Income Tax

Income Tax Liability
1 The legal position discussed is as applicable for financial year 2009-10

(Assessment Year 2010-11) unless specified otherwise. Provisions as applicable for
financial year 2008-09 (Assessment Year 2009-10) are also given, where these are
different from provisions applicable to AY 2009-10.
Income tax is levied under Entry No. 82 of List I of Seventh Schedule to Constitution
(Union List), which reads, Tax on income other than agricultural income. Entry No.
46 of List II of Seventh Schedule to Constitution (State List) reads, Taxes on
agricultural income .
Income Tax Act, 1961 imposes tax on income other than agricultural income. Tax on
agricultural income can be imposed only by State Governments.
Section 4 of Income Tax Act, which is the charging section, states that where any
Central Act enacts that income tax shall be charged for any assessment year at any
rate or rates, income tax at that rate or those rates shall be charged for that year in
accordance with, and subject to the provisions (including provisions for the levy of
additional income tax) of this Act (i.e. Income Tax Act) in respect of the total income
of the previous year of every person.
Income tax Rates fixed under Finance Act every year - The Central Act as
referred to in section 4 of Income Tax Act is the Finance Act enacted every year.
Income Tax is payable by every assessee at the rates prescribed by Finance Act
every year. The Finance Bill is presented at the time of presenting Budget, usually
on last day of February every year. The relation between Finance Act and Budget is
so close that often people associate budget only with taxation. Really, taxation is
only one of the aspects of the Budget.
1-1 Who is assessee ? - Assessee means a person by whom any tax or any other
sum of money is payable under Income tax Act. It includes deemed assessee
[section 2(7) of Income Tax Act]
Person - Person includes * Individual * HUF * Company * Partnership Firm *

Association of Persons (AOP) or body of individuals whether incorporated or not *
Local Authority like Municipality etc. * Artificial Judicial person not falling in any of the
aforesaid categories e.g. a Hindu deity [section 2(31) of Income Tax Act]
1-2 Previous Year and Assessment Year
One very confusing aspect of Income Tax for a common man is the difference
between Previous Year and Assessment Year.
Assessment year means the period of twelve months commencing on the 1st day of
April every year [section 2(9) of Income Tax Act]
Previous year means the financial year immediately preceding the assessment year.
If a business/profession is newly set up, previous year is the period from date of
setting up that business or profession and ending with the financial year [section 3
of Income Tax Act]
The Financial Year for income tax purposes (called Previous Year) is always the
year ending 31st March. The assessment year is next to the Financial Year or
Previous Year e.g. for Financial Year (FY) 2007-08 (1st April 07 to 31st March
2008), the Assessment Year (AY) is 2008-09.
It may be noted that an assessee can have separate accounting year for his own
purposes e.g. a Company can close its accounts on any day of the year, an
individual may start his year on Diwali or any other auspicious day. However, for
income tax purposes, the accounts must be closed only on 31st March.
1-3 Residential status
Income tax liability depends on residential status of a person.
Income Tax liability of a person depends on the residential status. Assessees are either
resident in India, or non-resident in India.
A firm, an association of persons, a company and every other person can be either a resident
or a non-resident.
In case of individuals and HUF, if they are residents, they can be either resident and
ordinarily resident, or resident but not ordinarily resident.
Section 6 gives the test of residence for various types of assessees e.g. an individual, a Hindu
undivided family, a firm or an association of persons or a body of individuals, a
company ; and every other person.
An assessee can have different residential status for different assessment years. It is possible
that a person who is resident in India for income tax purposes, may be resident in any other
country for the same assessment year.
Residential status of an individual - An individual is resident in India in any previous year,
if he satisfies at least one of the following conditions - (a) He is in India in the previous year
for a period of 182 days or more or (b) He is in India for a period of 60 days or more during
the previous year and 365 days or more during 4 years immediately preceding the previous
year [section 6(1) of Income Tax Act]
However, in case of an Indian citizen who leaves India during the previous year for the
purpose of employment outside India or an Indian citizen who leaves India during the
previous year as a member of the crew of an Indian ship, or Indian citizen or person of Indian
origin, the period of 60 days stands extended to 182 days.
In short, if a person was in India for at least 182 days in the previous year, he will be
resident for that year. Otherwise, he will be non resident.
A resident individual will be resident and ordinarily resident in India if (a) He has been
resident in India in at least 2 out of 10 previous years immediately preceding the relevant
previous year and (b) He has been in India for a period of 730 days or more during 7 years
immediately preceding the relevant previous year [section 6(6) of Income Tax Act].
A resident who does not satisfy any one of the aforesaid conditions, will be resident
but not ordinarily resident.
Residential status of a HUF - In case of HUF, if control and management of its affairs is
wholly or partly situated in India, it will be resident in India. If control and management of
its affairs is wholly out of India, it will be non-resident in India [Sec. 6(2 of Income Tax
Act]
A resident Hindu undivided family (HUF) can be either ordinarily resident or not ordinarily
resident.
A resident Hindu undivided family will be ordinarily resident in India if the karta or
manager of the family (including successive karta) (a) has been resident in India in at least 2
out of 10 previous years immediately preceding the relevant previous year and (b) has been
present in India for a period of 730 days or more during 7 years immediately preceding the
previous year.
If even one of the conditions is not satisfied, the HUF will be resident but not ordinarily
resident in India [section 6(6)(b) of Income Tax Act].
Residential status of the firm and association of persons - A partnership firm and an
association of persons will be resident in India if control and management of their affairs are
wholly or partly situated within India during the relevant previous year. If control and
management of their affairs are situated wholly outside India, it will be non-resident in India.
[Sec. 6(2)]
Residential status of a company - A company incorporated in India is an Indian company. It
will always be resident in India. A foreign company (i.e. company incorporated abroad), is
resident in India only if, during the previous year, control and management of its affairs is
situated wholly in India. [Sec. 6(3) of Income Tax Act]
Residential status of every other person - Every other person will be resident in India if
control and management of his affairs is wholly or partly situated within India during the
relevant previous year. If control and management of his affairs is wholly situated outside
India, it will be non-resident [Sec. 6(4) of Income Tax Act]
1-4 Tax liability depending on residential status
Income can be broadly classified as Indian Income and Foreign Income.
Indian income is always taxable in India in case of all tax payers, whether resident or non-
resident.
Foreign income is taxable in India if the assessee is (a) resident (in the case of a firm, AOP
company and every other person) or (b) resident and ordinarily resident (in the case of an
individual or a Hindu undivided family) in India.
If an individual or a HUF is resident but not ordinarily resident, foreign income is taxable
only if it is (a) business income and business is controlled from India, or (b) professional
income from a profession which is set up in India. Otherwise, foreign income is not taxable
in the hands of resident but not ordinarily resident taxpayers [section 5(1) of Income Tax Act]
Foreign income is not taxable if the assessee is non-resident in India [section 5(2) of Income
Tax Act]
Section 9 of Income Tax Act defines income deemed to accrue or arise in India. It will be
Indian Income and taxable in all the cases.
1-5 Different heads of income
All income is classified under following heads of income - * Salaries * Income from
House property * Profits and gains of business or profession * Capital Gains *
Income from other sources (e.g. interest on securities, lotteries, races) [section 14 of
Income Tax Act]
Calculation of income tax - Income from each of these sources is first calculated.
All this income is added to find out total income of the assessee. Permissible
deductions are reduced and then income-tax payable is calculated at the prescribed
rates.
Income from one head can be set off against loss from other head, unless
specifically prohibited. In Rajasthan State Warehousing Corporation v. CIT 2000 AIR
SCW 629, it was held that if income is derived from various heads, assessee is
entitled to claim deduction permissible under respective head whether or not
computation under each head results in taxable income. If income to assessee
arises under any of the heads of income but from different items e.g. different house
properties or different securities etc., and income from one or more items alone is
taxable whereas income from the other item is exempt under the Act, the entire
permissible expenditure in earning the income from that head is deductible. - . - If
assessee carries business in various ventures, entire expenditure incurred on all
ventures is deductible if all ventures constitute one business
1-6 Broad mode of computation of Income
Rs.
Income from salaries, allowances and perquisites
Less : Deduction under section 16, entertainment allowance and

professional tax:
Taxable income under the head Salaries (1-2) .
Income from house property - Adjusted net annual value
Less : Deductions under section 24
Taxable income under the head Income from house property (5-6)
Profits and gains of business or profession - Profit/loss as per P&L

account after deducting amounts not allowable as deduction,
adding amounts which are allowable as deduction and adding
income taxable under this head, though not credited/debited to
P&L account
Less : Incomes which are credited to P & L A/c but are exempt under
sections 10 to 13A or are taxable under other heads of income
Taxable income under the head Profits and gains of business or
profession (7-8)
10. Capital gains
11. Less : Amount exempt under sections 54, 54B, 54D, 54EC, 54ED, 54F,
54G and 54GA
Taxable income under the head Capital gains (10-11)
Income from other sources
14. Less : Deductions under section 57
Taxable income under the head Income from other sources (13-14)
16. Total Income (3+6+9+12+15)
Less : Adjustment on account of set-off and carry forward of losses
18. Less : Deductions under sections 80C to 80U
Total income or net income liable to tax (16-17-18)
Income subject to special rate of tax (e.g. capital gains)
Balance income subject to normal rate (20+21 = 19)
Computation of tax liability
A1. Tax on net income at special rates
A2 Tax on income at normal rates
Less : Rebate under section 88E in respect of STT (available for AY

2008-09 but not available for AY 2009-10)
Add : Surcharge
Add: Education cess and secondary and higher education cess
Less : Rebate under sections 86, 89, 90, 90A and 91
Net Tax payable (A1+A2-B+C+D-E)
Tax paid on self-assessment
Tax deducted or collected at source
Tax paid in advance
Balance Tax payable (F-G-H-I)
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Rates of Income Tax
2 Major types of assessees and the rates of tax applicable is summarised here.
2-1 Individual - An individual may get income from salary, house rent, business,
profession, interest etc. He does not have to pay income tax on dividend income at
all. An individual may carry out business under some different name. However, this
is only for convenience of business or trade. The income of a proprietary firm is
added to his income for purpose of income tax. If a person gets salary from a
partnership firm where he is a partner, the income is treated as business income
though termed as salary.
Tax rates for the assessment year 2010-11 (FY 2009-10) are as follows -
For resident woman (who is below 65 years at any time during the previous
year), rates for AY 2010-11 are as follows
Net income Income-tax rates
Up to Rs. 1,90,000 Nil
Rs. 1,90,000 Rs. 10% of (total income minus Rs.

3,00,000 1,90,000)
Rs. 3,00,000 Rs. Rs. 11,000 + 20% of (total

5,00,000 income minus Rs. 3,00,000)
Above Rs. 5,00,000 Rs. 51,000 + 30% of (total

income minus Rs. 5,00,000)
For resident woman (who is below 65 years at any time during the previous
year), rates for AY 2009-10 were as follows
Net income Income-tax rates
Rs. 1,80,000 Rs. 10% of (total income minus Rs.

3,00,000 1,80,000)
Rs. 3,00,000 Rs. Rs. 12,000 + 20% of (total

5,00,000 income minus Rs. 3,00,000)
Rs. 5,00,000 Rs. Rs. 52,000 + 30% of (total

10,00,000 income minus Rs. 5,00,000)
Above Rs. 10,00,000 Rs. 2,02,000 + 30% of (total

income minus Rs. 10,00,000)
plus 10% of income tax as
surcharge
For resident senior citizen (who is 65 years or more at any time during the
previous year), rates for AY 2010-11 are as follows
Net income range Income-tax rates
Rs. 2,40,000 Rs. 3,00,000 10% of (total income minus Rs. 2,40,000)
Rs 3,00,000 Rs 5,00,000 Rs 6,000 + 20% (total income minus Rs.

3,00,000)
Above Rs. 5,00,000 Rs. 46,000 + 30% of (total income minus

Rs. 5,00,000)
For resident senior citizen (who is 65 years or more at any time during the
previous year), rates for AY 2009-10 were as follows
Rs 3,00,000 Rs 5,00,000 Rs 7,500 + 20% (total income minus Rs.

3,00,000)
Rs. 5,00,000 Rs. 10,00,000 Rs. 47,500 + 30% of (total income minus
Rs. 5,00,000)
Above Rs. 10,00,000 Rs. 1,97,500 + 30% of (total income

minus Rs. 10,00,000) plus 10% of income
tax as surcharge
For any other individual, every HUF/AOP/BOI/artificial juridical person,

rates for AY 2010-11 are as follows
Rs. 3,00,000)
Above Rs. 5,00,000 Rs. 54,000 + 30% of (total income minus

Rs. 5,00,000)
For any other individual, every HUF/AOP/BOI/artificial juridical person,

rates for AY 2009-10 were as follows
Rs. 3,00,000)
Rs. 5,00,000)
Above Rs. 10,00,000 Rs. 2,05,000 + 30% of (total income minus

Rs. 10,00,000) plus 10% of income tax as
surcharge
Notes:
1. Surcharge There is no surcharge on income tax for AY 2010-11. For AY 2009-10,

surcharge was 10 per cent of income-tax if net income of an individual, Hindu undivided
family, association of persons, or body of individuals, exceeds Rs. 10,00,000. In the case of
an artificial juridical person, surcharge is 10 per cent of income-tax (i.e., income-tax minus
rebate under section 88E), even if net income is less than Rs. 10,00,000.
Rebate u/s 88E (in respect of STT) is not available for AY 2009-10.
Marginal relief Since there is no surcharge fo AY 2010-11, there is no question of

marginal relief. For AY 2010-11, in the case of the aforesaid person having a net
income of exceeding Rs. 10,00,000, the net amount payable as income-tax and
surcharge shall not exceed the total amount payable as income-tax on total income
of Rs. 10,00,000 by more than the amount of income that exceeds Rs. 10,00,000.
2. Education cess and SAH Education Cess - Education cess payable is 2 per cent of
income-tax and surcharge. Secondary and higher education cess is 1 per cent of income-tax
and surcharge. This is in addition to income tax.
2-2 HUF - An Hindu Undivided Family (HUF) consists of all persons lineally
descended from a common male ancestor. It is assessable in respect of income
derived from the joint family corpus. However, income earned by individual members
of HUF in their individual and personal capacities is taxed as their personal income.
Such income is not treated as income of HUF. Thus, it is possible to have an income
from a proprietary firm (in individual capacity) as well as income from a business of
HUF. Both are eligible for separate tax exemptions. Business of HUF can, of course,
be conducted in a different name. In such case, the HUF will be proprietor of the firm
in the name of which business is being conducted.
It may be noted that there is no question of forming an HUF, as every male Hindu
automatically has HUF. A Hindu male can have his own separate HUF even if his
father or son has separate HUF. One HUF with only one male member is
permissible. Any HUF can have business run by head of the HUF called karta.
If an individual throws his separate property into the property of HUF, income from
such converted property will be included in the total income of such individual.
Hence, the HUF business should be from independent source of capital and not
from the funds provided by an individual member of the HUF. Thus, if an HUF
intends to conduct a business, its financial resources have to be carefully planned.
HUF should start business with loans / gifts from unrelated persons / bankers.
Accounts and finances of HUF business should be kept separate. Otherwise, there
is a possibility that income of HUF will be clubbed with the income of an individual.
The income of HUF is chargeable at the same rate as individual income as stated
above. Thus, if an individual splits his business - partly in his individual capacity and
partly in name of firm owned by HUF, considerable tax saving is possible, if done
systematically and carefully.
2-3 Partnership Firm - Income of the partnership firm has to be calculated after
deducting salary and interest payable to partners at prescribed rates. Specific
provisions in respect of partnership firm have been explained later.
A firm is taxable at the rate of 30 per cent for the assessment year 2008-09 and 2009-10 and
2010-11. There is no surcharge for AY 2010-11. For AY 2008-09 and 2009-10, Surcharge @
10 per cent of income-tax [i.e., income-tax after rebate under section 88E] was payable, if net
income exceeds Rs. 1 crore. Marginal relief was available where net income exceeds Rs. 1
crore. In addition, Education cess is 2 per cent of income-tax (after rebate under section 88E)
and surcharge. Secondary and higher education cess is 1 per cent of income-tax (after tax
rebate under section 88E) and surcharge.
2-4 Company - The tax on income is as follows -
In case of domestic company, income tax is @ 30% for assessment year 2008-09,
2009-10 and 2010-11. Surcharge @ 10 per cent of income-tax [i.e., income-tax after
rebate under section 88E], if net income exceeds Rs. 1 crore. Rebate u/s 88E is not
available for Assessment Year 2009-10.
In case of foreign company, income tax is @ 40% for assessment year 2008-09,
2009-10 and 2010-11. Surcharge @ 2.5% of income-tax [i.e., income-tax after
rebate under section 88E], if net income exceeds Rs. 1 crore. Rebate u/s 88E is not
available for Assessment Year 2009-10.
Marginal relief is available where net income exceeds Rs. 1 crore. In addition,
Education cess is 2 per cent of income-tax (after rebate under section 88E) and
surcharge. Secondary and higher education cess is 1 per cent of income-tax (after
tax rebate under section 88E) and surcharge.
Dividend Distribution Tax - A domestic company paying dividend will have to pay
dividend distribution tax u/s 115-O. The rate applicable w.e.f. 1-4-2007 is 15% plus
surcharge @ 1.5% plus education cess @ 2% plus SAH education cess of 1% of
income tax. Total 16.995%.
Dividend distribution tax is payable within 14 days from date of

declaration/distribution/payment of dividend whichever is earlier. The dividend will be
tax free at the hands of assessees.
Mutual funds have to pay dividend distribution tax u/s 115R of Income Tax Act. The
rate as applicable w.e.f. 1-4-2007 is 12.5% on income distributed to any individual or
HUF and 20% on income distributed to any other person. In addition, surcharge,
education cess @ 2% and SAH education cess @ 1% will be payable. Total is
14.1625% in case of individual or HUF unit holder and 22.66% in other cases.
In case of money market mutual fund or a liquid fund, rate is 25%. Including
surcharge and education cess, it is 28.325%.
The dividend will be tax free at the hands of assessees.
Income distributed to unit holders of open ended equity oriented funds or US 64 is

exempt from dividend distribution tax.
2-5 Minimum Alternate Tax
Many companies charge depreciation in their books on straight line method. Thus,
the profit shown is higher in the accounts maintained for company law purposes and
they can declare dividend. However, for income tax purposes, they charge
depreciation on WDV which is higher. Thus, for income tax purposes, they may
show low profit or even loss, while in balance sheet prepared for company law
purposes, they will show high profits, which is called book profits. Hence, such
companies have to pay minimum income tax [section 115JB]. This tax is termed as
Minimum Alternate Tax (MAT).
In Apollo Tyres v. CIT (2002) 122 Taxman 562 (SC 3 member bench), it was held
that the assessing officer cannot reopen the accounts certified by auditors and
adopted in general meeting. He has limited powers of making additions and
reductions as provided in the section. [In this case, it was held that assessing officer
cannot add back the depreciation for earlier years provided in accounts].
Rate of minimum alternate tax, as % of book profit is as follows, for Assessment Year 2010-
11 -
If book profit does not If book profit exceeds Rs. 1 crore
exceed Rs. 1 crore
IT % EC and Total IT SC EC and Total

SAHC
% SAHC
Domestic 15 0.3 15.45 15 1.5 0.495 16.995

company
Foreign 15 0.3 15.45 15 0.375 0.46125 15.83625

company
Marginal Relief - If book profit of a company exceeds Rs. 1 crore, the minimum alternate tax
cannot exceed the following : (Rs. 15 lakh + Book profit Rs. 1 crore) + EC + SAHC.
Rate of minimum alternate tax, as % of book profit were as follows, for Assessment Year
2008-09 and 2009-10.
If book profit does not exceed Rs. 1 crore If book profit exceeds Rs. 1 crore
IT % EC and Total IT SC EC and Total

SAHC %
SAHC
Domestic company 10 0.3 10.30 10 1 0.33 11.33
Foreign company 10 0.3 10.30 10 0.25 0.3075 10.5575
Marginal Relief - If book profit of a company for the assessment year 2008-09 exceeds Rs. 1
crore, the minimum alternate tax cannot exceed the following : (Rs. 10 lakh + Book profit
Rs. 1 crore) + EC + SAHC.
2-6 Co-operative societies - Following rates are applicable to a co-operative

society for the assessment year 2008-09, 2009-10 and 2010-11
Net income Rate of income-tax
Up to Rs. 10,000 10
Rs. 10,000 - Rs. 20,000 20
Rs. 20,000 and above 30
No surcharge applies, but education cess @ 2% of tax and SAH education cess @ 1% of tax
is payable.
Various exemptions are available to cooperative societies u/s 80P of Income Tax Act.
However, there is no exemption to urban cooperative banks.
7 Local authorities - Tax rate is 30%. No surcharge applies, but education cess @ 2% of tax
and SAH education cess @ 1% of tax is payable.
2-7 Capital gains
In case of short term gains covered under section 111A of Income Tax Act , the rate is 10%
for AY 2008-09 and 15% for Assessment Year 2009-10 and 2010-11. Section 111A is
applicable in respect of securities transactions which are subject to securities transaction tax.
In case of long term capital gains, tax rate is 20% for AY 2008-09, AY 2009-10 and AY
2010-11 [section 112].
There is no surcharge for AY 2010-11. Surcharge for AY 2009-10 was 10% in case of (a)
individual/HUF/BOI/AOP if income exceeds Rs 10 lakhs and (b) in case of company/firm if
income exceeds Rs one crore.
In addition, education cess @ 2% of tax and SAH education cess @ 1% of tax is payable.
2-8 Wealth-tax
Wealth tax for individual, HUF or a company is 1% in respect of wealth over Rs 30

lakhs for Assessment Year 2010-11. There is no surcharge or education cess.
Wealth tax for individual, HUF or a company was 1% in respect of wealth over Rs 15
lakhs for Assessment Year 2008-09 and 2009-10. There is no surcharge or
education cess.
One house or part of house belonging to an individual or HUF is excluded for

purpose of wealth tax. The assets have to be valued as per Valuation Rules.
Income from salary
1. Income under the head salary comprises of remuneration in any form (including
perquisites) received by an employee from employer. Thus, there should be
contractual employer-employee relationship. The contract may be express, oral or
implied.
Salary is chargeable on due or receipt basis. Arrears of salary paid or allowed are
includible if not charged to income tax for any earlier previous year [section 15 of
Income Tax Act]
Salary includes * wages * dearness allowance * Bonus * gratuity * annuity or

pension * advance of salary * Fees / Commissions perquisites/ profits received from
employer in addition to salary * Leave encashment while in service * Employers
contribution to provident fund in excess of 12% of salary of employee * profit in lieu
of salary [section 17(1) of Income Tax Act]
In Karamchari Union v. UOI 2000 AIR SCW 806 = AIR 2000 SC 1226 = (2000) 109
Taxman 1 = 2000 LLR 897 = 243 ITR 143 (SC), it has been held that CCA (City
Compensatory Allowance), DA (Dearness Allowance) and HRA (House Rent
Allowance) are in nature of income forming part and parcel of salary and are
taxable.
1-1 Allowances
House rent allowance - Exemption will be lowest of (a) 50% of salary where
residential accommodation is in Mumbai, Kolkata, Delhi or Chennai and 40% of at
other place (b) Excess of rent paid over 10% of salary (c) Actual allowance paid.
There will be no exemption if the residential accommodation is owned by employee
or employee has not paid any rent for residential accommodation used by him
[section 10(13A) of Income Tax Act and rule 2A]
Salary means basic plus DA (if forming part of retirement benefits) plus commission
(if fixed as a percentage of turnover).
Gratuity - Gratuity for Government employees is fully exempt [section 10(10)(i)]. In

case of employees covered under Payment of Gratuity Act, exemption is upto Rs
3,50,000 to be reduced by such exemptions claimed in the past or 15 days salary for
every completed year of service, whichever is lower.. Salary means basic plus DA (if
forming part of retirement benefits) [section 10(10)(ii) of Income Tax Act] Any other
gratuity is also exempt to same extent [section 10(10(iii)]of Income Tax Act]
Leave encashment - Encashment of earned leave on retirement of employees of

Central/State Govt is fully exempt [section 10(10AA)(i) of Income Tax Act] . Leave
encashment while in service is treated as part of salary. In other cases, leave
encashment of earned leave on retirement will be lowest of 10 months salary, Rs
three lakhs or actual sum received [section 10(10AA)(ii) of Income Tax Act]
LTA/LTC - Leave Travel Assistance/Leave Travel Concession is allowed twice in a

block of four years. It is limited to amount actually spent on travelling of employee
and his family members. It is limited to economy class of air fare or AC first class
fare [section 10(5) of Income Tax Act and rule 2B]
The allowance is exempt subject to amount of expenses actually incurred by the

employee for such travel. The employee will have to keep account of actual
expenses incurred. It appears that actual travel by air or AC is not required, but the
overall ceiling on expenses is subject to limit of air fare / rail fare.
VRS (Voluntary Retirement) - It is exempt upto Rs five lakhs if VRS is as per

prescribed conditions.
Medical treatment - Reimbursement of amount actually spent for medical treatment

upto Rs 15,000 is exempt in a financial year. In addition, reimbursement of
insurance premium for self, spouse, children and dependent brothers, sisters and
parents is exempt.
In case of treatment in Government or approved hospital, or expenditure on medical

treatment outside India, reimbursement of medical expenses is exempt without any
ceiling.
1-2 Valuation of perquisites - The employer often gives some perquisites to the
employees. Value of these perquisites is added to the income of employees. The
valuation of perquisites is done as follows :
Rent Free unfurnished Accommodation - - In case of private sector employees,

value of perquisite of rent free unfurnished accommodation is taken as follows - (a) If
owned by employer - If population of city exceeds 25 lakhs - 15%, if population
exceeds 10 lakhs but below 25 lakhs - 10% (c) In other cases - 7.5%.
In case of Government Employees, value will be rent as per rules framed by

Government, as reduced by sum actually paid
Salary includes basis, DA (if taken into account for retirement benefit), bonus,
commission, fees and all taxable allowances.
Valuation of furnished accommodation - If accommodation is furnished, in

addition to above, 10% of cost of furniture (including TV, radio, refrigerator, AC etc.),
if owned by employer, will be treated as perquisite. If the furniture is hired from third
party, actual hire charges less any amount recovered from employee will be the
perquisite.
Gas electricity or water supply - Some benefits like gas, electricity, water are
valued at actual cost to employer. If these are provided from own sources, value will
be manufacturing cost incurred per unit, less amount recovered from employee.
Domestic servants - Actual cost to employer for sweeper, gardener, watchman or

personal attendant will be value of perquisite.
Use of movable assets - If some movable asset is provided to employee, perquisite

will be @ 10% of the cost of asset or rent paid, as reduced by sum paid by
employee.
Loans to employees at concessional rate - Calculate interest on basis of SBI

lending rates, reduced interest paid by employee and difference will be the value of
perquisite.
1-3 Perquisites which will be added to salary
Remaining perquisites perquisites like motor car, lunch, refreshment, travelling,

touring, gift, credit card, club etc. will be added to salary and taxed in hands of
individual (Till 31-3-2009, FBT was payable by employer and hence these were
exempt at hands of employee).
Valuation of motor car -.If car is owned or hired by employer and provided for
personal purposes of employees, valuation will be expenditure incurred by employer
on running and maintenance plus remuneration of chauffer plus normal wear and
tear @ 10% on actual cost less amount charged to employees.
If motor is partly for official and partly for personal purposes and expenses are
reimbursed by employer, perquisite value per month is Rs 1,2000 per month if
engine cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of
engine exceeds 1.6 liters.
If motor is partly for official and partly for personal purposes and expenses are
reimbursed by employer, perquisite value per month is Rs 1,200 per month if engine
cubic capacity is upto 1.6 liters and Rs 1,600 per month if cubic capacity of engine
exceeds 1.6 liters. If chauffer is provided, value of perquisite will be Rs 600 per
month.
If motor is partly for official and partly for personal purposes and expenses are met
by employee, perquisite value per month is Rs 400 per month if engine cubic
capacity is upto 1.6 liters and Rs 600 per month if cubic capacity of engine exceeds
1.6 liters. If chauffer is provided, value of perquisite will be Rs 600 per month.
Other amounts paid - Club fees paid on behalf of employee, insurance premiums
paid on behalf of employee, income tax paid on behalf of employee are all treated as
perquisites and its cost is added to income of employee.
Gifts - Gifts upto Rs 5,000 per year are exempt.
1-4 Deductions from Salary Income - Following deductions are permissible from
salary income -
Professional Tax paid to State Government is allowable as deduction
Entertainment allowance upto Rs 5,000 is allowable to Government employees.
1-5 Exemptions for salary income - Following are exempt from income tax-
Transport allowance upto Rs 800 per month granted to an employee to meet his
expenditure for the purpose of commuting between place of residence and the place
of his duty.
Conveyance and transport allowance granted to employee to meet cost of travel on

tour are exempt. Allowance granted to meet expenditure incurred on conveyance in
performance of duties of an office or employment are exempt. In LIC Officers v. LIC
of India (2000) 112 Taxman 227 (Bom HC DB), it was held that conveyance
allowance is exempt only if expended for meeting expenses wholly and necessarily
incurred or to be incurred in performance of duties of office. Conveyance allowance
at flat rate irrespective of place of residence, work and posting will not be exempt
from income tax.
Conveyance and transport allowance granted to employee to meet cost of travel on

transfer are exempt. Expenses granted to meet cost of travel on transfer and cost of
packing and transportation of personal effects on such transfer are exempt.
Use of employers vehicle or transport provided for journey of employee from

residence to his place of work and back is not treated as perquisite and its cost is
not treated as income.
Refreshments during office hours to employees and recreational facilities provided to

group of employees are not treated as perquisites.
Income from House Property
Income from house property consists of buildings and/or lands appurtenant thereto.
However, income only from vacant plot or land is treated as income from other
sources. Following should be noted.
In case of let-out property, income will be fair annual value i.e. sum reasonably
expected to be received from letting or actual rent received whichever is higher.
Deduction is allowable for unrealized rent.
Annual Value or Property is the sum for which the property could reasonably be
expected to let from year to year. Municipal Valuation of ratable value can be taken
as one of the tests to determine bona fide value of the property. If the house property
is given on rent, actual rent received will be the annual value of the house property.
From the Annual Value of House Property, in case of let out property, following will
be allowed as deduction (a) Municipal tax The deduction will be permitted on
actual payment basis (b) Standard deduction of 30% of (gross annual value less
municipal tax) [section 24(a) of Income Tax Act] (c) Interest on capital borrowed to
acquire or construct the house property subject to limit explained below [section
24(b) of Income Tax Act]
Annual Value of a self-occupied property is taken as Nil, if it is not let out. In such
cases, none of the aforesaid expenses are allowed as deduction. However, if the
self-occupied property is acquired or constructed or repaired from borrowed funds,
interest payable on such funds upto Rs 1,50,000 per annum is allowed as deduction.
Interest on borrowed capital for repairs is allowable as deduction upto Rs 30,000.
Naturally, this will be a loss as the annual value of self occupied property is Nil.
This loss can be set off against any other income of the assessee. In other words, if
funds are borrowed to acquire or construct or repair self-occupied property, interest
upto Rs 1,50,000/30,000 paid per annum is allowable as deduction from any other
income.
House property or any portion thereof occupied by the owner for purpose of his
business or profession is excluded and any expense of current repairs, municipal
taxes, depreciation on property etc. is allowable as business expenditure.
Profits and Gains of Business or Profession
Profit and gains of business as specified in section 28 of Income tax Act are taxable.
The term business includes trade, commerce or manufacture or adventure or

concern in nature of trade, commerce or manufacture [section 2(13) of Income Tax
Act]
Professional Income is income from exercise of any profession or vocation which

calls for an intellectual or manual skill. It covers doctor, lawyers, accountants,
consulting engineers, artists, musicians, singers etc.
Profits of business or gains from profession are calculated after allowing all
legitimate business expenditure. Some important deductions admissible in
computing income from business or profession are as follows [sections 30 to 36 of
Income Tax Act]
* Rent, rates, taxes, repairs and insurance for business or professional premises
[section 30 of Income Tax Act]
* Current repairs and insurance of machinery, plant and furniture [section 31 of

Income Tax Act]
* Depreciation on building, machinery, plant or furniture [section 32 of Income Tax

Act] (discussed below)
* Revenue expenditure on scientific research [section 35(1) of Income Tax Act]
* Capital expenditure on scientific research related to business (except land) [section

35(2) of Income Tax Act]
* Preliminary expenses in relation to formation of a company or in connection with

extension of an undertaking or setting up of a new industrial unit can be amortised in
5 equal installments over 5 years. The preliminary expenditure is permitted only upto
5% of cost of project [section 35D]
* Insurance expenses [section 36(1)(i) of Income Tax Act]
* Insurance premium on health of employees [section 36(1)(ib) of Income Tax Act]
* Bonus or commission to employees [section 36(1)(ii) of Income Tax Act]
* Interest on borrowed capital [section 36(1)(iii) of Income Tax Act]
* Contributions towards approved provident fund, superannuation fund and gratuity

fund [section 36(1)(iv) and 36(1)(v) of Income Tax Act]
* Bad debts in respect of income considered in previous years can be written off and
allowable as deduction [section 36(1)(viii) of Income Tax Act]
* Banking cash transaction tax [section 36(1)(xiii) of Income Tax Act]
* Advertisement expenditure is fully allowed as deduction. However, expenditure

incurred on advertisement in any souvenir, brochure, pamphlet etc. of a political
party is not allowed as a deduction [section 37(2B) of Income Tax Act]
* Expenditure in maintenance of guest house is permissible as deduction [section

36(1)(i) of Income Tax Act]
* Any other expenditure which is not of capital nature or personal expenses of the
assessee is allowed if it is expended wholly and exclusively for the purposes of
business or profession. However, it should not have been for purpose which is an
offence or is prohibited by any law [section 37 of Income Tax Act]
5-1 Depreciation - Depreciation means diminution in value of an asset on account

of wear and tear and obsolescence.
In any business, raw material is used fully and immediately, while plant and
machinery is used slowly over a period of time. After the estimated life of machinery,
its value becomes Nil. Hence, it is fair that cost of machinery is charged over the
period of its estimated useful life. This is the basic principle of depreciation on capital
goods. Since land does not depreciate, no depreciation is allowed on land.
Under Income Tax, depreciation is calculated on the basis of block of assets. Block
of assets means a group of assets falling within a class of assets, in respect of
which the same % of depreciation rate has been prescribed. e.g. all machinery
having rate of depreciation as 25% will form one block of asset, machinery having
40% rate of depreciation will form another block of asset and so on.
Depreciation is allowed on actual cost of the asset. Interest paid on borrowed funds
and capitalised as pre-commencement expenses before the asset is commissioned
is added to cost of the asset and depreciation claimed on such expenditure. Thus,
pre-production expenditure can be included in cost of the machinery and
depreciation can be charged on such actual cost. In Chellapalli Sugar v. CIT AIR
1975 SC 97 = 98 ITR 167 (SC), it as held that it includes all expenditure necessary
to bring such asset into existence. [Thus, it will include installation charges]. It was
held that interest on loans upto date of commencement of business forms part of
'actual cost' of plant for purpose of depreciation.
Depreciation is calculated on Written Down Value (WDV) method. If the asset is put
to use for purpose of business for less than 180 days, only 50% of normal
depreciation is permissible. In other words, full depreciation for the year is
permissible only if asset is commissioned before 30th September of that year.
If depreciation cannot be fully claimed in a particular year for want of profits, the un-
absorbed depreciation can be carried forward for any number of succeeding
assessment years. [section 32(2)].
The depreciation rates in respect of some important assets are as follows :
* Residential building 5%. Others (including hotels and boarding houses) 10%.
Purely temporary structures 100%.
* Furniture and fittings including electrical fittings 10%
* Motor cars 15% . Buses, lorries, and taxis used in business of running them on hire
30%,
* Pollution control equipment and specified energy saving devises - 100%
* General machinery - 15%, aeroplane 40%, Ships 20%
* Computers including software - 60%.
* Books by professionals 100% for annual subscription and 60% for others - books
in library - 100%.
* Intangible assets - know-how, patents, copyrights, trade marks, licenses,

franchises or any other right of similar nature - 25%.
In Mysore Minerals v. CIT 1999 AIR SCW 3146 = 1999(5) SCALE 340 = 239 ITR
775 = AIR 1999 SC 3185 = 106 Taxman 166 (SC), it was held that claimant of
depreciation need not be owner of asset in legal sense. Person in whom for the time
being vests the dominion over the asset and who is entitled to use it in his own right
is eligible to claim depreciation. followed in Dalmia Cement v. CIT 2000 AIR SCW
4198 (SC 3 member bench).
However, if assessee has not acquired dominion over the asset, he will not be
entitled to depreciation on that asset. Tamilnadu Civil Supplies v. CIT (2001) 116
Taxman 369 = 2001 AIR SCW 4777 (SC 3 member bench).
Depreciation compulsory As per Explanation 5 to section 32(1)(ii), inserted w.e.f.

11.5.2001, depreciation is compulsory in computing total income even if assessee
had not claimed the same. This amendment applies to AY 2002-03 onwards. [In CIT
v. Mahendra Mills (2000) 2 SCALE 384 = AIR 2000 SC 1960 = 243 ITR 56 = (2000)
109 Taxman 225 (SC), it was held that assessee has option to claim or not to claim
depreciation. The depreciation cannot be thrust upon him. Now, this judgement is
ineffective from AY 2002-03]
Depreciation in case of imported machinery obtained on loan in foreign

currency If machinery is imported on loan repayable in foreign currency, the
amount payable in rupees will go on changing due to fluctuations in foreign
exchange rates, as the installments and interest are spread over a period. In such
case, the value of machinery should be increased on basis of entire loan
outstanding and not merely installments of loans that fell due during the accounting
period. CIT v. Arvind Mills (1992) 193 ITR 255 = 60 Taxman 192 (SC) quoted
and followed in CIT v. Madras Fertilizers (2002) 124 Taxman 581 (Mad HC DB).
5-2 Expenditure not allowed as deduction
Following expenditures are not allowed as deduction for purpose of income tax.
Deduction of taxes, interest etc. Only on actual payment basis - Tax, duty, cess,
fees payable under any law, Employers contribution to provident fund or ESIC,
bonus to employees, commission to employees, interest on any loan or borrowing
from financial institutions, banks, SFC, leave encashment are eligible as deduction
only if they are paid on due dates on which these were payable. Even if these are
not paid on due dates but are paid before filing of return, these are allowed as
deduction, if proof of payment is filed along with the return. However, in case of
employers contribution to provident fund, superannuation fund or gratuity fund, the
same is allowed as deduction only if it was paid before due date of payment [section
43B of Income Tax Act]
Expenditure in excess of Rs 20,000 in cash fully disallowed - If expenditure is

incurred in business or profession by payment of cash over Rs 20,000 in a day,
entire expenditure is disallowed [Earlier, 20% of such expenditure was disallowed
upto AY 2007-08]. All cash transactions in a day to a party should not exceed Rs
20,000. [Till 31-3-2008, each transaction was considered for the limit of Rs 20,000.
Now, total transactions in a day will be considered [section 40A(3) of Income Tax
Act]
Payment over Rs 20,000 should be made by cheque or demand draft. This

restriction is not applicable in case of payments to # RBI, other banks and financial
institutions, LIC # Government payments, payment by book adjustment, railway
freight * Payment for agricultural produce, poultry, fish etc. to the cultivator, grower or
producer (i.e. payments to middlemen are not excluded from this provision) [rule
6DD]
Similarly, a person can accept loans or deposits of Rs 20,000 or more only by

account payee bank draft or cheque.
Interest on delayed payment to small industries - Interest on delayed payment

made to Small Scale Industries is not allowable as deduction.
Expenditure for any purpose which is an offence in law - Section 37(1) of

Income Tax Act states that any expenditure incurred for any purpose which is an
offence or which is prohibited by law shall not be allowed as deduction.
5-3 Different accounting for balance sheet and income tax purposes - Method
of depreciation, valuation of stock etc. is different under Companies Act and Income
Tax Act. Hence, one method of accounting for income tax and other for Companies
Act is permitted. The practice has been specifically approved in United Commercial
Bank v. CIT 1999 AIR SCW 4050 = AIR 2000 SC 94 = 106 Taxman 601 (SC).
Accounting profits and assessable profits are conceptually different. CIT v.

Bipinchandra Maganlal (1961) 41 ITR 290 (SC).
Other important provisions in respect of business income
6 Some important provisions in relation to income from business or profession are

as follows -
Maintenance of books of account - In respect of professional in legal, medical,

engineering, architecture, accountancy or technical consultancy must maintain
books, if their gross receipts are less that Rs 1.50 lakhs, they have to maintain such
books of account as may enable Income Tax Officer to compute their taxable
Income. If their gross receipts exceed Rs 1.50 lakhs, they have to maintain books of
account as specified in rule 6F i.e. cash book, journal, ledger, copies of bills
exceeding Rs 25 issued by him, original bills in respect of expenditure and payment
vouchers etc. Person carrying on medical profession has to maintain additional
books as prescribed. [Section 44AA and rule 6F]
Persons carrying on business or professionals other than those mentioned above

have to maintain books of accounts if annual income exceeds Rs 1,20,000 or gross
receipts or turnover exceed Rs. ten lakhs in case of business also have to maintain
books of account.
Accounts on mercantile or cash basis - Accounts should be maintained either on

mercantile basis or cash basis. Hybrid i.e. mixed system is not permitted. [In cash
system, income or expenditure is considered only when it is actually received / paid.
In mercantile system, income/expenditure is considered on accrual and payable
basis. Actual receipt or payment may occur in subsequent financial year and may
not happen in that particular year.]
Income tax audit report - If gross receipts or turnover of business exceeds Rs 40

lakhs per annum, the accounts have to be compulsorily audited. In case of
professional income, accounts have to be audited if gross receipts exceed Rs ten
lakhs. This audit report should be submitted along with income tax return, before
30th September. [section 44AB].
Capital Gains
Capital gains means any profit or gains arising from transfer of a capital asset. Such
capital asset may be building, non-agricultural land, machinery, shares, jewellery etc.
However, stock in trade, agricultural land in rural area and personal effects (other
than jewellery) are not capital assets.
From AY 2008-09, archaeological collections, paintings, sculptures will not be

treated as capital assets.
Broadly, capital gain is the difference between the price at which the asset was
acquired and the price at which the same asset was sold. In technical terms, capital
gain is the difference between cost of acquisition and the full value of consideration.
Incidental expenditure and cost of improvement is allowable as deduction.
The cost of acquisition of capital asset is to be increased by Cost Inflation Index.

The index is announced by Central Government every year. The index was 100 for
1981-82, 172 for 1989-90, 244 for 1993-94, 331 for 1997-98, 351 for 1998-99, 389
for 1999-2000, 406 for 2000-01, 426 for 2001-02, 447 for 2002-03, 463 for 2003-04
and 480 for 2004-05, 519 for 2006-07, 551 for 2007-08, 582 for 2008-09 and 632
for 2009-10.
The cost of acquisition will be adjusted on basis of the above index and then capital
gain will be calculated. The formula is Cost of acquisition x Cost Inflation Index of the
year in which the asset is transferred / Cost Inflation Index of the year of acquisition.
If the asset was acquired before 1.4.1981, the Cost Inflation Index of that year will
be treated as 100. Thus, if an asset was brought in 1989-90 for Rs one lakh and sold
in 1997-98 for Rs three lakhs, the adjusted cost of acquisition will be (1,00,000 x
331)/172 i.e. Rs 1,92,442, and capital gains will be Rs 1,07,558 (3,00,000 -
1,92,442). Such adjustment is permissible only for long term capital gains and not
for short term capital gains.
Expenditure incurred on any improvement in asset is permitted as deduction and

that cost can also be adjusted on the same principles as above.
If a company issues bonus shares, the cost of acquisition of bonus shares will be
treated as Nil. Thus, if the bonus shares are sold, net sale proceeds of bonus
shares will be liable to capital gains.
Expenditure incurred in connection with transfer (like stamp duty, registration

charges, legal fees, brokerage etc.) are allowed as deduction. Capital gain is
charged as income of the financial year in which the transfer took place.
Capital gain can be classified as short term or long term. A short term capital gain
is when the asset was held by the assessee for a period of upto 36 months. If the
asset was held for more than 36 months, the gain will be long term gain. The period
is only 12 months (instead of 36 months) in case of shares or any other security
listed in stock exchange or units of UTI or units of mutual fund.
The income tax rate is 20% on long term capital gains, while calculating the long
term capital gains, indexation of purchase price is required. Tax on long term capital
gain shall be subject to ceiling of 10% of capital gains calculated without indexing.
The short term gains are added in other income of the assessee and the income tax
is payable according to the normal rate applicable to the assessee.
In case of short term gains covered under section 111A of Income Tax Act , the rate
is 10% for AY 2008-09 and 15% for Assessment Year 2009-10 onwards. Section
111A is applicable in respect of securities transactions which are subject to securities
transaction tax.
Capital gains arising from sale of residential house is exempt if the original asset
(i.e. the house) was held for more than three years and a new house was purchased
within one year before or two years after the sale of original asset, or a new
residential house is constructed within three years. The cost of new asset
(residential house) should be more than the amount of capital gains [section 54 of
Income Tax Act]
Any other long term capital gain is exempt if the capital gains are invested within 6
months in 3 year bonds issued by REC or NHAI and that investment is retained for
three years. Investment cannot exceed Rs 50 lakhs - section 54EC of Income Tax
Act.
Income from other sources
All income other than income from salary, house property, business and profession
or capital gains is covered under Income from other sources. Provisions in respect
of some important sources of other income are summarised below.
Dividends - Dividends on shares of domestic companies or units of UTI or mutual

fund received from a company on or after 1-4-2003 will not be taxable at the hands
of the assessee [section 10(34) and 10(35)]. [The dividend distribution tax (DDT) will
be payable by company/mutual fund u/s 115-O] However, deemed dividend as
defined in section 2(22) of Income Tax Act will be considered as income from other
sources.
Winning from lotteries, races etc. - Winning from lotteries, card games, horse
races are taxable as other income. This is taxable @ 30.3% without claiming any
allowance or expenditure.
Interest on securities, bank deposits and loans - Interest on bank deposits and
loans is treated as other income, if not taxable u/s 28.
Gifts - Gifts in a year exceeding Rs 50,000, except gifts from certain relatives and
gifts on certain specified occasions will be taxable [section 56(2)(vi) of Income Tax
Act]
Income from letting - Income from letting of furniture, machinery, plant and building
which is not separable fro, composite letting with machineries is taxable as other
income. Current repairs, insurance and depreciation are allowed as deductions
[section 56(2)(ii) and (iii) of Income Tax Act]
Rebate / Exemption from Income Tax Liability
9 Following rebates / exemptions are available.
9-1 Deductions under chapter VI-A and rebates
Investments and deposits - Investments in PPF, Provident Fund, LIC, repayment

of housing loans, NSIC, 5 year FDR with scheduled banks, 5 year time deposit in
post office, deposit in Senior Citizens Saving Scheme etc. are allowed as deduction
upto Rs 1,00,000 u/s 80C.
Deduction of medical insurance premium, pension fund - Following deductions

are permissible - (a) Medical insurance premium upto Rs 20,000 for senior citizen
and Rs 15,000 for others. For the Assessment Year 2009-10, additional deduction of
Rs 15,000 will be allowed if insurance policy of parents is taken (section 80D). (b)
Contribution to pension fund within overall ceiling of Rs one lakh (section 80CCC)
Donations - Contribution to approved charitable institutions - in some cases 50% of

amount paid is allowed as deduction, while in some cases, 100% amount paid is
allowed as deduction (section 80G).
Exemption to EOU, SEZ - Income In case of EOU, STP, EHTP and BTP, the
concession will continue upto 31-3-2010. In case of SEZ, exemption is for larger
period.
Other provisions of Income Tax

10 Certain other important provisions of income tax are discussed here.
10-1 Clubbing of Income - Often salary or other expenses from business are
shown in name of close relatives like spouse (wife / husband) or minor child, to
reduce tax liability. In such case, if the individual has a substantial interest in the
concern, the income of such wife, husband or minor child will be added to the
income of such individual. This is termed as clubbing of income.
The clubbing provision is not applicable if spouse possesses technical or

professional qualifications and the income is solely due to application of his / her
technical knowledge and experience [section 64(1)(ii) of Income Tax Act]
If an asset is transferred to the spouse, income from such asset is also treated as
income of the individual. [e.g. by transferring shares, house property etc.].
Similarly, if an individual throws his separate property into the property of HUF,
income from such converted property will be included in the total income of such
individual [section 64(2) of Income Tax Act]
The clubbing provision has obviously been made to plug avoidance of income tax
liability, by showing some income in the name of spouse / minor child / HUF.
10-2 Set off and carry forward of loss
Carry forward of loss other than speculation loss - Carry forward of loss is
permitted only when return is filed in time. In case of closely held company,
unabsorbed loss can be carried forward only if at least 51% of shares are held
beneficially by same persons who were holding them in previous year.
Unabsorbed depreciation - Unabsorbed depreciation can be set ff against any

head of income other than salary. It can be carried forward to any number of years. It
can be carried forward by same assessee except in case of amalgamation,
demerger and business reorganization.
Speculative loss - Loss from speculative transactions involves sale and purchase
of commodities including stocks and shares. It can be set off against speculative
profits only and can be carried forward for four years.
10-3 Permanent Account Number - Every person whose total sales, turnover or
gross receipts are over Rs 5,00,000 are required to apply and obtain a Permanent
Account Number (PAN) [section 139A].
Any other person can obtain PAN voluntarily.
In addition, ITO can allot PAN suo moto to a person by whom income tax is payable.
Government has decided to use PAN as a common business identification number

to be used by various agencies and departments like customs, excise, DGFT, SEBI
etc.
10-4 Advance Income Tax - Tax is deducted from salary payable to an employee.
Since a businessman or professional earns his own income, there is no TDS (Tax
Deduction at Source). Hence, he is liable to pay advance tax as he earns income.
This is Pay Tax as you Earn. Thus, advance tax is payable on the basis of
estimated income of the current financial year. [The income is estimated because,
actual income will be known only after the financial year is over].
Advance tax is payable only in cases where tax payable is in excess of Rs 10,000
(the limit was Rs 5,000 upto 31-3-2009). The assessee has to pay advance tax on
his own accord and no notice will be issued to him. The advance tax is payable in
installments as follows -
In case of company - # 15% on or before 15th June # 30% on or before 15th

September # 30% on or before 15th December # Remaining 25% on or before 15th
March. If there was shortfall in earlier installment, it should be made up in
subsequent installment.
* In case of partnership firms, proprietors, professionals etc. - # 30% on or

before 15th September # 30% on or before 15th December # Remaining 40% on or
before 15th March. If there was shortfall in earlier installment, it should be made up
in subsequent installment.
Thus, 100% income tax in respect of estimated income of current financial year is
payable by 15th March. If any instalment is not paid on due date, it can be paid
subsequently.
If advance tax is not paid or short paid on due dates, mandatory interest is payable
as follows :
* If advance tax was not paid before 31st March of the financial year, or advance tax
paid was less than 90% of the assessed tax, interest @ 1% per month or part
thereof is payable from 1st April till the month of payment. [section 234B]. The
interest is not payable if total tax liability is less than Rs 5,000 or if at least 90% of
assessed tax was paid before 31st March.
* If installments of advance tax are not paid on due dates, interest on shortfall is
payable @ 1% per month. In case of last instalment which is due on 15th March,
interest @ 1% is payable for one month if tax is not paid at all or is paid after 15th
March. [section 234C]. Note that this interest is calculated only upto 31st March, as
from 1st April, interest @ 1% becomes payable on entire tax due under section
234B.
This interest is mandatory and there is no provision to grant exemption form

payment of this interest.
If the return is not filed within due date, interest @ 1% is payable u/s 234B. In
addition, interest @ 1% is payable u/s 234A. Thus, if return is not filed on or before
due date, interest payable is 2% for every subsequent month.
10-5 Special provisions in respect of Partnership firm
A partnership firm is presently assessed on the lines similar to the assessment of a

company. The firm can pay salary and interest on capital to the partners. Income tax
is payable on profits calculated after deducting salary and interest paid to partners.
The salary paid to partners is treated as business income in their hands and is
taxable accordingly.
The partnership firm may or may not be registered. However, the partnership must
be evidenced by a partnership deed. The deed should indicate * individual shares of
the partners * Salary payable to working partners * Interest payable to partners. A
true copy of partnership deed certified and signed by all the partners should be filed
along with the first return of income. Subsequently, the copy is not required to be
filed along with every return. However, if there is any change in the partnership
agreement, a fresh copy has to be filed.
Return of partnership firm can be signed by managing partner.
Salary to working partners - The salary payable to partners is as follows -
The salary can be paid only to working partners. Such payment should be
authorised by partnership deed. This salary is allowed as deduction from income of
the partnership firm and is taken as business income of the individual partner. Salary
allowable as deduction w.e.f. 1-4-2009 is as follows
As per section 40(b) of Income Tax Act, maximum amount deductible in respect of
remuneration to partner is as follows, w.e.f. 1-4-2009 (a) If book profit is negative or less
than Rs 1,66,667 Rs 1,50,000 (b) If book profit is Rs 1,66,667 or more On first 3 lakhs
90% and on balance 60%.
The amount deductible from income of partnership firm will be the amount given above or
amount actually debited to profit and loss account of partnership firm, whichever is lower.
Remuneration paid/credited to partner will be allowable as deduction to firm and it will be

taxed at the hands of partner of the firm.
Till 31-3-2009, the salary allowable was as follows -
* Professional partnership firms - # upto book profit of Rs 1,00,000 - 90% of book

profit - minimum Rs 50,000 # On next Rs 1,00,000 book profit - 60% # On balance
of book-profit - 40%.
* Other than professional partnership firms (i.e. business firms) - # upto book profit
of Rs 75,000 - 90% of book profit - minimum Rs 50,000 # On next Rs 75,000 book
profit - 60% # On balance of book-profit - 40%.
The salary can be paid only to working partners. Such payment should be
authorised by partnership deed. This salary is allowed as deduction from income of
the partnership firm and is taken as business income of the individual partner.
Interest to partners - Income Tax Act provides that interest upto 12% paid to the
partners will be allowable as deduction from income of partnership firm [section
40(b)((iv) of Income Tax Act]. [The interest rate was 12% upto 31-5-2002]. Such
payment should be authorised by partnership deed. This interest is allowed as
deduction from income of the partnership firm and is taken as other income of the
individual partner.
10-6 Tax deduction at source (TDS)
A person is under liability to deduct income tax at source and pay it to Government.
He should issue a certificate to the person from whom tax is deducted, so that the
person can submit the same to Income Tax authorities. Tax deducted at source
should be paid to Government within one week from date of deduction. At the end of
the year, a return in prescribed form has to be filed with ITO.
TDS is rightly called tedious, but not deducting tax at source can invite penalties.
As can be seen from following, if the person making payment is individual or HUF,
he is exempt from the provisions of TDS in most of the cases, if he is not required to
submit income tax audit report u/s 44AB. However, TDS provisions apply to (a)
salary payments made by an individual or HUF even if he is not required to submit
any income tax audit report u/s 44AB (b) If the individual/HUF is required to submit
Income Tax Audit report.
TDS from salary - Every employer has to deduct tax from salary of employees.
Payer should calculate tax payable on salary at the [section 192].
While deducting tax at source, the employer can consider the investments made by
employee which qualify for exemption, payment for purchase or construction of
house, mediclaim insurance premium etc. Income tax is to be deducted every month
and should be paid to Government within a week after deduction. The employer can
adjust deductions from month to month so that total deductions from salary of the
whole year is equal to tax payable by employee on salary income.
Deduction under section 80G is not to be considered by employer (except some

specified funds like PM Relief Fund etc.) while calculating tax liability of employee.
The tax relief has to be claimed by employee through tax return.
The employer has to file an annual return of tax deducted at source from all
employees.
TDS from Interest other than interest on securities - Tax should be deducted
from interest paid if interest payable in financial year exceeds Rs 10,000 in case of
banks, post office and cooperative society and Rs 5,000 in case of others [section
194A].
TDS during financial year 2009-10 is @ 10%. There is no surcharge or education

cess.
If the deductee (person entitled to receive the amount on which tax is deductible)
does not furnish his PAN number, TDS will be @ 20% w.e.f. 1-4-2010 [section
206AA of Income Tax Act] (what happens if he gives incorrect PAN number?]
During financial year 2008-09, TDS provisions were as follows - If recipient is a

resident other than domestic company, TDS was as follows - (a) If recipient is
individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority, firm where aggregate payment or credit does not
exceed Rs one crore - 10.3% (b) If recipient is individual/HUF/AOP where aggregate
payment or credit exceeds Rs 10 lakhs, firm where aggregate payment or credit
exceeds Rs one crore - 11.33%
If recipient is a domestic company, TDS rate was as follows - (a) If recipient is

domestic company where aggregate payment or credit does not exceed Rs one
crore - 20.6% (b) If recipient is domestic company where aggregate payment
exceeds Rs one crore - 22.66%
An individual who is 65 years of age or above can get interest without deduction of
tax at source, if he submits a self-declaration to the payer in duplicate, in form No.
15H. Others have to submit declaration in form 15G.
The payer has to submit one copy of declaration (form 15G/15H as applicable) to
Commissioner of Income Tax under whose jurisdiction his tax is being assessed.
Individuals and HUF are required to deduct tax on interest payment, if they is
required to submit income tax audit report u/s 44AB. Provisions of making payment
of TDS do not apply to small HUF and individuals who do not have to submit income
tax audit report.
TDS from Payments to contractors, sub-contractors and advertising contracts

- TDS provisions apply if contract value exceeds Rs 20,000 for single payment or
Rs 50,000 in aggregate for a financial year [section 194C].
TDS on contract (both advertising and other than advertising) w.e.f. 1-10-2009 is as
follows (a) 1% in case of individual or HUF (b) 2% in case of other than individual
or HUF. There is no surcharge or education cess.
206AA of Income Tax Act] (what happens if he gives incorrect PAN number?)
Upto 30-9-2009, TDS provisions were as follows - In case of contract other than
advertising contract, TDS was at following rates - (a) If recipient is
individual/HUF/AOP where aggregate payment or credit is upto Rs 10 lakhs,
cooperative society, local authority , firm/domestic company where aggregate
payment or credit does not exceed Rs one crore - 1.03% (b) If recipient is
individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs,
firm/domestic company where aggregate payment exceeds Rs one crore - 1.133%
Upto 30-9-2009, in case of advertising contract, TDS was at following rates - (a) If
recipient is individual/HUF/AOP where aggregate payment or credit is upto Rs 10
lakhs, cooperative society, local authority , firm/domestic company where aggregate
payment or credit does not exceed Rs one crore - 2.06% (b) If recipient is
individual/HUF/AOP where aggregate payment or credit exceeds Rs 10 lakhs,
firm/domestic company where aggregate payment exceeds Rs one crore - 2.266%
TDS is also required to be deducted, if payment to contractors/sub-contractors is

made by an individual or HUF, who is required to submit income tax audit report u/s
44AB. Provisions of making payment of TDS do not apply to small HUF and
individuals who do not have to submit income tax audit report.
TDS from payment on advertising contracts - See above. Provision of TDS

applies when client makes payment to advertising agency and not when advertising
agency makes payment to the media i.e. print media or electronic media.
TDS from contractor in transport business - TDS from contractor or sub-

contractor in transport business is Nil. However, if the transporter does not furnish
his PAN number, TDS will be @ 20% w.e.f. 1-4-2010 [section 206AA of Income Tax
Act] (what happens if he gives incorrect PAN number?]
TDS from commission / brokerage TDS applies in respect of payment of

commission or brokerage to resident. There is no TDS if commission / brokerage
paid during the financial year is less than Rs 2,500. [section 194H]
TDS on commission or brokerage to a resident is 10% during financial year 2009-10.

There is no surcharge or education cess.
Upto 31-3-2009, TDS was at following rates - (a) If recipient is individual/HUF/AOP

where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local
authority , firm/domestic company where aggregate payment or credit does not
payment or credit exceeds Rs 10 lakhs, firm/domestic company where aggregate
payment exceeds Rs one crore - 11.33%
TDS provisions are applicable, if payment of commission/brokerage is made by an

individual or HUF, who is required to submit income tax audit report u/s 44AB.
Provisions of making TDS payment do not apply to small HUF and individuals who
do not have to submit income tax audit report.
TDS from Payments of Rent - TDS provisions apply if aggregate sum of rent paid
exceeds Rs 1,20,000 per annum [section 194-I]
TDS w.e.f. 1-10-2009 is at following rates Rent of plant and machinery 2%. Rent
of land or building or furniture or fitting 10%.
Upto 30-9-2009, The TDS rates were varying between 10.3% to 22.66% depending
on whether rent is for plant, machinery, land, furniture etc. and who is the recipient.
TDS provisions are applicable, if payment of rent is made by an individual or HUF,

who is required to submit income tax audit report u/s 44AB. Provisions of making
payment of TDS do not apply to small HUF and individuals who do not have to
submit income tax audit report.
TDS from Payments for professional or technical services - TDS provisions

apply if aggregate sum paid for professional or technical services exceed Rs 20,000
per annum [section 194J]. TDS should be on total payment including
reimbursement of expenses, as per CCBDT circular No. 715 dated 8-8-1995.
However, in ITO v. Dr. Willmar Schwabe (2005) 3 SOT 71 (ITAT), it has been held
that reimbursement of expenses for which bill is separately raised did not attract the
provisions of section 194J.
TDS during financial year 2009-10 is @ 10%. There is no surcharge or education

cess.
Upto 31-3-2009, TDS was at following rates - (a) If recipient is individual/HUF/AOP

where aggregate payment or credit is upto Rs 10 lakhs, cooperative society, local
authority , firm/domestic company where aggregate payment or credit does not
payment or credit exceeds Rs 10 lakhs, firm/domestic company where aggregate
payment exceeds Rs one crore - 11.33%
TDS provisions are applicable, if payment for professional or technical services is

made by an individual or HUF, who is required to submit income tax audit report u/s
44AB. Provisions of making TDS payment do not apply to small HUF and individuals
who do not have to submit income tax audit report.
TAN number Assessee should obtain TAN (Tax Deduction Account Number)
which is required to be quoted on all TDS returns. It is a 10 digit alphanumeric code.
TDS Return Person who has deducted tax at source is required to file return to
Income Tax department on annual basis. In case of companies, the return is to be
filed on computer media, i.e. for them, filing of e-TDS is compulsory. The form has
been prescribed. Electronic Filing of Returns of Tax Deducted at Source Scheme,
2003 has been notified by CBDT for this purpose. The return has to be filed in
prescribed form in floppy. NSDL (National Securities Depository Ltd.) has been given
task of handling e-TDS returns.
10-7 No income tax clearance certificate
Income Tax department has discontinued giving Income Tax Clearance Certificates
for various purposes like filing tender, bidding contracts etc. No such certificate will
be issued by Income Tax department. The contractors etc. should quote PAN
CBDT circular No. 2/2004 dated 10-2-2004.
Income Tax Returns
11 Every assessee should file an annual return in prescribed form.

The prescribed forms are as follows -
Form Applicable to Details

No.
ITR 1 Individuals Salary (including pension and
family pension) and interest
ITR 2 Individuals and HUF Any income other than
business income
ITR 3 Individuals and HUF Who are partners in firm but
not carrying on business or
profession as proprietor
ITR 4 Individuals and HUF Who are proprietors having
income from business or
profession
ITR 5 Firm, AOP, BOI Including return of FBT
ITR 6 Companies except Including return of FBT
charitable companies
claiming exemption u/s
11
ITR 7 Charitable trusts etc. Including return of FBT
including cases covered
by section 139(4A) to
129(4D)
ITR 8 Persons liable to FBT FBT return only
ITR-V All except charitable Verification form for persons
trusts who have filed who have filed return
return electronically electronically but without
without digital signature digital signature
The income tax return is really a self assessment memorandum. The assessee
should calculate the tax and interest payable by him and pay it by challan. The
payment will of course be after deducting the advance tax which he might have
already paid.
E-return Beginning has been made in 2003 for electronic filing of return under
Electronic Furnishing of returns of Income Scheme, 2003. Filing of e-return is
compulsory for corporate employees.
Due dates for filing return - The due dates for filing return are as follows -
* (a) Individuals having only salary income (b) Non-corporate assessees

(Individuals, HUF, partnership firms or societies) having income from business or
profession but who do not have to get their accounts audited under Income Tax or
any other law - 31st July
* (a) Non corporate assessees (Individuals, HUF, partnership firms or societies)

having income from business or profession and who have to get their accounts
audited (b) A working partner where the firm in which he is a working partner has to
get its accounts audited (c) Corporate Assessee (d) Persons who have to file return
under one by six scheme 30th September (Till 2007, it was 31st October).
The dates are mandatory and there is no provision to extend the due date. If the
return is filed beyond due date, mandatory interest @ 1% per month of tax due is
payable. Belated return upto one year beyond due date is permissible. Mandatory
interest is payable, but no penalty is payable. Thus, if no tax was due, belated return
upto one year can be submitted without payment of any interest.
A loss return must be filed in time. Otherwise, the carry forward of loss is not
permitted. However, CBDT can grant extension for submitting return by a loss
making company.
Signature on return - The return should be signed by individual, karta of HUF,

managing partner, managing director etc. In some cases, return can be signed by
authorised representative.
No intimation will be sent by Income Tax Officer, if any tax / interest / refund is not
due on the basis of return of income / wealth filed.
Correction of arithmetical mistakes and incorrect claims Arithmetical mistakes

and incorrect claim apparent from the return can be corrected by department and
intimation sent to assessee within one year from end of financial year in which return
is made [section 143(1) amended vide Finance Act, 2008]. If no such intimation is
made, acknowledgment of return will be deemed to be an intimation.
Scrutiny of returns - Some of the returns are taken by ITO for detailed scrutiny.
Notice for scrutiny has to be served within 6 months from close of financial year in
which return is furnished i.e. by 30th September. The ITO can require assessee to
attend his office or produce evidence in support of the return filed [section 143(2) of
Income Tax Act section 115WE(2) in respect of FBT]
Payment of tax - The advance tax and self-assessment tax should be paid vide
prescribed challan. Facility of e-payment is available.
FBT has been removed w.e.f. 1-4-2009. Hence, following discussions are valid only
upto AY 2009-10 i.e. upto 31-3-2009.
Employer gives various benefits to employees. The benefits which are individually given to
employee can be identified with the particular employee and taxed in his hands. However,
where benefits are given collectively and it is difficult to identify individual employee, these
should be taxed at the hands of employer.
FBT (Fringe Benefit Tax) has been introduced with this idea in mind w.e.f. 1-4-2005 (AY 2006-
07).
However, practically, some benefits which can be identified with individual employee are
taxable under FBT. Similarly, some expenses incurred by employer which hardly benefit
employees are also taxed under FBT.
1-1 Who is employer?
Employer means a company; a firm; an association of persons or a body of individuals; a

local authority; and every artificial juridical person, not falling within any of the above.
However, employer does not include (a) a political party, or (b) a person who is eligible for
exemption under section 10(23C) or registered under section 12AA of Income Tax Act
[section 115W(a) of Income Tax Act]
Thus, a proprietary firm or HUF is not liable to pay FBT. Similarly, Central Government; a
State Government and a political party is not employer and not liable to pay FBT.
Fringe benefit tax will apply to foreign companies if it has employees based in India. Fringe
benefit tax will apply to liaison offices of foreign companies in India if the liaison offices have
employees based in India - CBDT Circular No. 8/2005 dated 29-8-2005.
1-2 When FBT is payable?
As per section 115WA(1), fringe benefit tax is applicable if (a) Fringe benefits are
provided or deemed to be provided (b) These are provided by an employer as defined in
section 115W(a) and (c) These benefits are provided to his employees.
1-3 Quantum of FBT
FBT is in addition to income tax. FBT is payable by employer. FBT is calculated at the rate of
30 per cent on the value of fringe benefits. Surcharge is as follows (a) In case of AOP/BOI
-10% of tax if fringe benefit is above Rs 10 lakhs (b) In case of firm, company or artificial
judicial person 10% of tax irrespective of amount of fringe benefit (c) In case of non-
domestic company 2.5% and (d) In case of local authority and cooperative society - Nil.
In addition education cess @ 2% and SAH education cess @ 1% is payable.
Thus, total FBT payable is as follows, for Assessment Year 2008-09 and 2009-10
Employer is AOP/BOI and fringe benefit is upto Rs 10,00,000 30.9%
Employer is AOP/BOI and fringe benefit exceeds Rs 10,00,000 33.99%
Employer is cooperative society or local authority 30.9%
Employer is non-domestic company 31.6725%

Return of FBT Return has to be filed by 30th September.
2 Meaning of Fringe Benefit
Fringe Benefits are defined in two parts - (a) Fringe Benefits as defined in section 115WB(1)
(b) Deemed Fringe Benefits as defined in section 115WB(2).
Valuation of each fringe benefit is to be done as per provisions of section 115WC.
Perquisites taxable at hands of employees - Perquisites in respect of which tax is paid or

payable by the employee are not taxable as perquisites under FBT.
Transport to employees to and from home - Free or subsidised transport or allowance

provided by the employer to his employees for journeys by the employees from their
residence to the place of work or such place of work to the place of residence will also not
be taxable under FBT.
2-1 Defined fringe benefits
Fringe benefits, as defined in section 115WB(1), means any consideration for employment
provided by way of the following -
Privilege or facility to employees - It covers any privilege, service, facility or amenity,
directly or indirectly, provided by an employer, whether by way of reimbursement or
otherwise, to his employees (including former employees). If any amount is recovered
from employee, it will be deducted.
Free or concessional ticket for travel - It covers any free or concessional ticket provided by
the employer for private journeys of his employees or their family members. It includes
free or concessional tickets given by a transport undertaking to its employees and family
members. It is not applicable if such tickets are given by an employer who is not engaged
in the business of transport undertaking. Leave travel assistance or leave travel concession
given by an employer to his employees is not covered by section 115WB(1)(b). In respect
of transport facility provided by a transport undertaking to its employees, the value of
fringe benefit shall be calculated at cost of which the same benefit is provided by the
employer to the public as reduced by the amount, if any, paid by, or recovered from his
employees. The cost at which the ticket is provided by the employer to the general public
shall be the price of the ticket which an ordinary passenger is expected to pay on the date
of purchase of the ticket for the date, time and the class of travel. Similarly, in a case
where an open ticket is issued a number of days in advance but the reservation is generally
confirmed a few hours before departure, the value of the free or concessional ticket shall
be the cost of the ticket which an ordinary passenger seeking reservation a few hours
before departure is liable to pay as reduced by the amount, if any, paid by or recovered
from the employees - CBDT Circular No. 8/2005 dated 29-8-2005.
Contribution to superannuation fund - It covers contribution by the employer to an

approved superannuation fund for employees. It may be noted that Employers
contribution to an approved superannuation fund is subject to fringe benefit tax.
However, employers contribution to gratuity fund/provident fund is not subject to fringe
benefit tax. Value of fringe benefit will be 100% of amount in excess of Rs 1,00,000 for
each employee. Thus, contribution upto Rs 1,00,000 per employee will not be considered
as fringe benefit.
Security or sweat equity to employee - It covers any specified security or sweat equity
shares allotted or transferred, directly or indirectly, by the employer free of cost or
concessional rate to his employee and former employees. Value of fringe benefit will be
100% of fair market value of security or sweat equity on the date on which the option
vests with the employee, less amount paid by employee.
Specified security includes employees stock option. Tax will be on securities allotted
under the option and not on option itself.
2-2 Deemed Fringe Benefits
Following benefits shall be deemed to have been provided by the employer to his
employees if the employer has in the course of his business and profession incurred
these expenses [section 115WB(2) of Income Tax Act]
Entertainment - 20% of expenditure will be considered as value of fringe benefit. It

includes the reimbursement of entertainment expenditure by an employer to
employees/directors/others and also expenditure on meeting/ get-togethers of employees
and their family members on non-festival occasions including annual day.
Provision of hospitality - 20% of expenditure will be considered as value of fringe benefit.

In case of hotels and carriage of passenger or goods by air/cargo, value of fringe benefits
will be only 5%.
It covers provision of hospitality of every kind by the employer to any person, whether by
way of provision of food or beverages or in any other manner whatsoever. It includes
expenditure on food/meals incurred by employees and later on reimbursed by employer
and expenditure on food and beverages provided by employer at a training centre taken on
hire by employer. However, it does not include any expenditure on, or payment for, food or
beverages provided by the employer to his employees in office or factory and any
expenditure on or payment through paid vouchers which are not transferable and usable
only at eating joints or outlets.
From Assessment Year 2009-10, it will not include pre-paid electronic meal cards issued to
employees.
Conferences - 20% of expenditure will be considered as value of fringe benefit. In case of

construction, pharma and software industries, value of fringe benefit will be 5%.
It covers any expenditure on conveyance, tour and travel, on hotel, or boarding and lodging
in connection with any conference shall be deemed to be expenditure incurred for the
purposes of conference. It includes expenditure on attending training programmes
organized by trade bodies and on conferences for agents/dealers/development advisor.
However, it does not include the fixed conference allowance to employees/directors, fees
for participation by employees in any conference (excluding travelling, boarding and lodging
expenses) and expenditure on in house training of employees (excluding travelling, boarding
and lodging expenses).
Sale promotion - 20% of expenditure will be considered as value of fringe benefit. It covers
sales promotion including publicity. It includes payment for use of brand/brand
ambassador/celebrity endorsement but not payment to a person of repute for promoting
sales. It expenditure on free offers (with products) such as freebies like tattoos, cricket cards
or similar products, to trade or consumers, but does not include expenditure on free
samples of products distributed to any person. Expenditure on product marketing research
carried on through its own employees is includible.
It does not include the following - (a) Expenditure (including rental) on advertisement of any
form in any print (including journals, catalogues or price lists) or electronic media or
transport system (b) Expenditure on the holding of, or the participation in, any press
conference or business convention, fair or exhibition (c) Expenditure on sponsorship of any
sports event or any other event organized by any Government agency or trade association
or body (d) Expenditure on the publication in any print or electronic media of any notice
required to be published by or under any law or by an order of a court or tribunal (e)
Expenditure on advertisement by way of signs, art work, painting, banners, awnings, direct
mail, electric spectaculars, kiosks, hoardings, bill boards or display of products or by way of
such other medium of advertisement (f) Expenditure by way of payment to any advertising
agency for the above purposes (g) Brokerage and selling commission paid for selling goods
(h) Expenditure relating to salesmen appointed by distributors for companies products
reimbursed through credit notes (i) Sale discount to wholesellers/customers or bonus points
to customers (j) Expenditure on incentives given to distributors for meeting quantity targets
(k) Expenditure on product marketing research paid to an outside agency (l) Expenditure in
the nature of call centre charges for canvassing sales (cold calls) or carrying out post sales
activities (m) Expenditure on making ad-film.
Employees welfare - 20% of expenditure will be considered as value of fringe benefit.

Employees welfare. It includes the following - (a) Payment for group personal
accident/workman compensation insurance not under a statutory obligation (b) Medical
expenditure reimbursement up to Rs. 15,000 (c) Expenditure on garden, site cleaning, light
decoration etc. in employees colony (d) Expenditure on group health insurance not under a
statutory obligation (e) Expenditure at a hospital/dispensary for injuries incurred during
course of employment (hospital not run by employer) not under a statutory obligation (f)
Subsidy provided to a school not meant exclusively for employees children (g)
Reimbursement of expenditure on books/periodicals to employees (h) Expenditure incurred
on prizes/awards to employees (i) Expenditure on providing transport facility to employees
children (j) Expenditure on meeting/ get-togethers of employees and their family members
on non-festival occasions including annual day.
This does not cover any expenditure incurred or payment made to fulfil any statutory
obligation or mitigate occupational hazards or provide first aid facilities in the hospital or
dispensary run by the employer. It also does not include medical facilities, reimbursement
of medical expenses etc. which are not considered as perquisities of an employee.
From Assessment Year 2009-10, Employees welfare will not cover (a) crche facility for
children of employees (b) Sponsorship of a sportsman who is employee and (c) Organise
sports events for employees.
Conveyance - 20% is treated as Fringe Benefit. It includes (a) Reimbursement of car

expenses including driver salary to employees on the basis of declaration or on the basis of
bills submitted by employees (b) Travelling expenditure/conveyance expenditure/tour or
travel expenditure incurred in respect of a project assigned by a client which is later on
reimbursed by the client (c) allowances for meeting lodging and boarding given to
employees.
It does not include Reimbursement of travelling expenditure/conveyance expenditure/tour

or travel expenditure to a consultant in respect of a project assigned to him, fixed
conveyance allowance/travelling allowance/transport allowance given to
employees/director and expenditure for providing leave travel concession (LTC) to
employees.
Hotel and lodging - 20% of expenditure will be considered as value of fringe benefit. In
case of carriage of passenger/goods by air/ship, pharma and software industries, value of
fringe benefit will be 5%.
It covers use of hotel, boarding and lodging facilities. It includes any expenditure on use of
hotel, boarding and lodging facilities. It also includes reimbursement of hotel bills to
employees/directors. However, it does not include fixed hotel allowance to
employees/directors
Repairs and maintenance of motor cars - 20% of expenditure will be considered as value
of fringe benefit. In case of carriage of passenger/goods by car business, value of fringe
benefit will be 5%.
It covers repair, running (including fuel), maintenance of motorcars and the amount of
depreciation thereon. It includes expenditure on repair of motor car, expenditure on
running of motor car including fuel, maintenance expenditure of motor car, depreciation
of motor car (as per Income-tax Act), lease rent of motor car, salary paid to drivers of
motor cars, rent of garage for motor cars and interest on loan taken to purchase motor
cars. However, it does not include any expenditure on running, maintenance of delivery
vans, display vans, lorries, ambulances, tractors, buses, trucks, tempos, etc.
Repairs and maintenance of aircrafts - It covers repair, running (including fuel) and
maintenance of aircrafts and the amount of depreciation thereon. It includes all expenses
as applicable to repair and maintenance of motor cars. 20% of expenditure will be
considered as value of fringe benefit. In case of carriage of passenger/goods by air
business, value of fringe benefit will be Nil.
Telephones - It covers use of telephone (including mobile phone) other than expenditure
on leased telephone lines. 20% of expenditure will be considered as value of fringe
benefit.
Guest house accommodation - It covers maintenance of any accommodation in the
nature of guest house (other than accommodation used for training purposes). 20% of
expenditure will be considered as value of fringe benefit. This has been excluded from
fringe benefit from Assessment Year 2009-10.
Festival celebrations - It includes any festival celebration expenditure but does not
include expenditure on celebration on Independence Day and Republic Day. 50% of
expenditure will be considered as value of fringe benefit for AY 2008-09 and 20% for AY
2009-10.
Use of health club and similar facilities - It includes reimbursement of health club
expenditure to employees/directors and payment of entrance fees. It does not include
depreciation on club building and fixed club allowance to employees/directors. 50% of
expenditure will be considered as value of fringe benefit.
Use of any other club facilities - It includes payment for entrance fees to a club and
reimbursement of club expenditure to employees. 50% of expenditure will be considered as
value of fringe benefit.
Gifts - Gift may be in cash or kind. Even gifts on promotion of companys products to
distributors/ retailers are covered under fringe benefit. 50% of expenditure will be
considered as value of fringe benefit.
Scholarships - It includes expenditure on training of employees in an educational institute.

50% of expenditure will be considered as value of fringe benefit.
Tour, travel, foreign travel - 5% of expenditure will be considered as value of fringe
benefit.
3 Other provisions
Advertisement not as deemed benefit - The following expenditure on advertisement shall

not be taken as deemed fringe benefit * the expenditure (including rental) on
advertisement of any form in any print (including journals, catalogues or price lists) or
electronic media or transport system * the expenditure on the holding of, or the
participation in, any press conference or business convention, fair or exhibition * the
expenditure on sponsorship of any sport event or any other event organized by any
Government agency or trade association or body * the expenditure on the publication in
any print or electronic media of any notice required to be published by or under any law
or by an order of a court or tribunal * the expenditure on advertisement by way of signs,
art work, painting, banners, awnings, direct mail, electric spectaculars, kiosks, hoardings,
bill boards or by way of such other medium of advertisement * the expenditure by way
of payment to any advertising agency for the purposes of above * the expenditure on
distribution of free samples of medicines or of medical equipment, to doctors * the
expenditure by way of payment to any person of repute for promoting the sale of goods
or services of the business of the employer.
No segregation of capital/revenue/preoperative expenses - All specified expenses are7

covered under fringe benefit, whether capital or revenue nature - CBDT Circular No. 8/2005
dated 29-8-2005.
Fringe benefit is not allowable as expense under income tax but can be shown as expense
in P&L account - For the purposes of computation of total income under the Income-tax
Act, fringe benefit tax is not an allowable deduction by virtue of section 40(a)(ic). However,
the accounting treatment of fringe benefit tax for the purposes of reporting to shareholders
and complying with the obligations under the Companies Act will be governed by the
Accounting Standards issued by the Institute of Chartered Accountants of India - CBDT
Circular No. 8/2005 dated 29-8-2005.
FBT is deductible for computing book profit - The fringe benefit tax is an allowable
deduction in the computation of book profit under section 115JB - CBDT Circular No.
8/2005 dated 29-8-2005.
3-1 Advance payment of fringe benefit tax
Every employer shall pay advance tax on his current fringe benefits. The advance tax shall be
payable on basis similar to one under which advance income tax is payable. The only
difference is that advance FBT is payable even if tax is less than Rs 5,000.
Interest - For non-payment/short payment of advance fringe benefit tax, interest will have
to be paid. The mode of computation of interest as provided in section 115WJ(3)/(4)/(5) is
similar to the provisions regulating interest for non-payment or short payment of advance
income-tax given in sections 234B and 234C.
4 Fringe Benefit Tax on ESOPs
The Finance Act,2007 has introduced FBT on ESOPs (Employees Stock Option Plan) w.e.f.
Assessment Year 2008-09. The salient features of these provisions are:
(i)FBT shall apply in all cases where any specified security or sweat equity
shares has been allotted or transferred by the employer to his employees;
(ii) FBT shall be payable in the previous year in which such allotment or
transfer has taken place;
(iii)the provisions of this new clause shall apply irrespective of the allotment
or transfer being direct or indirect;
(iv) the provisions of this new clause shall apply irrespective of the allotment
or transfer being free of cost or at concessional rate;
(v) the provisions of this new clause shall apply irrespective of the allotment
or transfer being to current or former employee or employees;
(vi) the provisions of this new clause shall apply in cases where the
allotment or transfer is on or after 1st day of April, 2007.
(vii) the value of fringe benefit in such cases shall be determined in

accordance with the formula
A-B
Where, A = the Fair Market Value (FMV) of the specified security or

sweat equity shares on the date of vesting of the option; and
B = the amount, if any, actually paid by, or recovered from the

employee;
FBT is payable only if A exceeds B. No FBT is payable where B

exceeds A.
The expressions specified security and sweat equity shares have also been defined.
The value of fringe benefit is subjected to FBT at the prevailing rate, which is
currently 30% plus surcharge plus education cess.
The expression fair market value has been defined to mean the value determined in
accordance with the method as may be prescribed by the Board. Option has been
defined to mean a right but not an obligation granted to an employee to apply for the
specified security or sweat equity shares at a predetermined price.
The Central Board of Direct Taxes (CBDT) vide notification S.O. No. 1805(E) dated
23rd October, 2007 has inserted Rule 40C in the income-tax Rules; which has
prescribed the method for determination of fair market value of specified security or
sweat equity share, being a share in the company. Salient features of this rule are:
(i)In a case where, on the date of the vesting of the option, the share in the
company is listed on a recognized stock exchange, the fair market value
shall be the average of the opening price and closing price of the share on
that date on the said stock exchange;
(ii)If on the date of vesting of the option, the share is listed on more than one
recognized stock exchanges, the fair market value shall be the average of
opening price and closing price of the share on the recognised stock
exchange which records the highest volume of trading in the share;
(iii) If on the date of vesting of the option, there is no trading in the share on
any recognized stock exchange, the fair market value shall be,-
(a)the closing price of the share on any recognised stock exchange

on a date closest to the date of vesting of the option and
immediately preceding such date; or
(b) the closing price of the share on a recognised stock exchange,

which records the highest volume of trading in such share, if the
closing price, as on the date closest to the date of vesting of the
option and immediately preceding such date, is recorded on more
than one recognized stock exchange.
(iv)In a case where, on the date of vesting of the option, the share in the
company is not listed on a recognized stock exchange, the fair market value
shall be such value of the share in the company, as determined by a
Category 1 Merchant Banker registered with the Security and Exchange
Board of India, on the specified date.
(v) The specified date has been defined as to mean,-
(i) the date of vesting of the option; or
(ii) any date earlier than the date of the vesting of the option, not being a
date which is more than 180 days earlier than the date of the vesting
Further, the Central Board of Direct Taxes has inserted a new rule 40D in the
Income-tax Rules, vide notification S.O. No. 113(E), dated 18-012008, prescribing
the method for determination of fair market value of specified security, not being an
equity share in the company. Through the same notification, rule 40C has been
amended to omit the definition of equity share.
A new section 115WKA has also been inserted enabling the employer to recover the
fringe benefit tax from the employee in respect of specified security or sweat equity
shares, if such security or shares are transferred or allotted to the employee on or
after 1st April, 2007. It has been prescribed that the employer can vary the
agreement or scheme under which such specified security or sweat equity shares
has been allotted or transferred. The agreement or scheme can be varied with a
purpose to recover from the employee the fringe benefit tax to the extent to which
such employer is liable to pay the fringe benefit tax in relation to the allotment or
transfer of such specified security or sweat equity shares to such employee.
Now, ESOP will be taxed in the hands of individual employee w.e.f. 1-4-2009,
as FBT has been abolished.
Wealth tax
1 Introduction
Wealth tax is not a very important or high revenue tax in view of various exemptions. Wealth
tax is a socialistic tax. It is not on income but payable only because a person is wealthy.
Wealth tax is payable on net wealth on valuation date. As per Section 2(q),
valuation date is 31st March every year. It is payable by every individual, HUF and
company. Tax rate is 1% on amount by which net wealth exceeds Rs 30 lakhs from
AY 2010-11. (Till 31-3-2009, the limit was Rs 15 lakhs). No surcharge or education
cess is payable.
No wealth-tax is chargeable in respect of net wealth of any company registered under section
25 of the Companies Act, 1956; any co-operative society; any social club; any political party;
and a Mutual fund specified under section 10(23D) of the Income-tax Act [section 45]
Net wealth = Value of assets [as defined in section 2(ea] plus deemed assets (as defined in
section 4) less exempted assets (as defined in section 5), less debt owed [as defined in section
2(m)].
Debt should have been incurred in relation to the assets which are included in net wealth of
assessee. Only debt owed on date of valuation is deductible.
In case of residents of India, assets outside India (less corresponding debts) are also liable to
wealth tax. In case of non-residents and foreign national, only assets located in India
including deemed assets less corresponding debts are liable to wealth tax [section 6].
Net wealth in excess of Rs. 15,00,000 is chargeable to wealth-tax @ 1 per cent (on surcharge
and education cess).
Assessment year - Assessment year means a period of 12 months commencing from the first
day of April every year falling immediately after the valuation date [Section 2(d)]
All.).
1-1 Assets
Assets are defined in Section 2(ea) as follows.
Guest house, residential house or commercial building - The following are treated as
assets - (a) Any building or land appurtenant thereto whether used for commercial or
residential purposes or for the purpose of guest house (b) A farm house situated within 25
kilometers from the local limits of any municipality (whether known as a municipality,
municipal corporation, or by any other name) or a cantonment board [Section 2(ea)(i)]
A residential house is not asset, if it is meant exclusively for residential purposes of
employee who is in whole-time employment and the gross annual salary of such
employee, officer or director is less than Rs. 5,00,000.
Any house (may be residential house or used for commercial purposes) which forms part of
stock-in-trade of the assessee is not treated as asset.
Any house which the assessee may occupy for the purposes of any business or profession
carried on by him is not treated as asset.
A residential property which is let out for a minimum period of 300 days in the previous year
is not treated as an asset.
Any property in the nature of commercial establishments or complex is not treated as an

asset.
Motor cars - Motor car is an asset, but not the following - (a) motor cars used by the
assessee in the business of running them on hire (b) motor cars treated as stock-in-trade
[Section 2(ea)(ii)]. In the case of a leasing company, motor car is an asset.
Jewellery, bullion, utensils of gold, silver, etc. [Section 2(ea)(iii)] - Jewellery, bullion,
furniture, utensils and any other article made wholly or partly of gold, silver, platinum or any
other precious metal or any alloy containing one or more of such precious metals are treated
as assets [Section 2(ea)(ii)]
For this purpose, jewellery includes ornaments made of gold, silver, platinum or any other
precious metal or any alloy containing one or more of such precious metals, and also
precious or semi-precious stones, whether or not set in any furniture, utensils or other
article or worked or sewn into any wearing apparel.
Where any of the above assets (i.e., jewellery, bullion, utensils of gold, etc.) is used by an
assessee as stock-in-trade, then such asset is not treated as assets under section 2(ea)(iii).
Yachts, boats and aircrafts - Yachts, boats and aircrafts (other than those used by the
assessee for commercial purposes) are treated as assets [Section 2(ea)(iv)]
Urban land - Urban land is an asset [Section 2(ea)(v)]
Urban land means land situated in the area which is comprised within the jurisdiction of a
municipality and which has a population of not less than 10,000 according to the last
preceding census.
Land occupied by any building which has been constructed with the approval of the
appropriate authority is not asset.
Any unused land held by the assessee for industrial purposes for a period of 2 years
from the date of its acquisition by him is not an asset. Any land held by the assessee
as stock-in-trade for a period of 10 years from the date of its acquisition by him is
also not an asset.
Cash in hand - In case of individual and HUF, cash in hand on the last moment of the
valuation date in excess of Rs. 50,000 is an asset. In case of companies, any amount not
recorded in books of account is asset [Section 2(ea)(vi)]
1-2 Deemed assets
Often, a person transfers his assets in name of others to reduce his liability of wealth tax. To
stop such tax avoidance, provision of deemed asset has been made. In computing the net
wealth of an assessee, the following assets will be included as deemed assets u/s 4.
Assets transferred by one spouse to another - The asset is transferred by an individual after
March 31, 1956 to his or her spouse, directly or indirectly, without adequate consideration or
not in connection with an agreement to live apart will be deemed asset [Section 4(1)(a)(i)]
If an asset is transferred by an individual to his/her spouse, under an agreement to live apart,
the provisions of section 4(1)(a)(i) are not applicable. The expression to live apart is of
wider connotation and even the voluntary agreements to live apart will fall within the
exceptions of this sub-clause.
Assets held by minor child - In computing the net wealth of an individual, there shall be
included the value of assets which on the valuation date are held by a minor child (including
step child/adopted child but not being a married daughter) of such individual [Section 4(1)
(a)(ii)]
The net wealth of minor child will be included in the net wealth of that parent whose net
wealth [excluding the assets of minor child so includible under section 4(1)] is greater.
Assets transferred to a person or an association of persons - An asset transferred by an

individual after March 31, 1956 to a person or an association of person, directly or indirectly,
for the benefit of the transferor, his or her spouse, otherwise than for adequate consideration,
is deemed asset of transferor [Section 4(1)(a)(iii)]
Assets transferred under revocable transfers - The asset is transferred by an individual to a

person or an association of person after March 31, 1956, under a revocable transfer is
deemed asset of transferor [Section 4(1)(a)(iv)]
Assets transferred to sons wife [Section 4(1)(a)(v)] - The asset transferred by an individual
after May 31, 1973, to sons wife, directly or indirectly, without adequate consideration will
be deemed asset of transferor [Section 4(1)(a)(iv)]
Assets transferred for the benefit of sons wife - If the asset is transferred by an individual
after May 31, 1973, to a person or an association of the immediate or deferred benefit of
sons wife, whether directly or indirectly, without adequate consideration, it will be treated as
deemed asset of the transferor [Section 4(1)(a)(vi)].
Interest of partner- Where the assessee (may or may not be an individual) is a partner in a
firm or a member of an association of persons, the value of his interest in the assets of the
firm or an association shall be included in the net wealth of the partner/member. For this
purpose, interest of partner/member in the firm or association of persons should be
determined in the manner laid down in Schedule III to the Wealth-tax Act [Section 4(1)(b)].
Admission of minor to benefits of the partnership firm - If a minor is admitted to the benefits
of partnership in a firm, the value of his interest in the firm shall be included in the net
wealth of parent of minor in accordance with the provisions of section 4(1)(a)(ii) [see para
546.2]. It will be determined in the manner specified in Schedule III.
Conversion by an individual of his self-acquired property into joint family property - If an

individual is a member of a Hindu undivided family and he converts his separate property
into property belonging to his Hindu undivided family, or if he transfers his separate property
to his Hindu undivided family, directly or indirectly, without adequate consideration, the
converted or transferred property shall be deemed to be the property of the individual and the
value of such property is includible in his net wealth [Section 4(1A)]
If there was such transfer and if the converted or transferred property becomes the subject-
matter of a total or a partial partition among the members of the family, the converted or
transferred property or any part thereof, which is received by the spouse of the transferor, is
deemed to be the asset of the transferor and is includible in his net wealth.
Gifts by book entries - Where a gift of money from one person to another is made by means
of entries in the books of account maintained by the person making the gift, or by an
individual, or a Hindu undivided family, or a firm or an association of persons, or a body of
individuals with whom he has business connection, the value of such gift will be included in
the net wealth of the person making the gifts, unless he proves to the satisfaction of the
Wealth-tax Officer that the money had actually been delivered to the other person at the time
the entries were made [Section 4(5A)]
Impartible estate - For the purpose of the Wealth-tax Act, the holder of an impartible estate
shall be deemed to be the owner of all the properties comprised in the estate [Section 4(6)]
Property held by a member of a housing society - Where the assessee is a member of a co-
operative housing society and a building or part thereof is allotted or leased to him, the
assessee is deemed to be the owner of such building and the value of such building is
includible in computing his net wealth. In determining the value of such building, any
outstanding instalments, payable by the assessee to the society towards the costs of such
house, are deductible as debt owed by the assessee. The above rules are also applicable if the
assessee is a member of a company or an association of persons [Section 4(7)]
Property held by a person in part performance of a contract [Section 4(8)] - A person who
is allowed to take or retain possession of any building or part thereof in part performance
of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882.
Similarly, a person can acquire any rights, excluding any rights by way of a lease from
month to month or for a period not exceeding one year, in or with respect to any building
or part thereof, by virtue of transaction as is referred to in section 269UA(f) of the
Income-tax Act.
In above cases, the assets are taxable in the hands of beneficial owners, in the same manner
in which they are taxed under the Income-tax Act :
1-3 Assets which are exempt from tax
The following assets are exempt from wealth-tax, as per section 5.
Property held under a trust - Any property held by an assessee under a trust or other legal
obligation for any public purpose of charitable or religious nature in India is totally exempt
from tax. [Section 5(i)].
Business assets held in trust, which are exempt - The following business assets held by as
assessee under a trust for any public charitable/religious trust are exempt from tax - (a) where
the business is carried on by a trust wholly for public religious purposes and the business
consists of printing and publication of books or publication of books or the business is of a
kind notified by the Central Government in this behalf in the Official Gazette (b) the
business is carried on by an institution wholly for charitable purposes and the work in
connection with the business is mainly carried on by the beneficiaries of the institution (c)
the business is carried on by an institution, fund or trust specified in sections 10(23B) or
20(23C) of the Income-tax Act.
Any other business assets of a public charitable/religious trust is not exempt.

Coparcenary interest in a Hindu undivided family - If the assessee is a member of a Hindu
undivided family, his interest in the family property is totally exempt from tax [Section 5(ii)].
Residential building of a former ruler - The value of any one building used for the
residence by a former ruler of a princely State is totally exempt from tax [Section 5(iii)]
Former rulers jewellery - Jewellery in possession of a former ruler of a princely State, not
being his personal property which has been recognised as a heirloom is totally exempt from
tax [Section 5(iv)]
The jewellery shall be permanently kept in India and shall not be removed outside India
except for a purpose and period approved by the Board. Reasonable steps shall be taken for
keeping that jewellery substantially in its original shape. Reasonable facilities shall be
allowed to any officer of the Government, or authorised by the Board, to examine the
jewellery as and when necessary.
Assets belonging to the Indian repatriates - Assets (as given below) belonging to assessee
who is a person of Indian origin or a citizen of India, who was ordinarily residing in a foreign
country and who has returned to India with intention to permanently reside in India, is
exempt. A person shall be deemed to be of Indian origin if he, or either of his parents or any
of his grand-parents, was born in undivided India.
After his return to India, following shall not be chargeable to tax for seven successive
assessment years - (a) moneys brought by him into India (b) value of asset brought by him
into India (c) moneys standing to the credit of such person in a Non-resident (External)
Account in any bank in India on the date of his return to India and (d) value of assets
acquired by him out of money referred to in (a) and (c) above within one year prior to the
date of his return and at any time thereafter [Section 5(v)]
One house or part of a house - In the case of an individual or a Hindu undivided family, a
house or a part of house, or a plot of land not exceeding 500 sq. meters in area is exempt. A
house is qualified for exemption, regardless of the fact whether the house is self-occupied or
let out. In case a house is owned by more than one person, exemption is available to each co-
owner of the house [Section 5(vi)]
2 Valuation of assets
The value of an asset, other than cash, shall be its value as on the valuation date determined
in the manner laid down in Schedule III.
Valuation of a building - Value of any building or land appurtenant thereto, or part thereof,
is to be made in accordance with Part B of Schedule III to the Wealth-tax Act
The first step is to find out gross maintainable rent. Gross maintainable rent is (a) annual rent
received/receivable by the owner or annual value of the property as assessed by local
authority, whichever is higher (if the property is let out) or (b) annual rent assessed by the
local authority or if the property is situated outside the jurisdiction of a local authority, the
amount which the owner can reasonably be expected to receive as annual rent had such
property been let (if the property is not let).
In the following cases actual rent shall be increased in the manner specified below : (a)
Taxes borne by tenant (b) If property is rented, one-ninth of actual rent will be added, if
expenditure on repairs in respect of the property is borne by the tenant (c) Interest @ 15%
on deposit given by tenant or difference (d) Premium received as consideration for leasing of
the property or any modification of the terms of the lease will be divided over the number of
years of the period of the lease and will be added to actual rent (d) If the derives any benefit
or perquisite as consideration for leasing of the property or any modification of the terms of
the lease), the value of such benefit or perquisite shall be added to actual rent.
Net maintainable rent is determined by deducting from the gross maintainable rent (a) the
amount of taxes levied by any local authority in respect of property (deduction is available
even if these are to be borne by the tenant) ; and (b) A sum equal to 15% of gross
maintainable rent.
The net maintainable rent is finally capitalized to arrive as value of net asset.. This can be
done by multiplying the net maintainable rent by 12.5. If the property is constructed on
leasehold land, net maintainable rent is to be multiplied by 10 when the unexpired period of
lease of such land is 50 years or more and multiplied by 8 where the unexpired period of
lease of such land is less than 50 years).
If a property is acquired/constructed after March 31, 1974, then the value of the house
property is determined as above. Original cost of construction/acquisition plus cost of
improvement of the house property is calculated. The higher of the above is taken as
capitalised value of net maintainable rent. This exception is applicable in respect one house
property. The cost of acquisition/construction (plus cost of improvement) does not exceed
Rs. 50 lakh, if the house is situated at Bombay, Calcutta, Delhi and Madras (Rs. 25 lakh at
any other place).
If unbuilt area of the plot of land on which the property is built exceeds the specified area,
premium is to be added to the capitalised value determined above.
Valuation of self-occupied property - If assessee owns a house (or a part of the house), being
an independent residential unit and is used by the assessee exclusively for his residential
purposes throughout 12 months ending on the valuation date, valuation will be as per
provisions of section 7(2).
Assessee can either take value of the house as determined above on the valuation date
relevant for the current assessment year or he take value of the house, as determined above,
on the first valuation date next following the date on which he became the owner or the
valuation relevant for the assessment year 1971-72, whichever is later. The choice is of the
assessee.
Where the house has been constructed by the assessee, he shall be deemed to have become
the owner thereof on the date on which the construction of such house was completed.
Valuation of assets of business - If the assessee is carrying on a business for which accounts
are maintained by him regularly, the net value of the assets of the business as a whole, having
regard to the balance sheet of such business on the valuation date, is taken as value of such
assets [Part D, Schedule III].
(A) The assets are valued as follows - Depreciable assets - Written down value, plus 20%,
Non-depreciable assets (other than stock-in- trade) - Book value, plus 20%, Closing stock -
Value adopted for the purpose of income-tax, plus 20%.
(B) Then value of house property, life interest, jewellery and other assets is calculated as per
other provisions of Wealth Tax Act.
Higher of A or B is taken as value of assets.
Value of interest in firm or association of persons - The net wealth of the firm on the
valuation date is ascertained.. For determining the net wealth of the firm (or association), no
account shall be taken of the exemptions given by section 5. The portion of the net wealth as
is equal to the amount of the capital of the firm or association is allocated amongst the
partners or the members in the proportion in which capital has been contributed by them.
The residue of the net wealth is allocated amongst the partners or the members in accordance
with the agreement of the partnership or association of persons for the distribution of assets
in the event of dissolution of the firm or association or in the absence of such agreement, in
the proportion in which the partners (or members) are entitled to share profits [Part E,
Schedule III]
Value of life interest - The value of life interest of an assessee shall be determined as per
Part F, Schedule III. Average net annual income of the assessee derived from the life interest
during 3 years ending on the valuation date is calculated. While computing net annual
income, expenses incurred on the collection of such income (maximum of 5% of the average
of annual gross income) shall be deducted. This is multiplied as per formula prescribed to
arrive at value of asset.
Valuation of jewellery - The value of jewellery shall be estimated to be the price which it
would fetch if sold in the open market on the valuation date (i.e., fair market value). Where
the value of jewellery does not exceed Rs. 5,00,000, a statement in Form No. O-8A is to be
submitted. Where the value of the jewellery exceeds Rs. 5,00,000, a report of a registered
valuer in Form No. O-8 should be submitted. The report is not binding on assessing officer
(Valuation Officer) and he can determine fair market value of jewellery.
The value of jewellery determined by the Valuation Officer for any assessment year shall be
taken to be the value of such jewellery for the subsequent four assessment years subject to
the prescribed adjustments.
Valuation of any other asset - The value of any asset, other than cash (being an asset which
is not covered in above paras) shall be estimated either by the Assessing Officer himself or
by the Valuation Officer if reference is made to him under section 16A. In both these cases,
the value shall be estimated to be the price which it would fetch if sold in the open market,
on the valuation date. If the asset is not saleable in the open market, the value shall be
determined in accordance with guidelines or principles specified by the Board from time to
time by general or special order.
3 Other issues relating to wealth tax
Charitable or religious trusts - A trust can forfeit exemption for any of the following
reasons - (a) any part of the trusts property or any income of the trust, including income
by way of voluntary contributions, is used for the benefit of the settlor, the trustee, their
relatives etc.; or (b) any part of the income of the trust, created on or after April 1, 1962,
including income by way of voluntary contributions, enures directly or indirectly, for the
benefit of any of the persons referred to in section 13(3) of the Income-tax Act ; or (c)
any funds of the trust are invested or deposited or any shares in a company are held by the
trust in contravention of the investment pattern for trust funds laid down in section 11(5)
of the Income-tax Act.
In such case, tax shall be leviable upon and recoverable from the trustee or manager in
respect of the property held by him under trust at the rate of tax applicable to a resident in
India.
These provisions are not applicable in the case of a scientific research association [Section
10(21) of the Income-tax Act] and in the case of any institution, fund or trust referred to in
section 10(22), (22A), (22B) or (23C) of the Income-tax Act in specified situations [Section
21A]
Association of persons where shares of members are indeterminate/unknown - If assets

chargeable to wealth-tax are held by an association of persons and the individual shares of
the members in the income or assets of the association are indeterminate or unknown,
wealth-tax is levied to the same extent as it would be leviable upon and recoverable from an
individual who is citizen of India and resident in India [Section 21AA]
3-1 Return of wealth and assessment
Every person is required to file with the Wealth-tax Officer a return of net wealth in Form
BA, if his net wealth or net wealth of any other person in respect of which he is assessable
under the Act on the valuation date is of such an amount as to render him liable to wealth-
tax. Return can be filed on or before the due date specified under section 139 of the
Income-tax Act.
Return in response to a notice - In the case of any person who, in the opinion of Wealth-tax
Officer, is assessable to tax, the Wealth-tax Officer may, before the end of the relevant
assessment year, issue a notice requiring him to furnish, within 30 days from the date of
service of such notice, a return of net wealth in the prescribed form.
Assessment - The assessee is required to pay the tax before filing of the return and such
return is to be accompanied by the proof of such payment. Provisions of regular assessment,
as applicable under Income Tax, will apply to wealth tax also.
Interest or penalty and prosecution - Interest @ 1% per month is payable for failure to pay
wealth tax on due date. Penalty and prosecution provisions also apply.
Mr. A has the following assets on 31-3-2008:
Asset Market Loan Security
value on outstanding Given for
31-3- On 31-3-2008 Taking the

2008
Rs. Lakhs Loan
Rs. lakhs
(loans taken
acquire
the asset)
Gold and silver 80 6 Shares
Shares 10 3 House B
Residential House A 50 4 Gold
Residential House B 42 38 Personal
Commercial House C(used for 95 5 Personal
Carrying on own business)

Boat 8 12 Gold
Motor cars 11 1 Silver
Bank deposit 1 1 ------
Residential House D(let out 55 40 House D
throughout
The financial year 2007-08)

Commercial complex (having 20 190 100 Commercial
offices)
Complex
A also took a bank loan of Rs. 75,000 against the security of his car for his friends
marriage. Out of the Rs. 12 lakh loan taken by him for purchasing the boat, he
utilized Rs. 1 Lakh for his foreign visit. Compute the net wealth for assessment year
2008-09
Answer
Assets Debts
owed
(Rs.
Lakh) Rs.
Lakhs
Gold and silver 80 6

Shares- not an asset within the meaning of section ---- ----
2(ea)
Residential House A[exempt under Section 5(vi)] --- ----
Residential House B 42 38
Commercial House C(used for Carrying on own ---- ----
business-Therefore it is not an asset within the
meaning of section 2(ea))
Boat 8 11
Motor cars 11 1
Bank deposit[not an asset within the meaning of ---- ---
section 2(ea)]
Residential House D(let out throughout the financial ---- ---
year 2005-06) Residential house not an asset if let
out for 300 days or more in the previous year.
Commercial complex (having 20 offices) not an ---- ----
asset within the meaning of section 2(ea)
Total 141 56
Net wealth = Rs 141 lakhs minus Rs 56 Lakhs = Rs. 85 lakhs
Mr. A owns a commercial house property which is situated at Pune. The difference
between unbuilt area and specified area is 22% of the aggregate area. The property
was acquired on 31-5-1988 for Rs. 12,50,000. The property is built on freehold land.
How will the property be valued for wealth-tax purposes?
As the difference between unbuilt area and specified area exceeds 20% of the
aggregate area, value shall be estimated by the Assessing Officer himself or
by the Valuation Officer under section 16A if the reference is made to him
under section 16A. In either case, the value shall be estimated to be the price
which it would fetch if sold in the open market, on the valuation date. If the
property is not saleable in the open market, valuation shall be as per CBDTs
guidelines specified from time to time.
Section 192 of the Income-tax Act, 1961 - Deduction of tax at source - Salary - Income-tax
deduction from salaries during the financial year 2009-10
CIRCULAR NO. 1/2010 [F. NO. 275/192/2009 IT(B)], DATED 11-1-2010
Reference is invited to Circular No. 8/2007, dated 5-12-2007 whereby the rates of deduction of
income-tax from the payment of income under the head Salaries under section 192 of the
Income-tax Act, 1961, during the financial year 2008-09, were intimated. The present Circular
contains the rates of deduction of income-tax from the payment of income chargeable under the
head Salaries during the financial year 2009-10 and explains certain related provisions of the
Income-tax Act. The relevant Acts, Rules, Forms and Notifications are available at the website of
the Income-tax Department - www.incometaxindia.gov.in.
Finance Act, 2009
2. As per the Finance Act, 2009, income-tax is required to be deducted under section 192 of the
Income-tax Act, 1961 from income chargeable under the head Salaries for the financial year
2009-10 (i.e., assessment year 2010-11) at the following rates :
RATES OF INCOME-TAX
A. Normal Rates of tax :
1. Where the total income does not exceed Nil
Rs. 1,60,000.
2. Where the total income exceeds Rs. 10 per cent of the amount by which the total
1,60,000 but does not exceed Rs. income exceeds Rs. 1,60,000
3,00,000
3. Where the total income exceeds Rs. Rs. 14,000 plus 20 per cent of the amount by
3,00,000 but does not exceed Rs. which the total income exceeds Rs. 3,00,000
5,00,000
4. Where the total income exceeds Rs. Rs. 54,000 plus 30 per cent of the amount by
5,00,000 which the total income exceeds Rs. 5,00,000
B. Rates of tax for a woman, resident in India and below sixty-five years of age at any time
during the financial year :
1 Where the total income does not exceed Nil
. Rs. 1,90,000
2 Where the total income exceeds Rs. 10 per cent of the amount by which the total
. 1,90,000 but does not exceed Rs. income exceeds Rs. 1,90,000
3,00,000
3 Where the total income exceeds Rs. Rs. 11,000 plus 20 per cent of the amount by
. 3,00,000 but does not exceed Rs. which the total income exceeds Rs. 3,00,000
5,00,000
. 5,00,000 which the total income exceeds Rs. 5,00,000
C. Rates of tax for an individual, resident in India and of the age of sixty-five years or more at
any time during the financial year :
1 Where the total income does not exceed Nil
. Rs. 2,40,000
2 Where the total income exceeds Rs. 10 per cent of the amount by which the total
. 2,40,000 but does not exceed Rs. income exceeds Rs. 2,40,000
3,00,000
. 3,00,000 but does not exceed Rs. which the total income exceeds Rs. 3,00,000
5,00,000
. 5,00,000 which the total income exceeds Rs. 5,00,000
Surcharge on Income tax :
There will be no surcharge on income-tax payments by individual taxpayers during financial
year 2009-10 (assessment year 2010-11).
Education Cess on Income tax :
The amount of income-tax shall be further increased by an additional surcharge (Education Cess
on Income-tax) at the rate of two per cent of the income-tax.
Additional surcharge on Income-tax (Secondary and Higher Education Cess on Income-tax) :
From financial year 2007-08 onwards, an additional surcharge is chargeable at the rate of one per
cent of income-tax (not including the Education Cess on income-tax).
Education Cess, and Secondary and Higher Education Cess are payable by both resident and
non-resident assessees.
3. Section 192 of the Income-tax Act, 1961 : Broad scheme of tax deduction at source from
Salaries.
3.1 Method of Tax Calculation - Every person who is responsible for paying any income
chargeable under the head Salaries shall deduct income-tax on the estimated income of the
assessee under the head Salaries for the financial year 2009-10. The income-tax is required to
be calculated on the basis of the rates given above and shall be deducted on average at the time
of each payment. No tax will, however, be required to be deducted at source in any case unless
the estimated salary income including the value of perquisites, for the financial year exceeds Rs.
1,60,000 or Rs. 1,90,000 or Rs. 2,40,000, as the case may be, depending upon the age and gender
of the employee. (Some typical examples of computation of tax are given at Annexure-I).
3.2 Payment of Tax on Non-monetary Perquisites by Employer - An option has been given to the
employer to pay the tax on non-monetary perquisites given to an employee. The employer may,
at his option, make payment of the tax on such perquisites himself without making any TDS
from the salary of the employee. The employer will have to pay such tax at the time when such
tax was otherwise deductible i.e., at the time of payment of income chargeable under the head
Salaries to the employee.
3.3 Computation of Average Income-tax - For the purpose of making the payment of tax
mentioned in para 3.2 above, tax is to be determined at the average of income-tax computed on
the basis of rate in force for the financial year, on the income chargeable under the head
Salaries, including the value of perquisites for which tax has been paid by the employer
himself.
Illustration :
Suppose that the income chargeable under the head salary of a male employee below sixty-five
years of age for the year inclusive of all perquisites is Rs. 4,50,000, out of which, Rs. 50,000 is
on account of non-monetary perquisites and the employer opts to pay the tax on such perquisites
as per the provisions discussed in para 3.2 above.
Steps :
Income Chargeable under the head Salaries inclusive of all perquisites : Rs. 4,50,000
Tax on Total Salaries (including Cess) : Rs. 45,320
Average Rate of Tax [(45,320/4,50,000) 100] : 10.07%
Tax payable on Rs. 50,000 (10.07% of 50,000) : Rs. 5,035
Amount required to be deposited each month : Rs. 420
(5,035/12)
The tax so paid by the employer shall be deemed to be TDS made from the salary of the
employee.
3.4 Salary From More Than One Employer - Sub-section (2) of section 192 deals with situations
where an individual is working under more than one employer or has changed from one
employer to another. It provides for deduction of tax at source by such employer (as the taxpayer
may choose) from the aggregate salary of the employee who is or has been in receipt of salary
from more than one employer. The employee is now required to furnish to the present/chosen
employer details of the income under the head Salaries due or received from the former/other
employer and also tax deducted at source therefrom, in writing and duly verified by him and by
the former/other employer. The present/chosen employer will be required to deduct tax at source
on the aggregate amount of salary (including salary received from the former or other employer).
3.5 Relief when Salary Paid in Arrear or Advance - Under sub-section (2A) of section 192 where
the assessee, being a Government servant or an employee in a company, co-operative society,
local authority, university, institution, association or body is entitled to the relief under sub-
section (1) of section 89, he may furnish to the person responsible for making the payment
referred to in Para (3.4), such particulars in Form No. 10E duly verified by him, and thereupon
the person responsible as aforesaid shall compute the relief on the basis of such particulars and
take the same into account in making the deduction under Para (3.1) above.
Explanation.For this purpose University means a University established or incorporated by
or under a Central, State or Provincial Act, and includes an institution declared under section 3 of
the University Grants Commission Act, 1956 (3 of 1956), to be University for the purposes of the
Act.
However with effect from 1-4-2010 (assessment year 2010-11) that no such relief shall be
granted in respect of any amount received or receivable by an assessee on his voluntary
retirement or termination of his service, in accordance with any scheme or schemes of voluntary
retirement or in the case of a public sector company referred to in sub-clause (i) of clause (10C)
of section 10 (read with Rule 2BA), a scheme of voluntary separation, if an exemption in respect
of any amount received or receivable on such voluntary retirement or termination of his service
or voluntary separation has been claimed by the assessee under clause (10C) of section 10 in
respect of such, or any other, assessment year.
3.6 [Form 12C has been omitted by the IT(24th Amendment) Rules, 2003 w.e.f. 1-10-2003 - (i)
Sub-section (2B) of section 192 enables a taxpayer to furnish particulars of income under any
head other than Salaries and of any tax deducted at source thereon. Form No. 12C, which was
earlier prescribed for furnishing such particulars, has since been omitted from the Income-tax
Rules. However, the particulars may now be furnished in a simple statement, which is properly
verified by the taxpayer in the same manner as was required to be done in Form 12C.
(ii) Such income should not be a loss under any such head other than the loss under the head
Income from House Property for the same financial year. The person responsible for making
payment (DDO) shall take such other income and tax, if any, deducted at source from such
income, and the loss, if any, under the head Income from House Property into account for the
purpose of computing tax deductible under section 192 of the Income-tax Act. However, this
sub-section shall not in any case have the effect of reducing the tax deductible (except where the
loss under the head Income from House Property has been taken into account) from income
under the head Salaries below the amount that would be so deductible if the other income and
the tax deducted thereon had not been taken into account. In other words, the DDO can take into
account any loss (negative income) only under the head Income from House Property and no
other head for working out the amount of total tax to be deducted. While taking into account the
loss from House Property, the DDO shall ensure that the assessee files the declaration referred to
above and encloses therewith a computation of such loss from House Property.
(iii) Sub-section (2C) lays down that a person responsible for paying any income chargeable
under the head Salaries shall furnish to the person to whom such payment is made a statement
giving correct and complete particulars of perquisites or profits in lieu of salary provided to him
and the value thereof in Form No. 12BA. (Annexure-II). Form No. 12BA along with Form No.
16, as issued by the employer, are required to be produced on demand before the Assessing
Officer in terms of section 139C of the Income-tax Act.
3.7 Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of
Income from House Property - (i) For the purpose of computing income/loss under the head
Income from House Property in respect of a self-occupied residential house, a normal
deduction of Rs. 30,000 is allowable in respect of interest on borrowed capital. However, a
deduction on account of interest up to a maximum limit of Rs. 1,50,000 is available if such loan
has been taken on or after 1-4-1999 for constructing or acquiring the residential house and the
construction or acquisition of the residential unit out of such loan has been completed within
three years from the end of the financial year in which capital was borrowed. Such higher
deduction is not allowable in respect of interest on capital borrowed for the purposes of repairs or
renovation of an existing resi-dential house. To claim the higher deduction in respect of interest
up to Rs. 1,50,000, the employee should furnish a certificate from the person to whom any
interest is payable on the capital borrowed, specifying the amount of interest payable by such
employee for the purpose of construction or acquisition of the residential house or for conversion
of a part or whole of the capital borrowed, which remains to be repaid as a new loan.
(ii) The essential conditions for availing higher deduction of interest of Rs. 1,50,000 in respect of
a self-occupied residential house are that the amount of capital must have been borrowed on or
after 1-4-1999 and the acquisition or construction of residential house must have been completed
within three years from the end of the financial year in which capital was borrowed. There is no
stipulation regarding the date of commencement of construction. Consequently, the construction
of the residential house could have commenced before 1-4-1999 but, as long as its
construction/acquisition is completed within three years, from the end of the financial year in
which capital was borrowed the higher deduction would be available in respect of the capital
borrowed after 1-4-1999. It may also be noted that there is no stipulation regarding the
construction/acquisition of the residential unit being entirely financed by capital borrowed on or
after 1-4-1999. The loan taken prior to 1-4-1999 will carry deduction of interest up to Rs. 30,000
only. However, in any case the total amount of deduction of interest on borrowed capital will not
exceed Rs. 1,50,000 in a year.
3.8 Adjustment for Excess or Shortfall of Deduction - The provisions of sub-section (3) of section
192 allow the deductor to make adjustments for any excess or shortfall in the deduction of tax
already made during the financial year, in subsequent deductions for that employee within that
financial year itself.
3.9 TDS on Payment of Balance Under Provident Fund and Superannuation Fund - The trustees
of a Recognized Provident Fund, or any person authorized by the regulations of the Fund to
make payment of accumulated balances due to employees, shall, in cases where sub-rule (1) of
rule 9 of Part A of the Fourth Schedule to the Act applies, at the time when the accumulated
balance due to an employee is paid, make there from the deduction specified in rule 10 of Part A
of the Fourth Schedule.
3.10 Where any contribution made by an employer, including interest on such contributions, if
any, in an approved Superannuation Fund is paid to the employee, tax on the amount so paid
shall be deducted by the trustees of the Fund to the extent provided in rule 6 of Part B of the
Fourth Schedule to the Act.
3.11 Salary Paid in Foreign Currency - For the purposes of deduction of tax on salary payable in
foreign currency, the value in rupees of such salary shall be calculated at the prescribed rate of
exchange.
4. Persons responsible for deducting tax and their duties
4.1 Under clause (i) of section 204 of the Act the persons responsible for paying for the
purpose of section 192 means the employer himself or if the employer is a Company, the
Company itself including the Principal Officer thereof.
4.2 The tax determined as per para 6 should be deducted from the salary under section 192 of the
Act.
4.3 Deduction of Tax at Lower Rate - Section 197 enables the taxpayer to make an application in
Form No. 13 to his Assessing Officer, and, if the Assessing Officer is satisfied that the total
income of the taxpayer justifies the deduction of income-tax at any lower rate or no deduction of
income tax, he may issue an appropriate certificate to that effect which should be taken into
account by the Drawing and Disbursing Officer while deducting tax at source. In the absence of
such a certificate furnished by the employee, the employer should deduct income-tax on the
salary payable at the normal rates : (Circular No. 147, dated 28-10-1974.)
4.4 Deposit of Tax Deducted - According to the provisions of section 200, any person deducting
any sum in accordance with the provisions of section 192 or paying tax on non-monetary
perquisites on behalf of the employee under section 192(1A), shall pay the sum so deducted or
tax so calculated on the said non-monetary perquisites, as the case may be, to the credit of the
Central Government in prescribed manner (vide Rule 30 of the Income-tax Rules, 1962). In the
case of deductions made by, or, on behalf of the Government, the payment has to be made on the
day of the tax-deduction itself. In other cases, the payment has to be made within one week from
the last day of month in which deduction is made.
4.5 Interest, Penalty & Prosecution for Failure to Deposit Tax Deducted - If a person fails to
deduct the whole or any part of the tax at source, or, after deducting, fails to pay the whole or any
part of the tax to the credit of the Central Government within the prescribed time, he shall be
liable to action in accordance with the provisions of section 201. Sub-section (1A) of section 201
lays down that such person shall be liable to pay simple interest at one per cent for every month
or part of the month on the amount of such tax from the date on which such tax was deductible to
the date on which the tax is actually paid. Such interest, if chargeable, has to be paid before
furnishing of quarterly statement of TDS for each quarter. Section 271C lays down that if any
person fails to deduct tax at source, he shall be liable to pay, by way of penalty, a sum equal to
the amount of tax not deducted by him. Further, section 276B lays down that if a person fails to
pay to the credit of the Central Government within the prescribed time the tax deducted at source
by him, he shall be punishable with rigorous imprisonment for a term which shall be between 3
months and 7 years, along with fine.
4.6 Furnishing of Certificate for Tax Deducted - According to the provisions of section 203,
every person responsible for deducting tax at source is required to furnish a certificate to the
payee to the effect that tax has been deducted and to specify therein the amount deducted and
certain other particulars. This certificate, usually called the TDS certificate has to be furnished
within a period of one month from the end of the relevant financial year. Even the banks
deducting tax at the time of payment of pension are required to issue such certificates. In the case
of employees receiving salary income (including pension), the certificate has to be issued in
Form No. 16. However, in the case of an employee who is resident in India and whose income
from salaries does not exceed Rs. 1,50,000, the certificate of deduction of tax shall be issued in
Form No. 16AA (Specimen Form 16AA enclosed as Annexure-III). It is, however, clarified that
there is no obligation to issue the TDS certificate (Form 16 or Form 16AA) in case tax at source
is not deductible/deducted by virtue of claims of exemptions and deductions. As per section 192,
the responsibility of providing correct and complete particulars of perquisites or profits in lieu of
salary given to an employee is placed on the person responsible for paying such income i.e., the
person responsible for deducting tax at source. The form and manner of such particulars are
prescribed in rule 26A, Form 12BA, Form 16 and Form 16AA of the Income-tax Rules.
Information relating to the nature and value of perquisites is to be provided by the employer in
Form No. 12BA in case of salary above Rs. 1,50,000. In other cases, the information would have
to be provided by the employer in Form 16 itself. In either case, Form 16 with Form 12BA or
Form 16 by itself will have to be furnished within a period of one month from the end of relevant
financial year.
An employer, who has paid the tax on perquisites on behalf of the employee as per the provisions
discussed in paras 3.2 and 3.3, shall furnish to the employee concerned a certificate to the effect
that tax has been paid to the Central Government and specify the amount so paid, the rate at
which tax has been paid and certain other particulars in the amended Form 16.
The obligation cast on the employer under section 192(2C) for furnishing a statement showing
the value of perquisites provided to the employee is a serious responsibility of the employer,
which is expected to be discharged in accordance with law and rules of valuation framed
thereunder. Any false information, fabricated documentation or suppression of requisite
information will entail consequences therefore provided under the law. The certificates in Form
No. 12BA and Form No. 16 are to be issued on tax-deductors own stationery within one month
from the close of the financial year i.e., by April 30 of every year. If he fails to issue these
certificates to the person concerned, as required by section 203, he will be liable to pay, by way
of penalty, under section 272A, a sum which shall be Rs. 100 for every day during which the
failure continues.
4.7 Option to issue TDS Certificates by way of digital signatures - Since the requirement of
annexing the TDS certificates with the return of income has been dispensed with, the TDS
certificates will be now issued only for the purpose of personal record of the deductees subject to
the condition that they may be required to produce the same on demand before the Assessing
Officer in terms of section 139C, inserted by the Finance Act, 2007. The TDS claim made in the
return of income is also required to be matched with the e-TDS returns furnished by the
deductors. Assessing Officers may, if considered necessary, also write to the deductors for
verification of the correctness of the taxes deducted or other particulars mentioned in the
certificate. It has been decided for the proper administration of this Income-tax Act to allow the
deductors, at their option, in respect of the tax to be deducted at source from income chargeable
under the head Salaries to use their digital signatures to authenticate the certificates of
deduction of tax at source in Form No. 16. The deductors will have to ensure that TDS
certificates in Form No. 16 bearing digital signatures have a control No. with log to be
maintained by the employer (deductor). The deductor will ensure that its TAN and the PAN of
the employee are correctly mentioned in such Form No. 16 issued with digital signatures. The
deductors will also ensure that once the certificates are digitally signed, the contents of the
certificates are not amenable to change by anyone. The Income-tax authorities shall treat such
certificate with digital signatures as a certificate issued in accordance with rule 31 of the Income-
tax Rules, 1962. (Circular No.2/2007, dated 21-5-2007).
4.8 Mandatory Quoting of PAN and TAN - According to the provisions of section 203A of the
Income-tax Act, it is obligatory for all persons responsible for deducting tax at source to obtain
and quote the tax-deduction Account No. (TAN) in the challans, TDS- certificates, statements
and other documents. Detailed instructions in this regard are available in this Departments
Circular No. 497 (F. No. 275/118/87-IT(B), dated 9-10-1987). If a person fails to comply with
the provisions of section 203A, he will be liable to pay, by way of penalty, under section 272BB,
a sum of ten thousand rupees. Similarly, as per section 139A(5B), it is obligatory for persons
deducting tax at source to quote PAN of the persons from whose income-tax has been deducted
in the statement furnished under section 192(2C), certificates furnished under section 203 and all
returns prepared and delivered as per the provisions of section 200(3) of the Income-tax Act,
1961.
4.9 All tax deductors/collectors are required to file the TDS returns in Form No. 24Q (for tax
deducted from salaries). As the requirement of filing TDS/TCS certificates has been done away
with, the lack of PAN of deductees is creating difficulties in giving credit for the tax deducted. It
has, therefore, been decided that TDS returns for salaries, i.e., Form No. 24Q with less than 95%
of PAN data will not be accepted during financial year 2009-10. Tax deductors and tax collectors
are, therefore, advised to quote correct PAN details of all deductees in the TDS returns, failing
which the TDS returns will not be accepted and all penal consequences under the Income-tax Act
will follow. Taxpayers liable to TDS are also advised to furnish their correct PAN with their
deductors, failing which they will also face penal proceedings under the Income-tax Act.
4.10 Quarterly Statement of TDS - The person deducting the tax (employer in case of salary
income), is required to file Quarterly Statements of TDS for the periods ending on 30th June,
30th September, 31st December and 31st March of each financial year, duly verified, to the
Director General of Income-tax (Systems) or M/s National Securities Depository Ltd. (NSDL).
These statements are required to be filed on or before the 15th July, the 15th October, the 15th
January in respect of the first three quarters of the financial year and on or before the 15th June
following the last quarter of the financial year. The requirement of filing an annual return of TDS
has been done away with effect from 1-4-2006. The quarterly statement for the last quarter filed
in Form 24Q (as amended by Notification No. S.O. 704(E), dated 12-5-2006) shall be treated as
the annual return of TDS.
It is now mandatory for all offices of the Government, companies, deductors who are required to
get their accounts audited under section 44AB of the Income-tax Act or where the number of
deductees records in a quarterly statement for any quarter of the immediately preceding financial
year is equal to or more than fifty to file quarterly statements of TDS on computer media only in
accordance with the Electronic Filing of Returns of Tax Deducted at Source Scheme, 2003 as
notified vide Notification No. S.O. 974(E), dated 26-8-2003. (Annexure-IV). The quarterly
statements are to be filed by such deductors in electronic format with the e-TDS Intermediary at
any of the TIN Facilitation Centres, particulars of which are available at
www.incometaxindia.gov.in and at http://tin.nsdl.com. If a person fails to furnish the quarterly
statements in due time, he shall be liable to pay by way of penalty under section 272A(2)(k), a
sum which shall be Rs. 100 for every day during which the failure continues. However, this sum
shall not exceed the amount of tax which was deductible at source.
The Quarterly Statements are be filed on computer media only in accordance with rule 31A of
the Income-tax Rules, 1962. These Quarterly Statements compulsorily require quoting of the Tax
Deduction Account Number (TAN) of the tax-deductor and the Permanent Account Number
(PAN) of the employees whose tax has been deducted. Therefore, all Drawing and Disbursing
Officers of the Central and State Governments/ Departments, who have not yet obtained TAN,
must immediately apply for and obtain TAN. Similarly, all employees (including non-resident
employees) from whose income, tax is to be deducted may be advised to obtain PAN, if not
already obtained, and to quote the same correctly, as otherwise the credit for the tax deducted
cannot be given. A penalty under section 272B of Rs. 10,000 has been prescribed for wilfully
intimating a false PAN.
4.11 A return filed on the prescribed computer readable media shall be deemed to be a return for
the purposes of section 200(3) and the Rules made thereunder, and shall be admissible in any
proceeding thereunder, without further proof of production of the original, as evidence of any
contents of the original.
4.12 Challans for Deposit of TDS - While making the payment of tax deducted at source to the
credit of the Central Government, it may be ensured that the correct amount of income-tax is
recorded in the relevant challan. It may also be ensured that the right type of challan is used. The
relevant challan for making payment of tax deducted at source from salaries is challan No. ITNS-
281. Wherever the amount of tax deducted at source is credited to the Central Government
through book adjustment, care should be taken to ensure that the correct amount of income-tax is
reflected therein.
4.13 TDS on Income from Pension - In the case of pensioners who receive their pension from a
nationalized bank, the instructions contained in this circular shall apply in the same manner as
they apply to salary-income. The deductions from the amount of pension under section 80C on
account of contribution to Life Insurance, Provident Fund, NSC etc., if the pensioners furnish the
relevant details to the banks, may be allowed. Necessary instructions in this regard were issued
by the Reserve Bank of India to the State Bank of India and other nationalized Banks vide RBIs
Pension Circular (Central Series) No. 7/CDR/1992 (Ref. CO: DGBA: GA (NBS) No.
60/GA.64(11CVL)-/92) dated the 27th April, 1992, and, these instructions should be followed by
all the branches of the Banks, which have been entrusted with the task of payment of pensions.
Further all branches of the banks are bound under section 203 to issue certificate of tax deducted
in Form 16 to the pensioners also vide CBDT Circular No. 761, dated 13-1-1998.
New Pension Scheme
The New Pension Scheme (NPS) has become operational since 1st January, 2004 and is
mandatory for all new recruits to the Central Government Services from 1st January, 2004. Since
then it has been opened to employees of State Governments, Private Sector and Self Employed
(both organized and unorganized).
The income received by the NPS trust is exempt. The NPS trust is exempted from the Dividend
Distribution Tax and is also exempt from the Securities Transaction Tax on all purchases and
sales of equities and derivatives. The NPS trust will also receive income without tax deduction at
source. The above amendments are retrospectively effective from 1-4-2009 (assessment year
2009-10) onwards.
4.14 Important Circulars - Where Non-Residents are deputed to work in India and taxes are
borne by the employer, if any refund becomes due to the employee after he has already left India
and has no bank account in India by the time the assessment orders are passed, the refund can be
issued to the employer as the tax has been borne by it: Circular No. 707, dated 11-7-1995.
4.15 TDS certificates issued by Central Government departments which are making payments by
book adjustment, should be accepted by the Assessing Officers if they indicate that credit has
been effected to the Income-tax Department by book adjustment and the date of such adjustment
is given therein. In such cases, the Assessing Officers may not insist on details like challan
numbers, dates of payment into Government Account etc., but they should in any case satisfy
themselves regarding the genuineness of the certificates produced before them : Circular No.
747, dated 27-12-1996.
4.16 There is a specific procedure laid down for refund of payments made by the deductor in
excess of taxes deducted at source, vide Circular No. 285, dated 21-10-1980.
4.17 In respect of non-residents, the salary paid for services rendered in India shall be regarded
as income earned in India. It has been specifically provided in the Act that any salary payable for
rest period or leave period which is both preceded or succeeded by service in India and forms
part of the service contract of employment will also be regarded as income earned in India.
5. Estimation of income under the head Salaries
5.1 Income chargeable under the head Salaries. - (1) The following income shall be
chargeable to income-tax under the head Salaries :
(a) any salary due from an employer or a former employer to an assessee in the previous year,
whether paid or not;
(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a
former employer though not due or before it became due to him.
(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an
employer or a former employer, if not charged to income-tax for any earlier previous year.
(2) For the removal of doubts, it is clarified that where any salary paid in advance is included in
the total income of any person for any previous year it shall not be included again in the total
income of the person when the salary becomes due. Any salary, bonus, commission or
remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm
shall not be regarded as Salary.
Definition of Salary - (3) Salary includes wages, fees, commissions, perquisites, profits in lieu
of, or, in addition to salary, advance of salary, annuity or pension, gratuity, payments in respect of
encashment of leave etc. It also includes the annual accretion to the employees account in a
recognized provident fund to the extent it is chargeable to tax under rule 6 of Part A of the Fourth
Schedule of the Income- tax Act. Contributions made by the employer to the account of the
employee in a recognized provident fund in excess of 12 per cent of the salary of the employee,
along with interest applicable, shall be included in the income of the assessee for the previous
year. Any contribution made by the Central Government or any other employer to the account of
the employee under the New Pension Scheme as notified vide Notification No. F. No. 5/7/2003-
ECB&PR, dated 22-12-2003(enclosed as Annexure-IVA) referred to in section 80CCD [para
5.4(C) of this Circular] shall also be included in the salary income. Other items included in
salary, profits in lieu of salary and perquisites are described in section 17 of the Income-tax Act.
It may be noted that, since salary includes pensions, tax at source would have to be deducted
from pension also, if otherwise called for. However, no tax is required to be deducted from the
commuted portion of pension which is exempt, as explained in clause (3) of para 5.2 of this
Circular.
(4) Section 17 defines the terms salary, perquisite and profits in lieu of salary.
Perquisite includes :
(a) The value of rent free accommodation provided to the employee by his employer;
(b) The value of any concession in the matter of rent in respect of any accommodation provided
to the employee by his employer;
(c) The value of any benefit or amenity granted or provided free of cost or at concessional rate
in any of the following cases :
(i) By a company to an employee who is a director of such company;
(ii) By a company to an employee who has a substantial interest in the company;
(iii) By an employer (including a company) to an employee, who is not covered by (i) or
(ii) above and whose income under the head Salaries (whether due from or paid or
allowed by one or more employers), exclusive of the value of all benefits and
amenities not provided by way of monetary payment, exceeds Rs. 50,000.
What constitute concession in the matter of rent have been prescribed in Explanations 1 to 4
below section 17(2)(ii) of the Income-tax Act, 1961.
With effect from 1-4-2010 (assessment year 2010-11) it is further clarified that the value of any
specified security or sweat equity shares allotted or transferred, directly or indirectly, by the
employer, or former employer, free of cost or at concessional rate to the assessee, shall be
constituted as perquisites in the hand of employees.
Explanation.For the purposes of this sub-clause,
(a) specified security means the securities as defined in clause (h) of section 2 of the
Securities Contracts (Regulation) Act, 1956 (42 of 1956) and, where employees stock
option has been granted under any plan or scheme therefore, includes the securities offered
under such plan or scheme;
(b) sweat equity shares means equity shares issued by a company to its employees or
directors at a discount or for consideration other than cash for providing know-how or
making available rights in the nature of intellectual property rights or value additions, by
whatever name called;
(c) the value of any specified security or sweat equity shares shall be the fair market value of
the specified security or sweat equity shares, as the case may be, on the date on which the
option is exercised by the assessee as reduced by the amount actually paid by, or recovered
from the assessee in respect of such security or shares;
(d) fair market value means the value determined in accordance with the method as may be
prescribed;
(e) option means a right but not an obligation granted to an employee to apply for the
specified security or sweat equity shares at a predetermined price;
The amount of any contribution to an approved superannuation fund by the employer in respect
of the assessee, to the extent it exceeds one lakh rupees; and
The value of any other fringe benefit or amenity as may be prescribed.
It is further provided that profits in lieu of salary shall include amounts received in lump sum or
otherwise, prior to employment or after cessation of employment for the purposes of taxation.
The rules for valuation of perquisite are as under :
I. Accommodation - For purpose of valuation of the perquisite of unfurnished accommodation,
all employees are divided into two categories : (i) Central Government & State Government
employees; and (ii) Others.
For employees of the Central and State Governments the value of perquisite shall be equal to the
licence fee charged for such accommodation as reduced by the rent actually paid by the
employee.
For all others, i.e., those salaried taxpayers not in employment of the Central Government and
the State Government, the valuation of perquisite in respect of accommodation would be at
prescribed rates, as discussed below :
(a) Where the accommodation provided to the employee is owned by the employer, the rate is
15 per cent of salary in cities having population exceeding 25 lakhs as per the 2001
census. The rate is 10 per cent of salary in cities having population exceeding 10 lakhs but
not exceeding 25 lakhs as per 2001 Census. For other places, the perquisite value would be
7 per cent of the salary.
(b) Where the accommodation so provided is taken on lease/rent by the employer, the
prescribed rate is 15 per cent of the salary or the actual amount of lease rental payable by
the employer, whichever is lower, as reduced by any amount of rent paid by the employee.
For furnished accommodation, the value of perquisite as determined by the above method shall
be increased by
(i) 10 per cent of the cost of furniture, appliances and equipments, or
(ii) where the furniture, appliances and equipments have been taken on hire, by the amount of
actual hire charges payable.
- as reduced by any charges paid by the employee himself.
Accommodation includes a house, flat, farm house, hotel accommodation, motel, service
apartment guest house, a caravan, mobile home, ship etc. However, the value of any
accommodation provided to an employee working at a mining site or an on-shore oil exploration
site or a project execution site or a dam site or a power generation site or an off-shore site will
not be treated as a perquisite. However, such accommodation should either be located in a
remote area or where it is not located in a remote area, the accommodation should be of a
temporary nature having plinth area of not more than 800 square feet and should not be located
within 8 kilometers of the local limits of any municipality or cantonment board. A project
execution site for the purposes of this sub-rule means a site of project up to the stage of its
commissioning. A remote area means an area located at least 40 kilometers away from a town
having a population not exceeding 20,000 as per the latest published all-India census.
If an accommodation is provided by an employer in a hotel the value of the benefit in such a case
shall be 24 per cent of the annual salary or the actual charges paid or payable to such hotel,
whichever is lower, for the period during which such accommodation is provided as reduced by
any rent actually paid or payable by the employee. However, where in cases the employee is
provided such accommodation for a period not exceeding in aggregate fifteen days on transfer
from one place to another, no perquisite value for such accommodation provided in a hotel shall
be charged. It may be clarified that while services provided as an integral part of the
accommodation, need not be valued separately as perquisite, any other services over and above
that for which the employer makes payment or reimburses the employee shall be valued as a
perquisite as per the residual clause. In other words, composite tariff for accommodation will be
valued as per these Rules and any other charges for other facilities provided by the hotel will be
separately valued under the residual clause. Also, if on account of an employees transfer from
one place to another, the employee is provided with accommodation at the new place of posting
while retaining the accommodation at the other place, the value of perquisite shall be determined
with reference to only one such accommodation which has the lower value as per the table
prescribed in rule 3 of the Income-tax Rules, for a period up to 90 days. However, after that the
value of perquisite shall be charged for both accommodations as prescribed.
II. Personal attendants etc. - The value of free service of all personal attendants including a
sweeper, gardener and a watchman is to be taken at actual cost to the employer. Where the
attendant is provided at the residence of the employee, full cost will be taxed as perquisite in the
hands of the employee irrespective of the degree of personal service rendered to him. Any
amount paid by the employee for such facilities or services shall be reduced from the above
amount.
III. Gas, electricity & water - For free supply of gas, electricity and water for household
consumption, the rules provide that the amount paid by the employer to the agency supplying the
amenity shall be the value of perquisite. Where the supply is made from the employers own
resources, the manufacturing cost per unit incurred by the employer would be taken for the
valuation of perquisite. Any amount paid by the employee for such facilities or services shall be
reduced from the above amount.
IV. Free or concessional education - Perquisite on account of free or concessional education
shall be valued in a manner assuming that such expenses are borne by the employee, and would
cover cases where an employer is running, maintaining or directly or indirectly financing the
educational institution. Any amount paid by the employee for such facilities or services shall be
reduced from the above amount. However, where such educational institution itself is maintained
and owned by the employer or where such free educational facilities are provided in any
institution by reason of his being in employment of that employer, the value of the perquisite to
the employee shall be determined with reference to the cost of such education in a similar
institution in or near the locality if the cost of such education or such benefit per child exceeds
Rs. 1000 p.m.
V. Interest free or concessional loans - It is common practice, particularly in financial
institutions, to provide interest free or concessional loans to employees or any member of his
household. The value of perquisite arising from such loans would be the excess of interest
payable at prescribed interest rate over interest, if any, actually paid by the employee or any
member of his household. The prescribed interest rate would now be the rate charged per annum
by the State Bank of India as on the 1st day of the relevant financial year in respect of loans of
same type and for the same purpose advanced by it to the general public. Perquisite value would
be calculated on the basis of the maximum outstanding monthly balance method. For valuing
perquisites under this rule, any other method of calculation and adjustment otherwise adopted by
the employer shall not be relevant.
However, small loans up to Rs. 20,000 in the aggregate are exempt. Loans for medical treatment
specified in rule 3A are also exempt, provided the amount of loan for medical reimbursement is
not reimbursed under any medical insurance scheme. Where any medical insurance
reimbursement is received, the perquisite value at the prescribed rate shall be charged from the
date of reimbursement on the amount reimbursed, but not repaid against the outstanding loan
taken specifically for this purpose.
VI. Use of assets - It is common practice for an asset owned by the employer to be used by the
employee or any member of his household. This perquisite is to be charged at the rate of 10% of
the original cost of the asset as reduced by any charges recovered from the employee for such
use. However, the use of Computers and Laptops would not give rise to any perquisite.
VII. Transfer of assets - Often an employee or member of his household benefits from the
transfer of movable asset (not being shares or securities) at no cost or at a cost less than its
market value from the employer. The difference between the original cost of the movable asset
(not being shares or securities) and the sum, if any, paid by the employee, shall be taken as the
value of perquisite. In case of a movable asset, which has already been put to use, the original
cost shall be reduced by a sum of 10 per cent of such original cost for every completed year of
use of the asset. Owing to a higher degree of obsolescence, in case of computers and electronic
gadgets, however, the value of perquisite shall be worked out by reducing 50 per cent of the
actual cost by the reducing balance method for each completed year of use. Electronic gadgets in
this case means data storage and handling devices like computer, digital diaries and printers.
They do not include household appliance (i.e., white goods) like washing machines, microwave
ovens, mixers, hot plates, ovens etc. Similarly, in case of cars, the value of perquisite shall be
worked out by reducing 20% of its actual cost by the reducing balance method for each
completed year of use.
VIII. Medical Reimbursement by the employer exceeding Rs. 15,000 p.a. under section 17(2)(v)
is to be taken as perquisites - It is further clarified that the rule position regarding valuation of
perquisites are given at section 17(2) of Income-tax Act, 1961 and at rule 3 of Income-tax Rules,
1962. The deductors may look into the above provisions carefully before they determine the
perquisite value for deduction purposes.
It is pertinent to mention that benefits specifically exempt under sections 10(13A), 10(5), 10(14),
17 etc., would continue to be exempt. These include benefits like travel on tour and transfer,
leave travel, daily allowance to meet tour expenses as prescribed, medical facilities subject to
conditions.
5.2 Incomes not included in the head Salaries (Exemptions) - Any income falling within any
of the following clauses shall not be included in computing the income from salaries for the
purpose of section 192 of the Act :
(1) The value of any travel concession or assistance received by or due to an employee from his
employer or former employer for himself and his family, in connection with his proceeding (a)
on leave to any place in India or (b) on retirement from service, or, after termination of service to
any place in India is exempt under clause (5) of section 10 subject, however, to the conditions
prescribed in rule 2B of the Income-tax Rules, 1962.
For the purpose of this clause, family in relation to an individual means :
(i) The spouse and children of the individual; and
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly
dependent on the individual.
It may also be noted that the amount exempt under this clause shall in no case exceed the amount
of expenses actually incurred for the purpose of such travel.
(2) Death-cum-retirement gratuity or any other gratuity which is exempt to the extent specified
from inclusion in computing the total income under clause (10) of section 10. Any death-cum-
retirement gratuity received under the revised Pension Rules of the Central Government or, as
the case may be, the Central Civil Services (Pension) Rules, 1972, or under any similar scheme
applicable to the members of the civil services of the Union or holders of posts connected with
defence or of civil posts under the Union (such members or holders being persons not governed
by the said Rules) or to the members of the all-India services or to the members of the civil
services of a State or holders of civil posts under a State or to the employees of a local authority
or any payment of retiring gratuity received under the Pension Code or Regulations applicable to
the members of the defence service.
Gratuity received in cases other than above on retirement, termination etc. is exempt up to the
limit as prescribed by the Board.
(3) Any payment in commutation of pension received under the Civil Pension (Commutation)
Rules of the Central Government or under any similar scheme applicable to the members of the
civil services of the Union, or holders of civil posts/posts connected with defence, under the
Union, or civil posts under a State, or to the members of the All India Services/Defence Services,
or, to the employees of a local authority or a corporation established by a Central, State or
Provincial Act, is exempt under sub-clause (i) of clause (10A) of section 10. As regards payments
in commutation of pension received under any scheme of any other employer, exemption will be
governed by the provisions of sub-clause (ii) of clause (10A) of section 10. Also, any payment in
commutation of pension received from a Regimental Fund or Non-Public Fund established by
the Armed Forces of the Union referred to in section 10(23AAB) is exempt under sub-clause (iii)
of clause (10A) of section 10.
(4) Any payment received by an employee of the Central Government or a State Government, as
cash-equivalent of the leave salary in respect of the period of earned leave at his credit at the
time of his retirement, whether on superannuation or otherwise, is exempt under sub-clause (i) of
clause (10AA) of section 10. In the case of other employees, this exemption will be determined
with reference to the leave to their credit at the time of retirement on superannuation, or
otherwise, subject to a maximum of ten months leave. This exemption will be further limited to
the maximum amount specified by the Government of India Notification No. S.O. 588(E), dated
31-5-2002 at Rs. 3,00,000 in relation to such employees who retire, whether on superannuation
or otherwise, after 1-4-1998.
(5) Under section 10(10B), the retrenchment compensation received by a workman is exempt
from income-tax subject to certain limits. The maximum amount of retrenchment compensation
exempt is the sum calculated on the basis provided in section 25F(b) of the Industrial Disputes
Act, 1947 or any amount not less than Rs. 50,000 as the Central Government may by notification
specify in the Official Gazette, whichever is less. These limits shall not apply in the case where
the compensation is paid under any scheme which is approved in this behalf by the Central
Government, having regard to the need for extending special protection to the workmen in the
undertaking to which the scheme applies and other relevant circumstances. The maximum limit
of such payment is Rs. 5,00,000 where retrenchment is on or after 1-1-1997.
(6) Under section 10(10C), any payment received or receivable (even if received in instalments)
by an employee of the following bodies at the time of his voluntary retirement or termination of
his service, in accordance with any scheme or schemes of voluntary retirement or in the case of
public sector company, a scheme of voluntary separation, is exempted from income-tax to the
extent that such amount does not exceed five lakh rupees :
(a) A public sector company;
(b) Any other company;
(c) An Authority established under a Central, State or Provincial Act;
(d) A Local Authority;
(e) A Cooperative Society;
(f) A university established or incorporated or under a Central, State or Provincial Act, or, an
Institution declared to be a University under section 3 of the University Grants Commission
Act, 1956;
(g) Any Indian Institute of Technology within the meaning of clause (g) of section 3 of the
Institute of Technology Act, 1961;
(h) Such Institute of Management as the Central Government may by notification in the Official
Gazette, specify in this behalf.
The exemption of amount received under VRS has been extended to employees of the Central
Government and State Government and employees of notified institutions having importance
throughout India or any State or States. It may also be noted that where this exemption has been
allowed to any employee for any assessment year, it shall not be allowed to him for any other
assessment year.
(7) Any sum received under a Life Insurance Policy, including the sum allocated by way of
bonus on such policy other than:
(i) any sum received under sub-section (3) of section 80DD or sub-section (3) of section
80DDA, or
(ii) any sum received under Keyman Insurance Policy, or
(iii) any sum received under an insurance policy issued on or after 1-4-2003 in respect of which
the premium payable for any of the years during the term of the policy exceeds 20 per cent
of the actual capital sum assured. However, any sum received under such policy on the
death of a person would still be exempt.
(8) any payment from a Provident Fund to which the Provident Funds Act, 1925 (19 of 1925),
applies or from any other provident fund set up by the Central Government and notified by it in
this behalf in the Official Gazette.
(9) Under section 10(13A) of the Income-tax Act, 1961, any special allowance specifically
granted to an assessee by his employer to meet expenditure incurred on payment of rent (by
whatever name called) in respect of residential accommodation occupied by the assessee is
exempt from income-tax to the extent as may be prescribed, having regard to the area or place in
which such accommodation is situated and other relevant considerations. According to rule 2A of
the Income-tax Rules, 1962, the quantum of exemption allowable on account of grant of special
allowance to meet expenditure on payment of rent shall be :
(a) The actual amount of such allowance received by an employer in respect of the relevant
period; or
(b) The actual expenditure incurred in payment of rent in excess of 1/10 of the salary due for
the relevant period; or
(c) Where such accommodation is situated in Bombay, Calcutta, Delhi or Madras, 50 per cent
of the salary due to the employee for the relevant period; or
(d) Where such accommodation is situated in any other place, 40 per cent of the salary due to
the employee for the relevant period,
whichever is the least.
For this purpose, Salary includes dearness allowance, if the terms of employment so provide,
but excludes all other allowances and perquisites.
It has to be noted that only the expenditure actually incurred on payment of rent in respect of
residential accommodation occupied by the assessee subject to the limits laid down in Rule 2A,
qualifies for exemption from income-tax. Thus, house rent allowance granted to an employee
who is residing in a house/flat owned by him is not exempt from income-tax. The disbursing
authorities should satisfy themselves in this regard by insisting on production of evidence of
actual payment of rent before excluding the House Rent Allowance or any portion thereof from
the total income of the employee.
Though incurring actual expenditure on payment of rent is a pre-requisite for claiming deduction
under section 10(13A), it has been decided as an administrative measure that salaried employees
drawing house rent allowance up to Rs. 3,000 per month will be exempted from production of
rent receipt. It may, however, be noted that this concession is only for the purpose of tax-
deduction at source, and, in the regular assessment of the employee, the Assessing Officer will be
free to make such enquiry as he deems fit for the purpose of satisfying himself that the employee
has incurred actual expenditure on payment of rent.
(10) Clause (14) of section 10 provides for exemption of the following allowances :
(i) Any special allowance or benefit granted to an employee to meet the expenses incurred in
the performance of his duties as prescribed under Rule 2BB subject to the extent to which
such expenses are actually incurred for that purpose.
(ii) Any allowance granted to an employee either to meet his personal expenses at the place of
his posting or at the place he ordinarily resides or to compensate him for the increased cost
of living, which may be prescribed and to the extent as may be prescribed.
However, the allowance referred to in (ii) above should not be in the nature of a personal
allowance granted to the assessee to remunerate or compensate him for performing duties of a
special nature relating to his office or employment unless such allowance is related to his place
of posting or residence.
The CBDT has prescribed guidelines for the purpose of sub-clauses (i) and (ii) of section 10(14)
vide Notification No. SO 617(E), dated 7th July, 1995 (F. No. 142/9/95-TPL) which has been
amended vide Notification SO No. 403(E), dated 24-4-2000 (F. No. 142/34/99-TPL). The
transport allowance granted to an employee to meet his expenditure for the purpose of
commuting between the place of his residence and the place of duty is exempt to the extent of
Rs. 800 per month vide Notification S.O. No. 395(E), dated 13-5-1998.
(11) Under section 10(15)(iv)(i) of the Income-tax Act, interest payable by the Government on
deposits made by an employee of the Central Government or a State Government or a public
sector company out of his retirement benefits, in accordance with such scheme framed in this
behalf by the Central Government and notified in the Official Gazette is exempt from income-
tax. By Notification No. F.2/14/89-NS-II, dated 7-6-1989, as amended by Notification No.
F.2/14/89-NS-II, dated 12-10-1989, the Central Government has notified a scheme called
Deposit Scheme for Retiring Government Employees, 1989 for the purpose of the said clause.
(12) Any scholarship granted to meet the cost of education is not to be included in total income
as per clause (16) of section 10 of Income-tax Act.
(13) Clause (18) of section 10 provides for exemption of any income by way of pension received
by an individual who has been in the service of the Central Government or State Government
and has been awarded Param Vir Chakra or Maha Vir Chakra or Vir Chakra or such other
gallantry award as may be specifically notified by the Central Government or family pension
received by any member of the family of such individual. Family for this purpose shall have
the meaning assigned to it in section 10(5) of the Act. Such notification has been made vide
Notification Nos. S.O.1948(E), dated 24-11-2000 and 81(E), dated 29-1-2001, which are
enclosed as per Annexures VA & VB.
(14) Under section 17 of the Act, exemption from tax will also be available in respect of:
(a) the value of any medical treatment provided to an employee or any member of his family, in
any hospital maintained by the employer;
(b) any sum paid by the employer in respect of any expenditure actually incurred by the
employee on his medical treatment or of any member of his family:
(i) in any hospital maintained by the Government or any local authority or any other
hospital approved by the Government for the purposes of medical treatment of its
employees;
(ii) in respect of the prescribed diseases or ailments as provided in Rule 3A(2) of Income-
tax Rules, 1962, in any hospital approved by the Chief Commissioner having regard to
the prescribed guidelines as provided in Rule 3A(1) of Income-tax Rules, 1962 :
(c) premium paid by the employer in respect of medical insurance taken for his employees
(under any scheme approved by the Central Government or Insurance Regulatory and
Development Authority) or reimbursement of insurance premium to the employees who
take medical insurance for themselves or for their family members (under any scheme
approved by the Central Government or Insurance Regulatory and Development Authority);
(d) reimbursement, by the employer, of the amount spent by an employee in obtaining medical
treatment for himself or any member of his family from any doctor, not exceeding in the
aggregate Rs. 15,000 in an year.
(e) As regards medical treatment abroad, the actual expenditure on stay and treatment abroad of
the employee or any member of his family, or, on stay abroad of one attendant who
accompanies the patient, in connection with such treatment, will be excluded from
perquisites to the extent permitted by the Reserve Bank of India. It may be noted that the
expenditure incurred on travel abroad by the patient/attendant, shall be excluded from
perquisites only if the employees gross total income, as computed before including the said
expenditure, does not exceed Rs. 2 lakhs.
For the purpose of availing exemption on expenditure incurred on medical treatment, hospital
includes a dispensary or clinic or nursing home, and family in relation to an individual means
the spouse and children of the individual. Family also includes parents, brothers and sisters of the
individual if they are wholly or mainly dependent on the individual.
Deductions under section 16 of the Act
5.3 Entertainment Allowance - A deduction is also allowed under clause (ii) of section 16 in
respect of any allowance in the nature of an entertainment allowance specifically granted by an
employer to the assessee, who is in receipt of a salary from the Government, a sum equal to one-
fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand
rupees whichever is less. No deduction on account of entertainment allowance is available to
non-Government employees.
Tax on Employment:
The tax on employment (Professional Tax) within the meaning of clause (2) of Article 276 of the
Constitution of India, leviable by or under any law, shall also be allowed as a deduction in
computing the income under the head Salaries.
It may be clarified that Standard Deduction from gross salary income, which was being
allowed up to financial year 2004-05 is not allowable from financial year 2005-06 onwards.
5.4 Deductions under Chapter VI-A of the Act - In computing the taxable income of the
employee, the following deductions under Chapter VI-A of the Act are to be allowed from his
gross total income :
A. As per section 80C, an employee will be entitled to deductions for the whole of amounts paid
or deposited in the current financial year in the following schemes, subject to a limit of Rs.
1,00,000 :
(1) Payment of insurance premium to effect or to keep in force an insurance on the life of the
individual, the spouse or any child of the individual.
(2) Any payment made to effect or to keep in force a contract for a deferred annuity, not being an
annuity plan as is referred to in item (7) herein below on the life of the individual, the spouse or
any child of the individual, provided that such contract does not contain a provision for the
exercise by the insured of an option to receive a cash payment in lieu of the payment of the
annuity;
(3) Any sum deducted from the salary payable by, or, on behalf of the Government to any
individual, being a sum deducted in accordance with the conditions of his service for the purpose
of securing to him a deferred annuity or making provision for his spouse or children, insofar as
the sum deducted does not exceed 1/5th of the salary;
(4) Any contribution made :
(a) by an individual to any Provident Fund to which the Provident Fund Act, 1925 applies;
(b) to any provident fund set up by the Central Government, and notified by it in this behalf in
the Official Gazette, where such contribution is to an account standing in the name of an
individual, or spouse or children ;
[The Central Government has since notified Public Provident Fund vide Notification No.
S.O. 1559(E), dated 3-11-2005.]
(c) by an employee to a Recognized Provident Fund;
(d) by an employee to an approved superannuation fund;
It may be noted that contribution to any Fund shall not include any sums in repayment of
loan;
(5) Any subscription :
(a) to any such security of the Central Government or any such deposit scheme as the Central
Government may, by notification in the Official Gazette, specify in this behalf;
(b) to any such saving certificates as defined under section 2(c) of the Government Saving
Certificate Act, 1959 as the Government may, by notification in the Official Gazette, specify
in this behalf.
[The Central Government has since notified National Saving Certi-ficate (VIIIth Issue) vide
Notification No. S.O. 1560(E), dated 3-11-2005.]
(6) Any sum paid as contribution in the case of an individual, for himself, spouse or any child,
(a) for participation in the Unit Linked Insurance Plan, 1971 of the Unit Trust of India;
(b) for participation in any unit-linked insurance plan of the LIC Mutual Fund referred to in
clause (23D) of section 10 and as notified by the Central Government.
[The Central Government has since notified Unit Linked Insurance Plan (formerly known as
Dhanraksha, 1989) of LIC Mutual Fund vide Notification No. S.O. 1561(E), dated 3-11-2005.]
(7) Any subscription made to effect or keep in force a contract for such annuity plan of the Life
Insurance Corporation or any other insurer as the Central Government may, by notification in the
Official Gazette, specify;
[The Central Government has since notified New Jeevan Dhara, New Jeevan Dhara-I, New
Jeevan Akshay, New Jeevan Akshay-I and New Jeevan Akshay-II vide Notification No. S.O.
1562(E), dated 3-11-2005 and Jeevan Akshay-III vide Notification No. S.O. 847(E), dated 1-6-
2006]
(8) Any subscription made to any units of any Mutual Fund, referred to in clause (23D) of
section 10, or from the Administrator or the specified company referred to in Unit Trust of India
(Transfer of Undertaking & Repeal) Act, 2002 under any plan formulated in accordance with any
scheme as the Central Government, may, by notification in the Official Gazette, specify in this
behalf;
[The Central Government has since notified the Equity Linked Saving Scheme, 2005 for this
purpose vide Notification No. S.O. 1563(E), dated 3-11-2005]
The investments made after 1-4-2006 in plans formulated in accordance with Equity Linked
Saving Scheme, 1992 or
Equity Linked Saving Scheme, 1998 shall also qualify for deduction under section 80C.
(9) Any contribution made by an individual to any pension fund set up by any Mutual Fund
referred to in clause (23D) of section 10, or, by the Administrator or the specified company
referred to in Unit Trust of India (Transfer of Undertaking & Repeal) Act, 2002, as the Central
Government may, by notification in the Official Gazette, specify in this behalf;
[The Central Government has since notified UTI-Retirement Benefit Pension Fund vide
Notification No. S.O. 1564(E), dated 3-11-2005.]
(10) Any subscription made to any such deposit scheme of, or, any contribution made to any
such pension fund set up by, the National Housing Bank, as the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(11) Any subscription made to any such deposit scheme, as the Central Government may, by
notification in the Official Gazette, specify for the purpose of being floated by (a) public sector
companies engaged in providing long-term finance for construction or purchase of houses in
India for residential purposes, or, (b) any authority constituted in India by, or, under any law,
enacted either for the purpose of dealing with and satisfying the need for housing
accommodation or for the purpose of planning, development or improvement of cities, towns and
villages, or for both.
[The Central Government has since notified the Public Deposit Scheme of HUDCO vide
Notification No. S.O. 37(E), dated 11-1-2007, for the purposes of section 80C(2)(xvi)(a)].
(12) Any sums paid by an assessee for the purpose of purchase or construction of a residential
house property, the income from which is chargeable to tax under the head Income from house
property (or which would, if it has not been used for assessees own residence, have been
chargeable to tax under that head) where such payments are made towards or by way of any
instalment or part payment of the amount due under any self-financing or other scheme of any
Development Authority, Housing Board etc.
The deduction will also be allowable in respect of re-payment of loans borrowed by an assessee
from the Government, or any bank or Life Insurance Corporation, or National Housing Bank, or
certain other categories of institutions engaged in the business of providing long-term finance for
construction or purchase of houses in India. Any repayment of loan borrowed from the employer
will also be covered, if the employer happens to be a public company, or a public sector
company, or a university established by law, or a college affiliated to such university, or a local
authority, or a cooperative society, or an authority, or a board, or a corporation, or any other body
established under a Central or State Act.
The stamp duty, registration fee and other expenses incurred for the purpose of transfer shall also
be covered. Payment towards the cost of house property, however, will not include, admission
fee or cost of share or initial deposit or the cost of any addition or alteration to, or, renovation or
repair of the house property which is carried out after the issue of the completion certificate by
competent authority, or after the occupation of the house by the assessee or after it has been let
out. Payments towards any expenditure in respect of which the deduction is allowable under the
provisions of section 24 of the Income-tax Act will also not be included in payments towards the
cost of purchase or construction of a house property.
Where the house property in respect of which deduction has been allowed under these provisions
is transferred by the taxpayer at any time before the expiry of five years from the end of the
financial year in which possession of such property is obtained by him or he receives back, by
way of refund or otherwise, any sum specified in section 80C(2)(xviii), no deduction under these
provisions shall be allowed in respect of such sums paid in such previous year in which the
transfer is made and the aggregate amount of deductions of income so allowed in the earlier
years shall be added to the total income of the assessee of such previous year and shall be liable
to tax accordingly.
(13) Tuition fees, whether at the time of admission or thereafter, paid to any university, college,
school or other educational institution situated in India, for the purpose of full-time education of
any two children of the employee.
Full-time education includes any educational course offered by any university, college, school or
other educational institution to a student who is enrolled full-time for the said course. It is also
clarified that full-time education includes play-school activities, pre-nursery and nursery classes.
It is clarified that the amount allowable as tuition fees shall include any payment of fee to any
university, college, school or other educational institution in India except the amount
representing payment in the nature of development fees or donation or capitation fees or payment
of similar nature.
(14) Subscription to equity shares or debentures forming part of any eligible issue of capital
made by a public company, which is approved by the Board or by any public finance institution.
(15) Subscription to any units of any mutual fund referred to in clause (23D) of section 10 and
approved by the Board, if the amount of subscription to such units is subscribed only in eligible
issue of capital of any company.
(16) Investment as a term deposit for a fixed period of not less than five years with a scheduled
bank, which is in accordance with a scheme framed and notified by the Central Government, in
the Official Gazette for these purposes.
[The Central Government has since notified the Bank Term Deposit Scheme, 2006 for this
purpose vide Notification No. S.O. 1220(E), dated 28-7-2006]
(17) Subscription to such bonds issued by the National Bank for Agriculture and Rural
Development, as the Central Government may, by such notification in the Official Gazette,
specify in this behalf.
(18) Any investment in an account under the Senior Citizens Savings Scheme Rules, 2004.
(19) Any investment as five year time deposit in an account under the Post Office Time Deposit
Rules, 1981.
It may be clarified that the amount of premium or other payment made on an insurance policy
[other than a contract for deferred annuity mentioned in sub-para (2)] shall be eligible for
deduction only to the extent of 20 per cent of the actual capital sum assured. In calculating any
such actual capital sum, the following shall not be taken into account :
(i) the value of any premiums agreed to be returned, or
(ii) any benefit by way of bonus or otherwise over and above the sum actually assured which
may be received under the policy.
B. As per section 80CCC, where an assessee being an individual has in the previous year paid or
deposited any amount out of his income chargeable to tax to effect or keep in force a contract for
any annuity plan of Life Insurance Corporation of India or any other insurer for receiving
pension from the Fund referred to in clause (23AAB) of section 10, he shall, in accordance with,
and subject to the provisions of this section, be allowed a deduction in the computation of his
total income, of the whole of the amount paid or deposited (excluding interest or bonus accrued
or credited to the assessees account, if any) as does not exceed the amount of one lakh rupees in
the previous year.
Where any amount paid or deposited by the assessee has been taken into account for the
purposes of this section, a rebate/deduction with reference to such amount shall not be allowed
under section 88 up to assessment year 2005-06 and under section 80C from assessment year
2006-07 onwards.
C. As per the provisions of section 80CCD, where an assessee, being an individual employed by
the Central Government on or after the 1st day of January, 2004, has in the previous year paid or
deposited any amount in his account under a pension scheme as notified vide Notification No.
F.N. 5/7/2003-ECB & PR, dated 22-12-2003, he shall be allowed a deduction in the computation
of his total income, of the whole of the amount so paid or deposited as does not exceed ten per
cent of his salary in the previous year.
The benefit of new pension scheme has been extended to any other employees (also self-
employed person) with retrospective effect from 1-4-2009 and deduction is allowed to
employees up to 10 per cent of salary in the previous year and in other cases up to 10 per cent of
his gross total income in the previous year. Further it has been specified that with retrospective
effect from 1-4-2009 any amount received by the assessee from the new pension scheme shall be
deemed not to have received in the previous year if such amount is used for purchasing an
annuity plan in the previous year.
Where any amount standing to the credit of the assessee in his account under such pension
scheme, in respect of which a deduction has been allowed as per the provisions discussed above,
together with the amount accrued thereon, if any, is received by the assessee or his nominee, in
whole or in part, in any financial year,
(a) on account of closure or his opting out of such pension scheme; or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,
the whole of the amount referred to in clause (a) or clause (b) above shall be deemed to be the
income of the assessee or his nominee, as the case may be, in the financial year in which such
amount is received, and shall accordingly be charged to tax as income of that financial year.
For the purposes of deduction under section 80CCD, salary includes dearness allowance, if the
terms of employment so provide, but excludes all other allowances and perquisites.
The aggregate amount of deduction under sections 80C, 80CCC and 80CCD shall not exceed Rs.
1,00,000 (section 80CCE)
D. Section 80D provides for deduction available for health premia paid etc. In computing the
total income of an assessee, being an individual or a Hindu undivided family, there shall be
deducted such sum, as specified below payment of which is made by any mode, other than cash,
in the previous year out of his income chargeable to tax. Where the assessee is an individual, the
sum referred to shall be the aggregate of the following, namely :
(a) the whole of the amount paid to effect or to keep in force an insurance on the health of the
assessee or his family as does not exceed in the aggregate fifteen thousand rupees; and
(b) the whole of the amount paid to effect or to keep in force an insurance on the health of the
parent or parents of the assessee as does not exceed in the aggregate fifteen thousand
rupees.
Explanation.For the purposes of clause (a), family means the spouse and dependent children
of the assessee.
Where the assessee is a Hindu undivided family, the sum referred to shall be the whole of the
amount paid to effect or to keep in force an insurance on the health of any member of that Hindu
undivided family as does not exceed in the aggregate fifteen thousand rupees.
Where the sum specified above is paid to effect or keep in force an insurance on the health of any
person specified therein, and who is a senior citizen, the deduction available is twenty thousand
rupees rather than fifteen thousand as specified above.
Explanation.For the above senior citizen means an individual resident in India who is of the
age of sixty-five years or more at any time during the relevant previous year.
The insurance referred to above shall be in accordance with a scheme made in this behalf by
(a) the General Insurance Corporation of India formed under section 9 of the General Insurance
Business (Nationalisation) Act, 1972 (57 of 1972) and approved by the Central Government
in this behalf; or
(b) any other insurer and approved by the Insurance Regulatory and Development Authority
established under sub-section (1) of section 3 of the Insurance Regulatory and Development
Authority Act, 1999 (41 of 1999).
E. Under section 80DD, where an assessee, who is a resident in India, has, during the previous
year,
(a) incurred any expenditure for the medical treatment (including nursing), training and
rehabilitation of a dependant, being a person with disability; or
(b) paid or deposited any amount under a scheme framed in this behalf by the Life Insurance
Corporation or any other insurer or the Administrator or the specified company subject to
the conditions specified in this regard and approved by the Board in this behalf for the
maintenance of a dependant, being a person with disability,
the assessee shall be allowed a deduction of a sum of fifty thousand rupees from his gross total
income of that year.
However, where such dependant is a person with severe disability, an amount of seventy-five
thousand rupees shall be allowed as deduction subject to the specified conditions.
The deduction under clause (b) of sub-section (1) shall be allowed only if the following
conditions are fulfilled:
A. (i) the scheme referred to in clause (b) above provides for payment of annuity or lump sum
amount for the benefit of a dependant, being a person with disability, in the event of the death of
the individual in whose name subscription to the scheme has been made;
(ii) the assessee nominates either the dependant, being a person with disability, or any other
person or a trust to receive the payment on his behalf, for the benefit of the dependant, being a
person with disability.
However, if the dependant, being a person with disability, predeceases the assessee, an amount
equal to the amount paid or deposited under sub-para (b) above shall be deemed to be the income
of the assessee of the previous year in which such amount is received by the assessee and shall
accordingly be chargeable to tax as the income of that previous year.
B. The assessee, claiming a deduction under this section, shall furnish a copy of the certificate
issued by the medical authority in the prescribed form and manner, along with the return of
income under section 139, in respect of the assessment year for which the deduction is claimed :
In cases where the condition of disability requires reassessment of its extent after a period
stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any
subsequent period unless a new certificate is obtained from the medical authority in the
prescribed form and manner and a copy thereof is furnished along with the return of income.
For the purposes of section 80DD,
(a) Administrator means the Administrator as referred to in clause (a) of section 2 of the Unit
Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);
(b) dependant means
(i) in the case of an individual, the spouse, children, parents, brothers and sisters of the
individual or any of them;
(ii) in the case of a Hindu undivided family, a member of the Hindu undivided family,
dependant wholly or mainly on such individual or Hindu undivided family for his
support and maintenance, and who has not claimed any deduction under section 80U in
computing his total income for the assessment year relating to the previous year;
(c) disability shall have the meaning assigned to it in clause (i) of section 2 of the Persons
with Disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act,
1995 (1 of 1996) and includes autism, cerebral palsy and multiple disability referred
to in clauses (a), (c) and (h) of section 2 of the National Trust for Welfare of Persons with
Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of
1999);
(d) Life Insurance Corporation shall have the same meaning as in clause (iii) of sub-section
(8) of section 88;
(e) medical authority means the medical authority as referred to in clause (p) of section 2 of
the Persons with Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996) or such other medical authority as may, by notification,
be specified by the Central Government for certifying autism, cerebral palsy, multiple
disabilities, person with disability and severe disability referred to in clauses (a), (c),
(h), (j) and (o) of section 2 of the National Trust for Welfare of Persons with Autism,
Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of 1999);
(f) person with disability means a person as referred to in clause (t) of section 2 of the
Persons with Disabilities (Equal Opportunities, Protection of Rights and Full Participation)
Act, 1995 (1 of 1996) or clause (j) of section 2 of the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999 (44 of
1999);
(g) person with severe disability means
(i) a person with eighty per cent or more of one or more disabilities, as referred to in sub-
section (4) of section 56 of the Persons with Disabilities (Equal Opportunities,
Protection of Rights and Full Participation) Act, 1995 (1 of 1996); or
(ii) a person with severe disability referred to in clause (o) of section 2 of the National
Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and
Multiple Disabilities Act, 1999 (44 of 1999);
(h) specified company means a company as referred to in clause (h) of section 2 of the Unit
Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002).
F. Under section 80E of the Act a deduction will be allowed in respect of repayment of interest
on loan taken for higher education, subject to the following conditions:
(i) In computing the total income of an assessee, being an individual, there shall be deducted,
in accordance with and subject to the provisions of this section, any amount paid by him in
the previous year, out of his income chargeable to tax, by way of interest on loan, taken by
him from any financial institution or any approved charitable institution for the purpose of
pursuing his higher education or for the purpose of higher education of his spouse or
children.
(ii) The deduction specified above shall be allowed in computing the total income in respect of
the initial assessment year and seven assessment years immediately succeeding the initial
assessment year or until the interest referred to above is paid in full by the assessee,
whichever is earlier.
For this purpose
(a) approved charitable institution means an institution established for charitable purposes
and approved by the prescribed authority under clause (2C) of section 10, or, an institution
referred to in clause (a) of sub-section (2) of section 80G.
(b) financial institution means a banking company to which the Banking Regulation Act,
1949 (10 of 1949) applies (including any bank or banking institution referred to in section
51 of that Act); or any other financial institution which the Central Government may, by
notification in the Official Gazette, specify in this behalf;
(c) higher education means any course of study pursued after passing the Senior Secondary
Examination or its equivalent from any school, board or university recognised by the
Central Government or State Government or local authority or by any other authority
authorised by the Central Government or State Government or local authority to do so;
(d) initial assessment year means the assessment year relevant to the previous year, in which
the assessee starts paying the interest on the loan.
(e) relative, in relation to an individual, means the spouse and children of that individual or
the student for whom the individual is the legal guardian
G. Section 80G provides for deductions on account of donation made to various funds, charitable
organizations etc. Generally no deduction should be allowed by the D.D.O. from the salary
income in respect of any donations made for charitable purposes. The tax relief on such
donations as admissible under section 80G of the Act, will have to be claimed by the taxpayer in
the return of income. However in cases where employees make donations to the Prime Ministers
National Relief Fund, the Chief Ministers Relief Fund or the Lieutenant Governors Relief Fund
through their respective employers, it is not possible for such funds to issue separate certificate to
every such employee in respect of donations made to such funds as contributions made to these
funds are in the form of a consolidated cheque. An employee who makes donations towards these
funds is eligible to claim deduction under section 80G. It is, hereby, clarified that the claim in
respect of such donations as indicated above will be admissible under section 80G on the basis of
the certificate issued by the Drawing and Disbursing Officer (DDO)/Employer in this behalf -
Circular No. 2/2005, dated 12-1-2005.
H. Under section 80GG of the Act an assessee is entitled 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 assessee has not been in receipt of any House Rent Allowance specifically granted to
him which qualifies for exemption under section 10(13A) of the Act;
(b) the assessee files the declaration in Form No. 10BA. (Annexure-VI)
(c) He will be entitled to a deduction in respect of house rent paid by him in excess of 10 per
cent of his total income, subject to a ceiling of 25 per cent 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.
(d) The assessee does not own :
(i) any residential accommodation himself or by his spouse or minor child or where such
assessee 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 assessee, the value of which is to be determined under clause (a) of
sub-section (2) or, as the case may be, clause (a) of sub-section (4) of section 23:
The Drawing and Disbursing Authorities should satisfy themselves that all the conditions
mentioned above are satisfied before such deduction is allowed by them to the assessee. They
should also satisfy themselves in this regard by insisting on production of evidence of actual
payment of rent.
I. Under section 80U, in computing the total income of an individual, being a resident, who, at
any time during the previous year, is certified by the medical authority to be a person with
disability, there shall be allowed a deduction of a sum of fifty thousand rupees.
However, where such individual is a person with severe disability, a higher deduction of one lakh
rupees shall be allowable.
Every individual claiming a deduction under this section shall furnish a copy of the certificate
issued by the medical authority in the prescribed form and manner along with the return of
income, in respect of the assessment year for which the deduction is claimed.
In cases where the condition of disability requires reassessment of its extent after a period
stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any
subsequent period unless a new certificate is obtained from the medical authority in the
prescribed form and manner and a copy thereof is furnished along with the return of income.
For the purposes of this section, the expressions disability, medical authority, person with
disability and person with severe disability shall have the same meaning as given in section
80DD (sub-para E of para 5.4 of this Circular).
DDOs to satisfy themselves of the genuineness of claim:
(21) The Drawing and Disbursing Officers should satisfy themselves about the actual
deposits/subscriptions/payments made by the employees, by calling for such
particulars/information as they deem necessary before allowing the aforesaid deductions. In case
the DDO is not satisfied about the genuineness of the employees claim regarding any
deposit/subscription/payment made by the employee, he should not allow the same, and the
employee would be free to claim the deduction/rebate on such amount by filing his return of
income and furnishing the necessary proof etc., therewith, to the satisfaction of the Assessing
Officer.
6. Calculation of income-tax to be deducted:
6.1 Salary income for the purpose of section 192 shall be computed as follow:
(a) First compute the gross salary as mentioned in para 5.1 excluding all the incomes
mentioned in para 5.2;
(b) Allow deductions mentioned in para 5.3 from the figure arrived at (a) above;
(c) Allow deductions mentioned in para 5.4 from the figure arrived at (b) above ensuring that
aggregate of the deductions mentioned in para 5.4 does not exceed the figure of (b) and if it
exceeds, it should be restricted to that amount.
This will be the amount of income from salaries on which income-tax would be required to be
deducted. This income should be rounded off to the nearest multiple of ten rupees.
6.2 Income-tax on such income shall be calculated at the rates given in para 2 of this Circular
keeping in view the age and gender of the employee.
6.3 The amount of tax payable so arrived at shall be increased by educational cess as applicable
(2 per cent for primary and 1 per cent for secondary education) to arrive at the total tax payable.
6.4 The amount of tax as arrived at para 6.3 should be deducted every month in equal
instalments. Any excess or deficit arising out of any previous deduction can be adjusted by
increasing or decreasing the amount of subsequent deductions during the same financial year.
Subject :- Clarification regarding deduction of tax at source from payments of second instalment
of arrears to Government employees on account of implementation of Sixth Central Pay
Commissions recommendations matter regarding.
Under the provisions of section 192 of the Income-tax Act, an employer is required to deduct tax
at source from any payments in the nature of salary, which inter alia also includes any arrear
payments. The Implementation Cell of the Department of Expenditure, Government of India,
vide its Office Order dated 30th August 2008 had stated that 40 per cent of the aggregate arrear
(first instalment of arrears) would be payable during Financial Year 2008-09. In Circular No.
9/2008, dated 29th September, 2008 issued from this office it was stated that during 2008-09 the
tax has to be deducted at source on this 40 per cent of aggregate arrear during financial year
2008-09.The OM,F.No. 1/1/2008-IC, of the Implementation Cell of the Department of
Expenditure, Government of India, vide its order dated 25th August, 2009 has stated that the
remaining 60 per cent of the aggregate arrear (second instalment of arrears) would be paid to the
concerned Government servants during financial year 2009-10. Such arrangements could be
followed by State Governments also.
In this regard, all the DDOs and PAOs as the case may be, in the Central/State Government and
various organizations under them are advised to compute the correct tax liability of every
employee on second instalment of arrears drawn by him and immediately recover the full tax
liability along with education cess thereon at the rates in force. The deduction of tax at source on
such arrear payment should not be deferred in any circumstance. They should further ensure that
the tax so recovered is paid to the account of Central Government account immediately as per the
Income-tax Rules, 1962. The DDOs/PAOs are further advised that they should ensure that the
PAN details of the deductees (recipient of arrears) are correctly quoted in the relevant quarterly
e-TDS returns filed by them so that the Government Servants get proper credit of their tax
deducted in their respective income tax returns.
DDOs/PAOs who fail to comply with the provisions of section 192 of the Income-tax Act, 1961
would be liable to pay interest under section 201(1)/(1A) of Income-tax Act along with other
penal consequences.
7. Miscellaneous
7.1 These instructions are not exhaustive and are issued only with a view to helping the
employers to understand the various provisions relating to deduction of tax from salaries.
Wherever there is any doubt, reference may be made to the provisions of the Income-tax Act,
1961, the Income-tax Rules, 1962 and the Finance Act, 2009.
7.2 In case any assistance is required, the Assessing Officer/the local Public Relation Officer of
the Income-tax Department may be contacted.
7.3 These instructions may be brought to the notice of all Disbursing Officers and Undertakings
including those under the control of the Central/State Governments.
7.4 Copies of this Circular are available with the Director of Income-tax (Research, Statistics &
Publications and Public Relations), 6th Floor, Mayur Bhavan, Indira Chowk, New Delhi-110 001
and at the following websites:
www.finmin.nic.in
www.incometaxindia.gov.in
ANNEXURE I
EXAMPLE 1
For assessment year 2010-11
Calculation of income-tax in the case of a male employee having gross salary income of:
(i) Rs. 2,00,000,
(ii) Rs. 5,00,000, and
(iii) Rs. 10,00,000
Particulars (Rupees) (Rupees) (Rupees)
(i) (ii) (iii)
Gross Salary Income 2,00,000 5,00,000 10,00,000
(Including allowances)
Contribution to G.P.F. 20,000 50,000 1,00,000
Computation of total income and tax payable thereon
Gross Salary 2,00,000 5,00,000 10,00,000
Less: Deduction U/s 80C 20,000 50,000 1,00,000
Taxable income 1,80,000 4,50,000 9,00,000

Tax thereon 2,000 41,000 1,71,000
Add:
Education Cess @2% 40 820 3,420
Secondary and Higher
Education Cess @ 1% 20 410 1,710
Total tax payable 2,060 42,230 1,76,130
EXAMPLE 2
Calculation of income-tax in the case of a male employee having a handicapped dependent.
Particulars:
1. Gross Salary Rs.
3,20,000
2. Amount spent on treatment of a dependant, being person with disability( but not Rs. 7,000
severe disability)
3. Amount paid to LIC with regard to annuity for the maintenance of a dependant, Rs. 50,000
being person with disability (but not severe disability)
4. GPF Contribution Rs. 25,000
5. LIP Paid Rs. 10,000
Computation of Tax
Gross Salary Rs.
3,20,000
Less: Deduction U/s 80DD
(Restricted to Rs. 50,000 only) Rs.
50,000
Taxable Income Rs.
2,70,000
Less: Deduction u/s 80C:
GPF 25,000
LIP 10,000
Total 35,000 35,000
Total Income Rs.
2,35,000
Income-tax thereon/payable Rs.
7,500
Add:
Education Cess @2% 150
Total Income-tax payable Rs.
7,725
Rounded off to Rs.
7,730
EXAMPLE 3
Calculation of income-tax in the case of a male employee where medical treatment expenditure
was borne by the employer.
Particulars:
1. Gross Salary Rs.
3,00,000
2. Medical Reimbursement by employer on the treatment of self and dependent Rs. 30,000
family member
3. Contribution of GPF Rs. 20,000
4. LIC premium Rs. 20,000
5. Repayment of House Building Advance Rs. 25,000
6. Tuition fees for two children Rs. 60,000
7. Investment in Unit-Linked Insurance Plan Rs. 20,000
Computation of Tax
Gross Salary Rs.
3,00,000
Add: Perquisite in respect of reimbursement of Medical Expenses in excess of Rs. Rs.
15,000 in view of Section 17(2)(v) 15,000
Taxable Income Rs.
3,15,000
GPF 20,000
LIC 20,000
Repayment of HBA 25,000
Tuition Fees 60,000
Investment in
Unit-Linked
Insurance Plan 20,000
Total 1,45,000
Restricted to Rs. 1,00,000 Rs.
1,00,000
Total Income: Rs.
2,15,000
Tax Payable Rs.
5,500
Add:
Secondary and Higher 55
Education Cess @1%
5665
Rounded off to Rs.
5660
EXAMPLE 4
Illustrative calculation of House Rent Allowance U/s 10 (13A) in respect of residential
accommodation situated in Delhi in case of a female employee :
Particulars :
1. Salary Rs. 2,50,000
2. Dearness Allowance Rs. 1,00,000
3. House Rent Allowance Rs. 1,40,000
4. House rent paid Rs. 1,44,000
5. General Provident Fund Rs. 36,000
6. Life Insurance Premium Rs. 4,000
7. Subscription to Unit-Linked Insurance Plan Rs. 50,000
1. Salary + D.A. Rs.
3,50,000
House Rent Allowance Rs.
1,40,000
2. Total Salary income Rs.
4,90,000
3. Less: House Rent Allowance exempt U/s 10(13A): Least
of:
a. Actual amount of HRA received=1,40,000
b. Expenditure of rent in excess of 10%
of salary (including D.A. presuming that D.A.
is taken for retirement benefit)
(1,44,000-35,000) = 1,09,000
c. 50% of Salary(Basic + DA)= Rs. 1,75,000 Rs.
1,09,000
Gross Total Income: Rs.
3,81,000
GPF : 36,000
LIC : 4,000
Subscription to
Unit Linked
Insurance Plan : 50,000
Total : 90,000 Rs.
90,000
Total Income: Rs.
2,91,000
Tax payable on total income Rs.
10,100
Add:
Secondary and Higher Education Cess @1% 101
10,403
Rounded off to Rs.
10,400
EXAMPLE 5
Illustrating valuation of perquisite and calculation of tax in the case of a male employee of a
private company in Mumbai who was provided accommodation in a flat at concessional rate for
ten months and in a hotel for two months.
1. Salary: Rs.
7,00,000
2. Bonus: Rs.
1,40,000
3. Free gas, electricity, water etc. Rs.
40,000
(Actual bills paid by company)
4 (b) Hotel rent paid by employer (for two months) Rs.
1,00,000
4 (c) Rent recovered from employee: Rs.
60,000
4 (d) Cost of furniture Rs.
2,00,000
5. Subscription to Unit-Linked
Insurance Plan Rs.
50,000
6. Life Insurance Premium Rs.
10,000
7. Contribution to recognized P.F. Rs.
42,000
Computation of total income and tax paid thereon:
1. Salary Rs.
7,00,000
2. Bonus Rs.
1,40,000
Total Salary for Valuation of Rs.
8,40,000
Perquisite i.e.; Rs.70,000 per month
Valuation of perquisites
(a) Perq. for flat : Lower of (15% of salary for ten months=
Rs.1,05,000) and (actual rent paid=3,60,000) Rs.
1,05,000
(b) Perq. for hotel : Lower of (24% of salary of 2 mths=33,600) and (actual Rs.
payment=1,00,000) 33,600
(c) Perq. for furniture @ 10% of cost Rs.
20,000
Rs.
1,58,600
Less: Rent recovered from employee Rs.
60,000
Rs.
98,600
(d) Add perq. for free gas, elec., Rs.
water 40,000
Total perquisites Rs.
1,38,600
Gross Total Income Rs.
9,78,600
(8,40,000+1,38,600)
Provident Fund 42,000
LIC 10,000
Subscription to Unit 50,000
Linked Insurance Plan
Total Rs. Rs.
1,02,000 1,00,000
Total Income Rs.
8,78,600
Tax Payable Rs.
1,64,580
Add:
Surcharge Nil
Education Cess @2% 3,291.6
Education Cess @1% 1,645.8
1,69,517.4
Rounded off to Rs. 1,69,520
EXAMPLE 6
Illustrating Valuation of perquisite and calculation of tax in the case of a female employee of a
Private Company posted at Delhi and repaying House Building Loan.
Particulars:
1. Salary : Rs. 3,00,000
2. Dearness Allowance : Rs. 1,00,000
3. House Rent Allowance : Rs. 1,80,000
4. Special Duties Allowance : Rs. 12,000
5. Provident Fund : Rs. 60,000
6. LIP : Rs. 10,000
7. Deposit in NSC VIII Issue : Rs. 30,000
8. Rent Paid by the employee for house hired by her : Rs. 1,20,000
9. Repayment of House Building Loan (Principal) : Rs. 60,000
10. Tuition Fees for three children (Rs.10,000 per child) : Rs. 30,000
1. Gross salary : 5,92,000
(Basic+DA+HRA+SDA)
Less: House rent allowance exempt
U/s 10 (13A)
Least of:
a. Actual amount of HRA received 1,80,000
b. Expenditure on rent in excess
of 10% of salary (Including
D.A.) assuming D.A. is
including for retirement
benefits (1,20,000- 40,000) 80,000
c. 50% of salary (including D.A) 2,00,000 (-)
80,000
Gross Total Taxable Income 5,12,000
i. Provident Fund : 60,000
ii. LIP : 10,000
iii. NSC VIII Issue : 30,000
iv. Repayment of : 60,000
HBA
v. Tuition Fees
(Restricted to two : 20,000
children)
Total : 1,80,000
Restricted to 1,00,000
Total Income 4,12,000
Tax Payable 33,400
Add:
Secondary and Higher Education Cess @1% 334
34,068
Rounded off to Rs.
34,070
ANNEXURE II
Form No. 12BA : Statement showing particulars of perquisites, other fringe benefits or
amenities and profits in lieu of salary with value thereof - See [2002] 124 Taxman 64 (St.)
ANNEXURE III
Form No. 16AA : Certificate for tax deducted at source from income chargeable under the head
Salaries-cum-Return of income - See [2004] 134 Taxman 128 (St.)
ANNEXURE IV
Notification No. SO 974(E), dated 26-8-2003 - See [2003] 131 Taxman 34 (St.)
ANNEXURE IVA
Notification F.No. 5/7/2003-ECB & PR, dated 22-12-2003
The Government approved on 23rd August, 2003 the proposal to implement the budget
announcement of 2003-04 relating to introducing a new restructured defined contribution
pension system for new entrants to Central Government service, except to Armed Forces, in the
first stage, replacing the existing system of defined benefit pension system.
(i) The system would be mandatory for all new recruits to the Central Government service
from 1st of January, 2004 (except the armed forces in the first stage). The monthly
contribution would be 10 per cent of the salary and DA to be paid by the employee and
matched by the Central Government. However, there will be no contribution from the
Government in respect of individuals who are not Government employees. The contribution
and investment returns would be deposited in a non-withdrawable pension tier-I account.
The existing provisions of defined benefit pension and GPF would not be available to the
new recruits in the Central Government service.
(ii) In addition to the above pension account, each individual may also have a voluntary tier-II
withdrawable account at his option. This option is given as GPF will be withdrawn for new
recruits in Central Government service. Government will make no contribution into this
account. These assets would be managed through exactly the above procedures. However,
the employee would be free to withdraw part or all of the second tier of his money
anytime. This withdrawable account does not constitute pension investment, and would
attract no special tax treatment.
(iii) Individuals can normally exit at or after age 60 years for tier-I of the pension system. At the
exit the individual would be mandatorily required to invest 40 per cent of pension wealth to
purchase an annuity (from an IRDA-regulated life insurance company). In case of
Government employees the annuity should provide for pension for the lifetime of the
employee and his dependent parents and his spouse at the time of retirement. The individual
would receive a lump sum of the remaining pension wealth, which he would be free to
utilize in any manner. Individuals would have the flexibility to leave the pension system
prior to age 60. However, in this case, the mandatory annuitisation would be 80 per cent of
the pension wealth.
Architecture of the new Pension System
(iv) It will have a central record keeping and accounting (CRA) infrastructure, several pension
fund managers (PFMs) to offer three categories of schemes viz. option A, B and C.
(v) The participating entities (PFMs and CRA) would give out easily understood information
about past performance, so that the individual would be able to make informed choices
about which scheme to choose.
2. The effective date for operationalization of the new pension system shall be from 1st of
January, 2004.
ANNEXURE-VA
Notification No. S.O. 1048(E), dated 24-11-2000 - See [2000] 113 Taxman 52 (St.)
ANNEXURE-VB
Notification No. S.O. 81(E), dated 29-1-2001 - See [2001] 115 Taxman 183 (St.)
ANNEXURE-VI
Form No. 10BA : Declaration to be filed by the assessee claiming deduction under section
80GG - Income-tax (Nineteenth Amendment) Rules, 1998 - See [1998] 100 Taxman 110 (St.)

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Income Tax Liability

1 The legal position discussed is as applicable for financial year 2009-10

Person - Person includes * Individual * HUF * Company * Partnership Firm *

1-2 Previous Year and Assessment Year

1-3 Residential status

Income tax liability depends on residential status of a person.

1-4 Tax liability depending on residential status

Income can be broadly classified as Indian Income and Foreign Income.

1-5 Different heads of income

1-6 Broad mode of computation of Income

Less : Deduction under section 16, entertainment allowance and

Income from house property - Adjusted net annual value

Less : Deductions under section 24

Profits and gains of business or profession - Profit/loss as per P&L

10. Capital gains

Income from other sources

14. Less : Deductions under section 57

16. Total Income (3+6+9+12+15)

Less : Adjustment on account of set-off and carry forward of losses

18. Less : Deductions under sections 80C to 80U

Total income or net income liable to tax (16-17-18)

Income subject to special rate of tax (e.g. capital gains)

Balance income subject to normal rate (20+21 = 19)

Computation of tax liability

A1. Tax on net income at special rates

A2 Tax on income at normal rates

Less : Rebate under section 88E in respect of STT (available for AY

Add: Education cess and secondary and higher education cess

Less : Rebate under sections 86, 89, 90, 90A and 91

Net Tax payable (A1+A2-B+C+D-E)

Tax paid on self-assessment

Tax deducted or collected at source

Tax paid in advance

Balance Tax payable (F-G-H-I)

Up to Rs. 1,90,000 Nil

Rs. 1,90,000 Rs. 10% of (total income minus Rs.

Rs. 3,00,000 Rs. Rs. 11,000 + 20% of (total

Above Rs. 5,00,000 Rs. 51,000 + 30% of (total

Up to Rs. 1,80,000 Nil

Rs. 1,80,000 Rs. 10% of (total income minus Rs.

Rs. 3,00,000 Rs. Rs. 12,000 + 20% of (total

Rs. 5,00,000 Rs. Rs. 52,000 + 30% of (total

Above Rs. 10,00,000 Rs. 2,02,000 + 30% of (total

Up to Rs. 2,40,000 Nil

Rs 3,00,000 Rs 5,00,000 Rs 6,000 + 20% (total income minus Rs.

Above Rs. 5,00,000 Rs. 46,000 + 30% of (total income minus

Up to Rs. 2,25,000 Nil

Rs 3,00,000 Rs 5,00,000 Rs 7,500 + 20% (total income minus Rs.

Above Rs. 10,00,000 Rs. 1,97,500 + 30% of (total income

For any other individual, every HUF/AOP/BOI/artificial juridical person,

Up to Rs. 1,60,000 Nil

Above Rs. 5,00,000 Rs. 54,000 + 30% of (total income minus

For any other individual, every HUF/AOP/BOI/artificial juridical person,

Up to Rs. 1,50,000 Nil

Above Rs. 10,00,000 Rs. 2,05,000 + 30% of (total income minus

1. Surcharge There is no surcharge on income tax for AY 2010-11. For AY 2009-10,

Marginal relief Since there is no surcharge fo AY 2010-11, there is no question of

2-4 Company - The tax on income is as follows -

Dividend distribution tax is payable within 14 days from date of

The dividend will be tax free at the hands of assessees.

Income distributed to unit holders of open ended equity oriented funds or US 64 is

2-5 Minimum Alternate Tax

IT % EC and Total IT SC EC and Total

Domestic 15 0.3 15.45 15 1.5 0.495 16.995