INCOME TAX ACT

Provisions related to Income Tax Act

in respect of Individual

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 INCOME TAX TERMINOLOGY

• Assessment Year – ( Sec 2(9)

• Assessment year may be defined as a year
in which the income of the previous year is
to be assessed.
• In some countries it is called “ tax year”
• It always starts on April 1 and ends on
March 31 of the next year.
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 Heads of Income
• Salaries
• Income from House property
• Profits from Business or profession
• Capital Gains
• Income from Other sources

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 Previous Year – (Sec 3)

• Income of the previous year is taxed in the

immediately following assessment year.
• In some countries it is called “ Income
Year”
• From the assessment year 1989-90 onwards
all assesses are required to follow the
financial year.

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 Previous Year in the case of
newly set up business or
profession
• In case of a newly set up business or
profession or source of income newly
coming in to existence , the first previous
year will be the period commencing from
the date of setting of the business /
profession or as the case may be the date on
which the source of income newly comes in
to existence and ending on the immediately
following March 31.
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 Assessee – Sec 2 (7)
• “ Assessee” means a person by whom Income tax
or any other sum of money is payable under the
act.
• It includes every person in respect of whom any
proceeding under the act has been taken for the
assessment of his income or loss and the amount
of refund due to him.
• It also includes a person who is assessable in
respect of the income or loss of another or who is
deemed to be an assessee or an assessee in default
under the provisions of the act.
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 Residential status – General
Norms
• Assesses are either
• Resident in India
--- Resident and ordinarily resident
---- Resident but not ordinarily resident
• Non Resident In India

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 Income from salaries

Salary Income

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 Salary means and Includes
• Wages
• Any Annuity or pension
• Any gratuity
• Any fees , commissions, perquisites or
profit in lieu or in addition to any salary or
wages
• Any advance salary
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 Salary – cont..
• Any payment received by the employee in
respect of any period of leave not availed
by him
• Transferred balance in a recognized
provident fund to the extent it is taxable

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 Leave salary

• Taxability in case of Government employee

• Taxability in case of non- government

employee

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• In case of employee of Central Government
or state government , any amount received
as cash equivalent of leave salary in respect
of the period of earned leave at his credit at
the time of retirement/ superannuation is
exempt from tax.

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 Taxability in case of non-
government employee
• Leave salary is exempt to the extent of least of the
following
• Cash equivalent of leave salary in respect of
earned leave to the credit of employee only at the
time of retirement ( earned leave can not exceed
30ndays for every year)
• 10 months “average salary”
• Rs. 3,00,000.00
• Actual leave salary received

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 Taxability of Gratuity

• Gratuity to government employee

• In case of employee covered by payment of
gratuity act , 1972
• In case of other employee

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Gratuity to government employee
• Any death cum retirement gratuity received
by employee of central government , state
government or local authority is wholly
exempt from tax

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Employee covered by payment of
gratuity act, 1972
• Exemption = least of the following
• 15 days salary ( 7 days in case of employees
of seasonal employment) for every
completed year of service based on salary
last drawn in excess of six months
• Rs.3,50,000.00
• Actual amount of gratuity.

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 In case of other employees
• ½ months salary for each completed year of
service
• Rs. 3,50,000.00
• Actual amount of Gratuity

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 Pension

• Uncommuted pension is taxable as salary in

the hands of government as well as non
government employee
• Commuted pension received by government
employee , state government employee or
local authority employee is tax free

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 Payment in commutation of
pension received by other
• In case employee receives gratuity ,
commuted value of 1/3 of pension
• In other case ½ of such pension

is exempt from tax.

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 Provident Fund
Particulars Statutory Recognised Unrecognised Public

P.F act, E.P.F and Misc. Not Public PF Act

1925 Provisions act , Recognised by 1968
Constitued 1952 & Commissioner
under recognised by of Income Tax
commissioner of
P.F and CIT
Employer & Employer & Employer & All assessee
Contribution by Employee Employee Employee independently

Assessee's Deduction Deduction U/S No income tax Deduction U/S

contribution U/S 80-C 80-C benefit 80-C
Not Taxable exceeding 12% Not taxable Not
Employer's
of salary is APPLICABLE
Contribution
taxable
Fully Exempt Exempt up to Only Fully Exempt
9.5% P.A Employee's
Interest
contribution is
Credited
taxable under
other sources
Not Taxable Not Taxable Only Not Taxable
Employer's
W itdraw al at the
contribution &
time of
Interest is
retirement
taxable under
salaries

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 Employees stock option Plan
ESOP Taxable
1. When the stock option plan is not
in conformity with central
government guidelines, it is taxable
2.Taxable as - Perquisits at the time
of Receipts and Capital Gain at the
time of transfer of such shares or
stock
3. Taxable Value = Fair Market
Value Less Price at which alloted
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ESOPS Not Taxable
1. When the stock option confirms
with central government guidelines
, ESOP is not taxable
2. Any shares or security alloted
under notified ESOP are not
taxable as a perquisits, provided
the conditions prescribed under
the scheme are satisfied
3. Normal Provisions of acapital
gain are applicable
21
 Specified Employee
An Individual will be considered as specified
employee if-
Director- He is director employee of the
company
Voting Power- He holds 20% or more voting
power in company
Monthly salary in excess of Rs. 50000.00
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Perquisits Taxable in the hands of Specified and non- specified Employee
Nature of Perquisit Specified Employee Non- specified Employee
Rent free / concessional accomodation Taxable Taxable
Watchman, Gardner, Sweeper, engaged by
employee and expenses are met by employer Taxable Taxable
Above servents provided in any other manner Taxable Not Taxable
Gas, Electricity, Water etc. connection in the name
of employee but expenses are met by employer Taxable Taxable
Above servents provided in any other manner Taxable Taxable
Eduction expenses , if bills are in the name of
employee , but met by employer Taxable Taxable
Above servents provided in any other manner Taxable
Transport Facility Taxable Taxable
Interest free Loans Taxable Taxable
Holiday Homes facility provided Taxable Taxable
Club Facility provided Taxable Taxable
Computer / Laptop provided by employer Not Taxable Not Taxable
Other Movable assets are provided by employer Taxable Taxable
Medical Facilities provided by employer Taxable Taxable

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 INCOME FROM HOUSE
PROPERTY
• Types of house property

• Self occupied
• Let out
• Deemed to be let out

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 Conditions for taxation
• Basis of chargeability is annual value
• The property must be building or land
appurtenant thereto
• The assessee must be owner of property
• The property may be used for any purpose
other than business or profession

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Self Occupied House property Computation
Particulars Rs

Annual value u/s 23 (2) NIL

Less- Dedcution U/s 24

Special Situation
Loan taken for acquisition or construction on or after
01.04.1999 and the same is completed with in 3 years
from the end of financial year in which capital was
borrowed , interest paid or payable subject to
maximum of Rs. 1,50,000.00 or xxxxxxxxx
Genaral Loan
Taken prior to 01.04.1999 for acquisition or
construction or loan taken for repair , renovation or
reconstruction at any point of time , interest paid or
payable subject to a maximum of Rs. 30,0000.00 xxxxxxxxx
Income from House Property xxxxxxxxx
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Property Let out for the whole year
Particulars Rs
Determination of Annual Value
step 1- Compare Fair rent and Municipal Rent and
select whichever is higher
step- 2 Compare step 1 with standard rent, if
applicable
a) Step 1 > standard rent , then select standard rent
b) Step 2 < Standard rent, then select step 1
c) The selected figure is called selected rent
step 3
compare the selected rent with actual rent received or
receivable ( excluding unrealised rent) the higher in
step 3 = Annual value xxxxxxxxx
Less - Municipal Taxes paid xxxxxxxxx
Net Annual Value xxxxxxxxx
Less - Deduction u/s 24
a) 30% of the net annual value
b) Interest ( no celling limit)

INCOME FROM HOUSE PROPERTY XXXXXXXXX

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MORE THAN ONE HOUSE PROPERTY S.O
Particulars Rs
Determination of Annual Value
step 1- Compare Fair rent and Municipal Rent and
select whichever is higher
step- 2 Compare step 1 with standard rent, if
applicable
a) Step 1 > standard rent , then select standard rent
b) Step 2 < Standard rent, then select step 1
c) The selected figure is called selected rent xxxxxxxxx
Less - Municipal Taxes paid xxxxxxxxx
Net Annual Value xxxxxxxxx
Less - Deduction u/s 24
a) 30% of the net annual value
b) Interest ( no celling limit)

INCOME FROM HOUSE PROPERTY XXXXXXXXX

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 CAPITAL GAINS

• Definition and chargeability

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Includes Excludes
Property of any kind , a) Stock in trade
whether or not connected b) Personal effects
with business or c) Rural Agriculture lands in
profession india
d) 6 1/2% gold bonds, 7% gold
bonds & National defence bonds
1980
f) Special Bearer bonds , 1991
g) Gold deposit bonds , 1999

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 Short term capital assets

• A) for all capital assets other than financial

assets -
• Capital asset held by assessee for not more
than 36 months immediately the date of
transfer are treated as short term capital
assets.
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 For financial assets
• Equity ( or) preference
shares of the company
• Securities listed in a • Treated as STCA if
recognized stock they are not held for
exchange more than 12 months
• Zero coupon bonds

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 Long term capital asset

• Not a short term capital asset

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Computation of short term capital gain Computation of Long term capital gain

Consideration received xxxxxxxx Consideration received xxxxxxxx

Less - Expenses of transfer xxxxxxxx Less - Expenses of transfer xxxxxxxx

Net Consideration Net Consideration

Less- Cost of acquisition xxxxxxxx Less- Cost of acquisition xxxxxxxx

Less Cost of improvement xxxxxxxx Less Cost of improvement xxxxxxxx

Short term capital gain xxxxxxxx Long term capital gain xxxxxxxx

Less- exemption u/s 54 xxxxxxxx Less- exemption u/s 54 xxxxxxxx

B, D, G to 54 G

Taxable STCG xxxxxxxx Taxable LTCG xxxxxxxx

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 Exemption U/s 54
Transfer of Residential House property
Applicability Individual / HUF
Asset Transferred Residential House Property
Nature of Asset Long term asset
New Asset Aquired Residential House Property
Amount to be invested Long Term gain on transfer
Exemption amount Least of 1. Amount invested in house
2. Capital Gain
Time limit for
Investment For Purchase - 1 year before or 2 years after
For Construction - with in 3 yaers of transfer
Holding period of asset 3 Years from date of acquisition
Sale of asset with in
Holding period of asset Short term capital Gain
Less - cost of acquisition reduced by
Capial gains exempted u/s 54

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 Exemption U/s 54 EC

Applicability All assessee

Asset Transferred Any Long Term Capital Asset
Nature of Asset Long term asset
Bonds such
investme
redeema
nt will
ble after not be
New Asset Aquired eligible
3 years for
by NAHI, deductio
n u/s 80-
RECL, C
Amount to be invested Long term Capital gain on transfer
Exemption amount Least of 1 Amount invested in bonds
2 Capital Gain
Time limit for
Investment with in 6 months from the date of transfer

Holding period of asset 3 Years from date of acquisition

Sale of asset with in LTCG exempted shall be deemed to be
Holding period of asset income under LTCG of the assessee
in the year of sale of asset

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 Exemption U/s 54 F
LTCG on tra nsfe r of a ny long te rm
ca pita l a sset othe r than a residential
House Prope rty
Applicability Individual / HUF
Any long term capital asset other than
Asset Transferred
Residential house property
Nature of Asset Long term asset
on the date of transfer of LTCA
Condition assessee should not own more than
one residential house property
New Asset Aquired Residential House Property

Amount to be invested Net consideration

Long term capital gain* amount

Exemption amount invested in residential house
Net consideration
Time limit for
Investment For Purchase - 1 year before or 2 years after
For Construction - with in 3 years of transfer
Holding period of asset 3 Years from date of acquisition
1 Short Term capital Gain on new
Sale of asset with in asset shall be taxed separetely
2 Long Term Capital Gain exempted
U/s 54 F shall be chargeable to tax as
Holding period of asset LTCG
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 Income from other Sources

• Dividends
• Winning from Lotteries, crossword puzzles,
horse races, card games, gambling , betting
income
• Income from sub –letting of house property
• Casual and non – recurring income
• Family pension
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 Cont –

• Directors sitting fees

• Interest on Loans
• Income from undisclosed sources
• Remuneration received by members of
parliament
• Rent from vacant piece of plot
• Interest on income tax refund
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 Following will be income from
other sources
• If its is not considered as income from
business
• Interest on securities
• Income from machinery, furniture –let out
• Sum recd. on keyman insurance policy
• Insurance commission
• Interest from bank deposits
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 Admissible expenditure from
income
• Reasonable sum paid by way of
commission for realizing dividend
• Repairs , insurance and depreciation on
building, plant & machinery,and furniture
• 33.33% of family pension or Rs.15000/-
whichever is less
• Any other expenditure for earning of
income
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 Computation of Total Income and tax Liability

Step -1 Determine tge residential status of individual

Step -2 Determine the chargeble income on the basis
of residetial status
Step -3 Compute the toal incomeas follows
Rs
a) Income from salary
b) Income from House property
c) Profit and Gains of Business
d) Capital Gains ( Including Loanf Term)
e) Income from other sources

Gross Total Income

Less - Deductions Under Chapter VI A

( Not available for LTCG)

Total Income

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Step -4 Compute tax liability on total income as follows

Toal Income as above Rs

Less - Income chargeble at special rte of tax
Long term capital Gains - on taxable asset 20%
Short term capital gains - on securities 10%
Transferred which are subject to STT Act
Income from Races, card games, gambling etc 30%

Total Income chargeble at normal rate of tax

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Step -5 Compute net tax after surcharge and education cess and relief

Tax on Total income chargeble at normal rate of tax Rs

Tax on total income chargeble at special rate of tax
( on long term capital Gains )

Less - Rebate u/s 88 - E ( Payment of security

Transaction tax)
Tax Payable
Add- Surcharge @ 10% if total income > 10,00,000
Tax and Surcharge Payable
Add - Education Cess @ 3%

Toatl Tax Payable

Less- Rebate U/s 89

Balance Tax Payable

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 Deductions available to individuals

Amount of
Section Applicability Nature of Payment
deduction
Prescribed Maximum of
Individual
80-C Investments Rs.100000.00
LIC or other insurance Maximum of
80-CCC Individual
plans Rs.100000.00
Contribution to
Central Govt. Maximum of
80-CCD Approved pension
employees Rs.10000.00
funds
Maximum -
General -
10000.00,
80-D Individual Mediclaim Policy
Senior
citizens -
150000.00
General Rs.
Expenditure on 50000.00 ,
80-DD Resident individual handicaped Severe
dependents Disability Rs.
75,000.00
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 General -
Actual or
Rs.40000.00
whichever is
Expenditure on less. Senior
80- DDB Resident individual
Specified Dieseases citizens -
Actual or
Rs.60000.00
whichever is
less
Interest on Loan taken Any amount
80- E Individual
for Higher Eucation paid
100% or 50%
depend on
fund,Maximu
m limit -
donation
should not
1. Donations to notified
exceed 10%
80-G All Individuals Funds 2. Other
of adjusted
donations
total income,
Deduction -
Family
Planning
100% , others
50%

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 Tax Rates for Individuals
FOR RESIDENT INDIVIDUALS

Taxable Income Tax Tax Tax

Income tax after rebate
(Rs) rate rate rate

IT SC EC

Up to 1,00,000 Nil Nil Nil Nil

1,00,000 - 1,50,000 10% Nil 2% IT=(TI - 100000)* 10%
1,50,000 - 2,50,000 20% Nil 2% IT=5,000+ [( TI - 1,50,000)* 20%]
2,50,000 - 10,00,000 30% Nil 2% IT=25,000+ [( TI - 2,50,000)* 30%]
above 10,00,000 30% 10% 2% IT=2,50,000+ [( TI - 10,00,000)* 30%]

Tax Rates for Individuals

FOR RESIDENT WOMANS BELOW 65 YEARS

Taxable Income Tax Tax Tax

Income tax after rebate
(Rs) rate rate rate

IT SC EC

Up to 1,35,000 Nil Nil Nil Nil

1,35,000 - 1,50,000 10% Nil 2% IT=(TI - 1,35,000)* 10%
1,50,000 - 2,50,000 20% Nil 2% IT=1500+ [( TI - 1,50,000)* 20%]
2,50,000 - 10,00,000 30% Nil 2% IT=21,500+ [( TI - 2,50,000)* 30%]
above 10,00,000 30% 10% 2% IT=2,46,500+ [( TI - 10,00,000)* 30%]
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 Tax Rates for Individuals
FOR RESIDENT SENIOR CITIZENS
Taxable Income Tax Tax Tax
Income tax after rebate
(Rs) rate rate rate
IT SC EC

Up to 1,85,000 Nil Nil Nil Nil

1,85,000 - 2,50,000 20% Nil 2% IT=(TI - 1,85,000)* 20%
2,50,000 - 10,00,000 30% Nil 2% IT=13,000+ [( TI - 2,50,000)* 30%]
above 10,00,000 30% 10% 2% IT=2,38,000+ [( TI - 10,00,000)* 30%]
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