) in India:

Income Tax Slab (in Rs.)

Tax

0 to 1,90,000 No Tax

1,90,001 to 3,00,000 10%

3,00,001 to 5,00,000 20%

Above 5,00,000 30%

Income tax slabs 2009-2010 (for Senior Citizens) in India:

Income Tax Slab (in Rs.)

Tax

0 to 2,40,000 No Tax

2,40,001 to 3,00,000 10%

3,00,001 to 5,00,000 20%

Above 5,00,000 30%

Bibliography:

Personal financial planning a text book of icfai university for MBA.

www.surfindia.com