PROJECT REPORT ON

INCOME FROM SALARY

MASTERS OF COMMERCE DEGREE

SEMESTER- III

ACADEMIC YEAR:2015-16

SUBMITTED BY
MISS. POOJA MAURYA
ROLL NO: 17

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE AND COMMERCE,

N.E.S. MARG, BHANDUP (WEST), MUMBAI-400078

PROJECT REPORT ON

INCOME FROM SALARY

MASTERS OF COMMERCE DEGREE

SEMESTER- III

ACADEMIC YEAR:2015-16

SUBMITTED BY
IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER
DEGREE OF COMMERCE
MISS. POOJA MAURYA

ROLL NO: 17

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE AND COMMERCE,

N.E.S. MARG, BHANDUP (WEST), MUMBAI-400078

N.E.S. RATNAM COLLEGE OF ARTS, SCIENCE AND

COMMERCE,
N.E.S. MARG, BHANDUP (WEST), MUMBAI- 400078

CERTIFICATE

This is to certify that the project report on INCOME FROM SALARY is bonafide
record of project worked done by MISS. POOJA MAURYA submitted in partual
fulfillment of the requirement of the award of the Master of Commerce Degree
University of Mumbai during the period of his/her study in the academic year 201415

INTERNAL EXAMINER:

EXTERNAL EXAMINER:

Principal
Mrs. Rina Saha

DECLARATION

I hereby declare that this Project Report entitled INCOME FROM SALARY
submitted by me for the the award of Masters Of Commerce Degree; University of
Mumbai is a record of Project work done by me during the year 2015-16. This is
entirely my own work.

NAME: POOJA MAURYA

ROLL NO : 17

Place: Mumbai, Bhandup (W)

Date:

Signature

ACKNOWLEDGEMENT
I owe a great many thanks to great many people who helped and supported
me doing the writing of this book.

My deepest thanks to lecturer, Prof. RAJIV MISHRA of the project for

guiding and correcting various documents of mine with attention and care. She/ he
has taken pains to go through my project and make necessary corrections as and
when needed.

I extend my thanks to the principal of NES Ratnam College of Arts Science

and Commerce, Bhandup (w), for extending her support.

My deep sense of gratitude to Principal Mrs. Rina Saha of NES Ratnam College
of Art, Science and Commerce for support and guidance. Thanks and appreciation to
the helpful people at NES Ratnam College of Arts, Science and Commerce , for their
support.

I would also thank my institution and faculty members without whom this
project would have been a distant reality. I also extend my heartfelt thanks to my
family and well-wishers.

Candidate Name:

POOJA MAURYA

INTRODUCTION
A capital gains tax (CGT) is a tax charged on capital gains, the
profit realized on the sale of a non-inventory asset that was
purchased at a lower price. The most common capital gains are
realized from the sale of stocks, bonds, precious metals and
property. Not all countries implement a capital gains tax and most
have different rates of taxation for individuals and corporations.
For equities, an example of a popular and liquid asset, national
and state legislation often has a large array of fiscal obligations
that must be respected regarding capital gains. Taxes are charged
by the state over the transactions, dividends and capital gains on
the stock market. However, these fiscal obligations may vary from
jurisdiction to jurisdiction because, among other reasons, it could
be assumed that taxation is already incorporated into the stock
price through the different taxes companies pay to the state, or
that tax-free stock market operations are useful to boost
economic growth.

India
As of 2008, equities are considered long term capital if the
holding period is one year or more. Long term capital gains from
equities are not taxed if shares are sold through recognized stock
exchange and STT is paid on the sale . However short term capital
gain from equities held for less than one year, is taxed at 15% [7]
(w.e.f. 1 April 2009.[8]) (plus surcharge and education cess). This
is applicable only for transactions that attract Securities
Transaction Tax (STT).
Many other capital investments (house, buildings, real estate,
bank deposits) are considered long term if the holding period is 3
or more years.[9] Short term capital gains are taxed just as any

other income and they can be negated against short term capital
loss from the same business.

MEANING OF CAPITAL GAINS :Capital gains means profits or gains arising to the assesse from
the transfer of a capital asset. Such capital gain is added to the
total income of the previous year in which the transfer of the
assets took place.
Capital Gains is the fourth head of income. Section 45(1) of the
Income Tax Act, 1961 talks about anyprofits or gains arising from
the transfer of a capital asset effected in the previous year.
In C.I.T. V. H.H. Maharani Usha Devi case the Supreme
Court has made it clear that heirloom jewellery constitutes
personal effects under section 2(14) and its sale would not give
rise to any taxable capital gains.
A.I.R. 1998 S.C. 2309

Thus, the essential elements of capital gains are:(A)

(B)
(C)

Capital Asset.
Transfer of Capital Asset,
Computation of Capital gain.

Capital Asset [Sec. 2(14)]

Capital Asset means property of any kind held by an assessee,
whether connected with his business, profession or not. Capital
Asset may be movable or immovable, tangible or intangible, fixed
or floating. A.I.R. 2005 S.C. 796

In C.I.T V. D.P. Sandu Brotherscase it was held thatthe

value or income from transfer of capital asset can be taxed only
under the head Capital Gain and if it cannot be taxed under
this head, then it cannot be taxed at all. Such income cannot be
taxed under the head Income from other sources.

WHAT ALL CAPITAL ASSET

INCLUDES :1.
2.
3.
4.
5.
6.
7.
8.
9.

Goodwill of a business.
Partners share in a firm.
Tenancy rights.
Actionable claim.
Loom hours (Hours for which a worker works in a factory).
Patent.
Trade-Marks.
Lease hold right in mines.
License for manufacturing of a commodity.

EXCEPTIONS :The term Capital Asset doesnt include the following :

1. Any stock in trade, consumable stores or raw materials.
2. Movable Assets for personal use i.e. Apparel & furniture but
excluding jewellery held for personal use by the assesse or
any member of his family dependent on him.
3. Agricultural Land in India.
4. Gold bonds issued by the Central Government.
5. Special bearer bonds.
6. Gold Deposit bonds.

In C.I.T V. B.C SrinivasaSetty case the Supreme

Court has made it clear that the goodwill generated in a
newly commenced business cannot be described as an
asset within the meaning of the terms of Section 45 and
therefore its transfer is not subject to income tax under the
head capital gains.1981 Tax L.R. 641 (S.C.)

CLASSIFICATION OF CAPITAL
ASSETS:It is divided into 2 categories :
A) Short-Term Capital Asset.
B) Long-Term Capital Asset

SHORT-TERM CAPITAL ASSETIt means a Capital Asset held by an assesse for not more than 36
months immediately preceeding the date of its transfer:
Provided that in the case of a share held in a company or any
other security listed in a recognized stock exchange in India or a
zero- coupon bond, the provisions of this clause shall have effect
as if for the words 36 months, the words 12 months had been
substituted.

LONG-TERM CAPITAL ASSETAccording to section 2(29-A), it means an asset which is not a

short-term capital asset.

TRANSFER [Sec. 2(47)]

Any transaction whereby the ownership of an assessee in a
capital asset ceases is transfer according to Sec.2 (47).
Transfer includes:
i) Sale, exchange or relinquishment of a capital asset
ii) Extinguishment of any rights in a capital asset
iii) Compulsory acquisition of the capital asset under any law
iv) Conversion of a capital asset into stock-in-trade
v) Part performance of a contract of sale
vi) Transfer of rights in immovable properties through the medium
of co-operative societies, companies etc.
vii) Transfer by a person to a firm or other or Body of a person to a
Association of Persons (AOP) Individuals (BOI)
viii) Distribution of capital assets on Dissolution
ix) Distribution of money or other assets by a Company on
liquidation

TRANSACTIONS NOT REGARDED AS

TRANSFER (Section 47).
Nothing contained in section 45 shall apply to the following
transfers:
(i)

Any distribution of capital assets on the total or partial

partition of a Hindu undivided family;

(ii) This clause has been omitted by the Finance Act, 1987
w.e.f1-4-1988;
(iii) Any transfer of a capital asset under a gift or will or an
irrevocable trust;

http://www.vakilno1.com/bareacts/incometaxact/s47.htm

(iv) Any transfer of a capital asset by a company to its subsidiary

company, if:
(a) the parent company or its nominees hold the whole of the
share capital of the subsidiary company; and

(b) The subsidiary company is an Indian company;

(v) Any transfer of a capital asset by a subsidiary company to the
holding company, if:
(a) The whole of the share capital of the subsidiary company is
held by the holding company, and
(b) The holding company is an Indian company :
Provided that nothing contained in clause (iii) or clause (iv) shall
apply to the transfer of a capital asset made after the 29th day of
February, 1988, as stock-in-trade; (vi) Any transfer, in a scheme
of amalgamation, of a capital asset by the amalgamating
company to the amalgamated company if the amalgamated
company is an Indian company;

(via) Any transfer, in a scheme of amalgamation, of a capital

asset being a share or shares held in an Indian company, by the
amalgamating foreign company to the amalgamated foreign
company, if - (a) At least twenty-five per cent of the shareholders
of the amalgamating foreign company continue to remain
shareholders of the amalgamated foreign company, and

(b) Such transfer does not attract tax on capital gains in the
country, in which the amalgamating company is incorporated;
(vib) Any transfer, in a demerger, of a capital asset by the
demerged company to the resulting company, if the resulting
company is an Indian company;
(vic) Any transfer in a demerger, of a capital asset, being a share
or shares held in an Indian company, by the demerged foreign

company to the resulting foreign company, if - (a) At least

seventy-five per cent of the shareholders of the demerged foreign
company continue to remain shareholders of the resulting foreign
company; and
(b) Such transfer does not attract tax on capital gains in the
country, in which the demerged foreign company is incorporated :
Provided that the provisions of sections 391 to 394 of the
Companies Act, 1956 (1 of 1956) shall not apply in case of
demergers referred to in this clause;
(vid) Any transfer or issue of shares by the resulting company, in
a scheme of demerger to the shareholders of the demerged
company if the transfer or issue is made in consideration of
demerger of the undertaking;
(vii) Any transfer by a shareholder, in a scheme of amalgamation,
of a capital asset being a share or shares held by him in the
amalgamating company, if - (a) The transfer is made in
consideration of the allotment to him of any share or shares in the
amalgamated company, and
(b) The amalgamated company is an Indian company;
(viia) Any transfer of capital asset, being bonds or shares referred
to in sub-section (1) of section 115AC, made outside India by a
non-resident to another non-resident;
(viii) Any transfer of agricultural land in India effected before the
1st day of March, 1970;
(ix) Any transfer of a capital asset, being any work of art,
archaeological, scientific or art collection, book, manuscript,
drawing, painting, photograph or print, to the Government or a
University or the National Museum, NationalArtGallery,National
Archives or any such other public museum or institution as may
be notified 753 by the Central Government in the Official Gazette
to be of national importance or to be of renown throughout any
State or States.

(x) Any transfer by way of conversion of bonds or debentures,

debenture-stock or deposit certificates in any form, of a company
into shares or debentures of that company.
(xi) Any transfer made on or before the 753ca 31st day of
December, 1998, 753ca by a person (not being a company) of a
capital asset being membership of a recognised stock exchange
to a company in exchange for shares allotted by that company to
the transferor.
(xii) Any transfer of a capital asset, being land of a sick industrial
company, made under a scheme prepared and sanctioned under
section 18 of the Sick Industrial Companies (Special Provisions)
Act, 1985 (1 of 1986) where such sick industrial company is being
managed by its workers' co-operative :
Provided that such transfer is made during the period
commencing from the previous year in which the said company
has become a sick industrial company under sub-section (1) of
section 17 of that Act and ending with the previous year during
which the entire net worth of such company becomes equal to or
exceeds the accumulated losses.
(xiii) Where a firm is succeeded by a company in the business
carried on by it as a result of which the firm sells or otherwise
transfers any capital asset or intangible asset to the company:
Provided that
(a) All the assets and liabilities of the firm relating to the business
immediately before the succession become the assets and
liabilities of the company;
(b) All the partners of the firm immediately before the succession
become the shareholders of the company in the same proportion
in which their capital accounts stood in the books of the firm on
the date of succession;

(c) The partners of the firm do not receive any consideration or

benefit, directly or indirectly, in any form or manner, other than
by way of allotment of shares in the company; and
(d) The aggregate of the shareholding in the company of the
partners of the firm is not less than fifty per cent of the total
voting power in the company and their share holding continues to
be as such for a period of five years from the date of the
succession;
(xiv) Where a sole proprietary concern is succeeded by a
company in the business carried on by it as a result of which the
sole proprietary concern sells or otherwise transfers any capital
asset or intangible asset to the company :
Provided that
(a) All the assets and liabilities of the sole proprietary concern
relating to the business immediately before the succession
become the assets and liabilities of the company;
(b) The shareholding of the sole proprietor in the company is not
less than fifty per cent of the total voting power in the company
and his shareholding continues to so remain as such for a period
of five years from the date of the succession; and
(c) The sole proprietor does not receive any consideration or
benefit, directly or indirectly, in any form or manner, other than
by way of allotment of shares in the company;
(xv) Any transfer in a scheme for lending of any securities under
an agreement or arrangement, which the assessee has entered
into with the borrower of such securities and which is subject to
the guidelines issued by the Securities and Exchange Board of
India, established under section 3 of the Securities and Exchange
Board of India Act, 1992 (15 of 1992), in this regard.

COMPUTATION OF CAPITAL
GAINS(Section 48).
Transfer of a short term capital asset gives rise to "Short Term
Capital Gains' (STCG) and transfer of a long capital asset gives
rise to 'Long Term Capital Gains' LTCG). Identifying gains as STCG
and LTCG is a very important step in computing the income under
the head Gains as method of computation of gains and tax on the
gains is different for STCG and LTCG.

Short Term Capital Gains (STCG)

Computation of short - term Capital Gains:

1. Find out full value of consideration

2. Deduct the following :
a. expenditure incurred wholly and exclusively in
connection with such transfer
b. cost of acquisition; and
c. cost of improvement
3. From the resulting sum deduct the exemption provided by
sections 54B, 54D, 54G
4. 4. The balancing amount is short-term capital gain

Long Term Capital Gains (LTCG)

Computation of long - term Capital Gains:
1. Find out full value of consideration
2. Deduct the following:
a. expenditure incurred wholly and exclusively in
connection with such transfer
b. indexed cost of acquisition; and
c. indexed cost of improvement
3. From the resulting sum deduct the exemption provided by
sections 54, 54B, 54D, 54EC, 54ED, 54F and 54G
4. The balancing amount is long-term capital gain
Full value of consideration (Section 50-C).
This is the amount for which a capital asset is transferred. It

may be in money or money's worth or a combination of both.

Where the transfer is by way of exchange of one asset for
another, fair market value of the asset received is the full
value of consideration. Where the consideration for the
transfer is partly in cash and partly in kind Fair market value
of the kind portion and cash consideration together
constitute full value of consideration.

Cost of acquisition(Section 55(2)).

Cost of acquisition of an asset is the sum total of amount
spent for acquiring the asset.
Where the asset was purchased, the cost of acquisition is the
price paid. Where the asset was acquired by way of
exchange for another asset, the cost of .acquisition is the fair
market value of that other asset as on the date of exchange.
Any expenditure incurred in connection with such; purchase,
exchange or other transaction e.g. brokerage paid, registration
charges and legal expenses also forms I part of cost of
acquisition.
Sometimes advance is received against agreement to transfer a
particular asset. Later on, if the advance is retained by the tax
payer or forfeited for other party's failure to complete the
transaction, such advance is to be deducted from the cost of
acquisition.

Cost of acquisition with reference to certain modes

or acquisition (Section 49(1)).
Where the capital asset became the property of the assessee:
a) on any distribution of assets on the total or partial partition of a
Hindu undivided family;
b) under a gift or will
c) by succession, inheritance or devolution;
d) on any distribution of assets on the dissolution of a 'firm, body
of individuals, or other association of persons, where such
dissolution had taken place at any time before 01.04.1987;
e) on any distribution of assets on the liquidation of a company;
f) under a transfer to a revocable or an irrevocable trust;
g) by transfer in a scheme of amalgamation;
h) by an individual member of a Hindu Undivided Family living his
separate property to the assessee HUF anytime after 31.12.1969.
The cost of acquisition of the asset shall be the cost for which the
previous owner of the property acquired it, as increased by the
cost of any improvement of the asset incurred or borne by the
previous owner or the assessee, as the case may be, till the date
of acquisition of the asset by the assessee.
If the previous owner had also acquired the capital asset by any of
the modes above, then the cost to that previous owner who had
acquired it by mode of acquisition other than the above, should
be taken as cost of acquisition.

Cost of improvement (Section 55(1) (b) )

The cost of improvement means all expenditure of a capital
nature incurred in making additions or alternations to the capital
asset. However, any expenditure which is deductible in computing
the income under the heads Income from House Property, Profits
and Gains from Business or Profession or Income from Other
Sources (Interest on Securities) would not be taken as cost of
improvement. Cost of improvement for goodwill of a business,
right to manufacture, produce or process any article or thing is
NIL.

CAPITAL GAINS EXEMPTED FROM TAX

Long Term Capital Gain from the Transfer of Residential

House Proper (Section 54)
The exemption under the Section 54 is available only to an
individual or a HUF who transfers (or sells) a residential
house/property that results in a long-term capital gain, and then
invests the amount of gain in acquiring a new residential house.
This exemption is available subject to fulfillment of the following
requirements:
(i) The transferor shall be an individual or the HUF,
(ii) The asset to be transferred must be of long-term capital
asset, being buildings or lands appurtenant thereto, being a
residential house,
(iii) The income from such residential house shall be assessable
under the head "Income from House Property",
(iv) The transferor assessee should purchase a residential house
in India within a period of one year before or two years from the
date of transfer or construct a residential house within three
years from the date of the transfer of the original house.
(Construction must be completed within these 3 years.), and
(v) The new house property purchased or constructed has not
been transferred within a period of three years from the date of
purchase or construction.
Amount of Exemption. The amount of exemption under
section 54 is

Equal to the amount of the capital gain if cost of new house

property is more than the capital gain, or

Equal to the cost of the new house property if the cost is

less than the capital gain.

Deposit Scheme under Section 54. Where the amount of

capital gain is not so utilized for the purchase or construction of
a new residential house before the due date of furnishing of the
return of income, it shall be deposited by him on or before the
due date in an account with a public sector bank in accordance
with the Capital Gain Account Scheme, 1988. The amount
already utilized on the new house together with the amount
deposited shall be deemed to be the amount utilized for the
purchase of new house under section 54. If the amount

Sectio
n

Asset
Who
Transferr Entit
ed
led

Use or
Holdin
g
Period

Prescribe
d
Period
for
Investme
nt

Other
Sales
of
Conditi New Asset
ons/
Inciden
ts

54

Residentia Indivi
l House
dual
or
HUF

Exceedi Within
1
ng
3 year
years.
before, or 2
years after
the date of
transfer (if
purchased)
or 3 years
after
the
date
of
transfer (if
constructe
d).

If
sold
within
3
years from
the date of
purchase /
constructio
n,
capital
gains
claimed as
exempt
assessable
to
tax
together
with
additional
capital
gains in the
year
of
transfer of
new asset
as
Short
Term
Capital
Gain
(STCG)

54B

Agricultur
al Land

Indivi
dual

Use for Within

2
2 years years after
the date of
transfer.

54D

Land
or Any
Use for
Building
Asses 2 years
for
se
Industrial
undertaki
ng.

Within
3
years after
the date of
transfer.

Must
have
been
used by
assesse
e or his
parents
for
agricult
ural
purpose
s
See
Notes
1, 2 and
10

If
sold
within
3
years from
the date of
purchase /
constructio
n,
capital
gains
claimed as
exempt
assessable
to
tax
together
with
additional
capital
gains in the
year
of
transfer of
new asset
as
Short
Term
Capital
Gain
(STCG)

Must
have
been
compul
sorily
acquire
d

If
sold
within
3
years from
the date of
purchase /
constructio
n,
capital
gains
claimed as
exempt
assessable
to
tax
together

with
additional
capital
gains in the
year
of
transfer of
new asset
as
Short
Term
Capital
Gain
(STCG)
54EC

Any Long- Any

term
Asses
Capital
se
Asset
(LTCA)

Shares,
Listed
Securiti
es,
Units of
UTI/Mut
ual
Fund
covere
d
u/s.
10(23D
)
:1
year
Others
:
3
years

Within
6
months of
transfer of
original
asset.

54ED

LTCA
being
listed
securities
or units

Any
Listed
Asses Securiti
se
es
or
units of
UTI/Mut
ual
Fund

Within six
months
from
the
date
of
transfer in
acquiring
eligible

If
sold
within
3
years,
exempted
capital gain
will
be
deemed to
be income
from Long
Term
Capital
Gain (LTCG)
of
the
assesse in
the year of
transfer of
the
new
asset.
exempti
on
is
availabl
e only
in
respect
of
the

If
sold
within
3
years,
exempted
capital gain
will
be
deemed to

covere issue
d
u/s. capital
10(23D
) : 1
year

54F

Any Asset
other
than
residential
house.

Indivi
dual
or
HUF

Shares,
Listed,
Securiti
es,
Units of
UTI/Mut
ual
Fund
covere
d
u/s.
10(23D
) : 1
year
Others
:
3
years

of assets
transfer
red
before
1-42006

Within
1
year
before, or 2
years after
the date of
transfer (if
purchased)
, or 3 years
after
the
date
of
transfer (if
constructe
d).

be income
from Long
Term
Capital
Gain (LTCG)
of
the
assesse in
the year of
transfer of
the
new
asset.
Same as for
Sections
54,
54B,
54D except
that under
section 54F
it will be
taxed
as
LTCG.

54G

Plant and Any

Machinery Asses
or
Land se
and
Building
used for
Industrial
undertaki
ng
in
Urban
area.

May be
L.T.C.A
or
S.T.C.A

Within
1
year
before, or 3
years after
the date of
transfer.

Same as for
Sections
54,
54B
and 54D.

54GA

Plant and Any

Machinery Asses
or
Land se
and
Building
used for
Industrial
undertaki
ng
in
Urban
area.

May be
L.T.C.A
or
S.T.C.A

Within
1
year before
or 3 years
after
the
date
of
transfer.

Same as for
Sections
54,
54B
and 54D.

115F

Foreign
Exchange
Asset.

Shares,
Listed
Securiti
es,
Units of
UTI/Mut
ual
Fund
covere
d
u/s.
10(23D
) : 1
year

Within
6
months
after
the
date
of
transfer.

Same
as
u/s.
54F
above.

NonResid
ent
India
n

Others
:
3
years