Income Tax

Introduction:
Under the constitution of India central government is empowered to levy tax on the income.
Accordingly, the central government has enacted the income tax act, 1961. The act provides for
the scope and machinery for levy of income tax in india. The act is supported by income tax
rules, 1961 and several other subordinate and regulations. Besides, circulars and notifications are
issued by the central board of direct taxes and sometimes by the ministry of finance, government
of india dealing with various aspects of the levy of income tax. Unless otherwise stated,
references to the sections will be the reference to the sections of the income tax act, 1961.
Income tax is a tax on the total income of a person called the assesse of the previous year
relevant to the assessment year at the rates prescribed in the relevant finance act.

Some Of The Important Definitions Under Income Tax Act, 1961 Are As
Follows:
A person may earn income from more than one sources but previous year will always be
common for all the sources of income. This will be so even if a person maintains records or
books of accounts separately for different sources of income.
Total income of a person from all the sources of income will be taken together and considered in
the previous year or the financial year immediately preceding the assessment year.

The Term Person Includes:

a.
b.
c.
d.
e.
f.

An individual.
A hindu undivided family (huf).
a company.
A firm.
An association of persons or a body of individuals, whether incorporated or not.
A local authority; and every artificial juridical person not falling within any of the
preceding categories.

Broadly The Term Income Includes The Following:

I. Profits and gains ;
Ii. Dividend;
Iii. Voluntary contributions received by certain institutions
Iv. Receipts by employees the value of any benefit or perquisite, whether convertible into money
or not.
Vi. Incomes from business s-28
Vii. Any capital gains chargeable under section 45;
Viii. Any sum earlier allowed as deduction and chargeable to income-tax under section 59
Ix. Any winnings from lotteries, crossword puzzles, races including horse races, card games and
other games of any sort or from gambling or betting of any form or nature whatsoever ;
X. Any contribution received from employees towards any provident fund or superannuation
fund or employees state insurance act, 1948 , or any other fund for the welfare of such
employees ;

Direct tax and indirect tax

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Direct tax

Income From Salary

Income can be charged under this head only if there is an employer employee relationship
between the payer and payee. Salary includes basic salary or wages, any annuity or pension,
gratuity, advance of salary, leave encashment, commission, perquisites in lieu of or in addition to
salary and retirement benefits.
The aggregate of the above incomes, after exemptions available, is known as gross salary and
this is charged under the head income from salary.
Basic salary along with commissions and bonuses is fully taxable.

Allowances : an allowance is a fixed monetary amount paid by the employer to the employee
for expenses related to office work. Allowances are generally included in the salary and taxed
unless there are exemptions available.
The following allowances are fully taxable : dearness allowance, city compensatory allowance,
overtime allowance, servant allowance and lunch allowance.
Specific exemptions are available for some allowances as shown below.
Conveyance allowance :uptoRs 800/- a month is exempt from tax.
House rent allowance (hra) : hop over the house rent allowance article to check on calculation
and exemptions available.
Leave travel allowance (lta) :lta accounts for expenses for travel when you and your family go on
leave. While this is paid to you, it is tax free twice in a block of 4 years.
Medical allowance : medical expenses to the extent of Rs 15,000/- per annum is tax free. The
bills can be incurred by you or your family.

Perquisites : perquisites (or personal advantage) are benefits in addition to normal salary to
which an employee has a right by way of his employment. Examples of these are rent free
accommodation or car loan. There are some perquisites that are taxable in the hands of all
categories of employees, some which are taxable when the employee belongs to a specific group
and some that are tax free.
Your employer will give you form 16 which will contain all the earnings, deductions and
exemptions available.

Income From House Property

Any residential or commercial property that you own will be taxed as well. Even if your piece of
real estate is not let out, it will be considered earning rental income and you will need to pay tax
on it.
The income tax blokes are a bit easy going on this they tax you on the capacity of the real
estate to earn income and not the actual rent. This is called the propertys annual value and is the
higher of the fair rental value, rent received or municipal rent.
The annual value can go through a standard deduction of 30% and if you reduce the interest on
borrowed capital, then you get the value which is charged under the head income from house
property.

Profits And Gains Of Business Or Profession

Income earned through your profession or business is charged under the head profits and gains
of business or profession. The income chargeable to tax is the difference between the credits
received on running the business and expenses incurred.
The deductions allowed are depreciation of assets used for business; rent for premises; insurance
and repairs for machinery and furniture; advertisements; traveling and many more.

Capital Gains
Any profit or gain arising from transfer of capital asset held as investments are chargeable to tax
under the head capital gains.
Hop over to the long term and short term capital gains article to read more about this. Might be
worth reading to see how indexation is used in long term capital gains scenario to reduce tax
outgo.

Income From Other Sources

Any income that does not fall under the four heads above is taxed under the head income from
other sources. An example is interest income from bank deposits, winning from lottery, any sum
of money exceeding Rs. 50,000 received from a person (other than from relative, on marriage,
under a will or inheritance).

INCOME TAX

INDIRECT TAX
Indirect tax is a type of tax collected by the government from an intermediary such as
manufacturer or retailer. The eventual burden of the tax falls on to consumers who buy goods and
services from the intermediary, as the intermediary applies indirect taxes on the product in the
form of value added tax (vat), service tax, sales tax etc.
Indirect taxes are called so because they are collected indirectly from consumers by the
government through intermediaries, who are the first payers of the tax to the government. These
taxes are different from direct taxes such as income tax which is collected directly from
taxpayers. Indirect taxes include taxes such as sales tax, service, tax, vat etc. Whereas income
tax, wealth tax, corporation tax etc. Fall under the ambit of direct taxes.
Unlike direct taxes, indirect taxes are levied on goods and services rather than individuals.
Individuals pay the taxes indirectly in the form of higher prices on their purchases. A retailer
selling a product to you has already levied indirect taxes on the product, which is then passed on
to the relevant tax-collection authorities.

Features Of Indirect Taxes:

Levied on goods and services sold by an intermediary to final consumers.Consumers than pay the tax in
the form of higher price of items.
Broadly divided into categories such as sale of goods, imported/exported goods, offering of services and
manufacture of goods.
Indirect taxes are levied on clearance of goods and services from the origin, instead of actual sale of the
products to the customers. What this means is that the intermediary will pay excise duties irrespective of
whether they could sell the good or service to consumers.
Indirect taxes fall under both the central and state governments according to specific type of indirect tax.
For instance, vat is levied by the state governments whereas cst is levied by the central government.

Types Of Indirect Taxes

Indirect taxes is a broad category under which different kinds of indirect taxes fall. There are 4
basic sub-categories with further sub-divisions according to goods and services.

List Of Indirect Taxes Or Examples Of Indirect Taxes:

Service tax
Excise duties
Vat

Service Tax
Service tax is applied generally at the rate of 12.36%, which has been revised to 14% from april
2015. This type of indirect tax is levied by the service tax provider and paid by the recipient of
the services. However, in some cases the liability for the tax is divided between the recipient as
well as the provider of service.
There is also a provision for abatement of service tax if the final price is a mixture of services as
well as material, such as restaurant bills. In general, restaurants levy service tax on 40% of the
bill amount as 60% of the amount is considered to be cost of materials. Service taxes fall under
the ambit of the central government.

Manufactured good The central government collects excise duties on manufacture of goods
subject to clearance of the products from warehouse or factory. As such, this tax can be said to
apply on clearance of goods from storage rather than being applied on the sale of the
manufactured goods. Excise duties are further divided into 4 categories, of which basic excise
duty is levied for the most part while the others are levied only in special cases.
Basic excise duty: this is the most common type of excise duty which is levied on goods
manufacturing and falls under the central excise act, 1944. This tax is exempted in special cases
such as manufacture of salt or export of manufactured goods of less than rs.1.5 crores overall
value per year, among others. The excise duty rates vary from product to product.
Special excise duty: levied on a small list of items and falls under central excise tariff act, 1985.
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Textile duties: as the name suggests, only applicable on specific textile goods and falls under the
additional duties of excise act, 1978.
Goods of special importance: this is levied as per the additional duties of excise act, 1957 on
specific goods mentioned under the article.
National calamity contingent duty (nccd): this is levied on goods like cigarettes, chewing
tobacco, pan masala, mobile phones and crude oil, and is applicable u/s 135 of the finance act,
2001.
Imported goods:Imported goods are charged taxes as per excise duties. This is further divides in
specific duties and ad-valorem duties.
Specific duties: these are applicable on all individual components of a good imported into the
country, for instance a cloth imported from abroad will be charged excise per meter of the
material, or laptops imported will be charged excise on each unit of the order.
Ad-valorem duties: these are levied on the overall value of goods exported or imported. For
instance, 10% of the overall bill of imported clothes or 10% of the overall order value for
laptops.
Anti-dumping duties: these are levied so as to shield the domestic market against foreign goods
dumped at very low or below cost prices. For instance, plastic products imported from china,
which can be cheaper than the domestic market rates.
Countervailing duty of customs: this is another type of excise duty used to help indian produced
goods sell on a level playing field. This is additional to the ad-valorem or specific duties already
applied on goods.
Apart from all the types of indirect taxes discussed above, octroi or local body taxes are also
applicable as per local rules and regulations.

Excise Duty
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Excise duty is a governmental tax meant for producers and manufacturers on certain goods.
Manufacturers are considered to be:
1.

Entities who manufacture goods themselves

2.

Entities who outsource manufacturing, but manufacturing takes place from their name

To cover these costs, manufacturer adds them to COGS (cost of goods sold), where the buyer
ends up paying for these costs. Thus, it is considered to be an indirect tax.

Income From Salary

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Introduction And Objectives

Among the five heads of income listed by s.14, salaries is the first and most important head of
income . The concept of salaries is very wide and includes not only the salary in common
parlance but also various other receipts, gifts, perquisites and benefits.
The lesson is divided into various sections dealing with the concept of salary income and its
characteristics, which define as to what constitutes salaries followed by the incomes falling
under this head the computation of basic salary, types of allowances and perquisites, valuation of
the perquisites, various income tax provisions for computing taxable value of allowances etc and
their detailed descriptions along with the applicable legal provisions of income tax

Basis Of Charge
Section 15, 16 and 17 are concerned with the computation of salaries. To begin with, section
15 explains the basis of charge of salaries, which in turn is defined in section 17. Section 16
prescribes the deductions to be made while computing the income from salary. As per section 15
salary consists of:
any salary due from an employer or a former employer to an assessee in the previous year
whether actually paid or not,

Meaning And Essential Characteristics Of Salaries

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Salary, in simple words, means remuneration of a person in any form, which he has received
from his employer for rendering personal services to him under an expressed or implied contract
of employment or service.
But receipts for all kinds of services rendered cannot be taxed as salary. The remuneration
received by professionals like doctors, architects, lawyers etc. Cannot be covered under salary
since it is not received from their employers but from their clients. So, it is taxed under business
or profession head. This implies the presence of the following norms or essential characteristics
to determine whether any particular income is to be taxed under the head salaries or not.

A. Employer-Employee Relationship:
There must be relation of employer and employee between the payer of income and receiver of
income. Remuneration received in any other capacity will not be treated as salary. Thus for
instance, salary of a member of parliament cannot be specified as salary, since it is received from
government of india which is not his employer.

B. Compensation For Services Rendered:

The payment must be made to an employee by the employer as compensation for the services
rendered by the employee. However, payment made in other forms like gift, perquisites are also
included in the definition of the term salary.

C. Name Not Important:

Salary may be called as such by whatever name. There is no difference between salary and
wages so long as the relationship between the payer and payee is that of employer and employee
and the payment is made as a compensation for the services rendered by the employee.

D. More Than One Sources:

Salary may be from more than one employer.

E. Type Of Employment:
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Salary may be in any capacity like part-time employment or full time employment.

F. Past, Present And Prospective Employer

Salary may be received from not just the present employer but also a prospective employer and
in some cases even from a former employer for example pension received from a former
employer.

G. Real Intention To Pay:

Salary income must be real and not fictitious. There must exist an intention/ obligation to pay
and `receive salary.

H. Subsequent Surrender Of Salary Not Tax-Free:

Salary is taxed on due basis. A subsequent surrender of the salary will not be tax-free except
where an employee surrenders his salary to the central government, and then the salary so
surrendered will not be treated as taxable income of the employee.

I. Tax- Free Salary:

Salary paid tax free is also taxable in the hands of the employee, though contractually income tax
on such is borne not by the employee but by the employer.

J. Time Of Taxability:
Salary is taxable in the year of receipt or in the year of earning or accrual of the salary income,
whichever is earlier. In other words advance salary will be taxed when received and unpaid
salary will be taxed on accrual i.e. If the salary has been received first, then it will be taxable in
the year of receipt. If it has been earned first but not yet received then it will be taxable in the
year of earning. However, salary once taxed shall not be subjected to tax again .accordingly
accounting method employed by the employee is not relevant to determine the taxability of
salary.

K. Salary Received By Individuals Only:

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Salary is a compensation for personalized services, which can obviously be rendered by a normal
human being and not a body corporate. Salary income is taxable in the hands of individuals only.
No other type of person such as a firm or huf, companies can earn salary income.

L. Voluntary Payments Taxable As Salary:

Voluntary payments like gift etc also form the part of taxable salary.

M. Salary In Respect Of Services Rendered In India:

Salary, leave salary and pension even if paid outside india are deemed u/s 9 to accrue and arise in
india and are taxable in india. Further, salary paid to indian diplomats by the government of india
is deemed to accrue and arise in india although the same is exempted e u/s 10.

N. Gross Salary Taxable:

Compulsory deductions from salary such as employees contribution to provident fund,
deduction on account of medical scheme or staff welfare scheme etc. Are examples of instances
of application of income. In these cases, for computing total income, these deductions have to be
added back.

Scope Of Salary Income

Section 15 defines the scope of salary income and section 17 defines it. Section 17
gives an inclusive definition of salary.
Broadly, it includes:
A. Wages;
B. Any pension or annuity;
C. Any gratuity;
D. Any fees, commission, perquisites or profits in lieu of or in addition to salary or
wages;
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E. Any advance of salary;

F. Any encashment of leave salary;
G. Annual accreditation to provident fund above the prescribed limits; and
H. Any amount of credit to provident fund of employee to the extent it is taxable.
The term salary" includes not only the basic salary but also fees, commission,
bonus, taxable value of cash allowances and perquisites, retirement benefits,
encashment of leave salary, advance of salary, arrears of salary, various allowances
such as dearness allowance, entertainment allowance, house rent allowance,
conveyance allowance and also includes perquisites by way of free housing, free
car, free schooling for children of employees, etc. Tax treatment of all such receipts
is given below.
Section 15 to section 21 relate to income charged under the head salary. Salary
includes basic salary or wages, any annuity or pension, gratuity, advance of salary,
leave encashment, commission, perquisites in lieu of or in addition to salary and
retirement benefits.
Allowances : An allowance is a fixed monetary amount paid by the employer to the
employee for expenses related to office work. Allowances are generally included in
the salary and taxed unless there are exemptions available.
Specific tax exemptions are allowances allowed by employers as part of salary
.Some of them are .
Conveyance Allowance : Up to Rs 800/- a month is exempt from tax.
House Rent Allowance (HRA) : Hop over the House Rent Allowance article to
check on calculation and exemptions available.
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Leave Travel Allowance (LTA) : LTA accounts for expenses for travel when you
and your family go on leave. While this is paid to you, it is tax free twice in a block
of 4 years.
Medical Allowance : Medical expenses to the extent of Rs 15,000/- per annum is
tax free. The bills can be incurred by you or your family.
Perquisites : Section 17 deals with perquisites which are basically benefits in
addition to normal salary to which an employee has a right by way of his
employment. Examples of these are rent free accommodation or car loan. There are
some perquisites that are taxable in the hands of all categories of employees, some
which are taxable when the employee belongs to a specific group and some that are
tax free.
All income received as salary under employer-employee relationship is taxed under
this head, on due or receipt basis, whichever arises earlier. Employers must
withhold 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. The Act
contains exemptions including (the list isn't exhaustive):-

Particulars

Relevant section for computing

exemption

Leave travel concession

10(5)

Death-cum-Retirement Gratuity

10(10)
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Commuted value of Pension (not taxable for specified 10(10A)

Government employees)
Leave encashment

10(10AA)

Retrenchment Compensation

10(10B)

Compensation received at time of Voluntary Retirement

10(10C)

Tax on perquisite paid by employer

10(10CC)

Amount received from Superannuation Fund to legal heirs 10(13)

of employee
House Rent Allowance

10(13A)

Some Special Allowances

10(14)

Format Of Salary

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Iilustration :
Mr. M is an area manager of m/s n. Steels co. Ltd. During the financial year 201617, he gets the following emoluments from his employer:
Basic salary
Upto 31-8-2013

RS. 20000 pm

From 1-9-2013

RS. 25000 pm

Transport allowance

RS. 2000 pm

Contribution to rpf

15% of basic salary

Children education allowance

RS.500 pm for two children

City compensation allowance

RS. 300 pm

Hostel expense allowance

RS. 380 pm for two children

Tiffin allowances (actual expenses 3700)

RS. 5000 p.a.

Tax paid on employment

RS. 2500

Compute taxable salary of Mr. M for the assessment year 2014-15

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Solution:
Computation of income from salaries of Mr. M
Previous year: 2015-16
Assessment year: 2016-17
Particulars
Basic salary (20000*5 + 25000*7)

Amount

Transport allowance

24000

Less: exempt u/s 10(14) (800*12)

(9600)

Children education allowance (500*2*12)

12000

Less: exempt u/s 10(14) (100*2*12)

(2400)

City compensatory allowance (300*12)

Amount
275000
14400
9600
3600

Hostel expenses allowance (380*12*2)

9120

Less: exempt u/s 10(14) (300*12*2)

(7200)

1920

Tiffin allowance (fully taxable)

5000

Tax paid on employment

2500

Employers contribution to rpf in excess of 12%

of salary (i.e. 3% of 275000)

8250

Gross salary

320270

Less: tax on employment u/s 16(iii)

(2500)

Taxable salary
Working note:

317770

Professional tax paid by employer should be included in the salary of mr. M as a

perquisite since it is discharge of monetary obligation of the employee by the
employer. Therefore, deduction of professional tax paid is allowed to the employee
from his gross salary.

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Income From House Property

Introduction And Objectives
Income from house property is significantly different than the other heads of income unlike the
other heads as it covers not only the actual income but also the notional income.
This lesson explains the taxing provisions in regard to income from house property. Sections
22 to 27 deal with the computation of income from house property. S 22 defines the scope of
income from house property and section 23 and 24 give the mode of computation of income and
the amounts deductible there from. S. 25 deals with the amounts not deductible. Section 26 deals
with the income of co-owners of a property and s. 27 gives the cases where a person not being an
owner of the property will be taxed as the deemed owner of such property.

Basis Of Charge: S. 22
Annual value of property consisting of any building or lands appurtenant thereto of which the
assesse is the owner, shall be chargeable under the head income from house property. This is
however not applicable to property occupied for the purpose of assesses own business or
profession sec 22.in order to charge any income from any property under this head, following
conditions are satisfied namely
A) the property must consist of buildings or land appurtenant or adjacent thereto. Other
properties are not covered under this head.
building means any habitable four-wall structure covered by a roof. It is immaterial whether
the building is residential or commercial such as warehouse, office, wedding hall, auditorium,
business center, etc.
land appurtenant means the land connected or adjacent to the building e.g. Open space,
approach roads, courtyard, compounds, courtyards, backyards, playgrounds, parking spaces, etc
Income from any other property e.g. Rental income from a vacant plot of land is not chargeable
to tax under this head unless it is appurtenant to a building.

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The property must be owned by the assesse. It is only the owner or deemed owner of house
property who is liable to tax on income under this head. Following points are important in this
regard:
(a) owner may be any person i.e. An individual, huf, firm, company, cooperative society or
association of persons etc.
(b) the person must be the owner in the previous year. Subsequent change in the ownership of the
property is immaterial.
(c) similarly, sub-letting income of a tenant, who sub-lets the property to another tenant, is also
not covered under this head since the tenant is not the owner of the property. Such income will
be either treated as business income or as income from other sources.

Computation of net annual value and income from house property

Sec 23 classifies the house properties into different categories as discussed below:

(A)Self-Occupied Business Properties:

Incomes from house property used for own business or profession is exempt from tax. If any rent
or other income is generated from such property, the same should be treated as business income.
Similarly, municipal taxes, repairs, insurance premium, and other expenses incurred on such
property etc. Will be admissible as business expenses.

(B)Self-Occupied Residential Properties (Sop):

I. Sop annual value to be taken as nil
U/s 23(2)(a) value of one residential house part thereof which is occupied by the owner himself
for his own residence is taken as nil subject to two conditions namely :-:
I. The property or part thereof is not let-out actually for any part of the previous year and
Ii. No other benefit has been derived from such property.
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Some points are important in respect of sops.

1. This exemption is available only to individuals and huf. Other non- living persons can not
avail this exemption.
2. Exemption is restricted to only one self- occupied property,
3. If the assesse owns more than one self-occupied properties, the assesse, at his option, may
choose any one property as self-occupied by him and the remaining properties will be deemed or
assumed to have been let-out.
4. Gross annual value of such properties deemed to have been let-out, will be determined on the
basis of their notional rental value as if the properties were let-out even if no rent has actually
been received by the assesse. However, deductions u/s 23 & 24 will be allowed in the normal
manner on such property.
5. If an assesse owns only one property, and cannot occupy the same because he is engaged in
employment or is carrying on a business or profession elsewhere, these provisions will apply
mutatis mutandis- sec. 24(2).
Ii. No deductions allowed from sop except interest:
Once the annual value of a sop has been taken as nil, no further deduction will be allowed u/s 23
in respect of municipal taxes or u/s 24 except in respect of interest paid or payable on borrowed
funds for purchase, construction, repair, renewal or reconstruction of house property as per the
following rules
1. Interest paid or payable on loan taken prior to 01/04/1999 will be allowed to the extent of rs.
30,000.
2. Interest paid or payable on loan taken after 01/04/1999 for acquisition/ construction of house
property, will be allowed to the extent of RS. 1,50,000.
3. But if loan is taken after 01/04/1999 or repairs or renovation of the house property, deduction
in respect of interest paid or payable will be restricted to RS. 30,000.
4. Interest is allowed on accrual basis. Actual payment during the previous is not necessary.
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5. Interest paid or payable on money borrowed to acquire or construct the house property, for the
period prior to the previous year in which the property had been acquired or constructed, shall be
deductible in five equal annual installments starting from the previous year in which the house
has been acquired or constructed.
6 a fresh loan may be raised exclusively to repay the original loan taken for purchase/
construction etc, of the property. In such a case also, the interest on the fresh loan will be
allowable.
7. Interest payable on interest will not be allowed.
8. Brokerage or commission paid to arrange a loan for house construction will not be allowed.
9 any loss arising under the head income from house property may be set-off against the other
heads in the same assessment year.

(C) Let-Out Properties:

Following principles will be applicable for determination of annual value of properties let out
including sop deemed to be let out.
1. Net Annual Value
Let-out properties are charged to tax at the net annual value (nav), arrived at by deducting
municipal taxes paid by the owner from gav- (proviso to s. 23(1). Municipal taxes paid or borne
by the tenant are not deductible. Municipal taxes are taken on cash basis and not accrual basis
2. Deductions Under Section 24:
(A) Standard Deduction
From the net annual value a standard deductions in respect of repairs and collection charges is
allowed to the extent of 30% of the net annual value irrespective of whether the assesse has
actually incurred the expenses or not. However, if the repairs are borne by the tenant, this
deduction will not be allowed in the hands of the owner of the property

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(B) Arrears Of Rent

A deduction of 30% is allowed for repairs and collection charges from the arrears of rent
received in respect of a property let out , which were earlier not charged to tax and the same will
be taxable in the year of receipt - sec 25 b
(C) Interest On Funds Borrowed
Interest on loan taken for acquisition, construction, renewal, repairs or reconstruction is allowed
on let-out properties without any limit of rs 30,000/ 1,50,000 as in case of sop. The interest on
loans, is allowable on accrual basis. Similarly, pre-construction interest from the date of the loan
to the end of the previous year before the previous year in which the house was acquired is
amortized 1/5th per year for 5 years as in case of sop from the financial year in which the
construction was completed.

Illustration :
1. Mrb, owns a building consisting of three identical units whose construction was completed on
march 31, 2012. The building was occupied from april 1, 2012 onwards. The particulars
pertaining to the three units for the year ended march 31, 2013 are given below:
Particulars

Unit i

Unit ii

Unit iii

Fair rent

60000

60000

60000

Rent received

72000

-paid

3000

5000

3000

-due but not paid

3000

5000

3000

Land revenue due but outstanding

1200

1200

1200

Ground rent due, not yet paid

2400

2400

2400

Municipal taxes:

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Nature of occupation: unit i self occupied,

Unit ii let out for residence,
Unit iii used for own business.
On april2010 he had borrowed a sum of RS 500000 bearing interest at 12% p.a. For construction
of this building. The total cost of construction of the building Rs 1200000. Compute the
income from house property of B.
Solution:Income From House Property Of B
Previous Year: 2015 - 16
Assessment Year: 2016 - 17
Particulars

Amount

Amount

Amount

Income from sop (unit i)

Gross annual value (gav)(#1)

Nil

Net annual value

Nil

Less: deduction u/s 24

Interest payable (#2)

(24000)

(24000)

Income from lop (unit ii)

Gross annual value (gav)(#1)
Reasonable lettable value

60000

Actual rent

72000

Gav = ar which is more

72000

Less: municipal taxes paid

5000

Net annual value (nav)

67000

Less deduction u/s 24

Standard deduction (30% of nav)

20100

Interest payable (#2)

24000

Income from house property

(44100)

22900
(1,100)

26

Working Notes:
#1: house property has three units. Income from unit iii, used for business is not taxable
under the head house property. Income from units i and ii will be computed according to
provisions of sec.23(2)(a)[sop] and sec.23(1)[lop] respectively.
#2: interest on loan for unit i and ii is calculated as follows:
a. Interest for current year = 500000*12%*1/3 = 20000
b. Interest for pre-construction period = 20000/4 = 5000

27

Format Of House Property

Income of House Property

Amounts (in Rs.)

Total annual rental income value

Less: Municipal Taxes
Net Annual Value (NAV)

Deductions under Section 24

Standard deduction (30% of NAV)
Interest on borrowed capital (if applicable)

Income from House Property

28

Tax Calculations
Individual Income Tax Slab For A.Y. 2016-17 (F.Y. 2015-16)
Income

Tax Rates

i) Income up to 2.5 lakh

NIL

ii) Income From 2.5 Lakh to 5 Lakh

10% on income over Rs. 2.5 Lakh

iii)Income from 5 Lakh to 10 Lakh

Rs. 25,000/- plus 20% on above income 5 lakh

Rs. 1 lakh 25 thousand plus 30% on income above 10

iv) Income above 10 lakh

v)

lakh

Exclusive of surcharge @ 10% for A.Y. 2015-16 and @ 12% for A.Y. 2016-17 whose total income exceeds 1
crore.

vi) 3% Education Cess, Secondary & Higher Education Cess will be applicable on income tax & surcharge
Note -Rebate under Section 87A:The rebate is available to a resident individual if his total income does
not exceed Rs. 5,00,000. The amount of rebate shall be 100% of income-tax or Rs. 2,000, whichever is
less.

Income Tax Slabs ForIndividuals For 60 Years Or Above But Below 80 Years
A.Y.2016-17
Income

Tax Rates

i) Income up to 3 lakh

NIL

ii) Income From 3 Lakh to 5 Lakh

10% on income over Rs. 3 Lakh

iii) Income from 5 Lakh to 10 Lakh

Rs. 20,000/- plus 20% on above income 5 lakh

iv) Income above 10 lakh

Rs. 1 lakh 20 thousand plus 30% on income above 10 lakh

Surcharge will be applicable @ 10% when total taxable income is over 1 crore.

29

Income

Tax Rates

i) Income up to 5 Lakh

NIL

ii) Income From 5 Lakh to 10 Lakh

20% on income over Rs.5 Lakh

iii) Income above 10 lakh

Rs. 1 lakh plus 30% on income above 10 lakh

Surcharge will be applicable @ 10% when total taxable income is over 1 crore.
3% education cess will be applicable on income tax & surcharge

Income Tax Slab for Individuals Over 80 Years A.Y.2016-17

Income Tax Deductions

Introduction
30

Tax deduction helps in reducing your taxable income. It decreases your overall tax
liabilities and helps you save tax. However, depending on the type of tax deduction you
claim, the amount of deduction varies. You can claim tax deduction for amounts spent in
tuition fees, medical expenses and charitable contributions. Also, you can invest in
various schemes such as life insurance plans, retirement savings schemes, and national
savings schemes etc. to get tax deductions. The government of India offers tax
exemptions for various expenses incurred in different activities to encourage individuals
and commercial institutions take part in activities having social benefits.
A number of day-to-day expenditures qualify for deductions, with information about
them being crucial to help us save money. Tax deduction can be claimed on money spent
for education, medical expenses, charitable contributions, investments in insurance,
retirement schemes, etc. These deductions have been put in place to encourage members
of the society to participate in certain useful activities, helping everyone involved in the
process.
Taxes are an integral component in our country, with them accounting for a major portion
of the income earned by the government, income which is utilized to provide certain
basic provisions to citizens. Individuals who earn more than a certain amount are
expected to pay taxes, as per the existing tax slabs. While these taxes can be harsh on the
bank balance of a taxpayer, the government also provides certain provisions wherein one
can save tax. Tax deductions can help one reduce the taxable income, lowering their
overall tax liability and thereby helping them save on taxes. The deduction one is eligible
for depends on a number of factors, with different limits set for different purposes.

Tax Deductions Under Section 80C:

31

Section 80C of the Income Tax Act provides provisions for tax deductions on a number of
payments, with both individuals and Hindu Undivided Families eligible for these deductions.
Eligible taxpayers can claim deductions to the tune of Rs 1.5 lakh per year under Section 80C,
with this amount being a combination of deductions available under Sections 80 C, 80 CCC and
80 CCD.
Some of the popular investments which are eligible for this tax deduction are mentioned below.

Payment made towards life insurance policies (for self, spouse or children)

Payment made towards a superannuation/provident fund

Tuition fees paid to educate a maximum of two children

Payments made towards construction or purchase of a residential property

Payments issued towards a fixed deposit with a minimum tenure of 5 years

This section provides for a number of additional deductions like investment in mutual funds,
senior citizens saving schemes, purchase of NABARD bonds, etc.
Subsections under Section 80C:
Section 80C has an exhaustive list of deductions an individual is eligible for, which have led to
the creation of suitable sub-sections to provide clarity to taxpayers.

Section 80 CCC: Section 80 CCC of the Income Tax Act provides scope for tax deductions
on investment in pension funds. These pension funds could be from any insurer and a
maximum deduction of Rs 1.5 lakh can be claimed under it. This deduction can be claimed
only by individual taxpayers.

Section 80 CCD: Section 80 CCD aims to encourage the habit of savings among individuals,
providing them an incentive for investing in pension schemes which are notified by the Central
Government. Contributions made by an individual and his/her employer, both are eligible for
tax deduction, subject to the deduction being less than 10% of the salary of the person. Only
individual taxpayers are eligible for this deduction.
32

Section 80 CCF: Open to both Hindu Undivided Families and Individuals, Section 80
CCF contains provisions for tax deductions on subscription of long-term infrastructure bonds
which have been notified by the government. One can claim a maximum deduction of Rs
20,000 under this Section.

Section 80 CCG: Section 80 CCG of the Income Tax Act permits a maximum deduction of
Rs 25,000 per year, with specified individual residents eligible for this deduction. Investments
in equity savings schemes notified by the government are permitted for deductions, subject to
the limit being 50% of the amount invested.

Sec 80C of the Income Tax Act is the section that deals with these tax breaks. It states that
qualifying investments, up to a maximum of Rs. 1.50 Lakh , are deductible from your income.
This means that your income gets reduced by this investment amount (up to Rs. 1.50 Lakh),
and you end up paying no tax on it at all!

33

Tax Deductions Under Section 80D

Deductions On Medical Insurance
Section 80D: Deduction for premium paid for Medical Insurance
For financial year 2014-15 - Deduction is available up to Rs. 15,000/- to a taxpayer for insurance
of self, spouse and dependent children. If individual or spouse is more than 60 years old the
deduction available is Rs 20,000. An additional deduction for insurance of parents (father or
mother or both) is available to the extent of Rs. 15,000/- if less than 60 years old and Rs 20,000
if parents are more than 60 years old. Therefore, the maximum deduction available under this
section is to the extent of Rs. 40,000/-. (From AY 2013-14, within the existing limit a deduction
of up to Rs. 5,000 for preventive health check-up is available).
For financial year 2015-16 Deduction is raised from Rs 15,000 to Rs 25,000. The deduction for
senior citizens is raised from Rs 20,000 to Rs 30,000. For uninsured super senior citizens (more
than 80 years old) medical expenditure incurred up to Rs 30,000 shall be allowed as a deduction
under section 80D. However, total deduction for health insurance premium and medical expenses
for parents shall be limited to Rs 30,000.

Deductions On Medical Expenditure For A Handicapped Relative

Deduction is available on:

1. Expenditure incurred on medical treatment, (including nursing), training and
rehabilitation of handicapped dependent relative
2. Payment or deposit to specified scheme for maintenance of dependent handicapped
relative.
Where disability is 40% or more but less than 80% - fixed deduction of Rs 50,000.
34

Where there is severe disability (disability is 80% or more) fixed deduction of Rs 1,00,000.A
certificate of disability is required from prescribed medical authority.
Note: A person with 'severe disability' means a person with 80% or more of one or more
disabilities as outlined in section 56(4) of the 'Persons with disabilities (Equal opportunities,
protection of rights and full participation)' Act.

Certificate can be taken from a Specialist as specified.

Patients getting treated in a private hospital are not required to take the certificate from a
government hospital.

Patients receiving treatment in a government hospital have to take certificate from any
specialist working full-time in that hospital. Such specialist must have a post-graduate
degree in General or Internal Medicine or any equivalent degree, which is recognised by
the Medical Council of India.

Certificate in Form 10I is no longer required. The certificate must have - name and age of
the patient, name of the disease or ailment, name, address, registration number and the
qualification of the specialist issuing the prescription. If the patient is receiving the
treatment in a Government hospital, it should also have name and address of the
Government hospital.

For financial year 2015-16 The deduction limit of Rs 50,000 has been raised to Rs 75,000 and
Rs 1,00,000 has been raised to Rs 1,25,000.

Deductions on Medical Expenditure on Self or Dependent Relative

A deduction Rs. 40,000/- or the amount actually paid, whichever is less is available for
expenditure actually incurred by resident taxpayer on himself or dependent relative for medical
treatment of specified disease or ailment.

35

The diseases have been specified in Rule 11DD. A certificate in form 10 I is to be furnished by
the taxpayer from any Registered Doctor.
In case of senior citizen the deduction can be claimed up to Rs 60,000 or amount actually paid,
whichever is less.
For financial year 2015-16 for very senior citizens Rs 80,000 is the maximum deduction that
can be claimed.

Deductions ForPerson Suffering From Physical Disability

Deduction of Rs. 50,000/- to an individual who suffers from a physical disability (including
blindness) or mental retardation. In case of severe disability, deduction of Rs. 100,000 can be
claimed. Certificate should be obtained from a Govt. Doctor. The relevant rule is Rule 11D. This
is a fixed deduction and not based on bills or expenses.
For financial year 2015-16 The deduction limit of Rs 50,000 has been raised to Rs 75,000 and
Rs 1,00,000 has been raised to Rs 1,25,000.

36

Conclusion
Income tax is payable by an assesses on his total income from all the source of
income. Each source has its own unique features and requires specific treatment for
correct computation of income from that particular source. All the heads of income
are mutually exclusive. If any income is considered under a particular head, it will
not be taken into consideration for another head.

37

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http://www.investopedia.com/terms/i/incometax.asp#ixzz4KVZ5rfPiChromeHTML\
Shell\Open\Command
https://www.bankbazaar.com/tax/indirect-tax.html
http://moneyexcel.com/701/20-types-of-taxes-in-india
http://www.zapmeta.co.in/ws?q=income%20tax%20calculation
%20format&asid=zm_in_gc1_04&mt=b&nw=g&de=c&ap=1o2
http://mospi.nic.in/mospi_new/upload/statistical_year_book_2011/SECTOR-1INDIA%20AN%20OVERVIEW/CH-06-DIRECT%20&%20INDIRECT
%20TAXES/DIRECT-INDIRECT%20TAX-WRITEUP.pdf

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39