Elements of Taxation

Unit V Elements of Taxation
Previous Year and Assessment Year

Previous Year 01-04-2015 to 31-03-2016 (PY 15-16)
Previous year is a financial year for which a income is assessed for the
purpose of income tax.
Assessment Year 01-04-2016 to 31-03-2017 (AY 16-17)
Assessment Year is a financial year in which you file an income tax for the
assessed previous financial year.
Gross Total Income

Gross Total Income: An individual's total personal income before taking taxes or deductions into
account.
Heads of income
The total income of a person is segregated into five heads:
Income from salaries
Income from house property
Profits and gains of business or profession
Capital gains and
Income from other sources
Income from salaries

All income received as salary under employer-employee relationship is taxed under this head,
on due or receipt basis, whichever arises earlier. Employers must pay tax compulsorily (subject to
Section 192), if income exceeds minimum exemption limit, as Tax Deducted at Source (TDS), and
provide their employees with a Form 16 which shows the tax deductions and net paid income
Income from house property

Income under this head is taxable if the assessee is the owner of a property consisting of building or
land and is not used by him for his business or professional purpose. An individual or an Hindu
Undivided Family (HUF) is eligible to claim any one property as Self-occupied if it is used for own or
family's residential purpose. In that case, the Net Annual Value (as explained below) will be nil. Such a
benefit can only be claimed for one house property. In the case of a self occupied house deduction on
account of interest on borrowed capital is subject to a maximum limit of 150,000 (if loan is taken on
or after 1 April 1999 and construction is completed within 3 years) and 30,000 (if the loan is taken
before 1 April 1999). For let-out property, all interest is deductible, with no upper limits. The balance is
added to taxable income.
The computation of income from let-out property is as under:Gross annual value (GAV)1
xxxx
Less:Municipal Taxes paid
(xxx)
Net Annual value (NAV)
xxxx
Less:Deductions under section 242
(xxx)
Income from House property
xxxx
^1 The GAV is higher of Annual Letting Value (ALV) and Actual rent received/receivable during the
year. The ALV is higher of fair rent and municipal value, but restricted to standard rent fixed by Rent
Control Act.
^2 Only two deductions are allowed under this head by virtue of section 24, viz.,
30% of Net annual value as Standard deduction

Interest on capital borrowed for the purpose of acquisition, construction, repairs, renewals or
reconstruction of property (subject to certain provisions).
Profits and
Gains of
business or
profession
Income from
Business/Profession: means any income which is shown in profit and loss account after
considering all allowed expenditures.
INCOME CHARGEABLE UNDER BUSINESS/PROFESSION

The following are few examples of incomes which are chargeable under this head:1.Normal Profit from general activities as per profit and loss account of business entity.
2.Profit from speculation business should be kept separate from business income and shown
separately.
3.Any profit other than regular activities of a business should be shown as casual income and will
be shown under income from other sources head.
4.Profit earned on sale of REP License/Exim scrip, cash assistance against export or duty
drawback of custom or excise.
5.The value of any benefits whether convertible into money or no from business/profession
activities.
6.Any interest, salary, commission etc. received by the partner of a firm will be treated as
business/professional income in hand of partner. However, the share of profit from partnership
firm is exempt in hand of partner.
7. Amount recovered on account of bad debts which were already adjusted in profit in earlier
years etc.
EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION

All the expenses relating to business and profession are allowed against income. Following are
few examples of expenditures which are allowed against income:1.Rent rates and insurance of building.
2.Payment for know-how, patents, copy rights, trade mark, licenses.
3.Depreciation on fixed assets.
4.Payment for professional services.
5.Expenditures on scientific research for business purposes.
6.Preliminary Expenses in case of Limited companies.
7.Salary, bonus, commission to employees.
8.Salary, interest and remuneration to working partners subject to certain conditions.
9.Communication expenses.
10.Traveling and conveyance expenses, Membership fees etc.
11.Advertisement expenses in respect of promotion of business products.
Income from capital gains

Transfer of capital assets results in capital gains. A Capital asset is defined under section 2(14) of the
I.T. Act, 1961 as property of any kind held by an assessee such as real estate, equity shares, bonds,
jewellery, paintings, art etc. but does not include some items like any stock-in-trade for businesses
and personal effects. Transfer has been defined under section 2(47) to include sale, exchange etc.
Certain transactions are not regarded as 'Transfer' under section 47.

Computation of Capital Gains:Full value of consideration1
xxx
Less:Cost of acquisition2
(xx)
Less:Cost of improvement2
(xx)
Less:Expenditure pertaining to transfer incurred by the transferor
(xx)
^1 In case of transfer of land or building, if sale consideration is less than the stamp duty valuation,
then such stamp duty value shall be taken as full value of consideration by virtue of Section 50C. The
transferor is entitled to challenge the stamp duty valuation before the Assessing Officer.
^2 Cost of acquisition & cost of improvement shall be indexed in case the capital asset is long term.
For tax purposes, there are two types of capital assets: Long term and short term. Transfer of long
term assets gives rise to long term capital gains. The benefit of indexation is available only for long
term capital assets. If the period of holding is more than 36 months, the capital asset is long term,
otherwise it is short term. However, in the below mentioned cases, the capital asset held for more
than 12 months will be treated as long term:
Any share in any company
Government securities
Listed debentures
Units of UTI or mutual fund, and
Zero-coupon bond
Income from other sources

This is a residual head, under this head income which does not meet criteria to go to other heads is
taxed. There are also some specific incomes which are to be always taxed under this head.
1. Income by way of Dividends.
2. Income from horse races/lotteries.
3. Employees' contribution towards staff welfare scheme/ provident fund/ superannuation fund or
any fund set up under the provisions of ESIC Act, received from the employees by the
employer.
4. Interest on securities (debentures, Government securities and bonds).
5. Any amount received from keyman insurance policy including the sum allocated by way of
bonus on such policy.
6. Gifts (subject to certain conditions and exemptions).
7. Interest on compensation/enhanced compensation.
8. Income from renting of other than house property.
9. Family pension received by family members after the death of the pensioner.
10. Income by way of interest on other than securities.
Surcharge : Surcharge is levied @ 12% on the amount of income-tax where net income exceeds Rs.
1 crore. In a case where surcharge is levied, EC of 2% and SHEC of 1% will be levied on the amount
of income-tax plus surcharge.
Income Tax Slabs

1. Less than 60 Years (0-60)
0 250000 -> Nil
250000 500000 -> 10%
500000 100000 -> 20%
More than 100000 -> 30%
2. More than 60 Years(61-80)
0 300000 0%
5-10 20
>10 30%
58 YEARS
10001000
Advance Tax
Tax Deducted at Source(TDS)

What is tax deducted at source?
For quick and efficient collection of taxes, the Income-tax
Law has incorporated a system of deduction of tax at the
point of generation of income. This system is called as Tax
Deducted at Source, commonly known as TDS. Under this
system tax is deducted at the origin of the income. Tax is
deducted by the payer and is remitted to the Government by
the payer on behalf of the payee.
The provisions of deduction of tax at source are applicable
to several payments such as salary, interest, commission,
brokerage, professional fees, royalty, contract payments,
etc. In respect of payments to which the TDS provisions
apply, the payer has to deduct tax at source on the
payments made by him and he has to deposit the tax
deducted by him to the credit of the Government. The
following illustration will explain the TDS mechanism.
Illustration
Mr. Raja has made a fixed deposit with XYZ Bank. Annual
interest on the deposit is Rs. 8,40,000. Will the bank be
liable to deduct any tax from the interest paid to Mr. Raja?
**
Interest on fixed deposit is covered under the TDS
mechanism and, hence, the bank has to deduct tax from
interest and has to pay the net interest to Mr. Raja.
The rate of TDS on interest is 10% and, hence, the bank will
deduct tax of Rs. 84,000 from the interest and will pay the
net interest of Rs. 7,56,000 (i.e., Rs. 8,40,000 Rs. 84,000)
to Mr. Raja.
The TDS of Rs. 84,000 will be paid by the bank to the
Government and Rs. 84,000 will be treated as prepaid tax of
Mr. Raja and he can claim tax credit of Rs. 84,000 just like
advance tax at the time of filing his return of income.
The above mechanism of deducting the tax at the point of
generation of income is called TDS mechanism.
What are the payments covered under the TDS mechanism

and the rates for deduction of tax at source?
Tax is deductible at source at the rates given in table (infra).

If PAN of the deductee is not intimated to the deductor, tax
will be deducted at source by virtue of section 206AA either
at the rate given in the table or at the rate of 20 per cent,
whichever is higher. Further, under section 94A(5), if payment
or credit is made or given to a deductee who is located in a
notified jurisdictional area, tax is deductible at the rate
given in the table or at the rate of 30 per cent, whichever is
higher. TDS rates for the financial year 2014-15 are as
follows
CATEGORY A - WHEN RECIPIENT IS RESIDENT
Nature of payment
TDS
(SC : Nil, EC
: Nil,
SHEC : Nil)
Sec. 192 - Payment of salary [normal tax rates are applicable

SC : 10% (if net income exceeds Rs. 1 crore), EC : 2% and SHEC :
1%]
Sec. 193 - Interest on securities

a. interest on (a) debentures/securities for money issued by or
on behalf of any local authority/statutory corporation, (b) listed
debentures of a company [not being listed securities in demat
form], (c) any security of the Central or State Government
[i.e., 8% Savings (taxable) Bonds, 2003, but not any other
Government security]
10
b. any other interest on securities (including interest on nonlisted debentures)
10
Sec. 194 - Dividend

a. deemed dividend under section 2(22)(e)
10
b. any other dividend
Nil
Sec. 194A - Interest other than interest on securities
10
Sec. 194B - Winnings from lottery or crossword puzzle or card

game or other game of any sort
30
Sec. 194BB - Winnings from horse races
30
Sec. 194C - Payment or credit to a resident contractor/subcontractor

a. payment/credit to an individual or a Hindu undivided family
b. payment/credit to any person other than an individual or a

Hindu undivided family
Sec. 194D - Insurance commission
10
Sec. 194DA - Payment in respect of life insurance policy

(applicable from October 1, 2014)
2%
Sec. 194EE - Payment in respect of deposits under National

Savings Scheme, 1987
20
Sec. 194F - Payment on account of repurchase of units of MF or 20

UTI
Sec. 194G - Commission on sale of lottery tickets
10
Sec. 194H - Commission or brokerage
10
Sec. 194-I - Rent

a. rent of plant and machinery
b. rent of land or building or furniture or fitting
10
Sec. 194-IA - Payment/credit of consideration to a resident

transferor for transfer of any immovable property (other than
rural agricultural land)
Sec. 194J - Professional fees, technical fees, royalty or

remuneration to a director
10
Sec. 194LA - Payment of compensation on acquisition of

certain immovable property
10
Sec. 194LBA(1) - Payment of the nature referred to insection

10(23FC) by business trust to resident unit holders (applicable
from October 1, 2014)
10%
CATEGORY B - WHEN RECIPIENT IS NON-RESIDENT OR

FOREIGN COMPANY
Aggregate payment or
If
credit subject to TDS during recipient
thefinancial year 2014-15 is nonresident
noncorporat
e person
Nature of payment
If
recipien
t is nondomesti
c
compan
y
Rs. 1
crore or
less
More
than Rs.
1 crore
Rs. 1
crore or
less
More
than Rs.
1 crore
but not
more
than Rs.
10 crore
More
than Rs.
10 crore
TDS
(inclusiv
e of
SC : Nil,
EC : 2%,
SHEC :
1%)
TDS
(inclusiv
e of SC :
10%, EC
: 2%,
SHEC :
1%)
TDS
(inclusiv
e of
SC : Nil,
EC : 2%,
SHEC :
1%)
TDS
(inclusiv
e of SC :
2%, EC :
2%,
SHEC :
1%)
TDS
(inclusiv
e of SC :
5%, EC :
2%,
SHEC :
1%)
Sec. 192 - Payment of
salary [normal tax rates are

applicable SC : 10% (if net
income exceeds Rs. 1
crore), EC : 2% and SHEC :
1%]
Sec. 194B - Winnings

from lottery or crossword
puzzle or card game or
other game of any sort
30.9
33.99
30.9
31.518
32.445
Sec. 194BB - Winnings

from horse races
30.9
33.99
30.9
31.518
32.445
Sec. 194E - Payment to a 20.6

non-resident foreign citizen
sportsman/entertainer or
non-resident sports
association
22.66
20.6
21.012
21.63
Sec. 194EE - Payment in

respect of deposits under
National Saving Scheme,
1987
20.6
22.66
NA
NA
NA
Sec. 194F - Re-purchase

of units of MF or UTI
20.6
22.66
NA
NA
NA
Sec. 194G - Commission

on sale of lottery tickets
10.3
11.33
10.3
10.506
10.815
Sec. 194LB Payment/credit by way of

interest by infrastructure
debt fund
5.15
5.665
5.15
5.253
5.4075
Sec. 194LBA(2) Payment of the nature

referred to in section
10(23FC) by business trust
to unit holders (applicable
from October 1, 2014)
5.15
5.665
5.15
5.253
5.4075
Sec. 194LC Payment/credit of interest

by an Indian specified
company on foreign
currency approved
loan/long-term
infrastructure bonds (with
5.15
5.665
5.15
5.253
5.4075
effect from October 1,

2014, any bond) from
outside India
Sec. 194LD - Interest on
a rupee denominated bond
of an Indian company or
Government security (from
June 1, 2013)
5.15
5.665
5.15
5.253
5.4075
a. income of foreign
20.6
exchange assets payable to
an Indian citizen
22.66
NA
NA
NA
b. income by way of long10.3

term capital gains referred
to insection 115E or section
112(1)(c)(iii)
11.33
10.3
10.506
10.815
c. short-term capital gains

under section 111A
15.45
16.995
15.45
15.759
16.2225
d. any other long-term

capital gains [not being
covered by 196D section
10(33),10(36) and 10(38)]
20.6
22.66
20.6
21.012
21.63
e. income by way of
20.6
interest payable by
Government/Indian concern
on money borrowed or debt
incurred by Government or
Indian concern in foreign
currency (not being interest
referred to insection
194LB or194LC or 194LD)
22.66
20.6
21.012
21.63
f. royalty [see Note 5]
28.325
25.75
26.265
27.0375
Sec. 195 Payment/credit of other

sum to a non-resident
g. royalty [not being royalty
25.75
of the nature referred to in

(f)supra] [see Note 6]
where the agreement is
made after March 31, 1961
but before April 1, 1976
30.9
33.99
51.5
52.53
54.075

made on or after April 1,
1976
25.75
28.325
25.75
26.265
27.0375

made after February 29,
1964 but before April 1,
1976
30.9
33.99
51.5
52.53
54.075

made on or after April 1,
1976
25.75
28.325
25.75
26.265
27.0375
i. any other income
30.9
33.99
41.20
42.024
43.26
Sec. 196B 10.3

Payment/credit of income
from units (including longterm capital gains on
transfer of such units) to an
offshore fund
11.33
10.3
10.506
10.815
Sec. 196C 10.3

Payment/credit of interest
of foreign currency bonds or
GDR (including long-term
capital gains on transfer of
such bonds) (not being
dividend referred to
insection 115-O)
11.33
10.3
10.506
10.815
Sec. 196D Payment/credit of income

from securities (not being
22.66
20.6
21.012
21.63
h. fees for technical

services [see Note 7]
20.6
dividend, short-term or
long-term capital gain) to
Foreign Institutional
Investors
Notes :
1. Under sections 192 tax is deductible from salary. The payer
shall calculate salary taxable in the hands of recipient. The
amount so determined is subject to tax deduction
under sections 192. Under section 195, tax is deductible only
if income is taxable in the hands of recipient in India. In any
other case, gross payment is subject to tax deduction.
2. In Category B, tax is deductible at the above rates or the
rates specified in ADT agreements entered into by the
Central Government under section 90 (whichever is lower)
[ section 2(37A)(iii)].
3. Tax is not deductible under section 193, 194, 194A,
or 194EE if the recipient makes a declaration in Form No.
15G/15H under the provisions of section 197A.
4. Under section 197 the recipient can apply the Assessing
Officer in Form No. 13 to get a certificate of lower/no tax
deduction. This benefit is, however, not available if tax is
deductible under section 194B, 194BB, 194E, 194EE, 194F, 194IA,194LB, 194LC, 196B, 196C or 196D.
5. Royalty payable by Government or an Indian concern in
pursuance of an agreement made by non-resident with the
Government or the Indian concern after March 31, 1976,
where such royalty is in consideration for the transfer of all
or any rights (including the granting of a licence) in respect
of copyright in any book on a subject referred to in the first
proviso to section 115A(1A) to the Indian concern or in
respect of computer software referred to in the second
proviso to section 115A(1A), to a person resident in India.
6. Not being royalty of the nature referred to above, payable
by Government or an Indian concern in pursuance of an
agreement made by non-resident with the Government or

the Indian concern and where such agreement is with an
Indian concern, the agreement is approved by the Central
Government or where it relates to matter included in the
industrial policy, the agreement is in accordance with that
policy.
7. Fees for technical services payable by Government or an
Indian concern in pursuance of an agreement made by nonresident with the Government or the Indian concern and
where such agreement is with an Indian concern, the
agreement is approved by the Central Government or where
it relates to matter included in the industrial policy, the
agreement is in accordance with that policy.
Is there any minimum amount upto which tax is not

deducted?
In respect of various items liable to TDS, the Income-tax Law
has prescribed a threshold limit. If the expenditure
incurred/payment made during the year is below the
threshold limit, then there is no requirement to deduct tax
at source. Following list gives the threshold limit in respect
of various items covered by TDS provisions:
S.No. Particular
Sectio Threshold limist

n
1.
No deduction of tax at source

from salaries
192
If net taxable income is less

than maximum amount which
is not chargeable to tax (Rs.
2,50,000 for an individual, Rs.
3,00,000 for Senior Citizens
and Rs. 5,00,000 for Super
Senior Citizens)
2.
No TDS from interest paid on

debentures issued by a
company in which public are
193
If amount paid or payable

during the financial year does
substantially interested.
Provided interest is paid by
account payee cheque to
resident individual or HUF
not exceed Rs. 5,000
3.
No TDS from interest on 8%

Saving (Taxable) Bonds 2003
paid to a resident persons
193

3A.
No TDS from interest on 6.5%

Gold bonds, 1977 or 7% Gold
bonds, 1980 paid to resident
individual
193
If a declaration is made that

the nominal value of such
bonds did not exceed Rs.
10,000 at any time during the
previous year
4.
No TDS from dividend paid by

account payee cheque to
resident persons
194

5.
No TDS from interest other than 194A

on securities paid by a banking
company or co-operative bank
on time deposits

6.
No TDS from interest on deposit 194A

with a post office under Senior
Citizens Saving Scheme Rules,
2004

7.
No TDS from interest other than 194A

on securities (in any other case)

8.
No TDS from interest on

194A
compensation awarded by Motor
Accident Claims Tribunal

9.
No TDS from Lottery / Cross

Word Puzzles
194B

10.
No TDS from winnings from

horse races
194BB If amount paid or payable

11.
No TDS from sum paid or

payable to contractor
194C
a) If sum paid or payable to a

contractor in a single payment does
b) If sum paid or payable to
contractor in aggregate does not
exceed Rs. 75,000 during the
financial year
12.
No TDS from insurance

commission paid or payable
during the financial year
194D

12A
No TDS from sum payable under 194DA If amount paid or payable

a life insurance a police
(including bonus) to a resident
not exceed Rs. 1 lakh
(w.e.f. 01-10-2014) person
13.
No TDS from payments made

out of deposits under NSS
194EE

14.
No TDS from commission paid

on lottery tickets
194G

15.
No TDS from payment of

commission or brokerage
194H

not exceed Rs. 5,000. Further
no tax to be deducted from
commission payable by BSNL/
MTNL to their PCO Franchisees.
16.
No TDS from payment of rent in

respect of land &building,
furniture or fittings or plant and
machinery
194-I

not exceed Rs. 1,80,000
17.

194-IA If amount paid or payable
consideration for purchase of an
immovable property (other than
not exceed Rs. 50 Lakhs
agriculture land)
18.

194J
professional fees, technical fees,

royalty and directors'

remuneration
19.

194LA
compensation on compulsory
acquisition of immovable
property (other than Agricultural
Land)

not exceed Rs. 2 Lakhs
20.
Furnishing of quarterly return in

respect of payment of interest
(other than interest on
securities) to residents without
deduction of tax
206A
If amount paid or payable during

the financial year does not exceed:
a) Rs.10,000 where payer is
banking company or co-operative
society;
b) Rs.5,000 in other case
Can the payee request the payer not to deduct tax at source
and to pay the amount without deduction of tax at source?
A payee can approach to the payer for non-deduction of tax
at source but for that they have to furnish a declaration in
Form No. 15G/15H, as the case may be, to the payer to the
effect that the tax on his estimated total income of the
previous year after including the income on which tax is to
be deducted will be nil.
Form No. 15G is for the individual or a person (other than
company or firm) and Form No. 15H is for the senior citizens.
The following assessee who is in receipt of the specific
incomes can approach to the payee for non-deduction of tax
at source:a) A resident individual who is in receipt of income as
referred to in 192A, 194 or 194EE if the amount of such
income does not exceed the maximum amount which is not
chargeable to income-tax.
b) Any person (other than a company or a firm) who is in
receipt of income as referred to in section
193, 194A or 194DA if the amount of such income does not
exceed the maximum amount which is not chargeable to
income-tax.
c) A resident senior citizen ( i.e., an individual resident in
India who is of the age of sixty years or more at any time
during the previous year) who is in receipt of income as
referred to in section
192A, 193, 194, 194A, 194EE or 194DA.
Alternatively, a payee who is in receipt of income referred to
in section
192, 193, 194, 194A, 194C, 194D, 194G, 194H, 194-I,194J, 19
4K, 194LA or 195 can apply in Form No. 13 to the assessing
officer to get a certificate authorizing the payer to deduct
tax at lower rate or deduct no tax as may be appropriate.
On receiving such an application, the AO may issue

appropriate certificate in this regard if he is satisfied that
the total income of the payee justifies the deduction of
income-tax at any lower rate or nil deduction of income tax.
As per Income-tax (Ninth Amendment) Rules, 2014,
Certificate for non-deduction of income-tax shall be issued
directly to the person responsible for deducting the tax
under an advice to the payee (i.e. who made an application
for issue of such certificate).Whereas, certificate of lower
deduction of income-tax shall be issued to payee itself.
If AO has issued certificate for no deduction of tax or lower
deduction of tax, as the case may be, then payer should
deduct tax accordingly.
What are the consequences a deductor would face if he fails

to deduct TDS or after deducting the same fails to deposit it
to the Governments account?
A deductor would face the following consequences if he fails
to deduct TDS or after deducting the same fails to deposit
it to the credit of Central Governments account:a) Disallowance of expenditure
As per section 40(a)(i) of the Income-tax Act, any sum (other
than salary) payable outside India or to a non-resident,
which is chargeable to tax in India in the hands of the
recipient, shall not be allowed to be deducted if it is paid
without deduction of tax at source or if tax is deducted but
is not deposited with the Central Government till the due
date of filing of return.
However, if tax is deducted or deposited in subsequent year,
as the case may be, the expenditure shall be allowed as
deduction in that year.
Similarly, as per section 40(a)(ia), any sum payable to a
resident, which is subject to deduction of tax at source,
would attract 30% disallowance if it is paid without
deduction of tax at source or if tax is deducted but is not
deposited with the Central Government till the due date of
filing of return.
However, where in respect of any such sum, tax is deducted
or deposited in subsequent year, as the case may be, the
expenditure so disallowed shall be allowed as deduction in
that year.
b) Levy of interest
As per section 201 of the Income-tax Act, if a deductor fails
to deduct tax at source or after the deducting the same
fails to deposit it to the Governments account then he shall

be deemed to be an assessee-in-default and liable to pay
simple interest as follows:(i) at one per cent for every month or part of a month on the
amount of such tax from the date on which such tax
was deductible to the date on which such tax is deducted;
and
(ii) at one and one-half per cent for every month or part of a
month on the amount of such tax from the date on
which such tax was deducted to the date on which such tax
is actually paid.
c) Levy of Penalty
Penalty of an amount equal to tax not deducted or paid
could be imposed under section 271C.
Under what circumstances a deductor would not be deemed
as an assessee-in-default even after he fails to deduct TDS
or after deducting the same fails to deposit it to the
Governments account?
A deductor who fails to deduct the whole or any part of the
tax on the sum paid to a resident or on the sum credited to
the account of a resident shall not be deemed to be an
assessee-in-default in respect of such tax if such resident
(i) has furnished his return of income under section 139;
(ii) has taken into account such sum for computing income in
such return of income; and
(iii) has paid the tax due on the income declared by him in
such return of income,
and the deductor furnishes a certificate to this effect in
Form No.26A from a chartered accountant.
What to do if tax is deducted but the ultimate tax liability of
the payee is nil or lower than the amount of TDS?
In such a case, the payee can claim the refund of
entire/excess amount of TDS (as the case may be) by filing
the return of income.
If the payer does not deduct tax at source, will the payee
face any adverse consequences by means of action taken by
the Income-tax Department?
It is the duty and responsibility of the payer to deduct tax at
source. If the payer fails to deduct tax at source, then the
payee will not have to face any adverse consequences.
However, in such a case, the payee will have to discharge his
tax liability. Thus, failure of the payer to deduct tax at
source will not relieve the payee from payment of tax on his
income.
What are the duties of the person deducting tax at source?
Following are the basic duties of the person who is liable to
deduct tax at source.
He shall obtain Tax Deduction Account Number and quote
the same in all the documents pertaining to TDS.
He shall deduct the tax at source at the applicable rate.
He shall pay the tax deducted by him at source to the
credit of the Government (by the due date specified in this
regard*).
He shall file the periodic TDS statements, i.e., TDS return
(by the due date specified in this regard*).
He shall issue the TDS certificate to the payee in respect
of tax deducted by him (by the due date specified in this
regard*).
*Refer tax calendar for the due dates.
How can I know the quantum of tax deducted from my
income by the payer?
To know the quantum of the tax deducted by the payer, you
can ask the payer to furnish you a TDS certificate in respect
of tax deducted by him. You can also check Form 26AS from
your e-filing account at https://incometaxindiaefiling.gov.in
You can also use the View Your Tax Credit facility available
at www.incometaxindia.gov.in
What to do if the TDS credit is not reflected in Form 26AS?
Non-reflection of TDS credit in Form 26AS can be due to
several reasons like non-filing of TDS statement by the
payer, quoting incorrect PAN of the deductee in the TDS
statement filed by the payer. Thus, in case of non-reflection

of TDS credit in Form 26AS, the payee has to contact the
payer for ascertaining the correct reasons for non-reflection
of the TDS credit in Form 26AS.
At what rate the payer will deduct tax if I do not furnish my
Permanent Account Number to him?
As per section 206AA, if you do not furnish your Permanent
Account Number to the payer (i.e., deductor), then the
deductor shall deduct tax at the higher of the following
rates :
At the rate specified in the relevant provision of the Act.
At the rate or rates in force, i.e., the rate prescribed in the
Finance Act.
At the rate of 20%.
I do not have PAN. Can I furnish Form 15G/15H for nondeduction of TDS from interest?
As per section 206AA, a declaration in Form No. 15G or Form
No. 15H is not a valid declaration, if it does not contain PAN
of the person making the declaration. If the declaration is
without the PAN, then tax is to be deducted at higher of
following rates :
At the rate specified in the relevant provision of the Act.
At the rate or rates in force, i.e., the rate prescribed in the
Finance Act.
At the rate of 20%.
Would I face any adverse consequences if instead of
depositing TDS in the government's account I use it for my
personal needs?
Yes, failure to remit tax deducted by me in the governments
account within stipulated time-limit would attract interest,
penalty and rigorous imprisonment of upto seven years.
I have not received TDS certificate from the deductor. Can I

claim TDS in my return of income?
Yes, the tax credit in your case will be reflected in your Form
26AS and, hence, you can check Form 26AS and claim the
credit of the tax accordingly. However, the claim of TDS to
be made in your return of income should be strictly as per
the TDS credit being reflected in Form 26AS. If there is any
discrepancy in the tax actually deducted and the tax credit
being reflected in Form 26AS then you should intimate the
same to the deductor and should reconcile the difference.
The credit granted by the Income-tax Department will be as
per Form 26AS.
If I buy any land/building then is there any requirement to

deduct tax from the sale proceeds to be paid by me to the
seller?
Yes, Finance Act, 2013 has introduced section 194-IA which
provides for deduction of tax at source in case of payment of
sale consideration of immovable property (other than rural
agricultural land) to a resident. Section 194-IA is not
applicable if the seller is a non-resident. Tax is to be
deducted @ 1%. No tax is to be deducted if the
consideration is below Rs. 50,00,000. If the sale
consideration exceeds Rs. 50,00,000, then tax is to be
deducted on the entire amount and not only on the amount
exceeding Rs. 50,00,000.
If the seller is a non-resident then tax is be deducted
under section 195 and not under section 194-IA. Thus, in
case of purchase of property from non-resident TDS
provisions of section 195 will apply and not of section 194-IA
What is the difference between PAN and TAN?
PAN stands for Permanent Account Number and TAN stands
for Tax Deduction Account Number. TAN is to be obtained by
the person responsible to deduct tax, i.e., the deductor. In
all the documents relating to TDS and all the
correspondence with the Income-tax Department relating to
TDS one has to quote his TAN.
PAN cannot be used for TAN, hence, the deductor has to
obtain TAN, even if he holds PAN.
However, in case of TDS on purchase of land and building (as
per section 194-IA) as discussed in previous FAQ, the
deductor is not required to obtain TAN and can use PAN for
remitting the TDS.
Exempted Income Deductions from Income

Section 80C
Section 80C
The deduction under section 80C is allowed from your Gross Total Income. These are available to an
Individual or a HUF. The deduction is allowed for various investments, expenses and payments.
Total Deduction under section 80C, 80CCC and 80CCD(1) together cannot exceed Rs 1,50,000 for
the financial year 2015-16.
1. Investments in PPF Under the PPF scheme, Rs 1,50,000 is allowed to be invested in one
financial year. The minimum investment required is Rs 500. Interest earned on PPF account
is tax free. The PPF account matures after 15 years. Receipts on Maturity or withdrawals are
tax free. Money is allowed to be withdrawn after 5 years. Contribution to PPF for individual
can be in the name of the assessee, the spouse or any child.
2. Employee's share of PF Contribution Amount deducted from your salary as your
contribution in Employee's Provident Fund Scheme or Recognized Provident Fund.
3. Purchase of NSCs National Savings Certificate e.g. NSC VIII issue and IX issue are
eligible for deduction in the year of purchase. These can be bought from designated Post
Office. Accrued Interest (which is considered reinvested) qualifies for deduction during the
term of the NSCs (except the last year).
4. Life Insurance Premium Payment - The policy must be in the assessee's or spouse's or any
child's name (child may be dependent/independent, minor/major, or married/unmarried). For a
HUF, it may be on life of any member of HUF. The 80C deduction is valid on insurance
policies purchased after 1st April, 2012 only if the premium is less than 10% of sum assured.
Benefits for existing purchased policies continue. The deduction is also allowed on payments
made by Government employees to Central Govt Employees Insurance Scheme.
5. Children's Tuition Fee Payment - Tuition fees paid to any school, college, university or other
educational institution situated within India for the purpose of full time education of any two
children (including payments for play school, pre nursery and nursery).
6. Principal Repayments on Loan for purchase of House Property - Payments of
installments or part payments or repayment of loan taken for buying or constructing
residential house property. Also allowed for stamp duty, registration fees and other expenses
for purpose of transfer of such property to the assessee. However, if the property is
transferred before the expiry of 5 years from 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.
7. Investment in Sukanya Samridhi account - A maximum of Rs 1,50,000 can be deposited in
the Sukanya Samridhi Account for a girl child. The amount deposited shall earn an interest of
9.1% . This interest is fully exempt from tax. A minimum of Rs 1,000 must be deposited in a
year. Receipts on maturity from the account are tax free.
8. ULIPS or Unit Linked Insurance Plan ULIPS sold with life insurance cover for deduction
under section 80C. Includes Contribution to Unit Linked Insurance Plan of LIC Mutual Fund
e.g. Dhanraksha 1989 and contribution to Other Unit Linked Insurance Plan of UTI.
9. Investment in ELSS - ELSS or Equity Linked Savings Scheme is an Equity Fund. ELSS
funds are eligible to be claimed as a deduction under section 80C. These funds have a 3 year
lock in period.
10. Sum paid for securing Deferred Annuity - Sum paid under non commutable deferred
annuity for an individual on the life of the assessee, spouse or any child. Also allowed on sum
deducted from salary payable to Govt. Servant for securing deferred annuity for self-spouse
or child. Payment limited to 20% of salary.
11. Sum deposited in Five Year Deposit Scheme in Post Office.
12. Amount deposited under Senior Citizens Saving Scheme.
13. Subscription to any notified securities/notified deposits scheme. e.g. NSS
14. Contribution to notified Pension Fund set up by Mutual Fund or UTI.
15. Sum paid as subscription to Home Loan Account Scheme of the National Housing Bank or
contribution to any notified deposit scheme/pension fund set up by National Housing Bank.
16. Subscription to deposit scheme of a public sector, company engaged in providing housing
finance (public deposit scheme of HUDCO).
17. Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara and Jeevan Akshay) or Units
of UTI / notified Mutual Funds.
18. Subscription to equity shares/ debentures forming part of any approved eligible issue of
capital made by a public company or public financial institutions.
19. Subscription to any notified bonds of NABARD (National Bank for Agriculture and Rural
Development).
Section 80CCC
Section 80CCC: Deduction in respect of Premium Paid for Annuity Plan of LIC or Other Insurer
This section provides deduction to an Individual for any amount paid or deposited in any annuity plan
of LIC or any other insurer for receiving pension from a fund referred to in Section 10(23AAB).
In case the annuity is surrendered before the date of its maturity, the surrender value is taxable in the
year of receipt.
Section 80CCD
Section 80CCD: Deduction in respect of Contribution to Pension Account
Employee's contribution Section 80CCD(1)
Allowed to an Individual who makes deposits to his/her NPS account. Maximum deduction allowed is
10% of salary (in case of taxpayer being an employee) or 10% of gross total income (in case of tax
payer being self employed) or Rs 1,50,000 whichever is less.
The limit of Rs 1,00,000 has been increased to Rs 1,50,000 for financial year 2015-16 (assessments
year 2016-17).
Employer's contribution Section 80CCD(2)
Maximum deduction available in respect of employer's contribution is allowed up to 10% of the salary
of the employee.
For FY 2014-15 (assessment year 2015-16)
Total Deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000.
For FY 2015-16 (assessment year 2016-17)
A new section 80CCD(1B) has been introduced to provide for additional deduction for amount
contributed to NPS of up to Rs 50,000.
Therefore for financial year 2015-16, Total Deduction under Section 80C, 80CCC, 80CCD(1) and 80
CCD(1B) cannot exceed Rs 2,00,000.
Section 80D
Section 80D Tax Deduction For Health

Insurance Premium And Mediclaim Policies
Both private and public sector insurance companies offer policies known as
Health Insurance for
the treatment of most of the ailments and hospitalization. It provides security to
meet
unanticipated medical expenditure in future.
Under section 80DD of Income tax act 1961, tax deduction is available on the
amount
contributed towards medical insurance premium or mediclaim policies if all the
conditions of the
section are satisfied.
As per section 80D of Income tax act 1961, tax deduction can be claimed by an
individual or HUF
for any sum paid to effect or keep in force an insurance policy on the health of
the assessee,
spouse, parents and dependent children.
Please remember parents need not be dependent on the assessee or individual.
Section 80DD tax deduction is available only to individuals and Hindu
Undivided Family
members. In case of HUF, health insurance policy can be in the name of any
member of the family.
Quantum of Tax deduction on Health insurance under

section
Tax deduction limit of section 80D has been enhanced with effect from financial
year 2015-2016.
The deduction on medical health insurance premium paid during the financial
year has been
increased to a maximum limit of Rs. 25000. In case of a senior citizen the
maximum amount is Rs
30000.
In case, medical insurance premium is paid for parent then additional tax
deduction of Rs 25000
is available under section 80D. If parents are senior citizen then tax deduction
allowed under
section 80D will be Rs 30000 instead of Rs 25000.
Previously i.e. prior to financial year 2015-2016, this tax deduction limit was Rs
15000 instead of
Rs 25000 and for a senior citizen it was Rs 20000 instead of Rs 30000.
Below is a table showing maximum tax deduction limit on health insurance
premium available
under section 80DD in difference cases;
Case 1: When assessee, spouse, children and parents have not attended the age
of 60 Years during the financial year;
Case 2: When assessee, spouse and children have not attended the age of 60
Years but parents are 60 years of age or more;
Case 2: When assessee, spouse and parents have attended the age of 60 Years;
Tax deduction under section 80D is allowed only for the amount that is paid
towards medical
insurance premium. If service tax has been charged on your medical insurance
premium then
exclude that part while claiming tax deduction.
In order to claim tax deduction under section 80D, the health insurance
premium amount should
be paid any mode other than cash in the relevant previous year out of the
income chargeable to tax.
Tax deduction under section 80D for preventive health

checkup
Finance act 2012 with effect from 1 April 2013, has introduced tax deduction on
preventive
health check-up in section 80D of Income tax act 1961.
As per section 80D, a tax deduction of Rs 5000 is allowed for payment of
preventive health
check-up of self, spouse, parents and dependent children.
Rs 5000 tax deduction is not in addition to the above tax deduction limit that we
discussed. Its
included in the above deduction and not allowed per person basis.
This means when a person pays for preventive health check-up for self, spouse,
dependent
children and parents then tax deduction under section 80D shall be allowed to
the extent it does
not exceed in the aggregate Rs 5000.

Amount for preventive health check-up can be paid in cash to get the tax
deduction. This means
both cash and any mode other than cash is allowed to get deduction under
section 80D for
preventive health check-up.
Section 80DD tax deduction is available over and above the maximum limit as
specified under
section 80C i.e. 150000.
Tax deduction under section 80D for medical

expenditure
Finance act 2015 has not only increased the tax deduction limit on medical
insurance premium
but it has also allowed tax deduction on medical expenditure.
As per the recent amendment to section 80D, the whole of the amount paid on
account of
medical expenditure incurred on the health of the assessee, spouse, and
dependent children who
is a very senior citizen is allowed as tax deduction but it should not exceed the
aggregate of Rs
30000.
Similar provision has also been introduced for parents who are very senior
citizen. This means if
parent are very senior citizen then assessee can claim tax deduction of Rs
30000.
Tax deduction of Rs 30000 for medical expenditure is available to a very senior
citizen provided
no amount has been paid to effect or to keep in force an insurance on the health
of such person.
Aggregate tax deduction available under section 80D for payment of medical
insurance premium
and towards medical expenses for self, spouse and dependent children should
not exceed Rs
30000. This means it will be restricted to Rs 30000.
Similarly aggregate tax deduction available under section 80D for payment of
medical insurance
premium and towards medical expenses for parents should not exceed Rs
30000. This means it
will be restricted to Rs 30000.
Senior citizen means an individual resident in India who is of the age of 60 years
or more at any
time during the relevant previous year.
Very senior citizen means an individual resident in India who is of the age of 80
years or more at
any time during the relevant previous year.
Section 80E
Section 80 E: Deduction in respect of payment of Interest on Loan taken for Higher Education
For an Individual tax payer, Income Tax Act provides for deduction of interest paid on two types of
loans Home Loan and Education Loan. Section 80E of the Income Tax Act provides for deduction of
interest paid on Education or Study loan taken for higher education (See the appendix for full text of
Section 80E).
Note that the Income Tax benefit available for Education Loan under Section 80E is separate and
distinct from the tax benefits available under section 80C.
Following are the salient features of deduction on interest on Education Loan under Section 80E:
Deduction can be claimed only by Individuals
HUF and other assessee cannot claim Section 80E deduction. Moreover deduction can be claimed by
an individual only if the loan has been taken in his name. Thus no deduction is available to an
Individual if the loan is taken by any relative, say father, brother or spouse. In this case deduction will
be available to the person who has taken the loan, provided that the Individual who is going for higher
education is either a spouse or children of the Individual taking the Education Loan (more on this point
below).
Loan from Banks
Education Loan should have been taken from a Bank in India (including Indian branches of foreign
banks). Loans from notified financial institutions (currently only HDFC is notified) and approved
charitable institution are also eligible for Section 80E deduction. No deduction would be available if
the loan is taken from a Bank outside India. For example if you take Education Loan from Bank of
America, New York branch for MBA study in Harvard (or in any institution in India for that matter) no
deduction would be available under Section 80E. However if you take a loan from Citibank, New Delhi
branch for MBA education in IIM Ahmedabad, deduction would be available under Section 80E. No
deduction under Section 80E would be available if the Education Loan taken from employer, family or
friends.
Loan should be taken for Higher Education

Higher education means full-time studies for:
1. Graduate or Post-graduate course in Engineering, Medicine, or Management, or
2. Post-graduate course in Applied sciences or Pure sciences including Mathematics and

Statistics.
Note tax benefit is not available for part-time courses. There is no condition that higher education
should be done in India. Thus deduction is available even when the loan is taken for full-time higher
education in the above areas outside India. The loan should be for pursuing higher studies means its
includes loan taken not only for tuition or college fees only but other incidental expenses for pursuing
such studies like hostel charges, transport charges, etc.
Higher education of Self or Relative
Loan should have been taken for full-time higher education of self or relative. Relative is defined to
mean the spouse and children of the individual. Thus Education Loan taken for the higher education
of brother or sister or father would not be eligible for deduction under Section 80E. Note prior to 1st
April 2008, deduction was permissible only for the purpose of education of Self. Education Loan taken
for the higher education of Spouse or Children has been added to the purview of Section 80E with
effect from Assessment Year 2009-10 pertaining to Previous Year 2008-09. If an individual takes
Education Loan for higher education of spouse or children, the tax benefit in form of Section 80E
deduction is available to the individual only not spouse or the children.
Repayment from Taxable Income

The repayment should be out of income chargeable to income tax, meaning if repayment is made
from income exempted from income tax than deduction will not available. If repayment is done from
another Loan or Gift, then also deduction is not available.
Deduction only for Interest
There is no deduction allowed under Section 80E for principal repayment of Education Loan. Note
prior to 1st April 2006, both interest and principal repayment were eligible for deduction (but with an
overall limit of Rs. 40,000 per annum). Currently Section 80E deduction is available only for the
interest payment.
No ceiling on the amount of deduction

There is no ceiling for deduction under Section 80E. Note prior to 1st April 2006, there was a ceiling of
Rs. 40,000 for deduction under Section 80E. Currently the entire amount of interest paid in the year is
eligible for deduction.
Deduction for Eight years

Deduction under Section 80E is available for 8 years or until the loan is repaid fully, whichever is
earlier. First year starts from the year in which interest payment starts. Thus if the loan repayment
stretches beyond 8 years, no benefit is available from 9th year onwards. Note it is not compulsory to
complete the higher education before deductions can be claimed under Section 80E
Section 80GG
Section 80GG
Deductions is respect of rents paid : Under Section 80GG, an Individual can claim deduction
for the rent paid even if he dont get HRA. Not many people are aware of this deduction.
Section 80GG allows the Individuals to a deduction in respect of house rent paid by him for his own
residence. Such deduction is permissible subject to the following conditions :(a) the Individual has not been in receipt of any House Rent Allowance from his employer specifically
granted to him which qualifies for exemption under section 10(13A) of the Act;
(b) the Individual files the declaration in Form No. 10BA.
(c) The employee does not own:
(i) any residential accommodation himself or by his spouse or minor child or where such Individual
is a member of a Hindu Undivided Family, by such family, at the place where he ordinarily resides or
performs duties of his office or carries on his business or profession; or
(ii) at any other place, any residential accommodation being accommodation in the occupation of the
Individual, the value of which is to be determined under Section 23(2)(a) or Section 23(4)(a) as the
case may be.
(d) He will be entitled to a deduction in respect of house rent paid by him in excess of 10% of his total
income, subject to a ceiling of 25% thereof or Rs. 2,000/- per month, whichever is less. The total
income for working out these percentages will be computed before making any deduction under
section 80GG. In other word eligibility will be least amount of the following :1) Rent paid minus 10 percent the adjusted total income.
2) Rs 2,000 per month.
3) 25 percent of the adjusted total income.
The deduction will also not be available to an assessee if any residential accommodation is owned by
the assessee at any other place, which he is occupying, and the concessions in respect of selfoccupied house are claimed by him for that property. In such a case, no deduction will be allowed in
respect of the rent paid, even if the person does not own any residential accommodation at the place
where he ordinarily resides.
What is the adjusted total income under section 80GG?
The adjusted total income means :Gross Total Income
Less
Long Term Capital Gain,
Short Term Capital Gain
Long Term and Short Term Capital Gain

Long Term and Short Term Capital Loss
Speculation Profit/Loss
Capital Gains Tax Exemption Under Section 54EC
Capital Gains Tax Exemption under Section 54F

Setting Off & Carry Forward
Taxation of Investment Profducts:

Dividend Tax
Tax on Income Distributed by Mutual Funds
Securitites Transaction Tax STT
The securities transaction tax (STT) was introduced in India a few years ago, to stop tax
avoidance of capital gains tax. Earlier, many people usually didnt declare their profits on
the sale of stocks and avoided paying capital gains tax. The government could tax only
those profits, which have been declared by people.
To stop this situation, the then Finance Minister P Chidambaram in the Union Budget
2004-05introduced STT. Transactions in stock, index options and futures would also be
subject to transaction tax. This tax is payable whether you buy or sell a share and gets
added to the price of the stock at the time the transaction is made. Since brokers have to
automatically add this tax to the transaction price, there is no way to avoid it.
The Finance Ministry has supported the introduction of the STT to simplify the tax regime
on financial market transactions. According to the ministry, STT is a clean and efficient
way of collecting taxes from financial markets. In the words, STT is a neat, efficient and
easy-to-administer tax and it has the great advantage of virtually eliminating tax
avoidance.
STT is levied on every purchase or sale of securities that are listed on the Indian stock
exchanges. This would include shares, derivatives or equity-oriented mutual funds units.
The rate of tax that is deducted is determined by the central government, and it varies
with different types of transactions and securities. STT is deducted at source by the
broker or AMC, at the time of the transaction itself, the net result is that it pushes up the
cost of the transaction done.
Securities Transaction Tax (STT) Rates for Financial Year 2015-16
STT is levied on the value of taxable securities transaction as under:

Sl.No. Transactions
Rate
Payable by
Purchase/Sale of equity shares (delivery based)
0.1%
Purchaser/
Seller
Purchase of units of equity-oriented mutual fund (delivery

based)
Nil
Purchaser
Sale of units of equity-oriented mutual fund (delivery based)
0.001%
Seller
Sale of equity shares, units of equity-oriented mutual fund

(non-delivery based)
0.025%
Seller
Sale of an option in securities
0.017%
Seller
Sale of an option in securities, where option is exercised
0.125%
Purchaser
Sale of a futures in securities
0.01%
Seller
Sale of unit of equity oriented fund to the Mutual Fund
0.001%
Seller
Transactions
Rate
Payable by
Sale of commodity derivative (other than agricultural commodities)

entered in a recognised association
0.1%
Seller
Commodities Transaction Tax (CTT)

CTT is levied on the value of taxable commodities transaction:
Dividend Distribution Tax (DDT) for Financial Year 2015-16
Dividend distribution tax is the tax levied by the Indian Government on companies according to
the dividend paid to a company's investors.
As per existing tax provisions, income from dividends is tax free in the hands of the investor.
Further the dividends from domestic companies are tax-exempt, dividend from foreign
companies are taxable in hands of investor. However, this is not to say that there is no tax levied
at all. On the contrary, there is a levy of 20.358% of the dividend declared as distribution
tax(Under Income tax Act,1961). This tax is paid out of the profits/reserves of the company
declaring the dividend.
The rates of DDT are as below:
DDT Rates for Companies for Financial Year 2015-16
Basic Rate
Effective Rate*
17.647
20.358
*including Surcharge of 12% & Education Cess

DDT Rates for Mutual Fund (MF) for payments to
Particulars
Basic Rate
Effective Rate*
(1) Distribution by MF under an Infrastructure Debt fund

5.263
scheme to a non-resident
6.071
(2) To an individual or HUF excluding (1) above
38.449
33.33
(3) To any other Person excluding (1) a (2) above
42.85
49.432
*including Surcharge of 12% & Education Cess
DIVIDEND AND GROWTH OPTIONS IN MUTUAL FUND SCHEMES
Growth Option
Under growth option, you will not receive any payments in the form of interest, dividends, gains,
bonus etc. You will get your returns only on selling the units. The returns will be the difference in
selling price and purchase price, similar to gold investment. The NAV on the date of investment will be
the cost price and the NAV of the sale date becomes the selling price. The difference is you return.
For example you bought 100 units of a mutual fund scheme at an NAV of Rs 50 and you sold those
units after 6 years when the NAV had reached Rs 120. So your returns will be Rs 7000. You will not
get any payout in between.
Dividend option
In Dividend option, you will receive returns at periodic intervals. However, the intervals are not certain
and dividend amount is also not fixed. Under dividend option, the NAV is not let to grow higher and
whenever it reaches a certain level, the fund house pays out dividends. Assume you have invested in
a fund at the NAV of Rs 14 and opted for dividend option. The scheme performs and NAV reaches a
level of Rs 16. The fund house may decide to pay out Rs 1.50 as dividend. This is quite
straightforward.
You may have to take 2 things into consideration while you decide; objective of your investment and
tax considerations. For equity mutual funds, the best bet would be growth option. This is because you
can make compounding work for you. If you receive regular dividends, you may end up using that
money for non-priority things. Wealth per se is created only if you let it compound. One instrument is
giving you 15% returns per annum, the other is giving you 13% per annum, and if the latter one is left
to compound then it will create far more wealth than the one that is giving 15% returns. That is why
Gold or real estate is perceived to be big wealth creators. When you choose growth option the returns
in tax parlance is called as capital gains. The good news is that capital gains in growth option of equity
mutual funds are non-taxable. But in case you sell the units within one year you are liable to pay
short-term capital gains tax. Anyways we need to invest in equity mutual funds only for long-term.
Now if you are planning for investing on short-term basis, debt mutual funds will suit the best. For
short-term (less than a year) investments in debt funds, we recommend you to go to dividend option
or dividend re-investment option, primarily on tax considerations. Though dividends are tax free at the
hands of investors, the fund has to pay tax (dividend distribution tax) before it pays you. In case you
go for growth option the returns will be considered as short term capital gains, for which you may have
to pay at the marginal tax rate (as per your tax slab). So if your come under 30% tax bracket then you
will end up paying lesser rate if you choose dividend option in debt mutual funds. For mid-term (more
than 1 year) investments in debt mutual funds, you may opt for growth option, as the capital gains tax
in that case will be 10% without indexation or 20% with indexation, which is more likely to be less than
your marginal tax rate.
Summary: For long-term needs (5 yrs of more): equity mutual funds with growth option For short-term
needs (less than one year): Debt mutual funds with dividend option or dividend re-investment option
For mid-term needs (more than one year): Dent mutual funds with growth option
Capital Gains Taxation

Taxation of Fixed Deposits and Fixed Matureiy Plans
Dividend and Growth Options in Mutual Fund Schemes
Welath Tax
Income Tax
THIS IS THE GROSS TOTAL INCOME (gti)
Five Income Heads

1.
2.
3.
4.
5.
Income
Income
Income
Income
Income
from
from
from
from
from
House Property
Business & Profession
Capital Gains
Other Sources
Salaries
Advance Tax
Every person is liable to pay advance tax if the tax payable is rs 10000 or
more. The due dates of advance tax
1. On or before 15 June of the previous year , you have to pay upto
15% as advance tax
2. On or before 15 sep of the previous year, you have to pay upto 45%
as a
3. On or before 15 dec of the previous year you have to pay upto 75%
as
4. On or before 15 march of the previous year you have to pay upto
100% of tax payment
TDS Tax Deducted @ Source
20-10-2015
Loss cannot be set of against winning from lotteries cross words or any
sort of gambling and betting
Loss from house property can be set against income from house property
Non Speculation loss can be set of against income from both speculation
and non-speculation business.
Inter head adjustment

Exceptions
Loss in speculation business can not be set up against any other income.
Similarly LTCL can not be set of against any head except LTCG.
Loss from owning and maintaining the can not be set up against any
income
Business loss including depreciation can not be set up against income

from salary.
House property set up against all other sources.

Business loss set up against all other four except salary
Carrying forward the losses

If loss cannot be set off either or under the same head or under different
heads due to inadequate income in the same previous year. It may be
carrying forward and set off against income of the subsequent previous
year.
1. Carrying forward of speculation loss it can be carrying forward
-----------immediately succeeding the previous year for the loss was
first computed. The continuity of business in not necessary. It is not
necessary the speculation business in which loss was incurred
should be continued in the subsequent year in which the SSE was to
set off the loss. But SSE should be same.
2. Carrying forward of capital loss it can be carrying forward 8
immediate years
3. Carrying forward and set off loss owning and maintaining the ---- 4
years.
4. Carrying forward and set off loss house property 8 Years
Head of Income
Amount of profit
Salary
142000
Income from House
115000
Property
a. House proper A
b. House Property B
c. House C
Business A
108000
Business B
Buisness C Speculation 111000
Business D Speculative
Business
Capital Gains STCG
106000
STCL
LTCG on sale of builing
12500
Income from Other
Sources
Income from Card
108000
Games
Loss from Card Games
Loss of Maining Hour
Race
Calculate the net income from the other sources.
Income from House Property

Income
(Profit)
House property
115000
Loss
(117000)
Loss
(121000)
---- ----- --(123000)
Amount of loss
117000
121000
118000
123000
128000
107010
106000

Elements of Taxation

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Elements of Taxation

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Unit V Elements of Taxation

Previous Year and Assessment Year

Gross Total Income

Income from salaries

Income from house property

Profits and gains of business or profession

Capital gains and

Income from other sources

Income from salaries

Income from house property

Less:Municipal Taxes paid

Net Annual value (NAV)

Less:Deductions under section 242

Income from House property

30% of Net annual value as Standard deduction

INCOME CHARGEABLE UNDER BUSINESS/PROFESSION

EXPENSES DEDUCTIBLE FROM INCOME FROM BUSINESS/PROFESSION

Income from capital gains

Certain transactions are not regarded as 'Transfer' under section 47.

Less:Expenditure pertaining to transfer incurred by the transferor

Any share in any company

Units of UTI or mutual fund, and

Income from other sources

Income Tax Slabs

Tax Deducted at Source(TDS)

What are the payments covered under the TDS mechanism

Tax is deductible at source at the rates given in table (infra).

Sec. 192 - Payment of salary [normal tax rates are applicable

Sec. 193 - Interest on securities

b. any other interest on securities (including interest on nonlisted debentures)

Sec. 194 - Dividend

b. any other dividend

Sec. 194A - Interest other than interest on securities

Sec. 194B - Winnings from lottery or crossword puzzle or card

Sec. 194BB - Winnings from horse races

Sec. 194C - Payment or credit to a resident contractor/subcontractor

b. payment/credit to any person other than an individual or a

Sec. 194D - Insurance commission

Sec. 194DA - Payment in respect of life insurance policy

Sec. 194EE - Payment in respect of deposits under National

Sec. 194F - Payment on account of repurchase of units of MF or 20

Sec. 194H - Commission or brokerage

Sec. 194-I - Rent

b. rent of land or building or furniture or fitting

Sec. 194-IA - Payment/credit of consideration to a resident

Sec. 194J - Professional fees, technical fees, royalty or

Sec. 194LA - Payment of compensation on acquisition of

Sec. 194LBA(1) - Payment of the nature referred to insection

CATEGORY B - WHEN RECIPIENT IS NON-RESIDENT OR

Sec. 192 - Payment of

salary [normal tax rates are

Sec. 194B - Winnings

Sec. 194BB - Winnings

Sec. 194E - Payment to a 20.6

Sec. 194EE - Payment in

Sec. 194F - Re-purchase

Sec. 194G - Commission

Sec. 194LB Payment/credit by way of

Sec. 194LBA(2) Payment of the nature

Sec. 194LC Payment/credit of interest

effect from October 1,

b. income by way of long10.3

c. short-term capital gains

d. any other long-term